TeaM Energy mulls tie-ups with SMC, Aboitiz

MANILA, Philippines - Japanese power producer TeaM Energy Corp. will explore possible tie-ups with the San Miguel and Aboitiz groups for the expansion of their recent power plant purchases, the company’s top executive said.

TeaM Energy president and CEO Federico Puno said they are willing to enter into joint ventures with the two groups – the winning bidders for the supply contracts of the Sual and Pagbilao coal-fired power facilities.

In a bidding last month, San Miguel Energy Corp. (SMEC), the energy investment arm of the diversifying food and beverage conglomerate, bagged the independent power producer administrator (IPPA) contract for the 1,200-megawatt (MW) Sual power plant in Pangasinan.

At the same time, the Aboitiz-owned Therma Luzon Inc. won the contract to manage the contracted capacity of the 735-MW Pagbilao power facility in Quezon.

The Sual and Pagbilao contracts were the first batch of IPP contracts the government put on the auction block this year. The aggregate output of the two plants represents around 35 percent of the IPP contracts in Luzon and the Visayas.

While TeaM Energy has an existing 20-year build-operate-transfer (BOT) contract with state-run National Power Corp. (Napocor) for the two plants, it will eventually turn over the facilites to the IPPAs after its contract with Napocor expires.

Team Energy, a partnership between Japanese giants Tokyo Electric Power Co. and Marubeni Corp., is one of the biggest IPPs in the Philippines with over 2,000 MW of installed generating capacity. It took over in 2007 the facilities previously owned and operated by bankrupt US energy giant Mirant Corp.

“We haven’t been officially advised by PSALM (Power Sector Assets and Liabilities Management Corp.). Once advised we’re prepared to sit down with the winning bidders,” he said. PSALM is the government agency tasked to oversee the sale of Napocor’s assets and contracts.

“It’s one of the things we have to discuss. Right now, they will be the eventual owners so I guess they have the first crack at any expansion since they will own the plant,” Puno said.

He explained that since Napocor is prohibited by the power restructuring law to build new power plants and enter into new supply contracts, TeaM Energy could expand the power plants by itself. “ But even if we expand, it will have to be a merchant plant and we have to sell it (output) somewhere else.”

A merchant power plant sells electricity in the competitive wholesale power market since it is not required to serve any specific retail consumers, unlike traditional rate-based power plants covered by supply contracts.

“But we can also discuss with them if they want – we can go on a joint venture basis – because if not, we’ll have a problem because if we do it ourselves we have to enter in a contract with them for joint facility utilization. So I think going into joint ventures with them is much better,” Puno added.

Puno said the expansion plan hinges on the government’s new economic growth targets and the IPPA bidding results.

 “Originally, the DOE was forecasting that we would have a shortfall in Luzon in 2010-2011. Now, based on current demand growth, I think that has been pushed back to 2012-2013,” he said. 

Since TeaM Energy did not participate in the bidding for the Sual and Pagbilao contracts despite the fact that they are currently running the power plants, Puno said they are eyeing other Napocor IPPA contracts.

“We are still looking at the other bids, particularly the hydroelectric power plants like San Roque. We’re interested in looking into that. As far as Sual and Pagbilao we did not participate as it’s hard to justify the rate. For instance, Napocor is paying us P5 per kilowatt-hour and then we bid to take it back from them at P3 per kwh,” he said.

He said they are now waiting for clearer rules on the hydro IPPA bidding so they could determine if they would bid for more hydro power facilities’ contracts.

“We’re still not clear with the bid rules this time. They may do it as the same as the Sual and Pagbilao – where you have to bid for all three but you can only win one. .What I know is you have to bid for all three but you can only win one. They are trying to level the playing field to disperse ownership so that there will be more competition,” he said.