SENATOR Sherwin T. Gatchalian, who chairs the chamber’s committee on energy, has proposed a measure to do away with the initial public offering (IPO) requirement for power generation companies (gencos) to increase the sector’s attractiveness to potential entrants.
“The initial purpose of the public offering requirement for generation companies in the EPIRA (Electric Power Industry Reform Act) has been rendered irrelevant given all the developments in the electric power sector. If we were to encourage more investment in generation to meet our demand needs in the next 20 years, it is crucial to eliminate this additional barrier to entry,” Mr. Gatchalian said in a statement Tuesday, citing the bill he filed last month.
Senate Bill No. 2217 seeks to remove the IPO requirement for gencos, amending a section of the EPIRA.
Under the EPIRA, gencos and distribution utilities which are not publicly listed must offer and sell not less than 15% of their common shares to the public.
“For existing companies, such public offering shall be implemented not later than five years from the effectivity of (the Renewable Energy) Act. New companies shall implement their respective public offerings not later than five years from the issuance of their certificate of compliance,” according to EPIRA.
Mr. Gatchalian said new entrants will encourage competition in the sector.
“In order to promote competition and encourage market development, we have to relax some policies such as the public listing which proved to be burdensome to generation companies especially to small renewable energy (RE) gencos that have difficulty in complying,” he said.
The generation sector needs to attract additional investment since the Philippines will require an additional 71,817 megawatts (MW) of installed capacity in the next 20 years, he said.
Of the added capacity, some 9,508 MW or 13.24% must come from RE plants in order to meet the renewable portfolio standards requirement under the RE Act of 2008, he said.
Timson Securities, Inc. Head of Online Trading Darren Blaine T. Pangan said that the proposed removal of the IPO requirement may allow some firms to venture into generation because of the easing of the entry criteria.
He told BusinessWorld Tuesday that new entrants hold the potential to “broaden the ownership base of the power or energy sector.”
The elimination of the public listing requirement for gencos will “reduce their administrative requirements,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in an e-mail.
He noted that companies incur costs and expend administrative effort to maintain a publicly listed company.
He noted, however, that the requirement for listed firms to disclose relevant information affords more protections to investors and the general public.
China Bank Securities Corp. Research Associate Zoren Philip A. Musngi also said in an e-mail that the removal of the listing requirement will make governance less transparent.
The President of BDO Capital & Investment Corp., Eduardo V. Francisco said he does not think that lifting the requirements for gencos’ IPO “will change or reduce interest” in companies interested in engaging in power generation.
“Why single out the sub-industry (of power generation),” he said, noting that the exemption from listing should also apply to power distribution and transmission. “Then all banks and other industries with BoI (Board of Investments) incentives (that) require listing, should be released from having an IPO,” he told BusinessWorld.
“I think this will be bad for the capital markets as investors won’t have a chance to own selected industries,” Mr. Francisco added. — Angelica Y. Yang