13 Jun 2006
Permit us to clarify issues raised by Mr. Federico D. Pascual Jr. in his Postscript column entitled "Masinloc bid winner unable to pay $227M" that was published on 4 June 2006, and Ms. Mary Ann LL. Reyes in her Hidden Agenda column titled "How serious is gov't?" that came out on 31 May 2006.
We decided to address simultaneously the concerns aired by the two columnists since they practically made the same assertions in their respective columns. We surmise that the claims they ventilated came from only one source.
Mr. Pascual and Ms. Reyes question the inability of YNN Pacific Consortium, the winning bidder for the Masinloc plant, to pay the $227-million upfront payment and criticize the decision of the Power Sector Assets and Liabilities Management Corporation (PSALM) to extend the payment deadline to 30 June 2006 from 31 March 2006, the original date, instead of foreclosing the $11-million performance bond.
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.
Please be aware 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. Under the contract, PSALM had 270 days, or until 2 December 2005, to complete its conditions precedent to close the transaction. It set 31 March 2006 as the original deadline 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. But in doing so, the corporation required YNN to increase the performance bond by $3 million from $11 million to $14 million to ensure that the government's interests are adequately protected during 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.
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. Also, a rebidding cannot be conducted anytime soon and before the operation of the Wholesale Electricity Spot Market. 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.
We would also like to assure the public that the Masinloc power plant continues to operate pending the turnover of the facility to its new owners as soon as the down payment is delivered. Being a new and, therefore, efficient plant, Masinloc is one of the power generation facilities that has contributed significantly in boosting the revenues and operating income of the National Power Corporation.
Mr. Pascual and Ms. Reyes also refer to "more recent incidents that had something to do with Meralco signing a contract with YNN."
YNN requested that a supply contract with the Manila Electric Company (Meralco) be a condition of the performance bond. PSALM, however, rejected the request.
PSALM knows full well that by adding the condition to the performance bond, it will change the terms of the Asset Purchase Agreement, 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.
We would like to stress that negotiations between YNN 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 |