Napocor, PGI settle 8-year dispute

Philippine Geothermal Inc. (PGI) and the National Power Corp. (Napocor) have settled an eight year-long dispute over the operations of the Tiwi and Mak-Ban geothermal steam fields, the Department of Energy (DOE) said.

Energy Secretary Vincent S. Perez said the agreement between PGI, a subsidiary of US-based Unocal, and Napocor and the Power Sector Assets and Liabilities Management Corp. (PSALM) has been approved by various Philippine government agencies and local courts.

Based on the deal, Napocor will receive approximately $87 million in accumulated service fee, which will then be used to reduce Napocor’s current liabilities. The settlement enhances the value of the Tiwi and Mak-Ban geothermal facilities and sets the stage for PSALM to begin the privatization of these power projects.

PGI has entered into a Geothermal Resource Sales Contract (GRSC) with PSALM to supply steam at a contracted price competitive with other base-load fuels until 2021.

The steam pricing under the GRSC makes the Tiwi and Mak-Ban projects among the lowest-cost energy sources in the country and will be viable under a restructured Philippine power market mandated by the Electric Power Industry Reform Act (EPIRA) enacted in 2001.

The National Economic Development Authority (NEDA said the new agreement, in turn, could save the Philippine government approximately $256 million (present value) and conform to the country’s restructured power market.

Perez added that the Napocor-PGI settlement will result in a mutually beneficial outcome, both in terms of increased government revenue and a boost to the Philippine power market.

Perez cited Unocal’s international reputation and strong regional presence, with over 40 years and over 50 percent of its investments in Asia. "With Unocal’s continued presence, this will ensure a vibrant energy sector and serve as a benchmark for other investors," he said.

"The agreement symbolizes the beginning of a renewed relationship and a stronger commitment to the Philippines," Unocal chairman, chief executive officer and president Charles R. Williamson said.

PGI, under a service contract with Napocor, pioneered the development of geothermal energy steam resources in the Philippines. Steam produced by PGI powers electrical generating plants at Tiwi (Albay province) and Mak-Ban (Laguna province).

PGI filed for arbitration with the International Chamber of Commerce (ICC) in July 1996 after Napocor failed to renew the service contract. Napocor, in turn, filed a petition of declaratory relief in August 1996 at the Quezon City Regional Trial Court.

Under an interim agreement at that time, the parties agreed to continue operations while negotiating a fair and mutually beneficial settlement. Part of that agreement is setting aside 60 percent of PGI’s service fee going forward, to be settled as part of the compromise. The payment received by PGI represents a portion of the service fee that had been set aside.