Fried

The recent acquisition of San Miguel Corp.'s unit South Premiere Power Corp.'s of banked gas at $1.2 billion, or nearly P70 billion worth at the current exchange rate, has raised eyebrows, particularly as it did not go through a public bid.

A logical assumption is that SPPC assumed the right to the huge fuel supply after the transfer to it last 3 June of the ownership of the 1,200-megawatt Ilijan plant from the state-backed Power Sector Assets and Liabilities Management Corp. under the terms of an Independent Power Producer Administration agreement signed in 2010.

The asset is the accumulated unused gas of Ilijan from a Take-or-Pay Quantity arrangement from 2002 to 2007, which state -owned Philippine National Oil Co. owns.

With the surging price of fuel, the natural gas for extraction from Malampaya becomes a highly-sought commodity.

The complicated route that eventually resulted in the fuel being sold to SPPC was the result of the unusual arrangement regarding the privatization of Ilijan, which is among the biggest power suppliers in Luzon.

Only seven IPPA have been awarded since 2009, two of which went to a San Miguel Corp. subsidiary after the conduct of auctions.

The IPPA deals were part of the privatization thrust of the government in the energy sector.

In the Ilijan plant deal, the Build-Operate-Transfer was entered into by Psalm and Korea Electric Power Corp. for the construction of the natural gas plant.

The ultimate beneficiary of the BOT arrangement, however, was not the government as is the usual process, but SMC as the IPPA administrator.

The deed of sale on Ilijan was signed last June despite SMC's estimated P30 billion in arrears on generation charge remittances as a result of a conflict between Psalm and SMC in the method of computation.

SMC had insisted on basing the IPPA obligation on the agreed tariff with Meralco under a Power Supply Agreement.

Its contract with the government, however, specified that the amount will be based on the prevailing price at the Wholesale Electricity Spot Market.

The dispute has been with the Mandaluyong Regional Trial Court since 2015.

The government, through Psalm, wanted the deal terminated, but SMC obtained an injunction order from the Mandaluyong RTC.

An injunction order favoring SMC led to the transfer of the Ilijan ownership.

The court order enjoined Psalm "from further proceeding with the termination of the IPPA agreement between SPPC and Psalm while the main case is pending." Thus, the court order remains in force seven years after it was issued as the case dragged on.

The litigation stemmed from an earlier indication of Psalm to terminate the IPPA deal since SMC had incurred then P6.46 billion in payables, which had piled up.

Then it gets more complicated as Ilijan stopped a supply contract with Malampaya almost simultaneously with the ownership transfer.

The Udenna group, which used to control the Malampaya consortium, had offered to give priority to the supply of the banked gas to PNOC, allowing the government to benefit from it.

Legislators led by Senator Sherwin Gatchalian, then Energy panel chairperson, threw a monkey wrench in the Malampaya redevelopment plan of the Dennis Uy conglomerate.

Udenna said the banked gas is a contractual obligation "to Philippine National Oil Co. per an off-take contract."

Moreover, an earlier agreement of PNOC had committed the banked gas to the 97-megawatt Avion and 414MW San Gabriel power plants based on an agreement sealed with the Lopez group's First Gen Corporation.

The supply of banked gas to the First Gen plants would be from December 2021 to December 2022.

The circumstances behind the sale of the banked gas remind many of chicharon or pork skin fried in the animal's own lard.