Power assets auction to go puff?

The government vows to officially start the auction of the government power assets during the first quarter of the year, even if the only ones being contemplated to kick-start the exercise will be the selling of the low-key Talomo hydro plant in Mindanao or the decommissioned Navotas power barges.

According to our friends at the Power Sector Assets and Liabilities Management Corp. (PSALM) which is strategizing the sale of the National Power Corp. (Napocor), the government is pushing through with the scheduled bidding before elections, come hell or high water.

More so, they add, the National Transmission Corp. (Transco) will go in the first half of the year or within the election period.

These sound very serious promises, considering that for two years in a row now, the government has been plotting hard to sell of the generating plants of the Napocor and its spun-off transmission interest, Transco, to plug the country’s yawning budget gap.

Unfilled Economic Prescription

The Napocor sale is a much-needed fund-raising exercise and a prescribed economic reform strategy by our most influential economic advisers and donors, among them, the International Monetary Fund and the Asian Development Bank. However, its getting deferred year after year is negatively affecting the country’s ability to secure foreign credit.

The Transco concession alone is expected to generate some $2 billion for the government. On the other hand, the Gencos or generation companies representing the eight clusters of power plants and a number of individual plants are valued at more or less $3 billion.

Though we don’t expect the sale to come in one fell swoop, Energy Secretary Vince Perez, ever the "Good News" peddler, is telling the whole world that he’s selling Napocor’s 35 power plants in 2004. How he will do that during an election year is still a well-guarded secret.

Beware Of The Election Virus

Even before the election fever could sizzle, politics had already started wreaking havoc on the economy. It is therefore not surprising that new investors dread Philippine politics like a killer virus, especially the kind of politics that prevails in this part of the world during national elections.

While it is acknowledged that the country’s increasing power demand and a looming potential power crisis two years from now could be enough enticement for investors looking to sink in money for new ventures, the uncertainties surrounding the forthcoming national elections are turning them away.

Elections Hex Local Investors, Too

Local energy conglomerates, and I’m not referring solely to the Lopezes, Aboitizes, and the Alcantaras, are noting with concern that the conduct, not alone the outcome, of the national elections are closely being watched by their foreign partners and the international financing community.

Most of them have been scouting for foreign partners to raise the large capital requirement for these acquisitions. Given the timetable set by the DOE, some serious due diligence should have been taking place by now. But it seems no one is moving along this phase at this stage.

More Concerned About Contracts Being Junked

Setting aside uncertainties of the elections, prospective investors are deeply more concerned about the perceived propensity of the courts to void contracts that had undergone the full bureaucratic process and government approval. The sad saga of government-approved contracts such as the PEA-Amari and PIATCO is still vivid in their minds.

And of course, the latest economic jolt from the courts (Biz Links, Philippine Star, Feb. 2, 2004) has investors in the mining sector shocked and numbed. All government-approved agreements with mining companies are now on hold following the court’s eight-year delayed decision on certain provisions of the Mining Law. There are also fears that the contracts covering oil and gas development are in peril despite expressed assurances from the Department of Energy.

The trials and tribulations of the independent power producers (IPPs) are also chilling the spines of less sturdy investors. From saviors, the IPPs have become villains after the current administration applied the pressure and pushed for revisions of terms and conditions on existing valid contracts.

Definitely, no contract holder feels comfortable when confronted with threats of political pressure and cancellation of long-term contracts unless concessions are given. What is the assurance that this administration (if re-elected) or a new administration will not again subject these contracts to review just to earn political points?

Sad to say, I don’t expect much from this privatization exercise, at least for the moment.

Our Growing Dependence On OFWs On TV

"Isyung Kalakalan at Iba Pa" on IBC News (4:30 p.m. and 10:30 p.m., Monday to Friday) starts today a discussion of our overseas Filipino workers, regarded as the country’s modern day heroes. The Philippine economy has grown to be so dependent on the constant and increasing inflow of foreign exchange from them. In fact, a future without the regular remittances of our workers has become unimaginable. And yet the specter of eight million Filipino workers returning home because overseas work opportunities have dried up is a reality. If not this year, it could be next year, or the following year. Are we preparing for this eventuality? Watch it.

‘Breaking Barriers’ With BIR Commissioner Parayno

"Breaking Barriers" on IBC (11 p.m. every Wednesday) will feature Commissioner Guillermo L. Parayno, Jr. of the Bureau of Internal Revenue on Wednesday, Feb. 18.

Whenever one speaks of corruption in government, one of the agencies that immediately come to mind is the Bureau of Internal Revenue (BIR). Is the BIR hopelessly corrupt? Several efforts to introduce drastic reforms in the structure and major processes of the tax administration system failed time and again to gain the support of the bureaucracy and the legislative bodies. Somehow the resistance to change is so strong that anyone who tries to push for changes and thus get to step on many toes somehow gets kicked out eventually.

The other black mark in the image of the BIR is its failure to get the big fish. A number of large tax cheats remain at large boldly challenging the government to get them. And they have been successful. As long as the big fish get away, the small ones will always look for creative ways not to get caught and tax collection will always be lower than what it should be.

Join us break barriers with Commissioner Guillermo L. Parayno Jr. and gain insight on various issues affecting the Bureau of Internal Revenue and Philippine business in general.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reygamboa@linkedge.biz. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.