Ilijan IPPA contract termination will not affect electricity prices

15 Sep 2015

The notion that electricity prices will escalate with the termination of the Independent Power Producer Administrator (IPPA) Administration Agreement (AA) for the 1,200-megawatt Ilijan combined-cycle power plant is purely speculative, the Power Sector Assets and Liabilities Management (PSALM) Corporation said.

Reacting to media reports, PSALM President and Chief Executive Officer Lourdes S. Alzona said: "The assumption on increase in the electricity price is just a play on public opinion and is very speculative, given that prices at the WESM (wholesale electricity spot market) are driven by market forces and competition. Likewise, government has in place a price cap and a secondary price cap at WESM to address unnecessary spikes and protect power consumers."

"Also, almost all of the power output of the Ilijan plant is under a power supply agreement (PSA) between South Premiere Power Corporation (SPPC) and the Manila Electric Company (Meralco) at a rate approved by the Energy Regulatory Commission. With the Ilijan IPPA contract termination and consistent with its mandate to manage its remaining assets, PSALM is willing to supply Meralco's requirements to ensure that power consumers are protected against price volatilities in the WESM, subject to necessary approvals since PSALM is not a party to the PSA," Ms. Alzona added.

Ms. Alzona also reacted to reports claiming that the Ilijan IPPA AA termination was illegal, saying that PSALM has faithfully adhered to the provisions of the IPPA AA, which eventually led to the contract termination due to failure of SPPC to settle its unpaid obligations for the period 26 December 2012 to 25 April 2015.

PSALM reiterated that it has sent letters to SPPC as early as 10 September 2013 and 20 October 2014 demanding the company to immediately settle its unpaid obligations. These, however, were never settled and remained uncontested by SPPC.

As PSALM had strictly followed the computations based on the IPPA AA, the government power firm maintained that its rightful claims were valid and not erroneous.

"On the contrary, it is SPPC's computation of payments that is erroneous, as SPPC unilaterally and erroneously applied prices which were inconsistent with the Ilijan IPPA AA," Ms. Alzona said.

Ms. Alzona added that SPPC's underpayment of its total unpaid obligations was even the subject of an independent audit conducted by the Commission on Audit (COA), as contained in COA's Audit Observation Memorandum dated 23 March 2015.

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 Ilijan IPPA AA with SPPC on 04 September 2015.

PSALM issued the Notice of Termination to SPPC to stop government from incurring unnecessary losses as a result of SPPC's nonpayment of its obligations amounting to PhP6.46 billion (PhP6,460,973,606.46), which form part of the privatization proceeds to be utilized to liquidate the financial obligations of National Power Corporation, pursuant to the Electric Power Industry Reform Act.

Corporate Communications Division
Tel. No. (632) 9029067