POSTSCRIPT / June 22, 2006 / Thursday

By FEDERICO D. PASCUAL JR.

Philippine STAR Columnist

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Skepticism greets opening of electricity spot market

SPOT MARKET: The administration is set to launch tomorrow a market mechanism intended to stabilize the supply and price of electricity. Called Wholesale Electricity Spot Market (WESM), it was formulated by the government and private power companies.

Under WESM, distributors are supposed to be able to choose where to source their power supply and thus be able to break loose from the dominant or exclusive generators in their area. Before WESM, bilateral contracts ruled.

The WESM system rests on the theory that competition will benefit consumers. Will it?

The independent think-tank IBON Foundation is saying this early that WESM would not guarantee lower and more reasonable electricity bills for consumers.

Power costs will go down, IBON said, only if monopoly control and cross-ownership in the electric industry are prohibited.

But RA 9136 or the Electric Power Industry Reform Act (EPIRA) of 2001 allows cross-ownership between generation and transmission sectors and between distribution and transmission sectors.

The law also lifts by 2007 the limit on cross-ownership between generation and transmission companies.

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MEANINGLESS: “In a truly competitive environment, power distributors can theoretically extend pressure on generators to bring down their rates with the end-users reaping the benefits,” IBON said. “But if distributors are allowed to own generation and transmission assets, a spot market becomes meaningless.”

IBON noted: “Meralco, for instance, wants to further establish itself in the generation sector in the light of the WESM as it eyes the 660-megawatt geothermal plant of Napocor in the Tiwi-Makban area southeast of Manila and the 112-megawatt hydropower plant package in northern Pantabangan-Masiway area.”

It added: “The WESM does not include electricity prices covered by bilateral agreements between generators and distributors, which imply that the onerous contracts of independent power producers (IPPs) with the Napocor and power distributors like Meralco will not be affected.

“These sweetheart deals include the notorious take-or-pay provision in the form of purchased power adjustment (PPA) and paid for by the consumers even if the IPPs did not produce nor deliver the electricity. The PPA is one of the reasons why electricity rates in the country are exorbitant.”

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MASINLOC: Engineer Jesus N. Alcordo is just one of the five members of the Energy Regulatory Commission, yet he has been the focus of criticisms against an ERC resolution perceived as tailored to favor a bidder for the 600-megawatt power plant in Masinloc, Zambales.

The reason seems to be that Alcordo once had business links with Sunny Sun, the leading stockholder of YNN Pacific consortium, the group that submitted the winning $561-million bid for the coal-fired Masinloc plant.

In a meeting with me Tuesday, Alcordo clarified his past association with Sun and the issuance last May 10 of ERC Resolution No. 21 on the signature of four commissioners, including his and that of Chairman Rodolfo B. Albano Jr.

The resolution suspended ERC rules requiring public bidding and other transparency measures to precede the setting of power rates based on supply contracts, the recovery of generation costs and other factors.

The idea behind the required public bidding is to protect the end-consumers, who in the final analysis pay for all the costs, charges, taxes, profits and the usual percentage that is gobbled up by graft.

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QUIET TALKS: The rules’ suspension was seen as shrouding in secrecy reported negotiations between YNN/Sun and the Manila Electric Co. (Meralco) for Masinloc to sell electricity directly to the latter instead of buying it through the National Power Corp. as is normally done.

There was suspicion that YNN was trying to clinch the Meralco deal, estimated to fetch P500 million a year, to make Masinloc attractive to some foreign (Malaysian) investors that Sun reportedly wants to bring into the consortium.

The continued failure of YNN/Sun to pay the required $227-million down payment for Masinloc after two deadlines led to complaints that (1) YNN was allowed to bid despite its having been undercapitalized and (2) YNN’s looking for financiers/partners after the bidding violated the terms of reference of the bids.

As Sun reportedly looks for new partners/financiers lured by a possible Meralco supply contract, he is seen as being assisted by the ERC, one of whose commissioners (Alcordo) used to be his business associate.

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BIDDING NEEDED: Resolution No. 21 suspended the requirement for competitive bidding before the signing of bilateral or transition supply contracts between generators (like YNN if it gets Masinloc) and distributors (like Meralco).

Alcordo said that while the resolution was above board, its issuance last May as Sun was doing post-bidding negotiations may have been “ill-timed.”

He said the ERC had to suspend the guidelines because it was discovered that they were issued without benefit of the mandatory public hearings. In fact, the Cagayan Electric Power & Light Co. has called attention to this supposed procedural lapse.

Alcordo said the suspension was necessary to “obviate a possible legal challenge” to the validity of ERC rules and “to afford all affected parties the opportunity to submit their views and comments during the mandatory public hearings.”

On the day I was talking with Alcordo, the ERC was holding its first public hearing on the guidelines. About 40 representatives from the generation companies and distribution utilities (including Meralco) attended.

An ERC official said: “Majority of the attendees gave reasons why ERC should re-evaluate, clarify and qualify the requirement for a distribution utility to undertake a ‘public bidding’ of its electricity requirements.”

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YNN/SUN LINKS: Alcordo gave the background of his association with Sun, who owns 100 percent of Duracom Mobile Power Corp.

Duracom operates a 133-megawatt bunker fuel-fired diesel plant in Navotas. It supplies power to Meralco under a power supply agreement signed in 1993. Sun is reportedly talking with Meralco for a similar contract for Masinloc.

Duracom and Van der Horst Limited (VDHL) entered into an agreement in March 2004 to implement the supply agreement.

This agreement called for an ownership structure of 60 percent for Sun and 40 percent for East Asia Diesel Power Corp. (EADPC) which is a wholly-owned subsidiary of East Asia Power Resources Corp. (EAPRC).

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DIVESTED: Alcordo said that as an individual he had only one qualifying share in Duracom, where he had served as president.

He said he also owned shares (I failed to ask how many) in EAPRC, a publicly-listed company, through JMJ Holdings (an Alcordo family-owned corporation). In March 2001, he sold all his shares in JMJ Holdings and the latter fully disposed all of its held shares in the stock market.

He said that the sale of publicly-listed shares is subject to a final transaction tax (but no income tax or capital gains tax) that is automatically withheld.

“I, or any member of my family, do not own any share or interest in the companies of Mr. Sun including YNN Holdings,” Alcordo said.

Despite his divestment in EAPRC, he said he inhibited himself from ERC deliberations, discussions and decisions concerning Duracom, EAPRC and their subsidiaries. The records are public, he added.

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(First published in the Philippine STAR of June 22, 2006)

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