‘No money yet to pay $5.46M to MRC’

The Babauta administration said the government has no money to pay for the over $5.46 million it now owes to marina builder Marine Revitalization Corp., unless the Legislature identifies budgetary resources and earmarks them for payment in anticipation of a court judgment that would enforce the award.

Lt. Gov. Diego T. Benavente said the absence of an appropriation for the payment might sink the government further into debt if it fails to pay the award due to interests. He said that, had the Legislature acted on the administration’s proposal for a settlement with MRC for some $2.2 million, the government could have saved millions of dollars.

Benavente released the statement after MRC recently filed with the Superior Court a lawsuit that asked for the enforcement of over $5.46 million awarded to the non-profit company in an arbitration proceeding. The lawsuit asserted that the arbitration award is final and binding on the parties, based on an agreement between the MRC and the government.

“This ruling [arbitration] is a huge disappointment and never should have come to this point,” Benavente said. “Over two years ago, this administration presented to the 13th Legislature a settlement agreement that would have ended the legal dispute between the Commonwealth and MRC. At that time, some members of the legislature and the media began referring to the settlement as a ‘bailout’.”

Since then, Benavente has supported a settlement with MRC, dismissing criticism that the move was a bailout of the company from its financial woes. Benavente had noted that MRC had already built the Outer Cove Marina.

“The government reached a settlement agreement with MRC that would have saved us millions of dollars. Now, that agreement has gone by the wayside,” he said. “How do we expect to come up with nearly $6 million when they know there is no excess money in the budget?”

The lieutenant governor assailed the Legislature for failing to act on an appropriation for the settlement, calling it as a “reckless act” that might further hurt taxpayer’s pockets. He said the inaction happened despite an explanation from the Attorney General’s Office on the likelihood that the government would lose to MRC in an independent arbitration.

No appropriation has been made for payment to MRC to date, as the Babauta administration pushes for increased budgetary resources for fiscal year 2005. The administration had wanted a $226-million budget, some $13 million of which were contingent on the passage of the Integrated Fiscal Plan that is contingent on increases in some government fees and taxes.

The House only initially approved some $212.7 million for FY05. The Senate then amended the appropriation measure and raised the funding level to $217.7 million, taking into consideration some $5.1 million in new revenue projections identified by the administration. The budget measure is now before Gov. Juan N. Babauta’s desk for his approval or rejection.

“If the Legislature does not immediately appropriate the money once the court formally enters the judgment, an interest rate of 9-percent a year will cause further debt to the Commonwealth. I am truly saddened it has come to this,” Benavente said.

In the lawsuit, MRC and its founder, businessman Anthony Pellegrino, asked the court to confirm the arbitration award, impleading the Department of Land and Natural Resources as defendant.

Earlier this month, arbitrators issued an order that assessed over $5.46 million against the CNMI government, in connection with the latter’s long-standing dispute with MRC.

The award totaled $5,468,818. The amounts are payable to Pellegrino, $3,377,513; Saipan Ice & Water, $1,083,400; Show Boat, Inc., $$3,877; Saipan Sea ventures, $508,483; Pelly Boat Charter, $40,016; Pelly Enterprise, $46110; and Mobil Oil, $409,408.

The order also awarded attorney’s fees and expenses in the amount of $255,879.89 to the law firm of O’Connor Berman Dotts & Banes. It also set fees and expenses to arbitration officers Edward Manibusan, David Mair, and Robert A. Hefner in the amounts of $3,049, $2,250, and $11,992.10, respectively.

Pellegrino established MRC to build the Outer Cove Marina in the mid-90s, with the end objective of turning it over to the government. Arbitrators concluded that the marina project was a viable venture at that time because Saipan has limited mooring space at the Smiling Cove.

MRC then proposed the construction of the Outer Cove Marina, leasing submerged land that was memorialized in an agreement dated Aug. 24, 1995. A provision of the agreement bound the DLNR secretary to establish a policy to bar owners of commercial passengers and fishing boats from renting slips at Smiling Cove.

The provision wanted to divert commercial vessels to the Outer Cove Marina to ensure the viability of the project. MRC then proceeded to build the marina, which was opened in 1998.

However, a dispute between MRC and the government arose in 2001 after the latter not only failed to bar commercial vessels from renting slip space at Smiling Cove, but also actively solicited commercial lessees.

MRC’s position resulted in Pellegrino’s difficulty to pay off loans that were incurred in constructing the marina project, prompting it to seek rescission of the lease agreement.

After its suspension in 2002, arbitration proceeding resumed last Nov. 30. The arbitrators found the government breaching the intent of its partnership with MRC in connection with the marina construction project.

The arbitration order based the award to MRC by ascertaining the cost of constructing the marina, including interests on loans obtained by Pellegrino, which were audited by the CNMI public auditor.