Aboitiz Power sees prospects for growth under open access

CEBU CITY, Philippines - With its growing investments in power generation, Aboitiz Power is taking advantage of business opportunities that will emerge once large electricity users are allowed to choose their own power suppliers, company officials said Monday. Erramon I. Aboitiz, Aboitiz Power president and chief executive officer, told stockholders the company has both the human and financial capital required to take advantage of these prospects. "We anticipate that when open access is implemented, a new market for our power will open up for us, giving us the opportunity to not only sell electricity to customers outside our franchise area, but also to build additional generating capacity," Mr. Aboitiz said. Under an open access system, large power users can choose power suppliers, unlike in the present system, which limits them to the supplier that has jurisdiction over their respective areas. Open access is mandated by the Electric Power Industry Reform Act, subject to five conditions. Three have been met — the establishment of a wholesale electricity spot market, removal of cross-subsidies and approval of unbundled charges. In simple terms, unbundling forces utilities to itemize or break down specific components of the electricity bill to make pricing more transparent and understandable to consumers. The two other conditions are the privatization of at least 70% of the total generating capacity of the National Power Corp. in Luzon and Visayas, and the transfer of 70% of Napocor capacity covered by independent power producer (IPP) contracts to IPP administrators. Aboitiz Power, which debuted on the stock exchange last year, has increased its generating capacity to 1,035 megawatts (MW) by buying both government and private plants. The biggest of these was the 360-MW Magat hydro plant. This year, Aboitiz Power will invest P11.4 billion in three green-field projects estimated to cost P70 billion. These projects will bring Aboitiz Power’s total generating capacity to 1,832 MW, more than three-quarters higher than last year. These are the 300-MW coal plant in partnership with Taiwan Cogeneration International Corp. at the Subic Bay Freeport Zone, the 42-MW and 34-MW run-of-river hydropower plants in Davao, and the 246-MW coal plants in Toledo City, Cebu. Work on the 300-MW plant in Subic will start in the third quarter and is expected to be completed in three years. One of the hydropower plants in Davao is under construction, while the second will be built starting in the third quarter. In Cebu, work is ongoing on the three 82-megawatt coal plants by Abovant Holdings and Global Formosa of the Metrobank Group. These will be completed by early 2010. Aside from these generation projects this year, Aboitiz Power is eyeing new acquisitions, such as an additional stake in the Mindanao coal-fired plant and the Tiwi-Makban plant. Mr. Aboitiz said there are negotiations to buy an additional 15% stake in STEAG State Power, Inc., which runs a 232-megawatt plant at the PHIVIDEC Industrial Estate in Misamis Oriental. Aboitiz Power acquired a third of STEAG State Power last year for $91.91 million through a share purchase deal with majority shareholder Evonik Industries AG. Evonik now holds 55%, while State Investment Trust, Inc. holds 11%. "We had some talks, but I think the shareholder has decided to wait and rethink the price," Mr. Aboitiz said. If the deal is clinched, Aboitiz Power’s shareholdings in STEAG State Power will increase to 49%. Mr. Aboitiz said they were not aiming for control of the company, but would suggest to their partners the expansion of the plant or the construction of another plant to address Min-danao’s growing power requirements. "When we entered the partnership, Evonik already had majority control. We’re happy with the situation. They understand coal. We’re just entering this business," Mr. Aboitiz said. Mindanao is projected to require an additional 100 to 200 megawatts by late 2009 or early 2010. The Department of Energy (DoE) earlier said for 2006 to 2014, Mindanao would need an additional 850 megawatts to meet electricity demand, which is expected to grow by 6.5% yearly. Last year’s acquisitions spurred growth in the generation group’s sales, as the company sold in the first quarter a total of 377 gigawatt-hours of power, 10 times higher than a year earlier. In the distribution group, Aboitiz Power units grew electricity sales by 17% to 744 gigawatt-hours. This was also driven by increased interest in utilities Subic Enerzone, Mactan Enerzone and Balamban Enerzone. All are now wholly owned subsidiaries of Aboitiz Power. The power generation business contributed 63% to the company’s net income for 2007, higher than the 45% contribution in 2006. - Marites S. Villamor, Businessworld