Sy Jr acquires Razon stake in National Grid

MANILA, Philippines - Henry Sy Jr. of the SM Group has finally entered the power industry with his acquisition of a 30-percent stake in National Grid Corp. of the Philippines (NGCP), the operator of the country’s transmission highway, for $350 million.

In a statement, OneTaipan Holdings Corp., a company controlled by Henry Sy Jr., said it has bought out Monte Oro Grid Resources of businessman Enrique Razon, which owns the 30-percent stake in NGCP.

The NGCP consortium is composed of State Grid of China Corp. with 40-percent equity, Monte Oro Grid Resources Corp. and the Coyiuto group’s Calaca High Power Corp. with another 30-percent shareholdings.

 On Jan. 15, 2009, state-owned National Transmission Corp. (TransCo) officially turned over the management and operation of its nationwide power transmission system to NGCP. The concession period is for 25 years and renewable for another 25 years.

OneTaipan Holdings said it will fund the acquisition from equity and debt arranged by a foreign financial institution.

“The investment represents our commitment to be a part of the power sector which is a critical engine to the country’s development and growth. NGCP’s ability to provide a reliable and cost-effective transmission facility and services will directly redound to the benefit of various industries and the masses,” Sy Jr. said.

He said his company will work closely with the other shareholders to ensure that NGCP delivers on its commitment to provide transmission reliability and efficiency and this, he believes, is anchored on continuously improving its facilities and keeping the NGCP workforce highly motivated.

Sy Sr. previously qualified in the transmission company’s privatization in 2007 under Tri-ratna Holdings but did not join the formal bidding.

In October 2009, he also made an offer to acquire the Lopezes’ 13-percent stake in Meralco for P300 per share (approximately $942 million in value) but his offer was matched by the PLDT Group. 

Informed sources, however, said Monte Oro got $590 million for the deal. It was not explained why the acquisition amount disclosed by the Sy group differed from what the Monte Oro claimed to have received from the buy out.

Sources said the appointees of Monte Oro in NGCP’s operations are expected to vacate their posts later this week as soon as the cheque payment clears.

Rumors on the supposed buyout had been going around the industry since the start of the year. There were earlier reports that the Coyuito and Razon groups have been squabbling since they took over the operations of NGCP, resulting in a compromise to buy out each other on a specified date.

Before the sale, the names of Henry Sy Jr. and San Miguel Corp. cropped as among those that would partner with Calaca to buy out the Monte Oro group.

For his part, Sn Miguel president and COO Ramon Ang told reporters the food and drinks conglomerate has nothing to do with the sale.

 “I would like to clarify this, once and for all. San Miguel did not spend even one peso to join that transaction. Even if you spent just a peso, you have to disclose that. The EPIRA says you cannot be in both (generation, transmission),” Ang said.

The concession contract amount to $3.95 billion, 25 percent of which, or $987.5 million was paid on commencement date and the balance on semi-annual installments for 20 years.

It was not known if the changes in the stockholders’ composition within NGCP would warrant a review of the company’s franchise.

For its part, Power Sector Assets and Liabilities Management Corp. (PSALM), a government entity tasked to privatize TransCo., said it would, as a normal course of business, review the provisions of the concession agreement signed with the government.

“It is part of our duty to regularly review the compliance of the concessionaire to the agreement signed with the government,” PSALM vice president Conrad Tolentino said.

He said there are provisions in the concession agreement which would ensure accountability of stockholders to comply with the standards set in the contract.

“We always presume that the agreement within the company was done in good faith and we are not assuming that there would be violations. But it would be prudent for PSALM to check on the compliance with the concession agreement,” he said.

It would be noted that NGCP, in a petition to the Energy Regulatory Commission (ERC), said its proposed capex budget is more than double the roughly P40 billion the government has allocated for the power grid from 2006 to 2010. 

The ERC rule allows NGCP a five-year regulatory period whereby it could outline its spending requirements and revenue cap.

Based on these capital requirements, the ERC will calculate the country’s transmission rates, or the cost of delivering power to be charged by NGCP from power plants to the distribution utilities.

Of the proposed P90 billion, some P8 billion will be alloted for TransCo’s operations from regulatory period 2011 to 2015.