Press Release
October 12, 2008

Pimentel doubts claim that sale of Transco is advantageous to govt

Senate Minority Leader Aquilino Q. Pimentel, Jr. (PDP-Laban) today cast doubts on the Arroyo administration's claim that the sale of the National Transmission Corporation (Transco) to a private consortium, called National Grid Corp. of the Philippines (NGCP) will be advantageous to the government.

Pimentel said he is apprehensive of the national security implications of having a state corporation of China as the strategic foreign partner of the concessionaire that will take over Transco operations.

Forty percent of the NGCP is owned by the State Grid Hong Kong Ltd. which is a wholly-owned subsidiary of the State Grid of China.

The majority of 60 percent of the consortium is owned by two Filipino firms. The Monte Oro Grid Corp. owns 30 percent while the Calaca High Power Corp. owns the other 30 percent.

Pimentel asked whether it is right for the government to give up the supervision and running of the power transmission system specially if it is national network.

"What I am more concerned about is the control of the electric backbone of the nation, considering that the State Grid of Hong Kong as a wholly owned subsidiary of State Grid of China - holding a major stake in the national grid - might rely on the signal of its foreign owner," he said.

Pimentel said the 40 percent share of the State Grid of Hong Kong might just come out as the managing block, adding that the transaction may just be used as a leverage for future buy-out.

"To my mind, it can give them a lot of leeway which may even prejudice this country if there is no balancing of the power that is given to them," he said.

Pimentel asked whether it is necessary to privatize Transco considering that it has been operating profitably since it was separated from the National Power Corporation by virtue of the Electric Power Industry Reform Act of 200l.

In fact, he noted that Transco made a net income of Pl6.7 billion last year and it is debt-free and interest-free.

Pimentel said the government is trying to justify the privatization of Transco by pointing out that the national grid requires intense capital infusion which it is supposedly hard put to meet.

Pimentel said while the winning bidder would supposedly pay the government $3.95 billion for a 25-year concession to operate the national power transmission network, the terms and manner of payment leave much to be desired.

Under the concession contract, the NGCP is required to pay only 25 percent or $1 billion of the bid price within 30 days after its congressional franchise is approved. The downpayment of $987.5 million in cash will cover the concession fee for the first five years. The balance or 75 percent of the concession fee will be paid over a 20-year period in two payments per year.

Pimentel said that while the concessionaire is supposed to infuse fresh capital into Transco, only 50 percent of the $1 billion downpayment will be in the form of capital infusion by stockholders and the balance will come from borrowings.

He said Transco's owners even plan to float bonds to fully settle the initial payment. "That means they will raise the money here from our people."

Pimentel also asked the legal basis for authorizing the National Grid Corp. to use Transco's fiber optics for national broadband operation.

The Arroyo administration had earlier cancelled its $329 million national broadband contract with China's ZTE Corp. after it was found to be grossly overpriced and disadvantageous to the government.

"Now they will do it on the sly, because they are given a franchise not only for a national electric transmission but also the right to use to the maximum the fiber optics that are embedded in the transmission lines," Pimentel said.

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