"We agreed with the government that there should be concrete progress on the privatization in the power sector before we move with the $250 million partial credit guarantee," ADB country director for the Philippines Thomas Crouch said in an interview.
Crouch said since part of the privatization process is the transfer of the Napocor assets and liabilities to PSALM (Power Sector Assets and Liabilities Management Corp.) "that is part of the progress we need to see before we give the partial credit guarantee.
He added they also want to see the transfer of the transmission function of Napocor to the new entity created under the Electric Power Industry Reform Act of 2001 (EPIRA), the National Transmission Corp. (Transco).
Both PSALM and Transco were created under the EPIRA as part of the restructuring and privatization of the power sector. Transco is a spin-off company that will absorb the transmission function of Napocor while PSALM will assume all the assets and liabilities of Napocor. Transco and Napocor will operate under the supervision of PSALM.
The ADB official recognized the efforts of the government particularly the regulatory body in providing some policy directions and guidelines.
"There had been progress. The government has issued guidelines on wheeling charges on the transmission/distribution. They have changed the way by which the tariff should be determined from return on rate base to performance-base rate," he said.
Crouch said the ADB supports the privatization scheme being carried out by the government. "At the moment, (it) appeared that it does not allow the transfer of the franchise of Napocor to Transco. And what the government is proposing is that it will be done in two stages. There is a concessionaire but the government will still own the assets and the concessionaire will maintain and operate and then the concessionaire will have to apply for the franchise," he said.
Last year, the ADB agreed to extend partial guarantee to government’s borrowing for Napocor amounting to $750 million.
PSALM had successfully issued $500 million of the $750 million through a bond offering late last year. The remaining $250 million will be carried out this year pending the government’s compliance to the ADB’s conditions.
"We are just waiting for this particular progress. The government is already working things out. The $250 million additional partial credit guarantee will only happen if the privatization progress is attained," Crouch said.
The $250 million ADB-backed bond float will form part of the $1.2 billion financing requirement of Napocor for 2003 particularly as payment of the company’s maturing debts and operating expenses.