Consumer group: SMC must pay penalty

San Miguel Corp. must pay for the added cost to consumers once its energy arm SMC Global Power withdraws from two power supply agreements with distributor Manila Electric Co. on 4 October.

Consumer group Power for People said that the most likely outcome of the pullout of 1 gigawatt of electricity from the Ilijan and Sual generating plants of SMC Global Power is for Meralco to secure emergency PSAs.

“Emergency PSAs are, in nature, higher in rate. Providers usually charge higher because they negotiate with the thought that the supply is extremely needed.”

“The emergency PSA’s cost should be approximated to the penalties that will be imposed as a result of the pullout of San Miguel,” according to P4P convenor Gerry Arances.

“SMC Global Power must have the responsibility to bear the consequences of its power plants’ withdrawal,” Arances noted.

Based on the computation of industry experts, a unilateral termination of the PSA will result to SMC Global Power being declared in default that requires SMC Global Power to pay upfront P255 billion which is the estimated cost of the PSA in the remaining seven years of its term.

SMC Global Power’s plan to rescind the PSAs will cost the conglomerate an arm and a leg.

The huge penalty has to be paid to power distributor Manila Electric Co. but civic electricity watchdogs said the amount must be used to ensure that consumers will not be penalized by SMC’s decision.

Costly event

A copy of the PSA showed that it contained “Termination upon Event of Default” provision of its supply deal with Meralco obtained by the Daily Tribune shows that a unilateral pullout from the PSA will make SMC Global Power liable.

Based on the terms in the PSA, the agreed damages “upon the occurrence of a Power Supplier Event of Default” or when SMC Global Power failed to deliver on its commitments, “Meralco shall be entitled to liquidated damages, in lieu of all other damages to which it may be entitled” in the amount of P100,000 per megawatt per day of the contract capacity for the remaining term of the agreement.”

Experts said the penalty should be computed as P100,000 a day multiplied by seven years (remaining life of the contract) multiplied by 365 years multiplied by 1,000 megawatts.

Least cost principle

“If the SMC subsidiary cannot endure the terms of the contracts it bidded for, somebody else should be allowed to acquire it considering the least cost principle for consumers,” he pointed out.

“San Miguel has a role to play in mitigating the impact of its sudden withdrawal from the electricity grid,” Arances indicated.

“I am particularly asking: What accountability should be asked from San Miguel? What will be its implication considering that the PSA provides for a penalty to the unilateral termination of the contract?”

Arances said if SMC will refuse to foot the bill then it should be forever banned from the power industry for being unreliable.

“It should not be electricity users who should suffer the consequences in terms of added cost as a result of the pullout,” he averred.

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