The plan was to skip the safeguards, skirt congressional debate and virtually write a Php 10 billion check for 160 megawatt (mw) generators for Mindanao. One reader says let’s cut through the crap. Let’s do that. Let us analyze this deal from the perspective of accounting, tariffs, and cost-benefits.
Freed from checks, of the amount open to risk and spending-as-they-please (anything from matches and kindling to rain dancers and glow worms), half comes from calamity funds, another, from contingencies. By applying the US$ 1.0 million per megawatt benchmark for the development of diesel-fired plants, Php 20 billion calamity and contingency funds can buy 444.50 megawatts at Php 45.00 to the dollar.
The ratio assumes capitalized expenditures (capex) depreciated over continuous annual cash flows. Of that 25% are pre-operating development plus financing charges, while from 55% (for Japanese-branded engines) to 75% (for European-branded equipment) are capex.
If diesels generators were purchased by the National Power Corporation (NPC), cost capitalization applies and capex depreciates thus allowing fewer encumbrances on downstream tariffs. Unfortunately, NPC does not have that kind of money for a crisis they predicted would hit in 2008 when Mindanao’s 1,697mw demand surpassed 1,681mw capacities.
Ad hoc cabinet gatekeepers should crunch the math before opening their mouths. Should local government units (LGU) lease or buy 160mw generators, both ways, acquisition is charged in the present.
Under government accounting protocols, equipment acquisition must be expensed in real-time. Calamity and contingent funds are not allowed depreciation when expended by LGUs. Their acquisition costs cannot be capitalized over time. Together with real-time lease charges, operation and maintenance (O&M) and fuel costs inflict inordinately heavy burdens on tariffs when we consider that the crisis is quickly washed off by the coming rains.
When the Energy Department pushed for emergency powers they estimated the cost of the Mindanao fix between Php 8 billion to Php 10 billion. Where did they get those numbers?
At Php 10 billion for leases, the effective expense of US$ 1.40 million/mw against capital expenditures ranging from US$ 550 thousand to US$ 750 thousand per megawatt is excessive. There would be no financing or pre-operating costs. For every dollar only from 39% to 54% goes to generating capacity. This raises red flags. The fudge represents funds risked to “other costs”, corruption and windfalls for middlemen.
Until the rains come in July, that’s a monthly operating expense of Php 2.5 billion against the estimates of business losses of Php 1.0 billion from revenues foregone and incremental expenses from self-generating units. If Php 2.5 billion includes fuel and O&M charges, the unsubsidized fuel-cost soars north from Php 19.60 to over Php 24.11 per kilowatt-hour. Higher if fuel costs were not included.
Why? The emergency funds must cover leasing, O&M and fuel costs. Our basis is NPC’s Small Power Utilities Group (SPUG) full costs and subsidies.
Modulars run on diesel, barges, on bunker. Bunker is cheaper. Officials want diesel-fired 160 megawatt modulars forgetting the four dormant bunker-fired 242mw barges moored off Navotas.
Fuel costs for SPUG’s bunker-fired plants range from Php 12.00/kwh to Php 18.00/kwh. When generators cost US$ 1.4 million/mw, minimum diesel costs start from Php 19.60/kwh to Php 24.11/kwh. Costs per kilowatt-hour increase given load factors of 90% and below. Sensitivity runs indicate as much as Php 25.29/kwh. Now add leasing and O&M.
Back to the bigger picture, the net effects are additional losses of at least Php 5 million where the Php 1.0 billion monthly business losses vanish but are replaced by total monthly costs of Php 2.5 billion (Php 10 billion divided by four months) and astronomical increases in tariffs.
After spending Php 10 billion, over Php 750 million in residual monthly losses will continue as the 160mw patchwork hardly covers Mindanao’s 650mw deficiency.
On logistics, because modulars come in increments of 1.0mw and 2.0mw units, 160mw entails at least eighty separate power purchase agreements (PPA) where each PPA creates a Gordian knot of stranded asset and contract costs. Because of the abbreviated crisis period, take-or-pay provisions are likely.
In summary, government accounting compels real-time expenses. The benchmark equipment costs, whether leased or purchased, allow margins that license corruption. The per kilowatt-hour charges for this 160mw scare, skirt and suck strategy show suddenly-bloated tariffs. By expensing Php 2.5 billion to mitigate Php 1.0 billion in monthly losses in the Garci and Ampatuan sandbox, this ludicrous gambit adds to the Mindanao curse as it falls short of the temporary deficiency but recklessly allows unchecked, corruption-prone leeway.
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Dean,
Never has the damage to public good by the empowered seeking private gain been cited so starkly. Those who are willing to profit illicitly are willing to consign millions to endless days of brownouts and suffering, and poor development of the Mindanao economy . . . without even a twinge of conscience kicking in.
Hell, I’d support Mindanao independence given this scenario . . .
Joe
Dear Joe,
To appreciate the preposterousness of an electricity charge of Php 20.00 per kilowatt/hour and up for rural Mindanao, the generation charge at which Meralco purchases and then passes on to consumers in energy-hungry and urban Manila is about Php 8.00/kwh to Php 10.00/kwh. Tag unto that transmission and distribution charges.
Manila’s energy mix is a blend of hydroelectric, bunker and geothermal power while Minadano is now approximately 80% bunker and diesels as the Agus and Pulangui hyrdoelectric plants are virtually down.
They keep on talking while there are four 242 megawatt unused barges just moored off Navotas that can be quickly towed to Davao Oriental in the same time that it would take the Energy Department to negotiate, lease or buy gensets and ship those to Mindanao. Unfortunately, one option does not earn windfall commissions while the other does.
These fellows are not only neglecting Mindanao, they’re looting it.
Regards,
Dean
Here’s more from a local source, Dean:
If Malacañang’s quick fix solution for the power crisis in Mindanao pushes through, consumers could pay as much as three times what they’re now paying for electricity.
“Should there be no solution forthcoming from the National Power Corporation (Napocor) or the Private Sector Asset and Liabilities Management Corp. (PSALM) within the next few weeks, utilities like us will be forced to contract out for diesel driven generators,” said Engr. David A. Tauli, senior vice president for engineering of the Cagayan Electric Power and Light Company (Cepalco) during a presentation on the Mindanao Power Crisis to members of the Rotary Club of Cagayan de Oro Centerpoint Friday evening.
However, Tauli cautioned that should this happen, Cepalco customers would pay as much as three times as much as their present power rate.
“Assuming a 50 percent curtailment, you would pay at least P7.50 per kilowatt hour (kWh) if the additional power would come from non-Napocor source,” Tauli said.
He noted that Napocor is compelled by law to stick to its approved power rates and could thus not be in a position to impose rate increases.
The energy executive maintains there are six projects the Napocor and PSALM can do without forcing themselves or their customers to pay astronomical power rates under the planned emergency measures the government is considering with the use of calamity funds and the President’s emergency power.
“We really don’t need emergency powers or a state of calamity to address the present power crisis if only Napocor and PSALM immediately implement six key projects which would restore the Mindanao Grid’s capability to deliver the contracted demand to all their customers,” he added.
Of the six, Tauli noted that while Napocor and PSALM have committed to putting the Iligan Diesel Power Plant onstream with 108 megawatts (MW) and dredging the forebay of the Pulangi IV hydroelectric power complex in Bukidnon to increase its peaking capability from the current 85 to 255MW, the two firms have been slow in implementing the measures.
Other options Napocor and PSALM could do immediately are to operate Power Barges 117 and 118 as baseload power plants (rather than as a supplier of ancillary services to the National Grid Corporation of the Philippines or NGCP), to enable them to supply as much an additional 200MW to the Grid, without excessive costs; dredge the Balo-i Plains to enable the Agus 2 HEPP to deliver its full rated capability of 180 MW (from its current dependable capability of only 60 MW) and to rehabilitate various hydroelectric power plants on the Agus River to restore the power plants to their full capability.
Only when these measures have been fully implemented by Napocor and PSALM and there still remains a power deficit should government deploy the expensive modular generators, Tauli noted.
In his March 19 column in a national business broadsheet, Ateneo de Manila Professor Dean dela Paz estimates the modular gensets would require a “monthly operating expense of P2.5 billion against the estimates of business losses of P1 billion from revenues forgone and incremental expenses from self-generating units. If P2.5 billion includes fuel and operation and maintenance (O&M) charges, the unsubsidized fuel cost soars jumps from P19.60 to over P24.11 per kilowatt-hour (kWh) or higher.”
A former consultant for Energy Affairs of the Joint Congressional Power Commission and the Department of Justice inter-agency committee to review the IPP Contracts, de la Paz said that based on Napocor’s Small Utilities Group (Spug) dela Paz says the emergency funds must cover leasing, O&M and fuel costs. He notes that modulars run on more expensive fuel, while there are now four mothballed 242-MW power barges moored off Navotas which run on less expensive bunker fuel.
Similarly, activist-writer-researcher Arnold Padilla notes how government’s plan to lease modular generation sets to produce an additional 160 MW of electricity in Mindanao would require millions of liters of diesel fuel.
For example, the one (1) MW Mitsubishi Generac Diesel Power Module consumes 238.56 liters per hour of diesel at 100 percent capacity, 187.92 liters at 75 percent, and 119.28 liters at 50 percent .
“If a 1-MW generator runs for the entire day, the extra cost would be P46,490.57. If the entire 160 MW is generated in a day, the figure would be P7.44 million. For one month (30 days), the overpricing would be P223.15 million. If the 160-MW generators were commissioned for three months (April to June), taxpayers will shell out around P669.45 million on top of the real price of diesel and the cost of leasing the generating plants,” Padilla noted in his website.
Tauli said the full implementation of the six projects would considerably reduce the power shortfall by as much as 560 MW, in effect negating the need for the modular gensets.
In his blog, dela Paz concurs that “workable solutions” including tapping the four Navotas 242 megawatt barges and transition supply contracts for two privatized 100 megawatt barges in each of Nasipit, Agusan and Davao.
“There was enough time to settle tax issues over the 35 megawatt facility in Iligan, dispatch peak power from a total of 56 megawatts from embedded private generators and dredge the silted Pulangui Lake thus upgrading 87 megawatts to at least 200 megawatts,” de la Paz said.
“Sans the dredging, these total at least 533 megawatts currently feasible and enough to prevent 8 to 24 hour outages. These do not require corruption-prone emergency powers that offer monetary windfalls for middlemen,” he added.
Dear Amadeo,
Dredging the Pulangui has always been an option and years ago when Perez was still DOE secretary this was already proposed. It would have been a better deal because Pulangui is closer to the demand than are Iligan and Cagayan de Oro. Unfortunately, Reyes eventually became the secretary after Lotilla (whose priority was the privatization).
Reyes seems to be busy trying to be a credible representative for 1Utak, the tricycle driver’s party list group from Laguna. He’s going around Mindanao convincing people to cut down consumption and that’s really the breadth and depth of his efforts.
Running the two barges at baseload should be cheaper than gensets as these are bunker-fed. Gensets are diesels and diesel prices just went up. Add economies of scale and the cost advantages should be apparent even to seminar graduates of the JFK school.
BTW, I’m still with the Power Commission.
Dean
Dean,
Angelo Reyes a Tricycle Drivers’ Partylist representative?
Is that guy utak pulbura or just plain kapalmuks?
Dear Tranquil,
The name of the party list group is 1Utak. Reyes says that they approached him to be their representative. 1Utak is Awan Utak. Res ipsa loquitur.
Dean
Has the guy not bottomed yet?
Sabagay, from Mikey’s and Gloria’s most favored rottweiler to a Walang Utak representative seems to be an improvement na rin.:-)
They still go for the diesel fired. Vested interest at work.
Dear Equalizer,
Modular gensets are high-speed engines that run on diesel kasi. The huge ten megawatt per engine power plants are marine diesels that can run on cruder but cheaper bunker-C.
Dean
Dean,
A former supplier of ours in Europe has been asking me since last year if I am of the knowledge as to the location of the following power barges which he says are now on the sellers’ block at the foreign market which he says further have no interested buyers due to existing legal problems on ownership:
66 MW Power Barge consisting of Wartsila Generator sets, heavy oil 60Hz
67 MW Power Barge consisting of Sulzer Generator sets, heavy oil 60Hz
57 MW Power Barge consisting of Wartsila Generator sets, heavy oil 60hz
52 MW Power Barge consisting of Caterpillar Generator sets, heavy oil 60 z
The sum is 242MW which is the same as that in your article. Are these units the same ones as those that you wrote?
The 242MW (whether prime or standby) are sufficient to end the power crisis in Mindanao until the rain months come if the government will only exercise its power of eminent domain. A payment for lease may be held in escrow until the legal matters are settled between the owners.
The sad part is that gov’t already has this solution and yet they prefer a more expensive one. I know it’s the tongpats rearing its ugly head again.
Dear Twisted,
Right. The mothballed barges are moored off Navotas and these have already been offered as viable solutions by those who operated them when they were part of the supplies for Luzon. Unfortunately, the authorities are ignoring them.
The tongpats has always been the default it seems.
Dean
Hello Dean,
We want to know the details of this 4 units power barges. Is there anyways for us to contact the owners? Please help us.
Thank you,
Emi
Dean,
Are you still with the Joint congressional power commission?
I was looking for old or recent news about the barges and I saw an Inquirer(PDI) report dated 22nd Feb.
It means that aside from the operators of the barges,the co-chair of the committee has also recommended the use of barges.Maybe if the other chair would concur. Wala, kulang sa detalye(tongpats).
Hi Karl,
Yes, I am.
Dean
Thanks Dean.
Karl,
BTW, most power plants whether diesel, coal or geothermal, have what we call black-start gensets. these are diesel-powered generators used for strating very cold engines. these operate as power plants technically rev up to their capacities.
These can run at periods equivalent to the start-up times of power plants. For instance, coal-fired plants, black-starts can run from five to eight hours until the plant is operating at its capacity.
I am certain that the Mindanao power plants have these on hand but are probably not operating them given that the power they supply has not been contracted at the price at which they are viable. For the coal plants, the price is probably to low compared to when the power is derived from the black-starts.
Still and all, these are available power systems that do not require additional purchases, emergency powers or bypassing laws simply to operate.
If Reyes were serious about exhausting his options, he shoul;d have scrounged around instead of expending his efforts with advocating special powers, negotiating with Chinese dealers of gensets and trying to earn the monicker of tricycle association party-list representative.
Now if you guys think that last role is ludicrous, what say you to the Energy Committee chairman’s new role as party-list represntative for security guards? Bagay ba kay Mikey na maging kinatawan ng marginalized?
Regards,
Dean
Dean,
Thanks for the very valuable information. I have been reading and learning.About Mikey, di bagay pati na din yung ibang mga kamg-anak nya . May bago na yatang definition ang marginalized eh.
Regards,
Karl
Dear Karl,
May bagong definition na rin ang “Security Guard” as Mikey is set to represent that sector in the party-lists.
Note that last night in the news, the doctors attending to Pidal at the hospital said that Pidal’s condition was “stable but guarded”.
Mikey took it seriously and stayed at the hospital all night.
Dean
hi Dean,
Im from a local NGO here in Mindanao. I think this thread is more than 2 months old but this is still very current given that we are still experiencing a minimum of 2hour power outages daily. Worst scenarios are in rural areas where an 8-hour power outages are crippling local businesses operations. One of the issues that haunt the private sector is PSALMs planned privatization of agus-pulangi HEPP as solution to the current energy crisis in our island. From your discussion above, there are unused power barges which could help the power deficiency here in Mindanao. Yet, they are proposing for a modular energy system? What the… Clearly, these DOE guys are more concerned on their vested interest than helping us.
We are on the verge of arriving at a position on where to stand on the proposed privatization of the agus-pulangi HEPP. What’s your views and opinion on this? hope you could help us. the energy supply is realy one of our major problem here.
Thanks.