PSALM to serve termination notice to YNN

06 Jul 2006

After collecting the $14.14-million performance bond from YNN Pacific Consortium Inc., the Power Sector Assets and Liabilities Management Corporation (PSALM) Board of Directors decided to issue the notice of termination of the contract for the sale of the 600-megawatt Masinloc coal-fired power plant on or before July 10.

As specified in the Asset Purchase Agreement (APA) between PSALM and YNN, the termination takes effect 30 days after the notice is issued.

"Like any other contract, the APA between PSALM and YNN states that we should notify the buyer in writing at least 30 days before the termination takes effect," said PSALM President Nieves L. Osorio.

Ms. Osorio pointed out that PSALM had adopted the necessary measures to ensure that the government's interests and credibility were protected by requiring a performance bond and then forfeiting on it when YNN did not meet its deadline. PSALM forfeited the $14-million performance bond after YNN failed to meet the June 30 deadline to deliver the $227.54-million upfront payment.

YNN submitted the highest bid of $561.74 million for the Masinloc thermal plant in Zambales when the power facility was bid out in December 2004.

The only other bidder, First Gen Corporation, submitted a bid of $274.85 million, which was 30% below the government's reserve price of $388 million and less than half of YNN's bid.

The plant was bid out in December 2004 as a merchant plant without any power purchase agreement with any electric distributor or major electricity user attached to it.

At that time, there were indications from prospective bidders that they were willing to participate in the bidding despite the absence of a power sales contract that would ensure the cash flow for the power plant.

Negotiations for a power supply contract between PSALM and National Power Corporation on one hand and the Manila Electric Company (Meralco) on the other were initiated in 2003 but did not progress despite the initial offer from PSALM and National Power of P3.60 per kilowatt hour (kWh), or an 80-centavo discount from the regulated rate of P4.40 per kWh then.

A total of 118 electric distributors have signed power sales contracts with the government as mandated by the Electric Power Industry Reform Act (EPIRA). In 2004, Meralco accounted for 75% of the Luzon electricity sales.

"But as the Masinloc experience has shown, bankers are putting great importance on the power sales contracts with Meralco. At this point, we will have to assess our options as we do not intend to sell National Power's plants at bargain prices," Osorio said.

The recent launching of the commercial operations of the Wholesale Electricity Spot Market (WESM) provides an alternative venue through which power generators can sell their electricity. Through the WESM, generators offering lower prices are brought into the system ahead of the others.

Strategic Communications and Partnership Division
Tel. No. (632) 9029067