$1.035 Billion Saved Through IPP Contract Renegotiations

19 Apr 2005

The Power Sector Assets & Liabilities Management Corporation (PSALM) estimates that about US$1.035 Billion (in net present value) will be saved as a result of the renegotiations with the independent power producers (IPPs), which is now about to be completed.

PSALM Vice President for General Counsel and Officer-In-Charge Atty. Ma. Luz Caminero said PSALM is discussing the remaining issues with three IPP contractors holding on seven separate contracts covering four power projects.

The seven IPP contracts are part of the 35 previously identified for review and renegotiation by the Inter-Agency Committee (IAC), which was created under the Electric Power Industry Reform Act (EPIRA). The contracts with issues that are still being resolved are Cavite EPZA, Limay A & B, Leyte A & B, and Mt. Apo I & II.

As of December 2004, PSALM, together with the National Power Corporation (NPC), successfully resolved issues concerning 18 IPP contracts while eight other contracts have lapsed during the period of renegotiations. PSALM recently concluded renegotiations of contracts for the Bauang Power Plant and the two 100 MW barges in Davao City and Nasipit, Butuan, both in Mindanao.

Atty. Caminero added that the successful renegotiations will finally put to rest the issues and controversies surrounding these IPP contracts. She added that the negotiated agreements have been “cleared by the National Economic and Development Authority Investment Coordination Committee (NEDA-ICC) with the assistance of the Department of Justice (DOJ) when it was necessary.”

Atty. Caminero also took note of the comments issued by ratings firm Moody’s Investors Service which recognized the progress in the IPP contract renegotiations. “The latest update [from Moody’s] is a clear indication that, although a lot still needs to be accomplished in our power reforms, investor outlook is definitely stabilizing and improving,” she said.

Moody’s in its special comment early this year commented that “some progress has also been achieved in restructuring. Contract renegotiations with the IPPs are almost complete and have translated into savings for NPC. Therefore, IPP contract renegotiation risk will decline.”

Pursuant to the Electric Power Industry Reform Act (EPIRA), PSALM is mandated to diligently seek the reduction of stranded costs through renegotiations with the IPP sponsors in coordination with NPC.