The Korean contractor of Redondo Peninsula Energy Inc.’s 300-megawatt Subic coal-fired power plant in Zambales province raised the cost of the contract following delays in the project, a top executive of the consortium behind the project said.
Doosan Heavy Industries & Construction Co. Ltd. revised significantly higher the engineering, procurement and construction contract cost for the power plant, according to Meralco PowerGen Corp. president Rogelio Singson.
Redondo Peninsula, a joint venture of Meralco, Aboitiz Group’s Therma Power Inc. and Taiwan Cogeneration International Corp., signed the EPC contract with Doosan on Oct. 13, 2016, but the supply agreement for the project remained to be approved by the Energy Regulatory Commission.
Singson said the new proposal by Doosan now carried a “much higher” EPC cost, following the delays in the approval by ERC of RP Energy’s power supply agreement.
RP Energy earlier sent a letter of contract termination to Doosan and Azul Toree Construction Inc. after the validity of the EPC expired in December last year.
“Precisely because the PSA was not granted and keep in mind that the EPC contract for RPE was already on an extended term. That should have lapsed in 2016, but we’re able to get an extension until December of 2017 for some escalation provision. Unfortunately, without the PSA, the contractor said we cannot continue honoring the extended EPC contract,” Singson said.
RP Energy and Manila Electric Co. jointly filed for approval of the PSA in April 2016 where the power retailer proposed to source 225 megawatts from the first phase of the project.
The public hearings, technical working group review, assessment of the PSA and the tariff and other processes were completed in April 2017.
A separate PSA for the balance of the 75 MW was also signed with Aboitiz Energy Solutions Inc. on April 21, 2016 but both PSAs remain pending with ERC.
“I think the example of RP Energy shows the sort of additional penalty of prejudice of these delays and passage of time results in significant increase in project cost item because of depreciation, weakening of the peso or increase materials. Adding to that, it gives EPC contractor at the end of the validity period the opportunity to review their pricing and to ask for a higher price,” Meralco president Oscar Reyes said.
The Subic coal plant is classified as a committed project by the Energy Department and is registered with the Board of investments.