2007 ANNUAL REPORT Power Corporation - Aboitiz Equity Ventures

h
Powering New Frontiers
With demand for electricity accelerating with the country’s economic
growth, we see reserve margins in the power industry tightening and a
need for additional power supply.
To fill this need, AP has lined up several greenfield projects that are
expected to come on stream within the next few years.
On February 17, 2007, AP entered into a Memorandum of Agreement
with Taiwan Cogeneration International Corporation, a Taipei-based
independent power producer (IPP), to collaborate in developing a
power plant in the Subic Bay Freeport Zone. We are expecting to break
ground for the construction of a 300-MW coal-fired power plant by
the third quarter of 2008 and expect completion 36 months thereafter.
On June 26, 2007, AP’s 100%-owned subsidiary Hedcor, Inc. began
construction work on the 42-MW Sibulan hydropower plant in Davao.
This run-of-river hydro project is estimated to cost over 5 billion.
Hedcor is also currently in the final design stage for another 34-MW
run-of-river hydro plant that is expected to start construction by the
third quarter of 2008 and be operational by 2010.
Through a power sales agreement, the output of both plants has been
committed to supply AP subsidiary Davao Light and Power Company,
Inc. with approximately 400 million kwh of energy annually, right at a
time when the Mindanao grid is expected to be tight of power.
On December 19, 2007, AP’s 60%-owned subsidiary, Abovant
Holdings, Inc., entered into a joint venture agreement with the Global
Business Power Corporation, a member of the Metrobank Group of
Companies, and Formosa Heavy Industries Corporation of Taiwan for
the construction and operation of a 246-MW coal-fired power plant in
Toledo, Cebu.
The consortium’s total investment in this project is expected to reach
US$450 million. The plant is targeted to be completed by early 2010 and
will provide part of its power output to VECO and BEZ. AP’s beneficial
ownership of the project is 26%.
Once these projects are completed, which is estimated to come in
between 2008 and 2011, AP will have investments in power plants with
a total capacity of 1,832 MW, and an attributable capacity of 868 MW, a
further increase of 50% from the end of 2007.
OUTLOOK
The prevailing conditions in the Philippine power industry allow for
enormous opportunities for your company’s growth. The industry is
in the midst of massive changes involving deregulation, increased
competition and further privatization of government-owned assets.
Aside from the remaining power generating assets that PSALM is
committed to sell, it has over 6,000 MW capacity from IPPs that it
intends to bid out and transfer to the private sector. Hydro represents
the majority of our generation mix. We will continue to build on this
base and grow our renewable energy business.
The Energy Regulatory Commission has begun to implement
Performance- Based Regulation (PBR) for distribution utilities. We
believe PBR will benefit efficient distribution utilities like ours. We too
are confident that our distribution rates will be adjusted considering
that our current rates are based on assets and expenses of the year
2000.
We also anticipate that when open access is implemented, a new
market for our power will open up for us, giving us the opportunity to
not only sell electricity to customers outside our franchise area, but also
to build additional generating capacity.
On June 26, 2007,
AP subsidiary
Hedcor, Inc. began
construction
work on the 42-
MW Sibulan runof-river
plant in
Davao estimated
to cost over
5 billion. It is
also in the final
design stage for
another 34-MW
plant targeted to
be operational
by 2010.
ABOITIZ POWER CORPORATION ANNUAL REPORT 2007 •