PSALM includes lock-in period for Mindanao Coal’s IPPAs

By Lenie Lectura, Business Mirror (05 August 2015)

THE Power Sector Assets and Liabilities Management Corp. (PSALM) board has agreed to include a lock-in period in the contract terms for the selection and appointment of the Independent Power Producer Administrators (IPPA) for the bulk energy of the Mindanao Coal-Fired Thermal Power Plant (Mindanao Coal).

PSALM President Lourdes Alzona said in an interview that “this matter was taken up during the August 3 meeting.”

The board, she said, agreed to impose a three-year lock-in period.

“Yes, it was taken up during the board meeting. Bidders will be informed as soon as the bid resolution is made available,” added the PSALM official.

During the lock-in period, the winning bidder would have no choice but to adopt the existing power rate sold by current plant operator Steag State Power Inc. of Germany. In this way, electricity rates will not go up because the rates that will be used are the rates currently imposed based on the contract with Steag.

The downside, however, is that this may discourage prospective bidders because they would not be in control of the pricing scheme for the first three years.

“Yes, it is possible that no one will be interested anymore and if that happens, then the asset won’t be privatized. However, consumers will be spared from high electricity rates,” former Energy Secretary Carlos Jericho Petilla said.

There are 12 prospective bidders for Mindanao Coal: Conal Holdings Corp.; FDC Davao del Norte Power Corp.; FirstGen Northern Power Corp.; GDF Suez Energy Philippines Inc.; Masinloc Power Partners Co. Ltd.; Meralco Powergen Corp.; Nexif Pte Ltd.; SMC Global Power Holdings Corp.; SPC Power Corp.; Team (Philippines) Energy Corp.; Therma Southern Mindanao Inc.; and Vivant Energy Corp.

It was Petilla who proposed to hold off the privatization of the power plant’s output. PSALM suggested to include a lock-in period in the bid contract instead of suspending the auction.

The power plant supplies about a fifth of Mindanao’s power requirements. Petilla earlier raised concern that an early auction could result in power- rate hikes. He said electric cooperatives would be forced to source power from the winning bidder, which, in turn, could dictate prices due to lack of competition.

Petilla had wanted to delay the privatization until such time that the new power plants of Aboitiz Power, Alsons and San Miguel Corp. are put up. More power plants would mean more choices for electric cooperatives and distribution utilities to source power from.

These new power plants are expected to come on line by the first half of 2016.

Located in Misamis Oriental, the Mindanao Coal plant was constructed in 2006 under a 25-year Build-Operate-Transfer-Power Purchase Agreement scheme with the government. The cooperation period with Steag officially ends in 2031.

The power facility is made up of two units with a generating capacity of 105 megawatts each.

PSALM has scheduled the bidding for the Mindanao Coal-IPPA appointment on September 23.