Did Meralco and San Miguel Conspire to Overcharge Consumers P1.6 Billion for Masinloc Plant in 2018?
David Celestra Tan, MSK
19 November 2020
Meralco consumers normally don’t get a fair deal everytime Meralco buys power from one of its sister companies or partners. This seems the reason Meralco’s publicity machinery works very hard to tell people otherwise.
The 640mw Masinloc Power Plant in Zambales
In our previous article we wondered about what happened to this long time source of power for Meralco whose price while not the lowest is at least average.
The 640mw coal power plant was bought by the American independent power producer AES Corporation in 2007 from the government privatization authority PSALM for $930 million. A previous sale in 2004 for $562 million failed when the winning could not make the payments. One of the few government privatizations at good asset market prices.
In 2014 Meralco’s partner in the San Buenventura project in Mauban, EGAT of Thailand, bought into the Masinloc Power Plant with 49% from the AES Corp. In March 2018, San Miguel Power bought supposedly the whole of Masinloc from AES and EGAT. At this time Masinloc is being expanded with the 3rd unit of 335mw supposedly to be finished by the end of 2018.
San Miguel Power
It might be remembered that in 2015 San Miguel was the declared partner of Meralco PowerGen in two of the seven (7) midnight contracts totaling 3,551mw that Meralco negotiated hurriedly in April 2015 to beat a questionable extension by ERC of the competitive bidding requirement for power supplies.
San Miguel and Meralco PowerGen were going to be partners in a 528mw coal plant in Mariveles Bataan, and another 528mw coal plant in Pagbilao to be called Central Luzon Premiere. San Miguel to own 51% with Meralco Power Gen owning 49%.
The two power projects however were discontinued after the Supreme Court ruled that ERC’s extension was illegal and the contracts signed need to be subjected to bidding. San Miguel and Meralco PowerGen however continued to pursue projects and supply contracts with Meralco.
Masinloc as an independent supplier contractor to Meralco last delivered its power to Meralco in January 2020 at the rate of P5.4658. It seems from then on, its power output is sold already under San Miguel’s umbrella.
Observers are expecting that San Miguel would be the partner of Meralco PowerGen in the 1,200mw Atimonan One Energy where San Miguel is also participating as a bidder in the CSP.
A disturbing power billing in 2018
San Miguel reportedly bought the Masinloc complex in March 2018. The Masinloc power plant delivered their normal quantity and price level to Meralco from January to July 2018. An average of 138.92 million kwh a month equivalent to an average 5.15% of Meralco’s power requirements. The average rate was P5.7441 per kwh.
Starting in August and up to December 2018 however, Masinloc’s supply to Meralco dropped to about a 1/3 of its normal output to 51.778 million kwh a month or an average of 1.86% of the Meralco requirements.
Masinloc’s average rate for this 5 month period skyrocketed to an astounding P12.02 per kwh, a 109% increase over the average of P5.7441 per kwh the previous 7 months of 2018 from January to July. These were passed on to the consumers as part of Meralco’s average generation rate.
How can this happen? And how can this be allowed?
In the power generation industry, significant jumps in average rate of more than 25% can only be caused by two things. Either there was an upheaval in the cost of fuel or there was an allowed downtime where the power generator is still paid his fixed capacity charge during the allowed maintenance downtime period.
In 2018, coal prices were at $106.45 per ton in January and was $119.57 per ton in July, and averaged $105.99 per ton for the 7 month period. For the period of August to December when Masinloc reduced its output by 2/3, the coal price averaged only $108.46 per ton or only an increase of 2.33%.
Masinloc’s billing rate allowed by Meralco was 109% higher. So fuel was not the reason.
It must be then the downtime allowance.
Most coal power plants are contracted to allow about 45 days a year of maintenance downtime. Let us assume that the Masinloc PSA with Meralco still had the old BOT era provision requiring payment of fixed capacity fees during the downtime period.
The 640mw Masinloc plant however reduced its output by 63% average over a five month period or 150 days from August to December 2018. Evidently the Masinloc plant was put in some extensive maintenance by new owner San Miguel. During this period, Meralco still paid San Miguel an average price of P12.02 per kwh.
Here is where a disturbing sweetheart deal is evident.
Masinloc is entitled to at best a 45 day downtime period during which Meralco will still pay the fixed capacity fees. For purposes of discussion let us assume that the 45 day period went from August to the middle of September 2018.
The question is why did Meralco evidently continue paying San Miguel for Masinloc for guaranteed capacity fees from the middle of September to the end of December when the plants were evidently down for rehab or maintenance? The capacity payments resulted to the average rate of P12.02 per kwh.
Masinloc was supposed to have 3 boilers now with 335mw capacity each. Assuming that the new one is the one kept running and the older two were put in major rehab, still Meralco should not be paying them for the more than 45 days for the capacities that are down.
If Meralco was being faithful to its franchise obligation to provide power in the least cost manner and to protect the public from being overcharged, why would it allow San Miguel to enjoy guaranteed payments in the hundreds of millions for its downtime period beyond 45 days? In this case 105 days excess. We calculate that the undeserved payment to Masinloc was P1.6 billion for the period September to December 2018, all passed on to the Meralco consumers.
San Miguel is a known partner of Meralco PowerGen in announced power projects. Are they partners in the 1,005mw Masinloc Coal Power Plant? When the Philippine Competition Commission approved the purchase of Masinloc by San Miguel, did they know fully who would be the new owners and was there a restriction on the entry of undisclosed additional owners that can change the impact on competition in the power generation sector?
EGAT of Thailand, Meralco’s partner in San Buenaventura Coal plant in Mauban, also worked hard to buy into 49% of Masinloc from AES. And they tried to have the plant expanded by 2 x 335mw. Why did EGAT suddenly sell to San Miguel its Masinloc interest?
Who has been rearranging the planets?
The sweetheart rates paid by Meralco while Masinloc was in excessive downtime from August to December 2018 were charged to unwitting consumers. It is just not fair.
Will the ERC investigate and order a refund?
Matuwid na Singil sa Kuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph
Editors notes:
the data used in this article were from official reports of Meralco and from available published information.
