Debts Of Electric Cooperatives (ECs)

Section 1. Guiding Principle

As per Section 60 , all outstanding financial obligations of ECs to NEA and other government agencies incurred for the purpose of financing the Rural Electrification Program shall be assumed by the PSALM in accordance with the program approved by the President of thePhilippines.

Section 2. Scope

This Rule shall cover all outstanding financial obligations by the ECs to NEA and other government agencies, incurred as of 26 June 2001 for financing the Rural Electrification Program.

Financial obligation shall refer to the indebtedness, whether through regular or restructured loans, liabilities, or amounts payable by the ECs to NEA and other government agencies as of 26 June 2001, to finance their rural electrification projects, subject to the terms and conditions of duly-executed loan and mortgage contracts between NEA and/or other government agencies, as creditors and the ECs, as debtors/borrowers.

Section 3. Condonation of Debts of ECs.

From the effectivity , all outstanding financial obligations of ECs to NEA and other government agencies incurred for the purpose of financing the Rural Electrification Program shall be assumed by the PSALM in accordance with the program approved by the President of the Philippines within one (1) year from the effectivity which shall be implemented and completed within three (3) years from the effectivity .

These debts shall include all outstanding financial obligations incurred by the ECs for the purpose of financing the Rural Electrification Program, exclusively utilized for capital expenditures for the acquisition or construction, operation and maintenance, and/or expansion and rehabilitation of distribution, generation and Subtransmission Assets/facilities and pre-operating expenses for newly-established ECs:

Provided, however, That such outstanding financial obligations shall include interest, surcharges and penalties on ECs’ Rural Electrification Loans, released from NEA and other government agencies to ECs as of 26 June 2001; duly booked by NEA, validated by COA, and confirmed by the ECs.

Section 4. Assumption of EC Loans by PSALM.

PSALM shall assume all outstanding financial obligations of the ECs to NEA and other government agencies incurred for the purpose of financing the Rural Electrification Program; such outstanding financial obligations of the ECs involving “Rural Electrification Loans” shall be determined in accordance with the program approved by the President of the Philippines. Correspondingly, having assumed the ECs’ obligations, the PSALM shall repay NEA and the other government agencies, in accordance with a prescribed amortization schedule agreed between the parties. The outstanding financial obligations from other government agencies referred to in Section 60 shall include loans contracted from the following:

(a) (b) (c) Development Bank of the Philippines (DBP); Land Bank of the Philippines (LBP); Asset Privatization Trust (APT) now Privatization and Management Office (PMO); Page 93 of 100(d) (e) (f) NAPOCOR, for loans on taken-over systems, excluding power bills; DOE; and LGUs. Provided, however, That such loans were contracted in accordance with NEA policies and with prior NEA authorization, except for loans transferred to APT, now PMO.

Section 5. Operation.

Transfer of Ownership or Control of Assets, Franchise or Within five (5) years from the completed Condonation of debt, any EC which shall transfer ownership or Control of its assets, franchise or operations shall repay PSALM the total debts, including accrued interest thereon: Provided, however, That the ECs may enter into loan or financing agreements to allow flexibility in sourcing funds and improvement and management system for needed rehabilitation and modernization programs: Provided, further, That it does not involve permanent transfer or Control of the assets, franchise and operations: Provided, finally, That DOF and NEA shall jointly issue the necessary guidelines to protect the member- consumers of the ECs involved.

Section 6. Reduction in ECs’ Rates.

The ERC shall ensure a reduction in the rates of ECs commensurate with the resulting savings due to the removal of the amortization payments of their loans and for this purpose, NEA shall assist the ECs in their rate formulation consistent with the program approved by the President of the Philippines. Nothing in this Rule however, shall mean that ECs are not obliged to pay the NEA with respect to all outstanding financial obligations assumed by PSALM, if the amortization cost component of the EC’s tariff is still collected from the consumers.

Section 7. Reporting, Accounting and Audit Procedures. NEA shall have the responsibility for the accounting of all outstanding financial obligations of ECs from NEA that will be assumed by PSALM. Thereafter, NEA shall render reports and submit the same to PSALM. PSALM shall have the right to conduct final audit of all the outstanding financial obligations of ECs in accordance with existing accounting and auditing rules and regulations, before the same can be considered for final assumption. Likewise, PSALM shall submit annual progress reports to the DOF on the status of ECs’ loans that were assumed and subsequently condoned.