Meralco’s Terms of Bidding for 2,900mw CSP – You’ve Got to be Kidding! (updated verision)

David Celestra Tan, MSK
24 July 2019

(updated)

Meralco’s previously negotiated seven (7) PSA’s have been declared illegal by the Supreme Court. They were ordered to conduct Competitive Selection Process, which the Supreme Court said is necessary to protect the public from being abused.

At the prodding of the Department of Energy, Meralco was asked to conduct the CSP’s as soon as possible to avoid power shortages. After allMeralco had not signed major power supply agreements since April 2016 evidently wanting that most of its power supply for the next 20 years go to its power generation subsidiary MeralcoPowerGen and its partners, Aboitiz, San Miguel, Global Business, DMCI, and EGAT of Thailand, their minority partner in Mauban.

Meralco recently posted the initial Terms of Reference (TOR) or terms of the bidding for a total of 2,900mw of power supply in three packages. And is fully projecting the impression that they are dutifully heeding the call of the Supreme Court for a CSP (assumed to mean truly competitive bidding that will give the public a fair deal) and the call of DOE Secretary Alfonso G. Cusifor urgent biddings because the country has not had new major power plants since 2015.

Apparently to complete an atmosphere of true competition, Meralco’s midnight partners, San Miguel, MeralcoPowerGen, and DMCI even issued press statements saying they are interested to participate. One of them was right though in saying “the published requirements carry very difficult conditions”.

But is Meralco really doing an honest to goodness bidding of its power supply contracts? And are their partners really going to compete?

Let us look at the terms of the bidding that Meralco had announced. 

A. 1,200mw (net) COD 2024. (Yes that appears to be the reference number of this bid package)

We are starting with this because this is the one that appears to have a realistic and feasible bid scope.

a. It has a realistic “Commercial Operations Date” or COD of March and September 2024 or 5 years from now. A reasonable construction period for a greenfield power plant of this 1,200mw net size.

b. The service that needs to be provided is base-load.

c. The technology will be “HELE” or high efficiency low emission (although this appears to be describing the super-criticalAtimonan One technology as previously advertised and they are referring to coal)

d. Contract Period is 20 years, the viability length for this size project

e. The tariff structure, outage allowance, and other provisions that can be handled by most prospective bidders.

These terms of the bidding seems straight forward. So where is the rub?

It is in the timetable for the bidding:

1. Cost and time to register as an “interested bidder”.

a. Meralco is giving possible bidders only one week to 29 July 2019 to register and submit their Expression of Interest and Confidentiality undertaking, and pay a non-refundable “participation fee” of P6 million in managers check. For this you get to be called an “interested bidder” and can secure a copy of the bid documents.

b. If Meralco does not get at least 2 interested bidders, the bidding will be declared a “failure”.
c. “interested bidders” also get to attend the August 9, 2019 pre-bid conference.

2. Bidding Day

All bidders are to submit their bids a month later on 10 September 2019 at 9am with their proposals in 3 envelops. 1) Qualification documents 2) Technical proposal and 3) and the Bid together with a P3.65 Billion bid security.

3. The Squeeze Bunt

This is a classic squeeze bunt strategy to limit bidders and one of the oldest tricks in the bid manipulation playbook.
It is only 41 days from the time a bidder receives his bid documents and specifications on 29 July 2019 to the bidding date of 10 September 2019. Assuming you are crazy enough to spend P6 million just to take a peek at the detailed terms of the bidding, how can you ever prepare a serious bid within 6 weeks for a 1,200mw power plant? Much less prepare the bid documentation within the same period?

This supposed CSP bidding is designed to fail at each stage. After two failures of bidding, negotiation will be allowed under the CSP rules. (we assume). And guess who it will be negotiated with? Atimonan of course. This appears to be Plan A.

Plan B is for the intended partners, again most likely Atimonan One, to register and become the lone bidder. And again leading to a negotiated contract. And prices maybe even worse for the consumers.

4. Clearly this bid package is a play for Atimonan One. Pwedepo bang magtanong, Meralco? Hindi pobasabininyo more than a year ago naAtimonan One is “shovel ready”? Now why will it take 5 years to construct and commission? Should it not be now 3 years or 2022?
5. Isa pa pong tanong. If you are allowing the completion to be until 2024, which is at least 1 year longer than the feasible construction time, why can you not allow enough time for bidders to truly prepare a bid and honestly encourage maximum competition for the benefit of the consumers?

B. Contract Capacity of 1,200mw net, Effective December 26, 2019!!

I had to do a triple take on this one. 1,200mw net by December 26, 2019 or 5 months from now? (You cannot buy a 24sq meter condo, apply for a loan and complete your documentation in 5 months!)

If package A above is a play for Atimonan One, it is a mystery who is this one for. I mean who in the Philippines has a portfolio of 1,200mw net that can be contracted and start delivering in 3 months after award?

This appears to be a “shake and bake” bidding manipulation strategy? Also called a Bug Zapper bid. (It looks inviting but when you get close you get zapped by its impossibility).

Let us look at the Terms of Reference:

1. Expression of Interest and payment of a Participation Fee of about P2.5 million by 26 July 2019

2. Prebid Conference on August 8, 2019

3. Bidding on September 9, 2019 with a Bid Bond of P3.3 Billion

4. Bidders must offer a minimum of 200mw.

5. Meralco must receive a minimum total of 1,000mw or the bidding is a failure.

6. Base-load service

7. Contract period of 10 years from December 26, 2019 to December 25, 2029.

8. Consortium bidders are allowed.

9. Here are the kickers

a. Meralco has the sole discretion to annually reduce contracted capacity up to 600mw between December 26, 2023 and December 25, 2025.

b. Contracted capacity shall not be more than 75% of the plant capacity factor. This means to offer 200mw, you need a 296mw plant. This seems in line with DOE’s policy pronouncement that generators can offer only 75% of their installed capacity to assure reserve. (more on this later)

10. The question is which group of power generators have these existing plants of 300mw or more who may be free to start on a new contract in 3 to 4 months? And which generators with a total of 600mw is willing to get cancelled between December 26, 2023 and December 25, 2025?

11. Assuming that they have these existing capacities, will you be able to prepare a bid by September 9, 2019, only 44 days after you have received the detailed bid documents? Unless, you have advance information or are part of the insider group defining the parameters of the bidding.

12. SemiraraCalaca? We are just curious that the 600mw SemCalaca had not been delivering energy to Meralco for the last 4 months. Did their Calaca power plant contract expire and is now a perfect fit for this new Meralco bidding?

13. Once again this terms of reference have been “shaken and baken” and designed to fail. Then maybe not, because the Meralco midnight group has the existing capacities to pull this off. You outsider bugs just got zapped!

14. On the DOE’s policy pronouncement that power generators will be limited to contracting only 75% of their plant capacity factor, we realize the good intention but this mechanism will probe very expensive for consumers. There are better mechanisms to achieve power reserves.

C. Contract Capacity of 500mw (net)

1. 500mw net firm

2. Contract period 5 years from December 26, 2019.

3. Mid-merit service

4. 100% guaranteed availability and no outage allowance.

5. Contracted Capacity can be reduced due to retail open access, RE law, or other laws and legal requirement.

6. Minimum offer of 100mw. Meralco must receive a minimum of 400mw offers or it will be a failed bidding.

7. Annual MEOT but bidders can offer only up to 45% of the plant capacity factor.

8. Expression of Interest and Participation Fee of P1.5 to P7.5 million to secure bidding documents by July 30, 2019. If less than two (2) interested bidders, bidding is declared a failure.

9. Pre-bid conference on August 8, 2019

10. Bidding by September 11, 2019

Once again the only people with this type of existing capacities would be members of the Meralco midnight group. The power plants include GN Power that was bought by Aboitiz from the Ayala group (who did not become part of the Meralco group), Aboitiz” Therma North Navotas facility, Millenium, And San MiguelsLimay plant. And maybe some expiring contracts of Meralco and of Aboitiz in Cebu.

Going by the stringent requirements of the service and fast delivery of December 26, 2019, we could also be talking about modular rental generators, a very expensive power supply for the consumers. That can cost P14 to P18 per kwh! 

This Meralco CSP,whether it ends up happening or failing, have the makings of being very expensive for the consumers. Guess who will most likely get blamed for it?  DOE, who ironically can get blamed even by Meralco for insisting on fast bidding and those 75% maximum contracting limit.

Ironically again for the Department of Energy, the reality is if power supply is short or power rates skyrocket, it will be the DOE who will be blamed by the people and the legislators.  They cannot wash their hands on privatization. Sadly, its’ own circular DC2018-02-0003, that was passed in February 2018 to guide the procurement of power supply,  does not provide for its right to directly supervise the CSP and hence crippled DOE itself in its options to make truly competitive CSP happen if the private sector like Meralco is recalcitrant about “shaking and baking” the biddings.

Now we the people will suffer. Both in shortage of power and high contracted rates of Meralco.  Very frustrating.

Other Notes:

  1. We are only referring to the published Terms of Reference of the bidding. I apologize to our readers, I don’t have P6 million lying around to buy the bid documents. If the officially published bids terms are giveaways of restrictive bids, you can imagine why other tricks would be in the detailed bid specifications. More scary stuff.  And you have to pay millions to see it.
  2. Of the three bid packages, only the first one is part of the seven (7) midnight contracts of 3,551mw. That means Meralco will still be doing these CSP’s for 2,351mw more for power supply for deliveries from 2024 to 2026. If they do, let us hope that they include LNG and give sufficient time for bidders.

 

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph

 

The author is a 25 year veteran of international competitive biddings under World Bank, USAID, KFW, ADB, Japan Aid and have seen all sorts of bid rigging plays, from the subtle to the blatant, in the Middle East, Asia, Latin America. He is also one of the original IPP’s in the Philippines and a founder and former President of the Philippine Independent Power Producers Assn. (PIPPA). He now devotes a fair amount of his time sharing his knowledge for consumer protection, power policy and regulatory reform advocacies.

1 Comment

  1. I agree to all that you have explained in this article. You know what the real problem? Existing bureaucracy are not doing their mandate because of incompetent appointees.

    DOE is the lead agency in driving the spot market rule but short of using the marginal cost (production cost) as basis of price offer. Price formation in the spot market is unknown but here they come- telling lies and doing wrong moves- “masabi lang” that they are pro-consumers and there to protect consumer.

    It all boils down to the incompetencies of DOE and ERC. There are so many things that consumers nedd to know about these political appointees’ agenda. They are not qualified to be Commisisoners or high officials. They don’t study the possible impacts of their decisions to the electricity rates because they don’t know and understand the fundamentals in electricity, market and economics.

    Present DOE policy does not define the intent of market dispatch. US markets require that dispatch should result to lowest cost to consumers but nothing from DOE…now they want to protect consumers from what! Electricity consumers should be wary of who DOE is protecting. They most probably protecting their vested interest guised as consumer protection!

    Like

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