PSALM settles $18B of Napocor’s debt

THE POWER Sector Assets and Liabilities Management Corp. (PSALM) has already settled $18 billion worth of debt incurred by the National Power Corp. over the past 10 years, allowing it to significantly cut electricity charges passed on to consumers.

According to PSALM, it will be able to substantially reduce Napocor’s liabilities to only $3.78 billion (roughly P170 billion) by 2026, when it factors in payments from the sale of government-owned power plants, the transmission business, and contracted capacities in independent power plants (IPPs).

This means that the amount of stranded debt and contract costs that power consumers will have to shoulder through the universal charge will likely be lower than the estimated P500 billion PSALM initially sought to recover.

In a statement, PSALM claimed that if the debt of the state-owned utility firm had remained at its 2001 level of $16.39 billion, it would have easily wiped out these financial obligations by the end of 2010.

“The liabilities of Napocor, however, increased significantly after the enactment of the Electric Power Industry Reform Act because of commitments and obligations to sustain its operations,” PSALM explained.

“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 claimed that it had to resolve various plant-specific activities to prepare the plants for a smooth auction and to make them more attractive to investors.

Thus, the privatization program fully got underway only in 2004. At the same time, Napocor had to incur new loans to sustain operations of the plants under its portfolio, PSALM pointed out.

“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 said.

PSALM records showed 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.

As of end 2010, PSALM said proceeds from the sale of power assets had reached $10.65 billion. Of this amount, $4.85 billion had already been collected and used to pay off $4.84 billion worth of Napocor’s debt.