PSALM Corporation

Section 1. Creation of PSALM.

As per Section 49 , a government-owned and -controlled corporation known as the “Power Sector Assets and Liabilities Management Corporation”, hereinafter referred to as the “PSALM Corp.” or “PSALM,” was created to take ownership of all existing NAPOCOR generation assets, liabilities, IPP contracts, real estate and all other disposable assets. All outstanding obligations of the NAPOCOR arising from loans, issuances of bonds, securities and other instruments of indebtedness shall be assumed by the PSALM, within one hundred eighty (180) days from the approval . NAPOCOR and PSALM shall take such measures and execute such documents to effect the transfer of the ownership and possession of all the assets, rights, privileges, and liabilities required by the Act to be transferred by NAPOCOR to PSALM.

Section 2. Purpose and Objective.

The principal purpose of the PSALM is to manage the orderly sale, disposition, and Privatization of NAPOCOR generation assets, real estate and other Page 63 of 100disposable assets, and IPP contracts with the objective of managing and liquidating all NAPOCOR financial obligations and stranded contract costs in an optimal manner.

Section 3. Domicile.

The PSALM shall have its principal office and place of business within Metro Manila.

Section 4. Term of Existence. Unless otherwise provided by law, PSALM shall exist for a period of twenty- five (25) years from the effectivity , and all assets held by it, all moneys and properties belonging to it, and all its liabilities outstanding upon the expiration of its term of existence shall revert to and be assumed by the National Government. Upon expiration of the term of PSALM, the administration of the STF shall be transferred to the DOF or any of the DOF attached agencies as designated by the DOF Secretary.

Section 5. Powers.

PSALM shall, in the performance of its functions and for the attainment of its objectives, have the following powers: (a) To formulate and implement a program for the sale and Privatization of the NAPOCOR assets and IPP contracts and the management and liquidation of Stranded Debts and Stranded Contract Costs of NAPOCOR, such liquidation to be completed within the term of existence of the PSALM; (b) To take title to and possession of, administer and conserve the assets transferred to it, including the execution of bilateral contracts to sell power from undisposed assets and contracts transferred by NAPOCOR; (c) To sell or dispose the transferred assets at such price and under such terms and conditions as it may deem necessary or proper, subject to applicable laws, rules and regulations; (d) To take title to and possession of, and assume all rights and obligations of NAPOCOR under IPP contracts, and to appoint, after public bidding in a transparent and open manner, qualified independent entities who shall act as IPP Administrators in accordance with the Act; (e) To calculate the amount of the Stranded Debts and Stranded Contract Costs of NAPOCOR which shall form part of the basis of the ERC in the determination of the Universal Charge; (f) To liquidate Stranded Contract Costs of NAPOCOR utilizing proceeds from appropriations, sales and other property contributed to it, including the proceeds from the Universal Charge; (g) To adopt rules and regulations as may be necessary or proper for the orderly conduct of its business or operations; Page 64 of 100(h) To sue and be sued in its name; (i) To appoint or hire, transfer, remove and fix the compensation of its personnel and such advisors or other Persons as may be necessary in the sale, Privatization and disposition of NAPOCOR assets and IPP contracts: Provided, however, That PSALM shall hire its own personnel only if absolutely necessary, and as far as practicable, shall avail itself of the services of personnel detailed from other government agencies; (j) To own, hold, acquire, or lease real and personal properties as may be necessary or required in the discharge of its functions; (k) To borrow money and incur such liabilities, as may be required to service all obligations transferred from NAPOCOR and loans from ECs assumed from NEA in accordance with the relevant sections of these Rules, including the issuance of bonds, securities or other evidence of indebtedness utilizing its assets as collateral and/or through the guarantees of the National Government: Provided, That all such debts or borrowings shall have been paid off or settled before the end of its corporate life; (l) To restructure existing loans of the NAPOCOR; (m) To collect, administer, and apply NAPOCOR’s portion of the Universal Charge; (n) To issue other forms of financial instruments such as warrants, options, convertibles and to create Special Purpose Vehicles (SPVs) to maximize proceeds and value, as well as efficiently manage its liabilities; (o) To structure the sale, Privatization or disposition of NAPOCOR assets and IPP Contracts and/or their energy output based on terms and conditions which shall optimize the value and sale prices of said assets; (p) To create and administer STFs under Section 34 and these Rules; (q) To operate the generation assets, directly or through NAPOCOR, prior to Privatization of such assets. Towards this end, while PSALM operates the generation assets, it shall be considered a Generation Company; (r) To mitigate its potential stranded costs by making reasonable best efforts to reduce the cost of existing contracts with IPPs; (s) To ensure that SPUG conduct proper monitoring, accounting and control of expenditures, and efficient utilization of the missionary electrification funds from the Universal Charge; and (t) To do any act necessary or proper to carry out the purpose for which it was created, including the formation of one or more subsidiaries to Page 65 of 100maximize Privatization proceeds, enter into compromise agreements, or take such other acts as may be determined by the PSALM Board to be necessary, useful, incidental or auxiliary to accomplish its purposes and objectives as specified in the Act. Section 6. PSALM Board of Directors. PSALM shall be administered, and its powers and functions exercised, by a Board of Directors which shall be composed of the Secretary of the DOF as the Chairman, and the Secretary of the DOE, the Secretary of the DBM, the Director-General of the NEDA, the Secretary of the DOJ, the Secretary of the DTI and the President of the PSALM as ex-officio members thereof. Section 7. Powers of PSALM Board. All the powers and functions of PSALM shall be vested in and exercised by its Board of Directors. Section 8. PSALM Board Meetings and Quorum. The Board of Directors shall meet regularly and as frequently as may be necessary to enable it to discharge its functions and responsibilities. The presence at a meeting of four (4) members shall constitute a quorum, and the decision of the majority of three (3) members present at a meeting where there is quorum shall be the decision of the Board of Directors. Section 9. Powers of the PSALM President. (a) The President of PSALM shall be appointed by the President of the Philippines. In the absence of the Chairman and the Vice-Chairman, the PSALM President shall preside over Board meetings. (b) The PSALM President shall be the Chief Executive Officer of PSALM and shall have the following powers and duties: (i) To execute and administer the policies and measures approved by the Board, and take responsibility for the efficient discharge of management functions; (ii) To oversee the preparation of the budget of PSALM; (iii) To direct and supervise the operation and internal administration of PSALM and, for this purpose, may delegate some or any of his administrative responsibilities and duties to other officers of the PSALM; (iv) Subject to the guidelines and policies set up by the Board, to appoint and fix the number and compensation of subordinate officials and employees of the PSALM; and for cause, to remove, suspend, or otherwise discipline any subordinate employee of PSALM; (v) To submit an annual report to the Board on the activities and achievements of PSALM at the close of each fiscal year and Page 66 of 100upon approval thereof, submit a copy to the President of the Philippines and to such other agencies as may be required by law and under these Rules; (vi) To represent PSALM in all dealings and transactions with other offices, agencies and instrumentalities of the National Government and with all Persons and other entities, private or public, domestic or foreign; and (vii) To exercise such other powers and duties as may be vested in him by the Board from time to time. Section 10. Exemption from the Salary Standardization Law. The salaries and benefits of employees in the PSALM shall be exempt from Republic Act No. 6758 and shall be fixed by the PSALM Board. Section 11. Property of PSALM. The following funds, assets, contributions and other properties shall constitute the property of the PSALM: (a) The generation assets, real estate, IPP Contracts, other disposable assets of NAPOCOR, proceeds from the operation or disposition of such assets and the residual assets from BOT, ROT, and other variations thereof. The proceeds from the operation and disposition of NAPOCOR assets shall include: (i) Net profit of NAPOCOR; (ii) Earning before interest, taxes, depreciation and amortization of the Pulangui and Agus Complexes; (iii) Net profit of TRANSCO; (iv) Proceeds from the disposition and Privatization of PSALM’s generation, other disposable assets, and TRANSCO, net of all transaction costs and fees associated with such disposition and Privatization; and (v) Net profit arising from the administration of IPPs. (b) Transfers from the National Government; (c) Proceeds from loans incurred to restructure or refinance NAPOCOR’s transferred liabilities: Provided, That all borrowings shall be fully paid for or settled by the end of the life of the PSALM; (d) Proceeds from the Universal Charge allocated for Stranded Debts and Stranded Contract Costs of NAPOCOR; (e) Official assistance, grants and donations from external sources; Page 67 of 100(f) Repayment by ECs of such ECs loans assumed by PSALM. Such repayments must be made within five (5) years from such assumption of loans by PSALM by ECs who have transferred ownership or Control of its assets, franchise or operations pursuant to Section 60 of the Act; (g) Proceeds from insurance claims corresponding to assets transferred to PSALM by NAPOCOR; and (h) Other sources of funds as may be determined by PSALM necessary for the above-mentioned purposes. Section 12. Claims Against PSALM. The following shall constitute the claims against PSALM: (a) (b) (c) (d) (e) (f) NAPOCOR liabilities transferred to PSALM; Transfers from the National Government; New loans, such as, but not limited to those in the form of bonds, convertible instruments, warrants, leases and similar structures; Obligations under IPP contracts transferred by NAPOCOR to PSALM; Loans of ECs that are to be assumed by PSALM under Section 60 of the Act; and Expenses for rehabilitation and maintenance of Agus and Pulangi Complexes.