1.

There were issues in the implementation of the Capacity Addition Program under the five-year MEP and
the NPC Performance Scorecard.

a. Delays in the completion of projects due to weaknesses in the procedures and internal controls.
Sample projects: 5x1.0 MW Boac DPP, 2x1.5 MW Torrijos DPP, Five Island Barangays Project and Sacol DPP

NPC Circular No. 2020-013:

 Projects in missionary areas must adhere to programmed timelines in the MEP and NPC implementation
standards.
2016 Revised IRR of RA 9184 - ANNEX D (2.1):
 Suspension of procurement for goods, supplies, and materials allowed only in unforeseen and significant
events affecting project implementation.
2016 Revised IRR of RA 9184 - ANNEX E (10.1/10.2):
 Infrastructure project procurement suspension allowed due to force majeure, fortuitous events, or failure
to correct unsafe conditions.
 Contractors can suspend work due to right-of-way issues, lack of necessary construction plans, peace and
order concerns, and delays in material delivery or payment.

The key consideration of the Management for entering into a contract is the timely completion of these
projects in order to realize the intended benefits. In this case, the purpose* was defeated for the newly
installed/ commissioned generating sets. Based on our analyses, the execution of these projects had faced
considerable delays as a consequence of several work suspensions and time extension. Reasons/root cause for
suspension of works include:
*to provide continuous supply and efficient and reliable electricity,

a. Root Cause (Pandemic-Related Restrictions) : The global Covid-19 pandemic disrupted project
timelines by preventing Commissioning Engineers from traveling to the Philippines, impacting the
Torrijos Diesel Power Plant project. The second suspension of work for the Four Island Barangays
project, although justified by the State of Calamity declared due to the Covid-19 pandemic, occurred
after the contract had expired.
 18-Mar-20 to 13-Jul-20 - 117 C.D. (Sacol DPP)
 18-Mar-20 to 13-Jul-20 - 117 C.D. (4 island barangays)

b. Root Cause 1 (Regulatory Hurdles): Delays in the Five Island Barangays Project were primarily due to
pending approvals from the Protected Area Management Board (PAMB-DENR) for the issuance of the
Special Agreement on Protected Areas (SAPA) Certificate, a prerequisite for commencing construction
activities as mandated by the Expanded National Integrated Protected Areas System Act 2018.
Root Cause 2 (Coordination Challenges) : Difficulties in securing right-of-way requirements, such as
resolutions from barangays and endorsements from LGUs, delayed the commencement of construction
activities for certain projects, as seen in the challenges faced by NPC in obtaining necessary approvals
for the Five Island Barangays Project.
 18-Oct-18 to (5 island barangays) to 16-Jan-20 (4 island barangays) - 455 C.D. (SAPA)
 18-Oct-18 (5 island barangays) to 1-Mar-21 (Great Sta. Cruz) - 865 C.D. (SAPA)

c. Root Cause (Technical Issues): Various technical issues have caused delays in the implementation
Torrijos Diesel Power Plant. For instance, the unresolved final configuration of the Single Line Diagram
(SLD) led to space constraints in the main control room, necessitating reconfiguration and adjustments.
Torrijos:
 Re-configuration of the project Single Line Diagram: 02 Dec. 2020 to 10 Mar. 2021 - 99 calendar
days.
  Force majeure/unforeseen events beyond the Contractor's control: 15-Nov-21 to 14-Jan-22 - 60
calendar days.
 Impact of the global Covid-19 pandemic preventing Commissioning Engineers from coming to the
Philippines: 04-Feb-22 to 31-Mar-22 - 55 calendar days.

d. Root cause (Technical Issues): Similarly, revisions to the operation scheme of the generator sets at the
Boac Diesel Power Plant and the need for a new switchyard bay contributed to delays. External factors,
such as a quarrying ban in the Province of Marinduque, have also contributed to delays, affecting the
implementation of the Boac Diesel Power Plant project.
 12 Oct 2016 to 3 Jan 2017 -83 CD

These root causes highlight a combination of regulatory, technical, logistical, and external challenges that
have impacted project timelines. Addressing these root causes will require a comprehensive approach
involving improved coordination with regulatory bodies, proactive resolution of technical issues, enhanced
risk management practices, and effective stakeholder engagement strategies.

Reasons for time extension (5x1.0MW Boac DPP) include:

 45 C.D. from 24-Mar-17 (1st Revised Expiry) to 08-May-17 (2nd Revised Expiry)
b. Expanded coverage of suspension of works/activities for the Five (5) Island Barangays Project in
Zamboanga, instead of just the Great Sta. Cruz Island for which the Special Agreement for Protected Area
(SAPA) Permit was not secured before the start of the project.

Four Island Barangays Project

The root cause of the expanded suspension can be attributed to a lack of differentiation in the project
management approach. Despite each island barangay having different land classifications and unique
requirements, they were all uniformly suspended in the project. This lack of distinction led to delays and
impacted the completion timelines for all the island barangays. It led to significant delays totaling 865 calendar
days.

1x40kW Tumalutab, 1x90kW Tictabon, 2x40kW Pangapuyan – classified as “Uclassified Public Land” and
“Timberland” – Certificate of Pre-condition for each project. (They are Energy Projects of National
SIGNIFICANCE)

Proper planning and coordination, along with proactive engagement with stakeholders, are essential for
ensuring project success and timely completion.

Additional Information for the Board:

Specific actions taken to address the expanded suspension and mitigate its impact on project timelines.

 Conducted a comprehensive assessment of each island barangay's land classifications, right-of-way issues,
and permitting requirements in 2019.
 Coordinated with relevant authorities, i.e. PAMB-DENR and Zamboanga LGU for permits to prioritize to
address permitting challenges effectively. Sought exemption from the SAPA Certificate’s additional
requirement.
 Implemented contingency plans to mitigate the impact of the expanded suspension on project timelines,
including adjustments to the project schedule and resource allocation.
c. Prolonged rectification of remaining punchlist items

Root Cause:

Based on the provided information, the completion of punchlists was delayed for several reasons:

 Supply of Faulty Equipment: The Contractor supplied a new transformer with leakage, which was used by
the plant during operation. Although NPC requested the Contractor to replace the faulty transformer,
negotiations and decision-making processes took time to resolve.

 Negotiations: There were negotiations between NPC and the Contractor regarding the rectification of
punchlist items, including the replacement of the faulty transformer. These negotiations likely involved
discussions on responsibility, cost, timeline, and logistics, which contributed to the delay in resolving the
punchlist.

 Repair of Supplied Transformer: The supplied transformer with leaks eventually got repaired and became
operational. However, the decision to replace it with another new transformer and the negotiation
process further prolonged the resolution of punchlist items.

 Administrative Processes: Close-out procedures for remaining punchlist items, including documentation,
approvals, and final acceptance, may have encountered administrative delays, adding to the overall
completion timeline.

Summary:
The root cause of the delayed completion of punchlist items, notably the replacement of a faulty transformer,
stemmed from negotiation delays, issues with supplied equipment, and bureaucratic hurdles. Despite attempts
to address the issue, including negotiations for replacement and discussions on penalties, the resolution
process took several years, prolonging the project's completion timeline.

Specific actions taken to address the prolonged rectification and mitigate its impact on project timelines.

 PES had coordination meeting to establish clear and realistic deadlines for the rectification of punchlist
items in the project contract and set criteria for minor and major punchlists, with provisions for penalties
for non-compliance to motivate timely completion.
 Progress of punchlist item rectifications are being tracked by ESD, allowing early identification of potential
delays and enabling timely intervention.
 To consider incorporating additonal penalty aside from LD in the contract to motivate adherence to
agreed-upon timelines and hold the Contractor accountable for the timely completion of punchlist items
 Regularly review and refine project management processes and procedures to identify areas for
improvement and optimize efficiency in punchlist item rectification and project close-out activities.

Considering the foregoing, we recommended the NPC Management to require the Power Engineering
Service Group (PES) to:
1. Direct the Project Management Department and relevant offices to:
 take immediate actions to address the issues that hamper timely project completion
 strictly enforce penalty and termination provisions of the contract and the Procurement Act.
 2. Establish criteria for minor and major punchlist items to determine levels of justification required for
completing rectification works and additional penalties that may be imposed on top of liquidated
damages.
3. Consult the Office of the Legal Counsel on the imposition of additional penalties and other legal
remedies for delayed or non-rectification of major punchlist items.

MANAGEMENT COMMENTS, ACTIONS TAKEN/ PLANS:

 PES will create a Documentation Committee to review and revise the QMS Procedures for Site
Management and establish clear criteria for identified minor and major punchlist items in the TOR (4th
quarter of 2024).
 PES Departments met to discuss the identification of minor and major punchlist items of projects for
the setting of criteria on 26 January 2024.
 PES has thoroughly maintained the review, evaluation, and processing of all requests for Contract
Time/Work Suspension and/or Resumption, ensuring further improvement and strengthening to
safeguard NPC’s interests.

NPC Management should direct the OLC to review all requests for work suspension to evaluate their
merits, particularly those made after the contract expiration, for transparency and impartiality. This
requirement should be integrated in the RMOA as a control point.

MANAGEMENT COMMENTS, ACTIONS TAKEN/ PLANS:

CAG:
 will monitor the project implementation activities of PES thru the Work Breakdown Structure (WBS)
 will continue the review and updating of the manual of procedure as part of continual improvement in
planning. Revision of procedures is ongoing; already initialized on 25-26 January 2024.
OLC supports compliance with rules and regulations to prevent legal issues and project delays, offering
assistance on land acquisition/documentation matters, including guidance from NPC Circular No. 2019-
017 and internal policies, and relevant laws.
2. There are weaknesses in the controls for the suspension of works and in the provisions on contract
implementation in the NPC Revised Manual of Approvals (RMOA).

As discussed in Observation1, the selected sample projects had faced considerable delays as a consequence of
the suspension of works and time extension. Basis for suspension of works and time extension are the specific
sections of Republic Act 9184 (R.A. 9184) and its RIRR, Annex D for Goods and Annex E for Infra Projects. Both
sets of guidelines outline similar fundamental principles for handling work suspensions, allowing for actions in
cases of force majeure, failure to correct unsafe conditions, and necessary adjustments to plans during
construction. These guidelines aim to provide a clear framework for managing unforeseen circumstances while
maintaining project progress and contractual obligations, thus minimizing disputes and ensuring transparency
throughout contract implementation.

For these suspensions of works, some of the resulting delays stem from technical issues that could have been
mitigated through proper planning and coordination among the functional groups and parties involved.
Adjustments in design should have been anticipated early on to facilitate the implementation of catch-up plans
while the project's ongoing.

As evidence by the examined documents submitted by PES, the following observations were made:

A. The NPC President approves time extensions for goods and infrastructure projects.
B. The Vice President holds sole authority to suspend goods or infrastructure projects, potentially
hindering checks and balances and oversight.
C. The NPC President approves the resumption of works, regardless of duration.
D. Suspensions lack duration limits, potentially requiring higher-level approval for lengthy suspensions.
E. The VP's Office of the Legal Counsel should review suspension requests for legal compliance and
contractor justifications.

Based on the above, we recommend that NPC Management enhances contract implementation controls and
ensures efficient project management.

 Conduct regular audits to check compliance.

 Enhance monitoring of contractor and project performance.
 Delegate authority levels for suspension requests within RMOA instead of centralized control.
 Introduce an additional layer of approval for longer suspensions/extensions.
 Consider cumulative periods for suspensions/extensions.
 Include criteria for amendments and extensions in the RMOA.
 Develop guidelines for handling expired contracts.
 Require OLC review for all suspension and extension requests (Add provision to RMOA).

NPC Management is proposing the following improvements in the RMOA :

 There will be levels of authority for the approval of requests for suspension of work instead of full
authority by the VP-PES.
 All requests for suspension of works are to be reviewed by the VP – Office of the Legal Counsel (OLC).
 Suspension of work shall be considered on a cumulative basis, instead of per incident.
 PES inputs/counterproposals for the Revised Manual of Approvals submitted to RMOA TWG.
 CAG to coordinate with AFG for CPD personnel training on power generation trends.

The RMOA Secretariat presented the revised proposal for Goods Contract Implementation, approved by the
Technical Working Group and reviewed by Asec. Maya of the DOF and other BRRMC members.
3. Real Property Taxes (RPT) and penalties amounting to P1,034,961.54, have not been paid by the NPC.

Due to delays in communicating and endorsing the approved Compromise Agreement and Deed of Usufruct to SPUG
officials, there was a delay in paying Real Property Tax (RPT) arrears from 1996 to 2018, and subsequent RPTs from
2019 to 2022. The Court Decision was disseminated to SPUG and AFG offices on 12 December 2018, but MARELCO,
the property owner, did not receive it due to routing issues. According to the Deed of Usufruct, MARELCO remains the
property owner, while NPC has usufruct rights. MARELCO needs the approved documents to assess RPT, and
preparation is ongoing.

Finance Dept - SPUG is responsible for the processing and payment of the RPT and arrears per RMOA, Section
17.08, Disbursement Vouchers/Checks/PIVs.

Considering the foregoing, we recommended the SPUG Management, through the Area Offices and SPUG LOD
– Finance, in coordination with the OLC - Land and Land Rights Department should:
 Clarify roles, improve information flow, and update procedures to prevent delays.
 Regularly review legal documents, ensure compliance, and provide staff training.
 Allocate funds for RPT payments for relevant lots.

MANAGEMENT COMMENTS, ACTIONS TAKEN/ PLANS:

 The OLC and SPUG Luzon Operations Department have initiated steps to facilitate the settlement of
the issue.
 The outstanding claims were included in the CY 2024 Budget.
4.There were issues in securing permits and complying with DENR environmental regulatory and
accreditation requirements during project implementation and plant operation:

a) Failure to secure SAPA clearance prior to the start of construction.

The failure to secure SAPA clearance prior to the start of construction were due to the following:

From 2014-2017, SPUG faced challenges securing SAPA Clearance for the power plant due to right-of-way
requirements.
Project transferred to PES in June 2017.
PES initiated gathering of requirements and coordination with PAMB only in October 2018.
SAPA issuance faced hurdles as Great Sta. Cruz Island's management zones were not identified by PAMB,
with no timeline provided for completion.
There were issues that needs to be considered prior to the release of the SAPA Certification
according to the guidelines for the issuance of SAPA by PAMB. Among the issues is that SAPA can only
be issued in protected areas whose management zones have been identified and delineated.
Unfortunately, the Great Sta. Cruz Island is one of those islands who have not yet identified and
delineated by PAMB, which makes the issuance of SAPA certification unauthorized in 2018.
PES submitted SAPA application documents to PAMO in June 2019; EICC issued certificate in July 2019.
SAPA approved in October 2020.

The challenges faced by SPUG in securing SAPA clearance, the subsequent transfer of the project to PES, efforts
made by PES to gather requirements and coordinate with PAMB, and the eventual approval of SAPA in October
2020 illustrate the complexities involved in obtaining necessary permits and clearances for project
implementation, underscoring the importance of thorough planning, coordination, and adherence to
regulatory processes to mitigate delays and ensure successful project execution.

b) Lack of accreditation of Pollution Control Officer for the new plants.

During our plant visit at the mini grid plants, we observed that the accreditation process of the PCO for the
newly constructed power plants remains incomplete. This is primarily due to the lack of accreditation for the
designated PCO for the Five Island Barangays. The requirement for re-training (40-hour Basic Training Course)
has compounded the issue, as EMD was unaware of this requirement from EMB-Region IX when transferring
an accredited PCO from another region with varying requirements for PCO accreditation. Additionally, the
exclusion of the Plant Head/PCO from the SPUG’s recommended participants list for the PCO Training Course,
initiated by the Technical Training Division, further complicates matters. This exclusion occurred due to
scheduling constraints related to the deployment and re-deployment of SPUG personnel who may be assigned
as PCOs. Consequently, the Plant Head/PCO was not included in the Office Order released by the HR-TDD for
the 2021 PCO Training Course.

This situation highlights challenges in appointing and training PCOs, as required by DENR AO 2014-02 and NPC
Circular No. 2020-13, due to the absence of a clear protocol from relevant groups for PCO accreditation. This
underscores the need for clearer guidelines to simplify the accreditation process for PCOs. There is an ongoing
discussion between NPC and DENR aimed at resolving additional requirements for PCO accreditation.

According to DENR AO 2014-02, establishments' Managing Heads must appoint or designate their Pollution
Control Officers (PCOs) and seek accreditation for them. Consequently, SPUG is tasked with appointing PCOs for
its power plants, requesting official designation through an Office Order, and applying for PCO accreditation.
Additionally, NPC Circular No. 2020-13 mandates SPUG to designate a PCO, who must obtain accreditation
from DENR-EMB before project operation, as part of the environmental permit application requirements.
c) Lack of Discharge permits for the newly constructed plants.

EMD adheres to a 30-day processing timeline for DP applications to avoid operating without a valid DP,
prioritizing filings due to the numerous permits with varying requirements. Despite compliance with posted DP
application requirements, EMB-DENR-Region IX requested additional documents not on the checklist. This led
to a 12 to 14-month delay in obtaining discharge permits for the mini-grid power plants. SPUG's intervention
on November 20, 2022, facilitated the eventual securing of all Discharge Permits. The delay was attributed to
inconsistencies in criteria set by the two entities, as well as factors such as completeness and accuracy of the
application, workload of the regulatory agency, and issues with supporting documents. Despite holding a
Permit to Operate, the plants lacked necessary discharge permits, crucial for environmental compliance and
preventing adverse effects on the surrounding area.

IAD RECOMMENDATIONS

❑ The SPUG Management and Power Engineering Services should:

 Ensure strict compliance with relevant laws and regulations, including the National Building Code,
Civil Code of the Philippines, and DENR Administrative Order No. 2021-07.
 Clarify responsibilities of functional groups in the DENR accreditation process and designate a focal
person for monitoring PCO accreditation requirements.
 Include a policy in EMD's QMS Manual of Procedures for consistent monitoring and follow-up of
permit applications.
 Improve coordination with EMB-Central Office to refine policies in alignment with ARTA, ensuring
clear requirements and processing timelines.

MANAGEMENT COMMENTS, ACTIONS TAKEN/ PLANS

 The PES has been instructed to coordinate with relevant offices/agencies for compliance with
existing laws during project implementation.
 Incorporate a policy/protocol for the accreditation of Designated Project Control Officers into the
revision of EMD QMS Procedures.
5. Concerns arise regarding the implementation of the Plant Operating Hours Module and COA guidelines
affecting staffing levels at certain power plants.

a. Boac DPP faces a disparity between approved positions and actual manpower requirements due to
operational complexities.
b. Torrijos DPP has transitioned to 24-hour operation, requiring appropriate staffing adjustments.
c. Sacol DPP's manpower complement does not align with requirements, given its 24-hour operation.
d. Personnel at Five Island Barangays’ Mini-Grid Plants are hired through Contract of Service and
Institutional Contract Hiring while holding responsibilities of permanent employees.

Joint Circular No. 2, s.2020 (COA-DBM):

 Defines Contract of Service (COS) for special projects.
 Limits COS hiring to consultants, learning service providers, and technical experts.
 Prohibits COS and Job Order (JO) workers from performing regular employee functions or
exercising control over regular employees.

Boac Diesel Power Plant:

 Initially had 13 permanent positions.
 Augmented personnel due to operational demands, resulting in 29 operational personnel by
March 2023.

Torrijos Diesel Power Plant:

 Shifted to 24-hour operation with increased capacity.
 Employs 12 personnel, excluding the Plant Superintendent.
 Operational hours extended in 2018, with additional generating sets added in May 2022.

Sacol Diesel Power Plant (DPP):

 Operates 24 hours a day with a staffing complement including 1 Principal Engineer C, 11 O/M
Technicians, and 1 Engineer II.
 Augmented staffing over time to meet operational demands.
 Challenges in assigning shifts and discrepancies between job responsibilities highlighted.

Five Island Barangays’ Mini-Grid Plants:

 Personnel hired through COS and Institutional Contract Hiring (ICH).
 Staffing pattern exceeds module requirements, with challenges in continuous monitoring.
 Engineer II under COS supervises plant operations, with discrepancies in responsibilities and hiring
practices.
 Manpower exceeds module requirements, lacking permanent status despite fulfilling duties similar
to permanent employees.

IAD RECOMMENDATIONS

❑ SPUG Management must ensure sufficient personnel for new plant operations.
 Assign permanent staff to authorized positions following staffing guidelines, ensuring they are
appropriately bonded.
 Collaborate with HR to resolve staffing shortages in new plants and those with extended operating
hours.
 Revisit the SPUG Operating Hours Module for Mini-Grid Plants and existing plants in coordination with
SPUG Management and HRD.
 Develop a comprehensive training program by HRD that encompasses various aspects such as risk
management, security, safety protocols, technical skill enhancement, and professional development.
 MANAGEMENT COMMENTS, ACTIONS TAKEN/ PLANS

According to Atty. Patrick Mabaggu, during presentations to the Board and in ManCom Meetings, it was
highlighted that the current table of organization of NPC is no longer aligned with present realities. It is
not feasible to have the same manpower complement for all plants, as it varies depending on factors such
as capacity and operating hours.

Ongoing studies, such as the Kanlungan Project led by SPUG-LOD aims to determine appropriate
manpower per plant but are currently on hold pending the impact assessment of the CPCS. The long-term
solution involves reorganization through a new Table of Organization, planned within three years, but
financial constraints delay immediate implementation. The strategy involves a Scrap and Build approach,
assuming a new, less bloated Table of Organization proposal. However, securing Board support for
clearances remains challenging.

For the MANAGEMENT COMMENTS, ACTIONS TAKEN/ PLANS:

 The AFG – HRD will adopt a medium-term action plan, the Scrap and Build approach. The long-term
plan is reorganization, to be considered after three years if financially feasible.