Malaya plant sale fails anew; PSALM seeks negotiated deal

Published September 25, 2020, 5:00 AM

by Myrna M. Velasco

Bad luck may have come in threes as the privatization of the 650-megawatt Malaya thermal power plant failed anew on Wednesday (September 23) on its third bid round, therefore, it is prompting asset-seller Power Sector Assets and Liabilities Management Corporation (PSALM) to re-evaluate the divestment strategy especially on its plan to enter into a negotiated deal with an interested buyer.

The minimum bid price for the asset had already been trimmed to P2.188 billion – from previously at P4.481 billion – but that wasn’t still enough enticement to the prospective takers.

PSALM President Irene Joy Besido-Garcia

“It is regrettable that despite the reduced minimum price, still no bidder submitted a bid,” PSALM President Irene Besido-Garcia lamented.

She emphasized that on next steps for the facility’s privatization, “we will need to get Board approval to immediately commence the negotiated process of privatization.”

What is certain at this point, according to the PSALM chief executive, is for the government to sort out the disposal of the asset because it has been contributing to the company’s financial straits.

“PSALM must exhaust the available legal process to dispose Malaya because we are incurring substantial losses in continuously maintaining it.” Garcia said.

According to the state-run firm, the annual losses it has been registering from the Malaya plant’s operation hover at P1.207 billion.

And even when the facility was being depended upon by Luzon grid as a “must run unit” from 2015 to 2019, PSALM calculated that losses were still at staggering P556.2 million on average annually.

Two auctions were carried out on the asset last year, but even the targeted negotiated deal with an interested party fell through.

On Wednesday’s auction, two qualified bidders, Panasia Energy Inc. and AC Energy Inc., sent letters to PSALM stating their withdrawal from bid submission.

Both companies cited that the reserve price, even at reduced scale, is still not within the bounds of their appraisal as to the asset’s value.

Ayala-led AC Energy in particular noted that “in our attempt to meet the minimum bid price, we have factored in all the possible material considerations.” Yet despite that, the company qualified, it won’t still be able to meet the targeted price if it opted to offer.

For PanAsia, it said that “given the significant amount of the reserve price…the purchase of the asset is not financially viable,” thus, it also pulled out from the tendering process.

PSALM explained that “the minimum bid price that PSALM Board set for the third round considered various factors,” including the book value of the plant and its underlying land, the zonal value of the land, marketability of the asset in this time of a pandemic, the plunge in electricity demand and primarily the losses accruing from its operations.