Blinded by profit greed

Something stinks amid the hurdles faced by groups hoping to revitalize the Malampaya natural gas field in relation to the huge liquefied natural gas projects mushrooming in strategic parts of the country.

Two significant events happened last June related to San Miguel Corp’s South Premiere Power Corp., which runs the 1,200-megawatt Ilijan plant, the country’s biggest.

In that month, SPPC ended its supply contract with the Malampaya consortium, simultaneously with the takeover of ownership of the Batangas power facility.

The SMC unit running Ilijan did not renew its gas supply and purchase agreement with the consortium in Malampaya led by Shell Philippines Exploration B.V.

Ilijan has a very confusing operation setup prior to being taken over by SPPC. It was built and operated by Korea Electric Power Corporation under a build-operate-transfer deal, but owned by state -run Power Sector Assets and Liabilities Management Corporation, a holding company of state firm National Power Corporation.

In turn, PSALM granted, after an auction, an independent power producer administrator agreement with SPPC in 2010 that has a provision for ownership transfer this year.

The reason for the signing of the IPPA was that it was part of the privatization effort in 2010.

Under PSALM’s privatization terms for the supply contract, the ownership of the plant must be turned over to the IPPA at “zero value” upon the expiration of the facility’s BOT contract, provided that all outstanding obligations are mutually resolved by the parties in interest.

For the past two years, the Ilijan operator claimed to have suffered recurrently from “gas restrictions” that the plant’s electricity generation had to be frequently derated or reduced by 500 to 600 megawatts.

Gas restrictions have been used as an argument by SPPC to seek an adjustment of the agreed price with power distributor Meralco.

SMC Global had invested up to $1.02 billion in an LNG power plant in Cebu to augment baseload power in the grid and evidently supply the Ilijan plant.

LNG, which is imported, will start arriving this month. First Gen Corp’s power generators will also be securing LNG as fuel by the end of the year.

The Lopez group’s energy flagship is also putting up an offshore import facility in Batangas.

The recent move of SPPC to seek a rate relief with the Energy Regulatory Commission for an agreed rate with Meralco, which conducted a bid for the deal, exposed the maneuver of SMC to secure a contract before turning around and getting better terms, the cost of which consumers will bear through the pass on provisions in the deals.

The bottom line is that it will be the unsuspecting consumers who will have to suffer the backlash of the poor business decision in the utility sector.

To cut the chase, obstructions thrown the way of plans to rehabilitate Malampaya, which experts said has a good few more years of reserves, should be related to the oligarchs’ bet on LNG.

Considering all variables, extinguishing Malampaya and the start of expensive LNG projects of the oligarchs are inextricably bound.

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