A critical component of the twin mandates of PSALM Corporation is optimally liquidating NPC's financial obligations, including stranded debts and stranded contract costs, by implementing an efficient liability management program that conforms to the provisions of Republic Act No. 9136, the Electric Power Industry Reform Act (EPIRA).
These financial obligations consist mainly of:
- domestic and foreign borrowings;
- obligations under the independent power producer (IPP) contracts; and
- other NPC debts which were transferred to and assumed by PSALM pursuant to the EPIRA.
PSALM's liability management program includes:
- refinancing to ensure that the Corporation will meet all its outstanding debts and contractual obligations;
- effective management of all risk exposures, particularly financial market risks due to foreign exchange fluctuations, interest rates volatility and funding liquidity; and
- tariff rate application to update the cost of electricity generation to its current level and to implement the Universal Charge pursuant to the EPIRA.
At the time of its passage in 2001, the EPIRA was instituting extensive reforms in the power industry that resulted in the creation of different bodies such as PSALM. It was principally created to take ownership of the existing generation assets, IPP contracts, real estate and all other disposable assets of NPC, and to assume all of the latter’s liabilities and obligations, which at that time amounted to a staggering PhP830.7 billion (or equivalent to USD16.6 billion).
The PhP830.7 billion in financial obligations is composed of two elements, namely the outstanding long-term debts and the BOT lease obligations. The outstanding long-term debts represent the unpaid obligations of NPC to various creditors, which beginning in 2001, amounted to PhP319.1 billion (or USD6.1 billion). On the other hand, the BOT lease obligations represent the amount due from NPC to IPPs for facilities built in the 1990s to ensure increased generator capacity and adequate supply of electricity for a wider set of end-users. In 2001, the beginning balance of BOT lease obligations amounted to PhP511.6 billion (or USD10.4 billion).
Since then, there were several drivers of financial obligations that made a significant effect to these balances. With the realization of numerous envisioned changes that were embodied in the EPIRA came the keen awareness of the elements that were not initially considered. An example would be the impact of the delay in effecting the absorption of the PhP200 billion worth of NPC long-term debts by the National Government (NG). Securing the necessary approvals took an unexpected amount of time, which resulted to PSALM incurring additional interest charges amounting to PhP45.9 billion for CYs 2002 to 2004. Another example is PSALM’s assumption of outstanding financial obligations of electric cooperatives (ECs) to NEA and other government agencies in accordance with Section 60 of the EPIRA without any financial support for the same. In an effort to cover for the EC loans, PSALM had to raise money through the Nomura Bonds.
There were also other factors that significantly affected PSALM’s finances, namely:
- New capacities were commissioned after 2001 and added further to NPC’s financial obligations. These include:
- The outstanding debt and BOT lease obligations both peaked in 2003 owing to several factors, namely:
- Further Peso devaluation by 8% from 2001 level (PhP55.569=1USD)
- New debts were incurred since Internal Cash Generated was able to fund only 10% of maturing obligations
- CAPEX funding, that amounted to PhP79.1 billion from 2001 to June 2014, was provided for the rehabilitation of existing plants and the construction of new transmission lines and substations, as well as the upgrade of existing lines.
- In 2008, NPC’s assets and debts were transferred to PSALM. The total asset balance that was transferred to PSALM amounted to PhP831 billion as of 31 December 2008 and the total liability balance amounted to PhP904.8 billion for the same period. This, in turn, resulted to a capital from asset-debt transfer of a negative PhP73.8 billion.
- With the privatization of some of its IPP plants, PSALM saw a collective reduction in its losses by forgoing the corresponding costs of operating these plants that were more than their generated incomes. In 2013, the IPP plant losses amounted to PhP3.2 billion, which was already lower than the average annual IPP plant losses for more than thirteen years of PhP17.8 billion. With this downward trend in IPP plant losses as more IPP plants were privatized, it is expected that more operating costs will be avoided. This in turn would ultimately benefit end-users or the consumers, since reducing the plants’ losses would spell lesser stranded contract costs/stranded debts to be recovered through the Universal Charge.
- Finally, the implication of the changes in foreign exchange rates have significant bearing to PSALM, given how the company’s financial structure is denominated mostly in foreign currency. This makes the company very vulnerable to varying exchange rates.
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I. Liability Management
A. Reduction in Financial Obligations
The graph below shows the movement of the financial obligations of PSALM from 2000 to 30 November 2023:
Outstanding Financial Obligations (In PhP Billion)
ThrThrough the continuous implementation of liability management program and strategies, PSALM’s financial obligations were reduced to PHP300.57 billion as of 30 November 2023, or a decrease of PHP940.03 billion from the 2003 peak level of PHP1,240.60 billion
Outstanding Financial Obligations (FOs)
(As of 30 November 2023)
|IPP Lease Obligations
In terms of currency, less than half (44.0%) of PSALM’s FOs are denominated in US dollars, amounting to PHP143.65 billion and the peso-denominated FOs of PHP167.77 billion accounts for 56.0%.
FO Profile by Currency
(As of 30 November 2023)
|Amount in PhP Equivalent
|Percent to Total
Exchange Rates Used: BSP Guiding Rate dated 30 November 2023
USD : PHP 1.00 = 55.3280
B. Updates on Liability Management Projects
Debt Financing/Loan Financing
PSALM is financing its 2024 shortfall through NG Relending.