09 Nov 2005
Officials of the Power Sector Assets and Liabilities Management Corporation (PSALM), led by its vice president for Finance Nonito R. Bernardo Jr., will present the proposed regulatory asset base (RAB) jointly filed by PSALM and the National Transmission Corporation (TransCo) during the series of public hearings being conducted by the Energy Regulatory Commission (ERC).
PSALM president Nieves L. Osorio said the TransCo concession would be bid out about the time the ERC releases the company’s RAB.
“Once the ERC has set the RAB for TransCo, our prospective bidders will be in a better position forecasting their prospective revenue streams. This will be valuable information for investors in preparing their bids as RAB will determine TransCo’s maximum allowable revenue, or MAR. The MAR, in turn, will be the basis for computing the transmission rates that can be charged to electricity users,” Osorio explained.
PSALM is bidding out the power transmission business through a 25-year concession contract. Discussions with prospective investors for the assets began last year, but PSALM later decided to privatize the assets through competitive bidding, citing public interest.
Transmission wheeling rates are the main revenue source for the private concessionaire of the electricity transmission operations. The transmission rates were first set by the ERC in 2003, the start of the first regulatory period. The second regulatory period was originally set on January 1, 2006, but was moved to April 2006. Thereafter, it will be reset every five years.
The ERC announced that the RAB would be set in April 2006 after the holding of public consultations which started in Davao City last November 8, to be followed by one in Cebu on November 10 and another in Metro Manila on November 11.
The ERC is scheduled to conduct more public hearings in various cities namely, Metro Manila, Cagayan de Oro, Bacolod and Cebu until February 2006.
Osorio pointed out that at the start of each five-year regulatory period, the ERC would determine the concessionaire’s annual revenue requirement based on its operating and maintenance expenses, estimated tax payments, depreciation charges on assets used, and investors’ return on capital. “These factors will be the basis for computing the concessionaire’s MAR for the regulatory period,” she said.
At the end of each year, the revenue cap will be compared with the actual revenue collection of the concessionaire, the difference of which will be the basis for adjusting the following year’s revenue cap.
Osorio said the revenue cap would assure electricity consumers that fair electricity rates would be charged even after the privatization of TransCo. “We would like to assure consumers that the capital and operating expenditures as well as taxes are pass-through costs that would not be a source of windfall profits for the concessionaire who would be assured of a reasonable return for their investments,” she added.
Osorio pointed out that “we should not lose sight of the fact that the main reason the Philippine government decided to privatize the power generation and transmission business was to ensure adequate power supply needed to support the country’s economic growth. Given the fiscal condition of the country, the government is not in a position to finance additional power generating plants and transmission lines to meet future requirements.”
The country’s transmission development for the five-year period 2006 to 2010 is estimated to cost $850 million. “This means that aspiring bidders should have the capability to raise a substantial amount of money, especially during the first five years of operation, so they can maximize the potential earnings they can derive from the 25-year concession,” Osorio said. PSALM is expected to hold the bidding for TransCo’s concession as soon as the ERC determines the transmission revenue cap for the second regulatory period.
TransCo, as it is being offered to investors through the forthcoming public bidding, is debt-free as the outstanding debts attributable to its business will be transferred and serviced by PSALM once the consent of all creditors is obtained. The proceeds from TransCo’s privatization will be used to pay these debts to lighten the debt burden of the Philippine government.
As approved by the Joint Congressional Power Commission (JCPC), the Philippine government will continue to own TransCo’s assets, while the concessionaire will handle the operations and implement its rehabilitation and expansion program. The concession may be extended for another 25 years depending on the result of the review of the concessionaire’s performance.
The JCPC resolution also called for a cash payment of at least 25%, while the balance will be payable over a period of 15 to 25 years. “The deferred payments, which will carry a fixed interest rate, will maximize the cash flow for the government and at the same time make the acquisition of the TransCo concession more affordable to investors,” Osorio pointed out.
She said a minimum bid price or Reserve Price would be set before the bids are opened. “This Reserve Price, which will not be revealed to the bidders, will assure the government that the maximum price will be extracted from the TransCo bidders,” Osorio added.
Strategic Communications and Partnership Division |