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The Electric Cooperative System Loss Reduction Project –

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Presentation on theme: "The Electric Cooperative System Loss Reduction Project –"— Presentation transcript:

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

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

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

7 The LGUGC

8 What LGUGC Does CREDIT GUARANTEE GUARANTEE PROGRAM MANAGEMENT
RELATIONSHIP MANAGEMENT CREDIT RATING CREDIT GUARANTEE GUARANTEE PROGRAM MANAGEMENT COLLABORATION WITH NATIONAL GOVERNMENT AND DONOR AGENCIES

9 The National Electrification Administration (NEA)
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

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 EC-PCG Response to Roadblocks
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

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 90 & above A+ 58 A 15 B 12 C 3 D 3 29 & below E 8 Non-complying 7 Not Evaluated 14 Total 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 Points Classification As of 2009 Mega Large Extra Large Large Medium 44 & below Small

21 RA 9136 - 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 LGUGC Borrower Risk Rating System for ECs
Part A. Borrower Risk Rating I. Financial Condition II. Management Quality III. 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 LGUGC Borrower Risk Rating System for ECs
Part B. Facility Risk Factor Term to Maturity/Documentation Risk Security Agreements Project Physical Accomplishment and Technical Indicator Credit Rating Review or New Rating Results Final Score Category Rating Excellent 1 Strong 2 Good 3 Satisfactory 4 Acceptable 5 Final Score Category Rating < 3.6 Watchlist 6 Special Mention 7 Substandard 8 Doubtful 9 Loss 10


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