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By Giff Johnson

MAJURO, Marshall Islands (Marianas Variety, Jan. 31) – After 14 years of relying on Mobil Oil Micronesia as its sole fuel supplier, the main utility company in the Marshall Islands has switched to a South Korean supplier.

The delivery of fuel by the SK Networks tanker Oram Glory in Majuro Monday confirmed the Marshalls Energy Company’s switch to a new supplier.

The tanker pumped 1.6 million gallons of diesel into the utility’s nearly empty tanks, which have a total holding capacity of six million gallons — but were down to their final 100,000 gallons as the last Mobil fuel shipment was in September.

Mobil Oil Micronesia is a subsidiary of Exxon Mobil.

The government-owned Marshalls Energy Company and SK Networks closed a deal for a one-year fuel supply contract in mid-January, with the help of a Bank of Guam loan and Marshall Islands government guarantee.

The break with Mobil follows accusations by the government’s Chief Secretary and Marshalls Energy Company board member Robert Muller that Mobil was price gouging in the Marshall Islands. Late last year, he asked U.S. Interior Department deputy assistant secretary David Cohen to investigate Mobil’s negotiating tactics — an investigation Mobil officials said they welcomed.

With Marshalls Energy Company’s switch to SK Networks, Mobil has lost its biggest customer in this western Pacific nation. Marshalls Energy Company is estimated to import upward of 14 million gallons annually at a current wholesale value of about US$28 million.

Mobil operates its own bulk fuel plant in Majuro, with storage for gas and jet fuel as well as diesel.

"Mobil Oil Micronesia, Inc. has been in the Marshall Islands for 40 years," said Cecile Suda, the company’s Guam-based manager of public and government relations, in response to Marshalls Energy Company’s move. "We welcome competition from other suppliers of petroleum products."

Suda cautioned that, "Long-term supply reliability is important to consider when shopping around for supply." Commenting on whether Marshalls Energy Company’s switch would impact Mobil’s other fuel sales operations in Majuro, Suda said, "Mobil is a business and we will adjust our risk in doing business to meet a return on our investment in the Marshall Islands."

The initial shipment of 1.6 million gallons received from SK Networks Monday will save Marshalls Energy Company about US$90,000 over the price that Mobil was asking Marshalls Energy Company to pay in a proposed new supply contract, Marshalls Energy Company general manager Billy Roberts said.

The deal with SK Networks is structured to provide Marshalls Energy Company with fuel shipments about every six weeks, depending on fuel sales to fishing vessels. Fuel sales generate revenue to subsidize electricity costs for consumers, government and businesses keeping prices well below the actual cost of producing power.

But the utility’s finely tuned fuel supply and fishing vessel sales operation fell apart in 2005 when new contract talks between Mobil and Marshalls Energy Company stalled over price disagreements, and, as a result, regular shipments of fuel from Mobil stopped. Marshalls Energy Company halted fuel sales to fishing boats to conserve fuel for power generation for about three months in the June-August period, and again from December 15 until the fuel delivery this week.

Marshalls Energy Company restarted sales to fishing vessels immediately following the SK Networks tanker delivery. Roberts said Marshalls Energy Company lost US$700,000 in revenue by not selling fuel to fishing boats since mid-December.

Currently, Marshalls Energy Company owes Mobil US$6.2 million for the last fuel shipment provided in September. "We’re working out a payment schedule with Mobil," he said.

Aside from a lower price, another benefit of the agreement for Marshalls Energy Company is that fuel shipments can be organized from South Korea on short notice, Roberts said.

While Mobil needed 60-day advance notice for a new shipment, SK can get fuel to Majuro in fewer than three weeks. "If we get a rush on sales, we don’t need a 60-day lead time like we did with our previous supplier," he said.

"It only took 17 days from the order to this week’s delivery."

Roberts said SK Networks operates one of the largest refineries in the world.

January 31, 2006

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