Navotas Diesel Power Barges

distressed

This 109-MW diesel-fired project, comprising two barge-mounted units, was located in Navotas, in the Metro Manila region, on Luzon island. The project was awarded to Van Der Horst Ltd., a Singapore-based equipment manufacturer, under two build, own and operate contracts, each worth in excess of US$50 million. National Power Corporation (NPC) singed a power supply agreement (PSA) with Van Der Horst Ltd. Van Der Horst completed the sale of one of the power units to East Asia Diesel Power Corporation (EADPC), a wholly owned subsidiary of East Asia Power Resources Corporation, for US$52.5 million in April 1994. Van Der Horst completed the sale of the second unit, also to EADPC, for US$57.5 million in June 1994. EADPC in turn entered into two separate five-year secured interest bearing loan agreements with Van Der Horst, for US$52.5 million and US$57.5 million respectively, with an option to convert unpaid balances into shares of EADPC at par. In December 1997, EADPC and Duracom Mobile Power Corporation (DMPC), a 40%-owned subsidiary of EADPC that operated two additional power barges of 133 MW combined capacity in the Navotas area, concluded an Agency Agreement, whereby DMPC was authorized to sell the electricity generating capacity of EADPC to MERALCO, the electricity distributor for Manila, after EADPC came off-contract with NPC in May 1999. In February 2000, EADPC started to sell electricity to MERALCO under the Addendum to the Power Supply Agreement dated Feb. 26, 1998, between DPMC and MERALCO. In May and September, 2002, reductions were ordered in NPC's electricity prices. These reductions lowered the price at which EADPC sold electricity to MERALCO, since its electricity prices were indexed to NPC’s selling rates. These reductions prevented EADPC from recovering its operating costs and, as a result, operations at the two power barges were frequently suspended between September 2002 and February 2006. DMPC and MERALCO agreed in January 2006 to an Amendment and Interim Extension of the PSA, which featured a benchmark pricing scheme in which the EADPC's selling price to MERALCO would be based initially (prior to the commercial operation of the Wholesale Electricity Spot Market [WESM]) on NPC’s Time of Use rates and the applicable charges of the National Transmission Corporation (TRANSCO), and later (upon the commercial operation of the WESM), on the clearing prices in the WESM, plus the applicable charges of TRANSCO. The use of Time of Use rates enabled EADPC to resume operations of the two power barges on Feb. 26, 2006. This interim PSA was effective until Dec. 25, 2006 or until the two parties singed a new PSA, whichever was sooner. With the start of commercial operation of WESM on June 23, 2006, the selling price of EADPC to MERALCO would have been equal to the WESM clearing price as stipulated in the interim PSA. However, the WESM clearing prices were not sufficient for EADPC to recover all of its operating costs. Thus, on July 13, 2006, another shutdown of the two power plant barges was implemented. As of Dec. 31, 2008, operations were still suspended. In October 2006, DMPC received notices of default on project loans from the Philippine National Bank (PNB), purportedly acting on behalf of a majority of the lenders. On October 27, 2006, all of the bank accounts of EADPC were frozen and seized by PNB. As of Dec. 31, 2008, the project's sponsors were engaged in a legal dispute with some of the project's lenders regarding recovery of debts and the sponsors' proposal to rehabilitate the project.