Wednesday, August 31, 2011

Marinduque, Romblon and Tablas: what do they have in common?

In the light of so much finger-pointing and disinformation campaigns that, again, as expected, happens every time so-called Marinduque energy summits are organized for the consumption of the much abused seemingly powerless people of Marinduque, they who must jolt the seats of power with their complaints, it would be necessary to start at the very beginning if we must be fair to those maliciously maligned continuously.

Following is an item from IFC and the sequence of events covering October 2004 to July 2009, on the involvement of a new power provider in Marinduque that failed to deliver the power supply promised.

"Coastal Power Consortium Wins Competitive Bid To Privatize Electricity Supply in Marinduque, Romblon and Tablas"

In Manila:

Karen Villalobos

Manila, September 9, 2005 — The Philippine Department of Energy and the International Finance Corporation, the private sector arm of the World Bank Group, today announced that a consortium comprising of Coastal Power Development Corporation and Applied Research Technologies Philippines won a competitive bid to supply power to the Philippine islands of Marinduque, Romblon, and Tablas. The winning bidder proposed a hybrid diesel-wind energy solution that will improve standards and bring the generation into compliance with Philippines environmental standards.

Private sector participation was structured through a concession-type contract between the winning bidder and local electric cooperatives that take the power on these islands. The framework of this concession does not require the private supplier to buy existing generation assets of the National Power Corporation, allowing those assets to be deployed to unserved areas in the Philippines.

The winning bidder’s price will lead to a reduction of about 40% from the current cost (13.8 pesos per kilowatt hour) of generating power in the islands. The Coastal Power Consortium agreed to provide power without interruption all year long, compared with the current average interruption of 196 hours, or eight days, per month. The group bid to provide 25 megawatts of combined electric capacity to the three islands not connected to the national power grid.

IFC was charged with developing the agreements and a regulatory framework to attract private sector capital and expertise to power generation in remote islands. IFC was retained in 2004 by the Philippine government through the Department of Energy, National Power Corporation, and the Power Sector Assets and Liabilities Management Corporation to act as transaction advisor.

The Coastal Power consortium will take responsibility for power supply from the Small Power Utilities Group, which is part of the National Power Corporation. SPUG has maintained responsibility for supplying power to 74 remote offgrid islands. The annual subsidy requirement for all these islands amounts to 2.1 billion pesos. Only about 60 percent of that cost is covered by a universal service charge assessed to ongrid customers. The remaining 40 percent is passed on to the national deficit through NPC.

The Private Investor will be able to supply electricity to the 3 islands at a lower cost than the current government-managed operation and thus reduce the annual subsidy for electricity from 458 million pesos to 168 million pesos.

“IFC strategy includes support for power sector reform in the Philippines through increased private sector participation that promotes competition. The interest in this transaction provides tangible results for the ongoing power reform agenda in the Philippines,” said IFC Country Manager Vipul Bhagat.

“This model public-private partnership structure, wherein the investor achieves full cost recovery and profits from the electric cooperatives and partially through government subsidy, can be replicated for other infrastructure transactions in the Philippines and elsewhere,” said IFC Director of Advisory Services Bernie Sheahan.


PSA with 3i Powergen, Inc. was not MARELCO’s own initiative, but the government’s program of the NPC-SPUG’s privatization of assets by virtue of Republic Act No. 9136 or the EPIRA Law. Pursuant to Rule 13 of the IRR of RA 9136, Department of Energy (DOE) Circular 2004-01-001 prescribed the Rules and Procedures for Private Sector Participation. Marinduque, together with Tablas and Romblon, was selected to be a pilot project for privatization among the so called 14 WAVES ECs under the NPC-SPUG areas.

October 24, 2004 - Marelco signed a Memorandum of Agreement hiring the International Finance Corporation (IFC) as its official Transaction Advisor.

September 9, 2005 - The Competitive Selection Process was launched

and the Coastal Consortium (Incorporated as 3i Powergen, Inc.) was declared winner having offered the lowest TCGR of P7.171/kwh and will supply the power requirements of Marinduque up to 12.480 Kw for a period of fifteen (15)years.

September 27, 2005 - The Power Supply Agreement was signed at the

WESM office in Pasig City. On that same occasion, a Subsidy Agreement with 3i Powergen and NPC was executed.

January 27, 2006 - Effective Date ( four months from the date of the PSA).This was not attained as some Conditions Precedent was not complied with by 3i Powergen, such that the parties agreed to a Joint Declaration of the Realization of the Effective Date following the waiver to secure Government Consents thru the 1st Supplemental Agreement.

March 9, 2006 - 1st Supplemental Agreement was signed by both parties wherein the period to obtain the ECC and other government consents was waived.

March 2007 - The original Target Commercial Operation Date (16 months after the Effective Date –January 2006.

March 14, 2007- 3i Powergen requested for extension for six months of Target Commercial Operation Date on the ground that the PSA has not yet been approved by ERC. In effect Target Commercial Operation was moved to July 7, 2007.

March 23, 2007 - Public Hearing for the approval of Application for Power Supply Agreement (PSA) and NPP TCGR held at Marelco MCIL, Ihatub, Boac, Marinduque.

(Marelco employees submitted a Petition for Further Review of the PSA and consideration of the recommendations thereof prior to approval of the application by the ERC)

June 27, 2007 - The Second Supplemental Agreement to the PSA was

signed regarding Extension of Commercial Operation Period to 12 months or July 7, 2008.

July 2007 - Assumption into office of newly elected Congressman (Carmencita Reyes) and newly elected Governor (Jose Antonio Carrion).

August 17, 2007 - The Board passed Resolution No. 2007-044- Approving to Recall the 2nd Supplemental Agreement to the Power Supply Agreement regarding Extension of Commercial Operation Date due to following reasons:

1. The deployment of generating unit at an aggregate capacity of not less than 12 MW including transformers and necessary accessories to NPC compounds has not been concurred by NPC because of some provisions in the Agreement that are not acceptable to NPC.

2. 3i Powergen has violated Condition No. 2.1a3 of the Agreement because construction of Power Plant at Balogo Sta. Cruz has ceased and therefore Condition 2.1a4 shall now apply regarding denial to grant Extension of the Commencement of the Commercial Operation Period.

This rendered the 12 months extension invalid thereby reverting the Target Commercial Operation Date to its Original date July 7, 2007. Said turn of events gave rise to “SUPPLIER DELAY.” Based on PSA Section 4.4.2 MARELCO may already invoke the right to impose appropriate penalty to be taken from the Performance Bond.

October 3, 2007 - The Board passed Resolution No. 2007-049 - A Resolution Notifying 3i Powergen, New Power Provider for Marinduque of its Delay for the Commercial Operation Date and Approving to Claim Against its Performance Bond.

May 2008 - The Board passed Resolution No. 2008-020 - A Resolution Requiring 3i Powergen to Immediately Submit a Written Progress Report on the Status of Project in Marinduque.

July 7, 2008 - Target Commercial Operation Date:

The Target Commercial Operation Date was not attained due to the following reasons:

1. 3i Powergen was still waiting for the release of funds from their investors before they could start procurement of capital equipment

2. 3i Powergen was waiting for ERC’s approval of the PSA and TCGR in order to protect the interest of their investor.

3. Construction at the plant site has long been stopped.

4. 3i Powergen did not comply with the Government Consents.

July 17, 2009 - The Board passed Resolution No. 2009-039 – A Resolution for the

Board to Exercise its Rights Under Section 10.4 of the PSA Between Marelco and 3i Powergen Inc.

Commercial operations of 3i Powergen in the three NPC-SPUG areas of Marinduque, Romblon and Tablas in accordance with Power Supply Agreements with the relevant electric cooperatives all failed to materialize.