PSALM forfeits YNN'S $14-million performance bond

02 Jul 2006

The Power Sector Assets and Liabilities Management Corporation (PSALM) Board of Directors has decided to call on the $14-million performance bond of Masinloc plant's winning bidder, YNN Pacific Consortium Inc., after it failed to deliver the $227.54-million upfront payment on June 30, 2006.

The PSALM Board granted last March the request for an extension from the original deadline of March 31, 2006 to June 30, 2006 to give time for the entry into YNN of Ranhill Berhad, a Malaysian publicly listed company. It was the first and only extension granted to YNN by the PSALM Board. The extension was given on the condition that YNN increases the performance bond from US$11 million to US$14 million to ensure government is amply protected.

The PSALM Board is chaired by Finance Secretary Margarito B. Teves and Energy Secretary Raphael P.M. Lotilla as vice-chairman. The Secretaries of Trade and Industry, Budget and Management, and Justice and the Director General of the National Economic Development Authority, and their representatives also sit as ex officio members on the PSALM Board with the President of PSALM.

YNN submitted the highest bid of $561.74 million for the 600-megawatt Masinloc coal-fired power thermal plant in Zambales in a bid held in December 2004.
The only other bidder, First Generation Holdings Corporation, submitted a bid of $274.85 million, which was lower than the bid of YNN and below the government's reserve price of $388 million.

At the time Masinloc was bid out, PSALM could not assure the bidders of a buyer for the electricity produced from the plant. Negotiations between Meralco and National Power Corporation for a supply contract to attach to the plant was going nowhere. Meralco accounts for 70% of demand in Luzon. The plant was bid out as a merchant plant, hence the winning bidder was expected to obtain on its own a bilateral supply contracts with electric distribution utilities/electric cooperatives.

Sec. Lotilla said PSALM could have forfeited the original $11 million bond last March 31. However, it was the Board's assessment that YNN gave the government a very good price of $561 million, considering that the second bid PSALM got from First Generation Holdings was only $275 million - actually less than half of YNN's bid and 30% below the government's reserve price of $388 million.

The increase of the performance bond by an additional US$3 million as a result of the Board decision to wait three more months increased the collectible amount to 27% - a yield that any financial analyst would assess as a good yield over the short period of three months.

With the forfeiture of the bond, the plant can be re-bid at the appropriate time if conditions warrant. Meanwhile, government continues to operate Masinloc and earn from the income it generates.

Strategic Communications and Partnership Division
Tel. No. (632) 9029067