tor, taxpaying entity whose shareholders include commercial banks, industrial companies,
and financial service companies. Its staff has significant experience in export finance and the
programmes of the US Eximbank. PEFCO’s board of directors and its advisory board include
senior managers from international lending institutions and major exporting companies.
Principal project contracts
Power Purchase Agreement
In 1996 Quezon Power signed a PPA with Meralco that extends 25 years from the
‘Commercial Operations Date’, the date that the project company certified that the generation
facility has been completed, inspected and tested, and is ready to begin operation. That date
was certified as 30 May 2000.
The PPA was structured so as to provide for stable operating cash flows throughout the
life of the project. Under its terms Meralco is obliged to make monthly capacity payments,
operating payments and energy payments. Its obligations to make monthly capacity payments
and the fixed portion of monthly operating payments are unconditional. However, if Quezon
Power fails to meet its delivery obligations under the PPA, it is obliged to make certain pay-
ments to compensate Meralco.
Components of the operating payments are subject to escalation under the Philippine or
US consumer price index (CPI), providing linkage between revenues and operating expens-
es. Energy payments, including related transport and insurance charges, are a passthrough of
the cost of fuel, subject to the power plant’s achieving a specified heat rate, and fuel handling
and degradation losses not exceeding a specified percentage.
All payments under the PPA are made in Philippine pesos, but the capacity payments,
energy payments and portions of operating payments are denominated in US dollars. The
number of pesos required to make the dollar payments specified in the PPA is determined by
the market exchange rate at the time of the payment.
Transmission Line Agreement
Under the Transmission Line Agreement between Quezon Power and Meralco, signed in June
1996, the project company is obliged to secure all necessary rights of way, and to design, con-
struct, operate and maintain the transmission line. Meralco compensates Quezon Power for
all expenses related to the transmission line through periodic transmission charges through-
out the life of the PPA. Like the PPA, the term of the Transmission Line Agreement began on
the Commercial Operations Date and runs for 25 years. If the Commercial Operations Date
had been delayed because of either disputes over property acquired for the transmission site
or the NPC’s failure to provide wheeling service for reasons other than force majeure,
Meralco would have been obliged to pay for Quezon Power’s interest during construction
until the plant was ready to be operated.
Engineering, Procurement, Construction and Management (EPCM)
Contracts
In August 1996 the project company entered into two related contracts known collectively as
the EPCM contracts:
POWER PLANT