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Home Business Privatization of Transco assets faces third delay

Privatization of Transco assets faces third delay

MANILA/SINGAPORE—The Philippines will probably miss a deadline for selling the national power grid by the end of the year, marking the third delay to its privatization plan, banking sources said on Friday.

The government will not finish preparing an independent value appraisal for public bidding for the National Transmission Corp. (Transco) until the first quarter of 2005, local media quoted Alan Ortiz, Transco president, as saying.

He estimated the 25-year concession contract for the operation of the grid would be worth $2.5 billion to $3 billion.


The government missed two earlier deadlines to privatize Trans­co—which has previously been worth $2 billion—because of regulatory uncertainty and security concerns after an abortive mutiny by a few hundred soldiers.

The Philippines plans to privatize Transco and 70 percent of power plants belonging to state-firm National Power Corp. (Napocor) to cut its huge budget deficit and attract private capital to prop up a creaking power sector.

President Arroyo’s election victory has renewed some interest in the assets.

The auction, forecast by Manila to raise up to $5 billion, is also seen as a litmus test for the government’s pledge to reform the economy given Napocor has accumulated a crushing debt of $23 billion, nearly a third of the nation’s gross domestic product.

Raphael Lotilla, head of a government office overseeing the privatization, told Reuters the government was intent on keeping its year-end target on selling Transco.

But overseas industry sources said the target would be hard to hit, and Manila was unlikely to have any success privatizing Transco unless it stops political intervention in tariff setting that is making returns on the asset unpredictable.

“They are trying to sell a house that is badly run down. They need to renovate the house first then bring it to the market,” said a source familiar with the situation.

“They really have to go back to basics and get the house in order and then sell the assets,” he added.

Ortiz was quoted as saying the government needed more time to formulate new terms after it decided to end negotiations this week with four local and foreign groups and instead hold a public bidding.

“We will have to formulate the new terms of reference for the public bidding, which will include the price and repayment terms,” Ortiz was quoted as saying by The Philippine Star.

Philippine sources say the four investors, including a consortium led by The Electricity Generating Authority of Thailand, had submitted bids of $1.9 billion to $3.4 billion.

But overseas sources familiar with the privatization plan said the government had not yet received any serious bids. Also, the reported prices can’t reflect the value of Transco, because the tariffs demanded by the investors are unknown, they said.

Sources close to the situation have also said potential investors were also balking at the large amounts of capital expenditure required for maintaining and upgrading the grids. It requires $400 million between this year and 2008.
— Reuters

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