01 Jun 2006
Allow us the opportunity to clarify a number of issues that were raised by Mr. Neal Cruz in his As I See It column entitled "A 1-2-3 in Masinloc power plant deal" that was published on 19 May 2006 and the follow-up column titled "More mysteries in botched Masinloc sale" that came out on 29 May 2006.
This letter would also like to address the concerns aired by Mr. Conrado R. Banal III in his Breaktime column entitled "Bond on the run" that was published on 1 June 2006. Apparently, the issues raised by Mr. Cruz and Mr. Banal in their respective columns came from only one source.
Mr. Cruz imputed that greed was the primary reason the Power Sector Assets and Liabilities Management Corporation (PSALM) decided not to foreclose the $11-million performance bond that YNN Pacific Consortium gave to the government as a guarantee that it would not renege on its obligation to settle the upfront payment amounting to $227 million for the Masinloc power facility and later on, pay the balance of $334.7 million to complete its winning bid of $561.7 million.
Mr. Banal, on the other hand, described the deal between YNN and PSALM as "dirty."
We assure Mr. Cruz and the general public that greed never influenced PSALM's decision not to foreclose YNN's performance bond. Instead, it decided to keep the deal alive in the best interest of the government.
We also assure Mr. Banal that PSALM conducted the YNN bidding in a transparent manner, mindful of its mandate to optimize the proceeds for the government.
Permit us to address the assertions of the two columnists:
1. "But two and a half years later, YNN has not yet paid even the down payment. Under the terms of the bidding, PSALM can already foreclose the $11-million performance bond, but it refused to do that because of greed."
We would like to point out that it has only been one and a half years since the Masinloc bidding was held in December 2004. Adhering to its mandate to privatize National Power Corporation's assets in an optimal manner, PSALM maintains that it is in the best interest of the government to give this transaction as much leeway to succeed without compromising bid rules and the terms of the contract. The bid of YNN is one that is difficult to duplicate should PSALM call for a rebidding prior to the deadline. By just granting a few months extension, PSALM is simply minding its mandate to maximize the privatization proceeds that will be used to settle the debts of National Power.
2. "There is no basis under the bid documents or under the law for the grant of the extension . . ."
Please know that per contract, once PSALM completes its conditions precedent, which it has, the corporation has the option to set the date for YNN to settle the upfront payment of $227,540,000.352.
3. "On March 31, 2006, the already extended deadline (your italics), YNN still could not come up with the money."
PSALM had 270 days under the contract, or until 2 December 2005, to complete its conditions precedent to close the transaction. March 31, 2006 was the original deadline set by PSALM for YNN to deliver the upfront payment. In the exercise of its prerogative under the contract, PSALM granted the first extension by moving the original deadline to 30 June 2006.
4. "To sweeten the pot, YNN offered a $3 million increase in the performance bond, which PSALM, because of greed, again accepted."
PSALM required YNN to increase the performance bond by $3 million from $11 million to $14 million as sufficient protection for government's interests in the three-month extension.
PSALM's position has always been that it would rather get the whole bid price of $561.7 million for the Masinloc plant rather than the mere $11-million performance bond.
Because of recent positive developments, there is more certainty that YNN can deliver on its payment obligations to PSALM, which is more advantageous to the government. The $3-million increase in YNN's performance bond in consideration of this extension is an added benefit to the government if the consortium fails to deliver on its promise. Moreover, PSALM does not expect to get the same bid price for the Masinloc plant in the event that the plant is rebid. Neither can a rebidding be conducted anytime soon and before the operation of the Wholesale Electricity Spot Market.
In a rebidding, PSALM may not be able to duplicate YNN's bid. But by granting the consortium a few months extension, PSALM endeavors to comply with its EPIRA mandate of maximizing proceeds. We must stress that during the extension, the performance bond continues to exist and, therefore, remains valid.
5. "Ranhill's takeover from Great Pacific is not sanctioned by PSALM's own bidding rules."
This is NOT TRUE (emphasis PSALM). Please note that there is no provision under the bidding procedures or the Asset Purchase Agreement (APA) which prohibits the winning buyer from allowing new investors to buy in or procure shares from its company. It is within the prerogative of YNN's shareholders to allow Ranhill to join its consortium in accordance with the law. As long as YNN remains the counterparty of PSALM, YNN remains compliant with the provisions of the APA. What is prohibited is for YNN to liquidate or wind up its corporate existence from the date it was awarded the Masinloc plant contract until it has fully paid the purchase price.
6. "Ranhill has slipped in as a condition to the effectivity of (and not merely as a condition to drawing on) the bond that Masinloc be first assured of a supply contract with Meralco . . . Ranhill's condition changes the terms of Masinloc's auction."
YNN requested that the supply contract with the Manila Electric Company (Meralco) be a condition of the performance bond. PSALM, however, REJECTED (emphasis PSALM) the request.
PSALM is well aware that by adding the condition to the performance bond, it will change the terms of the APA, in effect giving YNN better terms than what was originally offered to other bidders of the Masinloc plant. This, of course, is unfair to the other bidders and will certainly violate the "no post bidding negotiation" policy of PSALM.
Thus, PSALM required YNN to amend the conditional performance bond and submit an unconditional one. YNN complied with this requirement.
7. "Does Ranhill expect the government to force Meralco to sign a supply contract with YNN?"
It is PSALM's position that negotiations between YNN-Ranhill and Meralco over any power supply contract for the Masinloc plant are between the two parties. PSALM is not a party to any such negotiation, nor is it privy to the same.
To help the general public better understand the position and the actions that PSALM has taken, we prepared an official statement that was distributed to the media and could be accessed in our Web site. PSALM also reported this matter during the Joint Congressional Power Commission (JCPC) meeting held last 25 May 2006.
Thank you very much for providing us the space to make these clarifications.
Strategic Communications and Partnership Division |