San Miguel Corp., as a result of the 25 January preliminary injunction order of the Court of Appeals, can ram through what it failed to achieve in its energy business with the proper channel which is through the Energy Regulatory Commission or ERC.
The CA, in issuing the injunction order, directed SMC unit South Premiere Power Corp. or SPPC and distribution firm Meralco “to enter into good faith negotiations” that will lead to the amendment of the terms of the 10-year power supply agreement or PSA based on the change in circumstances provision of the contract.
Energy stakeholders said the CA injunction is the knockout punch that practically wins SMC the window to get out of the PSA after it failed to convince the ERC into allowing the contract’s amendment.
ERC ruled in October last year that holders of the PSA with a straight pricing provision should honor their contract and thus it denied the plea for temporary price increases for the Ilijan natural gas and Sual coal plants of SMC.
Among the reasons that ERC cited in its decision was that giving in to the SMC petition would create a precedence that other contract holders will refer to in altering provisions of their supply contracts when these do not suit their business objectives.
The conglomerate’s energy arm SMC Global Power submitted a low offer to secure the Meralco PSAs with terms and conditions that were very clear about not allowing an increase in costs to be passed on to electricity users.
SMC should have known the risks that should have been reflected in its offer, according to a veteran in the energy sector.
Other energy producers holding a similar deal with Meralco had engaged in hedging and other strategies to shield themselves from the impact of spikes in prices or a sudden drop in supply.
Thus, SMC Global Power rivals in the competitive selection process submitted prices that were more grounded on reality, inevitably losing in the bid.
With the injunction order, SMC Global Power was able to secure more than what it aimed to get from the ERC with the CA directive for both parties in the PSA to renegotiate its terms.
The turn of events becomes particularly distressing since two other energy affiliates of SMC, Excellent Energy Resources, Inc., and Masinloc Power Partners Ltd. Co, cornered Meralco contracts to deliver 1,200 megawatts of capacity for P4.1462 per kWh and 600 MW for P4.2605 per kwh covering 20 years starting 2024.
Both offers were lower than the P4.30 per kwh in the PSAs of Ilijan and Sual that the CA had ordered changed.
The CA writ of preliminary injunction is expected to trace the footsteps of the court on the action over the government’s claim of more than P34 billion from SMC regarding the breach of provisions of the independent power producer authority deal for the use of Ilijan which is the biggest natural gas plant and that was previously state-owned.
Using the power of the writ of preliminary injunction, the Mandaluyong regional trial court was able to keep the government at bay for eight years from collecting a P34.4 billion claim.
Big businesses use their corporate might to game the system which is a reality that plays out in its full glory with the chronology of events that led to the recent injunction order favoring SMC.