DOE to carefully review expiring IPP contracts

By Donnabelle L. Gatdula (The Philippine Star) Updated November 04, 2011 12:00 AM


MANILA, Philippines - The Department of Energy (DOE) will carefully study the proposed new round of review of independent power producers (IPPs) contracts set to expire in the next few years.


Energy Secretary Jose Rene Almendras said the move to revisit these IPP contracts may create “repercussions” on the confidence of investors.


“We have to accept the fact that there are certain commitments made by previous governments that we cannot simply just throw out because there will be repercussions now and in the future,” he said.


Almendras noted that the government must be wary of the possible impact of the proposed review of IPP contracts.


“There’s been a study in the past on whether it’s legal or not, [and] the findings at that time was these are contracts that will have significant complications to Philippine sovereign guarantee and credibility,” he said.


Because of the continuing rise in power rates, there have been proposals from Congress to have these IPPs reviewed and renegotiated.


Earlier, state-run Power Sector Assets and Liabilities Management Corp. (PSALM) president Emmanuel Ledesma welcomed Congress’ proposal as this may “put closure to public criticisms over the alleged onerous contracts with the remaining 19 IPPs”.


In 2003, it was noted that government generated savings of $2.94 billion in nominal terms, or $1.028 billion in discounted present value, after renegotiating 35 IPP contracts.


It would also be noted that big business groups had signified strong opposition to any move of the government to renegotiate existing contracts.


In 2008, the Joint Foreign Chambers issued a statement cautioning the government against reviewing anew the IPP contracts even if it woul result to lower rates to end-users.


“Threats of yet another round of contract reviews and renegotiations with independent power producers will cast doubt on the stability of policies and regulatory rules and on the integrity of investment promotion programs in the Philippines,” the group said.


“In addition, it becomes a major disincentive to investors intending to build the required additional power generation capacities or to participate in the government’s privatization program. It would also hurt many private investments that have already been brought in at government’s enticement. Competitive pricing is vital to a healthy and competitive economy,” the JFC added.