EPIRA WAS passed after seven long years of debates involving three Congresses. Its primary objectives include developing indigenous energy alternatives, lowering the high cost of electric power in the country, and encouraging private and foreign investment. It was supposed to set in motion the deregulation of the power industry through the privatization of at least 70 percent of NPC's assets. This privatization, which is being handled by the Power Sector Assets and Liabilities Management Corporation (PSALM), is among the preconditions for EPIRA’s envisioned open access and retail competition in which big consumers are free to choose from which to get their supply of electricity. 

	THE 600-MW Masinloc coal-fired thermal power plant in Zambales was recently bought at $930 million, more than the cost of a new plant. [photo courtesy of NPC]

Yet up until this year, only 11 percent of NPC’s generating assets in Luzon and Visayas had been privatized. Indeed, it was only last month that Calaca Holdco Inc., a consortium led by France's Suez-Tractebel, won the bidding for the 600-MW Calaca coal-fired plant in Batangas for $786.53 million. There had been two failed biddings in the last three years mainly because of the absence of supply contracts assigned to it. (A transition supply contract is a power supply agreement offered to NPC customers while state-owned generation facilities are still undergoing privatization, as mandated by EPIRA.)

The Masinloc coal-fired plant had the same problem with supply contracts. But its sale in December 2004 failed because its declared buyer, YNN Pacific Consortium, turned out to be a mere broker, “not a legitimate player in the power industry,” as Senator Aquilino Pimentel Jr. put it.

Last July 26, PSALM finally declared a consortium led by Singapore's AES Transpower Pte Ltd the winning bidder for the Masinloc plant. The consortium offered $930 million for the 600-megawatt facility in Zambales, a key component of the Luzon grid.

The sale of the two power plants now brings the status of privatization of NPC's generation assets at 38.76 percent, equivalent to 1,680.5-MW capacity out of a total of 4,335.7 MW. This is only 11 percentage points shy of the 50-percent PSALM has targeted for the year. It therefore expects to achieve the 70-percent privatization level that would signal open access and retail competition by the end of 2008. (see Table)

Table 1: National Power Corporation's Generation Assets Sold Source: PSALM
POWER PLANT	FUEL TYPE	RATED CAPACITY (MW)	LOCATION	DATE OF BIDDING	WINNING BID PRICE (in US$ thousand)	WINNING BIDDER
Talomo	Hydro	3.5	Davao	March 24, 2004	1,370	Hydro Electric Development Corp.
Agusan	Hydro	1.6	Bukidnon	June 4, 2004	1,528	First Generation Holdings Corp.
Barit	Hydro	1.8	Camarines Sur	June 25, 2004	480	Atty. Ramon I. Constancio
Cawayan	Hydro	0.4	Sorsogon	September 30, 2004	410	Sorsogon II Electric Cooperative
Loboc	Hydro	1.2	Bohol	November 10, 2004	1,420	Sta. Clara International Corp.
Pantabangan- Masiway	Hydro	112	Nueva Ecija	September 7, 2006	129,000	First Gen Hydropower Corp.
Magat	Hydro	360	Isabela	December 14, 2006	530,000	SN Aboitiz Power Corp.
Masinloc	Coal	600	Zambales	July 26, 2007	930,000	Masinloc-Power Partners Co. Ltd.
Calaca	Coal	600	Batangas	October 16, 2007	786,530	Calaca Holdco Inc.
TOTAL		1,680.5	TOTAL		2,380,740

Among the plants PSALM has lined up for privatization within the year are the 175-MW Ambuklao-Binga hydropower plant package (in November); the 192.5-MW Palinpinon geothermal facility; and the 146.5-MW Panay diesel-fired power plant package (in December). PSALM is also preparing to bid out the National Transmission Corporation (TransCo) via a 25-year concession before year-end. TransCo was created under EPIRA to operate and maintain the NPC’s segregated transmission assets. But four rounds of bidding have already failed since 2003 because of the issue of securing a franchise with Congress — which issues one only after the concession is awarded.

YET FOR Francisco Viray, former energy secretary under President Fidel Ramos and now president of the PHINMA Group's Trans-Asia Power Generation Corporation and Trans-Asia Oil and Energy Development Corporation, the earlier delays may have even turned out to be a “blessing in disguise.”

“Delay was seen as negative in the EPIRA implementation. Now it's a positive development,” he says, pointing to the good price government fetched from the sale of the two plants. He attributes this to a lesson learned from the failed biddings: that the plants need to have transition supply contracts to attract big players. Supply contracts of 265 MW and 287 MW had been secured for the Masinloc and Calaca plants, respectively, when they were finally sold.

	THE 100-MW Binga hydroelectric power plant in Itogon, Benguet, along with Ambuklao, will be up for privatization this November. [photo courtesy of PSALM]

But FDC’s Pascual comments, “They're way off target so I guess any sale is good.” She thinks investor uncertainty or a lack of investor interest in the industry remains because of several factors, among them the small market for electricity sellers particularly given a situation of excess capacity.

“The biggest market, the most relevant market, would be the Meralco (Manila Electric Company) franchise area,” she says. “But the EPIRA allowed cross-ownership between distribution and generation, and allowed utilities like Meralco to enter into supply arrangements with sister generating companies. So what's left of the Meralco market for the privatized NPC generators to compete over is quite small.”

Put in perspective, the Philippine market is a rather puny one as the country consumes only about 45,000 gigawatt-hours (gWh) of electricity in a year. Compare that, says Pascual, to the level of electricity consumption in Thailand and Indonesia, where it is slightly over 100,000 gWh, or over 200,000 gWh in Taiwan, and more than 300,000 gWh in South Korea. Moreover, the demand for electricity at peak levels is only in the range of 8,000 MW to 9,000 MW, while total installed capacity as of last year was at 15,803 MW.

“If you narrow it down further to the Luzon market,” says Pascual, “we're talking of micro, not mini, levels here as far as the power sector is concerned.”

At the same time, Pascual is concerned over Masinloc’s (as well as Calaca’s) high price tag. Being a pivotal supplier, Masinloc could create a shortage in the market if its supply is withheld, thereby allowing it to raise spot market prices of electricity. “Wittingly or unwittingly,” Pascual says, “the ERC is now providing a new incentive to investors: ‘Buy this plant because it has market power, and we won't penalize you for abusing it.’”

Independent consultant Edna Espos says the same thing. Privatization may be picking up, she argues, but it is mainly because investors are encouraged by the apparent lack of regulation to curb generation charges as shown by NPC rates both in the wholesale electricity spot market (WESM) and bilateral contracts.

Espos says that Masinloc’s clients should brace themselves for higher fees. She says the winning bid price of $930 million for the nine-year-old plant is already more than the cost of a new one. “They (Masinloc buyer) will be getting service from a second-hand plant that requires higher maintenance costs,” she says. “Of course, they will be charging all these costs to consumers.”

Still, she says that the high prices the plants are fetching could settle the issue of NPC's stranded debts that, under EPIRA, will be imposed on electricity end-users. Stranded debts refer to any unpaid financial obligations of the NPC after the sale of its plants.

Viray likewise sees this as a possibility, at least for Masinloc and Calaca. He says the high prices they fetched should have totally wiped out their corresponding stranded debts.