BY GIFF JOHNSON
Marshall Islands Correspondent

Chong-Gum

MAJURO, Marshall Islands — The Marshalls Energy Co. — the power utility for the capital, Majuro — is teetering on the brink of bankruptcy, according to a new Marshall Islands economic report issued in mid-November.

The impact of surging oil prices has resulted in a rapid increase in MEC costs in 2022. But the costs have not been passed onto consumers in the form of a tariff increase.

MEC’s monthly cost to buy diesel to fuel Majuro and Ebeye power plants doubled since the Russia invaded Ukraine earlier this year, MEC CEO Jack Chong-Gum said in an interview. “Last year, we were paying $2 million to $2.5 million each month for diesel,” Chong-Gum said. “Since the Ukraine war, it’s been over $5 million per month.”

Because government leaders have not wanted MEC to raise the electricity rates to mitigate the massive increase in cost, MEC has had to dig into its cash reserves to cover the sky-high costs of fuel. Chong-Gum said that if nothing is done soon to solve this situation, MEC will exhaust its cash reserves and won’t be able to pay for its monthly fuel supply.

MEC recorded a doubling of fuel costs in September and was running a large deficit with projected exhaustion of reserves by year end without either an increase in tariffs or government subsidies to buy fuel, the report said.

The Marshall Islands Energy Co. has a power plant in Delap in Majuro.
Photo by Tyler Milne

“Depending on government policy and whether to subsidize or pass on the cost to the consumer, MEC would require a subsidy of $8 million or electricity tariffs would need to rise by 40 percent” to allow MEC to continue buying fuel to keep power operating uninterrupted in Majuro and Ebeye, the report said. “This would suggest that inflation may be set to rise significantly in the coming months.”

“If nothing is done, and the tariff doesn’t go up or MEC doesn’t receive any support to stabilize its cash flow, we will have a big cash deficit by December,” Chong-Gum said.

The meaning of this is that without intervention, MEC may not be able to pay for fuel needed to keep the lights on in Majuro and Ebeye by the end of December.   

Chong-Gum said he wanted the public to be aware of the increasingly dire financial situation facing MEC. The high cost of diesel has used up MEC’s cash reserves quickly, he said. He noted that to date, none of the tens of millions of dollars in COVID aid the government received from donor nations has gone to the energy sector. “We’re trying to avoid a power plant shut down,” he said. “We’ve briefed everyone about the situation.”

Meanwhile, although MEC needs a cash bailout to keep buying fuel, the Marshall Islands government is facing mounting deficits, according to the Marshall Islands Economic Brief issued by the Graduate School USA last month.

The current fiscal year is the fifth year in a row that the government has seen its deficit grow. “Since its appearance in FY2019, the RMI’s structural fiscal deficit has been disguised by the inflow of donor grants during the COVID-19 pandemic,” noted the report. But with COVID money now dwindling, the deficit may become more of an issue for the RMI.

The projected deficit for the fiscal year just completed, fiscal 2022, is $7.3 million and for fiscal 2023, the current year, is $8.6 million, according to the report. 

“The RMI should take steps to address an emerging structural fiscal deficit,” the Graduate School USA report said. mbj