26 Aug 2010
We refer to the article of Sunday Stories columnist Marlen V. Ronquillo titled "PSALM is now Napocor 11" (Manila Times, 25 August 2010), which highlighted certain issues raised by Eastern Samar Rep. Ben Evardone in a recent press briefing.
At the outset, the Power Sector Assets and Liabilities Management (PSALM) Corporation welcomes an inquiry into the finances of National Power Corporation and the activities of PSALM to manage the same. We, in fact, long to be given an opportunity to clarify various unfounded concerns, some of which were cited in Mr. Ronquillo's column. Related to this, the Energy Regulatory Commission (ERC) is already looking into PSALM's petitions for Universal Charges for stranded debt and stranded contract cost. We encourage the public to keep abreast of the proceedings at the ERC on these petitions.
We wish to clarify that the proceeds collected by PSALM from the privatization of the government's power assets are intact and are not missing despite claims to the contrary.
These proceeds have been used and continue to be used by PSALM to service the financial obligations of National Power, as stipulated in Republic Act No. 9136, the Electric Power Industry Reform Act (EPIRA).
Of the USD10.653 billion so far generated by PSALM from privatization, only USD4.65 billion has been collected as of 31 July 2010, with the balance of the amount still due in deferred payments. The collected amount was used to settle a portion of National Power's financial obligations.
Since 2004, when PSALM's privatization program began, total National Power obligations had continuously gone down from USD19.49 billion to where it now stands at USD16.36 billion.
National Power's debt stood at USD16.5 billion before the enactment of the EPIRA in 2001. But this amount did not stay frozen over time. Interest alone caused it to increase. The debt further ballooned to as high as USD22.9 billion in 2003 because of the costs from new Independent Power Producer (IPP) contracts that came online amounting to USD1.75 billion. These contracts include San Roque, Kalayaan Units 3 and 4, Mindanao Coal Plant, Bakun and Ilijan.
Meanwhile, National Power's electricity rates did not allow it to recover its operation costs.
A presidential directive in 2002 to peg the Purchase Power Cost Adjustment to PhP0.40 per kilowatt-hour (kWh), which kept electricity charges down and 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 loss in National Power's revenues per year.
Likewise, 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.
The timeline cited by Mr. Ronquillo's column is also inaccurate. For instance, PSALM's prepayment of a portion of National Power's debt occurred a considerable time after - not before - the national government's absorption of a portion of the said debt. It is important to have a holistic - and correct - view of the timeline as the lapse of time had a significant effect on National Power's debt.
To illustrate, while the national government did absorb 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 (when EPIRA took effect). On this note, given the exchange rate at the time of the absorption, the impact to National Power was actually a relief of around USD3.5 billion, not USD4 billion as cited in the column. The difference is a significant amount.
Timeline aside, it is also worth noting that because of the timing variance between the cash inflows from the privatization proceeds and the maturity of National Power's debt obligations, PSALM still has to borrow to refinance maturing obligations.
PSALM borrowed USD2.2 billion in 2009 and PhP30 billion in 2010 to address National Power's debts that would mature in 2009 and 2010. The purpose 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.
We also note that even the authors of the EPIRA recognized that the privatization proceeds would not be sufficient to cover the debts incurred by National Power. Thus, Section 32 of the EPIRA requires the collection of Universal Charges to recover stranded debts or the UC-SD (any unpaid financial obligations of National Power which have not been liquidated by the sale and privatization of National Power assets) and stranded contract costs or the UC-SCC (the excess of the contracted cost of electricity under eligible IPP contracts of National Power over the actual selling price of the contracted energy output of such contracts in the market).
PSALM computed PhP470-billion stranded debts covering a 20-year period starting 2009 to be collected in a span of 17 years to cushion the impact on electricity consumers. Thus, on 30 June 2009, PSALM filed a levelized UC-SD application to recover the PhP470-billion stranded debts. At the time of application, there was no successful appointment of IPPAs yet. Accordingly, the PhP470-billion projected SD does not include any anticipated proceeds from the selection of IPPAs.
Pending the ERC's resolution on the levelized UC application of 30 June 2009, PSALM, in compliance with the commission's guidelines to file annually, filed the 2010 UC-SD application on 29 June 2010 amounting to PhP54.89 billion covering only the period January-December 2010. The amount is not on top of the PhP470-billion UC-SD application in 2009, but is an update of the forecasted UC-SD for 2010 only.
For the 2009 filing, the UC-SD forecast for 2010 was PhP67.33 billion. The PhP12.44-billion reduction in the 2010 UC-SD reflects the impact of the privatization, prepayments, and IPPA proceeds that PSALM has implemented and generated.
PSALM assures that the amount of the UC-SD to be collected from electricity consumers will further be reduced upon the completion of the sale of the remaining generation assets of National Power and the appointment of IPPAs.
The UC-SCC that PSALM filed in 2009 covers the 2008 operations of eligible IPPs in the amount of PhP22 billion, which PSALM proposed to be recovered in five years at PhP0.09 per kWh.
PSALM's filing of the UC-SCC this year, on the other hand, covers the operations of eligible IPPs for 2009 in the amount of PhP26 billion, which is proposed to be recovered in three years at PhP0.18 per kWh.
Please note that while PSALM, on the basis of the EPIRA's Implementing Rules and Regulations (Rule 17, Section 4-b-i), is directed to calculate National Power's UC-SD and UC-SCC, it is the ERC who ultimately determines, fixes, and approves these filings.
Finally, we emphasize that there has been no effort to conceal PSALM's accounts, and the public's questions "begging for answers" can be laid to rest by records that are publicly available. The allegation that PSALM lacked transparency is clearly unfounded. PSALM's financial records were submitted to the ERC as part of documents required for the petition for the UC-SD and UC-SCC. The Commission on Audit (COA) likewise reports on its review of PSALM's finances. These documents are publicly accessible from COA's and ERC's Web sites or from the offices of those agencies.
Corporate Communications Division