SMC already paid PSALM P314.6-B as of Jan 2020 for Ilijan contract

February 20, 2020

SAN Miguel Corporation (SMC) through its power unit has paid a total of P314.6 billion to the Power Sector Assets and Liabilities Management (PSALM) as of January 2020 for its administration of the capacity from the 1200-MW Ilijan power plant in Batangas.  

The company released the figures in response to stories that came out in tabloids in previous weeks, supposedly coming from PSALM and the Makabayan bloc, castigating the company for “unpaid debts” to government.  

Bayan Muna, however, denied issuing any such statements. San Miguel said this puts into question the motives of the true source of the news release and the integrity of the material.

Recently, the issue was also raised in a joint hearing in Congress.  

“For some reason, while our case with PSALM is still in Court, this issue is being raised by parties that are devious enough to use and misrepresent the Makabayan bloc to advance their ulterior motives,” SMC president Ramon S. Ang said.

“It’s for this reason that we are releasing the latest figures of our continuous and up-to-date payments to PSALM,” he added.

Due to differences in interpreting the basis for generation payments, SMC power unit South Premiere Power Corp. (SPPC) and PSALM began discussions in 2012 to come up with a proper computation. On Sept. 4, 2015, PSALM, despite ongoing discussions, unilaterally terminated SPPC’s Administrator Contract over Ilijan and called on its performance bond.

Then PSALM chairman, DoF Sec Cesar Purisima, however, said the decision to terminate was not authorized by the PSALM board.  

With regards to its payments to PSALM:  

· SMC explained that the total P314.6 billion in payments consist of a total of P73.9 billion in fixed monthly payments and P240.7 billion in generation charges.  

·  With this, the estimated remaining balance for payment to PSALM is at P77.6 billion, consisting of P23.6 billion in fixed monthly payments and P54 billion in generation charges.  

·  All in all, total paid and unpaid payments to PSALM will amount to P392.2 billion, or P97.5 billion in fixed monthly payments and P294.7 in generation charges.  

·  PSALM gains from the deal as of January 2020 have thus reached P40 billion.

To provide context, a brand new and modern facility with the same capacity of the ageing Ilijan plant would cost only P40 billion to build vs. capacity fees of P97.60-B that will be paid by SPPC until the end of its contract.

Ang said the dispute stemmed from a misinterpretation by PSALM of the provisions of SMC’s original independent power producer administration (IPPA) contract which led to a wrong basis for computation of their supposed “underpayment”.

Essentially, PSALM is computing generation payments due from SPPC based on prevailing Wholesale Electricity Spot Market (WESM) prices, particularly from November to December 2013, when there was a temporary spike in prices.

Such spike in WESM prices would eventually be declared null and void by the Energy Regulatory Commission (ERC).

While that approach in computing generation payments may have resulted in higher earnings for PSALM, such would have illogically required SPPC to sell the capacity of the Ilijan Power Plant to the Spot Market. This is contrary to the nature of a baseload plant and the fact that the Power Plant has been and continues to be fully contracted to bilateral power customers, primarily Meralco. The Ilijan Plant is one of the most reliable and critical baseload plants in the Luzon Grid which continues to face issues on power reliability and adequacy of supply.

SPPC explained that selling Ilijan Plant’s reliable baseload capacity to WESM would have put them in violation of provisions of their power supply contract approved by ERC, designed specifically to protect consumers from higher and fluctuating electricity prices in the WESM.  

“We cannot just change the provisions of the contract for those two months, when there was an extraordinary spike in prices, and then revert to the original agreement after that. If we did that, PSALM would actually lose a lot more. We have continued to pay them and they have earned so much from this agreement already. We’re just asking them to honor the contract,” Ang said.