Senate in a vote of six (6) no to five (5) yes rejected the resolution giving the government’s approval to the Independent Power Purchase Agreement between Palau Public Utilities Corporation and the Independent Power Producer at its May 25, 2022, regular session.
The resolution would give the Minister of Finance the authority to approve the Government Support Agreement (GSA), one of the five (5) conditions required to effectuate the Power Purchase Agreement between the Government of Palau, Palau Public Utilities Corporation, and Solar Pacific Energy Corporation (SPEC).
Solar Pacific Energy Corporation won the PPUC’s Solar Photovoltaic (PV) Independent Power Producers bid in 2020.
In a heated debate prior to taking action on the resolution this week, senators made known their positions with a simple majority expressing concern about the limited waiver immunity requirement and voting no to reject the resolution.
“PPUC told us earlier that they didn’t need government sovereign immunity…. The relationship is between PPUC and the solar company. Now the solar company deals with a third party and the third party demands that the government approves this. I don’t agree with having a third party that has no agreement with Palau making demands on Palau. I don’t agree to the waiver of sovereign immunity,” expressed Senator Kerai Mariur.
Other senators expressed that they were not satisfied with PPUC’s responses to some of their questions, particularly when they answered that they did know or were not privy to the details of some of the information related to the contract.
The impact of the PGST tax on the proposed rate of .1425 cents per kWh in the contract was one of the questions that were not answered to the satisfaction of the Senate.
Senator Mark Rudimch reminded members of the Senate that the same argument was raised in 2010 with the Engie contract involving locking the rate at .20 cents per kWh. He said that the 10th OEK Committee report forecasted .11 cents per kWh and “now this is locking us at .1425 cents per kWh”. Rudimch said that the debate in 2010 was about protecting people financially and this should be the same.
“It is clear that PPUC tried to the best of its ability to answer and try to explain the arrangement. But it seems the concerns raised by the Senate could not be addressed without starting over. Let’s stop this (disapprove the resolution) and start anew so that they can address some of the senate’s critical concerns,” stated Senator Umiich Sengebau.
Other senators called for the approval of the resolution saying that PPUC acted to fulfill Palau’s Renewable Energy Targets and have diligently followed the laws and procedures throughout the entire process and have negotiated the best deal for Palau.
“I am ready to support this report. I believe that pursuant to law, PPUC has done its job. No law has been broken in the bidding and negotiation with Solar Pacific. PPUC has done its job and sent it to the President and the President has sent it to us for approval…It’s gone through the system and I don’t see any legal violations…” Senator Jonathan Isechal said endorsing the resolution.
“More importantly, if we don’t accept this now if we kill it, what impact will this have on the future efforts to approach companies to implement these kinds of projects here, when we have not approved Engie and now this,” warns Senator Isechal
Senator Secilil Eldebechel, endorsing the resolution said that the requirement to waive sovereign immunity and similar such instruments are standard requirements of financing institutions, meant to provide them with peace of mind that their financial investments are protected.
The approval of the GSA is necessary for the implementation of the project. The requirement for the limited waiver of sovereignty is required by the financing institution in order to release the loan to the company to implement the project.
“Considering the Lender and the contractor will be injecting their own money (approximately $30 million US dollars) for the project and their only means of recouping their investment is through the energy sales to PPUC in the project, they need assurance that the Government (ROP) will not directly or indirectly disrupt the project operations,” states PPUC in responded Senator Inabo’s inquiry about the need for the GSA.
Without the government’s resolution approval Government Support Agreement, it is unclear whether the company will be able to continue with the solar project.