DOF instructs PSALM to stop incurring liabilities from ailing electric cooperatives

15 Dec 2021

The Department of Finance (DOF) has instructed the Power Sector Assets and Liabilities Management Corporation (PSALM) to stop providing ailing electric cooperatives with power supply that they cannot pay for. Secretary Carlos Dominguez III said that PSALM should not incur more liabilities arising from non-paying electric cooperatives. He stressed that PSALM’s mandate does not include subsidizing the energy requirements of ailing electric cooperatives.

Secretary Dominguez, who sits as the Chairman of the PSALM Board of Directors, mentioned that the National Electrification Administration (NEA) should resolve the issues relating to these ailing electric cooperatives. He pointed out that NEA is the government corporation with the mandate to provide quality financial, institutional and technical assistance to the electric cooperatives and ensure that they become efficient and reliable in bringing electricity to the countryside.

Secretary Dominguez explained that PSALM is not legally mandated to provide free electricity to entities which have no paying capacity. The principal purpose of PSALM is to privatize the assets of the National Power Corporation with the objective of liquidating all its financial obligations and stranded contract costs in an optimal manner.

Secretary Dominguez made these statements at the DOF’s Executive Committee meeting held on 06 December 2021, when PSALM reported the increasing unsettled receivables from Lanao del Sur Electric Cooperative Inc., (LASURECO) and Maguindanao Electric Cooperative, Inc. (MAGELCO). As of 31 October 2021, LASURECO’s unpaid obligation to PSALM amounts to PHP12.40 billion, while MAGELCO’s unpaid obligation amounts to PHP 2.91 billion.

PSALM President and Chief Executive Officer, Atty. Irene Besido-Garcia, raised to Secretary Dominguez the matter of the increasing receivables as an urgent concern, especially in light of the recent proposal of the Department of Energy (DOE) to designate PSALM as the Default Wholesale Supplier (DWS) of LASURECO and MAGELCO in the Wholesale Electricity Spot Market in Mindanao (WESM) for three (3) months starting 26 December 2021. PSALM is concerned that the three months of exposure as DWS will further increase the receivables from these electric cooperatives. Worse, there is no clarity on what the arrangements will be at the end of the said three-month period and how PSALM will be able to collect in full from the said coops.

Since NEA has lending, monitoring and regulatory powers over electric cooperatives, NEA will be in a better position to guarantee the purchases of electricity of LASURECO and MAGELCO in the WESM in Mindanao.

Related to these ailing electric cooperatives, the DOE had ordered PSALM to prioritize the full allocation for LASURECO and MAGELCO’s energy requirements despite their inability to pay in full their monthly billings from PSALM. The DOE, in its letter dated 06 May 2019, required PSALM to prioritize allocation to LASURECO and MAGELCO in order to avoid the recurring load dropping incidents in Mindanao that started on 15 March 2019, and to ensure that there would be no power interruption during the 2019 election and canvassing of votes. On 17 March 2020, PSALM again received a letter from the DOE enjoining PSALM to prioritize the allocation to LASURECO and MAGELCO to assist Mindanao with its COVID-19 response efforts.

For the past two (2) years, LASURECO and MAGELCO have been drawing their full energy requirements from PSALM but have not been paying PSALM in full. Unfortunately, PSALM could not limit their allocations because of the abovementioned DOE orders.

Garcia estimates that if PSALM will become the DWS of LASURECO and MAGELCO, the estimated increase in receivables will be PHP133.42 million from LASURECO and PHP85.48 million from MAGELCO, or a total of PHP218.90 million for the three-month period as DWS.

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