Power sector mulling over possible privatization of Agus-Pulangi plants

By Lenie Lectura – February 6, 2017

from Business Mirror

THE power sector is weighing options on how best to proceed with the privatization of the hydroelectric power plants that are part of the Agus and Pulangi power-plant complexes.

The Agus complex has 728 megawatts (MW) of installed capacity, consisting of six cascading-power plants strategically located along the Agus River.

The Pulangi complex is a 255-MW hydropower facility with three generating units. Both facilities, however, already have de-rated generation. Still, both supply Mindanao electric-power consumers with more than 50 percent of its total electricity requirements.

The power facility is owned by the Power Sector Assets and Liabilities Management Corp. (PSALM), the agency tasked to manage state-owned power assets and is operated by state-run National Power Corp. (Napocor).

“Our mandate is to dispose in three years all of the remaining assets, including the Agus-Pulangi plants. The target for Agus-Pulangi was originally set within this year,” PSALM Officer in Charge Lourdes Alzona said.

Alzona said PSALM is mulling over a number of options. These are “outright sale, it could just be the service component also, or corporatization.”

Alzona said the asset could be placed in a new government-run corporate entity, the proposed Mindanao Power Corp.

While options are being thoroughly studied, Energy Secretary Alfonso G. Cusi has directed PSALM to study the reallocation of the power facility’s output to “the poorest of the poor” in the Autonomous Region in Muslim Mindanao (ARMM) and Philippine Economic Zone Authority (Peza) locations in Mindanao.

“I have written a letter to PSALM to study allocating the output of Agus-Pulangi to the poorest of the poor. That means to say the ARMM region and the Lanao area and Maguindanao, so that we can help in the development of the area.

“The rest will be directed to Peza so that we can encourage investments in Mindanao, so that we can compete against our neighbors for having cheaper electricity to offer to the manufacturing companies,” he said.

Electricity from the power asset is being sold to various electric cooperatives (ECs).

“The contracts [with ECs] have expired. All ECs wanted to get longer contracts, but at most, we can give them one year to have transition. The intent of transition is to give time to ECs to make adjustment and for PSALM for the dispatch with NGCP [National Grid Corp. of the Philippines],” Cusi said.

If implemented, the target 2017 privatization would be delayed.

“That is now being studied,” Cusi said. “But let’s not mix objective and direction. Redirecting the allocation of Agus-Pulangi has nothing to do with privatization. It’s just now that we want to give benefits to the poorest of the poor and promote industries in the region.

When sought for comment, Alzona acknowledged this requirement from the Department of Energy (DOE).

“In response to the directive of Secretary Cusi, PSALM is currently studying the legal, financial and operational feasibility of the proposed exclusive allocation of Agus-Pulangi hydro plants’ energy output to Mindanao’s marginalized sector and the ecozones,” she said, adding a Technical Working Group (TWG) has been created for this purpose.

She said resource persons from the energy sector and oversight agencies have been designated to assist the TWG.

“The results of the study will be reported to the energy secretary as soon as completed,” the PSALM official said in a text message.

Former Napocor President Guido Alfredo Delgado, in a paper, said it is a “very big challenge privatizing” the facilities.

He said the plants’ combined capacity of 983 MW is “too large to sell to a lone owner.”

“Having the plant owned by a single entity will result in a near-monopoly market structure—a situation the government must avoid since the essence of the Electric Power Industry Reform Act is to promote fair competition among players,” Delgado said.

To sell the power facility in parts is also “problematic,” saying it is essential for the operation and maintenance activities of the plants to be synchronized.

“This will make the operations complex, and the financial contracts even more complicated,” Delgado said.

One option aimed at keeping the interests of consumers without sacrificing the efficiency of private-sector funding and management is for PSALM to enter into power-supply agreements (PSAs) with a life span of 25 years before it starts selling the hydro plants, Delgado said.

“PSALM should avoid pitfalls of the government in previous privatization deals where the government sold plants individually without any PSA. Doing this will result in either of the following situations: Prices will go up immediately after privatization and/or government sale price will be low. Either way, the government and consumers will be the losers in the equation,” he said.

Since PSALM announced its intent to privatize the Agus-Pulangi complexes, many have expressed interest to participate in the auction.

“We are waiting for the TOR [terms of reference]. I would say we are interested in such a big project,” said Tomas Alcantara, chairman of Alsons Consolidated Resources Inc. (ACR).

AboitizPower Corp. President Erramon Aboitiz had said his company remains interested in power assets that will be sold by PSALM.

“We would like to take a look at Agus and Pulangi. We’ll definitely look at it,” he said.

Meanwhile, San Miguel Corp. (SMC) has called on the government to take advantage of the glut in power supply by overhauling old power plants.

Nag-overbuild tayo,” said SMC President Ramon Ang, referring to numerous power plants being constructed and will be put up across the country. “But if we overbuild, then we have the time to repair old plants. If I were the government, I would shut down Agus right away and repair it while there is oversupply.”

Ang said Agus’s capacity has deteriorated to less than 50 percent now.

Pag tumaas na uli ang demand, then back to 100 percent na ang capacity ng Agus. Iyong Luzon plants na luma dapat mag shutdown din, then ’pag may demand na, ibalik sila uli. In short, we now have the opportunity to repair old plants,” Ang said.