2007 ANNUAL REPORT Power Corporation - Aboitiz Equity Ventures

STEAG State Power Inc. (SPI) contributed 95 million to AP’s income in
2007. In its two months of operations, it generated and sold 228 GwH of
electricity to the NPC. This represents a utilization factor of 74%. The
plant has approximately 10 MW of additional capacity that it will sell to
NPC under a three-year contract beginning March 2008.
AP’s acquisitions in 2007 will certainly contribute to growth in 2008,
when the Magat, CPPC, EAUC, and SPI facilities will provide a full year of
earnings under your company’s ownership.
Moving forward, your company will be able to take advantage of its
unique position as a vertically integrated company and derive synergies
between its generation and distribution businesses.
For the coming year, the company will focus on the financing, turnover,
rehabilitation, and operations of the Ambuklao and Binga plants, which
it had won in a recent privatization auction. Ambuklao will require
approximately two years of repair work but Binga will be operating
during this period. This plant stands to benefit from the expected rise
in spot market prices between now and 2010 when demand is expected
to increase without any corresponding increase in generation capacity.
Binga’s rehabilitation will commence when Ambuklao is completed to
ensure a steady revenue stream for the company.
The next two years are ripe with opportunity. In 2007, under two
privatization programs, there was approximately 1,800 MW of capacity
offered to private industry. In 2008 and 2009, PSALM plans to sell
approximately 1,500 MW of generation assets. In this same period,
PSALM is also expected to bid out approximately 6,000 MW of IPP
Administrator contracts. In essence, these contracts contain the right
to control and sell power generated from specific power plants still
under contract through the government’s Build Operate and Transfer
(BOT) program of the past. Your company will carefully monitor these
privatization efforts and selectively participate in the bids where it has
the most competitive advantage.
In addition to the privatization program, your company is developing
four greenfield power plants. One is a 300-MW coal-fired plant to be
built at the Redondo Peninsula industrial area at the Subic Bay Economic
Zone. The other two are the 42-MW Sibulan and 34-MW Tamugan
hydro plants discussed above. The fourth is the 246-MW coal-fired
power plant in Cebu, which will be completed in 2010. The project is
a joint venture between 60%-owned Abovant Holdings and Global
Formosa of the Metrobank Group in which AP will have an effective
ownership of 26%.
Under the Electric Power Industry Reform Act, which governs the
privatization of government’s generating assets, Open Access (the
ability of generators to directly contract with and sell power to large
industrial customers within distribution utility franchises) is to occur
one year after the government sells at least 70% of its generating
assets.
However, in February 2008, the government and several key private
distributors forged an agreement to allow Open Access within their
franchises. This is a new opportunity your company is ready for and
will actively pursue. Companies who want to sell energy under Open
Access are required to obtain a Retail Electricity Supplier license from
the Energy Regulatory Commission (ERC). Your company was one of
the first two companies to be awarded such a license.
Never in its history has your company been presented with so many
possibilities. We will continue to work hard to prepare ourselves for
opportunities of expansion in the very near future.
Luis Miguel O. Aboitiz
SENIOR VICE PRESIDENT
POWER GENERATION GROUP
Aboitiz Power acquired a 60%
stake in the 70-MW CPPC plant
that supplies power to VECO.
Moving forward,
your company will
be able to take
advantage of its
unique position
as a vertically
integrated
company and
derive synergies
between its
generation and
distribution
businesses.
ABOITIZ POWER CORPORATION ANNUAL REPORT 2007 • 19