NHMFC reopens loan window for housing projects

The assumption of the P500-billion debt of the National Power Corp. (Napocor) by the Philippine government is a short-term solution to a long-term problem.

"The Philippine government has managed to maneuver away from one potential landmine– for the meantime," Standard Chartered Bank economist Mike Moran said. "But the quest for the Holy Grail remains."

Mimicking the position of other economists and government planners, Moran confirmed that it was a move that should have been done years ago. But it was just in the nick of time that the national government decided last week to swallow the bitter pill and assumed once more "bad decisions."

Since the financing of the debt is long-term in nature, the problem of huge debts and debt repayments in both principal and interest is likewise averted.

Finance Secretary Juanita Amatong had said that the state firm’s various debt maturities extend up to 2020. But it has also extend in full its sovereign guarantees.

Moran said that government must raise $1.5-billion to finance maturities this year with $500-million said to be secured."It is the single biggest drain on public finances with lengthening maturities that does not pose immediate risks. However, it would mean additional debt payments that might result in tax increases," the economist said Tuesday night.

He added: "Inevitably it adds to longer term financing obligations and increases vulnerability to adverse movements in peso and interest rates; markets could use this as excuse to re-price sovereign risk."

The bigger question is how else will it be financed aside from more domestic and foreign borrowings by the national government.

"Will it mean new taxes, or power rate increases for the consumers, or additional automatic rate adjustments on electricity bills?"

Aside from the debt problem, the state power firm is also being subsidies for its annual operational expenses, which is also running at billions of pesos.

Under the Electric Power Industry Reform Act (EPIRA), government plans to privatize all state-run power corporations and assets.

Moran said it has so far resulted in the sale of one power plant against 35 more.

"Privatization is at a snail’s pace. It appears to be of little interest to the private sector," he said, indicating that the private sector would rather invest in new capacities.

The debt assumption is thus essentially viewed as an attempt to "fix an economy that has lost a lot of faith."

The bank economist admitted that inevitably it would impact on the target fiscal balance in 2009, adding that much now depends on the peso value, onshore and offshore yields, and the expectations of investors.

Moran likened the energy problems of the Philippines as "the quest of the Holy Grail" and government has not yet crossed the Mediterreanean. –Ted Torres