Privatization
Independent Power Producer Administration

The Independent Power Producer Administrators (IPPAs) are qualified private sector independent entities that will administer and manage the output from the Energy Conversion Agreements (ECAs) and Power Purchase Agreements (PPAs) that NPC entered into with the IPPs. The IPPAs are appointed through public biddings conducted by PSALM.

An opportunity to trade in the WESM without the expense of building a brand new plant

The IPPA process provides successful bidders a way to enter the Wholesale Electricity Spot Market (WESM) for a minimal capital outlay. The approach adopted provides the administrators an opportunity to trade in the WESM without the expense of building a new plant.

The Sual and Pagbilao structure, for example, enables the administrators to pay the monthly fees, both for the opportunity to trade, and the payments for the physical assets, out of cash flow. Thus, no upfront financing is required. This structure was also adopted for the Ilijan, San Roque and Bakun Mini-Hydro.

For Unified Leyte Geothermal Power Plants (ULGPPs) Strips of Energy and Mindanao I and II Geothermal Power Plants, a different structure was adopted since the subject of the bid is only the energy output of the plants.

This is a unique way to enter the WESM. The assets are relatively new, high-quality plants that were built and are well maintained by the best IPP developers in the world. The IPPAs will have most of the benefits of being owners of generating stations, including controlling the supply of fuel and its dispatch, trading, and contracting of the plant, but without maintenance costs or capital upgrades.

The Initial Phase

The initial phase of IPPA appointments covered only the IPP contracts in the Luzon Grid since the WESM is not yet operational in the Visayas and Mindanao in 2009.

The first stage of IPPA appointments bid out the contracted capacities of the Sual and Pagbilao coal-fired thermal power plants. For these plants, PSALM entered into "back-to back" contracts with the IPPAs where the energy off-take from the ECAs will now be managed and traded by the IPPAs in the WESM. Obligations, such as fuel procurement, which were formerly the responsibilities of NPC, have been transferred to the IPPAs to manage. A number of risks were also transferred with the agreements, but PSALM will continue to bear key risks that the IPPA cannot manage, such as Government, force majeure, and extended outage risks. The back-to-back contracts include the transfer of ownership of the power station to the IPPAs at the end of the ECA cooperation period.

Following the tender for the Sual and Pagbilao capacities, the tender for the San Roque and Bakun Hydro were successfully conducted on 15 December 2009. In 2010, having been successful in using a back-to-back contract for the selection and appointment of IPPAs for its coal and hydroelectric plants, PSALM tendered the contracted capacity of the 1,200 MW Ilijan Natural Gas-Fired Power Plant. The Ilijan plant comes complete with a Gas Supply and Purchase Agreement, with PSALM still assuming the responsibility in the supply of natural gas and the alternate fuel.

The appointment of IPPAs for PSALM's IPP plants in the Luzon Grid has paved the way in attaining the 70% privatization threshold required by EPIRA as a precondition for the declaration of open access and retail competition in the Philippine power industry.

The continued efforts of PSALM to fulfill its mandate in transferring government interest to the private sector and allowing them to address the country's requirement for power supply, PSALM has successfully bid out the Strips of Energy of the Unified Leyte Geothermal Power Plants in November 2013. It was followed by the privatization of the output of the Mindanao I and II (Mt. Apo 1 and 2) Geothermal Power Plants in September 2014. The outputs of these IPP plants were successfully turnover to the winning IPPAs in December 2014. With this, PSALM has contributed to the wider presence of the private sector in the Visayas and Mindanao Grids.

This means that the next stage of the evolution of the WESM can commence. An IPPA will be in an excellent position to benefit from open access with flexibility and control over the trading of the energy output of the IPP plants.

Moving Forward

For 2015, PSALM targets to commence the process for the selection and appointment of the IPPAs for the Bulk Energy of the Unified Leyte Geothermal Power Plants and Mindanao Coal-Fired Power Plant in the Mindanao Grid.

The sale structure for the remaining IPP plants may vary from what have been previously used depending on the complexity and nature of IPP contracts. In general, the sale structure should allow the market and fuel risks to be borne by the IPPAs through back-to-back agreements without changing the existing contractual obligations as provided for in the ECAs and/or PPAs, as applicable.

Role of IPP Administrators

Among the tasks that the appointed IPPAs handle are:

  • Unfettered ability to trade the IPP energy output in the WESM.
  • Unfettered ability to procure their fuel requirements (coal plants only).
  • Guaranteed revenues for the first few years through the assignment of Transition Supply Contracts (TSCs) (thermal plants only).
  • Freedom to enter into bilateral contracts and seek other markets for the balance of their contracted capacities and energy.
  • Freedom to enter into other forms of financial hedging instruments if desired to manage their position in and exposure to the market.

Who May Qualify as IPPA

  • International and local companies that are financially and technically qualified.
  • Financially qualified international and local companies whose affiliates are technically qualified.
  • IPP sponsors.