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An initial feasibility study for REFC was completed in December 2000 by the NRECA and CFC. The study found that 24 of the 120 ECs in the Philippines would have been eligible for borrowing under credit approval principles used by the CFC in the U.S. This finding assumed that the quality and reliability of financial information for ECs in the Philippines is similar to that available for electric cooperatives in the United States.
The feasibility study led to a Memorandum of Understanding between the National Electrification Administration (NEA), the Philippine Rural Electric Cooperative Association (PHILRECA) and NRECA to work together to create REFC.
REFC was incorporated on August 31, 2001 , and registered with the SEC at an initial authorized capital amount of P200 million ($3.6 million) of common stock. REFC is registered as a for-profit stock corporation under the oversight of the laws and regulations of the Philippines Security and Exchange Commission. REFC's original incorporators consisted of 15 designees of ECs that invested (paid-in) P30 million ($545,000) of common stock. By January 1, 2002 , an additional 7 ECs had invested an additional P7 million ($127,000) in common stock. As of August 2003, 30 the total number of 120 ECs in the Philippines had purchased P54.2 million of P1,000 par value ($985,000 of $18.2 par value) common stock. The REFC's mission is to provide debt financing to allow ECs to provide electric power that is reliable, dependable and reasonably priced.
REFC does not expect all 120 electric cooperatives in the Philippines to become members. REFC is focused on attracting ECs that meet certain minimum borrowing criteria, given REFC's objective of allowing its member ECs to leverage their equity capital into loans. The strategy of REFC is to attract ECs that are better performing and thus are lower risk borrowers. ECs may join if they do not qualify for loans, but their investment would not realize its full benefit until they are able to obtain REFC loans.
Similar to CFC in the United States , REFC's EC members will be required to invest a certain percentage of their revenues for 4 consecutive years. This subscription process will enable ECs to obtain their initial equity through smaller, more manageable equity investments. ECs must also invest 5% of any loan proceeds they obtain in preferred stock, another feature of CFC's long-term capitalization approach.
REFC was founded by the ECs who will retain majority control of the organization. Initially, ECs own 100% of the common stock. The articles of incorporation and by-laws require that electric cooperatives, as a group, retain more than 50% of the organization's common (voting) stock. Importantly, only an EC that is an equity investor in REFC may obtain loans.
Capital invested in REFC by ECs will be supplemented with capital invested by non-EC investors. These non-EC investors are expected to include NRECA's Electricity for Progress (NEP), Philippine rural development lending institutions, international development banks, and Philippine commercial banks. These investors are also expected to provide debt financing enabling ECs to leverage their equity investment into loans that can be used to finance economically viable projects.
The idea of a finance corporation to serve member (stockholding) cooperatives is not new. REFC is based upon and modeled after a very similar organization in the United States , the National Rural Utilities Cooperative Financing Corporation (CFC). CFC was created by U.S. electric co-ops in the 1960s for the same reason that REFC is being created: to provide a dedicated source of debt capital to member electric cooperatives.
In 2002, CFC recorded total loans and guarantees outstanding of $22 billion. CFC does not have any non-cooperative investors and in 2002 recorded $3.3 billion in member-invested funds. Thus, CFC in 2002 was able to multiply its member funds by 6.7 times (compared with REFC's projected multiplier of 4.8 by its tenth year of operation.)