Weak peso to bloat PSALM liabilities

Published July 6, 2022, 3:29 PM

by Myrna M. Velasco

When the value of the Philippine peso had been relatively favorable versus the US dollar, state-run Power Sector Assets and Liabilities Management Corporation (PSALM) indicated that it was able to trim power sector debts by P195.4 billion when the Duterte administration ended its reign on June 30 this year.

However, as the peso steeply depreciates against he greenback, PSALM could face bloating liabilities.

Former PSALM President and CEO Irene Joy Garcia, nevertheless, emphasized that “the biggest hurdle of PSALM right now is the impact of the volatile exchange rate movement on its financial obligations because a portion of its loans is dollar denominated.”

According to data from the government-run firm, at least 58-percent of its remaining debts are denominated in US dollars; 5.0-percent are in Japanese yen; and the balance of 37-percent are from local borrowings.

With that scale of financial obligations in US dollars then on the backdrop of a weak local currency, it is highly expected that the liabilities of PSALM will swell again when it concludes its financial review this year.

Apart from loans and other instruments of indebtedness, the remaining liabilities being managed by PSALM include those from the independent power producer (IPP) contracts that it assumed from National Power Corporation (NPC), which are also indexed on US dollars.

In a media statement, PSALM claimed that the financial obligations transferred to it by NPC had been at P538 billion when the Duterte administration assumed office in 2016 – and that has so far been pared to P342.6 billion by June this year.

On the settlement of liabilities, PSALM leaned on collections from the proceeds of the divested NPC assets – including those on the privatization of the power supply contracts with the IPPs; as well as the concession fee payments remitted by the National Grid Corporation of the Philippines (NGCP) for the country’s power transmission assets.

The other sources of PSALM’s cash flow had been collections from customers that it has been supplying power to; as well as pursuing the receivables that are already due from various clients.

Garcia stressed “all payables of PSALM that matured during the Duterte administration have been timely settled by PSALM.”

She, nevertheless, qualified that interest and borrowing costs had been gobbling up sizeable chunk of the paid amounts. During the Duterte administration, interest payments to PSALM’s financial obligations reached as high as P108.6 billion.

On the company’s debts, this was reduced to P264.4 billion at the end of the Duterte administration from P306.8 billion in June 2016; while lease obligations from IPPs had been trimmed to P78.2 billion by June 30 this year from P231.2 billion in 2016.

PSALM expounded that total revenues it cornered from service and business income, shares, donations, grants, and gains amounted to P79.5 billion – and that had been higher by 27-percent from the P62.4 billion revenues it posted at the end of 2020.

The power firm similarly noted that it logged “94-percent collection efficiency for its power sales,” with Garcia emphasizing that “the only reason collection efficiency did not reach 100-percent was because of the challenges in collecting from Lanao del Sur Electric Cooperative and Maguindanao Electric Cooperative.”

PSALM further conveyed it “managed well its operating expenses, recording just a 2-percent increase from P70.1 billion in 2020 to P71.2 billion in 2021.”

It specified that “overhead expenses, accounted for less than 5.0-percent of PSALM’s total income as the corporation was able to implement substantial cost-cutting measures while increasing revenues through successful privatization activities and aggressive collections of receivables.”