One would easily conclude that the results of the auction process were already a fait accompli after other parties were prohibited from joining the bidding.
Competitive bidding in the Philippines has assumed a different context. The bidding rules on power supply conducted by Manila Electric Co. (Meralco), the nation’s biggest electricity retailer, are not fair after all.
They are discriminatory, as found out by Senator Alan Peter Cayetano during a public hearing held by the Senate committee on energy on July 18, 2024
Meralco conducts the so-called competitive selection process (CSP) to draw out the best offer, or cheapest cost of electricity, from among interested parties or power generators. The bidders are informed of the rules beforehand, per Meralco’s terms of reference (TOR).
The terms or conditions, however, are exclusionary at the outset. One would easily conclude that the results of the auction process was already a fait accompli after other parties were prohibited from joining the bidding.
Take the case of the last auction when 1,200 megawatts of electricity of power supply were bid out early this year. The bidding was won by generating plants that use imported liquified natural gas (LNG), a more expensive fuel whose real cost as reflected in bidding documents excluded freight and re-gasification expenses.
One Meralco official during the hearing had admitted that the company’s bidding rules on electricity supply disqualified similar efficient power plants that run on much cheaper indigenous gas. The utility specifically barred power plants that are 10 years or older.
Outrightly banned from the auction process were power plants running on cheaper indigenous gas, like Malampaya that contributes billions of pesos in royalty payments to the government. Mr. Cayetano naturally accused Meralco of bias against power generating firms that use indigenous gas.
The lawmaker on Monday filed a resolution to postpone the next bidding for Meralco’s 600-megawatt and 400-megawatt power supply requirements until its TOR are reviewed to ensure fairness in the selection of bidders and arrive at the true lowest cost for the supply of energy.
Mr. Cayetano during the hearing noted that Meralco appears to favor power generation companies that utilize imported coal. He added Malampaya indigenous natural gas would be unutilized “if the indigenous natural gas-powered plants are not given a chance to fairly compete in CSP 1 and CSP 2.”
Cayetano also criticized Meralco’s TOR for treating the historical actual costs of non-fuel items.
He said the approach handicaps indigenous natural gas suppliers by allowing bidders with other energy sources to submit bids with lower fuel costs, only to eventually pass on the higher non-fuel commodity expenses, such as freight, to consumers.
“The lack of clarity in the rules regarding TORs in the biddings will result in the underutilization of our indigenous natural gas [and] open the possibility of circumventing the distribution utilities’ obligation to supply their captive customers in the least-cost manner,” he wrote in the resolution.
Cayetano argued that the unfair CSP treatment would likewise discourage foreign investors from participating in energy exploration and drilling in the country.
“The CSP must ensure fairness and competition in the bidding process so that only power suppliers offering the true least-cost supply will be contracted,” he says. He questioned Meralco’s unchecked authority to determine who is qualified or not.
For all intents and purposes, the current auction rules are anti consumer and anti business.
Cross-ownership
The suspension of the new auction, meanwhile, will align with the new government procurement process signed into law by President Ferdinand Marcos Jr.
The law mandates the disclosure of beneficial ownership information of suppliers, manufacturers, distributors, contractors and consultants taking part in government procurement.
Distribution utilities, like Meralco, are now required to open to public scrutiny the ownership structures of companies from which it buys electricity. This includes companies covered by the so-called cross ownership provision of the Electric Power Industry Act, (EPIRA), and which had expanded into so-called associated firms.
Meralco PowerGen Corp. (MGen) and Aboitiz Groups’s Aboitiz Power Corp. early this year agreed to jointly invest in the gas-fired power plants of San Miguel Global Power Holdings Corp.―the 1,278-megawatt Ilijan power plant and a new 1,320-megawatt combined cycle power facility.
The three companies are investing in nearly 100 percent of the LNG import and re-gasification terminal owned by Linseed Field Corp. The facility receives, stores and processes LNG fuel for the two power plants.
The joint venture has drawn criticisms from a consumer group. The Power for People Coalition (P4P) claimed the joint venture would allow Meralco and Aboitiz to acquire stakes in SMC’s LNG power plants in Batangas City.
The P4P said the moves were violative of the intentions of the EPIRA, which prohibits cross-ownership between the generation and distribution sectors, and seeks competition to ensure least-cost electricity for consumers while guarding against power sector abuses.
E-mail: rayenano@yahoo.com or extrastory2000@gmail.com
Tags:
Sen. Alan Peter Cayetano, Manila Electric Co., competitive selection process, Malampaya, LNG, Electric Power Industry Act, Power for People Coalition
