Cagayan Electric to borrow $15M for expansion

Cagayan Electric Power and Light Co. (Cepalco) will borrow $15 million loan from the International Finance Corp.(IFC) to finance its expansion program until 2008.

"Due to the recent political and economic environment in the Philippines, the company has been unable to secure long-term debt to finance the program. The IFC loan will allow the company to adequately fund its continuing capital expansion plan from 2005 to 2008," the investment arm of the World Bank said in its website report.

IFC said the fund would allow Cepalco to continue with its expansion plan within a more stable financing structure. "The company lacks access to the more traditional longer-term debt or capital market financing normally available to larger electricity distribution utilities (DUs) under more favorable macroeconomic conditions," IFC said.

The Philippine electricity distribution industry, due to regulatory controls, is typically characterized by relatively long pay-back periods and moderate financial rates of return, and appropriate long-term financing is essential for companies investing in long-lived assets such as electricity distribution equipment, IFC said.

Since the start of its operations in 1961, Cepalco has been able to partly finance its network expansion through a combination of medium- and short-term financing of five years or less in maturity.

IFC added said the financing will be in Philippine pesos thus enabling a "currency matching between financing cost and revenues and also assist in expanding the depth and tenor of the domestic financial market."

In 2003, the IFC also agreed to provide Cepalco a $4-million loan for a 950-kilowatt solar photovoltaic power (PV) project in Mindanao.

The project is set to be the largest distributed, grid-connected PV installation in the developing world. Japan’s Sumitomo Corp. will be the turnkey contractor while Sharp Corp. will manufacture the solar modules.

Cepalco agreed to raise $1.4 million out of the total $5.4 million required to complete the construction of the solar project.

Cepalco operates electricity distribution services in the city of Cagayan de Oro and the municipalities of Tagoloan, Villanueva, Jasaan, all in the province of Misamis Oriental in Mindanao under an exclusive franchise awarded in 1961. The legislative franchise has been extended for another 25 years starting in 2011.

Cepalco, the fourth largest private distribution company in the Philippines, is a closely held company, with the Abaya family as the founding major shareholder. The combined four top shareholders (Fullmax Philippine Development, LLC, Abaya Investments Corp., Breavel Inc., and the Abaya family) together own 63.1 percent of the company.

The company was supposed to bid out early this month a supply contract for its 20-megawatt diesel-fired power plant. Within the second half of this month, the company is expected to hold the pre-bid conference.

The company said it hopes all interested parties would have already submitted their proposals for the construction of the power facility. If the timetable will be followed, the commercial operations of the plant will commence in July 2006.