One of the factors being considered by National Power Corporation (NPC) contributing to the losses incurred by the Power Sector Assets and Liabilities Management Corporation (PSALM) had been the P1.587 billion worth of fuel deliveries it made to the 146.5-megawatt Panay and 22-MW Bohol diesel power plants.

This was anchored on the letter-agreement inked by NPC and PSALM with the SPC Island Power Corporation, the buyer of the power facilities, wherein the government-run power firms committed to deliver fuel for the power plants’ operations at no cost to the latter.

Data culled from NPC showed that the total cost of fuel delivered to the Panay plant hovered at P1.437 billion and P150.896 million for the Bohol facility throughout the duration of the contract with SPC Power.

In the pact signed by the parties on March 26, 2009, it was stated that “NPC and PSALM shall supply the fuel and lubricants necessary to generate the electricity to be supplied by SIPC…” stipulating further that “risk of loss of fuel shall be with NPC and PSALM.”

On top of the fuel deliveries, NPC and PSALM also agreed to pay the new private owner of the Panay and Bohol plants “a fixed revenue share of P3.00 per kilowatt hour (kWh) of energy generated by SIPC and supplied to the electric cooperatives.”

“SIPC agrees to supply initially up to 40,000 kilowatt hours per hour during peak hours using the power generated from its Panay and Bohol diesel power plants,” the agreement stated further.

Such kind of arrangement on fuel commitments and the fixed payment to SPC have been branded among the privatization pitfalls which rendered losses for PSALM. The production cost from the plants, it was noted, had been at more than P10 per kWh, but such an amount cannot be fully recovered from the prevailing grid rate of just a little over P4.00 per kWh in the Visayas.

There have been proposals then to delay the privatization of the Panay-Bohol plants because of the power shortages walloping Panay island and the obligations of NPC to off-taker distribution utilities, but PSALM went ahead with the assets’ disposal only to learn later that the supply crisis in the area had been inevitable. Hence, its last recourse would be to enter into the so-called letter agreement with the buyer.

It must be noted that this letter agreement, which was later dubbed as Joint Power Supply Agreement, never went through the approval of the Energy Regulatory Commission (ERC) as to the tariff or revenue-sharing arrangement concurred in by the parties.

Section 47 (j) of the Electric Power Industry Reform Act (EPIRA) already prohibits NPC from entering into new supply contracts, hence, the decision of the parties on the letter-agreement on supply contracting has been raising legal questions.

The three-party supply pact was initially set for six months, but it was renewed as joint supply agreement in November 2009 and had been stretched until May 2010.

The folly on the privatization of the two plants, it was alleged, could be traced to the fact that NPC had been forced to buy power which it should have been generating on its own to meet its supply commitments to customer-DUs and electric coops.