Meralco to proceed with construction of Atimonan coal plant

MANILA, Philippines — The power generating arm of Manila Electric Co. (Meralco) is open to making its 2x600-megawatt (MW) coal-fired power plant in Atimonan, Quezon a merchant plant as a last resort as it proceeds with the construction of the power project, its top officials said.

The power supply agreement (PSA) between Meralco and Meralco Powergen Corp. (MGen) is still pending regulatory approval, but the power project would proceed to construction phase, chairman Manuel V. Pangilinan said.

“We have given the green light to management to proceed with Atimonan. At first, [we issued] the limited notice to proceed, but eventually when they start shoveling the ground, we will give them a notice to proceed,” he said.

The Atimonan power plant is under MGen’s wholly-owned subsidiary Atimonan One Energy Inc. (A1E), which was granted a certificate of energy project of national significance (CEPNS), entitling it to all the rights and privileges under Executive Order (EO) 30 signed by President Duterte.

Energy Secretary Alfonso Cusi said the CEPNS certifies that the project is a critical part of achieving an additional supply of 14,000 MW by 2025 and to meet the higher power demand of the Luzon power grid by 2021.

Meralco’s PSA with A1E, along with six other power generation companies, were submitted to the Energy Regulatory Commission in April 2016.

However, the PSA approvals hit a snag after consumer group Alyansa Para sa Bagong Pilipinas Inc. asked the Supreme Court (SC) to stop the ERC from approving a 20-year PSA between Meralco and several general companies for failing to undergo competitive selection process (CSP).

The CSP policy—which requires distribution utilities and electric cooperatives to undertake competitive bidding to secure PSAs with generation companies—was supposed to start on Nov. 7, 2015 but implementation was moved to April 30, 2016 to give power players a transition period to comply.

Because of the non-approval of the PSAs, MGen’s engineering, procurement and construction (EPC) contract for the 2x300-MW coal-fired power plant in Subic, Zambales under Redondo Peninsula Energy Inc. (RP Energy) lapsed in December 2017. It is now looking for a new contractor amid higher costs.

To avert the same fate as RP Energy, MGen is looking at the possibility of having A1E go merchant, or sell its output to the wholesale electricity sportt market.

 ERC chairperson Agnes Devanadera has declared that the commission would not act on Meralco’s PSAs until the high court gives its decision on the case.

However, MGen president and CEO Rogelio Singson said the option to go merchant  would be the last resort pending the SC’s decision on the PSAs.

Singson said going merchant would be difficult in terms of financing for the project because local banks are not used to fund power projects without PSAs.

A1E has a project cost of P150 billion, which will be financed through a P107-billion loan from eight banks and the remaining through equity.

“But there’s no financial closure yet. Financial closure is the PSA approval,” Singson said.

The delay in the PSA approval has already translated to higher project cost, Meralco president Oscar Reyes said.

“There’s an impact on project cost. The project cost has significantly increased because of one, [peso-dollar] exchange rate at the time we filed P46-48. Now it’s P53-54,” he said.

“Second, interest rates at the time we filed was low, below 4.5 percent. If we had closed, we would have gotten around 4.4 percent.  Now interest rates are up by at least 3 percent,” Reyes said, noting that is equivalent to an additional P3 billion cost per year.

However, Meralco remains hopeful it can proceed with the project’s commercial operations with a PSA.