BY BERNADETTE H. CARREON
Palau Correspondent

KOROR, Palau — Palau’s Public Utilities Corp. finances will be “in danger” after April 2020, according to its chairman and acting CEO, who said that despite austerity measures in place the agency will suffer a net loss of more than $3 million
this year.

According to a Jan. 21 letter to Senate President Hokkons Baules, PPUC Chairman and Acting CEO Greg Decherong said that without a subsidy or increase of power rates, PPUC will go broke by April 2020.

“Despite the best efforts to balance its budget for this coming year by drastic budget cuts through austerity measures across the whole corporation and postponing most if not all, of capital acquisitions and infrastructure projects, our budget calculation puts PPUC in an estimated net loss of $3.9 million this coming year,” Decherong said in the letter.

PPUC said it will need help to keep the agency going, or it will go broke within two months. 

Last year, the OEK or Palau Congress prohibited the PPUC from increasing its fuel rate costs to avoid burdening consumers.

PPUC said the inability to increase rates is affecting its financial capabilities.

It said a continued net loss will need to result in reduction of expenses,  and will result in more power interruptions because of “under maintenance “ of power generation, transmission and distribution lines.

“But when worse comes to worse, we might lay off people just to cut down our fixed expenses of paying salaries,” the letter also said.

In a press conference Feb. 5, President Tommy E. Remengesau Jr. said both Congress and his branch of government would look into ways to assist PPUC.

PPUC will need at least $4 million to $5 million to cover its projected losses.

According to an economic review last year by the USA Graduate School when water and sewer operations merged with PPUC, while under government control, expenses were in excess of revenues.

  It stated that fiscal 2014 PPUC data showed that the cost of operation remain significantly above revenues. Subsidies of $1.7 million, $3.4 million and $2.3 million were received by PPUC in fiscal 2014, fiscal 2015 and fiscal 2016, respectively.

There were no subsidies in fiscal 2017 but revenue was still inadequate to cover the cost of operations, and an income loss was recorded in each year.  The report said in order for PPUC to get out of net loss, doubling of rates is needed.

It added that while the financial performance of PPUC has improved through the years, it is still operating in losses.

“The weak financial performance of the PPUC is attributed to a variety of interrelated factors. Most important, the utility has not been allowed to operate at full cost recovery. Political considerations have resulted in the establishment of a suboptimal tariff structure, which has constrained setting aside a reserve for plant replacement. This, in turn, has led to increased costs for more frequent maintenance,” the USA Graduate School report said. mbj