PSALM and PGI near settlement on geothermal contract in Philippines
Manila, Philippines, Nov. 20, 2002 - Philippine Geothermal Inc. (PGI) announced today that significant progress had been made with the Power Sector Assets and Liabilities (PSALM) Corporation on the settlement of its long-standing contract dispute with the National Power Corporation (NPC). PGI and PSALM, NPC's successor-in-interest by virtue of RA 9136 or the Electric Power Industry Reform Act (EPIRA), have recently come to an agreement on the terms of a settlement and are currently finalizing the definitive agreements needed for approval by various government agencies. They have moved for a further suspension of their litigation proceedings to enable them to secure approval of a full and final settlement.
PGI president Barry S. Andrews acknowledged the significant strides in its negotiations with PSALM. NPC and PGI have, since 1996, been engaged in a discussions over the renewability of PGI's service contract (Service Contract) with NPC covering the geothermal steam fields in Tiwi, Albay and Makiling-Banahaw (Mak-Ban) in Laguna and Batangas, which both parties entered into in 1971.
When NPC contested PGI's right to renew the Service Contract, PGI in July 1996 filed an arbitration case before the International Court of Arbitration of the International Chamber of Commerce (ICC), in accordance with the arbitration clause of the Service Contract. In August 1996, NPC filed a "Petition for Declaratory Relief" before the Regional Trial Court (RTC) of Quezon City, Philippines.
A series of provisional agreements were subsequently entered into by NPC and PGI to allow uninterrupted operations of the Tiwi and Mak-Ban plants and ensure the stability of the Luzon grid. This led to the signing of the Interim Agreement in June 1998 under which the parties agreed to effectively suspend arbitration and the local court case to maintain unhampered operations and allow negotiations towards a mutually beneficial and amicable settlement.
Highlights of the proposed settlement include the Filipinization of PGI and conversion of PGI's Service Contract into a Steam Sales Agreement in line with the EPIRA.
"We are confident that the settlement results in terms that are mutually beneficial for PSALM, PGI, and the Filipino people," Andrews said. He noted that the settlement agreement will optimize the value of the Tiwi and Mak-Ban geothermal assets for the Philippine government.
Under the terms of the settlement, the resulting fuel price will be among the most competitive in a restructured Philippine power market, with PGI assuming market risk once NPC completes its planned rehabilitation of the power plants. The value of the Tiwi and Mak-Ban assets is expected to increase significantly as the NPC geothermal power plants are fully rehabilitated and operate at 90% availability. The resolution of the legal dispute will also pave the way for the eventual privatization of the Tiwi and Mak-Ban assets.
As part of the settlement, PGI's service contract will end and PGI will take in new Filipino investors to develop and manage the geothermal resources at Tiwi and Mak-Ban under a new arrangement. In consultation with PSALM, the new Filipino entity will be created in a manner that is open, transparent, and consistent with good business and legal practices. This will give Filipinos an opportunity to partner with Unocal, a world leader in energy development and the pioneer geothermal developer in the Philippines.
"We are indeed pleased that, despite the protracted negotiations, NPC and PGI have delivered on their commitment to provide clean, indigenous, reliable, and affordable energy to the Luzon power grid. Moreover, this breakthrough in our negotiations facilitates the full and final settlement of our long-standing dispute and is a positive step to strengthen investor confidence and support our long-term partnership with our host country, the Philippines," Andrews said.
PGI is a wholly owned subsidiary of Unocal Corporation, one of the world's largest independent natural gas and crude oil exploration and production companies. Based in El Segundo, California, Unocal's principal production operations are in North America and Asia. Unocal is also one of the world's largest producers of geothermal energy, with operations in Indonesia and the Philippines.
Updated: November 2002