Gencos seek review of ERC rule on mandatory IPO this year

Power plant owners have asked the Energy Regulatory Commission (ERC) to reconsider its order compelling generation companies to undertake an initial public offering (IPO) of their shares this year.

In a draft position paper obtained by The STAR, the Philippine Independent Power Producers Association (PIPPA) also requested the power regulator to clarify rules on the public offering of generation companies.

The ERC issued a resolution in August last year which reiterated the requirement for public offering, citing Sec. 43 of the Electric Power Industry Reform Act (EPIRA).

The resolution required all generation companies and distribution companies not listed in the Philippine Stock Exchange to sell a portion of not less than 15 percent of their common shares of stocks not later than June 26, 2006.

While PIPPA said it supports the implementation of the EPIRA provision on the sale of a portion of their common stocks to the public, it believes that the implementation of this provision should be made under an environment that is conducive to the success of any public offering, and after relevant issues with regard to the public offering are resolved.

The group added that a deferment of the public offering is allowed under the EPIRA citing a precedent set in the implementation of a similar public offering provision in the Downstream Oil Deregulation Law of 1998.

"PIPPA, on behalf of all its members, respectfully requests the ERC to defer the compliance date of the requirement to such time when the conditions surrounding the undertaking of public offering would indicate greater opportunity for success," it said.

It noted that the period fixed by the EPIRA for compliance with the public offering requirement is not mandatory.

Under the oil deregulation law, oil companies were likewise required to undergo a public offering within three years from 1998 or by 2001.

However, the major oil companies like Shell and Texaco (Caltex) sought for an extension, citing the weakness of the local stock market. To date the oil companies, citing poor market conditions, have been allowed by the government to defer their public offering.

"We believe that the same should likewise apply to generation companies. More than the prevailing weak market conditions, the scenario envisioned by the EPIRA to be present at the time of such offering has not been achieved. Requiring generation companies to make an offering at this volatile time and in a heavily regulated environment would make it difficult to have a successful offering," the group said.

On the right timing of the public offering, the group said the EPIRA itself has laid down the ideal conditions for the offer or sale of generation companies’ common shares of stock.

The EPIRA mandated that open access and retail competition should have been in place and 70 percent of National Power Corp.’s assets should have been privatized, the National Transmission Corp. privatized, and the wholesale electricity spot market (WESM) implemented.

"Unfortunately, these milestones were not met. This leaves a situation wherein the environment of the electric power industry envisioned by the EPIRA to be present when generation companies are to sell their shares to the public is not present. To date, there is no full deregulation in the generation sector; the WESM is not operational and open access and retail competition has not been achieved. Moreover, privatization of Napocor assets, which would have resulted in more players in the industry, has been delayed," it said.

"To date there are more than 30 generation companies and around 19 private distribution utilities. Requiring these generation companies and distribution utilities to make a public offering at the same time would heavily saturate the market and the market may not be able to take in simultaneous public offers which would more likely than not result in a failed public offering," PIPPA added.