Palau Public Utilities Corporation (PPUC) had asked the national government to pay the next two scheduled payments of the Koror-Airai Sanitation Project (KASP) due August 2022 and April 2023.

In the letter, PPUC said it could not make the payments at this time due to decisions made outside of its control that affected its ability to make payments on the KASP loan.

First, it said Palau Water and Sewer Corporation was operating at a loss when RPPL 9-4 merged it with PPUC.  Secondly, after the merger, while PPUC was working to reduce the losses, another law was passed that stopped PPUC from raising its rates from FY 2018 to FY 2020, which it said, caused “substantial increases in the net annual losses of both water and sewer operations and electrical power operations.

These losses, PPUC said, have been further aggravated by the impact of COVID-19, which substantially affected costs and revenue.

Although there have been government subsidies over the years, PPUC said the subsidies were enough to maintain operations but were “insufficient” to meet the KASP loan payments.

The KASP loan was initially made to the national government to improve the aging water and sewer treatment in both Koror and Airai.  The national government, in turn, loaned it to PPUC to improve the water and sewer.

PPUC further says that it can eventually “eliminate our losses” if it can charge rates that can help to fully recover operational costs and meet loan obligations.

Meanwhile, it says, “at least in the short term, we are going to need the ROP’s assistance with the loan repayments.”

The current FY 2022 Unified Budget and the proposed FY 2023 Unified Budget do not include funding for KASP loan repayment.  It may require a supplemental budget and a new source of funds to cover the July 22 payment. The proposed budget for FY 2023 will need to be revised to include the new expense.

PPUC pointed out in the letter that “any inability of PPUC to make payments on the loan would potentially rebound unfavorably on the ROP and its credit.”

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