Gov’t may renegotiate IPP contracts anew

Lawmakers are looking to direct the Department of Energy (DoE) and the Power Sector Assets and Liabilities Management Corp. (PSALM) to conduct another round of renegotiation for the government’s existing contracts with independent power producers (IPPs).

Similar to the objectives of the IPP contract renegotiation conducted in 2004, the plan seeks to generate savings for the government and, at the same time, reduce the amount of stranded contract costs that will eventually be passed on to all electricity consumers through the imposition of a universal charge.

The House committee on energy approved Tuesday a “motion for this committee to pass a resolution to direct the DoE and PSALM to renegotiate the IPP contracts.” The motion, however, will have to be discussed and approved by the Joint Congressional Power Commission before it can be implemented.

In a separate interview, PSALM president Emmanuel R. Ledesma Jr. said they were amenable to the plan to renegotiate the IPP contracts, but admitted that they would face difficulties in the process.

“IPP contracts were already renegotiated as per the Electric Power Industry Reform Act (Epira). Renegotiations were particularly difficult as IPP terms involve creditor covenants, among other details,” Ledesma explained.

“So it can be imagined that whatever results previously obtained were the most that could be extended by the IPP contractors. However, if Congress mandates renegotiation, PSALM will perform whatever task is assigned to it,” he said.

Energy Secretary Jose Rene D. Almendras declined to comment, noting that he has yet to study the matter.

Data from the Department of Energy showed that in 2004, the government successfully renegotiated 20 IPP contracts, generating savings of $3 billion in nominal terms and $1.04 billion in discounted present value terms. Due to the renegotiation, the 20 IPPs reportedly agreed to give the government an average 9.8 centavos-a-kilowatt-hour in savings for the remaining term of the contracts.

Prior to the renegotiations, an inter-agency committee composed of representatives from the Departments of Finance and of Justice and the National Economic and Development Authority was created to review all IPP contracts entered into by the National Power Corp.

Leading the final negotiations with the IPPs in 2004 was PSALM, which was aided by other government agencies.