One down, many more to go

It was a badly needed one, and it came at just the right time.

I’m talking about last week’s successful auction of the 112-megawatt Pantabangan-Masiway hydroelectric power plant in Nueva Ecija, which fetched two serious bidders and a winning bid of $129 million.

Industry insiders say that given the rule-of-thumb construction cost of about $1 million for every one megawatt of capacity in the power generation industry, the not-so-new plant did fetch a good price.

Hallelujah! this is PSALM’s first successful sale this year, and at 112 megawatts, is the biggest power plant to be sold after the transaction for the 600-MW Masinloc went pffftt.

It does help that the Pantabangan-Masiway facility is a medium-sized power plant that runs on water. Since the variable costs of operating a hydroelectric power plant is cheaper, the Pantabangan-Masiway plant stands a better chance of surviving in the open market even without any guaranteed supply contracts. This is not the case for those that use fossil-based fuels.

For a change, First Gen Corp., the winning bidder, submitted a bid that was above the government’s reserve price. In the past, First Gen had been the object of criticism for submitting bids way below the government’s minimum bid price.

Jumpstarting the sale

With the recent successful bidding, the question now is: Could this one-time success be a sustainable trend or is this going to be just an aberration of what has been happening in the past years?

Government’s supposed latest resolve to pursue the auction of smaller plants, particularly the hydroelectric facilities, may just jumpstart the sale of the National Power Corp. assets. Hydroelectric power plants produce cheaper electricity, and are thus able to compete better in the wholesale spot market.

Hopefully within the year, the 360-megawatt Magat hydroelectric plant will be successfully bid out. Next year, two more power plants running on water will be up for sale. These are 246-megawatt Angat and the 175-megawatt Ambuklao-Binga plants.

Still negotiating for supply contracts

While these auctions are being readied, negotiations continue to secure those controversial power supply contracts with distributors like Meralco. These contracts are essential especially to the bigger power plants since they would ensure that whoever buys the facility would be able to sell the produced electricity.

Government has learned from its painful mistake of rushing the auction of the 660-megawatt Masinloc plant as a full merchant plant, and the 600-megawatt Calaca facility as a partial merchant plant after the Power Sector Assets and Liabilities Management Corp. (PSALM) issued a limited supply contract equivalent to 83 megawatts. Both are still up for sale.

It may be a tough act for PSALM to sell its big plants now. On the distribution side, it seems that lower prices at the wholesale electricity spot market are so far giving distributors like Meralco more elbow room to think about whether to sign contracts for the long haul. There are other sources of electricity as far as Meralco is concerned.

Should this be the case, there appears to be no urgency for Meralco and other distributors to go into any long-term supply contract. It seems that government has created the sticky situation which has so far interfered in its avowed privatization efforts.

How government will hurdle this impasse is a challenge to the Department of Energy and PSALM. Even the 25-year concession contract to operate Napocor’s transmission facilities, now owned by the National Transmission Co., continues to be confronted by problems. PSALM is on its third attempt to sell the transmission grid so that government could get out of what could be a capital-intensive undertaking to repair and upgrade the network.

After the brouhaha involving Independent Power Producers‚ contracts with the government, no wonder investors in the energy sector or their lenders appear lukewarm to the auctions.

Buyers’ market

In the meantime, Mirant’s upcoming sale of its 2,231-megawatt portfolio in the Philippines poses not a small problem. Mirant is selling all of its interests in the power industry in the Philippines following the financial difficulties of its mother company.

It could very well turn out that those who were previously interested in Napocor’s assets could refocus their attention on the Mirant portfolio, which by the way has a guaranteed long-term supply contract with the government, an assurance that its capacity – whether utilized or not – is going to be paid by the government.

It does not take a lot of brain power to deduce that the government’s privatization efforts will suffer another temporary setback when Mirant starts its bidding process. It does not help either that there are other governments in neighboring economies that have decided to relinquish their control or ownership in their power sector.

With the market awash with power plants up for sale both here and abroad, there may not be enough interested and qualified buyers for all the facilities that Napocor will be putting on the auction block.

A buyers’ market – that is what the Philippine electricity industry is right now. The situation though could ease a few years down the road when the forecasted power shortage especially in the Visayas electricity supply grid becomes a reality.

Could it be that a few years from now, the IPPs that the country once regarded as villains could bet again on us and become our saviors anew? They could be more cautious, having been scorned once by public opinion.

But if the price is right and the opportunity is attractive enough, business interests will prevail.

Chino Trinidad back as ccl commissioner

Now back to my other love in sports after golf, poker and chess – basketball. Collegiate Champions League (CCL) preparations for the search for the best collegiate team in the country are in full swing with the appointment of Chino Trinidad as CCL Commissioner for the 2006 competitions. Trinidad is also the long-time commissioner of the highly successful Philippine Basketball League (PBL). The two-week knock out series of CCL starts on 1st October, running up to 15th October.

On his second term as CCL commissioner, Trinidad acknowledges the value of the CCL competition as it provides the venue to broaden the competitive experience of players as they compete with collegiate teams from other leagues. "To be the UAAP or NCAA Champion is an achievement, but to be the best collegiate team in the country is bringing it to higher level," remarked Chino Trinidad.

As of now, eight teams have secured their position among the elite "sweet sixteen" that will compete inknock out games (losers go home) to determine the national collegiate champion. These are: Ateneo de Manila Blue Eagles, UE Warriors, UST Tigers and Adamson University Falcons from UAAP and San Beda Red Lions, PCU Dolphins, Letran Knights and Mapua Red Cardinals from NCAA. Eight more slots are being contested by teams from other collegiate leagues in Visayas, Mindanao and Metro-Manila.

Watch the best collegiate teams in action on Solar Sports Plus TV channel soon.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village,1227 Makati City. Or e-mail me at [email protected] or at [email protected].If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.