Settle obligations to PSALM over Ilijan contract, SMC told

San Miguel Corp. (SMC) should settle billions of pesos of unpaid obligations to the Power Sector Assets and Liabilities Management Corp. (PSALM) as part of honoring its existing contract with government for the 1,200-megawatt (MW) Ilijan combined-cycle power plant, Energy Secretary Alfonso Cusi said.

He said SMC has entered into a contract with government for the independent power producer administration (IPPA) of the Ilijan plant and this should be adhered to.

“That is the contract, they have to pay. If they want government to honor the contract, they also have to honor their contract,” Cusi said.

SMC bagged the Ilijan IPPA in April 2010 after it outbid other parties with a $870 million offer. Its subsidiary South Premiere Power Corp. (SPPC) was then issued the certificate of effectivity as the Ilijan plant’s IPPA.

Under the Electric Power Industry Reform Act (EPIRA), the IPPA contract gives the administrator management and control of Napocor’s contracted capacity, passing on the risks to the private sector.

However, SMC and PSALM clashed in 2015, when the state-run firm terminated the IPPA contract of SPPC on Sept. 4, 2015 for failure to pay the outstanding generation payments from Dec. 26, 2012 to April 25, 2015 amounting to P6.46 billion.

SPPC is a subsidiary of SMC Global Power Holdings Corp., the power unit of the San Miguel Group.

However, SPPC said it had already paid P180 billion in obligations to PSALM for the Ilijan IPPA, broken down into P36 billion in capacity fee and P144 billion in generation payments in September 2015.

Unwilling to pay, SMC’s financial obligations ballooned to over P12 billion, based on PSALM’s computations in April 2016.

SMC then decided to file a complaint with the Regional Trial Court of Mandaluyong City to question the validity of PSALM’s interpretation and to clear SPPC from its financial obligations under the IPPA.

The group also filed a criminal complaint for estafa and corruption against PSALM OIC Lourdes Alzona with the Department of Justice (DOJ).

Situated in Batangas, the Ilijan power plant is being operated by Korea Electric Power Corp. (Kepco), through Kepco Ilijan Corp., under a build-operate-transfer contract that will expire in 2022.