10 banks offer to help Napocor raise $1.3-B

At least 10 foreign banks have submitted proposals to the Power Sector Assets and Liabilities Management Corp. (PSALM) to raise portion of the $1.3 billion financing requirement of the National Power Corp. (Napocor) for 2004.

PSALM president Edgardo del Fonso said most of these banks have proposed either to underwrite a direct loan or lead manage a bond float.

Under the Electric Power Industry Reform Act (EPIRA) or Republic Act 9136, PSALM will manage the finances of Napocor.

Del Fonso said PSALM is still in the process of studying what kind of borrowing scheme they will use.

The PSALM chief said ING Barings, which submitted a proposal to handle the $250 million bond offering of Napocor is just one of those that they are considering.

PSALM intends to raise about $250 million in the first quarter of next year. This will cover the financing needs of Napocor for the first three months of 2004.

According to del Fonso, Napocor will need about $1 billion to pay off maturing obligations ($900 million) and payments of capacity fees for independent power producers (IPPs) for 2004.

He said Napocor will need additional $300 million for its coal requirements for next year on top of the fuel oil costs.

But del Fonso clarified that the amount of 2004 financing requirement of Napocor will depend on the outcome of the company‘s privatization; the tariff increase that will be granted by the regulators; and universal charge that it will collect in the future.

Under the EPIRA, PSALM can collect universal fee from the electricity end-users to recover stranded costs and stranded debts of Napocor.

According to the law, the National Government will also infuse P200 billion to Napocor. But del Fonso said they do not intend to tap this fund yet from the National Government. "We have no immediate plan to tap this fund. As long as we are able to raise funds, we will not call on that or ask for a cash infusion from the government.

PSALM official said aside from commercial borrowings in the domestic and foreign sources, about 40-50 percent of the company’s loan requirement is also being sourced from multilateral sources like the Asian Development Bank (ADB) and Japan Bank for International Cooperation (JBIC).

Before raising funds for Napocor, del Fonso said they will have to integrate the borrowing needs of Napocor, National Transmission Corp. (Transco) and PSALM.

"Once we agreed on the numbers, we can start developing a structure. At present, I can say that we are not in the position yet to go to the market. We have to go through the process," he said.

He said after determining the magnitude of loan they need for 2004, they will have to convince the NG, through the Department of Finance (DOF) for a guarantee.

After securing a guarantee from DOF, they will have to choose from the submitted proposals from banks which borrowing scheme PSALM will use. „Then we will apply with the monetary authority (Bangko Sentral ng Pilipinas) for the approval of the loan,‰ he said.

In a related development, he said PSALM will have to set aside the $250 million partial guarantee coming from ADB.

"That (partial guarantee from ADB) is on hold. The bank has imposed some conditions that we can not still comply with like the privatization of Transco. This is why we will have to look for alternative sources of funding," he said.

The ADB, meanwhile, warned that if the government still fails to privatize the assets of the Napocor by next year or at least show signs of developments in the early months of next year, it could finally loose interest to resume its activities in the power sector.

Patrick Giraud, ADB director for infrastructure division of the Southeast Asia department said the bank would like to see developments in the planned privatization of the Napocor and Transco.

Giraud said ADB also wants to see how the Energy Regulatory Commission (ERC) will play an important role in the coming months.

"We are still waiting for further progress related to power reforms. If it still not happen, let‚s say we wait for six months right before elections and another six months right after the election, then we have to take a new position. We have been waiting since last year and I think we will keep on waiting only this time it might take longer because there is election coming up next year,‰ Giraud said.

"If there is too much delay in the privatization process not only in the generation assets but also in the transmission assets, to which everyone knows now that there is an oversupply but in 2007 or 2008 there will be supply problems, then this will create a problem. But we want the government to know that we intend to assist them through partial credit guarantee which could either be linked to an existing project or probably a new one,‰ the ADB official said.

To date, Napocor‚s total loans amount to about $7 billion while its overall assets are valued at $4 to $5 billion. The state-run power generation firm pays $500 million every year for interest payments of these loans.