Sen. Serge Osmeña III revealed this after the recent hearing of the Joint Congressional Power Commission that uncovered Napocor’s having signed power supply contracts with electric cooperatives in Mindanao on behalf of the private firm Lanao Hydro Development Corp.
This money-making move of Napocor officials allegedly violates the Epira mandate to promote free competition in the power sector. By acting as marketing agent of the Lanao firm, Napocor allegedly gives unjustified concessions to that private company.
The Napocor-LHDC marketing deal is for a 10-year period starting in 2011 at a firm TOU (time of use) rate matrix averaging P4.32 per kilowatt-hour.
Del Callar told the JCPC that he has sent letters to different electric cooperatives in Mindanao offering them the power supply contract on behalf of LHDC.
For every contract entered into by Napocor under the memorandum, it will be paid marketing fees or commissions.
Industry observers noted that Del Callar may have violated not just one, not two, but several provisions of the Epira.
First, as already mentioned, is the mandate to eradicate monopoly and open up free and fair competition. How can competition prosper when Napocor allows itself to be used – for a fee at that – in the peddling and cornering of lucrative supply contracts from distribution utilities for only one or two generating firms?
Second, Napocor appears to be using its power and influence to give undue advantage to a private firm. Distribution companies that have responded positively to the letter have been offered benefits, such as a credit line, that are not included in their current supply contracts.
In contrast, those appearing lukewarm to Napocor’s sales pitch are reportedly threatened with strict enforcement of their contracts. Giving undue advantage to a private firm is punishable under the Ant-Graft and Corrupt Practices Act.
Third, Napocor’s activities appear to violate the requirement for a public bidding for all distribution utilities and electric cooperatives for their power requirements.
Also, the lease agreement executed between NPC/Psalm and Salcon allegedly violates RA 9184, also known as the Government Procurement Reform Act, which requires that all procurement shall be done through competitive bidding, except in specific exceptions (which do not apply in the said lease agreement mentioned).
Fourth, by entering into a power supply agreement, Napocor allegedly went beyond its power to sell power only from the undisposed generating assets and IPP (Independent Power Producer) contracts of the Power Sector Assets and Liabilities Management Corp. (Psalm) because it could go beyond these limitations set by the Epira.
Section 47 of the Epira states that "NPC may generate and sell electricity only from the undisposed generating assets and IPP contracts of Psalm." Note that Napocor is not allowed to enter into new power supply agreements, to prevent it from incurring additional obligations to purchase power through bilateral contracts.
Fifth, the pricing of the supply contract at P4.32/kWh is grossly disadvantageous to electricity consumers, because it will result in increased electricity rates. The P4.32/kWh price is way beyond the rate of P2.1030/kWh for Mindanao approved by the Energy Regulatory Commission.
This time, the victims are the electric consumers from Cebu and some other parts of the Visayas. And, as usual, there are also marketing fees or commissions for Napocor.
In the contract, Napocor has obligated itself to share or assign in whole or in part its existing and future supply contracts with distribution utilities with Kephilco-Salcon for its soon-to-be-built 200-MW New Naga Coal Power Plant in Cebu subject to the payment of marketing fees to Napocor.
Napocor will also renegotiate with its distribution utilities the terms of their supply contract for at least 10 years, and thereafter, assign in whole or in part to Kephilco-Salcon the right to supply their total or partial energy requirements, again subject to the payment to Napocor of marketing fees.
This is reportedly a violation of Transco’s own mandate. Its commitment not only unduly favors Kephilco-Salcon, but also runs counter to its obligation to provide open and indiscriminate access to all qualified parties.
In both MoAs, the upcoming power plants are assured in advance of supply contracts. But this comes at a high price not only for the Epira concept but also for the consuming public. The MoA has skirted the requirement for a public bidding for all power distribution utilities while raising the retail cost of electricity.
It is good the Senate has started to look into these contracts and made their implications public.
For a change, the Office of the Ombudsman might want to initiate its own investigation and catch a few big fish. It is high time somebody broke up the notorious Mafia lording it over the Napocor.