The Philippine Star 10/13/2006
Washington D – The World Bank has criticized the Philippine government for its failure to regulate properly the country’s electric cooperatives.
In a speech at the World Forum on Energy Regulation here, World Bank lead energy specialist Bernard Tenenbaum took note of some "bad examples" carried out by regulators on off-grid electrification.
Tenenbaum said the Philippines’ off-grid electrification was "heavy-handed," citing a study he authored in 2004 and released April 2006 showing that "prepared program for new mini-grids has more than 20 regulatory steps." This means the SPUG (small power utilities group) program under the National Power Corp. has too many regulatory steps.
With this, Tenenbaum recommended that "the regulator should be allowed to vary the nature of its regulation depending on the entity that is being regulated."
"The national or regional regulator should be allowed to contract out or delegate either temporarily or permanently regulatory tasks to either government or non-government entities," he said.
Another poor example the World Bank official noted is that "there was an unsuccessful self-regulation of these electric cooperatives."
"Our general recommendation is that there should be a presumption of "self-regulation" for cooperative and other community-based organizations. However this does not mean that the regulator should take a completely "hands-off" approach," he said.
The World Bank study also noted that it would be hard to believe that community-based organizations always exemplify good governance.
"Like any other local organization, they are susceptible to corruption and capture by local politicians for political purposes. This has been a major issue for the rural electric cooperatives in the Philippines," the study said."
According to the recent in-depth analysis of the Philippine cooperative movement, it concluded that Philippine cooperative managements "tend to be relatively fragile and isolated, making them susceptible to local corrupting influences."
This is a polite way of saying, the study said, that Philippine cooperatives have been vulnerable to takeover by local politicians.
"Once local politicians gained control, many cooperatives were "run into the ground" through economically unjustified grid extensions, padding of cooperative payrolls with supporters of the politicians, a general reluctance to raise tariffs, an unwillingness to pursue collections and sometimes even outright theft of funds," it said.
A 1989 World Bank report found that only 22 of the 117 Philippine electric cooperatives were commercially viable.
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The Philippine Star 10/13/2006
Washington D – AES Corp. is still keen on participating in the privatization of the National Power Corp. (Napocor) generating assets, a ranking company official said.
In an interview during the World Forum on Energy Regulation here, AES executive vice president Robert F. Hemphill Jr. said the company has remained optimistic on the prospect of the Napocor privatization although they have not been successful in winning any of the assets sold.
"We have looked at the Philippines 20 years ago. And we continue to be interested. Our Singapore office is handling our investment in the Philippines," he said.
Hemphill admitted they are particularly eyeing the hydroelectric power plants of Napocor.
"We are generally interested in hydro assets," the AES official said. Hydropower accounts for 17 percent of AES’ total capacity.
The Power Sector Assets and Liabilities Management Corp. (PSALM) had earlier included AES in the list of interested parties that have signified keen intesest to join the bidding for the 360-megawatt (MW) Magat hydropower plant facility which will be placed on the auction block by November this year.
The Magat hydroelectric plant, located in Ramon, Isabela, is Asia’s biggest dam project which serves the primary functions of power generation and irrigation. It was built at a cost of $83.7 million.
But Hemphill said their continued interest in the country’s power sector would depend on the soundness of the regulatory policies and presence of demand.
"We will participate as long as the country’s regulatory policies remain sound. As long as there is a potential market for additional capacity, we will continue to explore opportunities in the Philippine power sector," he said.
Hemphill said AES has considered Asia, including the Philippines, as one of the company’s targeted areas for future investments.
"We have been exploring Asia. We have power plants in Vietnam, India, Sri Lanka and other Asian countries," he said.
AES is one of the world’s largest global companies with 2005 revenues of $11.1 billion. With operations in 26 countries on five continents, AES’ generation and distribution facilities have the capacity to serve 100 million people worldwide.
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The Philippine Star 10/13/2006
President Arroyo directed yesterday Energy Secretary Raphael Lotilla and other concerned officials to investigate allegations of price manipulation in the wholesale electricity spot market (WESM) that would lead to an increase in power rates in the coming months.
Presidential Anti-Graft Commission Chairman Constancia de Guzman also vowed to monitor the investigation of the Department of Energy (DOE) on the alleged price manipulation by the National Power Corp. (Napocor), the Power Sector Assets and Liabilities Management Corp. (PSALM) and the Manila Electric Co. (Meralco) so the PAGC would be ready in the event that the case is transferred to the commission.
"I already instructed the DOE and other government agencies concerned to look into the allegations of price manipulation in the power sector and to ensure that consumers will not be taken advantage of," the President said in her message to the Liga ng mga Barangay convention in Cebu.
"Reports of price manipulations are unacceptable. They should not go unpunished if culpabilities are established," she said.
Reports of price manipulation came after Mrs. Arroyo announced last August that consumers can expect lower electric bills as a result of the WESM, which was implemented by the government in pursuit of reform laws for the power industry.
She said electricity rates will be reduced by as much as 52 centavos per kilowatt-hour due to WESM.
WESM is a trading or bidding system where power companies could purchase electricity at lower rates from different power generators.
She said the government will find ways to stabilize power rates and ensure the protection of consumers.
Mrs. Arroyo said the government is mapping out preemptive measures against power shortages or blackouts in the future.
De Guzman said the PAGC cannot yet conduct its own investigation since the DOE has primary jurisdiction over the case.
"If there is prima facie evidence (on price manipulation), that’s the only time it can be referred to the PAGC to act on the presidential appointees and the criminal cases may (be filed) through the Ombudsman or the Department of Justice," she said.
She said the commission will monitor the case and when it is transferred to the PAGC there would be a faster disposition of the alleged scam.
De Guzman said there are several laws that could have been violated if the allegations are proven, including the Anti-Graft and Corrupt Practices Act, laws on the proper actions of public officials, and the Administrative Code of 1987.
Mrs. Arroyo said the free and open competition on the sale of electricity from power generators would result in more savings for consumers and businessmen.
She had earlier bared that more reforms will be undertaken to lower the expenditures on electricity not only by the power generating sector but also electric companies.
She said the measures include opening access and retail competition by distribution of utilities at the level of household, industries and businesses.
Meanwhile, Meralco, the largest power distributor in the country, denied that the firm is involved in manipulating the price of electricity in the open market.
"Meralco had nothing to do with the alleged increase in the price of electricity on the third month of the WESM," Jesus Francisco, Meralco president and chief operating officer, said in a statement sent to The STAR.
He was reacting to the report of Albay Rep. Joey Salceda on Wednesday that the Napocor, PSALM, and Meralco were responsible for the increase in WESM prices three weeks ago from P2.88 per kilowatt-hour to P6.88 per kwh.
Salceda, an economic adviser of Mrs. Arroyo, said there was no reason for the sudden increase except price manipulation by the three sellers since there was no significant change in supply and demand.
"The three sellers, in particular Napocor, which controls power generation, owe the public an explanation," he said.
He added that the high WESM price of electricity would soon be reflected in the monthly power bills.
Francisco said Meralco is a buyer and not a seller in WESM.
"We would like to stress that Meralco is not a seller in the market and is not in a position to manipulate the price," he said.
He said although the company owns two independent power producers (IPPs) or power plants that participate in WESM, they are in no position to set the price.
"We should like to stress that we in Meralco are always looking for ways to provide lower power cost to all our customers," he stressed. Meralco earlier expressed support for the open market system, saying it would promote a competitive environment in the industry that could bring down prices.
Francisco said Meralco hopes that the recent unusual price hike could still be corrected.
That is actually the objective of the Electric Power Industry Reform Act of 2001 in creating WESM.
Rep. Alipio Badelles, House energy committee chairman, said a truly competitive environment could not be attained for as long as Napocor controls the power generation sector.
He said PSALM, the agency tasked to sell Napocor assets, should have sold at least 70 percent of the corporation’s power plants.
The Joint Congressional Power Commission (Powercom), chaired jointly by Badelles and Sen. Miriam Defensor Santiago, has started an inquiry into the reported WESM price manipulation.
Santiago said Powercom is prepared to take drastic measures to stop the anticipated increase in power rates.
She said the commission could even order a stop to the operation of the WESM if necessary.
Last Saturday, there was cause for concern over the escalating prices in the WESM as indicated in the average prices over the first three months of trading.
In the first month of trading in June, biddings resulted in an average price of P2.75 per kilowatt-hour, in the second month it rose again, and in the third month it went up to P4.853 per kwh.
Santiago said the increase was unreasonably high and raises suspicion that there is price manipulation among the WESM players.
During the public hearing of the Powercom at the Senate yesterday, Philippine Electricity Market Corp. president Lassee Holopainen explained that an investigation was conducted after the average price per kwh at the WESM increased dramatically in the third month of bidding.
He said the sudden increase was enough to warrant an investigation, saying that while volatility is expected in the market, they want to ensure that the cause is nothing other than economic reasons.
Holopainen said the investigation is ongoing so he could not yet determine whether there was price manipulation.
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The Philippine Star 10/10/2006
First Gas Corp. (FGC) has assured the public that it would continue the operations of its power plants despite the scheduled platform maintenance of the Malampaya project this November.
In a disclosure to the Philippine Stock Exchange, FGC said the 1,000-MW Santa Rita and 500- MW San Lorenzo natural gas-fired power facilities will not cease operations despite the natural gas supply interruption during the scheduled maintenance of the Malampaya natural gas pipeline from Nov.18 to Dec. 12, 2006.
FGC vice chairman and chief executive officer Peter D. Garrucho Jr. said contrary to news reports indicating otherwise, "we would like to assure the general public that the First Gas power facilities consisting of the MW Santa Rita and San Lorenzo power plants will continue to deliver power during the scheduled Malampaya shutdown in November to December of this year.
Garrucho explained that both power plants were designed to operate on a wide variety of liquid fuels.
The FGC official also noted that these power plants are equipped with adequate liquid fuel storage facilities to enable uninterrupted and continued power generation during natural gas supply interruptions, regardless of whether the disruption is anticipated or not."
He also stressed that all measures have already been undertaken to ensure that sufficient quantities of liquid fuel will be available during the scheduled Malampaya maintenance period to augment the existing fuel inventory.
First Gas Power Corp. and FGP Corp., the operating companies of the Santa Rita and San Lorenzo plants, respectively, are subsidiaries of publicly-listed FGC.
For its part, Kepco Ilijan Corp. said they would shut down the 1,200-mw Ilijan natural gas power plant, a joint venture of the National Power Corp. (Napocor) and Korea Electric and Power Corp. (Kepco).
A Kepco official said they would use another Napocor plant to augment the power requirement once the shutdown starts. "Napocor has verbally advised us to get ready (with Malaya) if there is a need to run it."
Malaya, a 650-MW bunker plant located in Pililla, Rizal, is on an economic shutdown since January this year due to the excess capacity in the Luzon grid.
"We might run to it as an additional capacity due to the shutdown of the 1,200-MW Ilijan plant," the Kepco official said.
He said the start-up of Malaya diesel-fired power facility will take about three days. "If Ilijan is shut down on a Friday, then we will start up Malaya on a Monday and it will be operating by Wednesday."
The government had earlier said that it is looking at the possibility of temporarily halting the operation of the wholesale electricity spot market (WESM) to prevent prices at the electricity market from shooting up as the power demand and supply scenario might be affected by the expected shutdown of the three natural gas power plants.
But Philippine Electricity Market Corp. (PEMC) president Lasse Holopainen said they are still studying this option if the operators of the gas-fired power plants would not be able to come up with an alternative fuel source.
With FGC’s assurance, though, it was not clear if the PEMC would still consider the proposed shutdown of WESM for the period covered by the temporary maintenance of the said facilities.
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The Philippine Star 10/10/2006
First Gas Power Corp. (FGPC) and Germany’s Siemens AG have reached an amicable settlement of their dispute over the construction of the 1,000-megawatt Santa Rita power plant in Batangas province.
With the settlement, both parties have agreed to terminate arbitration proceedings and fully settle all outstanding obligations between them with all previous decisions of the arbitral tribunal remaining valid.
Under the agreement, Siemens will pay FGPC $10.5 million on Oct. 18.
FGPC is a wholly-owned subsidiary of First Gas Holdings Corp., a joint venture between the Lopez-controlled First Gen Corp. and British Gas.
The International Chamber of Commerce had ruled that First Gas was entitled to liquidated damages worth $99.3 million from Siemens for delays in the construction of the Santa Rita power plant.
First Gas in 2003 withheld $94.2 million in "project milestone payments" to Siemens to protect that claim.
However, the London-based tribunal declared that Siemens was "entitled to extensions of time and/or suspension of liquidated damages in respect of Block 1 and Block 2 completion of 32 days and 60 days, respectively" involving the Santa Rita project.
The dispute arose when Siemens and its subcontractors incurred delays in the completion of the project, resulting in $99 million owing from Siemens to FGPC under the turnkey engineering, procurement and construction contract forged on Dec. 16, 1996.
Pursuant to the contract, FGPC withheld about $96 million of its milestone payments to Siemens.
In Dec. 2002, Siemens submitted a request of arbitration to the ICC in which Siemens claimed payment of the sums withheld by FGPC and an additional sum of approximately $64 million for alleged prolongation costs and miscellaneous matters.
Apart from the issue of delay, First Gas also filed an $83-million counterclaim against Siemens for alleged defects in the power plant.
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