Only 6 of 35 IPP Contracts Pass Muster

Only six of 35 contracts between the government and independent power producers (IPPs) passed muster in a review by an inter-agency committee looking into allegedly scurrilous deals with the state-owned power firm.

President Arroyo disclosed the committee led by Finance Secretary Jose Isidro Camacho gave a clean bill of health to six of the IPP contracts which "passed their review with no legal or financial issues" and therefore would be continued by her administration.

"So they can go on and operate and their rates are more or less fair," she said. The six are Limay, Bataan combined cycle gas turbines A and B, Navotas gas turbine plant, Ambuclao hydro-electric plant, Toledo thermal plant and the Parague plant.

But five "have both legal and financial issues that need to be referred for appropriate study, renegotiation and possible legal action," the President said.

Mrs. Arroyo at the same time ordered government agencies to prepare for possible legal action and renegotiation of as many as 22 other contracts with IPPs as part of efforts to cut electricity rates.

The Inter-Agency Review Committee that studied the contracts was formed last year by the President to look into allegations that the electricity producers were overcharging.

She did not specify what the irregularities were but ordered the justice department and an agency tasked with reforming the power sector to "formulate a plan of action" to handle the five contracts.

"Of these five contracts that are both legally and financially problematic, two are not operating. So even if we renegotiate or file legal actions, it won't result in lower rates. But the other three ... are the ones we should prioritize because legal action takes longer than renegotiation," she explained.

"However, the threat of legal action can also make renegotiation faster," she added.

The committee identified the five IPP deals with financial and legal issues as follows: Binga hydroelectric plant; Cavite EPZA diesel plant; Sual Coal-fired thermal plant; Casecnan multi-purpose project, and San Roque multi-purpose project, all of which were entered into by the National Power Corp. (Napocor) during the administration of former President Fidel Ramos.

Mrs. Arroyo also said 22 other contracts required "the study or renegotiation of certain financial terms," and instructed the energy department and power sector reform agency to take steps for "an acceptable solution to the issues."

Two other contracts had "remedial policy issues" but were financially sound. Justice department officials and economic planners were still instructed to review these contracts with the Benguet Mini-hydro plant and the Caliraya-Botocan-Kalayaan project.

Mrs. Arroyo said the Department of Justice, Department of Energy, the National Economic Development Authority (NEDA), and Power Sector Assets and Liabilities Management Corp. had three months to produce results on these contracts.

"It is the overall objective of our administration to reduce the cost of electricity for the consumer, while respecting valid commercial contracts and the rule of law," she stressed.

Last week Mrs. Arroyo vowed to "squeeze blood from stone" to cut high electricity rates due to the power purchase adjustment (PPA), that had cause her approval ratings to fall less than two years before the next presidential election in which she is expected to run.

The state-run Napocor entered into the contracts with the IPPs in the early 1990s to end a paralyzing electricity shortage that had caused daily outages in much of the country.

However critics, including some legislators, charge that the contracts were unfair to the public as they required Napocor to pay huge amounts to independent electricity producers even if it did not tap these sources.

Aside from reviewing the power contracts, Mrs. Arroyo also ordered Napocor to cut rates by six centavos per kilowatt-hour and called for the consolidat ion of poorly run and loss-making electric cooperatives in provincial areas.

The President made public the results of the findings and recommendations of the IPP review and the government's action on the committee report in her address before the National Conference of the Philippine Marketing Association held yesterday at the Westin Philippine Plaza on Roxas Boulevard.

"So I hope that now that we have a big decrease in our electricity bills, these actions would result in some more decreases along the way," she reassured the public.

Marichu Villanueva, Ted Torres, AFP