1) Japan provided 200 million yen (approximately $1.95 million) in grant aid to the Federated States of Micronesia (FSM) to purchase diesel fuel to mitigate economic difficulties. 2) The FSM Petroleum Corporation will coordinate the purchase and distribution of diesel using the grant funds based on initiatives to reduce liabilities, establish reserves, minimize price volatility, and provide relief to electricity utilities. 3) As of October 2010, all grant funds have been used to purchase over $1.89 million of diesel fuel, with the remainder to be deposited in a counterpart account and jointly decided upon by the FSM and Japan for future usage.

1. Japan non-project grant aid

3. Japan to provide 200MYen (1,953k$) Grant to FSM

4. FSM to purchase products to mitigate its economic difficulties

5. Procurement agent to be employed by FSM for product procurement

6. Transaction of the fund usage should be reported to Japan

7. FSM to establish “Counterpart Account (C/A)” separately

8. All proceeds from sales of products should be deposited

9. Total deposit amount ≥ Half of 200MYen

10. Deposit should be made within 3 years

11. Usage of C/A fund should be consulted among both countries

13. Petroleum Corporation (FSMPC) to coordinate all processes as executing agent

14. FSM decided to purchase “Diesel” to mitigate difficulties of energy sector

16. Progress status (as of OCT. 14, 2010) All JNPGA fund already drawn at August end, 2010 Agent fee: 58.4 (k$) Diesel (CIF): 1,894.8 Total: 1,953.3 (= 200MYen) Interest saving benefit for FSMPC 1,894.8 x 7.5%p.a. x 1/12 = 11.8 k$/mo. Usage of diesel stock (FOB: 1,444.6k$) Deposit to Counterpart Account (C/A): 722.3 - 1,444.6* Remainder to be handled by States: 722.3 - 0.0 total: 1,444.6 - 1,444.6* Next step action FSM to establish C/A at Bank FSM to develop Depositing plan through Jan. 2012 FSM to decide C/A fund utilization Need to consider “equal benefit” Fund utilization to be discussed with Japan (* FSMPC’s handling fee to be deducted)