The Privatization of the National Transmission Corporation

Described as the "crown jewel" of the Philippine government's power privatization program, the national electricity transmission system is now in the hands of the private sector.

The Power Sector Assets and Liabilities Management Corporation (PSALM) successfully bid out the 25-year concession contract to operate and maintain the transmission system of the National Transmission Corporation (TransCo) on 12 December 2007 to the consortium of Monte Oro Grid Resources Corporation, Calaca High Power Corporation, and State Grid Corporation of China. The consortium, now known as the National Grid Corporation of the Philippines (NGCP), offered USD3.950 billion for the TransCo concession. The contract, which was successfully bid out after three failed attempts, may be extended subject to the agreement of the parties and the Concessionaire' congressional franchise, with a recovery payment to the Concessionaire at the end of the concession.

In late 2008, the NGCP obtained from Congress its license to operate and maintain the transmission system. The franchise legitimizes the NGCP, a private entity, to run a public utility.

Following this significant development, PSALM formally turned over the 25-year TransCo concession to the NGCP on 14 January 2009 in simple ceremonies held at the PSALM Makati office. The turnover signifies that PSALM and the NGCP had met all conditions precedent and had completed the deliverables to close the transaction.

With the signing of the deed of transfer and the turnover of the ceremonial key, the NGCP officially obtained the authority to operate the country's sole transmission system starting at 12 a.m. of 15 January 2009.

Complying with the provisions of the sale transaction, the NGCP remitted USD987.5 million to PSALM as its upfront payment for the operation of the transmission system. The amount comprises 25% of the USD3.95-billion purchase price to acquire the concession contract. The remaining 75% will be payable via a 15-year repayment profile, providing a "pre-geared" investment structure to the investor. This means that the investor has the leverage to structure its own funds or equity vis-a-vis its borrowings. Thus, the NGCP funded its 25% down payment through loans and some equity, while the remaining 75% would be financed using the company's earnings.

Banking on the successful record and extensive experience of the State Grid Corporation of China (the foreign partner of the consortium) in operating a transmission system three times larger than the Philippine transmission grid, PSALM is confident that the NGCP will be able to efficiently operate and effectively maintain the country's transmission network.