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FSM Chief Executive Conference in Chuuk

Weno, Chuuk, (Office of the FSM President): September 12, 2007 - The first meeting of the FSM Chief Executive Council during the Mori Administration has recently concluded in Chuuk during the first week of September, 2007, with reasonable success. The Council consists of the FSM President and the four FSM state governors. On its opening day, the Council was welcomed by Mayor of Weno, Florentino Robert, followed by opening remarks from President Mori, governors Simina (Chuuk), Anefal (Yap), Weilbacher (Kosrae) and Lt Governor Yakana (Pohnpei).

In his remarks, President Mori thanked the governors and lt. governor Yakana for making the time for the meeting. The President utilized the opportunity to ask the governors' and lt. governor's support on two issues pending before the FSM Congress: (1) the proposal to create a FSM petroleum corporation and (2) the President's own Reorganization Plan for the Executive Branch of the National Government.

The President specifically wants to discuss the proposed FSM Petroleum Corporation issue because one of the main purposes of the Conference was to ascertain the states' commitment to the corporation idea. The idea was first proposed as a directive by the FSM Economic Policy Implementation Council (EPIC) to the FSM National Government. Since taking office, the Mori Administration has faithfully tried to implement the EPIC mandate by creating a FSM Fuel Task Force to create the proposed FSM Petroleum Corporation.

But up to the time immediately before the Conference, two of the states were still not ready whether they want to be part of the FSM Petroleum Corporation or to join with other partners to form their own companies. In his opening remarks, President Mori said he hoped a consensus would emerge at the end of the two-day conference on whether the FSM would ultimately have the Petroleum Corporation.

At the end of the Conference, the Council adopted several resolutions, one of which expressed support for the Petroleum Micronesian Corporation idea and called on the FSM Congress to pass the pending legislation. Before adjournment of its Second Special Session also during the first week of September, 2007, the FSM Congress passed the bill on final reading and is now readied to be signed by President Mori.

Other resolutions adopted by the Chief Executive Council were (1) a resolution calling on the FSM Congress to support President Mori's Plan to Reorganize the Executive Branch of the National Government; (2) a resolution supporting the FSM Department of Transportation, Communications and Infrastructure to retain central project management function for the FSM Infrastructure Development Program; and (3) a resolution urging the FSM Congress' support for funding request for the FSM Tax Reform program.

An appendage to the success story of the FSM Chief Executive Council in Chuuk was perhaps the upbeat spirit of the participants and hosts themselves. The upbeat tone was set by Chuuk Governor's Simina's opening remarks where he welcomed the conferees to Chuuk and assured them that "despite Chuuk's unpaved roads and power outages, the people of Chuuk would give their warmest hospitality to make the governors feel at home and to assure the success of the Conference." The Chuuk State dinner reception for the governors underscored Governor Simina's assurance. There were all kinds of seafood on the menu that the Pohnpei Lt Governor could not help complimenting. There were clams, lobsters, coconut crabs, mangrove crabs---you name it, they got it!

Governor Simina also welcomed the FSM State Governors to Chuuk. He noted that this is the first CEC to hold in Chuuk. Governor Simina further stressed the importance of the CEC Agenda toward moving forward development efforts by the states and national Governments, in spite of differences of opinions and positions.

Governor Anefal of Yap State noted that the CEC is the first for Chuuk State and that it is timely for the nation to deliberate on the vital issues highlighted in the agenda.

Governor Weilbacher of Kosrae State agreed CEC is timely given the critical issues on the agenda. He noted that, although the agenda items are not new to his government, the CEC must do its best to come up with decisions that are good and in the best interest for the nation.

Fuel Task Force

Peter Christian, Chairman of the Fuel Task Force briefly updated the CEC on the Fuel Task Force progress. The main option under consideration by the FTF is purchasing of the Mobil current asset and creation of the Fuel Corporation. Funding is required for operation of the Corporation, either through own resources and/or other sources. China is interested in funding construction of new facilities in the four states. Chairman Christian informed the CEC that there is compelling reasons for nominate the Fuel Corporation Board.

Airport Improvement Plan

Fiber Optic Cable

Discussions on the fiber optic cable centralized on which options CEC would recommend; phase I option which involves Guam, Pohnpei and Marshall or to push for including linkages to the FSM states of chuuk, Kosrae and Yap in phase I. CEC resolved and mandated DOTCI and TELECOM to mobilize financial resources that will allow collection of all states in phase I of the FOC.

Come up with concrete plan for financing options/opportunities within 3 months to ensure connection of all FSM states is secured. DOTCI counter offered a proposal that CEC considered Chuuk and Kosrae connections to be included in the first phase. Chairman reiterated that DOTCI come up with all alternate options, including financing, implementation plan and operational requirements of foc connection.

Compact Five -Year Review

Secretary of Foreign Affairs, formulation of task force created by former Administrator. Task Force Secretary of Dept with OCM director as chairs. New Administration resconstued task force but retained same members, chair by VP. Provide some direction and guideline to

Basic considerations

Organizational framework (CMP Board) or DFA of other formulation including foreign

Timeline

Strategic issues

Other issues

Feelings from USA not enthusiastic re compact renew/review. USA position is that it has given FSM 150M over the years and is not interested to see FSM come back for more. How to carry out the review? JCN process or what?

Governor of Yap responded to DFA presentation "FSM instigated that 5-year review be part of process as to the uncertainties of the operational issues of the amended compact provisions. 5-year review is vital to FSM based on previous compact implementation experiences. Outcome of the review will provide basis for discussions on compact II implementation.

Lt.Governor Yakana -Pohnpei is keen on partnership on the 5-year review and that it is necessary. There is a degree of understanding on how the compact is to be implemented.

President Mori task force is constituted. Certain elements of report have to be highlight. Adequacy of funding needs to be highlight. Cost of fuel has to be highlighted. Report is important is important whether to US or us to know our progress. Fiber optic cable re outer island communication, health and education services have to be highlighted in the report.

Governor Simina section 104.2 - clarify who should review the compact, USA or FSM? Annual report submitted to US President (February) Fifth year review is required by US Congress to update them on progress of compact issues. Specific issues FSM identified are important to report and make recommendation on to US Congress. Outcome of the review would provide negotiating points to progress compact implementation efforts. Review must be done by end of 2008. What will be the name of the task force? Must be part of CEC resolution. Is there budget for review in FY 2008?

Governor Weilbacher reaffirmed Kosrae State's awareness of the review. Kosrae State is putting together its task force and is interested in addressing the constraints (problems), not necessarily money.

Governor Anefal queried if there would be a report produced by the Task Force?

Too bureaucratic asked PM to look into compistion and streamline it to ensure it meets deadline.

PM supports of EBRP is vital due to creation of a new office to with proposed tasks to implement such functions as the annual reporting and 5-year review.

Motion: Moved by Yap. Seconded by Kosrae. Consensus of CEC that support PM reorganization plan.

CEC mandated Task Force to initiate required

Tax Reform Update

DOF&A reported on the current FSM Tax Reform. Meetings with States of Yap and Kosrae on Tax reform were completed. Visit to Pohnpei and Chuuk will follow. The FSM Tax Reform Manager updated CEC on what has happened on Task Reform since last CEC meetings. Last CEC focused on ESE members on what tax reform is about. Update will cover what has transpired since last CEC. Interim Chair, Yakana held briefing with PM -which was positive. To accelerate implementation from 3 years to two years, and implementation plan has to be revised accordingly. Secretary DOFA/DEA/AG are members of technical team. Objectives of State IT raise awareness/educate members on Tax Reform. Issues raised:

Sequencing of implementation (VAT before NRT?)

Exceptions

Tax Rates

Another ESC meeting to formulate set of recommendations. Major constraint is ESC operation budget. Budget bills are pending before Congress' consideration.

Discussion

PM raised possibility of shortening period of implementation? It is possible but if implementation is rushed, some businesses may not be able to comply. Staff may not have the capacity to implement duties. Not just changes in national but in state legislation as well. Changes must be comprehensive, involving all stakeholders. Ideally all states must have same rates, provisions and so forth. Adjustment to activities must be made in order to raise much needed state revenue, especially those states under financial pressures.

Question was raised by Governor Simina re SIT legislation. CEC to urge Task Force to consider shortening implementation in response to stated revenue generation needs of affected states. If no changes are made, there is concerned that TR may not be taken seriously. Consensus is to try to shorten implementation timeframe by one year. If such change requires funding, budget appropriation bill for implementation team operation have to be transmitted to congress for funding consideration. DOFA stated there are bills pending before congress on the matter. Set up ESC, technical groups and implementation teams, legislations are issues that have to be progressed for the change to take place. Congress action on pending bills is critical to this process. CEC is further asked to designate their implementation teams and have them available to TRT.

Resolution: Support shortening of implementation period from 3 year to two years and further support pending bills before congress.

EU NRSE Project

Reaffirmed importance of fuel, especially renewable fuel in term of sustainability. Fuel cost is rising but also sea level is also rising. The issue of relocation of population from affected areas is important. Amount of fossil fuel is decreasing but the demand is rising.

The direction is toward new and renewable sources of energy. Funding for new and alternative sources of energy is available under GEF and FSM EU NRSE.11 Mil. 9^th EDF earmarked for NRSE for FSM. Energy efficiency program exit plan, energy audit and fossil fuel. Solar energy in Yap (2 sites). Signing 2008. Chuuk (2 islands-Satawan, Moch and Ulul). Solar lanterns. Pohnpei (3-Kapi, Nukuoro, Mwoakilloa). Kosrae (5 buildings) fuel consumption for main island. May 2008.

New Initiatives -10^th EDF

Generate capacity building and energy efficiency. NRSE institute to be established under 10^th EDF to support energy efficiency development and sustainability.

Thanked TC&I for presentation on NRSE and encouraged CEC to seriously look at alternate energy. CEC to provide ideas to guide programming of energy projects in FSM. Energy efficiency plan to be considered under a private-public partnership arrangement. Does FSM have an alternative energy plan? CEC endorsed adoption of FSM energy efficiency policy (plan). A general draft energy plan developed by SPREP existed but may need to be revisited to expand to include new and renewable energy sources.

General agenda for tomorrow

JEMCO

Fuel Supply

IDP infrastructure

Remaining Issues