November 10, 2000
Overseas Economic Cooperation Operation
Japan Bank for International Cooperation (JBIC; Governor: Hiroshi Yasuda) signed today a loan agreement totaling US$255.09 million with KEPCO Ilijan Corporation (KEILCO), incorporated in the Philippines in 1997 with joint equity stake of Korea Electric Power Corporation, Mitsubishi Corporation, Southern Energy Inc., a U.S. corporation, and Kyushu Electric Power Company, Inc. The loan is cofinanced with Bank of Tokyo-Mitsubishi, Ltd., BNP Paribas, Tokyo Branch, Citibank, N.A., Sumitomo Bank, Limited, with JBIC assuming $153.1 million or 60 percent of the total amount. The proceeds of this loan will be applied to the purchase of goods and services from Japan for the natural gas-fired combined-cycle power plant project implemented by KEILCO. The loan is provided on a limited recourse (so-called project finance) basis in which repayment is secured primarily on cashflow from the project. The Japanese exporter and manufacturer are Mitsubishi Corporation and Mitsubishi Heavy Industries, Ltd.
The objective of the project is to build a combined-cycle power plant with a 1,200 MW capacity at Ilijan, Batangas City, 135 kilometers south of Manila, Luzon Island. The power plant is fueled mainly by domestic natural gas, produced off Palawan Island in southern Philippines. The project, based on a BOT scheme will build, operate the plant and sell the generated electricity to the National Power Corporation (NPC), and after 20 years the plant is transferred to NPC.
Demand growth for power in the Philippines slowed down temporarily as a result of the Asian currency crisis. In the long run, however, a total of 9,875 MW new power capacity has to be developed over the next decade primarily by private participation. This project is the largest of those currently underway to meet the projected demand, and hence is expected to play a key role in the future development of power. In addition, Philippines is moving out of dependence on oil as a means of power generation turning to domestic energy resources including geothermal, natural gas and hydroelectric power. In this context, this project has major significance in terms of supporting effective use of domestic energy resources, as it exploits natural gas, which will make up a major portion of domestic energy.
The Government of the Philippines has been promoting private investment in the power sector and is actively moving forward private participation in power generation projects by IPPs. However, private participation has stalled since the Asian currency crisis due to financial difficulty. Under these circumstances, financial support JBIC provides for this project is expected to help the Government of the Philippines to push ahead private participation infrastructure projects. In addition to this export credit, JBIC has provided an ODA loan to finance the construction of a 53-kilometer transmission line that links this plant and the existing transmission network in Luzon, and guaranteed a syndicate loan extended by Japanese private financial institutions to finance the construction of a pipeline for natural gas, the main fuel for this project. JBIC thus provides comprehensive support for this project and its ancillary facilities. For Kyushu Electric Power Company, Inc., which holds a joint equity stake in KEILO, this is the first major investment in overseas IPP projects; the fact that makes it all the more important for JBIC because its financing also signifies that JBIC is in support of a Japanese power utility who expands its operations in overseas power business. Another aspect that characterizes this project is the participation of Japanese, U.S. and Korean firms and the arrangement in which U.S. and Korean export-import banks joined JBIC in providing financial support for a joint venture undertaken by Japanese and Korean power utilities in a third country. Thus the loan has significance in the sense that the project is the product of international collaboration and promotes a business alliance of Japan and Korea.