DOE to probe PSALM debts in effort to lower power rates

MANILA, Philippines - The Department of Energy (DOE) will look into the growing debt of the Power Sector Assets and Liabilities Management Corp. (PSALM) in an effort to lower power rates.

PSALM, an entity created under Republic Act 9136 or the Electric Power Industry Reform Act (EPIRA), manages the finances and privatization of the state-owned National Power Corp. (Napocor).

“The proceeds should have been paid to retire debts. In 2006 and 2007, they set aside about $19 billion to payoff loans. The question is why is its debt continuing to grow?” Energy Secretary Jose Rene Almendras said.

While privatization proceeds keep coming in, it would be noted that PSALM has been on a borrowing spree. Earlier this year, it was allowed to raise P30 billion to P50 billion through domestic bonds and plans to raise another $1 billion for refinancing of debts for 2011.

As of end-December 2009, Napocor’s outstanding debt stood at $16.5 billion, 40 percent of which is set to mature starting this year until 2014. For 2010, Napocor has around $3 billion worth of maturing loans.

Based on PSALM’s the application, it would need to recover P470.8 billion worth of stranded debts and P22-billion stranded contract costs of Napocor.

PSALM submitted two options to recover the P471-billion stranded debts: charging electricity consumers 30 centavos per kilowatthour for 17 years or 22.5 centavos per kwh for 25 years.

For the stranded contract cost, PSALM proposes three options: 50.24 centavos per kwh for a one-year recovery period; 16.04 centavos per kwh for a three-year period; or 9.20 centavos per kwh for a five-year period.

The Energy Regulatory Commssion (ERC) earlier pointed out that PSALM should be able to convince the commission that their rate petitions are substantiated.

Almendras, meanwhile, said the DOE will not encroach on the jurisdiction of the ERC, the country’s power sector watchdog.

“First of all, we’re not going to step in the realm of the ERC because it’s supposed to be independent. The most we can do is review the data,” he said.

He said the government should keep track of the bloating debts of PSALM as payments for these will eventually be passed on to electricity consumers in the form of universal charge (UC).

“The EPIRA says the universal charge in the future will cover for all the debt that was not fully paid or recovered in the sale of the assets,” Almendras said.

There is a pending application with the ERC to recover the stranded debts and stranded contract costs of Napocor which will lead to an additional cost to consumers. If approved by the ERC, the electricity end-users will be paying the UC for the next 20 to 25 years.

“I think the solution is, we’re trying to find ways to limit that increase as much as possible. What that means is opening ourselves to innovative ideas including generation mix and whatever it may take to study how can you bring down that potential universal charge. And if I cannot touch that universal charge then I should look at the other components to the pricing such as lower generation cost, distribution cost and transmission costs,” Almendras said.