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February 20, 2006 Dear Committee Members, The bill before you can change the lives of each and every person living in the Commonwealth. It seeks to give back to the people what has been denied them by an indifferent board of directors at the Marianas Public Lands Authority - the opportunity to participate in the determination of the future of Pagan, the Northern Marianas' fourth largest island. HB 15-56 will bring together all the stakeholders in the future of Pagan, in order that they may collectively decide how to manage a gift from God in the form of 200 million metric tons of pozzolan worth hundreds of millions of dollars - a gift that lies atop another gift - the beautiful, pristine and healthy island of Pagan. HB 15-56 came about through the collective efforts of hundreds of people. These are people living in the CNMI and abroad, they are lawmakers and ordinary citizens, they are indigenous Chamorros and Carolinans. All these people realized that Pagan is special, and that the mining opportunity brings with it a grave responsibility to ensure that any mining is done carefully and that the environment and people of Pagan are protected, so that the economic benefits to the CNMI justify the risk.The correctness of HB 15-56 speaks for itself. It does not ask for special favors or benefits for a particular group. It will not incur any significant expense. It simply asks the government of the people to let existing government agencies and community representatives have the time to address the mining opportunity properly. It is a common-sense proposition. Through HB 15-56, the community will be united in welcoming bids from qualified investors and developers. It will clear a path through the jungle of government red tape and regulatory and permitting agencies for the successful bidder. This is why this bill is so important for both the community and the investor. It is a win-win bill. HB 15-56 is so obviously the right thing to do that there should be no hesitation by lawmakers to vote it into law. But there are a few individuals that have been intensely lobbying against the passage of HB 15-56. They are some board members and management of MPLA, and representatives of the companies JG Sablan Rock Quarry and Bridgecreek International. In order to understand the legitimacy, or illegitimacy, of the claims of lobbyists opposed to HB 15-56, it is important to understand the current situation with regards to Pagan mining permit issuance by MPLA. There are no known valid permits to mine on Pagan. There is, however, a claim by JG Sablan Rock Quarry, Inc. that a permit issued to them in 1995 (file No. 95-2275, dated September 8, 1995) is valid and usable, and based on this claim alone, the company has entered into a business arrangement with Bridgecreek International, Inc., a real estate development firm from Los Angeles, California, to jointly mine Pagan for pozzolan. Under the terms of the 1995 permit, JG Sablan would be allowed to remove pozzolan from Pagan and pay a royalty of just $2.50 per metric ton. Not under the terms of the permit, but by the opinion of JG Sablan and Bridgcreek alone, they would be also be allowed to conduct a large scale open pit mining operation on Pagan without first providing Coastal Resources Management (CRM) with an operation plan and without the benefit of an Environmental Impact Study. They believe that they have already received clearance for the mining operation from CRM many years ago and therefore no further clearances would be necessary even though, by their own admission, the scale of the intended mining operation bears little resemblance to the original mining operation plan or any mining operation conducted by JG Sablan in the past. In other words, while they provide verbal assurances that they will protect the fragile environment of Pagan, they believe that the 1995 permit gives them the legal right to move forward with large scale mining as they see fit and unhindered by local regulatory agencies. JG Sablan's claim that their 1995 permit is valid and legitimate is false. What is true, is JG Sablan has enjoyed a special relationship with some MPLA board members that resulted in the failure of the agency to take swift and appropriate action in response to multiple and severe breaches of the terms of the permit by JG Sablan. Although MPLA refuses to clarify the status of the JG Sablan permit, MPLA documents obtained by PaganWatch via the Open Government Act show that it was indeed terminated (see the attached press release by PaganWatch attorney F. Matthew Smith for details). If, in spite of all the documented evidence provided by MPLA itself, as well as their assurances to PaganWatch that no action would be taken on any JG Sablan permit without a public hearing, if indeed MPLA has reinstated the permit, then their reinstating actions were highly improper and most likely illegal. To ascertain exactly what has transpired at MPLA in relation to the permit, and in the face of total secrecy by MPLA, PaganWatch has again invoked the Open Government Act to obtain all documents and records pertaining to the permit subsequent to the last documents provided. Unfortunately we were not able to obtain the documents before the time of this writing. MPLA Board Member Nick Nekai and JG Sablan both claim that the task force formed by HB 15-56 would only apply to the pozzolan deposit area on Pagan that is not included in the JG Sablan permit. They thereby perpetuate the false impression that the remaining deposit area is available for a new permittee. In fact, it is not logistically feasible for a second group to operate a large scale mining operation. Pagan is a tiny island. A mining operation is a major undertaking that requires the use of significant manpower and heavy equipment as well as roads, storage facilities, anchorage for ships, and all the supporting infrastructure such as offices, housing, provisioning, waste management, etc., that such an undertaking would require. Pagan is too small to support this duplicity and any potential mining investor will recognize that there is virtually no chance that the needed permits for a second major siting in the area could ever be obtained. Therefore, it must be understood that the Pagan mining opportunity, for all practical intents and purposes, is a single opportunity for a single operator. In addition to the obvious physical barriers to two operators on Pagan, no potential investor/operator will welcome the idea of marketing a Pagan pozzolan product in competition with another company that is selling the exact same product since, baring possible anti-trust activities, the situation would certainly lead to lower sales prices for the product for both companies. To fully appreciate the danger that a JG Sablan mining operation on Pagan presents to the economic well-being of the community it is neccessary to know the company's history in regards to its dealings with Public Lands. According to the Division of Public Lands Audit of Collection of Rentals on Land Leases with Quarries For Six Lease Years from 1990 to 1995, conducted by the Office of the Public Auditor, in 1995 JG Sablan was in arrears on fees, rentals, royalties and interest on various mining and quarry permits by over $2.75 million. Only a very small percentage of these uncollected revenues was subsequently recovered. The reason cited; lack of action and enforcement by MPLA. More importantly, the terms of the 1995 permit are an even greater financial disaster for the CNMI in the making. By allowing JG Sablan to remove pozzolan at a fixed royalty of $2.50 per metric ton, MPLA has guaranteed the loss of many millions in potential revenue to the CNMI. In fact, fly ash, a low quality form of pozzolan that is an industrial by-product and a major source of pozzolan worldwide, sells for at least $35 per ton. In recent years there has been such a shortage of pozzolan that, according to the CEO of Western Pozzolan in Nevada, fly-ash was being sold to concrete producers by lottery. Projections of a world-wide increase in concrete use indicate even greater demand and higher prices ahead. In this situation of rising demand, the fixed royalty rate of the 1995 permit is completely inappropriate. Consider the following scenarios: Assuming a cost of production of $20 per ton, and 1 million tons of pozzolan sold:
That's for 1 million tons. It is estimated that there are over 200 million tons of pozzolan on Pagan! The potential loss of revenue is staggering. As legislators and lawmakers, there is no doubt that your actions and intentions aim to protect the interests of the community and to create a legal and business-friendly environment that will allow the community to thrive. You will therefore be pleased to know that no matter what has transpired between JG Sablan and MPLA insiders regarding the validity of the 1995 permit, you are under no obligation to go along with their plans to deprive the community of it's valuable pozzolan assets. Included in the terms of the permit, is the following clause under Article 3, TERM OF PERMIT: "The Government may terminate this permit in the event that it finds that the Permittee is not in compliance with the articles set forth in this permit or, in any event, if it finds the permit not to be in the best interest of the people of the Commonwealth." Clearly the terms of the 1995 permit and the circumstances surrounding it justify its immediate termination under Article 3. Therefore, the permit should not be a concern and should not be allowed to impede the swift passage of HB 15-56. In regards to JG Sablan's new partner, it should surprise no one that Bridgecreek wants to avoid competitive bidding on the mining project. We cannot expect them to welcome competition. But it would be foolish to allow the buyer dictate the terms when we are selling one of our most valuable resources. The company is applying pressure; offering to donate money to our schools if we "act quickly" and then hinting at complete withdrawal if things don't go their way NOW. This is classic deal closing strategy that reveals their belief that our leaders are unsophisticated and inexperienced negotiators. Giving the pozzolan away to a company for pennies on the dollar in the hopes of receiving a small portion back in the form of so-called "donations" is a ridiculous proposition. It is less about Bridgecreek helping schools than about their buying the support of parents and educators. The community is far better served when revenues make it to government coffers where the Legislature decides where they should be used, whether it be for schools, medical services, or other urgent and competing needs of the community. The public is counting on you to act swiftly to protect its interests. They are also counting on you to maintain the integrity of their government by correcting the inappropriate actions of MPLA insiders who have abused their positions of public trust to benefit themselves and their friends. We respectfully ask you to do everything in your power to ensure that HB 15-66 passes through both houses quickly and that this important legislation be implemented as soon as possible. Respectfully, Peter J. Pangelinan Perez 2 Enclosures: Public Lands file No. 95-2275 - 1995 JG Sablan mining permit
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