MANILA, Philippines — Bagging the contract for the government’s massive hydropower complex is a landmark win for the Aboitiz-led Thunder Consortium, but the real test begins beyond the bidding table.
The consortium composed of Aboitiz Renewables Inc. and Japan’s Sumitomo Corp. and Electric Power Development Co. submitted a P36.27-billion offer for the 797-megawatt (MW) Caliraya-Botocan-Kalayaan (CBK) hydro plant complex.
It outbid the P19.62-billion offer by rival FGKW Consortium of Lopez-led First Gen Prime Energy Corp. and Korea Water Resources Corp.
This early, analysts and market watchers are seeing key challenges ahead, with pricing uncertainties at the forefront.
“AP (Aboitiz Power Corp.) may have some headache in its (CBK) pricing soon because they must get ERC (Energy Regulatory Commission) approval,” economist Bienvenido Oplas Jr. told The STAR.
The ERC is an independent, quasi-judicial regulatory body that reviews and approves proposed electricity rates to ensure fair pricing for consumers.
Oplas said the Thunder Consortium is also set to encounter “high competition” from upcoming pumped-storage hydropower (PSH) projects under the government’s third green energy auction (GEA-3) round.
Seven PSH projects with an aggregate capacity of 6,350 MW secured contracts during GEA-3, according to the Department of Energy.
The auction has established power rates for new projects entering the market, a key factor in valuing CBK’s power generation output.
“The challenge is to upgrade and optimize CBK, given that it’s an old facility that will face competition from newer plants,” China Bank Capital Corp. managing director Juan Paolo Colet said in a message to The STAR.
“This is going to be a long-term play for the consortium, and they have the expertise and resources to make it work,” Colet said.
The CBK complex consists of hydroelectric power plants in Lumban, Majayjay and Kalayaan in Laguna.
The Kalayaan plant, built in 1982, is the first PSH facility in the Philippines and Southeast Asia.
A PSH plant can function as an energy storage to complement generation from variable renewable energy sources while also injecting power into the grid to reinforce supply.
Hydro portfolio boost
Amid challenges, securing the CBK assets marks a “significant win” for AboitizPower, as the complex is expected to expand and further strengthen its hydropower portfolio, Colet said.
Rizal Commercial Banking Corp. chief economist Michael Ricafort, meanwhile, believes the auction win is strategic for AboitizPower, given the “limited available and relatively larger” hydro assets in the country.
“This would further add to its renewable energy portfolio… instead of starting one that would take many years to complete alongside a lot of requirements when starting from scratch,” Ricafort noted.
Peter Garnace, equity research analyst at Unicapital Inc., estimates that the CBK assets account for “over four percent” of the total installed capacity of the Luzon grid.
“This acquisition cements AP’s position as the largest hydropower operator in the Philippines, adding to AP’s energy mix,” he said.
CBK is the major privatization project of state-run Power Sector Assets and Liabilities Management Corp. (PSALM) and is a priority source of the government’s non-tax revenues.
The Thunder Consortium’s winning bid exceeded PSALM’s reserve price of P32.6 billion and the Asian Development Bank’s upper estimate of $600 million (about P33.8 billion).
It was, however, lower than the P50 billion to P100 billion expected by Finance Secretary Ralph Recto, who chairs the PSALM board.
To finalize the auction process, PSALM said Thunder Consortium is poised to undergo a “rigorous” post-qualification process to validate the accuracy and authenticity of its submitted documents.