With fuel procurement burden now shifted to the Independent Power Producer Administrators (IPPA), Aboitiz Power Corporation (AP) starts setting out strategy on coal contracting for the 735-megawatt Pagbilao coal-fired power facility so it can shield itself from extreme price volatilities.

“We’re studying that (fuel procurement) and we’re meeting some coal consultants to agree on a strategy,” AP president and chief executive officer Erramon I. Aboitiz said.

He added the upfront cash requirement they will need upon takeover as Pagbilao IPPA will be “financing for the coal. So we have to work with banks to get some credit lines for that.”

Aboitiz indicated that contracts will be their best bet, instead of relying on spot markets since this will expose them to price risks reminiscent of the spikes in coal prices in the past two years.

“We will have to go for contracts. Eventually, you cannot be on a business where your volatility goes up and down,” he stressed.

The other major obligation they will have to focus on is marketing the Pagbilao plant’s uncontracted capacity.

As off-takers are considered “gold finds,” the Aboitiz group strategizes as well into offering capacity to bulk-users which they can tie in to long-term contracts.

“We really need to go out and market the power…we’re talking to different industries and electric cooperatives and maybe we’ll offer more to Meralco (Manila Electric Company),” Aboitiz said.

The company chief executive added that the growing economy underpins the need for heftier power demand, and that is one thing they can take advantage of.

IPPAs also take on the role of trading the capacity of their acquisition at the Wholesale Electricity Spot Market.

As an IPPA, the winning bidder will not need down payment – that is to distinguish the policy from the divestment of power generation assets. Instead, it will settle the required monthly amortization to the Power Sector Assets and Liabilities Management Corporation.

In the case of Therma Power, AP’s wholly-owned subsidiary which took on the Pagbilao IPPA, it has only been required to post a performance bond of $38 million, serving as a guarantee that it shall perform its obligations set forth in the terms of the IPP contracts’ privatization.