PSALM stands pat on termination of power contract with SMC unit

MANILA, Philippines - The state-run Power Sector Assets and Liabilities Management Corp. (PSALM) stands firm on its decision to terminate its independent power producer administration (IPPA) agreement in the 1,200-megawatt Ilijan combined cycle power plant with South Premiere Power Corp., a unit of SMC Global Power Holdings Corp., due to the latter’s failure to pay over P6 billion in generation fees for three years.

PSALM, the government agency tasked to sell state-owned power assets, said its decision to terminate the IPPA contract is intended to protect the interest of government and power consumers in the Batangas-based power facility.

“In the interest of government, PSALM issued the notice of termination to SPPC to stop government from incurring unnecessary losses as a result of the Ilijan IPPA’s nonpayment of its obligations amounting to P6.46 billion which forms part of the privatization proceeds to be utilized to liquidate the financial obligations of National Power Corp., pursuant to the Electric Power Industry Reform Act,” PSALM president and CEO Lourdes S. Alzona said.

“For power consumers, the collection of outstanding amount will translate in reduction of Napocor stranded debts that will be recovered through the universal charge,” she added.

The Regional Trial Court of Mandaluyong City issued a 72-hour temporary restraining order Thursday stopping PSALM from terminating its IPPA agreement with SPPC, as well as pursue collection of supposed unpaid generation payments and other payments.

PSALM said SPPC failed to pay the outstanding generation payments from Dec. 26, 2012 to April 25, 2015. This compelled the agency to avail of the relief provided under the administration agreement (AA) on Sept. 4.

“While PSALM, on different occasions, has demanded immediate payment by SPPC of its outstanding generation payments, SPPC refused and consistently refuses to settle all its contractual obligations to PSALM for the relevant period,” Alzona noted.

The agency also called on the $60-million performance bond in the form of a stand-by letter of credit of SPPC with ANZ Bank.

Alzona noted PSALM’s action on Ilijan IPPA AA was backed up by the Commission on Audit in its latest audit report on PSALM operations.

Following the termination of the contract, PSALM informed the Philippine Electricity Market Corp. (PEMC), the operator of the Wholesale Electricity Spot Market (WESM), SPPC would cease to be the trading participant in relation to the Ilijan power plant and all sums payable shall be paid into the account of PSALM.

Alzona assured the public the termination will have no effect on the operations of the Ilijan plant, as the plant is being operated by the Korea Electric Power Corp. (Kepco), through Kepco Ilijan Corp.

Situated in the province of Batangas, the Ilijan power plant is being operated under a build-operate-transfer contract that will expire in 2022.

However, SMC Global claimed terminating the IPPA contract is illegal and could cause a spike in electricity prices.

“SMC Global believes that PSALM’s act of termination of the Ilijan IPPA is illegal, the claimed amounts due are PSALM’s erroneous calculations and is totally against the letter and the spirit of the EPIRA. We believe that electricity prices will escalate with the termination as PSALM plans to trade Ilijan output on the WESM,” it said in a statement.

SMC Global is the power generation arm of diversified conglomerate San Miguel Corp.

In April 2010, PSALM bid out Ilijan IPPA where San Miguel Corp. emerged as the highest bidder with a $870 million offer out of four firms.