MAJURO : The tiny western Pacific island nation of the Marshall Islands has declared a state of economic emergency as soaring fuel prices threaten to shut down electricity supplies.

Failure to resolve the fuel crisis could lead to a "disaster of unimaginable magnitude," President Litokwa Tomeing said in a statement late Thursday.

"Accordingly, I Litokwa Tomeing, on behalf of the cabinet of the Republic of the Marshall Islands, hereby issue this public proclamation declaring a state of economic emergency," he said in the statement, which was broadcast nationally.

"The national power utilities are projected to face an estimated shortfall of US$17.5 million to US$21 million over the next 12 months assuming the global (fuel price) trend continues," he said.

This shortfall is close to 20 per cent of the total national budget.

Tomeing said the country has enough diesel to keep the power generators running until the end of August but needs to find US$8.5 million in the next week to pay Seoul-based SK Networks for last month's diesel shipment and a down payment for the next shipment.

The Marshalls Energy Company told the government last week that it cannot raise the money in time without an immediate cash injection.

The cabinet has decided to seek financial help from the United States, Taiwan, Japan, Australia and other countries and donor agencies to prevent a shut down of power in the country of about 54,000 people.

"Without electricity everything will come to a standstill," Finance Minister Jack Ading told visiting Asian Development Bank officials this week.

"The adverse effects of this global fuel crisis, its intensity and severity, are even more acute and destabilising on small island states like the Marshall Islands with practically no means to protect itself from external pressures and shocks," he said.

The cost of running diesel-powered generators in the two main urban centres and three outer islands is estimated at US$2.8 million a month.

Although power charges have nearly quadrupled in the last two years, utility companies generate only about US$1.3 million a month, according to figures provided by the Marshalls Energy Company, the main utility firm.

Red-hot world oil prices blazed over a record US$146 a barrel Thursday in the face of falling US oil reserves, geopolitical tensions and a weak dollar, traders said.

- AFP/yb