IMF airs concern over delay in Napocor privatization

The International Monetary Fund (IMF) has expressed concern over the continuing delay in the privatization of the transmission and generation assets of the National Power Corp. (Napocor).

In its latest assessment, the IMF executive board said "power sector privatization is essential to restore the financial viability of the sector and to facilitate the investments needed to ensure adequate power supply."

IMF resident representative to the Philippines Reza Baqir told a press conference that the IMF is closely coordinating with the multilateral creditors of Napocor to ensure that the privatization program will be fully supported.

"We are talking with other agencies like the World Bank and Asian Development Bank because they have their own program for this sector," he said.

He said the IMF has been encouraging the government to accelerate the privatization schedule of both the transmission and generation assets of Napocor.

"In this regard, they expressed concern about the delays in the bidding process for the transmission assets, and urged the authorities to finalize the agreements holding up the privatization of the generation assets," Baqir said, referring to the IMF board.

The IMF board, Baqir noted, underscored that the privatization process should be embedded in a sound regulatory framework.

The IMF, in the same assessment report, said it also sees the need for further increase in power rates of Napocor to make it more competitive.

"Directors viewed the significant increases in generation tariffs awarded to the National Power Corporation as an important contribution to the fiscal consolidation effort. They encouraged the authorities to protect these gains by adjusting tariffs in the future in a timely manner," it said.

It noted that the financial position of Napocor, being one of the heavily-indebted state-owned firms, should be carefully watched.

"They (IMF board) supported the authorities’ plans for developing medium-term deficit targets for government-owned and controlled corporations, as this would be essential to support fiscal consolidation," the IMF said.

The National Government expects to generate some $2 billion to $3 billion in revenues from the bidding of the concession contract of country’s transmission highway and another $2 billion from the sale of the generating assets of Napocor.

But recently, there were apprehensions that the privatization of the National Transmission Corp. (Transco) would be delayed anew as the Energy Regulatory Commission (ERC) is expected to issue the revised maximum allowable return (MAR) for the transmission firm on August 2006.

"You cannot expect the investors to pour in capital unless they know how much return they can earn from its investment," Transco manager for strategic planning Ed Orencia said.

Power Sector Assets and Liabilities Management Corp. (PSALM) has earlier set the Transco bidding in the end of 2005 or first quarter of 2006.

Based on Transco’s timeline, the energy regulators are expected to come up with the issuance of a revised MAR for the second regulatory period (from 2006 to 2010) by August 2006. MAR is the yearly revenue cap applied for by Transco.

Based on the said timetable, Transco will come up with its comments on application by January 2006. Public hearing is slated to commence on the same month.

PSALM president Nieves Osorio earlier admitted that the setting of Transco’s revenue cap is one of the crucial factors for investors to bid for the transmission firm.

The revenue cap would assure electricity consumers of Transco that fair electricity rates will be charged even after the privatization of Transco.

PSALM has so far sold only about 14 percent of the 70 percent of the total Napocor’s generating assets in Luzon and Visayas. Based on original plan, PSALM should have sold the 70 percent by the end of this year.