19 Mar 2008
The restructuring of the Philippine power industry reaches another important milestone today (19 March 2008) as the Power Sector Assets and Liabilities Management Corporation (PSALM) prepays the three yen-denominated loans of the National Power Corporation worth Y16.887 billion (Y16,887,848,963), or around USD174 million. The amount consists of the principal and the accrued interest of Y2.5 million (USD26,000).
The loans to National Power were extended in 1995 and 1997 by the Japan Bank for International Cooperation-Overseas Economic Cooperation Fund (JBIC-OECF) to finance a number of transmission projects. Two of the loans amounting to Y7.3 billion and Y8.8 billion will originally mature in 2027, while the other loan worth Y1.2 billion will fall due in 2025.
In prepaying the loans of National Power, PSALM is fulfilling the second part of its mandate - liability management - as stipulated in the Electric Power Industry Reform Act (EPIRA). Aside from helping reduce the country's debt burden, the prepayment improves National Power's liability profile and diminishes the state-owned power firm's exposure to foreign currency risks, noted Manuel Marcos M. Villalon II, manager of the Loan Administration Division of PSALM's Treasury Department.
The prepayment will also facilitate the consent of the JBIC-OECF to the privatization of the National Transmission Corporation via a 25-year concession contract.
The prepayment will likewise enable National Power to save on interest payments and guarantee fees that could be used to prepay the other loans of National Power to further trim its stranded debts.
The funds for the prepayment of the loans will come from the privatization proceeds that PSALM has accumulated in fulfilling the first part of its mandate under the EPIRA - the sale of National Power's generation assets. The proceeds have reached an estimated USD500 million as of December 2007. As defined in the EPIRA, all proceeds generated from the power privatization program will be used to settle National Power's USD7-billion debt.
Any residual National Power debt after the prepayment through the privatization of the company's assets will be considered "stranded." This may be paid through the application of the Universal Charge for stranded debt.
"It is, therefore, in the interest of all Filipinos to have a successful privatization of National Power's assets to minimize, if not do away with, the Universal Charge for Stranded Debt as provided for under the law," said Ferdinand George Florendo, PSALM Manager for Capital Markets and Risk Management.
Strategic Communications and Partnership Division