New Salcon Power-Napocor contract to save gov’t P3-B

The contract renegotiation for purchased power between the Power Sector Assets and Liabilities Management Corp. (PSALM) and Salcon Power Corp. (SPC) has resulted to a $57.44 million, or about P3 billion, in savings for the government, officials said.

PSALM president Edgardo del Fonso said PSALM, representing the National Power Corp. (Napocor), and SPC were able to resolve all outstanding issues on the power contracts entered into by the two power firms.

SPC, an independent power producer of Napocor, operates the Naga power plant complex in Cebu with a total installed capacity of 203.8 megawatts (MW).

The Naga complex houses two units of land-based gas turbines with a capacity of 27.5 MW each, two units of coal-fired thermal plants with a total capacity of 105 MW and six diesel-generating units with a capacity of 7.3 MW each.

Del Fonso said the settlement involved Napocor’s buy-out of the contract to operate the land-based gas turbines (LBGT) from SPC.

SPC operates the plants under a 15-year rehabilitate-operate-maintain-manage (ROMM) contract set to expire in 2009.

Del Fonso said the settlement, which would yield substantial savings of as much as $ 57.44 million, was an offshoot of a buy-out.

He said the settlement will also call for the energy minimum offtake reduction of 20 percent and the assumption of Napocor’s obligations to the National Government.

The settlement, he said, also includes SPC’s absorption of the separation pay of the personnel of the LBGT power plant and waiver of salary differential claims with Napocor.

"The new agreement is mutually beneficial to the parties and at the same time helps ensure a viable electricity industry," Energy Secretary Vincent S. Perez said.

PSALM earlier said it is optimistic it can finish the renegotiations of all the IPP contracts of Napocor.

"There is a good chance we will finish everything within the year. This is our target," Del Fonso said.

PSALM was created under the Electric Power Industry Reform Act (EPIRA) to handle all the assets and liabilities of Napocor. The agency is also tasked to renegotiate all the independent power producers (IPPs) contracts of the state-run power firm.

The renegotiation of the IPP contracts is consistent with the new law in helping reduce electricity costs while preserving the sanctity of contracts.

The last contract that was renegotiated by the Department of Energy (DOE) and PSALM was that of the CBK Power Co. Ltd., which resulted to a savings $96 million or approximately P5 billion.

So far, negotiations with several IPPs have been fairly successful, generating substantial savings of over $800 million in net present value (NPV) to the government without undermining the viability of the firms to earn fair and reasonable returns.

Other contracts that are being worked out by PSALM include: CalEnergy; Aboitiz (Benguet, Bakun); Alsons/Tomen (Iligan City 1 & 2, Zamboanga, General Santos); Alstom (Limay Bataan A & B); Bauang Private Power Corp. (Bauang La Union); Covanta (Cavite EPZA, Bataan EPZA); Enron (Pinamucan, Subic Zambales); Kepco ( Malaya, Ilijan Gas); Mitsui (Mindanao Barges); NIA (Casecnan); Ormat (Makban Binary); PNOC-EDC (Leyte A & B), Mt. Apo I and II; State Power (Mindanao Coal); Chevron-Texaco (San Pascual Co-generation); and BHEPI (Binga).

The review of the IPP contracts is among the measures in reducing the stranded contract costs that will be absorbed by PSALM, which will eventually pass the cost to the consumers through a universal charge.

PSALM has a pending proposal to charge some 40 centavos per kilowatthour to recover stranded costs of the Napocor amounting to a total of P900 billion for a period of 25 years.

If PSALM and the DOE will be able to renegotiate these contracts with IPPs which oftentimes result to realizing savings, the proposed 40 centavos universal fee will likely go down.