By J R Ruaya
For the nth time, the Power Sector Assets and Liabilities Management Corp. (PSALM) has again moved back the sale of the Palinpinon geothermal power plant complex to November this year from the scheduled bidding this August.
PSALM president Jose Ibazeta said the postponement was necessary to give concerned parties more time to iron out issues concerning the geothermal resources sales contract (GRSC). This was primarily a rehash of the same reason given by PSALM for the previous postponements.
The issues surrounding the GRSC for Palinpinon have already been laid out in a previous item here, and the discussion has been amplified in another piece on the aborted Tiwi-Makban sale which also involves similar issues.
Ibazeta said that the Joint Congressional Power Commission (JCPC), which is tasked to approve the sale of the government power assets as stipulated in the Electric Power Industry Reform Act (EPIRA), wanted to renegotiate the existing GRSC between the National Power Corporation, through PSALM, and steam field developer Energy Development Corp. (EDC), formerly a subsidiary of the government-owned Philippine National Oil Company, but now controlled by First Gen Corp. He added that the decision "is no longer in PSALM's hands. It's between the JCPC and EDC."
True. But it seemed to be conveniently forgotten that NPC, the predecessor of PSALM, was the other party to the contract, and EDC president and chief executive officer Paul Aquino claimed earlier that the former was in fact insisting on the contentious provisions.
What complicates the situation is the intransigience of Aquino against amending the contract saying that it was "sacred" and "nonnegotiable".
According to the GRSC, the steam price is benchmarked against coal price, and at the time of contract signing, Aquino said coal prices were declining, putting EDC on the losing end. Now that coal prices (and so with geothermal steam price) have shoot up, EDC apparently wouldn't relinquish its new-found pot of gold, and would rather sit on the contract for as long as permissible.
Result: stalemate.
Aquino may have all the legal weapons on his side, but it takes two to make, or unmake a contract.
Other than the legal issues involved, we maintain that it would be in the best interest of EDC, the power industry and the consumers if EDC accedes to the clamor for ironing out the issues on the GRSC if only to allow the privatization to finally take place.
One, the Palinpinon plant complex can realize its full power potential in the hands of a professional operator which is likely to be a private entity. That means more steam sales for EDC. But no investor would dare touch Palinpinon (also Tiwi-Makban) with a ten-foot pole, if he could not get any money from the table.
With the likelihood of a failed bidding, the privatization of power assets would be stalled, and it would just make a mockery of the aims of EPIRA to fully create an open and competitive electricity market.
Two, it would be favorable for EDC in the long run if the steam price is based on the cost of production. After all, is that not services for gain is all about? EDC has lived with steam sales contracts for Bacman , Tongonan I and Mt. Apo plants in which the steam price is not based on the price of coal or crude oil, but why not Palinpinon?
True, EDC might suffer some hiccups on its bottom line, but with anticipated increased sales upon successful privatization, these hiccups should be more than compensated for. Huge margins as a result of "onerous" terms in sales contracts also conceal inefficiencies within the organization.
As a result of short-term decreased margins, EDC should be forced to streamline its operations to get back at desired profit levels. Properly implemented, gains in efficiency would resonate throughout the organization which should result in improvement in profitability.
If we follow the logic of EDC top management, then we might as well benchmark the price of electricity from hydro to coal. End of the story.
With steam prices decoupled from coal, geothermal electricity would stand on its own against those coming from other sources such as fossil-fuel based coal plants themselves and possibly, with natural gas-fired power plants as natural gas prices have been rising in tandem with oil's.
The only other item which favors EDC in its stand against the contract re-negotiation is, if it insists on the sanctity of the original contract, sale of the Palinpinon plant would be less than palatable to prospective buyers as a result of the GRSC. That would favor EDC itself, which has made no secret of its drolling over the Palinpinon plant complex which straddles its geothermal field. By then, all the GRSC issues would be moot.
Even if the sale pushes through such as when a philathropic organization bids for the plant against EDC, or even if the complex is finally awarded to EDC by default, that victory is pyrrhic.
So, will the Palinpinon sale ever occur?
The answer lies on EDC's top management.
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