Solar power dispute negotiated
The Electric Power Corporation (E.P.C.) remains committed to provide alternative energy sources for Samoa.
The assurance comes from the General Manager of the Corporation, Tologata Tile Tuimaleali’ifano, in the wake of a threat by an international company that has invested US$16million (T$36.8m) to increase Samoa’s renewable energy generation to take “formal action” against the government.
“The Board and Management of E.P.C take their commitment to provide reliable, safe and affordable power for its customers very seriously and will continue to work in good faith with its Independent Power Providers to achieve this,” Tologata said in an email response to questions from the Samoa Observer.
The threat by First Solar is contained in a letter signed by Jack Curtis, Regional Manager - Asia Pacific First Solar, leaked to the Samoa Observer.
At the heart of the dispute is the treatment of V.A.G.S.T in the existing Power Purchase Agreement (P.P.A.). The company accuses the Electric Power Corporation (E.P.C), and the Office of the Regulator (O.O.T.R.) over a proposal to enforce new feed-in-tariff (FiT) regulations on existing projects.
The letter dated 28 February 2017 is addressed to the Chief Executive Officer of the Ministry of Prime Minister and Cabinet, Agafili Shem Leo.
Copied are Prime Minister Tuilaepa Sa’ilele Malielegaoi, Minister of Works, Transport and Infrastructure, Papali’i Niko Lee Hang, Minister of Public Enterprises, Lautafi Fio Purcell, Minister of Communications and Information Technology, Afamsaga Rico Tupa’i and the Minister of Finance, Sili Epa Tuioti.
According to Tologata, they are “presently negotiating a contractual dispute.”
“The contractual dispute between EPC and SfS is being negotiated in accordance with the dispute resolution process contained within the P.P.A,” he said.
“As the parties are directly engaged in attempting to resolve this outstanding commercial dispute in an amicable manner, it is inappropriate for E.P.C to discuss this matter publically.”
In the meantime, the following is the letter from First Solar, leaked to the Samoa Observer:
28 February Z017
Secretary to Cabinet / CEO of the Ministry of Prime Minister and Cabinet Ministry of Prime Minister and Cabinet 5th Floor FMFM Government Buildings Ele Ele Fou, APIA
Copied: Hon Tuilaepa Fatialofa Lupesoliai Aiono Neioti Sailele Malielegaoi - Prime Minister Government of Samoa Hon Papaliitele Niko Lee Hang - Minister for the Electric Power Corporation Hon Lautafi Fio Selafi Purcel - Minister for Public Enterprises Hon Afamasaga Lepuiai Rico Tupai — Minister for the Office of the Regulator Hon Sili Epa Tuioti - Minister for Finance and Renewable Energy
Re: Request for Directive regarding Solar for Samoa PPA and Feed-in-Tariff Regulations
Lau Afioga, The Samoan Government's support for renewable energy has led to the successful development of the utility-scale solar industry in Samoa. As we conveyed to the Prime Minister during our meeting in July 2015, we commend the Prime Minister's leadership and the country's ongoing commitment to a 100 per cent renewable energy target.
First Solar believes that utility—scale solar will play an integral role in reaching this target. As Solar for Samoa's ("SfS") major investor, we have been proud to make a significant investment in Samoa with the successful delivery of the solar photovoltaic ("PV") electricity generation facilities at the Faleata Racecourse and Faleolo International Airport ("Project").
Through our US$16 million investment in Samoa over the past two years, First Solar has increased Samoa’s renewable energy generation and provided significant benefits to the Samoan economy, including the employment of over 100 Samoan citizens.
First Solar's and SfS's support of the country's renewable energy development is also evident in our commitment to delivering world-class, reliable solar PV technology. Further, the successful construction and commissioning of the project demonstrated the sound investment opportunity for international companies seeking to become involved in development infrastructure in Samoa.
However, as a result of the ongoing issues relating to the treatment of VAGST in the existing power purchase agreement (“PPA”) with Electric Power Corporation (”EPC"), and the Office of the Regulator’s (”OOTR") proposal to enforce new feed-in-tariff (”FiT") regulations on existing projects, First Solar has lost confidence in Samoa as a stable and secure country for investment. As a last resort, we are seeking your assistance in an attempt to reach a constructive resolution at the earliest opportunity.
Ongoing dispute with EPC regarding the PPA price and VAGST
As you are aware, the Project has an executed PPA with EPC and an Electricity Generation License from the OOTR. Despite this binding agreement and approvals from the Samoan Cabinet and OOTR explicitly stating the PPA price was exclusive of VAGST, EPC claims the PPA rate of SO.33USD/kWh is inclusive of VAGST. EPC has withheld 15 per cent from the pre-VAGST amounts invoiced by SfS since operation commenced at the first facility in June 2016. As of January 2017, the amount owed to SfS by EPC is in approximately US$240,000.
First Solar relied on the official Samoan Government documentation and approvals in good faith to spend US$16 million for the Project’s construction. The executed PPA took seven years to negotiate and resulted in a fair and mutually beneficial contract for all parties over the next 20 years; including a PPA price adjustment mechanism to ensure the amount paid by EPC for the solar generated electricity never exceeds the amount that would be paid for the equivalent amount of diesel generated electricity. All parties understood the PPA terms at the time of the investment and without the official Government approvals stating the price was exclusive of VAGST, we would not have invested in this Project as the economics do not meet the required returns for such an investment.
We again refer you to the following Cabinet Minutes, PPA references, EPC documentation and communications which clearly demonstrate the agreed PPA rate is, and has always been, exclusive of VAGST:
• Attachment 1: FK (11) 36 dated November 10, 2011 states the rate of SAT$0.77 per unit is exclusive of VAGST. The FK (11) 36 and letter from the Ministry of Finance (”MoF") confirms that Government has accepted to buy electricity at SAT$0.77 per unit exclusive of VAGST.
• Attachment 2: FK (13) 39 dated October 30, 2013 transfers all previous Cabinet Minute approvals from ”Solar Samoa Ltd" to "Solar for Samoa Ltd.”
• Attachment 3: Email dated October 20, 2011 from the EPC GM Tologata T L Tuimalealiifano agreeing to the rate of SAT$0.77 per unit (confirmed in the PPA as US$033 per unit). Per the above documentation, it is clear that this rate was exclusive of VAGST.
• Attachment 4: Copy of EPC's financial analysis presented by EPC and MoF to Cabinet July 2013 showing the computation of net income to SfS using the rate of US$0.33 (equivalent to SATSO.77) exclusive of VAGST. Despite the fact that we disputed EPC's calculations in this analysis, it clearly shows that EPC's calculations were based on a PPA price which was exclusive of VAGST.
These financials were confirmed in an official letter from the EPC General Manager and were the basis for the Samoan Government’s approval to sign the PPA.
• Attachment 5: Clause 15 (a) of the executed PPA which states that ”...any Samoa Cabinet minute authority form part of this agreement and shall operate in the event of any default by sec."
This issue has had a serious financial impact on our investment through ongoing loss of revenue, and despite multiple attempts to determine a path forward with EPC a resolution has not been met. We were informed on January 10, 2017 that EPC received a response from the Samoan Cabinet stating it had formed a decision via Fk(16)45 (see Attachment 6) and had ruled in favour of EPC, cancelling all prior approvals to SfS, Despite specific requests to the Samoan Government, SfS is yet to receive any official Cabinet correspondence on the discussions or approvals by the Samoan Cabinet, which we understand took place in late 2016. The Cabinet’s ruling, based on incomplete information and without direct consultation with SfS, has significantly eroded our confidence in Samoa's legislative system — a key factor in the urgency of this matter.
OOTR implementation of FIT regulations with respect to existing projects The aggressive approach taken by the OOTR on its proposed FiT regulations — despite SfS’s executed PPA with EPC — also presents an unmanageable risk for SfS and First Solar, Beyond the significant impact to our investment, which would not be feasible at the proposed reduced FiT rate of US$0.15 per unit, the proposed changes will negatively impact all existing renewable energy projects and unequivocally damage the future of the renewable energy industry in Samoa through the curtailment of private sector investment.
Despite efforts made by SfS (see Attachment 7), the proposed regulations have been developed without consultation with key investors and/or financing corporations such as the International Finance Corporation ("IFC"), Asia Development Bank ("ADB") and ANZ Samoa bank.
Through involvement in early renewable energy projects in Samoa and our extensive global experience, First Solar has a unique perspective on such programs and the investment appetite for international partners.
In all our dealings, we have never witnessed a Government regulator enforce legislative changes on existing projects that are in operation with a formally executed PPA.
The actions taken by EPC and OOTR and the treatment of SfS by the Samoan Government (and its related institutions) has decimated our confidence in the country and raised sovereign risk concerns for current and potential investors from all industries vital to Samoa’s economy.
We have no doubt this has caused irreparable damage to the credibility of Samoa and the Pacific region as an investment destination for multinationals. Unfortunately, and despite the initial success of the Project, the current issues validate the challenges and risks often perceived by private sector investors in Samoa.
This is a clear signal that the investment environment is not stable. Given the importance of this matter for Samoa, we formally request that the Samoan Cabinet, EPC and the OOTR:
1. Commit to the agreed PPA rate of $O.33USD exclusive of VAGST; and
2. Confirm that any regulations, including the draft FiT currently in development by the OOTR, will not be applicable to existing renewable energy projects with formally executed PPAs (including SfS).
If confirmation of the above is not received promptly, First Solar will consider taking formal action. We are in regular communication with financiers, investors and foreign governments who conduct business and seek investment opportunities in infrastructure and tourism projects in Samoa and the Pacific region.
We will not hesitate to actively and openly discuss our current experience in Samoa with these institutions, which include IFC, ADB, ANZ Samoa, Reddy Group (owners of the Tanoa Tusitala Hotel), Virgin Airlines, Sheraton Hotels and Resorts, and various energy infrastructure investors including Pacific Hydro, New Energy Solar, Paledon, and Lighthouse Investments.
Further, we will not hesitate to highlight these issues with analysts and media outlets across Samoa, the Pacific region, New Zealand, Australia and the wider international community. We will also be writing to the US and Australian Government consulates to relay our concerns relating to foreign investment in Samoa.
I thank you for your attention and respectively request your prompt response. Please feel free to contact me directly via phone (02 9002 7755) or email ([email protected]). Kind regards,
Jack Curtis Regional Manager - Asia Pacific First Solar FE Holdings Pte Ltd.