Privatization proceeds intact - PSALM

18 Aug 2010

Proceeds from the privatization of the assets of the National Power Corporation are intact and are not missing contrary to claims published in recent media reports.

These proceeds have been used and continue to be used by the Power Sector Assets and Liabilities Management (PSALM) Corporation to service the financial obligations of National Power as stipulated in Republic Act No. 9136, the Electric Power Industry Reform Act (EPIRA).

PSALM pointed out that of the USD10.653 billion that it had generated so far from the privatization of National Power's assets, only USD4.65 billion has been collected as of 31 July 2010, with the rest of the amount due in deferred payments.

Of the USD4.65-billion collection, PSALM used USD4.46 billion to pay off National Power's financial obligations.

PSALM reported that since 2004, when its privatization program had commenced, total National Power obligations had continuously gone down from USD19.49 billion to where it now stands at USD16.36 billion.

PSALM clarified that while National Power's debt stood at USD16.5 billion before the enactment of the EPIRA in 2001, the figure ballooned to as high as USD22.9 billion in 2003 because of the costs arising from the new Independent Power Producer (IPP) contracts amounting to USD1.75 billion. These contracts include San Roque, Kalayaan Units 3 and 4, Mindanao Coal Plant, Bakun and Ilijan. The commissioning of these IPPs was necessary at that time to cover the shortfall in generation supply.

The issuance of a presidential directive in 2002 to peg the Purchase Power Cost Adjustment to PhP0.40 per kilowatt-hour (kWh), which was implemented until 2004, contributed to the decline of National Power's fiscal standing. Thus, PSALM incurred borrowings to cover the widening annual deficit of National Power amounting to USD3.2 billion.

Aggravating National Power's fiscal woes was the implementation of the PhP0.30 per kWh mandated rate reduction for residential customers nationwide which translated to a PhP2.5-billion reduction in National Power's revenues per year.

PSALM pointed out that there was no rate adjustment or increase of power tariff until 2004. The sharp depreciation of the peso from PhP44.19 in 2000 to PhP54.20 in 2003 also contributed to the decline in National Power's fiscal condition.

While it is true that the government absorbed PhP200 billion in debts in 2004, National Power still ended up losing an estimated USD350 million in terms of foreign exchange from the debt absorption. This is because the conversion rate used in the transaction had already fallen to PhP56:USD1 in 2004 from PhP51 in 2001.

PSALM also clarified that because of the timing variance between the cash inflows from the privatization proceeds and the debt obligations, it had to resort to borrowings to refinance maturing obligations.

PSALM incurred borrowings amounting to USD2.2 billion in 2009 and PhP30 billion in 2010 to address National Power's debts that would mature in 2009 and 2010. The objective of the loans is to manage National Power's liquidity risk by ensuring the availability of funds. From 2009 to 2011, PSALM is scheduled to settle a total amount of USD4.5 billion in maturing obligations, including interest.

PSALM pointed that even the authors of the EPIRA recognized that the privatization proceeds would not be enough to cover the debts incurred by National Power. Thus, they included in the law's provisions the necessity to collect the Universal Charge to recover stranded debts and stranded contract costs.

Corporate Communications Division
Tel. No. (632) 9029067