Critics Warn of P13.2 trillion Subsidy for Power Plant
(Last of two parts)

Environmentalists in Northern Mindanao province are up in arms because of the endorsement last July 2 by the regional development council of a coal-fired thermal power plant project. They cite as reasons the anomalous process in the awarding of contract, unfavorable technical report, lack of environmental clearance certificate and the all-expense paid trip to Germany for some of the local government officials.

By HERBIE S. GOMEZ
Bulatlat.com

Part I | Part II

CAGAYAN DE ORO CITY— Aside from the reported anomalies in the approval of the project – at the national and local levels – critics of the planned 200-megawatt coal-fired thermal power plant in Misamis Oriental also warn that the Napocor would be giving an annual P530-million ($10.5 million) subsidy for the project for 25 years, for a total of P13.2 trillion ($260 million).

This was part of the project evaluation report of the Northern Mindanao Regional Development Council's infrastructure development committee released on June 17.

"Based on the results of [the] financial analysis, (Napocor) shall subsidize (perhaps from its corporate fund or from the national government or borrow from domestic or foreign fund sources), as suggested by the negative net revenues, the operation of the plant in order for the (Napocor) to meet its contractual obligations," reads a portion of the evaluation report.

The subsidy, according to the RDC document, could be at least P530-million ($10.5 million) annually for 25 years. According to critics, this would in the end be shouldered by taxpayers and consumers.

The project’s proponents, State Power Development Corp. (SPDC), a Filipino-owned company, and its partner, the Germany-based Steag Ag, denied the reports.

"It's not true," said SPDC community development officer Ma. Teresa Alegrio. She claimed the million-dollar project would become operational under a build-operate-transfer (BOT) scheme.

Meanwhile, Melburgo Chiu, a Napocor vice president, said a subsidy would mean higher electric bills.

"Common sense tells us that if we add another commitment, we'll have to pay for it," said Chiu in a phone interview.

Chiu said Napocor could opt to extend its commitment--say, 50 years--to thinly spread the payments. An extension, he said, might have to be resorted to so as not to make the charges onerous.

But Chiu said payment for the electricity generated by the planned coal-fired plant could be sourced from a fixed "universal levy."

Just the same, like the controversial power purchased adjustment (PPA) charges, the "universal levy" would be reflected in the electric bills of power consumers.

Technical question

One of the endorsers of the controversial project, Vice Gov. Miguel de Jesus of Misamis Oriental, questioned the RDC technical experts' evaluation report.

De Jesus said, "How can there be a subsidy when this is a BOT project?"

"I asked them (RDC's technical evaluators) how they were able to come up with the figures and they could not answer," said de Jesus. He claimed the committee evaluators must have “used a wrong formula based on presumptions." 

SPDC's Alegrio said the National Economic and Development Authority (Neda) office in Manila approved the project after it passed a separate evaluation made by the Investment Coordinating Council-Technical Board (ICC-TB).

When this writer asked for a copy of the ICC-TB's evaluation report, Alegrio said she would need a clearance from Manila before she could release documents. She promised to provide this writer documents if she gets a go signal.

Unlike other independent power producers (IPPs), Alegrio said the SPDC would only bill Napocor for used power.

"We're really taking a risk here," said Alegrio even as she stressed that the deal SPDC struck with Napocor is not a "take or pay" contract.

She said even the costs of importing coal from Indonesia would be shouldered by SPDC and its German partner, Steag Ag, and not passed on to power consumers.

"We're negotiating for a 15-year contract [for a supply of coal] in Indonesia."

SPDC and Steag Ag are banking on a significant increase in the demand for power in Mindanao by 2006 as projected by the Napocor and the Neda.

Alegrio said her company is also eyeing to directly sell electricity to existing and future industrial firms.

Local officials also point out the dire need for new sources of energy, ci­ting a Napocor study indicating Mindanao's demand for power would shoot up by 2006.

Regional Development Council (RDC) Chairman and Misamis Occidental Gov. Loreto Ocampos said Napocor has justified the need for establishing the coal-fired plant.  He said the Agus System, including the Maria Cristina plant in Iligan city, would not be able to meet the energy requirements by 2006 because of unpredictable weather.

Alarming level

Napocor claims the water level of Lake Lanao, the primary source of hydroelectric power in the Mindanao grid, has receded to an alarming level.  "The fast economic development within the area of Mindanao, specifically in Misamis Oriental, will be the cause of power shortage in the future," said Ocampos. "With this problem presented to us (in the RDC), we find this German-backed group capable in solving this problem (sic)."

Misamis Oriental Rep. Oscar Moreno (1st District) said the House's energy committee would look into the SPDC-Napocor contract "very carefully."

"We'll do this at the energy committee... and I hope that every House member from northern Mindanao (at least) will get himself involved in this process," wrote Moreno in an e-mail he sent as a reply to a query made by Bulatlat.com.

Moreno added: "There may be no 'take or pay' provisions in the contract executed or envisioned with Napocor but it would be incorrect and deceiving for the proponents to deny that they are convinced that they will make the desired yield of return from the project."

After all the mess the country has been put into on account of arrangements with IPPs, Moreno said it would be foolish for a project proponent to ask for "take or pay" provisions.

He said the yield isn't derived from the takeout provisions alone and that there are many ways of doing that. "For instance, Napocor may be made to commit that SPDC's power will have priority (over those produced by other power plants, even if cheaper) in Napocor's power purchases."

This would mean, according to Moreno, higher costs to Napocor "which it will certainly pass on to the consumers and/or the taxpayers."

A subsidy may be in lieu of the takeout provision. This, according to Moreno, likely explains SPDC's assertion that the project has no "take or pay" contract.

As in the case of Napocor's mounting liabilities under the existing "take or pay" contracts, Napocor's obligation with regard to the projected subsidy would be recoverable from the consumers and, to the extent of the differential, from the taxpayers, he said.

Under the present set-up, Napocor's obligations are assumed totally by the government.

"Whether via a 'take or pay' contract or through a 'subsidy' or by any other means of recourse against Napocor, the bottom line is the same--the project proponent would be relying on a legally demandable obligation of Napocor (and government) to cover [SPDC's] investment and yield risks," said Moreno.

SPDC holds a contract with the Napocor, a deal that has been questioned by the government's inter-agency review committee because of "financial issues." Bulatlat.com

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