Mismanaged agency

In 2001, Republic Act 9136 or the Electric Power Industry Reform Act or EPIRA was signed into law, providing the framework for the restructuring of the electric power industry, including the privatization of the assets of the National Power Corp. (Napocor).

The same law created the Power Sector Assets and Liabilities Management Corp. (PSALM), a government owned and controlled corporation, to take ownership of all then existing Napocor generation assets, liabilities, IPP or independent power producer contracts, real estate, and all other disposable assets, and to manage the orderly sale, disposition, and privatization of these Napocor assets with the aim of liquidating all Napocor financial obligations and stranded contract costs in an optimal manner.

While PSALM reports to the Department of Energy which directly supervises all energy-related programs, projects, and activities, including the restructuring of the electricity industry, its board is headed by the secretary of finance, and includes the secretaries of energy, budget and management, justice, trade and industry, the director general of the socio-economic planning department, and president of PSALM as members.

According to its website, PSALM has sold generation assets with total capacity of 4,601 megawatts and has successfully bid out IPP contracted capacities to IPP administrators or IPPAs totaling 3,415 megawatts, including the Ilijan natural gas-fired combined cycle power plant with a contracted capacity of 1,200 MW in Batangas to South Premiere Power Corp. (SPPC) at a price of $870 million and the Sual coal-fired thermal power plant (1,000 MW) in Pangasinan to San Miguel Energy Corp.  at $1.072 billion.

In 2007, PSALM bid out a 25-year concession contract to operate and maintain the transmission system of the National Transmission Corp. to a consortium now known as the National Grid Corporation of the Philippines (NGCP) for $3.95 billion.

As of September last year, PSALM’s privatization efforts generated a total of P910.16 billion, of which P554.77 billion has been collected.

But then, PSALM has other sources of funds. For one, it is charged with the management and disposal of collections from the universal charge for missionary electrification which is imposed on electricity consumers. PSALM still owns several power generating plants, real estate property. Then of course, these IPP administrators pay a number of fees to PSALM every month.

Everything sounds great at first glance for PSALM. But it isn’t.

For one, PSALM’s financial obligations still stands at P449.2 billion as of end-2018. In fact, according to PSALM chairperson and finance chief Sonny Dominguez, they have to borrow at least P23 billion to service debts that will mature this month.

Given this context, it’s now easier to understand why Dominguez has been throwing a tantrum over supposedly unpaid obligations of private companies who hold IPP contracts for state-owned power plants.

Dominguez singled out SPPC, a unit of conglomerate San Miguel Corp. which holds the IPPA contract for the Ilijan power plant, for being its largest debtor, with over P19 billion in supposed unpaid dues.

But no less than SMC president and COO Ramon Ang said PSALM has resorted to bullying and unilaterally deciding on an issue which is still pending in court.

PSALM and SMC have been locked in a legal battle for years now over the amount which PSALM claims SMC owes.

It all started when PSALM terminated the IPPA deal with SPPC for Ilijan in 2015 over alleged non-payment of so-called generation payments under the Ilijan IPPA agreement. Note that the amount disputed by PSALM which is P19 billion is just 6.5 percent of the amount already paid by SPPC to PSALM. It is unthinkable that Ang will put the reputation of his conglomerate at stake for an amount which based on SMC’s standards is small. But then, why pay for something you do not owe?

But SMC says that said non-payment is based on a flawed computation by PSALM.

As a baseload plant, Ilijan’s capacity is, based on its IPPA contract, to be sold to bilateral customers such as Meralco. This is specifically to protect consumers from volatility in WESM prices. However, PSALM insists that SPPC should have “maximized” its revenues.

SMC then filed a case with the Mandaluyong Regional Trial Court for willful breach of contract. The company successfully secured a preliminary injunction preventing PSALM from terminating the agreement, but the court is still hearing the main case. In short, these differences in computation of generation charges will still have to be resolved by the lower court.

PSALM questioned the preliminary injunction with the Court of Appeals and then the Supreme Court but lost.

Apparently, SMC through SPPC had already paid P289.1 billion ($6.19 billion) in various fees as of end April 2019 for Ilijan, contrary to claims that it still owed PSALM P19.75 billion in unpaid dues. Of the amount paid, P222.4 billion is for energy fees and P66.66 billion for capacity fees. By 2022, when SPPC’s contract with PSALM ends, the firm said this will reach a whopping P390.6 billion, consisting of P293 billion in energy fees and 97.60 in capacity fees.

SPPC also said it even reimburses PSALM for fuel and variable operating expenses. Given these, PSALM is in fact net cash positive from its administration agreement with SPPC: As of April 2019, it gained P34.75 billion.

SMC is now asking what PSALM has done with all that money they made out of their administration agreement on Ilijan since 2010 since the public has the right to know and since these funds should have been put to good use.

The amount paid by SMC for capacity fees alone at $2 billion in fact is already enough to pay for the 20-year Ilijan plant. In fact, a brand-new plant with the same capacity could be built for a smaller amount.

And SPPC is just one of many IPPA administrators, many of who are just as big as SMC.

To cut the long story short, the matter of SPPC still owing money to PSALM for underpayment of generation charges is still a matter pending with the courts so there is no legal or even moral justification for PSALM to keep bullying SMC-SPPC into paying just because this GOCC has so much debts to pay.

Is PSALM being mismanaged? Where did all these money paid to PSALM go? That seems to be the more important question that needs to be answered. Recall that there is still this plunder complaint filed by SMC before the Department of Justice against PSALM head Lourdes Alzona and officials of Team Energy Corp. in connection with a contract over the Sual power station which SMC has resulted in losses of P14 billion to the government.

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