The BSP gave its final approval to two separate loans from the ADB last weekend and also approved in principle a new program loan from the IBRD.
The ADB loan consisted of the $450-million power sector program loan and another $200 million for financial intermediation.
BSP Governor Amando M. Tetangco Jr. told reporters that the power sector loan from the ADB would finance the Power Sector Development Program.
Tetangco said the PSDP loan was a loan of the Republic with the Department of Finance (DOF) as the executing agency and the Department of Energy as the implementing agency.
"This is a policy-based loan for the Power Sector Development Program," Tetangco said. "The goal is to develop a financially sustainable, efficient and secure power supply to minimize the risk of power shortages."
Perhaps more than any other multilateral funding agencies, the ADB has expressed serious concern over the country’s looming power supply crisis that threatened to reverse economic growth in recent years.
Tetangco said the objective was to arrest the drain in government finances caused by power sector, thus freeing the funds for social services.
"The program is basically designed to strengthen the financial viability of the sector," Tetangco said.
Since it would be a program loan, Tetangco said the ADB facility would have attached policy conditions intended to strengthen the regulatory framework in the energy sector and further enhance market restructuring through competition.
Tetangco said the terms of the loan would include a 15-year maturity inclusive of a three-year grace period. Interest rate on the loan was tentatively set at six-month US LIBOR (London Interbank Overnight Rate) plus 60 basis points.
The loan would also carry a commitment fee equivalent to three-quarters of a percent on the undrawn balance which means that the government would have to be on time spending the loan or its commitment fee could end up making the loan expensive.
On the other hand, Tetangco said the BSP approved in principle the IBRD loan whose proceeds would be used for relending to strategic local development and investment projects.
Tetangco said the proceeds of the IBRD facility would be coursed through the Land Bank of the Philippines which would re-lend it to local government units that need access to viable financing.
"IT’s basically designed to improve the provision and management of public services by facilitating LGU access to financing," he said.