Fuel, power and cash

By Lenie Lectura - April 16, 2017

http://www.businessmirror.com.ph/fuel-power-and-cash/

THE government’s share from the energy-resource development fund, commonly known as the Malampaya fund, reached P13.43 billion in 2016, slightly lower than the P14.32 billion recorded a year earlier.

Based on the Department of Energy (DOE) data obtained by the BusinessMirror, the collection of the government’s share from the proceeds of the Malampaya Natural Gas project  operations last year stood at P13,435,503,178.93, of which P5,374,201,272.14 was allocated as “source of assistance to LGUs [local government units], while the net share of the national government stood at P8,061,301,906.79.”

In 2015 the total government share amounted P14,320, 625,845.66. Of the total amount, LGU assistance stood at P5,728, 250,338.82, while the remaining net national government share reached P8,592,375,506.84.

The balance of the Malampaya fund reached P235.662 billion as of 2016, according to the DOE.

Spending habits

During the Aquino administration, former Energy Secretary Carlos Jericho L. Petilla recalled that P15 billion of the government’s share from the Malampaya project was spent. The Arroyo administration, meanwhile, used up almost P20 billion of the Malampaya fund, according to Petilla.

The government, Petilla had said, used the funds for the fuel requirements of the National Power Corp. (NPC)-Small Power Utilities Group, for the Pantawid Pasada fuel-subsidy program for jeepneys, and for the cost incurred when it took delivery of a Navy ship donated by the US government.

The Malampaya project fuels three natural-gas power plants with a combined capacity of 2,700 megawatts (MW), equivalent to about 40 percent of Luzon’s power-generation requirements. The project, located west of Palawan, was launched in 2001.

The Malampaya project is a joint undertaking of the Philippine government and the private sector. The project is spearheaded by the DOE, and developed and operated by Shell Philippines Exploration BV (SPEX), with a 45-percent stake on behalf of joint-venture partners Chevron Malampaya Llc.—also with a 45-percent stake—and Philippine National Oil Co.-Exploration Corp. The latter holds the remaining 10 percent.

Under the service contract agreement, 70 percent of the gross proceeds from the sale of natural gas would go to the contractor to recover the investment cost. The remaining 30 percent is shared by the government and the consortium on a 60-40 basis, respectively.

Debt payments 

The DOE, which is now led by Secretary Alfonso G. Cusi, strongly urged lawmakers to pass a legislation that will allow the government to tap the Malampaya fund to pay for the debts incurred by the NPC over the years.

These debts—in the form of stranded debts and stranded contract costs—are being passed on to consumers via the collection of universal charge (UC), an item found in the electricity bills.

Stranded debts refer to any unpaid financial obligations of NPC that have not been liquidated by the proceeds from the sales and privatization of NPC assets.

Stranded contract costs of NPC or distribution utility, meanwhile, refer to the excess of the contracted cost of electricity under eligible contracts over the actual selling price of the contracted energy output of such contracts in the market.

The stranded costs are due to onerous “take-or-pay” provisions in NPC contracts with independent power producers (IPPs). In essence, this allowed the IPPs to charge NPC for used and unused power.

Legislated measure

The Malampaya fund could only be utilized for energy development projects. “We cannot utilize it, except for ERD [energy resource development]…. Why not use the ERD fund specifically to address the issues on the universal charges, standard contract cost and standard debts?” Energy Undersecretary Felix William Fuentebella suggested.

For this to be implemented, Fuentebella said, “It can’t be done on an executive order alone. It has to be coursed through a legislation.”

Sen. Sherwin Gatchalian said the use of the Malampaya fund is “very specific”. It is possible, however, that the said funds can be used for other purposes.

“That’s a possibility. The stranded cost and stranded debt of the defunct NPC is truly a burden to our customers. We have to find ways to eliminate that added burden,” he said in a text message.

To do this, the senator, who is also the chairman of the Senate Committee on Energy, said, “We need to come up with a law.”

“We’re willing to look at it. We are willing to look at the proposals,” he added.

Fuentebella could not stress enough the importance of the fund to pay for NPC’s debts, which are now assumed by the Power Sector Assets and Liabilities Management Corp. (PSALM).

“The debts will just balloon. Sana mas mabilis, kasi by 2019 mas mataas iyung mag ma-mature na debts,” he said, adding that legislators were receptive to the DOE’s proposal,  which was also formally presented in August last year to the Economic Development Cluster of the Duterte administration.

Pay more

Last month the Energy Regulatory Commission (ERC) allowed the PSALM to continue collecting P0.19-per-kilowatt-hour (kWh) UC originally allowed from April 2013 to February 2017.

The said amount was supposed to cover PSALM’s stranded costs of P53.851 billion incurred from 2007-2010.

However, PSALM’s collection from April 2013 to February this year stood at P48 billion, short by P5.5 billion. As such, the ERC extended PSALM’s collection of P0.19-per-kWh UC to cover for the remaining P5.5 billion worth of remaining stranded contract cost incurred up to 2010.

“The amount might seem small, but they have been charging this amount to millions of consumers for the last four years. With the ERC decision, consumers will mostly likely pay more for the next nine years,” Party-list Rep. Teodoro A. Casiño of  Bayan Muna said.

Casiño wants Congress to probe the decision of the ERC. He is also contemplating on filing a case before the court to prohibit PSALM from passing on to consumers the debts incurred by the NPC.

Consumer burden

The Matuwid na Singil sa Kuryente Consumer Alliance Inc. (MSK) also said consumers should not pay for these debts.

“The way things are going all debts and losses of NPC that would not be covered by PSALM’s proceeds and collections for privatization would eventually be recovered from electricity consumers nationwide. The losses and deficits are combinations of so many factors, many not be the fault and to the benefit of the consumers. Hence, it would be a grave injustice to our people to make them responsible for all the financial losses,” it said.

Under Republic Act 9136, or the Electric Power Industry Reform Act of 2001, PSALM was tasked to collect these charges from end-consumers in order to fully pay for the stranded contract cost.

For PSALM’s part, the agency’s officer in charge Lourdes Alzona said her office is determined to reduce the debts of NPC.

“We are continuously identifying certain measures to avoid and/or minimize costs specifically on refinancing. Among these steps are stringent management of collectibles, sale of real-estate assets, disposal of other assets which entail high costs for maintenance,” she said in a text message.

PSALM, she said, plans to sell some real-estate assets that could fetch an estimated P5 billion.

“The sale would be staggered since we still have to sort out which can be sold, depending on the land title. There are areas that can be sold, such as the resort in Puerto Asul, while there are others that can’t be sold, such as the one in Bagac,” Alzona said.

This plan, she added, will be over and above the UC administration and other regular activities to support the liquidation of PSALM’s financial obligations, that being its main mandate.

PSALM has reduced its liabilities by over P44 billion last year, bringing down the power state firm’s obligations to P506.34 billion.

“As of end-2016, PSALM was able to reduce its financial obligations by P44.47 billion from the 2015 level of P550.81 billion to P506.34 billion, broken down into P275.36 billion in debts and P230.98 billion in BOT [build-operate-transfer] obligations,” Alzona said.

The reduction in the level of financial obligations includes bullet payments in 2016 totaling P37.48 billion made for the following bonds: $160 million, Yankee bond; P7.96 billion, Salomon Brother Inc.; $478 million, Citigroup; P23.20 billion, Deutsche Bank; and P6.32 billion, Hongkong Shanghai tranche B-Deutsche Bank/HSBC.

PSALM sourced internal funds—from operations of remaining plants and collection of privatization proceeds—to pay off NPC’s debts.

The remaining obligations would also be settled through privatization collection proceeds.