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.