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:
|BOT Plant||IPP Proponent||Type||Capacity (MW)||Year Commissioned|
|Ilijan Natural Gas||Kepco Phils.||Natural Gas||1,200||2002|
|San Roque Multi Purpose||San Roque Power Corp.||Hydro||345||2003|
|Kalayaan 3 and 4||CBK||Hydro||355||2003|
- 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
Through the efforts of PSALM in continuously implementing its liability management program and strategies, PSALM’s financial obligations was reduced to PhP449.2 billion as of 31 December 2018, or a decrease of PhP791.8 billion from the 2003 level of PhP1.24 trillion.
The graph below shows the movement of the financial obligations of PSALM from 2000 to 31 December 2018:
PSALM's Outstanding Financial Obligations Assumed from NPC
(As of 31 December 2018)
|IPP Lease Obligations||184.64|
*Figures based on 3rd Quarter 2018 Statement of Financial Obligations
(As of 31 December 2018)
In terms of currency, more than half (74%) of PSALM’s debt is denominated in dollars, amounting to PHP339.99 billion. Peso-denominated debt of PHP93.07 billion accounts to 20%, while the remaining debt amounting to PHP29.52 billion is in Japanese Yen (6%).
(As of 31 December 2018)
|Currency||Amount in PhP Equivalent
|Percent to Total|
Exchange Rates Used: BSP Guiding Rate dated 28 December 2018
USD : PhP 1.00 = 52.724
JPY : PhP 1.00 = 0.4751
EUR : PhP 1.00 = 60.3110
In terms of currency, more than half (72%) of PSALM’s FOs is denominated in dollars, amounting to PhP322.09 billion. Peso-denominated FOs of PhP97.87 billion accounts to 21%, while the remaining FOs amounting to PhP29.31 billion equivalent to 7% is in Japanese Yen