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Salceda warns National Government to incur P198b in debt in 2026 unless PSALM corporate life is extended; House tax chair says PSALM corporate life expiry could have “serious fiscal consequences”

October 6th, 2021

House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) warns that the National Government may have to shoulder as much as P198 billion in debts from the liabilities of the Power Sector Assets and Liabilities Management (PSALM) Corporation, unless its corporate life, which is expiring on June 26, 2026, is renewed.

“Based on my assessment of PSALM’s debt management capabilities, I expect some P198 billion of its debts will remain in 2026, following delays in the privatization of key assets due to the COVID-19 pandemic. I wouldn’t wait until the next administration to extend its corporate life,” Salceda said after a hearing today on a proposal to extend the government corporation’s charter for another 50 years. Salceda is author of House Bill No. 10346 on the exact same subject.

“The fiscal consequences are serious, especially since that period will still involve fiscal recovery,” Salceda added.

Republic Act No. 9136, otherwise known as the Electric Power Industry Reform Act (EPIRA), was enacted to ensure the solvency of the-then severely financially National Power Corporation (NPC). The EPIRA created the Power Sector Assets and Liabilities Management (PSALM) Corporation in 2001, a government-owned and -controlled corporation, with a corporate life of twenty-five (25) years which is due to expire on June 26, 2026.

PSALM has the principal mandate of managing the orderly sale, disposition, and privatization of the NPC generation assets, real estate and other disposable assets, and Independent Power Producer (IPP) contracts to optimally liquidate all NPC financial obligations, including stranded debts (SD) and stranded contract costs (SCC), which were transferred to and assumed by PSALM pursuant to the EPIRA. At the end of PSALM’s life, all its assets and outstanding debts and IPP contract costs will revert to and be assumed by the National Government (NG).

“We were originally set to see the obligations begin to almost disappear by 2026, but due to the COVID-19 pandemic, certain privatization efforts were delayed,” Salceda added.

“If PSALM’s debt is not isolated from those of the national government, however, we would see an instant increase in the national government debt stock of at least P198 billion, given the delays in the privatization efforts,” Salceda warned.

Salceda added that “Unless PSALM’s privatization thrust is completed, this reversion is a potential fiscal risk that could affect our credit standing and the national government’s overall fiscal health – strained as it already is by the COVID-19 pandemic and implementation of the Mandanas-Garcia ruling increasing local government units’ share of national taxes.”

Salceda also said that “Certain privatization efforts are also in imminent need of a longer PSALM corporate life. The proposed development of the National Power Corporation (NPC) property in Diliman, Quezon City, for example, into a mixed-use commercial complex will warrant the corporate life extension of state-run corporation.”

“The development blueprint initially cast for the 5.195-hectare NPC property aims to convert it into a mixed-use commercial strip patterned after the business district metamorphosis of Fort Bonifacio Global City. Because of the Covid-19 pandemic, re-adjustments have to be incorporated in the earlier crafted privatization design for that real estate asset,” Salceda said.

“Given the experience of the Bases Conversion and Development Authority (BCDA) with developments such as Fort Bonifacio, whose planning began in 1995, but only started being developed into a full-scale master-planned community in 2003, the Diliman property could take at least a decade before it realizes its promise as a revenue-driver for the PSALM,” Salceda indicated.

As House tax chair, in charge of the country’s fiscal policy, Salceda said that “Considering this and similar developments, it is in the fiscal interest of the state to extend the corporate life of the PSALM, to keep the national government insulated from its stranded debts, and to ensure that the corporation can pursue its fiscally-positive plans.”

Salceda, however, wants the PSALM to present its plans for the extension.

“If we will extend your life by 50 years, better present what you want to do with it. I thus request, that the PSALM submit its 50-year and medium-term plan for financial management and privatization to my office,” Salceda requested. #

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