Tiaoqui denies sale of Tiwi-Makban assets

Energy Secretary and National Power Corp. chairman Mario V. Tiaoqui categorically denied yesterday that the state-owned power firm has sold the steamfield assets of the Tiwi-Makban geothermal power complex to Power and Renewable Energy Corp. (PowerCorp), a joint venture between the Philippine Geothermal Inc. (PGI) and businessman Eusebio Tanco.

Neither have Napocor and PowerCorp. agreed on the price of the said assets and of the steam that will be supplied by the latter to the Tiwi-Makban power plants, he said.

Tiaoqui made this clarification following allegations by Sen. Sergio Osmeña III that Napocor sold the Tiwi-Makban steamfields to PowerCorp. when it signed a "secret" memorandum of agreement (MOA) last July with PGI, operator of the said steamfields. PGI owns a 40-percent stake in PowerCorp. while Tanco controls the other 60 percent.

"There is nothing ‘secret’ about the MOA between Napocor with PGI, and in fact, we believe that this agreement is most advantageous to the government," Tiaoqui said. According to him, the MOA merely provides the framework within which Napocor and PGI can pursue a compromise settlement of their pending legal suits. It provides for the possible sale of the Tiwi-Makban steamfield assets at prevailing market values and an eventually steam supply agreement. An inventory of the steamfield assets is currently ongoing and no discussions have started on the purchase price. The MOA further requires PGI to apply for service contract with the Department of energy as a pre-condition for the exploration and exploitation of the steamfields.

Among other benefits, the required service contract will ensure that the Tiwi-Makban steamfields will continue to be the patrimony of the State, Tiaoqui said. At the same time, it mandates PGI to pay a 60-percent royalty fee to the government in exchange for the exploitation of the steamfields. Napocor also has a chance to liquify its investments in the steamfield assets and pass the development and investment risks in steam extraction to PGI.

Tiaoqui stressed that the MO does not cover the sale of the Tiwi-Makban power plants themselves, which will be sold through an international competitive public bidding. "Cogniant of our commitments to Congress, we have made sure that the sale of the power plants shall be undertaken only upon the passage of the Power Bill in Congress.

Contrary to insinuations that the MOA could be an attempt to pre-empt the forthcoming privaization of Napocor, Tiaoqui said the agreement actually enhances the privatization prospects of the Tiwi-Makban complex. "For one thing, the MOA will remove the threat of a $500-million arbitration case filed by PGI against Napocor in connection with the operations of the Tiwi-Makban plants, which had considerably dampened potential investor interest in the said complex. Furthermore, by providing for a long-term steam supply agreement, the MOA eliminates any inherent advantage of PGI as the steamfield developer, and puts all potential bidders for the Tiwi-Makban power plants on a level playing field."

Tiaoqui cautioned certain quarters against using the Tiwi-makban issue to delay the approval of pending reforms in the power sector. "The Power Bill should not be held hostage by such accusations, which are baseless and unfair, to begin with," he said.

On the alleged "overprice" in the cost of the steam being supplied by PGI to Napocor, Tiaoqui clarified that there has been no agreement with PGI whatsoever on the steam price, as discussions have just started. He explained that the P0.50 per kwh steam price quoted by Osmeña is only the service fee or profit of PGI. "To get the full Tiwi-Makban steam cost, we have to add the operating costs, the amortization of capital and development costs, and taxes which are all being borne by NPC."

On the other hand, the P1.28 per kwh steam cost cited is he projected steam cost used in Napocor valuation of the Tiwi-Makban complex or purposes of the privatization exercise under the power reform bill. This represents full costs inclusive of operating costs, amortization, royalty, taxes, return on investment, and royalties provided under Presidential Decree 1442. "It is thus a comparison of apples versus oranges, or net income versus gross revenues, or present costs versus future costs," Tiaoqui said.