Napocor, Keilco agree to settle

Kepco Ilijan Co. (Keilco), the consortium that manages the 1,200-MW Ilijan natural gas-fired power plant, has agreed to pay only half of the supposed $38.4 million settlement agreement, it was revealed by National Power Corp.president Roland S. Quilala who said the settlement scheme was approved by the Napocor board last July.

Quilala said that based on the Napocor board approval, Keilco indicated its willingness to settle Napocor’s liquidated damages resulting from the delay by waiving payments for capital recovery fees for 69 days, starting from the commencement of the plant’s commercial operation in June 5 until Aug. 10, 2002.

However, savings from the waiver of Keilco’s capital recovery fees amounted to only $19 million (P950 million), half of the $38.4 million (P1.9 billion) penalty Napocor had originally asked from the consortium.

"Both Napocor and Keilco saw the negative implication of a long and drawn-out arbitration case so it is to the best interest of the project to bring this issue to a close. We were coming from the opposite ends of the discussion so the only way out of the impasse is to meet halfway," Quilala said.

He explained that Napocor had originally slapped the consortium a penalty of $400,000 for every day of delay from the Ilijan power plant’s January 2,2002 target completion date.

The state-owned power firm’s position was based on its argument that the delay was caused by plant-related technical problems. It also said it was contractually obliged to receive the electricity to be generated by Keilco during tests but not to provide Keilco with back feed electricity.

But the consortium refused to acknowledge the penalty arguing that the delay in the completion of the transmission line caused the delay of the whole project because Ilijan was not provided with back feed electricity.

To break the impasse and prevent a possible protracted and costly arbitration, negotiating teams from both parties – led by former Napocor president Jesus N. Alcordo and Edgardo Bautista of Mirant Phils. – agreed that Keilco will settle the 69-day delay by waiving its capital recovery fees for the same period.

Keilco maintained that the computation of the liquidated damages should be based on the power firm’s energy sales to Meralco, minus associated generation, transmission and ancillary charges. This cut the penalty to just $275,000 per day.

Napocor chief said the compromise agreement signed during the completion rites of the Ilijan gas fired facility last Nov. 14 merely formalized the settlement scheme.

Korea Power Corp. (Kepco) owns majority stake in Keilco. Its partners are Mitsubishi Electric Corp., Mirant Philippines and Kyushu Electric Power Corp.

The group invested $710 million to build the country’s biggest natural gas facility which will utilize the gas reserves from the Malampaya project in Palawan.