IPPs want to buy their own coal directly

Independent power producers (IPPs) are asking the government to grant them the right to buy their own coal requirements.

This was among the proposals submitted by the IPPs as amendments to the Electric Power Industry Reform Act (EPIRA). The IPPs as well as other sectors of the power sector are proposing some changes to the energy sector deregulation law through House Bill (HB) 1889.

Under the present practice, the IPP administrator or the National Power Corp. (Napocor) retains control over the energy output or the IPP.

“This situation would not be advisable,” Ernesto B. Pantangco, president of the Philippine Association of Independent Power Producers Inc., said.

Pantangco said EPIRA sought to privatize Napocor, and not to have the latter serve a residual function as a fuel procurement company.

The IPPs argued that it is a diminution in the value of the IPP contract if the fuel procurement function remains in favor of Napocor. The winning bidder would assume a significantly higher risk in selling the energy output when it has control over the fuel used for such output as compared to when all aspects of the Napocor IPP contract is assumed by it.

“Higher risk translates to lower privatization value,” they said.

The IPP president warned that Napocor faces more attacks from the public in the face of mounting calls for transparency and good governance if it retains the energy output procurement function.

Meanwhile, another group of IPPs said through a position paper that lowering the privatization threshold to 40 percent from 70 percent will only be detrimental to the industry.

They said lowering the threshold to 40 percent will hasten open access which gives consumers the discretion to choose their own power suppliers.

The government, through Napocor, still control 65 percent of the Luzon grid and 82 percent of the Visayas grid. Thus, government is still dominant and breaches the 30 percent market share cap as stated in EPIRA.

The market share caps of 30 percent for the grid and 25 percent of the national-installed generating capacity ensure that there will be enough players to compete in the market. Such a set-up induces competition which in turn, will lead to better prices and services for the consumers.