1. business and industrial
2. business operations
3. human resources

COVER SHEET
C 1
9
9
8
0
0
1
3
4
S.E.C. Registration Number
A B O
I
T
I
Z
P O W E R
C O R P O R A T
I
O N
( Company's Full Name )
A B O
I
T
I
Z
C O R P O R A T E
G O V
.
M A N U E L
K A S A M B A G A N
A
,
.
C E N T E R
C U E N C O
C E B U
C
I
A V E N U E
,
T Y
( Business Address: No. Street City / Town / Province )
ATTY. LEAH I. GERALDEZ
Contact Person
1
2
Month
3
1
032-411-1804
Definitive Information Statement
2010
2
0
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I
S
FORM TYPE
Day
Company Telephone Number
3rd Monday of May
0
5
Month
Fiscal Year
1
Day
Annual Meeting
Secondary License Type, if Applicable
S E C
Dept. Requiring this Doc
Amended Articles Number/Section
x
Total No. of Stockholders
Domestic
Foreign
---------------------------------------------------------------------To be accomplished by SEC Personnel concerned
File Number
LCU
Document I.D.
Cashier
STAMPS
Remarks = pls. Use black ink for scanning purposes
8
ANNUAL REPORT 200 9
3
NOTICE AND AGENDA
OF ANNUAL MEETING OF STOCKHOLDERS
ABOITIZ POWER CORPORATION
Aboitiz Corporate Center
Gov. Manuel A. Cuenco Avenue
Kasambagan, Cebu City 6000, Philippines
NOTICE is hereby given that the Annual Meeting of the Stockholders of ABOITIZ POWER CORPORATION will be held on
May 17, 2010 at 11:00 a.m. at the Grand Ballroom of the Cebu City Marriott Hotel, Cebu Business Park, Cebu City.
The Agenda of the meeting is as follows:
1.
2.
3.
4.
5.
6.
7. 8. 9.
10.
11.
12.
Call to Order
Proof of Notice of Meeting
Determination of Quorum
Reading and Approval of the Minutes of the Previous Stockholders’ Meeting held last May 18, 2009
Presentation of the President’s Report
Approval of the 2009 Annual Report and Financial Statements
Delegation of the Authority to Elect the Company’s External Auditors for 2010 to the Board of Directors
Ratification of the Acts, Resolutions and Proceedings of the Board of Directors, Corporate Officers and
Management from May 18, 2009 up to May 17, 2010
Approval of the Directors’ Compensation and Per Diem for 2010
Election of the Members of the Board of Directors
Other Business
Adjournment
Only stockholders of record at the close of business on April 8, 2010 are entitled to notice and to vote at this meeting.
Registration will start at 9:00 a.m. and will end at 11:00 a.m. Kindly present any proof of identification, such as driver’s
license, passport, company I.D. or SSS/GSIS I.D. Aside from personal identification, representatives of corporate
stockholders and other entities should also present a duly sworn Secretary’s Certificate or a similar document showing his
or her authority to represent the corporation or entity.
Should you be unable to attend the meeting, you may want to execute a proxy in favor of a representative. In accordance
with the amended By-Laws of the Corporation, proxies must be presented to the Secretary for inspection, validation
and record at least seven (7) days prior to the opening of the Stockholders’ Meeting. We enclosed a proxy form for your
convenience.
For those unable to attend the Stockholders’ Meeting in Cebu, a Stockholders’ Briefing will be conducted in Manila on May
19, 2010, 4:00 p.m., at the Mandarin Ballroom, Mandarin Oriental Hotel, Makati City.
For the Board of Directors.
M. JASMINE S. OPORTO
Corporate Secretary
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
1
FINANCIAL SUMMARY (In Million Pesos)
2007
2008
2009
% change
11,312
12,243
23,174
89%
1,983
2,804
122
4,909
634
4,275
114
4,161
1,653
2,785
606
5,043
618
4,424
91
4,334
5,456
2,535
(1,590)
6,401
631
5,770
111
5,659
230%
-9%
-362%
27%
2%
31%
23%
31%
36,176
8,816
619
26,741
47,272
16,580
536
30,155
111,341
76,294
571
34,476
136%
360%
7%
14%
5,584
5,407
9,867
82%
Per Share (In Pesos)
Earnings
Book Value
Cash Dividend (Common)
0.66
3.63
-
0.59
4.10
0.18
0.77
4.69
0.20
31%
14%
11%
FINANCIAL RATIOS
Current Ratio
Debt-to-Equity Ratio
Net Debt-to-Equity Ratio
2.52
0.32
(0.29)
2.12
0.54
(0.13)
0.68
2.18
1.82
Restated
For the Year
Revenues
Operating Profit
Operating profit from ordinary activities
Share in net earnings of associates
Other income (charges)
Income before income tax
Provision for income tax
Income before minority interest
Minority interest
Net Income to Common
At Year End
Total Assets
Total Liabilities
Minority Interest
Equity Attributable to Equity Holders of the Parent
EBITDA
(‘09 vs ‘08)
Attributable Power Sales
Income Contribution
(In GWh)
PER BUSINESS SEGMENT (In Million Pesos)
GENERATION
4,619
08
1,728
07
1,018
DISTRIBUTION
Parent
& Others
167%
09
5.7%
09
3,322
08
3,142
07
2,790
SEC FORM 20 - IS (INFORMATION STATEMENT)
A B O I T I Z PO W E R C O R P O R AT I O N
4
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 20-IS
INFORMATION STATEMENT PURSUANT TO SECTION 20
OF THE SECURITIES REGULATION CODE
1. Check the appropriate box:
[ ] Preliminary Information Statement
[√] Definitive Information Statement
2.
Name of Registrant as specified in its charter ABOITIZ POWER CORPORATION
3.
Province, country or other jurisdiction of incorporation or organization Cebu, Philippines
4.
SEC Identification Number C199800134
5.
BIR Tax Identification Code 200-652-460
6.
Address of principal office:
Aboitiz Corporate Center
Gov. Manuel A. Cuenco Avenue,
Kasambagan, Cebu City
6000 Philippines
7.
Registrant’s telephone number, including area code (032) 411-1800
8.
Date, time and place of the meeting of security holders
Date: Time:
Place:
May 17, 2010
11:00 a.m.
Grand Ballroom, Cebu City Marriott Hotel
Cebu Business Park, Cebu City, Cebu
9.
Approximate date when the Information Statement is first to be sent or given to security holders April 22, 2010
10.
In case of Proxy Solicitations: NA
11.
Securities registered pursuant to Sections 8 and 12 of the Code or Sections 4 and 8 of the Revised Securities Act
(information on number of shares and amount of debt is applicable only to corporate registrants):
Authorized Capital Stock
Title of Each Class
Par Value
No. of Shares
π17,000,000,000.00
Authorized Capital Stock
Common
π1.00
16,000,000,000
π16,000,000,000
Preferred
π1.00
1,000,000,000
π1,000,000,000
17,000,000,000
π17,000,000,000
Total
No. of Common Shares Outstanding as of February 28, 2010
Amount of Debt Outstanding
as of December 31, 2009 12.
Are any or all of registrant’s securities listed on a Stock Exchange?
Yes X No ____
The common stock of the Corporation is listed on the Philippine Stock Exchange.
SEC FORM 20 - IS (INFORMATION STATEMENT)
7,358,604,307
π76,293,790,000
ANNUAL REPORT 200 9
5
INFORMATION REQUIRED IN INFORMATION STATEMENT
A. GENERAL INFORMATION
Item 1. Date, time and place of annual stockholders’ meeting
Date of meeting
:
Time of meeting
:
Place of meeting : Approximate mailing date
of this statement
:
Complete mailing address
of the principal office of the
registrant
:
May 17, 2010
11:00 a.m.
Grand Ballroom, Cebu City Marriott Hotel
Cebu Business Park, Cebu City
April 22, 2010
Aboitiz Corporate Center
Gov. Manuel A. Cuenco Avenue
Kasambagan, Cebu City 6000
Philippines
Item 2. Dissenter’s Right of Appraisal
There are no matters or proposed actions included in the Agenda of the Meeting that may give rise to a possible
exercise by stockholders of their appraisal rights. Generally, however, the stockholders of Aboitiz Power
Corporation (hereinafter referred to as AP or the Company or the Registrant) have the right of appraisal in the
following instances: (a) in case any amendment to the articles of incorporation has the effect of changing or
restricting the rights of any stockholder or class of shares, or of authorizing preferences in any respect superior to
those of outstanding shares of any class, or of extending or shortening the term of corporate existence; (b) in case
of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate
property and assets as provided in the Corporation Code; and (c) in case of merger or consolidation.
Any stockholder who wishes to exercise his appraisal right must have voted against the proposed corporate
action. He must also make a written demand to AP, within 30 days after the date on which the vote was taken,
for payment of the fair value of his shares. Failure to make the demand within such period shall be deemed
a waiver of such appraisal right. If the proposed corporate action is implemented or effected, AP shall pay to
such stockholder, upon surrender of the certificate or certificates of stock representing his shares, the fair value
thereof, as of the day prior to the date on which the vote was taken, excluding any appreciation or depreciation
in anticipation of such corporate action.
If, within a period of 60 days from the date the corporate action was approved by the stockholders, the withdrawing
stockholder and AP cannot agree on the fair value of the shares, it shall be determined and appraised by three
disinterested persons, one of whom shall be named by the stockholder, another by AP, and the third by the two
thus chosen. The findings of the majority of the appraisers shall be final, and their award shall be paid by AP
within 30 days after such award is made. No payment shall be made to any dissenting stockholder unless AP
has unrestricted retained earnings in its books to cover such payment. Upon payment by AP of the agreed or
awarded price, the stockholder shall forthwith transfer his shares to AP.
Item 3. Interest of Certain Persons in or Opposition to Matters to be Acted Upon
(a) No current director or officer of AP, or nominee for election as director of AP, or any associate of any of
the foregoing persons, has any substantial interest, direct or indirect, by security holdings or otherwise, in
any matter to be acted upon in the stockholders’ meeting, other than election to office and the approval of
director’s compensation and per diem. The latter shall benefit the shareholders elected as directors for the
ensuing year.
(b) No director has informed AP in writing that he intends to oppose any action to be taken by AP at the meeting.
SEC FORM 20 - IS (INFORMATION STATEMENT)
A B O I T I Z PO W E R C O R P O R AT I O N
6
B. CONTROL AND COMPENSATION INFORMATION
Item 4. Voting Securities and Principal Holders Thereof
(a) Class of Voting Shares as of February 28, 2010:
Class of Voting Shares
Common Shares
Every stockholder shall be entitled to one vote for each share of stock held as of the established record date.
Record Date: April 8, 2010
(b) No. of Shares Entitled to Vote
7,358,604,307
All stockholders of record as of April 8, 2010 are entitled to notice and to vote at AP’s Annual Stockholders’
Meeting.
Election of Directors and Cumulative Voting Rights
(c) With respect to the election of directors, a stockholder may vote such number of shares for as many
persons as there are directors to be elected. He may also cumulate said shares and give one candidate
as many votes as the number of directors to be elected, or distribute the shares on the same principle
among as many candidates as he shall see fit, provided, that the total number of votes cast by the
stockholder shall not exceed the total number of shares owned by him as shown in the books of AP,
multiplied by the number of directors to be elected.
Article 1 Section 5 of the amended By-Laws of AP provides that voting upon all questions at all meetings
of the stockholders shall be by shares of stock and not per capita. Likewise, Section 6 of the same Article
states that stockholders may vote at all meetings either in person or by proxy duly given in writing and
presented to the Secretary for inspection, validation and record at least seven days prior to the opening
of said meeting. A proxy bearing a signature that is not legally acknowledged shall not be recognized by
the Secretary.
Section 7, Article I of the amended By-Laws provides that nominations for the election of directors for
the ensuing year must be received by the Corporate Secretary no less than 15 working days prior to the
annual meeting of stockholders, except as may be provided by the Board of Directors in appropriate
guidelines that it may promulgate from time to time in compliance with law.
No discretionary authority to cumulate votes is solicited.
No proxy solicitation is being made.
(d)
(1)
Title of
Class
Security Ownership of Certain Record and Beneficial Owners and Management
Security Ownership of Certain Record and Beneficial Owners (more than 5%) as of February
28, 2010:
Name/Address of Stockholder and
Beneficial Owner
Relationship
with AP
Citizenship
No. of Shares and
Nature of Ownership
(Record or Beneficial)
Percent of
Class
Common
1. Aboitiz Equity Ventures, Inc.1
Aboitiz Corporate Center
Gov. Manuel A. Cuenco Avenue,
Kasambagan, Cebu City 6000
Stockholder
Filipino
5,622,113,063
(Record)
76.40%
Common
2. PCD Nominee Corp.
Stockholder
Filipino
917,426,546 (Record)
12.47%
Common
3. PCD Nominee Corp.
Stockholder
Non-Filipino
522,274,900 (Record)
7.10%
Mr. Erramon I. Aboitiz, President and Chief Executive Officer of Aboitiz Equity Ventures, Inc. (AEV), will vote the shares of AEV in AP in accordance with
the directive of the AEV Board of Directors.
1
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
Title of
Class
7
Aboitiz Equity Ventures, Inc. (AEV) is the public holding and management company of the Aboitiz Group,
one of the largest conglomerates in the Philippines. As of February 28, 2010, the following entities own
five per centum (5%) or more of AEV:
Name/Address of Stockholder
and Beneficial Owner
Citizenship
No. of Shares and Nature of
Ownership
(Record or Beneficial)
Percent of
Class
Common
1. Aboitiz & Company, Inc.
Aboitiz Corporate Center
Gov. Manuel A. Cuenco Avenue,
Kasambagan, Cebu City 6000
Filipino
2,660,600,915(Record)
48.18%
Common
2. PCD Nominee Corporation
Filipino
582,764,332 (Record)
10.55%
Common
3. Ramon Aboitiz Foundation, Inc.
35 Lopez Jaena St., Cebu City, 6000
Filipino
420,915,863 (Record)
7.62%
Common
4. PCD Nominee Corporation
Non-Filipino
403,286,564 (Record)
7.30%
Title of Class
(2)
Security Ownership of Management as of February 28, 2010 (Record and Beneficial)
Name of Beneficial Owner and Position
Amount and Nature
of Beneficial Ownership
Common
Mr. Enrique M. Aboitiz Jr.
Chairman of the Board of Directors
482,931 Direct
Common
Mr. Jon R. Aboitiz
Vice Chairman
7,759,020 Indirect
Common
Mr. Erramon I. Aboitiz
President and Chief Executive Officer
9,075,000 Indirect
Common
Mr. Mikel A. Aboitiz
Director
Common
Mr. Antonio R. Moraza
Director/Executive Vice President & Chief
Operating Officer - Power Generation
Group
Common
Mr. Jaime Jose Y. Aboitiz
Director/ Executive Vice President & Chief
Operating Officer - Power Distribution
Group
3,217,888 Indirect
1 Direct
1 Direct
1 Direct
7,398,570 Indirect
Citizenship
Filipino
Filipino
Filipino
Filipino
0.01%
0.04%
0.00%
0.11%
0.00%
0.12%
0.00%
0.10%
0.00%
1 Direct
28,201,677 Indirect
Percent of Class
Filipino
2,362,500 Direct
0.38%
0.03%
Filipino
1,660,040 Indirect
0.02%
Common
Mr. Jose R. Facundo
Independent Director
1,000 Direct
Filipino
0.00%
Common
Mr. Romeo L. Bernardo
Independent Director
1,000 Direct
Filipino
0.00%
Common
Mr. Jakob Disch
Independent Director
1,000 Direct
Swiss National
0.00%
Common
Mr. Juan Antonio E. Bernad
Executive Vice President- Strategy and
Regulation
520,001 Direct
Filipino
0.01%
Common
Mr. Luis Miguel Aboitiz
Senior Vice President – Power Marketing
and Trading
2,060,000 Direct
Filipino
0.03%
SEC FORM 20 - IS (INFORMATION STATEMENT)
8
A B O I T I Z PO W E R C O R P O R AT I O N
Title of Class
Name of Beneficial Owner and Position
Common
Mr. Iker M. Aboitiz
First Vice President/CFO/Corporate
Information Officer
Common
Mr. Gabriel T. Mañalac
First Vice President – Treasurer
N/A
Common
Common
Mr. Raymond E. Cunningham
First Vice President - Business Development
Mr. Wilfredo R. Bacareza, Jr.
Vice President
Mr. Alvin S. Arco
Vice President – Regulatory Affairs
Amount and Nature
of Beneficial Ownership
Citizenship
Percent of Class
2,894,466 Direct
Filipino
0.04%
50,000 Direct
Filipino
0.00%
Filipino
0.00%
300,000 Direct
Filipino
0.00%
112,069 Direct
Filipino
0.00%
0 N/A
Common
Mr. Anastacio D. Cubos, Jr.
Vice President – Special Projects
112,069 Direct
Filipino
0.00%
Common
Mr. Raul C. Lucero
Vice President for Engineering- Power
Distribution Group
110,000 Direct
Filipino
0.00%
Common
Ms. Ma. Chona Y. Tiu
Vice President and Chief Financial OfficerPower Distribution Group
N/A
Mr. Manuel R. Lozano
Chief Financial Officer, AP Generation
112,070 Direct
0.00%
Filipino
0.00%
0 Direct
Filipino
0.00%
100,000 Indirect
Common
Mr. Carlos Copernicus S. Payot
Assistant Vice President - Controller for
Distribution
56,000 Direct
Filipino
0.00%
Common
Mr. Clovis B. Racho
Assistant Vice President for Procurement
and Logistics- Power Distribution Group
56,034 Direct
Filipino
0.00%
Common
Mr. Aladino B. Borja Jr.
Assistant Vice President for Information
Services- Power Distribution Group
56,034 Direct
Filipino
0.03%
N/A
Mr. Ronald Enrico V. Abad
Assistant Vice President - Project
Development
0 N/A
Filipino
0.00%
N/A
Mr. Crisanto R. Laset Jr.
Assistant Vice President for Power
Economics & Distribution System Planning
0 N/A
Filipino
0.00%
0.00%
Common
Ms. Katrina M. Platon
Assistant Vice President for Legal and
Regulatory Affairs
26,896 Direct
Filipino
Common
Ms. Analiza M. Aleta
Assistant Vice President - IT Director,
AP Generation
44,827 Direct
Filipino
Common
Ms. Arazeli L. Malapad
Assistant Vice President for Accounting of
AP Generation - Luzon
7,000 Direct
Filipino
0.00%
Filipino
0.00%
N/A
Ms. Paquita S. Tigue - Rafols
Assistant Vice President
AP Generation - Mindanao
SEC FORM 20 - IS (INFORMATION STATEMENT)
0 N/A
0.00%
ANNUAL REPORT 200 9
Title of Class
Name of Beneficial Owner and Position
Amount and Nature
of Beneficial Ownership
Citizenship
9
Percent of Class
N/A
Ms. Ma. Kristina C.V. Rivera
Assistant Vice President - HRQ,
AP Generation
0 N/A
Filipino
0.00%
N/A
Juan Manuel J. Gatmaitan
Assistant Vice President for Power
Marketing
0 N/A
Filipino
0.00%
44,827 Direct
Filipino
0.00%
44,000 Direct
Filipino
0.00%
20,000 Direct
Filipino
0.00%
149,000 Direct
Filipino
0.00%
62,527 Direct
Filipino
0.00%
Common
Common
Ms. Susan S. Policarpio
Assistant Vice President-Government
Relations
Ms. M. Carmela N. Franco
Assistant Vice President-Investor Relations
Common
Ms. Cristina B. Beloria
Assistant Vice President-Controller
Common
Ms. M. Jasmine S. Oporto
Corporate Secretary
Common
Mr. Joseph Trillana T. Gonzales
Assistant Corporate Secretary
TOTAL
(3) 67,098,450
0.92 %
Voting Trust Holders of 5% or More of Common Equity
No person holds more than five per centum (5%) of AP’s common equity under a voting trust or
similar agreement.
(4) Changes in Control
There are no arrangements that may result in a change in control of AP during the period
covered by this report.
Item 5. Directors and Executive Officers
(a) (1) Directors for 2009-2010
Below is a list of AP’s directors for 2009-2010 with their corresponding positions and offices held for the
past five years. Except for Mr. Jakob Disch who was elected last March 10, 2010 to serve the unexpired
term of the late Mr. Ernesto R. Aboitiz, the directors assumed their directorship during AP’s annual
stockholders’ meeting in 2009 for a term of one year.
ENRIQUE M. ABOITIZ, JR.,
Chairman of the Board of
Directors
Chairman - Board Strategy
Committee
Member - Board Corporate
Governance Committee
Mr. Aboitiz, Filipino, 56 years old, has served as Director and Chairman of the Board of AP
since 2009. He is also Director and Senior Vice President of Aboitiz and Company, Inc. (ACO);
Director of Aboitiz Equity Ventures, Inc. (AEV), Aboitiz One, Inc. (AOI), AP Renewables, Inc.
(APRI) and Manila Oslo Renewable Enterprise (MORE); President and Chief Executive Officer
of Aboitiz Transport System (ATSC) Corporation; President of Aboitiz Jebsen Bulk Transport
Corporation (ABOJEB), EMS Crew Management Philippines, Inc.; President and Chairman
of Jebsens Maritime, Inc.; Chairman of the Board of Filscan Shipping Inc., General Charterer
Inc., Overseas Bulk Transport, Inc. and Viking International Carriers, Inc. He graduated with a
degree of Bachelor of Science in Business Administration (Major In Economics) from Gonzaga
University, Spokane, Washington, U.S.A.
SEC FORM 20 - IS (INFORMATION STATEMENT)
10
A B O I T I Z PO W E R C O R P O R AT I O N
JON RAMON ABOITIZ
Vice Chairman of the Board of
Directors
Chairman - Board Corporate
Governance Committee
Member - Board Strategy
Committee
Mr. Aboitiz, Filipino, 61 years old, has been a Director of AP since 1998. He served as Chairman of
AP from 1998 until 2008. He had served in various capacities in Davao Light & Power Company,
Inc. (DLP) since 1972: Director from 1972 to present, Chairman of the Board from 1986 to 1987,
President and Chairman of the Board from 1988 to 2001, President and Chief Executive Officer
in 2002 and Chairman and Chief Executive Officer from 2003 until March 2009. He also served in
Cotabato Light & Power Company, Inc. (CLP) in the following capacities: Chairman of the Board
from 1980 to 1987, President and Chairman of the Board from 1988 to 1990, Chairman of the
Board and Chief Executive Officer from 1991 to 1997, Chairman of the Board from 1998 to 1999.
He was also Director of San Fernando Electric Light and Power Company, Inc. (SFELAPCO) from
2002 to 2008. He is also Chairman of the Board of Directors of AEV, ACO, ABOJEB and ATSC;
Vice Chairman of the Board of Directors of Union Bank of the Philippines (UBP) and City Savings
Bank (CSB); President and Trustee of Aboitiz Foundation, Inc.; and Trustee and Vice President
of the Ramon Aboitiz Foundation, Inc. He holds a degree in Commerce from the University of
Santa Clara in California, U.S.A.
ERRAMON I. ABOITIZ
President & Chief Executive
Officer;
Member – Board Strategy
Committee, Board Risk
Management Committee
Mr. Aboitiz, Filipino, 53 years old, has been a Director and the President/Chief Executive
Officer of AP since 1998. He is presently Chairman of the Board of DLP, which he has served
in various capacities since 1983: as Treasurer from 1983 to 1987, as Executive Vice President/
Treasurer from 1988 to 1989, and as Executive Vice President from 1990. He has been a Director
of SFELAPCO since 2002 and its Chairman of the Board from 2003 to the present. He is also
Chairman of the Board of CLP, which he also served in the following capacities since 1980 up
to the present: Executive Vice President/Treasurer from 1988 to 1990, President and Chief
Operating Officer from 1991 to 1999, Chairman of the Board from 2000 to present. He is also
currently the President and Chief Executive Officer of AEV and ACO. He is Chairman of the
Board of Directors of Subic Enerzone Corporation (SEZ), Balamban Enerzone Corporation
(BEZ), Mactan Enerzone Corporation (MEZ), SN Aboitiz Power-Magat, Inc. (SNAP-Magat),
SN Aboitiz Power-Benguet, Inc. (SNAP-Benguet), MORE, Abovant Holdings, Inc. (ABOVANT),
CLP, Aboitiz Renewables, Inc. (ARI) (formely Philippine Hydropower Corporation), Therma
Power, Inc. (TPI), Therma Marine, Inc. (Therma Marine), Visayan Electric Company, Inc. (VECO),
SFELAPCO, CSB and DLP; Director of Pilmico Foods Corporation (PFC), Aboitiz Land, Inc.
(AboitizLand), UBP, Southern Philippines Power Corporation (SPPC), STEAG State Power, Inc.
(STEAG Power) and Aboitiz Energy Solutions, Inc. (AESI); and Chairman of the Board of Trustees
of Aboitiz Foundation. He received a Bachelor of Science degree in Business Administration,
major in Accounting and Finance from Gonzaga University, Spokane, Washington, U.S.A.
MIKEL A. ABOITIZ
Director;
Member – Board Strategy
Committee, Board Audit
Committee
Mr. Aboitiz, Filipino, 55 years old, has been a Director of AP since 1998. He has also been a
Director of CLP since 1980 and DLP since 1993. He is also a Director and Senior Vice President,
Chief Information Officer and Chief Strategy Officer of AEV; Director and Senior Vice President
for Strategy of ACO; President & Chief Executive Officer of CSB; Director of DLP, AboitizLand,
Inc., FBMA Marine, Inc., PFC, Pilmico Animal Nutrition Corporation (PANC), Cebu Praedia
Development Corporation, Aboitiz Construction Group, Inc. (ACGI), AP Renewables, Inc. (APRI),
AEV Aviation, Inc., Metaphil International, Inc., TPI, Therma Marine, and CLP. He holds a degree
in Bachelor of Science major in Business Administration from Gonzaga University, Spokane,
U.S.A.
JAIME JOSE Y. ABOITIZ
Director; Executive Vice President
& Chief Operating Officer - Power
Distribution Group
Mr. Aboitiz, Filipino, 48 years old, was a Director of AP from 2004 to April 2007. He was again
elected as Director of AP in 2009. He is also the Executive Vice President and Chief Operating
Officer of VECO; President and Chief Executive Officer of CLP, SEZ, DLP and Cotabato Ice Plant.
Inc. (CIPI); MEZ, BEZ; Director of ARI, Hedcor Sibulan, Inc. (Hedcor Sibulan), Cebu Private
Power Corporation (CPPC), SFELAPCO, Hedcor, Inc. (Hedcor) and AESI. He holds a degree in
Mechanical Engineering from Loyola Marymount University in California and a master’s degree
in Management from the Asian Institute of Management.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
ANTONIO R. MORAZA
Director; Executive Vice President
& Chief Operating Officer - Power
Generation Group; Chairman
– Board Risk Management
Committee;
Mr. Moraza, Filipino, 53 years old, has been a Director of AP since 1999. He is a Director of
AEV, Metaphil International, Inc., (Metaphil, Inc.), STEAG Power, Western Mindanao Power
Corporation (WMPC), Luzon Hydro Corporation (LHC), VECO; President and CEO of ARI and
ABOVANT; Chairman of the Board of Directors of APRI, East Asia Utilities Corporation (EAUC),
PFC and PANC; Chairman and CEO of Hedcor Sibulan, and Hedcor; Chairman and President of
CPPC; Vice-Chairman of ACGI and AboitizLand; President of TPI, Therma Marine, SNAP-Magat,
SNAP-Benguet, MORE; Director and Senior Vice President of ACO, Chairman of Terminal
Facilities & Services Corporation. From 1982 to 1992, he was Vice President for Administration
and Finance of Metaphil, Inc., an ACO subsidiary engaged in industrial construction. He holds a
degree in Business Management from the Ateneo de Manila University and attended the Asian
Institute of Management.
JOSE R. FACUNDO
Independent Director; ChairmanBoard Audit Committee;
Member – Board Risk
Management Committee, Board
Corporate Governance Committee
Mr. Facundo, Filipino, 71 years old, has been an Independent Director of AP since 2008. He currently
serves as a member of the Board of Directors of Security Bank Corporation. He is also a member
of the Board of Directors of Siemens Philippines, Inc., and an Independent Director of Alaska
Milk Corp. Mr. Facundo has an extensive career in banking. He had served as a member of the
Board of Directors and Executive Committee and as President of BPI Capital Corporation. He was
also a member of the Board of Directors and Executive Committee of the Bank of the Philippine
Islands (BPI). Prior to BPI’s merger with CityTrust Banking Corp. (CityTrust), Mr. Facundo served
as President and CEO of CityTrust and was a member of its board and executive committees. He
was also a Senior Managing Director of Ayala Corporation and formerly a Senior Officer of Citibank
Manila. He also served as member of the Board of Directors of Temic Phil. Inc, and Chairman and
member of the Board of Directors of the Philippine Clearing House. He is likewise a member of the
Philippine Business for Social Progress, Junior Achievement of the Philippines and the Rotary Club.
He holds a degree in B. S. Engineering and a postgraduate degree in Mathematics and Statistics.
ROMEO L. BERNARDO
Independent Director;
Member – Board Audit
Committee, Board Corporate
Governance Committee
Mr. Bernardo, Filipino, 55 years old, has been an Independent Director of AP since 2008. He
is currently the President of Lazaro Bernardo Tiu and Associates (LBT), a boutique financial
advisory firm based in Manila. He is also GlobalSource economist in the Philippines. He
does World Bank and Asian Development Bank-funded policy advisory work, Chairman
of ALFM Peso, Dollar and Euro Bond Funds, and Philippine Stock Index Fund, the largest
mutual fund family in the country. He is likewise a Director of several companies and
organizations including Globe Telecom, BPI, NASDAQ-listed PSi Technologies Holdings,
Inc., RFM Corporation, Philippine Investment Management, Inc., Philippine Institute
for Development Studies (PIDS), Ayala Life Assurance Incorporated/Ayala Plans, Inc.,
National Reinsurance Corporation of the Philippines and Institute for Development and
Econometric Analysis. He previously served as Undersecretary of Finance and as Executive
Director of the Asian Development Bank. He was an Advisor of the World Bank and the IMF
(Washington D.C.), and served as Deputy Chief of the Philippine Delegation to the GATT
(WTO), Geneva. He was formerly President of the Philippine Economics Society; Chairman of
the Federation of ASEAN Economic Societies and a Faculty Member (Finance) of the University
of the Philippines. Mr. Bernardo holds a degree in Bachelor of Science in Business Economics
from the University of the Philippines (magna cum laude) and a Masters degree in Development
Economics at Williams College (top of the class) from Williams College in Williamstown,
Massachusetts.
JAKOB DISCH
Independent Director
Mr. Disch, a Swiss national, 55 years old, has been an Independent Director of AP since March
2010. He is the Chairman, Chief Executive Officer and Founder of Convergence GmbH, an energy
consulting and trading firm located at Wintherthur, Switzerland. He gained extensive experience
in the energy business from serving in various capacities in the ABB group of companies, among
others as President for Global Responsibility of ABB Enertech Ltd.; Executive Vice President of
Power Generation and Member of the Asia Pacific Regional Management of ABB Asia Pacific
Ltd.; Chairman of the Board of ABB India and Singapore; President of ABB Power Generation
Sdn. Bhd in Malaysia; and Vice President for Marketing, Sales and Project Management of ABB
Kraftwerke AG of Baden, Germany.
11
SEC FORM 20 - IS (INFORMATION STATEMENT)
12
A B O I T I Z PO W E R C O R P O R AT I O N
Nominations for Independent Directors and Procedure for Nomination
The procedure for the nomination and election of the independent directors is in accordance with SRC Rule 38 of the
Securities Regulation Code (SRC Rule 38) and AP’s “Guidelines for the Constitution of the Nomination Committee and
the Nomination and Election of Independent Directors” (the Guidelines). These Guidelines were duly approved by the AP
Board.
Nominations for independent directors were accepted starting January 1, 2010 as provided for in Section 2 of the Guidelines
and the table for nominations was closed on February 15, 2010 as provided for in Section 3 of the Guidelines.
SRC Rule 38 and the Guidelines further require that the Board Corporate Governance Committee shall meet to pre-screen
all nominees and submit a Final List of Candidates to the Corporate Secretary no later than February 22, 2010. Such Final
List will be included in the Corporation’s Preliminary and Definitive Information Statements. Only nominees whose names
appear on the Final List shall be eligible for election as independent directors. No other nominations shall be entertained
after the Final List of nominees has been prepared. The name of the person or group of persons who recommend the
nomination of an independent director shall be identified in such report, including any relationship with the nominee. All
these procedures were complied with.
In approving the nominations for Independent Directors, the Board Corporate Governance Committee considered the
guidelines on the nominations of Independent Directors prescribed in SRC Rule 38, the Guidelines and AP’s Revised Manual
on Corporate Governance.
No nominations for independent director shall be accepted at the floor during the stockholders’ meeting at which such
nominee is to be elected. However, independent directors shall be elected in the stockholders’ meeting during which
other members of the Board are to be elected.
Messrs. Jose R. Facundo, Romeo L. Bernardo and Jakob Disch are the nominees for Independent Directors of AP. They are
neither officers nor employees of AP or its affiliates, and do not have any relationship with AP which would interfere with
the exercise of independent judgment in carrying out the responsibilities of a director. Attached as annexes “A-1”, “A-2”
and “A-3” are the Certifications of Qualification of the Nominees for Independent Directors.
AP stockholders Esmeralda Dano, Joanna Abay and Maricar Le have respectively nominated Messrs. Facundo, Bernardo
and Disch as AP’s independent directors. Neither nominating stockholder has any relation to Mr. Facundo, Mr. Bernardo
or Mr. Disch.
Other Nominees for Election as Members of the Board of Directors
As conveyed to the Corporate Secretary, the following have also been nominated as members of the Board of Directors
for the ensuing year (2010-2011): Jon Ramon Aboitiz Erramon I. Aboitiz
Antonio R. Moraza
Mikel A. Aboitiz
Enrique M. Aboitiz Jr.
Jaime Jose Y. Aboitiz
Pursuant to Sec. 7, Art. I of the Amended By-Laws of AP, nominations for members of the Board of Directors other than
Independent Directors for the ensuing year must be received by the Corporate Secretary no less than 15 working days prior
to the regular annual stockholders’ meeting on May 17, 2010
Except for the information regarding which are found hereunder, information regarding the positions and offices held by
the abovementioned nominees are integrated in Item 5 (a)(1) hereof.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
13
Officers for 2009-2010
Below is a list of AP’s officers for 2009-2010 with their corresponding positions and offices held for the past five years. The
officers assumed their positions during AP’s annual organizational meeting in 2009 for a term of one year.
ERRAMON I. ABOITIZ
President & Chief Executive
Officer;
Member – Board Strategy
Committee, Board Risk
Management Committee
Mr. Aboitiz, Filipino, 53 years old, has been a Director and the President/Chief Executive
Officer of AP since 1998. He is presently Chairman of the Board of DLP, which he has served
in various capacities since 1983: as Treasurer from 1983 to 1987, as Executive Vice President/
Treasurer from 1988 to 1989, and as Executive Vice President from 1990. He has been a Director
of SFELAPCO since 2002 and its Chairman of the Board from 2003 to the present. He is also
Chairman of the Board of CLP, which he also served in the following capacities since 1980 up
to the present: Executive Vice President/Treasurer from 1988 to 1990, President and Chief
Operating Officer from 1991 to 1999, Chairman of the Board from 2000 to present. He is also
currently the President and Chief Executive Officer of AEV and ACO. He is Chairman of the
Board of Directors of SEZ, BEZ, MEZ, SNAP-Magat, SNAP-Benguet, MORE, ABOVANT, CLP,
ARI, TPI, Therma Marine, VECO, SFELAPCO, CSB and DLP; Director of PFC, AboitizLand, UBP,
SPPC, STEAG Power, and AESI; and Chairman of the Board of Trustees of Aboitiz Foundation.
He received a Bachelor of Science degree in Business Administration, major in Accounting and
Finance from Gonzaga University, Spokane, Washington, U.S.A.
ANTONIO R. MORAZA
Director; Executive Vice President
& Chief Operating Officer - Power
Generation Group; Chairman
– Board Risk Management
Committee;
Mr. Moraza, Filipino, 53 years old, has been a Director of AP since 1999. He is a Director of
AEV, Metaphil International, Inc., STEAG Power, WMPC, LHC, VECO; President and CEO of ARI
and ABOVANT; Chairman of the Board of Directors of APRI, EAUC, PFC and PANC; Chairman
and CEO of Hedcor Sibulan, and Hedcor; Chairman and President of CPPC; Vice-Chairman
of ACGI and AboitizLand; President of TPI, Therma Marine, SNAP-Magat, SNAP-Benguet,
MORE; Director and Senior Vice President of ACO, Chairman of Terminal Facilities & Services
Corporation. From 1982 up to 1992, he was Vice President for Administration and Finance
of Metaphil, Inc., an ACO subsidiary engaged in industrial construction. He holds a degree
in Business Management from the Ateneo de Manila University and attended the Asian Institute
of Management.
JAIME JOSE Y. ABOITIZ
Director; Executive Vice President
& Chief Operating Officer - Power
Distribution Group
Mr. Aboitiz, Filipino, 48 years old, was AP Director from 2004 to April 2007. He was again elected
as Director of AP in 2009. Between 2000 and 2005, he served as CLP Director, Executive Vice
President and Chief Operating Officer. He is also President and Chief Executive Officer of SEZ,
CLP, DLP and CIPI; President of AESI, MEZ and BEZ. He is the Executive Vice President and Chief
Operating Officer of VECO. He is also the Director of ARI, Hedcor Sibulan, CPPC, SFELAPCO
and Hedcor. He holds a degree in Mechanical Engineering from Loyola Marymount University
in California and a master’s degree in Management from the Asian Institute of Management.
JUAN ANTONIO E. BERNAD
Executive Vice President Strategy and Regulation
Ex-Officio Member - Board
Audit Committee, Board
Strategy Committee, Board Risk
Management Committee
Mr. Bernad, Filipino, 53 years old, has been AP’s Executive Vice President for Strategy and
Regulation since 2009. He served as AP Director since 1998 until May 18, 2009. He was AP
Executive Vice President/Chief Financial Officer/Treasurer from 1998 to 2003 and has been AP’s
Executive Vice President for Regulatory Affairs/Chief Financial Officer from 2004 to 2007. He
was Senior Vice President – Electricity Regulatory Affairs of AEV since 2004 to May 2007 and
mainly as AEV’s Senior Vice President effective May 21, 2007. From 1995 to 2004, he was Senior
Vice President and Chief Financial Officer of AEV. From 1992 to 1995, he was Vice President/
Treasurer of DLP, and a DLP Director and its Senior Vice President/Chief Financial Officer from
1996 to 2008. He is now Executive Vice President-Regulatory Affairs of DLP. He was also Vice
President/Treasurer of CLP between 1992 and 1997 and Senior Vice President/Chief Operating
Officer from 1998 to 2008. He is also the Senior Vice President of VECO; Director of CLP,
Southeast Asia Orient Corporation, AEV Aviation, Inc., APRI, SFELAPCO, UBP; He is also the
Director and Executive Vice President for Regulatory Affairs of DLP; Director and Vice President
of CPDC and Vice President and Treasurer of CIPI; Chairman of the Board of Trustees of ACO
Retirement Fund and Trustee of Aboitiz Foundation. He has a degree in Economics from the
Ateneo de Manila University and a master’s degree in Business Administration at The Wharton
School, University of Pennsylvania, U.S.A.
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14
A B O I T I Z PO W E R C O R P O R AT I O N
LUIS MIGUEL O. ABOITIZ
Senior Vice President – Power
Marketing and Trading
Mr. Aboitiz, Filipino, 45 years old, has been AP Senior Vice President - Power Marketing and
Trading since 2009. He was Director and Vice President for Power Generation from 1998 to April
2007. Between 1990 and 1992, he was Assistant Vice President of DLP, and Director since 1996.
He was also a Director of CLP from 1998 to 2001; First Vice President of AEV and ACO; Director
and Senior Vice President – Business Development of Hedcor; Director and Vice President/
Treasurer of ARI; Director of SEZ, APRI, PANC, PFC, SNAP-Benguet, SNAP-Magat, MORE, DLP,
ABOVANT, Hedcor Sibulan, SFELAPCO, STEAG Power, and WMPC. He is also the Director and
Treasurer of Hedcor Tamugan, Inc. (Hedcor Tamugan); Director and Vice President of TPI and
Therma Marine; Vice President for Open Market Operations of AESI and Treasurer of LHC. He
holds a degree in Computer Science and Engineering from Santa Clara University, California,
U.S.A. and a masters degree in Business Administration from the University of California in
Berkeley, U.S.A.
IKER M. ABOITIZ
First Vice President/Chief Financial
Officer/Corporate Information
Officer
Mr. Aboitiz, Filipino, 37 years old, has been AP’s First Vice President and Chief Financial Officer
since August 29, 2007. He likewise acts as AP’s Corporate Information Officer. He is currently a
Director and Chief Financial Officer of ABOVANT, and CPPC; Chief Financial Officer of EAUC,
Chief Financial Officer and Treasurer of Hijos de F. Escaño; Director of FBMA; CLP; SPPC; Hedcor
Benguet, Inc. (Hedcor Benguet); TPI; Therma Marine; and ARI. He has an extensive professional
experience in corporate finance within and outside the Aboitiz Group. Prior to his appointment
as Chief Financial Officer, he was the Chief Financial Officer of ACGI and a member of the Board
of Directors and Chief Financial Officer of FBMA Marine, Inc. He graduated cum laude from
Boston College with a degree in Bachelor of Science in Business Management major in Finance.
GABRIEL T. MAÑALAC
First Vice President-Treasurer
Mr. Mañalac, Filipino, 53 years old, has been the Treasurer of AP since 2004 and is now its First
Vice President-Treasurer. He was Treasurer of DLP from 1999 to 2001 and DLP Vice PresidentTreasurer since 2002. He has been Treasurer of CLP since 2000. He is also Senior Vice President
- Group Treasurer of AEV. He is also a Trustee of ACO Retirement Fund. He graduated cum laude
from the De La Salle University with degrees in Bachelor of Science in Finance and Bachelor of
Arts in Economics. He obtained his Masters of Business Administration in Banking and Finance
from the Asian Institute of Management and was awarded the Institute’s Scholarship for Merit.
RAYMOND E. CUNNINGHAM
First Vice President – Business
Development
Mr. Cunningham, American, 67 years old, has been AP’s First Vice President - Business
Development since 2009. He has extensive experience in the power industry in the Philippines
and the US, especially in power project planning, regulatory approvals, financing, design,
construction and operations. He was previously Business Development, Acquisitions and
Special Projects Manager of CalEnergy International Services, Senior Vice President and Project
Director of San Roque Power Corporation, Vice President of AT&T Capital Corporation and
Vice President for Engineering & Operations of Consolidated Power Company. He earned his
Bachelor of Science in Engineering degree from the US Coast Guard Academy. He also earned
a Naval Engineering degree and a Masters of Science in Mechanical Engineering from the
Massachusetts Institute of Technology.
MA. CHONA Y. TIU
Vice President and Chief Financial
Officer - Power Distribution Group
Ms. Tiu, Filipino, 52 years old, has been Vice President and Chief Financial Officer for the Power
Distribution Group since 2009. She joined the Aboitiz Group in 1977 as Research Assistant of the
Corporate Staff Department of ACO. She rose from the ranks and held various finance positions
in different companies within the Aboitiz Group, including ACGI and AboitizLand. She joined
the AP Group when she was appointed as Vice President – Administration and Chief Finance
Officer of AP affiliate, VECO, in 2007. She is now a Director, Vice President/Chief Financial
Officer/ Treasurer of BEZ; Vice President – Chief Financial Officer of CLP and DLP; and Director,
Vice President and Treasurer of CSB Land, Inc.
MANUEL R. LOZANO
Chief Financial Officer,
AP Generation
Mr. Lozano, Filipino, 39 years old, has been Chief Financial Officer for AP Generation since 2009.
He is concurrently Chief Financial Officer of APRI. He was the CFO and Director of Paxy’s Inc.,
a PSE-listed company focused on BPO industry and other IT-related courses within Asia Pacific
region before he joined the Aboitiz Group. He has a wide range of experience working in several
management institutions. He earned his Bachelor of Science in Business Administration from
the University of the Philippines - Diliman and his MBA from The Wharton School, University of
Pennsylvania.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
ALVIN S. ARCO
Vice President- Regulatory Affairs
Mr. Arco, Filipino, 49 years old, has been Vice President for Regulatory Affairs of AP since
April 2007. He was Accounting Manager of AP from 1998 to 1999, Assistant Vice President –
Finance from 2000 to 2004 and promoted to Vice President – Finance since 2005. He was Chief
Accountant of DLP in 1997, Accounting Manager from 1998 to 1999, Assistant Vice President –
Finance from 2000 to 2004 and Vice President – Finance since 2005. He served as Assistant Vice
President – Finance of CLP between 2002 and 2005 and Vice President – Finance since 2006.
He is also Assistant Vice President for Finance of AESI and Vice President - Regulatory Affairs of
DLP. He is a Certified Public Accountant. He holds a degree in Accountancy from the University
San Jose-Recoletos, Cebu City.
WILFREDO R. BACAREZA, JR.
Vice President
Mr. Bacareza, Filipino, 32 years old, has been Vice President of AP since 2008. He was formerly
the President and Chief Executive Officer of the Philippine National Oil Company-Development
Management Corporation (PNOC-DMC) from 2006 to 2007 and President and Chairman of the
Land Equity Assets Development Corporation (LEAD Corp.) and Baclands Properties Corporation
from 2003 to 2007. In 2005, he served as legal adviser of the Philippine National Construction
Corporation (PNCC) and Metropolitan Waterworks and Sewerage System (MWSS). He was also
a Government Corporate Attorney II in the Office of the Government Corporate Counsel from
2004 to 2005 and Legal Consultant of National Power Corporation from 2003 to 2004. He is a
graduate of the Ateneo Law School with a degree of Juris Doctor.
RAUL C. LUCERO
Vice President for Engineering
-Power Distribution Group
Mr. Lucero, Filipino, 41 years old, has been Vice President for Engineering - Power Distribution
Group of AP since 2009. He joined the Aboitiz Group in 1990 via DLP. He became Vice
President for Engineering of DLP in 2000. He was involved in the successful bid by AEV for the
management of Subic Bay Metropolitan Authority’s (SBMA) distribution system in the Subic
Bay Freeport Zone (SBFZ) in 2003. He was promoted to Senior Vice President of DLP in 2004.
In the same year, he was brought into VECO to help transform VECO’s engineering group. He
was officially transferred to VECO in 2008. He is a graduate of Bachelor of Science in Electrical
Engineering from the University of San Jose-Recoletos.
ANASTACIO D. CUBOS, JR.
Vice President, Special Projects
Mr. Cubos, Filipino, 58 years old, has been Vice President for Special Projects of AP since
1998. From 1989 to 1997, he was Assistant Vice President – Engineering of DLP. He was also
DLP Vice President – Engineering from 1998 to 2000 and DLP Senior Vice President – Special
Projects since 2001. He is a Consultant of Hedcor and is a member of the Technical Executive
Committee of CLP. He acts as a consultant to the Republic of Palau for its generation projects.
His experience in the power industry dates back to 1972 when he joined DLP as an engineer. He
holds a degree in electrical engineering from the Cebu Institute of Technology and a master’s
degree in Business Administration from the Ateneo de Davao University.
CRISTINA BRIONES- BELORIA
Assistant Vice PresidentController
Ms. Beloria, Filipino, 47 years old, has been Assistant Vice President and Controller of AP since
June 10, 2008. She was the Plant Controller of EAUC and CPPC from 2000 to 2008. She held
various consulting engagements in Tokyo, Japan from 1999 to 2000. She also served as Senior
Auditor in the E.C. Ortiz and Co., CPAs in Chicago, Illinois, USA. She holds a degree in Bachelor
of Science in Commerce, Major in Accounting from the University of San Jose-Recoletos.
She passed on first sitting the Philippine CPA Licensure Exam and Uniform CPA Licensure
Examination given in Chicago, Illinois, USA.
PAQUITA S. TIGUE- RAFOLS
Assistant Vice President for
Accounting of AP Generation Mindanao
Ms. Rafols, Filipino, 45 years old, has been Assistant Vice President for Accounting of AP
Generation - Mindanao since 2009. She joined the Aboitiz Group as Finance and Accounting
Manager of the Aboitiz shipbuilding company, FBMA Marine, Inc. She was Assistant Vice
President - Finance and Controller of FBMA prior to her appointment in AP. She was also
connected with Trans-Asia Shipping Lines, Inc. and Price Waterhouse/Joaquin Cunanan & Co.
before she joined the Aboitiz Group. She is a Certified Public Accountant. She holds degrees in
Bachelor of Science in Commerce, Major in Accounting from St. Theresa’s College (magna cum
laude) and Bachelor of Laws from the University of San Carlos.
ARAZELI L. MALAPAD
Assistant Vice President for
Accounting of AP Generation Luzon
Ms. Malapad, Filipino, 41 years old, has been Assistant Vice President for Accounting of AP
Generation - Luzon since 2009. She has 16 years of extensive experience performing finance
and accounting managerial functions in various private companies. She is a Certified Public
Accountant and a member of the Philippine Institute of Certified Public Accountants. She earned
her Bachelor of Science in Commerce, major in Accounting, from Immaculate Conception
College.
15
SEC FORM 20 - IS (INFORMATION STATEMENT)
16
A B O I T I Z PO W E R C O R P O R AT I O N
CARLOS COPERNICUS S. PAYOT
Assistant Vice President –
Controller for Distribution
Mr. Payot, Filipino, 45 years old, has been Assistant Vice President - Controller for AP Distribution
since 2009. He joined the Aboitiz Group in 1991 where he rose through the ranks in the Audit and
Accounting Departments of ACO. He transferred to VECO in 2004 as Assistant Vice President for
Accounting until his appointment to AP. He finished his bachelor’s degree in Commerce major in
Accounting, cum laude, from the University of San Carlos.
CLOVIS B. RACHO
Assistant Vice President for
Procurement and Logistics -Power
Distribution Group
Mr. Racho, Filipino, 45 years old, has been Assistant Vice President for Procurement and
Logistics - AP Distribution Group since 2009. He joined the Aboitiz Group in 1989 as an Assistant
Systems Analyst of DLP, where he subsequently held various positions until his promotion
as Department Manager of Technical Services in 2000. He was promoted as Assistant Vice
President for Procurement and Logistics of VECO in 2004. He is currently the Assistant Vice
President for Technical Services of DLP. He is a graduate of Bachelor of Science in Industrial
Engineering from Cebu Institute of Technology.
ALADINO D. BORJA JR.
Assistant Vice President for
Information Services-Power
Distribution Group
Mr. Borja, Filipino, 46 years old, has been Assistant Vice President for Information Services - AP
Distribution Group since 2009. He started his career with the Aboitiz Group when he was hired
as Computer Programmer of Davao Computer Services, Inc., an affiliate of DLP, in 1997. He
later joined DLP in 1990 as Junior Programmer where he rose from the ranks, becoming Head of
Information Service Group in 2000. He was later assigned to VECO as Assistant Vice President
for Information Service Group in 2004. He graduated from the Cebu Institute of Technology.
RONALD ENRICO V. ABAD
Assistant Vice President –
Project Development
Mr. Abad, Filipino, 39 years old, has been Assistant Vice President - Project Development of AP
since 2009. He was Manager of Team Energy Corporation prior to his appointment in AP. He was
also Manager of ABB handling sales, marketing and project management. He is a graduate of
Bachelor of Science in Electrical Engineering from the University of Sto. Tomas.
MA. KRISTINA C.V. RIVERA
Assistant Vice President – HRQ,
AP Generation
Ms. Rivera, Filipino, 39 years old, has been Assistant Vice President - HRQ, AP Generation since
2009. She was Assistant Vice President-HRQ of APRI prior to her appointment in AP. She has
13 years of experience in human resources management with diverse background in human
resources strategic planning, implementation and administration in a manufacturing setting
(energy and food). Before she joined the Aboitiz Group in 2003. She was with PNOC-Energy
Development Corporation. She holds Bachelor of Science and Masters degrees in Psychology
from the University of the Philippines.
ANA LIZA M. ALETA
Assistant Vice President –
IT Director, AP Generation
Ms. Aleta, Filipino, 41 years old, has been Assistant Vice President - IT Director, AP Generation
since 2009. She joined the Aboitiz Group in 1991 as a marketing assistant of ACO. She rose from
the ranks and held various positions relating to information technology in PFC, an affiliate of AP.
She was Assistant Vice President - Information Technology of APRI, before she joined AP. She
has 20 years of experience in information infrastructure & systems management with diverse
background in Corporate and IT strategic planning, domestic operations, implementation,
project management and technical marketing. She is a graduate of Bachelor of Science in
Electronics & Communication Engineering from the University of San Carlos and earned her
Masters in Management from the University of the Philippines.
CRISANTO R. LASET JR.
Assistant Vice President for Power
Economics & Distribution System
Planning
Mr. Laset, Filipino, 51 years old, has been Assistant Vice President for Power Economics and
Distribution System Planning of AP since 2009. He was Assistant Vice President - Technical
Assistant to the Chairman of Cagayan Electric Power & Light Company, Inc. before he joined AP.
He was also connected with ATOM Industrial Sales as Technical Assistant to the President. He is
a graduate of Bachelor of Science in Electrical Engineering from Mapua Institute of Technology
and has units in MS Electrical Engineering from the University of the Philippines.
JUAN MANUEL J. GATMAITAN
Assistant Vice President for Power
Marketing
Mr. Gatmaitan, Filipino, 38 years old, has been Assistant Vice President for Power Marketing of
AP since February 2010. He was the Assistant Vice President for Power Sales and Marketing
of APRI prior to his appointment in AP. He earned his degree in AB Management Economics
from the Ateneo de Manila University and had his Masters of Business Administration in General
Management from the Rotterdam School of Management, Erasmus University, Rotterdam, The
Netherlands.
SUSAN S. POLICARPIO
Assistant Vice President –
Government Relations
Ms. Policarpio, Filipino, 53 years old, has been AP’s Assistant Vice President for Government
Relations since 2009. Prior to her stint in AP, she was Assistant Vice President for Government
Relations of ATSC since 2003. She was also Executive Director of Domestic Shipping Association
from 2001 to 2003 and Executive Director Honorary Investments and Trade Representative of
the Department of Trade and Industry from 1998 to 2001. She is currently a Director of the
Port Users Confederation, Inc. and is a member of the Philippine Chamber of Commerce and
Industry. She is a graduate of Bachelor of Arts in Communication Arts from St. Paul College.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
M. CARMELA N. FRANCO
Assistant Vice President-Investor
Relations
Ms. Franco, Filipino, 38 years old, has been AP’s Assistant Vice President for Investor Relations
since March 26, 2008. She is also Assistant Vice President for Investor Relations of AEV. Ms.
Franco’s professional experience in investment analysis and corporate finance includes working
with various corporations in different capacities prior to her stint in AP. She was previously a
Trader, Associate and Credit Analyst of Capital One Equities Corporation & Multinational
Investment Bancorporation from 1992 to 1994 and was formerly an Investment Analyst of
ING Barings (Phils), Inc. & Kim Eng Securities (Phils), Inc. from 1994 to 1997. She also served
as Investment Officer of Standard Chartered Bank from 1998 to 2000 and went on to serve as
Project Analyst of Newgate Management, Inc. from 2000 to August 2002. Immediately prior to
her stint with AP, she was connected with San Miguel Corporation as Investor Relations Officer
of its Corporate Finance Group and later as Senior Project Analyst of its Corporate Planning
Group. She holds a degree in Bachelor of Science in Business Economics (cum laude) from the
University of the Philippines.
KATRINA M. PLATON
Assistant Vice President for Legal
and Regulatory Affairs
Ms. Platon, Filipino, 43 years old, has been Assistant Vice President for Legal and Regulatory
Affairs of AP since 2009. She was Senior Associate General Counsel of AP’s parent company,
AEV, before she moved to AP in May 2007. Prior to joining the Aboitiz Group, she served as legal
consultant in the Office of the Vice Mayor of the City of Muntinlupa. She was also Corporate Legal
Manager of the regional headquarters of e-Room Corporation and Associate Legal Officer of the
United Nations Compensation Commission in Geneva, Switzerland. She started her law practice
as an associate of the Ponce Enrile Reyes & Manalastas Law Offices where she specialized in
corporate law and litigation. She is a graduate of the Ateneo de Manila University-School of
Law. She took her LL.M in International Banking and Finance Law from the Boston University
- School of Law in Boston, MA. She finished her bachelor’s degree in Business Administration
from the University of the Philippines.
M. JASMINE S. OPORTO
Corporate Secretary/ Compliance
Officer
Ex-Officio Member - Board
Corporate Governance Committee
Ms. Oporto, Filipino, 50 years old, has been the Corporate Secretary of AP since 2007. She is
also First Vice President-Legal, Corporate Secretary and Compliance Officer of AEV; and the
Corporate Secretary of LHC, and CPPC. She is also General Counsel and First Vice President for
Legal and Corporate Services of ACO since 2004. She is also Vice President for Legal Affairs of
DLP and Trustee and Secretary of the ACO Retirement Fund. Prior to joining AP, she worked in
various capacities with the Hong Kong office of Kelley Drye & Warren, LLP, a New York-based
law firm and the Singapore-based consulting firm Albi Consulting Pte. Ltd. A member of both
the Philippine and New York bars, she obtained her Bachelor of Laws from the University of the
Philippines.
JOSEPH TRILLANA T.
GONZALES
Assistant Corporate
Secretary
Mr. Gonzales, Filipino, 43 years old, has been the Assistant Corporate Secretary of AP since
August 29, 2007. He is also Vice President for Legal and Corporate Services of AEV. He is also the
Corporate Secretary of APRI. He was previously Special Counsel of Sycip Salazar Hernandez &
Gatmaitan Law Offices until he joined the Aboitiz Group in May 2007 as Assistant Vice President
of the Corporate and Legal Services of ACO. He is a graduate of Bachelor of Arts in Economics
and Bachelor of Laws from the University of the Philippines. He also has a Master of Laws
degree from the University of Michigan.
17
Period in which the Directors and Executive Officers Should Serve
The directors and executive officers should serve for a period of one year.
Terms of Office of a Director
Pursuant to the amended By-laws of AP, the directors are elected at each annual stockholders’ meeting by stockholders
entitled to vote. Each director holds office until the next annual election and until his successor is duly elected unless he
resigns, dies or removed prior to such election.
The nine directors, who must be stockholders of AP, are elected annually by the stockholders during the annual
stockholders’ meeting, where at least a majority of the outstanding capital stock should be present in person or by proxy.
The directors shall serve for a term of one year and until the election and qualification of their successors.
Any vacancy in the Board of Directors other than by removal or expiration of term may be filled by a majority vote of the
remaining members thereof at a meeting called for that purpose, if they still constitute a quorum. The director so chosen
shall serve for the unexpired term of his predecessor in office.
SEC FORM 20 - IS (INFORMATION STATEMENT)
18
A B O I T I Z PO W E R C O R P O R AT I O N
(2) Significant Employees
AP considers the contribution of every employee important to the fulfillment of its goals.
(3) Family Relationships
Messrs. Jaime Jose Y. Aboitiz and Luis Miguel Aboitiz are first cousins. Messrs. Jon Ramon Aboitiz and Mikel A. Aboitiz are
brothers. Messrs. Enrique M. Aboitiz, Jr., Erramon I. Aboitiz and Iker M. Aboitiz are brothers as well. Messrs. Jon Ramon
Aboitiz and Mikel A. Aboitiz are second cousins of Messrs. Enrique M. Aboitiz, Jr., Erramon I. Aboitiz, Iker M. Aboitiz, Jaime
Jose Y. Aboitiz and Luis Miguel Aboitiz.
(4) Involvement in Certain Legal Proceedings as of February 28, 2010
People of the Philippines vs. Renato Francisco et. al.
(c/o Fuller O’ Brien Paint Company, Inc., Reliance St., Mandaluyong City)
Criminal Case No. 35-5784
MTC Branch 66, Makati City
July 19, 2007
On July 23, 2008, the Metropolitan Trial Court (MTC) of Makati issued an Order finding probable cause to hold the alleged
directors/stockholders of Fuller O’Brien Paint Company, Inc. (Fuller O’Brien), including Erramon I. Aboitiz, liable for
violation of PD No. 1752 or the Pag-Ibig Fund Law, as amended.
Upon motion by Mr. Aboitiz, the MTC reconsidered its order finding probable cause against him. The MTC also directed
the Office of the City Prosecutor of Makati to conduct a preliminary investigation against Mr. Aboitiz.
In the preliminary investigation, Mr. Aboitiz alleged that he should be exonerated from the charges filed against him as he
was no longer a director of Fuller O’Brien when the alleged violations of the Pag-Ibig Fund Law occurred.
The case is still pending resolution before the Office of the City Prosecutor of Makati.
To the knowledge and/or information of AP, other than as disclosed above, none of its nominees for election as directors,
its present members of the Board of Directors or its executive officers, is presently or during the last five years, involved in
any legal proceeding in any court or government agency in the Philippines or elsewhere, which would put to question their
ability and integrity to serve AP and its stockholders. To the knowledge and/or information of AP, the above-said persons
have not been convicted by final judgment of any offense punishable by the laws of the Republic of the Philippines or by
the laws of any other nation or country.
(5) Certain Relationships and Related Transactions
AP and its subsidiaries and associates (the Group), in their regular conduct of business, have entered into related party
transactions consisting of professional fees, advances and rental fees. These are made on an arm’s length basis and at the
current market prices as of the time of the transactions.
The Group has existing service contracts with its parent company AEV, as well as with AEV’s parent company, ACO, for
corporate center services, such as human resources, internal audit, legal, IT, treasury and corporate finance, among
others. These services are obtained from these companies to enable the Group to realize cost synergies. Both AEV and
ACO maintain a pool of highly qualified professionals with business expertise specific to the businesses of the AP Group.
Transactions are priced on a cost recovery basis. In addition, transaction costs are always benchmarked on third party
rates to ensure competitive pricing. Service Level Agreements are in place to ensure quality of service.
During the year, the Company has extended interest-bearing advances to certain AEV subsidiaries and associates namely,
Pilmico, PANC and Aboitiz One Inc., for working capital requirements. These are made to enhance AP’s yield on its cash
balances. Interest rates are determined by comparing prevailing market rates at the time of the transaction.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
19
AP and certain subsidiaries and associates are leasing office spaces from CPDC, a subsidiary of AEV. Rental rates are
comparable with prevailing market prices. These transactions are covered with lease contracts for a period of three years.
No other transaction, without proper disclosure, was undertaken by the Company in which any director or executive officer
(whether current or former), any nominee for election as director, any beneficial owner (direct or indirect) or any member
of his immediate family was involved or had a direct or indirect material interest.
AP employees are required to promptly disclose any business and family-related transactions with the Company to ensure
that potential conflicts of interest are brought to the attention of management.
(a)
(b) Parent Company
AP’s parent company is AEV. As of February 28, 2010, AEV owns 76.40% of AP, while ACO owns, as of
February 28, 2010, 43.88% of AEV.
Resignation or Refusal to Stand for Re-election by Members of the Board of Directors
No director has resigned or declined to stand for re-election to the Board of Directors since the date
of AP’s last annual meeting because of a disagreement with AP on matters relating to its operations,
policies and practices.
Item 6. Compensation of Directors and Executive Officers
(1) Summary of Compensation Table
Information as to the aggregate compensation paid or accrued to AP’s Chief Executive Officer and other highly
compensated executive officers, as well as other directors and officers during the last two completed fiscal years
and the ensuing fiscal year are as follows:
DIRECTORS & EXECUTIVE OFFICERS
PERIOD
SALARY
BONUS
OTHER
COMPENSATION
TOP FIVE HIGHLY COMPENSATED
EXECUTIVES:
1. ERRAMON I. ABOITIZ
- President & Chief Executive Officer
2. MIKEL A. ABOITIZ
- Director
3. JUAN ANTONIO E. BERNAD
- EVP - Strategy and Regulation
4. JAIME JOSE Y. ABOITIZ
- Director/ EVP & COO-Power
Distribution Group
5. RAYMOND E. CUNNINGHAM
- FVP – Business Development
All above-named officers as a group
All other directors and officers as a
group unnamed
Actual 2008
π11,510,000
π1,000,000
π6,350,000
Actual 2009
π18,670,000
π860,000
π6,470,000
Projected 2010
π19,970,000
π1,460,000
π7,050,000
Actual 2008
π7,720,000
π620,000
π5,580,000
Actual 2009
π 18,950,000
π1,400,000
π10,000,000
Projected 2010
π20,270,000
π1,490,000
π10,680,000
SEC FORM 20 - IS (INFORMATION STATEMENT)
A B O I T I Z PO W E R C O R P O R AT I O N
20
(2) Compensation of Directors
(i) Standard Arrangements
In 2009, all of AP’s directors received a monthly allowance of π80,000 except for the Chairman of the Board who
received a monthly allowance of π120,000. In addition, each director and the Chairman of the Board received a
per diem for every Board or Committee meeting attended as follows:
Type of Meeting
Directors
Board Meeting
Chairman of the Board
π50,000
π75,000
Type of Meeting
Committee Members
Committee Meeting
Chairman of the Committee
π30,000
π30,000
For 2010, it is proposed that all of AP’s directors shall receive a monthly allowance of π80,000, except for the
Chairman of the Board who shall receive a monthly allowance of π120,000. In addition, each director and the
Chairman of the Board shall receive a per diem for every Board or Committee meeting attended as follows:
Type of Meeting
Directors
Board Meeting
Type of Meeting
Chairman of the Board
π60,000
Committee Members
Committee Meeting
π90,000
Chairman of the Committee
π50,000
π60,000
The proposed monthly allowance and per diem of the AP directors for 2010 will be submitted for the approval of
the stockholders during the 2010 Annual Stockholders’ Meeting.
(ii) Other than payment of a director’s allowance and per diem as stated, there are no standard arrangements
pursuant to which directors of the Company are compensated, or are to be compensated, directly or indirectly,
for any services provided as a director.
(3) Other Arrangements
Employment Contracts and Termination of Employment and Change-in-Control Arrangements
There is no compensatory plan or arrangement between AP and any executive in case of resignation or any other
termination of employment or from a change in the management control of AP.
(4) To date, AP has not granted any stock option to its directors or officers.
Warrants and Options Outstanding
Item 7. Independent Public Accountant
The accounting firm of Sycip, Gorres, Velayo & Company (SGV) has been AP’s Independent Public Accountant for
the last 11 years. Mr. J. Carlitos G. Cruz served as audit partner of AP for 2009. He replaced Mr. Ladislao Z. Avila Jr.
who served as audit partner for five years from 2004 to 2008. AP shall comply with the requirements of Sec. 3(b)
(iv) of SRC Rule 68 on the rotation of external auditors or signing partners. Representatives of SGV will be present
during the annual meeting and will be given the opportunity to make a statement if they so desire. They are also
expected to respond to appropriate questions if needed.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
There was no event in the past 11 years where AP and SGV or the handling partner had any disagreement with
regard to any matter relating to accounting principles or practices, financial statement disclosure or auditing
scope or procedure.
In its regular meeting last March 3, 2010, the Audit Committee of AP resolved to submit for the approval of
the stockholders during the Annual Stockholders’ Meeting a proposal to delegate to the Board of Directors
the authority to appoint the Company’s external auditors for 2010. The proposal is intended to give the Audit
Committee sufficient time to evaluate different auditing firms that may act as AP’s external auditor for 2010.
21
Item 8. Compensation Plans
No action is to be taken during the stockholders’ meeting with respect to any plan pursuant to which cash or noncash compensation may be paid or distributed.
C. ISSUANCE AND EXCHANGE OF SECURITIES
Item 9. Authorization or Issuance of Securities Other than for Exchange
None.
Item 10. Modification or Exchange of Securities
None.
Item 11. Financial and Other Information
None.
Item 12.Mergers, Consolidations, Acquisitions and Similar Matters
None.
Item 13. Acquisition or Disposition of Property
None.
Item 14. Restatement of Accounts
None.
D. OTHER MATTERS
Item 15. Action with Respect to Reports
1. 2. Approval of the Minutes of the 2009 Annual Meeting of Stockholders dated May 18, 2009.
(summary of the Minutes attached herewith as Annex “B”)
Approval of the Annual Report of Management for the year ending December 31, 2009.
Item 16. Matters Not Required to be Submitted
There is no act of Management and the Board of Directors in the preceding year that needs the approval of the
stockholders.
SEC FORM 20 - IS (INFORMATION STATEMENT)
A B O I T I Z PO W E R C O R P O R AT I O N
22
Ratification of acts of Management and of the Board of Directors referred to in the Notice of the Annual Meeting
refers only to acts done in the ordinary course of business and operation of AP, which have been duly disclosed to
the SEC and the PSE in accordance with law. Ratification is being sought in the interest of transparency and as a
matter of customary practice or procedure undertaken at every annual meeting of AP stockholders.
A summary of board resolutions approved during the period February 2009 to February 2010 is provided as
follows:
Regular Board Meeting, February 11, 2009
1. 2.
3.
4.
5.
6. 7. 8. Cash Dividend Declaration
Creation of Corporate Committees: Mandates & Composition
Proposed amendments to the Corporation’s By-Laws and referral to the stockholders for approval
Proposed Directors’ compensation and per diem for 2009
Delegation to the Board the authority to amend/repeal the By-Laws or adopt new By-Laws of the
Corporation
Delegation of the authority of the Nomination Committee to accept, pre-screen and shortlist candidates
for the directors of the Board including independent directors
Setting of record date for the 2009 Annual Stockholders’ Meeting
Authority to avail itself of institutional products of the following banks:
a. The Hongkong and Shanghai Banking Corporation Limited
b. Standard Chartered Bank
c. Deutsche Bank
d. Citibank N.A.
e. Mizuho Corporate Bank, Ltd.
f. Australia and New Zealand Banking Group Limited
g. ING Bank N.V., Manila Branch
h. Maybank Philippines, Inc.
i. The Bank of Tokyo–Mitsubishi UFJ, Ltd. - Manila Branch
j. Calyon Bank
k. Banco De Oro (BDO)
9. 10. 11. Authority of the Corporation to act as surety for the loan/credit accommodations granted by BDO to
BEZ and MEZ
Authority to avail itself of institutional products of Metropolitan Bank and Trust Company (MBTC)
Authority of the Corporation to extend temporary advances to the following corporations:
a. SEZ
-
π200 million
b. CLP
-
π200 million
c. DLP
-
π800 million
d. PFC
-
π1.5 billion
e. PANC
-
π250 million
f. AESI
-
π100 million
g. BEZ
-
π100 million
h. MEZ
-
π50 million
i. AEV
-
π1.5 billion
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
12.
23
Ratification of the authority of Mr. Antonio de Leon to represent AP in the SFELAPCO Special
Stockholders’ Meeting last January 29, 2009.
Ratification of the authority of the Corporation to extend stockholders’ advances to TPI in the amount of
π 26.4 million and U.S. $5.28 million (for the Cebu Energy Development Corporation or CEDC capital call).
Ratification of the authority of the Corporation to extend stockholders’ advances to ARI in the amount of
π12.5 million (for the IPPA and Angat bids).
Authority to list in the PDex the bond issue of the Corporation.
Authority of the Corporation to enter into the necessary agreements in relation to the bond issue such
as, but not limited to, the Underwriting Agreement, Trust Agreement, Registry and Paying Agreement.
Registration of the Cleanergy Trademark
Authority of Erramon I. Aboitiz to sign in the Know Your Client Information Form in compliance with the
Anti-Money Laundering Act (AMLA)
Appointment of AP representative to the 2009 EAUC annual stockholders’ meeting
Ratification of the investment in Prism Energy, Inc.
Authority of the Corporation to use existing depository accounts with UBP for cash dividends payments
Authority of the Corporation to extend shareholders’ advances to ABOVANT (π34.32 million) / (U.S.$5.28
million)
13. 14. 15. 16. 17. 18. 19. 20. 21. 22. Special Board Meeting, March 31, 2009
1.
Approval of the 2008 Audited Financial Statements
Special Board Meeting, April 15, 2009
1. 2. 3. Approval of Board Committee Mandates and Composition
Appointment of representative/s of the Corporation in all stockholders’ meetings of VECO
Appointment of representative/s of the Corporation in all stockholders’ meetings of Hijos de F. Escaño, Inc.
Board Organizational Meeting, May 18, 2009
1. 2. Election of Officers
Appointment of Board Committee Members
Regular Board Meeting, May 18, 2009
1. 2.
3. 4. 5. 6. 7. 8. Participation of the Company in the negotiated bidding process of the PSALM for Power Barges 117 and 118.
Authority of AP to extend stockholders’ advances to ARI in the amount of π150 Million.
Authority of AP to avail itself of institutional products of UBP
Authority of CLP and DLP to avail themselves of the credit facilities of AP with Security Bank Corporation
and authority of AP to guarantee the obligations of the said subsidiaries and affiliates.
CEDC Project Financing – Philippine peso-denominated loan from a consortium of lenders of up to an
aggregate principal amount of π16 Billion.
Authority of AP to guarantee the credit line of (a) TPI for the Limay bidding and (b) Therma Power
Visayas, Inc. for the Calaca bidding.
Appointment of representatives of the Company in the stockholders’ meetings of its investee companies.
Authority of AP to extend stockholders’ advances to ARI in the amount of π8.931 billion
Special Board Meeting, June 25, 2009
1. Appointment of Mr. Raymond E. Cunningham as First Vice President for Business Development
SEC FORM 20 - IS (INFORMATION STATEMENT)
24
A B O I T I Z PO W E R C O R P O R AT I O N
Regular Board Meeting, July 16, 2009
1. 2. 3. 4. 5. 6.
7. 8. 9. 10. 11. 12.
13. Appointment of External Auditor
Delegation of Authority to the Audit Committee to approve and release periodic financial reports
Approval of Insider Trading Policy
Authority of certain subsidiaries and affiliates to avail themselves of the credit facilities with ING and
China Banking Corporation and authority of AP to guarantee the obligations of the said subsidiaries and
affiliates
Authority to avail itself of institutional products of Security Bank Corporation for interest rate swaps and
other transactions
Authority to avail itself of institutional products of MBTC for interest rate swaps and other transactions
Authority of AP to avail itself of credit facilities with BPI
Designation of Mr. Antonio R. Moraza as additional signatory
Authority of the Corporation to issue Corporate Fixed Rate Notes of up to π5 billion.
Ratification of Advances to ARI - π11.56 million (Angat & IPPA Projects)
Ratification of Advances to ABOVANT - π520.37 million (Capital Infusion to CEDC)
TPI - π24.1 million (Capital Infusion to RP Energy, Inc.)
AP Corporate Restructuring (Generation Companies)
Regular Board Meeting, September 16, 2009
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Approval of the amended Manual on Corporate Governance
Approval of the amended Internal Audit Charter
Appointment of Officers: Ms. Analiza M. Aleta as AVP-IT Director, AP - Generation; Ms. Ma. Kristina C. V.
Rivera as AVP-HR&Q, and Mr. Manuel R. Lozano as CFO, AP - Generation
Authority of the Corporation to extend stockholders’ advances to ARI for the prepayment of the APRI
obligation to PSALM
Authority of the Corporation to extend temporary advances to ACO in the amount of π300 million for the
year 2009
Authority of the Corporation to borrow from and guarantee the obligation of subsidiaries/affiliates to
Chinatrust
Authority of the Corporation to avail itself of institutional products of BDO Capital & Investment
Corporation
Authority of the Corporation to avail itself of institutional products of BDO Private Bank, Inc.
Authority of the Corporation to open an account with UBP - Greenbelt branch
Authority of the Corporation to apply for standby letters of credit (SBLCs) covering coal importation
or hedging facilities in connection with the Independent Power Producer Administrator (IPPA) bid of
Therma Luzon Inc. for the Sual and Pagbilao power stations with the following banks:
a. JP Morgan
b. Nomura - NIP (Nomura International Plc)
c. Australia and New Zealand Banking Group Limited
d. Deutsche Bank AG London
e. Standard Chartered Bank London
f. ING (ING Bank N.V. - counter party)
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
25
11. Ratification of the authority of the Corporation to extend temporary advances to the following Corporations:
12. 13. a. MEZ
-
π20 million
b. BEZ
-
π20 million
c. Hedcor Sibulan
-
π200 million
d. ARI
-
π363.59 million
e. TPI
-
π247.68 million
f. TPI
-
π147.84 million
g. Mazzaraty Energy Corporation
-
π11, 035.00
h. ARI
(re Hedcor Sibulan, Inc.)
-
π157.6 million
i. Adventenergy, Inc.
-
π625,000.00
Approval of trademark applications for AP and Cleanergy
Authority of the Corporation to participate in the bidding for the proposed sale and modernization of
Olongapo City’s Electric Distribution Utility System
Regular Board Meeting, November 12, 2009
1. 2. Authority of the Corporation to guarantee Therma Luzon credit facilities with Credit Suisse.
Authority of the Corporation to guarantee Therma Mobile, Inc. (Therma Mobile) and Therma Marine
credit facilities with the following banks:
a. The Hongkong and Shanghai Banking Corporation Limited
b. Standard Chartered Bank
c. Calyon Bank
d. Australia and New Zealand Banking Group Limited
e. Chinatrust (Philippines) Commercial Bank Corporation
f. Deutsche Bank
g. ING Bank N.V., Manila Branch
h. Mizuho Bank
i. The Bank of Tokyo–Mitsubishi UFJ, Ltd.
j. BPI
k. MBTC
l. China Banking Corporation
3. Authority of the Corporation to guarantee SNAP-Benguet, credit facilities up to 50% of the obligations
with the following banks:
a. Calyon Bank
b. Deutsche Bank
c. Security Bank Corporation
d. BDO
e. BPI
SEC FORM 20 - IS (INFORMATION STATEMENT)
26
A B O I T I Z PO W E R C O R P O R AT I O N
4. Authority of the Corporation to guarantee Aboitiz share to SNAP-Pangasinan, Inc., SNAP-Cordillera, Inc.
and SNAP-Nueva Ecija,Inc. for credit facilities with the following banks:
a. The Hongkong and Shanghai Banking Corporation Limited
b. Standard Chartered Bank
c. Calyon Bank
d. Australia and New Zealand Banking Group Limited
e. Chinatrust (Philippines) Commercial Bank Corporation
f. Deutsche Bank
g. ING Bank N.V., Manila Branch
h. Mizuho Corporate Bank, Ltd.
i. The Bank of Tokyo–Mitsubishi UFJ, Ltd.
j. BPI
k. MBTC
l. China Banking Corporation
5.
6. 7. 8. 9. 10. Ratification of the authority of the Corporation to extend stockholders’ advances to ARI in the amount of
π47.7 miliion
Ratification of AP’s advances in the amount of U.S.$969,980 to TPI for the Pagbilao IPPA
Approval of U.S.$73.12 million AP advances to ARI to be used as equity infusions in SNAP-Magat and
SNAP-Benguet
Ratification of the authority of the Corporation to extend shareholders advances to ABOVANT in the
amount of π121.44 million
Ratification of the authority of the Corporation to extend shareholders advances to ARI in the amount of
π4. 875 million (SNAP-Benguet Equity Call)
Ratification of the authority of the Corporation to extend shareholders advances to ARI in the amount of
U.S.$100K (SNAP-Pangasinan, Inc. deposit for future subscriptions)
Special Board Meeting, December 14, 2009
1.
Authority of the Company to bid for and participate in the Hydro IPPA bidding
Regular Board Meeting, January 13, 2010
1.
2.
3.
4.
5.
Authority of the Corporation to act as sponsor in APRI Project Financing
Authority of the Corporation to subscribe 5,000 common shares of Olongapo Energy Corporation
Approval of dollar advances to ARI, as of January 6, 2010 peso exchange rate, relating to its equity
infusions in MORE and SNAP-Benguet to be taken up as deposits for future subscription.
Authorized signatory for the transfer of Globe DSL Pro (Direct Internet Access System specifically used
for Trading) account from APRI to AP
Authority of the Corporation to extend shareholders advances to TPI in the amount of π272,545,000.00
Special Board Meeting, February 08, 2010
1. 2. 3. Adjustments on Pagbilao Accounting Treatment
Authority of the Company to enter into a parent company guaranty agreement with Pilipinas Shell
Petroleum Corporation
Authority of the Company to enter into a parent company guaranty agreement with Petron Corporation
Item 17. Amendment of Charter, By-Laws or Other Documents.
None.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
27
Item 18. Other Proposed Action
None.
Item 19. Voting Procedures
(a) Vote Required for Election
Article 1 Section 4 of the amended By-Laws of AP states that a quorum for any meeting of stockholders
shall consist of the majority of the outstanding capital stock of AP, and that a majority of such quorum
shall decide any question in the meeting, except those matters in which the Corporation Code requires a
greater proportion of affirmative votes.
Regarding the election of members to the Board of Directors, nominees who receive the highest number
of votes shall be declared elected pursuant to Section 24 of the Corporation Code of the Philippines.
(b) The Method by which the Votes will be Counted
In the election of directors, the stockholder may choose to do any of the following:
In the election of directors, the top nine nominees with the most number of votes shall be declared
elected. If the number of nominees does not exceed the number of directors to be elected, all the shares
present or represented at the meeting will be cast in favor of the nominees. If the number of nominees
exceeds the number of directors to be elected, voting will be done by ballots.
(a) Vote such number of shares for as many person(s) as there are directors to be elected;
(b) Cumulate such shares and give one candidate as many votes as the number of directors to be elected
multiplied by the number of his shares;
(c) Distribute his shares on the same principle as option (b) among as many candidates as he shall see
fit, provided, that the total number of votes cast by him shall not exceed the number of shares
owned by him multiplied by the whole number of directors to be elected.
The method of counting the votes shall be in accordance with the general provisions of the Corporation
Code of the Philippines. The counting of votes shall be done by representatives of the Office of the
Corporate Secretary, who shall serve as members of the Election Committee.
Other than the nominees’ election as directors and the proposed 2010 directors’ compensation and per
diem, no director, executive officer, nominee or associate of the nominees has any substantial interest,
direct or indirect by security holdings or otherwise, in any way of the matters to be taken up during the
meeting. AP has not received any information that an officer, director or stockholder intends to oppose
any action to be taken at the Annual Stockholders’ Meeting.
SEC FORM 20 - IS (INFORMATION STATEMENT)
28
A B O I T I Z PO W E R C O R P O R AT I O N
AP’s Annual Report in SEC Form 17-A will be given free of charge to AP stockholders upon written
request. Please write to:
Investor Relations Office
Aboitiz Power Corporation
Aboitiz Corporate Center
Gov. Manuel A. Cuenco Avenue,
Kasambagan, Cebu City
Attention:
Ms. M. Carmela N. Franco
This Information Statement and the Annual Report in SEC Form 17-A will also be posted at AP’s
website: www.aboitizpower.com.
After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set
forth in this report is true, complete and correct. This report is signed in the City of Cebu on April 8, 2010.
ABOITIZ POWER CORPORATION
By:
SEC FORM 20 - IS (INFORMATION STATEMENT)
M. JASMINE S. OPORTO
Corporate Secretary
ANNUAL REPORT 200 9
29
PART I – BUSINESS AND GENERAL INFORMATION
Item 1. Business
(1) Business Development
Incorporated in 1998, AP is a publicly listed holding company that, through its subsidiaries and affiliates, is a leader in
the Philippine power industry and has interests in a number of privately owned generation companies and distribution
utilities. AEV owns 76% of the outstanding capital stock of AP as of February 28, 2010.
The Aboitiz Group’s involvement in the power industry began when members of the Aboitiz family acquired a 20%
ownership interest in VECO in the early 1900s. The Aboitiz Group’s direct and active involvement in the power distribution
industry can be traced to the 1930s, when ACO acquired the Ormoc Electric Light Company and its accompanying ice
plant, the Jolo Power Company and CLP. In July 1946, the Aboitiz Group strengthened its position in power distribution
in the Southern Philippines when it acquired DLP, which is now the third largest privately owned electric utility in the
Philippines in terms of customers and annual gigawatt-hour (GWh) sales.
In December 1978, ACO divested its ownership interests in the Ormoc Electric Light Company and the Jolo Power
Company to allow these companies to be converted into electric cooperatives, which was the policy being promoted by
the government of then president Ferdinand Marcos. ACO sold these two companies and scaled down its participation in
the power distribution business in order to focus on the more lucrative franchises held by CLP, DLP and VECO.
In response to the Philippines’ pressing need for adequate power supply, the Aboitiz Group became involved in power
generation, becoming a pioneer and industry leader in hydroelectric energy. In 1978, the Aboitiz Group incorporated Hydro
Electric Development Corporation (HEDC). HEDC carried out feasibility studies (including hydrological and geological
studies) and hydroelectric power installation and maintenance and also developed hydroelectric projects in and around
Davao City. The Aboitiz Group also incorporated Northern Mini Hydro Corporation (now Cleanergy, Inc.) on June 26, 1990,
which focused on the development of mini-hydroelectric projects in Benguet province in northern Luzon. By 1990, HEDC
and Cleanergy had commissioned and were operating 14 plants with a combined installed capacity of 36 megawatts (MW).
In 1996, the Aboitiz Group led the consortium that entered into a BOT agreement with the NPC to develop and operate the
70-MW Bakun AC hydroelectric plant in Ilocos Sur province.
AP was incorporated on February 13, 1998 as a holding company for the Aboitiz Group’s investments in power generation
and distribution. However, in order to prepare for growth in the power generation industry, AP was repositioned in the
third quarter of 2003 as a holding company that owned power generation assets only. The divestment by AP of its power
distribution assets was achieved through a property dividend declaration in the form of AP’s ownership interests in the
different power distribution companies. The property dividend declaration effectively transferred direct control over the
Aboitiz Group’s power distribution business to AEV. Further, in 2005, AP consolidated its investments in mini-hydroelectric
plants in a single company by transferring all of HEDC’s and Cleanergy’s mini-hydroelectric assets into Hedcor, Inc.
In December 2006, the Company and its partner, SN Power Invest AS (SN Power), through SNAP-Magat, Inc., submitted
the highest bid for the 360-MW Magat hydroelectric plant auctioned by PSALM. The price offered was U.S.$530 million.
PSALM turned over possession and control of the Magat Plant to SNAP-Magat on April 26, 2007.
In a share swap agreement with AEV last January 20, 2007, AP issued a total of 2,889,320,292 of its common shares in
exchange for AEV’s ownership interests in the following distribution companies, as follows:
•
•
•
An effective 55% ownership interest in VECO, which is the second largest privately owned distribution utility in
the Philippines in terms of customers and annual GWh sales and is the largest distribution utility in the Visayas
region;
A 100% equity interest in each of DLP and CLP. DLP is the third largest privately owned distribution utility in the
Philippines in terms of customers and annual GWh sales;
An effective 64% ownership interest in SEZ, which manages the Power Distribution System (PDS) of the SBMA;
and
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•
An effective 44% ownership interest in SFELAPCO, which holds the franchise to distribute electricity in the city of
San Fernando, Pampanga, in Central Luzon, and its surrounding areas.
In February 2007, the Company entered into a memorandum of agreement with Taiwan Cogeneration International
Corporation to collaborate in the building and operation of an independent coal-fired power plant in the SBFZ. In May
2007, RP Energy was incorporated as the project company that will undertake the Subic Coal Project.
On April 20, 2007, the Company acquired 50% of the outstanding capital stock of EAUC from El Paso Philippines Energy
Company, Inc. (El Paso). EAUC operates a Bunker C-fired plant with a capacity of 50 MW within the MEPZ I in Mactan
Island, Cebu. On the same date, the Company also acquired from EAUC 60% of the outstanding common shares of CPPC,
which operates a 70-MW Bunker C-fired plant in Cebu City.
On June 8, 2007, as part of the reorganization of the power-related assets of the Aboitiz Group, the Company agreed
to acquire from its affiliate, AboitizLand, a 100% interest in MEZ, which owns and operates the PDS in the MEPZ II in
Mactan Island in Cebu, and a 60% interest in BEZ, which owns and operates the PDS in the West Cebu Industrial ParkSpecial Economic Zone (WCIP-SEZ) in Balamban town in the western part of Cebu. The Company also consolidated its
ownership interest in SEZ by acquiring the combined 25% interest in SEZ held by AEV, SFELAPCO, Okeelanta Corporation
(Okeelanta) and Pampanga Sugar Development Corporation (PASUDECO). These acquisitions were made through a share
swap agreement which involved the issuance of a total of 170,940,307 common shares of the Company issued at the initial
public offering price of π5.80 per share in exchange for the foregoing equity interests in MEZ, BEZ and SEZ.
In August 2007, the Company, together with Vivant Energy Corporation of the Garcia Group, signed a memorandum of
agreement with Global Business Power Corporation (Global Power) of the Metrobank Group for the construction and
operation of a 3x82-MW coal-fired power plant in Toledo City, Cebu. The Company, together with the Garcia Group,
formed ABOVANT. The Company owns 60% of ABOVANT. The project, which is being undertaken by CEDC, a joint venture
company among Global Power, Formosa Heavy Industries and ABOVANT, broke ground last January 2008 and is expected
to be completed by the second half of 2010. The Company has an effective participation of 26% in the project.
On November 15, 2007, AP closed the sale and purchase of a 34% equity ownership in STEAG Power, owner and operator
of a 232-MW coal-fired power plant located in the PHIVIDEC Industrial Estate in Misamis Oriental, Northern Mindanao.
The Company won the competitive bid to buy the 34% equity from Evonik Steag GmbH (formerly known as Steag GmbH)
in August 2007. The total purchase price for the 34% equity in STEAG Power is U.S.$102 million, inclusive of interests.
On November 28, 2007, SNAP-Benguet, a consortium between AP and SN Power, submitted the highest bid for the
Ambuklao-Binga Hydroelectric Power Complex consisting of the 75-MW Ambuklao Hydroelectric Power Plant located at
Bokod, Benguet and the 100-MW Binga Hydroelectric Power Plant located in Itogon, Benguet. The price offered amounted
to U.S.$325 million.
On December 17, 2007, AP entered into an agreement to buy the 20% equity of Team Philippines in SEZ for π92 million.
Together with the 35% equity in SEZ of AP’s subsidiary DLP, this acquisition brings AP’s total equity in SEZ to 100%.
On March 7, 2008, AP bought the 40% equity ownership of Tsuneishi Holdings (Cebu), Inc. (Tsuneishi) in BEZ for
approximately π178 million. The acquisition brought AP’s total equity in BEZ to 100%.
Last May 26, 2009, APRI, a wholly owned subsidiary of AP, took over the ownership and operations of the 289-MW Tiwi
geothermal power plant facility in Albay and the 458-MW Makiling-Banahaw geothermal power plant facility in Laguna
(collectively referred to as the “Tiwi-MakBan geothermal facilities”) after winning the competitive bid conducted by
PSALM on July 30, 2008. The Tiwi-MakBan geothermal facilities recorded peak generation of 467 MW in 2009.
Therma Luzon, a wholly owned subsidiary of AP, won the competitive bid for the appointment of the IPPA of the 700MW Contracted Capacity of the Pagbilao Coal Fired Power Plant (the Pagbilao IPPA) last August 28, 2009. It assumed
dispatch control of the Pagbilao power plant last October 1, 2009, becoming the first IPP Administrator in the country. As
IPPA, Therma Luzon is responsible for procuring the fuel requirements of, and for selling the electricity generated by, the
Pagbilao power plant. The Pagbilao power plant is located in Pagbilao, Quezon.
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AP, through its wholly owned subsidiary, Therma Marine, assumed ownership over Power Barge (PB) 118 and PB 117 last
February 6, 2010 and March 1, 2010, respectively, after acquiring the two power barges from PSALM for U.S.$30 million
through a negotiated bid concluded last July 31, 2009. Each of the barge-mounted, diesel-powered generation plants has
a generating capacity of 100 MW. PB 117 and PB 118 are moored in Nasipit, Agusan del Norte and Barangay San Roque,
Maco, Compostela Valley, respectively.
Ownership in AP was opened to the public through an initial public offering of its common shares in July 2007. Its common
shares were officially listed in the Philippine Stock Exchange (PSE) on July 16, 2007.
The Company is in the process of implementing a corporate reorganization that will put all its renewable energy assets
under ARI (formerly Philippine Hydropower Corporation), and all its non-renewable generation assets under TPI.
Neither AP nor any of its subsidiaries has ever been the subject of any bankruptcy, receivership or similar proceedings.
(2) Business of Issuer
With investments in power generation and distribution companies throughout the Philippines, AP is considered one of
the leading Filipino-owned companies in the power industry. (Please see Annex “C” hereto for AP’s Corporate Structure).
(i) Principal Products
GENERATION OF ELECTRICITY
Since its incorporation in 1998, AP has accumulated interests in both renewable and non-renewable generation plants
(the Generation Companies). As of December 31, 2009, approximately 82% of AP’s net income is derived from its power
generation business. AP conducts its power generation activities through the following subsidiaries and affiliates:
The table below summarizes the Generation Companies’ operating results as of December 31, 2009.
Generation Companies
Energy Sold
Generation
2009
Energy Sold
Generation
2008
Energy Sold
Generation
2007
Revenue
2009
Revenue
2008
(in GWh)
APRI (1)
Hedcor Inc.
LHC
SNAP-Magat (2)
Revenue
2007
(in Million Pesos)
1,886
N/A
N/A
6,843
N/A
N/A
171
170
162
703
618
743
324
301
279
1,223
1,088
1,836
1,150
1,036
717
3,971
4,604
3,632
SNAP-Benguet (3)
413
208
N/A
1,063
885
N/A
Therma Luzon (4)
767
N/A
N/A
2,801
N/A
N/A
WMPC
220
107
157
1,207
1,284
1,238
SPPC
226
164
175
688
691
658
CPPC (5)
318
296
241
2,119
2,367
1,755
EAUC (6)
202
202
264
1,382
1,579
1,569
1,384
1,330
1,405
6,206
6,265
4,774
7
6
3
Revenue neutral
Revenue neutral
Revenue neutral
STEAG Power (7)
DLP (8)
CLP (8)
1
0
0
Revenue neutral
Revenue neutral
Revenue neutral
TOTAL
7,069
3,820
3,403
28,206
19,381
16, 205
(1) (2)
(3) (4) (5) (6) (7)
(8) The Tiwi-MakBan geothermal plants was turned over to APRI on May 26, 2009.
The Magat plant was turned over to SNAP-Magat by PSALM on April 26, 2007.
The Ambuklao-Binga plants were turned over to SNAP-Benguet by PSALM on July 10, 2008.
TLI assumed dispatch control of the Pagbilao plant last October 1, 2009.
AP acquired 60.0% ownership interest last April 20, 2007.
AP acquired 50.0% ownership interest last April 20, 2007.
AP acquired 34.0% ownership interest last November 15, 2007.
Plants are operated as stand-by plants and are revenue neutral, with costs for operating each plant recovered by DLP and CLP, as the case
may be, as approved by the ERC.
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Aboitiz Renewables, Inc. (ARI)
AP, one of the leading providers of renewable energy in the country, holds all its investments in renewable energy through
its wholly owned subsidiary, ARI. ARI owns equity interests in the following generation companies:
•
•
•
•
•
•
•
100% equity interest in APRI which owns the Tiwi-MakBan geothermal facilities.
100% equity interest in Hedcor, which operates 15 mini-hydroelectric plants (plants with less than 10 MW in
installed capacity) in Benguet province in Northern Luzon and in Davao City in southeastern Mindanao with a
total installed capacity of 38.2 MW.
50% equity interest in LHC which operates the 70-MW Bakun AC hydroelectric plant in Ilocos Sur province in
northern Luzon.
50% effective interest in SNAP-Magat, which operates the 360-MW Magat hydroelectric plant in Isabela in
northern Luzon.
50% effective interest in SNAP-Benguet, which operates the 175-MW Ambuklao-Binga Hydroelectric Power Plant
Complex in northern Luzon.
100% equity interest in Hedcor Sibulan, which is currently constructing the 42.5-MW Sibulan hydropower project
in Santa Cruz, Davao del Sur.
100% equity interest in Hedcor Tamugan, which proposes to build a 10- to 15-MW Tamugan hydropower project
along the Tamugan River in Davao City.
Since beginning operations in 1998, the Company has been committed to developing expertise in renewable energy
technologies. The Company’s management believes that due to growing concerns on the environmental impact of power
generation using traditional fossil fuel energy sources, greater emphasis will be placed on providing adequate, reliable, and
reasonably priced energy through innovative and renewable energy technologies such as hydroelectric and geothermal
technologies. As such, a significant component of the Company’s future projects are expected to focus on those projects
that management believes will allow the Company to leverage its experience in renewable energy and help maintain the
Company’s position as a leader in the Philippine renewable energy industry.
AP Renewables, Inc. (APRI)
APRI, a wholly owned subsidiary of AP, owns and operates the 289 MW Tiwi Geothermal Power Plant located at Tiwi,
Albay and the 458.53 MW Makiling-Banahaw (MakBan) Geothermal Power Plant located at Laguna and Batangas
Provinces (collectively the “Tiwi-MakBan geothermal complex”). While the aggregate installed capacity of TiwiMakBan is 767 MW, its maximum capacity is only 467 MW due to limitations in steam supply and plant condition. APRI
assumed ownership and operation of the Tiwi-MakBan geothermal complex from PSALM on May 26, 2009.
Among the rights and obligations assigned to APRI under the Asset Purchase Agreement (APA) with PSALM are supply
contracts with various expiring terms and covering an estimate of 480 MW capacity at combined peak. Included among
the supply contracts assigned, while not a transition supply contract (“TSCs”), is the obligation to supply 9.63% of the
monthly load of Meralco. Rates for most of the TSCs were pegged to NPC Time-of-Use Rates at an annual simple
average of π4.16/kwh.
The APA likewise requires APRI to rehabilitate Units 5 and 6 of the MakBan Geothermal Power Plant at its own cost
and expense, which must be accomplished and completed within four years from Closing Date. APRI is currently in the
midst of the rehabilitation and refurbishment process. Based on initial estimates, the rehabilitation and refurbishment
costs could reach U.S.$140-150 million over a period of 2-3 years. This rehabilitation and refurbishment plan is
expected to improve the geothermal plants’ operating capacities.
APRI is a Board of Investment (“BOI”) registered enterprise as New Operator of the Tiwi-MakBan geothermal complex, on
a pioneer status with 6 years income tax holiday starting June 19,2009.
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SN Aboitiz Power-Magat Inc. (SNAP-Magat)
SNAP-Magat is ARI’s joint venture company with SN Power, a leading Norwegian hydropower company with projects and
operations in Asia, Africa and Latin America. On December 14, 2006, SNAP-Magat participated in and won the bid for the
360-MW Magat hydroelectric power plant (the Magat Plant) conducted by PSALM for a bid price of U.S.$530 million.
The Magat Plant, which is located at the border of Isabela and Ifugao provinces in northern Luzon, was completed in
1983. As a hydroelectric facility that can be started up in a short period of time, the Magat Plant is ideally suited to act as a
peaking plant with opportunities to capture the significant upside potential that can arise during periods of high demand.
The Magat Plant has the ability to store water equivalent to one month of generating capacity, allowing for the generation
and sale of electricity at the peak hours of the day, which command premium prices. Magat’s source of upside water as a
source of fuel and the ability to store it, is also its source of limited downside. This hydroelectric asset has minimal marginal
costs, granting it competitive advantage in terms of economic dispatch order versus other fuel-fired power plants that
have significant marginal cash costs. SNAP-Magat sells most of the electricity generated by the Magat Plant through the
Wholesale Electricity Spot Market (WESM). It is also a provider of much needed ancillary services to the Luzon grid.
SNAP-Magat obtained Board of Investments (BOI) approval of its application as new operator of the Magat plant with a
pioneer status, which entitles it to an income tax holiday.
A portion of the land underlying the Magat plant is in the name of the National Irrigation Administration (NIA). This portion
is being leased by SNAP-Magat from NIA under terms and conditions provided under the O&M Agreement. On March 23,
2007, President Arroyo issued a presidential proclamation reserving and granting NPC ownership over certain parcels of
public land in Isabela province and instructing the Department of Environment and Natural Resources to issue a special
patent over the untitled public land on which a portion of the Magat plant is situated. This portion of land, which was titled
in 2007, was eventually bought by SNAP-Magat.
In September 2007, SNAP-Magat obtained a U.S.$380 million loan from a consortium of international and domestic
financial institutions which include the International Finance Corporation, Nordic Investment Bank, BDO–EPCI, Inc., BPI,
China Banking Corporation, Development Bank of the Philippines, The Hong Kong and Shanghai Banking Corporation
Limited, Philippine National Bank and Security Bank Corporation. The U.S. $380-million loan consists of a dollar tranche
of up to U.S.$152 million, and a peso tranche of up to π10.1 billion. The financing agreement was hailed as the region’s
first-ever project finance debt granted to a merchant power plant. It won Project Finance International’s Power Deal of the
Year and Asset’s Best Project Finance Award as well as Best Privatization Award.
The loan was used to partially finance the deferred balance of the purchase price of the Magat Plant under the Asset
Purchase Agreement with PSALM. Part of the loan proceeds was also used to refinance SNAP-Magat’s U.S. $159-million
loan from AEV and its advances from its shareholders used to acquire the Magat Plant.
After 25 years of operations without any major rehabilitation works done on the generating units and considering the age
and results of technical assessments, SNAP-Magat has embarked a four-year refurbishment program for all major plant
equipment starting 2009 to 2013. The main objective is to put back the lost efficiency and address operational difficulties
due to obsolescence. The project will preserve the remaining life and the continuance of its availability for the next 25
years.
SN Aboitiz-Benguet, Inc. (SNAP-Benguet)
On November 28, 2007, SNAP-Benguet, also a consortium between ARI and SN Power, submitted the highest bid to
PSALM for the Ambuklao-Binga Hydroelectric Power Complex, which consists of the 75-MW Ambuklao Hydroelectric
Power Plant (Ambuklao Plant) located in Bokod, Benguet and the 100-MW Binga Hydroelectric Power Plant (Binga Plant)
located in Itogon, Benguet. The price offered amounted to U.S.$325 million.
The Ambuklao-Binga Hydroelectric Power Complex was turned over to SNAP-Benguet on July 10, 2008. In August 2008,
SNAP-Benguet signed a U.S. $375-million loan agreement with a consortium of local and foreign banks where U.S. $160
million was taken up as U.S. dollar financing and U.S. $215 million as peso financing. Proceeds from the facility were
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A B O I T I Z PO W E R C O R P O R AT I O N
used to partially finance the purchase price, rehabilitate the power plant complex and refinance SNAP-Benguet’s existing
advances from shareholders with respect to the acquisition of the assets.
SNAP-Benguet obtained BOI approval of its application as new operator of the Ambuklao and Binga plants with a pioneer
status which entitles it to an income tax holiday commencing from date of registration.
Ambuklao Plant has been under preservation since 1999 due to damage from the 1990 earthquake. Rehabilitation of the
Ambuklao Plant commenced in late 2008 and is expected to be completed by end of 2010. The refurbishment of the Binga
Plant is also scheduled to commence in 2010. The projects are expected to increase the capacity of the Ambuklao Plant to
105 MW and of the Binga Plant to 120 MW.
Hedcor, Inc. (Hedcor)
Hedcor was originally incorporated on October 10, 1986 by ACO as the Baguio-Benguet Power Development Corporation.
ARI acquired its 100% ownership interest in Hedcor in 1998. In 2005, ARI consolidated all of its mini-hydroelectric
generation assets, including those developed by HEDC and NORMIN, in Hedcor. Hedcor currently owns, operates and/
or manages 15 mini–hydro plants of the run–of–river type in northern Luzon and Davao City in southeastern Mindanao
with a combined installed capacity of 38.2 MW. All the electricity generated from Hedcor’s mini-hydro plants are taken
up by NPC, APRI, DLP, Philex Mining Corporation (Philex) and Benguet Electric Cooperative (BENECO) pursuant to power
purchase agreements with the said offtakers.
During the full years 2008 and 2009, Hedcor’s mini-hydroelectric plants generated a total of 170 GWh and 171 GWh of
electricity, respectively.
Northern Luzon’s climate is classified as having two pronounced season--dry from November to April and wet for the rest
of the year. Due to this classification, generation levels of Hedcor’s plants, particularly those located in northern Luzon, are
typically lower during the first five months of each year.
Hedcor used to have a 50% equity interest in LHC until it transferred its equity stake to its parent company, ARI, through a
property dividend declaration in September 2007.
Luzon Hydro Corporation (LHC)
LHC is ARI’s joint venture company with Pacific Hydro Pty Ltd. of Australia, a privately owned Australian company that
specializes in developing and operating power projects that use renewable energy sources, principally water and wind
power.
LHC operates and manages the 70-MW Bakun AC hydro project, which is located within the 13,213-hectare watershed
area of the Bakun River in Ilocos Sur province in northern Luzon. The project is a run–of–river power plant which taps
the flow of the neighboring Bakun River to provide the plant with its generating power. The U.S. $150-million project was
constructed and is being operated under the government’s build–operate–transfer scheme. Energy produced by the plant
is delivered and taken up by NPC pursuant to a power purchase agreement (the Bakun PPA) and dispersed to NPC’s Luzon
Power Grid. Under the terms of the Bakun PPA, all of the electricity generated by the Bakun plant will be purchased by
NPC for a period of 25 years from February 2001. The Bakun PPA also requires LHC to transfer the Bakun plant to NPC in
February 2026, free from liens and without the payment of any compensation by NPC.
PSALM recently conducted a competitive bid for the appointment of the IPPA of the 70-MW contracted capacity of the
Bakun plant.
Hedcor Sibulan, Inc. (Hedcor Sibulan)
Hedcor Sibulan, a wholly owned subsidiary of ARI, is the project company of the Sibulan hydropower project. The project,
which started construction on June 25, 2007, entails the construction of two run-of-river hydropower generating facilities
tapping the Sibulan and Baroring rivers in Sibulan, Santa Cruz, Davao del Sur. The total project cost is approximately π5.1
billion, which includes capital expenditures needed to construct access roads and transmission facilities. The Sibulan
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project’s first unit, a 26 MW run-of-river plant, started commercial operations in March 2010. The second unit, or 16.5 MW,
is expected to commence commercial operations within second quarter of 2010.
Hedcor Sibulan is part of a consortium that won the competitive bidding for the 12-year power supply agreement to
supply 400,000,000 kWh per annum of new capacity to DLP. The bid price for the contracted energy was π4.0856/kWh
delivered, subject to adjustment based on changes to the Philippine consumer price index. All the energy generated by the
Hedcor Sibulan power plants will be supplied to DLP pursuant to the power supply agreement signed on March 7, 2007.
The Sibulan Project is registered as a clean development mechanism project with the United Nations Framework
Convention on Climate Change under the Kyoto Protocol. This allows Hedcor Sibulan to sell the Sibulan project’s carbon
credits.
Hedcor Tamugan, Inc. (Hedcor Tamugan)
Hedcor Tamugan, a wholly owned subsidiary of ARI, is the project company which proposes to build the Tamugan
hydropower project. Hedcor, the holder of the Tamugan water rights, entered into a compromise agreement with the
Davao City Water District (DCWD) in connection with the Tamugan water rights dispute. The compromise paves the way
for the eventual construction of a 10- to 15-MW hydroelectric plant along the Tamugan River. A 27.5-MW hydroelectric
plant was originally proposed to be built along the Tamugan River. Given the new project scheme, Hedcor Tamugan will
have to conduct studies for engineering design, which is expected to take about a year. The two-year construction period
will commence once the design is approved and permits are secured.
Hedcor Tamugan is part of a consortium that won the competitive bidding for the 12-year power supply agreement to
supply 400,000,000 kWh per annum of new capacity to DLP. The bid price for the contracted energy was π4.0856/kWh
delivered, subject to adjustment based on changes to the Philippine consumer price index. All the energy generated by
the Hedcor Tamugan power plant will be supplied to DLP pursuant to the power supply agreement signed on March 7,
2007. Despite the lower generating capacity, the required amount of energy under a power supply agreement between
the Hedcor consortium and DLP will be met.
Therma Power, Inc. (TPI)
TPI, a wholly owned holding company of AP, owns equity interests in the following generation companies:
•
•
•
•
100% equity interest in Therma Luzon, the IPP Administrator of the 700-MW contracted capacity of the Pagbilao
power plant.
100% equity interest in Therma Marine, owner and operator of PB 117 and PB 118, barge-mounted power plants,
each with a generating capacity of 100 MW.
26% effective interest in CEDC, which is currently constructing a 3x82-MW coal-fired power plant in Toledo City,
Cebu.
50% equity interest in RP Energy, the project company that proposes to build and operate a 300-MW coal-fired
power plant in Redondo Peninsula in the SBFZ.
AP is in the process of implementing a corporate reorganization that will put all its non-renewable generation assets under
TPI. If completed, TPI will hold AP’s ownership interest in STEAG Power, EAUC, CPPC, SPPC and WWMPC.
Therma Luzon, Inc. (Therma Luzon)
Therma Luzon, Inc. (“TLI”), a wholly owned subsidiary of AP, submitted the highest offer in the competitive bid conducted
by PSALM for appointment as the IPP Administrator (“IPPA”) of the 700 MW Contracted Capacity of the Pagbilao Coal
Fired Thermal Power Plant, located in Pagbilao, Quezon.
The offer by Therma Luzon resulted in a bid price of U.S.$691 million as calculated in accordance to bid rules. This value
represents the present value of a series of monthly payments to PSALM from October 2009 to August 2025 using PSALM
discount rates.
As part of IPPA contract, TLI was assigned the obligation to supply 22.039% of the monthly load of Meralco.
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On October 1, 2009, Therma Luzon, Inc. became the first IPPA in the country when it assumed dispatch control of the
said contracted capacity of the Pagbilao Plant. As IPP Administrator, Therma Luzon is responsible for procuring the
fuel requirements of the Pagbilao Plant and selling the electricity generated by the plant. The Pagbilao Plant is being
operated by TEAM Energy under a build-operate-transfer scheme.
Therma Marine, Inc. (Therma Marine)
Therma Marine, a wholly owned subsidiary of AP, owns and operates PB 117 and PB 118, two power barges each with a
generating capacity of 100 MW. Therma Marine assumed ownership of PB 118 and PB 117 from PSALM last February 6,
2010 and March 1, 2010, respectively. The acquisition followed the successful conclusion of a U.S.$30 million negotiated
bid for the two power barges last July 31, 2009. PB 118 is moored in Bgy. San Roque, Maco, in Compostella Valley, while PB
117 is moored in Nasipit, Agusan del Norte.
Therma Marine signed Ancillary Services Procurement Agreements (ASPA) with the National Grid Corporation of the
Philippines (NGCP) for a supply by each of PB 117 and PB 118 of 50 MW of ancillary services consisting of contingency
reserve, dispatchable reserve, reactive power support and blackstart capacity for the Mindanao Grid. Therma Marine
has been operating the power barges prior to receiving the written provisional authority of the ERC of the ASPAs. ERC
approval for the ASPAs is needed before NGCP can charge customers for the ancillary services.
The ERC issued a provisional authority for the PB 118 ASPA on March 8, 2010 and made it retroactive to February 6, 2010 in
consideration of the ongoing power crisis in Mindanao. PB 117 is currently operating without a provisional authority from
the ERC as its application is still pending before the ERC. However, Therma Marine has applied for retroactive effectivity
of PB 117’s provisional authority so as not to intensify the power situation in Mindanao.
Therma Marine also has a non-firm commitment to supply 100 MW of ancillary services to NGCP.
STEAG State Power Inc. (STEAG Power)
AP closed the sale and purchase of the 34% equity ownership in STEAG Power from Evonik Steag last November 15,
2007, following a successful bid in August 2007. The total purchase price for the 34% equity in STEAG Power was U.S.$102
million, inclusive of interests.
Incorporated on December 19, 1995, STEAG Power is the owner and operator of a 232-MW (gross) coal-fired power plant
located in the PHIVIDEC Industrial Estate in Misamis Oriental, Northern Mindanao. The coal plant was built under a BOT
arrangement and started commercial operations on November 15, 2006. The coal plant is subject of a 25-year power
purchase agreement with the NPC, which agreement is backed by a Performance Undertaking issued by the Republic of
the Philippines. STEAG Power currently enjoys a six-year income tax holiday from the BOI.
With its 34% stake in STEAG Power, AP is equity partner with majority stockholder Evonik Steag, Germany’s fifth largest
power generator, which currently holds 51% equity in STEAG Power. La Filipina Uy Gongco Corporation holds the remaining
15% equity in STEAG Power.
East Asia Utilities Corporation (EAUC)
On April 20, 2007, AP acquired a 50% ownership interest in EAUC from El Paso Philippines, which still owns the other 50%
of EAUC. EAUC was incorporated on February 18, 1993 and since 1997 has operated a Bunker C-fired power plant with
an installed capacity of 50 MW within the MEPZ I in Mactan Island, Cebu. Pursuant to the Power Supply and Purchase
Agreement (PSPA), as amended, with the Philippine Economic Zone Authority (PEZA), the EAUC plant is the sole provider
of electricity to MEPZ I―delivering reliable, high quality power to meet the stringent requirements of semiconductor
firms, electronics manufacturers and other locators within the economic zone. The PSPA is for a term of 15 years beginning
December 31, 1997.
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Cebu Private Power Corporation (CPPC)
Incorporated on July 13, 1994, CPPC owns and operates a 70-MW Bunker-C fired power plant in Cebu City, one of the
largest power plants in the island of Cebu. Commissioned in 1998, the CPPC plant was constructed pursuant to a BOT
contract to supply 62 MW of power to VECO. The CPPC plant will revert to VECO in November 2013.
On April 20, 2007, AP acquired from EAUC 60% of the outstanding common shares of CPPC. The remaining 40% of the
outstanding common shares is owned by Vivant Energy Corporation of the Garcia family of Cebu, who, together with
AP, are the major shareholders of VECO. VECO owns all of the outstanding preferred shares of CPPC, which comprises
approximately 20% of the total outstanding capital stock of CPPC.
Abovant Holdings, Inc. (Abovant) and Cebu Energy Development Corporation (CEDC)
Incorporated on November 28, 2007, Abovant is a joint venture company formed by TPI, a wholly owned subsidiary of AP,
and Vivant Integrated Generation Corporation (VIGC) of the Garcia Group, to hold their investments in a new power plant
being built in Sangi, Toledo City, Cebu. Abovant is 60% owned by AP, through TPI, and 40% owned by VIGC.
Abovant and Global Formosa, a joint venture between Global Power and Formosa Heavy Industries, formed CEDC. CEDC
is in the process of constructing a new 3x82 MW coal-fired power plant in the existing Toledo Power Station complex in
Sangi, Toledo City, Cebu. With Abovant’s 44% stake in the project (Global Formosa owns the remaining 56%), AP’s effective
interest in the new power plant, which broke ground in January 2008, is approximately 26%.
The power plant, which will cost approximately U.S. $450 million, is expected to be completed by 2010. The first 82 MW unit
was commissioned in March 2010, while the second and third units by the second and fourth quarter of 2010, respectively.
The power to be generated from the new power plant will provide much needed security to the power supply of the
province of Cebu in the coming years. Additional power will be needed with the influx of business process outsourcing
companies and new hotels in the province and the presence in the Toledo-Balamban area of large industries such as Atlas
Mining Corporation, the shipbuilding facility of Tsuneishi Heavy Industries (Cebu) Inc. (THICI) and the modular fabrication
facility of Metaphil International.
CEDC had signed a Power Purchase Agreement (PPA) with VECO for the supply of 105 MW for 25 years. It also has a PPA
with Mactan Electric Company, Inc. (MECO). It also plans to enter into PPAs, which will provide contracted minimum
energy offtake with fuel as pass through, with other possible offtakers.
Southern Philippines Power Corporation (SPPC)
SPPC is a joint venture among AP, Alsing Power Holdings, Inc. and Tomen Power (Singapore), Pte Ltd. AP has a 20% equity
interest in SPPC, which owns and operates a 55-MW bunker-C fired power plant in Alabel, Sarangani just outside General
Santos City in southern Mindanao.
The SPPC power plant was developed on a build-own-operate basis by SPPC under the terms of an Energy Conversion
Agreement (ECA) with the NPC. Under the ECA, NPC is required to deliver and supply to SPPC the fuel necessary to
operate the SPPC power plant during an 18-year cooperation period, which ends in 2016. NPC is also required to take all
the electricity generated by the SPPC power plant during the cooperation period and pay SPPC on a monthly basis capital
recovery, energy, fixed operations and maintenance (O&M) and infrastructure fees as specified in the ECA. During this
cooperation period, SPPC is responsible, at its own cost, for the management, operation, maintenance and repair of the
SPPC power plant.
Aside from providing much needed capacity to the southwestern Mindanao area, the SPPC power plant also performs the
role of voltage regulator for General Santos City, ensuring the availability, reliability, and quality of power supply in the
area.
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A B O I T I Z PO W E R C O R P O R AT I O N
Western Mindanao Power Corporation (WMPC)
Like SPPC, WMPC is also a joint venture among AP, Alsing Power Holdings, Inc. and Tomen Power (Singapore), Pte
Ltd. AP has a 20% equity interest in WMPC, which owns and operates a 100-MW bunker-C fired power station located
in Zamboanga City, Zamboanga del Sur in western Mindanao. The WMPC power plant was developed on a build-ownoperate basis by WMPC under the terms of an ECA with NPC. Under the ECA, NPC is required to deliver and supply to
WMPC the fuel necessary to operate the WMPC Plant during an 18-year cooperation period which ends in 2015. NPC is
also required to take all the electricity generated by the WMPC Plant during the cooperation period and pay WMPC on a
monthly basis capital recovery, energy, fixed O&M and infrastructure fees as specified in the ECA. During this cooperation
period, WMPC is responsible, at its own cost, for the management, operation, maintenance and repair of the WMPC Plant.
Aside from providing much needed capacity to the Zamboanga Peninsula, the WMPC power plant also performs the role
of voltage regulator for Zamboanga City, ensuring the availability, reliability, and quality of power supply in the area.
Redondo Peninsula Energy, Inc. (RP Energy)
Incorporated on May 30, 2007, RP Energy is a joint venture company owned equally by AP and TCIC. It is the project
company that proposes to build and operate a 300-MW coal-fired power plant in Redondo Peninsula in the SBFZ.
In April 2008, RP Energy issued a letter of award to Formosa Heavy Industries for the supply of the boiler, steam turbine,
generator, and related services that will be used for the construction of the power plant. The award serves to fix the price
and delivery time of the equipment amidst an environment of rising prices and longer delivery period of raw materials. The
project is estimated to cost approximately U.S.$500 million. The construction of the coal plant is being deferred pending
further review of the power supply and demand requirements in the Luzon Grid.
Other Generation Assets
AP’s distribution utilities, DLP and CLP, each has its own stand-by plant. DLP currently maintains the 53-MW Bunker
C-fired Bajada stand-by plant, which is capable of supplying 19% of DLP’s requirements. CLP maintains a stand-by 7-MW
Bunker C-fired plant capable of supplying approximately 31% of its requirements.
Future Projects
Before undertaking a new power generation project, the Company conducts an assessment of the proposed project.
Factors taken into consideration by the Company include the proposed project’s land use requirements, access to a power
grid, fuel supply arrangements (if relevant), availability of water (for hydroelectric projects), local requirements for permits
and licenses, the ability of the plant to generate electricity at a competitive cost and the presence of potential offtakers to
purchase the electricity generated. For the development of a new power plant, the Company, its partners and suppliers are
required to obtain the necessary permits required before commencement of commercial operations, including permits
related to project site, construction, the environment and planning, operation licenses and similar approvals.
Notwithstanding the review and evaluation process that the Company’s management conducts in relation to any proposed
project, acquisition or business, there can be no assurance that the Company will eventually develop a particular project,
acquire a particular generating facility or that projects will be implemented or acquisitions made or businesses conducted
in the manner planned or at or below the cost estimated by the Company. In addition, there can be no assurance that a
project, if implemented, or an acquisition, if undertaken, will be successful.
Acquisition of additional generation assets
AP, on its own and/or with strategic partners, plans to participate in the upcoming bids for the privatization of the
government’s power assets.
AP also intends to participate in PSALM’s public auction for the remaining IPPA contracts, which involves the transfer of
the management and control of total energy output of power plants under contract with NPC to the IPP Administrators.
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DISTRIBUTION OF ELECTRICITY
The Aboitiz Group has a 70-year history in the Philippine power distribution sector and has been known for innovation
and efficient operations. Through the years, AP has managed to build strong working relationship with the industry’s
regulatory agencies.
With ownership interests in seven distribution utilities (the Distribution Companies), AP is currently one of the largest
electricity distributors in the Philippines. AP’s distribution utilities collectively supply electricity to franchise areas covering
a total of 18 cities and municipalities in Central Luzon, Visayas and Mindanao, with an aggregate land area of approximately
5,095 square kilometers. Collectively, AP’s distribution utilities contributed approximately 18% of its net income for 2009.
The Distribution Companies had a total customer base of 685,378 in 2009, 658,318 in 2008 and 636,641 in 2007.
The table below summarizes the key operating statistics of the Distribution Companies for 2009 and the previous two
years.
Company
Electricity Sold (MWh)
2009
2008
Peak Demand (MW)
2007
2009
2008
No. of Customers
2009
2008
2007
VECO
1,829,500
1,766,059
1,680,537
336
326
2007
313
304,002
296,003
288,587
DLP
1,459,161
1,370,951
1,331,437
276
248
245
268,708
257,101
247,341
SFELAPCO
421,139
406,022
391,999
80
75
74
79,669
73,600
70,071
CLP
120,186
118,450
117,523
24
23
23
30,171
28,927
27,966
SEZ
372,391
298,050
199,082
97
64
44
2,724
2,585
2,576
MEZ
117,014
141,225
137,233
23
23
22
76
74
75
BEZ
60,376
63,329
56,798
21
15
14
28
28
25
4,379,768
4,164,086
3,914,609
857
774
735
685,378
658,318
636,641
Total
Visayan Electric Company, Inc. (VECO)
VECO is the second largest electric privately owned distribution utility in the Philippines in terms of customers and annual
MWh sales. VECO supplies electricity to a region covering 672 square kilometers in the island of Cebu with a population of
approximately 1.5 million. Its franchise area includes the cities of Cebu, Mandaue, Talisay and Naga, and the municipalities
of Minglanilla, San Fernando, Consolacion and Liloan. To date, VECO has 13 substations located in different areas around
the cities of Cebu, Mandaue, Naga and the municipality of Consolacion.
VECO, directly and through its predecessors-in-interest, has been in the business of distributing electricity in Cebu
Island since 1905. In the early 1900s, the predecessors-in-interest of the Aboitiz Group acquired a 20% interest in VECO’s
predecessor-in-interest, the Visayan Electric Company, S.A. Since that time, the Aboitiz Group’s ownership interest in
VECO has increased from 20% to the current beneficial ownership interest of 55.18% held by AP.
In 1928, Visayan Electric Company, S.A. was granted a 50-year distribution franchise by the Philippine Legislature. The
term of this franchise was extended by Republic Act 6454 for an additional 25 years beginning in 1978 and was conditionally
renewed for another 25 years from December 2003, subject to the resolution of an intra-corporate dispute at that time
involving AEV, AP’s parent company, and Vivant Corporation. In September 2005, the Philippine Congress passed Republic
Act 9339, which extended VECO’s franchise to September 2030. VECO’s application for the extension of its Certificate of
Public Convenience and Necessity (CPCN) was approved by the ERC last January 26, 2009.
In April 2004, AEV and Vivant, which is the holding company of the Garcia family, entered into a Shareholders’ Cooperation
Agreement that sets out guidelines for VECO’s day-to-day operations and the relationship among VECO’s shareholders,
including: restrictions on share transfers (including the grant of rights of first refusal in the event of a transfer to a third
party and rights to transfer to affiliates, subject to certain conditions), board composition and structure, proceedings
of directors and shareholders, minority shareholder rights, dividend policy, termination, and non-compete obligations.
Under the terms of the agreement, day-to-day operations and management of VECO were initially assumed by AEV and,
after AP acquired AEV’s ownership interest in VECO in January 2007, by AP. AP and Vivant Corporation are each required
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A B O I T I Z PO W E R C O R P O R AT I O N
to place in escrow 5% of the shares in VECO registered in their respective names to guarantee compliance with their
respective obligations under the Shareholders’ Cooperation Agreement. The escrow shares will be forfeited in the event
a shareholder group violates the terms of the Shareholders’ Cooperation Agreement. The Shareholders’ Cooperation
Agreement was adopted as a result of a dispute between AEV and Vivant regarding the management of VECO. Relations
between the shareholders of VECO are amicable.
In April 2009, VECO also applied for a petition with the ERC under the return-on-rate base (RORB) ratemaking regime for
the adjustment and realignment of its current distribution charge. After the conclusion of the application process which
included a series of public consultations, the ERC granted VECO’s petition last August 7, 2009 with modifications on the
sound value of assets and the revenue requirement. After taking the adjustments into consideration, the average rate
adjustment was π0.2267 per kWh. The rate adjustment was implemented starting September 10, 2009.
VECO entered its reset period in end 2008 under the Performance-based Rate-setting Regulation (PBR) and has received
a final determination on its PBR application from ERC. VECO will be submitting its rate design proposals based on the
final determination by April 2010. It is expected that final PBR approvals will allow VECO to enter the four-year regulatory
period on July 1, 2010.
Davao Light & Power Company, Inc. (DLP)
DLP is the third largest privately owned electric distribution utility in the country in terms of customers and annual GWh
sales. DLP supplies electricity to a region covering 3,354 square kilometers in and around Davao City in southern Mindanao
with a population of approximately 1,432,544. DLP’s franchise area includes Davao City, Panabo City and the municipalities
of Carmen, Dujali and Santo Tomas in the province of Davao del Norte.
AP currently has an ownership interest of 99.93% in DLP, which was organized on October 29, 1929. DLP’s original
franchise, which covered Davao City, was granted in November 1930 by the Philippine Legislature and was for a period of
50 years. In 1976, the National Electrification Administration (NEA) extended DLP’s franchise for Davao City to November
2005 and granted DLP franchises for the City of Panabo and the municipalities of Carmen and Santo Tomas in Davao del
Norte province. In September 2000, the Philippine Congress passed Republic Act 8960, which granted DLP a franchise
over its current franchise area for a period of 25 years, or until September 2025. The Aboitiz Group acquired its ownership
interest in DLP in 1946.
DLP has a 150-MVA and a new 2x50-MVA substation drawing power at 138 kV. In 1998 it entered into a 10-year power
purchase agreement with NPC, which had been extended until 2015 by a separate contract signed in 2005 by the parties.
DLP’s power purchase agreement with NPC allows the delivery of most of DLP’s power requirements through DLP’s 138kV lines. As a result, in taking delivery of electricity from NPC, DLP is able to bypass the NGCP connection assets and avoid
having to pay corresponding wheeling fees to NGCP, thereby allowing DLP to cut its operating costs.
DLP also has a 53-MW Bunker C-fired standby plant (the Bajada Plant), which is capable of supplying 19% of DLP’s
electricity requirement.
In February 2007, DLP awarded to the Hedcor Consortium (composed of Hedcor, ARI, Hedcor Sibulan, and Hedcor
Tamugan) a 12-year supply contract of 400,000,000 kWh per year of new capacity. The price differential between the
Hedcor Consortium’s winning bid price of π4.0856 per kWh and the next lowest bid was approximately π1.0129 per
kWh. Over the life of the supply contract, the differential will amount to approximately π4.9 billion at current peso value,
representing significant savings for DLP customers.
DLP decided to secure the new supply contract in anticipation of the full utilization of the existing contracted energy
supply under the 10-year contract with the NPC for 1,238,475 MWh and the 12-year contract with Hedcor.
On January 15, 2007, the ERC approved a memorandum of agreement between DLP and the National Transmission
Company or Transco, the predecessor-in-interest of NGCP, pursuant to which DLP’s Bajada Plant will provide reactive
power support on an as-needed basis to the Mindanao Grid, subject to the dispatch instructions of NGCP Mindanao
systems operator. When DLP provides reactive power under the terms of the agreement, NGCP will pay DLP a fee, which
DLP is required to flow back to its customers by way of reduced rates.
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DLP entered its reset period in January 2009 under the PBR and has received a final determination on its PBR application
from ERC. It will be submitting its rate design proposals based on the final determination by April 2010. It is expected that
final PBR approvals will allow DLP to enter the four-year regulatory period on July 1, 2010.
DLP operates its distribution system at a low systems loss 8.12% by end of December 2009, which is below the government
8.5% cap set for private distribution utilities starting January 2010.
Cotabato Light & Power Company, Inc. (CLP)
CLP supplies electricity to Cotabato City and portions of the municipalities of Datu Odin Sinsuat and Sultan Kudarat, both
in Maguindanao province in Mindanao. Its franchise area covers approximately 191 square kilometers and has a population
of approximately 350,692. In 2009, it has a manpower complement of 58 full-time employees and a number of contractual
employees serving a customer base of 30,171, composing of residential, commercial, industrial and flat rate customers.
CLP was formally incorporated in April 1938. Its original 25-year franchise was granted in June 1939 by the Philippine
Legislature. In 1961, the Philippine Congress passed Republic Act 3217 which was further amended by Republic Act 3341
extending CLP’s franchise until June 1989. In August 1989, NEA extended CLP’s franchise for another 25 years, which will
expire in August 2014. AP owns 99.93% of CLP.
CLP has three substations of 10 MVA, 12 MVA and 15 MVA and is served by two 69-kV transmission lines, which provide
redundancy in case one transmission line fails. CLP’s distribution voltage is 13.8 kV. It maintains a stand-by 7-MW Bunker
C-fired plant capable of supplying approximately 30.5% of its franchise area requirements. The existence of a standby
power plant, which is capable of supplying electricity in cases of supply problems with NPC and for the stability of voltage
whenever necessary, is another benefit to CLP’s customers.
Although a relatively small utility, CLP’s corporate relationship with DLP allows the former to immediately implement
benefits from the latter’s system developments.
The ERC issued its final determination on CLP’s application for approval of its annual revenue requirement and performance
incentive scheme under the PBR scheme covering the second year of the four-year regulatory period. CLP’s four-year
regulatory period commenced on April 1, 2009 until March 30, 2013.
On April 15, 2009, the ERC approved CLP’s application for translation of its approved annual revenue requirement for the
first regulatory year into applicable rates per customer class. CLP implemented the approved rates last May 1, 2009 - a
month after the start of the first regulatory year. The resulting under recovery from the one-month lag will be reflected
and recovered in the next regulatory year’s rate translation application.
CLP has received approval for its new rates covering the second regulatory period which will commence on April 1, 2010.
Managing its systems loss was a challenge for CLP with systems losses in 2009 reaching 10.36%, which was above the then
9.5% loss cap set by ERC. With system losses for 2010 capped even lower at 8.5%, CLP will proactively act on lowering
systems losses through various measures most of which is aimed to address pilferage, the primary cause of its systems
losses.
San Fernando Electric Light and Power Co. Inc. (SFELAPCO)
SFELAPCO supplies electricity to approximately 32 barangays in San Fernando City, 29 barangays in the municipality of
Floridablanca, five barangays in the municipality of Bacolor and two barangays in the municipality of Guagua, a portion
of Lubao and Santo Tomas, all located within Pampanga province in Central Luzon. Its franchise area covers 204 square
kilometers and has a population of approximately 365,427.
SFELAPCO was incorporated on May 17, 1927. In 1961, the Philippine Congress passed Republic Act 3207, which granted
SFELAPCO a franchise to distribute electricity for a period of 50 years or until June 2011 within the franchise area described
above. Republic Act 9967 extending SFELAPCO’s franchise for another 25 years from the date of its approval lapsed into
law last February 6, 2010.
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A B O I T I Z PO W E R C O R P O R AT I O N
On November 11, 2009, SFELAPCO signed a Power Supply Agreement (PSA) with APRI. Under the PSA, APRI will supply
the additional energy required by SFELAPCO that cannot be supplied by NPC from December 25, 2009 to September 25,
2010. Thereafter, APRI will then become the sole provider of power to SFELAPCO until December 25, 2012.
SFELAPCO is part of the fourth batch of private utilities to enter PBR, and is expected to enter its four-year regulatory
period by October 1, 2011.
AP has an effective interest of 43.78% in SFELAPCO.
Subic Enerzone Corporation (SEZ)
In May 2003, the consortium of AEV and DLP won the competitive bid to provide distribution management services to the
SBMA and to operate the SBFZ power distribution system for a period of 25 years. On June 3, 2003, SEZ was incorporated
as a joint venture company owned by a consortium comprised of DLP, AEV, SFELAPCO, Team Philippines, Okeelanta
and PASUDECO to undertake the management and operation of the SBFZ power distribution system. SEZ was formally
awarded the contract to manage the SBFZ’s power distribution system on October 25, 2003 and officially took over the
operations of the power distribution system on the same day.
SEZ’s authority to operate the SBFZ power distribution system was granted by the SBMA pursuant to the terms of Republic
Act 7227 (The Bases Conversion and Development Act of 1992), as amended. As a company operating within the SBFZ,
SEZ is not required to pay the regular corporate income tax of 30% and instead pays a preferential tax of 5% on its gross
income in lieu of all national and local taxes.
Following the acquisition of AP in January 2007 of the 64.3% effective ownership interest of AEV in SEZ, AP entered into
another agreement on June 8, 2007 to acquire the combined 25% equity stake in SEZ of AEV, SFELAPCO, Okeelanta, and
PASUDECO.
On December 17, 2007, AP bought the 20% equity of Team Philippines in SEZ for π92 million. Together with the 35% equity
in SEZ of AP’s subsidiary DLP, this acquisition brought AP’s total equity in SEZ to 100%.
In September 2008, SEZ acquired the 100-MVA Subic Substation from the NGCP. The substation has a 230/69/13.8kV
power transformer supplying power to the Subic Bay Industrial Park, Binictican and Kalayaan housing areas, Cubi, Naval
Magazine, and Grande Island in the SBFZ.
In November 2008, SEZ implemented a rate increase as per approved unbundled rates.
SEZ is part of the fourth batch of private utilities expected to enter PBR. It is in the process of conducting asset review with
the ERC for its PBR application and is expected to obtain final approval of its rate application under the PBR in time for the
scheduled implementation on April 1, 2011.
Mactan Enerzone Corporation (MEZ)
MEZ was incorporated in January 2007 when AboitizLand spun off the power distribution system of its MEPZ II project.
The MEPZ II project, which was launched in 1995, is operated by AboitizLand under a BOT agreement entered into with
the Mactan-Cebu International Airport Authority (MCIAA).
On June 8, 2007, AP entered into an agreement to acquire AboitizLand’s 100% equity stake in MEZ represented by
8,754,443 common shares of MEZ. Pursuant to the agreement, AP acquired AboitizLand’s ownership interest in MEZ
valued at π609.5 million in exchange for AP’s common shares issued at the initial public offering price of π5.80 per share.
MEZ sources its power from NPC pursuant to a Contract to Supply Electric Energy. Under the supply contract, NPC is
required to provide power to MEZ up to the amount of contracted load, which is based on the projections provided by
MEPZ II locators under their respective Power Service Contracts with MEZ.
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Balamban Enerzone Corporation (BEZ)
BEZ was incorporated in January 2007 when Cebu Industrial Park Developers, Inc. (CIPDI), a joint venture between
AboitizLand and Tsuneishi Holdings, spun off the power distribution system of the WCIP-SEZ. WCIP-SEZ is a special
economic zone for light and heavy industries owned and operated by CIPDI. The park, which is located in Balamban,
Cebu, is home to the shipbuilding and ship repair facilities of THICI as well as the modular fabrication facility of Metaphil
International.
On May 4, 2007, CIPDI declared a property dividend to its stockholders in the form of its equity in BEZ. On June 8, 2007,
AP entered into an agreement to acquire AboitizLand’s 60% equity stake in BEZ represented by 4,301,766 common shares
of BEZ. Pursuant to the agreement, AP acquired AboitizLand’s ownership interest in BEZ valued at π266.9 million in
exchange for AP’s common shares issued at the initial public offering price of π5.80 per share.
On March 7, 2008, AP purchased Tsuneishi Holdings’ 40% equity in BEZ for approximately π178 million. The acquisition
brought AP’s total equity in BEZ to 100%.
RETAIL ELECTRICITY AND OTHER RELATED SERVICES
One of the objectives of electricity reform in the Philippines is to ensure the competitive supply of electricity at the retail
level. In particular, when Open Access and Retail Competition under the Rules and Regulations to Implement the Electric
Power Industry Reform Act of 2001 (EPIRA) (Republic Act 9136) is fully implemented, large-scale customers will be allowed
to obtain electricity from Retail Electricity Suppliers licensed by the ERC.
Aboitiz Energy Solutions, Inc. (AESI)
AESI, a wholly owned subsidiary of AP, holds a license to act as a Retail Electricity Supplier (issued on December 6, 2006)
and a license to act as a Wholesale Aggregator (issued on January 26, 2007). AESI intends to take advantage of its affiliation
with the Aboitiz Group in marketing its power to Open Access customers.
AP also offers a range of electricity-related services through AESI. These services are designed to help AESI’s customers
improve the efficiency, cost and reliability of their electric equipment and optimize their electricity consumption.
AESI’s main electricity-related service is power factor improvement. One of the metering parameters measured for utility,
commercial, and industrial customers is power factor. A low power factor load increases losses in a power distribution
system and results in increased cost for electrical energy use. Under the current rate scheme of the NGCP, a customer
drawing power from NGCP transmission facilities is granted a discount on transmission charges if its power factor is
greater than 90% and is penalized if its power factor is less than 85%. Most large utilities like Meralco also provide a
similar incentive. AESI helps customers increase their power factors through the installation of capacitor banks in their
electrical system. Customer contracts with AESI are for periods of at least two years, and AESI is paid a percentage of the
cost savings that a customer is able to obtain from power factor improvements. Customers for this service include electric
cooperative companies, such as the Agusan del Norte Electric Cooperative and the Davao Del Norte Electric Cooperative,
and various industrial and commercial establishments, including shopping malls operated by the SM Group, the largest
mall operator in the Philippines.
Electric cooperatives which are part of the customer base of AESI’s power factor improvement services are also potential
customers of AP’s generation companies. Improving the power factors of these cooperatives and reducing their costs
should also improve their creditworthiness, increasing their attractiveness as customers of AP’s generation facilities.
2
Amounts in millions
SEC FORM 20 - IS (INFORMATION STATEMENT)
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44
(ii) Sales
Comparative amounts2 of revenue, profitability and identifiable assets are as follows:
2009
2008
2007
As restated
Gross Income
23,174
12,243
11,312
Operating Income
5,456
1,653
1,983
Total Assets
111,341
47,272
36,176
Note: Operating Income is operating revenue net of operating expenses.
The operations of AP and its subsidiaries and affiliates are based only in the Philippines.
Comparative amounts3 of revenue contribution by business grouping are as follows:
Business Segment
2009
2007
As restated
2008
Power Generation
12,466
53%
2,985
24%
2,499
21%
Power Distribution
10,734
46%
9,228
73%
8,798
76%
296
1%
328
3%
335
3%
23,496
100%
12,541
100%
11,632
100%
Services
Total Revenue
Less: Eliminations
(322)
(298)
(320)
Net Revenue
23,174
12,243
11,312
Note: Percentages refer to the business group’s share in total revenue for a given year.
(iii) Distribution Methods of Products or Services
The Generation Companies sell their electricity either through the WESM or through bilateral power supply agreements
with NPC, private distribution utilities or other large end-users.
Currently, SNAP-Magat also has an ASPA with NGCP as an ancillary service provider to the Luzon Grid. As an ancillary
service provider, SNAP-Magat nominates its available capacity for ancillary service to NGCP (System Operator). If NGCP
accepts the nominated ancillary capacity, it will then provide a notice of ancillary service schedule to SNAP-Magat.
Majority of AP’s generation companies have transmission service agreements with NGCP for the transmission of electricity
to the designated delivery points of their customers, while others built their own transmission lines to directly connect to
their customers. In some instances, where the offtaker is NPC, NPC takes delivery of the electricity from the generation
facility itself.
On the other hand, AP’s Distribution Companies have exclusive distribution franchises in the areas where they operate.
These utilities own distribution lines with voltage levels ranging from 4.16 kV to 23 kV. These lines distribute electricity to
the Distribution Companies’ customers in their respective franchise areas. All customers that connect to these distribution
lines are required to pay a tariff for using the system.
Each Distribution Company has a distribution network consisting of a widespread network of predominantly overhead
lines and substations. Customers are classified in different voltage levels based on their consumption of and demand for
electricity. Large industrial and commercial consumers receive electricity at distribution voltages of 13.8 kV to 23 kV while
smaller industrial, commercial and residential customers receive electricity at 240 V or 480 V.
All of AP’s Distribution Companies have entered into transmission service contracts with NGCP for the use of NGCP’s
transmission facilities in the distribution of electric power from the Grid to their respective customers.
3
Amounts in millions
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
(iv) 45
New Products/Services
Other than the ongoing Greenfield and/or rehabilitation projects undertaken by AP’s generation companies, AP and its
subsidiaries do not have any publicly announced new product or service to date.
(v) Competition
Generation Business
With the ongoing privatization of NPC-owned power generation facilities and the establishment of WESM, AP’s generation
facilities located in Luzon, the Visayas and Mindanao will face competition from other power generation plants that supply
electricity to the Luzon, Visayas and Mindanao Grids. In particular, SNAP-Magat, SNAP-Benguet, APRI and Therma Luzon
are expected to face competition from leading multinationals such as Marubeni Corporation and Korea Electric Power
Corporation, as well as Filipino-owned IPPs such as First Gen Corporation, DMCI Holdings, Inc. and San Miguel Energy
Corporation.
AP will face competition in both the development of new power generation facilities and the acquisition of existing power
plants, as well as competition for financing these activities. Factors such as the performance of the Philippine economy
and the potential for a shortfall in the Philippines’ energy supply have attracted many potential competitors, including
multinational development groups and equipment suppliers, to explore opportunities in the development of electric
power generation projects in the Philippines. Accordingly, competition for and from new power projects may increase in
line with the expected long-term economic growth of the Philippines.
Distribution Business
Each of AP’s Distribution Companies currently has an exclusive franchise to distribute electricity in the areas covered by
each franchise.
Under Philippine law, the franchises of the Distribution Companies may be renewed by the Congress of the Philippines,
provided that certain requirements related to the rendering of public services are met. The Company intends to apply for
the extension of each franchise upon its expiration. The Company may face competition or opposition from third parties
in connection with the renewal of these franchises. It should be noted that under Philippine law, a party wishing to secure
a franchise to distribute electricity must first obtain a CPCN from the ERC, which requires that such party prove that it
has the technical and financial competence to operate a distribution franchise, as well as the need for such franchise.
Ultimately, the Philippine Congress has absolute discretion over whether to issue new franchises or to renew existing
franchises, and the acquisition by competitors of any of the Distribution Companies’ franchises could adversely affect the
Company’s results of operations.
(vi) Sources of Raw Materials and Supplies
Generation Business
AP’s hydroelectric facilities utilize water from rivers located near the facilities to generate electricity. The hydroelectric
companies, on their own or through NPC in the case of LHC, possess water permits issued by the National Water Resources
Board (NWRB), which allow them to use a certain volume of water from the applicable source of the water flow.
Under the APA between APRI and PSALM for the Tiwi-MakBan geothermal complex, the management and operation
of the steam fields which supply steam to Tiwi-MakBan remains with Chevron Geothermal Philippines Holdings, Inc.
(Chevron). The steam supply arrangement between APRI and Chevron is currently governed by a Transition Agreement
which provides for the reimbursement of capital expenditures and operating expenses, as well as payment of service fees,
by APRI to Chevron. The Transition Agreement is to be effective no more than four years from the date of the turnover
of Tiwi-MakBan to APRI and will be replaced by a Geothermal Resource Service Contract (GRSC) when Chevron becomes
a Philippine corporation and after the rehabilitation of MakBan units 5 and 6. Under the GRSC, APRI will no longer pay
service fees or reimburse Chevron for capital expenditures and operating expenses. Instead, the price of steam shall be
SEC FORM 20 - IS (INFORMATION STATEMENT)
46
A B O I T I Z PO W E R C O R P O R AT I O N
linked to the Barlow Jonker and Japanese Public Utilities (JPU) coal price indices. As a result, the steam cost structure
under GRSC will shift from a largely fixed to a full variable cost.
AP’s oil-fired plants use Bunker C fuel to generate electricity. EAUC and CPPC each have a fuel supply agreement with
Petron, while SPPC and WMPC get fuel supplies from NPC pursuant to their respective ECAs with NPC. Therma Marine is
in the process of entering into a long-term fuel supply agreement where the price of fuel is expected to be linked to the
Mean Of Platts Singapore (MOPS).
STEAG Power has an existing long-term coal supply agreement with PT. Jorong Barutama Greston of Indonesia.
Therma Luzon has no long-term coal supply contract at present but has existing supply contracts to meet the Pagbilao
plant’s coal requirements until December 2010. While Therma Luzon’s objective is to enter into long-term coal supply
agreements, it wants to first establish more Indonesian coal sources to give it flexibility in its coal sourcing and allow it to
purchase competitively priced coal in the market.
Distribution Business
The bulk of volume of electricity the Distribution Companies sell is purchased from NPC, rather than from the Generation
Companies. The following Distribution Companies purchase electricity from the Generation Companies: DLP from Hedcor,
SFELAPCO from APRI and VECO from CPPC and CEDC. Each of the Distribution Companies has bilateral agreements in
place with NPC for the purchase of electricity, which set the rates for the purchase of NPC’s electricity. The following table
sets out material terms of each distribution company’s bilateral agreements with NPC:
Distribution Company
Term of Agreement
with NPC
Contract Energy (MWh
per year)
Take or Pay
Pricing Formula
VECO
Five years and three
months; expiring in
December 2010
1,310,766
Yes
ERC approved NPC
rate + ERC approved
adjustments
DLP
10 years; expiring in
December 2015
1,238,475
Yes
ERC approved NPC
rate + ERC approved
adjustments
SFELAPCO
Five years; expiring on
September 25, 2010
193,500
Yes
ERC approved NPC
rate + ERC approved
adjustments
CLP
10 years; expiring in
December 2015
116,906
Yes
ERC approved NPC
rate + ERC approved
adjustments
SEZ
Three years; expiring in
March 2011
90,000
Yes
Average generation
rate π3.4742/kWh and
Franchise and Benefit
Tax π0.0245
BEZ
N/A
N/A
N/A
N/A
MEZ
10 years; expiring in
September 2015
114,680
Yes
ERC approved NPC
rate + ERC approved
adjustments
The rates at which DLP and SFELAPCO purchase electricity from the Generation Companies are established pursuant
to the bilateral agreements that are executed after the relevant Generation Company has successfully bid for the right
to enter into a PPA with either DLP or SFELAPCO. These agreements are entered into on an arm’s-length basis and on
commercially reasonable terms and must be reviewed and approved by the ERC. In addition, ERC regulations currently
restrict the Distribution Companies from purchasing more than 50% of their electricity requirements from affiliated
companies, such as the Generation Companies. Hedcor Sibulan is expected to start supplying DLP with the electricity
generated from its Sibulan plants in the first half of 2010 pursuant to the Hedcor Consortium’s 12-year power supply
agreement to supply 400,000,000 kWh per annum of new capacity.
SEC FORM 20 - IS (INFORMATION STATEMENT)
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47
VECO has PPAs pursuant to which it purchases a minimum of 18,000,000 kWh per month on a take-or-pay basis from
Toledo Power Corporation, and approximately 61.72 MW of dispatchable capacity from CPPC (with no minimum energy
off-take requirement).
In September 2009, VECO entered into a PSA with CEDC for the supply of 105 MW for 25 years to address VECO’s longterm power supply requirement. CEDC is building 3x82-MW power plant in Toledo, Province of Cebu. The first 75-MW unit
is scheduled to go online by March 2010 and all the power generated by this unit will be delivered to VECO. The second and
third units are expected to be operational by the second half of 2010.
Meanwhile, to mitigate the power supply shortage in 2010, VECO’s largest customer, CEMEX Philippines, agreed to supply
10 MW to VECO during peak hours for one year.
The provisions of the Distribution Companies’ PPAs are governed by ERC regulations. The main provisions of each contract
relate to the amount of electricity purchased, the price, including adjustments for various factors such as inflation indexes,
and the duration of the contract. Under current ERC regulations, the Distribution Companies can purchase up to 90% of
their electricity requirements using bilateral contracts.
Meanwhile, DLP and CLP each has its own stand-by plant. DLP currently maintains the 53-MW Bunker C-fired Bajada
stand-by plant which is capable of supplying 19% of DLP’s requirements. CLP maintains a stand-by 7-MW Bunker C-fired
power plant capable of supplying approximately 30.5% of its requirements.
Transmission Charges
Each of the Distribution Companies has entered into a transmission service contract with NGCP for the use of NGCP’s
transmission facilities in the distribution of electric power from the Grid to its customers. The Distribution Companies
have negotiated agreements with NGCP in connection with the amount and form of security deposit to be provided by the
Distribution Companies to NGCP to secure their obligations under their transmission services contracts.
(vii) Major Customers
Close to 70% of the total electricity generated by the Generation Companies are either sold to private distribution utilities
or the NPC pursuant to long-term bilateral agreements. The bilateral agreements with NPC are supported by NPC’s
credit, which in turn is backed by the Philippine Government. The remaining 30% of the total electricity generated by AP’s
Generation Companies is sold through the WESM.
Most of AP’s Distribution Companies, on the other hand, have wide and diverse customer bases. As such, the loss of any
one customer will have no material adverse impact on AP. The Distribution Companies’ customers are categorized into
four principal categories:
(a) Industrial customers. Industrial customers generally consist of large-scale consumers of electricity within a
franchise area, such as factories, plantations and shopping malls.
(b) Residential customers. Residential customers are those who are supplied electricity for use in a structure utilized
for residential purposes.
(c) Commercial customers. Commercial customers include service-oriented businesses, universities and hospitals.
(d) Other customers. Other customers include public and municipal services such as street lighting.
(viii) Transactions with and/or Dependence on Related Parties
AP and its subsidiaries (the Group) had transactions with related parties, principally consisting of:
(a) Up until December 31, 2008, the Group had service contracts with ACO, the parent company of AEV, for corporate
center services rendered, such as human resources, internal audit, legal, treasury and corporate finance, among
others. With the transfer of all ACO employees to AEV in January 2009, AEV is now providing these same services
SEC FORM 20 - IS (INFORMATION STATEMENT)
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A B O I T I Z PO W E R C O R P O R AT I O N
and shares with the member companies the business expertise of its highly qualified professionals. Transactions
are priced on a cost recovery basis, and billed costs are always benchmarked on third party rates to ensure
competitive pricing. Service Level Agreements are in place to ensure quality of service. This arrangement enables
the Group to maximize efficiencies and realize cost synergies. Management, professional, legal and other service
fees paid by the Group to AEV amounted to π409.41 million in 2009, π362.61 million in 2008, π366.57 million in
2007, respectively.
(b) Management and other service contracts of certain subsidiaries with ACO at fees based on agreed rates.
Management and other service fees paid by the Group to ACO amounted to nil, π40.73 million and π27.15 million
in 2009, 2008 and 2007, respectively.
(c) The Company also obtained SBLCs and is acting as surety for the benefit of certain subsidiaries and associates
in connection with loans and credit accommodations. The Company provided SBLC for STEAG Power, LHC and
SNAP-Benguet in the amount of π1.8 billion in 2009 and 2008.
(d) Energy fees billed by Hedcor, Inc. to SFELAPCO amounted to π19.63 million in 2009, π17.34 million in 2008 and
π17.77 million in 2007.
(e) Energy fees billed by CPPC to VECO amounted to π2.10 billion in 2009,π2.35 billion in 2008 and π1.65 billion in
2007.
(f) Aviation services rendered by AEV Aviation to the Group. Total expenses from associate amounted to π24.82
million in 2009, π19.86 million in 2008 and π12.66 million in 2007. AEV Aviation is a subsidiary of AEV.
(g) Lease of commercial office units by the Group from Cebu Praedia Development Corporation (CPDC) for a period
of three years. Rental expense amounted to π48.17 million in 2009, π32.24 million in 2008, and π28.19 million in
2007. CPDC is a subsidiary of AEV.
(h) The Company provides services to certain subsidiaries and associates such as technical and legal assistance for
various projects, trainings, and other services. Total technical and service fee income amounted to π2.17 million
in 2009, π9.44 million in 2008 and π1.4 million in 2007.
(i) Cash deposits with UBP and CSB, both associates of AEV (see Note 4 in the attached 2009 Audited Financial
Statement).
(j) Advances to/from related parties, both interest and non-interest bearing, payable on demand. Interest-bearing
advances are based on annual interest rates ranging from 3.00% to 9.25% in 2009, 3.00% to 10.40% in 2008, and
5.13% to 8.25% in 2007. Net interest income (expense) incurred on these advances amounted to π55.8 million in
2009, π142.7 million in 2008, and (π29.9 million) in 2007.
(ix) Government Approvals, Patents, Copyrights, Franchises
GOVERNMENT APPROVALS
Generation Business
Power generation is not considered a public utility operation under the EPIRA. Thus, a franchise is not needed to engage
in the business of power generation. Nonetheless, no person or entity may engage in the generation of electricity unless
such person or entity has complied with the standards, requirements and other terms and conditions set by the ERC and
has received a Certificate of Compliance (COC) from the ERC to operate the generation facilities. A COC is valid for a period
of five years from the date of issuance.
A generation company must ensure that all its facilities connected to the Grid meet the technical design and operational
criteria of the Grid Code and Distribution Code promulgated by the ERC.
Additionally, a generation company must meet the minimum financial capability standards set out in the “Guidelines for
the Financial Standards of Generation Companies” issued by the ERC. Under the said guidelines, a generation company is
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
49
required to meet a minimum annual interest cover ratio or debt service coverage ratio of 1.5x throughout the period covered
by its COC. For COC applications and renewals, the same guidelines require the submission to the ERC of, among other
things, comparative audited financial statements, a schedule of liabilities, and a five-year financial plan. For the duration
of the COC, these guidelines also require a generation company to submit to the ERC audited financial statements and
forecast financial statements for the next two fiscal years, among other documents. The failure by a generation company
to submit the requirements so prescribed by the guidelines may be a ground for the imposition of fines and penalties.
AP’s Generation Companies, as well as DLP and CLP which own generation facilities, are required under the EPIRA to
obtain a COC from the ERC for its generation facilities. They are also required to comply with technical, financial and
environmental standards provided in existing laws and regulations in their operations.
The Generation Companies, DLP and CLP possess COCs for their generation businesses, as follows:
Title of Document:
Certificate of
Compliance
No. 03-11-GXT33-0033
Power Plant
Issued
under the
name of:
Type
HEDC
Hydro
Capacity
(in MW)
Fuel
Years
Of
Service
Tadiangan, Tuba,
Benguet
2.56
Hydro
13
Hydro
Nangalisan, Tuba,
Benguet
2.50
Hydro
13
Hydro
Ampucao, Itogon,
Benguet
2.40
Hydro
15
Hydro
Bito, La Trinidad,
Benguet
10.75
Hydro
15
Hydro
Banengbeng,
Sablan, Benguet
8.00
Hydro
15
Hydro
Calinan, Davao
City
1.00
Hydro
16
Location
Date of
Issuance
December 7,
2006
Certificate of
Compliance
No. 05-02-GXT 286b 0331
HEDCOR
Hydro
Electric
Turbine
Brgy. Mintal,
Talomo, Davao
City
3.47
Hydro
15
February 26,
2007
Certificate of
Compliance
No. 03-11-GXT32-0032
NMHC
Hydro
Bakun Central,
Bakun, Benguet
10
Hydro
15
December 7,
2006
Hydro
Ampusongan,
Bakun, Benguet
2.6
Hydro
15
Certificate of
Compliance
No. 03-08-GXT17-0017
LHC
Hydro
Amilongan Alilem,
Ilocos Sur
70
Hydro
23
July 29, 2008
Certificate of
Compliance No. 05-12GXT13701-13728
DLP
Diesel
Engine
J.P. Laurel Ave.,
Bajada, Davao
City
54.27
Diesel
15
December 7,
2005
Diesel
Engine
Panabo Office
41.6
Diesel
15
Diesel
Engine
Ponciano Reyes
Substation
105
Diesel
15
Sinsuat Ave.,
Cotabato City
9.9
Diesel
Notice of Approval
of Certificate of
Compliance dated Jan.
15, 2007
CLP
Diesel
SEC FORM 20 - IS (INFORMATION STATEMENT)
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A B O I T I Z PO W E R C O R P O R AT I O N
Title of Document:
Issued
under the
name of:
Power Plant
Type
Location
Capacity
(in MW)
Fuel
Years
Of
Service
Date of
Issuance
Certificate of
Compliance No. 08-06GXT2-0002
EAUC
Land-Based Mactan Export
Diesel HFO Processing Zone,
Fired Engine Lapulapu City
46
Heavy Fuel
Oil
20
June 10, 2008
Certificate of
Compliance No. 08-06GXT1-0001
CPPC
Land-Based Old VECO
Diesel HFO Compound, Brgy.
Fired Engine Ermita, Cebu City
70
Heavy Fuel
Oil
20
June 3, 2008
Certificate of
Compliance No. 08-08GXT20-0020
WMPC
Diesel
Sitio Malasugat,
Sangali,
Zamboanga City
100
Bunker-C/
Diesel
30
August 7, 2008
Certificate of
Compliance No. 05-11GXT-2860-13433
SNAPMagat
(Magat
Plant)
Hydro
electric
turbine
Gen. Aguinaldo,
Ramon, Isabela
360
Hydro
Stand-by
Diesel
Genset
Gen. Aguinaldo,
Ramon, Isabela
350
Diesel
November 29,
2005 (change
of ownership
issued on
January 28,
2008)
Certificate of
Compliance No.
05-11-GXT286m-13429
NPC
(Binga
Plant)
Hydro
Electric
Turbine
Sitio Binga,
TInongdan,
Itogon, Benguet
100
Hydro
Certificate of
Compliance No. 06-08GN-16
STEAG
Power
Coal fired
Park V, Phividec
Industrial Estate,
Balacanas,
Villanueva,
Misamis Oriental
232
Coal
25
1.25
Diesel
25
Brgy. Bitin, Bay,
Laguna
Plant A
110 MW
Plant D –
40 MW
Steam
May 31, 2005
Sitio Tamlong,
Brgy. Limao,
Calauan, Laguna
Plant B –
110 MW
Plant C –
110 MW
Brgy. Sta. Elena,
Sto. Tomas,
Batangas
Plant E –
40 MW
Stand-by
Genset
Certificate of
Compliance No.
05-05-GXT286e-7833
NPC
MakBan
GPP
Geothermal
November 23,
2005
August 30,
2006
Certificate of
Compliance No. 05-12GXT 286r-13736
NPC – Tiwi
GPP
Geothermal
Brgy. Cale, Tiwi,
Albay
275
Steam
December 12,
2005
Certificate of
Compliance No. 06-04GXT 286aa-14632
OrmatMakBan
Binary
GPP
Geothermal
Brgy. Sta. Elena,
Sto. Tomas,
Batangas
Brgy. Bitin, Bay,
Laguna
Brgy. Tamlong,
Calauan, Laguna
18.50
Steam
April 6, 2006
Certificate of
Compliance No. 06-04GXT-28699-15074
Power
Barge 118
Carlos Cutler
Ave., Brgy. San
Roque, Maco,
Compostela
Valley
103.80
Diesel
April 19, 2006
1.68
Diesel
SEC FORM 20 - IS (INFORMATION STATEMENT)
Diesel
Engine
Stand-by
Diesel
Genset
ANNUAL REPORT 200 9
Title of Document:
Certificate of
Compliance No. 06-04GXT 286bb-14633
Issued
under the
name of:
Power
Barge 117
51
Power Plant
Type
Location
Diesel
Engine
Steam
Turbine
Capacity
(in MW)
Fuel
100.00
Diesel
3.50
Steam
1.68
Diesel
Nasipit, Agusan
del Norte
Stand-by
Genset
Years
Of
Service
Date of
Issuance
April 6, 2006
AP’s generation companies, which operate hydroelectric facilities, are also required to obtain water permits from the
NWRB for the water flow used to run their respective hydroelectric facilities. These permits specify the source of the water
flow that the Generation Companies can use for their hydroelectric generation facility, as well as the allowable volume of
water that can be used from the source of the water flow. Water permits have no expiration date and generally are not
terminated by the Government as long as the holder of the permit complies with the terms of the permit regarding the use
of the water flow and the allowable volume.
Distribution Business
Under the EPIRA, the business of electricity distribution is a regulated public utility business that requires a national
franchise that can be granted only by the Congress of the Philippines. In addition to the legislative franchise, a Certificate
of Public Convenience and Necessity from the ERC is also required to operate as a public utility. Except for Distribution
Companies operating within ecozones, all Distribution Companies possess franchises granted by Philippine Congress.
All distribution utilities are required to submit to the ERC a statement of their compliance with the technical specifications
prescribed in the Distribution Code (which provides the rules and regulations for the operation and maintenance of
distribution systems), and the performance standards set out in the implementing rules and regulations of the EPIRA.
Shown below are the respective expiration periods of the Distribution Companies’ legislative franchises:
VECO
DLP
CLP
SFELAPCO
SEZ4 Expiration Date
2030
2025
2014
2035
2028
MEZ and BEZ, which operate the power distribution utilities in MEPZ II and the WCIP, respectively, are duly registered with
PEZA as Ecozone Utilities Enterprises.
Supply Business
The business of supplying electricity is currently being undertaken solely by franchised distribution utilities. However,
once Retail Competition and Open Access start, the supply function will become competitive. Like power generation, the
business of supplying electricity is not considered a public utility operation under the EPIRA. However, it is considered a
business affected with public interest. As such, the EPIRA requires all suppliers of electricity to end-users in the Contestable
Market, other than distribution utilities within their franchise areas, to obtain a license from the ERC in accordance with
the ERC’s rules and regulations. In preparation for the implementation of Retail Competition and Open Access, AP’s
wholly-owned subsidiaries, AESI and Adventenergy, Inc. obtained separate licenses to act as Retail Electricity Suppliers
and Wholesale Aggregators.
4
Distribution Service Management Agreement with the Subic Bay Metropolitan Authority
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A B O I T I Z PO W E R C O R P O R AT I O N
Trademarks
AP and its subsidiaries own, or have pending applications for the registration of intellectual property rights for various
trademarks associated with their corporate names and logos. The following table sets out information regarding the
trademark applications the Company and its subsidiaries have filed with the Philippine Intellectual Property Office.
Trademarks
Applicant
Date Filed
Certificate of
Registration No./
Date Issued
Description
Status
ABOITIZ ENERGY
SOLUTIONS, INC.
AESI
January 25, 2007
4-2007-000784
Application for
trademark ABOITIZ
September 03, 2007 ENERGY SOLUTIONS
and DEVICE
Original Certificate
of Registration
for the ABOITIZ
ENERGY
SOLUTIONS &
DEVICE was issued
on September 03,
2007
CLEANERGY
AP
October 19, 2001
4-2001-07900
Application for
trademark “Cleanergy”
Original Certificate
of Registration
for the mark
CLEANERGY was
issued on January
13, 2006
Application for
trademark Cleanergy
and Device with the
representation of a
lightbulb with three
leaves attached to
it, with the words
“CLEANERGY” and
a small “ABOITIZ”
diamond logo below it
Original Certificate
of Registration no.
4-2002-006293 was
issued on July 16,
2007
This is an application
for trademark “Power
One”
Original Certificate
of Registration was
issued on February
19, 2007.
Application for
trademark “ Power One
and Device”
Original Certificate
of Registration
no. 4-1999-001121
was issued on
September 18,
2006.
Trademark Application
for Subic Enerzone
Corporation and Logo
(blue & yellow). The
mark consists of the
words “Subic Enerzone”
in Fujiyama extra bold
font with the word
“Corporation” below
it, also in Fujiyama
font, rendered in cobalt
medium blue color, and
a representation of the
letter “S” taking the
shape of a flame (the
company logo) above
the words. The logo
is likewise rendered
in the cobalt medium
blue color, in a yellow
background
Original Certificate
of Registration No.
4-2006-007306 was
issued on August
20, 2007.
January 13, 2006
CLEANERGY & DEVICE
AP
July 30, 2002
4-2002-6293
July 16, 2007
POWER ONE
(wordmark)
AESI
July 29, 2002
4-2002-6232
February 19, 2007
POWER ONE & DEVICE AESI
February 17, 1999
4-1999-001121
September 18,2006
SUBIC ENERZONE
CORP. & LOGO (color
claim)
SEZC
SEC FORM 20 - IS (INFORMATION STATEMENT)
July 6, 2006
4-2006-07306
August 20,2007
ANNUAL REPORT 200 9
Trademarks
Applicant
SUBIC ENERZONE
CORP. & LOGO (gray)
SEZC
SUBIC ENERZONE
CORPORATION
(wordmark)
SEZC
RP Energy and Device
RP Energy
Date Filed
July 6, 2006
Certificate of
Registration No./
Date Issued
4-2006-07305
August 20,2007
July 6, 2006
4-2006-007304
June 4, 2007
August 12, 2008
4-2008-009737
April 13, 2009
(x)
Description
Status
Trademark Application
for Subic Enerzone
Corp. wordmark and
logo (gray). The mark
consists of the words
“SUBIC ENERZONE”
in Fujiyama extra bold
font with the word
“Corporation” below it,
also in Fujiyama font,
and a representation of
the letter “S” taking the
shape of a flame (the
company logo) above
the words.
Original Certificate
of Registration No.
4-2006-007306 was
issued on August
20, 2007.
Trademark Application
for Subic Enerzone
Corporation
(wordmark)
Original Certificate
of Registration was
issued on June 4,
2007.
Trademark application
for energy generation
under class 39. A
representation of two
mountains, colored
blue and red, with the
representation of the
sun over them, and the
words “RP Energy” and
“Redondo Peninsula
Energy Incorporated”
below it.
Original Certificate
was issued on April
13, 2009
53
Effect of Existing or Probable Government Regulations on the Business
Since the enactment of the EPIRA in 2001, the Philippine power industry has undergone and continues to undergo
significant restructuring. Through the EPIRA, the Government began instituting major reforms with the goal of fully
privatizing all sectors of the power industry. Among the provisions of the EPIRA which have or will have considerable
impact on AP’s businesses are the following:
Wholesale Electricity Spot Market
The WESM, a spot market for the buying and selling of electricity, is a mechanism established by the EPIRA to facilitate
competition in the production and consumption of electricity. It aims to: (a) provide incentives for the cost-efficient
dispatch of power through an economic merit order; (b) create reliable price signals to assist participants in weighing
investment options; and (c) protect a fair and level playing field for suppliers and buyers of electricity, where prices are
driven by market forces.
The WESM provides a venue whereby generators may sell power, and at the same time suppliers and wholesale consumers
can purchase electricity where no bilateral contract exists between the two. Although generators are allowed under the
WESM to transact through bilateral contracts, these contracts will have to be “offered” to the market for the purpose of
determining the appropriate merit order of generators. Settlement for bilateral contracts will, however, occur outside the
market between the contracting parties. Traded electricity, not covered by bilateral contracts, will be settled through the
market on the basis of the market clearing prices for each of the trading periods.
Open Access and Retail Competition
The EPIRA likewise provides for a system of Open Access to transmission and distribution wires, whereby Transco, its
concessionaire NGCP and any distribution utility may not refuse use of their wires by qualified persons, subject to the
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54
A B O I T I Z PO W E R C O R P O R AT I O N
payment of transmission and distribution retail wheeling charges. Conditions for the commencement of the Open Access
system are as follows:
(a) Establishment of the WESM;
(b) Approval of unbundled transmission and distribution wheeling charges;
(c) Initial implementation of the cross subsidy removal scheme;
(d) Privatization of at least 70% of the total capacity of generating assets of NPC in Luzon and Visayas; and
(e) Transfer of the management and control of at least 70% of the total energy output of power plants under contract
with NPC to the IPP administrators.
The Government expects Retail Competition and Open Access to be implemented in phases. As far as Luzon is concerned,
the WESM began operations in June 2006 and End-Users who comprise the Contestable Market have already been
identified. The WESM for the Visayas began trial operations sometime in 2007. Open Access in Luzon and the Visayas
will commence once preconditions thereto as provided under the EPIRA have been complied with. In Mindanao, a truly
competitive environment required by Retail Competition is not expected to exist prior to at least 2011 because the largest
generating asset owned by NPC in Mindanao cannot by law be privatized for at least 10 years from the passage of EPIRA.
Upon implementation of Open Access, the various contracts entered into by utilities or suppliers may potentially be
“stranded.” Stranded contract costs refer to the excess of the contracted costs of electricity under eligible contracts over
the actual selling price of the contracted energy under such contracts in the market.
Interim Open Access/Power Supply Option Program
Power industry players filed a petition with the ERC docketed as ERC Case No. 2008-026 RC entitled “In the Matter
of the Petition for Approval of Interim Open Access (IOA) in the Luzon and Visayas Grid to implement an open access
prior to satisfaction of conditions laid down under the EPIRA.” The ERC approved this application with modifications
emphasizing the voluntary nature of the proposed IOA where the choice of whether to participate in the IOA or not is left
to the distribution utility and its eligible customers. The ERC ruled that considering the primary and ultimate goal of the
IOA is to provide large end users additional options for power supply, it would instead consider the proposal as the “Power
Supply Option Program” (PSOP).
On January 25, 2010, the ERC promulgated Resolution 01, Series of 2010, otherwise known as “A Resolution Adopting
the Rules for the Power Supply Option Program” (the “PSOP Rules”). The PSOP Rules provide the regulatory framework
for the implementation of the PSOP, including guidelines on the eligibility of potential participants to the PSOP, the
manner of entry and exit of these participants and the treatment of existing contracts during the implementation of the
PSOP. The implementation of the PSOP within a franchise area is a voluntary act on the part of the distribution utility.
Thus, only eligible customers within the franchise areas of eligible distribution utilities are allowed to participate in the
program. The implementation of the PSOP is limited only to Luzon. Once the ERC declares the establishment of actual
open access and retail competition, the PSOP and all contracts and transactions related thereto, other than the resolution
of obligations and disputes arising therefrom, automatically terminate upon commencement date of Open Access and
Retail Competition as determined by the ERC.
Under the Rules, PSOP Customers will consist of end–users with a monthly average peak demand of at least one MW for
the past 12 months prior to the implementation of the PSOP with a requirement for the threshold level of one MW being
retained throughout the duration of the PSOP. No aggregation of the demand requirements of end-users will be allowed.
Only Eligible Suppliers (ES) as defined in the Rules are allowed to participate in the PSOP. These include: (i) Generation
Companies, including NPC-successor generating companies, that are within the mandated market cap; (ii) NPC IPPs in
relation to capacity not covered by contracts; (iii) IPP Administrators with respect to the uncontracted energy which is
subject to their administration and management; and (iv) NPC/PSALM, upon compliance with the market share limitation
under Section 45 of the EPIRA. To be considered as Eligible Supplier, a license as Retail Electricity Suppliers (RES) must
have been secured from the ERC.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
55
The PSOP shall commence 90 days after completion of either of the following conditions, whichever comes earlier: the
transfer of the operations of the Calaca NPC generation asset or its equivalent in terms of capacity, or the privatization
of at least 70% of the total capacity of the generation assets of NPC in Luzon and Visayas. Eligible suppliers shall provide
all power requirements of its customers, except for energy related to distribution system losses, energy imbalances as
defined in the WESM Rules, and line rental.
Unbundling of Rates and Removal of Subsidies
The EPIRA mandates the unbundling of distribution and wheeling charges from retail rates with such unbundled rates
reflecting the respective costs of providing each service. The EPIRA also states that cross subsidies shall be phased out
within a period not exceeding three years from the establishment by the ERC of a Universal Charge, which shall be
collected from all electricity end-users. However, the ERC may extend the period for the removal of the cross-subsidies
for a maximum of one year if it determines there will be material adverse effect upon the public interest or an immediate,
irreparable, and adverse financial effect on a distribution utility.
The EPIRA likewise provides for a socialized pricing mechanism called a lifeline rate set by the ERC for low-income, captive
electricity consumers who cannot afford to pay the full cost of electricity. These end-users will be exempt from the crosssubsidy removal for a period of 10 years, unless extended by law.
Implementation of the Performance-based Rate-setting Regulation (PBR)
On December 13, 2006, the ERC issued the Rules for Setting Distribution Wheeling Rates (RDWR) for privately owned
distribution utilities entering PBR for the second and later entry points that sets out the manner in which this new PBR
rate-setting mechanism for distribution-related charges will be implemented. PBR is intended to replace the RORB that
has historically determined the distribution charges paid by the Distribution Companies’ customers. Under PBR, the
distribution-related charges that Distribution Utilities can collect from customers over a four-year regulatory period will be
set by reference to projected revenues which are reviewed and approved by the ERC and used by the ERC to determine a
distribution utility’s efficiency factor. For each year during the regulatory period, a Distribution Utility’s distribution charges
are adjusted upwards or downwards taking into consideration the utility’s efficiency factor set against changes in overall
consumer prices in the Philippines. The ERC has also implemented a performance incentive scheme whereby annual
rate adjustments under PBR will also take into consideration the ability of a distribution utility to meet or exceed service
performance targets set by the ERC, such as the average duration of power outages, the average time of restoration to
customers and the average time to respond to customer calls, with utilities being rewarded or penalized depending on
their ability to meet these performance targets.
The ERC issued its final determination on CLP’s application for approval of its annual revenue requirement and performance
incentive scheme under the PBR scheme covering the second year of the four-year regulatory period. CLP’s four-year
regulatory period commenced on April 1, 2009 until March 30, 2013.
On April 15, 2009, the ERC approved CLP’s application for translation of its approved annual revenue requirement for the
first regulatory year into applicable rates per customer class. CLP implemented the approved rates last May 1, 2009 ― a
month after the start of the first regulatory year. The resulting under recovery from the one-month lag will be reflected
and recovered in the next regulatory year’s rate translation application.
CLP has received approval for its new rates covering the second regulatory period that commenced on April 1, 2010.
VECO entered its reset period in end 2008 under the PBR and has received a final determination on its PBR application
from ERC. VECO will be submitting its rate design proposals based on the final determination by April 2010. It is expected
that final PBR approvals will allow VECO to enter the four-year regulatory period on July 1, 2010.
DLP entered its reset period in January 2009 under the PBR and has received a final determination on its PBR application
from ERC. It will be submitting its rate design proposals based on the final determination by April 2010. It is expected that
final PBR approvals will allow DLP to enter the four-year regulatory period on July 1, 2010.
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A B O I T I Z PO W E R C O R P O R AT I O N
For SFELAPCO and SEZ, the reset process began on October 1, 2009. During the 18 months prior to the PBR start date for
each Distribution Company, it will undergo a regulatory reset process through which the PBR rate control arrangements are
established based on documents submitted by the Distribution Company in the ERC, ERC resolutions, and consultations
with the Distribution Company and the general public.
Reduction of Taxes and Royalties on Indigenous Energy Resources
To equalize prices between imported and indigenous fuels, the EPIRA mandates the President of the Philippines to reduce
the royalties, returns and taxes collected for the exploitation of all indigenous sources of energy, including but not limited
to, natural gas and geothermal steam, so as to effect parity of tax treatment with the existing rates for imported coal,
crude oil, bunker fuel and other imported fuels. Following the promulgation of the implementing rules and regulations,
President Arroyo enacted Executive Order 100 to equalize the taxes among fuels used for power generation.
Proposed Amendments to the EPIRA
Since the enactment of the EPIRA, members of the Philippine Senate and House of Representatives have proposed
amendments to the EPIRA. Some of the proposed amendments are discussed below.
(a) Disallow recovery of Stranded Contract costs;
(b) Require transmission charges, wheeling charges, connection fees, and retail rates to be approved by the ERC only
after due notice and public hearing participated in by all interested parties;
(c) Exclude from the rate base the following items that Transco and the Distribution Utilities charge the public:
corporate income tax, value of the franchise, value of real or personal property held for possible future growth,
costs of over-adequate assets and facilities, and amount of all deposits as a condition for rendition and continuation
of service;
(d) Prohibit cross-ownership between Generation Companies and Distribution Utilities or any of their subsidiaries,
affiliates, stockholders, officials, or directors, or the officials, directors, or other stockholders of such subsidiaries
or affiliates, including the relatives of such stockholders, officials, or directors within the fourth civil degree of
consanguinity;
(e) Prohibit distribution utilities under a bilateral electric power supply contract from sourcing more than 33% of
its total electric power supply requirements from a single generation company or from a group of generating
companies wholly owned or controlled by the same interests. On the effectiveness of the proposed law, any
distribution utility that has contracts which exceed the allowable 33% limit will be directed to desist from further
awarding additional electric power supply contracts with any generation company or group of generating
companies wholly owned or controlled by the same interests, until its present electric power supply requirements,
when added to the proposed additional electric power supply contract or contracts with any generation company
or group of generating companies wholly owned or controlled by the same interests shall comply with the 33%
limit.
The Renewable Energy Act of 2008
Republic Act 9513, the Renewable Energy Act of 2008 (RE Law), is a landmark legislation and is said to be the most
comprehensive renewable energy law in Southeast Asia. The RE Law was signed into law by President Arroyo on December
16, 2008 but took effect on January 31, 2009.
The RE Law’s declared policy is to encourage and develop the use of renewable energy resources of the country to reduce
the country’s dependence on fossil fuels and reduce overall costs of energy, and reduce, if not prevent harmful emissions
into the environment to promote health and sustainable environment.
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The RE Law imposes a government share on existing and new RE development projects at a rate of 1% of gross income
from sale of renewable energy and other incidental income from generation, transmission and sale of electric power and
a rate of 1.5% of gross income for indigenous geothermal energy. Micro-scale projects for communal purposes and noncommercial operations with capacity not exceeding 100 kW will not be subject to the government share.
More importantly, the RE Law offers fiscal and non-fiscal incentives to RE developers of RE facilities, including hybrid
systems, subject to a certification from Department of Energy (DOE), in consultation with the BOI. These incentives
include income tax holiday for the first seven years of operation; duty-free importations of RE machinery, equipment
and materials effective within 10 years upon issuance of certification, provided, said machinery, equipment and materials
are directly, exclusively and actually used in RE facilities; special realty tax rates on equipment and machinery not
exceeding 1.5% of the net book value; net operating loss carry-over (nolco); corporate tax rate of 10% after the seventh
year; accelerated depreciation; zero-percent value-added tax on sale of fuel or power generated from emerging energy
sources and purchases of local supply of goods, properties and services of RE facilities; cash incentives for RE developers
for missionary electrification; tax exemption on carbon emission credits; tax credit on domestic capital equipment and
services. All fiscal incentives apply to all RE capacities upon effectivity of the RE Law. RE producers are also given the
option to pay National Transmission Corporation transmission and wheeling charges on a per kilowatt-hour basis and
are given priority dispatch. RE producers are likewise exempted from universal charge imposed under the EPIRA. In
addition, the RE Law provides a financial assistance program from government financial institutions for the development,
utilization and commercialization of renewable energy projects, as may be recommended and endorsed by the DOE.
New ERC Regulation on Systems Loss Cap Reduction
Under ERC Resolution 17, Series of 2008, which amends the systems loss caps adopted by Republic Act 7832 (Anti-Pilferage
of Electricity and Theft of Electric Transmission Lines/Materials Act of 1994), the actual recoverable systems losses of
distribution utilities was reduced from 9.5% to 8.5%. The new system loss cap was implemented in January 2010.
Under the new regulation, actual company use of electricity shall be treated as an expense of the distribution utilities in
accordance with the following rules: for distribution utilities that are yet to enter PBR, the actual use shall be treated as
Operation and Maintenance in their PBR applications; and for distribution utilities that are already under PBR, the actual
use shall be treated as Operation and Maintenance in their subsequent reset.
(xi) Estimate of Amount Spent for Research and Development Activities
AP and its subsidiaries do not allocate specific amounts or fixed percentages for research and development. All research
and developmental activities are done by AP’s subsidiaries and affiliates on a per project basis. The allocation for such
activities may vary depending on the nature of the project.
(xii) Costs and Effect of Compliance with Environmental Laws
AP’s power generation and distribution operations are subject to extensive, evolving and increasingly stringent safety,
health and environmental laws and regulations. These laws and regulations, such as the Clean Air Act (Republic Act 8749),
address, among other things, air emissions, wastewater discharges, the generation, handling, storage, transportation,
treatment and disposal of toxic or hazardous chemicals, materials and waste, workplace conditions and employee exposure
to hazardous substances. Each of AP Generation and Distribution Companies has incurred, and expects to continue to
incur, operating costs to comply with such laws and regulations. In addition, each of AP’s Generation and Distribution
Companies has made and expects to make capital expenditures on an ongoing basis to comply with safety, health and
environmental laws and regulations. AP’s hydropower companies allocate a budget for watershed management system
in the respective watersheds where their projects are located.
The Renewable Energy Act adds new and evolving measures that must be complied with. The law ushers new opportunities
for the Company and sets competitive challenges. The Renewable Portfolio Standard supports the growth of renewable
energy in the Philippines. The Renewable Energy Market, Green Energy Option and Net Metering will redefine the
competitive landscape of the industry.
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A B O I T I Z PO W E R C O R P O R AT I O N
Further, the adoption of new safety, health and environmental laws and regulations, new interpretations of existing laws,
increased governmental enforcement of environmental laws or other developments in the future may require that the
Company make additional capital expenditures or incur additional operating expenses in order to maintain the operations
of its generating facilities at their current level, curtail power generation or take other actions that could have a material
adverse effect on the Company’s financial condition, results of operations and cash flow.
In 2009, AP and its subsidiaries and affiliates did not incur any major sanctions for violation of environmental standards and
law. Investments for occupational health and safety measures paid off for some companies who have gained recognition
for operating without accidents.
Regulations such as Energy Regulation 1-94 gets the companies to allocate funds for the benefit of host communities.
Compliance is not only for protection of the natural environment but also of the communities that inhabit the landscape.
AP continues to be cognizant of new opportunities to comply with regulatory requirements and improvement of systems
to prevent adverse impacts to the environment or affected ecosystems.
(xiii) Employees
On the parent company level, AP has a total of 72 employees as of February 28, 2010, composed of executive, supervisory,
and rank and file staff. There is no existing collective bargaining agreement covering AP employees.
As of February 28, 2010, the Company, its consolidated subsidiaries, LHC, VECO, SNAP-Benguet, SNAP-Magat, EAUC
and MORE employed a total of 584 employees, are directly employed by the Company and its consolidated subsidiaries.
Notwithstanding disputes relating to collective bargaining matters in some subsidiaries, Management believes that the
Company’s current relationship with its employees is generally good and neither the Company nor any of its subsidiaries
(including VECO) has experienced a work stoppage as a result of labor disagreements. However, 116 former employees
of VECO who voluntarily accepted payments under VECO’s redundancy program have filed labor cases alleging that they
were illegally dismissed. VECO has vigorously defended itself and the cases are pending resolution with the National
Labor Relations Commission.
The following table provides a breakdown of total employee headcount on a per company basis, divided by function, as
of February 28, 2010.
The Company does not anticipate any increase in manpower within the next 12 months unless new development projects
and acquisitions would materially require an increase. The Company cannot provide definite figures as to future manpower
requirements of new development projects and acquisitions since the realization of such projects are dependent on,
among others, the ability of the Company to win bids in the privatization of power plants.
Number of Employees
Business Unit
AP
Total
Executives Managers
Supervisors
Rank &
File
Unionized
Employees
Expiry of
CBA
72
29
10
3
30
0
NA
AESI
11
0
1
1
9
0
NA
BEZ
10
1
1
1
7
0
NA
MEZ
7
1
1
1
4
0
NA
ARI
7
7
0
0
0
0
NA
CPPC
43
0
2
12
29
0
NA
EAUC
43
1
3
14
25
0
NA
MORE
45
8
6
30
1
0
NA
SEZ
29
1
1
5
22
0
NA
SNAP-Magat, Inc.
46
0
3
20
23
0
NA
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
Number of Employees
Business Unit
SNAP-Benguet, Inc.
ABOVANT
STEAG Power
Total
Executives Managers
Supervisors
Rank &
File
Unionized
Employees
Expiry of
CBA
104
2
4
32
66
0
NA
7
7
0
0
0
0
NA
192
3
17
38
134
0
NA
WMPC
77
0
3
19
55
0
NA
SSPC
69
0
4
18
47
0
NA
CLP
58
0
2
16
40
40
June 30,
2014
DLP
286
13
25
63
185
185
2011
Hedcor, Inc.
258
8
7
20
223
148
Sept. 11,
2011
VECO
307
10
19
25
253
253
Dec. 2011
SFELAPCO
93
2
1
21
69
69
May 10,
2011
TOTAL NO. OF EMPLOYEES
(xiv) 59
1,803
Major Risk/s Involved in the Business
Certain risks are inherent to the businesses that AP and its investee companies are engaged in. Through prudent
management and investment decisions, AP constantly strives to minimize the impact of such risks on its businesses. The
following are the major risks inherent to AP’s businesses:
Increased competition in the power industry could have a significant adverse impact on the Company’s operations
and financial performance
In recent years, the Government has sought to implement measures designed to establish a competitive energy market.
In 2001, the Philippine legislature enacted the EPIRA law. Its purpose is to establish a transparent and efficient market
for the competitive trading of electricity, and to encourage private investment in the power industry. EPIRA includes
the privatization of substantially all NPC-owned power generation facilities, all NPC-controlled capacity through IPP
agreements, and all Government owned and operated transmission facilities, and the establishment of a wholesale spot
market for electricity. To date, more than 70% of NPC’s assets have been privatized. A 70% level of generation asset
divestiture in Luzon and Visayas is targeted by the Government. The WESM was declared operational in Luzon on June
23, 2006.
The move towards a more competitive environment could result in the emergence of new and numerous competitors.
Some of these competitors may have greater financial resources, more extensive operational experience, and thus be
more successful than the Company in acquiring existing power generation facilities or in obtaining financing for and the
construction of new power generation facilities.
The impact of the ongoing restructuring of the Philippine power industry may also affect the Company’s financial position,
results of operations and cash flows in various ways. For example, contract life of power supply agreements is shorter
under the deregulated environment. This subjects the Generation Companies to more price volatility as pricing during
contract negotiation will be greatly affected by prevailing supply and demand situation.
The Company’s acquisition strategy, however, has been one of prudence and careful selection. The Company bids for
generation assets in which it feels it has a competitive advantage over its competitors; either in the form of (a) technical
expertise leading to being a low cost producer or (b) the ability to sell the power generated.
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A B O I T I Z PO W E R C O R P O R AT I O N
The Company maintains technical expertise and advantage in running and building hydro power plants. Such advantage
has been built through several years of experience. In plant types where the Company has limited technical expertise, the
Company enters into partnerships with entities that possess such expertise, allowing for the transfer of said expertise to
the Company.
The Company’s geographically scattered distribution business also provides a reliable customer base of approximately
685,000 customers for its Generation Companies. Such customers have been successfully served by the Aboitiz Group for
several years, a first contact advantage not enjoyed by other players.
In addition, because of the geographically scattered distribution of its Distribution Companies and Generation Companies,
the Company is still below the grid limits restriction provided under EPIRA.
Risks Relating to Electricity Sales
Trading Risks
Power prices are subject to significant volatility from supply and demand imbalances. From the time the WESM for Luzon
began operating in June 2006, market prices for electric power have fluctuated substantially.
Long-term and short-term power prices may also fluctuate substantially due to the factors outside of the Company’s
control, which include the following: over or under supply of capacities available to the market vis-à-vis market
demand, transmission constraints, disruptions in the delivery chain, weather conditions, government power market and
environmental regulations and legislation, and price sensitivities linked to the price of fuel.
These factors have caused and are expected to cause fluctuation or instability in the operating results of the Generation
Companies, particularly of SNAP-Magat, SNAP-Benguet, Therma Luzon, APRI, as these companies sell substantial
portions of the electricity they generate to the WESM.
Magat and Binga, AP’s merchant hydroelectric plants, have the ability to store water equivalent to one month and two
weeks, respectively, of generating capacity, allowing for the generation and sale of electricity at the peak hours of the
day which command premium prices. The hydroelectric plants’ source of upside, water, as a source of fuel and the ability
to store it, is also the source of limited downside. Both Magat and Binga have minimal marginal costs, granting them
competitive advantage in terms of economic dispatch order versus other fuel-fired power plants that have significant
marginal cash costs. SNAP-Magat sells most of the electricity generated by the Magat Plant through the WESM. Electricity
generated by the Binga hydroelectric plant, on the other hand, is sold through the WESM.
On sales made through the WESM, APRI runs the risk of spot prices falling to below its marginal cost of steam when there
is oversupply in the WESM. Such an event would result in curtailment of generation, costing APRI the price of unused
vented steam resource.
On the portion of its capacity not covered by bilateral contracts, Therma Luzon also runs the risk of spot prices falling
below its marginal cost of power (fuel plus energy fees) when there is a glut of supply in the WESM. Such an event will lead
to generation curtailment which in turn will create opportunity cost for Therma Luzon.
The volatility of the spot market provides opportunities in terms of price spikes. The supply situation and its reliability
in the Philippines is not expected to improve throughout the next three to four years with minimal capacity expected to
come on stream and an aging power supply inventory. Compounded with rising demand for power as projected by the
DOE, tightness in the market is expected to keep future spot power rates at favorable levels.
The risk taken in the spot market is balanced off by the capacity fee-based generation assets, generation-based contracted
capacity and the distribution business of the Company, which have predictable returns to a certain extent.
The Company also aims to achieve a balanced portfolio of contracted and merchant business. In the short-term, it will
be contracting more of its power under price-stable bilateral contracts. For the companies that have fuel risk like Therma
Luzon, it would be ideal for new bilateral contracts to have fuel costs as a pass through.
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Credit Risk
Credit risk is the risk of financial loss to the Company if a customer fails to meet its contractual obligations, and arises
principally from the Company’s trade accounts receivable. The Company’s customers are NPC, distribution utilities,
electric cooperatives and large end-users. The Company manages this risk through strict monitoring procedures and
continuous discussions with its customers. Entities that purchase power from the WESM undergo credit evaluation by
the Philippine Electricity Market Corporation (PEMC), WESM’s market operator, and are required to post prudential
guarantees equivalent to their average monthly transaction.
Fuel Risks
Some of the Company’s thermal plants―i.e., STEAG Power, CPPC, EAUC, CEDC and Therma Marine―have contracts that
allow for their fuel cost to be recovered from their tariffs. Except for Therma Marine which is in the process of entering into
a long-term fuel supply agreement, these companies also have existing long-term fuel supply contracts.
The SPPC and WMPC power plants are operated under ECAs with NPC. Under these agreements, NPC is required to
deliver and supply to both plants the fuel necessary to operate these power plants for the duration of the cooperation
period.
On the other hand, Therma Luzon has existing supply contracts to meet the Pagbilao plant’s coal requirements until
December 2010. While Therma Luzon’s objective is to enter into long-term coal supply agreements, it wants to first
establish more Indonesian coal sources to give it flexibility in its coal sourcing and allow it to purchase competitivelypriced coal in the market.
As regards APRI’s steam supply, it is possible that the steam resource will decline faster than anticipated. The Company
believes that the fact that Chevron, the largest producer of geothermal energy in the world, is the steam contractor/
mitigates the risks inherent in the supply of steam. Chevron has proven itself capable of managing the resource efficiently,
having almost 40 years of experience in developing, operating and maintaining the Tiwi-MakBan steamfields.
Extreme variations in hydrological conditions can adversely affect the results of operations of the Generation
Companies
As of the date of this report, hydroelectric plants account for approximately 20% of the total attributable generation
capacity of the Generation Companies. Hydroelectric generation in the regions of the Philippines where the Generation
Companies operate vary from period to period, and is dependent on the amount and location of rainfall and river flows in
these regions. In years of less favorable hydrological conditions, such as periods of drought or when the El Niño weather
phenomenon occurs, the amount of electricity the Generation Companies’ hydroelectric plants generate and sell under
their respective PPAs or through the WESM may be reduced.
Hedcor Sibulan is contractually required to supply fixed amounts of electricity under its PSA. Adverse hydrological
conditions may affect its ability to meet the requirements of its PSA. Conversely, if hydrological conditions are such that
too much rainfall occurs at any one time, water may flow too quickly, at volumes in excess of a particular hydroelectric
plant’s water intake capacity, which may cause clogged intakes and may result in shutdowns. Any of these events could
reduce Hedcor Sibulan’s revenues from the sale of electricity, or require Hedcor Sibulan to pay damages to its offtaker.
Although, the balance of the Company’s contracted hydroelectric portfolio does not have fixed supply amounts, they are
likewise subject to the same abovementioned risk in that revenues are earned solely on what is actually generated.
In relation to the foregoing, the Company’s impounding hydroelectric power plants, namely Magat and Ambuklao–Binga,
have large impounding dams, which allow for the storing of water used for generating electricity. Magat, one of the
Company’s merchant hydroelectric plants, has the ability to store water equivalent to one month of generating capacity;
while Ambuklao–Binga, the Company’s other merchant hydro plant, has the ability to store water equivalent to two weeks
of generating capacity. This flexibility allows for the generation and sale of electricity at the peak hours of the day and
in times of high spot prices and deferment of generation in time of low spot prices. The only time when the impounding
advantage might be considered at risk would only be during periods of severe drought.
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A B O I T I Z PO W E R C O R P O R AT I O N
Historically, there has been an inverse relationship between rainfall and spot prices. In times of high rainfall, prices of
electricity drop as expensive fossil fuel supply is displaced by cheaper hydroelectric capacity. This likewise results in higher
generation volume for the Company’s hydroelectric plants thus protecting the Company’s revenue levels. In times of low
rainfall, a drop in generation volume is partially offset by higher spot prices, which are in turn brought about by supply
served by more expensive fossil fuel-fired plants. As hydroelectric power plants have no fuel costs, earnings before
interest, taxes, depreciation and amortization (EBITDA) is protected.
In addition, hydroelectric power plants have no fuel cost and thus, have no marginal cost. Hydroelectric plants can
therefore sell at prices below the marginal fuel costs of fossil fuel-fired plants and still generate cash.
Thus, the ability of the merchant hydros to store water, provides the Company with upside by maintaining the flexibility
to sell power during high price periods and downside protection in the form of price floors defined by the marginal cost of
fossil fuel-fired plants.
Finally, the Philippines, being a tropical country, has regular seasonal rainfall patterns.
The Company’s ability to increase revenues from power generation depends, to a certain extent, on the existence
of transmission infrastructure with sufficient capacity to transmit the generating capacity of its existing and future
power plants
As of the date of this report, the Philippines’ electric transmission infrastructure continues to experience constraints on
the amount of electricity that can be transmitted (or “wheeled”) from power plants to off-takers. The lack of improvement
in transmission infrastructure has primarily been caused by a delay in the privatization of Transco as required under the
EPIRA, which in turn has delayed the implementation of projects to be undertaken by Transco, which is responsible for
maintaining and ensuring the sufficiency of the power transmission infrastructure in the Philippines. If these transmission
constraints continue, the volume of electricity that off-takers, such as NPC, distribution utilities and other large
purchasers, dispatch from IPPs could be adversely affected. These transmission constraints could have an impact on some
of the Generation Companies’ generation facilities, particularly Hedcor’s facilities in Northern Luzon and SNAP-Magat
and SNAP-Benguet’s hydroelectric plant, which are not located near the end-users to whom these companies sell, or
plan to sell. Any transmission constraints, therefore, could have an adverse impact on the level of revenues the Company
generates from its power generation business.
However, with the successful privatization of Transco in January 2009, it is expected that the new private owners will make
the necessary investments to upgrade the transmission system and infrastructure into a reliable and efficient transmission
network.
Some of the PPAs entered into by the Distribution Companies have “take or pay” provisions, regardless of the level
of demand from customers
Under the PPAs between some of the Distribution Companies, IPPs (such as the Generation Companies) and power
suppliers (such as NPC), the Distribution Companies are obligated to take or pay for minimum levels of electric power
generated by such power suppliers. These minimum levels are determined by the Distribution Companies based on their
expectations and forecasts regarding electric consumption and demand growth within their franchise areas. If the level of
electric consumption is below the level forecasted by the Distribution Companies, it is possible that they will have to pay
their power suppliers for the contracted level of electric power agreed to in the relevant PPAs, regardless of the sufficiency
demand from the Distribution Companies’ customers. Although the Distribution Companies are allowed under the terms
of their PPAs to on-sell to other buyers the electric power they are unable to sell to customers within their franchise areas,
there is no assurance that the Distribution Companies will be able to do so. As a result, if the Distribution Companies are
required to pay for a material volume of unsold electric power, it could materially and adversely affect the Company’s
business, financial conditions and results of operations.
It must be noted, however, that projected demands, which are used as basis for the take or pay provision, are based on
inputs and commitments from the Distribution Companies’ larger customers, taking into account economic projections.
In addition, NPC contracts allow for 20% positive variances without penalties.
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To mitigate this further, the Distribution Companies in Mindanao have pooled their contracts thereby decreasing the
risk of breaching the 20% allowable variance of NPC. A similar arrangement is currently being negotiated for the three
Visayas-based Distribution Companies of the Company.
The rates that the Distribution Companies are allowed to charge their customers are largely determined by the ERC
The Distribution Companies are heavily regulated and the components of the amounts that they are allowed to charge their
customers are determined, in large part, by the ERC. The Distribution Companies are routinely involved in proceedings
before the ERC, including general rate adjustment cases and those relating to various other aspects of their rates.
Decisions made by the ERC could have a material impact on the results of operations, financial condition and liquidity of
the Company and the Distribution Companies.
PBR replaces the RORB that was previously used to determine distribution charges. Under PBR, the distribution charges
that distribution utilities can collect over a four-year regulatory period will be set by reference to projected revenues based
on: allowable returns on assets, operating expenses and depreciation for each distribution utility, which are reviewed
and approved by the ERC. For each year of the regulatory period, the distribution charges which a distribution utility can
collect are adjusted upwards or downwards taking into consideration: changes in the interest rate environment which
affect the calculation of allowable returns, the distribution utility’s efficiency factor set against certain pre-approved
targets, changes in overall consumer prices in the Philippines and foreign exchange movements.
As a result, should the Distribution Companies’ projections prove inaccurate, the distribution charges the Distribution
Companies collect under PBR, may not be sufficient to allow them to operate efficiently and to fully recover their expenses.
Further, in recent years, increases in distribution charges approved by the ERC have been successfully challenged in court,
particularly those involving the largest private distribution utility in the Philippines, Manila Electric Company. Distribution
utilities have also been required to provide refunds to customers in certain cases. There is no assurance, therefore, that
any distribution charge approved by the ERC, whether under PBR or otherwise, will not be contested in and overturned by
Philippine courts or that the Distribution Companies will not be required to refund amounts to customers if the increases
of distribution charges are overturned. Any of the foregoing events could materially and adversely affect the performance
of the Distribution Companies and the Company’s business, financial condition and results of operations.
The implementation of the PBR-based rate adjustment formula for the Distribution Companies is on a staggered basis.
The ERC issued its final determination on CLP’s application for approval of its annual revenue requirement and performance
incentive scheme under the PBR scheme covering the second year of the four-year regulatory period. CLP’s four-year
regulatory period commenced on April 1, 2009 until March 30, 2013.
On April 15, 2009, the ERC approved CLP’s application for translation of its approved annual revenue requirement for the
first regulatory year into applicable rates per customer class. CLP implemented the approved rates last May 1, 2009―a
month after the start of the first regulatory year. The resulting under recovery from the one-month lag will be reflected
and recovered in the next regulatory year’s rate translation application.
CLP has received approval for its new rates covering the second regulatory period commenced on April 1, 2010.
VECO entered its reset period in end 2008 under the PBR and has received a final determination on its PBR application
from ERC. VECO will be submitting its rate design proposals based on the final determination by April 2010. It is expected
that final PBR approvals will allow VECO to enter the four-year regulatory period on July 1, 2010.
DLP entered its reset period in January 2009 under the PBR and has received a final determination on its PBR application
from ERC. It will be submitting its rate design proposals based on the final determination by April 2010. It is expected that
final PBR approvals will allow DLP to enter the four-year regulatory period on July 1, 2010.
For SFELAPCO and SEZ, the reset process began on October 1, 2009. During the 18 months prior to the PBR start date for
each Distribution Company, it will undergo a regulatory reset process through which the PBR rate control arrangements are
established based on documents submitted by the Distribution Company in the ERC, ERC resolutions, and consultations
with the Distribution Company and the general public.
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In addition to the annual adjustments described above, PBR allows for rate adjustments in between the re-set periods to
address extraordinary circumstances. There is also a mandatory rate-setting every four years when possible adjustments
to the rate take into account current situations.
The Company’s strategy in running its utilities is one of providing world-class service at the least possible cost. Providing
value to its customers allows the Company credibility and the ability to successfully implement justified rate increases.
This, along with a transparent and open relationship of over 70 years with the regulators, ensures the Company’s continued
ability to successfully apply and implement rate increases.
The removal of prompt payment and power factor discounts could adversely affect the margins of the Distribution
Companies
Prior to 2009, it was customary for NPC to grant a 3% Prompt Payment Discount (PPD) to its customers with the exception
of Meralco. The discount is given if the customers’ monthly bill is paid not later than the 10th day of the month succeeding
the relevant billing period provided that the power bill is served to the customer not later than the 30th day of the relevant
billing month. In the event that the power bill is served beyond the 30th day, the discount may continue to be availed of
until the 15th day of the relevant billing month. According to NPC, the underlying purpose in the practice of the PPD was
to provide customers the incentive to improve their collection efficiencies, allowing them to pay their bills to NPC on time
and minimize the build-up of accounts receivables across the chain.
The ERC’s Guidelines for the Automatic Adjustment of Generation Rates and System Loss Rates by Distribution Utilities
issued in 2004 and its amendment allows a distribution utility to keep 50% of the PPD. The other half is passed on to its
customers.
In 2009, NPC informed its customers that it will discontinue granting the PPD starting the billing period June 26 to July
25, 2009. This decision was made on the ground that the PPD had failed to serve its purpose. The Private Electric Power
Operators Association, Inc. (PEPOA) contested NPC’s right to discontinue the granting of the PPD. The petition is still
pending before the ERC. In the meantime, ERC had directed NPC to observe the status quo by continuing the grant of PPD
to its customers pending the resolution of PEPOA’s petition.
The PSAs between NPC and AP’s Distribution Companies provide for the granting of the PPD. These PSAs will be expiring
within the next four years, hence it is anticipated that the PPD will only be available until these contracts expire. The
Distribution Companies’ PSAs with IPP) do not provide for PPD.
The Power Factor Discount (PFD), on the other hand, is a discount originally extended by NPC, and later by Transco, to
its transmission customers whose power factor is higher than 90%. The PFD is meant to give incentive to distribution
utilities to invest and install power factor correcting devices, such as capacitors, to improve their power factors. Improved
power factors of transmission customers reduce transmission losses and free up transmission system capacity, thereby
benefiting the whole transmission grid.
The ERC, in Resolution 16 Series of 2007, as amended by Resolution 13 Series of 2008, mandated that the Net Power
Factor Discount (NPFD) of a distribution utility should be shared equally between the distribution utility and its customers.
In 2009, NGCP, Transco’s successor-in-interest, informed its customers that it would stop extending the PFD starting the
billing period June 26, 2009 to July 25, 2009. PEPOA contested before the ERC the NGCP’s decision to discontinue the
PFD. On June 30, 2009, the ERC ordered NGCP to maintain the status quo and directed NGCP to continue granting the
PFD to its customers pending final determination on PEPOA’s petition.
The Distribution Companies’ results of operations would be negatively affected to a certain extent should the ERC decide
to uphold NPC’s and NGCP’s right to discontinue the grant of the PPD and PFD.
The Distribution Companies’ business could be adversely affected by potential shortages in the supply of power from
generation facilities, volatile markets for purchased power, changes in customer demand or a failure of its suppliers
to deliver power
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The power distribution business involves many operating risks that can affect the ability of a distribution company to
supply electricity to its customers or may increase its costs for an extended period of time to a level that significantly
exceed what can be recovered from customers. Factors which could affect the operations of the Distribution Companies
or increase their respective costs, including generation costs, include:
(a) Depreciation of the peso against foreign currencies, such as the U.S. dollar;
(b) Below normal energy generated by the Distribution Companies’ power suppliers;
(c) Extended outages of power suppliers’ generating facilities or of the transmission lines that deliver energy to load
centers;
(d) Failure to perform on the part of any party, from which the Distribution Companies purchase capacity or energy;
and
(e) The effects of large-scale natural disasters, including destruction of distribution facilities and equipment.
Under the PBR, distribution tariffs are adjusted annually to account for depreciation of the peso against the U.S. dollar,
as well as other economic benchmarks including inflation, to determine an assigned Weighted Average Cost of Capital
(WACC). Based on factors like projected assets, capital expenditures, operating expenditures for a given year, an annual
revenue requirement is determined and this is divided over the kilowatt-hours projected to be sold by the distribution utility
for the year. During the annual reset period, the PBR allows for rate adjustments to address extraordinary circumstances
that may have affected the expected annual revenue requirement. An example of such circumstances is when the actual
kilowatt-hours sold for the year falls below the kilowatt-hours projected to be sold in arriving at the annual revenue
requirement.
In this regard, potential power supply shortages foreseen in both the Visayas and Mindanao markets are being addressed
by the ongoing Greenfield projects undertaken by the Company. The Company likewise constantly monitors the supply
situation in order to address potential shortfall problems before they can actually impact the Distribution Companies.
In addition, some of the Distribution Companies have alternative sources of supply. VECO has existing PPAs with Cebubased IPPs other than NPC (i.e. TPC, CPPC, CEDC and EAUC), while DLP and CLP have their own back-up power plants.
These alternative sources of supply are embedded into the utilities’ franchise areas thus bypassing transmission lines,
further providing a hedge against the risk of disruptions in the transmission grid.
The ability of Philippine consumers to absorb increased electricity costs may be limited
Although Distribution Companies are currently able to automatically pass on all of their generation costs to their customers,
generation costs may rise to levels that the average Philippine consumer may not be able to absorb. Continued increases
in electricity costs could result from, among other things, fluctuations in the exchange rate between the peso and foreign
currencies such as the U.S. dollar, shortages in the supply of electricity and other inflationary pressures. This may result in
customers reducing their electricity consumption or in an increase in illegal connections or pilferage, any of which could
materially and adversely affect the Company’s business, financial condition and results of operations.
Electricity demand is inelastic at certain levels where essential appliances and industries need to operate. In addition, the
present and future ratemaking structures allow recovery of expenses and capital in negative and low growth scenarios.
Lastly, the Distribution Companies maintain constantly evolving anti-pilferage programs.
If the Distribution Companies’ electricity losses exceed Government-mandated caps, their results of operations could
be adversely affected
The Distribution Companies experience two types of electricity losses: technical losses and non-technical losses. Technical
losses are losses that occur in the ordinary course of distributing and transmitting electricity. Non-technical losses are
losses that result from illegal connections, inaccurate meters, fraud and under billing. Republic Act 7832 (or the “AntiElectricity and Electric Transmission Lines/Materials Pilferage Act of 1994”) sets the system loss caps for distribution
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A B O I T I Z PO W E R C O R P O R AT I O N
utilities and electric cooperatives. Pursuant to this law, the ERC allowed distribution utilities to charge customers for
electricity losses, as long as electricity losses do not exceed 9.5% of the total electricity distributed by these distribution
utilities. In excess of the 9.5% ceiling, distribution utilities can no longer pass on to customers costs relating to electricity
losses. The ERC recently adopted Resolution 17, Series of 2008 dated December 8, 2008 lowering the allowable system
loss caps of distribution utilities to 8.5%. This resolution took effect in January 2010.
The following summarizes the electric losses of the Distribution Companies in 2009 and for 2008.
Systems Loss
DLP
CLP
VECO
SFELAPCO
SEZ
MEZ
BEZ
2009
7.94%
10.36%
9.14%
6.71%
2.47%
1.30%
2.13%
2008
7.90%
10.85%
9.53%
6.13%
2.15%
1.27%
1.48%
The Distribution Companies, however, are continuously looking at reducing both technical and non-technical losses by
improving efficiency and enhancing anti-pilferage programs.
The franchises of the Distribution Companies are subject to renewal at the discretion of the Philippine Congress. In
the event of breach of the terms and conditions of the franchise, the Distribution Companies are exposed to risk of
penalty, fines, and depending on the gravity of breach, the termination of such franchise
Each of the Distribution Companies carries out its power distribution activities pursuant to a franchise granted by the
Government. Each franchise sets forth certain terms and conditions which the relevant Distribution Company must
comply with in order to maintain its franchise. The Government has the power to terminate any of these franchises prior
to the end of the franchise term in case of bankruptcy or dissolution of the relevant Distribution Company, or by means of
expropriation for reasons related to the public interest.
These franchises are granted for 25-year periods, with the Distribution Companies’ franchise periods ranging from 2014
(for CLP) to 2035 (for SFELAPCO). Under Philippine law, the franchises of the Distribution Companies may be renewed by
the Philippine Congress, provided that certain requirements related to the rendering of public services are met.
The Company believes that each of the Distribution Companies is currently in compliance with all of the material terms
of its respective franchise. However, the Company cannot provide any assurance that any, some or all of the Distribution
Companies will not be penalized by the Government for breaching the terms of their respective franchises or that any,
some or all of these franchises will not be terminated in the future. In addition, although the Government is required
under the Philippine Constitution to provide “just compensation” in the event of an expropriation, the determination of
what constitutes just compensation is subject to judicial discretion, which amount may not be sufficient for Distribution
Companies to realize the full value of their assets. Further, if any of the franchises is terminated for reasons attributable to
a Distribution Company, the effective amount of compensation (if any) from the Government could be materially reduced
through the imposition of fines or other penalties. Finally, although the Company intends to apply for the extension or
renewal of each franchise upon its expiration, there can be no assurance that the Philippine Congress will act favorably
to the Company’s requests to extend or renew any or all of these franchises. In addition, the Company may also face
competition from third parties in connection with the renewal of these franchises.
The foregoing risks notwithstanding, it must be noted that the Distribution Companies are managed using or applying
world-class standards. Each of the Distribution Companies is focused on providing the best possible service at the lowest
possible cost. With this service level promise constantly delivered, the Government cannot revoke or refuse to renew,
as it is not likely to revoke and refuse to renew, a franchise without justifiable cause. Due to its track record of satisfying
the requirements and conditions imposed by regulations and the terms of its franchises, the Company has maintained
very good working relationship with regulatory and government agencies tasked with the renewal and maintenance of
franchises. To date, all of the franchises of the Distributions Companies, which were due for renewal, had been effectively
renewed and no franchise held by the Distribution Companies has ever been revoked.
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In recent years, amendments to the EPIRA have been proposed that, if enacted, could have a material adverse effect
on the Company’s business, financial condition and results of operations
Since the enactment of the EPIRA in 2001, members of the Philippine Senate and House of Representatives have proposed
amendments to the EPIRA. These proposed amendments have included the following:
(a) Cross-ownership among distribution utilities and generation companies will no longer be allowed. If this proposal
becomes law, the Company may be required to divest its interests in either the Distribution Companies or the
Generation Companies;
(b) Restrictions on the amount of electric power that a distribution utility can source from a single generation
company or from generation companies wholly owned or controlled by the same interests. If this restriction is
enacted into law, generation facilities acquired or developed by the Company in the Visayas or Mindanao grids
may be unable to enter into offtake agreements with VECO and DLP, two of the largest distribution utilities
operating in Visayas and Mindanao, respectively;
(c) Stranded Costs charged by distribution utilities, which are contracted costs for electricity in excess of the actual
market selling price to customers, will be recoverable only if such costs are deemed “fair and reasonable.” To the
extent that the Distribution Companies’ Stranded Costs are not deemed fair and reasonable by the ERC, their
financial condition and results of operations could be materially and adversely affected.
The Company cannot provide any assurance whether the proposed amendments to the EPIRA described above will
continue to be pursued. Proposed amendments to the EPIRA, including those discussed above, as well as other legislation
or regulation could have a material adverse impact on the Company’s business, financial condition and results of operations.
The enactment of the proposed amendments is not within the Company’s control. However, it is the policy of the Company
to participate, as much as practicable, in the formulation of the policies relating to the energy sector. As in the past,
the Company will continue to participate in consultation exercises and join other players in the energy sector, whenever
appropriate, in lobbying for fair and favorable terms for the Company and other similarly situated entities.
Enactment of proposed amendments notwithstanding, it must be noted that the Company is still far from reaching the
proposed restrictions, with allowable room to grow the generation business and still sell to the Distribution Companies.
Currently, the total electricity purchased by the Distribution Companies from the Generation Companies does not exceed
10% of its total purchased power, significantly lower than the EPIRA mandated cap of 50%.
The Company is exposed to foreign exchange risk. Fluctuations in the exchange rate between the peso and foreign
currencies, such as the U.S. dollar, could have a material adverse effect on the Company’s business, financial condition
and results of operations
The Company currently maintains its accounting records and prepares its financial statements in Philippine pesos. The
revenues of the Distribution Companies and most of the Generation Companies are denominated in pesos. However,
the reporting currency of some of the Generation Companies is the U.S. dollar. Any appreciation or depreciation of the
Philippine peso particularly with respect to the U.S. dollar could result in foreign exchange translation gains or losses on
these companies’ revenues and expenses currently recorded as part of the Company’s income statement. In addition,
significant portions of the long-term debt of SNAP-Magat and SNAP-Benguet, and half of the monthly payments of
Therma Luzon to PSALM under the IPP Administration Agreement, are denominated in U.S. dollars. A depreciation of the
Philippine peso particularly with respect to the U.S. dollar could adversely affect the ability of Therma Luzon, SNAP-Magat
and SNAP-Benguet to service its foreign currency-denominated debt.
A significant portion of the operating expenses of the Generation and Distribution Companies are also denominated in
U.S. dollars. A depreciation of the Philippine peso particularly with respect to the U.S. dollar increases the peso equivalent
value of these foreign currency denominated costs and may adversely affect the Company’s results of operations.
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Generally, operating subsidiaries match currency of revenues with currency of liabilities. In the case however of SNAPMagat , SNAP-Benguet and Therma Luzon, although revenues are peso denominated a significant portion of their debt
and liabilities are in U.S. dollar. In the case of SNAP-Magat and SNAP-Benguet although revenues are denominated in
pesos, margins are, to a certain extent affected by movements in the foreign exchange, hence the dollar liability is meant
to act as hedge versus such effects on peso margins. As for TLI, the dollar denominated liability was a result of the bidding
rules which required that at least half of the monthly payments to PSALM be denominated in U.S. dollar. The Company
and its subsidiaries, as a group, also enter into short-term currency hedging programs through non-deliverable forwards
to hedge against unfavorable foreign exchange fluctuations.
It is likewise with the foreign exchange risks in mind, relating to the cost of parts and equipment that certain Generation
Companies negotiated for a portion of their capacity fees to be in U.S. dollars or sensitized to the movements of the
U.S. dollar and inflation. This setup means that an increase or decrease in revenues resulting from the contract formulas
based on the movements of the U.S. dollar is correspondingly offset by a corresponding increase/decrease in the cost of
materials.
Under PBR, annual inflation and currency adjustments are allowed to compensate for detrimental movements. Thus,
distribution utilities can recover adverse currency and inflationary movements on an annual basis.
Item 2. Properties
The Company does not hold any real property of material value except for three parcels of land situated in Tagum, Davao
del Norte in Mindanao with a total land area of 10,000 square meters. Other than these parcels of land and its shares in its
subsidiaries and affiliates and certain properties held through its subsidiaries and affiliates, the Company does not hold
significant properties.
The Company’s head office is located at the Aboitiz Corporate Center, Gov. Manuel A. Cuenco Avenue, Cebu City,
Philippines. The premises are leased from an affiliate, Cebu Praedia Development Corporation.
The following table sets out the status of land that is material for purposes of the Company’s power generation and
distribution facilities:
Status of Owned/Leased Land as of December 31, 2009
Location
Tagum, Davao del Norte
Area
(hectares)
Owned / Leased
Parcels of
Land
Title Status as of
December 31, 2009
1
Owned by AP
3
Clean
Cotabato City
1.8504
Owned by CLP
3
Clean
Davao City
9.7365
Owned by DLP
45
Clean
Davao City
3.0335
Owned by
Hedcor
9
Clean
La Trinidad, Benguet
1.2028
Owned by Jon R.
Aboitiz
2
Clean
Benguet and Ilocos Sur
1.265
Owned by
Jovy Batiquin
and Rene B.
Ronquillo (for
weir and access
roads of Bakun
plant)
6
Mortgaged to lenders
under an Omnibus
Agreement dated June
5, 1997
Cebu City, Mandaue City and Talisay City
7.1855
Owned by VECO
24
Mortgaged to DBP
as Trustee under a
Relending Agreement
dated February 17, 1992
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ANNUAL REPORT 200 9
Location
Sta. Cruz, Davao del Sur
Area
(hectares)
Owned / Leased
209,920 (for
permanent
facilities)
Leased by
Hedcor Sibulan
from various
individuals for
227,594.75 (for use in its Sibulan
temporary
hydropower
facilities)
project. Lots
used for
temporary
facilities are
leased for a
period of two
years, while
those used for
permanent
facilities are
leased for 25
years.
Tiwi, Albay
368.39
Leased
Parcels of
Land
Title Status as of
December 31, 2009
148
(permanent
facilities)
The rights of Hedcor
Sibulan under the
Special Use Agreement
in Protected Areas with
the Mt. Apo Natural
Park Protected Area
Management Board
dated March 27, 2007
and the leasehold rights
of Hedcor Sibulan
under the contracts
of lease covering the
leased properties
are mortgaged to a
syndicate of lenders
under the Omnibus
Loan and Security
Agreement dated May
21, 2008.
143
(temporary
facilities)
557
Sto. Tomas, Batangas
33.94
152
Laguna Bay
73.51
208
Calauan, Laguna
68.65
94
Maco, Compostela Valley
2.86
Leased
69
Leased from PSALM for
25 years starting from
2009
The Community
Environment and
Natural Resources
(CENRO) of the
Department of
Environment and
Natural Resources
(DENR) awarded a
Miscellaneous Lease
Contract to Therma
Marine for the property
which contains the
mooring facilities of
PB118.
The Company has no plans to acquire any property in the next 12 months that will have a significant material prejudicial
effect on the Company’s prospects or operations.
GENERATION COMPANIES
Hedcor, Inc.
Hedcor’s mini-hydroelectric plants are located on parcels of land with a total land area of three hectares. Structures,
machinery and improvements in these plants consist of turbines, generators, weirs, forebays, penstocks and other support
structures.
Liens and encumbrances
As security for a loan agreement dated October 10, 2005 with BDO-EPCI, Inc. for π200 million, Hedcor executed a
chattel mortgage dated October 10, 2005 over machinery and equipment owned by it. The lien established by the chattel
mortgage extends to all property of every nature and description taken in exchange or replacement therefore, all assets
acquired with the proceeds of the credit secured, and all machineries, fixtures, tools, equipment, and other property that
Hedcor may acquire, construct, install, attach or use in, upon or in connection thereof. The instrument was registered on
October 13, 2005 with the Register of Deeds of Benguet province.
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On January 26, 2000, HEDC executed a chattel mortgage in favor of BDO-EPCI, Inc. as security for a loan in the amount
of π447 million. The chattel mortgage covers machineries and equipment of HEDC located in Davao City and Benguet
Province. The chattel mortgage was registered on March 23, 2000 with the Register of Deeds of the City of Davao and on
January 27, 2000 with the Register of Deeds of Benguet province.
HEDC assigned all its assets and liabilities to Hedcor in a de facto merger undertaken in 2005.
Cebu Private Power Corporation
AP owns a 60% interest in the equity of CPPC. The company is situated on a 1.8-hectare lot in the old VECO compound in
Bgy. Ermita, Cebu City. The plant began full commercial operations in November 1998 and is powered by 10 CaterpillarMak diesel engines. It is one of the biggest power plants in Cebu that supplies 62 MW of power to VECO, augmenting
VECO’s capacity to meet the increasing demand of Cebu’s residential and business population.
AP Renewables, Inc.
APRI’s MakBan complex is located in the Laguna and Batangas areas. The complex consists of Plants A and B with two
63-MW units each, Plant C with two 55-MW units of which one will be refurbished during the four-year transition period,
Plants D and E with two 20-MW units each, and two binary plants with 6-MW units and one binary plant with a 3-MW unit.
The units were commissioned between 1979 and 1996.
The MakBan Complex lies 74 kms. southeast of Manila between two dormant volcanoes, Mt. Makiling to the west and Mt.
Banahaw to the east. The MakBan plants and steam fields cover an area of approximately 162,000 hectares. Within this
area, the existing productive zone covers 700 hectares or 0.43% of the total production zone. This development area is
situated along the southeast of Mt. Makiling and straddles the three municipalities of Bay and Calauan in Laguna Province
and Santo Tomas in Batangas Province.
The Tiwi complex consists of three plants: Plant A with a 54- and 60-MW unit, Plant B with two 55-MW units that have
been decommissioned, and Plant C with two 57-MW units. There are six turbines with two identical turbines installed in
each of the Tiwi plants. The turbines are single-cylinder, double-flow condensing units manufactured by Toshiba. The
three-phase / 60 Hz / 13.8 kV generators, which are directly coupled to the turbines, are also from Toshiba. The units were
commissioned between 1979 and 1982.
The Tiwi Complex lies approximately 559 kms. southeast of Manila and north of the provincial capital, Legazpi City. Plant
A (Units 1 and 2) is located in Barangay Naga while Plants B (Units 3 and 4) and C (Units 5 and 6) are located in Barangay
Cale in the Municipality of Tiwi in Albay Province.
Therma Marine, Inc.
Therma Marine is the owner of two barge-mounted diesel power plants, each with an installed capacity of 100 MW. PB
117 is moored in Bgy. Sta. Ana, Nasipit, Agusan del Norte, Mindanao while PB 118 is moored in Bgy. San Roque, Maco, in
Compostella Valley.
Hedcor Sibulan, Inc.
The Sibulan Project is a cascade development of two power plants namely: an upstream Sibulan Plant A with an installed
capacity of 16.5 MW and a downstream Sibulan Plant B with an installed capacity of 26 MW. The combined average annual
energy is estimated to be 212,000,000 kWh. The Plants are essentially of the run-of-river type that include an intake weir,
short tunnel, surface pipeline, desander, headpond, high pressure surface penstock, surface power plant, substation,
switchyard, and transmission line. The Plants each house two Pelton turbines and generating units suitable for local and
remote control.
The Sibulan Project, consisting of the upper and lower project areas, is located approximately 19 kms. from the southeast
boundary of Davao City.
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DISTRIBUTION COMPANIES
Visayan Electric Company, Inc.
As of October 31, 2008, VECO’s electrical power distribution equipment, machinery, communication equipment,
transportation equipment, and furniture and office equipment were appraised to have a depreciated replacement of π5.12
billion. VECO’s land, buildings and other land improvements were appraised to have a depreciated replacement cost of
π984.7 million.
VECO’s land and buildings are located in Cebu City, Mandaue City, Talisay City, and the municipalities of Consolacion, Naga
and Liloan in the province of Cebu, while its substations, poles and fixtures, underground and overhead distribution lines,
and distribution transformers are found in various locations within its franchise area.
Liens and encumbrances
On February 17, 1992, VECO executed an MTI over the bulk of its properties in its franchise area to secure its obligations
under the Relending Agreement with the NEA dated January 26, 1995 for a ¥1.4 billion loan. As of February 28, 2010 the
NEA obligation stood at ¥507.5 million.
Davao Light & Power Company, Inc.
AP has a 99.9% equity interest in DLP. Its franchise area includes Davao City, Panabo City and the municipalities of Carmen,
Dujali and Santo Tomas in the province of Davao del Norte. This franchise area covers 3,354 sq. kms. with a population of
1,432,544. DLP has two substations drawing power at 138 kV. They have ratings of 150MVA and 100MVA. It also maintains
a standby 53-MW diesel plant capable of supplying 19% of its requirements.
As of September 17, 2004, DLP’s land, buildings, other land improvements, machinery, electrical equipment, transportation
equipment and computer equipment were appraised to have a sound value of π746.2 million.
DLP’s land and buildings are located in Davao City and Panabo City while its substations, poles and fixtures, overhead
transmission and distribution lines, and distribution transformers are found in various locations within its franchise area.
Cotabato Light & Power Company
AP has a 99.9% equity interest in CLP. It supplies electricity to Cotabato City and to portions of the municipalities of Datu
Odin Sinsuat and Sultan Kudarat, both in Maguindanao province in Mindanao. Its franchise area covers 191 sq. kms. and
has a population of 350,692. As of December 31, 2009, there are 30,171 customers being serviced by CLP.
CLP has three power substations of 10 MVA, 12 MVA and 15 MVA and is served by two 69-kV transmission lines which
provide redundancy in case one transmission line fails. It also maintains a stand-by 8 MW diesel plant.
As of January 11, 2002, CLP’s land, buildings, other land improvements, machinery and equipment, electrical equipment,
transportation equipment, gym equipment, computer equipment, and furniture and office equipment were appraised to
have a sound value of π427.8 million. CLP’s land and buildings are located in Cotabato City while its substations, poles and
fixtures, overhead transmission and distribution lines, and distribution transformers are found in various locations within
its franchise area.
Subic Enerzone Corporation
AP has a 100% equity interest in SEZ. SEZ won a competitive bid in May 2003 to provide power distribution services to the
SBFZ for a period of 25 years and now manages the power distribution system within SBFZ.
On June 29, 2005, SBMA leased to SEZ a property identified as Block B located at the central business district of the SBFZ
with an area of 17,331 sq. kms. As consideration, SEZ paid SBMA the amount of π14.6 million. SEZ also committed to
infuse at least π21.4 million on the leased property. The term of the lease is for 50 years. The lease may be renewed upon
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mutual consent by the parties. SEZ shall use the leased property to develop and manage thereon an industrial park and
market the same for commercial and light industrial facilities.
On March 20, 2006, SEZ assigned its leasehold rights to portions of Block B to two separate entities. SEZ assigned its
leasehold rights over an aggregate area of 7,000 square meters and received a total of U.S.$304,000 as consideration for
such assignment. The term of the assignment coincides with the term of SEZ’s lease of Block B from SBMA.
In 2008, SEZ also acquired from Transco a 100-MVA substation and 69-kV lines 1, 2, 3, 4 amounting to π131 million.
In 2008, the SBMA Board approved the lease of the Subic Heights compound located at Upper Mau, SBFZ. The base rent
for the full term of the lease is for a total amount of U.S.$1.32 million or its equivalent in the Philippine currency at the
prevailing exchange rate at the time of payment. The term of the lease is for a period of 50 years, renewable upon mutual
consent of the parties.
Liens and encumbrances
On September 26, 2005, SEZ executed a deed of assignment of rights and receivables in favor of the DBP as security for
loan in the amount of π185 million. The assignment covered rights and benefits of SEZ related to (a) revenue receivables,
and (b) new equipment and assets to be purchased and used in the SBMA power distribution system, duly acknowledged
by SBMA. The π185-million term loan was refinanced on June 26, 2008 with a term loan facility of up to a total amount of
π285 million. On June 26, 2008, SEZ drew down π210 million from the facility. On September 24, 2008, SEZ availed itself
of a term loan of π131 million to finance the acquisition of sub-transmission assets and to enhance the rehabilitation of the
SBMA PDS. The total long-term debt as of December 31, 2009 was π331 million.
Mactan Enerzone Corporation
AP owns a 100% equity interest in MEZ. MEZ distributes power at the MEPZ II in Mactan Island, Cebu. MEPZ II has 60
locators, many of which are semiconductor firms and electronic manufacturers. MEZ began its operation on February 19,
2007.
Balamban Enerzone Corporation
AP owns a 100% equity interest in BEZ. BEZ is the electricity provider in the WCIP in Balamban, Cebu. WCIP is the home
to the shipbuilding facilities of THICI as well as the modular fabrication facility of Metaphil International. Demand for
power in the WCIP, which currently has 10 locators, is expected to grow substantially due to the expansion of Tsuneishi’s
shipbuilding facilities and the completion of the new plants of Air Liquide and Southern Industrial Gases, Inc. (SIG).
San Fernando Electric Light & Power Company, Inc.
AP owns a 43.8% equity interest in SFELAPCO. SFELAPCO supplies electricity to approximately 35 barangays in San
Fernando City, 25 barangays in the municipality of Floridablanca, two barangays in the municipality of Bacolor and two
barangays in the municipality of Guagua, all located in the province of Pampanga in Central Luzon. Its franchise area in the
City of San Fernando and Floridablanca covers 78.514 sq. kms. and 125 sq. kms., respectively.
In 2009, SFELAPCO applied with Congress the renewal of its franchise and consolidation of its two franchises. The franchise
was passed into law in March 2010.
Item 3. Legal Proceedings
Material Pending Legal Proceedings
PEMC Investigation of Bakun plant dispatch
As a run-of-river facility, the Bakun plant is not considered either a peaking plant or a base load plant. It is considered an
intermittent generator of electricity because it can only generate electricity from water flowing through the Bakun river at
any given time, but without a guarantee of when and for how long a given load will occur. Under the Bakun PPA with NPC,
for as long as water flow does not go below 0.3 cubic meters per second, the Bakun plant is required to generate electricity
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for delivery to NPC. If the water flow goes below 0.3 cubic meters per second, it becomes technically inadvisable to allow
the Bakun plant to operate because this could result in irreparable damage to its turbines.
Electricity generated by the Bakun plant is traded in the WESM by traders for the PSALM for and on behalf of NPC, the
contractual offtaker of the Bakun plant. Sometime during trading intervals on July 27 and 28, 2006, August 2, 20, 27, 28,
29, 30, and 31, 2006 and September 1, 4, and 6, 2006, the WESM determined there was overcapacity in the Luzon Grid at
off-peak times. In order to avoid excessive frequency on the Luzon Grid, the Bakun plant was instructed by the Philippine
Electric Market Corporation (PEMC), the market operator of the WESM, to reduce its load from approximately 40 MW
to 3 MW. LHC did not follow these dispatch instructions and did not reduce the load of the Bakun plant since there was
sufficient water flow to run the plant at a load of more than 3 MW.
As a result of LHC’s failure to comply with PEMC’s dispatch instructions, PEMC sent PSALM, the trader of the Bakun
plant’s electricity, a notice of violation of the WESM rules. Although LHC is not a party to the investigations conducted by
PEMC, LHC presented to the PEMC board the following reasons it could not follow the PEMC dispatch instructions:
(a) LHC is required under the Bakun PPA to let the Bakun plant generate its nominated capacity and to deliver to NPC
all electricity from available water supplies in accordance with the agreed technical operating parameters under
the Bakun PPA;
(b) Being a run-of-river facility, the Bakun plant has no storage or impoundment capacity and a curtailment of the
Bakun plant’s load would result in huge losses to NPC from the non-generation of electricity from available water,
as well as result in the waste of a renewable energy resource; and
(c) Curtailment of the Bakun plant to a load as low as 3 MW would have forced LHC to operate the Bakun plant
manually, which is not technically prudent. This would have required LHC to de-water the Bakun plant abruptly,
which the Bakun plant is not designed for and which could result in the collapse of the tunnel to the Bakun plant,
leading to serious damage to property and risk to life.
The Technical Committee of the PEMC recommended the denial of LHC’s request for a reclassification from its current
WESM participant status as scheduled generator to a renewable energy with intermittent power resource. The
recommendation has been submitted to the PEMC Board. However, the PEMC Board has yet to act on the aforesaid
recommendation.
With the passage of the RE Law, LHC will have a legal basis to classify the Bakun plant as an intermittent generation since
the RE Law provides for specific provisions on intermittent generation.
VECO Redundancy Program
1.
Jeanu A. Du, et. al vs. VECO
(Aguinaldo Agramon et.al.)
NLRC RAB VII Case No. 04-0956-06
NLRC RAB VII Case No. 05-1014-06
NLRC RAB VII Case No. 05-1070-06
NLRC RAB VII Case No. 05-1099-06
NLRC RAB VII Case No. 05-1146-06
NLRC RAB VII Case No. 05-1193-06
NLRC RAB VII Case No. 06-1253-06
NLRC RAB VII Case No. 06-1300-06
NLRC RAB VII Case No. 06-1404-06
NLRC RAB VII Case No. 08-1708-06
CA GR SP No. 03379
Court of Appeals, 19th Division
June 15, 2006
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2. Alejo C. Pol, et.al vs. VECO
NLRC RAB VII Case No. 08-1782-06
NLRC RAB VII Case No. 08-1878-06
NLRC RAB VII Case No. 08-1832-06
NLRC RAB VII Case No. 09-1953-06
NLRC RAB VII Case No. 08-1981-06
Cebu City
September 11, 2006
3. Melchor E. Custodio, Frederick Rivera & Henry Bacaltos vs. VECO
NLRC RAB VII CASE No. 11-2542-2006
NLRC RAB VII CASE No. 12-2714-2006
Cebu City
November 23, 2006
4. Bernard Acebedo & Alexander E. Alo vs. VECO
NLRC RAB VII Case No. 06-1218-2007
Cebu City
June 12, 2007
VECO is involved in cases for illegal dismissal and/or nonpayment of retirement benefits filed by approximately 120 former
employees claiming back wages, damages and reinstatement. These employees previously accepted VECO’s redundancy
program, a program initiated in 2004 and which was explained and discussed at length with VECO’s labor union and entire
workforce at that time. The employees, including complainants whose positions were made redundant, received their
individual notices of redundancy between May and November 2004. They were formally separated from VECO between
June and December 2005. At the time of the termination of their services, each of the complainants read through,
was made to understand the contents of and signed their individual release, waiver, and quitclaim in the presence of a
representative from the Department of Labor and Employment. These employees received separation benefits which
were clearly above the minimum requirements provided under the Labor Code.
All the complaints have been dismissed for lack of merit at the labor arbiter level and VECO’s redundancy program has
been upheld as a management prerogative. Majority of the dismissed complaints are now pending on appeal either before
the 4th Division of the National Labor Relations Commission or the Court of Appeals. The potential claim against VECO
is π309.80 million. It is VECO’s position that it has paid these former employees’ separation pay and retirement benefits
in amounts in excess of those required by Philippine law and that it has valid defenses against the complaints brought
against it by these former employees. VECO intends to defend itself against all these claims.
In The Matter Of The Assessed Real Property Tax On Electric Posts And Transformers Located Within Talisay City
Local Board of Assessment Appeals- Talisay City
December 30, 2003
On October 29, 2003, the Local Board of Assessment Appeals (LBAA) of Talisay City, Cebu issued a Notice of Assessment
and Tax Bill (for Tax Declaration Nos. 68006 to 68065) against VECO for π10.50 million, real property tax on VECO’s electrical
posts and transformers. The assessment was increased to π16.90 million in 2004. On November 17, 2005, the assessment
was further increased to π17.50 million. In 2003, VECO paid under protest the amount of π2 million. This matter is currently
pending before the LBAA of Talisay City. Despite the pendency of this case before the LBAA, VECO also filed last May
10, 2007 a letter-request for legal opinion/confirmation before the Bureau of Local Government Finance, Department of
Finance (BLGF-DOF) on the exemption from real property tax of VECO’s electrical poles pursuant to VECO’s legislative
franchise. This request is also pending for resolution.
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In The Matter Of The Assessed Real Property Tax On Electric Posts And Transformers Located Within The Municipalities
Of Minglanilla, Consolacion and Lilo-an, Province of Cebu
Local Board of Assessment Appeals- Province of Cebu
September 23, 2008
On July 25, 2008, the Provincial Assessor of Cebu issued a Notice of Assessment for the electric poles and transformers
owned by VECO located in the Municipalities of Minglanilla, Consolacion and Liloan. The Provincial Assessor, motu
proprio, declared for tax purposes for the first time the said properties under Tax Declaration Nos. 39178 to 39193 (for
Minglanilla), 39135 to 39166 (for Consolacion) and 54445 to 54458 (for Liloan). On August 27, 2008, VECO received a letter
from the Provincial Treasurer demanding payment of approximately π32 million as real property tax due on the supposed
real properties computed from year 1992 up to 2008, including penalties, to the three municipalities.
On September 23, 2008 VECO filed a Notice of Appeal and Memorandum of Appeal before the LBAA of the Province
of Cebu questioning the demand letter and refuting the assessment on the following grounds: (i) VECO is exempt from
paying real property tax on poles, wires and transformers by virtue of its legislative franchise (R.A. 9339); (ii) poles and
transformers are not real properties; (iii) the valuation is erroneous and excessive; (iii) it includes assessments which have
already prescribed; (iv) the municipalities did not give VECO the opportunity to present controverting evidence; (v) it did
not consider depreciation cost of the assets; (vi) the assessment violates due process for it did not comply with Section
223 of the Local Government Code of 1991; (vii) the Provincial Assessor erred in giving retroactive effect to the assessment
in violation of Section 221 of the Local Government Code of 1991; and (viii) the assessments are null and void for lack of
ordinance on the schedule of market values and lack of publication of the same.
To date, the appeal is still pending resolution.
Luzon Hydro Corporation vs. The Province Of Benguet, The Provincial Treasurer Of Benguet and Hon. Imelda I.
Macanes In Her Capacity As Provincial Treasurer Of La Trinidad, Province Of Benguet
Civil Case No. 08-CV-2414
RTC Branch 10, La Trinidad, Benguet
March 7, 2008
On October 11, 2007, the Provincial Treasurer of Benguet issued a franchise tax assessment against LHC, requiring LHC
to pay franchise tax for the years 2002 to 2007 in the approximate amount of π40.40 million, inclusive of surcharges and
penalties. LHC filed a protest letter with the Provincial Treasurer in December 2007 on the ground that LHC is not a grantee
of any legislative franchise on which basis franchise taxes may be imposed. On February 8, 2008, the Provincial Treasurer,
through the Provincial Legal Officer, denied LHC’s protest letter. On March 7, 2008, LHC filed before the RTC of Benguet a
petition against the Provincial Treasurer of Benguet for the annulment of the franchise tax assessment.
The trial of the case is ongoing.
HEDCOR Inc. vs. The Province of Benguet, The Provincial Treasurer of Benguet and Hon. Imelda I. Macanes in her
capacity as Provincial Treasurer
Civil Case No. 08- CV-2414
RTC Br. 63, La Trinidad, Benguet
Jan. 18, 2008
On October 22, 2007, Hedcor received a franchise tax assessment from the Provincial Treasurer of the Province of Benguet
requiring Hedcor to pay the unpaid franchise taxes of Hydro Electric Development Corporation (HEDC) and Northern Mini
Hydro Corporation (NMHC) in the approximate amount of π30.9 million, inclusive of surcharges and penalties, for the
fourth quarter of 1995 up to 2007. Hedcor filed a protest letter on the basis that HEDC and NMHC are not required to pay
franchise taxes. Hedcor’s protest letter was denied by the Provincial Treasurer in a letter dated November 27, 2007.
Pursuant to Section 195 of the Local Government Code, Hedcor filed a petition last January 4, 2008 against the Provincial
Treasurer before the RTC to annul the assessment of the franchise tax. On February 18, 2008, the Province of Benguet
filed its answer to the petition, insisting on the liability of Hedcor, and relying on the Articles of Incorporation of Hedcor to
substantiate its allegation that Hedcor possesses both a primary and secondary franchises. Hedcor is of the opinion that
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it is not liable for franchise tax since it does not need a national franchise to operate its business, pursuant to Section 6 of
the EPIRA. Moreover, Hedcor argues that it is a separate and distinct legal entity from HEDC and NMHC, and as such, it
cannot be made liable for whatever obligation, if any, as may pertain to HEDC and/or NMHC.
This case is now tried jointly with the Hedcor National Wealth Tax Assessment case described below. Please refer to the
summary of the Hedcor National Wealth Tax Assessment case found below for additional information/update.
HEDCOR Inc. vs. The Province of Benquet, The Provincial Treasurer of Benquet and Hon. Imelda I. Macanes in her
capacity as Provincial Treasurer
Civil Case No. 08-CV-2416
RTC Br. 63. La Trinidad, Benquet
December 21, 2007
On October 25, 2007, Hedcor received from the Provincial Treasurer of Benguet an assessment in the amount of π30.5
million representing the share of the Province and host municipalities and barangays in the national wealth tax due from
HEDC and NMHC for the years 1997 to 2007. On December 21, 2007, Hedcor filed its protest letter with the Provincial
Treasurer of Benguet stating that it is a separate and distinct legal entity from HEDC and NMHC. Hedcor only acquired
the hydroelectric power plants, which are the subject of the assessed national wealth tax, from HEDC and NMHC on June
25, 2005. Prior to June 25, 2005, Hedcor did not own any operating hydroelectric power plants. Thus, if Hedcor is indeed
liable for any national wealth tax with respect to the operation of the hydroelectric power plants, it is liable only for taxes
after June 25, 2005.
In addition, Hedcor is of the opinion that the Province of Benguet does not have legal basis to collect national wealth
tax from private generation companies prior to the effectivity of EPIRA in June 2001. Since June 2005, Hedcor has been
contributing the amount equivalent to 3% of its gross revenues to its host municipalities and barangays in compliance with
the national wealth tax provision contained in Section 291 of the Local Government Code. Hedcor has been generously
paying amounts higher than the amount required by the Local Government Code.
The pre-trial conferences of both the national wealth and franchise tax cases pending before the RTC of Benguet were
held last December 3, 2008.
The Province of Benguet, through the Office of the Governor, and Hedcor, have been engaged in negotiations to arrive at
a possible settlement for the national wealth tax case.
On the other hand, the prospect of settlement is not likely in the franchise tax case. The next hearing of the case is
scheduled on April 6, 2010.
Mactan Electric Co. vs. Acoland, Inc.
Civil Case No. MDI-56
RTC Branch 56, Mandaue City
June 16,1996
On July 16, 1996, MECO filed a quo warranto case against AboitizLand attacking the latter’s legal basis to distribute power
within the MEPZ II as well as the Philippine Economic Zone Authority’s (PEZA) authority to grant Aboitizland the operation
or distribution of power in the area in question. MECO argues that AboitizLand does not possess the legal requirements
to distribute power within MEPZ II, and that the amendment of AboitizLand’s Articles of Incorporation to include the right
to engage in the operation, installation, construction and/or maintenance of electric and other public utilities only six days
after the filing of this case was an afterthought, and as a consequence, it is liable to pay damages to MECO. MECO further
alleges that PEZA has no right to grant franchise to distribute electricity within the MEPZ II.
AboitizLand’s argument that the Special Economic Zone Act of 1995 (Republic Act 7916) which created PEZA grants
the latter broad powers and functions to manage and operate special economic zones, that these include the power to
grant enfranchising powers under Section 12(c) and 13(d) thereof, and that the SEC approval of its amended Articles of
Incorporation is valid. Regarding damages, AboitizLand argues this was not prayed for in MECO’s petition for quo warranto
and the courts have no basis to grant any damages.
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The PEZA intervened and argued that it is authorized by its charter to undertake and regulate the establishment and
maintenance of utilities including light and power within economic zones under its jurisdiction. In doing so, it can directly
construct, acquire, own, lease, operate, and maintain on its own or through contract, franchise, license, bulk purchase
from the private sector, and build-operate-transfer scheme or joint venture, adequate facilities such as light and power.
The parties are undergoing court-mandated mediation proceedings.
In 2007, with the approval of PEZA, AboitizLand transferred all of its power assets and business to a new corporation,
MEZ, which is now the real party in interest in the case.
In The Matter Of The Assessed Real Property Tax On Machineries Located Within The Municipality of Bakun, Province
of Benguet
Central Board of Assessment Appeals
CBAA Case No. L-57/5
The Municipality of Bakun, Province of Benguet issued an assessment against LHC for deficiency real property tax on
its machineries in the amount of approximately π11 million, inclusive of interests and penalties, for the period 2002.
The assessment was appealed by LHC to the LBAA. NPC intervened in the proceedings before the LBAA arguing that
(i) the liability for the payment of real property tax over the machineries is assumed by NPC under Section 8.6(b) under
the Bakun PPA dated as of November 24, 1996; and (ii) NPC is exempted from the payment of real property tax under
Section 234 of the Local Government Code, which provides that machineries that are actually, directly and exclusively
used by government-owned and controlled corporations engaged in the generation and transmission of electric power
are not subject to the real property tax. The LBAA ruled in favor of the Municipality of Bakun on the ground that NPC
couldn’t invoke the exception under Section 234 of the Local Government Code because the machineries covered by the
assessment are not yet owned by NPC.
NPC further appealed the ruling of the LBAA to the Central Board of Assessment Appeals (CBAA) docketed as CBAA
Case L-57/59. According to the CBAA, NPC sent a compromise proposal in 2006 to the CBAA. Currently, the Province of
Benguet, through the Office of the Governor, and LHC are negotiatying to arrive at a possible settlement.
PHILIPPINE HYDROPOWER CORPORATION (now Aboitiz Renewables, Inc.) vs. PACIFIC HYDRO BAKUN INC. &
PACIFIC HYDRO PTY LIMITED,
Complaint for Tortious Interference in Contractual Relations and Exercise of Property Rights
RTC-Branch 17, Cebu City
Filed: 10-2-2009
This is a Complaint for Tortious Interference in Contractual Relations and Exercise of Property Rights filed by ARI with
the Regional Trial Court in Cebu City against Pacific Hydro Bakun, Inc. (PHBI), its joint venture partner in LHC. LHC is the
special purpose vehicle formed to develop, construct and operate the 70-MW Bakun hydropower plant in Ilocos Sur (the
“Bakun Plant”) under a BOT scheme with the NPC.
The complaint by ARI against PHBI and its parent company, Pacific Hydro Limited (PHL), arose from PHBI’s and PHL’s
tortious conduct including: (a) threatening and intimidating ARI and its nominee directors in LHC to vote in favor of
allowing LHC to participate in the bidding for the IPPA for the combined contracted capacities of the Bakun Plant, the 345MW San Roque hydropower plant and the 30-MW Benguet mini-hydro plants (the “Bidding”) and, (b) spreading malicious
allegations of wrongful conduct on the part of the nominee directors of ARI to third persons.
ARI maintains that LHC is a special purpose vehicle formed specifically and solely to undertake the construction of the
Bakun Plant under a BOT agreement with NPC. PHBI’s proposal for LHC to engage in the business of an IPPA for the power
plants included in the Bidding is outside the primary or secondary purposes of LHC and is beyond the original intent of the
shareholders of LHC. For these reasons, ARI believes that PHBI and PHL cannot rightfully compel it to enter into the IPPA
business with PHBI and PHL through LHC. Moreover, notwithstanding ARI’s refusal to enter into the IPPA business with
PHBI and PHL, such refusal did not deprive the latter of participating in the Bidding if they really wanted to do so.
The case is now under court-mandated mediation proceedings at the Philippine Mediation Center. The parties have agreed
to include in the mediation proceedings the intra-corporate suit by PHBI against ARI (see below).
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A B O I T I Z PO W E R C O R P O R AT I O N
PACIFIC HYDRO BAKUN, INC. for itself and/or behalf of LUZON HYDRO CORPORATION vs. PHILIPPINE
HYDROPOWER CORPORATION (now Aboitiz Renewables, Inc.) its parent company, subsidiaries and/or affiliates
participating in the bidding (for appointment as IPP Administrator for contracted capacities of the Bakun, San Roque
and Benguet HydroElectric Plants) Jose Venancio Batiquin, Antonio Moraza, Rene B. Ronquillo
Civil Case No. 01332-T
Filed: 10-7-2009
Intra- Corporate Suit
This is a derivative stockholders’ suit filed by PHBI against ARI, et. al. for violation of their fiduciary duties to LHC and PHBI
by refusing to allow LHC to participate in the bidding for the IPPA for the combined contracted capacities of the Bakun
Plant, the 345-MW San Roque hydropower plant and the 30-MW Benguet mini-hydro plants (the “Bidding”) resulting in
the following:
1. Being barred from participating in the Bidding;
2. Loss of any business and commercial advantages it would have over the other bidders in the bidding, considering
that LHC is the builder and operator of the Bakun Hydroelectric Power Plant;
3. Loss of profits that would have been earned from its acting as IPP Administrator, particularly for the Bakun
Hydroelectric Power Plant; and
4. Diminution, if not elimination, of LHC’s prospect of permanently acquiring the Bakun Hydroelectric Power Plant
after the expiration of its PPA/BOT in 2026.
Among others, PHBI prays for the immediate assignment/transfer of the defendants’ equity/participation in the joint
venture between ARI and the SN power-related company (“the Other Bidder”) which defendants hold in constructive trust
for plaintiffs and also to cause the Other Bidder to consult with plaintiffs on all matters in the Bidding.
Currently, the summons with regard to the complaint filed by PHBI against ARI on October 7, 2009 has not been properly
served on the defendants.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this
report.
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PART II - OPERATIONAL AND FINANCIAL INFORMATION
Item 5. Market for Issuer’s Common Equity and Related Stockholder Matters
(1) AP’s common shares are traded on the PSE.
The high and low stock prices of AP’s common shares for each quarter of 2009 were as follows:
2010
2009
2008
2007
High
Low
High
Low
High
Low
High
Low
12.75
8.60
4.65
3.90
5.60
4.50
NA
NA
Second Quarter
NA
NA
6.00
4.65
5.60
4.80
NA
NA
Third Quarter
NA
NA
6.70
5.30
6.00
4.85
5.80
3.90
Fourth Quarter
NA
NA
8.90
6.40
5.00
3.25
5.80
4.70
First Quarter
As of February 28, 2010, AP has 499 stockholders of record, including PCD Nominee Corporation (Filipino) and PCD
Nominee Corporation (Foreign). Common shares outstanding as of same date were 7,358,604,307 shares. The closing
price of AP common shares as of April 8, 2010 is π12.75 per share.
(2) The top 20 stockholders of AP as of February 28, 2010 are as follows:
Name
Number of Shares
1. ABOITIZ EQUITY VENTURES, INC.
Percentage
5,622,113,063
76.40%
2. PCD NOMINEE CORPORATION (Filipino)
917,426,546
12.47%
3. PCD NOMINEE CORPORATION (Foreign)
522,274,900
7.10%
4. ABOITIZ LAND, INC.
151,112,722
2.05%
5. DANIELLE MANAGEMENT & DEVELOPMENT CORP.
18,855,392
0.26%
6. SAN FERNANDO ELECTRIC LIGHT AND POWER CO., INC.
7,931,034
0.11%
7. ARMOZA MANAGEMENT & DEVELOPMENT CORPORATION
7,589,745
0.10%
8. PARRAZ DEVELOPMENT CORPORATION
7,072,094
0.10%
9. UBP T/A 1J1-175-09
6,876,000
0.09%
10. LILOAN AGRO INDUSTRIAL DEVELOPMENT CORPORATION
6,051,405
0.08%
11. SABIN M. ABOITIZ
5,346,079
0.07%
12. SIERRAROSA, INC.
5,304,689
0.07%
13. KAYILKA HOLDINGS, INC.
5,196,143
0.07%
14. LMM HOMES MANAGEMENT & DEVELOPMENT CORP.
5,023,965
0.07%
15. JOEMOR MANAGEMENT AND DEVELOPMENT CORPORATION
4,455,501
0.06%
16. BANILAD ESTATE, INC.
4,000,000
0.05%
17. EMETASI HOLDINGS, INC.
4,000,000
0.05%
18. RAMON ABOITIZ FOUNDATION, INC.
3,900,000
0.05%
19. CAVESTANY, VALERIA
3,217,888
0.04%
20. TAN BEN KUAN
2,750,000
0.04%
(3) The cash dividends declared by AP to common stockholders from 2008 to 2010 are shown in the table below:
Year
Cash Dividend Per Share
2010
Total Declared
Record Date
π0.30
π2.21B
3/24/2010
2009
π0.20
π1.47B
2/26/2009
2008
π0.18
π1.32B
2/21/2008
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A B O I T I Z PO W E R C O R P O R AT I O N
AP intends to maintain an annual cash dividend payment ratio of approximately one-third of its consolidated net income
from the preceding fiscal year, subject to the requirements of the applicable laws and regulations and the absence of
circumstances which may restrict the payment of cash dividends, such as the undertaking by AP of major projects and
developments requiring substantial cash expenditures or restrictions on cash dividend payments under its loan covenants.
(4) Recent Sales of Unregistered or Exempt Securities including Recent Issuance of Securities Constituting and
Exempt Transaction
(a) On December 18, 2008, AP availed a total of π3.89 billion under a Notes Facility Agreement dated December 15,
2008 with BDO Capital & Investment Corporation, BPI Capital Corporation, First Metro Investment Corporation,
ING Bank N.V., Manila Branch as Joint Lead Managers. The Notes Facility Agreement provided for the issuance
of five-year and seven-year peso denominated corporate notes in a private placement to not more than 19
institutional investors pursuant to Section 9.2 of the Securities Regulation Code (SRC) and Rule 9.2(2)(B) of the
SRC Rules.
The corporate notes were issued to the following institutional investors:
NOTEHOLDERS (5-Year Notes)
BDO PRIVATE BANK INC. WEALTH ADVISORY & TRUST GROUP
AMOUNT
90,000,000.00
BDO TRUST AND INVESTMENT GROUP
180,000,000.00
ROBINSONS SAVINGS BANK
300,000,000.00
CHINA BANK SAVINGS, INC. AS TRUSTEE FOR VARIOUS TRUST ACCOUNTS
60,000,000.00
BSP PROVIDENT FUND
50,000,000.00
SECURITY BANK CORPORATION
500,000,000.00
UNITED COCONUT PLANTERS BANK
300,000,000.00
SOCIAL SECURITY SYSTEM
450,000,000.00
DEUTSCHE BANK AG MANILA BRANCH TRUST DEPARTMENT
FIRST METRO SAVE AND LEARN FIXED INCOME FUND
50,000,000.00
20,000,000.00
FIRST METRO INVESTMENT CORPORATION
500,000,000.00
BPI-AMTG AS INVESTMENT MANAGER FOR AYALA LIFE ASSURANCE, INC.
100,000,000.00
BPI-AMTG AS INVESTMENT MANAGER FOR ALFM PESO BOND FUND, INC.
200,000,000.00
BPI-AMTG AS INVESTMENT MANAGER FOR VARIOUS TRUST ACCOUNTS
200,000,000.00
DEUTSCHE BANK AG MANILA BRANCH TRUST DEPARTMENT
MAYBANK CORPORATION
30,000,000.00
300,000,000.00
TOTAL PRINCIPAL DUE
NOTEHOLDERS (7-Year Notes)
BDO PRIVATE BANK INC. WEALTH ADVISORY AND TRUST GROUP
BDO TRUST AND INVESTMENT GROUP
3,330,000,000.00
AMOUNT
20,000,000.00
20,000,000.00
THE INSULAR LIFE ASSURANCE COMPANY, LTD.
500,000,000.00
FIRST GUARANTEE LIFE ASSURANCE COMPANY, INC.
20,000,000.00
TOTAL PRINCIPAL DUE
560,000,000.00
The total principal amount outstanding on the seven-year notes was reduced to π554.4 million when AP paid π5.6 million
as amortization on the principal amount last December 18, 2009.
The total underwriting fees paid to the Joint Lead Managers for the issuance of the π3.89 billion corporate notes was
π18.82 million.
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(b) On September 28, 2009, AP issued five-year peso-denominated corporate fixed rate notes in the aggregate
amount of π5 billion to a consortium of primary institutional lenders in a private placement made in accordance
with Section 9.2 of the Securities Regulation Code (SRC) and Rule 9.2(2)(B) of the SRC Rules. The issuance of
the π5 billion corporate notes was made pursuant to a Notes Facility Agreement with First Metro Investment
Corporation as Issue Manager.
The corporate notes were issued to the following institutional investors:
NOTEHOLDERS (Five-Year Notes)
AMOUNT
METROPOLITAN BANK & TRUST GROUP
1,500,000,000.00
BDO PRIVATE BANK WEALTH ADVISORY & TRUST GROUP
1,058,000,000.00
THE INSULAR LIFE ASSURANCE CO., LTD.
700,000,000.00
PHILIPPINE SAVINGS BANK
500,000,000.00
UNITED COCONUT PLANTERS BANK
100,000,000.00
UNITED COCONUT PLANTERS BANK
100,000,000.00
UNITED COCONUT PLANTERS BANK
100,000,000.00
UNITED COCONUT PLANTERS BANK
100,000,000.00
UNITED COCONUT PLANTERS BANK
100,000,000.00
METROBANK TRUST BANKING GROUP AS INVESTMENT MANAGER FOR
DE LA SALLE UNIVERSITY
100,000,000.00
METROBANK TRUST BANKING GROUP AS INVESTMENT MANAGER FOR
LASALLIAN EDUC INNOVATORS FOUNDATION, INC. (ST. BENILDE)
60,000,000.00
METROBANK TRUST BANKING GROUP AS INVESTMENT MANAGER FOR
DE LA SALLE SANTIAGO ZOBEL, INC.
25,000,000.00
METROBANK TRUST BANKING GROUP AS INVESTMENT MANAGER
FOR HERMANO SAN MIGUEL FEBRES CORDERO MEDICAL EDUCATION
FOUNDATION (DE LA SALLE HEALTH SCIENCES CAMPUS)
15,000,000.00
METROBANK TRUST BANKING GROUP AS INVESTMENT MANAGER FOR
C-13-09
50,000,000.00
METROBANK TRUST BANKING GROUP AS INVESTMENT MANAGER FOR
C-13-08
50,000,000.00
SOCIAL SECURITY SYSTEM
50,000,000.00
SOCIAL SECURITY SYSTEM PROVIDENT FUND
100,000,000.00
DEUTSCHE BANK AG MANILA BRANCH TRUST DEPARTMENT FOR
VARIOUS TRUST ACCOUNTS (TAX-EXEMPT)
128,000,000.00
DEUTSCHE BANK AG MANILA BRANCH TRUST DEPARTMENT FOR
VARIOUS TRUST ACCOUNTS (TAXABLE)
4,000,000.00
UCPB TRUST BANKING GROUP
100,000,000.00
PIONEER LIFE, INC.
50,000,000.00
FIRST LIFE FINANCIAL COMPANY, INC.
10,000,000.00
TOTAL PRINCIPAL DUE
5,000,000,000.00
The total underwriting fees paid to the Issue Manager for the issuance of the π5 billion corporate notes was π24.19 million.
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A B O I T I Z PO W E R C O R P O R AT I O N
Item 6. Management’s Discussion and Analysis or Plan of Action
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the Company’s consolidated financial condition and results of operations and
certain trends, risks and uncertainties that may affect its business. The critical accounting policies section discloses certain
accounting policies and management judgments that are material to the Company’s results of operations and financial
condition for the periods presented in this report. The discussion and analysis of the Company’s results of operations is
presented in three comparative sections: the year ended December 31, 2009 compared with the year ended December 31,
2008, the year ended December 31, 2008 compared with the year ended December 31, 2007.
Prospective investors should read this discussion and analysis of the Company’s consolidated financial condition and
results of operations in conjunction with the consolidated financial statements and the notes thereto set forth elsewhere
in this report.
KEY PERFORMANCE INDICATORS
Management uses the following indicators to evaluate the performance of the Company and its subsidiaries:
1. Share in Net Earnings (Losses) of associates. This represents the Group’s share in the undistributed earnings
or losses of its associates for each reporting period after the acquisition of said investments, net of goodwill
impairment cost, if any. Goodwill is the difference between the purchase price of an investment and the investor’s
share in the value of the net identifiable assets of investee at the date of acquisition. Share in net earnings (losses)
of associates indicate the profitability of the investments and the investees’ contribution to the Group’s net
income.
Manner of Computation:Associates Net Income (Loss) x Investor’s Percentage Ownership less Impairment Loss.
2. Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA). EBITDA is calculated as net income
before minority interest, net interest expense, income tax expense, amortization and depreciation. It provides
management and investors with a tool for determining the ability of the Group to generate cash from operations
to cover financial charges and income taxes. It is also a measure to evaluate the Group’s ability to service its debts.
3. Cash Flow Generated. Using the Consolidated Statement of Cash Flows, management determines the sources
and usage of funds for the period, and analyzes how the group manages its profit and uses its internal and external
sources of funds. This aids management in identifying the impact on cash flow when the Group’s activities are
either in a state of growth or decline, and in evaluating management’s efforts to control the impact.
4. Current Ratio. This is a measurement of liquidity, calculated by dividing total current assets by the total current
liabilities. It is an indicator of the Group’s short–term debt paying ability. The higher the ratio, the more liquid is
the Group.
5. Debt–to–Equity Ratio. This gives an indication of how leveraged the Group is. It compares assets provided by
creditors to assets provided by shareholders. It is determined by dividing total liabilities by total equity.
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The table below shows the comparative figures of the top five (5) key performance indicators for 2009 and 2008.
DISCUSSION ON KEY PERFORMANCE INDICATORS:
Key Performance Indicators
2009
2008
Amounts in thousands of πs, except for financial ratios
SHARE IN NET EARNINGS OF ASSOCIATES
2,535,386
2,784,511
EBITDA
9,866,532
5,406,974
CASH FLOW GENERATED:
Net cash flows from operating activities
Net cash flows (used in) investing activities
Net cash flows from financing activities
5,873,633
(23,953,482)
7,721,594
1,905,394
(5,787,844)
5,049,159
Net Increase (Decrease) in Cash & Cash Equivalents
(10,358,255)
1,166,709
Cash & Cash Equivalents, Beginning
14,333,676
12,706,103
Cash & Cash Equivalents, End
3,814,906
14,333,676
CURRENT RATIO
0.68
2.12
DEBT-TO-EQUITY RATIO
2.18
0.54
Above key performance indicators are within management expectations.
The Company’s Share in Net Earnings of Associates is slightly behind last year’s results primarily due to the lower
contributions from STEAG Power, operator of a 232-MW coal plant in Misamis Oriental, as it felt the impact of the
decrease of a major index in its pricing formula which went down this year versus last year.
The positive effects brought about by the income contribution of the Company’s new acquisitions during the year has vastly
improved the Company’s EBITDA which is up 82% versus the prior year. The EBITDA contributions from the geothermal
assets under APRI starting May 2009 and the EBITDA contributions arising from the Therma Luzon IPPA for the coal plants
in Pagbilao which started in October 2009 were the main drivers of the increase in EBITDA.
Current ratio decreased due to the decrease in the Company’s Consolidated Cash as capital got invested into various
acquisitions made during the year.
To further augment the capital needed for its investment activities, the Company entered into various capital raising
activities which increased its debt to equity ratio.
Financial Results of Operations
The Company’s net income for 2009 grew by 31% to π5.77 billion from π4.42 billion for the same period last year. This lifted
earnings per share to π0.77 for the year ending December 31, 2009 versus an earnings per share of π0.59 ending December
31, 2008.
The power generation business improved its contributions by 68% from prior year as it shored in a net income contribution
of π4.66 billion from last year’s π2.78 billion. The primary contributor to this year’s impressive earnings is APRI, as it took
over in May 2009 the geothermal facilities in Tiwi-MakBan from PSALM. On its first year of operations APRI manage to
contribute 44% of the total income contribution of the generation group.
Total power sold by the Generation Companies for the period grew by 167% year-on-year (YOY) from 1,728 GWh to 4,619
GWh. As of end-2009, AP’s power generation group had an attributable capacity of 1,745 MW, a 202% YOY increase from
end-2008. It is this increase in attributable capacity resulting from the acquistions of APRI (467 MW) and the IPPA of
Therma Luzon for Pagbilao (700 MW) which has led to the surge in generation sold by the Generation companies.
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A B O I T I Z PO W E R C O R P O R AT I O N
The Distribution Companies’ income contribution improved by 6% or π1.57 billion, from last year’s π1.48 billion. The
Distribution Companies’ kilowatt-hour electricity sales for the period grew by 6% YOY, from 3,142 GWh to 3,322 GWh. The
healthy growth―particularly that of AP’s major distribution utilities, DLP and VECO―was observed to be coming from
both its residential and commercial/industrial customers.
Material Changes in Line Items of Registrant’s Income Statement
Consolidated net income attributable to equity holders grew by π1.32 billion or 31%. Below is a reconciliation of
growth in the consolidated net income:
Consolidated Net Income Attributable to Equity Holders of the Parent for 2008
π4,333,613
Increase in Operating Revenues
10,931,285
Increase in Operating Expenses
(7,127,623)
Decrease in Share in Net Earnings of Associates
(249,126)
Decrease in Interest Income
(197,568)
Increase in Interest Expense
(2,435,442)
Increase in Other Income
436,719
Higher Provision for Income Taxes
(12,806)
Increase in Minority Interests
(20,471)
Total Growth
Consolidated Net Income Attributable to Equity Holders of the Parent for 2009
1,324,968
π5,658,581
Consolidated Operating Revenues increased by 89% versus last year. The increase in consolidated revenue is accounted
for by the new revenue contributions by Therma Luzon since the turnover of dispatch control of the 700-MW Pagbilao
plant in October 2009 and the revenue contributions from APRI geothermal plants that were turned over in May 2009.
The revenues from these plants combined make up close to 90% of the increase in consolidated revenue. The remaining
increase is attributable to the higher revenue brought about by growth and higher passed on generation costs by the
distribution utilities.
As expected, as the operations of the new acquisitions are folded in, a corresponding increase in costs and expenses
followed which increased operating expenses by 67% over last year. The costs and expenses of Therma Luzon and APRI,
account for 83% of the increase while 11% of the increase was brought about by higher operating expenses at DLP due to
higher purchased power costs.
The decrease in the share in equity earnings for the year is due to the lower contributions from STEAG Power, operator
of a 232-MW coal plant in Misamis Oriental, as it felt the impact of the decrease of a major index in its pricing formula
which went down this year versus last year. Share in net earnings of associates fell by 9% compared to last year or a total
of π249 million.
As the Company’s cash is deployed to various investing activities, the interest income compared to prior years has gone
down by 33% or π197.57 million.
Interest expense also increased by 643% due to the various debt raising acitivites entered into by the Company namely:
1) Fixed Rate Note of five-year peso-denominated corporate fixed rate notes (“Notes”) in the aggregate amount of π5
billion. The Notes were issued in September 2009, 2) a total of π3 billion worth of peso-denominated fixed rate retail
bonds issued last April 2009, 3) π3.89 billion in five-year and seven-year peso-denominated corporate fixed rate notes
issued last December 2008, 4) higher short-term bank loans. Another transaction that led to the increase of the interest
expense for the year is the effect of Therma Luzon’s IPPA which was accounted for as a finance lease. As a finance lease,
incremental borrowing rates were used in order to recognize the asset and liability relating to the long-term obligation.
Correspondingly, the discount determined at the inception of the agreement is amortized and recognized as interest
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ANNUAL REPORT 200 9
85
expense. Although the recognition of the interest is a non-cash transaction, the interest expense recognized by Therma
Luzon on its statement of income for the year on the finance lease was π1.23 billion.
Other Income increased by π436.72 billion mainly due to the unrealized forex gains recognized by Therma Luzon on future
minimum dollar payments to PSALM as part of its IPPA agreement.
As a result of the foregoing, income before income tax increased by π1.36 billion or 27% from π5.04 billion in the previous
year to π6.40 billion in the current year. Provision for taxes ending 2009 increased by 2% to π631.19 million from a prior
period provision of π618.38 million.
Changes in Registrant’s Resources, Liabilities and Shareholders Equity
Assets
Compared to year-end 2008 levels, consolidated assets increased by 136%, from π47.27 billion in December 2008 to
π111.34 billion in December 2009 due to the following:
a. Cash & Cash Equivalents was at π3.81 billion, down by 73% from year-end 2008 level of π14.33 billion (as restated).
Through the debt-raising activities entered into by AP Parent, total cash raised reached close to π11 billion. A
significant portion of the Company’s cash was then deployed to APRI thru PHC to fund the full payment for the
geothermal assets from PSALM. The total purchase price for these assets totalled close to π21 billion. In 2009,
cash was also used to pay shareholder dividends totalling π1.47 billion.
b. Trade & Other Receivables increased by 125%, from π1.99 billion to π4.48 billion due to the consolidated trade
and other receivables of both Therma Luzon and APRI totalling π2.53 billion.
c. Inventories increased by 234% due to APRI’s supplies and materials as well as coal inventory held by Therma
Luzon.
d. The asset account for Property, Plant and Equipment considerably increased by 1065% from π6.26 billion in 2008
to π72.90 billion. APRI’s newly acquired geothermal property, plant and equipment account for π19.91 billion,
while Therma Luzon’s finance lease recognition of the power plant and equipment on the Pagbilao assets added
another π44.52 billion. The balance of the increase is due to the construction in progresss of the hydro plants
being built by Hedcor Sibulan.
e. Investments in and Advances to Associates increased by 17% or a total of π3.55 billion due to additional
investments in associates of π1.34 billion for a coal plant being constructed in Toledo, Cebu, and the recognition
of equity earnings of π2.54 billion.
f.
Increase of 283% in Pension Assets resulting from actuarial adjustments for DLP and CPPC which lead to the
increase.
g. Deferred Income Tax Assets increased by π183.43 million or 276% primarily due to unrealized foreign exchange
losses on dollar cash holdings and Net Operating Loss Carryover (NOLCO) recognized by AP Parent during the
year.
h. Other Noncurrent Assets increased by 132% or π879.62 million due to prepaid rent of π460.87 million mostly on
advance payment of land rental to PSALM by APRI and the build up of Input Vat Receivable due to the construction
of a hydropower plant by Hedcor Sibulan.
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A B O I T I Z PO W E R C O R P O R AT I O N
Liabilities
Consolidated liabilities increased to a total of π76.29 billion, a 360% increase over year-end 2008 level. The following were
the reasons for the increase:
a) Bank Loans increased by 21% or π1.03 billion due to AP Parent’s availment of a short-term bank loan to support
its investment activities.
b) Trade and Other payables increased by 91% from π3.15 billion in 2008 to π6.02 billion ending 2009 due to the
first-time consolidation of both APRI and Therma Luzon trade payables and accruals.
c) The first-time recognition of Derivative Liabilities of π16.48 million represents the booking of marked to market
losses on foreign currency forwards entered into by AP Parent and Therma Marine.
d) Income Tax Payable increased by 349% or π283.79 million due to TLI’s recognition of income tax payable for the
year.
e) Long-term Debts were increased by 149% or π9.73 billion versus year-end 2008 level by the following: 1) Fixed
Rate Note of five-year peso-denominated corporate fixed rate notes (“Notes”) in the aggregate amount of
π5 billion. The Notes were issued in September 2009 2) a total of π3 billion worth of peso-denominated fixedrate retail bonds issued last April 2009. The proceeds from these debt-raising activities were invested into the
acquisition of the geothermal assets of APRI. The remaining increase is because of additional loan drawdowns
made by Hedcor Sibulan to finance the construction of its Sibulan hydropower project.
f) A new liability account this year is the account - Finance Lease Obligation. The Pagbilao IPPA agreement
between PSALM and Therma Luzon was deemed a finance lease. As a finance lease the lease is conceived to be
a purchase of an asset requiring the recognition of an asset (booked under property, plant and equipment) and a
corresponding liability. The amount recognized as of end 2009 as Finance Lease Obligation is π45.59 billion.
g) An increase in Customers’ Deposits of 13% or π210.02 million was due to new connections mainly in the franchise
areas of DLP as it continues to see robust growth in its customer base. DLP’s increase in customer deposits makes
up 83% of the total increase. The balance is coming from increased customer deposits from CLP, SEZ and APRI.
h) Payable to Preferred Shareholder of a Subsidiary went down by 9% as annual payments were timely made to
preferred shareholders.
i) Pension liability increased by 95% or π13.69 million due to the recognition of pension obligations of newly
consolidated company APRI and an increase in pension liabilities at Hedcor, Inc., CLP and AP Parent.
j)
Deferred Income Tax Liability decreased by 36% or π21.02 million due to the realization of forex transactions in
2009 for AP parent that previously warranted the booking of the deferred tax liability in the previous year.
Equity
Equity attributable to equity holders of the parent increased by 14% from π30.16 billion as of December 2008 to π34.48
billion as of December 2009. This was mainly due to the consolidated net income of π5.77 billion, an upward adjustment
in share in cumulative translation adjustments of associates of π133.67 million and after a cash dividend payment of π1.47
billion in the first quarter of 2009.
The Company declared dividends of π0.20 per share to all shareholders of record as of February 26, 2009. This was paid
on March 23, 2009.
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Material Changes in Liquidity and Cash Reserves of Registrant
As of December 31, 2009, the Group’s cash reserves ended with a balance of π3.81 billion a 73% decrease from its balances
as of December 31, 2008 of π14.33 billion (as restated). This was after major investing and financing activities conducted
during most of the year.
Net cash from operating activities brought in π5.87 billion this year compared to net cash inflow of only π1.91 billion for
the same period last year. The higher income before income tax of π6.40 billion is the primary driver of the increase.
Net cash used in investing activities was π23.95 billion compared to π5.79 billion for the same period last year. The primary
investing activity for the period was the purchase of the geothermal assets of Tiwi-MakBan from PSALM, for π20 billion.
The construction in progress by Hedcor Sibulan for its hydro plant in Mindanao is still ongoing adding another π1.91 billion
in cash used for investing activities. Another π1.34 billion went to the construction of a coal plant in Toledo, Cebu.
Net cash from financing activities for the period in review was π7.72 billion, which was mainly the net result of inflows of
long-term debt in the amount of π9.76 billion, of which AP Parent raised fixed rate notes of π5 billion and π3 billion in
corporate bonds. There was also an increase in long term debt relating to the Hedcor Sibulan project as more draw downs
were made in 2009. Short-term loans from banks of π1.14 billion were availed of by AP parent as part of the purchase for
the geothermal assets, and by subsidiaries to fund working capital requirements. There were also cash outflows for the
π1.47 billion dividend payout in the first quarter of 2009 as well as interest paid during the period totalling another π1.47
billion.
The Company finished the year with net cash outflows of π10.36 billion. The cash and cash equivalents for the period
ending December 31, 2009 was π3.81 billion versus cash and cash equivalents as of December 31, 2008 of π14.33 billion
(as restated). This is consistent with management’s plan of raising capital and to deploy cash raised from these activities
to acquire existing power facilities and develop Greenfield projects as well as to improve its generation and distribution
facilities.
Financial Ratios Current ratio decreased by 1.44, from 2.12x as of December 2008 (as restated) to 0.68x in December 2009. This was due
to the marked decrease in cash used to finance investment activities although the recognition of trade receivables and
inventory buffered the decrease in cash. This was also brought down by the increase in current liabilities due to higher
bank loans incurred in 2009 to fund working capital requirements and due to higher trade and other payables as well as
the recognition of the current portion of the Finance Lease Obligation. The use of the cash raised from the capital raising
activities during the year is consistent with the Company’s long-term plan of improving shareholder value by deploying
capital into high yielding investments.
Debt-to-equity ratio increased from 0.54 as of December 31, 2008 to 2.18 as of December 31, 2009 as AP raised debt to
fund its various investing activities.
Known Trends, Events, Uncertainties, which may have Material Impact on Registrant
Except for the developments disclosed in this report and the attached financial statements, there are, as of the date of
this report, no known events or uncertainties that have had or are reasonably expected to have a material impact on the
financial condition and operations of the Company.
Outlook for the Upcoming Year/Known Trends, Events, Uncertainties, which may have Material Impact on Registrant
Notwithstanding external and uncontrollable economic and business factors that affect its businesses, the Company
believes that it is in a good position to benefit from the foreseen opportunities that will arise in the year 2010. Its sound
financial condition, coupled with a number of industry and company specific developments, should bode well for AP and
its investee companies. These developments are as follows:
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Generation Business
1. Continued Growth in the Company’s attributable capacity
AP ended the year 2009 with a total attributable generating capacity of 1,745 MW, recording a 202% YOY expansion from
end-2008 level of 578 MW. The capacity growth was mainly due to the following:
-
In May 2009, the Tiwi-MakBan geothermal plants were turned over to APRI. The facilities are the Company’s
first geothermal assets. Based on 2009 operations, the Tiwi-MakBan geothermal plants’ peak generation was
recorded at 467 MW.
-
On August 28, 2009, Therma Luzon, a wholly owned subsidiary of AP, submitted the highest offer in the
competitive bid for the appointment as the IPPA of the 700-MW Contracted Capacity of the Pagbilao CoalFired Thermal Power Plant located in Pagbilao, Quezon (the “Pagbilao IPPA”) conducted by PSALM. The bid
price amounted to U.S.$691 million as calculated in accordance with PSALM bid rules. This value represents
the present value of a series of monthly payments to PSALM from October 2009 to August 2025 using PSALM
discount rates. On October 1, 2009, Therma Luzon assumed dispatch control of the 700-MW Contracted Capacity
of the Pagbilao Plant following the successful completion by Therma Luzon of the conditions precedent required
in the IPP Administration Agreement with PSALM. As IPPA, Therma Luzon is responsible for procuring the coal
requirements of the Pagbilao Plant and for selling the electricity generated by the plant.
In 2010 and moving forward, AP’s attributable capacity is seen to further increase as the following events take place:
-
Takeover of the two barge-mounted diesel powered generation plants, each with a generating capacity of 100
MW.
AP, through wholly owned subsidiary Therma Marine assumed ownership of PB 118 and PB 117 on February 6, 2010 and
March 1, 2010, respectively. PB 118 is a power barge with a 100-MW bunker-fired generating facility moored in Bgy. San
Roque, Maco, in Compostella Valley, Mindanao, while PB 117 is a power barge with a 100-MW bunker-fired generating
facility moored in Bgy. Sta. Ana, Nasipit, Agusan del Norte, Mindanao.
AP acquired both power barges on July 31, 2009 via a successfully concluded negotiated bid with PSALM. The total
purchase price for both barges is U.S.$30 million. Therma Marine has ASPAs with the NGCP involving 100 MW (out of the
total 200 MW) of generating capacity.
-
Completion of Greenfield and Brownfield projects
Construction work on the 42.5-MW run-of-river hydropower plant in Bgy. Sibulan, Sta. Cruz, Davao del Sur by AP’s
100%-owned subsidiary Hedcor Sibulan is expected to be completed in 2010. The facilities, which comprise two cascading
hydropower generating facilities tapping the Sibulan and Baroring rivers, are expected to generate an estimated 212
million kWh of clean and emissions-free energy annually. The commercial operation of the first plant, which has a capacity
of 26 MW, started in March 2010, while the second plant, with a capacity of 16.5 MW, is expected to commence in May
2010.
The 3x82-MW coal-fired power plant in Toledo City, Cebu, which is a joint venture with Metrobank Group’s Global Business
Power Corporation and Cebu-based Vivant Energy Corporation of the Garcia Group, is scheduled for completion in 2010.
The first 82-MW unit started to generate and deliver power to the Visayas grid in March 2010. The second and third 82-MW
units are expected to commence commercial operations by second and fourth quarters of 2010, respectively. AP has an
effective participation of 26% in the project.
The Company, together with its partner SN Power Invest AS (SN Power), is pursuing the programmed rehabilitation of
both the 75-MW Ambuklao and 100-MW Binga hydro facilities. Rehabilitation of the former is expected to be completed
by 2010, with the first unit coming on stream by third quarter of 2010, while the second and third units by the last quarter
of 2010. Total capacity is expected to increase to 105 MW. Rehabilitation works on Binga will commence after, performing
works on one unit per year. Completion of rehabilitation of all four units is expected by 2014, which should enhance
generating capacity by 20% to 120 MW.
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2. Greenfield Projects
Wholly owned subsidiary Hedcor Tamugan is planning to build a 10 to 15 MW hydro plant along the Tamugan River following
the compromise between Hedcor and DCWD on the Tamugan water rights dispute. Further discussion with the DCWD led
to the revision of the project’s design and plant size. Hedcor Tamugan has submitted a proposal for a 15-MW hydropower
plant, in lieu of the contested proposal for a 27.5-MW hydropower plant. Given the new project scheme, Hedcor Tamugan
will have to conduct studies for engineering design (one year). Once approved and permits are secured, the two-year
construction period will commence. Despite the lower generating capacity, the required amount of energy under a power
supply agreement between the Hedcor consortium (of which Hedcor Tamugan is a part of) and DLP will be met.
On February 17, 2007, AP entered into a memorandum of agreement with Taiwan Cogeneration International Corporation
(Taiwan Cogen), a Taipei-based generation company, to collaborate in the building and operation of a 300-MW coal-fired
power plant in the SBFZ. On May 30, 2007, RP Energy was incorporated as the 50:50 joint venture company for this project.
The project is estimated to cost U.S.$500 million. AP, together with its partner Taiwan Cogen, has put the Subic coal project
on hold for further review as the Company continues to assess the changes to the demand in the Luzon Grid following the
global financial crisis.
100%-owned subsidiary Hedcor, Inc. is conducting feasibility studies for potential hydropower projects located in both
Luzon and Mindanao. Based on current findings, Hedcor sees the potential of building 5-50 MW plants in the identified
areas. The feasibility studies are expected to be completed in two years. Once permits are secured, another two years will
be needed for the actual construction of the hydro facilities.
3. Participation in the Government’s Privatization Program for its Power Assets
With more than 70% of NPC’s assets bidded out and awarded, the Company continues to closely evaluate the investment
viability of the remaining power generation assets that PSALM intends to auction off.
AP is also keen on participating in PSALM’s public auction for the IPP Administrator contracts, which involves the transfer
of the management and control of total energy output of power plants under contract with NPC to the IPPA.
Distribution Business
As the impact of the global financial crisis to the local economy unfolds, the Company remains optimistic it will realize
modest growth on its existing distribution utilities. It continually seeks efficiency improvements in its operations to
maintain healthy margins.
The implementation of the rate adjustment formula for the distribution companies under the PBR is on a staggered basis.
In addition to annual adjustments, PBR allows for rate adjustments in between the reset periods to address extraordinary
circumstances. There is also a mandatory rate-setting every four years where possible adjustments to the rate take into
account current situations.
On May 1, 2009, CLP implemented its final approved rate structure, which was released by the ERC on April 15, 2009. This
rate structure was based on the approved annual revenue requirement and performance incentive scheme under the PBR.
CLP is the first distribution utility in the AP group to implement this incentive-based scheme.
VECO and DLP are part of the third group (Group C) of private distribution utilities expected to enter PBR. Both VECO and
DLP entered their respective reset periods in end 2008 and are expected to enter the four-year regulatory period by July
1, 2010.
SFELAPCO and SEZ are part of the fourth batch (Group D) of private distribution utilities to enter PBR. They are expected
to enter their respective four-year regulatory period by October 1, 2011.
In April 2009, VECO also applied for a petition with the ERC under the RORB ratemaking regime for the adjustment and
realignment of its current distribution charge. After the conclusion of the application process, which included a series of
public consultations, the ERC granted VECO’s petition last August 7, 2009 with modifications on the sound value of assets
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and the revenue requirement. After taking the adjustments into consideration, the average rate adjustment was π0.2267
per kWh. The rate adjustment was implemented starting September 10, 2009.
In September 2009, SFELAPCO filed a rate increase application with the ERC under the RORB rate-making methodology,
which is still pending at present. The average rate adjustment applied for is π0.3980/kilowatt-hour.
The Company’s strategy in running its utilities is one of providing world-class service at the least possible cost. Providing
value to its customers allows the Company credibility and the ability to successfully implement justified rate increases.
This, along with a transparent and open relationship of over 70 years with the regulators, ensures the Company’s continued
ability to successfully apply and implement rate increases.
AP will participate in the bid to privatize the Olongapo Public Utilities Department (Olongapo PUD), which is tasked
with the operation and maintenance of the electric, light and power systems of Olongapo City, Zambales. The bidding
is scheduled to take place in May 2010. In 2008, the Olongapo PUD sold 139 GWh of electricity to approximately 41,000
customers. Average peak demand in 2008 was at 28.6 MW.
Market and Industry Developments
1. Power Supply Option Program and the Open Access and Retail Competition
On March 1, 2010, the Power Supply Option Program (PSOP) for the Luzon grid was implemented, particularly in the
franchise areas of distribution utilities that have volunteered participation in the said program. Under the PSOP, an eligible
contestable customer, which is defined as an end-user with a monthly average peak demand of at least 1 MW for the
preceding 12 months, will have the option to source their electricity from eligible suppliers that have secured a Retail
Electricity Supplier (RES) license from the ERC. Eligible suppliers shall include the following:
-
Generation companies that own, operate or control 30% or less of the installed generating capacity in a grid and/
or 25% or less of the national installed capacity
-
NPC-IPPs with respect to capacity which is not covered by contracts
-
IPP Administrators with respect to the uncontracted energy which is subject to their administration and
management
-
RES duly licensed by the ERC
The PSOP will end upon the implementation of the Open Access and Retail Competition (Open Access), which will
take effect once NPC is able to privatize 70% of its IPP contracts. All contracts entered into by entities participating in
the PSOP shall be terminated. The industry participants, in accordance with the rules and policies of the Open Access
scheme, shall enter into new contracts.
This development presents a big opportunity for AP, as it has two wholly owned subsidiaries, AESI and Adventenergy, Inc.,
that are licensed retail suppliers, which can enter into contracts with the eligible contestable customers, both under the
PSOP and the Open Access regime. Moreover, AP’s generation assets that have uncontracted capacity will be able to have
direct access to eligible contestable customers through AP’s licensed RES. These assets are the Magat, Ambuklao and
Binga hydropower plants, Tiwi-MakBan geothermal facilities and the Pagbilao coal plant, via its IPPA contract. However,
some of these plants have Transition Supply Contracts with Meralco, a participating entity under the PSOP. Any capacity
that will be contracted through the PSOP with existing Meralco customers could result to volume reductions in these
generation assets’ Transition Supply Contracts.
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Capital Raising and Refinancing Activities
On April 30, 2009, AP issued a total of π3 billion worth of peso-denominated fixed rate retail bonds under the following
terms:
MATURITY
INTEREST RATE
AMOUNT
Five-year bonds to mature on May 1, 2014
8.7% p.a.
π2,294,420,000
Three-year bonds to mature on April 30, 2012
8.0% p.a.
π705,580,000
The issue was 2.5 times oversubscribed and had to be upsized from π1.5 billion to π3 billion. The Philippine Rating Services
Corporation (PhilRatings) issued a “PRS Aaa” rating for this bond issue in February 2009. Obligations rated “PRS Aaa,” the
highest possible rating by PhilRatings, are of the highest quality with minimal credit risk―an indication of the extremely
strong capacity of the obligor to meet its financial commitment on the obligation.
On September 18, 2009, AP signed a Notes Facility Agreement with First Metro Investment Corporation as Issue Manager,
MBTC – Trust Banking Group as Notes Facility Agent and a consortium of primary institutional lenders for the issuance of
five-year peso-denominated corporate fixed rate notes (“Notes”) in the aggregate amount of π5 billion. The Notes were
issued in September 2009 in a private placement to not more than 19 primary institutional investors pursuant to Section
9.2 of the Securities Regulation Code (SRC) and Rule 9.2(2)(B) of the SRC Rules.
DISCUSSION ON KEY PERFORMANCE INDICATORS:
Key Performance Indicators
2008
(As restated)
2007
(As restated)
Amounts in thousands of πs, except for financial ratios
EQUITY IN NET EARNINGS OF ASSOCIATES
2,784,511
2,803,833
EBITDA
5,406,974
5,584,406
CASH FLOW GENERATED:
Net cash flows from operating activities
Net cash flows (used in) investing activities
Net cash flows from financing activities
1,905,394
(5,787,844)
5,049,159
4,040,389
(8,644,866)
16,613,532
Net Increase in Cash & Cash Equivalents
1,166,709
12,009,055
Cash & Cash Equivalent, Beginning
12,706,103
912,564
Cash & Cash Equivalent, End
14,333,676
12,706,103
CURRENT RATIO
2.12
2.43
DEBT-TO-EQUITY RATIO
0.54
0.32
Above key performance indicators are within management expectations.
Earnings contributions of power assets acquired in 2007 remained significant contributors to the equity net earnings
compared to amounts recorded in the same period last year. The year 2008 ended with incremental contributions from the
full year contributions of these companies with the largest incremental contribution coming from STEAG Power, which
contributed π1.09 billion. From the full year income of EAUC, also a recent acquisition, came an incremental contribution
of π112 million. LHC, an existing investment, also contributed π540.25 million in additional earnings, most of which
came from the reversal of accrued costs and tax provision following the settlement of the dispute with Transfield, the
turnkey contractor of LHC’s Bakun Plant. The incremental contributions mentioned above were offset by the effects of the
weakening currency leading to non-recurring forex losses on some other investees. Both SNAP-Magat and SNAP-Benguet
were impacted by the weaker peso, which resulted in a huge swing from unrealized forex gains for the two companies in
2007 to unrealized forex losses in 2008. Notwithstanding the effects of the exchange rate fluctuations on its bottom line,
SNAP-Benguet managed to contribute in operating terms following the turnover of the Ambuklao-Binga plants in July
2008.
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The Company’s EBITDA is lower by 3% YOY. The positive effects brought about by the income contribution of the
Company’s new acquisitions as well as its prudent spending failed to translate into a higher EBITDA due to non-recurring
forex losses from the effects of a weakened peso.
The decrease in the current and other financial ratios was a consequence of improved utilization of capital. This is apparent
in the increase in the investments made by the Company during the year versus investments made as of year-end 2007.
This is consistent with the Company’s long-term plan of improving shareholder value by deploying capital into highyielding investments.
The Company continues to evaluate the investment viability of the remaining power generation assets that the PSALM
intends to auction off.
The financial figures presented are in compliance with the requirements/comments made by the SEC’s Office of the
General Accountant in its letter to AP dated February 3, 2009 and which letter AP replied to on February 18, 2009.
To address the SEC’s comments on the completeness of the Segment Reporting Disclosure in the December 2007 financial
statements, Note 25 in the accompanying audited financial statements as of December 31, 2008 has endeavored to
disclose the basis of inter-segment revenues. As disclosed in the notes to the financial statements, inter-segment revenues,
are in the form of management fees as well as inter-segment sales of electricity which are eliminated in consolidation.
The transfers are accounted for at competitive market prices on an arms length transaction basis. The Company has not
allocated or transferred revenues or expenses among its segments.
On the disclosure relating to Business Combination, Note 7 on the accompanying audited financial statements as of
December 31, 2008, the Company has disclosed the profit or loss on companies acquired in 2007 from date of acquisition
that is included in the Company’s profit or loss for the period. On the accompanying audited financial statements, the
Company has disclosed that from the date of acquisition in April 2007 to December 31, 2007, CPPC contributed π162.6
million to the net income of the Group. Another acquisition in 2007, EAUC contributed π61.6 million. STEAG Power, which
was acquired in the last quarter of 2007 contributed π94.8 million.
In the December 31, 2007 financial statements of the Company, Note 29 referred to a DLP refund obligation as a result
of an adverse decision rendered by the Supreme Court. The amounts were disclosed in DLP’s financial statements as
immaterial. The estimated amount due for refund to DLP’s customers is π4.08 million, which is disclosed under Note 31
Other Matters on the accompanying audited financial statements for the year ending December 31, 2008.
Financial Results of Operations
The Company’s net income for 2008 grew by 3% to π4.42 billion from π4.28 billion for the same period last year. This
translates to an earnings per share of π0.59 for the year ending December 31, 2008 versus an earnings per share of π0.66
ending December 31, 2007. Earnings per share fell by 11% due to the higher number of outstanding shares as of ending
2008 compared to year ending 2007.
The Distribution Companies brought in an income contribution of π1.48 billion, which was lower by 3% from last year’s
π1.52 billion. The drop in income contribution is due to higher operating costs on the larger distribution utilities which
outpaced any increases brought in by the slower growth. The Distribution Companies’ kilowatt-hour electricity sales for
the period grew by 13% year-on-year, from 2,789 GWh to 3,142 GWh. The growth mostly came from the contributions
arising from the 2007 acquisitions and the expansion of SEZ’s industrial segment, mainly due to the operation of the
Hanjin shipyard in SBFZ.
The power generation business shored in a net income contribution of π2.78 billion, recording an 6% YOY growth from last
year’s π2.61 billion. The growth is attributed to the incremental earnings contributions from the 2007 acquisitions, with a
major contribution coming from the 232-MW STEAG coal power plant.
Total power sold by the Generation Companies for the period recorded a 70% YOY expansion, from 1,018 GWh to 1,728
GWh. As of end-2008, AP’s power generation group had an attributable capacity of 578 MW, an 18% YOY increase from
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2007. The increase was due to the turnover of the 175-MW Ambuklao-Binga hydro power plants in July 2008. Moreover,
improved capacity factors of the hydroelectric plants due to higher rate of rainfall also led to the improvement in the
power generation for the period.
Material Changes in Line Items of Registrant’s Income Statement
Consolidated net income attributable to equity holders grew by π172.97 million or 4%. Below is a reconciliation of
growth in the consolidated net income:
Consolidated Net Income Attributable to Equity Holders of the Parent for 2007
π4,160,645
Increase in Operating Revenues
930,989
Increase in Operating Expenses
(1,261,818)
Growth from Share in Net Earnings of Associates
(19,321)
Increase in Interest Income
276,627
Increase in Interest Expense
(181,034)
Increase in Other Income
387,844
Lower Provision for Income Taxes
15,949
Decrease in Minority Interests
23,732
Total Growth
172,968
Consolidated Net Income Attributable to Equity Holders of the Parent for 2008
π4,333,613
Total consolidated operating revenues grew by 8% versus the same period last year. The distribution subsidiaries’
consolidated revenues increased by π430.19 million, a 5% increase for the period. The combined revenues of the Enerzone
companies ―recent acquisitions MEZ and BEZ as well as SEZ―as a group grew by 36%.
On the other hand, the consolidated revenues of the power generation business recorded a strong growth of 19% or
π485.9 million. As in the year 2007, CPPC’s contribution to 2008 consolidated revenue is the sole reason for the increase
in this segment’s increased revenue. The increase in CPPC’s revenue contribution is attributed to its full-year contribution
compared to only seven months revenue contribution for the year 2007. CPPC’s revenue contribution for 2008 also rose as
against 2007 level due to the higher cost of fuel which is passed on as part of its tariffs.
The 14% or π1.26-billion increase in consolidated costs and expenses was primarily due to the additional cost of CPPC’s
generated power. The higher cost of power purchased by SEZ, MEZ and BEZ also added to the increase.
Share in net earnings of associates came in almost flat for the full year 2008 at π2.79 billion versus π2.80 billion in 2007.
The π1.09-billion income contribution of STEAG Power cushioned the impact of the decrease in MORE’s consolidated net
income as a result of the decreased contribution of its subsidiaries, SNAP-Magat and SNAP-Benguet. Both SNAP-Magat
and SNAP-Benguet were impacted by the weaker Peso, which resulted in a huge swing from unrealized forex gains for the
two companies in 2007 to unrealized forex losses in 2008. Notwithstanding the effects of the exchange rate fluctuations
on its bottom line, SNAP-Benguet managed to contribute in recurring operating terms following the turnover of the
Ambuklao-Binga plants in July 2008. EAUC, another recent acquisition, made a full-year contribution of π112.19 million.
Interest income increased by 84%. The increase in interest income was due to the income earned on interest on the
significant cash balances carried by parent through most of the year compared to 2007 where interest income from cash
raised during the IPO proceeds came in for only half of the year.
Interest expense also increased by 92% due to the full-year effect of a short-term loan versus only two months of interest
expense on this loan for 2007.
Other Income increased by π387.84 million mostly due to the unrealized forex gains from the AP Parent’s dollardenominated cash balances.
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As a result of the foregoing, income before income tax increased by π133.29 million or 3% over the same period a year
ago. Provision for taxes decreased by almost 3% to π618.39 million from a prior period provision of π634.33 million.
Changes in Registrant’s Resources, Liabilities and Shareholders Equity
Assets
Compared to year-end 2007 levels, consolidated assets increased by 31%, from π36.18 billion in December 2007 to
π47.27 billion in December 2008, due to the following:
a. Cash & Cash Equivalents was at π14.33 billion (as restated), up by 31% from year-end 2007 level of π12.71 billion
(as restated). This was due to additional cash brought in by short-term loans of π949 million and the proceeds
from the fixed-rate notes offering of the Company which amounted to π3.89 billion. The increase in cash brought
about by the capital-raising activities mentioned above were expended for additional investments totaling π3.78
billion as well as for payment of dividends in the first quarter of the year amounting to π1.32 billion. The rest of
the cash deployment was made for the capital expenditures during the year. Cash also increased due to dividends
of π1.93 billion from associates.
b. Trade & Other Receivables increased by 20%, from π1.66 billion to π1.99 billion due to dividends receivable from
an associate as well as interest bearing advances made to related parties.
c. Inventories decreased by 11% due to the purchase of inventories before yearend 2007 for purposes of conducting
programmed schedule of maintenance and use in Capex projects in 2008.
d. Other Current Assets increased by 59%, to π501.15 million from π314.89 million due to input VAT arising from
construction in progress as well as higher taxes withheld.
e. Property, Plant and Equipment increased by 53% from π4.10 billion (as restated) in 2007 to π6.26 billion mainly
due to the consolidation of the plant and equipment of Hedcor Sibulan, which is currently undertaking the
construction of a 42.5-MW hydropower project in Davao del Sur into ARI.
f.
Intangible Assets-Service Concession Rights increased by π192 million or 29% primarily due to new capital
expenditures by SEZ and MEZ which were booked as intangible assets following their adoption of IFRIC 12.
g. Investments in and Advances to Associates increased by 46% or a total of π6.65 billion due to additional or new
investments in associates with the significant investment/advances as follows:
I.
π3.39 billion for additional equity into MORE, which was in turn invested into the acquisition of the AmbuklaoBinga hydropower complex;
II. π278.89 million in equity into RP Energy;
III. π1.47 billion in investments/advances of subsidiary Abovant into CEDC, the project company for a 3X82MW coal plant in Toledo City, Cebu.
h. Decrease of 58% in available for sale investments deemed to have decreased in value.
i.
Decrease in Pension Assets by 66% resulting from the decreased contributions on retirement fund.
j. Deferred tax assets increased by 10% primarily due to the recording of deferred tax asset of subsidiary PHC on
dollar-denominated advances from AP Parent and some incremental deferred tax asset increase.
k. Other Noncurrent Assets increased by 20% and is mainly representing the unamortized portion of remittances
made by a subsidiary, SEZ, on various lease agreements with SBMA.
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Liabilities
Consolidated liabilities increased to a total of π16.58 billion, an 88% increase over year-end 2007 level. The following were
the reasons for the increase.
a) Bank Loans increased by 44% or π1.45 billion due to the availment of credit lines by some of the companies
subsidiaries for their working capital requirements as well as due to the increase in dollar-denominated debt as a
result of the weakening of the peso.
b) Trade and Other payables increased by 17% due to advances payable by subsidiary Abovant to shareholders to
fund infusions into CEDC.
c) Income Tax Payable was lower by 27% due to lower income tax provision recorded during the period under review.
d) Long-term debt increased by 678% or by π5.68 billion versus year-end 2007 level. This is due to the π3.89 billion in
fixed rate notes of AP Parent availed of last December 2008 as well as Hedcor Sibulan’s availment of π1.72 billion
long-term debt to finance the construction of its 42.5-MW hydropower project and SEZ’s refinancing of its longterm debt.
e) An increase in customers’ deposit of 14% or π197.16 million was mainly due to new connections in the franchise
areas of CLP, DLP and SEZ.
f) Payable to preferred shareholder of a subsidiary went down by 7% as annual payments were timely made to
preferred shareholders.
g) Pension liability decreased by 6% as a result of lower pension obligations of AP Parent and PHC.
h) Deferred Income Tax Liability increased by 52% due to unrealized forex gains on cash and dollar advances to a
related party.
Equity
Equity attributable to equity holders of the parent increased by 13% from π26.74 billion as of December 2007 to π30.16
billion as of December 2008. This was mainly due to consolidated net income of π4.33 billion, an upward adjustment in
share in cumulative translation adjustments of associates of π557.55 million and after a cash dividend payment of π1.33
billion in the first quarter of 2008.
The Company declared dividends of π0.18 per share to all stockholders as of record date February 21, 2008. This was paid
on March 3, 2008.
Material Changes in Liquidity and Cash Reserves of Registrant
As of December 31, 2008, the Group’s cash reserves posted a balance of π14.33 billion (as restated) after major investing
and financing activities. The excess cash will be used to fund its programmed capital expenditures and to finance planned
asset acquisitions for the remainder of the year.
Net cash from operating activities was only π1.90 billion this year compared to the net cash inflow of π4.04 billion for the
same period last year. The seemingly lower cash from operations in 2008 versus 2007 is actually due to the inflow in 2007
from AEV payment of its advances to AP. This year’s cash from operations was mostly from cash flows from higher income
before income tax in 2008.
Net cash used in investing activities was π5.79 billion compared to π8.64 billion for the same period last year. Out of the
amounts used, π3.78 billion is accounted for by additional or new investments, acquisitions of and or capital expenditures
for property, plant and equipment of π2.62 billion and payments of advances to associates of π1.69 billion. These outflows
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A B O I T I Z PO W E R C O R P O R AT I O N
were met partially through interest received in the amount of π595 million, dividends received from associates in the
amount of π1.93 billion and collections of advances from affiliates and interest income received.
Net cash from financing activities for the period in review was π5.05 billion, which was mainly the net result of inflows of
long-term debt in the amount of π5.71 billion, of which fixed-rate notes came in at π3.89 billion and π1.7 billion in Hedcor
loans. Short-term loans of π949 million were availed of by subsidiaries to fund working capital requirements. There were
also cash outflows for the π1.32 billion dividend payout in the first quarter of 2008.
The Company finished the year with net cash inflows of π1.17 billion. The cash and cash equivalents of π14.33 billion (as
restated) for the period ending December 31, 2008 was 13% higher than the cash balance of π12.71 billion in December
31, 2007. With the significant cash balances management will be able to continue with its plan to deploy cash raised to
improve its generation and distribution facilities, acquire existing power facilities and develop Greenfield projects.
Financial Ratios Current ratio decreased by 0.31, from 2.43x as of December 2007 to 2.12x in December 2008 (as restated). This was due
to the increase in current liabilities due to higher bank loans incurred in 2008 to fund working capital requirements and
translation impact of the weaker peso. Current liabilities also went up due to higher trade and other payables. The cash
raised from capital raising activities of the Company in 2007 and 2008 was deployed into investments made by the Company
during the year. This is consistent with the Company’s long-term plan of improving shareholder value by deploying capital
into high-yielding investments.
Debt-to-equity ratio increased from 0.32 as of December 31, 2007 versus 0.54 as of December 31, 2008 as AP raised debt
to fund its various investing activities.
Key Performance Indicators for 2007 (as restated) and 2006 (as restated) are as follows:
Key Performance Indicators
2007
As restated
2006
As restated
Amounts in thousands πs, except for financial ratios
EQUITY IN NET EARNINGS OF INVESTEES
2,803,833
1,075,844
EBITDA
5,584,406
2,936,982
CASH FLOW GENERATED:
Net cash flows from operating activities
Net cash flows (used in) investing activities
Net cash flows from financing activities
3,998,435
(8,694,912)
16,705,532
825,509
931,005
(1,239,883)
Net Increase (Decrease) in Cash & Cash Equivalents
12,009,055
516,631
Cash & Cash Equivalent, Beginning
1,494,272
985,188
13,287,811
1,494,272
CURRENT RATIO
2.52
3.15
DEBT TO EQUITY RATIO
0.32
0.46
Cash & Cash Equivalent, End
Above key performance indicators exceeded management expectations.
Earnings contributions of power assets acquired during the year accounted for the increase in equity in net earnings of
investees. Income contributions generated by MORE, STEAG Power and EAUC offset the decline in LHC’s earnings. The
decline in LHC’s earnings was foreseen as capacity fee rates were already known to be lower during the period in review.
LHC follows a fee schedule that is stipulated in its contract with the NPC. The other reason for the decline in LHC’s net
income was the strengthening of the peso against the U.S. Dollar.
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The new additions and more importantly the strong showing of AP’s subsidiaries resulted in the 90% YOY growth in
EBITDA. Strong revenue growth due to increased volume sales, coupled with improved operating efficiencies, led to robust
operating margins. The fresh earnings contribution of recently acquired CPPC was also another source of growth.
With controls in place, the Company managed to keep and even raise the levels of cash it accumulated from the capitalraising activity it set out during the year. Improved utilization of capital should enable AP to enhance shareholder value as
it explores and takes advantage of growth opportunities in its businesses.
The government, through NPC and the PSALM, is expected to continue to auction off power generation assets. The
Company is currently evaluating the investment viability of these assets and intends to participate in the upcoming
bidding process.
Year Ended December 31, 2007 (as restated) compared to year ended December 31, 2006 (as restated)
Results of Operations
AP’s consolidated net income for 2007 was π4.28 billion for the year, a hefty 126% increase over the 2006 net income of
π1.89 billion. Earnings per share improved to π0.66 from π0.37 for the comparative period in review.
The power generation business’ contribution to net income to equity holders of AP Parent was π2.61 billion, recording
an increase of 210% from last year’s π842.53 million. The increase was mainly due to the increment in AP’s attributable
generating capacity by 291% as a result of the acquisition of 50% of the 360-MW Magat hydropower plant, 60% of the
70-MW thermal power plant owned and operated by CPPC, 50% of the 50-MW thermal power plant owned and operated
by EAUC and 34% of the 232-MW coal-fired plant owned and operated by STEAG Power. The four facilities started
contributing to AP’s results in the second half of 2007.
The power distribution business, as a whole, contributed π1.52 billion to net income to equity holders of the parent, up 52%
YOY from π999.85 million. This was at the back of electricity sales growth of 11% YOY by all subsidiaries and associates,
from 2,507 GWh in 2006 to 2,790 GWh in 2007. The increase in the income contribution of the power distribution business
was also due to an improvement in the gross profit per kWh.
Material Changes in Line Items of AP’s Income Statement
Consolidated net income attributable to equity holders of the parent increased by 123% due to the following:
a. Operating revenues net of operating expenses at year-end 2007 registered at π1.98 billion, up by 55% or an
increase of π699 million over the gross profit the previous year. Consolidated revenues grew by 30.0% to π11.31
billion while operating expenses were up by 26% to π9.33 billion from π7.40 billion. Fresh contribution from CPPC
accounted for 52% of the increase in gross profit.
The power distribution subsidiaries finished the year with an increase of 11% in operating revenues, mainly due
to higher kWh sold that grew by 26% YOY. The power generation group’s consolidated revenues, on the other
hand, recorded a notable 244% YOY increase. CPPC accounted for 67% of the total increase in consolidated
revenues.
Operating expenses were composed mainly of generated power and purchased power cost. The generated power
cost component increased by 990% during the year due to the consolidation of CPPC. Purchased power cost also
increased by 11%, primarily due to higher amount of electricity purchased as kWh sold by the distribution group
increased.
b. Share in net earnings of associates increased by 161% principally due to the income contribution of the newly
acquired associates. MORE, STEAG Power, and EAUC contributed π1.62 billion, π94 million and π62 million,
respectively.
Meanwhile, LHC posted a decline in earnings contribution as revenues were reduced due to the reduction in
contracted capacity fee rates and the strengthening of the Philippine peso versus the U.S. Dollar.
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A B O I T I Z PO W E R C O R P O R AT I O N
c. Interest income increased by 524% due to higher placements coming from IPO proceeds of the Company.
Interest expense dropped by 11% due to a decline in interest rates. As of December 31, 2007, 80% of the Group’s
long-term debt had floating interest rates ranging from 6.21% to 6.89%, and 20.0% of the debts had fixed rates
ranging from 8.78% to 9.50%. As of December 31, 2006, 56.0% of the Group’s long-term debt had floating interest
rates ranging from 7.48% to 9.23%, and 44.0% had fixed rates ranging from 8.78% to 11.20%.
d. Other Income net of other expenses decreased by π119.36 million or 110% mainly due to higher foreign exchange
loss recorded at the Company and PHC.
As a result of the foregoing, income before income tax increased by 114% YOY. Correspondingly, provision for
income tax increased by 57% as a result of higher taxable income reported by the Company. Material Changes in AP’s Resources, Liabilities and Shareholders Equity Assets
Compared to year-end 2006 levels, the Company’s consolidated assets grew by 195%, from π12.28 billion in December
2006 to π36.18 billion in December 2007, due to the following:
a. Cash & Cash Equivalents were at π13.29 billion, up by 789% from year-end 2006 level of π1.49 billion. This is
mainly attributed to the higher cash balance at the parent company level. The increase was due to excess funds
from the capital raised during the IPO.
b. Trade & Other Receivables decreased by 36%, from π2.60 billion to π1.66 billion. This is mainly due to the payment
by AEV of its advances from the Company.
c. Inventories were higher by 73%, from π217.12 million to π374.63 million. Current balance includes the π88 million
materials and supplies of CPPC. The increase was also due to DLP’s inventory build up for use in future capex
projects.
d. Other Current Assets increased by 141% to π314.89 million from π184.20 million, 44% of which came from input
VAT of newly acquired CPPC. Remaining amounts also relate to net input VAT of PHC.
e. Property, Plant and Equipment-net increased by 33% or π4.10 billion versus π3.09 billion, mainly due to the
consolidation of the plant and equipment of newly acquired CPPC, MEZ and BEZ, the additional ownership in
SEZ and the ongoing construction of the Hedcor Sibulan project.
f. Investments in and Advances to Associates increased by 272%, from π3.92 billion in December 2006 to π14.60
billion in December 2007. Acquisitions made during the year in review accounted for the increase. Moreover,
the carrying values of existing equitized investments also increased as AP recognized its share in the earnings of
associates amounting to π2.80 billion, net of the π581.79 million cash dividends received.
g. AP recorded an increase in Goodwill of 352%, from π220.23 million to π996 million. This was mainly goodwill of
newly acquired utilities BEZ and MEZ.
h. Deferred Income Tax Assets increased by π50.81 million, attributable mainly to deferred tax on unrealized foreign
exchange loss of the subsidiaries’ advances to related party.
i. Other Noncurrent Assets were up by 105%, from π33.95 million to π69.64 million. This was principally due to
SEZ’s prepaid rent to SBMA.
SEC FORM 20 - IS (INFORMATION STATEMENT)
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Liabilities
Consolidated bank loans and long-term debts increased by 249%, or π2.98 billion, compared to 2006 year-end level. The
significant increase is mainly due to the π3.31 billion short-term bank loan of the Company that arose out of the STEAG
Power acquisition. Trade and other payables were up 132%, π2.69 billion versus π1.16 billion, mainly attributable to subsidiaries’ advances to
the Company.
Customers’ deposits grew by 22% due to the increase in the power distribution group’s customer base and the recording
of customers’ deposits of new acquisitions MEZ and BEZ.
Income tax payable was up 85% principally due to higher income tax provision recorded during the period under review.
Equity
Equity attributable to equity holders of the Company grew by 222%, from π8.31 billion as of December 2006 to π26.74
billion as of December 2007, largely due to the issuance of new shares during the IPO. This brought in additional equity
of π11.36 billion. AP also issued new shares to existing shareholder, AEV, before the IPO, resulting in additional capital
contributions of π4.07 billion.
Retained earnings grew by 126% to π7.48 billion against π3.32 billion in 2006. This was brought about mainly by the π4.28
billion net income recorded for the year 2007.
The π681.88 million decline in share in cumulative translation adjustments of associates was due to the further appreciation
of the Philippine peso against the U.S. dollar to π41.28 as of December 31, 2007 from π49.05 as of December 31, 2006.
The power generating associates, which adopt the U.S. dollar functional currency financial reporting, recorded foreign
exchange adjustments during the year. This resulted out of the translation of their financial statements to Philippine
peso currency reporting format. These foreign exchange adjustments are booked under Share in Cumulative Translation
Adjustments of Associates’ account.
A reduction in acquisition of minority interests of π107.16 million represents excess of purchase price over carrying value
of SEZ as a result of the acquisition by the Company of the minority shares of AEV, SFELAPCO and Team Philippines.
Financial Ratios
Current assets increased by π11.20 billion, largely due to higher cash and cash equivalents arising out of the capital raising
activities of AP. This more than offsets the π4.81 billion increase in current liabilities resulting from additional debt incurred
by the Company in its acquisition of EAUC and STEAG Power.
However, the resultant current ratio is lower by 0.64, from 3.15:1 as of year-end 2006 to 2.52:1 as of December 2007. Debtto-equity ratio on the other hand, improved in comparison to last year’s figures, from 0.46:1 and 0.32:1 as of December
31, 2006 and December 2007, respectively. The improved performance was due also to the additional capital raised by
AP.
Material Changes in Liquidity and Cash Reserves of AP
The Company managed to carry out its investing and capital raising initiatives successfully during the year that it ended
up very liquid. The cash it accumulated will be used to fund its programmed capital expenditures and to finance planned
asset acquisitions.
Net cash from operating activities increased by 384%, from π825.50 million as of December 31, 2006 to π4 billion in 2007.
The increase can be attributed to higher earnings contributions by subsidiaries and the collection of advances. SEC FORM 20 - IS (INFORMATION STATEMENT)
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A B O I T I Z PO W E R C O R P O R AT I O N
Net cash used in investing activities at year-end of 2007 stood at π8.69 billion versus π931 million cash provided in the
comparative period in 2006. The net usage was mainly due to the new investments in MORE, STEAG Power and EAUC.
Net cash from financing activities for the period in review was at π16.71 billion as opposed to net cash usage for financing
activities of π1.24 billion in 2006. The π17.94 billion increase is primarily a capital infusion by the Company during the
second quarter of 2007 as well as from the excess of the IPO proceeds.
With well-managed cash, improved operating efficiencies and controls, the Group ended the year 2007 with net cash
inflows exceeding the cash outflows resulting to an increase in cash and cash equivalents of π11.80 billion, from π1.49
billion in 2006 to π13.29 billion in the year under review.
Item 7. Information on Independent Accountant and Other Related Matters
External Audit Fees and Services
The following table sets out the aggregate fees billed to the Company for each of the last two years for professional
services rendered by SGV & Co.
Fee Type
Audit Fees
2009
2008
300,000
4,650,000
300,000
4,650,000
Other Fees
Total
Of the total audit fees incurred in 2008, approximately π4.2 million was incurred by AP in connection with the requirements
of the bond offering.
As a matter of policy, the Company’s Audit Committee recommends to the Board of Directors regarding the selection of
the Company’s external auditor. The Audit Committee also pre–approves audit plans, scope and frequency before any
audit is conducted.
Audit services of SGV & Co. for the 2008 and 2009 were pre–approved by the Audit Committee. The Audit Committee also
reviewed the extent and nature of these services to ensure that the independence of the external auditors was preserved.
SGV & Co. does not have any direct or indirect interest in the Company.
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
The SGV accounting firm has been AP’s Independent Public Accountant for the last 11 years. Mr. J. Carlitos G. Cruz served
as audit partner of AP for 2009. He replaced Mr. Ladislao Z. Avila who served as audit partner for five years from 2004 to
2008. AP shall comply with the requirements of Sec. 3(b)(iv) of SRC Rule 68 on the rotation of external auditors or signing
partners. Representatives of SGV will be present during the annual meeting and will be given the opportunity to make a
statement if they so desire. They are also expected to respond to appropriate questions if needed.
There was no event in the past 11 years where AP and SGV or the handling partner had any disagreement with regard to
any matter relating to accounting principles or practices, financial statement disclosured or auditing scopes or procedures.
In its regular meeting last March 3, 2010, the Audit Committee of AP resolved to submit for the approval of the stockholders
during the Annual Stockholders’ Meeting a proposal to delegate to the Board of Directors the authority to appoint the
Company’s external auditors for 2010. The proposal is intended to give the Audit Committee sufficient time to evaluate the
different auditing firms who have submitted engagement proposals to act as AP’s external auditor for 2010.
SEC FORM 20 - IS (INFORMATION STATEMENT)
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PART III – CORPORATE GOVERNANCE
AP has a Manual of Corporate Governance (the “Manual”) and Code of Ethics and Business Conduct (the “Code”) to guide
the attainment of its corporate goals and strategies.
AP has in place a performance evaluation system for corporate governance. It also participated, and intends to participate
in, the annual Corporate Governance Scorecard Survey of the SEC and the PSE to benchmark its corporate governance
practices against best practices. The Compliance Officer regularly monitors and evaluates compliance by the Board
of Directors, management and employees with the Manual. Together with the Human Resources Department, the
Compliance Officer also ensures the implementation of AP’s rule against conflict of interests and the misuse of inside and
proprietary information throughout the organization.
Corporate governance is further fostered by the Board’s active role in reviewing and approving corporate goals and
strategies set by management as well as in monitoring and evaluating management performance in meeting such goals.
The different Board committees―Audit, Board Corporate Governance, Board Strategy and Board Risk Management―
report regularly to the Board and are crucial in maintaining Board oversight in key management areas.
There are no major deviations from the Manual as of the date of this report. The Board of Directors regularly reviews the
Manual to ensure that the same remains relevant and responsive to the needs of the organization.
In addition, the ERC has also issued regulations that must be complied with by all power industry participants and which
are designed to protect End-Users. These regulations include The Magna Carta for Residential Consumers, Distribution
Services Open Access Rules, the Code of Conduct for Competitive Retail Market Participants, Guidelines for Financial
Standards of Generation Companies, the Philippine Distribution Code, the Philippine Grid Code and Business Separation
Guidelines.
Further, ERC regulations require directors of distribution utilities to attend corporate governance seminars. The directors
of each of the Distribution Companies have complied with ERC requirements for attendance at these seminars.
Board Attendance
The Board’s primary objectives are to improve shareholder returns, to develop responsible long-term investments, and
achieve disciplined and sustainable growth.
In 2009, the Board held nine regular and special meetings. Below is a summary of the attendance of the Directors:
SPECIAL AND REGULAR BOARD MEETINGS 2009
DIRECTORS
16Sept
12-Nov
14-Dec
Present
Present
Present
Present
-
-
-
-
-
-
Absent
Present
Present
Present
Present
Present
Present
Present
Present
Present
Present
Present
Present
Present
Present
Present
Present
Absent
Absent
Present
Present
Absent
Present
Present
Present
Present
Present
Present
11-Feb
31-Mar
15-Apr
-
-
-
-
Absent
Jon Ramon Aboitiz
(Chairman of the Board until May 18)
(elected 5-18-09 as Vice Chairman)
Present
Present
Present
Present
-
-
-
Erramon I. Aboitiz
Present
Present
Ernesto R. Aboitiz
Present
Antonio R. Moraza
Present
Enrique M. Aboitiz Jr. (elected 05-18-09
as Chairman of the Board)
18-May 25-June 16- July
Mikel A. Aboitiz
Present
Present
Present
Present
Absent
Present
Present
Present
Present
Juan Antonio E. Bernad
(Director until May 18)
Present
Present
Present
Present
-
-
-
-
-
-
-
-
-
Absent
Present
Present
Present
Present
Jose R. Facundo
(Independent Director)
Present
Present
Present
Present
Present
Present
Present
Present
Present
Romeo L. Bernardo
(Independent Director)
Present
Present
Present
Present
Present
Present
Present
Present
Present
8
8
7
8
5
9
8
8
9
Jaime Jose Y. Aboitiz
(elected 5-18-09 as Director)
Total No. of Directors Present
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Corporate Governance Initiatives
During its regular meeting last February 12, 2009, the Board of Directors of AP approved the creation of additional Board
committees and the consolidation of existing ones. The reorganization aims to a) enhance the role of the Board of Directors
in governance, b) better represent and protect the interests of all stakeholders of the Company, c) ensure compliance with
regulatory standards and provide appropriate information and updates.
The mandate as well as the composition of each Board committee are described below:
•
The Board Corporate Governance Committee (new) shall represent the Board in discharging its responsibility
relating to issues around the Group’s governance principles and guidelines, nomination of persons into Board and
Group senior leadership roles and the various compensation matters as outlined below. The Committee does not
have decision-making authority, except in the circumstances described herein or where on the extent that such
authority is expressly delegated by the Board.
Chairman: Jon Ramon Aboitiz, Members: Enrique M. Aboitiz Jr., Independent Director Jose R. Facundo,
Independent Director Romeo L. Bernardo, Ex-Officio Members: M. Jasmine S. Oporto, Sebastian R. Lacson,
Xavier J. Aboitiz
•
The Board Strategy Committee (new) handles the strategic/policy, diversification and investment elements of
the roles of the Board.
Chairman: Enrique M. Aboitiz Jr., Members: Erramon I. Aboitiz, Mikel A. Aboitiz, Jon Ramon Aboitiz, Ex-Officio
Member: Juan Antonio E. Bernad
•
The Board Audit Committee (existing) oversees the optimization of effective financial management, as well as
compliance with reporting regulatory requirements.
Chairman: Independent Director Jose R. Facundo, Members: Independent Director Romeo L. Bernardo, Mikel A.
Aboitiz, Ex-Officio Member: Juan Antonio E. Bernad
•
The Board Risk Management Committee (new) reviews any business risk exposures across the Group, including
risks categorized as strategic, reputational, operational, financial, compliance related, environmental and
regulatory.
Chairman: Antonio R. Moraza, Members: Erramon I. Aboitiz, Independent Director Jose R. Facundo, Juan
Antonio E. Bernad, Ex-Officio Member: Rolando C. Cabrera, AEV Chief Risk Management Officer
SEC FORM 20 - IS (INFORMATION STATEMENT)
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ANNEX “A-1”
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A B O I T I Z PO W E R C O R P O R AT I O N
ANNEX “A-2”
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A B O I T I Z PO W E R C O R P O R AT I O N
ANNEX “A-3”
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ANNEX “B”
SUMMARY OF THE MINUTES OF THE 2009 AP ANNUAL STOCKHOLDERS’ MEETING
The meeting was called to order on May 18, 2009 at 11:00 a.m. by the Chairman of the Board, Mr. Jon Ramon Aboitiz.
The Corporate Secretary certified to the existence of a quorum, there being present a majority of the outstanding capital
stock of the Corporation in person or by proxy.
Upon motion duly made and seconded, the minutes of the annual stockholders meeting last May 18, 2009 was approved.
The body passed the following resolutions:
1. Approval of the 2008 Annual Report and Financial Statements
2. Ratification of the Acts, Resolutions and Proceedings of the Board of Directors, Corporate Officers and
Management up to May 18, 2009.
3. Delegation of the Authority to Elect the Company’s External Auditors for 2009 to the Board of Directors
4. Election of the Board of Directors
5. Approval of Directors’ Compensation and Per Diem for 2009
6. Approval of the Proposed Amendments to the Company’s By-Laws
7. Approval of the Proposal to Delegate to the Board of Directors the Power to Amend/Repeal the Company’s ByLaws or adopt new By-Laws.
After the approval of such Resolutions, the meeting was duly adjourned.
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A B O I T I Z PO W E R C O R P O R AT I O N
ANNEX “C”
OWNERSHIP STRUCTURE
SEC FORM 20 - IS (INFORMATION STATEMENT)
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The Audit Committee Report to the Board of Directors
The Audit Committee’s roles and responsibilities are embodied in the Audit Committee Charter approved by the Board
of Directors. It provides assistance to the Board of Directors in fulfilling the Board’s oversight responsibility to the
shareholders relating to: (a) the quality and integrity of the Company’s accounting, auditing, legal, ethical and regulatory
compliance; (b) risk management; (c) financial reporting practices; and (d) corporate governance. Any proposed changes
to the Audit Committee Charter are referred to the Board for approval.
Membership
As of December 31, 2009, the Audit Committee is composed of four members, two of whom are Independent Directors.
Jose R. Facundo (Independent Director) chairs the Committee and is ably assisted by Romeo L. Bernardo (Independent
Director), Mikel A. Aboitiz and Jose Antonio Bernad. Ex-officio members are Iker M. Aboitiz, AP Chief Finance Officer, and
Rolando C. Cabrera, Chief Risk Management Officer.
Meetings
Four regular meetings were held during the year: March 5, May 4, July 29, and October 29, 2009. In these meetings, the
Chief Financial Officer, Chief Risk Management Officer, Controller and Corporate Audit head were also present.
Financial Reports
On a high level basis, the Committee reviewed, discussed and endorsed for the approval of the Board the quarterly
unaudited consolidated financial statements and the annual audited consolidated financial statements of the Company and
its subsidiaries, including the results of operations upon prior review and discussion with management, internal auditors
and SGV & Co., the independent auditor of the Company. These activities were performed in the following context:
o That Management has the primary responsibility for the financial statements and the financial reporting
process; and
o That SGV & Co. is responsible for expressing an opinion on the conformity of the Company’ audited
consolidated financial statements with the Philippine Financial Reporting Standards;
Independent Auditors
The overall scope and audit plan of SGV & Co. was reviewed and approved. The terms of engagement were also reviewed.
The Committee also discussed with SGV & Co. the results of SGV’s audits and its assessment of the overall quality of
the financial reporting process. SGV & Co. also presented the effects of changes in relevant accounting standards and
presentation of financial statements that impact the reported results.
The Committee also approved the delegation of the appointment of the Company’s external auditors for 2010 to the
Board of Directors.
Internal Auditors
The Committee also reviewed and approved the annual audit program of the Internal Audit Team of the Company.
Included in this review is the adequacy of resources, competencies of staff and effectiveness of the internal audit function.
Further, the Committee reviewed the reports of the internal auditors. The internal auditors reported that internal controls
were adequate and satisfactory. In their assessment, there is already a natural awareness within business units to
continually improve on the culture of accountability and control ownership.
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A B O I T I Z PO W E R C O R P O R AT I O N
It is also the Internal Audit Team’s assessment that the control design is effective and aligned with business needs and with
the Company’s goals and objectives. Operational efficiency and timeliness of information, on the other hand, remain the
focus of its recommendations.
As scheduled, the Committee likewise reviewed, approved, and endorsed the revised Internal Audit Charter, focusing
mainly on internal audit’s commitment to quality via its Quality Assurance and Improvement Program.
Risk Management
In keeping with its charter, the Committee reviewed and discussed the rollout and implementation of the Enterprise Risk
Management (ERM) initiative and internal audit’s role in ERM in strengthening governance, risk management and control.
The hiring of the Chief Risk Management Officer and the creation of a Risk Management team and its sub-teams, Business
Risk and Insurance Risk Management, under Aboitiz Equity Ventures, Inc. started the initiative.
In behalf of the Committee,
Jose R. Facundo
Chairman
SEC FORM 20 - IS (INFORMATION STATEMENT)
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SECURITIES AND EXCHANGE COMMISSION
SEC Building, EDSA Greenhills
Mandaluyong, Metro Manila
STATEMENT OF MANAGEMENT’S RESPONSIBILITY
FOR FINANCIAL STATEMENTS
The management of Aboitiz Power Corporation is responsible for all information and representations contained in the
Consolidated financial statements for the years ended December 31, 2009 and 2008. The financial statements have been
prepared in conformity with generally accepted accounting principles in the Philippines and reflect amounts that are
based on the best estimates and informed judgment of management with an appropriate consideration to materiality.
In this regard, management maintains a system of accounting and reporting which provides for the necessary internal
controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized
use or disposition and liabilities are recognized. The management likewise discloses to the company’s audit committee
and to its external auditor: (i) all significant deficiencies in the design or operation of internal controls that could adversely
affect its ability to record, process, and report financial data (ii) material weaknesses in the internal controls; and (iii) any
fraud that involves management or other employees who exercise significant roles in internal controls.
The Board of Directors reviews the financial statements before such statements are approved and submitted to the
stockholders of the Company.
SyCip, Gorres, Velayo & Co., the independent auditors appointed by the stockholders, has examined the financial
statements of the Company in accordance with generally accepted auditing standards in the Philippines and has expressed
their opinion on the fairness of presentation upon completion of such examination, in its report to the Board of Directors
and stockholders.
ENRIQUE M. ABOITIZ, JR.
Chairman of the Board
ERRAMON I. ABOITIZ
President & Chief Executive Officer
IKER M. ABOITIZ
First Vice President/Chief Finance Officer/
Corporate Information Officer
SEC FORM 20 - IS (INFORMATION STATEMENT)
A B O I T I Z PO W E R C O R P O R AT I O N
112
Republic of the Philippines)
City of Cebu
) S.S.
Before me, a notary public in and for the city named above, personally appeared:
Name
ENRIQUE M. ABOITIZ, JR. ERRAMON I. ABOITIZ
IKER M. ABOITIZ
Passport No.
ZZ133335
XX1560733
XX3643697
Date/Place Issued
May 9, 2005, Manila
July 7, 2008, Manila
May 6, 2009, Cebu City
who are personally known to me and to me known to be the same persons who presented the foregoing instrument and
signed the instrument in my presence, and who took an oath before me as to such instrument.
Witness my hand and seal this _______________________.
Doc. No.
116
;
Page No.
24 ;
Book No.
XIII ;
Series of 2010
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
113
SyCip Gorres Velayo & Co.
6760 Ayala Avenue
1226 Makati City
Philippines
Phone:
(632) 891 0307
Fax:
(632) 819 0872
www.sgv.com.ph
BOA/PRC Reg. No. 0001
SEC Accreditation No. 0012-FR-2
INDEPENDENT AUDITORS’ REPORT
The Stockholders and the Board of Directors
Aboitiz Power Corporation
Aboitiz Corporate Center
Gov. Manuel A. Cuenco Avenue
Cebu City
We have audited the accompanying financial statements of Aboitiz Power Corporation and Subsidiaries, which comprise the
consolidated balance sheets as of December 31, 2009 and 2008, and the consolidated statements of income, consolidated
statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash
flows for each of the three years in the period ended December 31, 2009, and a summary of significant accounting policies
and other explanatory notes. We did not audit the 2008 and 2007 financial statements of the following subsidiaries:
Philippine Hydropower Corporation (PHC) and Subsidiaries, Aboitiz Energy Solutions, Inc. (AESI), Balamban Enerzone
Corporation (BEZC) and Mactan Enerzone Corporation (MEZC); and the 2009 financial statements of five subsidiaries of
PHC, AESI, BEZC and MEZC, which statements reflect total assets of 6.40% and 13.12% of the consolidated assets as of
December 31,2009 and 2008, respectively; and total revenues of 7.74%, 13.21% and 11.94% of the consolidated revenues
in 2009, 2008 and 2007, respectively. Also, we did not audit the 2009, 2008 and 2007 financial statements of the following
associates: East Asia Utilities Corporation, Hijos de F. Escaño, Inc., Pampanga Energy Ventures, Inc. and STEAG State
Power, Inc. the investments in which represent 7.53% and 15.34% of the total consolidated assets as of December 31, 2009
and 2008, respectively, and the Group’s share in net earnings represents 17.55%, 29.19% and 6.42% of the consolidated net
income for 2009, 2008 and 2007, respectively. Those financial statements were audited by other auditors whose reports
thereon have been furnished to us, and our opinion, in so far as it relates to the amounts included for those entities, is
based solely on the reports of the other auditors.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with
Philippine Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal
control relevant to the preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates
that are reasonable in the circumstances.
SEC FORM 20 - IS (INFORMATION STATEMENT)
114
A B O I T I Z PO W E R C O R P O R AT I O N
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits
in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained and the reports of the other auditors are sufficient and appropriate
to provide a basis for our audit opinion.
Opinion
In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements
present fairly, in all material respects, the financial position of Aboitiz Power Corporation and Subsidiaries as of
December 31, 2009 and 2008, and their financial performance and their cash flows for each of the three years in the period
ended December 31, 2009 in accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
J. Carlitos G. Cruz
Partner
CPA Certificate No. 49053
SEC Accreditation No. 0072-AR-2
Tax Identification No. 102-084-648
PTR No. 2087522, January 4, 2010, Makati City
March 31, 2010
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
115
SyCip Gorres Velayo & Co.
6760 Ayala Avenue
1226 Makati City
Philippines
Phone:
(632) 891 0307
Fax:
(632) 819 0872
www.sgv.com.ph
BOA/PRC Reg. No. 0001
SEC Accreditation No. 0012-FR-2
INDEPENDENT AUDITORS’ REPORT
ON SUPPLEMENTARY SCHEDULES
The Stockholders and the Board of Directors
Aboitiz Power Corporation and Subsidiaries
Aboitiz Corporate Center
Gov. Manuel A. Cuenco Avenue, Cebu City
We have audited in accordance with Philippines Standards on Auditing, the consolidated financial statements of Aboitiz
Power Corporation and Subsidiaries included in this Form 17-A and have issued our report thereon dated March 31, 2010
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The
schedules listed in the Index to Financial Statements and Supplementary Schedules are the responsibility of the Company’s
management. These schedules are presented for purposes of complying with the Securities Regulation Code (SRC) Rule
68 and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial
data required to be set forth therein in relation to the basic financial statements taken as a whole.
SYCIP GORRES VELAYO & CO.
J. Carlitos G. Cruz
Partner
CPA Certificate No. 49053
SEC Accreditation No. 0072-AR-2
Tax Identification No. 102-084-648
PTR No. 2087522, January 4, 2010, Makati City
March 31, 2010
SEC FORM 20 - IS (INFORMATION STATEMENT)
116
A B O I T I Z PO W E R C O R P O R AT I O N
ABOITIZ POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
December 31
2009
2008
π3,814,906
4,476,028
846
1,110,639
512,684
π14,333,676
1,991,074
–
332,042
501,150
9,915,103
17,157,942
72,901,029
882,308
10,000
24,800,301
3,744
996,005
37,186
250,009
1,545,032
6,257,643
854,193
10,000
21,250,901
3,744
996,005
9,720
66,576
665,412
101,425,614
30,114,194
π111,340,717
π47,272,136
5,828,100
6,022,537
16,476
365,209
4,798,120
3,145,311
–
81,422
101,200
2,270,994
11,263
40,000
16,145
–
9,194
40,000
Total Current Liabilities
14,655,779
8,090,192
Noncurrent Liabilities
Long-term debts - net of current portion (Note 16)
Finance lease obligation - net of current portion (Note 34)
Long-term obligation on power distribution system - net of current portion (Note 12)
Customers’ deposits (Note 17)
Payable to preferred shareholder of a subsidiary - net of current portion (Note 18)
Pension liabilities (Note 26)
Deferred income tax liabilities (Note 27)
16,151,335
43,315,170
247,460
1,781,116
76,767
28,158
38,005
6,505,852
–
251,816
1,571,092
88,030
14,467
59,024
Total Noncurrent Liabilities
61,638,011
8,490,281
Total Liabilities
76,293,790
16,580,473
Equity Attributable to Equity Holders of the Parent
Capital stock (Notes 1 and 19)
Additional paid-in capital (Notes 1 and 19)
Share in cumulative translation adjustments of associates (Note 9)
Acquisition of minority interests (Note 1)
Retained earnings (Note 19)
7,358,604
12,588,894
115,246
(259,147)
14,672,262
7,358,604
12,588,894
(18,422)
(259,147)
10,485,401
34,475,859
30,155,330
ASSETS
Current Assets
Cash and cash equivalents (Note 4)
Trade and other receivables (Note 5)
Derivative asset (Note 31)
Inventories (Note 6)
Other current assets (Note 7)
Total Current Assets
Noncurrent Assets
Property, plant and equipment (Note 11)
Intangible asset - service concession rights (Note 12)
Investment property
Investments in and advances to associates (Note 9)
Available-for-sale (AFS) investments - net of impairment of π5,254
Goodwill (Note 10)
Pension assets (Note 26)
Deferred income tax assets (Note 27)
Other noncurrent assets (Note 13)
Total Noncurrent Assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Current Liabilities
Bank loans (Note 15)
Trade and other payables (Note 14)
Derivative liabilities (Note 31)
Income tax payable
Current portion of:
Long-term debts (Note 16)
Finance lease obligation (Note 34)
Payable to preferred shareholder of a subsidiary (Note 18)
Long-term obligation on power distribution system (Note 12)
Minority Interests
Total Equity
TOTAL LIABILITIES AND EQUITY
See accompanying Notes to Consolidated Financial Statements.
SEC FORM 20 - IS (INFORMATION STATEMENT)
571,068
536,333
35,046,927
30,691,663
π111,340,717
π47,272,136
ANNUAL REPORT 200 9
117
ABOITIZ POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Earnings Per Share Amounts)
Years Ended December 31
2009
2008
2007
π12,359,479
10,734,427
61,598
18,761
π2,880,719
9,227,696
61,065
73,500
π2,412,393
8,797,504
56,110
45,984
23,174,265
12,242,980
11,311,991
8,032,562
5,030,277
1,902,428
1,336,987
1,412,900
2,944
6,625,385
1,695,894
1,102,574
653,104
511,154
2,364
6,303,902
1,064,551
900,450
563,748
492,142
3,864
17,718,098
10,590,475
9,328,657
409,972
(2,813,978)
607,540
(378,536)
330,913
(197,502)
(2,404,006)
229,004
133,411
2,535,386
813,411
2,784,511
376,692
2,803,833
(11,152)
3,348,797
3,161,203
2,792,681
6,400,958
5,042,712
4,909,426
631,190
618,384
634,333
NET INCOME
π5,769,768
π4,424,328
π4,275,093
Attributable to:
Equity holders of the parent
Minority interests
π5,658,581
111,187
π4,333,613
90,715
π4,160,645
114,448
π5,769,768
π4,424,328
π4,275,093
π0.77
π0.59
π0.66
OPERATING REVENUES
Sale of power (Notes 20 and 29)
Generation
Distribution
Services
Technical, management and other fees (Note 30)
OPERATING EXPENSES
Cost of purchased power (Note 21)
Cost of generated power (Note 22)
General and administrative expenses (Note 23)
Operations and maintenance (Note 24)
Depreciation and amortization (Notes 11 and 12)
Cost of services
FINANCIAL INCOME (EXPENSES)
Interest income (Notes 4, 13 and 30)
Interest expense and other financing costs (Notes 30 and 31)
OTHER INCOME (EXPENSES)
Share in net earnings of associates (Note 9)
Others - net
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX - Net (Note 27)
EARNINGS PER COMMON SHARE (Note 28)
Basic and diluted, for income for the year attributable to ordinary equity holders of the parent
See accompanying Notes to Consolidated Financial Statements.
SEC FORM 20 - IS (INFORMATION STATEMENT)
118
A B O I T I Z PO W E R C O R P O R AT I O N
ABOITIZ POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
Years Ended December 31
2009
2008
2007
π5,658,581
111,187
π4,333,613
90,715
π4,160,645
114,448
5,769,768
4,424,328
4,275,093
OTHER COMPREHENSIVE INCOME (LOSS)
Share in movement in cumulative translation adjustments of associates (Note 9)
Income tax effect on other comprehensive income
133,668
–
557,554
–
(681,879)
–
Total other comprehensive income, net of tax
133,668
557,554
(681,879)
TOTAL COMPREHENSIVE INCOME
π5,903,436
π4,981,882
π3,593,214
Attributable to:
Equity holders of the parent
Minority interests
π5,792,249
111,187
π4,891,167
90,715
π3,478,766
114,448
π5,903,436
π4,981,882
π3,593,214
NET INCOME ATTRIBUTABLE TO:
Equity holders of the parent
Minority interests
See accompanying Notes to Consolidated Financial Statements.
SEC FORM 20 - IS (INFORMATION STATEMENT)
–
See accompanying Notes to Consolidated Financial Statements.
Balances at December 31, 2007
Acquisition of minority interests (Note 1)
Change in minority interests (Note 36)
π7,358,604
19,828
–
2,338,776
Total comprehensive income (loss) for the year
Issuance of capital stock (Notes 1 and 19)
–
Collection of subscriptions receivable (Note 19)
π5,000,000
Acquisition of minority interests (Note 1)
Balances at January 1, 2007
–
Change in minority interests (Note 36)
π7,358,604
–
Cash dividends - π0.18 a share (Note 19)
Balances at December 31, 2008
–
–
π–
–
–
–
–
110,680
(π110,680)
π–
–
–
–
–
π–
π–
–
–
π–
Subscriptions
Receivable
π12,588,894
95,172
–
12,493,722
–
–
π–
π12,588,894
–
–
–
–
π12,588,894
π12,588,894
–
–
π12,588,894
Additional
Paid-inCapital
(Note 19)
(π575,976)
–
–
–
(681,879)
–
π105,903
(π18,422)
–
–
–
557,554
(π575,976)
π115,246
–
–
133,668
(π18,422)
Share in
Cumulative
Translation
Adjustments
of Associates
(Note 9)
(π107,163)
(107,163)
–
–
–
–
π–
(π259,147)
(151,984)
–
–
–
(π107,163)
(π259,147)
–
–
–
(π259,147)
Acquisition of
Minority
Interests
(Note 1)
Attributable to Equity Holders of the Parent
Total comprehensive income for the year
π7,358,604
Balances at January 1, 2008
–
Change in minority interests (Note 36)
π7,358,604
–
Cash dividends - π0.20 a share
Balances at December 31, 2009
–
π7,358,604
Total comprehensive income for the year
Balances at January 1, 2009
Capital
Stock
(Note 19)
ABOITIZ POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(Amounts in Thousands, Except Dividends Per Share Amounts)
π7,476,337
–
–
–
4,160,645
–
π3,315,692
π10,485,401
–
–
(1,324,549)
4,333,613
π7,476,337
π14,672,262
–
(1,471,720)
5,658,581
π10,485,401
Retained
Earnings
(Note 19)
π619,427
(100,596)
518,078
–
114,448
–
π87,497
π536,333
(25,962)
(147,847)
–
90,715
π619,427
π571,068
(76,452)
–
111,187
π536,333
Minority
Interests
π27,360,123
(92,759)
518,078
14,832,498
3,593,214
110,680
π8,398,412
π30,691,663
(177,946)
(147,847)
(1,324,549)
4,981,882
π27,360,123
π35,046,927
(76,452)
(1,471,720)
5,903,436
π30,691,663
Total
ANNUAL REPORT 200 9
119
SEC FORM 20 - IS (INFORMATION STATEMENT)
120
A B O I T I Z PO W E R C O R P O R AT I O N
ABOITIZ POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years Ended December 31
2009
2008
2007
π6,400,958
π5,042,712
π4,909,426
1,412,900
2,813,978
(27,468)
15,630
–
(2,865)
(409,972)
(2,535,386)
–
511,154
378,536
49,084
–
(33)
(2,965)
(607,540)
(2,784,511)
5,254
492,142
197,502
98,614
–
(11)
(80)
(330,913)
(2,803,833)
(2,540)
7,667,775
2,591,691
2,560,307
(2,608,352)
(547,968)
(20,600)
(922,143)
42,128
42,579
(136,977)
13,008
1,118,661
(74,693)
379,038
41,954
2,651,669
210,024
(169,543)
197,162
346,334
245,138
Net cash generated from operations
Income and final taxes paid
Service fees paid (Note 12)
6,430,405
(516,772)
(40,000)
2,580,048
(634,654)
(40,000)
4,616,739
(536,350)
(40,000)
Net cash flows from operating activities
5,873,633
1,905,394
4,040,389
CASH FLOWS FROM INVESTING ACTIVITIES
Cash dividends received (Note 9)
Interest received
Proceeds from sale of property, plant and equipment
Additions to property, plant and equipment - net (Notes 11 and 34)
Acquisition of Tiwi-Makban Geothermal Power Plants (Note 8)
Additional investments in associates (Notes 8 and 9)
Net collection of (additional) advances to associates (Note 9)
Additions to intangible assets - service concession rights (Note 12)
Acquisition of a subsidiary, net of cash acquired (Note 8)
833,187
451,683
18,604
(3,274,390)
(20,198,774)
(2,526,754)
813,221
(70,259)
–
1,930,244
595,220
5,995
(2,623,993)
–
(3,779,977)
(1,687,932)
(227,401)
–
581,804
290,038
3,151
(1,074,786)
–
(8,338,227)
70,465
(77,101)
(100,210)
Net cash flows used in investing activities
(23,953,482)
(5,787,844)
(8,644,866)
9,762,893
1,136,900
(158,142)
(31,070)
(1,468,820)
(1,471,721)
(48,446)
–
–
–
5,712,664
949,000
221,278
(31,070)
(299,216)
(1,324,549)
(1,000)
–
(177,948)
–
–
3,460,938
(313,216)
(31,070)
(147,822)
(330,023)
–
13,956,045
(92,000)
110,680
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization (Notes 11 and 12)
Interest expense (Notes 30 and 31)
Net unrealized foreign exchange losses (gains)
Unrealized fair valuation loss on derivatives
Dividend income
Gain on sale of property, plant and equipment
Interest income (Note 4, 13 and 30)
Share in net earnings of associates (Note 9)
Write-off (reversal of write-off) of project costs and assets
Operating income before working capital changes
Decrease (increase) in:
Trade and other receivables
Inventories
Other current assets
Other noncurrent assets (Note 34)
Increase (decrease) in:
Trade and other payables
Customers’ deposits
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt - net of transaction costs (Note 16)
Net proceeds from availment of bank loans (Note 15)
Changes in minority interests (Note 36)
Payments to preferred shareholders of a subsidiary (Note 18)
Interest paid
Cash dividends paid (Note 19)
Payments of long-term debt (Note 16)
Proceeds from issuance of capital stock (Notes 1 and 19)
Acquisitions of minority interests (Note 1)
Collection of subscriptions receivable (Note 19)
Net cash flows from financing activities
7,721,594
5,049,159
16,613,532
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
(10,358,255)
(160,515)
14,333,676
1,166,709
460,864
12,706,103
12,009,055
(215,516)
912,564
CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 4)
π3,814,906
π14,333,676
π12,706,103
See accompanying Notes to Consolidated Financial Statements.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
121
ABOITIZ POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Exchange Rate Data and When Otherwise Indicated)
1.
Corporate Information
General Information
Aboitiz Power Corporation (the Company) and its subsidiaries (collectively referred to as “the Group”) were
incorporated in the Republic of the Philippines. The Company is a 76.40% owned (76.03% in 2008) subsidiary of
Aboitiz Equity Ventures, Inc. (AEV, also incorporated in the Philippines) and is the holding company of the entities
engaged in power generation and power distribution in the Aboitiz Group. The Company’s ultimate parent is
Aboitiz & Company, Inc. (ACO).
The registered office address of the Company is Aboitiz Corporate Center, Gov. Manuel A. Cuenco Avenue, Cebu
City.
The consolidated financial statements of the Group as of December 31, 2009 and 2008 and for each of the three
years in the period ended December 31, 2009, were authorized for issue by the Board of Directors (BOD) of the
Company on March 31, 2010.
Initial Public Offering
In January 2007, the BOD of both AEV and the Company approved the Initial Public Offering (IPO) of the Company’s
shares subject to the approval of the Philippine Stock Exchange (PSE), Securities and Exchange Commission (SEC)
and all other required regulatory authorities. The BOD of AEV also approved the consolidation of all AEV’s power
assets and the transfer of AEV’s interests in various power distribution companies to the Company in exchange
for the Company’s shares, subject to the approval of the PSE, SEC, Bureau of Internal Revenue (BIR) and all other
required regulatory authorities.
The public offering of the Company is consistent with the spirit of the Electronic Power Industry Reform Act
(EPIRA) for broader public ownership of electricity distribution and generation assets. The offering will also
enhance the Company’s position as a participant in the privatization of National Power Corporation (NPC) assets
as well as in the development and acquisition of additional power projects.
On July 16, 2007, the Company successfully completed the IPO of 1,787,664,000 common shares including the
exercised greenshoe options of 48,533,565 common shares, in the Philippines. The proceeds from the IPO, net
of related expenses of π412,406, amounted to π9,956,045. The common shares of the Company became listed
and traded on the First Board of the PSE. The Company became a public company under Section 17.2 of the
Securities Regulation Code. As a result of the IPO, the equity interest of AEV in the Company was reduced from
100% to 73.44%.
Reorganization
Prior to the Reorganization as discussed in more detail below, the Company and its subsidiaries and associates
were primarily engaged in power generation and the sale of their generated power to their various customers.
On January 16, 2007, the Company entered into a share exchange (Exchange) arrangement with AEV wherein AEV
transferred its ownership shares in the following power distribution companies in exchange for approximately
2,889 million shares of the Company (herein referred to as Reorganization):
SEC FORM 20 - IS (INFORMATION STATEMENT)
122
A B O I T I Z PO W E R C O R P O R AT I O N
Acquired
% Ownership
Number of Shares
Davao Light & Power Company, Inc. (DLPC)
99.91%
299,729,524
Cotabato Light & Power Company (CLPC)
99.91%
150,689,118
Pampanga Energy Ventures, Inc. (PEVI)
42.84%
12,996,191
Visayan Electric Company, Inc. (VECO)
43.03%
3,291,719
Aboitiz Energy Solutions, Inc. (formerly
Aboitiz Powersolutions, Inc.) (AESI)
100.00%
3,000,000
Subic Enerzone Corporation (SEZC)
20.00%
2,000,000
San Fernando Electric Light & Power Co., Inc.
(SFELAPCO)
20.29%
540,809
Hijos de F. Escano, Inc. (HIJOS)
46.66%
13,340
The Reorganization was undertaken by the Group to consolidate its power generation and distribution assets and
operations and allow the Group to enhance efficiencies and competitiveness.
The Exchange was approved by the SEC on May 3, 2007.
As a result of the above Reorganization, all the power distribution companies as mentioned above have been
transferred to the Company. Accordingly, after the Reorganization, the Group is now engaged in power
generation and power distribution.
The above transaction was treated as a reorganization of companies under common control and was accounted
for at historical cost in a manner similar to pooling-of-interests method.
Additional acquisition of investments in the distribution companies amounting to π26,976 in 2007 were reflected
in the consolidated financial statements in the period of acquisition.
On June 8, 2007, as part of the reorganization of the power segment, the Company agreed to acquire from Aboitiz
Land, Inc. (ALI), an affiliate, a 100% ownership interest in Mactan Enerzone Corporation (MEZC) and a 60%
ownership interest in Balamban Enerzone Corporation (BEZC). MEZC and BEZC were incorporated in 2007. The
transaction was treated as a business combination involving entities under common control of ACO, and such
control is not transitory. The acquisition involves issuance of 151,112,722 Company’s shares of stock in exchange
for shares of stock of MEZC and BEZC owned by ALI. This share exchange transaction wasapproved by SEC on
January 10, 2008. Acquisition costs of MEZC and BEZC amounted to π609,532 and π266,921, respectively.
On March 7, 2008, the Company purchased Tsuneishi Holdings (Cebu), Inc.’s 40% equity in BEZC for a cash
consideration of π177,948 or an excess of π151,984 over the book value of the share of the net assets acquired.
In 2008, the excess was recognized as an acquisition of minority interests (presented as a separate line item of
equity in the balance sheets). As a result of the acquisition, BEZC became a wholly owned subsidiary of the Group.
On various dates in 2007, the Company acquired from the minority, 40% interest in SEZC. As a result, SEZC
became a wholly owned subsidiary of the Group through direct and indirect ownership of the Company. The
cost of acquisition of the minority amounted to π207,000 or an excess of π107,163 over the book value of the
share of the net assets acquired. In 2007, the excess was recognized as an acquisition of minority interests.
The said acquisition was effected through the issuance of 19,827,585 shares of stock of the Company and cash
consideration of π92,000.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
2.
123
Summary of Significant Accounting Policies
Basis of Preparation
The consolidated financial statements of the Group have been prepared on a historical cost basis, except for
derivative financial instruments and AFS investments which are measured at fair value. The consolidated
financial statements are presented in Philippine Peso which is the Company’s functional currency and all values
are rounded to the nearest thousand except for earnings per share and exchange rate and otherwise indicated.
Statement of Compliance
The consolidated financial statements of the Group have been prepared in compliance with Philippine Financial
Reporting Standards (PFRS).
Restatement of 2008 and 2007 Financial Statements
In 2008 and 2007, the Group presented the restricted cash amounting to US$12.2 million held to secure its longterm loan of an associate under “Cash and cash equivalents”. For 2009 financial statements, the restricted cash
is reclassified to “Other noncurrent assets” section of the balance sheet (see Note 13). The restatement led to
decrease in current assets and increase in noncurrent assets in the consolidated balance sheets and decrease in
cash and cash equivalents at beginning and ending of the year in the consolidated statement of cash flows.
Certain accounts in the 2008 and 2007 cost of generated power, general and administrative expenses and
operations and maintenance were reclassified to conform with 2009 presentation. The reclassification has no
impact in the Group’s financial position, financial performance and cash flows.
Such reclassification was made because management believes that this presentation will provide a more reliable
and relevant information to the users of the financial statements.
The reclassification is considered immaterial in relation to the consolidated financial statements. As such, the
Company did not present consolidated balance sheet as of January 1, 2008.
Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year, except for the adoption
of the following new, amended and improved PFRS and Philippine Interpretations effective beginning January 1,
2009:
• Amendments to PFRS 7, Financial Instruments: Disclosures
This amended standard requires additional disclosures about fair value measurement and liquidity risk. Fair
value measurements are to be disclosed by source of inputs using a three-level hierarchy for each class of
financial instrument. Fair value measurement under Level 1 is based on quoted prices in active markets for
identical financial assets or financial liabilities; Level 2 is based on inputs other than quoted prices included
within Level 1 that are observable for the financial asset or financial liability, either directly or indirectly;
and Level 3 is based on inputs for the financial asset or financial liability that are not based on observable
market data. In addition, a reconciliation between the beginning and ending balance for Level 3 fair
value measurements is now required as well as significant transfers between Level 1 and Level 2 fair value
measurements. The amendments also clarify the requirements for liquidity risk disclosures with respect to
derivative transactions and assets used for liquidity management. The fair value measurement and liquidity
risk disclosures are presented in Notes 31 and 32 to the consolidated financial statements.
•
PFRS 8, Operating Segments
PFRS 8 replaced PAS 14, Segment Reporting, upon its effective date. The Group concluded that the operating
segments determined in accordance with PFRS 8 are the same as the business segments previously identified
under PAS 14. PFRS 8 disclosures are shown in Note 29.
SEC FORM 20 - IS (INFORMATION STATEMENT)
124
A B O I T I Z PO W E R C O R P O R AT I O N
•
Amendments to PAS 1, Presentation of Financial Statements
This amended standard separates owner and non-owner changes in equity. The consolidated statement
of changes in equity includes only details of transactions with owners, with non-owner changes in equity
presented as a single line. In addition, the standard introduces the consolidated statement of comprehensive
income. It presents all items of recognized income and expenses, either in one consolidated single statement
(a consolidated statement of comprehensive income), or in two linked consolidated statements (a separate
consolidated statement of income and a consolidated statement of comprehensive income). The Group
has elected to present two statements, a consolidated statement of income and a consolidated statement
of comprehensive income. The consolidated financial statements have been prepared under the revised
disclosure requirements.
Adoption of the following changes in PFRS and Philippine Interpretations did not have any significant impact on
the Group’s consolidated financial statements except where additional disclosures are required:
•
•
•
•
•
•
•
•
Amendments to PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Cost of an Investment
in a Subsidiary, Jointly Controlled Entity or Associate
Amendments to PFRS 2, Share-based Payment - Vesting Condition and Cancellations
Amendments to PAS 27, Consolidated and Separate Financial Statements - Cost of an Investment in a Subsidiary,
Jointly Controlled Entity or Associate
Revised PAS 23, Borrowing Costs
Amendment to PAS 32, Financial Instruments: Presentation, and PAS 1, Presentation of Financial Statements
- Puttable Financial Instruments and Obligations Arising on Liquidation
Philippine Interpretation IFRIC 13, Customer Loyalty Programmes
Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation
Philippine Interpretation IFRIC 18, Transfers of Assets from Customers
Improvements to PFRS
• PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations
• PAS 1, Presentation of Financial Statements
• PAS 16, Property, Plant and Equipment
• PAS 18, Revenue
• PAS 19, Employee Benefits
• PAS 20, Accounting for Government Grants and Disclosures of Government Assistance
• PAS 23, Borrowing Costs
• PAS 28, Investments in Associates
• PAS 29, Financial Reporting in Hyperinflationary Economies
• PAS 31, Interest in Joint Ventures
• PAS 36, Impairment of Assets
• PAS 38, Intangible Assets
• PAS 39, Financial Instruments: Recognition and Measurement
• PAS 40, Investment Property
• PAS 41, Agriculture
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
125
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as
of December 31 of each year.
Nature of
Business
Aboitiz Energy Solutions, Inc. (formerly Aboitiz
Powersolutions, Inc.) (AESI)
Percentage of Ownership
2009
Direct
2008
Indirect
Direct
2007
Indirect
Direct
Indirect
Energy related
service provider
100.00
–
100.00
–
100.00
–
Davao Light & Power Company, Inc. (DLPC)
Power distribution
99.93
–
99.92
–
99.92
–
Cotabato Light & Power Company (CLPC)
Power distribution
99.93
–
99.91
–
99.91
–
Suibic Enerzone Corporation (SEZC)
Power distribution
65.00
34.97
65.00
34.97
65.00
34.97
Mactan Enerzone Corporation (MEZC)
Power distribution
100.00
–
100.00
–
100.00
–
Balamban Enerzone Corporation (BEZC)
Power generation
100.00
–
100.00
–
60.00
–
Philippine Hydropower Corporation (PHC) and
Subsidiaries **
Power generation
100.00
–
100.00
–
100.00
–
Cleanergy Inc. ***
Power generation
–
100.00
–
100.00
–
100.00
Hedcor Tamugan (HTI)***
Power generation
–
100.00
–
100.00
–
100.00
Hedcor, Inc. (formerly Benguet
Hydropower Corporation) (HI)
Kookaburra Equity Ventures, Inc.***
Power generation
–
100.00
–
100.00
–
100.00
Holding company
–
60.00
–
60.00
–
60.00
Hedcor Sibulan, Inc. (HSI)***
Power generation
–
100.00
–
100.00
–
100.00
Hydro Electric Development Corporation***
Power generation
–
99.97
–
99.97
–
99.96
AP Renewables, Inc. (APRI)
Power generation
–
100.00
–
100.00
–
–
Hedcor Benguet, Inc. (HBI)*
Power generation
–
100.00
–
–
–
–
Therma Power, Inc. (TPI) and Subsidiaries
Power generation
100.00
–
100.00
–
–
–
Therma Power-Vis, Inc.(TPVI)*
Power generation
–
100.00
–
100.00
–
–
Therma Luzon, Inc. (TLI)*
Power generation
–
100.00
–
–
–
–
Therma Marine, Inc. (Therma Marine) *
Power generation
–
100.00
–
–
–
–
Therma Mobile, Inc. (Therma Mobile)*
Power generation
–
100.00
–
–
–
–
Therma Pagbilao, Inc. (Therma Pagbilao)*
Power generation
–
100.00
–
–
–
–
Abovant Holdings, Inc. (AHI)
Holding company
–
60.00
–
60.00
–
–
Cebu Private Power Corporation (CPPC)
Power generation
60.00
–
60.00
–
60.00
–
Retail electricity
supplier
100.00
–
100.00
–
–
–
Adventenergy, Inc.***
*TPVI, TLI, Therma Marine, Therma Mobile and Therma Pagbilao were incorporated in 2008. HBI was incorporated in 2009. Except for TLI, these
companies have not yet started their commercial operations as of December 31, 2009.
** On March 23, 2010, SEC approved the change in corporate name of PHC to Aboitiz Renewables, Inc.
*** No commercial operations as of December 31, 2009.
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries (all
are incorporated in the Philippines) as at December 31 of each year. The financial statements of the subsidiaries
are prepared for the same reporting year as the Company using consistent accounting policies.
All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group
transactions that are recognized in assets, are eliminated in full.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control,
and continue to be consolidated until the date that such control ceases. The results of subsidiaries acquired or
disposed of during the year are included in the consolidated statement of income from the date of acquisition or
up to the date of disposal, as appropriate.
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A B O I T I Z PO W E R C O R P O R AT I O N
Minority Interests
Minority interests represent the portion of net income or loss and net assets in the subsidiaries not held by the
Group and are presented separately in the consolidated statement of income and within equity in the consolidated
balance sheet, separately from the equity attributable to equity holders of the parent. Transactions with minority
interests are accounted for using the entity concept method, whereby, transactions with minority interest are
accounted for as transactions with equity holders. On acquisitions of minority interests, the difference between
the consideration and the book value of the share of the net assets acquired is reflected as being a transaction
between owners and recognized directly in equity. Gain or loss on disposals to minority interest is also recognized
directly in equity.
Business Combination and Goodwill
Business combinations are accounted for using the purchase accounting method. The cost of an acquisition is
measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the
date of exchange, plus costs directly attributable to the acquisition. This involves recognizing identifiable assets
(including previously unrecognized intangible assets) and liabilities (including contingent liabilities and excluding
future restructuring) of the acquired business at fair value.
Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the
business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and
contingent liabilities. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary
acquired, the difference is recognized directly in the consolidated statement of income.
When the Group acquires a business, embedded derivatives separated from the host contract by the acquiree are
not reassessed on acquisition unless the business combination results in a change in the terms of the contract
that significantly modifies the cash flows that would otherwise be required under the contract.
Business combination of entities under common control is accounted for using a method similar to pooling of
interest. Under the pooling of interest method, any excess of acquisition cost over the net asset value of the
acquired entity is recorded in equity.
When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative translation
adjustments and goodwill is recognized in the consolidated statement of income.
Impairment of goodwill
Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is
reviewed for impairment, annually or more frequently, if events or changes in circumstances indicate that the
carrying value may be impaired.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date,
allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to
benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are
assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:
•
•
represents the lowest level within the Group at which the goodwill is monitored for internal management
purposes; and
is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format
determined in accordance with PFRS 8, Operating Segments.
Impairment is determined by assessing the recoverable amount of the cash-generating unit or group of cashgenerating units, to which the goodwill relates. Where the recoverable amount of the cash-generating unit or
group of cash-generating units is less than the carrying amount, an impairment loss is recognized. Impairment
losses relating to goodwill cannot be reversed for subsequent increases in its recoverable amount in future periods.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
127
The Group performs its annual impairment test of goodwill every December 31. Where goodwill forms part of a
cash-generating unit or group of cash-generating units and part of the operation within that unit is disposed of,
the goodwill associated with the operation disposed of is included in the carrying amount of the operation when
determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured
based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.
Investments in Associates
The Group’s investments in associates are accounted for under the equity method of accounting. An associate is
an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture.
Under the equity method, the investment in the associate is carried in the consolidated balance sheet at cost plus
post-acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to an associate is
included in the carrying amount of the investment and is not amortized. After application of the equity method,
the Group determines whether it is necessary to recognize any additional impairment loss with respect to the
Group’s net investment in the associates. The consolidated statement of income reflects the share of the results
of operations of the associates. Where there has been a change recognized directly in the equity of the associate,
the Group recognizes its share of any changes and discloses this, when applicable, in the consolidated statement
of changes in equity.
The share of profit of associates is shown on the face of the consolidated statement of income. This is the
profit attributable to equity holders of the associate and therefore is profit after tax and minority interest in the
subsidiaries of the associates.
The reporting dates of the associates and the Group are identical, and the associates’ accounting policies conform
to those used by the Group for like transactions and events in similar circumstances.
Foreign Currency Translation
Each entity in the Group determines its own functional currency and items included in the consolidated financial
statements of each entity are measured using that functional currency. Transactions in foreign currencies are
initially recorded in the functional currency at the rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling
at the balance sheet date. All differences are taken to the consolidated statement of income. Non-monetary
items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates
as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value was determined.
The functional currency of Luzon Hydro Corporation (LHC), Western Mindanao Power Corporation (WMPC),
Southern Philippines Power Corporation (SPPC) and STEAG State Power, Inc. (STEAG), associates, is the United
States (US) Dollar. As at the reporting date, the assets and liabilities of these entities are translated into the
presentation currency of the Group (the Philippine peso) at the rate of exchange ruling at the balance sheet
date and their statements of income are translated at the weighted average exchange rates for the year. The
exchange differences arising on the translation are taken directly to other comprehensive income. On disposal
of the associate, the deferred cumulative amount recognized in other comprehensive income relating to that
particular entity is recognized in the consolidated statement of income.
Cash and Cash Equivalents
Cash and cash equivalents in the consolidated balance sheet consist of cash in banks and on hand and shortterm deposits with an original maturity of three months or less from dates of placements and that are subject to
insignificant risk of changes in value.
For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and cash
equivalents as defined above.
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A B O I T I Z PO W E R C O R P O R AT I O N
Inventories
Materials and supplies are valued at the lower of cost or net realizable value (NRV). Cost is determined on
weighted average method. NRV is the current replacement cost. An allowance for inventory obsolescence is
provided for slow-moving, defective or damaged goods based on analyses and physical inspection.
Financial Instruments
Financial instruments are recognized initially at fair value. Transaction costs, if any, are included in the initial
measurement of all financial instruments, except for financial instruments measured at FVPL.
The Group recognizes a financial instrument in the consolidated balance sheet when it becomes a party to the
contractual provisions of the instrument.
All regular way purchases and sales of financial assets are recognized on the trade date, which is the date that
the Group commits to purchase the asset. Regular way purchases or sales are purchases and sale of financial
assets that require delivery of assets within the period generally established by regulation or convention in the
marketplace.
Financial instruments are classified into the following categories: Financial asset or financial liability at FVPL,
loans and receivables, held-to-maturity (HTM) investments, AFS financial assets and other financial liabilities. The
classification depends on the purpose for which the investments were acquired and whether they are quoted in
an active market. The Group determines the classification at initial recognition and re-evaluates this designation
at every reporting date, where appropriate.
(a) Financial asset or financial liability at FVPL
Financial assets and financial liabilities at FVPL include financial assets and liabilities held for trading purposes
and financial assets and liabilities designated upon initial recognition as at FVPL. Financial assets and
liabilities are classified as held for trading if they are acquired for the purpose of selling and repurchasing in
the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading
unless they are designated and considered as hedging instruments in an effective hedge. Gains or losses on
financial assets held for trading are recognized in the consolidated statement of income.
Financial assets and liabilities may be designated at initial recognition at FVPL if the following criteria are
met: (i) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise
arise from measuring the assets or recognizing gains or losses on them on a different basis; (ii) the assets
and liabilities are part of a group of financial assets which are managed and their performance evaluated on
a fair value basis, in accordance with a documented risk managing strategy; or (iii) the financial instruments
contains an embedded derivative that would need to be separately recorded, unless the embedded
derivative does not significantly modify the cash flow or it is clear, with little or no analysis, that it would not
be separately recorded.
Where a contract contains one or more embedded derivatives, the entire hybrid contract may be designated
as financial asset or financial liabilities at FVPL, except where the embedded derivative does not significantly
modify the cash flows or it is clear that separation of the embedded derivative is prohibited.
The Group’s derivative asset and derivative liabilities are classified as financial asset and financial liabilities at
FVPL.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
129
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. They are not entered into with the intention of immediate or short-term resale
and are not classified or designated as AFS financial assets or financial assets at FVPL. Loans and receivables
are carried at cost or amortized cost in the consolidated balance sheet. Amortization is determined using
the effective interest rate method. Loans and receivables are included in current assets if maturity is within
twelve months of the balance sheet date. Otherwise, these are classified as noncurrent assets.
Included under this category are the Group’s cash and cash equivalents, trade and other receivables, amounts
owed by related parties and restricted cash.
(c) HTM investments
HTM investments are quoted non-derivative financial assets which carry fixed or determinable payments
and fixed maturities and which the Group has the positive intention and ability to hold to maturity. After
initial measurement, HTM investments are measured at amortized cost using the effective interest method.
This method uses an effective interest rate that exactly discounts estimated future cash receipts through
the expected life of the financial asset to the net carrying amount of the financial asset. Where the Group
sells other than an insignificant amount of HTM investments, the entire category would be tainted and
reclassified as AFS investments. Gains and losses are recognized in the consolidated statement of income
when the investments are derecognized or impaired, as well as through the amortization process.
The Group does not have any HTM investment at December 31, 2009 and 2008.
(d) AFS investments
AFS investments are non-derivative financial assets that are either designated as AFS or not classified in any
of the other categories. They are purchased and held indefinitely, and may be sold in response to liquidity
requirements or changes in market conditions. Quoted AFS investments are measured at fair value with
gains or losses being recognized as other comprehensive income, until the investments are derecognized
or until the investments are determined to be impaired at which time, the accumulated gains or losses
previously reported in other comprehensive income are included in the consolidated statement of income.
Unquoted AFS investments are carried at cost, net of impairment. These financial assets are classified as
noncurrent assets unless there is an intention to dispose such assets within twelve months from the balance
sheet date.
The Group’s AFS investments at December 31, 2009 and 2008 include investments in unquoted shares of
stock.
(e) Other financial liabilities
This category pertains to financial liabilities that are not held for trading or not designated as at FVPL upon
the inception of the liability. These include liabilities arising from operations or borrowings.
Other financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost,
taking into account the impact of applying the effective interest method of amortization (or accretion) for
any directly attributable transaction costs.
Gains and losses are recognized in consolidated statement of income when liabilities are derecognized, as
well as through amortization process.
Included under this category are the Group’s trade and other payables, due to related parties, customers’
deposits, bank loans, payable to preferred shareholder of subsidiary, finance lease obligation, long-term
obligation on power distribution system, and long-term debts.
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A B O I T I Z PO W E R C O R P O R AT I O N
Determination of fair value
The fair value for financial instruments traded in active markets at the balance sheet date is based on their quoted
market price or dealer price quotations (bid price for long positions and ask price for short positions), without
any deduction for transaction costs. When current bid and asking prices are not available, the price of the most
recent transaction provides evidence of the current fair value as long as there has not been a significant change in
economic circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by using appropriate
valuation techniques. Valuation techniques include net present value techniques, comparison to similar
instruments for which market observable prices exist, options pricing models, and other relevant valuation
models.
Derivative financial instruments
Derivative financial instruments, including embedded derivatives, are initially recognized at fair value on the date
in which a derivative transaction is entered into or bifurcated, and are subsequently re-measured at FVPL, unless
designated as effective hedge. Derivatives are carried as assets when the fair value is positive and as liabilities
when the fair value is negative.
The Group assesses whether embedded derivatives are required to be separated from host contracts when the
Group first becomes party to the contract.
An embedded derivative is separated from the host financial or non-financial contract and accounted for as a
derivative if all of the following conditions are met:
•
•
•
the economic characteristics and risks of the embedded derivative are not closely related to the economic
characteristics of the host contract;
a separate instrument with the same terms as the embedded derivative would meet the definition of a
derivative; and,
the hybrid or combined instrument is not recognized as at FVPL.
Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash
flows that would otherwise be required.
Embedded derivatives that are bifurcated from the host contracts are accounted for either as financial assets or
financial liabilities at FVPL. Changes in fair values are included in the consolidated statement of income.
As of December 31, 2009, the Group has freestanding derivatives in the form of non-deliverable foreign currency
forward contracts entered into to hedge its foreign currency risks (see Note 31). The Group, however, has no
embedded derivatives as of December 31, 2009.
'Day 1' difference
Where the transaction price in a non-active market is different from the fair value of other observable current
market transactions in the same instrument or based on a valuation technique whose variables include only
data from observable market, the Group recognizes the difference between the transaction price and fair value
(a 'Day 1' difference) in the consolidated statement of income unless it qualifies for recognition as some other type
of asset. In cases where use is made of data which is not observable, the difference between the transaction price
and model value is only recognized in the consolidated statement of income when the inputs become observable
or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of
recognizing the ‘Day 1’ difference amount.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
131
Classification of financial instruments between debt and equity
A financial instrument is classified as debt if it provides for a contractual obligation to:
•
•
•
deliver cash or another financial asset to another entity; or
exchange financial assets or financial liabilities with another entity under conditions that are potentially
unfavorable to the Group; or
satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a
fixed number of own equity shares.
If the Group does not have an unconditional right to avoid delivering cash or another financial asset to settle its
contractual obligation, the obligation meets the definition of a financial liability.
Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual
arrangement. Interest, dividends, gains and losses relating to a financial instrument or a component that is a
financial liability, are reported as expense or income. Distributions to holders of financial instruments classified
as equity are charged directly to equity net of any related income tax benefits.
The components of issued financial instruments that contain both liability and equity elements are accounted for
separately, with the equity component being assigned the residual amount after deducting from the instrument
as a whole the amount separately determined as the fair value of the liability component on the date of issue.
Derecognition of Financial Assets and Liabilities
Financial Assets
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is
derecognized where:
•
•
•
the rights to receive cash flows from the asset expires;
the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them
in full without material delay to a third party under a ‘pass-through’ arrangement; or
the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred
substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all
the risks and rewards of the asset, but has transferred control of the asset.
Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor
retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is
recognized to the extent of the Group’s continuing involvement in the asset.
Financial Liabilities
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially different terms,
or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a
derecognition of the original liability and the recognition of a new liability, and the difference in the respective
carrying amounts is recognized in the consolidated statement of income.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if, and only
if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle
on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with
master netting agreements whereby the related assets and liabilities are presented gross in the consolidated
balance sheet.
Impairment of Financial Assets
The Group assesses at each balance sheet date whether a financial asset or group of financial assets is impaired. A
financial asset or a group of financial assets is deemed to be impaired if and only if, there is an objective evidence
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of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an
incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or
the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that
the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest
or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where
observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes
in arrears or economic conditions that correlate with defaults.
Assets carried at amortized cost
If there is an objective evidence that an impairment loss on loans and receivables carried at amortized cost has
been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and
the present value of estimated future cash flows (excluding future credit losses that have not been incurred)
discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial
recognition). The carrying amount of the asset shall be reduced either directly or through use of an allowance
account. The amount of the loss shall be recognized in the consolidated statement of income.
The Group first assesses whether objective evidence of impairment exists individually for financial assets that
are individually significant, and individually or collectively for financial assets that are not individually significant.
If it is determined that no objective evidence of impairment exists for an individually assessed financial asset,
whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics
and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed
for impairment and for which an impairment loss is or continues to be recognized are not included in a collective
assessment of impairment.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized, the previously recognized impairment
loss is reversed. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of
income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.
AFS investments
For AFS investments, the Group assesses at each balance sheet date whether there is objective evidence that an
investment or group of investment is impaired.
In the case of equity investments classified as AFS, objective evidence of impairment would include a significant
or prolonged decline in the fair value of the investments below its cost. Where there is evidence of impairment,
the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any
impairment loss on that financial asset previously recognized in the consolidated statement of income) is removed
from other comprehensive income and recognized in the consolidated statement of income. Impairment losses
on equity investments are not reversed through the consolidated statement of income. Increases in fair value
after impairment are recognized directly in other comprehensive income.
In the case of debt instruments classified as AFS, impairment is assessed based on the same criteria as financial
assets carried at amortized cost. Future interest income is based on rate of interest used to discount future cash
flows for measuring impairment loss. Such accrual is recorded as part of “Interest income” in the consolidated
statement of income. If, in subsequent period, the fair value of a debt instrument increased and the increase
can be objectively related to an event occurring after the impairment loss was recognized in the consolidated
statement of income, the impairment loss is reversed through the consolidated statement of income.
Property, Plant and Equipment
Except for land, property, plant and equipment are stated at cost, excluding the cost of day-to-day servicing, less
accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing parts
of such property, plant and equipment when that cost is incurred if the recognition criteria are met. Repairs and
maintenance costs are recognized in the consolidated statement of income as incurred. Land is stated at cost
less any accumulated impairment in value.
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Except for the power plant machinery and equipment of CPPC, which is depreciated over the shorter of its Cooperation Period of 15 years (see Note 20) or the estimated useful lives of the assets, depreciation of the other
property, plant and equipment is computed using the straight-line method over the estimated useful lives of the
assets as follows:
Category
Buildings, warehouses and improvements
Power plant equipment
Transmission and distribution equipment
Power transformers
Poles and wires
Other components
Distribution transformers and substation equipment
Power transformers
Other components
Transportation equipment
Office furniture, fixtures and equipment
Electrical equipment
Meters and laboratory equipment
Tools and others
Steam field assets
Estimated Useful Life
(in years)
20
9-40
30
30
12
30
12
3-5
2-5
5
12
3
20-25
Leasehold improvements are amortized over the shorter of the lease term or the life of the asset.
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in
circumstances indicate that the carrying values may not be recoverable.
Fully depreciated assets are retained in the accounts until these are no longer in use. When assets are retired or
otherwise disposed of, both the cost and related accumulated depreciation and amortization and any allowance
for impairment losses are removed from the accounts and any resulting gain or loss is credited or charged to
current operations. An item of property, plant and equipment is derecognized upon disposal or when no future
economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset
(calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included
in the consolidated statement of income in the year the asset is derecognized.
The assets’ residual values, useful lives and depreciation method are reviewed, and adjusted if appropriate, at
each financial year-end.
When each major inspection is performed, its cost is recognized in the carrying amount of the property, plant and
equipment as a replacement if the recognition criteria are satisfied. Construction in progress represents structures
under construction and is stated at cost. Borrowing costs that are directly attributable to the construction of
property, plant and equipment are capitalized during the construction period. Construction in progress is not
depreciated until such time that the relevant assets are completed and put into operational use.
Arrangement Containing a Lease
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement
and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific
asset or assets and the arrangement conveys a right to use the asset. A reassessment is made after inception of
the lease only if one of the following applies:
(a) there is a change in contractual terms, other than a renewal or extension of the arrangement;
(b) a renewal option is exercised or extension granted, unless the term of the renewal or extension was
initially included in the lease term;
(c) there is a change in the determination of whether fulfillment is dependent on a specific asset; or
(d) there is a substantial change to the asset.
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Where a reassessment is made, lease accounting shall commence or cease from the date when the change in
circumstances gives rise to the reassessment for scenarios (a), (c) or (d) above, and at the date of renewal or
extension period for scenario (b).
Finance lease
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of
the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower,
at the present value of the minimum lease payments. Obligations arising from plant assets under finance lease
agreement are classified in the balance sheets as finance lease obligation.
Lease payments are apportioned between financing charges and reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the liability. Financing charges are charged directly against
income.
Capitalized leased assets are depreciated over the estimated useful life of the assets when there is reasonable
certainty that the Group will obtain ownership by the end of the lease term.
Service Concession Arrangements
Public-to-private service concession arrangements where: (a) the grantor controls or regulates what services the
entities in the Group must provide with the infrastructure, to whom it must provide them, and at what price; and
(b) the grantor controls-through ownership, beneficial entitlement or otherwise-any significant residual interest
in the infrastructure at the end of the term of the arrangement are accounted for under the provisions of Philippine
Interpretation IFRIC 12, Service Concession Arrangements. Infrastructures used in a public-to-private service
concession arrangement for its entire useful life (whole-of-life assets) are within the scope of this Interpretation
if the conditions in (a) are met.
This Interpretation applies to both: (a) infrastructure that the entities in the Group constructs or acquires from a
third party for the purpose of the service arrangement; and (b) existing infrastructure to which the grantor gives
the entity in the Group access for the purpose of the service arrangement.
Infrastructures within the scope of this Interpretation are not recognized as property, plant and equipment of
the Group. Under the terms of contractual arrangements within the scope of this Interpretation, an entity acts
as a service provider. An entity constructs or upgrades infrastructure (construction or upgrade services) used to
provide a public service and operates and maintains that infrastructure (operation services) for a specified period
of time.
An entity recognizes and measures revenue in accordance with PAS 11, Construction Contracts, and PAS 18,
Revenue, for the services it performs. If an entity performs more than one service (i.e. construction or upgrade
services and operation services) under a single contract or arrangement, consideration received or receivable shall
be allocated by reference to the relative fair values of the services delivered, when the amounts are separately
identifiable.
When an entity provides construction or upgrade services, the consideration received or receivable by the entity
is recognized at its fair value. An entity accounts for revenue and costs relating to construction or upgrade
services in accordance with PAS 11. Revenue from construction contracts is recognized based on the percentageof-completion method, measured by reference to the percentage of costs incurred to date to estimated total
costs for each contract. The applicable entities account for revenue and costs relating to operation services in
accordance with PAS 18.
An entity recognizes a financial asset to the extent that it has an unconditional contractual right to receive cash or
another financial asset from or at the direction of the grantor for the construction services. An entity recognizes
an intangible asset to the extent that it receives a right (a license) to charge users of the public service.
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When the applicable entities have contractual obligations it must fulfill as a condition of its license (a) to maintain
the infrastructure to a specified level of serviceability or (b) to restore the infrastructure to a specified condition
before it is handed over to the grantor at the end of the service arrangement, it recognizes and measures these
contractual obligations in accordance with PAS 37, Provisions, Contingent Liabilities and Contingent Assets, i.e., at
the best estimate of the expenditure that would be required to settle the present obligation at the balance sheet
date.
In accordance with PAS 23, Borrowing Costs, borrowing costs attributable to the arrangement are recognized
as an expense in the period in which they are incurred unless the applicable entities have a contractual right to
receive an intangible asset (a right to charge users of the public service). In this case, borrowing costs attributable
to the arrangement are capitalized during the construction phase of the arrangement.
Intangible Asset - Service Concession Right
The Group’s intangible asset - service concession right pertains mainly to its right to charge users of the public
service in connection with the service concession and related arrangements. This is recognized initially at the
fair value of the construction services. Following initial recognition, the intangible asset is carried at cost less
accumulated amortization and any accumulated impairment losses.
The intangible asset - service concession right is amortized using the straight-line method over the estimated
useful economic life which is the service concession period, and assessed for impairment whenever there is an
indication that the intangible asset may be impaired. The estimated useful life is 25 years. The amortization
period and the amortization method are reviewed at least at each financial yearend. Changes in the expected
useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted
for by changing the amortization period or method, as appropriate, and are treated as changes in accounting
estimates. The amortization expense is recognized in profit or loss in the expense category consistent with the
function of the intangible asset.
Gains or losses arising from derecognition of an intangible asset - service concession right are measured as the
difference between the net disposal proceeds and the carrying amount of the asset and are recognized in profit
or loss when the asset is derecognized.
Investment Property
Investment property, which pertains to land, is measured initially at cost, including transaction costs. The
carrying amount includes the cost of replacing part of an existing investment property at the time that cost
is incurred if the recognition criteria are met and excludes the costs of day-to-day servicing of an investment
property. Subsequent to initial recognition, investment property is carried at cost less accumulated depreciation
and accumulated impairment in value.
Investment property is derecognized when either they have been disposed of or when the investment property
is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or
losses on the retirement or disposal of an investment property are recognized in the consolidated statement of
income in the year of retirement or disposal.
Impairment of Nonfinancial Assets
Other current assets, property, plant and equipment, intangible asset, investment property and investment in and
advances to associates
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any
such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate
of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating
unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does
not generate cash inflows that are largely independent of those from other assets or groups of assets. Where
the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written
down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessments of the time value of money
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and the risks specific to the asset. Impairment losses of continuing operations are recognized in the consolidated
statement of income in those expense categories consistent with the function of the impaired asset.
An assessment is made at each reporting date as to whether there is any indication that previously recognized
impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount
is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates
used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the
case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot
exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been
recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of income
unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase.
After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying
amount, less any residual value, on a systematic basis over its remaining useful life.
Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the
revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is
recognized:
Sale of power
Revenue from power distribution is recognized upon supply of power to the customers. Revenue from power
generation is recognized in the period actual capacity is generated and earned.
Dividend income
Dividend income is recognized when the Group’s right to receive payment is established.
Services
Service fees which are primarily earned from the installation of electrical power-saving devices are recognized
when the Group’s share of power-saving income is determined.
Technical, management and other fees
Technical, management and other services fees are recognized when the related services are rendered.
Interest income
Interest is recognized as it accrues taking into account the effective interest method.
Expenses
Expenses are decreases in economic benefits during the accounting period in the form of outflows or decrease
of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to
equity participants. Expenses are recognized when incurred.
Pension Benefits
The Group has defined benefit pension plans which require contributions to be made to separately administered
funds. The cost of providing benefits under the defined benefit plans is determined separately for each plan
using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognized as income
or expense when the net cumulative unrecognized actuarial gains and losses for each individual plan at the end
of the previous reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value of
plan assets at that date. These gains or losses are recognized over the expected average remaining working lives
of the employees participating in the plans.
The past service cost is recognized as an expense on a straight-line basis over the average period until the benefits
become vested. If the benefits are already vested immediately following the introduction of, or changes to, a
pension plan, past service cost is recognized immediately.
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The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial
gains and losses not recognized reduced by past service cost not yet recognized and the fair value of plan assets
out of which the obligations are to be settled directly. If such aggregate is negative, the asset is measured at the
lower of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and past service cost
and the present value of any economic benefits available in the form of refunds from the plan or reductions in the
future contributions to the plan.
If the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost
and the present value of any economic benefits available in the form of refunds from the plan or reductions in
the future contributions to the plan, net actuarial losses of the current period and past service cost of the current
period are recognized immediately to the extent that they exceed any reduction in the present value of those
economic benefits. If there is no change or an increase in the present value of the economic benefits, the entire
net actuarial losses of the current period and past service cost of the current period are recognized immediately.
Similarly, net actuarial gains of the current period after the deduction of past service cost of the current period
exceeding any increase in the present value of the economic benefits stated above are recognized immediately
if the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost
and the present value of any economic benefits available in the form of refunds from the plan or reductions in the
future contributions to the plan. If there is no change or a decrease in the present value of the economic benefits,
the entire net actuarial gains of the current period after the deduction of past service cost of the current period
are recognized immediately.
Borrowing Costs
Borrowing costs generally are expensed as incurred. Borrowing costs, including foreign exchange differences
arising from foreign currency borrowings that are regarded as an adjustment of interest costs, are capitalized if
they are directly attributable to the acquisition or construction of a qualifying asset. Capitalization of borrowing
costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs
are being incurred. Borrowing costs are capitalized until the assets are substantially ready for their intended use.
If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded.
Income Taxes
Current Income Tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected
to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount
are those that are enacted or substantively enacted as of the balance sheet date.
Deferred Income Tax
Deferred income tax is provided using the balance sheet liability method on temporary differences at the balance
sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting
purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences, except:
•
•
where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability
in a transaction that is not a business combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, associates and
interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled
and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognized for all deductible temporary differences, carryforward of unused tax
credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which
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the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be
utilized except:
•
•
where the deferred income tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, associates and
interests in joint ventures, deferred income tax assets are recognized only to the extent that it is probable
that the temporary differences will reverse in the foreseeable future and taxable profit will be available
against which the temporary differences can be utilized.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the
extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred
income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each balance sheet
date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred
income tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year
when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted as of the balance sheet date.
Income tax relating to items recognized directly in other comprehensive income is also recognized in other
comprehensive income and not in profit or loss.
Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to
set off current income tax assets against current income tax liabilities and the deferred income taxes relate to the
same taxable entity and the same taxation authority.
Sales tax
Revenues, expenses and assets are recognized net of the amount of sales tax except:
•
•
where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority,
in which case the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense
item as applicable; and
receivables and payables that are stated with the amount of sales tax included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of
receivables or payables in the balance sheet.
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past
event, it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some
or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized
as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision
is presented in the consolidated statement of income net of any reimbursement. If the effect of the time value
of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the
risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time
is recognized as a borrowing cost.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed unless
the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are
not recognized in the consolidated financial statements but disclosed when an inflow of economic benefits is
probable.
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Events after the Balance Sheet Date
Post year-end events that provide additional information about the Group’s position at balance sheet date
(adjusting events) are reflected in the consolidated financial statements. Post year-end events that are not
adjusting events are disclosed when material.
Earnings Per Common Share
Basic earnings per common share are computed by dividing net income for the year attributable to the common
shareholders of the Company by the weighted average number of common shares issued and outstanding during
the year, after giving retroactive effect for any stock dividends declared and stock rights exercised during the
year.
Diluted earnings per share amounts are calculated by dividing the net income for the year attributable to the
common shareholders of the parent by the weighted average number of common shares outstanding during the
year plus the weighted average number of common shares that would be issued for outstanding common stock
equivalents. The Group does not have dilutive potential common shares.
Dividends on Common Shares
Dividends on common shares are recognized as a liability and deducted from retained earnings when approved
by the respective shareholders of the Group and subsidiaries. Dividends for the year that are approved after the
balance sheet date are dealt with as an event after the balance sheet date.
Business Segments
For management purposes, the Group is organized into two major operating segments (power generation
and distribution) according to the nature of the services provided, with each segment representing significant
business segment. The Group’s identified operating segments, which are consistent with the segments reported
to the BOD which is the Group’s Chief Operating Decision Maker (CODM). Financial information on the operating
segment is presented in Note 29.
New Accounting Standards, Interpretations, and Amendments to Existing Standards Effective
Subsequent to December 31, 2009
The Group will adopt the following standards and interpretations, when these become effective, and as these are
applicable. Except as otherwise indicated, the Group does not expect the adoption of these new and amended
PFRS and Philippine Interpretations to have significant impact on its consolidated financial statements.
Effective in 2010
•
Amendments to PFRS 2, Share-based Payments - Group Cash-settled Share-based Payment Transactions,
clarify the scope and the accounting for group cash-settled share-based payment transactions effective for
annual periods beginning on or after January 1, 2010.
•
Revised PFRS 3, Business Combinations, and PAS 27, Consolidated and Separate Financial Statements,
introduce a number of changes in the accounting for business combinations that will impact the amount
of goodwill recognized, the reported results in the period that an acquisition occurs, and future reported
results. The revised PAS 27 requires, among others, that (a) change in ownership interests of a subsidiary
(that do not result in loss of control) will be accounted for as an equity transaction and will have no impact on
goodwill nor will it give rise to a gain or loss; (b) losses incurred by the subsidiary will be allocated between
the controlling and noncontrolling interests (previously referred to as “minority interests”); even if the losses
exceed the noncontrolling equity investment in the subsidiary; and (c) on loss of control of a subsidiary, any
retained interest will be remeasured to fair value and this will impact the gain or loss recognized on disposal.
The changes introduced by the revised PFRS 3 must be applied prospectively and the revised PAS 27 must
be applied retrospectively subject to certain exceptions.
•
Amendment to PAS 39, Financial Instruments: Recognition and Measurement - Eligible Hedged Items, addresses
only the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or
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portion in particular situations. The amendment clarifies that an entity is permitted to designate a portion of
the fair value changes or cash flow variability of a financial instrument as a hedged item.
•
Philippine Interpretation IFRIC 17, Distributions of Non-cash Assets to Owners, provides guidance on how to
account for non-cash distributions to owners. The interpretation clarifies when to recognize a liability, how
to measure it and the associated assets, and when to derecognize the asset and liability.
Improvement to PFRS Effective 2010
The omnibus amendments to PFRSs issued in 2009 were issued primarily with a view of removing inconsistencies
and clarifying wording. The amendments are effective for annual periods beginning on or after January 1, 2010,
unless otherwise stated. The Parent Company has not yet adopted the following amendments and anticipates
that these changes will have no material effect on the financial statements.
•
PFRS 2, Share-based Payments, clarifies that the contribution of a business on formation of a joint venture
and combinations under common control are not within the scope of PFRS 2 even though they are out of
scope of PFRS 3 (Revised). The amendment is effective for financial years beginning on or after July 1, 2009.
•
PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations, clarifies that the disclosures required
with respect to noncurrent assets and disposal groups classified as held for sale or discontinued operations
are only those set out in PFRS 5. The disclosure requirements of other PFRS only apply if specifically required
for such noncurrent assets or discontinued operations.
•
PFRS 8, Operating Segments, clarifies that segment assets and liabilities need only be reported when those
assets and liabilities are included in measures that are used by the chief operating decision maker (CODM).
•
PAS 1, Presentation of Financial Statements, clarifies that the terms of a liability that could result, at anytime,
in its settlement by the issuance of equity instruments at the option of the counterparty do not affect its
classification.
•
PAS 7, Statement of Cash Flows, explicitly states that only expenditure that results in a recognized asset can
be classified as a cash flow from investing activities.
•
PAS 17, Leases, removes the specific guidance on classifying land as a lease. Prior to the amendment, leases
of land were classified as operating leases. The amendment now requires that leases of land are classified as
either “finance” or “operating” in accordance with the general principles of PAS 17. The amendments will be
applied retrospectively.
•
PAS 36, Impairment of Assets, clarifies that the largest unit permitted for allocating goodwill, acquired in
a business combination, is the operating segment as defined in PFRS 8 before aggregation for reporting
purposes.
•
PAS 38, Intangible Assets, clarifies that if an intangible asset acquired in a business combination is identifiable
only with another intangible asset, the acquirer may recognize the group of intangible assets as a single asset
provided the individual assets have similar useful lives. Also clarifies that the valuation techniques presented
for determining the fair value of intangible assets acquired in a business combination that are not traded in
active markets are only examples and are not restrictive on the methods that can be used.
•
PAS 39, Financial Instruments: Recognition and Measurement, clarifies that a prepayment option is considered
closely related to the host contract when the exercise price of a prepayment option reimburses the lender
up to the approximate present value of lost interest for the remaining term of the host contract; the
scope exemption for contracts between an acquirer and a vendor in a business combination to buy or sell
an acquiree at a future date applies only to binding forward contracts, and not derivative contracts where
further actions by either party are still to be taken; and gains or losses on cash flow hedges of a forecast
transaction that subsequently results in the recognition of a financial instrument or on cash flow hedges of
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recognized financial instruments should be reclassified in the period that the hedged forecast cash flows
affect comprehensive income.
•
Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives, clarifies that it does not apply to
possible reassessment at the date of acquisition, to embedded derivatives in contracts acquired in a business
combination between entities or businesses under common control or the formation of joint venture.
•
Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation, states that, in a hedge
of a net investment in a foreign operation, qualifying hedging instruments may be held by any entity or
entities within the group, including the foreign operation itself, as long as the designation, documentation
and effectiveness requirements of PAS 39 that relate to a net investment hedge are satisfied.
Effective in 2012
•
3.
Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate, covers accounting for
revenue and associated expenses by entities that undertake the construction of real estate directly or through
subcontractors. This interpretation requires that revenue on construction of real estate be recognized only
upon completion, except when such contract qualifies as construction contract to be accounted for under
PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized based
on stage of completion. Contracts involving provision of services with the construction materials and where
the risks and reward of ownership are transferred to the buyer on a continuous basis, will also be accounted
for based on stage of completion.
Significant Judgments, Estimates and Assumptions
The preparation of the Group’s consolidated financial statements require management to make judgments,
estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and
the disclosures of contingent liabilities. However, uncertainty about these assumptions could result in outcomes
that require a material adjustment to the carrying amount of the asset or liability affected in the future periods.
Judgments
In the process of applying the Group’s accounting policies, management has made judgments, apart from those
involving estimations, which have the most significant effect on the amounts recognized in the consolidated
financial statements:
Determining functional currency
Based on the economic substance of the underlying circumstances relevant to the companies in the Group, the
functional currency of the companies in the Group has been determined to be the Philippine Peso except for
certain associates whose functional currency is the US Dollar. The Philippine Peso is the currency of the primary
economic environment in which the companies in the Group operates and it is the currency that mainly influences
the sale of power and services and the costs of power and of providing the services. The functional currency of
the Group’s associates is the Philippine Peso except for LHC, STEAG, SPPC and WMPC whose functional currency
is the US Dollar.
Service concession arrangements - Companies in the Group as Operators
Based on management’s judgment, the provisions of IFRIC 12 apply to the SEZC’s Distribution Management
Service Agreement (DMSA) with Subic Bay Metropolitan Authority (SBMA) and MEZC’s Built-Operate-Transfer
agreement with Mactan Cebu International Airport Authority. SEZC and MEZC’s service concession agreements
were accounted for under the intangible asset model. The Company’s associates, LHC and STEAG, have also
determined that the provisions of IFRIC 12 apply to their power purchase agreements with NPC. LHC and STEAG’s
service concession agreements were accounted for under the intangible and financial asset model, respectively.
Refer to the accounting policy on service concession arrangements for the discussion of intangible asset and
financial asset models.
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A B O I T I Z PO W E R C O R P O R AT I O N
Determining fair value of customers’ deposits
In applying PAS 39, Financial Instruments: Recognition and Measurement, on transformer and lines and poles
deposits, the Group has made a judgment that the timing and related amounts of future cash flows relating to
such deposits cannot reasonably and reliably be estimated for purposes of alternative valuation technique in
establishing their fair values since the expected timing of customers’ refund or claim for these deposits cannot be
reasonably estimated. These customers’ deposits, which are therefore stated at cost, amounted to π1,781,116
and π1,571,092 as of December 31, 2009 and 2008, respectively (see Note 17).
Finance lease - Company in the Group as the lessee
In accounting for its Independent Power Producer (IPP) Administration Agreement with Power Sector Asset
and Liabilities Management Corporation (PSALM), the Group’s management has made a judgment that the
IPP Administration Agreement is an arrangement that contains a lease. The Group’s management has made a
judgment that it has substantially acquired all the risks and rewards incidental to ownership of the power plant.
Accordingly, the Group accounted for the agreement as a finance lease and recognized the power plant and
finance lease obligation at the present value of the agreed monthly payments to PSALM (see Notes 8 and 34).
The power plant is depreciated over its estimated useful life as there is reasonable certainty that the Group will
obtain ownership by the end of the lease term. As of December 31, 2009 and 2008, the carrying value of the
power plant amounted to π44,520,331 and nil, respectively (see Notes 11 and 34).
Estimation Uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet
date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below:
Acquisition accounting
The Group accounts for acquired businesses using the purchase method of accounting which requires that the
assets acquired and the liabilities assumed be recorded at the date of acquisition at their respective fair values.
The application of the purchase method requires certain estimates and assumptions especially concerning the
determination of the fair values of acquired intangible assets and property, plant and equipment as well as
liabilities assumed at the date of the acquisition. Moreover, the useful lives of the acquired intangible assets,
property, plant and equipment have to be determined.
The judgments made in the context of the purchase price allocation can materially impact the Group’s future
results of operations. Accordingly, for significant acquisitions, the Group obtains assistance from third party
valuation specialists. The valuations are based on information available at the acquisition date.
Estimating allowance for impairment losses on investments in and advances to associates Investments in and advances to associates are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. There are no impairment indicators
in 2009, 2008 and 2007 based on management’s assessment. The carrying amounts of the investments in and
advances to associates amounted to π24,800,301 and π21,250,901 as of December 31, 2009 and 2008, respectively.
No allowance for impairment losses was recognized in 2009, 2008 and 2007 (see Note 9).
Impairment of goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the
value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires
the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to
choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount
of goodwill as of December 31, 2009 and 2008 amounted to π996,005 (see Note 10). No impairment of goodwill
was recognized in 2009, 2008 and 2007.
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Estimating useful lives of property, plant and equipment
The Group estimates the useful lives of property, plant and equipment based on the period over which assets
are expected to be available for use. The estimated useful lives of property, plant and equipment are reviewed
periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical
or commercial obsolescence and legal or other limits on the use of the assets. In addition, the estimation of the
useful lives of property, plant and equipment is based on collective assessment of internal technical evaluation
and experience with similar assets. It is possible, however, that future results of operations could be materially
affected by changes in estimates brought about by changes in the factors and circumstances mentioned above.
As of December 31, 2009 and 2008, the aggregate net book values of property, plant and equipment amounted
to π72,901,029 and π6,257,643, respectively (see Note 11).
Estimating residual value of property, plant and equipment
The residual value of the Group’s property, plant and equipment is estimated based on the amount that would
be obtained from disposal of the asset, after deducting estimated costs of disposal, if the asset is already of the
age and in the condition expected at the end of its useful life. Such estimation is based on the prevailing price
of property, plant and equipment of similar age and condition. The estimated residual value of each asset is
reviewed periodically and updated if expectations differ from previous estimates due to changes in the prevailing
price of a property, plant and equipment of similar age and condition.
Estimating useful lives of intangible asset - service concession rights
The Group estimates the useful lives of intangible asset arising from service concessions based on the period over
which the asset is expected to be available for use which is 25 years. The Group has not included any renewal
period on the basis of uncertainty, as of balance sheet date, of the probability of securing renewal contract at the
end of the original contract term.
Impairment of non-financial assets
The Group assesses whether there are any indicators of impairment for non-financial assets at each reporting
date. These non-financial assets (property, plant and equipment, intangible asset - service concession rights,
investment property, and other current and noncurrent assets) are tested for impairment when there are
indicators that the carrying amounts may not be recoverable.
Certain impairment indicators are present. Determining the recoverable amount of property, plant and equipment
and intangibles asset - service concession rights, which require the determination of future cash flows expected
to be generated from the continued use and ultimate disposition of such assets, requires the Group to make
estimates and assumptions that can materially affect its consolidated financial statements. Future events could
cause the Group to conclude that the property, plant and equipment and intangible asset - service concession
rights are impaired. Any resulting impairment loss could have a material adverse impact on the consolidated
balance sheet and statement of income. As of December 31, 2009 and 2008, the aggregate net book values of
these assets amounted to π72,280,630 and π7,205,540, respectively (see Notes 7, 11, 12 and 13). No impairment
losses were recognized in 2009, 2008 and 2007.
Estimating allowance for impairment of trade and other receivables
The Group maintains allowance for impairment of trade and other receivables at a level considered adequate to
provide for potential uncollectible receivables. The level of this allowance is evaluated by management on the
basis of the factors that affect the collectibility of the accounts. These factors include, but are not limited to, the
Group’s relationship with its clients, client’s current credit status and other known market factors. The Group
reviews the age and status of receivables and identifies accounts that are to be provided with allowance either
individually or collectively. The amount and timing of recorded expenses for any period would differ if the Group
made different judgment or utilized different estimates. An increase in the Group’s allowance for impairment
of trade and other receivables will increase the Group’s recorded expenses and decrease current assets. As
of December 31, 2009 and 2008, allowance for impairment amounted to π106,170 and π8,098, respectively.
Trade and other receivables, net of allowance for impairment, amounted to π4,476,028 and π1,991,074 as of
December 31, 2009 and 2008, respectively (see Note 5).
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A B O I T I Z PO W E R C O R P O R AT I O N
Estimating allowance for inventories obsolescence
The Group estimates the allowance for inventories obsolescence based on the age of inventories. The amounts
and timing of recorded expenses for any period would differ if different judgments or different estimates are
made. An increase in allowance for materials and supplies obsolescence would increase recorded expenses
and decrease current assets. No allowance for inventory obsolescence was recognized in 2009 and 2008. The
carrying amount of the inventories amounted to π1,110,639 and π332,042 as of December 31, 2009 and 2008,
respectively (see Note 6).
Recognition of deferred income tax assets and liabilities
The Group reviews the carrying amounts of deferred income tax assets at each balance sheet date and reduces
deferred income tax assets to the extent that it is no longer probable that sufficient income will be available to
allow all or part of the deferred income tax assets to be utilized. The Group has gross deferred income tax assets
amounting to π250,009 as of December 31, 2009 and π66,897 as of December 31, 2008. As of December 31, 2009,
the Group has nil deferred income and tax asset and liability on temporary difference amounting to π27.8 million
and π441.8 million, respectively (see Note 27).
Pension benefits
The determination of the Group’s obligation and cost of pension is dependent on the selection of certain
assumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 26,
Pension Benefit Plans, and include, among others, discount rates, expected rates of return on plan assets and
rates of future salary increase. In accordance with PAS 19, Employee Benefits, actual results that differ from the
Group’s assumptions are accumulated and amortized over future periods and therefore, generally affect the
Group’s recognized expenses and recorded obligation in such future periods. While management believes that
its assumptions are reasonable and appropriate, significant differences in the actual experience or significant
changes in the assumptions may materially affect the Group’s pension and other post-employment obligations.
Retirement benefit income amounted to π4,792 in 2009 and retirement benefit expense amounted to π22,205
and π5,451 in 2008 and 2007, respectively. The Group’s pension liabilities amounted to π28,158 and π14,467
as of December 31, 2009 and 2008, respectively. Pension assets amounted to π37,186 and π9,720 as of
December 31, 2009 and 2008, respectively (see Note 26).
Legal Contingencies
The estimate of probable costs for the resolution of possible claims has been developed in consultation with
outside counsels handling the Group’s defense in these matters and is based upon an analysis of potential results.
No provision for probable losses arising from legal contingencies was recognized in the Group’s consolidated
financial statements as of December 31, 2009 and 2008.
4.
Cash and Cash Equivalents
Cash on hand and in banks
Short-term investments
2009
2008
π2,255,660
1,559,246
π622,301
13,711,375
π3,814,906
π14,333,676
Cash in banks earn interest at floating rates based on daily bank deposit rates. Short-term investments are made
for varying periods of between one day and three months depending on the immediate cash requirements of the
Group and earn interest at the respective short-term deposit rates.
Interest income earned from cash and cash equivalents including restricted cash (see Note 13) amounted to
π348,855 in 2009, π458,973 in 2008 and π326,952 in 2007.
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ANNUAL REPORT 200 9
5.
145
Trade and Other Receivables
Trade receivables - net of allowance for impairment of
π106,170 in 2009 and π8,098 in 2008 (see Note 31)
Due from related parties (see Note 30)
Other receivables
2009
2008
π3,606,224
–
869,804
π782,043
396,600
812,431
π4,476,028
π1,991,074
Trade receivables are non-interest bearing and are generally on 10 - 30 day term.
Other receivables substantially comprise of outstanding claims.
The roll forward analysis of allowance for impairment of receivables, which pertains to trade receivables of the
power distribution segment, is presented below:
January 1
Provisions (see Note 23)
Write-off/reversals
December 31
2009
2008
π8,098
136,474
(38,402)
π7,560
1,076
(538)
π106,170
π8,098
Trade receivables of the power distribution segment that was written off but not covered by the allowance for
impairment amounted to π1,121 and π66,261 (see Note 23) in 2009 and 2008, respectively.
Allowance for impairment as of December 31, 2009 and 2008 pertain to receivables that are individually determined
to be impaired at balance sheet date. These relate to debtors that are in significant financial difficulties and have
defaulted on payments and accounts under dispute and legal proceedings. These receivables are not secured by
any collateral or credit enhancements.
6.
Inventories - at cost
Fuel inventories
Plant spare parts and supplies
Transmission and distribution supplies
Other parts and supplies
7.
2009
2008
π541,759
316,745
179,082
73,053
π18,908
90,273
189,798
33,063
π1,110,639
π332,042
2009
2008
π385,889
87,446
39,349
π307,620
88,664
104,866
π512,684
π501,150
Other Current Assets
Input value-added tax (VAT)
Prepaid tax
Others
Others substantially comprise of other deferred input VAT, current portion of prepaid rent (see Note 34) and other
prepaid expenses.
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8.
Business Combinations and Asset Acquisitions
a. Acquisition of the 747 Megawatt (MW) Tiwi-MakBan Geothermal Power Plant (“Tiwi-MakBan Power Plant”)
In August 2008, PSALM issued the Notice of Award and Certificate of Effectivity to APRI, a subsidiary, officially
declaring it as the winning bidder for the 289 MW Tiwi Geothermal Power Plant located in Tiwi, Albay and the
458 MW Makiling-Banahaw (MakBan) Geothermal Plant located in Laguna and Batangas Provinces.
On May 25, 2009 (the “Closing Date”), all the closing terms and conditions for the execution of the Asset
Purchase Agreement (APA) between the APRI and PSALM were satisfied and the purchase was completed.
Following the completion of the conditions precedent and the execution of the respective Certificates of
Closing of the Company and PSALM, the control and possession of the purchased assets were successfully
turned-over and transferred to APRI on May 25, 2009. APRI started the commercial operations of the TiwiMakBan Power Plant on May 26, 2009.
APRI accounted for the purchase of the Tiwi-MakBan Power Plant as acquisition of a business using purchase
method.
The provisional fair value of the identifiable assets of the Tiwi-MakBan Power Plant as of the date of
acquisition follows:
Property, plant and equipment
Steam field assets
Machinery and equipment
Electrical equipment
Other land improvements
Buildings
Inventories
Deferred income tax liability
π11,910,223
6,106,985
1,290,397
150,779
509,858
237,774
(7,242)
Total consideration
π20,198,774
No complete comparable information is available with respect to the carrying amounts of each of the assets
acquired in the books of PSALM immediately before the acquisition.
The accounting for the business combination that was effected during the period was determined provisionally
as APRI has incomplete information as of report date with respect to possible recognition of intangible assets
and deferred income tax assets arising from the acquisition. The accounting for the business combination
will be finalized within the one-year period from acquisition as allowed by PFRS 3.
Included in the APA is the transfer of bilateral power supply contract quantities (BCQs) to APRI from NPC
(see Note 20). These BCQs were initially identified as potential source of intangible assets, however, there is
no history or evidence of exchange transactions for the same or similar assets, and otherwise estimating fair
value would be dependent on immeasurable variables. The management provisionally did not recognize the
intangible assets from the BCQs as it is not possible to measure reliably the fair value of the intangible assets.
The total cost of the business combination was π20,198,774, consisting of the purchase price of π19,900,270
and costs directly attributable to the acquisition of π298,504.
The APA originally required APRI to deliver at least 40% of the US$435.4 million purchase price as upfront
payment payable on or before the closing date. The balance of 60%, comprising the deferred payments, will
be paid in 14 equal semi-annual payments with an interest of 12% per annum compounded semi-annually.
On closing date, APRI paid PSALM π8.29 billion representing the 40% upfront payment.
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ANNUAL REPORT 200 9
The payment of the 60% balance of π11.61 billion was accelerated on September 30, 2009 using proceeds
from advances from PHC. APRI paid interest amounting to π514,135 covering the period May 26 to
September 30, 2009.
No segment of the Tiwi-MakBan Power Plant operation has been disposed as a result of the acquisition. From
the date of acquisition up to December 31, 2009, the Tiwi-MakBan Power Plant has contributed π2,072,730 to
the net income of the Group.
147
b. Pagbilao IPP Administration Agreement
In August 2009, TLI, a subsidiary, was declared by PSALM as the winning bidder for the IPP Administrtation
Agreement with a discounted bid price of US$691 million representing the present value of accumulated
monthly payments of US$2.5 billion using PSALM’s discount rates. In September 2009, TLI and PSALM
executed the IPP Administration agreement where PSALM appointed TLI to manage the 700MW contracted
capacity of NPC in the coal-fired power plant in Pagbilao, Quezon. TLI assumed dispatch control of the
contracted capacity on October 1, 2009.
The IPP Administration Agreement includes the following obligations TLI would have to perform until the
transfer date of the power plant (or the earlier termination of the IPP Administration Agreement):
a. Supply and deliver all fuel for the power plant in accordance with the specifications of the original Energy
Conversion Agreement (ECA); and
b. Pay to PSALM the monthly payments (based on the bid) and energy fees (equivalent to the amount paid
by NPC to the IPP).
TLI has the following rights, among others, under the IPP Administration Agreement:
a. The right to receive, manage and control the Capacity of the power plant for its own account and at its
own cost and risk;
b. The right to trade, sell or otherwise deal with the Capacity (whether pursuant to the spot market, bilateral
contracts with third parties or otherwise) and contract for or offer related ancillary services, in all cases
for its own account and its own risk and cost. Such rights shall carry the rights to receive revenues arising
from such activities without obligation to account therefore to PSALM or any third party;
c. The right to receive the transfer of the power plant at the end of the IPP Administration Agreement
(which is technically the end of the ECA) for no consideration; and
d. The right to receive an assignment of NPC’s interest to existing short-term bilateral Power Supply
Contract from the effective date of the IPP Administration Agreement to November 2011 only
(see Note 20).
In view of the nature of the IPP Administration Agreement, the arrangement has been accounted for as a
finance lease (see Note 34).
From the date of assumption of dispatch control under the IPP Administration Agreement up to
December 31, 2009, TLI has contributed loss of π78,896 to the Group’s consolidated net income.
c. Acquisition of Power Barge (PB) 117 and 118
On July 31, 2009, Therma Marine and Therma Mobile, subsidiaries, won the negotiated bid with PSALM for
the 100 MW PB 118 and 100 MW PB 117 with a bid price of US$16.0 million and $14.0 million, respectively.
PB 118 is moored in Barangay San Roque, Maco, Compostela Valley in Mindanao. PB 117 is moored in
Barangay Sta. Ana, Nasipit, Agusan Del Norte.
Under the terms of the APA, Therma Marine is required to deliver at least 40% of the purchase price upon
closing of the acquisition. The remaining 60% is payable over a period not to exceed seven years.
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A B O I T I Z PO W E R C O R P O R AT I O N
On February 16, 2010, Therma Marine entered into an Assignment Agreement (the Agreement) with Therma
Mobile. Under the agreement, Therma Mobile transferred all of its rights and obligations under the APA as
buyer of PB 117. Therma Marine shall now be deemed, for all intents and purposes as the buyer of PB 117.
The control and possession of PB 118 and PB 117 was successfully turned-over and transferred to Therma
Marine on February 6, 2010 and March 1, 2010, respectively.
Therma Marine will account for the purchase of PB 117 and PB 118 as acquisition of a business using the
purchase method.
As of December 31, 2009, Therma Marine has yet to finalize the purchase price allocation.
d. Acquisitions of CPPC, East Asia Utilities Corporation (EAUC) and STEAG
On April 20, 2007, the Company acquired 60% ownership in CPPC from EAUC and 50% ownership in
EAUC from El Paso Philippines Energy Company, Inc. The total cost of the CPPC combination was cash
consideration of π178,066. Net cash outflow from the acquisition amounted to π100,210. The total cost of the
EAUC acquisition amounted to π1,009,143, composed of a cash consideration of π130,765 and assumption of
liabilities of π878,378.
On November 15, 2007, the Company acquired 34% ownership in STEAG from Evonik Industries, Inc. The
total cost of the STEAG acquisition amounted to π4,400,611, which is composed of cash consideration of
π4,378,783 (US$101,561 at US$1 = π43.12) and costs directly attributed to the acquisition amounting to
π21,828.
From the dates of acquisition up to December 31, 2007, CPPC, EAUC and STEAG have contributed π162,623,
π61,638 and π94,781, respectively, to the consolidated net income of the Group.
e. Business acquisitions of associates
•
Acquisition of Ambuklao-Binga Plant
On November 28, 2007, SN Aboitiz Power-Benguet, Inc. (SNAP B, formerly SN Aboitiz Power Hydro,
Inc.), an associate, won the auction for the 175 MW Ambuklao-Binga hydropower facilities with a bid of
US$325.0 million.
The APA originally required SNAP B to deliver at least 40% of the purchase price as upfront payment
payable on or before the closing date. The balance of 60% may be paid in fourteen (14) equal semiannual payments with an interest of 12% per annum compounded semi-annually. On July 10, 2008,
PSALM turned over the possession and control of the 175 MW Ambuklao-Binga Hydroelectric Power
Plant Complex (Ambuklao-Binga HEPPC) to SNAP B, following payment by SNAP B of 70% of the
purchase price to PSALM. SNAP B started the commercial operations of the Binga Power Plant on July
11, 2008. The Ambuklao Power Plant is currently undergoing rehabilitation.
On August 8, 2008, SNAP B signed a US$375.0 million loan agreement with a consortium of international
and domestic financial institutions. The loan facility was used to pay the 30% balance of the purchase
price and will partially finance the rehabilitation and refurbishment of the 175 MW Ambuklao-Binga
HEPPC and refinance SNAP B’s advances from shareholders with respect to the acquisition of the
Ambuklao-Binga HEPPC.
SNAP B accounted for the purchase of the Ambuklao-Binga plant as an acquisition of a business using
the purchase method.
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ANNUAL REPORT 200 9
The final fair values of the identifiable assets of the power plants as of the date of acquisition follow:
Property, plant and equipment
Buildings
Machinery and equipment
Electrical equipment
Furniture and office equipment
Materials and supplies
Deferred income tax asset
π2,569,187
632,464
339,876
198
16,240
590,569
Goodwill arising on acquisition
4,148,534
10,767,563
Total consideration
149
π14,916,097
The total cost of the business combination was π14.92 billion, consisting of the purchase price of
US$325.0 million with a peso equivalent of π14.82 billion and costs directly attributable to the acquisition
of π100.0 million. The exchange rate was π45.59 per US$1.00 at July 10, 2008.
In 2008, the amount of the power plants’ net income since acquisition date that is included in the Group’s
consolidated net income through share in net earnings in associates is π21,971.
•
Acquisition of Magat Plant
In January 2007, SN Aboitiz Power - Magat, Inc. (SNAP M, formerly SN Aboitiz Power, Inc.), an associate,
won the bid for the 360 MW Magat Hydroelectric Power Plant (Magat Power Plant) in Ramon, Isabela.
The APA originally required SNAP M to deliver at least 40% of the purchase price as upfront payment
payable on or before the closing date. The balance of 60% may be paid in 14 equal semi-annual payments
with an interest of 12% per annum compounded semi-annually. On April 25, 2007, SNAP M paid 70% of
the US$530.0 million purchase price for the Magat Power Plant, which was turned over to SNAP M on
April 26, 2007. The payment of the 30% balance was likewise accelerated in October 2007 using proceeds
from a common term loan obtained from consortium of foreign and local banks.
The final asset valuation resulted in the recognition of goodwill of π10.29 billion.
The total cost of the acquisition amounted to π25.22 billion, comprised of the purchase price of
π25.20 billion (US$530.0 million at US$1 = π47.54) and π20.7 million in costs directly attributed to the
acquisition.
From the date of acquisition up to December 31, 2007, the Magat Power Plant has contributed π1,615,140
to the net income of the Group through share in net earnings in associates.
9.
Investments in and Advances to Associates
2009
2008
π16,387,915
2,526,754
π12,607,938
3,779,977
18,914,669
16,387,915
3,263,941
2,535,386
(833,187)
2,638,702
2,784,511
(2,159,272)
4,966,140
3,263,941
Share in cumulative translation adjustments of associates
23,880,809
115,246
19,651,856
(18,422)
Investments in associates at equity
Advances to associates - net (Note 30)
23,996,055
804,246
19,633,434
1,617,467
π24,800,301
π21,250,901
Acquisition cost:
Balance at beginning of the year
Additions during the year
Balance at end of year
Accumulated equity in net earnings:
Balance at beginning of the year
Share in net earnings
Cash dividends
Balance at end of year
SEC FORM 20 - IS (INFORMATION STATEMENT)
150
A B O I T I Z PO W E R C O R P O R AT I O N
The Group’s associates and the corresponding equity ownership are as follows:
Percentage of Ownership
Nature of Business
2009
2008
2007
Manila-Oslo Renewable Enterprise Inc. (MORE)
Holding company
83.33
83.33
83.33
Visayan Electric Company, Inc. (VECO)
Power distribution
55.18
55.11
55.05
Luzon Hydro Corporation (LHC)
Power generation
50.00
50.00
50.00
East Asia Utilities Corporation (EAUC)
Power generation
50.00
50.00
50.00
Bakun Power Line Corporation*
Energy related
service provider
50.00
50.00
50.00
Redondo Peninsula Energy, Inc. (RP Energy)**
Power generation
50.00
50.00
–
SN Aboitiz Power - Magat, Inc. (SNAP M)
Power generation
50.00
50.00
50.00
SN Aboitiz Power - Benguet, Inc. (SNAP B)
Power generation
50.00
50.00
50.00
SN Aboitiz Power - Pangasinan, Inc. (SNAP P)*
Power generation
50.00
–
–
Hijos de F. Escano, Inc. (HIJOS)
Holding company
46.73
46.66
46.66
San Fernando Electric Light and Power Co., Inc.
(SFELAPCO)
Power distribution
43.78
43.78
43.78
Pampanga Energy Ventures Inc. (PEVI)
Holding company
42.84
42.84
42.84
Cordillera Hydro Corporation*
Power generation
35.00
35.00
35.00
STEAG State Power, Inc. (STEAG)
Power generation
34.00
34.00
34.00
Cebu Energy Development Corporation (CEDC)**
Power generation
26.40
26.40
–
Southern Philippines Power Corporation (SPPC)
Power generation
20.00
20.00
20.00
Western Mindanao Power Corporation (WMPC)
Power generation
20.00
20.00
20.00
*No commercial operations.
**Has not yet started commercial operations as of December 31, 2009.
All ownership percentages presented in the table above are direct ownership of the Group except for the
following:
•
•
•
SNAP M and SNAP B – MORE has direct ownership in SNAP M and SNAP B of 60% each since 2007 while
the Group’s direct ownership in MORE is 83% resulting to the Group’s effective ownership in SNAP M and
SNAP B of 50% each since 2007.
VECO – HIJOS has direct ownership in VECO of 25.15% in 2009 and 2008 while the Group’s direct
ownership in VECO is 43.43% in 2009 and 43.37% in 2008 resulting to the Group’s effective ownership in
VECO of 55.18% and 55.11% in 2009 and 2008, respectively.
SFELAPCO – PEVI has direct ownership in SFELAPCO of 54.83% in 2009 and 2008 while the Group’s
direct ownership in SFELAPCO is 20.29% resulting to the Group’s effective ownership in SFELAPCO of
43.78% in 2009 and 2008.
The Group does not consolidate MORE because of absence of control resulting from the shareholders
agreement, which among others stipulate the management and operation of MORE. Management of MORE
is vested in its BOD and the affirmative vote of the other shareholder is required for the approval of certain
corporate actions which include financial and operating undertakings. The Group also does not consolidate
VECO as the other shareholders’ group have the control over the financial and operating policies of VECO.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
151
The carrying values of investments in associates (including embedded goodwill), which are accounted for
under the equity method follows:
MORE
STEAG
CEDC
EAUC
LHC
VECO
HIJOS
WMPC
SPPC
PEVI
SFELAPCO
RP Energy
Others
2009
2008
π10,109,764
5,909,444
2,417,898
1,375,712
1,232,222
962,627
871,571
421,960
251,256
226,106
177,491
2,118
37,886
π8,823,278
4,973,051
–
1,182,972
1,322,173
982,204
875,907
445,573
325,558
221,423
169,456
278,886
32,953
π23,996,055
π19,633,434
The investments in associates, SFELAPCO and VECO, include embedded goodwill with an aggregate amount
of π976,530.
Following is the summarized financial information of significant associates:
MORE
LHC
VECO*
2009
2008
2007
Total current assets
Total noncurrent assets
Total current liabilities
Total noncurrent liabilities
Gross revenue
Operating profit
Depreciation and amortization
Interest income- net
Income tax - net
Net income
π278,313
12,037,113
276,057
490
1,270,474
1,096,944
9,571
325
1,941
1,102,475
π125,849
10,685,237
238,040
253
832,142
723,172
7,033
220
–
716,448
π53,170
6,664,421
281,536
–
1,986,557
1,938,003
3,095
147
–
1,938,170
Total current assets
Total noncurrent assets
Total current liabilities
Total noncurrent liabilities
Gross revenue
Operating profit
Depreciation and amortization
Interest expense - net
Income tax expense (benefit) - net
Net income
π332,448
4,496,366
1,593,142
771,228
1,223,189
749,635
280,022
123,999
158,373
467,264
π364,594
4,954,809
456,638
2,218,420
1,088,083
682,124
262,123
147,113
(97,876)
1,080,494
π1,294,061
4,442,141
1,427,660
2,190,979
1,836,412
1,311,700
274,543
224,087
138,085
990,397
π1,424,236
7,532,706
1,902,036
2,546,256
10,830,879
140,657
433,387
15,101
124,936
315,082
π1,602,279
6,775,561
1,340,521
2,434,584
9,899,115
396,922
370,382
42,886
269,690
509,527
π1,981,972
3,453,827
1,350,698
1,403,978
9,388,743
428,050
345,283
31,434
252,982
490,049
Total current assets
Total noncurrent assets
Total current liabilities
Total noncurrent liabilities
Gross revenue
Operating profit
Depreciation and amortization
Interest expense - net
Income tax - net
Net income
(Forward)
SEC FORM 20 - IS (INFORMATION STATEMENT)
152
A B O I T I Z PO W E R C O R P O R AT I O N
WMPC
Total current assets
Total noncurrent assets
Total current liabilities
Total noncurrent liabilities
Gross revenue
Operating profit
Depreciation and amortization
Interest expense (income) - net
Income tax - net
Net income
SPPC
Total current assets
Total noncurrent assets
Total current liabilities
Total noncurrent liabilities
Gross revenue
Operating profit
Depreciation and amortization
Interest expense - net
Income tax - net
Net income
SFELAPCO *
Total current assets
Total noncurrent assets
Total current liabilities
Total noncurrent liabilities
Gross revenue
Operating profit
Depreciation and amortization
Interest income - net
Income tax - net
Net income
STEAG
Total current assets
Total noncurrent assets
Total current liabilities
Total noncurrent liabilities
Gross revenue
Operating profit
Depreciation and amortization
Interest expense - net
Income tax – net
Net income
EAUC
Total current assets
Total noncurrent assets
Total current liabilities
Total noncurrent liabilities
Gross revenue
Operating profit
Depreciation and amortization
Interest income - net
Income tax - net
Net income
2009
2008
2007
π718,455
1,792,574
192,535
181,783
1,206,970
558,505
468,476
(3,260)
55,171
548,359
π819,909
2,043,482
277,785
357,740
1,283,784
670,579
441,171
13,382
318,255
415,925
π400,547
2,138,617
362,663
173,546
1,237,761
627,571
452,919
76,915
102,580
501,123
π491,448
1,305,583
105,383
427,259
687,843
229,501
302,145
9,323
46,312
248,749
π321,885
1,614,027
147,627
160,496
691,420
241,364
277,586
9,992
139,646
128,069
π270,257
1,580,349
282,222
150,592
657,996
223,806
279,656
42,294
14
212,660
π454,647
1,064,917
406,246
349,027
2,564,866
43,169
141,855
1,175
11,932
72,024
π360,099
1,109,581
346,871
350,541
2,327,357
74,617
113,350
2,047
31,739
33,472
π411,271
913,029
386,666
285,884
2,830,017
107,811
108,628
6,566
38,471
105,762
π8,029,261
10,924,231
2,307,605
6,880,704
6,205,924
3,118,338
79,064
473,298
154,223
2,602,400
π7,081,353
12,129,785
3,189,506
8,573,835
6,265,242
3,850,860
85,511
667,937
90,705
3,216,793
π4,277,143
10,803,396
1,875,742
8,343,813
4,774,325
2,560,406
45,767
816,299
100,301
1,672,614
π697,187
3,122,061
255,217
9,565
1,381,633
186,597
120,619
5,005
11,570
286,577
π428,112
3,128,757
282,265
8,160
1,579,424
106,568
120,055
10,597
9,244
126,927
π625,444
2,937,571
415,017
1,562
1,568,888
62,973
121,462
8,416
8,222
66,913
*Amounts are based on appraised values which are adjusted to historical amounts upon equity take-up of the
Group. Using cost method in accounting for property, plant and equipment, depreciation and amortization
amounted to π216,941, π290,746 and π291,554, in 2009, 2008 and 2007, respectively, for VECO; and 73,888,
π62,661 and π57,717 for 2009, 2008 and 2007, respectively, for SFELAPCO. Under the same method, net
income amounted to π467,793, π565,273 and π530,333 in 2009, 2008 and 2007, respectively, for VECO; and
π119,621, π66,420 and π138,854 for 2009, 2008 and 2007, respectively, for SFELAPCO.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
10.
153
Impairment Testing of Goodwill
Goodwill acquired through business combinations have been attributed to individual cash-generating units.
The carrying amount of goodwill follows:
HI
MEZC
BEZC
2009
2008
π220,228
538,373
237,404
π220,228
538,373
237,404
π996,005
π996,005
The recoverable amounts of the investments have been determined based on a value-in-use calculation using
cash flow projections based on financial budgets approved by senior management covering a five-year period.
Key assumptions used in value-in-use calculation for December 31, 2009
The following describes each key assumption on which management has based its cash flow projections to
undertake impairment testing of goodwill.
Discount rates and growth rates
The discount rate applied to cash flow projections are from 9.58% to 18.87% in 2009 and from 11.46% to 16.05%
in 2008, and cash flows beyond the five-year period are extrapolated using a zero percent growth rate.
Revenue assumptions
Revenues assumptions are based on the expected electricity to be generated and sold. Revenue growth of 17% in
year 1, 11% in year 2 and 2% from years 3 to 5 was applied to MEZC; 8% in year 1, 10% in year 2, 9% in year 3, no
growth in year 4 and 4% in year 5 for BEZC; and -6% in year 1, -2% in year 2 and no growth in years 3 to 5 for HI.
Materials price inflation
The assumption used to determine the value assigned to the materials price inflation is 3% in 2010, which then
increases by 200, 50 and 50 basis points on the second, third and fourth year, respectively, and remains steady on
the fifth year. The starting point of 2010 is consistent with external information sources.
Based on the impairment testing, no impairment was recognized in 2009 and 2008.
With regard to the assessment of value-in-use of HI, MEZC and BEZC, management believes that no reasonably
possible change in any of the above key assumptions would cause the carrying value of the goodwill to materially
exceed its recoverable amount.
SEC FORM 20 - IS (INFORMATION STATEMENT)
SEC FORM 20 - IS (INFORMATION STATEMENT)
Ending Balance
NET BOOK VALUE
π97,868
76,198
–
π100,148
65,505
10,693
–
–
174,066
π162,237
1,822
(21,776)
31,783
Buildings,
warehouses and
improvements
π870,310
91,389
76,198
15,519
–
(328)
898,699
π174,066
660,637
38,698
–
25,298
–
–
–
–
100,148
Ending Balance
ACCUMULATED DEPRECIATION
AND AMORTIZATION
Beginning Balance
Additions
Disposals
Reclassifications and others
π93,620
6,528
–
–
Land
COST
Beginning Balance
Additions
Disposals
Reclassifications
As of December 31, 2008
π125,774
–
Ending Balance
NET BOOK VALUE
–
–
–
–
125,774
π100,148
–
22,068
–
3,558
ACCUMULATED DEPRECIATION
AND AMORTIZATION
Beginning Balance
Additions
Disposals
Reclassifications and others
Ending Balance
COST
Beginning Balance
Acquisition
Additions
Disposals
Reclassifications and others
Land
Buildings,
warehouses
and
improvements
Property, Plant and Equipment
As of December 31, 2009
11.
π1,062,137
2,364,240
2,281,249
187,069
(100,833)
(3,245)
3,426,377
π3,363,442
138,137
(103,468)
28,266
Power plant
equipment
π63,338,865
3,289,900
2,364,240
987,191
(39,313)
(22,218)
66,628,765
π3,426,377
18,017,208
45,300,656
(48,231)
(67,245)
Power plant
equipment
and steam
field assets
π1,307,033
1,325,868
1,194,153
132,506
(310)
(481)
2,632,901
π2,341,306
241,620
(311)
50,286
Transmission,
distribution and
substation
equipment
π2,270,878
2,282,549
2,135,880
190,394
(418)
(43,307)
4,553,427
π4,248,386
–
298,639
(5,004)
11,406
Transmission,
distribution and
substation
equipment
π86,455
217,539
194,329
30,393
(7,207)
24
303,994
π280,498
30,123
(7,208)
581
Transportation
equipment
π125,666
261,304
217,539
41,694
(14,105)
16,176
386,970
π303,994
–
80,072
(16,376)
19,280
Transportation
equipment
π37,444
388,623
341,771
47,241
(389)
–
426,067
π397,250
27,835
(389)
1,371
Office
furniture,
fixtures and
equipment
π24,929
86,375
388,623
11,117
(1,327)
(312,038)
111,304
π426,067
–
17,546
(1,490)
(330,819)
Office
furniture,
fixtures and
equipment
π11,083
111,585
105,156
3,208
–
3,221
122,668
π116,557
6,111
–
–
Leasehold
improvements
π54,919
128,383
111,585
8,976
–
7,822
183,302
π122,668
–
25,847
–
34,787
Leasehold
improvements
π20,745
33,415
30,335
3,080
–
–
54,160
π40,857
13,334
(31)
–
Electrical
equipment
π1,281,874
370,034
33,415
71,383
(339)
265,575
1,651,908
π54,160
1,290,397
18,141
(536)
289,746
Electrical
equipment
π81,689
209,760
184,635
25,213
(88)
–
291,449
π261,641
30,128
(320)
–
Meters and
laboratory
equipment
π112,369
246,432
209,760
16,946
–
19,726
358,801
π291,449
–
28,090
–
39,262
Meters and
laboratory
equipment
π69,192
127,105
114,165
12,606
(147)
481
196,297
π156,957
39,489
(147)
(2)
Tools and
others
π125,029
201,433
127,105
26,273
(3,738)
51,793
326,462
π196,297
–
54,430
(3,718)
79,453
Tools and
others
π2,578,376
–
–
–
–
–
2,578,376
π689,383
2,179,497
(88,614)
(201,890)
Construction
in progress
π4,633,416
–
–
–
–
–
4,633,416
π2,578,376
–
2,184,161
–
(129,121)
Construction
in progress
π6,257,643
5,664,345
5,262,165
511,154
(108,974)
–
11,921,988
π9,363,481
2,751,904
(222,264)
28,867
Total
π72,901,029
6,957,799
5,664,345
1,369,493
(59,240)
(16,799)
79,858,828
π11,921,988
19,968,242
48,068,348
(75,355)
(24,395)
Total
154
A B O I T I Z PO W E R C O R P O R AT I O N
ANNUAL REPORT 200 9
155
Specific borrowing costs capitalized as part of construction in progress amounted to π227.3 million and
π48.7 million in 2009 and 2008, respectively (see Note 16). The reclassifications made in 2009 and 2008 pertain
mostly to completed projects of the Group.
Property, plant and equipment with carrying amounts of π4,937.7 million and π3,220.0 million as of
December 31, 2009 and 2008, respectively, are used to secure the Group’s long-term debts (see Note 16).
Fully depreciated transmission, distribution and substation equipment with gross carrying amount of
π1,363.7 million and π1,398.1 million as of December 31, 2009 and 2008 are still in use.
12.
Intangible Asset - Service Concession Rights
Cost:
At January 1
Additions (see Note 36)
Disposals
Accumulated amortization:
At January 1
Amortization
Disposals
2009
2008
π973,532
71,522
–
π747,384
227,149
(1,001)
1,045,054
973,532
119,339
43,407
–
85,195
35,397
(1,253)
162,746
119,339
π882,308
π854,193
Service concession arrangements entered into by the Group are as follows:
•
On May 15, 2003, the SBMA, AEV and DLPC entered into a DMSA for the privatization of the SBMA PDS on
a rehabilitate-operate-and-transfer arrangement; and to develop, construct, lease, lease out, operate and
maintain property, structures, and machineries in the SBFZ.
Under the terms of the DMSA, SEZC was created to undertake the rehabilitation, operation and maintenance
of the PDS (the Project), including the provision of electric power service to the customers within the Subic
Bay Freeport Secured Areas of the SBFZ as well as the collection of the relevant fees from them for its
services and the payment by SBMA of the service fees throughout the service period pursuant to the terms
of the DMSA.
In compliance with the terms of the DMSA, the SBMA shall turn over to SEZC full possession of the Project
and any and all improvements, spare parts, inventories, vehicles, works and structures constructed, improved
and introduced by the SBMA in the Project and land, roads and any land rights of any description including,
without any limitations, easements, access, rights-of-way, leases, licenses and covenants belonging to the
SBMA or otherwise appertaining to the Project, or to be acquired by or granted to SEZC by the SBMA or any
relevant Governmental Instrumentalities for purposes of implementing the Project on, through, above or
below the ground on which any part of the Project is located, maintained and managed, including, without
limitation to, arrangements for the disposal of waste materials. The SBMA shall also turnover all records,
files and/or contracts pertinent to the PDS. The SBMA shall remain the owner of the Project including all its
assets and improvements.
The DMSA shall be effective for a 25-year period commencing on the turnover date and consisting of two
phases: (a) the 5-year rehabilitation period and (b) the 20-year operation, management and maintenance
period. Total estimated rehabilitation costs committed by SEZC under the DMSA amounted to
π368.6 million.
SEC FORM 20 - IS (INFORMATION STATEMENT)
156
A B O I T I Z PO W E R C O R P O R AT I O N
SEZC is subject to the rate making regulations and regulatory policies of the ERC. The DMSA provides that
there will be no change in the basic power supply and power distribution rates for the first 5 years from
the turnover date. For and in consideration of the services and expenditures of SEZC for it to undertake
the rehabilitation, operation, management and maintenance of the Project, it shall be paid by the SBMA
the service fees in such amount equivalent to all the earnings of the Project, provided, however, that SEZC
shall remit the amount of π40.0 million to the SBMA at the start of every 12-month period throughout the
service period regardless of the total amount of all earnings of the Project. The said remittance may be
reduced by the outstanding power receivables from the SBMA, including streetlights power consumption
and maintenance, for the immediately preceding year.
Since SBMA controls ownership of the equipment at the end of the agreement, the power distribution
system are treated as intangible assets and are amortized over a period of twenty five years up to year 2028,
in accordance with IFRIC 12.
•
MEZC, a subsidiary, is registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Utilities
Enterprise and distributes power to locators inside the Mactan Economic Zone II - SEZ (MEZ II - SEZ).
AboitizLand, Inc., the Developer-Operator of MEZ II, entered into a Build-Operate-Transfer (BOT) agreement
with Mactan Cebu International Airport Authority (MCIAA). Under the terms of the agreement, MCIAA will
provide the land, while AboitizLand, Inc. will undertake the development of MEZ II. The project has a term
of 25 years, with an option to extend the lease for another 25 years. Under the agreement, ownership of
permanent structures within MEZ II will be transferred to MCIAA after termination of the agreement.
The transmission and distribution equipment of MEZC are located within MEZ II. Since MCIAA controls
ownership of the equipment at the end of the agreement, the equipment are treated as intangible assets
and are amortized over a period of twenty one years up to year 2028, in accordance with IFRIC 12.
Management believes that, based on the assessment performed, the intangible asset - service concession rights
are not impaired.
Specific borrowing costs amounting to π2.6 million and π23.0 million that were directly attributable to the
rehabilitation of the PDS were capitalized in 2009 and 2008, respectively.
13.
Other Noncurrent Assets
Restricted cash
Prepaid rent - net of current portion
Deferred input VAT and tax credit receivable
Others
2009
2008
π560,423
532,830
433,486
18,293
π581,708
62,355
12,088
9,261
π1,545,032
π665,412
Cash equivalents, presented as “Restricted cash”, pertains to a US$12.2 million amount held to secure a longterm loan of an associate that will mature in 2014. Interest income from these cash equivalents is reported as part
of interest income in the consolidated statements of income (see Note 4).
14.
Trade and Other Payables
Trade payables (see Note 31)
Related parties - non trade (see Note 30)
Other liabilities
Trade payables are generally on 30-day terms.
Other liabilities include output VAT and accrued expenses.
SEC FORM 20 - IS (INFORMATION STATEMENT)
2009
2008
π2,573,507
2,272,072
1,176,958
π985,630
1,567,100
592,581
π6,022,537
π3,145,311
ANNUAL REPORT 200 9
15.
157
Bank Loans
Interest Rate
Peso loans - financial institutions - unsecured
Company
DLPC
CLPC
BEZC
AESI
Dollar loans - financial institutions - unsecured
Company
5.10% to 5.50%
5.10% to 8.75% in 2009;
8.25% to 8.75% in 2008
5.10% to 5.75% in 2009;
8.25% to 9.00% in 2008
5.10% to 5.75%
5.38% to 6.75%
5.10% to 5.75% in 2009;
8.25% to 9.00% in 2008
2009
2008
π1,059,500
π–
794,100
774,300
184,300
40,000
8,000
174,700
–
–
2,085,900
949,000
3,742,200
3,849,120
π5,828,100
π4,798,120
Bank loans represent unsecured interest-bearing short-term loans obtained from various local banks to meet the
Group’s working capital requirements.
As of March 31, 2010, P2.08 billion of the outstanding peso loans as of December 31, 2009, was renewed, while
those outstanding as of December 31, 2008 were fully paid on February 17, 2009.
As of March 31, 2010, US$16.7 million of the US dollar loan was renewed for another month maturing in
April 2010.
16.
Long-term Debts
Interest Rate
2009
2008
8.78%
9.33%
8.23%
π3,330,000
554,400
5,000,000
π3,330,000
560,000
8.00%
8.70%
705,580
2,294,420
–
–
Financial institutions - secured
8.52%
3,570,000
1,715,796
Financial institution - secured
8.36% in 2009
2.25% over
the applicable
3-month Treasury
Securities rate in
2008
613,700
647,000
8.26% - 10.02%
331,454
341,000
Total
Less deferred financing costs
16,399,554
147,019
6,593,796
71,799
Less current portion
16,252,535
101,200
6,521,997
16,145
π16,151,335
π6,505,852
Company
Financial and non-financial institutions - unsecured
2008 5-year corporate note
2008 7-year corporate note
2009 5-year corporate note
Retail bonds - unsecured
3-year bonds
5-year bonds
HSI
HI
SEZC
Financial institution - secured
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A B O I T I Z PO W E R C O R P O R AT I O N
Company
Retail Bonds
On April 30, 2009, the Company registered and issued unsecured bonds worth π3.0 billion, the proceeds were
used to partially finance APRI’s acquisition of the Tiwi-MakBan Geothermal Power Plant. As provided in the
Underwriting Agreement, the three-year bonds bear interest on its principal amount from and including issue date
at 8.0% per annum. The five-year bonds bear interest on its principal amount from and including issue date at 8.7%
per annum.
The bonds have been rated PRS Aaa by the Philippine Rating Services Corporation. The rating is subject to
regular annual reviews, or more frequently as market developments may dictate, for as long as the bonds are
outstanding.
Prior to the maturity date, the Company may redeem in whole the relevant outstanding notes on the 12th interest
payment date. The amount payable in respect of such early redemption shall be the accrued interest on the
principal amount, the principal amount and a prepayment penalty of 2% on the outstanding principal amount.
Unless previously redeemed, the principal amount of the bonds shall be payable on a lump sum basis on the
respective maturity date at its face value.
Under the bond trust agreement, the Company shall not permit its Debt-to-Equity (DE) ratio to exceed 2:1
calculated based on the Company’s year-end audited parent company financial statements. For the purposes of
determining compliance with the required ratio, the outstanding preferred shares and contingent liabilities of the
Company, including but not limited to the liabilities in the form of corporate guarantees in favour of any person or
entity shall be included in the computation of debts. The Company is in compliance with the debt covenant as of
December 31, 2009.
Unamortized deferred debt issuance cost reduced the carrying amount of long-term debt by π32.1 million in 2009.
2009 Fixed Rate Corporate Notes
On September 28, 2009 (issue date), the Company availed a total of π5.00 billion from the Notes Facility
Agreement it signed on September 18, 2009, with First Metro Investment Corporation as Issue Manager, the
proceeds of which were used by the Company to finance its investments in various projects including capital
expenditures and acquisitions. The Notes Facility Agreement provided for the issuance of 5-year corporate
notes in a private placement to not more than 19 institutional investors pursuant to Section 9.2 of the Securities
Regulation Code (SRC) and Rule 9.2(2) (B) of the SRC Rules.
Prior to the maturity date, the Company may redeem in whole the relevant outstanding notes on the 12th interest
payment date. The amount payable in respect of such early redemption shall be the accrued interest on the
principal amount, the principal amount and a prepayment penalty of 2% on the outstanding principal amount.
Unless previously redeemed, the notes shall be redeemable on a lump sum basis on the respective maturity date
at its face value.
Under the notes facility agreement, the Company shall not permit its DE ratio to exceed 2:1 calculated based
on the Company’s year-end audited parent company financial statements. For the purposes of determining
compliance with the required ratio, the outstanding preferred shares and contingent liabilities of the Company,
including but not limited to the liabilities in the form of corporate guarantees in favour of any person or entity
shall be included in the computation of debts. The Company is in compliance with the debt covenant as of
December 31, 2009.
Unamortized deferred debt issuance cost reduced the carrying amount of long-term debt by π47.7 million in 2009.
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ANNUAL REPORT 200 9
159
2008 Fixed Rate Corporate Notes
On December 18, 2008 (issue date), the Company availed a total of π3.89 billion from the Notes Facility Agreement
it signed on December 15, 2008, with BDO Capital & Investment Corporation, BPI Capital Corporation, First Metro
Investment Corporation, ING Bank N.V., Manila Branch as Joint Lead Managers, the proceeds of which were used
by the Company to finance its acquisitions as well as for other general corporate purposes. The Notes Facility
Agreement provided for the issuance of 5-year and 7-year corporate notes in a private placement to not more
than 19 institutional investors pursuant to Section 9.2 of the Securities Regulation Code (SRC) and Rule 9.2(2) (B)
of the SRC Rules.
Prior to the maturity date, the Company may redeem in whole the relevant outstanding notes on the 12th
interest payment date for the 5-year note and on the 16th interest payment date for the 7-year note. The amount
payable in respect of such early redemption shall be the accrued interest on the outstanding principal amount,
the outstanding principal amount and a prepayment penalty of 2% of the outstanding principal amount.
Unless previously redeemed, the notes shall be redeemable on a lump sum basis on the respective maturity date
at its face value.
Under the notes facility agreement, the Company shall not permit its DE ratio to exceed 2:1 calculated based
on the Company’s year-end parent company audited financial statements. For the purposes of determining
compliance with the required ratio, the outstanding preferred shares and contingent liabilities of the Company,
including but not limited to the liabilities in the form of corporate guarantees in favour of any person or entity shall
be included in the computation of debts. The Company is in compliance with the debt covenant as of December
31, 2009.
Unamortized deferred debt issuance cost reduced the carrying amount of long-term debt by π41.0 million in
2009 and π42.0 million in 2008.
HSI
On May 21, 2008, HSI and PHC entered into an agreement with local banks for a loan facility in the aggregate
principal amount of up to π3.57 billion to partially finance the design, development, procurement, construction,
operation and maintenance of the 42.5-MW Sibulan hydro-electric power plant.
Repayment terms of the loan are as follows:
• 70% of the principal amount of the loan is payable in semi-annual installments within 12 years commencing
on the 30th month from September 1, 2008.
• A balloon payment equivalent to 30% of the loan principal on the final principal amortization date.
HSI has the option to prepay the loan at par without premium or penalty beginning on the fourth year from the
initial advance.
Interest on the loan for the first five years is fixed at 8.52%. For the remaining seven-year period interest rate will
be fixed at the prevailing seven-year PDST- F interest rate for the day immediately preceding the fixed interest
setting date plus 1.125%.
Loan covenants include among others, the establishment and maintenance of certain project accounts
depositories under the control of appointed trustees of the lenders, submission of certain reports and others.
The loan is secured by a real estate and chattel mortgages on real assets and all machineries, equipment and
other properties, actually located at the project site or plant site used in the project with carrying value of
π4.28 billion and π2.37 billion as of December 31, 2009 and 2008, respectively.
Interest on the loan capitalized as construction in progress amounted to π227.3 million in 2009 and π37.6 million
in 2008 (see Note 11).
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A B O I T I Z PO W E R C O R P O R AT I O N
Unamortized deferred debt issuance cost reduced the carrying amount of long-term debt by π25.6 million in
2009 and π28.0 million in 2008.
HI
The loan availed by HI from Banco de Oro is a five-year loan of which π450.0 million is payable at π1.0 million per
year starting 2006 with the remaining balance fully payable on January 28, 2010, and π200.0 million is subject
to a balloon payment on October 20, 2010. It bears interest at 2 1/4 % over the applicable three-month treasury
securities as displayed on MART 1 page of Bloomberg of the rate setting day plus gross receipts tax, reviewable
and payable quarterly.
On February 28, 2009, HI, amended the terms of its long-term loans with BDO. Maturity dates of the loans
were changed from January 31, 2010 to February 28, 2016 for the π450.0 million long-term loans and from
October 20, 2010 to February 28, 2016 for the π200 million long-term loans. The amended terms also changed
interest rates from floating to fixed.
The loan is secured by a chattel mortgage over the machineries and improvements of the Benguet and Davao
hydropower plants of HI and a suretyship of the PHC.
Carrying value of machineries and improvements of the Benguet and Davao hydropower plants mortgaged
with BDO to secure loans amounted to π489.3 million and π554.9 million as of December 31, 2009 and 2008,
respectively (see Note 11).
Loan covenant includes, among others, maintenance of debt service cover ratio of at least 1.1x and DE ratio of
75:25, and restrictions such as not declare or pay dividends to its stockholders if debt service cover ratio is less
than 1.2x nor shall it redeem or repurchase or retire or otherwise acquire for value any of its capital stock. HI is in
compliance with the debt covenant as of December 31, 2009.
SEZC
The loan availed of by SEZC in 2007 pertains to a term loan for assistance in the financing of the Phase 1
rehabilitation of the SBMA PDS. The π185.0 million clean loan fully drawn from the facility in 2007 was refinanced
on June 26, 2008, with a term loan facility of up to a total amount of π285.0 million. As of October 31, 2008, SEZC
has drawn π210.0 million from the facility. The refinanced loan is payable in twelve years (inclusive of a one year
grace period on principal repayment) in twenty-two equal semi-annual installments commencing on December
26, 2009. It bears an interest of 10.02%, which is fixed for the first seven years. For the succeeding five years, the
interest will be fixed based on the applicable five-year PDST-R1 on the first day of the eighth year plus 100 basis
points.
On September 24, 2008, SEZC availed a term loan of π131.0 million to finance the acquisition of subtransmission
assets and to enhance the rehabilitation and expansion of the SBMA PDS. The loan is payable in twelve years
(inclusive of a one-year grace period on principal repayment) in twenty-two equal semi-annual installments
commencing on March 24, 2010. It bears an interest of 8.26%, which is fixed for the first seven years. For the
succeeding five years, the interest will be fixed based on the applicable five-year PDST-R1 on the first day of the
eighth year plus 100 basis points.
The π131.0 million loan is secured by surety of the stockholders and assignment of rights and benefits of SEZC
related to revenue receivable and new equipment and assets to be purchased and used in the SBMA PDS. The term
loan agreement prohibits SEZC to make or permit a material change in the character, ownership or control of its
business, to secure any indebtedness, to sell, lease, transfer or dispose of all or substantially all of its properties,
assets and investments. The agreement also does not permit SEZC to exceed the allowed DE ratio nor be less
than the allowed ratio of current assets to current liabilities. The adoption of Philippine Interpretation IFRIC 12 in
2008 caused its DE ratio to exceed the maximum 3:1 limit as required by the above term loans. Prior to adopting
and upon assessing the financial impact of the Interpretation on its financial statements, SEZC’s management
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
161
initiated talks and negotiations with creditor bank on securing a waiver on the DE requirement as contained in
the loan agreements. In December 2008, the creditor bank agreed to revise the DE ratio. On January 30, 2009,
the creditor bank confirmed that the DE ratio of SEZC for the year 2008 may go up to 4:1. On January 14, 2010,
the creditor bank approved and allowed the DE ratio for the year 2009 up to 2011 to go up to a maximum of 3.5:1.
SEZC is in compliance with the debt covenant as of December 31, 2009.
17.
Customers’ Deposits
Transformer deposits
Lines and poles deposits
Bill and load
2009
2008
π751,317
692,427
337,372
π609,545
656,937
304,610
π1,781,116
π1,571,092
Transformers and lines and poles deposits are obtained from certain customers principally as cash bond for
their proper maintenance and care of the said facilities while under their exclusive use and responsibility. These
deposits are non-interest bearing and are refundable only after their related contract is terminated and the assets
are returned to the Group in their proper condition and all obligations and every account of the customer due to
the Group shall have been paid.
Bill deposit serves to guarantee payment of bills by a customer which is estimated to equal one month’s
consumption or bill of the customer.
With regard to the interest rate on customer deposits, while the Implementing Guidelines of the Magna Carta
provided that the interest rate on meter deposits shall be at 6% for contracts of service entered into prior to the
effectivity of the Energy Regulatory Board (ERB) Resolution No. 95-21, it was silent on the corresponding interest
rate for bill deposits of residential customers for the same period. ERB Resolution No. 95-21 was issued by the
then ERB on August 3, 1995 adopting a 10% interest on customers’ deposits. Pursuant to the Magna Carta, the rate
of interest on bill deposits shall be equivalent to the interest incorporated in the power distribution companies’
weighted average cost of capital, otherwise, the rate shall be “based on the prevailing interest rate on savings
deposit as approved by the Bangko Sentral ng Pilipinas (BSP)”. In the case of non-residential customers, the
Distribution Services and Open Access Rules (DSOAR) likewise provides that the power distribution companies
shall pay interest on bill deposits at the rate equivalent to the prevailing interest rate for savings deposits as
approved by the BSP. The DSOAR superseded ERB Resolution No. 95-21, as amended, in its entirety.
Both the Magna Carta and DSOAR also provide that residential and non-residential customers, respectively,
must pay a bill deposit to guarantee payment of bills equivalent to their estimated monthly billing. The amount
of deposit shall be adjusted after one year to approximate the actual average monthly bills. A customer who has
paid his electric bills on or before due date for three consecutive years, may now apply for the full refund of the
bill deposit, together with the accrued interests, prior to the termination of his service; otherwise, bill deposits
and accrued interests shall be refunded within one month from termination of service, provided all bills have been
paid.
In cases where the customer has previously received the refund of his bill deposit pursuant to Article 7 of the
Magna Carta, and later defaults in the payment of his monthly bills, the customer shall be required to post
another bill deposit with the distribution utility and lose his right to avail of the right to refund his bill deposit in
the future until termination of service. Failure to pay the required bill deposit shall be a ground for disconnection
of electric service.
Interest on customers’ deposits amounted to π5,712, π5,462 and π3,626 in 2009, 2008 and 2007, respectively
(see Note 31).
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A B O I T I Z PO W E R C O R P O R AT I O N
In cases where the customers has previously received the refund of his bill deposit pursuant to Article 7 of the
Magna Carta, and later defaults in the payment of his monthly bills, the customer shall be required to pose
another bill deposit with the distribution utility and lose his right to avail of the right to refund his bill deposit in
the future until termination of service. Failure to pay the required bill deposit shall be a ground for disconnection
of electric service.
The Group classified customers’ deposit under noncurrent due to the uncertainty of timing of refund of these
deposits.
18.
Payable to Preferred Shareholder of a Subsidiary
The preferred shares of CPPC, a subsidiary, are voting, non-convertible, cumulative, non-participating and have
no preemptive rights. The preferred shares shall be issued only to VECO who, as holder of the preferred shares,
´´shall be entitled to receive cash dividends thereon at an annual rate of 20.713% and, payable out of available
surplus or net profits of CPPC before any dividend shall be declared, set apart for or paid upon the common stock
of CPPC. The guaranteed minimum amount of annual dividends on these preferred shares is π31.1 million, which
is payable within 60 days from end of a contract year (i.e. November 25). Any unpaid dividends shall be subject to
interest equivalent to the rate of a 91-day Treasury Bill plus 5% per annum prevailing as of the preferred dividends
accrual date.
After payment of the cumulative cash dividends on the preferred shares, the said preferred shares shall have no
further right to participate in any dividends which may be declared to the common shareholders unless and until
the aggregate of all cash dividends already declared and paid to the common shares has resulted in the holders
of the common shares having recovered the agreed internal rate of return on their total equity investment in
common shares. The common shareholders and VECO shall then be entitled to participate in such residual
dividends at 77% and 23%, respectively.
PAS 32 and 39 require reclassification of the preferred shares amounting to π150.0 million as a financial instrument
containing a liability and an equity component. The liability component was remeasured at present value by
discounting the minimum guaranteed dividend payments.
The discounted liability is accreted to maturity values using the effective interest method. Accretions are
recognized in the consolidated statements of income as part of interest expense.
Total interest expense arising from the accretion amounted to π21.9 million and π23.6 million in 2009 and 2008.
Future minimum guaranteed dividend payments are as follows:
2009
2008
Due within one year
More than one year but not more than five years
More than five years
π31,070
124,280
–
π31,070
124,280
31,070
Future minimum guaranteed dividends
Less accrued interest expense
155,350
67,320
186,420
89,196
88,030
11,263
97,224
9,194
π76,767
π88,030
Future minimum guaranteed dividends - net
Less current portion
Noncurrent portion
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
19.
163
Equity
a. Capital Stock
Authorized - π1 par value
Preferred shares - 1,000,000,000 shares
Common shares - 16,000,000,000 shares
Issued
Common shares - 7,358,604,307 shares
2009
2008
π7,358,604
π7,358,604
On January 16, 2007, the BOD and stockholders representing at least two-thirds of the Company’s outstanding
capital stock approved the increase in the Company’s authorized capital stock, subject to the approval of SEC,
from π5,000,000, divided into 4,000,000,000 common and 1,000,000,000 preferred shares both with par value
of π1 per share to π17,000,000 divided into 16,000,000,000 common and 1,000,000,000 preferred shares both
with par value of π1 per share. Out of the increase in the authorized capital stock of π12,000,000, the amount of
π3,000,000 was subscribed by AEV and of such subscription, the amount of π2,889,320 was actually paid by AEV
by way of assignment of its shares of stock in various power distribution companies (see Note 1). SEC approved
the increase in the authorized capital stock on May 3, 2007.
In 2007, an additional 400,000,000 common shares was subscribed by AEV, and paid for in cash amounting to
π4.0 billion.
There are no preferred shares issued and outstanding as of December 31, 2009 and 2008.
Preferred shares are non-voting, non-participating, non-convertible, redeemable, cumulative, and may be issued
from time to time by the BOD in one or more series. The BOD is authorized to issue from time to time before
issuance thereof, the number of shares in each series, and all the designations, relative rights, preferences,
privileges and limitations of the shares of each series. Preferred shares redeemed by the Company may be
reissued. Holders thereof are entitled to receive dividends payable out of the unrestricted retained earnings of
the Company at a rate based on the offer price that is either fixed or floating from the date of the issuance to final
redemption. In either case, the rate of dividend, whether fixed or floating, shall be referenced, or be a discount or
premium, to market-determined benchmark as the BOD may determine at the time of issuance with due notice
to the SEC.
In the event of any liquidation or dissolution or winding up of the Company, the holders of the preferred stock
shall be entitled to be paid in full the offer price of their shares before any payment in liquidation is made upon
the common stock.
b. Retained Earnings
On February 6, 2008, the BOD approved the declaration of cash dividends of π0.18 a share (π1.32 billion) to all
stockholders of record as of February 21, 2008. The cash dividends were subsequently paid on March 3, 2008.
On February 11, 2009, the BOD approved the declaration of cash dividends of π0.20 a share (π1.47 billion) to all
stockholders of record as of February 26, 2009. The cash dividends were subsequently paid on March 23, 2009.
On March 10, 2010, the BOD approved the declaration of cash dividends of π0.30 a share (π2.21 billion) to all
stockholders of record as of March 24, 2010. The cash dividends are payable on April 16, 2010.
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A B O I T I Z PO W E R C O R P O R AT I O N
20.
Sale of Power
Sale from Distribution of Power
•
The Uniform Rate Filing Requirements (UFR) on the rate unbundling released by the ERC on
October 30, 2001, specified that the billing for sale and distribution of power and electricity will have the
following components: Generation Charge, Transmission Charge, System Loss Charge, Distribution Charge,
Supply Charge, Metering Charge, the Currency Exchange Rate Adjustment and Interclass and Lifeline
Subsidies. National and local franchise taxes, the Power Act Reduction (for residential customers) and the
Universal Charge are also separately indicated in the customer’s billing statements (see Note 36).
•
Agreement with Hanjin Heavy Industries Corporation Philippines, Inc. (HHIC)
On May 16, 2007, the SEZC signed a Memorandum of Agreement with HHIC to supply electricity in HHIC’s
shipyard located at Redondo Peninsula. As stipulated in the contract, the SEZC will charge generation,
transmission and service charges at the following rates:



generation charge - prevailing preferential electricity rate for Subic Bay Freeport Zone (SBFZ)/SEZC or
another special rate to be given by NPC to HHIC;
transmission charge - prevailing transmission charges of National Grid Corporation of the Philippines
(NGCP) within SBFZ;
service charge - π0.20/kilowatt hour (kWh) subject to any increase or decrease upon approval by the
ERC.
Total revenue from supply of electricity to HHIC amounted to π666.4 million, π383.3 million and π48.1 million
in 2009, 2008 and 2007, respectively.
•
SEZC applied for the rate unbundling on April 6, 2006 through the ERC and was approved on
February 6, 2008. The implementation of the unbundled rates schedule started on October 26, 2008.
Sale from Generation of Power
•
Energy Trading through the Philippine Wholesale Electricity Spot Market (WESM)
As approved by the Philippine Electricity Market Corporation (PEMC), effective on various dates in 2009,
certain companies in the Group are trading participants and direct members under the generator sector
of the WESM. The companies are allowed to access the WESM Market Management System through its
Market Participant Interface (MPI). The MPI is the facility that allows the trading participants to submit and
cancel bids and offers, and to view market results and reports. Under its price determination methodology as
approved by the ERC, locational marginal price (LMP) method is used in computing prices for energy bought
and sold in the market on a per node, per hour basis. In the case of bilateral power supply contracts, however,
the involved trading participants settle directly with their contracting parties. Total sale of power at WESM
amounted to π1.96 billion in 2009 and nil in 2008 and 2007.
Power Supply Contracts
•
Power Supply Contracts assumed under APA and IPP Administration Agreement
Revenue recognition for customers under the power supply contracts assumed under the APA and IPP
Administration Agreements are billed based on the contract price which is calculated based on the pricing
structure approved by the ERC. Rates are calculated based on the time-of-use pricing schedule with
corresponding adjustments using the Generation Rate Adjustment Mechanism (GRAM) and the Incremental
Currency Exchange Rate Adjustment (ICERA).
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
•
165
Power Purchase/Supply Agreement (PPA/PSA)
On February 7, 1997, VECO, an associate, entered into a PPA for the purchase of electric energy from
CPPC, a subsidiary, effective for a period of 15 years from the commercial operations of the latter
(November 25, 1998), unless terminated in accordance with the provisions of the PPA but in no event to
extend beyond the term of the present franchise of VECO. The PPA may be renewed or extended subject
to the mutual agreement of the parties to the terms and conditions applicable to any such renewal. Upon
expiration of the 15-year cooperation period, CPPC shall transfer, convey and assign the power plant to VECO
without cost, except for applicable taxes thereon which shall be for the account of VECO. Among the salient
features of the contract is that the electricity price shall not exceed 98% of the effective NPC billing rate to
VECO based on contracted demand and energy. VECO shall also be entitled to a prompt payment discount
equal to 3% of any amount paid to CPPC on or before the 15th day of the calendar month following the
preceding billing period.
On September 1, 2006, a Supplement to the 1997 PPA was executed by VECO and CPPC. Some of the
salient provisions of the Supplement included the removal of the prompt payment discount, removal of the
minimum off-take, and a pricing arrangement that changed CPPC’s billing to VECO from an energy based,
NPC pegged rate to Demand-Energy Pricing Scheme. This in effect allows CPPC to bill capacity-based fees
based on CPPC’s guaranteed contractual capacity. The Energy Pricing of this Supplement allows CPPC to
pass on risks related to fuel prices. While waiting for the ERC approval on the Supplement to the 1997 PPA,
VECO filed a motion to extend its cash cost arrangement with CPPC which was approved by the ERC in
the latter's decision dated August 10, 2008. On December 28, 2007, the ERC approved the Supplement to
the 1997 PPA, which was implemented on the billing period ending January 26, 2008, the first billing cycle
immediately after the approval of the ERC.
• Certain subsidiaries of PHC have PSAs with various corporations to supply or sell power and energy produced
by the mini hydroelectric power plants. The maturities of these agreements vary from one taker to another
with the nearest to mature on calendar year 2011 and farthest on 2021. All agreements provide for renewals
or extensions subject to mutually agreed terms and conditions by both parties
21.
Total sale of power under power supply contracts amounted to π10.40 billion, π2.88 billion and π2.41 billion
in 2009, 2008 and 2007, respectively.
Purchased Power
Distribution
•
DLPC, CLPC and SEZC entered into contracts with NPC for the purchase of electricity. Pursuant to Section
8 of RA No. 9136, National Transmission Corporation (TransCo) was created and assumed the electrical
transmission functions of the NPC. The TransCo concession contract was bid out on December 12, 2007,
and the functions of TransCo were assumed by NGCP starting January 15, 2009. The material terms of the
contract are as follows:
The material terms of the contract are as follows:
DLPC
CLPC
SEZC
Term of Agreement
with NPC
Contract Energy
(megawatt hours/year)
Ten years; expiring in December 2015
Ten years; expiring in December 2015
Two-and-a-half years; renewed in March 2008
expiring in March 2011
1,238,475
116,906
90,000
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166
A B O I T I Z PO W E R C O R P O R AT I O N
Total power purchases from the NPC and TransCo, net of discounts, amounted to π7.12 billion in 2009,
π5.83 billion in 2008 and π5.53 billion in 2007. The outstanding payable to the NPC and TransCo on purchased
power, presented as part of the “Trade and other payables” account in the consolidated balance sheets
amounted to π601.1 million and π532.1 million as of December 31, 2009 and 2008, respectively (see Note 14).
•
On June 26, 2006, DLPC entered into a Transitory Supply Agreement with TransCo under the terms of
which TransCo agreed to provide transmission services in support of the Supply Contract between NPC and
DLPC, whereby NPC agreed to provide, and DLPC agreed to take and pay for 237,696 kilowatts (kW) and
1,300,000,000 kWh of capacity and energy, respectively.
Generation
Purchased power takes place during periods when power generated from power plants are not sufficient to meet
customers’ required power as stated in the power supply contracts. Insufficient supply of generated energy
results from the shutdowns due to scheduled maintenance or emergency situation. The Group purchases power
from WESM to ensure uninterrupted supply of power and meet the requirements in the power supply contracts.
Total purchases from WESM in 2009, 2008 and 2007 amounted to π32.5 million, nil and nil, respectively.
22.
Cost of Generated Power
Fuel costs
Steam supply costs (see Note 34)
Energy fees
Ancillary charges
Wheeling expenses
Back-up power
Rent
23.
2009
2008
2007
π2,645,484
2,207,504
112,835
51,545
6,098
4,262
2,549
π1,615,971
–
–
46,366
6,220
25,277
2,060
π1,000,405
–
–
40,194
4,695
17,105
2,152
π5,030,277
π1,695,894
π1,064,551
2009
2008
2007
π369,216
469,439
π262,202
146,728
π229,491
136,441
137,595
131,264
130,249
104,246
92,805
91,466
77,051
50,717
29,732
28,175
10,942
8,038
6,111
5,126
4,846
2,172
1,404
151,834
67,398
121,400
16,698
99,093
55,564
51,331
59,921
–
7,322
29,723
4,931
5,053
4,648
3,919
3,559
2,736
1,831
158,517
5,527
112,579
27,305
95,138
51,793
48,541
39,349
–
8,423
18,096
2,578
8,074
4,867
3,694
1,568
1,600
2,445
102,941
π1,902,428
π1,102,574
π900,450
General and Administrative Expenses
Personnel costs (see Note 25)
Outside services
Provision for impairment and write-off of trade receivables net of reversal (see Note 5)
Professional fees
Corporate social responsibility (CSR) (Note 36g)
Taxes and licenses
Repairs and maintenance
Information technology and communication
Transportation and travel
Market service and administrative fees
Insurance
Research and development
Rent
Training
Guard services
Advertisements
Entertainment, amusement and recreation
Gasoline and oil
Freight and handling
Others
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
24.
Operations and Maintenance Expenses
Personnel costs (see Note 25)
Taxes and licenses
Repairs and maintenance
Materials and supplies
Outside services
Insurance
Fuel and lube oil
Rent
Transportation and travel
Others
25.
2009
2008
2007
π334,509
295,730
212,090
174,701
120,448
93,006
47,588
12,024
11,081
35,810
π249,759
136
175,339
74,366
32,403
4,391
77,040
270
11,681
27,719
π215,057
766
92,876
126,490
26,615
6,436
43,177
134
12,812
39,385
π1,336,987
π653,104
π563,748
2009
2008
2007
π553,695
150,030
π345,945
166,016
π316,052
128,496
π703,725
π511,961
π444,548
Personnel Costs
Salaries and wages
Employee benefits (see Note 26)
26.
167
Pension Benefit Plans
Each of the companies in the Group has a funded defined benefit pension plan covering all regular and permanent
employees. The benefits are based on employees’ projected salaries and number of years of service.
The following tables summarize the components of net benefit expense recognized in the consolidated
statements of income and the funded status and amounts recognized in the consolidated balance sheets.
Net benefit expense (income) (recognized as part of costs of generated power, operations and maintenance and
general and administrative)
Current service cost
Interest cost on benefit obligation
Past service cost
Net actuarial gain recognized
Expected return on plan assets
Net pension asset in excess of limit
2009
2008
2007
π7,669
32,787
230
(2,672)
(22,626)
(20,180)
π14,829
17,237
230
(608)
(17,676)
8,193
π19,326
15,154
–
(10,246)
(18,783)
–
(π4,792)
π22,205
π5,451
Actual return on plan assets is π65,566 in 2009, π1,553 in 2008 and π12,522 in 2007. The Group expects to
contribute π7,129 on their retirement fund in 2010.
The overall expected return on plan assets is determined based on the market expectations prevailing on that
date, applicable to the period over which the obligation is to be settled.
DLPC, SEZC, AESI and CPPC are in net pension asset position as of December 31, 2009 and including CLPC as of
December 31, 2008. The rest of the companies in the Group are in pension liability position.
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A B O I T I Z PO W E R C O R P O R AT I O N
Pension assets
Fair value of plan assets
Defined benefit obligation
Over (under) funded defined benefit obligation
Unrecognized past service cost
Unrecognized net actuarial losses (gains)
Limit on defined benefit asset
2009
2008
π137,466
(203,243)
(65,777)
2,074
100,889
–
π112,484
(22,350)
90,134
2,304
(62,539)
(20,179)
π37,186
π9,720
2009
2008
π224,246
(107,756)
(88,332)
π101,757
(92,568)
5,278
π28,158
π14,467
Pension liabilities
Defined benefit obligation
Fair value of plan assets
Unrecognized actuarial losses (gains)
Changes in the present value of the defined benefit obligation are as follows:
2009
2008
Opening defined benefit obligation
Interest cost
Current service cost
Fund transfers to affiliates
Actuarial gains (losses)
Benefits paid
Employee transfers
π124,107
32,787
7,669
2,105
280,159
(19,338)
–
π191,777
17,237
14,829
(3,037)
(59,085)
(38,072)
458
Closing defined benefit obligation
π427,489
π124,107
Changes in the fair value of plan assets are as follows:
2009
2008
Opening fair value of plan assets
Contribution by employer
Expected return on plan assets
Fund transfer to affiliates
Actuarial gains (losses)
Benefits paid
π205,052
8,982
22,626
2,105
25,795
(19,338)
π228,609
16,080
17,676
(2,580)
(16,661)
(38,072)
Closing fair value of plan assets
π245,222
π205,052
The principal assumptions used in determining the pension obligations for the Group’s plans are shown below:
Discount rate
Expected rate of return on assets
Future salary increase
2009
2008
11% - 16%
9% - 11%
8% - 11%
7% - 12%
8% - 11%
8% - 9%
As of December 31, 2009, the discount rate has decreased to 9% - 11%.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
169
Amounts for the current and previous four periods are as follows:
Defined benefit obligation
Plan assets
Surplus (deficit)
Experience adjustment on
plan iability
Experience adjustment on
pension asset
2009
2008
2007
2006
2005
π427,489
245,222
(182,267)
π124,107
205,052
80,945
π191,777
228,609
36,832
π179,652
153,019
(26,633)
π122,604
115,709
(6,895)
23,911
(8,408)
(7,143)
(56,688)
(338)
22,256
(16,123)
(6,231)
18,381
594
The major categories of plan assets as a percentage of the fair value of the total plan assets are as follows:
2009
2008
2007
58%
35%
7%
67%
26%
7%
54%
38%
8%
2009
2008
2007
π840,222
(209,032)
π631,190
π577,071
41,313
π618,384
π594,063
40,270
π634,333
Commercial papers
Marketable securities
Others
27.
Income Tax
The provision for income tax account consists of:
Current
Deferred
Reconciliation between the statutory income tax rate and the Group’s effective income tax rates follows:
Statutory income tax rate
Tax effects of:
Nontaxable share in net earnings
of associates
Interest income subjected to final
tax at lower rates - net
Income under income tax holiday
Others
2009
2008
2007
30.00%
35.00%
35.00%
(11.88)
(19.85)
(19.99)
(0.71)
9.99)
2.44
(1.88)
–
(1.62)
(1.09)
–
(1.00)
9.86%
11.65%
12.92%
Deferred income taxes of the companies in the Group that are in deferred income tax assets and liabilities position
consist of the following at December 31:
2009
2008
Deferred income tax assets:
Net operating loss carryover (NOLCO)
Allowances for impairment and probable losses
Minimum corporatae income tax (MCIT)
Pension cost liability
Unamortized past service cost
Unrealized foreign exchange losses
Others
π137,867
5,950
1,589
82,172
2,487
19,074
870
π15,260
4,244
40,182
1,041
4,663
1,507
(321)
Net deferred income tax assets
π250,009
π66,576
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170
A B O I T I Z PO W E R C O R P O R AT I O N
Deferred income tax liabilities:
Unamortized customs duties and taxes
capitalized
Pension asset
Capitalized interest expense
Unamortized streetlight donations capitalized
MCIT
Unrealized foreign exchange gains
Unamortized past service cost
Allowances for doubtful accounts and probable
losses
Net deferred income tax liabilities
2009
2008
π17,015
860
4,195
10,702
π15,859
39,394
2,726
1,393
3,869
(361)
3,648
1,686
(444)
2,169
(3,039)
(2,643)
π38,005
π59,024
In computing for deferred income tax assets and liabilities in 2008, the rates used were 30% and 10%, which are
the rates expected to apply to taxable income in the years in which the deferred income tax assets and liabilities
are expected to be recovered or settled and considering the tax rate for renewable energy developers as allowed
by the Renewable Energy Act of 2008.
As of December 31, 2009, the Group has nil deferred income tax asset and (liability) on the temporary difference
of π27.8 million and π441.8 million, respectively, as the management expects that the temporary difference will
be realized or will reverse during the income tax holiday (ITH) period (see Note 35).
There are no income tax consequences to the Group attaching to the payment of dividends to its shareholders.
28.
Earnings Per Common Share
Earnings per common share amounts were computed as follows:
Net income attributable to equity holders
of the parent (a)
Weighted average number of common
shares issued and outstanding (b)
Earnings per common share (a/b)
2009
2008
2007
π5,658,581
π4,333,613
π4,160,645
7,358,604,307
π0.77
7,358,604,307
π0.59
6,279,302,154
π0.66
There are no dilutive potential common shares as of December 31, 2009, 2008 and 2007.
29.
Business Segment Information
Operating segments are components of the Group that engage in business activities from which they may earn
revenues and incur expenses, whose operating results are regularly reviewed by the Group’s CODM to make
decisions about how resources are to be allocated to the segment and assess their performances, and for which
discrete financial information is available.
For purposes of management reporting, the Group’s operating businesses are organized and managed separately
according to services provided, with each segment representing a strategic business segment. The Group
identified operating segments, which are consistent with the segments reported to the BOD, which is the Group’s
CODM, are as follows:
•
“Power Generation” segment, which is engaged in the generation and supply of power to various customer
under power supply contacts and for trading in WESM;
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
•
•
171
“Power Distribution” segment, which is engaged in the distribution and sale of electricity to the end-users;
and
“Parent Company and Others”, which includes the operations of the Company and electricity-related services
of the Group such as installation of electrical services.
The Group has only one geographical segment as all of its assets are located in the Philippines. The Group operates
and derives principally all of its revenue from domestic operations. Thus, geographical business information is
not required.
Management monitors the operating results of its segments separately for the purpose of making decisions
about resource allocation and performance assessment. Segment revenue and segment expenses are measured
in accordance with PFRS. The presentation and classification of segment revenue and segment expenses are
consistent with the consolidated statement of income. Interest expense and financing charges, depreciation and
amortization expense and income taxes are managed on a per segment basis.
The Group has inter-segment revenues in the form of management fees as well as inter-segment sales of
electricity which are eliminated in consolidation. The transfers are accounted for at competitive market prices on
an arms length transaction basis.
Segment assets do not include deferred income tax assets, pension asset and other noncurrent assets. Segment
liabilities do not include deferred income tax liabilities, income tax payable and pension liability. Capital
expenditures consist of additions of property, plant and equipment and intangible asset - service concession
rights. Adjustments as shown below include items not presented as part of segment assets and liabilities.
Revenue is recognized to the extent that it is probable that economic benefits will flow to the Group and that the
revenue can be reliably measured. 44% and 25% of the power generation segment revenues of the Group are
derived from Manila Electric Company (Meralco) and VECO, respectively.
Financial information on the operations of the various business segments are summarized as follows:
2009
Power
Generation
Power
Distribution
Parent
Company/
Others
Eliminations and
Adjustments
Consolidated
REVENUE
External
Inter-segment
π12,359,479
106,364
π10,734,427
–
π80,359
215,503
π–
(321,867)
π23,174,265
–
Total Revenue
π12,465,843
π10,734,427
π295,862
(π321,867)
π23,174,265
Segment results
Unallocated corporate income -net
π4,362,774
379,117
π1,196,104
369,535
(π102,711)
64,759
π–
–
π5,456,167
813,411
INCOME FROM OPERATIONS
Interest expense
Interest income
Share in net earnings of associates
Provision for (benefit from) income tax
4,741,891
(1,884,802)
47,656
2,227,256
(413,892)
1,565,639
(106,097)
12,583
308,130
(376,376)
(37,952)
(852,759)
379,413
6,021,174
159,078
–
29,680
(29,680)
(6,021,174)
–
6,269,578
(2,813,978)
409,972
2,535,386
(631,190)
NET INCOME
π4,718,109
π1,403,879
π5,668,954
(π6,021,174)
π5,769,768
OTHER INFORMATION ASSETS
Investments in Associates
π21,725,730
π2,270,325
π28,446,450
(π28,446,450)
π23,996,055
Capital Expenditures
π22,833,453
π691,660
π18,310
π–
π23,543,423
Segment Assets
π99,782,249
π7,944,648
π52,147,029
(π48,533,209)
π111,340,717
Segment Liabilities
π76,463,801
π4,481,135
π17,832,473
(π22,483,619)
π76,293,790
π1,069,904
π330,696
π12,300
π–
π1,412,900
Depreciation and amortization
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172
A B O I T I Z PO W E R C O R P O R AT I O N
2008
Power
Generation
Power
Distribution
Parent
Company/
Others
Eliminations and
Adjustments
Consolidated
REVENUE
External
Inter-segment
π2,880,719
104,059
π9,227,696
–
π134,565
194,131
π–
(298,190)
π12,242,980
–
Total Revenue
π2,984,778
π9,227,696
π328,696
(π298,190)
π12,242,980
Segment results
Unallocated corporate income (expenses)
π513,914
(85,677)
π1,121,082
338,121
π17,509
124,248
π–
–
π1,652,505
376,692
INCOME FROM OPERATIONS
Interest expense
Interest income
Share in net earnings of associates
Provision for income tax
428,237
(91,234)
149,810
2,437,729
(101,011)
1,459,203
(89,198)
15,550
346,782
(401,848)
141,757
(242,166)
486,242
4,079,893
(115,525)
–
44,062
(44,062)
(4,079,893)
–
2,029,197
(378,536)
607,540
2,784,511
(618,384)
π2,823,531
π1,330,489
π4,350,201
(π4,079,893)
π4,424,328
π17,352,127
π2,281,307
π21,123,160
(π21,123,160)
π19,633,434
1,945,959
869,773
35,662
–
2,851,394
π25,484,606
π7,388,753
π39,284,087
(π24,885,310)
π47,272,136
π8,262,870
π4,029,890
π9,050,953
(π4,763,241)
π16,580,473
π179,349
π324,726
π7,079
π–
π511,154
Power
Generation
Power
Distribution
Parent
Company/
Others
Eliminations and
Adjustments
Consolidated
REVENUE
External
Inter-segment
π2,412,393
86,446
π8,797,504
π102,094
233,405
π–
(319,851)
π11,311,991
–
Total Revenue
π2,498,839
π8,797,504
π335,499
(π319,851)
π11,311,991
Segment results
Unallocated corporate income (expenses)
π1,231,810
302,633
π648,994
(289,632)
π102,530
(24,153)
π–
–
π1,983,334
(11,152)
1,534,443
(78,005)
13,106
395,473
(468,484)
359,362
(86,251)
13,386
2,408,360
(78,599)
78,377
(33,246)
304,421
3,916,292
(87,250)
–
–
–
(3,916,292)
–
1,972,182
(197,502)
330,913
2,803,833
(634,333)
π1,396,533
π2,616,258
π4,178,594
(π3,916,292)
π4,275,093
π291,187
π193,553
π7,402
π–
π492,142
NET INCOME
OTHER INFORMATION
Investments in Associates
Capital Expenditures
Segment Assets
Segment Liabilities
Depreciation and amortization
2007
INCOME FROM OPERATIONS
Interest expense
Interest income
Share in net earnings of associates
Provision for income tax
NET INCOME
OTHER INFORMATION ASSETS
Depreciation and amortization
30.
Related Party Disclosures
The Group enters into transactions with its parent, associates and other related parties, principally consisting of
the following:
a. Up until December 31, 2008, the Group had service contracts with ACO, the ultimate parent company, for
corporate center services rendered, such as human resources, internal audit, legal, treasury and corporate
finance, among others. With the transfer of all ACO employees to AEV in January 2009, AEV is now providing
these same services and shares with the member companies the business expertise of its highly qualified
professionals. Transactions are priced on a cost recovery basis, and billed costs are always benchmarked
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
173
on third party rates to ensure competitive pricing. Service Level Agreements are in place to ensure quality
of service. This arrangement enables the Group to maximize efficiencies and realize cost synergies.
Management, professional, legal and other service fees paid by the Group to AEV and ACO amounted to
π409,405 in 2009, π362,607 in 2008, and π366,565 in 2007, respectively.
b. Management and other service contracts of certain subsidiaries with ACO at fees based on agreed rates.
Management and other service fees paid by the Group to ACO amounted to nil, π40,727 and π27,154 in 2009,
2008 and 2007, respectively.
c. The Company also obtained standby letters of credit (SBLC) and is acting as surety for the benefit of certain
subsidiaries and associates in connection with loans and credit accommodations. The Company provided
SBLC for STEAG, LHC, and SNAP B in the amount of π1.80 billion in 2009 and 2008.
d. Energy fees billed by HI to SFELAPCO amounted to π19,630 in 2009, π17,339 in 2008 and π17,768 in 2007.
e. Energy fees billed by CPPC to VECO amounted to π2,104,267 in 2009,π2,345,106 in 2008 and π1,645,655 in
2007.
f.
Aviation services rendered by AEV Aviation to the Group. Total expenses from associate amounted to
π24,820 in 2009, π19,856 in 2008 and π12,655 in 2007. AEV Aviation is a subsidiary of AEV.
g. Lease of commercial office units by the Group from Cebu Praedia Development Corporation (CPDC) for a
period of three years. Rental expense amounted to π48,172 in 2009, π32,239 in 2008, and π28,190 in 2007.
CPDC is a subsidiary of AEV.
h. The Company provides services to certain subsidiaries and associates such as technical and legal assistance
for various projects, trainings, and other services. Total technical and service fee income amounted to π2,170
in 2009, π9,441 in 2008 and π1,540 in 2007.
i.
Cash deposits with Union Bank of the Philippines (UBP) and City Savings Bank, both associates of AEV
(see Note 4).
j.
Advances to/from related parties, both interest and noninterest-bearing, payable on demand. Interestbearing advances are based on annual interest rates ranging from 3.00% to 9.25% in 2009, 3.00% to 10.40%
in 2008, and 5.13% to 8.25% in 2007. Net interest income (expense) incurred on these advances amounted to
π55.8 million in 2009, π142.7 million in 2008, and (π29.9 million) in 2007 (see Notes 4 and 30).
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174
A B O I T I Z PO W E R C O R P O R AT I O N
Significant outstanding account balances with related parties (see Notes 5 and 14) as of December 31, 2009 and
2008 are as follows:
Amounts Owed by Related Parties
2009
2008
2009
2008
π–
–
π–
–
π10,124
20,645
π10,124
4,844
377,576
225,002
296,611
123,888
4,860
–
–
1,468,977
225,002
–
143,630
4,860
4,058
–
–
–
–
–
–
–
1,145,253
–
–
–
–
–
–
1,100,253
–
–
–
–
321,000
40,200
35,400
–
–
–
–
1,126,819
–
–
–
466,847
Ultimate Parent and Parent
ACO
AEV
Associates
CEDC
STEAG
RP Energy
MORE
SNAP M
SFELAPCO
EAUC
Amounts Owed to Related Parties
Other Related Parties
Aboitiz One, Inc. (AOI)
Pilmico Foods Corporation (PFC)
Pilmico Animal Nutrition Corporation (PANC)
Vivant Energy Corporation (VEC)
AOI, PFC and PANC are under common ownership with the Company. VEC is one of the minority stockholders
of the Group.
Compensation of BOD and key management personnel of the Group follows:
Short-term benefits
Post-employment benefits
31.
2009
2008
2007
π125,451
3,832
π70,642
3,634
π25,788
2,863
π129,283
π74,276
π28,651
Financial Risk Management Objectives and Policies
The Group’s principal financial instruments comprise cash and cash equivalents and long-term debts. The main
purpose of these financial instruments is to raise finances for the Group’s operations. The Group has various
other financial instruments such as trade and other receivables, derivative asset, AFS investments, restricted
cash, bank loans, trade and other payables, derivative liabilities, finance lease obligation, payable to preferred
shareholder of a subsidiary, long-term obligation on power distribution system and customers’ deposits, which
arise directly from its operations.
The main risks arising from the Group’s financial instruments are liquidity risk, interest rate risk, foreign
exchange risk, and credit risk. The BOD reviews and agrees policies for managing each of these risks and they are
summarized below.
Liquidity risk
Liquidity risk is the risk of not meeting obligations as they become due because of an inability to liquidate assets
or obtain adequate funding. The Group maintains sufficient cash and cash equivalents to finance its operations.
Any excess cash is invested in short-term money market placements. These placements are maintained to meet
maturing obligations and pay dividend declarations.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
175
In managing its long-term financial requirements, the Group’s policy is that not more than 25% of long term
borrowings should mature in any twelve-month period. 3.74% of the Group’s debt will mature in less than one
year at December 31, 2009 (2008: 0.31%). For its short-term funding, the Group’s policy is to ensure that there
are sufficient working capital inflows to match repayments of short-term debt.
The financial assets that will be principally used to settle the financial liabilities presented in the following table
are from cash and cash equivalents and trade and other receivables that have contractual undiscounted cash
flows amounting to π3,814,906 and π4,476,028 as of December 31, 2009 and π14,333,676 and π1,991,074 as of
December 31, 2008, respectively (see Notes 4 and 5). Cash and cash equivalents can be withdrawn anytime while
trade and other receivables are expected to be collected within one year.
The following table summarizes the maturity profile of the Group’s financial liabilities as of December 31, 2009
and 2008 based on contractual undiscounted payments:
December 31, 2009
Trade and other payables
Contractual undiscounted payments
Total
carrying
value
Total
On
demand
<1 year
1 to 5 years
> 5 years
π3,750,465
π3,750,465
π–
π 3,750,465
π–
π–
Due to related parties
2,272,072
2,272,072
2,272,072
–
–
–
Customers' deposits
1,781,116
1,789,335
–
59,164
27,270
1,702,901
Bank loans
5,828,100
5,845,599
–
5,845,599
–
–
Payable to preferred
shareholders of subsidiary
Finance lease obligation
Long-term obligation on
power distribution system
Long-term debts
Derivative liabilities
Total
88,030
155,350
–
31,070
124,280
–
45,586,164
115,387,464
–
1,130,400
25,897,464
88,359,600
287,460
720,000
–
40,000
200,000
480,000
16,252,535
23,904,868
–
1,449,483
17,580,706
4,874,679
16,476
16,476
–
16,476
–
–
π75,862,418
π153,841,629
π2,272,072
π12,322,657
π43,829,720
π95,417,180
December 31, 2008
Trade and other payables
Contractual undiscounted payments
Total
carrying
value
Total
On
demand
<1 year
1 to 5 years
> 5 years
π1,578,211
π1,546,150
π–
π1,546,150
π–
π–
Due to related parties
1,567,100
1,567,100
980,407
586,693
–
–
Customers' deposits
1,571,092
1,571,092
–
89,212
9,759
1,472,121
Bank loans
4,798,120
4,815,073
–
4,815,073
–
–
97,224
186,420
–
31,070
124,280
31,070
Payable to preferred
shareholders of subsidiary
Long-term obligation on
power distribution system
Long-term debt
Total
291,816
760,000
–
40,000
200,000
520,000
6,521,997
9,532,211
–
556,230
6,964,069
2,011,912
π16,425,560
π19,978,046
π980,407
π7,664,428
π7,298,108
π4,035,103
SEC FORM 20 - IS (INFORMATION STATEMENT)
176
A B O I T I Z PO W E R C O R P O R AT I O N
Interest rate risk
The Group’s exposure to market risk for changes in interest rates relates primarily to its long-term debt obligations.
To manage this risk, the Group determines the mix of its debt portfolio as a function of the level of current interest
rates, the required tenor of the loan, and the general use of the proceeds of its various fund raising activities. As
of December 31, 2009, all of the Group’s long-term debt had fixed rates ranging from 8.23% to 10.02%. As of
December 31, 2008, 11% of the Group’s long-term debt had floating interest rates ranging from 6.29% to 9.47%,
and 89% had fixed rates ranging from 8.26% to 10.02%.
The following tables set out the carrying amounts, by maturity, of the Group’s financial instruments that are
exposed to interest rate risk:
As of December 31, 2009
Floating rate - payable to preferred
shareholder of a subsidiary
<1 year
1-5 years
>5 years
Total
π11,263
π76,767
π–
π88,030
<1 year
1-5 years
>5 years
Total
π1,000
π646,000
π–
π647,000
9,194
88,030
–
97,224
π10,194
π734,030
π–
π744,224
As of December 31, 2008
Floating rate - long-term debt
Floating rate - payable to preferred
shareholder of a subsidiary
Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. Interest
on financial instruments classified as fixed rate is fixed until the maturity of the instrument. The other financial
instruments of the Group that are not included in the above tables are noninterest-bearing and are therefore not
subject to interest rate risk. The Group’s derivative asset and liabilities are subject to fair value interest rate risk.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other
variables held constant, of the Group’s income before tax (through the impact on floating rate borrowings).
Increase
(decrease) in
basis points
Effect on
income
before tax
December 2008
100
(50)
(π6,470)
3,235
December 2007
100
(50)
(6,480)
3,240
The Group’s sensitivity to an increase/decrease in interest rates pertaining to floating rate borrowings is expected
to be insignificant in 2009 due to the immateriality of payable to preferred shareholder of a subsidiary relative to
the total liabilities of the Group.
The Group’s sensitivity to an increase/decrease in interest rates pertaining to derivative instruments is expected
to be insignificant in 2009 due to their short-term maturities and immateriality relative to the total assets and
liabilities of the Group.
There is no other impact on the Group’s equity other than those already affecting the consolidated statements
of income.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
177
The sources of interest expense and other finance charges recognized during the period are as follows:
Bank loans and long-term debt
(see Notes 15 and 16)
Customers’ deposits (see Note 17)
Finance lease obligation (see Note 34)
Long-term obligation on power distribution
system (see Note 34)
Payable to preferred shareholder of
subsidiary (see Note 18)
Advances from related parties (see Note 30)
2009
2008
2007
π1,515,519
5,712
1,234,905
π307,515
5,462
–
π105,771
3,626
–
35,644
36,128
36,558
21,876
322
23,564
5,867
17,673
33,874
π2,813,978
π378,536
π197,502
Foreign exchange risk
The foreign exchange risk of the Group pertains significantly to its foreign currency denominated obligations.
To manage its foreign exchange risk, stabilize cash flows and improve investment and cash flow planning,
the Group enters into foreign currency forward contracts aimed at reducing and/or managing adverse impact
of changes in foreign exchange rates on financial performance and cash flows. As of December 31, 2009 and
December 31, 2008, foreign currency denominated borrowings account for 17% and 34%, respectively, of total
consolidated borrowings.
Presented below are the Group’s foreign currency denominated financial assets and liabilities as of
December 31, 2009 and 2008, translated to Philippine Peso.
December 31, 2009
Philippine Peso
equivalent1
US Dollar
Philippine Peso
equivalent2
US$8,270
3,510
1,402
12,131
π382,089
162,175
64,767
560,423
US$49,093
–
–
12,243
π2,332,908
–
–
581,757
25,313
1,169,454
61,336
2,914,665
Other financial liabilities
Bank loans
Trade and other payables
Finance lease obligation
81,000
4,176
521,455
3,742,200
192,925
24,091,225
81,000
–
–
3,849,120
–
–
Total financial liabilities
606,631
28,026,350
81,000
3,849,120
(US$581,318)
(π26,856,896)
(US$19,664)
(π934,455)
Loans and receivables
Cash
Trade and other receivables
Advances to associates
Restricted cash
Total financial assets
1
2
December 31, 2008
US Dollar
$1 = π46.2000
$1 = π47.5200
The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rates,
with all other variables held constant, of the Group’s income before tax as of December 31, 2009 and 2008.
Increase/(decrease) in US dollar
Effect on income
before tax
December 31, 2009
US dollar denominated accounts
US dollar denominated accounts
US Dollar strengthens by 5%
US Dollar weakens by 5%
(π1,342,845)
1,342,845
December 31, 2008
US dollar denominated accounts
US dollar denominated accounts
US Dollar strengthens by 5%
US Dollar weakens by 5%
(π46,723)
46,723
SEC FORM 20 - IS (INFORMATION STATEMENT)
178
A B O I T I Z PO W E R C O R P O R AT I O N
The increase in US Dollar rate represents the depreciation of the Philippine Peso while the decrease in US Dollar
rate represents appreciation of the Philippine Peso.
There is no other impact on the Group’s equity other those already affecting the consolidated statement of
income.
Credit risk
For its cash investments (including restricted portion), AFS investments and receivables, the Group’s credit risk
pertains to possible default by the counterparty, with a maximum exposure equal to the carrying amount of these
investments. With respect to cash investments and AFS investments, the risk is mitigated by the short-term and
or liquid nature of its cash investments mainly in bank deposits and placements, which are placed with financial
institutions of high credit standing. With respect to receivables, credit risk is controlled by the application of
credit approval, limit and monitoring procedures. It is the Group’s policy to enter into transactions with creditworthy parties to mitigate any significant concentration of credit risk. The Group ensures that sales are made
to customers with appropriate credit history and has internal mechanism to monitor the granting of credit and
management of credit exposures. The Group has no significant concentration risk to counterparty or group of
counterparties.
Credit risk concentration of the Group’s receivables according to the customer category as of December 31,2009
and 2008 is summarized in the following table:
Power distribution
Residential
Commercial
Industrial
City street lighting
Power generation
Spot market
Power supply contracts
2009
2008
π228,942
96,799
296,444
10,465
π190,543
95,795
278,214
13,717
975,729
2,104,015
–
203,774
π3,712,394
π782,043
The credit quality per class of financial assets that were neither past due nor impaired is as follows:
December 31, 2009
Neither past due nor impaired
Cash and cash equivalents
Cash on hand and in banks
Short-term investments
Trade receivables
Residential
Commercial
Industrial
City street lighting
Spot market
Power supply contracts
(Forward)
SEC FORM 20 - IS (INFORMATION STATEMENT)
High Grade
Standard
Sub- standard
Past due
or individually
impaired
π2,255,660
1,559,246
π–
–
π–
–
π–
–
π2,255,660
1,559,246
3,814,906
–
–
–
3,814,906
26,864
13,519
230,247
3,247
–
826,685
34,016
37,380
16,957
3,829
967,268
1,034,897
101,736
28,614
27,259
3,071
–
42,462
66,326
17,286
21,981
318
8,461
199,971
228,942
96,799
296,444
10,465
975,729
2,104,015
1,100,562
2,094,347
203,142
314,343
3,712,394
Total
ANNUAL REPORT 200 9
179
Neither past due nor impaired
Advances to suppliers, officers and
employees
Other receivables
AFS investments
Derivative asset
Other noncurrent asset*
Total
High Grade
Standard
Sub- standard
Past due
or individually
impaired
π158,050
144,591
3,744
846
560,423
π–
81,039
–
–
–
π–
6,771
–
–
–
π2,227
477,126
–
–
–
π160,277
709,527
3,744
846
560,423
π5,783,122
π2,175,386
π209,913
π793,696
π8,962,117
Total
Total
*“Other noncurrent asset” represents restricted cash in bank.
December 31, 2008
Neither past due nor impaired
Cash and cash equivalents
Cash at hand and in banks
Short-term investments
Trade receivables
Residential
Commercial
Industrial
City street lighting
Power distribution utilities/off-takers
Advances to suppliers, officers and
employees
Advances to related parties
Other receivables
AFS investments
Other noncurrent asset*
Total
High Grade
Standard
Sub- standard
Past due
or individually
impaired
π622,301
13,711,375
π–
–
π–
–
π–
–
π622,301
13,711,375
14,333,676
–
–
–
14,333,676
38,472
15,260
214,190
4,504
196,336
38,494
38,996
15,148
3,626
–
61,428
21,968
26,228
5,375
–
52,149
19,571
22,648
212
7,438
190,543
95,795
278,214
13,717
203,774
468,762
96,264
114,999
102,018
782,043
382,054
396,600
370,851
3,744
581,708
–
–
–
–
–
–
–
–
–
–
5,095
–
54,431
–
–
387,149
396,600
425,282
3,744
581,708
π16,537,395
π96,264
π114,999
π161,544
π16,910,202
*“Other noncurrent asset” represents restricted cash in bank.
High grade receivables pertain to receivables from customers with good favorable credit standing. Receivables
from customers that slide beyond the credit terms but pay a week after being past due are classified under
standard. Sub-standard are accounts with payment habits extend beyond the approved credit terms because
their funds are not sufficient to conduct their operations.
Trade and other receivables that are individually determined to be impaired at the balance sheet date relate to
debtors that are in significant financial difficulties and have defaulted on payments and accounts under dispute
and legal proceedings.
The Group evaluated its cash and cash equivalents and restricted cash as high quality financial assets since these
are placed in financial institutions of high credit standing.
With respect to advances to suppliers, officers and employees, advances to related parties, other receivables,
AFS investment and derivative asset, the Group evaluates the counterparty’s external credit rating in establishing
credit quality.
SEC FORM 20 - IS (INFORMATION STATEMENT)
180
A B O I T I Z PO W E R C O R P O R AT I O N
The table below shows the Group’s aging analysis of past due but not impaired financial assets:
December 31, 2009
Past due but not impaired
Total
Neither past
due nor
impaired
Less than
30 days
31 days to
60 days
Over 60
days
Individually
impaired
π2,255,660
1,559,246
π2,255,660
1,559,246
π–
–
π–
–
π–
–
π–
–
3,814,906
3,814,906
–
–
–
–
228,942
96,799
296,444
10,465
975,729
2,104,015
162,616
79,513
274,463
10,147
967,268
1,904,044
41,300
9,350
12,170
22
122
111,124
5,264
1,597
2,139
21
36
588
15,041
5,595
1,531
92
187
2,688
4,721
744
6,141
183
8,116
85,571
3,712,394
3,398,051
174,088
9,645
25,134
105,476
160,277
709,527
3,744
846
560,423
158,050
232,401
3,744
846
560,423
161
147,466
–
–
–
1,877
73,079
–
–
–
189
255,887
–
–
–
–
694
–
–
–
Total
π8,168,421
π8,962,117
*“Other noncurrent asset” represents restricted cash in bank.
π321,715
π84,601
π281,210
π106,170
Cash and cash equivalents
Cash on hand and in banks
Short-term investments
Trade receivables
Residential
Commercial
Industrial
City street lighting
Spot market
Power supply contracts
Advances to suppliers, officers and
employees
Other receivables
AFS investments
Derivative asset
Other noncurrent asset*
December 31, 2008
Past due but not impaired
Total
Neither past
due nor
impaired
Less than
30 days
31 days to
60 days
Over 60
days
Individually
impaired
π622,301
13,711,375
π622,301
13,711,375
π–
–
π–
–
π–
–
π–
–
14,333,676
14,333,676
–
–
–
–
190,543
95,795
278,214
13,717
203,774
138,394
76,224
255,566
13,505
196,336
30,491
10,800
10,580
130
7,400
2,458
3,133
3,041
4
30
19,200
5,638
9,027
78
8
-
782,043
680,025
59,401
8,666
33,951
–
387,149
396,600
425,282
3,744
581,708
382,054
396,600
370,851
3,744
581,708
280
–
18,310
–
–
3,715
–
7,233
–
–
1,100
–
28,888
–
–
–
–
–
–
–
Total
π16,910,202
π16,748,658
*“Other noncurrent asset” represents restricted cash in bank.
π77,991
π19,614
π63,939
π–
Cash and cash equivalents
Cash in banks
Short-term investments
Trade receivables
Residential
Commercial
Industrial
City street lighting
Power supply contracts
Advances to suppliers, officers and
employees
Advances to related parties
Other receivables
AFS investments
Other noncurrent asset*
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
181
Capital management
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and
healthy capital ratios in order to support its business and maximize shareholder value.
The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions.
To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders,
return capital to shareholders or issue new shares. The Group is not subject to any externally imposed capital
requirements.
No changes were made in the objectives, policies or processes during the years ended December 31, 2009 and
2008.
The Group monitors capital using a gearing ratio, which is net debt divided by equity plus net debt. The Group's
policy is to keep the gearing ratio at 70% or below. The Group determines net debt as the sum of interest-bearing
short-term and long-term loans (comprising long-term debt, finance lease obligation and payable to preferred
shareholders of a subsidiary) less cash and short-term deposits and temporary interest bearing advances to
related parties.
Gearing ratios of the Group as of December 31, 2009 and 2008 are as follows:
2009
2008
Bank loans
Long-term debt
Cash and cash equivalents
Temporary advances to related parties
π5,828,100
61,926,729
(3,814,906)
–
π4,798,120
6,619,221
(14,915,384)
(396,600)
Net debt (a)
Equity
63,939,923
35,046,927
(3,894,643)
30,691,663
π98,986,850
π26,797,020
64.59%
(14.53%)
Equity and net debt (b)
Gearing ratio (a/b)
32.
Financial Instruments
Set out below is a comparison by category of carrying amounts and fair values of all of the Group’s financial
instruments that are carried in the financial statements at other than fair values (amounts in millions).
2009
FINANCIAL ASSETS
Loans and Receivables
Cash and cash equivalents
Cash on hand and in banks
Short-term investments
Trade and other receivables
Trade receivables
Due from related parties
Other receivables
Other noncurrent asset*
2008
Carrying
Amounts
Fair
Values
Carrying
Amounts
Fair
Values
π2,256
1,559
π2,256
1,559
π622
13,712
π622
13,712
3,815
3,815
14,334
14,334
3,606
–
870
3,606
–
870
782
397
812
782
397
812
4,476
4,476
1,991
1,991
560
560
581
581
8,851
8,851
16,906
16,906
Financial Assets at FVPL
Derivative asset
1
1
–
–
AFS Financial Assets
4
4
4
4
π8,856
π8,856
π16,910
π16,910
SEC FORM 20 - IS (INFORMATION STATEMENT)
182
A B O I T I Z PO W E R C O R P O R AT I O N
2009
2008
Carrying
Amounts
Fair
Values
Carrying
Amounts
Fair
Values
π5,828
π5,828
π4,798
π4,798
–
16,253
–
17,411
647
5,875
647
5,917
88
45,586
88
52,947
97
–
97
–
61,927
70,446
6,619
6,661
337
1,444
337
1,444
305
1,266
305
1,266
1,781
1,781
1,571
1,571
287
292
292
367
2,272
2,574
1,177
2,272
2,574
1,177
1,567
986
592
1,567
986
592
6,023
6,023
3,145
3,145
75,846
84,370
16,425
16,542
16
16
–
–
π84,386
π16,425
π16,542
FINANCIAL LIABILITIES
Other Financial Liabilities
Bank loans
Long-term debt
Floating - long-term debt
Fixed rate - long-term debt
Floating rate - payable to preferred
shareholder of a subsidiary
Fixed rate - finance lease obligation
Customers’ deposits
Bill deposits
Transformers, lines and poles
Long-term obligation on power
distribution system
Trade and other payables
Related parties
Trade payables
Others
Financial Liability at FVPL
Derivative liabilities
*“Other noncurrent asset” represents restricted cash in bank.
π75,862
Fair Value of Financial Instruments
Fair value is defined as the amount for which an asset could be exchanged or a liability settled between
knowledgeable willing parties in an arm’s-length transaction, other than in a forced liquidation or sale. Fair values
are obtained from quoted market prices, discounted cash flow models and option pricing models, as appropriate.
A financial instrument is regarded as quoted in an active market if quoted prices are readily available from an
exchange, dealer, broker, pricing services or regulatory agency and those prices represent actual and regularly
occurring market transactions on an arm’s length basis. For a financial instrument with an active market, the
quoted market price is used as its fair value. On the other hand, if transactions are no longer regularly occurring
even if prices might be available and the only observed transactions are forced transactions or distressed
sales, then the market is considered inactive. For a financial instrument with an active market, its fair value is
determined using a valuation technique (e.g. discounted cash flow approach) that incorporates all factors that
market participants would consider in setting a price.
The following methods and assumptions are used to estimate the fair value of each class of financial instruments:
Cash and cash equivalents, trade and other receivables, bank loans and trade and other payables. The carrying
amounts of cash and cash equivalents, trade and other receivables and trade and other payables approximate fair
value due to the relatively short-term maturity of these financial instruments.
Restricted cash. The carrying value of the restricted cash approximates their fair value as they earn interest based
on prevailing bank deposit rates.
Derivative asset and liabilities. The fair value is calculated by reference to prevailing interest rate differential and
spot exchange rate as of valuation date, taking into account its remaining term to maturity.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
183
Fixed-rate borrowings. The fair value of fixed rate interest-bearing loans is based on the discounted value of future
cash flows using the applicable rates for similar types of loans. Interest-bearing loans were discounted using
discount rates ranging from 7.34% to 9.84% in 2009 and 5.67% to 6.73% in 2008.
Floating-rate borrowings. Since repricing of the variable-rate interest bearing loan is frequent (i.e., three-month
repricing), the carrying value approximates the fair value.
Finance lease obligation. The fair value of the finance lease obligation was calculated by discounting future cash
flows using discount rates of 5% to 9% for dollar payments and 9% to 14% for peso payments.
Long-term obligation on PDS. The fair value of the long-term obligations on power distribution system is calculated
by discounting expected future cash flows at prevailing market rates. Discount rates used in discounting the
obligation ranges from 5.67% to 8.34% in 2008 and 6.22% to 10.77% in 2009.
Customers’ deposits. The fair value of bill deposits approximates the carrying values as these deposits earn
interest at the prevailing market interest rate in accordance with regulatory guidelines. The timing and related
amounts of future cash flows relating to transformer and lines and poles deposits cannot be reasonably and
reliably estimated for purposes of establishing their fair values using an alternative valuation technique.
AFS investments. The fair values of AFS investments are based on cost since fair values are not readily determinable.
Derivative financial instruments
The Company enters into non-deliverable short-term forward contracts with counterparty banks to manage
foreign currency risks associated with foreign currency-denominated liabilities and purchases.
As of December 31, 2009, the Group has outstanding non-deliverable buy Dollar and sell Peso forward exchange
contracts with counterparty banks with an aggregate notional amount of $78.5 million and remaining maturities
of 1 month to 10 months. As at December 31, 2009, the forward rates related to the forward contracts range
from π46.40 to π47.14 per US$1. The Group recognized derivative asset and derivative liabilities relating these
contracts amounting to π846 and π15,286, respectively.
As of December 31, 2009, the Group also has outstanding non-deliverable sell US Dollar buy EURO short-term
forward exchange contracts with a counterparty bank with an aggregate notional amount of $1.83 million and
remaining maturities of less than 1 month to 3 months. As at December 31, 2009, the forward rates related to the
forward contracts range from €1.4347 to €1.4381 per US$1. The Group recognized derivative liability relating to
these contracts amounting to π1,190.
The net fair value changes from forward contracts amounted to π223,968 loss in 2009. These are included under
“Others - net” presented under “Other Income (Expenses)” in the consolidated statements of income.
Fair Value Hierarchy
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments
by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are
observable, either directly or indirectly
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based
on observable market data.
Only the Group’s derivative instruments, which are classified under Level 2, are measured at fair value. During
the reporting period ending December 31, 2009, there were no transfers between Level 1 and Level 2 fair value
measurements, and no transfers into and out of Level 3 fair value measurements.
SEC FORM 20 - IS (INFORMATION STATEMENT)
184
A B O I T I Z PO W E R C O R P O R AT I O N
33.
Registration with the Department of Energy (DOE)
In accordance with its registration with the Department of Energy (DOE) under RA 7156 known as "Mini Hydro
Electric Power Incentives Act" as mini hydro electric power developer HI is entitled to certain incentives among
which are the special privilege tax at the rate of 2% on power sales, tax and duty free importation of machinery,
equipment and materials, tax credit on domestic capital equipment and income tax holiday. Income tax holiday,
tax and duty free importation and tax credit on domestic capital equipment on all mini-hydroelectric power plants
expired in 2000, except for the four (4) power plants located in Mintal, Tugbok, Davao City, acquired from PSALM,
which were transferred on January 18, 2005 and started commercial operations on January 19, 2005. Income tax
holiday on the four (4) plants started on September 28, 2005.
34.
Agreements
Lease Agreements
•
TLI was appointed by PSALM as Administrator under the IPP Administration Agreement, giving TLI the right
to receive, manage and control the capacity of the power plant for its own account and at its own cost and
risk; and the right to receive the transfer of the power plant at the end of the IPP Administration Agreement
for no consideration.
In view of the nature of the IPP Administration Agreement, the arrangement has been considered as a finance
lease. Accordingly, TLI recognized the capitalized asset and related liability of π44.79 billion (equivalent
to the present value of the minimum lease payments using TLI’s incremental borrowing rates of 10% and
12% for dollar and peso payments, respectively) in the financial statement as “power plant” and “finance
lease obligation” accounts, respectively. This is a non-cash acquisition of property, plant and equipment of
the Group. The discount determined at inception of the agreement is amortized over the period of the IPP
Administration Agreement and is recognized as interest expense in the consolidated statement of income.
Interest expense in 2009 amounted to π1.23 billion (see Note 31).
Future minimum monthly dollar and peso payments under the IPP Administration Agreement and their
present value as of December 31, 2009 are as follows:
Dollar payments
Peso
equivalent
of dollar
payments
Peso payments
Total
$12,000
π554,400
π576,000
π1,130,400
274,920
938,000
12,701,304
43,335,600
13,196,160
45,024,000
25,897,464
88,359,600
Total contractual payments
Unamortized discount
1,224,920
703,465
56,591,304
32,500,079
58,796,160
37,301,221
115,387,464
69,801,300
Present value
$521,455
π24,091,225
π21,494,939
π45,586,164
Within one year
After one year but not
more than five years
More than five years
•
On May 25, 2009, APRI entered into a lease agreement with PSALM for a parcel of land owned by the latter
on which a portion of the assets purchased under the APA is situated. The lease term is for a period of twentyfive (25) years commencing from the Closing Date as defined in the APA which falls on May 25, 2009. The
rental fees for the whole term of 25 years amounting to π492.0 million were paid in full after the receipt by
APRI of the Certificate of Effectivity on the lease. Total lease charged to operations in 2009 amounted to
π11.5 million.
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•
HI and HSI entered into contracts with various lot owners for lease of land where their power plants are
located. Terms of contract are for a period of 1 to 25 years renewable upon mutual agreement by the parties.
Future minimum rental contract provisions are as follows (amounts in millions):
Not later than one year
Later than 1 year but not later than 5 years
Later than 5 years
185
2009
2008
π6.0
25.4
106.6
π6.1
25.8
112.1
Total lease charged to operations in 2009, 2008 and 2007 related to these contracts amounted to π2,549,
π2,060 and π2,152, respectively.
Agreements with Contractors and Suppliers
•
Among the assumed contracts that APRI received from APA is the Service Contract with Chevron Geothermal
Philippines Holdings, Inc. (CGPHI) which provides for the following:





The Service Contract is to provide for the exploration and exploitation to APRI of Geothermal Resources
in the Area of Interest described in the Service Contract.
CGPHI shall be the sole contractor responsible to APRI for the execution of services for the exploration
and exploitation operations in accordance with the provisions of Service Contract and, in accordance
with the terms hereof, is hereby appointed as the sole contractor of NPC for such purposes in connection
with the Area of Interest.
CGPHI shall furnish technical assistance required for the exploration for and exploitation of Geothermal
Resources in order to make geothermal steam available for utilization into electric power, and shall
recover its operating costs and realizes its return solely from the sale of power produced from the
Geothermal Energy.
APRI shall provide and defray Philippine currency expenses to the extent hereinafter set forth necessary
in the exploration for and exploitation of Geothermal Resources and Utilization of geothermal steam for
electric power.
APRI shall provide and install as its own expense and the with technological assistance of CGPHI
as hereinafter provided, such plants, machineries and auxiliary works as may be necessary for the
conversion of geothermal steam into electric power and distribution of such power.
In 2009, total steam cost incurred by APRI, reported as part of “Cost of generated power” amounted to
π2.21 billion (see Note 22).
•
In connection with the Sibulan hydropower project, the Company entered into agreements with various
contractors and suppliers. Major agreements entered into as of December 31, 2009 included those for
the construction of civil works and electro-mechanical works and project management. Total purchase
commitments entered into by the HSI from their contracts as of December 31, 2009 amounted to
π2,745,958,869 and $24,093,625 of which π2,565,868,119 and $19,757,896 had been paid. These amounts are
presented as part of “Other receivable” and “Construction in progress” in the consolidated balance sheets.
•
TLI entered into short-term coal supply agreements. Outstanding coal supply agreements as of December
31, 2009 have aggregate supply amounts of 202,112 MT (equivalent dollar value is $12.5 million) which are
due for delivery from January 30, 2010 to March 3, 2010. Terms of payment are by letter of credit where
payment is due at sight against presentation of documents, and by telegraphic transfer where payment is
due within 7 days from receipt of original invoice.
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Other Power Supply Agreements
Aside from those mentioned in Notes 20 and 21, the Group has the following power supply agreements:
•
In February 2007, PHC, in consortium with subsidiaries, HI, HTI and HSI successfully bid for an agreement to
supply DLPC a total of 400 million kWh of energy supply per year for a 12-year period beginning 2009. The
delivery of the contracted energy under the agreement is in two phases: Phase I Supply, whereby 200 million
kWh per year of net Expected Energy will be delivered, has a target completion date of August 1, 2009; and
Phase II Supply, whereby the additional 200 million kWh per year of Net Expected Energy will be delivered,
has a target completion date of August 1, 2010. Net Expected Energy refers to the quantity of electricity
generated by the respective projects of the parties of the consortium, net of electricity used by the project,
site usage, and step up transformer and transmission losses up to the delivery per meter points, which points
are to be agreed upon by the parties. The bid price of the contracted energy is π4.0856/kWh delivered,
subject to adjustment based on changes to the Philippine consumer price index.
Agreements with the Government
•
On October 29, 2007, HTI, a subsidiary, entered into agreements with various barangays in Davao City
wherein each barangay gives its consent to HTI to manage, administer, regulate and undertake the
construction of HTI’s hydroelectric power plants and other related activities in their respective areas. In
consideration thereof, HTI shall pay each of the barangay an annual royalty fee in an amount equivalent to
π0.01 per kwh of electricity sales of the power plant located within their area to be paid annually beginning
the first anniversary date of the commencement of HTI’s commercial operations and on every anniversary
date thereafter to be increased by π0.001 every 5 years. In addition to the royalty fee, HTI shall make
donations for the undertaking of certain infrastructure projects and provide financial assistance for the
various needs of the community. The agreement likewise provides that HTI shall comply with Sec. 5(i) of RA
No. 7638 as implemented by ER No. 1-94 as amended, prescribing the following annual benefits during the
operation of the power stations: a) electrification fund to be distributed to the relevant host LGU equivalent
to π0.0075 per kwh of the total electricity sales; b) development and livelihood fund to be shared by the
province, municipality, barangay and region equivalent to π0.00125 per kwh of the total electricity sales; and
c) reforestation, watershed management, health and/or environmental enhancement fund to be shared by
the resettlement area, barangay, municipality, province and region equivalent to π1.00125 per kwh of the
total electricity sales.
The duration of the agreements is for a period of 25 years and renewable for another 25 years as agreed by
the Barangay Council of Wines and HTI.
Significant Agreements of Associates
•
On November 19, 2002, VECO and Toledo Power Company (TPC) executed an Electric Power Purchase
Agreement (EPPA), pursuant to which TPC agreed to supply to VECO, and VECO agreed to accept and
purchase from TPC, electricity sourced from TPC’s Toledo Power Station consisting of two power plants
located at Sangi and Carmen, Toledo City. The effectivity of the agreement shall be for 12 years.
On February 25, 2003, VECO and TPC entered into an agreement, pursuant to which VECO requested TPC to
defer the implementation of the EPPA by postponing the commencement of the Cooperation Period, subject
to the interim supply and other arrangements. The EPPA was restated and amended on November 11, 2003.
TPC issued a notice to VECO on November 16, 2004 indicating that TPC has been incurring losses based
on the Electricity Tariff in effect, and pursuant to Article 6.1(a) of the amended EPPA, which entitles TPC to
request for amendments to preserve and/or restore its interests and to terminate the amended EPPA if no
agreement is reached. As a result, VECO and TPC agreed to further restate and clarify the amended EPPA by
executing an Amendment Agreement, effective on May 16, 2006. Pursuant to the Amendment Agreement,
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TPC shall supply and VECO shall purchase a Minimum Energy Off-take of 18 million kWh per billing month.
The price for the electricity shall be equivalent to NPC’s ERC-approved unbundled total generation tariff
rates and charges for the Visayas Grid, provided that if there are ERC-approved NPC rates and charges for
the customer class and/or under the appropriate sub-grid in the Visayas Grid to which utilities such as VECO
belongs, then the ERC-approved NPC rates and charges for such customer class and/or sub-grid shall be the
applicable electricity price.
On February 19, 2009, TPC proposed to charge VECO an interim rate while it continues the negotiation
with all its off-takers for an independent tariff, to partially compensate for its continuing operating losses
arising from the non-competitiveness of the generation rate of NPC to which its rate is based on. On
February 27, 2009, VECO and TPC jointly filed a petition for the approval of their agreement on interim,
with prayer for a provisional authority, which was approved with modification by the ERC on August 10,
2009 where TPC is authorized to collect the difference between the approved interim rate and the EPPA rate
for the period February 2008 to August 25, 2009. Such interim rate took effect on August 26, 2009 and the
same shall be valid until VECO and TPC are able to file an application or petition for the approval of a new
independent tariff rate.
On December 14, 2009, ERC ruled on the joint application of VECO and TPC pursuant to the ERC order to
apply for the approval of a new independent tariff rate, where VECO is directed to refund to TPC the amount
of π187.5 million, equivalent to an average rate of π0.0204/kwh, within four years from the receipt of the
order or until such time said amount has been fully refunded. In connection with the ERC directive, VECO is
also authorized to collect from its customers the same amount within the above - prescribed period.
•
On October 11, 2007, SNAP M entered into a lease agreement with National Irrigation Administration (NIA)
for a parcel of land owned by the latter on which a portion of the assets purchased under the APA is situated.
The lease term is for a period of twenty-five (25) years commencing from the Closing Date as defined in the
APA which falls on April 25, 2008. The amount of lease for the whole term of 25 years was paid in full after
the receipt by SNAP M of the Certificate of Effectivity of the lease.
•
As part of the Ambuklao-Binga Rehabilitation Project, SNAP B entered into following contracts with, among
others, various suppliers and contractors:
a. Civil works for the Ambuklao and Binga power plants rehabilitation to McConell Dowell Philippines, Inc.
(MDPI) for a total contract price of US$79.7 million.
b. Contract with VA Tech Hydro GmbH (VTHG) for the supply of the electro-mechanical equipment for the
rehabilitation of Ambuklao and a minor portion of the refurbishment of Binga Power Plants for a total
contract price of US$72.9 million.
c. Engineering Contract, under which Norconsult AS as the Engineer shall provide engineering services for
the Project, including inter alia, the preparation of plans, specifications and detailed working drawings.
d. In 2009, SNAP B entered into contracts with various suppliers for the refurbishment of the Binga electromechanical components. Total price for the contracts amounted to US$29.5 million.
•
On December 27, 2007, SNAP B entered into an Operations and Maintenance (O & M) Agreement with the
PSALM/NPC for the management, operation, maintenance, preservation and rehabilitation of the Ambuklao
and Binga Dams and other pertinent non-power components in accordance with appropriate standards for
purposes of power generation to allow SNAP B continued and uninterrupted full beneficial use of the Power
Plants in accordance with and subject to the conditions imposed by Philippine Law.
The O & M Agreement shall be effective for twenty-five (25) years commencing on Closing Date, as defined
in the APA, and renewable for another 25 years under such terms and conditions as may be mutually agreed
upon by the parties.
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35.
All costs, expenses, fees, and taxes arising out of or related to the performance by SNAP B of the O&M
Duties, Rehabilitation Activities, Emergencies and all other obligations of SNAP B under this Agreement shall
be for the sole account of SNAP B.
•
On December 13, 2006, SNAP M entered into an O & M Agreement with the NIA for the management,
operation and maintenance of the Magat Dam and other pertinent non-power components in accordance
with appropriate standards for purposes of power generation to allow SNAP M continued and uninterrupted
full beneficial use of the Power Plant in accordance with and subject to the conditions imposed by Philippine
Law.
The O & M Agreement shall be effective for twenty-five (25) years commencing on closing date, as defined in
the APA between SNAP M and PSALM, and renewable for another 25 years under such terms and conditions
as may be mutually agreed upon by the parties. For the services rendered or performed by NIA for the
operation and maintenance of the non-power components and other appurtenant structures, SNAP M shall
pay NIA, on a monthly basis, an amount (O & M fee) ranging from π0.0310 to π0.0620 per cubic meter of
water used by SNAP M for power generation of the Power Plant.
•
The Ambuklao and Binga hydroelectric power plants, which SNAP B acquired on July 10, 2008, are situated
in public lands declared as protected areas under the National Integrated Protected Areas System Act of
1992. On June 19, 2008, SNAP B entered into a Special Use Agreement in Protected Areas (SAPA) with the
Department of Environment and Natural Reaources (DENR) for the use of these lands. The SAPA is effective
for twenty-five (25) years commencing on June 19, 2008 and renewable for a similar period subject to the
review and approval of the Secretary of the DENR. In 2008, SNAP B paid one-time upfront fees amounting
to π10.6 million and π10.8 million for the Ambuklao and Binga plants, respectively.
Registration with the Board of Investments (BOI)
APRI
On June 19, 2009, the BOI approved APRI’s application as a new operator of the Tiwi-MakBan Power Plant and
granted APRI a pioneer status under the Omnibus Investments Code of 1987. The following are the incentives
granted by BOI to APRI:
•
•
•
•
•
ITH for six (6) years from June 2009 or actual start of commercial operations/selling, whichever is earlier
but in no case earlier than the date of registration. The ITH shall be limited only to sales/revenue generated
from the sales of electricity of the Tiwi-MakBan Power Plant. Revenues generated from the sales of carbon
emission reduction credits are also entitled to ITH.
For the first five (5) years from date of registration, APRI shall be allowed an additional deduction from
taxable income of fifty percent (50%) of the wages corresponding to the increment in the number of direct
labor for skilled and unskilled workers in the year of availment as against the previous year if the project
meets the prescribed ratio of capital equipment to the number of workers set by BOI of $10 to one worker
and provided that this incentive shall not be availed of simultaneously with the ITH.
Employment of foreign nationals. This may be allowed in supervisory, technical or advisory positions for five
(5) years from date of registration.
Importation of consigned equipment for a period of ten (10) years from the date of registration, subject to
the posting of re-export bond.
APRI may qualify to import capital requirement, spare parts and accessories at zero (0%) duty rate from the
date of registration to June 16, 2011 pursuant to Executive Order No. 528 and its Implementing Rules and
Regulations.
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The following are the significant specific terms and conditions for the availment of the ITH:
•
•
•
•
APRI shall start commercial operations in June 2009.
APRI shall increase its authorized, subscribed and paid-up capital stock to at least π5.70 billion and shall
submit proof of compliance prior to availment of ITH. This condition was superseded by a BOI letter dated
September 18, 2009 clarifying that for the purposes of BOI registration, the BOI has redefined the term equity
such that, it shall now cover not only the paid-up capital stock but also other items in the Balance Sheet of the
Audited Financial Statements’ i.e., additional paid in capital stock, retained earnings. Hence, if APRI has at
least 25% stockholders equity as shown in the Audited Financial Statements, it is deemed complied with the
25% equity requirement and is no longer required to increase its capital stock.
APRI shall secure a Certificate of Compliance from ERC prior to start of commercial operations.
APRI is enjoined to undertake Corporate Social Responsibility Projects/Activities.
TLI
On December 23, 2009, the BOI pre-approved TLI’s application for registration as a new operator of the power
plant on a non-pioneer status. Once approved, TLI will be entitled with the following incentives:
a. ITH for a period of four (4) years without extension from January 1, 2010 or actual start of operation, whichever
is earlier but in no case earlier than the date of registration. The ITH incentives shall be limited only to the
sales/revenue generated from the sale of electricity of the power plant.
b. For the first five (5) years from date of registration, TLI shall be allowed an additional deduction from taxable
income of 50% of the wages corresponding to the increment in number of direct labor for skilled and unskilled
workers in the year of availment as against the previous year if the project meets the prescribed ratio of
capital equipment to the number of workers set by the Board of US$10 to one (1) worker and provided that
this incentive shall not be availed of simultaneously with the ITH.
c. Employment of foreign nationals may be allowed in supervisory, technical or advisory positions for five (5)
years from date of registration. The president, general manager and treasurer of foreign-owned registered
firms or their equivalent shall not be subject to the foregoing limitations.
d. Importation of consigned equipment for a period of ten (10) years from date of registration, subject to the
posting of re-export bond.
On February 26, 2010, TLI submitted to BOI all its requirements with a commitment to comply with the 25%
minimum equity requirement of π490.0 million prior to the availment of ITH incentives.
36.
Other Matters
a. CPPC and EAUC Cases
On August 20, 1999, CPPC and EAUC (the Complainants); a subsidiary and an associate, respectively, filed
a complaint before the Energy Regulatory Board (ERB) against NPC for a refund/credit and/or collection
of inapplicable/unauthorized tariffs with prayer for a cease and desist order and or preliminary injunction.
The Complainants contended, among others, that they need not pay Power Delivery Services because their
facilities are embedded in the power distribution network of VECO. The Power Delivery Service charges are
applicable to IPPs using the transmission facilities in transporting power. Consequently, an IPP need not pay
Power Delivery Service if its facilities are embedded in the distribution network.
On June 28, 2001, the ERB rendered a decision directing, among others, NPC to cease and desist from charging
the Complainants the Power Delivery Services and to refund all amounts collected by reason thereof to NPC
who, if they so desire, may opt to credit or apply the same to their future billings from the Complainants.
NPC filed a motion for reconsideration with the ERC which replaced the then ERB. On March 28, 2003, the
ERC issued decisions affirming the June 28, 2001 decisions with certain modifications on some decisions.
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NPC filed a petition for review with the Court of Appeals. On December 14, 2005, the Court of Appeals
rendered a Decision affirming in toto the Decision dated June 28, 2001 of the ERB as modified by the Order
dated March 28, 2003 of the ERC. Further, on December 14, 2006, the Supreme Court upheld in toto, the
Decision dated June 28, 2001 of the ERB as modified by the Order dated March 28, 2003 of the ERC. Further,
the instant Petition for Review was denied for lack of merit.
Pursuant to Section 8 of RA No. 9136, EPIRA of 2001, TransCo was created and assumed the electrical
transmission functions of the NPC. TransCo also assumed the legal responsibilities relative to the
aforementioned case.
CPPC and EAUC applied the total contested amounts against TransCo billings from November 26, 2004
to February 25, 2006. However, pending Supreme Court’s final and irrevocable decision, CPPC and EAUC
continued to accrue its liabilities to NPC for these billing periods. Total accruals for these billing periods
amounted to π98.9 million as of December 31, 2008 and 2007 and are presented as part of trade payables.
On October 29, 2008, the Supreme Court issued a Notice of Judgment that denied NPC’s petition and
affirmed the decision of the Court of Appeals.
As of January 23, 2009, CPPC has completed the process of reconciliation with NGCP, which tool over the
operations of TransCo, the first claim of π49.5 million. As of March 31, 2010, NGCP and the CPPC are still in
the process of reconciling the second claim amounting to π49.4 million. Although no formal agreement as
to the amount for the second claim has been reached yet between the CPPC and NGCP, since the results of
the reconciliation process of the first claim did not result to any significant difference, it is expected that the
full amount of the second claim can be substantially recovered. With this, as of December 31, 2009, CPPC
applied both claims totaling to π97.3 million against the PDS accruals presented as part of “Trade and other
payables” account and recognized other income of the same amount.
b. DLPC Case
On December 7, 1990, certain customers of DLPC filed before the then Energy Regulatory Board (ERB) a
letter-petition for recovery claiming that with the Supreme Court’s (SC) decision reducing the sound appraisal
value of DLPC’s properties, DLPC exceeded the 12% Return on Rate Base (RORB). The ERB’s order dated
June 4, 1998, limited the computation coverage of the refund from January 19, 1984 to December 14, 1984.
No amount was indicated in the ERB order as this has yet to be recomputed.
The Court of Appeals (CA), in Court of Appeals General Register Special Proceeding (CA-GR SP) No. 50771,
promulgated a decision dated February 23, 2001 which reversed the order of the then ERB, and expanded the
computation coverage period from January 19, 1984 to September 18, 1989.
The SC in its decision dated November 30, 2006 per GR150253 reversed the CA’s decision CA-GR SP No. 50771
by limiting the period covered for the refund from January 19, 1984 to December 14, 1984, approximately 11
months. The respondent/customers filed a Motion for Reconsideration with the SC, which was denied with
finality by the SC in its Order dated July 4, 2007.
The SC, following its decision dated November 30, 2006, ordered the ERC to proceed with the refund
proceedings instituted by the respondents with reasonable dispatch.
The refund proceedings (ERC Case No 2001-154, formerly ERB Case No. 91-18) have now resumed at the ERC
and DLPC is required to submit a computation. DLPC’s computation based on the Return on Rate Based
Methodology shows an allowable deficiency revenue of π15.0 million , resulting in a zero refund for the
period January 19, 1984 through December 14, 1984. This computation is subject to review and final decision
by the ERC.
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c. Impact of the GRAM case of Manila Electric Company, Inc. (Meralco)
The ERC promulgated an Order dated February 24, 2003 in ERC Case No. 2003-44 adopting the Implementing
Rules for the Recovery of Fuel and IPP Costs or GRAM. The GRAM Implementing Rules provide, among
others, that before any generation cost is passed on to consumers by the distribution utilities, a petition
must be filed at the ERC for approval. Meralco filed its application docketed as ERC Case No. 2004-112 for
approval of actual generation costs for the period November 2003 to January 2004. In the Order dated June
2, 2004, the ERC approved the adjustment of Meralco’s Generation Charge in accordance with the GRAM
Implementing Rules.
The National Association of Electricity Consumers for Reforms (NASECORE) filed a Petition with the SC
questioning the approval. In a decision promulgated on February 2, 2006, the SC declared as void the ERC
Order dated June 2, 2004 on the ground that the application and the GRAM Implementing Rules failed
to satisfy the requirements on publication. Both the ERC and Meralco filed their respective motions for
reconsideration of the SC decision. However, through a resolution promulgated last August 16, 2006, the
resolution for reconsideration filed by the ERC and Meralco were denied with finality by the SC. Meralco was
thereby directed to refund the affected customers.
The ERC has approved the GRAM applications of DLPC after compliance to the legal requirements. DLPC,
however, believes that the decision should not have a material impact to DLPC since the above SC decision
did not order the refund of the collections under the GRAM. In addition, generation costs for the period
covered by the GRAM have all been confirmed for recovery from customers. If recovery is not allowed
through the GRAM, it will be through some other methods that the ERC may allow.
d. LHC Arbitration
LHC is a party to a dispute with a contractor regarding the delay in the completion of its Power Station. Under
the Turnkey Contract, the contractor shall pay liquidated damages for each day of delay on the following day
without the need of demand from LHC. LHC may, without prejudice to any other method of recovery, deduct
the amount of such damages from any monies due or to become due to the contractor and/or by drawing on
the irrevocable and confirmed standby letters of credit amounting to US$18 million (the Security).
In 2000 and 2001, due to the delay in the completion of the Power Station, LHC withdrew the Security. In
November 2000, the contractor and LHC elevated their claims and counterclaims to an Arbitration Tribunal
operating under the Rules of International Chamber of Commerce sitting in Australia (ICC International
Australian Case No. 11264/TE/MW). The Arbitration Tribunal delivered the final award on August 9, 2005.
LHC was successful in certain claims concerning the design and construction of the lined and unlined tunnel.
However, the Arbitration Tribunal also found that the contractor is entitled to certain money claims and
refund of the liquidating damages that LHC has drawn from the Security.
LHC has recognized provisions for arbitration for the full financial effects of the final award delivered by the
Arbitration Tribunal for the claims and counterclaims filed by the contractor and LHC for the construction of
the Power Station.
In November 2006, the Court of Appeals (CA) granted LHC’s petition for permanent injunction against
the enforcement of the Final Award on the ground of, among others, forum shopping by the contractor.
Furthermore, the CA declared the Final Award null and void due to being contrary to Philippine public
policy. The contractor has filed a motion with the SC asking for until January 19, 2007 to appeal the CA’s
decision. On January 19, 2007, the contractor filed its Petition for Review with the SC appealing the decision
of the appellate court. After an exchange of pleadings by the parties, the SC directed them to submit their
respective closing memoranda. LHC submitted its memorandum on September 5, 2007 and the contractor
submitted its memorandum on or about October 11, 2007.
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LHC believes that the accounting entries made for the full financial effects of US$24.5 million in 2006 of the
final award do not reflect its admission of any obligation under the award and that the ultimate amounts of
liabilities to be paid or settled, if any, depend upon the final outcome of other court cases that would affect
enforcement of said final award.
In April 2008, LHC entered into a Settlement Deed (the Settlement) with Transfield Philippines, Inc. (TPI) for
the purpose of settling all claims and disputes related to the Turnkey Contract, including the Final Award. The
Settlement required the payment by LHC as a partial return of the securities posted by TPI. As a result of the
Settlement, all related cases were dismissed following the parties’ Joint Motion to Dismiss filed with relevant
courts.
e. EPIRA of 2001
RA No. 9136 was signed into law on June 8, 2001 and took effect on June 26, 2001. The law provides for the
privatization of National Power Corporation (NPC) and the restructuring of the electric power industry. The
Implementing Rules and Regulations (IRR) were approved by the Joint Congressional Power Commission on
February 27, 2002.
R.A. No. 9136 and the IRR impact the industry as a whole. The law also empowers the ERC to enforce rules to
encourage competition and penalize anti-competitive behavior.
R.A. Act No. 9136, the EPIRA, and the covering IRR provides for significant changes in the power sector,
which include among others:
i. The unbundling of the generation, transmission, distribution and supply and other disposable assets
of a company, including its contracts with IPPs and electricity rates;
ii. Creation of a WESM; and
iii. Open and non-discriminatory access to transmission and distribution systems.
The law also requires public listing of not less than 15% of common shares of generation and distribution
companies within 5 years from the effectivity date of the EPIRA. It provides cross ownership restrictions
between transmission and generation companies and a cap of 50% of its demand that a distribution utility is
allowed to source from an associated company engaged in generation except for contracts entered into prior
to the effectivity of the EPIRA.
There are also certain sections of the EPIRA, specifically relating to generation companies, which provide for
a cap on the concentration of ownership to only 30% of the installed capacity of the grid and/or 25% of the
national installed generating capacity.
f.
Renewable Energy Act of 2008
On January 30, 2009, R.A. No. 9513, An Act Promoting the Development, Utilization and Commercialization
of Renewable Energy Resources and for Other Purposes, which shall be known as the “Renewable Energy
Act of 2008” (the Act), became effective. The Act aims to (a) accelerate the exploration and development of
renewable energy resources such as, but not limited to, biomass, solar, wind, hydro, geothermal and ocean
energy sources, including hybrid systems, to achieve energy self-reliance, through the adoption of sustainable
energy development strategies to reduce the country’s dependence on fossil fuels and thereby minimize
the country’s exposure to price fluctuations in the international markets, the effects of which spiral down
to almost all sectors of the economy; (b) increase the utilization of renewable energy by institutionalizing
the development of national and local capabilities in the use of renewable energy systems, and promoting
its efficient and cost-effective commercial application by providing fiscal and non-fiscal incentives;
(c) encourage the development and utilization of renewable energy resources as tools to effectively prevent
or reduce harmful emissions and thereby balance the goals of economic growth and development with the
protection of health and environment; and (d) establish the necessary infrastructure and mechanism to carry
out mandates specified in the Act and other laws.
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNUAL REPORT 200 9
As provided for in the Act, renewable energy (RE) developers of RE facilities, including hybrid systems, in
proportion to and to the extent of the RE component, for both power and non-power applications, as duly
certified by the Department of Energy (DOE), in consultation with the Board of Investments (BOI), shall be
entitled to incentives, such as, income tax holiday, duty-free importation of RE machinery, equipment and
materials, zero percent VAT rate on sale of power from RE sources, and tax exemption of carbon credits,
among others.
The Group expects that the Act may have significant effect on the operating results of some of its subsidiaries
and associates that are RE developers. Impact on the operating results is expected to arise from the effective
reduction in taxes.
193
g. CSR Projects
The Group has several CSR projects in 2009 and 2008 which are presented as part of “General and
administrative expenses” (see Note 23).
h. Minority interests
Changes in minority interests as presented in the consolidated statement of changes in equity is composed
of the following:
• 2009 - Dividends paid to minority interests
• 2008 - Investment of minority interests in subsidiaries and dividends paid to minority interests
• 2007 - Dividends paid to minority interests
37.
Accordingly, amounts totaling π158,142, π221,278 and π313,216 representing dividends paid to minority
interests and investments of minority interests in subsidiaries have been presented as changes in minority
interests in the consolidated statements of cash flows in 2009, 2008 and 2007, respectively.
Events after the Balance Sheet Date
Aside from the turn-over of power barges and dividends declaration as mentioned in Notes 8 and 19, respectively,
events after the balance sheet date include the Company’s BOD approval on March 10, 2010 of the possible
issuance of up to π5.0 billion retail bonds and syndicated loans of up to π5.0 billion.
SEC FORM 20 - IS (INFORMATION STATEMENT)