Dispute over Ilijan power plant deepens

The Power Sector Assets and Liabilities Management (PSALM) Corp. said its decision to terminate the contract for the Independent Power Producer Administrator (IPPA) in the 1,200-megawatt Ilijan natural gas power plant in Batangas protects consumer interest, but SMC Global contests that this may, in fact, drive electricity prices higher.

“We believe that electricity prices will escalate with the termination as PSALM plans to trade Ilijan output on the WESM (Wholesale Electricity Spot Market),” Ramon S. Ang, chair and CEO of SMC Global Power Holdings Corp., said in a text message.

SMC Global Power is the energy unit of diversified conglomerate San Miguel Corp.

PSALM terminated its Ilijan IPPA contract with SMC Global’s subsidiary South Premiere Power Corp. (SPPC) on September 4, 2015. With the termination, PSALM had drawn on the same date the $60 million performance bond of SPPC. As IPPA, SPPC manages the contracted energy output of the Ilijan power station. SPPC and PSALM have an ongoing dispute on so-called “generation payments” under the Ilijan IPPA agreement.

Ang said his company believes that PSALM’s act of termination of the Ilijan IPPA is illegal.

“The claimed amounts due are PSALM’s erroneous calculations and is totally against the letter and the spirit of Epira (Electric Power Industry Reform Act of 2001),” he said.

PSALM, however, said the termination of the Ilijan IPPA will actually benefit consumers.

The state-owned firm had demanded payment of receivables from SPPC but the company “consistently refuses” to settle all its contractual obligations, PSALM president and CEO Lourdes S. Alzona said in a statement.

“In the interest of government, PSALM issued the Notice of Termination to SPPC to stop government from incurring unnecessary losses as a result of the Ilijan IPPA’s nonpayment of its obligations amounting to P6.46 billion, which forms part of the privatization proceeds to be utilized to liquidate the financial obligations of National Power Corp. (NPC), pursuant to the Electric Power Industry Reform Act. For power consumers, the collection of outstanding amount will translate in reduction of NPC stranded debts that will be recovered through the universal charge,” Alzona said.

Also on the same day, PSALM informed the Philippine Electricity Market Corp. (PEMC) that SPPC would cease to be the trading participant in relation to the Ilijan power plant. “PEMC was also informed that, with immediate effect, all sums payable to SPPC as trading participant for the Ilijan power plant shall be paid into the account of PSALM,” Alzona said.

Alzona assured the public that the termination will have no effect on the operations of the Ilijan plant, as the plant is being operated by the Korea Electric Power Corp.(Kepco), through Kepco Ilijan Corp.

Alzona added that PSALM’s action on Ilijan IPPA AA was also echoed by the Commission on Audit in its latest audit report on PSALM operations.

PSALM held the bidding for the Ilijan IPPA on April 16, 2010, where San Miguel, the parent firm, came out as the highest bidder. San Miguel offered $870 million for the Ilijan contracted capacity to edge out three other groups namely: First Gen Luzon Power Corp., Therma Power Visayas Inc., and Trans Asia Oil and Energy Development Corp.