DoE eyes royalties to pay off P1T debt

kawawa na naman
tayong mga pilipino

dayuhan intsik nakinabang
perang para sa atin

mapupunta na naman
sa kanila

almendras
pasimuno

resign ka na

Hindi ba dapat may budget lahat ng sangay ng gobyerno at kasama dapat ang limit ng pwedeng i-utang?!! Paanong nangyari na umabot sa US$20 billion ang utang ng PSALM? If @LV comments are true, GMA and her administraion must take responsibility. She can easily shell out 1 million pesos for bail? If someone is charged with graft and corruption, why is it bailable? when the money used for bail could have been stolen from the public funds. What, money were stolen from the Filipinos and then Filipinos are paying for the thief’s freedom?

To  everyone,

It may seem bewildering to you, but this can all be traced to a misstep with the establishment of Power Sector Asset Liability Management (PSALM) Corporation 12 years ago, under the administration of PGMA. Where PSALM is at right now: around US$20B dollars (800B pesos), accumulated over last 10 years.  But how did a public company assume so much debt is just over a decade?

PSALM was established through the Electric Power Industry Reform Act (EPIRA) by PGMA in 2001, part of the power sector deregulation efforts by the government. PSALM was tasked to privatize government power generation assets, with the intent that through privatization, the cost of electricity will go down through competition and reduce the government (Napocor) debt. A lot of these power generating facilities were built through debts by national government. When these facilities were sold, the money was used for repaying Napocor’s debt although not enough to pay the debt entirely. The remaining debts (~US$8B) were still assumed mostly by PSALM, not the companies who bought them. Of course, without assuming the public debts, these companies turned the power generating facilities into their milking cows.

So where is the remainder of the debt coming from? This is coming from what they call as “Stranded Contract Costs” (SCC), at around US$8-10B, accumulated over the years. As defined by EPIRA an SCC is the “excess of the contracted cost of electricity under eligible contracts of NPC over the actual selling price of the  contracted output of such contracts in the market”. It’s highfalutin legal term, but again I will try to give a simpler explanation. This issue was introduced by the deregulation itself and contracts established before 2001. During the Ramos administration in the 1990s, the country is beset by an on-going power crisis. To encourage investment in power generation, private companies were enticed to establish new power generation facilities through the Independent Power Producer (IPP) contracts. Under these contracts, the government incentivize power related projects by fixing the power purchase rate for them to recoup their investments. However, with the competition introduced by EPIRA in 2001, this also means that some of the IPPs cannot sell their electricity at reduced, market based rates. Government, however, is obliged to honor the power purchase agreement with the IPPs at the rate determined in the 1990s. PSALM, is then tasked to absorb this extra cost, and thus the “stranded contract costs”. It is still a question whether the IPPs can justify the stranded contract costs, since we are already paying the most expensive electricity rate in Asia.

PSALM has mostly sold NAPOCOR’s generating assets (around 80%), and has no other income source, except for perhaps, selling the remainder of the power facilities under Napocor. However, proceeds from selling the remaining facilities (around US$3-4B) are not enough to cover US$20B. It is bleeding cash everyday, at unsustainable rate. To service its debts and additional stranded contract costs each year, it continues to secure loan from local and international lenders, thereby ballooning its debt burden exponentially (maybe US$4B interest payment already). To make matter worse, it had sold NAPOCOR assets at reduced market price and at long repayment period, longer than the debt service contract with its lenders. So what to do? Even if the government assumes all its US$20B debt from other revenue streams, PSALM will continue to incur expense through servicing the stranded contract costs. There is a need to review the IPP contracts if the hemorrhage is to be stopped. I hope our senators will table this in their agenda. Otherwise, government will be throwing money at a bottomless pit. Money that can be used to build schools, build highways/roads, or modernize the military and police. What Sec. Almendras is suggesting is like putting a band-aid to reduce hemorrhage from a cut on the throat’s jagular vein.

And there is another looming power crisis by 2014-2015. At 10% of our GDP, the ballooning debt of PSALM can potentially hinder our economy. We can enter another financial crisis by then, if there is rolling brown out or if credit agencies impose credit downgrade all because one government owned corporation is in deep debt.

So, maybe with the economy  expanding at 6.5% this year, enjoy the party for now!

Unless the government shake up PSALM, review IPP contracts and review payment terms for power generation facilities sold under EPIRA, we might be in for another bust phase of our unending Boom-Bust economic cycle by then. I hope Noynoy will do something about it, and and not put a noynoying stance at this issue.

LV

At bakit nagka utang naman nang ganun kalaki ang mga govt. owned corporation samantalang pinapasa lang ninyo lahat ng expenses nyo sa consumers?saan ginastos ang ganun kalaking halaga?

What?