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UNCLAS SECTION 01 OF 02 MANILA 000170 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA, EB/ESC and EAP/PMBS 
DOE FOR TOM CUTLER 
STATE PASS EXIM, OPIC, AND USTR 
STATE PASS USAID FOR AA/ANE and AA/G 
USDOC FOR 4430/ITA/MAC/ASIA & PAC/KOREA & SE ASIA/ASEAN 
USDOC FOR ADVOCACY CENTER 
 
E.O. 12958: N/A 
TAGS: ENRG EINV ECON CH IT RP
SUBJECT:  China vs. U.S. (and Italy) For TransCo Concession 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1.  (U) Please see para. 15 for ACTION REQUEST. 
 
¶2.  (U) SUMMARY:  Three consortia have pre-qualified to bid for the 
concession to run the $2.6 billion Philippine electric grid.  The 
Chinese have teamed up with local investors close to relatives of 
the President and her political allies.  U.S. investors have asked 
for USG support for the bid they will submit together with 
influential Chinese-Philippine businessmen.  This is shaping up as a 
major battle between competing Philippine interests, as well as 
between U.S. and Chinese investors.  End Summary. 
 
¶3.  (U) A 25-year concession to operate state-owned National 
Transmission Corp. (widely known as TransCo), the sole electric 
transmission utility in the Philippines, goes on the auction block 
in the coming weeks.  With some $2.6 billion in assets, TransCo is 
one of the most attractive assets in the ongoing privatization of 
GRP electric holdings. 
 
¶4.  (U) Not surprisingly, the TransCo concession has attracted the 
attention of powerful political and economic forces in the 
Philippines and important investors from abroad.  As the Philippine 
Constitution restricts foreign ownership in the electric sector to 
no more than 40%, each of the competing consortiums includes both 
important foreign investors and local players. 
 
The Players 
----------- 
 
¶5.  (U) The State Grid Corporation of China has joined with 
Philippine partner Monte Oro Grid Resources, newly created for this 
competition.  Monte Oro is fronted by mining executive Walter Brown, 
who represents investment banker Diosdado "Buboy" Macapagal Jr., the 
brother of President Arroyo; Arroyo supporter and the owner (among 
other interests) of International Container Terminal Services Inc., 
Ricky Razon; and the son of Speaker of the House Jose de Venecia, 
Joey De Venecia, a telecom/internet/call center entrepreneur. 
 
¶6.  (U) U.S. Texas Pacific Group (via Newbridge Asia IV L.P., often 
called TPG Newbridge) holds a 35% share in the principal competitor 
of the Monte Oro-Chinese bid.  Malaysia's biggest power company, 
Tenaga Nasional Berhad would operate the grid under this consortium 
and hold a 5% share.  The Philippine partner would be Trinatra 
Holdings Corporation, another company formed just for this 
competition.  Trinatra brings together Henry Sy, Jr., one of the 
heirs apparent to Shoemart billionaire Henry Sy; Ramon Ang, Vice 
Chairman and President of colossal food and beverage corporation San 
Miguel (probably representing his boss, Eduardo "Danding" 
Cojuangco), and Joselito "Butch" Campos, who controls Del Monte 
Pacific Ltd. and other companies. 
 
¶7.  (U) Italy's largest power distributor, Terna SPA, has teamed 
with Citadel Holdings Inc., a vehicle for Ricardo Delgado and his 
family, which has been an important player in telecoms in the 
Philippines.  The Delgados, however, are generally not expected to 
be strong competitors. 
 
The U.S. Investor's Interests 
----------------------------- 
 
¶8.  (SBU) Ernest Bower of BrooksBowerAsia (BBA) met with EconCouns 
on December 19 and again (with Commercial Counselor) on January 11 
to discuss the concession.  BBA represents Texas Pacific Group and 
requested USG assistance in ensuring the fairness of the bidding 
process.  Bower said that the final bidding documents are under 
preparation by the GRP's Power Assets & Liabilities Management 
Corporation (PSALM).  The immediate concern is that the politically 
well-connected Monte Oro team may attempt to get PSALM to issue 
documents which would give them an advantage or disqualify their 
opponents on technical grounds.  Bower said the Monte Oro team is 
putting pressure on the President of PSALM, well regarded Nieves 
Osorio, via Speaker of the House Jose de Venecia.  Bower is 
concerned that Osorio could be removed from her post before the 
 
MANILA 00000170  002 OF 002 
 
 
bidding documents are finalized in order to put someone who would 
favor Monte Oro into her place. 
 
¶9.  (U) Bower noted that his clients have approached OPIC about 
political risk insurance.  Such insurance would be necessary to 
allow them to make a viable bid, he suggested.  He also said that 
investor guarantees which the Asian Development Bank may provide 
would make it easier for private foreign investors to compete on the 
same footing with a state firm such as the State Grid Corporation of 
China.  He is in the process of submitting documentation to the 
Department of Commerce's Advocacy Center in order to formally obtain 
USG support for the Texas Pacific Group bid. 
 
¶10.  (U) Concession authority for TransCo rests finally with the 
Philippine Congress.  Bower suggested that if Texas Pacific Group 
were to win the bid, it would request U.S. assistance in lobbying 
the Philippine Congress to approve the deal. 
 
Power Privatization in the Philippines 
-------------------------------------- 
 
¶11.  (U) Restructuring of the Philippine power industry began with 
the passage of the Electric Power Industry Reform Act of 2001 which 
mandated the privatization of the system.  Although the law required 
that 70% of government-owned electric generating capacity be 
privatized by the end of 2005, that target was not met and only 11% 
has been privatized to date.  Sale of generating assets has been 
complicated by the fact that the assets up for sale do not have long 
term supply contracts and would face competition from other 
as-yet-not-privatized government assets. 
 
¶12.  (U) Privatization of TransCo has proven even more difficult. 
This is the fourth re-bidding.  There were interested buyers in 
every case, but the first two bids failed because the law mandates 
that the Senate must approve the franchise after the sale and 
companies were not comfortable making such a large investment only 
to be thrown immediately into a political process.  There was also 
concern about the potential for independence on the part of the 
newly established Energy Regulatory Commission which will set 
transmission prices.  With a better established Regulatory 
Commission (though still lacking complete autonomy from the caprices 
of the Supreme Court and still not completely removed from political 
influence) more firms were interested in the third offer.  However, 
it also fell through when the terms of reference were so vague that 
every bidding firm felt obliged to write its own specific terms, 
resulting in incomparable offers. 
 
¶13.  (U) The current bidding process began in May 2006.  The three 
current competitors were pre-qualified in November.  Although 
Finance Secretary Margarito Teves has announced a bid deadline of 
January 22, he conceded that date might be relaxed based on comments 
by bidders raising a number of legal and commercial concerns.  Bower 
suggested that a delay of at least a couple of weeks is believed 
likely. 
 
¶14.  (U) Post will report on the privatization process on a 
continuing basis on a dedicated TransCo Privatization page on the 
Intellipedia.  The Intellipedia page can be found at: 
www.intelink.sgov/wiki/TransCo_Privatization.  Numerous linking 
pages provide background on major players in the privatization 
effort.  Clicking the "Watch" link at the top of a page will sign 
users up for notification when the page is updated. 
 
¶15.  (U) Action Request: We request that Washington agencies 
expedite the review of eligibility for advocacy and of requests for 
OPIC support for this bid and inform us of results. 
 
KENNEY