PSALM mulls 2 options on IPP auctions

The Power Sector Assets and Liabilities Management Corp. (PSALM) is considering two business models for the bidding of the independent power producer (IPP) contracts of the National Power Corp. (Napocor), a top PSALM official said.

PSALM president Jose Ibazeta told reporters that the one of the schemes, being developed by the Asian Development Bank (ADB) and the World Bank (WB), would allow for the transfer of the fuel procurement function of Napocor to the IPP administrators (IPPAs).

“We already have two business models. The first is the winning bidder will assume the lease contract and fuel procurement. But we’re probably leaning to have the bidders take control of the fuel procurement,” Ibazeta said.

According to Ibazeta, if this particular model will be approved, the bidding will be attractive to investors.

“This will be easier to do because this is where the savings are. We’re hoping the bidders will look at the savings in fuel and the efficiencies they can put into selling in the wholesale electricity spot market (WESM),” Ibazeta said.

The PSALM chief said this will also ease Napocor’s burden in getting or procuring fuel supply for its power plants.

“Napocor is having problems procuring. Imagine IPPs have 15 plants, the effort here is huge — from planning, management. That’s is why they (Napocor) have to get out of this business of procuring since they should not be here to make a profit,” he said.

Napocor is currently bound by the energy conversion agreement (ECA) it signed with the IPPs at the height of the power crisis in the 1990s.

Under the ECA, Napocor purchases all fuel and buys the power generated by the IPPs.

Another model, Ibazeta said, is to keep the status quo on the fuel procurement function of Napocor but the winning bidder will be able to “bid out the energy output of the plants and sell it to the wholesale electricity spot market.”

Ibazeta, however, pointed out that they are trying to be very careful on choosing the best model as this is the first time that such IPP contract bidding will be carried out.

“The whole world will be looking at how we handle the IPP privatization because this has not yet been done before,” he noted.

“We have not decided yet. We will decide on it next week, and will bid it (IPPAs) by August,” he added.

Under the EPIRA, PSALM is required to appoint IPP administrators to manage and control Napocor-IPP plants until the contracts expire.

Based on earlier proposals, the IPPAs will handle the contracts of Napocor with total 4,221-megawatt capacity.

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.

As proposed, the IPPAs will primarily bid out the IPPs energy output into the WESM in a manner which optimizes its running hours and net revenues.

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

Earlier, the Department of Energy (DOE) has presented several approaches in bidding out the IPPAs.

The DOE said although the variations are unconstrained by the general guidelines in the power reform law and the specific guidelines proposed for the IPPAs, they have been highly instructive in the development of the general process of the IPPA bidding.