PSALM hires consultant to handle Napocor contracts with IPPs

The Power Sector Assets and Liabilities Management Corp. (PSALM) has hired an international consultant for the contracts of the National Power Corp. (Napocor) with independent power producers (IPPs).

A PSALM official said they have commissioned British Power International (BPI) after the Asian Development Bank (ADB) gave its approval for PSALM to get a consultant for this purpose.

ADB, one of the country’s major multilateral creditors, has provided technical assistance (TA) to enable PSALM to draw up a blueprint for the appointment of IPP administrators (IPPAs).

The official said BPI is now in the final process of coming up with a work coverage, including the bidding terms for the selection of IPPAs.

"The bidding documents will be out soon," the PSALM official said, adding that this would be in time for the scheduled bidding for the IPPAs by the latter part of January next year.

The IPPAs will be tapped through a competitive bidding. Those being targeted are international power industry players and traders to be engaged as IPP administrators. At least four IPPAs are eyed to manage the Napocor-IPPs portfolio in the Luzon area.

There is a need to group these IPPs in preparation for the competition with the commercial operation of the Wholesale Electricity Spot Market (WESM).

Under Republic Act 9136 or the Electric Power Industry Reform Act of 2001, the privatization of the IPP contracts shall be done by contracting out the management of the off-take obligations of PSALM, as transferred from Napocor, on the contracts with the private energy producers to IPPAs.

As proposed, the IPPAs would become responsible for administering the IPP contracts and selling the energy output of their plants, to include that in the WESM.

Aside from foreign energy firms, newly-formed energy traders, which are offshoots of financial or energy consultancy firms, and even former employees of the Napocor are also encouraged to position themselves as potential IPP administrators, as long as they satisfy the stringent financial terms set.

The criteria set out for the IPPAs’ engagement would require them to demonstrate financial integrity, including their net worth, bank references, and performance bond, among others.

They will also be asked to have first-hand experience as an electricity trader in a competitive wholesale market or other demonstration of competence, so they would have a way of justifying their approach to bidding the IPP contracts into the electricity spot market.

The IPPAs will primarily bid out the IPPs’ energy output into the WESM in a manner which optimizes its running hours and net revenues.

It will also negotiate bilateral contracts with customers and/or to sell options, including financial instruments, or insurance capacity.

As proposed, the IPPA will handle the contracts of Napocor with total 4,221 MW capacity.

Included in the list of IPPs to be transferred to the IPPAs are the 1,200-megawatt (MW) Ilijan natural gas combined cycle owned and operated by Korean Electric Co. (Kepco)-Ilijan Corp. located in Batangas; Pangasinan-based 1,000-MW Sual coal units 1 and 2 operated by Mirant Power Corp. as well as its 700 MW Pagbilao coal units 1 and 2.