OPINION
Hijacking the system
SMPC said electricity rates could come under pressure if the bidding leads to a production halt by July next year, while saying it is weighing legal options to challenge the auction terms.
The recently issued Joint Administrative Order (JAO) of the Department of Energy (DoE) and the Department of Environment and Natural Resources (DENR) raises concerns that the rules could be manipulated to favor a particular interest.
Those concerns gain added weight amid the objections of Semirara Mining and Power Corp. (SMPC) over the rules governing the coal mine bid.
SMPC holds Coal Operating Contract 5 which expires on 14 July 2027. The DoE, however, decided not to renew the contract.
Energy Secretary Sharon Garin cited an opinion from the Department of Justice (DoJ) that the contract could not be renewed, rejecting SMPC’s petition to extend its operation of the Semirara coal mine for another 13 years.
SMPC said electricity rates could come under pressure if the bidding leads to a production halt by July next year, while saying that it is weighing legal options to challenge the auction terms.
In a regulatory filing on Wednesday, SMPC said a new operator may not be able to take over the highly complex mining operation immediately, potentially disrupting the supply of Semirara coal used by power plants for baseload generation.
The company warned that the risk is heightened by bidding rules that make the highest financial offer the main basis for awarding the mine, while prospective operators are not required to have mining experience.
“Semirara is no ordinary mine. We are mining in the sea, deeper than the highest building in Makati. We have to pump out the equivalent of 12 Olympic-size swimming pools or the Pasig River’s torrent every hour to get to the coal,” SMPC said.
The JAO has paved the way for bidding provisions skewed in favor of a new operator.
The technical eligibility provision, for instance, requires no track record in mining. The test is “technical capability in downstream or upstream industries related to the contracted resource.”
A coal power generator can meet the downstream portion, and the work program only needs to meet a “common technical baseline,” which it can meet by hiring a mining contractor. The text sets no minimum years or tonnage of mining experience or output.
Only the incumbent carries Mine Closure Liabilities (5.8, 8.4). These are deducted from the incumbent’s financial offer for scoring purposes. A new operator has no existing rights, so it has no deduction. If the financial offers are very tight, this can be a deciding factor.
The incumbent faces an extra disqualification gate. Existing holders “must not have any record of breach or unsatisfactory performance,” and the agency assesses “actual or potential contractual non-compliance.” “Potential” is a very low bar, and the agency decides. A bidder with no existing contract can’t be knocked out on this ground.
The incumbent must also account for all cost-recovered, amortized, or depreciated assets and turn them over at the end of its term. A new entrant that wins the area would inherit that infrastructure.
Domestic supply scoring also favors a power plant operator that can commit large volumes to its own energy operations, and the incentives for exceeding the minimum provide the rewards.
The agency has discretion over the weights and criteria, including how much weight to give the financial offer versus domestic supply, as specified in the bidding documents. The agency head may also approve additional criteria. This gives the agency considerable latitude in shaping the rules, potentially allowing it to favor a particular bidder.
Route to a negotiated deal (9.9, 10.x). If the incumbent is disqualified, the bidding could fail on grounds such as having “none eligible” or other grounds provided by the implementing agency. After a second failed bidding, the agency may negotiate directly. According to the JAO, a negotiated award to a preferred party would be difficult to detect.
With the bidding for a project of national significance taking place close to the elections and the end of the incumbent administration’s term, the process raises concerns that energy security could take a back seat to political favoritism and the interests of favored allies.