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1 1 Privatization Update: GENCOS and TRANSCO January 2005 Presentation to LEDAC.

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Presentation on theme: "1 1 Privatization Update: GENCOS and TRANSCO January 2005 Presentation to LEDAC."— Presentation transcript:

1 1 1 Privatization Update: GENCOS and TRANSCO January 2005 Presentation to LEDAC

2 FebOctJulAugSepNovDecJanMarAprMayJun 12 MW Masiway 150 MW Bacman 192.5 MW Palinpinon 75 MW Ambuklao / 100 MW Binga 112.5 MW Tongonan 275 MW Tiwi /410 MW Makban 600 MW Calaca 44.8 MW Iligan II 146.5 MW Dingle (110 MW Pinamucan/ 36.5 MW Panay I) 2005 850 MW Sucat 620 MW Limay/ Bataan Thermal Site 210 MW Navotas I / 100 MW Navotas II 108 MW Aplaya 22.3 MW Gen.Santos 54 MW Cebu II 225 MW Bataan Thermal 200 MW Manila Thermal 22 MW Bohol FebJanMarApr 360 MW Magat 0.8 MW Amlan 2006 246 MW Angat 100 MW Pantabangan 68.5 MW Iligan I Operating Plants Non-TSC Decommissioned Plants/ Non-TSC Preparation for Transco Privatization 70% of GENCO assets privatized WESM Commercial Operation Start of Luzon Open Access Universal Charge for Stranded Contract Jul Supply Shortage (New Capacity Additions Needed) 2007 MayJun Transco Privatization Sale of Generation Assets TRANSCO Privatization Electric Market Reforms TIMELINE OF NPC PRIVATIZATION & POWER SECTOR RESTRUCTURING Ver 1.0

3 3 3 Accelerated Genco Sale Sequence Main objective is to bring assets to market as quickly as possible under a plan that maximizes proceeds, within PSALM’s procedures and limitations for fair and transparent auctions. Key Considerations: Need to expedite sale of most number of plants Interest from strategic and financial investors Time required by bidders for due diligence and to prepare binding bids Availability of supply contracts (TSCs/BSCs) for certain plants Funding requirement of bidders and capacity of loan market Legal pre-conditions (creditor’s consent) and outstanding plant specific issues (e.g. steam supply agreements) Fair and transparent process

4 4 4 Proposed Plan of Action (Subject to Investor Feedback)  Identify  assets expected to receive greatest interest from investors  assets with least plant specific issues still to be resolved (e.g., steam supply agreements)  Cluster auction of assets in specific weeks  Plants will be sold individually but sale clustered within a week  Avoid multiple bids on one day (logistically difficult); instead, schedule one bid per day during a “bidding week”

5 5 5 Proposed Plan of Action (Subject to Investor Feedback)  Fast-track negotiations of supply contracts (TSCs/BSCs) with distributors (especially Meralco). Assignment of TSCs to certain plants will make it easier for investors to finance acquisition of such assets  Offer bid financing (deferred payments with interest) for certain large plants to make them more affordable to investors, and maximize proceeds to government

6 6 6 Bid Financing (Deferred payments) Allows for an accelerated sale process which would not be possible if bidders need to obtain financing (can take months to arrange particularly given the limited capacity of the Philippine lending market) Further, the closing process can take considerable time due to lender requirements - the deferred payment mechanism could significantly reduce the closing period Deferred Payment Structure & Terms Allows refinancing. Equal semi-annual payments to encourage refinancing. Capture greater cash proceeds upfront by increasing down payment from 40% upfront to 50%. Bidders will retain the flexibility to prepay if they are able to source cheaper external financing at a later date

7 7 7 Bid Financing (Deferred payments) Factors Considered in Determining Deferred Payment Terms for each Asset Size (MW) Offer financing for large plants (threshold set at > 150MW) Remaining Life Tenor stepped up according to remaining life of plants. TSCs Preference for financing given to plants to be sold without TSCs - also consider offering financing for non-TSC plants in the <150 MW category

8 Masinloc Case Study

9 9 9 YNN Payment Structure Financial Bid (in Present Value terms) US$ 561,740,000.88 Purchase Price (in Present Value terms) US$ 557,000,000.88 Upfront Payment (40% of Purchase Price) US$ 222,800,000.35 Deferred Payment Schedule 7 years, Semi-Annual Deferred Payment Interest 12% per annum Semi-Annual Amortization on Deferred Payments US$ 35,954,876.65 Total Nominal Payments on Financial Bid (including interest on Deferred Payments and Upfront Payment) US$ 726,168,273.39 Total Nominal Payments (Financial Bid, Rentals, Option Price) US$ 730,908,273.39

10 10 10 Financial Terms and Conditions  YNN posted US$9 million irrevocable letter of credit from a reputable bank  YNN to pay 40% of the Purchase Price upfront amounting to US$ 222.80 million upon Closing  YNN to maintain DSCR of at least 1.3x (which based on our projections is achievable)  YNN to post performance bond amounting to US$ 35.95 million to secure semi-annual deferred payments  If YNN defaults on Deferred Payments, PSALM can draw from Performance Bond; if Performance Bond is not replenished within the prescribed period, YNN will be in default and PSALM can take over control and operations of plant without refunding YNN the upfront payment

11 11 11 Masinloc Revenue and Cashflow Projections Cashflows are sufficient to cover deferred payments and maintain a healthy Debt Service Coverage Ratio during the repayment period of Deferreds.

12 12 12 Masinloc Revenue and Cashflow Projections vis-à-vis Deferred Payments

13 13 13 Assumptions Tariff Pre-WESM, current regulated price of P3.91/kwh as approved by the ERC; Upon implementation of WESM, a decline to an estimated market price of P3.09/kwh (real) by 2011 based on the Long-run Avoidable Cost (LRAC) of a base load plant Capacity factor - 83% (long-term) Total plant useful life - 30 years, with remaining useful life of 24 years as of January 1, 2005 Accounts Receivable - 30 days Operating Expenses (OPEX) – includes Fixed O&M expenses (FOM), Variable O&M expenses (VOM) as well as insurance. We assumed OPEX will improve and converge to international standards by 2009.

14 Masinloc Next Steps and Timetable

15 15 15 MASINLOC SALE Next Major Steps after Notice of Award

16 16 16 MASINLOC SALE Next Steps after Notice of Award (cont ’ d)

17 17 17 MASINLOC SALE Conclusion Need to serve the Notice of Effectivity in order to trigger increase in the irrevocable LOC from US$ 9 million to US$11 million After obtaining creditors’ consent, demand payment of the US$222.8 million upfront payment Upon payment, of the US$222.8 million, plant possession transferred to winning bidder Upon payment of the last installment, legal title to plant transferred to winning bidder.


19 19 19 Concession – Phase One Systems Operations petition ERC repair & maintain assets finance & construct new assets invoice & collect transmission charges advise TRANSCO on Non-Delegable Functions Non-Delegable Functions Concession Agreement* assets** F ConcessionaireTRANSCO * Concession Agreement suspends Concessionaire’s right to operate system until grant of Franchise. ** While Concessionaire obtains possession and control, TRANSCO retains title to Transmission Assets.

20 20 20 Concession - Phase Two Systems Operations petition ERC repair & maintain assets invoice & collect transmission charges finance & construct new assets Concession Agreement assets** F ConcessionaireTRANSCO ** While Concessionaire obtains possession and control, TRANSCO retains title to Transmission Assets.

21 21 21 Concession - Revenue Streams ConcessionaireTRANSCO Transmission Charges *Variable Fee = Transmission - System ChargesOperation Expenses Phase One Phase Two ConcessionaireTRANSCO Variable Fee* Grid Users Transmission Charges N ET R EVENUE ( P HASE O NE) __ N ET R EVENUE ( P HASE T WO)

22 22 22 Comparison of Priva vs. Non-Priva Cashflows

23 23 23 Cash Flows (Priva vs No Priva) Pre-financing

24 24 24 Cash Flows (Priva vs No Priva) Post-financing

25 25 25

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