US$1.2 Million Grant to Support the Philippine Power Sector Restructuring

MANILA, PHILIPPINES (27 January 2005) - ADB will assist the Philippine Government in restructuring the country's power sector through a technical assistance (TA) grant approved for US$1.2 million.

To support its reform agenda in the power sector, the Government requested assistance from ADB to build capacity of the Energy Regulatory Commission (ERC) and help speed up the privatization of the National Power Corporation (NPC).

The TA, financed by the Japan Special Fund, from the Government of Japan, will help boost investors' confidence by enhancing ERC's efficiency, and provide the necessary financial and technical advice to the Power Sector Assets and Liabilities Management Corporation (PSALM) for the privatization of NPC.

The restructuring of the Philippine power sector has reached a crucial juncture. While the legal framework has been in place since 2001 and the wholesale electricity spot market is being established, progress has been slow in the privatization of generation and transmission assets.

Perceived regulatory uncertainties related to the newly established ERC's capacity and expertise have contributed to the slow progress of the NPC's privatization. PSALM's institutional capacity also needs to be reinforced to speed up the privatization process.

"The success of restructuring will depend to a major degree on the credibility of sector regulation," says Yongping Zhai, an ADB Principal Energy Specialist.

"A strong, independent, and professional regulator working as a team to transform the electric industry and balance the interests of all stakeholders is needed."

For ERC, the TA will help improve its organizational structure, operational systems and processes, and resource management. The legal and technical competence of ERC's staff will be strengthened, and a mechanism for proper financial management will be recommended.

The TA will also rationalize and streamline ERC's regulatory processes and improve the accountability and transparency of regulation.

For PSALM, the TA will try to determine the main reasons for the limited success in privatization to date and recommend ways to improve the process.

The TA will assist PSALM in evaluating contracts with independent power producers, propose and design credit enhancement schemes, and familiarize PSALM and NPC personnel with the best international practices of privatization.

The TA is designed as an integral part of ADB's assistance to the Philippine power sector, and will complement other projects, such as those for the Department of Energy and for establishing the wholesale electricity spot market.

The Government will contribute $515,000 equivalent toward the TA's total cost of $1.715 million. ERC and PSALM will serve as executing agencies for the TA, which will be carried out over 24 months beginning March 2005.