27 May 2011
USD18 billion has already been paid to settle the financial obligations of the National Power Corporation (NPC) that stood at USD16.39 billion in 2001 when the Electric Power Industry Reform Act (EPIRA) was enacted.
The Power Sector Assets and Liabilities Management (PSALM) Corporation made the clarification in response to a media statement claiming that the privatization agency has failed to efficiently manage the debts of NPC that currently amounts to USD15.8 billion. NPC's debts, in fact, have gone down from the pre-privatization figure in 2001, PSALM stated.
If the debts of the state-owned utility firm had remained at their 2001 level, PSALM would have wiped out these financial obligations, PSALM pointed out. For the period 2001 to 2010, PSALM paid USD11 billion in NPC's debts - broken down into the principal amount of USD6.7 billion and the accrued interest of USD4.3 billion - and USD7 billion in independent power producer (IPP) obligations, or a total of USD18 billion.
The liabilities of NPC, however, increased significantly after the enactment of the EPIRA because of commitments and obligations to sustain its operations. Foremost among these accountabilities is the commissioning of new IPP plants that raised its total financial obligations to USD22.35 billion in 2003.
When PSALM started to implement the government's privatization program, it had to resolve various plant-specific activities to prepare the plants for a smooth auction and to make them more attractive to investors. Thus, the privatization program was in full swing only in 2004. In the meantime, NPC had to incur new loans to sustain the operations of the plants under its portfolio.
Through the years, NPC continued to operate at a loss because the regulated power rates were not reflective of the true cost of power production. Thus, NPC resorted to more borrowings to cover both the actual and the projected shortfall from its operations.
PSALM records show that NPC's operational losses from 2001 to 2010 amounted to USD8.8 billion, excluding debt and IPP maturities, because of subsidies and regulated rates. The commissioning of the new IPP plants, on the other hand, amounted to USD3.2 billion. Thus, the aggregate amount of new debts reached USD12 billion on top of the USD16.39-billion liabilities posted in the pre-privatization phase.
NPC also incurred foreign exchange losses from its foreign loans because of the peso depreciation in the initial years of the EPIRA implementation.
The mismatch between the maturing debts of NPC and the collection of privatization proceeds compelled PSALM to incur new loans to check the accumulation of maturing debts. In 2008, when the asset and debt transfer from NPC to PSALM was consummated, PSALM started its refinancing program to settle these maturing obligations.
PSALM pointed out that the proceeds from the sold power assets have reached USD10.65 billion as of 2010. Of this amount, an estimated USD4.85 billion was collected, USD4.84 billion of which was used to pay NPC's obligations.
Under the privatization contracts, proceeds from the IPP contracts and the transmission concession will be fully paid in a number of years through a staggered collection scheme. But in any year when maturing debts exceed privatization collections, PSALM will have no recourse but to raise funds through new loans to pay for maturing obligations.
PSALM expects to substantially reduce the liabilities of NPC to an indicative amount of USD3.78 billion by 2026 when it factors in all payments from the privatization of power plants, the transmission business, and the proceeds from NPC's contracted capacities in the IPP plants that had been successfully bid out through transparent public auctions as of December 2010.
Strategic Communications and Partnership Division |