Project summary^1
Quezon Power is a bond-financed independent power producer (IPP) that sells electricity to
the Manila Electric Company (Meralco), an investor-owned utility with a monopoly on elec-
tricity distribution for Metropolitan Manila and surrounding provinces. The plant is coal-
fired, taking advantage of abundant local coal supplies and helping the Philippines to
diversify away from oil-fired power generation. It is the first large-scale IPP in the Philippines
to be financed, built, owned, and operated by a private entity without the sovereign backing
of the government.
Until 1987 the state-owned National Power Corporation (NPC) had a monopoly on
power generation and distribution. In that year the government authorised private-sector
development of the power generation infrastructure. In 1996, after several years of power
shortages, it authorised the private development of priority infrastructure projects on build-
operate-transfer (BOT) and build-transfer (BT) bases. The NPC is now being privatised, with
generation assets being sold to private investors.
The project developed a plan for sustainable development that took economic develop-
ment, environmental protection and social responsibility into account. Among the project’s
risks are that Meralco’s franchise will not be renewed or that Meralco, mandated to reduce its
costs by the Electric Power Industry Reform Law of 2001, will put pressure on Quezon Power
to reduce its rates.
Background
The Philippine power industry
Because electricity demand is forecast to outpace rapid economic growth, and much of the
current capacity is old and unreliable, there is a significant need for additional, competitive-
ly priced baseload generating capacity in the Philippines. The Quezon power project has pro-
vided the Luzon grid with much needed additional generating capacity, as well as
diversification away from oil- and hydro-based power plants.
There are three separate major grid systems in the Philippines: Luzon, Mindanao and the
Visayas. The Luzon grid is by far the largest, accounting for 75 per cent of the national mar-
ket and serving the metropolitan Manila area. In recent years the low reliability of the grid’s
generation and transmission facilities has led to frequent ‘brownouts’. Through a series of
QUEZON POWER, THE PHILIPPINESagainst political risk by US Eximbank, 25 bps front-end fee and 35 bps commitment
fee on undrawn amounts;- US$100 million as a trustee loan facility supported by the US Overseas Private
Investment Corporation (OPIC); - US$115 million as an uninsured construction loan;
- US$30 million as an uninsured cost overrun loan; and
•US$12.5 million as a coal supply and PPA IC facility.
Six months after financial closing, the OPIC-guaranteed tranche was replaced with a
US$215 million bond offering with 19-year, 11-month final maturity, 14.5-year aver-
age life, issue price of par, and yield of 8.959 per cent, or 245 bps over US treasuries.