Circles of hell
There’s one hitch for SMC Global Power: the Malampaya consortium is limited under the Offtake Framework Agreement PNOC had with the Malampaya consortium in drawing banked gas.
Daily TribuneThere’s one hitch for SMC Global Power: the Malampaya consortium is limited under the Offtake Framework Agreement PNOC had with the Malampaya consortium in drawing banked gas.
Banked gas will be a non-performing asset for San Miguel Corp. energy arm SMC Global Power likely until next year as the Malampaya consortium is saddled with restrictions due to the progressive depletion of natural gas wells.
SMC Global Power, which is the owner and administrator of nine high-capacity power plants, has purchased banked gas from the Philippine National Oil Co.
The potential fuel is the unused gas for the 1,200-megawatt Ilijan natural gas plant that is now an SMC property after Ilijan's independent power producer agreement has been concluded.
Under the provisions of the IPPA, the administrator becomes the power plant owner at the end of the term of the deal.
The interesting story, however, is about the unused natural gas or banked gas that the previous Ilijan owner, state firm National Power Corp, obtained through a "take or pay" deal with the Malampaya consortium.
Between 2002 to 2007, Ilijan failed to use 108.6 petajoules of the fuel supply. Under the take-or-pay arrangement, a fixed quantity of gas is required to be paid by the power plant operator every year, whether these are used or not.
In September 2009, PNOC purchased from the DoE all the rights, benefits, and entitlements of the banked gas.
Last June, as SMC global Power assumed ownership of Ilijan, plant operator South Premiere Power Corp. also ended a supply contract with the Malampaya consortium.
It was relying on the start of an SMC liquefied natural gas project and the banked gas it bought from PNOC at $1.2 billion.
PNOC, in turn, has been on the back of Shell to deliver the purchased gas or else reimburse SMC Global Power on the value of the remaining banked gas.
There's one hitch for SMC Global Power: the Malampaya consortium is limited under the Offtake Framework Agreement PNOC had with the Malampaya consortium in drawing banked gas.
In short, all the available capacity for the year had been committed to the Lopez Group First Gen plants., the 97-megawatt Avion, and 414-MW San Gabriel gas-fired power plants.
The woes of SMC Global Power did not end there since drawing the banked gas will depend on the "pressure of the wells", according to an industry official.
He cited a technical limitation on the volume that can be drawn from the Malampaya field.
"Given the depleting state of the gas field, there might be a need to drill new wells first before the next batch of banked gas can be lifted," according to the energy sector insider.
SMC's woes get more complicated since Service Contract 38 is expiring next year and a contract extension is needed to extract the banked gas.
Once SC 38 is extended, SMC Global Power may still have to wait some more, for new wells to be developed.
SMC then must find an alternate source of fuel to satisfy its commitment with distributor Manila Electric Co. under a power supply agreement.
The PSA, however, has a straight pricing formula which means that it can't recover higher costs for electricity that it sells to Meralco.
The no-win situation for SMC was sealed when the Energy Regulatory Commission dismissed its petition for a price increase.
Foresight and due diligence were visibly lacking in the unfortunate turn of events for the corporate giant, whose consequences give it no choice but to absorb.