Masinloc plant bidder enjoyed special favors
Monday, July 31, 2006
By ZIP ROXAS
The Manila Times Sunday Times Editor
A cash-strapped entity decides to bid off one of its properties to raise revenues. Bidding is held. Winning bidder is announced. End of story?
Not quite.
Turns out the winning bidder doesn’t have the wherewithal to make good on his tender. Sound business sense dictates that the property owner hold a new bidding, this time disqualifying the original winning bidder. Does he do it?
Not on your life. Sure, he collects the bidding fee, but in the same breath, turns around and tells the bidder to look for other partners that will plunk in the cash to finance his bid. Property owner gives bidder at least three extensions while the losing bidders can only gnash their teeth over this flagrant violation of a basic rule in economics: Put your money where your mouth is.
That, in essence is what happened in the bidding for the Masinloc power plant in Zambales.
The stink over the anomaly has reached even the halls of Congress, and observers have been quick to compare the Masinloc case with that of the bid for the Manila Hotel over a decade ago.
(A Malaysian consortium had won the bid for the historic hotel, but the Supreme Court negated the result, and awarded the contract to a group headed by a newspaper publisher. The tribunal ruled that the Manila Hotel was part of the national patrimony, and no foreign entity can own the enterprise. For that decision, the Court was pilloried for overstepping its jurisprudential bounds and venturing into purely economic issues.)
The privatization of 70 percent of the electric power generating plants of the National Power Corp. (NAPOCOR) in Luzon and the Visayas was mandated by the Epira (Electric Power Industry Reform Act) law, which took effect in 2001. The 600-megawatt Masinloc power plant, built at a cost of $530 million in 1998, was the first to be offered for sale. The bidding was held in December 2004.
Only two prospective buyers participated in the bidding. YNN Pacific Holdings, a Malaysian consortium, submitted the winning bid of $561 million, which industry observers at the time said was "scandalously high."
The first signs of a mess in the making surfaced when Congress tried to stop the award to YNN because questions had been raised on the firm’s financial capability. But the government’s Power Sector Assets and Liabilities Management Corp. (PSALM) went on and awarded the contract to YNN, anyway. That the decision raised a few eyebrows is putting it mildly.
Grace after grace
As the winning bidder, YNN was supposed to pay an upfront fee of $227 to the government, representing 40 percent of its bid price. The firm was given two extensions of the deadline to pay, the last of which lapsed on June 30. PSALM, headed by Finance Secretary Margarito Teves, allowed YNN another grace period up to August 11 to scrounge around for the cash. PSALM announced the forfeiture of YNN’s $14-million performance bond, though. It was the third extension given to YNN in seven months.
This carrot-and-stick approach has raised the hackles of lawmakers and cause-oriented groups.
Under the Asset Purchase Agreement YNN signed with PSALM, the Malaysian outfit was scheduled to make the $227-million up-front payment as early as November 2005. When it failed to make the down payment, it asked for an extension until March 31, 2006. The day came and went, and YNN asked for another extension to June 30. Still no dough. PSALM to the rescue, and the August 11 extension was granted.
In the meantime, YNN was frantically looking for a White Knight after its relations with its anchor partner, Great Financial Pacific of Australia, turned sour. YNN found one in Ranhill Berhad of Malaysia. Or so it thought, anyway.
Disclosure statements in the Malaysian Stock Exchange point out that Ranhill is a consultancy firm with only a 120-MW project to its credit to date. And even the financing for this project has been delayed as Ranhill seeks more favorable changes to the Power Sales Agreement it currently has with the Sabah Electricity Sbdn. Bhd.
The same documents reveal that YNN and Ranhill do not have the funds to pay for the Masinloc deal and are trying to get financing from banks. So far, there are no takers.
Before PSALM granted the extension to YNN, lawmakers and cause-oriented groups had been calling on the government not to extend anymore the deadline on the ground that it YNN violated several provisions of the Asset Purchase Agreement (APA).
Clamor
The clamor was raised by Senators Aquilino Pimentel, Joker Arroyo and Serge Osmeña III, together with Rep. Alipio Badelles and cause-oriented groups led by Bayan Muna.
Pimentel said the government should just apply the law on failed bidding on the Masinloc sale, considering the continuous failure of YNN to comply with its obligations under its contract for Masinloc.
"PSALM should just apply the law on failed bidding so that it could cancel the contract and forfeit on its bond," he said.
Members of the congressional oversight committee earlier noted that the government should have already initiated forfeiture proceedings on YNN’s bond after YNN failed to come up with the $227-million partial payment last year, as stipulated in the agreement.
Bayan secretary-general Renato M. Reyes Jr., for his part, said PSALM "should not wait any further before it finally does the right thing. We have had enough of this merry go round. It has long been obvious that YNN is a dubious firm which is only in this deal to make big bucks."
For a power plant that was built for $530 million in 1998, YNN’s bid price of $561 million is "scandalously high" according to observers. Industry players said Masinloc’s current value is pegged at $380 million.
No phone, no fax
Sen. Joker Arroyo, in a privileged speech, had earlier questioned why the government would award a major power plant to a firm "that had only been formed four months before the bidding, with only a paid-up capital of P625,000, with no track record in the operation of a power generation firm and occupying an office for janitorial services in Paco, Manila, with neither a telephone nor a fax machine."
YNN’s original partner, the Australian firm Great Financial, backed out of the deal prompting YNN to seek another company, Ranhill, as its partner.
But Reyes said what YNN sought was not merely a partner but a company that will take over its rights on Masinloc for big bucks.
Reyes pointed that recent events seem to confirm initial fears that YNN is merely a broker that submitted a relatively high bid price that has turned out to be illusory considering that "not a single cent of YNN’s fantastic bid has been dropped in the PSALM bucket even after the supposed YNN conglomerate has scoured the world in an apparent search for a willing company."
For his part, party-list Rep. Teddy Casiño (Bayan Muna), stressed that what is worse in this scandal is that PSALM did not only extend deadline of YNN, it is helping YNN to secure a supply contract with MERALCO to help it comply with the preconditions set by Ranhill before it gets the $8 million from the takeover. "PSALM sold Masinloc to a dubious buyer, did not collect the penalty when the buyer failed to pay the down payment, and is now even helping the dubious buyer raise funds. What a crazy way to privatize!" Casiño said.
(A slight error there. PSALM did collect the $14-million performance from YNN, when it could not make the down payment.)
Another unforeseen snag in the deal is that Ranhill requires a power supply contract as a condition for its participation in the project. The Malaysian company is expected to bring in financial resources and technical capabilities that YNN never had in operating a power plant of Masinloc’s size.
Sweetheart deal?
Casiño claimed there is "an ominous and deliberate effort" on the part of the government to favor the YNN group even to the extent of maneuvering for the inclusion of a sweetheart-deal contact between MERALCO and YNN. He cited the move of the supposedly independent regulatory body like the Energy Regulatory Commission (ERC) as part of the scheme when it suspended through its issuance of Resolution No. 21, Series of 2006, the need for Distribution Utilities to bid out their power supply.
Ranhill, in its disclosure to the Malaysia Stock Exchange has confirmed that a supply contract is already in the "advanced stages" of negotiations between YNN and MERALCO.
MERALCO has denied this.
Industry insiders revealed that there is no reason for MERALCO at this point to enter into a supply contract with Masinloc considering the oversupply of power in Luzon.
Casiño also cited the widely publicized relationship between ERC Commissioner Jesus Alcordo and YNN’s owner, Sunny Sun, as they served as president and chairman of the Board of Duracom, respectively, a company that supplies power to MERALCO.
On the entry of Ranhill into the deal, Pimentel said the government should not accept Ranhill’s proposal without a thorough investigation as to its financial and technical capabilities. "Its proposal must a considered a new proposal that should go through thorough screening before it is considered," he said.
Ranhill is also reported to be still in the process of sourcing funds for the project. But sources have claimed it is having a hard time convincing banks to lend it the money if no supply contract to the Masinloc plant is attached to ensure a source of revenue.
But Casiño said a supply contract is out of the question for Masinloc because it was bid out as a merchant plant with no attached purchase agreement with any distribution firm.
Nevertheless, columnist Neal Cruz raises the warning that should YNN succeed in signing a supply contract with MERALCO, it will result in even higher power rates for MERALCO consumers because a YNN-owned Masinloc will again raise production cost. (But MERALCO can make sure that any electricity supplied to it by Masinloc will cost the same or cheaper than the power it now buys from NAPOCOR and Quezon Power and the two Santa Rita IPPs.)
With all these givens, there really is only one way out of the whole mess: cancel YNN’s winning bid, and conduct another public bidding. Cruz suggests that the second bidding should ban YNN from participation to erase whatever apprehensions prospective bidders may on the integrity of the bidding process.
posted by philpower @ 8:37 AM,
