The Philippine Star 10/06/2006
The operations of state-owned PNOC-Exploration Corp. is reportedly being hampered by a "leadership crisis" as the company’s board and employees recently expressed a "no confidence vote" for PNOC-EC president Eduardo Mañalac.
Company sources said the PNOC-EC board, in a planning session in Cebu, has allegedly not been able to come up with any resolution or decision from the agenda due to various disagreements with Mañalac.
"It appears that PNOC-EC is ‘paralyzed’ and the entire operation of the company is in imbroglio," the sources said.
Declining to confirm nor deny the issue, Energy Secretary Raphael P.M. Lotilla said "it (issue) has been there since a month ago." He, however, declined to say if he would investigate whether such issue really exists in the PNOC-EC organization.
In a letter written by concerned officials and employees of the Philippine National Oil Co. (PNOC) family, they said "what PNOC needs now is a decent, morally upright and honest manager".
"What PNOC need is a man of integrity and credibility, who does not say one thing and does another; a man who practices transparency thus avoid this kind of CMOL controversy," they said.
They added that "what PNOC needs is an official who will attract investments and not to bring PNOC to various court and Ombudsman cases and negative media releases, thus damaging seriously the corporate image of PNOC."
In an earlier interview, Mañalac denied allegations that he favored the proposal submitted by Malaysia’s Mitra Energy on the Camago-Malampaya oil leg (MOL) since some officials of the oil exploration firm were his former colleagues in Conoco Philips and China National Oil where he used to work as an executive.
"That is not true. We have implemented a good process and properly selected the right company," he said.
Based on the proposal submitted by the Mitra group to PNOC, production of oil in CMOL will commence before the end of 2007. Mitra Energy estimated a total of 41 million barrels of oil could be extracted from the reservoir for a period of four years with a total project cost estimated at $684 million.
But sources claimed that Mitra Energy has very limited net worth as of December 2005 of only a million dollar.
President Arroyo issued last month Executive Order 556 which effectively revoked Mitra Energy’s contract, saying that "there shall be no farm in or farm-out contracts awarded by any government agency, including PNOC, including contract for the exploration development, and production of crude oil from Camago-Malampaya reservoir."
With the Malacañang decision, PNOC will have to bid out the oil rim project.
Mañalac said they recognized the valid concern of President Arroyo in issuing such order. "We support President Arroyo’s move. The President only wants to make sure that future partners of government agencies, particularly PNOC, will be legitimate and has the right financial strength," he said.
It would be recalled that when PNOC started discussions with Mitra Energy, local conglomerate Burgundy Global Exploration Corp. requested for the Office of Solicitor General’s ruling and opinion to uphold the Constitutional mandate regarding the granting of rights to Filipino when it comes to national patrimony.
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The Philippine Star 10/06/2006
The state-run Power Sector Assets and Liabilities Management Corp. (PSALM) faces a possible probe for alleged "price manipulation" at the wholesale electricity spot market (WESM).
In a press conference yesterday, Philippine Electricity Market Corp. (PEMC) president Lasse Holopainen said they would start an investigation on PSALM’s "unusual price bids" during August and September this year.
As a trader in WESM, PSALM accounts for 50 percent of the trading volume. PSALM, created under the Electric Power Industry Reform Act of 2001, administers the independent power producers (IPPs) of the National Power Corp. (Napocor). It has four teams consisting of 16 power plants that have been trading at the WESM.
"Napocor owns 20 percent of the generating capacity and the rest, or about 50 percent, of our total generating capacity is owned by IPPs, which Napocor was previously managing. However, under the WESM, PSALM has been trading the IPPs, and the thing is if you have market power then you can set the prices. Then 50 percent is under control of PSALM," Holopainen noted.
The investigation, which could last up to 45 days, was ordered by the PEMC board when it noticed the rising prices in the WESM over the past months. The probe, Holopainen said, is reflective of PEMC’s thrust to adhere to a transparent market.
"Whenever there are significant changes in price, whether upward or downward, PEMC will closely monitor the operations of the power spot market, conduct investigations if needed, and penalize responsible parties. PEMC’s mandate is to protect the public interest and ensure transparency, reliability and unfair competition in the WESM," the PEMC head said.
When prices in the WESM go beyond certain thresholds, the Market Surveillance Committee (MSC) will automatically conduct a closer scrutiny of the trading behavior as a matter of procedure.
"All I can say is that there is suspicion of manipulation of prices and there will be an investigation," Holopainen said.
He also assured the stakeholders of WESM and the general public that PEMC will always take a proactive stance to safeguard the transparency, reliability and competitive character of the WESM, with the MCS closely monitoring and analyzing the market’s indices and the behavior of its members and participants.
The market is neutral," Holopainen said, when asked if they would penalize PSALM if found violating the WESM market rules even if it is state-run.
He stressed that "the market has the ability to penalize and correct the prices. Ideally, this investigation will be done prior to the price reflected on the consumers’ bill."
"The way it works after the trading it takes another 30 days to be billed to the distribution utility. So if there is manipulation, then the adjustments will hopefully happen before 70 days lapse," he said.
The PEMC official admitted that he was not expecting this kind of investigation. "This is something that we do expect to happen six months into our operations."
PSALM president Nieves Osorio, for her part, said "in the interest of transparency, we welcome the investigation in order to clarify issues raised against our traders."
"Under the WESM rules, any complaint must be investigated by PEMC. As far as we are concerned, PSALM’s electricity trading teams have been trading electricity based on the rules laid out by PEMC," she said.
"Bid prices are influenced by several factors, among them the cost of producing electricity which varies from plant to plant," Osorio said.
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The Philippine Star 10/06/2006
The Philippine Electricity Market Corp. (PEMC), the operator of the country’s wholesale electricity spot market (WESM), is looking at the possibility of temporarily stopping the operation of WESM next month to prevent rotating brownouts in the Luzon grid.
PEMC vice president for market operations Mario R. Pangilinan told a press conference that there would be a fuel supply interruption from Nov. 18 to Dec. 12 due to the scheduled maintenance of the Malampaya gas pipeline in Palawan.
As an offshoot of the natural gas supply interruption, the operations of the gas-fired power facilities Ilijan (1,200 megawatt) and Sta.Rita/San Lorenzo (1,500 MW) would cease during the period.
During the expected outage of these gas-powered power plants, PEMC sees projected demand to reach an average 4,536 MW, or a maximum of 5,810 MW and a minimum of 3,104 MW.
PEMC president Lasse Holopainen said they are now coordinating with the Department of Energy (DOE) to determine if there would really be a need to suspend the WESM operation to prevent any supply problem during these periods.
"There also ongoing discussions in the DOE on whether or not to suspend the market to prevent possible high prices. However, this are still being considered along with other contingency measures being discussed with DOE, National Power Corp. (Napocor) and the other major generators," he said.
"We’re still discussing whether it’s needed, if economic trading can continue, then we will continue it, but this is again a preemptive measure," he added.
He said they are also closely coordinating with the parties involved to determine if it would be necessary to shut down the WESM operations.
"We have been discussing with the natural gas operators the possibility of having substitute fuel. For instance, First Gas and Kepco are trying to source possible substitute fuel to keep them running at certain periods of time, particularly during peak demand," he said.
Holopainen noted that the interruption will result to thin reserve margin due to the combined outage of all natural gas plants amounting to 2,700 MW.
He also expressed apprehension that there are also other factors that may affect supply and could lead to a price uptick and worse power outages.
"This will imply a possible escalation of spot prices due to tight supply condition and dispatch of oil-based plants. It will also result in the poor quality of system frequency due to low reserve and possible rotating brownouts in case there are additional forced outages of the generating plants, which means with only 6,700 megawatt left, and a plant will trip, we might then have to go a rotating brownout," he said.
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The Philippine Star 10/05/2006
PNOC-Energy Development Corp. (EDC), the most profitable subsidiary of state-owned Philippine National Oil Co. (PNOC), has firmed up a price range for its planned initial public offering (IPO) this year.
Energy Undersecretary Melinda Ocampo told reporters that the PNOC-EDC board has approved the proposed price range submitted by the company’s financial advisor, CLSA Exchange Capital. Ocampo, however, declined to give the price range for the stock offer.
She said with the board approval, PNOC-EDC’s IPO is expected to start anytime this year.
It was earlier feared that the PNOC-EDC stock offering may be deferred to early next year due to some unresolved issues such as the consent to be given by its creditor bank, the World Bank (WB).
But Ocampo said they are optimistic the WB would be able to issue its consent soon. "That is the idea and we hope that the IPO will push through this year."
It was also learned that CLSA and the PNOC-EDC privatization team are currently working on the firm’s registration with the Philippine Stock Exchange (PSE).
PNOC-EDC expects to raise some $300 million from the IPO initially scheduled in September. This schedule was moved to November or December this year.
Proceeds from the IPO would be used for the modernization and upgrading of PNOC-EDC’s drilling facilities. Some $60 million from the proceeds would be utilized to pay portion of the company’s build-operate-transfer (BOT) contracts this year.
PNOC-EDC also want to generate new funds from the public offering to veer away from new borrowings.
PNOC-EDC, the geothermal and renewable energy development arm of PNOC, has a present net book value of $800 million to $1 billion. It expects its earnings to reach more than P10 billion this year from P8.6 billion in 2005.
In May this year, the PNOC-EDC board approved the privatization blueprint which will allow the sale of 30 to 40 percent of the company through an IPO.
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The Philippine Star 10/05/2006
Lopez-owned First Gen Hydro Power Corp. said yesterday that the Power Sector Assets and Liabilities Management Corp. (PSALM) has issued the notice of award for the company’s purchase of the 112-megawatt (MW) Pantabangan-Masiway hydroelectric power plant complex in Nueva Ecija.
PSALM is the government agency tasked to handle the privatization of the generation and transmission assets of the National Power Corp. (Napocor).
In a disclosure to the Philippine Stock Exchange, First Gen Hydro, a wholly-owned subsidiary of publicly-listed First Gen Corp., said it won over SN-Aboitiz Power Corp. in the successful bidding conducted by PSALM last Sept. 8. First Gen Hydro submitted a higher bid of $129 million.
With this acquisition, First Gen Corp. will have a total of 1,839 MW of installed generating capacity, accounting for almost 12 percent of the country’s total installed capacity.
First Gen’s other subsidiaries currently own and operate the 1,000-MW Santa Rita and 500-MW San Lorenzo natural gas-fired power plants in Batangas City, the 225-MW Bauang diesel power plant in La Union, and the 1.6-MW Agusan hydroelectric plant in Bukidnon.
According to First Gen, its foray into hydropower is a significant step towards fulfilling the company’s aspirations to diversify its portfolio and help protect the environment.
The Pantabangan-Masiway plant was practically the first big ticket item sold by PSALM since it started the privatization of Napocor assets in 2004.
The Pantabangan hydropower plant is located in San Jose, Nueva Ecija and is composed of two 50-MW units. Both are commissioned in 1977.
The Masiway power facility, on the other hand, is located near the Pantabangan power plant and was commissioned in 1981.
First Gen also won in the bidding for the 1.6-MW Agusan hydropower plant auctioned off by PSALM last year for $1.53 million.
Next on the auction block is the 360-MW Magat hydroelectric complex in Isabela and the 25-year concession of TransCo (National Transmission Corp.).
Under the asset purchase agreement (APA), First Gen will sign a land lease agreement with PSALM, and the operation and maintenance agreement with the National Irrigation Administration for the non-power components.
The APA for the Pantabangan-Masiway facility requires the winning bidder to deliver at least 40 percent of the purchase price as upfront payment payable on or before the closing date. The balance of 60 percent may be paid in 14 equal semi-annual payments with an interest of 12 percent per annum compounded semi-annually.
The winning bidder is also required to post a performance bond of $2.58 million, equivalent to two percent of the purchase price. The performance bond will be reduced every year equivalent to two percent of the aggregate amount of the deferred payments.
In addition, the winning bidder will be required to post a deferred payment security deposit equivalent to at least the next deferred payment in the form of cash, currently dated manager’s check or an irrevocable standby letter of credit acceptable to PSALM.
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The Philippine Star 10/04/2006
State-owned National Power Corp. (Napocor) yesterday denied that it has been influencing the bidding at the wholesale electricity spot market (WESM) by submitting high bids.
In a press statement, Napocor said the changes in electricity prices of generators at WESM, such as the Napocor, are just part of the dynamics that govern the relationships of market participants. It is also an indication of the self-correcting mechanism in prices brought about by competition and deregulation – where rates approximate, if not reflect, the true cost of generation.
The power firm was reacting to allegations that it is bidding "high" to recover losses incurred in the past two months in the WESM, which could put an end to cheaper electricity for consumers.
Napocor earlier said it had incurred almost P1 billion losses from its first month of participation in the WESM
The state-owned power generation company also denied it has been engaging in any "bid low" strategies.
"On the contrary, Napocor has been consistently bidding well within its allowable rate-of-return. It is the market that dictates how much can be charged in a given bidding hour. This is the very essence of competition."
The power company said WESM records will show that it has been bidding in the spot market using electricity generation prices based on its approved revenue requirement.
As one of the major participants in the WESM, Napocor also explained there are many factors that affect prices in an open market.
"Trading in an open market such as the WESM depends on the strategies and decisions on electricity pricing by trading participants. These strategies and decisions tend to respond to real market situations," it said.
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The Philippine Star 10/03/2006
The Power Sector Assets and Liabilities and Management Corp. (PSALM) said three prospective bidders submitted yesterday their respective prequalification documents in preparation for the bidding of the 25-year concession of the National Transmission Corp. (TransCo).
Citing the confidentiality agreement between the government privatization arm and the prospective groups, PSALM declined to name the members of each consortium.
The list of prequalified bidders will be released after the evaluation of the documents is completed. The documents were accepted and verified last Sept. 28. The evaluation process of the prequalification documents starts immediately.
"We’re very happy with the turnout of the event notwithstanding the inconvenience caused by typhoon Milenyo. Considering the stringent requirements set in the terms of reference, the three groups represent quality investors both local and foreign. This only indicates the earnestness of the parties to participate in the final bidding for the TransCo concession set in November," PSALM president Nieves L. Osorio said.
The prequalification procedure enables PSALM to assess the financial and technical capabilities of investors interested in bidding for the 25-year TransCo concession to ensure strict compliance with the provisions of the Electric Power Industry Reform Act (EPIRA).
"The prequalification process was also conducted to ensure that only serious bidders with proven domestic or international experience and expertise as a leading transmission system operator would be qualified to participate in the formal bidding," Osorio said.
PSALM units involved in the process stamped initials on each page of the documents to indicate completion and precision in terms of the number of pages submitted vis-à-vis the bidders’ receiving copies.
PSALM is now evaluating the documents and will announce the qualified bidders in about a month’s time.
Among those who witnessed the proceedings were newly appointed TransCo president Arthur Aguilar and assistant chief state counsel Ruben Fondevilla, who regularly attends the PSALM board meetings representing Justice Secretary Raul Gonzales.
Bidders for the TransCo concession must have a member or affiliate with experience in operating and maintaining electricity transmission systems comparable to that of the Philippines , with at least 6,000 circuit kilometers, a minimum 6,000 megawatts peak demand and a voltage level of 115 kilovolts (kV) to 230 kV.
At the same time, a member of the prospective bidder who meets the technical prequalification criteria must have a net asset value or market capitalization of at least $500 million.
Bidders should also have the capability to form a concessionaire who will meet the 60- percent Filipino ownership restrictions for grantees of a public utility franchise. The largest foreign and Filipino members of the prospective bidder will also need to pass a net asset value market capitalization test.
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The Philippine Star 10/03/2006
Energy Secretary Raphael P.M. Lotilla has lauded Mirant Philippines’ decision to give in to its employees’ request for a severance package of 2.5 months of salary for every year of service.
"We are gratified and satisfied with the decision of Mirant Philippines management," Lotilla said.
He said the move resolves one of the utmost concerns of the Philippine government. "We want to ensure that the welfare of the employees that would be affected by the sale is protected."
"Employees are part of the assets of the corporation. The investors need to take care of them as they will be the ones to run the Mirant power plants," he said.
Late last week, Mirant Philippines chairman and president Jose Leviste Jr. said they would formalize and come up with a written policy on the severance package this week.
Leviste said he had personally relayed this matter to the employees in the Sual and Pagbilao plants last week.
"I told them Mirant will formalize in its company policies the practice of giving 2.5 months for every year of service, including all benefits in the past. In other words, we’re going to put it as part of our company policy. Before it was practice, and our written policy does not reflect it. So we’re going to put it in writing and assure our employees on that matter," he said.
He said management will also work out an amendment to the Mirant Information Package (MIP) to reflect the changes in the separation package.
"The one reflected in the MIP will be changed. But the commitment is to the Philippine employees," he said.
Another part of the MIP that would be changed is the company’s retirement plan which is a defined benefit plan with a fund held in trust by a Philippine bank. The plan covers all regular Filipino employees, including senior management and officers, and pays benefits that are above the minimum requirement of the law. The plan pays 1.25 months salary per year of service for early and normal retirements; and for voluntary separation, the plan pays one-half month salary per year of service provided the employee has served for not less than 15 years. The plan is subject to an annual actuarial assessment by a certified professional.
The Mirant chief said they would revise this particular part of the MIP to assure employees that their welfare are aptly protected.
He said they have yet to thresh out details on how the new package will be implemented.
"The issue on whether when our employees will be severed has yet to be discussed, I don’t know what the new owner will do and I don’t know who the new owner is. But we are not only changing the company policy, hence we are putting the company practice into the company policy," he added.
Leviste said the new policy containing the separation package will also be placed in the company’s data room.
"We are also going to put this in our data room. We have a data room where all the bidders can access," he said.
The changes, he said, would also be reflected in the sale agreement. "We are going to put it also in the PSA [purchase and sale agreement], in short it will be part of the deal. If they are severed for whatever reasons, they are covered," he said.
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The Philippine Star 10/03/2006
State-owned Philippine National Oil Co. (PNOC) has entered into an agreement with a UK-based oil exploration firm for the installation of solar home systems in Ifugao province.
PNOC said Middle East Petroleum Services (MEPS) has agreed to provide the funding to electrify households in selected barangays in the province.
MEPS is an oil exploration company and is also diversifying into renewable energy development. The project is part of MEPS’ corporate social responsibility program.
According to PNOC, the project will be part of its PNOC Solar Homes Project which is now on its fourth year.
There are now P210.6 million worth of solar systems installed under the project. As of August 2006, the project has benefited 10,551 households in various regions in the country.
PNOC said there are about 4,500 units left to install for the project to be completed, which is targeted by the middle of 2007. It added it is confident that with the entry and participation of MEPS in this project will enable it to meet this target.
The project was made possible through a 5.591-million euro grant from the government of Netherlands and partly subsidized by PNOC.
"Because of this support, the solar home systems are made much more affordable," PNOC said.
The state-run company is optimistic of the benefits and long-term positive impact of the project, citing the need to develop other energy resources so that households that are not connected to the main power grid can enjoy the benefits of electricity.
In 2004, the PNOC solar project was a recipient of the highest award for sustainability in the internationally-renowned Energy Globe Awards.
Through the same solar project, the government also aims to install some 15,000 solar home systems as source of electricity in Regions 1 to 7 as well as in the Cordillera Administrative Region.
About 40 agrarian reform communities in Mindanao are also expected to enjoy electricity through the Solar Power Technology Support (SPOTS) project of the Department of Agrarian Reform and the Department of Energy (DOE). Phase 1 of the project involves a $25.188-million loan from a Spanish mix credit facility and a P450-million government counterpart.
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