Magat Hydroelectric Plant

active

On April 23, 2007 the state-owned Power Sector Assets and Liabilities Management Corporation (PSALM), which was in charged of privatizing the government's energy assets, concluded the sale of Magat Hydroelectric plant (Magat HEPP) for US$530 million to SN Aboitiz Power Inc by signing the asset sale contract. Magat HEPP was a 360MW (4x90 MW) power plant built in Ramon, Isabela province, Luzon island about 350 kilometers northeast of Manila. The hydro power plant was part of a multipurpose dam complex that was used primarily for irrigation, with power generation as its secondary function. The Magat HEPP, which became operation in 1983, was among the country’s few peaking plants in the Luzon grid and was expected to be dispatched largely during peak hours, running primarily as a 100% merchant power plant and selling electricity through the bid-based wholesale electricity spot market (WESM). SN Aboitiz Power Inc was a joint-venture between subsidiaries of Norwegian Statkraft Norfund Power Invest AS (SN Power) with 50% and Filipino Aboitiz Equity Venture (AEV) with the remaining 50%. The PSALM formally transferred the control of the plant to SN Aboitiz Power Inc in April, 2007. The sale of Magat HEPP was as part of the privatization program stipulated in the Electric Power Industry Reform Act (EPIRA). In December 2006, SN Aboitiz Power Inc won the project through a competitive tender by offering the highest price for the asset (US$530 million), outbidding First Gen which offered US$420.9-million. Although there were four consortia qualified to submit final bids, only two submitted them. At the signing of the sale contract, the winning consortium paid US$371 million as upfront payment to PSALM and committed to pay the remaining in 14 semiannual installments. Under the privatization scheme, the winner bidder had to pay at least 40% of the purchase price as up-front payment payable on or before the closing date. The balance of 60% may be paid in 14 equal semiannual payments with an interest of 12% per annum, compounded semiannually. The winning bidder was also required to post a performance bond equivalent to 2% of the purchase price. The performance bond was to be reduced every year equivalent to 2% of the aggregate amount of the deferred payments. The winning bidder was also required to post a deferred payment security deposit or an irrevocable standby letter of credit acceptable to PSALM. The winning bidder agreed to sign the purchase and lease agreements with PSALM and the lease contract and operating and maintenance agreement with the National Irrigation Administration (NIA). The latter agreement detailed the terms and conditions set by PSALM and the irrigation agency regarding the operation and maintenance of the dams and other non-power components needed for the operation of the Magat facility. The project purchase was funded through mixture of equity from the project sponsors, shareholders’ advances, a shareholder loan from AEV, and PSALM’s deferred payment facility. In October, 2007 the IFC approved a US$105-million loan to the project company. Nordic Investment Bank contributed an additional US$47 million senior loan and a consortium of local banks completed the financing with US$228 million equivalent in Peso loans.