Napocor requirement to jack up government borrowing

Government borrowings for 2003 will balloon by another $1.5 billion as the Arroyo administration taps the credit market for the problematic National Power Corp. (Napocor).

Bangko Sentral ng Pilipinas Governor Rafael Buenaventura told reporters in a teleconference that foreign rating agencies have expressed concern that Napocor’s borrowing would bloat the National Government’s borrowing requirement for 2003.

Buenaventura and Finance Secretary Jose Isidro Camacho met with representatives of Moody’s and Standard & Poors to discuss key economic issues including the fiscal balance, economic fundamentals and the borrowing plan for next year.

According to Buenaventura, both rating agencies asked about Napocor’s borrowing requirements for 2003 as well as the likelihood that the relevant power bills would be passed by Congress to pave the way for the privatization of its transmission lines.

Napocor has to piggy-back on the National Government in order to tap the credit market since the state-owned power corporation is not credit worthy enough to attract credit at reasonable rates even with a government guarantee.

Buenaventura said rating agencies want to know what Napocor’s borrowing plans are and whether its medium term prospects include the expeditious privatization of its transmission lines.

"Napocor’s requirement is not a big amount but they wanted to know how much," Buenaventura said. "They also wanted to know the likelihood that the power bills now pending in Congress would be passed in the medium term."

These bills include the proposed legislation on the privatization of the National Transmission Co. which would require the transfer of its transmission franchise to a new owner or operator.

The provision allowing the transfer of the transmission franchise was not included in the Power Law.

The plan is to offer 60 percent of Transco to a local investor and offer 40 percent to a foreign group which will also act as the operator of the company.

Early on, several foreign companies have signified their interest in bidding for Transco’s concession rights, including the National Grid of the United Kingdom, Kyushu Electric Corp. and Electric Power Development Co. of Japan. The list of prospective foreign investors also includes Electricité de France as well as other groups in Hong Kong, Thailand, Malaysia and New Zealand.

Napocor is expecting to get at least $2.4 billion from the privatization of its transmission lines.

For 2003, the Arroyo administration laid out a P182.766-billion foreign borrowing plan, up from the P155.729 billion scheduled for this year.

The planned borrowing will include P118.450 billion worth of bonds that will be issued next year as well as P38.308 billion worth of project loans and P26.008 billion worth of program loans.

The Arroyo administration’s foreign borrowing target for 2003 is based on its proposed budget which is projected to create a yawning P142-billion deficit that will have to be funded through borrowings from domestic and foreign sources.

On the other hand, the administration’s program loans will include borrowings to finance various programs for power restructuring, grains development, education development, non-bank financial reforms, social expenditure, air quality, public sector reforms and export competitiveness.

Despite the increase in the 2003 budget, however, heavy borrowing is not expected to do much to support the country’s growth prospects which have been revised downwards beginning 2003.

The Arroyo administration revised its macroeconomic assumptions for 2003, estimating the interest rates on the benchmark Treasury bills to average eight percent, while inflation rate is estimated at four percent and the foreign exchange rate at P51.50 to the dollar.

The revised targets effectively lowered the economic growth projections for 2003. The growth in the real gross domestic product (GDP) has been scaled down to 5 percent from the original 5.5 to 6 percent estimate.