Meralco ‘issues’ may delay privatization of power plants

MANILA, Philippines - The privatization of government power plants is expected to lose steam due to the highly political issues hurled against Manila Electric Co. (Meralco), the country’s largest distribution utility, the Philippine Independent Power Producers Association (PIPPA) said. In a briefing on Friday night, PIPPA President Ernesto B. Pantangco said the issues were creating a high degree of uncertainty among investors. "[Investors] don’t know how long it will last. They’re beginning to adopt a wait-and-see [attitude]," he added. He said the attractiveness of the power plants are anchored on the supply contracts offered by distribution utilities. Investors, he added, are clamoring for Meralco because it is has a stable base of customers. Issues from the takeover of Meralco’s corporate setup to threats of multiple estafa charges have put to question the integrity and financial soundness of the company, Mr. Pantangco said. Citing figures from the Power Sector Assets and Liabilities Management Corp. (PSALM), the firm tasked to privatize generation assets, he said only 44% of power plants owned by the National Power Corp. (Napocor) have been privatized. The Electric Power Industry Reform Act provided that the government must auction off 70% of the plants three years from the law’s enforcement. Meanwhile, independent power producers (IPPs) have banded together to fast-track the privatization of the government power generator and bring down electricity prices. On May 23, the group asked the Energy Regulatory Commission to immediately pave the way for an interim open access, which will allow consumers to choose their own power suppliers. Specifically, the system will allow consumers with more than one megawatt of electricity requirement per month to get their power supplies directly from independent power producers. These consumers, some 400 of them with a total requirement of 600 megawatts, have five independent power producers to choose from. These are AES Corp., Suez Energy Asia Co. Ltd., SN Aboitiz Power, First Generation Holdings Corp., TransAsia Power and TeaM Energy Corp. These five firms can easily offer 2,000 megawatts. If approved, the mechanism will start by June 23 or sometime before July. The petition requires only one public hearing. While the mechanism will not immediately bring down power rates, it will provide a transition of sorts for the real open access, Mr. Pantangco said. Under the law, several provisions have to be met before the regulator can declare open access. Many of the objectives of that law have been accomplished, including the unbundling of power rates, the restructuring of the power sector and the establishment of the wholesale electricity spot market. PSALM is tasked to carry out the privatization by selling at least 70% of Napocor’s generating and contracted capacity. The process of privatizing Napocor’s contracted independent power producers by bidding this out to IPP administrators, who will market the plants’ energy output, will only start in August. A number of groups have expressed interest in participating. Mr. Pantangco said PSALM will have a hard time selling the contracts because of the blueprint initially approved — the bundling of the power plants into three clusters. Napocor has contracts with 15 independent power producers. He noted that the contracts should each be handled by an administrator. A bundled portfolio, based on the initial plan, would immediately cost one administrator $4 billion. "Who’s going to [cough up such large amount]?," he asked. He noted that PSALM could immediately bid out the natural gas-fired 1,200-megawatt Ilijan power plant. The plant already has an attached fuel contract, which will make it easier for investors, he said. — Ira P. Pedrasa, BusinessWorld