Privatization Of The Assets Of Napocor

Section 1. Section 47 of EPIRA

PSALM shall privatize the assets transferred to it from NAPOCOR in accordance with these Rules. Within 180 days from the effectivity , PSALM shall submit a Privatization plan for the endorsement by the Power Commission and the approval of the President of the Philippines.

This plan shall cover the total Privatization of the transmission and generation assets, real estate, and other disposable assets as well as the existing IPP contracts of NAPOCOR, except for assets of SPUG. Upon approval of the Privatization plan, PSALM shall implement the same.

The participation by Filipino citizens and corporations in the purchase of NAPOCOR assets shall be encouraged.

Section 2. Scope of Privatization.

NAPOCOR Generation, Generation-Related, and Other Assets.

Except for the assets of SPUG, NAPOCOR assets to be privatized shall include:

• all generation assets and all generation-related machineries and equipment
• all real estate and the improvements made thereto
• disposable assets such as facilities, properties, equipment and other assets not essential to the operation of NAPOCOR.

To provide for an orderly disposition of these assets, NAPOCOR shall provide PSALM an inventory of all these assets within 120 days from the effectivity .

NAPOCOR Transmission, Subtransmission, Interconnection and Ancillary Assets

The transmission, subtransmission, interconnection and ancillary assets of NAPOCOR, as defined in Section 8 and further detailed in Rule 6 on Transmission Sector and Rule 22 on TRANSCO, shall be transferred by NAPOCOR directly to TRANSCO. For this purpose, NAPOCOR shall submit a list of these assets to PSALM and TRANSCO within one hundred and twenty (120) days from the effectivity .

(c) IPP Contracts of NAPOCOR.

Consistent with Section 8 of this Rule, IPP Contracts of NAPOCOR shall refer to generation capacities developed pursuant to Republic Act No. 6957 (BOT Law), as amended by Republic Act No. 7718, and any such generation asset whose construction was not financed by NAPOCOR but whose output is bought by NAPOCOR under Purchase Power Agreements (PPAs), Energy Conversion Agreements (ECAs) or any other similar contractual relationship.

Section 3. Privatization Objectives.

The Privatization of the NAPOCOR assets intends to achieve the following objectives:

• Ensure and accelerate the total electrification of the country
• Ensure the quality, reliability, security and affordability of the electricity
• Ensure transparent and reasonable prices of electricity in a regime of free and fair competition and full public accountability to achieve greater operational and economic efficiency and enhance the competitiveness of Philippine products in the global market
• Enhance the inflow of private capital and broaden the ownership base of the power generation, transmission and distribution sectors
• Ensure fair and non-discriminatory treatment of public and private sector entities in the process of Restructuring the electric power industry
• Protect the public interest as it is affected by the rates and services of electric utilities and other providers of electric power
• Assure socially and environmentally compatible energy sources and infrastructure
• Promote the utilization of indigenous and new and Renewable Energy Resources in power generation in order to reduce dependence on imported energy
• Ensure consumer protection and enhance the competitive operation of the electricity market.

Section 4. Privatization Guidelines.

(a) The Privatization value to the National Government of the NAPOCOR generation assets, real estate, other disposable assets as well as IPP contracts shall be optimized.

(b) The participation by Filipino citizens and corporations in the purchase of NAPOCOR assets shall be encouraged. Equity or similar instruments of participation by End-users or consumers must be explored exhaustively.

In the case of foreign investors, at least seventy-five percent (75%) of the funds used to acquire NAPOCOR-generation assets and IPP contracts shall be inwardly remitted and registered with the (BSP).

(c) (d)

The NAPOCOR plants and/or its IPP contracts assigned to IPP Administrators, its related assets and assigned liabilities, if any, shall be grouped in a manner which shall promote the viability of the resulting Generation Companies, ensure economic efficiency, encourage competition, foster reasonable electricity rates and create market appeal to optimize returns to the government from the sale and disposition of such assets in a manner consistent with the objectives . In the grouping of the generation assets and IPP contracts of NAPOCOR, the following criteria shall be considered:

• (i) A sufficient scale of operation and balance sheet strength to promote the financial viability of the restructured units
• (ii) Broad geographical groupings to ensure efficiency of operations but without the formation of regional companies or consolidation of market power
• (iii) Portfolio of plants and IPP contracts to achieve management and operational synergy without dominating any part of the market or of the load curve
• (iv) Such other factors as may be deemed beneficial to the best interest of the National Government while ensuring attractiveness to potential investors.

All assets of NAPOCOR shall be sold in an open and transparent manner through public bidding, and the same shall apply to the disposition of IPP contracts;

In cases of transfer of possession, Control, operation or Privatization of multi-purpose hydro facilities, safeguards shall be prescribed to ensure that the National Government may direct water usage in cases of shortage to protect potable water, irrigation, and all other requirements imbued with public interest.

The rights of NAPOCOR over such multi-purpose hydro facilities shall be transferred to PSALM;

(f) The Agus and the Pulangui complexes in Mindanao shall be excluded from among the Generation Companies that will be initially privatized. Their ownership shall be transferred to the PSALM and both shall continue to be operated by the NAPOCOR.

Said complexes may be privatized not earlier than ten (10) years from the effectivity, and, except for Agus III, shall not be subject to BOT, Build- Rehabilitate-Operate-Transfer (BROT) and other variations thereof pursuant to Republic Act. No. 6957 (BOT Law), as amended by Republic Act No. 7718.

The Privatization of Agus and Pulangui complexes shall be left to the discretion of PSALM in consultation with Congress.

PSALM, out of the earnings in the operation of Agus and Pulangui complexes, shall ensure the availability of adequate funds intended for the upkeep of facilities to include funds for repairs, maintenance and expansion of existing facilities

(g) The steamfield assets and generation plants of each geothermal complex shall not be sold separately. They shall be combined and each geothermal complex shall be sold as one package through public bidding.

The geothermal complexes covered by this requirement include, but not limited to, Tiwi-Makban, Leyte A and B, Tongonan, Palinpinon, and Mt. Apo.

(h) The ownership of the Caliraya-Botokan-Kalayaan (CBK) pump storage complex shall be transferred to PSALM and operated by NAPOCOR on behalf of PSALM for a period of ten (10) years.

(i) Not later than three (3) years from the effectivity , and in no case later than the initial implementation of Open Access, at least seventy percent (70%) of the total capacity of generation assets of NAPOCOR and of the total capacity of the power plants under contract with NAPOCOR located in Luzon and Visayas shall have been privatized: Provided,

That any unsold capacity shall be privatized not later than eight (8) years from the effectivity ;

(j) Except as otherwise provided in these Rules, all appropriate existing authorizations, licenses and permits issued by the National Government, including its departments, bureaus and agencies, and LGUs to NAPOCOR shall automatically transfer to PSALM;

(k) NAPOCOR may generate and sell electricity only from the undisposed generation assets and IPP contracts of PSALM and shall not incur any new obligations to purchase power through bilateral contracts with Generation Companies or other Suppliers

(l) The sale, transfer or disposition of NAPOCOR assets shall not affect existing NAPOCOR contractual obligations.

Section 5. Elements of the Privatization Plan.

The Privatization plan for NAPOCOR assets shall contain, among others, the following principal elements: (a) (b) (c) (d) (e) (f) Structure, sequence, timing and terms of asset disposition; Employee issues;

Management of debt obligations;

Management of IPP obligations, including appointment of IPP Administrators in accordance with Section 51(c) ; Options for the sale of other assets; and Overall timetable and progress milestones.

Section 6. Privatization of Hydroelectric Generation Plants

(a) Consistent with Section 47(e) and Section 4(f) of this Rule, the Privatization of hydro facilities of NAPOCOR shall cover the power component including assignable long-term water rights agreements for the use of water, which shall be passed onto and respected by the buyers of the hydroelectric power plants.

(b) The National Water Resources Board (NWRB) shall ensure that the allocation for irrigation, as indicated by the NIA and requirements for domestic water supply as provided for by the appropriate Local Water District(s) are recognized and provided for in the water rights agreements. NAPOCOR or PSALM may also impose additional conditions in the shareholding agreement with the winning bidders to ensure national security, including, but not limited to, the use of water during drought or calamity.

(c) Consistent with Section 34(d) , the NAPOCOR shall continue to be responsible for watershed rehabilitation and management and shall be entitled to the environmental charge equivalent to one-fourth of one centavo per kilowatt-hour sales (P0.0025/kWh), which shall form part of the Universal Charge. This environmental fund shall be used solely for watershed rehabilitation and management and shall be managed by NAPOCOR under existing arrangements. NAPOCOR shall submit an annual report to the DOE detailing the progress of the watershed rehabilitation program.

(d) The NAPOCOR and PSALM or NIA, as the case may be, shall continue to be responsible for the dam structure and all other appurtenant structures necessary for the safe and reliable operation of the hydropower plants. The NAPOCOR and PSALM or NIA, as the case may be, shall enter into an operations and maintenance agreement with the private operator of the power plant to cover the dam structure and all other appurtenant facilities.

Section 7. Undisposed Generation Assets and IPP Contracts of NAPOCOR.

(a) NAPOCOR may generate and sell electricity only from the undisposed generation assets and IPP contracts of PSALM; and Page 78 of 100(b) NAPOCOR shall not incur any new obligations to purchase power through bilateral contracts with Generation Companies or other Suppliers.

Section 8. Privatization of IPP Contracts Assumed by PSALM.

(a) The IPP contracts assumed by PSALM shall be privatized taking into consideration buy out provisions, Government performance undertakings and possible bilateral renegotiations to minimize the liabilities of NAPOCOR and the National Government. (b) Consistent with Section 75 , with respect to IPP-related contracts, nothing in these Rules shall be construed as: (c) (i) an implied waiver of any right, action or claim, against any Person or entity, of NAPOCOR or the National Government arising from or relating to any such contracts; or

(ii) a conferment of new or better rights to creditors and IPP contractors in addition to subsisting rights granted by the NAPOCOR or the National Government under existing contracts.

PSALM shall ensure that the Privatization of IPP contracts assumed by it shall not cause an increase in the stranded costs to be absorbed by the National Government and End-users.

Section 9. Complexes

Management and Operation of Agus and Pulangui

The Agus and Pulangui complexes shall be managed and operated by NAPOCOR for PSALM as a separate business unit, and shall have its own organization and book of accounts.