RP faces $10 billion in power company debts

RP faces $10 billion in power company debts

MANILA, Philippines (AP): The Philippine government or electricity consumers will have to shoulder as much as US$10.5 billion of liabilities after state-owned National Power Corp. is privatized, according to a report by Credit Suisse First Boston Corp.

Credit Suisse said its preliminary valuation of Napocor's assets and estimate of the present value of its financial debt and power purchase agreements with various power companies indicates "a shortfall of privatization proceeds against liabilities of between $9.5 billion and $10.5 billion."

"This gap will have to be directly borne by the government or by consumers through some form of transition charge added to the wholesale market price of electricity," Credit Suisse said.

Credit Suisse and SGV/Andersen Consulting were retained as advisers for Napocor's privatization, which is seen as a precondition for balancing the government's budget, restoring investor confidence in the Philippines, opening of the energy sector to foreign investment, and assuring adequate energy supplies over the next decade.

The advisers drew several scenarios for handling these "stranded liabilities" on energy prices, including passing on the costs to consumers over a 10-year to 25-year period. They said, however, that the "allocation of this burden between taxpayers and consumers is a political decision" beyond their mandate.

The advisers estimate Napocor's liabilities at $15.77 billion, excluding interest payments and undrawn loans from the Asian Development Bank and the World Bank.

Power purchase agreement obligations, net of revenues derived from energy sales, account for around $9 billion of Napocor's liabilities, they said.

Privatization proceeds, meantime, are estimated at between $4.5 billion and $5.2 billion, with as much as $2.7 billion coming from transmission assets, the advisers said.

The advisers estimated an additional $590 million to $700 million can be derived from the sale of Napocor's Tiwi-Makban geothermal plant, but noted that "uncertainty regarding the status of this asset prevents it from being included in the overall valuation."

Napocor is engaged in a contractual dispute with Tiwi-Makban operator Philippine Geothermal Inc., a wholly owned unit of Unocal Corp.

The advisers also calculated "the present value of future ancillary services revenues from generation companies" at an additional $332 million.