Government may extend deadline for privatization of Transco

The government is eyeing the extension of the end-year target for the privatization of the National Transmission Corp. (Transco) as new groups of interested bidders surfaced recently.

Energy Secretary Vincent Perez said the Power Sector Assets and Liabilities Management Corp. (PSALM) board was set to meet yesterday to discuss the possible extension of the target timetable and the selection process in Transco’s privatization.

Perez said the move came following the re-submission of the term sheets from interested bidders vying to manage and operate the national electricity grid through a concession agreement.

Perez said while they would try to stick with the yearend target, the PSALM board will still discuss the possibility of allowing more time for the new interested bidders to study their investment options.

The STAR learned that Metro Pacific Corp., the local flagship of Hong Kong-based First Pacific Co. Ltd. and one of two new potential investors in Transco, would need at least six months to conduct due diligence on the privatization.

First Pacific and local food and beverage conglomerate San Miguel Corp. (SMC) have earlier confirmed interest in Transco as a possible investment, although analysts said the project seemed beyond the expertise of the cash-rich SMC, Southeast Asia’s biggest food and beverage company.

First Pacific, on the other hand, already has exposure in local infrastructure projects, among them ownership in Philippine Long Distance Telephone (PLDT) and tollways operator Citra.

Perez said five bidders have been asked to resubmit a revised term sheet last Friday as they have met the technical and financial requirements needed to manage and operate Transco’s transmission assets which make up the country’s high-voltage lines.

"We are pleased with the financial and technical depth of the five initial bid qualifications," Perez said, adding that the PSALM board is currently reviewing the term sheets.

"We are reviewing five revised offers for Transco’s privatization. We can’t confirm the identity of any of the bidders because we want to maintain competitiveness between the prospective bidders. We may need to review them again given the many different aspects of Transco’s privatization being addressed by various term sheets," Perez said.

PSALM advisor Edgardo del Fonso said big local conglomerates, including those owned by the Ayalas and the Gokongweis, were earlier sent feelers to participate in the government’s privatization plan. "But we never saw them surface. They did not come forward," he said.

A highly-placed industry source said of the five companies that submitted their indicative offers for Transco, two are local entities and three are foreign groups.

The source added that two of the three foreign firms are from Japan and Australia. One the other hand, Singapore Power Ltd., the lone bidder in Transco’s two failed auction last year, and US firm AES Corp., which reportedly expressed keen interest in Transco, were not included in last Friday’s list.

Meanwhile, four Japanese firms were earlier reported to have indicated plans to participate in the bidding. They are Kansai Electric Corp., Kyushu Electric Corp., Electric Power Development of Japan and Tokyo Electric.

PSALM, the government entity tasked to privatize the state-owned generation, transmission and related assets under the Electricity Power Industry Reform Act (EPIRA), first bid out the transmission facilities in July 2003. The bidding failed as only one party, Singapore Power, submitted a pre-qualification proposal. A second bidding in Aug. 2003 also failed as the same party — Singapore Power - showed up. Government rules on the disposition of its assets allow negotiations after two failed biddings.

Transco’s assets, valued at around $2 billion, would be privatized through a concession agreement for a period of 25 years renewable for another 25 years subject to performance conditions. The government will require at least 25 percent of the enterprise value of the business, payable upon closing of the transaction.

As an incentive, investors have the option to pay the balance in installments over a period of up to 25 years.

In case of a joint venture or consortium with foreign investors, a foreign participant must have financial and technical capability with proven domestic or international experience as operator of a transmission system with capacity and coverage comparable with that of the Philippines.