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Pursuing Excellence in All that We do

2018 filled us with surprises. At the outset, we set modest targets to temper our expectations amidst headwinds that just came our way. Our only resolve was to work beyond what was normally expected, partnered with caution that something could hamper us from achieving our targets.

This year saw the sustained momentum in asset privatization for PSALM. The Corporation obtained a definitive direction from the Department of Energy to privatize the Malaya Thermal Power Plant with its bid opening slated in March 2019. The privatization of Naga Power Plant was also resolved with the Notice of Award reinstated to Therma Power Visayas, Inc. On the financial front, PSALM gained a steady downward trend for its overall financial obligations despite the peso depreciation. Internal processes-wise, we maintained our compliance with ISO9001:2015 which means that the whole organization complies and maintains the rigorous requirements of ISO.

All these successes point us to one thing -that pursuing excellence in everything that we do is the way to go. This value, which should be inculcated in every PSALM employee, is the common denominator of all notable accomplishments and process improvements that PSALM reaped in 2018.

Together, let us make excellence our culture as we navigate PSALM to the completion of its mandates.

Emelina S. Blanco Managing Editor

Madelyn Esperanza N. Solito Editor-in-Chief

Recelo G. Celades Writer

Frances Grace P. DamazoWriter / Layout Editor

Hacer B. Balisbis Web Master

is published by thePower Sector Assets

and Liabilities Management Corporation

24th Floor, Vertis North Corporate Center 1 Astra cor.

Luxe Drives, North Avenue, 1105 Quezon City

For comments and further information, contact:

Corporate Communications Division

Tel: 902-9067Fax: 817-0037

Email: infos@psalm.gov.phWebsite: www.psalm.gov.ph

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PSALM 2018 Year-End Review04

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Giving Back to the Community

2018 Medical Mission: A Beacon of Hope for Cavinti, Laguna dwellers

President’s Corner

Sustained Momentum in Asset Privatization

Financial obligations steady downtrend

Sustained Improvements on Internal Processes

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PSALM’s eligibility criteria who are now qualified to proceed to the next step of the bidding process, the bid opening of which will be conducted in March 2019.

Resolution of the Naga Power Plant Privatization

Finally resolved this year is the privatization of the 153.1-megawatt Naga Power Plant Complex (NPPC). PSALM implemented the Supreme Court’s final decision to nullify the Asset Purchase Agreement and Land Lease Agreement it executed with Salcon Power Corporation (now SPC Power Corporation) and reinstated the Notice of Award dated 30 April 2014 in favor of Therma Power Visayas, Inc. (TPVI). The NPPC was turned-over to TPVI in July 2018.

Remaining IPP Contracts Privatization

Moving forward with its remaining IPP contracts privatization, PSALM has completed the terms of reference and scope of work of a third-party consultant to be selected through a competitive public bidding whose main task is to conduct a study on viable privatization options and structures for said power assets.

PSALM requires the consultant to identify and assess the technical, contractual, legal, commercial and plant specific issues affecting the privatization or buyout of PSALM’s remaining IPP plants and must include options to address such issues.

The consultant must also conceptualize the technical, commercial, financial and legal framework for the selection and appointment of the IPP Administrators (IPPAs) or IPP contract buyout when applicable.

Sustained momentum in asset privatization

Notable accomplishments and improvements characterize this year’s journey as PSALM continues to complete its privatization mandate and firm-up the disposal of its real estate assets (REA).

privatization of the malaya thermal power plant

After months of rigid evaluation and validation, PSALM obtained the definitive policy directive from the Department of Energy (DoE) to privatize the 650- megawatt Malaya facility including its underlying land on an “as-is-where-is-basis,” rescinding previous condition to operate the plant as a Must Run Unit for three years after its privatization in view of the plant’s depleting condition.

After the DoE ascertained that the limited capacity of the plant may not adversely affect the demand-supply situation, PSALM committed to optimally use the remaining 150- megawatt capability of Unit I when needed while the privatization process is ongoing.

In October 2018, PSALM commenced the second round of bidding for the structure and underlying land of MTPP and conducted the prequalification process where prospective bidders’ requisite resources and technical capability were evaluated through their submitted documentary deliverables. Four (4) out of the six (6) interested parties passed

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IPP plants to be included in the study are the following: Caliraya-Botocan-Kalayaan Hydroelectric Power Plants, Mindanao Coal-Fired Thermal Power Plant, Casecnan Multi-Purpose Project, among others.

Agreement with Land Registration Authority on Land Identification

PSALM’s real estate assets have an aggregate area of 10,044 hectares comprised of 6,160 lots – taking up a substantial size in the asset universe of the Corporation.

In a Memorandum of Agreement (MOA) signed in June 2018, full cooperation of the Land Registration Authority (LRA) was obtained in the access of valuable LRA data on PSALM’s real estate assets. LRA will aid PSALM in addressing

its real estate asset profiling concerns and help in the validation of registration documents and technical data

on asset-specific matters. The MOA signifies PSALM’s continuing commitment to maximize the highest and best use of its properties, generate highest financial return to the government, and support local and national development plans.

As an initial offshoot of this agreement, LRA fulfilled its first project for PSALM in August 2018, requiring technical data (Geo-Spatial Query Service and Parcel Verification Service LRA and Certified True Copies of titles) for its property at Isla de Provisor in Paco, Manila, paving the way for the bidding of Manila Thermal Power Plant land.

Adoption of new disposal modes for the privatization of real estate assets

In the conduct of its continuing benchmarking and collaboration with government agencies, PSALM saw the need to amend the REA strategic plan it drafted in 2015 to improve the Corporation’s operational effectiveness in the realm of real estate property divestment. The amendments led to the proposal of flexible and cost-efficient disposal modes with an end goal of simplifying the divestment process without jeopardizing government’s interest.

Subsequently, in August 2018, PSALM adopted the proposed use of public auction as the mode of privatization for small value REAs, the inclusion

of Joint Ventures, Land Lease Agreements (with additional conditions) and agency to agency transfer (with modified parameters) as new modes of privatization, among other important amendments.

Through rental agreement, PSALM successfully sealed new

PSALM President Irene Joy Besido-Garcia and LRA Administrator Renato D.

Bermejo forge partnership to address real estate asset profiling concerns

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proceeds generated with PHP33.11 billion collected in 2018. Through its prudent liability management strategies, PSALM has steadily reduced its overall financial obligations through the years with only PHP449.94 billion remaining as of December 2018, with the settlement of principal debts and IPP lease obligations and interest and other charges amounting to PhP78.66 billion in 2018.

Favorable decisions transpired this year, further buoying PSALM’s finances. Among PSALM’s notable accomplishments include the following:

• Secured the approval of the Energy Regulatory Commission (ERC) for PhP8.55 billon Universal Charge for Stranded Contract Costs covering 2007-2010 under Motion for Reconsideration;

• Secured ERC approval on the lifting of ERC’s Moratorium on Deferred Accounting Adjustments and Automatic Cost Recovery Mechanism (ACRM) True-up Adjustment cost recoveries amounting to a total of PhP21.48 billion;

• Secured Malacañang’s approval on Executive Order No.60, series 2018, on reduction of PSALM’s Real Estate Property Tax obligation for IPP-BOT plants from 80% to 15% assessment level with a depreciation rate of 2%;

deals this year with the lease of its two (2) properties (a portion of its Port Area property and the training center of its Bagac Property) to the Philippine Coast Guard. The lease agreement will help PSALM exercise fiscal prudence as it provides additional income to cover the expenses of maintaining the properties.

Master Plan for Diliman and Bagac Properties

PSALM endeavors to transform its Diliman property into a commercial and financial center, information technology, economic zone or a power sector hub capitalizing on its prime location and accessibility while its Bagac property into a leisure and business facility offering accommodations and associated amenities for local, regional, national and international tourist and business entities.

Through market inquiry and benchmarking activities, PSALM has determined the budgetary cost for the architectural conceptual design for the Diliman property which will be acquired from a notable architectural company, the selection of which, as approved on 03 December 2018, will be done through a design contest. The conversion of the property will be embodied in a comprehensive Master Plan.

Financial obligations steady downtrend

PSALM’s privatization program is not an isolated undertaking but a critical revenue driver for its liability management program as proceeds from privatization are exclusively used to liquidate its assumed financial obligations from the National Power Corporation.

As of December 2018, PSALM has collected PHP561.013 billion out of the PHP908.754 billion privatization

PSALM President and CEO Atty. Irene Joy Besido-Garcia and PCG Commandant Adm. Elson E.

Hermogino sign the Contract of Lease for Portion of PSALM’s Port Area Property

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• Secured Malacañang’s approval on Executive Order 59, series 2018, on downward rate adjustment of PSALM’s dividends due for remittance to the National Government from 50% of its net earnings to 3.3% covering the years 2004-2015. The President’s approval of the downward rate adjustment on dividends significantly augments PSALM’s ability to liquidate assumed NPC maturing financial obligations;

• Successfully disposed Bataan Combined Cycle Power Plant Land (6.56 has.) and Pantabangan Land (0.25 has.), receiving a total payment of USD1 million;

• Successfully bid out the Operations and Maintenance Service Contract for Malaya TPP pending its privatization;

• Collected outstanding receivable from the Philippine Energy Market Corporation on Market Management System amounting to PHP798.6 million;

• Collected outstanding receivable from the Department of Budget and Management under the PEZA Industry Competitiveness Fund amounting to PHP2.02 billion; and

• Executed new Restructuring Agreements with Samar I Electric Cooperative Inc., Northern Samar Electric

Cooperative and Camarines Sur III Electric Cooperative, Inc. to PSALM in the total amount of PhP1.636 billion for said ECs starting November 2018 until April 2026. which allowed the said electric cooperatives (ECs) to settle their outstanding

balances amounting to PhP310,714,593.58 and PhP741,428,243.35, respectively. Both ECs’ restructuring terms started on November 2018 and will end by April 2026.

The extended payment period puts less pressure on the electric cooperatives’ cashflows thus allowing them to pay PSALM at easier terms. It will also give them time to improve their operations and gain a “Triple A” rating from the National Electrification Administration; and

• Actively participated in legislative hearings for the bills proposing the utilization of Malampaya Funds to pay

for NPC SCC and SD.

Sustained Improvements on Internal Processes

Compliance with 2nd IMS Surveillance Audit

After its thorough audit in December 2018, third-party auditor, TÜV Rheinland, found that PSALM has maintained

its compliance with ISO9001:2015, two years after its certification.

TÜV Rheinland confirmed that PSALM’s management system complies with, adequately maintains and implements

the requirements of the standard.

Scope of audit includes PSALM’s quality management systems on power asset privatization, asset and liability management, administration of Universal Charge and support services. PSALM has 170 business processes randomly evaluated by the third-party auditor.

Other notable gains on internal processes include:

• Achieved Supreme Court’s favorable decision that PSALM’s privatization transactions are not subject to VAT;

• UK Court Judgement on Lehman Case awarding PSALM “PhP3.75 million and avoidance of USD18.5 million claim of Lehman;

• TRO obtained from RTC Bauang against the Province of La Union’s Warrant of Levy over the 25-hectare Bauang property;

• Completed digitization of titles and tax declarations transferred by NPC to PSALM in 2017; and

• Moved to a new office location at the 24th Floor of Vertis North Corporate Center 1, Quezon City.

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As the year draws to a close, PSALM Corporate Social Responsibility volunteers found time to distribute school bags and supplies and medicines.

Dubbed as Pamaskong Handog 2018, the recipients were the 150 Junior High School students from the Mindanaw Tribal School Inc., in Panadtalan, Maramag, Bukidnon where the NAPOCOR- Pulangi IV Hydroelectric Power Plant Reservoir and dam is located.

Manned by volunteer teachers, the school caters the educational needs of Talaandig

and Manobo Tribal students with a mixture of Department of Education and Indigenous People curriculum while preserving the teachings for its language, customary laws and invoking the indigenous songs, dance and art.

The school has been operating for quite sometime with no budget, often dependent on non-government organizations’ donations.

“Giving back to

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With high hopes and expectations, the school management expressed its deep salutation to PSALM. The Pamaskong Handog did not only bring happiness but invoked the feeling of importance to the IP students who seek bright futures ahead despite financial inadequacy.

“Giving back to the community

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The medical mission drew 366 recipients

from all ages—children, middle aged, and seniors – all in dire

need of consulting a doctor and availing medical treatment.

64-year Agapita dela Torre lined up early to avail of the services offered in a medical mission that PSALM

Corporate Social Responsibility and Gender and Development (CSR-GAD) spearheaded on 06 October 2018 in Barangay Paowin, Cavinti, a 3rd- class Municipality in the province of Laguna.

For a year now, the debilitating pain in her lower back spreading down her legs has been hindering her from doing her everyday tasks.

A buri hat weaver, Nanay Agapita profusely thanked PSALM for the free consultation, laboratory, and medicines it offered

and the doctors it brought to the barangay, a poor far-flung place devoid of medical services. Without other options at hand, she would have resigned to enduring the pain incessantly if not for the medical mission that responded to her needs.

Nanay Agapita was one of the recipients of this year’s medical mission in partnership with the Armed Forces of the Philippines Reserve Command Civil Military Affairs Brigade Headquarters and Headquarters Support Group.

PSALM’s medical mission, starting 2014, has been in partnership with AFP Reserve Command led by Dr. Joselito Vital-Head-Medical Corps. AFP has been providing doctors and security needed.

2018 Medical Mission:A beacon of hope for

Cavinti, Laguna dwellers

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This year, the medical mission was again extensive with the inclusion of laboratory services that Medical Technologist Cynthia R. Maranan provided.

For its part, PSALM gathered 37 volunteer-employees who assisted the doctors—taking note of patient information, medical history, and vital signs; dispatching of free medicines and reading glasses; cleaning of dental paraphernalia; and ensuring ease of

processing and order.

One of the volunteers, PSALM Vice-President for Finance, Lourdes S. Alzona, said that the medical mission provided her self-fulfillment and helped her actualize the concept of “social service” in a modest way.

Laguna is where PSALM’s Caliraya-Botocan-Kalayaan Hydroelectric Power Plant Complex is situated.

PSALM’s medical mission is fueled by its unwavering commitment to give back to the community through health services – a bright beacon of hope for the underserved and forgotten.