Philippines: BPI, BUSECO Signs PHP136 M Financing Agreement for Rural Electricity That Will Benefit 86,000 Households in Northern Mindanao

February 7, 2011

MANILA, FEBRUARY 8, 2011 – The Bank of the Philippine Islands (BPI), LGU Guarantee Corporation (LGUGC), and the Bukidnon Second Electric Cooperative, Inc. (BUSECO) signed yesterday a PHP135.901 million financing agreement for improving power supply to about 86,000 households in the rural communities of northern Mindanao.

The BPI financial support to BUSECO is guaranteed by the partial credit guarantee (PCG) program under the Electric Cooperative System Loss Reduction Project (ECSLRP) financed by the Global Environment Facility (GEF) and administered by the World Bank.

Funded by a US12.0 million grant from GEF, ECSLRP aims to bring reliable and affordable electricity services to rural communities as well as reduce carbon dioxide emissions and other pollutants that harm the environment. This fund is managed in the Philippines by the LGUGC, a private corporation that facilitates development financing for projects of local government units, water districts, electric cooperatives, state universities and colleges, and renewable energy technology companies through credit enhancement. LGUGC works with the National Electrification Administration, the Department of Energy, the electric cooperative sector, and the private financial institutions in managing the program.

“This financing arrangement involving the BPI, BUSECO and our firm, the LGUGC, is an excellent model of how the private sector, electric cooperatives, and development partners like the World Bank could effectively work together to address a common development objective – providing electricity to rural homes while reducing greenhouse gas emissions that harm the environment,” Ms. Lydia N. Orial, President and Chief Executive Officer of LGUGC.

“We see public-private partnership coming into play with the financing extended to BUSECO,” said Mr. Alfonso L. Salcedo, BPI’s Executive Vice President and Group Head for Corporate Banking. “A collective effort such as this could catalyze development not only in the power sector but in other industries as well.”

BUSECO covers the northern part of Bukidnon Province, consisting of the city of Malaybalay and nine municipalities including Baungon, Malitbog, Libona, Manolo Fortich, Sumilao, Impasug-ong, Lantapan, Cabanglasan, and Talakag.

BUSECO will use the PhP135.901 million financing for the installation of a 10MVA substation in Kisolon in Bukidnon, construction of a 25-kilometer 69KV transmission line from Lunocan to Kisolon, and replacement and calibration of installed meters.

“With improved capacity, our electric cooperative will be able to bring better electricity services to 86,000 rural homes in 170 barangays (villages) in Bukidnon as well as meet the increasing power demand by small and medium agribusiness enterprises, thus contributing to the expansion of economic opportunities and job creation in the countryside,” said Mr. Edgardo R. Masongsong, BUSECO’s General Manager and Chief Executive Officer.

World Bank Country Director Bert Hofman said that BPI’s support to BUSECO is the fourth of such financing arrangements to have been made under ECSLRP’s partial guarantee program and over a dozen more for several electric cooperatives are under preparation.

The partial credit guarantees (PCG) program covers up to 80 percent of the total amount of financing made by commercial lenders such as BPI, one of eleven accredited financial institutions in the program, to electric cooperatives. This credit enhancement is critical because rural electricity cooperatives have been perceived as “poor credit risks” and, as a result, little commercial credit has flowed to the sector. By guaranteeing a portion of commercial banks’ exposure, the PCG helps lower borrowing cost while enhancing commercial discipline among electric cooperatives.

The PCG program, Mr. Hofman said, encourages commercial banks to support expansion of electricity networks, increase electrification of households and businesses, reduce losses, and bolster financial performance of participating electric cooperatives.

“This financing is projected to result in a reduction in carbon emissions of over 100,000 tons of carbon dioxide through 2020, by reducing technical losses,” Mr. Hofman said. “When losses are reduced, electric cooperatives buy less power, thus avoiding some costs for purchased power that would otherwise be passed on to customers.”

Mr. Hofman added: "The World Bank is pleased to support this program. We believe that this is the kind of partnership that can deliver benefits to the households and businesses of the country through more reliable and lower cost energy."

He noted that financially strong electricity cooperatives are a critical element in making EPIRA work. “Financially strong electricity cooperatives will be better able to keep rates as low as possible and will have a stronger hand in securing long term power supply agreements with investors in power generation. We are keen to work with the authorities to further strengthen electricity cooperatives and their role in power supply in the Philippines,” Mr. Hofman said.

Separately, World Bank Group’s private sector arm, the International Finance Corporation (IFC), is working with BPI to stimulate investments in energy efficiency under its energy efficiency risk-sharing program.

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