Bidding process for power must be changed

THERE's no arguing the necessity of an additional supply of power following the country's recent episode in red and yellow alerts brought on by a spike in demand at the height of record heat just a few weeks ago.

It allowed the Indonesian-controlled Meralco*, the lone power distribution utility in the National Capital Region (NCR), which remains to be the nucleus of the Philippine economy, to acquire up to 3,000MW of additional electricity supply.

So, earlier this year, Meralco, which has no competition in terms of distributing electricity in the NCR, opened bids for additional power supply.

On paper, the choice of power supplier must go through a competitive selection process (CSP) intended to result in the least cost.

But there's a chink in the CSP process.

At least 2,400 MW out of 3,000 MW was bagged by power plants that run on natural gas, only that these bid winners operate on imported liquefied natural gas (LNG) instead of what we already have, indigenous gas from the Malampaya reserve.

Bid

No bid was won by plants operating on local gas, and it will be clear later why.

There's a big difference between imported LNG and indigenous gas, which raises questions about the apparent bias for imported LNG.

At the heart of this issue is cost. Imported LNG costs more, and it's not just speculation but fact.

The apparent preference for plants that use imported LNG is visible only upon closer scrutiny of the terms of reference (TOR) for the bidding.

It would show an obvious attempt to tailor-fit the qualifications of bidders.

In its TOR for bidding for power supply agreements (PSA), Meralco defined a qualified plant as one that is less than 10 years old.

Disqualified

This immediately disqualified still efficient power plants that are more than 10 years old, which included plants that run on indigenous gas that had been built in the 2000s.

Newer plants are fueled by imported LNG and, ergo, are qualified to bid for PSAs.

The bias for imported fuel, however, as we mentioned earlier, has a most deleterious impact on consumers — it costs more and will be reflected as such in consumer billing.

One bid won by a power plant that runs on imported LNG declared a P7 per kilowatt hour cost but reality would soon set in and show it to be at least P8 per kWh.

The gap between declared and actual prices is simply not visible to the naked eye and is often called hidden costs.

Troubling

More troubling is the attempt to paint local gas as the more expensive type of fuel, which is not just an outright falsehood but one that is farthest from the truth.

Let's go beyond opinion and pluck facts from the tree of truth.

In March 2024, the effective rate of local gas was barely P5 per kWh, while the effective rate of imported LNG was more than P6 per kWh.

The records would show that in January 2024, the average cost of power generation using local gas was a little over P5 per kWh and imported LNG at more than P7 per kWh.

But the real cost of imported LNG is not written in black and white.

You see, the cost of imported LNG cited in bids is only cost at the port of origin, meaning it's priced for the raw material that it is.

Undeclared, whether intentional or not, are the actual costs of importing LNG.

By the time it reaches Philippine shores, LNG from foreign countries would have accumulated added costs from freight, shipping and the process of making it usable for power generation.

LNG

LNG from abroad is shipped in liquid form and would have to undergo a process to restore it to gas form for power generation. The expense involved in this process is nearly as much or more than the basic cost of the fuel.

So, by the time imported LNG runs through the veins of power plants, its cost has more than doubled or at least tripled.

Guess who would ultimately bear the burden of added expenses? Of course, us consumers. It is indeed amazing that bidding procedures favor imported LNG.

The so-called competitive selection process (CSP) is so riddled with loopholes that it allows winning bidders to change the rules in the middle of the game, often with an upward rate adjustment. When a power plant uses imported LNG, it does not pay for only the cost of the fuel, but the cost of importing it and turning it back to gas.

Contrast the behavior of prices for imported LNG to that of indigenous, Malampaya to be specific, gas. The cost of local gas is fixed. As they say, you get what you see. That is aside from the fact that the government earns a substantial income share from indigenous gas sales.

The CSP process is so flawed it should be reviewed, maybe even scrapped altogether.

* * *

*I've written since 2012 over a dozen columns and a book, "Colossal Deception," exposing the fact, complete with documentation, that Meralco and the so-called Manuel V. Pangilinan, through corporate layers, are controlled by the Indonesian tycoon Anthoni Salim. It seems, however, that our politico-economic elite prefer to turn their heads away from this brazen violation of the Constitution, which limits foreign equity in utility companies to 40 percent of total capitalization. "Colossal Deception" is available only at amazon.com, as stocks have run out, and pending the local publication of an updated version.

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