POSTSCRIPT / June 20, 2006 / Tuesday


Philippine STAR Columnist

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Winning Masinloc bidder still looking for money?

PERSONAL: Readers who had sent me email in the past five days are requested to send it again if they think it is still necessary.

For some reason, the contents of my inbox and outbox, my file of attachments, and my address book were wiped out two days ago as I was installing the latest version of Eudora. So here I am groping in white space.

I am still analyzing what is going on. Even this Postscript was cut down because the text I was working on vanished while I was editing it last night. What you read below is just that part that I am able to reconstruct close to deadline.

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CAPACITY TO PAY: The repeated failure of the winning bidder of the 600-megawatt electric plant in Masinloc, Zambales, to pay the $227-million down payment is another lesson on the need to check the capacity of bidders to pay or make good their bids.

We must restore the integrity of public bidding in this country if we want to attract serious big-time foreign investors.

It has happened too often that some buyers of government assets submit a bid way above their means and much higher than the likely bid of the competitors, but start looking for financing or moneyed partners only after they win the bid.

The Power Sector Assets and Liabilities Management Corp. (Psalm), which bid out the Masinloc coal-fired plant, gave the highest bidder, YNN Pacific consortium, two deadlines already to produce the down payment. But YNN has not been able to pay.

To justify its extending the deadline again to June 30, Psalm raised YNN’s performance bond from $11.2 million to $14.1 million.

Why do we keep changing the rules in midstream?

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PSALM RESTRAINED?: A recent Reuters report datelined Singapore had it that YNN’s head man, Sunny Sun, was still approaching banks in Singapore and elsewhere for a $200-million loan to pay its immediate obligation (down payment) for Masinloc.

This strange turn of events would not have come to pass had Psalm done its job of checking first the bidders’ capacity to pay.

It should have been alerted by earlier reports that YNN had no track record in power generation, that it was undercapitalized at just P1 million, and that its business address had been traced to an office that did not reflect its $561-million bid.

What or who made Psalm neglect this basic step in the prequalification of bidders? Who is holding back Psalm from declaring YNN in default and confiscating its performance bond?

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STILL LOOKING: Reuters reported that banks had refused to give YNN/Sunny Sun a loan because aside from being an unknown entity with no track record in the power sector, the coal-fired Masinloc generator had been bid out as a “merchant” plant.

This means that the plant is not tied to an existing contract to supply electricity to any consumer or distributor. It has no assured source of regular income to enable it to pay a bank loan.

This may be the reason why YNN is reportedly trying to sign Purchase Power Agreements by itself with electricity users or distributors, including the Manila Electric Co. (Meralco).

A PPA as value-added to the bid award might help convince a bank to extend YNN some financing or for YNN to lure financing partners.

But is this reported post-bidding process right? Assuming this is the predicament of YNN and its head man Sunny Sun, why did Psalm allow the firm to bid, win and look for financing later?

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REACH FOR THE SKY: Some Psalm officials have explained that it would be disastrous if they confiscated YNN’s performance bond for failing to pay the $227-million initial payment on time.

The $561-million bid of YNN was actually way above the $330-million minimum price at which the government was willing to sell Masinloc, the best among National Power Corp. assets marked for privatization.

Officials of Psalm said in effect that if a new bidding were to be held, there might not be another offer of that magnitude coming its way, and so the government might as well give YNN more time to make good its offer.

Built in 1998 at a cost of $530 million, industry observers said that with depreciation and its being only a “merchant” plant, it was surprising that somebody submitted a bid higher than the plant’s brand-new price.

Is Psalm saying that one way of clinching a deal in this country is to bid higher than the original cost of the project and also higher than the floor price — then holding the government hostage to the overblown bid?

That formula seems to be working in the Masinloc deal.

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SECRET TALKS: No wonder that reported supply contract being worked out with Meralco appears to be crucial to the campaign to keep the value of Masinloc high and thereby attractive to financiers.

One problem here is that the talks with Meralco are hush-hush, when the general rule is for such supply contracts that impinge on public welfare should be done with utmost transparency.

The parties are able to talk in secret, because the Energy Regulatory Commission issued in the nick of time Resolution No. 21 that suspended the rule that public biddings be the procedural basis for supply contracts.

Is it coincidental, or providential, that among the three of the five ERC commissioners who signed the controversial resolution last May was Jesus Alcordo, who has had significant business dealings with Sunny Sun?

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ERC DENIAL: The ERC has stoutly denied that the resolution was issued to give YNN the opportunity to sign a sweetheart supply contract without the benefit of public bidding or scrutiny.

Still, Meralco sources said that top executives are rushing a PPA with YNN despite the fact that there is no need for it as there is an oversupply in the Luzon grid at the moment.

Maybe we could give ERC the benefit of the doubt. But if Meralco signs the contract with YNN in the coming days, no amount of denial will convince the public that the issuance of Resolution No. 21 was mere coincidence.

Connecting the dots is an interesting game: Sunny Sun of YNN owns Duracom Corp. that supplies electricity to Meralco. Jesus Alcordo, the ERC commissioner, was once president of Duracom and an officer of another Sun-controlled company.

Alcordo said he had divested all interests and holdings in his companies as well as those related to Sunny Sun’s operations. For his own sake, he may want also to tell the public to whom he sold his shares, for how much, and how much he had paid in taxes.

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(First published in the Philippine STAR of June 20, 2006)

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