on the part of the Department of Finance’s personnel, who were not familiar with documents
considered routine in international project finance, and political sensitivity. There was a com-
peting local bid for the project that Impsa was able to match on the basis of both price and
technical qualifications, despite several court challenges. The government was reluctant to
push the decision in favour of Impsa too quickly, for fear that it would be perceived as favour-
ing a foreign contractor over a local contractor.
In November 1999 Impsa Asia sold a 50 per cent interest in CBK Power to the Philippine
subsidiary of Edison Mission Energy Corporation, itself a subsidiary of Edison International,
which specialises in the development, acquisition, construction, management and operation
of global power production facilities. With assets of US$36 billion, Edison International at
that time owned nearly 23,000 MW of generating capacity, including interests in more than
75 projects in Australia, Indonesia, Italy, New Zealand, Spain, Thailand, Turkey, the United
Kingdom and the United States.
In the first phase of the project, completed in late 2000, CBK Power rehabilitated
Kalayaan I, restoring its capacity to 172 MW. Impsa committed itself to delivering an addi-
tional 225 MW of capacity by the end of 2001 and the final 350 MW (Kalayaan II) by the
beginning of 2003. The construction phase was expected to employ about 1,200 Filipinos.
In 1999 CBK Power secured enough bank lending commitments for half of the project’s
US$360 million debt component and planned a bond offering for the other half. Towards the
end of the year, however, the company began to consider bank debt for the entire financing,
fearing that the time required for a bond offering might prevent it from meeting a 14
December financing deadline set by the NPC.
In early December Federico Puno, President of the NPC, said that the NPC would turn
over land titles to the facility and other required documents to CBK Power by the following
month, January 2000. His statement turned out to be too optimistic, however, because both
sides still needed to fulfil numerous conditions in the contract. In late June 2000 Punoa
announced that the contract had automatically been cancelled because Impsa had failed to meet
several contract requirements, which included closing on the US$360 million financing for the
project and paying the NPC the required US$70.8 million security deposit. Ruben Valenti,
CBK’s President, disputed the contract cancellation and predicted resolution of remaining
issues in a few weeks, noting that the NPC still had its own list of unfulfilled responsibilities.
Among them were the issuance of a Department of Justice confirmation of the contract, acqui-
sition of all necessary sites for the expanded project, Department of Justice approval for Impsa
Asia’s partnership with Edison Mission for the project and Central Bank approval for the secu-
rity deposit. Puno acknowledged that a provision for conflict resolution in the contract required
the chief executives to work together to negotiate a settlement when necessary.
By this time Impsa had already invested US$80 million in the project to rehabilitate
Kalayaan I, which it had almost completed, and to procure equipment for the rest of the con-
tract. The NPC had requested that CBK Power undertake some work in advance, because
deterioration in the Kalayaan I transformer posed a risk to the integrity of the Luzon grid.
CBK Power’s willingness to take a risk by continuing to work without an effective contract
impressed the NPC as a demonstration of good faith and helped in the process of settling
remaining disputes.
Under its contract with the NPC, CBK Power will operate the power complex for 25
years for a fee, but will have to shoulder the cost of repairing the existing 230 MW complex
and upgrading its capacity from 300 to 750 MW. Other project contracts include:
POWER PLANT