As the saying goes, “the devil is in the details”, as the on-going saga of Power Purchase Agreement continued to be discussed between Public Utilities Corporation (PPUC), Olbiil Era Kelulau and the Engie EPS group.
The agreement recently signed between PPUC and a majority owned French company Engie EPS, caught flag from the Senate as it went up for approval of the sovereign guarantee last week. Opinions from the OEK legal counsels called the agreement void citing lack of regulations for approval process by Palau Energy Administration. This was countered by Attorney General’s legal opinion that despite lack of regulations, PEA which gave initial approval for PPUC to negotiate the agreement, PEA still has power to approve the final contract.
Discussions between the three continued with a letter signed by both Senate and House requesting Engie EPS to make certain changes to the agreement, a power stated within the contract, enabling congress to make recommendations of change to the contract.
Response from Engie EPS agreed to some of the changes but not all, especially the rates and terms of guarantee. The blunt business tone of their response which sounded uncompromising offended lawmakers who continued to push for changes before giving approval of guarantee.
Keys areas of concern for lawmakers include protection of Compact Funds, Social Security, Pension and Insurance funds from the sweeping language of the guarantee that could technically exposed them in case of PPUC default. Another was the specific terms and limitations employed under the default clause which the lawmakers insisted to have specifically state the value of the commercial investment before and after the default. Issue of rates was another major stickler with OEK insisting to lower the tariff rate than what has been agreed with PPUC.
In a letter to Engie EPS, Minister Obichang of the Ministry of Public Infrastructure, Industry and Commerce, expressed that part of the problem was government’s failure to communicate the vast amount of time and effort it had taken to bring the project to this point, especially the “extensive tariff negotiation and revision” that occurred between PPUC and Engie EPS.
On October 8, before the final round of negotiations, Engie EPS presented different range of tariff structures to many OEK members at the national leadership meeting. Those options, according to Minister led to yet another modification by PPUC which was ultimately accepted by Engie EPS.
OEK’s letter of October 21st to President Remengesau insisted that Palau’s political stability ranked at 98% percentile, its strong banking sector, its membership in Multilateral Investment Guarantee Agency (MIGA) of the World Bank Group, its low unemployment rate and strong international relations among other assets, makes it an attractive investment partner and Engie EPS should reconsider its position on the Sovereign Guarantee issue in light of all that Palau has to offer.
These small details can have major impact on other aspects of Palau’s financial profile and OEK’s meticulous attention to details is important to this process. Negotiations are expected to continue with next horizon in early December.
The Armonia project, a private project to build a 35 MW solar plant in Palau and sell power to PPUC, is part of Palau’s national plan to reduce Palau’s dependency on fossil fuel by 45% by year 2025.
The company will build a solar power plant worth about $80 million dollars, sell power to PPUC for period of 30 years and Palau government will provide financial guarantee in case PPUC defaults on its payment. The project is expected to reduce our carbon footprint and provide financial savings to individual consumers of electricity. (L.N. Reklai)