By half  P2.188 billion

State-run Power Sector Assets and Liabilities Management Corporation (PSALM) has trimmed by half the reserve price of the 650-megawatt Malaya thermal power facility to P2.188 billion, which will be applied in its scheduled privatization next week.

In a bidding last year, the reserve price was at P4.481 billion; but that was deemed by interested parties as ‘sky high’ valuation, hence, even PSALM’s try for a negotiated deal failed.

The new submission deadline for tenders on the facility is slated September 23 this year; and this is already the third time that the asset will be placed on the auction block – the first two attempts were in September and November last year.

In a statement to the media, PSALM said its board of directors had calculated the minimum bid price “taking into consideration various valuation methodologies and relevant factors,” including book value of the asset, the zonal value of the land as well as the substantial losses being incurred by the company in continuously running the plant.

PSALM similarly integrated costs relative to maintaining the facility; plus the quantifiable impact of the coronavirus pandemic – primarily in terms of the plant’s marketability, the plunge in electricity demand, and “the need to have a justifiable price that would lead to a successful bidding.”

Irene Besido-Garcia, president and CEO of PSALM, qualified “there were many considerations that had to be looked into by the PSALM Board in setting the minimum bid price.”

Ultimately though, she emphasized that paramount in their target is “to arrive at a fair and reasonable minimum bid price that would actually lead to higher probability of successful privatization.”

The company chief executive asserted that the plant’s divestment is critically important to the government so it can fetch proceeds “to settle maturing obligations this year and minimize PSALM’s borrowings.”

Previously interested investors who pored over the asset’s viability indicated that the value-creating proposition for them is the plant site because they could have it utilized for power plant installations.

Appraisal on the Malaya thermal asset was carried out with the assistance of Isla Lipana & Co. PricewaterhouseCoopers Global Network as third party consultant. Valuation had been derived both on the plant and its underlying land site.

PSALM said it submitted the board-approved reserve price to the Commission on Audit (CoA) on August 25 this year, complete with supporting documents and the detailed explanation on how they arrived at the prescribed minimum bid figure.

In the past 6-7 years, the Malaya plant was depended upon by the Luzon grid as a must-run unit (MRU) – and it has been the facility ‘on call for dispatch’ if there is tightening of supply in the system.

With its privatization, the prospective buyer will be given a free hand on what it intends to do with the facility and its site which is lumped into the package – that is whether the taker wants to convert the power plant for other fuel technology utilization; or the site will be used for other purposes.