Capacity to rob

/ 01:08 AM November 02, 2015

AT THE onset, let us be clear about this: with the P17-billion plunder case filed recently by San Miguel Energy Corp. (SMEC), it would be remarkable if some government officials would actually go to jail.

Now keep your eyes on the black “eight” ball, because this should be a rather convoluted case!


It involved the coal power plant in Sual, Pangasinan, built and operated by a Japanese group called Team Energy and started some 16 years ago, which the government sort of “privatized” only about six years ago.

The outfit that handled the hybrid “privatization” was Power Sector Assets and Liabilities Management, or PSALM, which inherited assets and liabilities of the bankrupt Napocor under the power sector reform program called Epira.


PSALM has been under the Department of Finance since 2005—and this might be important in the plunder case.

Among the Napocor hand-me-downs to PSALM is the arrangement with Team Energy as the so-called independent power producer, or IPP, which has a “live” long-term supply contract with PSALM on the Sual plant.

It so happened that while PSALM could not just scrap the live contract with Team Energy, the reform program still called for PSALM to get out of the energy business altogether.

And so the bright idea was the hybrid privatization of the Sual plant.

It went like this. In 2009, PSALM held a bidding for the “marketing contract” for the production in the Sual plant. SMEC handily won it, thus becoming the IPP administrator, or IPPA, for the plant, as against the IPP that was still Team Energy. In effect, the Japanese group still owned and ran the Sual plant still got paid by PSALM based on the terms of the original live contract. PSALM would simply get the money from SMEC.

Question: How would SMEC make money then? Well, it would depend on how good, or lucky, SMEC would be in trading the power output from the Sual plant in the wild open market called WESM.

In a way, under such a hybrid setup, SMEC as the IPPA would share the market risks with PSALM, while the IPP called Team Energy would still be assured of payment for the Sual plant production no matter what.


In 1994, or long before the Sual plant could even start operations in 1999, Team Energy already obtained a supply contract from the Philippine government during the time of former President Fidel V. Ramos.

At that time, the biggest racket in the power sector was the “take or pay” scheme, which required the government, through Napocor, to pay IPPs like Team Energy for the power production in their plants, whether or not the government would have use for the output.

In effect, the government took away the risks from the IPPs, by taking away the need for them to compete in the market. Thus Team Energy enjoyed the “guarantee” of payment for its Sual plant output—come what might.

The absence of competition, of course, would always mean higher prices for consumers. Based on official figures, Napocor at that time paid the IPPs about $76 per megawatt per hour, although Napocor could produce power at only $57 per MW per hour. That kind of highway robbery!

According to the case filed by SMEC, the take-or-pay deal with Team Energy, the one in effect for the past 16 years, covered 1,000 MW. Yes, the government paid the Japanese group for 1,000 megawatts—no matter what.

But what would happen if the plant would produce more than 1,000 megawatts? According to SMEC, the government would still pay Team Energy for 1,000 megawatts, and the government would get to keep the difference.

It also said that the contract, technically called ECA, or energy conversion agreement, stated that all output in the Sual plant would belong to the government, in exchange for guaranteed payment for 1,000 MW.

Everybody was happy with the arrangement. Nobody ever heard Team Energy complain. The entire power industry knew the Japanese group was making good money in the Sual plant.

All of a sudden in 2009, during the administration of Gloriaetta, just right before PSALM would hold the hybrid privatization of the Sual plant, PSALM and Team Energy got some divine inspiration to enter into a top secret MOA.

The “memorandum of agreement” suddenly talked about “excess capacity” in the Sual plant that still had a live ECA covering 1,000 MW. In effect, if the production in the plant would exceed 1,000 MW, Team Energy should also be paid for the… yes, “excess capacity.”

What a wonderful phrase that would be—excess capacity—something that did not surface in the original ECA!

According to SMEC, the original agreement actually dealt with all—as in total—output of the Sual plant.

From out of nowhere, the MOA talked of a higher capacity of 1,200 MW in the Sual plant. There would be an “excess capacity” of 200 MW, versus the 1,000 MW in the original ECA.

That would mean the MOA would allow Team Energy to get paid for the “excess capacity” of 200 MW—guaranteed!

As early as last year, SMEC as the IPPA already asked PSALM to review the MOA, going all the way up to the DOF, the supervising agency of the PSALM.

As a solution, the government proposed to SMEC a compromise formula, although the government stopped responding to SMEC regarding some issues that it raised on the MOA and the compromise formula.

By the way, the 2009 MOA between the Japanese group and PSALM, which suspiciously was done right before the hybrid privatization of the Sual plant, also contained an escape clause—you know, some SYA (save your ass) provisions.

For example, the MOA tried to describe itself, claiming that the MOA was not meant to amend or modify the original ECA.

Let me see if I get this right—the MOA injected something drastically new in the contract between Team Energy and PSALM, something that was not in the original ECA, but, excuse me, the MOA did not mean to do it—was that it?

Not meant to amend, my foot!

It all should bring us to the question on why Team Energy did not even bother to bid for the marketing contract for its own Sual plant in the PSALM hybrid privatization.

Well, it already enjoyed a “take-or-pay” for 1,000 MW of production in the Sual plant. No risk at all! By its joining the bidding, and its taking over the original role of the government as seller of the output, it would have to take risks.

And so why would it not just have the best of both worlds—automatic payment for 1,000 MW under the original “take or pay” ECA, plus payment for 200 MW more under the brilliant MOA that did not mean to amend the original ECA.

If the original “take or pay” was already highway robbery, this “excess capacity” should be highway rape.

SMEC called it a “plunder” case, an offense without bail. A P17-billion plunder, at that.

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TAGS: Business, coal power plant, electricity, Energy, plunder case, power, Power Sector Assets and Liabilities Management, privatize, PSALM, san Miguel energy corp., SMEC
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