Financing SmallScale Hydropower Development in the Philippines

1
Financing Small-Scale Hydropower Development in
the Philippines

• A Presentation for
• Center for Energy-Environment Research
  Development
• Oct. 25, 2002

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Financing Small-Scale Hydropower Development in
the Philippines

• Summary
• Introduction to HEDCOR
• Mini-hydropower development in the Philippines
• Financing mini-hydropower in the Philippines

3
About Hedcor

• Hedcor
• Hydro Electric Development Corporation
• Is an affiliate of Aboitiz Equity Ventures
• Owns and/or operates 14 mini-hydro plants
• Total generating capacity of about 39 MWs
• Generating about 150 GWhrs annually

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About Hedcor

• Hedcor
• OM contractor of 70 MW
• Bakun AC hydro plant
• 1st and only BOT hydro project
• in the Phils.

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About Hedcor

• Hedcor
• Mini Hydropower
• Development
• (design, construction,
• maintenance rehabilitation)

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About Hedcor

• Hedcor
• Fabrication Machining
• Watershed Management
• Liaisoning

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About Hedcor

• Hedcors vision
• We lead in the promotion
• and development of clean energy.

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Financing Small-Scale Hydropower Development in
the Philippines

• 3 laws a code that affected the development of
  mini-hydropower
• R.A. 7156 - Mini-hydroelectric
  Power Incentives Act
• R.A. 9136 Electric Power Industry Reform Act
• R.A. 6957 B.O.T. Law
• National Grid Code

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Mini-hydroelectric Power Incentives Act

• R.A.7156
• Mini-hydroelectric Power Incentives Act
• defines mini-hydro as
• 100 kws lt MINI lt 10 MWs
• Micro-hydro lt 100 KWs

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Mini-hydroelectric Power Incentives Act

• Republic Act 7156
• Grants incentives to mini-hydro developers (tax
  free importation of eqpt.)
• Obligates NPC to buy generation at avoided cost
• Vat-exempt status for mini-hydro
• Special Privilege Tax of 2
• Enacted September 1991

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Electric Power Industry Reform Act

• REPUBLIC ACT 9136
• The Power bill was suppose to bring transparency.
  
• Deregulation, privatization competition were to
  lower cost to true cost of power
• Instead we have higher subsidies

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Electric Power Industry Reform Act

• REPUBLIC ACT 9136
• Areas covered by power industry reforms
• Competitive sectors
• Generation supply - prices are not regulated
• Natural monopolies
• Distribution and transmission
• Prices are regulated by ERC
• Retail rates for distribution utilities are to be
  identified and segregated

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Electric Power Industry Reform Act

• REPUBLIC ACT 9136
• SEC. 2. (h) To promote the utilization of
  indigenous and new and renewable energy sources
  in power generation in order to reduce dependence
  on imported energy.
• SEC. 37. (e) (i) Encourage private sector
  investments in the electricity sector and promote
  development of indigenous and renewable energy
  sources.
• No specific IRRs

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Build Operate Transfer Act

• REPUBLIC ACT 6957 7718
• Provided a framework of risk sharing between the
  private developer and GOVERNMENT
• Developers could negotiate BOT contracts w/
  LGUs, government agencies and GOCCs
• Typically, a developer bids for a contract,
  constructs and operates the project for 25 yrs,
  and then turns the project over

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National Grid Code

• The Code that all power plants comply with
• SCADA requirements
• Tele-protection requirements
• Communication requirements

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Challenges in Financing Mini-hydropower

• Long term loans at developmental rates are
• not available. When we started (JEXIM)
• 15.5 per annum ( GRT)
• 8 yr term 21 equal quarterly payments
• 3 yr grace period on principal
• fully secured by parent company
• NO project financing available

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Challenges in Financing Mini-hydropower

• Development banks
• Would receive foreign loans at developmental
  rates to help promote the development of
  mini-hydropower
• And would lend to developers at near commercial
  rates
• Full collateral requirements

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Challenges in Financing Mini-hydropower

• Commercial banks
• Unfamiliar with hydropower projects
• Uncomfortable taking hydrological risks
• Required parent company guarantee
• More expensive than rates extended by development
  banks

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Challenges in Financing Mini-hydropower

• After operating for 12 yrs
• Re-financing became possible due to stable
  interest rates.
• Energy rates increased. (P1.82/kwhr to
  P4.50/kwhr)

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Challenges in Financing Mini-hydropower

• Recent terms of re-financing
• P450MM (roughly US9MM)
• 5 year term
• Balloon payment at the end of 5th year
• 90-day Phil. T-bill 1.5 spread
• exclusive of GRT
• Payments for 1st 4 quarters ave. 10.6
• Fully secured parent company guarantee

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Challenges in Financing Mini-hydropower

• Recent terms of re-financing
• Gross Receipts Tax (for 5-yr loan)
• 1st year . . . . . . . . . . 1
• 2nd year . . . . . . . . . . 3
• 3rd year . . . . . . . . . . 3
• 4th year . . . . . . . . . . 5
• 5th year . . . . . . . . . . 5

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Challenges in Financing Mini-hydropower

• Probable commercial banking terms today
• banks are not very excited to lend to power
  projects these days
• 90-day T-bills 2.0 spread or about 12.0
  (exclusive of GRT)
• must be fully secured parent guarantee
• 70/30 debt equity requirement
• Project finance using local currency not available

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Challenges in Developing Mini-hydropower

• Financing is not THE problem.

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Challenges in Developing Mini-hydropower

• Suggested measures to promote the development of
  mini-hydropower
• innovative financial packages
• allow private developers access to long term
  loans at developmental rates
• share the development risk w/ the developer by
  providing grants as a means to substitute equity

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Challenges in Developing Mini-hydropower

• Suggested measures to promote the development of
  mini-hydropower
• Create a market
• require utilities to purchase 3 of their
  consumption from NRE
• public awareness campaign on clean energy

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Challenges in Developing Mini-hydropower

• Suggested measures to promote the development of
  mini-hydropower
• DOE/DENR to initiate steps to augment the
  revenue of mini-hydropower developers
• possibly through carbon trading

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Challenges in Developing Mini-hydropower

• Suggested measures to promote the development of
  mini-hydropower
• exempt mini-hydropower plants from technical
  requirements imposed on bigger plants

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PotentialMini-hydropower Sites Identified
TOTAL POTENTIAL 100.15 MWS
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www.hedcor.com