Changes in long-term contracts for the supply of electricity between EDES and the Manzanillo Energy, SA and Manzanillo Gas and Power Consortiums.

This SIE release was published using machine translation.

The Council of the Superintendence of Electricity (SIE) announces that, in compliance with the rules established in the Constitution as well as the laws and regulations that govern the electricity sector, it approved the decision to restore the economic balance of long-term contracts for the supply of power and electrical energy signed by the Unified Council of Electricity Distribution Companies (CUED) made up of: EDESUR, EDENORTE and EDEESTE, with the Manzanillo Energy SA and Manzanillo Gas and Power Consortiums.

These contracts are the product of the tender called by the CUED to contract new electricity generation, a process that began in January 2021 and was awarded on May 20, 2022.

The contracts establish: 1) Net power between 350 MW and 400 MW; 2) Combined cycle; 3) Natural gas fuel; d) That the respective project is developed in Manzanillo, Montecristi province; 4) Interconnection to SENI on the 345kv line planned by ETED; 5) Consortium's own substation; 6) Subscription of the Contract for the Supply of Power and Associated Energy; 7) Supply of energy and distributed power: 33% for EDENORTE, 34% for EDESUR and 33% for EDEESTE; 8) 42 months for commissioning; 9) A validity of 180 months for the contract.

The SIE received from the CUED the contracts agreed upon by the parties, which included: an increase of 6 months at the start of the agreed energy supply, thus going from the original 36 months to 42; the restoration of the economic balance of the agreement with an indexation of energy purchase prices in response to the serious problems and well-known changes in the world electricity market caused by the pandemic and the military attack between Russia on Ukraine; the functioning of markets on a global scale, including the fuel sector; the delay in delivery as well as the increase in equipment prices. All these events occur after the date of approval of the bidding conditions.

The means proposed for the reestablishment of the economic equilibrium is an adjustment for inflation, which consists of the modification of the price of power offered and other components. Although the bidding conditions do not contemplate the inflation indexation of the power price offered, as a mechanism for preserving economic balance, both in the General Electricity Law and in its application instruments, this tool is foreseen as an adequate mechanism for this end.

Indexation as a legal concept is a regulation established in the electricity subsector and is given relevant treatment in energy and power purchase and sale contracts between distribution and generation companies. It is intended as a technique for adjusting revenue payments through a price index to maintain just the balance of economic factors in a given transaction. It is a widely recognized resource in the regulations of the electricity subsector for different purposes.

Additionally, as provided in Article 110 of the General Electricity Law, it is contemplated as one of the minimum requirements that must be provided for in long-term contracts resulting from the bidding processes of a generating entity to a distributor. This requirement is reiterated in Article 60, Number 11 of the Tender Regulations. With respect to the Marginal Cost of Power in SENI, Articles 276 and 278 of the Regulations of the General Electricity Law provide for the application of indexation formulas to be used by the Coordinating Body (OC) to value transactions of Power of Leader among the Agents of the Wholesale Electricity Market.

Indexation has also been provided for in the Regulations of the General Electricity Law as one of the applicable principles for the determination, every four years, of the Distribution Value Added, as well as for updating the tariff schedule that the distribution companies apply to the final users of the electric power service. Section 13.2 of the Bidding Terms also provides for the possibility of making exceptional modifications to the format of the Supply Contracts.

Law 340-06, taking into account the nature of EDES as non-financial public companies and because they are contracts subject to a special regime, highlights the right that contractors have to the corresponding adjustments to maintain the financial balance of the contractual conditions, when extraordinary or unforeseeable events occur, in relation to the existing conditions at the time of the submission of proposals, in accordance with Numeral 1 of Article 32 of said Law.

The SIE Council, when analyzing this request for changes, applied to the price table of all the participants in the tender, the indexing proposed by the CUED and the Consortiums that won the contract. Even applying the indexation to all the prices offered, the economic proposal of the winners of the tender would continue to be lower than the prices offered by the other participants.

Comparative Prices Block 01
Maximum Admissible Price Block 01	US$/KWh	0.10640
Minimum Admissible Price Block 01	US$/KWh	0.07830
Comparative Price Monomic Energy Awardee Block 01 Bid	US$/KWh	0.08849
Comparative Price Monomic Energy Awardee Block 01 Adjusted for Economic Balance	US$/KWh	0.09571
Comparative Price Energy Monomic Bidder Consorcio Manzanillo Energy	US$/KWh	0.10173
Comparative Price Energy Monomic Bidder Consortium SK E&S Company Limited	US$/KWh	0.10206

Comparative Prices Block 02
Maximum Admissible Price Block 02	US$/KWh	0.06740
Minimum Admissible Price Block 02	US$/KWh	0.04940
Comparative Price Monomic Energy Awardee Block 02 Bid	US$/KWh	0.05821
Comparative Price Monomic Energy Awardee Block 02 Adjusted for Economic Balance	US$/KWh	0.06183
Comparative Price Energy Monomic Bidder Consorcio Haina Investment Co. LTD., ENERLA Energía de Las Américas, Inc., Shell Gas & Power Development, BV	US$/KWh	0.06239

These are the reasons why the SIE Council approved the version of the contracts presented by the CUED with a 7.9% increase in prices, although the inflation verified in the documents that supported it was 15%. A very important reason considered, in addition, is the general interest that is summarized in the need for our country to have an adequate, efficient and sufficient energy supply to meet current needs and the growth in demand due to the expansion of the economy and the needs of citizens. In the analysis and approval session, the Superintendent of Electricity, Andrés Astacio Polanco, inhibited himself from the process considering that before assuming this position he had participated in the jury that approved the results of the bidding.

We invite all those interested to verify the resolutions, posted on our website, where the motivations that led the SIE Council to make the aforementioned decision rest. If any citizen wants additional information, they can request it through the Information Access Office, in accordance with the provisions of the terms and forms of Law 200-04.