Senate big question: Is Drilon a gentleman?

UNGENTLEMANLY: Senate President Franklin Drilon has until today and tomorrow, the last two days of the current regular session of the 13th Congress to show that he is not only an honorable senator but also a gentleman.

In July 2004, Drilon and Sen. Manuel Villar – both aspiring for the Senate presidency – entered into a gentleman’s agreement to cast aside their rivalry and share the Senate presidency this way: Drilon will sit in the first and second regular sessions and Villar will follow in the third regular session.

They signed a one-page gentleman’s agreement and affirmed their pact in a media conference. Many of their colleagues were supportive, although there were the usual members who kept to their personal options.

Judging from his statements and body language, however, it seems that Drilon entered into the agreement in bad faith or at least with mental reservations, and may just renege on it.

(But we got word last night that Drilon has signed a resolution endorsing Villar for the Senate presidency in the incoming regular session. We still have to see it.)

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WHAT’S UP?: If Malacañang does not act fast on the controversial sale of the 600-megawatt power plant in Masinloc, Zambales, to a bidder who is unable to pay after two deadlines, people are bound to suspect somebody in the Palace has financial interest in the deal.

The non-paying buyer, YNN Pacific consortium, is so sure of itself that it is now reportedly pressuring the Manila Electric Co. (Meralco) to sign a supply contract before it (YNN) pays up and perfects its purchase of Masinloc.

Some senators said such a premature YNN transition supply contract (TSC) with Meralco will violate the terms of reference in the bidding for coal-fired Masinloc, the biggest generating asset of the National Power Corp. being privatized.

As bid out, Masinloc is to be a "merchant plant" – not an IPP (independent power producer) with guaranteed supply contracts like the ones signed during the Ramos administration. A merchant plant operates as a free-lancer and generates power only when there is a buyer.

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BUSINESS TRICK: But while YNN has not taken legal possession of Masinloc yet (partly because it has not paid even the $227-million down payment on its $564-million winning bid), it is already going around trying to fatten its contract reportedly to attract Malaysian and other foreign investors.

Without saying that the parties to the Masinloc contract are corrupt, we say that we should put an immediate stop to this style of doing business in this country. Nobody is doing anything to stop this practice for which Philippine officialdom is notorious.

As Postscript said earlier (04June06), it happens too often that "a winning bidder cannot or does not pay on time, because (1) he does not have the money up front, (2) is still looking for financier-partners, (3) is trying to pre-sell the contract at a profit, (4) or is negotiating an amendment to fatten the contract before paying."

The normal, and legal, recourse when a bidder fails to pay after repeated demands is to confiscate its performance bond – $11.2 million in the case of YNN.

With its failure to collect the $227-million down payment, the Power Sector Assets and Liabilities Management Corp. (PSALM) that bid out Masinloc is losing some P70 million in foregone interests for every month that YNN delays payment.

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CHANGING THE TERMS: Senators Aquilino Pimentel and Serge Osmena have said that YNN has no right to demand the supply contract from Meralco because a supply contract is not provided in the terms of agreement in the Masinloc deal.

A party to a concluded contract, they said, could not just change the terms in the middle of its implementation.

The PSALM however, is giving YNN all the time it needs to upgrade its contract and thereby attract financiers to prop up its capacity to pay.

Osmeña called attention to an ERC guideline issued in December 2004 requiring distribution utilities, such as Meralco, to certify that they have conducted public bidding in the procurement of new power supply contracts with generation companies.

The idea is to make such supply contracts more transparent, because the volumes and rates contracted have a bearing on the retail price of power.

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JUICY DEAL: If this 2004 rule were to be observed, Meralco would be forced to conduct a public bidding to accommodate the demand for a power supply contract with YNN.

Unfazed, power industry officials went around the problematic rule. They issued last May 10 Resolution No. 21 suspending the implementation of the ERC guidelines mandating public hearings.

Osmeña said the series of events (YYN’s non-payment, its move for a TSC, and ERC’s Resolution 21) confirms his earlier fear that Malacanang may be pressuring Meralco to sign a deal with YNN.

Some industry players said that Resolution No. 21 is just a ploy to enable YNN to sign a "sweetheart deal" with Meralco away from the eyes of the public.

They point out that once a YNN supply contract is forged with Meralco, Napocor stands to lose P500 million in income a year, because it will be deprived its normal power supply from Masinloc for distribution.

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ALCORDO SIGNED IT: I have a photocopy of Resolution No. 21 showing one Commissioner Jesus N. Alcordo as one of three ERC officials who had signed it. The other signatories were Chairman Rodolfo B. Albano Jr. and Commissioner Alejandro Z. Barin.

Other documents I have show a Jesus Alcordo as one who has or has had significant business ties with YNN local stakeholder, Filipino-Chinese businessman Sunny Sun.

The ERC and Alcordo had denied that Resolution No. 21 was meant to open a window and are aghast at insinuations that Alcordo signed it with the majority to help his friend Sunny Sun.

But some years back, Sen. Juan Ponce Enrile also showed documents that Alcordo, as president of East Asia Power Corp., paid Sunny Sun $3 million in "success fees" to obtain a Meralco contract for his East Asia Power barges based in Navotas.

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PADDED FEES?: Today those power barges reportedly continue to pay a commission of sorts to Sunny Sun that Senator Enrile estimated at 15 to 21 centavos per kwh or roughly P200 million a year in what the company had booked as "marketing fees."

Businessmen are entitled to their reasonable fees and profits. But these expenses are being charged (or passed on) to power consumers at the rate of P7.50 per kwh at a time when Napocor still has surplus electricity at P5 per kwh.

It has been noticed that despite Napocor’s move to minimize the dispatch of its oil-fired power plants due to increasing oil (and power) prices, Sun’s Duracom Power Corp. and the East Asia Corp. are being run at unusually high levels. Let us hope this has nothing to do with commissions – something like the higher the dispatch, the higher the payoff.

Is the government trapped into a corner – with its consent? As early as last year, when YNN failed to pay the down payment, the government had all the legal right to cancel the contract, forfeit the $11.2-million performance bond posted by YNN and re-bid the Masinloc coal-fired plant.

But the government did not do what it was supposed to do under normal circumstances. It gave YNN not only one but two extensions to pay up. It is also allowing it to make side deals affecting the Masinloc contract.

What is going on, Ms President?

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