See, I told you? *
Like a moving target in a theater of war, the bidding date for the 289-MW Tiwi and the 458.53-MW Makban geothermal power has been pushed back to an unspecified date next month, according to the state-run Power Sector Assets and Liabilities Management Corp. (PSALM).
The original sale schedule was June 4, but was moved to June 27. The geothermal complex was first put up for sale in December 2005.
The extended bidding schedule should allow for more time to address several concerns raised by the prospective bidders, particularly on the geothermal resources supply contract (GRSC), according to PSALM vice president for asset management and electricity trading Froilan Tampinco said.
PSALM said it has already received letters of interest from nine prospective bidders for the geothermal complex.
PSALM seemed confident of making the bidding exercise a success after it allocated more than 400 MW of power supply contracts to the sale of the Tiwi-Makban power facilities which will provide the new owner a ready market for the electricity that the power complex will produce.
However, the 400-MW power supply contract and the GRSC are two distinct items. The former is the electricity supply agreement between the power plant operator and the distributor, while the latter is the steam sales contract between the steam field management (in this case, Chevron's geothermal unit) and the power plant owner.
Following the pronouncement of PSALM, the power supply contract seemed to be now in order, and probably acceptable to the prospective investors, but contentious issues remain with the GRSC which may not be resolved with a few more weeks' extension of the bidding date.
The basic issues are:
* The GRSC is between PSALM and Chevron, but the most affected would be the successful buyer who has to abide by it despite not being a party to the crafting of the agreement.
* Certain provisions in the contract like the setting of the base price, pegging the steam price to coal prices and some penalty and bonus clauses may not work in favor of the investors.
* Rehabilitation of two of the generating units which is being passed on to the investors. This was supposed to have been done by then NPC (now PSALM) as part of the compromise agreement between it and Chevron.
Other issues unrelated to the GRSC and the power sales contract like the base price set by the government for the assets, land ownership, and even constitutional constraints to foreign entities like Chevron may derail the scheduled sale.
To make the sale successful, PSALM should step on the shoes on the potential investors.
Some moves it could consider include:
* The GRSC should be considered a transition contract in the absence of a negotiated contract between the winning bidder and the steam field manager and so as not to disrupt operations. The winning bidder should have the prerogative to enter into a new GRSC soon after it takes over the power plant operation while the steam field operator should concur in principle to it before the bidding.
* The issues raised by the potential bidders on the provisions should become the starting point in such negotiations.
* The winning investor should be at the very least partially compensated for the rehabilitation of two of the generating units. He should not be made to shoulder the original responsibility of PSALM.
* PSALM might consider, without violating any government auditing rules, lowering the base price of the assets or scrapping it altogether, letting the market decide the fair value of the assets.
As it is, the investors would have to grapple with basic business decisions like whether the enterprise is reasonable profitable to them given the constraints like the existing GRSC, power sales contract assignment, the wholesale electricity spot market, the unresolved interim open access, country risk, among others.
If we are interested for them to come, let us not erect unreasonable barriers towards fulfillment of the EPIRA mandate of privatization and the liberalization of the electricity market.
The issues surrounding the Tiwi-Makban sale will again surface during the forthcoming sale of other geothermal assets like Palinpinon, Tongonan I, and Bac-man. The Palinpinon sale was earlier waylaid by such issues.**
The sooner PSALM relents on these issues the better.
Otherwise, PSALM's target of selling 70% of the generating assets within the year is but a pipe dream.
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* See previous post "Tiwi-Makban sale also pushed back", on May 20, 2008.
** See previous post "Palinpinon power plant sale hangs", May 12, 2008.
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