Government may scrap most IPP deals due to onerous terms

BAGUIO CITY – The National Power Corp. (Napocor) is considering "financial options" that would enable it to buy out independent power plants (IPPs) without throwing the country into a debt crisis.

The government has just concluded its review of IPP contracts and officials said most of the contracts might have to be pre-terminated because of various onerous terms.

Finance Secretary and Napocor chairman Jose Isidro Camacho told reporters over the weekend that the beleaguered power company had no resources to be buying anything, but there were financial options that could take advantage of the actual buyout.

According to Camacho, Napocor is still in dire need of money but it is not currently negotiating any loan although several options are being considered by the board of directors.

"The most attractive of these options is to buy out the IPPs," Camacho said. Paradoxically, this proposal is expected to raise funds for the Napocor instead of draining its resources as well as those of the national coffers.

"The funding requirement for this kind of venture would be significant, so I was suggesting some basic restructuring in the buyout scheme," Camacho said.

There are at least – IPPs in the country and all of them have been subjected to a full review by the Department of Finance on suspicions of posing grave disadvantage to the government which was made to guarantee the profits of some of these IPPs.

The review results showed that some of the IPPs might have to be canceled outright, effectively pre-terminating their BOT contract with the government. Since then, the government has not actually made any plans on how it would handle the cancelled IPP contracts or what Napocor would do when it takes over the IPPs.

"If you look at a buyout, its actually project financing," Camacho explained. "This could be looked at as getting fund for a project."

The pre-termination of build-operate-transfer projects, Camacho said, would actually create new assets for the Napocor.

"Maybe some financing scheme can be worked out around that fact," Camacho said. "An investment banker would be willing to do it."

According to Camacho, however, the Napocor has not actually discussed any options and it had only begun toying with the idea. "We just floated the concept around," he said. "We are not sure if anything would come out of it, but it is the most attractive possibility so far."

Not all IPPs will be cancelled, but the Bureau of Internal Revenue (BIR) last year began scrutinizing their tax records to determine if the government could at least recover any unpaid taxes since the IPPs went into operation.

The BIR collected over P500 million worth of back-taxes they incurred in 1995 to 1997 as the commission issued a ruling that effectively taxed the income generated when the power plants were either under rehabilitation or still in their pre-operation testing.