PSALM debt down P45 billion, P490 billion more to settle

By Lenie Lectura – August 26, 2017
from Business Mirror

The Power Sector Assets and Liabilities Management Corp. (PSALM) has reduced its liabilities by over P45 billion at end-June this year, bringing down the state firm’s obligations to P490 billion.

“PSALM financial obligations serviced in the first half of 2017 amount to P45.51,” PSALM Officer in Charge Lourdes Alzona said in a text message.

Of the amount, P22.64 billion was allotted for debt payment; P9.18 billion for interest and other charges on debts; and P13.69 billion for independent power producers (IPP) lease obligations.

“The funding for this settlement of obligations were sourced by PSALM principally from privatization proceeds and funds generated from operations of remaining assets,” Alzona added.

PSALM, the agency tasked to manage state-owned power assets, is determined to reduce the debts of the National Power Corp. (Napocor). Under the Electric Power Industry Reform Act (Epira), PSALM is the government agency tasked to repay the debts of Napocor.

Alzona on Thursday said PSALM’s outstanding financial obligations as of June this year stood at P490.7 billion, “consisting of outstanding debts of P271.1 billion and outstanding IPP lease obligations of P219.6 billion.”

“We are continuously identifying certain measures to avoid and/or minimize costs, specifically on refinancing. Among these steps are stringent management of collectibles, sale of real-estate assets, disposal of other assets, which entail high costs for maintenance,” she added.

PSALM, she said, plans to sell some real-estate assets that could fetch an estimated P5 billion.

“The sale would be staggered since we still have to sort out which can be sold, depending on the land title. There are areas that can be sold, such as the resort in Puerto Azul; while there are others that can’t be sold, such as the one in Bagac,” Alzona said.

This plan, she added, will be over and above the universal charge (UC) administration and other regular activities to support the liquidation of PSALM’s financial obligations, that being its main mandate.

Tap Malampaya Fund

The Department of Energy (DOE) has urged lawmakers for the government to tap the Malampaya Fund in paying for the stranded debts (SD) and stranded contract cost (SCC) of Napocor.

Per DOE records, the Energy Resource Development Fund  “is now about P210 billion”, adding that “around P193 billion is from SC 38 [Malampaya].”

With the Supreme Court (SC) decision in the Belgica case, the said fund must be utilized for energy resource exploration and development only.

As such, Energy Undersecretary Felix William B. Fuentebella said legislation must be passed if it will be utilized for other purposes. “It’s for Congress to decide.”

“By end of 2026, or PSALM’s corporate life, there will be a deficit of P245.6 billion,” Fuentebella said. “So, because of that, there’s a proposal to the Cabinet cluster to use the Malampaya Fund, or the energy resource development fund, specifically to address the issue on universal charge-stranded contract cost and stranded debts.”

For this to be implemented, Fuentebella said, “It can’t be done [through] an executive order alone. It has to be coursed through a legislation.”

The DOE official said the proposal, if approved, should be implemented sooner rather than later. “The debts will just balloon.”

The Energy Regulatory Commission (ERC) recently allowed PSALM to collect from the consumers P37 billion, spread over a nine-year period with a rate of P0.0265 per kilowatt-hour (kWh).

The collection of the amount will be reflected in UC component of a consumer’s electricity bill starting next billing period from the receipt of the relevant ERC decision by the distribution utilities (DUs.)

“Discussions on this have yet to be firmed up in Congress. Even though the ERC has approved PSALM’s application, there is still time for Congress to pass a law that will allow the government to tap the energy resource development fund, commonly known as the Malampaya Fund,” said Fuentebella, who explained that a timely enactment of a law could eventually stop the nine-year implementation of the ERC order.

“That option to tap the Malampaya Fund is still there, despite the ERC approval on PSALM’s recent application. There is still a chance, so we hope lawmakers can look at it and determine if the fund can be utilized to pay for such,” Fuentebella added.

He said the present administration has yet to utilize a single centavo from the Malampaya Fund.

The ERC, in two separate orders dated July 7, allowed the recovery by PSALM of P24.198 billion for UC-SD covering 2011 and 2012 true-up adjustments. The collection will be spread over a nine-year period with a rate of P0.0265 per kWh.

For the SCC, which was already approved earlier by the commission, PSALM was ordered to extend its collection for another 10 months, providing PSALM P12.878 billion in recoveries covering calendar years 2011, 2012 and 2013.

The said amount will be recovered at the existing UC-SCC rate. Thus, there is no increase or decrease in the UC-SCC rate, as the 10-month collection is only an extension.

Epira defines SD as “any unpaid financial obligation of the Napocor which have not been liquidated by the proceeds from the sales and privatization of Napocor assets.”

On the other hand, the Epira defines UC-SCC as the “excess of the contracted cost of electricity under eligible contracts over the actual selling price of the contracted energy.”

PSALM continues to incur SD and SCC because the proceeds from privatization of Napocor/IPP generation assets and the revenue generated from the Napocor-owned and IPP plants are not enough to pay its contractual obligations with the eligible IPPs and lending institutions.

PSALM said the collection of P37 billion would relieve it from additional borrowings this year.

“Early recovery of said charges will partially infuse the needed monetary source to pay maturing obligations without resorting to refinancing. Contracting further loans is only a palliative solution that further widens PSALM’s stranded debts in the long run because of refinancing charges,” Alzona said.

PSALM stressed that the SD and SCC charges are purposely intended to pay the remaining financial obligations that the government incurred when new power plants were constructed to end the power crisis that engulfed the whole country, particularly in the 1990s and early-2000.

“The collection of UC-SD and SCC should be appreciated for its social inclusion value. Let’s look at it as a necessary contribution for the stable and quality supply of electricity we had enjoyed in the past and continue to enjoy nowadays,” Alzona, said.