Power producers overpaid by $10B

By Jess Diaz (The Philippine Star) Updated October 12, 2011 12:00 AM


MANILA, Philippines - Electricity producers in the country have been overpaid by as much as $10 billion (P440 billion) over the past 10 years, Parañaque Rep. Roilo Golez revealed yesterday.


“$10 billion can build us at least 10 power plants of 1,000 megawatts each, enough to supply the country’s electricity requirements,” he told his colleagues in the House energy committee.


Citing studies, Golez said another $10 billion in overpayments would be pocketed by independent power producers (IPPs) contracted by the government during the Ramos administration if the contracts are not changed.


Representatives of the Department of Energy and the Power Sector Assets and Liabilities Management Corp. (PSALM) admitted there are still excess payments but had no idea of their magnitude.


They said overpayment is the difference between the price the government pays the IPPs based on their contracts and the prevailing market price of electricity.


They said the IPPs’ average price is P20 per kilowatt-hour (kwh), while it is only P3 for other producers, or a difference of P17.


Upon motion of Golez and Rep. Teddy Casiño of the party-list group Bayan Muna, the energy committee voted to ask Malacañang, the Department of Energy and PSALM to renegotiate the 19 IPP contracts.


The committee also decided to request PSALM to withdraw in the meantime its four petitions for power rate increase totaling P4.88 per kwh. The petitions are pending with the Energy Regulatory Commission (ERC).


Golez said if ERC approves the petitions, the country’s power rates would surpass those of four European countries and become the highest in the world.


He said even at their present levels, power rates are “already excessive and too burdensome for the public.”


He said the renegotiation of the IPP contracts should result in the reduction of the price of electricity since power rates stipulated in the contracts are much higher than the prevailing market prices.


Supporting Golez’s and Casiño’s motion, Batangas Rep. Hermilando Mandanas, a former investment banker, said IPPs were able to recover their investments in four years from the time they operated during the Ramos administration.


He said some of these producers have already sold their plants and their contracts after recouping their investments and making billions in profits.


“We should not be bound by these onerous and disadvantageous contracts,” he said.


Batanes Rep. Henedina Abad, who heads the energy committee, said IPP contracts were supposed to be renegotiated when Congress passed the Electric Power Industry Reform Act of 2001.


“I am surprised that no such review and renegotiation took place,” she said.


PSALM’s Ferdinand Florendo told the committee that a review was undertaken but that it did not result in a power rate reduction.


He said the report of the review panel is now with the National Economic and Development Authority.


He agreed with Golez that IPPs contracted by the Ramos administration have been overpaid since their contract price is higher than the prevailing cost of electricity.


But the government is bound by the contracts to pay the stipulated price, he said.


He added that one of their petitions pending with the ERC would allow PSALM to pay IPPs the difference between the contract price and the market price.


“This means that people are being fried in their own fat,” one committee member commented.