China State Grid group wins Philippine power auction

By Karen Lema

MANILA (Reuters) - A consortium including China's State Grid Corp won the right to operate the Philippine power grid with a $3.95 billion bid on Wednesday, in what would be the biggest privatization in the country's history.

The winning offer from the group led by the Philippines' Monte Ore Grid Resources narrowly beat the sole rival bid from a consortium led by San Miguel Energy, a unit of Southeast Asian food and drinks giant San Miguel Corp (SMCB.PS).

The Monte Oro group must still get a franchise to operate the grid from Congress, where opponents of President Gloria Macapagal Arroyo in the Senate are likely to give them a rough ride amid allegations the consortium has close links to her.

"Certainly, we will scrutinize every angle," Senator Aquilino Pimentel, leader of the opposition in the upper house, told Reuters.

The consortium has a year to get the franchise or ownership will revert to the government, which will continue to run the grid for the time being.

"They (Monte Oro) have enough political clout to get it through the lower house but will likely run into a long-running tele-novella in the Senate," said Alex Magno, director of the Development Bank of the Philippines, which advised the government on its recent $1.35 billion sale of a majority stake in geothermal group PNOC-Energy Development Corp. (EDC.PS).

Monte Oro struck a confident tone saying its offer would be funded through a combination of equity and borrowing.

"We have agreements with underwriters and we will begin to implement them," Monte Oro President Walter Brown, who is also chairman of mining group Philex (PX.PS), told Reuters.

The state will get 25 percent of the price once the franchise is awarded, with the remainder to be paid over 20 years.

"This is a move in the right direction," said Jose Ibazeta, head of the agency tasked with selling the state's energy assets.

RECORD PRIVATISATION

The winning price tag is more than double the previous privatization record of $1.6 billion paid for a former army base on prime Manila real estate in 1995 and crowns a turnaround in what had previously been a notoriously stop-start energy privatization program.

Manila has been trying since 2003 to privatize the management of the National Transmission Corp (Transco) to boost state finances and modernize its creaking power sector. Wednesday's auction was the fifth attempt and the second this year.

Political uncertainty and doubts about the predictability of profits tripped up previous sale efforts but a new tariff system for Transco, in operation since last year, is supposed to make the 25-year license more lucrative for investors.

The grid, which needs about $725 million till 2010 for upgrades and expansion, was valued at 138 billion pesos ($3.3 billion) in 2006. Wednesday's reserve price was not revealed.