Manila Bulletn
by Myrna Velasco
July 13, 2014
Power utility giant Manila Electric Company (Meralco) is seeking the approval of the Energy Regulatory Commission for its 20-year power supply agreement (PSA) with the project sponsor of the 460-megawatt Quezon power plant expansion, which by structure is majority owned by its power generation subsidiary.
The project’s corporate vehicle San Buenaventura Power Ltd. Co. (SBPL) executed the PSA with Meralco last May 29, 2014, with the latter underwriting capacity purchase of the plant’s 455 megawatts of generated electricity. SBPL is a joint venture firm majority owned by Meralco PowerGen while the minority stake is held by the investment vehicle of Thai partner EGCO.
The PSA provides that the supply pact will be for 20-year duration with option for renewal by another five years on mutual consent of the relevant parties.
The effective rate at plant gate applied for by the contracting parties is at P4.2801 per kWh – as anchored on fuel payment of $83 per metric ton for Newcastle-indexed coal, 80-percent capacity factor for the plant and at a foreign exchange rate of P44 to the US dollar.
Components in the charges to be billed by power supplier (in this case SBPL) shall include: capacity payment (peso portion); fixed operation and maintenance (O&M) payments for peso and dollar portions; fuel payment (dollar portion); variable O&M payment (peso portion); excess energy payment (peso portion); interconnection facilities payment covering both capital recovery and fixed O&M fees; as well as reimbursable cost payments such as real property tax, start-up and shutdown costs, supplemental payments, commissioning energy charges and replacement power.
For this facility which was designed to have installed capacity of 460MW, SBPL indicated that it will need to secure $800 million non-recourse project financing – and the completion of such shall define the project’s financial closing.
The supply deal shall commence upon the power plant’s “commercial operation date and shall expire on the date falling 20 years after the commercial operations date, unless terminated earlier in accordance with the terms of (the) Agreement or extended” as specified under some sections of the PSA.
The agreement further prescribed that “the term may be renewed for an additional period of up to 5 years under the same terms and conditions, at the option of Meralco, by giving prior written notice to power supplier at least 180 days prior to the end of the term.”
According to their power supply covenant, the commercial operation shall be achieved “no later than 46 months from the commencement date” – or the date of the project’s start of implementation as confirmed by Meralco following financial closure and satisfaction of other deliverables by relevant parties.
Aside from the rate that SBPL will be charging for its electricity supplied to Meralco; the PSA also carries provision on replacement power within the allowable outage schedules for the power plant.
“Power supplier shall be allowed forced outages not to exceed the full load equivalent forced outage allowance days each contract year during the term as computed,” the PSA specified.
On replacement power, the supply pact provides that “during outages within the full load equivalent forced outage allowance days and full load equivalent scheduled outage allowance days, power supplier shall not be required to supply Meralco with replacement power.”
It was further stated that “in such circumstances, Meralco at its own cost, shall source replacement power from the WESM (Wholesale Electricity Spot Market) and power supplier shall not bill Meralco for these quantities.”
In cases of force majeure conditions, Meralco shall also procure its own replacement power from the WESM “to the extent supply or off-take is affected.”
The capacity off-take agreed by the parties may also be adjusted based on the decision of policymakers bringing down the threshold levels for retail competition and open access. source
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