Third party presence in tenders pushed

by Riza T. Olchondra – 04:20 AM December 16th, 2015

from Philippine Daily Inquirer

AN ADVOCATE of having third-party consultants overseeing competitive selection processes (CSP) for the power requirements of the Manila Electric Co. (Meralco) and other distribution utilities (D.U.s) urged regulators to mandate such a practice on the grounds that it would ensure wider bidder participation and lend “integrity” to the bidding process.

David Tan, who has been engaged with bidders going for local and international contracts, expressed concern over recent press reports that Energy Regulatory Commission (ERC) chairperson Jose Vicente B. Salazar is open to dropping plans to require the presence of third-party consultants (essentially, bidding experts) in the conduct of the mandatory CSP.

“Only an independent third party can assure the integrity of the bidding process, an essential element of a successful CSP,” Tan said in a position paper, adding that it would not be a “truly competitive” bidding without such third-party consultants.

On concerns that having third-party consultants may add to the cost of power resulting from CSP tenders, Tan said the “cost-benefit (ratio)” of engaging a third party favors the consumers because even if it costs 1 to 2 centavos per kilowatt-hour (kWh) to pay for the consultants, the possible reduction of power generation rate from robust competition due to having consultants will be much higher at 40 centavos to P1.20 per kwh, based on Tan’s estimates.

Allowing Meralco to conduct their own bidding (without a third party) would be a lose-lose proposition for both Meralco and the consumers. The result will always be suspect, Tan said. “It is only through a third party that the DOE (Department of Energy) and ERC can assure compliance with the energy mix and other policy guidelines for future power generation projects,” Tan added.

There are other groups opposing having a third party, however, saying it would result to added red tape that could cause delays in power procurement, just when many parts of the country are critically in need of additional power supply.

CitizenWatch, an independent network of citizen rights advocates, has said that the CSP in general would only cause power rates to go up because ruling out other modes of procurement such as bilateral deals or negotiated bidding will not work in an environment where there are not enough power generation players. The group warned that mandatory implementation of the CSP could cause generation rates to shoot up, resulting in higher electricity rates, because the basic lack of supply makes CSP prone to abuse from power generation firms who may not always participate in biddings especially for smaller D.U.s.

The group CitizenWatch also raised doubts about the provision on the selection of third-party experts. Instead of implementing CSP, the group urged the DOE to “confront the real root of the country’s perennial energy woes.”

Issued by the DOE through Department Circular 2015-06-0008, CSP mandates the holding of a competitive bidding between D.U.s (such as Meralco and electricity cooperatives) and generation companies in the sale of electricity through the mediation of a third-party expert.

Meralco, the country’s largest power distributor, has warned that it limits options for the D.U.s on how to source power even if bilateral deals may be cheaper. The D.U.s said that under the CSP, it will be difficult, if not impossible, for D.U.s not to contract with a winning bidder that does not have a track record.