PSALM settles $18-B Napocor obligations incurred since 2001

MANILA, Philippines - State-run Power Sector Assets and Liabilities Management Corp. (PSALM) reported on Friday that it has settled about $18 billion worth of National Power Corp. (Napocor) debts since 2001.

PSALM said when Napocor was restructured under the Electric Power Industry Reform Act (EPIRA) in 2001, its financial obligations stood at $16.39 billion.

The power privatization manager said it has paid $11 billion in Napocor’s debts - broken down into the principal amount of $6.7 billion and the accrued interest of $4.3 billion - and $7 billion in independent power producer (IPP) obligations, or a total of $18 billion.

It pointed out that Napocor’s liabilities increased significantly after the enactment of the EPIRA because of commitments and obligations to sustain its operations.

Foremost among these accountabilities is the commissioning of new IPP plants that raised its total financial obligations to $22.35 billion in 2003.

When PSALM started to implement the government’s privatization program, it had to resolve various plant-specific activities to prepare the plants for a smooth auction and to make them more attractive to investors.

PSALM said the privatization program went into full swing only in 2004.

In the meantime, Napocor had to incur new loans to sustain the operations of the plants under its portfolio.

Through the years, Napocor continued to operate at a loss because the regulated power rates were not reflective of the true cost of power production. Thus, Napocor resorted to more borrowings to cover both the actual and the projected shortfall from its operations.

PSALM records show that Napocor’s operational losses from 2001 to 2010 amounted to $8.8 billion, excluding debt and IPP maturities, because of subsidies and regulated rates.

The commissioning of the new IPP plants, on the other hand, amounted to $3.2 billion. Thus, the aggregate amount of new debts reached $12 billion on top of the $16.39-billion liabilities posted in the pre-privatization phase.

Napocor also incurred foreign exchange losses from its foreign loans because of the peso depreciation in the initial years of the EPIRA implementation.

The mismatch between Napocor’s maturing debts and the collection of privatization proceeds compelled PSALM to incur new loans to check the accumulation of maturing debts.

In 2008, when the asset and debt transfer from Napocor to PSALM was consummated, PSALM started its refinancing program to settle these maturing obligations.

PSALM pointed out that the proceeds from the sold power assets have reached $10.65 billion as of 2010.

Of this amount, an estimated $4.85 billion was collected, $4.84 billion of which was used to pay Napocor’s obligations.

Under the privatization contracts, proceeds from the IPP contracts and the transmission concession will be fully paid in a number of years through a staggered collection scheme.

But in any year when maturing debts exceed privatization collections, PSALM will have no recourse but to raise funds through new loans to pay for maturing obligations.

PSALM expects to substantially reduce the liabilities of Napocor to an indicative amount of $3.78 billion by 2026 when it factors in all payments from the privatization of power plants, the transmission business, and the proceeds from Napocor’s contracted capacities in the IPP plants that had been successfully bid out through transparent public auctions as of December 2010.