Press Release
August 3, 2006


YNN won the bidding for the Masinloc power plant the biggest coal-fired plant in our country, because of a very high bid of US$560 million. It was an overbid, because the same amount could buy a brand new 600-megawatt coal-fired power plant. Further, there is an oversupply in the Luzon grid.

More than a year ago, at the JCPC hearing in January 2005 after PSALM announced that YNN had won the bid I warned that YNN chose to gamble at such a magnitude because it believed that it was capable of securing a supply contract with take-or-pay provisions with a distribution utility like Meralco. I predicted as follows:

Assume that YNN will be awarded the sale of Masinloc power plant. The next step will be to secure a supply contract with a distribution utility.

Assume also that YNN will offer a discounted price, say x percent using NPC rates as benchmark. Since NPC rates are high and are expected to go much higher, the supply contract would provide a discounted price based on NPC rates and would easily get approval from the Energy Regulatory Commission.

YNN will then use the unfair take-or-pay provisions of the contract as used by the IPPs of NPC, Meralco, and other distribution utilities.

Let us assume that YNN will have an 80 percent guaranteed capacity utilization provision (i.e., take-or-pay) in the supply contract.

The annual production of Masinloc power plant, at 80 percent capacity utilization, is some P4.205 billion/kwhr/year.

If the production cost of Masinloc is P2.50/kwhr, and YNN will sell to the distribution utility at P3.50/kwhr, the gross profit (based on $1.00/kwhr margin) will be some P4.205 billion.

If we convert this amount of US$ at P56/US$1, the annual profit of YNN would be some US$75.085 million.

Out of the annual profit of US$75 million, YNN can pay PSALM US$48 million. The remaining $27 million of the profit would be enough to recover in seven years the $255 million downpayment.

Thus, Masinloc would become a bargain basement sale. This could have been the scenario behind the YNN overbid, except that it has been unable so far to secure a supply contract with a distribution utility.

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