The substantial P255.5 billion charges that SMC Global Power faces if it pushes through with its 4 October withdrawal from power supply agreements with Meralco would be immediately demandable, in full.

An industry source said that based on the contract of its two units, South Premiere Power Corp. which operates the Ilijan natural gas plant, and the SMC Energy Corp. which runs the Sual coal plant, SMC Global Power will have only 15 days to raise the amount from the time that Meralco issues a written demand for payment.

If it immediately stops power supply to Meralco, "due to unavailability of supply from its plant, Wholesale Electricity Spot Market, and any other source, the power supplier shall pay a fine equivalent to P908 multiplied by each megawatt-hour during a day."

Moreover, the contract provided that this particular penalty "shall be used to reduce the generation charge to consumers."

While the San Miguel Corp. energy arm is citing the PSA provision on change in circumstances for its threat to withdraw from the Meralco deal, it is likely that "termination upon the event of default" will apply.

SMC Global Power recognizes the possibility of a default in the shelf registration for fixed-rate bonds of P60 billion it filed with the Securities and Exchange Commission.

Based on the PSA, the power supplier is declared in default when an event results in "or is accompanied by an actual failure by Power Supplier to make available the contract capacity and deliver the associated energy, or any portion thereof, to Meralco."

When default happens

Such a default situation takes place when SMC Global Power "fails to perform any material obligation under the agreement, including the making of any payment which is due, which failure has not been remedied within 30 days after receipt from Meralco of a written notice of Power Supplier Event Default."

In documents filed with SEC, SMC Global Power said although the energy conversion agreements for Sual, Ilijan and San Roque contain bonus and penalty provisions, the Company monitors the IPPs' adherence to the minimum operating protocols specified in the IPPA and ECAs, "there is still a risk that the IPPs will fail to satisfactorily perform their respective operations and maintenance obligations."