PSIREN

In December 2006, SN Aboitiz Power Inc. (SNAP) acquired Isabela-based Magat plant with an offer of US$530M under the Philippine power privatization program, topping the bid of the First Generation Northern Energy Corp (US$420.9M). Magat is deemed a very valuable asset because of its large water storage, giving it the capability to provide ancillary services. A 95-MW supply contract was tied to the sale. PSALM signed an Asset Purchase Agreement with SNAP; SN Power also signed land lease and Operation and Maintenance (O&M) agreements with National Irrigation Administration (NIA) and PSALM, respectively, which provided for rentals of NIA land underlying a portion of Magat and for service fee. In September 2007, International Finance Corporation provided a US$105M loan to SNAP to complete Magat’s privatization. This is the first privatization deal successfully concluded with significant foreign participation under EPIRA, the country’s electricity reform law, and the first merchant power plant to be financed internationally in East Asia.

Plant description –
The Magat power plant is built at the foot of the Magat dam in the north of Luzon which has been operational since 1983. It is a reservoir hydro power plant located at the border between Ramon (province of Isabela) and Alfonso Lista (province of Ifugao), approximately 350 km northeast of Manila in the Philippines. Its reservoir covers 117 km2 and has the usable storage capacity of about 21 days of electricity generation. It was built in 1983 and runs on four 90MW Francis hydro turbines. Historical annual production ranged from 550 to 1,445 Gwh with an average of approximately 928 Gwh per annum. Magat is among the country’s few ‘peaking plants’ in the Luzon grid and is expected to be dispatched largely during peak hours, running primarily as a 100% merchant power plant and selling electricity through the bid-based wholesale electricity spot market (WESM).

Project sponsors –
SNAP is a joint-venture between SN Power Holding Singapore Pte. Ltd (SNPS) and Aboitiz Power Corporation (APC), two subsidiaries of Norway’s SN Power (Statkraft Norfund Power Invest AS) and Aboitiz Equity Ventures (AEV) of the Philippines, respectively, through a two-tier structure to comply with a local regulation that requires hydro generation facilities to be at least 60% controlled by Philippine entities. SN Power Singapore owns a 40% equity interest in SNAP directly and another 10% indirectly through its 16.7% equity interest in Manila-Oslo Renewable Enterprise (MORE), while APC will own a 50% interest in SNAP indirectly through its 83.3% ownership in MORE. As a result, SNAP is owned directly and indirectly on a 50:50 basis by both SN Power and AEV.

• SN Power was established in 2002 as a joint venture between Statkraft (50%) and Norfund (50%), both of which are 100% owned by the Norwegian government. The objective of SN Power is to develop, build, acquire, own and operate environmentally friendly hydropower assets in Latin America, Asia and Africa on commercial terms. SN Power has ownership in nine projects with a total installed capacity of about 627MW in operation and six projects with a total installed capacity of about 1,163MW under implementation, of which two projects, a 155MW La Higuera project in Chile and a 192MW Allain Duhangan in India, are IFC projects.

• AEV is the public holding and management company of the Aboitiz Group, one of the largest conglomerates in the Philippines, owned and controlled by the Aboitiz family, originally based in Cebu. AEV’s core businesses, conducted through its various subsidiaries and associates, can be grouped into four main categories: (a) power distribution and generation through Aboitiz Power Corporation; (b) financial services; (c) food manufacturing; and (d) transport. The power distribution and generation businesses contribute the largest share of the group’s revenues and the group’s future major investments will be focused on its core business.

IFC loan –
In September 2007, IFC approved a US$105 million loan to SNAP which will use the financing to complete the privatization process. The total project cost is estimated at $542 million, which includes the bid price of $530 million and a provision for working capital of $12 million. Nordic Investment Bank will also contribute an additional US$47 million loan and a consortium of local banks will complete the financing with $228 million (equivalent in Peso loans). The project cost is being funded through mixture of equity from the project sponsors, shareholders’ advances, a shareholder loan from AEV, and PSALM’s deferred payment facility. The project is IFC's first investment in a reservoir hydro power plant and is expected to: (a) reinvigorate foreign investors interest in the country’s power privatization program after several years of inertia; (b) continue to support power sector reform by restoring market confidence in the WESM mechanism and the institutional capacity of the Philippines in general; (c) provide proof of concept and demonstration effect of a successful privatization of a large scale merchant hydro power project to other East Asian countries who hesitate to embark in similar sector reforms; and (d) support the improvement in the operations and the potential capacity expansion of an environmental friendly source of energy in the country.

(see attached doc for references)