Peso de­pre­ci­a­tion weighs on en­ergy com­pa­nies

Business World - - Corporate News - By Vic­tor V. Saulon Sub-Ed­i­tor

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.

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