And then there were...none?
At the rate investor interest is waning on privatization sale of the 620-MW Limay power plant complex in Bataan, the Power Sector Assets and Liabilities Management (PSALM) Corp. would be hard-pressed to successfully conclude the sale to private investors by the end of this month.
Already, this target has moved from last month’ schedule.
This time, “we are hoping to complete the privatization of Limay by the end of this month,” PSALM president Jose Ibazeta said. From the tone of his statement, he might as well cross his fingers and wait for a new investor to come out of the blue to snatch the asset.
In 2008, PSALM counted as many as seven groups showing some interest (read: we’d like to have a peek). But during the actual two past bidding in April and September of 2008, only one bidder submitted the required documents which automatically made the sale failures.
This time should be better since PSALM counted three groups still interested.
One of them, the San Miguel group which has been all over the energy landscape lately picking power assets like apples, has already turned bland on Limay because converting it to use other types of fuel was expensive, according to San Miguel’s consultant Alan Ortiz.
PSALM believes the Aboitiz group is still interested, but the latter has its hands full on other projects like the newly-acquired Tiwi-Makban geothermal complex and hydro projects in Mindanao.
The third group remains unidentified.
What makes Limay a difficult sale?
The power complex is composed of two 310-MW identical modules, each comprising of 3 70-MW gas turbines and a 100-MW steam engine. So, 420-MW of its capacity runs on expensive fuel. To make it competitive, the power generators have to be converted to run on cheaper fuel—coal, for instance. This is probably the conversion cost Ortiz is talking about.
Worse, the plants do not have any power purchase agreement attached to the sale. That is, the new owners would have to sell the generation to the wholesale electricity spot market (WESM) where the cheapest power is likely to be dispatched first.
One could very well create a captive market by developing the surrounding area as an industrial zone. This has been in the blueprint for some time. But unless you are an Andrew Tan or a Henry Sy (or at least you could talk to any of them to cast a few billion pesos) you’d better stake your luck somewhere else. At this point when the image of a recovery in the horizon could only be a mirage on the desert of the worldwide recession, creating an artificial oasis is just nuts.
So what value is left?
You might be wondering why after a building is razed to the ground, an army of scavengers starts circling the devastation. Yes, people could see value amid the destruction—in the form of scrap metal that could be salvaged and recycled.
Selling it as such is not really a bad idea. Many of PSALM’s decommissioned plants ended up on the scrap yard. But Limay was only constructed in 1993; surely there must be value left of it. For some decommissioned plants, the underlying land could be a valuable piece of real estate.
The right to own and operate a power plant in itself is a valuable asset. Try to go through the hassles of getting an ECC (Environmental Compliance Certificate) for a greenfield project. You would probably wait 3-5 years before the cornerstone can be laid down.
The odds of a successful sale of Limay are stacked against PSALM. With luck, it could very well dispose the asset.
But definitely not at the price and terms of its liking.
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Note added, August 28, 2009: The other day, reports say that the energy unit of San Miguel offered $13.5 M for the asset. At that ridiculous price, the new owners seemed to have bought scrap metal. PSALM apparently agreed to it. I am reminded of a slogan in a pizza parlor: We have no problem if others sell at a low price; they know what their products are worth.
Added, Sep 6, 2009: An SMC spokesperson said they planned to spend $350 million to convert the plant into gas-fired type. Ah, OK.
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