By Francis Allan L. Angelo

 

PROPONENTS and defenders of the 25-year power supply agreement (PSA) between Iloilo Electric Cooperative (Ileco) 3 and Applied Research Technologies Phils., Inc. (Artech) promised cheaper and stable power to more than 41,000 consumers in northern Iloilo.

 

Based on a copy of the signed and notarized PSA obtained by The Daily Guardian, Artech promised to “build, operate and own” a 6-megawatt diesel-fired power plant within year 2010.

 

Some 36 months after the commissioning of the diesel-fired power plant, Artech will complete and commission a 20MW biomass-fired power plant.

 

Engr. Reynaldo Uy, Artech president, and Domingo Beltran, Artech vice president for business development, said in several media interviews that the diesel plant will provide power to Ileco 3 until the biomass plant goes online.

 

Based on Section 5.1 of the PSA, the diesel-fired power plant will operate in the first three years of the contract to provide 55.75 million kilowatt-hour (kWh) of electricity to Ileco 3 annually.

 

Artech pegged its base rate (net of taxes, ancillary and other charges) for the diesel plant at P6.64 per kWh.

 

Ileco 3 will pay for the minimum energy off-take (MEOT) or total quantity that Ileco 3 will have to buy from Artech whether or not it consumes that quantity.

 

Uy and Beltran said they will sell cheaper electricity to Ileco 3 because their base rate for electricity produced by the biomass plant is only P5.90 kWh. Still, this rate does not include taxes and other charges for the transmission and distribution of power.

 

But Section 5.1 of the PSA states that Artech will continue to operate the diesel plant even if the biomass plant is already in place and operating.

 

On the 4th year of the contract’s affectivity (the estimated period when the biomass plant starts running), the diesel plant will produce and sell 31.68 million kWh of electricity on top of the 39.6 million kWh from the biomass plant.

 

The biomass plant will also produce and sell another 13.2 million kWh of electricity to Ileco 3 for the peak load. In sum, Artech will sell a total of 84.48 million kWh to Ileco 3 for the 4th year of the contract.

 

On the 5th year and onward to the end of the contract, Artech will produce 31.68 million kWh from its diesel plant, 47.52 million kWh from the biomass plant and an additional 13.2 million kWh for the peak load. The total MEOT for this period will be around 92.4 million kWh.

 

The stipulated annual demand growth for 3rd and 4th years of the contract is 51% and 66%, respectively. Industry experts interviewed by this paper say no cooperative has posted such “outrageous growth”.

 

Department of Energy estimates the annual growth of electric cooperatives in rural areas from 2-5% annually. The energy department estimates show electricity demand growing at an annual 4.6 % in Visayas.

 

Based on the Integrated Computerized Planning Model of Ileco 3, the cooperative’s total demand in 2013 (which coincides with the 4th year of the contract) is only 73.958 million kWh. Its demand in 2014, or the 5th year of the contract, is only 77.930 million kWh, or a growth of 5.1%.

 

The aforementioned calculations do not include Ileco 3’s power supply deal with renewable power firm Asea One which joined the bidding conducted by the Panay-Guimaras power consumption.

 

As reported earlier, Ileco 3 will buy a total 70.75 million kWh from Artech and renewable power firm Asea One, which is 8.383 million kWh more than the projected demand of the cooperative of 62.367 million kWh for 2011.

 

Annually, Ileco 3 will pay P458.68 million to the two independent power producers (IPP), including P55.663 million in excess power, whether or not it consumes its MEOT from the two firms.

 

Artech will have to run its 6-MW diesel plant at 117% capacity in order to keep up with the MEOT stipulated in the contract. The standard capacity of plants to produce electricity is around 80%. The regular capacity may exceed 10% but only for one hour.

 

Because of the generation mix of Artech’s diesel and biomass plants from 4th year of the contract, the IPP’s base rate will remain at more than P6 per kWh, net of taxes, wheeling, transmission, distribution and other ancillary charges.

 

‘DOUBLE WHAMMY’

 

Section 5.5 of the PSA said Artech’s biomass plant is considered “available for delivery of electricity during the day if it is capable of continuous operations from 9am to 9pm at a minimum of 65% of its rated capacity.”

 

This section contradicts the intent of baseload operations which pertains to plants running 24 hours a day, 7 days a week. Instead, Artech will only operate its plant for 10 hours at 65% capacity.

 

Sections 5.3 and 5.7 of the contract allow Artech to sell to another buyer its excess electricity if Ileco 3 fails to consume the minimum energy quantity stipulated in the contract.

 

If Ileco 3 pays for 92.4 million kWh of electricity but can only consume 80 million kWh, Artech can sell the excess power to another consumer or cooperative.

 

In cases of emergency caused by force majeure, Artech is willing to reduce Ileco 3’s MEOT to a maximum of 5%. But that deduction will be added to Ileco 3’s minimum off-take quantity in the succeeding contract year based on a schedule agreed by both parties.

 

CHEAPER RATES?

 

Artech’s base rates are pegged at P6.64 per kWh for the diesel plant and P5.90 per kWh for the biomass plant, net of taxes and other charges.

 

But Artech’s price will increase because the IPP pegged its rates to the foreign exchange rate, movement of oil prices in the world market, local consumer price index and US consumer price index, among others. This is indicated in the schedules of electricity rates for the diesel and biomass plants attached to the 25-year PSA.

 

Section 6.10.2 of the contract allows Artech to increase its price of electricity should there be changes in legal requirements of the power plant.

 

Artech can also increase its power rates should the Department of Environment and Natural Resources (DENR) require the IPP to buy equipment or spend for environmental protection requirements.

 

“Any additional capital expenditures in terms of equipment and/or facility required by the DENR to secure the ECC shall be negotiated by the parties in good faith corresponding to such increase,” Section 6.10.3 of the PSA said.  

 

Earlier, Engr. Edgar Mana-ay, a retired PNOC official, said a sorghum biomass plant (which Artech proposed to construct) churns out 80 tons of ash daily.

 

If the DENR requires Artech to install equipment and implement mitigating measures relative to ash disposal, the IPP will charge Ileco 3 for its additional investments.

 

Artech’s contract with Ileco 3 will also tie the cooperative’s assets to the IPP aside from shouldering financial burdens.

 

Section 6.9.1 of the contract require Ileco 3 to put up an escrow account in an unspecified commercial bank where the cooperative will deposit “an amount equal to or exceeds the monthly due” to Artech based on 8.3% of the annual minimum off-take quantity.

 

 

The escrow account adds financial burden to Ileco 3 since Artech’s billing payment is seven days after receipt of invoice. In this case, Ileco 3 shall advance the payment of uncollected billing for the month plus interest charges of the escrow.

 

Section 6.9.2 of the contract required Ileco 3 to maintain a P17-million revolving credit facility (RCF) with an unspecified commercial bank. Artech can avail the credit facility “in full or in part” to pay any due or outstanding obligation of Ileco 3 to the IPP.

 

In the banking and credit world, revolving credit facilities require collaterals. In this case, Ileco 3 will have to put up its assets as guarantee for the P17-million RCF. (To be concluded tomorrow)