Power utility Manila Electric Co. (Meralco) has trimmed its total debts by 28 percent to P16.04 billion as of end-March this year from P22.37 billion in the same period in 2008.

Based on Meralco data, the company said it was able to retire some P7.9 billion worth of short-term debts, which declined from P10.25 billion in first quarter of 2008 to P2.29 this year.

However, the same data showed long-term loans of the power distribution firm increased to P13.75 billion in end-March 2009 from P12.12 billion in 2008.

Of the P13.75 billion long-term debts, about P13.62 billion and P13 million were secured from local and foreign sources, respectively. The short term debts of P2.29 billion, meanwhile, were sourced locally.

For the period under review, the company was able to pay P10.44 billion for debt service, substantially higher than the P4.9 billion debt service payment in the same period last year.

Meralco did not indicate if it will be borrowing this year after it was able to secure approval from the Energy Regulatory Commission (ERC) to increase its distribution charge using the performance-based rate (PBR) mechanism.

Based on the rate schedule issued by the ERC, the distribution and supply charge is set at P1.2227 per kilowatt-hour, an increase of 25 centavos from 2008’s 96.57 centavos average rate.

Late last year, Meralco was given the green light by the energy regulators to issue IOUs for its capital expenditure projects.

The ERC said it has given Meralco the authority to issue bonds or engage in borrowings not in excess of half of its debt-to-equity ratio for its capital projects.

The company earlier filed a petition seeking the authority to engage in borrowings after the ERC prescribed a new rate setting methodology for private distribution utilities.

Under the PBR, Meralco is mandated to complete its proposed capital expenditures totaling P28.681 billion until 2011 to meet the electricity projected demand, comply with performance standards and maintain reliability of its distribution system.

However, given the hefty amount it would have to shoulder, the country’s largest power distributor said it would not be possible or practical for it to finance its capital projects solely through its own pockets.

Based on Meralco’s original filing late last year, the company’s equity stood at P47.394 billion. Its debt therefore can be at a maximum of P23.7 billion.

To provide flexibility to undertake its financing activities in the most “cost-efficient manner,” Meralco said it intends to incur long-term debts under one or several financing options.

This proposed move, however, is not expected to have any impact on its electricity charges because under the PBR, Meralco will absorb all interest, fees and other costs related to any long-term borrowing including foreign exchange losses on foreign debt.

“Meralco’s actual debt-to-equity ratio will have no impact on the authorized rates that may be charged under the PBR,” the ERC said.