SMC stands ground on gov’t supply contract over Malampaya banked gas

By Myrna M. Velasco – December 13, 2022, 11:56 AM
from Manila Bulletin

South Premiere Power Corporation (SPPC), a subsidiary of San Miguel Corporation, stood its ground that it has a supply contract for 70.26 petajoules (PJ) of banked gas that has to be lifted from the Malampaya gas field project.

The SMC company has contradicted the statement of the Malampaya consortium issued on Sunday, Dec. 11 that SPPC does not have a “live contract” for the banked gas.

In a statement Tuesday, Dec. 13, SPPC said that its contract for the banked gas which was purchased at $1.2 billion is with state-run Philippine National Oil Company (PNOC), the owner of the Malampaya banked gas and not with the Malampaya consortium.

The key role of the consortium, which is now led by operating entity Prime Energy of the Razon group, is to ensure that the PNOC-sold banked gas is delivered to buyer SPPC for the 1,200-megawatt Ilijan gas-fired power facility.

“SPPC bought the Malampaya banked gas owned by the government through PNOC for $1.2 billion,” the SMC firm reiterated, adding that the gas supply and purchase agreement (GSPA) was signed on June 23, 2022.

The San Miguel firm specified that while it “does not have a direct agreement with the consortium, it is PNOC on behalf of government that has an existing contract with SPPC.”

It also conveyed that in their discussions for the sale of the banked gas, “PNOC disclosed to SPPC that the government has fully paid the consortium for the gas, which means that 100-percent of the gas should be deliverable to SPPC.”

Given the depleting state of gas production at the Malampaya field, SPPC thus prodded the Malampaya consortium to prioritize the delivery of the banked gas for the Ilijan plant’s targeted re-synchronization to the grid early next year.

As reckoned by SMC, “the prioritization of the SPPC and PNOC contract over the banked gas is widely considered to be more advantageous to government, as it was bought by SPPC at a significantly higher contract price compared to those of existing gas supply agreements from Malampaya with another power company.”

SMC further stated if the Ilijan plant can get back to operation, upon the delivery of the banked gas, then the generating facility can contribute additional 1,200 megawatts of immediate baseload capacity to Luzon grid, which is expected to be suffering from strained power supply toward the summer months.

With no new major baseload capacities expected in the coming months, the company stressed that it is “crucial for government to reintegrate Ilijan’s 1,200 MW capacity into the grid in the interest of energy security.” The capacity contribution of the Ilijan plant to Luzon grid hovers at 10-percent.

SMC noted the resumption of Ilijan plant’s operation would bring forth cheaper rates for consumers at P4.31 per kilowatt hour (kWh) compared with supply sourced from the Wholesale Electricity Spot Market (WESM) which had been averaging at P8.67 per kWh within June to November this year.

SPPC further asserted that “stabilizing WESM prices will also mean that there will no longer be a pressing need to operate aging diesel plants that act as power reserves, but run at generation costs more than double the cost of coal power, yet deliver poor power quality.”