Riding the energy wave

business mirror

WEDNESDAY, 06 JULY 2011 20:33 PATRICIA A.O. BUNYE / ON FIRM GROUND

High hopes are pinned on a number of timely initiatives to spur capital raising and increased investments in energy.

Pursuant to the Electric Power Industry Reform Act of 2011 (Epira), the Energy Regulatory Commission (ERC) issued on May 23, 2011, Resolution 09, Series of 2011, adopting rules requiring generation companies and distribution utilities that are not currently publicly listed to offer and sell to the public at least 15 percent of their common shares of stock (the “Rules”).

The Rules aim to, among other things, broaden the ownership base of the power generation, transmission and distribution sectors.

The Rules were published on June 14, 2011, and took effect on June 29, 2011. They apply specifically to: (1) generation companies (persons or entities authorized by the ERC to operate facilities used in the generation of electricity); and  (2) distribution utilities (any electric cooperative, private corporation, government-owned utility or existing local government unit [LGU] which has an exclusive franchise to operate a distribution system in accordance with its franchise and the Epira), i.e., electric cooperatives that have common shares of stock, privately owned distribution utilities and LGU-owned and -operated distribution systems. They do not apply to self-generation facilities; generation companies already listed in the Philippine Stock Exchange (PSE); distribution utilities already listed in the PSE; the respective holding companies of generation companies and distribution utilities already listed in the PSE; entities engaged in the electric-generation and -distribution business as partnerships which do not list partnership interests; and electric cooperatives that have no common shares of stock.

Considering that the period prescribed by the Epira of the public offering by existing companies (five years from the Epira’s effectivity, or not later than June 25, 2006) has already lapsed, existing companies are given a new period of five years from the effectivity of the Rules, or not later than June 29, 2016, to comply with this requirement. New companies are required to implement their public offering within five years from the issuance of their certificate of compliance. Within 30 days from public offering, the generation company or distribution utility shall submit reports to the ERC on the extent of its compliance, together with the relevant information for monitoring and verification.

The following shall be deemed a public offering: (1) listing of the generation companies and distribution utilities in the PSE; and (2) listing of the shares of stock in any accredited stock exchange or direct offer of a portion of registered enterprises capital stock to the public and/or their employees, when deemed feasible and desirable by the Board of Investments (BOI). On the other hand, the following are not deemed a public offering: (1) offer of the common shares of stock through an Employee Stock Option Plan, except when the generation company or distribution utility is a registered enterprise under the Omnibus Investments Code; and (2) generation companies under the build-operate-and-transfer scheme.

The application for listing of common shares of stock shall be made by generation companies and distribution utilities in accordance with the existing rules of the PSE. In the case of registered enterprises under the Omnibus Investments Code, the public offering shall be in accordance with the rules and regulations of the BOI.

In another initiative, which recognizes that it is more difficult for petroleum and renewable-energy companies to list their shares in the Philippines than in other Asia-Pacific markets, the Department of Energy (DOE), PSE and the Securities and Exchange Commission (SEC) have collaborated to introduce the proposed “supplemental listing and disclosure requirements for petroleum and renewable-energy companies” (“proposed supplemental rules”). These requirements are to be integrated into the “listing and disclosure rules” of the PSE.

Currently, the PSE and the SEC do not have a separate set of listing requirements and reporting standards applicable to petroleum and renewable-energy companies, unlike in the case of mining companies which are required to comply with the Philippine Mineral Reporting Code (PMRC) and its implementing rules.

The “proposed supplemental rules” shall cover petroleum and renewable- energy companies applying for initial listing, as well as to existing listed companies in the petroleum and renewable-energy industries. They shall also apply to listed companies that will undertake capital-raising activities through the PSE, such as, but not limited to, follow-on offerings or stock-rights offerings. Coal resources are excluded from the Proposed Supplemental Rules since they are covered by the PMRC.

The DOE shall provide the PSE and the SEC technical assistance in the assessment of petroleum and renewable-energy companies applying for initial listing and in the monitoring of compliance of these companies with continuing listing and registration requirements. The PSE, on the other hand, shall also consider the criteria and reporting standards of other exchanges, particularly those of Hong Kong, Singapore, Toronto, London and Australia.

The PSE proposes that, at a minimum, the applicant should be able to demonstrate that: (1) it is an operator or coventurer of a valid and subsisting service/operating contract duly approved and awarded by the DOE; (2) it has submitted to the PSE the requirements in the documentary requirements for petroleum and renewable-energy companies in addition to the PSE’s regular documentary requirements for an initial public offering (Ipo) or listing by way of introduction under its “second board listing” rules; and (3) it has the right to participate actively in the exploration for and/or extraction of natural resources through adequate control over the assets, or through adequate rights that give it sufficient influence in decisions over the exploration for and/or extraction of natural resources. The submission of a “pre-effective clearance” from the SEC on the registration of securities being applied for listing with the PSE shall be construed as a clearance and confirmation by the SEC that all additional documentary and reportorial requirements governing the registration of petroleum and renewable-energy companies have been submitted to, and cleared by, the SEC.

An applicant that fails to meet the operating history requirement under the second board listing rules shall be deemed to have complied upon its compliance with the supplemental requirements for petroleum and renewable-energy companies. The above initiatives augur well for our country’s economic development as these are expected not only to stimulate the inflow of fresh capital and broaden the ownership base of the covered companies, but also allow the market greater access to investments in these sectors.

Patricia A. O. Bunye is a senior partner at Villaraza Cruz Marcelo & Angangco
(www.cvclaw.com). She heads CVCLAW’s Mining and Natural Resources and Power & Energy practice groups, and also focuses on IP Commercialization. She may be reached at po.bunye@cvclaw.com.

CVCLAW is sponsoring a forum, entitled Riding the Energy Wave: The Rules Requiring Generation Companies and Distribution Utilities to Go Public, on August 8, 2011, 2 to 5 p.m. at CVCLAW Center. Details are at:www.cvclaw.com/ridingthewave