Meralco may sign P44-B pact with First Gas, QPL

The Lopez-controlled Manila Electric Co. (Meralco) wants to close negotiations and sign an agreement with First Gas Power Corp. (FGPC) and Quezon Power Ltd. (QPL) before the end of the year, pending the resolution of left-over issues currently under negotiation.

Meralco has managed to strike a compromise agreement worth over P44 billion with FGPC and QPL but there are pending issues still under deliberation, primarily involving penalties and cost-sharing.

Landbank president and Meralco board member Margarito Teves, said talks with QPL are progressing significantly while FGPC is about to agree to a compromise over a provision wherein Meralco wants FGPC to accept the penalties for interruption of operations due to labor strike.

"All parties are anxious to have the agreement signed before the end of the year," Teves said. "We’re now moving towards putting these agreements in legal language so that we will have a working document soon."

According to Teves, Meralco is negotiating for further adjustments in the penalty in case FGPC or QPL fails to deliver the contracted energy level under their respective take-or-pay contracts.

Under the renegotiated agreement, Teves said FGPC has agreed to increase the penalty it is required to pay from P0.1045 per kilowatt-hour (kwh) to P0.98/kwh if they fail to deliver the energy they are required to generate. According to Teves, Meralco wants the penalty rate to be pegged to the fixed operating and maintenance cost plus the capacity fee and it also wants the cap to be removed.

"That formula equals the amount we pay for the energy," Teves explained. "It is only fair that they pay us back the same amount when they do not perform."

According to Teves, Meralco also wants FPGC to pay penalties for non-conformance with transmission standards, but the latter is not willing to pay any penalties.

"They’re only willing to conform to the rules governing transmission on a "best-effort‚ basis," Teves said. "But even their willingness to conform is based on a very wide band that we want to narrow down."

Teves said another key issue is Meralco’s demand to share the cost of transmission lines that FGPC built for transfer to Transco, the transmission line operator of the National Power Corp.

"Right now, Meralco is paying for the operation and maintenance costs on these transmission lines. It should be 50-50," Teves said. He explained that these lines which connect the FGPC plant to the Napocor grid, should have been transferred to Napocor long ago but Transco did not want to take them because they did not meet Transco standards.

"Just to be able to transfer these lines would require a separate negotiation and settlement," Teves said.

Teves said the critical part is over but the actual success of the renegotiation will depend on the approval of Meralco’s creditors. "I can narrow this issue down to the simple fact that if creditors do not accept this and Meralco collapses, no one will gain anything from the remains," he said.

Teves said the immediate savings to consumers is expected to be over P10 billion, approximately equivalent to 15 centavos per kilowatt hour.

"The proposed agreements also include concessions such as higher penalties for non-performance and higher discounts for the power that Meralco would buy in excess of the contracted volume," Teves said.

According to Teves, the total concessions obtained from FGPC and QPL could amount to over P44 billion over the duration of the contracts. He added that the concessions are "at least as valuable" as the concessions obtained by Napocor from their IPPs.

FGPC is a subsidiary of First Gas Holdings Corp., a joint venture between British Gas, the Lopez-owned First Philippines Holdings, and the Meralco Pension Fund. QPL, is a consortium composed of InterGen, Ogden Energy Group, Global Power Investments, LP and the PMR Group.