Termination of Ilijan IPPA agreement protects interest of government and power consumers

10 Sep 2015

The decision to terminate the contract for the Independent Power Producer Administrator (IPPA) in the 1,200-megawatt Ilijan Combined Cycle Power Plant is to protect the interest of government and power consumers in the Batangas-based power facility, the Power Sector Assets and Liabilities Management (PSALM) Corporation said.

For failure to pay the outstanding Generation Payments for the period 26 December 2012 to 25 April 2015, PSALM was compelled to avail of the relief provided under the Administration Agreement (AA) with Ilijan plant IPPA South Premiere Power Corporation (SPPC) on 04 September 2015.

"In the interest of government, PSALM issued the Notice of Termination to SPPC to stop government from incurring unnecessary losses as a result of the Ilijan IPPA's nonpayment of its obligations amounting to PhP6.46 billion (PhP6,460,973,606.46), which forms part of the privatization proceeds to be utilized to liquidate the financial obligations of National Power Corporation (NPC), pursuant to the Electric Power Industry Reform Act. For power consumers, the collection of outstanding amount will translate in reduction of NPC stranded debts that will be recovered through the universal charge," PSALM President and Chief Executive Officer Lourdes S. Alzona explained.

"While PSALM, on different occasions, has demanded immediate payment by SPPC of its outstanding Generation Payments, SPPC refused and consistently refuses to settle all its contractual obligations to PSALM for the relevant period," Ms. Alzona noted.

With the termination, and in accordance with the Ilijan IPPA AA, PSALM has also drawn on 04 September 2015 the USD60-million Performance Bond of SPPC.

Likewise, on 04 September 2015, the Philippine Electricity Market Corporation (PEMC) was informed that SPPC would cease to be the Trading Participant in relation to the Ilijan power plant. PEMC was also informed that, with immediate effect, all sums payable to SPPC as Trading Participant for the Ilijan power plant shall be paid into the account of PSALM.

Ms. Alzona assured the public that the termination will have no effect on the operations of the Ilijan plant, as the plant is being operated by the Korea Electric Power Corporation (KEPCO), through KEPCO Ilijan Corporation.

Ms. Alzona added that PSALM's action on Ilijan IPPA AA was also echoed by the Commission on Audit in its latest audit report on PSALM operations.

PSALM held the bidding for the Ilijan IPPA on 16 April 2010, where San Miguel Corporation - SPPC's parent company - came out as the highest bidder. San Miguel offered USD870 million (USD870,000,473) for the Ilijan contracted capacity to edge out three other groups namely; First Gen Luzon Power Corporation, Therma Power Visayas Inc., and Trans Asia Oil and Energy Development Corporation.

On 11 May 2010, after all Administrator Conditions Precedent had been met, SPPC was issued the Certificate of Effectivity as the Ilijan plant's IPPA.

Situated in the Southern Luzon province of Batangas, the Ilijan power plant is being operated KEPCO under a build-operate-transfer contract that will expire in 2022.

Corporate Communications Division
Tel. No. (632) 9029067