Ban SMC from PSAs

The P4.30 per kWh rate for Sual and Ilijan, however, has been on appeal with the Energy Regulatory Commission for adjustment.


September 6, 2022

A serious dent on the country’s desirability to investors happened in 2006 when the government expropriated the Ninoy Aquino International Airport Terminal 3.

Subsequently, the government balked on giving just compensation to its contractors, Philippine International Air Terminals Company Inc. and its German partner, Fraport AG.

Damage suits against the government were filed both in local courts and in international arbitration tribunals.

The dispute caused an international uproar as German and European Union officials particularly expressed their concern about contracts and living up to legal obligations in the country.

In September 2015, the Supreme Court ordered the government to compensate Piatco a total of $510 million, plus an annual interest of $16 million until fully paid.

Now, a repeat of the ugly situation looms with the Power Supply Agreements that energy affiliates of Asian giant San Miguel Corp. have with Manila Electric Co.

Last year, SMC units Excellent Energy Resources Inc. and Masinloc Power Partners Co. Ltd. obtained PSAs through an auction under what is termed in the industry as the competitive selection process.

The contracts are for the future requirements of Meralco, which starts 2024.

EERI will source energy from liquefied natural gas and will produce 1,200 megawatts of electricity, while the MPPCL coal plant has been upgraded for an output of 600 MW.

EERI won the CSP for the supply of electricity at P4.1462 per kWh, while MPPCL offered P4.2605 per kWh compared to the current electricity charges of Meralco of P10.4612 per kWh.

The contracts cover a 20-year period starting 2024.

Both offers were even lower than the P4.30 per kWh being charged by Sual coal plant and Ilijan that gets its natural gas fuel from Malampaya.

Sual is the biggest coal plant in the country owned by Team Energy but operated by San Miguel Energy Corp., while Ilijan, with an output of 1,200 MW, is the biggest natural gas power plant, and was recently acquired by SMC’s South Premiere Power Corp.

The P4.30 per kWh rate for Sual and Ilijan, however, has been on appeal with the Energy Regulatory Commission for adjustment.

SMC wants to recover P5.2 billion from electricity consumers, which the Asian giant indicated was necessary for its power units to continue sourcing fuel and fulfill its power supply contract with Meralco.

SMC sought to amend its tariff and collect an additional P4 per kWh for the Sual coal plant and an additional P0.80 per kWh for the Ilijan natural gas facility.

Consumer groups opposed the petitions as they condemned SMC’s practice of offering low to secure a contract for its power plants, then later on muscle its way to convince the ERC grant the rate hike petition or it backs out of the PSA with Meralco.

The practice of SMC, indeed, causes damage to the integrity of business contracts, which in turn should be the reason for the ERC to consider barring its power units from acquiring supply deals with Meralco.

SMC should learn to play on the level instead of using corporate heft in taking consumers as hostages to obtain its profit objectives.

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