Privatization of Cebu power plant complex may hit another snag

MANILA, Philippines - The privatization of the contracted capacity of the Naga power plant complex in Cebu may hit another potential snag, sources said.

Industry sources said the current operator of the Naga power plant - Korea Electric Power Corp. (Kepco)-Salcon Philippines Inc. - has apparently been accorded the right of first refusal on the contracts.

“PSALM (Power Sector Assets and Liabilities Management Corp.) will have to resolve how to go about this concern before proceeding with the bidding,” the sources said.

But they pointed out that Kepco-Salcon’s right of first refusal may be advantageous to National Government as prospective bidders will tend to bid higher so as to discourage Kepco-Salcon from exercising its right and, at the same time, meeting the reserve price for the contracted capacity.

Asked about the issue, PSALM president and CEO Emmanuel Ledesma Jr. said he was not aware of such agreement with Kepco-Salcon.

However, informed sources said “it is in our land lease agreement when we bought the LBGT (land-based gas turbine) in 2009.”

The Naga complex consists of the 106.8-megawatt (MW) coal thermal power plants 1 and 2 and the 39-MW diesel power plant.

The plants are under a rehabilitate-operate-maintain-and-manage agreement/energy conversion agreement with Kepco-Salcon Philippines Corp. which is set to expire in March 2012.

PSALM started the tendering process for the Naga independent power producer administrator (IPPA) this month.

The first round of bidding for the Naga IPPA was deferred on Oct. 18, 2010 as the new PSALM board sought to review previous privatization activities. All bidding activities for the Naga IPPA had been completed prior to the deferment, except the actual bidding.

Ledesma said the decision to restart the entire bidding process was intended to maximize proceeds from the sale of the contracted capacity of the complex.

 “Recent developments in the Visayas grid, not the least of which was the start of operations of the Wholesale Electricity Spot Market, necessitated a restart of the Naga IPPA bidding. Additionally, we expect renewed investor interest in the privatization program, resulting in potentially more bidders for the Naga IPPA, thus possibly better privatization proceeds. The proceeds will have a positive effect on the universal charge,” Ledesma said.

Ledesma said PSALM will continuously ensure transparency and accountability in the bidding process. As such, as with previous biddings, private sector and media representatives will be invited to observe the bidding process.