First Gas power cost among cheapest in RP, say officials


Posted at Jun 07 2008 12:40 AM | Updated as of Jun 07 2008 08:40 AM

The Philippine Star

The cost of power sold by Lopez-owned First Gas Corp. to distribution utilities is among the cheapest in the country, top company officials said yesterday.

In a statement, First Gas president and CEO Federico Lopez said the company has been delivering power to Manila Electric Co. (Meralco) at P4.35 per kilowatt-hour (kwh), adding it would be cheaper if the royalty taxes are removed.

"The power of First Gas would be P2.57 per kwh if the royalty taxes of P1.79 per kwh is removed, by far one of the cheapest in the country," he pointed out.

First Gas, which consumes 55 percent of output of the Malampaya natural gas field in Palawan, pays royalty taxes for the gas purchase.

The then Energy Regulatory Board (ERB), in its June 1997 decision, stated that "after a thorough evaluation, it is clear that First Gas Power Corp.’s rate to applicant is comparable with the rates of the other independent power producers (IPPs) selling power to National Power Corp. (Napocor)/utilities in the Luzon grid."

"Since the purchase cost of Meralco is lower than the effective rate of Napocor, the rates charged to applicant are just and reasonable," the ERB (now called the Energy Regulatory Commission) said.

The decision also stated that "First Gas’ rate of P1.4597/kwh is lower than Napocor’s current effective price which is P2.1908 per kwh. First Gas has a lower average rate per kwh of P1.4427 assuming a higher load factor of 90 percent as against Napocor’s P2.1545 per kwh."

Richard Tantoco, First Gas EVP and COO ,added that while Napocor claims it did not pass on its take or pay to its consumers, "(Napocor president) Del Callar conveniently forgot to say that the National Government had to absorb P200 billion of Napocor debts in 2001."

"From 2002 to 2004, Napocor continued to suffer losses arising from its take or pay contracts with its IPPs, contributing to 1/3 of the country’s consolidated public` sector deficit (CPSD). This, in turn, led to the necessity to pass the EVAT Law. So, no matter how you look at it, the burden ends up with consumer," he added.

Based on an Asian Development Bank Country Economic Review, it cited "the public power sector’s weak financial position causes an unsustainable drain on government finances."

Napocor’s financial position has suffered a dramatic reversal from a surplus in 1997 to a loss of P117 billion in 2003 (more than half of the National Government budget deficit). This forces the government to borrow on Napocor’s behalf, at relatively high cost in international capital markets.

In September 2004, the government raised $750 million under re-opened bonds, priced at almost 500 basis points over US treasuries. In December 2003, Napocor’s liabilities totaled almost P1.3 trillion, including P757 billion resulting from obligations to its IPPs and P475 billion, about 11 percent of GDP, from foreign loans and bond issuances. Additional loans ($1.5 billion) obtained in 2004 raised Napocor’s indebtedness to P559 billion. is the online news department of ABS-CBN Interactive Inc., a subsidiary of ABS-CBN Broadcasting Corp., part of the Lopez Group of Companies.