Peso depreciation weighs on energy companies

ENERGY COMPANIES have counted the cost of the peso depreciation against the US dollar, prompting them to adopt measures to soften the impact on their finances, operations and investment decisions.

“In the short-term operating perspective, you’d have to worry if the movement, the devaluation of the peso, has an impact on the growth rate of the economy,” said Joseph S. Yu, president and chief executive officer of SN Aboitiz Power (SNAP), the joint venture of Norway’s SN Power AS and Aboitiz Power Corp.

“If it becomes inflationary, it begins to affect the growth rate and that affects the entire pricing structure in the market,” he said in an interview.

For SNAP, which owns a number of hydroelectric power plants in north Luzon, that pricing structure affects the development of its projects, the latest of which is an energy complex composed of the 20-megawatt (MW) Ollilicon and the 120-MW Alimit hydro power plants.

“In the long term, if you look at developing projects, the investment cost of projects would go up from a peso perspective. So a project, let’s say $500 million like Alimit, if that would have been P25 billion if it’s P50 per dollar, and then if it were now P60 that would become a P30billion project,” Mr. Yu said.

“And then you could see how it would make it much, much more difficult if you had to recover the investment of something like that,” he added.

SNAP has temporarily suspended the technical studies for the third component of complex, the 250-MW Alimit pumped storage facility, because of “market constraints.”

Angelito U. Lantin, Manila Electric Co. (Meralco) senior vice-president, shared the same sentiment as its unit Meralco PowerGen Corp. (MGen) is building several power plants, which are now in different stages of development.

“I think P47 [to a dollar was the exchange rate] at the time when we submitted the PSA (power supply agreement) to ERC (Energy Regulatory Commission). Now it’s over P54 so makikita mo na lang ‘yung (you’ll see the) percentage [difference],” he said.

“Our equipment are mostly, well all of it, are imported so we have to pay in US dollars. And then, of course, you pay pesos to acquire the dollars. Now you need to have more pesos to buy the dollars so that you can purchase the imported equipment,” he said.

MGen is leading the development of three power plants — all coal-fired. Its unit Atimonan One Energy, Inc. (AIE) is building a two-unit ultra supercritical coalfired power plant, each with a capacity of 600-MW in Atimonan, Quezon.

Another unit, San Buenaventura Power Ltd. Co. (SBPL), is constructing a 455-MW facility in Mauban, Quezon province. It will be the country’s first supercritical coal-fired power plant. The plant was targeted to be completed in mid-2019.

The third project, a coal-fired power plant under Redondo Peninsula Energy, Inc., has two units, each with a capacity of 300 MW using the circulating fluidized bed technology.

Of the three, only SBPL secured project financing, through a P42.15-billion omnibus agreement for a senior-term loan with several banks. For AIE, MGen previously said it had signed mandate letters with seven banks for the debt financing portion or P107 billion of the P135-billion project.

LOSSES

For state-led Power Sector Assets and Liabilities Management Corp. (PSALM), the losses from the weakening peso are huge and expanding.

“Sadly, we get hit around P8.4 billion for every peso devaluation. Medyo malaki siya (It’s quite big) but then we just have to do our best under the circumstances,” said Irene Joy B. Garcia, PSALM president and chief executive officer.

PSALM, which has the bulk of its debts denominated in dollars, is now trying to optimize and move forward with privatizing the government’s energy assets — its mandate under the law.

Ms. Garcia said the company had changed its strategy by now focusing on the sale of its real estate holdings.

“In fact, we have streamlined and parang (sort of) fixed the rules for privatization for the real property assets so that once we roll that out mas mabilis na (it will be faster) and we can generate more income,” she said.

PSALM has lined up for sale several real estate assets this year and next. Earlier this month, it called on bidders to signify their interest to participate in the privatization of the 650-MW Malaya thermal power plant Pililla, Rizal and its underlying land. It also plans to rebid a 20,975-square-meter land in Manila on which a thermal power plant used to stand.

“One of the things that I have done when i came into office is really to review all the receivables, [the] unpaid loans of a lot of the electric cooperatives… We have reached out to them to try to come up with a reasonable payment arrangement kaysa (instead of ) zero,” she said.

Ms. Garcia, who assumed her post in May this year, said the compound on which state-led National Power Corp. and privately owned National Grid Corporation of the Philippines stand on are up for re-development to generate more income for the company.

With expectations of the peso weakening further against the dollar, the future looks bleak for these companies.