Stranded IPP debts pile up to P471B — FDC

The so-called stranded electricity costs which were the result mostly of onerous contracts with independent power producers (IPPs) during the term of former President Fidel Ramos had ballooned to P471 billion and the government is now at a loss on how to pay off the huge amount.

State power assets holding firm Power Sector Assets and Liabilities Management Corp. (Psalm) had sought authority with the Energy Regulatory Commission (ERC) to spread out the collection of the amount for 17 years to be tagged on monthly electricity bills but the current Psalm officials appointed by President Aquino now wanted to withdraw the petition that would have translated to more than 30 centavos per kilowatthour increase in power rates.

The Freedom from Debt Coalition (FDC) asked Psalm to totally withdraw the stranded debts and contract costs recovery petitions before the ERC to protect

the welfare of electricity consumers and challenged the Aquino administration to renegotiate the terms of the IPP contracts. The culprit for the ballooning debt of state power firm National Power Corp. (Napocor) with the IPPs is the so-called take or pay provision in the power contracts which required the government to pay a fixed amount to IPPs even if the power plants do not actually supply electricity.

Recently-appointed Psalm president Emmanuel Ledesma Jr. had announced in a press conference about the firm’s plan to withdraw its P471-billion stranded debts recovery bid and three other applications which had been initially intended for pass-on to consumers under the universal charge (UC) component of the electric bills.

FDC president Ric Reyes said that PSALM should veer away from the past administration’s strategy of passing on the firm’s inefficiency to the consumers in terms of high electricity rate, and to “grab the bull by the horns” by confronting head-on the root of this problem, the onerous contracts with IPPs.

“The high cost of electricity has long been a scourge on consumers. It is time for the government to look for a lasting solution on this by addressing the root of the problem,” said Reyes.

“As a first step, the government should conduct a meaningful and substantial review and renegotiations of contracts with IPPs, and immediately rescind onerous ones already established by the previous Inter-Agency Review Committee,” said Reyes.

He said that the debt of Napocor will continue to grow as long as government continued to legitimize and honor these one-sided agreements.

“Worse, the contracts of Napocor with the IPPs have been renegotiated only in name but not in substance,” said Reyes.

“In fact, the previous Review Committee produced a report that showed five contracts were onerous, 24 others contain various degrees of legal, financial, and social infirmities, and only six of the 35 contracts were clean,” Reyes added.

FDC also said that the government led by the Department of Energy (DoE) should take a strong action to enforce the provisions in the contract that call for the IPPs to maintain a certain level of operational readiness.

Milo Tanchuling, FDC secretary-general, explained that the market data available through the Wholesale Electricity Spot Market (WESM) can show which IPP plants are undergoing forced outage or unplanned or unprogrammed outage.

“The take-or-pay provisions in the contracts with the IPPs provide no incentive for the IPPs to keep their plants in good running condition. In fact, the incentive is in the opposite: you get paid even if you don’t run, and if you don’t run, why spend to maintain your plant?” Tanchuling said.

“But there are provisions in the contract that require a certain level of readiness, and all the government has to do is simply enforce this,” he stressed.

The advocacy group likewise recommended the filing of a case to those signatories to the contracts who until today have not been made accountable for the contracts they signed and for which the public is made to pay even when electricity is not delivered or produced.

FDC cited as basis Section 68 of Republic Act 9136, which states that “An Inter-agency committee… is hereby created and shall immediately undertake a thorough review of all IPP contracts. In cases where such contracts are found to have provisions which are grossly disadvantageous, or onerous to the government, the Committee shall cause the appropriate government agency to file an action under the arbitration clauses provided in said contracts or initiate any appropriate action under Philippine laws.”

To prevent the problem from getting worse, FDC also urged the government to hold its plan to raise P20 billion through bond flotation next year to help service Napocor’s 2011 obligations amounting to $1.2 billion and address PSALM’s level of liabilities which stands at $16.5 billion.

“Should the government follow the abovementioned recommendations, it might not see the need to raise billions of pesos through loans next year,” said Tanchuling.

“By confronting the problem head-on, we are sure that we can have lower electricity rates, and, at the same time, lower debt stock,” he stressed. –Daily Tribune