SMC offers to pay PSALM P23-billion capacity fees, in advance
By Lenie Lectura -March 11, 2020
from Business Mirror
SAN Miguel Corp. (SMC) chief Ramon S. Ang on Tuesday offered to pay the government in advance a whopping P22.68 billion worth of capacity fees to the Power Sector Assets and Liabilities Management Corp. (PSALM).
The fee represents two years worth of capital payment by SMC to PSALM as administrator of the 1,200-megawatt (MW) Ilijan power plant, spread over the term of its contract.
The advance payment, it said, is meant to help the cash-strapped state firm manage its liabilities.
Moreover, Ang said the amount it is offering would help PSALM raise funds for the government that can be used for various state projects, including funding efforts aimed at addressing the Covid-19 virus.
Ang, in a letter sent to PSALM, clarified, however, that his offer is separate from the alleged “overdue receivables” of its power arm South Premiere Power Corp (SPPC), amounting to P23.9 billion. The amount is the subject of a court case pending since 2015, stemming from differences in computing generation charges.
“While we have an ongoing court case with PSALM regarding the computation of generation fees for the Ilijan plant, as a stakeholder in the power industry and, more importantly, a proactive partner of government in nation-building, we sincerely want to help PSALM raise funds for government,” said Ang.
It will be recalled that PSALM calculated generation charges based on the Wholesale Electricity Spot Market (WESM) prices to maximize its earnings from the IPPA (Independent Power Producer Administration), while SPPC uses a fixed rate approved by the Energy Regulatory Commission (ERC).
SPPC said selling Ilijan’s reliable baseload capacity to the WESM would have exposed consumers to the erratic surges of prices in the market and put them in violation of their power supply contract.
“Right now, the best and quickest way we can do this ahead of a decision on our case, is to fully pay the P22.6 billion remaining balance in capacity charges of SPPC for the Ilijan power plant, in full,” Ang stressed.
According to its original IPPA contract, as payment for its right to market the capacity from the power plant, SPPC is supposed to pay PSALM fixed monthly payments up to June 2022. SMC, through SPPC, originally won the bidding for the Ilijan plant for $870 million.
By the time the contract ends in 2022, SPPC would have paid P392 billion for the Ilijan plant, more than double its bid price, broken into P97.5 billion in fixed monthly capacity fees, and P294.7 in generation fees.
A brand-new power plant with the same capacity as Ilijan, would cost only about P40 billion today.
As of January 2020, SPPC has dutifully paid PSALM P240.7 billion in generation charges and P73.9 billion in capacity fees.
“We have to let the courts decide on the case and let due process take its course. Both the Supreme Court and the Court of Appeals (CA) have already said it is the Mandaluyong RTC that has jurisdiction over the case. Let’s not muddle the facts and confuse the public,” he said.
Ang explained that the contract was designed specifically to protect consumers from higher and fluctuating prices in the WESM.
Moreover, because of its nature as a baseload plant, the Ilijan capacity has been, and continues to be, fully contracted to bilateral customers, primarily Meralco. It is one of the most reliable and critical sources of power baseload power in the Luzon grid, which continues to experience issues on reliability and supply issues.
“We hope that PSALM interprets this prepayment as a gesture of good faith on our part. Like them, we also have a purpose. Ours is to provide consumers with stable and more affordable electricity. This is one of the main reasons why the Ilijan capacity has always been sold to bilateral customers, and not the WESM,” Ang said.
“This is also why, on top of the IPPA contracts, we continue to invest in new, modern power plants, to help provide stable, affordable electricity supply to consumers,” he added.
