Philippine banks have categorically stated that they still strictly require power supply agreements (PSAs) before they will extend loans to power generation projects – be that in the renewable energy (RE) space or other energy technologies.
During an Energy Investment Forum, BDO Capital & Investment Corporation and the Land Bank of the Philippines (LBP) both emphasized that PSAs give certainty to the banks that the loans will be paid because there will be stream of revenues from the project based on the off-take contracts with capacity purchasers.
“Banks would want to get paid, so banks would want certainty that they would get paid and because of that -- our rule of thumb is: two-thirds generally of capacity should have off-take contracts,” BDO Capital President and CEO Eduardo V. Francisco said.
Off-take agreements are the PSAs or power purchase deals that the generation companies (GenCos) will enter into or underwrite with the capacity buyers, such as the private distribution utilities, electric cooperatives or even the buyers under the Retail Competition and Open Access (RCOA) regime of the restructured electricity sector.
Typically, Francisco noted that they will allow a GenCo-borrower to have flexibility for at least 30-percent of its capacity that it can trade via the Wholesale Electricity Spot Market (WESM).
“That means, one-third you can sell it to the WESM; you can play around so there would be more profits. That’s up to you, you would be able to get debt service,” the BDO executive explained.
Francisco reiterated “the key thing is: we do not want merchant financing – I don’t think any bank does merchant financing; and while there is that – while you have the spot market, it’s very, very volatile.”
He qualified that “banks are not there for profitability from the Gencos, it’s the Gencos that will get the upside from the equity.”
Generoso S. David, assistant vice president for program management of Land Bank, echoed they will require the PPA when they offer credit facilities to power projects because that is an assurance of a steady stream of income source that power developers can utilize for the repayment of their borrowed capital.
Other than a power supply contract, the LandBank executive similarly laid down all the requirements that a power project proponent will be submitting to support its loan application – including guarantee of grid connection at the power project’s completion, so its capacity can be assured to be wheeled into the network of the power system.
“For private borrowers, the bank can finance up to 80 percent of the total project cost; so that the 20-percent remaining cost, that will be infused by the proponent or the borrower,” he said.
The array of financing that Land Bank can extend could either be a short-term loan with a repayment period of one year; or a long-term loan that could have a tenor of up to 15 years.
If the borrower will be government-owned and control corporation (GOCC), government agencies, local government units (LGUs) or even the electric cooperatives, David stated that the bank extends flexibility of lending up to 90-percent of the project cost.