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P7-B anomaly bared on Calaca coal supply

By Charlie V. Manalo

11/20/2008

An alleged anomalous transaction involving National Power Corp. (Napocor) officials and DMCI unit Semirara Mining Corp. resulted in the deterioration of the recently sold Calaca coal-fired power plants in Batangas after feeding the power plant with low-quality local coal while the plant generators were designed to use a blend of imported and local coal.

This was revealed Tuesday night in a privilege speech delivered by Rep. Rodolfo Antonino from the fourth district of Nueva Ecija and vice chair-man of the House committee on energy.

Congressman Antonino mentioned that the revenue losses to Napocor amounted to a staggering P7 billion between the year 2002 and 2005 and with continuing losses even at this point.

The losses were a result of Napocor’s anomalous approval of an additional supply of Semirara local coal for its Batangas coal-fired thermal plant located in Calaca, Batangas, wherein one unit of the plant originally designed to use blended coal, or 60 percent imported coal mixed with 40 percent local coal, was forced to utilize entirely local coal to accommodate and justify the increase the use of local coal.

He further stated that the substitution to full Semirara coal firing for the Calaca Unit 1 power plant had led to the deterioration of the plant which had experienced

unacceptable forced outages and a 50 percent decline in dependable capacity.

While Psalm successfully sold the Calaca units for $787 million in a bidding conducted last year, the winning bidder, Calaca Holdco Inc. which was subsequently named Energy Emerald, does not want to take over the power plants insisting that the plant had deteriorated and had requested state power assets holding firm Power Sector Assets and Liabilities Management Corp. to repair the plant.

Psalm needs to spend P100 million to bring the plant to operating condition acceptable to the buyer.

Rep. Antonino alleged that the revenue losses to Napocor including the consequential damage to the plant for the use of coal bought entirely from Semirara for the Calaca plant was a result of a collusion of some Napocor official and the local coal supplier, Semirara Mining Corporation, a subsidiary of DMConsunji Inc. (DMCI).

The Napocor officials approved the additional coal supply and knowingly used 100 percent Semirara coal for their Calaca unit 1 when the plant should be operated on a blended coal with only 40 percent semirara coal. DMCI, on one hand, had profited on this deal.

The congressman filed a resolution for the committee on energy to conduct a full investigation of this anomalous transaction as it amounts to economic sabotage and has contributed to the high cost of electricity in the country.

Last June, Suez S.A. of France’s subsidiary Energy Emerald Corp., which won the bid for the Calaca coal fired power plant said it needs to carry out a refurbishment program to rehabilitate the plant.

Energy Emerald reported to World Bank’s financing arm International Finance Corp. (IFC) that it will work out a detailed plan to rehabilitate each of the two 300-MW unit of Calaca.

The company has yet to determine how much capacity will be added once the refurbishment plan is implemented.

Until May next year, Energy Emerald will rehabilitate the plants’ systems such as coal and ash handling, return coal mills and feeders to full operation, upgrade oil handling and storage facilities, repair instrumentation for monitoring emissions and ambient air quality, and conduct general maintenance and housekeeping.

The company said it plans to strengthen its procurement to source imported coal (most likely from Indonesia) and Semirara Mining Corp. conforming to the specifications for the Unit 1 boiler and Unit 2 boiler, respectively.

The Calaca plant has utilized a mixture of high quality and lower quality coal for Unit 1 and lower quality coal for Unit 2.

The units currently operate with load restrictions due to various operational and maintenance reasons, resulting in low capacity factors and poor availability, according to Energy Emerald.

Energy Emerald made a bid of $786 million and offered to pay the amount in full to the Psalm within the year.

The Suez-run power firm has received financing from IFC, the lending arm of the World Bank for a $300-million loan.

It has also tapped Asian Development Bank and other financing institutions such as the ONDD or the Belgian export credit agency and other commercial banks to finance its acquisition of the Calaca plant.