Government successfully negotiates another IPP contract

The government has successfully negotiated another independent power producer (IPP) contract, it was learned yesterday.

Power Sector Assets and Liabilities Management Corp. (PSALM) president Edgardo del Fonso said they have firmed up an agreement with Philippine Geothermal Inc. (PGI) that would result to a savings of a more than $200 million until the expiration of the PGI contract in 2021.

"We have sealed a term sheet which promises a mutually beneficial outcome for the parties," Del Fonso. "For PGI, its right to explore, develop and manage the geothermal resources in Tiwi and Makiling-Banahaw (Makban) sites will continue unchallenged," he said.

In a recent joint board meeting, the board of directors of PSALM and the National Power Corp. approved the term sheet that will embody the main elements of a new steam sales agreement.

Del Fonso, however, said the new agreement will have to be submitted to the appropriate government authorities for final approval.

According to him, the proposed settlement puts an end to the seven-year-long dispute between PGI and National Power Corp. (Napocor) that arose from the interpretation of the renewal clause of the original 25-year service contract (SC) signed in 1971.

The SC covered the Tiwi and Makban geothermal sites in Albay and Laguna-Batangas, respectively. When the contract expired in 1996, Napocor challenged the validity of a provision giving PGI a renewal option. The dispute is now pending before the Supreme Court and the International Court of Arbitration for resolution. However, court proceedings have been suspended since August 2001 while negotiations are ongoing between PSALM and Napocor and PGI.

The PSALM chief said PGI would bear development and market risks under the new steam sales agreement. In lieu of service fees and other payments in the SC PSALM/Napocor will pay PGI only for the actual steam used for generation, with no fixed fees or guaranteed off-take obligations.

He explained that the steam will be priced at a discount to coal, and will result in the lowest cost steam among all geothermal sites in the country. The low fuel price will ensure high utilization of the government-owned generating plants and enhance their privatization value.

As part of the agreement, PGI will form a Filipino company in keeping with the ownership requirements for entities involved in the development and use of natural resources.

For his part, Energy Secretary Vincent S. Perez lauded the efforts of PSALM and PGI in reaching an agreement after months of negotiations.

"We view this development as a ‘win-win situation for all the parties," the energy chief said. "By this agreement, we have demonstrated that we can promote the government’s interests, adhere to Constitutional requirements, and that the same time uphold the principles of fairness and equity in our dealings with the private sector and foreign investors."