PNOC-EDC hires go-between in talks with CalEnergy

PNOC-Energy Development Corp. (EDC), the geothermal unit of state-owned Philippine National Oil Co. (PNOC), has commissioned at least three investment banks to serve as the third party in the ongoing negotiations with California Energy International Services Inc. (CalEnergy).

EDC president Sergio Apostol identified only two of the investment banks. "We are awaiting the services of ABN Amro and Credit Suisse First Boston to become the third party to act as go-between in our negotiations with CalEnergy," he said.

Apostol said the three institutions will also help EDC in sourcing the financing needed to support whatever decision the two energy firms arrive at. "They will help us put together a deal of whether to buy out the contract with CalEnergy or extend the loan and how much we can buy out the contract. They will raise the funds for EDC probably through borrowing," he said.

Apostol said the official negotiations will start within this week. "The chief executive officer of EDC and his counterpart in CalEnergy will be the ones who will sit down with the third party to negotiate," he said.

EDC has said it is considering the possibility of extending its loan agreement with CalEnergy by another 10 years to lower its monthly payment to $4 million from the present level of $14 million.

The state-owned firm has an existing 10-year build-operate-transfer (BOT) contract with CalEnergy for the development of the Leyte geothermal production field with a capacity of 528 megawatt (MW), which will expire on 2006.

Apostol said buying out the contract with CalEnergy is also being considered. "We are exploring the possibility of buying them out. But we should not pay beyond $5 million a month," he added.

EDC, he said, would try to come up with an agreement with the US-based energy firm before the end of the year.

Apostol said CalEnergy is likely to agree on the buyout proposal since the company is apparently keen on getting out of the country due to some controversies it is encountering. "I believe they want to get out of the country so they would pursue, if ever, the buyout EDC is facing financial difficulties due to its ongoing arbitration with CalEnergy for an alleged undelivered required steam by the state-owned firm. Todate, Apostol said the alleged undelivered power being disputed could reach some 10 MW.

The negotiations for a buyout is part of the second arbitration which involved their contract with CalEnergy for Malitbog II. The first arbitration focused on the Tongonan contract. "They (CalEnergy) want a separate arbitration," he said.

EDC, which is the most profitable subsidiary of PNOC, started operating the first 112.5-megawatt (MW) geothermal unit in 1984 in Tongonan, Leyte.

The company expanded its operations with plants in Bicol, Southern Negros and Cotabato with an overall installed capacity of 1,149 MW or 60 percent of the total geothermal installed capacity in the country. It is committed to pursuing the government’s thrust of intensifying the use of indigenous resources such as geothermal, to reduce the country’s dependence on imported fossil fuel.