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Let us
be selective and risk being unfair. For the benefit of
the misinformed, employing a modicum of sophomoric
analysis, readily available data for those who can
understand at least 1,000 words of English and
fifth-grade arithmetic, let us defend the bilateral
energy-supply arrangements of two indigenous natural
gas-fired plants that supply Manila Electric Co. (Meralco).
The two
are owned by First Gas, which is a subsidiary of First
Generation Inc., a publicly listed company. The Sta.
Rita and the San Lorenzo plants supply Meralco the
cleanest blend of electrons as these are produced from
natural gas-fired facilities. Compared with any within
the Philippines’ largest and most urbanized franchise
area, where system losses from transmission and
distribution lines are relatively lesser, net of taxes
and royalties, both produce probably the most
inexpensive power supplied to the Meralco franchise
area.
Generating plants immediately proximate to the same
radius that supply National Power Corp. (Napocor) are
oil, bunker, diesel or coal-fired facilities that burn
imported dollar-depleting fossils. One is a decrepit
diesel plant in Sucat, Parañaque, another is a
decommissioned oil-fired plant near Malacañang, a third
is a dilapidated oil-fired facility in Limay, Bataan.
Finally, there are two coal-fired base-load plants each
in Zambales and Batangas.
In
varying degrees of toxicity, these not only emit
potentially fatal sulfur oxides and carbon nitrates that
turn into acid rain, they also spew deadly mercury,
arsenic, cadmium and other elements beyond the
vocabulary of a fifth grader.
If you
think that’s bad, it gets worse. Not only are Napocor’s
plants more pollutive than First Gas’s facilities, they
also deplete dollars like a sailor on shore leave.
First
Gas’s fuel is indigenous natural gas where the “i” in
indigenous means the fuel is indio and innate. It is
local. Fuel differences account for cost differences.
Unfortunately, three government pricing aberrations
create extraneous values that bloat gas costs.
One, the
government pegged gas prices to expensive fuels. Two,
government royalties intended for foreign purchasers are
inflicted on local buyers. Three, the application of
government value-added tax on a commodity already
heavily taxed virtually steals from the poor to give to
the rich.
Napocor’s electricity portfolio might have been cheaper
if not for two other factors that aggravate an already
aggravated situation.
One, the
government’s price-buffer plants—its hydroelectric and
geothermal facilities—are located way north or far
south. The hydroelectric plants in the north produce
less in summer when water levels are low. For geothermal
plants in the south, electrons must first pass through a
transmission gauntlet in Quezon before reaching the
Meralco franchise area. What is not transmitted north
goes south. A 400-megawatt submarine cable transmits
power from the Leyte geothermal fields to Cebu. Cebu
then consumes and shares little with Negros, Panay,
Aklan and Boracay.
The
second factor that bloats Napocor’s blended costs is the
residual composition of its portfolio. Energy officials
dug us into a rut by violating privatization protocols.
Bargain hunters were allowed to cherry-pick as
privatization officials abandoned the approved grouping
of generating plants, opting instead for piecemeal
sales. Thus, a good deal of Napocor’s price buffers have
been hocked, leaving in its portfolio facilities that
inflict higher-cost energy.
Beyond
fuel and proximity advantages, the First Gas plants are
capitalized in a manner that gives distinct financial
competencies over those supplying Napocor. Here, we
tackle the build, operate and own (BOO) versus the
build, operate and transfer (BOT) issue.
Opponents of First Gas claim its plants under BOO
schemes lead to higher tariffs compared with those under
BOT covering most of Napocor’s independent power
producers (IPP).
They are
wrong. This is not Gloria Arroyo’s NBN-ZTE
corruption-ridden fiasco where the BOT proposal is
cheaper than debts negotiated by her officials. Power
plants under the BOO scheme are more likely to lead to
lower generating costs. To argue otherwise is to flunk
Finance 101.
One,
capital funding is the same. There is no difference in
financing amounts, save for equity tenors. BOO is
open-ended; BOT, mortal and terminal.
However,
unprivatized stranded contracts and sovereign guarantees
covering Napocor’s IPPs carry financial downsides that
lead to universal levies. Under First Gas’s BOO
projects, nothing worms into taxes as it does with
Napocor’s IPP contracts.
Two,
Napocor has two kinds of plants. Those it owns are its
assets. The rest are IPPs under BOT. These appear as
liabilities in Napocor’s balance sheet where payments
for contracted power are demandable. It is within these
where hides the notorious PPAs (power purchase
adjustments).
Because
of the relatively abbreviated equity life in BOTs
compared with “eternal” equity in BOOs, Napocor’s IPPs
recoup capital within shorter periods and, thus, charge
higher fees.
When BOT
contracts have a lifespan of 10 to 15 years, there are
no compunctions to yield early. For foreign-owned IPPs
under the BOT scheme, in their financial modeling,
minimum hurdle rates to justify being considered starts
at 18 percent to 25 percent. Actual IPP internal rates
of return (IRR) range from 23 percent to 35 percent,
mimicking venture-capital requisites.
Check
with the Securities and Exchange Commission. The actual
IRR of the First Gas plants average 14 percent.
Three,
the values “transferred” to the government at the end of
the BOT period is determined by depreciation. Under
abbreviated life spans, depreciation is accelerated so
that the asset terminal value when the BOT contract
expires is P1.
Likewise, when BOTs run to 15 or 20 years, as they do in
Napocor’s coal-fired IPPs, in the endgame, fully
depreciated plants desperately require rehabilitation,
where assets transferred compel substantial
reinvestments and financial recapitalization burdens
upon the transferee.
Because
IPPs under BOT transfer assets, they are less likely to
constantly upgrade. Thus, plant efficiencies go down as
equity is recouped and payback is attained. In the case
of one plant in Pinamukan, Batangas, payback was
attained within seven years under a supply contract with
minimum offtakes. And yet, at the end of its BOT, the
plant was only being dispatched by Napocor at between 32
percent to 35 percent of its capacity.
There is
no risk of unfairness where facts and mathematics are
concerned. The first is founded on truth, the other on
objectivity. As Ateneo de Manila professor Onofre
Pagsanghan taught us in first-year high-school Latin,
“contra factum, non valet illatio.”
Critics
continue to argue using only innuendo. They don’t do the
math. They don’t even do the elementary arithmetic. They
should really do their homework before they take out
full-page ads or fly off the handle. At least Judy Ann
Santos did hers and had a calming effect in educating us
all. |
