Notes to Financial Statements - Welcome to NEA Web viewNOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 (Amounts in Philippines Pesos) CORPORATE INFORMATION The National Electrification

NATIONAL ELECTRIFICATION ADMINISTRATIONNOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2011 (Amounts in Philippines Pesos)

1. CORPORATE INFORMATION

The National Electrification Administration (NEA) was originally created as a national government agency by virtue of Republic Act (RA) Nos. 2717 and 6038 dated June 19, 1960 and August 4, 1969, respectively. It existed as such for a period of more than ten (10) years. On August 6, 1973, Presidential Decree (PD) No. 269 was issued converting NEA into a government-owned and controlled corporation with an authorized capital stock of P1 billion; declaring a national policy objective for the total electrification of the Philippines on an area coverage basis and the organization, promotion and development of viable rural electric cooperatives (ECs) to attain the said objective. Moreover, NEA is geared towards the uplifting of the standard of living in the rural areas by the service of electricity. Presidential Decree No. 1370 issued on May 2, 1978 increased NEA’s capital stock to PhP2 Billion.

On October 8, 1979, PD No. 1645 amended certain provisions of PD Nos. 269 and 1370 and raised NEA’s authorized capital stock to PhP5 Billion and expanded its functions to include the development of mini-hydro and dendro thermal projects. On June 8, 2001, RA No. 9136, better known as the Electric Power Industry Reform Act (EPIRA) of 2001, was enacted. Section 58 of the said law gave NEA the following additional mandate:

(a) To prepare the electric cooperatives in operating and competing under the deregulated electricity market within five (5) years from the effectivity of this act;

(b) To strengthen the technical capability and financial viability of rural electric cooperatives; and

(c) To review and upgrade regulatory policies with a view to enhancing the viability of the electric cooperatives, as electric utilities.

The EPIRA had increased NEA’s authorized capital from PhP5 Billion to PhP15 Billion. However, as of December 31, 2011, no additional subscription was made by the National Government.

Administrative Order (AO) No. 112 dated December 7, 2004 directed the NEA to take full and sole authority and responsibility in the conversion of electric cooperatives into stock cooperatives. Pursuant to the AO, the NEA Board of Administrators promulgated the Guidelines in the Conduct of ECs Referendum (GCECR) to convert into either a stock cooperative under the Cooperative Development Authority or stock corporation under the Securities and Exchange Commission.

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On September 2, 2005, Memorandum Order (MO) No. 187 was issued by the Office of the President setting the guidelines on the conversion of ECs. In compliance with the MO, the NEA Board of Administrators, in its Resolution No. 116 dated October 5, 2005, approved the amendment to the NEA GCECR.

From 2000 to present, NEA’s registered address and principal place of business is # 57 NEA Building, NIA Road, Brgy. Pinyahan, Diliman, Quezon City 1100.

The NEA Board of Administrators authorized the NEA Administrator to issue NEA’s Financial Statements per Board Resolution No. 39 dated May 12, 2006. NEA’s Financial Statements for the calendar year ending December 31, 2011 was approved for issuance on March 6, 2012.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting System

Starting March 31, 2005, NEA adopted the Electronic New Government Accounting System (e-NGAS), an Accounting System developed by the Commission on Audit (COA).

Cash and Cash Equivalents

Cash includes cash on hand and in banks. Cash equivalents are short-term, liquid investments, which are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

In order to maximize interest income on deposits while funds are yet to be relent to the different electric cooperatives, these are temporarily placed in banks that offer the highest interest rate.

Receivables

Receivables, which are expected to be realized within the normal operating cycle or one fiscal year, are recognized at face value and classified as current in the balance sheet. However, collectibles beyond one year were classified as non-current assets.

For a fair presentation of receivables on NEA’s Statement of Financial Position, an allowance for doubtful accounts at the rate of one percent (1%) of the estimated uncollectible receivables or a total allowance for doubtful account of PhP984,000 in 2011 (Note 22), was provided.

Inventories

Inventories are taken up in the books at Cost, Insurance and Freight (CIF) cost upon receipt and inspection, except for items under Invitation for Bid (IFB) Nos. 62,72,74,76, & 77, which are carried at Duties Delivered Unpaid (DDU) cost, which

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includes all local taxes, stamp duties, license fees, etc. incurred until delivery of the goods to the staging areas. Further, inventory unit costs are computed by converting the invoice amount in various foreign currencies to peso using the prevailing exchange rate at the time of shipment of the equipment and materials. Succeeding upward or downward movement of the peso vis-à-vis the foreign currencies is no longer considered.

Further, since the adoption of the e-NGAS in 2005, Office Supplies Inventory generated by the system is automatically computed based on the weighted average cost of the items.

Property and Equipment

Property and equipment are recorded at purchase price plus incidental costs and any other directly attributable costs.

Depreciation is provided starting the month following the date of purchase using the straight-line method and is computed over the estimated useful lives of the assets as follows:

AssetsEstimated Useful

Life (In Years)

Buildings 30Land Improvements 10Furniture and Fixtures 10Communication Equipment 10Motor Vehicles 7Office Equipment 5IT Equipment and Software 5Library Books 5

A residual value equivalent to ten (10) percent of the purchase cost is set up. Effective July 1, 2005, based on COA Circular 2005-002 dated April 14, 2005 small tangible items, with estimated useful life of more than one year, shall be recorded as inventories upon acquisition and as expense upon issuance. This practice includes accounting treatment of Library books.

Presentation and Functional Currency

The financial statements are presented in Philippine pesos, which is also the functional currency of NEA. All amounts are rounded off to the nearest peso unless otherwise presented in the report.

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Foreign Currency Transactions

Current portion of foreign and domestic loans as of end of December 2011 was updated using the closing rate per Reference Exchange Rate Bulletin of the Bangko Sentral ng Pilipinas (BSP) as of December 29, 2011 in accordance with paragraphs 23 and 29 of Philippine Accounting Standards (PAS) 21 – The Effects of Changes in Foreign Exchange Rates, except for USAID Loan Nos. 492-H-028, 492-T-034, 492-T-036,and 492-T-043, where transactions are recorded at drawdown rates due to the provision in the Loan Agreement that the National Government (NG) shall absorb Maintenance of Value Risks in behalf of NEA.

The outstanding balances were recorded at PhP 56.2670/US$1 (last updating rate as of December 29, 2004). Every amortization payments made in 2011 was compared with the rate/amount of the current portion, which was updated in December 2010, and the difference was taken up as Gain/Loss on Foreign Exchange.

Foreign currency deposits were also translated using the BSP Reference Exchange Rate as of December 29, 2011 and the resulting gain (loss) was taken up as Gain/Loss on Foreign Exchange.

Income and Expense Recognition

Income includes both revenues and gain. Revenue arises in the course of the ordinary activities of the Agency while gains include those arising from the disposal of non-current assets.

Income is recognized when earned or collected. It is measured at fair value of the consideration received or still collectible in the future. NEA records interest income on overdue accounts only upon receipt of actual payment or when arrangement are formalized for its renewal, extension/restructuring. Donations in cash or in kind are recognized as income upon receipt.

Expenses are recognized upon receipt of goods or utilization of services at the date they are incurred.

3. CASH AND CASH EQUIVALENTSBreakdown of this account is as follows:

2011 2010

Cash on HandCash – Collecting Officers 21,173,750 13,295,609Petty Cash Fund 144,611 128,732

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2011 2010Cash in Bank

Local Currency - Savings Account 1,956,354,886 1,134,390,843Local Currency - Current Account 1,188,121,249 315,666,667Foreign Currency - Savings Account 21,876,517 22,971,137

Cash EquivalentsForeign Currency - Time Deposits 6,246,748 6,544,142

3,193,917,761 1,492,997,130Effect of Exchange Rate Changes on

Cash and Cash Equivalents 26,345 (1,486,932)

3,193,944,106 1,491,510,198

Local Currency – Savings Account consists of various accounts maintained with Development Bank of the Philippines (DBP), Land Bank of the Philippines (LBP) and Philippine National Bank (PNB) mostly for loans to be granted to ECs.

Local Currency – Current Account - The increase pertains to the subsidy of PhP814 Million received from the National Government for Sitio Electrification Project.

4. LOANS RECEIVABLEThis account represents portion of long-term loans receivables due within one year as follows: 2011 2010

Loans Receivable – PSALM 2,152,447,154 2,572,222,851Loans Receivable – EC 409,388,251 400,506,123Loans Receivable-Municipal System 7,575,091 7,668,077Loans Receivables - NEECO II 973,372 1,250,812Matured Loans Receivable-Others 22,415,410 22,797,126

2,592,799,278 3,004,444,989Allowance for Doubtful Accounts (162,141,734) (160,442,271)

2,430,657,544 2,844,002,718

Part of Loans Receivables–EC in the amount of PhP192,087,529 as of December 31, 2011 and PhP239,309,516 as of December 31, 2010 pertains to Short Term Credit Facility loan granted to ECs to finance their monthly shortfall on the settlement of their power accounts with the National Power Corporation, National Grid Corporation of the Philippines, SN Aboitiz Power-Magat, Green Core Geothermal Inc., AP Renewable Inc., San Miguel Energy Corp., and Masinloc Power Partners Co. Ltd. Maximum loanable amount is equivalent to the ECs current Power minus 50% of its Average Monthly Cost (AMC) plus Average Monthly Non-Power Cost.

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Terms of this loan are 1% interest rate per month, payable within 30 days after each availment and 1.5% default charge per month.

5. OTHER RECEIVABLESThis account consists of:

2011 2010

Receivables from Various Cooperatives 1,141,988,094 688,831,901

Receivables from National Power Corporation 57,395,516 57,395,516

Miscellaneous Receivables 57,861,089 58,799,1051,257,244,699 805,026,522

Allowance for Doubtful Accounts (55,463,055) (56,178,517)

1,201,781,644 748,848,005

Receivables from various Electric Cooperatives (ECs) consist of subsidy releases under the Calamity Assistance and Rehabilitation Efforts (CARE) funds, Expanded Rural Electrification Program Project (EREPP) funds – Department of Energy (DOE) and Pantawid Kuryente “Katas ng VAT” funds – Department of Social Welfare and Development (DSWD). Starting May 20, 2009, NEA implemented a new accounting treatment for the subsidy releases for rural electrification programs. Subsidy releases are now taken-up as other receivables and deducted from other payables upon liquidation. As of December 31, 2011, receivables from ECs consist of advances of PhP1.095 Billion and Interest Receivable with negative balance of PhP44 Million. On the other hand, because of the continuous liquidation of receivables, the Pantawid Kuryente “Katas ng VAT” fund has an outstanding balance of PhP91 Million as of December 31, 2011.

Receivables from National Power Corporation (NPC) represent the cost of various MAN gensets and 69 KV lines taken over by NPC from the different ECs and were correspondingly applied against ECs’ loans from NEA. Only the amount of PhP57 Million was validated by NPC as TransCo account and included in the Asset-Debt transfer made by NPC to PSALM books in October 2008. On September 19, 2011, NEA submitted to PSALM the additional documents to support its request for payment of the initial amount of PhP6.93 Million out of the PhP57 Million outstanding payable of NPC to NEA.

Miscellaneous Receivables substantially consist of advance payments made by NEA for and in behalf of the ECs for brokerage, handling, demurrage, storage and other charges incurred in the withdrawal from custom’s custody of various equipment and materials, such as STC 48 package Power Transformers, Wood Poles, Dodecagonal Distribution Poles–Galvanized, etc. and insurance premium.

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6. INVENTORIESThis account consists of:

2011 2010

Merchandise Inventory for Sale 5,211,786 5,21

1,786Merchandise Inventory In Transit 3,651,991 3,651,991Office Supplies Inventory 1,945,240 1,492,355Spare Parts Inventory 169,504 150,823Other Supplies Inventory 184,911 182,294

11,163,432 10,689,249Allowance for Inventory Loss/Obsolescence (5,211,786) (5,211,786)

5,951,646 5,477,463

Equipment and Materials Inventory Items for Sale Account pertains to the cost of equipment and materials damaged/burnt in NUVELCO SA. On September 14, 2010, NEA requested from COA for relief from accountability for the loss of these equipment and materials.

Merchandise Inventory In-Transit, NEA is still waiting for the approval from COA regarding its letter of May 15, 2007 requesting for write-off of various IFBs, which remained dormant/non moving for more than 5 years and above. NEA, in its memo to COA dated May 13, 2010 requested for the status of the said request.

7. LONG-TERM LOANS RECEIVABLEThis account consists of receivables from the following:

2011 2010

Electric CooperativesRural Electrification Loans 4,464,455,543 4,368,919,455Single Digit System Loss Program 699,754,570 621,675,019Calamity Loans 545,760,922 543,516,949Standby Credit FacilityRelending Loans

127,072,01293,570,922

78,598,37395,752,479

Equity Financing Scheme for ECs 6,875,095 9,664,490Power Use and Bliss I Loans 1,645,921 1,948,136Others 174,422 174,422

5,939,309,407 5,720,249,323

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2011 2010Power Sector Assets and Liabilities

Management Corporation (PSALM) 4,912,568,841 7,130,139,676

NEECO II 303,188,201 304,698,402

Private Franchise 184,309,391 246,102,164

PHILRECA 8,816,719 8,816,719

Municipalities 7,575,091 7,668,077

Others 10,693,120 10,928,147

11,366,460,770 13,428,602,508Portion due within one year shown

under Loans Receivable (2,400,711,749) (2,765,135,

473)

8,965,749,021 10,663,467,035

Electric Cooperatives

Rural Electrification loans intend to address the technical and operational requirements of the ECs and comprise the major lending concern of NEA. The amount represents releases after June 26, 2001. These are long-term loans with interest rate of 12 percent per annum, maturity period of more than five (5) years and a grace period of one (1) year.

Also included in this account is a loan granted to Isabela I Electric Cooperative, Inc. (ISELCO I) amounting to PhP32,987,073. This loan was approved by the NEA Board of Administrators in its Resolution # 36 dated November 24, 2010. The approval was based on the request of ISELCO I to grant, as a loan, the amount garnished from NEA’s savings Account No. 0231-0231-78 with the Land Bank of the Philippines amounting to PhP31,481,768 and Philippine National Bank-Cauayan Isabela Branch amounting to PhP341,805, together with the outstanding loan of the Sarangaya for the two electric systems of PhP l,163,500.

The garnishment was in connection with the civil case against the Sarangaya, owner of the Cabatuan & Santiago Electric Systems that were allegedly taken-over by ISELCO I. In addition to the garnished amount, the outstanding loan of the Sarangaya for the two electric systems amounting to PhP1,163,500 was also treated as loan of the ISELCO I. However, the amount of PhP2,531,979 representing outstanding interest receivables from the two Electric System was written-off and charged to Bad Debts expense because the Supreme Court decision allowed only the outstanding principal to be recovered from the Sarangaya.

Single Digit Systems Loss Program is a loan intended to assist the ECs in the reduction of the national average systems loss by at least 1% yearly starting 2004 and attain a single digit level before 2010. Loanable amount depends on NEA’s evaluation of the project. Terms of the loan are: 9% interest rate per annum, 5–10

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years repayment and 3–6 months grace period, and 8% per annum, if repayment period is 2 years.

Calamity loans are granted to calamity affected ECs for the immediate repair of damaged distribution lines and restoration of power. Interest rate varies at 5%-7% per annum, payable in 5-10 years with 5-12 months grace period.

Standby Credit Facility is a credit facility that would strengthen the EC’s credit worthiness with the GENCOs and Market Operator. The loanable amount is equivalent to the average monthly power bill of the ECs with a 12% interest rate per annum. The maximum repayment period is 90 days after each availment, with a default charge of 18% per annum.

Relending loans are granted to ECs, specifically, intended for the payment of their power arrearages with the NPC, thereby enabling the ECs to avail of the NPC’s 3% prompt payment discount. The interest rate is 7% to 12% per annum and repayment period is based on arrears in months.

above 12 months - 7 yrs6 – 12 months - 6 yrsbelow 6 months - 5 yrs

Equity Financing Scheme for Electric Cooperatives is a credit facility that would finance the equity requirement of the ECs in the procurement of the distribution equipment and in the implementation of their rehabilitation and upgrading projects. Maximum loanable amount is the actual equity requirement or 20% of the total purchase price of the distribution equipment but not to exceed P8 Million. Interest rate is 12% per annum, 3-5 years to pay with a grace period of six (6) months.

Power Use and Bliss I loans are extended to cooperatives to support small scale industry projects intended to provide means of livelihood in rural bliss communities, payable in 5 to 10 years after date of release, at 5% to 11% interest per annum and with grace period of 1 to 2 years.

In its November 8, 2006 Board meeting, the NEA Board of Administrators had approved the Management’s recommendation for the reduction of NEA’s lending rate from 12% to 10%, effective January 2007, on all term loan approvals for both present and future, such as the following facilities:

Equity Financing Scheme for ECs (EFSEC),Single Digit System Loss (SDSL),69 KV Lines Sub-Transmission Acquisition; andRegular Loan (RE)

Further, to be afloat with the prevailing interest rates, the NEA Board of Administrators, in its April 10, 2008 meeting, approved another reduction of the lending rate from 10% to 8% per annum to wit, 9% interest per annum for the term loan approvals of 3-15 years repayment period and 8% interest per annum if 2 years repayment period, respectively, except for STCF.

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Power Sector Assets and Liabilities Management (PSALM) - On June 26, 2001 Republic Act No. 9136, otherwise known as the Electric Power Industry Reform Act (EPIRA) of 2001 was enacted. This RA provides that all outstanding financial obligations of the ECs to NEA and other government agencies incurred for the purpose of financing rural electrification program shall be assumed by PSALM in accordance with the program approved by the President of the Philippines.

On August 28, 2002, Executive Order (EO) No. 119 was issued providing that the assumption by the PSALM of the EC’s rural electrification loans from NEA is subject to compliance to some terms and conditions.

NEECO II loan pertains to the sales price of the electric system of the defunct Nueva Ecija III Electric Cooperative, Inc. (NEECO III) which was taken-over by NEA and later sold to NEECO II. The sales price consists of book value of PhP208.4 Million plus interest income of PhP111.8 Million less payments previously made by NEECO III of PhP11.3 Million. The Deed of Conditional Sale approved on January 24, 2006 provides that the sales price shall be payable over 25 years at 7% interest per annum and the repayment of principal commenced on January 31, 2008. Payment of the monthly interest started in January 2006.

Private Franchise loans were granted to finance MERALCO’s depressed area electrification projects and Visayan Electric Company rural electrification extension projects. However, on December 31, 2006, MERALCO had pre-terminated its loan by paying the amount of P886.6 Million.

PHILRECA loan represents the loan granted by NEA amounting to P10 Million to the Philippine Rural Electrification Cooperative Association (PHILRECA) to finance the various projects of the association, e.g., livelihood projects, trust fund management insurance and printing program for rural ECs. In support of NEA’s collection efforts, some member cooperatives of the PHILRECA had agreed to pay portion of the loan by offsetting the same against their excess payments to NEA.

Municipal loans were granted in the early sixties to finance the construction and/or improvement of electric systems of about 91 municipalities all over the country. However, with the enactment of PD 269 mandating NEA to electrify the country through the different electric cooperatives, the franchise granted to the municipal electric systems had effectively been cancelled. The cancellation of franchise did not stop NEA from demanding payments. In NEA’s desire to collect these accounts, the Board of Administrators, in its meeting on November 29, 1990, agreed that the loans be settled under the government’s Debt Relief Program (DRP). On April 28, 1994, NEA submitted to the Bureau of Treasury the certification needed under the DRP. Unfortunately, not a single LGU availed of the program.

In view of the failure to have the accounts settled under the DRP, the NEA Legal Services pursued collection of these accounts using legal remedies available under the Loan Contract. Again on March 11, 2011, NEA sought the assistance of the Department of Finance (DOF) in the collection of the LGUs accounts through DRP.

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The NEA Board of Administrators in its meeting on October 11, 2011 approved the request of government schools and municipalities for the condonation of interests and surcharges of their loans after they paid the principal subject to the approval by the Commission on Audit (COA).

8. PROPERTY AND EQUIPMENTThe movement of property and equipment for the year ended December 31, 2011 and 2010 are as follows:

Land and Land

Improvements Buildings

Office

Equipment

Furniture and

Fixtures

Trans-

portation

Equipment

Machineries

and

Equipment

Other

Property

and

Equipment Total

Year Ended December 31, 2011

Cost:

Beginning 46,522,575 286,266,813 67,232,142 29,575,045 7,209,247 25,213,546 462,019,368

Additions - - 2,466,809 - 88,463 86,350 2,641,622

Disposal/retirements - - (1,120) (2,683,246) - - (2,684,366)

Ending 46,522,575 286,266,813 69,697,831 26,891,799 7,297,710 25,299,896 461,976,624

Accumulated depreciation:

Beginning 427,895 94,822,141 57,764,029 23,001,204 1,284,259 22,635,089 199,934,617

Charge for the year 71,316 8,591,079 2,271,236 815,302 288,391 39,257 12,076,581

Disposal/retirements - - (855) (2,414,921) - - (2,415,776)

Ending 499,211 103,413,220 60,034,410 21,401,585 1,572,650 22,674,346 209,595,422

Ending net book value 46,023,364 182,853,593 9,663,421 5,490,214 5,725,060 2,625,550 252,381,202

Year Ended December 31, 2010

Cost:

Beginning 46,522,575 286,250,013 61,323,360 29,044,402 6,246,769 25,087,739 454,474,858

Additions - 16,800 6,027,032 2,632,029 962,478 125,807 9,764,146

Disposal/retirements - - (118,250) (2,101,386) - - (2,219,636)

Ending 46,522,575 286,266,813 67,232,142 29,575,045 7,209,247 25,213,546 462,019,368

Accumulated depreciation:

Beginning 356,579 86,231,819 55,697,239 22,982,829 1,015,514 22,601,451 188,885,431

Charge for the year 71,316 8,590,322 2,066,790 1,990,107 268,745 33,638 13,020,918

Disposal/retirements - - - (1,971,732) - - (1,971,732)

Ending 427,895 94,822,141 57,764,029 23,001,204 1,284,259 22,635,089 199,934,617

Ending net book value 46,094,680 191,444,672 9,468,113 6,573,841 5,924,988 2,578,457 262,084,751

Land consists of the following:

Site of NEA building under TCT No. 233258 acquired in January 11, 2002 from the National Housing Authority with an acquisition cost of PhP36.2 Million.

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Tandang Sora, Quezon City with a lot area of approximately 2.5 hectares with TCT No. 26581, acquired in January 10, 2002 with a total purchase price of PhP9.5 Million, the corresponding real property tax is being paid regularly. However, the said lot is subject to court litigation pending before the Supreme Court, docketed as G.R. No. 11276, entitled Manuel Silvestre Bernardo, et al vs. Court of Appeals, et al. The case is being handled for NEA by the Office of the Government Corporate Counsel.

Foreclosed Property-Bani/Bolinao – these property with a book value of PhP25,800 were acquired in 1967 by virtue of Sheriff’s Certificate of Sale issued by the Court of First Instance of Pangasinan and the corresponding Declaration of Real Property (DRP) were issued to NEA. Under the said DRP, most of the lands located at Catuday, Bolinao, Pangasinan are classified as forest and pasture lands. Verifications made on the records of the Regional Office I of the Department of Environment & Natural Resources (DENR) revealed that most of the property are within the Alienable & Disposable (A & D) zones. The cluster on Utilization and Disposal of NEA’s Acquired and Foreclosed Property is working on the possibility of titling/or turn-over of the same to the DENR.

Another Property with a lot area of 6,384 square meters, located at Germinal District, Bolinao, Pangasinan is the subject of Civil Case No. 2881 – A entitled “Spouses Zoilo and Julieta Cedana vs. Rose Tabucol, NEA et al” and being handled by Atty. Belen Salumbides of the OGCC. Negotiation for compromise agreement is being pursued by NEA through the OGCC.

Buildings represent the cost of the NEA building, which includes the costs of services related to the preparation of detailed engineering design, consultancy services and the actual construction cost of the building. The construction started sometime in June 1998 and was finished in late 2000.

9. OTHER ASSETSThis account includes:

2011 2010

Deferred Charges 2,386,909 2,446,909Receivables included in NEA’s Bail-

Out Program 1,285,594 1,285,594Other Investment 1,038,000 1,038,000

4,710,503 4,770,503

Deferred charges include IFB incidental costs, miscellaneous deposits to PLDT, MERALCO and IFB incidental costs.

Other Investment consists mainly of investment with Gasifier & Equipment Manufacturing Corporation (GEMCOR) for 938 shares at PhP1,000 par value.

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10. PAYABLESThis account represents various payables as follows:

2011 2010

Unliquidated ObligationsDue to Officers and Employees

76,447,96338,972,316

41,918,89331,378,810

Interest Payable on Foreign Loans 23,704,293 37,056,033Miscellaneous 13,476,274 19,142

152,600,846 110,372,878

Unliquidated Obligations pertain to accrual of expenses for 2011 and provision for incentives under the Collective Negotiation Agreement (CNA).

Due to Officers and Employees represent the cash equivalent of the employees leave credits as of December 31, 2011. The continuous provision of cash equivalent of the leave credits is in accordance with the International Accounting Standard No. 19.

11. PAYABLES TO GOVERNMENT AGENCIESThis account consists of payables due to the following:

2011 2010Bureau of Treasury 11,972,314,363 12,055,486,839Bureau of Internal Revenue (Note 26.3) 10,956,194 3,928,533Government Service Insurance

System 1,411,656 1,158,662PAG-IBIG 228,394 199,908PHILHEALTH 93,412 5,475

11,985,004,019 12,060,779,417

Payables to the Bureau of Treasury (BTR) are advances made by BTR on NEA’s foreign loans from USAID, IBRD, OECF and OPEC; guaranteed loans from ADB, IBRD, EDC, UK, KFW, French, China and domestic loans from Citibank and Union/Filipinas Bank.

This amount does not include interest on net lending being charged by the Bureau of the Treasury in the amount of PhP6.4 Billion as of December 31, 2011 and PhP6.3 Billion as of December 31, 2010. NEA does not record in its books of accounts the interest on net lending in view of the letter from the Department of Finance (DOF) to the Department of Budget and Management (DBM) dated June 5, 1996 stating that BTr shall refrain from charging additional interest on National Government advances to NEA pertaining to loans included in the Bail-Out plan. As of December 31, 2010,

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the total amount of PhP5.194 Billion was recorded as interest expense on net lending. NEA started recording in its books of account the interest on net lending in years 2010 and 2011 amounting to PhP145 Million under loans not included in the Bail-Out Program.

On April 14, 2011, NEA made a follow up on its pending request with the DOF for the conversion of National Government advances to Equity and Subsidy representing matured foreign loan obligations of NEA, which as of December 31, 2006, amounted to PhP12.565 Billion. Likewise, NEA annually includes in its Corporate Operating Budget (COB) said conversion into equity and subsidy.

12. LOANS PAYABLE - DOMESTICThis account represents foreign loans relent to NEA by the National Government, as follows:

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2011 2010

OECF 1,265,371,057 1,685,275,506USAID Loans 101,950,927 128,666,504British Loans 85,342 124,690

1,367,407,326 1,814,066,700 Current Portion (409,272,152) (396,771,980)

958,135,174 1,417,294,720

CREDITOR/PROJECT MATURITIES INTEREST RATE 2011 2010

OECF

OECF PH-49-Y467.9 million

1992 to 2012 3% with 10 years grace period 6,434,086 18,496,570

OECF PH- 138-Y11.4 billion

2002 to 2014 4.7% with 8 years grace period 1,258,936,971 1,666,778,936

USAID

USAID 492 – H 027-$.6 million

1982 to 2012 2% for the first 10 years and 3% thereafter, with 10 years grace period 1,187,439 2,794,954

USAID 492 – H 028 -$19.1 million



USAID 492 – T – 034-$17.9 million


USAID 492 – T – 036-$19.9 million


USAID 492 – T – 043-$19.9 million

1987 to 2017 2% for the first 10 years and 3% thereafter, with 1 year grace period 37,369,852 43,507,657

British Loans

UK Loan II Portion I

£2 million

1988 to 2005 Interest free, with 7 years grace period

85,342 124,690

1,367,407,32 1,814,066,700

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2011 2010

OECF 1,265,371,057 1,685,275,506USAID Loans 101,950,927 128,666,504British Loans 85,342 124,690

1,367,407,326 1,814,066,700 Current Portion (409,272,152) (396,771,980)

958,135,174 1,417,294,720


OECF

OECF PH-49-Y467.9 million


OECF PH- 138-Y11.4 billion

2002 to 2014 4.7% with 8 years grace period 1,258,936,971 1,666,778,936

USAID

USAID 492 – H 027-$.6 million


USAID 492 – H 028 -$19.1 million



USAID 492 – T – 034-$17.9 million


6Current portion (409,272,152) (396,771,980)

958,135,174 1,417,294,720

13. LOANS PAYABLE - FOREIGNThis account is composed of foreign indebtedness as of year end, as follows:

2011 2010

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German Loans 109,228,540 146,239,946World Bank Loans-3439PH 4,971,788 325,537,068French Loans 30,886 108,482

114,231,214 471,885,496Current Portion (27,439,512) (277,481,565)

86,791,702 194,403,931

CREDITOR/PROJECT MATURITIES

INTEREST RATE 2011 2010

German Loans

KFW Loan I Portion I -DM 35.8 million


KFW Loan II -DM 13.4 million


IBRD 3439 – PH-$54.6 million

1997 to 2012 ½ of 1% over cost of qualified borrowings 4,971,788 325,537,068

French Loan II

PC – IV ODA-FRF .07 million

2002 to 2012 With quarterly moratorium interest at LIBOR rate 30,886 108,482

114,231,214 471,885,496

Current portion (27,439,512)(277,481,565

)

86,791,702 194,403,931

14. OTHER PAYABLES

This account represents payables and trust liabilities for funds received from the National Government and other agencies. Details are as follows:

2011 2010

Subsidy Receipts from the National Government

867,829,657 10,141,500

DOE Care Fund 124,437,023 124,243,57

5DSWD - Pantawid Kuryente: "Katas ng

Vat" 94,985,277 131,770,878Performance/Bidders/ Bail Bonds posted

by private persons or entities to guarantee the performance of the contract 31,594,573 31,816,839

DOE Erepp Fund 10,990,650 10,971,917Retention Payable 5,443,774 5,293,263

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Countrywide Development Funds 1,393,020 1,393,020NPC - Spug 51 7,433,609Miscellaneous Payables 2,627,487 11,052,949

1,139,301,512 334,117,550

Subsidy Receipts from the National Government consist of regular subsidy of PhP814,411,357 and Priority Development Assistance Fund (PDAF) of PhP53,418,300 for 2011 including PDAF for the year 2010, which was released by the National Government from January to March 30, 2011 in the amount of PhP13.807 Million, with various SAROS for release to Electric Cooperatives.

DOE Calamity Assistance Rehabilitation Effort (CARE) Fund - The DBM has allocated the amount of PhP500 Million intended for the completion of the rehabilitation of distribution lines of the ECs damaged by typhoons Milenyo, Paeng, Reming and Seniang in Regions III, IV-A, IV-B, V, VI and VIII. It was approved that 75% of the allocated amount from CARE shall be allocated for Bicol Region while the remaining 25% of the total amount will be distributed in the other regions also affected by the typhoons as detailed in the NEA Rehabilitation Plan.

DSWD Pantawid Kuryente: “Katas ng Vat” – The amount represents the balance of the Subsidy Funds released but not yet liquidated by the ECs.

The subsidy program is a joint undertaking of the Department of Social Welfare and Development (DSWD) and the NEA (through the 119 ECs all over the country). The PhP 500 one time subsidy aims to help some 4.8 Million electricity consumers, cope-up with the higher cost of electricity brought about by the rising cost of fuel.

In the Memorandum of Agreement (MOA), the DSWD will release the funds to NEA, which in turn shall release the same to the different ECs, which will apply the amount to the account of their residential consumers consuming 100 KHW and below.

Retention Payable pertains to the retention money from payments made to contractors, suppliers and other creditors covering rural electrification, mini- hydro and dendro-thermal and other projects of NEA. Included therein is a Cash to pay-off the 10% retention payable to Phil Jian amounting to PhP5.2 Million, which is maintained with First Bank. The amount was withheld by First Bank (formerly Century Bank) because it claimed that Phil Jian sold/assigned to Far East Bank (now BPI), its right to make presentment to First Bank.

Countrywide Development Funds (CDF) are funds received for financing electrification projects as identified by Congressmen and Senators. Per record of subsidy releases, the CDF were already released to the ECs. Verification of entries upon release of the funds is to be made to reconcile payable account to cash account.

NPC - Spug – the decrease of PhP7.4 Million pertains to subsidies released to Camarines Sur IV Electric Cooperative, Inc. for the payment of fifth and final billings

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for the construction of distribution lines at Lahuy, Quinalasag and North Lagonoy, Camarines Sur.

Miscellaneous Payables include liabilities for amounts withheld in trust for the account of the National Government, NPC and other entities intended to finance specific projects or activities or to pay specific obligations. The decrease of PhP8.4 Million pertains to adjustment of payables on Insurance Proceeds of USAID Equipment, EC-ASEAN Energy Facility Research Study Grant and EC Task-Force Kapatid accounts to Prior Years’ Adjustment.

15. DEFERRED CREDITS

This account represents the balance of advanced payments made by ECs after June 26, 2001 (effectivity of the EPIRA). For 2011, some ECs opted to draw from this account their current year’s amortization thus, the reduction of PhP2,285,069 or from PhP58,112,306 at the end of 2010 to PhP55,827,237 as of December 31, 2011.

16. INTEREST INCOME

This account pertains to the interest earned on all interest bearing loans for rural electrification purposes.

17. PERSONAL SERVICES

This account consists of:

2011 2010

Salaries and Wages 96,619,625 85,110,838Other Compensation 72,703,538 65,584,480Personnel Benefits Contribution 13,285,991 11,878,186Other Personnel Benefits 26,066,907 21,180,938

208,676,061 183,754,442

18. MAINTENANCE AND OTHER OPERATING EXPENSES

Breakdown of MOOE is as follows:

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2011 2010

Professional Services 32,457,715 32,162,923Utility Expenses 13,473,518 13,658,943Depreciation 12,076,581 11,795,991Traveling Expenses 11,458,249 9,161,432Losses/Obsolescence 5,211,786 5,211,786Supplies and Materials Expenses 5,207,614 31,129,010Communication Expenses 5,181,671 5,192,104Insurance Premiums and Other Fees 4,944,677 5,133,431Training and Scholarship Expenses 4,873,388 5,207,867Taxes and Licenses (Note 26.2) 4,803,036 5,329,098Confidential, Intelligence, Extraordinary and Misc. Expenses 2,870,535 1,966,242 Bad Debts Expense 1,704,000 4,113,350Repairs and Maintenance 879,570 1,775,977Rent Expenses 819,476 673,097Representation Expenses 688,043 962,327Printing and Binding 282,890 368,992Subscriptions Expenses 241,209 184,522

2011 2010

Advertising Expenses 222,410 182,907Membership Dues and Contributions

to Organizations 46,400 23,900Transportation and Delivery 5,775 953Other Maintenance and Other

Operating Expenses 1,232,171 422,172

108,680,714 134,657,024

19. GAIN OR LOSS ON FOREIGN EXCHANGE

This account consists of foreign exchange gain as a result of updating the current portion of foreign and domestic loans from 2004 BSP Reference Rate of PhP56.2670/$1 to 2011 BSP rate of PhP43.9280/$1 and gain on foreign exchange in the translation of foreign currency deposits as of December 30, 2011.

20. FINANCIAL EXPENSESThis account consists of:

2011 2010

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Interest Expenses 142,933,186 215,702,658Bank Charges 19,401 7,366Other Financial Charges 354,568 4,294

143,307,155 215,714,318

21. OTHER INCOME

This account consists of interest income on deposits with banks, income on space rental, training fees and other miscellaneous income.

22. INCOME TAX

Income Tax is computed at statutory tax rate of 30% for 2011 and 2010 of net taxable income from operation, as follows:

2011 2010

Net Income before income tax 207,448,057 142,761,947

Non-deductible expenses:Interest Expenses 7,910,365 8,791,902Losses/Obsolescence 5,211,786 5,211,786Taxes, Duties and Licenses 4,803,036 5,329,098Bad Debts 984,000 1,581,371

Income not subject to tax:Gain/Loss on Foreign Exchange (29,982,373) (97,593,263)Interest income subject to final tax (23,970,802) (26,642,128)

172,404,069 39,440,713 30% 30%

51,721,220 11,832,214

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23. GOVERNMENT EQUITYThis account consists of:

2011 2010Capital Stock Authorized 150 Million shares @ PhP 100 par value

Subscribed and paid 4,970,461,025 4,970,461,025

Donated Capital 176,792,368 176,792,368Supplies and Materials Acquired

Free of Charge 768,193 768,193

5,148,021,586 5,148,021,586

Donated Capital account pertains to prior years’ appropriation released by the Government of the Philippines to NEA under RA 2717, RA 6038; proceeds from US-PL-480 and Reparation Commission; shares from BIR franchise taxes; and other funds received from various government agencies in support of the rural electrification project. The amount is net of the PhP50 Million considered as initial capitalization of the Government of the Philippines with NEA under P.D. 269.

24. RETAINED EARNINGSAdditions (Deductions) to Retained Earnings consist mainly of liquidation of subsidies released to ECs, payment of the 50% dividend to the National Government and prior years’ adjustments, as follows:

2011 2010

Interest on RE loans 28,065,730 20,206,501Adjustment on Other Payables 18,686,369 24,504,071Unused subsidy fund balance 15,253,017 94,735Adjustment on Losses/Obsolescence 5,211,786 34,805,861Adjustment on interest income on deposits 2,421,142 1,656,627Adjustment of Prior years’ expenses 315,059 684,928Adjustment on Miscellaneous Income 297,706 108,004Adjustment on Accounts Payable 183,995 18,108Adjustment on RE Loans 115,000 341,232Disallowance of Prior year’s expenses - 132,387Adjustment on Income Tax - 22,027

70,549,804 82,574,481

Liquidation of Subsidies released to ECs (127,300,911) (78,574,998)Payment of 50% Dividend to National (17,458,920)

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Government (12,181,302)Prior years’ expenses (6,065,766) (205,122)Income Tax paid (3,773,496) (3,513,446)Adjustment on interest income on loans (1,012,185) -Other Prior years’ adjustments (267,302) (537,588)

(155,878,580) (95,012,456)

(85,328,776) (12,437,975)

25. DIVIDENDS

NEA paid fifty percent (50%) of its net earnings for 2010 and 2009 as dividends to the National Government as per R.A. 7656.

26. SUPPLEMENTARY INFORMATION REQUIRED UNDER REVENUE REGULATION 15-2010On November 25, 2010, the BIR issued Revenue Regulation (RR) 15-2010, which acquired certain information on taxes, duties and license fees paid or accrued during the taxable year to be disclosed as part of the notes to financial statements. This supplemental information, which is an addition to the disclosures mandated under PFRS, is presented as follows:

26.1. Output Value-Added TaxNEA is a Non-VAT registered Government Owned and Controlled Corporation.

26.2. Taxes and Licenses

The details of Taxes and Licenses account are broken down as follows:

Withholding Tax on interest on deposits 4,782,866Real estate tax 18,900Residence tax 770Non-Vat Registration 500

4,803,036

26.3 Withholding Taxes

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The details of total withholding taxes for the year ended December 31, 2011 (Note 11) are shown below.

Withholding Taxes Withheld Remitted Balance

Compensation and Benefits 31,170,580 20,512,412 10,658,168Creditable 3,023,546 2,725,520 298,026

34,194,126 23,237,932 10,956,194

26.4 Deficiency Tax Assessment and Tax Cases

On October 14, 2010, NEA availed of the Abatement Surcharges and/or Compromise Penalties Program under Revenue Regulation (RR) No. 9-2010 and paid a total of PhP37,502,400. This amount represents the deficiency taxes for the taxable years 2008-2009, computed as follows:

2008 2009 Total

Basic Tax 563,178 33,427,516 33,990,694Interest 168,954 3,342,752 3,511,706

732,132 36,770,268 37,502,400

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Documents

Notes to Financial Statements - Welcome to NEA Web viewNOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 (Amounts in Philippines Pesos) CORPORATE INFORMATION The National Electrification