Napocor’s LHDC deal recalls Masinloc

TAGAYTAY (PLDT/WeRoam) — The stench of the botched $561-million Masinloc deal still hangs heavy in the air and here is the state-run National Power Corp. embarking on what looks like another highly questionable power transaction.

I am referring to the contract entered into by the Napocor with the undercapitalized Lanao Hydroelectric Development Corp. (LHDC) which some lawmakers said was, like Masinloc, cornered under irregular circumstances.

The main difference is that while Masinloc already had an existing coal-fired power plant but no valid contract, the LHDC had a contract but no plant. Its idea of an Agus 3 hydroelectric plant is, just that, an idea.

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LUTONG MACAO: The emerging problems illustrate what happens when the private interests of a privileged few are placed above the interests of the many, the consumers.

For one, the deal that the Napocor entered into with LHDC sets the electricity rates way above what is mandated by the Energy Regulatory Commission. The rates were set despite the fact that there is no plant yet to generate the electricity.

For another, the negotiations were a hush-hush affair between Napocor officials and former energy officials who are incorporators of LHDC. If there is such a thing as "lutong macao," this looks like it.

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DEALING WITH PALS: How can Napocor officials be expected to protect the interests of the government and consumers when they were consorting with friends on the other side?

Judging from the provisions of the LHDC contract, the rates for its power will be too high for Mindanao’s captive consumers who have no choice but to use the output of the 220-meawatt Agus 3 project in the Agusan provinces.

In signing a marketing agreement to sell exclusively the electricity from Agus 3 — and be paid a handsome fee for the effort — the Napocor has given LHDC undue advantage over other power generators and other investors who might be interested in the electricity business in Mindanao.

Who is the sane investor who would want to plunk his millions into an area where the business climate has been tilted to favor one power generation firm, the LHDC in this case?

The Napocor seems to have the habit of using stealth on investors. First, it lures them into doing business here. But once they are in, they are made to swim against the current of favoritism.

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UNDERCAPITALIZED: Napocor officials appear to have glossed over documents showing that LHDC, as the YNN consortium in the Masinloc deal, does not have the capability to build and operate the proposed 220-MW power plant.

The Articles of Incorporation of LHDC submitted to the SEC shows that it has an authorized capital stock of P20 million and a paid-up capital of only P1.2 million.

Based on current construction estimates, a firm needs at least $450 million or roughly P22 billion to build a 220-MW power plant such as the proposed Agus 3 project.

How can then LHDC build a P22-billion power plant when its paid-up capital is enough to buy only a Toyota Revo?

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BROKER FEES: How could the Napocor top honchos have missed this glaring basic detail?

Is it because the LHDC is headed by former Napocor officials who include former Transco President Asisclo Gonzaga (Gonzaga was also Napocor vice president and chief operating officer) and Jose Samonte?

This reminds us of how Napocor awarded the Masinloc contract to YNN, a firm whose capitalization at the time it submitted a $562-million bid for the 600-MW power plant in Zambales was less than P1 million.

Or could it be that Napocor officials had been blinded by the P0.12/kWh marketing or broker fees they stand to gain as a result of their sales agreement with LHDC? The marketing fees could easily translate to P120 million a year for Napocor.

But while members of the Napocor Mafia may be smacking their lips, the price burden of those fees or commissions would be psassed on the hapless Mindanao consumers as part of operating costs.

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HOSTAGES: The LHDC has defended the Agus 3 project as the answer to the power shortage expected to hit Mindanao by 2009. While the project may solve part of the power problem, it will be at a high cost for power consumers.

But as a result of the deal, the Napocor has held Mindanao consumers hostage. The terms of the contract are being forced on power distribution utilities, electric cooperatives and bulk power consumers in the area.

This goes against the Electric Power Industry Reform Act of 2001 (EPIRA) which mandates fair and free competition to achieve reasonable power costs. If competition is allowed to flourish, this will lower rates and not exacerbate the current prices.

How can LHDC defend its P4.32/kWh rate for Agus 3 when the current rate for hydro power is only P2.1030/kWh?

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QUESTIONS: This alone is highly irregular, because the Napocor and LHDC have no business fixing a rate without first getting the approval of the ERC. It was very presumptuous of Napocor and LHDC to set a rate when they have yet to get the nod of the ERC.

What would happen if the projected increase in power rates does not happen in 2011? May LHDC and the Napocor impose the P4.32/kWh rate even if the rates would remain unchanged at that time.

According to Lanao Hydro, the P4.32/kWh is even lower than the projected increase of Napocor in electricity rates. This is misplaced because water is its raw material. How can they project a 100-percent increase from its current rate in just a few years?

But the most glaring violation is the absence of any public bidding for the power that LHDC will sell to power distribution firms. Power distribution utilities are required under the law to go through public biddings for all their power requirements.

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