Salcon IPO proceeds won’t go to Eight Islands project

Newly-listed energy firm Salcon Power Corp. (SPC) may not be able to channel the proceeds of its initial public offering (IPO) to the 50-megawatt Eight Islands diesel project due to a legal impediment involving its contract with the National Power Corp. (Napocor).

The company told the Philippine Stock Exchange that under the implementing rules and regulations (IRR) of the Electric Power Industry Reform Act of 2001, Napocor is prohibited from incurring new obligations to purchase power through bilateral contracts with other generation companies.

In an April 10, 2002 letter, Napocor advised SPC that it "is constrained not to pursue anymore" the implementation of the project, which would put in line an additional 50-MW capacity on a built-own-operate (BOO) basis to eight designated islands in the country.,

SPC, through its wholly-owned power generation subsidiary Salcon Island Power Corp. (SIPC), submitted in Dec. 1998 its bid for the development of the bunker-fired diesel generating set power plants in the islands of Palawan and Marinduque in Southern Luzon; Masbate, Catanduanes and Romblon in the Bicol region; Cebu in Central Visayas; and Sulu and Tawi-Tawi in Southern Mindanao.

After evaluation, Napocor issued in Feb. 2000 a letter of provisional award to SPC. Shortly thereafter, negotiations for a power purchase agreement for each of the eight islands commenced.

The PPAs are currently with the National Economic and Development Authority (NEDA) for review and clearance. SPC had hoped to sign within this semester.

While SPC said it intends to discuss the matter with Napocor at the earliest possible time to determine how the power requirements of the eight islands may be served, it "is also now considering other projects in lieu of the Eight Islands Diesel Project." In the meantime, it invested the net proceeds from the IPO in short-term fixed-income securities with various banks in Metro Manila.

The Eight Islands project was designated to be the beneficiary of the proceeds from the subscription of primary shares of SPC’s IPO held last March. SPC offered 20 percent of its outstanding shares at P1.80 each, generating net proceeds of about P510 million.

The Eight Islands project, costing about $27 million or P1.4 billion, will be funded with a 30-percent equity from SIPC amounting to P417 million to be partially taken from the IPO. The remaining 70 percent will be financed through loans.