Naga O&M Will Continue To Burden PSALM with Fuel Costs

MANILA, Philippines - The decision to offer the Naga thermal facility to the private sector through an operation and maintenance (O&M) arrangement may not necessarily make economic sense for the government and the consumers as this will continue to burden the Power Sector Asset and Liabilities Management Corporation (PSALM) with fuel procurement costs.

It can be gleaned from previous PSALM pronouncements that it intended to privatize the facility because it has been a "losing proposition" for the company, with fuel costs alone contributing to its financial hemorrhage.

It is puzzle then why the company opted to offer the Naga thermal asset on a rehabilitate-operate-maintain-manage (ROMM) deal, with PSALM agreeing to assume fuel risks when in fact, it can already divest the facility via "direct asset sale" so it can totally pare its costs relative to the facility's operations.

The fuel costs it will incur then will eventually be passed on as additional burden in the consumers' electric bills through the universal charge.

Such could be a self-defeating option for debt-stricken PSALM as its expenses for fuel may still swell its liabilities. The company has not presented yet the "economic benefits" it would be able to gain from the proposed deal.

In a text message, PSALM president Emmanuel R. Ledesma Jr. justified that his company has just hinged its O&M offer for the 150-megawatt Naga facility on the decision of the PSALM Board.

"PSALM Board authority is for O&M, not to privatize yet," he stressed. This entails then that the facility will remain under the government's ownership, thru PSALM. Therefore, the company will continue to shell out budget for the facility's fuel needs - which based on its previous estimate could hover at more than P500 million monthly.

Ledesma added "the O&M operator only operates the plant. As with any O&M, fuel is the obligation of (the) owner, hence PSALM."

It must be noted that the case of the deferred privatization of another plant in Luzon, the 650-MW Malaya thermal plant, was due to the need to align it as a "security asset" given forecasts of tight supply in the grid.

This justification is not necessarily applicable to the Naga facility for Visayas though since supply in the grid has just stabilized because of the entry of new power plants in the last two years.

The company is scheduled to auction the O&M contract to prospective takers this February 27 - or prior to the expiration of the facility's supply contract with Salcon Power.