Cepa turns on to enjoy hard-won power play

PUBLISHED : Sunday, 16 June, 1996, 12:00am
UPDATED : Sunday, 16 June, 1996, 12:00am

THE road to the Pagbilao power plant is hot and dusty, winding past mountains of coal, brown ponds, an ash lagoon, slippery dirt slopes and piles of refuse.

At the end of the track, stands the newly completed US$933 million power station with its towering 220-metre smoke stack. Pagbilao was officially opened last week and, while landscaping has still to be done, units I and II are now exporting power to the Luzon power grid.

The path to completing the Philippine's largest coal-fired power plant was a testing one in itself for Gordon Wu Ying-sheung's Consolidated Electric Power Asia (Cepa).

The construction period was marred by protests from displaced farmers and fishermen, court injunctions, queries over financing, high-profile disputes with the National Power Corp (Napocor) and the loss of an early completion bonus.

The amity between Mr Wu and Philippines' President Ramos at the inauguration ceremony also belied media reports that Cepa and Napocor were still at loggerheads over the cancellation of Cepa's contract to built another power plant at Batangas.

Cepa managing director Stewart Elliott had a few things to say to journalists as the bus to the power plant bumped its way to the hill-top overlooking the station, where President Fidel Ramos would shortly arrive in one of a squadron of helicopters to attend the inauguration.

'When you come out here and see what we have done, you realise it is quite an achievement,' he said. 'It has demonstrated against a lot of opposition that projects in the Philippines can be done and can be completed on time.' Mr Elliott and Cepa chairman Gordon Wu piloted the Pagbilao project since it was first put out to tender in 1992.

Their brief was to build and operate a power facility at the southwestern tip of Pagbilao Grande island in Quezon, about 15 kilometres from Manila. Constructed under the build-operate-transfer programme, it would be handed back to the Philippines after 25 years of operation.

Cepa and Hopewell have completed a number of power projects in the country, including the Navotas I and II gas turbine power plants, and nine barge-mounted gas turbines. They have also begun work on a 1,000 megawatt power station at Sual, in northern Luzon.

Problems with Pagbilao began as soon as the Napocor sought to acquire land for the plant. Farmers and fishermen petitioned the local government in February 1993, claiming the project would pollute the water and affect plans to turn the island into a tourist resort.

A lower court in Manila imposed a temporary restraining order on Napocor and Hopewell, bringing early construction to a halt.

Mr Elliott pointed out that most of the opposition had come from a single landowner, and that, compared to other projects undertaken by Napocor, the acquisition of land for Pagbilao progressed smoothly. Several of the other projects were delayed for several years, he said.

Mr Elliott maintained that reports of damage to the environment were untrue.

'The island was pretty remote, and it had been a haven for dynamite fisherman and cyanide fishing, and that damaged the reef. The condition of the reef has actually improved since we have been there.' There were also early concerns about whether Cepa would be able to finance the originally estimated US$888 million project.

Mr Elliott said: 'Some senior officials in financial institutions were cautious about the situation in the Philippines at that time.' He said that even raising $10 million was considered an achievement.

The bulk of the money for the project finally came through $703 million sourced from export credit agencies, while Hopewell contributed $233 million.

Further controversy was around the corner. Pagbilao appeared in headlines again in November last year when Napocor declared the jetty unsafe for coal-unloading carriers.

This news sent the share price of Cepa plummeting, as analysts reckoned the company would have to forgo as much as HK$300 million for the loss of its early completion bonus.

Cepa struck back, saying the jetty was structurally sound, although some minor cosmetic defects need to be repaired.

Mr Elliott said: 'A lot of these problems were hyped up by journalists.' He also apportioned some blame to Napocor's failure to link the plant to the national power grid on schedule.

Although insisting that relations with Napocor had been 'excellent', he said: 'There were delays in the transmission lines, and they wanted to throw up some sand to cover themselves.' Subsequent negotiations have revealed that Napocor is willing to compensate Cepa for delays in commissioning the Pagbilao plant. The agreement could see Napocor allowing Mr Wu's company to operate the plant for a period beyond the slated 25-year arrangement.

Both units of Pagbilao were synchronised in 1995, and after a testing programme both are now providing power to Luzon.

On his visit to the plant, President Ramos credited Cepa with helping the Philippines to overcome its spate of power shortages, or 'brown-outs', that paralysed the country for up to 10 hours a day in the early 1990s.

Cepa and Hopewell are also credited with providing resettlement for the displaced local population, repaired a local hall and a high school, and established a number of multi-purpose co-operatives.

Cepa and Hopewell are planning to push ahead with more projects in the Philippines, and aim to list the Philippines power projects on the Manila stock exchange, perhaps as early as next year. Some of the facilities might be built at Pagbilao itself.

Mr Elliott said: 'The site is laid out for additional plants. As the power demand of the Philippines grows the supply will be there - it will just take time.'