IPPs form group to take part in review of power contracts

Independent power producers (IPPs) have formed an organization to participate in a review of existing power purchase agreements (PPA) between the National Power Corp. (Napocor) and the IPPs.

The Philippine IPP Association (PIPA) was organized recently to represent the sector in an inter-agency committee formed by the government to review the contracts. The move was welcomed by outgoing Energy Secretary Jose Isidro Camacho during the Meet the Press forum at the National Press Club yesterday.

Camacho said the presence of IPP representatives in the inter-agency review will would fast-track discussions and hasten the resolution of this issue. "It will result in easier reconciliation of differences during the deliberations," he added.

The energy secretary said President Arroyo has given the inter-agency committee six months to settle the issue. Up for review are the PPAs that were entered into by previous administrations. Most of the contracts are perceived to be disadvantageous to the government, specifically to Napocor which buys the electricity from the IPPs.

"The objective of the committee is to give guidance to Napocor in terms of renegotiating the terms of the contracts. We are hoping that through the review, we can reduce the costs, of the IPP contracts and protect the interest of the government," Camacho told newsmen.

One option open to Napocor is to reduce the annual operational and maintenance (O&M) fees of selected IPPs.

Under a take-or-pay arrangement, Napocor pays for at least 70 percent of the contracted power from IPPs even if they are operating at only 30 to 40-percent capacity due to an oversupply situation in the country.

Another option open to Napocor is to restructure the payment modes. Most of the PPA contracts span a minimum 10 years to a maximum 25 years and payments are generally made on an annual basis. Instead of making the annual payments in full, Napocor could be made to pay just a little more than half of the amount due, with the balance to be paid over a three to five-year period. This will allow Napocor to use the "saved" amount to buy up its cash position.

A third option is to extend the take-over pay contracts by 25 to 50 percent which is estimated to result in huge savings for Napocor of up to P5 billion per year.