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The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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Presentation on theme: "The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)"— Presentation transcript:

1 The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

2 EC-PCG Grant Part A - US$10MM Partial Credit Guarantee Program Part A - US$10MM Partial Credit Guarantee Program Part B - US$2MM Technical Assistance for DOE and LGUGC Part B - US$2MM Technical Assistance for DOE and LGUGC US$12 million grant

3 EC-PCG Program Objective Assist the Republic of the Philippines in promoting energy efficiency improvements that will result to: the provision of reliable and least-cost power supply; and the reduction of carbon dioxide emissions and other pollutants.

4 Stakeholders/Covering Agreements Republic of the Philippines DOF and DOE Guarantee Program Implementation Agreement ROP Grant Agreement Guarantee Program Manager Guarantee Reserve Escrow Agreement Escrow Agent As Implementing Agency of GEF World Bank Project Agreement & LGUGC Grant Agreement

5 Project Eligibility Criteria Upgrade of EC power distribution system At least 50% of the investment amount should result to direct measurable energy savings Technically and financially viable Compliant with applicable laws, regulations and the environmental and social policy safeguards of the WB

6 Examples of Acceptable Projects Rehabilitation and capacity upgrades of existing supply system (e.g. installation of additional substation) Purchase of necessary hardware, software, motor vehicles, tools and equipment to improve employee productivity and efficiency Institutional development of ECs



9 Created on August 4, 1969 to take charge of the total electrification of the country on an area coverage basis Mandated to organize, finance and regulate electric cooperatives throughout the country As of October 2010, 119 ECs have been established The National Electrification Administration (NEA)

10 Functions of NEA Over ECs Administer rural electrification program thru ECs Provide loans to ECs Handle subsidies and grants intended for ECs Provide technical and/or professional assistance to ECs Take over policy making functions and management or operations of ECs in case of EC management, technical and/or financial problems

11 The Program Roadblocks Competition from the National Electrification Administration Net loss positions of most ECs after Reinvestment Fund reduction Limited expertise within ECs to prepare Feasibility Studies (FS) for Capital Expenditure (CAPEX) projects Ever-changing guidelines of Energy Regulatory Commission in CAPEX application templates Private banks’ unfamiliarity with ECs

12 Technical assistance to ECs in FS preparation for CAPEX projects including SALF Assistance to ECs in presentation of FS to Energy Regulatory Commission (ERC) for approval Design of EC Borrower Risk Rating System Workshop for private banks on EC structure and operations Partnership with NEA Advocacy to make EC accounting system of international standards EC-PCG Response to Roadblocks

13 NEA-EC-PCG Co-Financing Agreement Signed in June 2009 NEA and EC-PCG AFIs to co-finance the financial requirements of the EC AFI loan counterpart guaranteed by EC-PCG NEA step-in rights Cross default provision NEA may take out the loan balance after 10 years or when the AFI loan interest rate breaches NEA loan rate NEA will promote the program to ECs

14 EC-PCG Guidelines Eligible Borrower : Creditworthy Electric Cooperatives (ECs) Duly registered with the National Electrification Administration (NEA) or the Cooperative Development Authority and must have NEA clearance for mortgage sharing, if EC has existing NEA loan and registered with NEA Has Energy Regulatory Commission-approved capital investment proposal Must meet the 20% minimum equity requirement for the proposed project Must meet the minimum projected Debt Service Coverage Ratio of 1:1 based on the forecasted cash flow Eligible Project/Purpose :Upgrade of EC power distribution systems to realize energy and emission savings

15 EC-PCG Guidelines Lender:Any LGUGC Partner Financial Institutions (PFI) Term:Up to 10 years with at least 1 year grace period, but not to exceed the PFI loan term Single Guarantee Limit :USD2.5 million Guarantee Coverage :Up to 80% of the loan principal amount and 3 months interest, subject to LGUGC interest rate cap Guarantee Fee:0.25% per annum Processing Fee:One-time fee of up to 1.5% of the guaranteed portion of the principal amount of the loan, exclusive of taxes and collected upfront Collateral::Assignment of Proceeds of Power Billings Assignment of Debt Reserve Fund Real Estate Properties and/or Chattels Other assets acceptable to the Lender and LGUGC

16 EC-PCG Finally Took Off! Three accounts booked from August 2010 t0 January 2011, aggregating PhP million Four accounts approved as of February 2011, aggregating PhP million A pipeline of 10 accounts, aggregating PhP1.093 billion loan requirements Current leverage ratio of 1.40x the US$5 million EC-PCG guarantee fund currently in Escrow Potential leverage ratio of 4x the US$ 10 million full EC-PCG guarantee fund

17 Thank You

18 NEA Criteria for Categorization Status of loan repayment (-10 to 20 points) System loss (0 to 30 points) Collection Efficiency (0 to 15 points) Payment for power purchase (-5 to 15 points) Non power costs /customer (0 to 10 points) Supply system reliability (0 to 5 points) Barangay Energization (0 to 5 points) Excessive cash advance to officers (0 to -20 points)

19 NEA Categorization of ECs Score & aboveA A B C D 3 29 & belowE 8 Non-complying 7 Not Evaluated14 Total 120 ECs* * Includes NEECO II-Area 2

20 NEA Criteria for Classification Volume of Average MWH Sales (20 to 40 points) Number of Service Connections (10 to 30 points) Average Kms. Of Lines (10 to 30 points) Based on OVER-ALL POINT SCORE: Earned PointsClassificationAs of Mega Large Extra Large Large Medium 9 44 & belowSmall 6

21 RA EPIRA Electric Power Industry Reform Act of 2001 Section 2 (d) it is the National Government’s policy to enhance inflow of private capital to the power generation, transmission and distribution sectors Section 37 (e) (i) Department of Energy is mandated to encourage private sector investment in the electricity sector and promote development of indigenous and renewable energy sources

22 Assistance to ECs Conduct Due Diligence to ensure viability of proposed capex projects Complete the Feasibility Studies Comply with ERC capex application requirements Comply with loan and guarantee requirements Provide guarantee for loan contracted

23 Part A. Borrower Risk Rating LGUGC Borrower Risk Rating System for ECs I. Financial ConditionII. Management QualityIII. Industry Analysis  Return on Equity Ratio  Return on Sales  Collection Efficiency  Revenue Growth Rate  Debt to Equity Ratio  Quick Ratio  Interim Development and Profitability Outlook  Clear long-term business/corporate strategy  Quality and experience of management  Management Structure and Succession Strategy  Management Control and Information System  Management of Lender- Guarantor-Borrower Relationship  Market competition  Threats of New Entrants  Threat of Substitution  Dependencies (Customers/Supplies)  Competitive Strategy Adopted  Industry Outlook/Stage of Industry Cycle  Special Risks

24 Part B. Facility Risk Factor I. Term to Maturity/Documentation Risk II. Security Agreements III. Project Physical Accomplishment and Technical Indicator IV. Credit Rating Review or New Rating Results LGUGC Borrower Risk Rating System for ECs Final ScoreCategoryRating Excellent Strong Good Satisfactory Acceptable5 Final ScoreCategoryRating < 3.6Watchlist6 Special Mention7 Substandard8 Doubtful9 Loss10

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