THE chairman of the Senate Committee on Energy is confident that the ongoing dispute between the Power Sector Assets and Liabilities Management Corp. (PSALM) and San Miguel Corp.’s (SMC) power arm would soon be resolved, and that the disagreement over an interpretation of power contracts would be best addressed by the court.
“It’s a valid dispute. It has got to do with the way the contract was drawn up. This is just a contractual dispute. It’s not a violation of a contract. Pagkakaintindi ko ay ganito, while ikaw naman ganito ang pagkakaintindi mo. So, let the courts decide,” said Sergio R. Osmeña III in an interview after he presided a Senate budget hearing.
In all kinds of businesses, Osmeña said, it is normal for business partners to have disagreements over a contract.
“You know, we can never cover everything in a contract, even in a law,” he said, adding that even laws and policies are amended, repealed and improved through issuance of implementing guidelines.
During last Thursday’s Senate hearing where officials of PSALM were present, the state-run firm’s president, Lourdes Alzona, said she is not worried about being sued by SMC Global Power Holdings Corp. and San Miguel Energy Corp. (SMEC).
“It’s up to them if they will file a case against me or anyone from PSALM. We are just going by what the contract states,” Alzona said, adding that any decision issued by PSALM was done with the board’s approval.
The PSALM board is headed by Finance Secretary Cesar V. Purisima. Its other members include the secretaries of the departments of Energy, Budget and Management, Justice, and Trade and Industry.
SMC President Ramon Ang earlier said he received a text message from Purisima who said that he has no knowledge of the termination letter issued by PSALM to SMC Global Power. To which, Alzona commented, “Secretary Purisima was informed by his staff. The board is fully informed of the unpaid account and actions being taken on Ilijan administration agreement.”
Ilijan dispute
The dispute between the two was publicized when South Premiere Power Corp. (SPPC), a unit of SMC Global Power and the administrator of the Ilijan power plant, sought a 72-hour temporary restraining order (TRO) from a local court against PSALM’s termination of the power firm’s Independent Power Producer Administrator (Ippa) contract.
The TRO was later extended up to September 28, pending a hearing of a preliminary injunction by the Regional Trial Court in Mandaluyong City.
PSALM claimed that the local court has no jurisdiction over the case and only the Supreme Court can issue a TRO because of a provision of Republic Act 9136, or the Electric Power Industry Reform Act (Epira). Court hearings are still ongoing.
PSALM terminated the Ippa contract over SPPC’s alleged failure to pay the outstanding generation payments from December 26, 2012 to April 25, 2015, amounting to P6.46 billion.
According to Alzona, PSALM demanded SPPC’s immediate payment of the generation fees but the company “consistently refuses to settle all its contractual obligations to PSALM for the relevant period.”
“We sent them demand letters. We decided to terminate the contract when they still did not pay us,” Alzona said in reaction to the claim of the other party that the issuance of the termination letter was abrupt.
As part of PSALM’s decision to terminate the contract, the state-run firm also moved to seize the $60-million performance bond of SPPC.
But Ang said PSALM’s financial claims were “erroneous” and that SMC Global Power will sue PSALM management for “intentional breach of contract.”
SMC Global questioned why PSALM is pushing Wholesale Electricity Spot Market (WESM) rates to determine the obligations of the Ilijan Ippa instead of using the rates approved by the Energy Regulatory Commission (ERC).
“That raises the point again of what is the agenda behind the termination of the Ilijan Ippa. Since the termination is obviously not for the protection of the power consumers, whose interest is PSALM advancing?” the power firm asked.
“SMC Global believes that Ilijan is baseload and its output must not be traded in the WESM to protect power consumers. That’s the reason SMC Global cannot understand PSALM’s insistence on its erroneous interpretation of the Ilijan Ippa contract provisions,” the company added.
The company further noted this is not the first time PSALM has admitted that they erroneously interpreted provisions of the Ilijan Ippa contract.
“The first was during the 2011 Malampaya shutdown when PSALM billed the Ilijan Ippa a liquids event price [LEP] of P30,710.47 per kwh,” it said.
The Ilijan Ippa then disputed the billing. PSALM acknowledged the LEP was erroneous and then billed the administrator the correct sum of P6.37 per kwh, or an 80-percent reduction.
Sual dispute
As the dispute on the Ilijan contract remains unresolved, PSALM could be sued yet again for another “illegal” power contract, Ang said.
“Actually, mayroon pa kaming isa pang dispute. ’Yung Sual [power plant],” said Ang, who added that the goverment’s contract when the plant was built was 1,000 megawatts (MW). “In 2009 biglang sabi ng nagtayo ng planta ay 1,200 MW na kahit 1,000 MW lang.”
SMEC is the Ippa of the 1,218-MW Sual power plant. It was built by Team Energy Corp. under a build-operate-transfer arrangement with the government which will expire in 2024.
PSALM and Team Energy signed a memorandum of agreement (MOA) covering the Sual power plant’s excess capacity.
When the output of the plant was bidded out, PSALM imposed the same agreement on SMEC as the IPP administrator. Starting November 2009, Team Energy used the agreement as basis to claim payments for excess generation from SMEC.
If there was any excess capacity from the Sual plant, SMEC said it should be the government who should benefit and not the IPP of the plant.
The company has a pending request with PSALM to review the legality of the agreement with Team Energy.
PSALM has yet to fully act on SMEC’s request to review the MOA. The state firm is expected to raise the matter to the Office of the Government Corporate Counsel (OGCC).
Alzona said PSALM has already sought comment from Team Energy and that this will be included in the filing of a letter before the OGCC.
From the start, she said Team Energy has the right over the excess capacity because the contract between the government and Team Energy only covered up to 1,000 MW.
“At the time the plant was being constructed, there were already several agreements pertaining to excess capacity. But we pay them a capacity fee of up to 1,000 MW only. It’s as simple as that,” the PSALM official said.
Alzona questioned SMC’s move to register in the market the excess capacity. She added that the company should have turned over to Team Energy any revenues generated from the excess capacity.
“Dapat ibigay sa Team Energy. These are legal and technical issues,” Alzona said.
When sought for comment, Department of Energy Officer in Charge Zenaida Monsada said there are dispute mechanisms stated in the contracts between the government and the private sector. Those contracts, she said, should be honored.
“We are not yet dragged into the issue. I believe both parties will resolve this soon. It may be just a matter of misunderstanding,” she said.
Meantime, Osmeña said the legal tussle between PSALM and SMC will not discourage local and foreign investors to continue doing business here. “There was nothing violated in the contract. It’s a simple contractual dispute, as I’ve said. No, they won’t be discouraged.”