First Gen to pursue bid for Calaca plant

First Gen Corp. (FGC) will pursue its bid for the 600-megawatt (MW) Calaca coal-fired power plant, a ranking company official said.

FGC vice chairman and chief executive officer Peter Garrucho Jr. said the company is willing to bid again or negotiate the purchase with the government if necessary.

But Garrucho said the Power Sector Assets and Liabilities Management Corp. (PSALM) would have to decide first what privatization route to take. "We wrote to them that we would be interested to get into discussions with them."

He said the company would be willing to negotiate the reserve price with PSALM.

The FGC executive added that they may also consider to take in a partner but at the moment, they prefer to bid on their own.

D.M. Consunji Inc. (DMCI), the other bidder for the Calaca power facility, has signified interest to forge a partnership with FGC to seal the acquisition of the power plant.

"We’ve read what DMCI announced, but for the moment it’s still early. I think the first step is really for PSALM. Yes, we’re willing to negotiate, maybe not with just one party but with a set of partners, maybe including DMCI which is just not another bidder to us since it’s also a coal supplier, so their role in that whole project is vital since of course, there might be other partners that could bring some things to the table. We were willing to do it alone and we can do it alone, since we have the funds for it; we have access to the technology that’s there; we have the people that we have already identified to assign there, we even have people that worked there; that’s not a question. They’re familiar with the asset," Garrucho said.

"You cannot avoid the government rules for bidding, especially for such a large government asset. But once it’s failed, we think we should be in pole position. Failed for the second time and we complied with all the requirements, except for the reserve price – that’s why we’re saying we’re in pole position. But all of the other requirements, our bid represented what seems reasonable given the market risks that are associated with it," he added.

In depending its bid price of $176 million – which was rejected by PSALM – Garrucho said: We realized that if you get the asset, you would have to spend considerable amounts of funds to rehabilitate the plant to address some of the environmental concerns, especially from the community. But the big ones are the market risks."

PSALM has set a ceiling price of $288 million for the asset, a National Power Corp. owned power facility.

The FGC official also pointed out that PSALM should consider the risks involved in the acquisition of Calaca.

"As you know with a coal plant, in fact, it’s even worse than a gas plant, since you cannot just shut it a night since restarting it is a major operation. But we like the asset, as we figure we would be in an excellent position to provide very cheap power to the market, but of course the economics has to fall into place," he said.

He also noted the huge investment that they have to pour in to rehabilitate Calaca, which is an investment on top of the acquisition amount.

"To rehabilitate, we would need a fairly large amount of investment and we cannot disclose that, but we spent quite a lot of money hiring international engineers to look at the coal plant and some of them were involved in the construction or design of the plant. We’ve also hired environmental engineers to look at the facility and what it would take to improve it. It really is a management decision, but in fact the demand is still building up rather strong already it would make sense that you’d do the rehab and get to dispatch at a higher level and do it while the market is still building up," he said.