MIRIAM: STOP US$560 M MASINLOC SALE

Sen. Miriam Defensor Santiago, chair of the Joint Congressional Power Commission (JCPC), directed the Power Sector Assets and Liabilities Management Corp. (PSALM) to terminate by August 6 the controversial sale of the 600-watt Masinloc power plant in Zambales, to YNN Pacific Consortium, Inc.

Termination on August 6 of the Asset Purchase Agreement will call for an immediate rebidding.

At a public hearing Thursday, Santiago pointed out that under the contract, YNN promised to pay 40 percent of its bid price of US$561.740 million, equivalent to US$227 million, by 31 March 2006.

However, YNN failed to meet the payment deadline, and was granted a three- month extension until 30 June 2006.

YNN had requested the extension to allow entry of Ranhill Berhad, a Malaysian publicly-listed company.

When YNN failed to make the upfront payment last June 30, PSALM forfeited the US$14 million performance bond.

It is a matter for speculation why Ranhill wants to buy YNN shares, although the Masinloc power plant is being sold as a merchant plant, without any transitional supply contract, Santiago said.

Santiago said that there is public suspicion that Ranhill expects PSALM to pressure Meralco into signing a supply agreement with YNN, in exchange for concessions to Meralco concerning its $20 billion liability to the government, and the pending Meralco application for a rate hike.

We do not even have a statement on the impact of Ranhills entry on YNNs ability to comply with its contractual commitments to PSALM, she said.

The proposed sale became controversial because, while 22 companies initially expressed interest to participate for the bidding of the power plant, on the bid date, only two YNN and First Generation Holdings Corp. submitted their bids.

While YNN bid some $560 million, First Gen bid only some $275 million, raising questions on whether YNN deliberately overbid with its bid price.

Subsequently, YNN requested for an extension of the date for the upfront payment, on the ground that Ranhill had acquired the entire equity in YNN for US$8 million.

Santiago said YNN apparently violated its representation and warranty that it has as of award date, immediate available funds to pay the upfront payment, rentals, and option price.

Between the bid submission date on 1 December 2004 and the date of the award to YNN as the winning bidder on 22 December 2004, 20 days had lapsed. The 20-day period should have been sufficient for PSALM to confirm whether YNN, through the bid documents submitted, has immediate available funds, the senator said.

Santiago noted that YNN is a special purpose company formed primarily to bid for the Masinloc power plant, and that YNN is not heavily capitalized, because it has only an authorized capital stock of P10 million, and a subscribed capital of some P2 million.

But in fairness to PSALM, although YNN is not heavily capitalized, the situation is not peculiar because people do not want to form companies with large amounts of subscription when they are not sure of winning in the bid process, Santiago said.

The senator also pointed out that under the Electric Power Industry Reform Act of 2001 (EPIRA), there is no provision for the minimum capital requirement for companies that engage in the business of power generation.

I wonder why PSALM was unable to determine from the documents of the two principal stockholders, YNN and Great Pacific, whether their financial backgrounds and profiles supported their claim that they had immediate available funds, Santiago said.

Santiago said PSALM did not violate any contractual stipulation when it set the original date for the payment, and later when it extended the date of the upfront payment.

YNN continues to be the entity that is bound by the provisions of the asset purchase agreement. The agreement does not prohibit YNN stockholders to sell their shares to other parties, she said.

However, last month the Ombudsman found enough basis to investigate graft charges filed by Bagong Alyansang Makabayan against the members of the PSALM board, among them Finance Sec. Margarito Teves, Energy Sec. Raphael Lotilla, Budget Sec. Rolando Andaya, Economic Planning Sec. Romulo Neri, Justice Sec. Raul Gonzalez, Trade and Industry Sec. Peter Favila; PSALM Pres. Nieves Osorio, and PSALM Vice-Pres. Froilan Tampinco.

The JCPC hearing was held on the urgings of Sen. Aquilino Pimentel, Reps. Edgar Valdez, Teodoro Casio, Crispin Beltran, and Etta Rosales, who claimed that there are indications of corruption in the YNN-Ranhill deal.

Pimentel has urged the JCPC to look into the role of former Pres. Fidel Ramos in the entry of Ranhill, while Rep. Casio called the Masinloc deal the biggest privatization swindle in Philippine history.

Pimentel charged that PSALM was under tremendous pressure to honor the purchase contract to YNN and to extend the payment deadline until September, because Ranhill is partly owned allegedly by leaders of the United Malay Nationalist Organization (UMNO), which has ties with the ruling Lakas NUCD, headed by former Pres. Ramos.

For his part, Ramos recently issued a press release stating: I do not have any direct or indirect involvement or interest, past or present, in the Masinloc-YNN-Ranhill transaction.

Santiago said that JCPC invited Ramos to the public hearing to give him an opportunity to swear under oath as to his alleged innocence.

We wanted to give Mr. Ramos a chance to swear that he is innocent. If later evidence is unearthed to the contrary, then he would be liable for perjury, as well as for other crimes such as fraud, Santiago said.

In addition, Casio charged that PSALM officials divided a P10 million bonus among themselves for the Masinloc sale, although the sale has not yet been finalized.