Valuation, legal issues cloud Transco privatization

The privatization of the National Transmission Corp. (Transco) still can’t readily take off as asset valuation and legal issues continue to cloud the process, government sources said.

Transco, an entity created under the Electric Power Industry Reform Act (EPIRA) to handle the transmission assets of the National Power Corp. (Napocor), was put on the auction block twice since last year but both biddings ended in a failure as only one party – Singapore Power Corp. – made an offer.

Sources said one issue on hand is that the assets, under the Commission on Audit (COA) guidelines, could not be sold below their purchase cost.

"There may be a need to look at this COA issue and to re-evaluate the Transco assets," the sources said.

The sources added that the government is still figuring out if Transco has the legal authority to enter into a negotiated bid.

"As we all know there is only one bidder so there is a need to enter into a negotiated deal. But we need to know if Transco or the Power Sector Assets and Liabilities Management Corp. (PSALM) have the legal authority to do it. They are seeking the opinion of the Solicitor General," the sources said.

PSALM, also created under the EPIRA, is in charge of the entire privatization of Napocor’s transmission and generation assets, including the sale of the power firm’s purchased power contracts with its independent power producers (IPPs).

But the Napocor assets have not been officially transferred to PSALM as the latter is still seeking the approval of the state-owned power firm’s creditors, particularly the multilateral financial institutions such as the Asian Development Bank (ADB) and the World Bank.

PSALM and Transco officials also admitted that formal negotiations with Singapore Power Corp., the sole bidder of the Transco assets, have yet to start.

While talks with the Singaporean power firm have yet to commence, government officials indicated that two more firms – a Finnish power firm and a multinational company – have signified interest in bidding for Transco’s assets.

The privatization of these assets will raise an estimated $5 billion that could be used to pay up the liabilities of Napocor.

Based on the approved privatization plan for Transco, a concessionaire, which can finance, operate, expand and maintain and manage the transmission facilities, can enter into a 25-year lease agreement, renewable for another 25 years, with the government.

The concessionaire is also allowed to pay its lease on a deferred scheme over a certain period of time.