• Thu
  • Jul 24, 2014
  • Updated: 8:52am

State Grid-led group wins Manila power contract

PUBLISHED : Thursday, 13 December, 2007, 12:00am
UPDATED : Thursday, 13 December, 2007, 12:00am

A consortium including State Grid Corp of China, the mainland's largest power distributor, successfully bid US$3.95 billion for a 25-year concession to operate the Philippines' power grid yesterday.

The group, led by the Philippines' Monte Oro Grid Resources, beat the US$3.905 billion offer of the rival bidder, a consortium headed by food and beverage giant San Miguel Corp.

Mainland power companies are joining counterparts in the oil and resources industries in beefing up overseas assets. China Southern Power Grid last year agreed to spend US$900 million on a coal-fired power plant in Vietnam.

However, the risks of investing in the Philippines have raised speculation the grid deal is politically rather than commercially driven. Manila in October cancelled a US$330 million broadband contract with Shenzhen's ZTE Corp amid a bribery scandal.

The contract, which includes the right to operate 21,319km of transmission lines, will only be awarded after the bidder gets from Congress a franchise to operate the grid. This may take a year.

Opponents of President Gloria Macapagal-Arroyo are likely to give the deal a rough ride through the legislature amid allegations the consortium has close links to her, analysts said. The deal would be the biggest privatisation in the nation's history.

Zhang Long, an analyst at Essence Securities, said State Grid's investment in the grid, the National Transmission Corp (Transco), was more a government-backed move.

'I don't think the investment returns from the project will be particularly high,' Mr Zhang said. 'It's more a government move, just like state-owned airlines signing bulk aircraft purchase contracts during senior Sino-US and Sino-French meetings.'

Manila has been trying to sell off electricity assets to help pay the debt of state-owned National Power Corp since 2003.

The government had given four groups the green light to participate in the auction and 21 investors originally expressed interest. But only two showed up at the auction yesterday.

Previous auction attempts have failed due in part to concerns about the grid's earning potential and political uncertainty. But a new tariff system for Transco, in operation since last year, is supposed to make the 25-year licence more lucrative for investors.

Cui Yuqin, an analyst at Everbright Securities, said the Philippine deal was not especially significant to State Grid given its small size in relation to the mainland firm.

State Grid is ranked 29th in the Fortune Global 500 list of the world's largest companies by revenue. The state-owned firm, which posted operating income of 852.9 billion yuan last year, had total assets of 1.21 trillion yuan at the end of last year.

Political tinder

Deal may see rough sailing in Congress for political overtones

The consortium successfully bid for a 25-year concession to operate the power grid by offering, in US$: $3.95b

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