China offeres $3.95bn to manage Philippines’ entire electricity grid

  • But the deal could still unravel because of political risks
A consortium led by China’s biggest state power company on Wednesday offered a $3.95bn bid for a 25-year contract to manage the Philippines’ entire electricity grid in what could become the largest privatisation deal in the south-east Asian country’s history.

The consortium led by China’s State Grid narrowly beat the only other participating group led by food and drinks maker San Miguel Corp., which submitted a bid of $3.905bn.

The auction, which came after four failed attempts since 2001, is a boost to Manila’s efforts to revive a troubled programme to sell power generating and grid assets to settle over $7bn in debts at insolvent state power company Napocor.

But it also marks the biggest foray overseas for State Grid, which though it is almost unknown outside of China, is one the country’s largest companies through its control of 80 per cent of the country’s power transmission assets.

Under its hard-driving, ambitious president and chief executive, Liu Zhenya, State Grid, which has also kept ownership of some generating assets, has increasingly sought out opportunities overseas.

It also has plans for an initial public offerring that bankers say could take place as soon as 2008 and be worth as much as $20bn, although it has been delayed because of the need for extensive restructuring of the company.

Officials in the Philippines on Wednesday said State Grid’s bid, made with two local partners, underscores China’s strong commitment to invest in the Philippines in spite of growing public wariness of Chinese companies being awarded lucrative government contracts.

President Gloria Macapagal Arroyo recently scrapped Chinese state firm ZTE Corp’s $330m contract to build a national broadband network after her economic planning chief admitted being offered a bribe of 200m pesos by the country’s top election official to approve the deal.

“This changes the landscape for Chinese companies in the Philippines,” said Francis Chua, a special adviser to Mrs Macapagal on Chinese investments. “It shows they are also bringing in fresh investments and are not just after government projects funded by soft loans from China.”

Owners of private power companies, who are increasingly worried that the government is not investing enough to expand and upgrade the Philippines’ power grid, welcomed the successful auction. “It will accelerate the capital expenditures needed to support the critical infrastructure of the National Transmission Co. (Transco),” said Ernesto Pantangco, president of the Independent Power Producers Association.

But the deal could still unravel because of political risks. The winning bidders must secure a public utility franchise from Congress within a year or government will be forced to revoke the contract.

Lawmakers had earlier indicated they will grant the franchise but a number of senators have raised questions about the bidding process. A joint congressional committee is scheduled to hold a hearing to look into these allegations on Thusday.

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