New deal with Mirant to save government $387-M

The government hopes to save $277 million to $387 million under a new agreement between the government, the Power Sector Assets and Liabilities Management Corp. (PSALM) and Mirant Corp. approved recently by the Cabinet.

Documents obtained from the Department of Finance (DOF) show that the Cabinet approved the contracts under the General Framework Agreement after the Investment Coordination Committee of the Cabinet validated the provisions for Mirant’s Sual and Pagbilao power plants.

This is the first IPP contract that has been reviewed and renegotiated by the government since President Arroyo mandated the DOE, PSALM and two other agencies – National Economic and Development Authority (NEDA) and the Department of Justice (DOJ) – to work out plan of action following the results of the initial review of IPP contracts.

Mirant operates seven separate power plants in the Philippines with a combined capacity of approximately 2,000 MW.

In a letter to PSALM president Edgardo del Fonso, Finance Secretary Jose Isidro Camacho said the Cabinet ICC has cleared the agreement and the renegotiated terms on a "no-objection" basis.

Aside from the Mirant contracts, the Cabinet also decided on the early termination of the contract between the government and the Subic Power Plant from Enron Power Corp., a subsidiary of the bankrupt US-based company, Enron Corp.

In a letter to PSALM, Economic Planning Secretary Romulo Neri said the Cabinet Investment Coordination Committee (ICC) has approved the early transfer agreement for Subic Power Plant.

In the letter, Neri said the decision was based on the recommendations made by PSALM itself and the ICC had determined that the early termination would not involve any increase in the cost to the government.

Government began negotiating with Enron last year when PSALM was trying to get a higher discount from Enron for the government to buy out Enron. However, this would have cost more than terminating the contract, sources said.

Enron Power is the local unit of Enron Corp., one of the largest energy traders in the US. Recently, Enron filed for Chapter 11 – bankruptcy protection, a type of proceeding that allows the company to remain in control of its business while negotiating with creditors. It was touted as the biggest bankruptcy filing in America’s corporate history.

Enron operates the 105-megawatt (MW) Pinamucan-Enron oil-based power in Batangas and the 108-MW Subic-Enron 2 unit 1-8 in Olongapo, Zambales. The two plants have a combined value estimated at $250 million.

The contract for the Batangas plant started in July 1993 and would expire in July 2003 while the Zambales contract has a 15-year tenure and would lapse in March 2009.