JICA study backs PSALM's debt liquidation strategies, systems in UC management and collection

01 Mar 2010

The encouraging results of a study conducted by the Japan International Cooperation Agency (JICA) have further strengthened the resolve of the Power Sector Assets and Liabilities Management (PSALM) Corporation to effectively and strategically fulfill its mandate as specified in the Electric Power Industry Reform Act (EPIRA).

In its two-pronged study undertaken in 2009, the JICA analyzed the asset and liability management (ALM) schemes that PSALM has implemented and will implement to substantially reduce, if not liquidate, the financial obligations of the National Power Corporation by 2026, the end of PSALM's corporate life. The study's coverage included the administration of the Universal Charge (UC) - the other important function of PSALM as stipulated in the EPIRA.

In a forum held last 22 February at the Shangri-La Hotel, the final report of the JICA study was shared with all concerned government agencies for further clarification and more input. The study team of JICA, an independent government agency that assists economic and social growth in developing countries and promotes international cooperation, consisted of the Mitsubishi Research Institute, Inc., the Tokyo Electric Power Company, Inc., and the Bank of Tokyo-Mitsubishi UFJ, Ltd. For the UC component of the study, the JICA team collaborated with the Preferred Energy, Inc.

ALM. For the ALM component, the study provided an institutional and operational framework that included guidelines necessary to the effective application of financial instruments such as refinancing or derivatives structures at minimum cost.

The study suggested measures that would enable PSALM to prudently manage its foreign currency account and to mitigate environmental risks such as interest rates, liquidity, and foreign exchange rates through hedging and other tools since some of the debts are denominated in foreign currency.

PSALM's fiscal projections were also assessed based on the consolidated financial statements of the Corporation, National Power, and the National Transmission Corporation.

For a more successful implementation of PSALM's liability management program, JICA supported the Corporation's accelerated asset sale schedule.

The JICA study confirmed the necessity of PSALM's application of the UC for the recovery of the Stranded Contract Cost and the Stranded Debt.

UC. Recognizing the importance of the UC funds, PSALM together with the JICA study team surveyed 25 distribution utilities from May to June 2009 to get the feedback from collecting entities and to evaluate the issues related to the UC collection and remittances.

The Universal Levy Administration System (ULAS) was designed to improve the performance of collecting entities and to regularly monitor their compliance with the reportorial requirements of PSALM on UC billings.

The effective implementation of the system is expected to enhance PSALM's collection efficiency.

Corporate Communications Division
Tel. No. (632) 9029067