Filed pursuant to Rule 424(b)(1)
PROSPECTUS Registration Statement No. 333-101021
NATIONAL POWER CORPORATION
[LOGO] NATIONAL POWER CORPORATION
Offer to Exchange
9.625% New Guaranteed Bonds Due 2028
8.400% New Guaranteed Bonds Due 2016
7.875% New Guaranteed Bonds Due 2006
for a Like Principal Amount of our outstanding
$300,000,000 9.625% Guaranteed Bonds Due 2028
$160,000,000 8.400% Guaranteed Bonds Due 2016
$200,000,000 7.875% Guaranteed Bonds Due 2006
Irrevocably and Unconditionally Guaranteed as to Payment of
Principal, Interest and Additional Amounts, if any, by the
REPUBLIC OF THE PHILIPPINES
-----------------
We have offered to exchange our 9.625% New Guaranteed Bonds Due 2028, our
8.400% New Guaranteed Bonds Due 2016, and our 7.875% New Guaranteed Bonds Due
2006 (collectively, the "New Bonds"), for a like principal amount of our
outstanding 9.625% Guaranteed Bonds Due 2028, a like principal amount of our
outstanding 8.400% Guaranteed Bonds Due 2016, and a like principal amount of
our outstanding 7.875% Guaranteed Bonds Due 2006, respectively (collectively,
the "Old Bonds").
The exchange offer and withdrawal rights expired at 5 p.m. (New York City
time) on January 27, 2003.
The terms of the New Bonds are identical in all material respects to the
terms of the Old Bonds, except that:
. the New Bonds will permit the assumption, without the consent of holders
of the New Bonds, by the Power Sector Assets and Liabilities Management
Corporation ("PSALM"), a corporation wholly-owned by the government of the
Republic of the Philippines, of our obligations under the New Bonds,
subject to certain conditions; and
. we will use our best efforts to have the New Bonds rated by at least two
of Moody's Investors Service, Standard & Poor's Rating Service and Fitch
Ratings, and to have the existing ratings on the Old Bonds that remain
outstanding withdrawn.
-----------------
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-----------------
The Dealer Manager for the exchange offer is
Bear, Stearns & Co. Inc.
February 19, 2003
TABLE OF CONTENTS
INTRODUCTORY STATEMENTS................................... i
FORWARD-LOOKING INFORMATION............................... ii
SUMMARY................................................... 1
NO CASH PROCEEDS TO NPC................................... 19
NATIONAL POWER CORPORATION................................ 20
ELECTRIC POWER INDUSTRY RESTRUCTURING AND PRIVATIZATION... 55
POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION 65
GLOSSARY OF SELECTED ELECTRICITY TERMS.................... 74
THE REPUBLIC OF THE PHILIPPINES........................... 75
DESCRIPTION OF THE OLD BONDS.............................. 185
THE EXCHANGE OFFER........................................ 186
DESCRIPTION OF THE NEW 2016 BONDS AND THE NEW 2006 BONDS.. 190
DESCRIPTION OF THE NEW 2028 BONDS......................... 200
TAXATION.................................................. 210
PLAN OF DISTRIBUTION...................................... 217
VALIDITY OF THE NEW BONDS................................. 218
AUTHORIZED REPRESENTATIVE IN THE UNITED STATES............ 219
EXPERTS; OFFICIAL STATEMENTS AND DOCUMENTS................ 219
WHERE YOU CAN FIND MORE INFORMATION....................... 219
INDEX TO NATIONAL POWER CORPORATION'S FINANCIAL STATEMENTS F-1
INDEX TO TABLES........................................... T-1
Until February 22, 2003, all dealers that effect transactions in the New
Bonds, whether or not participating in this offering, may be required to
deliver a prospectus.
INTRODUCTORY STATEMENTS
This prospectus contains information you should consider when making your
investment decision. You should rely only on the information provided in this
prospectus. Neither NPC nor PSALM has authorized anyone else to provide you
with any other information.
Each of NPC and PSALM is organized with limited liability under the laws of
the Republic of the Philippines, and all of their directors and officers and
substantially all of their assets are located in the Philippines. The Republic
of the Philippines is a foreign sovereign nation. Consequently, it may be
difficult for investors to realize upon judgments of courts in the United
States against us, PSALM or the Republic of the Philippines. See "Description
of the New 2016 Bonds and the New Bonds -- Jurisdiction, Consent to Service and
Enforceability" and "Description of the New 2028 Bonds -- Jurisdiction, Consent
to Service and Enforceability" elsewhere in this prospectus.
The distribution of this prospectus and the exchange offer may be legally
restricted in some countries. If you wish to distribute this prospectus, you
should observe any applicable restrictions. This prospectus should not be
considered an offer, and it is prohibited to use it to make an offer, in any
state or country which prohibits such offering.
In any jurisdiction in which the exchange offer is required to be made by a
licensed broker or dealer and in which the dealer manager or any of its
affiliates are appropriately licensed, it will be deemed to be made by the
dealer manager or such affiliates on behalf of us.
NPC is furnishing this prospectus solely for use by prospective investors in
connection with their exchange of New Bonds for Old Bonds. We confirm that:
. to our best knowledge and belief, the information contained in this
prospectus is true and correct in all material respects and is not
misleading;
i
. to our best knowledge and belief, we have not omitted facts the omission
of which makes this prospectus, as a whole, misleading; and
. we accept responsibility for the information we have provided in this
prospectus.
Neither the delivery of this prospectus, nor any purchase, sale or exchange
made hereunder implies that the information in this prospectus is correct as of
any time subsequent to its date, or that there has been no change in our
affairs or the affairs of PSALM or the Republic since that date.
Unless the context clearly implies otherwise, "we", "us", the "Issuer", the
"Company" and "NPC" refer to National Power Corporation, and after the
assumption of NPC's obligations under the New Bonds by PSALM, to PSALM. "PSALM"
refers to the Power Sector Assets and Liabilities Management Corporation. The
"Republic", the "Philippines", the "Government" and the "Guarantor" refer to
the Republic of the Philippines. "Bangko Sentral" refers to Bangko Sentral ng
Pilipinas.
The Company's financial statements are prepared in accordance with
government accounting and auditing standards in the Republic of the Philippines
("Philippine GAAS") which differ in certain respects from generally accepted
accounting principles in the Philippines and in certain other countries.
In this prospectus, references to "(Peso)" and "peso" are to Philippine
pesos and references to "$", "US$" and "dollars" are to U.S. dollars. The
Company publishes its financial statements in pesos. This prospectus contains a
translation of certain peso amounts into dollars at specified rates solely for
the convenience of the reader. Unless otherwise specified, such conversions
were made at the exchange rate as stated by the Bangko Sentral Reference
Exchange Rate Bulletin published by the Treasury Department of the Bangko
Sentral on the relevant date. No representation is made that such peso amounts
actually represent such U.S. dollar amounts or could have been converted into
dollars at the rates indicated, at any particular rate or at all.
FORWARD-LOOKING INFORMATION
This prospectus may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, which we refer to as the
Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, which we refer to as the Securities Exchange Act. Statements that are
not historical facts are statements about our beliefs and expectations and may
include forward-looking statements. These statements are identified by words
such as "believe", "expect", "anticipate", "should" and words of similar
meaning. Forward-looking statements are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy and some of
which might not even be anticipated. Future events and actual financial and
other results may differ materially from the results discussed in the
forward-looking statements. Therefore, you should not place undue reliance on
them.
ii
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information appearing elsewhere in this
prospectus. You should read the entire prospectus carefully, including the
"Recent Financial Results" section beginning on page 21. Certain capitalized
terms used in this summary are defined elsewhere in this prospectus. This
summary is not complete and may not contain all of the information that you
should consider before tendering for exchange your Old Bonds in the exchange
offer. "The Exchange Offer", the "Description of the New 2028 Bonds" and the
"Description of the New 2016 Bonds and the New 2006 Bonds" sections of this
prospectus contain more detailed information regarding the terms and conditions
of this exchange offer, the Old Bonds and the New Bonds.
The Exchange Offer
Terms of the Exchange Offer...... We have offered to exchange:
. 9.625% New Guaranteed Bonds due 2028
(the "New 2028 Bonds") for a like
principal amount of our $300,000,000
9.625% Guaranteed Bonds due 2028 (the
"Old 2028 Bonds"), of which
approximately $238,700,000 in aggregate
principal amount was held by the
Republic of the Philippines and
approximately $61,300,000 in aggregate
principal amount was held by other
investors;
. 8.400% New Guaranteed Bonds Due 2016
(the "New 2016 Bonds") for a like
principal amount of our $160,000,000
8.400% Guaranteed Bonds Due 2016 (the
"Old 2016 Bonds"), of which
approximately $41,400,000 in aggregate
principal amount was held by the
Republic of the Philippines and
approximately $118,600,000 in aggregate
principal amount was held by other
investors; and
. 7.875% New Guaranteed Bonds Due 2006
(the "New 2006 Bonds" and, collectively
with the New 2028 Bonds and the New 2016
Bonds, the "New Bonds") for a like
principal amount of our $200,000,000
7.875% Guaranteed Bonds Due 2006 (the
"Old 2006 Bonds" and, collectively with
the Old 2028 Bonds and the Old 2016
Bonds, the "Old Bonds"), of which
approximately $60,400,000 in aggregate
principal amount was held by the
Republic of the Philippines and
approximately $139,600,000 was held by
other investors.
We exchanged $1,000 in principal amount of
New Bonds for each $1,000 in principal
amount of the corresponding Old Bonds. The
New Bonds provide for the assumption by
PSALM of our obligations under the New
Bonds, as part of the restructuring of the
electric power industry in the Philippines
and our privatization pursuant to The
Electric Power Industry Reform Act of 2001.
Expiration Date; Extension;
Termination...................... The exchange offer commenced on December
4, 2002 and the previously announced
expiration date of January 10, 2003 was
1
extended so that the exchange offer
expired on January 27, 2003.
Acceptance of Old Bonds for
Exchange......................... We have accepted, promptly after the
expiration date, the Old Bonds that were
properly tendered, and issued the
corresponding New Bonds promptly after
acceptance of the Old Bonds. $299,548,000
in aggregate principal amount of our Old
2028 Bonds were accepted for exchange.
$159,867,000 in aggregate principal amount
of our Old 2016 Bonds were accepted for
exchange. $191,604,000 in aggregate
principal amount of our Old 2006 Bonds
were accepted for exchange.
Exchange Agent................... HSBC Bank USA
Information Agent................ D.F. King & Co., Inc. For information
regarding the exchange offer, please call
toll free in the United States
1-888-242-8154 or collect outside of the
United States 1-212-269-5550.
Dealer Manager................... Bear, Stearns & Co. Inc.
Trading Market................... To the extent that Old Bonds are tendered
and accepted in the exchange offer, your
ability to sell untendered, and tendered
but unaccepted, Old Bonds could be
adversely affected. We will use our best
efforts to have the New Bonds rated by at
least two of Moody's Investor Service,
Standard & Poor's Rating Service and Fitch
Ratings and to have the existing ratings
on the Old Bonds that remain outstanding
withdrawn. There may be no trading market
for the Old Bonds.
We cannot assure you that an active public
market for the New Bonds will develop or
as to the liquidity of any market that may
develop for the New Bonds, the ability of
holders to sell the New Bonds, or the
price at which holders would be able to
sell the New Bonds.
Tax Consequences................. Although there is no precedent directly on
point and the courts are not bound by the
following conclusion, it is more likely
than not that the exchange of Old Bonds
for New Bonds will be tax-free under US
federal income tax principles. Please see
the section titled "Taxation", beginning
on page 210 of this prospectus. US holders
are urged to consult their tax advisors on
the US tax consequences of the exchange.
Use of Proceeds.................. We will not receive any proceeds from the
issuance of the New Bonds.
2
Terms of the New Bonds
Issuer........................... National Power Corporation
New 2028 Bonds................... 9.625% New Guaranteed Bonds Due 2028, in
an aggregate principal amount equal to the
aggregate principal amount of Old 2028
Bonds tendered and accepted for exchange.
New 2016 Bonds................... 8.400% New Guaranteed Bonds Due 2016, in
an aggregate principal amount equal to the
aggregate principal amount of Old 2016
Bonds tendered and accepted for exchange.
New 2006 Bonds................... 7.875% New Guaranteed Bonds Due 2006, in
an aggregate principal amount equal to the
aggregate principal amount of Old 2006
Bonds tendered and accepted for exchange.
New Guarantees................... The Republic of the Philippines will
irrevocably and unconditionally guarantee
the due and punctual payment of the
principal of, interest on and Additional
Amounts (as defined in this prospectus),
if any, in respect of the New Bonds,
whether at maturity, on any interest
payment date, by declaration of
acceleration, by call for redemption or
otherwise. See "Description of the New
2028 Bonds -- Guarantees" and "Description
of the New 2016 Bonds and the New 2006
Bonds -- Guarantees" in this prospectus.
Interest Payment Dates for New
2028 Bonds....................... May 15 and November 15, commencing May 15,
2003. Interest will be payable from the
most recent date on which interest has
been paid on the corresponding Old Bonds.
Interest Payment Dates for New
2016 Bonds and New 2006 Bonds.... June 15 and December 15, commencing June
15, 2003. Interest will be payable from
the most recent date on which interest has
been paid on the corresponding Old Bonds.
Redemption....................... The New Bonds will not be redeemable prior
to maturity, except that the New Bonds
will be subject to redemption by us in
whole, but not in part, in the event of
certain changes affecting Philippine
taxes. See "Description of the New 2028
Bonds -- Redemption for Taxation Reasons"
and "Description of the New 2016 Bonds and
the New 2006 Bonds -- Redemption for
Taxation Reasons" in this prospectus.
Global Bonds..................... The New Bonds will be issued in the form
of Global Bonds registered in the name of
a nominee of DTC, as depositary. Except in
certain circumstances as described under
"Description of the New 2028
Bonds -- Global Bonds" and "Description of
the New 2016 Bonds and the New 2006
Bonds -- Global Bonds" in this prospectus,
New Bonds in definitive certificated form
will not be issued in exchange for the
Global Bonds.
3
Ranking of the New Bonds and the
New Guarantees................... The New Bonds will constitute our direct,
unconditional, unsecured and general
obligations and will rank pari passu in
priority of payment with all our other
unsecured and unsubordinated External
Indebtedness (as defined in this
prospectus). The payment obligations of
the Republic under the New Guarantees will
constitute direct, irrevocable,
unconditional, unsecured and general
obligations of the Republic, and will rank
pari passu in priority of payment with all
other unsecured and unsubordinated
External Indebtedness of the Republic, and
the full faith and credit of the Republic
will be pledged for the performance of the
New Guarantees. See "Description of the
New 2028 Bonds -- Nature of Obligations"
and "Description of the New 2016 Bonds and
the New 2006 Bonds -- Nature of
Obligations" in this prospectus.
Negative Pledge of NPC and the
Republic for New 2028 Bonds...... With certain exceptions, we may not create
or permit to subsist, and will procure
that none of our subsidiaries create or
permit to subsist, (a) any Security
Interest (as defined in this prospectus)
upon the whole or any part of our
respective undertakings, assets or
revenues to secure any External
Indebtedness (as defined in this
prospectus) or (b) any preference or
priority in respect of any of our other
External Indebtedness pursuant to Article
2244(14) of the Civil Code of the
Republic, or any successor Philippine law
providing for preferences or priority in
respect of notarized External Indebtedness.
With certain exceptions, the Republic will
not create or permit to subsist (a) any
Lien (as defined in this prospectus) upon
the whole or any part of its assets or
revenues to secure any External Public
Indebtedness (as defined in this
prospectus) or (b) any preference or
priority in respect of any other External
Public Indebtedness of the Republic
pursuant to Article 2244(14) of the Civil
Code of the Republic, or any successor
Philippine law providing for preferences
or priority in respect of notarized
External Public Indebtedness. The
international reserves of Bangko Sentral
represent substantially all of the
official gross international reserves of
the Republic, and the Republic and Bangko
Sentral are of the view that international
reserves owned by Bangko Sentral are not
subject to the negative pledge covenant in
the New Guarantees. Accordingly, Bangko
Sentral could in the future incur External
Indebtedness secured by such reserves
without securing amounts payable under the
New Guarantees. See "Description of the
New 2028 Bonds --Negative Pledge of the
Republic and NPC" in this prospectus.
4
Negative Pledge of NPC and the
Republic for New 2016 Bonds and
New 2006 Bonds................... Same terms as for the New 2028 Bonds,
except that there is no restriction on (a)
us or our subsidiaries creating or
permitting to subsist any preference or
priority in respect of any of our other
External Indebtedness pursuant to Article
2244(14) of the Civil Code of the Republic
or any successor Philippine law providing
for preferences or priority in respect of
notarized External Indebtedness, or (b)
the Republic creating or permitting to
subsist any preference or priority in
respect of any other External Public
Indebtedness of the Republic pursuant to
Article 2244(14) of the Civil Code of the
Republic, or any successor Philippine law
providing for preferences or priority in
respect of notarized External Public
Indebtedness. See "Description of the New
2016 Bonds and the New 2006
Bonds -- Negative Pledge of the Republic
and NPC" in this prospectus.
Substitution of the Issuer....... PSALM may, without the consent of the
holders of the New Bonds, assume our
obligations under the New Bonds, subject
to certain conditions. See "The Exchange
Offer -- Substitution of the Issuer".
Fiscal Agent..................... JPMorgan Chase Bank.
Taxation......................... All payments of principal and interest in
respect of the New Bonds and the New
Guarantees shall be made free and clear
of, and without withholding or deduction
for, or on account of, any present or
future Philippine Taxes (as defined in
this prospectus) unless such withholding
or deduction is required by law or by the
administrative interpretation thereof.
After assumption of the obligations under
the New Bonds by PSALM, payments of
principal and interest in respect of such
New Bonds will be subject to Philippine
Taxes if new legislation is not enacted
exempting such payments from Philippine
Taxes. In the event Philippine Taxes are
deducted or withheld from any of the
aforementioned payments, we or, as the
case may be, the Republic, will pay such
Additional Amounts (as defined in this
prospectus) as will result in receipt by
the holders of the New Bonds of such
amounts as would have been received by
them had no such withholding or deduction
been required, subject to certain
exceptions. See "Description of the New
2028 Bonds -- Payment of Additional
Amounts", "Description of the New 2016
Bonds and the New 2006 Bonds -- Payment of
Additional Amounts" and
"Taxation -- Philippine Taxation" in this
prospectus. For a description of certain
United States tax aspects of the New
Bonds, see "Taxation -- The New Bonds" in
this prospectus.
Rating........................... Immediately following the consummation of
the exchange offer, we will use our best
efforts to have the New Bonds rated by at
least two of Moody's Investors Service,
Standard &
5
Poor's Rating Services and Fitch Ratings
and to have the existing rating on the Old
Bonds that remain outstanding withdrawn.
Further Issues................... In the case of each of the New 2028 Bonds,
the New 2016 Bonds and the New 2006 Bonds,
we may, without the consent of the holders
of such New Bonds, create and issue
additional securities with the same terms
and conditions as such New Bonds (or that
are the same in all respects except for
the amount of the first interest payment
and for the interest paid on the New Bonds
prior to the issuance of the additional
securities). We may consolidate such
additional securities with the outstanding
New 2028 Bonds, New 2016 Bonds or New 2006
Bonds, as applicable, to form a single
series.
Governing Law.................... New York, except that all matters
governing the authorization, execution and
delivery of the New Bonds and the fiscal
agency agreements with respect to the New
Bonds by us and the New Guarantees and the
fiscal agency agreements by the Republic
will be governed by the laws of the
Philippines.
NATIONAL POWER CORPORATION
Our Business
We are the principal entity in the Philippines engaged in the nationwide
generation and transmission of electricity. Our power plants accounted for 44%
of the Philippines' total installed capacity as of July 31, 2002, and our
electricity production of 8,075 Gwh accounted for approximately 43% of all
electricity produced in the Philippines in the first six months of 2002. We are
responsible for, in cooperation with the private sector, the construction,
operation, maintenance and rehabilitation of electricity generation facilities
in the Philippines. Our plants generate electricity using oil, coal, geothermal
steam, water, and natural gas. We have also been responsible for the operation,
strategic development, maintenance and rehabilitation of the power grids and
interconnection facilities in the Philippines. We operate major power grids in
Luzon, Visayas and Mindanao, as well as the Small Islands Grid. Our ability to
supply the Philippines with an affordable and reliable power supply is a key
factor in promoting the country's economic growth.
As of June 30, 2002, the electric power industry in the Philippines
consisted of:
. power generators including us and 35 independent power producers ("IPPs"),
some of which own and operate plants, and some of which have contracted to
operate plants we own;
. our major transmission grids that we operate nationwide, consisting of
approximately 20,731 circuit kilometers (as of December 31, 2002); and
. 171 power distributors, comprising 142 independent electric cooperatives,
24 privately-owned utilities, and five municipal utilities.
We have entered into various types of arrangements with IPPs for the
development and maintenance of our power plants. These arrangements, as of July
31, 2002, provided us with more than 2,200 MW of installed capacity, which
represented approximately 33% of our total installed capacity (including the
Small Islands Grid).
We sell electricity to distributors, who in turn transmit electricity to
households, industries, commercial establishments and other end-users. We also
sell electricity directly to industrial and commercial users. Our largest
customer, and by far our largest distributor, in each case based on sales
volume, is the Manila Electric Company ("Meralco"), a private utility which
distributes electricity to Metro Manila and surrounding areas.
6
Meralco accounted for 55% of our total volume of electricity sales for 2000,
57% for 2001 and 49% for the first six months of 2002. The Supreme Court has
ordered Meralco to refund an estimated (Peso)11 billion in excess charges to
its consumers. We do not know how this ruling will affect Meralco's financial
viability or our ability to collect revenues from Meralco.
Recent Financial Results
Since mid-1997, we have experienced significant financial difficulties
resulting from the depreciation of the peso against the US dollar and other
major currencies, lower than expected electricity demand, the high levels of
our debt and capital lease obligations under our agreements with IPPs, and more
recently a (Peso)0.85 per kWh mandatory reduction in the Purchased Power
Adjustment ("PPA"). The PPA, which is a component of the fuel and purchased
power cost adjustment mechanism, is an automatic cost recovery mechanism that
allows us to pass on increased costs associated with our US dollar obligations
under our IPP contracts. Costs associated with power purchased from IPPs have
increased significantly because of the devaluation of the peso and the fact
that our price for such power is based in US dollars while our income is
principally received in pesos.
2001 and the first six months of 2002 were difficult periods for us due to
the continued depreciation of the peso and continuing economic uncertainty in
the Philippines caused by the global economic slowdown. We suffered a net loss
of (Peso)10.4 billion for 2001, compared with a net loss of (Peso)13.0 billion
for 2000. In the first nine months of 2002, our net loss was (Peso)25 billion.
Also, for the first six months of 2002, our net operating income declined to a
deficit of (Peso)330 million as compared to a surplus of (Peso)5.0 billion for
the same period in 2001. Our interest and other charges increased by (Peso)1.0
billion to (Peso)8.4 billion in the first six months of 2002 as compared to the
same period in 2001. Our return on rate base declined to negative 0.28% in the
first six months of 2002 from positive 4.25% in the first six months of 2001
under the Lender Formula, and to negative 0.27% in the first six months of 2002
from positive 4.04% in the first six months of 2001 under the Charter Formula.
See "Summary Financial Information of National Power Corporation" and our
audited financial statements.
Our losses during the first half of 2002 were exacerbated primarily due to
the following developments:
. a significant reduction in sales to Meralco;
. the continued impact of a reduction of our basic rates by (Peso)0.30 per
kWh effective June 26, 2001, which was mandated by Republic Act 9136 or
the Electric Power Industry Reform Act of 2001 (the "Act");
. the (Peso)0.85 per kWh reduction in the PPA from (Peso)1.25 per kWh to
(Peso)0.40 per kWh effective May 8, 2002, which was mandated by
presidential decree and affirmed by the ERC on September 6, 2002; and
. unrecovered costs of (Peso)390 million relating to the Bakun I power plant
and of (Peso)213 million relating to Casecnan power plant.
We expect to incur a significantly larger net loss in 2002 than we incurred
in 2001, as a result of the continued effect of these developments. See
"National Power Corporation -- Recent Financial Results".
Regulatory Framework and Relationship with the Government
We are wholly-owned by the Government. The President of the Philippines
appoints all nine members of our board of directors, each of whom is required
by law to be employed by the Government. The Government agencies listed below
have the following supervisory roles:
. The Philippine Congress, the Department of Energy (the "DOE"), the
Department of Budget and Management, and the Joint Congressional Power
Commission (the "Joint Power Commission") review and approve our annual
budget.
. The Department of Budget and Management and the Department of Finance
monitor our finances.
7
. The Energy Regulatory Commission (the "ERC"), formerly the Energy
Regulatory Board (the "ERB"), is the primary regulator for the electric
power industry. The ERC must approve any change in our basic power rates
or overall rate structure. See "National Power Corporation -- Power Rates".
. The DOE and the Department of Environmental and Natural Resources monitor
our operations for compliance with environmental legislation, and
formulate policies on energy conservation and the use of indigenous and
environmentally friendly energy resources.
. The DOE undertakes all our research and development functions.
. The Joint Power Commission sets guidelines and the overall framework to
monitor and ensure the proper implementation of the Act, evaluates
industry participants, and monitors adherence to the objectives and
timelines set forth in the Act.
. The National Electrification Administration, under the supervision of the
DOE, develops and implements programs to enhance the viability of rural
electric cooperatives as electric utilities.
Restructuring of the Electric Power Industry and Our Privatization
General
On June 8, 2001, the Electric Power Industry Reform Act of 2001 (the "Act")
was signed into law by President Gloria Macapagal-Arroyo. The Act became
effective on June 26, 2001. The Act provides a legal framework for the
restructuring of the electric power industry and for our privatization. On
February 27, 2002, pursuant to the Act, the Joint Power Commission approved the
implementing rules and regulations (the "IRRs") which now govern the
restructuring of the electric power industry and our privatization. Our
privatization will occur following (i) the restructuring of the electric power
industry's various sectors, (ii) the creation of a new regulatory framework for
the electric power industry, (iii) the establishment of certain transition
mechanisms to minimize economic dislocation, and (iv) the establishment of
various open market devices to promote free and fair competition.
The Act mandates that the power industry be restructured to comprise four
sectors -- generation, transmission, distribution and supply. Under the new
regulatory framework, the ERC is the primary governmental agency responsible to
oversee the power industry, and the DOE and Joint Power Commission perform
supervisory roles. To allow the industry to adjust to a market-oriented
setting, and to help mitigate adverse economic consequences of the
restructuring, the Act contains transition mechanisms dealing with, among other
issues, supply contracts, IPP contracts, and "stranded costs" which we will not
be able to dispose of in our privatization. See "Electric Power Industry
Restructuring and Privatization -- Transition Mechanisms".
The Act endeavors to create a regime of free and fair competition, and full
public accountability, to achieve greater economic and operational efficiency.
Toward this end, the Act calls for the establishment of open market devices
that will address, among other issues, the Wholesale Electricity Spot Market
("WESM"), retail competition, open access to markets, unbundling of rates, and
removal of subsidies. See "Electric Power Industry Restructuring and
Privatization -- Open Market Devices".
To reorganize our assets and liabilities, the Act provides for the creation
of two disposition entities:
. the Power Sector Assets and Liabilities Management Corporation ("PSALM")
which will take ownership of all of our existing generation assets,
liabilities, real estate, and other disposable assets, as well as certain
IPP contracts; and
. the National Transmission Corporation ("Transco"), an entity wholly-owned
by PSALM, which will assume our electricity transmission assets.
Our generation assets will be privatized by PSALM through an open and
transparent public bidding process. Our transmission assets will be privatized
by Transco through concession contracts, while our sub-transmission
8
assets will be operated and maintained by Transco until their sale to qualified
distribution utilities. We will continue to operate the generation assets after
they are transferred to PSALM, pursuant to an operations and maintenance
agreement, until they are sold. We are still negotiating the operations and
maintenance agreement with PSALM.
Under the Act, we will be allowed to impose on all end-users of electricity,
subject to certain exceptions which we do not expect to be material, a
"Universal Charge" to cover the payment of stranded debt and stranded contract
costs to the extent that such stranded costs are not assumed by the Government
under the Act. Stranded debt will consist of our unpaid financial obligations
which have not been liquidated by the proceeds from the sales of our assets and
will include unpaid financial obligations which are refinanced by PSALM.
Stranded contract costs will consist of costs associated with IPP contracts
that were approved by the ERC as of December 31, 2000. The Universal Charge,
which will be calculated by the ERC, will effectively replace the PPA.
On May 21, 2002, a majority coalition of senators who support the President
introduced a bill in the Senate which would amend various provisions of the
Act. This bill, if passed by Congress, would among other things:
. clarify that the Universal Charge would not be imposed on electricity
output produced by a self-generation facility owned and operated by an
end-user solely for its own consumption;
. exempt certain of our customers from imposition of the Universal Charge
and limit the Universal Charge to (Peso)0.42 per kWh;
. clarify that we, PSALM, Transco and any other entity created to privatize
our assets will not be subject to national taxes, charges, fees or other
assessments arising from the privatization;
. extend the life of PSALM from 25 years to 35 years; and
. clarify that the Republic may guarantee the payment of our obligations
assumed by PSALM from us and that such guarantees will not count against
the maximum amount that the Republic is authorized to guarantee under
existing laws.
The majority coalition's bill to amend the Act remains pending in Congress.
The minority coalition has introduced legislation which differs in certain
material respects from the bill introduced on May 21, 2002. Most importantly,
the minority coalition's bill would eliminate the Universal Charge altogether.
While we expect an amendment to the Act to be passed in the future, we cannot
predict the final form of the amendment or its effects on the restructuring of
the electric power industry, or on our results of operations. See "Electric
Power Industry Restructuring and Privatization -- Electric Power Industry
Reform Act of 2001".
Recent Changes in Senior Management
In February, 2003 Rogelio M. Murga became our president and Chief Executive
Officer and Dr. Allan Ortiz, former chairman of the Development Bank of the
Philippines became the president of Transco. We expect that there will be
additional changes in our management as a result of our ongoing restructuring.
See "Power Sector Assets and Liabilities Management
Corporation -- Privatization Mechanisms".
Our Privatization
Pursuant to the Act, on December 14, 2001, PSALM submitted a privatization
plan for both the transmission and generation businesses for endorsement by the
Joint Power Commission. The plan to privatize the transmission business was
endorsed by the Joint Power Commission in March 2002 and the plan to privatize
the
9
generation business was endorsed by the Joint Power Commission in August 2002.
The President approved the transmission and generation privatization plans in
October 2002. The current target dates for finalizing the privatization
processes are the first quarter of 2003 for the transmission business and the
third quarter of 2003 for the generation business.
We have commenced discussions with our bank creditors and bondholders
(including the World Bank, the Asian Development Bank and the Japan Bank for
International Cooperation ("JBIC")) regarding a number of contractual
provisions that restrict our ability to carry out the privatization. These can
be broadly categorized as (i) provisions restricting the transfer of our debt
obligations to PSALM, (ii) covenants restricting our ability to transfer our
generation and transmission assets to PSALM and Transco (and therefore also
restricting PSALM's ability to sell such assets to private investors) and (iii)
project-specific covenants relating to the construction and operation of
particular projects that our creditors have funded. As a result, to allow for
the transfer of our assets and liabilities to PSALM and Transco, we will need
consents from our lenders to either waive any defaults or amend the relevant
provisions.
Consents to waive or amend the relevant restrictions on privatization will
have to be obtained from creditors including public bondholders, commercial
banks and bilateral and multilateral creditors and bondholders. The process of
obtaining these consents is underway. If and when all the consents have been
obtained, our assets and debt obligations will be transferred to PSALM. On
December 13, 2002, PSALM announced that our commercial bank lenders, which
together account for approximately 20% of our debt, had approved the transfer
of their debt to PSALM. Our other lenders have not yet consented to the
transfer of their debt to PSALM. In addition, we will be conducting the
exchange offer described in this prospectus. To the extent that consents for
the transfer of certain assets or liabilities cannot be obtained, such assets
and liabilities will remain with us. Such assets will remain on our balance
sheet, and such liabilities will be treated as stranded debt. See "Power Sector
Assets and Liabilities Management Corporation --Privatization Issues Relating
to Debt -- Consents from Creditors Needed for Transfer of Assets and
Liabilities".
Issues Relating to the Purchased Power Adjustment and the Universal Charge
Our contracts with IPPs contain various "take or pay" provisions that
require us to pay for a fixed amount of electricity even if we do not take
delivery of it and to pay capacity fees to IPPs. Because demand for electricity
has not reached the levels expected when the contracts were signed in the early
1990s, and because of the significant decline in the value of the peso as
compared to the US dollar since that time, we have incurred significant losses
relating to these IPP contracts. To permit us to recover these costs, beginning
in 1994, the Government granted us the ability to impose the PPA on all of our
direct customers. The PPA and other automatic cost adjustment mechanisms have
significantly increased the price of electricity to consumers over the past
several years. See "National Power Corporation -- Power Rates -- Overview of
Rate Structure". Under the Act, the Universal Charge will succeed the PPA;
however, we expect that it will allow us to generate greater revenues than the
PPA since the Act permits us to impose it on all end-users of electricity,
subject to several exceptions which we do not think will be material to us, and
not just on our direct customers.
Recently, the PPA and the proposed Universal Charge have come under intense
public and political scrutiny as electricity rates in the Philippines have
risen to among the highest in Asia. This scrutiny led President Arroyo, by
presidential directive, to reduce the current average PPA charge from
(Peso)1.25 per kWh to (Peso)0.40 per kWh, effective May 8, 2002. The ERC,
through an order issued on September 6, 2002, affirmed the presidential
directive. Unless the ERC issues a superseding order or the legislature changes
electricity rates by law, the PPA will remain at (Peso)0.40 per kWh. The
reduction of the PPA alone caused us to lose (Peso)9.3 billion from May 8, 2002
to August 31, 2002.
While the Arroyo administration has announced that the Universal Charge
needs to be implemented as a matter of policy, various members of Congress and
of the public continue to oppose the imposition of any Universal Charge. If the
Universal Charge is significantly lower than the expected (Peso)0.40/kWh, or if
it is
10
eliminated, our financial condition will continue to deteriorate and we will
need to obtain additional financing to continue operations.
Other Rate Reductions Affecting Our Revenues
In addition to the reduction of the PPA from (Peso)1.25 per kWh to
(Peso)0.40 per kWh mandated by the President in May 2002 and affirmed by the
ERC in September 2002, the following reductions in our basic electricity rates
have been imposed:
The Act. The Electric Power Industry Reform Act of 2001 mandated an overall
rate decrease of (Peso)0.30 per kWh in June 2001.
ERC Orders. In June 2002, the ERC, in connection with our unbundling rate
petition, denied our request to revise our rates upwards by (Peso)0.17 per kWh,
and instead ordered us to reduce our rates by (Peso)0.07 per kWh before
September 26, 2002. On September 6, 2002, the ERC ordered us to disregard their
June 2002 ruling and to reduce generation rates by (Peso)1.10 per kWh in
Visayas, (Peso)0.27 in Luzon and (Peso)0.40 in Mindanao. They also stated in
the September 6th order that a ruling on transmission rates would follow. The
September 6th order has also called into question our ability to charge for
foreign exchange and fuel costs not recoverable through the PPA that we have
traditionally been allowed to recover from our customers. We have filed a
motion for reconsideration and clarification of this order. See "National Power
Corporation -- Power Rates -- Recent Reductions in Basic Rates and the PPA".
Issues Relating to IPP Contracts
Pursuant to the Act, an inter-agency committee was formed to review each of
our 35 contracts with IPPs. On July 4, 2002, this inter-agency committee
submitted a report to President Arroyo that identified IPP contracts with
financial and legal provisions which are onerous or grossly disadvantageous to
the Government. With respect to the IPP contracts which contained financial
issues, we have commenced renegotiation of the financial terms. Although we do
not plan to impose unilateral changes to the contracts with financial issues,
we expect to reduce certain of our obligations under these contracts through
the renegotiation process. See "National Power Corporation -- Power Generation
- -- Private Sector Participation in Power Generation".
Republic of the Philippines
General
The Philippine archipelago has over 7,000 islands with a total land area of
approximately 300,000 square kilometers. The islands are grouped into three
geographic regions: Luzon, the largest island, in the north covering an area of
141,395 square kilometers, Visayas in the central region, covering an area of
55,606 square kilometers, and Mindanao in the south, covering an area of
101,999 square kilometers. Manila is the Republic's capital. As of May 1, 2002,
the population of the Republic was approximately 80 million.
Government
Since 1935, the Republic has had three constitutions, the most recent of
which was adopted by a plebiscite held in February 1987. The ratification of
the new Constitution in 1987 restored a presidential form of government
consisting of three branches: executive, legislative and judiciary. Executive
power is exercised by the President who is elected by direct popular vote and
who may serve only a single term of six years. Legislative authority is vested
in the Congress of the Philippines, which consists of the Senate and the House
of Representatives. Judicial power is vested in the Supreme Court and in such
lower courts as may be established by law from time to time. In January 2001,
Gloria Macapagal-Arroyo assumed the office of the Presidency after the
impeachment and resignation of former President Joseph Estrada. Criminal
charges for perjury, illegal use of an alias, and plunder have been filed
against Mr. Estrada with the Sandiganbayan, a special court with jurisdiction
over criminal and civil cases involving graft and corruption. Hearings on these
charges are ongoing.
11
On December 30, 2002, President Gloria Macapagal-Arroyo announced that she
would not seek another term as president. The next presidential election is
required, under the Philippine Constitution, to take place by the end of 2004.
In her announcement President Arroyo explained that she wanted to be unburdened
by politics and further concentrate her efforts on her administration's
economic reform plans.
There have been several resignations among senior members of the Arroyo
administration. The Secretary of Justice, Hernando Perez, resigned on January
2, 2003, amid allegations that he had extorted money from a Manila congressman.
On December 19, 2002, the Presidential Anti-Graft Commission charged Mr. Perez
with obstruction of justice for prohibiting the Bureau of Immigration from
divulging the travel records of high-ranking government officials, including
himself. Mr. Perez appealed the charges to the Court of Appeals, which has
issued a temporary restraining order suspending the investigation of Mr. Perez
for 60 days. Beginning on November 26, 2002, when Mr. Perez took a leave of
absence to confront the allegations, Undersecretary of Justice Merceditas N.
Gutierrez served as officer-in-charge of the Department of Justice. On January
16, 2003 Simeon Datumanong, former Secretary of Public Works and Highways,
officially replaced Mr. Perez as Secretary of Justice.
In December 2002, President Arroyo announced several changes in her cabinet.
In particular, the President replaced Secretary of Socio-Economic Planning
Dante B. Canlas with Romulo Neri, former director-general of the Congressional
Planning and Budget Office. President Arroyo also announced the replacement of
the Secretary of Agriculture, Leandro Montemayor, with Luis Lorenzo, Jr., a
former businessman and presidential adviser on job creation and the replacement
of the Secretary of Environment and Natural Resources, Heherson Alvarez, with
Elizea Gozun, an environmental consultant.
Over the past three decades, groups of communist rebels and disaffected
Muslims in the Republic have periodically fought with government forces. Armed
conflict has continued between the Government and various rebel groups, mainly
these communist guerillas and Muslim separatists. More than 150 Moro Islamic
Liberation Front ("MILF") members and at least five government soldiers have
been killed in clashes between the MILF and the Armed Forces of the Philippines
("AFP") in Mindanao since February 10, 2003. As part of the recent heightened
cooperation between the Republic and the United States in the campaign against
terrorism, the US sent troops and military advisers to assist the AFP in
eradicating the separatist groups. More than 250 US military advisers arrived
in the Philippines in January 2003 to train Filipino soldiers in light infantry
and light reaction tactics as part of the anti-terrorism campaign. Joint
military exercises are also planned to be conducted in central Luzon, central
Visayas, and western Mindanao. The United States has earmarked about US$78
million in military assistance for the Philippines in 2003.
Increased tension between the United States and Iraq has led to uncertainty
about the world economy as a whole. US President George W. Bush and other US
officials have indicated that the US may attack Iraq and attempt to remove the
regime of Iraqi President Saddam Hussein if Iraq does not eliminate chemical,
biological, and nuclear weapons programs as required by the United Nations.
The potential war in Iraq has fueled uncertainty about the international
financial markets, the Philippine economy, and, in particular, supply of oil
from the Middle East and global oil prices. The Government is seeking to
negotiate oil assurance agreements with Indonesia, Russia, Iran and Saudi
Arabia in an effort to ensure a stable oil supply.
Also, the Philippine Department of Energy ("DOE") has required domestic oil
refiners to maintain a 30-day inventory of crude oil and refined petroleum
products, and has required other domestic oil companies and bulk suppliers to
maintain a 15-day inventory of petroleum products. The DOE has also announced
that it will propose to the cabinet a temporary suspension on import duties on
petroleum products, in the event of hostilities in the Middle East, which could
result in revenue losses for the Republic if implemented.
North Korea's recent announcement that it would reactivate its nuclear
weapons program has drawn harsh criticism and further economic sanctions from
the United States. It is unclear how any potential military action by or
against North Korea will affect the international financial markets or the
Philippine economy.
12
Economy
The Philippines has a mixed economy in which the Government is directly
engaged in certain economic activities through government owned and controlled
corporations ("GOCCs") and Government Financial Institutions ("GFIs"). The
Government actively encourages domestic and foreign private investment, and has
sought to establish a broader and more balanced base for economic development.
Beginning in 1991, further liberalization of trade and investment in the
Philippines has been undertaken in tandem with the deregulation of the
financial system, foreign exchange liberalization, tax reforms, acceleration of
privatization, enhancement of competition in the provision and operation of
public utilities, and deregulation of the oil and power industries. The
Government has indicated that these steps are taken in conjunction with
conservative fiscal and monetary policies in an effort to accelerate economic
growth, contain inflation, create fiscal and external payment surpluses, and
increase foreign investor confidence.
In an attempt to promote macroeconomic stability and sustained growth of
income and employment, the Arroyo Administration proposed and passed its
Medium-Term Philippine Development Plan for 2001-2004. The plan aims to expand
and equalize access to economic and social opportunities, inculcate receptivity
to change and promote personal responsibility through its primary policy
objectives:
. comprehensive human development and protecting the vulnerable;
. good governance and rule of law;
. agricultural and fisheries modernization with sound equity; and
. macroeconomic stability and equitable growth based on free enterprise.
The principal sectors of the Philippine economy are services, industry and
agriculture (including fishery and forestry). At constant market prices, the
services sector accounted for 46% of Gross Domestic Product ("GDP") in 2001,
led by trade (16% of GDP), private services (8% of GDP) and transportation,
communications and storage (8% of GDP). The industry sector accounted for 34%
of GDP at constant market prices in 2001, of which 25% of GDP at constant
market prices came from manufacturing. The agriculture sector accounted for 20%
of GDP at constant market prices in 2001.
In 2002, real GNP grew by 5.2% and real GDP grew by 4.6%, compared with GNP
growth of 3.4% and GDP growth of 3.2% in 2001. The increased growth rates are,
in part, a result of lower interest and inflation rates, and in the
Government's view, reflect the success of administration's macroeconomic
strategy implemented in 2001.
Foreign trade plays a significant role in the Philippine economy. From 1997
to 2001, exports of goods and services accounted for an average of
approximately 45% of the country's GNP and imports accounted for an average of
approximately 54% of GNP. The country's trade strategy emphasizes export
promotion. The rapid expansion of export-oriented, labor-intensive
manufacturing operations, such as electronics, drove total exports to $32.2
billion in 2001 and produced an average annual export growth rate of 17% from
1997 to 2001. Manufactured goods comprise the most important category of the
Republic's exports, accounting for 88% of the Republic's exports in 2001.
Electronics, machinery and transport equipment and garments have historically
been the Republic's leading manufactured exports. Exports of goods for the
first eleven months of 2002 were $32.2 billion, representing an increase of
9.0% from the same period in 2001, largely due to higher export shipments of
machinery and transport equipment, clothing and apparel, and electronics.
The Republic's overall balance of payments recorded a surplus of $412
million for the first ten months of 2002, compared to a previously reported
$1.5 billion deficit for the first ten months of 2001. The year-on-year
turnaround was mainly attributed to higher remittances from overseas workers
and the growth in exports.
13
The Republic recently disclosed that the reported current account surplus
had likely been overstated due to monitoring problems giving rise to
underreported imports. An inter-agency task force on the balance of payments
considered the effects of this problem on the Republic's consolidated financial
position, specifically the Republic's current account and capital and financial
account. The inter-agency task force has reviewed the Republic's balance of
payments data from the years 2000 and 2001 and is continuing its review of
2002, but is not reviewing prior years due to incomplete information.
Although the task force's review indicated that the current account surplus
had been overstated, the Republic believes that this will not have any effect
on its overall balance of payments, because the increase in reported imports
has an offsetting effect on the Republic's capital and financial account, since
there will be a lower outflow of short term capital. See "Republic of the
Philippines -- Recent Economic Developments -- Balance of Payments".
Reflecting the adjustments in imports, the current account for 2000 has been
revised to a surplus of $5.9 billion from a surplus of $9.2 billion, and the
current account for 2001 has been revised to a surplus of $305 million from a
surplus of $4.0 billion. At these revised levels, the current account surplus
stood at 7.4% and 0.4% of gross national product for 2000 and 2001,
respectively. However, the capital and financial account for 2000 has been
revised to a net outflow of $3.4 billion from a net outflow of $6.5 billion,
and the capital and financial account for 2001 has been revised to a net
outflow of $224 million from a net outflow of $3.7 billion. The adjustments for
2002 are being finalized and expected to be released within the next few months.
The Republic's external debt amounted to $53.6 billion as of September 30,
2002, a 2.4% decrease from the $54.9 billion recorded as of June 30, 2002 and a
2.3% increase from the $52.4 billion recorded as of December 31, 2001. The
decrease in external debt in the third quarter of 2002 was attributed to an
increase in the purchases by Filipinos of Government dollar-denominated bonds,
currency revaluation adjustments and direct repayment of debt. The increase in
debt in the first nine months of 2002 was due to upward foreign exchange
revaluation adjustments on third-currency denominated debt resulting from the
continued depreciation of the US dollar against third currencies, net loan
availments, upward adjustments to reflect audited results and late reporting of
transactions which occurred in prior periods. The Government has also borrowed
to pay for financial and economic reforms, power and energy development
projects, and manufacturing, transportation, and communications infrastructure.
As of June 30, 2002, the average cost of fixed-rate credits was about 6%. In
addition, as of June 30, 2002, for liabilities with floating interest rates,
the margin over base rate ranged from 3.5% to 4.4%. The average interest rates
for 91-day Treasury bills decreased from 6.4% as of March 31, 2002 to 4.8% as
of June 30, 2002, following the decline in global interest rates, then rose to
5.3% as of January 7, 2003. As of September 30, 2002, approximately 56% of the
country's external obligations were denominated in US dollars while 26% were
denominated in Japanese yen. As of March 31, 2002, multi-currency loans from
the World Bank and the Asian Development Bank accounted for 11.9% of national
debt.
On January 8, 2003, Moody's Investors Service revised its rating outlook on
the Republic's local-currency rating for government bonds to negative from
stable, while affirming each of the Republic's foreign-currency ratings.
Moody's recognized that revenue collections have improved in recent months, but
noted that poor revenue collection in prior periods has weakened long-term
fiscal prospects. On November 25, 2002, Fitch, Inc. downgraded the Republic's
ratings outlook from stable to negative. Fitch indicated that further evidence
of falling tax revenues had undermined the Government's fiscal credibility and
raised concerns about rising public indebtedness. On October 29, 2002, Standard
& Poor's Rating Service also revised its outlook on the Republic's long-term
credit ratings from stable to negative, citing the growing fiscal deficit and
the Government's high debt burden. Standard & Poor's noted that tighter and
more consistent fiscal management, along with timely implementation of reform
in the energy and banking sectors, could change the rating outlook back to
stable. See "Republic of the Philippines -- Recent Economic Developments --
Credit Ratings".
14
Summary Financial Information of National Power Corporation
We prepare our financial statements in accordance with Philippine GAAS.
These standards differ in certain material respects from generally accepted
accounting principles in the Philippines and in certain other countries. Our
financial statements are audited by the Commission on Audit of the Philippines.
You should note that the financial information as of and for the six months
ended June 30, 2001 and 2002 is unaudited.
1997 1998 1999 2000 2001
------------- ------------- ------------- ------------- ---------------
(in millions, except certain operating data)
Income Statement Data:
Net operating revenues............................ (Peso) 77,144 (Peso) 86,611 (Peso) 89,686 (Peso)100,119 (Peso) 115,698
Operating income.................................. 11,624 6,915 8,489 5,438 6,837
Gain/(loss) on foreign exchange fluctuation/(1)/.. (966) 359 325 1,062 (626)
Interest expense (gross).......................... 7,380 11,005 12,955 15,064 15,108
Net income/(loss)/(2)/............................ 3,054 (3,617) (5,953) (12,964) (10,377)
Balance Sheet Data (at end of Period):
Current assets.................................... (Peso) 32,958 (Peso) 36,342 (Peso) 33,946 (Peso) 41,165 (Peso) 40,806
Net utility plant/(3)/............................ 187,319 255,463 255,488 243,805 242,759
Total assets...................................... 619,071 646,092 862,097 989,774 1,005,985
Long-term debt/(1)/............................... 441,781 444,986 238,825 292,001 290,135
Deferred foreign exchange differential/(1)/....... 127,112 123,963 139,655 246,839 251,764
Total debt/(1)/................................... 469,487 479,453 736,724 878,643 912,471
Total proprietary capital/(4)/.................... 111,943 129,078 125,373 111,131 93,514
Investments and other assets...................... 190,228 22,363 46,653 53,988 61,613
Operating Data:
Capacity (MW)/(5)/................................ 8,025 8,549 8,054 6,981 6,909
Electricity sales (GWh)........................... 36,442 37,321 36,987 37,320 39,948
Capital expenditure/(6)/.......................... (Peso) 30,200 (Peso) 25,312 (Peso) 12,314 (Peso) 14,212 (Peso) 18,502
Interest coverage ratio/(7)/...................... 3.9x 3.10x 2.49x 2.30x 2.57x
Return on rate base/(8)/
Lender Formula.................................. 7.25% 3.22% 3.37% 2.22% 2.89%
Charter Formula................................. 6.90% 3.07% 3.25% 2.13% 2.74%
Six Months Six Months
Ended Ended
June 30, June 30,
2001 2002
------------- ---------------
(Unaudited)
Income Statement Data:
Net operating revenues............................ (Peso) 58,226 (Peso) 51,462
Operating income.................................. 5,041 (329)
Gain/(loss) on foreign exchange fluctuation/(1)/.. (313) 101
Interest expense (gross).......................... 7,371 8,405
Net income/(loss)/(2)/............................ (3,300) (13,517)
Balance Sheet Data (at end of Period):
Current assets.................................... (Peso) 47,020 (Peso) 41,769
Net utility plant/(3)/............................ 237,410 238,116
Total assets...................................... 992,588 1,072,971
Long-term debt/(1)/............................... 296,402 291,332
Deferred foreign exchange differential/(1)/....... 237,529 241,262
Total debt/(1)/................................... 885,592 991,679
Total proprietary capital/(4)/.................... 106,996 81,292
Investments and other assets...................... 48,661 45,165
Operating Data:
Capacity (MW)/(5)/................................ 6,909 6,509
Electricity sales (GWh)........................... 19,991 16,940
Capital expenditure/(6)/.......................... (Peso) 6,801 (Peso) 4,927
Interest coverage ratio/(7)/...................... 2.83x 1.89x
Return on rate base/(8)/
Lender Formula.................................. 4.25% (0.28)%
Charter Formula................................. 4.04% (0.27)%
- --------
(1) All foreign currency loans are stated in pesos on the balance sheet based
on the Bangko Sentral reference exchange rates as of the balance sheet
date. We adjust on an annual basis the outstanding balance, in peso terms,
of these loans to reflect the fluctuation in the exchange rate between the
peso and the relevant currencies. We record any decreases or increases in
the outstanding amount of these loans due to the appreciation (or
depreciation) of the peso as a gain (or loss) on foreign exchange
fluctuation.
We do not, however, record a gain (or loss) on foreign exchange fluctuation
for any foreign exchange gains (or losses) resulting from decreases or
increases, as applicable, in the balance of:
. foreign currency loans which are used for specific projects or have a term
of at least one year; and
. capital lease obligations denominated in foreign currencies.
Prior to 1995, adjustments in the peso balance of these loans and capital
leases were capitalized and recorded on the balance sheet as reductions or
additions, as applicable, in project construction costs. Since 1995, they
have been recorded as reductions or additions, as applicable, in the
deferred foreign exchange differential (a deferred charge). The deferred
foreign exchange differential is amortized over the remaining life of the
loans. Accordingly, most of the foreign exchange losses that we have
incurred due to the depreciation of the peso have not been reflected as
expenses in our income statement but have been capitalized on our balance
sheet.
(2) Net income (or loss) includes test-run revenue, lease/rental income, and
the amortization of the discount on the 1990 debt buy-back. Net income
reflects adjustments for the outstanding balance of our foreign currency
loans which have a term of less than one year and are used for working
capital purposes.
15
(3) Net utility plant excludes build-operate-transfer plants.
(4) Proprietary capital represents capital stock, donated capital, retained
earnings, and appraisal capital.
(5) Capacity means the installed capacity of operating plants that we own
(including those operated on our behalf by independent power producers).
(6) Capital expenditure is calculated using the accrual method.
(7) We determine our interest coverage ratio by dividing the aggregate of
operating income, depreciation, depletion, amortization of capacity fees
and bad debt expense by interest expense (gross). For the purpose of
calculating this ratio, interest expense does not include capitalized
interest and the interest component of payments under capital leases. For
the sum of each component used to determine our interest coverage ratio,
refer to our audited financial statements, the index to which is on page
F-1.
(8) The return on rate base is calculated by dividing our net operating income
by our rate base (which is the average current net value of our fixed
assets in operation at the beginning and end of the relevant period). We
calculate our return on rate base using two different formulae:
. the "Lender Formula" as set out in the loan agreements with certain of our
foreign lenders; or
. the "Charter Formula" as set out in our Charter.
Under the Charter Formula, in calculating the return on rate base for a
particular year, the rate base includes two months of the average monthly
working capital for such year. The Lender Formula does not require the
inclusion of such working capital in the rate base. Electricity plants and
assets acquired through build-operate-transfer contracts under capital lease
arrangements are excluded from the rate base for purposes of calculating the
return on rate base under both formulae. For the sum of each component used
to calculate our return on rate base, refer to our audited financial
statements, the index to which is on page F-1.
16
Summary Economic Information of the Republic of the Philippines
Nine Months
Ended
1997 1998 1999 2000 2001 September 30, 2002
----------- ------------ ------------ ------------ ------------ ------------------
(in billions, except as indicated)/(1)/
GDP (at current market prices)...... (Peso)2,427 (Peso) 2,665 (Peso) 2,977 (Peso) 3,308 (Peso) 3,640 (Peso)1,861/(2)/
GDP (at constant 1985 prices)....... 893 888 918 958 989 495/(2)/
GDP per capita (in US dollars at
current market prices)............ $1,116 $ 865 $ 989 $ 952 $ 889 $ 454/(2)/
GDP (growth rate at constant 1985
prices)........................... 5.2% (0.6)% 3.4% 4.0% 3.2% 4.1%/(3)/
GNP (growth rate at constant 1985
prices)........................... 5.3% 0.4% 3.7% 4.5% 3.4% 4.2%/(3)/
Annual increase in consumer price
index (1994 = 100)................ 5.9% 9.7% 6.7% 4.4% 6.1% 3.1%/(4)/
Unemployment rate................... 8.7% 10.1% 9.8% 11.2% 11.1% 10.1%/(5)/
Total government revenues........... (Peso) 472 (Peso) 463 (Peso) 479 (Peso) 515 (Peso) 564 (Peso) 506/(6)/
Total government expenditures....... 470 513 590 649 711 707/(6)/
Surplus (deficit) of government..... 1.6 (50.0) (111.7) (134.2) (147.0) (201)/(6)/
Public sector borrowing
requirement/(7)/.................. (39.5) (111.3) (138.0) (174.6) (187.0) $ (67.0)/(8)/
Consolidated public sector financial
position/(9)/..................... (24.1) (83.2) (100.5) (151.7) (147.6) (117.5)/(2)/
Nine Months
Ended
1997 1998 1999 2000 2001 September 30, 2002
-------- -------- -------- ---------- -------- ------------------
(in millions, except as indicated)
Goods trade -- exports............ $ 25,228 $ 29,496 $ 34,211 $ 37,295 $ 31,243 $ 25,422
Goods trade -- import/(10)/....... (36,355) (29,524) (29,252) (33,480)/(11)/ (31,986)/(11)/ (24,204)/(12)/
Services trade -- exports......... 22,835 13,917 4,803 3,972 3,148 $ 2,326
Services trade -- imports......... (17,139) (12,778) (7,515) (6,084) (5,102) (3,183)
Current transfer (net)............ 1,080 435 512 437 444 377
Current account (deficit)......... (4,351) 1,546 7,363 5,870/(11)/ 305/(11)/ 3,929/(12)/
As a percentage of GNP............ (5.1)% 2.3% 9.0% 10.7% 6.1% $ 8.8%
Total capital and financial
account......................... $ 6,593 $ 478 $ (1,803) $ (6,469) $ (3,839) $ 3,745
Overall balance of payments
position........................ (3,363) 1,359 3,586 (513) (192) 751
As a percentage of GNP............ (3.9)% 2.0% 4.4% (0.6)% (0.3)% 4.4%
Gross international reserves/(13)/ $ 8,768 $ 10,806 $ 15,024 $ 15,024 $ 15,658 $16,000/(6)/
Six Months
ended
1997 1998 1999 2000 2001 June 30, 2002
------------- ------------- ------------- ------------- ------------- -----------------
(in billions, end of period)/(15)/
Domestic debt of the
Republic/(15)/................... (Peso) 749.6 (Peso) 850.9 (Peso) 978.4 (Peso)1,068.2 (Peso)1,247.7 (Peso)1,412.5/(15)/
External debt of the Republic/(15)/ $ 15.0 $ 16.5 $ 19.8 $ 22.0 $ 22.1 $ 24.8
Public sector domestic debt/(16)/.. (Peso)1,262.3 (Peso)1,396.2 (Peso)2,196.6 (Peso)2,184.2 N/A/(17)/ N/A/(17)/
Public sector external debt/(18)/.. $ 24.5 $ 26.9 $ 31.8 $ 31.5 25.1 27.6
- --------
Sources: National Statistics Office; National Statistical Co-ordination Board;
Bureau of the Treasury; Department of Finance, Bangko
Sentral.
(1) Amounts in pesos have been converted to US dollars using the average Bangko
Sentral reference exchange rates for the applicable year.
17
(2) For the first six months of 2002,
(3) Real growth for the first nine months of 2002.
(4) Full year 2002.
(5) Average for first ten months of 2002.
(6) January through November 2002.
(7) Represents the aggregate deficit of the Government, the Central Bank-Board
of Liquidators (the "CB-BOL"), the Oil Price Stabilisation Fund and the 14
GOCCs whose debt comprises virtually all the debt incurred by GOCCs (the
"14 monitored GOCCs").
(8) For the first quarter of 2002.
(9) Comprises the aggregate deficit or surplus of the Government, the CB-BOL's
accounts, the 14 monitored GOCCs, the Social Security System (the "SSS"),
the Government Service Insurance System (the "GSIS"), Bangko Sentral, the
Government financial institutions ("GFIs") and the local government units.
(10) National Statistics Office data was adjusted to: (a) exclude aircraft
procured under operating lease arrangements amounting to $542 million for
1996, $45 million 1997 and $136 million for 1998 and (b) include an
additional $466 million worth of aircraft imported under capital lease
arrangements for 1997.
(11) Represents the revised number released in January 2003 by the Inter-agency
Task Force on the Balance of Payments.
(12) Will be revised upon completion of revision of Balance of Payment figures
by the Inter-agency Task Force on the Balance of Payments.
(13) Comprised of the holdings by Bangko Sentral of gold reserves, foreign
investments, foreign exchange and SDRs, including Bangko Sentral's reserve
position in IMF.
(14) Amounts in original currencies were converted to US dollars or pesos, as
applicable, using the Bangko Sentral reference exchange rates at the end
of each period.
(15) Represents debt of the Government only, and does not include other public
sector debt. Includes direct debt obligations of the Government, the
proceeds of which are on-lent to GOCCs and other public sector entities,
but excludes debt guaranteed by the Government and debt originally
guaranteed by other public sector entities for which the guarantee has
been assumed by the Government.
(16) Represents debt of the Government, the 14 monitored GOCCs, the CB-BOL,
Bangko Sentral and the GFIs.
(17) N/A means "not available".
(18) Includes public sector debt whether or not guaranteed by the Government.
18
NO CASH PROCEEDS TO NPC
This exchange offer is intended to provide for the assumption by PSALM of
our obligations under the Old Bonds, as part of the restructuring of the
electric power industry in the Philippines and our privatization pursuant to
the Act. We will not receive any proceeds from the issuance of the New Bonds
and we have agreed to pay the expenses of the exchange offer. In consideration
for issuing the New Bonds as contemplated in the registration statement of
which this prospectus is a part, we will receive, in exchange, Old Bonds in
like principal amount. The form and terms of the New Bonds are identical in all
material respects to the form and terms of the corresponding Old Bonds, except
that:
. the New Bonds will permit the assumption by PSALM, without the consent of
holders of the New Bonds, of our obligations under the New Bonds, subject
to certain conditions set out in "The Exchange Offer --Substitution of the
Issuer"; and
. following the consummation of the exchange offer, we will use our best
efforts to have the New Bonds rated by at least two of Moody's Investors
Service, Standard & Poor's Rating Service, and Fitch Ratings, and to have
the existing rating on the Old Bonds that remain outstanding withdrawn.
The Old Bonds surrendered in exchange for the New Bonds will be retired and
canceled and cannot be reissued. Accordingly, issuance of the New Bonds will
not result in any increase in our outstanding debt.
19
NATIONAL POWER CORPORATION
Overview
We are the principal entity in the Philippines engaged in the generation and
the transmission of electricity on a nationwide basis. In cooperation with the
private sector since 1987, we have been responsible for the construction,
operation, maintenance and rehabilitation of generating facilities, and we have
been solely responsible, for the strategic development of the transmission
grids and interconnection facilities in the Philippines. Our ability to provide
affordable and reliable power to the Philippines is a key factor in promoting
the country's economic growth.
We were established as a non-stock corporation in the Philippines in 1936
and were converted into a stock corporation in 1960. We have limited liability
and, pursuant to our current charter, have a corporate life terminating in
2050. We have our principal executive offices at Quezon Avenue, corner of Agham
Road, East Triangle, Diliman, Quezon City, Metro Manila, Philippines.
Philippine Power Industry
As of June 30, 2002, the electric power industry in the Philippines
consisted of:
. power generators including us and 35 independent power producers (the
"IPPs"), some of which own and operate generation plants, and some of
which have contracted to operate and maintain generation plants we own;
. our major transmission grids that we operate nationwide, consisting of
approximately 20,731 circuit kilometers (as of December 31, 2002) and our
interconnection facilities; and
. 171 distributors, comprising 142 independent electric cooperatives, 24
privately-owned utilities, and five municipal utilities.
We have entered into various types of arrangements with IPPs for the
development and maintenance of our power plants. These arrangements, as of July
31, 2002, provided us with more than 2,200 MW of installed capacity, which
represented approximately 33% of our total installed capacity (including the
Small Islands Grid).
We sell electricity to distributors for distribution to end-users such as
households, industries and commercial establishments. We also sell electricity
directly to industrial and commercial users. Our largest customer, and by far
our largest distributor, is the Manila Electric Company ("Meralco"), a private
utility which distributes electricity to Metro Manila and surrounding areas.
Meralco accounted for 55% of our total volume of electricity sales for 2000,
57% for 2001 and 49% for the first six months of 2002.
Regulatory Framework and Relationship with the Government
The Philippine power industry is regulated by the following governmental
bodies:
. The DOE formulates the policies for the energy sector. It prepares,
coordinates and controls all programs, projects and activities of the
Government in energy exploration, development, utilization, distribution
and conservation.
. The Energy Regulatory Commission (the "ERC"), formerly the Energy
Regulatory Board, regulates the price of power and petroleum products,
including the prices charged by electricity generators and distribution
utilities. The ERC's prior approval is required before the implementation
of any proposed increase in power rates (other than certain changes which
may be implemented under an automatic adjustment mechanism to reflect
changes in fuel costs, purchased power costs and certain foreign exchange
rate adjustments).
. The National Electrification Administration (the "NEA") is responsible for
setting up electric cooperatives for the distribution and supply of
electricity. It also determines the coverage areas of private and
municipal utilities to achieve the total electrification of the country.
20
We are wholly-owned by the Government and our board of directors is
comprised of Government officials. See "-- Management and Employees". The
Government agencies listed below have the following supervisory roles:
. the Philippine Congress, the DOE, the Department of Budget and Management
and the Joint Power Commission review and approve our annual budget;
. the Department of Budget and Management and the Department of Finance
monitor our finances;
. the ERC must approve any change in our power rates;
. the DOE and the Department of Environment and Natural Resources monitor
our operations for compliance with environmental legislation, and
formulate policies on energy conservation and the use of indigenous and
environmentally friendly energy resources;
. the DOE undertakes all of our research and development functions;
. the Joint Power Commission sets the guidelines and the overall framework
to monitor and ensure the proper implementation of the Electric Power
Industry Reform Act of 2001 (the "Act"), and reviews and evaluates the
performance of the industry participants in relation to the objectives and
timelines set forth in the Act; and
. the NEA, under the supervision of the DOE, develops and implements
programs for purposes of enhancing the viability of rural electric
cooperatives as electric utilities.
Recent Financial Results
Since mid-1997, we have experienced significant financial difficulties
resulting mainly from the depreciation of the peso against the US dollar and
other major currencies, lower than expected electricity demand and the high
levels of our debt and capital lease obligations under our agreements with
IPPs. In 2002, a significant reduction in sales to Meralco, the reduction of
the PPA charge to (Peso)0.40 per kWh, the continued effect of a reduction in
our basic rates of (Peso)0.30 per kWh mandated by the Act, and higher loan
balances and capital lease obligation have also negatively impacted our
financial performance.
In the first nine months of 2002, we reported a net loss of (Peso)25
billion. We project revenue losses of approximately (Peso)12 billion per year
as a direct result of the PPA reduction mandated by the President and confirmed
by the Energy Regulatory Commission ("ERC"). Most recently, in a decision
issued on September 6, 2002, the ERC ordered us to further lower our rates
related to power generation before September 26, 2002. The order, with respect
to which we have filed a motion for reconsideration, requires us to reduce the
generation component of our basic rates by (Peso)1.10 in Visayas, (Peso)0.27 in
Luzon and (Peso)0.40 in Mindanao. The ERC is expected to decide on updated
charges related to power transmission, which may also materially affect future
revenues.
Six Months Ended June 30, 2002 Compared with Six Months Ended June 30, 2001
For the six months ended June 30, 2002, net operating revenue totaled
(Peso)51.5 billion as compared with net operating revenue of (Peso)58.2 billion
for the six months ended June 30, 2001. The (Peso)6.7 billion decrease was
caused principally by decreased sales to our largest customer Meralco, the
mandatory reduction in the PPA charge to (Peso)0.40 per kWh which took effect
on May 8, 2002, and reduction in our basic rates of (Peso)0.30 per kWh mandated
by the Act (exclusive of the power rate reduction associated with the reduction
in the PPA) which took effect on June 26, 2001. See "Electric Power Industry
Reform and Privatization -- Electric Power Industry Reform Act of 2001".
Additional losses have also resulted from unrecovered costs of (Peso)390
million relating to the Bakun I hydro electric power plant and (Peso)213
million relating to the Casecnan power project. Total sales demand decreased
sharply during the first six months of 2002 to 16,940 kWh from 19,991 kWh for
the same period in 2001, primarily as a result of decreased sales to Meralco.
See "-- Sales and Customers -- Relationship with Meralco".
Lower revenues and higher interest expense and other charges for the six
months ended June 30, 2002 increased our net loss by approximately 300% as
compared with the same period in 2001. Our interest expense
21
increased by (Peso)1.0 billion during this period as compared with the same
period the previous year mainly due to higher loan balances. In the six months
ended June 30, 2002, our return on rate base declined to negative 0.28% from
4.25% under the Lender Formula and to negative 0.27% from 4.04% under the
Charter Formula, in each case as compared with the six months ended June 30,
2001. Electricity plants and assets acquired through build-operate-transfer
contracts under capital lease arrangements are excluded from the rate base for
purposes of calculating the return on rate base under both formulae.
In the first six months of 2002 we had a cash flow deficit after debt
service and capital expenditures of (Peso)19.8 billion, compared with a cash
flow deficit after debt service and capital expenditures of (Peso)10.3 billion
in the six months ended June 30, 2001. We financed on cash flow deficit in the
first six months of 2002 with the proceeds of additional borrowings including
(Peso)11.9 billion in Treasury bonds, (Peso)2.4 billion in external finance and
(Peso)1.8 billion in advances from the Government.
2001 Compared with 2000
We recorded net operating revenues of (Peso)115.7 billion in 2001, a 16%
increase from (Peso)100.1 billion in 2000. The positive result was due
primarily to a 7% increase in sales volume and an increase in average rate per
kWh because of an increase in the fuel and purchased power adjustment ("FPCA")
charge as the price of fuel and purchased power rose. Sales demand growth
increased significantly from 37,320 GWh in 2000 to 39,948 GWh in 2001
principally because of increases in One Day Power Sales. See "-- Sales and
Customers -- Special Rate Programs".
Despite our higher revenues in 2001, our interest and other charges caused
us to suffer a net loss of (Peso)10.4 billion, compared with a net loss of
(Peso)13.0 billion for 2000. Interest and other charges increased to (Peso)38.4
billion in 2001 from (Peso)35.1 billion in 2000. The (Peso)3.3 billion increase
was due primarily to an increase of (Peso)2.6 billion in the amortization of
deferred foreign exchange differential resulting from the weakness of the peso
against the US dollar, an increase in finance and bank charges of (Peso)606
million primarily due to guarantee fees, and an increase in depreciation
charges related to plants and property of (Peso)374 million due to the
reclassification of depreciated plants which were not used in 2001. In 2001,
our return on rate base increased to 2.89% from 2.23% under the Lender Formula
and to 2.74% from 2.13% under the Charter Formula, in each case as compared
with 2000.
In addition, in 2001 we had a cash flow deficit after debt service and
capital expenditures of (Peso)21 billion, compared with a cash flow deficit
after debt service and capital expenditures of (Peso)34.6 billion in 2000. We
financed our cash flow deficit after debt service and capital expenditures in
2001 with the proceeds of additional borrowings, including (Peso)14.0 billion
in Treasury bonds, (Peso)7.6 billion in external financing and (Peso)2.3
billion in advances from the Government. As of December 31, 2001, our total
debt, expressed in peso terms, had increased by 4% to (Peso)914.0 billion from
(Peso)880.1 billion, as of December 31, 2000, primarily due to an increase in
short term loans.
2000 Compared with 1999
We recorded net operating revenues of (Peso)100.1 billion in 2000, a 11.6%
increase from (Peso)89.7 billion in 1999. The positive result was due largely
to a (Peso)7.3 billion increase in the PPA charge associated with purchased
power cost adjustments, a (Peso)1.8 billion increase in transmission services
operating income and a (Peso)1.4 billion increase in utility operating income
due to an increase in the basic rate of (Peso)0.079/kWh starting in June 1999.
Sales demand growth was relatively flat, increasing only slightly to 37,320 GWh
in 2000 from 36,987 GWh in 1999, principally because of an increase in One Day
Power Sales.
Despite our higher revenues in 2000, our interest and other charges caused
us to suffer a net loss of (Peso)13.0 billion for the year, compared with a net
loss of (Peso)6.0 billion for 1999. Our interest and other charges increased to
(Peso)35.1 billion in 2000 from (Peso)23.9 billion in 1999. The (Peso)11.2
billion increase was due primarily to a (Peso)7.3 billion increase in our
amortization of deferred foreign exchange differential and a (Peso)2.1 billion
increase in our interest expense. In 2000, our return on rate base declined to
2.22% from 3.37% under the Lender Formula and to 2.13% from 3.25% under the
Charter Formula, in each case as compared with 1999. In addition, in 2000 we
had a cash flow deficit after debt service and capital expenditures of
(Peso)34.6 billion, compared with a cash flow deficit of
22
(Peso)16.1 billion in 1999. We financed our cash flow deficit in 2000 with the
proceeds from bond offerings, while our cash flow deficit in 1999 was financed
with the proceeds of additional borrowings incurred in late 1998 and 1999. As
of December 31, 2000, our total debt, expressed in peso terms, had increased by
19.2% to (Peso)880.1 billion from (Peso)738.1 billion as of December 31, 1999
due to an increase in long term loans and an increase in lease obligations due
to the expenses associated with the commercial operation of our hydroelectric
plant in Bakun.
Effects of Peso Depreciation
The peso depreciated to an all-time low in 2001, reaching (Peso)55.013 per
US dollar on January 19, 2001. Overall, in 2001 the average peso/dollar
exchange rate depreciated by 14% compared to the average peso/dollar exchange
rate for 2000. The fluctuations in the peso/dollar rate during 2001 were caused
by a confluence of domestic and external factors. In early January 2001, the
political crisis involving the impeachment proceedings of the former President
negatively affected the peso. However, the speedy and peaceful resolution of
the political crisis enabled the peso to recover immediately thereafter. From
April 2001 until the beginning of August 2001, the peso, along with other
regional currencies, again weakened against the dollar due primarily to bearish
market sentiment brought about by concerns over the economic slowdown in the US
and Japan. The weakness of the peso was also attributable to: (1) the continued
tension resulting from the Abu Sayyaf hostage crisis and the number of
kidnappings in Metro Manila; (2) the downgrading of growth projections by the
Government due to the contraction in exports and the slowdown in industrial
output; (3) concern over the budget deficit; (4) rising corporate dollar demand
for mid-year import requirements and dividend repatriation; and (5) renewed
weakening of investor sentiment concerning emerging market currencies due to
the debt crisis in Argentina. Heightened uncertainty after the September 11
terrorist attacks in the United States was mainly behind the depreciation
pressure on the peso in the last quarter of the year. The peso/dollar exchange
rate was (Peso)51.79 per US dollar as of December 31, 2001. See "Republic of
the Philippines -- Monetary System -- Foreign Exchange System".
The peso/dollar exchange rate remained steady during the first half of 2002,
averaging (Peso)50.83 per US dollar for that period. The performance of the
peso can be attributed to increased inflows of foreign portfolio investments
and remittances of overseas Filipino workers and generally appreciating
regional currencies. The peso's value was also supported by inflows from
proceeds of bond issuances by the Government and private corporations and by
private equity infusions.
We currently do not hedge foreign exchange exposures in our business or
financing operations. The fluctuations in the peso-US dollar exchange rate
affect our debt and debt service costs, fuel costs and operating costs,
obligations to IPPs, capital expenditures and certain other aspects of our
financial position. Substantially all of our revenues are in pesos, and we
maintain our financial statements in pesos. However, substantially all of our
debt and capital lease obligations are denominated in US dollars and other
foreign currencies. Accordingly, since 1997, the depreciation of the peso has
resulted in a substantial increase in our outstanding debt, capital lease
obligations, debt service costs and amortization of capacity fees as reported
in pesos in our financial statements.
Our foreign exchange losses resulting from increases in our foreign currency
debt and capital lease obligations due to the depreciation of the peso are not
recorded as expenses in our income statement. Rather, the amounts are
capitalized as a deferred foreign exchange differential and included in
deferred charges in the balance sheet, and are amortized and reflected as an
amortization expense in our income statements over the remaining life of the
respective loans after the restatement year. Our income statement does reflect,
however, increased interest expense on our foreign currency debt and increased
amortization expense on our foreign currency capital lease obligations
resulting from the depreciation of the peso. If the peso appreciates, resulting
in a reduction in the peso amounts of our foreign currency loans and capital
lease obligations, the resulting foreign exchange gains are recorded as a
reduction of the deferred foreign exchange differential. The deferred foreign
exchange differential amounted to (Peso)241.3 billion as of June 30, 2002, a
1.6% increase from (Peso)237.5 billion recorded as of June 30, 2001.
For 2001, we recorded a loss on foreign exchange fluctuation (representing
the losses on the revaluation of working capital loans and losses on payments
of loans and capacity fees due to changes in exchange rates
23
between the last date of the prior fiscal year and the applicable date of
payment) of (Peso)626.5 million compared with a loss of (Peso)1.1 billion in
2000. For the six months ended June 30, 2002, we recorded a gain on foreign
exchange fluctuation of (Peso)100.7 million compared with a loss of (Peso)31.2
million for the six months ended June 30, 2001.
Reduced Sales to Meralco
Sales to our largest customer, Meralco, represented approximately 63% of our
net operating revenue in the year ended December 31, 2001. Beginning in January
2002, Meralco reduced its monthly purchases from us by approximately one-third,
resulting in a reduction in our net operating revenue from January through
August 2002 of approximately (Peso)9.3 billion due solely to such reduction.
Meralco has reduced its electricity purchases from us and increased its
purchases of electricity from IPPs due to a dispute between us and Meralco
involving the total amount of power Meralco is required to purchase from us
under our power purchase agreement. Although we are in discussions with Meralco
to resolve this dispute, we can give no assurance as to whether the dispute
will be resolved or as to the timing or terms of any resolution. On January 1,
2003, Meralco announced that the ERC had ruled that Meralco could collect an
estimated amount of between (Peso)5 billion and (Peso)7 billion in deferred PPA
charges from consumers after having been prevented from doing so by the ERC in
April 2002. However, on November 15, 2002, the Supreme Court ruled that Meralco
had miscalculated its return on rate base and ordered Meralco to refund excess
charges to its consumers. Meralco recently announced that it estimates the
refund amount to be approximately (Peso)11 billion. We do not know how these
rulings will affect Meralco's continuing financial viability of our ability to
collect revenues from Meralco. Any continuation of reduced sales to Meralco or
any additional reduction in sales will have a significant adverse effect on our
future net operating revenues. See "-- Sales and Customers -- Relationship with
Meralco".
Increase in Fuel Costs and Other Operating Costs
A substantial portion of our fuel costs and other operating costs are
denominated in, or linked to, the US dollar or other foreign currencies. For
the six months ended June 30, 2002, 81% of our fuel costs and other operating
costs were denominated in US dollars and other foreign currencies and 19% of
our fuel costs and other operating costs were denominated in pesos.
Accordingly, the general depreciation of the peso since 1997 has resulted in
substantially higher operating costs in peso terms over the past several years.
With a decrease in electricity demand during the first six months of 2002, our
generation expense fell to (Peso)32.2 billion during this period, a 5.3%
decrease from (Peso)34.0 billion for the first six months of 2001. Operating
costs increased by 66% from 1997 to 2001. In 2001, our generation expense was
(Peso)71.1 billion, a 20% increase from (Peso)59.3 billion in 2000 due to
depreciation of the peso against the US dollar and increased generation
expenses at our coal plants.
Increased Obligations to Independent Power Producers
Beginning in the early 1990's as a result of severe power shortages in the
Philippines, under the Government's Power Development Program, we substantially
increased our commitment to IPPs in the generation and transmission of
electricity. Our obligations consist of the payment of capacity fees, which are
linked to the installed and operating capacity of the plant, and payments for
purchases of electricity. A substantial portion of these obligations is
denominated in US dollars or in peso amounts that are linked to the prevailing
US dollar price, and these obligations have increased substantially, in peso
terms, as a result of the depreciation of the peso. We amortized capacity fees
at a rate of (Peso)746 million per month in 1999, (Peso)1.3 billion per month
in 2000 and (Peso)1.4 billion per month in 2001. The amortization of capacity
fees is reflected in our income statement. Actual cash payments of capacity
fees, which are reflected in our cash flow statements increased to (Peso)29.6
billion in 2001 compared with (Peso)23.4 billion in 2000. In the first six
months of 2002, actual cash payments of capacity fees increased to (Peso)14.7
billion compared with (Peso)14.3 billion for the corresponding period of 2001.
See our audited financial statements, the index of which appears on page F-1.
Historically, we have been able to pass substantially all of these increased
costs to our customers under the PPA charge which increases the actual rates we
charge our customers. However, on May 8, 2002, President Arroyo by presidential
directive reduced the maximum average PPA charge from (Peso)1.25 per kWh to
(Peso)0.40 per kWh. This presidential directive was affirmed by an ERC order on
September 6, 2002.
24
The reduction in the PPA charge has caused and will continue to cause us to
suffer significant additional losses. As a result, we have become more heavily
reliant on the Government to fund our operations, such as the provision of
US$750 million through loans in the first six months of 2002. From May 8, 2002
through August 31, 2002, the reduction in the PPA charge alone has caused us to
lose (Peso)9.3 billion in revenue. The effect of the reduction in the PPA
together with the other factors discussed herein will result in our incurring a
substantial net loss for 2002. See "-- Power Rates -- Recent Reductions in
Basic Rates and the PPA" and "Electric Power Industry Restructuring and
Privatization -- Organization and Operation of the Power Industry -- Universal
Change".
For power projects structured as build-operate-transfer projects, our assets
are reflected in the balance sheet as electric plants under capital lease and
our liabilities are reflected as lease obligations. The amount for a particular
plant is initially recorded as our undiscounted future payment obligations for
capacity fees for the plant. The capital lease liability is reduced annually
based on actual cash payments of capacity fees under the relevant IPP contract.
The asset is amortized based on the estimated useful life of the asset, and the
amortization expense is reflected in our income statement as amortization of
capacity fees. Because the life of the asset generally exceeds the life of the
IPP contract, our actual cash payments of capacity fees substantially exceed
the amounts reflected in our income statement as amortization of capacity fees.
Total capital lease obligations were (Peso)505.0 billion for the six months
ended June 30, 2001 as compared to (Peso)609.3 billion for the six months ended
June 30, 2002.
Our power purchase payments to IPPs are reflected in the income statement
under generation expense. See our audited financial statements. The
depreciation of the peso has accounted for a significant portion of the
substantial increase in our generation expense since 1997. Amortization of
capacity fees, cash payments of capacity fees and power purchase expenses are
expected to increase in future years due in part to increased generation from
existing and new build-operate-transfer plants.
Increase in Maintenance and Rehabilitation Costs
We have, and expect to continue to have, substantial capital expenditure
requirements associated with maintenance and rehabilitation of our existing
power plants. A substantial portion of our capital expenditures have been and
are expected to continue to be denominated in foreign currencies because of our
substantial reliance on parts and maintenance expertise not available in the
Philippines. Accordingly, the depreciation of the peso has resulted in a
substantial increase in the expected amount of our capital expenditures for
these projects as expressed in pesos. We expect that these increased costs will
adversely affect our ability to carry out these capital expenditure plans. Due
in part to these increased costs, we have reduced or deferred certain planned
capital expenditures, including expenditures on our ongoing projects.
Our projected capital expenditure for maintenance and rehabilitation
projects is (Peso)8.4 billion for 2002, (Peso)15.9 billion for 2003, (Peso)7.9
billion for 2004 and (Peso)9.1 billion for 2005. These projections cover only
expenditures expected to be incurred in connection with maintenance and
rehabilitation of existing plants and do not cover expenditures in connection
with increasing capacity or transmission line projects. Nevertheless, it is
expected that we will have to borrow funds to meet our maintenance and
rehabilitation capital expenditure needs.
To meet projected increases in demand, the 2000 Power Development Program
calls for a total increase in capacity of 9,844 MW from 2000 to 2011. The
increase in generation capacity will require capital expenditures of
(Peso)760.9 billion, excluding interest expense through 2011; however, we
expect the capital expenditures required to carry out the 2000 Power
Development Program to be incurred by IPPs and distribution utilities involved
with the privatization and not by us. See "Capital Requirements -- Power
Development Programs".
The 2002 Transmission Development Plan, covering transmission development
and rehabilitation projects from 2002 calls for an estimated total investment
of (Peso)109.4 billion, excluding interest during construction. Total
rehabilitation projects during this period are expected to total (Peso)1.35
billion. See "Capital Requirement -- 2002 Transmission Development Plan".
25
Other Factors that Affect Our Financial Performance
Our financial performance has also been adversely affected by certain other
factors, including the following:
. Increased Borrowings. We rely almost exclusively on borrowings for our
financing requirements. As of March 31, 2002, our total external debt
amounted to $6.6 billion and we paid (Peso)41.3 billion in debt service
costs in 2001. The Government has contributed a total of approximately
(Peso)27.1 billion in equity to our company, representing less than 3% of
our total assets as of June 30, 2002.
. Uncollected Receivables. As of June 30, 2002, we had uncollected
receivables of approximately (Peso)6.4 billion, including (Peso)3.3
billion owed by the Metropolitan Waterworks and Sewerage System ("MWSS")
and (Peso)3.1 billion owed by the Government (relating to the Philippine
Nuclear Power Plant). We are currently negotiating with MWSS to settle our
claim but cannot estimate the amount that will be recovered. Our
receivable from the Government relating to the Philippine Nuclear Power
Plant is unlikely to be collected. See "-- Power Generation -- Fuel
Supplies -- Hydroelectric" and "-- Capital Requirements Philippine Nuclear
Power Plant".
. Increased Competition. We are facing increased competition in the
generation business from IPPs which has caused reduced demand from our
customers and has reduced revenues.
. Unbundling of Power Rates. In June 2002 the ERC, in connection with our
unbundling petition, denied our petition to revise our rates upward by
(Peso)0.17/kWh and instead ordered us to reduce our rates by an average
(Peso)0.07/kWh before the end of September 2002. On September 6, 2002, the
ERC ordered us to disregard their June 2002 ruling and to reduce
generation rates by (Peso)1.10 per kWh in Visayas, (Peso)0.27 in Luzon and
(Peso)0.40 in Mindanao. They also stated in the September 6 order that a
ruling on transmission rates would follow. Finally, the September 6 order
has called into question our ability to charge for foreign exchange and
fuel costs not recoverable through the PPA that we have traditionally been
allowed to recover from our customers. We have filed a motion for
reconsideration and clarification of this order. If our motion is denied,
we expect this decision to have a significant adverse effect on our
financial results.
. Outstanding Tax Refunds. As of June 30, 2002, we had approximately
(Peso)3.4 billion of unpaid tax and duty refund claims from the Government
and (Peso)755 million in unutilized tax credit certificates from the
Government. Since 1992, the Government has not paid a substantial portion
of the tax refunds owed to us nor have they permitted us to use a
substantial amount of tax credit certificates. See "-- Payment Obligations
to the Government -- Tax Status".
We expect our financial difficulties to continue for the full year 2002 and
in future years due to the effects of the depreciation of the peso, the
reduction in the PPA, the basic rate reduction mandated by the Act, additional
rate reductions ordered by the ERC and the other factors described above. We
expect to incur a total cash deficit of approximately (Peso)88.1 billion in
2002. This projection assumes the (Peso)0.30 -per-kWh basic rate reduction
mandated by the Act and the (Peso)0.85-per-kWh PPA reduction mandated by the
President and affirmed by the ERC, but does not reflect certain recent events
including the basic power generation rate reduction mandated in September 2002
relating to updated unbundled rates or any basic transmission rate reduction
relating to our unbundled rate petition to the ERC. We expect that these rate
reductions will further increase our cash deficit in 2002. In addition, the
exchange rate for 2002 upon which we have based these financial expectations is
(Peso)48.8 per US$1, but the average exchange rate for the first nine months of
2002 was (Peso)51.06 per US$1. As a result, our actual results of operations
for 2002 are likely to be worse than currently projected.
We are currently relying in part on short-term borrowings to finance capital
expenditures and increases in debt service attributable to the depreciation of
the peso. We have also relied on cash advances from the Government to finance
our debt service. During the six months ended June 30, 2002, we received
approximately (Peso)3.9 billion from the Government in cash advances which we
have not repaid. We anticipate that we will need $750 million in additional
loans for the remainder of 2002 to cover the balance of our expected cash flow
deficit in 2002. We can give no assurance that we will be able to raise the
funds required to meet all of our obligations or as to the timing or terms of
any additional financing we may obtain.
26
Our Financial Statements and Possible Accounting Changes
Our financial statements are audited by the Republic's Commission on Audit
("COA"), and are prepared in accordance with Philippine GAAS. You should note
the following factors relating to our financial statements:
. This prospectus does not include any financial statements for periods
after December 31, 2001. The prospectus includes some financial data for
the six months ended June 30, 2002. Such data is unaudited and could be
subject to significant adjustments as a result of the audit process for
the year ending December 31, 2001 and the other factors described herein.
. The reports of COA relating to our audited financial statements included
in this prospectus are qualified with respect to certain matters described
in their reports.
. For power projects structured as build-operate-transfer projects, our
assets are reflected in the balance sheet as electric plant under capital
lease and our liabilities are reflected as lease obligations. The amount
for a particular plant is initially recorded as our undiscounted future
payment obligations for capacity fees for the plant. The capital lease
liability is reduced annually based on actual cash payments of capacity
fees under the relevant IPP contract. The asset is amortized based on the
estimated useful life of the asset, and the amortization expense is
reflected in our income statement as amortization of capacity fees.
Because the life of the asset generally exceeds the life of the IPP
contract, our actual cash payments of capacity fees substantially exceed
the amounts reflected in our income statement as amortization of capacity
fees. Total capital lease obligations were (Peso)505.0 billion as of
December 30, 2001 and (Peso)609.3 billion as of June 30, 2002.
. Our power purchase payments to IPPs are reflected in the income statement
under generation expense. See our audited financial statements. The
depreciation of the peso has accounted for a significant portion of the
substantial increase in our generation expense since 1997. Amortization of
capacity fees, cash payments of capacity fees and power purchase expenses
are expected to increase in future years due in part to increased
generation from existing and new build-operate-transfer plants.
. In connection with our proposed privatization, we intend to prepare
unofficial financial statements in accordance with Philippine GAAP. To
help us determine how to best accomplish this we engaged independent
accounting advisers. These advisers have recommended various changes to
our accounting policies intended to conform with Philippine GAAP. We are
in the process of reviewing the adviser's recommendations. This process
may result in significant changes to our accounting policies and the
methods we use to prepare our financial statements. These changes may
result in material adverse changes to our financial condition and results
of operations, including for certain periods covered by our historical
financial statements included in this prospectus. Such changes may relate
to, among other things, the following matters:
-- A change in our accounting for utility plant in our balance sheet,
which is currently based on appraised values.
-- A change in our accounting for losses and gains from our foreign
currency denominated liabilities based on changes in exchange rates.
Currently we do not expense these foreign exchange losses and gains but
capitalize them as deferred foreign exchange differential.
-- A change in our accounting for capital lease obligations.
Any changes to our accounting policies or financial statements would need
to be approved by COA. COA has informed us that, they are not considering
changing our accounting standard from Philippine GAAS.
. This prospectus does not include any historical financial statements of
PSALM or any pro forma financial statements for PSALM reflecting the
proposed transfer of certain NPC assets and liabilities from NPC to PSALM.
A description of the assets and liabilities proposed to be transferred is
included under "Power Sector Assets and Liabilities Management
Corporation -- Transfer of Our Generation and Other Disposable Assets to
PSALM", although the transfers and the timing thereof are subject to
various
27
conditions and other uncertainties. We believe that the transferred assets
and liabilities will initially be recorded in PSALM's balance sheet at the
amounts recorded in NPC's balance sheet as of the date of the transfer,
subject to any accounting changes that may be made as described above. In
addition, pursuant to the Act, the Government is required to directly
assume (Peso)200 billion of NPC's liabilities. This debt assumption is
expected to take place in annual installments from 2004 to 2010. We cannot
give any assurance regarding the composition of the future financial
statements of PSALM or as to PSALM's future results of operations and
financial condition.
Our Business
We are engaged in the generation and transmission of electricity, the
construction, operation, maintenance and rehabilitation of electricity
generation and transmission facilities, and the operation of power grids and
interconnection facilities throughout the Philippines.
Power Generation
We are responsible for constructing and operating electricity generation
facilities in the Philippines. Our plants generate electricity using oil, coal,
geothermal, hydroelectric and other sources. As of July 31, 2002, we owned 60
power plants in three transmission grids and the Small Islands, which had a
total installed capacity of 6,714 MW. As of June 2002, our plants generated
8,076 GWh or 42.7% of the electricity generated in the Philippines. IPPs
participate in electricity generation in the Philippines through the direct
ownership of power plants or through the operation on our behalf of power
plants owned by us. As of May 31, 2002, these IPPs owned 28 plants and operated
13 plants on our behalf. See "-- Private Sector Participation in Power
Generation".
Generation by Geographic Region
The following table sets out the installed capacity and output of our power
plants and IPP power plants which are owned by us but operated and maintained
by the IPPs for each regional grid for the periods indicated.
Installed Capacity and Output of Our Power Plants and IPPs' Power Plants/(1)/
As of July 31,
1998 1999 2000 2001 2002
--------------- --------------- --------------- --------------- -----------------
Capacity Output Capacity Output Capacity Output Capacity Output Capacity Output
Grid MW % MW % MW % MW % MW %
- ---- -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Our plants:
Luzon....... 6,224 27.4 5,985 27.4 4,983 31.8 4,983 40.1 4,620 37.0
Visayas..... 911 21.1 712 32.5 680 34.7 680 41.4 680 28.3
Mindanao.... 1,247 30.2 1,187 41.0 1,187 40.3 1,187 45.4 1,187 31.7
Small Island 167 18.2 170 26.9 206 23.1 206 21.2 227 13.4
----- ---- ----- ---- ----- ---- ----- ---- ----- ----
Total...... 8,549 27.1 8,054 29.9 7,056 32.2 7,056 40.6 6,714 34.4
===== ==== ===== ==== ===== ==== ===== ==== ===== ====
IPPs:
Luzon....... 2,198 80.7 2,568 72.7 2,426 80.4 2,611 68.6 4,282/(2)/ 41.4
Visayas..... 701 35.3 701 20.3 701 26.1 701 26.4 910/(2)/ 27.2
Mindanao.... 353 62.4 351 30.9 351 41.3 351 32.1 362/(2)/ 60.9
Small Island 16 41.7 25 27.9 32 25.3 32 36.5 N/A/(3)/ N/A/(3)/
----- ---- ----- ---- ----- ---- ----- ---- ----- ----
Total...... 3,268 68.6 3,645 58.3 3,510 65.2 3,695 56.8 5,553 40.5
===== ==== ===== ==== ===== ==== ===== ==== ===== ====
- --------
(1) The installed capacity is stated as at the end of the periods indicated and
the output percentage represents production as a percentage of installed
capacity for the periods indicated. This table includes power generated by
independent power producers at our power plants.
(2) Includes Small Island power plants.
(3) "N/A" means "not available".
Luzon Grid
Luzon is the largest of the operational regions, where more than half of the
entire economic activity of the Philippines is concentrated in terms of GDP. We
currently own 32 power plants in this region, nine of which are
28
operated by IPPs. As of July 31, 2002, our Luzon plants had an installed
capacity of 4,620 MW. Including an additional capacity of 6,842 MW from plants
not owned or operated by us, the total capacity of this grid was sufficient to
meet the peak demand of 5,618 MW in 2001. Electricity generated by our Luzon
plants increased by 3% to 17,502 GWh in 2001 compared with 16,975 GWh in 2000.
Lower demand by our largest customer, Meralco, in the first three months of
2002, caused a decrease in electricity generation of 31% to 16,975 GWh as
compared with 24,596 GWh in the first three months of 2001.
Due to their age, our oil-fired thermal plants in Luzon have been gradually
retired in recent years. We also operate a number of hydroelectric, coal and
geothermal plants in Luzon. We plan to replace the generating capacity from
retired oil-fired plants with capacity from new hydroelectric sources and from
the combined cycle natural gas power plant in Ilijan, Batangas that began
operation in June 2002. New projects by IPPs will also replace a portion of the
retired generating capacity. See "-- Private Sector Participation in Power
Generation -- Contractual Arrangements with Independent Power Producers".
Visayas Grid
Visayas is composed of six major islands and numerous small islands. We
presently have sufficient capacity to serve current demand in Visayas. New
power stations are being developed in this region primarily for capacity
additions that will be transmitted to Luzon through our grid interconnection
program. We own 17 power plants in this region, four of which are owned by us
and operated by IPPs. Five power plants in this region are owned and operated
by IPPs. Our plants in Visayas, which include hydroelectric, geothermal, coal,
gas turbine, power barge and diesel power plants, had an aggregate installed
capacity of 680 MW as of July 31, 2002. In 2001, electricity generation of
these plants increased by 7% to 2,468 GWh compared with 2,300 GWh in 2000 and,
during the first three months of 2002, electricity generation at these plants
increased by 6% to 595 GWh compared with 564 GWh during the corresponding
period of 2001.
Mindanao Grid
Mindanao comprises one main island and a number of small islands. The
Mindanao grid, which serves the main island, is powered primarily by
hydroelectric power plants that take advantage of readily available water
resources. We own 11 power plants in this region, two of which are operated by
IPPs. As of July 31, 2002, these plants had an aggregate installed capacity of
1,187 MW. In 2001, generation increased by 4% to 4,717 GWh compared with 4,552
GWh in 2000 and during the three months ended March 31, 2002, electricity
generation at these plants increased by 4% to 1,156 GWh compared with 1,117 GWh
during the corresponding period of 2001.
In addition to the electricity generated by our own plants in this region,
we also purchase electricity from IPPs. As of March 31, 2002, we had six
contracts with IPPs in Mindanao providing us with a total of 362 MW of
electricity.
Small Islands Grid
The Small Islands Grid comprises a number of power generation facilities and
transmission lines located in the small islands of the Philippine archipelago.
The generation facilities and transmission lines in the Small Islands Grid are
not connected to our three principal grids. Beginning in 1997, we increased the
level of private sector participation in the development and operation of the
Small Islands Grid. We solicited bids from private enterprises to participate
in ten of our generating units (each with an installed capacity of 5 MW) on
nine islands.
Due to the Small Islands' geographical location and lower population
density, the operating costs of the Small Islands Grid are higher than those of
the three other regional grids. To compensate for these higher costs, we
effectively provide an operating subsidy to the private enterprises to cover
operating costs which amounted to approximately (Peso)2.5 billion in 2001. In
2001, the Small Islands Grid generated 485 GWh of electricity and net utility
revenue was (Peso)1.7 billion against interest expenses of (Peso)717 million.
Interconnection of Grids
We have undertaken several projects to interconnect our separate
transmission networks in different regions of the Philippines. Four of these
interconnection lines (linking the islands of Luzon, Leyte-Samar, Cebu, Negros,
29
Panay, and Bohol) are presently in operation, and two more (including an
upgrade of an existing line) are expected to be completed by 2006. A proposed
interconnection between Leyte and Mindanao, which would complete the link among
the three major regional grids, is currently under study for economic
viability. These interconnection projects are expected to reduce unused excess
capacity and to lower the wholesale price of electricity in the long term. See
"-- Power Transmission -- Interconnection Projects".
Fuel Costs
Fuel costs are a significant portion of our operating costs. Fuel costs
accounted for 29% of our operating costs in 2000 and 33% in 2001. For the six
months ended June 30, 2002, our fuel costs accounted for 28% of our operating
costs. In addition to fuel costs relating to the operation of our plants, our
contracts with IPPs generally provide that we will supply and deliver all fuel
required for the operation of such IPP plants. As a result, we are also exposed
to fluctuations in fuel prices under such contracts.
Fuel prices for all power sources, other than hydroelectric and those fuels
sourced locally, are mostly denominated in US dollars, or denominated in pesos
and linked to the prevailing US dollar prices. This effectively makes
substantially all of our fuel costs subject to fluctuations in the US
dollar/peso exchange rate. Accordingly, the additional depreciation of the peso
against the US dollar beginning in the last quarter of 2000 resulted in higher
costs in peso terms to us for such fuel in 2001 which is significant because
the majority of our income is in pesos. Although lower prices of imported fuel
in the first three months of 2002 helped offset some of the increase in fuel
costs resulting from the fluctuations in the US dollar/peso exchange rate, we
plan to decrease our dependence on imported fuel by continuing to develop the
capacity to produce power from other electricity sources so that we can reduce
the impact of any future fluctuations in the US dollar/peso exchange rate on
our fuel costs.
Historically, we have been able to offset increases in fuel prices through
the fuel purchase cost adjustment mechanism which allows us to increase the
rates we charge our customers if the price we pay for fuel increases. The ERC
ruling on our unbundling petition issued on September 6, 2002 was unclear
regarding our ability to continue to adjust our rates for changes in prices we
pay for fuel. If we are unable to continue charging our customers this
adjustment changes it will have a material adverse effect on our financial
condition.
To further minimize our fuel costs and to promote efficient use of our
generation facilities, we employ an order of dispatch based on efficiency and
demand so that during periods of low demand, we utilize the less expensive
plants to generate electricity and during periods of peak demand, we utilize
the more expensive plants to generate electricity. Oil-fired and gas turbine
plants that are more expensive to operate are operated only during peak demand
periods are known as peaking plants. The order of dispatch from our plants is
also affected by natural factors (for example, the level of water in lakes or
reservoirs in the case of hydroelectric plants), system failures and forced
outages.
Fuel Supplies
Oil Products
We have historically purchased most of our petroleum products from Petron
Corporation ("Petron"), Pilipinas Shell Petroleum Corporation ("Pilipinas
Shell") and Caltex Philippines, Inc. ("Caltex Philippines"). Petron supplied
64% of our total petroleum requirement for the one-year period from April 2001
to March 2002 and supplied 59% of our total requirement from April 2000 to
March 2001. Petron is 40% owned by the Philippine National Oil Company-Energy
Development Corporation ("PNOC-EDC"), a wholly-owned Government corporation.
Each of these suppliers announced in June 2002 its intention to increase fuel
prices based on increased crude oil costs.
Our oil-based fuel is acquired through a bidding process among six approved
fuel suppliers. We have contracted to purchase our total requirement of
approximately 1.3 billion liters for the 12 month period from April 2002 to
March 2003 mainly from Petron (63%) and Pilipinas Shell (36%). Our existing
fuel supply contracts cover the fuel requirements of specified power plants
operated by us and IPPs. The fuel prices under
30
these contracts are determined by the Mean of Platt's Singapore (MOPS). Under
this system the delivered price for fuel for the current month is based on the
average of the mean (daily average of high and low quotations in Singapore) of
the particular oil product in the previous month. Fuel prices are denominated
in US dollars, which we convert to pesos using the prevailing US dollar/peso
exchange rate. We then pay for oil in pesos. We may partially or completely
terminate our fuel purchase obligations under certain circumstances, including
if the IPPs that operate the plants covered by the contract assume direct
responsibility for the purchase of fuel for such plants. For power plants not
covered by the Petron and Pilipinas Shell contracts, we purchase fuel from
other suppliers.
Coal
Our annual total coal requirement was approximately 4.5 million metric tons
in 1999, 6.2 million metric tons in 2000 and 6.5 million metric tons in 2001
and 3.9 million metric tons for 2002. We expect our coal requirements for 2003
to be 3.1 million metric tons. We obtain approximately 80% to 85% of our coal
requirement from foreign sources such as Australia, Indonesia and China and the
remaining amount from domestic sources. We pay for coal purchased from foreign
sources in US dollars, and since 1997, the cost of such coal in peso terms has
increased as a result of the depreciation of the peso and the overall increase
in current coal spot market prices.
Our main domestic coal supplier is Semirara Coal Corporation, a private
Philippine company. We entered into a 15-year coal supply contract with
Semirara in November 1995 for the supply of coal to our coal-fired Calaca I and
Calaca II power plants. The price of coal under this contract is denominated in
pesos and linked to the prevailing US dollar/peso exchange rate. The guaranteed
minimum tonnage is approximately 700,000 metric tons per year and the maximum
tonnage is approximately 1.2 million metric tons per year.
In 1996, another coal-fired plant with an installed capacity of two 350 MW
units commenced operation in Pagbilao. Due to its technical specifications, a
substantial portion of this power plant's coal requirement of approximately 1.8
million metric tons per year is imported, mainly from Indonesia (1.6 million
metric tons per year). The Masinloc coal-fired plant, with an installed
capacity of two 300 MW units, commenced operation in 1998. This plant had a
coal requirement of approximately 1.4 million metric tons for 2001. The Sual
plant, with an installed capacity of two 500 MW units, commenced operations in
1999 and it had a coal requirement of approximately 2.7 million metric tons for
2001. The required coal quality specifications for both the Masinloc and Sual
plants have a wider range than that of the Pagbilao plant, which enables us to
import the coal required from other sources including Australia and China.
Geothermal
We obtain the steam supply for our geothermal plants from Philippine
Geothermal Inc. ("Philippine Geothermal") and PNOC-EDC. Philippine Geothermal
supplied the steam which generated 46% of our total geothermal energy
production in 2001 and 44% during the first three months of 2002. The remainder
of our steam requirement is supplied by PNOC-EDC.
We have an ongoing dispute with Philippine Geothermal regarding their
ability to unilaterally renew a service contract with us, which expired in
1996. Our dispute, which went to arbitration, was dismissed without prejudice.
We filed a joint motion with Philippine Geothermal in the Supreme Court for
authority to suspend the proceedings and are currently negotiating a settlement
agreement. See "-- Litigation -- Philippine Geothermal -- Service Contract
Renewal". Pending resolution of the dispute, we have entered into a series of
interim agreements with them to continue the supply of steam to our Tiwi and
Makban plants on the same terms as in the expired service contract. Under the
interim agreements, we have agreed to pay for all of Philippine Geothermal's
exploration costs (which are denominated in US dollars) and for the quantity of
steam purchased (which is denominated in pesos).
Our steam sales contracts with PNOC-EDC are take-or-pay contracts with terms
ranging between 20 and 25 years. Prices for the supply of steam under these
contracts are denominated in pesos. In general, we are required to take or pay
for steam to run the plants at between 70% to 75% of the installed plant
capacity. Our geothermal
31
plants ran at an average capacity of 63% in 2001 and 62% in the first three
months of 2002. We are involved in the disputes described below with PNOC-EDC
regarding their billings for steam supplied to our geothermal plants, and have
commenced discussions with them to settle these disputes:
. Bac-Man I Geothermal Plant. In March 1995, we agreed with PNOC-EDC to pay
our outstanding balance with respect to billings of approximately
(Peso)489 million in 36 installments over three years, commencing January
1995. In April 1997, we suspended the monthly payment because PNOC-EDC
failed to establish that it was ready to supply the full steam requirement
of the plant, which was a condition of our agreement to pay the
outstanding balance.
. Tongonan Geothermal Plant. We have a dispute with PNOC-EDC regarding
outstanding billings of (Peso)754 million for steam supplied to this
plant. We have refused to pay the outstanding amount and have invoked a
provision in the steam sales contract which provides that such balance
should be settled by the Government. We have not recognized the disputed
amount as a liability in our financial accounts.
Hydroelectric
We have 24 hydroelectric plants located in different parts of the country,
two of which are operated under rehabilitate-operate-lease arrangements. See
"-- Private Sector Participation in Power Generation -- Contractual
Arrangements with Independent Power Producers". As of March 31, 2002, the total
generating capacity of our hydroelectric plants was 2,272.7 MW. In 2002, the
electricity output of our hydroelectric plants in the Luzon and Mindanao grids
was positively affected by weather patterns including increased rainfall.
From 1992 until 1998, our Angat hydroelectric plant suffered losses of
capacity and revenue due to construction work undertaken by MWSS during that
time. MWSS has agreed to compensate us for the losses we suffered during the
period of construction. As of June 30, 2002, we have claimed a total of
(Peso)3.1 billion from the MWSS and we are currently in settlement discussions.
Natural Gas
In the early 1990s, large sources of natural gas were discovered off the
west coast of the Philippines. In December 1997, we entered into a purchase and
sale agreement with the developers of the gas field which include Shell
Philippines Exploration B.V., Texaco, Pilipinas Shell and PNOC-EDC. Under the
terms of the purchase and sale agreement, beginning in January 2002, we and
First Philippine Holdings must each purchase 50% of the natural gas supplied by
the developers for a term of 20 years. Half of the purchase obligations under
the agreement are denominated in pesos, while the other half of these
obligations are denominated in US dollars.
Private Sector Participation in Power Generation
The Government has permitted private sector participation in power
generation projects since 1987 and regards private sector participation in the
power industry as essential given the level of capital expenditure necessary to
implement power expansion and maintenance programs. Private sector participants
in the power industry include private investors in various power projects and
IPPs. From 1991 to 2001, we completed 28 power projects with private sector
participation which together provided an additional installed capacity of 5,514
MW. Fourteen of these projects, with a total installed capacity of 1,449 MW,
involved the rehabilitation of our existing plants. However, three of these
plants have since been closed, reducing capacity by 445 MW. In 1993, in
response to a power crisis in the Philippines, the Electric Power Crisis Act
was passed granting the President of the Philippines emergency powers with
respect to the power industry for one year. Under that legislation, President
Ramos concluded seven power contracts for projects providing 1,376 MW.
Our current policy is to invite private participation in all future power
plant construction. When selecting private sector participants, we conduct a
tender process and are required by law to award the contract to the most
competitive bidder. There are currently five power generation plants which are
being constructed, or are planned to be constructed, by IPPs. The plants under
construction are scheduled to commence operations between 2003 and 2006 and
will provide an additional 2,829 MW of capacity.
32
Contractual Arrangements with Independent Power Producers
We have entered into various types of contractual arrangements with IPPs for
the development of new power plants, and for the supply or conversion of power
at our existing power plants and the rehabilitation, operation or maintenance
of our existing power plants. The following table sets out a summary of
operational projects that IPPs have undertaken as of June 30, 2002.
No. of No. of Total Capacity
Type of Contractual Arrangement Projects Plants (MW)
------------------------------- -------- ------ --------------
Build-operate-transfer............. 10 14 4,323
Build-transfer-operate............. 2 3 216
Build-operate-own.................. 10 14 1,168
Rehabilitate-operate-manage........ 3 7 1,478
Rehabilitate-operate-lease......... 1 1 75
Build-rehabilitate-operate-transfer 1 3 640
-- -- -----
Total............................. 27 42 7,900
== == =====
The following table sets out a summary of projects under development that
had not been undertaken by IPPs as of June 30, 2002.
No. of No. of Total Capacity
Type of Contractual Arrangement Projects Plants (MW)
------------------------------- -------- ------ --------------
Build-operate-transfer..... 3 3 745
- - ---
The principal terms of the various contractual arrangements are summarized
below:
. Build-Operate-Transfer. A 1991 law commonly referred to as the BOT Law
authorized us to enter into build-operate-transfer contracts with the
private sector. For projects governed by these contracts, we have
developed model project documentation under which the private contractor
undertakes the construction and financing of the power plant and also
operates and maintains the plant for a period ranging from 10 to 29 years.
We agree to supply the operator with the necessary fuel to operate the
plant (thereby assuming the risk of fuel price fluctuations) and to
purchase the power generated at a price which enables the operator to
recover its operating and maintenance expenses and capital investment in
the project plus a reasonable rate of return. At the end of the fixed
term, the contractor transfers the plant to us.
. Build-Transfer-Operate. The contractor undertakes the construction and
subsequent operation of the plant. However, we own the plant, fund its
construction and pay the contractor a monthly operation and maintenance
fee.
. Build-Operate-Own. Under this arrangement, the contractor undertakes and
finances the construction of the plant and agrees to operate and own it,
and the plant is never transferred to us. However, we agree to supply fuel
to the contractor and the contractor is obliged to sell us all of the
power generated for an agreed period of time.
. Rehabilitate-Operate-Manage. Under this arrangement, the contractor
undertakes and finances the rehabilitation of our plant and then operates
and maintains it, typically for a fixed term of up to 15 years.
. Rehabilitate-Operate-Lease. Under this arrangement, the contractor
rehabilitates and finances the plant and then leases the plant from us and
operates it, typically for a fixed term of up to 15 years.
. Build-Rehabilitate-Operate-Transfer. Under this arrangement, the
contractor undertakes the financing and construction of a new plant and
the concurrent rehabilitation of an old plant that we own. The contractor
then operates and maintains both plants for a period of 10 to 25 years. At
the end of the fixed term, the contractor transfers the plants back to us.
. Power Purchase Agreements. We have entered into power purchase agreements
with certain power producers to purchase electricity generated by plants
owned and operated by them. These take-or-pay
33
arrangements, which are described below, are mainly with PNOC-EDC for
power generated by their geothermal plants.
. Energy Conversion Agreements. Under this type of arrangement, a
contractor is under contract with us to construct a power plant. Once the
plant is constructed, we supply all the fuel, which the contractor or
third party is contractually obligated to convert into electric power. The
plant is operated by such contractor (or third party) on our behalf.
We have entered into several power purchase agreements with PNOC-EDC to
purchase electricity generated by geothermal plants operated by them. In
connection with one such agreement, since March 1996 we have been subject to a
minimum payment of approximately (Peso)200 million per month for electricity
that was to have been generated by PNOC-EDC and transmitted over the Leyte-Cebu
interconnection. That interconnection was, however, not completed on schedule
due to damage to four submarine cables caused by third parties. In August 1996,
we commenced making the minimum payments of (Peso)200 million per month. We
agreed with PNOC-EDC that such payments should be credited as "stored energy"
at the rate of 155 GWh per month, representing the contracted energy that we
were not able to take, and that PNOC-EDC would schedule the delivery of such
stored energy to us at a later date. Due to the delayed completion of that
project, we entered into a supplemental agreement with PNOC-EDC extending the
minimum payment requirement and delaying the delivery of the stored energy
until completion of the project. Under the agreement, PNOC-EDC would deliver
the stored energy only when we exceeded the contracted energy. The Leyte-Cebu
(Leyte A) interconnection began commercial operation in November 1997, and the
Leyte-Luzon (Leyte B) interconnection began commercial operation in August
1998. These two projects combined generated 4,096 GWh in 2000, 4,381 GWh in
2001 and 2,649 GWh in the first seven months of 2002.
We entered into a build-operate-transfer contract with the Korea Electric
Power Company ("KEPCO") in November 1997, under which they developed, financed,
constructed and, beginning in June 2002, operate a 1,200 MW combined cycle
natural gas power plant in Ilijan, Batangas. We provide the fuel to operate the
plant from the natural gas purchased by us under our 20-year contract with
Shell Philippines Exploration. The contract with KEPCO is also for a term of 20
years, with either party having an option to renew for a further two years. The
total projected cost for this project is approximately $4.2 billion, of which
we expect to fund approximately $185 million. The remaining funding
requirements for this project will be arranged by KEPCO.
Review of IPP Contracts
Under the Act, an inter-agency committee ("IAC"), composed of the Secretary
of Finance, the Secretary of Justice and the NEDA Director-General, was created
for the task of completing a thorough review of all of our IPP contracts. On
July 4, 2002, the IAC completed its review and submitted a detailed report to
President Arroyo. According to the report, 19 out of the 35 IPP contracts met
enough of the committee's qualifications to pass their review. Of the 19 which
passed, six passed all the financial and legal tests set out by the committee,
while the other 13 were found to have minor financial and legal issues that
need to be addressed to ensure that the Government and the public are not being
financially prejudiced.
According to the report, the remaining 16 IPP contracts contain more
difficult legal and financial issues that must be resolved. The committee has
recommended that these contracts be renegotiated, and officials from PSALM, the
DOE, the DOJ and the DOF are now in the process of such renegotiation. The
Government has initiated a dialogue with these IPPs to seek mutually acceptable
solutions that will allow fair returns on their investment while still
resulting in lower electricity costs for us and ultimately the consumer.
Although the Government does not plan to impose unilateral changes to the
problematic contracts, the Government expects to reduce some of our obligations
under these contracts through the renegotiation process.
Power Transmission
Overview
We have the sole responsibility for the network of power transmission
facilities in the Philippines. We operate transmission grids in Luzon, Visayas,
and Mindanao, as well as the Small Islands Grid. As of March 31,
34
2001, our transmission system covered a total length of 20,706
circuit-kilometers (ckt-km) including 10,135 ckt-km in Luzon, 4,943 ckt-km in
Visayas, and 5,628 ckt-km in Mindanao.
In Luzon, the main transmission lines are rated at 230kV and above. They
include a 500kV AC transmission backbone from northern to southern Luzon, and a
350kV direct current link connecting southern Luzon to Visayas. The
sub-transmission lines in Luzon, rated 115kV and below, emanate from bulk
substations to serve distribution companies, electric cooperatives, and some of
our directly connected customers.
In Visayas, the interconnections among island grids are rated at 350kV,
230kV, and 138kV. Internally, the Visayas islands distribute bulk power through
138kV and 69kV overhead lines and sub-transmission lines are also rated at
either 138kV and 69kV.
In Mindanao, the main transmission lines are rated at 138kV, and
sub-transmission lines are rated at 69kV. Across all grids, the
sub-transmission lines represent approximately 30% of total line length.
The following table sets out our total circuit-kilometers transmission lines
for the Luzon, Visayas and Mindanao grids as well as the total
circuit-kilometers of transmission lines in the Philippines, all as of March
31, 2001.
Philippines
Luzon Visayas Mindanao Total
------ ------- -------- -----------
(Number of circuit kilometers)
500-kilovolt transmission lines.......... 1,126 -- -- 1,126
350-kilovolt transmission lines.......... 390 564 -- 954
230-kilovolt transmission lines.......... 4,798 375 -- 5,173
138-kilovolt transmission lines.......... 118 1,670 3,211 5,000
115-kilovolt transmission lines and below 3,703 2,333 2,417 8,453
------ ----- ----- ------
Total................................... 10,135 4,943 5,628 20,706
====== ===== ===== ======
As of December 31, 2001, we had sub-stations capacity of 22,617
megavolt-amperes ("MVA"), excluding generation step-down transformers.
Under the Act, Transco is required to assume our authority and
responsibility for the planning, construction, and centralized operation and
maintenance of all our high voltage transmission facilities, including grid
interconnections and ancillary services. Upon the privatization of Transco, the
Act provides that the concessionaire will be responsible for the improvement,
expansion, operation and/or maintenance of Transco's transmission assets and
the operation of any related business. See "Power Sector Assets and Liabilities
Management Corporation -- Privatization Mechanisms -- Privatization of Our
Transmission Assets".
Although the southern portion of the Luzon Grid has an installed capacity of
6,344 MW, not all of this capacity can be delivered to Metro Manila because of
limitations in the existing transmission lines. Primarily, the bottleneck at
the Binan-Dasmarinas 230kV transmission line limits the amount of power the
south plants can deliver to Metro Manila. Some plants in southern Luzon are
operated at below capacity in order not to overload adjoining transmission
lines. Current efforts are focused on increasing the transfer capability of the
southern portion of the Luzon Grid. New transmission lines are presently being
put in place to relieve the congested portion of the grid and plans are
underway to upgrade identified bottlenecks to increase the generation output of
affected power plants.
Interconnection Projects
We have undertaken several projects to interconnect our separate
transmission networks in various regions of the Philippines. These projects,
and their completion (or expected completion) dates, are as follows:
. Negros-Panay interconnection (1990);
. Negros-Cebu interconnection (1993);
35
. Leyte-Cebu interconnection (1997);
. Leyte-Luzon interconnection (1998);
. Leyte-Bohol, Stage 1 (2000);
. Leyte-Cebu interconnection upgrade (2004);
. Leyte-Bohol interconnection, Stage 2 (2003); and
. Leyte-Mindanao interconnection (2011) (proposed).
The first stage of the Leyte-Bohol interconnection project connecting the
island of Bohol to the main Visayas grid was completed in 2000. The
interconnection enables cheaper electricity generated in the main Visayas grid
to be transmitted to the Bohol grid. This project is being undertaken in two
stages. The first stage, which is complete, connected the two grids using
69-kilovolt transmission lines. The second stage, which will upgrade the
connection to 138-kilovolt transmission lines, is targeted for completion in
2003.
The upgrade of the Leyte-Cebu interconnection is expected to be completed in
2004. Once the upgrade is completed, the interconnection will enable customers
who source power from the Visayas power grid to access the excess power
capacity in the Luzon power grid. This interconnection project is expected to
use 32 kilometers of submarine cable with a capacity of 200MW at a cost of
(Peso)4.9 billion.
The interconnection of the Leyte grid (in Visayas) and the Mindanao grid is
currently undergoing a feasibility study and is estimated to be completed in
2011. This interconnection project is expected to use 421 kilometers of
250-kilovolt direct current overhead transmission lines, 30 kilometers of
138-kilovolt alternating current overhead transmission lines, 23 kilometers of
250-kilovolt high voltage direct current submarine cable, and 30 kilometers of
electrode lines.
Once the Leyte-Mindanao interconnection project is completed, we plan to
transmit excess power from Luzon to Mindanao through the interconnection of the
Mindanao grid with the Visayas and Luzon grids. These interconnections should
help to stabilize our ability to satisfy peak demand for generation capacity by
maximizing the use of geothermal power resources from Visayas and hydroelectric
power resources from Mindanao, improve overall system reliability and
facilitate more efficient use of generating capacity through the pooling of
reserves.
To complete the Leyte-Cebu interconnection project, the Leyte-Bohol
interconnection project and the Leyte-Mindanao interconnection project, we
project our capital expenditures in the amount of (Peso)20.1 billion.
Other Transmission Projects
In addition to the interconnection projects, our existing transmission
networks in Luzon, Visayas and Mindanao are being upgraded to accommodate
additional generating capacity. During the period 2002 to 2010 we plan to
construct and install the following:
. For Luzon, 136 circuit kilometers of 500-kilovolt of extra high voltage
transmission lines, 3,276 circuit kilometers of 230-kilovolt transmission
lines, 160 circuit kilometers of 115 kilovolt lines, and 303 circuit
kilometers of 69-kilovolt transmission lines and a corresponding 9,500 MVA
of substation capacity.
. For Visayas, 1,379 circuit kilometers of 138-kilovolt transmission lines,
32 circuit kilometers of 230-kilovolt transmission lines, 814 circuit
kilometers of 69-kilovolt transmission lines and a corresponding 3,586 MVA
of substation capacity.
. For Mindanao, 1,686 circuit kilometers of 138-kilovolt and 1,333 circuit
kilometers of 69-kilovolt transmission lines, 700 circuit kilometers of
230-kilovolt transmission lines, 900 circuit kilometers of 250-kilovolt
transmission lines and a corresponding 6,105 MVA of substation capacity.
36
Sales and Customers
Overview
We serve three types of customers:
. distributors and utilities;
. industrial and commercial customers that are directly connected to our
grid network; and
. other miscellaneous customers, such as universities, military camps and
Government agencies, which need substantial amounts of electricity.
The distributors purchase electricity from us for distribution to end-users
such as households, industries and commercial establishments. Meralco is by far
our largest electricity distributor, accounting for 57% of our total volume of
electricity sales for 2001 and 49% of our total electricity sales for the first
six months of 2002.
We also supply electricity to large industrial and commercial users
directly. In April 1998, the DOE repealed an energy regulation that had limited
our bulk electricity sales only to customers with electricity demand of at
least 2 MW of generation capacity. We can now directly supply electricity to
customers that demand at least 0.1 MW of generation capacity. We expect to
increase direct sales to such users in the future.
The following table sets out the breakdown of our electricity sales by
customer type and region for 2001. The number of customers set out in the table
is as of December 31, 2001.
2001 Energy Sales Customer Distribution
Luzon Visayas Mindanao Philippines
--------------------------- -------------------------- -------------------------- -------------------
Number of Number of Number of Number of
Customers GWH % Share Customers GWH % Share Customers GWH % Share Customers GWH
--------- --------- ------- --------- -------- ------- --------- -------- ------- --------- ---------
Distributors and Utilities 62 26,597.49 94.71 31 2,790.96 85.59 32 4,448.13 83.14 125 34,136.58
--- --------- ------ -- -------- ------ -- -------- ------ --- ---------
Meralco................... 1 21,471.11 75.60 1 21,471.11
Private Utilities......... 9 852.84 8.00 2 835.83 25.63 4 1,869.04 34.93 15 3,557.76
Cooperatives.............. 44 4,081.89 14.37 27 1,836.51 56.32 27 2,570.13 48.04 98 8,488.54
Municipal/City Utilities.. 4 173.09 0.61 1 57.13 1.75 5 230.23
Ecozones/Other Private
Utilities................ 4 318.56 1.12 1 61.44 1.88 1 8.96 0.17 6 388.96
Industrial and Commercial. 54 1,421.17 5.00 10 462.95 14.20 22 895.34 16.79 89 2,739.39
--- --------- ------ -- -------- ------ -- -------- ------ --- ---------
Cement.................... 7 374.08 1.32 2 96.89 2.97 4 387.86 7.25 13 875.76
Chemical Products......... 8 166.65 0.59 2 105.51 3.24 2 84.05 1.57 14 284.82
Food Processing........... 4 44.44 0.16 3 21.20 0.65 6 116.01 2.17 13 181.85
Iron & Steel.............. 6 276.36 0.97 2 236.39 7.25 2 147.83 2.76 10 659.56
Mining.................... 7 192.46 0.68 1 2.96 0.09 2 15.64 0.29 10 211.06
Paper & Paper Products.... 4 324.21 1.14 4 145.19 2.71 8 469.40
Other Customers........... 18 43.96 0.15 2 1.77 0.03 21 57.12
Miscellaneous............. 35 89.16 0.28 11 6.78 0.21 9 3.62 0.07 55 90.66
--- --------- ------ -- -------- ------ -- -------- ------ --- ---------
TOTAL................... 151 28,399.34 100.00 52 3,260.69 100.00 63 5,350.09 100.00 268 36,966.63
=== ========= ====== == ======== ====== == ======== ====== === =========
% Share
-------
Distributors and Utilities 92.24
------
Meralco................... 58.08
Private Utilities......... 9.81
Cooperatives.............. 22.94
Municipal/City Utilities.. 0.62
Ecozones/Other Private
Utilities................ 1.05
Industrial and Commercial. 7.41
------
Cement.................... 2.37
Chemical Products......... 0.77
Food Processing........... 0.49
Iron & Steel.............. 1.78
Mining.................... 0.57
Paper & Paper Products.... 1.27
Other Customers........... 0.15
Miscellaneous............. 0.25
------
TOTAL................... 100.00
======
Our Largest Customers
Our ten largest customers purchased 25,886,986 kWh of electricity in 2001,
representing 70% of our total electricity sales. For the first six months of
2002, our ten largest customers purchased 9,862,609 kWh of electricity,
representing 63% of our total electricity sales. After Meralco, our second
largest customer, Davao Light & Power Company, which serves Davao City and its
surrounding areas, accounted for 3.6% of total electricity sales in the first
six months of 2002.
Our standard power supply sales contract with most of our customers is for a
term of 10 years at the rates authorized by the ERC. The standard contract
allows both our customers and us to alter the amount of power called for in the
contract if one or both parties cannot supply or receive the contracted level
of power. We bill customers on a monthly basis and require payment within 30
days. The majority of our customers paid within the required 30 days of being
invoiced during 2001 and the first six months of 2002. We penalize late
payments by charging interest and, ultimately, by disconnecting the defaulting
customer's power supply. We also provide
37
discounts in the form of power delivery voltage discounts (2.5%-3.5% if the
customer is directly connected to 69kV-230kV transmission line), prompt payment
discounts (3% if payment is made within 10 days after receipt of power bill)
and power factor adjustment penalties or bonuses. The power factor represents
the proportion of transmitted current that reaches the end-user as metered
electricity. A lower power factor indicates increased costs to us that are not
covered by our basic power rates. To encourage end-users to improve their power
factor with more efficient equipment, we impose a penalty upon customers with a
power factor below 85% and grant a bonus to customers with a power factor above
90%.
Relationship with Meralco
We entered into our first power supply contract with Meralco in 1978. Our
current supplies to Meralco are governed by a ten-year power contract which
took effect on January 1, 1995. Before signing our most recent contract,
Meralco, unlike our other customers, was only charged for power actually
supplied to them. Under the current contract, however, since January 1998
Meralco has been subject to the same guaranteed demand obligation as our other
customers. In January 2002, Meralco began buying less power from us than they
had contracted for, claiming a letter agreement allowed them to do so. We have
disagreed with this position and continue to charge Meralco a penalty based on
the difference between their minimum demand obligation under our current supply
contract with them and actual power purchased. Meralco has reduced their
minimum power purchase from 3,600 MW per month to 2,400 MW per month, leading
to penalties of (Peso)9.3 billion incurred from January to August 31, 2002. The
penalties have not been paid by Meralco and we have not accounted for the
penalties as a sale or a receivable in our financial statements.
Meralco is sourcing certain of its power requirements from IPPs that it
owns, including the gas-powered Sta. Rita and San Lorenzo plants, leading to
them reducing the amount of power purchased from us in violation of our power
supply contract. However, Meralco claims that we have violated the terms of the
power supply contract by supplying electricity to end-users in Meralco's
exclusive territory. Despite this claim, we believe that such customers fall
outside of the agreement because they are unwilling to purchase power from
Meralco, thus requiring us by law to meet their electricity requirements. We
are currently negotiating with Meralco to resolve this dispute and to finalize
the terms of a transition supply contract as mandated under the Act.
In an earlier contract we entered into with Meralco in 1981 for power supply
to Balintawak, we provided a discount as an incentive for Meralco to invest in
the transmission facilities at the Balintawak power station. The discount was
expressed as a percentage of the monthly power bill. As of December 31, 2001,
the aggregate amount of the discount was approximately (Peso)2.4 billion and
had substantially exceeded Meralco's total capital expenditure on the
Balintawak power station. We are also engaged in discussions with Meralco to
reduce or eliminate the discount.
On November 15, 2002, the Supreme Court ordered Meralco to refund an
estimated (Peso)11 billion that it had overcharged customers since 1994. In its
ruling, the Supreme Court explained that Meralco had improperly included income
tax in operating expense for purposes of calculating its return on rate base.
The President has stated that her administration will act in accordance with
the Supreme Court decision, as well as take steps to ensure that Meralco does
not default on its debt obligations. The Government directly owns 10% of
Meralco, and guarantees 32% of Meralco's (Peso)22 billion debt in long-term
loans. For the last 4 years, Meralco has been in technical default on certain
financial covenants with its lenders prescribing minimum return-on-rate base
(RORB) requirements. On February 3, 2003, Meralco announced that it will again
petition its lenders to waive the minimum RORB requirements. However, Meralco's
treasurer stated that Meralco may default on loan payments if it does not get a
rate increase by June 2003. Meralco currently has two petitions for rate
increases pending before the ERC. On January 1, 2003, Meralco announced that
the ERC had ruled that Meralco could collect an estimated amount of between
(Peso)5 billion and (Peso)7 billion in deferred PPA charges from consumers
after having been prevented from doing so by the ERC in April 2002. We do not
know how the recent rulings will affect Meralco's continuing financial
viability or our ability to collect revenues from Meralco.
38
Special Rate Programs
Dump Power Program
When there is excess inflow of water into Lake Lanao in Mindanao, we have in
the past channeled water down the Agus River for safety reasons. In 1995, we
began the "Dump Power Program", offering to customers the electricity generated
by the excess water inflow at a rate that is approximately half the grid's
basic rate. This program minimizes the waste of water, provides electricity
cost savings for customers, improves our hydroelectric plants' utilization
rates and provides us with additional revenue. The program is dependent on the
availability of excess water; thus, for example, it was suspended during late
1997 due to insufficient water inflow relating to the El Nino climatic
disturbance.
One-Day Power Sales Program
We developed this program in 1997 to optimize our unutilized generation
capacity by offering such capacity on a day-to-day basis to customers with
self-generating capacity. We determine our unutilized capacity for each day of
operation and offer such capacity to customers through a process of bidding
over a floor price that we publish on a running seven-day basis. We expect this
program to continue to have the benefit of maximizing our existing generation
capacity, improving system efficiency, diversifying our customer base and
increasing revenue. The customers benefit by obtaining power at a cost below
that which they would incur if producing power using their own generating
facilities.
Economic Recovery Assistance Program
We introduced this program in 1999 to assist industrial customers affected
by the regional economic downturn and to promote economic recovery. Under this
program, we offer a discount of up to (Peso)0.45 per kWh to eligible industrial
customers on electricity consumption in excess of their usual baseline load. We
aim to encourage industrial customers to increase their production and
electricity consumption, thereby generating more revenues for us.
Special Program to Enhance Electricity Demand
On October 11, 2002, the ERC approved our application to implement a fixed
discount on power rates for industrial users. This pricing scheme, called
Special Program to Enhance Electricity Demand ("SPEED"), will introduce price
incentives to stimulate incremental demand, increase utilization of existing
power plants and lower the average power cost for large end-users. SPEED will
be implemented in three phases over two years based on customer consumption,
and will amount to a discount of approximately 25% off the current purchase
price of electricity for these large end-users.
Power Rates
Overview of Rate Structure
Our power rates have been structured to generate sufficient revenues to
recover our expenditures and provide a sufficient return on our investment to
meet the goals under our Power Development Program. Currently, our effective
selling rate is composed of a basic charge and certain automatic cost
adjustments, including a fuel and purchased power cost adjustment and a foreign
exchange adjustment. The FPCA includes adjustments for the cost of fuel for our
generation plants as well as costs associated with power purchased from IPPs,
also known as the PPA.
The basic charge consists of the demand charge and the energy charge. The
demand charge is intended to recover the fixed or capacity-related costs of
power generation, while the energy charge is intended to recover the variable
or energy-related costs of power generation. Any proposed change to the basic
charge must be submitted to the ERC for approval. The FPCA and the FOREX
adjustments are intended to cover the additional operating costs that are not
recovered through the basic charge. By Presidential decree, the PPA element of
the FPCA has been capped at (Peso)0.40/kWh. Details of the FPCA and FOREX
adjustments are as follows:
. Fuel and Purchased Power Cost Adjustment. The FPCA is a means to
implement automatic adjustments to power rates using a stipulated formula
to reflect changes in fuel costs and purchased power costs. Upon
39
obtaining the approval of the Energy Regulatory Board, the predecessor of
the ERC, we implemented the fuel component in April 1994. Current fuel
prices are compared against fuel prices used to calculate our power rate
in 1993, and any incremental costs arising from the change in fuel prices
are passed on to our customers. The PPA traditionally allowed us to
recover increased costs associated with our cost of power purchased from
IPPs, however this component of the FCPA has been capped at (Peso)0.40 per
kWh by presidential decree which does not allow us to recover our purchase
power costs.
. Foreign Exchange Adjustment. The FOREX implements automatic adjustments
to power rate using a stipulated formula to reflect the effect of foreign
exchange rate fluctuations on the principal repayment amounts of our loans
(but not interest payment amounts), insurance premiums and other foreign
currency operating expenses. Using the FOREX adjustment, we pass on to our
customers a portion, but not all, of our gains or losses relating to such
expenses that arise from foreign exchange rate fluctuations. We
implemented the FOREX adjustment in September 1994 after obtaining the
approval of the Energy Regulatory Board.
The FPCA and FOREX have varied significantly from month to month, and can give
rise to either a positive or negative adjustment. If there is a negative
adjustment, we refund to our customers the amount of the difference.
In setting power rates, we must continue to ensure that our return on rate
base (which is calculated as our net operating income divided by the average
current net value of fixed assets in operation at the beginning and end of the
relevant period), does not exceed the maximum return on rate base of 12%
stipulated in our Charter. In addition, we are required by covenants in certain
of our loan agreements, including agreements with the Asian Development Bank,
to maintain power rates sufficient to achieve a minimum return on rate base of
either 7% or 8% depending on the particular agreement. We are currently in the
process of negotiating with our lenders to remove these covenants. See "-- Debt
- -- Return on Rate Base Covenants".
Recent Reductions in Basic Power Rates and the PPA
In the past year, the average rates at which we sell electricity have been
significantly reduced by rule of law, and by mandates from the President and
the ERC. The recent rate reductions and ERC orders described below have
effectively superseded our automatic mechanisms for calculating rates. We
expect to incur significant losses in revenue as a direct result of the
following rate reductions:
. The Act. Effective June 26, 2001, the Act mandated a reduction of
(Peso)0.30 per kWh in the basic rate to residential end-users.
. PPA. Effective May 8, 2002, a directive from President Arroyo mandated an
average (Peso)0.85 per kWh reduction in the PPA from (Peso)1.25 to
(Peso)0.40 per kWh. This rate reduction was affirmed by the ERC on
September 6, 2002.
. Unbundled Generation Rates. In connection with our rate unbundling
petition, in June 2002, The ERC ordered us to reduce our basic rates by an
overall average of (Peso)0.07 per kWh by September 26, 2002. On September
6, 2002, the ERC ordered us to disregard their June 2002 ruling and to
reduce generation rates by (Peso)1.10 per kWh in Visayas, (Peso)0.27 in
Luzon and (Peso)0.40 in Mindanao. They also stated in the September 6
order that a ruling on transmission rates would follow. Finally, the
September 6 order has called into question our ability to charge for costs
associated with foreign exchange and fuel costs that we have traditionally
been allowed to recover from our customers. We have filed a motion for
reconsideration and clarification of this order.
Unbundled Rate Petition
The Act mandates that our rates be unbundled between transmission and
generation rates, and that the rates reflect the respective costs of providing
each service. Pursuant to the Act, we filed with the ERC an application for
revised, unbundled rates. Our rate application requested an average overall
rate increase of (Peso)0.17 per kWh. However, in a ruling issued June 26, 2002,
the ERC denied our application, and instead imposed an average overall rate
decrease of (Peso)0.07 per kwh with respect to the combination of generation
and transmission rates. The ERC ordered us and Transco to implement the revised
rates by September 26, 2002.
40
We then filed a motion for reconsideration of our unbundled rate petition
with the ERC. To compute our rate base, which in turn determines our rates, the
ERC relied on a valuation of our assets that was completed in 1996. However,
since 1996, the value of our assets has declined significantly due to the
devaluation of the peso caused by the 1997-1998 Asian financial crisis.
Therefore, it is our view, expressed in the motion for reconsideration, that
the return on rate base calculated by the ERC is significantly higher than our
actual return on rate base. Since our electricity rates are calculated to
provide us revenues sufficient to attain a certain return on rate base, we
believe that ERC's overvaluation of our rate base caused them to erroneously
lower the rates we charge our customers.
In its ruling on unbundled rates issued June 26, 2002, the ERC ordered us to
file an updated application detailing our most recent fuel and purchased power
costs. On September 6, 2002, after we had filed the required update, the ERC
ordered us to ignore the overall rate increase imposed in their June 26 ruling
and to reduce the generation-related portion of our rates by (Peso)1.10 in
Visayas, (Peso)0.27 in Luzon and (Peso)0.40 in Mindanao. We have filed a motion
for reconsideration of this order and do not plan to implement any changes to
our generation rates until our motion has been ruled on. Decisions of the ERC
may be appealed to the Court of Appeals and to the Philippine Supreme Court,
but we have stated publicly that we plan to abide by any final decision made by
the ERC. This ERC order considered only rates related to electricity
generation, and did not order new transmission rates. However, we expect that
the ERC will soon issue a ruling on revised rates related to transmission. This
expected ruling may further reduce overall power rates, which would in turn
further reduce our operating revenues.
On September 20, 2002, ERC Commissioner Leticia Ibay was appointed as acting
ERC chairperson. She replaced Fe Barin, who was appointed to the Monetary Board
after a five-year term at the head of the energy regulatory agency. We cannot
predict what effect the appointment of a new ERC chairperson will have on the
ERC's policies and rulings.
Power Development Programs
2000 Power Development Program
Our 2000 Power Development Program, which was prepared by us in
collaboration with the DOE, outlines our proposals for a coordinated expansion
of generation and transmission facilities to meet forecasted energy demand
through the year 2010. The 2000 Power Development Program sets out detailed
recommendations for the development of new plants, and the expected
interconnection of the Luzon, Visayas and Mindanao Grids in anticipation of the
expected increase in demand for power in the Philippines and the restructuring
and privatization of the power industry.
Our 2000 Power Development Program was intended to serve as a model for
future transmission projects, upon the transfer of our transmission assets to
Transco. However, since our generation assets will be completely privatized by
PSALM, there is no guarantee that our 2000 Power Development Program for
generation projects will be implemented. Also, the transmission aspects of the
2000 Power Development Program will be superseded by the 2002 Transmission
Development Plan (the "2002 TDP") if the 2002 TDP is approved by the DOE and
the Congress. See "-- 2002 Transmission Development Program" below.
The 2000 Power Development Program specifies plans for:
. the commissioning of new hydroelectric, coal and natural gas power plants
between 2001 and 2010;
. the development of indigenous energy resources in order to increase self
sufficiency in energy supply;
. the interconnection of the Small Islands Grid, the development of a
transmission line backbone and the extension of new lines for
reinforcement and local development;
. the strengthening of the existing transmission networks; and
. the expansion of the high voltage transmission network and substation
capacity to increase the system's ability to accommodate the capacity
additions indicated in the 2000 Power Development Program.
41
The 2000 Power Development Program calls for an increase in the system's
capacity (which includes our power plants' capacity and the capacity provided
by independent power producers) from 11,568 MW in 1999 to 19,650 MW in 2010
(after deducting approximately 1,762 MW of system capacity expected to be
retired during the same period). To meet the projected system demand, a total
increase in capacity of 9,844 MW must be commissioned during the period
2000-2010. Approximately one-half of our required increase in capacity will
come from our on-going and committed projects. The restructuring of the power
industry will require independent IPPs and distribution utilities to meet the
remainder of the demand.
Generation Projects in the 2000 Power Development Program
As a part of our system capacity requirement through 2010, we have committed
to undertake the following generation projects.
Committed Generation Projects
Expected
Plant Type Capacity (MW) Commencement Location
----- ---------- ------------- ------------ ---------------------
Kalayaan 3 & 4... Pump Hydro 350 Jan 2003 Laguna, Luzon
San Pascual Cogen Nat. Gas 300 Jan 2005 Batangas, Luzon
San Roque........ Hydro 345 Jan 2005 Pangasinan, Luzon
Mindanao Coal.... Coal 200 Jan 2006 Cag. De Oro, Mindanao
In Luzon, our three committed generation projects are intended to develop
and utilize indigenous energy resources including natural gas for base-load
generation and hydro for mid-range and peaking operations.
Mindanao Coal, our only committed project in Mindanao, is intended to
augment current capacity in this region which is mainly dependent on
hydroelectric generation. In Mindanao, the pending completion of the
Leyte-Mindanao interconnection in 2011 and the 200MW Mindanao coal-fired power
plant scheduled for completion in 2006 will sufficiently address our power
requirements projected for 2007 onwards.
In Visayas, we have not committed to build or contract for additional
capacity. Our near term solution to address peaking requirements includes
upgrading certain inter-connection links to increase the transfer of geothermal
power, a strategic allocation of power barges and/or the transfer of land-based
gas turbines from Luzon.
In Mindanao, the Leyte-Mindanao inter-connection, together with a power
purchase agreement with a coal plant in Mindanao will sufficiently address our
power requirements through 2007.
We expect the overall capacity of our committed generation projects to
generate 2,605 MW, or approximately 27%, of the 9,844 MW programmed system
capacity we need to generate to meet demand through 2010.
In addition, from 2003 to 2005, in Luzon, we will also retire a total of
1,762 MW of oil-based capacity resulting in total net capacity loss of 8,082
MW. In Luzon, this capacity comprises the 75 MW Bataan, 1,200 MW Manila Thermal
1&2, 500 MW Sucat 1&4, and 240 MW gas turbine units in Malaya, Bataan and
Sucat. It is expected that by the end 2002, the 350 MW Sucat Thermal 2&3 will
also be retired, followed by the 310 MW Hopewell GT units in 2009.
In Visayas, the plants slated for retirement include the 22 MW Bohol Diesel
Plant I after full completion of Leyte-Bohol interconnection project in 2003,
the 36.5 MW Panay Diesel I in 2004, and the 4x32-MW Power Barges in 2005.
Among the committed generation projects of the private sector for the period
2000-2010 are plants being developed by IPPs in provincial areas totaling 16.4
MW and Meralco's committed generation projects with a combined capacity of
2,195 MW. The provincial IPPs consist of the 6.4 MW First Cabanatuan Venture
and the 10 MW United Coconut Chemical. Meralco's IPPs include the 130 MW
Duracom II diesel plant, the 460 MW
42
Quezon Coal-fired plant, the 1,040 MW Sta. Rita, the 525 MW San Lorenzo natural
gas fired power plants and the 40 MW Bulacan Biomass Plant. Our contracted
capacities with IPPs that will expire during the period through the end of 2010
will be terminated, but we assume these IPPs will continue operating and
selling electricity to us. Because of the deregulation of the power industry,
certain distribution companies and large industrial companies have resorted to
self-generation and/or have contracted for capacity from IPPs.
The 2000 Power Development Plan indicates the need for an additional 5,028
MW of capacity to be identified and commissioned before 2010 in addition to
ours and Meralco's committed projects. However, because of the current
restructuring of the power industry, we are no longer in a position to build or
contract for additional capacity. We expect IPPs, in cooperation with the
distribution utilities, to provide the additional capacity.
2002 Transmission Development Program
The proposed 2002 TDP prepared by Transco will update and supersede our 2000
Power Development Program with respect to transmission facilities. The 2002 TDP
has been submitted to the DOE for review and, after approval by the DOE, will
be submitted to Congress for approval. It is expected that the 2002 TDP will be
approved before the end of 2002.
To meet future power demand, the 2002 TDP envisions additional capacity of
6,715 MW created by Transco over the next 10 years, and approximately 5,700 MW
of additional capacity to be created by the private sector over the next 10
years. As part of Transco's long-term objectives, the 2002 TDP includes a
continuing effort to interconnect the major grids in the Philippines. Transco
will also be required to provide the necessary transmission facilities in order
to integrate incoming plants into the transmission system.
The 2002 TDP will entail an estimated total investment requirement of
approximately (Peso)109.4 billion, excluding interest during construction. We
estimate that foreign-currency denominated investment will cover approximately
$1.8 billion of the costs, and that local investment will cover approximately
(Peso)20.8 billion, including approximately (Peso)1.4 billion in rehabilitation
projects.
Of the total investment set out in the 2002 TDP, Transco's financial
exposure will total approximately (Peso)88.0 billion out of approximately
(Peso)109.4 billion. Under the 2002 TDP as proposed, generation companies and
IPPs will contribute (Peso)18.1 billion in investment, and electric
cooperatives will cover the remaining (Peso)3.3 billion. To ensure a 10% return
on investment, we estimate that Transco's costs will translate into an average
increase in power rates of (Peso)0.16/kWh in 2006 and (Peso)0.193/kWh in 2012.
We and Transco have concluded that the existing transmission system in
general is congested, and that some parts of the current transmission power
grid do not meet our standard reliability criteria (which are meant to ensure
that a problem with one element of the transmission power system does not
affect power delivery in other parts of the grid). Therefore, the 2002 TDP is
focused on the following objectives:
. accommodate additional generation and higher demand;
. increase power capacity of transmission lines;
. meet our standard reliability criteria; and
. maintain the voltages within the limit prescribed under the grid code.
The required infrastructure projects necessary to achieve these objectives
can be described as either on-going projects (those already under construction
and with a financing source), projects for implementation (those identified as
necessary, but without a funding source at present), and indicative projects
(those identified as necessary from 2007 to 2012, but which require further
study).
43
The following table summarizes projects to construct lines and substation
capacity identified in the 2002 Transmission Development Program.
Projects for
On-going Projects Implementation Indicative Projects
- ------------------- ------------------- -------------------
(2002-2005)/(1)/ (2004-2006)/(1)/ (2007-2012)/(1)/
- ------------------- ------------------- -------------------
Substation Substation Substation
Lines Capacity Lines Capacity Lines Capacity
(ckt-km) (MVA) (ckt-km) (MVA) (ckt-km) (MVA)
Luzon.... 577 1,350 1,533 1,655 2,535 9,550
Visayas.. 660 1,280 1,307 570 407 950
Mindanao. 495 800 2,304 590 1,354 3,875
-------- ---------- -------- ---------- -------- ----------
Total. 1,732 3,430 5,144 3,515 4,296 13,675
======== ========== ======== ========== ======== ==========
- --------
(1) Expected commencement.
On-going Transmission Projects
On-going transmission projects are defined as those which have already
secured funding, and are currently under construction. These projects are
scheduled for commencement between 2002 and 2005.
Luzon. The on-going transmission projects in Luzon involve the construction
of 577 ckt-km of lines and the installation of 1,350 MVA of substation
capacity. The highest-priority projects are intended to deliver power from
incoming generation plants (Ilijan, Casecnan, San Roque, Santa Rita, and San
Lorenzo). On-going transmission projects also include substation expansions
intended to prevent our transformers from overloading from higher demand, and
sub-transmission projects to provide reliable power delivery to electric
cooperatives.
Visayas. In Visayas, on-going transmission projects involve the
construction of 660 ckt-km of lines and the installation of 1,280 MVA of
substation capacity. The major projects in Visayas involve the construction and
reinforcement of interconnections among the Visayas islands. In particular,
Stage II of the Leyte-Bohol interconnection will increase the capacity of the
interconnection from 40 MW to 100 MW, and will also require the expansion of
capacity in the Bohol substation to accommodate the increase in demand. An
interconnection link between Cebu and Mactan will provide an additional 100 MW
to Mactan. Finally, the Leyte-Samar interconnection, which is currently
vulnerable to damage from typhoons, will be reinforced to meet our reliability
criteria. Other on-going projects in Visayas are line upgrades intended to
increase reliability, expansion of substations to meet increasing demand, and
looping of lines to provide a more dependable power supply to electric
cooperatives.
Mindanao. In Mindanao, on-going transmission projects involve the
construction of 495 ckt-km of lines and 800 MVA of substation capacity. Major
projects, aimed to accommodate increased demand, include the reinforcement of
the line from General Santos to Tacurong, and the implementation of the
Sangali-Potogo line. Other on-going projects include a 171 km extension of
lines to connect substations of electric cooperatives, as well as the expansion
and construction of substations to ensure supply reliability and accommodate
increased demand.
Transmission Projects for Implementation
Projects for implementation have been identified as necessary, but have not
yet secured funding. These projects will require the approval of the ERC, as
mandated by the Act. They will also require the approval of NEDA, as part of
the Government's investment program. Transmission projects for implementation
are scheduled for commencement from 2004 to 2006.
Luzon. Projects for implementation in Luzon involve the construction of
1,533 ckt-km of lines and 1,655 MVA of substation capacity. The
highest-priority projects for implementation in Luzon include the upgrading and
reinforcement of existing transmission lines connected to Metro Manila.
44
Visayas. In Visayas, projects for implementation involve the construction
of 1,307 ckt-km of lines and the installation of 570 MVA of substation
capacity. High-priority projects for implementation in Visayas include the
strengthening of the northern, western, and southern Panay backbone to meet our
reliability criteria, the upgrading of the Leyte-Cebu interconnection to
increase transfer capacity from 200 MW to 400 MW, and the construction of an
interconnection to link Cebu and the small island of Bantayan.
Mindanao. Projects for implementation in Mindanao, involve the construction
of 2,304 ckt-km of lines and the installation of 590 MVA of substation
capacity. High-priority projects include the expansion of existing substations,
installation of three new substations, reinforcement of transmission links
between major power plants and substations, reinforcement of the eastern
portion of the Mindanao grid, and extension of the transmission system in
northwestern Mindanao.
Indicative Transmission Projects
Indicative projects are those expected to commence in the latter half of the
program period, from 2007 to 2012. They include lines associated with
generating plants included in the Power Development Plan whose sites have not
yet been identified, as well as reinforcements of the transmission system to
accommodate projected additional generation and higher demand.
Luzon. Indicative projects in Luzon, include the construction of an
estimated 2,535 ckt-km of lines and the installation of 9,550 MVA of substation
capacity and various projects to construct new lines to transmit power from
proposed power plants, projects to expand substations, and upgrade existing
transmission lines.
Visayas. Indicative projects in Visayas, cover the construction of 407
ckt-km of lines and the installation of 950 MVA of substation capacity and new
generation-associated transmission lines, the construction and upgrading of
lines connected to substations of electric cooperatives, and the strengthening
of the backbone of the Bohol grid.
Mindanao. Indicative projects in Mindanao, include the construction of an
estimated 1,354 ckt-km of lines and the installation of 3,875 MVA of substation
capacity. The most important indicative project is the deferred Leyte-Mindanao
Interconnection project. This major link is currently planned for completion in
2011, but will require further economic viability study. Other major projects
include the reinforcement of major transmission lines, the construction of
generation-associated lines, the expansion of substations, and the completion
of a 230 kV backbone in Mindanao.
Major Interconnection Projects
An important goal of the transmission and substation expansion plan is the
completion of a unified Philippine grid to allow effective sharing of reserves.
In a continuing effort towards interconnecting the major grids, we will pursue
the interconnection of the islands of Bohol and Mindanao with the presently
interconnected islands of Luzon, Leyte-Samar, Cebu, Negro and Panay. Existing
interconnection links will also be reinforced to accommodate higher transfer
capacity.
Capital Requirements
Power Development Programs
Substantial capital is necessary to carry out our 2000 Power Development
Program. For the period from 2002 through 2011, our projected capital
expenditures is approximately (Peso)760.9 billion, excluding interest expenses
during construction. These projected expenditures are not expected to be
incurred by us but by the entities purchasing assets in the privatization.
These projects do not include approximately (Peso)32 billion in expenditures
associated with plant maintenance and rehabilitation expected to be incurred by
us through 2005. See "-- Power Development Programs -- 2000 Power Development
Program".
The 2002 Transmission Development Program, covering transmission development
and rehabilitation projects from 2002, calls for an estimated total investment
of (Peso)109.4 billion, excluding interest during
45
construction. Total rehabilitation projects during this period are expected to
total approximately (Peso)1.35 billion. See "-- Power Development Programs --
2002 Transmission Development Program".
Rehabilitation and Maintenance
In addition to daily maintenance, our power plants require regular
overhauling at intervals ranging from one to five years for hydroelectric
plants, to every one or two years for oil-and coal-fired plants. We have
experienced a continual decline in plant operating efficiency over the past
several years primarily as a result of the lack of maintenance and the
continuing use of old plants operating beyond their scheduled working lives.
With the introduction of new plants, we will shut down certain old plants that
we cannot rehabilitate in a cost-effective manner; and we have commenced and
will continue with our rehabilitation efforts and major overhaul of other
plants. In carrying out major rehabilitation work, we either appoint
independent contractors or enter into rehabilitate-operate-lease or
rehabilitate-operate-manage contracts, which effectively transfer the
rehabilitation cost and subsequent operation of the plant to the private
sector. We have budgeted capital expenditures for maintenance and
rehabilitation of (Peso)8.4 billion for 2002, (Peso)15.9 billion in 2003,
(Peso)7.9 billion in 2004 and (Peso)9.1 billion in 2005.
Insurance
We are required under Philippine law to insure our assets with the
Government Service Insurance System ("GSIS"), a state-owned agency. We insure
our assets under an all-risks insurance policy on a cost of replacement basis.
We do not, however, insure transmission lines or dams of hydroelectric plants,
and we are not insured for losses relating to the interruption of our business.
We also carry general liability insurance. Our all-risks insurance policy with
GSIS covers assets worth $6.1 billion. Through a joint bidding process, Heath
Lambert Group was chosen by both us and GSIS as the reinsurance broker to
arrange the placement of 95% of our risks in the international reinsurance
market.
Our current reinsurance policy, originally due to expire on December 31,
2002, was extended through January 31, 2003. Public bidding for the renewal of
the reinsurance policy took place on January 23 and 27, 2003. However, we
declared the bidding a failure after prospective bidders failed to qualify for
the bid. On January 31, 2003 we renewed our current reinsurance policy through
January 31, 2004. The Government has said that it may consider seeking a
negotiated contract for insurance cover of its assets in the future.
In 2001, our expenditures on insurance were (Peso)436 million. We budgeted
(Peso)1.3 billion in insurance expenditures for the calendar year 2002.
Philippine Nuclear Power Plant
In July 1973, the Government decided to build a nuclear power plant in
Bataan, Luzon. When it was eventually completed, the Government, under the
Aquino Administration, decided not to operate the plant. The loss of a
potential 620 MW of additional capacity from the plant contributed to our
failure to generate sufficient power to meet demand in the early 1990s.
In 1987, we agreed to transfer the plant to the Government. However, certain
of our loan agreements restricted our ability to dispose of our assets at that
time and a formal legal transfer of the plant was not completed until 1997. The
Government has assumed all our obligations under the foreign and domestic loans
incurred to finance the construction of the plant. We continue to maintain,
insure and provide security for the plant, and the Government has agreed to
reimburse us for the cost of doing so.
From July 1986 to December 2000, we incurred costs of (Peso)1.2 billion
associated with the plant, of which (Peso)456 million was reimbursed by the
Government as a cash payment prior to 1995. Additionally, (Peso)22.8 million
was received by us from the sale of unused materials in 1997 and 1998 and we
received a total of (Peso)26.0 million
46
in cash subsidies from the Government during the period 1986 through 2000. We
treat the unreimbursed expenses as a receivable from the Government in our
accounts which including interest amounted to (Peso)3.1 billion as of June 30,
2002. We have billed the Government for interest on the outstanding balance,
but the Government has not made any cash reimbursements to us and there can be
no assurance that we will be reimbursed for amounts already paid or to be paid
by us in future. We consider the probability of collecting interest on the
outstanding amounts to be remote. To minimize further expenses on the plant,
strict cost-cutting measures have been implemented. To facilitate recovery of
these costs, we have organized an asset disposal project team that will sell
all of the plants, assets not needed to convert it into a conventional power
plant.
Environmental Protection
We are committed to reducing emissions and discharges from our plants and
work closely with the Department of the Environment and Natural Resources to
implement pollution control at our plants. The emissions from our plants have
remained within authorized limits to date, pending full implementation of the
Philippine Clean Air Act of 1999, and we have not been involved in any major
environmental incident. Under our 2000 Power Development Program, we are
committed to:
. optimize the use of indigenous and environmentally friendly energy
resources which produce less harmful by-products;
. encourage energy conservation; and
. implement reforestation programs around our plants and the watersheds we
maintain for hydroelectric and geothermal plants to preserve the natural
environment.
With the availability of electricity from new power plants, we are retiring
several of our older oil-fired plants pursuant to our Power Development
Program. Two of the plants to be retired are in the Metro Manila area where the
Department of the Environment and Natural Resources is implementing more
stringent emission standards. Due to the age of these plants, compliance with
the new emission standards is not economically feasible.
The Department of the Environment and Natural Resources requires us and our
contractors to obtain an Environmental Compliance Certificate before embarking
on any power project in the Philippines and to set aside an environmental
guarantee fund for such projects. We have set aside an environmental guarantee
fund of (Peso)50 million for our power plants and facilities.
The Philippine Clean Air Act of 1999 provides for a comprehensive air
pollution control policy. We are formulating the necessary compliance strategy
for our power plants to address the requirements of the legislation. We do not
expect compliance with this legislation to have a material effect on our
financial statements or results of operations or to lead to an increase in
power rates in the Philippines.
Research and Development
Prior to 1997, we funded our own research and development efforts, which
focused primarily on the development of new sources of energy, combustion
technologies, the use of alternative fuels and processes to recycle waste
products. In 1997, the DOE assumed all our research and development functions.
Litigation
We have summarized below the most significant legal proceedings in which we
are involved.
Philippine Geothermal -- Service Contract Renewal
In 1971, we entered into a service contract with Philippine Geothermal, a
subsidiary of Unocal Corporation, for the exploitation of geothermal resources
in Tiwi and Makban. The contract had a term of 25 years and was renewable for
another 25 years at Philippine Geothermal's option. Before the contract expired
in 1996, Philippine Geothermal informed us of its intention to renew the
contract. We were, however, concerned that the contract's renewal might not be
valid under the 1987 Philippine Constitution, which provides that only the
President of the
47
Philippines may enter into agreements with foreign-owned corporations involving
financial or technical assistance for large-scale projects for exploration,
development and utilization of minerals, petroleum and other mineral oils.
In July 1996, Philippine Geothermal filed for arbitration with the
International Chamber of Commerce, or ICC, against us and the Government.
Philippine Geothermal sought (1) a declaration that it had validly exercised
its right to renew the contract and (2) damages for alleged wrongful
termination of the contract. We objected to the arbitration on grounds, among
others, that the arbitration provision in the contract did not cover the
dispute and that the constitutional issues implicated by the dispute were
beyond the scope of the arbitration provision. The International Court of
Arbitration of the ICC ruled that arbitration should proceed in Singapore
before a three member arbitral tribunal. Both we and Philippine Geothermal
filed various submissions with the arbitral tribunal. The tribunal decided to
bifurcate the proceedings: it would first decide on whether it had jurisdiction
over the case before proceeding to decide on the substantive issues in the case.
In August 1996, we petitioned the Regional Trial Court of Quezon City for
declaratory relief and, in December 1996, the Regional Court issued an order
stating that the dispute should be resolved before a Philippine court rather
than an ICC tribunal. Philippine Geothermal subsequently filed an appeal with
the Philippine Court of Appeals to reverse the Regional Court's decision. The
matter was pending before the Court of Appeals when we entered into an interim
agreement with Philippine Geothermal. The interim agreement provided for
Philippine Geothermal to continue operations in Tiwi and Makban in accordance
with the terms of the expired contract pending resolution of the dispute. In
November 1997, the ICC arbitral tribunal issued an interlocutory order that
required the parties to continue implementing the interim agreement until the
dispute was settled.
Prior to January 2001, our case before the ICC was dismissed without
prejudice and a joint motion to suspend the proceedings was filed by the
parties in the Supreme Court. However, Philippine Geothermal currently plans to
revive the arbitration case and is demanding payment for damages of US$600
million. Depositions of Philippine Geothermal's witnesses were taken in
November 2001 in Los Angeles, California. On November 20, 2002, Philippine
Geothermal announced that they had reached an agreement with PSALM on the terms
of a settlement. We and Philippine Geothermal are currently in the process of
finalizing the agreements required for the approval by various government
bodies.
Claims by Electricity Distribution Cooperatives
Certain electricity distribution cooperatives in the Philippines commenced
legal action against us in 1984. They comprised the Ilocos Norte Electric
Company, some members of the Federation of Electric Cooperatives of the
Philippines and the Agusan del Norte Electric Company. They alleged that, in
breach of our Charter, we calculated power rates such that increases in fuel
prices and interest on foreign loans were wrongfully passed on to them. They
claimed reimbursement for overpayments by them for power supplied in 1984.
These cases are pending a decision from the ERC. The electricity cooperatives
have not petitioned for a specific amount, but they have introduced evidence to
allege a claim for (Peso)6.0 billion representing overpayments as of 1990.
Other Proceedings
We are also involved in other legal or administrative proceedings of a
nature considered typical of our business, including litigation related to
rates charged to customers, expropriation of properties and rights-of-way for
our generation and transmission projects, and contractual claims. In addition,
the Presidential Anti-Graft Commission in the Philippines is in the process of
investigating NPC President Roland Quilala, Transco President Asisclo Gonzaga,
NPC Corporate Secretary Alberto Pangcog and regional project manager Marcelino
Abesamis in connection with charges of corruption involving a contract between
NPC and an independent power producer. Because of the nature of these
proceedings, we are not able to predict the ultimate outcomes of these
proceedings, some of which may be unfavorable to us. However, we do not expect
the outcome of these proceedings, either individually or in the aggregate, to
have a material adverse effect on our financial position or results of
operations.
48
Debt
Domestic Debt
Our domestic debt consists solely of borrowings under short-term credit
facilities with maturities of one year or less. As of June 30, 2002, we had
outstanding domestic short-term debt of (Peso)4.1 billion.
External Debt
The following table sets out our principal repayment schedule for external
funded debt as of March 31, 2002.
External Funded Debt/(1)/
US Japanese Other
Year of Maturity Dollars Yen/ (2)/ Currencies /(2)/ Total
---------------- -------- -------- --------------- --------
(in $ million)
2002.............. 289.1 196.3 23.9 509.3
2003-2006......... 823.8 639.0 514.2 1,977.0
2007.............. 166.8 122.2 11.8 300.8
2008-2012......... 1,342.3 841.7 39.9 2,223.9
2013-2017......... 616.8 371.6 39.7 1,028.1
Thereafter........ 356.0 163.5 61.5 581.0
-------- -------- ------ --------
Total.......... $3,594.8 $2,334.3 $691.0 $6,620.1/(3)/
======== ======== ====== ========
% of External Debt 54.3 35.3 10.4 100
======== ======== ====== ========
- --------
(1) Excluding our capital lease obligations, which as of December 31, 2001,
were (Peso)30.4 billion (current portion) and (Peso)505.0 billion (long
term portion).
(2) We have converted amounts payable in currencies other than the US dollar to
US dollars using the Bangko Sentral reference exchange rates as of March
27, 2002. The exchange rates used include the following: (Peso)51.14800 =
$1.00, $0.007519 = 100 Japanese Yen, $0.448454 = 1 Deutsche Mark, $0.599700
= 1 Swiss Franc, $0.877100 = 1 Euro, $0.133713 = 1 French Franc, $1.427100
= 1 Pound Sterling, $77.323700 = Kuwaiti Dinar, and $0.000758 = 100 Korean
Won.
(3) From April 1, 2002 to January 13, 2003, we incurred additional external
funded debt equivalent to approximately $1,050 million.
We currently do not hedge foreign exchange exposures in our business or
financing operations. As of March 31, 2002, approximately 54% of our external
debt was denominated in US dollars and approximately 35% was denominated in
Japanese yen. At such date, we had approximately $6.6 billion in committed
facilities from foreign lenders, of which approximately $6.0 billion was
outstanding. Substantially all of our foreign debt is guaranteed by the
Government as to the payment of interest or principal or both.
We believe that we have a good relationship with our principal lenders,
namely the World Bank and the Asian Development Bank. As of March 31, 2002, we
had approximately $926.2 million in loan commitments from the World Bank, of
which approximately $556.5 million was outstanding, and we had approximately
$1.4 billion in loan commitments from the Asian Development Bank, of which
approximately $765.0 million was outstanding.
Return on Rate Base Covenants
We are required under loan agreements with lenders such as the World Bank,
Asian Development Bank, Kreditanstalt fur Wiederaufbau ("KFW") and the
Export-Import Bank of Japan (now called the Japan Bank of International
Cooperation ("JBIC")) to achieve a minimum return on rate base of either 7% or
8% in our operating results. The return on rate base, according to the "Lender
Formula" as set out in our agreements with these lenders, is calculated as our
net operating income divided by the average current net value of fixed assets
in operation at the beginning and end of the relevant period.
In addition, we calculate our return on rate base according to the "Charter
Formula" as set out in our current charter, which is the formula used to
determine compliance with the Electric Power Crisis Act of 1993. The
49
difference between the Lender Formula and Charter Formula is that the rate base
under the Charter Formula includes two months of the average monthly working
capital for each year. Inclusion of such working capital is not required under
the Lender Formula. There are slight variations in computing the Lender Formula
under our various loan agreements. For example, the World Bank and the Asian
Development Bank have agreed that we may exclude from the rate base the plant
assets acquired through build-operate-transfer contracts and under capital
lease arrangements. This adjustment effectively increases the calculated return
on rate base. No such agreement is in place with respect to other lenders.
Our return on rate base in 2001 was 2.89% under the Lender Formula and 2.74%
under the Charter Formula. This compares to our return on rate base for the
first six months of 2002 of negative 0.28% under the Lender Formula and
negative 0.27% under the Charter Formula. The permitted level of our power
rates is a key factor in enabling us to meet our minimum return on rate base
under the Lender Formula. Conversely, in setting power rates we must ensure
that our return on rate base under the Charter Formula does not exceed the
maximum permissible return of 12% stipulated under the Electric Power Crisis
Act.
We satisfied the minimum return on rate base requirement in 1983, 1984,
1985, 1994 and 1996. Accordingly, we were in breach of the return on rate base
covenants contained in certain loan agreements in 1986 through 1993, 1995 and
1997 onwards. We have obtained waivers or amendments to loan agreements with
respect to such breaches from some of our lenders. Certain other lenders, who
have not provided us with waivers or amendments to such loan agreements, have
continued to provide us with financing notwithstanding our defaults. We expect
our return on rate base to continue to be below the 7% or 8% level required by
the terms of many of our outstanding foreign loans for the foreseeable future.
This will result in continued return on rate base covenant defaults under a
number of our foreign loans. As a result of such defaults, we intend to
continue to request waivers of these defaults from the relevant lenders. We
obtained waivers from all of our lenders with respect to the return on rate
base covenant default for 1997, 1998, 1999 and 2000. With respect to our return
on rate base covenant covenant defaults in 2001, we have received a waiver from
the Asian Development Bank. Also, effective in 2000 we agreed with the World
Bank to delete the return on rate base covenant from our loan agreements with
them. On May 6, 2002, we received a waiver from the Asian Development Bank with
respect to our return on rate base covenant in all relevant agreements with
them. We have not received waivers from JBIC or KFW for our return on rate base
covenant defaults in 2001. While we have been able to obtain waivers from our
lenders in the past, there can be no assurance that our lenders will grant such
waivers in the future.
Debt Service Covenants
We face significant cash requirements to fund debt repayments. As of March
31, 2002, our total external debt amounted to $6.6 billion, and such
liabilities are expected to continue to grow as a result of our substantial
borrowing program. We estimate that debt service cost for these loans will
amount to (Peso)48.7 billion in 2002. We paid (Peso)30.6 billion in debt
service costs in 1999, (Peso)47.4 billion in 2000 and (Peso)41.3 billion in
2001.
The peso's depreciation over the past several years has resulted in a
substantial increase in our outstanding debt as reported in our financial
statements and has increased our debt service costs. A number of our loan
agreements contain provisions that prohibit us from incurring additional debt
unless a reasonable forecast of our revenues and expenses shows that estimated
revenues, during the term of the debt, will be at least 1.3 times the debt
services requirements. Similarly, other loan agreements require us to maintain
internal cash generation of at least 1.3 times the debt service requirements.
In 2000 and 2001, we did not satisfy the minimum debt service covenants in
our loan agreements with the Asian Development Bank, the World Bank, KFW and
JBIC. On January 23, 2002, we submitted written letters requesting a waiver of
the covenant to the Asian Development Bank and the World Bank. On May 6, 2002,
we received a waiver from the Asian Development Bank in which they agreed to
waive our debt service covenants from our existing loan agreements upon the
granting of the concession contract to an experienced private operator who will
finance, operate, expand, maintain and manage the transmission facilities that
we will transfer to Transco upon completion of the privatization of our
transmission facilities. We are required to meet a 1.0%
50
debt service coverage ratio until granting of the concession. With respect to
JBIC, we submitted a letter on May 2, 2002 requesting a waiver of covenants
that will allow us to incur additional indebtedness in 2002. We have yet to
receive a response to this request or the request from the World Bank. We have
not requested and have not received waivers for our 2001 debt service covenant
violations with KFW. Because we have not received waivers of our debt service
covenants from all of our lenders we are technically restricted from incurring
additional debt under those agreements. Thus, our 2002 debt issuances,
including the debt being offered hereby, will violate such agreements.
Restrictions on Transfer Covenants
Pursuant to our privatization, we are transferring to PSALM, to the extent
possible, all of our assets and our debt obligations under approximately 140
loan agreements and ten bond issues. The documentation relating to these loan
agreements and bonds (together, the "Documents") contains a number of
provisions that restrict the privatization. These can be broadly categorized as
(i) provisions restricting the assignment/transfer of our debt obligations
under the relevant Documents to PSALM, (ii) covenants restricting our ability
to transfer our generation and transmission assets to PSALM, and therefore also
restricting PSALM's ability to sell such assets to private investors and (iii)
project specific covenants relating to the construction and operation of
particular projects, which the relevant creditors have funded. As a result, we
will need consents from our lenders to either waive any defaults or amend these
provisions in the Documents to allow for the transfer of our assets and
liabilities to PSALM. We are currently in the process of obtaining each of the
consents necessary to allow us to transfer our assets and liabilities to PSALM.
However, we do not know when this process will be completed. On December 13,
2002, PSALM announced that our commercial lenders, which together account for
approximately 20% of our debt, had approved the transfer of debt to PSALM. Our
other lenders have yet to consent to the transfer of our debt to PSALM.
The consents will have to be obtained from approximately 36 creditors,
comprising bondholders, commercial banks and bilateral and multilateral
agencies. A large portion of our debt obligations are bilateral loans requiring
the consent of only one creditor. In general, our syndicated facilities require
the consent of banks holding 66 2/3% of the outstanding loans. At least two
bonds require the consent of bondholders holding at least 50% of the total
bonds outstanding in that issue. In addition, we will be conducting the
exchange offer described in this prospectus. See ''The Exchange Offer".
Other Covenants
Certain of our older loan agreements with the World Bank contain covenants
which required us to form an entity to hold our transmission facilities by
March 1997 and to submit a proposal to the Energy Regulatory Board to implement
various tariff reforms by October 1996. We did not comply with these covenants,
and there can be no assurance that the World Bank will not take action to
enforce its rights with respect to this non-compliance.
In addition, in connection with the issue of bonds by the Government in 1992
as part of its and our debt restructuring program, we made certain cash
advances to the Bureau of the Treasury that may give rise to potential claims
of breach of covenant that restrict our ability to secure debt. We obtained
waivers for those cash advances from some, but not all, of the banks that are
parties to the relevant agreements.
Possible Consequences of Breach of Debt Service Covenants
A number of our loan agreements and other debt instruments contain
provisions that allow lenders to declare a default because of our covenant
violations and accelerated repayment of indebtedness under those agreements or
instruments. In addition, a number of our loan agreements contain cross-default
provisions which provide the lenders the right to demand repayment of their
loans if we are in default under other loan agreements. To date, we have not
experienced any demand for early repayment as a result of acceleration of any
of our loans or withholding of further advances as a result of any of the
defaults or potential defaults described above.
To the extent that any lender declared a default because of our covenant
violations and accelerated repayment of indebtedness, we may not be able to
meet such repayment obligations. The consequences of us not
51
meeting a repayment obligation in this situation would most likely lead to
cross defaults under our other outstanding debt obligations and calls for the
Government to satisfy its guarantee obligations on such indebtedness.
Debt Record
We have not defaulted on the payment of principal or interest on any of our
external debt within the past 20 years.
Payment Obligations to the Government
Dividend Payments
Our current charter requires us to use our profits to fund our capital
expenditures, subject to the Philippine law requirement that 50% of all annual
profits earned by Government corporations be paid to the Government as a
dividend in the form of cash or stock. Prior to 1995, we declared all such
dividends in stock and used the cash generated from net income to fund our
capital expenditures. From 1995 through 1997, the Government required us to pay
a portion or all of such dividends in cash. In 1997, we agreed with the
Government that we would pay cash dividends with respect to net income for 1995
and 1996 aggregating (Peso)945 million, representing approximately 10% of net
income for each of those years. In addition, we made an advance payment of
(Peso)1.5 billion, representing 50% of our estimated net income for 1997. We
had a cash deficit and suffered a net loss from 1998 to 2001, and did not pay
any cash dividend to the Government for those years. We do not expect to pay
any dividend in 2002 or in any subsequent year until our financial performance
improves.
Guarantee Fees
As with other Government corporations, we are required to pay a fee to the
Government for its guarantee of our loans and other borrowings. This fee is
currently set at 1.0% per year on the amount of outstanding loans or
borrowings. As of March 31, 2002 we owed the Government guarantee fees
amounting to (Peso)3.9 billion.
Tax Status
General
Subject to the ruling of the Bureau of Internal Revenue ("BIR") dated May
13, 2002 (see "-- Taxes Related to Our Privatization") we are exempt from
Philippine income tax pursuant to our current charter. However, we pay certain
other taxes and duties, including taxes and duties on imports funded by cash
generated from our operations and by commercial bank loans, as well as on
interest income and imports of coal and oil. In addition, we are subject to
local government taxes.
Taxes Related to Our Privatization
We requested a ruling from the Bureau of Internal Revenue with respect to
the tax implications of our privatization. The BIR ruling affirmed that we
would not be taxed on the transfer of our assets or liabilities to PSALM and
Transco. On May 13, 2002, the BIR ruled that:
. PSALM is not liable for income tax or value-added tax on the sale of its
generation assets; however, the sale of real property by PSALM is subject
to documentary stamp tax;
. the tax consequences of the proceeds and concession fees to be received by
Transco from the award of the concession to a qualified concessionaire (or
concessionaires) will depend on the specific terms and conditions of the
concession contract;
. the Universal Charge collected by either the distribution utilities or
PSALM will not form part of their taxable income; and
. interest arising from our loans transferred to PSALM is exempt from income
tax.
52
Taxes and Duties on Local Petroleum Product Purchases
Prices of petroleum products paid by us to local petroleum products
suppliers include taxes and custom duties. However, we may claim refunds for
such taxes and custom duties by filing a claim with supporting documentation to
the Bureau of Internal Revenue or the Bureau of Customs. If these revenue
agencies validate our refund claims, they will issue refunds to us in the form
of tax credit certificates. We may use these certificates to settle our taxes
and other payables to the Government such as import duties, Government advances
or loan guarantee fees. Since 1992, the Government has not paid a substantial
portion of the tax refunds owing to us or permitted us to use a substantial
amount of tax credit certificates. As of March 31, 2002, we had approximately
(Peso)3.4 billion of unpaid tax and duty refund claims and (Peso)755 million of
unutilized tax credit certificates.
Management and Employees
Pursuant to the Electric Power Crisis Act of 1993, we were reorganized into
five regional profit centers allowing for greater control and monitoring of
regional operations and greater productivity. The regions correspond to the
major geographical regions in which we operate, namely Luzon (which is itself
broken down into Metro Manila, Northern Luzon and Southern Luzon), Visayas and
Mindanao. Our reorganization was completed in 1994 and there have been no
changes to our organization since the completion of our reorganization in 1994.
In addition, we developed a scheme whereby employees of the regional profit
centers would be entitled to bonuses based upon the performance of the center
over a one-year period.
In February 2003, Roland S. Quilala, was replaced by Rogelio M. Murga as
President and Chief Executive Officer. The new appointment will take effect on
February 1, 2003.
Board of Directors
As of February 14, 2003, our Board members are as follows:
Name Position
- ---- ----------------------------------------------------
Jose Isidro N. Camacho.... Chairman, Secretary of the Department of Finance
Vincent S. Perez.......... Vice-Chairman, Secretary of the Department of Energy
Rogelio M. Murga.......... Member, President and CEO of NPC
Emilia T. Boncodin........ Member, Secretary of the Department of Budget and
Management
Luis P. Lorenzo........... Member, Secretary of the Department of Agriculture
Elisea G. Gozun........... Member, Secretary of the Department of Environment
and Natural Resources
Romulo L. Neri............ Member, Director General of the National Economic
and Development Authority
Jose D. Lina.............. Member, Secretary of the Department of Interior and
Local Government
Manuel A. Roxas........... Member, Secretary of the Department of Trade and
Industry
Victor Gandencio C. Garcia Corporate Secretary
The business address of each member is Quezon Avenue, corner of Agham Road,
East Triangle, Diliman, Quezon City, Metro Manila, Philippines.
53
Management Committee
As of February 14, 2003, our management committee is as follows:
Name Position
- ---- ------------------------------------------------------
Atty. Victor Gandencio C. Garcia Corporate Secretary (Department Manager)
Josefina C. Montero............. Department Manager, Accounts Division
Juan Carlos J. Guadnrrama....... Vice President, Logistics
Pio J. Benavidez................ Senior Vice President, Generations and Watershed, Dams
and Flood Forecasting Management
Melburgo S. Chlu................ Vice President, Hydro Generation
Reynaldo J. Santiago............ Vice President, Geothermal Generation
Dr. Eduardo R. Eroy............. Vice President, Thermal Generation
Dr. Pasayud M. Macarambon....... Vice President, Mindanao Generation
Silvano C. Zanoria.............. Senior Vice President, Missionary Electrification and
Technical and Maintenance Services
Lorenzo S. Marcclo.............. Vice President, Small Power Utilities Group
Danilo S. Sedilla............... Vice President, Technical and Maintenance Services
Roland S. Quilala............... Senior Vice President, Corporate Services
Froilan A. Tampinio............. Vice President, Sales and Services
Edmund P. Anguion............... Vice President, Finance, Human Resources and
Administration
Atty. Rainier B. Butalid........ Vice President, Office of the General Counsel
Oscar C. Lorico................. Head, IPP Contracts Management
Employees
We had a total of 8,567 regular employees as of June 30, 2002. We have three
employee associations: a union of rank-and-file employees, an association of
supervisors, and an association of executives. Although membership is
voluntary, almost all our employees belong to one of the associations. We have
never experienced a serious dispute with any employee association.
The privatization of the industry will affect all of our employees. On
November 18, 2002, our Board of Directors passed a restructuring plan that is
expected to reduce our workforce by approximately 40% in early 2003. In
December 2002, a group of our employees announced that they would seek an
injunction from the Supreme Court to stop the implementation of the
restructuring plan, which the group alleges was approved in violation of
procedural provisions of the Act. We have announced plans to terminate workers
in line with our restructuring plan on February 28, 2003, despite such efforts
to seek an injunction.
As a result of our privatization, we have agreed to provide our employees
with a separation package. Under the separation agreement, in addition to
receiving a separation package, each employee will be entitled to 1.5 months of
salary for every year of service with us. We expect the total cost of
separation pay to be approximately (Peso)13 billion, all of which will be paid
by us. It is expected that we will make this payment to all of our employees
upon the privatization of Transco. The separation agreement also provides that
each employee, depending on their expertise, will be transferred to one of the
privatized companies under a short-term employment contract. Upon the
expiration of their short-term contract, each employee will have the
opportunity to re-negotiate their terms of employment with their private sector
employer.
54
ELECTRIC POWER INDUSTRY RESTRUCTURING AND PRIVATIZATION
Electric Power Industry Reform Act of 2001
Overview
The Government has a general policy to privatize Government corporations and
established the Committee on Privatization to implement its privatization
program. The Government plans to restructure and privatize the Philippine power
industry with a view to achieving three primary objectives:
. the transfer of the power sector from public to private ownership;
. introduction of competition to the power generation and transmission
sector; and
. introduction of a stable regulatory framework for the electric power
industry.
Republic Act 9136 was signed into law by President Gloria Macapagal-Arroyo
on June 8, 2001 and became effective on June 26, 2001. Officially named the
Electric Power Industry Reform Act of 2001 (the "Act"), it was the first major
legislation to be passed under the Arroyo administration. Its stated purposes
are:
. to ensure and accelerate the total electrification of the country;
. to ensure quality, reliability, security and affordability of the supply
of electric power;
. to ensure transparent and reasonable prices of electricity in a regime of
free and fair competition and full public accountability to achieve
greater operational and economic efficiency and enhance the
competitiveness of Philippine products in the global market;
. to enhance the inflow of private capital and broaden the ownership base of
the power generation, transmission and distribution sectors;
. to ensure fair and non-discriminatory treatment of public and private
sector entities in the process of restructuring the electric power
industry;
. to protect the public interest against unreasonable increases in the rates
and unreliable services by electric utilities and other providers of
electric power;
. to assure environmentally safe energy sources and infrastructure;
. to promote the utilization of indigenous and new and renewable energy
resources in power generation in order to reduce dependence on imported
energy;
. to provide for an orderly and transparent privatization of our assets and
liabilities;
. to establish a strong and purely independent regulatory body and system to
ensure consumer protection and enhance competitiveness in the electricity
market; and
. to encourage the efficient use of energy to meet electricity demand.
The passage of the Act along with the satisfaction of additional conditions
precedent, will facilitate the release of up to an additional $950 million in
loans from multilateral agencies. Approximately $550 million of these loans is
expected to be used for various interconnection projects, while the remaining
$400 million is expected to be used by us and by the Government for its
budgetary purposes.
Implementing Rules and Regulations
The IRRs were promulgated under the authority of the DOE to formulate, in
consultation with relevant government agencies, electric power industry
participants, non-government organizations, end-users and consumers, such rules
and regulations as may be necessary to implement the objectives of the Act and
pursuant to the exercise of such other powers as may be necessary or incidental
to attain the objectives of the Act. The IRRs govern the relations and
responsibilities of the electric power industry participants and governmental
authorities, including the DOE, NPC, NEA, ERC and PSALM. On February 27, 2002,
the Joint Power
55
Commission approved and signed the IRRs. The IRRs set out, among other things,
the responsibilities of each government entity involved in implementing the
structural reforms for the power industry in the Republic.
Pursuant to the IRRs, the DOE is assigned the task of supervising the entire
power industry restructuring process. Under the IRRs, the DOE must prepare and
update the Philippine Energy Plan ("PEP") and the Philippine Power Development
Program ("PDP"). The PEP must include a policy direction towards privatization
of government agencies related to energy, and must include the implementation
of the Act. The PDP must be developed and integrated with the PEP, and must
consider and integrate plans for the transmission, generation and distribution
sectors of the electric power industry. The DOE must also integrate the
transmission development plan, prepared by Transco, with the PEP and the PDP.
The ERC has the responsibility to promote competition, encourage market
development, ensure customer choice, and penalize abuse of market power in the
electric power industry. The ERC will set transmission and distribution
wheeling charges and retail electricity rates, including the Universal Charge
to be imposed on all electricity end-users, subject to certain exceptions which
we do not expect to be material to us. The IRRs also require the ERC to perform
all other regulatory functions necessary to ensure the successful restructuring
and modernization of the electric power industry. In particular, the ERC must
implement rules and guidelines requiring generation companies and distribution
utilities to offer no less than 15% of their common shares to the public before
the end of 2006.
The IRRs also include, in pertinent part:
. an exemption for four years from the Universal Charge for households,
hospitals and other medical facilities that have their own power
generating facilities;
. the elimination of value-added tax on the sale of electricity; and
. the reaffirmation that our power supply contracts with distribution
utilities and electric cooperatives will be respected.
Proposed Amendments to the Act
On May 21, 2002, a bill to amend various provisions of the Act was
introduced in the Senate by members of the majority party, which supports the
Arroyo administration. This bill, if passed, would, among other things:
. grant the power of eminent domain to the buyer or concessionaire of our
transmission business;
. clarify that the Universal Charge would not be imposed on electricity
output produced by a self-generation facility owned and operated by an
end-user solely for its own consumption;
. exempt certain of our customers from imposition of the PPA, and create a
ceiling of (Peso)0.42 per kWh on the Universal Charge;
. clarify that we, PSALM, Transco and any other entity created to privatize
NPC's assets, will not be subject to national taxes, charges, fees and
other assessments arising from the privatization of such assets (see
"National Power Corporation -- Payment Obligations to the Government --
Tax Status -- Taxes Related to Our Privatization");
. extend the life of PSALM from twenty-five years to thirty-five years; and
. clarify that the Republic may guarantee the payment of obligations assumed
by PSALM from us and that such guarantee should not count against the
maximum amount that the Government is authorized to guarantee under
existing laws.
The majority party's bill to amend the Act is currently pending in Congress.
The minority party in the Senate has also introduced legislation which
differs in significant respects from the majority party's bill, including
provisions which would reduce, and in some cases eliminate, the Universal
Charge. Although we expect an amendment to the Act to be passed at some time in
the future, we cannot predict the final form of the amendment, nor can we
predict its effects on the privatization or our results of operations.
56
Legal Challenges to the Act
A group of non-governmental organizations filed a petition with the
Philippine Supreme Court questioning the constitutionality of certain
provisions of the proposed Act even before the Act became law. After the Act's
enactment, these organizations filed a motion to amend their petition, but
their motion was not acted on by the Philippine Supreme Court.
We are also subject to a class action lawsuit, led by a former Senator,
which challenges the constitutionality of certain provisions of the Act.
Specifically, the plaintiffs are seeking nullification of Section 34 of the
Act, which gives us the power to impose the Universal Charge. We believe this
lawsuit is without merit and will be dismissed.
Restructuring of the Electric Power Industry
Our reorganization will occur through a restructuring of the electric power
industry, including the creation of a new regulatory framework, the setting up
of certain transition mechanisms to minimize economic dislocation and the
establishment of various open market devices to promote free and fair
competition. For a discussion of the transition mechanisms, see "-- Open Market
Devices".
The following chart shows the existing structure of the electric power
industry.
Existing Industry Structure
[FLOW CHART]
Our Plants Independent
Power Plants
Transmission System (Operated by Us)
Distributors
Large Users Consumers
57
The Act divides the electric power industry into four sectors including
generation, transmission, supply and distribution. The generation and supply
sectors will be competitive while the transmission and distribution sectors
will remain regulated. The following diagram shows the new structure of the
electric power industry as required under the Act.
Proposed Industry Structure
[FLOW CHART]
DOE = Department of Energy
DUs = Distribution Utilities
ECs = Electricity Cooperatives
ERC = Energy Regulatory Commission
GENCOs = Any entity authorized by the ERC to operate facilities to
generate electricity
JCPC = Joint Congressional Power Commission
NEA = National Electrification Administration
NPC = National Power Corporation
PUs = Production Utilities
SPUG = Small Power Utilities Group
Transco = National Transmission Corporation
WESM = Wholesale Electricity Spot Market
58
Organization and Operation of the Power Industry
Overview
The Act provides a framework for the organization and operation of the
electric power industry. It mandates that the industry be divided into four
sectors, and provides rules for each sector. These four sectors are:
. Generation. The Act states that power generation is not to be considered
a public utility operation. Thus, generation companies are not required to
secure a national franchise, and there are no restrictions on the ability
of non-Filipinos to own and operate generation facilities. These companies
must, however, obtain a certificate of compliance from the ERC, and they
will be subject to the ERC's rules and regulations on abuse of market
power and anti-competitive behavior. Once open access rules are
promulgated, retail prices charged by generation companies will be
determined by competition and the prices charged by generation companies
for the supply of electricity will not, as a general rule, be subject to
regulation by the ERC.
. Transmission. Our privatization will involve the transfer of our
electricity transmission function to Transco. See "Power Sector Assets and
Liabilities Management Corporation -- Privatization Mechanisms -- Transfer
of Our Transmission Assets to Transco" for a discussion of the timing and
mode of transfer of our transmission assets to Transco.
Transco will act as the operator of the nationwide electrical transmission
and sub-transmission system. Transco's principal function is to ensure and
maintain the reliability, adequacy, security, stability and integrity of
the nationwide electrical grid in accordance with the Philippine Grid
Code. Transco will provide open and non-discriminatory access to its
transmission system, at rates regulated by the ERC, to all electric power
industry participants.
. Distribution. The distribution of electricity to end-users will be a
regulated common carrier business requiring a national franchise from the
Philippine Congress. However, with respect to cooperatives, responsibility
for the approval, renewal and cancellation of their franchises shall
remain with the NEA for five years from enactment of the Act. Distribution
of electric power to all end-users may be undertaken by private
distribution utilities, cooperatives, local government units presently
undertaking this function, and other duly authorized entities, subject to
regulation by the ERC.
Distribution utilities will have the obligation of providing distribution
services for any end-users within its franchise area consistent with the
Philippine Distribution Code. They must provide open and
non-discriminatory access to the distribution system to all end users.
Distribution utilities will be entitled to impose and collect distribution
wheeling charges and connection fees from such end-users as approved by
the ERC.
. Supply. Supply of electricity means the sale of electricity by a party
other than a generator or a distributor using the wires of a distribution
utility. As with electricity generators, suppliers do not have to obtain a
local or national franchise but must secure a license from the ERC and
will be subject to the ERC's rules and regulations regarding abuse of
market power and anti-competitive behavior.
Creation of the New Regulatory Framework
Creation of the ERC
The Act created the ERC, an independent, quasi-judicial regulatory body to
promote competition, encourage market development, ensure customer choice, and
penalize abuse of market power. The ERC is composed of a chairperson and four
members to be appointed by the President.
Among the ERC's key functions are to:
. enforce the IRRs;
. promulgate and enforce a National Grid Code and a Distribution Code which
will include, among others, performance and financial capability standards;
59
. enforce the rules and regulations governing the operations of the
Wholesale Electricity Spot Market (see "-- Open Market Devices --
Wholesale Electricity Spot Market");
. determine the level of cross-subsidies in the existing retail rate until
the cross-subsidies are removed;
. amend or revoke, after due notice and hearing, the authority to operate of
any person which fails to comply with the Act, the IRRs, or any of its
orders or resolutions;
. establish and enforce a methodology for setting transmission and
distribution wheeling rates and retail rates for the captive market of a
distribution utility;
. oversee certain regulatory aspects of Transco's operations;
. set a lifeline rate for marginalized end-users;
. monitor and penalize abuse of market power, cartelization, and
anti-competitive or discriminatory behavior by any electric power industry
participant;
. grant, revoke, review, or modify certificates of public convenience and/or
necessity, licenses or permits of franchised electric utilities;
. act on applications for cost recovery and return on demand-side management
projects; and
. ensure generally the successful restructuring and modernization of the
electric power industry.
On September 20, 2002, ERC Commissioner Leticia Ibay was appointed as acting
ERC chairperson. She replaced Fe Barin, who was appointed to the Monetary Board
after a five-year term at the head of the energy regulatory agency. We cannot
predict what effect the appointment of a new ERC chairperson may have on the
ERC's policies and rulings. See "National Power Corporation -- Power Rates --
Recent Reduction in Basic Rates and the PPA".
Role of the DOE
In addition to its existing powers and functions, the DOE is mandated by the
Act to supervise the restructuring of the electric power industry. Under the
Act, the DOE shall:
. prepare and update annually the PDP, and integrate the program into the
PEP;
. ensure the reliability, quality, and security of supply of electric power;
. encourage private investments in the electricity sector and promote
development of indigenous and renewable energy sources for power
generation;
. facilitate reforms in the structure and operations of distribution
utilities for greater efficiency and lower costs;
. promote incentives to encourage industry participants, including new
generating companies and end-users, to provide adequate and reliable
electric supply;
. undertake (in coordination with us, the ERC, NEA and the Philippine
Information Agency) a campaign to educate the public on the restructuring
of the electricity sector and the privatization of our assets;
. establish the WESM in cooperation with the electric power industry
participants, and formulate rules governing its operations;
. create and facilitate free and active private sector participation and
investment in all energy activities;
. assist in the management of energy research and development programs for
the optimal development of energy production and utilization technologies;
. provide incentives, penalties, and other programs to encourage the
judicious and efficient use of energy;
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. promote development of non-conventional energy systems and the
commercialization of their applications;
. ensure that the regions and localities which host energy resources and
generation facilities directly benefit from their resources and
facilities, to the extent that other regions and localities are not
deprived of their energy requirements; and
. encourage the widest possible public ownership of privately-owned energy
corporations.
Joint Congressional Power Commission
The Joint Power Commission, created under the Act, consists of 14 members
from the Senate and the House of Representatives. Under the Act, the Joint
Power Commission shall:
. monitor and ensure the proper implementation of the Act;
. endorse PSALM's initial privatization plan for approval by the President;
. ensure transparency in public bidding procedures regarding the
privatization of our generation and transmission assets;
. evaluate the adherence of industry participants to the Act's objectives
and timelines;
. determine inherent weaknesses in the law and recommend necessary remedial
legislation or executive measures; and
. perform such other duties and functions as may be necessary to attain its
objectives.
Transition Mechanisms
Missionary Electrification
Notwithstanding the privatization of our assets and IPP contracts, we will
remain a Government owned and controlled corporation responsible for generating
and delivering power in areas that are not connected to the transmission
system. The missionary electrification function will be carried out through the
Small Power Utilities Group ("SPUG"), and will be funded with revenues from
missionary areas and from the Universal Charge.
Conversion of Electric Cooperatives
Electric cooperatives are given the option to convert either into a stock
cooperative under the Cooperatives Development Act or into a stock corporation
under the Corporation Code. PSALM will assume all outstanding financial
obligations of electric cooperatives to NEA and to other Government agencies
incurred for the purpose of financing the rural electrification program.
However, within five years of the assumption of debt, any electric cooperative
which transfers ownership or control of its assets, franchise, or operation
must repay PSALM the debt assumed, including accrued interest.
Universal Charge
The Act states that within one year from its effective date, the ERC shall
calculate and impose a Universal Charge on all electricity end-users. As of
December 1, 2002, the Universal Charge had not yet been imposed pending the
outcome of a lawsuit challenging the constitutionality of the Universal Charge.
See "Electric Power Industry Reform Act of 2001 -- Legal Challenges to the
Act". The Universal Charge is intended to:
. pay for stranded debt in excess of the amount assumed by the Government
and our stranded contract costs as well as qualified stranded contract
costs of distribution utilities resulting from the restructuring of the
industry;
. provide power generation and its associated power delivery systems to
areas that are not connected to the transmission system, also known as
missionary electrification;
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. equalize the taxes and royalties applied to indigenous or renewable
sources of energy with those applied to imported energy fuels, and;
. account for all forms of cross-subsidies (for a period not exceeding three
years).
Under the Act, the Universal Charge shall also include an environmental
charge equivalent to one-fourth of one centavo per kilowatt-hour
((Peso)0.0025/kWh) which shall accrue to an environmental fund to be used
solely for watershed rehabilitation and management. The environmental fund
shall be managed by us under existing arrangements.
Under the Act, the Universal Charge is to be imposed over a period of 15 to
25 years, and the ERC is to annually review the amount of the charge. The
Universal Charge will effectively replace the PPA. However, unlike the PPA, the
Universal Charge will also be levied on end-users of electricity who are
currently not our customers.
Like the PPA, the Universal Charge has come under intense public and
political scrutiny. While the Arroyo administration recently announced that as
a matter of policy the Universal Charge would need to be implemented, there is
still opposition from various members of the legislative branch and from the
public as to any imposition of the Universal Charge. There has also been
legislation introduced by the opposition in the Senate that seeks to reduce the
maximum allowable rate of and in some instances remove, the Universal Charge.
It is unclear in what form the currently proposed legislation will be passed.
See "-- Electric Power Industry Reform Act of 2001 -- Proposed Amendments to
the Act". If the Universal Charge is significantly lower than the amount
necessary to cover the liabilities described above or if it is eliminated,
PSALM will need to rely on funding from other sources to continue operations.
Stranded Costs
Our "stranded costs" consist of stranded debt and stranded contract costs.
Stranded debt refers to our debt obligations that will remain unpaid after the
disposal and transfer of our assets. Stranded contract costs refer to the
differences between the costs of electricity to us under existing supply
contracts and the actual market prices of electricity following our
privatization.
To pay for a portion of our stranded costs, as mandated by the Act, the
Government will directly assume up to (Peso)200 billion of our financial
obligations. We expect that our remaining stranded debt and stranded contract
costs will be recovered from all electricity end-users (with some minor
exceptions) through the Universal Charge.
In particular, stranded contract costs of distribution utilities refer to
the excess of the contracted cost of electricity over the actual selling price
of the contracts in the market. Within a year of implementation of open access
to distribution wires, distribution utilities must file an application with the
ERC to recover their stranded contract costs. The ERC shall then determine the
reasonable amounts to be recovered, as well as the manner and duration of full
recovery of stranded costs. As with our stranded costs, the ERC shall conduct
an annual review of the reasonableness of the level of charges related to the
recovery of stranded costs.
Open Market Devices
The Act establishes the following open market devices to create a regime of
free and fair competition, to ensure full public accountability, and to achieve
greater economic and operational efficiency.
Wholesale Electricity Spot Market
Under the Act, the DOE is required to establish the Wholesale Electricity
Spot Market ("WESM"), which WESM is expected to provide an efficient,
competitive, transparent, and reliable market for the sale and purchase of
electricity in the Philippines. The price of electricity determined under the
WESM will be used to value our assets during the privatization process.
Therefore, implementation of the WESM is an essential prerequisite to our
successful privatization.
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In cooperation with electric power industry participants, the DOE is
required to formulate detailed rules for the WESM within one year of the Act's
effective date. These rules will provide a mechanism to set electricity prices
that are not covered by bilateral contracts between electricity buyers and
sellers. The price determination mechanisms will be subject to ERC approval.
The WESM will be implemented by a "market operator". The market operator
will include the DOE as well as equitable representation from electric power
industry participants. The market operator will initially fall under the
administrative supervision of Transco. Then, no later than one year after the
establishment of the WESM, an independent entity will be formed to take over
the functions, assets, and liabilities of the market operator.
A working group chaired by the DOE recently determined that an interim spot
market, which is intended to test WESM systems and procedures, educate energy
industry participants, and establish bid benchmarks, can be established by
April 2003. In October 2002, the PSALM Board of Directors approved the
provision of financial and project-management assistance to the DOE in
establishing the interim market, and approved the establishment of an
electricity trading and risk management group. PSALM has requested that the
interim WESM and the trading group be financed from a development project fund
from Kreditanstalt fur Wiederaufbau ("KFW"). An endorsement from the Department
of Finance and approval from KFW are both necessary for the KFW funds to be
used for the interim WESM. We currently expect the WESM to begin operations
during the third quarter of 2003 with full implementation by the fourth quarter
of 2003.
Retail Competition and Open Access
Retail competition and open access on distribution wires is expected to be
implemented no later than June 2004, subject to the following conditions:
. establishment of the WESM;
. approval of unbundled transmission and distribution charges;
. removal of cross-subsidies;
. privatization of at least 70% of the total capacity of our generating
assets in Luzon and Visayas; and
. transfer of the management and control of at least 70% of the total energy
output of power plants under contract with us to the IPP Administrators.
See "Power Sector Assets and Liabilities Management Corporation --
Privatization Mechanisms -- Transfer of Our Generation and Other
Disposable Assets to PSALM".
For electric cooperatives, open access shall take place not earlier than
five years from the date the Act became effective.
Unbundling of Rates and Removal of Subsidies
The Act provides that our rates must be unbundled between transmission and
generation rates and that the rates shall reflect the respective costs of
providing each service. Inter-grid and intra-grid subsidies for both the
transmission and generation rates must be removed in accordance with the Act.
Similarly, distribution utilities are required to file revised rates with the
ERC for their approval. The distribution charge will be unbundled from the
retail rate and the rates must reflect the respective costs of providing each
service. For both the distribution retail and supplier's charges, inter-class
subsidies will be removed in accordance with the Act.
In June 2002, the ERC, after reviewing our unbundling petition, denied our
request to revise our basic rates upwards by (Peso)0.17 per kWh and instead
ordered us to reduce our basic rates by (Peso)0.07 per kWh before the end of
September 2002. In its ruling issued in June, 2002, the ERC ordered us to file
an updated application detailing our most recent fuel and purchased power
costs. On September 6, 2002, after we had filed the required update, the ERC
ordered us to ignore the overall rate increase imposed in their June ruling and
to reduce the generation-related portion of our rates by (Peso)1.10 in Visayas,
(Peso)0.27 in Luzon and (Peso)0.40 in Mindanao. We have filed a motion for
reconsideration of this order and do not plan to implement any changes to our
generation rates until our motion has be ruled on. Decisions of the ERC may be
appealed to the Court of Appeals and to the Philippine
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Supreme Court, but we have stated publicly that we plan to abide by any final
decision made by the ERC. This ERC order considered only rates related to
electricity generation and did not order new transmission rates. However, we
expect that the ERC will soon issue a ruling on revised rates related to
transmission. The expected ruling on transmission rates may further reduce
overall power rates, which would in turn further reduce our operating revenues.
See "National Power Corporation -- Power Rates -- Recent Reductions in Basic
Rates and the PPA".
The Act states that cross-subsidies shall be phased out of the Universal
Charge over a period not exceeding three years from the establishment by the
ERC. However, the ERC may extend the period for the removal of cross-subsidies
for a maximum of one year if it determines there will be a material adverse
effect upon the public interest or an irreparable financial adverse effect on a
distribution utility.
The Act also provides for socialized pricing mechanisms to be set by the ERC
for low-income captive market end-users who cannot afford to pay the full cost
of electricity. These users will be exempt from the cross-subsidy phase for a
period of 10 years, unless extended by law.
Reduction of Taxes and Royalties on Indigenous Energy Resources
To equalize prices between imported and indigenous fuels, the Act mandates
that the President reduce the royalties, returns and taxes collected for the
exploitation of all indigenous sources of energy to effect parity of tax
treatment with existing rates for imported fuels. We believe that lower rates
for end-users will result from the ERC reducing the rates of power from all
indigenous sources of energy.
Cross-Ownership, Market Power Abuse and Anti-Competitive Behavior
The Act prohibits cross-ownership between generation companies or
distribution utilities with Transco or its concessionaires. Other safeguards
adopted to promote market competition include:
. No company or related group can own, operate or control more than 30% of
the installed generating capacity of a grid or 25% of the nationally
installed generating capacity.
. For the purpose of preventing market power abuse between associated firms
engaged in generation and distribution, no distribution utility is allowed
to source from bilateral power supply contracts more than 50% of its total
demand from an associated firm engaged in generation. This limitation does
not apply to contracts entered into prior to the effectivity of the Act.
. For the first five years from the establishment of the WESM, no
distribution utility may obtain more than 90% of its total demand from
bilateral power supply contracts.
De-Monopolization and Shareholding Dispersal in Distribution Utilities
The Act provides that, in compliance with the constitutional mandate for
dispersal of ownership and de-monopolization of public utilities, holdings in a
distribution utility and its respective holding companies cannot exceed 25% of
the voting shares of stock unless the utility, the company holding the shares,
or its controlling stockholders are already listed in the Philippine Stock
Exchange. However, those rules on de-monopolization and share dispersal will
not apply to electric cooperatives.
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POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION
Overview
PSALM was formed on June 26, 2001 under Section 49 of the Act. In the
absence of a separate charter, the Act and the IRRs are PSALM's charter. As
such, the continuing existence and status of PSALM is a matter for legislative
action, and PSALM may be dissolved only by an act of Congress. PSALM's
principal executive offices are located at 2nd Floor, SGV II Building, Ayala
Avenue, Makati City, Metro Manila, Republic of the Philippines.
PSALM, which is wholly-owned by the Government, was created to manage the
orderly sale, disposition and privatization of our generation assets,
liabilities, contracts with IPPs, real estate, and other disposable assets.
PSALM's objective is to liquidate all of our financial obligations and stranded
contract costs in an optimal manner. To accomplish this, PSALM has, among
others, the following powers:
. to take title to and possession of our generation assets, and to sell or
dispose of these assets;
. to take title and possession of our IPP contracts, and to appoint
qualified independent entities ("IPP Administrators") to administer,
conserve, and manage contracted energy output;
. to restructure and assume our stranded debt;
. to liquidate our stranded contract costs; and
. to calculate the amount of our stranded debt and stranded contract costs
for use by the ERC in calculating the Universal Charge.
PSALM will be funded through our internal cash generation for calendar years
2002 and 2003 pursuant to the General Appropriations Act. Thereafter, PSALM
will submit its own operating budget to the Department of Budget and Management
for approval. The approved budget will be funded through its revenues,
borrowings and proceeds received from the privatization and disposition of
assets.
Although there is a proposed amendment to the Act which would, among other
things, increase PSALM's term of existence to 35 years, under the current law,
PSALM's corporate existence is for 25 years. It is expected that by the end of
its term of existence PSALM will have sold or privatized all of our generation
assets, liabilities, contracts with IPPs and other disposable assets and will
have liquidated all of our financial obligations and stranded costs. After
PSALM's term of existence ends, any remaining assets and liabilities on PSALM's
balance sheet will be assumed by the Government.
Capitalization and Financial Matters
The capital structure of PSALM is mandated by the Act and will consist of
all of the assets transferred to PSALM from us and from the Government
including PSALM's initial budget of (Peso)87.4 million for 2001 and (Peso)429.1
million and additional contributions for our operating requirements of
(Peso)253,230 million for 2002. These transfers will be treated as equity
contributions from the Government on PSALM's opening balance sheet. Under the
Act, PSALM is also required to assume all of our liabilities, other than
stranded costs. These liabilities will be considered deferred assets to the
extent such liabilities exceed the total assets transferred to PSALM.
The assets of PSALM will comprise the following:
. our generation assets, real estate, IPP contracts, other disposable
assets, proceeds from the sale or disposition of our assets, and any
residual assets;
. transfers from the Government, including the (Peso)200 billion in assumed
liabilities which is expected to be transferred to PSALM annually in seven
annual installments beginning in 2004;
. proceeds from loans incurred to restructure or refinance our transferred
liabilities;
. proceeds from the Universal Charge allocated for our stranded costs;
. revenues from plants which PSALM will continue to own;
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. our net profit;
. net profit from Transco; and
. official assistance, grants and donations from external sources.
The liabilities of PSALM will comprise the following:
. our transferred liabilities;
. our stranded contract costs;
. liabilities transferred from the Government; and
. any newly incurred liabilities.
As Government-owned and -controlled corporations, we and PSALM are required
to adopt Philippine GAAS as implemented by COA, the official auditor for the
Government and all state-owned entities in the Philippines. However, in
preparation for the privatization of our assets, we engaged independent
accounting advisors to review our financial statements and the appropriateness
of our current accounting policies. Based on this advice, PSALM may decide to
prepare its financial statements in accordance with both GAAS and Philippine
GAAP. Philippine GAAP differs in certain significant respects from GAAS. As a
result, if PSALM decides to prepare its financial statements in accordance with
Philippines GAAP, PSALM will be required to make several adjustments to its
Philippine GAAS financial statements. These adjustments would significantly
reduce the value of our assets on a pro-forma basis for 2000 and 2001.
In addition, the realizable value of certain of our assets is lower than the
stated or book value of those assets. As a result, upon approval of COA we will
have to write-down the value of these assets, which may lead to a significant
reduction in the stated or book value of those assets. We also believe that
there are differences between our recorded assets and our actual physical
assets which have led to an overstatement of the value of our assets. As a
result, when these differences are reconciled, we will have to make downward
adjustments to the stated or book value of certain of our assets. We have not
firmly determined the amount of any Philippine GAAP adjustments for asset
write-downs, or when these changes would be made.
PSALM does not have as a public policy objective the maximization of
profits. However, PSALM must seek to maximize the value of all assets it sells.
All earnings of PSALM from the operation and sale of our transferred assets,
together with up to (Peso)200 billion from the Government, will be used to pay
the liabilities transferred to PSALM. The (Peso)200 billion infusion is
expected to be made in seven annual installments beginning in 2004. It is
expected that any shortfall between PSALM's earnings and payment obligations
will be offset by the Universal Charge.
Privatization Mechanisms
Transfer of Our Generation and Other Disposable Assets and Our Liabilities to
PSALM
PSALM Deed.
Pursuant to Section 49 of the Act, which governs the transfer of our
existing generation assets, liabilities, IPP contracts, real estate and other
disposable assets to PSALM, a deed providing for this transfer (the "PSALM
Deed") was executed by our president and the president of PSALM on December 21,
2001. Section 5 of the PSALM Deed provides that the transfers of our assets and
the assumption of our liabilities will only take effect on the date at which
all the conditions precedent contained in the PSALM Deed are either fulfilled
or waived by the parties (the "PSALM Transfer Date").
Transfer of Assets.
The PSALM Deed provides for the transfer of all of our rights, titles and
interests regarding all of our generation facilities, leases, easements,
inventory, operating and power supply contracts, idle assets, and other
miscellaneous facilities. A complete inventory of what we are to transfer to
PSALM is contained in schedules attached to the PSALM Deed.
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However, the PSALM Deed also provides that we will retain ownership over
certain assets, including (i) those assets that will be used by SPUG in
pursuing its missionary electrification function, (ii) certain real property to
be enumerated in the PSALM Deed, (iii) assets being transferred to Transco,
(iv) all IPP contracts, and (v) all of our assets that are used exclusively in
connection with electric generation facilities owned by IPPs or used in support
of our obligations to one or more IPPs.
To comply fully with the Act, IPP contracts will be transferred to PSALM as
soon as all the legal and financial issues have been resolved.
Assumption of Liabilities.
In addition, the PSALM Deed provides for the assumption by PSALM of certain
of our liabilities including loans, bonds and other debts (identified in
schedules attached to the PSALM Deed) as well as all liabilities and
obligations arising under operating and power supply contracts.
However, certain liabilities shall remain our sole responsibility and shall
be retained, paid, performed and discharged by us, including:
. any liability arising out of, or relating to, activities or services
occurring, or sold or otherwise provided prior to the PSALM Transfer Date;
. any liability under any operating contract transferred to PSALM that
arises out of or relates to any breach that occurred prior to the PSALM
Transfer Date;
. any liability under any contract or agreement not transferred to PSALM;
. any environmental, health and safety liability arising out of or relating
to the operation of our business, or our leasing, ownership or operation
of real property;
. any liability under employee plans or relating to payroll, vacation, sick
leave, worker's compensation, unemployment benefits, retirement and
pension benefits, separation benefits, employee stock option or
profit-sharing plans, health care plans or benefits or any other employee
plans or benefits of any kind for our employees or former employees or
both;
. any liability under any employment, severance, retention or termination
agreement with any of our employees;
. any liability arising out of our employee grievance procedure whether or
not the affected employee is subsequently hired by PSALM;
. any liability arising out of or that is the subject of any proceeding
pending as of the PSALM Transfer Date;
. any liability arising out of or that is the subject of any proceeding
commenced after the PSALM Transfer Date and arising out of or relating to
any occurrence or event happening prior to the PSALM Transfer Date; and
. any liability arising out of or resulting from our non-compliance with any
legal requirement or order of any governmental entity.
Conditions Precedent.
The transfer of our assets and the assumption of our liabilities will not
take effect until all of the conditions precedent outlined in the PSALM Deed
are either fulfilled or waived by us and PSALM.
One of the conditions precedent is that we and PSALM enter into an operation
and maintenance agreement. This operations and maintenance agreement will set
out the terms under which we will operate and maintain certain assets which are
transferred to PSALM before they are sold. Currently, we are still negotiating
the terms and conditions of the operation and maintenance agreement with PSALM.
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Another condition precedent is that we and PSALM enter into assignment and
assumption agreements necessary to effectively transfer our rights and
obligations to PSALM arising under any contract, agreement, indenture, bond or
other instrument in accordance with the law governing such instrument.
It is also necessary that the conditions precedent in the Transco Deed be
fulfilled or waived so that the Transco Deed becomes effective on the PSALM
Transfer Date.
Under the PSALM Deed, we must also continue to procure and maintain the
appropriate insurance for the assets transferred under the PSALM Deed as may be
required by standard industry practice. The PSALM Deed also requires that PSALM
be named as a co-insured party on all property insurance covering the
transferred assets.
We are now in the process of fulfilling all conditions precedent required by
the PSALM Deed to the transfer of assets and the assumption of liabilities
under the PSALM Deed. The parties may opt to waive compliance with any of the
conditions precedent. However, we cannot assure you that these conditions
precedent will be met in the near future or at all.
Privatization of Our Generation and Other Assets
In December 2001, PSALM submitted its privatization plan to the Joint Power
Commission. PSALM received the final endorsement of the plan by the Joint Power
Commission in August 2002, and received approval of the plan by the President
in October 2002.
Some of the guidelines adopted for the privatization are as follows.
. The participation by Filipino citizens and corporations in the purchase of
our assets shall be encouraged.
. Our plants, our IPP contracts assigned to IPP Administrators, related
assets, and assigned liabilities will be grouped to promote the viability
of the resulting generation companies, ensure economic efficiency,
encourage competition, foster reasonable electricity rates, and optimize
returns to the government from the sale and disposition of such assets in
a manner consistent with the objectives of the Act.
. The Agus and the Pulangui power generation complexes in Mindanao may not
be privatized until 10 years after the effective date of the Act.
. The steam field assets and generating plants of each geothermal complex
will be sold as one package.
. No later than three years from the effective date of the Act, and in no
case later than the initial implementation of open access, at least 70% of
the total capacity of our generating assets and of the power plants under
contract with us located in Luzon and Visayas should be privatized,
provided that any unsold capacity should be privatized not later than
eight years from the effective date of the Act.
. PSALM may generate and sell electricity only from undisposed generating
assets.
. IPP contracts and PSALM shall not incur any new obligations to purchase
power through bilateral contracts with generation companies or other
suppliers.
In the grouping of our generation assets and IPP contracts, we will aim to:
. promote competition;
. attract local and international investors with a range of small and large
assets;
. achieve management and operational synergy through portfolios of plants
and IPP contracts; and
. maximize value to both potential investors and to the Government.
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Creation of Transco
Transco, which is wholly owned by PSALM, was created pursuant to the Act.
Transco is expected to assume our electrical transmission function. Our
transmission assets will be privatized through a concession contract. The
sub-transmission assets will be operated and maintained by Transco. Once sold,
the distribution utilities will operate, maintain and upgrade these assets.
PSALM will assume all liabilities related to our transmission and
sub-transmission assets.
Transco's powers are exercised through a seven-member Board of Directors.
The Secretary of the Department of Finance acts as the Chairman of the Board of
Directors. The other members include the Secretary of the Department of Energy,
the Secretary of the Department of Environment and Natural Resources, the
President of Transco, the President of PSALM and two other members to be
appointed by the President. In December 2002, the president of Transco, Asisclo
Gonzaga, announced his retirement from government service. The Arroyo
administration will replace Gonzaga with Dr. Allan Ortiz, former chair of the
Development Bank of the Philippines. The new appointment will take effect on
February 1, 2003.
As a Government-owned corporation, Transco will prepare financial statements
in accordance with GAAS and its financial statements will be audited by the COA.
Transfer of Our Transmission Assets to Transco
Pursuant to the Act, we are required to transfer to Transco all of our
transmission and sub-transmission facilities, our nationwide franchise for the
operation of the transmission system and the grid and all other assets related
to our transmission operation. A deed providing for such transfer (the "Transco
Deed") was executed by our president and the president of Transco on December
21, 2001. The Transco Deed provides that the transfer of each of our assets to
Transco will take effect on the date on which all the conditions precedent
contained in the Transco Deed are either fulfilled or waived by the parties
thereto.
Our transmission and sub-transmission assets include operating contracts,
personal properties, transferable warranties and guarantees, infrastructure
work in progress, and other miscellaneous facilities and inventory. Assets to
be transferred to Transco also include intellectual property, as well as causes
of action against third parties relating to any of the assets that will be
transferred by us to Transco. All assets that we are to transfer to Transco
will be enumerated in schedules to be attached to the Transco deed. We are
currently finalizing the schedules to be attached to the Transco Deed.
The Transco Deed also provides that we will retain ownership over certain
assets, including those assets that will be used by SPUG in pursuing its
missionary electrification function, and assets that we will need to fulfill
our obligations arising out of any IPP Contract.
The conditions precedent to the transfer of assets from us to Transco
include the following:
. Each owner of land burdened by an easement enjoyed by us must consent to
the transfer to Transco, unless the easement is freely transferable.
. For certain of the operating contracts to be transferred by us, we and
Transco must enter into assignment and assumption agreements necessary to
effectively transfer our rights and obligations to Transco arising under
any contract, agreement, indenture, bond or other instrument in accordance
with the law governing that instrument.
. We and Transco must enter into an agreement which provides for the
assignment of our transmission employees to Transco.
. Insurance with respect to the assets that have been transferred to Transco
must be properly apportioned.
. The transfer date of the PSALM Deed must be achieved on the day that our
board of directors and that of Transco authorize the execution and
delivery of the Transco Deed.
We are now in the process of fulfilling all the conditions precedent
contained in the Transco Deed. However, we cannot assure you that all these
conditions precedent will be met in the near future or at all.
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Specifically, as to the conditions precedent described above, (i) we have
obtained the necessary consents for the transfer of easements, (ii) we are in
the process of entering into the agreements necessary for the transfer of
operating contracts, (iii) we are drafting the agreement which provides for the
assignment of employees, (iv) we are currently negotiating insurance with
respect to assets to be transferred, and (v) we have received the necessary
resolution from the board of directors. The parties may opt to waive compliance
with any of these conditions precedent.
Privatization of Our Transmission Assets
PSALM submitted Transco's privatization plan to the Joint Power Commission
in late 2001. Endorsement of the plan was granted in March 2002. Presidential
approval of the transmission privatization plan was granted in October 2002.
Under the privatization plan, Transco's transmission facilities, including grid
interconnections and ancillary services, are subject to open, competitive
bidding to qualified parties. The bids will be for execution of a concession
contract.
The awardee must be financially and technically capable with proven
experience and expertise with a transmission system of comparable capacity and
coverage as the Philippines. In case a concession contract is awarded, the
contract shall have a duration of 25 years, subject to review and renewal for a
maximum period of another 25 years.
The Act provides for the transfer of our nationwide franchise for the
operation of the transmission system and the grid to Transco. However, the Act
is silent on whether Transco could transfer the franchise to the concessionaire
without Congressional approval. The uncertainty in obtaining Congressional
approval for the transfer of such franchise may affect the price of the bids
that will be submitted and may affect the winning concessionaire's ability to
source financing. On September 3, 2002, the House of Representatives passed a
bill that would grant a separate franchise to Transco and allow Transco to
assign its franchise rights to the winning concessionaire without Congressional
approval. The bill is currently awaiting approval in the Senate. Although the
Arroyo administration has strongly supported this bill, it has faced opposition
from some Senators in initial hearings because it would constitute delegation
of the Congressional power to grant franchise. There is no assurance that the
bill will be passed by the Senate in its current form or at all.
On January 23, 2003, PSALM decided to implement an alternative plan,
approved by President Arroyo, which allows for the privatization of
transmission assets to be carried out in two phases. During the first phase,
which can be implemented immediately, the winning bidder is awarded the
concession but may not perform those functions which must be performed by a
franchisee. Such function will continue to be the responsibility of Transco
until the Congress approves the transfer of the franchise to the
concessionaire. At that point, phase two of the plan commences, pursuant to
which the concessionaire may run the entire transmission system.
On February 5, 2003, PSALM's president announced that four companies have
expressed interest in bidding for the Transco concession and that he expects
the concession to be awarded by mid-July. PSALM has set February 21, 2003 as
the deadline for the submission of expressions of interest by potential bidders.
Privatization Issues Relating to Debt
Consents from Creditors Needed for Transfer of Assets and Liabilities
We are required to obtain consents from our creditors in connection with the
following transactions:
. the substitution of PSALM for us as borrower/issuer of our loans, bonds
and other debt obligations which are being transferred to PSALM;
. transfer of our generation and other assets to PSALM;
. transfer of our transmission and sub-transmission assets to Transco;
. transfer of generation and other assets from PSALM to the private sector;
and
70
. privatization of transmission and sub-transmission assets.
Obtaining these consents is a condition precedent to the transfer of assets
and liabilities under both the PSALM Deed and the Transco Deed.
Consents must be obtained from approximately 36 creditors comprising
bondholders, commercial banks and bilateral and multilateral agencies. A large
portion of our debt obligations are bilateral loans requiring the consent of
only one creditor. In general, our syndicated facilities require the consent of
banks holding 66 2/3% of the outstanding loans. We are in advanced discussions
with each of our creditors to obtain the necessary consents to move forward
with the privatization. At least two bond issues require the consent of
bondholders holding at least 50% of the total bonds outstanding in that issue.
In addition, we will be conducting the exchange offer described in this
prospectus.
Our creditors have been requested to agree to the following: (1) the
substitution of PSALM in all the relevant contracts, (2) the privatization of
substantially all of our assets and (3) the waiver of any contractual defaults
and/or amendment of any relevant provisions in the various financing documents.
In this regard, letters requesting for formal consents were sent to all our
creditors in November 2001, and discussion with our creditors are ongoing. On
December 13, 2002, PSALM announced that NPC's commercial lenders, which
together account for approximately 20% of NPC's debt, had approved the transfer
of NPC's debt to PSALM. NPC's other lenders have yet to consent to the transfer
of NPC's debt to PSALM. Once all the consents are obtained, we will draft and
execute of the documentation needed to substitute PSALM for us in all the
relevant contracts.
Service of Transferred Debt
PSALM will service the debt transferred to it from us with revenues to be
generated from its operations and through the sale of assets transferred to it
pursuant to the PSALM Deed. In addition, under the Act, PSALM will have access
to the Universal Charge. The Universal Charge is intended to pay for, among
other things, our stranded debt in excess of the amount assumed by the
Government (which shall not exceed (Peso)200 billion) and our stranded contract
costs. See "Electric Power Industry Restructuring and Privatization --
Transition Mechanisms -- Universal Charge".
Pursuant to the Act, all of our bond and other obligations must be
transferred to and assumed by PSALM. However, if a lender does not consent to
the transfer of its obligation to PSALM, we will continue to service that
obligation through cash from our remaining operations and a portion of our
share of the Universal Charge.
Pursuant to our current Charter, interest arising from loans, credits and
indebtedness are exempt from all taxes by the Republic or any of its agencies
or political subdivisions. Thus, we do not withhold tax on interest payments
made in connection with these loans. Although the Act does not provide for the
same tax exemption for the loans that are to be transferred by us to PSALM, our
tax and accounting advisers filed a request for a Bureau of Internal Revenue
ruling to the effect that interest income or yield earned from certificates of
indebtedness of more than five years are excluded from gross income in
accordance with Section 32(B)(7)(9) of the 1997 Internal Revenue Code.
Transition Supply Contracts
Under the Act, we are obligated to obtain the ERC's approval of all
transition supply contracts duly negotiated with the distribution utilities
containing the terms and conditions of supply and a corresponding schedule of
rates, including adjustments and/or indexation formulas. However, the term of
these contracts cannot extend beyond one year from implementation of Open
Access or when any qualified entity may use the transmission system by paying
the rates approved by the ERC.
Privatization Uncertainties
The proposed transfer of assets and liabilities by us to PSALM and Transco
and the privatization of PSALM and Transco described above are subject to a
number of risks and uncertainties, including with regard to the following
matters:
71
. possible changes in applicable laws and regulations;
. possible failures to obtain required third party consents;
. our future financial condition and results of operations;
. PSALM's future financial condition and results of operations;
. the success of the proposed privatization, including the level of interest
by potential bidders, the amounts of any proceeds to PSALM and the timing
thereof;
. future regulatory actions relating to electricity rates and other
regulated activities in the in the Philippine electric power industry;
. the amount, structure and timing of the proposed Government assumption of
NPC liabilities in the amount up to (Peso)200 billion; and
. future economic, political and social developments in the Philippines.
These and other factors could adversely affect our and PSALM's ability to
perform its transferred and any newly incurred obligations.
Management and Employees
Management
PSALM is administered, and its powers and functions exercised, by its Board
of Directors. Pursuant to the Act, the Board of Directors is composed of seven
members, each of which is a Government employee. Thus the Government is the
supervisory authority of PSALM. The Board of Directors meets as necessary to
allow it to properly discharge its functions and responsibilities. The presence
of at least four members of the Board of Directors is required to hold a
meeting and the vote of at least three members is required to approve any
action of the Board of Directors.
The President of PSALM acts as its Chief Executive Officer. PSALM's
President has the power to execute and administer the policies approved by the
Board of Directors, including (i) the efficient discharge of management
functions, (ii) the preparation of PSALM's budget, (iii) the supervision of the
PSALM's operation and internal administration, (iv) the preparation of PSALM's
annual report and (v) the representation of PSALM in all dealings and
transactions with other offices, agencies and instrumentalities of the
Government and all other private, public, foreign or domestic entities.
Board of Directors
PSALM's board members are as follows:
Name Position
- ---- --------
Jose Isidro N. Camacho Chairman of the Board of Directors, Secretary of the Department of
Finance
Edgardo M. del Fonso.. Director, President and Chief Executive Officer
Vincent S. Perez, Jr.. Director, Secretary of the Department of Energy
Emilia T. Boncodin.... Director, Secretary of the Department of Budget and Management
Dante B. Canlas....... Director, Director-General of the National Economic and Development
Authority
Simeon A. Datumanong.. Director, Secretary of the Department of Justice
Manuel A. Roxas....... Director, Secretary of the Department of Trade and Industry
The business address of each member is located at 2nd Floor, SGV II
Building, Ayala Avenue, Makati City, Metro Manila, Republic of the Philippines.
72
PSALM's officers are as follows:
Name Position
---- --------
Edgardo M. del Fonso.. President and Chief Executive Officer
Antonio T. Corpuz..... Senior Vice President
Nonito R. Bernardo, Jr Vice President, Finance
Maria Luz L. Caminero. Vice President, General Counsel and Corporate Secretary
Employees
PSALM had a total of 56 regular employees as of June 30, 2002. There are no
trade unions or labor organizations within PSALM.
73
GLOSSARY OF SELECTED ELECTRICITY TERMS
The following explanations are not technical definitions, but they could
assist you in understanding some of the terms used in this document.
Generating unit........... An electric generator
together with the Turbine
or other device which
drives it.
Gigawatt (GW)............. 1,000,000,000 watts
(1,000 megawatts).
Gigawatt hour (GWh)....... One gigawatt of power
supplied or demanded for
one hour.
Installed capacity........ The maximum power which
could be produced
continuously throughout a
prolonged period of
operation. All equipment
is assumed to be fully
operational.
Kilovolt (kV)............. 1,000 volts.
Kilowatt (kW)............. 1,000 watts.
Kilowatt hour (kWh)....... One kilowatt of power
supplied or demanded for
one hour.
Megawatt (MW)............. 1,000,000 watts (1,000
kilowatts).
Megawatt hour (MWh)....... One megawatt of power
supplied or demanded for
one hour.
Megavolt ampere (MVA)..... 1,000,000 volts ampere.
Substation................ Equipment which switches
and/or changes or
regulates the voltage of
electricity in a
transmission and
distribution system.
Volt...................... The basic unit of
electric force analogous
to water pressure in
pounds per square inch.
Volt ampere............... The basic unit of
apparent electrical power.
Watt...................... The basic unit of active
electrical power.
74
REPUBLIC OF THE PHILIPPINES
Recent Political Developments
Changes in the Arroyo Administration. On December 30, 2002 President Gloria
Macapagal-Arroyo announced that she would not seek another term as president.
The next presidential election is required, under the Philippine Constitution,
to take place by the end of 2004. In her announcement President Arroyo
explained that she wanted to be unburdened by politics and further concentrate
her efforts on her administration's economic reform plans.
There have been several resignations among senior members of the Arroyo
administration. The Secretary for Justice, Hernando Perez, resigned on January
2, 2003 amid allegations that he had extorted money from a Manila congressman.
On December 19, 2002, the Presidential Anti-Graft Commission charged Mr. Perez
with obstruction of justice for prohibiting the Bureau of Immigration from
divulging the travel records of high-ranking government officials, including
himself. Mr. Perez appealed the charges to the Court of Appeals, which has
issued a temporary restraining order suspending the investigation of Mr. Perez
for 60 days. Beginning on November 26, 2002, when Mr. Perez took a leave of
absence to confront the allegations, Undersecretary of Justice Merceditas N.
Gutierrez served as officer-in-charge of the Department of Justice. On January
16, 2003 Simeon Datumanong, former Secretary for Public Works and Highways,
officially replaced Mr. Perez as Secretary for Justice.
The President has also re-arranged some of her cabinet members. In January
2003, Ignacio Bunye, the President's Press Secretary, was appointed as the
President's spokesperson in place of Rigoberto Tiglao, who was named as the
President's Chief of Staff. Also in January 2003, Hernani Braganza, Secretary
of Agrarian Reform, was appointed as the new Press Secretary. Roberto
Pagdanganan, chairman of the Board of Administrators of the Cooperative
Development Authority, has been appointed to replace Mr. Broganza as Secretary
of Agrarian Reform.
In December 2002, President Arroyo announced several changes in her cabinet.
In particular, the President replaced Secretary of Socio-Economic Planning
Dante P. Canlas with Romulo Neri, former director-general of the Congressional
Planning and Budget Office. President Arroyo also announced the replacement of
the Secretary of Agriculture, Leandro Montemayor, with Luis Lorenzo, Jr., a
former businessman and presidential advisor on job creation and the replacement
of the Secretary of Environment and Natural Resources, Heherson Alvarez, with
Elizea Gozun, an environmental consultant.
Vice-President Teofisto Guingona resigned from his position as Secretary of
Foreign Affairs, effective July 15, 2002, citing, among other things, his
objection to the presence of US military troops in the Philippines. Education
Secretary Raul S. Roco resigned on August 13, 2002 after learning that the
President had endorsed a complaint accusing him of corruption. The Commissioner
of the Bureau of Internal Revenue "BIR", Rene G. Banez, resigned on August 19,
2002, citing pressure from subordinates who were resisting reforms at the BIR.
President Arroyo has appointed Senator Blas F. Ople as the new Secretary of
Foreign Affairs, Dr. Edilberto C. de Jesus as the new Secretary of Education,
and former Customs Commissioner Guillermo Parayno as BIR Commissioner.
It is unclear whether President Arroyo's decision not to seek re-election or
the recent changes in leadership positions will materially affect the stability
or effectiveness of her administration.
Internal Conflict with Rebel Groups. Over the past three decades, groups of
communist rebels and disaffected Muslims in the Republic have periodically
fought with Government forces. Armed conflict has continued between the
Government and various rebel groups, mainly the communist guerillas and Muslim
separatists.
75
In the first three weeks of October 2002, the Philippines suffered six
bombing attacks which together killed at least 20 people and injured at least
150 more. Four of the bombing attacks occurred in western and central Mindanao
and two of the bombing attacks, one of which resulted in three fatalities,
occurred in Metro Manila. On December 24, 2002, another explosion in the
province of Maguindanao killed 13 people, and on January 1, 2003, a grenade
attack in southern Mindanao killed 9 people and injured at least 32 others.
Government officials have indicated that they suspect either Moro separatists,
Abu Sayyaf guerillas or communist rebels are responsible for the recent
attacks. As part of the Government's response to these terrorist activities, a
number of anti-terrorism bills have been proposed in Congress. President Arroyo
has certified these proposed bills as "urgent" and has urged the Congress to
pass a law quickly which would give the military and the police increased power
in fighting terrorism. The draft bills include, among other items, measures
increasing the state's ability to intercept communications, conduct
surveillance, freeze bank accounts and extend detentions.
In early August 2002, the United States placed the Communist Party of the
Philippines (the "CPP") and the CPP's armed affiliate, the New People's Army
(the "NPA"), on its list of "foreign terrorist organizations", freezing the
groups' funds and barring their members from entering the United States. On
October 31, 2002, the European Union followed in declaring each of the CPP and
the NPA a "terrorist organization". The Dutch government froze the financial
accounts of Jose Ma. Sison, the founding chairman of the CPP, who currently
lives in the Netherlands. In January, 2003, the Republic filed murder charges
against Jose Maua Sison and several others for the alleged killing of a
politician in June 2001. In response to several recent bombings and kidnappings
attributed to the CPP, the Armed Forces of the Philippines (the "AFP") have
initiated a military offensive to end the insurgency, and security has been
fortified in all vital public facilities. The Government continues to be open
to peace negotiations with the National Democratic Front ("NDF"), the political
organization of the NPA. The Government also announced, in early November, that
it was willing to offer amnesty to communist rebels who surrendered to the
Government. CPP leaders rejected the offer of amnesty. On January 23, 2003,
Romulo Kinatar, a former NPA chief of staff who left the communists to work for
the Government, was assassinated in Metro Manila. The Government suspects the
CPP is responsible for the assassination. Since September 2002, formal peace
talks between the Arroyo administration and the NDF have been in suspension by
order of the President.
As part of the recent heightened cooperation between the Republic and the
United States in the campaign against terrorism, the US sent troops and
military advisers to assist the AFP in eradicating the Abu Sayyaf guerrilla
group. Under a terms of reference entered into between the Republic and the US
on February 13, 2002, about 1,000 US Special Forces troops participated in
joint military exercises with the AFP. The US Special Forces operated in the
Zamboanga and Basilan provinces of Mindanao where the Abu Sayyaf are located.
The US Special Forces observed and trained the AFP on counter-terrorist
strategy and techniques to improve the capability of AFP troops in combating
terrorism. The terms of reference officially ended on July 31, 2002.
The United States and the Republic announced on July 2, 2002 that they had
entered into a sustained military cooperation agreement providing for continued
joint military exercises, training and other cooperation between US forces and
the AFP. This agreement has replaced the terms of reference that expired on
July 31, 2002. Since the termination of joint military exercises in Basilan on
July 31, 2002, military operations by the AFP have moved to the Province of
Sulu in response to several Abu Sayyaf kidnappings. As a result of these
kidnappings, two Filipino hostages were killed and three Filipinos and three
Indonesians remain in the custody of the Abu Sayyaf. Pursuant to the sustained
military cooperation agreement, in October 2002 more than 200 US Marines
arrived at Clark Air Base, Luzon, to train with Philippine Air Force troops.
More than 250 US military advisers arrived in the Philippines in January 2003
to train Filipino soldiers in light infantry and light reaction tactics as part
of the anti-terrorism campaign. In February, 2003, about 600 US marines arrived
at the former US naval base at Subic Bay, north of Manila, to take part in
exercises with the AFP. Joint military exercises are also planned in central
Luzon, central Visayas, and western Mindanao. The United States has earmarked
approximately US$78 million in military assistance to the Philippines for 2003.
According to the AFP, 5,000 soldiers are currently in pursuit of the Abu
Sayyaf, and heavy fighting between the AFP and members of the Abu
76
Sayyaf has continued in areas of Mindanao in the southern Philippines. On
December 31, 2002, Abu Sayyaf guerillas attacked a military outpost on the
southern island of Jolo, killing one Filipino soldier. On February 4, 2003, two
Abu Sayyaf guerillas and one U.S. marine were killed in a gun battle in Mt.
Mungit Patika Town.
As of December 2002, the Moro Islamic Liberation Front ("MILF"), the largest
Muslim separatist group in the Philippines, was continuing to pursue peace
talks with the Government and had declared a suspension of military activities
against the AFP. However, the Government is also pursuing several MILF members
who are suspected of involvement in the recent terrorist attacks in Zamboanga,
Maguindanao and Manila. Also, in January 2003, fighting between the Government
and the MILF in Mindanao has caused the evacuation of more than 2000 civilians
and an unknown number of casualties on both sides. On January 28, 2003,
government troops killed 17 MILF members and captured one of the MILF's biggest
camps, following a bomb explosion blamed on the MILF. The AFP claims that
during the month of January 2003, it inflicted heavy casualities on the Muslim
separatists and has successfully prevented them from building new camps in
Central Mindanao. More than 150 MILF members and at least five Government
soldiers have been killed in clashes between the MILF and the AFP in the area
of Pikit town in southern Mindanao since February 10, 2003, in the course of
the Government's attempt to capture the MILF stronghold known as the Buliok
complex. As many as 100,000 families have left their homes to escape the
fighting. The Philippine National Police believe that the MILF has ties to the
Indonessian group Jemaah Islamiah, which is widely believed to be responsible
for the terrorist bomb attack in Bali (see -- "Terrorist Attacks in the United
States and Related Events") and also to be linked to the al-Qaeda terrorist
organization. MILF leaders have denied that the group is responsible for the
recent bombings in the Philippines and have denied any link to Jemaah Islamiah
or al-Qaeda.
Tensions with Iraq and North Korea. Increased tension between the United
States and Iraq has led to uncertainty about the world economy as a whole. US
President George W. Bush and other US officials have indicated that the US may
attack Iraq and attempt to remove the regime of Iraqi President Saddam Hussein
if Iraq does not eliminate chemical, biological, and nuclear weapons programs
as required by the United Nations.
A US-led war in Iraq may affect, among other things, the stability of
international financial markets, the Republic's imports and exports, foreign
investment in the Republic, and remittances from overseas Filipino workers. In
particular, the potential war in Iraq has fueled uncertainty about the supply
of oil from the Middle East and global oil prices. The Government is seeking to
negotiate oil assurance agreements with Indonesia, Russia, Iran and Saudi
Arabia in an effort to ensure a stable oil supply. In addition, an Energy
Contingency Task Force has been mandated to draw up possible remedial measures
against any threat to the Republic's oil supply. Pursuant to the Task Force's
recommendations, the Philippine Department of Energy ("DOE") has required
domestic oil refiners to maintain a minimum 30-day inventory of crude oil and
refined petroleum products, and has required other domestic oil companies and
bulk suppliers to maintain a minimum 15-day inventory of oil and a minimum
7-day inventory of liquified petroleum gas. The DOE has also announced that it
will propose to the President a temporary moratorium on import duties on
petroleum products in the event of hostilities in the Middle East. If
implemented, such a tariff suspension could result in revenue losses for the
Republic and thus have a negative impact on the Republic's budget deficit. In
addition, the DOE had also appealed to the city government of Manila for the
renewal of business permits for the Petron Corporation, Pilipinas Shell
Petroleum Corporation and Caltex Philippines, Inc. The DOE also recently stated
that it would consider other measures, including a government takeover of oil
companies under the Oil Deregulation Act, oil rationing or a ban on oil
exports, as a last resort during an oil supply crisis.
North Korea's recent announcement that it would reactivate its nuclear
weapons program has drawn harsh criticism and further economic sanctions from
the United States. It is unclear how any potential military action by or
against North Korea will affect the international financial markets or the
Philippine economy.
Oil Strike in Venezuela. In Venezuela, a large-scale political strike
temporarily reduced the country's oil production substantially. The strike, led
by leaders of Venezuela's state oil company who oppose the policies of
77
Venezuelan President Hugo Chavez, began December 2, 2002 and ended February 3,
2003. Venezuela is the fifth-largest oil exporter in the world, and thus the
strike contributed to uncertainty about oil supply and oil prices worldwide.
Terrorist Attacks in the United States and Related Events. The evolving
response of the United States and other nations to the terrorist attacks of
September 11, 2001 in New York City and Washington, D.C. has resulted in
continuing political and economic uncertainty and in increased volatility in
the world's financial markets. The US-led military action in Afghanistan, which
began in October 2001, successfully defeated the Taliban government and
weakened the al-Qaeda forces blamed for the September 11 attacks. However, the
US government has indicated that al-Qaeda continues to operate in countries
around the world and continues to threaten and plan additional terrorist
attacks.
Also in October 2002, a terrorist bombing in Bali, Indonesia killed at least
190 people, including many foreign tourists. It is not known whether those
responsible for the Bali attack were connected to previous attacks in the
Philippines. It is unclear how the Philippine economy or the international
financial markets will be affected in the future by terrorism-related events
either inside or outside the Philippines.
Possible Constitutional Change. Fourteen senators have signed a resolution
calling for a constitutional convention after 2004 that could result in various
changes to the Philippine constitution of 1987, including converting the
Government to a parliamentary system and changing the legislature to a
unicameral legislature. The resolution is set to be referred to the Senate
committee on constitutional amendments and revision of laws. However, a
majority of the House of Representatives prefers to convene a constituent
assembly as the means of effecting constitutional change. The House of
Representatives is scheduled to begin plenary debate on a resolution proposing
such an assembly. The Republic does not expect constitutional change to take
place in the near term, given the different processes favored by the
legislative bodies.
Criminal Charges Against Estrada. Criminal charges for perjury, illegal
use of an alias, and plunder filed against former President Joseph Estrada in
2001 by the Ombudsman (the officer mandated under the constitution of the
Republic to investigate and prosecute all complaints of corruption against
public officials and government employees) continue to be tried in the
Sandiganbayan, a special court with jurisdiction over criminal and civil cases
involving graft and corruption.
On August 30, 2002, the Sandiganbayan issued a writ of preliminary
attachment of all assets of Mr. Estrada, his son, Jose Estrada, and others
accused in the (Peso)4 billion plunder case, including funds in the account of
"Jose Velarde" which Mr. Estrada admitted publicly to owning but subsequently
claimed to belong to a business acquaintance. In response to the writ of
preliminary attachment, Mr. Estrada claimed that he did not purchase any
property while he was president and denied ownership of certain funds frozen by
the Sandiganbayan.
Mr. Estrada has complained about the alleged bias of the Sandiganbayan
against him. Claiming that he will not be treated fairly by the Philippine
courts, he has dismissed all of his lawyers. Since Mr. Estrada is not in a
position to defend himself, the Sandiganbayan appointed several counsel de
officio for him.
Hearings on the perjury, plunder, and illegal alias charges are ongoing.
Government prosecutors are expected to complete presenting evidence against Mr.
Estrada in early 2003. The defense will present its evidence after the
prosecution rests its case.
On November 13, 2002, the prosecution's star witness, Ms. Clarissa Ocampo,
took the stand, reprising her account at the December 2000 impeachment trial.
Ms. Ocampo, who was at the time a bank senior vice president for trust,
positively identified Mr. Estrada as having signed as "Jose Velarde" on various
documents for opening an investment management account.
Recent Economic Developments
The interim period indicators of economic performance for any particular
year set out in this section "Recent Economic Developments" for GNP, GDP,
domestic credit growth and balance of payments indicators
78
(including exports, imports, goods, services, trade and income) are comparisons
to the corresponding interim period of the immediately prior year (known as
year-on-year comparisons) in each case unless otherwise noted.
Background. Economic growth was sustained in 2002 although growth momentum
was weakened due to a series of adverse developments such as:
. the resignation of several key members of the Arroyo administration and
the ongoing trial of former president Estrada;
. the rapid increase in the Government's budget deficit, which stood at
(Peso)212.7 billion for 2002 (higher than the original full-year forecast
for 2002 of (Peso)130 billion, although lower than the fourth quarter
revised deficit target of (Peso)223 billion), caused by higher than
expected expenditures and lower than expected revenue collections from the
BIR;
. the increasing threat of war with Iraq, the ongoing conflict with rebel
groups in Mindanao, the conflict with communist rebels, the bombings and
bomb threats in the Republic, the recent terrorist bombing in Bali,
Indonesia and the recent response to terrorism by the Government, the US
and other countries; and
. Standard & Poor's Rating Service's and Fitch Ratings' revised outlook on
the Republic's long-term foreign currency sovereign credit ratings from
stable to negative.
Despite these challenges and the generally weak global conditions, in 2002
real GNP grew by 5.2% and real GDP grew by 4.6%, compared with GNP growth of
3.4% and GDP growth of 3.2% for 2001. The increased growth rates are, in part,
a result of lower interest and inflation rates, and in the Government's view
reflect the success of the administration's macroeconomic strategy implemented
in 2001.
As of February 5, 2003, the peso had fallen to (Peso)53.94 to the US dollar,
its weakest since July 2001. The decline in the peso results, in part, from the
possibility of a US-led war in Iraq, which could drive the oil prices and put
further pressure on the peso.
79
Recent Economic Indicators. The following table sets out the performance of
certain of the Republic's principal economic indicators for the periods
indicated.
2000 2001 2002
- ---- ----- -----
Real GDP growth (%)................ 4.4 3.2 4.6/(1)/
Real GNP growth (%)................ 4.8 3.4 5.2/(1)/
Inflation rate (%)................. 4.4/(1)/ 6.1/(1)/ 3.1/(1)/
Unemployment rate (%).............. 11.2/(2)/ 11.1/(2)/ 11.4/(2)/
91-day T-bill rate (%)............. 9.86/(1)/ 9.86/(1)/ 5.45/(3)/
External position
Balance of payments ($ million)... (513) (192) 412/(4)/
Trade-in-goods/GNP (%)............ 8.7 3.7 2.1/(5)/
Export growth (%)............... 9.0 (16.2) 9.0/(6)/
Import growth (%)............... 3.8/(7)/ (6.2)/(7)/ 12.7/(6)(7)/
External debt ($ billion)......... 52.1 52.4 53.6/(8)/
International reserves
Gross ($ billion)............... 15.0 15.7 15.7/(6)/
Net ($ billion)................. 11.3 11.4 12.4/(6)/
Months of retained imports/(9)/. 4.4 5.0 5.1/(6)/
Domestic credit growth (%)......... 8.55 0.89 (0.18)/(10)/
- --------
(1) Full year average.
(2) Average of the January, April, July and October applicable statistics
based on the January, April, July and October labor force surveys for the
relevant year.
(3) Average of first eleven months of 2002.
(4) First ten months of 2002.
(5) First nine months of 2002.
(6) As of November 30, 2002.
(7) Does not reflect revision to Balance of Payment figures by the Interagency
Task Force on Balance of Payments.
(8) As of September 30, 2002.
(9) Number of months of average imports of merchandise goods and payment of
services and income that can be financed by gross reserves.
(10) October to November 2002.
Arroyo Administration Economic Policy. In October 2002, President Arroyo
outlined an eight-point work program of the Government for the following six
months. The program includes:
. keeping transportation fares down;
. reducing transport costs from Mindanao to Luzon;
. stimulating small- and medium-scale enterprises;
. encouraging housing developments;
. encouraging private investments in agriculture;
. continuing to build infrastructure to decongest Metro Manila;
. ensuring that the Presidential Commission on Good Government contributes
to fiscal resources; and
. making Makati City a tourist destination.
In addition, in December 2002, President Arroyo announced the following
additional measures to enhance productivity:
. increasing government credit for small- and medium-scale enterprises to
(Peso)10 billion in 2003;
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. forming a new anti-smuggling task force; and
. improving the oversight system for government procurements.
In January 2003, after announcing that she would not run for re-election,
President Arroyo announced that her administration would focus on the
provisions of the Medium-Term Philippine Development Plan, originally set out
in the National Socio-Economic Summit of 2001, in conjunction with the
eight-point program announced in October 2002.
Despite measures taken to improve the economy, Wilshire Consulting recently
recommended to its client, the California Public Employees' Retirement System
("Calpers"), the largest pension fund in the US, that it exclude the Republic
from its list of investments. Calpers is expected to make a decision on
February 18, 2003.
Government Revenues and Expenditures. Government revenues for 2002 totaled
(Peso)566.0 billion, of which (Peso)492.4 billion were from tax revenues and
(Peso)73.6 billion were from non-tax revenues. Total revenues for 2002
increased 0.4% from total revenues for 2001. Of total tax revenues during 2002,
the BIR accounted for (Peso)393.6 billion and the Bureau of Customs accounted
for (Peso)96.3 billion. Treasury remittances accounted for (Peso)47.2 billion
in revenue in 2002, and other government offices accounted for the remaining
(Peso)28.9 billion.
The BIR's collection of (Peso)393.6 billion in 2002 was 1.3% more than the
(Peso)388.7 million collected in 2001. The lower than expected amounts
collected for 2002 have been mainly attributed to the BIR's continued
difficulty in generally enforcing the Republic's tax laws as well as the
relatively low interest rate environment. However, the BIR's collection of
(Peso)36.9 billion for the month of December 2002 was a 9.2% increase over the
(Peso)33.8 billion collected in December 2001. Under the recently appointed BIR
Commissioner, Guillermo Parayo, the BIR has implemented a program to identify,
report, and prosecute taxpayers and companies that under-declare their value
added taxes ("VAT"). A BIR program for voluntary assessment and availment of
unpaid VAT and other income taxes has been put in place to collect unpaid taxes
that were discovered by the BIR. This investigation concluded that
underreporting of income from businesses has resulted in (Peso)10 billion in
uncollected tax revenue. The BIR is making a concerted effort to recover as
much of this revenue as possible. During the period from September 2002 to
January 2003, (Peso)4.7 billion was collected as a result of the implementation
of this program. In addition, in order to encourage better tax compliance, the
BIR under the new Commissioner has simplified the filing process and the
payment of taxes. The Republic recently reported that it missed its tax
collection target for the month of January 2003, having collected a preliminary
(Peso)34.12 billion of the (Peso)37.66 billion target. The shortfall is
presumed to have been caused in part by low interest rates on bank deposits.
Government expenditures in 2002 were (Peso)778.7 billion, compared to
(Peso)710.8 billion in 2001. The increase in expenditures from 2001 to 2002 was
due in part to higher expenditures for infrastructure, personal services,
education, retirees' pensions, and allotments to local government units for
anti-poverty programs and security measures.
The deficit in 2002 was (Peso)212.7 billion, which exceeded the Government's
original target of (Peso)130 billion for deficit 2002 but was lower than the
fourth quarter revised 2002 budget deficit forecast of (Peso)223 billion. This
rapid increase in the budget deficit has been caused by lower than expected
revenue collections from the BIR, and higher than expected expenditures.
A plan by the Government to sell a 10% stake in Manila Electric (Meralco),
the Republic's largest power distributor, is in jeopardy due to a Supreme Court
order for Meralco to return an estimated (Peso)11 billion in excess charges to
customers. The Government planned on the sale of a portion of its interest in
Meralco to reduce the budget deficit.
Credit Ratings. On January 8, 2003, Moody's Investors Service revised its
outlook on the Republic's local-currency rating for government bonds to
negative from stable, while affirming each of the Republic's foreign currency
ratings. Moody's recognized that revenue collections have improved in recent
months, but noted that poor revenue collection in prior periods has weakened
long-term fiscal prospects. On November 25, 2002, Fitch Ratings downgraded the
Republic's ratings outlook from stable to negative. Fitch indicated that
further evidence of falling tax revenues had undermined the Government's fiscal
credibility and raised concerns about rising public indebtedness. Fitch
indicated that further evidence of falling tax revenues had undermined the
Government's fiscal credibility and raised concerns about rising public
indebtedness. Fitch noted that the persistence of the current account surplus
has prevented the appearance of an external financing gap.
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On October 29, 2002, Standard & Poor's Rating Service revised its outlook on
the Republic's long-term foreign currency sovereign credit ratings from stable
to negative. Standard & Poor's focused on the growing fiscal deficit, the
Government's high debt burden and poor revenue collection by the BIR (which
Standard & Poor's noted must be strengthened to meet the Government's long-term
fiscal goals). The increased budget deficit has put pressure on the value of
the Peso, which will raise debt servicing costs, as more than half of the
Republic's debt is denominated in foreign currencies. Standard & Poor's
explained that the change reflects diminishing prospects for the fiscal
consolidation that is necessary to stabilize and reduce the Government's high
debt burden and sustain investor confidence.
Philippine Stock Exchange. From its close of 1,315.0 at the end of May
2002, the Philippine Stock Exchange declined to 1,018.4 at the end of December
2002. The Stock Exchange closed at 1,037.26 as of February 5, 2003. The higher
budget deficit, fear of war in the Middle East, concerns of a global economic
slowdown, increased crime and kidnappings, the accounting scandals that
affected certain large corporations in the United States and the proposed
partial sale by First Pacific Company Limited of its 24.4% controlling stake in
Philippine Long Distance Telephone Company to the Gokongwei Group contributed
to a decline in the composite index.
GNP/GDP. In 2002, real GNP grew 5.2% and real GDP grew 4.6%, compared with
GNP growth of 3.4% and GDP growth of 3.2% for 2001. The increased growth rates
are, in part, a result of lower interest and inflation rates, and in the
administration's view, reflect the success of the administration's
macroeconomic strategy implemented in 2001. The 2002 economic performance is
the strongest recorded by the Philippines since the 1997 Asian financial crisis.
Growth in 2002 was driven primarily by better than expected growth in all
production sectors; by the service sector which grew 5.4%, industry 4.1% and
agriculture 3.5%. All subsectors of the service sector, showed growth in 2002,
particularly transportation, communications and storage, which grew 8.9%
primarily because of increased computerized operations for Government services,
and trade, which grew 5.7% primarily because of increased regional operations
by the larger domestic retailers. Growth in the subsectors private services
(5.5%), finance (3.2%) and real estate (1.6%) also contributed to the upbeat
performance of the service sector (though finance and real estate have yet to
regain their pre-1997 performance levels).
Agriculture, Fishery, and Forestry. In 2002, though the 3.5% growth in the
agriculture, fishery, and forestry sector grew was higher than expected, it
showed a slight decline, compared to the 3.7% growth posted in 2001. Robust
growth in forestry (9.1%) and fishery (6.4%) helped offset weather-related
declines in food production, particularly corn and palay production during the
second and third quarters of 2002. Meteorologists have reported that the
weather system effect known as El Nino could extend into and worsen in the
first part of 2003, leading to drier weather conditions, which could have an
effect on crop harvests. The El Nino effect is expected to be moderate compared
to the prolonged drought of 1997.
Industry. In 2002, the industry sector grew 4.1%, compared to growth of
1.3% for 2001. The growth in industry was driven by improvement in all
subsectors.
In 2002, the mining and quarrying subsector rebounded from a previous
decline of 6.6% in 2001, with growth of 49.2% in 2001. Most of the growth in
the mining and quarrying subsector was attributable to production from the
Camago-Malampaya Gas Project. The annual growth rate in the manufacturing
subsector was 3.3% for 2002 up from 2.9% in 2001. Food processing, leather
products, footwear and apparel, metal industries and electrical machinery
showed improved results while output remained negative in chemical products,
paper products, rubber products, petroleum and coal products and non-electrical
machinery products. There was no growth in the construction subsector in 2002
as compared to a contraction of 3.6% for 2001. The electricity, gas and water
subsector grew by 2.1% for 2002, compared to growth of 0.7% in 2001.
Services. The services sector remains the largest contributor to GDP,
having contributed approximately 45.1% of GDP at constant market prices from
1997 to 2001. In 2002, the services sector grew by 5.4%, contributing
approximately 46.3% to the GDP for the period. Growth in the services sector
was driven mainly by expansion of the trade and transportation, communications
and storage subsectors.
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The transportation, communications and storage subsector posted 8.9% growth
in 2002 compared to 8.8% growth for 2001. The trade subsector grew 5.7% for
2002, compared to growth of 5.6% for 2001. The trade subsector comprised the
biggest contribution to total output of the service sector at 35.6% and alone
contributed 16.5% to GDP growth. The finance subsector grew by 3.2% in 2002
compared to growth of 1.2% in 2001. The ownership of dwellings and real estate
subsector grew 1.6% in 2002, compared to a contraction of 0.5% for 2001. The
private services subsector grew 5.5% in 2002 compared to growth of 4.4% in
2001. The Government services subsector grew by 4.6% for 2002 compared to
growth of 2.7% in 2001.
Debt Proceeds. In February 2003, the Republic received the proceeds from
the issuance of $200 million zero coupon treasury bills due 2004. In January
2003, the Republic received the proceeds from the issuance of $500 million 9.0%
global bonds due 2013. In November 2002, the Republic received the proceeds
from the original issuance of $500 million 9.00% global bonds due 2013. In
September 2002 the Republic received the proceeds from the issuance of $300
million 7.5% bonds due 2007. In June 2002, the Republic received the proceeds
from the issuance of $300 million global bonds due 2009.
In November 2002, the Republic received (Peso)11.52 billion through the
issuance of three- and five-year Peso-denominated notes. These proceeds are
intended to finance the budget deficit. In January 2003 the Government also
received the proceeds from a re-issuance of US$500 million of the 9.00% Global
Bonds due 2013 originally issued in November 2002.
External Debt of the Republic. The Republic's external debt amounted to
$53.6 billion as of September 30, 2002, a 2.4% decrease from the $54.9 billion
recorded as of June 30, 2002 and a 2.3% increase from the $52.4 billion
recorded as of December 31, 2001. The decrease in external debt in the third
quarter of 2002 was attributed to an increase in the purchases by Filipinos of
Government dollar-denominated bonds, currency revaluation adjustments and
direct repayment of debt. The increase in debt in the first nine months of 2002
was due to upward foreign exchange revaluation adjustments on third-currency
denominated debt resulting from the continued depreciation of the US dollar
against third-currencies, net loan availments, upward adjustments to reflect
audited results and late reporting of transactions which occurred in prior
periods. The Government has also borrowed to pay for financial and economic
reforms, power and energy development projects, and manufacturing,
transportation, and communications infrastructure.
As of June 30, 2002, the average cost of fixed rate credits was about 6%. In
addition, as of June 30, 2002, for liabilities with floating interest rates,
the margin over base rate ranged from 3.5% to 4.4%. The average interest rates
for 91-day Treasury bills decreased from 9.86%, following the decline in global
interest rates; however, by the January 27, 2003 Treasury bill auction, the
interest rate stood at 5.25%. As of September 30, 2002, approximately 56% of
the country's external obligations were denominated in US dollars while 26%
were denominated in Japanese yen. As of March 31, 2002, multi-currency loans
from the World Bank and the Asian Development Bank accounted for 11.9% of
national debt.
Inflation. The national inflation rate averaged 3.1% in 2002 compared to an
average inflation rate of 6.1% in 2001. Inflation for the month of December
2002 was 2.6%. Inflation continues to be benign despite the recent adjustments
in domestic oil prices, which have increased by 11.2% year-on-year in December
2002 (in part because the adjustments have not been passed on through transport
charges), and despite an increase in food prices due to weather-related
reductions in supplies of rice, fruits, and vegetables. Reductions in Bangko
Sentral's policy interest rates and efforts to maintain fiscal discipline,
which have led to lower market lending rates and lower costs of capital for
businesses, also had a favorable impact on inflation. Equally important,
inflationary pressures caused by more demand than supply continue to be subdued
due in part to current levels of unemployment and spare capacity as well as
restrained, though increasing, domestic demand. The reduction in the Purchased
Power Adjustment of National Power Corporation, effective May 2002, and the
decision of the Manila Waterworks and Sewerage System to delay petitions for
water rate increases have also helped to keep inflation rates relatively low.
Employment. In 2002, the unemployment rate rose slightly to 11.4% compared
to 11.1% in 2001. In October 2002, Metro Manila had an unemployment rate of
16.7%, the highest of any region in the country. The total number of unemployed
persons in the country was 3.4 million in October 2002, a 3.03% increase from
3.3 million unemployed in October 2001.
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Interest Rates. Currently, the Bangko Sentral overnight borrowing rate is
7.0% and the overnight lending rate is 9.25%. These are the lowest interest
rate levels in ten years. After being cumulatively lowered by the Monetary
Board of Bangko Sentral by 800 basis points starting December 2000, the rates
have remained unchanged since March 15, 2002. Although market interest rates
followed a steady downtrend in the first six months of 2002, they rebounded
slightly over the next three months. From an average of 8.9% in December 2001,
the 91-day Treasury bill rate decreased to 4.8% in June 2002 and then increased
to an average of 5.25% in the January 27, 2003 auction. Following a similar
trend, the lending rates of commercial banks declined from a range of
12.7%-14.2% in December 2001 to a range of 7.9-9.6% in June 2002 and then
increased to a range of 8.2%-10.0% in October 2002.
Balance of Payments. The Republic's balance of payments recorded a surplus
of $412 million for the first ten months of 2002, compared to a previously
reported $1.5 billion deficit for the first ten months of 2001. The
year-on-year turnaround was mainly attributed to higher remittances from
overseas workers and the growth in exports.
The Republic recently disclosed that the reported current account surplus
had been overstated due to monitoring problems giving rise to underreported
imports. An inter-agency task force on the balance of payments considered the
effects of this problem on the Republic's consolidated financial position,
specifically the Republic's current account and capital and financial account.
The inter-agency task force has reviewed the Republic's balance of payments
data for the years 2000 and 2001 and is continuing its review of year 2002, but
is not reviewing prior years due to incomplete information. The inter-agency
task force includes representatives of the Bangko Sentral, the National
Statistics Office, the National Economic and Development Authority, the
National Statistics Coordination Board, the Bureau of Customs and the
Philippine Export Zone Authority. The inter-agency task force has been working
within the guidelines of the IMF's reporting system. It released revisions to
the Republic's balance of payments data for years 2000 and 2001 on January 16,
2003.
Although the task force's review indicated that the current account surplus
had been overstated, the Republic believes that this will not have any effect
on its overall balance of payments, because the increase in reported imports
has an offsetting effect on the Republic's capital and financial account, since
there will be a lower outflow of short-term capital. Accordingly, the
statistical revisions should have no impact on the gross and net international
reserves level of the Republic.
Reflecting updated import data, the current account for 2000 has been
revised to a surplus of $5.9 billion from a surplus of $9.2 billion, and the
current account for 2001 has been revised to a surplus of $305 million from a
surplus of $4.0 billion. At these revised levels, the current account surplus
stood at 7.4% and 0.4% of gross national product for 2000 and 2001,
respectively. However, the capital and financial account for 2000 has been
revised downward to a net outflow of $3.4 billion from a net outflow of $6.5
billion, and the capital and financial account for 2001 has been revised
downward to a net outflow of $224 million from a net outflow of $3.7 billion.
The revisions for 2002 are being finalized and are expected to be released
within the next several months.
Certain rating agencies have cited the Republic's current account surplus as
a key strength supporting the Republic's current ratings. The revisions to the
reported historical current account surplus could lead to an increased
perception of risk by rating agencies and investors. The Republic has discussed
the underreporting and ongoing efforts to improve reporting of imports with the
credit rating agencies.
Current Account. Subject to the likely revisions due to the underreporting
of imports, the Republic's current publicly available information indicates
that the current account recorded a surplus of $3.9 billion for the first nine
months of 2002, nearly twice the $2.1 billion surplus for the first nine months
of 2001 (as unadjusted). Largely contributing to this development was the
higher surplus in the trade-in-goods account and the higher net inflow in the
income account. The trade-in-goods and services accounts posted a combined
surplus of $361 million for the first nine months of 2002. The increase in the
net income account surplus to $3.2 billion for the first nine months of 2002
also helped strengthen the current account balance.
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Exports. Total exports of goods for the first eleven months of 2002 were
$32.2 billion or 9.0% higher than in the first eleven months of 2001. Higher
demand for Philippine goods from the Netherlands, Singapore, Taiwan, Hong Kong,
South Korea, Malaysia and China made up for a decrease in exports to the United
States and Japan, which together account for approximately 41% of the country's
export market (26% for the United States and 15% for Japan in the first nine
months of 2002). The Republic's exports were led by solid growth in overseas
shipments of electronics products, clothing accessories and apparel. Overall,
the Government has maintained its growth target for exports of 4% for 2002.
Imports. In November 2002, imports of goods climbed for the tenth
consecutive month due to increased purchases of raw materials and capital
goods, which, taken together, account for more than four-fifths of total
imports. Imports for the first eleven months of 2002 were up 12.7% at $30.9
billion. This was a reversal of the 2.6% decline for the same period in 2001.
The import growth reflected sustained domestic demand.
Services. The trade-in-services account in the first nine months of 2002
posted a net outflow of $857 million. The 40.9% narrowing of the deficit from
the same period in 2001 was caused by lower net payments for transportation
services and for miscellaneous business, professional and technical services.
Net receipts from travel services were $581 million in the first seven months
of 2002, due to a relative decline in travel payments. Lower travel payments
reflected in part the weaker Peso and the government program to promote
domestic tourism among local residents.
Income. Remittances from overseas Filipino workers amounted to $5.4 billion
in the first nine months of 2002, an increase of 21.2% from the same period in
2001. Behind this development was the 3.5% rise in the number of overseas
Filipino workers. However, as the global economic slowdown affects some of the
countries where Filipinos are working, the Government has intensified its
marketing efforts to increase hiring of Filipinos abroad.
Capital and Financial Account. Subject to the likely revisions due to the
underreporting of imports, the Republic's current publicly available
information indicates that the net outflow in the capital and financial account
was $3.7 billion during the first nine months of 2002. This was caused by
higher net outflow of other investments and lower net inflows of direct
investment, despite the reversal of the portfolio investment account to a net
inflow of $692 million for the first nine months from a net outflow of $208
million for the first nine months of 2001.
Portfolio investments for the first nine months of 2002 reversed to a net
inflow of $692 million, from a net outflow of $208 million in the first nine
months of 2001, following increased non-residents' investments in
resident-issued foreign denominated debt securities, particularly
government-issued medium-term bonds.
Non-residents' investments in equity capital more than doubled to $903
million during the first nine months of 2002 due mainly to the investment of
$544 million worth of shares by a Japanese firm in the San Miguel Corporation,
a local brewery company, in March 2002. The remaining investment was directed
to other manufacturing companies, financial institutions and transport and
storage services. Other major sources of direct investments were the United
States, Singapore, the United Kingdom and the Netherlands.
The net outflow in the other investment account expanded by 12.6% to $5.1
billion during the first nine months of 2002. This was due in large part to the
higher net deposits abroad by resident non-banks, a majority of which were
corporations involved in build-operate-transfer arrangements, to cover
foreign-related obligations.
International Reserves. Bangko Sentral's gross international reserves,
including the reserve position in the IMF, decreased to $15.8 billion at the
end of November 2002 from $17.1 billion at the end of May 2002. The end-October
level is equivalent to 4.9 months of imports of goods and payments of services
and income and was
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1.3 times the amount of short-term external obligations of the Republic based
on residual maturity or 2.7 times the amount of short-term external debt of the
Republic based on original maturity. There was no significant effect on the
revised numbers. Bangko Sentral's net international reserves decreased to $12.5
billion at the end of November 2002 from $13.7 billion at the end of May 2002.
Peso/US$ Exchange Rate. After reaching (Peso)49.48 on May 20, 2002 the peso
began depreciating to an average of (Peso)50.60 per US dollar in July 2002 and
further to (Peso)51.79 per US dollar in August 2002. This two-month
depreciation was due mainly to increased corporate demand for dollars (to
service foreign obligations arising from increased imports) as well as banks'
covering their short dollar positions in anticipation of a slowdown in dollar
remittances. For the month of September 2002, the average exchange rate
declined further to (Peso)52.13 per US dollar and for the month of October
2002, the exchange rate averaged (Peso)52.91 per US dollar. The depreciation of
the peso in September and October 2002 has been attributed to the devaluation
of Asian currencies and to increased demand from banks for US dollars.
The Peso depreciated further to an average of (Peso)53.30 in November 2002.
On February 5, 2003 the exchange rate was (Peso)53.84 per US dollar.
The recent weakness of the peso was also generally attributable to
uncertainty over a potential war in Iraq, declining investor confidence due to
concerns over the rising fiscal deficit, recent terrorist attacks in the
Philippines and Indonesia, and the vulnerability of emerging markets, including
the Philippines, to the South American debt contagion.
Banking System Non-Performing Loans. As of October 31, 2002, the ratio of
non-performing loans to total loans in the commercial banking system remained
unchanged from September 30, 2002 at 16.4% but had decreased from 18.8% as of
October 2001. The improvement in the NPL ratio from the previous year was due
in part to a redefinition of "non-performing loan" which took effect September
19, 2002 (the redefinition allows banks to exclude from "non-performing loans"
uncollectable loans that have been fully covered by allowance for probable
losses); however, even under the previous definition of "non-performing loan",
the NPL ratio at the end of October would have decreased to 16.9%. The yearly
decrease in the non-performing loan ratio was also attributed to increased
foreclosure, restructuring proceedings, and generally improving performance of
the commercial banking sector. The non-performing loans coverage ratio (loan
reserves to non-performing loans) increased to 48.7% in October 2002 from 48.1%
in September 2002.
In December 2002, Congress approved the Special Purpose Asset Vehicle
("SPAV") bill. The SPAV bill provides the legal framework for the creation of
private asset management companies that are expected to relieve a major portion
of the banking system's non-performing assets and thereby promote bank lending
to support economic growth. President Arroyo signed the bill into law on
January 10, 2003. The SPAV bill's draft implementing rules and regulations were
submitted to Congress on February 7, 2003, and were expected to be passed
within sixty days.
Anti-Money Laundering Efforts. In June 2002, the Republic presented a
progress report to the Financial Action Task Force (the "FATF"), which was
established by the Organisation for Economic Cooperation and Development to
combat money laundering and is backed by most of the world's industrialized
nations, to demonstrate how the Anti-Money Laundering Act of 2001 was being
administered in the hope of being removed from FATF's list of "non-cooperative
countries and territories". Despite recognizing that the Republic has made
progress in combating money-laundering, the FATF, in its report indentifying
non-cooperative territories dated June 21, 2002, decided that the Republic
should remain on the list for further monitoring. The FATF asked the Republic's
Anti-Money Laundering Council to consider reducing the threshold amount for
bank deposits subject to inspection, which currently stands at (Peso)4 million,
as a prerequisite to being removed from the blacklist. A bill to amend the
Anti-Money Laundering Act to address the FATF's concerns is currently pending
in Congress. The FATF did not remove the Republic from its "non-cooperative"
list at its November 2002 meeting. The president of the Senate had expressed
his hope that the bill to amend the Anti-Money Laundering Act would be passed in
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January 2003, and the Republic hopes to be removed from the "non-cooperative"
list in February 2003. However, on February 4, 2003, the Senate failed to pass
the bill despite a session of deliberation. The FATF deadline for the amendment
was February 12, 2003. On February 13, 2003, Congress approved changes to the
Anti-Money Laundering Act, including lowering the threshold for bank deposits
subject to inspection to (Peso)500,000 and adopting the FATF's definition of
"suspicious transaction", but rejecting the FATF's demand to allow regulators
to check suspicious transactions prior to the law's passage in 2001. Despite
FATF demands, the amendments would also still require a court order to examine
suspicious transactions, other than for suspected transnational crimes such as
terrorism coupled with kidnapping, murder, arson or hijacking, and suspected
drug-related activities. On February 14, the FATF recommended the imposition of
sanctions on the Republic beginning on March 15, 2003. If the FATF's demands
are not met prior to that time, the member countries of the FATF may impose
countermeasures on the Republic such as prohibiting access to the US financial
system, requiring offshore banks to refuse to do business with banks in the
Philippines and employing stricter screening of financial transactions,
including dollar remittances from abroad. Such screening could make financial
transactions with the Philippines more expensive and time-consuming. President
Arroyo had withheld her signature from the amendments pending the FATF's
response and has now ordered finance authorities to coordinate with Congress to
assure new amendments satisfactory to the FATF by the March 15, 2003 deadline.
The Consolidated Financial Position. For the first half of 2002, the
consolidated financial position of the Republic (not including Bangko Sentral)
recorded a deficit of (Peso)117.5 billion, 60.7% higher than the (Peso)73.1
billion target for the period. The Government recorded a (Peso)119.7 billion
deficit, the Central Bank restructuring accounted for an additional (Peso)8.4
billion deficit, and the monitored Government-owned corporations accounted for
a (Peso)7.1 billion deficit. The total public sector borrowing requirement of
(Peso)131.1 billion was offset in part by a combined surplus of (Peso)13.6
billion for the other public sector entities during the first six months of
2002. Of the surplus, (Peso)10.6 billion was attributable to the social
security institutions.
Government Budget for 2003. In August 2002, the Arroyo administration
submitted to Congress its proposed 2003 budget. The 2003 budget submitted in
August sought a 3.0% increase in appropriations to (Peso)804.2 billion from the
(Peso)780.8 billion budgeted for 2002. The most recent version of the 2003
budget calls for (Peso)804 billion in expenditures, revenue collections of
(Peso)602 billion, and a deficit of (Peso)202 billion. The 2003 budget is
currently under consideration in Congress and is expected to be approved in
early 2003. On January 15, 2003, President Arroyo called on both houses of
Congress to speed up passage of the 2003 budget.
Relationship with the ADB. The Asian Development Bank ("ADB") announced in
November 2002 that it plans to make up to $815 million in loans to the
Philippines over the next three years for projects focused on alleviating
poverty. The priority sectors are education, urban development, power, roads,
environment management, financial markets, and small and medium-sized
enterprise development and focuses on Mindanao and the southern Philippines.
The ADB noted that the current budget deficit could affect the release of the
proposed loans.
The ADB also agreed to extend the terms of its $174 million grain sector
development program with the Philippines government until December 2003. The
program, aimed at liberalizing the pricing and importation of rice and corn and
restructuring the National Food Authority, is tied to the implementation of a
number of reforms by the Government.
Relationship with IMF. The International Monetary Fund ("IMF") currently
maintains a close dialogue with the Government, within the framework of a
post-program monitoring arrangement ("PPM"). The PPM involves program
assessments which are based on a regular review of economic developments and
policies rather than the attainment of specific quantitative targets. This
arrangement does not involve a financing component. On September 25, 2002, the
Executive Board of the IMF concluded an Article IV consultation with the
Republic. The report explained that although over the past 15 years the
Republic made progress in establishing a market-oriented economy, underlying
policy progress recently has begun to slip. The report cites problems with the
implementation of the power sector reform and passage of the Asset Management
Corporations bill, low revenue collection, the budget deficit and asset price
volatility.
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On December 15, 2002, the IMF completed a 10-day review of the Philippine
economy as part of the PPM. The IMF emphasized the need for the reduction of
the fiscal deficit through increased revenues. In particular, the IMF
recommended additional taxes on telecommunications, "sin" products and
automobiles, and measures to improve the efficiency of tax collection. The IMF
also recommended improvements in energy regulation, including a stronger and
more independent ERC and the passage of the Transco franchise bill.
On January 31, 2003, the Government announced that it will discontinue the
PPM when the program expires in September 2003. The Republic will continue to
be subject to the IMF's annual Article 4 review, which is standard for all IMF
members.
Money Supply. The Republic's money supply, as measured by domestic
liquidity, expanded 9.9% in October 2002, up from 6.7% in November 2001.
Domestic liquidity in November 2002 was (Peso)1.611 trillion, up from
(Peso)1.596 trillion in September 2002.
National Socio-Economic Summit of 2001. On December 10, 2001, President
Arroyo convened the National Socio-Economic Summit of 2001, in which over 1,000
leaders of Government, business, labor organizations and civil society
participated. President Arroyo called the summit in recognition that the
September 11 terrorist attacks on the United States had given rise to new
uncertainties and decreased the prospects of a global recovery initially
anticipated by the Government to start in the latter part of 2001. The
Government was concerned that these uncertainties, together with the delay in
the recovery, could adversely affect the welfare of the Philippine people and
the domestic economy, particularly export-oriented sectors, tourism-related
industries and the financial markets. Towards this end, the Government
recognized the need to take immediate steps to safeguard jobs and social
services, enhance competitiveness and productivity of the economy and
strengthen investor confidence by improving peace and order and governance, and
eliminate the structural and implementation bottlenecks in agriculture,
industry and services. In a speech before Congress on January 15, 2003,
President Arroyo called for Congress to speed up passage of a number of these
measures.
The specific items agreed upon during the summit include:
Peace, Order and Security.
. Accelerate the integration and coordination of intelligence activities and
resources of law enforcement and security agencies; maximize all
mechanisms to identify, locate and neutralize kidnap for ransom groups,
drug syndicates, terrorists, smugglers, and coup plotters; and improve the
reward system for information on these groups; and
. Mobilize the peace and order councils more actively and organize
self-defense units, which will be authorized to carry firearms and effect
citizen's arrests pursuant to existing laws under close supervision of the
Department of Interior and Local Government and the Philippine National
Police.
Financial and Fiscal Reforms.
. Increase Bureau of Internal Revenue collection through administrative
measures with a focus on industry benchmarking, review of big contract
items in the budget with significant tax leakages, monitoring of local
government unit remittances, undertaking measures to improve the
collection of value-added tax and the 2% minimum corporate income tax and
the passage of legislation on the indexation of the excise tax;
. Strictly implement seizure orders and stop issuances by Government
agencies of documents legitimizing smuggling and other measures to combat
smuggling;
. Pass legislation needed to facilitate the recovery of the financial sector
and enhance access to credit such as the Special Purpose Vehicle Act, the
Securitization Act, new legislation removing documentary stamp taxes on
secondary trading transactions, amendments to the Bangko Sentral and
Philippine Deposit Insurance Corporation charters, the Corporate Recovery
Act and the Personal Equity Retirement Act; and
. Enhance private sector access to official development assistance including
for Build-Operate-Transfer projects, railway and other private
sector-initiated infrastructure projects and private education
institutions.
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Agriculture.
. Achieve food security and generate jobs by using hybrid and certified
seeds in rice and corn production and facilitating marketing contracts
between agricultural producers and business corporations;
. Enhance the effectiveness of the Government fund set up to increase
agricultural competitiveness and ensure that appropriate tariffs are
transferred to this fund;
. Reform lending procedures at the Land Bank of the Philippines to increase
the number of loans made for agricultural purposes; and
. Maintain budgeted funding for programs on agriculture, fisheries,
indigenous peoples, agrarian reform, community based forest management and
watershed protection and management.
Trade and Industry.
. Pass amendments to existing legislation to rationalize the country's
investment incentives scheme to match those of other Asian nations and
ensure that appropriate incentives will be granted to information
technology services;
. Support small and medium enterprises by streamlining business
documentation requirements, strengthening the guarantee fund system and
developing on-line credit application;
. Promote micro-finance banks in all provinces; and
. Modernize the cargo transport system by reviewing existing legislation and
passing new legislation on air cargo liberalization.
Tourism-related Industries.
. Amend existing legislation to allow for rechanneling of 40% of travel tax
collections to tourism-related projects and programs;
. Improve access to tourist-generating markets by liberalizing visa
requirements and fees for Chinese tourists;
. Institutionalize a mechanism to allow for an automatic increase in
frequency of flights once a carrier's current flights achieve a 70% load
factor; and
. Aggressively promote programs geared towards domestic and international
tourism.
Telecommunications and Information Technology.
. Facilitate granting of permits and licenses for increased deployment by
private sector telecommunications service providers of broadband services
and other telecommunications facilities in key locations, such as
industrial parks and regional centers, to develop and encourage e-commerce
and e-business;
. Increase the demand for information technology services by accelerating
the implementation of an e-development program for small, micro and medium
enterprises; and
. Expand the implementing rules and regulations of the
Build-Operate-Transfer Law to address specific requirements of information
technology projects, consistent with the law.
Labor and Employment.
. Address the needs of workers by providing assistance in terms of
employment facilitation services such as job matching and referrals,
guidance counseling and livelihood and entrepreneurship development;
. Implement a job corps program by January 2002 to promote, among other
things, entrepreneurship among workers and generate local jobs and
facilitate overseas employment; and
. Conduct skills training, retraining and upgrading to meet the requirements
of fast changing technologies and equip workers with in-demand skills.
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On January 25, 2002, a memorandum of agreement was released implementing a
job corps program promoting volunteerism, civic consciousness among the
country's youth, community development and employment projects.
Infrastructure.
. Unlock bottlenecks for the implementation of identified solid waste
disposal projects in Metro Manila and other urban centers;
. Reduce traffic congestion in Metro Manila and other urban centers by close
coordination among the Metro Manila Development Authority and other
implementing agencies, utilities, malls and private contractors; and
. Utilize more labor-based construction methods, especially for small rural
infrastructure projects to generate employment.
Housing.
. Streamline housing permits and processes by prescribing time periods for
the issuance of housing related permits and clearances and instituting a
mechanism to monitor compliance with the new processes;
. Promote rent-to-own and other similar schemes; and
. Pass legislation to index "sin" taxes and earmark (Peso)5 billion of the
Government's share of those taxes to subsidize a targeted socialized
housing program.
Health and Other Social Services.
. Expand coverage of services under the National Health Insurance Program
and accelerate the rollout of areas for the indigent health program;
. Reduce by one half the prices as of July 2002 of medicine commonly used by
the poor by increasing the number and type of distribution points; and
. Pass legislation on domestic violence and anti-trafficking of women.
A monitoring body composed of presidential advisers and assistants is to
provide quarterly status reports on the above action items to the
Legislative-Executive Development Advisory Council.
Core Policies of the Arroyo Administration.
In addition to the items agreed upon in the National Socio-Economic Summit
of 2001, the Arroyo Administration has set out several other broad policy
objectives which are discussed below.
Medium-Term Philippine Development Plan. In its Medium-Term Philippine
Development Plan for 2001-2004, the Government has stated that its primary
policy objectives are:
. Comprehensive human development and protecting the vulnerable;
. Good governance and rule of law;
. Agricultural and fisheries modernization with sound equity; and
. Macroeconomic stability and equitable growth based on free enterprise.
Comprehensive Human Development and Protecting the Vulnerable. The goal of
the Arroyo administration is to eradicate poverty by the end of the decade. The
Arroyo administration's five core strategies to fight poverty are:
. Asset reform programs or the redistribution of physical and resource
assets, particularly land and credit.
. Human development services, particularly basic education, health, shelter,
water and electricity.
. Social protection of the poorest and most vulnerable sectors and
communities through social welfare and assistance, local safety nets,
social security and insurance.
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. Participation of the poor in governance.
. Security and protection against violence, including in the home.
The plan calls for expanding the access of low-income groups to health care,
education, vocational and technical training, housing and shelter programs, and
population management and reproductive health initiatives. The plan also calls
for an alleviation of regional disparities by directing more resources to
poorer parts of the country. Special attention will be given to Mindanao to
promote peace and economic development in the region.
Good Governance and Rule of Law. To ensure good and effective governance,
the Government plans institutional reforms to heighten accountability, decrease
graft and corruption in procurement, guarantee political stability through the
electoral and judicial process, and promote peace and order through a
modernization of the national police and armed forces. The plan also reaffirms
the Government's intention to abide by international commitments, including
those under the ASEAN Free Trade Area-Comprehensive Effective Preferential
Tariff, the World Trade Organization, and the Asia-Pacific Economic Cooperation
forum.
These international commitments include:
. removing quantitative restrictions (import quotas or prohibition on
imports) and conversion of these restrictions into equivalent tariffs;
. maintaining current regulations on market access with respect to the
financial sector, telecommunications, transport and tourism;
. strengthening financial market supervision through training of banking
supervisors and securities regulators;
. assessing the banking supervisory regimes;
. reforming the pension systems;
. improving credit rating agencies' ability to channel timely and accurate
information to capital markets and strengthening financial disclosure
standards;
. developing domestic bond markets;
. strengthening corporate governance;
. designing a voluntary action plan for supporting freer and stable capital
flows; and
. supporting privatization efforts through institutional strengthening and
investment programs.
The Republic's compliance with its international commitments helps to
strengthen the country's economic performance and support the economies of
other Asian nations. For instance, in 1996, the Republic enacted Republic Act
8178 which authorized the replacement of all quantitative restrictions on
agricultural imports (except rice) with tariffs. To promote more trade between
the Philippines and other Asian countries, the tariffs will be reduced by 24%
over a period of 10 years.
Agricultural and Fisheries Modernization with Sound Equity. To raise
agricultural productivity and rural household incomes, the plan calls for the
full implementation of the Agriculture and Fisheries Modernization Act of 1997
before the end of this decade. This Act includes increased research and
development in the agriculture and fishing industries, rural industrialization,
and the accelerated development of infrastructure facilities like irrigation
and farm-to-market roads. As agriculture is modernized, safeguards will be put
in place to ensure that intensified production activities do not undermine the
integrity of the environment.
Macroeconomic Stability and Equitable Growth Based on Free Enterprise. The
plan calls for macroeconomic stability and sustained growth of income and
employment across sectors and socio-economic groups. The plan aims to avoid
unexpected surges in unemployment and declines in income through fiscal,
monetary, financial, and exchange rate policies coordinated to achieve a low
inflation rate and a sound balance of payments position. The plan includes an
expansion of microfinance and small-to-medium enterprise credit, acceleration
of improvement in information and communications technology, development of
tourism
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infrastructure, and outreach and social safety net programs. The plan also aims
to remove barriers to private investments, including power costs, through the
recently enacted Electric Power Industry Reform Act, which became effective on
June 26, 2001. See "Industry Restructuring and Privatization -- Electric Power
Industry Reform Act of 2001".
The following is a description of the principal elements of the plan
relating to macroeconomic stability.
Fiscal Policy: Sustainability and Discipline. The Government's immediate
objective is to reduce its budget deficit. The Government believes that
reducing the deficit will reduce interest rates, free resources for private
sector investment and reduce the risk of insolvency and illiquidity. To support
the Government's development objective, the Government's fiscal deficit
reduction program will focus primarily on revenue generating measures, while
maintaining prudent public spending. The deficit reduction program will be
comprehensive and extend also to Government corporations and local government
units. The components of the fiscal deficit reduction program are:
. increasing revenue collection efficiency to finance the Government's
development projects, especially those intended to benefit the poor; and
. reducing Government expenditures without sacrificing anti-poverty programs
and vital social services such as education and training, health care and
agricultural modernization.
Revenue generating measures will include improved tax administration and
privatization of Government assets, including:
. Restructuring the road users' tax, redefining automobile categories and
increasing automobile fees and charges;
. Installing electronic metering machines to collect the proper documentary
stamp taxes;
. Establishing large taxpayer's offices, initially in three major cities in
the country;
. Accelerating efforts to pursue settlements of Bureau of Internal Revenue
receivables and conducting intensive audits of various taxpayers and
industries; and
. Disposing government assets, including shares in National Power
Corporation, Philippine National Oil Company -- Energy Development
Corporation and Philippines National Construction Corporation.
Cost-cutting measures include:
. Re-imposing a 25% mandatory reserve on all government agencies;
. Austerity measures such as staff reduction through attrition and
postponing construction of new buildings and the purchase of furniture and
motor vehicles; and
. Deferment of low priority projects and the scaling down of special purpose
funds.
Even as Government spending is reduced, poverty alleviation programs and
other core programs will be protected. Increasingly, a larger proportion of the
budget and more discretionary expenditures will be channeled to social services.
To further its fiscal policy, the Arroyo administration will propose
legislation which will:
. Restructure the excise tax system on motor vehicles to remove the bias
based on engine displacement of all types of vehicles, and modify the tax
system to include new automotive technologies, such as electric cars and
cars propelled by other types of fuel;
. Rationalize grants of fiscal incentives;
. Index excise tax rates to inflation;
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. Include reforms for effective governance, including the
institutionalization of a professional and dynamic bureaucracy;
. Grant the President authority to reorganize the executive branch; and
. Rationalize the pay structure between the public and private sectors with
mitigation measures to enable the smooth implementation of the
reengineering of the organizations in such sectors.
Monetary Policy: Price Stability. Monetary policy is geared to achieving
price stability, which is expected to result in a low and stable inflation rate
over the medium term and is expected to lead to a reduction in lending rates,
which will encourage firms to invest and thus generate jobs. Low interest rates
also benefit farmers and small enterprises that borrow to meet their working
capital requirements. The Government's fiscal deficit reduction program is
intended to ensure that the efforts of the monetary authorities to lower
inflation and lending rates are not negated by a persistent budget deficit. The
Government will seek to achieve greater coordination between its fiscal and
monetary policies.
On January 1, 2002, Bangko Sentral formally shifted from monetary targeting
to inflation targeting as the framework for monetary policy. The policy shift
is expected to strengthen Bangko Sentral's commitment to achieve its primary
mandate of price stability and enhance the level of transparency and
credibility in the conduct of monetary policy.
As a strategy for conducting monetary policy, Bangko Sentral believes that
inflation targeting offers the following advantages:
. provides a clearer definition of the objective of monetary policy;
. enhances transparency in the conduct of monetary policy;
. provides simplicity and, therefore, is easier for the public to understand;
. guides or anchors inflationary expectations;
. improves the accountability and credibility of monetary authorities to the
inflation objective; and
. leads to greater probability of success in achieving the inflation
objective.
External Policy: Stable Foreign Exchange Rate. The Government's foreign
exchange rate policy is to maintain a comfortable level of reserves, keep the
capital markets open and maintain a market-determined exchange rate. These
policies are intended to increase the economy's resilience against volatile
capital flows and facilitate the Government's realization of its macroeconomic
targets.
Financial Sector Policy: Banking and Corporate Governance Reforms and
Capital Market Development. The Government intends to pursue policies that
strengthen the regulatory framework and minimize systemic risks. Because a
sound banking system cannot exist when the corporate sector is weak, policies
that will enhance corporate governance are needed to complement banking sector
reforms.
To prepare the financial system for the challenges posed by globalization,
Bangko Sentral implemented major reforms in financial regulation and
legislation geared toward improving the legislative and regulatory framework,
using a risk-based approach to banking supervision and encouraging mergers and
consolidations.
Bangko Sentral has identified several areas in its regulatory and
supervisory framework that need to be strengthened further to ensure the
banking system's ability to absorb shocks. Aside from the ongoing efforts to
amend the New Central Bank Act, as described below, Bangko Sentral proposes
implementing the newly formulated rules and regulations of the General Banking
Law. In the area of banking supervision, Bangko Sentral continues its effort to
shift to consolidated bank supervision and risk-based examinations.
Bangko Sentral has recognized the need to upgrade the banking system's
settlements and payments system into real-time gross settlements. The envisaged
system would cover equities, fixed income, money and foreign exchange markets,
and effect final settlement on a real-time basis.
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The Asian financial crisis has also shown the importance of developing
primary and secondary capital markets that can provide financial instruments
other than bank credit to the corporate sector. The development of the capital
markets is also necessary to raise domestic savings, especially long-term
savings, to finance domestic investments. The poverty reduction agenda requires
supporting the development of microfinance and agriculture related credit
institutions that are in the best position to provide credit to small and
agricultural enterprises.
The Government is pursuing the enactment of the following legislation to
further its policies, strengthen financial and corporate governance and develop
the capital markets:
Amendments to the New Central Bank Act
The key changes being sought in the New Central Bank Act of 1993 are aimed
at three main objectives:
. Promoting greater stability of the banking system:
. Granting Bangko Sentral authority to provide loans in situations that, in
the judgment of the Monetary Board, could lead to illiquidity of the
banking system;
. Treating an overdraft as an emergency loan;
. Removing the five-day overdraft privilege granted to banks; and
. Allowing the placement of banks into receivership and liquidation:
. Upon submission of a report by Bangko Sentral to the Monetary Board
that the capital to risk asset ratio falls below 2% for 90 consecutive
days; or
. Upon a public announcement by banks of a bank holiday and suspension of
payments of its deposit liabilities for more than 30 days.
. Strengthening supervisory capability of Bangko Sentral:
. Authorizing the Monetary Board to allow Bangko Sentral to conduct
examinations or inquiries into all deposit accounts of more than (Peso)50
million or its foreign currency equivalent, if there are reasonable
grounds to believe that there is irregular activity in the account;
. Allowing Bangko Sentral to conduct examinations of the books of banks at
least once every calendar year and permits the governor or the
supervisory department head or his deputy to authorize these examinations;
. Imposing stiffer penalties for violations of banking laws;
. Imposing stiffer sanctions on banks and expands the sanctions to their
subsidiaries and affiliates;
. Extending the requirements of a balanced currency position to banks'
subsidiaries and affiliates; and
. Authorizing Bangko Sentral to impose service fees on financial
institutions.
. Enhancing Bangko Sentral's effectiveness:
. Removing the five-year time limit on Bangko Sentral's tax exemption as
provided in Sections 125 and 126 of R.A. No. 7653;
. Granting the Monetary Board the authority to provide a compensation
structure based on job evaluation and wage surveys; and
. Allowing banks to engage in financial derivatives subject to regulations,
as may be issued by the Monetary Board, to restrain banks from taking
speculative positions with respect to future fluctuations in foreign
exchange rates.
The bill proposing the amendments to the New Central Bank Act is pending in
Congress.
Amendments to the Philippine Deposit Insurance Corporation Act
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. Strengthens the supervisory authority of the Philippine Deposit Insurance
Corporation over insolvent banks, provides assistance to facilitate the
sale of assets and assumption of liabilities of banks under receivership
and increases the amount of the permanent insurance fund.
The Philippine Deposit Insurance Corporation is consulting with Bangko
Sentral on the specific terms of the proposed amendments.
Corporate Recovery Act
. Seeks a pre-negotiated, fast-tracked, and court-supervised rehabilitation
plan and provides a procedure for the dissolution and liquidation of
companies;
. Repeals certain sections of the old insolvency law that pertain to
corporate bankruptcies while retaining individual bankruptcy procedures;
and
. Includes some specific measures such as allowing either a debtor or a
creditor to initiate formal insolvency proceedings.
Two competing bills relating to the Corporate Recovery Act are being
considered by Congress. One bill is being discussed in the House and the other
bill is being discussed in the Senate.
Rationalization of Taxation on the Financial Sector
. Restructures gross receipts and documentary stamp taxes to minimize their
cascading effect, particularly on frequently traded instruments and assets;
. Eliminates distortions arising from the non-uniform tax treatment of
financial institutions and assets; and
. Rationalizes tax treatment of pension funds, insurance and investments
houses to assist in the development of the capital market.
The Department of Finance has drafted a proposed bill and is preparing to
submit it to Congress.
Revised Investment Company Act
. Establishes a comprehensive regulation scheme to permit investment
companies to serve their role in the capital formation process, and at the
same time to prevent abuses and protect investors in such companies; and
. Provides a favorable framework where investment companies can operate to
facilitate the flow of investments from sources within the country and
abroad, and to broaden securities ownership by Filipinos.
Four competing bills relating to the Investment Company Act have been
submitted to Congress.
Pre-need Plan Code
. Provides the regulatory framework for the efficient regulation of the
pre-need industry (investing today for things like education costs which
will be needed in the future) including the method of determining and
computing reserves and the annual valuation of pre-need products.
Five competing bills relating to the Pre-need Plan Code have been submitted
to Congress. Two bills are being considered in the House and three bills are
being considered by the Senate.
Securitization Act
. Offers investment participation in asset-backed securities products to a
wider range of investors; and
. Creates special purpose vehicles as the transferees of assets and the
issuer of securities, removes gross receipts and documentary stamp taxes,
creates a regulatory system, and removes the one-year right to redeem,
although foreclosure will be considered a final settlement of an
obligation.
A draft bill relating to the Securitization Act is being reviewed by the
Department of Finance and the SEC.
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Special Purpose Asset Vehicle Act
. Authorizes the creation of special purpose asset vehicles to acquire
non-performing loans, real estate and other assets for the benefit of
financial institutions.
The SPAV law was signed by the President on January 26, 2003 and its
implementing rules and regulations are being reviewed.
Securities Regulation Code
. Amends the mandatory tender provision from 15% to 35%;
. Amends the broker-director prohibition by allowing the broker-dealers'
self-regulatory organization to issue rules;
. Transfers the authority to impose net capital and other capital adequacy
ratios on broker/dealers from the SEC to the self-regulatory organization;
. Repeals the broker-dealer segregation; and
. Repeals the rule which allows the automatic listing of securities in all
exchanges.
Three bills relating to the Securities Regulation Code have been submitted
to Congress. Two bills are being considered by the Senate and one bill is being
considered by the House.
Personal Equity and Retirement Account Bills
. Provides for the taxability or non-taxability of an individual's personal
equity and retirement account; and
. Provides rules relating to contributions, earnings from investments and
distribution of benefits upon retirement.
Eight bills relating to personal equity and retirement accounts have been
submitted to Congress. Four bills are being considered by the House and four
bills are being considered by the Senate.
Income Tax System Reform
. Proposes uniform taxation on income of corporations, self-employed
individuals and professionals by changing the tax base and lowering the
income tax rate; and
. Amends the tax on salaried individuals by increasing the amount of exempt
income, lowering the marginal income tax rate and simplifying tax
compliance and administration rules.
Three bills relating to income tax reform have been submitted to Congress.
Two bills are being considered by the House and one bill is being considered by
the Senate.
Excise Tax Indexation and Reclassification
. Proposes to adjust the excise tax on cigarettes and alcohol products to
more accurately reflect prevailing market values; and
. Proposes to reclassify the excise tax based on net retail price and on a
three-year interval.
The Department of Finance has prepared a draft bill relating to excise tax
indexation and reclassification, which is currently being reviewed.
Fiscal Incentive System Reform
. Rationalizes fiscal incentives granted under all existing laws including
those incentives granted under laws creating economic zones; and
. Provides for an indicative tax expenditure budget.
Five bills relating to fiscal incentive system reform have been submitted to
Congress. Two bills are being considered by the House and three bills are being
considered by the Senate.
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Customs Modernization Bill
. Amends certain sections of the Tariff and Customs Code to enable the
Bureau of Customs to accept documents and electronically transmit
acknowledgement receipts, approvals and responses.
A draft bill relating to customs modernization has been submitted to
Congress.
History, Land and People
History. Spain governed the Philippines as a colony from 1521 until 1898.
On June 12, 1898, during the Spanish-American War, the Filipinos declared their
independence. The United States claimed sovereignty over the Philippines under
the 1898 Treaty of Paris, which ended the Spanish- American War, and governed
the Philippines as a colony until 1935 when the Philippines became a
self-governing commonwealth. On July 4, 1946, the Philippines became an
independent republic.
Geography and General Information. The Philippine archipelago, located in
Southeast Asia, comprises over 7,000 islands and a total land area of
approximately 300,000 square kilometers. The Republic groups the islands into
three geographic regions: Luzon in the north, covering an area of 141,395
square kilometers, Visayas in the center, covering an area of 55,606 square
kilometers, and Mindanao in the south, covering an area of 101,999 square
kilometers. The Republic is also divided into 15 administrative regions.
Forests cover approximately 50% of the Philippines and 47% of the country is
under agricultural cultivation. In 2000, agriculture, forestry and fishery
employed 37.1% of the labor force and provided 4.4% of the Republic's export
earnings (including exports of agriculture-based products). The Republic is
generally self-sufficient in staple cereals and is a major exporter of certain
agricultural products. Manufactured goods comprise the most important category
of the Republic's exports, accounting for 89.2% of the Republic's exports in
2000. Electronics, machinery and transport equipment and garments have
historically been the Republic's leading manufactured exports.
The Republic's population is currently approximately 80 million. The
Republic's capital, Manila, located in Luzon, has an estimated population of
1.7 million. The cities of Manila, Pasay, Kalookan, Quezon City, Mandaluyong,
Las Pinas, Muntinlupa, Marikina, Pasig and Makati, together with seven
surrounding municipalities, make up the National Capital Region or Metro
Manila. Metro Manila, the most populous of the administrative regions, has an
estimated population of 9.9 million people.
The majority of Filipinos have Malay ethnic origins. Filipino culture also
includes strong Spanish, Chinese and American influences. Filipino is the
national language, but English is the primary language used in business,
government and education. The population speaks over 80 other dialects and
languages, including Chinese and Spanish. Based on a 1999 survey, the
Republic's literacy rate is 95.1%, ranking among the highest in Asia.
Christianity, primarily Roman Catholicism, is the predominant religion in
the Philippines. A significant Muslim minority lives in Mindanao.
Government and Politics
Governmental Structure. Since 1935, the Republic has had three
Constitutions. The country adopted the current Constitution by plebiscite in
February 1987 after the ousting a year earlier of Ferdinand E. Marcos, who had
ruled for 20 years, in favor of Corazon C. Aquino after a people's uprising.
The new Constitution restored a presidential form of government comprised of
three branches: executive, legislative and judicial.
The principal features of each branch are as follows:
. Executive -- A President, directly elected for a single, six-year term,
exercises executive power. If the President dies, becomes permanently
disabled or is removed from office or resigns, the Vice President acts as
President for the remainder of the term. If the Vice President cannot
serve, the President of the Senate or, if he cannot serve, the Speaker of
the House of Representatives, acts as President until the election and
qualification of a new President or Vice President. The person acting as
President for any remaining term may, if elected, serve a six-year term as
President.
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In May 1998, the country elected Joseph Estrada as President and Gloria
Macapagal-Arroyo as Vice President. In January 2001, after a people's
uprising, there was a transition of power to President Arroyo. See " --
Recent Political Developments".
. Legislative -- The Congress, comprised of the Senate and the House of
Representatives, exercises the country's legislative authority. The
Constitution mandates a Senate of 24 members and a House of
Representatives of not more than 250 members, all elected by popular vote.
Senators serve for a term of six years and members of the House of
Representatives for a term of three years. The country held elections for
13 Senators and all members of the House of Representatives in May 2001.
The other 11 Senators were elected in May 1998.
. Judicial -- The Supreme Court and any lower courts established by law
exercise the country's judicial authority. The country's court system is a
multi-tiered system of courts of general jurisdiction that includes the
Supreme Court and the Court of Appeals. Below these, the Regional Trial
Courts, Metropolitan Trial Courts, the Municipal Trial Courts and the
Municipal Circuit Trial Courts constitute courts of original jurisdiction.
Special or administrative tribunals and quasi-courts also exercise
judicial functions. Included in this category are constitutional
commissions, the Sandiganbayan, the court that handles Government graft
and corruption cases, the Court of Tax Appeals, the Shari'ah courts, which
handle matters governed by Islamic law, and administrative agencies that
handle specialized areas such as labor relations and securities regulation.
A Chief Justice and 14 Associate Justices constitute the Supreme Court,
which supervises all lower courts and related personnel. The Supreme Court
and the Court of Appeals may review decisions and rulings of lower courts
and quasi-judicial tribunals. The President appoints each Supreme Court or
Court of Appeals justice and lower court judge from at least three
candidates nominated by the Judicial and Bar Council.
Political Parties. The Republic's multi-party system currently has several
registered political parties. For the May 2001 elections, President Arroyo was
supported by the People Power Coalition which was comprised of the
Lakas-NUCD-UMDP, the Liberal Party, Reporma, Promdi, Aksyon Demokratiko and
other pro-Arroyo administration parties. In turn, parties identified with
former President Estrada formed the Puwersa ng Masa ("Force of the Masses")
coalition which was comprised of the Nationalist People's Coalition, the Laban
ng Demokratikong Pilipino, Partido ng Masang Pilipino, the People's Reform
Party and the Kilusang Bagong Lipunan (the party organized by the late
President Ferdinand Marcos and his political allies).
Administrative Organization. As of April 30, 2001, there were 1,626 local
Government units, 16 regions, 79 provinces, 114 cities, 1,496 municipalities
(subdivisions of provinces) and 41,943 barangays (villages, which are the basic
units of the political system) -- comprising the country's basic political and
administrative structures. Highly urbanized cities function independently of
any province, while other cities are subject to the administrative supervision
of their home provinces.
98
The Government is mainly organized around the 20 departments and
department-equivalent agencies of the executive branch, which implement the
various programs and projects of the Government. The departments and
department-equivalent agencies are in turn organized into sectors.
Sector Major Departments
- ------ -------------------------------------------------------------------
Social services................. Health; Education, Culture and Sports; Labor and Employment; Social
Welfare and Development
Economic services............... Agriculture; Agrarian Reform; Energy; Environment and Natural
Resources; Tourism, Trade and Industry; Public Works and Highways;
Transportation and Communications; Science and Technology
Defense......................... National Defense
General public services......... Foreign Affairs; Finance; Budget and Management; Interior and Local
Government; Justice; National Economic and Development Authority;
Office of the Press Secretary
Constitutional offices.......... Elections; Audit; Civil Service; Office of the Ombudsman; Human
Rights
Autonomous Region of
Muslim Mindanao............... Not applicable
Cordillera Administrative Region Not applicable
Agencies attached to the various departments perform regulatory, policy
formulation and coordination functions.
The projects and programs in the Autonomous Region of Muslim Mindanao and
Cordillera Administrative Region are implemented by various departments from
different sectors. The total budget allocated for projects in the Autonomous
Region of Muslim Mindanao was (Peso)5.4 billion for 2002. For 2002, (Peso)50.0
million or 0.9% of budget was allocated to infrastructure projects, with
locally-funded road and flood control projects implemented by the Department of
Public Works and Highways. The remainder of the budget was allocated for
governance and institutions development projects. The total budget allocated
for projects in the Cordillera Administrative Region was (Peso)4.0 billion for
2002. For 2002, (Peso)517.7 million or 12.9% of the budget was allocated to
infrastructure projects, with locally-funded road and flood control projects
implemented by the Department of Public Works and Highways. Approximately 20%
of the 2002 budget was allocated for agriculture, natural resources and
agrarian reform projects. The remainder of the budget will pay for social
reform and development projects.
The Government also owns or controls a number of corporations that provide
essential goods and services and work with the private sector to encourage
economic growth and development. Traditionally restricted to basic public
services and national monopolies, the number of Government corporations grew
from 13 in the 1930s to 301 by 1984. In 1988, the Government launched a reform
program to reduce the number of Government corporations, establishing the legal
and policy framework for the country's privatization program. See
"-- Government and Politics -- Privatization".
Currently, there are approximately 100 Government corporations, including
subsidiaries. Each of these corporations is attached to a department for policy
and program coordination.
99
The Government closely monitors 14 major non-financial Government
corporations engaged in various major business activities by recording their
individual contribution to the public sector deficit or surplus position and
other financial indicators. These 14 corporations and their areas of activity
are as follows.
Government Corporation Business Activity
---------------------- ----------------------
National Power Corporation................. power
Philippine National Oil Company............ holding company, power
National Electrification Administration.... electric utilities
Metropolitan Waterworks and Sewerage System water utilities
Local Water Utilities Administration....... water utilities
Philippine Export Zone Authority........... area development
National Food Authority.................... agriculture
National Irrigation Administration......... agriculture
Philippine National Railways............... transportation
Light Rail Transit Authority............... transportation
Philippine Ports Authority................. transportation
National Development Company............... holding company
National Housing Authority................. housing
Home Guaranty Corporation.................. housing insurance
As of December 31, 2001, these 14 corporations had aggregate domestic and
external debt of approximately (Peso)1,143 billion, which comprised virtually
all the debt incurred by Government corporations.
To facilitate the implementation of better business practices, the
Government intends to expand its monitoring of Government corporations,
including to the National Home Financing Corporation, which provides mortgage
financing for low-income housing.
The Government currently records the contribution to the public sector
deficit or surplus, and other financial indicators, of three Governmental
financial institutions that provide credit to enterprises in support of public
policies including two specialized Government banks -- the Development Bank of
the Philippines and the Land Bank of the Philippines. For a description of the
Development Bank and the Land Bank, see "-- The Philippine Financial System --
Structure of the Financial System". The third institution, the Trade and
Investment Development Corporation of the Philippines (formerly Philippine
Export and Foreign Loan Guarantee Corporation), guarantees foreign currency
loans to exporters and contractors. As of March 30, 2001, the monitored
Governmental financial institutions had aggregate domestic and external debt of
approximately (Peso)353.4 billion.
Privatization. The Government has privatized a number of Government
corporations. The country's privatization program has broadened the ownership
base of Government assets and developed the domestic capital markets.
Prior to 2001, the Committee on Privatization, an executive office under the
office of the President chaired by the Secretary of Finance, oversaw the
Government's privatization program. The Committee was responsible for
formulating privatization policies and guidelines, identifying disposable
assets, monitoring progress and approving the price for and the buyers of the
assets. The marketing of assets was handled by disposition entities, including
the Asset Privatization Trust, the Presidential Commission on Good Government
and the National Development Company. The division of responsibilities between
the Committee on Privatization and the disposition entities served as a check
and balance mechanism and enhanced transparency.
The terms of the Committee on Privatization and the Asset Privatization
Trust expired on December 31, 2000. Since January 1, 2001, the Privatization
Council has been responsible for the privatization of the remaining Government
corporations scheduled to be privatized. The Privatization Council, a
policy-making body, is chaired by the Secretary of Finance and includes
representatives from the Department of Tourism, The Department of Trade and
Industry, the Department of Budget and Management, the Department of Justice,
the National
100
Economic and Development Authority, the National Treasury and the Presidential
Commission on Good Government. Along with the Privatization Council, there are
two new disposition entities, the Land Bank of the Philippines, which is
responsible for the disposition of the financial assets previously held by the
Asset Privatization Trust, and the Privatization and Management Office, which
is responsible for the disposition of physical assets. To maintain a check and
balance system, all disposition entities must submit their privatization plans
to the Privatization Council for its review and approval and file a report
containing the results of each privatization transaction.
The following table summarizes certain information regarding the
Government's principal privatizations to date.
Government Gross
Ownership After Privatization
Year of Sale Sale Proceeds/(1)/
---------------------------- --------------- -------------
(in billions)
International Corporate Bank....... 1987; 1993 0.0% (Peso) 2.2
Union Bank of the Philippines...... 1988; 1991; 1992 13.0 1.3
Philippine National Bank........... 1989; 1992; 1995; 1996; 2000 16.0 /(2)/ 6.5
Philippine Plaza Holdings.......... 1991 0.0 1.5
Manila Electric Company............ 1991; 1994; 1997 30.0 /(3)/ 16.3
Philippine Airlines................ 1992 0.97 /(2)/ 10.7
Petron Corporation................. 1993; 1994 40.0 25.0
National Steel Corporation......... 1994; 1997 12.5 17.1
Paper Industries Corporation of the
Philippines...................... 1994 8.0 2.4
Philippine Shipyard and Engineering
Corporation...................... 1994 9.0 2.1
Fort Bonifacio Development
Corporation...................... 1995 45.0 39.2
Metropolitan Waterworks and
Sewerage System.................. 1997 -- /(4)/ -- /(4)/
Philippine Associated Smelting
and Refining Corp................ 1999 4.26 3.3
Philippine Phosphate Fertilizer
Corporation...................... 2000 0.0 3.1
- --------
Source: Privatization Council.
(1) Net remittances to the Government upon the privatization of its assets are,
in certain circumstances, less than the gross proceeds from the sale of
such assets, based on agreements between the Government and the privatized
entities.
(2) Government's ownership was diluted in 2001 by a pre-emptive rights offering.
(3) Government ownership includes ownership by agencies and Government
financial institutions.
(4) The privatization of Metropolitan Waterworks and Sewerage System involved
awarding two 25-year concessions to rehabilitate, expand and operate the
system. Over the term of the concessions, the concessionaires obligated
themselves to make improvements by, among other things, providing for water
services, sewerage services, and interconnection facilities between
themselves and paying concession fees to the Metropolitan Waterworks and
Sewerage System. The estimated cost of these improvements is $7.0 billion,
which is expected to be incurred over the 25-year concession period.
As of May 31, 2002, 26 Government corporations, 144 assets handled by the
Privatization and Management Office and certain personal property assets held
by the Presidential Commission on Good Government were scheduled for
privatization. With the initial privatization phase approximately 80% complete,
during the
101
remainder of 2002 the Government plans to focus on selling its remaining shares
in Manila Electric Company, fully privatizing the Philippine National Bank,
privatizing the Philippine National Construction Corporation, disposing of
certain assets held by the Presidential Commission on Good Government and
selling the International School of Manila property. The current economic
slowdown, however, may, in the near term, affect investors' propensity to
invest, or the prices that they are willing to pay for the Government's assets,
which would thereby reduce the proceeds received from any privatized assets. In
the medium term, the Government plans to privatize the National Power
Corporation, PNOC Energy Development Corporation, the International
Broadcasting Corporation, Food Terminal Inc. and the Philippine Postal Corp. In
the long term, the Government intends to concentrate on establishing public-
private partnerships to provide social services, especially in the health,
education and pension sectors and also on privatizing the operations and
management functions of selected Government corporations. The Government has
also encouraged "build-operate-transfer" arrangements and other initiatives to
enable the private sector to meet more of the country's infrastructure needs,
especially in the power, water, transportation and telecommunications sectors.
By pursuing its privatization goals, the Government hopes the private sector
will provide for infrastructure and social needs, simultaneously stimulating
the economy and relaxing the demand on public resources.
From January through May 2002, remittances to the National Treasury from
privatizations amounted to (Peso)140 million, increasing total remittances to
approximately (Peso)128 billion as of May 31, 2002. Although the Government's
privatization proceeds target for 2002 was originally (Peso)5 billion, the
target has been revised to (Peso)1 billion because of significant delays in the
privatization of National Power Corporation and the significant reduction of
value of Meralco.
International Relations. The Philippines places a high priority on
expanding global trade through a multilateral framework of principles and rules
that respect national policy objectives and the level of economic development
of individual countries. The country's participation in various international
organizations, like the World Trade Organization of the United Nations, the
IMF, the International Bank for Reconstruction and Development (also known as
the World Bank) and the Asian Development Bank, allows it to encourage
liberalized global trade and investment and to discuss financial and
development issues that will affect the Republic's economic development.
The following table shows the Republic's capital participation in, and loans
obtained from, major international financial organizations.
MEMBERSHIP IN INTERNATIONAL FINANCIAL ORGANIZATIONS
As of December 31, 2001
-------------------------------------------
Date Of Capital Capital Paid Loans
Name Of Organization Admission Subscribed Share In Outstanding
- -------------------- ------------- ---------- ------- ------------ -----------
(in millions, except for percentages)
International Monetary Fund/(1)/......... November 1945 SDR 879.9 -- SDR 879.9 SDR 1,559.2
International Bank for Reconstruction and
Development/(2)/....................... December 1945 $6,844.0 0.4% $48.9 $3,802.1
Asian Development Bank/(3)/.............. December 1966 $1,091.9 2.4% $78.0 $7,994.3
- --------
(1) Source: IMF.
(2) Source: World Bank Annual Report.
(3) Source: Asian Development Bank Annual Report.
The Philippines also promotes its economic interests through close ties with
neighboring countries and membership in the following regional organizations:
. the Association of Southeast Asian Nations ("ASEAN");
. South East Asia, New Zealand and Australia Central Banks;
102
. South East Asian Central Banks;
. ASEAN Free Trade Area;
. Asia-Pacific Economic Cooperation; and
. Executives Meeting of East Asia and Pacific Central Banks.
The Philippines seeks advances in bilateral relations and peaceful solutions
to regional issues through frequent consultations, visits and cooperative
activities. For example, in 1995, the country adopted a series of bilateral
codes of conduct regarding the Spratly Islands, an archipelago in the South
China Sea claimed by several Asian countries, to reduce the chances of
accidental conflict and is working toward the adoption of a regional code of
conduct with ASEAN and China. Nevertheless, several incidents related to the
disputed islands have occurred since 1995.
Philippine Economy
Overview
Like many developing countries after World War II, the Philippines protected
local industry from foreign competition through measures such as import tariffs
and quotas, hoping to replace imported finished goods with domestically
produced goods over time. Successive Governments also intervened in the
country's economic affairs by imposing quantitative trade barriers, price
controls and subsidies. Initially, the economy grew rapidly, with real GNP
growing at an average rate of 5.8% per annum from 1970 to 1980 largely due to
increased exports and Government investments. Infrastructure spending
increased, and state ownership of commercial enterprises became prevalent. By
the early 1980s, however, the country faced ballooning budget deficits, growing
levels of foreign and domestic borrowing, rising inflation, climbing interest
rates, a depreciating Peso, declining investment capital, and slowing economic
growth or, at times, a contraction in GDP. The country's unstable political
situation during that period, highlighted by the assassination of opposition
leader Benigno Aquino in 1983, exacerbated its economic problems.
The general optimism brought about by the peaceful removal of the unpopular
Marcos administration in 1986 helped economic recovery. Real GNP grew by 3.6%
in 1986, increasing to 7.2% in 1988 before decelerating to 0.5% in 1991. The
deceleration was caused principally by underlying macroeconomic imbalances,
compounded by supply bottlenecks, natural disasters, political instability, the
global recession and the Persian Gulf crisis.
The Government of President Corazon Aquino, who came to power in 1986,
embarked on a stabilization program aimed at preventing an upsurge in
inflation, controlling the fiscal deficit and improving the external current
account position. The economy responded favorably to these measures, posting
increases in real GNP, investments, private consumption and imports in 1992.
The Aquino administration also recognized that the country's economic
difficulties in large part resulted from its protectionist policies. The Aquino
administration, therefore, initiated reforms to open the economy to market
forces and reduce the size and role of the Government in the Philippine
economy. The Government of President Fidel Ramos, who assumed office in 1992,
accelerated the reform efforts initiated by the Aquino administration.
Despite undertaking a review of a number of the policies and programs
initiated by previous administrations, the Estrada administration continued
many of the financial policies and market-oriented reforms of the Aquino and
Ramos administrations.
Prior to the onset of the Asian economic crisis in mid-1997, real GDP grew
at an average annual rate of 5.0% from 1994 to 1996 while real GNP grew at an
average annual rate of 5.8% during the same period. The exchange rate between
the Peso and the US dollar was stable, ranging from (Peso)24 to (Peso)27 per US
dollar from 1994 to 1996. The consolidated public sector financial position
swung from a deficit of (Peso)8.4 billion in 1994 to a surplus of (Peso)7.3
billion in 1996. Total net foreign investments increased from $1.6 billion to
$3.5 billion during the same period and the unemployment rate declined from
9.5% in 1994 to 8.6% in 1996.
103
After the onset of the Asian economic crisis in mid-1997, the Philippines
experienced economic turmoil characterized by currency depreciation, a decline
in the performance of the banking sector, interest rate volatility, a
significant decline in share prices on the local stock market and a reduction
of foreign currency reserves. These factors led to a slowdown in the Philippine
economy in 1997 and 1998 with real GDP contracting by 0.6% in 1998. The
Philippines' economic performance in 1998 was also adversely affected by the
decline in agricultural production caused mainly by the effects of the drought
related to the El Nino phenomenon and later the typhoons related to the La Nina
phenomenon. In response, the Government adopted a number of policies to address
the effects of the Asian economic crisis by strengthening the country's
economic fundamentals. In 1999 and 2000, a number of the Philippines' economic
indicators showed more favorable results. In 1999, real GNP growth improved to
3.7% while real GDP expanded by 3.4%. The trend continued in 2000 with real GNP
growing by 4.8% and GDP growing by 4.4%. In 2001, the real GNP grew by 3.4% and
the real GDP grew by 3.2%. The GNP and GDP growth for 2001 remained strong,
although growing at a slower pace than 2000, primarily due to strong
agricultural output, a strong services sector and rapid growth in the
telecommunications industry, which was able to offset the manufacturing sector
suffering from weak global demand.
The Arroyo administration has prepared a medium-term development plan for
2001 to 2004 to fight poverty and unemployment. Major features of the
medium-term development plan are devoted to ensure good and effective
governance and improve public finances to reduce the number of poor families
and reduce unemployment. See "Core Policies of the Arroyo Administration".
GDP and Major Financial Indicators
Gross Domestic Product
Gross domestic product, or GDP, measures the market value of all final goods
and services produced within a country during a given period and is indicative
of whether the country's productive output rises or falls over time. By
comparison, gross national product, or GNP, measures the market value of all
final goods and services produced by a country's citizens during a given
period, whether or not the production occurred within the country.
Economists show GDP in both current and constant market prices. GDP at
current market prices values a country's output using the actual prices of each
year, whereas GDP at constant market prices values output using the prices from
a base year, thereby eliminating the distorting effects of inflation.
104
The following tables present the GDP of the Philippines by major sector at
both current and constant market prices.
GROSS DOMESTIC PRODUCT BY MAJOR SECTORS
(AT CURRENT MARKET PRICES)
Percentage of
GDP
------------
1997 1998 1999 2000 2001 2002 1997 2002
------------- ------------- ------------- ------------- ------------- ------------- ----- -----
(in billions, except as indicated)
Agriculture, fishery and
forestry.................. (Peso) 458.0 (Peso) 451.6 (Peso) 510.5 (Peso) 525.9 (Peso) 549.4 (Peso) 592.4 18.8% 14.9%
------------- ------------- ------------- ------------- ------------- ------------- ----- -----
Industry sector
Mining and quarrying....... 17.3 20.1 18.0 21.2 21.2 32.3 0.7 0.8
Manufacturing.............. 540.3 582.9 644.0 745.9 831.6 909.6 22.3 22.9
Construction............... 156.1 157.4 162.9 174.4 182.4 194.4 6.4 4.9
Electricity, gas and water. 66.1 78.0 86.1 97.5 116.3 121.2 2.7 3.0
------------- ------------- ------------- ------------- ------------- ------------- ----- -----
Total................ 779.8 838.4 911.1 1,039.0 1,151.5 1,257.6 32.1 31.6
Service sector
Transportation,
communications and
storage.................. 118.9 139.7 159.3 199.0 247.6 276.7 4.9 7.0
Trade...................... 317.2 361.2 419.3 473.0 517.5 556.0 13.1 14.0
Finance.................... 114.5 130.3 141.6 149.1 160.1 170.1 4.7 4.3
Ownership of dwellings and
real estate.............. 168.0 189.3 208.9 221.9 236.7 252.6 6.9 6.4
Private services........... 233.7 280.6 335.4 381.6 433.7 485.3 9.6 12.2
Government services........ 236.7 274.1 290.8 319.8 343.6 386.6 9.7 9.7
------------- ------------- ------------- ------------- ------------- ------------- ----- -----
Total................ 1,189.0 1,375.0 1,555.3 1,743.4 1,939.1 2,127.4 49.0 53.5
------------- ------------- ------------- ------------- ------------- ------------- ----- -----
Total GDP................... (Peso)2,426.7 (Peso)2,665.1 (Peso)2,976.9 (Peso)3,308.3 (Peso)3,640.0 (Peso)3,977.4 100.0% 100.0%
============= ============= ============= ============= ============= ============= ===== =====
Total GNP................... (Peso)2,528.3 (Peso)2,802.1 (Peso)3,136.2 (Peso)3,496.9 (Peso)3,853.3 (Peso)4,232.8
Total GDP (in billions of US
dollars)/(1)/............. $ 82.3 $ 65.2 $ 76.2 $ 74.9 $ 71.4 $ 77.1
GDP per capita (in US
dollars)/(1)/............. $1,116.3 $ 864.5 $ 988.8 $ 951.7 $ 888.7 $ 942.5
- --------
Source: National Statistical Coordination Board.
(1) Calculated using the average exchange rate for the period indicated. See
"-- Monetary System -- Foreign Exchange System".
105
GROSS DOMESTIC PRODUCT BY MAJOR SECTORS
(AT CONSTANT MARKET PRICES/(1)/)
Percentage of
GDP
------------
1997 1998 1999 2000 2001 2002 1997 2002
----------- ----------- ----------- ------------- ------------- -------------- ----- -----
(in billions, except percentages)
Agriculture, fishery and
forestry.............. (Peso)185.0 (Peso)173.2 (Peso)184.5 (Peso) 190.7 (Peso) 197.7 (Peso) 204.7 20.7% 19.7%
----------- ----------- ----------- ------------- ------------- -------------- ----- -----
Industry sector
Mining and quarrying... 10.3 10.6 9.7 10.7 10.0 14.9 1.2 1.4
Manufacturing.......... 223.7 221.2 224.7 237.3 244.1 252.1 25.0 24.4
Construction........... 57.3 51.8 51.0 51.7 49.8 49.8 6.4 4.8
Electricity, gas and
water................ 29.4 30.3 31.3 32.6 32.8 33.5 3.3 3.2
----------- ----------- ----------- ------------- ------------- -------------- ----- -----
Total................ 320.7 313.9 316.7 329.0 336.7 350.4 35.9 33.8
Service sector
Transportation,
communications and
storage.............. 55.1 58.6 61.7 68.2 74.2 80.8 6.2 7.8
Trade.................. 135.3 138.6 145.4 152.9 161.5 170.7 15.2 16.5
Finance................ 43.5 45.4 46.3 46.7 47.3 48.8 4.9 4.7
Ownership of dwellings
and real estate...... 47.3 48.1 48.4 48.3 48.1 48.9 5.3 4.7
Private services....... 61.0 63.9 67.6 70.9 74.0 78.1 6.8 7.6
Government services.... 45.2 46.2 47.7 48.5 49.8 52.0 5.1 5.0
----------- ----------- ----------- ------------- ------------- -------------- ----- -----
Total................ 387.5 400.9 417.0 435.5 454.8 479.3 43.5 46.2
----------- ----------- ----------- ------------- ------------- -------------- ----- -----
Total GDP............... (Peso)893.2 (Peso)888.0 (Peso)918.2 (Peso) 958.4 (Peso) 989.3 (Peso)1,034.4 100.0% 100.0%
=========== =========== =========== ============= ============= ============== ===== =====
Total GNP............... (Peso)930.7 (Peso)934.5 (Peso)969.3 (Peso)1,012.6 (Peso)1,051.1 (Peso)1,105.9
Percentage change in GDP 5.2% (0.6)% 3.4% 4.0% 3.2% 4.6%//
Percentage change in GNP 5.3% 0.4% 3.7% 4.5% 3.4% 5.2%//
- --------
Source: Economic and Social Statistics Office; National Statistical
Coordination Board.
(1) Based on constant 1985 prices.
106
The following table shows the percentage distribution of the country's GDP
at constant 1985 prices.
DISTRIBUTION OF GROSS DOMESTIC PRODUCT BY EXPENDITURE
(AT CONSTANT MARKET PRICES/(1)/)
1998 1999 2000 2001 2002
----- ----- ----- ----- -----
Personal consumption......... 79.7% 79.1% 78.5% 78.7% 78.3%
Government consumption....... 7.9 8.2 8.3 8.1 7.9
Capital formation
Fixed capital............... 23.1 21.8 21.2 20.4 19.9
Changes in stocks........... (0.9) (0.8) (0.3) 0.5 (0.09)
----- ----- ----- ----- -----
Total capital formation... 22.2 21.0 20.9 20.9 19.4
Exports of goods and services 41.4 41.5 46.8 43.0 42.4
Imports of goods and services (54.5) (51.3) (51.1) (49.1) (49.2)
Statistical discrepancy...... 3.3 1.5 (3.4) (1.6) 0.8
----- ----- ----- ----- -----
Total........................ 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
- --------
Source: Economic and Social Statistics Office; National Statistical
Coordination Board.
(1) Based on constant 1985 prices.
Principal Sectors of the Economy
Agriculture, Fishery and Forestry
Agriculture. The country's principal agricultural products include cereals,
such as palay (rice) and corn, cultivated primarily for domestic use, and
crops, such as coconuts, sugar cane and bananas, produced for both the domestic
market and export. The Philippines' diverse agricultural system contains many
coconut plantations farmed by agricultural tenants and workers, sugar haciendas
farmed either under labor administration or by tenants, and large
"agro-business" plantations devoted mainly to non-traditional export crops such
as bananas and pineapples. Rice, corn and coconuts each account for
approximately one-quarter of the country's cultivated area. The country
occasionally needs to import rice and corn.
Through its economic stimulus activities, the Government has begun to
implement a number of programs to boost agricultural output. The principal
programs are as follows:
. The Agriculture and Fisheries Modernization Act of 1997, which is the
Government's blueprint for the modernization of the agriculture and
fisheries sectors. The Act provides for, among other things, the
establishment of development zones for production, processing and
marketing agencies responsible for the enforcement of quality standards,
the simplification of access to credit, and the grant of tariff exemptions
on the importation of certain equipment.
. A national productivity program designed to increase the yield and
competitiveness of the five major agriculture subsectors: rice, corn, high
value crops, livestock and fisheries.
. Improvement of support services to farmers, particularly irrigation,
roads, post-harvest facilities, training, credit and marketing assistance.
. Stabilization of prices and supply of agricultural commodities.
Fishery. The Philippines' fishing industry contributes significantly to the
country's foreign exchange earnings. Pollution of coastal waters as a result of
population growth, mining activities and wasteful fishing methods have damaged
the marine and inland resources in some areas in recent years, leading to
decreases in production.
107
Forestry. The country's forests, one of the Philippines' main natural
resources, contain a large quantity of hardwood trees. Over the years
population growth, shifting cultivation, illegal logging and inadequate
reforestation depleted the forests, leading to a Government-imposed total ban
on logging activity and the subsequent continuing decline of the forestry
subsector.
Recent Results. The agriculture, fishery and forestry sector grew by 3.7%
in 2001 compared to growth of 3.4% in 2000 at constant market prices, due to
the positive performance of the agriculture and fishery subsectors, offsetting
the decrease in the forestry subsector. The agriculture industry subsector grew
by 4.0% in 2001 compared to growth of 3.6% in 2000. In addition to favorable
weather conditions, the Government's revitalized support for agriculture
through various means including the distribution of certified seeds,
rehabilitation of irrigation facilities and the use of modern equipment,
especially in the fishery subsector, contributed to the growth in the
agriculture and fishery subsectors. The forestry subsector contracted by 33.5%
in 2001 compared to a 19.5% contraction in 2000. For 2001, the agriculture,
fishery and forestry sector contributed 0.7% to the total GDP growth rate of
3.2%.
In 2002, though the 3.5% growth in the agriculture, fishery, and forestry
sector was higher than expected, it showed a slight decline compared to the
3.7% growth for 2001. Robust growth in forestry (9.1%) and fishery (6.4%)
helped offset weather-related declines in food production, particularly corn
and palay production. Meteorologists have reported that the weather system
effect known as El Nino could extend into and worsen in the first part of 2003,
leading to drier weather conditions, which could have an effect on crop
harvests. The El Nino effect is expected to be moderate compared to the
prolonged drought of 1997.
Industry Sector
The sector comprises, in order of importance, manufacturing, construction,
electricity, gas and water and mining and quarrying. The sector contributed
approximately 35.9% of GDP in 1997 and 34.0% in 2001, at constant market
prices. The sector grew by 1.3% in 2001, compared to growth of 4.9% in 2000.
This lower growth was mainly due to the global economic slowdown. For the first
nine months of 2002, the industry sector grew by 3.8% compared to the first
nine months of 2001. The growth in industry was driven by substantial increases
in electrical machinery, textiles, and transport manufacturing.
Mining and Quarrying. The mining and quarrying subsector contracted by 6.6%
in 2001, compared to growth of 10.0% during 2000. This considerable decline was
caused primarily by the decline in growth of gold production and contraction in
the production of stone quarrying, clay and sandpits and other non-metallic
mining. Increases in the growth of chromium and other metallic mining did not
have a significant impact on the growth of the subsector as a whole. However,
in the first six months of 2002 the mining and quarrying subsector rebounded
from the previous declines, with growth of 39.8%.
Manufacturing. The country's manufacturing subsector comprises three major
industry groups:
. consumer goods, including the food, footwear and garment industries;
. intermediate goods, including the petroleum, chemical and chemical product
industries; and
. capital goods, including the electrical machinery and electronics
industries.
108
The following table presents, at constant market prices, the gross value
added, which equals the value of sales minus the cost of raw material and
service inputs, for the manufacturing sector by industry or industry group.
GROSS VALUE ADDED IN MANUFACTURING BY INDUSTRY GROUP
(AT CONSTANT MARKET PRICES/(1)/)
Industry/Industry Group 1997 1998 1999 2000 2001 2002
- ----------------------- ------------- ------------- ------------- ------------- ------------- -------------
(in millions)
Food manufactures............. (Peso) 76,318 (Peso) 78,744 (Peso) 83,049 (Peso) 84,590 (Peso) 88,227 (Peso) 95,010
Beverage industries........... 8,961 9,003 8,896 9,175 8,820 8,907
Tobacco manufactures.......... 5,779 5,538 5,681 5,886 6,133 6,535
Textile manufactures.......... 5,320 5,085 4,660 4,128 3,778 4,067
Footwear/wearing apparel...... 12,356 12,699 10,801 12,327 12,801 13,822
Wood and cork products........ 2,969 2,769 2,451 2,220 2,060 2,063
Furniture and fixtures........ 2,822 2,881 2,852 3,172 3,232 3,065
Paper and paper products...... 2,038 2,132 2,033 2,627 2,258 2,032
Publishing and printing....... 3,233 3,093 3,055 2,964 2,967 3,173
Leather and leather products.. 215 224 222 229 254 293
Rubber products............... 2,088 1,849 2,065 2,115 1,743 1,705
Chemical and chemical products 14,276 14,169 13,868 13,523 14,648 13,961
Petroleum and coal products... 39,753 37,472 37,137 39,896 38,929 34,361
Non-metallic mineral products. 7,925 6,614 5,834 5,625 5,215 5,708
Basic metal industries........ 5,223 4,745 4,206 3,600 3,851 3,625
Metal industries.............. 4,841 4,231 4,272 4,645 5,257 5,977
Machinery (except electrical). 3,756 3,540 3,555 4,219 5,326 4,200
Electrical machinery.......... 18,179 19,284 22,277 27,678 29,009 34,192
Transport equipment........... 2,744 1,810 1,984 2,125 2,325 2,379
Miscellaneous manufactures.... 4,876 5,269 5,769 6,527 7,249 7,061
------------- ------------- ------------- ------------- ------------- -------------
Gross value added in
manufacturing.............. (Peso)223,672 (Peso)221,151 (Peso)224,667 (Peso)237,271 (Peso)244,082 (Peso)252,136
============= ============= ============= ============= ============= =============
- --------
Source: Economic and Social Statistics Office; National Statistical
Coordination Board.
(1) Based on constant 1985 prices.
Higher interest rates in the wake of the currency crisis led to a 1.1%
decline in the manufacturing subsector in 1998, compared to 4.2% growth in 1997.
From 1998 through the first quarter of 1999, weak demand and high operating
costs forced a number of businesses to close or cut back operations.
Import-dependent industries, including transport equipment and rubber,
chemical, petroleum and coal products, experienced declining output.
Export-related industries, however, including furniture and fixtures,
electrical machinery and leather products, grew, as did food manufactures.
In 1999, the manufacturing subsector reversed its 1.1% contraction in 1998
to record a growth of 1.6%. The sector recorded positive growth for the last
three quarters of 1999. The major gainers for the sector included electrical
machinery, which registered a growth of 15.5% and transport equipment, which
registered a growth of 9.6%. The decliners in the subsector were led by
footwear/wearing apparel, which recorded a 14.9% contraction.
Manufacturing accounted for, on average, approximately 24.8% of GDP at
constant market prices from 1997 to 2001. The subsector grew by only 2.9% in
2001, compared to 5.6% growth in 2000. This reduction was caused primarily by
lower growth in the manufacture of apparel, furniture and electrical machinery
and by
109
contraction in the manufacture of beverages, paper products, rubber products,
petroleum and coal products, and non-metallic mineral products. Gains in growth
in the manufacture of food, tobacco, leather products, non-electrical
machinery, chemical products and basic metal products contributed positively to
the manufacturing subsector, although they were unable to fully offset the
declines in the subsector as a whole.
In 2002, the annual growth rate of the manufacturing subsector was 3.3%, up
from 2.9% for 2001. The growth in manufacturing was due mainly to growth in the
manufacture of electrical machinery, leather products and footwear and apparel.
Construction. The construction subsector's contribution to GDP, at constant
market prices, declined from 6.4% in 1997 to 5.0% in 2001. The construction
subsector declined by 3.6% in 2001 compared to an increase of 1.4% in 2000.
This reduction was primarily because public construction recorded a 6.1%
decrease reversing a 6.6% increase in 2000. For 2001, the industry sector
contributed 0.6% to the total GDP growth rate of 3.4%. Growth in the
construction subsector increased to 1.5% in the first quarter of 2002 compared
to a contraction of 9.7% in the first quarter of 2001. In 2002, growth in the
construction subsector was stable at 0%, an improvement from the 3.6%
contraction posted in 2001.
Electricity, Gas and Water. Electricity, gas and water accounted for 3.4%
of GDP at constant market prices, on average, from 1997 to 2001. The subsector
grew by 0.7% in 2001, compared to 4.2% in 2000. The slower growth was
attributable primarily to reduced electricity demand and decreased water sales
resulting from the rehabilitation of water mains and pipes. The electricity,
gas and water subsector contracted by 8.8% in the first quarter of 2002
compared to growth of 4.0% in the first quarter of 2001. However, the subsector
rebounded for full-year 2002, with annual growth of 2.1%.
With limited natural resources available for energy development, the
Philippines satisfies most of its energy needs with imports of coal and oil,
which it then converts into electric power. In August 1996, the Government
deregulated oil prices by introducing an automatic mechanism that adjusted
petroleum product prices monthly in accordance with Singapore posted prices. In
February 1997, the Downstream Oil Industry Deregulation Act of 1996 superseded
the automatic-pricing mechanism and allowed domestic oil prices to fluctuate
freely based on market conditions. On November 5, 1997, however, the Philippine
Supreme Court declared the act unconstitutional on the basis that it inhibited
fair competition, encouraged monopolies, interfered with free market forces and
nullified the principle of deregulation. On February 10, 1998, the Government
enacted a new oil industry deregulation act, which allowed oil prices to
fluctuate and eased the entry of new players into the industry.
The 1998 oil industry deregulation act has increased investment activity and
attracted new players into the downstream oil industry, with approximately
(Peso)4 billion of new investments in LPG refilling, bulk storage and retail
outlets since deregulation of the industry. Prices of petroleum products have
fluctuated in response to market prices and competition has increased. Retail
petrol prices declined by a total of 50-65 centavos per litre between October
1998 and January 1999 in response to increased competition, however prices have
since increased due to the increase in world crude oil prices. Increases in
world crude oil prices led the country to increase coal imports and decrease
oil imports.
110
The following table sets out the country's energy consumption by source.
ENERGY CONSUMPTION BY SOURCE
Energy Source 1997 1998 1999 2000 2001
------------- ----- ----- ----- ----- -----
(% of Total Consumption)
Domestic sources
Oil.......................... 0.0% 0.1% 0.1% 0.0% 0.1%
Coal......................... 1.7 2.0 1.6 1.6 1.9
Hydro........................ 4.5 3.6 5.5 5.0 5.1
Geothermal................... 5.5 6.4 7.5 7.8 7.2
Other/(l)/................... 30.3 28.6 28.8 27.8 30.7
----- ----- ----- ----- -----
Total domestic sources... 42.0 40.7 43.5 42.2 45.0
----- ----- ----- ----- -----
Imported sources
Oil.......................... 52.9 53.7 50.2 45.5 46.0
Coal......................... 5.1 5.5 6.3 12.3 10.1
----- ----- ----- ----- -----
Total imported sources... 58.0 59.2 56.5 57.8 56.1
----- ----- ----- ----- -----
Total.................. 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
- --------
Source: Department of Energy.
(1) Other includes gas, fuelwood and biomass fuel.
National Power Corporation is the principal entity engaged in the
development, generation and transmission of electric power on a nationwide
basis. It establishes and maintains transmission line grids, generating
facilities and inter-island connections throughout the Republic.
In August 1998, the Department of Energy proposed a number of measures to
restructure the Republic's electric power industry, including:
. eliminating subsidies for less populated service areas, which are
currently generated by requiring all service areas to pay the same prices
for electricity;
. restructuring and privatizing the National Power Corporation;
. creating competition in power generation; and
. providing free access to the transmission and distribution system.
The reforms, especially the restructuring and privatization of National
Power Corporation, would allow distributors and large customers to choose their
electricity supplier. Commercial, regulatory and tariff reforms will be put in
place in response to the additional burdens on the regulatory agency, the
distribution sector and the other industry players resulting from increased
competition in the industry. The Electric Power Industry Reform Act, which
provides a legal framework for the restructuring of the electric power industry
and the privatization of the assets and liabilities of the National Power
Corporation, was enacted on June 8, 2001. See "-- Recent Economic Developments
- -- Electric Power Industry Reform Act and -- Privatization of the National
Power Corporation".
Service Sector
The sector comprises, in order of importance, trade, finance and housing,
private services, transportation, communications and storage and Government
services. The service sector remains the largest contributor to GDP, having
contributed approximately 45.1% of GDP at constant market prices from 1997 to
2001. Overall, in 2002, the services sector grew by 5.4%.
Trade. The trade subsector, which consists of wholesale and retail
activities, accounted for an average of 15.8% of GDP at constant market prices
from 1997 to 2001. The trade subsector grew by 5.6% in 2001 at
111
constant market prices, compared to 5.2% growth in 2000. This increase was
caused by a notable growth in wholesale trade, which accounts for one-fourth of
trade output. The trade subsector grew by 5.7% in 2002.
Finance. The finance subsector's contribution to GDP at constant market
prices decreased slightly from 4.9% in 1997 to 4.8% in 2001. The housing
subsector's contribution to GDP at constant market prices, decreased from 5.3%
in 1997 to 4.9% in 2001.
The finance subsector grew by 1.2% in 2001, compared to a growth of 0.9% in
2000. The bank subsector grew by 0.8% in 2001 as it slightly recovered from its
0.4% contraction in 2000. For a discussion of the country's financial system,
see "-- The Philippine Financial System". Insurance, the only subsector which
had positive gains in each quarter of 2000, grew by 4.4% in 2000. With
sustained positive gains from the second to the fourth quarter of 2000,
non-banking activities were able to withstand the turbulence in financial
services as that subsector posted growth of 3.1% in 2000 against 2.4% in 1999.
The positive development in the nonbanking activities resulted from the
expansion in financing activities and the increasing use of credit cards. The
finance subsector grew by 3.2% in 2002.
Housing. The housing subsector contracted by 0.5% in 2001, compared to zero
growth in 2000, at constant market prices. This was primarily caused by the
10.0% contraction of the real estate market, which was partially offset by the
2.0% growth in the ownership of dwellings. The ownership of dwellings and real
estate subsector grew by 1.6% in 2002 at constant market prices.
Private Services. The private services subsector includes educational,
medical and health, recreational and hotel and restaurant services. The
subsector contributed an average of approximately 7.3% to GDP at constant
market prices each year from 1997 to 2001. Except for business services and
personal services, which experienced higher rates of growth, all private
services experienced lower, although positive, growth. The private services
subsector grew by 5.5% in 2002 compared to growth of 4.4% in 2001.
Government Services. Government services was one of the three services
subsectors that experienced increased growth in 2001 compared to 2000,
increasing from 1.7% to 2.7%. This resulted from the hiring of additional
teachers as well as additional compensation for teachers for their
election-related duties. The Government services subsector grew by 4.6% in 2002.
Transportation, Communications and Storage. The geographically diverse
nature of the Philippines makes it important to have well developed road, air
and sea transportation systems. The Government has encouraged, build, operate
and transfer, projects and other private sector initiatives to provide basic
transportation services and strengthen inter-regional and urban links to ensure
safe and efficient movement of people and goods. Important ongoing build,
operate and transfer projects (or its variants) and joint venture projects
include the Metro Rail Transit Project, Metro Manila Skyway Project, the
Manila-Cavite Expressway Project and the South Luzon Expressway Extension.
The country's road network is the most important transportation system
carrying about 65% of freight and 90% of passenger traffic. The road network
covers more than 200,000 kilometers. About 1.8 million vehicles use the road
network, including 236,000 vehicles for public use, principally in Metro
Manila. Traffic remains congested in the capital region, despite traffic
management and various engineering measures. The Government has built and
continues to emphasize alternative road networks and mass rapid urban transit
rail facilities to ease the problem.
In 2000, about 1,194 miles of national roads were constructed or
rehabilitated while 7,100 lineal meters of bridges along national roads were
converted to permanent structures. This improved the percentage of paved
national arterial roads to 77% and that of national secondary roads to 52% at
the end of 2000.
Usage of the country's rail facilities has declined largely because of the
outdated facilities of the Philippine National Railways. The Government has
constructed a two-line light-rail transit system in Metro Manila, financed by a
build, lease and transfer arrangement, and has started work on a third line of
the light-rail transit system, which is expected to be operational by year 2004
and will provide additional maximum capacity of 500,000 passengers per day for
the Metro Manila commuters.
112
In addition to a more conducive environment for private sector participation
brought about by the amendment of the Build-Operate-Transfer Law, the
light-rail transit system Line 1 South Extension Project is expected to be
undertaken under a joint venture agreement. The 27-kilometer extension line
will expand the existing light-rail system Line 1 service southward to the
cities of Paranaque and Las Pinas and the adjoining municipality of Bacoor. The
project will connect the north and south ends of the existing railway system.
Four international airports, in Manila, Cebu, Clark and Subic, and 83 other
facilities throughout the country help meet the country's air transport needs.
The Government plans to upgrade several major airports to international
standards and generally to modernize air navigation and communications
operations in the country. The new Manila International Airport terminal's
project is expected to commence in early 2003. The Government has formulated a
plan for the transition from land-based to satellite-based technology in civil
aviation. It approved the implementation of the new communications, navigation
surveillance and air traffic management systems project, which will implement
satellite-based technology designed to control and manage the air traffic
within the respective flight information region. Once financing is obtained and
implementation is completed, the system will increase air travel safety,
shorten flight duration for air passengers and improve aircraft operating
efficiency due to more flexible flight paths and increased airspace capacity.
Philippine Airlines, Inc., the primary national air carrier, several smaller
domestic airlines and airlines from various countries provide air service to,
from and within the country. Philippine Airlines retains a leading position in
domestic routes, but since the beginning of 1998, Philippine Airlines has had
increasing financial difficulties and labor problems. After suspending
operations in September 1998, Philippine Airlines resumed service in October
1998 after management and the unions agreed to, among other things, a 10-year
suspension of the collective bargaining agreement, a grant of 20% of the
airline's equity to its employees and a guarantee of no salary reductions. On
December 7, 1998, the airline submitted a rehabilitation plan to the Philippine
Securities and Exchange Commission which included proposals for debt
restructuring and forgiveness, capital injection, fleet reduction, manpower
adjustments and a spin-off of non-core businesses. In May 1999, the airline
submitted a restated rehabilitation plan which was approved by the Philippine
SEC. Certain creditors of the airline have objected to the rehabilitation plan
and its approval by the Philippine SEC. In June 1999, Lucio Tan, a shareholder
of the airline, provided $200 million of equity capital to Philippine Airlines
and became its Chief Executive Officer.
The airline's finances, however, began to improve in its fiscal year 1999
(ending on March 31, 2000). After registering six consecutive years of losses,
Philippine Airlines reported a net profit of (Peso)45.8 million in fiscal year
1999. In the fiscal year 2000 (ending on March 31, 2001), the airline realized
an 815% rise in profits, registering a net profit of (Peso)419 million.
The country's geography also requires an effective water transport system to
ferry cargo and passengers among islands. Currently, the water transport system
handles about 40% of total freight traffic and 10% of total passenger traffic
in the Philippines. The regulatory policy during the past decade has been to
open the industry to competition, ensuring lower cargo passage rates and
improving the quality of service. The Government plans to construct or improve
96 national ports, approximately 300 municipal, feeder and fishing ports and
river landings and special handling facilities for grains and bulk cargo in
other selected ports.
Faced with historical shortages of telephone lines and long waits for basic
telephone service, especially outside Metro Manila, the Government opened the
telecommunications industry in 1993 to intensify competition and to increase
substantially the number of telephone lines and interconnections. The
Government has continued to implement programs designed to provide telephone
lines, exchanges and transmission facilities to underserved regions of the
country. As of December 31, 2001, a cumulative total of more than 6.9 million
lines have been installed, which translates to a telephone density of 9.0 main
telephone lines per 100 inhabitants.
The country has 11 international long distance providers and five cellular
mobile telephone operators, as well as a number of competitors in the local
telephone market. The privately-owned Philippine Long Distance Telephone
Company ("PLDT") continues to exert strong influence over the
telecommunications market through its ownership and operation of the public
switch telecommunications network, to which other companies are interconnected.
113
For the year ended December 31, 2001, PLDT's revenues increased 17% to
(Peso)73.6 billion, although the company reported a net loss due to increased
selling and promotional expenses, as well as subsidiary losses. The company's
revenues rose again in the first quarter of 2002 to (Peso)19.1 billion,
representing an increase of 5.8% from revenues of (Peso)18.0 billion in the
first quarter of 2000.
The transport, communications and storage subsector's contribution to GDP,
at constant market prices, grew from 6.2% in 1997 to 7.5% in 2001. The
subsector grew by 8.8% in 2001, compared to growth of 10.4% in 2000. This
reduced growth was caused primarily by decreases in the growth rate of most
facets of transportation and storage, most notably a contraction in water
transport and a significant decrease in growth of air transport. Growth in
communications partially offset the slowdowns in transportation and storage,
although the growth rate in communications has declined on a quarterly basis
since the first three months of 2001. In the first quarter of 2002, the
subsector grew by 10.2%, compared to 10.3% in the first quarter of 2001.
Similarly, the combined transport and storage services subsector grew by
3.0% in the first quarter of 2002 due to increased volume of goods moved and
passengers carried compared to the 1.7% growth during the same period in 2001.
Storage and services incidental to transport posted a 2.4% gain during the
period. Air transport grew by 6.6% in the first quarter of 2002, a decrease
from the 14.9% growth registered in the first quarter of 2001.
Land transport increased by 1.6% in 2001 compared to 4.6% growth in 2000,
whereas water transport exhibited a decrease of 1.0% in 2001 compared to 1.7%
growth in 2000. The transport, storage and communications subsector posted 8.9%
growth in 2002 compared to 8.8% growth in 2001.
Prices, Employment and Wages
Inflation
The Philippines reports inflation as the annual percentage change in the
consumer price index, which measures the average price of a standard "basket"
of goods and services used by a typical consumer. In June 1998, the Government
began employing a 1994-based CPI basket of goods and services, which since 1999
has been the sole official measurement. For Metro Manila, the 1994 CPI basket
consists of 705 commodities. In addition, the 1994 CPI basket for areas outside
Metro Manila focuses on provinces or cities.
The following table sets out the principal components of the 1994 CPI basket.
PRINCIPAL COMPONENTS OF 1994 CPI BASKET
Category Basket
-------- ------
Food items (including beverages and tobacco) 55.1%
Rice....................................... 11.8
Non-food items.............................. 44.9
Housing and repairs........................ 14.7
Services................................... 12.3
Fuel, light and water...................... 5.7
Clothing................................... 3.7
Miscellaneous.............................. 8.5
114
The following table sets out the consumer price index and the manufacturing
sector's equivalent, the producer price index, as well as the annual percentage
changes in each index based on the 1994 CPI basket.
CHANGES IN CONSUMER AND PRODUCER PRICE INDEX
1998 1999 2000 2001 2002
----- ----- ----- ----- -----
Consumer Price Index........................ 136.8 145.9 152.3 161.6 166.1/(1)/
Increase over Previous Year................. 9.7% 6.6% 4.4% 6.1% 3.3%
Producer Price Index for Manufacturing/(1)/. 131.7 137.9 141.5 165.6 162.0/(2)/
Increase/ (Decrease) over Previous Year/(1)/ (11.0)% 4.7% 2.6% 17.0% (1.5)%/(3)/
- --------
Source: National Statistics Office.
(1) Measured by the 1994 PPI benchmark.
(2) January through June 2002.
(3) Represents the average year-on-year increase for the five months ended May
31, 2002.
Inflation in 1998 increased because of the Peso depreciation and lower
agricultural output caused principally by the drought related to the El Nino
phenomenon and a number of typhoons related to the La Nina phenomenon. The 1998
inflation rate was 9.7%. The Producer Price Index increased by 7.0% in 1999
from 1998. In December 1999, the monthly inflation rate was 4.3%, down from a
high for the year of 11.5% in January 1999. The decline was due primarily to a
sharp fall and subsequent stability in food prices resulting from strong
performance in the agriculture sector leading to increased food supply, which
partially offset the effects of increases in world crude oil prices.
The easing of inflationary pressures in the second half of 1999 extended up
to the second quarter of 2000. Inflation remained in single digits at 4.4% for
2000 compared with the 6.6% recorded in 1999. Moderate inflation was achieved
notwithstanding an increase in economic activity, inflationary pressures
arising from wage adjustments and increases in oil prices and transport fares.
Inflation was kept low in 2001, at an average of 6.1%, which was within the
Government's target of 6-7%. Favorable food and oil prices, stable exchange
rates and moderate growth in demand all contributed to low inflation.
Implementation of Bangko Sentral's inflation targeting framework for
monetary policy formally began in January 2002. Among the changes in the
institutional setting of monetary policy was the creation of the Bangko Sentral
Advisory Committee, which is scheduled to meet regularly every four weeks to
deliberate, discuss and make recommendations to the Monetary Board on the
appropriate stance of monetary policy. The Committee may also meet between the
regular meetings when necessary. Decisions of the Monetary Board are determined
by a majority vote of its members. However, there is no attribution of votes to
individual members in order to emphasize consensus and the collegial process in
decision-making. Chaired by the Governor, with the Deputy Governors for banking
services and supervision, and the heads of the Research and Treasury
Departments as members, the Advisory Committee held its first regular monthly
meeting on January 15, 2002.
The national inflation rate averaged 3.1% for 2002. Year-on-year inflation
for the month of December 2002 was 2.6%, compared to 3.0% for June 2002 and
5.5% in October 2001. Inflation continues to be benign despite the recent
adjustments in domestic oil prices, which increased by 11.2% at December 31,
2002 as compared with December 31, 2001 (in part because the adjustments have
not been passed on to transport charges), and despite an increase in food
prices due to weather-related reductions in supplies of rice, fruits, and
vegetables. Reductions in Bangko Sentral's policy interest rates and efforts to
maintain fiscal discipline, which have led to lower market lending rates and
lower costs of capital for businesses, also had a favorable impact on
inflation. Equally important, inflationary pressures caused by more demand than
supply continue to be subdued due in part to current levels of unemployment and
spare capacity as well as restrained, though increasing, domestic demand.
115
The reduction in the PPA of NPC, effective May 2002, and the decision of the
Manila Waterworks and Sewerage System to delay petitions for water rate
increases have also helped to keep inflation rates relatively low.
Employment and Wages
The following table presents selected employment information for various
sectors of the economy.
SELECTED EMPLOYMENT INFORMATION/(1)/
1997 1998 1999/(2)/ 2000/(2)/ 2001/(2)/ 2002/(2)/
------ ------ -------- -------- -------- --------
Labor force (in thousands)................ 30,355 29,674 30,759 30,911 32,809 33,936
Unemployment rate......................... 8.7% 10.3% 9.8% 11.2% 11.1% 11.4%
Employment share by sector:
Agriculture, fishery and forestry......... 40.8% 37.9% 38.8% 32.9% 37.2% 37.0%
Industry sector
Mining and quarrying..................... 0.5 0.4 0.4 0.4 0.4 $ 0.4
Manufacturing............................ 9.9 10.2 9.9 10.0 10.0 $ 9.5
Construction............................. 5.9 5.9 5.5 5.4 5.4 $ 5.3
Electricity, gas and water............... 0.5 0.5 0.5 0.4 0.4 $ 0.4
------ ------ ------ ------ ------ -------
Total industry sector................ 16.7% 17.1% 16.3% 16.2% 16.2% 15.6%
Service sector
Transportation, communication and storage 6.3 6.8 6.9 7.2 7.3 $ 7.2
Trade.................................... 14.9 15.6 15.7 16.3 18.0 $ 18.7
Finance and housing...................... 2.5 2.5 2.6 2.6 2.8 $ 2.8
Services................................. 18.7 20.1 19.7 20.5 18.6 $ 18.7
------ ------ ------ ------ ------ -------
Total services sector................ 42.4% 45.0% 44.9% 46.6% 46.7% 47.4%
------ ------ ------ ------ ------ -------
Total employed.................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== =======
- --------
Source: Bureau of Labor and Employment Statistics -- Current Labor Statistics;
National Statistics Office -- Labor Force Survey.
(1) Figures for 1997 to 2001 are the average of the applicable statistic for
each quarter in the relevant period.
(2) Figures generated using 1995 census-based population projections.
In July 2002, the Filipino labor force totalled 33.9 million people. The
Filipino labor force is relatively young. They are employed primarily in
service industries, such as nursing and education, and in manufacturing export
industries, such as electronics and garments. A total of 832,449 Filipino
workers were working overseas from January to November 2002, an increase of
approximately 2.5% from the same period in 2001.
Regional tripartite bodies consisting of representatives of Government,
businesses and workers establish minimum wage requirements, which vary based on
region and industry. Under the law, minimum wage requirements may only be
increased once in any twelve month period. The minimum wages for workers in
Metro Manila and the surrounding areas are the highest in the country. Across
the regions, daily minimum wages range from a low of (Peso)114.0 to a high of
(Peso)280.0.
The economic difficulties that began in the second half of 1997, including
the slower growth of the country's industrial production, drove the average
unemployment rate to 8.7% in 1997 and 10.3% in 1998, before improving to 9.8%
in 1999. The unemployment rate increased to 11.2% in 2000 amidst uncertainties
over the allegations of corruption surrounding former President Estrada and
fears of subsequent economic slowdown. In Metro Manila, where 13.8% of the
country's labor force is located, unemployment ranged from 13.8% to 16.4% from
1997 to 1999 and from 17.9% to 17.7% from 2000 to 2002. In response to the
economic slowdown in 2001,
116
employers and workers agreed to the Social Accord for Industrial Harmony and
Stability under which they confirmed the commitment to refrain from layoffs,
closures, work stoppages or slowdowns except as a last resort.
Labor and employment conditions improved in 2001 as the economy grew
stronger than expected during the year. The substantially reduced number of
strikes, increased rates of deployment of workers overseas and improved
legislated wage indicators reflect broadly improved labor, employment and wage
conditions during the year.
The number of employed persons increased by 6.2% to 29.2 million in 2001
from 27.5 million in 2000, due largely to the strong performance of the
services sector, particularly in the wholesale and retail trade subsector, as
well as the agriculture, fishery and forestry sector. The employment rate,
however, improved slightly by only 0.1% to 88.9% from 88.8% in 2000 as the 6.2%
growth in the number of employed persons was accompanied by a 6.1% increase in
the labor force.
Meanwhile, the number of unemployed persons was 3.1 million in October 2002,
a 6% decline from October 2001. The largest number of unemployed persons was
located in Metro Manila, which posted a 16.7% unemployment rate as of October
2002.
Social Security System and Government Service Insurance System
The Philippines does not pay any unemployment compensation or make any
general welfare payments other than through the Social Security System and the
Government Service Insurance System. The Social Security System provides
private sector employees, including self-employed persons and their families,
with protection against disability, sickness, old age and death. Monthly
contributions by covered employees and their employers, and investment income
of the Social Security System fund the system. The Social Security System
invests its funds in Government securities and in local equity securities.
The Government Service Insurance System administers social security benefits
for Government employees, including retirement benefits, life insurance,
medical care and sickness and disability benefits. The system also administers
the self-insurance program for Government properties, such as buildings and
equipment. The Government Service Insurance System also oversees loan programs,
including housing loans for Government employees. Monthly contributions by
covered employees and their employers fund the system. Government agencies must
include in their annual appropriations the amounts needed to cover their share
of the contributions and any additional premium required based on the hazardous
nature of the work. The Government Service Insurance System invests its funds
in a manner similar to the Social Security System.
Savings
The following table sets out the ratio of gross national savings, total
investment and the savings-investment gap as a percentage of GDP.
First Six
Months
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ---------
(in percentages)
Gross national savings 19.5 22.7 27.5 26.2 18.0 31.2
Gross investments..... 24.8 20.3 18.8 18.4 17.6 18.9
Savings-investment gap (5.3) 2.4 8.8 7.8 0.4 12.2
- --------
Source: National Economic and Development Authority.
Government steps to stimulate the savings rate in the Philippines include:
. launching a nationwide savings consciousness campaign to inform savers
about different types of financial assets;
. shifting by the Philippine Stock Exchange from merit-based regulation to
self-regulation;
. tightening disclosure and insider trading rules;
117
. removing double taxation of mutual funds;
. allowing increased foreign equity participation in investment and
financing companies;
. rationalizing financial taxes (e.g., gross receipts tax, documentary stamp
tax, initial public offerings tax);
. broadening of the scope and coverage of small denominated Treasury-bills
which were offered beginning in November 1998;
. establishing a Small and Medium Enterprises Board at the Philippine Stock
Exchange; and
. lengthening of the yield curve of government securities.
Balance of Payments
Balance of Payments Performance
Balance of payments figures measure the relative flow of goods, services and
capital into and out of the country as represented in the current account and
the capital and financial accounts. The current account tracks a country's
trade in goods, services, income and current transfer transactions. The capital
and financial account includes the capital account, which covers all
transactions involving capital transfers and acquisition or disposition of
non-produced, non-financial assets, and the financial account, which covers all
transactions associated with changes of ownership in the foreign financial
assets and liabilities of an economy. A balance of payments surplus indicates a
net inflow of foreign currencies, thereby increasing demand for and
strengthening the local currency. A balance of payments deficit indicates a net
outflow of foreign currencies, thereby decreasing demand for and weakening the
local currency.
118
The following table presents basic balance of payments information for 1996
through 1998.
BALANCE OF PAYMENTS/(1)/
1996 1997 1998
-------- -------- --------
(in millions)
Current account:
Goods trade
Exports........................................... $ 20,543 $ 25,228 $ 29,496
Imports........................................... (31,885)/(2)/ (36,355)/(2)/ (29,524)/(2)/
Services trade
Receipts.......................................... 19,006 22,835 13,917
Payments.......................................... (12,206) (17,139) (12,778)
Transfers
Inflow............................................ 1,185 1,670 758
Outflow........................................... (596) (590) (323)
-------- -------- --------
Total current account (deficit)............... $ (3,953) $ (4,351) $ 1,546
Capital and financial account:
Medium and long-term loans
Availment......................................... $ 6,540 $ 7,724 $ 6,025
Repayment......................................... (3,699) (2,900) (3,285)
Trading of bonds in the secondary market
Resale of bonds................................... 4,148 3,072 3,307
Purchase of bonds................................. (4,185) (3,748) (4,390)
Investments, net/(3)/
Non-resident investments in the Philippines....... 3,621 843 2,016
Resident investments abroad....................... (104) (81) (344)
Change in the net foreign assets of commercial banks 4,214 1,188 (4,347)
Short-term capital, net............................. 540 495 1,205
-------- -------- --------
Net capital and financial account.................... $ 11,075 $ 6,593 $ 187
Monetization of gold/(4)/............................ 198 105 118
Revaluation adjustments/(5)/......................... (203) (465) (22)
Net unclassified items............................... (3,010) (5,245) (470)
-------- -------- --------
Overall balance of payments position................. $ 4,107 $ (3,363) $ 1,359
======== ======== ========
- --------
Source: Bangko Sentral.
(1) As described below, the framework for compiling and reporting the balance
of payments has been revised based on the new concept under the IMF Balance
of Payment Manual, 5th Edition.
(2) National Statistics Office data was adjusted to exclude the value of
aircraft amounting to $542 million in 1996, $45 million in 1997 and $136
million in 1998 procured under operating lease arrangements, and to include
an additional $466 million worth of aircraft imported under capital lease
arrangements in 1997.
(3) Revised to reflect proper classification of balance of trade related
transactions from non-resident to resident transactions.
(4) Represents gold purchased by Bangko Sentral from domestic gold producers
that becomes part of its official reserves, and profits from the sale of
gold by Bangko Sentral.
(5) Represents changes in valuation of monetary assets and liabilities as a
result of changes in the exchange rate of the US dollar against the Special
Drawing Rights and other foreign currencies that form part of the reserve
assets and monetary liabilities of Bangko Sentral, as well as discounts
accruing to Bangko Sentral in connection with debt-to-equity conversion
programs and other debt reduction schemes.
119
New Framework
Beginning in January 2000, Bangko Sentral adopted a new framework for the
balance of payments compilation and reporting based on the fifth edition of the
Balance of Payments Manual, or BPM5, of the International Monetary Fund.
The following table presents a comparative summary of major revisions in the
format of balance of payments reports.
Comparative Summary of Major Revisions in the Balance of Payments Report Format
BOP Categories Old Format New Format
- -------------- ------------------------- -------------------------
Current Account Consists of: Consists of:
. Goods . Goods
. Services . Services
. Transfers . Income
. Current transfers
Goods Includes data on all Excludes shipments of
goods leaving the goods that do not
country and entering involve a change in
any of the seaports and ownership
airports of entry in
the Philippines that
are properly cleared
through the Bureau of
Customs
Services Includes both factor Includes only non-factor
services (services of services; factor
labor and capital) and services are lodged
non-factor services separately under
(transport services, "Income Account"
travel, and other
services not reported
separately)
Income Included in the "Services Includes income for
Account" factor services
Transfers Includes both current and Includes only current
capital transfers transfers. Capital
transfers are lodged
under the "Capital
Account", a sub-
account under the
Capital and Financial
Account
Capital and Financial Consists of: Consists of:
Account . Medium- and long-term Capital Account which
loans includes:
. Trading of bonds in . Capital transfers
the secondary market . Acquisition or
. Investments disposition of non-
. Change in commercial produced non-financial
banks' net foreign assets (e.g. goodwill,
assets patent, copyrights)
. Short-term capital Financial Account which
is composed of:
. Direct Investments
. Portfolio Investments
. Other Investments
120
BOP Categories Old Format New Format
- -------------- -------------------------- --------------------------
Medium- and Long-Term Consists of: Consists of:
Loans . Non-bank loans . Non-bank loans,
including excluding intercompany
inter-company loans loans, are categorized
. Bonds issued and as Other Investments.
redeemed by the . Inter-company loans
original issuer are treated as Direct
Investments
. Bonds are classified
under Portfolio
Investments
Trading of Bonds in Refers to the purchase Classified as Portfolio
the Secondary Market and sale abroad of Investments (together
resident-issued bonds with bonds treated as
in the secondary market medium- and long-term
by residents (other loans under the old
than the original framework)
issuer) from non-
residents
Investments Includes: Includes:
. Direct Investments . Direct investments
which covers: which cover:
. Investments in equities . Investment in equities
. Portfolio Investments . Reinvested earnings
For non-residents, . Inter-company loans
covers investments in: . Portfolio Investments
. Equities of resident For Non-Residents,
firms acquired through covers investments in:
the stock exchange . Equities of resident
. Resident debt firms acquired through
securities issued in the stock exchange
the local market . Debt securities (bills
For residents, covers and bonds) issued by
investments in: both the public and
. Equities listed in private sectors, banks
foreign stock exchanges and non-banks, in the
local market and
abroad. These include
bonds which were
treated as medium- and
long- term loans under
the old framework
For Residents, covers
investments in:
. Equities listed in
foreign stock exchanges
. Foreign debt
securities of bank and
non-banks
Change in Commercial Change in net foreign Distributed among direct,
Banks Net Foreign Assets asset position of portfolio and other
commercial banks investments accounts
Short-Term Capital Consists of non-bank Included in other
short-term loans and net investments
trade credits
121
BOP Categories Old Format New Format
- -------------- ------------------------- -------------------------
Other Investments Includes:
. Net trade credits
. Loans of banks and
non-banks
. Currencies and deposits
of resident banks
abroad, and currencies
and deposits non-
residents with resident
banks (net change)
. Other assets and
liabilities of banks
(net change)
Others Includes: No longer part of the
. Monetization of gold computation of the
. Revaluation adjustments balance of payments
Net Unclassified Items Includes: Includes:
. Errors and omissions . Errors and omissions
. Floats . Floats
Overall BOP Computed as the sum of Computed as the sum of
the Current Account and the Current Account and
Capital and Financial Capital and Financial
Account plus Others and Account plus Net
Net Unclassified Items Unclassified Items
122
The following table sets out the consolidated financial position on a cash
basis for the Republic for the periods indicated.
BALANCE OF PAYMENTS/(1)(2)/
First
Years Ended December 31 Nine
------------------------- Months
1999 2000 2001 2002
------- ------- ------- -------
(in millions)
Current account:/(2)/..................................... $ 7,363 $ 8,459 $ 4,603 $ 3,929
------- ------- ------- -------
Goods and services:....................................... 2,247 4,805 809 361
Exports/(3)/............................................. 39,014 41,267 34,391 27,748
Imports/(3)/............................................. 36,767 36,461 33,852 27,387
Goods.................................................... 4,959 6,918 2,763 1,218
Credit: Exports/(3)/................................... 34,211 37,295 31,243 25,422
Debit: Imports/(3)/.................................... 29,252 30,377 28,480 24,204
Services................................................. (2,712) (2,112) (1,954) (857)
Credit: Exports........................................ 4,803 3,972 3,148 2,326
Debit: Imports......................................... 7,515 6,084 5,102 3,183
Income:................................................... 4,604 3,216 3,350 3,191
Credit: Receipts......................................... 8,082 7,804 7,446 5,946
Debit: Disbursements..................................... 3,478 4,588 4,096 2,755
Current transfers:........................................ 512 437 444 377
Credit: Receipts......................................... 607 552 515 445
Debit: Disbursements..................................... 95 115 71 68
Capital and financial account:/(2)/....................... (1,803) (6,469) (3,839) (3,745)
Capital account:.......................................... (8) 38 (12) (12)
Credit: Receipts......................................... 44 74 12 1
Debit: Disbursements..................................... 52 36 24 13
Financial account:........................................ (1,795) (6,507) (3,827) (3,733)
Direct investment........................................ 608 1,348 1,953 684
Debit: Assets, residents' investments abroad........... (30) (107) (161) 49
Credit: Liabilities, non-residents' investments in the
Philippines.......................................... 578 1,241 1,792 733
Portfolio Investment:.................................... 6,064 (113) 1,399 692
Debit: Assets, residents' investments abroad........... 586 806 (234) 255
Credit: Liabilities, non-residents' investments in the
Philippines.......................................... 6,650 693 1,165 947
Other Investment:........................................ (8,467) (7,742) (7,179) (5,109)
Debit.................................................. 18,647 15,311 13,893 9,628
Credit................................................. 10,180 7,569 6,714 4,519
Net unclassified items:................................... (1,974) (2,503) (956) (567)
------- ------- ------- -------
Overall BOP position:/(4)/................................ $ 3,586 $ (513) $ (192) $ 751
======= ======= ======= =======
- --------
Source: Bangko Sentral.
(1) Beginning January 2000, the Republic adopted the fifth edition of the
International Monetary Fund's Balance of Payments Manual ("BPM5"). For the
purpose of assessing comparative performance, the 1999 balance of payments
was reconstructed to conform with the conceptual coverage of the BPM5.
(2) The Republic has disclosed that the reported current account surplus has
been overstated due to monitoring problem giving rise to underreported
imports. See "-- Recent Economic Developments -- Balance of Payments". Note
that because revised data for the components of the current account are not
available, the 2000 and 2001 revisions discussed below are not reflected in
this table.
Reflecting the revisions in imports, the current account for 2000 has been
revised to a surplus of $5.9 billion from a previously adjusted surplus of
$9.2 billion, and the current account for 2001 has been revised to a surplus
of $305 million from a previously adjusted surplus of $4.0 billion. At these
revised levels, the current account surplus stood at 7.4% and 0.4% of gross
national product for 2000 and 2001, respectively. However, the capital and
financial account for 2000 has been revised downward to a net outflow of $3.4
billion from a previously adjusted net outflow of $6.5 billion, and the
capital and financial account for 2001 has been revised downward to a net
outflow of $224 million from a previously adjusted net outflow of $3.7
billion. The adjustments for 2002 are being finalized and are expected to be
released within the next few months.
(3) Data on exports and imports from the National Statistics Office were
adjusted to exclude temporary exports and imports and returned goods.
(4) The overall BOP position results from the change in net international
reserves that is purely due to transactions excluding the effects of
revaluation of reserve assets and selected reserve liabilities, gold
monetization and Special Drawing Rights allocation.
123
In 1997, the balance of payments registered an overall deficit of $3.4
billion. The current account deficit grew by 10.1% to $4.4 billion because of a
fall in net receipts from services due to increased travel expenses for
Filipinos and increased interest expenses. The capital and financial account
also suffered in 1997, registering a surplus of only $6.6 billion after an
$11.1 billion surplus in 1996. Lower net receipts of foreign investments and
higher foreign exchange liability payments in the second half of 1997, both in
response to the regional economic crisis, contributed to the lower net inflow
to the capital and financial account.
In 1998, the balance of payments registered an overall surplus of $1.4
billion, compared to a $3.4 billion deficit in 1997. The current account
yielded a surplus of $1.5 billion compared to a deficit of $4.4 billion in 1997
primarily because of an increase in merchandise exports and a reduction of
imports that led to a 99.7% improvement in the goods trade balance. The capital
and financial account fell 97.2% from $6.6 billion in 1997 to $187 million in
1998, due mainly to a significant decline in net medium and long-term loans and
a negative change in the net foreign asset position of commercial banks arising
largely from the reduction in commercial banks' foreign liabilities. Net
unclassified items fell to $470 million in 1998 versus $5.2 billion in 1997,
due to more effective monitoring by the authorities, further contributing to
the improved balance of payments position.
In 1999, under the BPM5 framework, the balance of payments registered an
overall surplus of $3.6 billion. This resulted from a surplus of $7.4 billion
in the current account due to an improvement in the goods trade balance and net
inflows from the income account. The capital and financial account recorded a
deficit of $1.8 billion in 1999, although there were sustained inflows of
direct investment and portfolio investment by nonresidents.
In 2000, under the BPM5 framework, the balance of payments position showed a
deficit of $513 million following the weaker capital and financial account even
as the current account continued to perform favorably. The current account
posted a surplus of $8.5 billion for 2000, or 14.9% higher than the level
registered in 1999. The trade-in-goods surplus was driven by the robust growth
of export earnings. The net outflow in the capital and financial account
totalled $6.5 billion following the weakening in the financial account. Inflows
of both direct and portfolio investments offset some of the outflows in the
other investments account. However, portfolio investments were down
considerably in 2000 to a net outflow of $113 million from a net inflow of $6.1
billion in 1999 due to fewer issuances of public debt. Overall, the
underperformance in the capital and financial account in 2000 compared to 1999
resulted mainly from weak portfolio investments by non-residents, purchases by
residents of foreign currency-denominated Philippine debt papers, lower medium-
and long-term loan availments, and higher residents' short-term trade
receivables.
The overall balance of payments showed a deficit of $192 million in 2001,
compared to a deficit of $513 million in 2000. This positive development was
caused by lower net outflows of $3.8 billion in the capital and financial
account in 2001, as compared to $6.5 billion in 2000, which overshadowed a
substantial decline in the current account surplus of $4.6 billion in 2001, as
compared to $8.5 billion in 2000. The current account surplus declined due
mainly to lower receipts from trade-in-goods even as the services trade account
yielded lower net outflows and as the surplus in the income account rose
slightly. Exports of goods contracted by 16.2% and inflows in the services
trade account decreased by 20.7% due to lower travel receipts arising from
perceived security concerns and the travel scare that followed the terrorist
attacks in the United States. Imports of goods declined by 6.2%, and outflows
in the services trade account declined by 16.1% due mainly to lower payments
for freight (following the decline in merchandise imports). Foreign direct
investments posted a sustained net inflow of $2.0 billion compared to a $1.3
billion net inflow in 2000. From a net outflow of $113 million in 2000,
portfolio investments increased, posting a net inflow of $1.4 billion in 2001.
The Republic recently disclosed that the reported current account surplus
had likely been overstated due to monitoring problems giving rise to
underreported imports. An inter-agency task force on the balance of payments
considered the effects of this problem on the Republic's consolidated financial
position, specifically the Republic's current account and capital and financial
account. The inter-agency task force has reviewed the Republic's balance of
payments data for the years 2000 and 2001 and is continuing its review of 2002,
but is not reviewing prior years due to incomplete information. The
inter-agency task force includes representatives of the
124
Bangko Sentral, the National Statistics Office, the National Economic and
Development Authority, the National Statistics Coordination Board, the Bureau
of Customs and the Philippine Export Zone Authority. The inter-agency task
force has been working within the guidelines of the IMF's reporting system. It
released revisions to the Republic's balance of payments data for years 2000
and 2001 on January 16, 2003.
Although the task force's review indicated that the current account surplus
had been overstated, the Republic believes that this will not have any effect
on its overall balance of payments, because the increase in reported imports
has an offsetting effect on the Republic's capital and financial account, since
there will be a lower outflow of short term capital. Accordingly, the
statistical revisions should have no impact on the gross and net international
reserves level of the Republic.
The Republic's balance of payments for the first nine months of 2002 showed
a surplus of $751 million, a reversal of the $1.3 billion deficit in the
comparable period in 2001. Behind this development was the strong performance
of the current account coupled with the much improved capital and financial
account.
Subject to the likely revisions due to the underreporting of imports, the
Republic's current publicly available information indicates that the current
account surplus in the first nine months of 2002 nearly doubled to $3.9 billion
from the surplus in first half of 2001, due in large part to the reversal of
the trade-in-goods and services balance to a surplus of $361 million from a
deficit of $81 million in 2001. A higher net inflow in the income account
likewise boosted the current account position. The current account/GNP ratio
reached 6.7% during the first nine months of 2002, compared to 3.8% in the
first nine months of 2001.
Subject to the likely revisions due to the underreporting of imports, the
Republic's current publicly available information indicates that the net
outflow in the capital and financial account for the first nine months of 2002
was $3.7 billion. The turnaround of the portfolio investment position to a $692
million net inflow more than offset the lower net inflow of direct investments
and the higher net outflow of other investments during the first half of 2002.
With the adoption of the BPM5 framework, the change in net international
reserves is not exactly equal to the balance of payments position. Under the
new format, the balance of payments position results from the change in net
international reserves that is due solely to economic transactions, excluding
the effects of revaluation of reserve assets and reserve-related liabilities,
gold monetization and Special Drawing Rights allocation.
Current Account
Goods Trade. Trading in goods significantly affects the Philippine economy.
Without accounting for revisions to imports for 2000 and 2001, discussed above,
from 1997 to 2001, exports accounted for an average of approximately 41.4% of
the country's GNP and imports accounted for an average of approximately 40.5%
of GNP. The country's trade strategy emphasizes export promotion. The rapid
expansion of export-oriented, labor-intensive manufacturing operations, such as
electronics and textiles, drove total exports to $32.1 billion in 2001 and
produced an average annual export growth rate of 16.8% from 1997 to 2001.
A significant proportion of exports, estimated at 40% to 50% in 2000,
depends on imported raw materials or other inputs, rendering the country's
exports vulnerable to any import decline resulting from a Peso depreciation.
The Government aims to reduce the importance of imports for producing the
country's exports by implementing a number of different policies, including
infrastructure development and tariff reform.
Subject to revisions to imports, for the first nine months of 2002, imports
of goods had reached $24,204 billion (compared to $22,158 billion for the first
nine months of 2001) and exports of goods totaled $25,422 billion (compared to
$23,263 billion for the first nine months of 2001). This resulted in a trade
surplus of $1,218 billion for the first nine months of 2002 (compared to $1,105
billion for the first nine months of 2001).
125
Exports. The following table sets out the country's exports of manufactures by
major commodity group.
MERCHANDISE EXPORTS BY SECTOR
Percentage of
Total Exports
------------
1997 1998 1999 2000 2001 2002 1997 2002
------- ------- ------- ------- ------- ------- ----- -----
(in millions)
Manufactures
Electronics and
electrical equipment/parts.......... $13,200 $17,388 $21,558 $22,517 $16,894 $18,744 52.3% 53.5%
Garments............................. 2,349 2,356 2,267 2,562 2,403 2,392 9.3 6.8
Textile yarns/fabrics................ 300 243 221 249 226 248 1.2 0.7
Footwear............................. 194 147 86 76 73 48 0.8 0.1
Travel goods and handbags............ 173 183 154 177 174 83 0.7 0.2
Wood manufactures.................... 134 118 128 210 119 112 0.5 0.3
Furniture & fixtures................. 322 323 353 383 298 316 1.3 0.9
Chemicals............................ 383 340 295 328 318 361 1.5 1.0
Non-metallic mineral
manufactures........................ 105 106 111 134 123 113 0.4 0.3
Machinery and transport
equipment........................... 2,691 3,329 4,971 5,930 6,198 7,218 10.6 20.5
Processed food and beverages......... 346 306 264 280 345 388 1.4 1.1
Iron and steel....................... 47 28 18 25 14 17 0.2 0.0
Baby carriages, toys, games and
sporting goods...................... 203 169 158 165 145 140 0.8 0.4
Basketwork, wickerwork and other
articles of plaiting materials...... 94 85 84 95 83 74 0.4 0.2
Miscellaneous manufactured articles,
not elsewhere specified............. 209 207 214 231 230 243 0.8 0.7
Others............................... 893 786 852 1,002 984 1,015 3.5 2.9
------- ------- ------- ------- ------- ------- ----- -----
Total manufactures................. 21,643 26,114 31,734 34,364 28,627 31,512 85.8 89.6
Agro-based products
Coconut products..................... 835 832 458 569 525 478 3.3 1.4
Sugar and sugar products............. 99 100 71 57 32 46 0.4 0.1
Fruits and vegetables................ 458 447 456 535 552 541 1.8 1.5
Other agro-based products............ 507 466 476 495 428 455 2.0 1.3
------- ------- ------- ------- ------- ------- ----- -----
Total agro-based products......... 1,899 1,845 1,461 1,656 1,537 1,520 7.5 4.3
Mineral products....................... 763 591 645 649 536 512 3.0 1.5
Petroleum products..................... 237 129 216 436 242 353 0.9 1.0
Forest products........................ 46 24 20 42 21 24 0.2 0.1
Others................................. 640 794 956 932 1,186 1,238 2.5 3.5
------- ------- ------- ------- ------- ------- ----- -----
Total............................. $25,228 $29,497 $35,032 $38,079 $32,149 $35,159 100.0% 100.0%
======= ======= ======= ======= ======= ======= ===== =====
- --------
Source: National Statistics Office.
Exports of manufactured goods grew at an average rate of 19.6% per year from
1997 to 2000. However in 2001 a decline of 18.7% was recorded. As a percentage
of total exports, manufactured goods increased from 85.6% in 1997 to 89.6% in
2002. Exports of electronics, electrical equipment and parts, and
telecommunications equipment grew as a proportion of total exports at an
average rate of 56.1% from 1997 to 2001, reflecting increasing global demand
for electronics products. During the same period, exports of garments as a
proportion of total exports decreased from 9.3% in 1997 to 7.5% in 2001 because
of increased international competition and a general decline in world-wide
demand. Exports of agro-based products, including coconut products, sugar
products, fruits and vegetables also declined considerably as a proportion of
total exports from 7.5% in 1997 to 4.3% in 2002. On the other hand, increased
production helped exports of machinery and transport equipment grow at an
average annual rate of 30.7% from 1997 to 2000, but slowed to 3.8% in 2001. As
a percentage of total exports machinery and transport grew from 10.6% in 1997
to 19.1% in 2001.
126
In 1997, total exports reached $25.2 billion, growing 24.6% from 1996.
Growth in exports of electronics, which constituted more than 50% of the total
exports of goods, spurred the increased export activity in 1997. Exports
increased despite a decline in shipments of garments, shrimp and prawns and
copper. The rise in exports of light industry products in 1997 indicated the
success of Government efforts to diversify the country's exports.
In 1998, total exports increased by 16.9% to $29.5 billion compared with
1997, less than the 24.6% increase in 1997 over 1996. The start-up of a number
of new semiconductor and microprocessor factories boosted exports of
semiconductors, the top export earner. The depreciation of the Peso helped
exports and offset the adverse effects of the Asian financial crisis on a
number of the Republic's trading partners.
In 1999, total exports grew by 18.8% to $35.0 billion, compared with 16.9%
over 1998. Electronics, machinery and transport equipment and garments were the
leading export earners. Higher shipments of mineral products, fruits and
vegetables and furniture and fixtures also contributed to the expansion of
exports in 1999.
In 2000, exports totalled $38.1 billion and accounted for 43.9% of the GNP.
Merchandise exports in 2000 grew by 8.7%. Among the merchandise exports,
electronics maintained its position as the top earner and continued growing,
but at a decelerated rate of 4.5% in 2000 compared to 24.0% in 1999. Garments,
the third top earner, had a 13.0% increase in 2000 after a 3.9% contraction in
1999. Machinery and transport, the second top earner in 2000, experienced
decelerated growth, from 49.3% in 1999 to only 19.3% in 2000. Merchandise
exports during 2000 amounted to $38 billion translating to an 8.7% growth, a
deceleration from the 18.8% growth registered in 1999.
In 2001, exports declined by 15.6% to $32.2 billion. The decline reflected
the slump in demand by the country's leading trading partners, namely the US
and Japan, as well as the downtrend in demand in the information technology
sector. Exports of semiconductor components experienced declines in both volume
and price. All major commodity groups posted declines except fruits and
vegetables, which registered a 3.2% modest growth. Electronics, machinery and
transport equipment and garments remained the top three export commodities.
Total exports of goods for 2002 were $32.1 billion or 9.4% higher than
previously reported exports of goods in 2001. Higher demand for Philippine
goods from Taiwan, Hong Kong, South Korea, Malaysia and China made up for a
decrease in exports to the United States and Japan, which together account for
approximately 40% of the country's export market (26% for the United States and
15% for Japan in the first eleven months of 2002).
127
The following table sets out the destinations of the country's exports.
EXPORTS BY DESTINATION
Percentage of
Total Exports
------------
1997 1998 1999 2000 2001 2002 1997 2001
------- ------- ------- ------- ------- ------- ----- -----
(in millions)
United States....... $ 8,815 $10,098 $10,446 $11,365 $ 8,980 $ 7,991 34.9% 27.9%
Japan............... 4,194 4,234 4,664 5,609 5,057 4,815 16.6 15.7
ASEAN countries/(1)/ 3,335 3,723 4,917 5,895 4,914 N/A 13.2 15.3
United Kingdom...... 1,086 1,757 1,766 1,506 997 N/A 4.3 3.1
Hong Kong SAR....... 1,172 1,326 1,947 1,907 1,580 2,103 4.6 4.9
The Netherlands..... 1,663 2,319 2,865 2,982 2,976 2,883 6.6 9.3
Germany............. 1,060 1,035 1,229 1,329 1,323 1,280 4.2 4.1
Taiwan.............. 1,169 1,757 2,993 2,861 2,127 2,281 4.6 6.6
South Korea......... 474 509 1,032 1,173 1,044 1,223 1.9 3.2
People's Republic of
China/(2)/........ 244 344 575 663 793 1,236 1.0 2.5
Others.............. 2,016 2,394 2,608 2,788 2,359 8,391/(3)/ 8.0 7.3
------- ------- ------- ------- ------- ------- ----- -----
Total........ $25,228 $29,496 $35,042 $38,078 $32,150 $32,203 100.0% 100.0%
======= ======= ======= ======= ======= ======= ===== =====
- --------
Source: Foreign Trade Statistics, National Statistics Office.
(1) Includes only Brunei, Indonesia, Malaysia, Singapore and Thailand.
(2) Excludes Hong Kong SAR.
(3) Includes ASEAN countries and United Kingdom.
The United States, Japan and ASEAN countries are currently the Philippines'
largest export markets. In 2001, the United States accounted for 27.9% and the
ASEAN countries accounted for 15.3% of total exports. Japan, historically the
second largest market for Philippines exports, accounted for 15.7% of total
exports in 2001.
The United States absorbed, on average, 32.2% of total exports from 1997 to
2000 and 27.9% in 2001. Japan accounted for, on average, 14.8% of Philippine
exports from 1997 to 2001. Recognizing the danger of over-reliance on so few
export markets, the country has attempted to increase its exports to other
countries, particularly ASEAN countries. The Republic is a party to the ASEAN
Free Trade Agreement that provides for the implementation of the common
effective preferential tariff that will reduce tariffs among ASEAN nations by
2008 to between 0% and 5% for all manufactured goods and non-sensitive
agricultural and processed agricultural products. Additional activities to
support the free trade area include plans for intra-regional investments,
industrial linkages and banking and financial integration.
128
Imports. The import data for 2000 and 2001 has been revised, and revised
import data for 2002 will be available within the next several months. As
revised component data is not available, the following table and discussion
sets out the country's imports by major commodity group without reflecting
these import data revisions.
IMPORTS BY COMMODITY GROUP
Percentage of
Total Imports
------------
First Eleven
Months
1997 1998 1999 2000 2001 2002 1997 2001
------- ------- ------- ------- ------- ------------ ----- -----
(in millions)
Raw materials and intermediate
goods
Unprocessed raw materials/(1)/......... $ 1,645 $ 1,170 $ 1,517 $ 1,337 $ 1,368 $ 1,227 4.6% 4.6%
Semi-processed raw materials/(2)/...... 12,986 10,415 11,078 10,724 10,078 10,979 36.1 34.1
------- ------- ------- ------- ------- ------- ----- -----
Total raw materials and intermediate
goods............................... $14,631 $11,585 12,595 12,061 11,446 12,206 40.7 38.7
Capital goods.......................... 13,951 12,185 11,829 12,161 11,437 12,333 38.8 38.7
Consumer goods
Durable.............................. 1,515 902 1,091 1,072 949 909 4.2 3.2
Non-durable.......................... 1,577 1,721 1,553 1,452 1,534 1,465 4.4 5.2
------- ------- ------- ------- ------- ------- ----- -----
Total consumer goods............... $ 3,092 $ 2,623 2,644 2,524 2,483 2,374 8.6 8.4
Mineral fuels and lubricants........... 3,074 2,020 2,420 3,877 3,372 3,003 8.6 11.4
Other.................................. 1,188 1,246 1,238 765 812 987 3.3 2.7
------- ------- ------- ------- ------- ------- ----- -----
Total................................ $35,936/(3)/ $29,659/(4)/ $30,726 $31,388 $29,550 $30,903 100.0% 100.0%
======= ======= ======= ======= ======= ======= ===== =====
- --------
Source: National Statistics Office.
(1) Includes wheat, corn, unmilled cereals excluding rice and corn, inedible
crude materials and unmanufactured tobacco.
(2) Includes chemicals and chemical compounds, manufactured goods that are not
capital or consumer goods, materials for the manufacture of electrical and
electronic equipment and parts and embroideries.
(3) Excludes the value of aircraft amounting to $45 million procured under
operating lease arrangements and includes the value of aircraft amounting
to $466 million procured under capital lease arrangements.
(4) Excludes the value of aircraft amounting to $136 million procured under
operating lease arrangements.
Imports declined by 17.5% from 1997 to 1998 before increasing by 3.6% in
1999 and 2.2% in 2000. In 2001, imports declined by 5.8%, reflecting weak
domestic demand. Raw materials and intermediate goods needed to manufacture
electrical and electronic equipment and parts accounted for, on average,
approximately 39.6% of total imports from 1997 to 2001. Imports of mineral
fuels and lubricants, which accounted for 8.6% of total imports in 1997,
constituted 11.4% of imports in 2001.
In 1997, imports grew to $35.9 billion spurred on by the continued strength
of the Philippine economy. Imports of capital goods, particularly
telecommunications equipment and electrical machinery, aircraft, office and
electric data machines, as well as raw materials and intermediate goods,
supported investment growth in the economy.
In 1998, weakening demand because of the economic slowdown and the
depreciation of the Peso forced imports down 17.5% to $29.7 billion compared
with $35.9 billion for 1997. Lower imports of machinery transport equipment,
partly due to Philippine Airlines' financial difficulties and temporary
closure, fertilizers and artificial resins led the decline. A number of
exporters decreased their imports and elected instead to draw down their
inventories to alleviate the impact of the weak Peso, also hurting overall
imports.
In 1999, imports totalled $30.7 billion. This represented an increase of
3.6% from imports for 1998. The increase was due mainly to an increase in
imports of electronics and components, minerals, fuel and lubricants. Imports
in December 1999 increased by 28.7% compared to December 1998, the highest
monthly growth in imports in three and a half years.
129
In 2000, imports increased by 2.1% to $31.4 billion compared to a 4.1%
increase in 1999. The growth was due to higher imports of capital goods which
rose by 2.8%, as well as the increase in imports of mineral fuel and lubricants
which grew by 59.3% following the hike in the average price of petroleum crude
to $27.89 per barrel compared to $16.31 per barrel in 1999.
In 2001, imports fell by 5.9% to $29.5 billion, a reversal of the 3.8%
increase registered in 2000. This decline resulted primarily from the reduction
in imports of raw materials and intermediate goods and capital goods used for
exports and domestic production as well as the reduced appetite for
foreign-made goods as a result of the weak Peso. Except for the months of April
to June, imports were down, with November posting the largest year-on-year
contraction at 23.6%. However, the decline in imports appeared to be bottoming
out as December imports fell by only 4.2%. All major commodity groups except
for special transactions posted downtrends, with imports of mineral fuels and
lubricants registering the highest drop at 13.0%.
Imports of goods for the first half of 2002 reached $15.9 billion, 4.4%
higher in the first half of 2001, and a reversal of the 0.5% decline registered
in the first half of 2001.
Capital goods imports grew by 5.5% to $6,259 million in the first six months
of 2002, a reversal of the 3.1% decline in the first six months of 2001. The
expansion was traced to increased importations of telecommunication
equipment -- mainly inputs to electronics production -- and office and EDP
machines. Meanwhile, imports of raw materials and intermediate goods -- which
accounted for more than two-fifths of total imports -- expanded by 9.2% to
$6,493 million. This increase was due mainly to a rise in the importation of
materials and accessories for the manufacture of electrical equipment. By
contrast, imports of mineral fuels and lubricants performed the weakest among
the major import commodity groups, falling by 12.8% to reach $1,510 million
during the first half of 2002, mainly due to the decline in the volume of
imports and the decline in price of oil. The average price of petroleum crude
for the first half of 2002 dropped to $22.51 per barrel from $24.48 per barrel
in 2001. Meanwhile, the decline in the volume of oil imports was attributed
mainly to the shutdown of some refinery units of oil companies because of
excess capacity and for check-up and maintenance, and the high oil stockpile in
2001 following relatively weak domestic demand.
Imports for the first eleven months of 2002 were $25.1 billion, up 12.7%
from the previously reported imports for the first eleven months of 2001.
130
The following table sets out the sources of the Philippines' imports by
country, without reflecting import data revisions. See "-- Recent Economic
Developments -- Balance of Payments".
IMPORTS BY SOURCE
Percentage of
First Total Imports
Eleven Months ------------
1997/(1)/ 1998/(1)/ 1999 2000 2001 2002 1997 2001
-------- -------- ------------- ------- ------- ------------- ----- -----
(in millions)
Japan............... $ 7,414 $ 6,029 $ 6,136 $ 6,027 $ 6,098 $ 6,406 20.6% 20.6%
United States....... 7,154 6,560 6,365 5,323 4,989 5,898 19.9 16.9
ASEAN countries/(2)/ 4,605 4,050 4,248 4,796 4,379 4,841 12.8 14.8
Hong Kong SAR....... 1,549 1,300 1,226 1,217 1,259 1,457 4.3 4.3
Saudi Arabia........ 1,058 606 810 1,048 887 889 2.9 3.0
Taiwan.............. 1,808 1,415 1,614 1,948 1,607 1,522 5.0 5.4
South Korea......... 2,182 2,189 2,723 2,350 1,950 2,427 6.0 6.6
Australia........... 955 683 757 816 645 522 2.7 2.2
Germany............. 1,180 822 800 734 734 638 3.3 2.5
People's Republic of
China/(3)/........ 872 1,198 1,040 768 953 1,122 2.4 3.2
Others.............. 7,157 4,808 5,023 6,360 6,050 5,183 19.9 20.5
------- ------- ------- ------- ------- ------- ----- -----
Total.............. $35,934 $26,660 $30,742 $31,387 $29,548 $30,905 100.0% 100.0%
======= ======= ======= ======= ======= ======= ===== =====
- --------
Source: Foreign Trade Statistics, National Statistics Office.
(1) Foreign trade statistics were adjusted to exclude aircraft procured under
operational lease arrangements to conform with the new balance of payments
framework.
(2) Includes only Brunei, Indonesia, Malaysia, Singapore and Thailand.
(3) Excludes Hong Kong SAR.
From 1997 to 2001, an average of 39.4% of the country's imports came from
Japan (20.1%) and the United States (19.3%). In 2001, Japan accounted for 20.6%
and the United States 16.9% of total imports. The Philippines increased its
imports from the ASEAN countries from 12.8% of total imports in 1997 to 14.8%
in 2001. The country also imported from South Korea, Taiwan, Hong Kong and
Saudi Arabia.
131
The following table sets out the country's services trade by sector compiled
in accordance with the BPM5 framework for the periods indicated.
SERVICES TRADE
First Nine
Months
1999 2000 2001 2002
------- ------- ------- ----------
(in millions)
Total services trade......................... $(2,712) $(2,112) $(1,939) $ (857)
Exports..................................... 4,803 3,972 3,151 2,326
Imports..................................... 7,515 6,084 5,090 3,186
Transportation............................... (1,369) (1,785) (1,666) (1,099)
Exports..................................... 575 891 659 483
Imports..................................... 1,944 2,676 2,325 1,582
of which: Passenger......................... (117) (73) (236) (202)
Exports................................... 15 243 99 68
Imports................................... 132 316 335 270
of which: Freight........................... (1,167) (1,638) (1,361) (845)
Exports................................... 428 481 380 343
Imports................................... 1,595 2,119 1,741 1,188
of which: Other............................. (85) (74) (69) (52)
Exports................................... 132 167 180 72
Imports................................... 217 241 249 124
Travel....................................... 1,246 1,129 499 715
Exports..................................... 2,554 2,134 1,723 1,316
Imports..................................... 1,308 1,005 1,224 661
Communication services....................... (307) (79) 115 122
Exports..................................... 424 182 330 188
Imports..................................... 731 261 215 66
Construction services........................ (108) (27) (234) (98)
Exports..................................... 58 97 64 19
Imports..................................... 166 124 298 117
Insurance services........................... (30) (90) (68) (196)
Exports..................................... 51 66 48 23
Imports..................................... 81 156 116 219
Financial services........................... (250) (389) (41) (9)
Exports..................................... 67 80 34 27
Imports..................................... 317 469 75 36
Computer and information services............ (38) (18) (61) (21)
Exports..................................... 57 76 22 17
Imports..................................... 95 94 83 38
Royalties and license fees................... (104) (190) (157) (172)
Exports..................................... 6 7 1 1
Imports..................................... 110 197 158 173
Other business services...................... (1,672) (595) (318) (110)
Exports..................................... 929 359 219 161
Imports..................................... 2,601 954 537 271
Merchanting and other trade-related services (230) (200) 16 22
Exports................................... 186 59 24 28
Imports................................... 416 259 8 6
132
First Nine
Months
1999 2000 2001 2002
------ ---- ---- ----------
(in millions)
Operational leasing services....................... (47) (58) (61) (13)
Exports.......................................... 15 23 10 4
Imports.......................................... 62 81 71 17
Misc. business, professional and technical services (1,395) (337) (123) (119)
Exports.......................................... 728 277 185 129
Imports.......................................... 2,123 614 458 248
Personal, cultural and recreational................. (81) (87) (42) (7)
Exports............................................ 58 43 15 7
Imports............................................ 139 130 57 14
Audio-visual and related........................... (3) (9) (10) (7)
Exports.......................................... 14 15 6 6
Imports.......................................... 17 24 16 13
Other personal, cultural and recreational services. (78) (78) (32) 0
Exports.......................................... 44 28 9 1
Imports.......................................... 122 106 41 1
Government services, n.i.e.......................... 1 19 34 18
Exports............................................ 24 37 36 24
Imports............................................ 23 18 2 6
- --------
Source: Bangko Sentral.
In 1997, receipts from the services trade totalled $22.8 billion, growing
from 13.5% of GNP in 1993 to 26.6%. Increasing receipts from overseas Filipino
workers and Peso conversions of foreign currency deposits contributed to the
growth in the service receipts. Payments for services grew from approximately
9.0% of GNP in 1993 to 20% in 1997, when payments totalled $17.1 billion.
Greater trade and travel-related outflows spurred the increase in service
payments. Freight and merchandise insurance payments and investment expenses
also increased significantly.
In 1998, service receipts declined by 39.1% from their 1997 levels, and
service payments fell 25.4% compared with the 1997 levels, principally as a
result of the regional economic decline. Total services receipts declined in
1998 principally because of declining receipts from Peso conversion of foreign
currency deposits and lower investment income during the year. Services
payments also declined because of the significant decline in other services
disbursements reported by commercial banks.
In 1999, under the BPM5 framework, the services account recorded a net
outflow of $2.7 billion following higher service payments. Net outflows were
noted in transportation, communication, construction, insurance, financial,
computer and information, royalties and license fees, and other personal,
cultural and recreational services with the exception of travel services which
recorded a net inflow of $1.2 billion.
For 2000, the services account, under the BPM5 framework, recorded a net
outflow of $2.11 billion, 22.0% lower than the net outflow of $2.7 billion in
1999. This development was due to lower net outflows in communication,
construction, miscellaneous business, professional and technical services,
computer and information and other trade-related services.
For 2001, under the BPM5 framework, the services trade account posted a
deficit of $1.94 billion, 8% lower than the $2.11 billion deficit recorded in
2001. The deficit in 2002 was brought about by decreased inflows from passenger
and travel services. However, the reduction in the deficit from 2001 was due
mainly to the lower net outflows in freight following the decline in good
imports, royalties and fees, financial services and other business services.
The reversal in communication services account to a net inflow from a net
outflow also contributed to the narrower deficit.
133
The trade-in-services account posted a net outflow of $482 million in the
first half of 2002, 48.4% lower than the level in the comparable period in
2001. The narrowing of the deficit was triggered by lower net payments for
transportation services and for miscellaneous business, professional and
technical services. Meanwhile, increased net receipts from travel services,
which rose by 36.4% to $513 million, helped trim the net outflow in the
services account. This was due to the higher rate of decline in travel payments
relative to that of travel receipts. The lower travel payments reflected in
part the weaker peso and the Government program to promote domestic tourism
among local residents.
The trade-in-services account in the first nine months of 2002 posted a net
outflow of $857 million. The 49.4% narrowing of the deficit from the same
period in 2001 was caused by lower net payments for transportation services and
for miscellaneous business, professional and technical services. Net receipts
from travel services were $581 million in the first seven months of 2002, due
to a relative decline in travel payments. Lower travel payments reflected in
part the weaker Peso and the government program to promote domestic tourism
among local residents.
The following table sets out the Republic's income compiled in accordance
with the BPM5 framework for the periods indicated. Prior to the adoption of the
BPM5 framework, income was included in services trade. Entries with "zero"
balances indicate either that there are no relevant transactions during the
period or that the Republic has not yet begun to track and record the relevant
entry.
INCOME
First Nine
Months
1999 2000 2001 2002
------- ------- ------- ----------
(in millions)
Total income................................................ $ 4,604 $ 3,216 $ 3,350 $ 3,191
Receipts................................................... 8,082 7,804 7,446 5,946
Disbursements.............................................. 3,478 4,588 4,096 2,755
Compensation of employees, incl. border, seasonal and other
workers................................................... 6,794 6,050 6,325 5,365
Receipts................................................... 6,794 6,050 6,325 5,365
Disbursements.............................................. 0 0 0 0
Investment income........................................... (2,190) (2,834) (2,975) (2,174)
Receipts................................................... 1,288 1,754 1,121 581
Disbursements.............................................. 3,478 4,588 4,096 2,755
Direct investment income................................... (772) (802) (1,150) (679)
Receipts................................................. 63 163 10 15
Disbursements............................................ 835 965 1,160 694
Income on equity......................................... (718) (819) (1,143) (662)
Receipts............................................... 35 57 10 15
Disbursements.......................................... 753 876 1,153 677
Dividends and distributed branch profits............... (184) (240) (654) (542)
Receipts............................................. 35 57 10 15
Disbursements........................................ 219 297 664 557
Reinvested earnings and undistributed branch profits... (534) (579) (489) (120)
Receipts............................................. 0 0 0 0
Disbursements........................................ 534 579 489 120
134
First Six
Months
1999 2000 2001 2002
----- ----- ----- ---------
(in millions)
Income on debt (interest).... (54) 17 (7) (17)
Receipts................... 28 106 0 0
Disbursements.............. 82 89 7 17
Portfolio investment income.... (607) (445) (545) (574)
Receipts..................... 451 645 634 310
Disbursements................ 1,058 1,090 1,179 884
Income on equity (dividends). (22) (8) (23) (14)
Receipts................... 16 8 6 0
Disbursements.............. 38 16 29 14
Monetary authorities....... 0 0 0 0
Receipts................. 0 0 0 0
Disbursements............ 0 0 0 0
General government......... 0 0 0 0
Receipts................. 0 0 0 0
Disbursements............ 0 0 0 0
Banks...................... 0 0 0 0
Receipts................. 0 0 0 0
Disbursements............ 0 0 0 0
Other sectors.............. (22) (8) (23) (14)
Receipts................. 16 8 6 0
Disbursements............ 38 16 29 14
Income on debt (interest).... (585) (437) (522) (560)
Receipts................... 435 637 628 310
Disbursements.............. 1,020 1,074 1,150 870
Bonds and notes............ (525) (429) (554) (569)
Receipts................. 430 621 584 298
Disbursements............ 955 1,050 1,138 867
Monetary authorities..... 180 305 303 113
Receipts............... 266 443 417 207
Disbursements.......... 86 138 114 94
General government....... (501) (469) (516) (553)
Receipts............... 0 0 126 0
Disbursements.......... 501 469 642 553
Banks.................... 35 0 0 0
Receipts............... 35 0 0 0
Disbursements.......... 0 0 0 0
Other sectors............ (239) (265) (341) (129)
Receipts............... 129 178 41 91
Disbursements.......... 368 443 382 220
Money market instruments... (60) (8) 32 9
Receipts................. 5 16 44 12
Disbursements............ 65 24 12 3
135
First Six
Months
1999 2000 2001 2002
----- ------ ------ ---------
(in millions)
Monetary authorities..... (6) (5) 0 0
Receipts............... 0 0 0 0
Disbursements.......... 6 5 0 0
General government....... 0 0 0 0
Receipts............... 0 0 0 0
Disbursements.......... 0 0 0 0
Banks.................... 0 0 0 0
Receipts............... 0 0 0 0
Disbursements.......... 0 0 0 0
Other sectors............ (54) (3) 32 9
Receipts............... 5 16 44 12
Disbursements.......... 59 19 12 3
Other investment income.... (811) (1,587) (1,280) (921)
Receipts................. 774 946 477 256
Disbursements............ 1,585 2,533 1,757 177
Monetary authorities..... 135 184 (91) (88)
Receipts............... 313 472 232 98
Disbursements.......... 178 288 323 186
General government....... (795) (1,462) (659) (493)
Receipts............... 0 0 0 0
Disbursements.......... 795 1,462 659 493
Banks.................... 187 161 (102) (111)
Receipts............... 382 397 206 110
Disbursements.......... 195 236 308 221
Other sectors............ (338) (470) (428) (229)
Receipts............... 79 77 39 48
Disbursements.......... 417 547 467 277
In 2001, the income account continued to be in surplus totaling $3.4
billion, which was 4.2% higher than the 2001 surplus of $3.2 billion. This
increase was due mainly to the increase in remittances from overseas Filipino
workers ("OFW"). The 4.5% increase in OFW remittances was attributed mainly to
the expanded coverage of the OFW monitoring system, which, now includes foreign
exchange corporations and thrift banks. The net outflow in the investment
income account rose by 5.0% to $2,975 million as falling global interest rates
had a greater impact on investment income (particularly interest income on
placements in portfolio and other investments) than on interest repayments.
Disbursements mainly consisted of divided repatriation and interest payments on
loans.
The surplus in the income account for the first nine months of 2002
increased by 54% from its $2.1 billion mark for the first nine months of 2001
to reach $3.2 billion. Overseas Filipino workers' ("OFWs") remittances, which
continued to be a significant source of foreign exchange earnings, expanded by
43.2% to $4.1 billion in the first half of 2002 relative to the year-ago level.
Contributing to this development was the increase in the number of deployed
OFWs, which rose by 4.3%. The growth in OFW deployment was most pronounced in
the Middle East, Europe and Asia. By skills, the increase in deployed workers
was noted mainly for transport equipment operators as well as professional,
technical and related workers. The bulk of remittances from OFWs, which
comprised about 92% of gross income receipts, came from the U.S., Saudi Arabia,
Japan, Hong Kong, and Singapore.
In the first nine months of 2002, the investment income account yielded a
net outflow that was lower by 8.3% relative to the previous year as interest
payments on portfolio and other investments fell with the continued drop in
global interest rates.
136
Remittances from overseas Filipino workers amounted to $5.4 billion in the
first nine months of 2002, an increase of 24.8% from the same period in 2001.
The income account's recorded surplus of $3.2 billion was propelled by the 4.3%
rise in the number of overseas Filipino workers, especially in the Middle East,
Europe, and Asia. As the global economic slowdown affects some of the countries
where Filipinos are working, the Government has intensified its marketing
efforts to increase hiring of Filipinos abroad.
Capital and Financial Account
Foreign Investments. The Philippines monitors investment flows into and out
of the country, keeping track of direct and portfolio investments by
non-residents in the Philippines and by Filipino residents abroad. Direct
investments are the category of international investment in which a resident
entity in one economy obtains a lasting interest in an enterprise resident in
another economy. A direct investment is established when a resident in one
economy owns 10% or more of the ordinary shares or voting power of an
incorporated enterprise or the equivalent of an unincorporated enterprise in
another economy. Portfolio investments include investments in equity and debt
securities, that is, bonds, notes and money market instruments, and financial
derivatives. The essential characteristic of instruments classified as
portfolio investments is that they are traded or tradable.
137
The following table sets out the foreign investment flows into and out of
the Philippines by type for the periods indicated. Entries with "zero" balances
indicate either that there are no relevant transactions during the period or
that the Republic has not yet begun to track and record the relevant entry.
FOREIGN INVESTMENTS
1996 1997 1998 1999 2000 2001
------- ------- ------- -------- ------- -------
(in millions)
Non-resident investments in the Philippines
Direct investments
Placements
New foreign investments in the
Philippines............................ $ 1,074 $ 1,073 $ 1,631 $ 1,241 $ 1,207 $ 697
Reinvested earnings...................... 44 56 85 534 579 488
Technical fees and others converted to
equity................................. 0 0 0 26 2 0
Bond conversions......................... 277 114 36 0 0 0
Imports converted into investments....... 0 6 0 0 0 0
Others................................... 125 0 0 0 0 0
Withdrawals/(1)/........................... 0 0 0 (122) (185) (69)
------- ------- ------- -------- ------- -------
Total direct investments..................... 1,520 1,249 1,752 1,679 1,603 1,116
======= ======= ======= ======== ======= =======
Portfolio investments
Placements................................. 6,687 6,947 4,297 15,490 3,704 1,486
Withdrawals................................ (4,586) (7,353) (4,033) (14,080) (3,887) (1,103)
------- ------- ------- -------- ------- -------
Total portfolio investments.................. 2,101 (406) 264 1,410 (183) 383
======= ======= ======= ======== ======= =======
Total non-resident investments in the
Philippines/(2)/........................... 3,621 843 2,016 3,089 1,420 1,499
======= ======= ======= ======== ======= =======
Less Resident Investments Abroad
Direct investments
Placements
Residents' investments abroad.............. 182 136 160 63 46 33
Withdrawals................................ 0 0 0 (108) (141) (195)
------- ------- ------- -------- ------- -------
Total direct investments..................... 182 136 160 (45) (95) (162)
======= ======= ======= ======== ======= =======
Portfolio investments
Placements................................. 119 184 184 788 1,866 4,080
Withdrawals................................ (197) (239) 0 (300) (1,417) (4,022)
------- ------- ------- -------- ------- -------
Total portfolio investments.................. (78) (55) 184 488 449 58
======= ======= ======= ======== ======= =======
Other investments/(3)/....................... -- -- -- 1,317 177 589
======= ======= ======= ======== ======= =======
Total resident investments abroad............. 104 81 344 1,760 531 485
======= ======= ======= ======== ======= =======
Total foreign investments, net................ $ 3,517 $ 762 $ 1,672 $ 1,329 $ 889 $ 771
======= ======= ======= ======== ======= =======
- --------
Source: Bangko Sentral.
(1) Non-resident withdrawals of direct investments include capital recovery
under the build-operate-transfer scheme.
(2) Excludes net flows arising from the trading of Philippine debt papers in
the secondary market abroad.
(3) Includes residents' deposits in banks abroad. For the 1996 to 1998 period,
other investments were not separately tracked.
138
After the implementation of the BPM5 framework, the Financial Account is now
divided into three categories: direct investments, portfolio investments and
other investments. The following table sets out the Republic's direct
investments compiled in accordance with the BPM5 framework for the periods
indicated. Entries with "zero" balances indicate either that there are no
relevant transactions during the period or that the Republic has not yet begun
to track and record the relevant entry.
DIRECT INVESTMENTS
First Nine
Months
1999 2000 2001 2002
------- ------ ------ ----------
(in millions)
Total direct investments.................................. $ 608 $1,348 $1,953 $ 684
======= ====== ====== =====
Assets: Residents' investments abroad..................... (30) (107) (161) 49
Equity capital........................................... (45) (95) (162) 51
Claims on affiliated enterprises....................... (45) (95) (162) 51
Placements........................................... 63 46 33 56
Withdrawals.......................................... 108 141 195 5
Liabilities to affiliated enterprises.................. 0 0 0 0
Reinvested earnings...................................... 0 0 0 0
Other capital............................................ 15 (12) 1 (2)
Liabilities: Non-residents' investments in the Philippines 578 1,241 1,792 733
Equity capital........................................... 1,145 1,024 628 903
Liabilities to direct investors........................ 1,145 1,024 628 903
Placements........................................... 1,267 1,209 697 931
Withdrawals.......................................... 122 185 69 28
Reinvested earnings...................................... 534 579 488 120
Other capital.......................................... (1,101) (362) 676 (290)
Claims on direct investors............................. 0 0 0 0
Liabilities to direct investors........................... (1,101) (362) 676 (290)
- --------
Source: Bangko Sentral.
139
The following table sets out the Republic's portfolio investments compiled
in accordance with the BPM5 framework for the periods indicated. Entries with
"zero" balances indicate either that there are no relevant transactions during
the period or that the Republic has not yet begun to track and record the
relevant entry.
PORTFOLIO INVESTMENTS
First Nine
Months
1999 2000 2001 2002
------- ------- ------ ----------
(in millions)
Total portfolio investments............................... $ 6,064 $ (113) $1,399 $ 692
======= ======= ====== =======
Assets: Residents' investments abroad..................... 586 806 (234) 255
Equity securities........................................ 55 42 4 7
Placements............................................. 75 219 4 8
Withdrawals............................................ 20 177 0 1
Debt securities.......................................... 531 764 (238) 248
Banks.................................................. 98 357 (292) 382
Other sectors.......................................... 433 407 54 (134)
Placements........................................... 713 1,647 4,076 2,801
Withdrawals.......................................... 280 1,240 4,022 2,935
Money-market instruments................................. 0 0 0 0
Financial derivatives.................................... 0 0 0 0
Liabilities: Non-residents' investments in the Philippines 6,650 693 1,165 947
Equity securities........................................ 1,410 (183) 383 371
Placements............................................. 15,490 3,704 1,486 1,176
Withdrawals............................................ 14,080 3,887 1,103 805
Debt securities.......................................... 5,240 876 782 576
Monetary authorities................................... 1,158 88 (47) 95
General Government..................................... 2,912 2,223 944 1,876
Banks.................................................. 0 0 0 0
Other sectors.......................................... 1,170 (1,435) (115) (1,395)
Money-market instruments................................. 0 0 0 0
Financial derivatives.................................... 0 0 0 0
- --------
Source: Bangko Sentral.
140
The following table sets out the country's other investments compiled in
accordance with the BPM5 framework for the periods indicated. Entries with
"zero" balances indicate either that there are no relevant transactions during
the period or that the Republic has not yet begun to track and record the
relevant entry.
OTHER INVESTMENTS
First
Six
Months
1999 2000 2001 2002
------- ------- ------- -------
(in millions)
Total other investments................................... $(8,467) $(7,742) $(7,179) $(5,109)
======= ======= ======= =======
Assets: Residents' investments abroad..................... 18,647 15,311 13,893 9,628
Trade credits/(1)/....................................... 16,381 17,401 13,770 9,500
Loans/(2)/............................................... 262 (1,309) 830 80
Currency and deposits.................................... 2,278 (757) (508) 275
Banks.................................................. 961 (934) (1,097) (372)
Other sectors.......................................... 1,317 177 589 647
Other assets/(3)/........................................ (274) (24) (199) (227)
Liabilities: Non-residents' investments in the Philippines 10,180 7,569 6,714 4,519
Trade credits/(1)/....................................... 9,958 7,157 7,499 5,227
Loans.................................................... 575 354 (225) 18
Monetary authorities................................... 0 51 171 (40)
Drawings/(4)/........................................ 0 105 177 118
Repayments/(4)/...................................... 0 54 6 158
General Government..................................... 340 (125) (78) (131)
Drawings/(4)/........................................ 1,465 933 826 644
Repayments/(4)/...................................... 1,125 1,058 904 775
Banks/(5)/............................................. 626 (250) (647) 602
Other sectors.......................................... (391) 678 329 (413)
Long-term............................................ (494) 952 686 (379)
Drawings........................................... 2,610 2,428 2,848 848
Repayments......................................... 3,104 1,476 2,162 1,227
Short-term........................................... 103 (274) (357) (34)
Currency and deposits/(6)/............................... (466) (120) (340) (783)
Other Liabilities/(7)/................................... 113 178 (220) 57
- --------
Source: Bangko Sentral.
(1) All trade credits are short-term credits in non-governmental sectors.
(2) All loans are short-term bank loans.
(3) All other assets are short-term bank assets.
(4) Long-term loans.
(5) Short-term loans.
(6) All bank currency and deposits.
(7) All short-term bank liabilities.
The following discussion does not take into account the 2000 and 2001
revision to the Balance of Payments. See "-- Recent Economic Developments --
Balance of Payments".
Domestic macroeconomic policies and structural reforms have significantly
affected the flow of foreign investment into the Philippines. The Foreign
Investment Act of 1991, as amended, introduced a more favorable investment
environment to the Philippines. The act permits foreigners to own 100% of
Philippine enterprises, except in certain specified areas included in a
"negative list" with respect to which the Constitution or applicable statute
limits foreign ownership, generally to a maximum of 40% of the enterprise's
equity capital. The Constitution also prohibits foreign ownership in certain
sectors, such as the media.
141
From 1994 to 1996, improvements in macroeconomic conditions resulted in
growth in production, declining inflation rates, lower interest rates, a stable
exchange rate and an improved external payments position, including a rising
level of international reserves, all of which encouraged foreign investment. In
1996, the country's net foreign investment surplus grew 118.6% to $3.5 billion
as residents' investments abroad declined 92.2% to $104 million and
non-residents' investments in the country rose 23%. New foreign investments in
the country fell 17.4% to $1.1 billion.
In January 1997, Bangko Sentral attempted to enhance the investment climate
by lifting the limits on domestic borrowing by foreign firms. Beginning in
mid-1997, however, due to the regional economic crisis, production dropped,
interest rates climbed, the Peso depreciated, the balance of payments position
deteriorated and international reserves fell, leading to a flight of capital
from the country. In 1997, the country's net foreign investment surplus fell
78.3% to $762 million. Non-residents investments in the Philippines dropped
76.7% as portfolio investment withdrawals climbed 60.3%, creating a portfolio
investments deficit of $406 million. Total resident investments abroad fell
22.1% from 1996. New foreign investments in the Philippines remained virtually
unchanged from 1996.
In 1998, net investment inflows increased significantly to $1.7 billion
compared with $762 million recorded in 1997. New foreign direct investments in
the Philippines grew 52% to $1.6 billion, compared with $1.1 billion in 1997.
In 1999, net investment inflows declined by 20.5% to $1,329 million compared
to 1998. New foreign direct investments declined by 23.9% to $1.2 billion,
compared with $1.6 billion for 1998. In 1999, under the BPM5 framework, a net
outflow of $1.8 billion was registered in the capital and financial account due
to the net outflow of $9.5 billion in the other investment accounts. The
continued inflows of direct and portfolio investments, on the other hand,
cushioned the impact of these outflows.
In 2000, under the BPM5 framework the net outflow in the financial account
reached $6.5 billion, an increase of 262.5% from the net outflow of $1.8
billion recorded in 1999. However, sustained net inflows of both direct and
portfolio investments mitigated the contraction in the financial account. This
developed due to the net outflows posted in the portfolio and other investment
accounts.
In 2001, the financial account registered a net outflow of $3.8 billion, a
41.2% decline from the net outflow of $6.5 million recorded in 2000. The direct
investment account posted a sustained net inflow while the portfolio investment
account gained strength as it made a dramatic turnaround to a net inflow of
$1.4 billion in 2001. Meanwhile, the cumulative net outflow in the other
investment account of $7.2 billion was lower by 7.3% than $7.7 billion in 2001.
The net outflow in the capital and financial account narrowed by 33.8 per
cent to $1,488 million (including a net outflow of $7 million from the capital
account) during the first half of 2002. The reversal of the portfolio
investment account to a net inflow of $1,439 million from a net outflow of $271
million in 2001 (due to success in the capital markets of the government and
GOCCs) dampened the negative impact of the higher net outflow of other
investment and the lower net inflow of direct investments.
Non-residents' direct investments in equity capital more than tripled to
$730 million during the first six months of 2002. The bulk of non-residents'
equity investments came from Japan, including the investment of $544 million in
a local brewery company in March 2002. Additional investments were directed to
other manufacturing companies, financial institutions, and transport and
storage services. Other major sources of direct investments were the US, U.K.
and Taiwan. Total direct investments for the first half of 2002 registered a
net inflow of $726 million. The 46.7% drop from the same period in 2001 was due
mainly to repayments on intercompany loans, particularly in June and residents'
placements of equity capital abroad.
There was a net outflow of $271 million in portfolio investments in the
first half of 2001 as compared to a net inflow of $1.4 billion in the first
half of 2002 due to increased non-residents' investments in resident-issued
foreign denominated debt securities, particularly government-issued medium-term
bonds. The Government issued $2.04 billion worth of foreign currency
denominated bonds in January, March and June, and Bangko Sentral issued $250
million worth of fixed rate notes in January. Non-residents' investments in
equity securities
142
also increased by 18.5% to $339 million in the first half of 2002, as investors
shifted investments to equity securities as a result of the relatively lower
yields on bonds and other domestic financial instruments during the period.
The net outflow in the other investment account expanded by 9.2% to $3.6
billion during the first six months of 2002 compared to the first six months of
2001. This expansion was due mainly to higher net deposits abroad by resident
banks to cover their clients' import payments and to diversify their portfolios.
The net outflow in the capital and financial account increased to $2.6
billion, or 5.3% during the first seven months of 2002. This was caused by
higher net outflow of other investments and lower net inflows of direct
investment, despite the reversal of the portfolio investment account to a net
inflow of $1.3 billion for the first seven months from a net outflow of $182
million for the first seven months of 2001.
Portfolio investments for the first nine months of 2002 reversed to a net
inflow of $692 million, from a net outflow of $208 million in the first seven
months of 2001, following increased non-residents' investments in
resident-issued foreign denominated debt securities, particularly
government-issued medium-term bonds. Non-residents' investments in equity
securities also rose by 13.0% to $356 million for the first seven months of
2002, indicating increased investor confidence in the local equities market and
a shift in the investors' preference to equity securities following the
relatively lower yield on bonds and other domestic financial instruments.
Non-residents' investments in equity capital almost doubled to $903 million
during the first nine months of 2002 as compared to the first nine months of
2001, following the investment of $544 million worth of shares by a Japanese
firm in the San Miguel Corporation, a local brewery company, in March 2002. The
remaining investment was directed to other manufacturing companies, financial
institutions and transport and storage services. Other major sources of direct
investments were the United States, Singapore, the United Kingdom and the
Netherlands.
The net outflow in the other investment account expanded by 12.6% to $5.1
billion during the first nine months of 2002. This was due in large part to the
higher net deposits abroad by resident non-banks, a majority of which were
corporations involved in build-operate-transfer arrangements, to cover
foreign-related obligations. Payments arising from maturing non-residents'
placements to local banks also contributed to the net outflow in other
investment.
Over the past few years, the Government has undertaken a number of programs
to encourage capital investment, including introducing build, operate and
transfer programs, reforming the legal regimes governing foreign investment and
the foreign exchange payment system and restructuring the tariff regime. In
August 1995, the Government implemented a schedule of tariff reductions to
correct distortions caused by past policies. Rates will be reduced to 3% for
raw materials and to 10% for finished goods by 2003 and tariffs will be further
adjusted to a range from 0% to 5% by 2004. The Philippines also lifted
quantitative restrictions on all regulated agricultural products, except rice,
and replaced them with tariffs permitted under the Uruguay Round agreements. In
early 1996, the authorities further reduced import costs by changing the system
of import duty valuation from "home consumption value" to actual transaction
value. The Philippines is also a member of the ASEAN Free Trade Area, which
provides for the gradual reduction to 5% or less or elimination of tariffs in
2003 on the trade of goods among ASEAN countries pursuant to a Common Effective
Preferential Tariff scheme. Currently, the Philippines restricts imports of
certain products only for reasons of health, security, safety and environmental
protection.
The Republic's Board of Investments coordinates with national agencies and
local Governments on investment policies and procedures and establishes and
administers annual investment priority plans to promote certain sectors of the
economy by providing special investment incentives to specific industries. The
Government's 2001 Investments Priorities Plan is working to promote the
following areas:
. poverty alleviation and eradication for all Filipinos;
143
. a business and policy environment to promote economic health; and
. a business community that is prepared to compete in the global e-commerce
business community.
Businesses that promote the Republic's investment priorities are eligible
for a package of incentives which can last for up to 10 years, including:
. income tax holidays;
. exemption from wharfage fees;
. unlimited use of consigned equipment;
. additional tax deductions for labor expenses; and
. fewer restrictions on the employment of foreign nationals.
The Government grants additional incentives to industries located in
less-developed areas or administered by the Philippine Export Zone Authority
and the Subic and Clark special economic zones.
In March 2000, the Retail Trade Liberalization Act was enacted. The law aims
to promote efficiency and competition among domestic industries and foreign
competitors which will result in better service and lower prices for the
consumers. Prior to its enactment, only citizens of the Philippines and
corporations wholly-owned by Filipino citizens could engage in the retail
business in the Philippines. Under the law, a foreigner is allowed to own 100%
of a retail business in the Philippines provided it makes an investment of at
least $7.5 million in the Philippines. If a foreigner makes an investment of
between $2.5 million to $7.5 million, the foreigner is allowed to own up to 60%
of the retail business in the Philippines for the first two years.
The following table sets out foreign investment in the Philippines
registered with Bangko Sentral by sector.
FOREIGN EQUITY INVESTMENTS REGISTERED
WITH BANGKO SENTRAL BY SECTOR
Jan-May
1997 1998 1999 2000 2001 2002
-------- ------ -------- -------- ------ -------
(in millions)
Banks and other financial institutions $ 226.4 $193.1 $ 258.3 $ 483.9 $476.4 $ 59.3
Manufacturing......................... 172.2 245.5 1,049.1 171.7 262.9 615.1
Mining................................ 2.8 161.2 27.3 239.5 66.2 2.3
Commerce and real estate.............. 78.0 161.9 166.3 62.3 23.2 17.9
Services.............................. 33.3 12.1 16.7 5.2 8.4 18.8
Public utilities...................... 297.8 67.9 552.5 423.5 20.6 59.0
Others/(1)/........................... 242.9 43.0 36.5 12.2 0.2 40.3
-------- ------ -------- -------- ------ ------
Total investments..................... $1,053.4 $884.7 $2,106.7 $1,398.2 $857.8 $812.6
======== ====== ======== ======== ====== ======
- --------
Source: International Operations Department, Bangko Sentral.
(1) Includes construction and agriculture, fishery and forestry.
144
International Reserves
The following table sets out the gross international reserves of Bangko
Sentral, compiled in a manner consistent with the revised balance of payments
framework and the treatment of IMF accounts in the monetary survey published in
the IMF's International Financial Statistics.
GROSS INTERNATIONAL RESERVES OF BANGKO SENTRAL
As of December 31, As of
---------------------------------------------------- June 30,
1997/(1)/ 1998/(1)/ 1999/(1)/ 2000/(2)/ 2001 2002
-------- -------- -------- -------- ------- --------
(in millions, except months and percentages)
Gold/(3)/.................................... $1,472 $ 1,569 $ 1,782 $ 1,973 $ 2,216 $ 2,627
SDRs......................................... 31 1 19 2 14 4
Foreign Investments/(4)/..................... 6,968 8,738 12,881 12,371 12,786 13,502
Foreign Exchange............................. 179 376 222 565 533 661
Reserve Position in the IMF/(5)/............. 118 122 120 113 109 115
------ ------- ------- ------- ------- -------
Total........................................ $8,768 $10,806 $15,024 $15,024 $15,658 $16,908
====== ======= ======= ======= ======= =======
Total as number of months of imports of goods
and services............................... 2.0 3.1 4.4 4.4 5.0 5.4
As a % of short-term debt
Original maturity........................... 103.9% 150.4% 261.5% 252.6% 258.9% 318.1%
Residual maturity........................... 77.8% 98.2% 168.4% 141.8% 130.7% 148.5%
- --------
Source: International Operations Department, Bangko Sentral.
(1) Represents official figures from Bangko Sentral's Treasury Department under
the old system where monetary gold under the swap arrangement was not part
of gross international reserves.
(2) Beginning January 2000, a new system was adopted revising the treatment of
monetary gold under the swap arrangement, including it as part of gross
international reserves. To allow comparability with 2000 data, the revised
treatment of monetary gold under the swap arrangement would have resulted
in an upward adjustment of the gross international reserves level as of
December 31, 1999 to $15,107 million.
(3) Of these amounts 82.3% in 1997, 75.3% in 1998, and 83.3% in 1999 served as
collateral for gold-backed loans. Under the new accounting system adopted
in 2000, 82.6% of the amount as of December 31, 2000, 85.7% as of December
31, 2001, and 65.9% as of May 31, 2002 served as collateral for gold-backed
loans and gold swap arrangements.
(4) Consists of time deposits, investments in securities issued or guaranteed
by government or supranational organizations and repurchase agreements.
(5) The reserve position in the IMF is an off-balance sheet item and is
recorded by Bangko Sentral's Treasury Department as a contingent asset with
a matching contingent liability.
The gross international reserves controlled by Bangko Sentral constitute
substantially all of the Philippines' official international reserves.
By the end of March 1997, gross international reserves rose to approximately
$12 billion. After the onset of the Asian economic currency crisis, however,
gross international reserves declined to $8.8 billion as of December 31, 1997,
primarily because of $2.8 billion of net foreign exchange sales by Bangko
Sentral in 1997. In addition, in 1997 the Government spent $1.9 billion and
Bangko Sentral spent $555 million on debt service payments. These expenditures
effectively consumed $500 million from Bangko Sentral's June 1997 bond
flotation, $700 million and $331 million from two drawings under the Republic's
extended fund facility with the IMF and $324 million borrowed in parallel loan
financing from the Export-Import Bank of Japan.
In 1998, the Government took a number of steps to boost reserves, including
obtaining a $610 million one-year loan from a syndicate of mainly domestic
banks in September 1998 and drawing upon the $1.4 billion stand-by facility
provided by the IMF. The IMF disbursed $278 million under the stand-by facility
in November 1998 and $133 million in December 1998.
In 1998, the reserve level was also increased by $500 million of foreign
currency deposits with Bangko Sentral from foreign banks, $492 million in net
proceeds from the Republic's global bond offering in April 1998,
145
a $750 million club loan from a consortium of foreign banks, $210 million in
net foreign exchange purchases by Bangko Sentral and increased investment
inflows resulting from improvements in the currency markets. Foreign exchange
outlays of $1.9 billion by the Government and $532 million by Bangko Sentral
were used to service maturing foreign obligations, however, reduced reserve
levels.
In 1999, gross international reserves increased significantly to reach $15.0
billion as of the end of 1999, equivalent to 4.4 months of imports of goods and
payment of services and income. The increase in reserve level was due to higher
public sector borrowing, renewed private capital flows and stronger external
trade performance. Among other reasons, the reserve level was increased by the
Republic's $1.2 billion global bond offerings in January and February 1999,
4350 million eurobond offering in March 1999, $292 million global bond offering
in October 1999 and $400 million re-opening of its 2019 bonds in December 1999.
Further, the IMF disbursed $130 million under the stand-by facility in March
1999 and $214 million in July 1999. In June 1999, the Republic refinanced the
$610 million syndicated loan facility it obtained in 1998 with three-year fixed
and floating rate notes and, in December 1999, the Republic completed a $260
million eurobond offering to partially refinance the $610 million one-year loan.
In January 2000, Bangko Sentral revised its method of accounting for
international reserves at the recommendation of the IMF. Under the previous
accounting system, a gold swap transaction was treated as a sale of gold which
reduced the amount of gold holdings. Under the revised system, a gold swap
transaction is treated as a loan transaction collateralized by gold that
remains a part of the international reserves. In addition, under the revised
system, the accrued interest payable on Bangko Sentral's short-term liabilities
is netted out of gross international reserves when calculating net
international reserves, reducing the level of net international reserves.
As of December 31, 2000, gross international reserves stood at $15.0
billion, equivalent to 4.4 months of imports of goods and payment of services
and income. Major sources of foreign exchange inflows in 2000 were the
Republic's $1.6 billion Yankee bond offering in March, a $500 million Bangko
Sentral syndicated loan in April, (Yen)35 billion Samurai bond offering and
$400 million syndicated loan in October, $200 million private placement of
Yen-denominated eurobonds in November and $200 million private placement of
eurobonds in December. These inflows were partially offset by a decline in
portfolio investments by non-residents from their 1999 levels. As of December
31, 2000, net international reserves totalled $11.3 billion, compared to $11.8
billion as of December 31, 1999 (after adjustment for the BPM5 framework).
As of December 31, 2001, gross international reserves rose to $15.7 billion
compared to $15.0 billion as of December 31, 2000. The increase in gross
international reserves during the year 2001 was attributed mainly to foreign
exchange inflows arising from various foreign loans and bond flotations. The
various loans and bond flotations include, among others, the Republic's $199
million Floating Rate Notes due 2004; the Republic's $100 million Facility Loan
Agreement; the Republic's $220 million Cross Currency Swap; the Republic's $119
million Treasury Bills to pre-fund the Government's 2002 requirements; the
Asian Development Bank ("ADB") Non-Bank Financial Program Loan of $75 million;
the ADB Power Sector Loan of $100 million; the Republic's $444 million Fixed
Rate Bonds due 2006; the Republic's Shibosai $365 million Fixed Rate Guaranteed
Bonds due 2011; Bangko Sentral's $740 million 3-year Term Loan Facility; Bangko
Sentral's $200 million Floating Rate Notes due 2003; Bangko Sentral's $550
million 9% Notes due 2005 and Bangko Sentral's $700 million loan from other
foreign financial institutions. The impact of these inflows was partly
mitigated by the servicing of foreign exchange requirements of the Government
and Bangko Sentral. Net international reserves totaled $11.4 billion as of
December 31, 2001.
As of end of June 2002, Bangko Sentral's gross international reserves rose
to $16.9 billion, 8.0% higher than at the end of December 2001. The increase in
reserves during the first half of 2002 was due mainly to foreign exchange
inflows, mainly in the form of net deposits by the Treasurer of the
Philippines. However, these were partly offset by outflows to meet the foreign
exchange requirements of Bangko Sentral and the Republic and to service the
obligations of the National Power Corporation.
As of September 30, 2002, the gross international reserves had fallen to
$16.1 billion. The decrease was brought about primarily from a decrease in
foreign investments to $12.7 billion from $13.5 billion in June. The decline in
foreign investments was offset by an increase of gold holdings to $2.7 billion
in September 2002, from
146
$2.6 billion in June 2002. As of the end of November 2002, gross international
reserves had fallen to $15.8 billion, primarily because of US-dollar
denominated debt service payments for maturing obligations of Bangko Sentral
and the Government.
Bangko Sentral's reserves as of October 31, 2002 were adequate to cover 4.9
months' worth of imports of goods and payment of services and income. Using
other reserve coverage measures, the level of reserves was 2.7 times the amount
of the Republic's short-term external debt based on original maturity or,
alternatively, 1.3 times the amount of short-term external debt based on
residual maturity (outstanding short-term external debt on original maturity
basis plus principal payments on medium-and long-term loans of the public and
private sectors due in the next 12 months). However, the preceding figures may
be affected by the results of the inter-agency task force which is evaluating
the level of imports since 2000. See "-- Recent Economic Developments --
International Reserves".
During the first half of 2002, the bulk of reserves consisted of foreign
investments (79.9%), while the rest were in gold (15.5%), foreign exchange
(3.9%), and combined SDRs and reserve position in the International Monetary
Fund (0.7%). In terms of the currency composition of reserves excluding gold,
94.1% were in US dollars, 2.4% in Japanese yen, 1.5% in pound sterling and the
balance of 2.0% in other foreign currencies.
Bangko Sentral occasionally enters into options with respect to gold,
foreign exchange and foreign securities for purposes of managing yield or
market risk. It also enters into financial swap contracts to optimize yield on
its gold reserves.
Monetary System
Monetary Policy. In 1993, the Government established Bangko Sentral, the
Republic's central bank, pursuant to the New Central Bank Act. Bangko Sentral
replaced the old Central Bank of the Philippines, which had incurred
substantial deficits in connection with:
. quasi-fiscal activities, including entering into foreign exchange forward
cover contracts and swaps with certain banks and Government corporations
and assuming the foreign exchange liabilities of certain Government and
private corporations during the Philippines' foreign exchange crisis in
the early 1980s;
. development banking and financing; and
. open market operations financed by the issuance of domestic securities at
high interest rates.
Bangko Sentral functions as an independent central monetary authority
responsible for policies in the areas of money, banking and credit as
authorized under Section 3 of Republic Act No. 7653, otherwise known as the New
Central Bank Act. As such, it does not engage in the quasi-fiscal activities
that caused the old Central Bank to fail. The New Central Bank Act also
prohibits Bangko Sentral from engaging in development banking or financing.
Additionally, Bangko Sentral does not engage in any commercial banking
activities.
Bangko Sentral's primary objective is to maintain price stability conducive
to a balanced and sustainable growth of the economy, as well as to promote and
maintain monetary stability and the convertibility of the peso. To achieve the
price stability objective, Bangko Sentral undertakes monetary management mainly
through adjustments to policy rates and the conduct of open market operations,
including the purchase and sale of Government securities, rediscounting
transactions and adjustments in reserve requirements.
Bangko Sentral's functions include:
. conducting monetary policy;
. issuing the national currency;
. managing foreign currency reserves;
. acting as depository for the Government, its political subdivisions and
instrumentalities and for Government owned corporations; and
. supervising and regulating banks and quasi-banks in the Philippines.
147
The Government owns all of the capital stock of Bangko Sentral. A seven
member Monetary Board, comprised of Bangko Sentral's Governor, a member of the
Cabinet designated by the President and five full-time private sector
representatives, governs Bangko Sentral. The President appoints each of the
seven Monetary Board members to six-year terms except the Cabinet
representative.
Philippine law requires Bangko Sentral to maintain a net positive foreign
asset position. As of June 2001, Bangko Sentral had total assets of (Peso)1.13
trillion, of which net international reserves accounted for (Peso)756.5 billion
($14.4 billion). Bangko Sentral's remaining assets consist mainly of foreign
exchange receivables, loans and advances and Government securities, and its
liabilities consist mainly of deposits of financial institutions and, the
Government and Government-owned corporations and foreign liabilities in the
form of loans and bonds payable.
Money Supply. The following tables presents certain information regarding
the Philippines' money supply:
MONEY SUPPLY
As of December 31 As of
---------------------------------------------------------------------- September 30,
1997 1998 1999 2000 2001 2002/(1)/
------------- ------------- ------------- ------------- ------------- --------------
(in billions, except for percentages)
M1/(2)/
Currency in circulation. (Peso) 143.6 (Peso) 146.1 (Peso) 218.5 (Peso) 192.3 (Peso) 194.7 (Peso) 167.5
Current account deposits 114.7 135.4 175.6 194.7 193.3 243.8
------------- ------------- ------------- ------------- ------------- --------------
Total................... 258.3 281.5 394.1 387.0 388.0 411.3
percentage increase.... 16.4 9.0 40 (1.8) 0.3 16.5//
M2/(3)/................. (Peso)1,053.9 (Peso)1,138.4 (Peso)1,357.9 (Peso)1,423.2 (Peso)1,521.1 (Peso)1,584.1
percentage increase.... 20.5 8.0 19.3 4.8 6.9 9.1
M3/(4)/................. (Peso)1,066.0 (Peso)1,144.6 (Peso)1,365.1 (Peso)1,427.0 (Peso)1,525.0 (Peso)1,587.4
percentage increase.... 20.9 7.4 19.3 4.6 6.8 8.9
- --------
Source: Bangko Sentral, Department of Economic Research.
(1) Preliminary, percentage growth over September 2001 level.
(2) Consists of currency in circulation and demand deposits.
(3) Consists of M1, savings deposits and time deposits.
(4) Consists of M2 and deposit substitutes.
The following table presents information regarding domestic interest and
deposit rates.
DOMESTIC INTEREST AND DEPOSIT RATES
1997 1998 1999 2000 2001 2002/(1)/
---- ---- ---- ---- ---- --------
(weighted averages in percentages per period)
91-day Treasury bill rates....... 13.1 15.3 10.2 9.9 9.9 5.7
90-day Manila Reference rate/(2)/ 11.1 13.8 10.1 8.8 10.1 7.8
Bank average lending rates/(3)/.. 16.2 18.4 11.8 10.9 12.4 9.7
- --------
Source: Bangko Sentral, Department of Economic Research.
(1) January to July 2002.
(2) Based on promissory notes and time deposit transactions of sample
commercial banks.
(3) Starting January 2002, monthly rates reflect the annual percentage
equivalent of all commercial banks' actual monthly interest income on
peso-denominated loans to the total outstanding levels of their
peso-denominated demand/time loans, bills discounted, mortgage contract
receivables and restructured loans.
148
The Asian economic crisis complicated Bangko Sentral's task of balancing the
need for readily available credit against the fear of rising inflation. To
control the inflationary effect of the peso's depreciation, Bangko Sentral
initially reduced the supply of pesos by raising interest rates and reserve
requirements. Bangko Sentral raised its overnight borrowing rate to 32% in July
1997 from 15% at the end of June 1997 and its overnight lending rate to 34% in
July 1997 from 17% at the end of June 1997. On August 20, 1997, Bangko Sentral
temporarily suspended its overnight lending facility. Bangko Sentral also
increased liquidity reserve requirements on Peso deposit liabilities from 2% in
July 1997 to 8% in August 1997 in addition to the bank's 13% statutory reserve
requirement. In November 1997, as signs of improvement appeared, Bangko Sentral
lowered liquidity reserve requirements to 4% of Peso deposit liabilities.
Bangko Sentral and the Bankers' Association of the Philippines also took
measures to encourage reductions in bank lending rates to avoid potential
corporate bankruptcies. Bangko Sentral approved certain liquidity easing
measures in January 1998, including the opening of a 30-day lending window, the
opening of a swap window for banks without Government securities holdings and
the purchase of Government securities at market prices. In April 1999, Bangko
Sentral decreased the liquidity reserve requirement from 5% to 4% and lowered
the statutory reserve requirement from 13% to 10% on March 1998. These measures
were intended to lower bank intermediation costs and thereby reduce the banks'
domestic lending rates. Bangko Sentral further reduced the statutory reserve
requirement to 9% in July 1999 to help reduce the cost of money and increase
funds available for lending. At the same time, Bangko Sentral maintained
liquidity by raising the proportion of reserves which earns interest to 40%
from 25%. In July 2001, Bangko Sentral raised banks' liquidity reserve
requirement from 7.0% to 9.0%. The statutory reserve requirement remained
unchanged at 9.0%. Bangko Sentral also reduced, from $10,000 to $5,000, the
amount of US currency an individual could buy over-the-counter from banks
without documentation. The measures were intended to siphon excess liquidity in
the economy that could lead to higher inflation or be used to speculate on the
Peso. On August 10, 2001, Bangko Sentral raised required liquidity reserves by
another 2% points to 11%.
As the inflation rate eased from 11.5% in January 1999 to 6.7% for the
full-year 1999, Bangko Sentral implemented 21 rate cuts in its overnight
borrowing rate (for a cumulative reduction of 462.5 basis points) and 20 rate
cuts in its overnight lending rate (for a cumulative reduction of 377.5 basis
points).
The inflation rate in 2000 averaged 4.4%, which is well below the 6.7%
recorded in 1999. Emerging inflationary pressures and volatility in the foreign
exchange market due to narrowing interest rate differentials prompted monetary
tightening actions in 2000. In May 2000, Bangko Sentral increased its overnight
borrowing and lending rates by a total of 125 basis points to 10.0% and 12.3%,
respectively. Policy rates were raised in September 2000 by 100 basis points
and by an additional 400 basis points in October 2000 to address the upside
risks of inflation due to the sharp depreciation of the Peso and the narrowing
interest rate differential. The October 2000 rate increase was accompanied by a
4-percentage point increase in banks' liquidity reserve requirements intended
to siphon off excess liquidity, which was feeding speculative activity in the
foreign exchange market. As a result of these tightening moves, the average
91-day Treasury bill rate rose from 8.9% in January to 15.8% in November.
The temporary tightening measures helped keep inflationary pressures in
check, restored general stability in the foreign exchange market and provided
room for the gradual easing of the monetary policy stance. In December 2000,
Bangko Sentral began the process of restoring policy rates to pre-crisis levels
by reducing the overnight rates by a cumulative 150 basis points. This induced
a gradual downtrend in interest rates, with the 91-day Treasury bill rate
falling to 13.6% in December.
In early 2001, Bangko Sentral successively reduced interest rates to
encourage economic activity. From January to May 2001, sustained monetary
easing reduced Bangko Sentral policy rates by a total of 450 basis points to
9.0% and 11.25% for the overnight borrowing rates and lending rates,
respectively. These rates remained unchanged from May 18 to October 4, 2001.
Subsequently, relative stability in the financial markets and the containment
of inflation allowed Bangko Sentral to further ease monetary policy. Moreover,
the worldwide reduction in interest rates by many central banks, following
significant monetary policy easing by the US Federal Reserve, made possible a
comfortable interest rate differential and mitigated the risk of abrupt shifts
149
in short-term investment funds toward foreign-currency denominated assets.
Thus, Bangko Sentral's policy rates were reduced successively in the fourth
quarter of 2001, resulting in a cumulative reduction of 575 basis points from
December 2000. At the end of December 2001, the overnight borrowing rates and
lending rates stood at 7.75% and 10.0%, respectively. The reduction in policy
rates in December was accompanied by a two percentage point reduction in banks'
liquidity reserve requirements intended to encourage a further downtrend in
market interest rates.
The tiering system on banks' overnight placements with Bangko Sentral
(initially adopted in June 2000) was temporarily removed on August 3, 2001 to
help ease pressure on the Peso. In November 2001, the tiering scheme was
subsequently restored to induce banks to lend their funds to the various
productive sectors of the economy. In December 2001, a change in the structure
of the tiering scheme of Bangko Sentral's overnight rates window was effected
as follows: 7.75% for placements of up to (Peso)5 billion, 5.75% for the next
(Peso)5 billion, and 3.75% for placements in excess of (Peso)10 billion.
During the first three months of 2002, Bangko Sentral eased policy rates
three times for a cumulative reduction of 75 basis points to reach 7.0% and
9.25% for the overnight borrowing and lending rates, respectively. These are
the lowest levels in Bangko Sentral's policy rates in 10 years. The rate
reductions were accompanied by corresponding changes in the structure of the
tiering scheme for interest rates on banks' overnight placements with Bangko
Sentral. As of March 15, 2002, the rates under the tiering structure for banks'
placements in the overnight rates placements with Bangko Sentral were as
follows: 7.0% for placements of up to (Peso)5 billion, 4.0% for the next
(Peso)5 billion, and 1.0% for placements in excess of (Peso)10 billion. The
tiering scheme was also modified to cover placements in special deposit
accounts ("SDAs") and was required to be applied on a consolidated basis. These
changes were aimed at inducing banks to channel the additional liquidity into
lending for productive activities. Bangko Sentral also reduced the liquidity
reserve requirement on deposits by two percentage points to 7.0% effective
January 18, 2002, a move which restored the liquidity reserves to their
pre-July 2001 level.
Through December 2002, the Monetary Board kept the Bangko Sentral's policy
rates at 7.0% and 9.25% for the overnight borrowing and lending rates,
respectively. The current policy rates have been maintained since March 15,
2002.
The Monetary Board bases its current policy on the assumption that inflation
is likely to remain stable for the rest of the year. While the Monetary Board
sees signs of modest improvements in domestic economic activity as reflected in
the favorable output growth and export numbers for the second quarter, the
Monetary Board recognizes that other indicators still point to a decrease in
domestic demand. Spare capacity in manufacturing remains relatively high, at
about a quarter of total output capacity. Credit conditions are still weak,
despite a slowdown in the contraction in bank lending in July. The Philippine
economy also faces risks from the external sector such as the uncertainty over
the robustness of the global economic recovery as well as the continuing threat
of a U.S.-led offensive against Iraq. Moreover, there are potential sources of
inflationary pressures such as the uncertainty over the impact of the El Nino
weather phenomenon on agricultural crop production in 2003, the sustained
uptrend in world oil prices, the delayed but eventual adjustment in light and
water charges, and the wider fiscal deficit.
The benchmark 91-day Treasury bill rate declined from an average of 12.2% in
January 2001 to 9.9% in December 2001 and to 4.8% in July 2002. As of January
20, 2003, the 91-day Treasury bill rate had increased to 5.2%. Bank lending
rates have also begun to ease, from a range of 17.1%-19.0% in January 2001 to a
range of 14.2%-12.7% in December 2001 and further to a range of 8.2% to 10.0%
in October 2002.
Foreign Exchange System. The Republic maintains a floating exchange rate
system under which market forces determine the exchange rate for the Philippine
Peso. Bangko Sentral may, however, intervene in the market to maintain orderly
market conditions and limit sharp fluctuations in the exchange rate.
150
The following table sets out exchange rate information between the Peso and
the US dollar.
EXCHANGE RATES OF PESO PER US DOLLAR
Year Period End Period Average/(1)/
---- ---------- ------------------
1998 39.059 40.893
1999 40.313 39.089
2000 49.998 44.194
2001 51.789 50.993
2002 53.096 51.604
- --------
Source: Reference Exchange Rate Bulletin, Treasury Department, Bangko Sentral.
(1) The average of the monthly average exchange rates for each month of the
applicable period.
In 1993, the Government significantly reformed the Republic's foreign
exchange payment system by, among other things:
. eliminating the requirement to surrender export proceeds;
. removing restrictions on current account transactions;
. easing access to foreign currency loans for exporters and producers; and
. relaxing the regulations governing investments outside the Philippines.
Foreign exchange may be freely sold and purchased outside the banking system
and deposited in foreign currency accounts. Both residents and non-residents
may maintain foreign currency deposit accounts with authorized banks in the
Philippines, and residents may maintain deposits abroad without restriction.
Payments related to foreign loans registered with Bangko Sentral and foreign
investments approved by or registered with Bangko Sentral may be serviced with
foreign exchange purchased from authorized agent banks. Bangko Sentral must
approve and register all outgoing investments by residents exceeding $6 million
per investor per year if the funds will be sourced from the banking system. For
a discussion of Bangko Sentral's loan approval regime, see "-- The Philippine
Financial System -- Foreign Currency Loans".
While the Government imposes no currency requirements for outgoing payments,
all exchange proceeds from exports, services and investments must be obtained
in any of 22 prescribed currencies. Authorized agent banks may convert the
acceptable currencies to pesos.
Bangko Sentral maintains an Exporters' Dollar Facility to facilitate the
conversion of export proceeds in US dollars into Pesos. In 1999, Bangko Sentral
expanded the facility to include a Japanese yen rediscounting facility and
renamed it the Exporters' Dollar and Yen Rediscount Facility.
Individual or corporate non-residents may open peso bank accounts without
Bangko Sentral's approval. The export or electronic transfer out of the
Philippines of peso amounts exceeding (Peso)10,000 requires prior authorization
from Bangko Sentral.
The value of the peso relative to the US dollar and other foreign currencies
declined substantially in 1997 and early 1998. Bangko Sentral initially
responded to the peso depreciation in July 1997 by increasing its sales of US
dollars and raising interest rates. In 1997, total net sales of US dollars by
Bangko Sentral amounted to over $2.6 billion, including $2.1 billion in June
and July 1997. Despite Bangko Sentral's intervention, sales of pesos proved
stronger than expected and as a result, Bangko Sentral allowed the peso to
float on July 11, 1997. The value of the peso then declined over time, reaching
a low of (Peso)45.42 per US dollar on January 8, 1998. As the Government
implemented various monetary, foreign exchange and fiscal policies to curb
speculation and restore
151
confidence in the economy, the peso began to strengthen. On December 31, 1998,
Bangko Sentral's reference exchange rate was (Peso)39.06 per US dollar and on
December 31, 1999, the exchange rate was (Peso)40.31 per US dollar.
For the first four months of 2000, the peso-dollar rate was relatively
stable, averaging (Peso)40.78 per US dollar. However, the exchange rate began
to exhibit volatility starting in mid-May and exceeded (Peso)45.00 per US
dollar on July 27, 2000. It exceeded (Peso)50.00 per US dollar on October 27,
2000, and reached a record average low of (Peso)51.68 per US dollar in November
2000. The Peso recovered briefly in November, bringing the rate up to
(Peso)49.39 per US dollar on November 29, 2000. This trend, however, was not
sustained as the peso depreciated to an average of (Peso)49.99 per US dollar by
the end of 2000.
The weakness of the Peso in 2000 may be attributed to a number of factors,
including the rise in US interest rates, which reduced the interest rate
differential between domestic and international interest rates, concerns over
the rising fiscal deficit, and some domestic, non-economic factors, which
included the tension in Mindanao, some issues pertaining to public governance,
and the ensuing political uncertainties surrounding the impeachment trial of
former President Estrada.
The peso depreciated further in 2001. From (Peso)49.998/US$1 at end-2000,
transitory shocks caused the peso to reach a low of (Peso)55.013/US$1 on
January 19, 2001. The peso strengthened thereafter and was relatively stable
for most of February and March. From early April, however, the peso traded in
the (Peso)50-(Peso)51/US$1 range. The pressure on the peso again intensified
starting late June until the first week of August but the peso subsequently
appreciated to an average of (Peso)51.250/US$1 in September, from an average of
(Peso)53.224/US$1 in July. The peso weakened again starting the second week of
October before appreciating towards the latter part of December as market
conditions stabilized. Overall, during 2001 the peso depreciated by 13.8%
compared to the average peso-dollar exchange rate for 2000.
The fluctuations in the peso-dollar rate during 2001 were caused by a
confluence of domestic and external factors. In early January, the political
crisis involving the impeachment proceedings of the former President negatively
affected the peso. However, the speedy and peaceful resolution of the political
crisis enabled the Peso to recover and gain some stability beginning in the
third week of January. Starting April until the first week of August, the peso,
along with other regional currencies, was again weakened against the dollar due
primarily to bearish market sentiment brought about by concerns over the
economic slowdown in the US and in Japan. The weakness of the peso was also
attributed to: (1) the continued tension resulting from the Abu Sayyaf hostage
crisis and the spate of kidnappings in Metro Manila; (2) the downgrading of
growth projections by the government due to the contraction in exports and the
slowdown in industrial output; (3) worries over the budget deficit; (4) rising
corporate dollar demand for mid-year import requirements and dividend
repatriation; and (5) renewed weakening of investor sentiment on emerging
market currencies due to the debt crisis in Argentina. Heightened uncertainty
after the September 11 terrorist attacks in the United States was mainly behind
the depreciation pressure on the peso in the last quarter of the year.
For the month of October 2002, the exchange rate averaged (Peso)52.91 per US
dollar, compared to an average of (Peso)51.82 for August 2002 and (Peso)52.13
for September 2002. The peso depreciated further to an average of (Peso)53.30
per US dollar in November 2002. On February 5, 2003, the exchange rate was
(Peso)53.94 per US dollar. The recent weakness of the Peso was also generally
attributable to uncertainty over a potential war in Iraq, declining investor
confidence due to concerns over the rising fiscal deficit, recent attacks in
the Philippines and Indonesia, and the vulnerability of emerging markets,
including the Philippines, to the South American debt contagion.
Stabilization of the Peso. Since it allowed the peso to move within a wider
range on July 11, 1997, Bangko Sentral has intervened minimally in the foreign
exchange market. It has, however, adopted certain measures related to foreign
exchange trading including:
. requiring prior approval of Bangko Sentral to sell non-deliverable forward
contracts to non-residents to decrease the demand for foreign currency
(Bangko Sentral believes that speculators used non-deliverable forward
contracts to increase artificially the demand for foreign currency);
152
. reducing banks' permitted long or overbought foreign exchange position to
the lower of $10 million or 5% of unimpaired capital, to limit a bank's
ability to speculate in foreign exchange;
. lifting temporarily, subject to periodic review by Bangko Sentral, the 20%
limit on banks' short or oversold foreign exchange position, to increase
the foreign exchange available in the market;
. limiting the types of forward contracts that can be used as deductions
when valuing a bank's overbought foreign exchange position;
. requiring banks to consolidate their foreign exchange accounts with those
of their subsidiaries when calculating net open foreign exchange positions
so that a bank cannot circumvent the rules by engaging in foreign exchange
transactions through a subsidiary or affiliate;
. decreasing the maximum amount of foreign exchange that banks can sell
over-the-counter on an undocumented basis to $5,000 from $100,000, thus
moderating demand for foreign exchange;
. prohibiting banks from extending peso loans to non-residents to curb undue
speculation in the foreign exchange market and to further reinforce the
regulation that peso deposits should be funded from inward foreign
exchange remittance;
. requiring banks with foreign exchange corporations to submit a report
containing details of foreign exchange purchases and sales;
. issuing rules and regulations to combat money laundering. See "-- The
Philippine Financial System -- Structure of the Financial System".
In addition, in December 1997, Bangko Sentral introduced the currency risk
protection program, which is a hedging facility provided by Bangko Sentral
through commercial banks under which, on the maturity of a forward contract,
the difference between the contract rate and the market rate is settled and
paid in pesos. The program allows eligible borrowers with unhedged foreign
exchange liabilities to borrow from the program to hedge their unmatured
liabilities with reference to foreign currency deposit units of banks. This
reduces their foreign exchange exposure and generally reduces demand for
foreign currency in the spot market. In early 1998, as a part of the program,
Bangko Sentral expanded oil companies' access to commercial bank funds by
permitting them to borrow foreign currencies, in addition to obtaining loans
and advances, to pay for their non-crude and non-refined imports and to meet
their short-term working capital requirements.
In January 2000, Bangko Sentral imposed a 90-day minimum holding period for
foreign investments placed in peso time deposits with Philippine banks to
tighten its monitoring of the foreign exchange market and discourage the inflow
of short-term speculative funds. The holding period applies only to peso time
deposits and not to other investments such as equities, government securities
or commercial paper. Peso time deposits that are terminated within the 90-day
period will not be converted by Philippine banks to foreign currency, but may
be transferred to other peso-denominated investments.
In June 2000, Bangko Sentral began to require banks and their subsidiaries
with foreign exchange operations to submit detailed reports of foreign exchange
purchases and sales transactions involving more than $250,000 with the
objective of closely monitoring and supervising the foreign exchange operations
of those banks and subsidiaries.
In October 2000, Bangko Sentral introduced guidelines on the foreign
exchange trading activities for foreign exchange corporations or corporations
that are subsidiaries or affiliates of banks, quasi-banks or non-bank
intermediaries. Under the guidelines, foreign exchange corporations must
require a written, notarized application and supporting documentation for sales
of foreign exchange in excess of $10,000 to Philippine residents for trade and
non-trade purposes. Additionally, foreign exchange corporations are required to
confirm that the $10,000 limit is not breached by splitting the foreign
exchange purchases into smaller amounts to make it appear that the purchase
does not violate the prescribed limit. Bangko Sentral also increased the
minimum paid-in capital for foreign exchange corporations to (Peso)50 million.
In October 2000, Bangko Sentral also expressly prohibited banks from engaging
in engineered swap transactions because Bangko Sentral believes these
transactions contributed to the volatility of the peso-US dollar exchange rate
during 2000.
153
In 2001 and 2002, Bangko Sentral implemented the following measures to
address dollar speculation and exchange rate volatility:
. in July 2001, it expanded the eligibility rules of the currency risk
protection program, a hedging facility established in 1997, to include US
dollar trust receipts; net importers; registered foreign currency-
denominated bonds and foreign currency deposit loans with the original
maturities longer than one year and up to five years; and trade
transactions of clients other than oil companies. The coverage of the
currency risk protection program was further expanded in September 2001 to
include Bangko Sentral-registered short-term trade-related borrowings of
oil companies from offshore banking units and offshore banks. The measures
are expected to further relieve the pressure on the spot market created by
investors who seek to front-load their future foreign currency
requirements and by borrowers who seek to cover unmatured foreign currency
obligations;
. it reduced the ceiling on undocumented over-the-counter sales of foreign
exchange to $5,000 to prevent abuse through the splitting of foreign
exchange sales;
. it kept policy rates unchanged since May 18, 2001 to preserve an
appropriate interest rate differential to encourage investors to maintain
their Peso-denominated assets, while concurrently addressing the risk of
inflation arising from the pass-through effects of the Peso depreciation.
Bangko Sentral's overnight borrowing and lending rates were subsequently
reduced after the third quarter of 2001 to their current levels of 7.0%
and 9.25%, respectively;
. it increased the monetary penalty and introduced non-monetary sanctions
for those violating foreign exchange rules and regulations; and
. it required effective from January 1, 2002, any person who brings into or
out of the Philippines foreign currency in excess of $10,000 or its
equivalent to declare the same in writing and to furnish information on
the source and purpose of the transport of such currency.
The Philippine Financial System
Composition. The following table sets out the total assets of the
Philippine financial system by category of financial institution.
TOTAL ASSETS OF THE FINANCIAL SYSTEM/(1)/
As of
October
As of December 31, 31,
--------------------------------------------------------------------- -------------
1997 1998 1999 2000 2001 2002
------------- ------------- ------------- ------------- ------------- -------------
(in billions)
Banks
Commercial banks............... (Peso)2,513.0 (Peso)2,512.2 (Peso)2,722.3 (Peso)3,013.6 (Peso)3,070.5 (Peso)3,165.3
Thrift banks................... 208.4 216.4 223.5 245.8 259.0 273.1/(2)/
Rural banks.................... 57.6 60.0 61.9 67.4 73.8 79.1/(3)/
------------- ------------- ------------- ------------- ------------- -------------
Total banks.................. 2,779.0 2,788.6 3,007.7 3,326.8 3,403.3 3,517.5
============= ============= ============= ============= ============= =============
Non-bank financial institutions 610.3 656.2 733.6 773.8 691.3 703.9/(2)/
------------- ------------- ------------- ------------- ------------- -------------
Total assets................. (Peso)3,389.3 (Peso)3,444.8 (Peso)3,741.3 (Peso)4,100.6 (Peso)4,094.6 (Peso)4,221.4/(2)/
============= ============= ============= ============= ============= =============
- --------
Source: Bangko Sentral.
(1) Excludes assets of Bangko Sentral.
(2) Preliminary.
(3) As of June 30, 2002.
154
The Philippine financial system consists of banks and non-bank financial
institutions. Banks include all financial institutions that lend funds obtained
from the public primarily through the receipt of deposits. Non-banks include
financial institutions other than banks which lend, invest or place funds, or
at which evidences of indebtedness or equity are deposited with or acquired by
them, either for their own account or for the account of others. Non-bank
financial institutions may have quasi-banking functions. Quasi-banking
functions include borrowing money to relend or purchase receivables and other
obligations by issuing, endorsing or accepting debt or other instruments or by
entering into repurchase agreements with 20 or more lenders at any one time.
The Supervision and Examination Sector of Bangko Sentral supervises all
banks and non-banks with quasi-banking functions, including their subsidiaries
and affiliates engaged in related activities, with Bangko Sentral's Monetary
Board having ultimate supervisory authority.
Structure of the Financial System. The Philippine financial system is
comprised of commercial banks, thrift banks, rural banks, specialized
Government banks and non-bank financial institutions. Each type of bank
participates in distinct business activities and geographic markets.
Commercial banks perform the following activities:
. accept drafts;
. issue letters of credit, discount and negotiate promissory notes, drafts,
bills of exchange and other evidences of indebtedness;
. receive deposits;
. buy and sell foreign exchange and gold and silver bullion; and
. lend money on a secured or unsecured basis.
Expanded commercial banks, otherwise known as universal banks, in addition
to regular commercial banking activities may also engage in investment banking
activities, invest in non-bank businesses and own allied financial undertakings
other than commercial banks. As of March 31, 2002, the country had 44
commercial banks, with 4,282 branch offices. Of such commercial banks, 41 were
privately owned, including 13 foreign-controlled banks and six subsidiaries of
foreign banks.
The following table sets out the outstanding loans of commercial banks
classified by sector.
COMMERCIAL BANKS' OUTSTANDING LOANS BY SECTOR
As of December 31,
------------------------------------------------------------------------------------
1998 1999 2000 2001
--------------------- --------------------- --------------------- ---------------
(in millions, except percentages)
Agriculture, fishery and forestry...... (Peso) 62,930 4.7% (Peso) 58,859 4.3% (Peso) 62,101 4.3% (Peso) 56,823
Mining and quarrying................... 20,048 1.5 16,466 1.2 21,166 1.5 19,890
Manufacturing.......................... 357,455 26.5 382,267 28.2 404,224 27.8 372,906
Electricity, gas and water............. 47,284 3.5 53,274 3.9 75,398 5.2 70,359
Construction........................... 54,972 4.1 53,384 4.0 46,949 3.2 42,151
Wholesale and retail................... 210,191 15.6 203,177 15.0 201,233 13.9 210,306
Transportation, storage
and communication..................... 98,636 7.3 91,024 6.7 99,653 6.9 83,068
Financial institutions, real estate and
business services..................... 347,339 25.7 342,673 25.3 386,797 26.6 359,199
Community, social and personal
services.............................. 149,336 11.1 153,104 11.3 153,983 10.6 184,534
--------------- ----- --------------- ----- --------------- ----- ---------------
Total................................. (Peso)1,348,191 100.0% (Peso)1,354,228 100.0% (Peso)1,451,504 100.0% (Peso)1,399,236
=============== ===== =============== ===== =============== ===== ===============
As of June 30,
---------------------
2002/(1)/
---------------------
Agriculture, fishery and forestry...... 4.1% (Peso) 47,271 3.4%
Mining and quarrying................... 1.4 16,615 1.2
Manufacturing.......................... 26.7 362,604 26.4
Electricity, gas and water............. 5.0 65,269 4.8
Construction........................... 3.0 40,231 2.9
Wholesale and retail................... 15.0 193,516 14.1
Transportation, storage
and communication..................... 5.9 77,312 5.6
Financial institutions, real estate and
business services..................... 25.7 385,480 28.1
Community, social and personal
services.............................. 13.2 185,502 13.5
----- --------------- -----
Total................................. 100.0% (Peso)1,373,799 100.0%
===== =============== =====
- --------
Source: Bangko Sentral.
(1) Preliminary.
155
Thrift banks invest their capital and the savings of depositors in:
. financings for homebuilding and home development;
. marketable debt securities;
. commercial paper and accounts receivable, drafts, bills of exchange,
acceptances or notes arising out of commercial transactions; or
. short-term working capital and medium and long-term loans to small and
medium-sized businesses and individuals engaged in agriculture, services,
industry, housing and other financial and allied services in its market.
As of March 31, 2002, the country had 100 thrift banks, with 1,242 branch
offices.
Rural banks extend credit in the rural areas on reasonable terms to meet the
normal credit needs of farmers, fishermen, cooperatives and merchants and in
general, the people in the rural communities. As of March 31, 2002, the country
had 782 rural banks, with 1,137 branch offices.
The specialized Government banks are the Development Bank of the
Philippines, the Land Bank of the Philippines and the Al-Amanah Islamic
Investment Bank of the Philippines. The Development Bank generally provides
banking services to meet the medium and long-term needs of small and
medium-sized agricultural and industrial enterprises, particularly in rural
areas. The Land Bank primarily provides financial support for agriculture and
all phases of the Republic's agrarian reform program. In addition to their
special functions, the Development Bank and the Land Bank may operate as
universal banks. The Al-Amanah Islamic Investment Bank promotes and accelerates
the socio- economic development of the Autonomous Region of Muslim Mindanao by
offering banking, financing and investment services based on Islamic banking
principles and rulings.
Non-bank financial institutions are primarily long-term financing
institutions that engage in productive ventures and, to a minor extent,
facilitate short-term placements in other financial institutions. As of
December 31, 2001, Bangko Sentral regulated or supervised 36 investment houses,
48 finance companies, 26 security dealers/brokers, 5,018 pawnshops, 11
investment companies, nine lending investors, 86 non-stock savings and loan
associations, four venture capital corporations, six mutual building and loan
associations, four Government non-bank financial institutions and seven credit
companies.
Over the past several years, the Government has reformed the financial
sector to eliminate controls, enhance competition and promote stronger and more
efficient financial institutions. The reforms include:
. unifying and gradually reducing reserve requirements to reduce
intermediation costs of banks and improve their efficiency;
. using the extension of credit by Bangko Sentral to banks against
promissory notes and other collateral or rediscounting as a mechanism for
liquidity control rather than pure credit allocation;
. broadening securities dealing in Philippine Treasury bills to allow the
market to determine interest rates;
. prescribing more stringent standards for the establishment of new banks;
. easing the entry and operation of foreign banks to attract foreign
investments, promote competition and reduce intermediation costs;
. simplifying the entry rules for rural banks to improve competition and
promote efficiency; and
. increasing minimum capital requirements to promote stronger financial
institutions.
The minimum bank capitalization requirements as of December 2000 is
(Peso)4.95 billion for universal banks, (Peso)2.4 billion for commercial banks
and (Peso)325 million for thrift banks based in Metro Manila.
The economic downturn affected banks in the Philippines primarily in two
ways. First, due to the economic troubles, bank deposits increased only
minimally which in turn limited the ability of banks to extend new loans.
156
Aggregate assets of the banking system increased by 21.8% from year-end 1997 to
February, 2002. Second, the depreciation of the Peso, declining equity prices
and higher domestic interest rates weakened the quality of the assets of
Philippine banks. This caused a number of relatively small financial
institutions to fail and created concerns about the stability of the Philippine
financial system.
The following table provides information regarding non-performing loans for
the banking system for the periods indicated.
TOTAL LOANS (GROSS) AND NON-PERFORMING LOANS BY TYPE OF COMMERCIAL BANKS
As of
As of December 31, September 30,
------------------------------------------------------------------------- -------------
1997 1998 1999 2000 2001 2002
------------- ------------- ------------- ------------- ------------- -------------
(in billions except percentages)
Expanded commercial banks/(1)/
Total loans.......................... (Peso)1,112.0 (Peso)1,080.1 (Peso)1,086.1 (Peso)1,025.0 (Peso) 992.2 (Peso) 990.3
Total non-performing loans........... 46.6 112.4 141.6 172.4 192.6 187.6
Ratio of non-performing loans to
total loans........................ 4.2% 10.4% 13.0% 16.8% 19.4% 18.9%
Non-expanded commercial banks/(2)/
Total loans.......................... 137.6 120.8 139.7 184.3 182.7 183.3
Total non-performing loans........... 9.8 16.5 23.0 32.4 41.7 38.6
Ratio of non-performing loans to
total loans........................ 7.2% 13.6% 16.4% 17.6% 22.8% 21.1%
Government banks/(3)/
Total loans.......................... 166.4 185.9 201.0 222.4 200.3 195.8
Total non-performing loans........... 10.2 18.8 25.4 33.5 35.7 33.4
Ratio of non-performing loans to
total loans........................ 6.1% 10.1% 12.6% 15.1% 17.8% 17.1%
Foreign banks/(4)/
Total loans.......................... 157.1 155.7 156.2 196.5 249.9 253.9
Total non-performing loans........... 6.9 12.2 5.4 7.5 11.9 7.9
Ratio of non-performing loans to
total loans........................ 4.4% 7.9% 3.5% 3.8% 4.8% 2.8%
Total loans........................... (Peso)1,573.1 (Peso)1,542.5 (Peso)1,582.9 (Peso)1,628.2 (Peso)1,625.1 (Peso)1,623.3
Total non-performing loans............ 73.6 160.0 195.4 245.8 281.9 266.8
Ratio of non-performing loans to total
loans............................... 4.7% 10.4% 12.3% 15.1% 17.4% 16.4%
- --------
Source: Bangko Sentral, Department of Economic Research/Supervisory Reports
and Studies Office.
(1) Includes ING Bank (foreign bank) and excludes Land Bank of the Philippines
and Development Bank of the Philippines. Starting May 2001, three expanded
commercial banks (Standard Chartered Bank, HSBC and ING Bank) were
reclassified as foreign banks.
(2) Excludes Orient Bank.
(3) Consists of Land Bank, Development Bank and Al-Amanah Islamic Bank.
(4) Consists of 13 foreign banks; excludes three foreign banks' subsidiaries.
As of October 31, 2002, the ratio of non-performing loans to total loans in
the commercial banking system remained unchanged from September 31, 2002 at
16.4% but had decreased from 18.8% as of October 2001. The improvement in the
NPL ratio from the previous year was due in part to a redefinition of
"non-performing loan" which took effect September 19, 2002 (the redefinition
allows banks to exclude from "non-performing loans" uncollectable loans that
have been fully covered by allowance for probable losses); however, even under
the previous definition of "non-performing loan", the NPL ratio at the end of
October would have decreased to 16.9%. The yearly decrease in the
non-performing loan ratio was also attributed to increased foreclosure,
157
restructuring proceedings, and generally improving performance of the
commercial banking sector. The non-performing loans coverage ratio (loan
reserves to non-performing loans) increased to 48.7% in October 2002 from 48.1%
in September 2002.
In December 2002, the Congress approved the Special Purpose Asset Vehicle
("SPAV") bill. The SPAV bill provides the legal framework for the creation of
private asset management companies that are expected to relieve a major portion
of the banking system's non-performing assets and thereby promote bank lending
to support economic growth. President Arroyo signed the bill into law on
January 10, 2003. The SPAV bill's implementing rules and regulations are
expected to be passed by Congress in February 2003.
The rise in NPLs weighed down on the asset quality of banks in 2001. The
commercial banking system's NPLs as a percent of total loans rose from 15.1% in
December 2000 to 17.4% in December 2001. This weakening resulted from the
depreciation of the peso, which contributed to a rise in loan defaults, and the
slowdown in business activity that saw a drop in credit demand.
In late 2000 and early 2001, Bangko Sentral extended (Peso)30 billion in
emergency loans to Equitable PCI and (Peso)25 billion in emergency loans to
Philippine National Bank ("PNB") to help the banks alleviate short-term
liquidity problems attributed to heavy withdrawals during the Estrada
impeachment trial.
The average capital adequacy ratio of the banking system based on the old
concept was 16.6% as of February 28, 2002, above the statutory floor of 10%.
After the onset of the Asian economic crisis, Bangko Sentral adopted a
number of measures to protect the financial position and soundness of the
country's banks, including measures relating to:
. Limits on a bank's transactional capacity by:
. reducing the maximum loan value for real estate loans from 70% to 60% of
the appraised value of the real estate collateral;
. limiting bank's real estate loans to no more than 20% of a bank's loan
portfolio, subject to certain exceptions that could increase the
percentage to 30% overall;
. requiring that 30% of the 100% cover of a bank's foreign currency deposit
units' foreign exchange liabilities be kept in liquid assets; and
. requiring banks to mark-to-market their trading portfolios in line with
existing market conditions at the execution of every transaction at the
end of each month.
. Measures relating to delinquent and restructured loans:
. in cases of loans payable in monthly or quarterly installments, reducing
the number of missed monthly payments from six to three and quarterly
payments from two to one before a loan must be classified as
non-performing. To align domestic regulations with international
standards, in May 1999 Bangko Sentral extended the date to classify a
loan as non-performing for loans payable on a lump sum basis and loans
payable in quarterly, semi-annual or annual installments to 30 days after
their past-due date;
. revising the treatment of restructured loans to provide that they should
be treated as performing loans or interest income related to them should
accrue if they are current and fully secured by real estate with loan
value up to 60% of the appraised value of the real estate security plus
ensured improvements. In May 1999, Bangko Sentral further tightened
regulations regarding the appraisal of collateral for restructured loans
and stipulated additional criteria for reclassifying restructured loans
as performing;
. mandating general loan loss provisions over and above the provision for
probable losses linked to individually identified bad accounts.
Incremental loans granted over and above the loan portfolio level of
banks, net of allowable exclusions, as of March 31, 1999 are no longer
subject to the provisioning requirements requiring banks to reserve an
amount equal to 2% of their gross loan portfolio (less certain accounts)
as an allowance for probable losses. In December 2001, Bangko Sentral
lowered the
158
provisioning ratio from 2% to 1% of the latest outstanding balance of
unclassified loans other than restructured loans (less loans which are
considered non-risk under existing laws and regulations) to increase new
lending, and imposed a 5% reserve on the outstanding balance of
unclassified restructured loans (less the outstanding balance of
restructured loans which are considered non-risk under existing
regulations), to reflect the higher risks attached to such loans even if
they are presently performing. These adjustments were implemented to
reduce disincentives to lending activities of banks with otherwise sound
loan portfolios; and
. tightening provisioning requirements to include new categories of loans
especially mentioned, regardless of whether such loans are secured by
collateral (loan loss provisions of 5% of outstanding loan amount), and
secured loans classified as substandard (loan loss provisions of 25% of
outstanding loan amount). Guidelines on the allowance required on loan
accounts classified as substandard-secured were subsequently issued.
. Measures relating to capitalization:
. increasing minimum capital requirements for universal banks to (Peso)4.95
billion by December 31, 2000 and for commercial banks to (Peso)2.4
billion by December 31, 2000;
. implementing additional penalties for a bank's failure to comply with
minimum capital requirements; and
. categorizing banks by the degree of undercapitalization and adopting
prompt corrective measures as appropriate.
. Measures relating to disclosure and management:
. improving bank disclosures regarding interest rates, non-performing
loans, classified loans, loan loss reserves, allowances for probable
losses and loss provisions;
. improving bank management by outlining and expanding the duties of boards
of directors;
. requiring banks to appoint compliance officers to ensure the bank's
compliance with banking rules and regulations; and
. requiring external auditors to provide more information to Bangko Sentral.
. Measures relating to regulatory control and bankruptcy:
. shifting the regulatory approach to a risk-based approach of examination
and consolidated supervision as opposed to one focused exclusively on
transaction testing and verifying the existence and value of assets;
. issuing stricter guidelines to establish and operate new banks so that
new banks will have suitable stockholders, adequate financial strength,
an appropriate legal structure in line with its operational structure and
appropriate management with sufficient expertise and integrity to operate
the bank in a sound and prudent manner. In 1999, Bangko Sentral put in
place an indefinite moratorium on the establishment of new banks with
certain exceptions such as new banks resulting from mergers and
consolidations. In March 2001, Bangko Sentral issued implementing
guidelines to enforce section 8 of the General Banking Law of 2000. These
guidelines provided for a moratorium on the establishment of commercial
banks, with certain exceptions such as new banks arising from the
acquisition by a foreign bank of 100% of the voting stock of an existing
domestic commercial bank; and
. adopting strategies for restructuring a failed bank before closing it,
including rehabilitating the troubled bank, buying-in another bank or
financial institution or merging the troubled bank with another financial
institution.
Bangko Sentral worked to amend the banking laws to:
. allow Bangko Sentral to adopt internationally accepted risk-based capital
requirements,
159
. define unsound banking practices and increase the frequency of bank
examinations,
. impose sanctions on banks and related persons for violations of banking
regulations,
. issue regulations requiring banks and affiliates to maintain balanced
positions in their foreign currency transactions, and
. grant loans to banks for liquidity purposes.
To stimulate economic recovery and encourage greater bank lending, Bangko
Sentral relaxed the general loan loss provisioning requirement in April 1999 so
that banks would not have to make general loan loss provisions for loans
granted after March 31, 1999 (the general loan loss provision prior to March
31, 1999 was 1.5% of the total amount of outstanding loan). The requirements
for specific loan loss provisions still apply.
The General Banking Law of 2000, signed in May 2000, amended the General
Banking Act and enhanced Bangko Sentral's supervisory powers, tightened
prudential norms and liberalized foreign ownership of banks. Bangko Sentral now
has the power to conduct more in-depth examinations of banks and undertake more
effective prompt corrective action. The General Banking Law, however, repealed
the Philippine Deposit Insurance Corporation's independent right to conduct
on-site supervision and require information from banks. Since August 2000,
Bangko Sentral has been issuing the implementing guidelines for the General
Banking Law. The General Banking Law reforms introduced include:
. a strong legal basis for consolidated supervision;
. formal adoption of Basel risk-based capital requirements effective
beginning July 1, 2001;
. fit-and-proper criteria for directors and officers;
. stronger safeguards against connected lending and more comprehensive
coverage of single borrower's limit;
. inclusion of the declaration of a bank holiday as a ground for placing a
bank under receivership;
. the legal basis for formulating standards determining unsafe and unsound
bank practices;
. ownership ceilings by foreign and domestic banks;
. increases in monetary penalties; and
. improved transparency and disclosure standards.
As part of the global fight against money laundering, since July 2000,
Bangko Sentral has required banks to report on unusually large transactions and
all unusual patterns of transactions which have no apparent or visible lawful
purpose. On July 26, 2001, Bangko Sentral also reduced the ceiling on
undocumented over-the-counter sales of foreign exchange from $10,000 to $5,000.
Additionally, Bangko Sentral has issued a number of administrative measures
that bring the country's regulatory regime relating to money laundering closer
to international standards. See "Recent Economic Developments -- Anti-Money
Laundering Act of 2001". These measures include:
. requiring banks and non-bank financial institutions to take reasonable
measures to establish and record the true identity of their clients and to
update their records at least every other year;
. requiring banks and non-bank financial intermediaries to submit their
respective plans of action to comply with the above requirements;
. requiring banks to take necessary measures to establish and record the
true identity of their clients in cases of numbered foreign currency
accounts authorized under existing law;
. precluding banks from issuing cashier's, manager's checks, certified
checks or other instruments payable, to cash, bearer or numbered accounts
in amounts exceeding $10,000;
. requiring banks with foreign exchange subsidiaries or affiliates to
report, on a daily basis, the counterparties and other details of all
foreign exchange sales and purchases. For transactions of $250,000
160
and above, banks are required to specify the identities and addresses of
the parties as well as the purpose of the transaction;
. instructing foreign exchange corporations, for sales of foreign exchange
exceeding $5,000 or more to residents for trade and non-trade purposes, to
require foreign exchange purchasers to submit a notarized application and
supporting documents; and
. requiring any person to declare in writing the amount, source and purpose
of the transfer of foreign currency into and out of the country for
amounts equivalent to or exceeding $10,000.
In September 2002, the Monetary Board relaxed the formula for the
calculation of NPLs, by allowing banks to deduct loan accounts for which they
have provided 100% provisioning from their non-performing loans. To qualify for
the revised NPL computation, banks must maintain adequate provisions for
probable losses commensurate to the quality of their asset portfolio. Bangko
Sentral predicts that the ruling will reduce the ratio of NPLs to total loans
by 2%. The policy is also expected to encourage banks to write off loans that
are considered uncollectible or worthless.
Foreign Currency Loans
Bangko Sentral imposes a combination of prior approval, registration and
reporting requirements on all non-Peso denominated loans. The regime is as
follows:
Type of Loan Regulatory Requirement
------------------------- -------------------------
Private sector loans: Prior approval,
. guaranteed by a subsequent registration
public sector entity and reporting
or a local commercial requirements.
bank;
. granted by foreign
currency deposit
units that are
specifically or
directly funded from,
or collateralized by,
offshore loans or
deposits;
. obtained by banks and
financial
institutions with a
term exceeding one
year which will be
relent to public and
private enterprises;
or
. serviced using
foreign exchange
purchased from the
banking system,
unless specifically
exempted from the
approval requirement.
Private sector loans Subsequent registration
which are specifically and reporting
exempted and which requirements.
will be serviced with
foreign exchange
purchased in the
banking system.
All private sector loans Reporting requirements.
to be serviced with
foreign exchange not
purchased from the
banking system.
Public sector offshore Prior approval and
loans except: reporting requirements.
. short-term foreign
currency deposit
loans for trade
financing; and
. short-term interbank
borrowings.
The Philippine Securities Markets
History and Development. The securities industry in the Philippines began
with the opening of the Manila Stock Exchange in 1927. In 1936, the Government
established the Securities and Exchange Commission (the
161
"SEC") to oversee the industry and protect investors. Subsequently, the Makati
Stock Exchange opened in 1963 and merged with the Manila Stock Exchange to form
the Philippine Stock Exchange in 1994. Until economic and political
difficulties in the 1970s caused its decline, the Philippine securities market
was the most active in Asia. Since 1992, the Government has attempted to
improve the capital market, attract more companies to list on the Philippine
Stock Exchange and allow more investors to participate in the market by
emphasizing market deregulation and self-regulation.
On December 6, 1996, the SEC granted the Philippine Central Depository, Inc.
a temporary operating license. The central depository, a private institution,
implemented a book-entry system to simplify the mechanism for issuing and
transferring securities. By December 1997, the central depository had enrolled
all active listed issues in the book entry system.
On June 29, 1998, the SEC granted the Philippine Stock Exchange
self-regulatory organization status, empowering it to supervise and discipline
its members, including by examining a member's books of account and conducting
audits.
To broaden the range of securities eligible for listing, the Philippine
Stock Exchange established a board for small- and medium-sized enterprises with
an authorized capital of (Peso)20 million to (Peso)99.9 million of which at
least 85% must be subscribed and fully paid. The Philippine Stock Exchange
intends to eventually list debt securities and equity derivatives as well.
On July 19, 2000, the Securities Act of 1999 was signed into law. The new
Act:
. shifts the focus of securities regulation from a merit-based system to a
disclosure-based system;
. strengthens the anti-fraud provisions of the securities laws;
. utilizes self-regulatory organizations to enforce greater investor
protection;
. updates the regulations governing the securities industry consistent with
international practices; and
. strengthens the rule-making and corporate reorganization powers of the SEC.
As of June 10, 2002, the Philippine Stock Exchange had 151 local and 33
foreign members and 236 listed companies.
Share prices of companies listed on the Philippine Stock Exchange fell
significantly in 1997. The falling stock market and resultant heavy selling of
Philippine equity securities by foreign investors hurt the value of the Peso
and the foreign currency positions of financial institutions in the
Philippines. The Philippine Stock Exchange Composite Index declined by 45.8% in
Peso terms from 3,447.6 on February 3, 1997 to 1,869.2 on December 29, 1997.
The Philippine Stock Exchange Composite Index was quite volatile and continued
to fall during most of 1998, reaching an historic low of 1,082.2 on September
11, 1998.
The stock market rebounded in late 1999, as the Philippine Stock Exchange
Composite Index reached 2,143.0 at the end of December 1999, a 8.9% increase
from its level at the end of December 1998. The recovery, however, was
short-lived as the Philippine Stock Exchange Composite Index contracted for
three consecutive quarters in 2000, declining 31.1% for the first nine months
due to political turmoil, weakening economic fundamentals and a stock market
manipulation scandal involving BW Resources Corporation ("BW"), a publicly
traded company, and Mr. Dante Tan, its largest shareholder. During 1999, Mr.
Tan, in his own name, under alias names and through associates, bought and sold
large quantities of BW shares in an attempt to control the price of the shares.
Mr. Tan was charged with, among other things, price manipulation and insider
trading. Mr. Tan's case is currently pending with the Department of Justice.
The stock market's overall capitalization grew 33% in 2000. As of December 31,
2000, overall capitalization was approximately (Peso)2.5 trillion, compared to
(Peso)1.9 trillion as of December 31, 1999 and (Peso)1.4 trillion as of
December 31, 1998. As a percentage of GNP, market capitalization declined from
86.4% in 1999 to 77.6% by the end of 2000. The Philippine Stock Exchange
Composite Index closed at 1,494.5 on December 31, 2000.
On June 20, 2001, the Philippine Stock Exchange announced that the SEC had
approved its proposal for its demutualization, or conversion from a mutual or
membership organization into a publicly-held stock corporation.
162
Under the demutualization, the Exchange created a new corporation which assumed
approximately 80% of the Exchange's total assets. Exchange member
broker-dealers surrendered membership rights to the Exchange and, in return,
received shares of the new corporation, shares of the Exchange and trading
rights. On July 20, 2001, the Philippine Stock Exchange approved the plan to
demutualize the stock exchange. On August 8, 2001, the Philippine Stock
Exchange completed its conversion to a stock corporation that is publicly held.
As its first shareholders, each of the 184 member-brokers subscribed and fully
paid for 50,000 shares. The second part of the demutualization which is the
public offering and listing of its shares on the Exchange is still under
planning.
The Philippine Stock Exchange Composite Index reached 1,168.08 at the end of
December 2001, a 21.8% decrease from its level at the end of December 2000. At
the end of September 2001, the composite index closed the month at 1,126.63, a
decrease of 21.5% from end of September 2000. In October 2001, amid the onset
of the US-led attacks against the Taliban government in Afghanistan, fears and
uncertainties about the prospects of the global economy due to the subsequent
threat of war and recession and apprehensions over the Philippine economic and
political environment, the composite index continued its decline, finishing the
month at 993.35, or 11.8% lower than September 2001. In November 2001, the
composite index rose to finish the month at 1,128.47, or 13.6% higher than the
prior month, due to the release of better-than-expected domestic economic data,
a lower budget deficit for October 2001 than was targeted and favorable news on
the US-led attacks against the Taliban in Afghanistan. In December 2001, the
composite index increased to 1,168.08 at month-end, or 3.5% higher than at the
end of November 2001.
In 2002, the composite index rose to a high of 1,452.51 on February 20, but
has since decreased to 1,018.4 at the end of December 2002. The Philippine
Stock Exchange closed at 1,037.2 on February 5, 2003. The higher budget
deficit, concerns of a global economic slowdown, increased crime and
kidnappings, the accounting scandals that affected certain large corporations
in the United States and the proposed partial sale by First Pacific Company
Limited of its 24.4% controlling stake in the Philippine Long Distance
Telephone Company to the Gokongwei Group contributed to a decline in the
composite index.
Government Securities Market. The Government securities market is dominated
by short-term Treasury bills with maturities not exceeding one year. Responding
to investor preferences and to create a yield curve for long-term domestic
securities, the Government issued securities with longer maturities, including
five-year fixed rate treasury bonds in June 1995 and seven and ten-year fixed
rate treasury bonds in 1996. The restructuring of the Republic's domestic debt
in favor of longer-term securities kept the issuance of Treasury bills of
(Peso)17.9 billion below budget in 1996, while the issuance of fixed rate
Treasury bonds exceeded expectations by (Peso)13.5 billion. In 1997, the
Government sold, for the first time, 20-year Treasury bonds in the amount of
(Peso)2 billion. The Government's outstanding direct domestic debt totalled
(Peso)1,247.7 billion as of December 31, 2001, an increase of 46.6% from
(Peso)850.9 billion as of December 31, 1998.
In June 1999, the Government issued (Peso)11.6 billion small-denominated
Treasury bonds. These bonds, which have a maturity of five years and are
available in blocks of as low as (Peso)5,000, are aimed at Philippine retail
investors. The bonds are intended to reduce the Government's dependence on
weekly auctions and to provide the Government with another source of long-term
funding. The Government intends to continue to issue small-denominated Treasury
bonds and expects the program to reduce demand for short-term funding and
contribute to reduced pressure on interest rates.
The Government has taken steps to further the development of the secondary
market in Treasury securities, including establishing of the Registry of
Scripless Securities which computerizes the sales and purchases of Treasury
securities in the secondary market.
International Bond Market. In February 1997, Bangko Sentral approved
guidelines governing the issuance of Peso-denominated instruments in the
international capital markets. Bangko Sentral will require the receipt of
foreign currency by the Philippines and its exchange into Pesos in the local
banking system.
163
Public Finance
The Consolidated Financial Position. The consolidated public sector
financial position measures the overall financial standing of the Republic's
public sector. It is comprised of the public sector borrowing requirement and
the aggregate deficit or surplus of the Social Security System and the
Government Service Insurance System, Bangko Sentral, the Government financial
institutions and the local Government units. The public sector borrowing
requirement reflects the aggregate deficit or surplus of the Government, the
Central Bank-Board of Liquidator's accounts, the Oil Price Stabilization Fund
and the 14 monitored Government owned corporations.
The following table sets out the consolidated financial position on a cash
basis for the periods indicated.
CONSOLIDATED PUBLIC SECTOR FINANCIAL POSITION OF THE REPUBLIC
1997 1998 1999 2000
----------- ------------ ------------ ------------
(in billions, except percentages)
Public sector borrowing requirement:
National Government................................... (Peso) 1.6 (Peso) (50.0) (Peso)(111.7) (Peso)(134.2)
Central Bank-Board of Liquidation..................... (25.7) (26.4) (20.5) (19.1)
Oil Price Stabilization Fund/(1)/..................... (0.8) 0.7 1.9 0.3
Monitored Government owned corporations............... (17.2) (38.0) (4.6) (19.2)
Government transfers to Government owned
corporations......................................... 2.5 0.9 3.0 4.2
Other adjustments..................................... 0.0 1.5 (6.1) (6.6)
----------- ------------ ------------ ------------
Total public sector borrowing requirement.......... (Peso)(39.5) (Peso)(111.3) (Peso)(138.0) (Peso)(174.6)
=========== ============ ============ ============
As a percentage of GNP.................................... (1.6)% (4.0)% (4.4)% (5.0)%
Other public sector:
Social Security System and Government Service
Insurance System..................................... (Peso) 3.9 (Peso) 17.8 (Peso) 36.4 (Peso) 15.5
Bangko Sentral/(3)/................................... 2.2 3.2 (4.0) 0.2
Government financial institutions..................... 4.4 5.4 3.3 2.8
Local Government units................................ 4.0 2.0 3.2 3.8
Timing adjustment of interest payments to Bangko
Sentral.............................................. 2.3 (0.3) (2.3) 0.5
Other adjustments..................................... 0.0 0.0 0.8 0.1
----------- ------------ ------------ ------------
Total other public sector.......................... 16.6 28.1 37.5 22.9
----------- ------------ ------------ ------------
Consolidated public sector financial position...... (Peso)(24.1) (Peso) (83.2) (Peso)(100.5) (Peso)(151.7)
=========== ============ ============ ============
As a percentage of GNP.................................... (1.0)% (3.0)% (3.2)% (4.3)%
First Nine
months of
2001 2002
------------ -------------
Public sector borrowing requirement:
National Government................................... (Peso)(147.0) (Peso) (166.4)
Central Bank-Board of Liquidation..................... (23.5) (11.8)
Oil Price Stabilization Fund/(1)/..................... 0.8 0.0
Monitored Government owned corporations............... (24.5) (25.7)
Government transfers to Government owned
corporations......................................... 4.5 4.4
Other adjustments..................................... 0.0 0.0
------------ -------------
Total public sector borrowing requirement.......... (Peso)(187.0) (Peso)(199.53)
============ =============
As a percentage of GNP.................................... (5.1)% N/A/(2)/
Other public sector:
Social Security System and Government Service
Insurance System..................................... (Peso) 9.3 (Peso) 20.5
Bangko Sentral/(3)/................................... (0.1) 2.0
Government financial institutions..................... 3.9 5.5
Local Government units................................ 4.2 3.6
Timing adjustment of interest payments to Bangko
Sentral.............................................. (0.2) (1.6)
Other adjustments..................................... 0.1 1.4
------------ -------------
Total other public sector.......................... 17.2 30.5
------------ -------------
Consolidated public sector financial position...... (Peso)(147.6) (Peso) (169.1)
============ =============
As a percentage of GNP.................................... (4.5)% N/A/(2)/
- --------
Source: Fiscal Policy and Planning Office, Department of Finance.
(1) The Oil Price Stabilization Fund was created by the Government to stabilize
the domestic price of oil products. Prior to deregulation in 1997, if
exchange rates and international crude oil prices exceeded certain levels,
oil companies received money from the fund, but if exchange rates and crude
oil prices fell below those levels, oil companies contributed to the fund.
The fund was technically abolished with the full deregulation of the oil
industry in February 1998. The Government will settle claims against the
fund, amounting to (Peso)2.6 billion in 1997, by granting the claimants tax
credits over a 15-month period.
(2) N/A means "not available".
(3) Amounts are net of interest rebates, dividends and other amounts remitted
to the Government and the Central Bank-Board of Liquidation.
For the first half of 2002, the consolidated financial position of the
Republic (not including Bangko Sentral) recorded a deficit of (Peso)117.5
billion, 60.7% higher than the (Peso)73.1 billion targeted for the period. The
Government recorded a (Peso)119.7 billion deficit, the Central Bank
restructuring accounted for an (Peso)8.4 billion deficit, and the monitored
Government-owned corporations accounted for a (Peso)7.1 billion deficit. The
total public
164
sector borrowing requirement of (Peso)131.1 billion was offset in part by a
combined surplus of (Peso)13.6 billion for the other public sector entities
during the first six months of 2002. Of the surplus, (Peso)10.6 billion was
attributable to the social security institutions.
In 1997, the consolidated financial position recorded a deficit of
(Peso)22.9 billion, or 1.0% of GNP at current prices. The significantly higher
deficit resulted from increased interest rates and, accordingly, interest
costs, coupled with lower than projected GNP, which resulted in lower revenues
in 1997. In addition, costs relating to the restructuring of the old Central
Bank of the Philippines contributed (Peso)25.7 billion to the deficit.
For 1998, the consolidated financial position recorded a deficit of
(Peso)83.2 billion, or 3.0% of GNP at current prices, because of increased
public sector borrowing requirement to finance higher deficits incurred by the
Government and the Government owned corporations. Costs relating to the
restructuring of the old Central Bank contributed (Peso)26.4 billion to the
deficit.
For 1999, the consolidated financial position recorded a deficit of
(Peso)100.5 billion, or 3.2% of GNP at current market prices, compared to a
deficit of (Peso)83.2 billion in 1998. The Government's position was (Peso)15.2
billion off its target of (Peso)85.3 billion for the year. The Government
accounted for (Peso)111.7 billion of the total deficit for the period, in line
with its objective of stimulating the economy. Restructuring costs for the old
Central Bank also contributed (Peso)20.5 billion to the total public sector
borrowing requirement.
Led by the Government deficit, the consolidated financial position deficit
increased to (Peso)151.7 billion in 2000 or 4.3% of GNP at current market
prices, compared with the previous year's deficit of (Peso)100.5 billion. The
consolidated public sector deficit was largely due to a public sector borrowing
requirement of (Peso)174.6 billion, which included (Peso)19.1 billion for costs
relating to the restructuring of the old Central Bank and the (Peso)19.2
billion deficit of the 14 monitored non-financial Government corporations. The
Government owned corporations' budget gap deteriorated from the single-digit
deficit posted in 1999 as both current and capital expenditures increased. The
greatest contributors to the deficit were the Philippine National Oil Company,
the National Power Corporation, the Light Rail Transit Authority, the National
Development Corporation and the National Food Authority. The other public
sector entities had a combined surplus of (Peso)22.9 billion in 2000, largely
due to the substantial surpluses of the local government units and the social
security institutions such as the Government Services and Insurance System and
Social Security System.
For 2001, the consolidated financial position recorded a deficit of
(Peso)172.5 billion or 4.5% of GDP at current market prices. The Government
accounted for (Peso)147.0 billion of the deficit, the Central Bank
restructuring accounted for (Peso)23.5 billion and the monitored
Government-owned corporations accounted for (Peso)24.5 billion. The other
public sector entities had a combined surplus of (Peso)17.2 billion during
2001, of which (Peso)9.3 billion was attributable to the social security
institutions.
165
Government Revenues and Expenditures. The following table sets out
Government revenues and expenditures for the periods indicated.
GOVERNMENT REVENUES AND EXPENDITURES
---------------------------------------
1997 1998 1999
----------- ----------- ------------
Revenues
Tax revenues
Bureau of Internal Revenue............................ (Peso)314.7 (Peso)337.2 (Peso) 341.3
Bureau of Customs..................................... 94.8 76.0 86.5
Others/(3)/........................................... 2.7 3.4 3.8
----------- ----------- ------------
Total tax revenues.................................. 412.2 416.6 431.7
As a percentage of GNP............................. 16.1% 14.9% 13.9%
Non-tax revenues
Bureau of the Treasury income/(5)/.................... (Peso) 35.4 (Peso) 22.5 (Peso) 26.3
Fees and other charges/(6)/........................... 13.2 21.0 16.0
Privatizations/(7)/................................... 9.4 1.7 4.2
Comprehensive Agrarian Reform Program (land
acquisition and credit).............................. 0.0 0.0 0.1
Foreign grants........................................ 1.7 0.4 0.3
----------- ----------- ------------
Total non-tax revenues.............................. 59.7 45.6 46.8
----------- ----------- ------------
Total revenues..................................... 471.8 462.5 478.5
----------- ----------- ------------
As a percentage of GNP............................ 18.4% 16.6% 15.2%
Expenditures
Personnel services..................................... (Peso)150.4 (Peso)198.5 (Peso) 202.7
Maintenance and operating expense...................... 108.1 64.4 70.8
Other current operating expense........................ 6.1 0.2 5.5
Interest payments
Foreign............................................... 19.6 26.3 31.3
Domestic.............................................. 58.4 73.5 75.0
----------- ----------- ------------
Total interest payments............................. 78.0 99.8 106.3
Subsidies to Government corporation.................... 5.9 4.7 6.8
Allotment to local government units.................... 71.0 72.0 78.7
Transfers to the Oil Price Stabilization Fund.......... 0.0 0.0 0.7
Comprehensive Agrarian Reform Program (land acquisition
and credit)........................................... 0.0 0.5 0.0
Infrastructure and other capital outlays............... 47.9 71.3 115.7
Equity and net lending................................. 3.0 1.1 3.2
----------- ----------- ------------
Total expenditures................................. 470.3 512.5 590.4
----------- ----------- ------------
As a percentage of GNP............................ 18.6% 18.4% 18.8%
Surplus/(Deficit)...................................... (Peso) 1.6 (Peso)(50.0) (Peso)(111.7)
=========== =========== ============
Financing
Domestic financing.................................... (Peso) 5.3 (Peso) 37.6 (Peso) 28.9
Net domestic borrowings............................. (20.3) 76.5 98.8
Non-budgetary accounts.............................. (7.0) (56.0) 32.6
Use of cash balances.................................. 32.6 17.1 37.4
Foreign financing................................... (6.8) 12.3 82.8
----------- ----------- ------------
Total financing.................................... (Peso) (1.6) (Peso) 50.0 (Peso) 111.7
=========== =========== ============
2000 2001 2002
------------ ------------ --------------
Revenues
Tax revenues
Bureau of Internal Revenue............................ (Peso) 360.8 (Peso) 388.7 (Peso)393.6/(2)/
Bureau of Customs..................................... 95.0 96.2 96.3
Others/(3)/........................................... 4.2 4.9 2.5
------------ ------------ --------------
Total tax revenues.................................. 460.0 489.8 492.4/(2)/
As a percentage of GNP............................. 13.2% 12.8% 11.6
Non-tax revenues
Bureau of the Treasury income/(5)/.................... (Peso) 30.8 (Peso) 46.4 (Peso) 47.2
Fees and other charges/(6)/........................... 17.9 24.3 24.2
Privatizations/(7)/................................... 4.6 1.2 1.51
Comprehensive Agrarian Reform Program (land
acquisition and credit).............................. 0.0 0.0 0.0
Foreign grants........................................ 1.4 2.0 .7
------------ ------------ --------------
Total non-tax revenues.............................. 54.7 73.9 73.6
------------ ------------ --------------
Total revenues..................................... 514.8 563.7 566.0
------------ ------------ --------------
As a percentage of GNP............................ 14.7% 14.7% 13.4%
Expenditures
Personnel services..................................... (Peso) 225.2 (Peso) 195.3 N/A/(4)/
Maintenance and operating expense...................... 79.8 150.8 N/A/(4)/
Other current operating expense........................ 3.6 0 N/A/(4)/
Interest payments
Foreign............................................... 47.3 62.2 65.9
Domestic.............................................. 93.6 112.6 119.9
------------ ------------ --------------
Total interest payments............................. 140.9 174.8 185.8
Subsidies to Government corporation.................... 6.7 9.4 7.6
Allotment to local government units.................... 100.0 118.2 140.5/(8)/
Transfers to the Oil Price Stabilization Fund.......... 0.0 0.0 N/A/(4)/
Comprehensive Agrarian Reform Program (land acquisition
and credit)........................................... 2.3 0.0 N/A/(4)/
Infrastructure and other capital outlays............... 87.2 57.9 N/A/(4)/
Equity and net lending................................. 3.2 4.4 5.4
------------ ------------ --------------
Total expenditures................................. 649.0 710.8 778.7
------------ ------------ --------------
As a percentage of GNP............................ 18.5% 18.6% 18.4%
Surplus/(Deficit)...................................... (Peso)(134.2) (Peso)(147.0) (Peso) (212.7)
============ ============ ==============
Financing
Domestic financing.................................... (Peso) 55.5 (Peso) 124.1 (Peso) 104.7
Net domestic borrowings............................. 119.5 152.3 155.1
Non-budgetary accounts.............................. (57.6) (50.4) (50.4)
Use of cash balances.................................. (6.5) 22.2 1.1
Foreign financing................................... 78.8 22.9 109.1
------------ ------------ --------------
Total financing.................................... (Peso) 134.2 (Peso) 147.0 (Peso) 214.9
============ ============ ==============
Budget
---------------------------
2001/(1)/ 2002
------------ ------------
Revenues
Tax revenues
Bureau of Internal Revenue............................ (Peso) 388.1 (Peso) 447.6
Bureau of Customs..................................... 105.1 115.1
Others/(3)/........................................... 5.7 8.6
------------ ------------
Total tax revenues.................................. 498.9 571.3
As a percentage of GNP............................. 13.0% 13.7%
Non-tax revenues
Bureau of the Treasury income/(5)/.................... (Peso) 24.9 (Peso) 22.2
Fees and other charges/(6)/........................... 23.2 25.6
Privatizations/(7)/................................... 10.0 5.0
Comprehensive Agrarian Reform Program (land
acquisition and credit).............................. 0.0 0.0
Foreign grants........................................ 1.2 0.3
------------ ------------
Total non-tax revenues.............................. 59.3 53.0
------------ ------------
Total revenues..................................... 558.2 624.3
------------ ------------
As a percentage of GNP............................ 14.5% 15.0%
Expenditures
Personnel services..................................... N/A/(4)/ (Peso) 251.3
Maintenance and operating expense...................... N/A/(4)/ 80.8
Other current operating expense........................ N/A/(4)/ N/A/(4)/
Interest payments
Foreign............................................... 63.2 64.0
Domestic.............................................. 116.2 140.3
------------ ------------
Total interest payments............................. 179.4 204.3
Subsidies to Government corporation.................... N/A/(4)/ 5.0
Allotment to local government units.................... N/A/(4)/ 103.9
Transfers to the Oil Price Stabilization Fund.......... N/A/(4)/ 28.6
Comprehensive Agrarian Reform Program (land acquisition
and credit)........................................... N/A/(4)/ 5.6
Infrastructure and other capital outlays............... 101.0 67.8
Equity and net lending................................. N/A/(4)/ 7.1
------------ ------------
Total expenditures................................. 703.2 754.3
------------ ------------
As a percentage of GNP............................ 18.3% 18.0%
Surplus/(Deficit)...................................... (Peso)(145.0) (Peso)(130.0)
============ ============
Financing
Domestic financing.................................... (Peso) 118.7 (Peso) 79.0
Net domestic borrowings............................. 165.2 63.3
Non-budgetary accounts.............................. (24.3) 15.1
Use of cash balances.................................. 22.2 N/A/(4)/
Foreign financing................................... 26.3 0.7
------------ ------------
Total financing.................................... (Peso) 145.0 (Peso) 130.0
============ ============
- --------
Source: Department of Finance; Department of Budget and Management.
(1) Revised as of July 17, 2001.
(2) Figure for BIR tax revenues includes other tax revenues.
(3) Represents tax revenues of the Department of Environment and Natural
Resources, Bureau of Immigration and Deportation, Land Transportation
Office and other Government entities.
(4) N/A means "not available".
(5) Represents interest on deposits, interest on advances to Government owned
corporations, interest on securities, dividends from Government owned
corporations, earnings received from the Philippine Amusement and Gaming
Corporation, earnings and terminal fees received from Ninoy Aquino
International Airport, guarantee fees and others.
(6) Represents receipts from the Land Transportation Office, Department of
Foreign Affairs and other Government agencies.
(7) Represents remittances to the National Government from the sale of
interests in Government owned corporations, Government financial
institutions and other Government-owned assets and from the sale of assets
by the Presidential Commission on Good Government and the Asset
Privatization Trust.
(8) Includes capital transfers to local government units.
166
Revenues
Sources. The Government derives its revenues from both tax and non-tax
sources. The main sources of revenue include income tax, value added tax and
customs duties. The main sources of non-tax revenue consist of interest on
deposits, amounts earned from Government owned corporations and privatization
receipts.
In 1995 the Ramos Government submitted the Comprehensive Tax Reform Package
for Congressional action. The objective of the proposal was to establish a
simple, broad-based and efficient tax system, with minimal scope for discretion
on the part of Government officials, that would provide a self-sustaining
revenue base that would keep pace with the budgetary needs of a growing
economy. The comprehensive tax reform package was enacted in 1997 and provides
a three-tiered excise tax on cigarettes and converts beer taxation from ad
valorem to specific excise taxes. The comprehensive tax reform package also
restructured and simplified the tax rates for business and professional income,
reduced the corporate income tax rate, and reformed certain elements of tax
administration.
The Government expanded the coverage of the value-added tax system in 1996
and 1997 to include Government contracts and suppliers, telecommunication
services, road freight and other transportation, real property, restaurants and
caterers, hotels and motels, and broadcasting. The new regime raised (Peso)6.7
billion out of total value-added tax revenues of (Peso)40.9 billion in 1996,
(Peso)6.4 billion out of total value-added tax revenues of (Peso)47.3 billion
in 1997 and (Peso)0.2 billion out of total value-added tax revenues of
(Peso)47.5 billion in 1998. Total value-added tax revenues amounted to
(Peso)55.2 billion for 1999 and (Peso)55.3 billion for 2000.
The tax effort in 2001 will be increased through policies designed to result
in the collection of additional tax revenues and non-tax revenues such as fees
and charges. Increased tax revenue is expected to come from a program of
intensified collection through enforcement of tax laws, improvement of
corporate governance and plugging of leakages in the tax system. The Bureau of
Internal Revenue is currently implementing tax administration improvements
which include the following:
. resolution of delinquent accounts or disputed assessments which are either
being litigated in the courts or being challenged by taxpayers;
. use of electronic documentary stamp metering machines to accurately assess
and monitor documentary stamp taxes;
. broadening the tax base to increase the number of registered taxpayers;
. issuance of revenue regulations regarding automobiles which are subject to
excise tax; and
. implementing a ceiling on deductible representation expenses as mandated
by the Tax Code of 1997.
Moreover, the Department of Finance is in the process of identifying
measures to address the areas in which tax collection is deficient in an effort
to increase revenues in 2001. Likewise, necessary controls need to be
instituted to ensure the correct declaration of revenues and deductions, and
controls need to be established on the claims of input taxes.
In August 2002, the Department of Finance endorsed a bill that would exempt
banks' financial services from the 10% value-added tax scheduled for
enforcement beginning January 2003. A 5% tax on gross receipts is currently
being paid by banks. The DOF stated that the value-added tax cannot be
appropriately imposed on the banking sector because of the uniqueness and
complexity of the sector's operations.
Results. In 1997, Government revenues rose to (Peso)471.8 billion, an
increase of 15% from 1996, due to higher tax revenues resulting from excise tax
reforms, computerization of the tax authorities' offices and an increased
number of tax audits, tied in part to the Government's Tax Reform Package.
Non-tax revenue also rose as privatization receipts and dividends and other
receipts from Government owned corporations climbed. These increases more than
offset the loss of revenues from the tariff reductions that took effect in
1997. Nevertheless, revenues came in below projections because of lower than
expected GNP growth. In 1997, the Government recorded a surplus of (Peso)1.6
billion.
167
In 1998, Government revenues decreased to (Peso)462.5 billion compared with
(Peso)471.8 billion for 1997 due, in part, to the general contraction of the
economy and lower imports. Revenues collected by the Bureau of Internal Revenue
increased to (Peso)337.2 billion from (Peso)314.7 billion, but were (Peso)17.9
billion short of target estimates. Revenues from customs duties fell to
(Peso)76 billion from (Peso)94.8 billion, just below the target for the year.
In 1999, Government revenues amounted to (Peso)478.5 billion, a 3.5%
increase compared with 1998. The 1999 figure was, however, (Peso)12.2 billion
less than the revised target. Non-tax revenues reflected a (Peso)5.6 billion
dividend payment from Bangko Sentral and (Peso)3.3 billion in proceeds from the
sale of Philippine Associated Smelting and Refining Corp. Revenues collected by
the Bureau of Internal Revenue were (Peso)12.2 billion less than the revised
target. The shortfall was primarily attributable to the slow recovery of the
industry sector. Revenues collected by the Bureau of Customs were (Peso)2.9
billion more than the revised target.
In 2000, Government revenues amounted to (Peso)514.8 billion, a 7.6%
increase over 1999 revenues. The 2000 amount was (Peso)47.6 billion short of
the April 2000 IMF revenue target. Revenues collected by the Bureau of Internal
Revenue increased to (Peso)360.8 billion but were (Peso)37.0 billion short of
target estimates. The shortfall was attributable primarily to lower Bureau of
Internal Revenue collections of items such as documentary stamp tax and capital
gains tax. The slowdown in the financial and real estate sectors also adversely
affected collections in 2000. Bureau of Customs revenue increased to (Peso)95.0
billion, (Peso)3.1 billion more than targeted. Intensified customs collection
and anti-smuggling operations accounted for the Bureau of Custom's
overperformance. Even with the marked slowdown in its collections from 1999
levels, the Bureau of the Treasury continued to surpass its target. The
Treasury collected (Peso)30.8 billion in non-tax revenue from dividends on its
shares of stocks and income from investments. Privatization efforts generated
only (Peso)4.6 billion in remittances, compared to a target of (Peso)22.9
billion, as unfavorable market prices prevented the government from disposing
of its assets. Privatization remittances consisted of proceeds from the sale of
the Philippine National Bank, Philippine Phosphate Fertilizer Corporation, and
a package of International Broadcasting Corporation's radio stations.
Government revenues for 2001 were (Peso)563.7 billion, of which (Peso)489.8
billion were tax revenues and (Peso)73.9 billion were non-tax revenues. Revenue
collections for 2001 were (Peso)5.5 billion higher than the budgeted amount of
(Peso)558.2 billion and 9.5% higher than revenue collections for 2000. The
increase was mainly attributable to the Bureau of the Treasury which collected
(Peso)21.5 billion more than its target of (Peso)24.9 billion, offsetting a
(Peso)8.9 billion shortfall from the targeted amount of cash collections by the
Bureau of Customs. The Bureau of Internal Revenue surpassed its target by
(Peso)621 million for the period, collecting (Peso)388.7 billion. Privatization
revenues for 2001 were (Peso)1.2 billion, compared to the budgeted amount of
(Peso)10 billion, as unfavorable market conditions prevented the disposition of
Government assets targeted for privatization.
Government Revenues and Expenditures. Government revenues for 2002 totaled
(Peso)566.0 billion, of which (Peso)489.9 billion were from tax revenues and
(Peso)76.1 billion were from non-tax revenues. Total revenues for 2002
increased 0.4% from total revenues for 2001. Of total tax revenues during 2002,
the BIR accounted for (Peso)393.6 billion and the Bureau of Customs accounted
for (Peso)96.3 billion. Treasury remittances accounted for (Peso)47.2 billion
in revenue for 2002, and other government offices accounted for the remaining
(Peso)26.9 billion.
The BIR's collection of (Peso)393.6 billion in 2002 was 1.3% more than the
(Peso)388.7 million collected 2001. The lower than expected amounts collected
for 2002 have been mainly attributed to the BIR's continued difficulty in
generally enforcing the Republic's tax laws as well as the relatively low
interest rate environment. However, the BIR's collection of (Peso)36.9 billion
for the month of December 2002 was a 9.2% increase over the (Peso)33.8 billion
collected in December 2001. Under the recently appointed BIR Commissioner,
Guillermo Parayo, the BIR has implemented a program to identify, report, and
prosecute taxpayers and companies that under-declare their value added taxes
("VAT"). A BIR program for voluntary assessment and availment of unpaid VAT and
other income taxes has been put in place to collect unpaid taxes that were
discovered by the BIR. This investigation concluded that underreporting of
income from businesses has resulted in (Peso)10 billion in uncollected tax
revenue. The BIR is making a concerted effort to recover as much of this
revenue as possible. During the period from September 2002 to January 2003,
(Peso)4.7 billion has been collected. In addition, in order to encourage better
tax compliance, the BIR under the new Commissioner has simplified the filing
process and the payment of taxes.
168
Expenditures
Expenditures for 1997 amounted to (Peso)470.3 billion, an increase of 16.4%
from 1996. Personnel expenses accounted for the largest increase, an increase
of 27.6%, due to the implementation of the last phase of the Salary
Standardization Law, which reduced the gap between public- and private-sector
salaries. Capital outlays also climbed because of irrigation projects
constructed to offset the effects of the El Nino phenomenon on agricultural
production levels. Allotments to local Government, especially for
infrastructure projects, rose significantly. Interest expenses also rose as a
result of the depreciation in the value of the Peso due to the regional
economic turmoil.
Expenditures in 1998 increased to (Peso)512.5 billion compared to
(Peso)470.3 billion in 1997. These expenditures compared together with revenues
of (Peso)462.5 billion resulted in a deficit of (Peso)50.0 billion in the
Government's fiscal position for 1998, compared to a fiscal surplus of
(Peso)1.6 billion in 1997.
Expenditures in 1999 increased to (Peso)590.4 billion compared to
(Peso)512.5 billion in 1998. The total expenditures were (Peso)14.1 billion
more than the revised target. The increase in expenditures in 1999 was due in
large part to economic stimulus efforts by the Government and in part to the
repayment of certain accounts payable that were outstanding from previous
Government administrations. Revenues of (Peso)478.5 billion resulted in an
overall deficit of (Peso)111.7 billion in 1999.
Expenditures in 2000 increased to (Peso)649.0 billion compared to
(Peso)590.4 billion in 1999. The total expenditures were (Peso)19.5 billion
more than the Government's target. The increase in expenditures was due
primarily to higher interest payments which increased by (Peso)16 billion as a
result of high interest rates for Treasury bills and fixed rate Treasury bonds.
Other contributing factors included the depreciation of the Peso, compared to
the US dollar, an increase in LIBOR and the unprogrammed interest payment for
the Metro Rail Transit obligation. Revenues of (Peso)514.8 resulted in an
actual Government deficit of (Peso)134.2 in 2000.
Government expenditures for 2001 were (Peso)710.8 billion, (Peso)7.5 billion
more than the budgeted amount of (Peso)703.2 billion and 9.5% higher than
expenditures for 2000. The actual Government deficit for 2001 was (Peso)147.0
billion compared to the budgeted deficit of (Peso)145.0 billion.
Government expenditures in 2002 were (Peso)778.7 billion, compared to
(Peso)710.8 billion in 2001. The increase in expenditures from 2001 to 2002 was
due in part to higher expenditures for infrastructure, personal services,
education, retirees' pensions, and allotments to local government units for
anti-poverty programs and security measures.
The deficit in 2002 was (Peso)212.7 billion, which exceeded the Government's
original target of (Peso)130 billion but was lower than the fourth quarter
revised 2002 budget deficit forecast of (Peso)223 billion. This rapid increase
in the budget deficit has been caused by lower than expected revenue
collections from the BIR, and higher than expected expenditures.
A plan by the Government to sell a 10% stake in Manila Electric (Meralco),
the Republic's largest power distributor, is in jeopardy due to a Supreme Court
order for Meralco to return an estimated (Peso)11 billion for excess charges to
customers. The Government planned on the sale of a portion of its interest in
Meralco to reduce the budget deficit.
The Government Budget
The Budget Process
The Administrative Code of 1987 requires the Government to formulate and
implement a national budget. Various planning and fiscal agencies coordinate to
determine expected revenue, expenditure and debt based on growth, employment
and inflation targets. The budget also reflects national objectives regarding
domestic and foreign debt, domestic credit and balance of payments.
The President submits the budget to Congress within 30 days of the opening
of each regular session of Congress, which occurs on the fourth Monday of each
July. The House of Representatives reviews the budget and transforms it into a
general appropriations bill. The Senate then reviews the budget. A conference
committee
169
composed of members of both houses of Congress then formulates a common version
of the bill. Once both houses approve the budget, the bill goes to the
President for signing as a general appropriations act.
Government Budget for 2002
On August 8, 2001, the Arroyo administration submitted to Congress its
proposed 2002 budget. The 2002 budget is seeking an 11.6% increase in general
appropriations to (Peso)780.8 billion from (Peso)699.9 billion in 2001. The
proposed 2002 budget contemplates revenue collections of (Peso)624.3 billion
and expenditures of (Peso)754.3 billion, resulting in a (Peso)130 billion
deficit. The 2002 budget proposal is based on assumptions of real GDP growth of
4.0% to 4.8%, no export growth, inflation of 5% to 6% and interest rates for
91-day Treasury bills between 10% and 11%. The Republic expects to fund 52% of
the 2002 budget deficit with foreign sourced financing and 48% with domestic
sourced financing, compared to 18.1% and 81.9%, respectively, in 2000. The
Government plans to increase the proportion of its foreign borrowings in 2002
because of its desire not to reduce the amount of funds available for borrowers
in the domestic market.
Government Budget for 2003
In August 2002, the Arroyo administration submitted to Congress its proposed
2003 budget. The 2003 budget seeks a 3.0% increase in appropriations to
(Peso)804.2 billion from the (Peso)780.8 billion budgeted for 2002. The budget
calls for (Peso)804 million in expenditures, revenue collections of (Peso)602
billion and a deficit of (Peso)202 billion. The 2003 budget is currently under
consideration by Congress and is expected to be approved in early 2003.
170
Debt
External Debt
The following table sets out the total outstanding Bangko Sentral-approved
and registered external debt.
BANGKO SENTRAL APPROVED EXTERNAL DEBT/(1)/
As of December 31 As of
------------------------------------------- June 30,
1997 1998 1999 2000 2001 2002
------- ------- ------- ------- ------- --------
(in millions, except percentages)
By Maturity:
Short-term/(2)/............................ $ 8,439 $ 7,185 $ 5,745 $ 5,948 $ 6,049 $ 5,799
Medium and long-term....................... 36,994 40,632 46,465 46,112 46,306 49,108
------- ------- ------- ------- ------- -------
Total.................................... $45,433 $47,817 $52,210 $52,060 $52,355 $54,906
======= ======= ======= ======= ======= =======
By Debtor:/(3)/
Bangko Sentral............................. $ 2,499 $ 3,437 $ 3,005 $ 2,914 $11,537 $11,437
Public sector/(4)/......................... 24,459 26,873 31,795 31,498 25,149 27,561
Private sector............................. 18,475 17,507 17,410 17,648 15,669 15,909
------- ------- ------- ------- ------- -------
Total.................................... $45,433 $47,817 $52,210 $52,060 $52,355 $54,906
======= ======= ======= ======= ======= =======
By Creditor Type:
Multilateral............................... $ 8,638 $10,058 $10,245 $ 9,665 $ 9,553 $ 9,257
Bilateral.................................. 13,307 14,926 16,429 15,336 14,531 15,624
Banks and financial institutions........... 10,176 9,672 10,340 11,176 12,003 12,509
Bondholders/noteholders.................... 10,633 11,209 12,951 13,447 13,678 14,863
Others..................................... 2,679 1,952 2,245 2,436 2,590 2,652
------- ------- ------- ------- ------- -------
Total.................................... $45,433 $47,817 $52,210 $52,060 $52,355 $54,906
======= ======= ======= ======= ======= =======
Ratios:
Debt service burden to exports of goods and
services/(5)/............................ 11.6% 11.7% 14.2% 12.3% 15.7% N/A/(6)/
Debt service burden to GNP................. 6.5% 7.4% 8.4% 7.7% 8.7% N/A/(6)/
Foreign exchange liabilities to GNP........ 53.0% 69.8% 65.1% 65.9% 70.1% N/A/(6)/
- --------
Source: Bangko Sentral.
(1) Excludes a $75 million loan to be made by the Asian Development Bank
pursuant to an agreement between the Asian Development Bank and the
Republic in October 2001.
(2) Debt with original maturity of one year or less.
(3) Classification by debtor is based on the primary obligor under the relevant
loan or rescheduling documentation.
(4) Includes public sector debt whether or not guaranteed by the Government.
(5) This ratio is based on the debt service burden for the relevant period
relative to the total exports of goods and receipts from services and
income during such period based on the BPM5 framework.
(6) Not available.
The Republic's external debt amounted to $53.6 billion as of September 30,
2002, a 2.4% decrease from the $54.9 billion recorded as of June 30, 2002 and a
2.3% increase from the $52.4 billion recorded as of December 31, 2001. The
decrease in external debt in the third quarter of 2002 was attributed to an
increase in the purchases by Filipinos of Government dollar-denominated bonds,
currency revaluation adjustments and direct repayment of debt. In addition to
new borrowings, the increase in debt in the second quarter of 2002 was due to
upward foreign exchange revaluation adjustments on third-currency denominated
debt resulting from the continued depreciation of the US dollar against
third-currencies; and the increase in debt in the first quarter of 2002 was due
to net loan availments, upward adjustments to reflect audited results and late
reporting of transactions which occurred in prior periods. The Government has
also borrowed to pay for financial and economic reforms, power and energy
development projects, and manufacturing, transportation, and communications
infrastructure.
171
During the first quarter of 2002, new loans and bond issuances were higher
than repayments made, contributing $1.1 billion to the increase in the debt
stock. In January 2002, the Republic received the proceeds of the $750 million
9.375% global bonds due 2017, and in March 2002 the Republic received the
proceeds of the $1 billion 8.375% global bonds due 2009. In addition, Bangko
Sentral received the proceeds of the $250 million Fixed Rate Notes due 2005,
the Land Bank of the Philippines received $96 million in proceeds (net of funds
provided by resident Foreign Currency Deposit Units) of a $100 million
syndicated bank loan and the Development Bank of the Philippines received
proceeds from a $94 million partial drawdown from its (Yen)32.5 billion ($250
million) 10-year Information Technology and Industry Support Loan from the
Japan Bank for International Cooperation. These borrowings were primarily used
to finance projects involving power and energy development, communication,
transportation and other infrastructure projects as well as to provide
budgetary support. In June 2002, the Republic received the proceeds from the
issuance of $300 million 8.375% global bonds due 2009. In September 2002 the
Republic received the proceeds from the issuance of $300 million 7.5% bonds due
2007. In November 2002, the Republic received the proceeds from the issuance of
$500 million 9.00% global bonds due 2013. In January, 2003, the Republic
received the proceeds from the issuance of an additional $500 million 9.00%
global bonds due 2013. In February 2003, the Republic received the proceeds
from the issuance of $200 million zero coupon Treasury Bills.
Upward adjustments amounting to $234 million were also made to reflect
audited results and late reporting of transactions from prior periods. These
upward adjustments in the debt stock were more than offset by foreign exchange
revaluation gains, resulting in a $175 million reduction of total debt. Almost
three-fourths of the revaluation gains resulted from the weakening of the
Japanese yen against the US dollar during the first quarter of 2002.
Liabilities of commercial banks also decreased the total debt by $103 million.
In addition, the increase in residents' holdings of foreign
currency-denominated Philippine debt that was originally issued offshore led to
a further increase of the debt stock by $5 million.
Medium- and long-term liabilities, 84.3% of which have a maturity of more
than five years, totaled $24.8 billion. Public sector medium- and long-term
debt had a longer average maturity of 18.6 years as compared to the average
maturity of 10.3 years for similar private sector debt.
As of December 31, 2001, 53% percent of medium- and long-term debt carried
fixed rates while 44% had variable rates. The remaining 3% were non-interest
bearing. The average cost of fixed rate credits was about 6.2%. For liabilities
with floating interest rates, the margin over base rate ranged from 3.51% to
4.38% as of June 30, 2002. The average interest rates for 91-day Treasury bills
decreased from 6.4% in March 2002 to 4.8% in June 2002, following the decline
in global interest rates.
As of September 30, 2002, approximately 59% of the country's external
obligations were denominated in US dollars while approximately 33% were in
Japanese yen. Multi-currency loans from the World Bank and the Asian
Development Bank comprised 11.9% of total liabilities.
Based on preliminary estimates, the ratio of debt service to exports of
goods and receipts from services and income declined to 15.4% in the first
quarter of 2002, compared to 16.3% in the fourth quarter of 2001 and 15.8% in
the first quarter of 2001. The quarter-on-quarter improvement in the ratio was
the combined result of lower principal and interest payments as well as higher
receipts from exports of goods during the first quarter of 2002. Similarly, the
year-on-year decline in the ratio was due largely to reduced interest payments
in the first quarter of the year in view of the continued decline in global
interest rates.
The public sector remained the biggest borrower, accounting for $26.7
billion of foreign financing as of March 31, 2002 compared to $25.1 billion as
of December 31, 2001. The increase was due primarily to net loan availments by
the Government and adjustments made on prior periods' transactions. Meanwhile,
private sector debt as of March 31, 2002 remained unchanged from the previous
quarter at $15.6 billion. Some private companies have taken steps to manage the
effects of the currency depreciation on their ability to repay their external
debt. These steps include netting foreign currency obligations and entering
into forward contracts to hedge their currency risks. Certain companies also
benefit from natural hedges intrinsic to their businesses. These companies
either generate foreign exchange revenues or are allowed by law to pass on to
clients the impact of exchange rate adjustments. Bangko Sentral also introduced
the currency risk protection facility, or the non- deliverable forward
facility, to allow eligible borrowers to limit their foreign exchange risk on
unhedged outstanding foreign exchange obligations to foreign currency deposit
units of banks.
172
The Government has obtained funds under the so-called "Miyazawa initiative"
to help finance projects contemplated by the country's spending program. The
Miyazawa initiative was launched by the Japanese government in October 1998
with an assistance package totalling the equivalent of $30 billion. The package
consists of support measures to assist five Asian countries, including the
Philippines, overcome their economic difficulties. Under the Miyazawa
initiative, the Government requested co-financing from Japan of approximately
$900 million of program loans from the Asian Development Bank and the World
Bank, $300 million each for the banking sector reform program with the World
Bank, the power sector restructuring program with the Asian Development Bank
and the Metro Manila air quality enhancement program with the Asian Development
Bank. As of the end of May 2001, the Government had received disbursements of
$100 million under each of the banking sector and power sector program loans
and $200 million under the air quality program loan. While the Government
remains committed to the policies of the banking sector reform program, in
early 2001 the Government canceled the balance of the parallel financing of the
banking sector reform loan following the cancellation by the World Bank of its
participation.
The Government initiated discussions with Japan relating to the second
tranche of funding under the Miyazawa initiative. The Government expects to
receive an allocation of $1 billion. Under the second tranche, the Government
is seeking financing of $100 million for a grains sector development loan, to
be co-financed by the Asian Development Bank, $150 million for the Pasig River
Rehabilitation program and $200 million for social expenditures, to be
co-financed by the World Bank. The Government has also continued to negotiate
with the World Bank for loans of up to $365 million to finance various
development projects, including public finance restructuring, investments in
water supply, environment, public services and judicial reforms, for the years
2003 to 2005.
The Government is also seeking financing under the Special Yen Loan Package,
or "Obuchi Fund", which is a $5 billion loan facility offered to all countries
and concentrating primarily on project type activities. Under this program, the
Government has secured financing for six projects in the amount of
approximately $931 million.
The Government hopes to finance the restructuring of small and medium-sized
enterprises with a portion of the $10 billion expected to be available under
the Asian Growth and Recovery Initiative. The United States, Japan, the Asian
Development Bank and the World Bank established the Asian Growth and Recovery
Initiative in 1998 to accelerate the pace of bank and corporate restructuring,
increase trade finance, mobilize new private sector capital financing by
multilateral agencies and enhance technical assistance to corporations
undergoing restructuring.
With the passage of the Electric Power Industry Sector Reform Act on June 8,
2001, certain multilateral agencies are expected to release up to $950 million
in loans for additional infrastructure projects and government budgetary needs.
New ODA-assisted projects in the agricultural-industrial area include Credit
Lines for Small and Medium Enterprises, Grains Sector Development Program and
the Pasig River Environmental Management and Rehabilitation. The social
development area received 9% ($117.3 million) of the total commitments. Other
ODA-assisted projects in the social development area include the Technical
Education and Skills Development Project and the Expansion of the Contraceptive
Social Marketing Project.
Credit Ratings. On January 8, 2003, Moody's Investors Service changed its
rating outlook on the Republic's local-currency rating for government bonds to
negative from stable, while affirming each of the Republic's foreign-currency
ratings. Moody's recognized that revenue collections have improved in recent
months, but noted that poor revenue collection in prior periods has weakened
long-term fiscal prospects. On November 25, 2002, Fitch Ratings downgraded the
Republic's ratings outlook from stable to negative. Fitch indicated that
further evidence of falling tax revenues had undermined the Government's fiscal
credibility and raised concerns about rising public indebtedness. Fitch noted
that the persistence of the current account surplus has prevented the
appearance of an external financing gap. Fitch affirmed the Republic's
long-term foreign currency rating of BB+, the Republic's short-term foreign
currency rating of B, and the Republic's local currency
173
rating of BBB- (triple B minus). Standard and Poor's has assigned the Republic
a long-term foreign currency rating of BB+, a short-term foreign currency
rating of B, a long-term local currency rating of BBB+ and a short-term local
currency rating of A-2, with a negative outlook on the Republic's long-term
ratings. Standard & Poor's has noted that tighter and more consistent financial
management, along with timely implementation of reform in the energy and
banking sectors, could improve investor confidence and change the rating
outlook back to stable. Moody's has assigned the Republic a long-term foreign
currency rating of Ba1, with a stable outlook on the Republic's long term
foreign currency rating.
The following table sets out the changes in credit ratings or rating
outlooks for the Republic from February 1998 to the date of this prospectus.
Credit Rating or Rating
Date Rating Agency Instrument Outlook
- ---- ----------------- ------------------------------ ------------------------------
February 23, 1998.. Standard & Poor's Republic's long-term local Lowered to BBB+
currency rating Rating outlook changed to
"negative" from "stable"/(1)/
Republic's short-term local Lowered to A2/(1)/
currency rating
Bangko Sentral's long-term Lowered to BBB+
local currency rating
Bangko Sentral's short-term Lowered to A2
local currency rating
April 7, 1998...... Moody's Republic's bonds and notes Lowered to Ba1/NP/(2)/
Rating outlook changed to
"cloudy"/(2)/ from "stable"
January 6, 1999.... Standard & Poor's Republic's long-term foreign Rating outlook changed to
currency rating stable from negative/(3)/
March 30, 2000/(4)/ Moody's Republic's bonds and notes Rating outlook changed to
"stable" from "cloudy"/(2)(4)/
October 19, 2000... Standard & Poor's Republic's long-term local and Rating outlook changed
foreign currency rating from "stable" to
"negative"/(5)/
October 27, 2000... Moody's Republic's bonds and notes Raised to Ba1
Rating outlook changed to
"negative" from "stable"/(6)/
March 15, 2001..... Fitch-IBCA Long-term local currency Rating outlook changed to
obligations "stable" from "positive"/(7)/
May 3, 2001........ Moody's Republic's bonds and notes Affirmed Ba1
Rating outlook remains
"negative"/(8)/
June 19, 2001...... Standard & Poor's Republic's long-term foreign Affirmed BB+
currency rating Rating outlook remains
"negative"/(9)/
Republic's short-term Affirmed B
foreign currency rating
Republic's long-term local Affirmed BBB+
currency rating Rating outlook remains
"negative"/(9)/
Republic's short-term local Affirmed A-2
currency rating
174
Credit Rating or Rating
Date Rating Agency Instrument Outlook
- ---- ----------------- ----------------------------- ------------------------------
July 30, 2001.... Fitch-IBCA Republic's foreign currency Affirmed BB+
rating
Republic's local currency Affirmed BBB-
rating
February 4, 2002. Moody's Republic's long-term foreign Upgraded outlook from
currency rating "negative" to "stable"/(11)/
April 4, 2002.... Standard & Poor's Republic's long-term foreign Upgraded outlook from
currency rating "negative" to "positive"/(12)/
June 27, 2002.... Fitch-IBCA Republic's long-term foreign Affirmed BB+/(13)/
currency rating
September 4, 2002 Moody's Republic's bonds and notes Affirmed Ba1
Rating outlook remains
"stable"
October 7, 2002.. Fitch-IBCA Republic's long-term Affirmed BB+
foreign currency rating
Republic's short-term foreign Affirmed B
currency rating
Republic's local currency Affirmed BBB-
rating
Outlook remains
stable/(10)/
October 29, 2002. Standard & Poor's Republic's long-term foreign Affirmed BB+
currency rating
Downgraded outlook from
"stable" to "negative"/(14)/
Republic's short-term foreign Affirmed B
currency rating
Republic's long-term local Affirmed BBB+
currency rating
Republic's short-term local Affirmed A-2
currency rating
November 25, 2002 Fitch-IBCA Republic's long-term foreign Affirmed BB+
currency rating
Republic's short-term foreign Affirmed B
currency rating
Republic's local currency BBB-
rating
Downgraded outlook from
"stable" to "negative"/(15)/
175
Credit Rating or Rating
Date Rating Agency Instrument Outlook
- ---- ------------- ------------------------- ----------------------------
January 8, 2003 Moody's Republic's local currency Downgraded outlook from
rating "stable" to "negative"/(16)/
- --------
(1) Standard & Poor's noted the deterioration in the bank asset quality and the
expected 1998 budget deficit, as well as the depreciation of the Peso and
the risk of increased spending around the time of the presidential
elections in May 1998. Also, on February 23, 1998, Standard & Poor's
affirmed the country's long-term and short-term foreign currency ratings.
(2) NP (Moody's): Not prime. Cloudy: With speculative elements/uncertainty of
position.
(3) Standard & Poor's noted the diminished likelihood of a deterioration in
external liquidity and financial flexibility and the improved prospects for
policy continuity from the Ramos administration to the Estrada
administration.
(4) Moody's noted that the changes in the Philippines' credit rating in 2000
reflected changes in the domestic climate and continued momentum from the
previous government's success in reform.
(5) Standard & Poor's noted the political uncertainty relating to former
President Joseph Estrada's alleged corrupt practices, the rising budget
deficit and growing concerns about the Government's ability to undertake
effective economic management during a period of political uncertainty.
(6) Moody's noted that unfolding political developments associated with
then-president Estrada could impair policy-making and hamper the
Government's ability to defend its external payments position.
(7) Fitch noted the continuing deterioration of public finances and its impact
on public indebtedness.
(8) Moody's noted that the negative outlook reflected the challenges from
structural economic and political problems in the country, deterioration in
the budget and in the external conditions particular to the country and
increases in Government debt.
(9) Standard & Poor's noted that the negative outlook on the Republic reflected
its high Government debt, rising fiscal inflexibility, narrow tax base and
weak banking sector.
(10) Fitch noted that the main considerations for the Republic ratings will be
arresting the decline in public revenues and maintaining a downward trend
in the deficit-to-GDP and to public debt-to-GDP ratios.
(11) Moody's noted that the upgrade reflected the Republic's success in meeting
its fiscal targets and a stronger economic outlook.
(12) Standard & Poor's noted that the upgrade reflected the Government's
improved economic management under the Arroyo administration and the
Republic's adequate external liquidity.
(13) Fitch noted that the change in political leadership has restored investor
and business confidence and curbed capital flight but noted concern over
the country's fiscal situation.
(14) Standard & Poor's noted that the downgrade reflected diminishing prospects
for the fiscal consolidation that is necessary to stabilize and reduce the
Government's debt burden and sustain investor confidence.
(15) Fitch noted that further evidence of falling tax revenues had undermined
the Government's fiscal credibility and raised concerns about rising
public indebtedness.
(16) Moody's recognized that revenue collections have improved in recent
months, but noted that poor revenue collection in prior periods has
weakened long-term fiscal prospects.
176
Public Sector Debt. The following table describes the country's outstanding
public sector debt.
OUTSTANDING PUBLIC SECTOR DEBT/(1)/
As of December 31,
-------------------------------------------------------------------------
1997 1998 1999 2000 2001
------------- ------------- ------------- ------------- -------------
(in billions, except percentages)
Government/(2)/
Domestic......................................... (Peso) 749.7 (Peso) 850.9 (Peso) 986.7 (Peso)1,080.7 (Peso)1,270.9
External......................................... 602.1 570.2 1,155.5 1,568.2 1,808.6
------------- ------------- ------------- ------------- -------------
Total.......................................... 1,351.8 1,421.1 2,142.2 2,648.8 3,079.5
Monitored GOCCs/(3)/
Domestic......................................... 203.6 143.5 644.8 810.6 744.9
External......................................... 198.6 548.0 286.1 308.1 395.0
------------- ------------- ------------- ------------- -------------
Total.......................................... 402.4 691.5 930.9 1,118.7 1,139.9
CB-BOL/(4)/
Domestic......................................... 51.4 0.0 0.0 0.0 0.0
External......................................... 60.6 102.2 74.9 81.8 73.9
------------- ------------- ------------- ------------- -------------
Total.......................................... 112.0 102.2 74.9 81.8 73.9
Bangko Sentral/(4)/
Domestic......................................... 199.5 197.3 193.5 202.6 118.3
External......................................... 139.0 190.3 299.3 385.2 475.5
------------- ------------- ------------- ------------- -------------
Total.......................................... 338.6 387.6 492.8 587.8 593.8
GFIs/(3)/
Domestic......................................... 58.0 204.5 379.9 460.6 175.3
External......................................... 52.0 68.9 95.3 74.3 126.1
------------- ------------- ------------- ------------- -------------
Total.......................................... 110.0 273.4 475.2 534.9 301.4
Less loans on-lent or guaranteed by the Government
Domestic......................................... 7.6 8.7 8.3 12.5 23.2
External......................................... 265.8 370.6 441.4 562.3 555.2
------------- ------------- ------------- ------------- -------------
Total.......................................... 273.4 379.3 449.7 574.8 578.4
Total public sector/(5)/
Domestic......................................... 1,262.3 1,396.2 2,196.6 2,542.0 2,288.3
External......................................... 1,052.3 1,479.6 1,469.7 1,855.2 2,125.1
------------- ------------- ------------- ------------- -------------
Total.......................................... (Peso)2,314.6 (Peso)2,875.8 (Peso)3,666.3 (Peso)4,397.2 (Peso)4,413.4
============= ============= ============= ============= =============
As a percentage of GNP (at current prices)
Public sector debt/(5)/........................... 91.7% 102.9% 116.9% 125.7% 114.5%
Public sector domestic debt/(5)/................. 48.9% 50.0% 70.0% 72.7% 59.3%
Public sector external debt/(5)/................. 30.7% 53.0% 46.9% 53.1% 55.1%
National Government debt/(2)/.................... 42.0% 37.3% 54.0% 59.3% 59.7%
National Government domestic debt/(2)/........... 29.2% 30.5% 31.5% 30.9% 33.0%
National Government external debt/(2)/........... 23.5% 20.4% 36.8% 44.8% 41.8%
- --------
Source: Fiscal Policy and Planning Office, Department of Finance.
(1) Amounts in original currencies were converted to pesos using the applicable
Bangko Sentral reference exchange rates at the end of each period.
(2) Includes debt that is on-lent to Government owned corporations and other
public sector entities and debt that has been assumed by the Government and
contingent liabilities.
(3) Includes net lending from the Government, and borrowings on-lent or
guaranteed by the Government.
(4) Liabilities, including deposits, less currency issue and inter-government
accounts.
(5) Includes the Government, the monitored Government owned corporations, the
Central Bank -- Board of Liquidation, Bangko Sentral and Government
financial institutions. Does not include other public sector debt that is
not guaranteed by the Government.
177
The outstanding public sector debt, comprised of the debt of the Government,
the monitored Government corporations, the Central Bank-Board of Liquidation,
Bangko Sentral and the Government financial institutions amounted to
(Peso)3,860.4 billion as of June 30, 2000 and (Peso)2,854.1 billion as of June
30, 1999. As of June 30, 2000, the Government incurred (Peso)2,368 billion, or
61.4% of outstanding public sector debt. Public sector debt as a proportion of
GNP decreased from 116.9% as of December 31, 1999 to 110.6% as of June 30, 2000.
Government Debt. The following table summarizes the outstanding direct debt
of the Republic as of the dates indicated.
SUMMARY OF OUTSTANDING DIRECT DEBT OF THE REPUBLIC/(1)(2)/
As of December 31,
-------------------------------------------------------------------------------
1997 1998 1999 2000 2001
--------------- --------------- --------------- --------------- ---------------
(in millions)
Funded debt/(3)/
Domestic......... (Peso) 357,446 (Peso) 408,809 (Peso) 513,667 (Peso) 600,925 (Peso) 822,269
External......... $ 15,034 $ 16,525 $ 19,800 $ 21,992 $ 22,082
Floating debt/(5)/
Domestic......... (Peso) 392,162 (Peso) 442,121 (Peso) 464,737 (Peso) 467,275 (Peso) 425,414
Total debt..... (Peso)1,350,574 (Peso)1,496,221 (Peso)1,775,356 (Peso)2,166,700 (Peso)2,384,917
As of September 30,
----------------------------
2002
----------------------------
Funded debt/(3)/
Domestic......... (Peso)1,008,018 $19,219
External......... $ 24,847/(4)/ $24,847/(4)/
Floating debt/(5)/
Domestic......... (Peso) 404,464 $ 7,711
-------
Total debt..... (Peso)2,715,682 $51,777
=======
- --------
Source: Bureau of the Treasury, Department of Finance.
(1) Includes Government debt that is on-lent to Government owned corporations
and other public sector entities. Excludes debt guaranteed by the
Government and debt originally guaranteed by other public sector entities
for which the guarantee has been assumed by the Government. The table
reflects debt of the Government only and does not include any other public
sector debt.
(2) Amounts in original currencies were converted to US dollars or pesos, as
applicable, using Bangko Sentral's reference exchange rates at the end of
each period.
(3) Debt with original maturities of one year or longer.
(4) The Government has incurred an aggregate of $1.2 billion of external debt
since September 30, 2002.
(5) Debt with original maturities of less than one year.
178
Domestic Debt of the Republic. The following table summarizes the
outstanding direct domestic debt of the Republic as of the dates indicated.
SUMMARY OF OUTSTANDING DIRECT DOMESTIC DEBT OF THE REPUBLIC/(1)(2)/
As of December 31, As of September 30,
------------------------------------------------------------------------- -----------------------
1997 1998 1999 2000 2001 2002
------------- ------------- ------------- --------------- --------------- -----------------------
(in millions)
Loans
Direct.............. (Peso) 14,980 (Peso) 38,789 (Peso) 39,743 (Peso) 15,541 (Peso) 15,317 (Peso) 15,861 $ 302
Assumed............. 29,520 24,355 20,369 19,117 13,858 11,128 212
------------- ------------- ------------- --------------- --------------- --------------- -------
Total loans....... 44,500 63,144 60,112 34,658 29,175 26,989 515
Securities
Treasury bills...... 392,162 442,121 464,737 467,275 425,414 404,464 7,711
Treasury notes/bonds 312,946 345,665 453,555 566,267 793,094 981,029 18,704
------------- ------------- ------------- --------------- --------------- --------------- -------
Total securities.. 705,108 787,786 918,292 1,033,542 1,218,508 1,385,494 26,416
------------- ------------- ------------- --------------- --------------- --------------- -------
Total debt........ (Peso)749,608 (Peso)850,930 (Peso)978,404 (Peso)1,068,200 (Peso)1,247,683 (Peso)1,412,483 $26,930
============= ============= ============= =============== =============== =============== =======
- --------
Source: Bureau of the Treasury, Department of Finance.
(1) Includes Government debt that is on-lent to Government owned corporations
and other public sector entities. Excludes debt guaranteed by the
Government and debt originally guaranteed by other public sector entities
for which the guarantee has been assumed by the Government. The table
reflects debt of the Government only, and does not include any other public
sector debt.
(2) Amounts in original currencies were converted to US dollars or pesos, as
applicable, using Bangko Sentral's reference exchange rates at the end of
each period.
The following table sets forth the direct domestic debt service requirements
of the Republic for the years indicated.
DIRECT DOMESTIC DEBT SERVICE REQUIREMENT OF THE REPUBLIC/(1)/
Principal Interest
Year Repayments Payments Total Total/(2)/
---- ------------- ------------- ------------- ---------
(in millions)
1997..... (Peso) 17,865 (Peso) 58,350 (Peso) 76,215 $1,907
1998..... 28,761 73,525 102,286 2,619
1999..... 61,552 74,980 136,532 3,392
2000..... 45,429 93,575 139,004 2,783
2001..... 54,039 112,592 166,631 3,268
2002/(3)/ 72,749 127,723 200,472 3,919
2003/(3)/ 101,583 149,304 250,887 4,905
2004/(3)/ 104,137 169,879 274,016 5,357
2005/(3)/ 117,504 180,295 297,799 5,822
2006/(3)/ 109,451 183,754 293,205 5,732
- --------
Source: Bureau of the Treasury, Department of Finance.
(1) Excludes debt service in respect of Government debt that is on-lent to
Government owned corporations and other public sector entities guaranteed
by the Government and debt originally guaranteed by other public sector
entities for which the guarantee has been assumed by the Government. The
table reflects debt of the Government only, and does not include any other
public sector debt.
(2) Amounts in pesos were converted to US dollars using the applicable Bangko
Sentral reference exchange rates at the end of each period. For 2002
through 2006, amounts in pesos were converted to US dollars using the
applicable Bangko Sentral reference exchange rates as of December 29, 2001.
(3) Projected, based on debt outstanding as of December 31, 2001.
The Government's outstanding direct domestic debt increased 16.8% to
(Peso)1,247.7 billion as of December 31, 2001, from (Peso)1,068.2 billion as of
December 31, 2000.
179
External Debt of the Republic. The following table summarizes the
outstanding external direct debt of the Republic as of the dates indicated.
SUMMARY OF OUTSTANDING DIRECT EXTERNAL DEBT OF THE REPUBLIC/(1)(2)/
As of December 31, As of September 30,
----------------------------------------- -------------------
1997 1998 1999 2000 2001 2002
------- ------- ------- ------- --------- -------------------
(in millions)
Loans
Multilateral....... $ 4,546 $ 4,665 $ 4,468 $ 4,388 $ 4,323 $ 4,292
Bilateral.......... 7,082 7,944 9,055 8,193 7,236 7,938
Commercial......... 180 208 256 651 841 898
------- ------- ------- ------- --------- ----------
Total loans...... 11,808 12,817 13,779 13,232 12,400 13,127
Securities
Eurobonds.......... -- -- 352 514 915 1,011
Brady Bonds........ 2,229 2,173 1,482 1,385 1,287 1,238
Yen Bonds.......... 307 345 391 655 949 939
Notes.............. -- -- -- 810 1,010 660
Global Bonds....... 690 1,190 3,796 5,396 5,396 7,746
T-Bills............ -- -- -- -- 125 125
------- ------- ------- ------- --------- ----------
Total securities. 3,226 3,708 6,021 8,760 9,682 11,719
------- ------- ------- ------- --------- ----------
Total........ $15,034 $16,525 $19,800 $21,992 $22,082// $24,847/(3)/
======= ======= ======= ======= ========= ==========
- --------
Source: Bureau of the Treasury, Department of Finance.
(1) Includes Government debt that is on-lent to Government owned corporations
and other public sector entities. Excludes debt guaranteed by the
Government and debt originally guaranteed by other public sector entities
for which the guarantee has been assumed by the Government. The table
reflects debt of the Government only, and does not include any other public
sector debt.
(2) Amounts in original currencies were converted to US dollars using the
applicable Bangko Sentral reference exchange rates at the end of each
period.
(3) Additional external debt of $1.2 billion has been incurred since September
30, 2002.
Outstanding direct external debt increased 0.4% to $22.1 billion as of
December 31, 2001, from $22.0 billion as of December 31, 2000. The Government
borrowed to finance power and energy development projects, financial and
economic reforms and manufacturing, transportation and communication and other
infrastructure undertakings. The currency depreciation during 1997
significantly increased the amount of external debt in Peso terms. As of
December 31, 2001, the Government owed 32.8% of outstanding direct external
debt to bilateral creditors, mainly the United States and Japan, 47.6% to banks
and other commercial creditors and 19.6% to multilateral creditors.
As of September 30, 2002, more approximately 59% of the country's external
obligations were denominated in US dollars while approximately 33% were
denominated in Japanese yen. Multi-currency loans from the World Bank and the
Asian Development Bank comprised 11.9% of total liabilities.
180
The following table sets forth, by designated currency and the equivalent
amount in US dollars, the outstanding direct external debt of the Republic as
of September 30, 2002.
SUMMARY OF OUTSTANDING DIRECT EXTERNAL
DEBT BY THE REPUBLIC BY CURRENCY/(1) /
(as of September 30, 2002)
Amount in Equivalent Amount
Original Currency in US dollars/(2)/ % of Total
----------------- ----------------- ----------
(in millions)
US Dollar............. 14,554 $14,554 58.57%
Japanese Yen.......... 989,217 8,075 32.50
Special Drawing Rights 699 922 3.71
European Currency Unit 1,043 1,023 4.12
French Franc.......... 836 125 0.50
Deutsche Mark......... 125 63 0.25
Austrian Schilling.... 14 1 0.00
Pound Sterling........ 14 22 0.09
Belgian Franc......... 776 19 0.08
Swiss Franc........... 31 21 0.08
Danish Kroner......... 64 8 0.03
Kuwait Dinar.......... 2 7 0.03
Italian Lire.......... 9,686 5 0.02
Korean Won............ 4,223 3 0.01
Canadian Dollar....... 2 1 0.01
Sweden Kroner......... 18 2 0.01
------- ------
Total................ $24,847/(3)/ 100.00%
======= ======
- --------
Source: Bureau of the Treasury, Department of Finance.
(1) Includes Government debt that is on-lent to Government owned corporations
and other public sector entities. Excludes debt guaranteed by the
Government and debt originally guaranteed by other public sector entities
for which the guarantee has been assumed by the Government. The table
reflects debt of the Government only, and does not include any other public
sector debt.
(2) Amounts in original currencies were converted to US dollars using the
applicable Bangko Sentral reference exchange rates as of September 30, 2002.
(3) Additional external debt of $1.2 billion has been incurred since September
30, 2002.
181
The following table sets forth the direct external debt service requirements
of the Republic for the years indicated.
DIRECT EXTERNAL DEBT SERVICE REQUIREMENTS OF THE REPUBLIC/ (1) (2)/
Principal Interest
Year Repayments Payments Total
---- ---------- -------- ------
(in millions)
1997..... $ 741 $ 458 $1,199
1998..... 907 584 1,491
1999..... 933 776 1,711
2000..... 831 947 1,778
2001..... 887 1,209 2,095
2002/(3)/ 1,741 1,273 3,014
2003/(3)/ 1,676 1,445 3,121
2004/(3)/ 1,536 1,522 3,058
2005/(3)/ 1,772 1,521 3,293
2006/(3)/ 1,601 1,454 3,121
- --------
Source: Bureau of the Treasury, Department of Finance.
(1) Excludes debt service in respect of Government debt that is on-lent to
Government owned corporations and other public sector entities or
guaranteed by the Government, other than debt originally guaranteed by
other public sector entities for which the guarantee has been assumed by
the Government. The table reflects debt of the Government only, and does
not include any other public sector debt.
(2) For 1997 through 2001, amounts in original currencies were converted to US
dollars using the applicable Bangko Sentral reference exchange rates
prevailing on the date of payment. For 2002 through 2006, amounts in
original currencies were converted to US dollars using the applicable
Bangko Sentral reference exchange rates as of December 28, 2001.
(3) Projected, based on debt outstanding as of December 31, 2001.
Government Guaranteed Debt. The following table sets forth all Republic
guarantees of indebtedness, including guarantees assumed by the Government, as
of the dates indicated.
SUMMARY OF OUTSTANDING GUARANTEES OF THE REPUBLIC/(1)(2)/
As of December 31, As of September 30,
------------------------------------------------------------- --------------------
1997 1998 1999 2000 2001 2002
----------- ----------- ----------- ------------ ------------ --------------------
(in millions)
Domestic. (Peso)7,645 (Peso)8,677 (Peso)8,320 (Peso)12,451 (Peso)23,167 (Peso)19,069 $ 364
External. $6,649 $7,568 $8,908 $ 9,402 $ 9,177 $10,019 $10,019
-------
Total. 10,383
=======
- --------
Source: Bureau of the Treasury, Department of Finance.
(1) Includes debt originally guaranteed by the Government and debt guaranteed
by other public sector entities for which the guarantee has been assumed by
the Government.
(2) Amounts in original currencies were converted to US dollars or pesos, as
applicable, using Bangko Sentral's reference exchange rates at the end of
each period.
Payment History of Foreign Debt. In early 1985 and in 1987, the Government
rescheduled principal maturities of most medium- and long-term liabilities owed
to commercial bank creditors falling due between October 1983 and December
1992. The Philippines normalized its relationship with foreign bank creditors
in 1992 after issuing Brady Bonds in exchange for its commercial bank debt.
182
The Philippines rescheduled portions of its obligations to official
creditors, such as foreign Governments and their export credit agencies, five
times between 1984 and 1994 as follows.
Date of Rescheduling New Maturity (From Date of
Agreement Amount Rescheduled Rescheduling Agreement) Grace Period
- --------- ------------------ -------------------------- ------------
December 1984.... $896 million 10 years 5 years
January 1987..... $1.1 billion 10 years 5.5 years
May 1989......... $1.8 billion 8.5 years 5 years
June 1991........ $1.5 billion 15-20 years 6.5 years
July 1994*....... $498 million 15-20 years 8-10 years
- --------
* Not implemented. See discussion in following paragraph.
In December 1994, the Government decided not to avail itself of the July
1994 rescheduling agreement to accelerate the country's graduation from
rescheduling country status. As of June 30, 1999, the Republic's rescheduled
obligations with its bilateral creditors amounted to $2.2 billion, with Japan
at $1.2 billion and the United States at $506 million having the largest
exposures.
In addition to debt restructuring, the Republic has engaged in debt buyback,
debt-to-equity, debt-for-debt, debt-for-nature and other debt reduction
arrangements to reduce its debt by at least $6 billion. The Republic intends to
maintain various efforts to manage its debt portfolio to improve yield and
maturity profiles. The Republic may utilize proceeds from debt issues for the
purpose of repurchasing outstanding debt through a variety of methods,
including public auctions and repurchases of debt securities in the open
markets.
While there have been a number of reschedulings of the Republic's debt to
its bilateral creditors in the past few years, the Republic has not defaulted
on, and has not attempted to restructure, the payment of principal or interest
on any of its external securities in the last 20 years.
Brady Bonds. In 1992, the Philippines issued approximately $3.3 billion of
Brady Bonds, maturing between 2007 and 2018, in exchange for commercial bank
debt, and secured, as to repayment of principal at stated maturity, $1.9
billion of the bonds with zero-coupon bonds purchased by the Republic in the
open market. As of year-end 1997, cash and short-term investment grade
securities deposited with the Federal Reserve Bank of New York, as collateral
agent, secured the payment of approximately 12 to 14 months of interest on $1.6
billion of the Brady Bonds.
In October 1996, the Government exchanged $6.5 million of Series A Principal
Collateralized Interest Reduction Bonds due 2018 and approximately $628 million
of Series B Principal Collateralized Interest Reduction Bonds due 2017 for $551
million of its $690 million 8.75% Bonds due 2016. After the exchange,
approximately $2.3 billion of the Brady Bonds remained outstanding. The
exchange generated significant savings in debt service and the release of the
US Treasury securities held as collateral and established a liquid and
long-term sovereign benchmark extending the maturity of the Philippine debt
profile. The exchange resulted in the redemption, at a discount, of
approximately $635 million of Brady Bonds. In addition, the Brady Bond exchange
freed more than $124 million in cash from the collateral released in the
retirement of the Brady Bonds.
In October 1999, the Government exchanged approximately $401 million of its
Principal Collateralized Interest Reduction Bonds, $165 million of its Interest
Reduction Bonds and $54 million of its Floating Rate Debt Conversion Bonds for
approximately $544 million of 9.50% Global Bonds due 2024. After the exchange,
approximately $1.5 billion of the Brady Bonds remained outstanding. Similar to
the October 1996 exchange, this exchange generated significant savings in debt
service and the release of the US Treasury securities held as collateral and
established a sovereign benchmark extending the maturity of the Philippine debt
profile. The exchange freed approximately $149 million in cash from the
collateral released in the retirement of the Brady Bonds.
183
The following table sets out the foreign currency bonds issued by the
Republic.
FOREIGN BONDS ISSUED BY THE REPUBLIC
Outstanding Balance
Outstanding Balance as of October 31,
as of Issue Date 2002
------------------- -------------------
(in millions)
Brady Bonds/(1)/
Interest Reduction Bonds......................... $ 757 $ 273
Principal Collateralized Interest Reduction Bonds 1,894 583
Debt Conversion Bonds............................ 697 383
------- -------
Total.......................................... $ 3,348 $ 1,238
Japanese Yen Bonds/(2)/
Sixth Series..................................... 244 244
Seventh Series................................... 284 284
Shibosai Series A................................ 406 406
------- -------
Total.......................................... $ 1,018 $ 934
Notes............................................. 1,010 660
Global bonds...................................... 7,446 7,446
Eurobonds/(2)/.................................... 1,011 1,011
T-Bills........................................... 125 125
------- -------
Total foreign bonds............................ $13,958 $11,715/(3)/
======= =======
- --------
Source: Bureau of the Treasury, Department of Finance.
(1) The difference between the amount of the Brady Bonds originally issued and
the amount currently outstanding represents repurchases of such Bonds by
the Republic in the secondary market (or their acquisition in connection
with debt for equity and similar transactions), the 1998 Brady Bond
exchange, the cancellation of such acquired Bonds and principal repayments.
(2) Yen and Euro denominated bonds were converted to US dollars using Bangko
Sentral's reference exchange rate as of October 31, 2002.
(3) Additional external debt of $1.2 billion has been incurred since October
31, 2002.
184
DESCRIPTION OF THE OLD BONDS
The following summarizes the terms of our 9.625% Guaranteed Bonds due 2028:
Amount Outstanding: US$300,000,000
Approximate Amount Held
By Republic of the
Philippines: US$238,700,000
Approximate Amount Held
By Other Investors: US$61,300,000
Interest Rate: 9.625% per annum
Interest Payment Date: Semiannually, on May 15
and November 15.
Principal Payment: In a single installment
at final maturity.
Final Maturity: May 15, 2028
CUSIP Number: 637193AM5
Common Code: 008720681
ISIN: US637193AM59
The following summarizes the terms of our 8.400% Guaranteed Bonds due 2016:
Amount Outstanding: US$160,000,000
Approximate Amount Held
By Republic of the
Philippines: US$41,400,000
Approximate Amount Held
By Other Investors: US$118,600,000
Interest Rate: 8.400% per annum
Interest Payment Date: Semiannually, on June 15
and December 15.
Principal Payment: In a single installment
at final maturity.
Final Maturity: December 15, 2016
CUSIP Number: 637193AL7
Common Code: 007210949
ISIN: US637193AL76
The following summarizes the terms of our 7.875% Guaranteed Bonds due 2006:
Amount Outstanding: US$200,000,000
Approximate Amount Held
By Republic of the
Philippines: US$60,400,000
Approximate Amount Held
By Other Investors: US$139,600,000
Interest Rate: 7.875% per annum
Interest Payment Date: Semiannually, on June 15
and December 15.
Principal Payment: In a single installment
at final maturity.
Final Maturity: December 15, 2006
CUSIP Number: 637193AK9
Common Code: 007210981
ISIN: US637193AK93
185
THE EXCHANGE OFFER
Purpose of the Exchange Offer
We have offered to exchange the New Bonds for the Old Bonds in order to
facilitate the process of the restructuring of the electric power industry in
the Philippines and our privatization under the Electric Power Industry Reform
Act of 2001. See "National Power Corporation" in this prospectus for additional
information on our restructuring and privatization. We have issued the New 2028
Bonds pursuant to a fiscal agency agreement (the "Second Fiscal Agency
Agreement") among us, as issuer, the Republic, as guarantor, and JPMorgan Chase
Bank, as fiscal agent. We have issued the New 2016 Bonds and the New 2006 Bonds
pursuant to a fiscal agency agreement (the "First Fiscal Agency Agreement" and,
together with the Second Fiscal Agency Agreement, the "Fiscal Agency
Agreements") among us, as issuer, the Republic, as guarantor, and JPMorgan
Chase Bank, as fiscal agent. The terms of the New 2028 Bonds, the New 2016
Bonds and the New 2006 Bonds are identical, in all material respects, to the
terms of the Old 2028 Bonds, the Old 2016 Bonds and the Old 2006 Bonds,
respectively, except that the New Bonds provide for the assumption by PSALM of
our obligations under the New Bonds without the consent of holders of the New
Bonds, subject to certain conditions, as set out below under "Description of
the New 2028 Bonds -- Substitution of the Issuer" and "Description of the New
2016 Bonds and the New 2006 Bonds -- Substitution of the Issuer". Regardless of
the fact that certain Old Bonds were not tendered for exchange in this exchange
offer, our existing generation assets, liabilities (other than our obligations
under the Old Bonds), certain IPP contracts, real estate and other disposable
assets will be transferred to PSALM as part of our restructuring and
privatization, provided that the conditions precedent to that transfer are
fulfilled, as more fully described under "Electric Power Industry Restructuring
and Privatization" in this prospectus. We remain the obligor under the Old
Bonds that were not tendered and accepted for exchange in this exchange offer.
See "-- Consequences of Failure to Exchange" elsewhere in this prospectus.
The New 2028 Bonds, the New 2016 Bonds and the New 2006 Bonds are guaranteed
by the Republic (collectively, the guarantees of the New Bonds are referred to
as the "New Guarantees") on the same terms as the guarantees by the Republic
(the "Old Guarantees") of the Old 2028 Bonds, the Old 2016 Bonds and the Old
2006 Bonds, respectively.
The following description briefly summarizes certain provisions of the New
Bonds, the New Guarantees, the First Fiscal Agency Agreement and the Second
Fiscal Agency Agreement, forms of which have been filed as exhibits of the
registration statement of which this prospectus is a part. This description
does not purport to be complete and is qualified in its entirety by reference
to the text of those documents.
The New Bonds
Principal of the New 2028 Bonds will be payable on May 15, 2028, principal
of the New 2016 Bonds will be payable on December 15, 2016 and principal of the
New 2006 Bonds will be payable on December 15, 2006. Interest on the New 2028
Bonds will be payable semi-annually in arrears in equal installments on May 15
and November 15 of each year at the rate of 9.625% per annum, to holders of
record at the close of business on the preceding May 1 or November 1. Interest
on the New 2016 Bonds and the New 2006 Bonds will be payable semi-annually in
arrears in equal installments on June 15 and December 15 of each year, at the
rate of 8.400% per annum and 7.875% per annum, respectively. Interest on the
New 2016 Bonds and the New 2006 Bonds will be payable to holders of record at
the close of business on the preceding June 1 or December 1. In the case of
each of the New 2028 Bonds, the New 2016 Bonds and the New 2006 Bonds, interest
will be payable from the most recent date on which interest has been paid on
the corresponding Old Bonds. Interest on the New Bonds will be computed on the
basis of a 360-day year of twelve 30-day months. The principal of and interest
on the New Bonds will be payable in lawful money of the United States of
America and will be made available at the office of the fiscal agent in The
City of New York as set out under "Description of the New 2028 Bonds -- Global
Bonds" and "Description of the New 2016 Bonds and the New 2006 Bonds -- Global
Bonds" in this prospectus.
Except as described under "Description of the New 2028 Bonds -- Redemption
for Taxation Reasons" and "Description of the New 2016 and the New 2006 Bonds
- -- Redemption for Taxation Reasons" in this prospectus,
186
the New Bonds will not be redeemable prior to maturity at our option or at the
option of the registered holders of the New Bonds. No sinking fund will be
provided by us for the amortization of the New Bonds. For a description of our
obligations and those of the Republic to pay Additional Amounts (as defined in
this prospectus), if any, with respect to the New Bonds, see "Description of
the New 2028 Bonds -- Payment of Additional Amounts" and "Description of the
New 2016 Bonds and the New 2006 Bonds -- Payment of Additional Amounts" in this
prospectus.
Global Bonds
The New Bonds have been issued in the form of one or more fully registered
global securities (each, a "Global Bond") which have been deposited with, or on
behalf of, The Depository Trust Company, New York, New York ("DTC"). A Global
Bond has been registered in the name of DTC or its nominee. Except as set out
below, a Global Bond may be transferred, in whole and not in part, only to DTC
or its nominee. For additional information regarding depositary arrangements,
see "Description of the New 2028 Bonds -- Payment of Additional Amounts" and
"Description of the New 2016 Bonds and the New 2006 Bonds -- Payment of
Additional Amounts" in this prospectus.
Substitution of the Issuer
PSALM may, subject to certain conditions, without the consent of the holders
of the New Bonds, assume the obligations of the Issuer under and in respect of
the New Bonds. See "Description of the New 2028 Bonds -- Substitution of the
Issuer" and "Description of the New 2016 Bonds and the New 2006 Bonds --
Substitution of the Issuer".
Further Issues of New Bonds
In the case of each of the New 2028 Bonds, the New 2016 Bonds and the New
2006 Bonds, we may, without the consent of the holders of such New Bonds,
create and issue additional securities with the same terms and conditions as
such New Bonds (or that are the same in all respects except for the amount of
the first interest payment and for the interest paid on the New Bonds prior to
the issuance of the additional securities). See "Description of the New 2028
Bonds -- Further Issues" and "Description of the New 2016 Bonds and the New
2006 Bonds -- Further Issues".
We may offer additional securities with original issue discount ("OID") for
US federal income tax purposes as part of a further issue. Purchasers of
securities after the date of any further issue will not be able to
differentiate between securities sold as part of the further issue and
previously issued New Bonds. If we were to issue additional securities with
OID, purchasers of the securities after such further issue may be required to
accrue OID (or greater amounts of OID than they would otherwise have accrued)
with respect to their securities. This may affect the price of outstanding New
Bonds following a further issue. Prospective holders of the New Bonds are urged
to consult their own advisors with respect to the implications of any further
decision we may make to issue additional securities with OID.
Terms of the Exchange Offer
Upon the terms and subject to the conditions described in this prospectus
and in the letter of transmittal, we have accepted for exchange any and all Old
Bonds validly tendered and not withdrawn prior to the expiration date.
For each $1,000 principal amount of each of the Old 2028 Bonds, the Old 2016
Bonds and the Old 2006 Bonds properly tendered and not withdrawn before the
expiration date, we have issued $1,000 principal amount of New 2028 Bonds, New
2016 Bonds and New 2006 Bonds, respectively.
187
We were deemed to have accepted validly tendered Old Bonds when, and if, we
gave oral or written notice thereof to HSBC Bank USA, the exchange agent. The
exchange agent acted as agent for the tendering holders of Old Bonds for the
purpose of receiving the New Bonds from us.
Holders who tendered Old Bonds in the exchange offer were not required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of Old Bonds
pursuant to the exchange offer. We have paid all charges and expenses, other
than certain applicable taxes described below, in connection with the exchange
offer. See "The Exchange Offer -- Fees and Expenses".
Commencement Date; Expiration Date
The exchange offer commenced on December 4, 2002 and the previously
announced expiration date of January 10, 2002 was extended so that the exchange
offer expired on January 27, 2003. $299,548,000 in aggregate principal amount
of our Old 2028 Bonds were accepted for exchange. $159,867,000 in principal
amount of our Old 2016 Bonds were accepted for exchange. $191,604,000 in
aggregate principal amount of our Old 2006 Bonds were accepted for exchange.
Exchange Agent
HSBC Bank USA was appointed as exchange agent for the exchange offer.
Questions and requests for assistance, and requests for additional copies of
this prospectus should be directed to the exchange agent addressed as follows:
By Mail or Hand/Overnight Delivery:
HSBC Bank USA
One Hanson Place, Lower Level
Brooklyn, NY 11243
By Facsimile:
718-488-4488
Attention: Paulette Shaw
Reference: Napocor
Confirm by Telephone:
718-488-4475
Reference: Napocor
Fees and Expenses
Bear, Stearns & Co. Inc. has acted as the dealer manager in connection with
the exchange offer. Bear, Stearns & Co. Inc. received a fee in the manner
described below for its services as dealer manager, in addition to being
reimbursed for its reasonable out-of-pocket expenses, including attorneys'
fees, incurred in connection with the exchange offer.
We have paid the dealer manager fees based on the aggregate principal amount
of Old Bonds exchanged for New Bonds in the exchange offer.
We have agreed to indemnify Bear, Stearns & Co. Inc. against specified
liabilities relating to or arising out of the exchange offer, including civil
liabilities under the federal securities laws in the United States, and to
contribute to payments that Bear, Stearns & Co. Inc. may be required to make in
respect thereof. Bear, Stearns & Co. Inc. may, from time to time, hold Old
Bonds in its proprietary accounts, and to the extent it owns Old Bonds in these
accounts at the time of the exchange offer, may tender these Old Bonds.
We have retained D.F. King & Co., Inc. to act as the information agent and
HSBC Bank USA to act as the exchange agent in connection with the exchange
offer. The information agent may have contacted holders of Old
188
Bonds by mail, telephone, facsimile transmission and personal interviews and
may have requested brokers, dealers and other nominee stockholders to forward
materials relating to the exchange offer to beneficial owners. The information
agent and the exchange agent each received reasonable compensation for their
respective services, were reimbursed for reasonable out-of-pocket expenses and
are indemnified against liabilities in connection with their services,
including liabilities under the federal securities laws.
Neither the information agent nor the exchange agent has been retained to
make solicitations or recommendations. The fees they received are not be based
on the principal amount of Old Bonds tendered under the exchange offer.
We have not paid any fees or commissions to any broker or dealer or any
other person, other than Bear, Stearns & Co. Inc., for soliciting tenders of
Old Bonds under the exchange offer. Brokers, dealers, commercial banks and
trust companies will, upon request, be reimbursed by us for reasonable and
necessary costs and expenses incurred by them in forwarding materials to their
customers. The cash expenses to be incurred in connection with the exchange
offer have been or will be paid by us. We estimate these expenses, exclusive of
compensation payable to the dealer manager, in the aggregate to be
approximately $1,717,000, including estimated registration fees of $26,658,
NASD filing fees of $30,500, estimated printing costs of $200,000, estimated
legal fees and expenses of $1,250,000, estimated fiscal agent fees and expenses
of $10,000 and estimated miscellaneous expenses of $200,000.
Consequence of Failure to Exchange
Regardless of the fact that certain Old Bonds were not tendered for exchange
in this exchange offer, our existing generation assets, liabilities (other than
our obligations under the Old Bonds), certain IPP contracts, real estate and
other disposable assets will be transferred to PSALM as part of our
restructuring and privatization, provided that the conditions precedent to
these transfers are fulfilled, as more fully described under "National Power
Corporation" and "Electric Power Industry Restructuring and Privatization" in
this prospectus. When all of our liabilities are transferred to PSALM, it will
become the obligor on the New Bonds issued in this exchange offer. We will
remain the obligor under the Old Bonds that were not tendered and accepted for
exchange in this exchange offer.
To the extent that Old Bonds are tendered and accepted in the exchange
offer, your ability to sell untendered, and tendered but unaccepted, Old Bonds
could be adversely affected. We will use our best efforts to have the New Bonds
rated by at least two of Moody's Investor Service, Standard & Poor's Ratings
Service and Fitch Ratings and to have the existing ratings on the Old Bonds
that remain outstanding withdrawn. There may be no trading market for the Old
Bonds.
We cannot assure you that an active public market for the New Bonds will
develop or as to the liquidity of any market that may develop for the New
Bonds, the ability of holders to sell the New Bonds, or the price at which
holders would be able to sell the New Bonds.
Accounting Treatment
For accounting purposes, we will recognize no gain or loss as a result of
the exchange offer. The expenses of the exchange offer will be amortized over
the term of the New Bonds.
189
DESCRIPTION OF THE NEW 2016 BONDS AND THE NEW 2006 BONDS
General
The New 2016 Bonds and New 2006 Bonds (collectively, the "First New Bonds")
will be issued in two separate series (each a "Series") pursuant to the First
Fiscal Agency Agreement. The following description briefly summarizes some of
the provisions of the First New Bonds, the guarantees of the First New Bonds by
the Republic (the "First New Guarantees") and the First Fiscal Agency
Agreement, the forms of which will be filed as exhibits to the Registration
Statement filed by us with the SEC on November 1, 2002 (No. 333-101021). This
description does not purport to be complete and is qualified in its entirety by
reference to the text of these documents. Except as otherwise specifically set
out below, all references to the "First New Bonds" apply to each Series of
First New Bonds separately, and all references to "First New Guarantees" apply
to the First New Guarantees relating to each Series of First New Bonds
separately.
Principal of the New 2006 Bonds will be payable on December 15, 2006.
Principal of the New 2016 Bonds will be payable on December 15, 2016. Interest
on the First New Bonds will be payable semi-annually in arrears in equal
installments on June 15 and December 15 of each year at the rate of 8.400% per
annum for the New 2016 Bonds and 7.875% per annum for the New 2006 Bonds.
Interest will be payable to holders of record at the close of business on the
preceding June 1 or December 1. Interest on the First New Bonds will be
computed on the basis of a 360-day year of twelve 30-day months. The principal
of and interest on the First New Bonds will be payable in U.S. dollars and will
be made available at the office of the JPMorgan Chase Bank as fiscal agent
under the First Fiscal Agency Agreement (the "First Fiscal Agent") in The City
of New York as set out under "--Global Bonds."
Except as described under "-- Redemption for Taxation Reasons" below, the
First New Bonds will not be redeemable prior to maturity at our option or at
the option of the registered holders thereof. No sinking fund is provided by us
for the amortization of the First New Bonds. For a description of our
obligations and the obligations of the Republic to pay First Additional Amounts
(as defined below), if any, with respect to the First New Bonds, see "--
Payment of Additional Amounts" below.
Guarantees
The Republic will irrevocably and unconditionally guarantee the due and
punctual payment of the principal of, interest on and First Additional Amounts,
if any, in respect of the First New Bonds, whether at maturity, on any interest
payment date, by declaration of acceleration, by call for redemption or
otherwise. The Republic will agree that its obligations under the First New
Guarantees will be as if it were principal obligor and not merely surety, and
will be enforceable irrespective of any invalidity, irregularity or
unenforceability of the First New Bonds or the First Fiscal Agency Agreement or
the absence of any action to enforce the same. The First New Guarantees can not
be discharged except by complete performance of the obligations contained in
the First New Bonds and First New Guarantees. Moreover, if at any time any
amount paid under a First New Bond is rescinded or must otherwise be restored,
the rights of the holders of the First New Bonds under the First New Guarantees
will be reinstated with respect to such payments as though such payments had
not been made. All payments under the First New Guarantees will be made in U.S.
dollars.
The Republic's obligations under the First New Guarantees are irrevocable
and unconditional. Without limiting the generality of the foregoing, such
obligations will not be affected by (i) any event or circumstance affecting us
or any of our Subsidiaries (as defined below) including, without limitation, as
a result of any privatization (including any sale of all or part of the
Republic's ownership or other interests in us), restructuring, sale of assets,
business combination or similar transaction affecting us or any of our
Subsidiaries or (ii) the transfer to, and assumption by PSALM of NPC's
obligations under the First New Bonds.
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Nature of Obligations
The First New Bonds will constitute our direct, unconditional, unsecured and
general obligation and subject to the discussion below of Article 2244(14) of
the Civil Code of the Philippine, rank pari passu in priority of payment with
all of our other unsecured and unsubordinated External Indebtedness (as defined
herein).
The payment obligations of the Republic under the First New Guarantees will
constitute direct, unconditional, unsecured and general obligations of the
Republic and the full faith and credit of the Republic has been pledged for the
performance thereof. Subject to the discussion below of Article 2244(14) of the
Civil Code of the Philippines, the First New Guarantees will rank pari passu in
priority of payment with all other unsecured and unsubordinated External
Indebtedness of the Republic.
"Indebtedness" means any indebtedness for money borrowed or any guarantee of
indebtedness for money borrowed.
"External Indebtedness" means Indebtedness which is denominated or payable
by its terms in, or at the option of the holder thereof payable in, a currency
or currencies other than the lawful currency of the Republic.
Under Philippine law, in the event of insolvency or liquidation of a
borrower, unsecured debt of the borrower (including guarantees of debt) which
is evidenced by a public instrument as provided in Article 2244(14) of the
Civil Code of the Philippines ranks ahead of unsecured debt of the borrower
which is not so evidenced. Under Philippine law, debt becomes evidenced by a
public instrument when it has been acknowledged before a notary or any person
authorized to administer oaths in the Philippines. Debt of ours that is
evidenced by a public instrument will rank ahead of the First New Bonds in the
event we are unable to service our debt obligations.
The Republic is of the view that debt of the Republic is not subject to the
preferences granted under Article 2244(14) or cannot be evidenced by a public
instrument without the cooperation of the Republic. This matter has never been
addressed by Philippine courts, however, and it is therefore uncertain whether
a document evidencing peso or non-peso denominated debt (including External
Indebtedness) of the Republic, notarized without the knowledge or consent of
the Republic, would be considered a public instrument. If such debt were
considered evidenced by a public instrument, it would then rank ahead of the
First New Guarantees in the event the Republic is unable to service its debt
obligations.
In connection with the issuance of the First New Bonds, we will represent
that we have not in respect of any Indebtedness prepared, executed or filed any
public instrument as provided in Article 2244(14) of the Civil Code of the
Philippines, or consented to or assisted in the preparation or filing of any
such public instrument.
The Republic, in connection with the issuance of the First New Bonds, will
represent that it has not in respect of any External Indebtedness prepared,
executed or filed any public instrument as provided in Article 2244(14) of the
Civil Code of the Philippines, or consented to or assisted in the preparation
or filing of any such public instrument.
Negative Pledge of the Republic and NPC
So long as any of the First New Bonds remain outstanding, we will not create
or permit to subsist, and we will procure that none of our Subsidiaries create
or permit to subsist, any mortgage, deed of trust, charge, pledge, lien or
other form of encumbrance or security interest (a "Security Interest") upon the
whole or any part of their respective undertakings, assets or revenues, present
or future, to secure any External Indebtedness, unless all of our obligations
under the First New Bonds are secured equally and ratably therewith.
Notwithstanding the above, we may create or permit to subsist any Security
Interest (i) upon any property or asset at the time of purchase, improvement,
construction, development or redevelopment thereof solely as security for the
payment of the purchase, improvement, construction, development or
redevelopment thereof solely as security for the payment of the purchase,
improvement, construction, development or redevelopment costs of such property
or asset, (ii) in existence on December 10, 1996, (iii) existing on any
property or asset at the time of its acquisition or arising after such
acquisition pursuant to contractual commitments entered into prior
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to and not in contemplation of such acquisition, (iv) arising out of the
extension, renewal or replacement of any External Indebtedness that is
permitted to be subject to a Security Interest pursuant to any of the foregoing
clauses, provided, however, that the principal amount of the External
Indebtedness so secured, as at the date on which such External Indebtedness was
originally incurred, is not increased, (v) arising in the ordinary course of
its business activities in connection with a banking transaction which secures
External Indebtedness maturing not more than one year after the date on which
it was incurred except for any extension, renewal or replacement of such
External Indebtedness, (vi) which (A) arises pursuant to an attachment,
distraint or similar legal process arising in connection with court proceedings
so long as the execution or other enforcement thereof is effectively stayed and
the claims secured thereby are being contested in good faith by appropriate
proceedings or (B) secures the reimbursement obligation under any bond given in
connection with the release of property from any Security Interest referred to
in (A) above, provided that in each of (A) and (B) such Security Interest is
released or discharged within one year of its imposition or (vii) arising by
operation of law, provided that any such Security Interest created by operation
of law is not created by or at our direction or at the direction of any of our
Subsidiaries for the purposes of securing any External Indebtedness.
So long as any of the First New Bonds remain outstanding, the Republic will
not create or permit to subsist any mortgage, deed of trust, charge, pledge,
lien or other encumbrance or preferential arrangement which has the practical
effect of constituting a security interest whether in effect on December 10,
1996 or thereafter ("First Lien") upon the whole or any part of its assets or
revenues to secure any External Public Indebtedness, unless the Republic shall
procure that all amounts payable under the First New Guarantees are secured
equally and ratably.
Notwithstanding the above, the Republic may create or permit the creation of
any First Lien (i) upon any property or asset (or any interest therein) at the
time of purchase, improvement, construction, development or redevelopment
thereof solely as security for the payment of the purchase, improvement,
construction, development or redevelopment costs of such property or assets,
(ii) securing Refinanced External Public Indebtedness, (iii) arising in the
ordinary course of banking transactions to secure External Public Indebtedness
maturing not more than one year after the date on which such External Public
Indebtedness was incurred, (iv) existing on any property or asset at the time
of its acquisition or contemplation of such acquisition, (v) any First Lien
arising out of the extension, renewal or replacement of any External Public
Indebtedness that is permitted to be subject to a First Lien pursuant to any of
the foregoing clauses (i), (ii) or (iv), provided, however, that the principal
amount of the External Public Indebtedness so secured is not increased, (vi)
which (A) arises pursuant to an attachment, distraint or similar legal process
arising in connection with court proceedings so long as the execution or other
enforcement thereof is effectively stayed and the claims secured thereby are
being contested in good faith by appropriate proceedings or (B) secures the
reimbursement obligation under any bond given in connection with the release of
property from any First Lien referred to in (A) above, provided that in each of
(A) and (B) such Lien is released or discharged within one year of its
imposition or (vii) arising by operation of law, provided that any such First
Lien is not created or permitted to be created by the Republic for the purposes
of securing any External Public Indebtedness.
The international reserves of Bangko Sentral represent substantially all of
the official gross international reserves of the Republic. See "Foreign Trade,
Foreign Investment and Balance of Payments -- International Reserves". Because
Bangko Sentral is an independent entity, the Republic and Bangko Sentral are of
the view that international reserves owned by Bangko Sentral are not subject to
the negative pledge covenant in the First New Guarantees and accordingly that
Bangko Sentral could in the future incur External Indebtedness secured by such
reserves without securing amounts payable under the First New Guarantees.
Moreover, there is currently outstanding other External Indebtedness of the
Republic that has the benefit of a negative pledge covenant that expressly
includes the international reserves of the Republic (including the
international reserves of Bangko Sentral).
"External Public Indebtedness" means any External Indebtedness which is in
the form of, or represented by, bonds, debentures, notes or other similar
instruments or other securities and is, or is eligible to be, quoted, listed or
ordinarily purchased and sold on any stock exchange, automated trading system
or over-the-counter or other securities market.
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"Refinanced External Public Indebtedness" means the $130,760,000 Series A
Interest Reduction Bonds 2007 issued by the Republic on December 1, 1992, the
$626,616,000 Series B Interest Reduction Bonds Due 2008 issued by the Republic
on December 1, 1992, the $153,490,000 Series A Principal Collateralized
Interest Reduction Bonds Due 2018 issued by the Republic on December 1, 1992
and the $1,740,600,000 Series B Collateralized Interest Reduction Bonds Due
2017 issued by the Republic on December 1, 1992.
"Subsidiary" means any subsidiary (as defined below) engaged primarily in
the business of generating, transmitting or distributing electricity.
A "subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of shares of
capital stock or other interests (including partnership interests) entitled
(without regard to any contingency until the occurrence of such contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) us, (ii) us and one or more
of our subsidiaries or (iii) one or more our subsidiaries.
Governing Law
The First Fiscal Agency Agreement, the First New Bonds and the First New
Guarantees will be governed by and interpreted in accordance with the laws of
the State of New York without regard to any conflicts of laws principles
thereof that would require the application of the laws of a jurisdiction other
than the State of New York and except that all matters governing the
authorization, execution and delivery of the First New Bonds and the First
Fiscal Agency Agreement by us and the First New Guarantees and the First Fiscal
Agency Agreement by the Republic are governed by the laws of the Republic.
Jurisdiction, Consent to Service and Enforceability
We are a company organized with limited liability under the laws of the
Republic and the Republic of the Philippines is a foreign sovereign nation.
Consequently, it may be difficult for investors to realize upon judgments of
courts in the United States against us or the Republic.
We and the Republic each irrevocably waive, to the fullest extent permitted
under applicable law, any immunity, including sovereign immunity, from
jurisdiction to which it might at any time be entitled in any action arising
out of or based on the First New Bonds, the First Fiscal Agency Agreement or
the First New Guarantees, which may be instituted by any holder of First New
Bonds in any federal court in the Southern District of New York, any state
court in the Borough of Manhattan, The City of New York or in any competent
court in the Philippines. We and the Republic each irrevocably waive immunity
from attachment of our respective assets or from execution of judgments in any
such action. To the extent required under Philippine law, the Republic's waiver
of immunity does not extend to any property or assets of the Republic that are
used by a diplomatic or consular mission of the Republic (except as may be
necessary to effect service of process) or property of a military character and
under the control of a military authority or defense agency or otherwise
dedicated to public or governmental use (as distinguished from patrimonial
property or property dedicated to commercial use). Neither we nor the Republic,
however, has waived its sovereign immunity in connection with any action
arising out of or based on United States federal or state securities laws.
We and the Republic each will appoint the Philippine Consul General in New
York, New York as our authorized agent upon whom process may be served in any
action arising out of or based on the First New Bonds, the First Fiscal Agency
Agreement or the First New Guarantees, which may be instituted in any federal
court in the Southern District of New York or any state court in the Borough of
Manhattan, The City of New York by any holder of First New Bonds, and we and
the Republic will irrevocably submit to the non-exclusive jurisdiction of any
such court in respect of any such action. Such appointments are irrevocable
until all amounts in respect of the principal and interest, and the First
Additional Amounts, if any, due or to become due on or in respect of all the
First New Bonds issuable under the First Fiscal Agency Agreement have been paid
by us or the Republic to the
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First Fiscal Agent or unless and until both we and the Republic shall have
appointed a successor as authorized agent and such successor shall have
accepted such appointment. We and the Republic each agree that we will at all
times maintain an authorized agent to receive such service, as provided above.
The Philippine Consul General in New York, New York, however, is not the
agent for service for actions arising out of or based on the United States
federal securities laws or the state securities laws, and neither ours nor the
Republic's waiver of immunity extends to such actions. Because neither we nor
the Republic has waived its sovereign immunity in connection with any action
relating to such claims, it will only be possible to obtain a United States
judgment against us or the Republic based on such laws if a court were to
determine that NPC or the Republic, as applicable, is not entitled under the
Foreign Sovereign Immunities Act of 1976 to sovereign immunity with respect to
such actions.
Although there is no statutory enforcement in the Republic of final
judgments obtained in the United States, such judgment would be conclusive and
binding upon each of NPC and the Republic and may be enforced through a
separate action to enforce such judgment in the courts of the Republic without
retrial or examination but subject to the procedural requirements relating to
enforcement and recognition of foreign judgments and provided that (1) the
court rendering such judgment had jurisdiction over the subject matter of the
action in accordance with its jurisdictional rules, (2) NPC or the Republic, as
the case may be, had notice of proceedings before the appropriate court, (3)
such judgment was not obtained by collusion or fraud, (4) such judgment was not
based on a clear mistake of fact or law, and (5) such judgment is not contrary
to the laws, public policy, good morals and customs of the Republic.
Fiscal Agent
The duties of the First Fiscal Agent will be governed by the First Fiscal
Agency Agreement. We and the Republic may maintain deposit accounts and conduct
other banking transactions in the ordinary course of business with the First
Fiscal Agent. The First Fiscal Agent is our agent and the Republic's agent and
is not a trustee for the holders of the First New Bonds and does not have the
same responsibilities or duties to act for such holders as would a trustee.
Substitution of the Issuer
PSALM may, without the consent of the holders of the First New Bonds, assume
the obligations of the Issuer under and in respect of the First New Bonds,
provided that:
(a) an amendment to the First Fiscal Agency Agreement is executed by
PSALM, the Republic and JPMorgan Chase Bank, as fiscal agent, in a form
which gives full effect to such assumption and which includes, without
limitation:
. a covenant by PSALM in favor of the holders of the First New Bonds
to be bound by the terms of the First Fiscal Agency Agreement as if
it had been named therein as the Issuer;
. a covenant by PSALM to indemnify each holder of the First New Bonds
for the costs or expenses relating to the substitution;
. provisions to the effect that the obligations of PSALM under the
First New Bonds and the amended First Fiscal Agency Agreement shall
be unconditionally and irrevocably guaranteed by the Republic on
the same basis as those of the Issuer under the First Fiscal Agency
Agreement; and
. an acknowledgement of the right of every holder of the First New
Bonds to receive a copy of the amended First Fiscal Agency
Agreement.
(b) all actions, conditions and things required to be taken, fulfilled
and done (including the obtaining of any necessary consents) to ensure that
the First New Bonds represent valid, binding and enforceable obligations of
PSALM and, in the case of the First New Guarantees, of the Republic, have
been taken, fulfilled and done and are in full force and effect;
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(c) PSALM shall have become a party to the amended First Fiscal Agency
Agreement, with any appropriate consequential amendments, as if it had been
an original party to the First Fiscal Agency Agreement;
(d) PSALM shall have delivered to the First Fiscal Agent an opinion of
US counsel of recognized standing in the United States and either an opinion
of the Department of Justice of the Philippines or an opinion of the General
Counsel of PSALM, each to the effect that:
. the amended First Fiscal Agency Agreement constitutes a valid,
binding and enforceable obligation of PSALM;
. the First New Bonds constitute valid, binding and enforceable
obligations of PSALM; and
. the First New Guarantees constitute valid, binding and enforceable
obligations of the Republic in respect of the principal of, interest on
and premium and First Additional Amounts, if any, payable by PSALM in
respect of the First New Bonds under the amended First Fiscal Agency
Agreement (subject to, in all of the foregoing clauses, customary
exceptions concerning creditors' rights and equitable principles); and
(e) such other documents and agreements shall have been executed as
would have been necessary if PSALM had been the issuer of the First New
Bonds in place of the Issuer.
Upon the assumption by PSALM of our obligations under and in respect of the
First New Bonds, we will be released from such obligations and, thereafter, all
references in the First New Bonds and the amended First Fiscal Agency Agreement
to National Power Corporation shall be deemed to be references to PSALM.
The amended First Fiscal Agency Agreement shall be deposited with and held
by the fiscal agent until all the obligations of PSALM under and in respect of
the First New Bonds have been discharged in full. Notice of the assumption by
PSALM of the Issuer's obligations under and in respect of the First New Bonds
shall promptly be given to the holders of the First New Bonds by the Issuer.
Further Issues
We may, without the consent of the holders of such First New Bonds, create
and issue additional securities with the same terms and conditions as such
First New Bonds (or that are the same in all respects except for the amount of
the first interest payment and for the interest paid on the First New Bonds
prior to the issuance of the additional securities). We may consolidate such
additional securities with the outstanding First New Bonds, to form a single
series. Any further securities forming a single series with outstanding First
New Bonds shall be constituted by an agreement supplemental to the First Fiscal
Agency Agreement.
We may offer additional securities with original issue discount ("OID") for
US federal income tax purposes as part of a further issue. Purchasers of
securities after the date of any further issue will not be able to
differentiate between securities sold as part of the further issue and
previously issued First New Bonds. If we were to issue additional securities
with OID, purchasers of the securities after such further issue may be required
to accrue OID (or greater amounts of OID than they would otherwise have
accrued) with respect to their securities. This may affect the price of
outstanding First New Bonds following a further issue. Prospective holders of
the First New Bonds are urged to consult their own advisors with respect to the
implications of any further decision we may make to issue additional securities
with OID.
Default Acceleration of Maturity
The occurrence and continuation of any of the following events will
constitute an event of default (an "Event of Default") under the First New
Bonds: (i) a default in any payment of the principal of or interest on any of
the First New Bonds and, in the event of a default in payment of interest, such
default shall not be cured by payment thereof within 30 days, (ii) we or the
Republic shall default in the performance of any other covenant in the First
New Bonds or the First New Guarantees, as applicable, and, if such default is
capable of remedy, such default shall continue for a period of 30 days after
written notice thereof shall have been given to us at the
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corporate trust office of the First Fiscal Agent in The City of New York by the
holder of any First New Bond, (iii) the principal of any other External
Indebtedness of us or any of our Subsidiaries having an aggregate principal
amount equal to or in excess of $10,000,000 or its equivalent (determined on
the basis of the middle spot rate for the relevant currency against the U.S.
dollar as quoted by Citibank, N.A. on the date of determination) becomes (or,
as a result of a payment default, becomes capable of being declared) due and
payable prior to its stated maturity otherwise than at our option, or any such
External Indebtedness is not paid when due, or as the case may be, within any
applicable grace period, (iv) any event or condition shall occur which results
in the acceleration of the maturity (other than by optional or mandatory
prepayment or redemption) of any External Public Indebtedness of the Republic
or of the central monetary authority of the Republic (as of the date of this
Prospectus, the Bangko Sentral) having an aggregate principal amount equal to
or in excess of $10,000,000 or its equivalent (determined on the basis of the
middle spot rate for the relevant currency against the U.S. dollar as quoted by
Citibank, N.A. on the date of determination), (v) any default shall occur in
the payment of principal of, or premium or prepayment charge (if any) or
interest on, any External Public Indebtedness of the Republic or of the central
monetary authority of the Republic (as of the date of this Prospectus, the
Bangko Sentral) having an aggregate principal amount equal to or in excess of
$10,000,000 or its equivalent (determined on the basis of the middle spot rate
for the relevant currency against the U.S. dollar as quoted by Citibank, N.A.
on the date of determination), when and as the same shall become due and
payable, if such default shall continue for more than the period of grace, if
any, originally applicable thereto, (vi) we or any of our Subsidiaries (A) is
(or is deemed by law or a court to be) insolvent or bankrupt or generally
unable to pay its debts, (B) stops, suspends or threatens to stop or suspend
payment of all or a material part of its debts or (C) proposes or makes a
general rescheduling of its debts, (vii) a general moratorium is declared in
respect of or affecting all or any material part of our debts or the debts of
any of our Subsidiaries, (viii) an order is made or an effective resolution
passed by the competent authority for the winding-up or dissolution of us or
any of our Subsidiaries, or we cease or takes steps to cease all or
substantially all of our business or operations (other than in any such case
through the disposal of our assets to our subsidiaries or pursuant to a
reconstruction, amalgamation, reorganization, merger or consolidation, or
transfer of assets effected in accordance with any privatization plan or
program), except for the purpose of and followed by a reconstruction,
amalgamation, merger or consolidation, or transfer of assets (A) with the
written consent of the holders of a majority of the principal amount of the
First New Bonds at the time outstanding, or (B) in the case of a Subsidiary,
whereby the undertaking and assets of the Subsidiary are transferred to or
otherwise vested in us or another of our subsidiaries, (ix) it is unlawful for
us or the Republic to perform or comply with any one or more of our respective
obligations under any of the First New Bonds, the First New Guarantees or the
First Fiscal Agency Agreement or our obligations or the obligations of the
Republic under the First New Bonds or the First Fiscal Agency Agreement cease
to be binding on, or enforceable against, us or the Republic, as applicable, or
we or the Republic contend that respective obligations under the First New
Bonds, the First New Guarantees or the First Fiscal Agency Agreement, as
applicable, are not valid, binding on or enforceable against us, (x) the First
New Guarantees are not (or are claimed by the Republic not to be) in full force
and effect, (xi) the Republic declares a general moratorium with respect to the
repayment of the External Indebtedness of either the Republic or of the central
monetary authority of the Republic (as of the date of the Prospectus, the
Bangko Sentral) or (xii) the Republic shall cease to be a member of the
International Monetary Fund ("IMF") or shall cease to be eligible to use the
general resources of the IMF; provided that in the case of paragraphs (ii),
(vii) and (ix) and, in the case of the Subsidiaries, paragraphs (vi) and
(viii), such event is materially prejudicial to the interests of the holders of
the First New Bonds. In the case of any Event of Default described in clause
(ii) holders of not less than 25% in aggregate principal amount of the First
New Bonds then outstanding, by notice to us, the Republic and the First Fiscal
Agent as provided in the First New Bonds, may declare the principal of all the
First New Bonds and the interest accrued thereon, to be due and payable
immediately and in the case of any other Event of Default, any holder of a
First New Bond then outstanding, by notice to us, the Republic and the First
Fiscal Agent as provided in the First New Bonds, may declare the principal of
such First New Bond and the interest accrued thereon, to be due and payable
immediately. Notwithstanding the foregoing, the First New Bonds shall not be
due and payable immediately if, prior to the time when we and the Republic
receive such notice, all Events of Default provided for in the First New Bonds
and the First Fiscal Agency Agreement shall have been cured. No periodic
evidence is required to be furnished by us as to the absence of defaults.
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It should be noted that the First Fiscal Agency Agreement does not provide
for notification to the holders of the First New Bonds of an Event of Default
or for the right of a holder thereof to examine the First New Bond register.
Modification
We may modify any of the terms or provisions contained in the First New
Bonds in any way with the written consent of the holders of not less than a
majority of the principal amount of the First New Bonds at the time
outstanding, provided that if any such modification would (i) change the stated
maturity of the principal of, or any installment of interest on, any First New
Bond, (ii) reduce the principal of any First New Bond, or the portion of such
principal amount which is payable upon acceleration of the maturity of such
First New Bond or the interest rate thereon, (iii) change the coin or currency
in which payment of the principal of or interest on any First New Bond is
payable, (iv) change our obligation to pay First Additional Amounts or (v)
reduce the aforesaid percentage needed for authorization of such modification,
the consent of the holders of all outstanding First New Bonds is required.
Payment of Additional Amounts
All payments of principal and interest in respect of the First New Bonds and
the First New Guarantees shall be made free and clear of, and without
withholding and deduction for, or on account of, any present or future taxes,
levies, imposts, duties, assessments or other charges of whatever nature,
imposed, levied, collected, withheld or assessed by or within the Republic or
any department, agency or other political subdivision or any taxing authority
therein or thereof ("Philippine Taxes"), unless such withholding or deduction
is required by law or by the administrative interpretation thereof. See
"Taxation -- Philippine Taxation." In the event Philippine Taxes are deducted
or withheld from any of the aforementioned payments, we or, as the case may be,
the Republic, will pay such additional amounts ("First Additional Amounts") as
will result in receipt by the holders of the First New Bonds of such amounts as
would have been received by them had no such deduction or withholding been
required, except that no such First Additional Amounts shall be payable in
respect of any First New Bond, or First New Guarantees of any First New Bond,
as applicable (a) held by, or on behalf of, a person who is subject to such
Philippine Taxes in respect of such First New Bonds by reason of such person
having some connection with the Republic other than the mere holding of the
First New Bonds or the receipt of payments with respect thereto, or (b)
presented for payment more than thirty days after the Relevant Date, except to
the extent that the holder thereof would have been entitled to such First
Additional Amounts on presenting such First New Bond for payment on the last of
such thirty days. As used herein, "Relevant Date" means the later of the due
date and, if such payment has not been duly made to the First Fiscal Agent on
or before such date, such later date by which such payment has been so made and
notice thereof given. Any reference to "principal" and/or "interest" in this
Prospectus with respect to the First New Bonds and the First New Guarantees
shall be deemed to include any First Additional Amounts which may be payable
under the First New Bonds.
Redemption for Taxation Reasons
If (i) as a result of any change in or amendment to the laws (or any
regulations or rulings promulgated thereunder) of the Republic or of any
political subdivision or taxing authority therein or thereof affecting
taxation, or any change in official position regarding application or
interpretation of such laws, regulations or rules (including a holding by a
court of competent jurisdiction), which change or amendment became or becomes
effective on or after December 10, 1996, we have or will become obliged to pay
First Additional Amounts (in excess of the additional amounts we would be
obliged to pay if amounts were subject to withholding or deduction at a rate
equal to 25%), and (ii) such circumstances are evidenced by the delivery to the
holders of the First New Bonds of (A) a certificate signed by two of our
officers stating that the obligation to pay the holders of the First New Bonds
such First Additional Amounts cannot be avoided by us taking reasonable
measures available to us and (B) an opinion of the Department of Justice of the
Republic, to the effect that we have or will become obliged to pay such First
Additional Amounts as a result of such change or amendment, which certificate
and opinion shall constitute sufficient evidence of such obligation and shall
be conclusive and binding on the
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holders of the First New Bonds, the First New Bonds will be subject to
redemption by us in whole, but not in part, at any time on giving not less than
30 nor more than 60 days' irrevocable notice to the holders of the First New
Bonds, in the manner set out in the next paragraph, at a redemption price equal
to the principal amount thereof together with accrued and unpaid interest
(including such First Additional Amounts) to the date fixed for redemption;
provided, however, that (x) no such notice of redemption may be given earlier
than 90 days prior to the earliest date on which we would be obliged to pay
such First Additional Amounts were a payment in respect of the First New Bonds
then due, and (y) at the time such notice of redemption is given, such
obligation to pay such First Additional Amounts remains in effect.
Notwithstanding the foregoing, we shall not have the right to redeem the First
New Bonds unless the obligation to pay First Additional Amounts cannot be
avoided by our taking reasonable measures available to us.
Notice to the holders of First New Bonds required by the preceding paragraph
of any such redemption shall be effected by publication in a daily newspaper in
the City of New York.
All First New Bonds so redeemed will be immediately cancelled and may not be
re-issued or resold.
Global Bonds
The First New Bonds will be in the form of one or more fully registered
global securities (each, a "First New Global Bond") which will be deposited
with, or on behalf of, The Depository Trust Company, New York, New York
("DTC"). A First New Global Bond will be registered in the name of DTC or its
nominee. Except as set out below, a First New Global Bond may be transferred,
in whole and not in part, only to DTC or its nominee.
Ownership of beneficial interests in a First New Global Bond will be limited
to participants or persons that may hold interests through participants.
Ownership of beneficial interests in a First New Global Bond will be shown on,
and the transfer of that ownership may be effected only through, records
maintained by DTC or its nominee (with respect to interests of participants)
and on the records of participants (with respect to interests of persons other
than participants.) The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to own, transfer or pledge
beneficial interests in a First New Global Bond.
Any payment of principal or interest due on the First New Bonds on any
interest payment date or at maturity will be made available by us to the First
Fiscal Agent on such date. As soon as possible thereafter, the First Fiscal
Agent will make such payments to DTC or its nominee, as the case may be, as the
registered owner of the First New Global Bond representing such First New Bonds
in accordance with arrangements between the First Fiscal Agent and DTC. We
expect that DTC or its nominee, upon receipt of any payment of principal or
interest, will credit immediately participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of the First New Global Bond as shown on the records of DTC or its
nominee. We also expect that payments by participants to owners of beneficial
interests in the First New Global Bond held through such participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name," and will be the responsibility of such participants. Neither
we nor the First Fiscal Agent has any responsibility or liability for any
aspect of the records relating to payments made on account of beneficial
ownership interests of a First New Global Bond or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
So long as DTC or its nominee is the registered owner of a First New Global
Bond, DTC or its nominee, as the case may be, will be considered the sole owner
and holder of the First New Bonds represented by such First New Global Bond for
all purposes of the First New Bonds. Except as provided below, owners of
beneficial interests of a First New Global Bond will not be entitled to have
the First New Bonds represented by such First New Global Bond registered in
their names, will not receive or be entitled to receive physical delivery of
First New Bonds in definitive form upon exchange or otherwise and will not be
considered the owners or holders of any First New Bonds represented by such
First New Global Bond. Accordingly, such person owning a beneficial interest in
First New Global Bond must rely on the procedures of DTC and, if such person is
not a participant, on the procedures of the participant through which such
person owns its interest, to exercise any rights of a holder of
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First New Bonds. We understand that under existing industry practice, in the
event that an owner of a beneficial interest in a First New Global Bond desires
to take any action DTC, or its nominee, as the holder of such First New Global
Bond, is entitled to take, DTC would authorize the participants to take such
action, and that the participants would authorize beneficial owners owning
through such participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
A First New Global Bond may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or any other nominee of DTC or by
DTC or any such nominee to a successor of DTC or a nominee of such successor.
First New Bonds represented by a First New Global Bond are exchangeable for
First New Bonds in definitive form in denominations of $1,000 and integral
multiples thereof (i) if DTC notifies us that it is unwilling or unable to
continue as depository for such First New Global Bond or if at any time DTC
ceases to be a clearing agency registered under the United States Securities
Exchange Act of 1934 (the "Exchange Act"), at a time when it is required to be
so registered, and a replacement depository is not appointed, (ii) we in our
discretion at any time determine not to have all of the related First New Bonds
represented by such First New Global Bond and (iii) if an event of default, or
an event which with notice, lapse of time or both would be an event of default,
entitling the holders of the related First New Bonds to accelerate the maturity
thereof has occurred and is continuing. Any First New Bond that is exchangeable
pursuant to the preceding sentence is exchangeable for First New Bonds in
definitive form registered in such names as DTC shall direct. First New Bonds
in definitive form may be presented for registration of transfer or exchange at
the office of the First Fiscal Agent in The City of New York, and principal
thereof and interest thereon will be payable at such office of the First Fiscal
Agent, provided that interest thereon may be paid by check mailed to the
registered holders of the First New Bonds. Subject to the foregoing, a First
New Global Bond is not exchangeable, except for a First New Global Bond or
First New Global Bonds of the same aggregate denominations to be registered in
the name of DTC or its nominee.
DTC is a limited-purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities of its participants and to facilitate
the clearance and settlement of securities transactions among its participants
in such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers
(including the Dealer Manager), banks, trust companies, clearing corporations
and certain other organizations, some of whom (and/or their representatives)
own DTC. Access to DTC's book-entry system is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly. DTC
agrees with and represents to its participants that it will administer its
book-entry system in accordance with its rules and by-laws and requirements of
law.
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DESCRIPTION OF THE NEW 2028 BONDS
General
The New 2028 Bonds will be issued pursuant to the Second Fiscal Agency
Agreement. The following description briefly summarizes some of the provisions
of the New 2028 Bonds, the guarantees of the New 2028 Bonds by the Republic
(the "New 2028 Guarantees") and the Second Fiscal Agency Agreement, the forms
of which will be filed as exhibits of the Registration Statement filed by us
with the SEC on November 1, 2002 (No. 333-101021). This description does not
purport to be complete and is qualified in its entirety by reference to the
text of those documents.
Principal of the New 2028 Bonds will be payable on May 15, 2028. Interest on
the New 2028 Bonds will be payable semi-annually in arrears in equal
installments on May 15 and November 15 of each year at the rate of 9.625% per
annum. Interest will be payable to holders of record at the close of business
on the preceding May 1 or November 1, respectively. Interest on the New 2028
Bonds will be computed on the basis of a 360-day year of twelve 30-day months.
The principal of and interest on the New 2028 Bonds will be payable in lawful
money of the United States of America and will be made available at the office
of JPMorgan Chase Bank, as fiscal agent under the Second Fiscal Agency
Agreement (the "Second Fiscal Agent") in The City of New York as set out below.
Except as described below, the New 2028 Bonds will not be redeemable prior
to maturity at our option or at the option of the registered holders. No
sinking fund will be provided by us for the amortization of the New 2028 Bonds.
For a description of our obligations and the obligations of the Republic to pay
Second Additional Amounts (as defined below), if any, with respect to the New
2028 Bonds, see "-- Payment of Additional Amounts".
Guarantees
The Republic will irrevocably and unconditionally guarantee the due and
punctual payment of the principal of, interest on and premium and Second
Additional Amounts, if any, in respect of the New 2028 Bonds, whether at
maturity, on any interest payment date, by declaration of acceleration, by call
for redemption or otherwise. The Republic agrees that its obligations under the
New 2028 Guarantees of the New 2028 Bonds will be as if it were principal
obligor and not merely surety, and will be enforceable irrespective of any
invalidity, irregularity or unenforceability of the New 2028 Bonds or the
Second Fiscal Agency Agreement or the absence of any action to enforce the
same. The New 2028 Guarantees of the New 2028 Bonds will not be discharged
except by complete performance of the obligations contained in the New 2028
Bonds and the New 2028 Guarantees. Moreover, if at any time any amount paid
under any New 2028 Bonds is rescinded or must otherwise be restored, the rights
of the holders of the New 2028 Bonds under the New 2028 Guarantees will be
reinstated with respect to such payments as though such payments had not been
made.
The Republic's obligations under the New 2028 Guarantees will be irrevocable
and unconditional. Without limiting the generality of the foregoing, such
obligations will not be affected by (i) any event or circumstance affecting us
or any of our Subsidiaries (as defined below) including, without limitation, as
a result of any privatization (including any sale of all or part of the
Republic's ownership or other interests in us), restructuring, sale of assets,
business combination or similar transaction affecting us or any of our
Subsidiaries or (ii) the transfer to, and assumption by, PSALM of NPC's
obligations under the New 2028 Bonds.
Nature of Obligations
The New 2028 Bonds will constitute our direct, unconditional, unsecured and
general obligations. Subject to the discussion below of Article 2244(14) of the
Civil Code of the Philippines, the New 2028 Bonds will rank pari passu in
priority of payment with all of our other unsecured and unsubordinated External
Indebtedness (as defined herein).
The payment obligations of the Republic under the New 2028 Guarantees will
constitute direct, unconditional, unsecured and general obligations of the
Republic and the full faith and credit of the Republic is
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pledged for the performance thereof. Subject to the discussion below of Article
2244(14) of the Civil Code of the Philippines, the New 2028 Guarantees rank
pari passu in priority of payment with all other unsecured and unsubordinated
External Indebtedness of the Republic.
"Indebtedness" means any indebtedness for money borrowed or any guarantee of
indebtedness for money borrowed.
"External Indebtedness" means Indebtedness which is denominated or payable
by its terms in, or at the option of the holder thereof payable in, a currency
or currencies other than the lawful currency of the Republic.
Under Philippine law, in the event of insolvency or liquidation of a
borrower, unsecured debt of the borrower (including guarantees of debt) which
is evidenced by a public instrument as provided in Article 2244(14) of the
Civil Code of the Philippines ranks ahead of unsecured debt of the borrower
which is not so evidenced. Under Philippine law, debt becomes evidenced by a
public instrument when it has been acknowledged before a notary or any person
authorized to administer oaths in the Philippines. Our debt evidenced by a
public instrument will rank ahead of the New 2028 Bonds in the event we are
unable to service our debt obligations.
The Republic is of the view that debt of the Republic is not subject to the
preferences granted under Article 2244(14) or cannot be evidenced by a public
instrument without the cooperation of the Republic. This matter has never been
addressed by Philippine courts, however, and it is therefore uncertain whether
a document evidencing peso or non-peso denominated debt (including External
Indebtedness) of the Republic, notarized without the knowledge or consent of
the Republic, would be considered a public instrument. If such debt were
considered evidenced by a public instrument, it would then rank ahead of the
New 2028 Guarantees in the event the Republic is unable to service its debt
obligations.
In connection with the issuance of the New 2028 Bonds, we will represent
that we have not in respect of any Indebtedness prepared, executed or filed any
public instrument as provided in Article 2244(14) of the Civil Code of the
Philippines, or consented to or assisted in the preparation or filing of any
such public instrument. We will also agree in the New 2028 Bonds that we will
not create any preference or priority in respect of any External Indebtedness
(as defined below) pursuant to Article 2244(14) of the Civil Code of the
Philippines unless amounts payable under the New 2028 Bonds are granted
preference or priority equally and ratably therewith.
The Republic, in connection with the issuance of the New 2028 Bonds, will
represent that it has not in respect of any External Indebtedness prepared,
executed or filed any public instrument as provided in Article 2244(14) of the
Civil Code of the Philippines, or consented to or assisted in the preparation
or filing of any such public instrument. The Republic will also agree in the
New 2028 Guarantees related to the New 2028 Bonds that it will not create any
preference or priority in respect of any External Public Indebtedness (as
defined below) pursuant to Article 2244(14) of the Civil Code of the
Philippines unless amounts payable under the New 2028 Bonds are granted
preference or priority equally and ratably therewith.
Negative Pledge of the Republic and Us
We will undertake that so long as the New 2028 Bonds remain outstanding, we
will not create or permit to subsist, and will procure that none of our
Subsidiaries create or permit to subsist (a) any mortgage, deed of trust,
charge, pledge, lien or other form of encumbrance or security interest (a
"Security Interest") upon the whole or any part of our respective undertakings,
assets or revenues, present or future, to secure any External Indebtedness,
unless all of our obligations under the outstanding New 2028 Bonds are secured
equally and ratably therewith or (b) any preference or priority in respect of
any other External Indebtedness of ours pursuant to Article 2244(14) of the
Civil Code of the Republic, or any successor Philippine law providing for
preferences or priority in respect of notarized External Indebtedness, unless
amounts payable under the outstanding New 2028 Bonds are granted preference or
priority equally and ratably therewith.
Notwithstanding the above, we may create or permit to subsist any Security
Interest (i) upon any property or asset at the time of purchase, improvement,
construction, development or redevelopment thereof solely as security for the
payment of the purchase, improvement, construction, development or
redevelopment costs of
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such property or asset, (ii) any Security Interest in existence on May 1, 1998,
(iii) existing on any property or asset at the time of its acquisition or
arising after such acquisition pursuant to contractual commitments entered into
prior to and not in contemplation of such acquisition, (iv) arising out of the
extension, renewal or replacement of any External Indebtedness that is
permitted to be subject to a Security Interest pursuant to any of the foregoing
clauses, provided, however, that the principal amount of the External
Indebtedness so secured, as at the date of which such External Indebtedness was
originally incurred, is not increased, (v) arising in the ordinary course of
our business activities in connection with a banking transaction which secures
External Indebtedness maturing not more than one year after the date on which
it was incurred except for any extension, renewal or replacement of such
External Indebtedness, (vi) which (A) arises pursuant to an attachment,
distraint or similar legal process arising in connection with court proceedings
so long as the execution or other enforcement thereof is effectively stayed and
the claims secured thereby are being contested in good faith by appropriate
proceedings or (B) secured the reimbursement obligation under any bond given in
connection with the release of property from any Security Interest referred to
in (A) above, provided that in each of (A) and (B) such Security Interest is
released or discharged within one year of its imposition or (vii) arising by
operation of law, provided that any such Security Interest created by operation
of law is not created by or at our direction or at the direction of any of our
Subsidiaries for the purpose of security any External Indebtedness.
The Republic will undertake that so long as the New 2028 Bonds remain
outstanding, it will not create or permit to subsist (a) any mortgage, deed of
trust, charge, pledge, lien or other encumbrance or preferential arrangement
which has the practical effect of constituting a security interest whether in
effect on the date of the prospectus pursuant to which the New 2028 Bonds were
offered or thereafter ("Second Lien") upon the whole or any part of its assets
or revenues to secure any External Public Indebtedness, unless the Republic
shall procure that all amounts payable under the New 2028 Guarantees relating
to the New 2028 Bonds are secured equally and ratably or (b) any preference or
priority in respect of any other External Public Indebtedness of the Republic
pursuant to Article 2244(14) of the Civil Code of the Republic, or any
successor Philippine law providing for preferences or priority in respect of
notarized External Public Indebtedness, unless amounts payable under the New
2028 Guarantees relating to the New 2028 Bonds are granted preference or
priority equally and ratably therewith.
Notwithstanding the above, the Republic may create or permit the creation of
any Second Lien (i) upon any property or asset (or any interest therein) at the
time of purchase, improvement, construction, development or redevelopment
thereof solely as security for the payment of the purchase, improvement,
construction, development or redevelopment costs of such property or assets,
(ii) securing Refinanced External Public Indebtedness, (iii) arising in the
ordinary course of banking transactions to secure External Public Indebtedness
maturing not more than one year after the date on which such External Public
Indebtedness was incurred, (iv) existing on any property or asset at the time
of its acquisition or arising after such acquisition pursuant to contractual
commitments entered into prior to and not in contemplation of such acquisition,
(v) any Second Lien arising out of the extension, renewal or replacement of any
External Public Indebtedness that is permitted to be subject to a Second Lien
pursuant to any of the foregoing clauses (i), (ii) or (iv), provided, however,
that the principal amount of the External Public Indebtedness so secured is not
increased, (vi) which (A) arises pursuant to an attachment, distraint or
similar legal processing arising in connection with court proceedings so long
as the execution or other enforcement thereof is effectively stayed and the
claims secured thereby are being contested in good faith by appropriate
proceedings or (B) secures the reimbursement obligation under any bond given in
connection with the release of property from any Second Lien referred to in (A)
above, provided that in each of (A) and (B) such Second Lien is released or
discharged within one year of its imposition or (vii) arising by operation of
law, provided that any such Second Lien is not created or permitted to be
created by the Republic for the purpose of securing any External Public
Indebtedness.
The international reserves of Bangko Sentral represent substantially all of
the official gross international reserves of the Republic. See "Foreign Trade,
Balance of Payments and Foreign Investment -- International Reserves." Because
Bangko Sentral is an independent entity, the Republic and Bangko Sentral are of
the view that international reserves owned by Bangko Sentral are not subject to
the negative pledge covenant in the New 2028 Guarantees and accordingly that
Bangko Sentral could in the future incur External Public Indebtedness secured
by such reserves without securing amounts payable under the New 2028
Guarantees. Moreover, there is
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currently outstanding other External Indebtedness of the Republic that has the
benefit of a negative pledge covenant that expressly includes the international
reserves of the Republic (including the international reserves of Bangko
Sentral).
"External Public Indebtedness" means any External Indebtedness which is in
the form of, or represented by, bonds, debentures, notes or other similar
instruments or other securities and is, or is eligible to be, quoted, listed or
ordinarily purchased and sold on any stock exchange, automated trading system
or over-the-counter or other securities market.
"Refinanced External Public Indebtedness" means the $130,760,000 Series A
Interest Reduction Bonds 2007 issued by the Republic on December 1, 1992, the
$626,616,000 Series B Interest Reduction Bonds Due 2008 issued by the Republic
on December 1, 1992, the $153,490,000 Series A Principal Collateralized
Interest Reduction Bonds Due 2018 issued by the Republic on December 1, 1992
and the $1,740,600,000 Series B Collateralized Interest Reduction Bonds Due
2017 issued by the Republic on December 1, 1992.
"Subsidiary" means any subsidiary (as defined below) engaged primarily in
the business of generating, transmitting or distributing electricity.
"subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of shares of
capital stock or other interests (including partnership interests) entitled
without regard to any contingency until the occurrence of such contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) us (ii) us and one or more
of our subsidiaries or (iii) one or more of our subsidiaries.
Governing Law
The Second Fiscal Agency Agreement, the New 2028 Bonds and the New 2028
Guarantees will be governed by and interpreted in accordance with the laws of
the State of New York without regard to any conflicts of laws principles
thereof that would require the application of the laws of a jurisdiction other
than the State of New York, and except that all matters governing the
authorization, execution and delivery of the New 2028 Bonds and the Second
Fiscal Agency Agreement by us and the New 2028 Guarantees and the Second Fiscal
Agency Agreement by the Republic are governed by the laws of the Republic.
Jurisdiction, Consent to Service and Enforceability
We are a company organized with limited liability under the laws of the
Republic and the Republic of the Philippines is a foreign sovereign nation.
Consequently, it may be difficult for investors to realize upon judgments of
courts in the United States against us or the Republic.
Both we and the Republic will irrevocably waive, to the fullest extent
permitted under applicable law, any immunity, including sovereign immunity,
from jurisdiction to which it might at any time be entitled in any action
arising out of or based on the New 2028 Bonds, the Second Fiscal Agency
Agreement or the New 2028 Guarantees of the New 2028 Bonds, which may be
instituted by any holder of the New 2028 Bonds in any federal court in the
Southern District of New York, any state court in the Borough of Manhattan, The
City of New York or in any competent court in the Philippines. Both we and the
Republic have irrevocably waived immunity from attachment of its assets or from
execution of judgments in any such action. To the extent required under
Philippine law, the Republic's waiver of immunity does not extend to any
property or assets of the Republic that are used by a diplomatic or consular
mission of the Republic (except as may be necessary to effect service of
process) or property of a military character and under the control of a
military authority or defense agency or otherwise dedicated to public or
governmental use (as distinguished from patrimonial property or property
dedicated to commercial use). Neither the Republic nor we, however, will waive
our sovereign immunity in connection with any action arising out of or based on
United States federal or state securities laws.
We and the Republic will each appoint the Philippine Consul General in New
York, New York as its authorized agent upon whom process may be served in any
action arising out of or based on the New 2028 Bonds, the Second Fiscal Agency
Agreement or the New 2028 Guarantees of the New 2028 Bonds, which may
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be instituted in any federal court in the Southern District of New York or any
state court in the Borough of Manhattan, The City of New York by any holder of
the New 2028 Bonds, and we and the Republic will irrevocably submit to the
non-exclusive jurisdiction of any such court in respect of any such action.
Such appointments are irrevocable until all amounts in respect of the
principal, interest, premium and Second Additional Amounts, if any, due or to
become due on or in respect of all the New 2028 Bonds issuable under the Second
Fiscal Agency Agreement have been paid by us or the Republic to the Second
Fiscal Agent or unless and until both we and the Republic shall have appointed
a successor as authorized agent and such successor shall have accepted such
appointment. We and the Republic each will agree that we will at all times
maintain an authorized agent to receive such service, as provided above.
The Philippine Consul General in New York, New York, however, is not the
agent for service for actions arising out of or based on the United States
federal securities laws or state securities laws, and neither our nor the
Republic's waiver of immunity extends to such actions. Because neither we nor
the Republic waived our sovereign immunity in connection with any action
relating to such claims, it will only be possible to obtain a United States
judgment against us or the Republic based on such laws if a court were to
determine that NPC or the Republic, as applicable, is not entitled under the
Foreign Sovereign Immunities Act of 1976 to sovereign immunity with respect to
such actions.
Although there is no statutory enforcement in the Republic of final
judgments obtained in the United States, such judgment would be conclusive and
binding upon each of NPC and the Republic and may be enforced through a
separate action to enforce such judgment in the courts of the Republic without
retrial or examination but subject to the procedural requirements relating to
enforcement and recognition of foreign judgments and provided that (1) the
court rendering such judgment had jurisdiction over the subject matter of the
action in accordance with its jurisdictional rules, (2) NPC or the Republic, as
the case may be, had notice of proceedings before the appropriate court, (3)
such judgment was not obtained by collusion or fraud, (4) such judgment was not
based on a clear mistake of fact or law, and (5) such judgment is not contrary
to the laws, public policy, good morals and customs of the Republic.
Fiscal Agent
The Second Fiscal Agent's duties are governed by the Second Fiscal Agency
Agreement. We and the Republic may replace the Second Fiscal Agent at any time,
subject to the appointment of a replacement fiscal agent. We and the Republic
may maintain deposit accounts and conduct other banking transactions in the
ordinary course of business with the Second Fiscal Agent. The Second Fiscal
Agent is our agent and the Republic's agent and is not a trustee for the
holders of the New 2028 Bonds and does not have the same responsibilities or
duties to act for such holders as would a trustee.
Substitution of the Issuer
PSALM may, without the consent of the holders of the New 2028 Bonds, assume
the obligations of the Issuer under and in respect of the New 2028 Bonds,
provided that:
(a) an amendment to the Second Fiscal Agency Agreement is executed by
PSALM, the Republic and JPMorgan Chase Bank, as fiscal agent, in a form
which gives full effect to such assumption and which includes, without
limitation:
. a covenant by PSALM in favor of the holders of the New 2028 Bonds
to be bound by the terms of the Second Fiscal Agency Agreement as
if it had been named therein as the Issuer;
. a covenant by PSALM to indemnify each holder of the New 2028 Bonds
for the costs or expenses relating to the substitution;
. provisions to the effect that the obligations of PSALM under the
New 2028 Bonds and the amended Second Fiscal Agency Agreement shall
be unconditionally and irrevocably guaranteed by the Republic on
the same basis as those of the Issuer under the Second Fiscal
Agency Agreement; and
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. an acknowledgement of the right of every holder of the First New
Bonds to receive a copy of the First Fiscal Agency Agreement.
(b) all actions, conditions and things required to be taken, fulfilled
and done (including the obtaining of any necessary consents) to ensure that
the New 2028 Bonds represent valid, binding and enforceable obligations of
PSALM and, in the case of the New 2028 Guarantees, of the Republic, have
been taken, fulfilled and done and are in full force and effect;
(c) PSALM shall have become a party to the amended Second Fiscal Agency
Agreement, with any appropriate consequential amendments, as if it had been
an original party to the Second Fiscal Agency Agreement;
(d) PSALM shall have delivered to the Second Fiscal Agent an opinion of
US counsel of recognized standing in the United States and either an opinion
of the Department of Justice of the Philippines or an opinion of the General
Counsel of PSALM, each to the effect that:
. the amended Second Fiscal Agency Agreement constitutes a valid,
binding and enforceable obligation of PSALM;
. the New 2028 Bonds constitute valid, binding and enforceable
obligations of PSALM; and
. the New 2028 Guarantees constitute valid, binding and enforceable
obligations of the Republic in respect of the principal of,
interest on and premium and Second Additional Amounts, if any,
payable by PSALM in respect of the New 2028 Bonds under the amended
Second Fiscal Agency Agreement (subject to, in all of the foregoing
clauses, customary exceptions concerning creditors' rights and
equitable principles); and
(e) such other documents and agreements shall have been executed as would
have been necessary if PSALM had been the issuer of the New 2028 Bonds in
place of the Issuer.
Upon the assumption by PSALM of our obligations under and in respect of the
New 2028 Bonds, we will be released from such obligations and, thereafter, all
references in the New 2028 Bonds and the amended Second Fiscal Agency Agreement
to National Power Corporation shall be deemed to be references to PSALM.
The amended Second Fiscal Agency Agreement shall be deposited with and held
by the fiscal agent until all the obligations of PSALM under and in respect of
the New 2028 Bonds have been discharged in full. Notice of the assumption by
PSALM of the Issuer's obligations under and in respect of the New 2028 Bonds
shall promptly be given to the holders of the New 2028 Bonds by the Issuer.
Further Issues
We may, without the consent of the holders of New 2028 Bonds, create and
issue additional securities with the same terms and conditions as such New 2028
Bonds (or that are the same in all respects except for the amount of the first
interest payment and for the interest paid on the New 2028 Bonds prior to the
issuance of the additional securities). We may consolidate such additional
securities with the outstanding New 2028 Bonds, to form a single series. Any
further securities forming a single series with outstanding New 2028 Bonds
shall be constituted by an agreement supplemental to the Second Fiscal Agency
Agreement.
We may offer additional securities with original issue discount ("OID") for
US federal income tax purposes as part of a further issue. Purchasers of
securities after the date of any further issue will not be able to
differentiate between securities sold as part of the further issue and
previously issued New 2028 Bonds. If we were to issue additional securities
with OID, purchasers of the securities after such further issue may be required
to accrue OID (or greater amounts of OID than they would otherwise have
accrued) with respect to their securities. This may affect the price of
outstanding New 2028 Bonds following a further issue. Prospective holders of
the New 2028 Bonds are urged to consult their own advisors with respect to the
implications of any further decision we may make to issue additional securities
with OID.
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Default; Acceleration of Maturity
The occurrence and continuation of any of the following events will
constitute an event of default (an "Event of Default") under the New 2028
Bonds: (i) a default in any payment of the principal of or interest on any of
the New 2028 Bonds and, in the event of a default in the payment of interest,
such default shall not be cured by payment thereof within 30 days, (ii) we or
the Republic shall default in the performance of any other covenant in the New
2028 Bonds or the New 2028 Guarantees of the New 2028 Bonds, as applicable,
and, if such default is capable of remedy, such default shall continue for a
period of 30 days after written notice thereof shall have been given to us at
the corporate trust office of the Second Fiscal Agent in The City of New York
by the holder of any New 2028 Bond, (iii) the principal of any other External
Indebtedness of us or any of our Subsidiaries having an aggregate principal
amount equal to or in excess of $10,000,000 or its equivalent (determined on
the basis of the middle spot rate for the relevant currency against the U.S.
dollar as quoted by Citibank, N.A. on the date of determination) becomes (or,
as a result of a payment default, becomes capable of being declared) due and
payable prior to its stated maturity otherwise than at our option, or any such
External Indebtedness is not paid when due or, as the case may be, within any
applicable grace period, (iv) any event or condition shall occur which results
in the acceleration of the maturity (other than by optional or mandatory
prepayment or redemption) of any External Public Indebtedness of the Republic
or of the central monetary authority of the Republic (as of the date of this
Prospectus, the Bangko Sentral) having an aggregate principal amount equal to
or in excess of $10,000,000 or its equivalent (determined on the basis of the
middle spot rate for the relevant currency against the U.S. dollar as quoted by
Citibank, N.A. on the date of determination), (v) any default shall occur in
the payment of principal of, or premium or prepayment charge (if any) or
interest on, any External Public Indebtedness of the Republic or of the central
monetary authority of the Republic (as of the date of this Prospectus, the
Bangko Sentral) having an aggregate principal amount equal to or in excess of
$10,000,000 or its equivalent (determined on the basis of the middle spot rate
for the relevant currency against the U.S. dollar as quoted by Citibank, N.A.
on the date of determination), when and as the same shall become due and
payable, if such default shall continue for more than the period of grace, if
any, originally applicable thereto, (vi) we or any of our Subsidiaries (A) is
(or is deemed by law or a court to be) insolvent or bankrupt or generally
unable to pay its debts, (B) stops, suspends or threatens to stop or suspend
payment of all or a material part of its debts or (C) proposes or makes a
general rescheduling of its debts, (vii) a general moratorium is declared in
respect of or affecting all or any material part of our debts or the debts of
any of our Subsidiaries, (viii) an order is made or an effective resolution
passed by a competent authority for the winding-up or dissolution of us or any
of our Subsidiaries, or we cease or takes steps to cease all or substantially
all of our business or operations (other than in any such case through the
disposal of our assets to its subsidiaries or pursuant to a reconstruction,
amalgamation, reorganization, merger or consolidation, or transfer of assets
effected in accordance with any privatization plan or program), except for the
purpose of and followed by a reconstruction, amalgamation, reorganization,
merger or consolidation, or transfer of assets (A) with the written consent of
the holders of a majority of the principal amount of the New 2028 Bonds at the
time outstanding, or (B) in the case of a Subsidiary, whereby the undertaking
and assets of the Subsidiary are transferred to or otherwise vested in us or
another of our subsidiaries, (ix) it is unlawful for us or the Republic to
perform or comply with any one or more of our respective obligations under any
of the New 2028 Bonds, the New 2028 Guarantees of the New 2028 Bonds or the
Second Fiscal Agency Agreement or our obligations or the obligations of the
Republic under the New 2028 Bonds or the Second Fiscal Agency Agreement cease
to be binding on, or enforceable against, us or the Republic, as applicable, or
we or the Republic contend that our respective obligations under the New 2028
Bonds, the New 2028 Guarantees of the New 2028 Bonds or the Second Fiscal
Agency Agreement, as applicable, are not valid, binding on or enforceable
against us, (x) the New 2028 Guarantees of the New 2028 Bonds are not (or are
claimed by the Republic not to be) in full force and effect, (xi) the Republic
declares a general moratorium with respect to the repayment of the External
Indebtedness of either the Republic or of the central monetary authority of the
Republic (as of the date of this Prospectus, the Bangko Sentral) or (xii) the
Republic shall cease to be a member of the International Monetary Fund ("IMF")
or shall cease to be eligible to use the general resources of the IMF; provided
that in the case of paragraphs (ii), (vii) and (ix) and, in the case of the
Subsidiaries, paragraphs (vi) and (viii), such event is materially prejudicial
to the interests of the holders of the New 2028 Bonds. In the case of any Event
of Default described in clause (ii), the holders of not less than 25% in
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aggregate principal amount of the New 2028 Bonds then outstanding, by notice to
us, the Republic and the Second Fiscal Agent as provided in the New 2028 Bonds
may declare the principal of all the New 2028 Bonds and the interest accrued
thereon, to be due and payable immediately, and in the case of any other Event
of Default, any holder of an New 2028 Bond then outstanding, by notice to us,
the Republic and the Second Fiscal Agent as provided in the New 2028 Bonds, may
declare the principal of such New 2028 Bond and the interest accrued thereon,
to be due and payable immediately. Notwithstanding the foregoing, the New 2028
Bonds shall not be due and payable immediately if, prior to the time when we
and the Republic receive such notice, all Events of Default provided for in the
New 2028 Bonds and the Second Fiscal Agency Agreement shall have been cured. No
periodic evidence is required to be furnished by us as to the absence of
defaults.
It should be noted that the Second Fiscal Agency Agreement does not provide
for notification to the holders of the New 2028 Bonds of an Event of Default or
for the right of a holder thereof to examine any New 2028 Bonds register.
Modification
We may modify any of the terms or provisions contained in the New 2028 Bonds
in any way with the written consent of the holders of not less than a majority
of the principal amount of the New 2028 Bonds at the time outstanding, provided
that if any such modification would (i) change the stated maturity of the
principal of, or any installment of interest on, any New 2028 Bond, (ii) reduce
the principal amount of any New 2028 Bond, or the portion of such principal
amount which is payable upon acceleration of the maturity of any New 2028 Bond
or the interest rate thereon, (iii) change the coin or currency in which
payment of the principal of or interest on any New 2028 Bond is payable, (iv)
change our obligation to pay Second Additional Amounts or (v) if any such
modification would reduce the aforesaid percentage needed for authorization of
such modification, the consent of the holders of all outstanding New 2028 Bonds
is required.
Payment of Additional Amounts
All payments of principal and interest in respect of the New 2028 Bonds and
the New 2028 Guarantees of the New 2028 Bonds shall be made free and clear of,
and without withholding and deduction for, or on account of, any present or
future taxes, levies, imposts, duties, assessments or other charges of whatever
nature, imposed, levied, collected, withheld or assessed by or within the
Republic or any department, agency or other political subdivision or any taxing
authority therein or thereof ("Philippine Taxes"), unless such withholding or
deduction is required by law or by the administrative interpretation thereof.
See "Taxation -- Philippine Taxation." In the event Philippine Taxes are
deducted or withheld from any of the aforementioned payments, we or, as the
case may be, the Republic, will pay such additional amounts ("Second Additional
Amounts" and, together with the First Additional Amounts, the "Additional
Amounts") as will result in receipt by the holders of the New 2028 Bonds of
such amounts as would have been received by them had no such deduction or
withholding been required, except that no such Second Additional Amounts shall
be payable in respect of the New 2028 Bonds, or the New 2028 Guarantees of the
New 2028 Bonds, as applicable (a) held by, or on behalf of, a person who is
subject to such Philippine Taxes in respect of the New 2028 Bonds by reason of
such person having some connection with the Republic other than the mere
holding of the New 2028 Bonds or the receipt of payments with respect thereto,
or (b) presented for payment more than thirty days after the Relevant Date,
except to the extent that the holder thereof would have been entitled to such
Second Additional Amounts on presenting the New 2028 Bond for payment on the
last of such thirty days. As used herein, "Relevant Date" means the later of
the due date and, if such payment has not been duly made to the Second Fiscal
Agent on or before such date, such later date by which such payment has been so
made and notice thereof given. Any reference to "principal" and/or "interest"
in this Prospectus with respect to the New 2028 Bonds and the New 2028
Guarantees of the New 2028 Bonds shall be deemed to include any Second
Additional Amounts which may be payable under the New 2028 Bonds.
Redemption for Taxation Reasons
If (i) as a result of any change in or amendment to the laws (or any
regulations or rulings promulgated thereunder) of the Republic or of any
political subdivision or taxing authority therein or thereof affecting
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taxation, or any change in official position regarding application or
interpretation of such laws, regulations or rulings (including a holding by a
court of competent jurisdiction), which change or amendment became or becomes
effective on or after May 1, 1998, we have or will become obliged to pay Second
Additional Amounts (in excess of the additional amounts we would be obliged to
pay if amounts were subject to withholding or deduction at a rate equal to
25%), and (ii) such circumstances are evidenced by the delivery to the holders
of the New 2028 Bonds of (A) a certificate signed by two of our officers
stating that the obligation to pay the holders of the New 2028 Bonds of such
Second Additional Amounts cannot be avoided by us taking reasonable measures
available to us and (B) an opinion of the Department of Justice of the
Republic, to the effect that we have or will become obliged to pay such Second
Additional Amounts as a result of such change or amendment, which certificate
and opinion shall constitute sufficient evidence of such obligation and shall
be conclusive and binding on the holders of the New 2028 Bonds, the New 2028
Bonds will be subject to redemption by us in whole, but not in part, at any
time on giving not less than 30 nor more than 60 days' irrevocable notice to
the holders of the New 2028 Bonds, in the manner set out in the next paragraph,
at a redemption price equal to the principal amount thereof together with
accrued and unpaid interest (including such Second Additional Amounts) to the
date fixed for redemption; provided, however, that (x) no such notice of
redemption may be given earlier than 90 days prior to the earliest date on
which we would be obligated to pay such Second Additional Amounts were a
payment in respect of the New 2028 Bonds then due, and (y) at the time such
notice of redemption is given, such obligation to pay such Second Additional
Amounts remain in effect. Notwithstanding the foregoing, we shall not have the
right to redeem the New 2028 Bonds unless the obligation to pay First
Additional Amounts cannot be avoided by our taking reasonable measures
available to us.
Notice to the holders of New 2028 Bonds required by the preceding paragraph
of any such redemption shall be effected by publication in a daily newspaper in
The City of New York.
All New 2028 Bonds so redeemed will be immediately cancelled and may not be
re-issued or resold.
Global Bonds
The New 2028 Bonds will be issued in the form of one or more fully
registered global securities (each, a "Global New 2028 Bond") which will be
deposited with, or on behalf of, The Depository Trust Company, New York, New
York ("DTC"). A Global New 2028 Bond will be registered in the name of DTC or
its nominee. Except as set out below, a Global Bond may be transferred, in
whole and not in part, only to DTC or its nominee.
Ownership of beneficial interests in the Global New 2028 Bonds will be
limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests in the Global New 2028 Bonds
are shown on, and the transfer of that ownership may be effected only through,
records maintained by DTC or its nominee (with respect to interests of
participants) and on the records of participants (with respect to interests of
persons other than participants). The laws of some states require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to own,
transfer or pledge beneficial interests in a Global New 2028 Bond.
Any payment of principal, interest or premium or Second Additional Amounts,
in either case if any, due on the New 2028 Bonds on any interest payment date
or at maturity will be made available by us to the Second Fiscal Agent on such
date. As soon as possible thereafter, the Second Fiscal Agent will make such
payments to the DTC or its nominee, as the case may be, as the registered owner
of the Global New 2028 Bond representing the New 2028 Bonds in accordance with
arrangements between the Second Fiscal Agent and DTC. We expect that DTC or its
nominee, upon receipt of any payment of principal, interest or premium or
Second Additional Amounts, in either case if any, will credit immediately
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global New 2028
Bond as shown on the records of DTC or its nominee. We also expect that
payments by participants to owners of beneficial interests in the Global New
2028 Bond held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name,"
and will be the responsibility of such participants. Neither we nor the Second
Fiscal Agent will have any responsibility or liability for any aspect of the
records relating to payments
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made on account of beneficial ownership interests of a Global New 2028 Bond or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
So long as DTC, or its nominee, is the registered owner of a Global New 2028
Bond, DTC or such nominee, as the case may be, will be considered the sole
owner and holder of the New 2028 Bonds represented by the Global New 2028 Bond
for all purposes of the New 2028 Bonds. Owners of beneficial interests in a
Global New 2028 Bond will not be entitled to have the New 2028 Bonds
represented by the Global New 2028 Bond registered in their names, will not
receive or be entitled to receive physical delivery of New 2028 Bonds in
definitive form upon exchange or otherwise and will not be considered the
owners or holders of any New 2028 Bonds represented by the Global New 2028
Bond. Accordingly, such person owning a beneficial interest in a Global New
2028 Bond must rely on the procedures of DTC and, if such person is not a
participant, on the procedures of the participant through which such person
owns its interest, to exercise any rights of a holder of New 2028 Bonds. We
understand that, under existing industry practice, in the event that an owner
of a beneficial interest in a Global New 2028 Bond desires to take any action
DTC, or its nominee, as the holder of the Global New 2028 Bond, is entitled to
take, DTC would authorize the participants to take such action, and that the
participants would authorize beneficial owners owning through such participants
to take such action or would otherwise act upon the instructions of beneficial
owners owning through them.
A Global New 2028 Bond may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or any other nominee of DTC, or by
DTC or any such nominee to a successor of DTC or a nominee of such successor.
New 2028 Bonds represented by a Global New 2028 Bond are exchangeable for New
2028 Bonds in definitive form (i) if DTC notifies us that it is unwilling or
unable to continue as depository for the Global New 2028 Bond or if at any time
DTC ceases to be a clearing agency registered under the Exchange Act, at a time
when it is required to be so registered, and a replacement depository is not
appointed, (ii) we in our discretion at any time determine not to have all of
the related New 2028 Bonds represented by the Global New 2028 Bond or (iii) if
an event of default, or an event which the notice, lapse of time or both would
be an event of default, entitling the holders of the related New 2028 Bonds to
accelerate the maturity thereof has occurred and is continuing. Any New 2028
Bond that is exchangeable pursuant to the preceding sentence is exchangeable
for New 2028 Bonds in definitive form registered in such names as DTC shall
direct. New 2028 Bonds in definitive form may be presented for registration of
transfer or exchange at the office of the Second Fiscal Agent in The City of
New York, and principal thereof and interest and premium and Second Additional
Amounts, if any, thereon will be payable at such office of the Second Fiscal
Agent, provided that interest thereon may be paid by check mailed to the
registered holders of the New 2028 Bonds. Subject to the foregoing, a Global
New 2028 Bond in respect of the New 2028 Bonds is not exchangeable, except for
a Global New 2028 Bond or Global New 2028 Bonds of the same aggregate
denominations to be registered in the name of DTC or its nominee.
DTC is a limited-purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities of its participants and to facilitate
the clearance and settlement of securities transactions among its participants
in such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers
(including the Dealer Manager), banks, trust companies, clearing corporations
and certain other organizations, some of whom (and/or their representatives)
own DTC. Access to DTC's book-entry system is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly. DTC
agrees with and represents to its participants that it will administer its
book-entry system in accordance with its rules and by-laws and requirements of
law.
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TAXATION
Philippine Taxation
General
We urge you to consult your own tax advisors to determine your particular
tax consequences in respect of the ownership and disposition of a New Bond,
including whether any state, local or foreign tax laws apply to you.
The following is a discussion of the material Philippine tax consequences
applicable to non-Philippine holders of the New Bonds in connection with the
ownership and disposition of the New Bonds and no information is provided
regarding the tax aspects of holding or disposing of the New Bonds under tax
laws of other applicable jurisdictions or the specific Philippine tax
consequences in light of particular situations of holding and disposing of the
New Bonds. Each holder should consult its own tax adviser as to the particular
tax consequences of the holding and disposing of the New Bonds, including the
applicability and effect of any state, local and national tax laws.
We use the term "non-Philippine holders" to refer to beneficial owners of
Old Bonds or New Bonds, as applicable, who are (1) non-residents of the
Philippines who are neither citizens of the Philippines nor engaged in trade or
business within the Philippines or (2) non-Philippine corporations not engaged
in trade or business in the Philippines.
The summary is based on Philippine laws, rules and regulations now in
effect, all of which are subject to change. It is not intended to constitute a
complete analysis of the tax consequences under Philippine law of the receipt,
ownership or disposition of the New Bonds, in each case by non-Philippine
holders, nor to describe any of the tax consequences that may be applicable to
residents of the Republic.
Effect of Holding New Bonds.
Our payment of principal and interest on the New Bonds to a non-Philippine
holder will not subject such non-Philippine holder to taxation in the
Philippines (except as described below) by reason solely of the holding of the
New Bonds or the receipt of principal or interest in respect thereof.
Taxation of Interest on the New Bonds.
The Philippine National Internal Revenue Code of 1997 provides that interest
on bonds or other interest bearing obligations of Philippine residents are
Philippine-sourced income subject to Philippine income tax. Generally, interest
on loans received by non-resident foreign individuals engaged in a trade or
business in the Philippines is subject to a 20% withholding tax, while that
received by non-resident foreign individuals not engaged in trade or business
is taxed at the rate of 25%. Interest income received by non-resident foreign
corporations on foreign loans is subject to a 20% withholding tax. "Foreign
loans" are loan contracts, including all debt items, whether in kind or in
cash, which are payable in foreign currency or in kind, entered into by a
Philippine resident, corporate or otherwise, with a non-resident. Therefore,
the New Bonds will constitute "foreign loans". The tax withheld constitutes a
final settlement of Philippine income tax liability with respect to such
interest.
The withholding tax rate may be reduced in accordance with applicable tax
treaties in force between the Philippines and the country of residence of the
non-resident holder. Most tax treaties to which the Philippines is a party,
including the Philippine-United States Tax Treaty (the "Treaty"), generally
provide for a reduced tax rate of 15% in cases where the interest arises in the
Philippines and is paid to a resident of the other contracting state. In
addition, under the Treaty, the withholding tax rate may be reduced to 10% in
cases where the interest arises in respect of a public issue of bonded
indebtedness and such interest is paid by a Philippine resident to a resident
of the United States. However, most tax treaties, including the Treaty, also
provide that reduced withholding tax rates will not apply if the recipient of
the interest, who is a resident of the other contracting state, carries on
business in the Philippines through a permanent establishment and the holding
of the New Bonds is effectively connected with such permanent establishment.
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However, when we make payments of principal and interest to you on the New
Bonds, no amount will be withheld from such payments for, or on account of, any
taxes of any kind imposed, levied, withheld or assessed by the Philippines or
any political subdivision or taxing authority thereof or thereon.
Taxation of Capital Gains.
Non-Philippine holders of New Bonds will not be subject to Philippine tax in
connection with the sale, exchange, or retirement of a New Bond if such sale,
exchange or retirement is made outside the Philippines or an exemption is
available under an applicable tax treaty in force between the Philippines and
the country of residence of the non-Philippine holder.
Non-Philippine holders of New Bonds will not be subject to Philippine tax as
a result of the transfer by NPC of the obligations under the New Bonds to PSALM
in connection with our restructuring.
Documentary Stamp Taxes.
No documentary stamp tax is imposed upon the issuance or transfer of the New
Bonds.
Estate and Donor's Taxes.
The transfer of a New Bond by way of succession upon death of a
non-Philippine holder will be subject to Philippine estate tax at progressive
rates from 5% to 20% if the value of the net estate of properties located in
the Philippines is over (Peso)200,000.
The transfer of a New Bond by gift to an individual who is related to the
non-Philippine holder will generally be subject to a Philippine donor's tax at
progressive rates from 2% to 15% if the value of the net gifts of properties
located in the Philippines exceeds (Peso)100,000 during the relevant calendar
year. Gifts to unrelated donees are generally subject to tax at a flat rate of
30%. An unrelated donee is a person who is not a (1) brother, sister (whether
by whole or half blood), spouse, ancestor, or lineal descendant or (2) relative
by consanguinity in the collateral line within the fourth degree of
relationship.
The foregoing apply even if the holder is a non-Philippine holder. However,
the Republic will not collect estate and donor's taxes on the transfer of the
New Bonds by gift or succession if the deceased at the time of death, or the
donor at the time of donation, was a citizen and resident of a foreign country
that provides certain reciprocal rights to citizens of the Philippines (a
"Reciprocating Jurisdiction"). For these purposes, a Reciprocating Jurisdiction
is a foreign country which at the time of death or donation (1) did not impose
a transfer tax of any character in respect of intangible personal property of
citizens of the Philippines not residing in that foreign country or (2) allowed
a similar exemption from transfer or death taxes of every character or
description in respect of intangible personal property owned by citizens of the
Philippines not residing in that foreign country.
The Exchange Offer
An exchange of Old Bonds for New Bonds pursuant to the Exchange Offer will
not be a taxable event for Philippine tax purposes because there will be no
gain or loss realized. There will be no Philippine documentary stamp taxes
imposed on the exchange of the Old Bonds pursuant to the Exchange Offer since
no new or additional obligation is created by the issuance of the New Bonds.
US Federal Income Tax Considerations for US Holders
The following is a summary of certain US federal income tax consequences
that may be relevant to a US Holder (as defined below) of Old Bonds in
considering the Exchange Offer. This summary is based on the Internal Revenue
Code of 1986, as amended (the "Code"), applicable US Treasury Regulations, and
judicial and administrative interpretations thereof, all as in effect on the
date hereof. All of the foregoing are subject to change, which change could
apply retroactively, and any such change could affect the tax consequences
described below.
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This summary does not cover all aspects of US federal taxation that may be
relevant to, or the actual tax effect that any of the legal principles
described herein will have on, the acceptance of the Exchange Offer or the
acquisition, ownership or disposition of New Bonds by any particular investor.
Further, this summary does not address state, local, foreign or other tax laws.
This summary does not address considerations that may be relevant to you if
you are an investor that is subject to special tax rules, such as a bank,
thrift, real estate investment trust, regulated investment company, insurance
company, dealer in securities or currencies, trader in securities or
commodities that elects mark to market treatment, a person that owns or is
deemed to own 10% or more of our voting stock, a person holding Old Bonds as
part of a hedging transaction, position in a "straddle" or a conversion
transaction, a tax exempt organization, a partnership, or a person whose
"functional currency" is not the US dollar.
A US Holder is a person who beneficially owns the Old Bonds for US federal
income tax purposes, holds them as a capital asset, and is: (i) an individual
who is a citizen or resident of the United States; (ii) a corporation or other
entity treated as a corporation for US federal income tax purposes that is
created or organised in or under the laws of the United States or any state
thereof (including the District of Columbia); (iii) an estate the income of
which is subject to US federal income taxation regardless of its source; (iv) a
foreign person holding the Old Bonds in connection with a US trade or business;
or (v) a trust if a court within the United States is able to exercise primary
supervision over its administration and one or more US persons have the
authority to control all of the substantial decisions of such trust.
Notwithstanding the preceding sentence, to the extent provided in Treasury
Regulations, certain trusts in existence on August 20, 1996, and treated as
United States persons prior to such date, that elected to be treated as a
United States person shall also be considered US Holders.
THE SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW
IS FOR GENERAL INFORMATION ONLY. EACH HOLDER OF OLD BONDS SHOULD CONSULT ITS
OWN TAX ADVISORS CONCERNING THE APPLICATION OF UNITED STATES FEDERAL INCOME TAX
LAWS TO ITS PARTICULAR SITUATION AS WELL AS ANY CONSEQUENCES ARISING UNDER THE
LAWS OF ANY OTHER TAXING JURISDICTION.
The Exchange Offer
Although there is no precedent directly on point, it is more likely than not
that the exchange of Old Bonds for New Bonds pursuant to the Exchange Offer
(the "Bond Exchange") and the subsequent change in obligor of the New Bonds
from NPC to PSALM (the "Obligor Change") will be tax-free under US federal
income tax principles. Neither the Internal Revenue Service (the "Service") nor
the courts are bound by this conclusion and may disagree with it. The Service
may contend that either the Bond Exchange or Obligor Change is taxable.
Neither the Bond Exchange nor the Obligor Change will be a taxable event
under US federal income tax principles unless it constitutes a "modification"
that is "significant". Both the Bond Exchange and the Obligor Change should be
regarded as modifications for this purpose. However, if the Obligor Change is
not a significant modification, the Bond Exchange should also not be a
significant modification. Treasury Regulation Section 1.1001-3 sets forth
guidelines for determining whether a modification is significant, and indicates
that a modification will be significant unless a specific exception applies.
Such an exception would apply to the Obligor Change if, in connection
therewith, PSALM acquires "substantially all" of the assets (based on the fair
market value of such assets) of NPC, and certain other conditions are met. The
regulation does not specify what constitutes "substantially all" of NPC's
assets. Pursuant to its privatisation plan, NPC will transfer most of its
assets and liabilities to PSALM and Transco, its wholly owned subsidiary. See
"-- Industry Restructuring and Privatization" and "-- Power Sector Assets and
Liabilities Management Corporation".
Among other things, the conclusion reached above assumes that the transfer
of assets by NPC directly to Transco is included in the determination of
whether "substantially all" of NPC's assets have been acquired by the obligor,
PSALM, for purposes of Treasury Regulation Section 1.1001-3. Neither the
Service nor the courts are bound by this assumption and may disagree with it.
If the Bond Exchange and Obligor Change are tax-free, the US Holder's
holding period for New Bonds received pursuant to the Exchange Offer will
include its holding period for the Old Bonds surrendered.
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Additionally, the US Holder's tax basis in such New Bonds will be its tax basis
in the Old Bonds surrendered, and no information reporting or backup
withholding will apply to the Bond Exchange.
US Holders who do not accept the Exchange Offer should not have a taxable
event merely because a substantial portion of NPC's assets and liabilities will
be transferred to other companies.
Consequences In the Event of a Taxable Bond Exchange or Obligor Change
If the Service successfully challenges the conclusion that neither the Bond
Exchange nor Obligor Change is a tax-free event, US Holders will recognise gain
or loss based on the difference between (A) their tax basis in the unmodified
bonds, and (B) the fair market value of the modified bonds less any accrued but
unpaid interest not previously included in income (which will be taxable as
ordinary interest income). The gain or loss recognised will be long-term
capital gain or loss if the US Holder held the unmodified bonds for more than
one year. Capital gain or loss, if any, recognised by a US Holder generally
will be treated as US source income or loss for US foreign tax credit purposes.
The ability of US Holders to offset capital losses against income is limited.
In the event the Bond Exchange or Obligor Change were taxable, the modified
bonds will be treated as issued for their fair market value on the date of the
modification (excluding any accrued but unpaid interest as of such date with
respect to the related unmodified bonds). A portion of the first interest
payment on the modified bond that corresponds to such accrued but unpaid
interest would be treated as a non-taxable return of pre-issuance interest and
therefore not treated as interest payable on the modified bond.
It is not clear, in the event of a significant modification, whether the
Service would treat the modification as occurring on the date of the Exchange
Offer or on the date of the assumption by PSALM. US Holders should consult
their own tax advisors as to the effect of this uncertainty.
The fair market value of the modified bonds on the date of a significant
modification (less any accrued but unpaid interest with respect to the related
unmodified bonds) will become the US Holder's tax basis in such bonds. A
significant modification should be treated as a taxable exchange of the
unmodified bond for all US federal income tax purposes, including for
information reporting and backup withholding purposes. See "--Information and
Backup Withholding" below for a general discussion of these rules. Holders
should consult their own tax advisors as to the information reporting and
backup withholding implications of accepting the Exchange Offer.
The New Bonds
Payments or Accruals of Interest
Except as described in the following paragraph, interest on the New Bonds
will be taxable to you as ordinary income at the time it accrues or is received
in accordance with your method of accounting for US federal income tax purposes.
The consequences of owning New Bonds for US federal income tax purposes
depend in part on whether either the Bond Exchange or the Obligor Change
constitutes a significant modification. See "-- US Federal Income Tax
Considerations for US Holders -- Consequences of a Taxable Bond Exchange or
Obligor Change". If either is treated as a taxable event, US Holders must
determine whether the New Bonds will have OID or issue premium on the date of
the significant modification.
If either the Bond Exchange or the Obligor Change constitutes a significant
modification, the New Bonds will have original issue discount ("OID") for US
federal income tax purposes if their stated redemption price at maturity
exceeds their issue price by a non-de minimis amount. The issue price will be
the fair market value of the New Bonds on the date of the significant
modification (excluding any accrued but unpaid interest with respect to the
related unmodified bonds). See "-- US Federal Income Tax Considerations for US
Holders --Consequences of a Taxable Bond Exchange or Obligor Change". This
difference will be de minimis if it is less than one-fourth of one percent
(0.25%) of the stated redemption price at maturity multiplied by the number of
complete years to maturity on the New Bonds.
213
A US Holder of a New Bond issued with OID must include any such OID in
income as ordinary interest for US federal income tax purposes as it accrues
under a constant yield method in advance of receipt of the cash payments
attributable to such income, regardless of such US Holder's regular method of
tax accounting. A US Holder of a New Bond issued without OID, but issued at a
de minimis discount (as discussed above), must include the discount in income
when principal payments are made on the New Bonds. As an alternative to the
above treatments, accrual method holders may elect to include in gross income
all interest with respect to the New Bonds, (including stated interest, OID, de
minimis discount, and unstated interest, with certain potential adjustments)
using the constant yield method described above.
If either the Bond Exchange or the Obligor Change constitutes a significant
modification, a US Holder of a New Bond will have issue premium where the issue
price of the New Bond exceeds its stated redemption price at maturity. A US
Holder may elect to amortise any issue premium with respect to a modified bond
over the modified bond's term as an offset to interest income. The amortisation
will be made using a constant yield method. If a US Holder makes the premium
amortisation election, it generally applies to all debt instruments held by
that US Holder at the time of the election and any subsequently acquired debt
instruments. Once the election to amortise bond premium is made, it cannot be
revoked without the consent of the Service. US Holders electing to amortise
bond premium must reduce their tax basis in the affected debt securities by the
amount of premium amortised during their holding period for those bonds.
If neither the Bond Exchange nor the Obligor Change is a significant
modification, then the New Bonds will continue to be treated in the same manner
for OID and issue premium purposes as if the US Holders still held the Old
Bonds.
NPC cannot predict the fair market value of the New Bonds. Therefore, US
Holders should consult their own tax advisors concerning the application of the
OID or issue premium rules.
Payments of interest on the New Bonds will be treated as foreign source
income for US federal income tax purposes. The rules relating to foreign tax
credits are extremely complex. US Holders should consult their tax advisers as
to the foreign tax credit implications of receiving interest on the New Bonds.
The Purchase, Sale and Retirement of New Bonds
When a US Holder sells or exchanges a New Bond, or if a New Bond is retired,
a US Holder will generally recognise gain or loss equal to the difference
between the amount realised on the transaction (less any accrued but unpaid
interest (as determined under US federal income tax principles) not previously
included in income, which will be subject to tax according to the rules
applicable to interest described above) and the US Holder's tax basis in the
New Bond. The gain or loss that a US Holder recognises on the sale, exchange or
retirement of a New Bond generally will be long-term capital gain or loss if
the US Holder has held the New Bond for more than one year. If neither the Bond
Exchange nor the Obligor Change results in a significant modification, a US
Holder will count its holding period for the Old Bonds in determining its
holding period for the New Bonds. Capital gain or loss, if any, recognised by a
US Holder upon a sale, exchange or retirement of the New Bonds generally will
be treated as US source income or loss for US foreign tax credit purposes. Net
long-term capital gains are eligible for preferential treatment under certain
circumstances when recognised by individual non-corporate investors. The
ability of US Holders to offset capital losses against income is limited.
A US Holder's tax basis in a New Bond depends in part on whether the Bond
Exchange or the Obligor Change are treated as a taxable event. See "-- US
Federal Income Tax Considerations for US Holders--The Exchange Offer". If
neither constitutes a significant modification, then a US Holder's New Bonds
will have the same basis that the US Holder had in its Old Bonds at the time of
the acceptance of the Exchange Offer. However, if a significant modification
occurs due to either the Bond Exchange or the Obligor Change, the basis of a US
Holder's New Bonds on the date of the modification will equal their fair market
value less any accrued but unpaid interest not previously included in income.
Potential Change in Obligor of New 2028 Bonds
PSALM's charter is scheduled to expire on June 26, 2026, prior to the
maturity date for the New 2028 Bonds. See "-- Power Sector Assets and
Liabilities Management Corporation". If PSALM's charter expires
214
while the New 2028 Bonds are outstanding, the assumption of PSALM's liabilities
may constitute a modification that is significant under US federal income tax
principles. The substitution of the Republic for PSALM as the obligor under the
New 2028 Bonds would not be a significant modification if, in connection
therewith, the Republic acquires "substantially all" of the assets (based on
the fair market value of such assets) of PSALM, and certain other conditions
are met. Given the factual uncertainties relating to transactions that may take
place 24 years from now, NPC has not determined whether this potential change
in obligor will be a significant modification resulting in a taxable exchange
of the original New 2028 Bond issued by PSALM for a New 2028 Bond issued by the
Republic.
It is possible that PSALM's charter may not expire before the maturity of
the New 2028 Bonds. The Philippine Congress is currently considering measures
to extend PSALM's charter beyond the maturity for the New 2028 Bonds. See "--
Summary Information--Restructuring of the Electric Power Industry and Our
Privatization -- General" and "-- Power Sector Assets and Liabilities
Management Corporation -- Overview". In the event that PSALM's charter is
extended, or if the assumption of PSALM's liabilities by the Republic is not a
significant modification, a US Holder should not be taxed upon either (i) a
decision to extend the charter to cover the scheduled maturity for the New 2028
Bonds, or (ii) the change in obligor to the Republic. If a taxable event does
not occur, the US Holder's holding period and tax basis for its New 2028 Bonds
should remain unchanged.
Any expiration of PSALM's charter in the year 2026 will not affect the First
New Bonds, which will have matured prior to such time.
US Federal Income Tax Considerations for Non-US Holders
The following summary applies to you if you are not a US Holder (a "Non-US
Holder") for US federal income tax purposes.
Subject to the discussion below under the caption "-- Information Reporting
and Backup Withholding", interest income that you derive in respect of the New
Bonds will generally not be subject to US federal income tax, including US
withholding tax, unless such income is effectively connected with the conduct
of a trade or business in the United States.
If you are a Non-US Holder, subject to the discussion below under the
caption "-- Information Reporting and Backup Withholding", any gain you realise
on a sale, exchange (including a "significant modification") or retirement of
New Bonds will generally be exempt from US federal income tax unless: (i) your
gain is effectively connected with your conduct of a trade or business in the
United States; (ii) you are an individual holder and are present in the United
States for 183 days or more in the taxable year of the sale, exchange or
retirement and either (1) your gain is attributable to an office or other fixed
place of business that you maintain in the United States or (2) you have a tax
home in the United States; or (iii) you are subject to tax pursuant to
provisions of the Code applicable to certain expatriates.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to payments of
interest on a New Bond if the payment is made by the issuer or the Guarantor
within the United States, including payments made by the United States office
of a paying agent, broker or other intermediary, and to the payment of
principal, the proceeds of a sale, exchange, or retirement of New Bonds
effected at the United States office of a United States or foreign broker. The
issuer, its paying agent, or if applicable, the Guarantor, may also be required
to withhold tax from any payment that is subject to backup withholding if the
holder fails to fully comply with the applicable requirements of the backup
withholding rules. Non-US Holders may be required to comply with applicable
certification procedures to establish that they are not US Holders in order to
avoid the application of such information reporting requirements and backup
withholding.
Information reporting (but not backup withholding) also applies to the
proceeds of the sale, exchange or retirement of New Bonds effected through a
foreign office of a broker that is a US controlled person (as defined below),
as well as payments outside the United States of interest on a New Bond by a
custodian, nominee or other agent of the holder that is a US controlled person.
For purposes of these rules, a "US controlled person" is
215
(i) a United States person, (ii) a controlled foreign corporation for US
federal income tax purposes, (iii) a foreign person for which 50% or more of
its gross income from all sources, over a specified three year period, is
effectively connected with a United States trade or business or (iv) a foreign
partnership that, at any time in its taxable year, is 50% or more (by income or
capital interest) owned by United States persons or is engaged in the conduct
of a United States trade or business.
Information reporting and backup withholding generally will not apply to
payments of principal and interest made outside of the United States by the
issuer, the Guarantor, or any of their paying agents (acting as such) to a
Non-US Holder. For these purposes, payments made to an address in the United
States or by transfer to an account maintained by a holder in the United States
will not be considered made outside of the United States.
Certain US Holders (including, among others, corporations) are not subject
to the backup withholding and information reporting requirements. US Holders
should consult their tax advisers as to their qualification for exemption from
backup withholding and the procedure for obtaining an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment made to a holder generally may be
claimed as a credit against such holder's US federal income tax liability
provided the appropriate information is furnished to the Service.
216
PLAN OF DISTRIBUTION
The dealer manager and certain of its affiliates have from time to time
engaged in transactions with and performed services for us in the ordinary
course of business and may continue to do so in the future.
The New Bonds have not been and will not be registered under the Securities
and Exchange Law of Japan. Accordingly, the New Bonds may not be offered,
directly or indirectly, in Japan or to residents of Japan (including Japanese
corporations) unless exempt from the registration requirements and otherwise in
compliance with any applicable laws. Offers to exchange the Old Bonds for the
New Bonds pursuant to the Exchange Offer may not be solicited in Japan by this
or any other documents or in any other manner.
The New Bonds constitute exempt securities under Section 9(a) of the
Securities Regulation Code of the Philippines and as such are not required to
be registered under the provisions of the said Code before they can be sold or
offered for sale or distribution in the Philippines. However, the New Bonds may
be sold or offered for sale in the Philippines only by securities dealers or
brokers duly licensed by the Philippines Securities and Exchange Commission.
None of the New Bonds may be offered, sold or delivered, directly or
indirectly, or offered or sold to any person for re-offering or resale,
directly or indirectly, in the Republic of Korea ("Korea") or to any resident
of Korea except pursuant to applicable law and regulations of Korea. For a
period of one year from the issue date of the New Bonds, no holder of the New
Bonds who is in Korea or is a resident of Korea may transfer the New Bonds in
Korea or to any resident of Korea unless such transfer involves all of the New
Bonds held by it. In addition, no offer to exchange the Old Bonds in exchange
for the New Bonds may be made, directly or indirectly, in Korea or to any
resident of Korea except pursuant to applicable laws and regulations of Korea.
The dealer manager has only communicated or caused to be communicated and
will only communicate or cause to be communicated any invitation or inducement
to engage in investment activity (within the meaning of section 21 of the
Financial Services and Markets Act 2000 ("FSMA") received by it in connection
with the issue or sale of any New Bonds in circumstances in which section 21(1)
of the FSMA does not apply to the Issuer or the Guarantor. The dealer manager
has complied and will comply with all applicable provisions of the FSMA with
respect to anything done by it in relation to the New Bonds in, from or
otherwise involving the United Kingdom.
This prospectus has not been registered as a prospectus with the Monetary
Authority of Singapore. Accordingly, this prospectus and any other document or
material in connection with the offer of sale, or invitation for subscription
or purchase, of the New Bonds may not be circulated or distributed, nor may the
New Bonds be offered or sold, or made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to persons in
Singapore other than under circumstances in which such offer, sale or
invitation does not constitute an offer or sale, or invitation for subscription
or purchase, of the New Bonds to the public in Singapore.
With respect to persons in Hong Kong, the exchange offer is only made to and
is only capable of acceptance by persons whose business involves the
acquisition, disposal or holding of securities, whether as principal or agent,
and in circumstances which would not violate the securities laws of Hong Kong.
The dealer manager, the Company and the Republic have agreed that they have not
issued and will not issued any invitation or advertisement relating to the
exchange offer in Hong Kong (unless permitted to do so by the securities laws
of Hong Kong) other than with respect to New Bonds which are intended to be
disposed of to persons outside Hong Kong or only to persons whose business
involves the acquisition, disposal or holding of securities, whether as
principal or agent, in circumstances which would not violate the securities
laws of Hong Kong.
217
VALIDITY OF THE NEW BONDS
The validity of the New Bonds will be passed upon on our behalf by Ranier B.
Butalid, our General Counsel and the validity of the New Guarantees will be
passed upon on behalf of the Republic by Merceditas N. Gutierrez, the Assistant
Secretary of Justice of the Republic, each as to Philippine law. As to U.S.
federal and New York State law, the validity of the New Bonds and the New
Guarantees will be passed upon on our behalf and on behalf of the Republic by
Allen & Overy, Hong Kong, United States counsel for us and the Republic.
Certain legal matters will be passed upon for the Dealer Manager by Davis Polk
& Wardwell, Hong Kong and New York, New York, United States counsel for the
Dealer Manager, as to matters of U.S. federal and New York State law, and by
Romulo, Mabanta, Buenaventura, Sayoc & de los Angeles, Manila, Philippines,
Philippine counsel for the Dealer Manager, as to matters of Philippine law.
Allen & Overy will rely as to all matters of Philippine law upon the opinions
of Mr. Butalid and Ms. Gutierrez, All statements in this prospectus with
respect to matters of Philippine law relating to us have been passed upon by
Mr. Butalid and are made upon his authority.
218
AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
The authorized agent of National Power Corporation, Power Sector Assets and
Liabilities Management Corporation and the Republic of the Philippines in the
United States is Hon. Linglingay Lacanlale, Consul General, the Philippine
Consulate General, 556 Fifth Avenue, New York, New York 10036-5095.
EXPERTS; OFFICIAL STATEMENTS AND DOCUMENTS
Rogelio M. Murga, in his official capacity as Officer-in-Charge, President
and Chief Executive Officer of National Power Corporation, reviewed the
information set out in the prospectus relating to National Power Corporation,
which information included in the prospectus on his authority.
Edgardo M. Del Fonso, in his official capacity as President of Power Sector
Assets and Liabilities Management Corporation, reviewed the information set out
in the prospectus relating to Power Sector Assets and Liabilities Management
Corporation, which information included in the prospectus on his authority.
Hon. Jose Isidro N. Camacho, in his capacity as Secretary of the Department
of Finance of the Republic, reviewed the information set out in the prospectus
relating to the Republic, which information is included in the prospectus on
his authority.
WHERE YOU CAN FIND MORE INFORMATION
National Power Corporation, Power Sector Assets and Liabilities Management
Corporation and the Republic of the Philippines filed a registration statement
with respect to the New Bonds with the Securities and Exchange Commission under
the US Securities Act of 1933, as amended, and its related rules and
regulations. You can find additional information concerning National Power
Corporation, Power Sector Assets and Liabilities Management Corporation and the
Republic of the Philippines and the New Bonds in the registration statement and
any pre- or post-effective amendment, including its various exhibits, which may
be inspected at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street N.W., Washington, D.C. 20549.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information about how to access the documents we have filed with it.
219
INDEX TO NATIONAL POWER CORPORATION'S FINANCIAL STATEMENTS
Report of Commission on Audit, Auditors to National Power Corporation. F-2
Income Statement for the Year ended December 31, 2001................. F-3
Balance Sheet as at December 31, 2001................................. F-4
Statement of Cash Flows for the Year ended December 31, 2001.......... F-5
Notes to Financial Statements......................................... F-7
Report of Commission on Audit, Auditors to National Power Corporation. F-18
Income Statement for the Years ended December 31, 1999 and 2000....... F-19
Balance Sheet as at December 31, 1999 and 2000........................ F-20
Statement of Cash Flows for the Years ended December 31, 1999 and 2000 F-21
Notes to Financial Statements......................................... F-23
F-1
REPUBLIC OF THE PHILIPPINES
COMMISSION ON AUDIT
Commonwealth Avenue, Quezon City, Philippines
The Board of Directors
National Power Corporation
Diliman, Quezon City
We have audited the accompanying balance sheet of the National Power
Corporation as of December 31, 2001, and the related statements of income,
retained earnings, and cash flows for the year then ended, pursuant to Section
2, Article IX-D of the Philippine Constitution and pertinent provisions of
Presidential Decree No. 1445. These financial statements are the responsibility
of the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
Except as discussed in the following paragraphs, we conducted our audit in
accordance with generally accepted state auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance that
the financial statements are free of material misstatement/s. Our audit
included examining, on a test basis, evidence supporting the amount and
disclosures in the financial statements. It is also included assessing the
accounting principles used and significant estimates made by management as well
as evaluating the overall financial statement presentation. We believe that our
audit provides reasonable basis for our opinion.
As discussed in Finding 1, the accuracy of the balance of Land and Land
Holdings account amounting to (Peso)7.332 Billion cannot be
determined/ascertained as the acquisition cost were not indicated in the
inventory. Likewise, as stated in Finding 2, the result of the annual physical
inventory yielded an overage variance of (Peso)712.572 Million when compared
with the balance per books, casting doubt on the validity of the materials,
supplies and equipment inventory account balance.
As disclosed in Note 32 to the financial statements, the Corporation has
contingent claims in several lawsuits amounting to (Peso)342.24 Million while
its contingent liabilities amount to (Peso)15.236 Billion. The ultimate outcome
of these lawsuits cannot presently be determined and no provision for any
contingent liability that may result therefrom has been made in the financial
statements.
In our opinion, except for the effects of the matters discussed in the two
preceding paragraphs, the financial statements referred to above present
fairly, in all material respects, the financial position of the National Power
Corporation as of December 31, 2001, and the results of its operations and its
cash flows for the year then ended in accordance with applicable laws, rules
and regulations and in conformity with generally accepted state accounting
principles.
COMMISSION ON AUDIT
By: /s/ NORBERTO D. CABIBIHAN
-----------------------------
Atty. Norberto D. Cabibihan
State Auditor V
Corporate Auditor
April 30, 2002
F-2
NATIONAL POWER CORPORATION
INCOME STATEMENT
For the Year Ended December 31, 2001
2001
---------------------
pesos
OPERATING REVENUES
Utility Operating Income............................ (Peso) 69,065,009,226
Add: Fuel Cost Adjustment......................... 47,302,179,043
Other Demand and Energy Adjustment Income..... (2,613,377,800)
Forex Adjustments............................. 3,782,435,442
Transmission Svcs Operating Income............ 391,952,271
---------------------
Total Operating Revenues.......................... 117,928,198,182
Less: Prompt Payment Discount..................... 851,913,966
Voltage Discount.............................. 638,007,757
Power Factor Adjustment Income................ 740,622,373
---------------------
NEW OPERATING REVENUE................................ 115,697,654,086
---------------------
OPERATING EXPENSES
Generation.......................................... 71,070,791,331
Depreciation and Depletion (Note 2A & 2B)........... 14,184,474,000
Amortization of Capacity Fees....................... 17,148,463,963
Transmission & Distribution......................... 1,769,046,259
Administration & General............................ 1,976,310,001
Other Operating Expenses............................ 2,123,249,818
Bad Debts (Note 2F)................................. 588,395,775
---------------------
Total Operating Expenses.......................... 108,860,731,147
---------------------
OPERATING INCOME..................................... 6,836,922,939
---------------------
OTHER INCOME
Interest Income (Net)............................... 710,521,349
Revenues from Lease of Electric Plant............... 126,244
Forex Recovery (Note 26)............................ 19,917,458,364
Gain/(Loss) on Diesel/Fuel Transfer................. 122,425,984
Gain on Retirement of Asset......................... 4,291,389
Miscellaneous Income................................ 293,655,353
---------------------
Total Other Income................................ 21,048,478,683
---------------------
INTEREST AND OTHER CHARGES
Interest Expense.................................... 15,108,027,958
Depreciation -- Other Plants/Property............... 1,484,690,185
Finance & Other Bank Charges........................ 2,813,479,630
Privatization & Subsidiarization Expenses (Note 27). 870,561,333
Amortization -- Deferred Forex Differential......... 17,193,385,729
Loss on FOREX Fluctuation........................... 626,456,071
Miscellaneous Expenses.............................. 166,191,314
---------------------
Total Interest and Other Charges.................. 38,262,792,220
NET INCOME/(LOSS).................................... (Peso)(10,377,390,598)
=====================
F-3
NATIONAL POWER CORPORATION
BALANCE SHEET
For the Year Ended December 31, 2001
2001
-----------------------
pesos
ASSETS
UTILITY PLANT at Appraised Values (Notes 2 & 3)........................................................ (Peso) 474,118,605,369
Less: Accum. Depr'n & Depletion (Notes 2 & 3)........................................................ 231,359,914,604
-----------------------
Net Utility Plant.................................................................................... 242,758,690,765
Construction Work in Progress (Note 4)............................................................... 27,310,991,924
-----------------------
Total Utility Plant.............................................................................. 270,069,682,689
-----------------------
EPS UNDER CAPITAL LEASE (Note 5)....................................................................... 367,173,171,879
-----------------------
INVESTMENT and OTHER ASSETS
Investment in Government and Other Corporation (Note 6).............................................. 162,767,475
Non-Utility Property -- Net (Note 7)................................................................. 5,960,963,868
Accounts and Other Receivables -- Net (Note 8)....................................................... 5,449,627,284
Const. Work in Progress -- Mat'ls and Supplies (Note 4).............................................. 1,843,961,666
Other Assets (Note 9)................................................................................ 48,195,770,090
-----------------------
Total Investments and Other Assets............................................................... 61,613,090,383
-----------------------
CURRENT ASSETS
Cash and Cash Equivalent (Note 10)................................................................... 1,648,274,527
Accounts Receivable
Power Customers -- Net (Note 11).................................................................... 19,653,716,589
Others -- Net (Note 12)............................................................................. 5,317,947,967
Materials and Supplies for Operation (Note 13)....................................................... 13,052,966,448
Advances (Note 14)................................................................................... 269,727,203
Prepayments (Note 15)................................................................................ 691,107,757
Court and Other Deposits (Note 31)................................................................... 165,371,478
Cash Advances -- Officers and Employees.............................................................. 7,235,119
-----------------------
Total Current Assets............................................................................. 40,806,347,088
-----------------------
DEFERRED CHARGES (Note 16)............................................................................. 264,912,584,737
-----------------------
CONTINGENT ASSETS (Note 17)............................................................................ 1,410,403,117
-----------------------
TOTAL ASSETS........................................................................................... 1,005,985,279,893
-----------------------
PROPRIETARY CAPITAL and LIABILITIES
PROPRIETARY CAPITAL
Capital Stock (Peso)100 par value
Authorized -- (Peso)50,000,000,000 dividend into 500,000,000 shares Issued -- 270,488,708
in 1999 (Note 18) (Peso) .......................................................................... 27,048,870,789
Donated Capital (Note 19)............................................................................ 3,985,874,212
Retained Earnings (Note 20).......................................................................... (34,730,276,282)
Appraisal Capital.................................................................................... 95,799,031,296
Contingent Surplus................................................................................... 1,410,403,117
-----------------------
Total Proprietary Capital........................................................................ 93,513,903,132
-----------------------
LONG-TERM DEBT (Net of Current Portion) (Note 21)...................................................... 290,135,460,939
-----------------------
LEASE OBLIGATION -- BOT (Note 23)...................................................................... 505,036,916,006
-----------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses................................................................ 33,385,182,416
Retention on Contract Payments....................................................................... 989,483,811
Deposits and Trust Funds (Note 21 and Note 24)....................................................... 4,470,664,388
Dividends Payable.................................................................................... 30,215,838
Lease Payable (Note 23).............................................................................. 30,392,832,482
Notes Payable (Note 22).............................................................................. 11,874,613,870
Interest Payable..................................................................................... 6,469,450,114
Current Portion of Long-Term Debts................................................................... 25,557,948,766
-----------------------
Total Current Liabilities........................................................................ 113,170,391,685
-----------------------
DEFERRED CREDITS (Note 25)............................................................................. 4,128,608,131
-----------------------
TOTAL PROPRIETARY CAPITAL and LIABILITIES.............................................................. (Peso)1,005,985,279,893
=======================
F-4
NATIONAL POWER CORPORATION
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2001
2001
---------------------
pesos
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)............................................ (Peso)(10,377,390,598)
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities
Depreciation................................................ 14,736,840,185
Depletion................................................... 932,324,000
Amortization of Capacity fee................................ 17,148,463,963
Amortization of Bond issue cost............................. 221,104,569
Amortization of Bond Discount............................... 129,183,418
Amortization of Deferred Forex Differential................. 17,193,385,728
Amortization of SPEED Benefit............................... 856,402,007
Amortization of Financial Assistance........................ 185,751,251
Revaluation of Loan charged to Gain on FOREX Fluctuation.... (670,181,752)
Revaluation of KEPCO Trust Deposit charged FOREX Fluctuation 47,471,692
(Gain) / Loss on Retirement/Disposal of Assets.............. (1,207,248)
Currency Conversion......................................... (7,466)
Changes in Operating Assets and Liabilities
Net of Effects from --
Decrease (Increase) in:
Power Customers Receivables............................... 889,142,995
Other Current Receivables................................. (1,251,151,081) a/
Materials and Supplies for Operations..................... 522,483,803
Advances.................................................. 358,377,272
Prepayments............................................... (44,479,436)
Court and Other Deposits.................................. (62,739,000)
Cash Advances to Officer & Employees...................... (3,836,384)
Accounts and Other Non-Current Receivables................ 59,732,523
Other Assets.............................................. 414,429,156 c;d/
Other Deferred Charges.................................... (675,072,571) e/
Increase (Decrease) in:
Accounts Payable and Accrued Exp.......................... (3,084,917,193)
Retention on Contract Payments............................ 346,205,343
Deposits and Trust Funds.................................. 1,009,202,320
Interest Payable.......................................... 824,448,921
Other Deferred Credits.................................... (1,278,679,611)
Correction of Prior Years Income............................ (5,252,580,056)
Total Adjustments............................................ 43,640,097,348
---------------------
Net Cash Provided for Operating Activities................... (Peso) 33,262,706,750
---------------------
F-5
NATIONAL POWER CORPORATION
STATEMENT OF CASH FLOWS -- (Continued)
For the Year Ended December 31, 2001
2001
---------------------
pesos
CASH FLOWS FROM INVESTING ACTIVITIES
Construction Expenditures..................................... (Peso)(13,824,334,716)
Additions to:
(Inc) / Dec in Preliminary Surveys and Investigations....... (109,423,940) e/
(Inc) / Dec in Investment in MEC............................ (30,393,692) d/
Net Cash Used in Investing Activities.......................... (13,964,152,348)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings.................................................... 6,854,686,924 h/
Bond Floatation............................................... 23,087,781,317
Increase/(Decrease) in Notes Payable.......................... 11,524,117,224 f/
Advances -- National Government............................... 2,354,774,661
Payment of Capacity Fees -- BOT............................... (29,571,161,240)
Payment of Loans.............................................. (24,183,329,367) g/
Payment of KEPCO Deposit...................................... (449,982,000)
Advances to SRMPP Non Power Components........................ (771,709,716) d/
(Increase)/Decrease in Bond Sinking Fund...................... (13,441,284) b/
(Increase)/Decrease in Other Assets -- Cash Restricted Account (9,234,133,461) d/
Net Cash Provided (Used) by Financing Activities............... (20,402,396,942)
---------------------
Net Increase (Decrease) in Cash and Cash Equivalent............ (1,103,842,540)
---------------------
Cash and Cash Equivalent @ Beginning of Year................... 2,752,117,067
---------------------
Cash and Cash Equivalents @ End of Year........................ (Peso) 1,648,274,527
---------------------
a/ Includes Application of Tax Credit Certificates amounting to
(Peso)130,819,342.
b/ Increase in Bond Sinking Fund was accounted as part of financing activities
which consists of principal payment and accrual for interest income of
(Peso)2,697,126 and (Peso)10,744,158 respectively.
c/ Includes the amount withdrawn from the stored energy of Leyte Luzon
corresponding to the surplus energy amounting to (Peso)423,888,603.
d/ The Cash Restricted and Advances to SRMPP are presented under financing
activities while Investment in MEC is accounted as part of investing
activities.
e/ Includes (Peso)232,465,500 deferred debits pertaining to the payment of
upfront fee on the Euro 500M bond issuance. Preliminary Survey and
Investigation is accounted under investing activities.
f/ Increase in Notes Payable represents the net of the availment of loan of
(Peso)14,750,661,492 and repayments of (Peso)3,226,544,268.
g/ Includes payment of the current portion of Long Term Debt.
h/ Includes availment from foreign loans amounting to (Peso)3,313,628,572 and
other long term debts of (Peso)3,541,058,352.
F-6
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Primary Function
The primary function of the Corporation is the total electrification of the
Philippines through the development of power from all sources to meet the needs
of consumers, in coordination with/and supported by the agencies of the
government.
2. Significant Accounting Policies
A. Utility Plant and Depreciation
Utility plant is carried in the books at appraised values, except for
additions during the year which are recorded at cost. These assets are revalued
in consonance with NPC's loan covenants with creditor banks and in pursuance to
SFAS No. 12 which permits revaluation of properties, plant and equipment.
B. Appraisal of Utility Plant
Electric Plant in Service are recorded at appraised values in compliance
with ADB's and World Bank's loan covenants and in pursuance to Statement of
Financial Accounting Standard No. 12 which permits the appraisal of property,
plant and equipment.
An independent appraiser conducts the review and appraisal of NPC's assets
once every four years. In the interim, NPC undertakes the internal revaluation
which is adjusted when there are variances between internally appraised figures
and those of the independent appraisers.
The difference between the new over the old appraised values is recorded
under the Appraisal Capital account. This account is treated as a permanent
account and is not diminished by any depreciation charges, following Par. 17 of
SFAS No. 12.
C. Capitalization of Interest
Interest incurred on external borrowings which relate to capital projects in
progress and prior to the commencement of operation are capitalized.
D. Allocation of Support Group Expenses
Expenses of the Home Office Support Group are allocated between operation
and construction. The allocation rate is based on the extent of support
services rendered to operations and capital projects. The present ratio of
operating expenses to capital expenses is 75/25.
Cost Center services that cannot be clearly classified as well as expenses
identified as having no direct effect to projects are treated as one hundred
percent operating expenses.
E. Investments
Local investments are valued at purchase price while foreign investments are
recorded at the date of the transaction using standard booking rates equivalent
to the Bangko Sentral ng Philipinas (BSP) guiding rate on the last working day
of the preceeding year. Foreign investment balances are then revalued at the
end of each year using the BSP guiding rates.
Interest earnings on placements follow the accrual method of accounting;
however for short dated placements of less than a month, the interest earnings
are recognized in the books at maturity dates.
F. Receivables
Power and other receivables are stated net of allowance for doubtful
accounts. Allowances are determined through the specific identification of
uncollectible accounts.
F-7
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
G. Materials and Supplies for Operation
Materials and supplies for operation can be categorized into fuel (and its
related products) and non-fuel. The Fuel M & S are composed of the fuel oil,
diesel, coal & thermal chemical stock used by NPC plants for power generation.
These inventories are valued using the last-in-first out (LIFO) method.
The non-Fuel M & S, on the other hand, are valued using the moving average
method and valued using the moving average method and can be further broken
down into the non-fuel M & S of NPC plants and areas and those non-Fuel M & S
assigned to private IPPs.
H. Deferred Taxes and Duties
By virtue of FIRB# 17-87 of the Department of Finance, the Corporation is
exempt from payment of taxes and duties on local oil purchases. Oil suppliers
bill NPC at gross selling price inclusive of taxes and duties. Fuel deliveries
and consumption are recorded in the books net of taxes and duties. Said taxes
and duties are recognized as Deferred Taxes and Duties representing claims from
the Bureau of Internal Revenue and Bureau of Customs. Upon receipt of Tax
Credit Certificates (TCC), the refund is debited to Accounts Receivable-Others
and a colollary entry is made by a debit to Other Expense and a credit to Other
Income.
I. Accounting for Foreign Exchange Fluctuation
Transactions denominated in foreign currencies are recorded at standard
booking rate and then restated at the end of the year using the rate of
exchange ruling at the balance sheet date. Foreign exchange differentials
accruing on loans for projects under construction are recorded as project cost
while differentials on the restatement of outstanding loans used for operating
plants are debited to deferred FOREX Differential account and are amortized
over the remaining life of the loan.
On the other hand, foreign exchange difference from restatement of working
capital loans are recorded as gain/loss on foreign exchange (Forex)
fluctuation. Payments of loans and interest thereof are recorded at prevailing
exchange rate at date of transaction. Any difference thereof from the booking
rate is likewise treated as gain/loss on Forex fluctuation.
J. Accounting for BOT Projects
Total capacity fees for the duration of the cooperation period are
recognized outright in the books by a debit to Electric Plant under Capital
Lease account and a corresponding credit to Lease Obligation under the
Long-Term Debts. Hopewell Pagbilao and Sual Coal Fired Thermal Power Plant are
amortized over 29 and 25 years, respectively while the rest of BOT assets are
amortized over 20 years.
Lease Obligation denominated in foreign currencies are restated at year-end
standard booking rates. Foreign exchange differentials on these restatements
are debited to the Deferred FOREX Differential and amortized over the remaining
economic life of the individual IPP plants.
K. Income Determination
The Corporation uses the accrual method and an all inclusive concept of
income determination wherein all ordinary and extraordinary items pertaining to
current period are considered in computing net income while items applicable to
prior periods are recorded as adjustment of prior years' income and are
reflected in the Statement of Retained Earnings.
F-8
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
L. Composition of Rate Base
Rate Base is the average value of the net fixed assets in operation at the
beginning and at the end of each year. The value of net fixed assets in
operation equals the gross value of the operating assets less the amount of
accumulated depreciation.
Plants undergoing major rehabilitation/repair and which are out of operation
for less than one calendar year are included in the computation of Rate Base.
3. Utility Plant
Total Utility Plant consists of the following:
Historical Cost Appraised Cost
--------------------- ---------------------
Plant Type 2001 2001
- ---------- --------------------- ---------------------
ELECTRIC PLANTS SERVICE:
DEPRECIABLES:
Steam Production Plant............... (Peso) 74,983,944,816 (Peso)164,650,140,807
Hydraulic Production Plant........... 16,016,984,144 94,379,263,510
Other Production Plant............... 18,153,230,133 38,439,987,459
Transmission Plant................... 104,214,228,788 158,180,182,240
Distribution Plant................... 71,730,213 166,399,209
General Plant........................ 7,182,894 10,713,968
LANDS AND LANDHOLDINGS:
Steam Production Plant............... 632,318,826 1,622,737,814
Hydraulic Production Plant........... 222,211,238 1,624,921,710
Other Production Plant............... 18,694,702 120,134,221
Transmission Plant................... 973,028,030 2,501,666,344
General Plant........................ 10,394,260 1,462,241,000
EPS Land on Lease..................... 0 0
OTHER UTILITY PLANTS:................. 7,424,187,688 10,960,217,087
(Peso)222,728,135,732 (Peso)474,118,605,369
ACCUMULATED DEPRECIATION and DEPLETION
DEPRECIATION
Steam Production Plant............... 23,570,950,991 66,476,026,390
Hydraulic Production Plant........... 6,978,228,405 60,257,116,228
Other Production Plant............... 9,901,848,788 22,043,201,989
Transmission Plant................... 25,032,192,192 60,088,378,119
Distribution Plant................... 73,128,431 198,277,428
General Plant........................ 56,746,239 70,470,329
DELETION 5,599,633,089 16,483,657,160
OTHER UTILITY PLANTS.................. 3,199,612,872 5,742,786,961
74,412,341,007 231,359,914,604
NET UTILITY PLANTS.................... (Peso)148,315,794,725 (Peso)242,758,690,765
===================== =====================
F-9
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
4. Construction Work in Progress (CWIP)
Cost of projects under constructions is presented as Construction Work in
Progress while stock inventory intended for projects but still in the custody
and within the responsibility of project custodians and stock inventory still
in transit are segregated from the account and classified under Investment and
Other Assets, as follows:
2001
--------------------
Construction Work in Progress --
Work Order..................... (Peso)27,310,991,924
Construction Work in Progress --
Materials and Supplies......... 1,843,961,666
--------------------
(Peso)29,154,953,590
--------------------
5. Electric Plant under Capital Lease
This account represents the total computed capacity fees of BOT Projects for
the duration of the cooperation period.
2001
---------------------
Electric Plant under Capital Lease (Peso)432,378,241,532
Accumulated Amortization.......... (65,205,069,653)
---------------------
(Peso)367,173,171,879
---------------------
6. Investment in Government and Other Corporations
Investments in government and other corporations consist substantially of
investments in sinking funds held for the Corporation's long-term bonds payable.
7. Non-Utility Property
Non-utility property account consists of:
Historical Cost Appraised Cost
-------------------- --------------------
2001 2001
-------------------- --------------------
Non-Utility lands....... (Peso) 138,873,244 (Peso) 516,113,713
Non-Utility Plants...... 11,134,305,549 38,940,300,204
-------------------- --------------------
11,273,178,793 39,456,413,917
-------------------- --------------------
Accumulated Depreciation (Peso) 8,524,981,138 (Peso)33,495,450,049
-------------------- --------------------
NON-UTILITY PROPERTY
Net..................... (Peso) 2,748,197,655 (Peso) 5,960,963,868
-------------------- --------------------
F-10
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
8. Account & Other Receivables
This account consist of:
2001
-------------------
Non-Current Receivables...... (Peso)5,122,080,697
Non-Current Power Receivables 952,052,124
Non-Current Lease Receivable. 2,818,529
-------------------
Total........................ 6,076,951,350
Allowance for Bad-Debts...... (627,324,066)
-------------------
Net.......................... (Peso)5,449,627,284
-------------------
Non-current receivable includes the (Peso)1.694 Billion Royalty Fees paid to
PNOC-EDC for the unutilized geothermal energy from July 1996 to December 1998
and the (Peso)3.133 Billion receivables from MWSS for their utilization of
Angat Dam pursuant to the optimization project of the government from 1992 to
1997.
9. Other Assets
Other assets substantially consists of:
2001
--------------------
Stored Energy -- Leyte A & B............. (Peso) 5,241,828,596
Cash-Restricted.......................... 23,119,379,487
Investment in Maintenance Eng'g Ctr...... 208,372,493
Advances to San Roque Non-Power Component 19,577,538,268
Stock for Disposal....................... 48,651,246
--------------------
TOTAL................................. (Peso)48,195,770,090
--------------------
The Cash Restricted pertains to the funds intended for the purposes other
than current operations and therefore not immediately available to management
for any disbursement transactions other than its specified purpose.
Stored energy which is booked under Court and other Deposit is presented in
the Balance Sheet as Other Assets in the amount of (Peso)2.016 Billion and
(Peso)3.226 Billion for Leyte A&B, respectively. The said amounts represent
advance payments made to PNOC-EDC for the cost of contracted energy for Leyte
A&B.
The San Roque Multi Purpose Project (SRMP) pertains to the construction of
the Non-Power components such as Watershed management, water quality, flood
control and irrigation of the project. The Memorandum of Agreement (MOA)
covering this said project provides that NPC shall be reimbursed by Department
of Agriculture/National Irrigation Administration, Department of Environment
and Natural Resources (DENR) and Department of Public Works and Highways (DPWH)
in the amount and terms specified in the MOA, through the Department of Finance
(DOF).
F-11
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
10. Cash and Cash Equivalents
This account is composed of:
2001
-------------------
Cash in Bank (Peso)1,435,462,752
Cash on Hand 174,785,445
Working Fund 38,026,330
-------------------
(Peso)1,648,274,527
-------------------
11. Power Customers Receivables
Receivable from power customers consists of:
2001
--------------------
Power Receivables.............. (Peso)17,113,145,790
Accrued Utility Revenue........ 5,309,507,692
Restructured Power Receivables. 143,347,323
--------------------
Total.......................... 22,566,000,805
Allowance for Bad Debts........ (2,912,284,216)
--------------------
(Peso)19,653,716,589
--------------------
12. Other Receivables
Other receivables consists of:
2001
-------------------
Tax Credit Certificates.............. (Peso) 755,598,162
Receivables from National Government. 1,934,240,033
Interest............................. 269,193,021
Rent................................. 333,406,326
Receivables from Officers & Employees 10,196,954
Recoverable from Insurance Co........ 725,680
Receivable -- Others................. 2,483,472,825
-------------------
Total................................ 5,786,833,001
Allowance for Bad Debts.............. (468,885,034)
-------------------
(Peso)5,317,947,967
-------------------
Receivable -- Others account consists of:
2001
-------------------
Receivables from Private Co..... (Peso)2,142,518,270
Others.......................... 261,161,770
Receivable -- Fuel Oil Suppliers 79,792,785
-------------------
(Peso)2,483,472,825
-------------------
F-12
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
13. Materials and Supplies for Operation
The account consists of:
2001
--------------------
Materials, Supplies & Equip. Invty....... (Peso) 5,628,661,463
Asset in Trust for Prvt. Pwr. Contractors 3,379,023,176
MSE in Transit -- Operating Plants....... 1,527,317,639
Stock Transfer Clearing Accounts......... 1,086,359,556
Diesel................................... 99,725,462
Materials, Supply Temporary Adj.......... 71,519,879
Coal..................................... 573,194,759
Fuel Oil................................. 388,198,152
Aviation Fuel & Other Oil Products....... 120,561,981
Thermal Chemicals........................ 54,533,612
Stock for Transshipment.................. 21,086,371
Fuel Temporary Adjustment Acct........... 100,418,828
Gasoline................................. 2,365,570
--------------------
Total.................................... (Peso)13,052,966,448
--------------------
14. Advances
Advances consist of:
2001
-----------------
Advances to Contractors.................. (Peso)195,001,111
Advances to Philippine Geothermal........ 39,647,320
Advances to Gov't Bodies and Institutions 35,078,772
-----------------
Total.................................... (Peso)269,727,203
-----------------
15. Prepayments
Prepayments consist of:
2001
-----------------
Marginal and Guaranty Deposits* (Peso)676,132,599
Prepaid Charges/Expenses....... 14,975,158
-----------------
Total.......................... (Peso)691,107,757
-----------------
* This consist of transactions requiring deposits to guarantee for the
fulfilment of an obligation.
F-13
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
16. Deferred Charges
Deferred charges includes:
2001
---------------------
Deferred FOREX Differential........ (Peso)251,763,753,104
Other Deferred Debits.............. 6,471,947,205
Deferred Taxes & Duties............ 3,442,810,037
Preliminary Surveys & Investigation 1,313,273,937
Deferred Financial Assistance...... 1,078,284,083
Discount on NPC Bonds Payable...... 478,492,943
Deferred Repairs & Maintenance..... 150,268,842
Other.............................. 213,754,586
---------------------
Total.............................. (Peso)264,912,584,737
---------------------
The Deferred FOREX Differential mainly includes the restatement of the
outstanding balances of foreign currency denominated loans and lease obligation
on BOT plants while the bulk of Other Debits includes expenses set up for the
SPEED benefits of NPC employees. The Deferred Taxes and Duties pertain to the
tax and duty exemption privileges of the Corporation in its purchase of
petroleum products which are paid by the Corporation at gross. Such taxes and
duties shall become refundable by tax collecting agencies such as BIR and the
Bureau of Customs.
17. Contingent Assets / Surplus
The account consists of disallowances in post-audit, as well as claims for
unrelieved losses of NPC properties and claims for all established inventory
shortages of Property Custodians. The contra account for these Contingent
Assets is Contingent Surplus which is presented as part of the capital accounts
in the Balance Sheet.
18. Capital Stock
No additional Capital Stock was issued in 2001. The last issuance was made
in 1999 equivalent to 5,918,550 shares representing partial payment of the
stock dividend declared in CY 1994.
19. Donated Capital
These are grants received from foreign governments and lending institutions
which were used to finance the implementation of various projects of NPC.
20. Retained Earnings
Retained Earnings were appropriated for Bond Sinking Fund equivalent to 5%
of Net Operating Income as provided for by the NPC Charter.
F-14
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
21. Long-Term Debts
This account consists of:
2001
---------------------
Foreign Loans & Other Long-term Debts... (Peso)204,702,339,727
NPC Bonds Payable....................... 100,042,590,000
Due to Phil.Gov't & its Agencies........ 7,427,305,978
KEPCO Security Deposit.................. 3,521,174,000
---------------------
Total................................... (Peso)315,693,409,705
---------------------
Less: Current Portion
-- Foreign Loans & Other Long-term Debts 17,301,773,678
-- NPC Bonds Payable.................... 7,710,600,000
-- Due to Phil. Gov't & its Agencies.... 545,575,088
25,557,948,766
---------------------
Total................................... (Peso)290,135,460,939
=====================
Foreign loans are restated at year-end based on the following BSP guiding
rates on foreign currencies:
BP
Guiding
Rates
--------
12-31-01
--------
Dollar............. $1 51.4040
Yen................ (Yen)1 .3904
Austrian Schilling. AS1 3.2990
Deutsche Mark...... DM1 23.2100
French Franc....... FF1 6.9204
Swiss Franc........ SFR1 30.6177
Great Britain Pound GBP1 74.7106
--------
22. Notes Payable
This account consist of short term loan availed from the Bureau of treasury
and due for payment in February 2002.
23. Lease Obligation -- BOT
This account consists of:
2001
---------------------
Lease Obligation..... (Peso)535,429,748,488
Less: Current Portion 30,392,832,482
---------------------
Total................ (Peso)505,036,916,006
---------------------
Total capacity fees for BOT Plants were recorded as Electric Plant under
Capital Lease with a corresponding credit to Lease Obligations. Estimated
capacity fees amounting to (Peso)30 Billion payable in 2001 was set-up to
current liabilities under the Current Portion of Lease Obligation account.
F-15
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
24. Deposits and Trust Funds
The account substantially consists of the (Peso)4.278 Billion total payments
made thru Escrow agent representing 60% of the service fees required in the
provisional agreement executed with Philippine Geothermal, Inc. (PGI). The
original service contract with PGI expired on September 30, 1996.
25. Deferred Credits
Deferred Credits include advances for other work in progress, advances from
Bureau of Treasury for servicing the indebtedness of NPC.
26. FOREX Recovery
For proper matching of cost and revenue, recovery from FOREX I, which is a
recovery of peso fluctuation on principal repayments, is recorded as other
income while FOREX II, which is a recovery of foreign denominated other
operating expenses is recorded as part of operating revenue.
Effective August 26, 1994, the corporation included in the customer's power
bills Foreign Exchange Adjustment charges intended to recover the Corporation's
foreign exchange losses arising from the servicing of its principal
indebtedness (FOREX I) and related foreign operating expenses (FOREX II).
27. Privatization and Subsidiarization
Pursuant to Board Resolution No. 96-148 dated June 24, 1996, privatization
related expenses were classified from Operating Expenses to Other Expenses. In
1997, these included the cost of retirement benefits such as gratuity pay,
terminal and accrued leaves and expenses incurred by Privatization and
Restructuring External Office (PREO). However, since the imminent privatization
of NPC is clearly unrelated to its ordinary and typical activities, which is
expected to benefit one or more future periods, the corresponding cost of
retirement benefits, such as gratuity pay, terminal and accrued leaves related
to operation was treated as deferred debits to be amortized over two (2) years
starting the succeeding year, while the cost of benefit pertaining to
Engineering was treated as part of the Construction Work in Progress.
For CY 2001, the amount certified for obligation is (Peso)170 Million and
(Peso)1,630 Million for Engineering and Non-Engineering, respectively.
28. Taxes & Licenses
Pursuant to BIR Ruling #018-2000, Section 32 (B) (7) (b) of the Code (supra)
dated January 20, 2000, the income of the National Power Corporation from its
operations as a public utility shall be exempt from corporate income tax.
The enactment of the local government code has empowered the Local
Government Units to create their own sources of revenue and to levy taxes.
Pursuant to this, effective January 1992, the payment of realty, franchise tax
and Local Government Unit's share in the national wealth became a contracted
obligation of NPC. Total taxes in 2001 amounted of (Peso)1.178 Billion.
F-16
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
29. PNOC-EDC Shortfall Billings
PNOC-EDC has informed the Corporation that it has outstanding receivables on
fuel shortfall from NPC in the amount of (Peso)754.0 Million. The account has
been left under advisement until the same can be included in the design of NPC
power rates. NPC has not recognized this account.
30. Pending Cases
The Corporation has contingent claims in several lawsuits amounting to
(Peso)342.24 million while its contingent liabilities amount to a total of
(Peso)15.236 billion.
31. Court and Other Deposits
This account includes the amount deposited with the provincial, municipal or
city courts and with other entities as a guaranty for the fulfillment of
obligation and for other purposes.
F-17
REPORT OF COMMISSION ON AUDIT, AUDITORS TO NATIONAL POWER CORPORATION
REPUBLIC OF THE PHILIPPINES
COMMISSION ON AUDIT
Commonwealth Avenue, Quezon City, Philippines
STATE AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS
The Board of Directors
National Power Corporation
Diliman, Quezon City
We have audited the accompanying balance sheet of the National Power
Corporation as of December 31, 2000, and the related statements of income,
retained earnings, and cash flows for the year then ended, pursuant to Section
2, Article IX-D of the Philippine Constitution and pertinent provisions of the
Presidential Decree No. 1445. These financial statements are the responsibility
of the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted state auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance that the financial statements are free of material
misstatement/s. Our audit included examining, on a test basis, evidence
supporting the amount and disclosures in the financial statements. It also
included assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides reasonable basis for our
opinion.
As discussed in Finding 1, the cash in bank balance is unreliable as it
included abnormal and closed accounts, and deposits not yet posted by the banks
in the amount of (Peso)32.088M. Likewise, as stated in Finding 2, the balance
of Materials and Supplies for Operation account is doubtful due to the
substantial difference between the balance per book and balance per count
amounting to (Peso)347.225M and the inclusion of (Peso)44.238M worth of
obsolete and unserviceable stocks.
As disclosed in Note 32 to the financial statements, the Corporation is a
defendant in several lawsuits involving a total of (Peso)7.922 billion and a
claimant in other lawsuits amounting to (Peso)3.376 billion. The ultimate
outcome of these lawsuits cannot presently be determined and no provision for
any contingent liability that may result has been made in the financial
statements.
In our opinion, except for the effects of the matters discussed in the two
preceding paragraphs, the financial statements referred to above present
fairly, in all material respects, the financial position of the National Power
Corporation as of December 31, 2000, and the results of its operations and its
cash flows for the year then ended in accordance with applicable laws, rules
and regulations and in conformity with generally accepted state accounting
principles.
COMMISSION ON AUDIT
By: /s/ NORBERTO D. CABIBIHAN
-----------------------------
Atty. Norberto D. Cabibihan
State Auditor V
Auditor-In-Charge
May 14, 2001
F-18
NATIONAL POWER CORPORATION
INCOME STATEMENT
For the Years Ended December 31, 1999 and 2000
1999 2000
-------------------- ---------------------
pesos pesos
OPERATING REVENUES
Utility Operating Income............................. (Peso)65,229,050,334 (Peso) 66,632,376,294
Add: Fuel Cost Adjustment.......................... 24,400,940,028 31,688,162,750
Other Demand and Energy Adjustment income..... 68,488,324 113,235,032
Forex Adjustments............................. 1,614,171,396 1,691,150,626
Transmission Svcs Operating Income............ 279,956,566 2,038,817,194
-------------------- ---------------------
Total Operating Revenues........................... 91,592,606,648 102,163,741,896
Less: Prompt payment Discount...................... 730,098,997 788,318,396
Voltage Discount.............................. 569,806,335 594,472,349
Power factor Adjustment Income................ 607,034,839 661,536,002
-------------------- ---------------------
NET OPERATING REVENUE................................. 89,685,666,477 100,119,415,149
-------------------- ---------------------
OPERATING EXPENSES
Generation........................................... 51,861,373,373 59,314,800,427
Depreciation and Depletion (Note 2A & 2B)............ 14,193,443,806 13,304,703,750
Amortization -- Elec. Plant Under Capacity Lease..... 8,946,617,561 15,327,380,562
Transmission & Distribution.......................... 1,609,049,474 1,887,484,052
Administration & General Lease....................... 1,987,579,458 1,755,975,451
Other Operating Expenses............................. 1,981,223,689 2,531,399,177
Bad Debts (Note 2F).................................. 617,471,966 560,015,907
-------------------- ---------------------
Total Operating Expenses........................... 81,196,759,327 94,681,759,326
-------------------- ---------------------
OPERATING INCOME...................................... 8,488,907,150 5,437,655,823
-------------------- ---------------------
OTHER INCOME
Subsidy/ (Tax Credit Certificate).................... 69,440,348 --
Interest Income (Net of Withholding Tax)............. 465,030,689 1,251,994,599
Revenues from Lease of Electric Plant................ 165,044,938 157,223,306
Discount Amortization -- Debt Buy Back............... 119,035,527 --
Forex Recovery (Note 25)............................. 8,205,425,841 14,723,293,764
Gain on Retirement of Asset.......................... 148,331 1,282,965
Miscellaneous Income................................. 402,843,831 354,492,665
-------------------- ---------------------
Total Other Income................................. 9,426,969,505 16,488,287,299
-------------------- ---------------------
INTEREST AND OTHER CHARGES
Interest Expense..................................... 12,954,658,624 15,064,480,046
Subsidy/Tax Credit Certificate....................... 69,440,348 --
Depreciation -- Other Plants/Property................ 854,331,587 1,110,831,704
Finance & Other Bank Charges......................... 1,717,928,991 2,207,844,618
Privatization & Subsidiarization Expense (Note 26)... 448,865,614 782,554,777
Amortization -- Deferred Forex Differential.......... 7,345,360,953 14,605,367,977
Loss on FOREX Fluctuation............................ 324,534,235 1,061,801,370
Loss (Gain on Diesel/Fuel Transfer).................. (31,335,122) 14,379,872
Miscellaneous Expenses............................... 185,450,506 42,450,294
-------------------- ---------------------
Total Interest and Other Charges................... 23,869,235,736 34,889,710,658
-------------------- ---------------------
NET INCOME/ (LOSS).................................... (Peso)(5,953,359,081) (Peso)(12,963,767,536)
==================== =====================
See accompanying Notes to Financial Statements.
F-19
NATIONAL POWER CORPORATION
BALANCE SHEET
As at December 31, 1999 and 2000
1999
---------------------
pesos
ASSETS
UTILITY PLANT at Appraised Values (Notes 2 & 3)............................................ (Peso)477,323,171,780
Less: Accum. Depr'n and Depletion (Notes 2 & 3).......................................... 221,875,070,378
---------------------
Net Utility Plant........................................................................ 255,448,101,401
Construction Work in Progress (Note 4)................................................... 22,159,382,891
---------------------
Total Utility Plant.................................................................. 277,607,484,293
---------------------
EPS under CAPITAL LEASE (Note 5)........................................................... 350,860,269,346
---------------------
INVESTMENTS and OTHER ASSETS
Investment in Government and Other Corporations (Note 6)................................. 136,837,178
Non-Utility Property -- Net (Note 7)..................................................... 2,609,173,343
Accounts and Other Receivables -- Net (Note 8)........................................... 5,447,430,507
Constr. Work in Progress -- Mat'ls and Supplies (Note 4)................................. 2,662,774,289
Other Assets (Note 9).................................................................... 35,796,320,125
---------------------
Total Investments and Other Assets................................................... 46,652,535,442
---------------------
CURRENT ASSETS
Cash and Cash Equivalents (Note 10)...................................................... 3,487,637,621
Accounts Receivable
Power Customers -- Net (Note 11)........................................................ 13,247,044,313
Others -- Net (Note 12) . . . . . . . . . .............................................. 2,957,382,545
Materials and Supplies for Operation (Note 13)........................................... 12,167,667,587
Advances (Note 14)....................................................................... 1,122,626,627
Prepayments (Note 15).................................................................... 789,216,744
Court and Other Deposits................................................................. 167,039,668
Cash Advances -- Officers and Employees.................................................. 7,406,071
---------------------
Total Current Assets................................................................. 33,946,021,177
---------------------
DEFERRED CHARGES (Note 16)................................................................. 151,609,042,292
---------------------
CONTINGENT ASSETS (Note 17)................................................................ 1,421,294,484
---------------------
TOTAL ASSETS............................................................................... 862,096,647,033
=====================
PROPRIETARY CAPITAL and LIABILITIES
PROPRIETARY CAPITAL
Capital Stock (Peso)100 par value
Authorized -- (Peso)50,000,000,000 divided into 500,000,000 shares Issued -- 270,488,708
in 1999 (Note 18)....................................................................... (Peso) 27,048,870,789
Donated Capital (Note 19)................................................................ 4,027,817,707
Retained Earnings (Note 20).............................................................. (2,828,670,820)
Appraisal Capital........................................................................ 95,703,365,584
Contingent Surplus....................................................................... 1,421,294,485
---------------------
Total Proprietary Capital............................................................ 125,372,677,745
---------------------
LONG-TERM DEBTS (Net of Current Portion) (Note 21)......................................... 238,824,977,288
---------------------
LEASE OBLIGATION -- BOT (Note 22).......................................................... 406,200,592,454
---------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses.................................................... 27,028,142,497
Retention on Contract Payments........................................................... 1,215,100,022
Deposits and Trust Funds (Note 21 & Note 23)............................................. 2,831,854,735
Dividends Payable........................................................................ 30,215,838
Lease Payable (Note 22).................................................................. 22,122,560,635
Notes Payable............................................................................ 1,550,000,000
Interest Payable......................................................................... 4,785,783,838
Current Portion of Long-Term Debts....................................................... 30,681,544,941
---------------------
Total Current Liabilities............................................................ 90,245,202,506
---------------------
DEFERRED CREDITS (Note 24)................................................................. 1,453,197,040
---------------------
TOTAL PROPRIETARY CAPITAL and LIABILITIES.................................................. (Peso)862,096,647,033
=====================
2000
---------------------
pesos
ASSETS
UTILITY PLANT at Appraised Values (Notes 2 & 3)............................................ (Peso)459,274,704,521
Less: Accum. Depr'n and Depletion (Notes 2 & 3).......................................... 215,469,607,490
---------------------
Net Utility Plant........................................................................ 243,805,097,031
Construction Work in Progress (Note 4)................................................... 29,721,356,325
---------------------
Total Utility Plant.................................................................. 273,526,453,356
---------------------
EPS under CAPITAL LEASE (Note 5)........................................................... 360,033,658,714
---------------------
INVESTMENTS and OTHER ASSETS
Investment in Government and Other Corporations (Note 6)................................. 148,482,469
Non-Utility Property -- Net (Note 7)..................................................... 6,697,763,868
Accounts and Other Receivables -- Net (Note 8)........................................... 5,254,143,176
Constr. Work in Progress -- Mat'ls and Supplies (Note 4)................................. 2,337,790,548
Other Assets (Note 9).................................................................... 39,550,039,561
---------------------
Total Investments and Other Assets................................................... 53,988,219,622
---------------------
CURRENT ASSETS
Cash and Cash Equivalents (Note 10)...................................................... 2,752,117,067
Accounts Receivable
Power Customers -- Net (Note 11)........................................................ 20,828,032,941
Others -- Net (Note 12) . . . . . . . . . .............................................. 2,868,450,648
Materials and Supplies for Operation (Note 13)........................................... 13,201,407,320
Advances (Note 14)....................................................................... 578,111,970
Prepayments (Note 15).................................................................... 830,017,909
Court and Other Deposits................................................................. 103,171,487
Cash Advances -- Officers and Employees.................................................. 3,398,735
---------------------
Total Current Assets................................................................. 41,164,708,077
---------------------
DEFERRED CHARGES (Note 16)................................................................. 259,646,293,722
---------------------
CONTINGENT ASSETS (Note 17)................................................................ 1,414,670,644
---------------------
TOTAL ASSETS............................................................................... 989,774,004,135
=====================
PROPRIETARY CAPITAL and LIABILITIES
PROPRIETARY CAPITAL
Capital Stock (Peso)100 par value
Authorized -- (Peso)50,000,000,000 divided into 500,000,000 shares Issued -- 270,488,708
in 1999 (Note 18)....................................................................... (Peso) 27,048,870,789
Donated Capital (Note 19)................................................................ 3,985,874,212
Retained Earnings (Note 20).............................................................. (17,120,169,294)
Appraisal Capital........................................................................ 95,801,691,348
Contingent Surplus....................................................................... 1,414,670,644
---------------------
Total Proprietary Capital............................................................ 111,130,937,699
---------------------
LONG-TERM DEBTS (Net of Current Portion) (Note 21)......................................... 292,000,807,629
---------------------
LEASE OBLIGATION -- BOT (Note 22).......................................................... 485,805,843,742
---------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses.................................................... 35,719,940,417
Retention on Contract Payments........................................................... 755,480,126
Deposits and Trust Funds (Note 21 & Note 23)............................................. 3,371,462,068
Dividends Payable........................................................................ 30,215,838
Lease Payable (Note 22).................................................................. 25,827,603,184
Notes Payable............................................................................ --
Interest Payable......................................................................... 5,650,902,433
Current Portion of Long-Term Debts....................................................... 27,078,596,473
---------------------
Total Current Liabilities............................................................ 98,434,200,539
---------------------
DEFERRED CREDITS (Note 24)................................................................. 2,402,214,526
---------------------
TOTAL PROPRIETARY CAPITAL and LIABILITIES.................................................. (Peso)989,774,004,135
=====================
See accompanying Notes to Financial Statements.
F-20
NATIONAL POWER CORPORATION
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1999 and 2000
1999 2000
-------------------- ---------------------
pesos pesos
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss).......................................... (Peso)(5,953,359,081) (Peso)(12,963,767,536)
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities
Depreciation.............................................. 14,294,511,392 13,586,547,454
Depletion................................................. 753,264,000 828,988,000
Amortization of Capacity fee.............................. 8,946,617,561 15,327,380,562
Amortization of Discount on Debt buy-back................. (119,035,527) --
Amortization of Bank Charges on DBB....................... 9,962,289 --
Amortization of Bond issue cost........................... 30,652,424 152,842,595
Amortization of Bond Discount............................. 9,963,499 11,462,239
Amortization of Deferred Forex Differential............... 7,345,360,954 14,605,367,977
Amortization of SPEED Benefit............................. 350,000,000 764,870,622
Amortization of Financial Assistance...................... 81,937,409 165,700,784
Revaluation of Loan charged to Gain on FOREX Fluctuation.. 1,146,556,519 928,804,671
Revaluation of KEPCO Trust Deposit charged to Gain on
FOREX Fluctuation........................................ 53,465,355 369,964,579
(Gain) /Loss on Retirement of Assets...................... (322,887,479) (1,018,956)
Currency Conversion from SDR to $......................... -- 23,889,996
Condonation of loan charge to Gain on CERA................ -- (119,823)
Changes in Operating Assets and Liabilities
Net of Effects from --
Decrease (Increase) in:
Power Customers Receivables............................. (1,176,350,447) (7,535,155,800)
Other Current Receivables............................... 1,570,712,057 4,682,724
Materials and Supplies for Operation.................... 844,250,963 (1,128,710,214)
Advances................................................ 267,949,820 (61,780,166)
Prepayments............................................. (48,373,335) (40,801,164)
Court and Other Deposits................................ 34,260,374 55,527,490
Cash Advances to Officer & Employees.................... (2,484,379) 4,007,336
Invest. In Gov't Bonds and Other Corp................... (3,500) --
Accounts and Other No-Current Receivable................ (110,290,561) 215,859,341
Other Assets (Note 9)................................... 583,652,697 169,360,045
Other Deferred Credits.................................. (1,793,966,475) (293,771,019)
Increase (Decrease) in:
Accounts Payable and Accrued Exp........................ 1,934,846,996 8,302,213,094
Retention on Contract Payments.......................... (1,119,686,267) (452,393,281)
Deposits and Trust Funds................................ 1,277,626,852 473,682,975
Interest Payable........................................ 460,333,227 866,052,193
Other Deferred Credits.................................. 56,962,833 616,558,446
Receipt of Tax Credit Certificates........................ 69,440,348
Correction of Prior Years Income.......................... (374,242,385) (877,590,036)
Total Adjustments.......................................... 35,055,007,214 47,082,432,663
-------------------- ---------------------
Net Cash Provided for Operating Activities................. (Peso)29,101,648,133 (Peso) 34,118,665,127
F-21
NATIONAL POWER CORPORATION
STATEMENT OF CASH FLOWS -- (Continued)
For the Years Ended December 31, 1999 and 2000
1999 2000
--------------------- ---------------------
pesos pesos
CASH FLOWS FROM INVESTING ACTIVITIES
Construction Expenditures...................................... (Peso)(10,928,332,771) (Peso) (9,712,223,717)
Additions to:
Sale of Power Barges......................................... 2,111,986,647 --
(Inc) /Dec in Preliminary Surveys and Investigations......... 35,998,500 63,582,820
(Inc) /Dec in Investment in MEC.............................. (41,091,828) (17,242,943)
Net Cash Used in Investing Activities........................... (8,821,439,452) (9,665,883,840)
--------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings..................................................... 38,276,936,798 9,009,629,062
Bond Floatation................................................ 20,156,500,000
Increase/ Decrease in Notes Payables........................... (5,400,310,000) (1,550,000,000)
Grants......................................................... 128,470,121 (41,943,495)
Due to Phil. Government........................................ 1,952,950,000
Advances -- National Government................................ 6,759,723,724 332,449,038
Payment of Capacity Fees -- BOT................................ (13,402,372,593) (23,412,699,784)
Payment of Advances Bureau if Treasury......................... (6,422,437,917)
Payment of Loans............................................... (19,930,683,900) (28,016,150,081)
Payment of KEPCO Deposit....................................... (527,296,500) (362,817,000)
Advances to SRMPP Non-Power Components......................... (4,883,096,133) (7,248,322,545)
(Increase) /Decrease in Bond Sinking Fund...................... (11,645,291) (11,645,291)
(Increase) /Decrease in Other Assets -- Cash Restricted Account (16,696,646,888) 5,956,698,255
Net Cash Provided by Financing Activities....................... (20,156,408,579) (25,188,301,841)
--------------------- ---------------------
Net Increase (Decrease) in Cash and Cash Equivalent............. 123,800,102 (735,520,554)
Cash and Cash Equivalents @ Beginning of Year................... 3,363,837,519 3,487,637,621
--------------------- ---------------------
Cash and Cash Equivalents @ End of Year......................... (Peso) 3,487,637,621 (Peso) 2,752,117,067
===================== =====================
F-22
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Primary Function
The primary function of the Corporation is the total electrification of the
Philippines through the development of power from all sources to meet the needs
of rural electrification, in coordination with/and supported by the agencies of
the government.
2. Significant Accounting Policies
A. Utility Plant and Depreciation
Utility plant is carried in the books at appraised values, except for
additions during the year which are recorded at cost. These assets are revalued
in consonance with NPC's loan covenants with creditor banks and in pursuant to
SFAS No. 12 which permits revaluation of properties, plant and equipment.
B. Appraisal of Utility Plant
Electric Plant in Service are recorded at appraised values in compliance
with ADB's and World Bank's loan covenants and in pursuance to Statement of
Financial Accounting Standard No. 12 which permits the appraisal of property,
plant and equipment.
An independent appraiser conducts the review and appraisal of NPC's assets
once every four years. In the interim, NPC undertakes the internal revaluation
which is adjusted when there are variances between internally appraised figures
and those of the independent appraisers.
The difference between the new over the old appraised values is recorded
under the Appraisal Capital account. This account is treated as a permanent
account and is not diminished by any depreciation charges, following Par. 17 of
SFAS No. 12.
C. Capitalization of Interest
Interest incurred on external borrowings which relate to capital projects in
progress and prior to the commencement of operation are capitalized.
D. Allocation of Support Group Expenses
Expenses of the Home Office Support Group are allocated between operation
and construction. The allocation rate is based on the extent of support
services rendered to operations and capital projects. The present ratio of
operating expenses to capital expenses is 75/25.
Cost Center services that cannot be clearly classified as well as expenses
identified as having no direct effect to projects are treated as one hundred
percent operating expenses.
E. Investments
Local investments are valued at purchase price while foreign investments are
recorded at the date of the transaction using standard booking rates equivalent
to the Bangko Sentral ng Pilipinas ("BSP") guiding rate on the last working day
of the preceding year. Foreign investment balances are then revalued at the end
of each year using the BSP guiding rates.
Interest earnings on placements follow the accrual method of accounting:
however for short dated placements of less than a month, the interest earnings
are recognized in the books at maturity dates.
F-23
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
F. Receivables
Power and other receivables are stated net of allowance for doubtful
accounts. Allowances are determined through the specific identification of
uncorrectable accounts.
G. Materials and Supplies for Operation
Materials and supplies for operation can be categorized into fuel (and other
related product) and non-fuel. The Fuel M & S are composed of the fuel oil,
diesel, coal & thermal chemical stocks used by NPC plants for power generation.
These inventories are valued using the last-in-first out ("LIFO") method.
The non-Fuel M & S, on the other hand, are valued using the moving average
method and can be further broken down into the non-Fuel M & S of NPC plants and
areas and those non-Fuel M & S assigned to private IPPs.
H. Deferred Taxes and Duties
By virtue of FIRB# 17-87 of the Department of Finance, the Corporation is
exempt from payment of taxes and duties on local oil purchases. Oil suppliers
bill NPC at gross selling price inclusive of taxes and duties. Fuel deliveries
and consumption are recorded in the books net of taxes and duties. Said taxes
and duties are recognized as Deferred Taxes and Duties representing claims from
the Bureau of Internal Revenue and Bureau of Customs. Upon receipt of Tax
Credit Certificates, the refund is debited to Accounts Receivable-Others and a
corollary entry is made by a debit to Other Expense and a credit to Other
Income.
I. Accounting for Foreign Exchange Fluctuation
Transactions denominated in foreign currencies are recorded at standard
booking rate and then restated at the end of the year using the rate of
exchange ruling at the balance sheet date. Foreign exchange differentials
accruing on loans for projects under construction are recorded as project cost
while differentials on the restatement of outstanding loans used for operating
plants are debited to deferred FOREX Differential account and are being
amortized over the remaining life of the loan.
On the other hand, foreign exchange difference from restatement of working
capital loans are recorded as gain/loss on foreign exchange ("FOREX")
fluctuation. Payments of loans and interest thereof are recorded at prevailing
exchange rate at date of transaction. Any difference thereof from the booking
rate is likewise treated as gain/loss on Forex fluctuation.
J. Accounting Treatment for BOT Projects
Total capacity fees for the duration of the cooperation period are
recognized outright in the books by a debit to Electric Plant under Capital
Lease account and a corresponding credit to Lease Obligation under the
Long-Term Debts for the unpaid portion of the capital recovery fees. Hopewell
Pagbilao and Sual Coal Fired Thermal Power Plant are amortized over 29 and 25
years, respectively while the rest of BOT assets are amortized over 20 years.
Lease Obligation denominated in foreign currencies are restated at year-end
exchange rate. Foreign exchange differentials on these restatements are debited
to the Deferred FOREX Differential and amortized over the remaining life of the
individual IPP contracts.
F-24
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
K. Income Determination
The Corporation uses the accrual method and an all inclusive concept of
income determination wherein all ordinary and extraordinary items pertaining to
current period are considered in computing net income while items applicable to
prior periods are recorded as adjustment of prior years' income and are
reflected in the Statement of Retained Earnings.
L. Composition of Rate Base
Rate Base is the average value of the net fixed assets in operation at the
beginning and at the end of each year. The value of net fixed assets in
operation equals the gross value of the operating assets less the amount of
accumulated depreciation.
Plants undergoing major rehabilitation/repair and which are out of operation
for less than one calendar year are included in the computation of Rate Base.
3. Utility Plant
Total Utility Plant consists of the following:
Historical Cost Appraised Cost
------------------------------------------- -------------------------------------------
Plant Type 2000 1999 2000 1999
- ---------- --------------------- --------------------- --------------------- ---------------------
ELECTRIC PLANTS IN
SERVICE:
DEPRECIABLES:
Steam Production Plant.... (Peso) 73,401,438,789 (Peso) 93,242,558,971 (Peso)161,906,381,366 (Peso)176,817,191,945
Hydraulic Production Plant 15,456,345,730 15,423,627,526 75,332,683,228 75,274,954,111
Other Production Plant.... 18,072,221,794 33,020,692,977 38,359,962,974 45,549,013,214
Transmission Plant........ 92,427,736,077 88,397,402,919 146,231,837,733 142,143,255,486
Distribution Plant........ 68,832,254 67,523,226 190,668,469 194,092,098
General Plant............. 7,182,889 23,308,713 10,713,963 21,516,406
LANDS AND LANDHOLDINGS:
Steam Production Plant.... 392,772,193 371,340,745 1,383,191,181 1,662,203,950
Hydraulic Production Plant 211,565,829 211,553,100 1,371,128,483 1,371,128,483
Other Production Plant.... 12,788,102 12,287,365 114,227,621 140,753,229
Transmission Plant........ 824,985,159 840,435,142 2,422,763,980 2,399,543,365
General Plant............. 10,394,260 10,394,260 1,462,241,000 1,462,241,000
EPS Land on Lease.......... 6,860,182 6,860,182 187,738,000 187,738,000
OTHER UTILITY PLANTS....... 7,844,277,731 7,644,366,430 30,301,166,523 30,099,540,493
(Peso)207,737,400,989 (Peso)239,272,351,556 (Peso)459,274,704,521 (Peso)477,323,171,780
ACCUMULATED
DEPRECIATION and
DEPLETION
DEPRECIATION............... 57,231,335,472 51,645,032,660 175,635,075,424 183,287,659,481
Steam Production Plant..... 21,736,093,242 21,864,241,254 62,059,936,184 72,808,728,561
Hydraulic Production Plant. 6,111,537,732 5,765,211,520 39,478,622,052 37,802,977,287
Other Production Plant..... 8,970,854,204 9,390,244,225 20,463,118,405 23,191,527,304
Transmission Plant......... 20,385,801,627 14,603,496,654 53,494,085,665 49,346,265,644
Distribution Plant......... 22,262,428 20,903,942 133,162,789 132,162,511
General Plant.............. 4,786,239 9,935,065 6,150,329 5,998,174
DEPLETION.................. 4,926,994,095 4,420,664,555 15,449,926,166 14,582,516,626
F-25
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Historical Cost Appraised Cost
------------------------------------------- -------------------------------------------
Plant Type 2000 1999 2000 1999
- ---------- --------------------- --------------------- --------------------- ---------------------
OTHER UTILITY PLANTS 3,409,049,148 3,140,561,939 24,384,605,900 24,004,894,271
65,567,378,715 59,215,259,154 215,469,607,490 221,875,070,379
NET UTILITY PLANT... (Peso)142,170,022,274 (Peso)180,057,092,402 (Peso)243,805,097,031 (Peso)255,488,101,401
===================== ===================== ===================== =====================
4. Construction Work in Progress ("CWIP")
Cost of projects under construction is presented as Construction Work in
Progress while stock inventory intended for projects but still in the custody
and within the responsibility of project custodians and stock inventory still
in transit are segregated from the account and classified under Investment and
Other Assets, as follows:
2000 1999
-------------------- --------------------
Construction Work in Progress --
Work Order..................... (Peso)29,721,356,325 (Peso)22,159,382,891
Construction Work in Progress --
Materials and Supplies......... 2,337,790,548 2,662,774,289
-------------------- --------------------
(Peso)32,059,146,873 (Peso)24,822,157,180
==================== ====================
5. Electric Plant Under Capital Lease
This account represents the total computed capacity fees of BOT Projects for
the duration of the cooperation period.
2000 1999
--------------------- ---------------------
Electric Plant under Capital Lease (Peso)408,206,958,161 (Peso)383,706,188,231
Accumulated Amortization.......... (48,173,299,447) (32,845,918,885)
--------------------- ---------------------
(Peso)360,033,658,714 (Peso)350,860,269,346
===================== =====================
6. Investment in Government and Other Corporations
Investments in governing and other corporations consists substantially of
investments in sinking funds held for the Corporation's long-term bonds payable.
7. Non-Utility Property
Non-utility property account consists of:
Historical Coat Appraised Cost
---------------------------------------- -----------------------------------------
Plant Type 2000 1999 2000 1999
- ---------- -------------------- ------------------- -------------------- --------------------
Non-Utility Lands. 138,873,245 78,881,838 516,113,715 211,573,354
Non-Utility Plants 11,134,305,549 3,268,970,599 38,940,300,204 14,147,013,125
(Peso)11,273,178,794 (Peso)3,347,852,437 (Peso)39,456,413,919 (Peso)14,358,586,479
Accumulated
Depreciation.... 8,228,432,140 2,835,195,701 32,758,650,051 11,749,413,136
NON-UTILITY
PROPERTY
Net............... (Peso) 3,044,746,654 (Peso) 512,656,736 (Peso) 6,697,763,868 (Peso) 2,609,173,343
F-26
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
8. Account & Other Receivables
This account consists of:
2000 1999
------------------- -------------------
Non-Current Receivables...... (Peso)5,134,871,870 (Peso)5,230,034,203
Non-Current Power Receivables 691,641,305 737,478,416
Non-Current Lease Receivable. 1,725,811 7,721,205
------------------- -------------------
Total........................ 5,828,238,986 5,975,233,825
Allowance for Bad-Debts...... (574,095,810) (527,803,318)
------------------- -------------------
(Peso)5,254,143,176 (Peso)5,447,430,507
=================== ===================
Non-current receivable includes the (Peso)1.707 Billion Royalty Fees paid to
PNOC-EDC for the unutilized geothermal energy from July 1996 to December 1998
and the receivables from MWSS for their utilization of Angat Dam regarding the
Optimization project of the government from 1992 to 1997 in the amount of
(Peso)3.133 Billion.
9. Other Assets
Other assets substantially consists of:
2000 1999
-------------------- --------------------
Stored Energy -- Leyte A & B............. (Peso) 5,665,717,199 (Peso) 5,837,985,907
Cash-Restricted.......................... 13,885,246,025 19,841,944,280
Investment in Maintenance Eng'g Ctr...... 177,978,802 160,735,859
Advances to San Roque Non-Power Component 19,781,905,736 9,918,437,300
Stock for Disposal....................... 39,191,799 37,216,779
-------------------- --------------------
TOTAL................................. (Peso)39,550,039,561 (Peso)35,796,320,125
==================== ====================
The Cash Restricted pertains to the funds intended for purposes other than
current operations and therefore not immediately available to management for
any disbursement transactions other than its specified purpose.
Stored energy which is booked under Court and Other Deposit is presented in
the Balance Sheet as Other Assets in the amount of (Peso)2.1 Billion and
(Peso)3.6 Billion for Leyte A & B, respectively. The said amounts represent
advance payments made to PNOC-EDC for the cost of contracted energy for Leyte A
& B.
The San Roque Multi Purpose Project ("SRMPP") pertains to the construction
of the Non-Power components such as Watershed Management, water quality, flood
control and irrigation of the project. The Memorandum of Agreement ("MOA")
covering this said project provides that NPC shall be reimbursed by Department
of Agriculture/National Irrigation Administration, Department of Environment
and Natural Resources ("DENR") and Department of Public Works and Highways
("DPWH") in the amount and terms specified in the MOA through the Department of
Finance ("DOF").
F-27
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
10. Cash and Cash Equivalents
This account is composed of:
2000 1999
------------------- -------------------
Cash in Bank (Peso)2,516,489,325 (Peso)3,380,768,734
Cash on Hand 202,638,207 71,054,750
Working Fund 32,989,535 35,814,137
------------------- -------------------
(Peso)2,752,117,067 (Peso)3,487,637,621
=================== ===================
11. Power Customers Receivables
Receivable from power customers consists of:
2000 1999
-------------------- --------------------
Power Receivables............. (Peso)16,207,805,757 (Peso)13,072,702,406
Accrued Utility Revenue....... 6,996,635,855 2,091,859,866
Restructured Power Receivables 32,988,379 44,996,557
-------------------- --------------------
Total......................... 23,237,429,991 15,209,558,829
Allowance for Bad Debts....... (2,409,397,050) (1,962,514,516)
-------------------- --------------------
(Peso)20,828,032,941 (Peso)13,247,044,313
==================== ====================
12. Other Receivables
Other receivables consists of:
2000 1999
------------------- -------------------
Tax Credit Certificates.............. (Peso) 886,417,504 (Peso)1,389,085,478
Receivables from National Government. 524,715,368 461,379,859
Interest............................. 177,165,297 126,698,452
Rent................................. 343,553,477 186,226,527
Receivables from Officers & Employees 10,488,868 9,346,022
Recoverable from Insurance Co........ 296,375 844,764
Receivable -- Others................. 1,362,686,992 1,235,899,209
------------------- -------------------
Total................................ 3,305,323,881 3,409,480,312
Allowance for Bad Debts.............. (436,873,233) (452,097,766)
------------------- -------------------
(Peso)2,868,450,648 (Peso)2,957,382,545
=================== ===================
Receivable -- Others account consists of:
2000 1999
------------------- -------------------
Receivables from Private Co..... (Peso) 884,691,772 (Peso) 807,256,281
Others.......................... 394,766,493 303,964,373
Receivable -- Fuel Oil Suppliers 83,228,727 124,678,555
------------------- -------------------
(Peso)1,362,686,992 (Peso)1,235,899,209
=================== ===================
F-28
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
13. Materials and Supplies for Operation
The account consists of:
2000 1999
-------------------- --------------------
Materials, Supplies & Equip. Invty....... (Peso) 5,712,420,023 (Peso) 5,694,427,585
Asset in Trust for Prvt. Pwr. Contractors 3,351,277,661 2,320,555,691
MSE in Transit -- Operating Plants....... 1,618,746,906 1,098,507,522
Stock Transfer Clearing Accounts......... 1,087,415,136 1,252,973,045
Diesel................................... 198,941,236 212,680,728
Materials, Supply Temporary Adj.......... 264,425,941 563,334,771
Coal..................................... 294,535,218 518,376,716
Fuel Oil................................. 525,538,568 370,745,697
Aviation Fuel & Other Oil Products....... 106,212,760 80,726,725
Thermal Chemicals........................ 39,023,243 56,422,010
Stock for Transshipment.................. 10,905,625 36,149,808
Fuel Temporary Adjustment Acct........... (10,310,279) (39,045,205)
Gasoline................................. 2,275,282 1,812,494
-------------------- --------------------
Total.................................... (Peso)13,201,407,320 (Peso)12,167,667,587
==================== ====================
14. Advances
Advances consists of:
2000 1999
----------------- -------------------
Advances to contractors.................. (Peso)492,853,074 (Peso)1,010,969,959
Advances to Philippine Geothermal........ 39,647,320 79,963,577
Advances to Gov't Bodies and Institutions 45,611,576 31,693,091
----------------- -------------------
Total.................................... 578,111,970 1,122,626,627
================= ===================
15. Prepayments
Prepayments consist of:
2000 1999
----------------- -----------------
Marginal and Guaranty Deposits (Peso)818,424,350 (Peso)777,284,674
Prepaid Charges/Expenses...... 11,593,559 11,932,070
----------------- -----------------
Total......................... (Peso)830,017,909 (Peso)789,216,744
================= =================
F-29
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
16. Deferred Charges
Deferred charges includes:
2000 1999
--------------------- ---------------------
Deferred FOREX Differential........ (Peso)246,838,525,736 (Peso)139,665,309,290
Other Deferred Debits.............. 6,742,680,023 5,814,685,369
Deferred Taxes & Duties............ 3,444,606,897 3,314,058,192
Preliminary Surveys & Investigation 1,204,262,177 1,267,218,125
Deferred Financial Assistance...... 751,244,247 891,055,649
Discount on NPC Bonds Payable...... 227,969,433 231,723,933
Deferred repairs & Maintenance..... 202,930,073 250,983,825
Others............................. 234,075,136 174,007,909
--------------------- ---------------------
Total.............................. (Peso)259,646,293,722 (Peso)151,609,042,292
===================== =====================
The Deferred FOREX Differential mainly includes the restatement of the
outstanding balances of foreign currency denominated loans and lease obligation
on BOT plants while the bulk of Other Debits includes expenses set up for the
SPEED benefits of NPC employees. The Deferred Taxes and Duties pertains to the
tax and duty exemption privileges of the Corporation in its purchase of
petroleum products which are paid by the Corporation at gross. Such taxes and
duties shall become refundable by tax collecting agencies such as BIR and the
Bureau of Customs.
17. Contingent Assets/Surplus
The account consists of disallowances in post-audit, as well as claims for
unrelieved losses of NPC properties and claims for all established inventory
shortages of Property Custodians. The contra account for these Contingent
Assets is Contingent Surplus which is presented as part of the capital accounts
in the Balance Sheet.
18. Capital Stock
No additional Capital Stock was issued in 2000. The last issuance was made
in 1999 equivalent to 5,918,550 shares representing partial payment of the
stock dividend declared in CY 1994.
19. Donated Capital
These are grants received from foreign governments and lending institutions
which were used to finance the implementation of various projects of NPC.
20. Retained Earnings
Retained Earnings were appropriated for Bond Sinking Fund equivalent to 5%
of Net Operating Income as provided by the NPC Charter.
F-30
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
21. Long-Term Debts
This account consists of:
2000 1999
--------------------- ---------------------
Foreign Loans & Other Long-term Debts.... (Peso)231,875,748,698 (Peso)218,304,926,003
NPC Bonds Payable........................ 75,919,480,000 41,591,130,000
Due to Phil. Gov't & its Agencies........ 7,409,330,404 6,123,391,726
KEPCO Security Deposit................... 3,874,845,000 3,487,074,500
--------------------- ---------------------
319,079,404,102 269,506,522,229
--------------------- ---------------------
Less Current Portion
-- Foreign Loans & Other Long-term Debts 26,893,420,701 30,532,238,909
-- Due to Phil. Gov't & its Agencies.... 185,175,772 149,306,032
27,078,596,473 30,681,544,941
--------------------- ---------------------
Total.................................... (Peso)292,000,807,629 (Peso)238,824,977,288
===================== =====================
Foreign loans are restated at year-end based on the following BSP guiding
rates on foreign currencies:
BSP Guiding Rates
-----------------
12-31-00 12-31-99
-------- --------
Dollar............. $1 49.9980 40.3130
Yen................ (Yen) 1 0.4368 0.3938
Austrian Schilling. AS1 3.3788 2.9502
Deutsche Mark...... DM1 23.7715 20.7560
French Franc....... FF1 7.0878 6.1887
Swiss Franc........ SFR1 30.5873 25.2936
Great Britain Pound GBP 1 74.7470 65.1055
22. Lease Obligation--BOT
This account consists of:
2000 1999
--------------------- ---------------------
Lease Obligation..... 511,633,446,926 428,323,153,089
Less: Current Portion 25,827,603,184 22,122,560,635
--------------------- ---------------------
(Peso)485,805,843,742 (Peso)406,200,592,454
===================== =====================
Total capacity fees for BOT Plants were recorded as Electric Plant under
Capital Lease with a corresponding credit to Lease Obligations. Estimated
capacity fees amounting to (Peso)26 billion payable in 2000 was set-up to
current liabilities under the Current Portion of Lease Obligation account.
23. Deposits and Trust Funds
The account substantially consists of the (Peso)3.176 Billion total payments
made through Escrow agent representing 60% of the service fees required in the
90 day provisional agreement executed with Philippine Geothermal. The original
service contract with PGI expired on September 30, 1996.
F-31
NATIONAL POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
24. Deferred Credits
Deferred Credits include advances for other work in progress, advances from
Bureau of Treasury for servicing the indebtedness of NPC.
25. FOREX Recovery
For proper matching of cost and revenue, recovery from FOREX I, which is a
recovery of peso fluctuation on principal repayments, is recorded as other
income while FOREX II is a recovery of foreign denominated other operating
expenses is recorded as part of operating revenue.
Effective August 26, 1994, the corporation included in the customer's power
bills Foreign Exchange Adjustment charges intended to recover the Corporation's
foreign exchange losses arising from the servicing of its principal
indebtedness ("FOREX I") and related foreign operating expenses ("FOREX II").
26. Privatization and Subsidization
Pursuant to Board Resolution No. 96-148 dated June 24, 1996, privatization
related expenses were classified from Operating Expenses to Other Expenses. In
1997, these include the cost of retirement benefits such as gratuity pay,
terminal and accrued leaves and expenses incurred by Privatization and
Restructuring External Office ("PREO"). However, since the imminent
privatization of NPC is clearly unrelated to its ordinary and typical
activities, which is expected to benefit one or more future periods, the
corresponding cost of retirement benefits, such as gratuity pay, terminal and
accrued leaves related to operation was treated as deferred debits to be
amortized over two (2) years starting the succeeding year, while, the cost of
benefit pertaining to Engineering was treated as part of the Construction Work
in Progress.
For CY 2000, the amount certified for obligation in 2001 is (Peso)190
Million and (Peso)1,940 Million for Engineering and Non-Engineering,
respectively.
27. Taxes & Licenses
Pursuant to BIR Ruling #018-2000, Section 32 (B) (7) (b) of the Code (supra)
dated January 20, 2000, the income of the National Power Corporation from its
operations as a public utility shall be exempt from corporate income tax.
The enactment of the local government code has empowered the Local
Government Units to create their own sources of revenue and to levy taxes.
Pursuant to this, effective January, 1992, the payment of realty, franchise tax
and Local Government Unit's share in the national wealth became a contracted
obligation of NPC. Total taxes in 2000 amounted to (Peso)1,128 Million.
28. PNOC-EDC Shortfall Billings
PNOC-EDC has informed the Corporation that it has outstanding receivables on
fuel shortfall from NPC in the amount of (Peso)754.0 Million. The account has
been left under the advisement until the same can be included in the design of
NPC power rates. NPC has not recognized this account.
29. Pending Cases
The Corporation is a defendant in several lawsuits involving a total of
(Peso)7.922 Billion and a claimant in other lawsuits amounting to (Peso)3.376
Million.
F-32
INDEX TO DEBT TABLES OF THE REPUBLIC OF THE PHILIPPINES
Page
----
Guaranteed External Debt of the Republic of the Philippines..... T-2
External Debt of the Republic of the Philippines................ T-9
Domestic Government Securities.................................. T-21
Government Guaranteed Corporate Bonds........................... T-32
Domestic Debt of the Republic (Other Than Securities)........... T-33
Guaranteed Domestic Debt of the Republic (Other Than Securities) T-35
T-1
GUARANTEED EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES
As of December 31, 2001
(in millions)
Interest Rate/ Original Amount Contracted
Spread/ --------------------------
Service Charge Year Year of (In original (In US
Currency Interest Rate Basis (Per annum) Contracted Maturity currency) dollars)(2)
- -------- ------------------- -------------- ---------- -------- ------------ -----------
Grand Total 15,088.04
I. National Government Direct Guarantee on GOCC Loans 14,695.99
---------
A Loans 12,875.86
---------
Canadian Dollars 9.2000% 1991 2003 23.54 14.74
----- -----
Fixed Rate
Swiss Francs 81.46 48.52
----- -----
Fixed Rate 8.8750% 1992 2004 34.31 20.44
Swiss Export Base Rate 1.3750% 1993 2004 6.50 3.87
Swiss Export Base Rate 1.3750% 1993 2004 40.65 24.21
Deutsche Marks 850.93 384.22
------ ------
Fixed Rate 7.0000% 1995 2035 30.70 13.86
Fixed Rate 2.0000% 1990 2020 150.00 67.73
Fixed Rate 2.0000% 1988 2018 46.00 20.77
Fixed Rate 9.0000% 1992 2032 60.00 27.09
Fixed Rate 9.0000% 1993 2033 60.00 27.09
Fixed Rate 9.0000% 1993 2023 30.40 13.73
Fixed Rate 2.0000% 1981 2016 15.50 7.00
Fixed Rate 2.0000% 1981 2011 0.60 0.27
Fixed Rate 7.5000% 1995 2035 14.75 6.66
Fixed Rate 2.0000% 1981 2011 4.70 2.12
Fixed Rate 2.0000% 1979 2009 7.00 3.16
Fixed Rate 2.0000% 1979 2015 35.80 16.16
Fixed Rate 7.5000% 1995 2035 50.10 22.62
Fixed Rate 2.0000% 1979 2009 2.80 1.26
Fixed Rate 9.0000% 1993 2033 145.00 65.47
Fixed Rate 6.5000% 1996 2008 15.00 6.77
Fixed Rate 9.0000% 1995 2036 12.80 5.78
Fixed Rate 6.5000% 1996 2036 9.30 4.20
German Capital Market Rate 0.0000% 1991 2031 17.25 7.79
German Capital Market Rate 0.0000% 1992 2005 26.00 11.74
German Capital Market Rate 0.0000% 1993 2005 39.60 17.88
German Capital Market Rate 0.0000% 1993 2005 15.00 6.77
LIBOR-6 Mos. Deposit 1.0000% 1992 2004 18.70 8.44
LIBOR-6 Mos. Deposit 0.0000% 1994 2004 43.93 19.84
Euro 0.0000% 2000 2013 7.81 6.90
---- ----
Interest Free
Spanish Pesetas 1,262.24 6.70
-------- ----
Fixed Rate 2.5000% 1993 2013 631.12 3.35
Organization for Economic 0.0000% 1993 2004 631.12 3.35
Cooperation Development Rate
French Francs 554.46 74.64
------ -----
Fixed Rate 6.8500% 1994 2006 9.42 1.27
Fixed Rate 6.8500% 1994 2002 54.75 7.37
Fixed Rate 3.0000% 1990 2021 4.86 0.65
Fixed Rate 3.0000% 1990 2021 0.38 0.05
Fixed Rate 8.3000% 1991 2002 4.78 0.64
Fixed Rate 3.5000% 1979 2005 80.00 10.77
Fixed Rate 8.3000% 1990 2002 0.29 0.04
Fixed Rate 3.0000% 1990 2021 1.68 0.23
Fixed Rate 3.1000% 1994 2014 10.09 1.36
Fixed Rate 8.3000% 1990 2002 0.47 0.06
Fixed Rate 3.3000% 1994 2014 4.94 0.67
Fixed Rate 3.0000% 1990 2021 1.45 0.20
Fixed Rate 2.5000% 1991 2022 6.44 0.87
Fixed Rate 3.1000% 1994 2014 9.90 1.33
Fixed Rate 3.0000% 1990 2022 0.76 0.10
Fixed Rate 8.3000% 1990 2001 1.97 0.27
Fixed Rate 8.1000% 1994 2005 1.69 0.23
Fixed Rate 3.0000% 1988 2021 45.88 6.18
Fixed Rate 3.0000% 1990 2021 6.26 0.84
Fixed Rate 8.3000% 1990 2002 0.53 0.07
Fixed Rate 8.3000% 1990 2001 1.57 0.21
Fixed Rate 3.0000% 1990 2021 1.41 0.19
Outstanding Balance
as of December 31, 2001
------------------------
(In original (In US
Currency currency) dollars)(2)
- -------- ------------ -----------
Grand Total 9,176.89
I. National Government Direct Guarantee on GOCC Loans 8,856.17
--------
A 6,594.49
--------
3.53 2.21
---- ----
27.20 16.20
----- -----
8.58 5.11
2.18 1.30
16.44 9.79
427.74 193.13
------ ------
29.48 13.31
28.19 12.73
37.95 17.14
72.80 32.87
59.95 27.07
30.40 13.73
7.35 3.32
0.30 0.14
14.75 6.66
2.33 1.05
2.63 1.19
17.64 7.97
44.70 20.18
1.05 0.47
9.20 4.15
0.00 0.00
6.86 3.10
6.76 3.05
2.70 1.22
7.01 3.16
20.32 9.18
9.71 4.38
4.68 2.11
10.98 4.96
3.06 2.70
---- ----
772.75 4.10
------ ----
549.63 2.92
223.12 1.18
344.20 46.34
------ -----
5.58 0.75
0.40 0.05
4.86 0.65
0.38 0.05
0.24 0.03
13.99 1.88
0.03 0.00
1.68 0.23
9.86 1.33
0.05 0.01
4.76 0.64
1.41 0.19
6.44 0.87
9.67 1.30
0.76 0.10
0.00 0.00
0.59 0.08
40.15 5.40
6.11 0.82
0.05 0.01
0.00 0.00
1.34 0.18
T-2
GUARANTEED EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES -- (Continued)
(in millions)
Outstanding Balance
Interest Rate/ Original Amount Contracted as of December 31, 2001
Spread/ -------------------------- ------------------------
Service Charge Year Year of (In original (In US (In original (In US
Currency Interest Rate Basis (Per annum) Contracted Maturity currency) dollars)(2) currency) dollars)(2)
- -------- ------------------- -------------- ---------- -------- ------------ ----------- ------------ -----------
Fixed Rate 8.3000% 1990 2001 1.68 0.23 0.00 0.00
Fixed Rate 3.0000% 1990 2021 1.69 0.23 1.61 0.22
Fixed Rate 8.3000% 1990 2001 0.13 0.02 0.00 0.00
Fixed Rate 5.4500% 1990 2016 120.00 16.16 90.00 12.12
Fixed Rate 2.5000% 1991 2022 8.06 1.09 8.06 1.09
Fixed Rate 3.0000% 1990 2022 1.22 0.16 1.22 0.16
Fixed Rate 8.3000% 1990 2002 0.29 0.04 0.03 0.00
Fixed Rate 3.0000% 1990 2022 6.12 0.82 6.12 0.82
Fixed Rate 3.0000% 1990 2021 4.73 0.64 4.38 0.59
Fixed Rate 3.0000% 1990 2022 0.36 0.05 0.36 0.05
Fixed Rate 3.0000% 1990 2022 2.25 0.30 2.13 0.29
Fixed Rate 3.0000% 1988 2021 4.12 0.55 3.81 0.51
Fixed Rate 8.1000% 1994 2006 5.00 0.67 2.23 0.30
Fixed Rate 8.3000% 1990 2002 0.44 0.06 0.04 0.01
Fixed Rate 3.1000% 1994 2014 42.62 5.74 36.68 4.94
Fixed Rate 8.3000% 1990 2002 0.22 0.03 0.02 0.00
Fixed Rate 6.8700% 1996 2017 24.65 3.32 16.02 2.16
Fixed Rate 1.5000% 1996 2022 8.42 1.13 8.42 1.13
Fixed Rate 1.5000% 1996 2002 4.46 0.60 4.46 0.60
Fixed Rate 1.5000% 1996 2002 7.49 1.01 7.49 1.01
Fixed Rate 1.5000% 1996 2002 10.46 1.41 10.46 1.41
Fixed Rate 1.5000% 1996 2002 0.45 0.06 2.99 0.40
Fixed Rate 5.4500% 1991 2018 30.00 4.04 25.65 3.45
Fixed Rate 8.3000% 1990 2002 0.22 0.03 0.02 0.00
Fixed Rate 8.3000% 1991 2002 6.83 0.92 0.34 0.05
Fixed Rate 3.3000% 1994 2014 1.14 0.15 1.06 0.14
Fixed Rate 8.3000% 1990 2002 0.57 0.08 0.06 0.01
Fixed Rate 3.0000% 1990 2022 0.48 0.07 0.47 0.06
Fixed Rate 8.3000% 1990 2002 0.47 0.06 0.05 0.01
Fixed Rate 8.3000% 1990 2002 3.50 0.47 0.35 0.05
Fixed Rate 8.3000% 1990 2002 4.79 0.64 0.48 0.06
Fixed Rate 3.0000% 1990 2022 0.70 0.09 0.70 0.09
Fixed Rate 8.3000% 1990 2002 0.29 0.04 0.03 0.00
Fixed Rate 8.3000% 1990 2002 0.69 0.09 0.07 0.01
Fixed Rate 8.3000% 1990 2002 0.38 0.05 0.04 0.01
Korean Won 8,249.00 6.25 7,655.98 5.80
-------- ---- -------- ----
Fixed Rate 3.5000% 1995 2015 8,249.00 6.25 7,655.98 5.80
Fixed Rate 3.5000% 1995 2015 8,645.00 6.55 7.85 0.01
Pounds Sterling 20.77 30.18 4.94 7.18
----- ----- ---- ----
Fixed Rate 8.3000% 1990 2002 13.03 18.94 0.30 0.43
Fixed Rate 5.9500% 1995 2007 7.74 11.25 4.64 6.75
Japanese Yen 728,681.73 5,534.34 394,526.36 2,996.43
---------- -------- ---------- --------
Fixed Rate 6.5000% 1991 2002 2,250.58 17.09 225.06 1.71
Fixed Rate 2.5000% 1992 2022 6,686.00 50.78 6,686.00 50.78
Fixed Rate 6.5000% 1991 2003 13,214.97 100.37 2,640.80 20.06
Fixed Rate 3.0000% 1994 2024 15,000.00 113.93 12,699.81 96.46
Fixed Rate 2.5000% 1989 2006 5,003.68 38.00 4,943.68 37.55
Fixed Rate 6.5000% 1991 1999 2,201.88 16.72 0.00 0.00
Fixed Rate 2.5000% 1991 2021 30,084.00 228.49 28,616.48 217.34
Fixed Rate 6.0000% 1992 2004 27,073.09 205.62 0.00 0.00
Fixed Rate 2.7000% 1988 2002 1,936.96 14.71 1,936.95 14.71
Fixed Rate 6.5000% 1991 2011 12,215.94 92.78 7,985.70 60.65
Fixed Rate 3.0000% 1994 2024 22,500.00 170.89 22,500.00 170.89
Fixed Rate 5.5000% 1992 2010 20,550.00 156.08 4,586.55 34.83
Fixed Rate 4.7000% 1993 2009 17,812.50 135.29 7,325.25 55.64
Fixed Rate 2.5000% 1991 2007 6,705.49 50.93 0.00 0.00
Fixed Rate 2.0000% 1992 2006 891.52 6.77 0.00 0.00
Fixed Rate 2.5000% 1989 2002 987.56 7.50 0.00 0.00
Fixed Rate 5.8000% 1992 2004 27,885.85 211.79 7,154.39 54.34
Fixed Rate 7.5000% 1992 2003 18,820.15 142.94 0.00 0.00
Fixed Rate 2.5000% 1995 2025 5,283.00 40.12 172.17 1.31
Fixed Rate 2.1000% 1995 2025 848.00 6.44 359.86 2.73
Fixed Rate 2.5000% 1995 2025 1,104.00 8.38 836.48 6.35
Fixed Rate 2.1000% 1995 2025 248.00 1.88 285.79 2.17
Fixed Rate 2.7000% 1995 2025 11,394.00 86.54 9,624.38 73.10
Fixed Rate 2.3000% 1995 2025 921.00 6.99 1,048.22 7.96
Fixed Rate 2.7000% 1995 2025 2,224.00 16.89 1,366.30 10.38
T-3
GUARANTEED EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES -- (Continued)
(in millions)
Interest Rate/ Original Amount Contracted
Spread/Service --------------------------
Charge Year Year of (In original (In US
Currency Interest Rate Basis (Per annum) Contracted Maturity currency) dollars)(2)
- -------- ------------------- -------------- ---------- -------- ------------ -----------
Fixed Rate 2.7000% 1996 2026 22,837.00 173.45
Fixed Rate 2.3000% 1996 2026 1,875.00 14.24
Fixed Rate 2.7000% 1996 2026 10,184.00 77.35
Fixed Rate 2.3000% 1996 2026 310.00 2.35
Fixed Rate 2.5000% 1996 2026 5,000.00 37.98
Fixed Rate 2.1000% 1996 2026 158.00 1.20
Fixed Rate 2.3000% 1997 2027 8,760.00 66.53
Fixed Rate 2.7000% 1997 2027 14,011.00 106.41
Fixed Rate 2.3000% 1997 2027 449.00 3.41
Fixed Rate 2.7000% 1997 2027 7,747.00 58.84
Fixed Rate 2.3000% 1997 2027 339.00 2.57
Fixed Rate 2.7000% 1997 2027 14,638.00 111.18
Fixed Rate 2.3000% 1997 2027 334.00 2.54
Fixed Rate 2.5000% 1997 2027 5,903.00 44.83
Fixed Rate 2.1000% 1997 2027 1,325.00 10.06
Fixed Rate 2.5000% 1997 2027 386.00 2.93
Fixed Rate 2.1000% 1997 2027 648.00 4.92
Fixed Rate 2.5000% 1997 2027 1,927.00 14.64
Fixed Rate 2.1000% 1997 2027 819.00 6.22
Fixed Rate 2.2000% 1998 2028 13,788.00 104.72
Fixed Rate 0.7500% 1998 2038 767.00 5.83
Fixed Rate 2.2000% 1998 2028 19,532.00 148.35
Fixed Rate 0.7500% 1998 2038 458.00 3.48
Fixed Rate 2.2000% 1998 2028 3,064.00 23.27
Fixed Rate 1.7000% 1998 2028 2,193.00 16.66
Fixed Rate 0.7500% 1998 2038 815.00 6.19
Fixed Rate 2.2000% 1999 2028 3,064.00 23.27
Fixed Rate 1.7000% 1999 2028 2,193.00 16.66
Fixed Rate 2.2000% 1999 2040 16,450.00 124.94
Fixed Rate 0.9500% 2001 2041 39,455.00 299.66
Fixed Rate 0.7500% 2001 2041 2,476.00 18.81
Japan Long Term Prime 1.2500% 1994 2003 26,840.00 203.85
Japan Long Term Prime 1.2500% 1994 2003 31,500.00 239.24
Japan Long Term Prime Lending Rate 1.2500% 1994 2005 2,163.65 16.43
Japan Long Term Prime Lending Rate 0.0000% 1994 2014 12,400.00 94.18
Japan Long Term Prime Lending Rate 1.2500% 1994 2005 297.84 2.26
Japan Long Term Prime Lending Rate 0.0000% 1992 2014 6,100.00 46.33
Japan Long Term Prime Lending Rate 0.0000% 1992 2015 18,600.00 141.27
Japan Long Term Prime Lending Rate 0.0000% 1999 2019 60,000.00 455.70
Japan Long Term Prime Lending Rate 0.0000% 2000 2007 5,370.68 40.79
Japan Long Term Prime Lending Rate -0.2000% 1999 2014 26,000.00 197.47
Japan Swap Rate 1.6000% 1999 2009 20,800.00 157.98
LIBOR 6 Mos. Deposit 1.6000% 1999 2009 27,200.00 206.58
LIBOR 6 Mos. Deposit 0.0000% 1999 2003 8,469.00 64.32
LIBOR 6 Mos. Deposit 0.0000% 1999 2004 13,537.00 102.81
ADB Floating Rate 0.5000% 1996 2016 2,166.00 16.45
LIBOR Base Rate 0.5000% 1996 2016 9,090.39 69.04
US LIBOR 0.0000% 2001 2020 2,400.00 18.23
Special Drawing 13.50 16.94
----- -----
Rights
Interest Free 0.7500% 1992 2032 3.00 3.76
LIBOR 6 Mos. Deposit 0.8000% 1995 2034 3.50 4.39
LIBOR 6 Mos. Deposit 0.8000% 1995 2014 7.00 8.78
United States 6,534.34 6,734.34
-------- --------
Dollars
ADB Floating Rate 0.0000% 1993 2018 43.20 43.20
ADB Floating Rate 0.0000% 1989 2004 130.00 130.00
ADB Floating Rate 0.0000% 1991 2009 25.00 25.00
ADB Floating Rate 0.0000% 1992 2007 2.60 2.60
ADB Floating Rate 0.0000% 1989 2012 26.40 26.40
ADB Floating Rate 0.0000% 1988 2012 43.50 43.50
ADB Floating Rate 0.0000% 1991 2006 100.00 100.00
ADB Floating Rate 0.0000% 1986 2006 92.00 92.00
ADB Floating Rate 0.0000% 1995 2020 92.00 92.00
ADB Floating Rate 0.0000% 1993 2012 138.00 138.00
ADB Floating Rate 0.0000% 1991 2015 200.00 200.00
ADB Floating Rate 0.0000% 1988 2008 120.00 120.00
ADB Floating Rate 0.0000% 1989 2009 160.00 160.00
ADB Floating Rate 0.0000% 1995 2019 244.00 244.00
Outstanding Balance
as of December 31, 2001
------------------------
(In original (In US
Currency currency) dollars)(2)
- -------- ------------ -----------
8,092.68 61.46
3,257.67 24.74
9,458.12 71.83
219.34 1.67
4,652.67 35.34
157.99 1.20
502.89 3.82
411.92 3.13
15.76 0.12
5,479.35 41.62
282.30 2.14
5,379.17 40.85
206.08 1.57
0.00 0.00
760.27 5.77
248.88 1.89
434.86 3.30
0.00 0.00
143.51 1.09
310.92 2.36
136.51 1.04
2,648.90 20.12
248.32 1.89
298.70 2.27
227.53 1.73
134.72 1.02
10,158.42 77.15
1,638.70 12.45
303.40 2.30
0.00 0.00
0.00 0.00
16,622.68 126.25
28,909.69 219.57
713.71 5.42
5,147.26 39.09
89.35 0.68
4,771.15 36.24
14,136.44 107.37
60,000.00 455.70
4,603.44 34.96
19,050.50 144.69
20,800.00 157.98
27,200.00 206.58
4,234.53 32.16
7,520.30 57.12
143.48 1.09
1,380.39 10.48
2,400.00 18.23
Special Drawing 11.86 14.87
----- -----
Rights
2.35 2.95
3.48 4.36
6.03 7.56
United States 3,305.28 3,305.28
-------- --------
Dollars
19.17 19.17
88.69 88.69
11.50 11.50
1.10 1.10
20.25 20.25
33.03 33.03
18.69 18.69
44.95 44.95
72.60 72.60
103.67 103.67
170.65 170.65
68.41 68.41
109.52 109.52
155.24 155.24
T-4
GUARANTEED EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES -- (Continued)
(in millions)
Outstanding Balance
Interest Rate/ Original Amount Contracted as of December 31, 2001
Spread/ -------------------------- ------------------------
Service Charge Year Year of (In original (In US (In original (In US
Currency Interest Rate Basis (Per annum) Contracted Maturity currency) dollars)(2) currency) dollars)(2)
- -------- ------------------- -------------- ---------- -------- ------------ ----------- ------------ -----------
ADB Floating Rate 0.0000% 1992 2012 75.00 75.00 64.22 64.22
ADB Floating Rate 0.0000% 1992 2016 31.40 31.40 8.04 8.04
ADB Floating Rate 0.0000% 1993 2013 164.00 164.00 101.32 101.32
ADB Floating Rate 0.0000% 1998 2021 50.00 50.00 4.48 4.48
ADB Floating Rate 0.0000% 1996 2011 5.35 5.35 4.39 4.39
ADB Floating Rate 0.0000% 1998 2017 20.22 20.22 9.32 9.32
ADB Floating Rate 0.0000% 1998 2013 300.00 300.00 1.01 1.01
Fixed Rate 1.5000% 1990 2010 0.17 0.17 0.15 0.15
Fixed Rate 1.5000% 1990 2010 0.03 0.03 0.03 0.03
Fixed Rate 10.5000% 1984 1999 39.30 39.30 14.08 14.08
Fixed Rate 1.5000% 1990 2010 0.08 0.08 0.07 0.07
Fixed Rate 1.5000% 1990 2010 0.05 0.05 0.04 0.04
Fixed Rate 3.0000% 1995 2006 0.50 0.50 0.37 0.37
Fixed Rate 8.1000% 1980 2005 42.80 42.80 8.49 8.49
Fixed Rate 7.6000% 1979 2004 60.70 60.70 14.06 14.06
Fixed Rate 1.5000% 1990 2010 0.41 0.41 0.37 0.37
Fixed Rate 7.7000% 1978 2003 49.00 49.00 8.50 8.50
Fixed Rate 1.5000% 1990 2010 0.04 0.04 0.04 0.04
Fixed Rate 8.9000% 1977 2002 52.00 52.00 2.69 2.69
Fixed Rate 1.5000% 1990 2010 15.67 15.67 14.10 14.10
Fixed Rate 1.5000% 1990 2010 9.34 9.34 8.40 8.40
Fixed Rate 1.5000% 1990 2010 11.56 11.56 10.40 10.40
Fixed Rate 1.5000% 1990 2010 0.09 0.09 0.08 0.08
Fixed Rate 2.0000% 1993 2013 19.30 19.30 19.30 19.30
Fixed Rate 3.5750% 1995 2012 37.90 37.90 37.90 37.90
Fixed Rate 1.5000% 1990 2010 0.03 0.03 0.02 0.02
Fixed Rate 8.3000% 1989 2003 2.24 2.24 0.45 0.45
Fixed Rate 1.5000% 1990 2010 0.10 0.10 0.09 0.09
Fixed Rate 1.5000% 1990 2010 0.20 0.20 0.18 0.18
Fixed Rate 1.5000% 1990 2010 3.38 3.38 3.04 3.04
Fixed Rate 1.5000% 1990 2010 0.17 0.17 0.15 0.15
Fixed Rate 10.1000% 1981 2006 87.50 87.50 23.17 23.17
Fixed Rate 11.6000% 1982 2002 24.00 24.00 0.00 0.00
Fixed Rate 1.5000% 1990 2010 11.21 11.21 10.09 10.09
Fixed Rate 11.6000% 1982 2006 17.00 17.00 0.00 0.00
Fixed Rate 8.3000% 1977 2003 29.00 29.00 2.13 2.13
Fixed Rate 9.6000% 1981 2001 150.00 150.00 0.00 0.00
Fixed Rate 1.5000% 1990 2010 0.15 0.15 0.14 0.14
Fixed Rate 11.0000% 1983 2002 32.75 32.75 1.03 1.03
Fixed Rate 10.2500% 1984 2004 33.00 33.00 7.74 7.74
Fixed Rate 1.5000% 1990 2010 0.04 0.04 0.04 0.04
Fixed Rate 3.0000% 1995 2006 9.50 9.50 3.75 3.75
Fixed Rate 1.5000% 1990 2010 0.18 0.18 0.16 0.16
Fixed Rate 1.5000% 1990 2010 0.91 0.91 0.82 0.82
Fixed Rate 1.5000% 1990 2010 0.12 0.12 0.11 0.11
Fixed Rate 1.5000% 1990 2010 0.63 0.63 0.57 0.57
Fixed Rate 1.2500% 1993 2025 24.50 24.50 24.50 24.50
Fixed Rate 1.5000% 1990 2010 0.51 0.51 0.46 0.46
Fixed Rate 10.5000% 1984 2007 43.80 43.80 5.23 5.23
Fixed Rate 1.5000% 1990 2010 0.99 0.99 0.89 0.89
Fixed Rate 1.5000% 1990 2010 0.38 0.38 0.34 0.34
Fixed Rate 9.0000% 1980 2001 60.50 60.50 0.00 0.00
Fixed Rate 1.5000% 1990 2010 4.99 4.99 4.49 4.49
Fixed Rate 1.5000% 1990 2010 0.23 0.23 0.21 0.21
Fixed Rate 1.5000% 1990 2010 1.35 1.35 1.00 1.00
Fixed Rate 1.5000% 1990 2010 11.70 11.70 10.53 10.53
Fixed Rate 6.6000% 1995 2008 25.00 25.00 0.72 0.72
Fixed Rate 7.6500% 1996 2009 25.00 25.00 1.88 1.88
Fixed Rate 3.0000% 1994 2007 5.00 5.00 0.64 0.64
Fixed Rate 4.0000% 1995 2018 15.00 15.00 14.37 14.37
Fixed Rate 6.5000% 1997 2010 11.10 11.10 3.50 3.50
IBRD Cost of Qualified Borrowings 0.5000% 1989 2009 65.50 65.50 39.57 39.57
IBRD Cost of Qualified Borrowings 0.5000% 1994 2014 113.00 113.00 88.89 88.89
IBRD Cost of Qualified Borrowings 0.5000% 1982 2002 36.00 36.00 0.55 0.55
IBRD Cost of Qualified Borrowings 0.5000% 1993 2012 134.00 134.00 30.78 30.78
IBRD Cost of Qualified Borrowings 0.5000% 1994 2014 114.00 114.00 49.18 49.18
IBRD Cost of Qualified Borrowings 0.5000% 1993 2013 110.00 110.00 44.28 44.28
IBRD Cost of Qualified Borrowings 0.5000% 1989 2009 65.00 65.00 43.53 43.53
IBRD Cost of Qualified Borrowings 0.5000% 1994 2014 127.35 127.35 113.89 113.89
IBRD Cost of Qualified Borrowings 0.5000% 1994 2014 19.65 19.65 11.20 11.20
T-5
GUARANTEED EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES -- (Continued)
(in millions)
Original Amount
Interest Rate/ Contracted
Spread/ ------------------------
Service Charge Year Year of (In original (In US
Currency Interest Rate Basis (Per annum) Contracted Maturity currency) dollars)(2)
- -------- ------------------- -------------- ---------- ----------- ------------ -----------
IBRD Cost of Qualified Borrowings 0.5000% 1995 2002 50.00 50.00
IBRD Cost of Qualified Borrowings 0.5000% 1994 2013 64.00 64.00
IBRD Cost of Qualified Borrowings 0.5000% 1991 2011 175.00 175.00
IBRD Cost of Qualified Borrowings 0.5000% 1994 2014 40.00 40.00
IBRD Cost of Qualified Borrowings 0.5000% 1995 2011 50.00 50.00
IBRD Cost of Qualified Borrowings 0.5000% 1992 2012 91.30 91.30
IBRD Cost of Qualified Borrowings 0.5000% 1988 2008 41.00 41.00
IBRD Cost of Qualified Borrowings 0.5000% 1988 2008 59.00 59.00
IBRD Cost of Qualified Borrowings 0.5000% 1991 2011 150.00 150.00
IBRD Cost of Qualified Borrowings 0.5000% 1990 2010 150.00 150.00
IBRD Cost of Qualified Borrowings 0.5000% 1990 2010 200.00 200.00
IBRD Cost of Qualified Borrowings 0.5000% 1985 2005 100.00 100.00
IBRD Cost of Qualified Borrowings 0.5000% 1991 2011 15.00 15.00
IBRD Cost of Qualified Borrowings 0.5000% 1989 2009 40.00 40.00
Interest Free 0.0000% 2000 2013 7.50 7.50
LIBOR 6 Mos. Deposits 0.6250% 1992 2003 19.52 19.52
LIBOR 6 Mos. Deposits 0.6250% 1992 2003 4.87 4.87
LIBOR 6 Mos. Deposits 0.6250% 1991 2003 19.52 19.52
LIBOR 6 Mos. Deposits 0.6250% 1992 2003 6.21 6.21
LIBOR 6 Mos. Deposits 0.6250% 1992 2003 4.52 4.52
LIBOR 6 Mos. Deposit 0.0000% 1992 2004 25.50 25.50
LIBOR 6 Mos. Deposit 0.0000% 1992 2004 17.44 17.44
LIBOR 6 Mos. Deposit 0.0000% 1992 2004 18.77 18.77
LIBOR Base Rate 0.5000% 1996 2016 100.00 100.00
LIBOR Base Rate 0.5000% 1996 2016 57.00 57.00
LIBOR Base Rate 0.5000% 1996 2016 150.00 150.00
LIBOR Base Rate 0.5000% 1995 2015 50.00 50.00
US Concessionary Interest Relending 0.0000% 1993 2004 2.13 2.13
Rate
LIBOR Base Rate 0.5000% 1996 2017 60.00 60.00
LIBOR Base Rate 0.5000% 1997 2017 54.50 54.50
LIBOR Base Rate 0.5000% 1998 2018 150.00 150.00
LIBOR Base Rate 0.5000% 1998 2019 150.00 150.00
LIBOR Base Rate 0.5000% 1998 2019 23.30 23.30
LIBOR 6 Mos. Deposit 0.0000% 1998 2014 160.00 160.00
LIBOR 6 Mos. Deposit 0.0000% 1997 2008 25.00 25.00
LIBOR 6 Mos. Deposit 0.0000% 1998 2014 160.00 160.00
LIBOR 6 Mos. Deposit 0.0000% 1998 2008 25.00 25.00
US Floating Rate 0.9000% 1999 2014 200.00 200.00
US Floating Rate 0.3000% 2000 2003 200.00 200.00
B. Bonds 1,820.13
--------
United States Dollars 1,410.00 1,410.00
-------- --------
Fixed Rate 9.0000% 1995 2002 150.00 150.00
Fixed Rate 9.7500% 1994 2009 100.00 100.00
Fixed Rate 7.8750% 1996 2006 200.00 200.00
Fixed Rate 8.4000% 1996 2016 160.00 160.00
Fixed Rate 9.6250% 1998 2028 300.00 300.00
Fixed Rate 9.8750% 2000 2010 500.00 500.00
Japanese Yen 54,000.00 410.13
--------- ------
Fixed Rate 4.6500% 1995 2015 12,000.00 91.14
Fixed Rate 3.1500% 1997 2003 20,000.00 151.90
Fixed Rate 2.3500% 2000 2010 22,000.00 167.09
Euro 500.00 441.55
------ ------
Fixed Rate 9.5750% 2001 2006 500.00 441.55
II. GFI Guarantee Assumed By National Government 392.05
------
Belgian Francs 1,005.34 22.01
-------- -----
BIBOR 6 Mos. 0.6000% 1992 2007 158.97 3.48
BIBOR 6 Mos. 0.6000% 1992 2007 722.14 15.81
BIBOR 6 Mos. 0.6000% 1992 2007 124.23 2.72
Canadian Dollars
Interest Free 0.0000% 1986 Upon Demand 0.27 0.17
---- ----
Deutsche Marks 3.84 1.73
---- ----
DM LIBOR 0.8125% 1986 2003 0.33 0.15
Outstanding Balance
as of December 31, 2001
------------------------
(In original (In US
Currency currency) dollars)(2)
- -------- ------------ -----------
48.05 48.05
46.51 46.51
132.24 132.24
34.73 34.73
45.15 45.15
44.15 44.15
24.85 24.85
31.35 31.35
117.37 117.37
97.31 97.31
139.91 139.91
26.63 26.63
1.13 1.13
25.07 25.07
2.74 2.74
3.90 3.90
0.65 0.65
2.93 2.93
1.24 1.24
0.70 0.70
7.65 7.65
4.11 4.11
4.14 4.14
33.24 33.24
5.56 5.56
84.07 84.07
43.37 43.37
0.04 0.04
13.31 13.31
3.18 3.18
38.52 38.52
0.00 0.00
5.03 5.03
66.56 66.56
0.00 0.00
0.00 0.00
21.25 21.25
180.00 180.00
175.00 175.00
B. Bonds 2,261.68
--------
United States Dollars 1,410.00 1,410.00
-------- --------
150.00 150.00
100.00 100.00
200.00 200.00
160.00 160.00
300.00 300.00
500.00 500.00
Japanese Yen 54,000.00 410.13
--------- ------
12,000.00 91.14
20,000.00 151.90
22,000.00 167.09
Euro 500.00 441.55
------ ------
500.00 441.55
II. GFI Guarantee Assumed By National Government 320.72
------
Belgian Francs 789.91 17.29
------ -----
124.90 2.73
567.40 12.42
97.61 2.14
Canadian Dollars
0.27 0.17
---- ----
Deutsche Marks 2.43 1.10
---- ----
0.07 0.03
T-6
GUARANTEED EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES -- (Continued)
(in millions)
Interest Rate/ Original Amount Contracted
Spread/ --------------------------
Service Charge Year Year of (In original (In US
Currency Interest Rate Basis (Per annum) Contracted Maturity currency) dollars)(2)
- -------- ------------------- -------------- ---------- -------- ------------ -----------
DM LIBOR 0.8125% 1986 2003 0.33 0.15
DM LIBOR 0.8125% 1986 2003 0.33 0.15
Fixed Rate 8.6000% 1992 2007 2.84 1.28
Spanish Pesetas 6,989.98 37.10
-------- -----
Fixed Rate 11.0000% 1991 2007 6,989.98 37.10
French Francs 21.86 2.94
----- ----
Interest Free 0.0000% 1986 Upon 3.13 0.42
Demand
Taux Du Marche Obligataire 0.4000% 1991 2007 4.36 0.59
Taux Du Marche Obligataire 0.4000% 1991 2007 0.11 0.01
Taux Du Marche Obligataire 0.4000% 1989 2007 13.01 1.75
Taux Du Marche Obligataire 0.4000% 1989 2007 1.24 0.17
Pounds Sterling 1.03 1.50
---- ----
0.0000% 1986 Upon 0.00 0.00
Demand
GBP LIBOR 0.5000% 1991 2007 1.03 1.50
Japanese Yen 26,248.48 199.36
--------- ------
Long Term Prime Rate 0.1000% 1992 2007 4,968.73 37.74
Long Term Prime Rate 0.1000% 1992 2007 16,886.81 128.26
Long Term Prime Rate 0.1000% 1992 2007 216.83 1.65
Interest Free 0.0000% 1986 Upon 2.74 0.02
Demand
Long Term Prime Rate 0.1000% 1992 2007 412.07 3.13
Long Term Prime Rate 0.1000% 1992 2007 701.63 5.33
Long Term Prime Rate 0.1000% 1992 2007 1,194.42 9.07
Long Term Prime Rate 0.1000% 1992 2007 158.65 1.20
Long Term Prime Rate 0.1000% 1992 2007 747.41 5.68
Long Term Prime Rate 0.1000% 1992 2007 801.78 6.09
Long Term Prime Rate 0.1000% 1992 2000 157.43 1.20
Saudi Rial 27.34 7.29
----- ----
Interest Free 0.0000% 1986 Upon 5.92 1.58
Demand
Interest Free 0.0000% 1986 Upon 18.46 4.92
Demand
Interest Free 0.0000% 1986 Upon 2.96 0.79
Demand
United States 119.95 119.95
------ ------
Dollars
Interest Free 0.0000% 1986 Upon 0.97 0.97
Demand
Interest Free 0.0000% 1986 Upon 8.33 8.33
Demand
Interest Free 0.0000% 1986 Upon 33.09 33.09
Demand
Interest Free 0.0000% 1986 Upon 18.60 18.60
Demand
Interest Free 0.0000% 1986 Upon 0.72 0.72
Demand
Interest Free 0.0000% 1986 Upon 0.51 0.51
Demand
Interest Free 0.0000% 1986 Upon 2.18 2.18
Demand
Interest Free 0.0000% 1986 Upon 5.22 5.22
Demand
Interest Free 0.0000% 1986 Upon 0.51 0.51
Demand
Interest Free 0.0000% 1986 Upon 4.40 4.40
Demand
Interest Free 0.0000% 1988 Upon 11.55 11.55
Demand
Fixed Rate 3.4750% 1992 2007 11.25 11.25
Fixed Rate 3.4750% 1992 2007 5.28 5.28
Fixed Rate 3.4750% 1992 2007 0.80 0.80
LIBOR 6 Mos. 0.8125% 1986 2003 0.09 0.09
LIBOR 6 Mos. 0.8125% 1986 2003 0.05 0.05
LIBOR 6 Mos. 0.8125% 1991 2007 0.32 0.32
Outstanding Balance
as of December 31, 2001
------------------------
(In original (In US
Currency currency) dollars)(2)
- -------- ------------ -----------
0.07 0.03
0.07 0.03
2.23 1.01
Spanish Pesetas 5,492.12 29.15
-------- -----
5,492.12 29.15
French Francs 17.84 2.40
----- ----
3.13 0.42
3.43 0.46
0.09 0.01
10.22 1.38
0.98 0.13
Pounds Sterling 0.81 1.18
---- ----
0.00 0.00
0.81 1.18
Japanese Yen 20,624.40 156.64
--------- ------
3,904.00 29.65
13,268.21 100.77
170.36 1.29
2.74 0.02
323.77 2.46
551.28 4.19
938.47 7.13
124.65 0.95
587.25 4.46
629.97 4.78
123.69 0.94
Saudi Rial 27.34 7.29
----- ----
5.92 1.58
18.46 4.92
2.96 0.79
United States 105.50 105.50
------ ------
Dollars
0.97 0.97
8.33 8.33
33.09 33.09
18.60 18.60
0.72 0.72
0.51 0.51
2.18 2.18
5.22 5.22
0.51 0.51
4.40 4.40
7.51 7.51
8.84 8.84
4.15 4.15
0.63 0.63
0.02 0.02
0.01 0.01
0.25 0.25
T-7
GUARANTEED EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES -- (Continued)
(in millions)
Original Amount Outstanding Balance
Interest Rate/ Contracted as of December 31, 2001
Spread/ ------------------------ ------------------------
Service Charge Year Year of (In original (In US (In original (In US
Currency Interest Rate Basis (Per annum) Contracted Maturity currency) dollars)(2) currency) dollars)(2)
- -------- ------------------- -------------- ---------- -------- ------------ ----------- ------------ -----------
LIBOR 6 Mos. 0.8125% 1986 2003 0.59 0.59 0.12 0.12
LIBOR 6 Mos. 0.8125% 1992 2007 0.11 0.11 0.08 0.08
LIBOR 6 Mos. 0.8125% 1991 2007 1.22 1.22 0.96 0.96
LIBOR 6 Mos. 0.8125% 1986 2003 4.66 4.66 0.93 0.93
LIBOR 6 Mos. 0.8125% 1991 2007 0.19 0.19 0.15 0.15
New Short Term Eximbank Borrowing 0.5000% 1992 2007 5.61 5.61 4.41 4.41
New Short Term Eximbank Borrowing 0.5000% 1992 2007 0.10 0.10 0.08 0.08
New Short Term Eximbank Borrowing 0.5000% 1991 2007 3.63 3.63 2.85 2.85
- --------
(1) Includes Government guarantee on GOCC (loans and bonds) GFI guarantee
assumed by the government per Proc. 50
(2) Amount in original currencies were converted to US Dollars using reference
rate on December 28, 2001
T-8
EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES(1)
As of December 31, 2001
(in millions of currency indicated)
Original Amount
Interest Rate/ Contracted
Spread/Service ------------------------
Charge (Per Year Year of (In original (In US
Currency Interest Rate Basis Annum) Contracted Maturity currency) dollars)(2)
- -------- ------------------- -------------- ---------- ---------- ------------ -----------
Grand Total 36,934.49
---------
I. Direct Debt of the Republic 24,924.84
---------
A. Availed of by Government Agencies 21,516.80
---------
Austrian Schillings 1,407.12 90.30
-------- -----
Fixed Rate 4.0000% 31/03/1997 30/06/2002 199.86 12.83
Fixed Rate 4.5000% 27/03/1998 30/12/2019 207.26 13.30
Fixed Rate 4.5000% 23/07/1999 31/12/2022 1,000.00 64.18
Belgian Francs 250.00 5.47
------ ----
Interest Free 0.0000% 06/04/1977 31/12/2006 50.00 1.09
Interest Free 0.0000% 11/06/1976 31/12/2005 50.00 1.09
Fixed Rate 2.0000% 15/12/1975 31/12/2004 50.00 1.09
Fixed Rate 2.0000% 21/08/1974 31/12/2003 50.00 1.09
Fixed Rate 2.0000% 10/09/1973 31/12/2002 50.00 1.09
Canadian Dollars 3.89 2.44
---- ----
Interest Free 0.0000% 12/11/1974 03/09/2024 3.89 2.44
Swiss Francs 81.21 48.37
----- -----
Fixed Rate 0.0125% 01/01/1998 30/04/2005 6.64 3.95
Fixed Rate 0.0125% 01/05/1990 31/12/2003 1.71 1.02
Fixed Rate 4.6300% 01/01/1998 30/04/2014 37.60 22.40
Chf LIBOR 0.0125% 14/09/1998 15/11/2005 1.62 0.96
Chf LIBOR 0.0000% 25/09/2001 20/09/2014 22.77 13.57
LIBOR 6 Months Deposit 0.0138% 10/03/1989 31/12/2008 10.87 6.48
Deutsche Marks 67.33 30.40
----- -----
Fixed Rate 2.0000% 03/08/1984 31/12/2014 13.50 6.10
Fixed Rate 2.0000% 03/08/1984 31/12/2014 16.50 7.45
Fixed Rate 2.0000% 12/10/1990 31/12/2020 6.60 2.98
Fixed Rate 2.0000% 12/05/1982 31/12/2012 2.73 1.23
Fixed Rate 2.0000% 10/04/1981 30/06/2011 3.00 1.35
Fixed Rate 2.0000% 20/06/1974 30/06/2004 10.00 4.52
Fixed Rate 2.0000% 23/06/1978 30/06/2008 15.00 6.77
Danish Kroner 95.30 11.31
----- -----
Interest Free 0.0000% 03/03/1978 01/10/2002 15.30 1.82
Interest Free 0.0000% 26/06/1981 01/04/2006 65.00 7.72
Interest Free 0.0000% 20/02/1985 01/10/2009 15.00 1.78
Euro 49.68 43.88
----- -----
Interest Free 0.0000% 29/03/2000 21/03/2016 8.48 7.49
Interest Free 0.0000% 22/09/2000 15/10/2017 1.84 1.62
Fixed Rate 1.5000% 17/02/1995 29/11/2014 8.12 7.17
Fixed Rate 4.0000% 16/11/2000 30/06/2023 31.25 27.60
French Francs 1,735.48 233.64
-------- ------
Fixed Rate 0.4700% 22/01/1998 30/09/2030 3.86 0.52
Fixed Rate 0.4700% 22/01/1998 30/09/2030 6.75 0.91
Fixed Rate 1.4000% 31/12/1994 31/12/2016 102.36 13.78
Fixed Rate 1.4000% 31/12/1994 31/12/2016 17.65 2.38
Fixed Rate 1.5000% 18/12/1995 31/12/2018 24.00 3.23
Fixed Rate 1.5000% 18/12/1995 31/12/2023 12.60 1.70
Fixed Rate 1.5000% 18/12/1995 31/12/2022 3.20 0.43
Fixed Rate 1.5000% 18/12/1995 31/12/2022 4.80 0.65
Fixed Rate 1.5000% 15/01/1997 30/09/2023 36.06 4.85
Fixed Rate 1.5000% 15/01/1997 30/09/2023 98.98 13.33
Fixed Rate 2.0000% 20/05/1992 31/12/2024 4.86 0.65
Fixed Rate 2.0000% 20/05/1992 01/09/2003 3.24 0.44
Fixed Rate 2.0000% 20/05/1992 31/12/2023 18.90 2.54
Fixed Rate 2.0000% 17/01/1992 31/12/2024 69.00 9.29
Fixed Rate 2.0000% 07/12/1990 31/12/2023 14.22 1.91
Fixed Rate 2.0000% 20/05/1992 31/12/2022 4.98 0.67
Fixed Rate 2.5000% 09/02/1990 31/12/2022 27.25 3.67
Fixed Rate 2.5000% 09/02/1990 31/12/2022 29.07 3.91
Fixed Rate 2.5000% 09/02/1990 31/12/2022 17.40 2.34
Fixed Rate 2.5000% 22/01/1992 31/12/2023 6.67 0.90
Fixed Rate 3.0000% 10/10/1989 31/12/2023 28.50 3.84
Fixed Rate 3.0000% 31/07/1989 21/03/2020 9.50 1.28
Outstanding Balance
As of December 31, 2001
------------------------
(In original (In US
currency) dollars)(2)
- ------------ -----------
22,082.21
---------
Direct Debt of the Republic 12,173.94
---------
A. Availed of by Government Agencies 10,570.39
---------
Austrian Schillings 1,097.81 70.45
-------- -----
199.86 12.83
206.53 13.25
691.42 44.37
Belgian Francs 37.50 0.82
----- ----
12.50 0.27
10.00 0.22
7.50 0.16
5.00 0.11
2.50 0.05
Canadian Dollars 2.23 1.40
---- ----
2.23 1.40
Swiss Francs 28.25 16.83
----- -----
4.65 2.77
0.20 0.12
22.26 13.26
1.15 0.68
0.00 0.00
0.00 0.00
Deutsche Marks 34.30 15.49
----- -----
8.57 3.87
10.47 4.73
6.27 2.83
1.47 0.67
1.43 0.64
1.22 0.55
4.88 2.20
Danish Kroner 23.96 2.85
----- ----
0.86 0.10
16.40 1.95
6.70 0.80
Euro 16.06 14.19
----- -----
1.62 1.43
1.84 1.62
8.08 7.13
4.53 4.00
French Francs 905.99 121.97
------ ------
4.53 0.61
6.75 0.91
96.73 13.02
17.64 2.38
10.15 1.37
12.60 1.70
2.28 0.31
4.88 0.66
36.06 4.85
47.07 6.34
4.78 0.64
0.48 0.06
18.90 2.54
68.35 9.20
14.22 1.91
4.98 0.67
27.25 3.67
29.07 3.91
17.40 2.34
6.58 0.89
26.73 3.60
8.88 1.20
T-9
EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES(1) -- (Continued)
Original Amount
Interest Rate/ Contracted
Spread/Service ------------------------
Charge (Per Year Year of (In original (In US
Currency Interest Rate Basis Annum) Contracted Maturity currency) dollars)(2)
- -------- ------------------- -------------- ---------- ---------- ------------ -----------
Fixed Rate 3.1000% 08/12/1993 31/12/2014 80.00 10.77
Fixed Rate 3.1000% 08/12/1993 31/12/2014 42.40 5.71
Fixed Rate 3.1000% 08/12/1993 31/12/2014 8.00 1.08
Fixed Rate 3.3000% 05/11/1993 30/06/2013 10.40 1.40
Fixed Rate 3.3000% 05/11/1993 30/06/2013 18.40 2.48
Fixed Rate 3.3000% 04/08/1993 31/12/2013 73.42 9.88
Fixed Rate 3.3000% 05/11/1993 30/06/2013 21.60 2.91
Fixed Rate 3.5000% 21/12/1992 30/09/2015 21.60 2.91
Fixed Rate 3.5000% 21/12/1992 30/09/2015 128.00 17.23
Fixed Rate 3.5000% 21/12/1993 30/09/2016 15.00 2.02
Fixed Rate 3.5000% 21/12/1994 30/09/2017 55.20 7.43
Fixed Rate 3.5000% 21/12/1992 30/09/2015 53.36 7.18
Fixed Rate 3.5000% 21/12/1995 30/09/2015 15.00 2.02
Fixed Rate 3.5000% 21/12/1995 31/12/2017 5.00 0.67
Fixed Rate 3.5000% 21/12/1996 30/09/2018 49.70 6.69
Fixed Rate 3.5000% 21/12/1997 30/12/2019 24.00 3.23
Fixed Rate 4.9400% 17/08/1999 30/04/2010 53.00 7.14
Fixed Rate 4.9400% 17/08/1999 30/04/2010 53.00 7.14
Fixed Rate 5.6800% 15/01/1997 08/02/2010 39.99 5.38
Fixed Rate 5.8200% 08/05/1997 30/12/2010 24.04 3.24
Fixed Rate 6.9100% 31/12/1995 30/12/2008 8.40 1.13
Fixed Rate 7.3500% 31/12/1995 31/12/2017 21.16 2.85
Fixed Rate 7.3500% 31/12/1994 31/12/2016 7.35 0.99
Fixed Rate 7.3500% 31/12/1994 31/12/2016 42.64 5.74
Fixed Rate 7.3500% 31/12/1995 31/12/2017 8.37 1.13
Fixed Rate 7.5000% 31/12/1995 31/12/2017 34.45 4.64
Fixed Rate 7.5000% 31/12/1992 30/09/2008 32.00 4.31
Fixed Rate 7.5000% 31/12/1992 30/09/2008 13.34 1.80
Fixed Rate 7.5000% 31/12/1992 30/09/2008 5.40 0.73
Fixed Rate 7.5500% 23/06/1993 05/07/2004 5.40 0.73
Fixed Rate 7.5500% 08/12/1993 31/12/2004 20.00 2.69
Fixed Rate 7.5500% 08/12/1993 31/12/2004 2.00 0.27
Fixed Rate 7.5500% 23/06/1992 05/07/2004 4.60 0.62
Fixed Rate 7.5500% 23/06/1992 05/05/2004 2.60 0.35
Fixed Rate 7.5500% 08/12/1993 31/12/2004 10.60 1.43
Fixed Rate 8.3000% 28/04/1989 31/12/2003 28.50 3.84
Fixed Rate 8.3000% 09/02/1990 19/07/2002 21.05 2.83
Fixed Rate 9.2000% 07/12/1990 09/11/2004 9.48 1.28
Fixed Rate 9.2000% 17/01/1991 09/06/2004 12.60 1.70
Fixed Rate 9.2000% 09/02/1990 01/11/2003 19.73 2.66
Fixed Rate 9.2000% 23/06/1992 30/06/2005 18.35 2.47
Fixed Rate 9.2000% 09/02/1990 18/08/2002 12.60 1.70
Fixed Rate 9.2000% 22/01/1992 01/12/2003 4.83 0.65
Fixed Rate 9.2000% 17/01/1992 19/07/2003 51.77 6.97
Fixed Rate 9.2000% 17/07/1991 27/10/2002 3.32 0.45
Pounds Sterling 186.32 270.79
------ ------
Fixed Rate 5.9500% 14/07/1995 01/06/2008 69.23 100.62
Fixed Rate 6.6000% 05/07/1996 01/08/2007 13.34 19.39
Fixed Rate 8.1000% 30/07/1992 31/01/2005 11.95 17.37
Fixed Rate 6.7400% 31/03/2001 28/02/2013 16.25 23.62
LIBOR 6 Months Deposit 0.0000% 31/12/1997 31/07/2012 75.54 109.79
Italian Lira 10,185.74 4.64
--------- ----
LIBOR 6 Months Deposit 1.5000% 30/06/1990 25/05/2011 10,185.74 4.64
Japanese Yen 1,365,245.95 10,369.04
------------ ---------
Long Term Prime Lending Rate -0.0200% 17/02/1999 15/09/2018 43,800.00 332.66
Long Term Prime Lending Rate -0.0200% 17/02/2000 15/09/2019 43,800.00 332.66
Long Term Prime Lending Rate 0.5000% 23/06/1997 15/05/2021 20,800.00 157.98
Fixed Rate 0.7500% 10/03/1999 20/03/2039 36,300.00 275.70
Fixed Rate 0.7500% 28/12/1999 20/12/2039 813.00 6.17
Fixed Rate 0.7500% 28/12/1999 20/12/2039 432.00 3.28
Fixed Rate 0.7500% 28/12/1999 20/12/2039 722.00 5.48
Fixed Rate 0.7500% 28/12/1999 20/12/2039 2,828.00 21.48
Fixed Rate 0.7500% 28/12/1999 20/12/2039 967.00 7.34
Fixed Rate 0.7500% 28/12/1999 20/12/2039 844.00 6.41
Fixed Rate 0.7500% 28/12/1999 20/12/2039 747.00 5.67
Fixed Rate 0.7500% 28/12/1999 20/12/2039 444.00 3.37
Fixed Rate 0.7500% 28/12/1999 20/12/2039 1,221.00 9.27
Fixed Rate 0.7500% 28/12/1999 20/12/2039 1,022.00 7.76
Fixed Rate 0.7500% 07/04/2000 20/04/2040 1,071.00 8.13
Fixed Rate 0.7500% 31/08/2000 20/08/2040 14,724.00 111.83
Fixed Rate 0.7500% 31/08/2000 20/08/2040 3,549.00 26.95
Fixed Rate 0.7500% 10/09/1998 20/09/2038 894.00 6.79
Fixed Rate 0.7500% 10/09/1998 20/09/2038 3,077.00 23.37
Fixed Rate 0.7500% 10/09/1998 20/09/2038 580.00 4.41
Fixed Rate 0.7500% 10/09/1998 20/09/2038 1,041.00 7.91
Fixed Rate 0.7500% 10/09/1998 20/09/2038 54.00 0.41
Outstanding Balance
As of December 31, 2001
------------------------
(In original (In US
Currency currency) dollars)(2)
- -------- ------------ -----------
77.73 10.46
40.99 5.52
7.97 1.07
9.56 1.29
16.97 2.28
69.00 9.29
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
12.73 1.71
4.43 0.60
6.74 0.91
23.98 3.23
17.05 2.30
4.02 0.54
24.24 3.26
18.66 2.51
5.04 0.68
0.00 0.00
5.15 0.69
29.77 4.01
0.00 0.00
21.29 2.87
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
8.98 1.21
1.00 0.13
1.61 0.22
0.91 0.12
4.76 0.64
0.00 0.00
2.10 0.28
1.42 0.19
2.52 0.34
1.97 0.27
7.34 0.99
1.26 0.17
1.19 0.16
8.97 1.21
0.33 0.04
Pounds Sterling 14.09 20.48
----- -----
0.00 0.00
9.91 14.41
4.18 6.08
0.00 0.00
0.00 0.00
Italian Lira 9,686.23 4.42
-------- ----
9,686.23 4.42
Japanese Yen 645,203.55 4,900.32
---------- --------
12,080.00 91.75
12,080.00 91.75
4,332.15 32.90
24,200.00 183.80
0.00 0.00
145.97 1.11
89.06 0.68
270.07 2.05
122.59 0.93
115.67 0.88
101.96 0.77
102.13 0.78
101.68 0.77
497.25 3.78
401.67 3.05
243.12 1.85
70.24 0.53
349.42 2.65
958.44 7.28
211.35 1.61
111.33 0.85
26.23 0.20
T-10
EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES(1) -- (Continued)
Original Amount Outstanding Balance
Interest Rate/ Contracted As of December 31, 2001
Spread/Service ------------------------ ------------------------
Charge (Per Year Year of (In original (In US (In original (In US
Currency Interest Rate Basis Annum) Contracted Maturity currency) dollars)(2) currency) dollars)(2)
- -------- ------------------- -------------- ---------- ---------- ------------ ----------- ------------ -----------
Fixed Rate 0.7500% 10/09/1998 20/09/2038 404.00 3.07 312.52 2.37
Fixed Rate 0.7500% 10/09/1998 20/09/2038 5,349.00 40.63 479.51 3.64
Fixed Rate 0.7500% 10/09/1998 20/09/2038 2,910.00 22.10 252.52 1.92
Fixed Rate 0.7500% 10/09/1998 20/09/2038 2,252.00 17.10 690.68 5.25
Fixed Rate 0.7500% 10/09/1998 20/09/2038 393.00 2.98 127.21 0.97
Fixed Rate 0.7500% 20/05/2001 20/05/2041 1,346.00 10.22 0.00 0.00
Fixed Rate 0.7500% 20/05/2001 20/05/2041 856.00 6.50 0.00 0.00
Fixed Rate 0.7500% 20/05/2001 20/05/2041 1,098.00 8.34 0.00 0.00
Fixed Rate 0.7500% 20/05/2001 20/05/2041 1,070.00 8.13 0.00 0.00
Fixed Rate 0.7500% 20/05/2001 20/05/2041 1,080.00 8.20 0.00 0.00
Fixed Rate 0.7500% 20/05/2001 20/05/2041 992.00 7.53 0.00 0.00
Fixed Rate 0.7500% 20/05/2001 20/05/2041 233.00 1.77 0.00 0.00
Fixed Rate 0.7500% 20/05/2001 20/05/2041 1,134.00 8.61 143.19 1.09
Fixed Rate 0.7500% 20/05/2001 20/05/2041 2,034.00 15.45 0.00 0.00
Fixed Rate 0.9500% 31/08/2000 20/08/2040 14,724.00 111.83 0.00 0.00
Fixed Rate 0.9500% 31/08/2000 20/08/2040 3,549.00 26.95 0.00 0.00
Fixed Rate 1.0000% 07/04/2000 20/04/2040 7,858.00 59.68 0.00 0.00
Fixed Rate 1.3000% 28/12/1999 20/12/2029 519.00 3.94 42.27 0.32
Fixed Rate 1.3000% 28/12/1999 20/12/2029 255.00 1.94 30.63 0.23
Fixed Rate 1.3000% 28/12/1999 20/12/2029 1,436.00 10.91 325.76 2.47
Fixed Rate 1.3000% 28/12/1999 20/12/2029 7,792.00 59.18 605.06 4.60
Fixed Rate 1.3000% 28/12/1999 20/12/2029 145.00 1.10 0.00 0.00
Fixed Rate 1.7000% 10/09/1998 20/09/2028 6,734.00 51.14 0.00 0.00
Fixed Rate 1.7000% 10/09/1998 20/09/2028 291.00 2.21 0.00 0.00
Fixed Rate 1.7000% 10/09/1998 20/09/2028 2,428.00 18.44 293.34 2.23
Fixed Rate 1.7000% 20/05/2001 20/05/2041 2,556.00 19.41 0.00 0.00
Fixed Rate 1.7000% 20/05/2001 20/05/2041 5,175.00 39.30 0.00 0.00
Fixed Rate 1.8000% 28/12/1999 20/12/2029 6,397.00 48.59 0.00 0.00
Fixed Rate 1.8000% 28/12/1999 20/12/2029 5,356.00 40.68 0.00 0.00
Fixed Rate 1.8000% 28/12/1999 20/12/2029 15,299.00 116.20 2,297.65 17.45
Fixed Rate 1.8000% 28/12/1999 20/12/2029 12,556.00 95.36 244.00 1.85
Fixed Rate 1.8000% 28/12/1999 20/12/2029 4,885.00 37.10 0.00 0.00
Fixed Rate 1.8000% 28/12/1999 20/12/2029 6.59 0.05 0.00 0.00
Fixed Rate 1.8000% 28/12/1999 20/12/2029 4,321.00 32.82 52.90 0.40
Fixed Rate 1.8000% 28/12/1999 20/12/2029 4,270.00 32.43 0.00 0.00
Fixed Rate 1.9500% 22/09/2000 14/10/2013 16,600.00 126.08 10,260.58 77.93
Fixed Rate 2.1000% 25/03/1999 15/12/2011 20,308.18 154.24 0.00 0.00
Fixed Rate 2.1000% 25/08/1999 15/06/2011 9,697.89 73.66 9,265.11 70.37
Fixed Rate 2.1000% 30/08/1995 20/08/2025 789.00 5.99 568.49 4.32
Fixed Rate 2.1000% 29/03/1996 20/03/2026 1,048.00 7.96 954.78 7.25
Fixed Rate 2.1000% 18/03/1997 20/03/2027 1,192.00 9.05 398.53 3.03
Fixed Rate 2.1000% 18/03/1997 20/03/2027 1,226.00 9.31 503.66 3.83
Fixed Rate 2.2000% 10/09/1998 20/09/2028 4,955.00 37.63 600.57 4.56
Fixed Rate 2.2000% 10/09/1998 20/09/2028 10,487.00 79.65 0.00 0.00
Fixed Rate 2.2000% 10/09/1998 20/09/2028 5,148.00 39.10 0.00 0.00
Fixed Rate 2.2000% 10/09/1999 20/09/2028 2,387.00 18.13 0.00 0.00
Fixed Rate 2.2000% 10/09/1998 20/09/2028 11,884.00 90.26 1,101.82 8.37
Fixed Rate 2.2000% 20/05/2001 20/05/2041 6,948.00 52.77 0.00 0.00
Fixed Rate 2.2000% 20/05/2001 20/05/2041 4,687.00 35.60 0.00 0.00
Fixed Rate 2.2000% 20/05/2001 20/05/2041 10,645.00 80.85 0.00 0.00
Fixed Rate 2.2000% 20/05/2001 20/05/2041 5,135.00 39.00 0.00 0.00
Fixed Rate 2.2000% 20/05/2001 20/05/2041 4,130.00 31.37 0.00 0.00
Fixed Rate 2.2000% 20/05/2001 20/05/2041 5,523.00 41.95 0.00 0.00
Fixed Rate 2.3000% 30/08/1995 20/08/2025 795.00 6.04 782.65 5.94
Fixed Rate 2.3000% 30/08/1995 20/08/2025 586.00 4.45 422.49 3.21
Fixed Rate 2.3000% 30/08/1995 20/08/2025 1,327.00 10.08 1,293.03 9.82
Fixed Rate 2.3000% 30/08/1995 20/08/2025 597.00 4.53 568.85 4.32
Fixed Rate 2.3000% 30/08/1995 20/08/2025 640.00 4.86 579.28 4.40
Fixed Rate 2.3000% 30/08/1995 20/08/2025 1,792.00 13.61 972.67 7.39
Fixed Rate 2.3000% 30/08/1995 20/08/2025 490.00 3.72 393.15 2.99
Fixed Rate 2.3000% 30/08/1995 20/08/2025 1,658.00 12.59 2,090.38 15.88
Fixed Rate 2.3000% 30/08/1995 20/08/2025 569.00 4.32 559.10 4.25
Fixed Rate 2.3000% 29/03/1996 20/03/2026 305.00 2.32 212.96 1.62
Fixed Rate 2.3000% 18/03/1997 20/03/2027 902.00 6.85 574.12 4.36
Fixed Rate 2.3000% 18/03/1997 20/03/2027 985.00 7.48 632.47 4.80
Fixed Rate 2.3000% 18/03/1997 20/03/2027 821.00 6.24 414.33 3.15
Fixed Rate 2.3000% 18/03/1997 20/03/2027 4,019.00 30.52 1,156.67 8.78
Fixed Rate 2.5000% 30/08/1995 20/08/2025 7,523.00 57.14 2,856.99 21.70
Fixed Rate 2.5000% 29/03/1996 20/03/2026 5,863.00 44.53 5,956.00 45.24
Fixed Rate 2.5000% 18/03/1997 20/03/2027 8,219.00 62.42 1,312.81 9.97
Fixed Rate 2.5000% 18/03/1997 20/03/2027 6,753.00 51.29 844.70 6.42
Fixed Rate 2.7000% 28/03/1991 20/03/2016 10,575.00 80.32 8,288.49 62.95
Fixed Rate 2.7000% 16/07/1991 20/06/2021 20,020.00 152.05 19,043.35 144.63
T-11
EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES(1) -- (Continued)
Original Amount Outstanding Balance
Interest Rate/ Contracted As of December 31, 2001
Spread/Service ------------------------ ------------------------
Charge (Per Year Year of (In original (In US (In original (In US
Currency Interest Rate Basis Annum) Contracted Maturity currency) dollars)(2) currency) dollars)(2)
- -------- ------------------- -------------- ---------- ---------- ------------ ----------- ------------ -----------
Fixed Rate 2.7000% 26/12/1988 20/12/2013 15,000.00 113.93 9,729.72 73.90
Fixed Rate 2.7000% 26/12/1988 20/12/2013 25,000.00 189.88 16,216.20 123.16
Fixed Rate 2.7000% 26/12/1988 20/12/2013 12,500.00 94.94 8,108.09 61.58
Fixed Rate 2.7000% 23/11/1989 20/11/2014 40,000.00 303.80 28,108.11 213.48
Fixed Rate 2.7000% 21/12/1990 20/12/2020 28,200.00 214.18 26,136.55 198.51
Fixed Rate 2.7000% 28/03/1991 20/03/2016 13,219.00 100.40 10,360.83 78.69
Fixed Rate 2.7000% 16/07/1991 20/06/2016 13,219.00 100.40 10,360.83 78.69
Fixed Rate 2.7000% 26/05/1989 20/05/2019 2,130.40 16.18 1,818.60 13.81
Fixed Rate 2.7000% 09/02/1990 20/02/2020 2,304.00 17.50 2,053.72 15.60
Fixed Rate 2.7000% 09/02/1990 20/02/2020 4,238.00 32.19 3,298.00 25.05
Fixed Rate 2.7000% 09/02/1990 20/02/2020 2,079.00 15.79 1,823.06 13.85
Fixed Rate 2.7000% 09/02/1990 20/02/2020 5,708.00 43.35 4,853.51 36.86
Fixed Rate 2.7000% 09/02/1990 20/02/2020 8,634.00 65.58 6,694.79 50.85
Fixed Rate 2.7000% 09/02/1990 20/02/2020 316.25 2.40 285.38 2.17
Fixed Rate 2.7000% 09/02/1990 20/02/2020 4,986.00 37.87 4,486.10 34.07
Fixed Rate 2.7000% 09/02/1990 20/02/2020 5,080.00 38.58 2,865.91 21.77
Fixed Rate 2.7000% 09/02/1990 20/02/2020 10,560.00 80.20 5,667.22 43.04
Fixed Rate 2.7000% 09/02/1990 20/02/2020 21,752.00 165.21 14,751.16 112.04
Fixed Rate 2.7000% 09/02/1990 20/02/2020 4,867.00 36.96 2,801.24 21.28
Fixed Rate 2.7000% 09/02/1990 20/02/2020 4,301.00 32.67 3,880.93 29.48
Fixed Rate 2.7000% 16/07/1991 20/06/2021 2,065.00 15.68 1,726.84 13.12
Fixed Rate 2.7000% 16/07/1991 20/06/2021 1,663.00 12.63 1,438.24 10.92
Fixed Rate 2.7000% 16/07/1991 20/06/2021 1,795.00 13.63 1,196.83 9.09
Fixed Rate 2.7000% 16/07/1991 20/06/2021 5,266.00 40.00 4,591.35 34.87
Fixed Rate 2.7000% 16/07/1991 20/06/2021 10,790.00 81.95 10,062.08 76.42
Fixed Rate 2.7000% 16/07/1991 20/06/2021 3,516.00 26.70 3,316.48 25.19
Fixed Rate 2.7000% 16/07/1991 20/06/2021 9,427.00 71.60 7,024.96 53.35
Fixed Rate 2.7000% 20/03/1992 20/03/2022 7,655.00 58.14 4,659.69 35.39
Fixed Rate 2.7000% 30/08/1995 20/08/2025 5,356.00 40.68 4,886.24 37.11
Fixed Rate 2.7000% 30/08/1995 20/08/2025 3,454.00 26.23 2,317.76 17.60
Fixed Rate 2.7000% 30/08/1995 20/08/2025 17,064.00 129.60 8,603.89 65.35
Fixed Rate 2.7000% 30/08/1995 20/08/2025 4,982.00 37.84 4,693.66 35.65
Fixed Rate 2.7000% 30/08/1995 20/08/2025 5,746.00 43.64 894.69 6.80
Fixed Rate 2.7000% 30/08/1995 20/08/2025 11,103.00 84.33 3,124.78 23.73
Fixed Rate 2.7000% 30/08/1995 20/08/2025 4,275.00 32.47 2,912.83 22.12
Fixed Rate 2.7000% 30/08/1995 20/08/2025 7,893.00 59.95 4,152.36 31.54
Fixed Rate 2.7000% 30/08/1995 20/08/2025 2,303.00 17.49 1,256.70 9.54
Fixed Rate 2.7000% 18/03/1997 20/03/2027 4,844.00 36.79 1,372.90 10.43
Fixed Rate 2.7000% 18/03/1997 20/03/2027 6,698.00 50.87 1,718.84 13.05
Fixed Rate 2.7000% 18/03/1997 20/03/2027 5,772.00 43.84 3,836.18 29.14
Fixed Rate 2.7000% 18/03/1997 20/03/2027 7,103.00 53.95 389.06 2.95
Fixed Rate 2.7000% 26/05/1989 20/05/2019 2,063.00 15.67 1,730.54 13.14
Fixed Rate 2.7000% 26/05/1989 20/05/2019 4,776.00 36.27 2,813.79 21.37
Fixed Rate 2.7000% 26/05/1989 20/05/2019 2,500.00 18.99 2,134.13 16.21
Fixed Rate 2.7000% 26/05/1989 20/05/2019 2,633.00 20.00 1,668.17 12.67
Fixed Rate 2.7000% 26/05/1989 20/05/2019 5,500.00 41.77 4,303.25 32.68
Fixed Rate 3.0000% 17/12/1987 20/12/2012 30,000.00 227.85 17,837.82 135.48
Fixed Rate 3.0000% 03/09/1992 20/09/2017 25,380.00 192.76 21,950.24 166.71
Fixed Rate 3.0000% 19/08/1993 20/08/2023 6,872.00 52.19 6,665.85 50.63
Fixed Rate 3.0000% 19/08/1993 20/08/2023 4,633.00 35.19 3,967.75 30.14
Fixed Rate 3.0000% 19/08/1993 20/08/2023 3,803.00 28.88 3,557.21 27.02
Fixed Rate 3.0000% 19/08/1993 20/08/2023 3,055.00 23.20 3,054.99 23.20
Fixed Rate 3.0000% 19/08/1993 20/08/2023 9,294.00 70.59 3,261.66 24.77
Fixed Rate 3.0000% 20/12/1994 20/12/2024 9,620.00 73.06 9,112.07 69.21
Fixed Rate 3.0000% 20/12/1994 20/12/2024 11,754.00 89.27 11,753.90 89.27
Fixed Rate 3.0000% 20/06/1980 20/06/2010 5,400.00 41.01 2,239.00 17.01
Fixed Rate 3.0000% 20/06/1980 20/06/2010 62.28 0.47 25.81 0.20
Fixed Rate 3.0000% 20/06/1980 20/06/2010 577.55 4.39 239.45 1.82
Fixed Rate 3.0000% 20/06/1980 20/06/2010 1,860.00 14.13 771.21 5.86
Fixed Rate 3.0000% 20/06/1980 20/06/2010 85.18 0.65 35.31 0.27
Fixed Rate 3.0000% 20/06/1980 20/06/2010 149.90 1.14 62.14 0.47
Fixed Rate 3.0000% 20/06/1980 20/06/2010 5,410.00 41.09 2,243.17 17.04
Fixed Rate 3.0000% 20/06/1980 20/06/2010 810.07 6.15 335.87 2.55
Fixed Rate 3.0000% 20/06/1980 20/06/2010 979.81 7.44 406.25 3.09
Fixed Rate 3.0000% 16/06/1981 20/06/2011 5,000.00 37.98 2,209.11 16.78
Fixed Rate 3.0000% 16/06/1981 20/06/2011 3,825.52 29.05 1,772.78 13.46
Fixed Rate 3.0000% 16/06/1981 20/06/2011 7,571.84 57.51 3,508.88 26.65
Fixed Rate 3.0000% 31/05/1982 20/05/2012 3,985.19 30.27 2,041.16 15.50
Fixed Rate 3.0000% 31/05/1982 20/05/2012 2,765.83 21.01 1,416.62 10.76
T-12
EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES(1) -- (Continued)
Original Amount Outstanding Balance
Interest Rate/ Contracted As of December 31, 2001
Spread/Service ------------------------ ------------------------
Charge (Per Year Year of (In original (In US (In original (In US
Currency Interest Rate Basis Annum) Contracted Maturity currency) dollars)(2) currency) dollars)(2)
- -------- ------------------- -------------- ---------- ---------- ------------ ----------- ------------ -----------
Fixed Rate 3.0000% 31/05/1982 20/05/2012 301.37 2.29 154.33 1.17
Fixed Rate 3.0000% 31/05/1982 20/05/2012 3,420.92 25.98 1,752.16 13.31
Fixed Rate 3.0000% 31/05/1982 10/05/2012 3,773.45 28.66 1,932.74 14.68
Fixed Rate 3.0000% 09/09/1983 20/09/2013 2,943.82 22.36 1,723.20 13.09
Fixed Rate 3.0000% 09/09/1983 20/09/2013 2,123.40 16.13 1,195.01 9.08
Fixed Rate 3.0000% 09/09/1983 20/09/2013 1,140.00 8.66 604.63 4.59
Fixed Rate 3.0000% 09/09/1983 20/09/2013 4,600.00 34.94 2,630.30 19.98
Fixed Rate 3.0000% 27/01/1988 20/01/2018 2,254.00 17.12 127.48 0.97
Fixed Rate 3.0000% 27/01/1988 20/01/2018 4,837.00 36.74 3,579.15 27.18
Fixed Rate 3.0000% 27/01/1988 20/01/2018 10,818.00 82.16 7,255.45 55.11
Fixed Rate 3.0000% 27/01/1988 20/01/2018 2,090.00 15.87 1,646.96 12.51
Fixed Rate 3.0000% 27/01/1988 20/01/2018 5,735.00 43.56 4,580.24 34.79
Fixed Rate 3.0000% 27/01/1988 20/01/2018 3,193.00 24.25 2,179.45 16.55
Fixed Rate 3.0000% 27/01/1988 20/01/2018 4,611.00 35.02 3,616.54 27.47
Fixed Rate 3.0000% 27/01/1988 20/01/2018 3,372.00 25.61 2,187.80 16.62
Fixed Rate 3.0000% 27/01/1988 20/01/2018 2,000.00 15.19 1,126.06 8.55
Fixed Rate 3.0000% 27/01/1988 20/01/2018 707.00 5.37 486.55 3.70
Fixed Rate 3.0000% 27/01/1988 20/01/2018 313.93 2.38 252.65 1.92
Fixed Rate 3.0000% 27/01/1988 20/01/2018 300.44 2.28 241.79 1.84
Fixed Rate 3.0000% 31/05/1988 20/05/2018 14,003.00 106.35 11,223.23 85.24
Fixed Rate 3.0000% 20/12/1994 20/12/2024 4,616.00 35.06 4,323.47 32.84
Fixed Rate 3.2500% 30/03/1976 20/03/2001 3,799.31 28.86 0.00 0.00
Fixed Rate 3.2500% 28/04/1977 20/04/2002 6,020.15 45.72 161.66 1.23
Fixed Rate 3.2500% 28/04/1977 20/04/2002 299.72 2.28 8.10 0.06
Fixed Rate 3.2500% 14/01/1978 20/01/2003 329.75 2.50 26.73 0.20
Fixed Rate 3.2500% 14/01/1978 20/01/2003 1,773.53 13.47 143.80 1.09
Fixed Rate 3.2500% 14/01/1978 20/01/2003 2,986.50 22.68 242.15 1.84
Fixed Rate 3.2500% 09/11/1978 20/11/2008 4,554.10 34.59 1,555.05 11.81
Fixed Rate 3.2500% 09/11/1978 20/11/2008 1,257.12 9.55 429.25 3.26
Fixed Rate 3.2500% 09/11/1978 20/11/2008 2,913.08 22.12 994.70 7.55
Fixed Rate 3.2500% 09/11/1978 20/11/2008 5,263.39 39.98 1,797.24 13.65
Fixed Rate 3.2500% 09/11/1978 20/05/2008 8,128.00 61.73 2,762.98 20.98
Fixed Rate 3.2500% 09/11/1978 20/11/2008 290.07 2.20 99.04 0.75
Fixed Rate 3.2500% 09/11/1978 20/11/2008 176.78 1.34 60.35 0.46
Fixed Rate 3.2500% 09/11/1978 20/11/2008 155.99 1.18 53.26 0.40
Fixed Rate 3.2500% 09/11/1978 20/11/2008 2,185.29 16.60 746.17 5.67
Fixed Rate 3.5000% 22/12/1994 31/05/2007 48,000.00 364.56 26,673.98 202.59
Fixed Rate 3.5000% 26/11/1986 20/11/2006 32,895.00 249.84 10,611.29 80.59
Fixed Rate 3.5000% 07/05/1984 20/05/2014 2,997.01 22.76 1,827.43 13.88
Fixed Rate 3.5000% 07/05/1984 20/05/2014 1,381.00 10.49 342.00 2.60
Fixed Rate 3.5000% 30/05/1986 20/05/2016 102.06 0.78 72.15 0.55
Fixed Rate 3.5000% 30/05/1986 20/05/2016 457.38 3.47 323.50 2.46
Fixed Rate 3.5000% 30/05/1986 20/05/2016 7,595.00 57.68 5,165.94 39.24
Fixed Rate 3.5000% 30/05/1986 20/05/2016 3,979.50 30.22 2,814.74 21.38
Fixed Rate 3.5000% 30/05/1986 20/05/2016 1,439.00 10.93 681.99 5.18
Fixed Rate 3.5000% 30/05/1986 20/05/2016 1,457.60 11.07 1,030.98 7.83
Fixed Rate 4.2500% 16/09/1977 20/09/2002 264.80 2.01 14.31 0.11
Fixed Rate 4.2500% 26/03/1979 20/03/2004 10,855.20 82.45 1,466.92 11.14
Fixed Rate 5.0000% 01/10/1987 20/06/2003 39,120.00 297.12 5,102.60 38.75
Fixed Rate 6.0000% 11/03/1993 01/02/2013 25,000.00 189.88 16,266.01 123.54
Fixed Rate 6.0000% 27/04/1990 15/06/2009 48,000.00 364.56 19,676.25 149.44
LIBOR 6 Months 2.2500% 22/09/2000 25/04/2015 2,940.00 22.33 2,940.00 22.33
LIBOR 6 Months 2.5000% 13/09/2001 12/12/2006 3,583.80 27.22 3,583.80 27.22
Korean Won 24,961.98 18.92 4,358.76 3.30
--------- ----- -------- ----
Fixed Rate 2.5000% 24/02/1998 20/02/2028 21,172.00 16.05 1,958.49 1.48
Fixed Rate 3.5000% 12/03/1991 20/03/2011 3,789.98 2.87 2,400.27 1.82
Kuwait Dinar 11.05 38.26 2.07 7.17
----- ----- ---- ----
Fixed Rate 3.5000% 06/05/1998 15/08/2018 6.15 21.29 0.09 0.29
Fixed Rate 4.5000% 26/12/1984 15/02/2008 4.90 16.97 1.98 6.87
Netherlands
Guilder 2.30 0.92 0.00 0.00
---- ---- ---- ----
Fixed Rate 2.5000% 27/04/1984 31/12/2014 2.30 0.92 0.00 0.00
Swedish Kroner 18.31 1.71 13.81 1.29
----- ---- ----- ----
Interest Free 0.0000% 13/02/1998 30/12/2008 18.31 1.71 13.81 1.29
Special Drawing Right 911.68 1,143.67 671.42 842.28
------ -------- ------ ------
Interest Free 1.0000% 22/11/1990 15/08/2025 16.73 20.98 11.92 14.95
T-13
EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES(1) -- (Continued)
Original Amount Outstanding Balance
Interest Rate/ Contracted As of December 31, 2001
Spread/Service ------------------------ ------------------------
Charge (Per Year Year of (In original (In US (In original (In US
Currency Interest Rate Basis Annum) Contracted Maturity currency) dollars)(2) currency) dollars)(2)
- -------- ------------------- -------------- ----------- ---------- ------------ ----------- ------------ -----------
Interest Free 1.0000% 27/12/1988 15/11/2023 5.91 7.41 5.47 6.86
Interest Free 1.0000% 09/11/1990 15/11/2025 35.87 45.00 34.98 43.88
Interest Free 1.0000% 11/07/1991 15/02/2026 50.00 62.72 49.38 61.94
Interest Free 1.0000% 06/03/1992 01/06/2027 26.40 33.12 24.40 30.60
Interest Free 1.0000% 27/12/1988 15/10/2023 18.68 23.43 14.83 18.60
Interest Free 1.0000% 25/01/1991 15/08/2025 24.19 30.35 23.59 29.59
Interest Free 1.0000% 24/06/1992 15/11/2026 27.16 34.07 23.23 29.14
Interest Free 1.0000% 22/11/1990 15/08/2025 69.70 87.43 66.52 83.45
Interest Free 1.0000% 18/12/1989 01/10/2024 25.04 31.42 14.92 18.72
Interest Free 1.0000% 20/01/1995 15/10/2029 11.93 14.96 7.05 8.85
Interest Free 1.0000% 25/10/1990 15/09/2025 18.25 22.89 17.45 21.88
Interest Free 1.0000% 12/09/1988 15/05/2023 53.41 67.00 42.83 53.73
Interest Free 1.0000% 17/02/1989 15/11/2023 14.77 18.53 13.45 16.88
Interest Free 1.0000% 05/11/1993 15/06/2028 18.02 22.61 14.19 17.79
Interest Free 1.0000% 17/02/1989 15/10/2023 25.85 32.43 23.91 30.00
Interest Free 1.0000% 04/07/1988 01/04/2023 43.44 54.50 39.64 49.73
Interest Free 1.0000% 05/10/1989 15/08/2024 39.77 49.89 37.78 47.39
Interest Free 1.0000% 28/11/1991 15/11/2026 35.25 44.21 28.75 36.06
Interest Free 1.0000% 20/01/1995 15/10/2029 36.80 46.16 19.27 24.17
Interest Free 1.0000% 21/04/1988 01/02/2023 11.61 14.56 9.57 12.00
Interest Free 1.0000% 28/11/1991 15/11/2026 22.03 27.63 22.03 27.63
Interest Free 1.0000% 22/1.1/1993 01/06/2028 50.50 63.35 25.28 31.71
Interest Free 1.0000% 11/01/1996 15/09/2029 15.65 19.63 3.59 4.50
Interest Free 1.0000% 22/11/1990 15/11/2025 14.36 18.02 13.14 16.48
Interest Free 1.0000% 24/12/1992 01/10/2027 34.65 43.47 12.43 15.59
Interest Free 1.0000% 24/04/1986 15/05/2026 43.40 54.44 38.62 48.45
Interest Free 1.0000% 27/11/1995 15/05/2030 9.63 12.08 5.59 7.02
Interest Free 1.0000% 27/11/1995 15/04/2030 17.64 22.13 7.24 9.09
Interest Free 1.0000% 04/06/1996 15/03/2021 12.76 16.01 4.89 6.13
Interest Free 1.0000% 23/07/1997 15/05/2021 13.84 17.36 1.86 2.34
Interest Free 1.0000% 21/01/1998 01/09/2032 11.02 13.82 2.28 2.86
Interest Free 1.0000% 15/04/1998 15/11/2032 6.49 8.14 1.15 1.45
Interest Free 0.0000% 29/11/2000 15/01/2040 4.50 5.65 0.00 0.00
Interest Free 0.0000% 25/09/2000 15/01/2040 6.00 7.53 0.00 0.00
Fixed Rate 0.7500% 06/03/1996 15/03/2030 6.15 7.71 1.37 1.71
Fixed Rate 0.7500% 29/04/1998 15/03/2038 11.00 13.80 1.10 1.38
Fixed Rate 4.0000% 18/05/1992 01/04/2012 11.00 13.80 6.29 7.89
Fixed Rate 4.0000% 16/11/1982 01/08/2002 6.95 8.72 0.35 0.44
Fixed Rate 4.0000% 22/04/1987 01/03/2007 3.02 3.79 1.06 1.33
Fixed Rate 4.0000% 22/06/1982 01/03/2002 2.32 2.91 0.04 0.05
United States Dollars 9,202.47 9,202.47 4,547.14 4,547.14
-------- -------- -------- --------
ADB Floating Rate 0.0000% 22/11/1990 15/11/2015 9.00 9.00 7.09 7.09
ADB Floating Rate 0.0000% 17/02/1989 15/10/2003 65.00 65.00 16.70 16.70
ADB Floating Rate 0.0000% 25/10/1990 15/09/2020 33.00 33.00 30.49 30.49
ADB Floating Rate 0.0000% 23/12/1986 01/04/2012 82.00 82.00 61.27 61.27
ADB Floating Rate 0.0000% 27/11/1995 15/05/2022 15.00 15.00 6.19 6.19
ADB Floating Rate 0.0000% 20/01/1995 15/10/2019 41.00 41.00 29.58 29.58
ADB Floating Rate 0.0000% 23/12/1986 15/06/2016 18.80 18.80 15.28 15.28
ADB Floating Rate 0.0000% 05/10/1989 15/08/2004 30.00 30.00 11.04 11.04
ADB Floating Rate 0.0000% 04/07/1988 01/04/2003 60.00 60.00 11.84 11.84
ADB Floating Rate 0.0000% 23/12/1986 01/10/2010 24.00 24.00 15.32 15.32
ADB Floating Rate 0.0000% 09/11/1990 15/11/2005 50.00 50.00 23.42 23.42
ADB Floating Rate 0.0000% 11/01/1996 15/09/2021 9.50 9.50 3.21 3.21
ADB Floating Rate 0.0000% 04/02/1991 15/08/2015 150.00 150.00 124.94 124.94
ADB Floating Rate 0.0000% 27/11/1995 15/04/2020 30.00 30.00 5.92 5.92
ADB Floating Rate 0.0000% 20/01/1995 01/10/2016 23.50 23.50 19.85 19.85
ADB Floating Rate 0.0000% 24/12/1992 01/10/2017 50.00 50.00 16.91 16.91
ADB Floating Rate 0.0000% 02/05/1996 01/05/2010 150.00 150.00 56.61 56.61
ADB Floating Rate 0.0000% 03/06/1997 15/03/2021 18.50 18.50 6.50 6.50
ADB Floating Rate 0.0000% 23/06/1997 15/05/2021 167.00 167.00 48.50 48.50
ADB Floating Rate 0.0000% 24/04/1986 15/05/2006 50.00 50.00 22.84 22.84
ADB Floating Rate 0.0000% 21/12/1998 15/08/2013 300.00 300.00 200.00 200.00
ADB Floating Rate 0.0000% 21/12/1998 01/08/2013 200.00 200.00 100.00 100.00
ADB Floating Rate 0.0000% 21/01/1998 01/09/2022 93.00 93.00 8.16 8.16
ADB Floating Rate 0.0000% 21/01/1998 01/09/2022 20.22 20.22 3.44 3.44
ADB Floating Rate 0.0000% 15/04/1998 15/11/2022 15.70 15.70 2.52 2.52
ADB Floating Rate 0.0000% 21/01/1998 15/11/2022 22.00 22.00 0.60 0.60
ADB Floating Rate 0.0000% 21/12/1998 01/08/2022 71.00 71.00 4.53 4.53
T-14
EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES(1) -- (Continued)
Original Amount Outstanding Balance
Interest Rate/ Contracted As of December 31, 2001
Spread/Service ------------------------ ------------------------
Charge (Per Year Year of (In original (In US (In original (In US
Currency Interest Rate Basis Annum) Contracted Maturity currency) dollars)(2) currency) dollars)(2)
- -------- ------------------- -------------- ---------- ---------- ------------ ----------- ------------ -----------
ADB Floating Rate 0.0000% 01/03/1999 01/08/2025 53.00 53.00 1.23 1.23
ADB Floating Rate 0.0000% 01/03/1999 01/12/2023 24.30 24.30 1.97 1.97
ADB Floating Rate 0.0000% 01/03/1999 15/12/2023 93.16 93.16 9.08 9.08
ADB Floating Rate 0.0000% 01/03/1999 15/08/2023 60.00 60.00 2.78 2.78
ADB Floating Rate 0.0000% 18/07/2000 15/08/2014 100.00 100.00 30.00 30.00
ADB Floating Rate 0.0000% 18/07/2000 15/08/2024 75.00 75.00 1.02 1.02
ADB Floating Rate 0.0000% 21/07/2000 15/02/2015 100.00 100.00 40.00 40.00
ADB Floating Rate 0.0000% 21/07/2000 15/02/2015 75.00 75.00 0.39 0.39
ADB Floating Rate 0.0000% 16/11/2000 15/08/2025 25.00 25.00 1.28 1.28
Cost Qua. Bor. IBRD 6M 0.5000% 22/12/1989 15/03/2010 200.00 200.00 145.65 145.65
Cost Qua. Bor. IBRD 6M 0.5000% 04/06/1984 01/07/2004 90.95 90.95 17.28 17.28
Cost Qua. Bor. IBRD 6M 0.5000% 19/01/1990 01/02/2010 40.00 40.00 27.52 27.52
Cost Qua. Bor. IBRD 6M 0.5000% 31/05/1989 15/06/2009 300.00 300.00 191.15 191.15
Cost Qua. Bor. IBRD 6M 0.5000% 26/09/1984 01/10/2004 150.00 150.00 30.00 30.00
Cost Qua. Bor. IBRD 6M 0.5000% 09/11/1989 15/09/2009 70.10 70.10 47.34 47.34
Cost Qua. Bor. IBRD 6M 0.5000% 10/08/1984 15/08/2004 35.81 35.81 6.71 6.71
Cost Qua. Bor. IBRD 6M 0.5000% 16/03/1990 15/04/2010 40.00 40.00 21.65 21.65
Cost Qua. Bor. IBRD 6M 0.5000% 09/06/1993 01/08/2013 28.36 28.36 24.87 24.87
Cost Qua. Bor. IBRD 6M 0.5000% 09/06/1993 01/08/2013 22.94 22.94 16.17 16.17
Cost Qua. Bor. IBRD 6M 0.5000% 23/12/1992 01/02/2013 200.00 200.00 171.06 171.06
Cost Qua. Bor. IBRD 6M 0.5000% 05/02/1992 15/03/2012 90.79 90.79 73.71 73.71
Cost Qua. Bor. IBRD 6M 0.5000% 05/02/1992 15/03/2012 59.21 59.21 51.21 51.21
Cost Qua. Bor. IBRD 6M 0.5000% 15/07/1993 01/03/2013 37.54 37.54 32.01 32.01
Cost Qua. Bor. IBRD 6M 0.5000% 15/07/1993 01/03/2013 25.46 25.46 17.84 17.84
Cost Qua. Bor. IBRD 6M 0.5000% 19/06/1986 01/01/2006 82.00 82.00 27.24 27.24
Cost Qua. Bor. IBRD 6M 0.5000% 01/09/1988 01/08/2008 200.00 200.00 121.24 121.24
Cost Qua. Bor. IBRD 6M 0.5000% 09/07/1990 15/09/2010 200.00 200.00 131.96 131.96
Cost Qua. Bor. IBRD 6M 0.5000% 07/02/1984 01/02/2004 24.97 24.97 3.46 3.46
Cost Qua. Bor. IBRD 6M 0.5000% 13/06/1988 15/08/2008 45.00 45.00 14.24 14.24
Cost Qua. Bor. IBRD 6M 0.5000% 28/04/1995 01/04/2015 1.30 1.30 1.23 1.23
Cost Qua. Bor. IBRD 6M 0.5000% 28/04/1995 01/04/2015 16.70 16.70 8.07 8.07
Cost Qua. Bor. IBRD 6M 0.5000% 10/06/1983 01/06/2003 35.92 35.92 3.29 3.29
Cost Qua. Bor. IBRD 6M 0.5000% 30/03/1987 01/01/2007 300.00 300.00 110.00 110.00
Cost Qua. Bor. IBRD 6M 0.5000% 11/07/1991 15/08/2011 139.44 139.44 108.22 108.22
Cost Qua. Bor. IBRD 6M 0.5000% 11/07/1991 15/08/2011 18.56 18.56 4.29 4.29
Cost Qua. Bor. IBRD 6M 0.5000% 02/04/1985 01/05/2005 3.95 3.95 0.88 0.88
Cost Qua. Bor. IBRD 6M 0.5000% 01/09/1988 15/08/2008 125.26 125.26 75.92 75.92
Cost Qua. Bor. IBRD 6M 0.5000% 27/04/1983 15/05/2003 302.25 302.25 30.23 30.23
Interest Free 1.0000% 20/12/1974 01/10/2014 5.77 5.77 3.00 3.00
Interest Free 1.0000% 10/11/1978 01/10/2018 14.00 14.00 9.52 9.52
Interest Free 1.0000% 27/08/1979 01/02/2019 12.34 12.34 8.64 8.64
Interest Free 1.0000% 22/10/1980 15/09/2020 12.20 12.20 9.24 9.24
Interest Free 1.0000% 12/10/1981 01/09/2021 12.11 12.11 9.68 9.68
Interest Free 1.0000% 05/01/1973 01/09/2022 12.70 12.70 8.00 8.00
Interest Free 1.0000% 05/04/1974 15/04/2024 9.50 9.50 6.41 6.41
Interest Free 1.0000% 21/04/1978 15/12/2027 21.52 21.52 16.78 16.78
Interest Free 1.0000% 27/06/1979 01/06/2029 32.22 32.22 26.58 26.58
Fixed Rate 1.0000% 22/09/2000 04/10/2030 7.01 7.01 2.18 2.18
Fixed Rate 1.5000% 11/07/1996 17/03/2026 25.18 25.18 25.75 25.75
Fixed Rate 1.7500% 06/08/2000 15/12/2016 10.00 10.00 0.50 0.50
Fixed Rate 2.0000% 26/02/1973 08/08/2013 19.72 19.72 9.93 9.93
Fixed Rate 2.0000% 30/06/1973 19/06/2014 1.91 1.91 1.00 1.00
Fixed Rate 2.0000% 24/12/1980 01/10/2021 4.87 4.87 3.66 3.66
Fixed Rate 2.0000% 23/07/1982 15/04/2023 4.15 4.15 4.35 4.35
Fixed Rate 2.0000% 03/04/1984 19/08/2021 0.04 0.04 0.03 0.03
Fixed Rate 2.0000% 24/03/1975 31/05/2017 15.00 15.00 9.29 9.29
Fixed Rate 2.0000% 29/07/1975 16/02/2017 3.47 3.47 2.15 2.15
Fixed Rate 2.0000% 29/07/1975 18/06/2016 6.45 6.45 3.79 3.79
Fixed Rate 2.0000% 22/12/1975 13/09/2017 4.84 4.84 3.07 3.07
Fixed Rate 2.0000% 11/03/1974 07/12/2016 1.38 1.38 0.84 0.84
Fixed Rate 2.0000% 28/04/1976 25/04/2017 8.90 8.90 5.51 5.51
Fixed Rate 2.0000% 27/06/1977 27/04/2018 2.93 2.93 1.91 1.91
Fixed Rate 2.0000% 13/01/1978 18/05/2019 4.86 4.86 3.23 3.23
Fixed Rate 2.0000% 13/01/1978 09/11/2018 1.46 1.46 0.97 0.97
Fixed Rate 2.0000% 18/08/1978 14/10/2018 0.68 0.68 0.47 0.47
Fixed Rate 2.0000% 23/02/1979 08/04/2020 10.61 10.61 7.53 7.53
Fixed Rate 2.0000% 28/03/1980 05/03/2021 6.36 6.36 4.70 4.70
Fixed Rate 2.0000% 15/02/1979 28/04/2021 4.13 4.13 3.05 3.05
Fixed Rate 2.0000% 15/02/1978 15/05/2021 3.98 3.98 2.94 2.94
T-15
EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES(1) -- (Continued)
Original Amount Outstanding Balance
Interest Rate/ Contracted As of December 31, 2001
Spread/Service ------------------------ ------------------------
Charge (Per Year Year of (In original (In US (In original (In US
Currency Interest Rate Basis Annum) Contracted Maturity currency) dollars)(2) currency) dollars)(2)
- -------- ------------------- -------------- ---------- ---------- ------------ ----------- ------------ -----------
Fixed Rate 2.0000% 16/07/1979 15/09/2020 3.63 3.63 2.63 2.63
Fixed Rate 2.0000% 01/08/1979 11/01/2022 0.83 0.83 0.63 0.63
Fixed Rate 2.0000% 01/08/1978 06/01/2024 0.44 0.44 0.36 0.36
Fixed Rate 2.0000% 29/08/1980 13/10/2021 0.39 0.39 0.30 0.30
Fixed Rate 2.0000% 06/11/1981 06/11/2021 9.65 9.65 7.25 7.25
Fixed Rate 2.0000% 28/05/1981 26/08/2022 0.91 0.91 0.71 0.71
Fixed Rate 2.0000% 29/08/1980 01/06/2021 2.09 2.09 1.54 1.54
Fixed Rate 2.0000% 25/09/1981 15/03/2022 3.04 3.04 2.32 2.32
Fixed Rate 2.0000% 30/09/1981 17/08/2021 0.82 0.82 0.64 0.64
Fixed Rate 2.0000% 31/08/1982 14/06/2023 0.81 0.81 0.64 0.64
Fixed Rate 2.0000% 29/09/1982 28/04/2023 0.21 0.21 0.17 0.17
Fixed Rate 2.0000% 23/05/1984 02/06/2023 0.04 0.04 0.03 0.03
Fixed Rate 2.0000% 31/08/1983 16/11/2024 0.18 0.18 0.15 0.15
Fixed Rate 2.0000% 24/08/1979 20/02/2021 1.05 1.05 0.77 0.77
Fixed Rate 2.0000% 28/10/1980 16/12/2023 3.74 3.74 3.01 3.01
Fixed Rate 2.0000% 04/12/1980 28/10/2023 0.49 0.49 0.42 0.42
Fixed Rate 2.0000% 21/07/1982 12/09/2023 0.29 0.29 0.24 0.24
Fixed Rate 2.0000% 30/07/1983 16/04/2025 0.98 0.98 0.83 0.83
Fixed Rate 2.0000% 29/07/1983 01/10/2024 0.06 0.06 0.05 0.05
Fixed Rate 2.0000% 26/03/1984 10/10/2024 0.35 0.35 0.29 0.29
Fixed Rate 2.0000% 15/02/1979 22/11/2022 0.74 0.74 0.57 0.57
Fixed Rate 2.0000% 30/06/1980 14/02/2023 2.30 2.30 1.82 1.82
Fixed Rate 2.0000% 01/06/1994 23/11/2019 14.97 14.97 12.83 12.83
Fixed Rate 2.0000% 20/06/1986 13/10/2016 31.99 31.99 18.45 18.45
Fixed Rate 2.0000% 19/05/1988 03/07/2018 29.99 29.99 19.61 19.61
Fixed Rate 2.0000% 31/07/1990 25/10/2020 21.00 21.00 15.35 15.35
Fixed Rate 2.0000% 02/08/1999 30/12/2019 15.13 15.13 15.13 15.13
Fixed Rate 2.0000% 02/08/1999 11/02/2020 14.87 14.87 14.87 14.87
Fixed Rate 2.0000% 04/05/1972 26/12/2002 9.64 9.64 0.46 0.46
Fixed Rate 2.0000% 08/07/1985 25/10/2015 40.00 40.00 21.54 21.54
Fixed Rate 2.0000% 12/07/2000 19/01/2021 23.35 23.35 23.35 23.35
Fixed Rate 2.0000% 12/07/2000 19/01/2021 16.65 16.65 16.64 16.64
Fixed Rate 2.5000% 30/06/1997 28/04/2014 9.48 9.48 9.01 9.01
Fixed Rate 3.0000% 29/06/1973 01/05/2003 6.00 6.00 0.53 0.53
Fixed Rate 3.0000% 04/12/1980 06/04/2022 2.30 2.30 1.74 1.74
Fixed Rate 3.0000% 06/07/1989 06/07/2007 100.00 100.00 51.11 51.11
Fixed Rate 3.0000% 17/05/1991 01/10/2021 15.00 15.00 12.50 12.50
Fixed Rate 3.0000% 30/01/1992 05/04/2022 20.00 20.00 17.50 17.50
Fixed Rate 3.0000% 30/04/1993 26/11/2023 20.00 20.00 18.33 18.33
Fixed Rate 3.0250% 30/03/1988 15/10/2004 6.50 6.50 1.63 1.63
Fixed Rate 3.2500% 27/09/1990 15/04/2006 4.89 4.89 2.20 2.20
Fixed Rate 3.2500% 22/09/1997 22/03/2014 10.00 10.00 1.63 1.63
Fixed Rate 3.4000% 01/03/1996 15/12/2012 22.95 22.95 21.09 21.09
Fixed Rate 3.4000% 06/06/1997 15/12/2014 36.82 36.82 27.81 27.81
Fixed Rate 3.4000% 01/05/1998 15/05/2014 38.51 38.51 38.51 38.51
Fixed Rate 3.9500% 23/12/1994 28/01/2006 6.13 6.13 0.00 0.00
Fixed Rate 4.0000% 16/07/1998 05/11/2018 10.00 10.00 10.00 10.00
Fixed Rate 5.2000% 05/03/1998 15/10/2010 24.99 24.99 11.47 11.47
Fixed Rate 5.2000% 08/11/1999 15/11/2012 99.45 99.45 66.06 66.06
Fixed Rate 5.9500% 23/12/1994 01/03/2006 34.75 34.75 19.00 19.00
Fixed Rate 7.1800% 22/09/2000 05/04/2008 7.01 7.01 3.00 3.00
Fixed Rate 7.5000% 29/06/1973 01/05/2003 3.59 3.59 0.46 0.46
Fixed Rate 7.5000% 26/11/1973 01/09/2003 4.20 4.20 0.70 0.70
Fixed Rate 7.6000% 07/11/1979 01/09/2009 39.65 39.65 21.68 21.68
Fixed Rate 7.7000% 09/06/1978 15/04/2008 23.50 23.50 11.07 11.07
Fixed Rate 7.7000% 26/12/1978 01/11/2002 22.31 22.31 2.05 2.05
Fixed Rate 7.7300% 06/04/1990 15/07/2010 40.88 40.88 21.43 21.43
Fixed Rate 7.7300% 06/04/1990 15/07/2010 80.92 80.92 55.07 55.07
Fixed Rate 7.7300% 09/07/1990 15/09/2010 85.00 85.00 33.00 33.00
Fixed Rate 7.7300% 08/11/1990 01/08/2010 18.63 18.63 6.97 6.97
Fixed Rate 7.7300% 08/11/1990 01/08/2010 27.57 27.57 18.59 18.59
Fixed Rate 7.7300% 08/11/1990 01/11/2010 125.00 125.00 78.88 78.88
Fixed Rate 7.7300% 05/02/1992 15/04/2012 61.00 61.00 44.42 44.42
Fixed Rate 7.7300% 31/03/1992 15/06/2012 33.25 33.25 22.43 22.43
Fixed Rate 7.7300% 31/03/1992 15/06/2012 34.75 34.75 27.04 27.04
Fixed Rate 7.7500% 31/05/1989 01/03/2009 60.00 60.00 38.23 38.23
Fixed Rate 8.0000% 23/07/1996 20/10/2006 25.75 25.75 16.66 16.66
Fixed Rate 8.0000% 20/06/1997 30/05/2013 9.48 9.48 6.68 6.68
Fixed Rate 8.0600% 14/09/1994 15/04/2006 20.42 20.42 7.85 7.85
T-16
EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES(1) -- (Continued)
Original Amount
Interest Rate/ Contracted
Spread/Service ------------------------
Charge (Per Year Year of (In original (In US
Currency Interest Rate Basis Annum) Contracted Maturity currency) dollars)(2)
- -------- ------------------- -------------- ---------- ---------- ------------ -----------
Fixed Rate 8.3000% 06/09/1977 15/04/2007 17.53 17.53
Fixed Rate 8.3000% 06/09/1977 01/05/2002 15.59 15.59
Fixed Rate 8.3000% 25/10/1977 15/07/2002 45.00 45.00
Fixed Rate 8.6000% 31/12/1991 30/11/2004 51.95 51.95
Fixed Rate 8.7500% 07/07/1975 01/05/2005 12.80 12.80
Fixed Rate 8.7500% 18/12/1975 01/11/2005 25.98 25.98
Fixed Rate 8.9000% 15/12/1976 15/07/2006 14.60 14.60
Fixed Rate 9.0000% 06/11/1980 15/07/2004 30.00 30.00
Fixed Rate 9.2000% 07/11/1989 15/10/2003 8.76 8.76
Fixed Rate 10.0000% 12/10/1981 01/09/2011 20.79 20.79
Fixed Rate 10.1000% 17/11/1981 01/08/2006 20.17 20.17
Fixed Rate 10.1000% 04/12/1981 01/09/2006 2.48 2.48
Fixed Rate 10.2500% 28/12/1984 15/04/2008 20.63 20.63
Fixed Rate 10.5000% 23/12/1983 15/11/2013 38.30 38.30
Fixed Rate 10.5000% 23/12/1983 01/10/2003 4.17 4.17
Fixed Rate 10.5000% 23/12/1983 15/10/2013 25.15 25.15
Fixed Rate 11.0000% 03/11/1982 01/09/2012 18.80 18.80
Fixed Rate 11.0000% 01/12/1982 01/06/2002 4.14 4.14
Fixed Rate 11.0000% 01/12/1982 01/05/2006 47.39 47.39
Fixed Rate 11.0000% 20/05/1983 01/01/2010 21.77 21.77
Fixed Rate 11.6000% 24/02/1982 01/03/2002 7.33 7.33
Fixed Rate 11.6000% 30/06/1982 15/05/2002 15.39 15.39
Fixed Rate 11.6000% 18/09/1982 01/03/2002 1.89 1.89
Fixed Rate 11.6000% 30/06/1982 01/09/2002 63.25 63.25
Fixed Rate 11.6000% 30/06/1982 01/08/2002 38.06 38.06
Fixed Rate 11.6000% 28/10/1982 01/09/2002 14.87 14.87
Fixed Rate 11.6000% 28/10/1982 01/12/2002 7.79 7.79
Fixed Rate 11.6000% 28/10/1982 01/12/2002 28.93 28.93
LIBOR 6 Months Deposit 0.0000% 03/06/1994 01/06/2024 5.00 5.00
LIBOR 6 Months Deposit 0.0000% 03/06/1994 01/06/2024 10.00 10.00
LIBOR 6 Months Deposit 0.0000% 05/02/1992 01/02/2022 50.00 50.00
LIBOR 6 Months Deposit 0.0000% 10/03/1995 10/03/2015 26.50 26.50
LIBOR 6 Months Deposit 0.0000% 14/12/1999 15/12/2019 27.50 27.50
LIBOR 6 Months Deposit 0.0000% 25/02/2000 04/15/2020 10.00 10.00
LIBOR 6 Months Deposit 0.0000% 10/04/2000 15/02/2020 150.00 150.00
LIBOR 6 Months Deposit 0.0000% 20/10/2000 09/01/2020 4.79 4.79
LIBOR 6 Months Deposit 0.0000% 08/08/2001 01/05/2021 60.00 60.00
LIBOR 6 Months Deposit 0.5000% 20/12/1996 15/01/2017 113.40 113.40
LIBOR 6 Months Deposit 0.5000% 20/12/1996 15/01/2018 50.00 50.00
LIBOR 6 Months Deposit 0.5000% 20/12/1997 15/01/2019 58.00 58.00
LIBOR 6 Months Deposit 0.5000% 09/09/1997 15/06/2018 50.00 50.00
LIBOR 6 Months Deposit 0.5000% 08/04/1998 15/06/2018 10.00 10.00
LIBOR 6 Months Deposit 0.5000% 08/04/1998 15/06/2018 19.00 19.00
LIBOR 6 Months Deposit 0.6250% 18/03/1992 15/12/2003 9.39 9.39
LIBOR 6 Months Deposit 0.6250% 01/04/1992 15/12/2002 4.29 4.29
LIBOR 6 Months Deposit 0.6250% 09/04/1992 15/06/2002 2.19 2.19
LIBOR 6 Months Deposit 0.6250% 06/08/1992 15/06/2003 0.99 0.99
LIBOR 6 Months Deposit 0.6250% 08/06/1992 15/12/2001 6.12 6.12
LIBOR 6 Months Deposit 0.7500% 11/12/1998 15/09/2018 300.00 300.00
LIBOR 6 Months Deposit 0.7500% 23/03/1999 15/05/2019 100.00 100.00
LIBOR 6 Months Deposit 1.1000% 19/10/2000 24/10/2003 100.00 100.00
LIBOR 6 Months Deposit 1.6000% 19/10/2000 24/10/2005 300.00 300.00
LIBOR 6 Months Deposit 2.9000% 04/07/2001 15/12/2003 100.00 100.00
B. Relent to GOCC's 386,434.94 3,408.03
---------- --------
Belgian Francs 1,231.67 26.96
-------- -----
Interest Free 0.0000% 30/10/1992 31/12/2022 150.00 3.28
Interest Free 0.0000% 23/12/1983 31/12/2013 100.00 2.19
Interest Free 0.0000% 29/11/1982 31/12/2012 100.00 2.19
Interest Free 0.0000% 04/11/1981 31/12/2011 300.00 6.57
Interest Free 0.0000% 11/08/1980 31/12/2010 450.00 9.85
Interest Free 0.0000% 11/03/1996 31/12/2025 131.67 2.88
Swiss Franc 12.07 7.19
----- ----
Fixed Rate 8.3000% 10/03/1989 31/12/2002 12.07 7.19
Deutsche Mark 144.43 65.21
------ -----
Fixed Rate 2.0000% 10/07/1989 31/12/2019 32.40 14.63
Fixed Rate 2.0000% 22/03/1982 30/06/2012 9.70 4.38
Outstanding Balance
As of December 31, 2001
------------------------
(In original (In US
Currency currency) dollars)(2)
- -------- ------------ -----------
7.31 7.31
0.77 0.77
4.38 4.38
0.00 0.00
3.85 3.85
8.62 8.62
5.94 5.94
8.41 8.41
3.54 3.54
14.48 14.48
9.06 9.06
1.10 1.10
11.26 11.26
28.43 28.43
1.01 1.01
18.67 18.67
12.96 12.96
0.27 0.27
19.82 19.82
14.37 14.37
0.30 0.30
0.48 0.48
0.06 0.06
4.22 4.22
2.26 2.26
0.91 0.91
0.51 0.51
1.88 1.88
5.00 5.00
20.00 20.00
10.00 10.00
10.68 10.68
3.66 3.66
31.42 31.42
18.55 18.55
0.61 0.61
0.60 0.60
14.19 14.19
40.75 40.75
21.07 21.07
5.93 5.93
9.53 9.53
3.81 3.81
1.88 1.88
0.64 0.64
0.11 0.11
0.15 0.15
0.31 0.31
100.00 100.00
3.84 3.84
100.00 100.00
300.00 300.00
100.00 100.00
B. Relent to GOCC's 182,122.63 1,603.55
---------- --------
Belgian Francs 709.71 15.54
------ -----
140.13 3.07
45.00 0.99
41.25 0.90
150.00 3.28
202.50 4.43
130.83 2.86
Swiss Franc 0.18 0.11
---- ----
0.18 0.11
Deutsche Mark 95.15 42.96
----- -----
15.81 7.14
4.98 2.25
T-17
EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES(1) -- (Continued)
Original Amount
Interest Rate/ Contracted
Spread/Service ------------------------
Charge (Per Year Year of (In original (In US
Currency Interest Rate Basis Annum) Contracted Maturity currency) dollars)(2)
- -------- ------------------- -------------- ---------- ---------- ------------ -----------
Fixed Rate 2.0000% 10/07/1989 31/12/2019 14.40 6.50
Fixed Rate 2.0000% 28/04/1972 30/06/2002 12.50 5.64
Fixed Rate 2.0000% 10/07/1989 31/12/2019 62.80 28.36
Fixed Rate 2.0000% 10/04/1981 31/12/2015 12.63 5.70
Danish Kroner 132.84 15.77
------ -----
Interest Free 0.0000% 03/03/1987 01/10/2002 22.84 2.71
Interest Free 0.0000% 20/02/1985 01/04/2009 95.00 11.28
Interest Free 0.0000% 20/02/1985 01/10/2009 15.00 1.78
Pounds Sterling 5.49 7.97
---- ----
Fixed Rate 2.0000% 12/03/1980 12/03/2005 3.52 5.12
Fixed Rate 2.0000% 23/09/1980 23/09/2005 1.97 2.86
Japanese Yen 384,553.15 2,920.68
---------- --------
Fixed Rate 0.7500% 07/04/2000 20/04/2040 1,587.00 12.05
Fixed Rate 0.7500% 07/04/2000 20/04/2040 821.00 6.24
Fixed Rate 0.7500% 10/09/1998 20/09/2038 23,668.00 179.76
Fixed Rate 1.0000% 07/04/2000 20/04/2040 20,675.00 157.03
Fixed Rate 1.0000% 07/04/2000 20/04/2040 7,445.00 56.54
Fixed Rate 2.0000% 18/09/1972 31/08/2002 4,941.27 37.53
Fixed Rate 2.0000% 05/09/1973 31/08/2002 4,513.55 34.28
Fixed Rate 2.0000% 16/08/1995 31/07/2025 545.40 4.14
Fixed Rate 2.7000% 26/05/1989 20/05/2019 6,300.00 47.85
Fixed Rate 2.7000% 28/06/1990 15/11/2010 5,066.00 38.48
Fixed Rate 2.7000% 16/07/1991 20/04/2021 2,005.00 15.23
Fixed Rate 2.7000% 16/07/1991 20/06/2021 5,788.00 43.96
Fixed Rate 2.7000% 26/05/1992 20/05/2022 1,094.00 8.31
Fixed Rate 2.7000% 16/07/1991 20/06/2021 8,283.00 62.91
Fixed Rate 2.7000% 16/07/1991 20/06/2021 4,028.00 30.59
Fixed Rate 2.7000% 18/03/1997 20/03/2027 25,665.00 194.93
Fixed Rate 2.7000% 18/03/1997 20/03/2027 679.00 5.16
Fixed Rate 2.7000% 26/05/1989 20/05/2019 5,054.00 38.39
Fixed Rate 3.0000% 29/01/1993 20/07/2022 3,563.90 27.07
Fixed Rate 3.0000% 31/03/1993 20/03/2023 6,112.00 46.42
Fixed Rate 3.0000% 19/08/1993 20/08/2023 18,120.00 137.62
Fixed Rate 3.0000% 19/08/1993 20/08/2023 1,259.00 9.56
Fixed Rate 3.0000% 12/08/1994 20/08/2024 11,433.00 86.83
Fixed Rate 3.0000% 07/12/1994 20/12/2024 7,056.00 53.59
Fixed Rate 3.0000% 07/12/1994 20/12/2024 6,630.00 50.35
Fixed Rate 3.0000% 20/12/1994 20/12/2024 5,513.00 41.87
Fixed Rate 3.0000% 20/12/1994 20/12/2024 10,756.00 81.69
Fixed Rate 3.0000% 20/12/1994 20/12/2024 2,896.00 22.00
Fixed Rate 3.0000% 20/12/1994 20/12/2024 457.00 3.47
Fixed Rate 3.0000% 20/12/1994 20/12/2024 9,795.00 74.39
Fixed Rate 3.0000% 20/12/1994 20/12/2024 6,212.00 47.18
Fixed Rate 3.0000% 20/06/1980 20/06/2010 14,832.73 112.65
Fixed Rate 3.0000% 20/06/1980 20/06/2010 1,529.75 11.62
Fixed Rate 3.0000% 16/06/1981 20/06/2011 8,516.35 64.68
Fixed Rate 3.0000% 16/06/1981 20/06/2011 7,554.76 57.38
Fixed Rate 3.0000% 16/06/1981 20/06/2011 4,507.27 34.23
Fixed Rate 3.0000% 16/06/1981 20/06/2011 136.58 1.04
Fixed Rate 3.0000% 31/05/1982 20/05/2012 25,489.96 193.60
Fixed Rate 3.0000% 31/05/1982 20/05/2012 467.92 3.55
Fixed Rate 3.0000% 31/05/1982 20/05/2012 149.16 1.13
Fixed Rate 3.0000% 09/09/1983 20/09/2013 6,510.19 49.44
Fixed Rate 3.0000% 09/09/1983 20/09/2013 4,500.00 34.18
Fixed Rate 3.0000% 09/09/1983 20/09/2013 169.79 1.29
Fixed Rate 3.0000% 27/01/1988 20/01/2018 1,272.00 9.66
Fixed Rate 3.0000% 27/01/1988 20/01/2018 6,015.00 45.68
Fixed Rate 3.0000% 27/01/1988 20/01/2018 2,478.00 18.82
Fixed Rate 3.0000% 27/01/1988 20/01/2018 192.00 1.46
Fixed Rate 3.2500% 28/04/1977 20/04/2002 720.00 5.47
Fixed Rate 3.2500% 14/01/1978 20/01/2003 10,404.52 79.02
Fixed Rate 3.2500% 14/01/1978 20/01/2003 3,957.73 30.06
Fixed Rate 3.2500% 09/11/1978 20/11/2008 4,433.24 33.67
Fixed Rate 3.2500% 02/02/1979 20/02/2009 6,999.93 53.16
Fixed Rate 3.2500% 14/01/1978 20/01/2003 3,013.92 22.89
Fixed Rate 3.5000% 07/05/1984 20/05/2014 2,900.51 22.03
Fixed Rate 3.5000% 30/05/1986 20/05/2016 142.80 1.08
Fixed Rate 4.0000% 09/09/1983 20/09/2013 9,297.91 70.62
Fixed Rate 4.0000% 25/09/1987 20/09/2017 40,400.00 306.84
Special Drawing Right 35.17 44.12
----- -----
Interest Free 0.7500% 08/05/1996 01/01/2036 10.15 12.73
Interest Free 1.0000% 04/06/1991 15/08/2025 11.18 14.03
Interest Free 1.0000% 08/05/1997 01/01/2031 13.84 17.36
United States Dollar 320.12 320.12
------ ------
Outstanding Balance
As of December 31, 2001
------------------------
(In original (In US
Currency currency) dollars)(2)
- -------- ------------ -----------
12.65 5.71
0.28 0.13
55.30 24.97
6.14 2.77
Danish Kroner 46.26 5.49
----- ----
1.38 0.16
38.17 4.53
6.70 0.80
Pounds Sterling 0.43 0.63
---- ----
0.00 0.00
0.43 0.63
Japanese Yen 181,114.09 1,375.56
---------- --------
0.00 0.00
392.41 2.98
0.00 0.00
0.00 0.00
0.00 0.00
247.06 1.88
451.36 3.43
541.35 4.11
4,240.95 32.21
4,465.38 33.91
1,764.17 13.40
5,228.85 39.71
788.63 5.99
7,052.33 53.56
3,181.85 24.17
11,567.45 87.85
0.00 0.00
4,299.58 32.66
3,155.77 23.97
2,987.05 22.69
18,014.15 136.82
1,195.84 9.08
9,739.81 73.97
139.85 1.06
120.06 0.91
5,164.02 39.22
320.15 2.43
1,218.99 9.26
213.91 1.62
8,800.18 66.84
1,000.59 7.60
6,150.14 46.71
634.27 4.82
3,946.59 29.97
3,500.98 26.59
2,088.73 15.86
63.27 0.48
13,055.81 99.16
239.65 1.82
76.38 0.58
3,810.82 28.94
2,631.96 19.99
99.36 0.75
760.82 5.78
4,776.65 36.28
49.40 0.38
136.09 1.03
19.46 0.15
843.61 6.41
320.90 2.44
1,513.78 11.50
2,560.95 19.45
244.37 1.86
1,768.58 13.43
100.98 0.77
5,442.65 41.34
29,986.21 227.75
Special Drawing Right 25.32 31.76
----- -----
5.86 7.36
9.66 12.11
9.80 12.29
United States Dollar 131.50 131.50
------ ------
T-18
EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES (1) -- (Continued)
- - - -
Original Amount Outstanding Balance
Interest Rate/ Contracted As of December 31, 2001
Spread/Service ------------------------ ------------------------
Charge (Per Year Year of (In original (In US (In original (In US
Currency Interest Rate Basis Annum) Contracted Maturity currency) dollars)(2) currency) dollars)(2)
- -------- ------------------- -------------- ---------- -------- ------------ ----------- ------------ -----------
ADB Floating Rate 0.0000% 04/06/1991 15/08/2014 6.00 6.00 2.12 2.12
Cost Qua. Bor. IBRD 6M 0.5000% 30/06/1987 01/06/2007 32.00 32.00 10.95 10.95
Cost Qua. Bor. IBRD 6M 0.5000% 10/04/1986 15/11/2006 38.00 38.00 10.39 10.39
LIBOR 6 Months Deposit 0.5000% 09/09/1997 15/09/2017 2.30 2.30 1.68 1.68
Interest Free 1.0000% 03/04/1972 01/03/2022 10.02 10.02 6.16 6.16
Interest Free 1.0000% 27/06/1979 15/02/2029 19.22 19.22 15.85 15.85
Fixed Rate 2.0000% 15/11/1971 15/09/2012 0.60 0.60 0.28 0.28
Fixed Rate 2.0000% 02/05/1972 31/01/2013 19.13 19.13 9.29 9.29
Fixed Rate 2.0000% 22/08/1973 17/03/2015 3.01 3.01 1.67 1.67
Fixed Rate 2.0000% 07/08/1974 02/05/2015 17.92 17.92 9.94 9.94
Fixed Rate 2.0000% 24/03/1975 24/03/2016 19.88 19.88 11.68 11.68
Fixed Rate 2.0000% 23/05/1977 17/07/2015 13.81 13.81 9.26 9.26
Fixed Rate 2.0000% 06/08/1976 13/04/2017 14.95 14.95 7.89 7.89
Fixed Rate 2.0000% 09/01/1988 30/06/2014 10.00 10.00 3.31 3.31
Fixed Rate 2.0000% 06/08/1976 11/04/2017 19.93 19.93 12.35 12.35
Fixed Rate 2.0000% 21/07/1989 21/07/2014 2.63 2.63 1.79 1.79
Fixed Rate 4.0000% 06/05/1982 15/01/2002 13.56 13.56 0.45 0.45
Fixed Rate 3.0000% 07/10/1994 18/04/2011 6.00 6.00 1.84 1.84
Fixed Rate 7.6000% 07/11/1979 01/10/2003 16.81 16.81 3.02 3.02
Fixed Rate 8.7500% 18/12/1975 01/09/2001 16.43 16.43 0.00 0.00
Fixed Rate 10.1000% 04/12/1981 01/09/2006 24.50 24.50 10.11 10.11
Fixed Rate 11.0000% 01/12/1982 01/09/2002 13.43 13.43 1.46 1.46
II. NG Assumed Debt (Real) 2,087.23 316.05 1,607.18 225.85
-------- ------ -------- ------
Austrian Schillings 21.81 1.40 17.14 1.10
----- ---- ----- ----
Austrian Statutory Export Promo Scheme 0.6000% 1992 2007 21.81 1.40 17.14 1.10
Belgian Francs 50.00 1.09 28.75 0.63
----- ---- ----- ----
Free 0.0000% 1986 2012 25.00 0.55 13.75 0.30
Free 0.0000% 1986 2013 25.00 0.55 15.00 0.33
Deutsche Marks 0.29 0.13 0.23 0.10
---- ---- ---- ----
Fixed Rate 8.6000% 1992 2007 0.29 0.13 0.23 0.10
French Francs 2.57 0.35 2.02 0.27
---- ---- ---- ----
Taux du Marche Obligataire 0.4000% 1991 2007 2.57 0.35 2.02 0.27
Pounds Sterling 0.17 0.25 0.13 0.20
---- ---- ---- ----
LIBOR 6 Months Deposit 0.0000% 1992 2007 0.17 0.25 0.13 0.20
Japanese Yen 1,712.56 13.01 1,345.58 10.22
-------- ----- -------- -----
Fixed Rate 6.3000% 1993 2007 1,296.62 9.85 1,018.78 7.74
Long Term Prime Rate 0.1000% 1992 2007 415.94 3.16 326.81 2.48
United States Dollars 299.83 299.83 213.33 213.33
------ ------ ------ ------
Fixed Rate 3.0000% 1992 2007 0.23 0.23 0.23 0.23
Fixed Rate 3.0000% 1992 2007 0.40 0.40 0.40 0.40
Fixed Rate 3.0000% 1992 2007 0.25 0.25 0.25 0.25
Fixed Rate 3.5000% 1992 2007 1.06 1.06 1.06 1.06
Fixed Rate 3.5000% 1992 2007 0.60 0.60 0.60 0.60
Fixed Rate 5.0000% 1981 2004 5.49 5.49 1.37 1.37
Fixed Rate 5.0000% 1981 2006 5.49 5.49 2.29 2.29
Fixed Rate 5.0000% 1981 2004 5.49 5.49 1.83 1.83
LIBOR 6 Months Deposit 0.2000% 1992 2007 25.47 25.47 2.07 2.07
LIBOR 6 Months Deposit 0.2000% 1992 2007 2.63 2.63 20.01 20.01
LIBOR 6 Months Deposit 0.2000% 1992 2007 0.58 0.58 0.45 0.45
LIBOR 6 Months Deposit 0.2500% 1990 2007 2.01 2.01 1.58 1.58
LIBOR 6 Months Deposit 0.5000% 1991 2007 3.13 3.13 2.46 2.46
LIBOR 6 Months Deposit 0.5000% 1991 2007 1.24 1.24 0.97 0.97
LIBOR 6 Months Deposit 0.8125% 1986 2003 1.29 1.29 0.26 0.26
LIBOR 6 Months Deposit 0.8125% 1986 2003 2.10 2.10 0.42 0.42
LIBOR 6 Months Deposit 0.8125% 1986 2003 8.73 8.73 2.30 2.30
LIBOR 6 Months Deposit 0.8125% 1986 2003 11.50 11.50 0.17 0.17
New Short Term Eximbank Borrowing 0.3750% 1991 2007 0.31 0.31 0.31 0.31
New Short Term Eximbank Borrowing 0.3750% 1991 2007 0.30 0.30 0.23 0.23
New Short Term Eximbank Borrowing 0.3750% 1991 2007 0.00 0.00 0.00 0.00
New Short Term Eximbank Borrowing 0.5000% 1992 2007 151.35 151.35 118.92 118.92
New Short Term Eximbank Borrowing 0.5000% 1992 2007 32.99 32.99 25.92 25.92
New Short Term Eximbank Borrowing 0.5000% 1992 2007 14.16 14.16 11.12 11.12
New Short Term Eximbank Borrowing 0.5000% 1992 2007 23.02 23.02 18.09 18.09
T-19
EXTERNAL DEBT OF THE REPUBLIC OF THE PHILIPPINES(1) -- (Continued)
Interest Rate/ Original Amount Contracted
Spread/Service --------------------------
Charge Year Year of (In original (In US
Currency Interest Rate Basis (Per annum) Contracted Maturity currency) dollars)(2)
- -------- ------------------- -------------- ---------- -------- ------------ -----------
III. NG Securitized Loans (Brady Bonds) 11,743.60
---------
United States Dollars 9,879.53 9,879.53
-------- --------
Option I -- IRB 757.38 757.38
------ ------
Series A Step Up 4.00% - 7.50% 1992 2007 130.76 130.76
Series B Step Up 4.00% -7.50% 1992 2008 626.62 626.62
Option II -- PCIRB 1,894.09 1,894.09
-------- --------
Series A Step Up 4.25% - 7.50% 1992 2018 153.49 153.49
Series B Step Up 4.25% - 7.50% 1992 2017 1,740.60 1,740.60
Option III -- Debt
Conversion Bonds 696.78 696.78
------ ------
Series A Step Up 4.00% -7.50% 1992 2010 5.31 5.31
Series B Step Up 4.00% -7.50% 1992 2009 691.47 691.47
Fixed Rate Bonds Fixed 8.7500% 1996 2016 690.00 690.00
Japanese Yen Bonds 96,600.00 1,113.43
--------- ---------
(Samurai)
Japanese Yen 96,600.00 1,113.43
--------- ---------
Fixed 1.8850% 2001 2011 50,000.00 379.75
Fixed 3.2000% 2000 2005 35,000.00 265.83
Fixed 4.2000% 1996 2002 10,000.00 75.95
Fixed 4.3000% 2002 2011 21,600.00 164.05
Fixed 5.0000% 1996 2003 30,000.00 227.85
Global Bonds 6,591.93
---------
United States Dollars 5,841.29 5,841.29
-------- --------
Fixed 4.7200% 2001 2002 125.00 125.00
Fixed 8.8750% 1998 2008 500.00 500.00
Fixed 8.8750% 1998 2008 500.00 500.00
Fixed 9.8750% 1999 2019 500.00 500.00
Fixed 9.8750% 1999 2019 200.00 200.00
Fixed 9.8750% 1999 2019 400.00 400.00
Fixed 9.5000% 1999 2024 1,006.29 1,006.29
Fixed 9.8750% 2000 2010 600.00 600.00
Fixed 10.6250% 2000 2025 1,000.00 1,000.00
Fixed 7.7500% 1999 2002 350.00 350.00
LIBOR 6 Months Deposit 2.5000% 1999 2002 260.00 260.00
LIBOR 6 Months Deposit 4.2000% 2000 2003 200.00 200.00
LIBOR 6 Months Deposit 3.0500% 2001 2004 200.00 200.00
Outstanding Balance
as of December 31, 2001
------------------------
(In original (In US
Currency currency) dollars)(2)
- -------- ------------ -----------
III. NG Securitized Loans (Brady Bonds) 9,682.43
--------
United States Dollars 7,818.36 7,818.36
-------- --------
Option I -- IRB 296.39 296.39
------ ------
Series A 58.98 58.98
Series B 237.41 237.41
Option II -- PCIRB 582.68 582.68
------ ------
Series A 127.52 127.52
Series B 455.16 455.16
Option III -- Debt
Conversion Bonds 408.00 408.00
------ ------
Series A 3.47 3.47
Series B 404.53 404.53
Fixed Rate Bonds 690.00 690.00
Japanese Yen Bonds 146,600.00 1,113.43
---------- --------
(Samurai)
Japanese Yen 146,600.00 1,113.43
---------- --------
50,000.00 379.75
35,000.00 265.83
10,000.00 75.95
21,600.00 164.05
30,000.00 227.85
Global Bonds 6,591.93
--------
United States Dollars 5,841.29 5,841.29
-------- --------
125.00 125.00
500.00 500.00
500.00 500.00
500.00 500.00
200.00 200.00
400.00 400.00
1,006.29 1,006.29
600.00 600.00
1,000.00 1,000.00
350.00 350.00
260.00 260.00
200.00 200.00
200.00 200.00
Euro 850.00 750.64 850.00 750.64
------ ------ ------ ------
Fixed 8.0000% 1999 2004 350.00 309.09 350.00 309.09
Fixed 9.3750% 2001 2006 500.00 441.55 500.00 441.55
- --------
(1) Excludes external debt guaranteed by the Republic
(2) Amounts in original currencies converted into US Dollar using BSP reference
rate prevailing on 28/12/2001
T-20
DOMESTIC GOVERNMENT SECURITIES(1) As of December 31, 2001 (In Million Pesos)
Outstanding Balance
Interest Rate Year Year of Original as of
Interest Rate Basis (Per annum) Contracted Maturity Amount December 31, 2001
------------------- ------------- ---------- -------- --------- -------------------
TOTAL (I & II) 1,238,899.87
------------
I ACTUAL OBLIGATIONS 1,217,933.71
------------
A. TREASURY BILLS 425,413.80
----------
ADAPS Various 2002 85,907.00
TAP Various 2002 21,223.20
GOCC Series Various 2002 96,143.20
LGUs Various 2002 295.50
TEIs Various 2002 47,256.20
SIP Various 2002 20.60
CB-BOL Floating Rate 2002 174,568.30
B. TREASURY NOTES RA 245 2,438.06 2,415.55
-------- --------
Fixed Rate 3.500% 1984 2005 337.59 334.31
Fixed Rate 3.500% 1984 2005 153.43 153.43
Fixed Rate 3.500% 1984 2005 55.81 55.81
Fixed Rate 3.500% 1985 2005 145.99 145.99
Fixed Rate 3.500% 1985 2005 91.85 91.85
Fixed Rate 3.500% 1985 2005 8.92 8.92
Fixed Rate 3.500% 1985 2005 1.40 1.40
Fixed Rate 3.500% 1985 2005 51.65 42.88
Fixed Rate 3.500% 1985 2005 2.44 2.44
Fixed Rate 3.500% 1985 2006 4.44 4.44
Fixed Rate 3.500% 1985 2006 70.00 70.00
Fixed Rate 3.500% 1985 2006 37.86 37.86
Fixed Rate 3.500% 1985 2006 0.52 0.52
Fixed Rate 3.500% 1985 2006 1.57 1.57
Fixed Rate 3.500% 1985 2006 0.72 0.72
Fixed Rate 3.500% 1985 2006 2.26 2.26
Fixed Rate 3.500% 1985 2006 31.12 31.12
Fixed Rate 3.500% 1986 2006 39.93 39.93
Fixed Rate 3.500% 1986 2006 188.86 188.86
Fixed Rate 3.500% 1986 2006 126.90 126.90
Fixed Rate 3.500% 1986 2006 26.67 26.67
Fixed Rate 3.500% 1986 2006 200.84 200.84
Fixed Rate 3.500% 1986 2006 139.64 139.64
Fixed Rate 3.500% 1986 2006 13.47 3.01
Fixed Rate 3.500% 1986 2006 295.60 295.60
Fixed Rate 3.500% 1986 2006 26.68 26.68
Fixed Rate 3.500% 1986 2007 44.90 44.90
Fixed Rate 3.500% 1986 2007 1.04 1.04
Fixed Rate 3.500% 1986 2007 5.10 5.10
Fixed Rate 3.500% 1986 2007 20.91 20.91
Fixed Rate 3.500% 1986 2007 309.95 309.95
C. BONDS 84,211.01 90,368.21
--------- ---------
NPC Bonds CA 120 27.57 9.20
----- ----
Fixed Rate 7.000% 1972 2002 15.00 2.17
Fixed Rate 7.000% 1972 2002 12.57 7.03
NAWASA Bonds RA 1383 3.00 2.00
---- ----
Fixed Rate 4.000% 1962 2002 3.00 2.00
T-21
DOMESTIC GOVERNMENT SECURITIES(1) -- (Continued)
As of December 31, 2001
(In Million Pesos)
Outstanding Balance
(Interest Rate Year Year of Original as of
Interest Rate Basis Per annum) Contracted Maturity Amount December 31, 2001
------------------- -------------- ---------- -------- ---------- -------------------
Treasury Bonds 9,222.98 6,155.32
-------- --------
T/Bonds R.A. 245 7,660.32 5,070.28
-------- --------
Fixed Rate 2.000% 1973 2003 93.00 91.46
Fixed Rate 3.000% 1977 2002 137.00 137.00
Fixed Rate 3.250% 1977 2002 7.25 7.25
Fixed Rate 3.250% 1977 2002 19.42 19.02
Fixed Rate 3.250% 1977 2002 50.00 50.00
Fixed Rate 3.250% 1977 2002 49.91 49.91
Fixed Rate 3.250% 1978 2003 34.83 34.83
Fixed Rate 3.250% 1978 2003 37.32 37.32
Fixed Rate 3.250% 1978 2003 90.97 90.97
Fixed Rate 3.250% 1980 2005 95.00 95.00
Fixed Rate 4.000% 1980 2005 2,100.00 1,099.98
Fixed Rate 4.000% 1981 2006 1,600.00 1,179.53
Fixed Rate 4.000% 1982 2007 2,700.00 1,746.22
Fixed Rate 4.000% 1983 2008 30.00 9.69
Fixed Rate 4.000% 1983 2004 6.89 0.26
Fixed Rate 4.000% 1983 2004 42.03 39.38
Fixed Rate 4.000% 1983 2003 100.00 5.93
Fixed Rate 4.000% 1983 2008 50.00 3.95
Fixed Rate 4.000% 1983 2008 4.87 0.26
Fixed Rate 4.000% 1983 2008 200.00 200.00
Fixed Rate 4.000% 1983 2008 50.00 50.00
Fixed Rate 4.000% 1983 2008 100.00 100.00
Fixed Rate 4.000% 1983 2008 6.83 6.83
Fixed Rate 4.000% 1983 2008 15.00 15.00
Fixed Rate 7.000% 1979 2004 20.00 0.45
Fixed Rate 10.750% 1978 2003 20.00 0.04
T/Bonds PD No. 4 500.26 497.75
------ ------
Fixed Rate 2.000% 1973 2003 490.07 487.56
Fixed Rate 2.000% 1973 2003 10.19 10.19
T/Bonds PD No. 195 922.00 447.73
------ ------
Fixed Rate 3.750% 1973 2003 307.00 306.85
Fixed Rate 5.000% 1973 2003 100.28 16.51
Fixed Rate 6.000% 1973 2003 514.72 124.37
T/Bonds PD No. 694 140.40 139.56
------ ------
Fixed Rate 3.000% 1978 2008 100.00 100.00
Fixed Rate 3.000% 1979 2009 40.40 39.56
30 Yr FXTB 97.05 97.05
----- -----
Fixed Rate 12.840% 1996 2025 97.05 97.05
Treasury Bonds (CB-BoL) 50,000.00 50,000.00
--------- ---------
182-Day T-Bill Rate 1993 2018 50,000.00 50,000.00
12 Yr Peso Denominated T/Bonds 24,860.41 24,860.41
--------- ---------
91-Day T/Bill 1995 2007 3,226.41 3,226.41
91-Day T/Bill 1995 2007 21,634.00 21,634.00
.
Agrarian Reform Bonds 9,244.23
--------
D. FIXED RATE T/BONDS 646,451.42 645,995.92
---------- ----------
2 Yr FXTB 160,270.29 159,814.79
---------- ----------
ADAPS 52,322.00 52,322.00
--------- ---------
Fixed Rate 11.625% 2000 2002 3,000.00 3,000.00
T-22
DOMESTIC GOVERNMENT SECURITIES(1) -- (Continued)
As of December 31, 2001
(In Million Pesos)
Outstanding Balance
Interest Rate Year Year of Original as of
Interest Rate Basis (Per annum) Contracted Maturity Amount December 31, 2001
------------------- ------------- ---------- -------- --------- -------------------
Fixed Rate 11.625% 2000 2002 1,055.00 1,055.00
Fixed Rate 11.750% 2000 2002 1,395.00 1,395.00
Fixed Rate 11.500% 2000 2002 3,000.00 3,000.00
Fixed Rate 11.750% 2000 2002 1,533.00 1,533.00
Fixed Rate 12.000% 2000 2002 2,205.00 2,205.00
Fixed Rate 11.875% 2000 2002 3,000.00 3,000.00
Fixed Rate 12.125% 2000 2002 1,262.00 1,262.00
Fixed Rate 12.250% 2000 2002 460.00 460.00
Fixed Rate 12.500% 2000 2002 2,780.00 2,780.00
Fixed Rate 16.000% 2000 2002 2,862.00 2,862.00
Fixed Rate 16.000% 2001 2003 3,000.00 3,000.00
Fixed Rate 14.125% 2001 2003 3,000.00 3,000.00
Fixed Rate 13.625% 2001 2003 3,000.00 3,000.00
Fixed Rate 13.250% 2001 2003 4,000.00 4,000.00
Fixed Rate 13.250% 2001 2003 2,000.00 2,000.00
Fixed Rate 13.250% 2001 2003 2,000.00 2,000.00
Fixed Rate 13.250% 2001 2003 2,000.00 2,000.00
Fixed Rate 13.250% 2001 2003 2,000.00 2,000.00
Fixed Rate 13.250% 2001 2003 4,000.00 4,000.00
Fixed Rate 12.750% 2001 2003 3,500.00 3,500.00
Fixed Rate 12.750% 2001 2003 1,270.00 1,270.00
TAP 29,548.00 29,548.00
--------- ---------
Fixed Rate 12.500% 2000 2002 4,500.00 4,500.00
Fixed Rate 16.000% 2001 2003 4,300.00 4,300.00
Fixed Rate 13.625% 2001 2003 8,088.00 8,088.00
Fixed Rate 13.250% 2001 2003 7,100.00 7,100.00
Fixed Rate 13.250% 2001 2003 3,560.00 3,560.00
Fixed Rate 12.750% 2001 2003 2,000.00 2,000.00
GOCCs 72,357.39 71,901.89
--------- ---------
Fixed Rate 11.625% 2000 2002 875.90 875.90
Fixed Rate 11.625% 2000 2002 391.90 391.90
Fixed Rate 11.750% 2000 2002 4,320.70 4,320.70
Fixed Rate 11.500% 2000 2002 633.30 633.30
Fixed Rate 11.750% 2000 2002 579.20 579.20
Fixed Rate 12.000% 2000 2002 573.60 573.60
Fixed Rate 11.875% 2000 2002 7,315.40 7,315.40
Fixed Rate 12.125% 2000 2002 3,630.20 3,174.70
Fixed Rate 12.250% 2000 2002 405.39 405.39
Fixed Rate 12.500% 2000 2002 9,347.30 9,347.30
Fixed Rate 16.000% 2000 2002 4,332.60 4,332.60
Fixed Rate 16.000% 2001 2003 6,966.90 6,966.90
Fixed Rate 14.125% 2001 2003 2,020.30 2,020.30
Fixed Rate 13.625% 2001 2003 13,166.10 13,166.10
Fixed Rate 13.250% 2001 2003 1,572.00 1,572.00
Fixed Rate 13.250% 2001 2003 847.70 847.70
Fixed Rate 13.250% 2001 2003 678.90 678.90
Fixed Rate 13.250% 2001 2003 8,714.70 8,714.70
Fixed Rate 12.750% 2001 2003 5,985.30 5,985.30
TEIs 6,042.90 6,042.90
-------- --------
Fixed Rate 10.4625% 2000 2002 8.00 8.00
Fixed Rate 11.7500% 2000 2002 200.00 200.00
Fixed Rate 10.5750% 2000 2002 119.00 119.00
Fixed Rate 10.5750% 2000 2002 100.00 100.00
Fixed Rate 11.7500% 2000 2002 200.00 200.00
T-23
DOMESTIC GOVERNMENT SECURITIES(1) -- (Continued)
As of December 31, 2001
(In Million Pesos)
Outstanding Balance
Interest Rate Year Year of Original as of
Interest Rate Basis (Per annum) Contracted Maturity Amount December 31, 2001
------------------- ------------- ---------- -------- ---------- -------------------
Fixed Rate 10.8000% 2000 2002 31.50 31.50
Fixed Rate 11.8750% 2000 2002 200.00 200.00
Fixed Rate 11.0250% 2000 2002 23.90 23.90
Fixed Rate 12.5000% 2000 2002 200.00 200.00
Fixed Rate 11.250% 2000 2002 124.00 124.00
Fixed Rate 14.400% 2000 2002 113.70 113.70
Fixed Rate 14.400% 2001 2003 215.10 215.10
Fixed Rate 16.000% 2001 2003 500.00 500.00
Fixed Rate 12.7125% 2001 2003 37.80 37.80
Fixed Rate 14.125% 2001 2003 200.00 200.00
Fixed Rate 13.625% 2001 2003 441.60 441.60
Fixed Rate 12.2625% 2001 2003 1,184.10 1,184.10
Fixed Rate 13.250% 2001 2003 400.00 400.00
Fixed Rate 11.925% 2001 2003 345.60 345.60
Fixed Rate 11.925% 2001 2003 117.40 117.40
Fixed Rate 11.925% 2001 2003 334.50 334.50
Fixed Rate 13.250% 2001 2003 205.90 205.90
Fixed Rate 11.925% 2001 2003 94.80 94.80
Fixed Rate 13.250% 2001 2003 200.00 200.00
Fixed Rate 11.925% 2001 2003 39.70 39.70
Fixed Rate 12.750% 2001 2003 400.00 400.00
Fixed Rate 11.470% 2001 2003 6.30 6.30
4 Yr Retail T/Bonds 37,993.16 37,993.16
--------- ---------
Fixed Rate 14.250% 2001 2005 15,635.38 15,635.38
Fixed Rate 14.250% 2001 2005 22,357.78 22,357.78
5 Yr FXTB 146,131.68 146,131.68
---------- ----------
ADAPS 78,634.00 78,634.00
--------- ---------
Fixed Rate 12.500% 1997 2002 3,500.00 3,500.00
Fixed Rate 13.000% 1997 2002 4,000.00 4,000.00
Fixed Rate 20.000% 1998 2003 2,000.00 2,000.00
Fixed Rate 21.000% 1998 2003 3,000.00 3,000.00
Fixed Rate 20.000% 1998 2003 2,000.00 2,000.00
Fixed Rate 16.125% 1998 2003 3,000.00 3,000.00
Fixed Rate 14.000% 1999 2004 3,000.00 3,000.00
Fixed Rate 13.625% 1999 2004 1,730.00 1,730.00
Fixed Rate 14.250% 1999 2004 890.00 890.00
Fixed Rate 14.250% 1999 2004 2,000.00 2,000.00
Fixed Rate 14.125% 1999 2004 2,000.00 2,000.00
Fixed Rate 13.750% 2000 2005 3,000.00 3,000.00
Fixed Rate 13.500% 2000 2005 3,000.00 3,000.00
Fixed Rate 13.500% 2000 2005 3,000.00 3,000.00
Fixed Rate 12.750% 2000 2005 3,000.00 3,000.00
Fixed Rate 13.250% 2000 2005 1,610.00 1,610.00
Fixed Rate 13.000% 2000 2005 3,000.00 3,000.00
Fixed Rate 13.500% 2000 2005 1,230.00 1,230.00
Fixed Rate 13.875% 2000 2005 765.00 765.00
Fixed Rate 16.750% 2000 2005 1,349.00 1,349.00
Fixed Rate 15.875% 2001 2006 3,000.00 3,000.00
Fixed Rate 15.000% 2001 2006 2,961.00 2,961.00
Fixed Rate 14.500% 2001 2006 3,000.00 3,000.00
Fixed Rate 14.000% 2001 2006 1,000.00 1,000.00
Fixed Rate 15.250% 2001 2006 1,948.00 1,948.00
Fixed Rate 15.250% 2001 2006 2,000.00 2,000.00
T-24
DOMESTIC GOVERNMENT SECURITIES(1) -- (Continued)
As of December 31, 2001
(In Million Pesos)
Outstanding Balance
Interest Rate Year Year of Original as of
Interest Rate Basis (Per annum) Contracted Maturity Amount December 31, 2001
------------------- ------------- ---------- -------- --------- -------------------
Fixed Rate 15.500% 2001 2006 3,500.00 3,500.00
Fixed Rate 16.250% 2001 2006 905.00 905.00
Fixed Rate 14.125% 2001 2004 1,891.00 1,891.00
Fixed Rate 14.125% 2001 2004 2,000.00 2,000.00
Fixed Rate 14.250% 2001 2004 1,260.00 1,260.00
Fixed Rate 14.250% 2001 2004 2,000.00 2,000.00
Fixed Rate 13.750% 2001 2005 2,000.00 2,000.00
Fixed Rate 13.750% 2001 2005 2,000.00 2,000.00
Fixed Rate 13.875% 2001 2005 2,095.00 2,095.00
TAP 22,356.00 22,356.00
--------- ---------
Fixed Rate 20.000% 1998 2003 4,300.00 4,300.00
Fixed Rate 16.125% 1998 2003 2,350.00 2,350.00
Fixed Rate 14.000% 1999 2004 1,050.00 1,050.00
Fixed Rate 14.125% 1999 2004 1,000.00 1,000.00
Fixed Rate 13.875% 2000 2005 3,300.00 3,300.00
Fixed Rate 16.750% 2000 2005 400.00 400.00
Fixed Rate 15.875% 2001 2006 1,000.00 1,000.00
Fixed Rate 15.000% 2001 2006 800.00 800.00
Fixed Rate 14.500% 2001 2006 3,950.00 3,950.00
Fixed Rate 14.000% 2001 2006 1,000.00 1,000.00
Fixed Rate 14.250% 2001 2004 2,706.00 2,706.00
Fixed Rate 14.250% 2001 2004 500.00 500.00
GOCCs 35,362.78 35,362.78
--------- ---------
Fixed Rate 20.000% 1998 2003 191.00 191.00
Fixed Rate 21.000% 1998 2003 1,949.80 1,949.80
Fixed Rate 20.000% 1998 2003 143.20 143.20
Fixed Rate 16.125% 1998 2003 910.50 910.50
Fixed Rate 14.000% 1999 2004 1,586.60 1,586.60
Fixed Rate 13.625% 1999 2004 45.80 45.80
Fixed Rate 14.250% 1999 2004 1,485.10 1,485.10
Fixed Rate 14.250% 1999 2004 938.70 938.70
Fixed Rate 14.125% 1999 2004 2,975.60 2,975.60
Fixed Rate 13.750% 2000 2005 2,227.40 2,227.40
Fixed Rate 13.500% 2000 2005 1.40 1.40
Fixed Rate 13.500% 2000 2005 1,563.10 1,563.10
Fixed Rate 12.750% 2000 2005 53.00 53.00
Fixed Rate 13.250% 2000 2005 118.40 118.40
Fixed Rate 13.000% 2000 2005 48.20 48.20
Fixed Rate 13.500% 2000 2005 2,998.40 2,998.40
Fixed Rate 13.875% 2000 2005 2,439.00 2,439.00
Fixed Rate 16.750% 2000 2005 1,825.90 1,825.90
Fixed Rate 15.875% 2001 2006 990.50 990.50
Fixed Rate 15.000% 2001 2006 587.20 587.20
Fixed Rate 14.500% 2001 2006 2,181.70 2,181.70
Fixed Rate 14.000% 2001 2006 463.20 463.20
Fixed Rate 15.250% 2001 2006 230.10 230.10
Fixed Rate 15.250% 2001 2006 2,457.90 2,457.90
Fixed Rate 14.125% 2001 2006 1,977.48 1,977.48
Fixed Rate 14.250% 2001 2004 454.30 454.30
Fixed Rate 15.500% 2001 2006 581.60 581.60
Fixed Rate 16.250% 2001 2006 2,269.10 2,269.10
Fixed Rate 13.750% 2001 2005 754.60 754.60
Fixed Rate 13.875% 2001 2005 914.00 914.00
TEIs 9,778.90 9,778.90
--------- ---------
Fixed Rate 18.9000% 1998 2003 500.00 500.00
Fixed Rate 18.0000% 1998 2003 1,018.50 1,018.50
Fixed Rate 20.0000% 1998 2003 200.00 200.00
T-25
DOMESTIC GOVERNMENT SECURITIES(1) -- (Continued)
As of December 31, 2001
(In Million Pesos)
Outstanding Balance
Interest Rate Year Year of Original as of
Interest Rate Basis (Per annum) Contracted Maturity Amount December 31, 2001
------------------- ------------- ---------- -------- ---------- -------------------
Fixed Rate 14.5125% 1998 2003 370.20 370.20
Fixed Rate 14.0000% 1999 2004 500.00 500.00
Fixed Rate 12.6000% 1999 2004 211.90 211.90
Fixed Rate 12.8250% 1999 2004 1.00 1.00
Fixed Rate 12.8250% 1999 2004 10.00 10.00
Fixed Rate 13.7500% 2000 2005 100.00 100.00
Fixed Rate 13.5000% 2000 2005 200.00 200.00
Fixed Rate 12.1500% 2000 2005 10.00 10.00
Fixed Rate 12.1500% 2000 2005 30.00 30.00
Fixed Rate 12.7500% 2000 2005 200.00 200.00
Fixed Rate 13.5000% 2000 2005 100.00 100.00
Fixed Rate 12.1500% 2000 2005 30.00 30.00
Fixed Rate 13.8750% 2000 2005 200.00 200.00
Fixed Rate 12.4875% 2000 2005 18.00 18.00
Fixed Rate 15.0750% 2000 2005 223.40 223.40
Fixed Rate 16.7500% 2000 2005 500.00 500.00
Fixed Rate 14.2875% 2001 2006 24.60 24.60
Fixed Rate 15.8750% 2001 2006 200.00 200.00
Fixed Rate 15.0000% 2001 2006 200.00 200.00
Fixed Rate 13.5000% 2001 2006 45.00 45.00
Fixed Rate 14.5000% 2001 2006 600.00 600.00
Fixed Rate 13.0500% 2001 2006 150.70 150.70
Fixed Rate 12.6000% 2001 2006 19.50 19.50
Fixed Rate 15.2500% 2001 2006 800.00 800.00
Fixed Rate 13.7250% 2001 2006 100.40 100.40
Fixed Rate 13.7250% 2001 2006 194.10 194.10
Fixed Rate 15.2500% 2001 2006 200.00 200.00
Fixed Rate 15.5000% 2001 2006 400.00 400.00
Fixed Rate 13.9500% 2001 2006 75.80 75.80
Fixed Rate 16.2500% 2001 2006 500.00 500.00
Fixed Rate 14.6250% 2001 2006 203.60 203.60
Fixed Rate 14.1250% 2001 2004 468.00 468.00
Fixed Rate 12.7125% 2001 2004 19.50 19.50
Fixed Rate 14.2500% 2001 2004 200.00 200.00
Fixed Rate 12.8250% 2001 2004 94.10 94.10
Fixed Rate 14.2500% 2001 2004 200.00 200.00
Fixed Rate 13.7500% 2001 2005 200.00 200.00
Fixed Rate 12.3750% 2001 2005 246.90 246.90
Fixed Rate 12.4875% 2001 2005 13.70 13.70
Fixed Rate 13.8750% 2001 2005 200.00 200.00
Small Denominated T/Bonds 30,260.24 30,260.24
---------- ----------
Fixed Rate 13.6250% 1999 2004 30,260.24 30,260.24
Progress Bonds 8,000.00 8,000.00
---------- ----------
Fixed Rate 13.875% 2000 2005 8,000.00 8,000.00
7 Yr FXTB 132,372.40 132,372.40
---------- ----------
ADAPS 75,044.00 75,044.00
---------- ----------
Fixed Rate 15.500% 1996 2003 3,000.00 3,000.00
Fixed Rate 15.375% 1996 2003 3,000.00 3,000.00
Fixed Rate 15.375% 1996 2003 3,000.00 3,000.00
Fixed Rate 15.375% 1996 2003 4,000.00 4,000.00
Fixed Rate 15.750% 1996 2003 2,585.00 2,585.00
Fixed Rate 14.875% 1996 2003 2,000.00 2,000.00
Fixed Rate 14.000% 1996 2003 2,000.00 2,000.00
Fixed Rate 13.500% 1997 2004 3,340.00 3,340.00
T-26
DOMESTIC GOVERNMENT SECURITIES(1) -- (Continued)
As of December 31, 2001
(In Million Pesos)
Outstanding Balance
Interest Rate Year Year of Original as of
Interest Rate Basis (Per annum) Contracted Maturity Amount December 31, 2001
------------------- ------------- ---------- -------- --------- -------------------
Fixed Rate 20.875% 1997 2004 1,987.00 1,987.00
Fixed Rate 20.500% 1998 2005 1,887.00 1,887.00
Fixed Rate 20.000% 1998 2005 1,164.00 1,164.00
Fixed Rate 18.375% 1998 2005 2,500.00 2,500.00
Fixed Rate 16.500% 1999 2006 1,805.00 1,805.00
Fixed Rate 14.000% 1999 2006 750.00 750.00
Fixed Rate 14.000% 1999 2006 21.00 21.00
Fixed Rate 15.000% 1999 2006 2,000.00 2,000.00
Fixed Rate 14.750% 1999 2006 2,000.00 2,000.00
Fixed Rate 14.625% 1999 2006 2,000.00 2,000.00
Fixed Rate 14.500% 1999 2006 2,000.00 2,000.00
Fixed Rate 14.500% 2000 2007 2,775.00 2,775.00
Fixed Rate 14.250% 2000 2007 3,000.00 3,000.00
Fixed Rate 14.000% 2000 2007 3,000.00 3,000.00
Fixed Rate 13.375% 2000 2007 3,000.00 3,000.00
Fixed Rate 13.875% 2000 2007 1,250.00 1,250.00
Fixed Rate 13.500% 2000 2007 3,000.00 3,000.00
Fixed Rate 14.000% 2000 2007 1,165.00 1,165.00
Fixed Rate 14.250% 2000 2007 1,640.00 1,640.00
Fixed Rate 14.250% 2000 2007 2,116.00 2,116.00
Fixed Rate 14.500% 2000 2007 1,020.00 1,020.00
Fixed Rate 17.250% 2000 2007 1,039.00 1,039.00
Fixed Rate 16.000% 2001 2008 3,000.00 3,000.00
Fixed Rate 15.625% 2001 2008 3,000.00 3,000.00
Fixed Rate 13.500% 2001 2004 2,000.00 2,000.00
Fixed Rate 13.500% 2001 2004 1,000.00 1,000.00
Fixed Rate 15.000% 2001 2006 2,000.00 2,000.00
TAP 11,680.00 11,680.00
--------- ---------
Fixed Rate 14.000% 1996 2003 1,000.00 1,000.00
Fixed Rate 13.500% 1997 2004 3,180.00 3,180.00
Fixed Rate 20.500% 1998 2005 1,200.00 1,200.00
Fixed Rate 18.375% 1998 2005 2,100.00 2,100.00
Fixed Rate 16.000% 2001 2008 2,200.00 2,200.00
Fixed Rate 15.625% 2001 2008 2,000.00 2,000.00
GOCCs 26,027.40 26,027.40
--------- ---------
Fixed Rate 15.500% 1996 2003 5,513.70 5,513.70
Fixed Rate 15.375% 1996 2003 193.00 193.00
Fixed Rate 15.375% 1996 2003 1,884.10 1,884.10
Fixed Rate 15.750% 1996 2003 98.60 98.60
Fixed Rate 14.875% 1996 2003 0.80 0.80
Fixed Rate 14.000% 1996 2003 6.40 6.40
Fixed Rate 20.875% 1997 2004 65.00 65.00
Fixed Rate 16.500% 1999 2006 1,446.70 1,446.70
Fixed Rate 15.000% 1999 2006 13.20 13.20
Fixed Rate 14.750% 1999 2006 1.00 1.00
Fixed Rate 14.625% 1999 2006 1,958.80 1,958.80
Fixed Rate 14.500% 1999 2006 867.70 867.70
Fixed Rate 14.500% 2000 2007 3,091.00 3,091.00
Fixed Rate 14.250% 2000 2007 379.40 379.40
Fixed Rate 14.000% 2000 2007 552.70 552.70
Fixed Rate 13.875% 2000 2007 1,047.60 1,047.60
Fixed Rate 13.500% 2000 2007 10.60 10.60
Fixed Rate 14.000% 2000 2007 37.00 37.00
Fixed Rate 14.250% 2000 2007 10.50 10.50
Fixed Rate 14.250% 2000 2007 99.90 99.90
Fixed Rate 14.500% 2000 2007 573.20 573.20
Fixed Rate 17.250% 2000 2007 3,043.70 3,043.70
Fixed Rate 16.000% 2001 2008 3,023.30 3,023.30
T-27
DOMESTIC GOVERNMENT SECURITIES(1) -- (Continued)
As of December 31, 2001
(In Million Pesos)
Outstanding Balance
Interest Rate Year Year of Original as of
Interest Rate Basis (Per annum) Contracted Maturity Amount December 31, 2001
------------------- ------------- ---------- -------- ---------- -------------------
Fixed Rate 15.625% 2001 2008 1,706.40 1,706.40
Fixed Rate 13.500% 2001 2004 403.10 403.10
Fixed Rate
TEIs 19,621.00 19,621.00
---------- ----------
Fixed Rate 13.8375% 1996 2003 8,000.00 8,000.00
Fixed Rate 14.175% 1996 2003 2,201.00 2,201.00
Fixed Rate 12.150% 1997 2004 100.00 100.00
Fixed Rate 18.7875% 1997 2004 2,800.00 2,800.00
Fixed Rate 18.000% 1998 2005 200.00 200.00
Fixed Rate 16.5375% 1998 2005 50.00 50.00
Fixed Rate 14.850% 1999 2006 116.10 116.10
Fixed Rate 12.600% 1999 2006 1.20 1.20
Fixed Rate 14.000% 1999 2006 200.00 200.00
Fixed Rate 13.500% 1999 2006 158.00 158.00
Fixed Rate 15.000% 1999 2006 200.00 200.00
Fixed Rate 14.625% 1999 2006 200.00 200.00
Fixed Rate 13.1625% 1999 2006 2.30 2.30
Fixed Rate 13.050% 1999 2006 8.00 8.00
Fixed Rate 14.500% 2000 2007 200.00 200.00
Fixed Rate 13.050% 2000 2007 7.00 7.00
Fixed Rate 14.250% 2000 2007 200.00 200.00
Fixed Rate 12.825% 2000 2007 15.00 15.00
Fixed Rate 14.000% 2000 2007 200.00 200.00
Fixed Rate 13.875% 2000 2007 200.00 200.00
Fixed Rate 14.500% 2000 2007 200.00 200.00
Fixed Rate 17.250% 2000 2007 200.00 200.00
Fixed Rate 15.525% 2000 2007 75.10 75.10
Fixed Rate 14.4000% 2001 2008 435.30 435.30
Fixed Rate 16.000% 2001 2008 1,209.50 1,209.50
Fixed Rate 15.625% 2001 2008 500.00 500.00
Fixed Rate 14.0625% 2001 2008 42.20 42.20
Fixed Rate 12.150% 2001 2004 142.30 142.30
Fixed Rate 13.500% 2001 2004 900.00 900.00
Fixed Rate 12.150% 2001 2004 137.80 137.80
Fixed Rate 15.000% 2001 2006 200.00 200.00
Fixed Rate 13.500% 2001 2006 464.50 464.50
Fixed Rate 13.500% 2001 2006 55.70 55.70
10 Yr FXTB 107,032.95 107,032.95
---------- ----------
ADAPS 62,407.00 62,407.00
---------- ----------
Fixed Rate 16.000% 1996 2006 2,000.00 2,000.00
Fixed Rate 14.125% 1997 2007 5,000.00 5,000.00
Fixed Rate 13.875% 1997 2007 3,500.00 3,500.00
Fixed Rate 22.875% 1997 2007 1,759.00 1,759.00
Fixed Rate 19.000% 1998 2008 2,000.00 2,000.00
Fixed Rate 20.000% 1998 2008 446.00 446.00
Fixed Rate 18.000% 1998 2008 3,000.00 3,000.00
Fixed Rate 16.500% 1999 2009 3,000.00 3,000.00
Fixed Rate 14.625% 1999 2009 1,550.00 1,550.00
Fixed Rate 15.000% 1999 2009 1,578.00 1,578.00
Fixed Rate 15.500% 1999 2009 2,000.00 2,000.00
Fixed Rate 15.125% 1999 2009 2,000.00 2,000.00
Fixed Rate 15.000% 1999 2009 2,000.00 2,000.00
Fixed Rate 14.875% 1999 2009 2,000.00 2,000.00
Fixed Rate 14.750% 2000 2010 3,000.00 3,000.00
Fixed Rate 14.625% 2000 2010 3,000.00 3,000.00
Fixed Rate 13.875% 2000 2010 3,000.00 3,000.00
Fixed Rate 13.875% 2000 2010 2,563.00 2,563.00
Fixed Rate 14.250% 2000 2010 1,430.00 1,430.00
Fixed Rate 14.125% 2000 2010 3,000.00 3,000.00
T-28
DOMESTIC GOVERNMENT SECURITIES(1) -- (Continued)
As of December 31, 2001
(In Million Pesos)
Outstanding Balance
Interest Rate Year Year of Original as of
Interest Rate Basis (Per annum) Contracted Maturity Amount December 31, 2001
------------------- ------------- ---------- -------- --------- -------------------
Fixed Rate 14.500% 2000 2010 2,918.00 2,918.00
Fixed Rate 14.625% 2000 2010 1,825.00 1,825.00
Fixed Rate 14.625% 2000 2010 3,000.00 3,000.00
Fixed Rate 17.500% 2000 2010 1,750.00 1,750.00
Fixed Rate 17.500% 2001 2011 2,195.00 2,195.00
Fixed Rate 16.500% 2001 2011 2,893.00 2,893.00
TAP 15,390.00 15,390.00
--------- ---------
Fixed Rate 16.000% 1996 2006 500.00 500.00
Fixed Rate 21.000% 1997 2007 40.00 40.00
Fixed Rate 19.000% 1998 2008 3,800.00 3,800.00
Fixed Rate 17.800% 1998 2008 1,000.00 1,000.00
Fixed Rate 18.000% 1998 2008 1,100.00 1,100.00
Fixed Rate 16.500% 1999 2009 2,150.00 2,150.00
Fixed Rate 14.625% 1999 2009 400.00 400.00
Fixed Rate 15.500% 1999 2009 1,650.00 1,650.00
Fixed Rate 15.000% 1999 2009 600.00 600.00
Fixed Rate 14.750% 2000 2010 500.00 500.00
Fixed Rate 14.625% 2000 2010 1,450.00 1,450.00
Fixed Rate 17.500% 2000 2010 1,200.00 1,200.00
Fixed Rate 17.500% 2001 2011 1,000.00 1,000.00
GOCCs 15,924.75 15,924.75
--------- ---------
Fixed Rate 16.000% 1996 2006 1,792.64 1,792.64
Fixed Rate 12.840% 1997 2007 4.71 4.71
Fixed Rate 14.125% 1997 2007 30.20 30.20
Fixed Rate 22.875% 1997 2007 1,784.80 1,784.80
Fixed Rate 20.000% 1998 2008 163.00 163.00
Fixed Rate 18.000% 1998 2008 1,387.50 1,387.50
Fixed Rate 16.500% 1999 2009 183.10 183.10
Fixed Rate 15.500% 1999 2009 189.80 189.80
Fixed Rate 15.125% 1999 2009 3,302.50 3,302.50
Fixed Rate 15.000% 1999 2009 4,909.10 4,909.10
Fixed Rate 14.875% 1999 2009 162.70 162.70
Fixed Rate 14.750% 2000 2010 756.10 756.10
Fixed Rate 14.625% 2000 2010 231.40 231.40
Fixed Rate 13.875% 2000 2010 181.50 181.50
Fixed Rate 13.875% 2000 2010 94.20 94.20
Fixed Rate 14.250% 2000 2010 4.90 4.90
Fixed Rate 14.125% 2000 2010 355.50 355.50
Fixed Rate 14.500% 2000 2010 48.10 48.10
Fixed Rate 14.625% 2000 2010 5.50 5.50
Fixed Rate 14.625% 2000 2010 197.40 197.40
Fixed Rate 17.500% 2000 2010 1.10 1.10
Fixed Rate 17.500% 2001 2011 45.30 45.30
Fixed Rate 16.500% 2001 2011 93.70 93.70
TEIs 13,311.20 13,311.20
--------- ---------
Fixed Rate 14.4000% 1996 2006 5,801.50 5,801.50
Fixed Rate 20.5875% 1997 2007 3,900.00 3,900.00
Fixed Rate 18.0000% 1998 2008 200.00 200.00
Fixed Rate 16.200% 1998 2008 58.50 58.50
Fixed Rate 16.500% 1999 2009 500.00 500.00
Fixed Rate 15.000% 1998 2008 100.00 100.00
Fixed Rate 15.500% 1998 2008 100.00 100.00
Fixed Rate 15.000% 1998 2008 200.00 200.00
Fixed Rate 14.625% 2000 2010 200.00 200.00
Fixed Rate 14.250% 2000 2010 200.00 200.00
Fixed Rate 14.125% 2000 2010 200.00 200.00
Fixed Rate 14.625% 2000 2010 200.00 200.00
Fixed Rate 17.500% 2000 2010 200.00 200.00
Fixed Rate 17.500% 2001 2011 744.70 744.70
T-29
DOMESTIC GOVERNMENT SECURITIES(1) -- (Continued)
As of December 31, 2001
(In Million Pesos)
Outstanding Balance
Interest Rate Year Year of Original as of
Interest Rate Basis (Per annum) Contracted Maturity Amount December 31, 2001
------------------- ------------- ---------- -------- --------- -------------------
Fixed Rate 15.750% 2001 2011 4.50 4.50
Fixed Rate 16.500% 2001 2011 700.00 700.00
Fixed Rate 14.800% 2001 2011 2.00 2.00
20 Yr FXTB 9,846.59 9,846.59
-------- --------
ADAPS 2,000.00 2,000.00
-------- --------
Fixed Rate 14.375% 1997 2017 2,000.00 2,000.00
TAP 3,804.90
--------
Fixed Rate 14.375% 1997 2017 3,804.90 3,804.90
GOCCs 4,041.69
--------
Fixed Rate 14.375% 1997 2017 4,020.10 4,020.10
Fixed Rate 12.840% 1998 2018 9.97 9.97
Fixed Rate 12.840% 1998 2018 0.48 0.48
Fixed Rate 12.840% 1999 2019 4.97 4.97
Fixed Rate 12.840% 1999 2019 0.48 0.48
Fixed Rate 12.840% 1999 2019 0.05 0.05
Fixed Rate 12.840% 1999 2019 1.02 1.02
Fixed Rate 12.840% 2000 2020 2.20 2.20
Fixed Rate 12.840% 2001 2021 2.42 2.42
25 Yr FXTB 8,201.50 8,201.50
-------- --------
ADAPS 5,286.00 5,286.00
-------- --------
Fixed Rate 18.250% 2000 2025 5,286.00 5,286.00
TAP 2,320.00 2,320.00
-------- --------
Fixed Rate 18.250% 2000 2025 2,320.00 2,320.00
GOCCs 95.50 95.50
----- -----
Fixed Rate 18.250% 2000 2025 95.50 95.50
TEIs 500.00 500.00
------ ------
Fixed Rate 18.250% 2000 2025 500.00 500.00
10 Yr Special Purpose T/Bonds for CARP 6,342.62 6,342.62
-------- --------
ADAPS
Fixed Rate 15.500% 2001 2011 3,173.00 3,173.00
TAP
Fixed Rate 15.500% 2001 2011 2,769.62 2,769.62
TEIs
Fixed Rate 15.500% 2001 2011 400.00 400.00
E. ZERO COUPON T/BONDS 35,000.00 35,000.00
--------- ---------
Fixed Rate 12.750% 2001 2011 35,000.00 35,000.00
F. FIXED RATE PESO NOTES 11,810.00 11,810.00
--------- ---------
3 Yr 6,330.00 6,330.00
-------- --------
Fixed Rate 14.000% 2001 2004 6,330.00 6,330.00
5 Yr 5,480.00 5,480.00
-------- --------
Fixed Rate 14.250% 2001 2006 5,480.00 5,480.00
T-30
DOMESTIC GOVERNMENT SECURITIES(1) -- (Continued)
As of December 31, 2001
(In Million Pesos)
Outstanding Balance
Interest Rate Year Year of Original as of
Interest Rate Basis (Per annum) Contracted Maturity Amount December 31, 2001
------------------- ------------- ---------- -------- -------- -------------------
G. US DOLLAR Linked PHp. Peso Notes (DLPNs) (2) 6,930.23 6,930.23
-------- --------
2 Yr 3,467.28 3,467.28
-------- --------
Fixed Rate 8.5625% 2001 2003 3,467.28 3,467.28
3 Yr 3,462.95 3,462.95
-------- --------
Fixed Rate 10.4375% 2001 2004 3,462.95 3,462.95
- --------
(1) Excludes external securities of the Republic.
(2) Based on reference rate of (Peso)51.40 per US dollar as of 12/28/01.
T-31
GOVERNMENT GUARANTEED CORPORATE BONDS
As of December 31, 2001
(in millions)
Outstanding Balance
as of
Interest Rate/Spread Year Year of Original Amount December 31, 2001
Interest Rate Basis (Per annum) Contracted Maturity (In Pesos) (In Pesos)
- ------------------- -------------------- ---------- -------- --------------- -------------------
National Power Corporation
Bonds
Fixed Rate 8.500% 1978 2003 20.00 20.00
Fixed Rate 8.500% 1978 2003 20.00 20.00
Fixed Rate 8.500% 1978 2003 20.00 20.00
Fixed Rate 8.500% 1978 2003 20.00 20.00
Fixed Rate 8.500% 1978 2003 20.00 20.00
Fixed Rate 8.500% 1978 2003 20.00 20.00
Fixed Rate 8.500% 1978 2003 10.00 10.00
Fixed Rate 8.500% 1978 2003 10.70 10.70
--------- ---------
Total NPC Bonds 140.70 140.70
--------- ---------
MWSS Angat Bonds
91-Day Treasury Bill Rate 0.000%* 1992 2002 230.00 17.71
--------- ---------
Total MWSS Angat
Bonds 230.00 17.71
--------- ---------
NDC Agri-Agra (Erap Bonds)
Fixed Rate 7.875% 1999 2004 5,000.00 5,000.00
--------- ---------
Total Erap Bonds 5,000.00 5,000.00
--------- ---------
HDMF Bonds (PAG-IBIG)
Fixed Rate 8.250% 2000 2005 4,000.00 4,000.00
--------- ---------
Total HDMF Bonds 4,000.00 4,000.00
--------- ---------
Land Bank Bonds
Fixed Rate 6.000% 807.75
--------- ---------
Total LBP Bonds 807.75
--------- ---------
NPC Negotiated T/Bills
Fixed Rate 13.062% 2001 2002 11,000.00 11,000.00
--------- ---------
Total NP Negotiated
T/Bills 11,000.00 11,000.00
--------- ---------
Grand Total Contingent
Obligations 20,370.70 20,966.16
========= =========
- --------
Source: Bureau of the Treasury, Department of Finance.
T-32
DOMESTIC DEBT OF THE REPUBLIC (OTHER THAN SECURITIES)(1)
As of December 31, 2001
In Million
Original Amount Contracted
---------------------------
Interest Rate Year Year of (In original (In Philippine
Interest Rate Basis Spread Contracted Maturity Curr. currency) peso) (2)
------------------- ------------- ---------- ----------- ----- ------------ --------------
Total 60,342
------
Direct Loans 237
---
Agencies 237
---
United States Dollars
LIBOR 6
MOS 0.8125% 1986 2003 USD 4 210
Philippine Pesos 27
Interest Free 0.0000% 1953 PHP
Interest Free 0.0000% 1953 PHP
Interest Free 0.0000% 1953 PHP
Interest Free 0.0000% 1953 PHP
Interest Free 0.0000% 1945 PHP
Interest Free 0.0000% 1945 PHP
Interest Free 0.0000% 1945 PHP
Interest Free 0.0000% 1960 PHP
Fixed Rate 14.0000% 1983 2002 PHP 27 27
Interest Free 0.0000% 1985 PHP
Interest Free 0.0000% 1993 PHP
Interest Free 0.0000% 1989 PHP
Assumed Loans (Real) 60,105
------
Philippine Pesos 2,297 2,297
----- -----
Interest Free 0.0000% 1986 Upon Demand PHP 63 63
Interest Free 0.0000% 1986 Upon Demand PHP 134 134
Interest Free 0.0000% 1986 Upon Demand PHP 120 120
Interest Free 0.0000% 1986 Upon Demand PHP 72 72
Interest Free 0.0000% 1986 Upon Demand PHP 50 50
Interest Free 0.0000% 1986 Upon Demand PHP 200 200
Interest Free 0.0000% 1986 Upon Demand PHP 1 1
Interest Free 0.0000% 1986 Upon Demand PHP 66 66
Interest Free 0.0000% 1986 Upon Demand PHP 3 3
Interest Free 0.0000% 1986 Upon Demand PHP 3 3
Interest Free 0.0000% 1986 Upon Demand PHP 4 4
Interest Free 0.0000% 1986 Upon Demand PHP 8 8
Interest Free 0.0000% 1986 Upon Demand PHP 1 1
Interest Free 0.0000% 1986 Upon Demand PHP 1 1
Interest Free 0.0000% 1986 Upon Demand PHP 9 9
Interest Free 0.0000% 1986 Upon Demand PHP 84 84
Interest Free 0.0000% 1986 Upon Demand PHP 3 3
Interest Free 0.0000% 1986 Upon Demand PHP 6 6
Interest Free 0.0000% 1986 Upon Demand PHP 1 1
Interest Free 0.0000% 1986 Upon Demand PHP 261 261
Outstanding Balance
as of December 31, 2001
---------------------------
(In original (In Philippine
Interest Rate Basis currency) peso) (2)
------------------- ------------ --------------
29,175
------
Direct Loans 15,317
------
Agencies 15,317
------
United States Dollars 7
-
LIBOR 6
MOS 0 7
Philippine Pesos 15,310 15,310
Interest Free 79 79
Interest Free 48 48
Interest Free 29 29
Interest Free 6,821 6,821
Interest Free 6,599 6,599
Interest Free 1,366 1,366
Interest Free 21 21
Interest Free 241 241
Fixed Rate 4 4
Interest Free 62 62
Interest Free 27 27
Interest Free 14 14
Assumed Loans (Real) 13,858
------
Philippine Pesos 2,297 2,297
----- -----
Interest Free 63 63
Interest Free 134 134
Interest Free 120 120
Interest Free 72 72
Interest Free 50 50
Interest Free 200 200
Interest Free 1 1
Interest Free 66 66
Interest Free 3 3
Interest Free 3 3
Interest Free 4 4
Interest Free 8 8
Interest Free 1 1
Interest Free 1 1
Interest Free 9 9
Interest Free 84 84
Interest Free 3 3
Interest Free 6 6
Interest Free 1 1
Interest Free 261 261
T-33
DOMESTIC DEBT OF THE REPUBLIC (OTHER THAN SECURITIES)(1) -- (Continued) In
Million
Original Outstanding Balance
Amount Contracted as of December 31, 2001
--------------------------- ---------------------------
Interest Rate Year Year of (In original (In Philippine (In original (In Philippine
Interest Rate Basis Spread Contracted Maturity Curr. currency) peso)/(2)/ currency) peso)/(2)/
------------------- ------------- ---------- ----------- ----- ------------ -------------- ------------ --------------
Interest Free 0.0000% 1986 Upon Demand PHP 913 913 913 913
Interest Free 0.0000% 1986 Upon Demand PHP 6 6 6 6
Interest Free 0.0000% 1986 Upon Demand PHP 54 54 54 54
Interest Free 0.0000% 1986 Upon Demand PHP 229 229 229 229
91 Day T-Bill 0.0000% 1986 2007 PHP 6 6 6 6
United States Dollars 1,122 57,808 224 11,562
----- ------ --- ------
LIBOR 6 Mos 0.8125% 1986 2003 USD 373 19,210 75 3,842
LIBOR 6 Mos 0.8125% 1986 2003 USD 725 37,352 145 7,470
LIBOR 6 Mos 0.8125% 1986 2003 USD 24 1,245 5 249
- --------
(1) Excludes government securities and debt guaranteed by the Republic
(2) Amount in original currencies were converted to pesos using BSP reference
rate prevailing on December 28, 2001
T-34
GUARANTEED DOMESTIC DEBT OF THE REPUBLIC (OTHER THAN SECURITIES)(1)
As of December 31, 2001
In Million
Original Amount Outstanding Balance as of
Contracted December 31, 2001
------------------------- -------------------------
Interest Rate Year Year of In original In Philippine In original In Philippine
Interest Rate Basis Spread Contracted Maturity currency Peso(2) currency Peso(2)
------------------- ------------- ---------- ----------- ----------- ------------- ----------- -------------
Total 2,297 2,201
----- -----
A. National Government Direct Guarantee 2,017 2,017
----- -----
US Dollars LIBOR 6 Mos 0.8125% 1986 2007 39 2,017 39 2,017
B. GFI GUARANTEE ASSUMED BY THE GOVERNMENT PER PROC. 50. 280 280 183 183
--- --- ---
Philippine Pesos
Fixed Rate 0.0000% 1986 Upon Demand 7 7 7 7
Fixed Rate 0.0000% 1986 Upon Demand 30 30 30 30
91 Day T/Bill 0.0000% 1986 2007 12 12 12 12
92 Day T/Bill 0.0000% 1986 2007 17 17 17 17
93 Day T/Bill 0.0000% 1986 2007 35 35 15 15
94 Day T/Bill 0.0000% 1986 2007 7 7 7 7
95 Day T/Bill 0.0000% 1986 2007 6 6 6 6
96 Day T/Bill 0.0000% 1986 2007 5 5 5 5
97 Day T/Bill 0.0000% 1986 2007 3 3 3 3
98 Day T/Bill 0.0000% 1986 2007 1 1 1 1
99 Day T/Bill 0.0000% 1986 2007 18 18 5 5
100 Day T/Bill 0.0000% 1986 2007 19 19 19 19
101 Day T/Bill 0.0000% 1986 2007 32 32 1 1
102 Day T/Bill 0.0000% 1986 2007 32 32 5 5
103 Day T/Bill 0.0000% 1986 2007 8 8 3 3
104 Day T/Bill 0.0000% 1986 2007 42 42 42 42
105 Day T/Bill 0.0000% 1986 2007 4 4 4 4
- --------
(1) Excludes securities issued by GOCCs
(2) FX rate used: BSP reference rate prevailing on December 28, 2001
T-35
ISSUER
National Power Corporation
Quezon Avenue Cor BIR Road
Diliman
Quezon City
Republic of the Philippines
GUARANTOR
Republic of the Philippines
Department of Finance
Office of the Secretary
Department of Finance Building
Bangko Sentral Complex
Manila
Republic of the Philippines
PAYING AGENT, TRANSFER AGENT
AND REGISTRAR
JPMorgan Chase Bank
450 West 33rd Street
15th Floor
New York, New York 10001
LEGAL ADVISORS TO THE LEGAL ADVISORS TO THE
ISSUER AND THE GUARANTOR DEALER MANAGER
as to Philippine law as to Philippine law
Department of Justice Romulo Mabanta
Padre Faura Street Buenaventura Sayoc
Malate & De Los Angeles
Manila Citibank Tower
Republic of the 8741 Paseo de Roxas
Philippines Makati City
Republic of the
Philippines
as to U.S. law as to U.S. law
Allen & Overy Davis Polk & Wardwell
9th Floor 18th Floor
Three Exchange Square The Hong Kong Club
Central Building
Hong Kong SAR 3A Chater Road
Central
Hong Kong SAR