KOSPO on Balili property: Due diligence is a must

Offer is a word that could mean unilaterally as a proposal, tender or bid. Bilaterally, it could also mean a deal or a compromise. Badly, however, it could also mean a bribe. Depending on the circumstances, one uses the word and the rest just have to figure out what that person meant and what he or she is trying to achieve.

On casual days and ordinary circumstances, we hear the word prevalently used in selling a product at a bargain, as in, a “special offer”.   In business, however, it is totally different when one offers or when the company receives an offer. As a rule of thumb, companies never take offers at face value. As a matter of business policies, they conduct due diligence review or audit to validate the offer. 

Though ordinary to business people, “due diligence" may sound strange for laypersons. It is a “term used for a number of concepts involving either an investigation of a business or person prior to signing a contract, or an act with a certain standard of care”. More often applied to voluntary investigations, a common example of due diligence in various businesses is the process through which a potential acquirer or a potential lessee evaluates a target company or property for acquisition or lease.

Essentially, it means making sure that all the facts regarding the firm or offer are available and have been independently verified. In most respects, it is very similar to an audit. All the documents of the firm are assembled and reviewed, the management is interviewed and a team of financial experts, lawyers and accountants troops on the firm to analyze it.

Recently, the Cebu Provincial Capitol offered the controversial Balili property in barangay Tinaan, Naga City to Korea Southern Power Co., Ltd. (KOSPO) as site for another coal-fired power plant in Cebu. Among others, Gov. Gwen Garcia emphasized that the Balili property is appropriate because it is right along the shoreline and, thus, suitable for coal deliveries by huge cargo vessels. Moreover, she stressed that there is an acute need for a steady power supply in Cebu to boost or sustain the island’s economic growth.

Inarguably, we are in need of a very stable power supply. With the pace by which Cebu City has grown as evidenced by the recent construction boom, surely, power shortages won’t be remote. Therefore, KOSPO’s plan to put up a 400-megawatt coal-fired power plant is timely and appropriate.

Like any business, however, location is a vital aspect in the decision making processes. Due, probably, to our globally known brand of hospitality, Gov. Gwen Garcia offered a site for the plant. While the gesture maybe considered as our way of welcoming a foreign investor, the fact remains that she is offering a highly controversial property. While it might help that she is trying to offer an idle property (worth over P90 million), the undertones could hardly be ignored.   Whatever the undertones, maybe, however, the fact remains that the ball is now in KOSPO’s court. To guide them, however, in their decision making processes, a due diligence is extremely necessary.

Among others, KOSPO’s due diligence should focus more on two (2) concerns. First and foremost, the legal aspect should be adequately reviewed. Secondly, the environmental issues must be squarely addressed. 

Legally, there is such an issue about Balili property acquisition that deserves continuous front page attention. Unfortunately, it has been temporarily relegated to the inside pages and KOSPO might just miss it. It deserves such recognition, not necessarily on the validity of its purchase nor on the recovery of whatever amount is left in the bank that is intended to be returned to the Cebu Provincial Capitol, but on the soundness of the purchase. Simply put, there are legal issues and encumbrances on the property that KOSPO shouldn’t just ignore. 

 Environmentally, it is a fact that KEPCO had been in the front pages a couple of weeks ago. Environmentalists have been up in arms against its operation and below-par coal-ash disposal ways. Not fully satisfied by KEPCO’s pollution control measures, it will only need one more misguided move (like putting up another coal-fired power plant in the area) for these environmentalists to again explode.

Moreover, the situation could even be more complicated. If KOSPO is smart enough, they must examine the agreement between KEPCO and the provincial government regarding the use of the property as the former’s coal-ash dumpsite. The possibility that future provincial administrations (probably, no longer the Garcias’) might make an honest review of the agreement isn’t remote. If they wish to go ahead and use the property as well, they must think twice.

To recall, bragging about a down-payment of US$500,000.00, the governor declared that Kepco will be paying the provincial capitol US$1.00 per ton for dumping coal-ash (probably, the bottom ash) into the watered portion of the site. 

Is this amount fair? Absolutely not, not in anyone’s wildest dream.   Today, the ongoing cost (global average) of dumping coal-ash into a landfill or a dumpsite is between US$10.00 and US$15.00 per ton. Kepco as a global entity is certainly aware of this. Not only that, they must be also aware that early this year, the Obama administration (USA) is contemplating of labeling coal-ash as hazardous waste. Such “hazardous” label will have multifarious implications though. For one, such label would outright ban wet storage ponds (like the Balili property) in the USA.    They further claimed that it shall further burden itself on cost of ash disposal as it will surely rise from US$10.00-15.00 a ton to US$150 per ton.

Obviously, based on these facts, even prior to the proposed labeling of the coal-ash as “hazardous”, the deal with Kepco of US$1.00 is already a pittance. Worst, if the USA should push through with the proposed labeling and the county shall take its lead, then, US$1.00 per ton will just be a drop in a beggar’s bucket. 

These facts and possibilities should not be ignored by KOSPO if they intend to have a trouble-free business existence in Cebu. Accepting the offer without due diligence can be a “kiss of death” for their business plans. The most logical thing to do is to consider other more appropriate sites. Forget about the emphasis that the Balili property is appropriate for huge vessels to deliver the coal because it has the benefit of having a stretching shoreline. The fact is, Cebu is a small island and all cities and municipalities have their own share of shorelines. 

Indeed, if they are diligent enough, they shouldn’t give in to the governor’s preferences (Balili property) unless they foolhardily wish to “dig their own grave”.

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