Napocor eyes arbitration in dispute with Meralco

The National Power Corp. (Napocor) is considering going into arbitration if the Manila Electric Co. (Meralco) will insist on its counterclaim amounting to P8.5 billion.

"We may consider going into arbitration and forego the ongoing mediation," a Napocor official, who requested anonymity, said. Meralco and Napocor are in the middle of a mediation process. The mediators selected by both firms are former Ambassador Sedfrey Ordoñez and Phinma Group’s Antonio del Rosario.

The official said the Napocor’s move is an offshoot of Meralco’s decision to collect some P8.5 billion as payment for alleged violations in their 10-year power supply contract.

The state-owned power firm was irked by Meralco’s move saying the demand letter sent by the country’s largest power distribution firm is baseless.

"They (Meralco) should have considered the timing of the demand letter. The two firms are in the middle of a mediation. It may hamper the discussions," the official said.

Asked what could be the motive of Meralco on coming out with such a demand, the official said "they (Meralco) may use this as a leverage for mediation so they can force Napocor to agree to whatever they want."

In a letter to Meralco head of legal services Gil San Diego last April 1, Napocor general counsel Rainier Butalid said: "Considering the magnitude of the claims, plus the fact that the Napocor had no inkling that the matter would be leaked to the press while the mediation proceedings are in progress, Napocor reiterates its firm and vigorous denial of the allegations therein."

"This denial of Meralco’s claims and demand for payment is without prejudice to Napocor’s rights under law which it may deem appropriate to exercise," Butalid said, in that letter.

Butalid said Napocor will not pay the claims. "The Napocor hereby categorically denies Meralco’s claims as stated in the foregoing demand letter, all the claims stated in the demand having no basis either in law or in fact," the Napocor lawyer said.

Before Meralco’s claim was publicized, Napocor has been releasing figures on the amount that Meralco has to pay the state-run power firm as penalty for not meeting the terms of the long-term supply contract, particularly the minimum energy requirement.

Under a 10-year supply contract which will expire in 2004, Meralco has to get at least 85 percent of its energy requirement or about 3,600 megawatts (MW).

Since early last year, Meralco has not been meeting this required power level prompting Napocor to impose a penalty amounting to about P12 billion.

Last March 24, Meralco claimed Napocor owes it some P8.5 billion consisting of damages and losses brought about by Napocor’s violations of the said supply contract dated Nov. 21, 1994.

Meralco’s claim includes a refund for P399.86 million for customers directly connected to Napocor. This amount represents the foregone operating income from customers whom Napocor failed to turn over to Meralco pursuant to Section 7 of the 10-year contract for the Sale of Electricity.

Another P7-billion worth of claims is also being imposed by Meralco representing cost of transmission line constraint covering the period January to December 2002. This is the additional cost that Meralco incurred in its Purchased Power Cost because Meralco’s IPPs (Quezon Power Philippines Inc., Sta. Rita and San Lorenzo) were not being dispatched by Napocor at their contracted or MEQ (minimum energy quantity) levels.

Meralco is also charging Napocor some P529.34 million in line with the 50 percent penalty for excess imbalance charges from the period September 2000 to January 2003.

Other charges such as imbalance charges adjustment amounting to P31.42 million, P201.4 million for back-up energy rates, P149.66 million for no-credit-over deliveries were also being imposed by Meralco and $26.9 million for the cost of delay of QPPL’s transmission line.