The Power Sector Assets and Liabilities Management Corporation (PSALM) is now advancing discussions with the Asian Development Bank (ADB) on requested partial credit guarantee (PCG) for initial $500 million worth bond issue that it wants to raise for the funding needs of the National Power Corporation.
The loan under discussion is just the first tranche of the US$1.0-billion loan agreed with the Philippine government under the Power Sector Development Program being pursued by the ADB for the domestic electricity industry.
"The face value of the bond issue under discussion will be up to $500 million," it was stated in PSALM’s official documents.
Under the PDSP, ADB noted that it agreed to extend a partial credit guarantee for PSALM’s management of liabilities; which will include long-term obligations for NPC’s power contracts.
As contained in a Memorandum of Understanding (MoU) inked between the Bank and the Philippines’ Departments of Energy and Finance, the PDSP will be divided into two sub-programs.
Under sub-program 1, a policy-based program loan of $450 million will be provided from ADB’s ordinary capital resources; and this is intended to benefit the power sector, including PSALM.
Sub-program 2, on the other hand, will be supported by a loan, with the amount and tranching to be determined by both parties.
It would be noted that in August this year, PSALM has successfully spearheaded the re-entry of NPC into the international capital markets with the issuance of six-year floating rate notes valued at $300 million backed by sovereign guarantee, and this was used to finance the maturing debt obligations of NPC, capital expenditures and the power firm’s general funding requirements for 2005.
It was gathered that NPC’s operational and accumulated liabilities already reached
P371.4 billion (or roughly $6.6 billion) as of December 2004; net of the P200 billion absorbed by the national government as mandated under the Electric Power Industry Reform Act.
The ADB has emphasized that restoring financial viability of NPC or its transferee-company PSALM by rationalizing its debt service profiles and raising adequate revenues through tariffs, universal charges and privatization proceeds, will be key to injecting some form of market solidity; that in turn, would be able to help attract new investments for the country’s power sector.
The other area that the ADB wants to target in its new program for the Philippine power sector would be on strengthening the institutional capacity of the Energy Regulatory Commission (ERC) as the industry regulator.
"In order to revitalize investments in private sector which have been affected by issues surrounding lack of effective legal and regulatory framework, the government needs to strengthen the capacities of the ERC," the Bank stressed.
With all eyes set on how it would eventually evolve as a strong policy enforcer, the ERC has been taking enormous effort to enhance its technical capacity to set appropriate rates and regulate the industry so that participants have recourse and are assured they can recover reasonable costs, while consumers benefit from improved efficiencies and service delivery.
It is also keeping up with expectations that it will develop further competence with respect to competition rules, as well as ensuring open access to transmission and distribution lines.
The ADB is likewise extending utmost support in ensuring the implementation of a wholesale electricity spot market; and in enforcing clear market rules including prudential guarantees from participants, and risk mitigation facilities to support and improve the reliability of market transactions. (MMV)
