San Miguel Global: SPPC has supply contract with government

MANILA, Philippines — San Miguel Global Power (SMGP) has maintained that unit South Premier Power Corp. (SPPC) has a supply contract with the government over Malampaya banked gas.

In a statement yesterday, SMPG said SPPC bought the Malampaya banked gas owned by the government through the Philippine National Oil Co. (PNOC) for $1.2 billion.

This was the company’s response to a statement issued over the weekend by the consortium behind the Malampaya deep water-to-gas project saying that there is no live contract for the supply of gas from Malampaya between SPPC and Shell Philippines Exploration BV, now Prime Energy.

The Malampaya consortium is composed of the PNOC-Oil Exploration, UC38 and Prime Energy.

SPPC signed a gas supply and purchase agreement worth $1.2 billion with the PNOC for such banked gas last June 23, under direct supervision of the Department of Energy, PNOC Board and the Office of the Government Corporate Counsel.

The government, through PNOC, owns and exercises rights over 70.26 petajoules banked gas.

“While SPPC does not have a direct agreement with the consortium, it is PNOC on behalf of government that has an existing contract with SPPC,” SMGP said.

“In fact, in our discussions for the sale of the banked gas, PNOC disclosed to SPPC that the government has fully paid the consortium for the gas, which means that 100 percent of the gas should be deliverable to SPPC,” it added.

Delivering the purchased gas supply to the Ilijan power plant would benefit consumers and reintegrate 1,200 megawatts (MW) of baseload capacity to the grid, according to SMGP.

“Reintegrating Ilijan into the grid using Malampaya gas supply will immediately add 1,200 MW of baseload capacity, helping stabilize power supply and prices,” SMGP said.

Ilijan historically contributes up to 10 percent of the net reliable capacity in Luzon.

“With no new major baseload capacities expected in the coming months, it is crucial for government to reintegrate Ilijan’s 1,200 MW capacity into the grid in the interest of energy security,” SMGP said.

It also argued that adding Ilijan’s 1,200 MW to the grid would stabilize overall prices.

“Should the Malampaya supply be delivered to Ilijan, other affected power facilities can alternatively use condensate fuel, as allowed under their PSAs with Meralco,” SMGP said.

“This will avoid disruptions to the energy trading market. Any increase in power supply costs will only affect the pertinent contract capacities using condensate fuel,” it added.

The firm called the SPPC and PNOC contract as the “true win-win solution” to all stakeholders, especially the consumers.

“By preventing or limiting the utilization of the banked gas, the PNOC will not be able to fully monetize, if at all, this government asset valued at $1.2 billion before the end of the concession in 2024 as the gas volumes extracted from Malampaya continue to rapidly decline,” SMGP said.

The Malampaya consortium had said that the supply of gas to the Ilijan power plant in Batangas operated by SPPC is under consideration once additional gas volume is extracted should its service contract license be extended.

It said there is no refusal to sell to Ilijan because there are no legal means by which the sale of gas to the plant could be made.

Without a live contract, the consortium said Malampaya gas cannot be sold legally to SPPC.