Mindanao power crisis smolders

Apparently, it is far from over in Mindanao even after that much talked about summit with P-Noy. The crisis smolders as affected sectors remain unsatisfied with what they heard.

While checking out Facebook I came upon this post by renewable energy advocate Tetchi Capellan that offers an idea of what is at the root of the continued grumbling.

Note in this narrative how some people think Therma Marine, a company, which according to Businessweek operates as a subsidiary of Aboitiz Power Corp., seems to have received special treatment during the last administration.

If this account seems familiar, it is only because in Mindanao as elsewhere in the country, vested interests close to those who hold political power are often able to capture the policy making and regulatory sides of government.

Mindanao’s crisis aside, it is really very simple for the man in the street: how can private sector power companies report outrageous profits (overtaking Ayala for one of them no less) while we all suffer the highest power rates in Asia? Something must be wrong somewhere and it is not being fixed.

Anyway, here is the Facebook posting of Ms. Capellan.

Let me share the commentary of Dave Tauli from the Mindanao Alliance of Power Producers…

Following are the facts and events in the Mindanao power sector that relate to the ongoing blackouts of 2012. In February and March 2010, PSALM consummated the disposal of the NPC-owned power barges nos. 117 and 118, each rated 100 MW.

The power barges were sold to Therma Marine, Inc. (TMI) at the total price of $30 million, which is around one-third of the appraised value of the power barges. This reduced by 192 MW the total dependable capability of the NPC-owned and controlled power plants in Mindanao, making the PSALM at that point unable to supply the total contracted requirements of their customers in Mindanao.

Notwithstanding the disposal of PB 117 and 118, the PSALM could have ensured that there would be adequate power capacity of power plants to supply the requirements of Mindanao customers if they required the TMI to continue to provide from the power barges their share of the power supply contracted from PSALM by customers in Mindanao. This was the normal practice when the PSALM sold power plants in Luzon and the Visayas. But it was not done in the case of the disposal of PB 117 and 118.

What was the effect of this inaction?

Because power supply was not assigned by PSALM to the power barges, and neither was the NGCP-NPC ancillary services contract assigned to the power barges, the TMI was free to enter into an Ancillary Services Procurement Agreement (ASPA) with the NGCP for 100 MW capacity of the two power barges.

The contract was made effective in February 2010 for one power barge and in March 2010 for the other power barge. The ASPA was designed to enable TMI to earn (as Capital Recovery Fees) around three times more than they spent to buy the power barges.

When the ASPA was submitted to the ERC for approval, the proposed Capital Recovery Fee was reduced by ERC to the actual buying price of $30 million. (Lest it be forgotten, I mention that the NGCP is probably culpable for lack of due diligence in entering into the ASPA with TMI. They knew at the time of negotiations that the TMI bought the power barges for $30 million, but they allowed a Capital Recovery Fee of around three times the purchase price.)

The TMI, however, filed for reconsideration of the ERC decision on the CRF and, against public expectations, the ERC reversed their earlier decision, and allowed TMI to recover three times what they paid for the power barges.

I say “against public expectations” because, while the ASPA hearings were going on, ERC chair Zenaida Ducut promised to Mindanao lawmakers, headed by Cong. Rufus Rodriguez, that the ERC would render a decision on the ASPA that would be “favorable” to the public; this was precisely the ERC decision to allow only $30 million as CRF.

To her credit, the Honorable Zenaida Ducut, voted against the three-fold increase in the CRF when the ERC reversed their decision on Motion for Reconsideration by TMI. She was outvoted, however, because, according to reports by ERC insiders, three other commissioners voted in favor of the exorbitant CRF: Commissioners Jose Reyes, Rauf Tan, and Alejandro Barin.

The economic damage from the blackouts in 2010 was reduced because the NGCP used PB 117 and 118 to provide baseload power supply. (This was covered up by NGCP by calling the supply of baseload energy as “dispatchable reserve service”. It is illegal for the NGCP to contract for energy to be delivered to end-users.)

The unfortunate effect of this moro-moro on the part of the NGCP was that power customers paid for baseload power supply at the more expensive rates of ancillary service charges. I mention this because the penchant of government agencies in the power sector to use emergency situations to enable private corporations to make excessive profits seems to be repeated in the 2012 blackouts.

In August 2010, after the P-NOY government came into power, the Mindanao consumer groups and the chambers of commerce and industry sent letters to Sec. Jose Rene Almendras, NPC president Froilan Tampinco, and PSALM president Emmanuel Ledesma, Jr., setting out what the government energy family should do in order to prevent recurrence of the 2010 blackouts. None was implemented...

A spokesperson from the Aboitiz group who is a part of an e-group I belong to responded to the charges of Mr. Tauli. Here are the main points of the rejoinder:

Apparently Cepalco, Mr. Tauli’s employer, also made an offer to NGCP for ancillary services, using the Navotas barges which they didn’t own (Aboitiz bought them later from East Asia).

The Aboitiz spokesperson points out “the price TMI gets for the barge capital recovery fees is much lower than Cepalco’s own rates from their sister company Minergy.”

On the matter of assigning contracts, Aboitiz claims “the normal practice of assigning contracts in Luzon and Visayas was only done with baseload plants, not with the oil-fired peakers… nobody will contract to sell oil-fired electricity at P3/kWh when the cost of production is around P8/kWh.”

It was further asserted that “the Mindanao barges, 200MW, – after two failed auctions, were sold to TMI for $30 million.  The fact is they sold for very little because they were liabilities to NPC… NPC had to sell their oil-fired plants for whatever they could get. They had P3.2 billion in losses in 2007 alone.” 

It was also pointed out that Mr. Tauli “conveniently leaves out the fact that the original approval from ERC was at the higher rate. It was reduced after some politicians threatened to withhold the ERC budget. Basically the rates are based on an assumed 10 year contract for full capacity. But the actual contract was for half the capacity on firm basis, the other half as required, for one year, renewable for another year.  Beyond that, there are no guarantees.

“The actual billing determinants for the first 2 years were less than 70 percent, no revenues the rest of the time.  It is precisely this uncertainty over revenue potential that discounts the purchase price.

“Meanwhile two years have passed and no one in Mindanao has found a cheaper alternative to the ‘excessive rates’ of the TMI barges. Even Cepalco’s own contract extension filed in June of 2010 after they complained of TMI’s high rates is HIGHER than TMI’s rates. Not only is the capacity fee higher, the fuel consumption is 10 percent higher.

“The only alternative they offer is solar, and that only works when you pass on most of the cost to other people who did not even benefit from this.”

I forwarded this posting to Sec Almendras and this is his reply: “I issued a special order in October 2010 that effectively realigned the power barges of Therma Marine resulting in a reduction of rates and stopped the blackouts.”

Reacting to the insinuation about his former connection with Aboitiz, Almendras also said “People seem to have forgotten that my first order in 2010 resulted in a revenue reduction of almost P400 million for the Aboitiz group over the use of ancillary services in Mindanao.”

Almendras said he could have done more but that “I also warned that it was just a temporary solution and we needed contracts to start happening so long term solutions of new power generation can happen.”

Binay

This one is from the Professional Heckler (http://professionalheckler.wordpress.com/).

Q: How many Jejomar Binays does it take to change a light bulb?

A: 10. One to change it and nine to send a text blast telling Filipinos about his accomplishment.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco