Ranhill submits ‘comfort letter’ to Meralco; WESM a crucial condition to contract signing
Thursday, June 22, 2006
By MYRNA M. VELASCO
Malaysian firm Ranhill Power Bhd submitted yesterday (June 21) its ‘letter of comfort’ to Manila Electric Company (Meralco) signifying its intent to take managerial control of the corporate vehicle to operate the privatized 600-megawatt Masinloc coal-fired power facility.
As the parties wind up their meetings this week, they have held that the most crucial condition they would have to wait for before they can proceed with the signing of the 10-year power supply agreement would be the commercial operation of the Wholesale Electricity Spot Market (WESM), as the price of the electricity to be delivered to the utility firm shall be benchmarked 2.0 percent lower than the volumes traded in the spot market.
The Malaysian group acknowledged that the WESM’s operation is a critical condition because if this gets delayed, the parties "would need to re-draft the contract" to take such development into account.
What Meralco has been trying to avoid, it was gathered, is for the capacity from the Masinloc asset to be treated as take-orpay if the WESM gets delayed in its schedule of commercial operation.
Meanwhile, Ranhill affirms in the ‘comfort letter’ that it "shall endeavor to maintain the financial, technical and managerial capability of YNN," but made specific note that such shall not serve as a "financial guarantee." YNN Pacific Holdings was the original investor that won the bidding for the Masinloc coal-fired facility.
Such correspondence was a specific requirement put forward by Meralco at the course of their negotiations; as it noted the highly-controversial handling of YNN of its deal with Power Sector Assets and Liabilities Management Corporation (PSALM) on the purchase deal.
The Ranhill certification shall be elevated to the Meralco board which shall either accept or reject it or will decide if necessary modifications shall be set forth.
Last June 20, Ranhill made disclosure in Kuala Lumpur that it moved to buy out the shares of YNN incorporators for $ 8.0 million. It was learned, however, that until Wednesday, YNN chair Sunny Sun was still participating in the negotiations for the 10-year supply deal with Meralco.
Given the turn of events, it thrives as a puzzle in energy circles if YNN-Ranhill can finally raise the mandated $ 227.54 million upfront payment for the asset on the PSALM-prescribed deadline of June 30 this year.
Talks are going around that the buyers may ask government for another extension; but it was gathered that PSALM may longer yield to this, given the controversy that the deal has been mired in todate.
President Arroyo has scheduled inauguration of the spot market this Friday (June 23); but even market operator Philippine Electricity Market Corporation (PEMC) cannot assure if actual trading can already happen because the decision of the Energy Regulatory Commission (ERC) on its applications for price determination methodology (PDM); market and transaction fees and administered price cap are still due for release.
Before these rulings can get implemented, the guidelines on the rates or fees would still need some guidelines before they can be charged to participants in the power pool; thus, industry players are anticipating that it might take some time before commercial operation can actually take place.
posted by philpower @ 10:03 PM,
