PSALM eyes $13B from sale of IPP contracts

The Power Sector Assets and Liabilities Management Corp. (PSALM) is expecting to raise more than $13 billion from the privatization of independent power producer (IPP) contracts, a ranking PSALM official said.

“All the contracts have values. If we will calculate it based on nominal value it could reach to at least $13 billion,” PSALM president Jose Ibazeta said.

Ibazeta said they expect to come up with a decision on how to carry out the bidding for IPP contracts and the selection of IPP administrators (IPPAs).

The PSALM chief believed that they should be able to make the IPPA bidding a successful one as this will eventually lead to lower prices of electricity.

“If we will be able to get higher proceeds from these stranded contracts, we will reduce the universal charge that will be passed on to consumers,” he said.

Ibazeta, however, said they have not yet decided if they will sell the IPP contracts in bulk or on an individual basis as proposed by the industry players. “We have yet to decide on that,” he said, noting that there are only four big power plants in the list of IPP contracts that would be sold.

Ibazeta said they have to take into consideration the sentiment of the investors.

“We have conducted several investors’ forum precisely to determine what the industry and prospective buyers prefer on the sale of IPP contracts,” he said. “Their (prospective bidders/investors) inputs are important in deciding what scheme to use in privatizing the IPP contracts,” he said.

Philippine Independent Power Producers Association (PIPPA) president Ernesto B. Pantangco earlier said that most of its members want to privatize the Napocor-IPP contracts on an individual basis.

This is in contrast with one of the approaches being explored by PSALM which will allow the sale of the IPP contracts in bulk or in three batches at 2,000 megawatt each.

He said based on rule of thumb, if PSALM will sell the IPP contracts in bulk, the 2,000 mw will command an investment of $4 billion per portfolio.

“Bidding out this huge portfolio will be very complicated,” he said. PSALM wants to cluster the IPP contracts to enable it to sell the less attractive IPP contracts with that of the attractive ones.

Another important parameter that the PIPPA wants PSALM to consider is the transfer of ownership to IPPAs at the end of the build-operate-transfer (BOT) contract period.

Based on the proposed approach of the advisors of PSALM, the World Bank and the Asian Development Bank (ADB), there is no mention of ownership transfer and the IPPAs will just serve as traders of the energy output/contracts of the power plant that they will win.

The group, however, is supportive of the idea that the winning IPPAs will have full control over cost components such as fuel procurement function of Napocor. They are also proposing to allocate transition supply contracts (TSCs) or bilateral contracts level to assure stable load operations of baseload power plants.

Under the Electric Power Industry Reform Act (EPIRA), PSALM is required to appoint IPP administrators to manage and control Napocor-IPP plants until such time that the contracts have expired.

Based on earlier proposals, the IPPAs will handle the contracts of Napocor with 4,221 MW capacity. The IPPAs will be tapped through a competitive bidding; and those targeted are international power industry players and traders to be engaged as IPP administrators.

As proposed, the IPPAs will primarily bid out the IPP energy output into the WESM in a manner which optimizes its running hours and net revenues.

They would also negotiate bilateral contracts with customers and/or to sell options, including financial instruments, or insurance 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.

Another plant operated by Mirant, 700 MW Pagbilao coal units 1 and 2, will 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 Casecnan Multi-Purpose Hydro of the National Irrigation Administration in Nueva Ecija are also included in the said list.

Two more hydro power facilities, the 340 MW San Roque Multi-Purpose Hydro of Marubeni/Sithe in Pangasinan and 70 MW Bakun Hydro of Aboitiz Equity Ventures in Ilocos Sur will also be transferred to the management of the IPPA.

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