SMC offering to divest contracted Ilijan supply capacity to Meralco

by Myrna Velasco – July 13, 2016

from Manila Bulletin

Diversifying conglomerate San Miguel Corporation (SMC) is offering to divest the contracted capacity of the 1,200-megawatt Ilijan natural gas-fired power facility to Manila Electric Company (Meralco).

This was confirmed by Meralco President Oscar S. Reyes in an interview with reporters at the Shangri-La Hotel in Fort Bonifacio on Tuesday (July 12), albeit he noted that talks are still at very preliminary stage.

“It’s very early stage. We’re just working to look at what it is,” he said when prodded by media on the level of discussions as to the planned SMC divestment of the Ilijan asset.

A gas-fired power facility would be beneficial for Meralco because this will strategically serve its needs for mid-merit capacity. The utility firm has constantly indicated its desire of having gas-fired facility on its portfolio.

SMC’s subsidiary South Premiere Power Corporation (SPPC) has been the designated Independent Power Producer Administrator (IPPA) in the privatization process that the Power Sector Assets and Liabilities Management Corporation (PSALM) had carried out for the gas facility’s contracted capacity.

As IPPA, SPPC takes charge of selling and trading at the Wholesale Electricity Spot Market (WESM) the contracted volume of the Ilijan plant.

The due diligence process for this round of divestment, however, is seen tricky because the contractual arrangement for the asset had already turned legally complicated.

Notably, there is an ongoing legal suit over the P12 billion worth of outstanding obligations being pursued by PSALM, although this was not fully exercised because of a previous restraining order from the Courts.

At the time of the case filing, the amount being demanded was just at P6.46 billion – but PSALM has been continuously billing SPPC despite the pending case.

PSALM first terminated its IPPA deal with the San Miguel subsidiary, but this was reversed temporarily via the temporary restraining order handed down by a regional trial court.

The legal skirmish embroiling the parties stemmed from the conflicting interpretation of how the charges relating to Ilijan capacity shall be computed.

SPPC noted that it cannot take into account the higher charges being claimed by PSALM because this will redounded to higher charges for the consumers.