Concepcion urges transfer of state-run power plants to IPPAs

Industrialist and Consumer advocate Raul T. Concepcion is urging the government to commit the transfer of power plants being administered by the Power Sector Assets and Liabilities Management Corp. (PSALM) to the independent power producer administrators (IPPAs).

Concepcion said this is one of the crucial factors that would fast track the implementation of open access and retail competition in the power industry.

"The transfer of management and control of at least 70 percent of the total energy output of the National Power Corp. (Napocor) with the IPP plants to the IPPAs is mandated as per Sec. 51 of the Electric Power Industry Reform Act (EPIRA)," Concepcion said.

Under the EPIRA, PSALM is required to appoint IPP administrators to manage and control the Napocor-IPP plants until such time that the contracts have expired.

On the part of PSALM, it would eventually relinquish its role as trader in the spot market and pass this task to IPP administrators.

For instance, an IPPA will assume the contractual obligation of Napocor with an IPP, afterwhich the government will collect fixed royalties from the IPPA.

The selection of IPPAs, like the present privatization structure for Napocor’s power generation assets, will be done through public bidding.

The IPP plants in Luzon will be bid out to prospective IPPAs. The wholesale electricity spot market (WESM) initially covers the Luzon grid only.

In Oct. 2004, PSALM hired an international consultant, British Power International (BPI), after the Asian Development Bank (ADB) has given its approval.

ADB, one of the country’s major multilateral creditors, provided technical assistance to enable PSALM to draw up a blueprint for the appointment of IPPAs.

The IPPAs will be tapped through a competitive bidding, and those targeted are international power industry players and traders to be engaged as IPP administrators.

At least four IPPAs are eyed to manage the Napocor-IPPs portfolio in the Luzon area. There is a need to group these IPPs for WESM trading purposes.

As proposed, the IPPAs would become responsible for administering the IPP contracts and selling the energy output of their plants to include that in the WESM.

Aside from foreign energy firms, newly-formed energy traders, which are offshoots of financial or energy consultancy firms, and even former employees of the Napocor, are also encouraged to position themselves as potential IPP administrators, as long as they could satisfy the stringent financial terms set.

The criteria set out for the IPPAs engagement would require them to demonstrate financial integrity, including their net worth, bank references, and performance bond, among others.

They would also be asked to have first-hand experience as an electricity trader in a competitive wholesale market or other demonstration of competence, so they would have a way of justifying their approach to bidding the IPP contracts into the electricity spot market.

The IPPAs would primarily bid out the IPPs energy output into the WESM in a manner which optimizes its running hours and net revenues.

It would also negotiate bilateral contracts with customers and/or to sell options, including financial instruments, or insurance capacity.

As proposed, the IPPA will handle the contracts of Napocor with total 4,221 megawatt (MW) capacity.