DOE paves way for more private sector say in RECs

The Department of Energy (DOE) has issued new rules that will allow greater private sector participation in the management and operation of rural electric cooperatives (RECS).

DOE said the new guidelines will specifically address the concern of those poor-performing electric cooperatives which need the help of the private investors to continue their operations.

Based on Department Circular No. 2004-06-007, it will promote investment management contract (IMC) as one of the measures to help ECs improve their efficiency of service, reduce systems losses and eventually lower their costs to consumers.

The IMC is a contract between a willing EC and investor whereby the investor will infuse risk capital and provide management expertise. The entry of a private investor through IMC will significantly assist the EC to access financing to improve its operations," Energy Secretary Vincent S. Perez said.

Perez also assured that IMC is not a takeover of the EC nor it is a form of privatization.

According to Perez, the circular specifically pointed out that under an IMC, the EC remains the duly authorized distribution utility. This means that members will continue to exercise their rights and responsibilities under its franchise, he explained.

At the same time, the EC will retain ownership of and strategic control of its assets, as well as control over setting the standards of service to its customers.

"An IMC will only be constituted with the approval of a willing EC. A competitive and transparent bidding will be conducted to secure the most suitable investor that will offer the best arrangement to meet the ECs needs," Perez said.

"ECs seriously need to upgrade and improve their operations or they will be left out of the game under a deregulated and restructured power industry," he added.

Following the promulgation of the Circular, the National Electrification Administration (NEA) will issue a memorandum substantially detailing out its endorsement of the IMC as one of the measures to encourage private sector participation.

ECs are encouraged to tie-up with the Department of Energy and NEA to help facilitate their respective IMC. The DOE will engage the services of a Transaction Advisor to develop a best practice model IMC that will protect and advance the interests of EC and its members. The Transaction Advisor will also act as the transaction process guide and independent broker between the EC and the investor.

Perez also said the ECs under IMC will be able to obtain financing from the LGU Guarantee Corp. (LGUGC). The DOE has appointed GUGC to manage a credit guarantee program designed to enhance EC credit worthiness. The program, funded by the Global Environment Facility and the World Bank, aims to provide partial credit guarantees to local Philippine banks (financial institutions) for loan to ECs or investor-operators.