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In 2005,
reeling from reckless rancor that the economy was
afflicted with a fiscal crisis, our coffers on a deficit
and Gloria Arroyo peddling E-VAT to recoup from
irresponsible spending, someone came up with the idea of
selling the crown jewels.
These
were not the decrepit National Power Corp. (Napocor)
plants privatization was supposed to have replaced, or
at least paid the debts for. Neither were these the
transmission facilities consistently cursed with failed
bids. These were our geothermal steam fields, both
natural resources and renewable energy infrastructure
unequaled in the world that accounted for approximately
7.35 percent of our 15,619 MW installed generating
capacity.
Repeated
failures to pay for Napocor’s debts and the hangover
from electoral splurging necessitate desperate measures.
The tin box was empty. The heirlooms had to go. Our only
jewel was Philippine National Oil Co.-Energy Development
Corp. (PNOC-EDC). But selling it would have been a
sticky proposition, more when energy costs were soaring
and the DOE was helpless to do anything about it.
Now,
nearly three years hence, indignant, administration Sen.
Miriam Santiago is bewailing the privatization. She will
marshal the Joint Congressional Power Commission (JCPC)
of which she cochairs with Rep. Mikey Arroyo to
belatedly intervene and investigate its successful bid
last week.
A tad
too late, any attendant bile and venom can only damage
the transfer of a publicly listed corporate structure
long in the making and only now capped by the award to a
consortium that includes veteran player First Generation
Corp. as principal.
For all
its powers, the JCPC only looked at the PNOC-EDC from
the periphery and few members, save for Sen. Joker
Arroyo, Aquilino Pimentel Jr., Sergio Osmeña and Ramon
Magsaysay, diligently studied its history and understood
its sale consequences.
The
Electric Power Industry Reform Act (Epira) did not cover
PNOC-EDC’s privatization. Geothermal energy remained
outside the menu. Even the JCPC had no jurisdiction
unless PNOC-EDC submitted to it. Fortunately, it did.
PNOC-EDC’s submission prompted the commission to seek
ways by which the innate advantages of PNOC-EDC would be
preserved and its corporate structure faithful to the
public interest. Especially concerned was Senator Arroyo
who understood geothermal’s criticality.
The
logic of selling PNOC-EDC lock, stock and barrel was
elusive and not limited to the absence of 2005’s fiscal
imperatives. There were serious reservations on
surrendering our steam fields to unknown entities
outside the energy community.
Of those
interested, few were capable of maximizing geothermal’s
advantages for both profit and public good. On the
shortlist, there were the reputable consortia of First
Generation, the Aboitizes and AES, as well as the
Alcantaras. These, at least, knew what they were doing.
Others were less pedigreed, their agenda unknown
On
Wednesday the First Generation consortium won the bid.
With that, doubts clouding this off-Epira privatization
were essentially answered.
One of
the most convincing is First Gen’s renewable asset pool
to which 1,198 megawatts of geothermal assets will be
synergistically applied. The company has an installed
capacity of 1,839MW, accounting for 12 percent of total
installed capacity. These include the 1,000-MW Santa
Rita and 500-MW San Lorenzo natural gas-fired plants,
the Pantabangan/Masiway Hydroelectric Complex, and a
1.6-MW minihydro plant, thus establishing it as the
largest least-cost energy producer.
Relevant
at a time of unbridled energy cost escalations and
dependence on imported and politically volatile fuels,
First Gen’s asset portfolio underlies the winning logic
beyond its bid values.
Geothermal plants are indigenous and renewable
electricity sources. With a smaller component of
volatile foreign exchange costs, they provide a
cushioning effect on tariffs, notoriously the highest in
the region.
The
plants service the grid via Napocor and depress tariffs
against the higher costs of facilities like Calaca,
Pagbilao and Sual in Luzon and the Toledo and Naga
plants in the Visayas. The buffer effect is even higher
against plants using forex-depleting liquid fossils that
account for the second highest in the energy mix.
The
plants also reduce Napocor’s dollar costs. For most coal
plants, even when privately owned, Napocor imports fuel
under an Energy Conversion Agreement (ECA) exposing it
to forex volatility. On a plant per capita-income basis,
geothermals provide positive bottom lines. From
inception, PNOC-EDC generated cumulative cost savings of
$3.75 billion.
This
advantage is preserved with steam sale agreements (SSA)
that commit steam supplies following prospective pricing
applied to Napocor plants or its purchasers.
Under a
JCPC-approved agreement, First Gen’s new asset processes
geothermal resources and sells energy until 2031 when
service contracts expire. The buyer purchases at prices
that guarantee economic offtakes.
Likewise, First Gen’s new asset is remunerated for
consumption in excess of guaranteed supply. When
declared, steam flows differ from the actual delivered,
the lower between guaranteed steam less consumption
multiplied by the average price is due to off-takers.
This performance-based formula allows for rebates when
“steam shortfalls” occur, thus compelling equitable
pricing.
The SSA
and the company’s public-listing ensure the pricing
security that some feared might disappear. The award to
First Gen closes those issues as capital-structure
changes are operationalized at the upper equity level.
Given exploratory and development costs at less than 6
percent of total assets while property, plant and
equipment, including those under lease, account for 70
percent, tapping a capital-rich and expansion-driven
investor like First Generation makes sense. |
