PGI commits to long-term partnership with Philippines

Philippine Geothermal Inc. (PGI), a subsidiary of US-based Unocal Corp., committed yesterday to a long-term partnership with the Philippines as a result of its recent settlement agreement with the Power Sector Assets and Liabilities Corp. (PSALM).

"We are indeed pleased that, despite the protracted negotiations, Napocor and PGI have delivered on their commitment to provide clean, indigenous, reliable, and affordable energy to the Luzon power grid. Moreover, this breakthrough in our negotiations facilitates the full and final settlement of our long-standing dispute and is a positive step to strengthen investor confidence and support our long-term partnership with our host country, the Philippines," PGI president Barry S. Andrews said.

PSALM, under the new set-up in the power sector, will handle all the assets and liabilities of the National Power Corp. (Napocor)

PGI and PSALM recently arrived at an agreement on the terms of a settlement and are currently finalizing the definitive agreements needed for approval by various government agencies. They have moved for a further suspension of their litigation proceedings to enable them to secure approval of a full and final settlement.

Andrews acknowledged the significant strides in the PGI’s negotiations with PSALM.

Since 1996, Napocor and PGI have been in discussions on the renewal of PGI’s service contract (SC) with Napocor covering the geothermal steam fields in Tiwi, Albay and Makiling-Banahaw (Mak-Ban) in Laguna and Batangas. The SC was entered into in 1971.

When Napocor contested PGI’s right to renew the SC, the latter in July 1996 filed an arbitration case before the International Court of Arbitration of the International Chamber of Commerce (ICC), in accordance with the arbitration clause of the Service Contract. In August 1996, Napocor filed a "Petition for Declaratory Relief" before the Regional Trial Court (RTC) of Quezon City, Philippines.

A series of provisional agreement were subsequently entered into by Napocor and PGI to allow uninterrupted operations of the Tiwi and Mak-Ban plants and ensure the stability of the Luzon grid. This led to the signing of the interim agreement in June 1998 under which the parties agreed to effectively suspend arbitration and the local court case to maintain unhampered operations and allow negotiations towards a mutually beneficial and amicable settlement.

Highlights of the proposed settlement include the Filipinization of PGI and conversion of PGI’s Service Contract into a Steam Sales Agreement in line with the EPIRA.

"We are confident that the settlement results in terms that are mutually beneficial for PSALM, PGI, and the Filipino people," Andrews said.

Andrews also noted that the settlement agreement will optimize the value of the Tiwi and Mak-Ban geothermal assets for the Philippine government.

Under the terms of the settlement, the resulting fuel price will be among the most competitive in a restructured Philippine power market, with PGI assuming market risk once Napocor completes its planned rehabilitation of the power plants.

The value of the Tiwi and Mak-Ban assets, he said, is expected to increase significantly as the Napocor geothermal power plants are scheduled to be fully rehabilitated and operate at 90 percent availability in 2003.

He said the resolution of the legal dispute will also pave the way for the eventual privatization of the Tiwi and Mak-Ban assets.

As part of the settlement, PGI’s service contract will end and PGI will take in new Filipino investors to develop and manage the geothermal resources at Tiwi and Mak-Ban under a new arrangement.

"In consultation with PSALM, the new Filipino entity will be created in a manner that is open, transparent, and consistent with good business and legal practices. This will give Filipinos an opportunity to partner with Unocal, a world leader in energy development and the pioneer geothermal developer in the Philippines," Andrews said. – Donnabelle Gatdula