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According to those who wish to revisit the Electric
Power Industry Reform Act (Epira) hoping that some of
its afflictions might be reversible, one of the most
contentious issues misconceived to inflict high
electricity prices is the question of cross-ownership.
Following an unsuccessful bid to raid the Manila
Electric Co. (Meralco)’s corporate structure, Gloria
Arroyo’s apparent second front is in the arena of
intracorporate agreements.
The
Epira indeed allows a regulated amount of equity between
generation and distribution entities. These simply
recognized the status quo and historic development.
Before Epira, the industry developed along synergistic
routes and its linkages, though often flimsy, as
entities operated at arm’s length, characterized by the
grids from Luzon, the Visayas and Mindanao.
Spin
doctors have woven and spun the sound bites and have
come up with the term “sweetheart deals” to imbue
corporate affiliations with illegitimate intimacy and a
sense of impropriety. The “deals” refer to the contracts
between corporations, in this case, the supply
agreements between independent power producers (IPPs)
and electricity distributors. Between the two, there is
a relay carried out by the National Transmission Corp.
(Transco). Prior to the Transco spinoff under Epira, the
transmission responsibility had been with the National
Power Corp. (Napocor).
Descriptive of the bilateral agreements on both ends of
the transmission relay, it is this relationship critics
rail against as causes for high electricity rates when
distribution utilities purchase high-cost power.
The
ill-informed public upon whom weaves are draped over
often fails to see through the coarse cloth shrouding
the truth. But as Epira wisely recognizes certain
degrees of synergy, the criteria eventually redound to a
question of reasonable tariffs. Fortunately, there are
comparative benchmarks provided by Napocor.
The data
has settled the issue. By any count, inclusive of
transmission costs, the higher blended costs from
Napocor’s plants do not compare with the cheaper
supplies from each of the coal-fired Quezon Power plant
and the gas-fired Sta. Rita and San Lorenzo plants that
supply Meralco. As the three comprise what critics label
as the “sweetheart” harem, let us scrutinize the
criticism beyond the settled question of supply costs.
The most
vicious involves what spin doctors call “ghost
deliveries,” where undelivered energy is charged to
consumers. These accusations include declarations that
the generating contractors were capable of producing
only 300 megawatts but had contracted beyond these
limitations. These had been the subject of congressional
deliberations in 2002 when, after fully settling all
issues, Congress extended and expanded the Meralco
franchise by 25 years.
Again,
the data and the documentation should settle these
issues once more and provide closure.
Quezon
Power is a 470-megawatt coal-fired facility originally
jointly owned by Bechtel-Intergen and Ogden Energy, the
latter simultaneously a 27-percent equity partner and,
through an operating subsidiary, Ogden was the plant’s
operations and maintenance manager. Neither Meralco nor
any Lopez-owned entity owns stock in Quezon Power.
Net of
ancillary usage, the plant can deliver 440 megawatts.
Unfortunately, for some time, only less than 300
megawatts was being received at the Meralco end due to
Napocor’s line constraints, thus forcing Meralco to
renegotiate given an economic off-take provision within
its contract. In fact, in nearby Pagbilao, the
728-megawatt plant operated by Mirant could not start
scheduled commercial operations and was delayed by seven
months due to the same transmission-line constraints
caused by Napocor, thus forcing the latter to extend its
purchase contract by four years at a cost of $900 in
penalties.
Rehashing old issues settled in 2002, critics allege
that from July to November 2000, First Gas’s Sta. Rita
facility only had 300 megawatts available and yet
“pretended” it could dispatch 1,000 megawatts. Both
documentation and timelines debunk this.
Banks
finance IPP projects. No creditor extends financing
without ensuring projects generate requisite cash flows
against repayment schedules. Periodic performance tests
ensuring generating capacity are performed that include
not only sustained capabilities but heat rates, as well.
Any failure results in a technical loan default and
subjects the IPP to severe penalties and liquidated
damages. These are operating requisites specifically
provided for in the loan documents and covenants that
cover creditor-debtor relationships.
Performance tests carried out by Siemens, Sta. Rita’s
contractor, and witnessed by Kennedy and Donkin, the
owner’s UK-based consultant hired to monitor the
contractor’s performance, all attest to the plant’s
ability to obtain an output of 1,000 megawatts.
Likewise, Stone and Webster of Denver,
Colorado—independent engineers contracted by the
multilateral lenders—validated these results through
letters dated August 17, 2000, and September 12, 2000.
For good
measure, Kennedy and Donkin issued their performance
test reports dated August 22, 2000, and September 28,
2000, validating Sta. Rita’s 1,000-megawatt capability.
The
timeline, likewise, debunks the accusations of
undercapacities in 2000. Contractor delays occurred in
1999. On June 11, 2000, 500 megawatts of the Sta. Rita
facility commenced commercial operations. Two months
later, on August 16, 2000, its second unit of an
additional 500 megawatts commenced commercial
operations, thus bringing the total to 1,000 megawatts.
As in
the failed bid to raid Meralco by waging a war based on
allegations of distribution price-gouging, in
questioning intracorporate agreements, Arroyo’s proxy
fighters do not seem to have a grip on the technical
aspects of their assault. Innuendo works in an acoustic
skirmish. So do lies.
But
facts and the truth are required to win the real war.
****
Editor’s note: The author was in charge of development
for Ogden Energy, the parent company of one of the
equity partners in Quezon Power, and its operations and
maintenance manager. Ogden Energy has divested from
Quezon Power. |
