Make PSA terms transparent

They participated in a bid. The problem SMC Global Power faces is how to change what is contained in the terms of reference.


September 13, 2022

The terms in the power supply agreements between the units of SMC Global Power and the Manila Electric Co. should be revealed to the public for the sake of transparency.

SMC Global Power subsidiaries South Premiere Power Corp., which runs the Ilijan natural gas plant, and San Miguel Energy Corp., which operates the Sual coal plant, are threatening a unilateral withdrawal from their PSAs.

The recourse of Meralco, once one gigawatt is removed from its electricity supply, is to buy from the spot market, which may result in a spike in monthly bills until the PSAs are replaced.

SMC Global Power must not be allowed to just up and leave, a veteran in the sector said.

The Energy Regulatory Commission is expected to soon decide on the petitions for rate adjustments, or the notification of SMC Global Power that it would leave the contract if the agency denied its rate hike pleas.

SPPC wanted a “temporary” 80 centavos per kilowatt-hour increase in the fixed PSA rate, while SMEC is seeking a pocket-busting P4 per kWh increase in its Sual coal plant rate.

Within six months, San Miguel Global Power wanted to pass on P5.2 billion of its losses from high coal prices and the supply restrictions from the Malampaya natural gas field to consumers.

Consumer groups complain that the San Miguel Corp. energy affiliate is engaged in arm-twisting the government with its threat to abandon the Meralco supply deal.

The safeguards are in the terms of the deal, according to a stakeholder.

“Once you enter a competitive selection process, there are penalty clauses, if the commitments are not delivered,” the source added.

He said that the government should prod the contractors to make public the terms of the deal, since their welfare is affected if the PSA falls through.

“We should look at those penalty clauses. What happens next is contained in the terms of reference,” he added.

The terms of reference, which contained the provisions for the fulfillment of the PSA, are drafted by Meralco, and they specify what will happen in case the winning bidder fails to comply with its commitments.

“They participated in a bid. The problem SMC Global Power faces is how to change what is contained in the terms of reference,” the source indicated.

The solution may only be to back out of the deal.

While nobody can dissuade the SMC energy arm from withdrawing, the source said “they may find it better than continuing,” and the rules on the imposition of penalties should apply.

Whether SMC can join the new Meralco auction for replacement PSAs is also contained in the terms of reference.

“Meralco sets the rules. It can even decide to blacklist SMC. The only role that the government can take in this situation is to ensure that the rules will apply,” according to the energy sector veteran.

The source blamed the SMC for its predicament.

“Sometimes, they bid so low just to obtain the contract. Then afterward, we will learn that the contractor is backing out.”

“The practice is very common, even in other contracts outside of the energy sector,” according to the source.

Transparency is a basic rule that is necessary to ensure that the eventual outcome would favor consumers through lower electricity prices.

Read more Daily Tribune stories at:

Follow us on social media
Facebook: @tribunephl
Youtube: TribuneNow
Twitter: @tribunephl
Instagram: @tribunephl
TikTok: @dailytribuneofficial