Meralco warns of adverse impact of delays on power supply deals

MANILA, Philippines — Further delay in the approval of power supply agreements (PSA) will put Manila Electric Co. (Meralco) and its customers at a serious disadvantage since this will result in higher costs, company officials said.

This has already been manifested in the renegotiation of the engineering, procurement and construction (EPC) contract for the 2x300-megawatt (MW) coal-fired power plant in Subic, Zambales under Redondo Peninsula Energy Inc. (RP Energy), Meralco president Oscar Reyes said.

“Just on the power supply agreements, the additional penalty of prejudice of these delays and passage of time results in significant increase in project cost because of depreciation - the weakening of the peso or increased cost of materials,” he said.

“It also gives the EPC contractor the opportunity to review their pricing and to ask for a higher price at the end of the validity period,” Reyes said.

The EPC contract of RP Energy — a consortium composed of Meralco subsidiary Meralco PowerGen Corp. (MGen), Aboitiz Power Corp. and Taiwan Cogeneration International Corp. — with contractors Korean firm Doosan Heavy Industries & Construction Co. Ltd. and local company Azul Torre Construction Inc., expired  end-December 2017.

RP Energy failed to issue a notice-to-proceed to Doosan pending the approval of the PSAs by the Energy Regulatory Commission (ERC).

It received the updated EPC contract from Doosan last month which contained higher cost, MGen president and CEO Rogelio Singson said.

“They had to submit a new EPC contract. It’s definitely much higher than the extended contract. We’re just looking at the completeness of the scope until we have that full discussion with them,” Singson said.

Meanwhile, RP Energy is undertaking clearing operations at the power plant site and has committed to the Subic Bay Metropolitan Authority (SBMA) “to protect the area from any environmental degradation.”

In the case of subjecting the pending PSA to a Swiss challenge, Singson said the PSA applications submitted to the ERC have gone through the full process prescribed before the implementation of the competitive selection process (CSP) policy — which requires DUs and ECs to undertake competitive bidding to secure PSAs with generation companies.

Energy Secretary Alfonso Cusi earlier said Meralco’s PSAs must be subjected to competitive bidding to resolve issues and concerns of skirting the government’s CSP policy.

“From my point of view, it would be best to subject it to Swiss challenge if they’re confident of the cost because I’m representing the public,” he said.

The seven PSAs of Meralco — which involve 3,551 megawatts (MW) of supply from coal-fired power plants — did not go through competitive bidding and were filed a day before the CSP policy took effect on April 30, 2016.