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

COVER SHEET
C 1
9
9
8
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S.E.C. Registration Number
A B O
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T
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P O W E R
C O R P O R A T
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( Company's Full Name )
A B O
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T
I
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C O R P O R A T E
G O V
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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
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2
Month
3
1
032-411-1804
Definitive Information Statement
2011
2
0
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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
7
SEC FORM 20 - IS (INFORMATION STATEMENT)
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
16, 2011 at 11:00 a.m. at the Sta. Maria One and Two of the Radisson Blu Hotel, Serging Osmeña Boulevard corner Juan Luna
Avenue 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 17, 2010
Presentation of the President’s Report
Approval of the 2010 Annual Report and Financial Statements
Delegation of the Authority to Elect the Company’s External Auditors for 2011 to the Board of Directors and/or the
Board Audit Committee
Ratification of the Acts, Resolutions and Proceedings of the Board of Directors, Corporate Officers and Management
in 2010 up to May 16, 2011
Approval of the Directors’ Compensation and Per Diem for 2011
Election of the Members of the Board of Directors
Other Business
Adjournment
Only stockholders of record at the close of business on March 31, 2011 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 days prior to the opening of the Stockholders’ Meeting. We enclose 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 18,
2011, 4:00 p.m., at the Main Lounge, Manila Polo Club, McKinley Road, Forbes Park, Makati City.
For the Board of Directors.
M. JASMINE S. OPORTO
Corporate Secretary
Annual Report 2010
3
SEC FORM 20 - IS (INFORMATION STATEMENT)
FINANCIAL SUMMARY
(In Million Pesos)
2008
2009
2010
% CHANGE
(2010 VS 2009)
For the Year
REVENUES
12,243 23,174 59,551 OPERATING PROFIT
Operating profit from ordinary activities
1,653 5,456 26,232 Share in net earnings of associates
2,785 2,535 4,626 Other income (charges)
606 (1,590)
(4,854)
Income before income tax
5,043 6,401 26,004 Provision for income tax
618 631 921 Income before minority interest
4,424 5,770 25,083 Minority interest
91 111 42 Net income Attributable to Equity Holders of the Parent
4,334 5,659 25,041 At Year End
Total Assets
47,272 111,341 134,557 Total Liabilities
16,580 76,294 76,823 Minority Interest
536 571 404 Equity Attributable to Equity Holders of the Parent
30,155 34,476 57,330 EBITDA
5,407 9,867 34,362 Per Share (in pesos)
Earnings
0.59 0.77 3.40 Book Value
4.10 4.69 7.79 Cash Dividend (Common)
0.18 0.20 1.32 FINANCIAL RATIOS
Current Ratio
2.12 0.68 2.58 Debt-to-Equity Ratio
0.54 2.18 1.33 Net Debt-to-Equity Ratio
(0.13)
1.82 0.84 Other Financial Info:
Cash and Cash Equivalents
14,334 3,815 18,302 Total Assets
47,272 111,341 134,557 Stockholders’ Equity Net of Minority
30,155 34,476 57,330 Market Capitalization
27,963 63,284 228,853 Income Contribution
111%
9,762
09
4,619
08
1,728
2009
Distribution
10
1,933
1,569
(567)
Generation
342%
66%
560%
DISTRIBUTION
4,656
2008
248%
GENERATION
10
76
21%
1%
-29%
66%
(in GWh)
24,390
1,479
381%
82%
205%
306%
46%
335%
-62%
342%
Attributable Power Sales
PER BUSINESS SEGMENT (in Php millions)
2,779
157%
(1,282)
2010
8.6%
3,606
09
3,322
08
3,142
Parent & Others
Annual Report 2010
1
SEC FORM 20 - IS (INFORMATION STATEMENT)
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
[x] 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: May 16, 2011
Time: 11 o’clock a.m.
Place: Sta. Maria One and Two Radisson Blu Hotel
Serging Osmeña Boulevard corner Juan Luna Avenue
Cebu City, Philippines
9.
Approximate date when the Information Statement is first to be sent or given to security holders: April 25, 2011
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
Common
Preferred
Total
12.
4
Par Value
P1.00
P1.00
No. of Shares
16,000,000,000
1,000,000,000
17,000,000,000
π17,000,000,000
Authorized Capital Stock
π16,000,000,000
π1,000,000,000
π17,000,000,000
No. of Common Shares Outstanding as of February 28, 2011
7,358,604,307
Amount of Debt Outstanding as of December 31, 2010 Are any or all of registrant’s securities listed on a Stock Exchange?
π76,822,662,000
Yes X No __
The common stock of the Corporation is listed on the Philippine Stock Exchange.
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
INFORMATION REQUIRED IN INFORMATION STATEMENT
A. GENERAL INFORMATION
Item 1. Date, time and place of annual stockholders’ meeting
Date of meeting
:
May 16, 2011
Time of meeting
:
11 o’clock a.m.
Place of meeting : Sta. Maria One and Two Radisson Blu Hotel
Serging Osmeña Boulevard. corner Juan Luna Avenue
Cebu City, Philippines
Approximate mailing date
of this statement
:
Complete mailing address
of the principal office of the
registrant
:
April 25, 2011
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 AboitizPower or 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 on AboitizPower, 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, AboitizPower 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 AboitizPower 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 AboitizPower, 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
AboitizPower within 30 days after such award is made. No payment shall be made to any dissenting stockholder unless
AboitizPower has unrestricted retained earnings in its books to cover such payment. Upon payment by AboitizPower
of the agreed or awarded price, the stockholder shall forthwith transfer his shares to AboitizPower.
Annual Report 2010
5
SEC FORM 20 - IS (INFORMATION STATEMENT)
Item 3. Interest of Certain Persons in or Opposition to Matters to be Acted Upon
(a) No current director or officer of AboitizPower, or nominee for election as director of AboitizPower, 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 AboitizPower in writing that he intends to oppose any action to be taken by AboitizPower
at the meeting.
B. CONTROL AND COMPENSATION INFORMATION
Item 4. Voting Securities and Principal Holders Thereof
(a) Class of Voting Shares as of February 28, 2011:
Class of Voting Shares
No. of Shares Entitled to Vote
Common Shares
7,358,604,307
date.
Every stockholder shall be entitled to one vote for each share of stock held as of the established record
Record Date: March 31, 2011
(b) All stockholders of record as of March 31, 2011 are entitled to notice and to vote at AboitizPower’s Annual
Stockholders’ Meeting.
(c) Election of Directors and Cumulative Voting Rights
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 AboitizPower, multiplied by the
number of directors to be elected.
Section 5, Article 1 of the amended By-Laws of AboitizPower 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.
In accordance with Sections 2 and 3 of AboitizPower’s Guidelines for the Constitution of the Nomination
Committee and the Nomination and Election of Independent Directors (the Guidelines), nominations for
independent directors must be submitted to the Corporate Secretary from January 1, 2011 to February
15, 2011.
6
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
Section 7, Article I of the amended By-Laws provides that nominations for the election of the other 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.
(d)
No proxy solicitation is being made.
(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, 2011:
Name/Address of Stockholder and
Beneficial Owner
Aboitiz Equity Ventures, Inc.1
Aboitiz Corporate Center
Gov. Manuel A. Cuenco Avenue,
Kasambagan, Cebu City 6000
Relationship
with
AboitizPower
Citizenship
No. of Shares and Nature
of Ownership
(Record or Beneficial)
Stockholder
Filipino
5,622,113,063
(Record and Beneficial)
76.40%
Percent of
Class
Common
1.
Common
2. PCD Nominee Corp.
Stockholder
Filipino
804,762,081
(Record)
10.94%
Common
3.
Stockholder
Non-Filipino
584,666,672
(Record)
7.95%
PCD Nominee Corp.
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, 2011, the following entities own
five per centum (5%) or more of AEV:
Title of Class
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
2,735, 600,915
(Record and Beneficial)
49.54%
Common
2.
PCD Nominee Corporation
Filipino
644,656,703
(Record)
11.67%
Common
3.
Ramon Aboitiz Foundation, Inc.
35 Lopez Jaena St., Cebu City, 6000
Filipino
420,915,863
(Record and Beneficial)
7.62%
Mr. Erramon I. Aboitiz, President and Chief Executive Officer of Aboitiz Equity Ventures, Inc. (AEV), will vote the shares of AEV in AboitizPower in accordance
with the directive of the AEV Board of Directors.
1
Annual Report 2010
7
SEC FORM 20 - IS (INFORMATION STATEMENT)
(2)
Title of Class
Name of Beneficial Owner and Position
Common
Mr. Enrique M. Aboitiz, Jr.
Chairman of the Board of Directors
Common
Mr. Jon Ramon Aboitiz
Vice Chairman
Common
Mr. Erramon I. Aboitiz
President and Chief Executive Officer
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
Amount and Nature
of Beneficial Ownership
Citizenship
31
Direct
Filipino
1
Direct
Percent of Class
0.00%
0.00%
Filipino
7,792,020
1
12,925,000
1
7,960,920
1
Indirect
Direct
Indirect
0.11%
Filipino
Direct
Indirect
0.00%
0.18%
0.00%
Filipino
Direct
0.11%
0.00%
Filipino
29,004,041
Indirect
2,362,500
Direct
0.39%
0.03%
Filipino
1,738,594
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
0.00%
Common
Mr. Luis Miguel Aboitiz
Senior Vice President – Power Marketing
and Trading
2,060,000
Direct
Filipino
0.03%
Common
Mr. Gabriel T. Mañalac
Senior Vice President – Treasurer
50,000
Direct
Filipino
0.00%
Common
Mr. Iker M. Aboitiz
First Vice President/Chief Financial Officer/
Corporate Information Officer
3,177,545
Direct
Filipino
0.04%
N/A
Filipino
0.00%
42,500
Direct
American
0.00%
N/A
8
Security Ownership of Management as of February 28, 2011 (Record and Beneficial)
Mr. Manuel R. Lozano
First Vice President/ Chief Financial
Officer - Power Generation Group
0
Common
Mr. Raymond E. Cunningham
First Vice President - Business
Development
Common
Mr. Manuel M. Orig
First Vice President - Mindanao Affairs
238,738
Direct
Filipino
0.00%
Common
Mr. Wilfredo R. Bacareza, Jr.
Vice President - Project Development
300,000
Direct
Filipino
0.00%
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
Title of Class
Name of Beneficial Owner and Position
Amount and Nature
of Beneficial Ownership
Citizenship
N/A
Mr. Thomas J. Sliman, Jr.
Vice President – Business Development
0
N/A
American
0.00%
N/A
Mr. Alvin S. Arco
Vice President – Regulatory Affairs
0
N/A
Filipino
0.00%
N/A
Mr. Anastacio D. Cubos, Jr.
Vice President – Special Projects
0
N/A
Filipino
0.00%
110,000
Direct
Filipino
0.00%
92,070
Direct
50,000
Indirect
Common
Mr. Raul C. Lucero
Vice President for Engineering - Power
Distribution Group
Common
Ms. Ma. Chona Y. Tiu
Vice President and Chief Financial
Officer - Power Distribution Group
Filipino
Percent of Class
0.00%
0.00%
N/A
Mr. Roland U. Gaerlan
Vice President - Marketing
0
N/A
Filipino
0.00%
N/A
Mr. Bienamer D. Garcia
Vice President - Distribution Customer
Services
0
N/A
Filipino
0.00%
N/A
Mr. Dennis de la Serna
Assistant Vice President - Regulatory
Affairs
0
N/A
Filipino
0.00%
43,103
N/A
Filipino
0.00%
0
N/A
Filipino
0.00%
Common
Mr. Nestor F. Aliman
Assistant Vice President - Business
Development
N/A
Ms. Maria P. Garcia
Assistant Vice President - Trading
Common
Mr. Carlos Copernicus S. Payot
Assistant Vice President - Controller
(Power Distribution Group)
56,000
Direct
Filipino
0.00%
Common
Mr. Clovis B. Racho
Assistant Vice President - Procurement
and Logistics (Power Distribution Group)
56,034
Direct
Filipino
0.00%
N/A
Mr. Aladino B. Borja, Jr.
Assistant Vice President - Information
Services (Power Distribution Group)
0
N/A
Filipino
0.00%
N/A
Mr. Ronald Enrico V. Abad
Assistant Vice President - Project
Development
0
N/A
Filipino
0.00%
N/A
Mr. Roberto V. Orozco
Assistant Vice President - Civil Site
Construction
0
N/A
Filipino
0.00%
N/A
Mr. Crisanto R. Laset, Jr.
Assistant Vice President - Power
Economics & Distribution System
Planning
0
N/A
Filipino
0.00%
26,896
Direct
Filipino
0.00%
44,827
Direct
Filipino
0.00%
Common
Common
Ms. Katrina M. Platon
Assistant Vice President - Legal and
Regulatory Affairs
Ms. Analiza M. Aleta
Assistant Vice President & IT Director
(Power Generation Group)
Annual Report 2010
9
SEC FORM 20 - IS (INFORMATION STATEMENT)
Title of Class
Name of Beneficial Owner and Position
Common
Ms. Arazeli L. Malapad
Assistant Vice President - Accounting
(Power Generation Group - Luzon)
N/A
Ms. Paquita S. Tigue - Rafols
Assistant Vice President - Accounting
(Power Generation Group - Mindanao)
N/A
Percent of Class
Filipino
0.00%
0
N/A
Filipino
0.00%
Ms. Ma. Kristina C.V. Rivera
Assistant Vice President - Human
Resources and Quality
(Power Generation Group)
0
N/A
Filipino
0.00%
N/A
Mr. Juan Manuel J. Gatmaitan
Assistant Vice President - Power
Marketing
0
N/A
Filipino
0.00%
N/A
Ms. Katrina Michaela D. Calleja
Assistant Vice President - Branding
0
N/A
Filipino
0.00%
Direct
Filipino
0.00%
N/A
Filipino
0.00%
Common
Ms. Ma. Cielita C. Añiga
Assistant Vice President - Human
Resources (Power Distribution Group)
N/A
Ms. Susan S. Policarpio
Assistant Vice President - Government
Relations
7,000
Citizenship
Direct
56,034
0
Common
Ms. M. Carmela N. Franco
Assistant Vice President - Investor
Relations
44,000
Direct
Filipino
0.00%
Common
Ms. Cristina B. Beloria
Assistant Vice President - Controller
20,000
Direct
Filipino
0.00%
Common
Ms. M. Jasmine S. Oporto
Corporate Secretary
149,000
Direct
Filipino
0.00%
Common
Mr. Joseph Trillana T. Gonzales
Assistant Corporate Secretary
56,527
Direct
Filipino
0.00%
TOTAL
10
Amount and Nature
of Beneficial Ownership
68,986,385
(3) Voting Trust Holders of 5% or More of Common Equity
(4) Changes in Control
0.94%
No person holds more than five per centum (5%) of AboitizPower’s common equity under a voting trust or
similar agreement.
There are no arrangements that may result in a change in control of AboitizPower during the period covered
by this report.
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
Item 5. Directors and Executive Officers
(a) (1) Directors for 2010-2011
Below is a list of AboitizPower’s directors for 2010-2011 with their corresponding positions and offices held for the
past five years. The directors assumed their directorship during AboitizPower’s annual stockholders’ meeting in
2010 for a term of one year.
ENRIQUE M. ABOITIZ, JR.
Chairman of the Board of
Directors
Mr. Aboitiz, 57 years old, Filipino, has served as Director and Chairman of the
Board of Directors of AboitizPower since 2009. He also served as Director of
AEV since 1994 and was recently appointed as Senior Vice-President of AEV.
He is also the Chairman of the Board of Directors of Aboitiz Land, Inc.; Director
of AP Renewables, Inc., Manila-Oslo Renewable Enterprise, Inc., and Therma
Luzon Inc. He was President and Chief Executive Officer of Aboitiz Transport
System (ATSC) Corporation before it was sold to Negros Navigation Co., Inc.
(NENACO) in December 2010. Mr. Aboitiz graduated with a degree in Bachelor
of Science in Business Administration (Major in Economics) from Gonzaga
University, Spokane, Washington, U.S.A.
JON RAMON ABOITIZ
Vice Chairman of the Board
of Directors
Mr. Aboitiz, 62 years old, Filipino, has been a Director of AboitizPower since
1998 and served as Chairman of the Board of AboitizPower for 1998 to 2008.
Mr. Aboitiz began his career with the Aboitiz Group in 1970. From a manager
of Aboitiz Shipping Corporation, Mr. Aboitiz was promoted to President of
the company in 1976 and became President of Aboitiz & Company, Inc. in
1991 until 2008. He is currently the Chairman of the Boards of ACO, AEV,
Aboitiz Transport Systems (ATSC) Corporation, Inc. and Aboitiz Jebsen Bulk
Transport Corp.; Director of City Savings Bank, Inc. and International Container
Terminals Services, Inc. (ICTSI). Mr. Aboitiz is also the Vice-Chairman of
the Board of Directors of Union Bank of the Philippines, and the Chairman
of the bank’s Executive Committee, Risk Management Committee, and
Corporate Governance Committee, including the latter’s Compensation and
Remuneration and Nomination Sub-Committees. Mr. Aboitiz is also the
President of the Aboitiz Foundation, Inc.; Trustee and Vice President of Ramon
Aboitiz Foundation, Inc.; Trustee of the Santa Clara University, California and
the Philippine Business for Social Progress Foundation; and member of the
Board of Advisors for the Association of Foundations, and Coca-Cola Export
Corporation (Philippines). Mr. Aboitiz holds a B.S. Commerce degree (Major
in Management) from the Santa Clara University, California.
Annual Report 2010
11
SEC FORM 20 - IS (INFORMATION STATEMENT)
12
ERRAMON I. ABOITIZ
President & Chief Executive
Officer;
Member – Board Corporate
Governance Committee,
Board Risk Management
Committee
Mr. Aboitiz, 54 years old, Filipino, has served as President and Chief Executive
Officer of AboitizPower since 1998. He is also the President and Chief Executive
Officer of AEV. He has been AEV’s Director since 1994 and was its Executive
Vice President and Chief Operating Officer from 1994 to December 2008. He
is also President and Chief Executive Officer of ACO; Chairman of the Board
of Directors of City Savings Bank, Inc., Davao Light & Power Company, Inc.,
San Fernando Electric Light and Power Company, Inc., Cotabato Light & Power
Company, Subic Enerzone Corporation, SN Aboitiz Power-Magat, Inc. and
SN Aboitiz Power-Benguet, Inc., Aboitiz Renewables, Inc., Therma Marine,
Inc., Therma Power, Inc., Aboitiz Energy Solutions, Inc.; Vice Chairman of
Visayan Electric Company, Inc.; Director of Union Bank of the Philippines,
STEAG State Power, Inc. and Pilmico Foods Corporation. He is also the
Chairman of the Aboitiz Foundation, Inc., and a director of the Family
Business Development Center (Ateneo de Manila University). He received a
Bachelor of Science degree in Business Administration (Major in Accounting
and Finance) from Gonzaga University, Spokane, U.S.A.
MIKEL A. ABOITIZ
Director;
Chairman – Board
Corporate Governance
Committee;
Member- Board Audit
Committee
Mr. Aboitiz, 56 years old, Filipino, has been a Director of AboitizPower since
1998. He is also a 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 City Savings Bank, Inc.; Director of Visayan
Electric Company, Inc., Cotabato Light and Power Company, Davao Light and
Power Company, Inc., Aboitiz Land, Inc., Pilmico Foods Corporation, Pilmico
Animal Nutrition Corporation, Cebu Praedia Development Corporation, Aboitiz
Construction Group, Inc., AP Renewables, Inc., AEV Aviation, Inc., Metaphil
International, Inc., Therma Power, Inc., Therma Luzon, Inc.; and Trustee and
Treasurer of Ramon Aboitiz Foundation, Inc. He holds a degree in Bachelor of
Science (Major in Business Administration) from Gonzaga University, Spokane,
U.S.A.
JAIME JOSE Y. ABOITIZ
Director;
Member-Board Audit
Committee;
Executive Vice President &
Chief Operating Officer Power Distribution Group
Mr. Aboitiz, 49 years old, Filipino, was a Director of AboitizPower from 2004 to April
2007. He was again elected as Director of AboitizPower in 2009. He is also the
Executive Vice President and Chief Operating Officer of Visayan Electric Company
Inc.; President and Chief Executive Officer of Cotabato Light & Power Company,
Inc., Subic Enerzone Corporation, Davao Light & Power Company, Inc.; President
of Mactan Enerzone Corporation and Balamban Enerzone Corporation; Director
of Aboitiz Renewables, Inc., Hedcor Sibulan, Inc., Cebu Private Power Corporation,
San Fernando Electric Light and Power Company, Inc., Hedcor, Inc. and Aboitiz
Energy Solutions, Inc. 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.
ANTONIO R. MORAZA
Director;
Executive Vice President &
Chief Operating Officer Power Generation Group;
Chairman – Board Risk
Management Committee;
Mr. Moraza, 54 years old, Filipino, has served as Director of AboitizPower since
1999. He has been a director of AEV since May 2009. He is also Chairman of the
Board of Directors of AP Renewables, Inc., Pilmico Foods Corporation, Pilmico
Animal Nutrition Corporation, and East Asia Utilities Corporation; Chairman and
Chief Executive Officer of Hedcor, Inc. and Hedcor Sibulan, Inc.; Vice-Chairman
of Propriedad Del Norte, Inc. and Aboitiz Land, Inc. He is likewise a Director and
Senior Vice President of ACO; President and Chief Executive Officer of Abovant
Holdings, Inc. and Aboitiz Renewables, Inc.; President of Manila-Oslo Renewable
Enterprise; and Director of SN Aboitiz Power-Benguet, Inc., SN Aboitiz PowerMagat, Inc., Therma Marine, Inc., Therma Power, Inc., Luzon Hydro Corporation,
Southern Philippines Power Corporation, STEAG State Power, Inc., Therma Luzon,
Inc., Western Mindanao Power Corporation, Metaphil International, Inc., and Cebu
Private Power Corporation. He holds a degree in Business Management from
Ateneo de Manila University.
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
JOSE R. FACUNDO
Independent Director;
Chairman- Board Audit
Committee;
Member – Board Corporate
Governance Committee,
Board Risk Management
Committee
Mr. Facundo, 72 years old, Filipino, has been an Independent Director of
AboitizPower since 2008. He currently serves as member of the Board of
Directors of Security Bank Corporation, Siemens Philippines, Inc., and an
Independent Director of Alaska Milk Corp. Mr. Facundo has an extensive career
in banking. He 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 AB
Engineering and took post graduate studies in Statistics and Engineering.
ROMEO L. BERNARDO
Independent Director;
Member – Board Audit
Committee, Board
Corporate Governance
Committee
Mr. Bernardo, 56 years old, Filipino, has been an Independent Director of
AboitizPower since 2008. He is the Managing Director 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
Family of Funds and Philippine Stock Index Fund. He is likewise a Director
of several companies and organizations including Globe Telecom, BPI, RFM
Corporation, Philippine Investment Management, Inc., Philippine Institute for
Development Studies (PIDS), BPI-Philam Life Assurance Corporation (formerly
known as Ayala Life Assurance, Inc.), National Reinsurance Corporation of
the Philippines and Institute for Development and Econometric Analysis. He
previously served as Undersecretary of Finance and as Alternate 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;
Member – Board Audit
Committee, Board
Corporate Governance
Committee, Board Risk
Management Committee
Mr. Disch, 56 years old, a Swiss national, has been an Independent Director of
AboitizPower since March 2010. He is the Chairman, Chief Executive Officer
and Founder of Convergence GmbH, an energy and environmental consulting
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 member of the Top Management Council of
ABB and President of ABB Enertech Ltd. with Global Responsibility; Executive
Vice-President 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, Switzerland.
Annual Report 2010
13
SEC FORM 20 - IS (INFORMATION STATEMENT)
Nominations for Independent Directors and Procedure for Nomination
The procedure for the nomination and election of the independent directors is in accordance with Rule 38 of the Securities
Regulation Code (SRC Rule 38), AboitizPower’s Amended By-Laws and AboitizPower’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 AboitizPower Board. AboitizPower’s By-Laws was amended on May 15, 2007 to incorporate the
requirements of SRC Rule 38.
Nominations for independent directors were accepted starting January 1, 2011 as provided for in Section 2 of the Guidelines
and the table for nominations was closed on February 15, 2011 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, 2011 so that such 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 AboitizPower’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 AboitizPower.
They are neither officers nor employees of AboitizPower or its affiliates, and do not have any relationship with AboitizPower
which would interfere with the exercise of independent judgment in carrying out the responsibilities of an independent director.
Attached as Annexes “A”, “A-1” and “A-2” are the Certifications of Qualification of the Nominees for Independent Directors.
AboitizPower stockholders Joy Ann Bisnar, Mary Jean Magluyan and Gina Unabia have respectively nominated Messrs.
Facundo, Bernardo and Disch as AboitizPower’s independent directors. None of the nominating stockholders 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 (2011-2012): Jon Ramon Aboitiz
Erramon I. Aboitiz
Antonio R. Moraza
Mikel A. Aboitiz
Enrique M. Aboitiz, Jr.
Jaime Jose Y. Aboitiz
Pursuant to Section 7, Article I of the Amended By-Laws of AboitizPower, 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 16, 2011 or not later than April 25, 2011.
14
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
All other information regarding the positions and offices by the abovementioned nominees are integrated in Item 5 (a)(1)
hereof.
Officers for 2010-2011
Below is a list of AboitizPower’s officers for 2010-2011 with their corresponding positions and offices held for the past five years.
The officers assumed their positions during AboitizPower’s annual organizational meeting in 2010 for a term of one year.
ERRAMON I. ABOITIZ
President & Chief Executive Officer;
Member – Board Corporate
Governance Committee, Board Risk
Management Committee
Mr. Aboitiz, 54 years old, Filipino, has served as President and Chief Executive
Officer of AboitizPower since 1998. He is also the President and Chief Executive
Officer of AEV. He has been AEV’s Director since 1994 and was its Executive
Vice President and Chief Operating Officer from 1994 to December 2008. He
is also President and Chief Executive Officer of ACO; Chairman of the Board
of Directors of City Savings Bank, Inc., Davao Light & Power Company, Inc.,
San Fernando Electric Light and Power Company, Inc., Cotabato Light & Power
Company, Subic Enerzone Corporation, SN Aboitiz Power-Magat, Inc. and SN
Aboitiz Power-Benguet, Inc., Aboitiz Renewables, Inc., Therma Marine, Inc.,
Therma Power, Inc., Aboitiz Energy Solutions, Inc.; Vice Chairman of Visayan
Electric Company, Inc.; Director of Union Bank of the Philippines, STEAG State
Power, Inc. and Pilmico Foods Corporation. He is also the Chairman of the
Aboitiz Foundation, Inc., and a director of the Family Business Development
Center (Ateneo de Manila University). He received a Bachelor of Science
degree in Business Administration (Major in Accounting and Finance) from
Gonzaga University, Spokane, U.S.A.
ANTONIO R. MORAZA
Director;
Executive Vice President & Chief
Operating Officer - Power Generation
Group; Chairman – Board Risk
Management Committee;
Mr. Moraza, 54 years old, Filipino, has served as Director of AboitizPower since
1999. He has been a director of AEV since May 2009. He is also Chairman of the
Board of Directors of AP Renewables, Inc., Pilmico Foods Corporation, Pilmico
Animal Nutrition Corporation, and East Asia Utilities Corporation; Chairman
and Chief Executive Officer of Hedcor, Inc. and Hedcor Sibulan, Inc.; ViceChairman of Propriedad Del Norte, Inc. and Aboitiz Land, Inc. He is likewise
a Director and Senior Vice President of ACO; President and Chief Executive
Officer of Abovant Holdings, Inc. and Aboitiz Renewables, Inc.; President of
Manila-Oslo Renewable Enterprise; and Director of SN Aboitiz Power-Benguet,
Inc., SN Aboitiz Power-Magat, Inc., Therma Marine, Inc., Therma Power, Inc.,
Luzon Hydro Corporation, Southern Philippines Power Corporation, STEAG
State Power, Inc., Therma Luzon, Inc., Western Mindanao Power Corporation,
Metaphil International, Inc., and Cebu Private Power Corporation. He holds a
degree in Business Management from Ateneo de Manila University.
JAIME JOSE Y. ABOITIZ
Director; Executive Vice President
& Chief Operating Officer - Power
Distribution Group;
Member – Board Audit Committee
Mr. Aboitiz, 49 years old, Filipino, was a Director of AboitizPower from
2004 to April 2007. He was again elected as Director of AboitizPower in
2009. He is also the Executive Vice President and Chief Operating Officer
of Visayan Electric Company Inc.; President and Chief Executive Officer of
Cotabato Light & Power Company, Inc., Subic Enerzone Corporation, Davao
Light & Power Company, Inc.; President of Mactan Enerzone Corporation
and Balamban Enerzone Corporation; Director of Aboitiz Renewables,
Inc., Hedcor Sibulan, Inc., Cebu Private Power Corporation, San Fernando
Electric Light and Power Company, Inc., Hedcor, Inc. and Aboitiz Energy
Solutions, Inc. 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.
Annual Report 2010
15
SEC FORM 20 - IS (INFORMATION STATEMENT)
16
JUAN ANTONIO E. BERNAD
Executive Vice President - Strategy
and Regulation
Mr. Bernad, 54 years old, Filipino, has been AboitizPower’s Executive Vice
President for Strategy and Regulation since 2009. He previously served
AboitizPower in several capacities, as Director from 1998 until May 18, 2009,
as Executive Vice President/Chief Financial Officer/Treasurer from 1998 to 2003
and as Executive Vice President for Regulatory Affairs/Chief Financial Officer
from 2004 to 2007. He is also AEV’s Senior Vice President, a position he has
held since 1995. He was AEV’s Senior Vice President – Electricity Regulatory
Affairs from 2004 to 2007 and Senior Vice-President and Chief Financial Officer
from 1995 to 2004. He is Executive Vice President-Regulatory Affairs of Davao
Light & Power Company, Inc.; Director and Senior Vice President of Visayan
Electric Company, Inc.; Director of Cotabato Light & Power Company, AEV
Aviation, Inc., AP Renewables Inc. and Union Bank of the Philippines; Director
and Vice President of Cebu Praedia Development Corporation. 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.
LUIS MIGUEL O. ABOITIZ
Senior Vice President - Power
Marketing and Trading
Mr. Aboitiz, 46 years old, Filipino, has been AboitizPower Senior Vice President
– Power Marketing and Trading since 2009. He is also AEV’s First Vice President
and a member of the Board of Advisers of ACO. He is currently the President
and Chief Executive Officer of Aboitiz Energy Solutions, Inc.; Director and
Senior Vice President – Business Development of Hedcor, Inc.; Director and
Vice President-Treasurer of Aboitiz Renewables, Inc. and Therma Power, Inc.;
Director and Vice President of Therma Marine, Inc.; Executive Vice President
and Chief Operating Officer of Adventenergy, Inc.; Director and Treasurer
of Redondo Peninsula Energy, Inc.; and Director of ACO, Davao Light &
Power Company, Inc., Pilmico Animal Nutrition Corporation, Pilmico Foods
Corporation, Manila-Oslo Renewable Enterprise, Inc., SN Aboitiz Power-Magat,
Inc., SN Aboitiz Power-Benguet, Inc., Therma Luzon, Inc., AP Renewables,
Inc., Hedcor Sibulan, Inc. and Subic Enerzone Corporation. He graduated at
Santa Clara University, California, U.S.A. with a degree of Bachelor of Science
in Computer Science and Engineering and took his Masters in Business
Administration from the University of California at Berkeley, U.S.A.
IKER M. ABOITIZ
First Vice President/Chief Financial
Officer/Corporate Information Officer;
Ex-Officio Member - Board Audit
Committee;
Ex-Officio Member - Board Risk
Management Committee
Mr. Aboitiz, 38 years old, Filipino, has been AboitizPower’s First Vice President
and Chief Financial Officer since August 29, 2007. He is currently a Director and
Chief Financial Officer of Abovant Holdings, Inc.; Chief Financial Officer and
Treasurer of Hijos de F. Escaño; Director of Cotabato Light & Power Company,
Southern Philippines Power Corporation, Therma Power, Inc., Therma Marine,
Inc., Aboitiz Renewables, Inc. and Union Bank of the Philippines. He has
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 Aboitiz Construction Group, Inc. He graduated cum laude from
Boston College with a degree in Bachelor of Science in Business Management
major in Finance.
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
GABRIEL T. MAÑALAC
Senior Vice President - Treasurer
Mr. Mañalac, 54 years old, Filipino, has been Treasurer of AboitizPower since
2004 and its Senior Vice President – Treasurer since 2009. He is the Senior
Vice President - Group Treasurer of AEV since January 2009. He joined AEV
as Vice President for Treasury Services/Treasurer in 1998 and was promoted
to First Vice President for Treasury Services/Treasurer of AEV in 2004. He is
also the Vice President and Treasurer of Davao Light & Power Company, Inc.
and Treasurer of Cotabato Light & Power Company. Mr. Mañalac graduated
cum laude with a degree of Bachelor of Science in Finance and Bachelor of
Arts in Economics from De La Salle University. 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, 69 years old, American, has been AboitizPower’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 the 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 Engineer’s degree
and a Masters of Science in Mechanical Engineering from the Massachusetts
Institute of Technology.
MANUEL R. LOZANO
First Vice President/Chief Financial
Officer - Power Generation Group
Mr. Lozano, 40 years old, Filipino, has been Chief Financial Officer of the
Power Generation Group of AboitizPower since 2009. He is concurrently Chief
Financial Officer of AP Renewables, Inc., Hedcor, Inc. and Hedcor Sibulan, Inc.
He is Treasurer of Therma Marine, Inc. and Therma Luzon, Inc. He was the
CFO and Director of Paxy’s Inc., a PSE-listed company focused on the 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.
MANUEL M. ORIG
First Vice President - Mindanao Affairs
Mr. Orig, 69 years old, Filipino, was appointed First Vice President for
Mindanao Affairs of AboitizPower in 2010. He has been with the Aboitiz Group
for over 40 years, most of it with AboitizPower’s subsidiary Davao Light &
Power Company. He was Executive Vice President of Davao Light & Power
Company prior to his appointment in AboitizPower. He was instrumental in
transforming Davao Light & Power Company into a professional and customeroriented organization. In 2004, he was awarded the Don Ramon Aboitiz
Award of Excellence, the highest recognition bestowed on Aboitiz Group team
members and team leaders, for his outstanding contribution to the Aboitiz
Group. He finished his bachelor’s degree in Commerce from the University of
San Jose Recoletos and had his Masters in Business Administration from the
University of the Philippines.
Annual Report 2010
17
SEC FORM 20 - IS (INFORMATION STATEMENT)
18
MA. CHONA Y. TIU
Vice President and Chief Financial
Officer - Power Distribution Group
Ms. Tiu, 53 years old, Filipino, 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 Aboitiz Construction Group,
Inc. and Aboitiz Land, Inc. She joined the AboitizPower Group when she was
appointed as Vice President – Administration and Chief Finance Officer of
AboitizPower’s affiliate, Visayan Electric Company, Inc. in 2007. She is also
a Director, Vice President/Chief Financial Officer/ Treasurer of Balamban
Enerzone Corporation; Vice President – Chief Financial Officer of Cotabato
Light & Power Company, Davao Light & Power Company, Subic Enerzone
Corporation and Mactan Enerzone Corporation.
ALVIN S. ARCO
Vice President- Regulatory Affairs
Mr. Arco, 50 years old, Filipino, has been Vice President for Regulatory
Affairs of AboitizPower since April 2007. He was Accounting Manager of
AboitizPower from 1998 to 1999, Assistant Vice President – Finance from
2000 to 2004 and was promoted to Vice President – Finance in 2005. He
is also the Vice President – Regulatory Affairs of Davao Light & Power
Company, Inc. and Vice President – Finance of Cotabato Light & Power
Company. Mr. Arco is a Certified Public Accountant. He holds a degree
in Accountancy from the University of San Jose-Recoletos, Cebu City.
WILFREDO R. BACAREZA, JR.
Vice President - Project Development
Mr. Bacareza, 33 years old, Filipino, has been Vice President of AboitizPower
since 2008. Since joining AboitizPower, he has handled or been involved in
numerous projects like the 300MW coal fired power plant project in Subic Bay,
Philippines, acquisition of two 100MW power barges located in Mindanao and
the 700MW IPPA contract for the Pagbilao coal plant. He was formerly the
President and Chief Executive Officer of the Philippine National Oil CompanyDevelopment Management Corporation (PNOC-DMC) from 2006 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 holds a degree in
Interdisciplinary Studies minor in Management and Economics from the
Ateneo de Manila University and is a graduate of the Ateneo Law School with
a degree of Juris Doctor.
RAUL C. LUCERO
Vice President - Engineering
(Power Distribution Group)
Mr. Lucero, 43 years old, Filipino, has been Vice President - Engineering (Power
Distribution Group) of AboitizPower since 2009. He joined the Aboitiz Group
in 1990 via Davao Light & Power Company, Inc. He became Vice President
for Engineering of Davao Light 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 Davao Light in 2004. In the same year,
he was brought into Visayan Electric Company, Inc., to help transform its
engineering group. He was officially transferred to Visayan Electric Company,
Inc. in 2008. He is a graduate of Bachelor of Science in Electrical Engineering
and Bachelor of Science in Electronics and Communications Engineering from
the University of San Jose-Recoletos.
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANASTACIO D. CUBOS, JR.
Vice President - Special Projects
Mr. Cubos, 60 years old, Filipino, has been Vice President for Special Projects
of AboitizPower since 1998. Mr. Cubos’ experience in the power industry dates
back to 1972 when he joined Davao Light & Power Company, Inc., as an engineer.
Between 1989 and 1997, he was Assistant Vice President – Engineering of
Davao Lights & Power Company, Inc. He was also Davao Light’s Vice President
– Engineering from 1998 to 2000 and Davao Light Senior Vice President –
Special Projects since 2001. He is a Consultant of Hedcor and is a member of
the Technical Executive Committee of Cotabato Light . He is a consultant to
the Republic of Palau for its generation projects. 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.
THOMAS J. SLIMAN, JR.
Vice President - Business
Development
Mr. Sliman, 50 years old, American, has been Vice President for Business
Development of AboitizPower since 2010. He has extensive experience in the
power industry, both in the Philippines and in the US. After working for 20 years
in the US for the Southern Company in various operations and maintenance
roles in thermal power plants, he relocated to the Philippines to work with
Mirant Philippines, and was initially assigned at the Pagbilao and Sual plants
as plant manager. He was the EVP - Operations for Mirant Philippines until its
sale in 2007. He previously worked with AboitizPower in 2009 as consultant
during AboitizPower’s submission of bid proposals to be the IPP Administrator
of the Pagbilao and Sual Coal Fired Power Plants. He earned his degree in
BS Electrical Engineering from Mississippi State University in 1983. He had
completed approximately 75% of the required coursework for a Masters of
Business Administration degree from the University of Southern Mississippi,
Long Beach, Mississippi.
ROLAND U. GAERLAN
Vice President - Marketing
Mr. Gaerlan, 48 years old, Filipino, has been Vice President for Marketing of
AboitizPower since 2010. He has over 28 years of extensive experience in sales
and marketing in consumer goods, telecom and financial plan industries. He
was Vice President - Business Development of Advanced Contact Solutions
before he joined AboitizPower. He is a member of various professional
organizations such as the British and the American Chambers of Commerce.
Mr. Gaerlan is a graduate of Bachelor of Science in Industrial Engineering
from the University of the Philippines and obtained his Masters Degree in
Business Administration from the Ateneo de Manila University.
BIENAMER D. GARCIA
Vice President - Distribution Customer
Services
Mr. Garcia, 52 years old, Filipino, has been Vice President for Distribution
Customer Services of AboitizPower since January 2011. He joined the Aboitiz
Group in 2002 as an Assistant to the Chief Operating Officer and Senior Vice
President of Davao Light & Power Company, Inc. In 2004, he was brought
to Visayan Electric Company, Inc. to help transform its customer services
group. He then became the Vice President of Administration and Customer
Services Group of Visayan Electric Company, Inc. from 2004 to 2006. He was
the Vice President for Retail Services and Administration of Davao Light &
Power Company, Inc. prior to his appointment in AboitizPower. Mr. Garcia
is a registered Metallurgical Engineer. He earned his masters degree in
Business Administration and diploma in Urban and Regional Planning from the
University of the Philippines-Diliman.
CRISTINA BRIONES- BELORIA
Assistant Vice President - Controller
Ms. Beloria, 48 years old, Filipino, has been Assistant Vice President and
Controller of AboitizPower since 2008. She was the Plant Controller of East
Asia Utilities Corporation and Cebu Private Power Corporation from 20002008. She held various consulting engagements in Tokyo, Japan from 19992000. She also served as Senior Auditor in the E.C. Ortiz and Co., CPA's in
Chicago, Illinois USA. Ms. Beloria holds a degree in Bachelor of Science in
Commerce, Major in Accounting from the University of San Jose Recoletos.
She is a Certified Public Accountant in the Philippines and Illinois, USA.
Annual Report 2010
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SEC FORM 20 - IS (INFORMATION STATEMENT)
20
PAQUITA S. TIGUE- RAFOLS
Assistant Vice President - Accounting
(Power Generation - Mindanao)
Ms. Rafols, 46 years old, Filipino, was appointed Assistant Vice President Accounting (Power Generation - Mindanao) in 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 AboitizPower. She was also
connected with Trans-Asia Shipping Lines, Inc. and Price Waterhouse/Joaquin
Cunanan & Co. before she joined the Aboitiz Group. Ms. Rafols 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 - Accounting
(Power Generation - Luzon)
Ms. Malapad, 42 years old, Filipino, was appointed Assistant Vice President Accounting (Power Generation - Luzon) in 2010. 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.
CARLOS COPERNICUS S. PAYOT
Assistant Vice President & Controller
(Power Distribution Group)
Mr. Payot, 46 years old, Filipino, a CPA, was appointed Assistant Vice President
- Controller for AboitizPower Distribution in July 2009. Prior to his appointment,
he served in various positions in the Aboitiz Group. He was Assistant Vice
President for Accounting of Visayan Electric Company, Inc., AVP – Accounting
Services of AEV, and Audit Manager of ACO. He worked with SGV & Co. after
graduating from University of San Carlos where he got his Bachelor’s degree in
Commerce major in Accounting (Cum Laude).
CLOVIS B. RACHO
Assistant Vice President Procurement and Logistics
(Power Distribution Group)
Mr. Racho, 46 years old, Filipino, has been Assistant Vice President Procurement and Logistics - AboitizPower Distribution Group since 2009. He
joined the Aboitiz Group in 1989 as Assistant Systems Analyst of Davao Light
& Power Company, Inc., where he subsequently held various positions until his
promotion as Department Manager of Technical Services Department in 2000.
He was promoted as Assistant Vice President for Procurement and Logistics of
Davao Light in 2004. He is currently the Assistant Vice President for Technical
Services of Davao Light. He is a graduate of Bachelor of Science in Industrial
Engineering and Bachelor of Science in Mechanical Engineering from Cebu
Institute of Technology. He is a Registered Mechanical Engineer.
ALADINO B. BORJA, JR.
Assistant Vice President - Information
Services (Power Distribution Group)
Mr. Borja, 47 years old, Filipino, has been AssistantVice President - Information
Services (Power 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 Davao Light & Power Company, Inc.,
in 1997. He later joined Davao Light & Power Company, Inc. in 1990 as Junior
Programmer where he rose from the ranks, becoming Head of Information
Service Group in 2000. He was later assigned to Visayan Electric Company,
Inc. as Assistant Vice President for Information Service Group in 2004. He
graduated from Cebu Institute of Technology.
RONALD ENRICO V. ABAD
Assistant Vice President - Project
Development
Mr. Abad, 40 years old, Filipino, has been Assistant Vice President - Project
Development since 2009. He was Manager of Team Energy Corporation
prior to joining AboitizPower. 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.
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
MA. KRISTINA C.V. RIVERA
Assistant Vice President - Human
Resource and Quality (Power
Generation Group)
Ms. Rivera, 40 years old, Filipino, has been Assistant Vice President for Human
Resources of AEV seconded to AboitizPower since January 2009. She has 17
years experience in human resources management with a diverse background
in human resource strategic planning, implementation and administration.
Before joining the Aboitiz Group in 2003, she was with the PNOC- Energy
Development Corporation. She holds Bachelor of Science and Masters
degrees in Psychology from the University of the Philippines.
ROBERTO V. OROZCO
Assistant Vice President - Civil Site
Construction
Mr. Orozco, 46 years old, Filipino, joined AboitizPower on January 2011
as Assistant Vice President for Civil Site Construction. Prior to joining
AboitizPower, he was a Senior Civil and Structural Engineer of PacificTech
Solutions and a Technical Operations Manager of the Philippine Branch of Ove
Arup & Partners Hong Kong Ltd. Mr. Orozco is a member of the Philippine
Institute of Civil Engineers and the American Institute of Steel Construction.
He is a graduate of Bachelor of Science in Civil Engineering from Far Eastern
University and obtained his Masters Degree in Geotechnical Engineering from
Mapua Institute of Technology.
ANA LIZA M. ALETA
Assistant Vice President & IT Director
(Power Generation)
Ms. Aleta, 42 years old, Filipino, has been Assistant Vice President - IT Director
of the Generation Group of AboitizPower since 2009. She joined the Aboitiz
Group in 1989 as a marketing assistant of ACO. She rose from the ranks and
held various positions relating to information technology in Pilmico Foods
Corporation. She was Assistant Vice President - Information Technology
of AP Renewables, Inc., before she joined AboitizPower. She has 21 years
of experience in information infrastructure and 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 degree in Master
in Management from the University of the Philippines.
CRISANTO R. LASET, JR.
Assistant Vice President - Power
Economics & Distribution System
Planning
Mr. Laset, 52 years old, Filipino, has been Assistant Vice President - Power
Economics & Distribution System Planning since 2009. He was Assistant
Vice President - Technical Assistant to the Chairman of Cagayan Electric
Power & Light Company, Inc., before he joined AboitizPower. He was also
previously connected with ATOM Industrial Sales as Technical Assistant to
the President. Mr. Laset 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 - Power
Marketing
Mr. Gatmaitan, 39 years old, Filipino, joined AboitizPower in 2007 and has
been Assistant Vice President for Power Marketing since 2010. He was the
Assistant Vice President for Power Sales and Marketing of AP Renewables,
Inc. prior to his appointment in AboitizPower. He earned his degree in AB
Management Economics from the Ateneo de Manila University and had
his Master of Business Administration in General Management from the
Rotterdam School of Management, Erasmus University, Rotterdam, The
Netherlands.
Annual Report 2010
21
SEC FORM 20 - IS (INFORMATION STATEMENT)
22
SUSAN S. POLICARPIO
Assistant Vice President –
Government Relations
Ms. Policarpio, 54 years old, Filipino, has been AboitizPower’s Assistant
Vice President for Government Relations since 2009. Prior to her stint in
AboitizPower, she was Assistant Vice President for Government Relations
of Aboitiz Transport System (ATSC) Corporation 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.
M. CARMELA N. FRANCO
Assistant Vice President - Investor
Relations
Ms. Franco, 39 years old, Filipino, has been AboitizPower's Assistant Vice
President for Investor Relations since 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 AboitizPower. 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 AboitizPower, 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 - Legal
and Regulatory Affairs
Ms. Platon, 44 years old, Filipino, has been Assistant Vice President for Legal
and Regulatory Affairs of AboitizPower since 2009. She was Senior Associate
General Counsel of AEV before she moved to AboitizPower in May 2007. Prior
to joining the Aboitiz Group, she served as Corporate Legal Manager of the
regional headquarters of e-Room Corporation and Associate Legal Officer at
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. She finished her bachelor’s
degree in Business Administration from the University of the Philippines, and
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.
DENNIS DE LA SERNA
Assistant Vice President - Regulatory
Affairs
Mr. de la Serna, 37 years old, Filipino, has been Assistant Vice President Regulatory Affairs since 2010. He was Contracts Manager for Aboitiz Energy
Solutions, Inc. before joining AboitizPower. He was also Department Manager
of the Universal Levy, Tariff and Financial Valuation Department of the Power
Sector Assets and Liabilities Management Corporation (PSALM). He earned
his degree in Bachelor of Arts in Management Economics from Ateneo de
Manila University, and obtained his MBA from Fordham University.
NESTOR F. ALIMAN
Assistant Vice President - Business
Development
Mr. Aliman, 58 years old, Filipino, has been Assistant Vice President - Business
Development since 2010. He was previously the Head of Electricity Trading
of SN Aboitiz Power Inc. He was also Electricity Trading Manager of PSALM.
He earned his degree in Mechanical Engineering from the University of San
Carlos with a specialized training in Energy Derivatives and Risk Management.
He completed his graduate studies in Industrial Engineering and Operations
Research from the University of the Philippines.
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
MARIA P. GARCIA
Assistant Vice President - Trading
Ms. Garcia, 55 years old, Filipino, has been Assistant Vice President - Trading
since 2010. She was Trading Manager of Emerald Energy Corporation, a
subsidiary company of GDF-Suez in the Philippines. She was also Electricity
Trading Manager of PSALM. She earned her degree in Bachelor of Science
in Electrical Engineering from the Nueva Ecija University of Science and
Technology. She has a Masters Degree in Engineering Major in Systems
Management from the Pamantasan ng Lungsod ng Maynila.
KATRINA MICHAELA D. CALLEJA
Assistant Vice President - Branding
Ms. Calleja, 33 years old, Filipino, has been Assistant Vice President Branding since January 2011. She joined the Aboitiz Group in 2001, where
she was Superferry's Marketing Executive for four years. She served as
Retail Sales and Brand Manager of 2GO Express from 2005 to 2009. Before
her current post, she was AboitizPower's Brand Manager until 2010. Ms.
Calleja graduated from Ateneo de Manila University, with a Bachelor of
Arts degree, Major in Economics.
MA. CIELITA C. AÑIGA
Assistant Vice President - Human
Resources (Power Distribution Group)
Ms. Añiga, 54 years old, Filipino, has been Assistant Vice President - Human
Resources (Power Distribution Group) since January 2011. She joined the
Aboitiz Group in 1993 as Total Quality Management Coordinator of Davao
Light & Power Company, Inc. In 1994 she was named Department Manager
for Quality and Human Resource Development and was eventually promoted
as Assistant Vice-President, a position she held until 2000. She rejoined the
Aboitiz Group in 2004 as part of the management team that was tasked to
manage and transform Visayan Electric Company, Inc. She was Assistant VicePresident for Human Resources of Visayan Electric Company, Inc. prior to her
appointment in AboitizPower. Ms. Añiga holds Bachelor of Science degrees
in Chemical Engineering from the University of Mindanao, and Metallurgical
Engineering from a consortium between the University of the Philippines
and the Mindanao State University. She also has a Masters in Management
degree major in Industrial Relations from the University of the Philippines.
M. JASMINE S. OPORTO
Corporate Secretary/ Compliance
Officer
Ex-Officio Member - Board Corporate
Governance Committee
Ms. Oporto, 51 years old, Filipino, has been the Corporate Secretary of
AboitizPower since 2007. She is also First Vice President-Chief Legal Officer,
Corporate Secretary and Chief Compliance Officer of AEV. She is also Vice
President for Legal Affairs of Davao Light & Power Company, Inc.; Corporate
Secretary of Visayan Electric Company, Inc., Luzon Hydro Corporation,
Therma Power, Inc., Hijos de F. Escano and Cebu Private Power Corporation.
Prior to joining AboitizPower, 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, 44 years old, Filipino, has been the Assistant Corporate
Secretary of AboitizPower since 2007. He is also Vice President for Legal and
Corporate Services of AEV and Corporate Secretary of AP Renewables, Inc. He
was previously Special Counsel of SyCip Salazar Hernandez & Gatmaitan Law
Offices until he joined the Aboitiz Group in 2007 as Assistant Vice President
of the Corporate and Legal Services of ACO. He is a graduate of Bachelor
of Arts in Major 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.
Annual Report 2010
23
SEC FORM 20 - IS (INFORMATION STATEMENT)
Period in which the Directors and Executive Officers Should Serve
The directors and executive officers should serve for a period of one year.
Term of Office of a Director
Pursuant to the amended By-laws of AboitizPower, the directors are elected at each annual stockholders’ meeting by
stockholders entitled to vote. Each director holds office until the next annual election for a term of one year and until his
successor is duly elected, unless he resigns, dies or is removed prior to such election.
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.
(2) Significant Employees
AboitizPower 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. Erramon I. Aboitiz, Enrique M. Aboitiz, Jr. and Iker M. Aboitiz are brothers as well. Messrs. Jon Ramon
Aboitiz and Mikel A. Aboitiz are second cousins of Messrs. Erramon I. Aboitiz, Enrique M. Aboitiz, Jr., Iker M. Aboitiz, Jaime Jose
Y. Aboitiz and Luis Miguel Aboitiz.
(4) Involvement in Certain Legal Proceedings as of February 28, 2011
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 AboitizPower, 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 AboitizPower and its stockholders.
To the knowledge and/or information of AboitizPower, 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.
24
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
(5) Certain Relationships and Related Transactions
AboitizPower 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, for corporate center services, such as human resources,
internal audit, legal, IT, treasury and corporate finance, among others. These services are obtained from AEV to enable the
Group to realize cost synergies. AEV maintains a pool of highly qualified professionals with business expertise specific to the
businesses of the 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.
AboitizPower (Parent) has also provided support services to its business units such as marketing, trading and billing services.
During the year, the Company has extended interest-bearing advances to AboitizPower’s subsidiaries and associates namely,
Davao Light & Power Company, Inc., Cotabato Light & Power Company, Balamban Enerzone Corporation, and Hedcor, Inc.,
for working capital requirements. These are made to enhance AboitizPower’s yield on its cash balances. Interest rates are
determined by comparing prevailing market rates at the time of the transaction.
AboitizPower and certain subsidiaries and associates are leasing office spaces from Cebu Praedia Development Corporation,
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.
Additional information on related party transactions is found under the section on Transactions with and/or Dependence on
Related Parties.
No other transaction, without proper disclosure, was undertaken by the Company in which any director or executive officer,
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.
AboitizPower 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)
Parent Company
(b) 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
AboitizPower’s last annual meeting because of a disagreement with AboitizPower on matters relating to its
operations, policies and practices.
AboitizPower’s parent company is AEV. As of February 28, 2011, AEV owns 76.40% of AboitizPower. In turn,
Aboitiz & Company, Inc. (ACO) owns, as of February 28, 2011, 49.54% of AEV.
Annual Report 2010
25
SEC FORM 20 - IS (INFORMATION STATEMENT)
Item 6. Compensation of Directors and Executive Officers (1) Summary of Compensation Table
Information as to the aggregate compensation paid or accrued to AboitizPower’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:
EXECUTIVE OFFICERS
PERIOD
SALARY
TOP FIVE HIGHLY-COMPENSATED
EXECUTIVES:
1. ERRAMON I. ABOITIZ
- President & Chief Executive Officer
2. ANTONIO R. MORAZA
- Executive Vice President and Chief
Operating Officer-Power Generation Group
3. JUAN ANTONIO E. BERNAD
- Executive Vice President - Strategy and
Regulation
4. RAYMOND E. CUNNINGHAM
- First Vice President - Business Development
5. THOMAS J. SLIMAN, JR.
- Vice President - Business Development
Actual 2010
P 23,950,000
P 770,000
P 5,450,000
P 18,670,000
P 860,000
P 6,470,000
Projected 2011
P 25,620,000
P 820,000
P 6,840,000
Actual 2010
P 31,790,000
P 2,350,000
P 14,290,000
Actual 2009
Projected 2011
P 18,950,000
P 35,790,000
P 1,400,000
P 2,650,000
P 10,000,000
P 19,450,000
(2) Compensation of Directors
(i) In 2010, all of AboitizPower’s directors received a monthly allowance of P80,000 except for the Chairman of
the Board who received a monthly allowance of P120,000. In addition, each director and the Chairmen of the
Board and the Board Committees received a per diem for every Board or Committee meeting attended as
follows:
Standard Arrangements
Type of Meeting
Directors
Board Meeting
Type of Meeting
Chairman of the Board
P60,000
Committee Members
Committee Meeting
P50,000
P90,000
Chairman of the Committee
P60,000
For 2011 it is proposed that all of AboitizPower’s directors shall receive a monthly allowance of P100,000,
except for the Chairman of the Board who shall receive a monthly allowance of P150,000. In addition, each
director and the Chairmen of the Board and the Board Committees shall receive a per diem for every Board
or Committee meeting attended as follows:
Type of Meeting
Board Meeting
Type of Meeting
Committee Meeting
26
Actual 2009
All above-named officers as a group
All other directors and officers as a group unnamed
OTHER
COMPENSATION
BONUS
Aboitiz Power Corporation
Directors
Chairman of the Board
P100,000
Committee Members
P80,000
P150,000
Chairman of the Committee
P100,000
SEC FORM 20 - IS (INFORMATION STATEMENT)
The proposed monthly allowance and per diem of the AboitizPower directors for 2011 will be submitted for the
approval of the stockholders during the 2011 Annual Stockholders’ Meeting.
(ii) Other Arrangements
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) Employment Contracts and Termination of Employment and Change-in-Control Arrangements
There is no compensatory plan or arrangement between AboitizPower and any executive in case of resignation or any
other termination of employment or from a change in the management control of AboitizPower.
(4) To date, AboitizPower 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 AboitizPower’s Independent Public Accountant
for the last 12 years. Mr. J. Carlitos G. Cruz served as audit partner of AboitizPower since 2009. He replaced Mr.
Ladislao Z. Avila Jr. who served as audit partner for five years from 2004 to 2008. AboitizPower shall comply with the
requirements of Section 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 12 years where AboitizPower 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 2, 2011, the Audit Committee of AboitizPower approved a resolution to submit for
the approval of the stockholders during the Annual Stockholders’ Meeting a proposal to delegate to the Board of
Directors and/or Audit Committee the authority to appoint the Company’s external auditors for 2011. 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 AboitizPower’s external auditor for 2011.
Item 8. Compensation Plans
No action is to be taken during the stockholders’ meeting with respect to any plan pursuant to which cash or non-cash
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.
Annual Report 2010
27
SEC FORM 20 - IS (INFORMATION STATEMENT)
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. Approval of the Minutes of the 2010 Annual Meeting of Stockholders dated May 17, 2010 (summary of the
Minutes attached herewith as Annex “B”).
2. Approval of the Annual Report of Management for the year ending December 31, 2010.
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.
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 AboitizPower, 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 AboitizPower stockholders.
A summary of board resolutions approved during the period March 2010 to March 2011 is provided as follows:
Regular Board Meeting, March 10, 2010
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
28
Cash Dividend Declaration
Setting of Record Date for the 2010 Annual Stockholders’ Meeting
Approval of the Proposed Directors’ Compensation and Per Diem for 2010
Authority of the Company to guarantee the obligations of certain subsidiaries and affiliates with various
banks up to the extent of the ownership interest of the Company in such subsidiaries and affiliates
Authority to avail itself of the institutional products with various banks
Authority of the Company to act as surety for certain subsidiaries in the availment of credit facilities with
Banco De Oro
Authority of the Company to purchase coal carrier or vessel to support the Pagbilao IPPA commitments
Authority of the Company’s Stock and Transfer Agent, Securities and Transfer Services, Inc. (STSI), to issue
uncertificated shares and to enter into an agreement with Pastra.Net on the use of and linkage with the
Electronic Direct Registration (EDR) System
Authority of the officers of the Company to transact with the Philippine Depository and Trust Corporation
(PDTC)
Authority of Luis Miguel O. Aboitiz and Raymond Edwin Cunningham to sign the application for tax clearance
on behalf of AboitizPower for the Subic Power Plant Privatization Bidding
Authority of the Company to participate in the bidding for the lease, operation and maintenance of the Subic
Diesel Power Plant located in Subic Bay Power Plant Compound in Subic, Olongapo City
Authority of the Company to renew the Direct Internet Access System Account with Globe DSL Pro
Authority of the Company to guarantee a subsidiary’s availment of credit facilities with Metropolitan Bank
and Trust Company
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
Special Board Meeting, March 31, 2010
1.
Approval of 2009 Audited Financial Statements
Regular Board Meeting, May 17, 2010
1.
2.
3.
Approval of the amendment of the Company’s Amended Manual on Corporate Governance
Authority of certain officers of the Company to act as signatories for all bonds obtained from the Government
Services Insurance System (GSIS), indemnity agreements and other papers in connection with the company’s
bidding for the Subic Diesel Power Plant
Authority of the Company to enter into a management contract with Cotabato Ice Plant, Inc.
Regular Board Meeting, July 14, 2010
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Appointment of Mr. Manuel Orig as First Vice President – Mindanao Affairs of the Company
Authority to select and appoint the Company’s external auditors for the year 2010
Authority of the Company to extend temporary advances to certain subsidiaries
Authority of the Company to extend interest free stockholders’ advances to certain subsidiaries
Authority of the Company to ratify deposits for future subscription extended to Aboitiz Renewables, Inc.
Authority of the Company to avail credit facilities with Development Bank of the Philippines
Authority of Mr. Jon Ramon Aboitiz as additional signatory for the Company’s bank accounts maintained
with various banks
Authority of the Company to support the refinancing of STEAG State Power, Inc.
Authority of Mr. Luis Miguel Aboitiz as authorized signatory for the Power Marketing andTrading Group of the Company
Authority of certain officers to sign off on letters of authority for hotel bookings and car rentals within the
limits of authority assigned to each
General authority of the Company to purchase or acquire motor vehicles and its authorized signatories
Authority of the Company to implement the 2x150 MW Redondo Peninsula Energy, Inc. Coal Fired Power Plant
Authority of the Corporate Secretary to execute routinary Deeds of Trust and Assignment for nominee shares
Authority of Mr. Iker M. Aboitiz to sign the Special Power of Attorney relative to the request for Bureau of
Internal Revenue (BIR) ruling re VAT Zero-Rating under the RE Law
Regular Board Meeting, September 15, 2010
1.
2.
3.
4.
5.
6.
7.
8.
9.
Authority of the Company to avail of credit facilities from Banco de Oro Unibank, Inc. (BDO)
Authority of the Company to act as surety of certain subsidiaries for the availment of credit facilities with BDO
Authority of the Company to extend temporary advances to Hedcor, Inc.
Authority of the Company to ratify the peso stockholders’ advances extended to Therma Power, Inc. relative
to the capital call made by Redondo Peninsula Energy, Inc. in the amount of USD3 mn or P136.2 mn
Authority of the Company to guarantee the obligations of Redondo Peninsula Energy, Inc. with various banks
Authority of the Company to avail of credit facilities with various banks
Authority of the Company to extend peso stockholders’ advances to Therma Power, Inc. in the amount of
P490 mn for capitalization for Therma Luzon, Inc.
Authority of Ms. Cristina B. Beloria to transact with or open accounts with the Philippine Long Distance
Telephone Company
Authority for the amendment of the Trust Agreement for 5-Year bonds
Regular Board Meeting, November 12, 2010
1.
2.
3.
4.
5.
6.
7.
Approval of the Company’s Amended Internal Audit Charter
Amendment of the Company’s Amended By-laws
Appointment of Mr. Jakob Disch as member of the Board Corporate Governance and Board Audit Committees
Authority of the Company to open special deposit accounts with various banks
Authority of the Company to enter into a licensing agreement with Cleanergy, Inc.
Authority of the Company to extend stockholders’ advances to Therma Power, Inc.
Authority of the Company’s President and CEO to negotiate and enter into a Lease (with Option to Purchase)
of the project site for the Davao Coal-fired Project
Annual Report 2010
29
SEC FORM 20 - IS (INFORMATION STATEMENT)
8.
Authority of officers and representatives of the Company to transact with the Philippine Dealing and Exchange
Corporation (PDEx) in relation to disclosures and other continuing listing requirements of the 3-year and
5-year bonds of the Company
Regular Board Meeting, February 4, 2011
1.
2.
3.
4.
5.
6.
Authority of the Company to extend temporary and shareholders’ advances to certain subsidiaries and affiliates.
Authority of the Company to do derivative transactions with various banks
Authority of the Company to transact with/borrow from various banks
Authority of Mr. Gabriel T. Mañalac, the Company’s Senior Vice President - Treasurer, as additional signatory
in the accounts maintained with various banks
Authority to refinance existing debts of the Company.
Authority of the Company to open a credit line with Radisson Blu.
Special Board Meeting, March 3, 2011
1.
2.
3.
4.
Approval of the 2010 Audited Financial Statements.
Approval of the Declaration of Cash Dividends.
Approval of the Record Date for the 2011 Annual Stockholders’ Meeting.
Approval of the Proposed Directors Compensation and Per Diem for 2011.
Regular Board Meeting, March 30, 2011
1.
2.
3.
4.
5.
Authority of Mr. Alberto de Rotaeche as additional signatory in the accounts maintained with Chinatrust
(Philippines) Commercial Bank Corporation.
Fixed Rate Notes Refinancing of up to P5 bn.
Authority of the Company to extend stockholders’ advances to certain subsidiaries.
Authority of the Company to enter into a contract with Holcim Philippines, Inc. for the installation of a new
69 kV capacitor banks.
Approval of the Company’s amended manual of corporate governance.
Item 17. Amendment of Charter, By-laws or Other Documents.
None.
Item 18. Other Proposed Action
For the 2011 Annual Stockholders’ Meeting, a proposal to delegate to the Board of Directors and/or the Board
Audit Committee the authority to appoint the Company’s external auditors for 2011 will be submitted for the
approval of the shareholders. The proposal is intended to give the Board Audit Committee sufficient time to
evaluate different auditing firms who may act as AboitizPower’s external auditor for 2011.
Item 19. Voting Procedures
(a) 30
Vote Required for Election of Directors and for Delegation of Authority to Elect External Auditors
for 2011
Article 1 Section 4 of the amended By-Laws of AboitizPower states that a quorum for any meeting of
stockholders shall consist of the majority of the outstanding capital stock of AboitizPower, 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.
For the delegation of the authority to elect external auditors for 2011 to the Board of Directors and/or the
Audit Committee, a vote by a majority of the shares present or represented during the meeting shall be
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
necessary to approve the proposed action.
(b) The Method by which the Votes will be Counted
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.
In the election of directors, the stockholder may choose to do any of the following:
(i)
(ii)
Vote such number of shares for as many person(s) as there are directors to be elected;
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;
(iii) Distribute his shares on the same principle as option (ii) 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 2011 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.
AboitizPower has not received any information that an officer, director or stockholder intends to oppose any
action to be taken at the Annual Stockholders’ Meeting.
AboitizPower’s Annual Report in SEC Form 17-A will be given free of charge to AboitizPower
stockholders upon written request. Please write to:
Investor Relations Office
Aboitiz Power Corporation
Aboitiz Corporate Center
Gov. Manuel A. Cuenco Avenue
Kasambagan, Cebu City
Philippines
email: [email protected]
Attention:
Ms. M. Carmela N. Franco
This Information Statement and the Annual Report in SEC Form 17-A will also be posted at
AboitzPower’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, 2011.
ABOITIZ POWER CORPORATION
By:
M. JASMINE S. OPORTO
Corporate Secretary
Annual Report 2010
31
SEC FORM 20 - IS (INFORMATION STATEMENT)
DEFINITION OF TERMS
Aboitiz Group
AboitizLand
ACO and the companies or entities in
which ACO has a beneficial interest
and, directly or indirectly, exercises
management control, including, without
limitation, Aboitiz Equity Ventures, Inc.,
Aboitiz Power Corporation, Union Bank
of the Philippines and their respective
Subsidiaries and Affiliates
32
Bureau of Internal Revenue
BOI
The Philippine Board of Investments
Bunker C
A term used to designate the thickest
of the residual fuels that is produced by
blending any oil remaining at the end of
the oil-refining process with lighter oil
CEDC
Cebu Energy Development Corporation
Chevron
Chevron Geothermal Philippines
Holdings, Inc.
CIPDI
Cebu Industrial Park Developers, Inc.
Cleanergy or CI
Cleanergy, Inc. (formerly, Northern MiniHydro Corporation)
Cotabato Light
or CLP
Cotabato Light & Power Company
COC
Certificate of Compliance
CPDC
Cebu Praedia Development Corporation
CPCN
Certificate of Public Convenience and
Necessity
CPPC
Cebu Private Power Corporation
Davao Light or
DLP
Davao Light & Power Company, Inc.
DOE
Department of Energy
DOLE
Department of Labor and Employment
Distribution
Companies or
Distribution
Utilities
Refers to BEZ, CLP, DLP, MEZ, SEZ,
SFELAPCO, and VECO collectively
Distribution
Company
Any of BEZ, Cotabato Light, Davao Light,
MEZ, SEZ, SFELAPCO and VECO
Aboitiz Land, Inc.
AboitizPower,
Aboitiz Power Corporation
AP, the Company,
the Issuer or the
Registrant
AboitizPower
Group or The
Group
AboitizPower and its Subsidiaries
Abovant or AHI
Abovant Holdings, Inc.
ACO
Aboitiz & Company, Inc.
Adventenergy
Adventenergy, Inc.
AESI
Aboitiz Energy Solutions, Inc.
AEV
Aboitiz Equity Ventures, Inc.
Affiliate
With respect to any Person, any other
Person directly or indirectly Controlled or
is under common Control by such Person
Ambuklao-Binga
Hydroelectric
Power Complex
BIR
Refers to the 75 MW Ambuklao
Hydroelectric Power Plant of SNAPBenguet located in Bokod, Benguet
and the 100 MW Binga Hydroelectric
Power Plant of SNAP-Benguet located at
Itogon, Benguet
APRI
AP Renewables, Inc.
ARI
Aboitiz Renewables, Inc. (formerly,
Philippine Hydropower Corporation)
BEZ
Balamban Enerzone Corporation
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
EAUC
East Asia Utilities Corporation
El Paso
Philippines
El Paso Philippines Energy Company, Inc.
EPIRA
RA No. 9136, otherwise known as the
“Electric Power Industry Reform Act of
2001”, as amended from time to time,
and including the rules and regulations
issued thereunder
Enerzone
Companies
A term collectively referring to BEZ, MEZ
and SEZ - the Company’s distribution
utilities operating within special
economic zones.
ERC
Energy Regulatory Commission
Generation
Companies
Refers to APRI, CPPC, DLP, EAUC,
Hedcor, Hedcor Sibulan, Hedcor
Tamugan, LHC, SNAP-Magat, SNAPBenguet, SPPC, STEAG Power, WMPC,
RP Energy, and CEDC collectively
Global Formosa
Global Business Power Corporation of
the Metrobank Group
Government
The Government of the Republic of the
Philippines
GWh
Hedcor Sibulan, Inc.
Hedcor Tamugan
or HTI
Hedcor Tamugan, Inc.
Hijos
Hijos De F. Escaño, Inc.
IPPA
Independent Power Producer
Administrator
kV
Kilovolt, or one thousand volts
kW
Kilowatt, or one thousand watts
kWh
Kilowatt-hour, the standard unit of
energy used in the electric power
industry. One kilowatt-hour is the
amount of energy that would be
produced by a generator producing one
thousand watts for one hour
LHC
Luzon Hydro Corporation
Magat Plant
The 360 MW Magat Hydroelectric Power
Plant of SNAP-Magat located at the
border of Isabela and Ifugao provinces
MEPZ I
Mactan Export Processing Zone I
MEPZ II
Mactan Export Processing Zone II
MEZ
Mactan Enerzone Corporation
MORE
Manila-Oslo Renewable Enterprise, Inc.
MW
Megawatt, or one million watts
MWh
Megawatt-hour
MVA
Megavolt Ampere
NEA
National Electrification Administration
NIA
National Irrigation Authority
Global Formosa Power Holdings, Inc.,
Global Power
Greenfield
Hedcor Sibulan
or HSI
Power generation projects that are
developed from inception on previously
undeveloped sites
Gigawatt-hour, or one million kilowatthours
HEDC
Hydro Electric Development Corporation
Hedcor or HI
Hedcor, Inc.
Hedcor
Consortium
The consortium comprised of ARI,
Hedcor, Hedcor Sibulan and Hedcor
Tamugan with an existing PSA with DLP
for the supply of new capacity to DLP
Annual Report 2010
33
SEC FORM 20 - IS (INFORMATION STATEMENT)
34
NPC
National Power Corporation
SBMA
Subic Bay Metropolitan Authority
NWRB
National Water Resources Board
SEC
The Securities and Exchange
Commission of the Philippines
PBR
Performance-based rate-setting
regulation
SEZ or SEZC
Subic Enerzone Corporation
PEMC
Philippine Electricity Market Corporation
Sibulan Project
PHBI
Pacific Hydro Bakun, Inc., a wholly
owned subsidiary of Pacific Hydro Pty
Ltd. and joint venture partner of ARI in
LHC
Two run-of-river hydropower generating
facilities tapping the Sibulan and
Baroring rivers in Sibulan, Santa Cruz,
Davao del Sur
SFELAPCO
San Fernando Electric Light and Power
Co., Inc.
SNAP - Benguet
SN Aboitiz Power – Benguet, Inc.
(formerly, SN Aboitiz Power Hydro, Inc,)
SNAP - Magat
SN Aboitiz Power – Magat, Inc.
SPPC
Southern Philippine Power Corporation
SN Power
Statkraft Norfund Power Invest AS of
Norway
Philippine Pesos
or π
The lawful currency of the Philippines
PHPL or Pacific
Hydro
Pacific Hydro Power Ltd., an Australian
Company which specializes in developing
and operating renewable energy
projects. It is the parent company of
PHBI
PPA
Power Purchase Agreement
PSA
Power Supply Agreement
STEAG Power
STEAG State Power, Inc.
PSALM
Power Sector Assets and Liabilities
Management Corporation
Subsidiary
PSE
Philippine Stock Exchange
PSPA
Power Supply and Purchase Agreement
In respect of any Person, any entity
(i) over fifty percent (50.0%) of whose
capital is owned directly by that
Person; or (ii) for which that Person
may nominate or appoint a majority of
the members of the board of directors
or such other body performing similar
functions
RA
Republic Act
TCIC
Renewable
Energy Act or RE
Law
RA No. 9513, otherwise known as the
Renewable Energy Act of 2008
Taiwan Cogeneration International
Corporation
Team Philippines
RORB
Return-on-rate base rate setting system
Team Philippines Industrial Power II
Corporation (formerly Mirant (Phils.)
Industrial Power II Corp.)
RP Energy
Redondo Peninsula Energy, Inc.
Therma Marine
or TMI
Therma Marine, Inc.
Run-of-river
hydroelectric
plant
Hydroelectric power plant that generates
electricity from the natural flow and
elevation drop of a river
Therma Mobile
Therma Mobile, Inc.
SBFZ
Subic Bay Freeport Zone
Aboitiz Power Corporation
Therma South, Inc. New name of Therma Pagbilao, Inc.
SEC FORM 20 - IS (INFORMATION STATEMENT)
Tiwi-MakBan
Tiwi-MakBan Geothermal Complex,
composed of eight geothermal plants
and one binary plant, located in the
provinces of Batangas, Laguna and
Albay.
TLI
Therma Luzon, Inc.
TPC
Toledo Power Company
TPI
Therma Power, Inc.
TPVI
Therma Power-Visayas, Inc.
Transco
National Transmission Corporation
and, as applicable, the National Grid
Corporation of the Philippines or NGCP
which is the Transco concessionaire
US$ or USD
The lawful currency of the United States
of America
VECO
Visayan Electric Company, Inc.
VAT
Value Added Tax
WCIP
West Cebu Industrial Park
WESM
Philippine Wholesale Electricity Spot
Market
WMPC
Western Mindanao Power Corporation
Annual Report 2010
35
SEC FORM 20 - IS (INFORMATION STATEMENT)
PART I – BUSINESS AND GENERAL INFORMATION
Item 1. Business
(1) Business Development
Incorporated in 1998, AboitizPower 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 76.40% of the outstanding capital stock of AboitizPower as of February 28, 2011.
The Aboitiz Group’s involvement in the power industry began when members of the Aboitiz family acquired a 20% ownership
interest in Visayan Electric Company, Inc. (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 Aboitiz & Company, Inc. (ACO) acquired the Ormoc Electric Light
Company and its accompanying ice plant, the Jolo Power Company and Cotabato Light & Power Company (Cotabato Light). In
July 1946, the Aboitiz Group strengthened its position in power distribution in the Southern Philippines when it acquired Davao
Light & Power Company, Inc. (Davao Light), 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 Cotabato Light, Davao Light 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 build-operate-transfer (BOT) agreement with the National Power Corporation
(NPC) to develop and operate the 70 MW Bakun AC hydroelectric plant in Ilocos Sur province.
AboitizPower 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, AboitizPower was
repositioned in the third quarter of 2003 as a holding company that owned power generation assets only. The divestment by
AboitizPower of its power distribution assets was achieved through a property dividend declaration in the form of AboitizPower’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 AboitizPower 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) of Norway, through SN Aboitiz Power-Magat, Inc.
(SNAP-Magat) submitted the highest bid for the 360 MW Magat hydroelectric plant auctioned by PSALM. The price offered was
USD530 mn. PSALM turned over possession and control of the Magat Plant to SNAP-Magat on April 26, 2007.
In a share swap agreement with AEV on January 20, 2007, AboitizPower 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:
•
36
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;
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
•
•
•
A 100% equity interest in each of Davao Light and Cotabato Light. Davao Light is the third largest privatelyowned distribution utility in the Philippines in terms of customers and annual GWh sales;
An effective 64% ownership interest in Subic Enerzone Corporation (SEZ), which manages the Power
Distribution System (PDS) of the Subic Bay Metropolitan Authority (SBMA); and
An effective 44% ownership interest in San Fernando Electric Light and Power Company (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 Subic Bay
Freeport Zone. In May 2007 Redondo Peninsula Energy, Inc. (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 East Asia Utilities Corporation (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
Mactan Export Processing Zone I (MEPZ I) in Mactan Island, Cebu. On the same date, the Company also acquired from EAUC
60% of the outstanding common shares of Cebu Private Power Corporation (CPPC). CPPC 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, Aboitiz Land, Inc. (AboitizLand) a 100% interest in Mactan Enerzone Corporation (MEZ), which owns and
operates the PDS in the MEPZ II in Mactan Island in Cebu, and a 60% interest in Balamban Enerzone Corporation (BEZ),
which owns and operates the PDS in the West Cebu Industrial Park-Special 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
Holdings, Inc. (Abovant). The Company owns 60% of Abovant. The project, which is being undertaken by Cebu Energy
Development Corporation (CEDC), a joint venture company among Global Power, Formosa Heavy Industries and Abovant,
broke ground last January 2008 and is expected to be completed and start full commercial operations by first quarter of 2011.
The Company has an effective participation of 26.40% in the project.
On November 15, 2007, AboitizPower closed the purchase of a 34% equity ownership in STEAG State Power, Inc. (STEAG),
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 is USD102 mn, inclusive of interests.
On November 28, 2007, SN Aboitiz Power-Benguet, Inc. (SNAP-Benguet), a consortium between AboitizPower 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 at Itogon,
Benguet. The price offered amounted to USD325 mn.
In 2007, AboitizPower entered into an agreement to buy the 20% equity of Team Philippines in SEZ for π92 mn. Together with
the 35% equity in SEZ of AboitizPower’s subsidiary Davao Light, this acquisition brings AboitizPower’s total equity in SEZ to
100%.
Annual Report 2010
37
SEC FORM 20 - IS (INFORMATION STATEMENT)
In 2008, AboitizPower bought the 40% equity ownership of Tsuneishi Holdings (Cebu), Inc. (THI) in BEZ for approximately π178 mn.
The acquisition brought AboitizPower’s total equity in BEZ to 100%.
Last May 26, 2009, AP Renewables, Inc., (APRI), a wholly owned subsidiary of AboitizPower, 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 have a sustainable capacity of approximately
462 MW.
Therma Luzon, Inc. (TLI), a wholly owned subsidiary of AboitizPower, won the competitive bid for the appointment of the
Independent Power Producer (IPP) Administrator of the 700 MW 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 IPP Administrator, TLI 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.
AboitizPower, through its wholly owned subsidiary, Therma Marine, Inc. (TMI), 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 USD30 mn 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 at Nasipit, Agusan del Norte and
Barangay San Roque, Maco, Compostela Valley, respectively.
Ownership in AboitizPower 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
Aboitiz Renewables, Inc. (ARI) (formerly Philippine Hydropower Corporation), and all its non-renewable generation assets
under Therma Power, Inc. (TPI).
Neither AboitizPower 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, AboitizPower is considered
one of the leading Filipino-owned companies in the power industry (Please see Annex “C” hereof for AboitizPower’s Corporate
Structure).
(i) Principal Products
GENERATION OF ELECTRICITY
Since its incorporation in 1998, AboitizPower has accumulated interests in both renewable and non-renewable generation
plants. As of December 31, 2010, approximately 93% of AboitizPower’s net income from business segments is derived from
its power generation business. AboitizPower conducts its power generation activities through the following subsidiaries and
affiliates:
38
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
The table below summarizes the generation companies’ operating results as of December 31, 2010.
Generation
Companies
Energy Sold
Generation
2010
Energy Sold
Generation
2009
Energy Sold
Generation
2008
Revenue
2010
Revenue
2009
(In GWh)
APRI (1)
Revenue
2008
(in Mn Pesos)
3,483
1,886 N/A 22,426
6,843
N/A Hedcor, Inc.
155
171
170
704
703
618
LHC
282
324
301
935
1,223
1,088
Hedcor Sibulan
108
N/A
N/A
529
N/A
N/A
SNAP - Magat
673
1,150
1,036
7,804
3,971
4,604
265
413
208
2,828
1,063
885
3,540
767
N/A
22,426
2,801
N/A
SNAP - Benguet
TLI (2)
CEDC (3)
561
N/A
N/A
N/A
N/A
N/A
STEAG
1,553
1,384
1,330
6,577
6,206
6,265
WMPC
498
220
107
1,319
1,207
1,284
SPPC
315
226
164
707
688
691
CPPC
246
318
296
2,043
2,119
2,367
EAUC
224
202
202
1,741
1,382
1,579
TMI (4)
767
N/A
N/A
4,898
N/A
N/A
41
7
6
Revenue neutral
Revenue neutral
Revenue neutral
5
1
0
Revenue neutral
Revenue neutral
Revenue neutral
12,716
7,069
3,820
74,937
28,206
19,381
Davao Light (5)
Cotabato Light (5)
TOTAL
(1) The Tiwi-MakBan geothermal plants were turned over to APRI on May 26, 2009. (2) TLI assumed dispatch control of the Pagbilao plant last October 1, 2009.
(3) The CEDC coal-fired power plant was completed as follows: Unit 1 in First quarter of 2010, Units 2 and 3 in second and fourth quarters of
2010, respectively. In 2010, the plant was still being commissioned, thus at pre-operating stage. No revenues were booked during the year.
AboitizPower has an effective participation of 26% in the project.
(4) PB 118 and 117 were turned over to TMI last February 6, 2010 and March 1, 2010, respectively. (5) Plants are operated as stand-by plants and are revenue neutral, with costs for operating each plant recovered by Davao Light and Cotabato
Light, as the case may be, as approved by the ERC.
Aboitiz Renewables, Inc. (ARI)
AboitizPower, 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, Inc., 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.
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SEC FORM 20 - IS (INFORMATION STATEMENT)
•
•
•
•
100% equity interest in Hedcor Sibulan, Inc. (Hedcor Sibulan), which owns the 42.5 MW Sibulan
hydropower project in Santa Cruz, Davao del Sur.
100% equity interest in Hedcor Tamugan, Inc. (Hedcor Tamugan), which proposes to build a 11.5 MW
Tamugan hydropower project along the Tamugan River in Davao City.
100% equity interest in Hedcor Tudaya, Inc. (Hedcor Tudaya), which proposes to build the 6.6 MW Tudaya
1 and 7 MW Tudaya 2 run-of-river hydropower projects in Santa Cruz, Davao Del Sur.
100% equity interest in Hedcor Sabangan, Inc. (Hedcor Sabangan), which proposes to build the 13.2 MW
Sabangan run-of-river hydropower project in Sabangan, Mountain Province.
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 is one of the country’s leading power generation companies. It is a wholly-owned subsidiary of ARI that acquired the TiwiMakBan geothermal facilities located at Tiwi, Albay, Bay and Calauan, Laguna and Sto. Tomas, Batangas from PSALM in May 2009.
The two complexes have a total capacity of 485 MW.
As geothermal power plants, Tiwi and Makban produce clean energy that is reasonable in cost, efficient in operation and
environment-friendly. With the continuous advancement in technology, APRI is setting its vision to operate and maintain the
Tiwi and Makban geothermal complexes in accordance with the highest professional standards of world-class independent
power producers operating in a merchant market.
The Asset Purchase Agreement (APA) between APRI and PSALM 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 of the APA last May 2009. APRI is currently in the midst of rehabilitation and refurbishment process. Based on initial
estimates, the rehabilitation and refurbishment costs could reach USD140-150 mn over a period of two to three years. This
rehabilitation and refurbishment plan is expected to improve the geothermal plant’s operating capacities.
APRI is a Board of Investment (BOI) registered enterprise as New Operator of the Tiwi-Makban geothermal complex, on
pioneer status with six years income tax holiday starting on June 19, 2009.
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 360MW Magat hydroelectric power plant (the Magat Plant) conducted by PSALM for a bid price of USD530 mn.
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 until July 12, 2013.
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Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
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 their O&M Agreement for
the operations and maintenance of the non-power component of the Magat hydroelectric plant. 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 USD380 mn loan from a consortium of international and domestic financial
institutions which include the International Finance Corporation, Nordic Investment Bank, BDO–EPCI, Inc., Bank of the
Philippine Islands, China Banking Corporation, Development Bank of the Philippines, The Hong Kong and Shanghai Banking
Corporation Limited, Philippine National Bank and Security Bank Corporation. The USD380-mn loan consists of a dollar tranche
of up to USD152 mn, and a peso tranche of up to π10.1 bn. 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 USD159 mn loan from AEV and
its advances from its shareholders used to acquire the Magat Plant.
As a hallmark of innovation in revenue generation, SNAP-Magat garnered an ancillary services contract on October 12, 2009
with the National Grid Corporation of the Philippines (NGCP), a first for a privately owned plant. These services are necessary
to maintain power quality, reliability and security of the grid.
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 on 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.
In December 2010, SNAP-Magat announced it will proceed with the feasibility study for the expansion of the Magat hydroelectric
plant from 360 MW to up to 540 MW.
The conduct of the feasibility study was formalized on December 15, 2010 upon the signing of a Memorandum of Understanding
(MOU) between SNAP-Magat and the NIA.
The MOU facilitates the gathering of information to determine the feasibility of expanding the capacity of the Magat plant for
an additional 90 to 180 MW. The existing Magat plant was designed for two additional units.
The study will also include the feasibility of installing a pumped-storage system. The result of the feasibility study will enable
SNAP-Magat to evaluate whether to proceed with the construction phase of the project.
SN Aboitiz Power-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 USD325 mn.
The Ambuklao-Binga Hydroelectric Power Complex was turned over to SNAP-Benguet on July 10, 2008. In August 2008, SNAPBenguet signed a USD375 mn loan agreement with a consortium of local and foreign banks where USD160 mn was taken up as
U.S. dollar financing and USD215 mn as peso financing. Proceeds from the facility were 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.
Annual Report 2010
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SEC FORM 20 - IS (INFORMATION STATEMENT)
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. Binga’s approval is effective until
August 12, 2014, while that of Ambuklao lasts until July 2016.
Ambuklao Plant has been under preservation since 1999 due to damage from the 1990 earthquake. Rehabilitation of the
Ambuklao Plant commenced in late 2008. The initial attempt to close the old headrace tunnel using concrete plug has proven
difficult due to the unexpected volume of sediments (silt and clay) in the tunnel compounded by the effects of Typhoon
Pepeng (international name: Parma) that hit the province in October 2009. Instead, SNAP-Benguet is now extending the new
headrace tunnel and building new penstocks up to the main inlet valves to allow water to flow through to the new turbines;
consequently, it has abandoned the old tunnel plugging solution. With the extension of the new headrace tunnel and building
of new penstocks, the first unit of Ambuklao plant is expected to be completed by second quarter of 2011 with all three units
operational by third quarter of 2011, instead of end 2010 as earlier reported.
The refurbishment of the Binga Plant commenced in 2010. Headrace tunnel and intake excavation is 80% completed.
Construction of the new intake structure is on-going and target completion of the project is in 2014.
The projects are expected to increase the capacity of the Ambuklao Plant to 105 MW and of the Binga Plant to 120 MW.
In 2010, SNAP-Benguet also entered into a contract with the NGCP for the Binga plant to provide ancillary services. This
hallmark of business innovation has resulted in a new stream of revenue for the company.
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
run–of–river hydropower plants in northern Luzon and Davao City with a combined installed capacity of 38.2 MW. All the
electricity generated from Hedcor’s hydro plants are taken up by NPC, APRI, Davao Light, and Benguet Electric Cooperative
(BENECO) pursuant to power purchase agreements with the said offtakers.
During the full years 2009 and 2010, Hedcor’s hydropower plants generated a total of 171.4 GWh and 155.5 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. (Pacific Hydro) 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
Bakun River to provide the plant with its generating power. The USD150 mn 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. Amlan Power Holdings Corporation was awarded the IPP Administrator contract for
the 70-MW Bakun hydropower facility following a competitive bidding process conducted by PSALM.
On March 31, 2011, ARI, LHC and Pacific Hydro signed a Memorandum of Agreement (MOA) to give ARI full ownership over
LHC. ARI will assume full ownership and control of LHC upon fulfillment of certain conditions in the MOA. The total transaction
value is approximately USD30 million.
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Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
Hedcor Sibulan, Inc. (Hedcor Sibulan)
Hedcor Sibulan, a wholly owned subsidiary of ARI, is the project company of the Sibulan hydropower project. Sibulan, which
broke ground on June 25, 2007, entailed the construction of two run-of-river hydropower plants, Sibulan A and Sibulan B
harnessing the Sibulan and Baroring rivers in Santa Cruz, Davao del Sur. The 26 MW Sibulan B started commercial operations
in March 2010. The 16.5 MW Sibulan A was completed in July 2010.
Hedcor Sibulan is part of a consortium that won the competitive bidding for the 12-year power supply agreement to supply
new capacity to Davao Light. The bid price for the contracted energy was π4.0856/kWh, 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 Davao Light pursuant to a 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 plants’ generated carbon credits.
Hedcor Tamugan, Inc. (Hedcor Tamugan)
Hedcor Tamugan, a wholly owned subsidiary of ARI, is the project company organized to build the proposed Tamugan run-ofriver hydropower project. In 2010, Hedcor entered into a compromise agreement with the Davao City Water District (DCWD)
as a settlement to the dispute in connection with the Tamugan water rights. Originally planned as a 27.5 MW run-of-river
facility, Hedcor Tamugan proposed the the construction of 11.5 MW run-of-river hydropower plant. After Hedcor Tamugan
secures all required permit, the two-year construction period will commence.
Hedcor Sabangan, Inc. (Hedcor Sabangan)
Hedcor Sabangan, a wholly owned subsidiary of ARI, is the project company organized to build the proposed 13.2 MW runof-river hydropower project in Sabangan, Mountain Province. As part of the Free and Prior Informed Consent (FPIC) process
for the project as required under the Indigenous Peoples’ Rights Act of 1997 (IPRA), Hedcor Sabangan signed Memoranda
of Agreement with the indigenous peoples of Barangays Namatec and Napua and the municipality of Sabangan, Mountain
Province in February and March 2011, respectively. With the completion of the FPIC process, Hedcor Sabangan is awaiting the
issuance of the Certificate of Precondition by the National Commission on Indigenous Peoples.
The other permits required for the project, such as the ECC and water rights, are currently being processed. The two-year
construction period is expected to commence in the first quarter of 2012 assuming that the required permits are secured by
then.
Hedcor Tudaya, Inc. (Hedcor Tudaya)
Hedcor Tudaya, a wholly owned subsidiary of ARI, is the project company organized to build the proposed 6.6 MW Tudaya 1 and
7 MW Tudaya 2 run-of-river hydropower projects in Tudaya, Santa Cruz, Davao del Sur. In February 2011, Hedcor Tudaya signed
a Memorandum of Agreement with the of Bagobo-Tagabawa indigenous peoples as a result of the FPIC process conducted
for the Tudaya 1 as required under the IPRA. With the completion of the FPIC process, Hedcor Tudaya is awaiting the issuance
of the Certificate of Precondition by the National Commission on Indigenous Peoples. The proposed construction of Tudaya 2
does not require a FPIC process as there are no indigenous peoples in the area.
The other permits required for the project, such as ECC and water rights, are currently being processed. The two-year
construction period is expected to commence in July 2011 assuming that the required permits are secured by then.
Therma Power, Inc. (TPI)
TPI, a wholly owned holding company of AboitizPower, owns equity interests in the following generation companies:
Annual Report 2010
43
SEC FORM 20 - IS (INFORMATION STATEMENT)
•
•
•
•
•
100% equity interest in TLI, the IPP Administrator of the 700 MW contracted capacity of the Pagbilao
power plant.
100% equity interest in TMI, 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 Subic Bay Freeport Zone (SBFZ).
100% equity interest in Therma South, Inc., the project company that proposes to build a 300 MW
circulating fluidized bed coal-fired plant in Toril, Davao.
AboitizPower 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 AboitizPower’s ownership interest in STEAG Power, EAUC, CPPC, Southern Philippines
Power Corporation (SPPC) and Western Mindanao Power Corporation (WMPC).
Therma Luzon, Inc. (TLI)
TLI , a wholly owned subsidiary of AboitizPower, submitted the highest offer in the competitive bid conducted by PSALM for
the appointment of the IPP Administrator of the 700 MW Contracted Capacity of the Pagbilao Coal Fired Thermal Power Plant
located in Pagbilao, Quezon.
The offer by TLI resulted in a bid price of USD691 mn as calculated in accordance with 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, TLI became the first IPP Administrator in the country when it assumed dispatch control of the said
contracted capacity of the Pagbilao Plant. As IPP Administrator, TLI is responsible for procuring the fuel requirements of and
selling the electricity generated by the Pagbilao Plant. The Pagbilao Plant is being operated by TEAM Energy under a buildoperate-transfer scheme.
Therma Marine, Inc. (TMI)
TMI, a wholly owned subsidiary of AboitizPower, owns and operates PB 117 and 118, two power barges each with a generating
capacity of 100 MW. TMI assumed ownership of PB 118 and 117 from PSALM last February 6, 2010 and March 1, 2010, respectively.
The acquisition followed the successful conclusion of a USD30 mn negotiated bid for the two power barges last July 31, 2009. PB 117
is moored in Bgy. San Roque, Maco, in Compostella Valley, while PB 118 is moored in Nasipit, Agusan del Norte.
TMI signed Ancillary Services Procurement Agreements (ASPA) with the National Grid Corporation of the Philippines (NGCP)
for a supply by each of PB 117 and 118 of 50 MW of ancillary services consisting of contingency reserve, dispatchable reserve,
reactive power support and blackstart capacity for the Mindanao Grid.
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 likewise got its provisional authority on March 24, 2010 with
retroactive effect to March 1, 2010.
On October 4, 2010, ERC issued its final approval on the ASPA application for both barges but with a 55% reduction in the
capital recovery fee rates and also a reduction on the fuel consumption rates. A Motion for Reconsideration was filed by TMI
and is still pending before the ERC.
The ASPA between NGCP and TMI for the supply of 50 MW each of ancillary services by PB 117 and PB 118 with expiry
dates of February 6, 2011 and March 1, 2011, respectively, were extended to June 25, 2011 for both barges under the same
terms and conditions.
44
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
STEAG State Power Inc. (STEAG)
AboitizPower closed the sale and purchase of the 34% equity ownership in STEAG from Evonik Steag GmbH (Evonik Steag)
last November 15, 2007 following a successful bid in August 2007. The total purchase price for the 34% equity in STEAG was
USD102 mn, inclusive of interests.
Incorporated on December 19, 1995, STEAG 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
currently enjoys a 6-year income tax holiday from the BOI.
With its 34% stake in STEAG, AboitizPower is equity partner with majority stockholder Evonik Steag, Germany’s fifth largest
power generator, which currently holds 51% equity in STEAG. La Filipina Uy Gongco Corporation holds the remaining 15%
equity in STEAG.
On June 28, 2010, AboitizPower and its partners in STEAG firmed up their collective intention to develop a third unit of
approximately 150 MW capacity adjacent to the existing facility. AboitizPower and its partners agreed to maintain their
shareholdings in the same proportions in the new corporation to be established for the planned additional capacity. Certain
essential facilities, such as the jetty, coal handling facilities and stockyards and the 138-kV interconnection with the Mindanao
Grid are to be shared with the existing facilities. Depending on the interest the market demonstrates, the agreement
contemplates the possibility of another unit.
East Asia Utilities Corporation (EAUC)
On April 20, 2007, AboitizPower 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), PEZA shall be entitled to buy electric
power from the spot market, other electric power suppliers and/or generation companies in excess of the contracted demand
of 42,500 kW that shall be sourced from EAUC solely or blended with other suppliers. The amended PSPA shall be effective up
to April 25, 2011, with the option to renew under mutually acceptable conditions. EAUC and PEZA are currently negotiating for
the renewal/extension of the PSPA. With the start of WESM operations in the Visayas Region, EAUC is also capable of selling
power to the spot market.
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, AboitizPower 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
AboitizPower, 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
AboitizPower, and Vivant Integrated Generation Corporation (VIGC) of the Garcia Group, to hold their investments in a new
power plant to be built in Barangay Daanlungsod, Toledo City, Cebu. Abovant is 60% owned by AboitizPower, through TPI, and
40% owned by VIGC.
Annual Report 2010
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SEC FORM 20 - IS (INFORMATION STATEMENT)
Abovant and Global Formosa Power Holdings, Inc., a joint venture between Global Business Power Corporation of the
Metrobank Group and Formosa Heavy Industries, Inc. formed CEDC. CEDC is the owner of a new 3x82 MW coal-fired power
plant in the existing Toledo Power Station complex in Barangay Daanlungsod, Toledo City, Cebu. With Abovant’s 44% stake in
the project (Global Formosa owns the remaining 56%), AboitizPower’s effective interest in the new power plant, which broke
ground in January 2008, is approximately 26.40%.
The first 82 MW unit was commissioned in February 2010, while the second and third units in the second and fourth quarter
of 2010, respectively. The power generated from the new power plant provides 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 Carmen
Copper Corporation, the shipbuilding facility of Tsuneishi Heavy Industries (Cebu) Inc. (THI) and the modular fabrication facility
of Metaphil International.
The power plant, which will cost approximately USD450 mn, is expected to be completed and will start full commercial
operations by first quarter of 2011. CEDC had signed an Electric Power Purchase Agreement (EPPA) with VECO for the supply
of 105 MW for 25 years. To date, it also has an EPPA with PEZA-MEPZ I; Mactan Electric Company, Inc. (MECO); BEZ; Cebu I
Electric Cooperative, Inc.; Cebu II Electric Cooperative, Inc.; Cebu III Electric Cooperative, Inc.; and Bohol Electric I Cooperative,
Inc. All its EPPAs will provide contracted minimum energy offtake with fuel as pass through.
Southern Philippines Power Corporation (SPPC)
SPPC is a joint venture among AboitizPower, Alsing Power Holdings, Inc. and Tomen Power (Singapore), Pte Ltd. AboitizPower
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.
Western Mindanao Power Corporation (WMPC)
Like SPPC, WMPC is also a joint venture among AboitizPower, Alsing Power Holdings, Inc. and Tomen Power (Singapore),
Pte Ltd. AboitizPower 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.
46
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SEC FORM 20 - IS (INFORMATION STATEMENT)
Redondo Peninsula Energy, Inc. (RP Energy)
Incorporated on May 30, 2007, RP Energy is a joint venture company owned equally by AboitizPower and Taiwan Cogeneration
International Corporation. It is the project company that proposes to build and operate a 300-MW coal-fired power plant in
Redondo Peninsula in the SBFZ with a planned phase two expansion for another 300 MW unit.
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 USD500 mn. In view of increasing power demand in the Luzon Grid, RP Energy is
re-evaluating the plant configuration of the plant from 2x150 MW units to a 1x300 MW unit. RP Energy has signed a Lease
Development Agreement with SBMA and has paid its first five year lease for the site. It has secured an Environmental Clearance
Certificate and its related amendments as well as the Special Land Use Permit from the DENR. RP Energy has also completed
the relocation of all affected residents in the site in accordance with existing rules and regulations and is now the in the final
stages of negotiations with a site development contractor for the site development works on site.
Therma South, Inc.
Therma South, Inc. is a wholly owned subsidiary of TPI and the project company for the proposed 300 MW circulating fluidized
bed coal-fired plant in Toril, Davao. The project is in the planning and governmental approval stage and as such does not
have any contracts to sell its power as of yet. If approved within the expected timeframe, the plant should be operational
in early 2014.
Other Generation Assets
AboitizPower’s distribution utilities, Davao Light and Cotabato Light, each has its own stand-by plant. Davao Light
currently maintains the 53 MW Bunker C-fired Bajada stand-by plant, which is capable of supplying 19% of Davao Light’s
requirements. Cotabato Light maintains a stand-by 7 MW Bunker C-fired plant capable of supplying approximately 30.50% 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.
DISTRIBUTION OF ELECTRICITY
The Aboitiz Group has more than 70 years of experience in the Philippine power distribution sector and has been known for
innovation and efficient operations. Through the years, AboitizPower has managed to build strong working relationship with
the industry’s regulatory agencies.
Annual Report 2010
47
SEC FORM 20 - IS (INFORMATION STATEMENT)
With ownership interests in seven distribution utilities, AboitizPower is currently one of the largest electricity distributors in the
Philippines. AboitizPower’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, AboitizPower’s distribution utilities contributed approximately 7% of its net income for 2010. The distribution
utilities had a total customer base of 714,423 in 2010, 685,378 in 2009, and 658,318 in 2008.
The table below summarizes the key operating statistics of the distribution utilities for 2010 and the previous two years.
Company
Electricity Sold (MWh)
2010
2009
Peak Demand (MW)
2008
2010
No. of Customers
2009
2008
VECO
1,994,237
1,829,500
1,766,059
378
336
326
2010
316,845
2009
304,002
296,003
2008
Davao Light
1,548,155
1,459,161
1,370,951
293
276
248
281,234
268,708
257,101
SFELAPCO
446,513
421,139
406,022
83
80
75
81,891
79,669
73,600
Cotabato Light
129,788
120,186
118,450
24
24
23
31,611
30,171
28,927
SEZ
405,038
372,391
298,050
83
97
64
2,734
2,724
2,585
MEZ
138,128
117,014
141,225
22
23
23
77
76
74
BEZ
90,174
60,376
63,329
27
21
15
31
28
28
4,752,033
4,379,768
4,164,086
910
857
774
714,423
685,378
658,318
Total
Visayan Electric Company, Inc. (VECO)
VECO is the second largest 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 mn. 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-ininterest, 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 55.19% held by AboitizPower.
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,
AboitizPower’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 AboitizPower acquired AEV’s ownership interest in VECO in January 2007, by AboitizPower. AboitizPower and
Vivant are each required 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.
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Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
VECO is part of the third group (Group C) of private distribution utilities to shift to PBR. The ERC issued its final determination
on VECO’s application for approval of its annual revenue requirements and performance incentive scheme under the PBR for
the regulatory period July 1, 2010 to June 30, 2014. Such final determination became final in May 2010.
Also in May 2010, VECO filed with the ERC its application for approval of the translation into distribution rates of its different
customer classes for the first regulatory year of the ERC-approved Annual Revenue Requirement (ARR) under the PBR for the
regulatory period July 1, 2010 to June 30, 2014. The application was approved on June 28, 2010 and the approved distribution,
supply and metering charges were implemented by VECO effective August 1, 2010.
Davao Light & Power Company, Inc. (Davao Light)
Davao Light is the third largest privately-owned electric distribution utility in the country in terms of customers and annual
kilowatt-hour (kWh) sales.
With a franchise covering Davao City and Davao del Norte areas of Panabo City and the Municipalities of Carmen, Dujali and
Santo Tomas, Davao Light services a population of approximately 1,777,926 and a total area of 3,561 square kilometers.
Although Davao Light was organized on October 11, 1929, the Aboitiz Group acquired its ownership interest in the company in
1946. Currently, the AboitizPower owns 99.93% of the shares in Davao Light.
Davao Light’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 Davao Light’s franchise for
Davao City to November 2005 and granted Davao Light 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 Davao Light a franchise over its current franchise area for a period of 25 years, or until September 2025.
Davao Light has a 150-MVA and a 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.
Davao Light’s power purchase agreement with the NPC allows the delivery of most of Davao Light’s power requirements
through Davao Light’s 138- kV lines. As a result, in taking delivery of electricity from NPC, Davao Light is able to bypass the
NGCP connection assets and avoid having to pay corresponding wheeling fees to NGCP, thereby allowing Davao Light to cut
its operating costs.
In February 2007, Davao Light awarded to the Hedcor Consortium (composed of Hedcor, ARI, Hedcor Sibulan, and Hedcor
Tamugan) a 12-year supply contract 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 bn at current peso value, representing significant savings for Davao Light
customers. Davao Light 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 1,363,375 MWH and the 12-year contract with Hedcor.
In 2010, amidst the power crisis in Mindanao during the first semester, Davao Light’s franchise area was spared of the long daily
rotating brownouts of up to 8 to 12 hours experienced in other areas.
Annual Report 2010
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SEC FORM 20 - IS (INFORMATION STATEMENT)
The shorter service interruptions of up to a maximum of three hours were attributed to Davao Light’s implementation of its
contingency plans which include operation of its 54.8-MW Bunker C-fired standby plant or an average of 40 MW on a sustaining
basis. The standby plant is capable of supplying 19% of Davao Light’s electricity requirement.
The power from Hedcor Sibulan’s 42.5 MW and Hedcor, Inc.’s Mintal 4 MW hydroelectric plants likewise augmented power
supply in the Davao Light franchise area.
The Bunker C-fired plant and the Sibulan and Mintal hydroelectric plants are embedded in the Davao Light franchise. Thus,
the power generated from these facilities are dispatched directly into the Davao Light distribution network without passing
through the NGCP transmission lines.
To further alleviate the impact of the brownouts on small consumers, Davao Light instituted the Interruptible Load Program
(ILP) with the cooperation of its large industrial customers. These customers volunteered either to run their own generators or
shutdown their operation during power shortage so that the available power can be made available to small customers.
Despite the load curtailment issued by NGCP during the power crisis, Davao Light registered 1.548 bn kWh sales, representing
6.10% growth versus 2009.
All sectors of customers, residential, commercial and industrial posted rise in sales revenues, with the bulk coming from the
banana, manufacturing and refrigeration businesses in the industrial sector. Influx of other medium business ventures such
as retail shopping centers, beverage and cold storage gave a boost in the commercial electricity sales.
Peak demand hit 291 MW for a 5.41% increase versus last year. New service connections grew by 4.66% increasing the number
of customers to 281,234 by year-end. Fast development of new subdivisions and condominiums drove an upscale of 5%
in residential consumers.
As required by EPIRA, Davao Light filed with the ERC its distribution wheeling rates in order to enter into the PBR rate
methodology. Based on Davao Light’s approved annual revenue requirements for the regulatory period July 1, 2010 to
June 30, 2014, the ERC adjusted its average distribution related charges by π0.08 from π1.08 per kWhr to π1.16 for the first year.
Davao Light operates its distribution system at a systems loss level lower than the government mandated 8.50% cap set for
private distribution utilities. From 7.94% in 2009 the company further reduced its systems loss figure by 0.53% to 7.41% by the
end of December 2010.
Constantly innovating on services to add convenience to paying customers, Davao Light’s partnership with the country’s
top payment service providers, EC Pay and CIS Bayad Center, added a combined 99 payment centers. Aside from payment
centers in its own offices, Davao Light also engages the services of third party collection agents, such as mall payment centers,
authorized banks and convenience stores. Customers now have 129 different payment venues to choose from, 61 of which are
convenience stores that have been commissioned to receive bill payments 24/7.
To improve service reliability, a total of 19 circuit kilometers of 69 kV Sub-transmission and 13.8 kV were upgraded. Ten 138 kV
transmission line structures were also converted from wood to steel.
In order to maintain the standby Bunker C-fired plant’s dependability, four of its machines with a total generating capability of
20 MW were overhauled.
On substation operations, comprehensive maintenance and servicing on five distribution facilities were undertaken. At the
same time 3 control rooms were completed.
50
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
Following VECO, Davao Light rolled out Project Pearl, the project name for the Customer Care and Billing (CC & B) system
developed by Oracle being implemented among AboitizPower’s distribution utilities. The π100 mn CC&B is an integrated
customer care software that will replace the various in–house developed systems currently used.
Cotabato Light & Power Company (Cotabato Light)
Cotabato Light 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 2010, it has a manpower complement of 74 full-time employees and a number of contractual employees serving a customer
base of 31,611, composed of residential, commercial, industrial and flat rate customers.
Cotabato Light 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 Cotabato Light’s franchise until June 1989. In August 1989, NEA extended Cotabato Light’s franchise for another 25
years, which will expire in August 2014. AboitizPower owns 99.93% of Cotabato Light.
As of 2010, Cotabato Light 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. Cotabato Light’s distribution voltage is 13.8 kV. To further boost
its systems’ reliability and efficiency, the construction of the new Malagapas 10 MVA Substation is ongoing and is expected to
be operational by May 2011.
Cotabato Light maintains a standby 7-MW Bunker C-fired plant capable of supplying approximately 30.50% 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 Cotabato Light’s customers. During the
recent Mindanao power crisis, Cotabato Light’s franchise area experienced one of the lowest rotating power outages due to
its back-up power plant.
In 2010 Cotabato Light posted a modest kWh growth of 7.99% compared to 2009 basically because of increase in number of
residential customers and increase of industrial consumptions.
Although a relatively small utility, Cotabato Light’s corporate relationship with its affiliate, Davao Light, allows the former to
immediately implement benefits from the latter’s system developments.
Keeping pace with world class standards, Cotabato Light adopted a new computerized accounting system called ERP from
Oracle. Also, it is now in the process of implementing the Oracle’s CC& B system, which is the standard billing, collection and
customer service related systems utilized by other distribution utilities of AboitizPower. The CC & B system is expected to be
onstream by mid-2011.
Managing its systems loss is a challenge for Cotabato Light. With system losses capped by ERC at 8.50%, Cotabato Light
aims to lower systems losses through various measures most of which are aimed to address pilferage, the primary cause of its
higher-than-cap systems losses.
The implementation of Meter on Post (MOP) or Elevated Metering System project contributed much to the reduction of its
systems loss to 9.10% in December 2010 from as high as 10.80% at the start of the year. This project will continue to be
implemented in 2011 to further reduce the systems loss to 8.50%.
The ERC issued its final determination on Cotabato Light’s application for approval of its Annual Revenue Requirement and
performance incentive scheme under the PBR scheme covering a 4-year regulatory period which commenced on April 1, 2009
until March 30, 2013.
Annual Report 2010
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SEC FORM 20 - IS (INFORMATION STATEMENT)
On April 15, 2009, the ERC approved Cotabato Light’s application for translation of its approved Annual Revenue Requirement
for the first regulatory year into applicable rates per customer class. Cotabato Light 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 was reflected and recovered in the next regulatory year’s rate translation
application which was approved by ERC on February 22, 2010. The resulting new rates were implemented in April 2010.
Cotabato Light filed on December 15, 2010 the third regulatory year MAP recalculation and rate translation to be implemented
from April 2011 to March 2012. ERC is scheduled to release its decision on the third regulatory year rates before the end of
March 2011.
San Fernando Electric Light and Power Company, 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 372,753.
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.
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. AboitizPower has an effective interest of 43.78% in SFELAPCO.
Subic Enerzone Corporation (SEZ)
In May 2003, the consortium of AEV and Davao Light 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 Davao Light, 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 AboitizPower in January 2007 of the 64.30% effective ownership interest of AEV in SEZ,
AboitizPower 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, AboitizPower bought the 20% equity of Team Philippines in SEZ for π92 mn. Together with the 35%
equity in SEZ of AboitizPower’s subsidiary Davao Light, this acquisition brought AboitizPower’s total equity in SEZ to 100%.
52
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
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.
In 2010, SEZ acquired more advanced equipment to further enhance the company’s service to its customers. In January, the
company purchased a Meter Test Equipment (MTE) 5-Position Test Bench from Germany to improve its meter calibration
services. As a result, meter calibration improved from 25 meters to 130 meters a day. In July 2010, SEZ procured a Megger Fault
Locator for underground power cable trouble-shooting. With this new equipment, SEZ can determine electrical underground
faults more quickly, thus reducing power outage time.
SEZ is part of the fourth batch of private utilities to enter PBR. The ERC is expected to release by the end of June 2011 its final
determination on SEZ’s application for approval of its MAP, annual revenue requirements, and performance incentive scheme
for the period covering October 2011 to September 2015. The approved MAP will then be translated into new per customer
class rates and will be implemented starting October 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 MactanCebu International Airport Authority (MCIAA).
On June 8, 2007, AboitizPower 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, AboitizPower acquired AboitizLand’s ownership interest in
MEZ valued at π609.5 mn 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.
In 2010, MEZ mounted two sets of Automatic Voltage Regulator (AVR) to its old substation to improve voltage levels to
locators.
To further provide world-class customer service, MEZ constructed their main administration office within the zone where they
operate, MEPZ II. The MEZ control room was also renovated and expanded to improve the efficiency of operation. To avail
of the opportunities in the competitive electricity market, MEZ decided to register as a direct participant of the Wholesale
Electricity Spot Market (WESM) during the end of 2010.
For the 2011 operating period, MEZ plans to transfer its NGCP metering to its substation in order to minimize line losses and
further improve the voltage quality by the addition of two more sets of AVR.
Balamban Enerzone Corporation (BEZ)
BEZ was incorporated in January 2007 when CIPDI, a joint venture between AboitizLand and Tsuneishi Holdings (Cebu), Inc.,
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 THI as well as the modular fabrication facility of Metaphil International.
Annual Report 2010
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SEC FORM 20 - IS (INFORMATION STATEMENT)
On May 4, 2007, CIPDI declared property dividend to its stockholders in the form of its equity in BEZ. On June 8, 2007,
AboitizPower 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, AboitizPower acquired AboitizLand’s ownership interest in BEZ valued
at π266.9 mn in exchange for AboitizPower’s common shares issued at the initial public offering price of π5.80 per share.
On March 7, 2008, AboitizPower purchased Tsuneishi Holdings’ 40% equity in BEZ for approximately π178 mn. The acquisition
brought AboitizPower’s total equity in BEZ to 100%.
During the early months of 2010, BEZ completed the construction of the 33 MVA on-load tap changer substation, including
the control room with 15 kV metal-clad switchgear, as well as the two-kilometer 69 kV line from Arpili to Buanoy substations.
BEZ also erected their fast and slow moving warehouses within their Buanoy and Arpili Substations respectively.
Supervisory Control and Data Acquisition (SCADA) will be implemented starting first quarter of 2011 to raise the quality of
operation in BEZ’s Arpili and Buanoy substations.
To ensure continuous supply of power, BEZ decided to register as a direct participant of WESM during the end of 2010.
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 EPIRA is
fully implemented, large-scale customers will be allowed to obtain electricity from Retail Electricity Suppliers (RES) licensed
by the ERC.
Aboitiz Energy Solutions, Inc. (AESI)
AESI, a wholly owned subsidiary of AboitizPower, holds a license to act as a RES (issued on November 9, 2009) 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.
AESI also provides a range of value added technical services to the various customers of the AboitizPower generation group,
including power quality analysis, thermal scanning and power factor evaluation and correction. These technical services allow
power supply customers to properly assess their power consumption profile leading to a more efficient power consumption
management. Aside from providing technical assistance in power quality analysis, AESI is also involved in project management
services for transmission lines and substations.
These products - from power supply to technical support - allow AESI to provide a one stop shop convenience to AboitizPower
customers for all their power requirements. As the era of Open Access begins, these same services currently enjoyed by existing
AboitizPower generation customers, from distribution utilities to large manufacturing firms, will be made available by AESI
to new retail supply customers. This will positively impact the efficiency and use of power in these industrial and residential
customers in the years ahead.
54
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
(ii) Sales
Comparative amounts2 of revenue, profitability and identifiable assets are as follows:
2010
2009
2008
Gross Income
59,551
23,174
12,243
Operating Income
26,232
5,456
1,653
Total Assets
134,557
111,341
47,272
Note: Operating Income is operating revenue net of operating expenses.
The operations of AboitizPower and its subsidiaries and affiliates are based only in the Philippines.
Comparative amounts3 of revenue contribution by business grouping are as follows:
Business Segment
2010
2008
As restated
2009
Power Generation
46,982
78%
12,466
53%
2,985
24%
Power Distribution
13,065
22%
10,734
46%
9,228
73%
465
0%
296
1%
328
3%
23,496
100%
23,496
100%
12,541
100%
Services
Total Revenue
Less: Eliminations
(961)
(322)
(298)
Net Revenue
59,551
23,174
12,243
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 and SNAP-Benguet have ASPAs with NGCP as ancillary service providers to the Luzon Grid. As
ancillary service providers, SNAP-Magat and SNAP-Benguet nominate their 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 and SNAP-Benguet. TMI also has an ASPA with NGCP for a supply by each of PB 117 and 118 of 50 MW of
ancillary services consisting of contingency reserve, dispatchable reserve, reactive power support and blackstart capacity for
the Mindanao Grid.
Majority of AboitizPower’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, AboitizPower’s Distribution Utilities have exclusive distribution franchises in the areas where they
operate. These utilities own distribution lines with voltage levels ranging from 220 volts to 23 kV and 69 kV backbone and subtransmission lines. VECO also owns a 138 kV tie line embedding CEDC to its system. These lines distribute electricity to the
distribution utilities’ 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 of the Distribution Companies 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 electricity consumption and demand.
Amounts in millions
id.
2
3
Annual Report 2010
55
SEC FORM 20 - IS (INFORMATION STATEMENT)
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 AboitizPower’s Distribution Utilities 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.
(iv) New Products/Services
Other than the ongoing Greenfield and/or rehabilitation projects undertaken by AboitizPower’s Generation Companies,
AboitizPower and its subsidiaries do not have any publicly announced new product or service to date.
(v) Competition
Generation Business
With the privatization of NPC-owned power generation facilities and the establishment of WESM, AboitizPower’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 TLI 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.
AboitizPower 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 AboitizPower’s Distribution Utilities currently has an exclusive franchise to distribute electricity in the areas covered
by each franchise.
Under Philippine law, the franchises of the distribution utilities 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 Certificate of Public Convenience and Necessity 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 Utilities’ franchises could adversely affect the
Company’s results of operations.
(vi) Sources of Raw Materials and Supplies
Generation Business
AboitizPower’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
56
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
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 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.
AboitizPower’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. TMI has existing
fuel supply agreements with Shell and Petron for PB 117 and 118, respectively, which peg fuel prices based on Mean of Platts
Singapore (MOPS).
STEAG has existing long-term coal supply agreements with PT. Jorong Barutama Greston of Indonesia and Samtan Co. Ltd of
Korea.
TLI has entered into long-term coal supply contracts for the Pagbilao plant’s annual coal requirements. With the tight coal
supply situation in the market as a result of weather disturbances in coal producing countries, TLI is looking at and evaluating
alternative sources other than Indonesia to ensure security of supply.
Distribution Business
The bulk of volume of electricity the Distribution Utilities sell is purchased from NPC, rather than from the Generation Companies.
The following Distribution Utilities purchase electricity from the Generation Companies: Davao Light from Hedcor, SFELAPCO
from APRI and VECO from CPPC and CEDC. Most of AboitizPower’s Distribution Utilities have 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
870,481
Yes
ERC approved NPC rate + ERC
approved adjustments
VECO
NPC - (extended) expiring in
December 25, 2011
Davao Light
NPC- 10 years; expiring in
December 2015
1,238,475
Yes
ERC approved NPC rate + ERC
approved adjustments
Cotabato Light
NPC - 10 years; expiring in
December 2015
116,906
Yes
ERC approved NPC rate + ERC
approved adjustments
MEZ
NPC - 10 years; expiring in
September 2015
114,680
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
The rates at which Davao Light and SFELAPCO purchase electricity from AboitizPower’s 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 Davao Light 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 AboitizPower’s Distribution Utilities from purchasing more than 50% of their electricity requirements from affiliated
Generation Companies. Hedcor Sibulan supplies Davao Light with electricity generated from its Sibulan plants pursuant to the
Hedcor Consortium’s 12-year power supply agreement to supply new capacity to Davao Light.
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 an Electric Power Purchase Agreement (EPPA) with CEDC for the supply
of 105 MW for 25 years to address VECO’s long-term power supply requirement. 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. CEMEX’s last delivery of power to VECO was on November 2010.
Annual Report 2010
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SEC FORM 20 - IS (INFORMATION STATEMENT)
The provisions of the Distribution Utilities’ 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 Utilities can purchase up to 90% of their electricity
requirements using bilateral contracts.
Meanwhile, Davao Light and Cotabato Light each has its own stand-by plant. Davao Light currently maintains the 53 MW
Bunker C-fired Bajada stand-by plant which is capable of supplying 19% of Davao Light’s requirements. Cotabato Light
maintains a stand-by 7 MW Bunker C-fired power plant capable of supplying approximately 30.50% of its requirements.
Transmission Charges
Each of the Distribution Utilities 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 Utilities have negotiated
agreements with NGCP in connection with the amount and form of security deposit to be provided by the Distribution Utilities
to NGCP to secure their obligations under their transmission services contracts.
(vii) Major Customers
Close to 76% of the total electricity generated by the Generation Companies are either sold to private Distribution Utilities
pursuant to long-term bilateral agreements or delivered to the NPC pursuant to long-term bilateral power supply agreements.
The bilateral agreements with NPC are supported by NPC’s credit, which in turn is backed by the Philippine government.
The remaining 24% of the total electricity generated by AboitizPower’s Generation Companies is sold through the Wholesale
Electricity Spot Market (WESM).
Most of AboitizPower’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 AboitizPower. 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
AboitizPower and its subsidiaries (the Group) enter into transactions with its parent, associates and other related parties,
principally consisting of:
(a) Up until December 31, 2008, the Group had service contracts with ACO 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 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
P293.70 mn in 2010, P409.40 mn in 2009, and P362.60 mn in 2008, 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 in 2010 and 2009 and P40.70 mn in 2008
(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 Power,
LHC, SNAP-Magat and SNAP-Benguet in the amount of P1.70 bn in 2010 and P1.80 bn in 2009 and 2008.
58
Aboitiz Power Corporation
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(d) Energy fees billed by Hedcor to SFELAPCO amounted to nil in 2010, P19.60 mn in 2009 and P17.30 mn in 2008.
(e) Energy fees billed by CPPC to VECO amounted to P2.04 bn in 2010, P2.10 bn in 2009 and P2.35 bn in 2008.
(f) Energy fees billed by TLI to SNAP-Magat in 2010 amounted to P22.10 mn.
(g) Energy fees billed by TMI to Pilmico Foods Corporation (Pilmico) in 2010 amounted to P47.40 mn. Pilmico is a wholly
owned subsidiary of AEV.
(h) Energy fees billed by BEZ to affiliates (ACO subsidiaries and associates) amounted to P521.90 mn in 2010 P287.70 mn
in 2009 and P181.50 mn in 2008.
(i) Aviation services rendered by AEV Aviation to the Group. Total expenses from associate amounted to P32.70 mn in
2010, P24.80 mn in 2009 and P19.90 mn in 2008. AEV Aviation is a wholly owned subsidiary of AEV.
(j) Lease of commercial office units by the Group from Cebu Praedia Development Corporation (CPDC) for a period of
three years. Rental expense amounted to P69.40 mn in 2010, P48.20 mn in 2009 and P32.20 mn in 2008. CPDC is a
wholly owned subsidiary of AEV.
(k) The Company provides services to certain subsidiaries and associates such as technical and legal assistance for various
projects and other services. Total technical and service fee income amounted to P93.70 mn in 2010, P2.20 mn in 2009
and P9.40 mn in 2008.
(l) Cash deposits with AEV associate Union Bank of the Philippines (UnionBank) and AEV subsidiaries City Savings Bank
(CitySavings).
(m) Advances to/from related parties, both interest and noninterest-bearing, payable on demand. Interest-bearing
advances are based on annual interest rates ranging from 1.80% to 8.25% in 2010, 3.00% to 9.25% in 2009 and 3.00%
to 10.40% in 2008. Net interest expense incurred on these advances amounted to P1.50 mn in 2010. Net interest
income earned on these advances amounted to P55.80 mn in 2009 and P142.70 mn in 2008
(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 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.
AboitizPower’s Generation Companies, as well as Davao Light and Cotabato Light 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,
Annual Report 2010
59
SEC FORM 20 - IS (INFORMATION STATEMENT)
financial and environmental standards provided in existing laws and regulations in their operations.
The generation companies, Davao Light and Cotabato Light possess COCs for their generation businesses, as follows:
Title of Document:
COC
No. 05-02-GXT 286b 0331
COC
No.
03-11-GXT32-0032
COC
No. 03-08-GXT17-0017
COC
No. 10-12-GXT 1370113728M
HEDCOR
Power Plant
Type
Davao
Light
Capacity
(in MW)
Fuel
Years of
Service
Hydro
Tadlangan, 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
Hydro
Electric
Turbine
Brgy. Mintal, Talomo,
Davao City
3.47
Hydro
15
Hydro
Bakun Central, Bakun,
Benguet
10
Hydro
15
Hydro
Ampusongan, Bakun,
Benguet
2.6
Hydro
15
Hydro
Amilongan Alilem,
Ilocos Sur
70
Hydro
23
Diesel
Engine
J.P. Laurel Ave.,
Bajada, Davao City
58.7
Diesel
25
Diesel
Engine
Ponciano Reyes
Substation
105.60
Diesel
25
Diesel
Engine
Don Ramon
Substation
80.00
Diesel
25
Diesel
Engine
J.P. Laurel Ave.,
Bajada, Davao City
(BPP/ERA Blackstart)
80.00
Diesel
25
Diesel
Engine
Panabo Office
41.6
Diesel
25
Diesel
Sinsuat Ave.,
Cotabato City
9.9
Diesel
NMHC
LHC
Location
Date of Issuance
February 26, 2007
December 7, 2006
July 29, 2008
December 1, 2010
COC
No. 07-01 GXT-1591116153
Cotabato
Light
COC
No. 08-06-GXT2-0002
EAUC
Land-Based
Mactan Export
Diesel
Processing Zone,
HFO Fired
Lapulapu City
Engine
46
Heavy
Fuel Oil
20
June 10, 2008
CPPC
Land-Based
Old VECO Compound,
Diesel
Brgy. Ermita, Cebu
HFO Fired
City
Engine
70
Heavy
Fuel Oil
20
June 3, 2008
COC
No. 08-06-GXT1-0001
60
Issued
under the
name of:
Aboitiz Power Corporation
January 10, 2007
SEC FORM 20 - IS (INFORMATION STATEMENT)
Power Plant
Issued
under the
name of:
Type
Location
Capacity
(in MW)
Fuel
Years of
Service
COC
No. 08-08-GXT20-0020
WMPC
Diesel
Sitio Malasugat, Sangali,
Zamboanga City
100
Bunker C/ Diesel
30
August 7, 2008
COC
No. 08-08-GXT21-0021
SPPC
Diesel
Baluntay, Alabel,
Sarangani Province
50
Bunker C/ Diesel
30
August 7, 2008
Hydro
electric
turbine
Gen. Aguinaldo,
Ramon, Isabela
360
Hydro
Stand-by
Diesel
Genset
Gen. Aguinaldo,
Ramon, Isabela
350
Diesel
Brgy. Binga,
Tinongdan, Itogon,
Benguet
100
Hydro
Park V, Phividec
Industrial Estate,
Balacanas, Villanueva,
Misamis Oriental
232
Coal
Title of Document:
COC
No. 05-11-GXT-286013433
SNAPMagat
(Magat
Plant)
COC
No. 10-11-GXT
286M-13429L
NPC
(Binga
Plant)
COC
No. 06-08-GN-16
STEAG
Power
Hydro
Electric
Turbine
Coal fired
Stand-by
Genset
COC
No. 10-05-GXT286e-7833
COC
No. 10-12-GXT
286r-13736L
COC
No. 06-04-GXT 286aa14632
COC
No. 06-04-GXT 2869915074
Certificate of
Compliance No. 06-04GXT 286bb-14633
APRI
(Makban
Geothermal
Plant)
Geothermal
Brgy. Bitin, Bay,
Laguna
Plant A
126.40
MW
Plant D –
40 MW
Sitio Tamlong, Brgy.
Limao, Calauan,
Laguna
Plant B
– 126.40
MW
Plant
C – 126.4
MW
Brgy. Sta. Elena, Sto.
Tomas, Batangas
Plant E –
40 MW
Geothermal Brgy. Cale, Tiwi, Albay
OrmatMak-Ban
Binary
GPP
Brgy. Sta. Elena, Sto.
Tomas, Batangas
Brgy. Bitin, Bay,
Geothermal
Laguna
Brgy. Tamlong,
Calauan, Laguna
Power
Barge 118
Diesel
Engine
Stand-by
Diesel
Genset
Carlos Cutler Ave.,
Brgy. San Roque,
Maco, Compostela
Valley
Diesel
Engine
Power
Barge 117
Steam
Turbine
Stand-by
Genset
Nasipit, Agusan del
Norte
November 29,
2005 (Change of
ownership issued
on January 28,
2008)
November 15,
2010
25
August 30, 2006
1.25
APRI (Tiwi
Geothermal
Plant)
Date of Issuance
234 MW
Diesel
25
Steam
May 31, 2010
Steam
December 10,
2010
April 6, 2006
release of new
COC was deferred
by ERC pending
completion of the
rehabilitation of
the plant
18.50
Steam
103.80
Diesel
April 19, 2006
1.68
Diesel
new COC
application still
pending with ERC
100.00
Diesel
3.50
Steam
1.68
Diesel
April 6, 2006
new COC
application still
pending with ERC
Annual Report 2010
61
SEC FORM 20 - IS (INFORMATION STATEMENT)
AboitizPower’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 utilities operating
within ecozones, all distribution utilities 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 starts, 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, AboitizPower’s wholly-owned
subsidiaries, AESI and Adventenergy, Inc., obtained separate licenses to act as Retail Electricity Suppliers and Wholesale
Aggregators.
Trademarks
AboitizPower 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.
Distribution Service Management with the Subic Bay Metropolitan Authority
4
62
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
Trademarks
ABOITIZ ENERGY
SOLUTIONS & DEVICE
(Class No. 42)
Cleanergy
(Class No. 42)
Cleanergy and Device
(Class No. 42)
A Better Future
(Class No. 39,40, and 42)
Better Solutions
(Class No. 39, 40 and 42)
Cleanergy Get It and
Device
(Class No. 39, 40 and 42)
Applicant
AESI
AboitizPower
Date Filed
January 25, 2007
October 19,
2001
Certificate of
Registration No./
Date Issued
Application for
4-2007-000784
trademark ABOITIZ
SOLUTIONS
September 03, 2007 ENERGY
and Device.
AboitizPower
AboitizPower
AboitizPower
July 30, 2002
April 23, 2010
April 23, 2010
April 23, 2010
Status
Original Certificate of
Registration for the
ABOITIZ ENERGY
SOLUTIONS &
DEVICE was issued on
September 03, 2007
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 light
bulb 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
Application for
trademark “A Better
Future.”
Trademark application
has been allowed and
its publication in the
Official Gazette has
been approved in IPO’s
Notice of Allowance
dated August 4,
2010. Payment for
publication has been
paid on October 4,
2010.
4-2010-004384
Application for
Trademark “Better
Solutions”.
Trademark application
has been allowed and
its publication in the
Official Gazette has
been approved in IPO’s
Notice of Allowance
dated August 4,
2010. Payment for
publication has been
paid on October 4,
2010.
4-2010-004381
The word “Cleanergy”
with the phrase “get
it” below it with both
words enclosed inside
a representation of a
thumbs up sign. The
whole mark is rendered
in two shades of green.
Trademark application
has been allowed and
its publication in the
Official Gazette has
been approved in IPO’s
Notice of Allowance
dated August 4,
2010. Payment for
publication has been
paid on October 4,
2010.
4-2001-07900
January 13, 2006
4-2002-06293
AboitizPower
Description
July 16, 2007
4-2010-004383
Annual Report 2010
63
SEC FORM 20 - IS (INFORMATION STATEMENT)
Trademarks
AboitizPower word mark
(Class 39,40, & 42)
Applicant
AboitizPower
Cleanergy got it & Device
(Class 39, 40 and 42)
AboitizPower
AboitizPower Spiral
(Class 39, 40 and 42)
April 23, 2010
April 23, 2010
April 23, 2010
AboitizPower and Device
(Class 39, 40 and 42)
AboitizPower
April 23, 2010
Power One (wordmark)
(Class No. 42)
AESI
July 29, 2002
AESI
February 17,
1999
Power One and Device
(Class No. 42)
64
AboitizPower
Date Filed
Aboitiz Power Corporation
Certificate of
Registration No./
Date Issued
Description
Status
4-2010-004385
Application
for Trademark
“AboitizPower word
Mark”.
Trademark application
has been allowed and
its publication in the
Official Gazette has
been approved in IPO’s
Notice of Allowance
dated August 4,
2010. Payment for
publication has been
paid on October 4,
2010.
4-2010-004382
The word “Cleanergy”
with the phrase “got
it” below it with both
words enclosed inside
a representation of a
thumbs up sign. The
whole mark is rendered
in two shades of green.
Trademark application
has been allowed and
its publication in the
Official Gazette has
been approved in IPO’s
Notice of Allowance
dated August 4,
2010. Payment for
publication has been
paid on October 4,
2010.
The representation of a
spiral rendered in blue.
Trademark application
has been allowed and
its publication in the
Official Gazette has
been approved in IPO’s
Notice of Allowance
dated November
3, 2010. Payment
of the issuance and
publication fees
has been made on
December 29, 2010.
The words “Aboitiz”
and “Power” rendered
in two shades of blue
with the representation
of a spiral above it and
the words “A Better
Future: below it.
Trademark application
has been allowed and
its publication it the
Official Gazette has
been approved in IPO’s
Notice of Allowance
dated November
3, 2010. Payment
of the issuance and
publication fees
has been made on
December 29, 2010.
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.
4-2010-004380
4-2010-004379
4-2002-6232
February 19, 2007
4-1999-001121
September 18,2006
SEC FORM 20 - IS (INFORMATION STATEMENT)
Trademarks
SUBIC ENERZONE
CORPORATION and
LOGO (colored)
(Class No. 39)
SUBIC ENERZONE
CORPORATION and
LOGO (gray)
(Class No. 39)
SUBIC ENERZONE
CORPORATION
(wordmark)
(Class No. 39)
RP Energy and Device
(Class No. 39)
(x)
Applicant
Date Filed
Certificate of
Registration No./
Date Issued
4-2006-07306
SEZC
July 6, 2006
August 20,2007
4-2006-07305
SEZC
July 6, 2006
August 20,2007
4-2006-007304
SEZC
July 6, 2006
June 4, 2007
4-2008-009737
RP Energy
August 12, 2008
April 13, 2009
Description
Status
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.
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.
A representation of
2 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
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 has begun to institute 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 AboitizPower’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, wherein prices are driven by market forces.
Annual Report 2010
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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 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.
On February 18, 2011, the ERC issued an Order in ERC Case No. 2011-004RM entitled “In the Matter of the Declaration of
the Retail Competition and Open Access Pursuant to Section 31 of Republic Act No. 9136, otherwise known as the Electric
Power Industry Reform Act of 2001, and Sections 3 and 4 of its Implementing Rules and Regulations,” setting public hearings
to determine whether or not Retail Competition and Open Access may already be declared. In the said Order, the ERC motu
propio initiated the proceedings to determine whether or not Retail Competition and Open Access may already be declared.
The ERC scheduled the public hearings on March 7 to 11, 2011 in ERC, Pasig City.
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 are exempt from the cross-subsidy
removal for a period of ten years, unless extended by law.
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Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
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 set out the manner in which this new PBR ratesetting 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 distributionrelated charges that distribution utilities can collect from customers over a 4-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 Cotabato Light’s application for approval of its annual revenue requirement and
performance incentive scheme under the PBR scheme covering a 4-year regulatory period which commenced on April 1, 2009
until March 30, 2013.
On April 15, 2009, the ERC approved Cotabato Light’s application for translation of its approved annual revenue requirement for the
first regulatory year into applicable rates per customer class. Cotabato Light 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 was reflected in Cotabato Light’s second regulatory year MAP recalculation
and rate translation application which was approved by the ERC on February 22, 2010. The new rates were implemented April
2010.
Cotabato Light filed on December 15, 2010 the third regulatory year MAP recalculation and rate translation to be implemented
from April 2011 to March 2012. ERC is scheduled to release its decision on the third regulatory year rates before the end of
March 2011.
VECO and Davao Light filed on May 2010 their respective first regulatory year rate design applications based on the ERC’s
final determinations on their annual revenue requirements for the 4-year regulatory period from July 2010 to June 2014. The
proposals were approved by ERC on June 2010 and the new rates were implemented on August 2010.
The second regulatory year MAP recalculation and rate translation for both Davao Light and VECO are scheduled to be filed
before the end of March 2011 and ERC is expected to release the new rates by June 2011.
For SFELAPCO and SEZ, the regulatory reset process is on its final stages and ERC is scheduled to release before the end of
March 2011 its draft determination on the applications for annual revenue requirements and performance incentive schemes
for the regulatory period October 2011 to September 2015. The draft determination will be subjected to public consultations
before ERC releases its final determination on June 2011. Thereafter, SFELAPCO and SEZ will be filing their respective rate
design applications for the first regulatory year to be implemented from October 2011 to September 2012.
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 No. 100 to equalize the taxes among fuels used for power generation.
Annual Report 2010
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SEC FORM 20 - IS (INFORMATION STATEMENT)
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 overadequate 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;
(f) Add the following exceptions under Section 45 of EPIRA (Cross Ownership, Market Power Abuse and Anti-Competitive
Behavior): (1) generating companies utilizing or producing power from site-specific indigenous and renewable energy
source such as hydro, geothermal and wind power and (2) if the breach in market share limits is due to the temporary
or permanent shutdown or non-operation of other generating facilities;
(g) Exempt or defer some assets of NPC from privatization, such as the Unified Leyte (Tongonan) Geothermal Complexes,
Agus and Polangui Complexes, and the Angat Dam;
(h) Expand the definition of host communities to include all barangays, municipalities and provinces or regions that
protect and maintain watersheds that provide water supply to the dam or hydroelectric power generating facility;
and
(i) Distribution utilities to pay a franchise tax equivalent to 3% of the distribution utility’s gross income in lieu of all
taxes.
The Renewable Energy Act of 2008
Republic Act No. 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 Gloria M. Arroyo in
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.
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
1.50% of gross income for indigenous geothermal energy. Micro-scale projects for communal purposes and non-commercial
operations with capacity not exceeding 100 kW will not be subject to the government share.
68
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
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 1.50% of the net book value;
net operating loss carry-over (NOLCO); corporate tax rate of 10% after the 7th 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 Transco 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.
According to Department Circular No. DO2009-05-0008 dated May 25, 2009 (Rules Implementing the Renewable Energy Act
of 2008), the DOE, Bureau of Internal Revenue (BIR) and the Department of Finance (DOF) shall, within six months from the
issuance of the implementing rules of the RE law, formulate the necessary mechanism and/or guidelines to implement the
entitlement of the general incentives and privileges to qualified RE developers. However, as of this date, no specific guidelines
or regulations has been issued yet by the relevant implementing agencies. Such being the case, the renewable energy
companies of AboitizPower, such as APRI, Luzon Hydro, Hedcor Sibulan, Hedcor Tamugan, SNAP-Magat and SNAP-Benguet
filed last August 6, 2010 a request for ruling before the BIR Law Division on the application of zero-rated value-added tax on all
its local purchases of goods and services needed for the development of the RE plant facilities, whole process of exploration
and development of RE sources up to their conversion into power and the services of subcontractors and contractors. To date,
the said request is still pending with the BIR Law Division.
New ERC Regulation on Systems Loss Cap Reduction
Under ERC Resolution No. 17, Series of 2008, which amends the systems loss caps adopted by Republic Act No. 7832 (AntiPilferage of Electricity and Theft of Electric Transmission Lines/Materials Act of 1994), the actual recoverable systems losses of
distribution utilities was reduced from 9.50% to 8.50%. 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
AboitizPower and its subsidiaries do not allocate specific amounts or fixed percentages for research and development. All
research and developmental activities are done by AboitizPower’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
AboitizPower’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 No.
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 AboitizPower Generation Companies and Distribution Utilities has incurred, and expects to
continue to incur, operating costs to comply with such laws and regulations. In addition, each of AboitizPower’s Generation
Companies and Distribution Utilities has made and expects to make capital expenditures on an ongoing basis to comply with
safety, health and environmental laws and regulations. AboitizPower’s hydropower companies allocate a budget for watershed
management system in the respective watersheds where their projects are located.
Annual Report 2010
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SEC FORM 20 - IS (INFORMATION STATEMENT)
The RE Law 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.
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 2010 AboitizPower 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.
AboitizPower 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, AboitizPower has a total of 100 employees as of January 31, 2011, composed of executive,
supervisory, and rank and file staff. There is no existing collective bargaining agreement covering AboitizPower employees.
As of January 31, 2011, the Company, its consolidated subsidiaries, Luzon Hydro, VECO, SNAP-Benguet, SNAP-Magat, EAUC
and MORE employed a total of 591 employees.
The following table provides a breakdown of total employee headcount on a per company basis, divided by function, as of
January 31, 2011.
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.
Number of Employees
Business Unit
70
Total
AboitizPower
100
AESI
BEZ
Executives Managers
Supervisors
Rank &
File
Unionized
Employees
Expiry of CBA
28
14
12
46
0
N/A
14
1
0
1
12
0
N/A
9
0
0
1
8
0
N/A
MEZ
17
1
1
1
14
0
N/A
ARI
7
7
0
0
0
0
N/A
APRI
311
4
19
70
218
93
Negotiations for a new
CBA with a newly
organized union is
about to start
CPPC
46
0
2
15
29
0
N/A
EAUC
44
1
3
13
27
0
N/A
Luzon Hydro
40
3
3
5
29
0
N/A
MORE
56
10
9
20
17
0
N/A
SEZ
57
1
4
4
48
0
N/A
SNAP-Magat
44
0
2
11
31
0
N/A
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
SNAP-Benguet
105
1
7
26
71
0
N/A
STEAG
190
3
16
42
129
0
N/A
WMPC
80
0
4
21
55
0
N/A
SPPC
68
0
4
19
45
0
N/A
Cotabato Light
74
0
2
16
56
47
06/30/14
Davao Light
285
12
26
65
182
182
06/15/11
Hedcor, Inc.
335
11
11
25
288
131
09/19/11
VECO
302
5
20
28
249
249
12/31/11
88
3
0
21
64
62
05/09/11
SFELAPCO
TOTAL NO. OF EMPLOYEES
2,272
On October 28, 2010, the Visayan Electric Company Employees Union – ALU – TUCP (the Union) filed a Notice of Strike against
VECO on grounds of unfair labor practice for alleged illegal dismissal of the union president and officers and alleged failure to
observe the grievance procedure in the Collective Bargaining Agreement (CBA). The Secretary of Labor assumed jurisdiction
over the strike and remanded the illegal dismissal case of the union president to the National Labor Relations Commission
(NLRC). The compulsory arbitration over the labor dispute and the illegal dismissal case remain pending before the NLRC. The
compulsory arbitration enjoins all parties to maintain industrial peace.
(xiv) Major Risk/s Involved in the Business
Through prudent management and investment decisions, AboitizPower constantly strives to minimize the risks it might
encounter in the businesses in which it is involved. However, certain risks are inherent to specific industries that are not within
the direct control of AboitizPower or its investee companies. Of note are the following:
Reputation Risk
AboitizPower recognizes that its reputation is its major asset and source of competitive advantage as well as its primary source
of vulnerability in view of the increasing presence of AboitizPower and its business units throughout the Philippines. Media
and communication have also reached a point where scrutiny from stakeholders and the general public have become more
stringent than ever. Regulators are a vital stakeholder in the power business and it is imperative for AboitizPower businesses
to keep their reputation levels high. A Reputation Management Department was established in 2009 to ensure the protection
and enhancement of this vital asset. Corporate social responsibility programs, undertaken mainly through the Aboitiz
Foundation, and sustainability efforts are given full management support, these being important sources of reputational gain
for AboitizPower.
Competition Risk
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 Company has demonstrated its ability to acquire the skill and talent to operate its newly acquired plants at their expected
level of operating standards. It also has the necessary expertise in building and financing greenfield assets. The Company
intends to continue the strategy of hiring experienced talent for plants that will be constructed as part of its investment plan
in the future.
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. These factors have caused
and are expected to cause fluctuation or instability in the operating results of the Generation Companies, particularly the
companies that sell substantial portions of the electricity they generate to the WESM.
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SEC FORM 20 - IS (INFORMATION STATEMENT)
To mitigate this, the Company aims to achieve a balanced portfolio of contracted and merchant business. In particular, it
intends to contract a majority of its base load capacity under price-stable bilateral contracts.
Regulatory Risk
AboitizPower’s generation and distribution businesses are now subject to constantly evolving regulations. To manage this
risk, planning ahead and preparing for expected changes in regulation now, rather than waiting for regulations to be imposed.
Trying to respond to new regulatory standards in a short space of time can be difficult, especially in a climate where forbearance
may be scarce. To respond proactively to such fundamental changes may require companies to take a long view on possible
regulations and consider alternate scenarios. The Distribution Companies’ drive for operational excellence allows them to
deliver world-class service at the least possible cost to their customers. This gives the Distribution Companies credibility and
the ability to successfully justify and implement their rates. In addition, the Company’s cost competitive generation asset
portfolio places it in a competitive position against other generation companies. This allows ERC-regulated clients to easily
secure approval of power supply contracts with the Company.
Business Interruption due to Natural Calamities and Critical Equipment breakdown
Loss of critical functions caused by natural calamities such as earthquakes, windstorms, typhoons and floods could result in a
significant interruption of the businesses. Interruption may also be caused by other factors such as major equipment failures,
fires and explosions, hazardous waste spills, workplace fatalities, product tampering, terrorism, and other serious risks. In
order to prevent and manage the risk of business interruption, regular preventive maintenance of the Company’s facilities are
being strictly observed and loss prevention controls are continually being evaluated and strengthened. In addition, to ensure
the continuity of operations in the event of a business interruption, a Business Continuity and Crisis Management Plan will be
developed and implemented in 2011 and Business Interruption insurance has been procured to cover the potential loss in gross
profits of the Group’s critical operations and assets.
Financial Risks
In the course of operation of Company and its business units, the Company is exposed to financial risks namely, interest rate
risk resulting from movements in interest rates that may have an impact on outstanding long-term debt; credit risk involving
possible exposure to counter-party default on its cash and cash equivalents, AFS investments and trade and other receivables;
liquidity risk in terms of the proper matching of the type of financing required for specific investments; and foreign exchange
risk in terms of foreign exchange fluctuations that may significantly affect its foreign currency denominated placements and
borrowings. Details of above risks including measure to mitigate them are discussed in the notes to the financial statements.
Fuel Supply Risk
The Company’s thermal plants - i.e., STEAG Power and CEDC which both use coal, and CPPC, EAUC, and TMI which use Bunker
C fuel, have contracts that allow for their fuel cost to be recovered from their tariffs. Meanwhile, SPPC and WMPC power plants
are operated under ECAs with NPC. Under the ECAs, 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.
Meanwhile, on the supply side, CPPC, EAUC and TMI each has medium term (2-3 year) contracts with the large oil companies
in the Philippines. CPPC and EAUC currently have medium term supply contracts in place, while TMI will be negotiating in 2011
for a new supply contract.
CEDC has long term coal contracts with various coal suppliers which will kick in upon commercial operations. STEAG hadentered
into an alternate coal supply agreement to allow it to diversify its fuel supply. Meanwhile, TLI had managed to lock in the prices
of its coal supply at a fixed price for 2011. It has entered into a long term coal supply agreement after an evaluation of the
various Indonesian coal sources to allow flexibility in its coal sourcing.
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As regards APRI’s steam supply, it is possible that the steam resource will decline faster than anticipated. The Company
believes that having Chevron, the largest producer of geothermal energy in the world as 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.
Political and Economic Factors
The results of operations of the Company’s business units have historically been influenced to a certain extent by the political
and economic situation in the Philippines. In the past, the country experienced periods of slow or negative economic growth.
Any future political or economic instability may have an adverse effect on the business and results of operations of the Company
or its investee companies.
Item 2. 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 (CPDC).
On a consolidated basis, the 2010 total Property, Plant and Equipment of AboitizPower were valued at P 74.29 bn as compared
to P72.90 bn for 2009. The breakdown, as follows:
Property, Plant and Equipment as of December 31, 2010 & 2009
2010
Land
114,336
125,774
Buildings, Warehouses and Improvements
951,281
898,699
Powerplant & Equipment
73,370,137
66,628,765
Transmission, Distribution and Substation Equipment
4,998,903
4,553,427
Transportation Equipment
459,746
386,970
Office Furniture, Fixtures and Equipment
159,951
111,304
Leasehold Improvements
204,563
183,302
1,642,611
1,651,908
Meter and Laboratory Equipment
383,765
358,801
Tools and Others
375,433
326,462
Electrical Equipment
Construction in Progress
1,552,872
4,633,416
Less: Accumulated Depreciation and Amortization
9,921,834
(6,957,799)
74,291,764
72,901,029
TOTAL
2009
Note: Values for the above table are in Thousand pesos
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Locations of Principal Properties and Equipment of AboitizPower subsidiaries are as follows:
SUBSIDIARY
DESCRIPTION
LOCATION/ADDRESS
CONDITION
Cotabato Light
Industrial land, buildings/
plants, eqpt. & machineries
Sinsuat Avenue, Cotabato City
In use for
operations
Davao Light
Industrial land, buildings/
plants, eqpt. & machineries
P. Reyes Street, Davao City; Bajada, In use for
Davao City
operations
Hedcor, Inc.
Hydropower plants
Kivas, Banengneng, Benguet;
Beckel, La Trinidad, Benguet;
Bineng, La Trinidad, Benguet;
Sal-angan, Ampucao, Itogon,
Benguet;
Bakun, Benguet
In use for
operations
Hedcor Sibulan
Hydropower plant
Santa Cruz, Sibulan Davao del Sur
In use for
operations
CPPC
Bunker C thermal power
plant
Cebu City, Cebu
In use for
operations
APRI
Geothermal power plants
Tiwi, Albay
Caluan, Laguna
Sto. Tomas, Batangas
In use for
operations
TMI
Barge-mounted diesel
power plants
Nasipit, Agusan del Norte
Barangay San Roque, Maco,
Compostela valley
In use for
operations
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
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 why 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;
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(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 PEMC Board affirmed
the recommendation of the technical committee. LHC believes though that there is legal basis to reclassify the Bakun plant
as an intermittent generation facility with the passage of the RE Law. The RE Law contains 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
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 non-payment 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 work
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force at that time. The employees, whose positions were made redundant, including complainants, received their individual
notices of redundancy between May and November 2004. They were formally separated from VECO between the periods June
to December 2005. At the time of their termination from employment, each of the complainants read through, and was made
to understand the contents of, and did sign 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. The Court of Appeals and the Supreme Court have affirmed the dismissal of the
complaints.
VECO vs. Roy Salubre, et. al.
Civil Case No. CEB-36172,
RTC Branch 16, Cebu City
The Province of Cebu assessed delinquency real property tax against VECO on the ground that VECO’s electric posts and
transformers located in Consolacion should be treated as real property. A Notice of Sale of Delinquent Property covering these
poles and transformers was subsequently issued against VECO.
VECO filed this case to question the legality of the assessment and the public auction, insisting that the electric poles and
transformers are not real properties and therefore not subject to real property taxes. Moreover, VECO is exempt from paying
real property tax on poles, wires and transformers by virtue of its legislative franchise (R.A. 9339). On July 27, 2010, the
lower court rendered a decision in favor of VECO and ordered the issuance of a writ of prohibition and injunction against the
defendants.
The case is now pending appeal with the Court of Appeals.
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 P10.50 mn, real property tax on VECO’s electrical posts
and transformers. The assessment was increased to P16.90 mn in 2004. On November 17, 2005, the assessment was further
increased to P17.50 mn. In 2003, VECO paid under protest the amount of P2 mn. 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.
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 Lilo-an. 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 P32 mn 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
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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 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 said 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 P40.40 mn, 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 Regional Trial Court (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-42398
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 P30.9 mn, 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 of 1991, 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 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.
With the completion of the trial and formal offer of evidences of the parties, this case is now pending resolution.
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 P30.5 mn
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.
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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 of 1991. Hedcor has been generously paying amounts
higher than the amount required by the Local Government Code.
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. In view of the pending negotiations for settlement, the proceedings of
this case have been suspended.
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 (R.A. 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.
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 currently 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.
The parties to the case are currently trying to settle the case amicably. In view of this, the trial has been suspended until
May 30, 2011.
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 and L-59
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 P11.0 mn, 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 could not 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 No.
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, have been engaged in negotiations to arrive at a possible settlement.
Trial of the case is ongoing.
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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 Luzon Hydro Corporation
(LHC). LHC is the special purpose vehicle formed to develop, construct and operate the 70-megawatt (MW) Bakun hydropower
plant in Ilocos Sur (the Bakun Plant) under a build-operate-transfer (BOT) scheme with the National Power Corporation
(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 Independent Power Producer Administration (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) 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.
PACIFIC HYDRO BAKUN, INC. for itself and/or on behalf of LUZON HYDRO CORPORATION vs. PHILIPPINE HYDROPOWER
CORPORATION (now Aboitiz Renewables, Inc.) its parent company, subisidiaries 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 Pacific Hydro Bakun, Inc., (PHBI) against ARI, et. al. for alleged violation
by the defendants of their fiduciary duties to LHC and PHBI by refusing to allow LHC to participate in the bidding for the
Independent Power Producer Administration (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.
The parties have agreed to submit this case to a court-mandated mediation proceedings together with the complaint for
tortious conduct filed by ARI against PHBI, et. al. in the RTC of Cebu City.
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Luzon Hydro Corporation and the National Power Corporation vs. The Local Board of Assessment Appeals of the Province
of Ilocos Sur, Fatima Tenorio, in her official capacity as the Provincial Assessor of the Province of Ilocos Sur, Antonio A.
Gundran, in his capacity as the Provincial Treasurer of the Province of Ilocos Sur
Central Board of Assessment Appeals, Manila
CBAA Case Nos. L-96 and L-99
On July 2, 2003, the Municipal Assessor of Alilem sent LHC two notices of assessment of real property. The first notice required
LHC to pay real property taxes in the amount of P4.3 mn, for the 4th quarter of 2002, while the second notice required LHC to
pay P17.2 mn for 2003. The notices of assessment also contained an additional imposition of 40% of the acquisition cost, which
allegedly represented installation costs, and a further imposition of 15%, which allegedly represented freight costs.
LHC filed a Protest before the LBAA which ruled against LHC by upholding the notices of assessment.
Thus LHC appealed directly to the CBAA where the trial of the case is ongoing.
SN Aboitiz Power-Magat, Inc. vs. The Municipality of Alfonso Lista, Hon. Charles L. Cattiling, in his capacity
as Mayor of the Municipality of Alfonso Lista, and Estrella S. Aliguyon, in her capacity as Treasurer of the
Municipality of Alfonso Lista
RTC Alfonso Lista, Ifugao, Branch 15
Special Civil Action No. 17-09
On July 12, 2007, SNAP-Magat was issued by the Board of Investments (BOI) Certificate of Registration No. 2007-188 classifying
SNAP-Magat’s operation of the Magat Power Plant as a pioneer enterprise. Pursuant to Section 133(g) of the Local Government
Code, SNAP-Magat is exempt from local business taxes for a period of six years from the date of registration with the BOI.
However, the Municipality of Alfonso Lista (Alfonso Lista) refused to recognize such exemption and insists on assessing and
collecting local business taxes from SNAP-Magat.
In March 2009, SNAP-Magat filed a Complaint for Injunction with the RTC of Alfonso Lista, Ifugao against the Municipality of
Alfonso Lista, its Mayor, and Treasurer. The Complaint prayed that the defendants and all persons acting under their direction or
authority be prevented from: (i) assessing and collecting local business taxes from SNAP-Magat; (ii) refusing to issue a Mayor’s
Permit to SNAP-Magat for non-payment of local business taxes; and (iii) distraining and levying on SNAP-Magat’s properties,
closing the Magat Power Plant, and committing any other act against SNAP-Magat that obstructs or delays its operations in
connection with its non-payment of local business taxes. The complaint also prays for the issuance of a temporary restraining
order and writ of preliminary injunction. The RTC denied SNAP-Magat’s application for a temporary restraining order.
SNAP-Magat then filed a Petition for Certiorari with the Court of Appeals for the issuance of temporary restraining order and/
or writ of preliminary injunction being sought from the RTC and for the nullification of the RTC order. The Court of Appeals
granted SNAP-Magat’s Petition for Certiorari and made permanent the temporary restraining order it initially issued.
Negotiations are ongoing between the parties for the settlement of the case.
Trial is ongoing.
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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Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
PART II - OPERATIONAL AND FINANCIAL INFORMATION
(1) AboitizPower’s common shares are traded on the PSE.
The high and low stock prices of AboitizPower’s common shares for each quarter of 2008 to 2010 were as follows:
2011
2010
2009
2008
High
Low
High
Low
High
Low
High
Low
31.60
26.20
12.75
8.60
4.65
3.90
5.60
4.50
Second Quarter
NA
NA
19.25
12.25
6.00
4.65
5.60
4.80
Third Quarter
NA
NA
21.80
18.00
6.70
5.30
6.00
4.85
Fourth Quarter
NA
NA
35.80
20.90
8.90
6.40
5.00
3.25
First Quarter
As of February 28, 2011, AboitizPower has 484 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
AboitizPower common shares as of March 31, 2011 is P30 per share.
(2) The top 20 stockholders of AboitizPower as of February 28, 2011 are as follows:
Name
Number of Shares
1. ABOITIZ EQUITY VENTURES, INC.
Percentage
5,622,113,063
76.40%
2. PCD NOMINEE CORPORATION (Filipino)
804,762,081
10.94%
3. PCD NOMINEE CORPORATION (Foreign)
584,666,672
7.95%
4. ABOITIZ & COMPANY, INC.
151,112,722
2.05%
5. ARMOZA MANAGEMENT & DEVELOPMENT CORPORATION
28,050,041
0.38%
6. SAN FERNANDO ELECTRIC LIGHT AND POWER CO., INC.
7,931,034
0.11%
7. UNIONBANK TISG AS INVESTMENT MANAGER FOR IMA #4B1-166-10
7,880,769
0.11%
8. PARRAZ DEVELOPMENT CORPORATION
7,827,522
0.11 %
9. KAYILKA HOLDINGS, INC.
7,783,834
0.11 %
10. LILOAN AGRO INDUSTRIAL DEVELOPMENT CORPORATION
6,051,405
0.08%
11. ABOITIZ, SABIN M.
6,050,985
0.08%
12. SIERRAROSA, INC.
5,892,110
0.08%
13. JOEMOR MANAGEMENT AND DEVELOPMENT CORPORATION
4,455,501
0.06%
14. BANILAD ESTATE, INC.
4,000,000
0.05%
15. EMETASI HOLDINGS, INC.
4,000,000
0.05%
16. RAMON ABOITIZ FOUNDATION, INC.
3,900,000
0.05%
3,177,545
0.04%
18. TAN BEN KUAN
2,750,000
0.04%
19. UBP T/A 4B1-153-09
2,484,698
0.03%
2,376,335
0.03 %
17. ABOITIZ, IKER M.
20. LMM HOMES MANAGEMENT & DEVELOPMENT CORP.
(3) The cash dividends declared by AboitizPower to common stockholders from 2009 to 2011 are shown in the table below:
Year
Cash Dividend Per Share
2011
Total Declared
Record Date
P1.32
P9.71 bn
3/17/2011
2010
P0.30
P2.21 bn
3/24/2010
2009
P 0.20
P1.47 bn
2/26/2009
AboitizPower 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
Annual Report 2010
81
SEC FORM 20 - IS (INFORMATION STATEMENT)
circumstances which may restrict the payment of cash dividends, such as the undertaking by AboitizPower 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, AboitizPower availed a total of P3.89 bn 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
5-year and 7-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 DUE
90,000,000.00
BDO TRUST AND INVESTMENT GROUP
180,000,000.00
BPI-AMTG AS INVESTMENT MANAGER FOR ALFM PESO BOND FUND, INC.
200,000,000.00
BPI-AMTG AS INVESTMENT MANAGER FOR AYALA LIFE ASSURANCE, INC.
100,000,000.00
BPI-AMTG AS INVESTMENT MANAGER FOR VARIOUS TRUST ACCOUNTS
200,000,000.00
BSP PROVIDENT FUND
50,000,000.00
CHINA BANK SAVINGS, INC. – TRUST DEPARTMENT
60,000,000.00
DEUTSCHE BANK AG MANILA BRANCH TRUST DEPARTMENT
50,000,000.00
DEUTSCHE BANK AG MANILA BRANCH TRUST DEPARTMENT
FIRST METRO INVESTMENT CORPORATION
20,000,000.00
400,000,000.00
FIRST METRO SAVE AND LEARN FIXED INCOME FUND
20,000,000.00
MAYBANK PHILIPPINES, INC.
300,000,000.00
RCBC TRUST & INVESTMENTS DIVISION FAO TA#59-098-3
ROBINSONS SAVINGS BANK
10,000,000.00
200,000,000.00
SECURITY BANK CORPORATION
500,000,000.00
SOCIAL SECURITY SYSTEMS
450,000,000.00
STERLING BANK OF ASIA, INC.
100,000,000.00
UNITED COCONUT PLANTERS BANK
300,000,000.00
TOTAL PRINCIPAL DUE
NOTEHOLDERS (7-Year Notes)
3,330,000,000.00
AMOUNT DUE
BDO PRIVATE BANK INC. WEALTH ADVISORY AND TRUST GROUP
19,600,000.00
BDO TRUST AND INVESTMENT GROUP
19,600,000.00
FIRST GUARANTEE LIFE ASSURANCE COMPANY, INC.
19,600,000.00
THE INSULAR LIFE ASSURANCE COMPANY, LTD.
490,000,000.00
TOTAL PRINCIPAL DUE
548,800,000.00
The total underwriting fees paid to the Joint Lead Managers for the issuance of the P3.89 bn corporate notes was P18.82 mn.
(b) On September 28, 2009, AboitizPower issued 5-year peso-denominated corporate fixed rate notes in the
aggregate amount of P5 bn 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 P5 bn corporate notes was made pursuant to a Notes Facility Agreement with First Metro
Investment Corporation as Issue Manager.
82
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
The corporate notes were issued to the following institutional investors:
NOTEHOLDERS (5-Year Notes)
AMOUNT DUE
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 P5 bn corporate notes was P24.19 mn.
Annual Report 2010
83
SEC FORM 20 - IS (INFORMATION STATEMENT)
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, 2010 compared with the year ended December 31, 2009, the year ended
December 31, 2009 compared with the year ended December 31, 2008, and 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. Equity in Net Earnings (Losses) of Investees. This represents the Group’s share in the undistributed earnings or
losses of its investees 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. Equity in net earnings (losses) of investees
indicates the profitability of the investments and the investees’ contribution to the Group’s net income.
Manner of Computation: Investee’s 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 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.
84
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
The table below shows the comparative figures of the top five key performance indicators for 2010 and 2009:
DISCUSSION ON KEY PERFORMANCE INDICATORS:
Key Performance Indicators
2010
2009
Amounts in thousands of Ps, except for financial ratios
SHARE IN NET EARNINGS OF ASSOCIATES
4,625,883
2,535,386
EBITDA
34,361,919
9,866,532
Net cash flows from operating activities
27,275,647
5,873,633
Net cash flows (used in) investing activities
(4,368,509)
(23,953,482)
Net cash flows from (used in) financing activities
(8,358,116)
7,721,594
Net Increase (Decrease) in Cash & Cash Equivalents
14,549,022
(10,358,255)
Cash & Cash Equivalents, Beginning
3,814,906
14,333,676
Cash & Cash Equivalents, End
18,301,845
3,814,906
CASH FLOW GENERATED:
CURRENT RATIO
2.58
0.68
DEBT-TO-EQUITY RATIO
1.33
2.18
Above key performance indicators are within management expectations.
Share in Net Earnings of Associates nearly doubled from last year’s results. The largest contributing companies
were SNAP-Magat and SNAP-Benguet, both of which benefitted from a fresh inflow of revenues from their
respective ancillary service contracts with NGCP. Both companies also saw a marked improvement on their
average selling prices to the electricity spot market which further improved their revenues for the year. On the
other hand, the following factors allowed VECO to increase its share to the Company’s Net Earnings of Associates:
(a) the continued growth of its sales of electricity on the back of higher demand from its industrial, commercial and
residential customers, and (b) additional margins brought about by rate adjustments in the second half of 2009 under the
RORB regime and in August of this reporting period under the PBR scheme. All the above positive contributions managed to
offset a one-time refinancing cost of P398 mn incurred by STEAG.
The positive effects brought about by the income contribution of the Company’s new acquisitions during the year vastly
improved the Company’s EBITDA which is up 248% versus the prior year. The income contributions from the geothermal
assets of APRI starting May 2009 and the TLI IPPA for the Pagbilao coal starting October 2009 were the main drivers of the
increase in EBITDA.
The Company’s Current Ratio managed to increase to 2.58x at year-end versus 0.68x in the prior year. The marked
increase in Current Assets is due to higher cash balances and an increase in Trade and Other Accounts Receivables. The
increase in Cash is attributable to healthy cash flows from various subsidiaries while the increase in Trade Receivables is
due to higher volumes of energy sold at better margins as well as new Trade Receivables recognized at TMI and Hedcor
Sibulan which started operating this year.
The recognition of the period’s robust net income lead to the improvement of the Company’s Debt to Equity ratio.
Annual Report 2010
85
SEC FORM 20 - IS (INFORMATION STATEMENT)
Financial Results of Operations
The Company’s net income for 2010 grew by 335% to P25.08 bn from P5.77 bn for the same period last year. This brought up earnings
per share to P3.40 for the year ending December 31, 2010 versus an earnings per share of P0.77 ending December 31, 2009.
The power generation business improved its contributions by 424% from prior year as it shored in a net income contribution of
P24.39 bn, from last year’s P4.66 bn. This impressive performance has allowed this segment to be the major contributor to the
Company’s bottom line for the year.The generation business accounted for 93% of earnings contributions from AboitizPower’s
business segments. The profit growth of this segment is largely due to: (a) new income contributions from generation assets
which were acquired in 2009; (b) income contributions from new acquisitions this year; and (c) the start of operations of a
greenfield project in the first half of 2010. The contributions coming from the following events accounted for the significant
contributions from the power generation segment:
(a) Full year contribution of APRI, operator of the Tiwi-Makban geothermal facilities which were acquired in May 2009,
compared to only four months for the same period in 2009;
(b) Full year contributions of TLI, which assumed dispatch control of the 700 MW Pagbilao coal fired plant in
October 2009;
(c) New contributions from TMI following its take-over of two 100 MW power barges in the first quarter of 2010; and
(d) The start of operations of the 26 MW Sibulan hydropower plant in March 2010.
Total attributable sales of the distribution group grew by 9% on a year-to-date (YTD) basis. This segment continues to see
robust growth from its industrial accounts complemented by respectable growth from its residential and commercial accounts.
Improved margins resulting from the shift to PBR for the two major distribution utilities under this segment in August 2010
as well as the margins from the full year effect of an RORB increase that got approved in the latter part of 2009 for one of the
distribution utilities also provided additional increases to the distribution group’s income contribution. These contributions
came in despite the significant operating expenses seen in the first half of this year due to the forced operation of a back-up
power plant at Davao Light in Mindanao plus higher costs absorbed in two distribution utilities due to a lower systems loss cap
mandated by ERC (from 9.50% to 8.50%) which took effect in January 2010. The distribution group contributed P1.93 bn this
reporting period versus P1.57 bn last year or an increase of 23%.
Material Changes in Line Items of Registrant’s Income Statement
Consolidated net income attributable to equity holders grew by P19.38 bn or 343%. Below is a reconciliation of the growth
in the consolidated net income.
Consolidated Net Income Attributable to Equity Holders of the Parent for 2009
P5,658,581
Increase in Operating Revenues
36,377,193
Increase in Operating Expenses
(15,601,780)
Increase in Share in Net Earnings of Associates
2,090,497
Decrease in Interest Income
(185,814)
Increase in Interest Expense
(3,864,315)
Increase in Other Income
Higher Provision for Income Taxes
Decrease in Non - controlling Interests
Total Growth
Consolidated Net Income Attributable to Equity Holders of the Parent for 2010
86
Aboitiz Power Corporation
786,989
(289,507)
69,273
19,382,536
P25,041,117
SEC FORM 20 - IS (INFORMATION STATEMENT)
The increase in Operating Revenues by 157% for 2010 versus that of 2009 is mainly due to the following: (1) the full year take
up of revenues recognized from APRI’s operations in 2010 versus only four months in 2009; (2) full year operating revenues from
the dispatch of the Pagbilao power plant by TLI; and (3) the revenues generated by newly acquired power barges of TMI and
the newly operational hydro plants of Hedcor Sibulan. The revenues recognized by our consolidated distribution companies
also managed to improve over prior years due to PBR rate adjustment granted last August 2010 for Davao Light and also due
to growth in energy sales.
At least 77% out of the total P15.60 bn increase in Operating Expenses can be attributed to the full year operations of TLI and
the fresh take up of the operating expenses of newly acquired power barges under TMI. The remaining increase in Operating
Expenses for the year can be attributed to (1) the full year operations of APRI and the operating expenses of recently operated
Hedcor Sibulan; (2) the higher costs of purchased power for the distribution utilities in Mindanao, and (3) the cost of running
the back-up power plants of the Mindanao distribution utilities in the first two quarters of this year to mitigate the impact of
the power shortfall in their respective franchise areas.
A significant improvement in Share in Net Earnings of Associates contributed P2.09 bn which represents an 82% increase
compared to 2009. The largest contributing companies were SNAP-Magat and SNAP-Benguet, which benefitted from fresh
inflow of revenues from their ancillary service contracts with NGCP for the period which were not yet fully in place for the
same period last year. Both companies also saw marked improvement on their average selling prices to the electricity spot
market. From the distribution segment, higher demand from its residential and industrial customers and additional margins
brought about by rate adjustment in the second half of 2009 allowed VECO to increase its contributions to the Company’s Net
Earnings of Associates. All the above positive contributions managed to offset a one-time refinancing cost of P398 mn incurred
by STEAG in the third quarter.
The Company started the year with lower cash balances as it deployed funds to various investing activities in the prior year.
Over the course of the year, the Company managed to see a gradual buildup of cash but this still resulted to lower average cash
balances over 2010 than in 2009. Hence the lower interest income recognized in 2010. This went down by 45% or P185.81 mn
compared to 2009.
The increase in Interest Expense for the year is primarily due to the interest expense recognized in TLI arising from the recognition
of its IPPA contract 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 expense. Although the recognition of the interest is a non-cash transaction, the interest
expense recognized by TLI on its statement of income for the year on the finance lease was P5.12 bn or a 316% increase over
the P1.23 bn expensed out in the previous year. New interest expense coming from debt raised at CPPC during the year as
well as the recognition of interest expenses at Hedcor Sibulan as it went into commercial operations also contributed to the
increase to this line item.
The increase in Other Income of P786.99 mn to P1.60 bn from P813 mn from the previous year is mainly due to the unrealized
foreign exchange gains recognized by TLI. TLI’s IPPA monthly payments to PSALM are composed of peso and dollar payments.
The unrealized foreign exchange gain refers to the dollar component of these monthly payments.
The Company’s considerable investing activities in the prior years has yielded the robust results which allowed net income
before tax to grow by 306%. Provision for income tax meanwhile increased by a lower amount or 46% owing to tax holidays
that were granted to recently contributing subsidiaries APRI, TLI ,TMI and Hedcor Sibulan.
Annual Report 2010
87
SEC FORM 20 - IS (INFORMATION STATEMENT)
Changes in Registrant’s Resources, Liabilities and Shareholders Equity
Assets
The Company’s assets grew by 21% from P111.34 bn ending 2009 to P134.56 bn ending 2010.
a) Cash & Cash Equivalents increased due to the following: (a) higher cash balances at AP Parent which grew by P11 bn
due to significant cash upstreams from the various operating companies, mainly from APRI and TLI, during the year,
(b) increase in TLI cash balances at year end. Cash and Cash Equivalents stood at P18.03 bn at year end after paying
P2.21 bn in dividends during the year.
b) Trade & Other Receivables increased by 52% from P4.48 bn in 2009 to P6.81 bn in 2010. At least 61% of the increase
is due to the higher Trade Receivables recognized by TLI which was higher by P1.42 bn. The rest of the increase is due
to the recognition of new Trade Receivables at TMI which stood at P436 mn. Increases in this account was also true
for APRI which had a net increase of P201 mn while the distribution subsidiaries Davao Light,Cotabato Light, MEZ
and BEZ managed to increase Trade Receivables due to growth. Davao Light’s increase in this account can also be
attributed to higher selling prices at year end from its PBR rate adjustment.
c) Derivative assets increased by P6.82 mn as AP Parent recognized derivative assets relating to various non-deliverable
short-term forward contracts with counterparty banks in order to manage its foreign currency risks associated with
foreign currency-denominated liabilities and purchases.
d) The P735 mn increase in the Inventories account is in part due to the higher inventories held by TLI as of year end,
which was higher by P560 mn as it recognizes the higher cost of coal on its coal inventory. The remaining increase is
due to the initial recognition of inventories held at TMI.
e) Other current assets grew by 87% owing primarily to recognition of input VAT at newly operating subsidiary TMI.
f) Although the Property Plant and Equipment account went up by less than 2% versus prior years, it is worth mentioning
that this account increased as a result of the acquisition of two power barges during the year by TMI. The barges were
acquired for a total of P1.39 bn.
g) Due to invested capital expenditures into the service concession area of one of the Company’s ecozone utilities, the
Intangible Asset – service concession rights account increased by 6.2%
h) The increase in Investments and Advances to Associates by P4 bn is mainly due to the recognition of equity earnings
of P4.63 bn as well as additional investment made into MORE to fund the rehabilitation projects of SNAP-Benguet
and advances to RP Energy. This was likewise decreased by cash dividends received during the year as well as
the redemption of preferred shares by EAUC. These factors combined,decreased the account by P 1.16 bn.
i) Pension assets increased as a result of the one-time funding of the group’s past service liabilities in 2010.
j) Deferred Tax Assets decreased by 20% primarily due to lower deferred tax assets recognized by AP Parent on its
NOLCO, MCIT and Unrealized Foreign Exchange Gain.
k) Other Noncurrent Assets decreased by 20.68% primarily due to previously recorded restricted cash in 2009 which was
held to secure a long-term loan of an associate. The loan was fully paid in 2010 upon maturity and hence the restricted
cash is no longer part of the Other Noncurrent Asset account.
88
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
Liabilities
Consolidated liabilities stayed relatively flat ending the year at P76.82 bn versus P76.29 bn in the previous year.
a) Bank Loans decreased by P3.85 bn as AP Parent supported by healthy cash upstreams from its subsidiaries managed
to decrease bank loans by P3.60 bn.
b) Trade and Other Payables increased by 15.46% due to the first time consolidation of TMI’s Trade Payables, which
accounted for 76% of the increase, as well as higher Trade and Other Payables at year end for TLI.
c) Derivative liabilities decreased by P16.15 mn as previously recognized marked to market losses on foreign currency
forwards entered into by AP Parent and TMI did not recur as of year end. Current forward contracts in place are by AP
Parent which now stands as Derivative Assets as of year end.
d) As of end 2009, TLI recognized P233 mn in income taxes payable on its books. After being granted a tax holiday for
four years commencing January 1, 2010, this liability did not recur year end 2010 hence the decrease in this account
by 50.81% or P185.56 mn. The net change is owing to higher taxes payable at year-end for the other subsidiaries who
are not on tax holiday.
e) Long-term Debt remained at about the same levels as of year-end 2009 as no new significant Long Term Debt was
entered into during the year except for the recent availment of an P800 mn 3-year corporate notes by CPPC under a
Notes Facility Agreement entered into in January 2010.
f) Total Finance Lease obligations at year-end 2010 increased by 6%. Monthly payments on this obligation exceeds
monthly interest expense recognized hence the increase noted at year end.
g) Payable to Preferred Shareholder of a Subsidiary went down by 13% as annual payments were timely made to
preferred shareholders
h) An increase in Customer’s Deposit of 12.54% or P223.27 mn was mainly due to new connections in the franchise areas
of Davao Light as it continued to see robust growth in its customer base. Davao Light’s increase in customer deposits
make up 74% of the total increase. The balance comes from increased customer deposits of Cotabato Light, MEZ, and
SEZ as well as from APRI and TLI on their bilateral contracts.
i) Pension liability decreased during the year as obligations were funded during the year.
j)
Deferred Income Tax Liability increased by 745% due to the recognition of Deferred Tax Liability at TLI on unrealized
foreign exchange gains on its dollar obligations to PSALM, past its’ tax holiday period.
Equity
Equity attributable to equity holders of the parent increased from P34.48 bn as of December 2009 to P57.33 bn as of
December 2010. This is mainly driven by the Net Income recorded for the year of P25.04 bn.
The Company declared dividends of P0.30 per share to all shareholders of record as of March 24, 2010, which was paid
last April 16, 2010.
Material Changes in Liquidity and Cash Reserves of Registrant
After significant investing activities made in 2009 that brought down the Company’s cash reserves down to P3.81 bn by year
end, 2010 marked a period of cash build up for the Company as it realized the rewards on investments made. These investments
brought up cash balances to P18.30 bn at year end 2010.
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Out of the total Net Cash flow from Operating Activities of P27.28 bn, P26 bn comes from Income Before Income Tax recognized
for the year. Robust income most especially from newly operating business units provided the healthy streams of cash from
operations.
Net cash used in investing activities was P4.37 bn compared to P23.95 bn for the same period last year. The cash used in investing
activities went to the increases in Power Plant and Equipment invested in TMI and Hedcor Sibulan and more outlays related to
the funding of the rehabilitation projects of SNAP-Benguet and advances to RP Energy. This was supplemented by dividends
received during the year of P1.82 bn.
Cash was used in various financing activities this year totalling P8.36 bn versus a net cash inflow last year of P7.72 bn. These
financing activities relate to the payment of short term debt at AP Parent of P3.60 bn, dividends paid to shareholders of P2.21
bn, monthly payments made by TLI to PSALM during the year of P1.12 bn as well as interest paid on long term debt of P1.62
bn.
All of the above mentioned activities resulted to a net cash inflow for the year of P14.55 bn bringing up cash and cash equivalents
by year end to P18.30 bn versus P3.81 bn in 2009.
Financial Ratios
Current ratio increased by 1.90, from 0.68x as of December 2009 to 2.58x in December 2010. This was due to the marked
increase in cash which shored up current assets. The ratio also improved due to the decrease in current liabilities as a significant
amount of short term debt was paid during the year.
With liabilities remaining flat and equity increasing due to the healthy results of operations, during the year, the debt-to-equity
ratio improved from 2.18 ending 2009 to 1.33 ending 2010.
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, AboitizPower believes
that it is in a good position to benefit from the opportunities that may arise in the current year. Its sound financial condition,
coupled with a number of industry and company specific developments, should bode well for AboitizPower and its investee
companies. These developments are as follows:
Generation Business
1. Continued growth in the Company’s attributable capacity
AboitizPower ended the year 2010 with an 18% YoY expansion in its total attributable generating capacity, from 1,745 MW to
2,051 MW. The capacity growth was mainly due to the following:
90
-
Takeover of the two barge mounted diesel powered generation plants, each with a generating capacity of 100 MW
AboitizPower, through wholly owned subsidiary TMI 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 at
Bgy. San Roque, Maco, in Compostella Valley, Mindanao, while PB 117 is a power barge with a 100 MW bunker-fired
generating facility moored at Bgy. Sta. Ana, Nasipit, Agusan del Norte, Mindanao.
AboitizPower acquired both power barges on July 31, 2009 via a successfully concluded negotiated bid with PSALM.
The total purchase price for both barges is USD30 mn. TMI has Ancillary Services Procurement Agreements with the
NGCP. In 2010, TMI signed bilateral contracts with various distribution utilities covering approximately 75 MW in
contracted capacity. These contracts are awaiting ERC approval.
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Completion of Greenfield power plant developments
42.5 MW Hedcor Sibulan Hydro Power Plant Project. This is a Greenfield run-of-river hydro power plant located in
Barangay Sibulan, Sta. Cruz, Davao del Sur by AboitizPower’s 100% owned subsidiary Hedcor Sibulan. The facilities,
which comprise two cascading hydropower generating facilities tapping the Sibulan and Baroring rivers, are expected
to generate an estimated 212 mn kWh of clean and emissions-free energy annually. Plant B, which has a capacity of
26 MW, commenced its operations in May 2010, while Plant A, which has a capacity of 16.5 MW, was completed in July
2010.
246 MW Cebu coal-fired Power Plant. 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, was completed in 2010. Two units with a capacity of 82 MW each have started generating and feeding power
into the Visayas Grid in February and May 2010. Construction of the last unit was completed in the fourth quarter of
2010. AboitizPower has an effective participation of 26% in the project.
Moving forward, AboitizPower’s attributable capacity is seen to further increase as the following events take place:
-
Rehabilitation of the Ambuklao-Binga hydro power facilities
The Company, together with its partner SN Power, is pursuing the programmed rehabilitation of both the 75 MW
Ambuklao and 100 MW Binga hydro facilities. Completion of the rehabilitation of the former has been delayed due
to the construction of a new headrace tunnel (HRT). Difficulties were encountered in completing the plugging of the
existing plant HRT due to the unexpectedly larger quantity of sediments (silt and clay) in the facility compounded
by the effect of Typhoon Pepeng that hit the country in 2009. The plant’s rehabilitation works are expected to be
completed by the third quarter of 2011, when all three units are operating, instead of end-2010 as earlier estimated.
After the rehabilitation, the Ambuklao plant will have a capacity of 105 MW of renewable energy that will significantly
augment supply of electrical power to the Luzon Grid. Rehabilitation works on Binga will commence in 2011,
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.
-
Completion of the rehabilitation of the Tiwi-Makban geothermal power facilities
100%-owned APRI is currently undertaking the rehabilitation of several units of the Tiwi-Makban geothermal power
plant complex. Once completed, generation capacity and plant availability are expected to improve. At present, the
Tiwi-Makban geothermal power plants have a combined estimated generation capacity of 467 MW, which is based
on the plants’ peak generation in 2009. AboitizPower reckons that after completion of the rehabilitation works,
generation capacity could increase to approximately 484 MW, which takes into account current steam supply and
decline rates. Completion of works will be in stages, with Tiwi plants estimated to be finished by second quarter of
2011, while Makban plants by first quarter of 2012.
-
Greenfield and Brownfield developments
300 MW coal-fired Power Plant in Subic. After revisiting the power demand and supply situation in the Luzon
Grid, 50%-owned RP Energy has decided to pursue its 300 MW coal-fired power plant project in the Subic Bay
Freeport Zone (the Subic Coal Project). After re-evaluating the project, RP Energy is contemplating of increasing
the planned generating capacity of the Subic Coal Project to 600 MW. The company is in talks with prospective
turnkey contractors for the Engineering, Procurement and Construction contract for the project. Construction
period is estimated at 36 months.
300 MW coal-fired Power Plant in Davao. AboitizPower is planning to put up a 2x150MW coal-fired power plant in
Davao, which is the biggest load center in the island of Mindanao. The Company is in the process of obtaining the
necessary permits and government clearances. AboitizPower has already identified a location in Davao and has
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successfully negotiated a lease with an option to purchase. The Company has engaged engineering and environmental
consultants that have initiated physical and environmental data collection. Once completed, together with all the
necessary permits and approvals, construction is expected to be completed in 36 months.
150 MW Coal-fired Power Plant in Misamis Oriental. On June 28, 2010, AboitizPower and its partners in STEAG
owner of the 232 MW coal plant located at the Phividec Industrial Estate in Villanueva, Misamis Oriental, firmed up
their collective intention to develop a third unit of approximately 150 MW capacity adjacent to the existing facility.
AboitizPower and its partners agreed to maintain their shareholdings in the same proportions in the new corporation
to be established for the planned additional capacity. Certain essential facilities, such as the jetty, coal handling
facilities and stockyards and the 138-kV interconnection with the Mindanao Grid are to be shared with the existing
facilities. Depending on the interest the market demonstrates, the agreement contemplates the possibility of
another unit.
13.6 MW Tudaya 1 and 2 Hydro Power Plant Project. Wholly owned subsidiary Hedcor Tudaya will implement a
greenfield project involving the construction of run-of-river power plants to be located in the upper and downstream
sections of the existing Sibulan hydro power plant, tapping the same water resource, which are the Sibulan and
Baroring rivers. The two plants will have a combined capacity of 13.6 MW. Hedcor Tudaya is currently working on
obtaining the water permits and environmental clearances. Target groundbreaking is by third quarter of 2011.
Construction is estimated to be completed in 20 months.
11.5 MW Hedcor Tamugan Hydro Power Plant Project. In 2010, wholly owned subsidiary, Hedcor Tamugan, has
reached an agreement with the DCWD on the use of the Tamugan river. Originally planned as a 27.5 MW run-of-river
facility, Hedcor Tamugan submitted a new proposal, which involves the construction of an 11.5 MW hydropower plant.
Hedcor Tamugan is waiting for the City council to approve the project. Once approval and permits are secured, the
two-year construction period will commence.
Other Greenfield and Brownfield developments. AboitizPower, together with its subsidiaries and associate company,
is conducting feasibility studies for potential Greenfield and Brownfield projects.
•
The SNAP Group is in the process of evaluating several hydropower plant projects. A Brownfield project is
being evaluated for its Magat hydropower plant, which involves the construction of a pumped storage that
could potentially increase its capacity by at least 90 MW. The SNAP Group is likewise evaluating several
Greenfield hydropower plant projects that have at least 70 MW of potential capacity each.
•
100%-owned subsidiary Hedcor 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.
2. Participation in the Government’s Privatization Program for its Power Assets
The Company continues to closely evaluate the investment viability of the remaining power generation assets that PSALM
intends to auction off.
AboitizPower 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 IPP
administrators.
Distribution Business
The Company remains optimistic that it will realize modest growth on its existing distribution utilities. It continually seeks
efficiency improvements in its operations to maintain healthy margins.
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The implementation of the rate adjustment formula for the distribution companies under the performance-based regulation
(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 wherein possible adjustments
to the rate take into account current situations.
Cotabato Light’s 4-year regulatory period commenced on April 1, 2009 and ends on March 30, 2013. The ERC issued its final
determination on Cotabato Light’s application for approval of its annual revenue requirement and performance incentive
scheme under the PBR scheme covering the second year of the 4-year regulatory period. Last December 2010, Cotabato Light
submitted for ERC approval its rate translation adjustments covering the third year of its regulatory period. Cotabato Light is
the first distribution utility in the AboitizPower group to implement this incentive-based scheme.
VECO and Davao Light are part of the third group (Group C) of private distribution utilities to shift to PBR. Both VECO and
Davao Light started to implement their PBR approved rate structures in August 2010. Both companies are now preparing to
file with the ERC for their rate translation adjustments for the second year of its 4-year regulatory period.
SFELAPCO and SEZ are part of the fourth batch (Group D) of private distribution utilities to enter PBR. For SFELAPCO and
SEZ, the regulatory reset process is on its final stages and ERC is scheduled to release before the end of March 2011 its draft
determination on the applications for annual revenue requirements and performance incentive schemes for the regulatory
period October 2011 to September 2015. The draft determination will be subjected to public consultations before ERC releases
its final determination on June 2011. Thereafter, SFELAPCO and SEZ will be filing their respective rate design applications for
the first regulatory year to be implemented from October 2011 to September 2012.
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.
Market and Industry Developments
Open Access and Retail Competition
Per EPIRA, the conditions for the commencement of the Open Access and Retail Competition are as follows:
(a)
(b)
(c)
(d)
(e)
Establishment of the WESM;
Approval of unbundled transmission and distribution wheeling charges;
Initial implementation of the cross subsidy removal scheme;
Privatization of at least 70% of the total capacity of generating assets of NPC in Luzon and Visayas; and
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.
As of date, the government was able to comply with the first four conditions for the implementation of Open Access and
Retail Competition. Privatized NPC generating assets in Luzon and Visayas have reached approximately 92%. The only
remaining condition that has to be met is the privatization of at least 70% of NPC’s IPP contracts, which currently stands
at approximately 68%.
Under the Open Access and Retail Competition, 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 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
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-
NPC-Independent Power Producers 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
-
Retail Electricity Suppliers (RES) duly licensed by the ERC
The implementation of the Open Access presents a big opportunity for AboitizPower, as it has two wholly owned subsidiaries
(i.e. Aboitiz Energy Solutions, Inc. and AdventEnergy, Inc.) that are licensed retail suppliers, which can enter into contracts with
the eligible contestable customers. Moreover, AboitizPower’s generation assets that have uncontracted capacity will be able
to have direct access to eligible contestable customers through AboitizPower’s licensed RES.
Year ended December 31, 2009 vs. Year ended December 31, 2008
The table below shows the comparative figures of the top five 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, 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 TLI 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 P5.77 bn from P4.42 bn for the same period last year. This lifted earnings per share
to P0.77 for the year ending December 31, 2009 versus an earnings per share of P0.59 ending December 31, 2008.
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The power generation business improved its contributions by 68% from prior year as it shored in a net income contribution
of P4.66 bn from last year’s P2.78 bn. 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, AboitizPower’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 TLI for
Pagbilao (700 MW) which has led to the surge in generation sold by the Generation companies.
The Distribution Companies’ income contribution improved by 6% or P1.57 bn, from last year’s P1.48 bn. 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 AboitizPower’s major distribution utilities, Davao Light 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 P1.32 bn 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 Non - controlling 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 TLI 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 TLI and APRI, account for
83% of the increase while 11% of the increase was brought about by higher operating expenses at Davao Light 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, 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 P249 mn.
As the Company’s cash is deployed to various investing activities, the interest income compared to prior years has gone down
by 33% or P197.57 mn.
Interest expense also increased by 643% due to the various debt raising acitivites entered into by the Company namely: 1)
Fixed Rate Note of 5-year peso-denominated corporate fixed rate notes (Notes) in the aggregate amount of P5 bn. The Notes
were issued in September 2009, 2) a total of P3 bn worth of peso-denominated fixed rate retail bonds issued last April 2009, 3)
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P3.89 bn in 5-year and 7-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 TLI’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 expense. Although the recognition of the interest is a non-cash transaction, the interest
expense recognized by TLI on its statement of income for the year on the finance lease was P1.23 bn.
Other Income increased by P436.72 bn mainly due to the unrealized forex gains recognized by TLI 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 P1.36 bn or 27% from P5.04 bn in the previous year to
P6.40 bn in the current year. Provision for taxes ending 2009 increased by 2% to P631.19 mn from a prior period provision
of P618.38 mn.
Changes in Registrant’s Resources, Liabilities and Shareholders Equity
Assets
Compared to year-end 2008 levels, consolidated assets increased by 136%, from P47.27 bn in December 2008 to
P111.34 bn in December 2009 due to the following:
a) Cash & Cash Equivalents was at P3.81 bn, down by 73% from year-end 2008 level of P14.33 bn (as restated). Through
the debt-raising activities entered into by AP Parent, total cash raised reached close to P11 bn. 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 P21 bn. In 2009, cash was also used to pay
shareholder dividends totalling P1.47 bn.
b) Trade & Other Receivables increased by 125%, from P1.99 bn to P4.48 bn due to the consolidated trade and other
receivables of both TLI and APRI totalling P2.53 bn.
c)
Inventories increased by 234% due to APRI’s supplies and materials as well as coal inventory held by TLI.
d) The asset account for Property, Plant and Equipment considerably increased by 1065% from P6.26 bn in 2008 to P72.90
bn. APRI’s newly acquired geothermal property, plant and equipment account for P19.91 bn, while TLI ’s finance lease
recognition of the power plant and equipment on the Pagbilao assets added another P44.52 bn. 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 P3.55 bn due to additional investments
in associates of P1.34 bn for a coal plant being constructed in Toledo, Cebu, and the recognition of equity earnings
of P2.54 bn.
f) Increase of 283% in Pension Assets resulting from actuarial adjustments for Davao Light and CPPC which lead to
the increase.
g) Deferred Income Tax Assets increased by P183.43 mn 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 P879.62 mn due to prepaid rent of P460.87 mn 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.
Liabilities
Consolidated liabilities increased to a total of P76.29 bn, a 360% increase over year-end 2008 level. The following were the
reasons for the increase:
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a) Bank Loans increased by 21% or P1.03 bn 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 P3.15 bn in 2008 to P6.02 bn ending 2009 due to the first-time
consolidation of both APRI and TLI trade payables and accruals.
c) The first-time recognition of Derivative Liabilities of P16.48 mn represents the booking of marked to market losses on
foreign currency forwards entered into by AP Parent and TMI.
d) Income Tax Payable increased by 349% or P283.79 mn due to TLI’s recognition of income tax payable for the year.
e) Long-term Debts were increased by 149% or P9.73 bn versus year-end 2008 level by the following: 1) Fixed Rate Note
of 5-year peso-denominated corporate fixed rate notes (Notes) in the aggregate amount of P5 bn. The Notes were
issued in September 2009 2) a total of P3 bn 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 TLI 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 P45.59 bn.
g) An increase in Customers’ Deposits of 13% or P210.02 mn was due to new connections mainly in the franchise
areas of Davao Light as it continues to see robust growth in its customer base. Davao Light’s increase in customer
deposits makes up 83% of the total increase. The balance is coming from increased customer deposits from
Cotabato Light, 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 P13.69 mn due to the recognition of pension obligations of newly consolidated
company APRI and an increase in pension liabilities at Hedcor, Inc., Cotabato Light and AP Parent.
j) Deferred Income Tax Liability decreased by 36% or P21.02 mn 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 P30.16 bn as of December 2008 to P34.48 bn as of
December 2009. This was mainly due to the consolidated net income of P5.77 bn, an upward adjustment in share in cumulative
translation adjustments of associates of P133.67 mn and after a cash dividend payment of P1.47 bn in the first quarter of 2009.
The Company declared dividends of P0.20 per share to all shareholders of record as of February 26, 2009. This was paid on
March 23, 2009.
Material Changes in Liquidity and Cash Reserves of Registrant
As of December 31, 2009, the Group’s cash reserves ended with a balance of P3.81 bn a 73% decrease from its balances as of
December 31, 2008 of P14.33 bn (as restated). This was after major investing and financing activities conducted during most
of the year.
Net cash from operating activities brought in P5.87 bn this year compared to net cash inflow of only P1.91 bn for the same
period last year. The higher income before income tax of P6.40 bn is the primary driver of the increase.
Net cash used in investing activities was P23.95 bn compared to P5.79 bn 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 P20 bn. The construction in
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progress by Hedcor Sibulan for its hydro plant in Mindanao is still ongoing adding another P1.91 bn in cash used for investing
activities. Another P1.34 bn went to the construction of a coal plant in Toledo, Cebu.
Net cash from financing activities for the period in review was P7.72 bn, which was mainly the net result of inflows of longterm debt in the amount of P9.76 bn, of which AP Parent raised fixed rate notes of P5 bn and P3 bn 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. Shortterm loans from banks of P1.14 bn 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 P1.47 bn dividend payout in the first
quarter of 2009 as well as interest paid during the period totalling another P1.47 bn.
The Company finished the year with net cash outflows of P10.36 bn. The cash and cash equivalents for the period ending
December 31, 2009 was P3.81 bn versus cash and cash equivalents as of December 31, 2008 of P14.33 bn (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 AboitizPower raised debt
to fund its various investing activities.
Year ended December 31, 2008 vs. Year ended December 31, 2007
DISCUSSION ON KEY PERFORMANCE INDICATORS:
Key Performance Indicators
2008
(As restated)
2007
(As restated)
Amounts in thousands of πs, except for financial ratios
SHARE 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, which contributed P1.09 bn.
From the full year income of EAUC, also a recent acquisition, came an incremental contribution of P112 mn. LHC, an existing
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investment, also contributed P540.25 mn 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.
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 AboitzPower dated February 3, 2009 and which letter AboitizPower 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 P162.6 mn to the net income of the
Group. Another acquisition in 2007, EAUC contributed P61.6 mn. STEAG, which was acquired in the last quarter of 2007
contributed P94.8 mn.
In the December 31, 2007 financial statements of the Company, Note 29 referred to a Davao Light refund obligation as a result
of an adverse decision rendered by the Supreme Court. The amounts were disclosed in Davao Light’s financial statements as
immaterial. The estimated amount due for refund to Davao Light’s customers is P4.08 mn, 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 P4.42 bn from P4.28 bn for the same period last year. This translates to an
earnings per share of P0.59 for the year ending December 31, 2008 versus an earnings per share of P0.66 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 P1.48 bn, which was lower by 3% from last year’s P1.52
bn. 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 P2.78 bn, recording an 6% YOY growth from last
year’s P2.61 bn. 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.
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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, AboitizPower’s power generation group had an attributable capacity of 578 MW, an 18% YOY increase from 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 P172.97 mn 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)
Decrease in Share in Net Earnings of Associates
(19,321)
Increase in Interest Income
276,627
Increase in Interest Expense
Increase in Other Income
Lower Provision for Income Taxes
Decrease in Non - controlling Interests
Total Growth
Consolidated Net Income Attributable to Equity Holders of the Parent for 2008
(181,034)
387,844
15,949
23,732
172,968
π4,333,613
Total consolidated operating revenues grew by 8% versus the same period last year. The distribution subsidiaries’ consolidated
revenues increased by P430.19 mn, 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 P485.9
mn. 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 P1.26 bn 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 P2.79 bn versus P2.80 bn in 2007. The P1.09 bn income
contribution of STEAG 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 P112.19 mn. 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 P387.84 mn mostly due to the unrealized forex gains from the AP Parent’s dollar denominated
cash balances.
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As a result of the foregoing, income before income tax increased by P133.29 mn or 3% over the same period a year ago.
Provision for taxes decreased by almost 3% to P618.39 mn from a prior period provision of P634.33 mn.
Changes in Registrant’s Resources, Liabilities and Shareholders Equity
Assets
Compared to year-end 2007 levels, consolidated assets increased by 31%, from P36.18 bn in December 2007 to P47.27 bn in
December 2008, due to the following:
a. Cash & Cash Equivalents was at P14.33 bn (as restated), up by 31% from year-end 2007 level of P12.71 bn (as restated).
This was due to additional cash brought in by short-term loans of P949 mn and the proceeds from the fixed-rate
notes offering of the Company which amounted to P3.89 bn. The increase in cash brought about by the capital-raising
activities mentioned above were expended for additional investments totaling P3.78 bn as well as for payment of
dividends in the first quarter of the year amounting to P1.32 bn. The rest of the cash deployment was made for the
capital expenditures during the year. Cash also increased due to dividends of P1.93 bn from associates.
b. Trade & Other Receivables increased by 20%, from P1.66 bn to P1.99 bn 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 P501.15 mn from P314.89 mn due to input VAT arising from construction in
progress as well as higher taxes withheld.
e. Property, Plant and Equipment increased by 53% from P4.10 bn (as restated) in 2007 to P6.26 bn 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 P192 mn 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 P6.65 bn due to additional or new investments
in associates with the significant investment/advances as follows:
I.
P3.39 bn for additional equity into MORE, which was in turn invested into the acquisition of the Ambuklao-Binga
II.
P278.89 mn in equity into RP Energy; and
hydropower complex;
III. P1.47 bn in investments/advances of subsidiary Abovant into CEDC, the project company for a 3X82-MW 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 dollardenominated 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.
Liabilities
Consolidated liabilities increased to a total of P16.58 bn, an 88% increase over year-end 2007 level. The following were the
reasons for the increase.
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a) Bank Loans increased by 44% or P1.45 bn 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 P5.68 bn versus year-end 2007 level. This is due to the P3.89 bn in fixed rate
notes of AP Parent availed of last December 2008 as well as Hedcor Sibulan’s availment of P1.72 bn 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 P197.16 mn was mainly due to new connections in the franchise areas of
Cotabato Light, Davao Light 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 (now ARI).
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 P26.74 bn as of December 2007 to P30.16 bn as of
December 2008. This was mainly due to consolidated net income of P4.33 bn, an upward adjustment in share in cumulative
translation adjustments of associates of P557.55 mn and after a cash dividend payment of P1.33 bn in the first quarter of 2008.
The Company declared dividends of P0.18 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 P14.33 bn (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 P1.90 bn this year compared to the net cash inflow of P4.04 bn 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 AboitizPower. 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 P5.79 bn compared to P8.64 bn for the same period last year. Out of the amounts
used, P3.78 bn is accounted for by additional or new investments, acquisitions of and or capital expenditures for property, plant
and equipment of P2.62 bn and payments of advances to associates of P1.69 bn. These outflows were met partially through
interest received in the amount of P595 mn, dividends received from associates in the amount of P1.93 bn and collections of
advances from affiliates and interest income received.
Net cash from financing activities for the period in review was P5.05 bn, which was mainly the net result of inflows of long-term
debt in the amount of P5.71 bn, of which fixed-rate notes came in at P3.89 bn and P1.7 bn in Hedcor loans. Short-term loans of
P949 mn were availed of by subsidiaries to fund working capital requirements. There were also cash outflows for the P1.32 bn
dividend payout in the first quarter of 2008.
The Company finished the year with net cash inflows of P1.17 bn. The cash and cash equivalents of P14.33 bn (as restated)
for the period ending December 31, 2008 was 13% higher than the cash balance of P12.71 bn in December 31, 2007. With the
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Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
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 AboitizPower raised
debt to fund its various investing activities.
Item 7. Financial Statements
The consolidated financial statements of AboitizPower are incorporated herein by reference. The schedules listed in the
accompanying Index to Supplementary Schedules are filed as part of this Form 17-A.
Item 8. Information on Independent Accountant and Other Related Matters
(A) 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
2010
Audit Fees
Tax Fees
All Other Fees
Total
2009
P300,000
P300,000
P50,000
--
--
--
P350,000
P300,000
As a matter of policy, the Company’s Board Audit Committee recommends to the Board of Directors regarding the
selection of the Company’s external auditor. The Board Audit Committee also pre–approves audit plans, scope and
frequency before any audit is conducted.
Audit services of SGV & Co. for the 2010 and 2009 were pre–approved by the Board Audit Committee. The Board 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.
(B) Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
The SGV accounting firm has been AboitizPower’s Independent Public Accountant for the last 12 years. Mr. J. Carlitos G. Cruz
served as audit partner of AboitizPower since 2009. He replaced Mr. Ladislao Z. Avila who served as audit partner for five
years from 2004 to 2008. AboitizPower shall comply with the requirements of Section 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 12 years where AboitizPower 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 2, 2011, the Board Audit Committee of the Company approved a resolution to submit for the
approval of the stockholders during the Annual Stockholders’ Meeting a proposal to delegate to the Board of Directors and/or the
Annual Report 2010
103
SEC FORM 20 - IS (INFORMATION STATEMENT)
Board Audit Committee the authority to appoint the Company’s external auditors for 2011. The proposal is intended to give the
Board Audit Committee sufficient time to evaluate the different auditing firms who may act as AboitizPower’s external auditor
for 2011.
PART III – CORPORATE GOVERNANCE
AboitizPower 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. To ensure compliance, copies of the Manual and the Code were
disseminated to the Board of Directors, management and employees of AboitizPower. Company-wide orientations on the
Manual and the Code were conducted as well.
AboitizPower 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 of the Manual and existing laws and regulations. Together with the Human
Resources Department, the Compliance Officer also ensures the implementation of AboitizPower’s rule against conflict of
interests and the misuse of inside and proprietary information throughout the organization. The Compliance Officer regularly
reports to the Board Corporate Governance Committee and the Board Audit Committee the Company’s compliance status
with existing laws and regulations, as well as the Board’s and employees’ compliance with internal governance policies.
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, Corporate Governance, and 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.
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 2010, the Board held nine regular and special meetings. Below is a summary of the attendance of the Directors:
Regular
Special
Executive
Strategy
Sessions
Regular
Meeting
Regular
Meeting
Regular
Meeting
Regular
Meeting
Jan 13
Feb 8
Mar 10
Mar 31
May 17
Enrique M. Aboitiz, Jr.
P
P
P
P
Jon Ramon Aboitiz
P
A
P
Erramon I. Aboitiz
P
P
Antonio R. Moraza
P
P
Mikel A. Aboitiz
P
Jaime Jose Y. Aboitiz
Jose R. Facundo
(Ind. Director)
% of
Meetings
Attended
by each
Director
Regular
Meeting
Regular
Meeting
July 14
Sept 15
Oct 13
Nov 12
P
P
P
P
P
9/9
100%
P
P
P
P
P
P
8/9
88.88%
P
P
P
P
P
P
P
9/9
100%
P
P
P
P
P
P
P
9/9
100%
P
P
P
P
P
P
P
P
9/9
100%
A
P
P
P
P
P
P
P
P
8/9
88.88%
P
P
P
P
P
P
P
P
P
9/9
100%
Romeo L. Bernardo
(Ind. Director)
P
P
P
P
P
P
P
P
P
9/9
100%
Jakob Disch (Ind. Director)*
-
-
-
P
A
P
P
P
P
5/6
88.33%
7/8
7/8
8/8
9/9
8/9
9/9
9/9
9/9
9/9
DIRECTORS
TOTAL NO. OF DIRECTORS
PRESENT IN EACH MEETING
PERCENTAGE OF NO. OF
DIRECTORS PRESENT IN EACH
87.50% 87.50%
100%
100%
88.88%
100%
100%
100%
MEETING
Legend: P - Present A - Absent
*Mr. Jakob Disch was first elected on March 10, 2010 and attended his first board meeting on March 31, 2010.
104
Total
No. of
Meetings
Attended
by each
Director
Special
Executive
Strategy
Sessions
Aboitiz Power Corporation
100%
SEC FORM 20 - IS (INFORMATION STATEMENT)
Corporate Governance Initiatives
During its regular meeting last February 12, 2009, the Board of Directors of AboitizPower 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.
In the Amended Manual on Corporate Governance submitted to the SEC on September 24, 2009, the Investor Relations
Committee was dissolved and the Board Nominations and Compensation Committee merged with the Board Corporate
Governance Committee. It is now called the Board Corporate Governance Committee.
On a regular meeting held on May 17, 2010, the Board approved an amendment to the Company’s Amended Manual on
Corporate Governance consisting of the folding in of the responsibility of the Board Strategy Committee. As decided by the
Board, the functions of the Board Strategy Committee are now subsumed under the functions of the Board of Directors.
The mandate as well as the composition of each Board committee are described below:
•
The Board Corporate Governance Committee 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. Independent Directors comprise majority of the voting
members of the Board Corporate Governance Committee.
Chairman: Mikel A. Aboitiz; Members: Erramon I. Aboitiz, Jose R. Facundo, Romeo L. Bernardo, Jakob Disch;
Ex-Officio Members: M. Jasmine S. Oporto, Sebastian R. Lacson, Xavier Jose Aboitiz
•
The Board Audit Committee shall represent the Board in discharging its responsibility related to audit matters for the
Group. Independent Directors comprise majority of the voting members of the Board Audit Committee.
Chairman: Jose R. Facundo; Members: Romeo L. Bernardo, Jakob Disch, Mikel A. Aboitiz, Jaime Jose Y. Aboitiz;
Ex-Officio Members: Iker M. Aboitiz, Rolando C. Cabrera
• The Board Risk Management Committee shall represent the Board in discharging its responsibility relating to risk
management related matters around the Group.
Chairman: Antonio R. Moraza; Members: Erramon I. Aboitiz, Jose R. Facundo, Jakob Disch; Ex-Officio Members:
Iker M. Aboitiz, Rolando C. Cabrera
Annual Report 2010
105
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNEX “A”
106
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNEX “A-1”
Annual Report 2010
107
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNEX “A-1”
108
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNEX “A-2”
Annual Report 2010
109
SEC FORM 20 - IS (INFORMATION STATEMENT)
ANNEX “B”
SUMMARY OF THE MINUTES OF THE 2010 ABOITIZPOWER ANNUAL STOCKHOLDERS’ MEETING
The meeting was called to order on May 17, 2010 at 11:00 a.m. by the Chairman of the Board, Mr. Enrique M. Aboitiz, Jr.
The Corporate Secretary certified to the existence of a quorum, there being present a majority of the outstanding capital stock
of the Company in person or by proxy.
Upon motion duly made and seconded, the minutes of the Annual Stockholders’ Meeting last May 17, 2010 was approved.
The body passed the following resolutions:
1. Approval of the 2009 Annual Report and Financial Statements
2. Delegation of the Authority to Elect the Company’s External Auditors for 2010 to the Board of Directors
3. Ratification of the Acts, Resolutions and Proceedings of the Board of Directors, Corporate Officers and
Management up to May 17, 2010
4. Approval of Directors’ Compensation and Per Diem for 2010
5. Election of the Board of Directors
After the approval of such resolutions, the meeting was duly adjourned.
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ANNEX “C”
ABOITIZ POWER CORPORATION
Annual Report 2010
111
SEC FORM 20 - IS (INFORMATION STATEMENT)
The Board Audit Committee Report to the Board of Directors
The Board 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, 2010, the Audit Committee is composed of five members - three independent directors and two
executive directors.
Jose R. Facundo (independent director) chairs the Committee and is ably assisted by Romeo L. Bernardo (independent director),
Jakob Disch (independent director), Mikel A. Aboitiz (executive director) and Jaime Jose Aboitiz (executive director). Ex-officio
members also include Iker M. Aboitiz – AboitizPower Chief Finance Officer and Rolando C. Cabrera – Chief Risk Management
Officer.
Meetings
Four regular meetings were held during the year: March 3, May 5, August 5, and November 4, 2010. In these meetings, the
Chief Financial Officer, Chief Risk Management Officer, AboitizPower AVP-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 AboitizPower.
These activities were performed in the following context:
• That management has the primary responsibility for the financial statements and the financial reporting process;
and
• That SGV & Co. is responsible for expressing an opinion on the conformity of the Company’s audited consolidated
financial statements with 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 proposal to submit to the approval of the stockholders the delegation of the
appointment of the Company’s external auditors for 2011 to the Board of Directors and/or the Audit Committee.
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, which contain, among others, the internal auditors’
assessment that the Group’s internal controls are adequate and the basic control assertions of reliability, integrity, timeliness
of information, and compliance to policies, procedures, laws and regulations have been satisfactorily complied with.
112
Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
It is also the internal audit team’s assessment that operational efficiency, standardization, alignment of processes and timeliness
of information across the Group should remain the focus of management’s efforts.
The Committee likewise reviewed, approved, and endorsed the revised Internal Audit Charter. The revision to the charter
focused mainly on internal audit’s role in the Enterprise Risk Management program.
Risk Management
In keeping with its charter, the Committee reviewed and discussed the progress of the implementation of the Enterprise Risk
Management (ERM) initiative. In 2010, the Company’s top risks were identified and approved by the Board Risk Management
Committee. These were then utilized as inputs to the internal audit team’s risk-based audit planning process.
In behalf of the Committee,
Jose R. Facundo
Chairman
Annual Report 2010
113
SEC FORM 20 - IS (INFORMATION STATEMENT)
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, 2010 and 2009. The financial statements have been
prepared in conformity with Philippine Financial Reporting Standards, 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 consolidated 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, have examined the consolidated financial
statements of the Company in accordance with Philippine Standards on Auditing, and have expressed their opinion on the
fairness of presentation upon completion of such examination in the Report to the Stockholders and Board of Directors.
ENRIQUE M. ABOITIZ , JR.
Chairman of the Board
ERRAMON I. ABOITIZ
President & Chief Executive Officer
IKER M. ABOITIZ
First Vice President /Chief Financial Officer/
Corporate Information Officer
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Aboitiz Power Corporation
SEC FORM 20 - IS (INFORMATION STATEMENT)
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. Date/Place Issued
EA0008887
XX1560733 XX3643697 December 8, 2009, 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_______________________.
397 ;
Doc. No. _______
80 ;
Page No. _______
XVI ;
Book No. _______
Series of 2011
Annual Report 2010
115
SEC FORM 20 - IS (INFORMATION STATEMENT)
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 consolidated financial statements of Aboitiz Power Corporation and its Subsidiaries,
which comprise the consolidated balance sheets as at December 31, 2010 and 2009, 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, 2010, and a summary of significant
accounting policies and other explanatory information. We did not audit the 2009 and 2008 financial statements of the
following subsidiaries: Aboitiz Energy Solutions, Inc., Balamban Enerzone Corporation and Mactan Enerzone Corporation; the
2009 financial statements of five subsidiaries of Aboitiz Renewables, Inc. (ARI; formerly Philippine Hydropower Corporation);
and the 2008 financial statements of ARI and Subsidiaries, which statements reflect total assets of 6.40% of the consolidated
assets as at December 31, 2009, and total revenues of 7.74% and 13.21% of the consolidated revenues in 2009 and 2008,
respectively. Also, we did not audit the 2009 and 2008 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% of the total consolidated assets as at December 31, 2009, and the Group’s share in net earnings represents
17.55% and 29.19% of the consolidated net income for 2009 and 2008, respectively. Those financial statements were audited
by other auditors whose reports thereon have been furnished to us, and our opinion on the 2009 and 2008 consolidated financial
statements, insofar 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 Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
116
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated 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 about whether the consolidated financial statements are free
from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the consolidated 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 consolidated 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 consolidated 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 for 2009 and 2008, the consolidated financial
statements present fairly, in all material respects, the financial position of Aboitiz Power Corporation and its Subsidiaries as
at December 31, 2010 and 2009, and their financial performance and their cash flows for each of the three years in the period
ended December 31, 2010 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
BIR Accreditation No. 08-001998-14-2009,
June 1, 2009, Valid until May 31, 2012
PTR No. 2641514, January 3, 2011, Makati City
March 3, 2011
Annual Report 2010
117
SEC FORM 20 - IS (INFORMATION STATEMENT)
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 Philippine Standards on Auditing, the consolidated financial statements of Aboitiz Power
Corporation and its Subsidiaries included in this Form 17-A and have issued our report thereon dated March 3, 2011. 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 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
BIR Accreditation No. 08-001998-14-2009,
June 1, 2009, Valid until May 31, 2012
PTR No. 2641514, January 3, 2011, Makati City
March 3, 2011
118
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
ABOITIZ POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
December 31
2010
2009
π18,301,845
6,805,791
7,670
1,845,587
959,353
π3,814,906
4,476,028
846
1,110,639
512,684
Total Current Assets
27,920,246
9,915,103
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 28)
Other noncurrent assets (Note 13)
74,291,764
936,996
10,000
28,799,370
3,744
996,005
173,442
199,822
1,225,483
72,901,029
882,308
10,000
24,800,301
3,744
996,005
37,186
250,009
1,545,032
106,636,626
101,425,614
π134,556,872
π111,340,717
LIABILITIES AND EQUITY
Current Liabilities
Bank loans (Note 15)
Trade and other payables (Note 14)
Derivative liabilities (Note 33)
Income tax payable
Current portions of:
Long-term debts (Note 16)
Finance lease obligation (Note 35)
Long-term obligation on power distribution system (Note 12)
Payable to a preferred shareholder of a subsidiary (Note 18)
π1,979,800
6,953,830
323
179,648
555,495
1,102,080
40,000
13,797
π5,828,100
6,022,537
16,476
365,209
101,200
2,270,994
40,000
11,263
Total Current Liabilities
10,824,973
14,655,779
Noncurrent Liabilities
Noncurrent portions of:
Long-term debts (Note 16)
Finance lease obligation (Note 35)
Long-term obligation on power distribution system (Note 12)
Payable to a preferred shareholder of a subsidiary (Note 18)
Customers’ deposits (Note 17)
Pension liabilities (Note 26)
Deferred income tax liabilities (Note 28)
16,147,618
47,203,036
242,559
62,970
2,004,384
16,001
321,121
16,151,335
43,315,170
247,460
76,767
1,781,116
28,158
38,005
Total Noncurrent Liabilities
65,997,689
61,638,011
Total Liabilities
76,822,662
76,293,790
Equity Attributable to Equity Holders of the Parent
Capital stock (Note 19a)
Additional paid-in capital
Share in net unrealized valuation gains on AFS investments of an associate (Note 9)
Share in cumulative translation adjustments of associates (Note 9)
Acquisition of non-controlling interests
Retained earnings (Note 19b)
7,358,604
12,588,894
78,118
57,922
(259,147)
37,505,797
7,358,604
12,588,894
–
115,246
(259,147)
14,672,262
57,330,188
34,475,859
404,022
571,068
ASSETS
Current Assets
Cash and cash equivalents (Note 4)
Trade and other receivables (Note 5)
Derivative assets (Note 33)
Inventories (Note 6)
Other current assets (Note 7)
Total Noncurrent Assets
TOTAL ASSETS
Non-controlling Interests
Total Equity
TOTAL LIABILITIES AND EQUITY
57,734,210
35,046,927
π134,556,872
π111,340,717
See accompanying Notes to Consolidated Financial Statements.
Annual Report 2010
119
SEC FORM 20 - IS (INFORMATION STATEMENT)
ABOITIZ POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Earnings Per Share Amounts)
Years Ended December 31
2010
2009
2008
π46,313,904
13,064,593
62,524
110,437
π12,359,479
10,734,427
61,598
18,761
π2,880,719
9,227,696
61,065
73,500
59,551,458
23,174,265
12,242,980
15,882,326
10,001,570
3,003,977
2,437,928
1,986,826
7,251
5,030,277
8,032,562
1,412,900
1,336,987
1,902,428
2,944
1,695,894
6,625,385
511,154
653,104
1,102,574
2,364
33,319,878
17,718,098
10,590,475
224,158
(6,678,293)
409,972
(2,813,978)
607,540
(378,536)
(6,454,135)
(2,404,006)
229,004
4,625,883
1,600,399
2,535,386
813,411
2,784,511
376,692
6,226,282
3,348,797
3,161,203
26,003,727
6,400,958
5,042,712
920,697
631,190
618,384
NET INCOME
π25,083,030
π5,769,768
π4,424,328
Attributable to:
Equity holders of the parent
Non-controlling interests
π25,041,116
41,914
π5,658,581
111,187
π4,333,613
90,715
π25,083,030
π5,769,768
π4,424,328
π3.40
π0.77
π0.59
OPERATING REVENUES
Sale of power (Notes 20 and 30)
Generation
Distribution
Services
Technical, management and other fees (Note 31)
OPERATING EXPENSES
Cost of generated power (Note 22)
Cost of purchased power (Note 21)
Depreciation and amortization (Notes 11 and 12)
Operations and maintenance (Note 24)
General and administrative (Note 23)
Cost of services
FINANCIAL INCOME (EXPENSES)
Interest income (Notes 4, 13 and 31)
Interest expense and other financing costs (Note 32)
OTHER INCOME (CHARGES)
Share in net earnings of associates (Note 9)
Other income - net (Note 27)
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX - Net (Note 28)
EARNINGS PER COMMON SHARE (Note 29)
Basic and diluted, for income for the year attributable to ordinary equity holders of the parent
See accompanying Notes to Consolidated Financial Statements.
120
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
ABOITIZ POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
Years Ended December 31
2010
2009
2008
π25,041,116
41,914
π5,658,581
111,187
π4,333,613
90,715
25,083,030
5,769,768
4,424,328
78,118
(57,324)
–
–
133,668
–
–
557,554
–
20,794
133,668
557,554
TOTAL COMPREHENSIVE INCOME
π25,103,824
π5,903,436
π4,981,882
Attributable to:
Equity holders of the parent
Non-controlling interests
π25,061,910
41,914
π5,792,249
111,187
π4,891,167
90,715
π25,103,824
π5,903,436
π4,981,882
NET INCOME ATTRIBUTABLE TO:
Equity holders of the parent
Non-controlling interests
OTHER COMPREHENSIVE INCOME (LOSS)
Share in net unrealized valuation gains on AFS investments of an associate (Note 9)
Share in movement in cumulative translation adjustment of associates (Note 9)
Income tax effect on other comprehensive income
Total other comprehensive income for the year, net of tax
See accompanying Notes to Consolidated Financial Statements.
Annual Report 2010
121
122
Aboitiz Power Corporation, Inc
See accompanying Notes to Consolidated Financial Statements.
π7,358,604
–
–
–
–
–
Total comprehensive income for the year
Cash dividends - π0.18 a share (Note 19b)
Cash dividends paid to non-controlling interests
Acquisition of non-controlling interests
Change in non-controlling interests
Balances at December 31, 2008
–
–
π7,358,604
Balances at January 1, 2008
Net income for the year
Other comprehensive income
π7,358,604
–
–
–
–
Total comprehensive income for the year
Cash dividends - π0.20 a share (Note 19b)
Cash dividends paid to non-controlling interests
Change in non-controlling interests
Balances at December 31, 2009
–
–
π7,358,604
Balances at January 1, 2009
Net income for the year
Other comprehensive income
π7,358,604
–
–
–
–
Total comprehensive income (loss) for the year
Cash dividends - π0.30 a share (Note 19b)
Cash dividends paid to non-controlling interests
Change in non-controlling interests
Balances at December 31, 2010
–
–
π7,358,604
Net income for the year
Other comprehensive income (loss)
Balances at January 1, 2010
Capital
Stock
(Note 19a)
π12,588,894
–
–
–
–
–
–
–
π12,588,894
π12,588,894
–
–
–
–
–
–
π12,588,894
π12,588,894
–
–
–
–
–
–
π12,588,894
π–
–
–
–
–
–
–
–
π–
π–
–
–
–
–
–
–
π–
π78,118
78,118
–
–
–
–
78,118
π–
Share in Net
Unrealized
Valuation
Gains on AFS
Investments
of an
Associate
(Note 9)
(π18,422)
557,554
–
–
–
–
–
557,554
(π575,976)
π115,246
133,668
–
–
–
–
133,668
(π18,422)
π57,922
(57,324)
–
–
–
–
(57,324)
π115,246
Share in
Cumulative
Translation
Adjustments
of Associates
(Note 9)
(π259,147)
–
–
–
(151,984)
–
–
–
(π107,163)
(π259,147)
–
–
–
–
–
–
(π259,147)
(π259,147)
–
–
–
–
–
(π259,147)
Acquisition of
Non-controlling
Interests
Attributable to Equity Holders of the Parent
Additional
Paid-in Capital
ABOITIZ POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
(Amounts in Thousands, Except Dividends Per Share Amounts)
π10,485,401
4,333,613
(1,324,549)
–
–
–
4,333,613
–
π7,476,337
π14,672,262
5,658,581
(1,471,720)
–
–
5,658,581
–
π10,485,401
π37,505,797
25,041,116
(2,207,581)
–
–
25,041,116
–
π14,672,262
Retained
Earnings
(Note 19b)
π536,333
90,715
–
(148,848)
(25,962)
1,001
90,715
–
π619,427
π571,068
111,187
–
(76,401)
(51)
111,187
–
π536,333
π404,022
41,914
–
(94,240)
(114,720)
41,914
–
π571,068
Non-controlling
Interests
π30,691,663
4,981,882
(1,324,549)
(148,848)
(177,946)
1,001
4,424,328
557,554
π27,360,123
π35,046,927
5,903,436
(1,471,720)
(76,401)
(51)
5,769,768
133,668
π30,691,663
π57,734,210
25,103,824
(2,207,581)
(94,240)
(114,720)
25,083,030
20,794
π35,046,927
Total
SEC FORM 20 - IS (INFORMATION STATEMENT)
SEC FORM 20 - IS (INFORMATION STATEMENT)
ABOITIZ POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years Ended December 31
2010
2009
2008
π26,003,727
π6,400,958
π5,042,712
6,678,293
3,003,977
42,217
(75)
(22,977)
(224,158)
(1,504,650)
(4,625,883)
–
2,813,978
1,412,900
–
(2,865)
15,630
(409,972)
(27,468)
(2,535,386)
–
378,536
511,154
5,254
(2,965)
–
(607,540)
49,084
(2,784,511)
(33)
29,350,471
7,667,775
2,591,691
(2,399,871)
(734,948)
(448,445)
410,269
(2,608,352)
(547,968)
(20,600)
(922,143)
42,128
42,579
(136,977)
13,008
1,685,285
223,268
2,651,669
210,024
(169,543)
197,162
Net cash generated from operations
Income and final taxes paid
Service fees paid (Note 12)
28,086,029
(770,382)
(40,000)
6,430,405
(516,772)
(40,000)
2,580,048
(634,654)
(40,000)
Net cash flows from operating activities
27,275,647
5,873,633
1,905,394
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Interest expense and other financing costs (Note 32)
Depreciation and amortization (Notes 11 and 12)
Write-off of project costs and assets
Gain on sale of property, plant and equipment
Unrealized fair valuation losses (gains) on derivatives
Interest income (Notes 4, 13 and 31)
Net unrealized foreign exchange losses (gains)
Share in net earnings of associates (Note 9)
Dividend income
Operating income before working capital changes
Decrease (increase) in:
Trade and other receivables
Inventories
Other current assets
Other noncurrent assets
Increase (decrease) in:
Trade and other payables
Customers’ deposits
CASH FLOWS FROM INVESTING ACTIVITIES
Cash dividends received (Note 9)
Interest received
Proceeds from sale of property, plant and equipment
Additions to:
Intangible assets - service concession rights (Note 12)
Property, plant and equipment (Notes 11 and 35)
Additional investments in associates (Note 9)
Net collection of (additional) advances to associates (Note 9)
Acquisition of Tiwi-Makban Geothermal Power Plants (Note 8)
1,818,359
215,259
1,778
833,187
451,683
18,604
1,930,244
595,220
5,995
(104,250)
(4,208,027)
(1,031,232)
(1,060,396)
–
(70,259)
(3,274,390)
(2,526,754)
813,221
(20,198,774)
(227,401)
(2,623,993)
(3,779,977)
(1,687,932)
–
Net cash flows used in investing activities
(4,368,509)
(23,953,482)
(5,787,844)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from availment of long-term debt - net of transaction costs (Note 16)
Payments to a preferred shareholder of a subsidiary (Note 18)
Changes in non-controlling interests
Payments of:
Long-term debt (Note 16)
Finance lease obligation
Interest paid
Cash dividends paid (Note 19b)
Net availments (payment) of bank loans (Note 15)
Acquisitions of non-controlling interests
870,000
(31,070)
(208,960)
9,762,893
(31,070)
(158,142)
5,712,664
(31,070)
221,276
(442,564)
(1,118,880)
(1,622,023)
(2,207,581)
(3,597,038)
–
(48,446)
–
(1,468,820)
(1,471,721)
1,136,900
–
(1,000)
–
(299,216)
(1,324,549)
949,000
(177,946)
Net cash flows from (used in) financing activities
(8,358,116)
7,721,594
5,049,159
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
14,549,022
(62,083)
3,814,906
(10,358,255)
(160,515)
14,333,676
1,166,709
460,864
12,706,103
π18,301,845
π3,814,906
π14,333,676
CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 4)
See accompanying Notes to Consolidated Financial Statements.
Annual Report 2010
123
SEC FORM 20 - IS (INFORMATION STATEMENT)
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 publicly-listed holding company of the entities engaged in power
generation and power distribution in the Aboitiz Group. The Company is a 76.40%-owned subsidiary of Aboitiz Equity
Ventures, Inc. (AEV, also incorporated in the Philippines). The ultimate parent of the Company 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, 2010 and 2009 and for each of the three years
in the period ended December 31, 2010, were authorized for issue by the Board of Directors (BOD) of the Company
on March 3, 2011.
2.
Basis of Preparation, Statement of Compliance and 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 quoted available-for-sale (AFS) investments which have been 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 rates and otherwise indicated.
Statement of Compliance
The consolidated financial statements of the Group have been prepared in compliance with Philippine Financial
Reporting Standards (PFRS).
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 and amended PFRS and Philippine Interpretations effective beginning January 1, 2010:
• PFRS 3 (Revised), Business Combinations, and Philippine Accounting Standard (PAS) 27 (Amended), Consolidated
and Separate Financial Statements
PFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring after
becoming effective. Changes affect the valuation of non-controlling interest, the accounting for transaction costs,
the initial recognition and subsequent measurement of a contingent consideration and business combinations
achieved in stages. These changes will impact the amount of goodwill recognized, the reported results in the period
that an acquisition occurs and future reported results.
124
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SEC FORM 20 - IS (INFORMATION STATEMENT)
PAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is
accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no
longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes
the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by
PFRS 3 (Revised) and PAS 27 (Amended) affect acquisitions or loss of control of subsidiaries and transactions with
non-controlling interests after January 1, 2010.
Adoption of the following changes in PFRS and Philippine Interpretations did not have any significant impact on the
Group’s consolidated financial statements.
• PFRS 2, Share-based Payment (Amendment) - Group Cash-settled Share-based Payment Transactions
• PAS 39, Financial Instruments: Recognition and Measurement (Amendment) - Eligible Hedged Items
• Philippine Interpretation IFRIC 17, Distributions of Non-cash Assets to Owners
Improvements to PFRS
Improvements to PFRS, an omnibus of amendments to standards, deal primarily with a view to removing inconsistencies
and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following
amendments resulted in changes to accounting policies but did not have any impact on the financial position or
performance of the Group.
• 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. As the Group’s chief
operating decision maker does review segment assets and liabilities, the Group has continued to disclose this
information in Note 30.
• PAS 7, Statement of Cash Flows: States that only expenditure that results in recognizing an asset can be classified as
a cash flow from investing activities. This amendment will impact the presentation in the statement of cash flows.
• 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 lenders up to
the approximate present value of lost interest for the remaining term of the host contracts. As a result, prepayment
penalties identified as embedded derivatives may no longer be required to be accounted as such as they are now
considered closely related to the host contract.
Other amendments resulting from the Improvements to PFRS to the following standards did not have any impact on
the accounting policies, financial position or performance of the Group:
Issued in May 2008
• PFRS 5, Non-current Assets Held for Sale and Discontinued Operations
Issued in April 2009
• PFRS 2, Share-based Payment
• PAS 1, Presentation of Financial Statements
• PAS 17, Leases
• PAS 34, Interim Financial Reporting
• PAS 36, Impairment of Assets
• PAS 38, Intangible Assets
• Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives
• Philippine Interpretation IFRIC 16, Hedge of a Net Investment in a Foreign Operation
Annual Report 2010
125
SEC FORM 20 - IS (INFORMATION STATEMENT)
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as of
December 31 of each year.
Percentage of Ownership
Nature of
Business
Aboitiz Energy Solutions, Inc. (AESI)
2010
Direct
2009
Indirect
Direct
2008
Indirect
Direct
Indirect
Energy related
service provider
100.00
–
100.00
–
100.00
–
Davao Light & Power Company, Inc. (DLP)
Power distribution
99.93
–
99.93
–
99.92
–
Cotabato Light & Power Company (CLP)
Power distribution
99.94
–
99.93
–
99.91
–
Subic Enerzone Corporation (SEZ)
Power distribution
65.00
34.97
65.00
34.97
65.00
34.97
Mactan Enerzone Corporation (MEZ)
Power distribution
100.00
–
100.00
–
100.00
–
Balamban Enerzone Corporation (BEZ)
Power generation
100.00
–
100.00
–
100.00
–
Aboitiz Renewables, Inc. (ARI; formerly Philippine
Hydropower Corporation) 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. (HI)
Power generation
–
100.00
–
100.00
–
100.00
Kookaburra Equity Ventures, Inc. ***
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
–
99.97
AP Renewables, Inc. (APRI)
Power generation
–
100.00
–
100.00
–
100.00
Hedcor Benguet, Inc. (HBI)***
Power generation
–
100.00
–
100.00
–
–
Therma Power, Inc. (TPI) and Subsidiaries
Power generation
100.00
–
100.00
–
100.00
–
Therma Power-Visayas, Inc.(TPVI)***
Power generation
–
100.00
–
100.00
–
100.00
Therma Luzon, Inc. (TLI)*
Power generation
–
100.00
–
100.00
–
100.00
Therma Marine, Inc. (Therma Marine) *
Power generation
–
100.00
–
100.00
–
100.00
Therma Mobile, Inc. (Therma Mobile)***
Power generation
–
100.00
–
100.00
–
100.00
Therma Pagbilao, Inc. (Therma Pagbilao)***
Power generation
–
100.00
–
100.00
–
100.00
Abovant Holdings, Inc. (AHI)
Holding company
–
60.00
–
60.00
–
60.00
Cebu Private Power Corporation (CPPC)
Power generation
60.00
–
60.00
–
60.00
–
Retail electricity
supplier
100.00
–
100.00
–
100.00
–
Adventenergy, Inc.***
* TPVI, TLI, Therma Marine, Therma Mobile and Therma Pagbilao were incorporated in 2008. HBI was incorporated in 2009.
** On March 23, 2010, the Philippine Securities and Exchange Commission (SEC) approved the change in corporate name of Philippine Hydropower
Corporation to ARI.
***No commercial operations as of December 31, 2010.
Basis of consolidation from January 1, 2010
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries 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.
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. 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. 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.
126
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SEC FORM 20 - IS (INFORMATION STATEMENT)
Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance.
A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it:
•
•
•
•
•
•
•
Derecognizes the assets (including goodwill) and liabilities of the subsidiary
Derecognizes the carrying amount of any non-controlling interest
Derecognizes the cumulative translation differences recorded in equity
Recognizes the fair value of the consideration received
Recognizes the fair value of any investment retained
Recognizes any surplus or deficit in profit or loss
Reclassifies the parent’s share of components previously recognized in other comprehensive income to profit or
loss or retained earnings, as appropriate.
Basis of consolidation prior to January 1, 2010
Whenever applicable, the above requirements were applied on a prospective basis. The following differences,
however, are carried forward in certain instances from the previous basis of consolidation:
•
•
Losses incurred by the Group were attributed to the non-controlling interest until the balance was reduced to
nil. Any further excess losses were attributed to the parent, unless the non-controlling interest had a binding
obligation to cover these. Losses prior to January 1, 2010 were not reallocated between non-controlling interest
and the parent shareholders.
Upon loss of control, the Group accounted for the investment retained at its proportionate share of net asset
value at the date control was lost. The carrying value of such investment at January 1, 2010 has not been restated.
Transactions with non-controlling interests
Non-controlling 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
non-controlling interests are accounted for as equity transactions. On acquisitions of non-controlling 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 of non-controlling interest
is also recognized directly in equity.
Summary of Significant Accounting Policies
Business Combination and Goodwill
Business combinations from January 1, 2010
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured
as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any
non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling
interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets.
Acquisition costs incurred are expensed and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification
and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the
acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity
interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.
Annual Report 2010
127
SEC FORM 20 - IS (INFORMATION STATEMENT)
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date.
Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will
be recognized in accordance with PAS 39 either in profit or loss or as a change to other comprehensive income. If
the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity.
Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the
amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If
this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized
directly in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. 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 that are expected to benefit from the combination, irrespective of whether other
assets or liabilities of the acquiree are assigned to those units.
Where goodwill forms part of a cash-generating unit 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.
Business combinations prior to January 1, 2010
In comparison to the abovementioned requirements, the following differences applied:
Business combinations were accounted for using the purchase method. Transaction costs directly attributable to the
acquisition formed part of the acquisition costs. The non-controlling interest (formerly known as minority interest)
was measured at the proportionate share of the acquiree’s identifiable net assets.
Business combinations achieved in stages were accounted for as separate steps. Any additional acquired share of
interest did not affect previously recognized goodwill.
When the Group acquired a business, embedded derivatives separated from the host contract by the acquiree were
not reassessed on acquisition unless the business combination resulted in a change in the terms of the contract that
significantly modified the cash flows that otherwise would have been required under the contract.
Contingent consideration was recognized if, and only if, the Group had a present obligation, the economic outflow
was more likely than not and a reliable estimate was determinable. Subsequent adjustments to the contingent
consideration were recognized as part of goodwill.
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.
Impairment is determined by assessing the recoverable amount of the cash-generating unit or group of
cash-generating 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.
128
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SEC FORM 20 - IS (INFORMATION STATEMENT)
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 non-controlling 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 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 short-term
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.
Inventories
Materials and supplies are valued at the lower of cost and 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.
Annual Report 2010
129
SEC FORM 20 - IS (INFORMATION STATEMENT)
Financial Instruments
The Group recognizes a financial instrument in the consolidated balance sheet when it becomes a party to the
contractual provisions of the instrument.
All financial instruments are initially recognized at fair value. Transaction costs, if any, are included in the initial
measurement of all financial instruments, except for financial instruments measured at fair value through profit or
loss (FVPL).
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.
Derivatives are also recognized on a trade basis.
Financial instruments are classified into the following categories: Financial assets or financial liabilities 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, where allowed and appropriate,
re-evaluates such designation at every reporting date.
(a) Financial assets or financial liabilities at FVPL
Financial assets and 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.
Financial assets and liabilities may be designated at initial recognition as 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 liabilities, or recognizing gains or losses on them on a different basis; (ii) the assets and
liabilities are part of a group of financial assets, liabilities or both, 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 recorded separately, 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 liability 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.
Financial assets and liabilities at FVPL are recorded at the consolidated balance sheet at fair value. Subsequent
changes in fair value are recognized in the consolidated statement of income. Interest earned or incurred is
recorded as interest income or expense, respectively, while dividend income is recorded as other income when
the right to receive payments has been established.
The Group’s derivative assets and derivative liabilities are classified as financial assets and financial liabilities at
FVPL, respectively (see Note 33).
(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. These are not entered into with the intention of immediate or short-term resale and
are not classified or designated as AFS investments or financial assets at FVPL. Loans and receivables are carried
at amortized cost less allowance for impairment. Amortization is determined using the effective interest rate
method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees
130
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
that are integral to the effective interest rate. Gains and losses are recognized in the consolidated statement
of income when the loans and receivables are derecognized or impaired, as well as through the amortization
process. Loans and receivables are included in current assets if maturity is within twelve months from 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 (see Note 33).
(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. Amortized cost is calculated by taking
into account any discount or premium on acquisition and fees that are integral to the effective interest rate. Where
the Group sells other than an insignificant amount of HTM investments, the entire category would be tainted and
would have to be 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 as of December 31, 2010 and 2009.
(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. Interest earned or paid on the investments is reported as interest income
or expense using the effective interest rate. Dividends earned on investments are recognized in the consolidated
statement of income when the right of payment has been established. These financial assets are classified as
noncurrent assets unless the investment matures or management intends to dispose it within twelve months
after the end of the reporting period.
The Group’s AFS investments as of December 31, 2010 and 2009 include investments in quoted and unquoted
shares of stock (see Note 33).
(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 the 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, amounts owed to related parties,
customers’ deposits, bank loans, payable to a preferred shareholder of a subsidiary, finance lease obligation,
long-term obligation on power distribution system, and long-term debts.
Annual Report 2010
131
SEC FORM 20 - IS (INFORMATION STATEMENT)
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.
‘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 unobservable data is used, 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.
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 remeasured at FVPL, unless
designated as effective hedge. Changes in fair value of derivative instruments not accounted as hedges are recognized
immediately in the consolidated statement of income. 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 separate 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.
As of December 31, 2010 and 2009, the Group has freestanding derivatives in the form of non-deliverable foreign
currency forward contracts entered into to economically hedge its foreign exchange risk (see Note 33). In 2010
and 2009, the Group did not apply hedge accounting treatment on its derivative transactions. The Group has not
bifurcated any embedded derivatives as of December 31, 2010 and 2009.
Classification of financial instruments between liability and equity
A financial instrument is classified as liability if it provides for a contractual obligation to:
•
•
132
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
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•
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 income or expense. 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, 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.
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 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
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
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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 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. If in case, the receivable has proven to have
no realistic prospect of future recovery, any allowance provided for such receivable is written off against the carrying
value of the receivable.
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 investments 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.
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.
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 Co-operation
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
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
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. This includes cost of
construction and other direct costs. Borrowing costs that are directly attributable to the construction of property,
plant and equipment are capitalized during the construction period.
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 sheet 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.
Operating lease
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as
operating lease. Operating lease payments are recognized as an expense in the consolidated statement of income on
a straight-line basis over 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 upgrades 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 percentage-of-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.
Borrowing cost attributable to the construction of the asset if the consideration received or receivable is an intangible
asset, is capitalized during the construction phase. In all other cases, borrowing costs are expensed as incurred.
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired
in a business combination is fair value as at the date of the acquisition. Following initial recognition, intangible assets
are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally generated
intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in the
consolidated statement of income in the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed to be either finite or indefinite.
Software and licenses
Software and licenses are initially recognized at cost. Following initial recognition, the software and licenses are
carried at cost less accumulated amortization and any accumulated impairment in value.
The software development costs is amortized on a straight-line basis over its estimated useful economic life and
assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization
commences when the software development costs is available for use. The amortization period and the amortization
method for the software development costs are reviewed at each financial year-end. Changes in the estimated useful
life is accounted for by changing the amortization period or method, as appropriate, and treating them as changes
in accounting estimates. The amortization expense is recognized in the consolidated statement of income in the
expense category consistent with the function of the software development costs.
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 year-end. 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 the consolidated statement of income 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 the
consolidated statement of income when the asset is derecognized.
Project development costs
Project development costs include power plant projects in the development phase which meet the “identifiability”
requirement under PAS 38, Intangible Assets, as they are separable and susceptible to individual sale and are carried
at acquisition cost. These assets are transferred to “Property, Plant and Equipment” when construction of each power
plant commences.
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Research and Development Expenditure
The Group’s policy is to record research expenses in the consolidated statement of income in the period when they
are incurred.
Development costs are recognized as an intangible asset on the balance sheet if the Group can identify them
separately and show the technical viability of the asset, its intention and capacity to use or sell it, and how it will
generate probable future economic benefits.
Following initial recognition of the development expenditure as an asset, the cost model is applied requiring the
asset to be carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of
the asset begins when development is complete and the asset is available for use. It is amortized over the period of
expected future benefit. During the period of development, the asset is tested for impairment annually.
Investment Property
Investment property pertains to land not used in operations. Initially, investment property is measured at cost including
transaction costs. Subsequent to initial recognition investment property is stated at cost less any impairment in value.
Investment property is derecognized when it has either been disposed of or when the investment property is
permanently withdrawn from use and no future benefit is expected from its disposal. Any gain or loss on the
derecognition of an investment property is recognized in the consolidated statement of income in the year of
derecognition. Transfers are made to investment property when, and only when, there is a change in use, evidenced
by ending of owner-occupation, commencement of an operating lease to another party or ending of construction or
development. Transfers are made from investment property when, and only when, there is a change in use, evidenced
by commencement of owner-occupation or commencement of development with a view to sale.
For a transfer from investment property to owner-occupied property or inventories, the deemed cost of property
for subsequent accounting is its fair value at the date of change in use. If the property occupied by the Group as an
owner-occupied property becomes an investment property, the Group accounts for such property in accordance with
the policy stated under property, plant and equipment up to the date of change in use. For a transfer from inventories
to investment property, any difference between the fair value of the property, plant and equipment at that date and
its previous carrying amount is recognized in the consolidated statement of income. When the Group completes the
construction or development of a self-constructed investment property, any difference between the fair value of the
property at that date and its previous carrying amount is recognized in the consolidated statement of income.
Impairment of Non-financial 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 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
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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.
Capital Stock
Capital stock is measured at par value for all shares issued. When the Company issues more than one class of stock,
a separate account is maintained for each class of stock and the number of shares issued. Capital stock includes
common stock and preferred stock.
When the shares are sold at premium, the difference between the proceeds and the par value is credited to the
“Additional paid-in capital” account. When shares are issued for a consideration other than cash, the proceeds are
measured by the fair value of the consideration received. In case the shares are issued to extinguish or settle the
liability of the Company, the shares shall be measured either at the fair value of the shares issued or fair value of the
liability settled, whichever is more reliably determinable.
Direct costs incurred related to equity issuance, such as underwriting, accounting and legal fees, printing costs and
taxes are debited to the “Additional paid-in capital” account. If additional paid-in capital is not sufficient, the excess
is charged against an equity reserve account.
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. Revenue is measured at the fair value of the consideration received or receivable,
taking into account contractually defined terms of payment and excluding discounts, rebates and other sales taxes
or duties. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as
a principal or an agent. The Group assesses whether it is acting as a principal in all of its revenue arrangements. 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. In the case of ancillary services,
revenue for scheduled capacity without energy dispatched is recognized as the scheduled time for the approved
reserved capacity occurs. For scheduled capacity with energy dispatched, revenue is recognized as the actual dispatch
is performed.
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.
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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.
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 directly attributable to the acquisition, construction or production of an asset that necessarily takes
a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective
assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other
costs that an entity incurs in connection with the borrowing of funds.
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.
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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 benefits of unused
tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which
the deductible temporary differences, and the carryforward benefits 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 the consolidated statement of income.
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 consolidated 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
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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.
Events After the Reporting Period
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 its subsidiaries. Dividends for the year that are approved after the balance
sheet date are dealt with as an event after the reporting period.
Operating Segments
For management purposes, the Group is organized into two major operating segments (power generation and power
distribution) according to the nature of the services provided, with each segment representing a significant business
segment. The Group’s identified operating segments 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 30.
Future Changes in Accounting Policies
The Group will adopt the following standards and interpretations and assess their impact when these become effective.
Except as otherwise indicated, the Group does not expect the adoption of these standards and interpretations to have
significant impact on its consolidated financial statements.
Effective in 2011
•
142
PAS 24, Related Party Disclosures (Amended)
The amended standard is effective for annual periods beginning on or after January 1, 2011. It clarified the
definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies
in its application. The revised standard introduces a partial exemption of disclosure requirements for
government-related entities. The Group does not expect any impact on its financial position or performance.
Early adoption is permitted for either the partial exemption for government-related entities or for the entire
standard.
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SEC FORM 20 - IS (INFORMATION STATEMENT)
•
PAS 32, Financial Instruments: Presentation (Amendment) - Classification of Rights Issues
The amendment to PAS 32 is effective for annual periods beginning on or after February 1, 2010 and amended
the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity
instruments in cases where such rights are given pro rata to all of the existing owners of the same class of an
entity’s non-derivative equity instruments, or to acquire a fixed number of the entity’s own equity instruments for
a fixed amount in any currency.
•
Philippine Interpretation IFRIC 14 (Amendment) - Prepayments of a Minimum Funding Requirement
The amendment to Philippine Interpretation IFRIC 14 is effective for annual periods beginning on or after
January 1, 2011, with retrospective application. The amendment provides guidance on assessing the recoverable
amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding
requirement as an asset.
•
Philippine Interpretation IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments
Philippine Interpretation IFRIC 19 is effective for annual periods beginning on or after July 1, 2010. The
interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as
consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be
reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is
recognized immediately in the consolidated statement of income.
Effective in 2012
•
PFRS 7, Financial Instruments: Disclosures (Amendments) - Disclosures - Transfers of Financial Assets
The amendments to PFRS 7 are effective for annual periods beginning on or after July 1, 2011. The amendments
will allow users of financial statements to improve their understanding of transfer transactions of financial assets
(for example, securitizations), including understanding the possible effects of any risks that may remain with
the entity that transferred the assets. The amendments also require additional disclosures if a disproportionate
amount of transfer transactions are undertaken around the end of a reporting period.
•
PAS 12, Income Taxes (Amendment) - Deferred Tax: Recovery of Underlying Assets
The amendment to PAS 12 is effective for annual periods beginning on or after January 1, 2012. It provides
a practical solution to the problem of assessing whether recovery of an asset will be through use or sale.
It introduces a presumption that recovery of the carrying amount of an asset will, normally, be through sale.
•
Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate
This Interpretation, effective for annual periods beginning on or after January 1, 2012, covers accounting for
revenue and associated expenses by entities that undertake the construction of real estate directly or through
subcontractors. The 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,
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.
Effective in 2013
•
PFRS 9, Financial Instruments: Classification and Measurement
PFRS 9, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39 and applies to
classification and measurement of financial assets and financial liabilities as defined in PAS 39. The standard is
effective for annual periods beginning on or after January 1, 2013. In subsequent phases, hedge accounting and
derecognition will be addressed.
The completion of this project is expected in the second quarter of 2011. The adoption of the first phase of PFRS 9
will have an effect on the classification and measurement of the Group’s financial assets. The Group will quantify
the effect in conjunction with the other phases, when issued, to present a comprehensive picture.
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Improvements to PFRS 2010
Improvements to PFRS is an omnibus of amendments to PFRS. The amendments have not been adopted as they
become effective for annual periods on or after either July 1, 2010 or January 1, 2011. The amendments listed below
are considered to have a reasonable possible impact on the Group:
•
•
•
•
3.
PFRS 3, Business Combinations
PFRS 7, Financial Instruments: Disclosures
PAS 1, Presentation of Financial Statements
PAS 27, Consolidated and Separate Financial Statements
Significant Judgments, Estimates and Assumptions
The preparation of the Group’s consolidated financial statements requires 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 Philippine Interpretation IFRIC 12 apply to SEZ’s Distribution
Management Service Agreement (DMSA) with Subic Bay Metropolitan Authority (SBMA) and MEZ’s Built-OperateTransfer (BOT) agreement with Mactan Cebu International Airport Authority (MCIAA). SEZ and MEZ’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 Philippine Interpretation IFRIC 12 apply to their power purchase
agreements with NPC. LHC and STEAG’s service concession agreements were accounted for under the intangible
asset and financial asset models, respectively. Refer to the accounting policy on service concession arrangements for
the discussion of intangible asset and financial asset models.
Determining fair value of customers’ deposits
In applying PAS 39 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 be reasonably and reliably estimated for purposes
of establishing their fair values using alternative valuation techniques 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 π2.00 billion and π1.78 billion as of December 31, 2010 and 2009, respectively (see Note 17).
Finance lease - Company in the Group as the lessee
In accounting for its Independent Power Producer (IPP) Administration Agreement with the Power Sector Asset
and Liabilities Management Corporation (PSALM), the Group’s management has made a judgment that the IPP
Administration Agreement of TLI is an arrangement that contains a lease. The Group’s management has made a
judgment that TLI 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 Note 35).
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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, 2010 and 2009, the carrying value of the power plant
amounted to π43.43 billion and π44.52 billion , respectively (see Notes 11 and 35). The carrying value of finance
lease obligation amounted to π48.31 billion and π45.59 billion as of December 31, 2010 and 2009, respectively
(see Note 35).
Determining whether the Power Purchase Agreement (PPA) Contains a Lease. The PPA with Visayan Electric Company
(VECO) qualifies as a lease on the basis that CPPC sells substantially all its output to VECO. The agreement requires
that CPPC guarantee the availability of the power plant. This arrangement is determined to be an operating lease
where a significant portion of the risks and rewards of ownership of the asset are retained by CPPC. Accordingly, the
power plant assets are recorded as part of the cost of property, plant and equipment and the fixed capacity fees and
fixed operating and maintenance fees billed to VECO are recorded as operating revenues on a straight-line basis over
the term of the PPA (see Note 20).
Accounting for acquisitions of Power Barges (PB)
In 2010, the Group took ownership of PB 118 and PB 117. The Group has made a judgment that the transactions
represent acquisitions of assets, and accordingly, accounted for the acquisitions in accordance with
PAS 16, Property, Plant and Equipment (see Note 11).
Classification of financial instruments
The Group exercises judgment in classifying a financial instrument, or its component parts, on initial recognition as
either a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual
arrangement and the definition of a financial asset, a financial liability or an equity instrument. The substance of a
financial instrument, rather than its legal form, governs its classification in the consolidated balance sheet.
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, and 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 (see Note 8).
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 2010, 2009 and
2008 based on management’s assessment. The carrying amounts of the investments in and advances to associates
amounted to π28.80 billion and π24.80 billion as of December 31, 2010 and 2009, respectively. No allowance for
impairment losses was recognized in 2010, 2009 and 2008 (see Note 9).
Assessing 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
Annual Report 2010
145
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of December 31, 2010 and 2009 amounted to π996.0 million (see Note 10). No impairment of goodwill was recognized
in 2010, 2009 and 2008.
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, 2010 and 2009, the aggregate net book values of property, plant and equipment amounted to π74.29 billion and
π72.90 billion, 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. As of December 31, 2010 and 2009, the aggregate net book values of
property, plant and equipment amounted to π74.29 billion and π72.90 billion, respectively (see Note 11).
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 contracts at the end of the
original contract term. As of December 31, 2010 and 2009, the aggregate net book values of intangible asset - service
concession rights amounted to π937.0 million and π882.3 million, respectively (see Note 12).
Assessing impairment of nonfinancial assets
The Group assesses whether there are any indicators of impairment for nonfinancial assets at each reporting date.
These nonfinancial 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.
Determining the recoverable amount of non-financial assets, which requires 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, intangible asset - service concession rights, investment
property, and other current and noncurrent assets are impaired. Any resulting impairment loss could have a material
adverse impact on the consolidated balance sheet and consolidated statement of income. As of December 31, 2010
and 2009, the aggregate net book values of these assets amounted to π7.42 billion and π75.85 billion, respectively
(see Notes 7, 11, 12 and 13). No impairment losses were recognized in 2010, 2009 and 2008.
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
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SEC FORM 20 - IS (INFORMATION STATEMENT)
of trade and other receivables will increase the Group’s recorded expenses and decrease current assets. As of
December 31, 2010 and 2009, allowance for impairment of trade and other receivables amounted to π376.9 million
and π106.2 million, respectively. Trade and other receivables, net of allowance for impairment, amounted to
π6.81 billion and π4.48 billion as of December 31, 2010 and 2009, respectively (see Note 5).
Estimating allowance for inventory obsolescence
The Group estimates the allowance for inventory 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 inventory obsolescence would increase recorded expenses and decrease current assets.
No allowance for inventory obsolescence was recognized in 2010 and 2009. The carrying amount of the inventories
amounted to π1.85 billion and π1.11 billion as of December 31, 2010 and 2009, respectively (see Note 6).
Recognition of deferred income tax assets
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 net deferred income tax assets amounting
to π199.8 million and π250.0 million as of December 31, 2010 and 2009, respectively. As of December 31, 2010, no
deferred income tax assets were recognized on the Company’s net operating loss carryover (NOLCO) and minimum
corporate income tax (MCIT) amounting to π114.8 million and π23.8 million, respectively, since management expects
that it will not generate sufficient taxable income in the future that will be available to allow all of the deferred
income tax assets to be utilized. There were no unrecognized deferred income tax assets as of December 31, 2009
(see Note 28).
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 expense amounted to π68.5 million in
2010 and π22.2 million in 2008. Retirement benefit income amounted to π4.8 million in 2009. The Group’s pension
liabilities amounted to π16.0 million and π28.2 million as of December 31, 2010 and 2009, respectively. Pension assets
amounted to π173.4 million and π37.2 million as of December 31, 2010 and 2009, respectively (see Note 26).
Fair value of financial instruments
Where the fair value of financial assets and financial liabilities recorded in the consolidated balance sheet cannot be
derived from active markets, their fair value is determined using valuation techniques which includes the discounted
cash flow model and other generally accepted market valuation model. The inputs for these models are taken from
observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing
fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in
assumptions about these factors could affect the reported fair value of financial instruments. The fair values of the
Group’s financial instruments are presented under Note 33.
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, 2010 and 2009.
Annual Report 2010
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4.
Cash and Cash Equivalents
Cash on hand and in banks
Short-term investments
2010
2009
π3,055,662
15,246,183
π2,255,660
1,559,246
π18,301,845
π3,814,906
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, classified under “Other noncurrent
assets” (see Note 13), amounted to π149.0 million in 2010, π348.9 million in 2009 and π459.0 million in 2008.
5.
Trade and Other Receivables
Trade receivables - net of allowance for impairment of
π376,912 in 2010 and π106,170 in 2009 (see Note 32)
Others (see Note 31)
Accrued revenue
Non-trade
Advances to various projects
Advances to contractors
Dividends receivable
Others
2010
2009
π5,897,292
π3,606,224
192,194
139,155
102,180
9,509
–
465,461
154,740
137,978
–
151,040
225,002
201,044
π6,805,791
π4,476,028
Trade and non-trade receivables are non-interest bearing and are generally on 10 - 30 days’ term.
The rollforward analysis of allowance for impairment of receivables, which pertains to trade receivables of the power
distribution segment, is presented below:
2010
2009
January 1
Provisions (see Note 23)
Write-off/reversals
π106,170
292,065
(21,323)
π8,098
136,474
(38,402)
December 31
π376,912
π106,170
Trade receivables of the power distribution segment that were written off but not covered by an allowance for
impairment amounted to nil and π1.1 million (see Note 23) in 2010 and 2009, respectively.
Allowance for impairment as of December 31, 2010 and 2009 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.
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6.
Inventories - at cost
Fuel inventories
Plant spare parts and supplies
Transmission and distribution supplies
Other parts and supplies
2010
2009
π1,325,290
349,029
150,220
21,048
π541,759
316,745
179,082
73,053
π1,845,587
π1,110,639
The cost of inventories recognized as part of cost of generated power in the consolidated statements of income
amounted to π11.55 billion in 2010, π2.65 billion in 2009 and π1.62 billion in 2008 (see Note 22). The cost of
inventories recognized as part of operations and maintenance in the consolidated statements of income amounted to
π619.9 million in 2010, π222.3 million in 2009 and π151.4 million in 2008 (see Note 24).
7.
Other Current Assets
Input value-added tax (VAT)
Prepaid tax
Prepaid expenses
Prepaid rent (see Note 35)
Others
8.
2010
2009
π680,139
171,218
46,522
27,581
33,893
π385,889
87,446
5,104
25,800
8,445
π959,353
π512,684
Business Combinations
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 officially declaring
it as the winning bidder for the 289MW Tiwi MakBan 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, following the completion of the conditions precedent and the execution of the respective
Certificates of Closing, the control and possession of the purchased assets were successfully turned over and
transferred by PSALM to APRI. APRI started the commercial operations of the Tiwi-MakBan 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 (see Note 11)
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
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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 in 2009 was determined provisionally as APRI had
incomplete information as of report date with respect to possible recognition of intangible assets and deferred
income tax assets arising from the acquisition. In 2010, the accounting for the business combination was finalized
and no changes were made on the purchase price allocation that was provisionally computed.
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 π20.20 billion, consisting of the purchase price of π19.90 billion
and costs directly attributable to the acquisition of π298.5 million.
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.
The payment of the 60% balance of π11.61 billion was accelerated on September 30, 2009 using proceeds
from advances from ARI. APRI paid interest amounting to π514.1 million 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 π2.07 billion to the
net income of the Group.
b. Significant Acquisition by an Associate
150
Acquisition of the 175 MW Ambuklao-Binga Hydroelectric Power Plant Complex (Ambuklao-Binga HEPPC)
On November 28, 2007, SN Aboitiz Power-Benguet, Inc., (SNAP B), associate of Manila-Oslo Renewable
Enterprise, Inc. (MORE), won the auction for the Ambuklao-Binga HEPPC with a bid of US$325.0 million.
On July 10, 2008, PSALM turned over the possession and control of the 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.
SNAP B accounted for the purchase of the Ambuklao-Binga HEPPC under the purchase method.
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 π22.0 million.
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
9.
Investments in and Advances to Associates
2010
2009
π18,914,669
1,031,232
(796,949)
π16,387,915
2,526,754
–
19,148,952
18,914,669
4,966,140
4,625,883
(353,662)
(1,593,357)
3,263,941
2,535,386
–
(833,187)
7,645,004
4,966,140
Share in cumulative translation adjustments of associates
Share in unrealized valuation gain on AFS investment of an associate
26,793,956
57,922
78,118
23,880,809
115,246
–
Investments in associates at equity
Advances to associates - net
26,929,996
1,869,374
23,996,055
804,246
π28,799,370
π24,800,301
Acquisition cost:
Balance at beginning of the year
Additions during the year
Disposals during the year
Balance at end of year
Accumulated equity in net earnings:
Balance at beginning of the year
Share in net earnings
Effect of redemption of preferred shares by an associate
Cash dividends
Balance at end of year
In 2010, additional π1.03 billion was invested in MORE to support SNAP B’s plant rehabilitation and refurbishment. In
2009, the Group contributed π2.38 billion as additional investment in Cebu Energy Development Corporation (CEDC).
Following the approval by SEC of the amendments on East Asia Utilities Corporation’s (EAUC) Articles of Incorporation
on September 27, 2010, EAUC effected the conversion of its outstanding 90 million common shares to 900,000 Series A
redeemable preferred shares (RPS). Fifty percent (50%) of the shares converted or 45 million shares is attributable to
the Company. In October 2010, EAUC redeemed 392,210 Series A RPS attributable to the Company.
The Group’s associates and the corresponding equity ownership are as follows:
Percentage of Ownership
Nature of Business
2010
2009
2008
MORE
Holding company
83.33
83.33
83.33
VECO
Power distribution
55.19
55.18
55.11
LHC
Power generation
50.00
50.00
50.00
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
50.00
SN Aboitiz Power - Magat, Inc. (SNAP M)
Power generation
50.00
50.00
50.00
SNAP B
Power generation
50.00
50.00
50.00
Hijos de F. Escano, Inc. (HIJOS)
Holding company
46.73
46.73
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
Power generation
34.00
34.00
34.00
CEDC*
Power generation
26.40
26.40
26.40
SPPC
Power generation
20.00
20.00
20.00
WMPC
Power generation
20.00
20.00
20.00
*No commercial operations as of December 31, 2010.
Annual Report 2010
151
SEC FORM 20 - IS (INFORMATION STATEMENT)
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 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%.
VECO - HIJOS has direct ownership in VECO of 25.15% in 2010, 2009 and 2008 while the Group’s direct ownership
in VECO is 43.44% in 2010, 43.43% in 2009 and 43.37% in 2008 resulting to the Group’s effective ownership in
VECO of 55.19% in 2010, 55.18% in 2009 and 55.11% in 2008.
SFELAPCO - PEVI has direct ownership in SFELAPCO of 54.83% while the Group’s direct ownership in SFELAPCO
is 20.29% resulting to the Group’s effective ownership in SFELAPCO of 43.78%.
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.
The carrying values of investments in associates, which are accounted for under the equity method follows:
2010
MORE
STEAG
CEDC
LHC
VECO
HIJOS
WMPC
EAUC
PEVI
SPPC
SFELAPCO
Others
2009
π10,109,764
5,909,444
2,417,898
1,232,222
962,627
871,571
421,960
1,375,712
226,106
251,256
177,491
40,004
π26,929,996
π23,996,055
Following is the summarized financial information of significant associates:
MORE
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
LHC
Total current assets
Total noncurrent assets
Total current liabilities
Total noncurrent liabilities
Gross revenue
Operating profit
Depreciation and amortization
Interest income - net
Income tax expense (benefit) - net
Net income
152
π13,336,441
6,445,009
2,396,218
1,181,164
1,090,460
905,828
465,002
335,563
285,292
230,453
228,626
29,940
Aboitiz Power Corporation, Inc
2010
2009
2008
π234,714
16,013,675
241,362
3,298
4,084,202
3,836,899
10,007
377
13,373
3,911,204
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
π382,808
3,965,135
1,468,097
517,517
934,710
581,919
264,349
66,992
85,973
339,521
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
SEC FORM 20 - IS (INFORMATION STATEMENT)
2010
2009
2008
π3,251,473
7,878,006
2,513,044
3,939,339
13,405,730
609,522
424,777
29,945
253,158
609,526
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
π1,031,813
1,584,896
148,542
143,422
1,324,460
769,956
309,802
(6,597)
201,779
851,962
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
SPPC
Total current assets
Total noncurrent assets
Total current liabilities
Total noncurrent liabilities
Gross revenue
Operating profit
Depreciation and amortization
Interest income (expense) - net
Income tax - net
Net income
π580,253
999,546
120,986
302,659
709,774
244,499
284,503
9,865
45,226
227,719
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
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
π669,949
1,103,853
466,986
334,181
3,048,028
121,876
144,784
1,574
30,710
267,483
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
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
π5,624,376
11,129,719
1,659,345
3,348,866
6,507,354
3,131,010
70,881
366,944
108,887
1,754,369
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
VECO*
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
WMPC
Total current assets
Total noncurrent assets
Total current liabilities
Total noncurrent liabilities
Gross revenue
Operating profit
Depreciation and amortization
Interest income (expense) - net
Income tax - net
Net income
Annual Report 2010
153
SEC FORM 20 - IS (INFORMATION STATEMENT)
EAUC
Total current assets
Total noncurrent assets
Total current liabilities
Total noncurrent liabilities
Gross revenue
Operating profit
Depreciation and amortization
Interest income (expense) - net
Income tax - net
Net income
2010
2009
2008
π552,025
1,002,340
166,788
10,861
1,741,244
283,349
118,857
(727)
16,337
252,754
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
*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 π245.7 million, π216.9 million and π290.7 million in 2010, 2009, and
2008, respectively, for VECO; and π72.0 million, π73.9 million and π62.7 million in 2010, 2009 and 2008, respectively, for SFELAPCO. Under the same
method, net income amounted to π734.9 million, π467.8 million, and π565.3 million in 2010, 2009 and 2008, respectively, for VECO; and π132.7 million,
π119.6 million and π66.4 million in 2010, 2009 and 2008, respectively, for SFELAPCO.
10.
Impairment Testing of Goodwill
Goodwill acquired through business combinations have been attributed to individual cash-generating units.
The carrying amount of goodwill follows:
MEZ
BEZ
HI
2010
2009
π538,373
237,404
220,228
π538,373
237,404
220,228
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, 2010 and 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 rates applied to cash flow projections are from 8.22% to 8.39% in 2010 and from 9.58% to 11.70% in
2009, and cash flows beyond the five-year period are extrapolated using a zero percent growth rate.
Revenue assumptions
Revenue assumptions are based on the expected electricity to be generated and sold. In 2010, revenue growth of 5%
for four years and 6% in year 5 was applied to MEZ; 5% for BEZ; and 15% in year 1, 3% in year 2, 2% for years 3 and 4
and 4% in year 5 for HI. In 2009, revenue growth of 17% in year 1, 11% in year 2 and 2% from years 3 to 5 was applied
to MEZ; 8% in year 1, 10% in year 2, 9% in year 3, no growth in year 4 and 4% in year 5 for BEZ; 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 4.4% in 2011, which then
increases by 20 and 40 basis points on the second and third year, respectively. It then remains steady at 5% until the
fifth year. The starting point of 2011 is consistent with external information sources.
Based on the impairment testing, no impairment was recognized on goodwill in 2010 and 2009. With regard to the
assessment of value-in-use of MEZ, BEZ and HI, 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.
154
Aboitiz Power Corporation, Inc
–
π125,774
Ending Balance
NET BOOK VALUE
–
–
–
–
125,774
Ending Balance
ACCUMULATED DEPRECIATION
AND AMORTIZATION
Beginning Balance
Additions
Disposals
Reclassifications and others
660,637
38,698
–
25,298
–
22,068
–
3,558
π870,310
91,389
76,198
15,519
–
(328)
898,699
π174,066
π100,148
Land
Buildings,
warehouses
and
improvements
π835,231
116,050
91,389
19,099
(2,033)
7,595
COST
Beginning Balance
Acquisitions through a business
combination (see Note 8)
Additions
Disposals
Reclassifications and others
As of December 31, 2009
π114,336
–
Ending Balance
NET BOOK VALUE
–
–
–
–
ACCUMULATED DEPRECIATION
AND AMORTIZATION
Beginning Balance
Additions
Disposals
Reclassifications and others
49,311
(11,445)
114,336
Ending Balance
951,281
π898,699
5,485
(2,214)
π125,774
7
–
COST
Beginning Balance
Additions
Disposals
Reclassifications
and others
Land
Buildings,
warehouses
and
improvements
Property, Plant and Equipment
As of December 31, 2010
11.
π63,338,866
3,289,899
2,364,240
987,191
(39,313)
(22,219)
66,628,765
18,017,208
45,300,656
(48,231)
(67,245)
π3,426,377
Power plant
equipment
and steam
field assets
π67,578,657
5,791,480
3,289,899
2,480,905
(36,068)
56,744
73,370,137
5,280,435
π66,628,765
1,498,217
(37,280)
Power plant
equipment
and steam
field assets
π2,225,780
2,327,647
2,135,880
190,394
(418)
1,791
4,553,427
–
298,639
(5,004)
11,406
π4,248,386
Transmission,
distribution and
substation
equipment
π2,474,970
2,523,933
2,327,647
194,431
(789)
2,644
4,998,903
148,693
π4,553,427
296,882
(99)
Transmission,
distribution and
substation
equipment
π125,666
261,304
217,539
41,694
(14,105)
16,176
386,970
–
80,072
(16,376)
19,280
π303,994
Transportation
equipment
π160,389
299,357
261,304
49,241
(8,478)
(2,710)
459,746
–
π386,970
82,421
(9,645)
Transportation
equipment
π24,929
86,375
388,623
11,117
(1,327)
(312,038)
111,304
–
17,546
(1,490)
(330,819)
π426,067
Office furniture,
fixtures and
equipment
π12,016
147,935
86,375
37,598
(4,577)
28,539
159,951
765
π111,304
56,049
(8,167)
Office
furniture,
fixtures and
equipment
π54,919
128,383
111,585
8,976
–
7,822
183,302
–
25,847
–
34,787
π122,668
Leasehold
improvements
π61,759
142,804
128,383
16,965
–
(2,544)
204,563
–
π183,302
21,261
–
Leasehold
improvements
π1,326,992
324,916
33,415
71,383
(339)
220,457
1,651,908
1,290,397
18,141
(536)
289,746
π54,160
Electrical
equipment
π1,236,457
406,154
324,916
105,160
(23,922)
–
1,642,611
–
π1,651,908
14,855
(24,152)
Electrical
equipment
π112,369
246,432
209,760
16,946
–
19,726
358,801
–
28,090
–
39,262
π291,449
Meters and
laboratory
equipment
π124,520
259,245
246,432
12,794
–
19
383,765
(350)
π358,801
25,314
–
Meters and
laboratory
equipment
π125,008
201,454
127,105
26,273
(3,738)
51,814
326,462
–
54,430
(3,718)
79,453
π196,297
Tools and
others
π140,557
234,876
201,454
38,087
(1,689)
(2,976)
375,433
(3,207)
π326,462
53,941
(1,763)
Tools and
others
π4,633,416
–
–
–
–
–
4,633,416
–
2,184,161
–
(129,121)
π2,578,376
Construction
in progress
π1,552,872
–
–
–
–
–
1,552,872
(5,371,763)
π4,633,416
2,295,838
(4,619)
Construction
in progress
π72,901,029
6,957,799
5,664,345
1,369,493
(59,240)
(16,799)
79,858,828
19,968,242
48,068,348
(75,355)
(24,395)
π11,921,988
Total
π74,291,764
9,921,834
6,957,799
2,954,280
(77,556)
87,311
84,213,598
92,439
π79,858,828
4,350,270
(87,939)
Total
SEC FORM 20 - IS (INFORMATION STATEMENT)
Annual Report 2010
155
SEC FORM 20 - IS (INFORMATION STATEMENT)
Acquisition of PB 118 and PB 117
On July 31, 2009, Therma Marine and Therma Mobile, subsidiaries, won the negotiated bid with the Power Sector
Assets and Liabilities Management Corporation (PSALM) for the barge-mounted diesel-powered generation
plants, the 100 MW PB 118 and 100 MW PB 117, with bid prices of US$14 million (π651.23 million) and $16 million
(π739.47 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 and Therma Mobile 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.
On February 5, 2010 and February 26, 2010, Therma Marine fully paid PSALM the total bid prices of PB118 and PB117,
respectively.
On February 16, 2010, Therma Marine entered into an Assignment 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 has become, for all intents and purposes, the buyer of PB 117.
The control and possession of PB 118 and PB 117 were successfully turned-over and transferred to Therma Marine on
February 6, 2010 and March 1, 2010, respectively. Therma Marine started the commercial operations of the power
barges on the turn-over dates.
The Group accounted for the acquisitions as purchases of assets in accordance with PAS 16.
Specific borrowing costs capitalized as part of construction in progress amounted to π151.9 million and π227.3 million
in 2010 and 2009, respectively (see Note 16). The rate used to determine the amount of borrowing costs eligible for
capitalization was 8.52%, which is the effective interest rate for the related specific borrowings in 2010 and 2009. The
reclassifications made in 2010 and 2009 pertain mostly to completed projects of the Group.
Property, plant and equipment with carrying amounts of π5.59 billion and π4.94 billion as of December 31, 2010 and
2009, respectively, are used to secure the Group’s long-term debts (see Note 16).
Fully depreciated transmission and distribution equipment and distribution transformers and substation equipment
with gross carrying amount of π2.46 billion and π1.36 billion as of December 31, 2010 and 2009 are still in use.
Fully depreciated power generation property, plant and equipment with gross carrying amount of π147.6 million and
π121.1 million as of December 31, 2010 and 2009 are still in use.
12.
Intangible Asset - Service Concession Rights
Cost:
At January 1
Addition
Accumulated amortization:
At January 1
Amortization
156
Aboitiz Power Corporation, Inc
2010
2009
π1,045,054
104,385
π973,532
71,522
1,149,439
1,045,054
162,746
49,697
119,339
43,407
212,443
162,746
π936,996
π882,308
SEC FORM 20 - IS (INFORMATION STATEMENT)
Service concession arrangements entered into by the Group are as follows:
a. On May 15, 2003, the SBMA, AEV and DLP entered into a DMSA for the privatization of the SBMA Power
Distribution System (PDS) on a rehabilitate-operate-and-transfer arrangement; and to develop, construct, lease,
lease out, operate and maintain property, structures, and machineries in the Subic Bay Freeport Zone (SBFZ).
Under the terms of the DMSA, SEZ 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 SEZ 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 SEZ 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 SEZ under the DMSA amounted to π368.6 million.
SEZ is subject to the rate making regulations and regulatory policies of the Energy Regulatory Commission.
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 SEZ 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 SEZ
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 PDS are treated as intangible
assets and are amortized over a period of 25 years up to year 2028, in accordance with Philippine Interpretation
IFRIC 12.
Management believes that, based on the assessment performed, the intangible asset - service concession rights
are not impaired.
Specific borrowing costs amounting to π19.1 million and π22.6 million that were directly attributable to the
rehabilitation of the PDS were capitalized in 2010 and 2009, respectively. The rates used to determine the amount
of borrowing costs eligible for capitalization ranged from 8.26% to 10.02%, representing the effective interest
rates for the related specific borrowings in 2010 and 2009.
b. Aboitiz Land, Inc. (AboitizLand), the Developer-Operator of Mactan Export Processing Zone II (MEPZ II), entered
into a BOT agreement with MCIAA. Under the terms of the agreement, MCIAA will provide the land, while
AboitizLand will undertake the development of MEPZ II. The project has a term of 25 years, with an option to
Annual Report 2010
157
SEC FORM 20 - IS (INFORMATION STATEMENT)
extend the lease for another 25 years. Under the agreement, ownership of permanent structures within MEPZ II
will be transferred to MCIAA after termination of the agreement.
13.
On February 20, 2007, MEZ signed a Deed of Assignment with AboitizLand wherein AboitizLand transferred its
power distribution assets with a net book value of π68.66 billion in exchange for 6.25 billion shares of the Company.
MEZ entered into a Tripartite Memorandum of Agreement with National Power Corporation (NPC) and
AboitizLand, wherein AboitizLand assigned its rights, title and interests in the power supply contract with NPC to
the Company. Under the agreement, AboitizLand assigns to MEZ all its rights and obligations under the Supply
of Electric Energy it entered into with NPC, which will expire on September 25, 2015.
The transmission and distribution equipment of MEZ are located within MEPZ 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 21 years up to year 2028, in accordance with Philippine Interpretation IFRIC 12.
Other Noncurrent Assets
Input VAT and tax credit receivable
Prepaid rent - net of current portion (see Note 35)
Intangible assets:
Project development costs
Software and licenses
Restricted cash
Others
2010
2009
π629,860
522,817
π433,486
532,830
41,394
22,400
–
9,012
–
1,153
560,423
17,140
π1,225,483
π1,545,032
Restricted cash
Cash equivalents, presented as “Restricted cash”, pertains to a US$12.2 million amount held to secure a long-term loan
of an associate that matured in 2010. The related long-term loan was fully paid in 2010. Accordingly, the restricted
cash was reclassified to “Cash and cash equivalents”. Interest income from these cash equivalents is reported as part
of interest income in the consolidated statements of income (see Note 4).
Intangible assets
Rollforward of intangible assets follow:
2010
158
2009
Project
development
costs
Software
and licenses
Project
development
costs
Software
and licenses
Balance at beginning of year
Additions
Transfers (see Note 11)
Write-off
π–
75,154
(33,040)
(720)
π1,153
21,247
–
–
π–
–
–
–
π–
1,153
–
–
Balance at end of year
π41,394
π22,400
π–
π 1,153
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
14.
Trade and Other Payables
Trade payables (see Note 21)
Output VAT
Amounts due to contractors and other third parties
Accrued energy fees and fuel purchase
Accrued taxes and fees
Accrued interest
Related parties - nontrade (see Note 31)
Unearned revenues
Accrued insurance
Others (see Note 31)
2010
2009
π2,063,082
1,609,331
1,485,755
486,644
424,043
220,048
129,999
42,423
37,026
455,479
π1,765,531
357,332
1,457,340
–
312,609
202,742
1,145,253
38,612
32,508
710,610
π6,953,830
π6,022,537
Trade payables are non-interest bearing and generally on 30-day terms.
Accrued taxes and fees represent accrual of real property tax, transfer tax and other fees.
Other liabilities include withholding taxes, other amounts owed to related parties, other non-trade payables and
other accrued expenses.
15.
Bank Loans
Interest Rate
Peso loans - financial institutions - unsecured
Company
DLP
CLP
SEZ
HI
BEZ
AESI
Dollar loans - financial institutions - unsecured
Company
2.24% in 2010;
5.10% to 5.50% in 2009
3.50% in 2010;
5.10% to 8.75% in 2009
3.50% in 2010;
5.10% to 5.75% in 2009
3.50% to 3.75% in 2010
3.50% in 2010
5.10% to 5.75% in 2009
5.38% to 6.75% in 2009
5.10% to 5.75% in 2009
2010
2009
π1,290,000
π1,059,500
250,000
794,100
220,000
184,300
196,600
23,200
–
–
–
–
40,000
8,000
1,979,800
2,085,900
–
3,742,200
π1,979,800
π5,828,100
Bank loans represent unsecured interest-bearing short-term loans obtained from various local banks to meet the
Group’s working capital requirements. They are covered by the respective borrower entities’ existing credit lines with
the banks and are not subject to any significant covenants and warranties.
The Company’s outstanding peso loans as of December 31, 2010 were fully paid on January 3, 2011, while the US dollar
loan was fully paid in April 2010.
Interest expense on bank loans amounted to π145.1 million in 2010, π236.9 million in 2009 and π234.0 million in 2008
(see Note 32).
Annual Report 2010
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SEC FORM 20 - IS (INFORMATION STATEMENT)
16.
Long-term Debts
Interest Rate
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
2010
2009
8.78%
9.33%
8.23%
π3,330,000
548,800
5,000,000
π3,330,000
554,400
5,000,000
8.00%
8.70%
705,580
2,294,420
705,580
2,294,420
8.52%
3,570,000
3,570,000
6.68% to 6.71%
640,000
–
8.36%
549,100
613,700
8.26% in 2010; 8.26%
to 10.02% in 2009
119,090
331,454
HSI
Financial institutions - secured
CPPC
Financial institution - secured
HI
Financial institution - secured
SEZ
Financial institution - secured
BEZ
Financial institution - secured
7.50%
70,000
–
Less deferred financing costs
16,826,990
123,877
16,399,554
147,019
Less current portion - net of deferred financing costs
16,703,113
555,495
16,252,535
101,200
π16,147,618
π16,151,335
Company
Retail Bonds
On April 30, 2009, the Company registered and issued unsecured bonds worth π3.00 billion with three-year and
five-year terms. 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 bonds 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 2.0% 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, 2010
and 2009.
Unamortized deferred debt issuance cost reduced the carrying amount of long-term debt by π24.4 million in 2010 and
π32.1 million in 2009.
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SEC FORM 20 - IS (INFORMATION STATEMENT)
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 2.0% 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, 2010 and 2009.
Unamortized deferred debt issuance cost reduced the carrying amount of long-term debt by π39.2 million in 2010 and
π47.7 million in 2009.
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 Banco De Oro (BDO) Capital and Investment Corporation, Bank of the Philippine
Islands Capital Corporation, First Metro Investment Corporation and 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 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 2.0% of the outstanding principal amount.
Unless previously redeemed, the notes shall be redeemable on a lump sum basis on the respective maturity dates at
their face values.
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, 2010 and 2009.
Unamortized deferred debt issuance cost reduced the carrying amount of long-term debt by π32.5 million in 2010 and
π41.0 million in 2009.
Annual Report 2010
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SEC FORM 20 - IS (INFORMATION STATEMENT)
HSI
On May 21, 2008, HSI and ARI 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%.
Under the loan agreements, HSI is required to maintain Debt Service Coverage Ratio (DSCR) of at least 1.1x, at all
times, until fulfillment payment of the obligations and a DSCR of at least 1.2x for the release of funds from the Project
Accounts. Other loan covenants include, among others, the establishment and maintenance of certain project
accounts depositories under the control of appointed trustees of the lenders and submission of certain reports. HSI is
in compliance with the loan covenants as of December 31, 2010 and 2009.
The loan is secured by 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 π5.20 billion and
π4.28 billion as of December 31, 2010 and 2009, respectively.
Interest on the loan capitalized as construction in progress amounted to π151.9 million in 2010 and π227.3 million in
2009 (see Note 11).
Unamortized deferred debt issuance cost reduced the carrying amount of long-term debt by π23.7 million in 2010 and
π25.6 million in 2009.
CPPC
On January 27, 2010, CPPC availed a total of π800.0 million from the Notes Facility Agreement with SB Capital
Investment Corporation (π400.0 million) and BDO Capital and Investment Corporation (π400.0 million), the proceeds
of which were used by CPPC to finance advances made to stockholders. The Notes Facility Agreement provided for the
issuance of 3-year notes which bear interest rate at the PDST-F rate for three months plus a 2.25% spread. The notes
are to be paid in 15 principal payments amounting to π53.3 million each quarter starting May 2, 2010.
In accordance with the Notes Facility Agreement, CPPC’s DE ratio shall not exceed 3:1, provided that upon redemption
of redeemable preferred shares, DE ratio shall not exceed 5:1. As of December 31, 2010, CPPC’s DE ratio is at 2:1. CPPC
is in compliance with the debt covenant as of December 31, 2010.
Unamortized deferred debt issuance cost reduced the carrying amount of long-term debt by π3.6 million in 2010.
HI
The loan availed by HI from BDO 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.
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SEC FORM 20 - IS (INFORMATION STATEMENT)
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 π200.0 million long-term loans. The amended terms also changed interest rates from
floating to fixed at 8.36% per annum.
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 ARI.
Carrying value of machineries and improvements of the Benguet and Davao hydropower plants mortgaged with
BDO to secure loans amounted to π392.5 million and π488.9 million as of December 31, 2010 and 2009, 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 to 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 covenants as of December 31, 2010 and 2009.
BEZ
On June 28, 2010, BEZ availed of a π70.0 million ten-year loan from the Metropolitan Bank and Trust Company to
finance the acquisition, construction and installation of a new substation and for working capital requirements. The
loan is payable in quarterly installments starting September 28, 2012.
Interest on the loan for the first five years is fixed at 7.50%. For the remaining five-year period interest rate will be fixed
at the prevailing five-year PDST- F interest rate for the day immediately preceding the fixed interest setting date plus
1.00%.
Loan covenant includes, among others, restrictions such as not to declare or pay dividends to its stockholders if there
are payments to the bank that are in arrears, permit any indebtedness to be secured in violation of the executed deed
of negative pledge nor shall it redeem or repurchase or retire or otherwise acquire for value any of its capital stock. BEZ
is in compliance with the loan covenant as of December 31, 2010.
SEZ
a. The loan availed of by SEZ in 2005 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 June 26, 2008, SEZ
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 December 23, 2010, the π210.0 million was pre-terminated. The total amount SEZC paid on this
pre-termination of loan is π202.5 million including interest and gross receipts tax.
b. On September 24, 2008, SEZ availed of 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 SEZ
related to revenue receivable and new equipment and assets to be purchased and used in the SBMA PDS. The
Annual Report 2010
163
SEC FORM 20 - IS (INFORMATION STATEMENT)
term loan agreement prohibits SEZ 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 SEZ 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, SEZ’s management 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 SEZ 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. SEZ is in
compliance with the debt covenant as of December 31, 2010 and 2009.
17.
Unamortized deferred debt issuance cost reduced the carrying amount of long-term debt by π0.5 million in 2010
and by π0.6 million in 2009.
Customers’ Deposits
Transformers
Lines and poles
Bill and load
2010
2009
π854,669
766,738
382,977
π751,317
692,427
337,372
π2,004,384
π1,781,116
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 noninterest 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 then 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
164
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
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 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 expense on customers’ deposits amounted to π3.8 million in 2010, π5.7 million in 2009 and π5.5 million in
2008 (see Note 32).
The Group classified customers’ deposit under noncurrent assets due to the expected long-term nature of these
deposits.
18.
Payable to a 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 each contract year starting November 25, 1998 to November 25, 2013. Any unpaid dividend 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 77.0%
and 23.0%, respectively.
PAS 32, Financial Instruments: Presentation, and PAS 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 difference between
the present value and the carrying amount of π18.5 million pertains to the equity component attributable to the
non-controlling interests.
The discounted liability is accreted to maturity values using the effective interest rate method. Accretions are
recognized in the consolidated statements of income as part of interest expense.
Total interest expense arising from the accretion amounted to π19.8 million in 2010, π21.9 million in 2009 and
π23.6 million in 2008 (see Note 32).
Annual Report 2010
165
SEC FORM 20 - IS (INFORMATION STATEMENT)
Future minimum guaranteed dividend payments are as follows:
2010
2009
Due within one year
More than one year but not more than five years
π31,070
93,210
π31,070
124,280
Future minimum guaranteed dividends
Less accrued interest expense
124,280
47,513
155,350
67,320
76,767
13,797
88,030
11,263
π62,970
π76,767
Future minimum guaranteed dividends - net
Less current portion
Noncurrent portion
19.
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
2010
2009
π7,358,604
π7,358,604
There are no preferred shares issued and outstanding as of December 31, 2010 and 2009.
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
166
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 were subsequently paid on April 16, 2010.
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
20.
On March 3, 2011, the BOD approved the declaration of cash dividends of π1.32 a share (π9.71 billion) to all
stockholders of record as of March 17, 2011. The cash dividends are payable on April 5, 2011.
Sale of Power
Sale from Distribution of Power
a. The Uniform Rate Filing Requirements 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.
b. Pursuant to Section 43(f) of Republic Act (R.A.) No. 9136, otherwise known as the Electric Power Industry
Reform Act of 2001 (EPIRA), and Rule 15, section 5(a) of its Implementing Rules and Regulations (IRR), the ERC
promulgated the Distribution Wheeling Rates Guidelines on December 10, 2004. These were subsequently
updated and released on July 26, 2006 as the Rules for Setting Distribution Wheeling Rates for Privately Owned
Utilities entering Performance Based Regulation (Second Entry Point).
In accordance with the Rules for the Setting of Distribution Wheeling Rates and the Position Paper, DLP and
CLP filed various information and data relating to the requirements for the Regulatory Reset Process. Following
its consideration of the submissions received, the discussions at the public consultation and further evidence
presented by the distribution utilities, the ERC prepared its Final Determination dated December 15, 2008 for CLP
and March 8, 2010 for DLP.
Details of the Performance-based Regulation (PBR) application for the first regulatory period are as follows:
Date of application
First regulatory period
Date of ERC approval of application
Date of implementation of approved
distribution supply and metering charges
CLP
DLP
January 26, 2009
April 1, 2009 to
March 31, 2013
March 30, 2009
April 26, 2010
July 1, 2010 to
June 30, 2014
June 15, 2010
May 1, 2009
August 1, 2010
Subsequently, CLP filed with ERC on December 18, 2009 its application for approval of: (a) the revised X-factor,
smoothed Maximum Average Price (MAP) and Performance Incentive Scheme (PIS) for the Second Regulatory
Period; (b) the recalculated MAP for the Regulatory Year 2011; and (c) the translation into distribution-related
rates of different customer classes for the second regulatory year of the ERC-approved annual revenue
requirement (ARR) under PBR for the regulatory period 2009 to 2013. After subsequent hearings of the case,
CLP’s application was approved, with modifications, by the ERC on February 22, 2010 and CLP implemented the
new rates effective April 1, 2010. Moreover, CLP filed with ERC on December 15, 2010 its application for approval
of: (a) the recalculated MAP for regulatory year 2012; and (b) the translation into distribution related rates of
different customer classes for the third regulatory year of the ERC-approved ARR for the regulatory period 2009
to 2013. The initial hearing, expository presentation, pre-trial conference and evidentiary hearing were held at
the ERC Mindanao Field Office on January 17, 2011. As of March 3, 2011, CLP is awaiting ERC’s final decision on its
application.
Annual Report 2010
167
SEC FORM 20 - IS (INFORMATION STATEMENT)
Sale from Generation of Power
a. 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 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. On November 26, 2010, the Department of Energy (DOE) issued the
Department Circular No. 2010-11-0012 which announced the commercial operations of the WESM in the Visayas
Grid starting December 26, 2010 and its integration with the Luzon Grid.
Total sale of power to WESM amounted to π14.94 billion in 2010, π1.96 billion in 2009 and nil in 2008.
b. Power Supply Agreements
168
i.
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).
ii. 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 (Co-operation Period) 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
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
December 28, 2006, 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.
Total sale of power under power supply contracts amounted to π31.37 billion in 2010, π10.40 billion in 2009 and π2.88
billion in 2008.
21.
Purchased Power
Distribution
DLP, CLP and SEZ entered into contracts with NPC for the purchase of electricity. Pursuant to Section 8 of
R.A. 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:
DLP
CLP
SEZ
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
Total power purchases from the NPC and NGCP, net of discounts, amounted to π6.61 billion in 2010, π7.12 billion in
2009 and π5.83 billion in 2008. The outstanding payable to the NPC and NGCP on purchased power, presented as
part of the “Trade and other payables” account in the consolidated balance sheets amounted to π468.1 million and
π601.1 million as of December 31, 2010 and 2009, respectively (see Note 14).
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 an 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 amounted to π858.5 million in 2010, π32.5 million in 2009 and nil in 2008, respectively.
22.
Cost of Generated Power
Fuel costs
Steam supply costs (see Note 36)
Energy fees
Ancillary charges
Wheeling expenses
Others
2010
2009
2008
π11,551,522
3,542,807
706,040
53,831
28,126
–
π2,645,484
2,207,504
112,835
51,545
6,098
6,811
π1,615,971
–
–
46,366
6,220
27,337
π15,882,326
π5,030,277
π1,695,894
Annual Report 2010
169
SEC FORM 20 - IS (INFORMATION STATEMENT)
23.
General and Administrative
Personnel costs (see Note 25)
Provision for impairment and write-off of trade receivables
(see Note 5)
Outside services (see Note 31)
Taxes and licenses
Market service and administrative fees (see Note 31)
Transportation and travel (see Note 31)
Repairs and maintenance
Corporate social responsibility (CSR) (see Note 38g)
Professional fees (see Note 31)
Information technology and communication
Rent
Advertisements
Training
Freight and handling
Entertainment, amusement and recreation
Guard services
Research and development
Insurance
Gasoline and oil
Others
24.
2008
π262,202
292,065
287,975
151,267
125,775
92,862
53,843
40,634
37,770
36,614
22,329
17,867
8,939
5,759
5,598
5,498
4,682
3,657
1,219
274,659
137,595
469,439
104,246
50,717
77,051
92,805
130,249
131,264
91,466
10,942
5,126
8,038
1,404
4,846
6,111
28,175
29,732
2,172
151,834
67,398
146,728
99,093
–
59,921
55,564
16,698
121,400
51,331
4,931
3,919
5,053
1,831
3,559
4,648
29,723
7,322
2,736
158,517
π1,986,826
π1,902,428
π1,102,574
2010
2009
2008
π534,582
393,052
377,356
286,009
226,808
197,893
69,483
30,081
234
322,430
π334,509
47,588
295,730
212,090
174,701
93,006
120,448
11,081
12,024
35,810
π249,759
77,040
136
175,339
74,366
4,391
32,403
11,681
270
27,719
π2,437,928
π1,336,987
π653,104
2010
2009
2008
π856,063
196,333
π553,695
150,030
π345,945
166,016
π1,052,396
π703,725
π511,961
Personnel Costs
Salaries and wages
Employee benefits (see Note 26)
26.
2009
π369,216
Operations and Maintenance
Personnel costs (see Note 25)
Fuel and lube oil
Taxes and licenses
Repairs and maintenance
Materials and supplies
Insurance
Outside services
Transportation and travel
Rent (see Note 35)
Others
25.
2010
π517,814
Pension Benefit Plans
Most of the companies in the Group have funded defined benefit pension plans covering all regular and permanent
employees. The benefits are based on employees’ projected salaries and number of years of service.
170
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
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 personnel costs under operations and maintenance and general
and administrative):
Current service cost
Interest cost on benefit obligation
Past service cost
Net actuarial loss (gain) recognized
Expected return on plan assets
Net pension asset in excess of limit
2010
2009
2008
π41,612
41,099
287
10,006
(24,524)
–
π7,669
32,787
230
(2,672)
(22,626)
(20,180)
π14,829
17,237
230
(608)
(17,676)
8,193
π68,480
(π4,792)
π22,205
Actual return on plan assets is π49.5 million in 2010, π65.6 million in 2009, and π1.6 million in 2008. The Group expects
to contribute π106.4 million to their retirement fund in 2011.
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.
As of December 31, 2010, HSI, APRI, TLI and Therma Marine are in net pension liability position while the rest of the
companies in the Group are in net pension asset position. As of December 31, 2009, DLP, SEZ, AESI and CPPC are in
net pension asset position while the rest of the companies in the Group are in net pension liability position.
Pension assets
Fair value of plan assets
Defined benefit obligation
Unfunded obligation
Unrecognized past service cost
Unrecognized net actuarial losses
2010
2009
π491,467
528,041
π137,466
203,243
(36,574)
1,786
208,230
(65,777)
2,074
100,889
π173,442
π37,186
2010
2009
π18,134
–
π224,246
107,756
18,134
(2,133)
116,490
(88,332)
π16,001
π28,158
Pension liabilities
Defined benefit obligation
Fair value of plan assets
Unfunded obligation
Unrecognized net actuarial losses
Changes in the present value of the defined benefit obligation are as follows:
2010
2009
Opening defined benefit obligation
Actuarial losses
Current service cost
Interest cost on benefit obligation
Benefits paid
Fund transfers to (from) affiliates
π427,489
56,159
41,612
41,099
(6,772)
(13,412)
π124,107
280,159
7,669
32,787
(19,338)
2,105
Closing defined benefit obligation
π546,175
π427,489
Annual Report 2010
171
SEC FORM 20 - IS (INFORMATION STATEMENT)
Changes in the fair value of plan assets are as follows:
2010
2009
Opening fair value of plan assets
Contribution by employer
Actuarial gains
Expected return on plan assets
Benefits paid
Fund transfer to (from) affiliates
π245,222
216,894
25,011
24,524
(6,772)
(13,412)
π205,052
8,982
25,795
22,626
(19,338)
2,105
Closing fair value of plan assets
π491,467
π245,222
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
2010
2009
7.80% - 10.92%
7.00% - 10.00%
6.00% - 8.00%
9.97% - 37.56%
9.00% - 11.00%
8.00% - 11.00%
As of December 31, 2010, discount rates used has decreased to 7.80% to 10.00% with salary increase rates of 7.00%
to 10.00% and expected rates of return on plan assets of 6.00% to 10.00%, based on the latest actuarial valuation of
retirement benefits of each of the entity in the Group.
Amounts for the current and previous four periods are as follows:
Defined benefit obligation
Plan assets
Surplus (deficit)
Experience adjustment on
plan liability
Experience adjustment on
pension asset
2010
2009
2008
2007
2006
π546,175
491,467
(54,708)
π427,489
245,222
(182,267)
π124,107
205,052
80,945
π191,777
228,609
36,832
π179,652
153,019
(26,633)
49,759
23,911
(8,408)
(7,143)
(56,688)
25,011
22,256
(16,123)
(6,231)
18,381
The major categories of plan assets as a percentage of the fair value of the total plan assets are as follows:
Commercial papers
Marketable securities
Others
27.
2010
2009
2008
76%
22%
2%
67%
26%
7%
54%
38%
8%
Other Income - Net
Net foreign exchange gains (see Note 33)
Non-utility operating income
Surcharges
Wheeling fees
Others (see Notes 36 and 38)
2010
2009
2008
π1,142,158
168,786
101,626
50,751
137,078
π348,815
174,586
82,368
51,957
155,685
π11,603
174,557
87,658
46,705
56,169
π1,600,399
π813,411
π376,692
Others include adjustments to monthly payments under the IPPA of TLI and reversal of NPC claims against CPPC in
2010 and 2009, respectively.
172
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
28.
Income Tax
The provision for income tax account consists of:
Current
Deferred
2010
2009
2008
π591,785
328,912
π840,222
(209,032)
π577,071
41,313
π920,697
π631,190
π618,384
Reconciliation between the statutory income tax rate and the Group’s effective income tax rates follows:
Statutory income tax rate
Tax effects of:
Nondeductible interest expense
Nondeductible depreciation expense
Interest income subjected to final tax at lower rates - net
Nontaxable share in net earnings of associates
Income under income tax holiday (ITH)
Others
2010
2009
2008
30.00%
5.90
1.26
(0.21)
(5.34)
(29.72)
1.65
30.00%
5.79
1.28
(0.71)
(11.88)
(9.99)
(4.63)
35.00%
–
–
(1.88)
(19.85)
–
(1.62)
3.54%
9.86%
11.65%
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:
2010
2009
Deferred income tax assets:
NOLCO
Allowances for impairment and probable losses
Unamortized past service cost
MCIT
Unrealized foreign exchange losses
Pension liability (asset)
Others
π141,619
27,611
23,256
16,417
5,455
(17,768)
3,232
π137,867
82,172
2,487
19,074
1,589
5,950
870
Net deferred income tax assets
π199,822
π250,009
2010
2009
Deferred income tax liabilities:
Unrealized foreign exchange gains
Pension asset
Unamortized customs duties and taxes capitalized
Unamortized streetlight donations capitalized
Capitalized interest expense
MCIT
Unamortized past service cost
Allowances for doubtful accounts and probable losses
Others
π319,631
28,684
18,324
6,249
5,565
–
(21,127)
(32,196)
(4,009)
π860
10,702
17,015
3,869
4,195
2,169
(361)
(444)
–
Net deferred income tax liabilities
π321,121
π38,005
In computing for deferred income tax assets and liabilities, 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 (RE) developers as allowed by the
Renewable Energy Act of 2008 (see Note 38f).
Annual Report 2010
173
SEC FORM 20 - IS (INFORMATION STATEMENT)
As of December 31, 2010, no deferred income tax assets were recognized on the Company’s NOLCO and MCIT
amounting to π114.8 million and π23.8 million, respectively, since management expects that it will not generate
sufficient taxable income in the future that will be available to allow all of the deferred income tax assets to be utilized.
There were no unrecognized deferred income tax assets as of December 31, 2009.
There are no income tax consequences to the Group attaching to the payment of dividends to its shareholders.
29.
Earnings Per Common Share
Earnings per common share amounts were computed as follows:
a.Net income attributable to equity
holders of the parent
b. Weighted average number of
common shares issued and outstanding
Earnings per common share (a/b)
2010
2009
2008
π25,041,116
π5,658,581
π4,333,613
7,358,604,307
7,358,604,307
7,358,604,307
π3.40
π0.77
π0.59
There are no dilutive potential common shares as of December 31, 2010, 2009 and 2008.
30.
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, as
follows:
•
•
•
“Power Generation” segment, which is engaged in the generation and supply of power to various customers
under power supply contracts, ancillary service procurement agreements and for trading in WESM;
“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 equipment.
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.
174
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
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
arm’s-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. Sale of power to Manila Electric Company accounted for 31% and 30% of the power
generation revenues of the Group in 2010 and 2009, respectively; while sale of power to VECO accounted for 17% and
81% of the power generation revenues of the Group in 2009 and 2008, respectively.
Financial information on the operations of the various business segments are summarized as follows:
2010
Power
Generation
Power
Distribution
Parent
Company/
Others
Eliminations and
Adjustments
Consolidated
REVENUE
External
Inter-segment
π46,313,904
668,500
π13,064,593
–
π172,961
292,314
π–
(960,814)
π59,551,458
–
Total Revenue
π46,982,404
π13,064,593
π465,275
(π960,814)
π59,551,458
Segment results
Unallocated corporate income -net
π24,726,557
1,208,074
π1,400,678
379,240
π146,562
(29,132)
π–
–
π26,273,797
1,558,182
25,934,631
(5,463,077)
120,306
4,153,369
(354,867)
1,779,918
(100,913)
12,956
472,514
(432,115)
117,430
(1,133,262)
109,855
26,102,448
(133,715)
–
18,959
(18,959)
(26,102,448)
–
27,831,979
(6,678,293)
224,158
4,625,883
(920,697)
NET INCOME
π24,390,362
π1,732,360
π25,062,756
(π26,102,448)
π25,083,030
OTHER INFORMATION ASSETS
Investments in Associates
π24,269,963
π2,543,397
π51,660,757
(π51,544,121)
π26,929,996
INCOME FROM OPERATIONS
Interest expense
Interest income
Share in net earnings of associates
Provision for (benefit from) income tax
Capital Expenditures
π3,487,167
π791,791
π33,319
π–
π4,312,277
Segment Assets
π111,352,105
π8,874,380
π73,641,432
(π59,311,045)
π134,556,872
Segment Liabilities
π65,915,598
π4,319,612
π16,432,358
(π9,844,906)
π76,822,662
π2,658,121
π328,976
π16,880
π–
π3,003,977
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
Depreciation and amortization
2009
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
Benefit from (provision for) 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
π21,725,730
π2,270,325
π28,446,450
(π28,446,450)
π23,996,055
OTHER INFORMATION ASSETS
Investments in Associates
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
Annual Report 2010
175
SEC FORM 20 - IS (INFORMATION STATEMENT)
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
NET INCOME
OTHER INFORMATION
Investments in Associates
Capital Expenditures
Segment Assets
Segment Liabilities
Depreciation and amortization
31.
π1,945,959
π869,773
π35,662
π–
π2,851,394
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
Related Party Disclosures
Parties are considered to be related if one party has the ability to control, directly or indirectly, the other party or
exercise significant influence over the other party in making financial and operating decisions. Parties are also
considered to be related if they are subject to common control or common significant influence. Related parties may
be individuals or corporate entities.
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 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 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 toπ293.7 million in 2010, π409.4 million in 2009, and π362.6 million in 2008,
respectively (see Note 23).
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 in 2010 and 2009 and π40.7 million
in 2008 (see Note 23).
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, SNAP M and SNAP B in the amount of π1.70 billion in 2010 and π1.80 billion in 2009 and 2008.
d. Energy fees billed by HI to SFELAPCO amounted to nil in 2010, π19.6 million in 2009 and π17.3 million in 2008.
176
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
e. Energy fees billed by CPPC to VECO amounted to π2.04 billion in 2010, π2.10 billion in 2009 and π2.35 billion in
2008 (see Note 20).
f.
Energy fees billed by TLI to SNAP M in 2010 amounted to π22.1 million.
g. Energy fees billed by Therma Marine to Pilmico Foods Corporation (Pilmico) in 2010 amounted to π47.4 million.
Pilmico is a subsidiary of AEV.
h. Energy fees billed by BEZC to affiliates (ACO subsidiaries and associates) amounted to π521.9 million in 2010,
π287.7 million in 2009 and π181.5 million in 2008.
i.
Aviation services rendered by AEV Aviation, Inc., a subsidiary of AEV, to the Group. Total expenses amounted
to π32.7 million in 2010, π24.8 million in 2009 and π19.9 million in 2008. AEV Aviation is a subsidiary of AEV
(see Note 23).
j.
Lease of commercial office units by the Group from Cebu Praedia Development Corporation (CPDC) for a period
of three years. Rental expense amounted to π69.4 million in 2010, π48.2 million in 2009 and π32.2 million in
2008. CPDC is a subsidiary of AEV.
k. The Company provides services to certain subsidiaries and associates such as technical and legal assistance
for various projects and other services. Total technical and service fee income from associates amounted to
π93.7 million in 2010, π2.2 million in 2009 and π9.4 million in 2008 (see Note 27).
l.
Cash deposits with Union Bank of the Philippines and City Savings Bank, associate and subsidiary, respectively, of
AEV (see Note 4).
m. Amounts owed to/by related parties, both interest and noninterest-bearing, payable on demand.
Interest-bearing balances are based on annual interest rates ranging from 1.80% to 8.25% in 2010, 3.00% to 9.25%
in 2009 and 3.00% to 10.40% in 2008. Net interest expense incurred on these balances amounted to π1.5 million in
2010. Net interest income earned on these balances amounted to π55.8 million in 2009 and π142.7 million in 2008
(see Note 32).
Significant outstanding account balances with related parties (see Notes 5 and 14) as of December 31, 2010 and 2009
are as follows:
Amounts Owed by Related Parties
Ultimate Parent and Parent
ACO
AEV
Associates
VECO
CEDC
RP Energy
SFELAPCO
STEAG
EAUC
Other Related Parties
Tsuneishi Heavy Industries, (Cebu) Inc. (THICI)
Pilmico
Amounts Owed to Related Parties
2010
2009
2010
2009
π–
–
π–
–
π–
63,848
π10,124
20,645
133,906
45,100
15,782
84
–
–
229,848
–
–
4,058
225,002
–
–
–
–
–
–
129,999
–
–
–
–
–
1,145,253
49,681
3,375
32,955
–
–
–
–
–
THICI is an associate of ACO.
Annual Report 2010
177
SEC FORM 20 - IS (INFORMATION STATEMENT)
Compensation of BOD and key management personnel of the Group follows:
Short-term benefits
Post-employment benefits
32.
2010
2009
2008
π144,279
6,634
π125,451
3,832
π70,642
3,634
π150,913
π129,283
π74,276
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, AFS investments, restricted cash, bank loans, trade and
other payables, finance lease obligation, payable to a preferred shareholder of a subsidiary, long-term obligation on
power distribution system and customers’ deposits, which arise directly from its operations.
The Group also enters into derivative transactions, particularly foreign currency forwards, to economically hedge its
foreign currency risk from foreign currency denominated liabilities and purchases (see Note 33).
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 on 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 the 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 any dividend declarations.
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. 2.49% of the Group’s debt will mature in less than one year as
of December 31, 2010 (2009: 3.74%). 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 π18.30 billion and π6.81 billion as of December 31, 2010 and π3.81 billion and π4.48 billion as of
December 31, 2009, respectively (see Notes 4 and 5). Cash and cash equivalents can be withdrawn anytime while
trade and other receivables are expected to be collected/realized within one year.
The following tables summarize the maturity profile of the Group’s financial liabilities as of December 31, 2010 and
2009 based on contractual undiscounted payments:
178
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
December 31, 2010
Trade and other payables
Contractual undiscounted payments
Total
carrying
value
Total
On
demand
<1 year
1 to 5 years
> 5 years
π4,748,034
π4,748,034
π1,126,819
π3,621,215
π–
π–
129,999
129,999
129,999
–
–
–
Customers' deposits
2,004,384
2,019,151
100
41,402
37,888
1,939,761
Bank loans
1,979,800
2,002,575
–
2,002,575
–
–
76,767
124,280
–
31,070
93,210
–
48,305,116
111,394,573
–
1,102,080
24,146,573
86,145,920
Due to related parties
Payable to a preferred
shareholder of a subsidiary
Finance lease obligation
Long-term obligation on
power distribution system
Long-term debts
Derivative liabilities
Total
282,559
680,000
–
40,000
200,000
440,000
16,703,113
26,552,968
–
2,184,947
21,344,452
3,023,569
323
323
–
323
–
–
π74,230,095
π147,651,903
π1,256,918
π9,023,612
π45,822,123
π91,549,250
December 31, 2009
Trade and other payables
Contractual undiscounted payments
Total
carrying
value
Total
On
demand
<1 year
1 to 5 years
> 5 years
π4,168,731
π4,168,731
π1,126,819
π3,041,912
π–
π–
Due to related parties
1,145,253
1,145,253
1,145,253
–
–
–
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
–
–
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
–
–
π75,153,865
π153,133,07
π2,272,072
π11,614,104
π43,829,720
π95,417,180
Payable to a preferred
shareholder of a subsidiary
Finance lease obligation
Long-term obligation on power
distribution system
Long-term debts
Derivative liabilities
Total
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, 2010, 4% of the Group’s long-term debt had floating interest rates ranging from 6.68% to 6.71%, and
96% have fixed interest rates ranging from 7.50% to 8.26%. As of December 31, 2009, all of the Group’s long-term
debt had fixed interest rates ranging from 8.23% to 10.02%.
Annual Report 2010
179
SEC FORM 20 - IS (INFORMATION STATEMENT)
The following tables set out the carrying amounts, by maturity, of the Group’s financial instruments that are exposed
to cash flow interest rate risk:
As of December 31, 2010
<1 year
1-5 years
>5 years
Total
Floating rate - long-term debt
Floating rate - payable to a preferred
shareholder of a subsidiary
π213,333
π423,100
π–
π636,433
13,797
62,970
–
76,767
Total
π227,130
π486,070
π–
π713,200
<1 year
1-5 years
>5 years
Total
π11,263
π76,767
π–
π88,030
As of December 31, 2009
Floating rate - payable to a 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 non-interest bearing and are therefore not
subject to interest rate risk. The Group’s derivative assets and liabilities are subject to fair value interest rate risk
(see Note 33).
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
100
(50)
100
(50)
100
(50)
(π6,364)
3,182
–
–
(6,470)
3,235
December 2010
December 2009
December 2008
The Group’s sensitivity to an increase/decrease in interest rates pertaining to floating rate borrowings was expected
to be insignificant in 2009 due to the immateriality of payable to a 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 2010 and 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.
The interest expense and other finance charges recognized during the period according to source are as follows:
Finance lease obligation (see Note 35)
Bank loans and long-term debt (see Notes 15 and 16)
Long-term obligation on power distribution system (see Note 12)
Amounts owed to related parties (see Note 31)
Payable to a preferred shareholder of a subsidiary (see Note 18)
Customers’ deposits (see Note 17)
180
Aboitiz Power Corporation, Inc
2010
2009
2008
π5,115,549
1,481,765
35,099
22,305
19,807
3,768
π1,234,905
1,515,519
35,644
322
21,876
5,712
π–
307,515
36,128
5,867
23,564
5,462
π6,678,293
π2,813,978
π378,536
SEC FORM 20 - IS (INFORMATION STATEMENT)
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 the adverse impact of changes in
foreign exchange rates on financial performance and cash flows. As of December 31, 2010 and December 31, 2009,
foreign currency denominated borrowings account for 37% and 41%, respectively, of total consolidated borrowings.
Presented below are the Group’s foreign currency denominated financial assets and liabilities as of December 31, 2010
and 2009, translated to Philippine Peso:
December 31, 2010
Philippine Peso
equivalent1
US Dollar
Philippine Peso
equivalent2
US$8,019
963
13,402
–
π351,553
42,218
587,544
–
US$8,270
3,510
1,402
12,131
π382,089
162,175
64,767
560,423
22,384
981,315
25,313
1,169,454
Other financial liabilities
Bank loans
Trade and other payables
Finance lease obligation
–
5,682
563,388
–
249,099
24,698,930
81,000
4,176
521,455
3,742,200
192,925
24,091,225
Total financial liabilities
569,070
24,948,029
606,631
28,026,350
(US$546,686)
(π23,966,714)
(US$581,318)
(π26,856,896)
Loans and receivables
Cash
Trade and other receivables
Advances to associates
Restricted cash
Total financial assets
Total net financial liabilities
1
2
December 31, 2009
US Dollar
$1 = π43.840
$1 = π46.200
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, 2010 and 2009:
Increase/(decrease) in US dollar
Effect on income
before tax
December 31, 2010
US dollar denominated accounts
US dollar denominated accounts
US Dollar strengthens by 5%
US Dollar weakens by 5%
(π1,198,336)
1,198,336
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
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.
The Group’s sensitivity to an increase/decrease in foreign currency pertaining to derivative instruments is expected to
be insignificant in 2010 and 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.
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 and entities
Annual Report 2010
181
SEC FORM 20 - IS (INFORMATION STATEMENT)
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 only enter into transactions with credit-worthy parties
to mitigate any significant concentration of credit risk. The Group ensures that sales are made to customers with
appropriate credit history and it has internal mechanisms to monitor the granting of credit and management of credit
exposures. The Group has no significant credit 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, 2010 and
2009 is summarized in the following table:
Power distribution
Residential
Commercial
Industrial
City street lighting
Power generation
Spot market
Power supply contracts
2010
2009
π308,887
164,468
420,154
8,619
π228,942
96,799
296,444
10,465
1,702,790
3,669,286
975,729
2,104,015
π6,274,204
π3,712,394
The above receivables were provided with allowance for doubtful accounts amounting to π376.9 million in 2010 and
106.2 million in 2009 (see Note 5).
The credit quality per class of financial assets is as follows:
December 31, 2010
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
Advances to suppliers, officers and
employees
Other receivables
AFS investments
Derivative assets
Total
182
Aboitiz Power Corporation, Inc
High Grade
Standard
Sub-standard
Past due
or individually
impaired
π3,055,662
15,246,183
π–
–
π–
–
π–
–
π3,055,662
15,246,183
18,301,845
–
–
–
18,301,845
33,379
67,500
277,993
1,208
592,030
2,379,450
41,169
55,419
12,072
3,699
266,795
451,867
131,839
28,691
34,467
3,025
–
–
102,500
12,858
95,622
687
843,965
837,969
308,887
164,468
420,154
8,619
1,702,790
3,669,286
3,351,560
831,021
198,022
1,893,601
6,274,204
8,849
801,852
3,744
7,670
7,281
35,303
–
–
–
3,944
–
–
2,739
48,531
–
–
18,869
889,630
3,744
7,670
π22,475,520
π873,605
π201,966
π1,944,871
π25,495,962
Total
SEC FORM 20 - IS (INFORMATION STATEMENT)
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
Advances to suppliers, officers and
employees
Other receivables
AFS investments
Derivative assets
Restricted cash
Total
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
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
High grade receivables pertain to receivables from customers with good favorable credit standing and have no history
of default. Receivables from customers with history of sliding beyond the credit terms but pay a week after being past
due are classified under standard quality. Sub-standard quality pertains to those customers with payment habits that
normally extend beyond the approved credit terms, and has high probability of being impaired.
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, advances to related parties, other receivables, AFS investment and derivative
assets, the Group evaluates the counterparty’s external credit rating in establishing credit quality. Advances to officers
and employees are considered high grade as these are automatically deductible from the officers and employees’
salaries and wages.
Annual Report 2010
183
SEC FORM 20 - IS (INFORMATION STATEMENT)
The tables below show the Group’s aging analysis of financial assets:
December 31, 2010
Past due but not 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
Advances to suppliers, officers and
employees
Other receivables
AFS investments
Derivative assets
Total
Total
Neither past
due nor
impaired
Less than
30 days
31 days to
60 days
Over 60
days
Individually
impaired
π3,055,662
15,246,183
π3,055,662
15,246,183
π–
–
π–
–
π–
–
π–
–
18,301,845
18,301,845
–
–
–
–
308,887
164,468
420,154
8,619
1,702,790
3,669,286
206,387
151,610
324,532
7,932
858,825
2,831,317
62,558
7,770
16,127
483
89,468
279,155
10,735
1,436
13,891
3
102,215
212,663
14,974
1,972
58,453
5
348,801
296,676
14,233
1,680
7,151
196
303,481
49,475
6,274,204
4,380,603
455,561
340,943
720,881
376,216
18,869
889,630
3,744
7,670
16,130
841,099
3,744
7,670
1,525
7,927
–
–
522
4,008
–
–
692
35,900
–
–
–
696
–
–
π25,495,962
π23,551,091
π465,013
π345,473
π757,473
π376,912
December 31, 2009
Past due but not 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
Advances to suppliers, officers and
employees
Other receivables
AFS investments
Derivative assets
Restricted cash
Total
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
–
–
–
π8,962,117
π8,168,421
π321,715
π84,601
π281,210
π106,170
Capital management
Capital includes equity attributable to the equity holders of the parent. 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.
184
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
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 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 a preferred shareholder 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, 2010 and 2009 are as follows:
Bank loans
Long-term debt
Cash and cash equivalents
Net debt (a)
Equity
Equity and net debt (b)
2010
2009
π1,979,800
65,084,996
(18,301,845)
π5,828,100
61,926,729
(3,814,906)
48,762,951
57,734,210
63,939,923
35,046,927
π106,497,161
π98,986,850
45.79%
64.59%
Gearing ratio (a/b)
Certain entities within the Group that are registered with the BOI are required to raise a minimum amount of capital
in order to avail of their registration incentives. As of December 31, 2010 and 2009, these entities have complied with
the requirement as applicable (see Note 37).
No changes were made in the objectives, policies or processes during the years ended December 31, 2010 and 2009.
33.
Financial Instruments
Set out below is a comparison by category of the carrying amounts and fair values of all of the Group’s financial
instruments.
2010
FINANCIAL ASSETS
Loans and Receivables
Cash and cash equivalents
Cash on hand and in banks
Short-term investments
Trade and other receivables
Trade
Others
Restricted cash
2009
Carrying
Amounts
Fair
Values
Carrying
Amounts
Fair
Values
π3,055,662
15,246,183
π3,055,662
15,246,183
π2,255,660
1,559,246
π2,255,660
1,559,246
18,301,845
18,301,845
3,814,906
3,814,906
5,897,988
907,803
5,897,988
907,803
3,606,224
869,804
3,606,224
869,804
6,805,791
6,805,791
4,476,028
4,476,028
–
–
560,423
560,423
25,107,636
25,107,636
8,851,357
8,851,357
Financial Assets at FVPL
Derivative assets
7,670
7,670
846
846
AFS Financial Assets
3,744
3,744
3,744
3,744
π25,119,050
π25,119,050
π8,855,947
π8,855,947
Annual Report 2010
185
SEC FORM 20 - IS (INFORMATION STATEMENT)
2010
FINANCIAL LIABILITIES
Other Financial Liabilities
Bank loans
Long-term debt
Floating - long-term debt
Fixed rate - long-term debt
Floating rate - payable to a preferred
shareholder of a subsidiary
Finance lease obligation
Customers’ deposits
Bill deposits
Transformers, lines and poles
Long-term obligation on power distribution
system
Trade and other payables
Trade payables
Accrued expenses
Related parties
Other liabilities
Financial Liability at FVPL
Derivative liabilities
2009
Carrying
Amounts
Fair
Values
Carrying
Amounts
Fair
Values
π1,979,800
π1,979,800
636,433
16,066,680
636,433
17,953,303
π5,828,100
–
16,252,535
π5,828,100
–
17,410,976
76,767
48,305,116
76,767
58,268,048
88,030
45,586,164
88,030
52,946,954
67,064,796
78,914,351
67,754,829
76,274,060
382,977
1,621,407
382,977
1,621,407
337,372
1,443,744
337,372
1,443,744
2,004,384
2,004,384
1,781,116
1,781,116
282,559
413,057
287,460
376,639
2,063,082
706,692
129,999
1,978,260
2,063,082
706,692
129,999
1,978,260
1,765,531
202,742
1,145,253
2,200,458
1,765,531
202,742
1,145,253
2,200,458
5,160,592
5,291,090
5,601,444
5,690,623
74,229,772
86,209,825
75,137,389
83,745,799
323
323
16,476
16,476
π86,210,148
π75,153,865
π83,762,275
π74,230,095
As of December 31, 2010 and December 31, 2009, the Group does not have any investment in foreign securities. The
Group has registered and issued π3.00 billion worth of peso denominated fixed rate retail bonds on April 30, 2009.
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 no 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.
186
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
Derivative assets 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.
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
credit-adjusted interest rates ranging from 6.81% to 9.33% in 2010 and 7.34% to 9.84% in 2009.
Floating-rate borrowings. Since repricing of the variable-rate interest bearing loan is done on a quarterly basis, 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 interest rates of 5.96% to 9.88% in 2010 and 5.00% to 9.00% in 2009 for dollar payments and 2.95% to 10.33%
in 2010 and 9.00% to 14.00% in 2009 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 2.53% to 7.60% in 2010 and 4.82% to 9.00% 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. These are carried at cost less impairment because fair value cannot be determined reliably due to
the unpredictable nature of cash flows and lack of suitable methods of arriving at reliable fair value.
Derivative financial instruments
The Group enters into non-deliverable short-term forward contracts with counterparty banks to manage its foreign
currency risks associated with foreign currency-denominated liabilities and purchases.
As of December 31, 2010 and 2009, the Group has outstanding non-deliverable buy Dollar and sell Peso forward
exchange contracts with counterparty banks with an aggregate notional amount of $56.4 million and $78.5 million,
respectively and remaining maturities of less than 1 month to 8 months and 1 month to 10 months, respectively. The
forward rates related to the forward contracts ranged from π43.84 to π44.13 per US$ and π46.40 to π47.14 per US$1
as at December 31, 2010 and 2009, respectively. The Group recognized derivative asset relating to these contracts
amounting to π5.4 million as of December 31, 2010. The Group also recognized derivative asset and liability related to
these contracts amounting to π0.8 million and π15.3 million, respectively, as of December 31, 2009.
As of December 31, 2010 and 2009, the Group also has outstanding non-deliverable sell US Dollar buy EURO shortterm forward exchange contracts with a counterparty bank with an aggregate notional amount of €2.24 million and
€1.83 million, respectively and remaining maturities of 1 month to 8 months and less than 1 month to 3 months,
respectively. As at December 31, 2010 and 2009, the forward rates related to the forward contracts ranges from
€1.3291 to €1.3421 per US$1 and €1.4578 per US$1, respectively. As of December 31, 2010, the Group recognized
derivative asset and liability relating to these contracts amounting to π2.3 million and π0.3 million, respectively. As
of December 31, 2009, the Group recognized derivative liability related to these contracts amounting to π1.2 million.
The movements in fair value changes of all derivative instruments for the year ended December 31, 2010 and 2009
are as follows:
At beginning of year
Net changes in fair value of derivatives not
designated as accounting hedges
Fair value of settled instruments
At end of year
2010
2009
(π5,630)
π–
(39,969)
62,946
(15,630)
–
π7,347
(π15,630)
Annual Report 2010
187
SEC FORM 20 - IS (INFORMATION STATEMENT)
The loss from the net fair value changes relating to the forward contracts amounting to π40.0 million in 2010 and
π15.6 million in 2009 are included under “Net foreign exchange gains” in Note 27.
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 quoted AFS investments and derivative instruments, which are classified under Level 1 and
Level 2, respectively, are measured and carried at fair value. During the reporting periods ending December 31, 2010
and 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 were made.
34.
Registration with DOE
In accordance with its registration with the DOE under R.A. 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 ITH. ITH, 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. ITH on the four (4) plants started on September 28, 2005.
With the effectivity of R.A. 9136 known as “Electric Power Industry Reforms Act (EPIRA) of 2001”, sales of generated
power by HI shall be subject to zero-rated VAT.
35.
Agreements
188
TLI
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 statements 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
IPP Administration Agreement is amortized over the period of the IPP Administration Agreement and is recognized
as interest expense in the consolidated statements of income. Interest expense in 2010 and 2009 amounted to
π5.12 billion and π1.23 billion, respectively (see Note 32).
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
Future minimum monthly dollar and peso payments under the IPP Administration Agreement and their present values
as of December 31, 2010 and 2009 are as follows:
Dollar
payments
Peso equivalent
of dollar
payments1
Peso
payments
2010
Total
$12,000
262,920
938,000
π526,080
11,526,413
41,121,920
π576,000
12,620,160
45,024,000
π1,102,080
24,146,573
86,145,920
Total contractual payments
Less unamortized discount
1,212,920
649,532
53,174,413
28,475,484
58,220,160
34,613,973
111,394,573
63,089,457
Present value
$563,388
π24,698,929
π23,606,187
π48,305,116
Dollar
payments
Peso equivalent
of dollar
payments2
Peso
payments
2009
Total
$12,000
274,920
938,000
π554,400
12,701,304
43,335,600
π576,000
13,196,160
45,024,000
π1,130,400
25,897,464
88,359,600
1,224,920
703,465
56,591,304
32,500,079
58,796,160
37,301,221
115,387,464
69,801,300
$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
Within one year
After one year but not more than five years
More than five years
Total contractual payments
Unamortized discount
Present value
1
2
APRI
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 twenty-five (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 (see Notes 7 and 13). Total lease charged to operations amounted to π19.7 million in 2010 and
π11.5 million in 2009 (see Note 24).
HI and HSI
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):
$1 = π43.840
$1 = π46.200
Not later than one year
Later than 1 year but not later than 5 years
Later than 5 years
2010
2009
π9.0
40.0
119.2
π6.0
25.4
106.6
Total lease charged to operations related to these contracts amounted to π5.4 million in 2010, π2.5 million in 2009 and
π2.1 million in 2008 (see Note 24).
36.
Agreements
Pagbilao IPP Administration Agreement
In August 2009, TLI was declared by PSALM as the winning bidder for the IPP Administration 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 wherein PSALM appointed TLI to manage the 700MW contracted capacity (the “Capacity”) of NPC
Annual Report 2010
189
SEC FORM 20 - IS (INFORMATION STATEMENT)
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
Conservation 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 35).
Agreements with Contractors and Suppliers
a. Among the assumed contracts that APRI received from the APA is the Service Contract with Chevron Geothermal
Philippines Holdings, Inc. (CGPHI) which provides for the following:
i.
ii.
iii.
iv.
v.
190
Exploration and exploitation for APRI on the 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 the 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 realize 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 at its own expense and with the 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.
Total steam supply cost incurred by APRI, reported as part of “Cost of generated power” amounted to π3.54 billion in
2010 and π2.21 billion in 2009 (see Note 22).
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
b. In connection with the Sibulan hydropower project, HSI 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 Company from their contracts amounted to π3.03 billion and $25.0 million as of December 31, 2010
and π2.74 billion and $24.1million as of December 31, 2009. Total payments made from the commitments
amounted to π2.96 billion and $23.0 million as of December 31, 2010 and π2.57 billion and $19.8 million as of
December 31, 2009. These amounts are presented as part of “Other receivables” and “Construction in progress”
in the consolidated balance sheets. In 2010, construction of the power plants has been completed.
c. TLI enters into short-term coal supply agreements.
Outstanding coal supply agreements as of
December 31, 2010 have aggregate supply amounts of 495,089 MT (equivalent dollar value is $38 million)
which are due for delivery from January 10, 2011 to April 7, 2011. 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.
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 R.A. 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.
37.
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:
a. 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.
Annual Report 2010
191
SEC FORM 20 - IS (INFORMATION STATEMENT)
b. 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.
c. Employment of foreign nationals may be allowed in supervisory, technical or advisory positions for five (5) years
from date of registration.
d. Importation of consigned equipment for a period of ten (10) years from the date of registration, subject to the
posting of re-export bond.
e. 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.
The following are the significant specific terms and conditions for the availment of the ITH:
a. APRI shall start commercial operations in June 2009.
b. 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 and retained earnings. Hence, if APRI has at
least 25%of 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.
c. APRI shall secure a Certificate of Compliance from ERC prior to start of commercial operations.
d. 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.
192
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
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. As of December 31, 2010,
TLI has complied with the minimum equity requirement through deposits for future stock subscriptions received on
September 24, 2010.
Therma Marine
On May 28, 2010, the BOI pre-approved Therma Marine’s application for registration as a new operator of PB 118 and
PB 117. Once approved, Therma Marine will be entitled to the following incentives:
a. ITH for a period of four (4) years without extension from May 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, Therma Marine 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$10,000 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.
In February 2011, Therma Marine submitted to BOI all its requirements with a commitment to comply with all the
requirements prior to the availment of ITH incentives.
HSI
On December 27, 2005, the BOI approved HSI’s application as new operator of the 42 MW Hydroelectric Power Plants
and granted HSI a pioneer status under the Omnibus Investments Code of 1987. The BOI issued the Certificate of
Registration on the same date which entitled HSI with the following incentives:
a. ITH for a period of six years from January 2009 or actual start of commercial operations, 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 sales of electricity. HSI can avail of bonus year in each of the following cases but the aggregate
ITH availment (basic and bonus years) shall not exceed 8 years;
•
The ratio of the total imported and domestic capital equipment to the number of workers for the project
does not exceed US$10,000 to one (1); or
•
The net foreign exchange savings or earnings amount to at least US$500,000 annually during the first three
(3) years of operation; and
•
The indigenous raw materials used in the manufacture of the registered product must at least be fifty
percent (50%) of the total cost of raw materials for the preceding years prior to the extension unless the BOD
prescribes a higher percentage.
b. For the first five (5) years from December 27, 2005, HSI 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
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equipment to the number of workers set by the BOD of US$10,000 to one (1) worker and provided that this
incentive shall not be availed of simultaneously with the income tax holiday.
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 May 4, 2009, the BOI granted HSI’s request for the movement of start of commercial operation, as well as
the movement of the ITH incentive reckoning date from January 2009 to March 2010. Furthermore, the project’s
registered capacity was also amended from 42 MW to 42.5 MW.
38.
Other Matters
a. Therma Marine Case
As of December 31, 2010, Therma Marine has outstanding cases with the ERC regarding the approved ancillary
service and procurement rates under the ASPAs approved on October 4, 2010. The rates approved by ERC are
lower than the rates approved under the provisional authority it granted in March 2010.
Consequently, in November 2010, Therma Marine filed a motion for reconsideration with ERC negotiating the
increase in rates. While waiting for the ERC decision on the motion for reconsideration, Therma Marine started
to recognize revenues using the approved rates by ERC.
b. CPPC and EAUC Cases
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On August 20, 1999, CPPC and EAUC (the Complainants); a subsidiary and an associate, respectively, filed a
complaint before the 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 PDS 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.
NPC filed a petition for review with the Court of Appeals (CA). On December 14, 2005, the CA 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 (SC) 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.
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
CPPC and EAUC applied the total contested amounts against TransCo billings from November 26, 2004 to
February 25, 2006. However, pending SC’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 SC issued a Notice of Judgment that denied NPC’s petition and affirmed the decision of
the CA.
As of January 23, 2009, CPPC has completed the process of reconciliation with NGCP, which took 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 Power Delivery Service charge accruals presented as part of
“Trade and other payables” account and recognized other income of the same amount.
c. DLP Case
On December 7, 1990, certain customers of DLP filed before the then Energy Regulatory Board (ERB) a
letter-petition for recovery claiming that with the SC’s decision reducing the sound appraisal value of DLP’s
properties, DLP 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 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.
On March 17, 2010, the ERC directed DLP to submit its proposed scheme in implementing the refund to its
customers. In compliance with the order, the DLP filed its compliance stating that DLP cannot propose a scheme
for implementing a refund as its computation resulted to no refund.
A clarificatory meeting was held where DLP was ordered to submit its memoranda.
On October 4, 2010, in compliance with the ERC directive, DLP submitted its memoranda reiterating that no
refund can be made.
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).
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Due to the delay in the completion of the Power Station, LHC, in 2000 and 2001, withdrew the irrevocable and
confirmed standby letters of credit amounting to about $18.0 million which Transfield Philippines, Inc. has
constituted as security to LHC as required under the Turnkey Contract. The withdrawal of the standby letters
of credit became the subject of court cases in Australia and the Philippines. In 2008, both parties entered into
a Settlement Deed (the Settlement) for the purpose of settling all claims and disputes related to the Turnkey
Contract, including the Final Award. As a result of the Settlement, all related cases in the Philippines and Australia
were dismissed following the parties’ Joint Motion to Dismiss filed with relevant courts.
e. EPIRA of 2001
R.A. No. 9136 was signed into law on June 8, 2001 and took effect on June 26, 2001. The law provides for the
privatization of NPC and the restructuring of the electric power industry. The 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.
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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 costeffective 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.
Aboitiz Power Corporation, Inc
SEC FORM 20 - IS (INFORMATION STATEMENT)
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 DOE, in consultation with the 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 effects 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.
g. CSR Projects
The Group has several CSR projects in 2010 and 2009 which are presented as part of “General and administrative
expenses” (see Note 23).
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