Gov’t sees P1.8-billion savings in buyout of CBK hydropower plants

by Myrna Velasco – August 3, 2016

from Manila Bulletin

With the imprimatur of the Departments of Finance and Energy, the planned buyout of the 720-megawatt Caliraya-Botocan-Kalayaan (CBK) hydropower plants may generate savings of up to P1.8 billion for the government if the process can be consummated next year.

The CBK hydropower asset is currently under a 25-year Build-Rehabilitate-Operate-Transfer (BROT) contract with its Japanese operator, the joint venture of Electric Power Development Company Ltd. (JPower) and Sumitomo Corporation.

Under Section 8.5.1 of their BROT deal, it was expressly stated that counter-party National Power Corporation or its successor-firm Power Sector Assets and Liabilities Management Corporation (PSALM) could opt for a buyout of the asset. The timeline is set for year 2017.

It was emphasized in the agreement that NPC shall give written notice to the CBK contractor at least three months prior to its buyout plan of the asset.

NPC or successor-company PSALM for that matter shall pay the contractor corresponding price relative to the asset’s acquisition as well as cover all of its other remaining obligations.

“We are already firming up plans to pursue a buyout. We already mentioned this to the DOF (Department of Finance) and there’s already a legal opinion that can support our move on this,” PSALM Officer-in-Charge Lourdes S. Alzona said.

She emphasized that if buyout exercise shall be completed 2017 as the timeframe specified in the BROT deal, then negotiations with the Japanese contractor shall already start this year.

Alzona qualified that the plan is to pay the contractor the “estimated buyout price” – and based on calculations, that plan will still bring in net savings of P1.8 billion in favor of the government.

After buyout, the next step for PSALM then will be to privatize the CBK asset on “straight sale” to interested private sector takers.

“If we can do the buyout next year, we can schedule the CBK plants’ privatization the year after in 2018,” she stressed.

The CBK plant is seen as a valuable asset that could provide the power system’s ancillary services needs – or power reserves in simpler terms. The asset’s capacity has been reinforced in 2015 following the energization of a transmission line that underpins the wheeling of the facilities’ generated capacity to the grid.

The other hydropower plant being mulled over for a buyout option by PSALM is the 150-MW Casecnan facility, but Alzona said it has some legal complications as to the eventual “treatment of ownership” of the asset.

Another hurdle, she said, is the lack of straightforward stipulation on when possible buyout could be enforced for that facility.