Winning Calaca power plant bidder backs out

French power firm Suez Energy, the winning bidder of the 600-megawatt Calaca coal-fired power plant in Batangas, has decided to back out of the deal, the Power Sector Assets and Liabilities Management Corp. (PSALM) said yesterday.

In a statement, PSALM said Emerald Energy Corp. (EEC), the vehicle used by Suez Energy to bid for the power plant, will “terminate its purchase of the asset due to the deterioration of the power plant since its bidding date on Oct. 16, 2007.”

EEC submitted the highest bid of $787 million last Oct. 16, 2007 for the power plant and was supposed to make a 40-percent upfront payment to PSALM by Nov. 9, 2008.

But due to some unresolved issues, EEC was not able to pay the upfront cash and finally decided last Jan. 23, 2009 to inform PSALM of the termination of sale.

EEC’s main reason for its decision is that the government was not able to deliver the plant based on the sales agreement.

 “Emerald Energy Corp. (EEC), formerly Calaca Holdco Inc., said in a letter to the Power Sector Assets and Liabilities Management Corp. (PSALM) dated Jan. 23 that it observed deterioration in the condition of the Calaca Plant since the bidding date until the end of 2008,”PSALM said.

It will be noted that one of the conditions for the turnover of the power plant is that it should be delivered to the winning bidder “as is, where is”, or in the same condition as it was during the bidding date.

PSALM said citing this observation, the power firm “gave notice of termination of the Asset Purchase Agreement for the sale of the plant.”

But PSALM said it would still evaluate the notice from EEC to determine the government’s options under the circumstances.

It was not known whether PSALM will also forfeit the $9 million performance bond deposit of Suez due to its inability to meet the 40 percent upfront payment at the given period of time.

But sources said Suez will not allow PSALM to forfeit the bond claiming it was the government’s fault why the sale was not closed.

The snag in the Calaca power plants sale will not only affect the revenue flow of the National Government but will also affect the interim open access (IOA) approved by the Energy Regulatory Commission (ERC) for implementation.

The supposed sale of Calaca should have been a major factor for PSALM to reach the 70 percent privatization level needed for an open access implementation.

Under the ERC guidelines, the IOA will not start unless the Calaca sale has been consummated.

The IOA will allow bulk users with a one-megawatt requirement to voluntarily choose where to source their power needs. 

To be able to make the IOA work, there should be enough available power for the big power buyers to purchase, thus the need for the entry of Calaca in the market.

Earlier, it was learned that Suez Energy wanted an increase in the rates of the National Power Corp. before closing the Calaca deal.

When sold last October, a transition supply contract (TSC) from Napocor was attached to it to make it more palatable to the bidders.

Since the rates of Napocor are low, it was learned that the Calaca winning bidder was having a second thoughts about closing the sale.

It was also confirmed from highly placed sources that the Suez Energy office in Manila will close down following with the failure to seal the Calaca sale.