Napocor, CBK Power may go into arbitration to settle dispute

The National Power Corp. (Napocor) and the Caliraya-Botocan-Kalayaan (CBK) Power Corp. are likely to enter into an arbitration to settle the capital recovery fee (CRF) which reportedly has not been paid by the state-run power firm since the start of 2003.

"It is one of the options we are looking at. But we are still negotiating the contract with CBK. Pursuant to their contract, if both parties have some issues that can not be resolved, they can always go into arbitration," a Napocor official, who requested anonymity, said.

The official said the negotiation with CBK is part of the overall thrust of the government to review all independent power producers (IPPs) contracts of Napocor.

The CBK project is an undertaking of Argentina-based IMPSA and US firm Edison Mission.

In August 2002, the Department of Energy (DOE) had commissioned Meritec Limited of Auckland, New Zealand, an independent foreign consultancy firm, to conduct a third-party project audit on CBK rehabilitation to determine if Napocor should continue to pay the CRF.

In the report, Meritec said it found no valid reason to withhold payment of overdue invoices that Napocor had with CBK Power. Meritec recommended payment as soon as possible to avoid default and cross defaults.

However, under a special provision in the newly-signed 2003 General Appropriations Act (GAA), it was noted that Napocor may have to temporarily halt paying the CRF to CBK.

While the GAA "did not actually say that"(Napocor will stop paying CBK), the official said it required Napocor to submit the results of its study and review to both Houses of Congress within 30 days from the enactment of the law or on or before May 23 this year.

After the release of the report upholding the decision to award the certificate of completion (CoC) to CBK, the Napocor reportedly started paying CRF to CBK amounting to about $5 million or P255 million.

The Meritec report found that the acceptance and commissioning of Kalayaan Unit 1 were met except for some range and load response features which were deemed to have little effect on system operations. "The operational availability of Kalayaan units since they were rehabilitated by CBK Power has been in excess of specified requirements for both maintenance and forced outages. The acceptance test and commissioning records indicate that the Unit of Kalayaan has met or has exceeded the operating criteria," the report said.

As of August last year, Units 1 and 2 of Kalayaan were each able to run at over 180 megawatts (MW), an improvement over their rated capacities of 150 MW prior to the rehabilitation by IMPSA. The CBK-BROT contract stipulates that the rehabilitation should increase the capability of both units to at least 177 MW.

The Meritec report noted that CBK Power had put in more than $350 million into the project, which generated 2,500 jobs.

Based on Napocor records, the IPP review committee did not "single out" CBK Power from among the 35 IPP contracts in which only six passed with a full clean bill of health, and 29 others were cited for further study, or legal action. In the case of CBK, there were no legal or financial problems identified by the committee. At most, the committee said, there were "remedial policy concerns".

The Investment Coordinating Committee of the National Economic and Development Authority (NEDA) approved the BROT agreement on July 22, 1999, and NEDA issued its approval on Aug. 29, 1999. On Dec. 10, 1999, the Monetary Board approved the registration of the CBK project.