TransCo’s tragic tales

So what’s wrong with government’s attempts to privatize TransCo, which is regarded as one of the crown jewels in the government’s asset privatization effort? Once again, for the third time since 2003, bidding for TransCo’s 25-year concession hit a snag after only one of three interested groups submitted a bid, prompting government to again declare a failed bidding.

The recent resignation of TransCo’s president, Nieves Osorio (even as she stated it had nothing to do with the failed bidding), reflects that things are not quite right with the government firm, or for that matter, with the government’s attempts to privatize its holdings in the power sector.

One cannot help but feel a certain compassion for ICTSI director Jose Ibazeta, age 63, who has been appointed to replace Osorio. Will he succeed where others have dismally failed? Will his rumored link to the Palace through businessman Enrique Razon help?

The government is hoping to redeem itself by announcing that it will once again conduct a bidding for the concession, instead of entering into a negotiated sale with the lone bidder, the group of Citadel and Italy’s Terna.

According to Finance Secretary Margarito Teves, it may take at least a year before the next bidding for TransCo. Concerned officials are keeping their fingers crossed that the asset value does not diminish as the date of sale keeps being pushed back.

‘Winners and losers’

The decision to call for another round of bids no doubt makes the two bidders who decided not to submit their offers – Triratna of Henry Sy Jr., Ramon Ang, and Malaysia’s Tenaga Bhd. as well as Monte Oro of Walter Brown and China’s State Grid – exuberant.

Understandably, the Citadel-European consortium who alone submitted a bid is pissed off since, under the law, the government can enter into a negotiated sale after at least two failed attempts to sell a state asset. Makes one wonder whether the Italians partnered with the wrong group.

So why did this latest auction fail? According to those in the know, certain provisions of the bid documents – such as the cost recovery mechanism and the treatment of liabilities – were unacceptable to the other bidders. And we thought that these concerns were already ironed out when PSALM conducted lengthy consultations with these groups to the point of delaying the whole process and changing the bidding date several times.

So is there another game the bidders are playing?

Revenue cap issues

Bidding parties have supposedly also voiced out concerns over the allowed revenues considering that the concessionaire will have to invest close to P200 billion to upgrade and expand the facility in the next 10 years. This will include doubling its circuit kilometers currently at 21,000 kilometers so that the whole country’s grids and islands are inter-connected.

In a decision issued by the Energy Regulatory Commission last year, a five-year revenue cap was given to TransCo, which was actually lower than what TransCo had asked for. For 2006 to 2010, Transco was given a maximum allowable revenue of P192.18 billion by the ERC; Transco had asked for P312.8 billion.

TransCo claims that some of the firm’s projects in its asset base were disallowed by ERC, and that the regulatory agency had even deviated from assumptions made by the utility firm. ERC defended its decision and countered that TransCo has been allowed an approved weighted average cost of capital (WACC) of 15.87 percent as basis in determining the investment’s viability.

Valuing the jewel

Despite the haggling that has been going on, TransCo remains attractive because it is a natural monopoly that operates under a unique set-up. Specifically, its rates are set under performance-based regulation wherein efficient utilities can be guaranteed better profits.

The Citadel group said in a negotiated sale it is prepared to pay $3 billion for TransCo, and this in a sense gives us an indication of the asset’s worth.

What happens in the meantime? PSALM says it will concentrate on disposing Napocor’s power plants. At present, the total percentage of generating capacity now in the hands of the private sector has risen to 11 percent.

Over a year ago, the 600-MW Masinloc coal-fired plant was auctioned, but the sale agreement was terminated when the winning bidder failed to deliver the required downpayment. The plant will be auctioned off again in the third quarter of this year.

In the end, Osorio could claim to some achievements, however difficult the task that landed on her lap. Going beyond personalities though, there are issues that need to be addressed.

For example, to be able to entice investors to buy bigger power plants such as Masinloc, government needs to secure a guaranteed supply contract attached to the facility. Finance Secretary Teves said a pre-approved congressional franchise would be needed to make TransCo more attractive.  Does this mean we have to go back to where we all started in 2003?

Non-wager poker tournaments

The Philippine Poker Tour (PPT) is the leading advocate of non-wager poker tournaments in the country. The initial tournaments conducted during the last two years offered, at best, trophies and bragging rights. Now, with the growing support of poker tournament enthusiasts, PPT has elevated the level of competition with more attractive prizes at stake.

In 2006, two talented poker players, Derek Bautista from Baguio City and Chris Parker, a local expatriate business executive, became millionaires and won the coveted Champion Bracelet. The search for the next poker millionaire continues with the launching of the 3rd Philippine Poker Tour Million-Peso Championship.

Details of satellite/qualifying tournament schedules and venues for the 3rd PPT Million-Peso Event will be posted in the official PPT website, www.PhilippinePokerTour.com.  Interested parties may also call the PPT Secretariat (c/o Cindy) at 817-9092 or 812-0153.

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 [email protected] or at [email protected]. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.