Petilla explains rationale for deferment of STEAG IPPA privatization

May 24, 2015



Former NAPOCOR President Concurs


Outgoing Energy Secretary Carlos Jericho L. Petilla is working to defer the privatization of government owned generation facilities in Mindanao to protect consumers from another spike in electricity prices.


STEAG State Power Inc. coal-fired power plant at Villanueva, Misamis Oriental.



During a press conference held at the Misamis Oriental Rural Electric Service Cooperative I (MORESCO-1) 45th Annual General Membership Assembly at Laguindingan, Misamis Oriental, Petilla said he wants to avoid a repeat of the Mt. Apo Geothermal experience where prices spiked following the privatization of its Independent Power Producer Administrator (IPPA) contract.


“If you have a basket with all your sources of power, and Mt. Apo was removed, what happened was the allocation of all users was reduced. What is good is Mt. Apo’s allocation is available to anyone and can be contracted. Those who contracted first are lucky, but they have a problem because the cost of power from the very same source has become expensive (from P3.00 to P5.37/KwH).  Why? Because of the existing shortage of power in Mindanao.”


DOE Sec. Jericho Petillas addresses the 25,000-strong assembly of the Misamis Oriental Rural Electric Service Cooperative-1 during its 45th Annual General Membership Assembly held 22 May at Laguindingan, Misamis Oriental. (photo by Mike Baños, NPN)


“I don’t want this to happen when the IPPA of STEAG is privatized. Privatization should only move forward when there is already an excess supply of available power,” he added.


Petilla said he has reached a compromise with the Power Sector Assets and Liabilities Management Corporation (PSALM) by which privatization can proceed but with a lock-in price for the next 2-3 years.


“Our compromise with PSALM is to proceed with privatization but lock-in the price of the contract. And this stays until there is already an excess supply of power in Mindanao. But the bidding will continue,” he explained.


Speaking in the vernacular, Petilla explained that in a nutshell, what happened is that nothing will change as far as the supply of PSALM is concerned, as far as price is concerned, during the lock-in period of 2-3 years.


DOE Sec. Jericho Petilla enjoys a light moment with NORMECA officials during the 4th Annual General Membership Assembly of MORESCO-1 held 22 May at Laguindingan, Misamis Oriental. (photo by Mike Baños, NPN)


“After 2-3 years, the IPPA will be released by PSALM, it will be awarded to the winning bidder at what price they can offer, but by then you here in Mindanao would have choices. Why? There will be many news plants which would be online by then.”


Former National Power Corporation President Guido Alfredo A. Delgado concurs with Petilla’s assessment. In an opinion column published by MindaNews, Delgado said the current power shortage in Mindanao mandates a freeze on further privatization of IPPA contracts.

“An IPPA is an entity chosen by PSALM, which administers, conserves and manages the contracted power output between an Independent Power Producer (IPP) and the NPC. The IPPA is a post EPIRA invention concocted to supposedly take away the market risk from National Power Corporation or NAPOCOR or PSALM by passing on the risks to the private sector. “Market risk” is present presumably because there is stiff competition and the government is not in a position to take on such risks. After all, the EPIRA’s thrust is for the privatization of government-owned power assets to promote competition among the power sector players.”

“But what competition are we referring to in Mindanao? Competition only exists if there are sufficient buyers and sellers in the market and the government is simply ineffective in capturing market share. But is it? And for Mindanao, how can there be competition in a market that has power shortage? Even Davao is suffering from brownouts! (Read more


Further to deferment of STEAG’s IPPA privatization, Petilla also suggested to the movers of the proposed Mindanao Power Corporation to include the STEAG coal plant in its proposed portfolio, in addition to the Agus-Pulangui hydropower complex.


Misamis Oriental Gov. Bambi Emano listens intently as DOE Sec. Jericho Petilla fields a question from media at the 4th Annual General Membership Assembly of MORESCO-1. (photo by Mike Baños, NPN)


“In the privatization of the Mindanao Power Corporation, all that’s mentioned is only the Agus-Pulangi hydro. I suggested they include STEAG in the portfolio. Why? STEAG is cheaper than the new coal plants of Aboitiz, San Miguel and Filinvest. Why have it privatized? Instead, include it in your portfolio for MPC. So even if it makes your MPC price a little more expensive, it is still cheaper than if you source it from the other newer plants.”


Delgado also suggested DOE stabilize Mindanao’s power supply first to bring down costs before undertaking further privatization.


“My suggestion is for the DOE to reconsider the plans of selling the remaining power output of the remaining Mindanao power plants to the private sector altogether, and instead, focus on securing the system by stabilizing power supply and bringing down the costs. And putting more renewable energy in the power supply mix for the region is the key to energy security in the region, and elsewhere in the country.”

Petilla concurs that indeed, the DOE would focus on securing the stabilization of power supply and prices in Mindanao without necessarily getting in the way of PSALM’s mandated privatization of government owned assets. 

“I have no problem with privatization, that’s mandated by law. But timing is all-important,” Petilla stressed.



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