The Philippines Power Sector Assets and Liabilities Management Corporation (PSALM) has successfully appointed independent power producer administrators (IPPAs) for two coal-fired power plants, marking another step forward in the reform of the country’s electricity sector.
In a second round of bidding held at the end of August, San Miguel Energy Corporation (SMEC) and Therma Luzon Inc. were declared the two highest bidders in the IPPA selection. The privatization is the first of its kind in Asia, and possibly the world, according to PSALM.
SMEC, the energy investment arm of food and beverage conglomerate San Miguel Corporation, offered $1.072 billion for the management and control of National Power’s 1000 MW contracted capacity of the Sual coal-fired power plant. Therma Luzon, an affiliate of the Aboitiz group, was declared the highest bidder for the 700 MW contracted capacity of the Pagbilao coal-fired power plant with an offer of $691 million.
Pinsent Masons, PSALM’s international legal advisor for the privatization, says that the deal was particularly complex, involving innovative risk management structures, as well as commercial and financial mechanisms.
“These IPP Administrator roles represent a novel and cost effective way for participants in the Philippine Wholesale Electricity Supply Market to participate in that market through contractual rights without the capital constraints that come with direct and immediate physical ownership of assets,” said Pinsent Masons partner John Yeap.
Both bids exceeded the reserve price set by the PSALM Board. Earlier in August, SMEC successfully concluded negotiations with PSALM for the sale of the 620 MW Limay combined cycle power plant in Bataan, for which it placed a bid of $13.5 million.
PSALM says that it will now move on to the next phase of its IPPA programme, which will involve IPP contracts for hydropower plants. Under the Electric Power Industry Reform Act of 2001, 70 per cent of the government’s IPP contracts must be privatized before open access and retail competition can be implemented in the Philippines.
The third phase of the IPPA selection process will involve the sale of the 1200 MW contracted capacity in the Ilijan natural gas plant, which has a take-or-pay contract with its gas suppliers.
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