Disconnected agenda

Intense public pressure effectively persuaded corporate kingpin San Miguel Corp. to honor its power supply agreements after the Energy Regulatory Commission dismissed the rate increase petition of its energy unit SMC Global Power.

The ERC "reminded" the SMC subsidiary to honor the provisions of the PSA after it threatened to pull out from the supply deal with Meralco.

SMC can't blame anybody but itself for its predicament of mounting losses from its straight and fixed pricing PSA that it acquired for its unit South Premiere Power Corp. which operates The Ilijan natural gas plant, and San Miguel Energy Corp. which runs the Sual coal plant.

The contracts were bid out in 2010. SMC Global Power was able to corner the two major deals by bidding extremely low, apparently banking on regulatory relief later on.

It failed to make provisions for what it is now complaining about which are the upsurge in the prices of coal and the problems in obtaining natural gas from Malampaya.

The Malampaya blunder was particularly indicting since SMC Global Power simply allowed itself to have no source of electricity despite the contract it has with Meralco.

It ended a supply deal with Malampaya last June as it relied on the $1.2 billion banked natural gas it purchase from the government and the start of its liquefied natural gas business to feed Ilijan.

Both the sources of supply faced delays as a result of bad business decisions.

The PSA has definite provisions in case of a unilateral withdrawal that will make SMC Global Power liable for a breach of the terms of the deal and a possible default that will require it to pay a crippling P255.5 billion for each contract or more than P500 billion.

A Meralco official said SMC Global Power is keeping its PSA but will maintain the supply of electricity to Meralco "under protest."

SMC made clear that ending the PSAs remains an option.

SMC President Ramon S. Ang said the conglomerate continues to keep its legal options open "for cost recovery, or possibly reverse the unfavorable ERC ruling, even as termination remains a recourse for the company."

SMC has lined up its moves once it abandons the PSA including "selling the capacities of the two plants to "either the Wholesale Electricity Spot Market; or Meralco, for its emergency power requirements, or distribution utilities and electric cooperatives at prevailing market terms."

These would allow it to recover in full its power generation costs, according to Ang.

"The ERC ruling is a significant blow, not just to us, but more significantly, to the public, which will have to contend with higher electricity costs with the termination of the PSAs. That is why we are weighing all possible options," he added.

Meralco officials said the power firm hopes that SMC will not stop supplying electricity.

The problem with the SMC position, however, is that it is dragging consumers into a problem that they have nothing to do with.

SMC Global Power took a huge gamble on the Meralco contracts without making any plans in case of price spikes since the straight pricing PSA does not allow pass-through costs.

It won the contract, now it has to honor its terms and also suffer its consequences, plain and simple.