Energy Secretary Raphael P. M. Lotilla when asked by reporters about the status of the Masinloc transaction, and without denying or confirming the reported failed deal, said he is leaving it up to the Power Sector Assets and Liabilities Management Corporation (PSALM) "to handle the matter."
PSALM, right after last year’s bidding, noted that if the deal with the winning bidder is not consummated, the only recourse would be to re-bid the asset, and will not in any way, be awarded to the second highest or the other bidder.
It was gathered that the winning bidder failed to raise the required 40 percent upfront payment out of its $561-million winning bid for the asset; and this was primarily attributed to PSALM’s crashed attempts to complete its mandate to secure all necessary lenders’ consent; and given this scenario, the government may not even be able to invoke its right to forfeit the security deposit submitted by the winning bidder, YNN Pacific Consortium, Inc.
The transaction’s death blow came when Japan Bank for International Cooperation (JBIC) set out very stringent conditions for it to concede on giving creditor consent.
The Masinloc deal was supposed to be completed before the end of this year; but given the time constraint that would be afforded to the winning bidder to raise financing and still to wait for JBIC consent, industry watchers see it almost impossible for the transaction reaching closure; thus, the need for PSALM to scour for options this early.
Under the transaction documents, it was provided that the seller has until the "sunset date" which is 270 days from effective date; to secure its own consents. "Effective date" is reckoned from the day the seller (which is PSALM) issues certificate of effectivity of the agreement.
But before it is able to secure its own consents, the seller will not turn over possession of the asset to the buyer. Only after the sunset date can the buyer back out of the transaction.
It should be noted that the "sunset date" may be longer than 270 days if the effective date is somehow extended.
Investors have opined that the Masinloc bidding last December was not able to attract most of the large-ticket traditional players in the power sector because of the risks associated with the privatization exercise; including the level of liabilities and obligations to be transferred to the buyer, which are not clearly defined in the bidding terms of reference. It has been culled that there was no list attached to the documents indicating which liabilities are to be absorbed by the buyer.
The provisions as could be gleaned from the terms of reference (TOR), they noted were "loosely worded" to include liabilities made available for review "in the data room or elsewhere."
It should be noted that even in the absence of documents evidencing such liabilities, the buyer is still made liable if there is any indication of such liabilities. Investors have raised that the potential presence of undisclosed liabilities can have a material impact to the buyer if these "undisclosed liabilities" would turn out to be very substantial.
It has been contended that the buyer would be exposed to risk for an extended period of time for damage that may be caused to the asset while not yet in its possession to secure the premises.
One of the enticements set for the asset was the prospect that the buyers of the Masinloc power facility could gear up for an expansion to meet capacity addition when supply-demand gap closes for the Luzon grid come 2008 or 2009.
"There is a potential to build a third unit… and the plant’s useful life can be as long as 50 years," PSALM has noted.
The plant currently has two units with 300-MW of installed capacity each; and the expansion could be at another 300-MWs.
It has been emphasized that if the new owners of the facility would decide to expand, this would provide them some "economy of scale" because it would save them from site provision and right-of-way clearances, thus, resulting in lower investment cost.
