Administrative Order 278, issued very recently by President Gloria Macapagal Arroyo, and which exempts the 246-megawatt Angat hydroelectric power plant for ancillary services nomination is seen by some of the prospective bidders as the ‘deal breaker’ in the asset’s scheduled privatization next month.

Section 3 of the AO stated that: “The Angat Hydroelectric Plant shall be exempted from use of ancillary services.”

This is some sort of victory for water concessionaires Manila Water Company (MWC) and Maynilad Water Services Inc. (MWSI) who strongly lobbied that such policy be cemented when feasible, in the proposed revision of the water protocol for the Angat plant.

As ancillary service provider, the future buyer of the plant could have taken the option of entering into a contract with system operator National Grid Corporation of the Philippines (NGCP) for such purpose.

Ancillary services could cover contingency reserve, dispatchable (back-up) reserve, reactive power support, and for black start capability from outages situation – all meant to sustain system reliability and stability in the power grid.

The Power Sector Assets and Liabilities Management Corporation (PSALM) has been vouching on the ‘sustained interest of 12 investor groups, yet some bidders are sounding off that without the option for ancillary services, revenue stream for the prospective buyer would be very limited; hence, the deal may not end up attractive after all.

Apart from the AO, PSALM is also prodded on the final form of the water protocol that shall serve as the basis for the operation and maintenance (O&M) agreement that the winning bidder shall sign for the dam and non-power components of the facility.

The Office of the Solicitor General (OSG) already indicated that the old water protocol might stay as the reference document, since government agencies involved and other relevant parties cannot agree on parameters as to the proposed revisions.

The proposed O&M will stretch 20 years commencing on the closing date as defined under the Asset Purchase Agreement (APA) for the Angat plant. There is an option for renewal for another 20 years under such terms and conditions that may be mutually agreed upon by the parties.

The protocol in the use of water from Umiray and Angat basins prioritizes domestic consumption, with municipal water use in between. The other priority is irrigation and power generation is last in the pecking order of things.

Section 47 of the Electric Power Industry Reform Act (EPIRA) provides that: “in cases of transfer of possession, control, operation or privatization of multipurpose hydro facilities, safeguards shall be prescribed to ensure that the National Government may direct water usage in cases of shortage to protect potable water, irrigation and all other requirements imbued with public interest.”