DOE to Palace: Tap Malampaya fund to pay NPC debts, lower power rates

by Lenie LecturaAugust 11, 2016

from Business Mirror

The Department of Energy (DOE) has formally proposed to the Duterte Cabinet to tap the Malampaya fund to pay for billions of pesos worth of debt incurred by power state firm National Power Corp. (NPC).

These debts—in the form of stranded debts (SDs) and stranded contract costs (SCCs)—are being passed on to consumers via the collection of universal charge (UC), an item found in monthly power bills.

SDs refer to any unpaid financial obligations of NPC that have not been liquidated by the proceeds from the sales and privatization of NPC assets.

SCCs of NPC or distribution utility, meanwhile, refer to the excess of the contracted cost of electricity under eligible contracts over the actual selling price of the contracted energy output of such contracts in the market.

On the average P0.35 per kilowatt-hour (kWh) is collected from consumers every month to pay for NPC’s debts.

This move from the agency is meant to reduce the consumers’ monthly electricity bill.

Balance

DOE Spokesman Felix William B. Fuentebella said the balance of the Malampaya fund currently amounts to “over P100 billion.”

“There is already existing stranded contract cost and there’s also the stranded debt. Both are being studied as to how these two should no longer be passed on to consumers,” he said.

The Malampaya fund comes from proceeds of the Malampaya natural- gas project, which is a joint undertaking of the Philippine government and the private sector.

The project is spearheaded by the DOE and was developed and being operated by Shell Philippines Exploration BV (Spex) with a 45-percent stake on behalf of  joint-venture partners Chevron Malampaya Llc. also with a 45-percent stake, and PNOC Exploration Corp., which holds the remaining 10 percent.

Under the service-contract agreement, 70 percent of the gross proceeds from the sale of natural gas would go to the contractor to recover the investment cost. The remaining 30 percent is shared by the government and the consortium on a 60-40 basis, respectively.

In 2015 the Philippine government received $400 million as its share of the income from the Malampaya deepwater gas-to-power project.

Malampaya royalties has, so far, been used for the fuel requirements of the NPC-Small Power Utilities Group (NPC-SPUG) amounting to P2 billion.

Congressional decision

Fuentebella said part of the agency’s proposal is “to come up with an interagency approach” as to how much of the remaining Malampaya fund should be allocated to reduce the SD, as well as the SCC.

“We asked interagency to account. So, it could be a portion or all of it. It’s up to the interagency,” Fuentebella said.

But the decision whether to tap the Malampaya fund for such use is up to Congress. Fuentebella explained that a more detailed proposal would be up to the interagency committee, while the approval would have be decided by lawmakers.

“Based on [a] SC [Supreme Court] decision, this needs to go through Congress when it comes to appropriation. The process will be through an act. All appropriation laws would originate from the House of Representatives and the Senate may introduce amendments, if any,” he said, adding that with Congress’s approval, “then this can be carried out in 2017.”

Former Rep. Mark O. Cojuangco said in a social-media post on the same day that the Malampaya funds “should be used as capex [capital expenditure], not subsidy. That is tantamount to it being squandered.

Because subsidies do not create lasting solutions, they are but a never-ending expense. Then what when funds ran out?”

When asked to comment, Fuentebella maintained that “it’s up to Congress.”

Meanwhile, the Matuwid na Singil sa Kuryente Consumer Alliance Inc. (MSK) said consumers should not pay for these debts.

“The way things are going, all debts and losses of NPC that would not be covered by PSALM’s [Power Sector Assets and Liabilities Management Corp.] proceeds and collections for privatization would eventually be recovered from electricity consumers nationwide. The losses and deficits are combinations of so many factors, many not the fault and to the benefit of the consumers. Hence, it would be a grave injustice to our people to make them responsible for all the financial losses,” it said.

ERC concurs

The Energy Regulatory Commission (ERC) said it would fully support any DOE initiative aimed at reducing electricity rates, and it will implement national government policies consistent with its mandate to set the rates and protect the interest of the consumers.

“There is much wisdom in Secretary [Alfonso G.] Cusi’s proposal. This could be a near-term solution to the issue of power rates. We should help him find a solid legal basis for this option. We believe that Secretary Cusi’s proposal is a boost to our effort to help fulfill the President’s commitment to make power rates more reasonable and affordable,” ERC Chairman Jose Vicente B. Salazar said.

The ERC itself, he said, is finding ways and means to guarantee that only just and reasonable costs get into their electricity bill.

There are three pending filings of PSALM for the recovery of SD in the total amount of P70,161,501,376.86, according to the ERC.

PSALM is the agency mandated by Republic Act 9136, or the Electric Power Industry Reform Act of 2001, to handle the sale of the remaining state power assets and financial obligations of NPC. The government transferred NPC’s assets and debts to PSALM in 2008.

Of the total amount, the latest application of PSALM pertain to the recovery of P27.7 billion of NPC’s SD portion of the UC for the Luzon, the Visayas and Mindanao grids for calendar year 2015.

The ERC said it is closely scrutinizing the petition, which will have to undergo due process before it can finally render its decision on the case.

“The ERC is studying the case meticulously and with a lot of caution since the petition concerns pass-on charges. The case will have to be evaluated on the basis of reasonableness and affordability,” Salazar added.

There is no timetable as yet as to when the commission can issue a decision. It only said the amount and period for recovery would be determined through hearings and evaluation. “And of course, after considering the impact to consumers,” ERC Spokesman Rexie Digal said in a text message.

Privatization efforts

For the PSALM’s part, the agency’s officer in charge, Lourdes Alzona, said her office is determined to reduce the debts of NPC.

“We are continuously identifying certain measures to avoid and/or minimize costs, specifically on refinancing. Among these steps are stringent management of collectibles, sale of real-estate assets, disposal of other assets, which entail high costs for maintenance,” she said in a text message.

PSALM, she added, plans to sell some real-estate assets that could fetch an estimated P5 billion.

“The sale would be staggered since we still have to sort out which can be sold, depending on the land title. There are areas that can be sold, such as the resort in Puerto Asul, while there are others that can’t be sold, such as the one in Bagac,” Alzona said.

This plan, she added, will be over and above the UC charge administration and other regular activities to support the liquidation of PSALM’s financial obligations, that being its main mandate.

The outstanding financial obligations as of December 31, 2015, stood at P550.81 billion. This is broken down into P305.41 billion debts and P245.40 billion lease obligations.

For 2015 alone, it paid P55.398 billion. Of which, P29.041 billion were principal debts serviced, including debt prepayment of P6.32 billion, while independent power producers’ lease obligations serviced amount to P26.357 billion.

In addition to debts serviced, interests on principal debt amounting to P23.353 billion were also paid in 2015.

In all, PSALM paid off P78.751 billion for 2015.

PSALM sourced internal funds from operations of remaining plants and collection of privatization proceeds to pay off the debts in 2015.

The remaining obligations would also be settled through privatization collection proceeds.

Based on DOE data, UC collection as of May 2016 amounted to P0.468 billion.

“As of May 31, 2016, remittances of collecting entities to PSALM amounted to P94.817 billion with interest earnings from deposits and placements of UC funds amounted to P0.147 billion.  On the other hand, UC fund disbursement amounted to P94.496 billion.

Accounting for the inflows and outflows of the UC fund leaves it with a balance of about P0.468 billion as of  May 31, 2016,” said the DOE.