the electric cooperative system loss reduction project – partial credit guarantee program (ec-pcg)
TRANSCRIPT
The Electric Cooperative System Loss Reduction Project –
Partial Credit Guarantee Program (EC-PCG)
EC-PCG Grant
Part A - US$10MMPartial Credit
Guarantee Program
Part A - US$10MMPartial Credit
Guarantee Program
Part B - US$2MMTechnical Assistancefor DOE and LGUGC
Part B - US$2MMTechnical Assistancefor DOE and LGUGC
US$12 million grant
EC-PCG Program Objective
Assist the Republic of the Philippines in promoting energy efficiency improvements that will result to:
the provision of reliable and least-cost power supply; and
the reduction of carbon dioxide emissions and other pollutants.
Stakeholders/Covering Agreements
Republic of the Philippines
DOF and DOE
Guarantee Program
Implementation Agreement
ROP Grant Agreement
Guarantee Program Manager
Guarantee Reserve Escrow
Agreement
Escrow Agent
As Implementing Agency of GEF
World Bank
Project Agreement & LGUGC Grant
Agreement
Project Eligibility Criteria
Upgrade of EC power distribution systemAt least 50% of the investment amount should result to direct measurable energy savingsTechnically and financially viableCompliant with applicable laws, regulations and the environmental and social policy safeguards of the WB
Examples of Acceptable Projects
Rehabilitation and capacity upgrades of existing supply system (e.g. installation of additional substation)Purchase of necessary hardware, software, motor vehicles, tools and equipment to improve employee productivity and efficiencyInstitutional development of ECs
The LGUGC
RELATIONSHIP MANAGEMENT
CREDIT RATING
CREDIT GUARANTEE
GUARANTEE PROGRAM
MANAGEMENT
COLLABORATION WITH NATIONAL GOVERNMENT AND
DONOR AGENCIES
What LGUGC Does
Created on August 4, 1969 to take charge of the total electrification of the country on an area coverage basisMandated to organize, finance and regulate electric cooperatives throughout the countryAs of October 2010, 119 ECs have been established
The National Electrification Administration (NEA)
Functions of NEA Over ECs
Administer rural electrification program thru ECs
Provide loans to ECs
Handle subsidies and grants intended for ECs
Provide technical and/or professional assistance to ECs
Take over policy making functions and management or operations of ECs in case of EC management, technical and/or financial problems
The Program Roadblocks
Competition from the National Electrification Administration
Net loss positions of most ECs after Reinvestment Fund reduction
Limited expertise within ECs to prepare Feasibility Studies (FS) for Capital Expenditure (CAPEX) projects
Ever-changing guidelines of Energy Regulatory Commission in CAPEX application templates
Private banks’ unfamiliarity with ECs
Technical assistance to ECs in FS preparation for CAPEX projects including SALF
Assistance to ECs in presentation of FS to Energy Regulatory Commission (ERC) for approval
Design of EC Borrower Risk Rating System
Workshop for private banks on EC structure and operations
Partnership with NEA
Advocacy to make EC accounting system of international standards
EC-PCG Response to Roadblocks
NEA-EC-PCG Co-Financing Agreement
Signed in June 2009NEA and EC-PCG AFIs to co-finance the financial requirements of the ECAFI loan counterpart guaranteed by EC-PCGNEA step-in rightsCross default provisionNEA may take out the loan balance after 10 years or when the AFI loan interest rate breaches NEA loan rateNEA will promote the program to ECs
EC-PCG Guidelines
Eligible Borrower
: • Creditworthy Electric Cooperatives (ECs)• Duly registered with the National Electrification Administration (NEA) or the Cooperative Development Authority and must have NEA clearance for mortgage sharing, if EC has existing NEA loan and registered with NEA• Has Energy Regulatory Commission-approved capital investment proposal• Must meet the 20% minimum equity requirement for the proposed project• Must meet the minimum projected Debt Service Coverage Ratio of 1:1 based on the forecasted cash flow
Eligible Project/Purpose
: Upgrade of EC power distribution systems to realize energy and emission savings
EC-PCG Guidelines
Lender : Any LGUGC Partner Financial Institutions (PFI)
Term : Up to 10 years with at least 1 year grace period, but not to exceed the PFI loan term
Single Guarantee Limit
: USD2.5 million
Guarantee Coverage
: Up to 80% of the loan principal amount and 3 months interest, subject to LGUGC interest rate cap
Guarantee Fee : 0.25% per annum
Processing Fee : One-time fee of up to 1.5% of the guaranteed portion of the principal amount of the loan, exclusive of taxes and collected upfront
Collateral: : Assignment of Proceeds of Power BillingsAssignment of Debt Reserve FundReal Estate Properties and/or ChattelsOther assets acceptable to the Lender and LGUGC
EC-PCG Finally Took Off!
Three accounts booked from August 2010 t0 January 2011, aggregating PhP309.94 million
Four accounts approved as of February 2011, aggregating PhP437.86 million
A pipeline of 10 accounts, aggregating PhP1.093 billion loan requirements
Current leverage ratio of 1.40x the US$5 million EC-PCG guarantee fund currently in Escrow
Potential leverage ratio of 4x the US$ 10 million full EC-PCG guarantee fund
Thank YouThank You
NEA Criteria for Categorization
Status of loan repayment (-10 to 20 points)System loss (0 to 30 points)Collection Efficiency (0 to 15 points)Payment for power purchase (-5 to 15 points)Non power costs /customer (0 to 10 points)Supply system reliability (0 to 5 points)Barangay Energization (0 to 5 points)Excessive cash advance to officers (0 to -20 points)
NEA Categorization of ECs
Score 200990 & above A+ 5875-89 A 1565-74 B 12
55-64 C 3
30-54 D 3
29 & below E 8Non-complying 7Not Evaluated 14Total 120
ECs** Includes NEECO II-Area 2
NEA Criteria for Classification
Volume of Average MWH Sales (20 to 40 points)Number of Service Connections (10 to 30 points)Average Kms. Of Lines (10 to 30 points)Based on OVER-ALL POINT SCORE:
Earned Points Classification As of 200985-100 Mega Large 3770-84 Extra Large 30 55-69 Large 1745-54 Medium 944 & below Small 6
RA 9136 - EPIRA
Electric Power Industry Reform Act of 2001
Section 2 (d)it is the National Government’s policy to enhance inflow of private capital to the power generation, transmission and distribution sectors
Section 37 (e) (i)Department of Energy is mandated to encourage private sector investment in the electricity sector and promote development of indigenous and renewable energy sources
Assistance to ECs
Conduct Due Diligence to ensure viability of proposed capex projectsComplete the Feasibility StudiesComply with ERC capex application requirementsComply with loan and guarantee requirementsProvide guarantee for loan contracted
Part A. Borrower Risk Rating
LGUGC Borrower Risk Rating System for ECs
I. Financial Condition II. Management Quality III. Industry Analysis
Return on Equity RatioReturn on SalesCollection EfficiencyRevenue Growth RateDebt to Equity RatioQuick RatioInterim Development and Profitability Outlook
Clear long-term business/corporate strategy
Quality and experience of management
Management Structure and Succession Strategy
Management Control and Information System
Management of Lender-Guarantor-Borrower Relationship
Market competitionThreats of New EntrantsThreat of SubstitutionDependencies (Customers/Supplies)Competitive Strategy Adopted Industry Outlook/Stage of Industry CycleSpecial Risks
Part B. Facility Risk Factor
I. Term to Maturity/Documentation Risk
II. Security Agreements
III.Project Physical Accomplishment and Technical Indicator
IV.Credit Rating Review or New Rating Results
LGUGC Borrower Risk Rating System for ECs
Final Score Category Rating
18.0 - 19.2 Excellent 1
14.3 - 17.9 Strong 2
10.6 - 14.2 Good 3
6.9 - 10.5 Satisfactory 4
3.6 - 6.8 Acceptable 5
Final Score Category Rating
< 3.6 Watchlist 6
Special Mention 7
Substandard 8
Doubtful 9
Loss 10