Based on the provisions of the 2019 power supply agreement between SMC Global Power and Manila Electric Co., the San Miguel Corp. energy arm's unilateral termination of the agreement is not allowed.
SMC Global Power has filed a notice with the Energy Regulatory Commission and Meralco that it will end the PSA by 3 October.
What was provided in the PSA is that both parties wait the decision of the ERC on their application for price adjustment before they can even negotiate between themselves on "a satisfactory solution regarding the amendment" of the PSA.
Under Article 11 on the "Charges due to Change in Circumstances" provision of the contract, joint action is required of the contracting parties in filing a resolution for price adjustment with the regulator.
SMC Global Power had cited "change in circumstances" for its plea for a substantial "temporary" increase in the tariff of its Ilijan natural gas plant and the Sual coal plant.
The SMC unit claims to have run a P15 billion loss for this year as a result of the higher prices of coal in the world market and the supply restrictions from the fast-depleting Malampaya gas field.
The PSA specified when changes in circumstances can be invoked by the power supplier:
When the supplier becomes liable to pay any new charges or any increased charges for the PSA;
SMC Global Power is no longer able to require payment from Meralco for disallowed pass-through amounts;
Operating costs or capital expenditures associated with the plant materially increase; and
Sale by power supplier of contract capacity and associated energy is adversely affected.
The process that follows should be SMC Global Power sending a notice to Meralco regarding the change in circumstances together with an analysis of the cost impact.
Then both parties should apply for adjustment with the ERC and wait for either denial or approval of the petition.
The next recourse is for "good faith negotiations" for a satisfactory solution in amending the agreement.
"If the parties fail to reach a mutually satisfactory resolution within 60 days from the commencement of negotiations, the power supplier shall be entitled to terminate this agreement."
There is, however, a provision for the termination of the agreement in "the event the increased charges or refundable amount exceeds the equivalent of three percent of the contract price."
The PSA, however, requires a written notice of termination "which shall be effective no earlier than six months after Meralco received it."
Nowhere in the deal was it provided that either party can submit a notification of termination even before the ERC can decide on the rate hike petition.
While onlookers said SMC would be hard to stop doing what it wants, some form of government intervention is needed since the welfare of electricity users or consumers is at stake.
