the electric cooperative system loss reduction project – partial credit guarantee program (ec-pcg)

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The Electric Cooperative System Loss Reduction Project Partial Credit Guarantee Program (EC-PCG)

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Page 1: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

The Electric Cooperative System Loss Reduction Project –

Partial Credit Guarantee Program (EC-PCG)

Page 2: 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

Page 3: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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.

Page 4: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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

Page 5: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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

Page 6: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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

Page 7: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

The LGUGC

Page 8: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

RELATIONSHIP MANAGEMENT

CREDIT RATING

CREDIT GUARANTEE

GUARANTEE PROGRAM

MANAGEMENT

COLLABORATION WITH NATIONAL GOVERNMENT AND

DONOR AGENCIES

What LGUGC Does

Page 9: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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)

Page 10: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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

Page 11: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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

Page 12: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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

Page 13: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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

Page 14: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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

Page 15: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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

Page 16: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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

Page 17: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

Thank YouThank You

Page 18: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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)

Page 19: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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

Page 20: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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

Page 21: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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

Page 22: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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

Page 23: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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

Page 24: The Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

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