AP Renewables Inc., a full subsidiary of listed Abotiz Power Corporation, bagged the Tiwi-Makban geothermal complex in a bidding conducted yesterday by Power Sector Assets and Liabilities Management Corp. (PSALM) with a bid of $ 446.88 M.
It outflanked the only other bidder--First Luzon Geothermal Energy Corp. of the Lopez-controlled Energy Development Corporation which came in with a much lower bid of $ 368.44 M.
The Tiwi-Makban assets sold, comprising of 289 MW Tiwi geothermal power plant in Albay 458.53 MW Makban geothermal power plant in Laguna and Batangas, would be the first geothermal asset of the Aboitiz-group portfolio.
PSALM president Jose Ibazeta, obviously delighted with the successful sale, said "[we] have reached the 68.78-percent privatization level", which is close to the 70 % target required to be able to implement the "open access" regime in the power industry as stipulated in the electric power reform law (EPIRA).
For his part, Energy Secretary Angelo Reyes pointed out that this is an important achievement as this is the first geothermal plant bid out by the government.
Yesterday, this corner put out its prognostication on the possible scenario on the sale just hours before the bidding closed. Let's see how we fared. Here is our scenario and the actual outcome:
* Suez Energy will confirm rumors that it is backing out - It did.
* Korea Electric will not bid - It did not show up for the bidding.
* EDC will bid, but it won't be aggressive - It did, and promptly lost to the eventual winner by a margin of close to $ 80 M.
* The Aboitiz group will bid - It did, and won.
* We expressed reservation on the success of the bidding - We were wrong.
Well, you can't win all the time.
Thursday, July 31, 2008
Wednesday, July 30, 2008
Tiwi-Makban sale: D-day
The day of reckoning is here.
In a few hours, the Power Sector Assets and Liabilities Management Corp. (PSALM) will bid out the 289-megawatt Tiwi and 458.53-MW Makban geothermal complex.
According to PSALM, the bidding will close at 12 noon, followed by the screening of the documents at 1:30 p.m.
How would this bidding turn out?
PSALM vice president for asset management and electricity trading Froilan Tampinco earlier said there are four pre-qualified bidders for the Tiwi-Makban assets which he declined to name, but the Philippine Star quoted its own sources that these are Aboitiz Power Renewable, Korea Electric Power Co., Suez Energy and Lopez-owned Energy Development Corp.
While sources said Suez Energy is contemplating on backing out from its bid for Tiwi-Makban, Tampinco considers the European power firm still part of the list of bidders. Suez Energy would probably confirm the rumors and back out altogether.
Korea Electric Power Co. would probably get cold feet and would not place its bid, despite its assumed exhaustive due diligence efforts.
Aboitiz Power Renewables, upon the recommendations of its presumably foreign technical consultants, would post a bid, but its bid would likely be below government projections. The Aboitiz power group has been active in acquiring hydro assets and earlier, distribution companies. As the name of its vehicle suggests, it is coming strongly into renewables, especially if the renewable energy bill is passed.
That would leave Lopez-owned EDC the strongest contender. It is of course drolling over the Tiwi-Makban assets, as the acquisition would put it the undisputed leader in geothermal development in the Philippines and would enhance its image as capable of managing such concerns not only here but also abroad.
Should EDC acquire the Tiwi-Makban assets, it won't be operating the field. That job is for Chevron Geothermal Holdings Phils., the current operator. And, in an ironic twist of fate, it would be holding the other side of the GRSC stick--similar to the very contract which its president and CEO tenaciously clings to in the case of Palinpinon.
But the Lopez group wouldn't be as aggressive this time compared to how it has acquired EDC from the government. In that bidding, First Gen bid about P 9.20 per share for the government shares, a large premium from the market price of around P 6 a share, and way much higher that the other competitive bids.
Since then, the Icelandic partners of First Gen in Red Vulcan Holdings, the corporate vehicle used by the Lopezes to acquire EDC, have divested from it, and First Gen is now contemplating, or is in the process of disposing of at least 40 % Red Vulcan Holdings formerly held by the Icelandic interests, as reported in the papers.
After all, it has to pay for a portion of the financing for EDC which is not a paltry sum.
Apprehensions are rife that the bidding for the Tiwi-Makban geothermal power facilities may be pushed back anew due unresolved issues on geothermal supply contracts which have been discussed in this spot earlier.
The sale has been attempted since late 2005. The attempt this year was first set on June 4, then to June 27 and finally today.
PSALM, however, tries hard to put up a brave face saying it would gain the full support and participation of the qualified bidders after it attached more than 400-MW of power supply contracts to the sale of the Tiwi-Makban power facilities. It is however silent on the contentious issues surrounding the geothermal resources sales contract for Tiwi-Makban.
Based on the above scenario, one cannot have much confidence in the success of today's bidding.
This time, I fervently wish that I am completely dead wrong.
In a few hours, the Power Sector Assets and Liabilities Management Corp. (PSALM) will bid out the 289-megawatt Tiwi and 458.53-MW Makban geothermal complex.
According to PSALM, the bidding will close at 12 noon, followed by the screening of the documents at 1:30 p.m.
How would this bidding turn out?
PSALM vice president for asset management and electricity trading Froilan Tampinco earlier said there are four pre-qualified bidders for the Tiwi-Makban assets which he declined to name, but the Philippine Star quoted its own sources that these are Aboitiz Power Renewable, Korea Electric Power Co., Suez Energy and Lopez-owned Energy Development Corp.
While sources said Suez Energy is contemplating on backing out from its bid for Tiwi-Makban, Tampinco considers the European power firm still part of the list of bidders. Suez Energy would probably confirm the rumors and back out altogether.
Korea Electric Power Co. would probably get cold feet and would not place its bid, despite its assumed exhaustive due diligence efforts.
Aboitiz Power Renewables, upon the recommendations of its presumably foreign technical consultants, would post a bid, but its bid would likely be below government projections. The Aboitiz power group has been active in acquiring hydro assets and earlier, distribution companies. As the name of its vehicle suggests, it is coming strongly into renewables, especially if the renewable energy bill is passed.
That would leave Lopez-owned EDC the strongest contender. It is of course drolling over the Tiwi-Makban assets, as the acquisition would put it the undisputed leader in geothermal development in the Philippines and would enhance its image as capable of managing such concerns not only here but also abroad.
Should EDC acquire the Tiwi-Makban assets, it won't be operating the field. That job is for Chevron Geothermal Holdings Phils., the current operator. And, in an ironic twist of fate, it would be holding the other side of the GRSC stick--similar to the very contract which its president and CEO tenaciously clings to in the case of Palinpinon.
But the Lopez group wouldn't be as aggressive this time compared to how it has acquired EDC from the government. In that bidding, First Gen bid about P 9.20 per share for the government shares, a large premium from the market price of around P 6 a share, and way much higher that the other competitive bids.
Since then, the Icelandic partners of First Gen in Red Vulcan Holdings, the corporate vehicle used by the Lopezes to acquire EDC, have divested from it, and First Gen is now contemplating, or is in the process of disposing of at least 40 % Red Vulcan Holdings formerly held by the Icelandic interests, as reported in the papers.
After all, it has to pay for a portion of the financing for EDC which is not a paltry sum.
Apprehensions are rife that the bidding for the Tiwi-Makban geothermal power facilities may be pushed back anew due unresolved issues on geothermal supply contracts which have been discussed in this spot earlier.
The sale has been attempted since late 2005. The attempt this year was first set on June 4, then to June 27 and finally today.
PSALM, however, tries hard to put up a brave face saying it would gain the full support and participation of the qualified bidders after it attached more than 400-MW of power supply contracts to the sale of the Tiwi-Makban power facilities. It is however silent on the contentious issues surrounding the geothermal resources sales contract for Tiwi-Makban.
Based on the above scenario, one cannot have much confidence in the success of today's bidding.
This time, I fervently wish that I am completely dead wrong.
Thursday, July 24, 2008
Setting the electricity system loss charge cap
THE ENERGY Regulatory Commission yesterday said it will study the reduction of the cap for system losses that the distribution utilities can be passed on to end-users, an issue that has been highlighted during recent the not-so-covert attempt of GSIS head Winston Garcia to wrest control of Meralco from the Lopezes. The ERC also considers the phase-out of the inclusion of utilities’ own use of power in systems loss calculations.
In a press briefing, ERC chairperson and chief executive officer Zenaida G. Cruz-Ducut said that she has directed her staff to study the possible reduction of the system loss caps and the phase out of the company use as part of the determination of system loss.
"It is high time that we review these caps and possibly reduce them in order to help alleviate the burden to the consumer of these charges." Ms. Ducut said.
Well said, but the statement has long been overdue.
At present, the systems loss cap that can be passed on to consumers stands at 9.5% for distribution utilities and 14% for cooperatives. The wide disparity is an open admission that cooperatives are far more inefficient, and our policy makers continue on tolerating it.
Republic Act 7832, or the Anti-Pilferage Law allows distribution utilities and electric cooperatives to recover their costs for system losses, or electricity lost through technical loss or power theft.
Note that the law specifically includes electricity pilferage, which means that we consumers are actually rewarding the thieves by paying for them.
Any electrical or mechanical device, whether it is a refrigerator, a car or the whole distribution grid, would have technical losses due to friction, heat losses, equipment inefficiency, and many others. That is physics.
But if we include avoidable losses such as theft that is a different story altogether. Other avoidable losses also include antiquated power lines and obsolete equipment that add to systems losses.
So, what should the systems loss cap be? Or is it necessary in the first place, and just let the distribution company book it as part of its operating expenses?
In practice there is a wide range of percent systems loss, from an average of 7 % for European Union to as high as 25% or more (one country reported a 43% loss) in poor countries of Africa, Central America and Asia. Note that the low number for EU countries is average; which means some of these countries are doing better than that. Furthermore, the figure includes pilferage, although the instances are far lower than ours.
Also, the Anti-Pilferage Law allows a 1% allowance for the distribution utilities' own use, the so-called house load, which includes not only power for start-up generators and other electrical equipment, but also offices, warehouses and even hospitals ("These are also part of the cost of doing business," as one official from a distribution utility remarked).
To get some idea on the magnitude of this seemingly innocuous amount, assume that Meralco handles 5,000 MW (the actual number is different but this is for illustration). One percent of that is 50 MW, enough to power a mid-sized entire province. Meralco incorporates just 0.27% on its charges.
So, all along, we have been ripped off by the distribution companies with the government, through the antiquated laws still in existence, looking the other way.
Passing on charges to consumers--in effect, subsidizing the distribution companies in this case--has long been a hallmark of the present and all the previous governments. We have noted here all along that subsidies, in any form do not make economic sense.
For subsidies to public utilities, even on the pretext of helping the consumers, only exacerbate inefficiency.
If you were to ask me what the numbers should be, that number should be based on what the physical (from the word physics) practicable, not theoretical, limits allow. Also, ideally it should be a stretch, not a leisure target. It is amazing how one could achieve, if given stretch targets.
By all means let us encourage the distribution companies and cooperatives to be more efficient by giving incentives to technical upgrades and theft reduction.
The cap should also factor out pilferage in the equation.
Just give me the numbers, you say.
Okay, for a start, the number should be less than the average for the cited number from EU countries which we assume should be a working distribution system. What about 5%?
For the own-use number, the Meralco figure of 0.27 % is likely to be bloated. It should have already incuded the power used by Meralco Theater (a good place to watch the performing arts) and its expensive medical facilities. I suggest 0.1 %.
What about the cooperatives?
Nah, the present numbers are already herculean tasks to them. My suggested numbers would be pure theory.
I would rather see these cooperatives sold to the private sector starting with the bigger cooperatives, especially some of the loss-making ones but still charging stratospheric amounts still operating in the Bicol area.
I can sense that the Meralco linesmen are on the way to cut my electricity supply.
In a press briefing, ERC chairperson and chief executive officer Zenaida G. Cruz-Ducut said that she has directed her staff to study the possible reduction of the system loss caps and the phase out of the company use as part of the determination of system loss.
"It is high time that we review these caps and possibly reduce them in order to help alleviate the burden to the consumer of these charges." Ms. Ducut said.
Well said, but the statement has long been overdue.
At present, the systems loss cap that can be passed on to consumers stands at 9.5% for distribution utilities and 14% for cooperatives. The wide disparity is an open admission that cooperatives are far more inefficient, and our policy makers continue on tolerating it.
Republic Act 7832, or the Anti-Pilferage Law allows distribution utilities and electric cooperatives to recover their costs for system losses, or electricity lost through technical loss or power theft.
Note that the law specifically includes electricity pilferage, which means that we consumers are actually rewarding the thieves by paying for them.
Any electrical or mechanical device, whether it is a refrigerator, a car or the whole distribution grid, would have technical losses due to friction, heat losses, equipment inefficiency, and many others. That is physics.
But if we include avoidable losses such as theft that is a different story altogether. Other avoidable losses also include antiquated power lines and obsolete equipment that add to systems losses.
So, what should the systems loss cap be? Or is it necessary in the first place, and just let the distribution company book it as part of its operating expenses?
In practice there is a wide range of percent systems loss, from an average of 7 % for European Union to as high as 25% or more (one country reported a 43% loss) in poor countries of Africa, Central America and Asia. Note that the low number for EU countries is average; which means some of these countries are doing better than that. Furthermore, the figure includes pilferage, although the instances are far lower than ours.
Also, the Anti-Pilferage Law allows a 1% allowance for the distribution utilities' own use, the so-called house load, which includes not only power for start-up generators and other electrical equipment, but also offices, warehouses and even hospitals ("These are also part of the cost of doing business," as one official from a distribution utility remarked).
To get some idea on the magnitude of this seemingly innocuous amount, assume that Meralco handles 5,000 MW (the actual number is different but this is for illustration). One percent of that is 50 MW, enough to power a mid-sized entire province. Meralco incorporates just 0.27% on its charges.
So, all along, we have been ripped off by the distribution companies with the government, through the antiquated laws still in existence, looking the other way.
Passing on charges to consumers--in effect, subsidizing the distribution companies in this case--has long been a hallmark of the present and all the previous governments. We have noted here all along that subsidies, in any form do not make economic sense.
For subsidies to public utilities, even on the pretext of helping the consumers, only exacerbate inefficiency.
If you were to ask me what the numbers should be, that number should be based on what the physical (from the word physics) practicable, not theoretical, limits allow. Also, ideally it should be a stretch, not a leisure target. It is amazing how one could achieve, if given stretch targets.
By all means let us encourage the distribution companies and cooperatives to be more efficient by giving incentives to technical upgrades and theft reduction.
The cap should also factor out pilferage in the equation.
Just give me the numbers, you say.
Okay, for a start, the number should be less than the average for the cited number from EU countries which we assume should be a working distribution system. What about 5%?
For the own-use number, the Meralco figure of 0.27 % is likely to be bloated. It should have already incuded the power used by Meralco Theater (a good place to watch the performing arts) and its expensive medical facilities. I suggest 0.1 %.
What about the cooperatives?
Nah, the present numbers are already herculean tasks to them. My suggested numbers would be pure theory.
I would rather see these cooperatives sold to the private sector starting with the bigger cooperatives, especially some of the loss-making ones but still charging stratospheric amounts still operating in the Bicol area.
I can sense that the Meralco linesmen are on the way to cut my electricity supply.
Tuesday, July 22, 2008
Gov't audit of oil firms sidetracks price issues
According to today's papers, the Department of Justice is currently looking into the books of the oil companies to ferret out hanky-pankies of unfair market practice.
Justice Undersecretary Jose Vicente Salazar, speaking on behalf of the Department of Energy (DOE) - DOJ Task Force told the press that they are still gathering data.
Meanwhile, House Deputy Minority Leader Roilo Golez filed a resolution calling on the Commission on Audit (COA) to audit the profits of the Big Three, which he claims apparently have formed a cartel.
What would this audit try to establish?
Nothing.
It will not lead to lower oil prices.
When will our policy makers and legislators learn that under the current deregulated environment the price of oil, or any commodity for that matter, couldn't be dictated by a scheming trio-the so-called Big Three?
We have supposed to have licked this problem when the oil deregulation law was implemented. New players have come in. Although these have not toppled any of the Big Three, they have made significant inroads into the market.
A congressman from Cebu would even like to have an inquiry into the "fabulous" profits of the Big Three which he reckoned to have "balloned" to P 70 B since 1998. Is that amount something to crow about?
If we are to assume that this amount is equally divided among the three, the yearly profit would
amount to something like P2.3 B for each of them. Now, compare this with PLDT's net income of P 33 B or so last year.
No sir, the big money in oil is not made in retailing or refining, the mainstay business of the Big Three. In the downstream segment of the oil industry, margins are razor-thin; one can make profit if you make yourself more efficient than the competition across the street.
Increases in crude prices cut the bottom line of refiners, not pad it.
On the other hand, the Saudi oil fields extract oil from the ground at a cost of less than $10 a barrel.
Government task forces and Senate inquiries supposedly in aid of legislation generate lots of air, but no substance. The latter in particular has been meticulously refined by our ambitious politicians to become a springboard of choice for loftier ambitions.
How many of our neophyte senators have been elected on the basis of media exposure in connection with endless legislative inquiries? Many of them do not have a legislative track record to speak of.
Rather than digging up dirt, if any, from private businesses, our policy makers and legislators should spend time looking at strategic plans towards energy security and independence.
Like for instance, making the business climate more hospitable to investors rather than dragging them infront of the kleiglights of the senate hall, and berating them , humiliating them publicly.
Initiating white papers and well-researched studies on how to make the renewable energy bill more effective even before this piece of legislation is passed by the House.
Policy making is too important for our future to be left alone to lawmakers.
Do not blind us, the hapless consumers, with squid tactics, on the real cause of our seeming helplessness against the onslaught of high energy prices, which is governance, or the lack of it.
Justice Undersecretary Jose Vicente Salazar, speaking on behalf of the Department of Energy (DOE) - DOJ Task Force told the press that they are still gathering data.
Meanwhile, House Deputy Minority Leader Roilo Golez filed a resolution calling on the Commission on Audit (COA) to audit the profits of the Big Three, which he claims apparently have formed a cartel.
What would this audit try to establish?
Nothing.
It will not lead to lower oil prices.
When will our policy makers and legislators learn that under the current deregulated environment the price of oil, or any commodity for that matter, couldn't be dictated by a scheming trio-the so-called Big Three?
We have supposed to have licked this problem when the oil deregulation law was implemented. New players have come in. Although these have not toppled any of the Big Three, they have made significant inroads into the market.
A congressman from Cebu would even like to have an inquiry into the "fabulous" profits of the Big Three which he reckoned to have "balloned" to P 70 B since 1998. Is that amount something to crow about?
If we are to assume that this amount is equally divided among the three, the yearly profit would
amount to something like P2.3 B for each of them. Now, compare this with PLDT's net income of P 33 B or so last year.
No sir, the big money in oil is not made in retailing or refining, the mainstay business of the Big Three. In the downstream segment of the oil industry, margins are razor-thin; one can make profit if you make yourself more efficient than the competition across the street.
Increases in crude prices cut the bottom line of refiners, not pad it.
On the other hand, the Saudi oil fields extract oil from the ground at a cost of less than $10 a barrel.
Government task forces and Senate inquiries supposedly in aid of legislation generate lots of air, but no substance. The latter in particular has been meticulously refined by our ambitious politicians to become a springboard of choice for loftier ambitions.
How many of our neophyte senators have been elected on the basis of media exposure in connection with endless legislative inquiries? Many of them do not have a legislative track record to speak of.
Rather than digging up dirt, if any, from private businesses, our policy makers and legislators should spend time looking at strategic plans towards energy security and independence.
Like for instance, making the business climate more hospitable to investors rather than dragging them infront of the kleiglights of the senate hall, and berating them , humiliating them publicly.
Initiating white papers and well-researched studies on how to make the renewable energy bill more effective even before this piece of legislation is passed by the House.
Policy making is too important for our future to be left alone to lawmakers.
Do not blind us, the hapless consumers, with squid tactics, on the real cause of our seeming helplessness against the onslaught of high energy prices, which is governance, or the lack of it.
Friday, July 18, 2008
Keeping fingers crossed on Tiwi-Makban sale
If we are to believe the Power Sector Assets and Liabilities Corp. (PSALM), the Tiwi-Makban geothermal plant complex should be bidded out on July 30.
PSALM vice-president for asset management and electricity trading Froilan Tampinco said that it is all set for the bid date with four pre-qualified bidders as the agency has approved the final transaction documents.
Tampinco confirmed there are four pre-qualified bidders for the Tiwi-Makban assets but he refused to name them. However, the Philippine Star reported that industry sources said the four potential bidders are Energy Development Corp. of the Lopezes, Aboitiz Power Renewable, Korea Electric Power Co. and Suez Energy.
It added that sources said Suez Energy is likely to back out from the bidding, but Tampinco said the European power firm is still in the game.
But from the way the statements are issued on the sale, PSALM looks guardedly optimistic at best.
Apprehensions still linger that the bidding for the Tiwi-Makban geothermal power facilities may be pushed back much later due to some unresolved issues on geothermal supply contracts as in the case of Palinpinon.
For the planned sale this year, the bidding for Tiwi-Makban was originally scheduled for June 4, moved to June 27, and finally to July 30. However, the facility was originally put up for sale in late 2005, postponed a few times and finally rescheduled for this year.
If successful, this would be the first geothermal facility to be privatized.
In this planned sale the credibility of the privatization process and of the PSALM itself, would be severely tested.
Let us keep our fingers crossed.
Thursday, July 17, 2008
Panay-Bohol diesel plants up for sale, effectively scuttling the Palinpinon sale
The privatization agency Power Sector Assets and Liabilities Management Corp. (PSALM) has just released the invitation to bid for a diesel-fired power plant package comprising a 146.5-megawatt (MW) plant in Panay Island and a 22-MW plant in the island province of Bohol.
In its invitation to bid, PSALM said investors interested in bidding for the plants had until July 30 to submit letters of interest. The deadline for submission of bids is on October 29.
Qualified bidders may conduct due diligence studies on the plants from July 17 to Oct. 27 while a pre-bid conference has been set on Aug. 6.
The Panay facility consists of the 36.5-MW Panay 1 and the 110-MW Panay 3 while the Bohol plant consists of four 5.5-MW generating units.
This should be a straightforward sale.
Wait.
Isn't this the Panay plant which was originally bundled with the 192.5 MW Palinpinon geothermal complex, but its sale is now effectively scuttled because of issues surrounding the geothermal resources sales contract (GRSC)?
It is. So, PSALM is implicitly admitting that it couldn't sell the Palinpinon plant under present circumstances. PSALM actually clarified that the sale will not be held this November, but "next year" in a tone already implying that it may not be able to do so.
What is even more worrisome is that the Panay plant is bundled with the Bohol plant. There have been suggestions from PSALM officers themselves that the Bohol plant was to be bundled with the Tongonan I power plant, and that package was next in line of geothermal assets to be sold.
This seems to be a prelude of an anticipated failure to dispose of the Tongonan asset, and possibly, the Bacman geothermal plant.
The dismal scorecard (score:0, after three years) of PSALM in disposing of geothermal assets as part of the mandate of EPIRA law should give our policy makers a wake up call at the very least why these assets seem to be unsalable.
And to think that we already claim to have the bragging rights about geothermal.
In its invitation to bid, PSALM said investors interested in bidding for the plants had until July 30 to submit letters of interest. The deadline for submission of bids is on October 29.
Qualified bidders may conduct due diligence studies on the plants from July 17 to Oct. 27 while a pre-bid conference has been set on Aug. 6.
The Panay facility consists of the 36.5-MW Panay 1 and the 110-MW Panay 3 while the Bohol plant consists of four 5.5-MW generating units.
This should be a straightforward sale.
Wait.
Isn't this the Panay plant which was originally bundled with the 192.5 MW Palinpinon geothermal complex, but its sale is now effectively scuttled because of issues surrounding the geothermal resources sales contract (GRSC)?
It is. So, PSALM is implicitly admitting that it couldn't sell the Palinpinon plant under present circumstances. PSALM actually clarified that the sale will not be held this November, but "next year" in a tone already implying that it may not be able to do so.
What is even more worrisome is that the Panay plant is bundled with the Bohol plant. There have been suggestions from PSALM officers themselves that the Bohol plant was to be bundled with the Tongonan I power plant, and that package was next in line of geothermal assets to be sold.
This seems to be a prelude of an anticipated failure to dispose of the Tongonan asset, and possibly, the Bacman geothermal plant.
The dismal scorecard (score:0, after three years) of PSALM in disposing of geothermal assets as part of the mandate of EPIRA law should give our policy makers a wake up call at the very least why these assets seem to be unsalable.
And to think that we already claim to have the bragging rights about geothermal.
Monday, July 14, 2008
The Palinpinon sale: will it ever occur?
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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