PNOC-EDC goes to First Gen

BY MARIA KRISTINA C. CONTI/BUSINESSWORLD THE GOVERNMENT ON THURSDAY AWARDED its remaining 60% interest in Philippine National Oil Co.-Energy Development Corporation (PNOC-EDC) to a Lopez-led consortium for P58.5 billion, a sale that raised winning bidder First Gen Corp.’s total generating capacity to around 3,000 megawatts (MW). The government expects to net P47 billion, the Finance department said, as a portion of the proceeds would go to parent firm PNOC for energy exploration purposes. A legislator, meanwhile, questioned the award, saying the government may have committed an illegal act by selling a profitable venture for the expediency of meeting its deficit targets. The Lopez-led firm’s acquisitions, however, have caught the Energy department’s notice, as the law bars firms from taking substantial control of the country’s energy grid. First Gen currently has five power plants with an aggregate capacity of 1,839 MW: the 1,000-MW Santa Rita and 500-MW San Lorenzo natural gas-fired power plants, 225-MW Bauang diesel, 112-MW Pantabangan/Masiway Hydroelectric Complex, and the 1.6-MW Agusan mini-hydro facility. It contributes 1,608 MW to the Luzon grid and 1.6 MW to Mindanao. First Gen technically does not participate in the Visayas grid. First Gen accounts for 12% of the country’s total installed power generation capacity. The acquisition of PNOC-EDC is a "transformational moment in First Gen’s short history," First Gen Vice-Chairman and Chief Executive Peter D. Garrucho, Jr. said in a disclosure. "Now we are in geothermal energy, not just in power generation which is our expertise, but in steamfield development and operations." PNOC-EDC operates nine geothermal steam fields with an aggregate production capacity of 1,198 MW, accounting for about 60% of the country’s total installed geothermal capacity. It has four other geothermal projects onstream, with a total potential of 140-250 MW. However, PNOC-EDC’s participation in the actual power generation business is minimal. In 1996, it started supporting power plants via a build-operate-transfer (BOT) scheme. The company has only recently taken over the operation of seven power plants it contracted with a total capacity of 595.5 MW. First Gen Chief Financial Officer Francis Giles B. Puno on Wednesday said the company was still keen on bidding for the 192.5-MW Palinpinon geothermal and 146.5-MW Panay diesel being sold next month. The company is also a shortlisted bidder for the 175-MW Ambuklao-Binga hydroelectric power plant. Sources said the Energy department would keep an eye on future Lopez purchases. "It’s still not clear on how we are to factor PNOC-EDC’s generating capacities, since First Gen is still not the full owner," a government official said. That the Lopezes might be gaining too much of the market is not simple paranoia, said another. The Electric Power Industry Reform Act, in an effort to promote competition, limits the market share of any generating company to 30% per grid. Nationwide, a power producer is only allowed 25% of the 14.24-gigawatt total generating capacity. In Resolution 20 dated July 11, 2007, the Energy Regulatory Commission set the caps for Luzon at 3,260 MW; Visayas, 452 MW; and Mindanao, 560 MW. The ERC and the Energy department have yet to estimate First Gen’s credited contribution to the grids. First Gen Corp., together with consortium partners Dutch Spalmare Holdings B.V. and another Lopez-subsidiary Prime Terracota Holdings Corp. on Wednesday placed the highest bid for the stake, beating four other tycoon-led firms. Spalmare is a holding company of Icelandic Reykjavik Energy Investments, which already owns 0.8% of PNOC-EDC. Offering the second highest bid of P48.52 billion was Gotianun-led FDC Geo-Energy Holdings, whose foreign partner was the US giant AES Energy Corp. Ang-led Panasia Energy Holdings, Inc., whose foreign partner was Beleggingsmaatchappij Broem B.V., and the Aboitiz-led AP Renewables bid P39 billion and P33.16 billion, respectively. PNOC President Antonio M. Cailao, in a statement, on Thursday said, "We are not merely selling ordinary shares here. What we are selling are a block of shares, of which whoever gains control of, gains control of the whole operations of PNOC-EDC." PNOC-EDC shares recovered from a 10% slump the other day by rising 9.5% on Thursday to P6.90 apiece. Finance Secretary Margarito B. Teves, meanwhile, said the government would get 81% of the winning bid, which would be reflected as non-tax revenues by the Bureau of the Treasury by November 29 at the earliest. Crisanta Legaspi, Finance Undersecretary for Privatization, said the law specifies that the government receive 50% or more of the privatization proceeds while the rest goes to the parent firm. "The government needs to recover its investments," she said. Mr. Teves had earlier expected a high of P36 billion from the PNOC-EDC auction. Briefing reporters on Tuesday, he said the amount should allow the government to stay below its P63-billion deficit ceiling for this year, even if the government’s two main revenue collecting agencies were behind in collections. The PNOC-EDC stake represents the last of government assets to be auctioned this year. Poor tax collections prompted the government to embark on an asset sale spree this year. It booked around P44 billion in privatization proceeds in the 10 months to October, with the bulk coming from its 46% stake in the Philippine Telecommunications Investment Corp. and a 20% stake in PNOC-EDC. In another development, the Joint Congressional Power Commission (JCPC) wants Mr. Teves to explain why the PNOC-EDC sale pushed through despite the panel’s reservations. JCPC chair Miriam Defensor Santiago said they had passed a resolution in 2005 noting that PNOC-EDC was the "most profitable" venture of the government. The sale to First Gen, she said, could be illegal if the government had sacrificed a profitable venture for the purpose of addressing the budget deficit. She said the commission wants Mr. Teves to "air his side" before it "decides on more coercive measures." She said the sale would create a "vacuum" in the country’s energy plans since the Department of Energy had said it does not have the funds or the function to promote and develop indigenous sources of energy. — with J. T. Gulane and C. S. S. Valencia/BusinessWorld