Government to bid out administrators for IPPs this year

The government is set to bid out contracts for independent power producer administrators (IPPAs) within the year, a ranking energy official said.

In his yearend 2005 report, Energy Secretary Raphael Lotilla said the IPPAs’ auction is one of the items in the priority list of the Department of Energy (DOE) for 2006.

Lotilla admitted that the identification of the IPPAs is part of the major challenges that the power sector would be facing this year.

Restructuring the electric power industry, he said, remains a major priority of the government.

"We need to hasten the pace of the power sector restructuring," the energy chief said.

Late last year, the Power Sector Assets and Liabilities Management Corp. (PSALM) hired an international consultant for the National Power Corp.’s (Napocor) contracts with independent power producers (IPPs).

A PSALM official said they have commissioned British Power International (BPI) after securing the approval of the Asian Development Bank (ADB).

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

The IPPAs will be tapped through a competitive bidding. Those targeted are international power industry players and traders to be engaged as IPP administrators.

At least four IPPAs are being eyed to manage the Napocor-IPPs portfolio in the Luzon area.

There is a need to group these IPPs in preparation for 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 made 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 Napocor are also encouraged to position themselves as potential IPP administrators, as long as they could 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 would also be asked to present 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 would primarily bid out the IPPs’ energy output into the WESM in a manner which optimizes its running hours and net revenues.

It would 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 a total 4,221 megawatts (MW) capacity. Included in the list of IPPs to be transferred to the IPPAs are the 1,200-MW Ilijan natural gas combined cycle owned and operated by Korean Electric Co. (Kepco)-Ilijan Corp. in Batangas and the Pangasinan-based 1,000-MW Sual coal units 1 and 2 operated by Mirant Power Corp.

Another plant operated by Mirant, the 700-MW Pagbilao coal units 1 and 2, will also be transferred to the IPPA.

The 215-MW Bauang diesel plant of Bauang Power Corp. in Zambales is also part of the IPPA list.

Enron Power Corp.’s 116 MW Subic diesel plant and the Casecnan multi-purpose hydro power plant of the National Irrigation Administration in Nueva Ecija are also included in the said list.

Two more hydropower facilities, the 340-MW San Roque multi-purpose hydropower of Marubeni/Sithe in Pangasinan and the 70-MW Bakun hydropower of Aboitiz Equity Ventures in Ilocos Sur will also transferred to the management of the IPPA.

The only geothermal facility that will be handled by the IPPA is the PNOC-Energy Development Corp.’s 440-MW Leyte B geothermal power plants.