The Philippines has been working towards privatisation of its electricity supply industry for several years; the first step has been to encourage private generating companies to build power plants in the country and sell the electricity they produce to the Philippines National Power Corporation (Napocor), which is still government owned. CalEnergy, headquartered in the US, took up the challenge and in November 1995 financing was closed on Casecnan, the Philippines’ first privately-owned irrigation and power project. The project developer is Casecnan Water and Energy (known as CE Casecnan), of which CalEnergy subsidiaries own some 70% of the equity, with the remainder owned by Philippine partners.

Casecnan is a diversion project which will provide 150MW of generating capacity, plus increased irrigation in the Central Luzon area. Diversion structures in the Casecnan and Denip rivers will divert water into a 23km-long tunnel. At the end of the tunnel the water passes through an underground powerhouse, and then a 3km-long tailrace tunnel, and is finally delivered to the already-existing Pantabangan reservoir. The increased volume of water in the reservoir will also increase the potential capacity of two downstream hydroelectric facilities.

The original contractors for the Casecnan project were two Korean companies: Hanbo, and Hanbo Engineering and Construction. The companies were to complete the project on a turnkey fixed-price, fixed-schedule basis. However, the two Korean companies went into insolvency in 1997, and as a result, on 7 May 1997, CE Casecnan terminated its contracts.

While repercussions from the contract termination continued to affect CE Casecnan and the Korean companies, the immediate need as regards the project was to ensure that work continued under new contracting arrangements.

At the time the Korean contract was terminated most of the large scale electromechanical components were in the bidding process or already on order. As a result, to replace the Korean companies’ functions, CE Casecnan built a consortium comprising a number of the major contractor and subcontractors that already had a stake in the project. Now the project is being undertaken by a consortium which is headed by the civil contractors Co-operativiva Muratori Cementisti of Ravenna, Italy and Impresa Pazzarotti & C Spa of Italy, who have EPC responsibility. Other contractors, who include Siemens, Sulzer Hydro, black-veatch and Colenco Power Engin-eering, also have some responsibility.

Picking up the threads

For the new contractors, taking over the project was not a simple process and required considerable investment in time and manpower. At that time the project appeared to be some six months behind schedule, and the owner also wanted to bring construction work back onto the original schedule.

Colenco Power Engineering, along with Black & Veatch, is now responsible for the detailed design for Casecnan.

Colenco’s vice president for international operations in hydro power, Giuseppe Stevanella, explains that when the company arrived at the site in mid-1997 the first settlement of the work camp was in place, and he estimated that around 5% of civil works had been completed. However, various aspects of the work had progressed at very different rates. For example, the civil works design, according to Stevanella, was largely non existent; similarly, some topological and geological design was required. In contrast, among the advanced aspects Stevanella notes that many of the electromechanical components were on order and excavation work had started.

Stevanella explains that some 600-700m of the tunnel had already been excavated, and the previous contractor had left a tunnel boring machine in position. The excavation work was on the critical path for the construction schedule, so work had to continue with as little interruption as possible. The design, Stevanella said, had to be completed incorporating most aspects of the electromechanical equipment.

The designers also had to cope with the challenges inherent in any such project, Stevanella admits: it had been expected that most tunnelling would be through hard rock, for example, but in practice alluvial deposits were found much deeper than was expected.

After a year of work the new con-tractors have made considerable progress. Excavation is now 60-70% complete, including the underground powerhouse, and no major problems have been encountered. There is much work still to be done, and whether the contractors can work together to meet the original targets for commissioning and operation remains to be seen. But it may answer questions over whether hydro projects can be financed in the private sector.

Casecnan may show that the cost and schedule overruns that dog hydro’s reputation can be addressed by innovative contractual relationships and a willingness, on part of the subcontractors, to take a stake in ensuring the project is commissioned on time and on budget.

Water and power purchase — the agreement

Both electricity and water will be accepted from Casecnan in a contract generally known as known as ‘take or pay’. The initial customer is the National Irrigation Authority (NIA), which is obliged to accept all deliveries of water and energy to agreed levels set out in the Project Agreement, so long as the project is physically capable of operating. In the event that NIA does not accept deliveries it must continue to pay the agreed amount, so CE Casecnan receives guaranteed fees for water and power (in US$), regardless of the amount actually provided — this is expected to provide some 70% of CE Casecnan’s revenue.
In excess of the agreed power levels, NIA will pay CE Casecnan a fee for additional electricity delivered up to a specified amount. NIA sells the power from CE Casecnan on to Napocor; the purchase agreement between NIA and CE Casecnan does not depend on this onward sale.
Clauses in the agreement provide for compensation to CE Casecnan for events such as changes in Philippine taxation law. At the end of 20 years the plant will be transferred to NIA and Napocor on an ‘as is’ basis.