PSALM serves formal notice of ‘default’ on Mt. Apo plant deal

By Myrna M. Velasco – December 12, 2017, 10:00 PM
from Manila Bulletin

State-run Power Sector Assets and Liabilities Management Corporation (PSALM) has reportedly served a “formal notice of default and confiscation of performance bond” on Monday (December 11) to FDC Misamis Power Corporation of the Filinvest group relating to its independent power producer administrator (IPPA) contract on the 108-megawatt Mt Apo geothermal power plant in Mindanao.

The Gotianun-led firm reportedly has surpassed the ‘unsettled” obligations relating to the Mt. Apo asset that could have been covered by its performance bond.

On record, the Mt. Apo plant’s capacity had been placed under the FDC subsidiary’s trading and selling tutelage following the IPPA-underpinned privatization of its power supply contract in 2014.

The worth of irrevocable standby letter of credit that it posted relating to the Mt Apo asset had been at P400 million; and that was issued then by East West Banking Corporation.

With the default declaration, it has been noted by sources from PSALM that the government’s next move shall be to cancel its performance bond and eventual termination of their IPPA agreement.

As further gathered, FDC Misamis Power has already been encountering problems in honoring its obligations with PSALM for some time.

And while the parties have been negotiating on how to sort out the company’s hurdle as IPPA administrator of the geothermal plant’s contract, the process had been snagged due to the legal suit filed by FDC Misamis Power last December 8.

In the order of a Makati regional trial court penned by Presiding Judge Mary Anne E. Corpus-Manalac, the petition of FDC Misamis Power for 20-day temporary order of protection (TOP) has been scheduled for hearing also on Tuesday (December 12).

The PSALM Board on Monday had its emergency meeting reportedly to act on this particular dilemma – and the decision arrived at was to pursue termination of this IPPA deal with the Filinvest-owned energy unit.

At the asset’s privatization in the past administration, FDC Misamis Power was declared the winning bidder in the IPPA bidding undertaken by PSALM.

It bagged the deal for an offer then of P128 million.

The Mt Apo geothermal power facility has two units of 54.24MW capacity each – and it had been the supply contract of its generating units with the National Power Corporation (NPC) that had been privatized by PSALM.

The NPC supply contract that was privatized has 25-year stretch. But for its unit 1, since it was set into the IPPA charge of FDC Misamis Power, its remaining life would have been for eight (8) years or until February 15, 2022.

For unit 2, it has been for a take-or-pay contract also for a period of 25 years and is set to lapse on June 17, 2024.

The IPPA firm’s financial distress, according to sources, may have happened because of the sudden drop in electricity rates – a scenario that might have been difficult to foresee at the divestment phase of the asset.

It is worth noting that Mindanao is now a power market on “oversupply mode,” and capacity sale has been getting tougher by the day for many of the power plants in the southernmost grid.

The privatization of the power supply contracts was designed by government so it can shore up proceeds from the privatization of power assets, but several of these IPPA deals actually turned problematic over the years.