Final Prospectus Series G Preferred Shares - First Gen

FINAL PROSPECTUSMay 2, 2012First Gen Corporation3RD FLOOR, BENPRES BUILDINGEXCHANGE ROAD CORNER MERALCO AVENUEPASIG CITY, PHILIPPINES 1600TELEPHONE NUMBER (632) 449-6400Prospectus Relating to the Primary Offer in the Philippinesof up to 70 million Series “G” Perpetual Preferred Shareswith an Oversubscription Option for an additional 30 million Series “G” PerpetualPreferred Sharesat an Issue Price of P100.00 per Perpetual Preferred Shareto be listed and traded on the First Board of the Philippine Stock Exchange, Inc.Issue Manager and Sole BookrunnerJoint Lead UnderwritersSelling AgentsThe Trading Participants of the Philippine Stock Exchange, Inc.1

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FIRST GEN CORPORATION3 RD FLOOR, BENPRES BUILDINGEXCHANGE ROAD CORNER MERALCO AVENUEPASIG CITY, PHILIPPINES 1600TELEPHONE NUMBER: (632) 449-6400www.firstgen.com.phThis Prospectus, dated May 2, 2012, relates to the offer and sale by way of a public offer of 70,000,000cumulative, non-voting, non-participating, and non-convertible peso-denominated Series ―G‖ PerpetualPreferred Shares of First Gen Corporation (the ―Company‖), a corporation organized under Philippine law (the―Offer‖). In the event of an oversubscription, the Issue Manager and Sole Bookrunner, with the consent of theCompany, reserves the right to increase the size of the Offer up to an additional 30,000,000 Series ―G‖ PerpetualPreferred Shares (the ―Oversubscription Option‖), for an aggregate issue size of up to 100,000,000 Series ―G‖Perpetual Preferred Shares.The Series ―G‖ Perpetual Preferred Shares are being offered for subscription solely in the Philippines throughthe Joint Lead Underwriters and Selling Agents named herein at a subscription price of P100.00 per share (the―Issue Price‖). The Series ―G‖ Perpetual Preferred Shares will be issued on May 18, 2012 (the ―Issue Date‖ orthe ―Listing Date‖) by the Company from its 135,000,000 authorized Series ―G‖ Perpetual Preferred Shares.Each Series ―G‖ Perpetual Preferred Share has a par value of P10.00 and a liquidation right equivalent to theIssue Price or P100.00, plus cumulated and unpaid dividends, if any (the ―Liquidation Right‖).After the Offer, and assuming the Oversubscription Option is exercised in full, the Company will have a total of233,750,000 Perpetual Preferred Shares issued and outstanding 1 , and the Company‘s total issued andoutstanding shares will be as follows:Class No. of Shares Par Value(P)Amount(P)Common 3,362,817,768 1.00 3,362,817,768.00Preferred (A) 0 0.50 0.00Preferred (B) 1,000,000,000 0.50 500,000,000.00Preferred (C) 0 0.50 0.00Preferred (D) 0 0.50 0.00Preferred (E) 468,553,892 0.50 234,276,946.00Preferred (F) 100,000,000 10.00 1,000,000,000.00Preferred (G) 133,750,000 10.00 1,337,500,000.00TOTAL 5,065,121,660 6,434,594,714.00The holders of the Series ―G‖ Perpetual Preferred Shares will have similar rights and privileges with holders ofthe existing Series ―F‖ Perpetual Preferred Shares but not with the Common Shares and the voting preferredshares of the Company (See ―Description of the Securities‖).The declaration and payment of cash dividends on the Series ―G‖ Perpetual Preferred Shares will be subject tothe sole and absolute discretion of the Board of Directors of the Company to the extent permitted by law. Thedeclaration and payment of cash dividends do not require any further approval from the shareholders of theCompany. On the other hand, the declaration and payment of stock dividends requires the further approval ofthe shareholders of the Company.1 This includes the 33,750,000 Series “G” Perpetual Preferred Shares which were issued to FPHC in connection with the Company’sapplication to increase its authorized capital stock from P7.25 billion to P8.60 billion. The increase in authorized capital stock wasapproved by the SEC on March 13, 2012. FPHC’s subscription was fully paid on February 27, 2012.3

As and when declared by the Board of Directors of the Company, cash dividends on the Series ―G‖ PerpetualPreferred Shares, calculated in respect of each Series ―G‖ Perpetual Preferred Share by reference to the IssuePrice thereof, shall be at a fixed rate per annum equal to 7.7808% (the ―Dividend Rate‖).Subject to the limitations described in this Prospectus, cash dividends on the Series ―G‖ Perpetual PreferredShares shall be paid semi-annually in arrears on the last day of each six-month dividend period (―DividendPeriod‖), which shall be every January 25 and July 25 of each year (each, a ―Dividend Payment Date‖).Dividends shall be computed on a 180/360 day basis, except for the first dividend period which shall becomputed on the basis of the actual number of days elapsed from the Issue Date/360.Dividends on the Series ―G‖ Perpetual Preferred Shares will be cumulative. If for any reason the Company‘sBoard of Directors does not declare a dividend on the Series ―G‖ Perpetual Preferred Shares for a dividendperiod, the Company will not pay a dividend on the Dividend Payment Date for that Dividend Period. However,on any future Dividend Payment Date on which dividends are declared, holders of the Series ―G‖ PerpetualPreferred Shares must receive the dividends due them on such Dividend Payment Date as well as all dividendsaccrued and unpaid to the holders of the Series ―G‖ Perpetual Preferred Shares prior to such Dividend PaymentDate (see ―Description of the Securities‖ on page 50)As and when declared by its Board of Directors, the Company has the option, but not the obligation, to redeemthe Series ―G‖ Perpetual Preferred Shares in whole (but not in part) on any Dividend Payment Date followingthe 10th year anniversary from the Issue Date (the ―Optional Redemption Date‖), at a redemption price equal tothe Issue Price of the Series ―G‖ Perpetual Preferred Shares plus cumulated and unpaid cash dividends, if any,for all dividend periods up to the Optional Redemption Date.Unless the Series ―G‖ Perpetual Preferred Shares are redeemed in whole by the Company on the first DividendPayment Date following the 10th year anniversary from Issue Date (the ―Dividend Rate Step-up Date‖), thedividend rate shall be adjusted on the Dividend Rate Step-up Date to the higher of: (i) the Dividend Rate onIssue Date, or (ii) the prevailing Philippine Dealing System Treasury Fixing (PDST-F) 15-year treasurysecurities benchmark rate (or such successor benchmark rate) as interpolated under the heading ―Bid Yield‖ aspublished on the PDEx Page (or such successor page) of Bloomberg (or such successor electronic serviceprovider) at approximately 11:30 am on the Dividend Rate Step-up Date, plus a spread equivalent to 150% ofthe Issue Date Margin.The Company may purchase the Series ―G‖ Perpetual Preferred Shares at any time in the open market or byprivate contract at any price through the Philippine Stock Exchange, Inc. (―PSE‖). The Series ―G‖ PerpetualPreferred Shares so purchased shall be treated as treasury shares until and unless the same are retired, or theshares are reissued (but only upon full redemption of the Series ―G‖ Perpetual Preferred Shares).Payments by the Company in respect of the Series ―G‖ Perpetual Preferred Shares are subject to deductions orwithholding for, or on account of certain taxes (See ―Terms and Conditions of the Offer‖, ―Description of theSecurities‖ and ―Taxation‖). No sinking fund shall be established for the Series ―G‖ Perpetual Preferred Shares(See ―Terms and Conditions of the Offer‖ and ―Description of the Securities‖).The Series ―G‖ Perpetual Preferred Shares will constitute the direct and unsecured subordinated obligations ofthe Company ranking at least pari passu in all respects and ratably without preference of priority amongthemselves and with all other preferred shares issued by the Company.An application for listing of the Series ―G‖ Perpetual Preferred Shares has been filed with the PSE and has beenapproved by the board of directors of the PSE on April 25, 2012, subject to the fulfillment of certain conditions.The PSE assumes no responsibility for the correctness of any statements made or opinions expressed in thisProspectus. The PSE makes no representation as to the completeness of this Prospectus and expressly disclaimsany liability whatsoever for any loss arising from reliance on the entire or any part of the Prospectus. The listingof the Series ―G‖ Perpetual Preferred Shares is subject to the approval of the board of directors of the PSE. Such4

approval for listing is permissive only and does not constitute a recommendation or endorsement of the Series―G‖ Perpetual Preferred Shares by the PSE.The Series ―G‖ Perpetual Preferred Shares shall be issued in scripless form through the electronic book entrysystem of the Philippine Depository and Trust Corporation (―PDTC‖) as Registrar for the Offer, and lodged withthe PDTC as Depository Agent on Listing Date through Trading Participants of the PSE (―TradingParticipants‖) nominated by applicant subscribers.After Listing Date, shareholders may request the Registrar of Scripless Securities (the ―Registrar‖), throughtheir nominated Trading Participant, to: (a) open a scripless registry account and have their holdings of theSeries ―G‖ Perpetual Preferred Shares registered under their name (―name-on-registry account‖), or (b) issuestock certificates evidencing their investment in the Series ―G‖ Perpetual Preferred Shares (―UpliftmentRequest‖). Any costs in relation to such registration or Upliftment Request shall be for the account of therequesting shareholder.Legal title to the Series ―G‖ Perpetual Preferred Shares will be shown in an electronic register of shareholders(the ―Registry of Shareholders‖) which shall be maintained by the Registrar. The Registrar shall send atransaction confirmation advice confirming every receipt or transfer of the Series ―G‖ Perpetual PreferredShares that is effected in the Registry of Shareholders (at the cost of the requesting shareholder). The Registrarshall send (at the cost of the Issuer) at least once every quarter a statement of account to all shareholders namedin the Registry of Shareholders, except certificated shareholders and depository participants, confirming thenumber of Series ―G‖ Perpetual Preferred Shares held by each shareholder on record in the Registry ofShareholders. Such statement of account shall serve as evidence of ownership of the relevant shareholder as ofa given date thereof. Any request by shareholders for certifications, reports or other documents from theRegistrar, except as provided herein, shall be for the account of the requesting shareholder.Legal title to the Series ―G‖ Perpetual Preferred Shares, if uncertificated, shall be transferred through thelodgment process of the PDTC, and if certificated, shall be transferred through the normal process for thetransfer of certificated securities. Settlement of the Series ―G‖ Perpetual Preferred Shares in respect of suchtransfer or change of title to the Series ―G‖ Perpetual Preferred Shares, including the settlement of documentarystamp tax, if any, arising from subsequent transfers, shall follow the transfer of title and settlement proceduresfor listed securities in the PSE.Through the Offer and based on the Issue Price set forth above, the Company expects to raise gross proceeds ofapproximately P7,000,000,000.00, or P10,000,000,000.00, if the Oversubscription Option is exercised in full.The net proceeds from the Offer, estimated to be at P6,950,358,323.12, or P9,931,837,597.31, if theOversubscription Option is exercised in full, are determined by deducting from the gross proceeds the totalunderwriting and selling fees, listing fees, taxes, and other related fees and expenses. The net proceeds of theOffer will be used by the Company either for the payment of the Convertible Bond and the partial repayment ofthe debt of its affiliate, Red Vulcan, or to partially fund the Company‘s acquisitions to be undertaken directly byit, or indirectly through any of its subsidiaries or affiliates. The proceeds will likewise be used for generalcorporate purposes (including working capital and business development-related expenses) (see ―Use ofProceeds‖ on page 80 of this Prospectus).BDO Capital, acting as Issue Manager and Sole Bookrunner for the Offer, shall receive an underwriting fee of0.40% of the gross proceeds of the Offer, inclusive of amounts to be paid to the Joint Lead Underwriters andSelling Agents.Prior to the Offer, there has been no public market for the Series ―G‖ Perpetual Preferred Shares. Accordingly,there has been no market price for the Series ―G‖ Perpetual Preferred Shares derived from day-to-day trading.Some of the Company‘s existing loan agreements contain covenants that restrict the ability of the Company todeclare or pay dividends under certain circumstances, such as: (i) the occurrence of an event of default undersuch loan agreements or if such payment would cause an event of default to occur; (ii) if certain financial ratios5

are not met or payment would cause them not to be met, requiring revenues of the Company to be appliedtoward certain expenses prior to the payment of dividends; and (iii) other circumstances (see ―Description of theSecurities‖ on page 50).Having made all reasonable inquiries, the Company confirms that, as of the date hereof: (i) this Prospectuscontains all information with respect to the Company, the Group (as defined below) and to the Series ―G‖Perpetual Preferred Shares which are material in the context of the issue and offering of the Series ―G‖Perpetual Preferred Shares; (ii) the statements contained in this Prospectus relating to the Company and theGroup are in every material respect true and accurate and not misleading; (iii) the opinions and intentionsexpressed in this Prospectus with regard to the Company and the Group are honestly held, have been reachedafter considering all relevant circumstances and are based on reasonable assumptions; (iv) there are no otherfacts in relation to the Company, the Group, or the Series ―G‖ Perpetual Preferred Shares, the omission ofwhich would, in the context of the issue and offering of the Series ―G‖ Perpetual Preferred Shares, make anystatement in this Prospectus misleading in any material respect; and (v) the Company has made all reasonableinquiries to ascertain such facts and to verify the accuracy of all such information and statements. Unlessotherwise stated, all information in this Prospectus has been supplied by the Company. The Issue Manager andthe Joint Lead Underwriters confirm that it has exerted reasonable efforts to verify the information containedherein but do not make any representation, express or implied, as to the accuracy or completeness of thematerials contained herein.No dealer, salesman, or any other person has been authorized to give any information or to make anyrepresentation not contained in this Prospectus. If given or made, any such information or representation mustnot be relied upon as having been authorized by the Company, the Issue Manager and Sole Bookrunner or anyof the Joint Lead Underwriters. The distribution of this Prospectus and the offer and sale of the Series ―G‖Perpetual Preferred Shares may, in certain jurisdictions, be restricted by law. The Company, the Issue Managerand Sole Bookrunner and the Joint Lead Underwriters require persons into whose possession this Prospectuscomes, to inform themselves of and observe all such restrictions. This Prospectus does not constitute an offerof, or an invitation by or on behalf of the Company to apply for, to subscribe, or to purchase, the Series ―G‖Perpetual Preferred Shares or any interests therein. This Prospectus may not be used for or in connection withan offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or toany person to whom it is unlawful to make such offer or solicitation.This Prospectus is distributed upon the express understanding that no information contained herein has beenindependently verified and that no representation or warranty expressed or implied is made, nor is anyresponsibility of any kind accepted by the Company or any of its respective subsidiaries, associates,shareholders, directors, employees, agents or advisors with respect to the completeness or accuracy of anyinformation contained herein. In addition, no representation or warranty expressed or implied is made that suchinformation remains unchanged in any respect as of any date or dates after those stated herein, with respect toany matter concerning the Company, or any statement made in this Prospectus.The contents of this Prospectus are not to be considered as legal, business, or tax advice. This Prospectus is notintended to provide the sole basis for any evaluation and should not be considered as a recommendation toinvest in the Company. Each prospective investor should make its own independent evaluation.In making an investment decision, investors must rely on their own examination of the Company and the termsof the Offer, including the material risks involved and of the relevance and accuracy of the informationcontained herein, and should make such other investigation as they deem necessary to determine whether theyshould participate in the Offer.Where this Prospectus summarizes the provisions of any other document, that summary should not be reliedupon and prospective investors are expected to independently review such agreements in full. In furnishing thisProspectus, the Company reserves the right to amend or to replace the Prospectus at any time and undertakesno obligation to provide the recipient with access to any additional information.6

The Company has undertaken reasonable efforts to include accurate and up-to-date information. Except asotherwise specified, the financial information and operating statistics contained herein are as of December 31,2011.No person has been or is authorized to give any information or to make any representations concerning theCompany, the Group, or the Series ―G‖ Perpetual Preferred Shares other than as contained herein and, if givenor made, any such other information or representation should not be relied upon as having been authorized bythe Company. Neither the delivery of this document nor any offering, sale, or delivery made in connection withthe issue and offering of the Series ―G‖ Perpetual Preferred Shares shall, under any circumstances, constitute arepresentation that there has been no change or development reasonably likely to involve a change in theaffairs of the Company or the Group since the date hereof or create any implication that the informationcontained herein is correct as of any date subsequent to the date hereof.Information relating to Meralco, NPC, PSALM, TransCo, and NGCP (as each term is defined herein) set forthin this Prospectus were obtained from publicly available sources that are believed to be reliable but suchinformation has not been independently verified. The Company and the Issue Manager and Sole Bookrunnerand the Joint Lead Underwriters do not make any representation as to the accuracy of such informationregarding Meralco, NPC, PSALM, TransCo, and NGCP.Market Industry DataMarket data and certain industry forecasts used throughout this Prospectus were obtained from internal surveys,market research, publicly available information, and industry publications. Industry publications generally statethat the information contained therein has been obtained from sources believed to be reliable, but that theaccuracy and completeness of such information are not guaranteed. Similarly, internal surveys, industryforecasts, and market research, while believed to be reliable, have not been independently verified, and theCompany does not make any representation as to the accuracy of such information.Forward-Looking StatementsThis Prospectus includes forward-looking statements. The Company has based these forward-looking statementslargely on its current expectations and projections about future events and financial trends affecting its business.Words including, but not limited to, ―believes‖, ―may‖, ―will‖, ―estimates‖, ―continues‖, ―anticipates‖,―intends‖, ―expects‖, and other similar words are intended to identify forward-looking statements. Theseforward-looking statements are subject to risks, uncertainties, and assumptions, some of which are beyond theCompany‘s control. In addition, these forward looking statements reflect current views of the Company withrespect to future events and are not a guarantee of future performance.The Company has no obligation, and does not intend, to update or otherwise revise the forward-lookingstatements in this Prospectus, whether as a result of new information, future events, or otherwise. Inlight of these risks, uncertainties, and assumptions associated with forward-looking statements, investorsshould be aware that the forward-looking events and circumstances discussed in this Prospectus might notoccur in the way the Company expects, or at all. The Company‘s actual results could differ substantially fromthose anticipated in, or suggested by, the Company‘s forward-looking statements. Investors should not placeundue reliance on any forward-looking information.ALL REGISTRATION REQUIREMENTS HAVE BEEN MET AND ALL INFORMATIONCONTAINED HEREIN IS TRUE AND CURRENT.7

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TABLE OF CONTENTSPageGLOSSARY OF CERTAIN TERMS………………………………………………………. 12SUMMARY…………………………………………………………………………………... 23SUMMARY OF FINANCIAL INFORMATION………………………………………….. 31TERMS AND CONDITIONS OF THE OFFER…………………………………………... 40DESCRIPTION OF THE SECURITIES…………………………………………………… 50CAPITALIZATION…………………………………………………………………………. 59PLAN OF DISTRIBUTION…………………………………………………………………. 60DIVIDEND POLICY……………………………………………………………………… 63RISK FACTORS…………………………………………………………………………... 66USE OF PROCEEDS………………………………………………………………………... 80DETERMINATION OF THE ISSUE PRICE…………………..…………………………. 83COMPANY BACKGROUND ……………………………….……………………………... 84CORPORATE STRUCTURE………………………………………………………………. 106MATERIAL CONTRACTS AND AGREEMENTS………………………………………. 145MANAGEMENT AND CERTAIN SHAREHOLDERS…………………………………. 147SECURITY OWNERSHIP OF CERTAIN RECORD AND BENEFICIALHOLDERS……………………………………………………………………………..157RELATED PARTY TRANSACTIONS…………………………………………………….. 160CORPORATE GOVERNANCE……………………………………………………………. 162MARKET PRICE OF AND DIVIDENDS ON THE COMPANY’S STOCK ANDRELATED STOCKHOLDER MATTERS…………………………………………….165LEGAL PROCEEDINGS………………………………………………………………… 171MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATION…………………………………………………..176PHILIPPINE POWER INDUSTRY………………………………………………………... 203INFORMATION ON INDEPENDENT AUDITORS……………………………………… 215INTERESTS OF EXPERTS AND COUNSEL…………………………………………….. 216PHILIPPINE TAXATION………………………………………………………………....... 21710

THE PHILIPPINE STOCK MARKET…………………………………………………….. 222FINANCIAL STATEMENTS…………………………………………………...................... F-111

GLOSSARY OF CERTAIN TERMSAgusan Mini-Hydro............................................................ FG Bukidnon‘s 1.6 MW Mini-Hydro Power Plant in Damilag,Manolo Fortich, BukidnonAndritz ................................................................................ Andritz Hydro GmbHAngat Hydro ………………………...…APA……………………………….……NPC‘s 218 MW Hydroelectric Power Plant in Norzagaray,BulacanAsset Purchase AgreementAvailability ......................................................................... A measure (expressed as a percentage) of the availablegeneration of a plant over a defined period of time comparedwith the maximum possible available generation of the plantover the same periodBacMan ............................................................................. EDC‘s 150 MW Bacon-Manito geothermal complex in Bacon,Sorsogon and AlbayBauang……………………………………BDO Group Lenders…...………………BG Group………………………………BGCH……………………………..........BGEH…………………………..………BGI………………………………..……BIR……………………………..………Board of Directors or Board ……………...BOC………………………………………Bondholders……………………………BOT………………………………….…The 225 MW Bunker-Fired Power Plant in Payocpoc Sur,Bauang, La Union, previously operated by BPPCBanco de Oro Unibank, Inc., BDO Leasing and Finance, Inc.,and BDO Private BankBG Group plcBG Consolidated Holdings (Philippines), Inc.BG Energy Holdings, LimitedBacMan Geothermal, Inc.Bureau of Internal RevenueThe board of directors of the CompanyBureau of CustomsThe registered holders of the Convertible BondsBuild-Operate-TransferBOT Contract/Agreement ................................................. An agreement whereby the first party undertakes theconstruction, including financing, of a given infrastructurefacility, and the operation and maintenance thereof. The firstparty operates the facility over a fixed term during which it isallowed to charge facility users appropriate fees to enable it torecover its investment and operating and maintenanceexpenses in the facility. At the end of the fixed term, the firstparty transfers the facility to the second party.BPPC…………………………….……..Bauang Private Power Corporation12

BSP………………………………………..Bangko Sentral ng PilipinasBtu ..................................................................................... British Thermal Unit, a unit of energy equal to the amount ofheat required to raise the temperature of one pound of waterby one degree Fahrenheit at one atmosphere of pressureBusiness Day…………………………..Call Option Agreements…………..……Call Option Shares……………..………A day (other than Saturday or Sunday) on which commercialbanks are open for business in the cities of Pasig and Makati.Call Option Agreements between the Company and each ofPhilplans First, Inc., Rescom Developers, Inc., Philhealthcare,Inc., and Systems Technology Institute, Inc., all dated April20, 2010585 million shares of EDC that was purchased by theCompany under the Call Option AgreementsCapacity Factor ................................................................... Ratio (expressed as a percentage) of the gross amount ofelectricity generated by a power plant in a given period to theproduct of (i) the number of hours in the given period and(ii) the plant‘s installed capacityCaptive Market .................................................................. As defined in the EPIRA, electricity end-users who do nothave the choice of a supplier of electricity, as may bedetermined by the ERC in accordance with the EPIRACBAA……………………..……………CEPALCO……………………...………Combined Cycle………………………..Central Board of Assessment AppealsCagayan Electric Power and Light Company Inc.The combination of the gas turbine thermodynamic cycle withthe steam turbine thermodynamic cycle by utilizing the wasteheat energy from the gas turbine, to generate steam for use ina steam turbineCommon Shares……………………….. Common shares of the Company, with a par value of P1.00per shareCompany or First Gen………………….Congress………………………………..First Gen CorporationThe Congress of the Philippines, consisting of the Senate andthe House of RepresentativesContestable Market ............................................................ As defined in the EPIRA, electricity end-users who may selecttheir supplier of electricity, as may be determined by the ERCin accordance with the EPIRAConvertible Bonds……………………...Corporation Code………………………The US$260 Million Convertible Bonds issued by theCompany on February 11, 2008 that bear an interest rate of2.5% per annum and are convertible into fully paid CommonSharesBatas Pambansa Blg. 68, otherwise known as ―TheCorporation Code of the Philippines‖13

Deed Poll……………………………….DENR…………………………………..The Deed Poll to be executed by the Company in connectionwith the Series ―G‖ Perpetual Preferred SharesDepartment of Environment and Natural ResourcesDispatch ............................................................................. Instructions issued by or on behalf of the offtaker, or in theevent of WESM, the WESM market operator in accordancewith a relevant agreement with the seller or the WESM systemoperator, to schedule and control the generation of electricityby the plant in order to increase or decrease the electric energydelivered to the grid distribution systems which includes,among others, the standards for service and performance, andwhich defines and establishes the relationship of thedistribution systems with the facilities or installations of theparties connected theretoDOE……………………………….……DOJ……………………………..………Dual-Currency Loan……………………EDC……………………………………Department of EnergyDepartment of JusticeP-denominated and US$-denominated loan availed by theCompany pursuant to the Facility Agreement dated May 11,2010 among the Company, the BDO Group Lenders, andBanco de Oro Unibank, Inc. – Trust and Investments GroupEnergy Development CorporationEPC Contract ..................................................................... Engineering, Procurement, and Construction contractEPIRA ............................................................................... Republic Act No. 9136, otherwise known as the ―ElectricPower Industry Reform Act of 2001‖, as amended from timeto time, and including the rules and regulations issuedthereunderER 1-94 ............................................................................. Energy Regulation No. 1-94ERC…………………………………….Energy Regulatory Commission (formerly the EnergyRegulatory Board)ESA ................................................................................... Electricity Sales AgreementESOP…………………………………...ESPP……………………………………Euro…………………………………….FG Bukidnon…………………….……..FG Hydro……………………….………FGES…………………………………...The Executive Stock Option Plan of the CompanyThe Employee Stock Purchase Plan of the CompanyThe official currency of the Eurozone, which consists ofAustria, Belgium, Cyprus, Estonia, Finland, France, Germany,Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands,Portugal, Slovakia, Slovenia and Spain as of the date of thisProspectusFG Bukidnon Power CorporationFirst Gen Hydro Power CorporationFirst Gen Energy Solutions, Inc.14

FGHC…………………………..………FGMHPC………………………………FGNEC…………………………………FGP………………………………..……FGPC………………………………...…FG Pipeline……………………………...FGRI……………………………………FPHC………………………………...…FPIC……………………………………FPPC……………………………………FPRC………………………………………First Gas Holdings CorporationFirst Gen Mindanao Hydro Power CorporationFirst Gen Northern Energy CorporationFGP Corp.First Gas Power CorporationFirst Gas Pipeline CorporationFirst Gen Renewables Inc.First Philippine Holdings CorporationFirst Philippine Industrial CorporationFirst Private Power CorporationFirst Philippine Realty CorporationGas Sellers ......................................................................... Consortium comprising SPEX, Shell Philippines LLC,Chevron Malampaya LLC, and PNOC ExplorationCorporationGDP…………………………………….Gross Domestic ProductGeneration Subsidiaries ..................................................... FGPC and FGP, either of them a Generation SubsidiaryGeothermEx……………………………GeothermEx, Inc., a World Bank-accredited third partyindependent geothermal energy consultant based in the UnitedStatesGJ ...................................................................................... Giga Joule or one billion JoulesGovernment…………………………….Green Core………………..……………The Government of the Republic of the Philippines or any ofits branches, instrumentalities, and agenciesGreen Core Geothermal Inc.Greenfield .......................................................................... Power generation projects that are developed from inceptionon previously undeveloped sitesGrid .................................................................................... The Philippines‘ high voltage backbone system ofinterconnected transmission lines, substations, and relatedfacilitiesGrid Code .......................................................................... The set of rules and regulations promulgated pursuant to theEPIRA governing the safe and reliable operation,maintenance, and development of the GridGRESC .............................................................................. Geothermal Renewable Energy Service ContractGroup……………………………...……The Company, its subsidiaries, and its associates EDC and FGHydro15

GRSC ................................................................................ Geothermal Resource Sales ContractGSC ................................................................................... Geothermal Service ContractGSPA…………………………………...Gas Sale and Purchase AgreementGW .................................................................................... Gigawatt or one million kilowattsGWh .................................................................................. Gigawatt-hour or one million kilowatt-hours, which istypically used as a measure for the annual energy productionof large power plantsHeat Rate ........................................................................... A measurement used in the energy industry to calculate howefficiently a generator uses heat energy. It is computed bydividing the total Btu content of fuel burned for electricgeneration by the resulting net kWh generationHeating Value .................................................................... The amount of energy released when a fuel is burnedcompletely in a steady-flow process and the products arereturned to the state of the reactants. Heating Value isdependent on the phase of water/steam in the combustionproductsHHV .................................................................................. Higher Heating Value, the total heat energy in a fuel, whichincludes the Lower Heating Value and heat energy that cannotbe converted into mechanical energy, that is, heat energycontained in water vapor, which goes out with the flue gasafter fuel is burnedHSC ................................................................................... Hydropower Service ContractIDR .................................................................................... Irrigation Diversion Requirement, the duly and regularlyissued level of irrigation requirement by the NIA used as thebasis of power generation, schedule, and service feesILECO…………………………….……Iloilo Electric Cooperative, Inc.IPP ..................................................................................... Independent Power ProducerIPP Administrators ............................................................ As defined in the EPIRA, qualified independent entitiesappointed by PSALM which shall administer, conserve, andmanage the contracted energy output of NPC IPP contractsIssue Date……………………………… May 18, 2012Issue Date Margin………………………....Issue Price……………………………...The difference between the Dividend Rate on Issue Date andthe Base Rate on the Dividend Rate Setting Date which is187.5 basis pointsP100.00 per Perpetual Preferred ShareJoule .................................................................................. The work done by a force of one Newton acting to move anobject one meter in the direction in which the work is appliedJVA……………………………………..Joint Venture Agreement16

KEPCO…………………………………Korea Electric Power CorporationkV ...................................................................................... Kilovolt or one thousand voltskW ..................................................................................... Kilowatt or one thousand wattskWh ................................................................................... Kilowatt-hour, the standard unit of energy used in the electricpower industry. One kilowatt-hour is the amount of energythat would be produced by a generator producing onethousand watts for one hourK-Water……………...…………………LIBOR………………………………….LBAA……………………………..……Lopez Group……………………………Korean Water Resources CorporationLondon Interbank Offered Rate, the interest rate at whichbanks may borrow from other banks in the London interbankmarketLocal Board of Assessment AppealsThe Lopez group of companies, a diversified conglomerateestablished in the PhilippinesLower Heating Value ........................................................ The heat energy in a fuel, which can be converted intomechanical energy, and eventually, electrical energyMeralco…………………………………Manila Electric CompanyMeralco Grid System ......................................................... Meralco‘s network of distribution lines, 115 kV and 69 kVsubtransmission lines, and substationsMEQ .................................................................................. Minimum Energy Quantity (expressed in kWh), the minimumamount of Net Electrical Output which Meralco is required totake or pay for and which a Generation Subsidiary is requiredto be able to generate and make available for delivery during aparticular contract yearMEOT ................................................................................ Minimum Energy Off-take, a fixed amount of energy thatNPC is obligated to pay EDC for on an annual basisMW .................................................................................... Megawatt or one million watts. The installed capacity ofpower plants is generally expressed in terms of MWMWe……………………………………Megawatts of electrical outputNDC .................................................................................. Net Dependable Capacity or the net dependable generatingcapacity of the plant (net of unit energy utilized to drive thestation‘s service or auxiliaries), expressed in kW or MWNDC Test ........................................................................... Net Dependable Capacity Test or testing conducted on a plantto determine the Net Dependable Capacity and the referenceNet Heat Rate of the plantNEA ................................................................................... National Electrification AdministrationNEDA…………………………………..National Economic Development Authority17

Net Capacity Factor ........................................................... A measure of net actual generation of a power plant expressedin kWh divided by the net maximum generation of the powerplant within a specified period and expressed in kWhmultiplied by 100%Net Electrical Output/EnergyGeneration……………………………...Net energy delivered by a seller to the agreed delivery pointand expressed in kWhNet Heat Rate .................................................................... The heat energy required by a power plant to produce onekWh of electrical energy net of the parasitic or auxiliary loadsof the power plant. It is usually expressed in terms of Btu/kWhNGCP…………………………………..NIA……………………………………..National Grid Corporation of the PhilippinesNational Irrigation AdministrationNominated Energy ............................................................. The amount of energy nominated and generated by EDC on anannual basis that NPC is obligated to pay forNNGP……………………….………….Northern Terracotta……………………….Notes Facility…………………………..EDC‘s 49.4 MW Geothermal Power Plant in NegrosOccidentalNorthern Terracotta Power Corp.The US$100 million loan facility provided to the Companyunder the Notes Facility AgreementNotes Facility Agreement……………… The Notes Facility Agreement dated December 17, 2010among the Company, Banco de Oro Unibank, Inc., and BDOCapital & Investment Corporation.NPC…………………………………….NPC TOU Rates……………………..…NREB…………………………………..ODiSy…………………………………..Offer……………………………………National Power CorporationNPC Time-of-Use rates, the variable rates charged by NPCbased on the time of dayNational Renewable Energy BoardOnline Disclosure SystemThe offering for subscription in the Philippines by theCompany of 70,000,000 Series ―G‖ Perpetual PreferredShares, with an Oversubscription Option of an additional30,000,000 Series ―G‖ Perpetual Preferred SharesOpen Access ...................................................................... As defined in the implementing rules of EPIRA, the system ofallowing any qualified person the use of electric powertransmission, and/or distribution systems, and associatedfacilities, subject to the payment of transmission and/ordistribution retail wheeling rates duly approved by the ERCOption Shares…………………………..The fully paid Common Shares which the Bondholders mayacquire by converting the Convertible BondsO&M Agreement ............................................................... Operation and Maintenance AgreementPantabangan-Masiway (each PantabanganFG Hydro‘s 132 MW Hydroelectric Power Plants in18

or Masiway)……………………………….Pantabangan, Nueva EcijaPBR ................................................................................... Performance-based Rate-setting RegulationPDTC……………………………………...Philippine Depository and Trust CorporationPEMC ................................................................................ Philippine Electricity Market CorporationPerpetual Preferred Shares……………..PFRS……………………………………P or Pesos………………………………The Series ―F‖ and Series ―G‖ Perpetual Preferred SharesPhilippine Financial Reporting StandardsPhilippine Pesos or the legal currency of the Republic of thePhilippinesPJ ....................................................................................... Peta Joule or one million GJPNOC…………………………………..PNOC EDC RF………………………...Philippine National Oil CompanyPNOC Energy Development Corporation Retirement FundPPA .................................................................................... Power Purchase AgreementPrime Terracota…………………...……Prime Terracota Group……………..…..Prime Terracota Holdings Corp.Prime Terracota, Red Vulcan, EDC, and FG HydroPSA .................................................................................... Power Supply AgreementPSALM…………………………………PSE……………………………..………RE………………………………………Power Sector Assets and Liabilities Management CorporationPhilippine Stock Exchange, Inc.Renewable EnergyRE Law .............................................................................. Republic Act No. 9513, otherwise known as the ―RenewableEnergy Act of 2008,‖ as may be amended from time to time,and including the rules and regulations issued thereunderRed Vulcan……………………..………Red Vulcan Holdings CorporationReliability .......................................................................... A measure of the ability of the electric system to supply theaggregate electrical demand and energy requirements of thecustomers at all times, taking into account scheduled andunscheduled outages of system facilitiesRES……………………………………..Retail Electricity SuppliersRetail Competition ............................................................. As defined in the implementing rules of the EPIRA, theprovision of electricity to a Contestable Market by personsauthorized by the ERC to engage in the business of supply toelectricity end-users through Open AccessRights Offer………………………………. The offer by the Company in January 2010 of 2,142,472,791Common Shares to eligible holders of its Common Shares at aproportion of 1.756 shares for every Common Share held byinvestors as of a certain record date at an offer price of P7.0019

per shareRORB ................................................................................ Return-on-rate base rate setting systemRPS .................................................................................... Renewable Portfolio Standard, the market-based policy thatrequires electricity suppliers to source an agreed portion oftheir energy supply from eligible RE resourcesRPT……………………………………RTC…………………………………….San Lorenzo……………………………Real Property TaxRegional Trial CourtFGP‘s 500 MW Combined Cycle Natural Gas-Fired PowerPlant in Batangas City, BatangasSan Lorenzo GSPA……………………. The Gas Sale and Purchase Agreement dated April 30, 1998between FGP and the Gas SellersSan Lorenzo JVA……………………… The Joint Venture Agreement dated December 7, 1999between FPHC and BGEH relating to the development of theSan Lorenzo project, as amended and supplemented from timeto timeSan Lorenzo O&M Agreement………... The Operations and Maintenance Agreement dated June 5,2010 between FGP and SPOI, as amendedSan Lorenzo PPA……………………… The Power Purchase Agreement dated as of July 22, 1999between FGP and Meralco, as amendedSanta Rita .......................................................................... FGPC‘s 1,000 MW Combined Cycle Natural Gas-Fired PowerPlant in Batangas City, BatangasSanta Rita GSPA………………………. The Gas Sale and Purchase Agreement dated January 9, 1998between FGPC and the Gas SellersSanta Rita JVA…………………………The Joint Venture Agreement dated November 9, 1994 (assupplemented on December 7, 1999) between FPHC andBritish Gas plc (which was renamed BG plc and substituted byBGEH in 1999) relating to the development of the Santa Ritaproject, as amended and supplemented from time to timeSanta Rita O&M Agreement…………... The Operations and Maintenance Agreement dated June 5,2010 between FGPC and SPOI, as amendedSanta Rita PPA…………………………SEC…………………………………..…Amended and Restated Power Purchase Agreement dated asof January 9, 1997 between FGPC and Meralco, as amendedSecurities and Exchange Commission of the PhilippinesSeries ―F‖ Perpetual Preferred Shares The cumulative, non-voting, non-participating, nonconvertiblepeso-denominated Series ―F‖ perpetual preferredshares of the Company with a par value of P10.00 per share,issued by the Company on July 25, 2011.Series ―G‖ Perpetual Preferred Shares The cumulative, non-voting, non-participating, nonconvertiblepeso-denominated Series ―G‖ perpetual preferred20

shares of the Company with a par value of P10.00 per sharesubject of the Offer.SPEX………………………………...…SPOI……………………………………Shell Philippines Exploration B.V.Siemens Power Operations Inc.SSA .................................................................................... Steam Sales AgreementStranded Costs ................................................................... As defined in the EPIRA, the excess of the contracted costs ofelectricity under eligible contracts over the actual selling priceof the contracted energy output under such contracts. Eligiblecontracts are those approved by the Energy Regulatory Boardas of December 3, 2000Term Loan Facility……………….…….Term Loan FacilityAgreement……………………….……..Term LoanLenders…………………………………The US$142 million loan facility provided to the Company bythe Term Loan Lenders under the Term Loan FacilityAgreementThe Term Loan Facility Agreement dated September 3, 2010among the Company, the Term Loan Lenders, and Banco deOro Unibank, Inc. – Trust and Investments GroupAllied Bank Corporation, Banco de Oro Unibank, Inc, Bank ofthe Philippine Islands, Maybank International (L) Ltd.,Mizuho Corporate Bank, Ltd., Rizal Commercial BankingCorporation, Robinsons Bank Corporation, Security BankCorporation, and UnionBank of the PhilippinesTJ ....................................................................................... Tera Joule or one thousand GJTOU…………………………………….Trading Participants……………………….TransCo………………………………...Time of UseTrading Participants of the PSENational Transmission CorporationTSC .................................................................................... Transition Supply ContractUnified……………………………….…Unified Corporate Notes …..……………...Unified Leyte…………………………...Unified Holdings CorporationThe notes issued under the Corporate Note Facility Agreementdated March 2, 2009 among Unified, Banco de Oro Unibank,Inc., Philippine National Bank, Rizal Commercial BankingCorporation, BDO Trust and Investment Group for T/ANo. 204-53317-8, and Robinsons Savings BankEDC‘s Upper Mahiao, Malitbog, Mahanagdong and LeyteOptimization projects, collectivelyUnified Leyte PPA ............................................................. The Power Purchase Agreement dated March 4, 1994 betweenPhilippine National Oil Corporation-EDC and NPC, asamended and supplementedUniversal Charge ............................................................... The non-bypassable charge imposed on all electricity endusersfor the following purposes: (i) the recovery of Stranded21

Costs; (ii) the equalization of the taxes and royalties applied toindigenous or renewable sources of energy vis-à-vis importedenergy fuels; (iii) to account for all forms of cross-subsidies;and (iv) other purposes provided in the EPIRAUS$ or U.S. Dollar ............................................................. United States or Dollars or the legal currency of the UnitedStates of AmericaVECO…………………………………..VPS……………………………………..WESC…………………………………..Visayan Electric Company, Inc.Voting Preferred Shares of the Company or the Series ―A‖ to―E‖ preferred shares of the Company with a par value of P0.50per shareWind Energy Service ContractWESM ............................................................................... Wholesale Electricity Spot MarketWESM Rules ..................................................................... The rules promulgated pursuant to the EPIRA that govern theadministration and operation of the WESM22

SUMMARYThe following summary is qualified in its entirety by more detailed information and financial statements,including the notes thereto, appearing elsewhere in this Prospectus.Company OverviewThe Company was incorporated on December 22, 1998 and is the primary holding company for the powergeneration and energy-related businesses of the Lopez Group. The Company‘s core business activity is powergeneration and steam extraction through the member companies of the Group.The Group has a portfolio of 15 power generation plants with a combined capacity of 2,763 MW, of whichapproximately 90% is contracted. The Group‘s energy generation capacity is predominantly contracted for saleunder PPAs or other energy sales agreements, with the Group‘s plants supplying electricity to a variety ofcustomers, including Meralco, NPC, electric cooperatives, and the WESM. During 2010 and 2011, the Group‘splants and steamfield operations generated a total of 18,271 GWh and 19,169 GWh of electricity, respectively.The Company believes that the Group has one of the cleanest power portfolios in the country, with its entirepower generation portfolio utilizing fuels such as natural gas, water, and geothermal steam.The Company‘s interests, direct and indirect, in the Group‘s power generation facilities consist of the following:• A 60% equity interest in the 11-year-old Santa Rita natural gas-fired power plant;• A 60% equity interest in the nine-year-old San Lorenzo natural gas-fired power plant;• A 40% equity interest, or a 69.3% effective economic interest, in the Pantabangan-Masiwayhydroelectric power plant;• A 100% equity interest in the Agusan River mini-hydroelectric power plant; and• A 48.8% equity interest in the 11 integrated geothermal steamfields and power projects owned byEDC, which have a combined capacity of 1,129 MW.As of the date of this Prospectus, all of the foregoing facilities are operational. For more information on thesepower generation facilities, see discussion on ―Corporate Structure‖ on pages 106-120 of this Prospectus.As of December 31, 2010, the Company had total assets of US$2,341.4 million. Total revenue and EBITDA forthe year ended December 31, 2010 were US$1,244.3 million and US$312.9 million, respectively. As ofDecember 31, 2011, the Company had total assets of US$2,556.6 million. Total revenue and EBITDA for theyear ended December 31, 2011 were US$1,363.5 million and US$276.8 million, respectively. As of December31, 2011, the Company had a market capitalization of approximately P 49,164.1 million.The members of the Group derive a substantial portion of their respective revenue from stable long-termcontracts with proven off-takers. The Company plans to continue to capitalize on the growing need for power inthe Philippines. The country‘s comparatively low per capita electricity consumption at present leaves significantroom for demand growth. With the 2012 GDP target of 7% to 8% set by NEDA, the Philippines‘ peak demandis expected to increase. According to the 2009-2030 Power Development Plan, the DOE forecasts that peakdemand will have average annual growth rates with highs of 4%, 5%, and 5% in Luzon, Visayas, and Mindanao,respectively. Thus, aggregate peak demands are expected to reach 17,636 MW, 3,404 MW, and 3,493 MW inLuzon, Visayas, and Mindanao, respectively, by 2030. These factors, and the scarcity of new capacitycommitted to come online over the next two to three years, should provide dispatch opportunities for the Groupand other existing generators. The Company also expects to continue to benefit from the ongoing power reformcommenced by the passage of the EPIRA in June 2001. The Company believes that the privatization of thepower generation industry by PSALM has opened up direct supply opportunities while NGCP‘s takeover ofTransCo will lead to better efficiency and improved grid interconnectivity. In addition, the Company expects theGroup to benefit further from the RE Law, which took effect on January 30, 2009. The two main features of the23

RE Law are (i) fiscal incentives that are made available to providers of renewable energy and (ii) non-fiscalincentives or market mechanisms geared towards promoting and encouraging commercialization of REresources.The Company‘s head office is located at the 3rd Floor, Benpres Building, Exchange Road corner MeralcoAvenue, Pasig City, Metro Manila.The Company completed an initial public offering on February 10, 2006 and its Common Shares were listed onthe PSE on February 10, 2006, with the ticker symbol ―FGEN‖. The Series ―F‖ Perpetual Preferred Shares werelikewise listed on the PSE on November 15, 2011, with the ticker symbol ―FGENF‖. The Company‘scontrolling shareholder, with a 66.2% economic interest and a 76.5% voting interest in the Company, is FPHC.FPHC is also a listed member of the Lopez Group, having been listed on the PSE on May 23, 1963, with thestock symbol ―FPH‖. The Company‘s affiliate, EDC, was also listed on the PSE on December 13, 2006, withthe ticker symbol ―EDC‖.As of the date of this Prospectus, the Company has 4,965,121,660 outstanding shares, comprising of3,362,817,768 Common Shares, 1,468,553,892 VPS, 100,000,000 Series ―F‖ Perpetual Preferred Shares and33,750,000 Series ―G‖ Perpetual Preferred Shares. The Company holds 279,406,700 Common Shares intreasury, which are considered to be issued but not outstanding.Recent DevelopmentsIssuance of P 10 billion Series “F” Perpetual Preferred SharesOn July 25, 2011, the Company issued P10.0 billion Series ―F‖ Perpetual Preferred Shares at a dividend rate of8% per annum. The Company approved and authorized the issuance by way of private placement or issuance toQualified Buyers under Sections 10.1 (k) and (l) of the Securities Regulation Code of 100 million of its Series―F‖ Perpetual Preferred Shares with a par value of P10.00 per share and an issue price of P100.00 per share. TheSeries ―F‖ Perpetual Preferred Shares are cumulative, non-voting, non-participating, non-convertible and pesodenominated.On the seventh anniversary of the issue date of the Series ―F‖ Perpetual Preferred Shares or anydividend payment date thereafter, the Company shall have the option, but not the obligation, to redeem all of theSeries ―F‖ Perpetual Preferred Shares outstanding. Dividends are payable on January 25 and July 25 of eachyear. On November 15, 2011, the Series ―F‖ Perpetual Preferred Shares were listed in the PSE with stocktrading symbol ―FGENF‖.Purchase of additional shares in EDCAs of the date of this Prospectus, the Company owns 1,650,471,500 shares in EDC, either directly or through itswholly-owned subsidiary, Northern Terracotta. This is equivalent to 8.8% of EDC‘s total issued and outstandingshares.Part of the 1,650,471,500 shares is the 315 million shares purchased by the Company on April 7, 2010 through ablock sale on the PSE at a purchase price of P=5.35 per share. The Company also purchased 750,471,500 sharesfrom the market between 2007 and 2012.In addition, on April 20, 2010, the Company signed Call Option Agreements with each of Philplans First, Inc.,Rescom Developers, Inc., Philhealthcare, Inc., and Systems Technology Institute, Inc. which granted theCompany the option to purchase the Call Option Shares. Under the Call Option Agreements, the Company wasentitled to exercise its options over the Call Option Shares at the exercise price of P=5.67 per share for year one(from April 20, 2010 to April 19, 2011), P=6.19 per share for year two (from April 20, 2011 to April 19, 2012),and P=6.76 for year three (from April 20, 2012 to April 19, 2013). Under the Call Option Agreements, the shareprices would automatically adjust downward in the event EDC declares and distributes cash dividends. TheCompany, through its subsidiary, Northern Terracotta, exercised its call option over 195 million shares of EDCat an exercise price of P5.67 per share on March 9, 2011. The Company directly exercised its call option over24

the remaining 390 million shares of EDC on April 4, 2011. The exercise price of P5.51 per share reflected anadjustment following EDC‘s cash dividend of P=0.16 per share during the year.NNGP Write-downEDC entered into a GSC with the Government for the exploration, development, and exploitation of geothermalresources in the Northern Negros geothermal production field. On October 23, 2009, the GSC was replaced by aGRESC with the Government. The Northern Negros GRESC is scheduled to expire in 2024, but may beextended for another 15 years subject to negotiations with the Government.The Northern Negros project is a geothermal steam and electrical power project developed outside the boundaryof the Mt. Kanlaon Natural Park. The steamfield project has a total of nine production wells, three injectionwells, and a 6.1-kilometer pipe network, with one 49.4 MW generating unit supplied by Fuji Electric Co., Ltd.The power plant was commissioned in February 2007 and was constructed pursuant to a turnkey contract withKanematsu Corporation. Its generated electrical power is intended to be transmitted to the Cebu and PanayIslands.Prior to the plant‘s commencement of operations, EDC entered into two separate five-year ESAs with ILECO Iand VECO for 606 GWh and 635 GWh, respectively. Under the five-year agreement with ILECO I, EDCagreed to sell specified amounts of electric energy, or contract energy, to ILECO I each year from NNGP. Asthe seller, EDC is obliged to, among other things, maintain and operate all facilities and equipment necessary forthe fulfillment of the agreement and ensure that the supply of electricity is in accordance with good utilitypractice and relevant laws and regulations. Pursuant to the ESA, EDC has the obligation to enter into aconnection agreement with NGCP, to enable the plant to be connected to NGCP‘s Grid, as well as atransmission service agreement. As the purchaser of electric energy, ILECO I agreed to pay for the energysupplied by EDC. ILECO I is required to pay EDC, calculated on a monthly basis, either the contract energy permonth or the actual energy metered and delivered to ILECO I, whichever is higher, multiplied by the electricityprice. ILECO I is entitled to reduce its contract energy upon written application to EDC and payment by ILECOI of a fee computed in accordance with the terms of the ESA, subject to certain exceptions. The agreement alsocontemplates that the parties may settle their transactions within the WESM. However, in the course ofoperating the power plant in 2007, faster and larger than expected pressure drawdown, calcium carbonatedeposition, and production well casing failures observed in the geothermal reservoir resulted in a significantdrop in geothermal steam production. Consequently, the steamfield could not provide the required volume ofsteam needed to run the power plant at its rated capacity of 49.4 MW.In order to meet its obligations to ILECO I and VECO under their respective ESAs, EDC initially sourcedreplacement power from NPC and other IPPs at their respective costs. Since Green Core‘s acquisition of thePalinpinon geothermal power plants in October 2009, EDC has sourced replacement power for ILECO I fromthe Palinpinon I power plant. The VECO ESA was voluntarily terminated in October 2007 pursuant to anagreement between VECO and EDC wherein EDC paid VECO P=86 million by way of settlement.After two prolonged testing periods which were conducted from May 2009 to November 2010 and from April 5,2011 to June 30, 2011, as well as from EDC‘s analysis of completed surveys and technical data, the Companyconcluded that NNGP can only be sustainably operated at 5 to 10 MW. The second discharge testing is currentlybeing implemented to further evaluate the individual well sustainability behavior. EDC will right size the powerplant in Northern Negros depending on the results of the steamfield optimization test now being conducted.In 2009 and 2010, EDC recorded an impairment loss of P349 million and P3,390 million, respectively, for theNNGP assets. With the decommissioning of the plant, EDC made a final provision and recognized in June 2011an impairment loss of P4,998.6 million on NNGP‘s property, plant and equipment.Effective August 26, 2011, the ILECO ESA was assigned and transferred to Green Core through a Deed ofAssignment thereby transferring to Green Core all of EDC‘s rights, title, interests, benefits in and to, and theobligations under the ESA until expiration of the contract on July 25, 2012.25

Rehabilitation of BacMan I and BacMan IIOn May 5, 2010, BGI, a wholly owned subsidiary of EDC, purchased the 110 MW BacMan I power plant andthe 40 MW BacMan II power plant from NPC for US$28.25 million in a competitive bid conducted by PSALM.On September 3, 2010, pursuant to the APA dated May 5, 2010 between PSALM and BGI, PSALM turned overthe BacMan plants to BGI. The BacMan I power plant has two generating units, supplied by Ansaldo Energia,SpA. The BacMan II power plant has two generating units, manufactured by a consortium of Japanesecompanies. Due to problems with the equipment at both the BacMan I and BacMan II power plants, neitherplant has been operational since September 2006.Each of BacMan II‘s generating units, namely: Cawayan, located in Basud and Botong in Osiao, Sorsogon Cityhas a rated capacity of 20 MW. Due to a catastrophic turbine over-speed event that occurred in August 2005, theCawayan‘s steam turbine and generator unit was completely destroyed. As a result, BGI only intends tocontinue repairing and rehabilitating the 20-MW steam turbine and generator unit of the Botong plant. However,BGI will relocate this to the Cawayan site. The Botong site has been decommissioned and will be remediated ata later date.With BGI‘s rehabilitation initiatives, BacMan I was commissioned in the last quarter of 2011. However, as BGIwas commissioning the plant, it was discovered that a significant amount of additional work is still required toreturn the plant to safe and reliable operations. BGI has decided to take a more prudent approach and has electedfor a full rewind of the rotor to ensure its long-term integrity and reliability. Complete rehabilitation of the threeunits is expected by September 2012.Provision of Ancillary Services to NGCPIn 2010, following the privatization of a majority of NPC‘s power plants, NGCP began contracting for theancillary services which were traditionally provided by NPC. On April 11, 2011, FG Hydro submitted itsproposed Ancillary Services Procurement Agreement to the ERC, offering the following ancillary services:contingency reserve, dispatchable reserve, reactive power support, and black start service. Green Coresubsequently offered the same services as well as the regulating reserve service and submitted its application toERC on April 20, 2011. ERC ordered the provisional approval of the said applications for FG Hydro on June 6,2011 and Green Core on July 4, 2011. ERC‘s provisional approval for FG Hydro and Green Core was madeeffective starting July 26, 2011 and August 26, 2011, respectively.Put and Buyback of Convertible BondsOn February 11, 2008, the Company issued Convertible Bonds with an aggregate principal amount of US$260million. The Convertible Bonds bear interest at the rate of 2.5% per annum, payable semi-annually in arrears onFebruary 11 and August 11 of each year, and will be repayable in full on February 11, 2013. At the option of theBondholders, the Convertible Bonds are convertible into fully paid Common Shares at the applicable conversionprice (currently at P26.94 per option share), with a fixed exchange rate of US$1.00 to P40.55.On the Convertible Bond‘s maturity date, the Company is required to redeem the Convertible Bonds at 128% ofits principal amount. In order to save on interest and premium costs on the Convertible Bonds, the Companyopportunistically bought back the Convertible Bonds. It has bought back and cancelled US$120.5 million of theConvertible Bonds to date, at an average price of 117%.The Bondholders had the option to require the Company to redeem all or some of the Convertible Bonds as of acertain date. On February 11, 2011, the Company redeemed Convertible Bonds in the amount of US$72.5million at a price of US$578,027.75 for every US$500,000 of the Convertible Bonds. As of the date of thisProspectus, Convertible Bonds in the amount of US$67.0 million remain outstanding.26

Contracting Out of Drilling ServicesOn February 28, 2011, EDC approved the closure of its drilling operations, which are not among its corefunctions, in order to align its practices with global best practices of oil/gas and geothermal companies.Pursuant thereto, the employment of all employees of EDC‘s Well Construction Group was terminated on theground of closure and cessation of operation. The affected Well Construction Group employees were paid theappropriate separation packages. Following the closure, EDC engaged the drilling and workover services ofThermaPrime Well Services, Inc., a wholly-owned subsidiary of First Balfour Inc. FPHC, the controllingshareholder of the Company, owns 100% of First Balfour Inc. as of December 31, 2011.Potential Sale by the BG Group of its interests in Santa Rita and San LorenzoIn 2010, the BG Group began disposing of majority of its assets in its power generation business segment tofocus the group‘s development efforts on their core businesses. On September 29, 2010, the BG Group informedFPHC and the Company that it had signed a conditional sale and purchase agreement with KEPCO for the saleof the BG Group‘s 40% interests in Santa Rita and San Lorenzo for a net consideration of approximatelyUS$400 million, subject to standard completion adjustments, including interest to be paid to the BG Group uponclosing. The closing of the agreement was subject to the BG Group‘s receipt of the necessary waivers andconsents from non-recourse lenders of the Generation Subsidiaries and FPHC. The BG Group, however, failedto obtain the necessary waivers and consents. As a result, the BG Group‘s sale of its interests in Santa Rita andSan Lorenzo did not push through. Both FPHC and the Company continue to be keenly interested in the BGstake, and are diligently evaluating their rights and options in respect of the BG Group‘s contemplateddivestment of its interests in Santa Rita and San Lorenzo. FPHC and the Company intend to work towardsarriving at a mutually-beneficial arrangement with the BG Group for the orderly divestment of its interests inSanta Rita and San Lorenzo.The Bid for the 218 MW Angat Hydroelectric Power PlantOn April 28, 2010, FGNEC, a consortium formed by the Company with Ayala Corporation and Metro PacificInvestments Corporation, with each partner having a 33 1/3% share, was declared by PSALM as the secondranking bidder in the public bidding for Angat Hydro. The highest bidder was K-Water with a bid of US$441million, beating FGNEC‘s US$365 million bid and four other bidders.On May 25, 2010, the Supreme Court issued a status quo order temporarily stopping PSALM from proceedingwith the privatization of Angat Hydro. The status quo order stemmed from a case filed by the Freedom FromDebt Coalition, Initiatives for Dialogue and Empowerment Through Alternative Legal Services Inc., andAkbayan Citizen‘s Action Party and Alliance of Progressive Labor. The said organizations argued that PSALMviolated the national economy and patrimony provisions of the 1987 Philippine Constitution when it allowed K-Water to participate in the bidding process despite its being a foreign entity and that PSALM failed to fullycomply with its mandate under the EPIRA to observe transparency during the bidding process.As of the date of this Prospectus, the Supreme Court has yet to decide on the case. By virtue of the Status QuoAnte Order issued by the Supreme Court, the rights of FGNEC as the second ranking bidder have beenpreserved.Competitive StrengthsThe Company believes that the Group‘s competitive strengths include:• The largest portfolio of power plants using clean and renewable technology in the country;• A comprehensive contractual framework that provides predictable long-term cash flows;• Ownership by the Generation Subsidiaries of two efficient power plants;• Production of competitively-priced power from a diversified portfolio;27

• Favorably located power generation facilities to take advantage of the growth in Philippineelectricity consumption;• A strong track record of developing, financing, building, bidding for, and operating powergeneration projects;• Vertically-integrated through its investment in EDC;• A strong majority shareholder;• A strong and experienced management team with in-depth knowledge of the Philippine powerindustry; and• Established relationships with world-class partners.For more information, see ―Company Background — Competitive Strengths‖ on page 92 of this ProspectusBusiness StrategyThe Company intends to build on the Group‘s competitive strengths to continue to enhance the Group‘s positionas a leading IPP in the Philippines, through the implementation of the following strategies:• Continue to improve the operational efficiency of the Group‘s generation and steam assets;• Expand the Group‘s generation portfolio with particular focus on clean and renewable projects;• Diversify into complementary and synergistic businesses; and• Continue the Group‘s strategy of alliances and partnerships with stakeholders.For more information, see ―Company Background — Business Strategy‖ on page 95 of this Prospectus.Risk FactorsThe investment in the Series ―G‖ Perpetual Preferred Shares is subject to certain risks relating to: (i) theCompany or the Group; (ii) the power industry; (iii) the Philippines; (iv) the Series ―G‖ Perpetual PreferredShares; and (v) the information contained in this Prospectus and elsewhere. Some of these risks are:• The operation and development of power generation plants, steam transmission/distributionfacilities and equipment, and geothermal steamfields involve significant risks;• The operation of power generation facilities and geothermal facilities is subject to various hazardsand the Group may not be able to obtain or maintain adequate insurance which may have amaterial adverse effect on the Group‘s business, financial condition, and results of operations;• The Group‘s ability to increase revenues from power offtakers depends on the existence oftransmission infrastructure with sufficient capacity to transmit the generating capacity of itsexisting and future power projects and power plants;• All of the Generation Subsidiaries‘ and substantially all of EDC‘s revenues are attributed topayments from two offtakers, Meralco and NPC, respectively. If either Meralco or NPCexperience financial difficulties and is unable to meet its payment obligations to the GenerationSubsidiaries or EDC, the Company would be materially and adversely affected;• The Group may not successfully implement its growth strategy. To the extent that the Groupdevelops new power projects, the significant resources applied to such development may notnecessarily generate significant revenues in the future;28

• The Company has relied, and will likely continue to rely, significantly on the services of membersof its senior management team. The departure of any of these persons could adversely affect itsbusiness. Members of the Company‘s senior management team who are also FPHC employeesmay have conflicts of interest;• Failure to obtain financing or the inability to obtain financing on reasonable terms could affect theexecution of the Group‘s operations and growth plans;• EDC‘s exploration, development, and production of geothermal energy resources are subject togeological risks and uncertainties;• The Company‘s potential acquisition of the BG Group‘s stake in Santa Rita and San Lorenzo mayadversely affect the Group‘s financial position;• The Company‘s substantial indebtedness could adversely affect its financial health and ability towithstand adverse developments and prevent the Company from declaring dividends;• The Company and the members of the Group are parties to legal proceedings and may, as a result,incur substantial costs and liabilities in relation thereto;• Amendments to the EPIRA and other legal and regulatory changes could have a material adverseeffect on the Group‘s business, financial condition, and results of operations;• Meralco‘s distribution rates and Meralco and NPC‘s recovery of generation costs are regulated andreviewed by the ERC. Any negative action by the ERC could have a material adverse effect onMeralco and NPC‘s ability to meet their payment obligations under their respective PPAs and, inturn, on the Group‘s business, financial condition, and results of operations;• Trading in the WESM involves shortage-driven risks and surplus-driven risks;• Increased competition in the power industry, including competition resulting from legislative,regulatory, and industry restructuring efforts, could have a material adverse effect on the Group‘soperations and financial performance;• The ability of Philippine consumers to absorb increased electricity costs caused by higher globaloil prices and inflationary pressures may be limited;• The Group is exposed to foreign exchange risk. Fluctuations in the exchange rate between the Pesoand foreign currencies, such as the U.S. Dollar, could have a material adverse effect on theGroup‘s business, financial condition, and results of operations;• Restrictions in the Group‘s loan agreements could prevent the Company from declaring dividendson the Series ―G‖ Perpetual Preferred Shares;• There will be a delay between payment for, and trading of, the Series ―G‖ Perpetual PreferredShares on the PSE; the listing and trading of the Series ―G‖ Perpetual Preferred Shares may bedelayed or may not occur;• The Company may opt not to redeem the Series ―G‖ Perpetual Preferred Shares on the OptionalRedemption Date;• The Series ―G‖ Perpetual Preferred Shares are subordinated to the Company‘s indebtedness;• The consolidation and subsequent de-consolidation of EDC and FG Hydro may affect investors‘ability to properly evaluate the Company‘s historical financial statements;29

• The relative volatility and illiquidity of the Philippine securities market may substantially limitinvestors‘ ability to sell the Series ―G‖ Perpetual Preferred Shares at a suitable price or at a timethey desire; and• The Company‘s management has broad discretion to determine how to use the proceeds receivedfrom this Offer, and may use them in ways that may not enhance the Company‘s operating resultsor the price of the Company‘s Shares.For more information, see ―Risk Factors‖ beginning on page 66 of this Prospectus.Use of ProceedsThe Issue Price shall be at P100.00 per share. The net proceeds from the Offer are estimated to be atP6,950,358,323.12, or P9,931,837,597.31 if the Oversubscription Option is exercised in full, after deductingexpenses relating to the issuance of the Series ―G‖ Perpetual Preferred Shares.The net proceeds of the Offer will be used by the Company either for the payment of the Convertible Bond andthe partial repayment of the debt of its affiliate, Red Vulcan, or to partially fund the Company‘s acquisitions tobe undertaken directly by it, or indirectly through any of its subsidiaries or affiliates. The proceeds will likewisebe used for general corporate purposes (including working capital and business development-related expenses)(see ―Use of Proceeds‖ on page 80 of this Prospectus).Plan of DistributionThe offer by the Company of the Series "G" Perpetual Preferred Shares is purely domestic and will not includean international offering. The Company plans to issue the Series ―G‖ Perpetual Preferred Shares to institutionaland retail investors through a public offering to be conducted through the Joint Lead Underwriters. Theunderwriting and selling fees to be paid by the Company in relation to the Offer shall be equivalent to 0.40% ofthe gross proceeds of the Offer. This shall be inclusive of fees to be paid to the Joint Lead Underwriters and subunderwriters,if any, and commissions to be paid to the Trading Participants (see ―Plan of Distribution‖ on page60 of this Prospectus).The following is the expected timetable for the Offer:Dividend Rate Setting Date May 2, 2012Start of Offer Period 9:00 a.m. of May 7, 2012Deadline for Submission of Applications For Selling Agents 11:00 a.m. of May 9, 2012 For Joint Lead Underwriters 12:00 noon of May 11, 2012End of Offer Period for Joint Lead Underwriters andSelling Agents12:00 noon of May 11, 2012Date of Lodgment May 16, 2012Listing Date May 18, 201230

SUMMARY FINANCIAL INFORMATIONThe following tables present summary financial information of the Company and should be read in conjunctionwith the Auditors’ Reports and the Consolidated Financial Statements and related notes thereto contained inthis Prospectus and the sections entitled “Management’s Discussion and Analysis of Financial Condition andResults of Operations” and “Business”. The summary financial information presented below for the yearsended December 31, 2011, 2010, and 2009 was derived from the audited consolidated financial statements ofthe Company, prepared in accordance with PFRS and audited by SyCip Gorres Velayo & Co, a member firm ofErnst & Young Global Limited, in accordance with the Philippine Standards on Auditing. The summaryfinancial information set out below does not purport to project the results of operations or financial condition ofthe Company and its subsidiaries or associates for any future period or date.FG Hydro is consolidated from its date of purchase through April 2009 and EDC is consolidated fromDecember 2007 through April 2009. See “Risk Factors — Risks relating to the presentation of information inthis Prospectus” and “Management’s Discussion and Analysis of Financial Condition and Results ofOperations” on pages 78 and 176, respectively, of this Prospectus.Years Ended December 31(Amounts in U.S. Dollar and in Thousands) 2011 2010 2009REVENUESale of electricity $1,340,625 $1,169,155 $1,009,918Interest income 8,169 8,881 6,942Equity in net earnings of associates 4,970 47,729 1,167Mark-to-market gain on derivatives - net 3,734 5,395 –Others 6,032 13,118 4,089COST OF SERVICES AND EXPENSESCost of sale of electricity1,363,530 1,244,278 1,022,116Fuel cost (988,040) (821,467) (669,832)Depreciation and amortization (61,841) (54,970) (53,932)Power plant operations and maintenance (35,175) (40,220) (37,624)General and administrativeStaff costs (16,087) (16,582) (10,625)Other administrative expenses (35,101) (38,664) (37,244)OTHER CHARGES(1,136,244) (971,903) (809,257)Interest expense and financing charges (84,958) (104,222) (112,089)Foreign exchange loss – net (5,770) (5,114) (8,691)Mark-to-market loss on derivatives - net – – (922)Others (377) (213) –31

Years Ended December 31(Amounts in U.S. Dollar and in Thousands) 2011 2010 2009INCOME FROM CONTINUING OPERATIONSBEFORE INCOME TAX 136,181 162,826 91,157PROVISION FOR (BENEFIT FROM) INCOMETAXCurrent 49,063 48,848 45,492Deferred508 (7,022) (7,381)49,571 41,826 38,111NET INCOME FROM CONTINUINGOPERATIONS 86,610 121,000 53,046NET INCOME FROM DISCONTINUEDOPERATIONS – – 41,961NET INCOME $86,610 $121,000 $95,007Net income attributable to:Equity holders of the Parent Company $35,021 $70,217 $16,754Non-controlling interests 51,589 50,783 78,253$86,610 $121,000 $95,007Basic/Diluted Earnings Per Share for Net IncomeAttributable to Equity Holders of the ParentCompany $0.008 $0.021 $0.013Basic/Diluted Earnings Per Share for Net Incomefrom Continuing Operations Attributable toEquity Holders of the Parent Company $0.008 $0.021 $0.003Basic/Diluted Earnings Per Share for Net Incomefrom Discontinued Operations Attributable toEquity Holders of the Parent Company $– $– $0.010Years Ended December 31(Amounts in U.S. Dollar and in Thousands) 2011 2010 2009ASSETSCurrent AssetsCash and cash equivalents $266,141 $201,251 $125,531Receivables 192,616 87,503 121,334Inventories 69,997 51,013 65,072Other current assets 31,880 38,122 34,578Total Current Assets 560,634 377,889 346,515Noncurrent AssetsInvestments in associates 1,294,782 1,207,518 1,020,722Property, plant and equipment 520,877 580,663 562,238Goodwill and intangible assets 16,768 17,370 17,97232

Years Ended December 31(Amounts in U.S. Dollar and in Thousands) 2011 2010 2009Deferred income tax assets – net 3,210 3,794 10Other noncurrent assets 160,340 154,159 213,566Total Noncurrent Assets 1,995,977 1,963,504 1,814,508TOTAL ASSETS $2,556,611 $2,341,393 $2,161,023LIABILITIES AND EQUITYCurrent LiabilitiesAccounts payable and accrued expenses $170,655 $98,698 $104,451Dividends payable 9,687 –Income tax payable 6,058 5,253 7,543Due to related parties 6,930 6,709 6,711Derivative liabilities 2,546 – –Current portion of long-term debt 58,460 59,678 46,499Convertible bonds redeemed in 2011 – 83,134 –Convertible bonds not redeemed in 2011 – 130,149 –Philippine peso-denominated bonds – – 107,984Obligations to Gas Sellers on Annual Deficiency – – 9,378Total Current Liabilities 254,336 383,621 282,566Noncurrent LiabilitiesConvertible bonds 84,662 – 277,353Long-term debt - net of current portion 746,762 729,502 700,324Derivative liabilities 58,352 39,911 25,335Retirement liability 273 722 167Deferred income tax liabilities 4,254 10,479 18,609Other noncurrent liabilities 1,155 29,189 49,632Total Noncurrent Liabilities 895,458 809,803 1,071,420Total Liabilities 1,149,794 1,193,424 1,353,986Equity Attributable to Equity Holders of the ParentCompanyRedeemable preferred stock $38,159 $14,585 $13,561Common stock 74,701 74,697 45,915Additional paid-in capital 801,148 590,193 320,455Deposits for future stock subscription – – 93,31833

Years Ended December 31(Amounts in U.S. Dollar and in Thousands) 2011 2010 2009Accumulated share in other comprehensive losses ofassociates (33,784) (21,006) (78,516)Cumulative translation adjustments (24,504) (16,309) (9,642)Retained earnings 423,454 400,123 330,930Cost of common stock held in treasury (52,987) (52,987) (52,987)1,226,187 989,296 663,034Non-controlling Interests 180,630 158,673 144,003Total Equity 1,406,817 1,147,969 807,037TOTAL LIABILITIES AND EQUITY $2,556,611 $2,341,393 $2,161,023For the years ended December 31,2011 2010 2009Net cash provided by operating activities .............. $171,373 $254,081 $248,167Net cash used in investing activities ...................... (120,859) (107,357) (307,714)Net cash provided by (used in) financing activities 15,590 (71,449) (44,956)Effect of foreign exchange rate changes on cash and cashequivalents ........................................................ (1,214) 445 387Net increase (decrease) in cash and cash equivalents 64,890 75,720 (104,116)Cash and cash equivalents at beginning of year..... 201,251 125,531 229,647Cash and cash equivalents at end of year ............... $266,141 $201,251 $125,531Summary operating information of the CompanyThe operation of power generation facilities is subject to many hazards. The summary operating information setout below does not purport to project the operations of the power generation facilities described below for anyfuture period of time. See “Risk Factors— The operation and development of power generation plants, steamtransmission/distribution facilities and equipment, and geothermal steamfields involve significant risks” onpage 66 of this Prospectus.Years ended December 31,2009 2010 2011Installed capacity of the Group’s power plants (MW)Santa Rita………………………………………………….... 1,000 1,000 1,000San Lorenzo…………………………………………….…... 500 500 500Pantabangan-Masiway (1) ………………………………..…... 122 132 13234

Years ended December 31,2009 2010 2011Agusan Mini-Hydro………………………………………… 1.6 1.6 1.6EDC - Unified Leyte………...……...………………………. 588.4 588.4 588.4EDC - Mindanao I & II …………………………………….. 106 106 106EDC – Northern Negros (2) ……………………………..…... 49.4 49.4 -EDC - Palinpinon I & II…………………………………… 192.5 192.5 192.5EDC - Tongonan…………………………………………… 112.5 112.5 112.5EDC -BacMan………………………..…………...……… N/A 150 130Total Installed capacity of the Group’s powerplants……………………………………………………... 2,672.4 2,832.4 2,763.0Years ended December 31,2009 2010 2011Average net dependable capacity (MW)Santa Rita………………………………................................ 1,036 1,043 1,038San Lorenzo……………………………………….………... 526 524 528Pantabangan-Masiway……………………………….……... 122 132 132Agusan Mini-Hydro………………...…………………….… 1.6 1.6 1.6EDC -Unified Leyte...……………………………………… 552 511 539EDC - Mindanao I & II (3) …………...…………. ………….. 95 97 97EDC - Northern Negros (2) ……………………….………… N/A N/A N/AEDC - Palinpinon I & II (4) ………………………………….. 172 179 178EDC - Tongonan (4) …..……………………………………… 76 99 101EDC - BacMan…………………………………...………… N/A N/A N/ATotal Average NDC………………..…................................ 2,580.6 2,586.6 2,614.635

Years ended December 31,2009 2010 2011Actual energy generation (GWh)Santa Rita………………………………................................ 7,560 7,531 8,122San Lorenzo……………………………................................ 3,691 3,818 4,114Pantabangan-Masiway……………………………….……... 337 365 296Agusan Mini-Hydro………………………………………… 12 10 12EDC - Unified Leyte...………...…………………………… 4,117 3,815 3,897EDC - Mindanao I & II...…………………………………… 775 784 791EDC - Northern Negros (2) …………..…………….………… 35 38 12EDC - Palinpinon I & II (4) ……………………………..…… 1,228 1,276 1,312EDC - Tongonan (4) …..……………………………………… 469 634 603EDC - BacMan (4) ………………………………...……… N/A N/A 10Total Actual Energy Generation…………………………. 18,225 18,271 19,169Years ended December 31,2009 2010 2011Capacity factor (%)Santa Rita…………………………………………….……... 83 82 89San Lorenzo……………………………................................ 80 83 89Pantabangan-Masiway…………………………….………... 34 34 26Agusan Mini-Hydro……………………………………… 83 70 89EDC - Unified Leyte..………....….………………………… 82 76 78EDC - Mindanao I & II..…………………………….……… 90 90 92EDC - Northern Negros..…………………………………… 14 10 3EDC - Palinpinon I & II..………………...………………… 77 80 82EDC - Tongonan..…….…...……………………………...… 48 68 64EDC - BacMan.………...…………………………………... N/A N/A 1236

Years ended December 31,2009 2010 2011Minimum offtake (contracted generation) (GWh)Santa Rita (5) …………………………………………..……... 7,532 7,586 7,546San Lorenzo (5) ………………………….................................. 3,821 3,810 3,837Pantabangan-Masiway……………….................................... 228 235 242Agusan Mini-Hydro (6) ……………………………………… N/A N/A N/AEDC (Unified Leyte, NNGP, Mindanao I&II) (2 and 3) ……….. 5,157 5,186 4,721EDC (Palinpinon I & II and Tongonan) (4) .….……………… 231 1,411 1,852EDC (BacMan) (4) .….…...…………………………………... N/A N/A N/ATotal Minimum Offtake (contracted generation) (GWh) 16,969 18,228 18,198Years ended December 31,2009 2010 2011Reliability (%)Santa Rita…………………………………………….……... 98 98 99San Lorenzo………………………………………….……... 100 98 99Pantabangan-Masiway………………………….…………... 100 100 100Agusan Mini-Hydro………………………………………… 99 99 97EDC - Unified Leyte……………...………………………… 97 91 97EDC - Mindanao I & II.………….….……………………… 99 100 100EDC - Northern Negros…………….…………….………… 98 100 100EDC - Palinpinon I & II (7) ……………...….……………..… 99 94 94EDC - Tongonan (7) …………………………………….…… 96 95 100EDC - BacMan (7) ……………...….……...………………… N/A N/A 22Years ended December 31,2009 2010 2011Availability (%)Santa Rita……………………………….…………………... 94 87 95San Lorenzo…………………………….…………………... 97 88 9637

Years ended December 31,2009 2010 2011Pantabangan-Masiway……………………….……………... 77 71 82Agusan Mini-Hydro………………………………………… 97 97 94EDC - Unified Leyte…………....………...………………… 95 87 92EDC - Mindanao I & II………………………...…………… 95 99 98EDC - Northern Negros………….…….....………………… 98 100 54EDC - Palinpinon I & II (7) ……………...……......…….…… 94 90 89EDC - Tongonan (7) ……………....….........………………… 83 88 79EDC - BacMan (7) ………………………...………………… N/A N/A 19Years ended December 31,2009 2010 2011Net Heat Rate (Btu/kwh) (HHV)Santa Rita………………………………………………….... 6,576 6,586 6,718San Lorenzo…………………………………….…………... 6,646 6,649 6,712Pantabangan-Masiway………………………….…………... N/A N/A N/AAgusan Mini-Hydro………………………………………… N/A N/A N/AEDC (Unified Leyte, NNGP, Mindanao I&II)……………... N/A N/A N/AEDC (Palinpinon, Tongonan, BacMan) ……………………. N/A N/A N/ANotes:(1)(2)(3)(4)The increase in Pantabangan‘s installed capacity to 120 MW was brought about by the rehabilitation of the plant that wascompleted in mid-December 2010NNGP was put on preservation from May 28, 2008 to May 13, 2009 due to steam unavailability. After two prolonged testingperiods which were conducted from May 2009 to November 2010 and from April 5, 2011 to June 30, 2011, as well as fromEDC‘s analysis of completed surveys and technical data, EDC concluded that NNGP can only be sustainably operated at 5 to 10MW. The second discharge testing is currently being implemented to further evaluate the individual well sustainability behavior.EDC will right size the power plant in Northern Negros depending on the results of the steamfield optimization test now beingconducted.Mindanao I and Mindanao II plants‘ 2007 to 2009 data are based on a December 25 billing cycle.The Palinpinon-Tongonan and BacMan geothermal power plants were owned and operated by NPC during 1983 to 2009 and1993 to 2010, respectively. During the period, EDC billed NPC for supply of steam to the said NPC plants based on a take-orpayscheme at 75% of the rated capacity of these plants. Steam sales of Palinpinon and Tongonan to Green Core are based onactual net generation post-turnover. EDC took over and commenced operations of the Palinpinon and Tongonan plants onOctober 23, 2009 while EDC took over operations of BacMan on September 3, 2010. All of the figures indicated in the tablesabove refer to the power generation of Palinpinon-Tongonan and BacMan. However, in the case of BacMan, there were no steam38

evenues generated by the power plants as of December 31, 2011. The ongoing rehabilitation program of the BacMan powerplants is now expected to be completed within the third quarter of 2012. Figures and statistics applicable prior to turnover of thesaid power plants can be obtained from NPC and from the data in EDC‘s Geothermal Steamfields and Power Projects beginningon page 122 of this Prospectus.(5)(6)(7)The MEQ required under the Santa Rita and San Lorenzo PPAs is 83% of the average NDC over a contract year. For the purposeof this reporting, the target energy generation is also set at 83% of the average NDC over a calendar year.No minimum offtake for Agusan Mini-Hydro. All energy generated must be taken by the offtaker.Availability and Reliability were monitored by NPC as the owner of the power plants prior to their respective turnover to EDCon October 23, 2009 for Palinpinon and Tongonan and on September 3, 2010 for BacMan. In 2011, the Availability andReliability of BacMan were only from November to December.39

TERMS AND CONDITIONS OF THE OFFERThe following does not purport to be a complete listing of all the rights, obligations, and privileges attaching toor arising from the Series “G” Perpetual Preferred Shares. Some rights, obligations, or privileges may befurther limited or restricted by other documents and subject to final documentation. Prospective investors areenjoined to perform their own independent investigation and analysis of the Company and the Series “G”Perpetual Preferred Shares. Each prospective investor must rely on its own appraisal of the Company and theSeries “G” Perpetual Preferred Shares and its own independent verification of the information containedherein and any other investigation it may deem appropriate for the purpose of determining whether to invest inthe Series “G” Perpetual Preferred Shares and must not rely solely on any statement or the significance,adequacy, or accuracy of any information contained herein. The information and data contained herein are nota substitute for the prospective investor’s independent evaluation and analysis.I. MAJOR TERMS AND CONDITIONS OF THE ISSUEIssuerIssue / Issue SizeOversubscription OptionPar ValueIssue PriceFirst Gen Corporation (―First Gen‖)An issue of up to 70,000,000 cumulative, non-voting, non-participating,non-convertible peso-denominated Series ―G‖ perpetual preferred shares(the ―Series ―G‖ Perpetual Preferred Shares‖)In the event of oversubscription, the Issue Manager, and SoleBookrunner, with the consent of the Issuer, reserves the right to increasethe Issue Size by up to an additional 30,000,000 shares.P10.00 per shareP100.00 per shareIssue Date May 18, 2012Dividend RateBase RateDividend Rate Step-UpAs and when declared by the Issuer‘s Board of Directors (the ―Board‖),cash dividends on the Series ―G‖ Perpetual Preferred Shares shall be at afixed rate per annum calculated in respect of each Series ―G‖ PerpetualPreferred Share by reference to the Issue Price thereof. The DividendRate, determined via bookbuilding process and set on the Dividend RateSetting Date, is 7.7808% p.a., computed as the sum of the Base Rate anda margin of 1.875% p.a.The Base Rate shall be the prevailing Philippine Dealing SystemTreasury Fixing (PDST-F) 10-year treasury securities benchmark ratedisplayed under the heading ―Bid Yield‖ as published on the PDEx Page(or such successor page) of Bloomberg (or such successor electronicservice provider) at approximately 11:30 a.m., Manila time on theDividend Rate Setting Date.Unless the Series ―G‖ Perpetual Preferred Shares are redeemed in wholeby the Issuer on the first Dividend Payment Date following the 10 th yearanniversary from Issue Date (the ―Dividend Rate Step-up Date‖), thedividend rate shall be adjusted on the Dividend Rate Step-up Date to thehigher of:i. the Dividend Rate on Issue Date, or40

ii. the prevailing Philippine Dealing System Treasury Fixing (PDST-F)15-year treasury securities benchmark rate (or such successorbenchmark rate) as interpolated under the heading ―Bid Yield‖ aspublished on the PDEx Page (or such successor page) of Bloomberg(or such successor electronic service provider) at approximately11:30 am on the Dividend Rate Step-up Date, plus a spreadequivalent to 150% of the Issue Date Margin.―Issue Date Margin‖ means the difference between the DividendRate on Issue Date and the Base Rate on the Dividend Rate SettingDate.Dividend PaymentAs and when declared by the Board, cash dividends will be paid everyJanuary 25 and July 25 of each year. As and when declared, cashdividends will be paid semi-annually in arrears on the last day of eachsix-month dividend period (each a ―Dividend Payment Date‖), with theexception of the first dividend period. Dividends on the Series ―G‖Perpetual Preferred Shares will be calculated on the basis of a 180/360day basis.Cash dividends for the first dividend period (defined as the periodcommencing on Issue Date and ending on July 25, 2012, shall becomputed on the basis of actual number of days elapsed from Issue Datedivided by 360 days.If the Dividend Payment Date is not a Business Day, cash dividends willbe paid on the next succeeding Business Day, without adjustment as tothe amount of cash dividends to be paid.Conditions on Payment of CashDividendsThe declaration and payment of cash dividends on the Series ―G‖Perpetual Preferred Shares will be subject to the sole and absolutediscretion of the Board to the extent permitted by law.The Board will not declare and pay cash dividends on the Series ―G‖Perpetual Preferred Shares on any Dividend Payment Date where: (a)payment of the cash dividends would cause the Issuer to breach any ofits financial covenants; or (b) the profits available to the Issuer todistribute as cash dividends are not sufficient to enable the Issuer to payin full both the cash dividends on the Series ―G‖ Perpetual PreferredShares and cash dividends on all other preferred shares of the Issuerwhich have an equal right to cash dividends as the Series ―G‖ PerpetualPreferred Shares and which are likewise scheduled to be paid on orbefore the same date as the cash dividends on the Series ―G‖ PerpetualPreferred Shares.If the profits available to distribute as cash dividends are, in the sole andabsolute discretion of the Board, not sufficient to enable the Issuer topay in full on the same date both the cash dividends on the Series ―G‖Perpetual Preferred Shares and the cash dividends on other preferredshares that have an equal right to cash dividends as the Series ―G‖Perpetual Preferred Shares, the Issuer is required first, to pay in full, orset aside an amount equal to, all cash dividends scheduled to be paid onor before that dividend payment date on any shares with a right todividends ranking in priority to that of the Series ―G‖ Perpetual41

Preferred Shares, and all cumulated and unpaid cash dividends on saidshares, if any; and second, to pay cash dividends on the Series ―G‖Perpetual Preferred Shares and any other shares ranking equally with theSeries ―G‖ Perpetual Preferred Shares as to participation in profits prorata to the amount of the cash dividends scheduled to be paid to them.The amount scheduled to be paid will include the amount of anydividends payable on that date and any cumulated and unpaid cashdividends on any Series ―G‖ Perpetual Preferred Shares and any othershares ranking equally with the Series ―G‖ Perpetual Preferred Shares.Optional RedemptionAs and when declared by the Board, the Issuer has the option, but notthe obligation, to redeem the Series ―G‖ Perpetual Preferred Shares inwhole (but not in part) on any Dividend Payment Date following the 10 thyear anniversary from Issue Date (―Optional Redemption Date‖) at aredemption price equal to the Issue Price of the Series ―G‖ PerpetualPreferred Shares plus cumulated and unpaid cash dividends, if any, forall dividend periods up to the Optional Redemption Date.The Issuer may purchase the Series ―G‖ Perpetual Preferred Shares atany time in the open market or by public tender or by private contract atany price through the PSE. The Series ―G‖ Perpetual Preferred Shares sopurchased shall be treated as treasury shares until and unless the sameare retired, or the shares are reissued (but only upon full redemption ofthe Series ―G‖ Perpetual Preferred Shares).Sinking FundEarly Redemption Due to TaxationEarly Redemption Due to Changes inAccounting Treatment of the Series “G”Perpetual Preferred SharesThe Issuer does not intend to establish a sinking fund for the redemptionof the Series ―G‖ Perpetual Preferred Shares.If payments become subject to additional withholding or any new tax asa result of certain changes in law, rule or regulation, or in theinterpretation thereof, and such tax cannot be avoided by use ofreasonable measures available to the Issuer, the Issuer may redeem theSeries ―G‖ Perpetual Preferred Shares in whole, but not in part, havinggiven not more than 60 nor less than 30 days‘ notice prior to theintended date of redemption at the Issue Price plus all cumulated andunpaid cash dividends, if any.If an Accounting Event (as defined herein) occurs that will result in achange in the accounting treatment of the Series ―G‖ Perpetual PreferredShares, the Issuer may redeem the Series ―G‖ Perpetual Preferred Sharesin whole, but not in part, having given not more than 60 nor less than 30days‘ notice prior to the intended date of redemption at the Issue Priceplus all cumulated and unpaid cash dividends, if any.An Accounting Event shall occur if an opinion of a recognized personauthorized to provide auditing services in the Republic of the Philippinesstates that there is more than an insubstantial risk that funds raisedthrough the issuance of the Series ―G‖ Perpetual Preferred Shares mayno longer be recorded as ―equity‖ pursuant to the PFRS, or such otheraccounting standards which succeed PFRS, as adopted by the Republicof the Philippines, applied by the Issuer for drawing up its financialstatements for the relevant financial year.42

Form, Title and RegistrationThe Series ―G‖ Perpetual Preferred Shares shall be issued in scriplessform through the electronic book entry system of the PhilippineDepository and Trust Corporation (―PDTC‖) as Registrar of ScriplessSecurities for the Offer, and lodged with PDTC as Depository Agent onListing Date through PSE Trading Participants nominated by applicantsubscribers.After Listing Date, shareholders may request the Registrar of ScriplessSecurities, through their nominated PSE Trading Participant, to: (a) opena scripless registry account and have their holdings of the Series ―G‖Perpetual Preferred Shares registered under their name (―name-onregistryaccount‖), or (b) issue stock certificates evidencing theirinvestment in the Series ―G‖ Perpetual Preferred Shares (―UpliftmentRequest‖). Any costs in relation to such registration or UpliftmentRequest shall be for the account of the requesting shareholder.Legal title to the Series ―G‖ Perpetual Preferred Shares will be shown inan electronic register of shareholders (the ―Registry of Shareholders‖)which shall be maintained by the Registrar of Scripless Securities (the―Registrar‖). The Registrar shall send a transaction confirmation adviceconfirming every receipt or transfer of the Series ―G‖ PerpetualPreferred Shares that is effected in the Registry of Shareholders (at thecost of the requesting shareholder). The Registrar shall send (at the costof the Issuer) at least once every quarter a statement of account to allshareholders named in the Registry of Shareholders, except certificatedshareholders and depository participants, confirming the number ofSeries ―G‖ Perpetual Preferred Shares held by each shareholder onrecord in the Registry of Shareholders. Such statement of account shallserve as evidence of ownership of the relevant shareholder as of a givendate thereof. Any request by shareholders for certifications, reports orother documents from the Registrar, except as provided herein, shall befor the account of the requesting shareholder.Selling and Transfer RestrictionsInitial placement of the Series ―G‖ Perpetual Preferred Shares andsubsequent transfers of interests in the same shall be subject to thenormal selling restrictions for listed securities as may prevail in thePhilippines from time to time.Title and TransferTaxationLegal title to the Series ―G‖ Perpetual Preferred Shares shall pass byendorsement and delivery to the transferee and registration in theRegistry of Shareholders to be maintained by the Registrar. Settlementof the Series ―G‖ Perpetual Preferred Shares in respect of such transferor change of title to the Series ―G‖ Perpetual Preferred Shares, includingthe settlement of documentary stamp tax, if any, arising from subsequenttransfers, shall follow the transfer of title and settlement procedures forlisted securities in the PSE.All payments by the Issuer in respect of the Series ―G‖ PerpetualPreferred Shares are to be made free and clear of any deductions orwithholding for or on account of any present or future taxes or dutiesimposed by or on behalf of the Republic of the Philippines, includingbut not limited to, documentary stamp, value added or any similar tax or43

other taxes and duties, including interest and penalties. If such taxes orduties are imposed, the Issuer will pay additional amounts so thatholders of the Series ―G‖ Perpetual Preferred Shares will receive the fullamount of the relevant payment which otherwise would have been dueand payable. Notwithstanding the foregoing, however, the Issuer shallnot be liable for: (a) the applicable final withholding tax or any creditablewithholding tax on dividends earned on the Series ―G‖ PerpetualPreferred Shares prescribed under the National Internal Revenue Code of1997, as amended, (b) expanded value added tax which may be payableby any holder of the Series ―G‖ Perpetual Preferred Shares on any amountto be received from the Issuer under the Issue, or (c) any withholding taxon any amount payable to any holder of the Series ―G‖ PerpetualPreferred Shares or any entity which is a non-resident foreign corporation.Provided, furthermore, that all sums payable by the Issuer to tax-exemptentities shall be paid in full without deductions for taxes, duties,assessments or governmental charges provided said entities presentsufficient proof of such tax-exempt status from the tax authorities.Documentary stamp tax (―DST‖) for the primary issue of the Series ―G‖Perpetual Preferred Shares shall be for the Issuer‘s account.The standard taxes imposed under the National Internal Revenue Codeof 1997, as amended, and taxes and fees applicable to the secondary saleor transfer of the Series ―G‖ Perpetual Preferred Shares by a Series ―G‖Perpetual Preferred Shareholder shall be for the account of the saidshareholder.II.FEATURES OF THE PERPETUAL PREFERRED SHARESStatusDividend CumulativeThe Series ―G‖ Perpetual Preferred Shares will constitute the direct andunsecured subordinated obligations of the Issuer ranking at least paripassu in all respects and ratably without preference of priority amongthemselves and with all other preferred shares issued by the Issuer.Cash dividends on the Series ―G‖ Perpetual Preferred Shares will becumulative. If for any reason the Board does not declare cash dividendson the Series ―G‖ Perpetual Preferred Shares for a dividend period, theIssuer will not pay cash dividends on the Dividend Payment Date forthat dividend period. However, on any future Dividend Payment Dateon which cash dividends are declared, holders of the Series ―G‖Perpetual Preferred Shares must receive the cash dividends due them onsuch Dividend Payment Date as well as all cash dividends cumulatedand unpaid to the holders of the Series ―G‖ Perpetual Preferred Sharesprior to such Dividend Payment Date.So long as any shares of the Series ―G‖ Perpetual Preferred Shares areoutstanding, and unless all cumulated dividends in respect of the Series―G‖ Perpetual Preferred Shares for all dividend periods since Issue Datehave been declared and paid in full, in no event shall (i) any dividendswhatsoever (other than stock dividends) be paid, or set aside for44

payment, or other distributions be made, on any shares of common stockor any series of preferred share junior to the Series ―G‖ PerpetualPreferred Shares either as to dividends or upon liquidation, dissolutionor winding up, or (ii) any shares of common stock or any series ofpreferred shares ranking on liquidation junior to the Series ―G‖Perpetual Preferred Shares be purchased, redeemed, retired or otherwisefor valuable consideration.No Voting RightsNon-ParticipatingNon-ConvertibleNo Pre-emptive RightsRights of Holders of the Series “G”Perpetual Preferred Shares in the eventof Liquidation or DissolutionHolders of the Series ―G‖ Perpetual Preferred Shares will not be entitledto vote at the Issuer‘s stockholders‘ meetings, except as otherwiseprovided by law.Holders of the Series ―G‖ Perpetual Preferred Shares shall not beentitled to participate in any other or future dividends beyond the cashdividends specifically payable on the Series ―G‖ Perpetual PreferredShares.Holders of the Series ―G‖ Perpetual Preferred Shares shall have no rightto convert the Series ―G‖ Perpetual Preferred Shares to any otherpreferred shares or Common Shares or any type of security of the Issuer.Holders of the Series ―G‖ Perpetual Preferred Shares will have no preemptiverights to subscribe to any shares (including, without limitation,treasury shares) that will be issued by the Issuer.In the event of a return of capital in respect of the Issuer‘s winding up orotherwise (whether voluntarily or involuntarily) (but not on aredemption or purchase by the Issuer of any of its share capital), theholders of the Series ―G‖ Perpetual Preferred Shares at the timeoutstanding will be entitled to receive, in Philippine Pesos out of theIssuer‘s assets available for distribution to shareholders, together withthe holders of any other of the Issuer‘s shares ranking, as regardsrepayment of capital, pari passu with the Series ―G‖ Perpetual PreferredShares and before any distribution of assets is made to holders of anyclass of the Issuer‘s shares ranking junior to the Series ―G‖ PerpetualPreferred Shares as regards repayment of capital, liquidatingdistributions in an amount equal to the Issue Price or P100.00 per Series―G‖ Perpetual Preferred Share plus an amount equal to any cumulatedbut unpaid dividends in respect of the previous dividend periods and anycumulated and unpaid cash dividends for the then-current dividendperiod up to (and including) the date of any such return of capital. If,upon any return of capital in the Issuer‘s winding up, the amountpayable with respect to the Series ―G‖ Perpetual Preferred Shares andany other of the Issuer‘s shares ranking as to any such distribution paripassu with the Series ―G‖ Perpetual Preferred Shares are not paid in full,the holders of the Series ―G‖ Perpetual Preferred Shares and of suchother shares will share ratably in any such distribution of the Issuer‘sassets in proportion to the full respective preferential amounts to whichthey are entitled. After payment of the full amount of the liquidatingdistribution to which they are entitled, the holders of the Series ―G‖Perpetual Preferred Shares will have no right or claim to any of theIssuer‘s remaining assets and will not be entitled to any furtherparticipation or return of capital in a winding up.45

Governing LawThe Series ―G‖ Perpetual Preferred Shares will be issued and the termsthereof will be construed pursuant to the laws of the Republic of thePhilippines.III. OTHER TERMS OF THE OFFEROffer PeriodThe Offer Period shall commence at 9:00 a.m. on May 7, 2012 and endat 12:00 noon on May 11, 2012. The Company, the Issue Manager andSole Bookrunner, and the Joint Lead Underwriters reserve the right toextend or terminate the Offer Period with the approval of the SEC andthe PSE.Applications to subscribe to the Series ―G‖ Perpetual Preferred Shares(each an ―Application‖) must be received by the Receiving Agent, notlater than 11:00 a.m., Manila time on May 9, 2012 if filed through aSelling Agent, or not later than 12:00 noon Manila time on May 11,2012 if filed directly with a Joint Lead Underwriter. Applicationsreceived thereafter or with incomplete and insufficient documents and/orfull payments will be rejected. Applications shall be consideredirrevocable upon submission to any Selling Agent or Joint LeadUnderwriter, and shall be subject to the terms and conditions of theOffer as stated in this Prospectus and in the application to subscribe andpurchase form (the ―Application Form‖).Minimum Subscription to the Series“G” Perpetual Preferred SharesEligible InvestorsEach Application shall be for a minimum of 500 Series ―G‖ PerpetualPreferred Shares, and thereafter, in multiples of 10 Series ―G‖ PerpetualPreferred Shares. No Application for multiples of any other number ofSeries ―G‖ Perpetual Preferred Shares will be considered. Once theSeries ―G‖ Perpetual Preferred Shares are listed, trading of the sameshall be in multiples of ten Series ―G‖ Perpetual Preferred Shares.The Series ―G‖ Perpetual Preferred Shares may be owned or subscribedto by any person, partnership, association or corporation regardless ofnationality, provided that at any time, at least 60% of the outstandingcapital stock of the Company shall be owned by citizens of thePhilippines or by partnerships, associations or corporations at least 60%of whose voting stock or voting power is owned and controlled bycitizens of the Philippines. In addition, under certain circumstances theCompany or the Joint Lead Underwriters may reject an Application orreduce the number of Series ―G‖ Perpetual Preferred Shares applied forsubscription or purchase.Law may restrict subscription to the Series ―G‖ Perpetual PreferredShares in certain jurisdictions. Foreign investors interested insubscribing or purchasing the Series ―G‖ Perpetual Preferred Sharesshould inform themselves of the applicable legal requirements under thelaws and regulations of the countries of their nationality, residence ordomicile, and as to any relevant tax or foreign exchange control lawsand regulations affecting them personally. Foreign investors, bothcorporate and individual, warrant that their purchase of the Series ―G‖Perpetual Preferred Shares will not violate the laws of their jurisdictionand that they are allowed to acquire, purchase and hold the Series ―G‖46

Perpetual Preferred Shares.Procedure for ApplicationApplication Forms may be obtained from a Joint Lead Underwriter orSelling Agent. All applications to subscribe to the Series ―G‖ PerpetualPreferred Shares shall be evidenced by the Application Form, dulyexecuted in each case by an authorized signatory of the applicant andaccompanied by two (2) completed signature cards, the correspondingpayment for the Series ―G‖ Perpetual Preferred Shares covered by theApplication Form and all other required documents including documentsrequired for registry with the Registrar and Depository Agent. The dulyexecuted Application Form and required documents should be submittedto the Joint Lead Underwriters or Selling Agents on or prior to the setdeadline. If the applicant is a corporation, partnership, or trust account,the Application Form must be accompanied by the followingdocuments:A certified true copy of the applicant‘s latest articles ofincorporation and by-laws and other constitutive documents(each as amended to date);A certified true copy of the applicant‘s SEC certificate ofregistration; andA duly notarized corporate secretary‘s certificate setting forththe resolution of the applicant‘s board of directors or equivalentbody authorizing the purchase of the Series ―G‖ PerpetualPreferred Shares indicated in the application, the designatedsignatories authorized for the purpose, including theirrespective specimen signatures.Payment for the Series “G” PerpetualPreferred SharesThe Series ―G‖ Perpetual Preferred Shares must be paid in full uponsubmission of the Application.Payment shall be in the form of a Metro Manila clearingCashier’s/Manager’s or corporate check or personal check drawnagainst a bank account with a Bangko Sentral ng Pilipinas-authorizedagent bank located in Metro Manila and dated as of the date ofsubmission of the Application Form covering the entire number ofSeries ―G‖ Perpetual Preferred Shares covered by the same Application.Checks should be made payable to ―First Gen Preferred SharesOffer”. Cash payments will not be accepted.Applicants submitting their application to any of the Joint LeadUnderwriters may remit payment for their Series ―G‖ PerpetualPreferred Shares through the Real Time Gross Settlement facility of theBSP to the Joint Lead Underwriter to whom such application wassubmitted or via direct debit to their deposit account maintained with theJoint Lead Underwriter.Acceptance / Rejection of ApplicationsThe actual number of Series ―G‖ Perpetual Preferred Shares that anApplicant will be allowed to subscribe to is subject to the confirmationof the Joint Lead Underwriters. The Company reserves the right toaccept or reject, in whole or in part, or to reduce any Application due toany grounds specified in the Underwriting Agreement entered into by47

the Company, the Issue Manager and the Joint Lead Underwriters.Applications which were unpaid or where payments were insufficientand those that do not comply with the terms of the Offer shall berejected. Moreover, any payment received pursuant to the Applicationdoes not mean approval or acceptance by the Company of theApplication.An Application, when accepted, shall constitute an agreement betweenthe Applicant and the Company for the subscription to the Series ―G‖Perpetual Preferred Shares at the time, in the manner and subject toterms and conditions set forth in the Application Form and thosedescribed in this Prospectus. Notwithstanding the acceptance of anyApplication by the Company, the actual subscription by the Applicantfor the Series ―G‖ Perpetual Preferred Shares will become effective onlyupon listing of the Series ―G‖ Perpetual Preferred Shares on the PSE andupon the obligations of the Joint Lead Underwriters under theUnderwriting Agreement becoming unconditional and not beingsuspended, terminated or cancelled, on or before the Listing Date, inaccordance with the provision of the said agreement. If such conditionshave not been fulfilled on or before the periods provided above, allApplication payments will be returned to the Applicants without interest.Refunds of Application PaymentsRegistration of Foreign InvestmentsTentative Listing and Trading DateReceiving AgentRegistrar of Scripless Securities andDepository AgentStock Transfer AgentIn the event that the number of Series ―G‖ Perpetual Preferred Shares tobe allotted to an Applicant, as confirmed by a Joint Lead Underwriter, isless than the number covered by its Application, or if an Application iswholly or partially rejected by the Company, then the Company, throughthe Receiving Agent, shall refund, without interest, within five (5)Banking Days from the end of the Offer Period, all, or a portion of thepayment corresponding to the number of Series ―G‖ Perpetual PreferredShares wholly or partially rejected. All refunds shall be made throughthe Joint Lead Underwriter or Selling Agent with whom the Applicanthas filed the Application.The BSP requires that investments in shares of stock funded by inwardremittance of foreign currency be registered with the BSP if the foreignexchange needed to service capital repatriation or dividend remittancewill be sourced from the domestic banking system. The registration withthe BSP of all foreign investments in the Series ‖G‖ Perpetual PreferredShares shall be the responsibility of the foreign investor.The Series ―G‖ Perpetual Preferred Shares are expected to be listed onthe PSE on May 18, 2012. Trading of the Series ―G‖ Perpetual PreferredShares shall commence on the same date. Shareholders may trade theirSeries ―G‖ Perpetual Preferred Shares by giving the appropriate writteninstructions to any Trading Participant with whom they maintain anaccount.BDO Unibank, Inc.Philippine Depository and Trust CorporationSecurities Transfer Services, Inc.48

Paying AgentOffer PeriodSecurities Transfer Services, Inc.The Offer is scheduled as follows:Start of Offer Period 9:00 a.m. of May 7, 2012Deadline for Submission of ApplicationsFor SellingAgents/TradingParticipantsFor Joint LeadUnderwriters11:00 a.m. of May 9, 201212:00 noon of May 11, 2012End of Offer Period for Joint LeadUnderwriters and Selling Agents12:00 noon of May 11, 2012Date of Lodgment May 16, 2012Listing Date May 18, 201249

DESCRIPTION OF THE SECURITIESThe following is general information relating to the Company’s capital stock and does not purport to be acomplete listing of all the features, rights, obligations, or privileges of the Series “G” Perpetual PreferredShares, and is qualified in its entirety by reference to applicable provisions of the Company’s amended articlesof incorporation and amended by laws, as well as the Deed Poll and the Stock Transfer, Receiving and PayingAgency Agreement. Some rights, obligations, or privileges may be further limited or restricted by otherdocuments.Share CapitalAs of the date of this Prospectus, the authorized capital stock of the Company is P8.60 billion divided into fivebillion Common Shares with a par value of P1.00 per share, two and a half billion VPS (which are the Series―A‖ to ―E‖ Preferred Shares) with a par value of P0.50 per share, 100 million Series ―F‖ Perpetual PreferredShares with par value of P10.00 per share, and 135 million Series ―G‖ Perpetual Preferred Shares with a parvalue of P10.00 per share. As of the date of this Prospectus, the Company has 4,965,121,660 outstanding shares,comprised of 3,362,817,768 Common Shares, 1,468,553,892 VPS, 100,000,000 Series ―F‖ Perpetual PreferredShares and 33,750,000 Series ―G‖ Perpetual Preferred Shares. The Company holds 279,406,700 CommonShares in treasury which are considered to be issued but not outstanding.The Offer consists of an offering of 70,000,000 Series ―G‖ Perpetual Preferred Shares, with an OversubscriptionOption of up to an additional 30,000,000 Series ―G‖ Perpetual Preferred Shares to be offered from theCompany‘s authorized but unissued capital stock at the Issue Price of P100.00 per Series ―G‖ PerpetualPreferred Share, with gross proceeds to be received by the Company pursuant to the Offer totalingapproximately P7,000,000,000.00 or P10,000,000,000.00 in the event the Oversubscription Option is exercisedin full. An aggregate of 103,750,000 or, in the event of an Oversubscription, 133,750,000 Series ―G‖ PerpetualPreferred Shares will be outstanding after the completion of the Offer.The following table summarizes the capital structure of the Company as of the date of this Prospectus:AuthorizedCapitalClass No. of Shares Par Value (P) Amount (P)Common 5,000,000,000 1.00 5,000,000,000.00Preferred (A)0.50 0.00Preferred (B) 1,000,000,0000.50 500,000,000.00Preferred (C) 0.50 0.00Preferred (D) 0.50 0.00Preferred (E) 1,500,000,000 0.50 750,000,000.00Preferred (F) 100,000,000 10.00 1,000,000,000.00Preferred (G) 135,000,000 10.00 1,350,000,000.00TOTAL 7,735,000,000 8,600,000,000.00SubscribedCapitalClass No. of Shares Par Value (P) Amount (P)Common 3,362,817,768 1.00 3,362,817,768.00Preferred (A) 0 0.50 0.00Preferred (B) 1,000,000,000 0.50 500,000,000.00Preferred (C) 0 0.50 0.00Preferred (D) 0 0.50 0.00Preferred (E) 468,553,892 0.50 234,276,946.00Preferred (F) 100,000,000 10.00 1,000,000,000.00Preferred (G) 33,750,000 1 10.00 337,500,000.00TOTAL 4,965,121,660 5,434,594,714.0050

Note(1)This includes the 33,750,000 Series ―G‖ Perpetual Preferred Shares which were issued to FPHC in connection with the Company‘sapplication to increase its authorized capital stock from P7.25 billion to P8.60 billion. The increase in authorized capital stock was approvedby the SEC on March 13, 2012. FPHC‘s subscription was fully paid on February 27, 2012.After the Offer, and assuming the Oversubscription Option is exercised in full, the Company‘s total issued andoutstanding shares will be as follows:Class No. of Shares Par Value (P) Amount (P)Common 3,362,817,768 1.00 3,362,817,768.00Preferred (A) 0 0.50Preferred (B) 1,000,000,000 0.50 500,000,000.00Preferred (C) 0 0.50 0.00Preferred (D) 0 0.50 0.00Preferred (E) 468,553,892 0.50 234,276,946.00Preferred (F) 100,000,000 10.00 1,000,000,000.00Preferred (G) 133,750,000 2 10.00 1,337,500,000.00TOTAL 5,065,121,660 6,434,594,714.00Common SharesThe Common Shares have a par value of P1.00 per share and are voting. All of the Company‘s issued CommonShares (outstanding Common Shares plus Common Shares held in treasury) are fully paid and non-assessable.All documentary stamp taxes due on the issuance of all issued Common Shares have been fully paid.VotingAt each meeting of the shareholders, every stockholder entitled to vote on a particular question or matterinvolved shall be entitled to one vote for each share of stock standing in his name in the books of the Companyat the time of the closing of the transfer books for such meeting.In accordance with Section 24 of the Corporation Code, at each election of directors, every stockholder entitledto vote at such election shall have the right to vote, in person or by proxy, the number of shares owned by him asof the relevant record date for as many persons as there are directors to be elected and for whose election he hasa right to vote, or to cumulate his votes by giving one candidate the number of votes equal to the number ofdirectors to be elected multiplied by the number his shares shall equal or by distributing such votes on the sameprinciple among any number of candidates as the stockholder shall see fit.Dividend RightsThe Board of Directors is authorized to declare dividends. A cash dividend declaration does not require anyfurther approval from the shareholders. A stock dividend declaration requires the further approval ofshareholders holding or representing not less than two-thirds of the Company‘s outstanding capital stock. TheCorporation Code defines the term ―outstanding capital stock‖ to mean the ―total shares of stock issued tosubscribers or stockholders, whether or not fully or partially paid (as long as there is a binding subscriptionagreement), except treasury shares‖. Such shareholders‘ approval may be given at a general or special meetingduly called for such purpose.Under the Corporation Code, the Company may not make any distribution of dividends other than out of itsunrestricted retained earnings.2This includes the 33,750,000 Series “G” Perpetual Preferred Shares which were issued to FPHC in connection with the Company’sapplication to increase its authorized capital stock from P7.25 billion to P8.60 billion. The increase in authorized capital stock wasapproved by the SEC on March 13, 2012. FPHC’s subscription was fully paid on February 27, 2012.51

Subject to the preferential dividend rights of the VPS and the Perpetual Preferred Shares, the Company‘sdividend policy entitles holders of Common Shares to receive annual cash dividends equivalent to 30% of theprior year‘s recurring net income based on the recommendation of the Board of Directors, after taking intoconsideration factors such as, but not limited to, debt service requirements, the implementation of businessplans, operating expenses, budgets, funding for new investments, appropriate reserves, and working capital. Thispolicy may be changed by the Board of Directors for whatever reason it deems necessary, reasonable, orconvenient.Under the terms of the Dual Currency Loan, the Term Loan Facility Agreement, and the Notes FacilityAgreement, the Company can only declare cash dividends when (i) the payment administration accountestablished for the relevant facility is funded for the relevant period and (ii) the debt service coverage ratio ofthe Company equals or exceeds 1.2:1. The payment administration account serves as a depositary account forthe principal and interest amortization for an upcoming interest payment date or principal repayment date tofacilitate the efficient administration and payment of amounts due under the relevant facility. It is not a securityfor the repayment of the loans.Right to Assets of the CompanySubject to the preferential rights of the holders of VPS and the Perpetual Preferred Shares described below, eachholder of a Common Share is entitled to a pro rata share in the assets of the Company available for distributionto the shareholders in the event of dissolution, liquidation, and winding up.Buyback ProgramOn May 12, 2010, a new two-year share buyback program was approved by the Board of Directors covering upto 300 million Common Shares representing approximately 9% of the then total outstanding Common Shares.The two-year period commenced on June 1, 2010 and will end on May 31, 2012. The number of shares and thebuyback period are subject to revision from time to time as circumstances may warrant, subject to properdisclosures to regulatory agencies. The Company will undertake a buyback transaction only if, and to the extentthat, the price per share is deemed extremely undervalued, share prices are considered highly volatile, or in anyother instance where the Company believes that a buyback will result in enhancing shareholder value. As of thedate of this Prospectus, there have been no stocks purchased under the program.Voting Preferred SharesAll VPS have a par value of P0.50 per share and are voting, non-participating, and non-convertible to CommonShares. Each holder of Series ―A‖ to ―D‖ VPS is entitled to receive cumulative dividends of Two Centavos(P0.02) per share. Holders of Series ―E‖ VPS are entitled to receive dividends at the dividend rate of OneCentavo (P0.01) per share.All issued and outstanding Series ―B‖ and ―E‖ VPS are currently owned by FPHC. There are no issued andoutstanding Series ―A‖, ―C‖, and ―D‖ VPS. The table below summarizes the authorized, issued and outstandingVPS as of December 31, 2011:Authorized Capital(VPS)Class No. of Shares Par Value (P) Amount (P)Preferred (A)Preferred (B)Preferred (C)Preferred (D)1,000,000,000 0.50 500,000,000.00Preferred (E) 1,500,000,000 0.50 750,000,000.00TOTAL 2,500,000,000 1,250,000,000.0052

Subscribed Capital(VPS)Class No. of Shares Par Value (P) Amount (P)Preferred (A) 0 0.50 0.00Preferred (B) 1,000,000,000 0.50 500,000,000.00Preferred (C) 0 0.50 0.00Preferred (D) 0 0.50 0.00Preferred (E) 468,553,892 0.50 234,276,946.00TOTAL 1,468,553,892 734,276,946.00All VPS can only be transferred to Philippine citizens or to corporations at least 60% of the outstanding equitycapital of which is beneficially owned by Philippine citizens, and which, in either case, are not in competitionwith FPHC or any of its affiliates.In the event of any voluntary or involuntary liquidation, dissolution, distribution of assets, or winding up of theCompany, the holders of the VPS then outstanding shall be entitled to receive out of the net assets of theCompany the amount per share fixed by the resolutions of the Board of Directors to be received by the holdersof shares of each such series on such voluntary or involuntary liquidation, dissolution, distribution of assets, orwinding up, as the case may be, for every share of their holdings of VPS, before any distribution or paymentshall be made to the holders of the Common Shares, and shall be entitled to no other or further distribution.The Series ―A‖ to ―D‖ VPS are redeemable at issue value in accordance with laws and regulations, in the eventthe Philippine Constitution is amended to remove the minimum 60% Filipino ownership requirement imposedon corporations in order to hold title to land and own and operate public utilities in the Philippines. The Series―E‖ VPS are redeemable at the option of the Company.Series “F” and Series “G” Perpetual Preferred SharesThe Perpetual Preferred SharesThe Perpetual Preferred Shares have a par value of P10.00 per share and are cumulative, non-participating inany other or future dividends beyond the cash dividends specifically payable thereon, and non-convertible toVPS or to Common Shares. Holders of the Perpetual Preferred Shares likewise have no pre-emptive rights tosubscribe to any shares (including, without limitation, treasury shares) that will be issued by the Company.VotingHolders of the Perpetual Preferred Shares are not entitled to vote at stockholders‘ meetings, except as otherwiseprovided by law.Dividend RightsAs and when declared by the Company‘s Board of Directors, cash dividends on the Perpetual Preferred Sharesshall be at a fixed rate of 8% per annum for the Series ―F‖ Perpetual Preferred Share and 7.7808% per annumfor the Series ―G‖ Perpetual Preferred Shares, in each case calculated in respect of each Perpetual PreferredShare by reference to the Issue Price of P100.00 per share. The declaration and payment of cash dividends issubject to the sole and absolute discretion of the Board to the extent permitted by law. The Board will notdeclare and pay cash dividends on the Perpetual Preferred Shares where: (a) payment of the cash dividendswould cause the Company to breach any of its financial covenants; or (b) the profits available to the Company todistribute as cash dividends are not sufficient to enable the Company to pay in full both the cash dividends onthe Perpetual Preferred Shares and cash dividends on all other preferred shares of the Company which have anequal right to cash dividends as the Perpetual Preferred Shares and which are likewise scheduled to be paid onor before the same date as the cash dividends on the Perpetual Preferred Shares.If the profits available to distribute as cash dividends are, in the opinion of the Board of Directors, not sufficientto enable the Company to pay in full on the same date both the cash dividends on the Perpetual Preferred Shares53

and the cash dividends on other preferred shares that have an equal right to cash dividends as the PerpetualPreferred Shares, the Company is required first, to pay in full, or set aside an amount equal to, all cash dividendsscheduled to be paid on or before that dividend payment date on any shares with a right to dividends ranking inpriority to that of the Perpetual Preferred Shares, and all cumulated and unpaid cash dividends on said shares, ifany; and second, to pay cash dividends on the Perpetual Preferred Shares and any other shares ranking equallywith the Perpetual Preferred Shares as to participation in profits pro rata to the amount of the cash dividendsscheduled to be paid to them. The amount scheduled to be paid will include the amount of any dividendspayable on that date and any cumulated and unpaid cash dividends on any Perpetual Preferred Shares.Cash dividends on the Perpetual Preferred Shares will be cumulative. If for any reason the Board of Directorsdoes not declare cash dividends on the Perpetual Preferred Shares for a dividend period, the Company will notpay cash dividends on the dividend payment date for that dividend period. However, on any future dividendpayment date on which cash dividends are declared, holders of the Perpetual Preferred Shares must receive thecash dividends due them on such dividend payment date as well as all cash dividends cumulated and unpaid tothe holders of the Perpetual Preferred Shares prior to such dividend payment date.RedemptionUnless the Perpetual Preferred Shares are redeemed in whole by the Company on the 7 th anniversary from issuedate, in the case of the Series ―F‖ Perpetual Preferred Shares, and on the first Dividend Payment Date followingthe 10 th year anniversary from issue date for the Series ―G‖ Perpetual Preferred Shares, the dividend rate foreach series of Perpetual Preferred Shares shall be adjusted on the respective date to the higher of:i. the applicable dividend rate on issue date, orii.the applicable prevailing Philippine Dealing System Treasury Fixing (PDST-F) 10-yeartreasury securities benchmark rate, in the case of the Series ―F‖ Perpetual Preferred Shares,and the 15-year treasury securities benchmark rate for the Series ―G‖ Perpetual PreferredShares, (or such successor benchmark rate) as interpolated under the heading ―Bid Yield‖ aspublished on the PDEx Page (or such successor page) of Bloomberg (or such successorelectronic service provider) at approximately 11:30 am on the Dividend Rate Step-up Date,plus a spread equivalent to 150% of the Issue Date Margin for the Series ―F‖ PerpetualPreferred Shares and a spread of 150 basis points for the Series ―G‖ Perpetual PreferredShares.As and when declared by the Board of Directors, the Company has the option, but not the obligation, to redeemthe Perpetual Preferred Shares in whole (but not in part) on any dividend payment date starting on the 7 th yearanniversary from Issue Date for the Series ―F‖ Perpetual Preferred Shares and on any Dividend Payment Datefollowing the 10 th year anniversary from Issue Date for the Series ―G‖ Perpetual Preferred Shares, at aredemption price equal to the Issue Price of the Perpetual Preferred Shares plus cumulated and unpaid cashdividends, if any, for all dividend periods up to the redemption date.The Company may purchase the Perpetual Preferred Shares at any time. The Perpetual Preferred Shares sopurchased shall be treated as treasury shares until and unless the same are retired or the shares are reissued (butonly upon full redemption of the Perpetual Preferred Shares).The Company may redeem the Perpetual Preferred Shares in whole, but not in part, having given not more than60 nor less than 30 days‘ notice prior to the intended date of redemption at the Issue Price plus all cumulatedand unpaid cash dividends, if any, under the following circumstances: (i) if payments become subject toadditional withholding or any new tax as a result of certain changes in law, rule or regulation, or in theinterpretation thereof, and such tax cannot be avoided by use of reasonable measures available to the Company;or (ii) if an Accounting Event occurs that will result in a change in the accounting treatment of the PerpetualPreferred Shares. An Accounting Event shall occur if an opinion of a recognized person authorized to provideauditing services in the Republic of the Philippines states that there is more than an insubstantial risk that funds54

aised through the issuance of the Perpetual Preferred Shares may no longer be recorded as ―equity‖ pursuant tothe PFRS, or such other accounting standards which succeed PFRS, as adopted by the Republic of thePhilippines, applied by the Company for drawing up its financial statements for the relevant financial year.The Company does not intend to establish a sinking fund for the redemption of the Perpetual Preferred Shares.Right to Assets of the CompanyIn the event of a return of capital in respect of the Company‘s winding up or otherwise (whether voluntarily orinvoluntarily but not on a redemption or purchase by the Company of any of its share capital), the holders of thePerpetual Preferred Shares at the time outstanding will be entitled to receive, in Philippine Pesos out of theCompany‘s assets available for distribution to shareholders, together with the holders of any other of theCompany‘s shares ranking, as regards repayment of capital, pari passu with the Perpetual Preferred Shares andbefore any distribution of assets is made to holders of any class of the Company‘s shares ranking junior to thePerpetual Preferred Shares as regards repayment of capital, liquidating distributions in an amount equal to theIssue Price or P100.00 per Perpetual Preferred Share plus an amount equal to any cumulated but unpaiddividends in respect of the previous dividend periods and any cumulated and unpaid cash dividends for the thencurrentdividend period up to (and including) the date of any such return of capital. If, upon any return of capitalin the Company‘s winding up, the amount payable with respect to the Perpetual Preferred Shares and any otherof the Company‘s shares ranking as to any such distribution pari passu with the Perpetual Preferred Shares arenot paid in full, the holders of the Perpetual Preferred Shares and of such other shares will share ratably in anysuch distribution of the Company‘s assets in proportion to the full respective preferential amounts to which theyare entitled. After payment of the full amount of the liquidating distribution to which they are entitled, theholders of the Perpetual Preferred Shares will have no right or claim to any of the Company‘s remaining assetsand will not be entitled to any further participation or return of capital in a winding up.For more information on the features of the Series ―G‖ Perpetual Preferred Shares, see ―Terms and Conditionsof the Offer‖ beginning on page 40 of this Prospectus.Warrants and Options OutstandingExecutive stock option planUnder the Company‘s ESOP, senior managers and executives of the Company, senior managers and executivesof companies of which more than 30% of the voting stock is effectively owned, directly or indirectly and legallyor beneficially, by the Company, senior managers and executives of such other companies in which theCompany owns shares as may be deemed an affiliate by the Board of Directors, and directors, officers oremployees of FPHC and its affiliates, who are nominated and awarded as such, may acquire Common Shares.The aggregate number of Common Shares that may be subject to, and issued under, awards granted pursuant tothe ESOP shall not at any time exceed 4% of the total issued and outstanding Common Shares as of any optiongrant date. Options under the ESOP vest within a five-year period, beginning from the date of acceptance of theoption and ending on the day exactly five years from the applicable option grant date.Under the July 1, 2003 option grant date, a total of 452,285 Common Shares of the Company‘s unissuedCommon Shares was reserved for the ESOP. By virtue of the Common Shares split and Common Sharesdividends declared and approved by the Board of Directors and stockholders on April 4, 2005, the number ofoptions and price per share were adjusted automatically in accordance with the terms of the ESOP. Accordingly,the number of Common Shares reserved for the ESOP was adjusted from 452,285 to 18,091,400, and theexercise price of P528.00 per share was adjusted to P13.20 per share. Of the 18,091,400 Common Sharesallocated for the ESOP, only 17,208,608 Common Shares were awarded under the July 1, 2003 option grantdate.On August 27, 2009, the SEC approved a 50% stock dividend on Common Shares, and further adjustments weremade on the number of Common Shares reserved and subscription price per share. The number of Common55

Shares allocated was increased from 18,091,400 to 27,137,100 while the subscription price per share wasreduced from P=13.20 to P=8.80.As of March 31, 2012, a total of 16,038,981 Common Shares have been issued under the ESOP, with 1,169,627Common Shares remaining vested and exercisable under the July 1, 2003 initial grant date. No furthergrants/awards have been made under the ESOP.Employee stock purchase planThe Company also has an ESPP which was approved by the Board of Directors and the shareholders of theCompany on April 4, 2005.Under the ESPP, eligible employees (who are nominated and awarded as such) of the following entities mayacquire the Common Shares:1. the Company;2. companies of which more than 30% of the voting stock is effectively owned, directly or indirectly, bythe Company; and3. such other companies in which the Company owns shares as may be deemed an affiliate by the Boardof Directors.The aggregate number of Common Shares that may be subject to, and issued under, awards granted pursuant tothe ESPP shall not at any time exceed 1% of the total issued and outstanding Common Shares as at any grantdate.The Common Shares may be acquired under the ESPP at fair market price equal to the average of the closingprices of the Common Shares on the PSE for the 20 market days immediately preceding the grant date. Underno circumstance, however, may the Common Shares be acquired at less than par. A grantee under the ESPPshall have five years from the acceptance date to complete payments on the Common Shares acquired pursuantto the plan, with a right to prepayment after two years from the appropriate acceptance date.As of the date of this Prospectus, no award or sale of Common Shares under the ESPP has been granted to anyemployee.Restriction on Transfer of SharesNo transfer of stock or interest which will reduce the ownership of Filipino citizens in the Company to less than60% of the capital stock shall be allowed or permitted to be recorded in the books of the Company unless suchtransfer shall have been first reported to and approved by the applicable government agency, if required by theirrules and regulations. In addition, all VPS are transferrable only to Philippine citizens or to corporations at least60% of the outstanding equity capital of which is beneficially owned by Philippine citizens, and which, in eithercase, are not in competition with FPHC or any of its affiliates.Pre-emptive RightsThe Corporation Code confers pre-emptive rights on shareholders of a Philippine corporation, which entitlethem to subscribe to all issues or other disposition of shares of any class by the corporation in proportion to theirrespective shareholdings, subject to certain exceptions. A Philippine corporation may provide for the exclusionof these pre-emptive rights in its articles of incorporation.The amended articles of incorporation of the Company provide that the shareholders shall not have any preemptiverights.Appraisal Rights56

Under Philippine laws, shareholders dissenting from the following corporate actions may demand payment ofthe fair value of their shares in certain circumstances:in case any amendment to the corporation‘s articles of incorporation has the effect of changing andrestricting the rights of the stockholder or class of shares, or of authorizing preferences in any respectsuperior to those of outstanding shares of any class;in case of any sale, lease, exchange, transfer, mortgage, or other disposition of all or substantially all ofthe corporate property or assets;in case of merger or consolidation;in case the corporation decides to invest its funds in another corporation or business or for any purposeother than the primary purpose; andextension or shortening of the term of corporate existenceTreasury SharesAs of the date of this Prospectus, the Company holds 279,406,700 Common Shares in treasury.Restriction on Foreign OwnershipThe Philippine Constitution and related statutes set forth restrictions on foreign ownership of companiesengaged in certain activities.In connection with the ownership of private land, Article XII, Section 7 of the Constitution, in relation toChapter 5 of Commonwealth Act No. 141, states that no private land shall be transferred or conveyed except tocitizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least60% of whose capital is owned by such citizens. As of the date of this Prospectus, several subsidiaries of theCompany own land.With regard to the transmission and distribution of natural gas, Article XII, Section 11 of the Constitution statesthat no franchise, certificate or any other form of authorization for the operation of a public utility shall begranted except to citizens of the Philippines or to corporations or associations organized under the laws of thePhilippines at least 60% of whose capital is owned by such citizens. FGHC is the grantee of a franchise fromCongress (Republic Act No. 8997) to construct, install, own, operate, and maintain a natural gas pipeline fortransportation and distribution of natural gas to different areas in Luzon island, which is considered a publicutility franchise. The franchise is effective for a period of 25 years from the effectivity of Republic Act No.8997 3 , or until April 2026. On September 6, 2005, FGHC assigned, transferred and conveyed this franchise andall rights, title, interests, privileges, and obligations thereunder to FG Pipeline.Since the Company owns, directly and indirectly, at least 60% of the outstanding capital stock of thesesubsidiaries, the Company must be deemed a Philippine National (as this term is defined under the ForeignInvestments Act of the Philippines) in order for its subsidiaries to comply with the restrictions on foreignownership of private land and in order for FGHC or FG Pipeline to preserve and exercise its rights under thefranchise.Considering the foregoing, as long as (a) the Company‘s subsidiaries own land or (b) FGHC or FG Pipelineholds and exercises the rights and privileges under a legislative franchise, foreign ownership in the Company islimited to a maximum of 40% of the Company‘s issued and outstanding capital stock and entitled to vote.Accordingly, the Company cannot allow the issuance or the transfer of shares to persons other than PhilippineNationals and cannot record transfers in books of the Company if such issuance or transfer would result in the3 Republic Act No. 8997 took effect 15 days after its publication on March 26, 2001, or on April 10, 2001.57

Company ceasing to be a Philippine National for purposes of complying with the restrictions on foreignownership discussed above.Stock Transfer AgentThe Stock Transfer Agent for the Common Shares, the VPS and the Perpetual Preferred Shares is SecuritiesTransfer Services, Inc., located at the Ground Floor, Benpres Building, Exchange Road corner Meralco Avenue,Pasig City. The Company‘s stock register is maintained at the said office of Securities Transfer Services, Inc.Minimum Public Ownership Requirement of the PSECompanies listed on the PSE are required to maintain a public float of at least 10% of their outstanding shares.Under the PSE Amended Rules on Minimum Public Ownership, listed companies are allowed a 12-month graceperiod from November 30, 2010 to comply with the prescribed minimum public float. If a listed company is notable to comply, it shall be subject to additional Annual Listing Maintenance Fees calculated based on thepercentage of shortfall in the public float and the period of non-compliance.If a listed company is not able to comply after three years from the initial 12-month grace period, the PSE couldimpose a trading suspension and initiate delisting procedures.On December 19, 2011, the SEC approved the PSE‘s proposed amendments to the Rules on Minimum PublicOwnership. Under the amended Rules on Minimum Public Ownership (which took effect on January 1, 2012), alisted company which is non-compliant with the minimum public ownership requirement may be allowed agrace period of 12 months (reckoned from the applicable time) to comply with such requirement, but whichperiod shall not be beyond December 31, 2012. Listed companies which become non-compliant with theMinimum Public Ownership on or after January 1, 2013 shall be suspended from trading for a period of notmore than six months and shall be automatically delisted if it remains non-compliant with the minimum publicownership requirement after the lapse of the suspension period.The Company is compliant with the minimum public ownership requirement of the PSE. For the period endedApril 30, 2012, the percentage of public ownership of Common Shares is 32.3%. The percentage of publicownership of Series ―F‖ Perpetual Preferred Shares is 47.6%.58

CAPITALIZATIONThe following table sets out the audited consolidated long-term debt and capitalization of the Company as ofDecember 31, 2011, and as adjusted to give effect to the issuance of the Series ―G‖ Perpetual Preferred Shares.This table should be read in conjunction with the Company‘s audited consolidated financial statements and therelated notes thereto as of and for the year ended December 31, 2011 attached to this Prospectus.As of December 31, 2011ActualAs Adjusted(in US$ thousands)Liabilities-net of debt issuance costsConvertible bonds ....................................................................................................................... 84,662 84,662Current portion of long-term debt ............................................................................................... 58,460 58,460Long-term debt (net of current portion) ...................................................................................... 746,762 746,762Total long-term debt .......................................................................................................................... 889,884 889,884Equity Attributable to Equity Holders of the Company (1)Redeemable preferred stock—P0.50 par value per share ..................................................................... 14,585 14,585Preferred stock—P10.00 par value per share ........................................................................................ 23,574 47,240Common stock—P1.00 par value per share .......................................................................................... 74,701 74,701Additional paid-in capital ..................................................................................................................... 801,148 944,852Accumulated share in other comprehensive losses of associates .......................................................... (33,784) (33,784)Cumulative translation adjustments ...................................................................................................... (24,504) (24,504)Retained earnings.................................................................................................................................. 423,454 423,454Cost of common stock held in treasury ................................................................................................. (52,987) (52,987)1,226,187 1,393,557Non-controlling Interests .................................................................................................................. 180,630 180,630Total equity ........................................................................................................................................ 1,406,817 1,574,187Total capitalization ............................................................................................................................ 2,296,701 2,464,071Note:(1)Adjusted amount as of December 31, 2011 includes the 70,000,000 Series ―G‖ Perpetual Preferred Shares that are being offeredand the 33,750,000 Series ―G‖ Perpetual Preferred Shares currently held by FPHC which were issued to FPHC in connection with theCompany‘s application to increase its authorized capital stock from P7.25 billion to P8.60 billion. The Philippine peso amounts wereconverted into US dollars using the PDS rate as of December 31, 2011 which was US$1.00: P 43.84. The increase in authorizedcapital stock was approved by the SEC on March 13, 2012. FPHC‘s subscription was fully paid on February 27, 2012.59

PLAN OF DISTRIBUTIONThe offer by the Company of the Series "G" Perpetual Preferred Shares is purely domestic and will not includean international offering. The Company plans to issue the Series ―G‖ Perpetual Preferred Shares through theJoint Lead Underwriters, namely, BDO Capital & Investment Corporation (―BDO Capital‖), BPI CapitalCorporation (―BPI Capital‖), RCBC Capital Corporation (―RCBC Capital‖) and Standard Chartered Bank(―Standard Chartered‖). BDO Capital has likewise been appointed by the Company to act as Issue Managerand Sole Bookrunner for the Offer. The Trading Participants, who are member-brokers of the PSE, shall act asSelling Agents for the Offer, pursuant to the PSE‘s rules and regulations.Obligations of the Joint Lead Underwriters and Selling AgentsIn accordance with the Underwriting Agreement to be entered into with the Company, the Joint LeadUnderwriters have agreed to underwrite up to P7,000,000,000.00 worth of Series ―G‖ Perpetual PreferredShares (if the Oversubscription Option is not exercised) on a firm basis, and to distribute and sell the Series ―G‖Perpetual Preferred Shares at the Issue Price, and subject to the satisfaction of certain conditions and inconsideration for certain fees and expenses.Each of the Joint Lead Underwriters has committed to underwrite the Offer up to the amount indicated below:BDO CapitalBPI CapitalRCBC CapitalStandard CharteredTOTALP2,500,000,000.00P1,500,000,000.00P1,500,000,000.00P1,500,000,000.00P7,000,000,000.00The Joint Lead Underwriters may enter into other sub-underwriting agreements with other underwriters whomay want to participate in the Offer. There is no agreement for any of the Joint Lead Underwriters to put back tothe Company any unsold Series ―G‖ Perpetual Preferred Shares.The Company further grants the Joint Lead Underwriters an option, exercisable within the Offer Period, tosubscribe, on a firm basis, up to an additional 30,000,000 Series ―G‖ Perpetual Preferred Shares, on the sameterms and conditions set forth in this Prospectus, solely to cover oversubscriptions, if any.The Joint Lead Underwriters are duly licensed by the SEC to engage in the underwriting or distribution of theSeries ―G‖ Perpetual Preferred Shares. The Joint Lead Underwriters may, from time to time, engage intransactions with and perform services in the ordinary course of its business for the Company or other membersof the Lopez Group.No relation exists between any of the Joint Lead Underwriters and/or the other underwriters (the Joint LeadUnderwriters and the other underwriters collectively, the ―Underwriters‖) and the Company, other than as statedin the Underwriting Agreement to be entered into by the parties and as disclosed in this Prospectus.The Underwriters do not have a contract or other arrangement with the Company under which any of theUnderwriters may put back to the Company any unsold securities of the Offer. The Underwriters do not haveany direct or indirect interest in the Company or in any securities thereof including options, warrants or rightsthereto. The Underwriters do not have any right to designate or nominate any member of the Company's Board.BDO CapitalBDO Capital is the wholly owned investment-banking subsidiary of BDO Unibank, Inc. BDO Capital is a fullserviceinvestment house primarily involved in securities underwriting and trading, loan syndication, financialadvisory, private placement of debt and equity, project finance, and direct equity investment. Incorporated inDecember 1998, BDO Capital commenced operations in March 1999.60

BPI CapitalBPI Capital is the wholly-owned investment banking subsidiary of the Bank of the Philippine Islands. BPICapital is an investment house focused on corporate finance and the securities distribution business. It beganoperations as an investment house in December 1994 and has grown to be one of the biggest investment banksin the country. As of December 31, 2011, BPI Capital had total assets of P3.0 billion and total capital funds ofP2.9 billion.RCBC CapitalRCBC Capital, a wholly-owned subsidiary of the Rizal Commercial Banking Corporation, is a full serviceinvestment house providing a complete range of investment banking and financial consultancy services whichinclude (i) underwriting of equity, quasi-equity, and debt via public offering or private placement; (ii)syndication of foreign currency and peso loan; and (iii) financial advisory service with respect to mergers andacquisitions, restructuring, company valuation and spin-offs; (iv) dealership of commercial papers and othersecurities; and (v) venture capital finance. With over 38 years of strong presence in the Philippine investmentbanking scene, RCBC Capital has established and marked its name in the industry, making it one of the top andpreferred investment houses in the country.Standard CharteredFor 140 years, Standard Chartered has maintained a presence in the Philippines, beginning with Chartered Bankof India, Australia and China in 1873. Standard Chartered Plc was formed in 1969 through a merger of twobanks: The Standard Bank of British South Africa, and the Chartered Bank of India, Australia and China. It hasa network of over 1,700 branches and outlets in more than 70 countries, making it one of the world's mostinternational banks. It operates in every Asia Pacific market, with the exception of North Korea, and some 60percent of its profits come from the Asia Pacific region. In the Philippines, the authority to operate as a universalbank was granted by the BSP to Standard Chartered Bank on June 20, 2001. The principal banking productsinclude deposits, lending and related services, treasury and capital market operations, trade services, paymentsand cash management, credit cards, and custodial services.Sale and DistributionThe distribution and sale of the Series ―G‖ Perpetual Preferred Shares shall be undertaken by the Joint LeadUnderwriters who shall sell and distribute the Series ―G‖ Perpetual Preferred Shares to third partybuyers/investors. The Joint Lead Underwriters are authorized to organize a syndicate of sub-underwriters,soliciting dealers and/or selling agents for the purpose of the Offer. Of the 70,000,000 Series ―G‖ PerpetualPreferred Shares to be offered, 80% or 56,000,000 Series ―G‖ Perpetual Preferred Shares are being offeredthrough the Joint Lead Underwriters for subscription and sale to Qualified Institutional Buyers and the generalpublic. The Company plans to make available 20% or 14,000,000 Series ―G‖ Perpetual Preferred Shares fordistribution to the respective clients of the 133 Trading Participants of the PSE, acting as Selling Agents. EachTrading Participant shall be allocated 105,260 Series ―G‖ Perpetual Preferred Shares (computed by dividing theSeries ―G‖ Perpetual Preferred Shares allocated to the Trading Participants by 133), subject to reallocation asmay be determined by the PSE. The balance of 420 Series ―G‖ Perpetual Preferred Shares shall be allocated bythe PSE among the Trading Participants. Trading Participants may undertake to purchase more than theirallocation of 105,260 shares. Any requests for shares in excess of 105,260 may be satisfied via the reallocationof any Series ―G‖ Perpetual Preferred Shares not taken up by other Trading Participants.The Company will not allocate any Series ―G‖ Perpetual Preferred Shares for the Local Small Investors. Asdefined in the PSE Revised Listing Rules, a Local Small Investor is a share subscriber whose subscription doesnot exceed P 25,000.00. The Offer will have a minimum subscription amount of P50,000.00, which is beyondthe prescribed maximum subscription amount for Local Small Investors.Prior to the close of the Offer Period, any Series ―G‖ Perpetual Preferred Shares not taken up by the TradingParticipants shall be distributed by the Joint Lead Underwriters directly to their clients and the general public.61

All Series ―G‖ Perpetual Preferred Shares not taken up by the Trading Participants, general public and the JointLead Underwriters‘ clients shall be purchased by the Joint Lead Underwriters pursuant to the terms andconditions of the Underwriting Agreement.Term of AppointmentThe engagement of the Joint Lead Underwriters shall subsist so long as the SEC‘s permit to sell the Series ―G‖Perpetual Preferred Shares remains valid, unless otherwise terminated by the Company and the Joint LeadUnderwriters.The underwriting and selling fees to be paid by the Company to the Issue Manager and Sole Bookrunner inrelation to the Offer shall be equivalent to 0.40% of the gross proceeds of the Offer. This shall be inclusive ofunderwriting fees to be paid to the Joint Lead Underwriters and sub-underwriters, if any, and sellingcommissions to be paid to the Trading Participants, which selling commissions shall be equivalent to 0.25%.The Underwriting Agreement may be terminated by the Joint Lead Underwriters prior to payment being made tothe Company of the net proceeds of the Series ―G‖ Perpetual Preferred Shares under certain circumstances suchas (a) a cancellation order from a Government authority, (b) a change or an impending change of law that wouldmaterially and adversely affect the Company‘s profitability or (c) financial, political or economic conditions inthe Philippines which would materially and adversely affect the Offer.Manner of DistributionThe Joint Lead Underwriters shall, at their discretion, determine the manner by which applications forsubscriptions to the Series ―G‖ Perpetual Preferred Shares shall be solicited, with the primary sale of the Series―G‖ Perpetual Preferred Shares to be effected only through the Joint Lead Underwriters and Selling Agents.Offer PeriodThe Offer Period shall commence at 9:00 a.m. on May 7, 2012 and end at 12:00 noon on May 11, 2012. TheCompany and the Joint Lead Underwriters reserve the right to extend or terminate the Offer Period with theapproval of the SEC and the PSE.62

DIVIDEND POLICYThe Company has a dividend policy to declare, subject to certain conditions, an annual cash dividend on itsCommon Shares equivalent to 30% of the prior year‘s recurring net income. Any such declaration of cashdividend is conditional upon the recommendation of the Board of Directors, after taking into considerationfactors such as, but not limited to, debt service requirements, the implementation of business plans, operatingexpenses, budgets, funding for new investments, appropriate reserves, and working capital. Further, thedeclaration of a cash dividend is subject to the preferential dividend rights of the VPS and the PerpetualPreferred Shares. This dividend policy may be revised by the Board of Directors for whatever reason it deemsnecessary, reasonable, or convenient.The Company declared cash dividends in 2006 and 2007 amounting to P1.4 billion or US$27 million, and P2.0billion or US$44 million, respectively, while no dividends were declared in 2008.On March 30, 2009, the Board of Directors approved the declaration of: (i) a 50% stock dividend on theCompany‘s Common Shares, to be taken out of an increase in the authorized capital stock of the Company and(ii) a 50% property dividend on the Company‘s VPS, to be taken from treasury preferred shares. Suchdeclaration of dividends and the corresponding increase in authorized capital stock and amendment to theCompany‘s articles of incorporation were approved by the stockholders of the Company on May 13, 2009. Thestock dividend (with payment date on October 7, 2009) and property dividend were approved by the SEC onAugust 27, 2009 and September 23, 2009, respectively.On October 5, 2009 and November 20, 2009, respectively, the Board of Directors and the stockholders of theCompany approved the creation of Series ―E‖ VPS, the declaration of a stock dividend on Series ―B‖ VPSconsisting of 375 million Series ―E‖ VPS, and a property dividend on VPS consisting of 467.14 million Series―B‖ VPS taken from treasury preferred shares. The property dividends were approved by the SEC onNovember 26, 2009 while the creation of Series ―E‖ VPS and the declaration of stock dividends which partiallysupported the increase in authorized capital stock of the Company were approved by the SEC on December 7,2009.On October 5, 2009 and November 20, 2009, respectively, the Board of Directors and the stockholders of theCompany likewise approved the issuance of stock dividends to FPHC consisting of 375 million Series ―E‖ VPS,as well as the reduction in the dividend rate of Series ―A‖ to ―D‖ VPS from P0.05 to P0.02 per VPS. Theissuance of stock dividends to FPHC and the reduction in the dividend rate of Series ―A‖ to ―D‖ VPS wereapproved by the SEC on December 7, 2009. Holders of the Series ―E‖ VPS are entitled to receive dividends atthe dividend rate and at such times as may be determined by the Board of Directors.The Series ―A‖ to ―E‖ VPS do not participate in dividends declared in relation to the Common Shares. OnMarch 8, 2010, the Board of Directors approved a declaration of stock dividends on Series ―E‖ VPS consistingof 93,553,892 VPS. Such declaration was approved by the stockholders on May 12, 2010 and paid on July 12,2010.On January 26, 2011, the Board of Directors approved a declaration of cash dividends on Series ―B‖ VPS in theaggregate amount of P77,761,900.00 broken down into P17,761,900.00 for 355,238,000 Series ―B‖ VPS in2008, and P20,000,000.00 for 1,000,000,000 Series ―B‖ VPS for each of 2009, 2010, and 2011. The Series ―B‖VPS are entitled to earn cumulative dividends at a rate of P0.02 per share beginning 2009 and P0.05 for theprevious years. On the same date, the Board of Directors likewise approved the dividend rate for the Series ―E‖VPS to be One Centavo (P0.01) per share.On July 5, 2011, the Board of Directors approved a declaration of cash dividends on Series ―E‖ VPS amountingto P4,685,538.92. The cash dividends declared on this date with a record date of July 19, 2011 were paid on July25, 2011.63

On December 15, 2011, the Board of Directors approved a declaration of cash dividends on Series ―B‖ VPSamounting to P20,000,000.00 for 1,000,000,000 Series ―B‖ VPS and on Series ―E‖ VPS amounting toP4,685,538.92 for 468,553,892 Series ―E‖ VPS. On the same date, the Board of Directors likewise approved adeclaration of P400,000,000.00 for 100,000,000 Series ―F‖ Perpetual Preferred Shares. The Series "F" PerpetualPreferred Shares have a coupon rate of 8% per share per annum and are entitled to receive dividends on a semiannualbasis. The cash dividends declared on this date with a record date of January 6, 2012 were paid onJanuary 25, 2012.The following table summarizes the cash dividend history of the Company since its initial public offering in2006:Declaration DatePaid toStockholders ofrecord as ofPayment Date Class AmountMay 10, 2006 June 2, 2006 June 16, 2006 common US$26.9 million(P1,404.1 millionor P1.75 pershare)August 15, 2007 September 7, 2007 September 14, 2007 common US$43.9 million(P2,025.1 millionor P2.50 pershare)August 15, 2007 September 7, 2007 September 13, 2007 Series ―B‖ VPS US$0.4 million(P18.0 million orP0.05 per share)January 26, 2011 February 9, 2011 March 7, 2011 Series ―B‖ VPS US$1.8 million(P77.8 million orP0.08 per share)July 5, 2011 July 19, 2011 July 25, 2011 Series ―E‖ VPS US$0.1 million(P4.7 million orP0.01 per share)December 15, 2011 January 6, 2012 January 25, 2012 Series ―B‖ VPS US$0.5 million(P20.0 million orP0.02 per share)Series ―E‖ VPSSeries ―F‖ PerpetualPreferred SharesUS$0.1 million(P4.7 million orP0.01 per share)US$9.2 million(P400.0 millionor P4.00 pershare)64

The following table summarizes the stock and property dividend history of the Company from 2009 onwards:Date of BoardApprovalDate of SECApprovalPaid toStockholders ofrecord as ofClass Type AmountMarch 30, 2009 August 27, 2009 September 11,2009common50% stockdividendUS$8.4 million(P405.0 million)March 30, 2009 September 23,2009May 13, 2009 preferred 50%propertydividendUS$7.6 million(P680.3 million)October 5, 2009 November 26,2009November 20,2009preferredpropertydividendUS$20.0 million(P1,787.1 million)October 5, 2009 December 7, 2009 December 7,2009preferredstockdividendUS$4.0 million(P187.5 million)65

RISK FACTORSProspective investors should carefully consider all the information contained in this Prospectus, including therisk factors described below, before making any investment decision relating to the Series “G” PerpetualPreferred Shares. However, this section entitled “Risk Factors” does not purport to disclose all the risks andother significant aspects of investing in the Series “G” Perpetual Preferred Shares. An investor shouldundertake his or her own research and study on the trading of securities before commencing any tradingactivity. He or she may request information on the Series “G” Perpetual Preferred Shares and the Companyfrom the Commission which are available to the public.The Company’s past performance is neither an indication nor a guide to its future performance. The price ofsecurities such as the Series “G” Perpetual Preferred Shares can and does fluctuate, and any individual sharemay experience upward or downward moments, and may even become valueless. There is an inherent risk thatlosses may be incurred rather than profit made as a result of buying and selling securities. There is an extra riskof losing money when securities are bought from smaller companies. There may be a big difference between thebuying price and the selling price of the Series G Perpetual Preferred Shares.The occurrence of any of the events discussed below and any additional risks and uncertainties not presentlyknown to the Company or that are currently considered immaterial could have a material adverse effect on theGroup’s business, results of operations, financial condition, and prospects and on the Series “G” PerpetualPreferred Shares, and the investors may lose all or part of their investment.An investor deals in a range of investments each of which may carry a different level of risk. An investor shouldseek professional advice if he or she is uncertain of, or has not understood any aspect of the Offer or the natureof risks involved in purchasing, holding, and potentially trading the Series “G” Perpetual Preferred Shares.Investors should undertake independent research regarding the Company, the Group, and investing in theSeries “G” Perpetual Preferred Shares before making any investment decision. Each investor should consult itsown counsel, accountant, and other advisors as to legal, tax, business, financial, and related aspects of aninvestment in the Series “G” Perpetual Preferred Shares.The risk factors discussed in this section are of equal importance and are only separated into categories foreasy reference.RISKS RELATING TO THE COMPANY OR THE GROUPRisks relating to the Company’s or the Group’s operations and growthThe operation and development of power generation plants, steam transmission/distribution facilities andequipment, and geothermal steamfields involve significant risks.The operation and development of power generation plants, steam transmission/distribution facilities andequipment, and geothermal steamfields involve significant risks, including, among others:• breakdown or failure of power generation equipment, steam supply equipment, transmission lines,pipelines, or other necessary equipment or processes, leading to unplanned outages and otheroperational issues;• flaws in the design of equipment or in the construction of the electric generation or steam supplyplant;• interruptions in fuel or steam supply or other key inputs;• problems with the quality of fuel, including natural gas and geothermal resources;66

• material changes in law or in governmental permit requirements;• operator error;• performance below expected levels of output or efficiency;• labor disputes, work stoppages, and other industrial actions by employees, directly affecting theGroup‘s plants or the operations of the Group‘s contractual counterparties;• pollution or environmental contamination, affecting the operation of the Group‘s plants;• force majeure and other catastrophic events such as fires, explosions, earthquakes, floods, and acts ofterrorism and war that could result in forced outages, personal injury, loss of life, severe damage to ordestruction of a Group‘s plant, and suspension of its operations;• planned and unplanned power outages due to maintenance, expansion, and refurbishment;• inability to obtain required governmental permits and approvals;• opposition from local communities and special interest groups;• social unrest and terrorism;• engineering and environmental problems; and• construction and operational delays, or unanticipated cost overruns.If any Group member experiences any of these or other problems, it may not be able to generate and sellelectricity and/or geothermal resources or transmit and distribute steam or electricity profitably or at all, whichmay then have an adverse effect on the Group‘s business, financial condition, and results of operations.The Company cannot assure that future occurrences of any of the events listed above or any other events of asimilar or dissimilar nature would not significantly decrease or eliminate revenues from any of its power orsteam generating assets, or significantly increase the costs of operating any such assets. If any of the Group‘sassets is unable to generate or deliver electricity or geothermal resources, as the case may be, for an extendedperiod of time as a result of any of the events described above, offtakers may not be required to make certainpayments so long as the event continues. The counterparties to the Group‘s PPAs, GRSCs, and other relatedagreements may have the right to terminate those agreements if the failure to generate or deliver electricity orgeothermal resources, as the case may be, continues beyond a specified period of time. As a consequence, theremay be no revenues from the affected asset other than the proceeds from business interruption insurance, if any,that applies to the event after the relevant waiting period. In addition, some of the PPAs have provisions thatpermit the counterparty to purchase assets of the Group upon the occurrence of an event of default at a pricewhich may not be sufficient to compensate the Group for the value of such assets.In addition, if a PPA, GRSC, or other related agreement is terminated by the counterparty thereto, the affectedparty may not be able to enter into a replacement agreement on terms as favorable as those in the terminatedagreement or with a counterparty as creditworthy as the terminating counterparty. Moreover, the occurrence ofsuch an event could lead to a default under the related project-level indebtedness (though subject to cureperiods), which could result in a loss of dividends and distributions which the Company depends on to serviceits Convertible Bonds, its P=3.75 billion loan under the Dual Currency Loan, the loans under the Term LoanFacility and the Notes Facility, and its other indebtedness and, in the event of a foreclosure by the lenders on theliens granted in connection with such non- and limited-recourse project-level indebtedness, the loss of theCompany‘s equity interests in the relevant subsidiary or power generating asset. As a result of all or any of the67

foregoing, the Company may not be able to make payments of principal, premium, if any, and/or interest on itsdebt when due, as well as dividends.The operation of power generation facilities and geothermal facilities is subject to various hazards and theGroup may not be able to obtain or maintain adequate insurance which may have a material adverse effecton the Group’s business, financial condition, and results of operations.The generation of electricity and geothermal energy involves significant hazards that could result in fires,explosions, spills, discharges, leaks, release of hazardous materials, and other unexpected or dangerousconditions, accidents, and environmental risks. Many of these events may cause personal injury and loss of life,severe damage to or destruction of the Group‘s properties and the properties of others, and environmentalpollution, and may result in the suspension of the Group‘s operations and the imposition of civil or criminalpenalties. In addition, the exploration, development, and production of geothermal energy resources are subjectto geological risks and uncertainties. Any occurrence of these or other uncertainties could materially andadversely impact the Group.Any significant interruption in the operations of any member of the Group resulting from the occurrence of suchhazards or from severe weather conditions and natural disasters, such as earthquakes, floods, and typhoons,could materially and adversely affect the Group‘s business, financial condition, and results of operations.Power generation facilities are also subject to mechanical failure and equipment shutdowns. In such situations,undamaged units may depend on or interact with damaged sections or units and, accordingly, are also subject tobeing shut down. If any such event occurs, the ability of the relevant member of the Group to supply electricityor steam to its offtaker may be materially and adversely affected. If any power or steam generation facility of amember of the Group is significantly damaged or forced to shut down for a significant period of time, it wouldhave a material adverse effect on the Group‘s business, financial condition, and results of operation.There can be no assurance that insurance proceeds received under policies maintained by the members of theGroup would adequately cover all liabilities that may be incurred or any direct or indirect costs and lossessuffered, including liabilities to and losses claimed by third parties. If any of the members of the Group suffers alarge uninsured loss or if any insured loss significantly exceeds available insurance coverage, the Group‘sbusiness, financial condition, and results of operations may be adversely affected.In addition, insurance policies for the members of the Group are subject to periodic renewal and numerousfactors outside the Group‘s control can affect market conditions, which in turn can affect the availability ofinsurance coverage as well as premiums for such policies. If the availability of insurance coverage is reducedsignificantly, the Group‘s operations may become exposed to certain risks which are not and/or cannot beinsured. Also, if insurance premium levels increase significantly, the members of the Group could incursubstantially higher costs for coverage or may decide to reduce coverage amounts, either of which could have anadverse effect on the Group‘s financial condition and results of operations.The Group’s ability to increase revenues from power offtakers depends on the existence of transmissioninfrastructure with sufficient capacity to transmit the generating capacity of its existing and future powerprojects and power plants.The transmission infrastructure in the Philippines continues to experience constraints on the amount ofelectricity that can be wheeled from power plants to offtakers. The lack of improvements in transmissioninfrastructure was caused by delays in TransCo‘s (the agency responsible for maintaining and ensuring thesufficiency of the power transmission infrastructure in the Philippines) implementation of its projects. In 2009,NGCP, a private corporation, took over the functions of the government-run TransCo.If these transmission constraints continue, the ability of offtakers such as Meralco and NPC to request dispatchfrom IPPs, such as the Generation Subsidiaries‘ and EDC‘s power plants and from any of the Group‘s futuregeneration facilities, may be restricted. This may, in turn, affect the Group‘s business and the growth of itsrevenues from the sale of electricity.68

All of the Generation Subsidiaries’ and substantially all of EDC’s revenues are attributed to payments fromtwo offtakers, Meralco and NPC, respectively. If either Meralco or NPC experience financial difficulties andis unable to meet its payment obligations to the Generation Subsidiaries or EDC, the Company would bematerially and adversely affected.The Generation Subsidiaries‘ and EDC‘s primary sources of revenue are Meralco and NPC, respectively.Meralco is committed to pay the Generation Subsidiaries for capacity and energy from the Santa Rita and SanLorenzo power plants under long-term PPAs. These PPAs are due to expire on August 16, 2025 for Santa Ritaand September 30, 2027 for San Lorenzo. On the other hand, NPC is committed to purchase electricity from thegeothermal plants of EDC under long-term PPAs, whose expiration dates range from 2022 to 2024.However, there can be no assurance that each of Meralco and NPC will be able to meet its future paymentobligations under the respective PPAs. For example, NPC has, since mid 1997, experienced financial difficultiesdue to the depreciation of the Peso against major foreign currencies, lower-than-expected electricity demand,high debt levels, and political pressure and legal challenges, which have limited NPC‘s ability to pass onincreased costs to its customers. NPC has relied on the Government, to a substantial degree, to meet itscontractual payment obligations, including its debt payments. In any case, Meralco is the largest distributionutility in the Philippines. Though it has experienced financial difficulties in the past, Meralco has always beenable to pay its obligations to the Generation Subsidiaries.As of the date of this Prospectus, NPC‘s power generation assets are the subject of an ongoing privatizationprocess conducted by PSALM. In particular, PSALM is transferring control over the trading of the energycapacities covered by existing NPC-IPP contracts to qualified IPP Administrators. Despite the foregoingprivatization process, PSALM affirmed that NPC will remain the legal counterparty to the PPAs after theappointment of the IPP Administrators and thus, NPC will remain liable for payment of fees under the PPAs.In addition, the Generation Subsidiaries and EDC also incur various costs and obligations under contracts withthird parties to meet their respective obligations to supply steam and/or electricity to Meralco and NPC. Thesecosts and obligations include fuel costs (both for fuel consumed and under ―take-or-pay‖ obligations), O&Mcosts, and debt service payments for the Generation Subsidiaries and development, production, and operatingcosts and debt service payments for EDC. The Generation Subsidiaries and EDC are directly obligated to payfor these costs and obligations, regardless of whether they can recover the same under their respective PPAs.Thus, any difficulty or inability on the part of such offtakers to meet their payment obligations under the saidagreements would require the Generation Subsidiaries or EDC to obtain funds from other sources. There can beno assurance that such alternative funding would be available, or, if the funding were available, that it would beon commercially reasonable terms. This could have a material adverse effect on the Group‘s business, financialcondition, and results of operations.The failure by the Generation Subsidiaries and EDC to meet their payment obligations under their contracts withthird parties could lead to the termination of such agreements or constitute an event of default under the terms ofthe relevant loan agreements (though subject to cure periods). This may then lead to an acceleration of suchloans, which in turn may trigger defaults in the Company‘s own loans. These events could materially andadversely affect the Company‘s business, financial condition, and results of operations.The Group may not successfully implement its growth strategy. To the extent that the Group develops newpower projects, the significant resources applied to such development may not necessarily generatesignificant revenues in the future.The Group‘s growth strategy may involve: (i) entering into strategic alliances and partnerships; (ii) substantialinvestments in new power generation facilities; and (iii) acquisitions relating to power generation and REresources. The Group‘s success in implementing this strategy, as well as the growth strategies of its varioussubsidiaries, will depend on, among other things, its own or its subsidiaries‘ ability to identify and assesspotential partners, investments, and acquisitions; successfully finance, close, and integrate such investments andacquisitions; and control costs and maintain sufficient operational and financial controls. This growth strategy69

will place significant demands on the Group‘s management and other resources. The Group‘s future growth maybe adversely affected if it is unable to make these investments or to pursue these acquisitions, or if theseinvestments and acquisitions prove unsuccessful despite the Group‘s successful development experience andtrack record. The Group is selective in its pursuit of opportunities. It prefers opportunities in renewable energy,which is granted priority dispatch and payment, among other benefits, under the Renewable Energy Act of 2008.From time to time, the Group will publicly announce potential alliances, investments and acquisitions underconsideration. As of the date of this Prospectus, the Group is evaluating several potential alliances, investmentsand acquisitions, but has not entered into any definitive commitment or agreement for any such materialinvestment, partnership, or acquisition. If general economic and regulatory conditions or market and competitiveconditions change, or if operations do not generate sufficient funds, or if other unexpected events occur, theGroup may decide to delay, modify, or forego some aspects of its growth strategies, and its future growthprospects could be adversely affected.The development of new projects by the Group is subject to substantial risks which could give rise to delays,cost overruns, unsatisfactory construction or development, or the total or partial loss of the Group‘s interest inthe project under development, construction, or expansion. Such risks to development include:• the need to incur significant expenses for preliminary engineering, permits, and legal and otherexpenses before determining whether a project is feasible, economically attractive, or capable ofbeing financed;• the length of time required to conduct geological assessments before exploratory drilling andproduction may commence;• the inability to negotiate acceptable PPAs or GRSCs;• the inability to secure adequate debt financing;• shortages and insufficient quality of equipment, materials, and labor and the breakdown or failure ofequipment or processes;• opposition from local communities and special-interest groups;• social unrest and terrorism;• engineering and environmental problems;• construction and operational delays or unanticipated cost overruns;• failure by key contractors and vendors to timely and properly perform their obligations; and,• adverse environmental and geological conditions (including inclement weather conditions).Any such delays, cost overruns, unsatisfactory construction or development, or total or partial loss of theGroup‘s interests in such projects could have a material adverse effect on the Group‘s business, financialcondition, and results of operation.The Company has relied, and will likely continue to rely, significantly on the services of members of its seniormanagement team. The departure of any of these persons could adversely affect its business. Members of theCompany’s senior management team who are also FPHC employees may have conflicts of interest.The Company has relied, and will likely continue to rely, significantly on the continued individual andcollective contributions of its senior management team. A few members of its top management, including thePresident, the Chief Executive Officer, and the Compliance Officer have been seconded from the Company‘s70

controlling shareholder, FPHC, and may be asked to return to their original employer upon 30 days‘ writtennotice. In addition, the Company‘s President is also FPHC‘s Chief Financial Officer, and there can be noassurance that he will continue to hold such dual positions.Although the Company‘s delivery and output are a result of teamwork, the loss of the services of any member ofthe Company‘s senior management or the inability to hire and retain experienced management personnel couldhave a material adverse effect on the Company‘s business and results of operations.In addition, the members of senior management who have been seconded from FPHC remain employees ofFPHC. There can be no assurance that FPHC will not influence the actions and decisions of these members ofsenior management in order to place the interests of FPHC above the interests of the Company and its othershareholders.Failure to obtain financing or the inability to obtain financing on reasonable terms could affect theexecution of the Group’s operations and growth plans.The Group‘s operations, growth and expansion plans are expected to be funded through a combination ofinternally generated funds and external fund raising activities, including debt financing. The Group‘s ability toraise additional equity financing from non-Philippine investors is subject to foreign ownership restrictionsimposed by the Philippine Constitution and applicable laws. The Group‘s continued access to debt financing asa source of funding for new projects and acquisitions and for refinancing maturing debt is subject to manyfactors, many of which are outside of the Group‘s control. For example, political instability, an economicdownturn, social unrest, changes in the Philippine regulatory environment or the bankruptcy of an unrelatedpower generation company could increase the Group‘s cost of borrowing or restrict the Group‘s ability to obtaindebt financing. In addition, recent disruptions in the capital and credit markets may continue or intensify andsuch disruptions, as a result of uncertainty or failures of significant financial institutions, could adversely affectthe Group‘s access to financing. While the Group has successfully raised funding via debt and equity despite therecent capital market disruptions, the Group cannot guarantee that it will continue to be able to arrangefinancing on acceptable terms, if at all. The inability of the Group to obtain financing from banks and otherfinancial institutions would adversely affect its ability to operate or execute its growth strategies.EDC’s exploration, development, and production of geothermal energy resources are subject to geologicalrisks and uncertainties.EDC‘s business involves the exploration, development, and production of geothermal energy resources. Theseactivities are subject to uncertainties, which may result in non-commercial wells due to, among others:insufficient steam in the drilled wells;the discovery of acidic, oversaturated, and hypersaline fluids which, using current technologies,are unsuitable in the steam generation process;the uncontrolled release of high pressure steam; andthe sudden decline in pressure and temperature.The occurrence of any of these or other uncertainties, which may occur naturally or as a result of human error,can increase EDC‘s operating costs and capital expenditures or reduce the efficiency of its steamfields andpower plants. For example, in the course of operating the NNGP in 2007, faster and larger than expectedpressure drawdown, calcium carbonate deposition, and production well casing failures observed in thegeothermal reservoir resulted in a significant drop in geothermal steam production. Consequently, the steamfieldcould not provide the required volume of steam needed to run the power plant at its rated capacity of 49.4 MW,such that EDC operated the power plant only at an average generation load of 4.9 MW in 2010. After twoprolonged testing periods which were conducted from May 2009 to November 2010 and from April 5, 2011 toJune 30, 2011, as well as from EDC‘s analysis of completed surveys and technical data, the Company concluded71

that the NNGP can only be sustainably operated at 5 to 10 MW. The second discharge testing is currently beingimplemented to further evaluate the individual well sustainability behavior. EDC will right size the power plantin Northern Negros depending on the results of the steamfield optimization test now being conducted.Given that geothermal resources are located in varied and complex geological environments, their sizes andvolumes can only be estimated. The viability of geothermal projects depends on different factors directly relatedto the geothermal resource, such as the heat content (i.e. the maximum temperature and pressure tapped by thewells) of the geothermal reservoir, chemistry of the reservoir fluids, useful life (i.e. commercially exploitablelife) of the reservoir, and operational factors relating to the extraction of geothermal fluids. EDC‘s geothermalenergy projects are thus exposed to the risk of the geothermal reservoirs not being sufficient for sustainedgeneration of the desired electrical power capacity over time and may suffer an unexpected decline in thecapacity of their respective geothermal wells even if EDC takes the necessary precautions and measures toextend and prolong the useful lies of its reservoirs. In addition, EDC may fail to find commercially viablegeothermal resources in the expected quantities and temperatures, which would adversely affect its developmentof geothermal power projects. Meanwhile, production and injection wells can require frequent maintenance orreplacement. Replacement or repair of certain equipment, vessels, or pipelines may also be necessary due tocorrosion and erosion arising from acidic and high-gas geothermal fluids. New production and injection wellsmay also be required for the maintenance of current operating levels. All these will entail substantial capitalexpenditures, which EDC annually projects for in its budget program.The Company’s potential acquisition of the BG Group’s stake in Santa Rita and San Lorenzo may adverselyaffect the Group’s financial position.On September 29, 2010, the BG Group informed FPHC and the Company that it had signed a conditional saleand purchase agreement with KEPCO for the sale of the BG Group‘s 40% indirect interest in Santa Rita and SanLorenzo for a net consideration of approximately US$400 million. The closing of the agreement was subject tothe BG Group‘s receipt of the necessary waivers and consents from non-recourse lenders of the GenerationSubsidiaries and FPHC. The BG Group, however, failed to obtain the necessary waivers and consents. As aresult, the BG Group‘s sale of its interests in Santa Rita and San Lorenzo did not push through.The Santa Rita JVA and the San Lorenzo JVA each provide for a right of first refusal to one party in case theother party intends to transfer its shareholdings in FGHC or FGP Corp., respectively. FPHC and the Companyare evaluating their rights and options in respect of the BG Group‘s possible divestment of its interests in SantaRita and San Lorenzo, including the option to purchase the BG Group‘s interests in the said projects. A decisionby the Company to purchase the BG Group‘s 40% stake in the said plants could have a material adverse effecton the Group‘s, particularly the Company‘s, financial position should the purchase of the BG Group‘s interestsin said projects prove not to be profitable. Nonetheless, the operating and financial performances of theGeneration Subsidiaries have proven to be reliable and stable since their respective dates of commercialoperations.Risks relating to the Company’s financial conditionThe Company’s substantial indebtedness could adversely affect its financial health and ability to withstandadverse developments and prevent the Company from declaring dividends.The Company has a significant amount of indebtedness and substantial debt service obligations becoming due.As of December 31, 2011, the Company had total outstanding indebtedness (which included long-term debt andbonds payable, gross of debt issuance costs) on a consolidated basis of approximately US$1.0 billion. OnJanuary 21, 2011, the Company availed an aggregate principal amount of US$142 million from the Term LoanLenders under the Term Loan Facility Agreement. The Company also availed US$51 million of the US$100million under the Notes Facility Agreement on March 29, 2011 and drew the remaining US$49 million onJanuary 2, 2012. The Company, however, redeemed US$72.5 million of its Convertible Bonds that were thesubject of the put option in February 2011 and bought back an additional US$43.5 million in 2011, US$1.072

million in January 2012 and US$2.0 in February 2012. Convertible Bonds in the amount of US$67.0 millionremains outstanding.The Company‘s substantial indebtedness could have important consequences. For example, it may, among otherthings:• require the Company to dedicate a substantial portion of its operating cash flow to making periodicprincipal and interest payments on indebtedness, thereby limiting the Company‘s ability to takeadvantage of business opportunities and placing the Company at a competitive disadvantagecompared to competitors that have less debt;• make it more difficult for the Company to satisfy its obligations with respect to indebtedness;• increase the Company‘s vulnerability to general adverse economic and industry conditions;• restrict the Company‘s ability to incur additional capital expenditures and other general corporateexpenses;• limit the Company‘s flexibility to react to changes in the power generation business and the powerindustry;• restrict the Company‘s ability to declare dividends;• require the Company to agree to additional financial covenants; and• limit the Company‘s ability to borrow additional funds in order to fund future working capital, capitalexpenditures, any future acquisitions, research, development and technology process costs, and othergeneral business requirements.Any of the above listed factors could materially and adversely affect the Company‘s results of operations,financial condition, and cash flow, and consequently, adversely affect the Company‘s ability to declaredividends on the Series ―G‖ Perpetual Preferred Shares. Moreover, despite the Company‘s current level ofindebtedness, the Company may still incur significantly more debt, which could exacerbate any or all of therisks described herein. To the extent that the Company incurs additional indebtedness or such other obligations,the risks associated with the Company‘s leverage described herein, including the Company‘s possible inabilityto service its debts, would increase. In addition, in connection with its debt financings, certain members of theGroup have been required to, and expect to continue to be required to, pledge assets or other collateral in orderto secure such debt financings. Furthermore, the Company may come under pressure to assist its associates inmeeting their debt obligations even where the Company is under no contractual obligation to assist suchassociates. For instance, the Company may have to service Red Vulcan‘s P7.6 billion debt in the event that RedVulcan‘s share in EDC dividends is not enough to fund the debt service payments of Red Vulcan that fall due.Likewise, Red Vulcan has pledged some of its interest in EDC to its lenders. In the event any third partiesenforce their security interests under such debt financings, or if lenders were to obtain ownership of an operatingcompany that is a member of the Group due to the insolvency and liquidation of an intermediate holdingcompany, such enforcement and transfer of ownership may have a material adverse effect on the Company‘sbusiness, financial condition, and results of operations.Risks relating to legal proceedings involving the Company or the GroupThe Company and the members of the Group are parties to legal proceedings and may, as a result, incursubstantial costs and liabilities in relation thereto.As of the date of this Prospectus, both the Company and the members of the Group are parties to certain legalproceedings. An adverse decision in any of the foregoing cases may subject either the Company or the relevantmember of the Group to significant costs and liabilities, which in turn, may affect the Company‘s or the Group‘sbusiness, financial condition, and results of operations. The Company and the members of the Group will73

diligently pursue and exhaust all legal remedies available to it should there be any adverse ruling in any of theselegal proceedings. For a more detailed discussion of these legal proceedings, see ―Legal Proceedings‖ on page171 of this Prospectus.RISKS RELATING TO THE POWER INDUSTRYRisks relating to the legal framework of the power industryAmendments to the EPIRA and other legal and regulatory changes could have a material adverse effect onthe Group’s business, financial condition, and results of operations.The Group‘s businesses are subject to extensive regulation in the Philippines, including the EPIRA. Anyamendments to existing rules and regulations or the enactment of new rules and regulations governing the powerindustry in the Philippines could have a material adverse effect on the Group‘s business, financial condition, andresults of operations.Meralco’s distribution rates and Meralco and NPC’s recovery of generation costs are regulated and reviewedby the ERC. Any negative action by the ERC could have a material adverse effect on Meralco and NPC’sability to meet their payment obligations under their respective PPAs and, in turn, on the Group’s business,financial condition, and results of operations.Meralco‘s and NPC‘s ability to pay the Generation Subsidiaries and EDC in accordance with the terms of theirrespective PPAs depends, in large part, on their ability to pass on their generation costs to their customers,which are regulated by the ERC. The rates Meralco and NPC charge their customers are intended to cover theirgeneration costs, and in the case of Meralco, transmission costs and distribution costs, as well as a specifiedreturn on its distribution and supply businesses. The generation costs collected by Meralco and NPC from theircustomers are subject to periodic review by the ERC.Insofar as generation costs are concerned, Meralco has historically been able to increase its rates to reflectincreases in, and recover substantially all of, its generation costs, including amounts paid to the GenerationSubsidiaries under the PPAs. For its part, NPC is authorized to effect monthly adjustments to its rates to reflectmovement in foreign exchange and fuel costs. These rate increases are subject to subsequent review by the ERC.However, there can be no assurance that Meralco and NPC will continue to be able to increase their rates torecover all of their generation costs, whether automatically as they currently do, or at all. There can likewise beno assurance that Meralco and NPC‘s ability to increase their rates to cover their generation costs will notbecome subject to prior ERC approval or if so, that the ERC will approve such rate increases or that subsequentreviews by the ERC will not result in the cancellation of any rate increases or require Meralco or NPC to refundpayments previously received from their customers. There is also no guarantee that the Group will not comeunder pressure to review or renegotiate its tariffs downward. Lastly, there can also be no assurance that any rateincreases approved by the ERC will not be overturned by Philippine courts on appeal.Meralco‘s and NPC‘s potential inability to adjust their rates to recover their generation costs could have amaterial adverse impact on Meralco‘s and NPC‘s ability to meet its payment obligations under the PPAs, whichin turn, could have a material adverse effect on the business of the Generation Subsidiaries and EDC and on theGroup‘s financial condition and results of operations.Risks relating to WESM trading and an industry transitioning towards a market oriented structureTrading in the WESM involves shortage-driven risks and surplus driven risks.There are two main categories of risks associated with trading power in the WESM. These two categories aredefined by the relative supply-demand balance in which the market is situated in - (i) Shortage-driven risks; and(ii) Surplus-driven risks.74

Shortage driven risksA market where customers experience tightness in supply exposes generators/suppliers to very little risk interms of their value-position being destroyed. Prices will always move towards increases during these relativeshortage situations wherein value for suppliers move upward. However, a ―suppliers-market‖ especially in avery politicized industry such as power, exposes these suppliers to market intervention risk wherein regulatorybodies will interfere (directly or indirectly) to dictate prices and dispatch of power plants. Consumer outrage,triggered by extremely high prices, may lead to attempts of suspending the market and reverting to subsidizedrates regimes and uneconomical dispatch schemes which will cause value-destructive market distortions.Surplus-driven risksA market in a surplus situation exposes suppliers to competitive pressures where the risk associated with a pricewaris more real and present. A surplus tends to bring spot market prices to reflect marginal cost of producingpower. Through WESM, one of the main features of a market-oriented structure is the establishment of a meritorderdispatch scheme wherein the cheaper sources of power, such as power produced from geothermal andhydroelectric energy, are more assured of kWh sales than the more expensive power providers. A supplier canmitigate this risk significantly by contracting bulk of its capacity to offtakers to protect against low spot prices.However, it is noteworthy to state that mitigating against such risks also caps a supplier‘s ability to takeadvantage of price spikes caused by temporary shortages in the market.Increased competition in the power industry, including competition resulting from legislative, regulatory, andindustry restructuring efforts, could have a material adverse effect on the Group’s operations and financialperformance.In recent years, the Government has sought to implement measures designed to establish a competitive energymarket. These measures include the planned privatization of approximately 70% of the NPC-owned andcontrolled power generation facilities and the grant of a concession to operate transmission facilities to a privatecorporation, as well as the establishment of the WESM. The move towards a more competitive environmentcould result in the emergence of new and numerous competitors. These competitors may have greater financialresources and may have more extensive operational experience and other capabilities than the Group, givingthem the ability to respond to operational, technological, financial, and other challenges more quickly than theGroup. These competitors may therefore be more successful than the Group in acquiring existing powergeneration facilities or in obtaining financing for, and the construction of, new power generation facilities. Thetype of fuel that competitors use for their generation facilities may also allow them to produce electricity at alower cost and sell electricity at a lower price. The Group may therefore be unable to meet the competitivechallenges it will face.The restructuring of the Philippine power industry will change the competitive landscape of the industry andsuch changes are expected to affect the Group‘s financial position, results of operations, and cash flow invarious ways. For example, the establishment and operation of the WESM has resulted in a more transparentprice setting mechanism. Although Meralco and NPC will continue to be obligated to pay for capacity andenergy at the tariffs set under the terms of their respective PPAs, if market-based wholesale prices significantlydiffer from the contractual tariffs, the Group may come under pressure to review or renegotiate their tariffsdownward. In such event, the Group‘s financial position and results of operations could be adversely affected.In addition, and to the extent that distribution utilities agree to purchase power (that could otherwise bepurchased from the Group‘s portfolio or from generation facilities that may be acquired or developed by theGroup) from other generation companies, the ability of the Group to increase its revenues and sell additionalelectricity to distribution utilities through new generation facilities, as the case may be, would be adverselyaffected.75

RISKS RELATING TO THE PHILIPPINESThe ability of Philippine consumers to absorb increased electricity costs caused by higher global oil pricesand inflationary pressures may be limited.According to the National Statistical Coordination Board, the Philippine economy grew by only 3.7% in the 4 thquarter of 2011, falling from the 4 th quarter 2010 growth of 7.6%. Moreover, with the Middle Eastern turmoilthreatening global oil supply, crude oil prices have recently been increasing. With this, the U.S. EnergyInformation Administration expects the price of West Texas Intermediate crude oil to average about US$106 perbarrel in 2012, US$11 higher than the average price last year. As such, the average Philippine consumer may notbe able to absorb continued increases in electricity costs resulting from, among other things, higher global oilprices and other inflationary pressures. Higher fuel prices may result in increased generation costs, which mayin turn result in increased tariffs charged by the Company‘s offtakers to levels that consumers are unable toabsorb. Though electricity is considered a commodity, this may result in customers reducing their electricityconsumption, as well as affect their ability to pay the Company‘s offtakers in a timely fashion, which could, inturn, have a material adverse effect on the Company‘s business, financial condition, and results of operations.The Group is exposed to foreign exchange risk. Fluctuations in the exchange rate between the Peso andforeign currencies, such as the U.S. Dollar, could have a material adverse effect on the Group’s business,financial condition, and results of operations.The Group‘s exposure to currency exchange rate fluctuations is primarily a result of the translation exposureassociated with the preparation of the respective financial statements of the members of the Group and exposureassociated with transactions in currencies other than in the functional currency of the respective Group member.For the Company, in particular, its functional currency is the U.S. Dollar as most of its revenues and liabilitiesare denominated in U.S. Dollars. However, in limited instances where it incurs liabilities in Pesos, theappreciation of the Peso vis-à-vis the U.S. Dollar can reduce its ability to service its debt. Likewise, consideringthat the Company and the Generation Subsidiaries pay taxes and certain operating expenses in Pesos, they mayincur gains or losses as a result of movements in the foreign currency exchange rates. For the GenerationSubsidiaries, though their functional currency is the U.S. Dollar, their respective O&M Agreements are partiallypriced and denominated in Euro. Therefore, the appreciation of the Euro vis-à-vis the U.S. Dollar could increasethe Generation Subsidiaries‘ liabilities to SPOI. The Group, from time to time, enters into hedge transactions tomitigate the risk of foreign currency movements. In addition, the Generation Subsidiaries have historicallyreceived payments from Meralco in U.S. Dollars. However, should Meralco opt to deliver their payments inPesos, which is allowed under the respective PPAs, convertibility risk may arise. In the case of EDC, almost allof its revenues are denominated in Pesos while it partially holds financial assets and liabilities denominated inU.S. Dollars and purchases most of its equipment in U.S. Dollars. A significant change in exchange rates canreduce its ability to service its debt and other obligations, reduce the amount of income it receives, and mayincrease its expenses.During the last decade, the Peso has experienced periods of both significant appreciation and depreciationrelative to the U.S. Dollar. There can be no assurance that the Peso will not appreciate or depreciate significantlyagainst the U.S. Dollar or other currencies in the future or that such movement will not have an adverse effecton the growth of the Philippine economy or the Group‘s financial condition.In addition, changes in currency exchange rates may result in significantly higher domestic interest rates,liquidity shortages, and capital or exchange controls. This could result in a reduction of economic activity,economic recession, sovereign or corporate loan defaults, lower deposits, and an increased cost of funds. Theforegoing consequences, if they occur, could have a material adverse effect on the Group‘s financial condition,liquidity, and results of operations.76

RISKS RELATING TO THE SERIES “G” PERPETUAL PREFERRED SHARESRestrictions in the Group’s loan agreements could prevent the Company from declaring dividends on itsSeries “G” Perpetual Preferred Shares.Under the Trust Deed dated February 11, 2008 covering the issuance of the Company‘s US$260 millionConvertible Bonds, the Company may not declare or pay any dividends (other than stock dividends) during anevent of default or if payment would result in an event of default except with the prior written consent of theBondholders who hold, represent or account for at least 51% of the aggregate outstanding principal amount ofthe Convertible Bonds. In addition, the Company is required to maintain certain financial ratios and complywith certain covenants under the Trust Agreement.Under the Dual Currency Loan, the Term Loan Facility and the Notes Facility, the Company is restricted fromdeclaring dividends except when (i) the respective payment administration accounts for each of the facilities hasbeen funded; and (ii) the debt service coverage ratio of the Company, as defined in each of the loan agreementscovering the said facilities, equals or exceeds 1.2:1.The Generation Subsidiaries‘ loan agreements also carry covenants that restrict declarations or payments ofdividends under certain circumstances, such as in an event of default or if payment would cause an event ofdefault, if certain financial ratios are not met or payment would cause them to not be met. The loan agreementslikewise require revenues of the Generation Subsidiaries to be applied toward certain expenses prior to thepayment of dividends.In addition, under the Red Vulcan Amended and Restated Omnibus Loan and Security Agreement, dividendsreceived by Red Vulcan from EDC must be used to service the amounts due under the said Agreement andprepay principal on Red Vulcan‘s debt. Therefore, dividends from EDC cannot be upstreamed to the Companywhile this loan is outstanding.These and other restrictions may prevent the Company from declaring and paying dividends to its shareholdersin the foreseeable future.The Company may opt not to redeem the Series “G” Perpetual Preferred Shares on the Optional RedemptionDate.The Company only has the option, not the obligation, to redeem the Series ―G‖ Perpetual Preferred Shares.Hence, there is no guarantee that the Company will redeem the Series ―G‖ Perpetual Preferred Shares. If theCompany opts not to make such redemption, the investors may not be able to fully recover their expectedreturns from investing in the Series ―G‖ Perpetual Preferred Shares.The Series “G” Perpetual Preferred Shares are subordinated to the Company’s indebtedness.The Company‘s obligations in respect of the Series ―G‖ Perpetual Preferred Shares are subordinated to all of theCompany‘s indebtedness, and the Company may not be able to make any payments under the Series ―G‖Perpetual Preferred Shares unless it can satisfy in full all of its other obligations that rank senior to the Series―G‖ Perpetual Preferred Shares.The Company‘s obligations under the Series ―G‖ Perpetual Preferred Shares are unsecured and may, in theevent of the winding up of the Company, rank junior in right of payment to all indebtedness of the Company andjunior in right of payment to securities of, or claims against, the Company which rank or are expressed to ranksenior to the Series ―G‖ Perpetual Preferred Shares. Accordingly, the Company‘s obligations under the Series―G‖ Perpetual Preferred Shares may not be satisfied unless the Company can satisfy in full all of its otherobligations ranking senior to the Series ―G‖ Perpetual Preferred Shares.77

RISKS RELATING TO THE PRESENTATION OF INFORMATION IN THIS PROSPECTUS ANDELSEWHEREThe consolidation and subsequent de-consolidation of EDC and FG Hydro may affect investors’ ability toproperly evaluate the Company’s historical financial statements.The Company‘s investments in EDC and FG Hydro may have a material impact on its operating results. Forinstance, on May 14, 2009, Red Vulcan, Banco de Oro Unibank, Inc., and Banco de Oro Unibank, Inc.—Trustand Investments Group entered into an Amended and Restated Loan and Security Agreement where the partiesagreed to extend the maturity of Red Vulcan‘s remaining P13.9 billion loan obligation to May 14, 2014. Underthe agreement, the loan is subject to a floating interest rate equivalent to the six-month Philippine DealingSystem Treasury-Fixing benchmark plus a margin of 2.5% and is secured by a pledge by Red Vulcan of2,454,491,730 of its common and all of its voting shares in EDC and by a pledge by the Company and PrimeTerracota of their respective shareholdings in Red Vulcan. On February 5, 2010, the outstanding loan of Bancode Oro Unibank, Inc. – Trust and Investments Group amounting to P5.3 billion was fully prepaid. In addition,prepayments amounting to P260.0 million and P713.7 million were also made on April 20, 2010 and April 11,2011 respectively. As of the date of this Prospectus, the total outstanding amount of the loan has been reduced toP7.6 billion. The loan of Red Vulcan as well as the financial results of Prime Terracota, which owns theCompany‘s interests in EDC, were consolidated with the Company‘s financial statements in 2007 and 2008, anda portion of 2009. Whereas the financial results of FG Hydro were consolidated with the Company‘s financialstatements from 2006 to 2008, and a portion of 2009. Effective May 2009, such financial results were no longerconsolidated with those of the Company. As a result, the Company‘s financial statements as of and for thetwelve-month period ended December 31, 2007 are not necessarily comparable to the financial statements as ofand for the twelve-month period ended December 31, 2008 and the Company‘s financial statements as of andfor the twelve-month period ended December 31, 2009. Similarly, the Company‘s financial statements as of andfor the year ended December 31, 2009 are not necessarily comparable to the financial statements as of and forthe year ended December 31, 2010.Hence, the consolidation and subsequent de-consolidation of EDC and FG Hydro may make it difficult to assessthe period-on-period performance of the Group and could adversely affect investors‘ ability to properly evaluatethe Company‘s historical financial statements and assess its future prospects.The relative volatility and illiquidity of the Philippine securities market may substantially limit investors’ability to sell the Series “G” Perpetual Preferred Shares at a suitable price or at a time they desire.The Philippine securities markets are substantially smaller, less liquid, and more volatile than major securitiesmarkets in the United States and other jurisdictions, and are not as highly regulated or supervised as some ofthese other markets. The Issue Price could differ significantly from the price at which the Series ―G‖ PerpetualPreferred Shares will trade subsequent to completion of the Offer. There can be no assurance that even after theSeries ―G‖ Perpetual Preferred Shares have been approved for listing on the PSE, any active trading market forthe Series ―G‖ Perpetual Preferred Shares will develop or be sustained after the Offer, or that the Issue Price willcorrespond to the price at which the Series ―G‖ Perpetual Preferred Shares will trade in the Philippine publicmarket subsequent to the Offer. There is no assurance that investors may sell the Series ―G‖ Perpetual PreferredShares at prices or at times deemed appropriate.Factors that could affect the price of the Company‘s Preferred Shares include the following:• fluctuations in the Company‘s results of operations and cash flows or those of other companies in theCompany‘s industry;• the public‘s reaction to the Company‘s press releases, announcements and filings with the SEC andPSE;• additions or departures of key personnel;78

• changes in financial estimates or recommendations by research analysts;• changes in the amount of indebtedness the Company has outstanding;• changes in general conditions in the Philippines and international economy, financial markets or theindustries in which the Company operates, including changes in regulatory requirements and changesin political conditions in the Philippines;• significant contracts, acquisitions, dispositions, financings, joint marketing relationships, jointventures or capital commitments by the Company or its competitors;• asset impairments or other charges;• developments related to significant claims or proceedings against the Company;• the Company‘s dividend policy;• future sales of the Company‘s equity or equity-linked securities; and• changes in the share prices of the Company‘s listed affiliated companies.In recent years, stock markets, including the PSE, have experienced extreme price and volume fluctuations. Thisvolatility has had a significant effect on the market price of securities issued by many companies for reasonsunrelated to the operating performance of these companies. These broad market fluctuations may adverselyaffect the market prices of the Company‘s Shares.The Company’s management has broad discretion to determine how to use the proceeds received from thisOffer, and may use them in ways that may not enhance the Company’s operating results or the price of theCompany’s Shares.The Company plans to use the net proceeds of this offering as described under ―Use of Proceeds‖. TheCompany‘s management will have broad discretion over the use and investment of the net proceeds of thisoffering, and accordingly investors in this offering will need to rely upon the judgment of the Company‘smanagement with respect to the use of proceeds with only limited information concerning management‘sspecific intentions. Nevertheless, the Company shall secure the approval of its Board of Directors for suchdeviation, adjustment or reallocation and promptly make the appropriate disclosures to the SEC and the PSE.The Company shall regularly disclose to the PSE, through the Online Disclosure System ("ODiSy"), anydisbursements from the proceeds generated from the Offer.79

USE OF PROCEEDSThe Company expects to raise gross proceeds of approximately P7.0 billion. In the event that theOversubscription Option is exercised in full, the Company expects to raise gross proceeds from the Offer ofP10.0 billion. After deducting estimated applicable taxes, underwriting, selling commissions and other expensesrelated to the Offer of approximately P 49,641,676.88, net proceeds to the Company from the Offer are expectedto be approximately P6,950,358,323.12Breakdown of Proceeds to the Company:SubscriptionAmountw/ OversubscriptionAmountGross proceeds ......................................................................................................................P 7,000,000,000.00 P 10,000,000,000.00Estimated Offer expenses .....................................................................................................P 49,641,676.88 P 68,162,402.69Estimated net proceeds .........................................................................................................P 6,950,358,323.12 P 9,931,837,597.31Breakdown of Offer Expenses of the Company:SubscriptionAmountw/ OversubscriptionAmountDocumentary Stamp Taxes ........................................................................................................P 3,500,000.00 P 5,000,000.00SEC Filing, Listing and Research Fees ..................................................................................... 2,338,150.00 3,095,650.00PSE Listing and Processing Fees ............................................................................................... 7,896,000.00 11,256,000.00Underwriter‘s Fees (1) ................................................................................................................. 30,107,526.88 43,010,752.69Estimated Legal and Other Professional Fees ........................................................................... 5,000,000.00 5,000,000.00Estimated Other Expenses ......................................................................................................... 800,000.00 800,000.00Estimated Offer Expenses .........................................................................................................P 49,641,676.88 P 68,162,402.69Notes:(1) Underwriter‘s fees are inclusive of taxes. The fees shall be netted off from the gross proceeds of the Offer.In the event that the actual expenses relating to the Offer are different from the above estimates, the actual netproceeds to the Company from the Offer may be higher or lower than the expected net proceeds set forth above.Any increase or decrease in the net proceeds to the Company shall be addressed by making a correspondingincrease or decrease, as the case may be, to the Company‘s provision for working capital requirements.80

Use of Net ProceedsEstimated Net Proceeds ....................................................................P 6,950,358,323.12 P 9,931,837,597.31Breakdown of Net Use of Proceeds for anEst. TimingAcquisitionAcquisition ......................................................................................P6,500,000,000.00 P9,500,000,000.00 2012Working Capital and other general corporatepurposes .......................................................................................P 450,358,323.12 P 431,837,597.31 2012 to 2013Breakdown of Net Use of Proceeds for theEst. TimingRepayment of DebtRedemption of the Convertible Bond (1) ………. P3,688,256,200.00 P3,688,256,200.00 1Q2013Repayment of Affiliate‘s Debt .........................................................P2,800,000,000.00 P5,800,000,000.00 4Q2012Working Capital and other general corporatepurposes .......................................................................................P 462,102,123.12 P 443,581,397.31 2012 to 2013Notes:(1) The Convertible Bond redemption value of US$85,773,400.00 was converted to Philippine Peso using US$1.00=P43.00.The net proceeds of the Offer will be used by the Company to fund the Company‘s acquisitions or pay theConvertible Bond and make a partial repayment of the debt of its affiliate, Red Vulcan. The Company‘sacquisition will be undertaken directly by it, or indirectly through any of its subsidiaries or affiliates. Should theacquisition not take place, the net proceeds of the Offer will be used to either pay the Convertible Bond orprepay the Red Vulcan debt. Banco de Oro Unibank, Inc., and Banco de Oro Unibank, Inc.—Trust andInvestments Group are the creditors of the Red Vulcan debt, while BDO Capital & Investment Corp. act as theIssue Manger, Sole Bookrunner, and one of the Joint Lead Underwriters in this Offer. For the other Joint LeadUnderwriters in this Offer, please see discussion on ―Plan of Distribution‖ on pages 60-61The proceeds of the Offer will likewise be used for general corporate purposes. These include working capital,interest expenses and business development-related expenses, the apportioning of which cannot as yet beendetermined.On February 11, 2008, the Company issued Convertible Bonds with an aggregate principal amount of US$260million. The Convertible Bonds bear interest at the rate of 2.5% per annum, payable semi-annually in arrears onFebruary 11 and August 11 of each year, and will be repayable in full on February 11, 2013. On the ConvertibleBond‘s maturity date, the Company is required to redeem the Convertible Bonds at 128% of its principalamount. In order to save on interest and premium costs on the Convertible Bonds, the Companyopportunistically bought back the Convertible Bonds. As of the date of this Prospectus, Convertible Bonds inthe amount of US$67.0 million remain outstanding.Red Vulcan is the corporate vehicle that owns a 40% economic stake/60% voting stake in EDC. To partiallyfund the purchase of said shares for a total amount of P58.5 billion, a loan was availed by the company inNovember 2007. On May 14, 2009, Red Vulcan, Banco de Oro Unibank, Inc., and Banco de Oro Unibank,Inc.—Trust and Investments Group entered into an Amended and Restated Omnibus Loan and SecurityAgreement where the parties agreed to extend the maturity of Red Vulcan‘s remaining P13.9 billion loanobligation to May 14, 2014. Under the agreement, the loan is secured by a pledge by Red Vulcan of2,454,491,730 of its common and all of its voting shares in EDC and by a pledge by the Company and PrimeTerracota of their respective shareholdings in Red Vulcan. As of the date of this Prospectus, the total81

outstanding amount of the loan is P7.6 billion at a current interest rate of 3.7%. The loan is subject to a floatinginterest rate of 6-month PDST-F plus 250 basis points and is re-priced every six months.In the section on Recent Developments, it was mentioned that the BG Group began disposing of majority of itsassets in its power generation business segment to focus the group‘s development efforts on their corebusinesses. BG Group‘s 40% interests in Santa Rita and San Lorenzo could be available for sale. (The BGGroup is a leading player in the global energy market, with business operations in more than 25 countries overfive continents. BG‘s headquarters are in United Kingdom. It is involved in all aspects of the energy sector,particularly natural gas, where it has experience across the entire gas chain – from exploration to delivery to theconsumer. BG Group is a publicly listed company on the London Stock Exchange.) The Company continues tobe keenly interested in the BG stake in the generation subsidiaries, and is diligently evaluating its rights andoptions in respect of the BG Group‘s contemplated divestment of its interests in Santa Rita and San Lorenzo.However, as of the date of this Prospectus, no agreement has been reached with the BG Group. Hence, nopurchase price can be stated.Approximately P6.5 billion of the Offer could be used to partially fund a potential acquisition of the BGGroup‘s 40% stake in Santa Rita and San Lorenzo. Should the acquisition materialize and depending on thepurchase price of the assets, the Company may need to avail of other sources of funding, such as the Company‘scash or debt financing. Total funding to be utilized for the purchase cannot as yet be determined.Should this not occur, First Gen can use the proceeds of the Offer to pay for the maturing Convertible Bondsand pay part of the Red Vulcan loan prior to its maturity. The amounts earmarked for working capital will beused for interest expenses and financing fees, administrative expenses and business development-relatedexpenses.No amount of the proceeds of the Offer will be used to reimburse any officer, director, employee or shareholderfor services rendered, assets previously transferred, money loaned or advanced or otherwise.The foregoing discussion represents a best estimate of the use of the net proceeds of the Offer based on theCompany‘s current plans and anticipated expenditures. Actual use of the net proceeds may vary from theforegoing discussion and management may find it necessary or advisable to use portions of the net proceeds ofthe Offer for other purposes. In the event that there is any change in the Company‘s use of proceeds, theCompany may temporarily reallocate the proceeds for other interim purposes, taking into consideration theprevailing business climate and the interests of the Company and the shareholders taken as a wholeIn the event of any deviation or adjustment in the planned use of proceeds, the Company shall inform theshareholders and the SEC in writing at least 30 days before its implementation. The Company shall secure theapproval of its Board of Directors for such deviation, adjustment or reallocation and promptly make theappropriate disclosures to the SEC and the PSE. The Company shall regularly disclose to the PSE, through theODiSy, any disbursements from the proceeds generated from the Offer.82

DETERMINATION OF THE ISSUE PRICEThe Issue Price of P100.00 per share is at a premium to the Series ―G‖ Perpetual Preferred Share‘s par value pershare of P10.00.The Issue Price was arrived at by dividing the desired gross proceeds of approximately P7.0 billion (or P10.0billion in the event that the Oversubscription Option is exercised in full) by the amount of Series ―G‖ PerpetualPreferred Shares allocated for the Offer.83

COMPANY BACKGROUNDDescription of the BusinessThe Company was incorporated on December 22, 1998 and is the primary holding company for the powergeneration and energy-related businesses of the Lopez Group. The Company‘s core business activity is powergeneration and steam extraction through the member companies of the Group.The Group has a portfolio of 15 power generation plants with a combined capacity of 2,763 MW, of whichapproximately 90% is contracted. The Group‘s energy generation capacity is predominantly contracted for saleunder PPAs or other energy sales agreements, with the Group‘s plants supplying electricity to a variety ofcustomers, including Meralco, NPC, electric cooperatives, and the WESM. During 2010 and 2011, the Group‘splants and steamfield operations generated a total of 18,271 GWh and 19,169 GWh of electricity, respectively.The Company believes that the Group has one of the cleanest power portfolios in the country, with its entirepower generation portfolio utilizing fuels such as natural gas, water, and geothermal steam.The Company‘s interests, direct and indirect, in the Group‘s power generation facilities consist of the following:• A 60% equity interest in the 11-year-old Santa Rita natural gas-fired power plant;• A 60% equity interest in the nine-year-old San Lorenzo natural gas-fired power plant;• A 40% equity interest, or a 69.3% effective economic interest, in the Pantabangan-Masiwayhydroelectric power plant;• A 100% equity interest in Agusan River mini-hydroelectric power plant; and• A 48.8% equity interest in the 11 integrated geothermal steamfields and power projects owned byEDC, which have a combined capacity of 1,129 MW.As of the date of this Prospectus, all of the foregoing facilities are operational. For more information on thesepower generation facilities, see discussion on ―Corporate Structure‖ on pages 106-120 of this Prospectus.As of December 31, 2010, the Company had total assets of US$2,341.4 million. Total revenue and EBITDA forthe year ended December 31, 2010 were US$1,244.3 million and US$312.9 million, respectively. As ofDecember 31, 2011, the Company had total assets of US$2,556.6 million. Total revenue and EBITDA for theyear ended December 31, 2011 were US$1,363.5 million and US$276.8 million, respectively. As of December31, 2011, the Company had a market capitalization of approximately P 49,164.1 million.The members of the Group derive a substantial portion of their respective revenue from stable long-termcontracts with proven off-takers. The Company plans to continue to capitalize on the growing need for power inthe Philippines. The country‘s comparatively low per capita electricity consumption at present leaves significantroom for demand growth. With the 2012 GDP target of 7% to 8% set by NEDA, the Philippines‘ peak demandis expected to increase. According to the 2009-2030 Power Development Plan, the DOE forecasts that peakdemand will have average annual growth rates with highs of 4%, 5%, and 5% in Luzon, Visayas, and Mindanao,respectively. Thus, aggregate peak demands are expected to reach 17,636 MW, 3,404 MW, and 3,493 MW inLuzon, Visayas, and Mindanao, respectively, by 2030. These factors, and the scarcity of new capacitycommitted to come online over the next two to three years, should provide dispatch opportunities for the Groupand other existing generators. The Company also expects to continue to benefit from the ongoing power reformcommenced by the passage of the EPIRA in June 2001. The Company believes that the privatization of thepower generation industry by PSALM has opened up direct supply opportunities while NGCP‘s takeover ofTransCo will lead to better efficiency and improved grid interconnectivity. In addition, the Company expects theGroup to benefit further from the RE Law, which took effect on January 30, 2009. The two main features of theRE Law are (i) fiscal incentives that are made available to providers of renewable energy and (ii) non-fiscal84

incentives or market mechanisms geared towards promoting and encouraging commercialization of REresources.The Company‘s head office is located at the 3rd Floor, Benpres Building, Exchange Road corner MeralcoAvenue, Pasig City, Metro Manila.The Company completed an initial public offering on February 10, 2006 and its Common Shares were listed onthe PSE on February 10, 2006, with the ticker symbol ―FGEN‖. The Series ―F‖ Perpetual Preferred Shares werelikewise listed on the PSE on November 15, 2011, with the ticker symbol ―FGENF‖. The Company‘scontrolling shareholder, with a 66.2% economic interest and a 76.5% voting interest in the Company, is FPHC.FPHC is also a listed member of the Lopez Group, having been listed on the PSE on May 23, 1963, with thestock symbol ―FPH‖. The Company‘s affiliate, EDC, was also listed on the PSE on December 13, 2006, withthe ticker symbol ―EDC‖As of the date of this Prospectus, the Company has 4,965,121,660 outstanding shares, comprising of3,362,817,768 Common Shares, 1,468,553,892 VPS, 100,000,000 Series ―F‖ Perpetual Preferred Shares and33,750,000 Series ―G‖ Perpetual Preferred Shares. The Company holds 279,406,700 Common Shares intreasury, which are considered to be issued but not outstanding.Parent Company’s SubsidiariesThe following is a list of the companies in which the Parent Company has established control:Name% of VotingInterestDescription ofIndustryPrincipal Place ofBusinessDate ofOrganizationFGRI 100Power GenerationPasig City,PhilippinesNovember 29,1978Unified 100HoldingPasig City,PhilippinesMarch 30, 1999AlliedGen PowerCorporation(―AlliedGen‖)100HoldingPasig City,PhilippinesFebruary 14, 2005First Gen LuzonPower Corp. (―FGLuzon‖)100Power GenerationPasig City,PhilippinesMay 26, 2005First Gen VisayasHydro PowerCorporation (―FGVisayas‖)100Power GenerationPasig City,PhilippinesSeptember 19,2006FGMHPC 100Power GenerationPasig City,PhilippinesSeptember 19,2006First Gen GeothermalPower Corporation(―FG Geothermal‖)100Power GenerationPasig City,PhilippinesMarch 14, 2006FGES 100 Purchase/Sale ofElectricityPasig City,PhilippinesNovember 24,2006First Gen PremierEnergy Corp. (―FGPremier‖)100Power GenerationPasig City,PhilippinesJune 28, 200785

Name% of VotingInterestDescription ofIndustryPrincipal Place ofBusinessDate ofOrganizationFirst Gen PrimeEnergy Corporation(―FG Prime‖)100Power GenerationPasig City,PhilippinesNovember 7,2007First Gen VisayasEnergy, Inc. (―FGVisayas Energy‖)100Power GenerationPasig City,PhilippinesNovember 7,2007FG Bukidnon 1 100Power GenerationPasig City,PhilippinesFebruary 9, 2005Northern Terracotta 100Power GenerationPasig City,PhilippinesSeptember 7,2010Blue Vulcan HoldingsCorporation (―BlueVulcan‖)100HoldingPasig City,PhilippinesApril 6, 2011Prime MeridianPowergenCorporation (―PrimeMeridian‖)100Power GenerationPasig City,PhilippinesAugust 8, 2011FGHC 60HoldingPasig City,PhilippinesFebruary 3, 1995FGP 2 60Power GenerationPasig City,PhilippinesJuly 23, 1997First NatGas PowerCorp.(―FNPC‖) 360Power GenerationPasig City,PhilippinesMarch 10, 2005FGPC 4 60Power GenerationPasig City,PhilippinesNovember 24,1994FG Pipeline 4 60PipelinePasig City,PhilippinesNovember 21,1996FGLand Corporation(―FG Land‖) 460HoldingPasig City,PhilippinesDecember 13,19991 Through FGRI2 Through Unified3 Through AlliedGen4 Through FGHCAll of the foregoing subsidiaries are incorporated in the Philippines.As of the date of this Prospectus, AlliedGen, FNPC, FG Luzon, FG Visayas, FGMHPC, FG Geothermal, FGPremier, FG Prime, FG Visayas Energy, Northern Terracotta, Blue Vulcan and Prime Meridian have not startedcommercial operations.86

Recent DevelopmentsIssuance of P 10 billion Series “F” Perpetual Preferred SharesOn July 25, 2011, the Company issued P10.0 billion Series ―F‖ Perpetual Preferred Shares at a dividend rate of8% per annum. The Company approved and authorized the issuance by way of private placement or issuance toQualified Buyers under Sections 10.1 (k) and (l) of the Securities Regulation Code of 100 million of its Series―F‖ Perpetual Preferred Shares with a par value of P10.00 per share and an Issue Price of P100.00 per share. TheSeries ―F‖ Perpetual Preferred Shares are cumulative, non-voting, non-participating, non-convertible and pesodenominated.On the seventh anniversary of the issue date of the Series ―F‖ Perpetual Preferred Shares or anydividend payment date thereafter, the Company shall have the option, but not the obligation, to redeem all of theSeries ―F‖ Perpetual Preferred Shares outstanding. Dividends are payable on January 25 and July 25 of eachyear. On November 15, 2011, the Series ―F‖ Perpetual Preferred Shares were listed in the PSE with stocktrading symbol ―FGENF‖.Purchase of additional shares in EDCAs of the date of this Prospectus, the Company owns 1,650,471,500 shares in EDC, either directly or through itswholly-owned subsidiary, Northern Terracotta. This is equivalent to 8.8% of EDC‘s total issued and outstandingshares.Part of the 1,650,471,500 shares is the 315 million shares purchased by the Company on April 7, 2010 through ablock sale on the PSE at a purchase price of P=5.35 per share. The Company also purchased 750,471,500 sharesfrom the market between 2007 and 2012.In addition, on April 20, 2010, the Company signed Call Option Agreements with each of Philplans First, Inc.,Rescom Developers, Inc., Philhealthcare, Inc., and Systems Technology Institute, Inc. which granted theCompany the option to purchase the Call Option Shares. Under the Call Option Agreements, the Company wasentitled to exercise its options over the Call Option Shares at the exercise price of P=5.67 per share for year one(from April 20, 2010 to April 19, 2011), P=6.19 per share for year two (from April 20, 2011 to April 19, 2012),and P=6.76 for year three (from April 20, 2012 to April 19, 2013). Under the Call Option Agreements, the shareprices would automatically adjust downward in the event EDC declares and distributes cash dividends. TheCompany, through its subsidiary, Northern Terracotta, exercised its call option over 195 million shares of EDCat an exercise price of P5.67 per share on March 9, 2011. The Company directly exercised its call option overthe remaining 390 million shares of EDC on April 4, 2011. The exercise price of P5.51 per share reflected anadjustment following EDC‘s cash dividend of P=0.16 per share during the year.NNGP Write-downEDC entered into a GSC with the Government for the exploration, development, and exploitation of geothermalresources in the Northern Negros geothermal production field. On October 23, 2009, the GSC was replaced by aGRESC with the Government. The Northern Negros GRESC is scheduled to expire in 2024, but may beextended for another 15 years subject to negotiations with the Government.The Northern Negros project is a geothermal steam and electrical power project developed outside the boundaryof the Mt. Kanlaon Natural Park. The steamfield project has a total of nine production wells, three injectionwells, and a 6.1-kilometer pipe network, with one 49.4 MW generating unit supplied by Fuji Electric Co., Ltd.The power plant was commissioned in February 2007 and was constructed pursuant to a turnkey contract withKanematsu Corporation. Its generated electrical power is intended to be transmitted to the Cebu and PanayIslands.Prior to the plant‘s commencement of operations, EDC entered into two separate five-year ESAs with ILECO Iand VECO for 606 GWh and 635 GWh, respectively. Under the five-year agreement with ILECO I, EDCagreed to sell specified amounts of electric energy, or contract energy, to ILECO I each year from NNGP. Asthe seller, EDC is obliged to, among other things, maintain and operate all facilities and equipment necessary for87

the fulfillment of the agreement and ensure that the supply of electricity is in accordance with good utilitypractice and relevant laws and regulations. Pursuant to the ESA, EDC has the obligation to enter into aconnection agreement with NGCP, to enable the plant to be connected to NGCP‘s Grid, as well as atransmission service agreement. As the purchaser of electric energy, ILECO I agreed to pay for the energysupplied by EDC. ILECO I is required to pay EDC, calculated on a monthly basis, either the contract energy permonth or the actual energy metered and delivered to ILECO I, whichever is higher, multiplied by the electricityprice. ILECO I is entitled to reduce its contract energy upon written application to EDC and payment by ILECOI of a fee computed in accordance with the terms of the ESA, subject to certain exceptions. The agreement alsocontemplates that the parties may settle their transactions within the WESM. However, in the course ofoperating the power plant in 2007, faster and larger than expected pressure drawdown, calcium carbonatedeposition, and production well casing failures observed in the geothermal reservoir resulted in a significantdrop in geothermal steam production. Consequently, the steamfield could not provide the required volume ofsteam needed to run the power plant at its rated capacity of 49.4 MW.In order to meet its obligations to ILECO I and VECO under their respective ESAs, EDC initially sourcedreplacement power from NPC and other IPPs at their respective costs. Since Green Core‘s acquisition of thePalinpinon geothermal power plants in October 2009, EDC has sourced replacement power for ILECO I fromthe Palinpinon I power plant. The VECO ESA was voluntarily terminated in October 2007 pursuant to anagreement between VECO and EDC wherein EDC paid VECO P=86 million by way of settlement.After two prolonged testing periods which were conducted from May 2009 to November 2010 and from April 5,2011 to June 30, 2011, as well as from EDC‘s analysis of completed surveys and technical data, the Companyconcluded that NNGP can only be sustainably operated at 5 to 10 MW. The second discharge testing is currentlybeing implemented to further evaluate the individual well sustainability behavior. EDC will right size the powerplant in Northern Negros depending on the results of the steamfield optimization test now being conducted.In 2009 and 2010, EDC recorded an impairment loss of P349 million and P3,390 million, respectively, for theNNGP assets. With the decommissioning of the plant, EDC made a final provision and recognized in June 2011an impairment loss of P4,998.6 million on NNGP‘s property, plant and equipment.Effective August 25, 2011, the ILECO ESA was assigned and transferred to Green Core through a Deed ofAssignment thereby transferring to Green Core all of EDC‘s rights, title, interests, benefits in and to, and theobligations under the ESA until expiration of the contract on July 25, 2012.Rehabilitation of BacMan I and BacMan IIOn May 5, 2010, BGI, a wholly owned subsidiary of EDC, purchased the 110 MW BacMan I power plant andthe 40 MW BacMan II power plant from NPC for US$28.25 million in a competitive bid conducted by PSALM.On September 3, 2010, pursuant to the APA dated May 5, 2010 between PSALM and BGI, PSALM turned overthe BacMan plants to BGI. The BacMan I power plant has two generating units, supplied by Ansaldo Energia,SpA. The BacMan II power plant has two generating units, manufactured by a consortium of Japanesecompanies. Due to problems with the equipment at both the BacMan I and BacMan II power plants, neitherplant had been operational since September 2006.Each of BacMan II‘s generating units, namely: Cawayan, located in Basud and Botong in Osiao, Sorsogon Cityhas a rated capacity of 20 MW. Due to a catastrophic turbine over-speed event that occurred in August 2005, theCawayan‘s steam turbine and generator unit was completely destroyed. As a result, BGI only intends tocontinue repairing and rehabilitating the 20-MW steam turbine and generator unit of the Botong plant. However,BGI will relocate this to the Cawayan site. The Botong site has been decommissioned and will be remediated ata later date.With BGI‘s rehabilitation initiatives, BacMan I was commissioned in the last quarter of 2011. However, as BGIwas commissioning the plant, it was discovered that a significant amount of additional work is still required toreturn the plant to safe and reliable operations. BGI has decided to take a more prudent approach and has elected88

for a full rewind of the rotor to ensure its long-term integrity and reliability. Complete rehabilitation of the threeunits is expected by September 2012.Provision of Ancillary Services to NGCPIn 2010, following the privatization of a majority of NPC‘s power plants, NGCP began contracting for theancillary services which were traditionally provided by NPC. On April 11, 2011, FG Hydro submitted itsproposed Ancillary Services Procurement Agreement to the ERC, offering the following ancillary services:contingency reserve, dispatchable reserve, reactive power support, and black start service. Green Coresubsequently offered the same services as well as the regulating reserve service and submitted its application toERC on April 20, 2011. ERC ordered the provisional approval of the said applications for FG Hydro on June 6,2011 and Green Core on July 4, 2011. ERC‘s provisional approval for FG Hydro and Green Core was madeeffective starting July 26, 2011 and August 26, 2011, respectively.Put and Buyback of Convertible BondsOn February 11, 2008, the Company issued Convertible Bonds with an aggregate principal amount of US$260million. The Convertible Bonds bear interest at the rate of 2.5% per annum, payable semi-annually in arrears onFebruary 11 and August 11 of each year, and will be repayable in full on February 11, 2013. At the option of theBondholders, the Convertible Bonds are convertible into fully paid Common Shares at the applicable conversionprice (currently at P26.94 per option share), with a fixed exchange rate of US$1.00 to P40.55.On the Convertible Bond‘s maturity date, the Company is required to redeem the Convertible Bonds at 128% ofits principal amount. In order to save on interest and premium costs on the Convertible Bonds, the Companyopportunistically bought back the Convertible Bonds. It has bought back and cancelled US$120.5 million of theConvertible Bonds to date, at an average price of 117%.The Bondholders had the option to require the Company to redeem all or some of the Convertible Bonds as of acertain date. On February 11, 2011, the Company redeemed Convertible Bonds in the amount of US$72.5million at a price of US$578,027.75 for every US$500,000 of the Convertible Bonds. As of the date of thisProspectus, Convertible Bonds in the amount of US$67.0 million remain outstanding.Contracting Out of Drilling ServicesOn February 28, 2011, EDC approved the closure of its drilling operations, which are not among its corefunctions, in order to align its practices with global best practices of oil/gas and geothermal companies.Pursuant thereto, the employment of all employees of EDC‘s Well Construction Group was terminated on theground of closure and cessation of operation. The affected Well Construction Group employees were paid theappropriate separation packages. Following the closure, EDC engaged the drilling and workover services ofThermaPrime Well Services, Inc., a wholly-owned subsidiary of First Balfour Inc. FPHC, the controllingshareholder of the Company, owns 100% of First Balfour Inc. as of December 31, 2011.Potential Sale by the BG Group of its interests in Santa Rita and San LorenzoIn 2010, the BG Group began disposing of majority of its assets in its power generation business segment tofocus the group‘s development efforts on their core businesses. On September 29, 2010, the BG Group informedFPHC and the Company that it had signed a conditional sale and purchase agreement with KEPCO for the saleof the BG Group‘s 40% interests in Santa Rita and San Lorenzo for a net consideration of approximatelyUS$400 million, subject to standard completion adjustments, including interest to be paid to the BG Group uponclosing. The closing of the agreement was subject to the BG Group‘s receipt of the necessary waivers andconsents from non-recourse lenders of the Generation Subsidiaries and FPHC. The BG Group, however, failedto obtain the necessary waivers and consents. As a result, the BG Group‘s sale of its interests in Santa Rita andSan Lorenzo did not push through. Both FPHC and the Company continue to be keenly interested in the BGstake, and are diligently evaluating their rights and options in respect of the BG Group‘s contemplateddivestment of its interests in Santa Rita and San Lorenzo. FPHC and the Company intend to work towards89

arriving at a mutually-beneficial arrangement with the BG Group for the orderly divestment of its interests inSanta Rita and San Lorenzo.The Bid for the 218 MW Angat Hydroelectric Power PlantOn April 28, 2010, FGNEC, a consortium formed by the Company with Ayala Corporation and Metro PacificInvestments Corporation, with each partner having a 33 1/3% share, was declared by PSALM as the secondranking bidder in the public bidding for Angat Hydro. The highest bidder was K-Water with a bid of US$441million, beating FGNEC‘s US$365 million bid and four other bidders.On May 25, 2010, the Supreme Court issued a status quo order temporarily stopping PSALM from proceedingwith the privatization of Angat Hydro. The status quo order stemmed from a case filed by the Freedom FromDebt Coalition, Initiatives for Dialogue and Empowerment Through Alternative Legal Services Inc., andAkbayan Citizen‘s Action Party and Alliance of Progressive Labor. The said organizations argued that PSALMviolated the national economy and patrimony provisions of the 1987 Philippine Constitution when it allowed K-Water to participate in the bidding process despite its being a foreign entity and that PSALM failed to fullycomply with its mandate under the EPIRA to observe transparency during the bidding process.As of the date of this Prospectus, the Supreme Court has yet to decide on the case. By virtue of the Status QuoAnte Order issued by the Supreme Court, the rights of FGNEC as the second ranking bidder have beenpreserved.Operating Power Generation ProjectsThe table below summarizes the Group‘s currently operating power generation projects, excluding EDC:ProjectCompany’seconomicinterestInstalledcapacity(MW)Offtaker Fuel Expirationof relevantofftakeagreementSanta Rita.......................................................... 60% 1,000 Meralco Natural Gas /Liquid FuelSan Lorenzo ...................................................... 60% 500 Meralco Natural Gas /Liquid Fuel20252027Pantabangan- Masiway……...… 67.8% (1) 132 Several (2) Hydro 2012/2015Agusan Mini-Hydro .......................................... 100% 1.6 CEPALCO Hydro 2025 (3)Notes:(1)(2)(3)First Gen‘s effective economic stake in FG Hydro as of December 31, 2011.See ―Material Investments — Pantabangan-Masiway Hydroelectric Plants — Pantabangan-Masiway offtaker‖ on page 141 ofthis Prospectus for information on the Pantabangan-Masiway offtakers.On January 9, 2008, a PSA was signed by FG Bukidnon and CEPALCO effective from the date of approval by the ERC untilMarch 2025. The PSA was approved by the ERC with modification on November 16, 2009. In response, FG Bukidnon filed amotion for reconsideration and two supplements to the said motion. These motions were partially granted by the ERC on August16, 2010 and now govern the commercial arrangement between FG Bukidnon and CEPALCO for the sale of electricity from theAgusan Mini-Hydro.90

The Company‘s consolidated revenues for the year ended December 31, 2009, 2010, and 2011 were US$1,022.1million, US$1,244.3 million, and US$1,363.5 million, respectively. The net income attributable to the Companyfor the same periods was US$16.8 million, US$70.2 million, and US$35.0 million, respectively. The Company‘sconsolidated total assets, as of December 31, 2009, 2010, and 2011 were US$2,161.0 million, US$2,341.4million, and US$2,556.6 million, respectively. The Company‘s total equity, including non-controlling interests,as of the years ended December 31, 2009, 2010, and 2011 were US$807.0 million, US$1,148.0 million, andUS$1,406.8 million, respectively. For more information, see ―Summary Financial Information‖ beginning onpage 31 of this Prospectus.The following table provides a summary of EDC‘s geothermal projects, grouped by the contract areas in whichthey are located:Contract AreaGSC/GRESCPeriodProjectInstalledcapacity(in MWe)Expiration ofofftakeagreementMinimumtake-or-paycapacity (inGWh/year)LeyteGeothermalProductionField1976-2031 (1) Tongonan I 112.5 Various (2)Upper Mahiao 125.0Malitbog 232.5Mahanagdong 180.02022 (PPA) (3) 4,250 (3)Optimization 50.9SouthernNegrosGeothermalProductionField1976-2031 (1) Palinpinon I 112.5 Various (2)Palinpinon II 80.0 Various (2)BacManGeothermalProductionField1981-2031 (1) BacMan I 110.0 2012-2013 (4)BacMan II 20.0 2012-2013 (4)MindanaoGeothermalProductionField1992-2022 Mindanao I 52 2022 (PPA) 390Total 1,129.4Mindanao II 54 2024 (PPA) 39891

Notes:(1)(2)(3)Includes a 20-year extension period to GSC, commencing in 2011.Power is sold by Green Core under PSAs and TSCs with various customers with expiration dates ranging from 2012 to 2022.The Unified Leyte PPA governs sales of electricity from the Upper Mahiao, Malitbog, Mahanagdong and Leyte optimizationplants. The minimum take-or-pay capacity varies from contract year to contract year and is pegged at 3,933 GWh for the contractyear July 25, 2011 to July 25, 2012.(4)The plant is non-operational pending completion of its rehabilitation program. Supply obligations shall be partly sourced fromGreen Core and Asia Pacific Energy Corporation under replacement power contracts. BGI‘s PSAs may also be sourced from theWESM and/or other possible sources of replacement power until the BacMan plants start commercial operations.Competitive StrengthsThe Company believes that it has a number of competitive strengths that it can leverage in order to enhance itsleading position, including the following:The largest portfolio of power plants using clean and renewable technology in the country. The Group has oneof the cleanest power portfolios in the country, with all of its assets utilizing fuels such as natural gas, water, andgeothermal steam. Santa Rita and San Lorenzo plants use natural gas, which is considered as one of the cleanestburning fossil fuels as it produces very small amounts of sulfur dioxide and nitrogen oxides and lower levels ofgreenhouse gas emissions compared to other fossil fuels. The Group utilizes RE sources such as hydroelectricpower for the Pantabangan-Masiway Plants and the Agusan Mini-Hydro, and has also ventured into geothermalenergy through EDC. As a leading RE company, EDC has received 39 awards and citations as of March 31,2012. Having clean energy in its portfolio, the Group is able to meet the increasing demand for environmentallyfriendly sources of energy as well as comply with the Government‘s policies on climate change. Recognizingthe advantages of utilizing clean and renewable technology, the Group strives to maintain efficient operations ofexisting assets to minimize environmental effects and at the same time continually seek growth opportunities inthis area.A comprehensive contractual framework that provides predictable long-term cash flows. The Companybelieves that the contractual framework under which its subsidiaries and associates operate helps provide it withpredictable long-term cash flows from proven power offtakers, such as Meralco and NPC. Each of Santa Ritaand San Lorenzo has entered into a PPA with Meralco that will expire in 2025 and 2027, respectively, and aGSPA with the Gas Sellers. The pass-through provisions in the agreements with Meralco allow the GenerationSubsidiaries to pass on fuel costs and also generally protect the Company against foreign exchange ratefluctuations. EDC effectively operates under five primary contract types: GSCs or GRESCs with theGovernment, long-term GRSCs with Green Core, PPAs with NPC, and other PSAs with multiple offtakers.Under EDC‘s PPAs with NPC, NPC is obligated to take or pay for energy based on a Nominated Energy, whichshall not be lower than 90% of the contracted annual energy, or MEOT, whichever is applicable, multiplied bythe base energy rate prescribed in the applicable PPA.Ownership by the Generation Subsidiaries of two efficient power plants. Santa Rita and San Lorenzo, whichcommenced commercial operations in August 2000 and October 2002, respectively, are in the relatively earlystages of their respective useful lifespan and are believed by the Company to be among the most efficient powerplants in the Philippines. In addition, both Santa Rita and San Lorenzo have surpassed the internationallyrecognized operational standards set by the North American Electric Reliability Corporation. Standards from theNorth American Electric Reliability Corporation for Availability and Reliability factors are 88% and 93%,respectively, based on its Generating Availability Data System Report using 2002-2006 data for combined cycleplants. The Company and the Generation Subsidiaries have each received ISO 9001:2008 certification for theirquality management systems. In addition, the environmental systems for Santa Rita and San Lorenzo have eachbeen ISO 14001:2004 certified and the two plants‘ health and safety systems have received OHSAS 18001:2007certification.92

Production of competitively-priced power from a diversified portfolio. The Company believes that the Groupis positioned as a preferred power supplier in the Philippines based on its portfolio of competitively pricedpower and its expertise in providing a range of power services to a spectrum of electricity users. The Companybelieves that the Generation Subsidiaries are among the most competitive sources of electricity for Meralco, asshown in the graph below, which summarizes average generation costs of Meralco suppliers from January 2011to December 2011.Source: MeralcoThe Company believes that the Group‘s strategic portfolio of power plants, industry know-how, and expertisewill serve as a solid foundation for the Group in meeting the challenges of an evolving Philippine market forpower. With over 41% of power requirements in the Philippines met by electricity utilizing imported fossilfuels, the Company expects that the Group‘s clean, indigenous, and renewable power generating assets willprovide it with a strategic advantage, position it as a preferred supplier, and enable it to provide competitivelypriced electricity. With a diversified portfolio of natural gas, geothermal, and hydroelectric power plants thatsource fuel domestically, the Company expects that the Group will continue to be able to offer competitivelypriced power with limited exposure to global price volatility. The Company further expects that the Group willcontinue to benefit from its inherently low variable costs and from the zero rating on its value-added taxliabilities, as well as the benefits and incentives stipulated under the approved RE Law. In addition, the price ofpower from natural gas-fired power plants may possibly decrease once the proposed Electricity Rate ReductionAct is approved by Congress.Favorably located power generation facilities to take advantage of the growth in Philippine electricityconsumption. The Group‘s power generation and steamfield facilities are strategically located in key locationsin the Philippines. The Generation Subsidiaries provide electricity to Meralco‘s franchise area, covering MetroManila and the highly industrialized provinces of Batangas, Cavite, and Laguna, as well as the central Luzonregion. EDC, meanwhile, supplies electricity and steam to the three grids in the country. According to the DOE,as of April 2010, approximately 73% of the total installed generating capacity in the Philippines was located inthe Luzon Grid, with the installed capacity of Santa Rita, San Lorenzo, BacMan, and Pantabangan-Masiwayaccounting for approximately 15% of the total installed capacity supplying electricity to the Luzon Grid. Basedon DOE data on installed capacity, EDC‘s installed capacity comprised 25.5% of the installed capacity for theVisayas and Mindanao Grids as of December 2010. Based on the same data, the Group accounted for 18% ofthe country‘s total installed capacity as of December 2010. As one of the largest IPPs in the country, theCompany believes that the location of its current generation facilities will allow it to benefit from the country‘scontinued economic development, with peak demand for electricity at 10,375 MW as of the end of 2010expected to increase to 13,684 MW by 2017 based on the DOE‘s 2009-2030 Power Development Plan.93

A strong track record of developing, financing, building, bidding for, and operating power generationprojects. The Group has grown into a leading IPP in the Philippines through the successful development ofGreenfield projects. The Company, through its subsidiaries and associates, has developed, financed, and builtand operated four generation facilities: the Santa Rita and San Lorenzo combined cycle, natural gas-fired plants;the Bauang medium-speed bunker-fired diesel plant that was turned over to the Government when its BOTAgreement expired in July 2010; and the 72 MW diesel-fired power plant in Panay that was sold to ClaredonTowers Holdings, Inc. in June 2003. The Company has also been successful in its bids for power plants andgeothermal assets that were sold by the Government as part of its privatization program, acquiring two powergeneration facilities from PSALM: the 1.6 MW Agusan Mini-Hydro and the then 112 MW Pantabangan-Masiway. The Company, through Red Vulcan, also acquired a substantial stake in EDC in November 2007,which through indirect subsidiaries, acquired the 192.5 MW Palinpinon and 112.5 MW Tongonan geothermalpower plants and the then 150 MW BacMan geothermal power plants from PSALM. The Company believes thistrack record has enabled it to develop the expertise needed to assess the feasibility of future acquisitions andGreenfield projects, ensure the safe and efficient construction of power plants, and provide for efficient powerplant operations. The Company also believes it has gained credibility in terms of project development andimplementation, which enhances its ability to negotiate competitive terms for project agreements and financingfacilities for future projects and acquisitions.Vertically-integrated through its investment in EDC. The Company, through its 48.8% economic interest inEDC, is vertically-integrated in addition to being engaged in geothermal exploration and development. EDCoffers technical consultancy services to third parties worldwide as well as for its own steamfields and powerplants. These services include (i) geoscientific exploration, resource assessment, and field development;(ii) engineering, and management services; (iii) reservoir engineering and resource management;(iv) engineering, design, procurement, and construction for geothermal energy development; and(v) environmental management. As a result, the Group is expected to benefit from the ability to service allaspects of geothermal energy production, as well as provide these services to third parties, providing the Groupwith opportunities to venture into the global energy market and develop a new source of revenue.A strong majority shareholder. The Company‘s majority shareholder, FPHC, is one of the oldest, strongest,and largest conglomerates in the Philippines. As of December 31, 2011, FPHC‘s cash and cash equivalentsamounted to P9.6 billion. FPHC has investments in vital industries that support the country‘s economicdevelopment such as power generation and distribution, including a 3.9% effective ownership interest inMeralco, the largest power distribution utility in the Philippines. It also has investments in support industriessuch as oil pipeline services, construction and engineering services, as well as property development andmanufacturing. FPHC is one of the core holding companies of the Lopez Group. This relationship allows theCompany to draw on the extensive business network and in-depth local business knowledge, relationships andexpertise of FPHC and the Lopez Group, particularly in relation to the power industry, and use FPHC‘s and theLopez Group‘s pool of experienced managers and technical personnel.A strong and experienced management team with in-depth knowledge of the Philippine power industry. TheCompany has an experienced team of management, financial, and technical executives. The Company‘s seniormanagement has an average of more than 15 years of operational and management experience in the powerindustry and have enjoyed long tenure with the Company and the Lopez Group. The Company‘s managementteam has extensive experience in, and in-depth knowledge of, the Philippine power industry‘s business andregulatory environment, having developed positive relationships with key industry participants, from offtakerssuch as Meralco and NPC to regulatory agencies such as the DOE and the ERC, which are crucial in ensuringthe sustainability of the Company‘s operations. The growth and performance of the Company is indicative of thecapabilities of the Company‘s management team.Established relationships with world-class partners. Through the development, construction, and operation ofthe Santa Rita and San Lorenzo plants, the Company has benefited from the involvement of world-class projectpartners: Siemens AG, which led the construction of Santa Rita and San Lorenzo and SPOI, which isresponsible for the day-to-day O&M for Santa Rita and San Lorenzo. In addition, the Company has an94

established relationship with SPEX, Shell Philippines LLC, Chevron Malampaya LLC, and PNOC ExplorationCorporation —members of the consortium that operates the Malampaya gas field which supplies Santa Rita andSan Lorenzo with natural gas. The Company believes that each of these companies is a market leader in theirrespective areas of operation and that the Company can leverage these established relationships to enhance itsability to develop, finance, and operate future projects.Business StrategyThe Company‘s business strategy is to enhance the Group‘s position as a leading IPP in the Philippines. TheCompany will seek to continue to improve the operational efficiency of its existing generation facilities andincrease shareholder value through the acquisition of existing generation facilities, development of Greenfieldprojects, and selective expansion into complementary businesses to the extent that these activities can beexpected to contribute positively to the Group‘s financial performance. More specifically, the Company‘sbusiness strategy, including its plans for the Group, is as follows:Continue to improve the operational efficiency of the Group’s generation and steam assets. The Companyintends to continue to focus on improving the Group‘s plant capacity utilization through capacity enhancementmeasures and reductions in unplanned outages and the days needed for scheduled maintenance. The Companywill also strive to continue to optimize the efficiency of the Group‘s existing power plants through criticalequipment monitoring, enhanced work processes, and energy loss monitoring and mitigation. The Company alsointends to have the Group remain as a cost-efficient power producer in the Philippines by managing coststhrough strict cost-control initiatives that help reduce unit operating costs while continuing to achieve operatingstandards above international benchmarks.Expand the Group’s generation portfolio with particular focus on clean and renewable projects. TheCompany intends to continue to expand the Group‘s generation portfolio with projects, primarily in thePhilippines, that add value to its asset base and diversify its revenue stream and fuel base. The Company willevaluate, on a case-to-case basis, potential acquisitions and Greenfield developments outside the Philippines thatoffer an opportunity to grow the Group‘s business and/or expand its capabilities. The Company‘s current plansinclude:Acquire power generation assets from both public and private sector operators. The Company willcontinue to actively pursue opportunities to acquire power generation assets that add value to its existingbusiness, including certain power generation assets that are expected to be privatized by the Government,as well as those owned by other IPPs that may be put up for sale. As of the date of this Prospectus, theCompany has acquired two power generation facilities from PSALM: (i) the 1.6 MW Agusan Mini-Hydroand (ii) the then 112 MW Pantabangan-Masiway. The Company also acquired a 40% economic interest inEDC in November 2007 through Red Vulcan, and thereafter, an additional 8.8% interest in EDC.Meanwhile, EDC, through its indirect subsidiaries, has acquired the Palinpinon, Tongonan and BacMangeothermal power plants from PSALM. The Company and EDC are also considering participating inauctions to acquire administrative rights over NPC‘s IPP contracts.Expansion of projects. In December 2010, FG Hydro completed the rehabilitation of the two units ofPantabangan, which extended its life by an additional 25 years and increased its NDC by 20 MW.Meanwhile, EDC plans to add another approximately 200 MW of installed geothermal capacity in thenext few years through the development of seven new geothermal projects. EDC also plans to diversify itsrevenue streams by venturing into the development of other indigenous sustainable energy resources, inparticular, an 86 MW wind project in Burgos, Ilocos Norte. For its part, the Company is evaluating theconstruction of a new 250–500 MW gas-fired power plant adjacent to Santa Rita and San Lorenzo. TheCompany expects that the construction and operation of this new facility would benefit from synergieswith Santa Rita and San Lorenzo, such as efficiencies from the shared fuel delivery and fuel storagefacilities already in place in Santa Rita and San Lorenzo. The use of similar generating technology willalso allow the Company to take advantage of the operational expertise of its personnel. The Company alsohas an option to an equity participation of up to 33% in the expansion of the 735 MW Pagbilao coal-fired95

power generation facility if the owners of the plant, Marubeni Corporation and Tokyo Electric PowerCompany, decide, at any time, to undertake such expansion. Furthermore, the Group is marketingelectricity sales of the additional generating capacity to a more diverse customer base, including smalldistribution utilities, electric cooperatives and large industrial users. To the extent that demand forelectricity in the Philippines increases, the Company believes that there will continue to be newopportunities for the Group to invest in additional generation projects.Diversify into complementary and synergistic businesses. The Company intends to expand into businessesthat complement its power generation operations and the other businesses of the Lopez Group. Such businessesmay include, among others, natural gas transmission and distribution systems and other fuel-related logisticsservices. The Company, through FG Pipeline, holds the only specific legislative franchise to build, operate, andmaintain natural gas transportation pipelines in the island of Luzon. The Company has plans to use thisfranchise to construct a natural gas pipeline from Batangas to Manila that would allow it to transport natural gasto supply power generation, industrial, and commercial facilities along the Batangas to Manila corridor. TheCompany believes that its experience in the supply and delivery of natural gas and other fuels in connectionwith its generation assets makes the Company well-suited to provide fuel-related services, a market that itexpects will grow significantly in the future and may enhance its profitability. The Company willopportunistically seek to leverage these activities into other businesses related to fuel supply and logistics, suchas the development and construction of liquefied natural gas import terminals, fuel tanker chartering, and oilpipeline management.The Company intends to use the Group‘s expertise, accumulated over years of dealing with a range of customersand its active participation in the WESM, to leverage additional value from the Group‘s portfolio of powergenerating assets. FGES, a wholly-owned subsidiary of the Company, holds both an aggregator‘s and retailenergy supplier‘s license that the Company expects will allow it to enter into energy supply contracts witheligible contestable customers once Retail Competition and Open Access is declared and implemented. Asidefrom energy sales revenues, the Company has also created additional revenue streams from its power generatingcapacities by providing ancillary services to NGCP. Revenues from ancillary services will initially be realizedthrough ancillary service procurement agreements with NGCP that are priced based on average WESM pricesfollowing an opportunity cost-based pricing structure. These agreements will be effective until the reservemarket of the WESM goes into full commercial operations. To further strengthen its competitive advantage,FGES has been offering a range of value-added services such as smart metering services, application of energyefficiency technologies, capability building programs, and system loss reduction programs to assist customers touse power more efficiently. FGES is also at the forefront of structuring financial power derivative arrangements,which the Company expects will allow it to add additional value to the Group‘s portfolio of power generatingassets.Continue the Group’s strategy of alliances and partnerships with stakeholders. The Company has a strongrelationship with its controlling shareholder, FPHC. The Company intends to manage its relationships with itscurrent offtakers and fuel suppliers in order to allow the Group to continue to benefit from the strong contractualframeworks of its power generation facilities. The Company believes that it has established effective workingrelations with the DOE and the ERC, the key regulatory bodies of the power industry in the Philippines, as wellas with other key government offices and agencies. Furthermore, the Company intends to continue to build andmaintain relationships with other key stakeholders, such as financing institutions, the investing public, insurers,contractors, fuel suppliers, the local government units, and the communities it operates in, as well as with nongovernmentaland community-based organizations.Future Plans and ProspectsThe Company identifies potential investments, such as Greenfield projects and existing power generationfacilities, by analyzing the demand for electricity and electricity- and fuel-related services. Factors such as GDPand population growth, customer mix, profiles of the major users, and industrial expansion are considered. TheCompany also looks at commercial viability, potential costs (whether for development or acquisition) andcompetitive costs, as well as possible land acquisition and environmental protection issues, the impact of96

environmental protection requirements on overall profitability of the project, and the availability of governmentincentives for a particular project.In 2009, 2010, and 2011, the Company had spent US$0.163 million, US$0.180 million, and US$0.685 millionfor development costs, respectively. These costs comprise 0.02%, 0.01% and 0.05% of total consolidatedrevenues for the respective years in which they were incurred. Much of these costs were attributable to the smallhydro projects being studied for development. These development projects are expected to help the Companycapitalize on the emerging energy demands in their respective regions.Although the Company continues to focus on enhancing its position as a leading IPP in the Philippines, itevaluates, from time to time, business opportunities outside the Philippines with an objective of acquiring ordeveloping competitive or complementary power generation facilities on commercially reasonable terms.Notwithstanding the review and evaluation process that the Company‘s management conducts in relation to anyproposed project, acquisition, or business, there can be no assurance that the Company will eventually develop aparticular project, acquire a particular generation facility, undertake a new line of business, implement projects,make acquisitions, or conduct business in the manner planned or at or below the cost estimated by the Company.See ―Risk factors—Risks related to the Group—The Group may not successfully implement its growth strategy.To the extent that the Group develops new power projects, the significant resources applied to such developmentmay not necessarily generate significant revenues in the future‖ on 69 of this Prospectus.Quality, Environment, Safety and Health Regulations and InitiativesAs most countries around the world, the Group‘s power generation operations are subject to extensive, evolving,and increasingly stringent safety, health, and environmental laws and regulations. These laws and regulationsinclude but are not limited to the Clean Air Act (Republic Act No. 8749), Clean Water Act (Republic Act No.9275), Toxic Substances and Hazardous and Nuclear Waste Control Act of 1990 (Republic Act No. 6969),Ecological Solid Waste Management Act (Republic Act No. 9003), and the Department of Labor andEmployment‘s Occupational Safety and Health Standard, as amended. Such legislations address, among otherthings, air and ambient noise emissions, wastewater discharges, and solid wastes management, as well as thegeneration, handling, storage, transportation, treatment, and disposal of toxic and hazardous materials andwastes. They also regulate workplace conditions within power plant facilities and employee exposure tohazardous work environment. In particular, the Occupational Safety and Health Standards were formulated tosafeguard workers‘ social and economic well-being, as well as their physical safety and health. In addition, EDCalso complies with other laws and standards, such as the Revised Forestry Code of the Philippines, (PresidentialDecree No. 705), the National Integrated and Protected Areas System Act (Republic Act No. 7586), GeothermalReservation Law (Executive Order No. 223), Wildlife Resources Conservation and Protection Act, IndigenousPeoples Rights Act (Republic Act No. 8371), Climate Change Act (Republic Act No. 9729) and the IFC/WorldBank environmental and social safeguards.The Company believes that each of the Group‘s power generation facilities, as well as EDC‘s steamfieldprojects, complies in all material respects with all applicable safety, health, and environmental laws andregulations. In the past ten years, ambient emissions or ground level concentration of carbon monoxide, nitrousoxide, sulphur dioxide, and particulate matter at Santa Rita and San Lorenzo have been well within the limits setby the DENR. EDC is also in compliance with the water quality, air quality, and solid and hazardous wasteregulations since the start of its operations in 1983.Compliance with environmental policies and guidelines are also regularly assessed as part of the conditions tothe financing obtained for Santa Rita and San Lorenzo. In 2004, each of Santa Rita and San Lorenzo wasawarded the Don Emilio Abello Energy Efficiency Award by the DOE. For eight years now, Santa Rita and SanLorenzo have both been ISO 9001:2008 (Quality Management System) certified, ISO 14001: 2004(Environmental Management System) certified, and OHSAS 18001:2007 (Occupational Health and SafetyManagement System) certified. FG Hydro is on its third year of certification to ISO 9001:2008,ISO 14001:2004, and OHSAS 18000:2007 while FG Bukidnon is on its fifth year of certification for compliance97

with ISO 9001:2008, ISO 14001:2004, and OHSAS 18001:2007 standards. The Company also successfullycompleted the second Surveillance Audit for the ISO 9001:2008 certification. For six years now, the Company‘scompliance with this globally-appreciated standard is recognized and endorsed by the United KingdomAccreditation Service accredited certifying body, AJA Registrars, Inc.Environmental activities are geared not just towards complying with the regulatory requirements at theminimum level, but going beyond it. Green projects such as the implementation of the Mangrove ManagementProject to rehabilitate an area of abandoned fishponds within the premises of Santa Rita and San Lorenzo into alush mangroves forest, has been in place since 2000. Today, the mangroves produce a sizeable quantity ofseedlings that are distributed to stakeholders for planting within the Batangas area. Coastal clean-ups have beencarried out on a monthly basis, which, together with the mangroves forest rehabilitation, paved the way for thereturn of the Olive Ridley turtles to lay eggs in the Santa Rita Aplaya shoreline. A forest tree nursery waslikewise set-up to produce seedlings for free distribution to the constituents of the province of Batangas as partof the Company‘s outreach program to help in the re-greening of the province. EDC also assists in addressingthe hazards that can be brought about by climate change. EDC undertakes a holistic management of the forestsaround its projects to ensure the protection of the water-based hydro and geothermal reservoirs through forestpatrols, reforestation, biodiversity monitoring, information education and alternative livelihoods for forestdwellers to avoid encroachment. EDC has organized all the 125 forest communities in its project sites andprovided them livelihood since 1990 drastically reducing destructive activities like illegal logging and slash andburn farming. Since its operation, EDC has planted an estimated 8,815,200 trees in its five geothermal projectsites. When the Company acquired EDC, its reforestation commitment was further strengthened. EDC launched―BINHI‖ (or germling) which aims to increase its reforestation effort from 300 hectares to 1,000 hectares peryear spanning 2009 to 2019. The program also focuses on the use of indigenous and rare species forbiodiversity; and water and carbon storage as a climate change adaptation measure to protect EDC‘s assets, itspersonnel and its host communities.FGPC and FGP have individually incurred operating costs to comply with environmental laws and regulations.The total costs incurred by FGPC and FGP to comply with these environment laws for the year ended December31, 2011 were approximately US$0.07 million and US$0.03 million, respectively. EDC estimates that its totalincurred cost (including capital expenditures) to comply with all applicable environmental laws and regulationsfor the year ended December 31, 2011 amounted to approximately P157.40 million.In addition, both FGPC and FGP have made and expect to make capital expenditures on an ongoing basis tocomply with these regulations. In particular, air emission levels at Santa Rita and San Lorenzo are tested dailyby the Continuous Emission Monitoring Systems on the stack. Water effluents are measured on a weekly basisby SPOI and witnessed by the Multi-partite Monitoring Team on a quarterly basis. Noise emission levels aretested monthly by company personnel.Notwithstanding the foregoing, the discharge by the Group‗s power generation and geothermal facilities ofchemicals, other hazardous substances and pollutants into the air, soil or water may give rise to liabilities to theGovernment and to local government units where such facilities are located, or to third parties. In addition, theaffected Group member may be required to incur costs to remedy the damage caused by such discharges or payfines or other penalties for non-compliance.Further, the adoption of new safety, health and environmental laws and regulations, new interpretations ofexisting laws, increased governmental enforcement of environmental laws or other developments in the futuremay require that the Company make additional capital expenditures or incur additional operating expenses inorder to maintain the operations of its generating facilities at their current level, curtail power generation or takeother actions that could have a material adverse effect on the Company‗s financial condition, results ofoperations and cash flow.98

Corporate Social ResponsibilityThe Company manifests and demonstrates its responsibility to society in various ways. In aspiring to be aworld-class company, the Company considers the impact of the Group‘s operations to society and to theenvironment. Its generation facilities in various provinces across the Philippines are operated efficiently and in amanner that meets and exceeds mandated quality, environmental, safety, and health standards.The Company further recognizes that host communities in the provinces are primary stakeholders who shoulddevelop and grow together with the Group. The Company‘s operations contribute to local government revenuesand spur growth and economic activity in the locality. The Company provides the mandated community benefitsunder ER 1-94 as well as the share in national wealth taxes, where applicable. As of December 31, 2011, a totalof P1,025.6 million has been remitted to the DOE under ER 1-94. Further, the share in national wealth taxes ofthese host communities has amounted to P75 million as of December 31, 2011.A formal community relations program is also in place in every power plant to address specific developmentneeds expressed by the communities and their leaders. These community development projects have focusedprimarily on providing support to delivery of basic services in the areas of health, education, livelihooddevelopment, and environment conservation. With a full complement of community relations staff, theCompany maintains open channels of communication to allow for exchange of ideas, expectations, andconcerns.Going beyond local host communities, the Company is contributing to national development by pursuing certainsocial initiatives with partner development institutions. Specifically, these initiatives focus on protecting andconserving key natural resources and promoting quality education and research.The Company also puts great importance in instilling the core value of public service among its employees.Efforts have been taken to promote employee volunteerism through a program called “EmPower", a contractionof “Employee Power: Fueled by Passion‖. EmPower provides employees with the flexibility to volunteer andparticipate in activities they are passionate about. A core group of volunteers organizes quarterly activities suchas interactions with disadvantaged children, providing assistance to displaced families and victims of calamities,and activities geared towards the environment such as planting trees and cleaning up coastal areas.EDC likewise considers itself an integral part of the communities where it operates. Through the years, it hasactively participated in the development of these communities while maintaining hospitable social climates forits facilities and personnel. EDC promotes partnership with the communities in its geothermal projects in Albay-Sorsogon, Leyte, Mt. Apo in North Cotabato, Negros Oriental, Negros Occidental, and Ilocos Norte. EDCcurrently assists a total of 17,680 households, focusing on livelihood development, health promotion,educational support, and environmental enhancement. To date, EDC‘s initiatives have benefited roughly560,000 individuals and organizations. The historical contribution of EDC to the community, including royaltyand contributions under ER 1-94, has amounted to P5.9 billion as of December 31, 2011, and is furthercomplemented by thousands of man-hours of employee volunteerism activities.Employees and Labor RelationsManagement believes that the Group members‘ current relationship with their respective employees is generallygood and neither the Company nor any of its subsidiaries has experienced a work stoppage as a result of labordisagreements. None of the employees of the Company or any of its subsidiaries or associates or related parties,except EDC, belongs to a union.99

The following table provides total employee headcount, divided by function, as of March 31, 2012:ExecutivesFirst Gen andFG HydroEDCSubsidiariesChairman and CEO 1 1President and COO 1 1Executive Vice Presidents 2 1Senior Vice Presidents 5 6Vice Presidents 16 11Assistant Vice Presidents 22 1 8Managers:Senior Managers 17 11Managers 19 5 62Supervisors:Assistant Managers 15 3Supervisors 38 21 374Professional/Technical Staff 15 17 1,019General Staff 25 10 1,004Total Headcount 176 57 2,498Note:(1) Certain employees of the Group hold positions in more than one company.For the next 12 months, the Company and its subsidiaries anticipate to increase its workforce by 44 employees,25 of which are for administrative and supervisory roles, seven for professional and technical roles and 12 forrank and file. On the other hand, EDC is expecting to hire 18 employees, seven of which are for administrativeand supervisory roles, 10 for professional and technical roles, and an employee for rank and file.Among the Group, only EDC has labor unions and is subject to collective bargaining agreements. EDC has 13unions across its six locations. It has two supervisory/professional/technical labor unions, one supervisory laborunion, two professional-technical labor unions, and eight rank and file labor unions with 49% of the employeesas members. EDC has not experienced any disruptions in operation due to labor-related concerns in the pasteleven years.The following table provides the list of the labor unions in EDC, the expiration of the collective bargainingagreements with each union and the employee group that is involved in the agreements:Union NameCBAExpirationEmployee Group1. LAGPEU Leyte A Geothermal ProjectEmployees‘ Union2. PESSA PNOC-EDC Southern NegrosGeothermal Project,SupervisoryAssociation/APSOTEUJanuary 1,2012 1 Rank and FileJanuary 1,2012 1 Supervisory/Professional/Technical3. PEGEA PNOC EDC Group ofEmployees Association4. PENERFU PNOC EDC NNGP EmployeesR&F UnionMay 1, 2012June 1, 2012Rank and FileRank and File100

5. MAWU Mt. Apo WorkersUnion/Association of LaborUnions6. BGPF-ADLO Demokratikong SamahangManggawa ng PNOC-BGPF/Association ofDemocratic LaborOrganizations7. BAPTEU PNOC-EDC BacManGeothermal Production FieldProfessional and TechnicalEmployees Union8. MAPTEU Mt. Apo Professional,Technical Employees Union/APSOTEU9. TWU Tongonan Workers‘ Union/National Federation of LaborUnions10. EBSEU EDC BGPF Supervisory andEmployees Union11. PELT PNOC-EDC LGPF and T1PFAssociation of Technical ,Supervisory and ProfessionalEmployees/APSOTEUJuly 1, 2012September 1,2012September 6,2012September 17,2012October 9,2012March 1, 2013July 4, 2013Rank and FileRank and FileProfessional/TechnicalProfessional/TechnicalRank and FileSupervisorySupervisory/Professional/Technical12. SNGPF R/F PNOC-EDC SNGP-R&F Union August 1,201313. UPE United Power Employees Union December 1,2013Rank and FileRank and File1 The CBAs with LAGPEU and PESSA have expired. New CBAs are currently under negotiation.On April 4, 2005, the Board of Directors of the Company approved the Company‘s Retirement Plan providing anormal retirement benefit of two months‘ salary for every year of service to eligible officers and employees whoare at least 50 years old and have rendered at least 25 years of service, or, to employees who are 60 years oldwith at least ten years of service.The Company has adopted an ESOP pursuant to which eligible senior managers and executives may acquireoptions to purchase Common Shares. The Company has also adopted an ESPP pursuant to which eligibleemployees may purchase Common Shares. See ―Management—Warrants and options outstanding‖ and Note 28to the Company‘s audited consolidated financial statements included in this Prospectus.Consistent with the Company‘s goal of being one of the Philippines‘ preferred employers, the Company hasadopted a compensation policy that is competitive with industry standards in the Philippines. Salaries andbenefits are reviewed periodically and adjusted to retain current employees and attract new talents. Tied to thisis a competency-based performance management system that calls for the alignment of individual key results,101

competencies, and development plans with the Company‘s overall business targets and strategy. Performance isreviewed annually and employees are rewarded based on the attainment of pre-defined objectives.Other than the ESOP/ESPP, the Company has no other supplemental benefits or incentive arrangements with theemployees.Investor RelationsThe Investor Relations Department of the Company is headed by Finance Asst. Vice President and InvestorRelations Officer Valerie Y. Dy Sun. The department strives to ensure that the market prices of the Company‘ssecurities accurately reflect the values of the assets and expectations of future earnings. It also provides theCompany‘s management critical information on relevant developments in the financial markets that may beutilized by the Company in formulating its long-and short-term plans. The department oversees all corporatecommunication with analysts, investors, and stockholders.The following chart provides an overview of the organization of the Company‘s Investor Relations Departmentas of the date of this Prospectus.102

DESCRIPTION OF PROPERTIESThe Company does not hold any real property of material value. The Company‘s head office is located at the3rd Floor, Benpres Building, Exchange Road cor. Meralco Avenue, Ortigas Center, Pasig City. The premises areleased by the Company from FPRC, a subsidiary of FPHC.Other than its shares in its subsidiaries and associates and properties held through its subsidiaries and associates,the Company does not hold significant properties.The table below sets out the status of land used for the Group‘s power generation facilities:LocationArea(hectares)Owned/LeasedSanta Rita ............................................................................................................................................ 33.1 OwnedSan Lorenzo ........................................................................................................................................ 24.1 Owned/LeasedAgusan Mini-Hydro ............................................................................................................................ 12.8 Leased (1)Pantabangan-Masiway ........................................................................................................................ 11.6 Owned/Leased (2)EDCLeyte Geothermal Production Field ............................................................................................... 191.9 Owned/Leased (3)Southern Negros Geothermal Production Field ............................................................................. 83.9 Owned/Bacon-Manito Geothermal Production Field in Luzon .................................................................. 28.7 OwnedMindanao Geothermal Production Field ........................................................................................ 0(4)Northern Negros Geothermal Production Field ............................................................................. 150.5 Owned/Fort Bonifacio ................................................................................................................................ 0.6 OwnedBaguio ............................................................................................................................................ 0.3 OwnedNorthern Luzon Wind Project ........................................................................................................ 465.5 LeasedNotes:(1)The Land Lease Agreement covers a total area of 10,581 square meters, which includes the powerhouse and the administration andhousing compound areas. Access to the non-power component areas is by virtue of an Operations and Maintenance Agreement withNPC.(2)Approximately 7.3 hectares of the total 11.6 hectares of the land is owned. The rest fall under either a lease or a permit to use the land.(3)Certain parcels subject to expropriation.(4)Area occupied in Mt. Apo National Park.FGPCPropertiesFGPC owns Santa Rita, which is located in Santa Rita, Batangas City. The power plant comprises fourgenerating units, and each unit in turn comprises a gas turbine, a steam turbine and a generator connected to acommon shaft and the corresponding heat recovery steam generator.The plant site occupies a total land area of 33 hectares. Buildings and structures consist of a power island, aswitchyard, a control room and administration building, a circulating water pump building, a circulating waterintake and outfall structure, a tank farm, a liquid fuel unloading jetty, a water treatment plant, a liquid fuel103

forwarding and treatment building, a gas receiving station and other support structures. Santa Rita also includesa transmission line, which interconnects the power plant and the Calaca substation.The property, plant and equipment of FGPC had a net book value of US$304.4 million as of December 31, 2011and US$338.5 million as of December 31, 2010.Liens and encumbrancesThe property, plant and equipment of FGPC have been used to secure FGPC‘s long-term debt. FGPC hasentered into a Mortgage, Assignment and Pledge Agreement whereby a first priority lien on most of its real andother properties, including revenues from the operations of Santa Rita, was granted in favor of the lenders. Inaddition, the shares of stock of FGPC held by FGHC were pledged as part of the security for its lenders.FGPPropertiesFGP owns San Lorenzo, which is also located in Santa Rita, Batangas City. The power plant comprises twogenerating units, each unit in turn comprises a gas turbine, a steam turbine, and a generator connected to acommon shaft and the corresponding heat recovery steam generator.The plant site occupies a total land area of 24 hectares. Buildings and structures consist of a power island, whichconsists of one block with a capacity of 500 MW, and a circulating water pump building. FGPC shares withFGP some of its facilities (e.g., the control room and administration building, a switchyard, the transmissionline, the tank farm, the liquid fuel unloading jetty, the water treatment plant and the gas receiving station, amongothers).The property, plant and equipment of FGP had a net book value of US$211.5 million as of December 31, 2011and US$237.1 million as of December 31, 2010.Liens and encumbrancesThe property, plant and equipment of FGP have been used to secure FGP‘s long-term debt. FGP has entered intoa Mortgage, Assignment and Pledge Agreement whereby a first priority lien on most of its real and otherproperties, including revenues from the operations of San Lorenzo, was granted in favor of the lenders. Inaddition, the shares of stock of FGP held by Unified were pledged as part of the security for its lenders.FGRIFG Bukidnon owns the Agusan Mini-Hydro, which consists of two generating units each rated at 800 kW. Theplant generates power from stored water sourced from the Agusan River. The water is de-silted in a forebaycovering 2.8 hectares and a capacity of about 40,000 cubic meters. Plant facilities include six duplex livingquarters, one single living quarter and an administration building situated in a one-hectare lot. The one-storey,concrete-framed powerhouse is located about 500 meters from these facilities and occupies a total floor area ofapproximately 158 square meters.104

FG HYDROPropertiesFG Hydro owns the 132 MW Pantabangan-Masiway Hydroelectric Power Plant Complex. The Pantabanganplant consists of two generating units each rated at 60 MW. The Masiway plant consists of one generating unitat 12 MW. Plant facilities include campsite with staff housing complex, administration building, warehouse andthree diesel generating sets among others.Liens and encumbrancesFG Hydro has created in favor of its lenders, a first ranking mortgage and security interest in and to its existingand future real assets and most of its chattel, pursuant to an Omnibus Loan and Security Agreement for a P=5.0billion loan facility between FG Hydro, the Security Trustee, Allied Banking Corporation and its lenders:namely, Philippine National Bank and Allied Banking Corporation. FG Hydro has likewise assigned, by way ofsecurity, all of its rights, titles, interests and benefits, but not its obligations in and to the project‘s existing andfuture revenues, all licenses, approvals, consents and material contracts including the Asset PurchaseAgreement, Operations & Maintenance Agreement, Land Lease Agreement and PSAs among others relating tothe operation of the power plantsRED VULCANPropertiesThe assets of Red Vulcan currently consist of 60% of the outstanding voting shares of EDC with a marketcapitalization of US$117.9 billion as of December 31, 2011.Liens and encumbrancesThe assets of Red Vulcan have been partially pledged to Red Vulcan‘s creditors in order to secure its term loan,which was used to partially finance the acquisition of the EDC shares. The loan is subject to a floating interestrate equivalent to the six-month Philippine Dealing System Treasury-Fixing benchmark plus a margin of 2.5%and is secured by a pledge by Red Vulcan of 2,454,491,730 of its common and all of its voting shares in EDCand by a pledge by the Company and Prime Terracota of their respective shareholdings in Red Vulcan. As of thedate of this Prospectus, the total outstanding amount of the loan has been reduced to P7.6 billion.Other SubsidiariesLiens and encumbrancesExcept as otherwise disclosed, none of the Company's other subsidiaries' assets and properties are pledged ormortgaged105

CORPORATE STRUCTUREThe following chart provides an overview of the Company‘s ownership structure and its major operatingsubsidiaries and associates as of the date of this Prospectus:E: 66%V: 76%PUBLICE: 34%V: 24%60%100%Sta. Rita100%60%San Lorenzo100%100%Agusan100%Mindanao100%Energy SolutionsE: 100%V: 45%Prime 100% RedTerracota VulcanE: 40%V: 60%60%40%Non-OperatingSubsidiariesE: 8.8%*V: 5.9%**including 1.73% direct interest of Northern Terracotta Power Corp. (a wholly-owned subsidiary of First Gen)(1) As of the date of this Prospectus, the Company directly owns an 8.8% economic interest and a 5.9% voting interest in EDC, eitherdirectly or through its subsidiary, Northern Terracotta. This is the result of the Company’s acquisition of 1,065,471,500 shares ofEDC in the market, as well as 585 million shares through the Call Option Agreements(2) With the addition of the aforementioned shares, the Company has a 69.3% effective economic interest in FG Hydro.(3). The above chart does not include the subsidiaries and affiliates of the Company where the Company has no operating power projects.(4) The other subsidiaries of the Company not explicitly enumerated are lumped under Non-Operating Subsidiaries. All these subsidiariesare non-operational in nature.Neither the Company nor any of its subsidiaries or associates has even been subject to any bankruptcy,receivership or similar proceedings.106

THE GROUP’S POWER GENERATION FACILITIESThe following map sets out the locations where the Group conducts its commercial operations and the installedcapacities of each of the Group‘s power plants.Santa RitaBackgroundOn November 9, 1994, following the discovery of large reserves of indigenous gas in the Malampaya field inoffshore Palawan, FPHC entered into the Santa Rita JVA with British Gas plc to develop gas-fired power, aswell as other projects in the Philippines using the natural gas from the Malampaya field. In 1999, the British Gasgroup of companies was restructured, which resulted in a new entity, BG Group plc, holding all of British Gas‘global investments.BGEH was incorporated to act as the holding company for all of BG Group plc‘s energy-related projects andeventually became a party to the Santa Rita JVA. Subsequently, BGEH incorporated a Philippine subsidiary,BGCH, to hold all of its interests in the Philippines, including FGHC (the parent company of FGPC).107

FGPC was incorporated on November 24, 1994 as the special purpose vehicle to undertake the development,financing, and construction of the 1,000 MW Santa Rita combined cycle power plant. FGPC is wholly-ownedby FGHC, which in turn is 60% owned by the Company and 40% beneficially owned by BGEH (through itsPhilippine subsidiary, BGCH). The Santa Rita plant site covers an area of approximately 33 hectares and islocated in Barangays Santa Rita Aplaya and Santa Rita Karsada in Batangas City, 100 kilometers south ofManila. The Santa Rita plant uses Siemens V84.3A gas turbines, which were developed from the SiemensV84.3 gas turbine with a different combustor arrangement and higher firing temperatures. The plant comprises2 x 500 MW blocks, each block comprising two independent 250 MW modules. Each module consists of onegas turbine, one heat recovery steam generator, one steam turbine, one generator on a single shaft, andassociated ancillary and auxiliary equipment. FGPC sells electricity to Meralco under a PPA.The Santa Rita plant was built by a consortium headed by Siemens AG under a fixed price, turnkey EPCContract. O&M of the plant has been contracted to SPOI, a subsidiary of Siemens AG. Santa Rita commencedcommercial operations in August 2000 and initially ran on liquid fuel, but converted to natural gas operations inJanuary 2002 when gas from the Malampaya field became available.The fuel supply for Santa Rita is covered by a GSPA entered into with the Gas Sellers, a consortium consistingof SPEX, Shell Philippines LLC, Chevron Malampaya LLC and PNOC Exploration Corporation. The GasSellers extract natural gas from the Malampaya field pursuant to the terms of North West Palawan ServiceContract No. 38, which was executed with the Government on December 11, 1990.Operations reviewSanta Rita commenced commercial operations in August 2000. Under the PPA, the plant is required to undergoan NDC Test every six months, unless waived by the parties in writing. The purpose of the NDC Test is toestablish the plant‘s dependable capacity and heat rate. The average NDC value over a contract year is used tocalculate the MEQ which is required to be delivered within the contract year under the PPA. Meralcorepresentatives are invited to witness the NDC Tests. The NDC Test results and other operational statistics arethen reported to the independent technical advisor of the project lenders for Santa Rita.The table below is a summary of the operating statistics of Santa Rita for the years ended December 31, 2009,2010, and 2011. These operating statistics are measured by FGPC in accordance with internationally recognizedpower plant operation standards set by the American National Standards Institute, the Institute of ElectricalEngineers (762-1987), and the Institute of Electrical and Electronics Engineers Standard Definitions for Use inReporting Electric Generating Unit Reliability, Availability, and Productivity.Years endedDecember 31,2009 2010 2011Target Energy Generation for Calendar Year (GWh) (1) ....................................... 7,532 7,586 7,546Actual Energy Generated (GWh) (2) ...................................................................... 7,560 7,531 8,122Net Capacity Factor (%) (3) .................................................................................... 83 82 89Availability (%) (4) ................................................................................................. 94 87 95Reliability (%) (5) ................................................................................................... 98 98 99108

Years endedDecember 31,2009 2010 2011NDC (MW) (6) ....................................................................................................... 1,036 1,043 1,038Net Heat Rate (Btu/kWh) (HHV) (7) ...................................................................... 6,576 6,586 6,718Notes:(1)(2)(3)(4)(5)(6)(7)The MEQ required under the Santa Rita PPA is 83% of the average NDC over a contract year (which ends every August 25). Forthe purpose of this report, the target energy generation is also set at 83% of the average NDC over a calendar year.Actual Energy Generated equals actual net electrical output from the plant delivered to Meralco.Net Capacity Factor is a measure of the actual delivered energy from Santa Rita divided by the maximum generation possibleduring that period.Availability targets for 2009, 2010 and 2011 were fixed internally at 90%, 85% and 93%, respectively and Santa Rita‘sAvailability rates have usually exceeded benchmarks set by the North American Electricity Reliability Council.Reliability targets were also fixed internally at 94% for each of 2009 and 2010 and 97% for 2011. Santa Rita‘s Reliability levelhas consistently exceeded benchmarks set by the North American Electricity Reliability Council.NDC values reflected in the table are the average of the actual NDC for the period. NDC Tests are conducted every six months.Under the Santa Rita O&M Agreement, there is an NDC guaranteed by SPOI. The guaranteed NDC is dependent on the rate ofthe plant degradation, which in turn is affected by the accumulation of equivalent operating hours of the plant. To date, the planthas consistently performed well above the guaranteed NDC values.The NDC Test also includes tests that measure Net Heat Rates.Santa Rita‘s actual energy generation slightly decreased from 7,560 GWh in 2009 to 7,531 GWh in 2010, due toa mandatory scheduled major maintenance outage of all four units upon the plant reaching 75,000 equivalentoperating hours. The Availability factor was 94% in 2009 and 87% in 2010 (due to the scheduled majoroutages), but still exceeding the Company‘s internal target of 90% and 85%, respectively. The plant‘sReliability factor remained high at 98% in 2009 and 2010 exceeding the Company‘s internal target of 94% forboth years. The plant continued to perform efficiently with a Net Heat Rate of 6,576 Btu/kWh for 2009 and6,586 Btu/kWh for 2010, which were both 5% better than the guaranteed heat rate for the same amount ofaccumulated operating hours in 2009 and 2010.In 2011, Santa Rita generated 8,122 GWh, equivalent to a Net Capacity Factor of 89%, which was the highestcapacity factor attained by Santa Rita since the start of its commercial operations in 2000. The plant‘sAvailability factor was 95%, exceeding the Company‘s internal target of 93%. The plant‘s Reliability factorfurther improved to 99% from 98% in 2011. The Net Heat Rate for 2011 was 6,718 Btu/kWh, which was 3%better than the expected heat rate considering degradation for the same accumulated operating hours.Power offtakerFGPC supplies electricity to Meralco pursuant to a PPA dated as of January 9, 1997, as amended. The SantaRita PPA provides for an initial term of 25 years following the commercial operation date of the plant onAugust 17, 2000 (block one on June 16, 2000), with an option to extend upon mutual agreement of the partiesfor three additional terms of five years each. Under the terms of the Santa Rita PPA, capacity and energy aredelivered to Meralco at the delivery point (the interconnection point between the plant and the transmission109

facility upgrades located at the high voltage side of the step-up transformers) located at the Santa Rita plant site.The initial term of the agreement is automatically extended for each day that FGPC is relieved of its obligationto supply net electrical output under the PPA, including those arising from force majeure or Meralco‘s defaults.Meralco is responsible for contracting with NGCP to wheel power from the delivery point to the Meralco GridSystem.The Santa Rita PPA requires Meralco to take or pay for, within a contract year, an MEQ based on the NDC ofthe Santa Rita plant, tested every six months over the term of the Santa Rita PPA, at an agreed average annualCapacity Factor of 83%. Deliveries of the MEQ during each contract year (and any additional net electricaloutput requested by Meralco) are as scheduled in a commercial operations program agreed to by FGPC andMeralco. Since the commencement of its commercial operations in August 2000, Santa Rita has always beenable to make available to Meralco the electricity required to meet the MEQ and FGPC has not incurred anyliability for generation shortfall payments under the Santa Rita PPA.The Santa Rita PPA specifies that Meralco has the option to make payments in either Pesos or U.S. Dollars,although a substantial portion of the tariff is U.S. Dollar-based. If Meralco chooses to make payments in Pesos,these payments must be in Peso amounts sufficient to cover FGPC‘s U.S. Dollar costs, such as debt serviceobligations and the foreign currency components of Santa Rita‘s fixed and variable operating costs, based on thethen-current Peso/U.S. Dollar exchange rate. Meralco has historically paid the U.S. Dollar-denominatedcomponents of the tariff under the Santa Rita PPA in U.S. Dollars and the peso-denominated components inPesos.On January 7, 2004, Meralco and FGPC signed an amendment to the PPA resulting in a package of concessions,including the assumption by FGPC of community taxes at the then current tax rates, while conditionalconcessions include increases of discounts on excess generation, payment of higher penalties for nonperformancecapped at a certain amount, and recovery of accumulated deemed-delivered energy until 2011resulting in the non-charging of Meralco for excess generation charges for such energy delivered beyond theMEQ but within a 90% capacity quota. The amendments have not had, and are not expected to have, anymaterial adverse effect on FGPC‘s results of operations.Fuel supplySanta Rita is one of the anchor projects for the development of the Malampaya gas field and is thereforeintended to run primarily on natural gas. However, if the supply of natural gas is interrupted, the plant canoperate on various types of liquid fuels, including distillate, condensate, naphtha, and a mixture of these liquidfuels, on a long-term basis, although at reduced efficiency and effectively greater cost. The Santa Rita PPAallows FGPC to recover all fuel costs from Meralco, including any additional fuel costs incurred in using liquidfuel in lieu of natural gas. Santa Rita operated on liquid fuel during the first 16 months of commercial operationsuntil the natural gas supply from Malampaya field became available.FGPC and the Gas Sellers entered into the Santa Rita GSPA on January 9, 1998. Under the Santa Rita GSPA,the Gas Sellers will provide natural gas to Santa Rita from the Malampaya gas fields but may substitute gasfrom other sources in the event that the Malampaya reserves become depleted. The Gas Sellers may substituteliquefied natural gas only with FGPC‘s consent.The Santa Rita GSPA is for a term of 22 years from January 1, 2002 or up to the date on which FGPC consumesthe total contract quantity of 994 PJ, whichever is earlier. The Santa Rita GSPA may be extended under thefollowing instances: (i) to allow FGPC to make up any outstanding take or pay quantity at the end of the term(subject to FGPC reimbursing the Gas Sellers for their operating expenses during the extension period); and (ii)for other reasons, on such terms and conditions as may be agreed among the parties.Under the terms of the Santa Rita GSPA, the Gas Sellers are obligated to deliver FGPC‘s natural gasrequirements of up to the daily contract quantity of 158.8 TJ/D and may deliver quantities in excess of the dailycontract quantity (up to a maximum of 174.7 TJ/D) at their sole discretion. The Gas Sellers are also obligated to110

deliver an annual contract quantity of 49.7 PJ. The Gas Sellers may deliver gas volumes in excess of the annualcontract quantity (up to a maximum of 54.7 PJ) on a reasonable efforts basis.FGPC is obligated to take or pay for 43 PJ of natural gas per contract year (subject to adjustments pursuant tothe terms of the Santa Rita GSPA), which is covered by the level of MEQ dispatch under the Santa Rita PPA.The cost of any take-or-pay amount is passed through to Meralco under the Santa Rita PPA, subject to certainexceptions.Operations and maintenanceO&M services for the Santa Rita plant are provided by SPOI under a new O&M Agreement with FGPC datedJune 5, 2010, as amended. This replaced the original O&M Agreement which expired last July 31, 2010. Theobligations of SPOI under the Santa Rita O&M Agreement are guaranteed by Siemens AG. The Santa RitaO&M Agreement specifies that it will terminate on the earlier of (i) the 20 th anniversary of the commencementdate of the Santa Rita O&M Agreement or (ii) the satisfactory completion of the major inspections of all theunits/modules of Santa Rita and of all the units/modules of San Lorenzo (in each case nominally scheduled at200,000 equivalent operating hours), or as otherwise mutually agreed by FGPC and SPOI.The Santa Rita O&M Agreement aligns SPOI‘s obligations with the requirements of the Santa Rita PPA, withSPOI obligated to make available for delivery, at the very least, the MEQ required under the Santa Rita PPA andto maintain specified operating parameters. Failure to meet these minimum requirements will result in penaltiesto SPOI. Alternatively, the Santa Rita O&M Agreement also provides for bonuses in cases of superior plantperformance.Maintenance and Plant ImprovementsThe maintenance plan for Santa Rita includes scheduled inspections and overhauls, including scheduled periodsof outage. This plan is established for a defined time period with consideration given to Meralco‘s dispatchrequirements and recommendations of Siemens AG, the plant manufacturer. SPOI is required to execute themaintenance plan in accordance with the recommendations of the original equipment manufacturer (which is theparent company of SPOI) and good utility practice.SPOI performs periodic maintenance activities on the Santa Rita generating units during the course of theplant‘s operations. Further, upgrades such as evaporative coolers were installed on all four units inJanuary 2007, increasing Santa Rita‘s output by 36 MW. In August 2007, all of the Santa Rita units hadupgraded compressor blades installed (CMF+), thereby improving the plant‘s capacity. As a result of the plantupgrade, the plant‘s NDC increased significantly from 1,009 MW to 1,038 MW at that time. The computedcapacity increase as a result of the compressor mass flow upgrade was 22 MW. The most recent majorinspection of the Santa Rita generating units was performed last February to May 2010 when the units reached75,000 equivalent operating hours. The next major inspection of the Santa Rita generating units will beperformed when the units reach 100,000 equivalent operating hours, the first of such inspection is planned tostart by the end of September 2012.The Santa Rita O&M Agreement contemplates the sharing of certain facilities between Santa Rita and SanLorenzo and requires SPOI to operate, maintain, repair, and utilize such facilities in accordance with a sharedfacilities agreement executed between FGPC and FGP. The Santa Rita O&M Agreement also requires SPOI tooperate and maintain Santa Rita in coordination with San Lorenzo. Having SPOI provide O&M services forboth Santa Rita and San Lorenzo allows coordination between, and optimizes the use of, the shared facilities andbenefits both plants.FeesOn a monthly basis, FGPC pays SPOI a monthly fixed operating fee, a monthly variable operating fee, and asupplemental payment for start-up costs. All amounts payable under the Santa Rita O&M Agreement areinclusive of the amount of any applicable taxes (but excluding value-added tax) imposed on SPOI in connection111

with services performed under the agreement. The base operating fee amounts are subject to adjustment takinginto account U.S. and Philippine inflation rates, as applicable.The base operating fee amounts are denominated in Euro and Philippine Pesos. Under the Santa Rita O&MAgreement, FGPC has the option to convert all remaining Euro-denominated fees and all other amounts set outin Euros under the said Agreement into U.S. Dollars at the designated conversion rate. The conversion rate willbe based on the lock fee provided by SPOI, which is the sum of the average of the swap points obtained toconvert the remaining Euro-denominated fees into U.S. Dollars over the life of the agreement as quoted by threeinternational banks to SPOI and the spot rate. This option may be availed of by FGPC at any banking day fromthe commencement date of the Santa Rita O&M Agreement up to and including December 30, 2015.The Santa Rita O&M Agreement provides for two bonus triggers which specifically relate to the heat rate andNDC and three penalty triggers which specifically relate to MEQ, heat rate, and NDC. SPOI‘s aggregateliability for the MEQ, heat rate, and NDC penalties in any given contract year is limited to US$16.5 million.Power transmissionPower from Santa Rita and San Lorenzo is transmitted to the Southern Luzon Grid through a 35-kilometerdouble-circuit 230 kV transmission line from the Santa Rita switchyard to the Calaca substation. As a result of(i) the expiration of the Contract for the Sale of Electricity dated November 21, 1994 between Meralco and NPCin December 2004; (ii) the completion of the Dasmariñas-Biñan line upgrade in January 2005; (iii) thecompletion of the 8-kilometer double-circuit 230 kV San Lorenzo-Mahabang Parang transmission line, whichmade a second line available to wheel the power out of Santa Rita and San Lorenzo; and (iv) the Batangassubstation upgrade in April 2005, actual dispatch levels for both Santa Rita and San Lorenzo increased.Financing and capital expendituresFGPC originally obtained funding for the construction of Santa Rita using a combination of project finance debtand equity at a 75:25 ratio. The project finance facilities were provided by a spectrum of lenders, includingexport credit agencies, multilateral and bilateral agencies, international and local Philippine commercial banks,and U.S. institutional investors. 25% of total project costs were funded with equity provided by FGHC. Tofinance the construction of the power plant complex, FGPC obtained US$580.9 million of long-term debtconsisting of U.S. Dollar-denominated borrowings.On November 17, 2008, FGPC completed a refinancing of its project finance debts and obtained US$500million from eight foreign banks. Furthermore, the existing term loan of US$44 million provided byKfW/HERMES was maintained with a term until November 2012. The US$500 million refinancing programconsisted of two separate facilities: (i) a covered facility amounting to US$312 million with political riskinsurance and a tenor of 12 1 /2 years, and (ii) an uncovered facility amounting to US$188 million with a 10-yeartenor. A portion of the proceeds from the refinancing program was used to pay FGPC‘s then existing debt ofUS$132.0 million from the original financing, with the remainder being upstreamed to FGPC‘s indirectshareholders, pro rata. The Company received net proceeds of US$215 million, which it used for repayment ofits then existing debt. As of December 31, 2011, the total outstanding long-term debt (net of debt issuance costs)of FGPC is US$443.3 million.Security measuresStrict security measures are in place at the Santa Rita and San Lorenzo plant sites. These measures are consistentwith the recommendations made by a third-party risk assessment group engaged by the Generation Subsidiariesto assess the security of the Santa Rita and San Lorenzo plants sites. These security measures include installingguard posts around the perimeter of the plant sites and at the shoreline as well as closed circuit televisionsystems along the perimeter fence and at the main access road to the plants.Concrete barriers are installed along the main entrance to the Santa Rita and San Lorenzo plant sites to slowdown approaching vehicles and a double-row fence (with a concrete road in between the rows for patrolling) is112

erected around the perimeter of the facilities. A bollard system and a crash barrier system and a personnel andvehicle electronic access control system are installed as well. Because of the priority given by the Governmentto ensure the flow of natural gas from the Malampaya field to natural gas-fired power plants such as Santa Ritaand San Lorenzo, the Philippine Air Force Special Operations Squadron deploys a detachment to guard the plantsites.Certificate of complianceUnder the EPIRA, no person or entity may engage in the generation of electricity unless such person or entityhas complied with the standards, requirements, and other terms and conditions set by the ERC and has receiveda certificate of compliance from the ERC to operate facilities used in the generation of electricity. The ERCissued a certificate of compliance to FGPC for Santa Rita on November 5, 2003 and renewed such certificate onNovember 6, 2008. The certificate of compliance will expire in November 2013.San LorenzoFGP was incorporated on July 23, 1997 as the special purpose vehicle to undertake the development, financing,and construction of the 500 MW San Lorenzo combined cycle power plant. FGP is 60% owned by theCompany‘s subsidiary, Unified, and 40% owned by BG Philippines Inc., a subsidiary of BGCH, in accordancewith the terms of the San Lorenzo JVA. Like Santa Rita, San Lorenzo utilizes natural gas from the Malampayagas fields as its primary fuel source. San Lorenzo is located adjacent to the Santa Rita plant site in Batangas Cityand commenced commercial operations in October 2002.San Lorenzo was constructed and developed using a structure similar to the Santa Rita plant. Contractualarrangements for San Lorenzo also include a 25-year PPA with Meralco, an EPC Contract with Siemens AG, anO&M Agreement with SPOI, and a GSPA with the Gas Sellers. It also shares various facilities with FGPC.Operations reviewThe table below is a summary of operating statistics of San Lorenzo for the years ended December 31, 2009,2010, and 2011. The operating statistics for San Lorenzo are measured in accordance with internationallyrecognized power plant operational standards set by the American National Standards Institute, Institute ofElectrical Engineers (762-1987), and the Institute of Electrical and Electronics Engineers Standard Definitionfor Use in Reporting Electric Generating Unit Reliability, Availability, and Productivity.Years endedDecember 31,2009 2010 2011Target Energy Generation for Calendar Year (GWh) (1) ....................................... 3,821 3,810 3,837Actual Energy Generated (GWh) (2) ...................................................................... 3,691 3,818 4,114Net Capacity Factor (%) (3) .................................................................................... 80 83 89Availability (%) (4) ................................................................................................. 97 88 96Reliability (%) (5) ................................................................................................... 100 98 99NDC (MW) (6) ....................................................................................................... 526 524 528113

Years endedDecember 31,2009 2010 2011Net Heat Rate (Btu/kWh) (HHV) (7) ...................................................................... 6,646 6,649 6,712Notes:(1)(2)(3)(4)(5)(6)(7)The MEQ required under the San Lorenzo PPA is 83% of the average NDC over a contract year (which ends every October 25).For the purpose of this reporting, the target energy generation is also set at 83% of the average NDC over a calendar year.Actual Energy Generated equals actual net electrical output from the plant delivered to Meralco.Net Capacity Factor is a measure of the actual delivered energy from the San Lorenzo plant divided by the maximum generationpossible during that period.Availability targets for 2009, 2010 and 2011 were fixed internally at 90%, 85% and 93%, respectively and San Lorenzo‘sAvailability rates have usually exceeded benchmarks set by the North American Electricity Reliability Council.Reliability targets were also fixed internally at 94% for each of 2009 and 2010 and 97% for 2011. San Lorenzo‘s Reliability levelhas consistently exceeded benchmarks set by the North American Electricity Reliability Council.NDC values reflected in the table are the average of the actual NDC for the period. NDC Tests are conducted every six months.Under the San Lorenzo O&M Agreement, there is an NDC guaranteed by SPOI. The guaranteed NDC value is dependent on therate of plant degradation, which in turn is affected by the accumulation of equivalent operating hours of the plant. The plant hasconsistently performed well above the guaranteed NDC values prior to the upward adjustment in the guaranteed NDC values ofapproximately 39 MW to 523 MW in August 1, 2010, which adjustment was a result of the transition from the initial O&MAgreement to the new San Lorenzo O&M Agreement. With an applicable NDC of 520 MW (as against the 523 MW guaranteedNDC) from the start of the new San Lorenzo O&M Agreement in August 1, 2010, the plant did not meet the new guaranteedNDC value and as a consequence, SPOI paid liquidated damages to FGP until November 25, 2010. Based on the second 2010NDC Test results after the start of the new San Lorenzo O&M Agreement which became effective from November 26, 2010, SanLorenzo achieved an NDC of 535 MW surpassing the guaranteed NDC and entitling SPOI to receive the NDC bonus.The NDC Test also includes tests that measure Net Heat Rate.San Lorenzo‘s actual energy generation increased from 3,691 GWh in 2009 to 3,818 GWh in 2010 due to higherdispatch. Availability of San Lorenzo in 2009 and 2010 at 97% and 88%, respectively, surpassed the Company‘sinternal targets of 90% and 85%. The low availability in 2010 was due to scheduled maintenance outages of thetwo units from October to December 2010. Despite this, the plant‘s Reliability factor likewise remained high at98% in 2010 from 100% in 2009. The plant also had efficient performance, with Net Heat Rates of 6,646Btu/kWh for 2009 and 6,649 Btu/kWh for 2010, which were both 2% better than the guaranteed heat rates forthe same amount of accumulated operating hours in 2009 and 2010, respectively.In 2011, San Lorenzo generated 4,114 GWh equivalent to a Net Capacity Factor of 89%, the highest capacityfactor attained by San Lorenzo since the start of its commercial operations in 2002. San Lorenzo‘s Availabilityand Reliability factors were high at 96% and 99%, respectively, exceeding the Company‘s internal target of93% and 97%. The Net Heat Rate for 2011 was 6,712 Btu/kWh, 1% better than the expected heat rateconsidering degradation for the same accumulated operating hours.Power offtakerFGP, like FGPC, supplies electricity to Meralco pursuant to a PPA, as amended. The 25-year term commencedon San Lorenzo‘s initial date of commercial operations on October 1, 2002. The San Lorenzo PPA provides foran initial term of 25 years following the commercial operation date of the plant dated October 1, 2002, with an114

option to extend upon mutual agreement of the parties for three additional terms of five years each. The terms ofthe San Lorenzo PPA are substantially similar to those of the Santa Rita PPA described above. The initial termof the agreement is automatically extended for each day that FGP is relieved of its obligation to supply netelectrical output under the PPA, including those arising from force majeure or Meralco‘s defaults. See ―TheGroup‘s Power Generation Facilities — Santa Rita — Power Offtaker‖ on page 109 of this Prospectus.Under the San Lorenzo PPA, FGP is obligated to generate and deliver during each contract year an MEQ basedon the NDC of the San Lorenzo plant, which Meralco must take or pay for. The MEQ under the San LorenzoPPA is set at an average annual Capacity Factor of 83% but may be increased to up to 86% by mutual agreementbetween FGP and Meralco based on existing market conditions. Deliveries of the MEQ during any contract year(and any additional net electrical output requested by Meralco) are also scheduled pursuant to a commercialoperations program agreed upon by FGP and Meralco. Since it commenced commercial operations inOctober 2002, San Lorenzo has always been able to make available to Meralco the electricity required to meetthe MEQ, and FGP has not incurred any liability for generation shortfall payments under the San Lorenzo PPA.Under the San Lorenzo PPA, as in the Santa Rita PPA, fuel costs are passed through to Meralco and Meralcobears the foreign exchange and convertibility risks. Meralco is also responsible for contracting with NGCP towheel power from the delivery point at the San Lorenzo plant site to the Meralco Grid System.The San Lorenzo PPA specifies that payments will be made on a monthly basis in Pesos, but in an amountsufficient to cover FGP‘s U.S. Dollar costs, such as debt service obligations and the foreign exchangecomponents of San Lorenzo‘s fixed and variable operating costs, based on the applicable Peso/U.S. Dollarexchange rate. To the extent that FGP is unable to convert Pesos into U.S. Dollars for a stated payment period,Meralco is required to pay to FGP the shortfall amount in U.S. Dollars. Meralco has historically paid theU.S. Dollar-denominated components of the tariff under the San Lorenzo PPA in U.S. Dollars and the Pesodenominatedcomponents in Pesos.On January 7, 2004, Meralco and FGP signed an amendment to the San Lorenzo PPA resulting in a package ofconcessions, including the assumption by FGP of community taxes at the then current tax rates, whileconditional concessions include increases of discounts on excess generation, payment of higher penalties fornon-performance capped at a certain amount, and recovery of accumulated deemed-delivered energy until 2011resulting in the non-charging of Meralco for excess generation charges for such energy delivered beyond theMEQ but within a 90% capacity quota. The amendments have not had, and are not expected to have, anymaterial adverse effect on FGP‘s results of operations.Fuel supplySan Lorenzo is capable of operating on both natural gas and on a wide range of liquid fuel types. If the supply ofnatural gas is interrupted, San Lorenzo, like Santa Rita, can operate on various liquid fuels, including distillate,condensate, naphtha, and a mixture of these liquid fuels, on a long-term basis, although at reduced efficiencyand greater cost. The San Lorenzo PPA allows FGP to recover all fuel costs from Meralco, including anyadditional fuel costs incurred in using liquid fuel in lieu of natural gas, subject to certain exceptions.FGP and the Gas Sellers entered into the San Lorenzo GSPA on April 30, 1998. Under the San Lorenzo GSPA,the Gas Sellers will provide natural gas to San Lorenzo from the Malampaya gas fields but may substitute gasfrom other sources in the event that the Malampaya reserves become depleted. The Gas Sellers may substituteliquefied natural gas only with FGP‘s consent.The San Lorenzo GSPA is for a term of 22 years from July 2, 2002 or up to the date on which FGP consumesthe total contract quantity of 497 PJ, whichever is earlier. The San Lorenzo GSPA may be extended under thefollowing instances: (i) to allow FGP to make up any outstanding take-or-pay quantity at the end of the term(subject to FGP reimbursing the Gas Sellers for their operating expenses during the extension period) and (ii) forother reasons, on such terms and conditions as may be agreed among the parties.115

The terms of the San Lorenzo GSPA are substantially similar to those of the Santa Rita GSPA discussed above.Under the San Lorenzo GSPA, the Gas Sellers are obligated to deliver FGP‘s natural gas requirements of up tothe daily contract quantity of 79.4 TJ/D and may deliver quantities in excess of the daily contract quantity (up toa maximum of 87.3 TJ/D) at their sole discretion. The Gas Sellers are also obligated to deliver an annualcontract quantity of 24.9 PJ. The Gas Sellers may deliver gas volumes in excess of the annual contract quantity(up to a maximum of 24.9 PJ) on a reasonable efforts basis. See ―The Group‘s Power Generation Facilities—Santa Rita—Fuel Supply‖ on 110 of this Prospectus.FGP is obligated to take or pay for 21.5 PJ of natural gas per contract year (subject to adjustments pursuant tothe terms of the San Lorenzo GSPA), which is consistent with the level of MEQ dispatch under the San LorenzoPPA. Liability for any take-or-pay amount is passed through to Meralco under the San Lorenzo PPA, subject tocertain exceptions.Operations and maintenanceO&M services for San Lorenzo are provided by SPOI pursuant to the terms of a new O&M Agreement datedJune 5, 2010, as amended. The original O&M Agreement expired last July 31, 2010 (concurrent with the SantaRita original O&M Agreement). The performance of SPOI‘s obligations under the San Lorenzo O&MAgreement is guaranteed by SPOI‘s parent company, Siemens AG. The San Lorenzo O&M Agreement specifiesthat it will terminate on the earlier of (i) the 20 th anniversary of its commencement date or (ii) the satisfactorycompletion of the major inspections of all the units/modules of San Lorenzo and of all the units/modules ofSanta Rita (in each case nominally scheduled at 200,000 equivalent operating hours) or as otherwise mutuallyagreed by FGP and SPOI. The terms of the San Lorenzo O&M Agreement are substantially similar to those ofthe Santa Rita O&M Agreement.Maintenance and Plant ImprovementsThe maintenance plan for San Lorenzo includes scheduled inspections and overhauls, including periods ofoutage. This plan is established for a definite time period with consideration given to Meralco‘s dispatchrequirements and recommendations of Siemens AG, the plant manufacturer. SPOI is required to execute themaintenance plan in accordance with the recommendations of the original equipment manufacturer (which is theparent company of SPOI) and good utility practice.SPOI performs periodic maintenance activities on the San Lorenzo generating units during the course of theplant‘s operations. Further, upgrades such as evaporative coolers were installed on both units inNovember 2006, increasing San Lorenzo‘s output by 23 MW. In December 2007, both San Lorenzo units hadupgraded compressor blades installed (CMF+), thereby improving the plant‘s capacity. As a result of the majormaintenance and plant upgrades, the plant‘s NDC increased significantly from 501 MW to 530 MW at the time.The computed increase as a result of the compressor mass flow upgrades was 17 MW.The latest major maintenance inspections were performed from October to December 2010, after each unitreached 75,000 equivalent operating hours. This resulted in improved operational performance, with NDCincreasing to 535 MW from 520 MW. The next major inspection of the San Lorenzo generating units will beperformed when the units reach 100,000 equivalent operating hours, which is expected to occur in late 2013.The San Lorenzo O&M Agreement contemplates the sharing of certain facilities between San Lorenzo andSanta Rita and requires SPOI to operate and utilize such facilities in accordance with a shared facilitiesagreement executed between FGP and FGPC. The San Lorenzo O&M Agreement also requires SPOI to operateand maintain San Lorenzo in coordination with Santa Rita. Having SPOI provide O&M services for both SanLorenzo and Santa Rita allows coordination between, and optimizes use of, the shared facilities and benefitsboth plants.116

FeesThe base values for the operating fees under the San Lorenzo O&M Agreement are lower than thecorresponding base values under the Santa Rita O&M Agreement.The base operating fee amounts are denominated in Euro and Philippine Pesos. Under the San Lorenzo O&MAgreement, FGP has the option to convert all remaining Euro-denominated fees and all other amounts set out inEuros under the said Agreement into U.S. Dollars at the designated conversion rate. The conversion rate isbased on the lock fee provided by SPOI, which is the sum of the average of the swap points obtained to convertthe remaining Euro-denominated fees into U.S. Dollars over the life of the agreement as quoted by threeinternational banks to SPOI, and the spot rate. This option may be availed by FGP at any banking day from thecommencement date of the San Lorenzo O&M Agreement up to and including December 30, 2015.The bonus and penalty scheme under the San Lorenzo O&M Agreement is similar to the bonus and penaltyscheme of the Santa Rita O&M Agreement, except that the aggregate penalties or bonuses under the SanLorenzo O&M Agreement for any contract year are lower than those under the Santa Rita O&M Agreement.For instance, under the San Lorenzo O&M Agreement, SPOI‘s aggregate liability for MEQ, heat rate, and NDCpenalties in any contract year is limited to US$7.9 million.Power transmissionFor a discussion on FGP‘s transmission arrangements, see ―The Group‘s Power Generation Facilities — SantaRita — Power Transmission‖ on page 112 of this Prospectus.Financing and capital expendituresFGP obtained funding for the construction of San Lorenzo using a mixture of project finance debt and equity at75:25 ratio. The project finance facilities were provided by export credit agencies and commercial banks. 25%of total project costs were provided by equity, with Unified contributing 60% of total equity. The developmentand construction of San Lorenzo included the construction of an 8-kilometer pipeline connecting Santa Rita andSan Lorenzo to the natural gas delivery point at Shell‘s Tabangao refinery. To finance the construction of thepower plant complex, FGP obtained US$325.3 million of long-term debt consisting of U.S. Dollar-denominatedborrowings.As of December 31, 2011, the total outstanding long-term debt (net of debt issuance costs) of FGP is US$88.7million. No further capital expenditures are currently anticipated for San Lorenzo that would require additionalexternal financing. FGP is contemplating a refinancing of its outstanding loans later this year.Security measuresAs the Santa Rita and San Lorenzo facilities are located on adjacent parcels of land, security for San Lorenzo isundertaken jointly with security for Santa Rita. See ―The Group‘s Power Generation Facilities — Santa Rita —Security Measures‖ on page 112 of this Prospectus.Certificate of complianceUnder the EPIRA, no person or entity may engage in the generation of electricity unless such person or entityhas complied with the standards, requirements, and other terms and conditions set by the ERC and has receiveda certificate of compliance from the ERC to operate facilities used in the generation of electricity. The ERCissued a certificate of compliance to FGP for San Lorenzo on September 14, 2005, which was renewed onSeptember 6, 2010. The certificate of compliance is valid for a period of five years from the date of issuance andwill expire in September 2015.117

Agusan Mini-HydroOn June 2004, the Company participated in and won the bid conducted by PSALM for the 1.6-MW AgusanRiver Hydroelectric Power Plant in connection with the privatization of NPC‘s power generation assets. TheCompany paid a total of US$1.5 million from internally generated funds for the Agusan Mini-Hydro, which wasofficially turned over to the Company on March 29, 2005. On the same date, a 20-year land lease agreement(renewable for another ten years) between PSALM as lessor and the Company as lessee became effective overthe land on which the plant is situated. PSALM and NPC are undertaking the completion of the titling of thelands covered by the said land lease agreement. The Company is responsible for the operation and maintenancecosts associated with the non-power components of the Agusan Mini-Hydro complex, such as the dams, weirs,spillways, reservoir, and waterways.The Agusan Mini-Hydro was commissioned in 1957 and is located in Damilag, Manolo Fortich, Bukidnon,Mindanao, approximately 36 kilometers southeast of Cagayan de Oro City. FG Bukidnon took over theoperations of the Agusan Mini-Hydro in October 2005. FG Bukidnon is a 100%-owned subsidiary of FGRI, thewholly-owned RE subsidiary of the Company.The run-of-river Agusan Mini-Hydro consists of two 800-kW turbine generators that use water from the AgusanRiver to generate electricity. The Agusan Mini-Hydro is connected to the local CEPALCO distribution Grid viathe NGCP line. On June 10, 2005, the Company entered into an interim PSA with CEPALCO where CEPALCOguaranteed to take all of the electrical energy generated from the Agusan Mini-Hydro. On March 2, 2007, FGBukidnon participated in and won in the bidding for the long-term power supply of CEPALCO‘s requirements.On January 9, 2008, a PSA was signed by FG Bukidnon and CEPALCO, effective from the date of approval bythe ERC until March 2025. The PSA was approved, with modification, by the ERC on November 16, 2009. Inresponse, FG Bukidnon filed a motion for reconsideration and two supplements to the motion. These motionswere partially granted by the ERC on August 16, 2010 and now govern the commercial arrangement betweenFG Bukidnon and CEPALCO for the sale of electricity from the Agusan Mini-Hydro.Operations reviewThe table below is a summary of the operating statistics of the Agusan Mini-Hydro for the years endedDecember 31, 2009, 2010, and 2011:Years endedDecember 31,2009 2010 2011Actual Energy Generated (GWh) ........................................................................ 12 10 12Net Capacity Factor (%) ...................................................................................... 83 70 89Availability (%) ................................................................................................... 97 97 94Reliability (%) ..................................................................................................... 99 99 97In 2009, the Agusan Mini-Hydro generated 12 GWh, equivalent to an 83% capacity factor. Also in 2009, FGBukidnon outlined a three-year major maintenance plan to ensure that the Agusan Mini-Hydro will continue tooperate reliably until the end of the cooperation period under the PSA in 2025.118

The drought experienced in Mindanao during the first half of 2010 affected the plant‘s operational performance.Hence, energy generation and capacity utilization for the year ended December 31, 2010 dropped to 10 GWhand 70%, respectively. In 2010, the plant‘s Availability and Reliability were maintained at 97% and 99%,respectively.In 2011, the Agusan Mini-Hydro generated 12 GWh, equivalent to an 89% capacity factor. This is higher thanthe 10 GWh generated in 2010 and is mainly due to the relatively higher water inflow. The plant‘s Availabilityand Reliability in 2011 were 94% and 97%, respectively, lower than the previous years due to an approximateseven-day plant downtime when Mindanao was devastated by floods brought by Typhoon Sendong during thelast quarter of 2011.Hydropower Service ContractOn October 23, 2009, FG Bukidnon entered into an HSC with the Government, through the DOE. Under theHSC, FG Bukidnon has the exclusive right to explore, develop, and utilize the RE resources along the AgusanRiver in the Municipality of Manolo Fortich, Bukidnon, which is the contract area exclusively reserved by theDOE for FG Bukidnon. FG Bukidnon shall furnish the services, technology, and financing for the conduct of itshydropower operations in the contract area in accordance with the terms and conditions of the HSC. The HSC iseffective for a period of 25 years from the date of execution, or until October 2034.Pursuant to the RE Law and the HSC, the Government and the local government units shall receive theGovernment‘s 1% share in FG Bukidnon‘s gross income for the preceding fiscal year for the utilization ofhydropower resources within the contract area. Under the HSC, the gross income derived from business is anamount equivalent to gross sales less sales returns, discounts and allowances, and cost of goods sold.Certificate of ComplianceOn February 16, 2005, the ERC issued a certificate of compliance to FG Bukidnon for the Agusan Mini-Hydro.This was renewed on February 8, 2010 and is valid for five years from the date of issuance or until February2015.Other Hydropower ProjectsThrough 2009, the Mindanao Grid suffered shortages as peak power demands exceeded available powersupplies and reserve margin. In response to the Government‘s call for investment in RE sources, FGMHPC hasconducted studies on a number of potential hydropower sites in the southern part of the country. In October2009, FGMHPC signed five HSCs with the DOE in connection with the following projects, to wit:• a 30 MW Puyo River plant in Jabonga, Agusan del Norte;• a 14 MW Cabadbaran River plant in Cabadbaran, Agusan del Norte;• an 8 MW Bubunawan River plant in Baungon and Libona, Bukidnon;• an 8 MW Tumalaong River plant in Baungon, Bukidnon; and• a 20 MW Tagoloan River plant in Impasugong and Sumilao, Bukidnon.These contracts give FGMHPC the exclusive right to explore, develop, and utilize RE resources within therespective contract areas and enable FGMHPC to avail of both fiscal and non-fiscal incentives pursuant to theRE Law.119

The Puyo and the Bubunawan projects are both in the preliminary engineering design phase, which is estimatedto be completed during the second quarter of this year. FGMHPC aims to tender these projects for constructionduring the third quarter of 2012 with target commercial operations during the fourth quarter of 2014 and firstquarter of 2015.The Cabadbaran project is in the preliminary engineering design phase with expected completion in the thirdquarter of 2012. FGMHPC targets to commence construction of the Cabadbaran project in 2013.The feasibility studies of the Tagoloan and Tumalaong projects are on-going with target completion in the thirdquarter of 2012. The conduct of the preliminary engineering design for these projects will proceed when thefeasibility studies confirm the projects‘ economic viability.In March 2011, the Company, through First Gen Luzon Power Corporation, signed a Memorandum ofAgreement with the Provincial Government of Nueva Ecija and the Municipal Government of General Tinio,Nueva Ecija covering the development of the proposed Balintingon Reservoir Multi-Purpose Project. TheCompany is currently in the process of updating the feasibility study conducted in 1983. The project intends toharness the water potential of the Sumacbao River traversing Mt. Balintingon, which can yield about 30MW ofpower and provide irrigation support to approximately 15,000 hectares.Wind ProjectsFGRI continues to assess various sites in the Philippines for potential wind exploration and development. In2011, FGRI pre-signed WESCs with the DOE for three sites: Mercedes (Camarines Norte), Burgos (IlocosNorte), and Palanan and Ilagan (Isabela). FGRI has been conducting wind measurements in the Mercedes sitefor almost two years now. This is one of the first activities needed to confirm the viability of a site for a windpower project.Other ProjectsThrough its wholly-owned subsidiary First Gen Visayas Energy, Inc., the Company is participating in thebidding that will be conducted by PSALM for its four (4) power barges, with bid submission deadline on May16, 2012. Each barge has a nominal capacity of 32 MW. Upon privatization, the power barges are required byPSALM to be moored in Mindanao to help mitigate the region‘s current power crisis.MATERIAL INVESTMENTSEDCOverviewEDC is the Philippines‘ largest producer of geothermal energy and is largely responsible for the country beingthe second largest producer of geothermal energy in the world, next to the United States. EDC is operating fivegeothermal steamfields in contract areas where it has exclusive rights to geothermal exploration, development,and utilization through service contracts with the DOE.EDC was incorporated on March 5, 1976. Its primary business is to explore, develop, and operate geothermalenergy projects in the Philippines. It is authorized to exist for an initial period of 50 years from incorporation,which period may be renewed through an amendment of its articles of incorporation, as approved by the SEC.EDC was listed on the PSE in December 2006 in an initial public offering of three billion primary shares andthree billion secondary shares. On November 29, 2007, EDC was privatized with the purchase by Red Vulcan ofthe remaining shares in EDC held by PNOC and PNOC EDC RF. The Company currently has a 32.9% effectivevoting interest and a 48.8% effective economic interest in EDC.120

On October 12, 2009, the SEC approved EDC‘s increase in authorized capital stock supported by a 25% stockdividend. Preferred shareholders of EDC likewise subscribed to a 25% increase in the preferred shares at parvalue. Payment was made on November 23, 2009.EDC‘s business involves the exploration and extraction of steam from geothermal reservoirs, the conversion ofsteam to electricity and selling of electricity to multiple offtakers, including NPC through the PPAs. EDCcommenced commercial operations with the commissioning of its first steamfield in 1983.EDC‘s steam and electricity sales are supported by medium- to long-term offtake agreements in any of thefollowing forms: (i) GRSCs with its subsidiary, Green Core; (ii) SSA with its subsidiary, BGI; (iii) 25-yearPPAs with NPC; and (iv)TSCs, ESAs and PSAs with multiple offtakers. EDC has three 25-year PPAs with NPCcovering the Unified Leyte and the Mindanao Geothermal Power Projects. Under these PPAs, NPC pays EDCfor an annual nominated amount of energy. The PPAs for Unified Leyte and Mindanao I are scheduled to expirein 2022 while the PPA for Mindanao II will expire in 2024.Green Core, which owns and operates the Tongonan I, Palinpinon I, and Palinpinon II power plants, has PSAs,TSCs and ESAs with various customers. Some of these contracts were originally entered into by various electriccooperatives with NPC before the privatization of the power plants, while others were entered into betweenGreen Core and the customers after privatization. BGI is now undertaking the rehabilitation of the acquiredBacMan power plants with target completion for the plant rehabilitation within the third quarter of the year.In addition, EDC currently has thirteen service contracts with the Government for the exploration, developmentand utilization of geothermal energy for each of the following contract areas:Tongonan, Leyte;Southern Negros, Negros Oriental;Bacon-Manito, Albay-Sorsogon;Mt. Apo, North Cotabato;Northern Negros, Negros Occidental;Mt. Cabalian, Southern Leyte;Mt. Labo, Camarines Norte;Mainit, Surigao Del Norte;Mt. Zion, North Cotabato;Balingasag, Misamis Oriental;Ampiro, Misamis OccidentalLakewood, Zamboanga del Sur; and,Mandalagan, Negros OccidentalAll service contracts for each of the contract areas are in the form of GRESCs, which were entered intopursuant to the RE Law, except for the service contract for the Mt. Cabalian contract areas which is in the formof a GSC and which is expected to be converted to a GRESC in due course.Five of the EDC‘s 13 contract areas, namely Tongonan, Southern Negros, Bacon-Manito, Mt. Apo, andNorthern Negros, are in commercial operation with the GRESCs scheduled to expire between 2031 and 2044.The GRESCs for Mt. Labo, Mainit, Mt. Zion, Balingasag, Ampiro, Lakewood and Mandalagan are still in thepre-development period which has a total of five years, i.e., two years from the effective date of the GRESC,renewable for another two years and further renewable for one year if EDC has not defaulted in its exploration,financial, and other work commitments and obligations indicated in the work program approved by the DOE.Generally, under the service contracts, EDC, as the appointed exclusive party to conduct geothermal operationson behalf of the Government in the relevant contract area, provides the necessary services, technology, andfinancing for the geothermal operations contemplated therein, and assumes the financial risks associated withexploration and operating activities.Where geothermal resources in commercial quantity are discovered during the pre-development period, eachservice contract shall, with respect to any production area delineated therein, remain in force for the balance of a25-year period from the service contract effective date and renewable for another 25 years if EDC is not indefault of its obligations under the service contract.121

Under each of the service contracts, all materials, equipment, plants, and other installations of a movable naturethat are erected or placed on the contract area by EDC shall remain the property of EDC. Ownership of assetsleft in the contract area one year after the expiration and/or termination of the applicable contract, shall bevested in the Government.In addition, under the GSC for Mt. Cabalian, EDC is obliged to post a bank guarantee or an irrevocable standbyletter of credit in favor of the Government, conditioned upon EDC‘s faithful performance of all of its obligationsunder the contract. The same obligation is found in the service contracts for Mainit and Mt. Labo. EDC likewisehas the obligation under these contracts to: (i) provide assistance for training, conferences, and other relatedprograms and activities for DOE personnel; and (ii) establish, not later than five years before the anticipatedtermination of the production operations, a sinking fund to be concurred in, and administered by, the DOE thatis sufficient to cover the proper decommissioning of the equipment and structures as well as the abandonment ofwells and the rehabilitation of the abandoned areas.As provided under the RE Law and covered by the GSC and GRESCs, upon commercial operation, EDC mustpay the Government a share from the proceeds derived from geothermal operations. Under the GRESCs, EDCmust pay the Government a share equal to 1.5% of the gross income derived from the geothermal operations ontop of the corporate income tax of 10%. Under the GSC for Mt. Cabalian, EDC must pay the Government anamount of 60% of net proceeds in respect of any geothermal energy extracted from the contract arearepresenting income tax and royalty fees. The net proceeds are calculated after deducting recoverable costs suchas development, production, and operating costs from the gross receipts. The allowable recoverable costs underthe GSC are limited to 90% of gross receipts per year, with any unrecovered costs carried forward to thesucceeding years.EDC’S GEOTHERMAL STEAMFIELDS AND POWER PROJECTSThe following map sets out the locations where EDC conducts its commercial operations and the installedcapacities of each of EDC‘s geothermal power plants.122

The following table provides a summary of EDC‘s geothermal projects, grouped by the contract areas in whichthey are located:Contract AreaGSC/GRESCPeriodProjectRatedcapacity(in MWe)Expiration ofofftakeagreementMinimumtake-or-paycapacity (inGWh/year)LeyteGeothermalProductionField1976-2031 (1) Tongonan I 112.5 Various (2)Upper Mahiao 125.0Malitbog 232.5Mahanagdong 180.02022 (PPA) (3) 4,250 (3)Optimization 50.9SouthernNegrosGeothermalProductionField1976-2031 (1) Palinpinon I 112.5 Various (2)Palinpinon II 80.0 Various (2)BacManGeothermalProductionField1981-2031 (1) BacMan I 110.0 2012-2013 (4)BacMan II 20.0 2012-2013 (4)MindanaoGeothermalProductionField1992-2022 Mindanao I 52.0 2022 (PPA) 390Total 1,129.4Mindanao II 54.0 2024 (PPA) 398Notes:(1)(2)Includes a 20-year extension period to GSC, commencing in 2011.Power is sold by Green Core under PSAs and TSCs with various customers with expiration dates ranging from 2011 to 2022.123

(3)The Unified Leyte PPA governs sales of electricity from the Upper Mahiao, Malitbog, Mahanagdong, and Leyte optimizationplants. The minimum take-or-pay capacity varies from contract year to contract year and is pegged at 3,933 GWh for the contractyear July 25, 2011 to July 25, 2012.(4)The plant is non-operational pending completion of its rehabilitation program. Supply obligations shall be partly sourced fromGreen Core and Asia Pacific Energy Corporation under replacement power contracts. BGI‘s PSAs may also be sourced from theWESM and/or other possible sources of replacement power until the BacMan plants start commercial operations.Leyte Island ProjectsEDC owns and operates three geothermal power plants in Leyte and an optimization plant under Unified Leyte.Together with the Tongonan plant, the Leyte Island projects have a total installed capacity of 700.9 MW.Electricity generated by the Leyte power plants is transmitted to Luzon and Cebu through NGCP‘s 380 MWLeyte-Cebu and 400 MW Leyte-Luzon interconnection projects. The Leyte power plants sold a total of 4,379.1GWh, which accounted for P13.9 billion or 55% of EDC‘s revenues in 2011.Tongonan I ProjectThe Tongonan I project was commissioned in 1983 and was the first geothermal energy project developed byEDC. It consists of 25 production wells, five injection wells, and a 12.4-kilometer pipe network. The TongonanI geothermal steamfield project is located at the center of the Greater Tongonan reservoir and supplies steam toGreen Core‘s 112.5 MW Tongonan power plant. The Tongonan power plant sold a total of 551.2 GWh,equivalent to P2.4 billion, or about 10% of EDC‘s revenues for the year ended December 31, 2011.The 112.5 MW Tongonan geothermal power plant is located in Kananga, Leyte and was previously owned byNPC before its purchase by Green Core in October 2009. The power plant consists of three 37.5 MW generatingunits, supplied by Mitsubishi Heavy Industries, Ltd. The power plant was commissioned in 1983 and suppliespower to electric cooperatives and industrial customers via medium-term and long-term power supply contracts.In September 2006, EDC entered into a GRSC with PSALM as the successor-in-interest of NPC, covering thegeothermal facility at Tongonan I. The GRSC was intended to take effect upon the earlier of the expiration ofthe relevant SSAs between EDC and NPC and the date that the geothermal power generation facility inTongonan I is turned over by PSALM to the relevant private entity pursuant to the privatization process underthe EPIRA. On October 23, 2009, the Tongonan I geothermal power plant was turned over to Green Core, atwhich time the GRSC became effective. Under the GRSC, EDC is obliged to produce and process geothermalresources, such as steam, of acceptable quality and deliver the same to the agreed delivery points while GreenCore is obliged to purchase the geothermal resources made available at the delivery points for use in thegeneration of electricity. There is no minimum guaranteed monthly remuneration on a take-or-pay basis underthe GRSC. Instead, Green Core shall pay EDC remuneration for actual net generation. The price of thegeothermal resources sold by EDC to Green Core is denominated in U.S. Dollars per kilowatt hour, but paymentto EDC shall be made in Pesos, converted at the applicable exchange rate. Steam prices are not fixed, but arelinked to global coal prices as determined by NEX (previously Barlow Jonker) Index and JPU Reference CoalIndex for each billing period. The GRSC for Tongonan I will terminate on May 16, 2031, unless soonerterminated due to non-payment, material breach, or any other cause provided therein.124

The table below summarizes certain operating statistics of the Tongonan plant for the years ended December 31,2009, 2010, and 2011:Tongonan Operating Statistics (1)(2)Years endedDecember 31,2009 (1)2010 2011Net Generation (in GWh)………………………………………………………. 469 634 603Net Dependable Capacity (MW)……………………………………………….. 76 99 82Net Capacity Factor (%) .……………………………………………………... 48 68 64Availability Factor (%)….……………………………………………………… 83 88 79Reliability Factor (%).………………………………………………………….. 96 95 100Notes:(1)(2)The Tongonan Plant was operated by NPC before it was taken over by Green Core in October 2009.Meter readings are taken on the 25th day of each month.Upon turnover of the Tongonan power plant to Green Core in October 23, 2009, rehabilitation works wereimmediately started to improve the plant‘s operational capability. During the rehabilitation, a crack wasdiscovered on Unit 1‘s rotor shaft. This caused a high bearing vibration and necessitated Unit 1 to intermittentlyoperate starting March 2010. The early restoration of Unit 1 and the continued rehabilitation works in Units 2and 3, including the other plant systems, in 2010 improved the Tongonan plant‘s operations. However, theReliability factor in 2010 still lagged compared to 2009 due to the extended preventive maintenance schedule ofUnit 3.In 2011, the plant‘s operational statistics declined as a result of the extended preventive maintenance schedule ofUnit 1. The original rehabilitation period was only 55 days. When brazing was found on the generator rotorwinding, the contractor recommended replacement winding and thus extended the time of completion.Upper Mahiao ProjectThe Upper Mahiao project is located in the Greater Tongonan reservoir. The Upper Mahiao steamfield projecthas a total of 26 production wells, nine injections wells, and a 27.8- kilometer pipe network.The 125 MW Upper Mahiao geothermal power plant was constructed under a BOT arrangement with Ormat,Inc. and was commissioned in June 1996. Pursuant to the terms of the BOT Contract, the geothermal field forthis project was developed by EDC, while the power plant was financed, designed, constructed, and operated byOrmat, Inc. The power plant was turned over to EDC in June 2006 pursuant to the terms of the applicable BOTContract.Malitbog ProjectThe Malitbog project is located in the Greater Tongonan reservoir. The Malitbog steamfield project has a totalof 26 production wells, 12 injection wells, and a 16.2-kilometer pipe network. In addition, the waste brine from125

the steam of the Malitbog geothermal plant is supplied to the Leyte optimization plants to generate additionalpower.The Malitbog geothermal power plant was constructed on a BOT basis by Magma Power Company. The powerplant consists of three 77.5 MW units, supplied by Fuji Electric Co. Ltd., and provides a total installed capacityof 232.5 MW. The power plant was commissioned in July 1996 and was turned over to EDC in July 2007pursuant to the terms of the applicable BOT Contract.Mahanagdong ProjectThe Mahanagdong project is located in Ormoc, Leyte, in the Mahanagdong reservoir. The Mahanagdongsteamfield project has a total of 28 production wells, 14 injection wells, and a 30.1-kilometer pipe network.The Mahanagdong power plant has three generating units of 60 MW each, which were supplied by ToshibaCorporation, Japan. The Mahanagdong geothermal power plant was built pursuant to a BOT Contract betweenEDC and a joint venture between California Energy Company Inc. and CE Philippines Ltd. The power plant wascommissioned in July 1997 and was turned over to EDC in July 2007 pursuant to the terms of the applicableBOT Contract.Leyte Optimization ProjectThe Leyte optimization project consists of four geothermal power plants with an aggregate installed capacity of50.9 MW and which use the existing geothermal energy resources of all of EDC‘s existing projects in Leyte.The four optimization plants are situated near the Tongonan I, Malitbog, and Mahanagdong power plants.Geothermal fluids are conveyed to the optimization plants either before they are directed to the main powerplants (a process called ―topping‖) or after they have been directed to the main power plants (called―bottoming‖). This allows EDC to use energy from the geothermal fluids that would otherwise not be used bythe main power plant. The optimization plants use equipment supplied by both General Electric Co. and Ormat,Inc.The first three units, constructed with Ormat equipment, add approximately 36.0 MW of power generatingcapacity. The Ormat units, which started commercial operations in 1997, are used exclusively for the toppingcycle. The fourth unit, constructed with General Electric equipment, adds approximately 14.9 MW of additionalpower generating capacity. The General Electric unit, which commenced commercial operation in January 1998,is used for the bottoming cycle. All four geothermal power plants associated with the Leyte optimization projectwere built pursuant to the BOT Contract between EDC and Ormat, Inc. and were transferred to EDC inSeptember 2007.The Unified Leyte PPA governs the sale of power from the Upper Mahiao, Malitbog, and Mahanagdonggeothermal power plants and the Leyte optimization project. Under the PPA, EDC shall own and be responsiblefor the finance, design, supply, construction, testing, operation, and maintenance of these power plants. Further,EDC shall deliver the electricity generated by these power plants to NPC in accordance with the terms andconditions set out in the Unified Leyte PPA. In consideration for the performance of these obligations, NPCshall accept the energy delivered to it by EDC and pay EDC remuneration therefore in accordance with the baseenergy rate prescribed in the Unified Leyte PPA, as adjusted for inflation and movements in Peso and U.S.Dollar exchange rates. The Unified Leyte PPA provide for a contract period of 25 years commencing on theapplicable commercial operation date and extendible for such longer period as may be agreed upon by EDC andNPC.The MEOT for the contract year July 25, 2011 to July 25, 2012 is pegged at 3,933 GWh.Below is a summary of operating statistics of the Leyte power plants both on a unified and individual basis forthe years ended December 31, 2009, 2010, and 2011:126

Unified Leyte Project: Operating Statistics (1)Years endedDecember 31,2009 2010 2011Net Generation (in GWh) (2) ……………………………………………..……. 4,117 3,815 3,897Net Dependable Capacity (MW)……………………………………………….. 552 511 539Net Capacity Factor (%)…………………………… …………………………. 82 76 78Availability Factor (%)…………………………………………………………. 95 88 92Reliability Factor (%)…………………………………………………………... 97 91 97Upper Mahiao power plant (3)Net Generation (in GWh)………………………………………………………. 772 749 723Net Dependable Capacity (MW)……………………………………………...... 129 92 116Net Capacity Factor (%)...……………………………………………………... 69 66 64Availability (%) ………………………………………………………………... 98 71 82Reliability (%)………………………………………………………………….. 99 73 97Malitbog power plantNet Generation (in GWh)………………………………………………………. 1,655 1,373 1,452Net Dependable Capacity (MW)………………………..……………………… 226 218 220Net Capacity Factor (%)………………………………………………………... 85 70 74Availability (%).……………………………………………………………...… 97 95 99Reliability (%)…………………………………………………………..………. 100 99 100Mahanagdong A power plantNet Generation (in GWh)………………………………………………………. 809 782 619127

Years endedDecember 31,2009 2010 2011Net Dependable Capacity (MW)………………………..……………………… 110 110 110Net Capacity Factor (%) ……………………………………………….............. 84 81 64Availability (%) …...…………………………………………………………… 91 95 98Reliability (%)…...……………………………………………………………… 92 99 100Mahanagdong B power plantNet Generation (in GWh)………………………………………………………. 414 293 288Net Dependable Capacity (MW)………………………..……………………… 55 55 55Net Capacity Factor (%)…………………………………………………........... 86 61 60Availability (%) ..……….……………………………………………………… 93 76 82Reliability (%)…………………...……………………………………………… 94 85 85OptimizationNet Generation (in GWh)………………………………………………………. 230 241 220Net Dependable Capacity (MW)………………………..……………………… 31 31 38Net Capacity Factor (%)………………………...………………………............ 49 51 47Availability %)……………………….………………………………………… 95 93 89Reliability (%)…………………………...……………………………………… 96 94 97Notes:(1)(2)(3)Meter readings are taken on the 25th day of each month.Net generation for Unified Leyte is the available energy that is reckoned using NGCP meter readings, which is calculated fromthe plant‘s declared capacity less the sum of unavailable energy and forgone energy production from Unified Leyte‘s forcedoutages.Only three of the four units are currently in operation at the Upper Mahiao power plant due to an ongoing steam optimizationprogram.128

Unified Leyte‘s net generation decreased to 3,815 GWh in 2010 from 4,117 GWh in 2009 primarily as a resultof the extended maintenance work on the generator rotor in Mahanagdong B power plant. With the restorationof Mahanagdong‘s exciter and Upper Mahiao‘s geothermal combined cycle Unit 3, the net generation increasedto 3,897 GWh in 2011.The Net Capacity Factor of the power plants, except the Optimization plants, lowered Unified Leyte‘s NetCapacity Factor to 76% in 2010 from 82% in 2009. Upper Mahiao was essentially operating only three out ofthe four geothermal combined-cycle units as part of Unified Leyte‘s Steam Optimization Program sinceNovember 2009. Contributing further to the decrease in the Net Capacity Factor in 2010 was the Malitbogpower plant‘s steam field maintenance activities and prioritization of the steam between the Unified Leyteplants.Unified Leyte‘s Availability and Reliability factor dropped to 88% and 91%, respectively, for the year endedDecember 31, 2010. This is attributed to the decrease in the Availability and Reliability of Upper Mahiao andMahanagdong B. In 2010, Upper Mahiao in 2010 experienced a low insulation resistance problem in its thirdunit‘s generator rotor which started on November 2009. The generator rotor was rewound and was available forfull load operation by January 2011.In 2011, the operating performance of Unified Leyte improved. Note, however, that the improvement was stillbelow the plant‘s 2009 operating performance because of the decline in the steam supply.Negros Island ProjectNegros Island hosts three geothermal steamfield projects: the Palinpinon I and Palinpinon II steamfield projectsand the Northern Negros steamfield project. Electrical power generated by the Negros Island projects istransmitted to Panay and Cebu via NGCP‘s transmission network that has interconnected Negros with Panayand Cebu since 1990 and 1993, respectively.EDC has been exploring and developing geothermal resources in Negros since 1976, pursuant to a GSC with theGovernment. In October 2009, the GSC was replaced by a GRESC with the Government. The Palinpinonsteamfield projects, located in Southern Negros, are EDC‘s second largest collection of steamfield projects andsupply steam to the Palinpinon power plants, which were purchased by Green Core in October 2009. ThePalinpinon power plants sold a total of 1,370.2 GWh for the year ended December 31, 2011. This is equivalentto P5.9 billion or 24% of EDC‘s revenues for the same period.The Northern Negros geothermal project sold a total of 65 GWh for the year ended December 31, 2011. This isequivalent to P298.0 million or 1% of EDC‘s revenues in 2011.Palinpinon I and Palinpinon II ProjectsThe Palinpinon I steamfield project is the second geothermal project developed by EDC and was commissionedin 1983. The project consists of 28 production wells, nine injection wells, and a 16.5-kilometer pipe network.Palinpinon I supplies steam to Green Core‘s 112.5 MW Palinpinon I geothermal power plant.The Palinpinon II steamfield project is located in the same reservoir as the Palinpinon I project. The projectconsists of 16 production wells, six injection wells, and a 16.1-kilometer pipe network. The Palinpinon IIsteamfield project supplies steam to Green Core‘s 80 MW Palinpinon II geothermal power plant.The 112.5 MW Palinpinon I and 80 MW Palinpinon II geothermal power plants were owned by NPC beforetheir purchase by Green Core in October 2009. The Palinpinon I power plant has three 37.5 MW generatingunits, supplied by Fuji Electric Co. Ltd., and was commissioned in 1983. The Palinpinon II power plants consistof four separate modular power plants. The first three power plants were commissioned in 1993 and the lastplant was commissioned in 1995. The Palinpinon geothermal power plants are located in Valencia, NegrosOriental and supply power to distribution utilities, electric cooperatives, and industrial customers via mediumtermand long-term power supply contracts.129

Similar to Tongonan I, EDC entered into a GRSC with PSALM as the successor-in-interest of NPC, coveringthe geothermal facilities at Palinpinon I and Palinpinon II in September 2006. The GRSC was intended to takeeffect upon the earlier of the expiration of the SSA between EDC and NPC and the date that the Palinpinon Iand Palinpinon II geothermal power generation facilities are turned over by PSALM to the relevant privateentity pursuant to the privatization process under the EPIRA. On October 23, 2009, the Palinpinon geothermalpower plants were turned over to Green Core, at which time the GRSC became effective. The terms andconditions in the GRSC covering the Palinpinon geothermal power plants are the same with the GRSC coveringthe Tongonan I geothermal power plant. See ―EDC‘s Geothermal Steamfields and Power Projects‖ on page 122of this Prospectus. The GRSC for Palinpinon I and Palinpinon II will terminate on October 17, 2031, unlesssooner terminated due to non-payment, material breach, or any other cause provided therein.The table below summarizes certain operating statistics of the Palinpinon power plants for the years endedDecember 31, 2009, 2010, and 2011:(1) )(2)(3)Palinpinon I Operating StatisticsYearsendedDecember 31,2009 (2)2010 2011Net Generation (in GWh)………………………………………………………. 654 685 688Net Dependable Capacity (MW)………………………..……………………… 84 90 82Net Capacity Factor (%) ……………………………………………………... 70 73 74Availability Factor (%) ………………………………………………………… 91 85 82Reliability Factor (%) ………………………………………………………….. 98 91 90Notes:(1)(2)(3)The two-year rehabilitation program of the Palinpinon plants was extended until 2013.The Palinpinon plants were operated by NPC before they were taken over by Green Core in October 2009.Meter readings are taken on the 25th day of each month.A defective battery charger caused Palinpinon I the plant to shutdown in February 2009. During the same year, agenerator breaker failure caused Palinpinon I‘s Unit 2 to be out of service for a month. Hence, the NetGeneration was only 654 GWh in 2009. Nevertheless, the plant was dependable at 98% Reliability Factor.Palinpinon I‘s net generation increased to 688 GWh in 2011 from 685 GWh in 2010. The increase wasattributed to EDC management‘s effort to fix plant equipment and auxiliaries in the least possible time.Effective marketing of power also contributed to the increased dispatch. Due to the planned and unplannedmaintenance shutdowns during the rehabilitation period, the Availability and Reliability of the power plant wereaffected. While the plant‘s Net Generation and Net Capacity Factor remained high in 2010 and 2011, itsAvailability and Reliability factors consistently declined. Rehabilitation is expected to be completed by the endof 2013.130

(1) )(2)(3)Palinpinon II Operating StatisticsYearsendedDecember 31,2009 (2)2010 2011Net Generation (in GWh)……………………………………………………… 575 591 624Net Dependable Capacity (MW)………………………..……………………... 75 75 71Net Capacity Factor (%) ………………………...……………………………. 86 89 94Availability Factor (%) ……………………………………………………….. 96 96 98Reliability Factor (%) …………………………………………………………. 100 97 100Notes:(1)(2)(3)The two-year rehabilitation program of the Palinpinon plants was extended until 2013.The Palinpinon plants were operated by NPC before they were taken over by Green Core in October 2009.Meter readings are taken on the 25th day of each month.The net generation of Palinpinon II continuously increased to 591 GWh in 2010 and 624 GWh in 2011. Theimprovement in net generation was a result of the continuous rehabilitation works. The plant‘s Availability andReliability during the same periods also remained high with no value going below 96%. The decline in theplant‘s Reliability to 97% in 2010 was caused by the extended maintenance works on a grounded generator rotorof the Sogongon 2 power plant, which lasted for more than a month. After which, the plant‘s Reliabilityrebounded to 100% in 2011. The 4% decrease in the plant‘s Net Dependable Capacity in 2011 from 75 MW to71 MW was due to the deration or load reduction in the Okoy 5 cooling tower.Luzon Island ProjectsEDC‘s projects in Luzon include the BacMan geothermal projects located in the provinces of Albay andSorsogon in Southern Luzon. EDC commenced exploration and development in the BacMan geothermalreservoir in 1981 under a 30-year GSC with the Government. On October 23, 2009, the GSC was replaced by aGRESC with the Government, which will expire on October 16, 2031.On May 5, 2010, EDC, through BGI, submitted to PSALM the highest complying bid for the acquisition of theBacMan plants. On September 3, 2010, pursuant to the APA dated May 5, 2010 between PSALM and BGI,PSALM turned over the BacMan plants to BGI. Based on the APA, EDC and NPC will remain to be thecontracting parties in each of the existing SSAs for the BacMan plants until NPC assigns the SSAs to BGI.Although NPC and EDC are still the contracting parties to the SSAs, the APA mandates that BGI shall assumeand be liable for all of NPC‘s rights and obligations under each of the SSAs, which include completely and fullyperforming all of NPC‘s obligations in a prompt and expeditious manner in full compliance with the terms andconditions of each of the SSAs.131

BacMan I and BacMan II ProjectsThe BacMan I steamfield project was commissioned in 1993. The project consists of 15 production wells, seveninjection wells, and a 22.9-kilometer pipe network. The BacMan I geothermal steamfield project is located inAlbay and Sorsogon and supplies steam to BGI‘s 110 MW BacMan I power plant.The BacMan II steamfield project was commissioned in 1994. The project consists of eight production wells,seven injection wells, and a 3.7-kilometer pipe network. The BacMan II geothermal steamfield project is locatedin Sorsogon and supplies steam to BGI‘s 40 MW BacMan II power plant.The 110 MW BacMan I power plant and the 40 MW BacMan II power plants were owned by NPC before theirpurchase by BGI in May 2010. The BacMan I power plant has two generating units, supplied by AnsaldoEnergia, SpA. The BacMan II power plant has two generating units, manufactured by a consortium of Japanesecompanies. Due to problems with the equipment at both the BacMan I and BacMan II power plants, neitherplant has been operational since September 2006.For BacMan II, the 20 MW Steam Turbine and Generator unit located at Cawayan was completely destroyed asa result of a catastrophic turbine over-speed event that occurred in August 2005. BGI intends to completelyrepair and rehabilitate this 20 MW Steam Turbine and Generator unit located at Botong and relocate it toCawayan site. The Botong site has been decommissioned and will be remediated at a later date. The 110 MWBacMan I and the 20 MW BacMan II power plants are currently undergoing rehabilitation. During the latter partof 2011, EDC‘s management decided to effect further repairs on the 110 MW BacMan I and 20 MW BacMan IIpower plants due to the defects that were detected during the commissioning phase. The rehabilitation is nowexpected to be completed within the third quarter of 2012. Hence, as of December 31, 2011, there were no steamrevenues generated by the power plants.In addition, BGI has a total 114.5 MW contracted with BATELEC II and Linde Philippines, Inc. With theextended plant rehabilitation period of BacMan, the supply shall be sourced from the WESM, Green CoreGeothermal, Inc., Asia Pacific Energy Corporation, and/or other possible sources of replacement power until theBacMan plants start commercial operations.BacMan I Operating Statistics (1)(2)Years endedDecember 31,2009 2010 2011Gross Generation (in GWh)……………………………………………………. 14 N/A 10Gross Capacity Factor (%)…………..………… …………… ………………… 1 N/A 13Availability Factor (%)……………….………………………………………… 7 N/A 18Reliability Factor (%)………………………………………………………….. 7 N/A 22Notes:(1) Meter readings are taken on the 25th day of each month. For 2011, the data presented are from November 26 to December25, 2011 only.132

(2) BacMan I meter readings are measured in gross (i.e. inclusive of energy consumed in the plant).On March 27, 2009, maintenance activities were started for the generator exciter of Unit 1 in BacMan I.However, due to the continuous difficulty encountered with the equipment, the power plant was completely shutdown for rehabilitation starting 2009. Since BacMan I was not fully operational in 2009, gross generation wasonly 14 GWh at a Gross Capacity Factor of 1%. Availability and Reliability were also low at 7%. Before BGIpurchased the 110 MW BacMan I power plant and the 40 MW BacMan II power plant on May 5, 2010, NPCwas the owner and operator of the power plants.BacMan did not operate in 2010. During the last quarter of 2011, almost a year and a half since BGI‘sacquisition of BacMan, Unit 1 first started to operate and was able to load the unit up to 46.3 MW on December9, 2011. Gross generation and Gross Capacity Factor improved at 10 GWh and 13%, respectively, in 2011.Availability and Reliability also increased at 18% and 22%, respectively. However, due to the low insulationresistance of the generator rotor, the unit was shutdown. Aside from the rehabilitation works in Unit 1, trimbalancing runs are also being conducted to reduce the vibration level of Unit 2. The rehabilitation for these unitsis expected to be completed within the third quarter of 2012.BacMan II Operating Statistics (1)(2)Years endedDecember 31,2009 2010 2011Gross Generation (in GWh)…………………………………………….………. 24 N/A N/AGross Capacity Factor (%)………………………..……………………..……… 7 N/A N/AAvailability Factor (%) ………………………………………………………… 28 N/A N/AReliability Factor (%) ………………………………………………………….. 28 N/A N/ANotes:(1) Meter readings are taken on the 25th day of each month.(2) BacMan II meter readings are measured in gross (i.e. inclusive if energy consumed in the plant).Each of BacMan II‘s generating units, namely, Cawayan located in Basud and Botong in Osiao, Sorsogon Cityhas a rated capacity of 20 MW. The Cawayan plant‘s steam turbine and generator unit was completely destroyedwhen a catastrophic turbine over-speed event occurred in August 2005. On May 2, 2009, the Botong plant wasseverely damaged by a super typhoon. A fire then razed the Botong plant‘s cooling tower on May 31, 2009. TheBacMan II‘s two generating plants have been non-operational since these incidents. Hence, for the year endedDecember 31, 2009, the gross generation of BacMan II was only 24 GWh at a Gross Capacity Factor of 7%.Availability and Reliability were also low at 28%.133

Since the generating unit located in Cawayan was completely destroyed in 2005, BGI only intends to completelyrepair and rehabilitate the generating unit located in Botong. The rehabilitation of the Botong plant is expectedto be completed within the third quarter of 2012.Mindanao Island ProjectsEDC‘s Mindanao I and II geothermal plants were constructed under BOT arrangements between EDC and ajoint venture formed by Marubeni Corporation and Oxbow International Power Corporation. The joint venture,however, was dissolved in June 2000 when Marubeni Corporation bought the shares of Oxbow InternationalPower Corporation and formed the Mindanao I Geothermal Partnership and Mindanao II GeothermalPartnership.Exploration of the Mindanao geothermal production field was commissioned in 1992 pursuant to a GSC. OnOctober 23, 2009, the GSC was converted into a GRESC, which is scheduled to expire in 2017. The GRESCmay be extended for another 25 years, provided that EDC has not been in default of its obligations thereunder.EDC has entered into two PPAs with NPC with respect to the Mindanao I and Mindanao II projects, which wereturned over to EDC by the BOT contractor on June 18, 2009. Under the PPAs, EDC shall own and beresponsible for the finance, design, supply, construction, testing, operation, and maintenance of the applicablepower plant. Further, EDC shall deliver the electricity generated by the applicable power plant to NPC inaccordance with the terms and conditions set out in the relevant PPA. In consideration for the performance ofthese obligations, NPC shall accept the energy delivered to it by EDC and pay EDC remuneration therefore inaccordance with the base energy rate prescribed in the relevant PPA, as adjusted for inflation and movements inPeso and U.S. Dollar exchange rates. The PPAs provide for a contract period of 25 years commencing on theapplicable commercial operation date and extendible for such longer period as may be agreed upon by EDC andNPC.The Mindanao I and Mindanao II power plants sold a total electricity volume of 791.8 GWh for the year endedDecember 31, 2011, accounting for P2.2 billion or 9% of EDC‘s revenues during the same period.Mindanao I ProjectThe Mindanao I geothermal project was completed in March 1997. The steamfield project has ten productionwells, seven injection wells, and a 10.4-kilometer pipe network. The power plant, which has a total installedcapacity of 52 MW, is being operated by EDC after the expiry of the BOT Contract between EDC and theMindanao I Geothermal Partnership in June 2009. The power plant has one generating unit supplied byMitsubishi Heavy Industries, Ltd.The sale of power from Mindanao I Geothermal Plant is governed by a PPA under which NPC guarantees EDCa minimum electricity offtake of 330 GWh for the first year and thereafter, 390 GWh per annum for the rest ofthe contract period. The Mindanao I PPA will expire in 2022.The table below summarizes the operating statistics of Mindanao I for the years ended December 31, 2009,2010, and 2011:Mindanao I Operating Statistics (1)134

Years endedDecember 31,2009 2010 2011Net Generation (in GWh)………………………………………………………. 393 385 392Net Dependable Capacity (MW)………………………..……………………… 51 49 49Net Capacity Factor (%) ……………………………………………………... 90 88 90Availability Factor (%) ………………………………………………………… 98 99 99Reliability Factor (%) ………………………………………………………….. 100 100 100Note:(1) Meter readings are taken on the 25th day of each month.The operating performance of Mindanao I was better in 2009 than in 2010. To meet the generation target ofMindanao I and II, a loading scheme was adopted to divert the steam from Mt. Apo I to Mt. Apo II. At that time,when Mt. Apo I underwent preventive maintenance schedule in 2010, Mt. Apo II had to load up steam. Thesteam from Mt. Apo II was redirected upon resumption of Mt. Apo I. During the same year, the net generationof Mindanao I was only 385 GWh, which was below the plant‘s required MEOT to NPC of 390 GWh annually.The decline was attributed to a well work over for two months with a capacity of 2.2 MWe. This likewisereduced the plant‘s Capacity Factor to 88%.There was no work over in 2011 and thus, the power plant rebounded with net generation of 392 GWh, which ishigher than the required MEOT to NPC. Net Capacity, Availability and Reliability Factors also reached 90%,99%, and 100%, respectively.Mindanao II ProjectThe Mindanao II project is a geothermal power project located adjacent to Mindanao I in the Mt. Apogeothermal field in Cotabato, Mindanao and was completed in June 1999. The steamfield project consists ofnine production wells, two injection wells, and a 9.8-kilometer pipe network. The power plant, which has aninstalled capacity of 54 MW, is being operated by EDC after the expiry of the BOT Contract between EDC andMindanao II Geothermal Partnership in June 2009. The power plant at Mindanao II has one generating unitsupplied by Mitsubishi Heavy Industries, Ltd.The sale of power from Mindanao II Geothermal Plant is governed by a PPA under which NPC guarantees EDCa minimum electricity offtake of 398 GWh annually. The Mindanao II PPA will expire in 2024.135

The table below summarizes Mindanao II‘s operating statistics for the years ended December 31, 2009, 2010,and 2011:Mindanao II Operating Statistics (1)Years endedDecember 31,2009 2010 2011Net Generation (in GWh)………………………………………………………. 382 399 399Net Dependable Capacity (MW)………………………..……………………… 52 48 48Net Capacity Factor (%) ……………………………………………………... 90 94 94Availability Factor (%) ………………………………………………………… 93 99 98Reliability Factor (%) ………………………………………………………….. 99 100 100Notes:Meter readings are taken on the 25th day of each month.The steam supply pipelines of Mindanao II were hit during the Kanlas landslide in 2009. As a result, NetGeneration was only 382 GWh, which was below the plant‘s required MEOT to NPC of 398 GWh annually. In2009, the Net Capacity and Availability factors were lowest at 90% and 93%, respectively. In spite of this, thepower plant remained dependable with a Reliability factor of 99%.Mindanao II‘s operations improved in the years thereafter. The plant even exceeded NPC‘s required 398 GWhMEOT with its Net Generation at 399 GWh in 2010 and 2011.Other EDC ProjectsGeothermal ProjectsEDC intends to develop additional integrated steam and electricity projects. An additional capacity ofapproximately 200 MW is currently under consideration by EDC. However, there is no assurance that any ofthese projects will be completed, or when completed, that they will perform in the manner expected. Each of theprojects is in various stages of consideration/development and some may be more advanced than the others. Ofthe projects under consideration, the 50 MW Nasulo geothermal power plant in Southern Negros, the 40 MWBacMan 3 geothermal power plant (and its related steamfield in the existing BacMan geothermal field), and thepotential 50 MW integrated power and steamfield development of Mindanao III located in the southern portionof the Mindanao II production sector are expected to be developed earlier than the others.The Nasulo geothermal power plant, which will add 20 to 30 MW in EDC‘s installed geothermal capacity, willutilize the 49.4 MW power plant unit of NNGP that was decommissioned in July 1, 2011. The Nasulo Project islocated within the existing Southern Negros Geothermal Production Field, which was covered by a GSCbetween EDC and DOE dated October 16, 1981, as amended. On October 3, 2009, the GSC was converted intoa GRESC pursuant to the provisions of the RE Act.136

The Nasulo Project is located in Sitio Nasuji, within the political jurisdiction of Barangay Puhagan,Municipality of Valencia, province of Negros Oriental. Although situated within a forested land, the specificbounds of the project site is free of any standing trees given that it is right within the area of the existing NasujiModular Power Plant of Green Core, a wholly-owned subsidiary of EDC, and the geothermal fluid collectionand reinjection system of EDC. The existing 20 MW Nasuji plant may be decommissioned to give way to thefull operation of a 50 MW Nasulo. As mentioned, Nasulo will result in an additional 20 to 30 MW to EDC.The project includes the following components: (1) the dismantling, transfer, reassembly, construction,installation and commissioning of a 50-MW geothermal power plant (2) the steamfield development (drilling,work-over and maintenance of production and reinjection wells); (3) the construction of a fluid collection andreinjection system; and (4) the construction of a switching station to interconnect with the 138-kV TransmissionLines of the Nasuji substation.EDC is also seeking other opportunities for geothermal power through the exploration of the steamfields for thepotential 40 MW BacMan 3 and 50 MW Kayabon project in Luzon, the estimated 30 MW Cabalian project andthe projected 40 MW Dauin project in Visayas as well as approximately 50 MW Mindanao 3 project.New and Renewable Energy ProjectsIn addition to the development of geothermal power projects, EDC is also considering the viability of other newand RE projects. In particular, these involve wind power projects.EDC entered into six WESCs with the DOE for the conduct of wind exploration, development, production, andutilization in the following contract areas: (i) 1,296 hectares in Burgos, Ilocos Norte for an 86 MW wind project;(ii) 1,215 hectares in Baloi, Pagudpud, Ilocos Norte for a 40 MW wind project; (iii) 1,539 hectares in Taytay,Palawan for a 10 MW wind project; (iv) 891 hectares in San Jose, Dinagat Island, Surigao del Norte for a 10MW wind project; (v) 6,804 hectares in Siargao Island, Surigao del Norte for a 10 MW wind project; and (vi)729 hectares in Mahinog, Camiguin for a 15 MW wind project. However, in December 2011, EDC decided tosurrender the Taytay, Dinagat and Siargao WESCs to the DOE considering the feasibility of these projects basedon existing commercially available wind data. The surrender is without prejudice to EDC joining the bid in caseDOE decides to bid out these areas in the future.The Burgos wind power project in Burgos, Ilocos Norte, involves the construction, installation, testing,commissioning, operations and maintenance of wind farm facilities with support equipment, relatedtransmission lines, and substation facilities. The project is expected to have an approximate installed capacity of86 MW and construction is expected to commence in late 2012. The project scope includes the construction of a42-kilometer transmission line connecting the facility to NGCP‘s substation in Laoag, Ilocos Norte.Under the WESCs, EDC was appointed and constituted as the main exclusive party to explore, develop, andutilize the wind resources within the contract areas. As such, EDC must undertake exploration, assessment,harnessing, piloting, and other studies pertaining to wind resources and perform necessary wind exploration,development, and utilization and provide services, technology, and financing in connection therewith. In theevent that it is determined during the pre-development stage that the wind resource is insufficient in commercialquantities, EDC will assume the financial risks incurred for the exploration of sites under the WESCs.The pre-development stage of the respective WESCs is two years from the effective date, extendible for anotheryear provided that EDC: (i) has not been in default in its exploration, financial, and other work commitmentsand obligations; and (ii) has provided a work program for the extension period that is acceptable to the DOEafter which the WESC shall automatically terminate unless EDC submits a declaration of commerciality beforethe end of the third year of the WESC. Upon EDC‘s submission of the declaration of commerciality within theterm of the pre-development stage and the DOE‘s confirmation thereof, the WESC shall remain in force for thebalance of a period of 25 years from the effective date, renewable for another 25 years under the same terms andconditions, provided EDC has not been in default of any of its material obligations.137

Related Business OpportunitiesLATIN AMERICA – Chile and PeruOn February 2, 2012, EDC entered into a JVA with Hot Rock Limited (―HRL‖) to co-develop four geothermalexploration projects (the ―Chile and Peru Projects‖): the Calerias and Longavi projects in Chile, and theQuellaapacheta and Chocopata projects in Peru. Under the terms of the JVAs, EDC obtained a 70% interest ineach of the Chile and Peru Projects with HRL taking the remaining 30% interest.EDC has also recently been granted concessions as part of a third round of tender offers for geothermalconcessions held by Chile‘s Ministry of Energy. EDC participated in this tender process in November 2010, andsubmitted bids for five concessions, winning three of these bids. The concessions known as ―Newen‖, ―SanRafael‖ and ―Batea‖ will be solely developed by EDC. The company will have a period of two years to conductexploration activities, with the ability to renew the concession for an additional two years.A full team of geothermal scientists will be deployed to Chile to start development activities on the projects.IndonesiaIndonesia boasts of impressive geothermal potential with an estimated 27,000 MWe of geothermal capacitylocated in more than 250 identified sites.EDC has a representative office in Jakarta to explore opportunities in Indonesia. EDC has an application forpreliminary survey right over one site in Sumatra and is looking at applying for additional sites. EDC is alsopursuing possible joint development opportunities with holders of geothermal concessions.Both projects demonstrate the commitment of EDC to its goal of overseas expansion and maximizing theviability of geothermal resources in areas located in the Pacific Ring of Fire.EDC’S STEAM RESERVESOver the last three decades, EDC has acquired considerable experience managing its geothermal productionfields in the Philippines. EDC has been able to formulate immediate and long-term reservoir managementstrategies for the sustainability of its resources through intensive monitoring and thorough understanding of thefield‘s behavior before and during production. These management strategies are carefully modified during theproduction stage to suit field behavior and optimize production. Close monitoring of the response of a field hasbeen a key parameter implemented by EDC in formulating these strategies.EDC relies on its steam reserve estimation in the planning of geothermal development, as any developmentrequires the assurance that the field has sufficient production capacity over the projected life of the field andreserve estimation also influences the infrastructure and investment requirements of the project. There is noassurance that any current or future estimates of EDC‘s steam reserves, conducted by either EDC on its own orby third parties, are or will be precise. These estimates are expressions of judgment based on knowledge,experience, analysis of drilling results, employment of calculation method, and industry practices. Validestimates made at a given time may significantly change when new geoscientific, reservoir, and drillinginformation become available and incorporated into new reservoir simulation studies.In 2010, EDC contracted GeothermEx to provide an independent review of its geothermal energy reserves forfive geothermal fields - BacMan, Mindanao, Palinpinon, Greater Tongonan, and Northern Negros. In the report,GeothermEx estimated a total mean reserve of 2,049 MWe for the five operating fields for 25 years.GeothermEx‘s reserve estimations, as well as those of EDC‘s, implicitly assumes that the available reserves canbe recovered by drilling as many make-up and replacement wells as needed, and by adopting an optimumproduction/injection strategy.138

The following table summarizes the estimated reserves of EDC‘s steamfields as of December 2010:SteamfieldCurrent ProductionLevel / InstalledCapacity (in MWe)First PlantCommissionedCompany‘sEstimate of TotalMean Reserves(in MWe) (1)GeothermExEstimate of TotalMean Reserves for25 years (in MWe)BacMan 150.0 1993 270 415Mindanao 106.0 1997 154 448Southern Negros/ Palinpinon 192.5 1983 217 399Greater Tongonan/Leyte 700.9 1983 686 732Northern Negros (2) 49.4 2007 47 55Total 1,198.8 1,374 2,049Notes:(1) Using heat recovery factor of 20% to 30% compared to the GeothermEx value of 35% to 45%.(2) No further study on EDC‘s estimated mean reserves was conducted by GeothermEx after December 2010. Hence, EDC‘sestimated total mean reserves still include the estimated mean reserve for the decommissioned plant in Northern Negros. See―Recent Developments – NNGP Write-down‖ on page 25 of this Prospectus.GeothermEx applied a heat recovery factor of 35% to 45% as compared with an estimated heat recovery factorof 20% to 30% used by EDC. GeothermEx‘s estimates were based on its experience in monitoring and reservoirmodeling of a large number of high temperature producing fields. Steam reserve studies conducted by EDC in2008, which were validated by GeothermEx in 2010, as well as preliminary reservoir modeling results,confirmed the sustainability of EDC‘s steamfields at the present level of production up to 2031 for the EDCoperating fields, except in Northern Negros where an optimization discharge test is currently being undertakento determine the sustainable resource capacity.GEOTHERMAL CONSULTANCY SERVICESSince 1978, EDC has provided technical consultancy services to various geothermal companies, miningcompanies, multilateral institutions, and other third parties internationally as well as to its own steam fields andpower plants. One of EDC‘s business strategies is to expand its geothermal consultancy operations ininternational markets. EDC has provided drilling equipment and rig personnel services to Lihir Gold Limited ofPapua New Guinea since 2006. EDC continues to provide services to Lihir Gold Limited pursuant to theProvision of Drilling Services which will expire on December 31, 2012. Discussions for any contract extensionor to execute a new contract with the new owner of Lihir Gold Limited, Newcrest Mining Ltd will be known bythird quarter of 2012.EDC has a team of geothermal specialists who have significant expertise in the following areas:geoscientific exploration, resource assessment, and field development;well design and drilling management services;reservoir engineering and resource management;139

engineering design, procurement, and construction for geothermal energy development; andenvironmental management services.PANTABANGAN-MASIWAY HYDROELECTRIC PLANTSIn September 2006, the Company participated in and won the bid conducted by PSALM for the then 112 MWPantabangan-Masiway hydroelectric plants in connection with the privatization of NPC‘s power generationassets. The Company bid US$129 million and the plants were turned over to the Company onNovember 18, 2006.On October 20, 2008, EDC subscribed to 101,281,942 shares of common stock of FG Hydro at a subscriptionprice of P1.6 billion. On November 17, 2008, EDC also purchased from the Company 249,287,223 shares ofoutstanding common stock of FG Hydro at a purchase price of P4.3 billion. As a result of the abovetransactions, the Company currently owns 40% of the outstanding capital stock of FG Hydro while EDC owns60%, leaving the Company with a 69.3% effective economic interest in FG Hydro.Pantabangan was commissioned by NPC in 1977 while Masiway was completed in 1981. The plants are locatedin the municipality of Pantabangan in the Central Luzon province of Nueva Ecija. Pantabangan consists of two60 MW turbines which uses water from the Pantabangan reservoir, while Masiway consists of one 12 MWturbine which uses water discharged by Pantabangan into the Masiway reservoir to generate electricity.Incidentally, the Pantabangan reservoir has the largest storage capacity in the country at three billion cubicmeters. The two plants are connected to the Luzon Grid.At present, Pantabangan-Masiway serve two electric cooperatives, Nueva Ecija Electric Cooperative I and theNueva Ecija Electric Cooperative II-Area 2. They also supply electricity to government units, such asPantabangan Municipal Electric Services and NIA-UPRIIS, and to Edong Cold Storage and Ice Plant.Operations ReviewThe operating statistics of Pantabangan-Masiway are determined in accordance with operational standards set bythe American National Standards Institute—Institute of Electrical Engineers (762 1987), Institute of Electricaland Electronics Engineers Standard Definition for Use in Reporting Electric Generating Unit Reliability,Availability, and Productivity. The table below is a summary of the operating statistics of Pantabangan for theyears ended December 31, 2009, 2010, and 2011:Years endedDecember 31,2009 2010 2011Gross Energy Generation (in GWh)……………………………………………. 289 313 248Capacity Factor (%) ……………………………………………………............. 33 32 24Availability Factor (%) ………………………………………………………… 75 69 87Forced Outage Rate (%) ……………………………………………………….. 0 0 0140

The table below is a summary of the operating statistics of Masiway for the years ended December 31, 2009,2010, and 2011:Years endedDecember 31,2009 2010 2011Gross Energy Generation (in GWh)……………………………………………. 48 52 48Capacity Factor (%) ……………………………………………………............. 46 49 46Availability Factor (%) ………………………………………………………… 96 96 87Forced Outage Rate (%) ……………………………………………………….. 0 0 0The Pantabangan Hydro Electric Plant underwent rehabilitation and upgrade in 2009 and 2010 increasing thecapacity by 20 MW to 120 MW and extending the plant‘s life by 25 years. Due to the rehabilitation andupgrade, the Availability factor for Pantabangan was 75% in 2009 and 69% in 2010. The project worked onUnit I and Unit II as well as the common plant systems in 2009 and 2010, respectively.During the first half of 2011, the water reservoir levels were the lowest in recent history. As a result,Pantabangan‘s Gross Generation and Capacity Factor declined that year. Historically, the plant‘s generation ishighest from January to March corresponding to the dry cropping season with high irrigation requirements. Thiswas, however, not the case in 2011. Water inflow to the reservoir during the second half of the year was able toincrease the water level back up to normal operating levels.For Masiway, Availability factor and forced outage rate remained above the North American Electric ReliabilityCouncil benchmark for hydroelectric plants in 2009 and 2010. However, the Availability factor was lower in2011 due to the shutdown for the maintenance of the spillway gate and installation of a flow meter. GrossGeneration of 48 GWh and Capacity Factor of 46% in 2011 were also lower than the previous year due to thelow water reservoir levels.Pantabangan-Masiway offtakerFG Hydro assumed the TSC between NPC and eight electricity users beginning December 26, 2006. As part ofthe TSCs, FG Hydro sells power at the NPC-approved TOU pricing scheme to all its customers. The TOU pricescheme consists of a 24-hour-weekday/weekend rate schedule that varies for dry (January–June) and wet (July–December) seasons.Three TSCs have expired and have not been renewed. FG Hydro converted two of the TSCs that have expiredinto PSAs. The pricing of the new PSAs are still based on a TOU scheme, but have now excluded anyindexation to NPC price parameters. The selling price is adjusted every year based on movements in thePhilippine Consumer Price Index. As of the date of this Prospectus, FG Hydro serves a total of five customersthat have an equivalent peak demand of 48 MW, with an average load factor of 65%. In terms of totalgeneration, 55% to 60% is used to serve the power requirements of its offtakers while the rest is sold in the spotmarket during peak periods to take advantage of higher prices. In terms of total average contract energy permonth, FG Hydro‘s contracts account for 20 GWh.141

WESM tradingAll power generated by Pantabangan-Masiway in excess of its contracted levels are sold to WESM. FG Hydrohas formed a trading team composed of power industry analysts from the head office and plant operators fromthe site office. FG Hydro‘s trading team considers various factors such as optimal water elevation and utilizationlevels and supply and demand conditions of the spot market in its pricing strategy.WaterThe generated output energy of Pantabangan-Masiway is limited by the IDR set by the NIA. Generally, theoutput energy of each plant is high during planting seasons which covers the months of December through April(dry planting season) and July through September (wet planting season). The water releases from the dam, andthus, energy generation, during the dry planting season is much higher due to the absence of rain. The waterrights of NPC were transferred to FG Hydro on August 30, 2007 by resolution of the National Water RegulatoryBoard.Rehabilitation and upgradeUnits 1 and 2 of Pantabangan were rehabilitated to achieve two objectives: (i) extend its life by an additional 25years; and (ii) increase the NDC by approximately 20 MW. FG Hydro entered into a contract with Andritz ofAustria on January 24, 2008 to rehabilitate and upgrade Pantabangan. Rehabilitation and upgrade of the twounits consisted mainly of: (i) replacement of the turbine runner and refurbishment of certain turbinecomponents; (ii) replacement of the control, governor, protection, and excitation systems; and(iii) refurbishment and upgrade of the generator. Under the contract, Andritz Hydro GmbH of Austria wasresponsible for designing, executing, and completing the refurbishment and upgrade project one unit at a time.The first unit‘s rehabilitation was completed in December 2009 and the second unit‘s was completed inDecember 2010. Andritz guaranteed the maximum turbine output of each of the Pantabangan units to reach atleast 60 MW (for a total of 120 MW) and guaranteed the increase in turbine efficiency to reach around 95% atits peak levels. The rehabilitation and upgrade cost approximately US$45 million.Financing and capital expendituresFG Hydro paid 40% of the US$129 million purchase price for Pantabangan-Masiway on November 17, 2006.The remaining balance of US$77 million, plus interest at a rate of 12% per annum, was fully paid in May 2010with the proceeds of a new loan from a syndicate of local banks. On May 7, 2010, FG Hydro executed anOmnibus Loan and Security Agreement for a P=5.0 billion loan facility with Philippine National Bank, AlliedBanking Corporation, PNB Capital and Investment Corporation, Allied Banking Corporation - Trust andInvestment Division, and PNB Trust Banking Group. Other than the repayment of the PSALM loan, theproceeds from the loan were used to fund the rehabilitation and upgrade program. The tenor of the loan is tenyears with an interest rate of 9.025% for the first five years, subject to re-pricing after year five. Principalrepayment is skewed beginning at 4% in the first year and gradually increasing to 14% in the final year.Certificate of complianceOn December 1, 2010, the ERC issued new certificates of compliance to FG Hydro for the Pantabangan-Masiway Plants. The certificates of compliance are each valid for five years from the dates of their respectiveissuance.Ancillary ServicesAncillary services are support services necessary to continue the transmission of capacity and energy that areessential in maintaining power quality, reliability and security of the Grid. In 2010, following the privatizationof a majority of NPC‘s power plants, NGCP began contracting for the ancillary services which weretraditionally provided by NPC. These ancillary services are the following:142

1. Contingency Reserve – the ability to provide the generating capacity necessary to respond immediatelyto infrequent but usually large failures of generating units and/or transmission tie lines.2. Dispatchable Reserve – the ability to replenish contingency reserves when they are being used.3. Black Start Capacity – the ability to jumpstart the supply of power to the grid in the event of a partial ortotal blackout in the grid.4. Reactive Power Support – the ability of a generating unit to supply reactive power to, or absorbreactive power from, the transmission network in order to maintain the bus voltage within five percentof its nominal voltage.5. Load Following and Frequency Regulation – the ability to provide the generating capacity necessary toadjust total system generation to match system load changes that result from random fluctuations.On February 23, 2011, NGCP entered into an Ancillary Services Procurement Agreement with FG Hydro forthe supply of ancillary services. Though FG Hydro is capable of providing all of these five ancillary services, ithas decided to contract for only the first four services until it has fully observed the performance of its newlyrehabilitated and upgraded equipment. The Ancillary Services Procurement Agreement specifies the terms andconditions that govern the nomination, monitoring, pricing and billing and settlement aspects of FG Hydro'sprovision of Contingency Reserve Service, Dispatchable Reserve Service, Reactive Power Support Service, andBlack Start Service to the Luzon Grid. It has a term of three years or the commercial operations of the reservemarket in the WESM, which ever comes earlier. The compensation for FG Hydro's ancillary services follows anopportunity cost framework, wherein FG Hydro should be paid at a price that reflects at least its true cost ofgeneration or the foregone benefit of selling its power to the WESM.OPERATIONAL AND MANAGEMENT SUPPORTThe Company is engaged as EDC‘s consultant to render services pertaining to financial, business development,and other matters. The three-year consultancy services agreement took effect on September 1, 2008 and endedon August 31, 2011. On October 10, 2011, the Company and EDC agreed to extend the Consultancy Agreementfor a period of 16 months from, September 1, 2011 to December 31, 2012, for a monthly fee of P=11.8 million(net of withholding taxes plus VAT). Consultancy fees amounted to US$3.0 million, US$3.7 million andUS$3.8 million for the years ended December 31, 2009, 2010 and 2011, respectively, and are included in the―Others‖ account of total revenue in the consolidated statements of income. In addition, the Company chargedUS$5.2 million (P=236.4 million) in 2010 for the reimbursement of the employee costs of its seconded personnelto EDC. This additional charge is also included in the ―Others‖ account of total revenue in the 2010consolidated statement of income.COMPETITIONThe Government, in implementing the thrust of the EPIRA, has paved the way for a more independent andmarket driven Philippine Power Industry. This has allowed for competition, not limited by location, and drivenby market forces. As such, selling power and, consequently, the dispatch of power plants depend on the abilityto offer competitively priced power supply to the market. The Group has multiple power projects in the Luzon,Visayas, and Mindanao Grids.The successful privatization of NPC assets and NPC-IPP contracts in Luzon and Visayas, coupled with theintegration of the two Grids under the WESM, introduced new players and opened competition in the powerindustry. Multinationals that currently operate in the Philippines and that could potentially compete against theCompany include KEPCO Power Corporation, CalEnergy International Services, Inc., Marubeni Energy143

Corporation, and AES Corporation. Moreover, the local power companies of the Aboitiz group and San Miguelgroup are the Group‘s two largest competitors. In terms of generation capacities, the Aboitiz group has a total of2,598 MW in its portfolio while the San Miguel group reportedly has 2,388 MW in its portfolio after selling its650 MW Limay combined-cycle gas turbine. Several of these competitors may have greater financial resourcesand have more extensive operational experience and other capabilities than the Group, giving them the ability torespond to operational, technology-related, financial, and other challenges more quickly than the Group. TheCompany will face competition in both the development of new power generation facilities and the acquisitionof existing power plants, as well as in the financing for these activities.The Group‘s participation in the Mindanao Grid is limited to selling its kWhs to NPC and a small-portion of adistribution utility‘s demand requirements. However, with the Mindanao Grid‘s ten year exemption fromEPIRA‘s mandate to privatize NPC ending in 2011, the Government's public-private partnership initiative isexpected to attract even greater attention from investors; hence, greater impetus and competition is expected inthe development of power projects. The performance of the Philippine economy and the historical high returnsof power projects in the country have attracted many potential competitors, including multinational developmentgroups and equipment suppliers, to explore opportunities in the development of electric power generationprojects in the Philippines. Accordingly, competition for and from new power projects may increase in line withthe long-term economic growth in the Philippines.See ―Risk Factors — Increased competition in the power industry, including competition resulting fromlegislative, regulatory, and industry restructuring efforts, could have a significant adverse effect on theCompany‘s operations and financial performance‖ on page 75 of this Prospectus.First Gen believes that the Group is able to compete because of its competitively-priced power, the reliability ofits power plants, its use of clean and renewable fuels, and its expertise and experience in power supplycontracting and trading.144

MATERIAL CONTRACTS AND AGREEMENTSThe following are summaries of the material terms of the principal contracts related to the Group’s primarypower generation facilities and should not be considered to be a full statement of the terms and provisions ofsuch contracts. Accordingly, the following summaries are subject to the full text of each contract.THE COMPANYConvertible Bonds Due 2013On February 11, 2008, pursuant to the Trust Deed dated February 11, 2008 between the Company and the Bankof New York Mellon, the Company issued Convertible Bonds with an aggregate principal amount of US$260million. The Convertible Bonds bear interest at the rate of 2.5% per annum, payable semi-annually in arrears onFebruary 11 and August 11 of each year and will be repayable in full on February 11, 2013. At the option of theBondholders and up to 3:00 pm on January 31, 2013, the Convertible Bonds are convertible into fully paidCommon Shares at the applicable conversion price (currently at P26.94 per option share) on conversion date,with a fixed exchange rate of US$1.00 to P40.55. The conversion price is subject to adjustment upon theoccurrence of certain events. Notwithstanding the Bondholders‘ right of conversion, the Company has theoption to satisfy any such conversion in full or in part by paying the relevant Bondholder the applicable cashsettlement amount. In case of partial settlement, the other part shall be satisfied by the delivery of the optionshares. On the Convertible Bond‘s maturity date, the Company is required to redeem the Convertible Bonds at128% of its principal amount.The Bondholders have the option to require the Company to redeem all or some of the Convertible Bonds as ofa certain date. On February 11, 2011, the Company redeemed Convertible Bonds in the amount of US$72.5million at a price of US$578,027.75 for every US$500,000 of the Convertible Bonds. Since the issuance of theConvertible Bonds in February 2008, the Company has bought back and cancelled US$120.5 million of theConvertible Bonds to date, at an average price of 117%. Convertible Bonds in the amount of US$67 millionremains outstanding.Dual-Currency Loan Due 2015On May 11, 2010, the Company, the BDO Group Lenders, and Banco de Oro Unibank, Inc. – Trust andInvestments Group executed a Facility Agreement allowing the Company to borrow an aggregate principalamount of P3.75 billion. The loan has a term of five years and one day from May 21, 2010. The Companyavailed the loan in Philippine Pesos for P500 million and the rest in U.S. Dollars amounting toUS$72,214,198.42. The Peso loan bears interest at the rate of 8.5% per annum, payable semi-annually in arrearson May 21 and November 21 of each year while the U.S. Dollar loan bears interest at an average rate of5.5% per annum, payable semi-annually in arrears also on May 21 and November 21 of each year. The loanswill be fully repaid by May 21, 2015. The facility imposes standard loan covenants on the Company andrequires the Company to maintain a debt service coverage ratio of at least 1.2:1 and a debt-to-equity ratio of atmost 2.5:1. The facility likewise provides that the Company can only declare cash dividends when (i) thepayment administration account is funded for the relevant period and (ii) the debt service coverage ratio of theCompany equals or exceeds 1.2:1. The payment administration account serves as a depositary account for theprincipal and interest amortization for an upcoming interest payment date or principal repayment date tofacilitate the efficient administration and payment of amounts due under the loan. It is not a security for therepayment of the loans under the facility. The Dual Currency Loan is an unsecured obligation of the Company.US$142 Million Term Loan FacilityOn September 3, 2010, the Company, the Term Loan Lenders, and Banco de Oro Unibank, Inc. – Trust andInvestments Group executed a Term Loan Facility Agreement granting the Company a facility to borrow anaggregate principal amount of up to US$142 million. The Term Loan Facility is equally divided into twotranches: (i) Tranche A facility with a term of six years from drawdown date and (ii) Tranche B facility with aterm of seven years from drawdown date. The Company fully availed the Term Loan Facility on January 21,145

2011. The Tranche A and Tranche B facilities will mature on January 23, 2017 and January 22, 2018,respectively. The loans bear interest equivalent to the six-month London Interbank Offer Rate plus a margin of3.375% and are re-priced semi-annually. The Term Loan Facility imposes standard loan covenants on theCompany and requires the Company to maintain a debt service coverage ratio of at least 1.2:1 and a debt-toequityratio of at most 2.5:1. The Term Loan Facility likewise provides that the Company can only declare cashdividends when (i) the payment administration account is funded for the relevant period and (ii) the debt servicecoverage ratio of the Company equals or exceeds 1.2:1. The payment administration account serves as adepositary account for the principal and interest amortization for an upcoming interest payment date or principalrepayment date to facilitate the efficient administration and payment of amounts due under the loan. It is not asecurity for the repayment of the loans under the Term Loan Facility. The obligations of the Company under theTerm Loan Facility are unsecured.US$100 Million Notes FacilityOn December 17, 2010, the Company, Banco de Oro Unibank, Inc., and BDO Capital & InvestmentCorporation entered into a Notes Facility Agreement granting the Company a facility to borrow an aggregateprincipal amount of up to US$100 million. The Notes Facility is equally divided into two tranches: (i) TrancheA facility with a term of six years from the initial issue date, maturing on March 29, 2017 and (ii) Tranche Bfacility with a term of seven years from the initial issue date, maturing on March 29, 2018. The Companyavailed US$51 million and US$49 million of the Notes Facility on March 29, 2011 and January 2, 2012,respectively. The Notes Facility offers the Company the option of pricing the loan at a fixed or floating rateequivalent to the sum of the applicable benchmark rate and a margin of 2.625%. The Company opted to fix therates. The applicable benchmark rates were interpolated using Republic of the Philippines bond yields. Pricingfor the initial drawdown was at 6.5% for the Tranche A facility and 6.8% for the Tranche B facility. Pricing forthe second drawdown was at 5.6% for the Tranche A facility and 5.9% for the Tranche B facility. In addition,the Notes Facility imposes standard loan covenants on the Company and requires the Company to maintain adebt service coverage ratio of at least 1.2:1 and a debt-to-equity ratio of at most 2.5:1. The Notes Facilitylikewise provides that the Company can only declare cash dividends when (i) the payment administrationaccount is funded for the relevant period and (ii) the debt service coverage ratio of the Company equals orexceeds 1.2:1. The payment administration account serves as a depositary account for the principal and interestamortization for an upcoming interest payment date or principal repayment date to facilitate the efficientadministration and payment of amounts due under the loan. It is not a security for the repayment of the loansunder the Notes Facility. The obligations of the Company under the Notes Facility are unsecured.146

MANAGEMENT AND CERTAIN SHAREHOLDERSBOARD OF DIRECTORSThe Board of Directors holds regular meetings at such dates as may be fixed by resolution, in order to beupdated on the business and to be consulted for material decisions of the Company. Directors have a term of oneyear from their election at the Annual Stockholders‘ Meeting, subject to re-election. A director who was electedto fill any vacancy holds office only for the unexpired term of his predecessor.The current Board of Directors were elected during the annual general meeting held on May 11, 2011 and iscomposed of the following:Director Nationality Position Age Year position was assumedMr. Oscar M. Lopez Filipino Chairman Emeritus 82 Chairman from 1998 to 2010,Chairman Emeritus since June2010Mr. Federico R. Lopez Filipino Chairman and CEO 50 Director since 1998; Presidentfrom 2002 to June 2010; CEOsince 2008; Chairman since June2010Mr. Francis Giles B. Puno Filipino Director, President andCOOMr. Richard B. Tantoco Filipino Director and ExecutiveVice President47 Director since 2005; CFO from2000 to June 2010; President andCOO since June 201045 Director since 2005; ExecutiveVice President since 2008; COOfrom 2008 to June 2010Mr. Peter D. Garrucho Jr. Filipino Director 67 Vice Chairman and CEO from1998 to 2008; Director since 1998Mr. Elpidio L. Ibañez Filipino Director 61 1998Mr. Eugenio L. Lopez III Filipino Director 59 2009Mr. Tony Tan Caktiong Filipino Independent Director 59 2006Mr. Cesar P. Consing Filipino Independent Director 52 2006The following are the descriptions of the business experience of each of the Company‘s directors:Oscar M. Lopez, born April 19, 1930, Filipino, is Chairman Emeritus of the Company, FPHC, EDC, LopezHoldings Corporation (formerly Benpres Holdings Corporation), Red Vulcan, FGES, FGHC, FGPC, FGP, FGPipeline, Green Core, Unified, FGRI, and FG Bukidnon. He is also a member of the board of ABS-CBNBroadcasting Corporation. Mr. Lopez has a Masters degree in Public Administration from the Littauer School ofPublic Administration, Harvard University (1955). Mr. Lopez also earned his Bachelor of Arts degree (cumlaude) from Harvard University (1951).Federico R. Lopez, born August 5, 1961, Filipino, is Chairman and CEO of the Company, FPHC, EDC, FGHydro, FGHC, FGPC, FGP, FGES, Unified, FG Pipeline, Green Core, Red Vulcan, FGRI, and FG Bukidnon.Mr. Lopez is also a director of ABS-CBN Broadcasting Corporation. Mr. Lopez is a graduate of the Universityof Pennsylvania with a Bachelor of Arts degree in Economics and International Relations (cum laude, 1983).Francis Giles B. Puno, born September 1, 1964, Filipino, is President and COO of the Company and Director,Executive Vice President, CFO and Treasurer of FPHC. He sits in the boards of FPHC, EDC, FGHC, FGPC,FGP, FG Hydro, FGES, FGRI, FG Bukidnon, Unified, FG Pipeline, Green Core, and Red Vulcan. Mr. Puno has147

a Master of Management degree from the Kellogg Graduate School of Management of Northwestern University(1990) and a Bachelor of Science degree in Business Management from Ateneo de Manila University (1985).Richard B. Tantoco, born October 2, 1966, Filipino, is a Director and Executive Vice President of the Companyand Executive Vice President of FPHC. He is President and COO of EDC and sits in the boards of EDC, FGBukidnon, FG Hydro, FGES, Green Core, FGRI, Red Vulcan, FGHC, FGPC, FGP, FG Pipeline, and Unified.Mr. Tantoco has an MBA in Finance from the Wharton School of Business of the University of Pennsylvania(1993) and a Bachelor of Science degree in Business Management from Ateneo de Manila University where hegraduated with honors (1988).Peter D. Garrucho Jr., born May 4, 1944, Filipino, is Vice Chairman of FGPC, FGP, FGHC, Unified, and FGPipeline. He sits on the boards of FPHC, EDC, FG Bukidnon, FG Hydro, FGES, FGRI, Red Vulcan, FGHC,FGPC, FGP, FG Pipeline, and Unified. Until his retirement in January 2008 as Managing Director for Energy ofFPHC, Mr. Garrucho held the positions of Vice Chairman and CEO of the Company. Mr. Garrucho has an AB-BSBA degree from De La Salle University (1966) and a Master of Business Administration degree fromStanford University (1971).Elpidio L. Ibañez, born September 30, 1950, Filipino, sits on the boards of EDC, FG Bukidnon, FGHC, FGPC,FGP, Unified, FGRI, and FG Pipeline. He also serves as President and COO of FPHC. Mr. Ibañez obtained aMasters degree in Business Administration from the University of the Philippines (1975) and a Bachelor of Artsdegree major in Economics from Ateneo de Manila University (1972).Eugenio L. Lopez III, born August 13, 1952, Filipino, is a member of the board of FPHC, and is the Chairmanand CEO of ABS-CBN Broadcasting Corporation. Mr. Lopez graduated with a Bachelor of Arts degree inPolitical Science from Bowdoin College (1974), and has a Masters degree in Business Administration fromHarvard Business School (1980).Tony Tan Caktiong, born January 5, 1953, Filipino, is the Chairman and CEO of Jollibee Foods Corp. He is adirector of the Philippine Long Distance Telephone Company and is at the helm of Chowking, Greenwich, RedRibbon Bakeshop, Mang Inasal in the Philippines, and Yonghe King and Hong Zhuang Yuan in China. He is amember of the board of trustees of the Asian Institute of Management, St. Luke‘s Medical Hospital, PhilippineBusiness for Education, and the Temasek Foundation of Singapore. He is an Agora Awardee for OutstandingMarketing Achievement, Triple A Alumni Awardee of the Asian Institute of Management, TOYM Awardee forEntrepreneurship, and a recipient of the World Entrepreneur of the Year award in 2004. Mr. Tan Caktiong has aBachelor of Science degree in Chemical Engineering from the University of Santo Tomas (1975) and hasmanagement tutoring certifications from Harvard University, Asian Institute of Management, University ofMichigan Business School, and Harvard Business School.Cezar P. Consing, born October 20, 1959, Filipino, is a Partner of the Rohatyn Group, a global investmentmanagement company that focuses on emerging markets. He has over 25 years‘ experience in internationalfinance. Mr. Consing is also an independent director of Bank of the Philippine Islands, Jollibee Foods Corp.,CIMB Group Holdings Berhad, CIMB Group Sdn. Berhad, and CIMB Securities International Pte Ltd. He is aboard director of Arch Capital Management and non-executive chairman and board director of FILGIFTS.com.Mr. Consing was an investment banker with JP Morgan & Co. from 1985 to 2004 where he was based in HongKong and Singapore. From 1999 to 2004 he was President of JP Morgan Securities (Asia Pacific) and, as aSenior Managing Director, co-headed or headed the firm‘s investment banking group in the Asia Pacific region.Mr. Consing has a Bachelor of Arts degree in Economics (magna cum laude) from De La SalleUniversity (1979) and a Master‘s Degree in Applied Economics from the University of Michigan (1980). TheRohatyn Group has never rendered professional advisory services to the Company or any of its subsidiaries.148

SENIOR MANAGEMENTAs of March 28, 2012, the senior management of the Company is composed of the following:Officer Nationality Position Age Year position was assumedFederico R. Lopez Filipino Chairman andCEOFrancis Giles B. Puno Filipino President andCOOErnesto B. Pantangco Filipino Executive Vice 61 2010PresidentJonathan C. Russell British Executive Vice 47 2010PresidentRichard B. Tantoco Filipino Executive Vice 45 2008PresidentRenato A. Castillo Filipino Senior Vice 57 2011PresidentVictor B. Santos Jr. Filipino Senior VicePresident andComplianceOfficerEmmanuel P. Singson Filipino Senior VicePresident, CFO,and TreasurerNestor H. Vasay Filipino Senior Vice 58 2010PresidentFerdinand Edwin S. Co Filipino Senior Vice 49 2012SetengPresidentErwin O. Avante Filipino Vice President 37 2009Jerome H. Cainglet Filipino Vice President 43 2011Colin John Douglas Fleming British Vice President 50 2010Anna Karina P. Gerochi Filipino Vice President 44 2012Regina B. Go Filipino Vice President 46 2011Dennis P. Gonzales Filipino Vice President 41 2009Shirley C. Hombrebueno Filipino Vice President 42 2011Ariel Arman V. Lapus Filipino Vice President 42 2009Jorge H. Lucas Filipino Vice President 55 2010Aloysius L. Santos Filipino Vice President 50 2007Carmina Z. Ubaña Filipino Vice President 35 2011and ComptrollerDaniel H. Valeriano Jr. Filipino Vice President 62 2001Vincent C. Villegas Filipino Vice President 39 2009Michael Christopher Young New Vice President 42 2010ZealanderValerie Y. Dy Sun Filipino Head of Investor 35 2011RelationsRachel R. Hernandez Filipino Corporate45 2009SecretaryTeodorico R. Delfin Filipino AssistantCorporateSecretary43 200950 Chairman since 2010;CEO since 200847 June 201044 Compliance Officer since2005; SVP since 201046 CFO since 2011, SVP andTreasurer since 2010149

Ernesto B. Pantangco, born September 24, 1950, Filipino, is Executive Vice President of the Company andEDC, where he also sits as a member of the board. Mr. Pantangco is also President of the PhilippineIndependent Power Producers Association (PIPPA). He has a Bachelor of Science in Mechanical Engineeringdegree from De La Salle University (1973) and a Master of Business Administration degree from the AsianInstitute of Management, dean‘s list (1976). Mr. Pantangco is a registered mechanical engineer and placed sixthin the 1973 board exams.Jonathan C. Russell, born September 23, 1964, British, is Executive Vice President of the Company. He alsosits as a member of the board of EDC. Mr. Russell has a Bachelor of Science degree in Chemical andAdministrative Sciences (with Honours) (1987) and a Master of Business Administration in InternationalBusiness and Export Management degree (with Distinction) (1989), both from City University Business Schoolin London, England.Renato A. Castillo, Filipino, born June 7, 1954, is a Senior Vice President of the Company. Mr. Castillo has aBachelor of Science in Commerce degree major in Accounting from De La Salle University (1974).Victor B. Santos, Jr., born September 7, 1967, Filipino, is Senior Vice President, Compliance Officer, andCorporate Information Officer of the Company. He is also a Vice President of FPHC. Mr. Santos has a Masterof Business Administration degree from Fordham University (1995) and a Bachelor of Science degree inManagement of Financial Institutions from De La Salle University (1989).Emmanuel P. Singson, born December 31, 1965, Filipino, is Senior Vice President, Chief Financial Officer andTreasurer of the Company. He is primarily involved in the fund-raising activities of the Company. Mr. Singsonobtained his Bachelor of Science degree in Business Management from Ateneo de Manila University (1987).Nestor H. Vasay, born October 5, 1953, Filipino, is Senior Vice President of the Company, FG Bukidnon,FGES, FGHC, FGPC, FGRI, and FGP. He is also the Chief Financial Officer of EDC. Mr. Vasay is a CertifiedPublic Accountant and holds a Bachelors Degree in Business Administration from Angeles University.Ferdinand Edwin S. Co Seteng, born October 27, 1962, is a Senior Vice President of the Company. Mr. CoSeteng is a B.S. Electrical Engineering graduate from the University of the Philippines (1985) and holds aMaster of Business Administration degree (with distinction) from the Johnson Graduate School of Managementof Cornell University (1988).Erwin O. Avante, born September 26, 1974, Filipino, is a Vice President of the Company. Mr. Avante has aMaster in Business Administration (2000) and Master of Science in Computational Finance (2003), bothobtained from the Graduate School of Business-De La Salle University, and a Bachelor of Science inAccountancy degree from De La Salle University (1994). Mr. Avante placed first in the May 1995 CertifiedPublic Accountants board examination. He is also a CFA charterholder.Jerome H. Cainglet, born June 22, 1968, Filipino, is a Vice President of the Company. He is a graduate of B.S.Chemical Engineering from the University of the Philippines (1989) and has an Executive MBA degree fromthe Asian Institute of Management (2006).Colin J. D. Fleming, born October 2, 1961, British, is a Vice President of the Company. Mr. Fleming holds aBachelor of Science degree in Mechanical Engineering from the Institute of Technology, Dundee, UnitedKingdom (1986), and is a Chartered Engineer and a member of the European Federation of NationalEngineering Associations. Mr. Fleming has over 25 years‘ experience of design, operations, and maintenancewithin the power generation industry, of which 19 years was spent in the international arena.Anna Karina P. Gerochi, born August 2, 1967, Filipino, is a Vice President of the company. She has aBachelor of Arts in Mathematics degree (1988) and a Master of Engineering in Operations Research andIndustrial Engineering degree (1989), both from Cornell University, and an Executive MBA degree from theAsian Institute of Management, with distinction (2006).150

Regina B. Go, born July 26, 1965, is a Vice President of the company. She has a B.S. Management degree fromthe Ateneo de Manila University (1985) and an Executive Master in Business Administration degree from theAsian Institute of Management (2002).Dennis P. Gonzales, born December 4, 1970, Filipino, is a Vice President of the Company. Mr. Gonzales has aMaster‘s Degree in Business Management from the Asian Institute of Management (1998) and a Bachelor ofScience degree in Chemical Engineering from De La Salle University (1992). He ranked sixth in the ChemicalEngineering board examinations (1992).Shirley C. Hombrebueno, born August 3, 1969, Filipino, is a Vice President of the Company. She has aBachelor of Science degree in Economics, cum laude, from the University of the Philippines (1990).Arman V. Lapus, born August 26, 1969, Filipino, is a Vice President of the Company. He has a Bachelor ofScience degree in Business Management from the Ateneo de Manila University (1990) and a Master‘s Degree inBusiness Management from the Asian Institute of Management (1997).Jorge H. Lucas, born July 27, 1956, Filipino, is a Vice President of the Company. Mr. Lucas has a Bachelor ofScience degree in Mechanical Engineering from the University of the East (1978) and an Electrical Engineeringdegree from Mapua Institute of Technology (1984). He earned credits for a Master of Science degree in EnergyEngineering from the University of the Philippines (1991-92). He is a registered professional mechanicalengineer and electrical engineer.Aloysius L. Santos, born October 25, 1961, Filipino, is a Vice President of the Company. He also serves as VicePresident of FGES. Mr. Santos holds an MBA from Sydney University (1996) and a master‘s degree in GeneralEngineering (Energy Management) from Oklahoma State University (1986). He is a licensed ChemicalEngineer and ranked third in the Chemical Engineering Board Examinations (1985).Carmina Z. Ubaña, born November 2, 1976, Filipino, is Vice President and Comptroller of the Company. Shehas a Bachelor of Science degree in Accountancy from the Polytechnic University of the Philippines (1996).Ms. Ubaña passed the board examinations for Certified Public Accountants in May 1997.Daniel H. Valeriano, Jr., born June 1, 1949, Filipino, is a Vice President of the Company. Mr. Valeriano has aBachelor of Science degree in Electrical Engineering from the University of the Philippines (1971) and hasearned credits for a Master of Science degree in Industrial Engineering from the University of the Philippinesduring the years 1976–1978. He is a registered electrical engineer.Vincent Martin C. Villegas, born October 5, 1972, Filipino, is a Vice President of the Company. He has aMaster in Business Management degree from the Asian Institute of Management (1998) and an AB inManagement Economics from the Ateneo de Manila University (1993).Michael Christopher Young, born May 1, 1969, New Zealander, is a Vice President of the Company. He has aBachelor of Electrical Engineering degree (with First Class Honors) from the University of Auckland (1992)and a New Zealand Certificate of Engineering from the Waikato Institute of Technology (1990). Mr. Young isalso a qualified electrician and a certified project management professional.Valerie Y. Dy Sun, born December 23, 1976, is Head of Investor Relations for the Company. She has aBachelor of Arts degree in Management Economics from the Ateneo de Manila University (1998), where shegraduated with honors and a Master‘s Degree in Business Management from the Asian Institute of Management,dean's list (2002).Rachel R. Hernandez, born April 24, 1967, Filipino, is Corporate Secretary of the Company, FG Bukidnon, andRed Vulcan. She is also Assistant Corporate Secretary of Prime Terracota and FGES. Ms. Hernandez obtainedher Bachelor of Arts (1986) and Bachelor of Laws (1992) degrees from the University of the Philippines, and islicensed to practice law in the Philippines and in New York.151

Teodorico R. Delfin, born September 19, 1968, Filipino, is Assistant Corporate Secretary of the Company,FG Bukidnon, and Red Vulcan. He is the Corporate Secretary of FGES and EDC. Mr. Delfin has a Bachelor ofLaws degree (1997) and a Bachelor of Arts in Political Science degree (1989), both from the University of thePhilippines.SIGNIFICANT EMPLOYEESNo single person is expected to make a significant contribution to the business since the Company considers thecollective efforts of all its employees as instrumental to the overall success of the Company‘s performance.FAMILY RELATIONSHIPSOf the above mentioned directors and officers, the following are related within the fourth civil degree ofconsanguinity or affinity: Oscar M. Lopez is the father of Federico R. Lopez; Eugenio L. Lopez III is thenephew of Oscar M. Lopez; Ernesto B. Pantangco is the cousin-in-law of Oscar M. Lopez; and the wives ofFederico R. Lopez and Francis Giles B. Puno are sisters. Other than the foregoing, there are no familyrelationships either by consanguinity or affinity up to the fourth civil degree among directors, executive officers,and nominees for election as directors.INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGSAs of the date of this Prospectus and to the best of the Company‘s knowledge, there has been no occurrenceduring the past five years of any of the following events which are material to an evaluation of the ability orintegrity of any director, person nominated to become a director, executive officer, or control person of theCompany:1. any insolvency or bankruptcy petition filed by or against any business of which such person was ageneral partner or executive officer either at the time of the insolvency or within two years prior tothat time;2. any conviction by final judgment in a criminal proceeding, domestic or foreign, or any pendingcriminal proceeding, domestic or foreign (excluding traffic violations and other minor offenses). TheCompany‘s directors were impleaded as respondents in a complaint entitled “West TowerCondominium Corporation vs. Leonides Garde, et al.” which is discussed in the notes to theCompany‘s audited consolidated financial statements; however, the Company believes that this doesnot affect the integrity and ability of the directors;3. any final and executory order, judgment, or decree of any court of competent jurisdiction, domestic orforeign, permanently or temporarily enjoining, barring, suspending, or otherwise limitinginvolvement in any type of business, securities, commodities, or banking activities; and4. any final and executory judgment by a domestic or foreign court of competent jurisdiction (in a civilaction), the SEC, or comparable foreign body, or a domestic or foreign exchange or a domestic orforeign exchange or other organized trading market or self-regulatory organization, for violation of asecurities or commodities law or regulation.152

EXECUTIVE COMPENSATIONCertain officers of the Company, including the top five (5) members of senior management listed in the tablebelow, are seconded from FPHC and some of the Company‘s subsidiaries and affiliates and receive their salariesfrom FPHC or the relevant investee company of the Company, as the case may be.Name and Position Year Salary Bonus/Other IncomeFederico R. LopezChairman and CEOFrancis Giles B. PunoPresident and COORichard B. TantocoExecutive Vice PresidentVictor B. Santos Jr.Senior Vice President and Compliance OfficerEmmanuel P. SingsonSenior Vice President, CFO, TreasurerCEO and the four most highly compensated officersnamed aboveAggregate compensation paid to all officers anddirectors as a group unnamed2010 P 122,431,025 P 92,492,2452011 P 98,851,175 P 110,535,3852012(estimate)P 117,136,293 P 128,588,9232010 P 219,818,075 P 159,737,9712011 P 165,667,346 P 179,915,1912012(estimate)P 186,731,804 P 205,806,703COMPENSATION OF DIRECTORSStandard arrangementsThe directors receive standard per diems of P50,000 for attendance at each board meeting. There are no otherarrangements for compensation either by way of payments for committee participation or special assignments.EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENTThere are no existing employment contracts with executive officers. There is also no arrangement forcompensation to be received from the Company in the event of a change of control of the Company.The following executive officers have been seconded by FPHC to the Company: Federico R. Lopez, Chairmanand CEO; Francis Giles B. Puno, President and COO; Richard B. Tantoco, Executive Vice President; and VictorB. Santos Jr., Senior Vice President and Compliance Officer. Under the terms of the secondment agreementbetween the Company and FPHC, the secondment may be terminated by either the Company or FPHC upon 30days prior written notice to the other party. Further, the secondment of these officers to the Company does notaffect the respective terms of their employment with FPHC. During each officer‘s secondment, the Company orits subsidiaries is responsible for the payment of each officer‘s salaries and other remuneration.153

On April 4, 2005, the Board of Directors of the Company approved the Company‘s Retirement Plan providing anormal retirement benefit of two months‘ salary for every year of service to eligible officers and employees whoare at least 50 years old and have rendered at least 25 years of service, or, to employees who are 60 years oldwith at least 10 years of service.The Company‘s Retirement Plan also provides for payment of (i) an early retirement benefit of between 50% to97.5% of the normal retirement benefit to eligible officers and employees who opt to retire at age 50 afterrendering at least 10 years of service, or, eligible officers and employees who have rendered 20 years of serviceif below 50 years old; (ii) a resignation benefit of between 25% to 47.5% of the normal retirement benefit toeligible officers and employees who have rendered from ten to 19 years of service.In the event of death or disability, the Company‘s Retirement Plan provides the eligible officer or employee thegreater of one annual salary or his accrued retirement benefit.Finally, in the event of involuntary separation, the Company‘s Retirement Plan provides an officer or employeehis accrued retirement benefit if he has rendered at least ten years of service or, if otherwise, his separation pay.WARRANTS AND OPTIONS OUTSTANDINGExecutive stock option planUnder the Company‘s ESOP, senior managers and executives of the Company, senior managers and executivesof companies of which more than 30% of the voting stock is effectively owned, directly or indirectly and legallyor beneficially, by the Company, senior managers and executives of such other companies in which theCompany owns shares as may be deemed an affiliate by the Board of Directors, and directors, officers oremployees of FPHC and its affiliates, who are nominated and awarded as such, may acquire Common Shares.The aggregate number of Common Shares that may be subject to, and issued under, awards granted pursuant tothe ESOP shall not at any time exceed 4% of the total issued and outstanding Common Shares as of any optiongrant date. Options under the ESOP vest within a five-year period, beginning from the date of acceptance of theoption and ending on the day exactly five years from the applicable option grant date.Under the July 1, 2003 option grant date, a total of 452,285 Common Shares of the Company‘s unissuedCommon Shares was reserved for the ESOP. By virtue of the Common Shares split and Common Sharesdividends declared and approved by the Board of Directors and stockholders on April 4, 2005, the number ofoptions and price per share were adjusted automatically in accordance with the terms of the ESOP. Accordingly,the number of Common Shares reserved for the ESOP was adjusted from 452,285 to 18,091,400, and theexercise price of P528.00 per share was adjusted to P13.20 per share. Of the 18,091,400 Common Sharesallocated for the ESOP, only 17,208,608 Common Shares were awarded under the July 1, 2003 option grantdate.On August 27, 2009, the SEC approved a 50% stock dividend on Common Shares, and further adjustments weremade on the number of Common Shares reserved and subscription price per share. The number of CommonShares allocated was increased from 18,091,400 to 27,137,100 while the subscription price per share wasreduced from P=13.20 to P=8.80.As of March 31, 2012, a total of 16,038,981 Common Shares have been issued under the ESOP, with 1,169,627Common Shares remaining vested and exercisable under the July 1, 2003 initial grant date. No furthergrants/awards have been made under the ESOP.The following table sets out the persons to whom options have been granted pursuant to the ESOP and thenumber of Common Shares relating to each such person as of March 31, 2012.154

Name and PositionDate ofGrantTotalOptionsGrantedVested andUnexercisedUnvestedExercisePrice/ShareMarketPrice/Share 4Federico R. LopezChairman and CEOFrancis Giles B. PunoPresident and COORichard B. TantocoExecutive Vice PresidentVictor B. Santos Jr.Senior Vice President andCompliance OfficerEmmanuel P. SingsonSenior Vice President, CFOand TreasurerAggregate number of sharesgranted to the above-namedofficers July 1, 2003 5,295,072 - - P=8.80 P=13.52Aggregate number of sharesgranted to all officers anddirectors as a group unnamed July 1, 2003 18,028,336 1,169,627 - P=8.80 P=13.52Employee stock purchase planThe Company also has an ESPP which was approved by the Board of Directors and the shareholders of theCompany on April 4, 2005.Under the ESPP, eligible employees (who are nominated and awarded as such) of the following entities mayacquire the Common Shares:1. the Company;2. companies of which more than 30% of the voting stock is effectively owned, directly or indirectly,by the Company; and3. such other companies in which the Company owns shares as may be deemed an affiliate by theBoard of Directors.The aggregate number of Common Shares that may be subject to, and issued under, awards granted pursuant tothe ESPP shall not at any time exceed 1% of the total issued and outstanding Common Shares as at any grantdate.4 Average market price from listing date to March 30, 2012.155

The Common Shares may be acquired under the ESPP at fair market price equal to the average of the closingprices of the Common Shares on the PSE for the 20 market days immediately preceding the grant date. Underno circumstance, however, may the Common Shares be acquired at less than par. A grantee under the ESPPshall have five years from the acceptance date to complete payments on the Common Shares acquired pursuantto the plan, with a right to prepayment after two years from the appropriate acceptance date.As of the date of this Prospectus, no award or sale of Common Shares under the ESPP has been granted to anyemployee.156

SECURITY OWNERSHIP OF CERTAIN RECORD AND BENEFICIAL OWNERSThe Company knows of no one who, as of April 30, 2012, is directly or indirectly the record or beneficial ownerof more than 5% of the Company‘s capital stock except as set forth below:Common SharesName, Address of Record Owner andRelationship with the CompanyName of Beneficial Owner andRelationship with RecordOwnerCitizenshipNo. of Shares HeldPercentage toClassFPHC4th Floor Benpres BuildingExchange Road cor. MeralcoAvenue, Pasig CityFPHC is the parent of theCompany.FPHC is the record andbeneficial owner of theshares indicated.Filipino 2,224,989,159 66.16%PCD Nominee Corp (Filipino) Various 664,696,976 19.77%PCD Nominee Corp (Foreign) (1) Various 438,034,055 13.03%Voting Preferred SharesName, Address of Record Owner andRelationship with the CompanyName of Beneficial Owner andRelationship with RecordOwnerCitizenshipNo. of Shares HeldPercentageto ClassFPHC4th Floor Benpres BuildingExchange Road cor. MeralcoAvenue, Pasig CityFPHC is the record andbeneficial owner of theshares.Filipino (B) 1,000,000,000(E) 468,553,892100.00%FPHC is the parent of theCompany.Non-Voting Series “F” Perpetual Preferred SharesName, Address of Record Owner andRelationship with the CompanyName of Beneficial Owner andRelationship with Record OwnerCitizenshipNo. of Shares HeldPercentage toClassFPHC4th Floor Benpres BuildingExchange Road cor. MeralcoAvenue, Pasig CityFPHC is the record andbeneficial owner of theshares.Filipino 52,450,000 52.45%157

FPHC is the parent of theCompany.PCD Nominee Corp. (2) Various Filipino 45,350,000 45.35%Notes:(1) Out of the 438,034,055 Common Shares under PCD Nominee Corp. (Foreign), 242,160,051 Common Shares are owned byHongkong and Shanghai Banking Corp. Ltd. Clients‘ Account 1. This is equivalent to 7.2% of the Company‘s outstanding CommonShares.(2) The following are the owners of more than 5% of the Series ―F‖ Perpetual Preferred Shares under the PCD Nominee Corp.:Owner No. of Shares Held Equivalent % to outstanding Series“F” Perpetual Preferred SharesRCBC Securities Inc. 10,000,000 10.00%BPI Securities Corporation 8,250,000 8.25%BDO Securities 8,000,000 8.00%Banco de Oro - Trust 7,710,000 7.71%Deutsche Bank AG ManilaBranch6,270,000 6.27%Non-Voting Series “G” Perpetual Preferred SharesName, Address of Record Owner andRelationship with the CompanyName of Beneficial Owner andRelationship with Record OwnerCitizenshipNo. of Shares HeldPercentage toClassFPHC4th Floor Benpres BuildingExchange Road cor. MeralcoAvenue, Pasig CityFPHC is the parent of theCompany.FPHC is the record andbeneficial owner of theshares.Filipino 33,750,000 25%SECURITY OWNERSHIP OF MANAGEMENTAs of April 30, 2012, the aggregate amount of Common Shares registered in the names of the directors andofficers of the Company is 45,642,370.158

Title ofClassName of Beneficial OwnerAmount andNature ofBeneficialOwnershipCitizenshipPercentage toCommonSharesCommon Oscar M. Lopez Direct - 6,546,933 Filipino 0.1947%Common Federico R. Lopez Direct -5,675,697 Filipino 0.1688%Common Francis Giles B. Puno Direct -8,090,930 Filipino 0.2406%Common Richard B. Tantoco Direct -5,998,820 Filipino 0.1784%Common Peter D. Garrucho Jr. Direct -6,807,004 Filipino 0.2024%Common Elpidio Ibañez Direct -2,000,000 Filipino 0.0595%Common Eugenio L. Lopez III Direct -150 Filipino 0.0000%Common Tony Tan Caktiong Direct -165 Filipino 0.0000%Common Cezar P. Consing Direct -60 Filipino 0.0000%Common Ernesto B. Pantangco Direct -2,301,994 Filipino 0.0685%Common Jonathan C. Russell Direct -1,849,538 British 0.0550%Common Nestor H. Vasay Direct -1,102,883 Filipino 0.0328%Common Victor B. Santos Jr. 0 Filipino 0.0000%Common Emmanuel P. Singson Direct -1,402,534 Filipino 0.0417%Common Renato A. Castillo 0 Filipino 0.0000%Common Daniel H. Valeriano Jr. Direct -1,385,263 Filipino 0.0412%Common Ferdinand Edwin S. Co Seteng 0 Filipino 0.0000%Common Aloysius L. Santos 0 Filipino 0.0000%Common Ariel Arman V. Lapus 0 Filipino 0.0000%Common Erwin O. Avante Direct -232,175 Filipino 0.0069%Common Dennis P. Gonzales Direct -350,074 Filipino 0.0104%Common Vincent C. Villegas Direct -245,269 Filipino 0.0073%Common Michael Christopher Young 0 New Zealander 0.0000%Common Colin John Douglas Fleming Direct -33,300 British 0.0010%Common Jorge H. Lucas Direct -269,729 Filipino 0.0080%Common Jerome H. Cainglet Direct -294,416 Filipino 0.0088%Common Carmina Z. Ubaña Direct -10,268 Filipino 0.0003%Common Regina B. Go Direct -680,000 Filipino 0.0202%Common Ana Karina P. Gerochi 0 Filipino 0.0000%Common Shirley C. Hombrebueno Direct -356,869 Filipino 0.0106%Common Valerie Y. Dy Sun 0 Filipino 0.0000%Common Rachel R. Hernandez Direct -8,299 Filipino 0.0002%Common Teodorico R. Delfin 0 Filipino 0.0000%VOTING TRUSTThe Company knows of no persons holding more than 5% of shares under a voting trust or similar agreement.CHANGE IN CONTROLThere are no existing provisions in the amended articles of incorporation or the amended by-laws of theCompany which will delay, defer or in any manner prevent a change in control of the Company.159

RELATED PARTY TRANSACTIONSIn addition to certain advances to a non-controlling shareholder, the following are the significant transactionswith related parties:a. Due to related parties represent non-interest-bearing U.S. Dollar and Philippine Peso-denominatedemergency loans to meet working capital and investment requirements of the Group.b. Lease of premises on which the Company‘s corporate offices are located from FPRC, a subsidiaryof FPHC. Total rent expense amounted to $0.4 million in 2009, and $0.3 million in each of 2010and 2011.c. The Company is engaged as EDC‘s consultant to render services pertaining to financial, businessdevelopment, and other matters. The three-year consultancy services agreement took effect onSeptember 1, 2008 and ended on August 31, 2011. On October 12, 2009, the Company and EDCagreed to adjust the monthly fee from US$0.2 million (P=8.7 million net of withholding taxes plusVAT) to US$0.3 million (P=11.8 million net of withholding taxes plus VAT) effective September2009 to cover the cost of additional officers and staff assigned to EDC. On October 10, 2011, theCompany and EDC agreed to extend the Consultancy Agreement for a period of 16 months from,September 1, 2011 to December 31, 2012, for a monthly fee of P=11.8 million (net of withholdingtaxes plus VAT). Consultancy fees amounted to US$3.0 million, US$3.7 million, and US$3.8million for the years ended December 31, 2009, 2010 and 2011, respectively, and are included inthe ―Others‖ account of total revenue in the consolidated statements of income. Moreover, therewere additional reimbursements to cover employee costs of the Company‘s seconded employeesthat were charged to EDC in 2010.d. The Company rendered management services to BPPC pursuant to a management contractbetween the Company and BPPC. The management fees were fixed at US$0.5 million per year,effective January 1, 2006. On March 13, 2006, the Company and BPPC renewed the managementcontract effective from January 1, 2006 until the end of the 15-year Cooperation Period of theproject agreement of BPPC, which expired in July 2010. Management fees amounting to US$0.5million in 2009 and US$0.3 million in 2010 are included in the ―Others‖ account of total revenuein the consolidated statements of income.Terms and Conditions of Transactions with Related Parties.Except for certain advances to a non-controlling shareholder, outstanding balances at year end are unsecuredand interest-free and settlement occurs in cash. There have been no guarantees provided or received for anyrelated party receivables or payables. The advances to non-controlling shareholder included in the ―Othercurrent assets‖ and ―Other noncurrent assets‖ accounts in the consolidated statements of financial positiontotaled US$92.2 million and US$97.2 million as of December 31, 2011 and 2010, respectively.Details of amounts due from related parties included in the ―Receivables‖ account in the consolidatedstatements of financial position are as follows (in US$ thousands):2011 2010Red Vulcan $7,536 $7,536Prime Terracota 311 111FPIC 770 1FGNEC 190 166FG Hydro – 84Others (1) 532 772$9,339 $8,670160

Details of amounts due to related parties are as follows (in US$ thousands):2011 2010BG Consolidated Holdings (Philippines), Inc. $6,348 $6,348FGHC International Ltd. 145 145Others (1) 437 216$6,930 $6,709Note:(1)Due from/to related parties - Others are advances to/from FPH, Lopez Holdings Corporation (formerly BenpresHoldings Corporation) and FPH Capital Resources, Inc. (FCRI, formerly First Philippine Lending Corporation).Lopez Holdings Corporation is a stockholder of FPH. FPH is a stockholder of FCRI.161

CORPORATE GOVERNANCEThe corporate governance structures of the Company are managed and driven by its Board of Directors, whichis composed of individuals of proven competence and integrity. As the members of the Board are fully aware oftheir duties and obligations as directors of a publicly-listed company, they make every effort to ensure that theCompany is able to respond to the needs of its officers, employees, customers and partners, as well asGovernment and the public in general. Having set forth the Company‘s goals, the Board is responsible forguiding the Company in fulfilling its economic targets and governance aspirations.The Board of Directors of the Company consists of nine (9) members, including two (2) independent directors,all of whom are elected by the Company‘s qualified stockholders during the annual stockholders‘ meeting heldon the 2 nd Wednesday of May of each year. Independent directors Tony Tan Caktiong and Cezar P. Consinghave neither interest nor relationship with the Company that may hinder their independence from the Companyor its management, or interfere with the exercise of independent judgment in carrying out their responsibilities.Pursuant to the Company‘s Manual on Corporate Governance and in compliance with principles of goodcorporate governance, the members of the Board have been selected as members of the following standingcommittees: Risk Management Committee, Nomination and Governance Committee, Compensation andRemuneration Committee, and Audit Committee.On April 8, 2010, the Company submitted to the SEC its revised Manual on Corporate Governance. Thechanges introduced in the amended manual included the constitution of a Nomination and GovernanceCommittee, to be composed of at least three (3) members, one (1) of whom shall be an independent director.The committee is responsible for the following:to review and evaluate the qualifications of all persons nominated to the Board and other appointmentsthat require Board approval;to ensure, through a managed and effective system consistent with the corporation‘s By-laws, that eachBoard election will result in a mix of proficient directors, each of whom will be able to add value andbring prudent judgment to the Board;to assess the effectiveness of the Board‘s processes and procedures in the election or replacement ofdirectors;to review the recommendations of the Compliance Officer in relation to the Manual on CorporateGovernance, as well as other corporate governance rules and regulations, and endorse the same to theBoard for its approval;to review, as may be necessary, the charters of all Board committees and recommend any change to theBoard for its approval; andto perform such other tasks or duties as may be requested or delegated by the Board.Thereafter, on March 31, 2011, the Company submitted to the SEC its further revised Manual with amendmentspertaining to the following matters: Board composition; the roles of the Chairman and Chief Executive Officer;Board meetings and quorum requirements; functions of the Audit Committee; duties of the Corporate Secretary;stockholders‘ rights and protection of minority stockholders‘ interest; disclosure and transparency; andcommitment to good corporate governance.The Nomination and Governance Committee judiciously passes upon the qualifications of nominees to theBoard, and makes sure that a Board election will result in a mix of proficient directors, each of whom will beable to add value and bring prudent judgment to the Board of Directors. The committee is presently composedof Chairman Federico R. Lopez, Director Richard B. Tantoco, and Independent Director Tony Tan Caktiong.The Compensation and Remuneration Committee is composed of the Chairman of the Board and two (2)members, one (1) of whom shall be an Independent Director. The committee shall have powers and functionsover the compensation and remuneration of the corporate officers other than the Chairman, whose compensation162

and remuneration shall be determined by the President and two (2) directors, one of whom shall be anindependent director. The committee ensures that the compensation of the Company‘s directors and officers isconsistent with the Company‘s culture, strategy, and the business environment in which it operates. Thecommittee is composed of Chairman Federico R. Lopez, Director Peter D. Garrucho Jr., and independentdirector Cezar P. Consing.The Audit Committee is headed by independent director Cezar P. Consing, with Director Elpidio L. Ibañez andindependent director Tony Tan Caktiong as members. Pursuant to the Company‘s Manual on CorporateGovernance, the committee is tasked to perform the following functions:to assist the Board in the performance of its oversight responsibility for the financial reporting process,system of internal control, audit process, and monitoring of compliance with applicable laws, rules andregulations;to provide oversight over management‘s activities in managing credit, market, liquidity, operational,legal and other risks of the corporation;to review the annual internal audit plan to ensure its conformity with the objectives of the corporation;Prior to the commencement of the audit, to discuss with the external auditor the nature, scope andexpenses of the audit, and ensure proper coordination if more than one audit firm is involved in theactivity to secure proper coverage and minimize duplication of efforts;to organize an internal audit department and consider the appointment of an independent internalauditor and the terms and conditions of its engagement and removal;to monitor and evaluate the adequacy and effectiveness of the Company‘s internal control system,including financial reporting control and information technology security;to review the reports submitted by the internal and external auditors;to review the quarterly, half-year and annual financial statements before their submission to the Board,with particular focus on the following:[i] any change/s in accounting policies and practices;[ii] major judgmental areas;[iii] significant adjustments resulting from the audit;[iv] going concern assumptions;[v] compliance with accounting standards; and[vi] compliance with tax, legal and regulatory requirements;to evaluate and determine the non-audit work, if any, of the external auditor, and review periodicallythe non-audit fees paid to the external auditor;to establish and identify the reporting line of the internal auditor to enable him to properly fulfill hisduties and responsibilities;to check all financial reports of the corporation against its compliance with both the internal financialmanagement handbook and pertinent accounting standards, including regulatory requirements;to perform interface functions with the internal and external auditors; andto ensure the establishment of a transparent financial management controls system that aims to ensurethe integrity of the system.The Audit Committee may request information, data and clarification from the officers of the corporation in theperformance of their duties and responsibilities.The creation of the Risk Management Committee was approved by the Board of Directors on March 8, 2010.The committee is chaired by Director Peter D. Garrucho Jr., with Directors Elpidio L. Ibañez and Francis GilesB. Puno as members. The committee is tasked to perform the following:163

to oversee the formulation, establishment and implementation of an enterprise risk management(―ERM‖) system;to review and assess the Company‘s ERM policy, processes, strategies, methods and activities andrecommend revisions thereto for approval by the Board;to understand and set clear directions for the management of the Company‘s strategic and critical risks;andto provide management the support and resources necessary to manage the risks to the Company.Among the measures undertaken to comply with leading practices on good corporate governance, the Board ofDirectors and stockholders, in separate meetings held in March and May 2009, respectively, approvedamendments to the Company‘s By-laws providing for the general responsibility of the Board of Directors;providing for the election and qualification of independent directors; prescribing additional qualifications anddisqualifications of directors, such as disqualification on the grounds of violation of the SRC, the CorporationCode, and rules administered by the BSP and the SEC, insolvency, analogous acts committed in anotherjurisdiction, commission of other acts deemed prejudicial, inimical, or causing undue injury to the corporation,its subsidiaries or affiliates, and gross negligence or bad faith committed as an officer or director of anothercompany; and finally, providing that the Board of Directors shall be governed by the Manual on CorporateGovernance. The amendments were approved by the SEC on August 24, 2009, and now form part of theCompany‘s By-laws.To further ensure compliance with the principles and policies of good corporate governance, Senior VicePresident Victor B. Santos Jr. serves as the Company's Compliance Officer. Mr. Santos is responsible formonitoring compliance by the Company with the Manual on Corporate Governance and the rules andregulations of regulatory agencies, including reporting the occurrence of any violation, reporting such violationto the Board, recommending the imposition of appropriate disciplinary actions on the responsible parties, andadopting measures to prevent a repetition of the violation; appearing before the SEC when summoned onmatters relating to the Manual on Corporate Governance; issuing a certification in January of each year on theextent of the Company‘s compliance with the Manual on Corporate Governance for the preceding year, and, ifany deviations are found, explaining the reasons for such deviation; and recommending to the Board the reviewof the Manual on Corporate Governance.The Company, through its Board of Directors and senior management, continues to search for ways and meansto improve its corporate governance. Firmly believing that corporate governance is a necessary component ofsound business management, the Company regularly reviews its existing policies and programs with intention offurther elevating the level of accountability of the Company‘s directors, officers, and employees. Efforts toenhance and develop the Company‘s corporate governance structures have resulted in amendments to theCompany‘s By-laws and Manual on Corporate Governance.As the Company sets its sights on playing an even greater role in the power industry, it will continue todiligently exert every effort necessary to achieve its corporate governance goals and aspirations.164

MARKET PRICE OF AND DIVIDENDS ON THE COMPANY’S STOCKAND RELATED STOCKHOLDER MATTERSMARKET INFORMATIONThe Company‘s Common Shares are traded on the PSE under the symbol ―FGEN‖.The following table sets out, for the periods indicated, the high and low sales price for the Company‘s CommonShares as reported on the PSE:HighLow20091 st quarter ........................................................................................ 24.50 10.002 nd quarter ....................................................................................... 24.00 17.753 rd quarter (1) ..................................................................................... 24.50 19.003 rd quarter (2) ..................................................................................... 19.00 15.754 th quarter (3) ..................................................................................... 18.25 14.5020101 st quarter (4) ..................................................................................... 11.25 8.702 nd quarter ....................................................................................... 12.00 9.303 rd quarter ....................................................................................... 14.18 9.244 th quarter ....................................................................................... 14.32 11.3020111 st quarter ........................................................................................ 12.82 10.762 nd quarter ....................................................................................... 15.38 12.703 rd quarter ....................................................................................... 15.58 12.504 th quarter ....................................................................................... 14.88 12.9620121 st quarter ........................................................................................ 15.20 12.862 nd quarter (5) ..................................................................................... 14.30 13.38Notes:(1)Price indicated is pre- 50% stock dividend correction, for the period July 1, 2009 to September 4, 2009. The stockdividend had an ex-dividend date of September 8, 2009, a record date of September 11, 2009 and payment date ofOctober 7, 2009165

(2)(3)(4)(5)Price indicated is post- 50% stock dividend correction, for the period September 8, 2009 to September 30, 2009Price indicated is for 4 th quarter 2009 up to December 14, 2009Price indicated is post the Company‘s stock rights offering. The Company offered 2,142,472,791 Common Shares atan offer price of P7.00 per share (―Rights Shares‖) to eligible holders of its Common Shares. Holders of the CommonShares were entitled to subscribe to 1.756 Rights Shares per one common share held as of December 29, 2009Prices indicated are for the 2 nd quarter 2012 up to April 30, 2012HOLDERS OF THE COMPANY’S SHARESThe Company has three classes of equity: the Common Shares, the VPS and the Perpetual Preferred Shares.On November 16, 2011 and January 25, 2012, respectively, the Company‘s Board of Directors and stockholdersapproved the increase in the authorized capital stock of the Company to P8,600 million, consisting of5,000 million Common Shares with a par value of P1.00 per share and 2,500 million VPS with a par value ofP0.50 per share, 100 million Series ―F‖ Perpetual Preferred Shares, and 135 million Series ―G‖ PerpetualPreferred Shares. Such increase in authorized capital stock was approved by the SEC on March 13, 2012.Common SharesAs of the date of this Prospectus, the Company has 3,362.80 million Common Shares issued and outstanding.807.5 million Common Shares were issued to FPHC to partially support the increase in the authorized capitalstock of the Company from P3,270 million to P7,250 million, which increase was approved by the SEC onDecember 7, 2009.As of April 30, 2012, there are approximately 371 holders of Common Shares. The Top 20 holders of CommonShares are as follows:Rank Name and Address Number of SharesPercentage of CommonShares (%)1 First Philippine Holdings Corporation ..............................................................................................2,224,989,159 66.162 PCD Nominee Corporation (Filipino) ...............................................................................................664,696,976 19.773 PCD Nominee Corporation (Foreign) ...............................................................................................438,034,055 13.034 Peter D. Garrucho, Jr .........................................................................................................................6,807,004 0.205 Oscar M. Lopez. ................................................................................................................................6,546,933 0.196 Federico R. Lopez. ............................................................................................................................5,675,811 0.177 Francis Giles B. Puno ........................................................................................................................1,800,001 0.058 Richard B. Tantoco ............................................................................................................................1,768,681 0.059 Ernesto B. Rufino, Jr. ........................................................................................................................1,552,328 0.0510 Arthur A. De Guia .............................................................................................................................1,522,160 0.0511 Francis Giles B. Puno &/or Ma. Patricia D. Puno .............................................................................1,105,800 0.0312 Manuel Santiago &/or Ella Santiago .................................................................................................900,000 0.0313 Croslo Holdings Corporation.............................................................................................................741,584 0.0214 Ana Regina B. Go .............................................................................................................................600,000 0.0215 Nestor H. Vasay. ...............................................................................................................................450,000 0.0116 Lozano A. Tan ...................................................................................................................................300,000 0.01166

Rank Name and Address Number of SharesPercentage of CommonShares (%)17 Monina D. Lopez ...............................................................................................................................264,738 0.0118 Perla R. Catahan ................................................................................................................................245,460 0.0119 Consuelo R. Lopez ............................................................................................................................235,050 0.0120 Richard P. Difuntorum ......................................................................................................................207,380 0.01First Philippine Holdings CorporationFPHC is a 50-year old publicly listed infrastructure and utility company with core businesses in powergeneration and distribution and other energy projects, as well as other infrastructure assets including propertydevelopment and manufacturing. FPHC had a market capitalization on the PSE of P33.6 billion as of December31, 2011.Voting Preferred SharesOn October 5, 2009 and November 20, 2009, respectively, the Company‘s Board of Directors and stockholdersapproved the increase in the authorized capital stock of the Company to P7,250 million, consisting of6,000 million Common Shares with a par value of P1.00 per share and 2,500 million VPS with a par value ofP0.50 per share. To partially support the increase in authorized VPS, the Board of Directors approved theissuance of stock dividends to FPHC consisting of 375 million Series ―E‖ VPS. The Board of Directors andstockholders also approved the issuance of 467.143 million Series ―B‖ VPS to FPHC by way of propertydividends. The property dividends were approved by the SEC on November 26, 2009, while the stock dividendswhich partially supported in the increase in authorized capital stock of the Company were approved by the SECon December 7, 2009.The Company is authorized to issue 2,500 million VPS under such terms as are provided in its amended articlesof incorporation. As of the date of this Prospectus, the Company has 1,000 million Series ―B‖ VPS and468.55 million Series ―E‖ VPS issued and outstanding. FPHC holds all of such outstanding VPS.Series “F” Perpetual Preferred SharesOn March 8, 2010 and May 12, 2010, respectively, the Company‘s Board of Directors and stockholdersapproved the amendment of Article VII of the articles of incorporation of the Company, reallocating theCompany‘s authorized capital stock of P7,250 million into 5,000 million Common Shares with a par value ofP1.00 per share, 2,500 million VPS with a par value of P0.50 per share, and 100 million Series ―F‖ PerpetualPreferred Shares with a par value of P10.00 per share.As of the date of this Prospectus, the Company has 100,000,000 Series ―F‖ Perpetual Preferred Shares issuedand outstanding. See Security Ownership of Certain Record and Beneficial Owners – Non-Voting Series ―F‖Perpetual Preferred Shares on page 157 of this Prospectus.Series “G” Perpetual Preferred SharesOn November 16, 2011 and January 25, 2012, respectively, the Company‘s Board of Directors and stockholdersapproved the increase in the authorized capital stock of the Company to P8,600 million, consisting of5,000 million Common Shares with a par value of P1.00 per share and 2,500 million VPS with a par value ofP0.50 per share, 100 million Series ―F‖ Perpetual Preferred Shares, and 135 million Series ―G‖ PerpetualPreferred Shares. Such increase in authorized capital stock was approved by the SEC on March 13, 2012.167

As of the date of this Prospectus, the Company has 33,750,000 Series ―G‖ Perpetual Preferred Shares issued andoutstanding. FPHC holds all of such outstanding Series ―G‖ Perpetual Preferred Shares, which were subscribedto by FPHC for the purpose of supporting the Company‘s application to increase its authorized capital stock.DIVIDENDSThe Company’s Dividend PolicySee ―Dividend Policy‖ on page 63 of this Prospectus.Dividend policies of subsidiaries and associatesEach of FGPC and FGP is required to meet certain conditions as provided for in the covenants set forth in theirrespective loan agreements and facilities, including financial ratios, prior to the declaration and distribution ofdividends.FGPC and FGP each have commitments to ensure that, subject to the provisions of any financing document andapplicable legal requirements and after making reasonable provisions, unrestricted retained earnings shall bepaid out to shareholders as dividends. FGHC, the intermediate holding company for FGPC follows a policy ofpaying out a portion of distributable profits by way of dividends after taking into account business plans andgeneral cash requirements.EDC‘s board of directors is authorized to declare dividends as long as it has unrestricted retained earnings.Moreover, in the case of stock dividends, stockholders representing at least two-thirds of the EDC‘s outstandingcapital stock must approve the stock dividend declaration. Subject to the preferential rights of holders of EDC‘spreferred shares to receive out of the unrestricted retained earnings of EDC, when and as declared by the boardof directors, cumulative non-participating dividends at the rate of 8% of the par value of the preferred shares,EDC‘s current dividend policy is to pay annual cash dividends equivalent to 30% of the prior year‘s recurringnet income. Any such payment is subject to the discretion of the board of directors which takes intoconsideration factors such as current and prospective debt service requirements and loan covenants, theimplementation of business plans, operating expenses, budgets, funding for new investments and acquisitionsand appropriate reserves and working capital, among other things.FG Hydro is authorized to declare dividends to its stockholders in amounts as may be determined by its board ofdirectors, subject to the availability of retained earnings and after meeting certain conditions as provided for inthe covenants set forth in its existing loan agreement including funding of its debt service payment account andcompliance to a minimum debt service coverage ratio.For more information, see ―Dividend Policy‖ and ―Management‘s Discussion and Analysis of FinancialCondition and Results of Operations — Liquidity and Capital Resources‖ on pages 63 and 199, respectively, ofthis Prospectus.SALES OF UNREGISTERED OR EXEMPT SECURITIESDeclaration of Stock DividendsOn March 30, 2009, the Board of Directors of the Company approved the declaration of a 50% stock dividendon the Company‘s Common Shares to be taken out of an increase in the authorized capital stock of theCompany, and the declaration of a 50% property dividend on the Company‘s VPS to be taken from treasurypreferred shares. Such dividends, as well as the corresponding increase in authorized capital stock andamendment to the articles of incorporation of the Company, were approved by the stockholders of the Companyon May 13, 2009. The stock dividend, with payment date on October 7, 2009, and property dividend were168

approved by the SEC on August 27, 2009 and September 23, 2009, respectively. Under the SRC, therequirement to register the sale of securities with the SEC does not apply to the distribution by a corporation,actively engaged in the business authorized by its articles of incorporation, of securities to its stockholders orother security holders as a stock dividend or other distribution out of surplus. Accordingly, the Company‘sdeclaration of stock dividend does not require registration with the SEC.On October 5, 2009 and November 20, 2009, respectively, the Company‘s Board of Directors and stockholdersapproved a stock dividend on VPS consisting of 375 million Series ―E‖ VPS and a property dividend on VPSconsisting of 467.143 million Series ―B‖ VPS taken from treasury preferred shares. The property dividends wereapproved by the SEC on November 26, 2009, while the stock dividends which partially supported the increasein authorized capital stock of the Company were approved by the SEC on December 7, 2009. As part of theincrease in the Company‘s authorized capital stock and to further support such increase, 807.5 million CommonShares were issued to FPHC. Such 807.5 million Common Shares of FPHC formed part of the Rights Offer inJanuary 2010.Issuances under ESOPAs of March 31, 2012, a total of 16,038,981 Common Shares have been issued under the ESOP, with 1,169,627Common Shares remaining vested and exercisable under the July 1, 2003 initial grant date. No furthergrants/awards have been made under the ESOP.Issuance of P 10 billion Series “F” Perpetual Preferred SharesOn July 25, 2011, the Company issued P10.0 billion Series ―F‖ Perpetual Preferred Shares at a dividend rate of8%. The Company approved and authorized the issuance by way of private placement or issuance to QualifiedBuyers under Sections 10.1 (k) and (l) of the Securities Regulation Code of 100,000,000 of its Series ―F‖Perpetual Preferred Shares with a par value of P10.00 per share and an issue price of P100.00 per share. TheSeries ―F‖ Perpetual Preferred Shares are cumulative, non-voting, non-participating, non-convertible and pesodenominated.On the seventh anniversary of the issue date or any dividend payment date thereafter, the Company shall havethe option, but not the obligation, to redeem all of the Series ―F‖ Perpetual Preferred Shares outstanding.The proceeds were used to (i) prepay the Unified Corporate Notes amounting to P5.1 billion and buy back theCompany‘s 2.5% Convertible Bonds due 2013; (ii) partially fund various acquisitions, and investments anddevelopment projects; and (iii) fund other general corporate purposes.Dividends are payable on January 25 and July 25 of each year. On November 15, 2011, the Series ―F‖ PerpetualPreferred Shares were listed in the PSE with stock trading symbol ―FGENF‖.Convertible Bonds Due 2013On February 11, 2008, pursuant to the Trust Deed dated February 11, 2008 between the Company and the Bankof New York Mellon, the Company issued Convertible Bonds with an aggregate principal amount of US$260million. The Convertible Bonds bear interest at the rate of 2.5% per annum, payable semi-annually in arrears onFebruary 11 and August 11 of each year and will be repayable in full on February 11, 2013. At the option of theBondholders and up to 3:00 pm on January 31, 2013, the Convertible Bonds are convertible into fully paidCommon Shares at the applicable conversion price (currently at P26.94 per option share) on conversion date,with a fixed exchange rate of US$1.00 to P40.55. The conversion price is subject to adjustment upon theoccurrence of certain events. Notwithstanding the Bondholders‘ right of conversion, the Company has theoption to satisfy any such conversion in full or in part by paying the relevant Bondholder the applicable cashsettlement amount. In case of partial settlement, the other part shall be satisfied by the delivery of the optionshares. On the Convertible Bond‘s maturity date, the Company is required to redeem the Convertible Bonds at128% of its principal amount.169

The Bondholders have the option to require the Company to redeem all or some of the Convertible Bonds as ofa certain date. On February 11, 2011, the Company redeemed Convertible Bonds in the amount of US$72.5million at a price of US$578,027.75 for every US$500,000 of the Convertible Bonds. Since the issuance of theConvertible Bonds in February 2008, the Company has bought back and cancelled US$120.5 million of theConvertible Bonds to date, at an average price of 117%. Convertible Bonds in the amount of US$67 millionremains outstanding.170

LEGAL PROCEEDINGSExcept as disclosed herein, there are no material pending legal proceedings to which the Company or any of theGroup members is a party or to which any of their material properties are subject. If the Company or any of itsGroup members is not successful in one or more of the proceedings described below, it could incur damagesand costs which could be substantial and could have a material adverse effect on the Company’s business,financial condition, results of operations, and liquidity.Real Property Tax CaseFGPCFGPC vs. Office of the Provincial Assessor of Batangas Province and Cristeta A. CastorLBAA Case No. 2003-5/ CBAA Case No. L-67In June 2003, FGPC received various notices of assessment and tax bills from the provincial government ofBatangas, through the Office of the Provincial Assessor, imposing an annual RPT on steel towers,cable/transmission lines and accessories (the ―T-Line‖) amounting to $0.2 million (P=12 million) per year.FGPC, claiming exemption from said RPT, appealed the assessment to the LBAA and filed a petition inAugust 2003 praying for the following: (1) that the notices of assessment and tax bills issued by the provincialassessor be recalled and revoked; and (2) that the provincial assessor drop from the assessment roll the 230 kVtransmission lines from Sta. Rita to Calaca in accordance with Section 206 of the local government code. FGPCargued that the T-Line does not constitute real property for RPT purposes, and even assuming that the T-Line isregarded as real property, FGPC is still not liable for RPT as it is NPC/TransCo, a government-owned andcontrolled corporation engaged in the generation and/or transmission of electric power, which has actual, directand exclusive use of the T-Line. Pursuant to Section 234 (c) of the local government code, a governmentownedand controlled corporation engaged in the generation and/or transmission of electric power and whichhas actual, direct and exclusive use thereof, is exempt from RPT.FGPC sought for, and was granted, a preliminary injunction by the RTC (Branch 7) of Batangas City, underSCA Case No. 7730 to enjoin the provincial treasurer of Batangas City from collecting the RPT pending thedecision of the LBAA. Despite the injunction, the LBAA issued an order requiring FGPC to pay the RPTwithin 15 days from receipt of the order. FGPC filed an appeal before the CBAA assailing the validity of theLBAA Order. The CBAA in December 2006 set aside the LBAA Order and remanded the case to the LBAA.The LBAA was directed to proceed with the case on the merits without requiring FGPC to first pay the RPT onthe questioned assessment. The LBAA case remains pending.On May 23, 2007, the Province filed with the Court of Appeals a petition for review of the CBAA Resolution,docketed as CA-GR SP No. 98851 entitled Province of Batangas vs. FGPC. The Court of Appeals dismissedthe petition in June 2007; however, it issued another resolution in August 2007 reinstating the petition filed bythe Province. In a decision dated March 8, 2010, the Court of Appeals dismissed the petition for lack ofjurisdiction.In connection with the prohibition case pending before the RTC (Branch 7) of Batangas City, which previouslyissued the preliminary injunction, the Province filed in March 2006 an Urgent Manifestation and Motionrequesting the court to order the parties to submit memoranda on whether or not the Petition for Prohibitionpending before the court is proper considering the availability of the remedy of appeal to the CBAA. The RTCdenied the Urgent Manifestation and Motion, and is awaiting the finality of the issues on the validity of the RPTassessment on the transmission line.The Province filed a Motion to Dismiss dated May 4, 2011 and FGPC filed its Opposition thereto in July 2011.In an Order dated November 25, 2011, the Court denied the Motion to Dismiss and directed FGPC to amend itspetition to include the provincial assessor as a party respondent. The Province filed a Motion forReconsideration of this Order, which remains pending as of the date of this Prospectus.171

Income Tax AssessmentsFGPCFGPC vs. Commissioner of Internal RevenueCTA Case No. 7281On September 6, 2004, FGPC received various final assessment notices and formal letters of demand totaling alittle over P124 million from the BIR. The assessments were for the alleged deficiency income tax covering theyears 2000 and 2001. The 2000 assessment was based on FGPC‘s alleged unreported income on pre-income taxholiday sale of electricity to Meralco and SPOI, as well as for its alleged unreported income from foreigninvestments and U.S. Dollar loan proceeds realized prior to commercial operations while the 2001 assessmentwas for (1) deficiency income tax due to FGPC‘s disallowed interest expense from its U.S. Dollar deposits inforeign banks, its disallowed compensation expense, and (2) penalties due to the late payment of withholdingtax on interest on foreign loans and late payment of excise tax on natural gas. To contest these assessments,FGPC filed a protest with the BIR in October 2004 and thereafter, a petition for review with the Court of TaxAppeals. FGPC raised the following issues in its petition: (i) whether the BIR‘s right to issue an assessment fordeficiency income tax for the taxable year 2000 had already prescribed; (ii) whether FGPC had unreportedincome from the pre-income tax holiday sale of electricity; (iii) whether FGPC had unreported interest incomein 2000; (iv) whether interest expense incurred to generate FGPC‘s interest income from unregistered activity isdeductible; (v) whether FGPC is liable for deficiency income tax for the taxable year 2001 due to its disallowedcompensation expense, which was disallowed on the ground that FGPC allegedly did not subject such expenseto withholding tax; and (vi) whether FGPC is liable for the penalties for late payment of excise tax on naturalgas. As of the date of this Prospectus, both parties of the case have already submitted their respectiveMemoranda and awaiting for the decision of the Court of Tax Appeals (Third Division) on the merits of thecase.Tax Assessment in relation to Panay Power CorporationCompanyOn September 5, 2005, the Company received a letter from Mirant Global Corporation, the parent company ofClaredon Towers Holdings, Inc. (the company that purchased the Company‘s interests in Panay PowerCorporation in 2003), advising the Company that Panay Power Corporation had received a tax assessment fromthe BIR for alleged tax liabilities for, among other things, unpaid income, value added tax and expandedwithholding taxes for the year 2000 totaling approximately P331 million. Mirant Global Corporation alsoadvised the Company that it is in the process of protesting the assessment and that it will seek indemnificationfrom the Company pursuant to the Share Purchase Agreement dated June 26, 2003 executed among theCompany, FPPC, Panay Electric Company, and Claredon Towers Holdings, Inc.In response, the Company advised Claredon Towers Holdings, Inc. that the latter‘s right to claim indemnity hadalready expired. As of the date of this Prospectus, the dispute has not, to the best of the Company‘s knowledge,been brought up for arbitration.OthersWest Tower Condominium Corporation, et al. vs. First Philippine Industrial Corporation, et al.G.R. No. 194239, Supreme Court of the PhilippinesOn November 15, 2010, a Petition for the Issuance of a Writ of Kalikasan was filed before the Supreme Courtby the West Tower Condominium Corporation, et al., against respondents FPIC, the Company, their respectiveboards of directors and officers, and John Does and Richard Roes. The petition was filed in connection with the172

oil leak which is being attributed to a portion of FPIC‘s pipeline located in Bangkal, Makati City. The oil leakwas found in the basement of the West Tower Condominium.The petition was brought by the West Tower Condominium Corporation purportedly on behalf of its unitowners and in representation of the inhabitants of Barangay Bangkal, Makati City. The petitioners sought theissuance of a Writ of Kalikasan to protect the constitutional rights of the Filipino people to a balanced andhealthful ecology, and prayed that the respondents permanently cease and desist from committing acts ofnegligence in the performance of their functions as a common carrier; continue to check the structural integrityof the entire 117-km pipeline and replace the same; make periodic reports on findings with regard to thepipeline and their replacement of the same; be prohibited from opening the pipeline and allowing its use untilthe same has been thoroughly checked and replaced; rehabilitate and restore the environment, especiallyBarangay Bangkal and West Tower Condominium, at least to what it was before the signs of the leak becamemanifest; open a special trust fund to answer for similar contingencies in the future; and be temporarilyrestrained from operating the pipeline until final resolution of the case.On November 19, 2010, the Supreme Court issued a Writ of Kalikasan with Temporary EnvironmentalProtection Order (―TEPO‖) directing the respondents to: (i) make a verified return of the Writ within a nonextendibleperiod of ten days from receipt thereof; (ii) cease and desist from operating the pipeline until furtherorders from the court; (iii) check the structural integrity of the whole span of the pipeline, and in the processapply and implement sufficient measures to prevent and avert any untoward incident that may result from anyleak in the pipeline; and (iv) make a report thereon within 60 days from receipt thereof.First Gen and its impleaded directors and officers filed a verified Return on November 30, 2010 and aCompliance on January 18, 2011, explaining that the Company is not the owner and operator of the pipeline,and is not involved in the management, day to day operations, maintenance and repair of the pipeline. For thisreason, neither First Gen nor any of its directors and officers has the capability, control, power or responsibilityto do anything in connection with the pipeline, including to cease and desist from operating the same. OnJanuary 18, 2011, the Supreme Court noted and accepted the Return filed by First Gen, and on January 25, 2011similarly noted and accepted the Compliance filed by First Gen.On January 3, 2011, FPIC asked the Supreme Court to temporarily lift the Writ for the conduct of a pressurecontrolledleak test for the entire 117-kilometer pipeline, as recommended by DOE‘s international technicalconsultant. On November 22, 2011, the Supreme Court issued a Resolution ordering the temporary lifting of theTEPO for a period of 48 hours. The DOE and its international technical consultant, SGS Philippines, Inc.,supervised the leak test activities which began in the morning of December 14, 2011. Representatives from theUniversity of the Philippines National Institute of Geological Sciences, UP Institute of Civil Engineering, andthe parties witnessed the activities.For the purpose of expediting the proceedings and the resolution of all pending incidents, the Supreme Courtreiterated its order to remand the case to the Court of Appeals to conduct subsequent hearings within a period of60 days, and after trial, to render a report to be submitted to the Supreme Court, 30 days after the submission ofthe parties‘ respective memoranda. The case has been raffled to the 11 th Division of the Court of Appeals,which conducted a hearing on March 21, 2012. In an earlier resolution dated May 31, 2011, the Supreme Courtclarified that the black oil pipeline is not included in the Writ of Kalikasan with TEPO. The Petitioners filed aMotion for Reconsideration of this Order.During the hearing before the 11 th Division of the Court of Appeals held on March 21, 2012, the Court ofAppeals stated that it will continue the preliminary conference and reception of evidence within a 60-day timeframe, or from March 21 until May 20, 2012. The case is still pending as of the date of this Prospectus.173

West Tower Condominium Corporation, et al. vs. First Philippine Industrial Corporation, et al.Civil Case No. 11-256, Regional Trial Court, Makati Branch 58On March 24, 2011, a civil case for damages was filed by the West Tower Condominium Corporation and someresidents of the West Tower Condominium against FPIC, the FPIC directors and officers, the Company,Pilipinas Shell Petroleum Corporation, and Chevron Philippines, Inc. before the Makati City RTC. In theircomplaint, the plaintiffs alleged that FPIC, its directors and officers, and the Company violated Republic ActNo. 6969 (Toxic Substances and Hazardous and Nuclear Wastes Control Act of 1990), Republic Act No. 8749(Philippine Clean Air Act of 1999) and Its Implementing Rules and Regulations, and Republic Act No. 9275(Philippine Clean Water Act of 2004). The complaint sought payment by the defendants of actual damagescomprising incurred rentals for alternative dwellings, incurred additional transportation and gasoline expensesand deprived rental income; recompense for diminished or lost property values to enable the buying of newhomes; incurred expenses in dealing with the emergency; moral damages; exemplary damages; a ―medicalfund‖; and attorney‘s fees.First Gen filed its Answer on May 9, 2011, in which it was argued that the case is not an environmental caseunder the Rules of Procedure for Environmental Cases, but an ordinary civil case for damages under the Rulesof Court for which the appropriate filing fees should be paid before the court can acquire jurisdiction thereof.In an Order dated August 22, 2011, Makati City RTC (Branch 158) Judge Eugene Paras ruled that the complaintis an ordinary civil action for damages and that the Plaintiff should pay the appropriate filing fees in accordancewith the Rules of Court within ten days from receipt of the Order. The other individual plaintiffs were ordereddropped as parties in the case. The plaintiffs filed a Motion to Inhibit Judge Paras as well as a Motion forReconsideration of the Order. In an Order dated October 17, 2011, the court reiterated that it has no jurisdictionover the case and ordered the referral of the case to the Executive Judge for re-raffle.In an Order dated December 1, 2011, Judge Elpidio Calis of the Makati City RTC (Branch 133) declared thatthe records of the case have been transferred to his court. Subsequently, in an Order dated January 18, 2012,Judge Calis declared that the Plaintiff‘s Motion for Reconsideration of the August 22, 2011 Order is deemedsubmitted for resolution. In an Order dated March 29, 2012, Judge Calis denied the plaintiff‘s Motion forReconsideration for lack of merit, and ordered the plaintiff to pay the appropriate filing fees within ten (10) daysfrom its receipt of the Order with the warning that non-compliance will constain the court to dismiss the case forlack of jurisdiction.West Tower Condominium Corporation vs. Leonides Garde, et al.NPS No. XV-05-INQ-11J- 02709Office of the City Prosecutor, Makati CityThis is a criminal complaint for negligence under Article 365 of the Revised Penal Code against FPIC directorsand some of its officers, as well as directors of the Company, Pilipinas Shell Petroleum Corporation andChevron Philippines, Inc.On December 14, 2011, a Counter-Affidavit with Verified Manifestation was filed by Francis Giles B. Puno,Director, President and COO of the Company and one of the Respondents. The other Respondent-Directors ofthe Company verified the Verified Manifestation and adopted the factual allegations and defenses in theCounter-Affidavit of Respondent Puno.Makati City Prosecutor Feliciano Aspi motu proprio (on his own) inhibited himself from the case on the groundthat he had previously worked for the counsel of the Company. Complainant then filed with the DOJ a petitionfor change of venue, which petition was granted by way of Department Order No. 63 dated January 18, 2012,which designated Manila Senior Assistant City Prosecutor Raymunda Apolo as special investigating prosecutorfor the case.174

In an Order dated February 3, 2012, Makati City Prosecutor Aspi ordered the consolidation of the case withanother case entitled Anthony M. Mabasa et al. vs. Roberto B Dimayuga et al. for violation of Article 365 of theRevised Penal Code. The Order stated that the consolidation is being made upon the recommendation of MakatiCity Assistant Prosecutor Ma. Agnes Alibanto.On February 17, 2012, Respondent-Directors of the Company filed a Motion for Reconsideration of the Orderdated January 18, 2012 which granted Complainant‘s petition for a change of venue. The case remains pending.DOJ InvestigationEDC engaged the services of Dr. Leonard Co, a respected botanist and conservationist, to undertake thecollection of seeds and wildings and cataloging of flora samples and mother trees of indigenous species withinthe EDC geothermal reservations in connection with EDC‘s ―Binhi – Tree for the Future‖ program. While EDCinitially planned Dr. Co‘s work to start within the areas of the Southern Negros geothermal production field, Dr.Co suggested that he start out in the Leyte geothermal production field due to the richness of the forest cover,ease of accessibility, and his familiarity with the area, having previously surveyed the same in 2009 for EDC‘sBiodiversity Conservation Monitoring Program.On November 15, 2010, Dr. Co, accompanied by a team composed of Forest Development Ranger SofronioCortez, EDC contractual forester Ronino Gibe, and Tongonan Farmers Association guides Julio Borromeo andPolicarpio Balute, proceeded to enter the Leyte geothermal production field area within the vicinity of Pad 403.In accordance with prescribed protocol, EDC informed the military of the presence of its consultants. However,Dr. Co and his team were shot at by elements of the 19 th Infantry Batallion of the Philippine Army, in what themilitary claimed was a crossfire between them and armed elements of the rebel New People‘s Army. Dr. Co,together with Mr. Cortez and Mr. Borromeo, were killed as a result of the incident.The DOJ created a joint fact-finding panel between the DOJ and the National Bureau of Investigation toinvestigate the deaths of Dr. Co, Mr. Cortez, and Mr. Borromeo. In a press conference called by the DOJ onJanuary 20, 2011, the panel announced that it recommended the filing of charges for reckless imprudenceagainst EDC in connection with the deaths of Dr. Leonard Co, Sofronio Cortez, and Julio Borromeo inside theLeyte geothermal production field. DOJ Secretary Leila de Lima has, thereafter, publicly announced that shewill review the fact-finding panel‘s report and recommendation. EDC has not been officially informed of thereport and recommendations of the joint DOJ-National Bureau of Investigation fact-finding panel and has notbeen served an official copy thereof. To date, the DOJ has not undertaken any further official action in thisrespect.EDC extended full support and actively participated in all the investigations conducted by various public (i.e.,the DOJ, Philippine National Police, National Bureau of Investigation, and Commission on Human Rights) andprivate (i.e., AGHAM-Karapatan) bodies regarding the incident.The family of Dr. Co has already filed a criminal complaint for murder against soldiers belonging to the 19 thInfantry Battalion. The regional office of the Philippine National Police in Leyte, on the other hand, also filed acriminal complaint for reckless imprudence resulting in homicide against elements of the 19 th Infantry Battalion.The DOJ is currently conducting formal preliminary investigations in relation to both complaints.175

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONSThis Management’s Discussion and Analysis of Financial Condition and Results of Operations should be readin conjunction with the Company’s accompanying Consolidated Financial Statements and related notes. See thecautionary statement regarding forward-looking statements on page 7 of this Prospectus for a description ofimportant factors that could cause actual results to differ from expected results. As a result of thedeconsolidation of EDC and FG Hydro as of May 1, 2009, the Company’s consolidated financial statements asof and for the twelve-month period ended December 31, 2010 are not necessarily comparable to theconsolidated financial statements as of and for the twelve-month period ended December 31, 2009. EDC’saudited financial statements as of and for the twelve-month periods ended December 31, 2009, 2010 and 2011are available for viewing at the offices of the SEC located at the SEC Building, EDSA, Greenhills, MandaluyongCity, or at EDC’s principal place of business located at One Corporate Center Bldg. Julia Vargas cornerMeralco Avenue, Ortigas Center, Pasig City.COMPANY’S BUSINESSThe Company is engaged in the business of power generation through the following operating companies:(i) FGPC, which operates the 1,000 MW Santa Rita;(ii) FGP, which operates the 500 MW San Lorenzo; and(iii) FG Bukidnon, via FGRI, which operates the 1.6 MW FG Bukidnon mini hydroelectric power plant.Equity in net earnings from associates include: (i) EDC, with an aggregate installed capacity of approximately1,129.4 MW of geothermal power; and (ii) FG Hydro which operates the newly rehabilitated and upgraded 132MW Pantabangan-Masiway. The 225 MW Bauang, which operated under BPPC under a BOT with the NPC,was turned over to the Government last July 25, 2010. Therefore, BPPC‘s equity in net earnings contributionwas only until July 31, 2010. The Company‘s indirect 40% economic interest in EDC is held through PrimeTerracota and Red Vulcan, while it directly owns a 40% economic interest in FG Hydro. As of December 31,2011, the Company also directly and indirectly owned 1.32 billion common shares in EDC, of which 324.5million common shares are held through its wholly-owned subsidiary, Northern Terracotta. The 1.32 billioncommon shares are equivalent to a 7.02% direct economic interest in EDC.The following discussion focuses on the results of operations of the Company and its power generatingcompanies. As of December 31, 2011, the Company‘s ownership interests in these operating companies areindirectly held through intermediate holding companies, with the exception of FG Hydro where the Companydirectly holds a 40.0% interest.• FGHC was incorporated on February 3, 1995 as a holding company for the development of gas-fired powerplants and other non-power gas related businesses. FGHC is 60.0% owned by the Company and 40.0%owned by BGCH. FGHC wholly owns FGPC, the project company of Santa Rita.• Unified was incorporated on March 30, 1999 as the holding company of the Company‘s 60.0% equity sharein FGP, the project company of San Lorenzo. The Company owns 100.0% of Unified.• FGRI, formerly known as First Philippine Energy Corporation, was established on November 29, 1978. It istasked to develop prospects in the renewable energy market. FGRI has transformed itself from a supplier ofsolar products and systems to a power service provider in the countryside. The Company owns 100.0% ofFGRI.FG Bukidnon, a wholly-owned subsidiary of FGRI, was incorporated on February 9, 2005. Uponconveyance by the Company in October 2005, FG Bukidnon took over the operations and maintenance of176

Agusan Mini-Hydro. The said run-of-river plant consists of two 800-kW turbine generators that use waterfrom the Agusan River to generate electricity. It is connected to the local distribution Grid of CEPALCOvia the NGCP line.• Prime Terracota was incorporated on October 17, 2007 as the holding company of Red Vulcan. Red Vulcanwas incorporated on October 5, 2007 as the holding company for the Company‘s 40.0% economic stake inEDC.On November 22, 2007, the Company, through Red Vulcan, was declared the winning bidder for PNOCEDC RF‘s remaining shares in EDC, which consisted of 6.0 billion common shares and 7.5 billionpreferred shares. Such common shares represented a 40.0% economic interest in EDC while the combinedcommon and preferred shares represented 60.0% of the voting rights in EDC. EDC is the Philippines‘largest producer of geothermal energy, operating 12 geothermal steamfields in five geothermal renewableservice contract areas where it is principally involved in the following: (i) the production of geothermalsteam for sale to EDC-owned power plants; and (ii) the generation of electricity for sale to NPC and variousother offtakers.On May 12, 2009, Prime Terracota issued Class ―B‖ voting preferred shares at par value to the Lopez Inc.Retirement Fund (―LIRF‖) and Quialex Realty Corporation (―QRC‖). Prime Terracota is the effective60.0% voting/40.0% economic owner of EDC through its subsidiary Red Vulcan. Prior to its issuance ofpreferred shares to LIRF and QRC, Prime Terracota was a wholly-owned subsidiary of the Company. Withthe issuance of the preferred shares, the Company‘s voting interest in Prime Terracota is now reduced to45.0%, with the balance taken up by LIRF (40.0%) and QRC (15.0%). This transaction triggered thedeconsolidation of Prime Terracota, Red Vulcan, EDC and FG Hydro (collectively referred to as the PrimeTerracota Group) in the Company‘s consolidated financial statements effective May 2009. Thereafter, theCompany‘s investment in Prime Terracota is accounted for using the equity method in the consolidatedfinancial statements of the Company as it still retains influence over Prime Terracota through its 45.0%voting interest.• FG Hydro was incorporated on March 13, 2006 as a wholly-owned subsidiary of the Company. OnSeptember 8, 2006, FG Hydro emerged as the winning bidder for the then 100 MW Pantabangan and the 12MW Masiway Plants. The then 112 MW Pantabangan-Masiway was transferred to FG Hydro on November18, 2006, representing the first major generating asset of NPC to be successfully transferred to the privatesector. On October 15, 2008, the Company‘s Board of Directors approved the sale of 60.0% of FG Hydro toEDC and the divestment was completed in November 2008. As a result of the divestment, the Company‘sdirect voting interest in FG Hydro after the transaction is 40.0%. Moreover, the completion of therehabilitation and upgrade project of Pantabangan‘s Units 1 and 2 in 2010 increased the power generationcapacity of Pantabangan-Masiway to 132 MW.FPPC was established on November 27, 1992 primarily to engage in power generation. FPPC is 40.0%-owned by the Company. FPPC owns a 93.25% interest in BPPC. BPPC was incorporated on February 3,1993 and operated Bauang under a BOT with NPC for a period of 15 years from July 25, 1995 until July25, 2010. BPPC‘s BOT contract with NPC expired in July 25, 2010 and Bauang was turned-over to NPC onthe same date. On November 15, 2010, BPPC and FPPC filed an application to be merged into one entity,with the former as the surviving entity. The application for merger was approved by the SE) on December13, 2010, and the assets and liabilities of FPPC were transferred to, and absorbed by, BPPC on December15, 2010, the effectivity date of the merger. On March 3, 2011, BPPC‘s board of directors and stockholdersapproved the amendment to Article VI (b) of the Plan of Merger amending the number of shares of stockissued to BPPC shareholders. The Amended Plan of Merger was approved by the SEC on July 14, 2011 andthe resulting percentage of ownership of the Company in BPPC is 37.3%.177

FIRST GEN MATERIAL CHANGES IN FINANCIAL CONDITION (2011 vs. 2010)CONSOLIDATED STATEMENTS OF INCOMEHorizontal and Vertical Analyses of Material Changes for the years ended December 31, 2011 vs. 2010(Amounts in U.S. Dollars and inThousands) Dec. 2011 Dec. 2010HORIZONTALANALYSIS2011 vs.2010VERTICALANALYSIS2011 vs.2010 2011 2010REVENUESale of electricity $1,340,625 $1,169,155 $171,470 14.7% 98.3% 94.0%Mark-to-market gain on derivatives – net 3,734 5,395 (1,661) -30.8% 0.3% 0.4%Interest Income 8,169 8,881 (712) -8.0% 0.6% 0.7%Equity in net earnings of associates 4,970 47,729 (42,759) -89.6% 0.4% 3.8%Others 6,032 13,118 (7,086) -54.0% 0.4% 1.1%TOTAL REVENUES 1,363,530 1,244,278 119,252 9.6% 100.0% 100.0%COST OF SERVICES ANDEXPENSESCost of sale of electricityFuel cost (988,040) (821,467) (166,573) 20.3% -72.5% -66.0%Depreciation and amortization (61,841) (54,970) (6,871) 12.5% -4.5% -4.4%Power plant operations and maintenance (35,175) (40,220) 5,045 -12.5% -2.6% -3.2%General & administrativeStaff costs (16,087) (16,582) 495 -3.0% -1.2% -1.3%Other administrative expenses (35,101) (38,664) 3,563 -9.2% -2.6% -3.1%Sub-total (1,136,244) (971,903) (164,341) 16.9% -83.3% -78.1%OTHER CHARGESInterest expense and financing charges (84,958) (104,222) 19,264 -18.5% -6.2% -8.4%Foreign exchange loss – net (5,770) (5,114) (656) 12.8% -0.4% -0.4%Others (377) (213) (164) 77.0% 0.0% 0.0%Total (1,227,349) (1,081,452) (145,897) 13.5% -90.0% -86.9%INCOME FROM CONTINUINGOPERATIONS BEFORE INCOMETAX 136,181 162,826 (26,645) -16.4% 10.0% 13.1%Provision for (benefit from ) IncomeTaxCurrent 49,063 48,848 215 0.4% 3.6% 3.9%Deferred 508 (7,022) 7,530 -107.2% 0.0% -0.6%49,571 41,826 7,745 18.5% 3.6% 3.4%NET INCOME FROM CONTINUINGOPERATIONS $86,610 $121,000 ($34,390) -28.4% 6.4% 9.7%Attributable to:Equity holders of the Company $35,021 $70,217 ($35,196) -50.1% 2.6% 5.6%Non-controlling Interests $51,589 $50,783 $806 1.6% 3.8% 4.1%178

RevenuesRevenues for the year ended December 31, 2011 increased by US$119.3 million, or 9.6%, to US$1,363.5million as compared to US$1,244.3 million in 2010. The increase was due to the major movements in revenueitems as explained in detail below:Revenue from sale of electricityRevenues from the sale of electricity increased by US$171.5 million, or 14.7%, to US$1,340.6 million in2011, from US$1,169.1 million in 2010 mainly due to higher fuel charges during the year. The increase infuel charges by US$166.3 million, or 20.9%, was a result of higher fuel prices, (an average price ofUS$12.2/MMBtu in 2011, compared to US$10.2/MMBtu in 2010) as well as higher dispatch. For the year,both Santa Rita and San Lorenzo experienced high plant dispatch, posting a combined net capacity factor of89.2%, compared to 82.7% during the previous year. The 2011 combined plant dispatch of Santa Rita andSan Lorenzo was the highest dispatch of the gas plants since its commercial operations. This improveddispatch also resulted in O&M charges of US$91.7 million in 2011, which was US$4.9 million higher thanthe previous year.Mark-to-market (MTM) gain on derivativesIn 2011, the Company recognized a US$3.7 million gain on derivative transactions mostly attributable tothe MTM gain on its call option to purchase EDC shares. This was a US$1.7 million, or a 30.8%, decreasecompared to the same period in 2010 wherein the Company recognized a US$5.4 million gain. The MTMgain recognized in 2010 was composed of a US$3.9 million MTM gain on the same option assets, as wellas a US$1.5 million gain on derivatives relating to the Convertible Bonds.The derivative gains related to the EDC shares arose from the difference between the market price and thecall option price at the time the option was exercised. In April 2010, the Company entered into Call OptionAgreements to purchase an aggregate of 585 million common shares of EDC for a period of three years (upto April 2013) with one third of the options expiring at the end of each year. Subsequently, in April 2011,the Company fully exercised this call option.Interest incomeInterest income decreased by US$0.7 million, or 8.0%, to US$8.2 million in 2011 from US$8.9 million in2010, primarily due to lower interest income on cash balances by US$0.3 million as well as the absence ofinterest income on the annual deficiency of Meralco which amounted to US$0.2 million in 2010.Equity in net earnings of associatesThe equity in net earnings of associates decreased by US$42.8 million, or 89.6%, to US$5.0 million in 2011from US$47.7 million in the previous year primarily due to the Company‘s share in the net losses incurredby the Prime Terracota Group of US$13.1 million. This was partially offset by the attributable earningsarising from the Company‘s 40.0% direct stake in FG Hydro.The net loss of the Prime Terracota Group in 2011 is mostly a result of the full impairment provision of theNNGP assets, the absence of the recovery of impairment loss on input VAT claims recognized in 2010, andthe foregone steam sales following the acquisition of the BacMan plants in September 2010. This waspartially offset by the slightly higher earnings of FG Hydro due to the increase in revenues from theancillary services it began providing in August 2011, as well as the lower interest expense of Red Vulcanand Prime Terracota for the year.179

Other revenuesOther revenues decreased by US$7.1 million, or 54.0%, to US$6.0 million in 2011 from US$13.1 millionduring the previous year. Revenues were higher in 2010 primarily due to the US$5.2 million reimbursementrecognized from EDC for employee costs of seconded personnel that year. The revenues were furtherreduced by the absence of dividends from EDC following the equity treatment of the Company‘s andNorthern Terracotta‘s 7.0% direct stake in EDC for the year 2011. This was in contrast to the previous yearwherein the Company booked a US$0.6 million gain and received US$0.5 million in dividends frominvestment securities.Cost of Services and ExpensesCost of services and expenses for the year ended December 31, 2011 increased by US$164.3 million, or 16.9%,to US$1,136.2 million as compared to US$971.9 million in 2010. The increase was due to the major movementsin the following items as explained in detail below:Fuel costFuel costs of Santa Rita and San Lorenzo increased by US$166.6 million, or 20.3%, to US$988.0 million in2011, from US$821.5 million in 2010. This was primarily due to the increased fuel prices and higheroverall dispatch of the power plants in 2011, as compared to the previous year.Power plant operations and maintenanceExpenses relating to power plant operations and maintenance decreased by US$5.0 million, or 12.5%, toUS$35.2 million in 2011 from US$40.2 million in 2010, following the effectivity of the new full scopeO&M agreements with SPOI on August 1, 2010. The new agreements lowered overall operations andmaintenance costs despite the higher dispatch during the period.Variable O&M costs for FGPC were further reduced in 2011 due to the cap on chargeable Net ElectricalOutput that was reached in July. Reaching the cap resulted in the non-charging of variable O&M costs bySPOI from the date the cap was reached and extended until the end of the contract period in August 2011.The new agreements also increased the guaranteed base NDC base which resulted in lower NDC bonuses tothe O&M operator by US$3.9 million as compared to the previous year.Depreciation and amortizationDepreciation expense increased by US$6.9 million, or 12.5%, to US$61.8 million in 2011 from US$54.9million in 2010. This was mainly a result of the increase in property, plant and equipment due to theinstallation of new turbine blades during the completed major maintenance of San Lorenzo during the lastquarter of 2010.Other administrative expensesOther administrative expenses decreased by US$3.6 million, or 9.2%, in 2011 mostly due to lowerprofessional fees by US$5.7 million. Professional fees incurred in 2010 pertain to the arbitration costsrelating to the GSPA disputes of FGPC and FGP covering the contract year 2006. The decrease waspartially offset by an increase in local business taxes by US$2.0 million due to higher revenues and plantdispatch.180

Interest expense and financing chargesInterest expense and financing charges decreased by US$19.3 million, or 18.5%, to US$84.9 million in 2011from US$104.2 million in 2010. This is largely a result of the Company recognizing a lower interest expense ofUS$26.2 million in 2011, as compared to US$35.8 million in the previous year. This difference of US$9.6million can be attributed to the lower outstanding debt after paying the P5.0 billion Peso-denominated bond onJuly 30, 2010, and the buyback and partial redemption of the Convertible Bonds during the year.Interest expense of Unified also went down by US$5.2 million following the prepayment of the loan last July2011. The interest expenses of FGPC and FGP also decreased by a combined amount of US$4.2 million afterthe scheduled principal payments lowered the overall outstanding debt.Foreign exchange loss – netForeign exchange losses increased by US$0.7 million, or 12.8%, to US$5.8 million in 2011 as compared toUS$5.1 million in 2010. This was mostly attributable to the Company, which booked US$5.4 million greaterlosses due to the unfavorable effect of the Philippine peso appreciation against the U.S. Dollar on the remainingproceeds of the P10.0 billion Series ―F‖ Perpetual Preferred Shares issued last July 25, 2011.These increased losses were partially offset by smaller foreign exchange losses incurred by Unified and FGPCby US$2.7 million and US$1.8 million, respectively. Fewer losses were incurred by Unified in 2011 due to thefull payment of its Peso-denominated bond whereas the reduction of losses of FGPC were caused by the samebeginning and ending foreign exchange rate used in 2011 (P43.84:US$1.00) as opposed to an appreciating Peso-Dollar rate in 2010 (P46.20:US$1.00 year-end rate in 2009 versus P43.84:US$1.00 year-end rate in 2010).Provision for (benefit from) Income TaxThe increased provision for income tax was primarily due to the almost-zero contribution of deferred incometaxes in 2011 caused by the same foreign exchange closing rate in 2011 and 2010. This was in contrast to theUS$7.0 million benefit from deferred income tax booked in 2010 due to the movements in the foreign exchangerate during that year.Net IncomeThe Company‘s consolidated net income decreased by US$34.4 million, or 28.4%, to US$86.6 million in 2011from US$121.0 million in 2010. The decrease in net income was a result of the movements of the followingitems:lower equity in net earnings of associates by US$42.8 million primarily as a result of the net losses fromEDC mostly attributable to the full impairment provision of NNGP assets. EDC‘s income was also broughtdown by the absence of the recovery of impairment loss on input VAT claims that was recognized in 2010and the foregone steam sales following the acquisition of the BacMan plants in September 2010. These waslosses were partially reduced by the higher earnings of FG Hydro by US$15.0 million resulting primarilyfrom fresh revenues from the ancillary services it began providing in August 2011, as well as the lowerinterest expense of Red Vulcan and Prime Terracota by US$5.2 million and US$0.3 million, respectively;higher provision for income taxes by US$7.7 million, or 18.5%, primarily due to the minimal movements inforeign exchange during the year which resulted to a provision for deferred income tax in 2011 as comparedto the benefit from deferred income taxes recognized in 2010;a decrease in ―Other revenues‖ by US$7.1 million, or 54.0%, due to the absence of the reimbursement ofemployee costs of seconded personnel to EDC in 2010 and the absence of dividends from investment181

securities following the equity booking of the Company‘s and Northern Terracotta‘s 7.0% direct stake inEDC for the year 2011; and,increased depreciation expenses by US$6.9 million, or 12.5%, due to the increase in PPE following theinstallation of new turbine blades during the scheduled major maintenance of San Lorenzo that wascompleted during the last quarter of 2010.The above items were partly offset by favorable movements of the following accounts:lower interest expense and financing charges by US$19.3 million, or 18.5%, largely due to lower interestexpense of the Company by US$9.6 million, following the buyback and partial redemption of theConvertible Bonds. This was further reduced by US$5.2 million due to the prepayment of the Unified loan,and by US$4.2 million following the scheduled principal payments of FGPC and FGP;decrease in O&M expenses by US$5.0 million, or 12.5%, following the effectivity of the new full scopeO&M agreements that lowered the overall operations and maintenance costs despite the higher dispatchduring the year. In FGPC‘s case, reaching the cap on chargeable Net Electrical Output in a given contractyear, as stipulated in the new agreement, has resulted to the non-charging of variable O&M cost during themonths of July and August 2011. More so, the new agreement has led to a lower guaranteed base NDCcompared to previous base, which is the basis in computing the NDC bonuses to SPOI, if any; and,decrease in other administrative expenses by US$3.6 million, or 9.2%, mostly due to lower professionalfees for the current year, as compared to the fees incurred in 2010 which included the costs incurred for theGSPA arbitration pertaining to the 2006 annual deficiency. The decrease was partially offset by an increasein taxes and licenses, as well as other miscellaneous expenses.Net Income Attributable to Equity Holders of the CompanyFor the year ended December 31, 2011, the Company recognized an attributable net income of US$35.0million, which is US$35.2 million, or 50.1%, less than the US$70.2 million income that was recognized in2010. The decrease in net income attributable to the Company is mainly due to the offsetting movements ofthe following factors:lower net income contribution of US$61.8 million from EDC resulting from the net losses mostlyattributable to the full impairment provision of the NNGP assets, the absence of the recovery ofimpairment loss on input VAT claims that was recognized in 2010, and the foregone steam salesfollowing the acquisition of BacMan in September 2010; and,reduced attributable net income from FGP by US$2.9 million primarily due to higher depreciationexpenses resulting from the installation of new turbine blades during the scheduled major maintenanceoutage.The above items were partly offset by the favorable movements in the following accounts:increased attributable income from FG Hydro by US$15.0 million resulting from the increase inrevenues from the ancillary services it began providing in August 2011;lower interest expense of Unified and Red Vulcan by US$5.2 million each; and,higher attributable net income from FGPC by US$4.4 million mainly due to lower variable O&M costsas a result of the new O&M agreement.182

CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONHorizontal and Vertical Analyses of Material Changes as of December 31, 2011 and 2010(Amounts in U.S. Dollars and inThousands)HORIZONTAL ANALYSISIncrease (Decrease)VERTICALANALYSISDec-11 Dec-10 2011 vs. 2010(Audited) (Audited) Amount % Dec-11 Dec-10ASSETSCurrent AssetsCash and cash equivalents $266,141 $201,251 $64,890 32.2% 10.4% 8.6%Receivables 192,616 87,503 105,113 120.1% 7.5% 3.7%Inventories 69,997 51,013 18,984 37.2% 2.7% 2.2%Other current assets 31,880 38,122 (6,242) -16.4% 1.2% 1.6%Total Current Assets 560,634 377,889 182,745 48.4% 21.9% 16.1%Noncurrent AssetsInvestment in associates 1,294,782 1,207,518 87,264 7.2% 50.6% 51.6%Property, plant and equipment 520,877 580,663 (59,786) -10.3% 20.4% 24.8%Goodwill and intangible assets 16,768 17,370 (602) -3.5% 0.7% 0.7%Deferred income tax assets – net 3,210 3,794 (584) -15.4% 0.1% 0.2%Other noncurrent assets 160,340 154,159 6,181 4.0% 6.3% 6.6%Total Noncurrent Assets 1,995,977 1,963,504 32,473 1.7% 78.1% 83.9%TOTAL ASSETS $2,556,611 $2,341,393 $215,218 9.2% 100.0% 100.0%LIABILITIES AND EQUITYCurrent LiabilitiesAccounts payable and accrued expenses $170,655 $98,698 $71,957 72.9% 6.7% 4.2%Dividends payable 9,687 – 9,687 0.0% 0.4% 0.0%Income tax payable 6,058 5,253 805 15.3% 0.2% 0.2%Due to related parties 6,930 6,709 221 3.3% 0.3% 0.3%Derivative liabilities 2,546 – 2,546 0.0% 0.1% 0.0%Current portion of Long-term debt 58,460 59,678 (1,218) -2.0% 2.3% 2.5%Convertible bonds redeemed in 2011 – 83,134 (83,134) -100.0% 0.0% 3.6%Convertible bonds not redeemed in 2011 – 130,149 (130,149) -100.0% 0.0% 5.6%Total Current Liabilities 254,336 383,621 (129,285) -33.7% 9.9% 16.4%Noncurrent LiabilitiesConvertible bonds 84,662 – 84,662 0.0% 3.3% 0.0%Long-term debt – net of current portion 746,762 729,502 17,260 2.4% 29.2% 31.2%Derivative liabilities 58,352 39,911 18,441 46.2% 2.3% 1.7%Retirement liability 273 722 (449) -62.2% 0.0% 0.0%Deferred income tax liabilities – net 4,254 10,479 (6,225) -59.4% 0.2% 0.4%Other noncurrent liabilities 1,155 29,189 (28,034) -96.0% 0.0% 1.2%Total Noncurrent Liabilities 895,458 809,803 85,655 10.6% 35.0% 34.6%Total Liabilities 1,149,794 1,193,424 (43,630) -3.7% 45.0% 51.0%Equity Attributable to Equity Holders ofthe CompanyRedeemable preferred stock 38,159 14,585 23,574 161.6% 1.5% 0.6%Common stock 74,701 74,697 4 0.0% 2.9% 3.2%Additional paid-in capital 801,148 590,193 210,955 35.7% 31.3% 25.2%Accumulated share in othercomprehensive losses of associates (33,784) (21,006) (12,778) 60.8% -1.3% -0.9%Cumulative translation adjustments (24,504) (16,309) (8,195) 50.2% -1.0% -0.7%183

Retained earnings 423,454 400,123 23,331 5.8% 16.6% 17.1%Cost of common stock held in treasury (52,987) (52,987) – 0.0% -2.1% -2.3%Equity attributable to Equity Holders ofthe Company 1,226,187 989,296 236,891 23.9% 48.0% 42.3%Non-controlling Interests 180,630 158,673 21,957 13.8% 7.1% 6.8%Total Equity 1,406,817 1,147,969 258,848 22.5% 55.0% 49.0%TOTAL LIABILITIES AND EQUITY $2,556,611 $2,341,393 $215,218 9.2% 100.0% 100.0%Cash and cash equivalentsCash consists mainly of cash on hand and in banks while cash equivalents include cash investments withoriginal maturities of less than three months. Cash and cash equivalents increased by US$64.9 million, or32.2%, to US$266.1 million by year-end 2011 as compared to US$201.2 million at the end of 2010. Theincrease was primarily due to the drawdown of additional loans by the Company amounting to US$193.0million, as well as the issuance of the P10.0 billion Series ―F‖ Perpetual Preferred Shares. These were partiallyoffset by the partial buyback and the exercise of the put option by certain holders of the Convertible Bonds,principal and interest payments on existing loans, and additional investments in EDC shares.ReceivablesReceivables increased by US$105.1 million, or 120.1%, to US$192.6 million as of December 31, 2011 fromUS$87.5 million as of December 31, 2010. The increase was due to a greater amount of trade receivables ofFGPC and FGP by US$108.2 million primarily due to a portion of the November 2011 billing still beingoutstanding as of the end of the year, as well as the increase in fuel charges and dispatch during the year. Inaddition to this, the trade receivables in 2010 were also lower as a result of the consumption of prepaid gas inDecember 2010.InventoriesIn anticipation of the scheduled Malampaya outages in 2012, the gas plants increased their usable stock of fuelinventory from eight days to 10.5 days in 2011. As such, additional fuel was imported in the fourth quarter,bringing the total inventory account to US$70.0 million by the end of the year. This resulted in a US$19.0million, or a 37.2%, increase in inventory levels, compared to US$51.0 million as of the end of 2010.Other current assetsThe other current assets account decreased by US$6.2 million, or 16.4%, to US$31.9 million as of December2011 from US$38.1 million in the previous year. This was primarily due to the decrease in FGP‘s prepaid taxesfollowing the sale of US$4.2 million worth of BOC-issued Tax Credit Certificates (―TCC‖) in 2011, part ofwhich was used to pay the Value-Added Tax (―VAT‖) on importation for the fuel imported in the fourth quarter.The Company has fully realized the current portion of the option asset amounting to US$1.6 million followingthe full exercise of the Company‘s call option to purchase an aggregate of 585.0 million EDC shares during theyear.Investments in associatesInvestments in associates increased by US$87.3 million, or 7.2%, to US$1,294.8 million in 2011 fromUS$1,207.5 million in 2010 due to the purchase of EDC shares in the market by the Company and NorthernTerracotta. As of December 31, 2011, the Company had a direct and indirect (through Northern Terracotta)ownership in EDC by 7.02% on top of the 40% economic interest directly owned by Prime Terracota throughRed Vulcan.184

This account also includes Deposits for future stock subscriptions amounting to US$993.9 million andUS$993.5 million as of December 31, 2011 and 2010, respectively, which pertains to the investments made bythe Company to its associate, Prime Terracota. As disclosed in Note 10 of the audited consolidated financialstatements, the Company and Prime Terracota executed a Deed of Assignment on December 23, 2011 wherebythe deposits for future stock subscriptions amounting to US$993.9 million will be converted to equity upon theapproval of Prime Terracota‘s application for an increase in authorized capital stock by the SEC. As of March19, 2012, Prime Terracota‘s application for increase in authorized capital stock is still pending approval by theSEC.Property, plant, and equipmentThis account decreased by US$59.8 million, or 10.3%, to US$520.9 million in 2011 from US$580.7 million in2010 due mainly to the depreciation of the plant equipment of FGPC and FGP during the year amounting toUS$59.6 million.Deferred income tax assets – netDeferred income tax assets decreased by US$0.6 million, or 15.4%, from US$3.8 million in 2010 to US$3.2million in 2011 as a result of the foreign exchange movements of the Philippine Peso against the U.S. Dollarduring the year.Other noncurrent assetsThe net increase in this account by US$6.2 million, or 4.0%, to US$160.3 million as of December 2011 fromUS$154.1 million as of December 2010 pertains primarily to the increase in prepaid major spare parts byUS$39.2 million due to the capitalized O&M fees to cover the estimated cost of the new turbine blades that willbe replaced in the next scheduled major maintenance outage of FGPC and FGP. This was almost completelyoffset by the consumption of prepaid gas during the year amounting to US$28.1 million, the US$5.0 millionscheduled repayment of the advances to a non-controlling shareholder, and the full realization of the option assetof US$2.6 million following the exercise of the Company‘s call option to purchase EDC shares.Accounts payable and accrued expensesThis account increased by US$72.0 million, or 72.9%, to US$170.7 million in 2011 from US$98.7 million as ofDecember 2010. This was mainly attributable to higher net trade payables of FGPC and FGP by US$76.7million due to higher gas prices and higher dispatch during the year. This was partially offset by lower accruedexpenses by US$4.8 million due to the buyback of a portion of the Convertible Bonds as well as the fullprepayment of the Unified loan.Dividends payableThe Company booked a current liability of US$9.7 million after it declared cash dividends on the Series ―B‖ andSeries ―E‖ VPS and the Series ―F‖ Perpetual Preferred Shares last December 15, 2011. The dividends weresubsequently paid on January 25, 2012.Income tax payableIncome tax payable increased by US$0.8 million, or 15.3%, to US$6.1 million as of December 2011 fromUS$5.3 million in 2010. This can be attributed to the increase of taxes of FGPC due to the higher taxableincome for the year 2011, as well as the switch to the optional standard deduction computation scheme for thecurrent year, from the regular corporate income tax method used in 2010. This was partially offset by the lowerpayables from FGP due to lower taxable income resulting from increased depreciation expenses in 2011.185

Derivative liabilities – current portionOn September 7, 2011, FGPC and FGP each entered into several forward currency contracts with ING BankN.V. Manila Branch (―ING‖) to purchase Euros at fixed Euro to U.S. Dollar rates. Under this agreement, FGPCand FGP are each obligated to buy Euros from ING amounting to €2.5 million and €1.2 million, respectively,based on agreed strike exchange rates. The settlement of each of the forward contracts is from December 2011up to May 2012 which coincides with the outstanding and forecasted monthly payables to SPOI.As such, as of December 31, 2011, the fair values of the forward currency contracts resulted in derivativeliabilities amounting to US$2.5 million.Convertible Bonds redeemed in 2011In 2010, the Company reclassified the carrying value of its Convertible Bonds amounting to US$213.3 millionas a current liability reflecting the put option of the bondholders to sellback their Convertible Bonds on February11, 2011. On said date, the option was exercised on US$83.1 million (or a face value of US$72.5 million) of thebonds. After the put option date, the Convertible Bonds were reclassified back to non-current liabilities in 2011.Convertible Bonds not redeemed in 2011This account pertains to the carrying value of the remaining Convertible Bonds amounting to US$130.1 million(or a face value of US$113.5 million) that were not redeemed on the put option date. The balance wassubsequently reclassified back to noncurrent liabilities in 2011.Long-term debt – current portionThis account slightly decreased by US$1.2 million, or 2.0%, primarily due to the prepayment of the Unifiedloan. On July 11, 2011, The Company fully prepaid the outstanding balance of Unified, eliminating the currentportion of US$2.4 million that was due to its lenders in 2012. This was partially offset, however, by thematuring loan obligations of the Company and FGPC for the same year amounting to US$1.2 million.Convertible BondsThis account pertains to the carrying value of the Convertible Bonds amounting to US$84.7 million (with facevalue of US$70.0 million) that have not been redeemed. The bonds will mature on February 11, 2013.Long-term debt – net of current portionLong-term debt increased by US$17.3 million, or 2.4%, primarily due to the availment by the Company of theUS$142.0 million Term Loan Facility and the US$51.0 million of the US$100.0 million Notes Facility in thefirst quarter of 2011. This was almost completely offset by the prepayment of the Unified loan on July 11, 2011,as well as the scheduled principal payments on the existing outstanding loans of the FGPC and FGP.Derivative liabilities – net of current portionDerivative liabilities increased by US$18.4 million, or 46.2%, to US$58.3 million as of December 2011 fromUS$39.9 million in 2010. This was a result of the unfavorable movements in the MTM valuation of FGPC‘s andFGP‘s respective interest rate swaps owing to a decrease in projected LIBOR rates as of December 2011 ascompared to December 2010. This was partially offset by the settlement of a portion of the interest rate swapsthat were due in May and November 2011.The companies recognized a derivative liability when they entered into interest rate swap agreements to hedgethe interest payments of their floating-rate loans to a fixed-rate.186

Retirement liabilityThe US$0.4 million, or 62.2%, decrease in this account was due to the fund contribution made in January 2011.Deferred income tax liabilities – netThe account decreased by US$6.2 million, or 59.4%, to US$4.3 million in 2011 from US$10.5 million in 2010.This was primarily due to the unfavorable movements in the MTM valuation of FGPC‘s interest rate swaps,increasing derivative liabilities and thereby resulting in a decrease of deferred income tax liabilities.Other noncurrent liabilitiesOther noncurrent liabilities decreased by US$28.0 million, or 96.0%, to US$1.2 million as of December 2011from US$29.2 million in 2010. The decrease in the account was due to the full utilization of the remainingprepaid gas by the gas plants in November 2011, which led to the realization of the ―Unearned revenues‖account.Redeemable Preferred StockThe increase in this account was brought about by the issuance of the P10.0 billion cumulative, non-voting, nonconvertibleSeries ―F‖ Perpetual Preferred Shares, with a dividend rate of 8% by the Company on July 25, 2011.On the seventh anniversary of the issue date, or on any dividend payment date thereafter, the Company has theoption, but not the obligation, to redeem all of the Series ―F‖ Perpetual Preferred Shares outstanding. The shareshave a par value of P10.00 per share, thus increasing the redeemable preferred stock by US$23.6 million or161.6%.Additional paid-in capitalThis account increased by US$211.0 million, or 35.7%, due to the issuance of the Series ―F‖ Perpetual PreferredShares on July 25, 2011. The Series ―F‖ Perpetual Preferred Shares had an issue value of P100.00 per share.Accumulated share in other comprehensive losses of associatesAs a result of the deconsolidation of the Prime Terracotta Group in May 2009, the Company‘s share in thetranslation of the Peso-denominated balances of the net assets of the Prime Terracota Group into its functionalcurrency, U.S. Dollar, was booked under this contra-equity account. The increase amounting to US$12.8million, or 60.8%, is the result of the lower net assets balance of the Prime Terracota Group as of December 31,2011 as compared to the balances as of December 31, 2010.Cumulative translation adjustments (“CTA”)This contra-equity account increased by US$8.2 million, or 50.2%, due to the unfavorable movements in theMTM valuation of FGPC‘s and FGP‘s interest rate swaps which contributed a decrease of about US$7.7million. These arose from the lower projected LIBOR rates as of December 2011, compared to the forecast inDecember 2010. Also contributing to this decrease was the negative movement in the fair value of the forwardcurrency contracts of FGPC and FGP by US$0.9 million.Retained earningsEarnings accumulated in 2011 increased the Company‘s retained earnings by US$23.3 million, or 5.8%, toUS$423.4 million, from US$400.1 million in 2010. The increase was partially offset by the cash dividendsdeclared in favor of the Company‘s preferred shareholders amounting to US$11.7 million.Non-controlling Interests187

This account increased by US$21.9 million, or 13.8%, to US$180.6 million in December 2011 as compared toUS$158.7 million in December 2010 as a result of the earnings from FGPC and FGP, partially offset by thedividends declared during the period.FIRST GEN MATERIAL CHANGES IN FINANCIAL CONDITION (2010 vs. 2009)CONSOLIDATED STATEMENTS OF INCOMEHorizontal and Vertical Analyses of Material Changes for the years ended December 31, 2010 vs. 2009HORIZONTALANALYSIS(Amounts in U.S. Dollars and inThousands) Dec. 2010 Dec. 2009 2010 vs. 2009VERTICALANALYSIS2010 vs.2009 2010 2009REVENUESale of electricity $1,169,155 $ 1,009,918 $159,237 15.8% 94.0% 98.8%Mark-to-market gain on derivatives - net 5,395 – 5,395 0.0% 0.4% 0.0%Interest 8,881 6,942 1,939 27.9% 0.7% 0.7%Equity in net earnings of associates 47,729 1,167 46,562 3989.9% 3.8% 0.1%Others 13,118 4,089 9,029 220.8% 1.1% 0.4%TOTAL REVENUES 1,244,278 1,022,116 222,162 21.7% 100.0% 100.0%COST OF SERVICES AND EXPENSESCost of sale of electricityFuel cost (821,467) (669,832) (151,635) 22.6% -66.0% -65.5%Depreciation and amortization (54,970) (53,932) (1,038) 1.9% -4.4% -5.3%Power plant operations & maintenance (40,220) (37,624) (2,596) 6.9% -3.2% -3.7%General and administrativeStaff costs (16,582) (10,625) (5,957) 56.1% -1.3% -1.0%Other administrative expenses (38,664) (37,244) (1,420) 3.8% -3.1% -3.6%Sub-total (971,903) (809,257) (162,646) 20.1% -78.1% -79.2%OTHER CHARGESInterest expense & financing charges (104,222) (112,089) 7,867 -7.0% -8.4% -11.0%Foreign exchange loss - net (5,114) (8,691) 3,577 -41.2% -0.4% -0.9%Mark-to-market loss on derivatives - net – (922) 922 -100.0% 0.0% -0.1%Others (213) – (213) 0.0% 0.0% 0.0%Total (1,081,452) (930,959) (150,493) 16.2% -86.9% -91.1%INCOME FROM CONTINUINGOPERATIONS BEFORE INCOMETAX 162,826 91,157 71,669 78.6% 13.1% 8.9%Provision for (benefit from ) Income TaxCurrent 48,848 45,492 3,356 7.4% 3.9% 4.5%Deferred (7,022) (7,381) 359 -4.9% -0.6% -0.7%41,826 38,111 3,715 9.7% 3.4% 3.7%Net income from continuing operations 121,000 53,046 67,954 128.1% 9.7% 5.2%Net income from discontinued operations – 41,961 (41,961) -100.0% 0.0% 4.1%NET INCOME $121,000 $95,007 $25,993 27.4% 9.7% 9.3%Attributable to:Equity holders of the Company $70,217 $16,754 $53,463 319.1% 5.6% 1.6%Non-controlling Interests $50,783 $78,253 ($27,470) -35.1% 4.1% 7.7%188

RevenuesRevenues for the year ended December 31, 2010 increased by US$222.2 million or 21.7% to US$1,244.3million from US$1,022.1 million during 2009. The increase was due to the major movements in revenue itemsas explained in detail below:Revenue from sale of electricityRevenues from the sale of electricity increased by US$159.2 million or 15.8% to US$1,169.1 million in2010 from US$1,009.9 million in 2009, as a result of higher fuel charges during 2010 as oil prices increasedin the world market (an average of US$10.2/MMBtu in 2010 compared to US$9.1/MMBtu in 2009). Withthe scheduled maintenance outage of the Malampaya platform in February and March 2010 and several gascurtailments that were experienced during the year, Santa Rita and San Lorenzo were required to operate onmore expensive liquid fuel. Santa Rita and San Lorenzo also posted a slightly higher plant dispatch in 2010at a combined average of 82.7% as compared to 82.3% during the same period last year.Mark-to-market (“MTM”) gain on derivativesThe company recognized a US$5.4 million MTM gain on derivative transactions in 2010 as the Companyrecognized US$3.9 million gain on its call option to purchase EDC shares in the market and US$1.5 milliongain on the Company‘s Convertible bonds. The Company has a call option over an aggregate of 585 millioncommon shares of EDC exercisable up to April 2013 (see Note 13 of the Company‘s audited consolidatedfinancial statements as of December 31, 2010). This is a reversal of the MTM loss on derivativetransactions of US$0.9 million that was recognized in 2009, which was classified under ―Other Charges‖account of the Company‘s consolidated statements of income. The gain/(loss) on derivatives results fromthe change in the price of the Convertible bonds in the market vis-à-vis the put option and from themovement of EDC‘s share price in the market vis-à-vis the call option‘s exercise price.Interest incomeInterest income increased by US$1.9 million or 27.9% to US$8.9 million in 2010 from US$6.9 million in2009 as a result of the higher cash balances at the Company after the successful completion of the RightsOffer in January 2010 and new loans availed during the year.Equity in net earnings of associatesEquity in net earnings of associates amounting to US$47.7 million in 2010 significantly increased byUS$46.6 million as compared to US$1.2 million in 2009 showing the full year effect of Prime TerracotaGroup as an associate. In 2009, equity in net earnings only included the share in net earnings of the PrimeTerracota Group from the time of deconsolidation in May 2009 to December 2009. Earnings from thePrime Terracota Group for the periods January to April 2009 is reflected under ―Net income fromdiscontinued operations‖ in the consolidated statements of income.Out of the total dollar increase in equity in net earnings, US$39.8 million and US$12.0 million are due tothe higher equity in net earnings from EDC and FG Hydro, respectively. These were partly offset by theabsence of equity in net earnings from BPPC of US$4.7 million in 2009 as the Bauang BOT contract withNPC expired last July 2010.On a 12-month year-on-year comparison (adjusting for the attributable earnings from the Prime TerracotaGroup during the periods January to April 2009), net earnings from EDC is higher only by US$21.5 millionor 69.4%. The increase is due to higher revenues from Green Core following its full year operation in 2010as compared to two months in 2009; net increase in miscellaneous income from the recovery of impairmentloss on Input VAT claims amounting to P1,638.9 million and absence of a deferred tax assets write-down189

amounting to P2,959.2 million recognized in 2009 due to implementation of the RE Law. Similarly, netearnings from FG Hydro is higher only by US$8.4 million or 551.7% due to high WESM prices during theyear and high volume of electricity sales during the first quarter of 2010.Other revenuesThe US$9.0 million increase is mainly due to consultancy fees received by the Company from EDC, whichwas adjusted effective September 2009. The three-year consultancy services agreement took effect onSeptember 1, 2008 and will end on August 31, 2011. Adding to the increase is the reimbursements to coveremployee costs of the Company‘s seconded employees that were charged to EDC during the year.Cost of Services and ExpensesCost of services and expenses for the year ended December 31, 2010 posted a net increase of US$162.6 millionor 20.1% to US$971.9 million as compared to US$809.3 million in 2009 as a result of the followingmovements:Fuel costFuel charges of Santa Rita and San Lorenzo went up by US$151.6 million or 22.6% to US$821.5 million in2010 from US$669.9 million in 2009. The higher fuel cost was due to the consumption of liquid fuel duringthe scheduled Malampaya outage in February and March 2010, and during the gas curtailments that wereexperienced during the year. Both plants were required to operate using a more expensive liquid fuel duringthese periods. Moreover, the average price of natural gas increased by 11.7% to US$10.2/MMBtu in 2010as compared to the average price in 2009 of US$9.1/MMBtu.Staff costsStaff costs increased by US$6.0 million or 56.1% due to a lower weighted average foreign exchange rate in2010 (P45.309:US$1.00) compared to the rate in 2009 (P47.769:US$1.00) that was used to convert thePeso-denominated expenses to its U.S. Dollar equivalent. In addition, the amounts for the year endedDecember 31, 2010 already reflect the salary adjustments that were effected during the year.Other administrative expensesOther administrative expenses increased by US$1.4 million or 3.8% in 2010 due to higher professional feesat the Company level in connection with various financing activities during the year.Interest expense and financing chargesInterest expense and financing charges decreased by US$7.9 million or 7.0% to US$104.2 million in 2010 fromUS$112.1 million in 2009. Interest expense at FGPC and FGP decreased by US$5.9 million due to the loweroutstanding debt during the year after the scheduled principal payments were made. The Company alsorecognized lower interest expense by US$4.6 million after paying down its P5.0 billion bond which matured inJuly 2010. This was offset by higher interest expense at Unified by US$2.8 million after recognizing a full yearinterest expense on the P5.4 billion corporate notes, drawn in March 2009.MTM loss on derivativesIn 2010, the Company recognized a MTM gain on derivative transactions of US$5.4 million as compared to theMTM loss on derivative transactions of US$0.9 million that was recognized in 2009. This MTM gain pertains tothe gains in the Company‘s call option to purchase EDC shares and Convertible bonds, which were included aspart of ―Revenues‖ in the consolidated statements of income. The net derivative loss in 2009 was due to thechange in the fair values of the Company‘s Convertible bonds.190

Foreign exchange loss - netForeign exchange loss amounted to US$5.1 million in 2010. Although the peso appreciated, the foreignexchange loss decreased by US$3.6 million or 41.2% compared to US$8.7 million recognized in 2009 resultingfrom the payment of the Peso-denominated bond in July 2010, which reduced the Company‘s exposure toforeign exchange translation.Provision for (benefit from) Income TaxThe Group recognized a higher provision for income tax by US$3.7 million or 9.7% to US$41.8 million in 2010as compared to US$38.1 million in 2009. The increase was primarily due to the higher current income taxresulting from the full year effect of FGP‘s income tax following the expiry of FGP‘s income tax holiday inFebruary 2009 and the higher taxable income of FGPC.Net IncomeThe Company‘s consolidated net income increased by US$26.0 million or 27.4 % to US$121.0 million in 2010from US$95.0 million in 2009. The significant change in consolidated net income was a result of the movementsof the following items:Net income from continuing operations increased by US$68.0 million to US$121.0 million resulting from:higher equity in net earnings of associates by US$46.6 million resulting from the recognition of equityin net earnings of the Prime Terracota Group covering the whole year of 2010 as compared to the eightmonths recognized in 2009; the higher net earnings from EDC due to higher revenues from Green Corefollowing its full year operation in 2010 as compared to two months in 2009, net increase inmiscellaneous income from the recovery of impairment loss on input VAT claims, and absence of adeferred tax assets write-down in 2010. Adding to this was the higher net earnings from FG Hydro dueto high WESM prices during the year and high volume of electricity sales during the first quarter of2010. In addition, lower interest expense at Red Vulcan and Prime Terracota by US$7.6 million andUS$3.2 million, respectively, also contributed to the higher contributions to earnings in 2010;the recognition of MTM gain on derivatives of US$5.4 million in 2010, a reversal from last year‘sUS$0.9 million MTM loss on derivatives. Derivative gains or losses recognized during the year pertainto MTM changes in the valuation of the Company‘s existing Convertible bonds and the call option topurchase EDC shares;increased interest income by US$1.9 million or 27.9% resulting from higher ending cash balances atthe Company level due to the new loans availed during the year and the remaining cash from the RightsOffer;interest expense and financing charges decreased by US$7.9 million due to lower interest expense as aresult of scheduled loan repayments of FGPC and FGP. Another factor adding to this decrease is theCompany‘s buy-back of its Convertible bonds and the maturity of the Peso-denominated bond in July2010. The decrease was, however, partially offset by the higher interest expense at Unified by US$2.8million after recognizing a full year of interest expense on its P5.4 billion loan, which was drawn inMarch 2009;Other revenues were higher by US$9.0 million as a result of the recognition of higher consultancy feesand reimbursements to cover employee costs of the Company‘s seconded employees to EDC; and,191

Lower foreign exchange loss of US$5.1 million as compared to an US$8.7 million foreign exchangeloss recognized in 2009 resulting from the payment of the Peso-denominated bond in July 2010, whichreduced the Company‘s exposure to foreign exchange translation.The increase in net income from continuing operations was offset by the absence of net income fromdiscontinued operations during the year as compared to the amount recognized in 2009 of US$42.0 million. Thisamount pertains to the net income of the Prime Terracota Group from January to April 2009, prior to thedeconsolidation.Considering the absence of net income from discontinued operations, the Company‘s consolidated net incomeincreased by US$26.0 million or 27.4 % to US$121.0 million in 2010 from US$95.0 million in 2009.Net Income Attributable to Equity Holders of the CompanyOf the US$121.0 million consolidated net income for the year ended December 31, 2010, net incomeattributable to the Company amounted to US$70.2 million, which is US$53.5 million or 319.1% higher than theUS$16.7 million net income attributable to the Company in 2009.The higher net income attributable to the Company in 2010 is mainly due to the following factors:higher net income of FGPC by US$6.9 million, of which, the Company‘s share amounts to US$4.1million;increased net income contribution of EDC by US$21.5 million resulting from higher revenues fromGreen Core following its full year operation in 2010 as compared to two months in 2009, net increasein miscellaneous income from the recovery of impairment loss on input VAT claims, and absence of adeferred tax assets write-down in 2010;improved net income of FG Hydro by US$8.4 million resulting from higher dispatch and WESMprices;lower interest expense at the Company, Red Vulcan and Prime Terracota by US$4.6 million, US$7.6million and US$3.2 million, respectively; and,At the Company level, a US$5.4 million derivative gain from its existing Convertible bonds and its calloption to purchase EDC shares and a US$9.0 million increase in other revenues from consultancy feesand employee cost charges to EDC have likewise contributed to the increase.The above items were partially offset by lower earnings from BPPC by US$4.7 million, as the BOT contractexpired last July 2010, and higher interest expense at Unified by US$2.8 million.192

CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONHorizontal and Vertical Analyses of Material Changes as of December 31, 2010 and 2009HORIZONTAL ANALYSISVERTICAL ANALYSISIncrease (Decrease)(Amounts in U.S. Dollars and in Thousands) Dec-10 Dec-092010 vs.2009(Audited) (Audited) Amount % Dec-10 Dec-09ASSETSCurrent AssetsCash and cash equivalents $201,251 $125,531 $75,720 60.3% 8.6% 5.8%Receivables 87,503 121,334 (33,831) -27.9% 3.7% 5.6%Inventories 51,013 65,072 (14,059) -21.6% 2.2% 3.0%Other current assets 38,122 34,578 3,544 10.2% 1.6% 1.6%Total Current Assets 377,889 346,515 31,374 9.1% 16.1% 16.0%Noncurrent AssetsInvestments in associates 1,207,518 1,020,722 186,796 18.3% 51.6% 47.2%Property, plant and equipment 580,663 562,238 18,425 3.3% 24.8% 26.0%Goodwill and intangible assets 17,370 17,972 (602) -3.3% 0.7% 0.8%Deferred income tax assets 3,794 10 3,784 37840.0% 0.2% 0.0%Other noncurrent assets 154,159 213,566 (59,407) -27.8% 6.6% 9.9%Total Noncurrent Assets 1,963,504 1,814,508 148,996 8.2% 83.9% 84.0%TOTAL ASSETS $2,341,393 $2,161,023 $180,370 8.3% 100.0% 100.0%LIABILITIES AND EQUITYCurrent LiabilitiesAccounts payable and accrued expenses $98,698 $104,451 ($5,753) -5.5% 4.2% 4.8%Income tax payable 5,253 7,543 (2,290) -30.4% 0.2% 0.3%Due to related parties 6,709 6,711 (2) 0.0% 0.3% 0.3%Convertible bonds subsequently redeemed 83,134 – 83,134 0.0% 3.6% 0.0%Convertible bonds not redeemed 130,149 – 130,149 0.0% 5.6% 0.0%Current portion of long-term debt 59,678 46,499 13,179 28.3% 2.5% 2.2%Philippine peso-denominated bonds – 107,984 (107,984) -100.0% 0.0% 5.0%Obligations to Gas Sellers on Annual Deficiency – 9,378 (9,378) -100.0% 0.0% 0.4%Total Current Liabilities 383,621 282,566 101,055 35.8% 16.4% 13.1%Noncurrent LiabilitiesConvertible bonds – 277,353 (277,353) -100.0% 0.0% 12.8%Long-term debt – net of current portion 729,502 700,324 29,178 4.2% 31.2% 32.4%Derivative liabilities 39,911 25,335 14,576 57.5% 1.7% 1.2%Retirement liability 722 167 555 332.3% 0.0% 0.0%Deferred income tax liabilities – net 10,479 18,609 (8,130) -43.7% 0.4% 0.9%Other noncurrent liabilities 29,189 49,632 (20,443) -41.2% 1.2% 2.3%Total Noncurrent Liabilities 809,803 1,071,420 (261,617) -24.4% 34.6% 49.6%TOTAL LIABILITIES 1,193,424 1,353,986 (160,562) -11.9% 51.0% 62.7%Equity Attributable to Equity Holders of theCompanyRedeemable preferred stock 14,585 13,561 1,024 7.6% 0.6% 0.6%Common stock 74,697 45,915 28,782 62.7% 3.2% 2.1%Additional paid-in capital 590,193 320,455 269,738 84.2% 25.2% 14.8%Deposits for future stock subscriptions – 93,318 (93,318) -100.0% 0.0% 4.3%Accumulated share in other comprehensive lossesof associates (21,006) (78,516) 57,510 -73.2% -0.9% -3.6%193

HORIZONTAL ANALYSISVERTICAL ANALYSISIncrease (Decrease)(Amounts in U.S. Dollars and in Thousands) Dec-10 Dec-092010 vs.2009(Audited) (Audited) Amount % Dec-10 Dec-09Cumulative translation adjustments (16,309) (9,642) (6,667) 69.1% -0.7% -0.4%Retained earnings 400,123 330,930 69,193 20.9% 17.1% 15.3%Cost of common stock held in treasury (52,987) (52,987) – 0.0% -2.3% -2.5%989,296 663,034 326,262 49.2% 42.3% 30.7%Non-controlling Interests 158,673 144,003 14,670 10.2% 6.8% 6.7%Total Equity 1,147,969 807,037 340,932 42.2% 49.0% 37.3%TOTAL LIABILITIES AND EQUITY $2,341,393 $2,161,023 $180,370 8.3% 100.0% 100.0%Cash and cash equivalentsThis account consists mainly of cash on hand and in banks. Cash equivalents include cash investments withoriginal maturities of less than three months. Cash and cash equivalents increased by US$75.7 million or 60.3%to US$201.2 million as of December 31, 2010 as compared to US$125.5 million as of December 31, 2009. Theincrease is mainly due to accumulated cash from operations and the higher cash balances at the Company leveldue to the remaining proceeds from the Rights Offer that was completed in January 2010 and new loans availedduring the year. Adding to the increase is the higher ending cash balances at FGPC and FGP since paymentsfrom Meralco for the November 2010 billing were received early, which were otherwise due in January 2011.ReceivablesReceivables decreased by US$33.8 million or 27.9% to US$87.5 million as of December 31, 2010 fromUS$121.3 million as of December 31, 2009. The decrease mainly resulted from the early payment received fromMeralco covering the November 2010 billings. Receivables from Meralco as of December 31, 2009 still includethe November 2009 billings which were paid by Meralco in January 2010.InventoriesThe decrease in this account by US$14.1 million or 21.6% was due to the use of liquid fuel during the scheduled30-day maintenance outage of the Malampaya gas plant which started in February 2010.Other current assetsThis account increased by US$3.5 million or 10.2% primarily due to higher balance of current maturingreceivables from a non-controlling shareholder during the year and higher prepaid expenses.Investments in associatesThis account, which increased by US$186.8 million or 18.3%, mainly includes the accumulated equity in netearnings of the Prime Terracota Group, the additional deposits for future stock subscription totaling to US$53.4million, and the cost of the EDC shares that were purchased directly by the Company through an ordinary blocksale in the PSE. As of December 31, 2010, the Company has a 3% direct ownership in EDC. It is worthmentioning that on April 19, 2010, the Company executed a call option agreement over an aggregate 585million common shares of stock in EDC within a period of three years or up to April 2013.194

Property, plant, and equipment – netThis account slightly increased by US$18.4 million or 3.3% mainly due to the prepaid major spare parts thatwere reclassified from ―Other noncurrent assets‖ account as a result of the scheduled major maintenance outagesof Santa Rita and San Lorenzo that were completed during the year. This increase was partially offset by thedepreciation expenses for the year.Intangible assetsThis account decreased by US$0.6 million or 3.3% due to amortization of FGP‘s ―Pipeline rights‖ for the year.Deferred income tax assetsThis account increased by US$3.8 million as a result of appreciation of the Peso against the U.S. Dollar (i.e.from P46.20 in December 2009 to P43.84 in December 2010). In the case of FGP, this appreciation has led to ahigher difference between the carrying values of non-monetary assets and their related tax bases as of December31, 2010 which resulted to a higher deferred income tax asset.Other noncurrent assetsThis account decreased by US$59.4 million or 27.8% due to the consumption of Prepaid gas by FGPC and FGPduring the latter part of 2010. Moreover, the cost of spare parts pertaining to turbine blades of Santa Rita andSan Lorenzo, which were previously capitalized under ―Prepaid major spare parts‖ account were nowreclassified under ―Property, plant, and equipment‖ account as these parts were used during the gas plant‘sscheduled major maintenance outages during the year.Accounts payable and accrued expensesThis account decreased by US$5.8 million or 5.5% due to lower net trade payables of FGPC and FGP during theyear. In February 2010, FGP settled its payments with its liquid fuel suppliers. This decrease was partially offsetby the increase in FGPC‘s O&M fees payable to SPOI following the effectivity of the new O&M agreement onAugust 1, 2010. The increase in gas prices during the year likewise resulted in higher payables to the gas sellers.Income tax payableIncome tax payable decreased by US$2.3 million or 30.4% which resulted from higher creditable withholdingtaxes applied against the income tax payables of FGPC and FGP in 2010.Obligations to Gas Sellers on Annual DeficiencyThe US$9.4 million decrease in this account pertains to the settlement of the annual deficiency claims forcontract year 2006. The original balance of US$9.4 million has been reduced to US$2.1 million following thefinal settlement of the gas dispute which took effect in June 2010.Convertible bonds subsequently redeemedThis account pertains to the total put value of the Convertible bonds that could be redeemed in February 2011.On February 11, 2011, holders of the Company‘s Convertible bonds amounting to US$72.5 million exercisedtheir option to require the Company to redeem the Convertible bonds at a price of 115.6% of the face value. Thetotal put value amounting to US$83.8 million (with a face value of US$72.5 million and carrying value ofUS$83.1 million) was paid on February 11, 2011.195

Convertible bonds not redeemedAfter the redemption on February 11, 2011 as explained above, this account pertains to the carrying value of theunredeemed Convertible bonds amounting to US$130.1 million (with face value of US$113.5 million) whichwill now have a maturity date of February 11, 2013. As compared to the US$277.4 million value in December2009, the carrying value of the Convertible bonds decreased due to the buy-back of Convertible Bonds, with aface value of US$74.0 million, by the Company for a total settlement amount of US$83.2 million.Philippine peso-denominated bondsThe decrease in this account pertains to the final maturity of the P5.0 billion bond, which matured on July 30,2010.Derivative liabilitiesThis account increased by US$14.6 million or 57.5% due to higher derivative liabilities of FGPC resulting fromlower LIBOR rates in 2010 as compared to the previous year. FGPC recognized a derivative liability as itentered into interest rate swap agreements to hedge the interest payments of its debt.Retirement liabilityThe US$0.6 million increase in this account was due to the effect of the revised actuarial valuation report acrossthe Company group during the year.Deferred income tax liabilities – netThe decrease of US$8.1 million or 43.7% was due to lower deferred tax liabilities of FGPC and FGP, as a resultof the movements in foreign exchange rate of the Peso against the U.S. Dollar (i.e. from P46.20 in December2009 to P43.84 in December 2010).Other noncurrent liabilities – net of current portionThis account decreased by US$20.4 million or 41.2% resulting from the use of Prepaid gas by the gas plantsduring the latter part of 2010, which led to the decrease in ―unearned revenues‖ account by US$20.5 million,though partially offset by the accretion of the asset retirement obligation amounting to US$0.1 million. Thesettlement of the outstanding dispute with the gas sellers covering the annual deficiency claims for 2006 haslikewise led to lower ending balances for this account.Redeemable preferred stockThe US$1.0 million or 7.6% increase in this account pertains to the stock dividends on Series ―E‖ VPS that weredeclared in 2010.Common stockThe US$28.8 million or 62.7% increase in common stock was due to the Rights Offer that was successfullycompleted in January 2010.Additional paid-in capitalThe US$269.7 million or 84.2% increase in this account pertains to the proceeds from the Rights Offer in excessof the par value of the stocks issued, net of transaction costs.196

Accumulated share in other comprehensive losses of associatesThe Company recognized a reduction in equity amounting to US$21.0 million as of December 2010, which wasUS$57.5 million or 73.2% lower compared to the US$78.5 million in 2009. This account reflects theCompany‘s share in the translation of the peso-denominated balances of the Prime Terracota Group into U.S.Dollar, which is the Company‘s functional currency, effective May 2009. The reduction in this amount is due tothe appreciation of the Philippine peso against the U.S. Dollar from P46.20 in December 2009 to P43.84 inDecember 2010.Cumulative translation adjustmentsThis contra-equity account increased by US$6.7 million or 69.1% to reflect the Company‘ share in thetranslation of the peso-denominated balances of the subsidiaries and the unfavorable movements in the MTMvaluation of FGPC‘s and FGP‘s interest rate swaps. As noted above, the appreciation of the Philippine pesoagainst the U.S. Dollar and the lower LIBOR rates in 2010 as compared to the previous year has led to thechange in this account.Retained earningsThe Company‘s retained earnings increased by US$69.2 million or 20.9% resulting from the earningsaccumulated during the year. The increase was partially offset by the US$1.0 million stock dividend to theCompany‘s preferred shareholders.Non-controlling InterestsThis account increased by US$14.7 million or 10.2% as a result of higher earnings, net of dividends received,from FGPC and FGP accumulated during the year.Key Performance IndicatorsFirst Gen Consolidated 2011 2010Current ratio 2.20 0.99Return on assets (%) 3.54% 5.37%Long-term debt plus noncurrent liabilities* / Equityratio (times)0.68 0.93Debt ratio (%) 44.97% 50.97%Interest-bearing debt-to-equity ratio (times) 0.63 0.87Debt-to-equity ratio (times) 0.82 1.04*includes current portion of long-term debtFGPC (Santa Rita) 2011 2010Current ratio 1.83 2.03Return on assets 10.02% 9.61%Long-term debt plus noncurrent liabilities / Equityratio (times)2.10 2.47Debt ratio (%) 73.58% 75.15%Interest-bearing debt-to-equity ratio (times) 1.98 2.35Debt-to-equity ratio (times) 2.78 3.02FGP (San Lorenzo) 2011 2010Current ratio 1.70 1.67Return on assets 12.03% 14.24%Long-term debt plus noncurrent liabilities / Equityratio (times)0.27 0.49Debt ratio (%) 39.18% 43.96%197

Interest-bearing debt-to-equity ratio (times) 0.37 0.56Debt-to-equity ratio (times) 0.64 0.78FG Bukidnon 2011 2010Current ratio 3.52 4.62Return on assets (%) 14.64% 4.45%Debt ratio (%) 20.45% 16.23%Debt-to-equity ratio (times) 0.26 0.19EDC 2011 2010Current Ratio 2.22 1.98Interest-bearing debt-to-equity ratio (times) 1.74 1.28Net Debt-to-Equity Ratio (times) 1.32 1.09Return on Assets (%)0.70 5.306.0* 9.0*Return on Equity (%)2.0 14.116.5* 23.8**excludes provision for full impairment of NNGP assets amounting to P4,998.6 million, less tax effect of P499.9million in 2011 and P3,390.0 million, less tax effect of P339.0 million in 2010FG Hydro (Pantabangan-Masiway) 2011 2010Current ratio 4.23 3.06Return on assets 12.62% 7.81%Long-term debt plus noncurrent liabilities / Equityratio (times)0.88 1.16Debt ratio 49.82% 56.42%Interest-bearing debt to equity ratio (times) 0.95 1.23Total debt-to-equity ratio (times) 0.99 1.29Key Performance IndicatorsDetailsCurrent RatioReturn on Assets*Long-term Debt Plus NoncurrentLiabilities / Equity Ratio (times)Debt RatioInterest-bearing debt-to-equity ratio(times)Debt-to-equity ratio (times)Calculated by dividing current assets over current liabilities. This ratiomeasures the company's ability to pay short-term obligations.Calculated by dividing net income over total assets*. This ratio measureshow the company utilizes its resources to generate profits.Calculated by dividing long-term debt and noncurrent liabilities (excludingdeferred income tax liabilities-net) over total equity. This ratiomeasures the company's financial leverage.Calculated by dividing total liabilities over total assets. This ratio measuresthe percentage of funds provided by the creditors to the projects.Calculated by dividing total interest-bearing debt over total equity. Thisratio measures the percentage of funds provided by thelenders/creditors.Calculated by dividing total liabilities over total equity. This ratio measuresthe percentage of funds provided by the lenders/creditors.Calculated by dividing the total interest-bearing debts less cash & cashequivalents over total equity. This measures the company‘s financialNet Debt-to-Equity Ratioleverage and stability. A negative net debt-to-equity ratio means that thetotal cash and cash equivalents exceeds interest-bearing liabilities.*Average total assets were used for First Gen Consolidated Key Performance Indicators198

Liquidity and Capital ResourcesThe Company funds its operations through a variety of sources, including cash accumulated from operations ofthe Generation Subsidiaries and its other subsidiaries and investments, short-term and long-term debt, workingcapital facilities and equity contributions. The proceeds of the Series ―G‖ Perpetual Preferred Shares will beused either to prepay the Company's existing obligations, or to fund the Company‘s various acquisitions. Shouldthese acquisitions materialize, the Company may need to avail of other sources of funding.Liquidity RiskThe Company‘s exposure to liquidity risk refers to the lack of funding needed to finance its growth and capitalexpenditures, service its maturing loan obligations in a timely fashion, and meet its working capitalrequirements. To manage this exposure, the Company maintains its internally generated funds and prudentlymanages the proceeds obtained from fund-raising activities through the debt and equity markets. On a regularbasis, the Company‘s treasury department monitors the available cash balances by preparing cash positionreports. The Company maintains a level of cash and cash equivalents deemed sufficient to finance theoperations.In addition, the Company has short-term deposits and has available credit lines with certain banking institutions.FGP and FGPC, in particular, each maintain a Debt Service Reserve Account to sustain the debt servicerequirements for the next payment period. As part of its liquidity risk management, the Company regularlyevaluates its projected and actual cash flows. It also continuously assesses the financial market conditions foropportunities to pursue fund raising activities.As of December 31, 2011, 20.2% of the Company‘s consolidated debt will mature in less than a year based onthe carrying value of borrowings reflected in the consolidated financial statements.The tables below summarize the maturity profile of the Company‘s consolidated financial assets used forliquidity management and financial liabilities as of December 31, 2011 based on contractual undiscounted cashflows:OnDemandLess than3 Months3 to 12Months2011Over 1Year up to5 YearsOver5 Years TotalFinancial assets:Cash and cash equivalents $266,141 $– $– $– $– $266,141Trade receivables – 180,119 – – – 180,119$266,141 $180,119 $– $– $– $446,260Financial liabilities:Accounts payable andaccrued expenses* $26,765 $111,137 $– $– $– $137,902Due o related parties 6,930 – – – – 6,930Dividends payable – 9,687 – – – 9,687Bonds payable – 875 875 90,489 – 92,239Long-term debt – 4,574 92,245 442,441 471,782 1,011,042Total loans and borrowings 33,695 126,273 93,120 532,930 471,782 1,257,800Derivative contract receipts – – (8,344) (24,431) (22,662) (55,437)Derivative contract payments – – 20,983 63,541 29,608 114,132Total financial liabilityaccounted for as cash flowhedges – – 12,639 39,110 6,946 58,695$33,695 $126,273 $105,759 $572,040 $478,728 $1,316,495*Excluding output VAT, local and other taxes and payables to government agencies199

As of December 31, 2011, the Company is not in default or breach of any note, loan, lease or otherindebtedness, or financing agreement requiring it to make payments. Trade payables are normally settled on a30 to 60-day payment basis and no material amount remains outstanding and overdue.Capital ManagementThe primary objective of the Company‘s capital management is to ensure that it maintains a strong creditrating and healthy capital ratios in order to support its business, and maximize shareholder value.The Company manages its capital structure and makes adjustments to it, in light of changes in business andeconomic conditions. To maintain or adjust the capital structure, the Company may adjust the dividendpayment to shareholders, return capital to shareholders or issue new stocks. No changes were made in theobjectives, policies or processes for the years ended December 31, 2011 and 2010.The Company monitors capital using a debt-to-equity ratio which is total long term-debt (net of debt issuecosts) divided by total long-term debt plus total equity. The Company‘s practice is to keep the debt-toequityratio lower than 75:25.2011 2010Bonds payable $84,662 $213,283Long-term debt 805,222 789,180Total long-term debt $889,884 $1,002,463Equity attributable to the equity holders of theParent Company $1,226,187 $989,296Non-controlling interests 180,630 158,673Total equity $1,406,817 $1,147,969Total long-term debt and equity $2,296,701 $2,150,432Debt-to-equity ratio 39:61 47:53The Company and its subsidiaries are obligated to comply with certain covenants with respect to maintainingspecified debt-to-equity and minimum debt-service-coverage ratios, as set forth in their respectiveagreements with the creditors. As of December 31, 2011 and 2010, the Company and its subsidiaries are incompliance with those covenants.Legal contingencies and regulatory assessmentsThe Company is involved in various legal proceedings and regulatory assessments. The estimate of probablecosts for the assessments and resolution of these claims and cases have been developed in consultation withexternal counsels handling the defense in these claims and cases and is based upon thorough analysis ofpotential results.The Company, in consultation with its external counsels, does not believe that these proceedings will have amaterial adverse effect on the consolidated financial statements. It is possible, however, that future financialperformance could be materially affected by changes in the estimates or the effectiveness of management‘sstrategies relating to these proceedings.Off-Balance Sheet ArrangementsAs of December 31, 2011, the Company has not entered into any off-balance sheet transactions or obligations(including contingent obligations), or other relationships with unconsolidated entities or other persons.200

Material Commitments for Capital ExpenditureAs of December 31, 2011, the Company has made no material commitments for capital expenditures in 2012. Inaddition, Santa Rita and San Lorenzo are not expected to have major capital expenditure items as these are builtinto the fees paid to SPOI for their respective O&M Agreements.Should the 30MW Puyo and 23MW Bubunawan hydro projects materialize, the Company will have to makecapital expenditures amounting to approximately P10 billion over the next three years. These projects willpartially be funded by debt, as well as internally generated capital.Market RiskInterest Rate RiskThe Company‘s exposure to the risk of changes in market interest rate relates primarily to its long-term debt andadvances to a non-controlling shareholder that are subject to floating interest rates. Because of interest rate swapagreements that the Company uses to hedge a substantial portion its floating rate debt, the Company does notbelieve that it is exposed to significant interest rate risk.As of December 31, 2011 and 2010, approximately 75.3% and 90.6%, respectively, of the Company‘sconsolidated borrowings are subject to fixed interest rates after considering the effect of its interest rate swapagreements.Foreign Currency RiskThe Company‘s exposure to foreign currency risk arises as the functional currency of the Company and certainsubsidiaries, the U.S. Dollar, is not the local currency in its country of operations. Certain financial assets andliabilities as well as some costs and operating expenses, are denominated in Philippine peso or in European euro.To manage the foreign currency risk, the Company may consider entering into derivative transactions, asnecessary. As of December 31, 2011, the Company entered into a cross currency swap agreement to hedge itsforeign exchange exposure from its Philippine peso-denominated BDO facility. FGPC and FGP also enteredinto several foreign currency forward contracts to hedge their foreign exchange exposure from their Eurodenominatedpayables.Other RisksFor other risks and uncertainties that may have material impact on the net sales, revenues or net income of theCompany, see ―Risk Factors‖ on page 66 of this Prospectus.Significant Elements of Income or Loss from Discontinued OperationsBased on its Consolidated Financial Statements as of and for the years ended December 31, 2011 and 2010, theCompany did not recognize any significant elements of income or loss that was not a result of its continuingoperations. For the year ended 2009, the Company recognized ―Net income from discontinued operations‖ ofUS$42.0 million reflecting the earnings from the Prime Terracota Group from January 1 to April 30, 2009, priorto its deconsolidation.SeasonalityOther than FG Hydro, the operations of the members of the Company are not materially affected by seasonalchanges. With respect to FG Hydro, the generated output of Pantabangan-Masiway is limited by the IDR set bythe NIA. Generally, the output of each plant is high during planting seasons which cover the months ofDecember to April (dry planting season) and July to September (wet planting season). The volume of water201

eleased from the dam, and thus, energy generation during the dry planting season is much higher due to theabsence of rain and the need to supply water for irrigation.202

PHILIPPINE POWER INDUSTRYThe information in this section has been derived from various government and private publications or obtainedfrom communications with various government agencies (unless otherwise indicated) and has not been preparedor independently verified by the Company or any of the Underwriters or any of their respective affiliates oradvisors. The information may not be consistent with other information compiled within or outside thePhilippines.INDUSTRY OVERVIEWBased on DOE data, the total installed electricity generation capacity in the Philippines was 16,359 MW as ofDecember 2010, with Luzon, Visayas, and Mindanao accounting for 11,981 MW, 2,407 MW, and 1,971 MW,respectively. As of the same date, the DOE estimated that the Luzon, Visayas, and Mindanao Grids had an NDCof 10,498 MW, 1,745 MW, and 1,658 MW, respectively. Reserve margins of 23% above peak demand forLuzon and Visayas and 21% above peak demand for Mindanao are required to be maintained according to theDOE.In recent years, the ownership and management of power plants in the Philippines have been grouped into threecategories: (i) NPC-owned and -operated plants; (ii) plants operated by IPPs that supply electricity to NPCunder electricity offtake contracts; and (iii) IPP-owned and -operated plants that supply electricity to customersother than NPC. Under the EPIRA, there have been substantial changes to the structure of power plantownership and management. In 2011, the ERC declared that the NPC-IPP contracts requirement for the 70%privatization target has already been accomplished at 76%. Likewise, the privatization of NPC generation assetsis currently at 79.6% for Luzon and Visayas. In Luzon, only the Malaya Thermal Power Plant with a dependablecapacity of 650MW remains to be privatized. In Visayas, only power barges 101, 102, and 103, with a combineddependable capacity of 62 MW, are left with NPC.Based on the DOE‘s 2010 Power Statistics, in terms of electric power consumption, the residential andindustrial segments were the largest consumers of electric power in the Philippines in 2010, together accountingfor 55% of total power used. The balance was mainly consumed by commercial users.Moreover, the DOE‘s Power Statistics 2010 states that the Philippine electricity market had a total peak demandof 10,375 MW in 2010. This demand is divided into three major grids, with Luzon being the largest at roughly7,656 MW. The Visayas and Mindanao Grids are smaller and have peak demand of 1,431 MW and 1,288 MW,respectively.Electricity generated by power generation facilities is generally transported via a high-voltage transmissionsystem to the various distribution utilities or electric cooperatives. Transmission is critical in ensuring thatgenerated electricity is delivered to distribution utilities‘ load centers according to proper technical standards.Transmission is a regulated common electricity carrier business subject to the rate-making powers of the ERC.The distribution sector is currently composed of 119 electric cooperatives, 16 privately-owned utilities, andeight local government-owned utilities. These distribution utilities may purchase electricity from generationcompanies or the WESM, when qualified, for distribution to residential, commercial, industrial, and other endusersegments. The NEA, the government agency mandated to implement programs to strengthen the technicalcapability and financial viability of rural electric cooperatives, may act as guarantor for purchases of electricityin the WESM by any electric cooperative or small distribution utility to support their credit standing.Meralco is the largest distributor of electricity and the largest private sector utility in the Philippines. Meralcodistributes electricity throughout Metro Manila and six surrounding provinces on the island of Luzon. Meralcoconducts its electricity distribution utility under a congressional franchise that is scheduled to expire onJune 28, 2028. Under this franchise, Meralco is responsible for the construction, operation, and maintenance ofan electric distribution system in a franchise area of approximately 9,337 square kilometers.203

REGULATORY FRAMEWORKElectric Power Industry Reform Act of 2001Republic Act No. 9136, also known as the EPIRA, was passed in June 2001 with the main objective ofproviding affordable and reliable electricity supply by: (i) restructuring and deregulating the industry; and (ii)privatizing NPC assets and NPC-IPP contracts. Prior to the EPIRA, the industry was mainly made up of NPCand the distribution utilities in the country such as, among others, Meralco, VECO, Davao Light and Power Co.,and NPC, which at that time controlled approximately 90% of the country‘s installed generating capacity, andperformed generation and transmission functions. Distribution utilities were responsible for the distribution,pertaining to the physical distribution, and the supply, pertaining to the buying and selling, of electricity. Today,the industry has transitioned into four sectors — the deregulated generation and supply sectors and the regulatedtransmission and distribution sectors. Significant developments have occurred towards fulfilling thepreconditions for Retail Competition and Open Access.The privatization of NPC generation assets has already exceeded the 70% target and has achieved 79.6%privatization of NPC plants for Luzon and Visayas. Recently privatized plants include: (i) the 620 MW Limayplant to San Miguel Corp.; (ii) the 305 MW Palinpinon-Tongonan plant to Green Core; (iii) the 55 MW Nagaplant to SPC Power Corp.; and (iv) the 150 MW BacMan to BGI. The 70% target for NPC-IPP contractprivatization has also been reached at 76% with the privatization of: (i) the 700 MW Pagbilao plant to ThermaLuzon; (ii) the 1,000 MW Sual to San Miguel Energy Corporation; (iii) the 345 MW San Roque to StrategicPower Development Corporation; (iv) the 100.75 MW Bakun-Benguet to Amlan Power Holdings Corp.; and (v)the 1,200 MW Ilijan to San Miguel Corporation.Reorganization of the Electric Power IndustryGeneration SectorThe generation sector converts fuel and other forms of energy into electricity. This sector, by utility, consists of:(i) NPC-owned and operated generation facilities; (ii) NPC-IPP plants, which consist of plants operated by IPPs,and IPP-owned and operated plants, all of which supply electricity to NPC; and (iii) IPP-owned and IPPoperatedplants that supply electricity to customers other than NPC. Successes in the privatization process ofNPC continue to build up momentum for the power industry reforms.Under the EPIRA, generation companies are allowed to sell electricity to distribution utilities or retail electricitysuppliers through either bilateral contracts or the WESM. Once the regime of Retail Competition and OpenAccess is implemented, generation companies may likewise sell electricity to eligible end-users. Pursuant toSection 31 of the EPIRA, such implementation is subject to the fulfillment of five conditions. The last condition,the transfer to IPP Administrators of at least 70% of the total energy output of power plants under contract withNPC and the IPPs, was achieved in 2011.As of December 2011, PSALM has so far privatized 20 NPC generation assets in Luzon, Visayas, andMindanao, with an aggregate installed capacity of about 4,320 MW.With the concluded bidding of the 150 MW BacMan power plants, NPC has privatized approximately 79.6% ofits total installed generating capacity in Luzon and Visayas. As for the privatization of NPC-IPP contracts,PSALM commenced bidding out agreements for IPP administration in 2009. After the completion of thebidding for the administration of the contracted capacity of the 1,200 MW Ilijan power plant, PSALM alreadyprivatized 76% of the NPC-IPP administration contracts.In terms of market share limitations, no generation company is allowed to own more than 30% of the installedgenerating capacity of the Luzon, Visayas, or Mindanao Grids and/or 25% of the total nationwide installedgenerating capacity. To date, there is no power generation company, including NPC, breaching the mandated204

ceiling. Also, no generation company associated with a distribution utility may supply more than 50% of thedistribution utility‘s total demand under bilateral contracts, without prejudice to the bilateral contracts enteredinto prior to the enactment of EPIRA.Requirement of Public Offering for Generation CompaniesUnder Section 43(t) of the EPIRA, the ERC was mandated to issue rules and guidelines under which, amongothers, generation companies which are not publicly listed shall offer and sell to the public a portion of not lessthan 15% of their common shares of stock.ERC Resolution No. 9, Series of 2011, the latest ruling of the ERC with regard to public offerings of generationcompanies and distribution utilities, adopted the rules to implement Section 43(t) of the EPIRA. Under theresolution, generation companies, among others, which are not publicly listed are required to sell to the public aportion of not less than 15% of their common shares of stock. If the authorized capital stock of a generationcompany is fully subscribed, such company must increase its authorized capital stock by 15% or sell or causethe sale of 15% of its existing subscribed capital stock in order to comply with the public offering requirementunder the EPIRA.Any offer of common shares of stock for sale to the public through any of the following modes may be deemedas a public offering for purposes of compliance with the public offering requirement under the EPIRA: (1)listing in the PSE; and (2) listing of the shares of stock in any accredited stock exchange or direct offer of therequired portion of a company‘s capital stock to the public. For generation companies registered with the BOIunder the Omnibus Investments Code, the public offering requirement may be complied with by a direct offer ofthe required portion of the registered enterprise‘s shares of stock to the public or through its employees throughan employee stock option plan (or any plan analogous thereto), provided such offer is deemed feasible anddesirable by the BOI.TransmissionElectricity generated by power generation facilities is generally transported via a high-voltage transmissionsystem to various distribution utilities or electric cooperatives. Transmission is critical in ensuring that generatedelectricity is delivered to distribution utility‘s load centers within proper technical standards. It is a regulatedcommon electricity carrier business subject to the rate-making powers of the ERC.Pursuant to the EPIRA, NPC transferred its transmission and sub-transmission assets to TransCo, which wascreated to operate the transmission systems throughout the Philippines. TransCo was also mandated to provideOpen Access to all industry participants. The EPIRA granted TransCo a monopoly over the high-voltagetransmission network and subjected it to performance-based regulations.The EPIRA also required the privatization of TransCo through an outright sale or concession contract carriedout by PSALM. In December 2007, Monte Oro Grid Resources Corp. won the concession contract for TransCowith a bid of US$3.95 billion. On January 14, 2009, PSALM formally turned over the 25-year concession ofTransCo to NGCP, the company formed by Monte Oro Grid Resources Corp.The Grid Code establishes the basic rules, requirements, procedures and standards that govern the operation,maintenance and development of the Philippine Grid, or the high-voltage backbone transmission system and itsrelated facilities. The Grid Code identifies and provides for the responsibilities and obligations of three keyindependent functional groups, namely: (1) the grid owner, or TransCo; (2) the system operator, or NGCP as thecurrent concessionaire of TransCo; and (3) the market operator or PEMC. These functional groups, as well asall users of the grid, including generation companies and distribution utilities, must comply with the provisionsof the Grid Code as promulgated and enforced by the ERC.205

In order to ensure the safe, reliable and efficient operation of the Philippine Grid, the Grid Code provides for,among others, the following regulations:The establishment of a Grid management committee, which is tasked with the monitoring of the dayto-dayoperation of the Grid;Performance standards for the transmission of electricity through the Grid, as well as the operation andmaintenance thereof, which standards shall apply to TransCo, NGCP, distribution utilities and suppliersof electricity;Technical and financial standards and criteria applicable to users of the Grid, including generationcompanies and distribution utilities connected or seeking to connect thereto; andOther matters relating to the planning, management, operation and maintenance of the Grid.DistributionThe distribution of electricity to end-users is considered a common carrier business requiring a nationalfranchise and is regulated primarily by the ERC. A distribution utility has the obligation to provide distributionservices and connections to its system for any end-user within its franchise area in accordance with existingrules. Access by all users to its system shall be open and non-discriminatory. As reported by NEA, thegovernment agency mandated to implement programs to strengthen the technical capability and financialviability of rural electric cooperatives, the distribution sector is composed of 119 electric cooperatives, 16privately-owned utilities, and eight local government-owned utilities. These distribution utilities may purchaseelectricity from generation companies or the WESM, when qualified, for distribution to residential, commercial,industrial, and other end-user segments. NEA may act as guarantor for purchases of electricity in the WESM byany electric cooperative or small distribution utilities to support their credit standing.Under the EPIRA, distribution utilities are required by law to supply electricity in the least expensive manner.Given that generation costs are passed entirely on to customers, PPAs between distribution utilities andgeneration companies go through a stringent approval process, including public hearings, publications, andposting of notices in each of the municipalities and cities covered by their respective franchise areas.With distribution wheeling charges being regulated by the ERC, distribution utilities, and even the generatorssupplying electricity to the distribution utilities, were exposed to regulatory risks given that adjustments in theirgeneration rates can be disallowed by the ERC every time they have their billings reviewed. This regulatory riskwas remedied through ERC Resolution No. 10, series of 2004, as amended by ERC Resolutions 10-1 and 10-4,series of 2004, which allowed automatic adjustment of generation rates and systems loss rates of distributionutilities.Based on its interpretation of Section 4(e) of Rule 3 of the EPIRA, the Supreme Court issued an order in August2006, directing Meralco to first file an application for adjustment with the ERC instead of implementing themechanism for automatic adjustment of such rates. The DOE remedied the situation in June 2007 by amendingsaid regulation and expressly allowing the automatic adjustment mechanism to allow the timely recovery ofgeneration and foreign exchange-related costs. Thereafter, Meralco resumed implementation of the automaticadjustment mechanism.There was a move towards a more accurate and updated method of cost recovery thereafter. In July 2009, theERC released the regulations for the Automatic Cost Recovery Mechanism for distribution utilities. The ERCresolved to adopt the ―Amended Rules for the Automatic Recovery of Monthly Fuel and Purchased Power Costsand Foreign Exchange Related Costs by the NPC‖ on December 14, 2009. The Automatic Cost RecoveryMechanism provides for the automatic adjustments on cost components such as fuel and foreign exchange. Byutilizing Automatic Monthly Fuel & Purchased Power Cost Adjustments (―FPPCA‖) and Monthly AutomaticForeign Exchange-Related Cost Adjustments (―FxA‖), this mechanism will avoid the ―cost mismatch‖ that hasbeen faulted in the deferred recovery system of the Generation Rate Adjustment Mechanism (―GRAM‖) and206

Incremental Currency Rate Adjustment Mechanism (―ICERA‖). For instance, while the GRAM and ICERAcosts could be billed a year or more after their relevant test period, the FPPCA and the FxA use the rates of thedirectly preceding billing month.NPC and PSALM started the implementation of the FPPCA and FxA in the March 2010 billing period. Thesecost adjustments displaced the previous system making use of the GRAM and the ICERA. However, the lastapproved GRAM/ICERA will still be applicable and continually charged until the full amounts have beenrecovered or refunded. All unfiled and unverified GRAMs or ICERAs shall be submitted 120 days after theeffectivity of the Automatic Cost Recovery Mechanism.SupplyRetail Electricity Suppliers (RES) are persons or entities licensed by the ERC to sell, broker, market oraggregate electricity to the Contestable Market end-users once Retail Competition and Open Accesscommences. Except for the distribution utilities with respect to their respective franchise areas, suppliers need tobe licensed by the ERC. However, the prices charged by suppliers to the Contestable Market of a distributionutility are not subject to the regulation of ERC, once Retail Competition and Open Access beginsWith Retail Competition and Open Access mandated by the EPIRA, end-users with electricity demand risingabove the thresholds set by the ERC will be allowed to contract their demand requirements directly fromelectricity suppliers of their choice. The EPIRA also contemplates that certain end-users will source powerdirectly through the WESM or by entering into contracts with generation companies. This will encouragecompetition at the retail level. It has been planned that Retail Competition will gradually increase over time,provided that supply companies are sufficiently creditworthy to be suitable offtakers for generation companies.As of January 2012, ERC has already granted 16 RES licenses to various holders. These include: GN PowerLtd. Co., Aboitiz Energy Solutions, Inc., Trans-Asia Oil and EDC, GN Power Mariveles Coal Plant Ltd.Corporation, FGES, Cabanatuan Electric Corporation, Masinloc Power Partners Co. Ltd., Premier EnergyResources Corporation, Team Philippines Energy Corporation, Adventenergy Inc., SEM-Calaca RES Corp, SNAboitiz Power - RES, Inc., San Miguel Electric Corporation, Global Energy Supply Corporation, Ferro Energy,Inc., Kratos - RES, Inc.. There are also three recognized Local RES: Meralco, Dagupan Electric Corporation(DECORP), and VECO. Most of the licensed RES, like the Company‘s FGES, GN Power, Team Energy,SMEC, Aboitiz, AES, and SEM Calaca, are members of the Retail Electricity Suppliers Association (RESA), agroup that represents the consolidated interests of the RES in various advocacies.Energy Regulatory CommissionThe ERC is the independent, quasi-judicial regulatory body created under the EPIRA, with the function topromote competition, encourage market development, ensure customer choice, and penalize abuse of marketpower in the restructured electricity industry. It has the authority, among others, to: (i) enforce the implementingrules and regulations of the EPIRA and the rules governing the operations of the WESM and activities of itsparticipants; (ii) establish and enforce a methodology for setting transmission and distribution wheeling ratesand the retail rates for the Captive Market of a distribution utility; (iii) issue licenses and permits; (iv) set andenforce technical and financial standards for industry participants; and (v) monitor, investigate, and takemeasures to penalize violations of rules and regulations.COMPETITIVE MARKET DEVICESRetail Competition and Open AccessThe EPIRA provides for a system of Retail Competition and Open Access, wherein the end users will be giventhe power to choose its energy source. Prior to Retail Competition and Open Access, distribution utilities207

procure power supply in behalf of its consumers. With Retail Competition and Open Access, the RES chosen bythe consumer will do the buying and selling of power and the distribution utility shall deliver the same.Retail Competition and Open Access shall be implemented in phases. During the 1 st phase, only end users withan average monthly peak demand of 1 MW for the 12 months immediately preceding the start of RetailCompetition and Open Access shall have a choice of power supplier, as a contestable customer. In the 2 nd phase,the peak demand threshold will be lowered to 0.75 MW, and it will continue to be periodically lowered until thehousehold demand level is reached.The EPIRA set the following conditions for the commencement of the Retail Competition and Open Access:SECTION 31, EPIRA: PRECONDITIONS TO RETAIL COMPETETION AND OPENACCESSDATE ACCOMPLISHEDA) Establishment of WESM JUNE 2006B) Approval of unbundled transmission and distribution wheeling charges SEPTEMBER 2008C) Initial Implementation of Cross-Subsidy Removal Scheme NOVEMBER 2005D) Privatization of at least 70% of total capacity of Generating Assets of NPC in Luzon and Visayas JULY 2009E) Transfer of the management and control of at least 70% of the total energy output of NPC-IPPpower plantsJUNE 2011The ERC officially declared December 26, 2011 as the Open Access date marking the commencement of thefull operation of the competitive Retail Electricity Market in Luzon and VisayasThis declaration (ERC Resolution No. 10 Series of 2011) was signed on June 6, 2011, a little over a week afterERC reported to the Joint Congressional Power Commission (JCPC) the latest unofficial status of the NPCprivatization, which stands at 79.56% for NPC Assets and 76% for NPC-IPP contracts. At the hearing, JCPCurged all the related agencies, to expedite the long overdue implementation of Open Access, and ERC heededthis order.The height of activities precluding Open Access declaration began last February 18, 2011 with ERC Case No.2011-004 RM. The aforementioned case served as a Notice of Public Hearings set on March 7 to 11, 2011 witha goal of determining whether or not Retail Competition and Open Access can be declared. Prior to the publichearings, on March 2, 2011, ERC issued subpoenas to DOE, NPC, PSALM, NGCP, and PEMC for pertinentinformation relating to the pre-conditions for the Open Access. All the aforementioned agencies attended thehearings held on March 7 to 8, 2011 and April 6, 2011 presenting the requested information by the ERC. Alsopresent were private sector participants such as Meralco, Philippine Chamber of Commerce and Industry,Masinloc Power Partners, Co., Aboitiz Energy Solutions, Inc., RESA, and FGES.Based on the evidence presented by the participants in the Open Access hearings, ERC found that all thepreconditions provided in Section 31 of the EPIRA and Section 3, Rule 12 of its IRR to have been fulfilled.Thus, Retail Competition and Open Access may be declared, as was done by ERC Resolution No. 10 Series of2011.However, on October 24, 2011, through ERC Case No. 2011-009 RM, the ERC declared the deferment of theOpen Access Date. The ERC found that not all rules, systems, preparations, and infrastructures required toimplement Retail Competition and Open Access have been put in place to allow a December 26, 2011 OpenAccess commencement. For instance, the accounting and billing system had not been finalized. The essentialbusiness-to-business system, an information technology structure that shall handle the information exchangeamong Retail Competition and Open Access participants, is also not yet in place. A final Open Access Date hasyet to be announced, but is expected to occur late in 2012.208

Unbundling of Rates and Removal of Cross SubsidiesThe EPIRA mandates that distribution and wheeling charges should be unbundled from retail rates and ratesshould reflect the respective costs of providing each service. The EPIRA also states that cross-subsidies shall bephased 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 removalof the cross-subsidies for a maximum of one year if it determines that there will be a material adverse effectupon the public interest or an immediate, irreparable, and adverse financial effect on a distribution utility. Theinitial implementation of the cross-subsidy removal scheme was accomplished in 2001.However, the EPIRA likewise provides for socialized pricing mechanisms, such as the lifeline rate subsidy, tobe set by the ERC for marginalized or low-income captive electricity consumers who cannot afford to pay thefull cost of electricity. These end-users are exempt from the cross-subsidy removal for a period of ten yearsstarting June 2011, unless extended by law. Its application was extended for another ten years by Republic ActNo.10150, which was approved on June 2011.Reduction of Taxes and Royalties on Indigenous Energy ResourcesTo equalize prices between imported and indigenous fuels, the EPIRA mandates the President of the Philippinesto 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 theexisting rates for imported coal, crude oil, bunker fuel and other imported fuels. Following the promulgation ofthe implementing rules and regulations, former President Arroyo enacted Executive Order No. 100 on May 3,2002, to equalize the taxes among fuels used for power generation. This mechanism, however, has yet to beimplemented.Government Approval ProcessAs set forth in the EPIRA, power generation is not considered a public utility operation. Thus, an entity engagedor intending to engage in the generation of electricity is not required to secure a franchise. However, no personor entity may engage in the generation of electricity unless such person or entity has complied with thestandards, requirements, and other terms and conditions set by the ERC and has received a certificate ofcompliance from the ERC to operate facilities used in the generation of electricity. A certificate of compliance isvalid for a period of five years from the date of issuance.In addition to the certificate of compliance requirement, a generation company must comply with technical,financial, and environmental standards. A generation company must ensure that all its facilities connected to theGrid meet the technical design and operational criteria of the Grid Code and Distribution Code promulgated bythe ERC. In this connection, the ERC has issued the ―Guidelines for the Financial Standards of GenerationCompanies,‖ which sets the minimum financial capability standards for generation companies. Under theguidelines, a generation company is required to meet a minimum annual interest cover ratio or debt servicecoverage ratio of 1.5x throughout the period covered by its certificate of compliance. For certificate ofcompliance applications and renewals, the guidelines require the submission to the ERC of, among other things,comparative audited financial statements for the two most recent 12-month periods, if available, a schedule ofliabilities, and a five-year financial plan. For the duration of the certificate of compliance, the guidelines alsorequire a generation company to submit audited financial statements and forecast financial statements to theERC for the next two financial years, as well as other documents. The failure by a generation company tosubmit the requirements prescribed by the guidelines may be a ground for the imposition of fines and penalties.The ERC also governs the approval process for PSAs between distribution utilities and power suppliers. UnderERC Resolution No. 38, Series of 2006, Rule 20 (B), the ERC specified that the procedures established by theGuidelines for the Setting and Approval of Electricity Generation Rates and Subsidies for MissionaryElectrification Rates (ERC Res. No. 11, s. 2005), shall also be applicable for PSAs of the distribution utilities.Aside from the regulatory certificates from the SEC, BOI, DOE, and the like, the ERC also requires additional209

documentary support for PSA approval. For instance, they require financial data such as debt-to-equity ratios,project costs, annual interests, weighted average cost of capital, bank loans, to name a few. The ERC alsorequires a specification of the cash flow on the initial costs, operating & maintenance expenses, MEOT, fuelcosts, and the like. In addition, technical and economic characteristics of the generating plant such as the kWhgeneration (basis of maintenance allowance), installed capacity, mode of operation, and dependable capacity,also need to be presented for ERC approval.Both resolutions specify that ERC must render a decision within 90 days from the date of filing of theapplication. If no decision is rendered within the 90 day period, the PSA shall be deemed approved, unless theextension of the period is due to extraordinary circumstances. Recently approved PSAs include those fromKEPCO-Salcon Power Corporation (KSPC) with six Visayas electric cooperatives, and Cebu EnergyDevelopment Corp. (CEDC) with a distribution utility and two Visayas electric cooperatives. Moreover, GreenCore was able to obtain provisional approvals for its PSAs with a distribution utility, electric cooperatives andindustrial customers in Leyte, Cebu, Negros and Panay.Upon the introduction of Retail Competition and Open Access, the rates charged by a generation company willno longer be regulated by the ERC, except rates for Captive Markets (which are determined by the ERC). Inaddition, since the establishment of the WESM, generation companies are now required to comply with themembership criteria and appropriate dispatch scheduling as prescribed under the WESM Rules.In the course of developing a power plant, other permits, approvals, and consents must also be obtained fromrelevant national, provincial, and local government authorities, relating to, among others, site acquisition,construction, and operation, including environmental licenses and permits.Implementation of the PBROn December 10, 2004, the ERC issued a resolution for the adoption of a methodology for Setting DistributionWheeling Rates entering a PBR, which replaced the RORB which historically determined the distributioncharges paid by the distribution utilities‘ customers. Under the PBR, the distribution-related charges thatdistribution utilities can collect from customers over a four-year regulatory period will be pegged againstprojected revenues which are reviewed and approved by the ERC and used by the ERC to determine adistribution utility‘s efficiency factor. For each year during the regulatory period, a distribution utility‘sdistribution charge is adjusted upwards or downwards taking into consideration the utility‘s efficiency factor setagainst changes in overall consumer prices in the Philippines. The ERC has also implemented a performanceincentive scheme whereby annual rate adjustments under PBR will also take into consideration the ability of adistribution utility to meet or exceed service performance targets set by the ERC, such as the average duration ofpower outages, the average time to provide connections to customers, and the average time to respond tocustomer calls, with utilities being rewarded or penalized depending on their ability to meet these performancetargets.Wholesale Electricity Spot MarketThe EPIRA mandates the establishment of a wholesale market that provides the mechanism for identifying andsetting the price of actual variations from the quantities transacted under contracts between sellers andpurchasers of electricity. This market, the WESM, became operational in the Luzon Grid on June 26, 2006. It isa ―gross pool, net settlements‖ market that enables suppliers and buyers to trade electricity as a commodity. Themain purpose of the WESM is to provide industry stakeholders the correct price signals in order to properlyguide them in making various investments as well as in their operational decisions. The establishment of WESMwas a necessary precondition before robust competition could be achieved in the market because electricityprices prior to its operation were significantly distorted.Prior to the initial operation, the DOE issued the WESM Rules which set the guidelines and standards forparticipation in the market to provide a level playing field for all electric power industry participants. Suchguidelines and standards include procedures for establishing the merit order dispatch for each time (i.e. hourly)210

trading period and determining the market-clearing prices. The ERC also approved and issued the pricedetermination methodology for the WESM.PEMC acts as the market operator that governs the WESM. Its board of directors is composed of representativesof electric power industry participants and independent members. Its primary purpose is to establish, maintain,operate, and govern an efficient, competitive, transparent, and reliable market for the wholesale purchase ofelectricity and ancillary services in the Philippines in accordance with relevant laws, rules, and regulations.Moreover, in accordance with the EPIRA, the present structure of PEMC will undergo changes upon theimplementation of an independent market operator set up.The WESM in Luzon has already been commercially operating for five years since its commencement on June26, 2006. Annual average spot prices ranged from approximately P4.25/kWh, P4.16/kWh, P3.20/kWh,P1.72/kWh, P6.46/kWh, to P3.86/kWh, for 2006, 2007, 2008, 2009, 2010, and 2011, respectively. The earlyparts of the WESM operations went through some ―birth pains‖. In 2008, spot prices became ―artificially‖ lowdue to the ERC Order that set market prices at the NPC TOU rates, instead of actual spot prices, due to the SanJose Transformer Line outage. Then, in 2009, industry participants shared the sentiment that spot prices wereagain unreflective of market conditions when the Limay and Malaya oil-fired plants were placed on a ―mustrun‖status to prevent price spikes due to the San Jose Transformer Line outage.WESM prices in 2010 spiked due to a confluence of various events: low hydro power supply due to El Niño,forced outages from large base load power plants, high demand levels due to higher temperatures, and theoutage of Malampaya gas field. In contrast, 2011 prices were low because of high availability of power supplyfrom hydroelectric power plants, low demand levels due to lower temperature, and the availability of excessgeneration capacity from Visayas that was transported to Luzon with the merging of the Luzon and VisayasGrids.The WESM‘s commercial operations in the Visayas kept on being deferred from 2008 to 2009 due to two mainfactors: (i) lack of competition – the bulk of the Visayas Grid‘s total capacity was still dominantly controlled byNPC; and (ii) fear of extremely high prices – Visayas had unstable and insufficient power supply. Theprivatization of the following plants: (1) Panay and Bohol diesel power plants; (2) land base gas turbine; and (3)Palinpinon-Tongonan geothermal power plants, and the entry of new coal-fired power plants in Cebu and Panayfinally enabled WESM Visayas to go on commercial operations in December 2010. With a limited number ofpower generation technologies in the grid, WESM prices in the Visayas reflects price offers from coal andgeothermal power during off-peak hours while price offers from oil-fired power plants clear the peak hours.These market patterns were observed in 2011. The commercial operations of WESM in the Visayas saw WESMprices in Luzon and Visayas reflecting the flow and balance of power between the two grids. WESM prices inone Grid would generally increase if the reserve level in the other drops due to plant outages. In 2012, peakprices continue to be set by CEDC, KSPC, and PEDC coal plants in the afternoon, while Panay Diesel often setsthe evening peak price. During the off-peak, Unified Leyte Geothermal was the most frequent price setter.Furthermore, WESM Visayas exhibited relatively low clearing prices due to sufficient reserve levels. However,WESM prices in the first quarter of 2012 increased from 2011 levels due to the forced outages in Luzon.Visayas‘ 2011 peak demand registered at 1,425.1 MW while dependable capacity was approximately 1,744.9MW. For 2011, the Visayas average WESM price was at P3.68/kWh while the Visayas average peak WESMprice was at P5.79/kWh, and the Visayas average off-peak WESM price was P2.62/kWh.Independent Market OperatorIn November 4, 2011, DOE presented their plans for the formation of an Independent Market Operator (IMO)during the 64 th PEM Board Meeting. The discussion focused on the study conducted by the Asian DevelopmentBank (ADB), the objective of which was to recommend the final structure and composition of the IMO. This ispursuant to Section 30 of Republic Act No.9136, which requires an independent entity to handle the marketoperations of the WESM. The IMO shall assume the functions of the Autonomous Group Market Operator,which is currently the government-run PEMC. This technical assistance endeavor was through a partnershipbetween DOE and the ADB, finalized in February 2010.211

The study reviewed 12 market operator structures from other jurisdictions, to wit: New England, New York,Pennsylvania-Jersey-Maryland (PJM), Midwest, Ontario, Texas, California, Alberta, Singapore, Australia(NEM), Western Australia, and New Zealand. The project team observed that ten out of 12 countries studiedhave ―Independent‖ Boards. Only two out of the 12, ERCOT ISO and Australia NEM, have a Stake Holders‘Board. From this, DOE and ADB concluded that a completely independent market operator, with minimalstakeholder involvement, is the most ideal structure for the envisioned IMO.The IMO structure is still in the finalization process. DOE and ADB plan to present the proposed IMO structureto the JCPC and other industry stakeholders, for further comments and suggestions.RENEWABLE ENERGY ACT OF 2008The RE Law is a landmark legislation and is considered the most comprehensive renewable energy law inSoutheast Asia. It was signed into law on December 16, 2008 and took effect on January 30, 2009.The RE Law‘s declared policies are to encourage and develop the use of RE resources of the country to reducedependence on fossil fuels and the overall costs of energy, and decrease, if not prevent, harmful emissions intothe environment to promote health and sustainable environment.The two main features of the RE Law are the fiscal incentives made available to RE activities and the non-fiscalincentives or market mechanisms geared towards promoting and encouraging commercialization of REresources.The key fiscal incentives under the RE Law are as follows:Income tax holiday (ITH) for the first seven years of operation;Duty-free importations of RE machinery, equipment, and materials, effective within ten yearsupon issuance of certification, provided that said machinery, equipment, and materials are directly,and actually needed and used exclusively in the RE facilities;Special real property tax rates on equipment and machinery not exceeding 1.5% of the net bookvalue;Net operating loss carry over can be carried over as a deduction from gross income for the nextseven consecutive taxable years immediately following the year of such loss, provided however,that operating loss resulting from the availment of incentives provided for in this Act shall not beentitled to NOLCO;Corporate income tax rate of 10% after ITH;Accelerated depreciation for purposes of computing taxable income;Zero percent VAT on sale of fuel or power generated from renewable sources of energy andpurchases of local supply of goods, properties, and services in relation to the exploration,development, and utilization of RE sources;Cash incentives for RE developers for missionary electrification;Tax exemption of carbon emission credits; andTax credit on domestic purchase of capital equipment and services.212

Non-Fiscal IncentivesThe non-fiscal incentives or market mechanisms include the RPS which sets a minimum percentage ofgeneration from eligible RE resources; the Feed-In Tariff System (―FIT‖) which authorizes a fixed tariff forelectricity produced from emerging RE resources; the RE Market which shall operate under the WESM tofacilitate compliance with the RPS; and the Green Energy Option which allows end-users to directly contracttheir energy requirements from RE facilities.Feed-in TariffThe FIT is a scheme that mandates electric power industry participants to source electricity from RE resourcesat a guaranteed fixed rate per kWh applicable for a given period of time, which shall in no case be less than 12years, to be determined by the ERC. The FIT system also includes a proposed Renewable Energy Charge whichis a uniform charge that allows all electricity consumers to share in the cost of the FIT. The FIT system shall beadopted to accelerate the development of emerging RE resources (wind, solar, ocean, run-of-river hydropower,and biomass energy resources) through a fixed tariff system. The FIT Rules were issued by the ERC last July23, 2010 under ERC Resolution No. 16, series of 2010. As of March 20, 2012, the proposed rates have beensubmitted to the ERC for resolution.The NREB is a group formed by the DOE in 2009 to facilitate the implementation of the RE Law. NREB acts asa recommending body on RE advocacies by the DOE, which includes the FIT scheme. The Company hasactively participated in the NREB as a contributing member.Renewable Portfolio StandardsThe RPS is a policy which places an obligation on electric power industry participants such as generators,distribution utilities, or suppliers to source or produce an agreed portion of their electricity supply from eligibleRE resources, as may be determined by the NREB. The NREB is still reviewing and refining the RPS, which isexpected to be enforced by January 2013. These rules shall include specifications such as the minimumpercentage of generation from eligible RE resources, the sectors where the RPS shall be imposed on a per gridbasis, the types of RE resources to be certified and required to comply with RPS, etc.Green Energy OptionThe Green Energy Option program is a mechanism to be established by the DOE which shall provide end-usersthe option to choose RE resources as their source of energy. The end-users may directly contract from REfacilities their energy requirements distributed through their respective distribution utilities. Moreover, the RELaw allows RE developers utilizing intermittent RE resource the option to pay transmission and wheelingcharges on a per kilowatt-hour basis equivalent to the average rate of all other electricity transmitted through theGrid. These RE developers are also given priority dispatch.Net MeteringThe RE Law also provides for a Net Metering System which allows a distribution grid user to install its own REgenerating system and supply electricity by establishing a two-way connection to the Grid. With the NetMetering System, the user is charged only for his net electricity consumption and is credited for any overallcontribution to the electricity Grid. The electricity generated by the user and delivered to the distribution grid isused to offset electricity provided by the distribution utility to the user. The distribution utility, on the otherhand, shall be entitled to RE certificates which can be used in compliance with the RPS.Government ShareThe RE Law prescribes a rate of 1% of the gross income from sale of renewable energy (1.5% for geothermalenergy) and other incidental income from generation, transmission, and sale of electric power as the213

Government‘s share in the exploration, development, and utilization of RE resources with respect to existingand new RE development projects.Implementing AgenciesThe DOE has been designated as the lead regulatory agency to implement the RE Law. On May 25, 2009, theDOE issued Circular No. DC2009-05-0008 known as the Implementing Rules and Regulations of the RE Law(effective June 12, 2009), followed on July 12, 2009 by Circular No. DC2009-07-0011, prescribing guidelinesgoverning RE service/operating contracts and the process for the registration of RE developers (effective August10, 2009). A new office within the DOE, the Renewable Energy Management Bureau, has been created to,among others, implement the RE policies, plans, and programs.Another office, the NREB, was also created pursuant to the RE Law. It has monitoring, review, andrecommendatory functions with respect to various RE programs such as the RPS and the National RenewableEnergy Program that will be prepared by the DOE. The NREB shall be composed of representatives fromvarious government agencies, government financial institutions, private RE developers, private distributionutilities, electric cooperatives, electricity suppliers, and non-government organizations. It was officially formedon September 21, 2009. Working committees created by the board are presently holding workshops andmeetings to flesh out implementing details on the mandated programs, including the RPS and the FIT.214

INFORMATION ON INDEPENDENT AUDITORSThe consolidated financial statements of the Company as of December 31, 2009, 2010 and 2011 were audited bySycip Gorres Velayo & Co, independent auditors, as stated in their report appearing herein.The following table sets out the aggregate fees billed and paid for each of the last three (3) fiscal years forprofessional services rendered by SyCip Gorres Velayo & Co.:AUDIT FEES (in P) 2009 2010 2011Audit and Audit-Related Fees 5,160,916.32 6,593,254.48 5,381,429.48Tax Fees 2,481,946.88 670,047.26 798,562.80All Other Fees 5 4,742,931.20 5,201,049.28 76,400.00TOTAL 12,385,794.40 12,464,351.02 6,256,392.28Under the existing policies of the First Gen Audit Committee, the Audit Committee shall:i. ensure that the fees charged by the external auditors are commensurate with their reputation, level ofexpertise, and required scope of work, and in accordance with current industry standards;ii.iii.iv.regularly review and assess their fees and quality of work performed;determine the necessity of the external auditors performing non-audit work for any relevant year, andreview and approve/ratify fees charged for such non-audit services which shall be covered by a writtenagreement separate and distinct from the agreement for audit services; andreview and consider the rotation, every five (5) years, of the external auditor or handling partner.5 For services relating to due diligence for proposed acquisitions/various financing activities, preparation of agreed-uponprocedures report for the Company’s application for the increase in authorized capital stock, due diligence for the stockrights offering, and conduct of seminars.215

INTERESTS OF EXPERTS AND COUNSELCertain Philippine legal matters in connection with the Offer have been passed upon for the Company by Puno& Puno Law Offices, Manila, Philippines, the independent legal counsel of the Company, and for theUnderwriters, by Picazo Buyco Tan Fider & Santos, Manila, Philippines.The aforesaid counsels have no shareholdings in the Company, or any right, whether legally enforceable or not,to nominate persons or to subscribe to the securities of the Company, in accordance with the standards orindependence required in the Code of Professional Responsibility and as prescribed by the Supreme Court of thePhilippines.The aforesaid legal counsels have not acted and will not act as promoter, underwriter, voting trustee, officer oremployee of the Company.216

PHILIPPINE TAXATIONThe following is a general description of certain Philippine tax aspects of the investment in the Series “G”Perpetual Preferred Shares. This discussion is based upon laws, regulations, rulings, income tax treaties,administrative practices, and judicial decisions in effect at the date of this Prospectus and is subject to anychanges occurring after such date. Subsequent legislative, judicial, or administrative changes or interpretationsmay be retroactive and could affect the tax consequences to the prospective investor.The tax treatment of a prospective investor may vary depending on such investor’s particular situation andcertain investors may be subject to special rules not discussed below. This summary does not purport to be acomprehensive description of all of the tax considerations that may be relevant to a decision to invest in theSeries “G” Perpetual Preferred Shares and does not purport to deal with the tax consequences applicable to allcategories of investors, some of which (such as dealers in securities) may be subject to special rates.This discussion does not provide information regarding the tax aspects of acquiring, owning, holding, ordisposing of the Series “G” Perpetual Preferred Shares under applicable tax laws of other applicablejurisdictions and the specific Philippine tax consequence in light of particular situations of acquiring, owning,holding, and disposing of the Series “G” Perpetual Preferred Shares in such other jurisdictions.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THEPARTICULAR TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OFTHE SERIES “G” PERPETUAL PREFERRED SHARES, INCLUDING THE APPLICABILITY ANDEFFECT OF LOCAL AND NATIONAL TAX LAWSAs used herein, the term ―resident alien‖ refers to an individual whose residence is within the Philippines andwho is not a citizen thereof. A ―non-resident alien‖ is an individual whose residence is not within the Philippinesand who is not a citizen thereof; a non-resident alien who is actually within the Philippines for an aggregateperiod of more than 180 days during any calendar year is considered a non-resident alien engaged in trade orbusiness in the Philippines; otherwise, such non-resident alien who is actually within the Philippines for anaggregate period of 180 days or less during any calendar year is considered a non-resident alien not engaged intrade or business in the Philippines. A ―domestic corporation‖ is created or organized under the laws of thePhilippines; a ―resident foreign corporation‖ is a non-Philippine corporation engaged in trade or business in thePhilippines; and a ―non-resident foreign corporation‖ is a non-Philippine corporation not engaged in trade orbusiness in the Philippines.The Series ―G‖ Perpetual Preferred Shares are intended to be listed with the PSE on Issue Date.CORPORATE INCOME TAXA domestic corporation is subject to a tax of 30% of its taxable income (gross income less allowable deductions)from all sources within and outside the Philippines except, among other things, (a) gross interest income fromPhilippine currency bank deposits and yield from deposit substitutes, trust funds, and similar arrangements aswell as royalties from sources within the Philippines which are generally taxed at the lower final withholding taxrate of 20% of the gross amount of such income; and (b) interest income from a depository bank under theexpanded foreign currency deposit system which is subject to a final tax at the rate of 7.5% of such income.A minimum corporate income tax of 2% of the gross income as of the end of the taxable year is imposed on adomestic corporation beginning on the fourth taxable year immediately following the year in which suchcorporation commenced its business operations, when the minimum corporate income tax is greater than theordinary income tax for the taxable year.Nevertheless, any excess of the minimum corporate income tax over the ordinary corporate income tax shall becarried forward and credited against the latter for the three immediately succeeding taxable years. Furthermore,217

subject to certain conditions, the minimum corporate income tax may be suspended with respect to a corporationwhich suffers losses on account of a prolonged labor dispute, force majeure, or legitimate business reverses.In addition, under the RE Law, a corporation engaged in the exploration, development, and utilization of REresources and actual operation of RE systems or facilities is, after seven years of income tax holiday, entitled topay a corporate tax of 10% of its net taxable income (as defined in the Tax Code), provided that the saidcorporation shall pass on the savings to the end-users in the form of lower power rates. However, under currentrules implementing the RE Law, it is not clear on how the corporation can pass on the savings to end-users inorder to avail of this preferential 10% tax rate.TAX ON DIVIDENDS ON THE SERIES “G” PERPETUAL PREFERRED SHARESCash and property dividends actually or constructively received from a domestic corporation by individualshareholders who are either Philippine citizens or resident aliens are subject to a final withholding tax at the rateof 10%. Cash and property dividends actually or constructively received by non-resident alien individualsengaged in trade or business in the Philippines are subject to a final withholding tax on dividends derived fromPhilippine sources at the rate of 20% of the gross amount, subject to applicable preferential tax rates under taxtreaties in force between the Philippines and the country of domicile of such non-resident alien individual. Nonresidentalien individuals not engaged in trade or business in the Philippines are subject to a final withholdingtax on dividends derived from Philippine sources at the rate of 25% of the gross amount, subject, however, tothe applicable preferential tax rates under tax treaties executed between the Philippines and the country ofresidence or domicile of such non-resident foreign individuals. For such preferential tax treaty rates to apply, therecipient of the dividends must not be engaged in business or professional service in the Philippines eitherthrough a permanent establishment or a fixed base in which the dividends paid are effectively connected.Cash and property dividends received from a domestic corporation by another domestic corporation or byresident foreign corporations are not subject to tax while those received by non-resident foreign corporations aresubject to withholding tax at the rate of 30%. On the other hand, cash and property dividends received by a nonresidentforeign corporation from a domestic corporation are subject to a 30% final withholding tax, whichdividend tax rate may be reduced to 15% if the country in which the non-resident foreign corporation isdomiciled allows a credit against the tax due from the non-resident foreign corporation, for taxes deemed tohave been paid in the Philippines equivalent to 15%, which represents the difference between the regularcorporate income tax rate of 30% and the 15% tax rate on dividends. The reduced dividend tax rate may befurther minimized if tax treaty relief is available to the non-resident foreign corporation. Depending on thecountry of residence of the non-resident foreign corporation, with which the Philippines has an existing taxtreaty, the tax rate may go as low as 10%.Stock dividends distributed pro rata to any holder of the Series ―G‖ Perpetual Preferred Shares are not subject toPhilippine income tax. However, the subsequent sale, exchange or disposition of Series ―G‖ Perpetual PreferredShares received as stock dividends by the holder is subject to either the capital gains or stock transaction tax.Philippine tax authorities have prescribed certain procedures, through an administrative issuance, for availmentof tax treaty relief. Subject to approval by Philippine tax authorities of the Company‘s application for tax treatyrelief, the Company shall withhold taxes at a reduced rate on dividends to be paid to a non-resident holder, ifsuch non-resident holder provides the Company with a tax exemption certificate, ruling, or opinion issued by thePhilippine BIR confirming the tax treaty relief or preferential rate, proof of the non-resident holder‘s legaldomicile or residence in the relevant treaty state, individual or corporate status (if applicable), and such othersupporting documents as may be required by the Company. Proof of legal domicile or residence for anindividual consists of certification from his embassy, consulate, or other equivalent certifications issued by theproper government authority, or any other official document proving residence. Proof of residence and corporatestatus for a corporation consists of authenticated copies of its articles of incorporation, other similarcertifications issued by the appropriate government authority, or other official document evidencing residence.218

A certificate from the tax authority of the recipient‘s country is generally accepted as proof of residence for bothindividuals and corporations. Aside from proof of residence, the BIR also requires the following documents: (a)a photocopy of the articles of incorporation (or equivalent document) of the income earner with the originalcopy of the consularized certification from the issuing agency that such document is a faithful reproduction; (b)special power of attorney duly executed by the recipient in favor of its Philippine agent to file a claim for taxtreaty relief; (c) certification from the SEC that the recipient company is not registered to engage in business inthe Philippines; (d) original copy of a sworn statement providing information on whether the issue(s) ortransaction involving directly or indirectly the same taxpayer(s) which is/are the subject of the request for rulingis/are under investigation, covered by an on-going audit, administrative protest, claim for refund or issuance oftax credit certificate, collection proceedings, or subject of a judicial appeal; and (e) duly notarized certificate ofthe corporate secretary of the corporation showing the details of dividend declaration (with attached relatedboard resolution), the number and value of the subject shares of the nonresident income earner as of the date ofrecord/transaction and as of the date of payment of the subject dividends, percentage of ownership of thenonresident income earner as of the date of record/transaction and as of the date of the payment of subjectdividends, acquisition date(s) of the subject shares, and the mode of acquisition of the subject shares.If the regular tax rate is withheld by the Company instead of the reduced rates applicable under a treaty, the nonresidentholder of the Series ―G‖ Perpetual Preferred Shares may file a claim for refund from the BIR within theprescribed period. However, because the refund process in the Philippines requires the filing of anadministrative claim and the submission of supporting information, and may also involve the filing of a judicialappeal, it may be impractical to pursue such a refund.SALE, EXCHANGE OR DISPOSITION OF THE SERIES “G” PERPETUAL PREFERRED SHARESCapital Gains TaxNet capital gains realized from the sale, exchange, or disposition of the Series ―G‖ Perpetual Preferred Shareseffected outside of the facilities of the PSE by a Filipino citizen, a resident alien, a non-resident alien doingbusiness in the Philippines, a non-resident alien not engaged in trade or business in the Philippines, a residentforeign corporation or a non-resident corporation other than a dealer in securities during each taxable year aresubject to final withholding tax as follows: 5% on net capital gains not exceeding P100,000 and 10% on gainsover P100,000.Foreign individuals and corporations may avail of preferential tax rates or exemptions provided under theapplicable tax treaty. An application for tax treaty relief must be filed (and approved) by the Philippine BIR inorder to obtain such exemption under a tax treaty. A prospective investor should consult its own tax advisor withrespect to the applicable rates under the relevant tax treaty.The transfer of the Series ―G‖ Perpetual Preferred Shares shall not be recorded in the books of the Companyunless the BIR certifies that the capital gains and documentary stamp taxes relating to the sale or transfer havebeen paid or, where applicable, tax treaty relief has been confirmed by the International Tax Affairs Division ofthe BIR in respect of the capital gains tax or other conditions have been met.Taxes on Transfer of Shares Listed and Traded at the Philippine Stock ExchangeA sale, barter, exchange, or other disposition of the Series ―G‖ Perpetual Preferred Shares effected through thefacilities of the PSE by a resident or a non-resident individual or by a domestic or foreign corporation, otherthan a dealer in securities, is subject to a stock transaction tax at the rate of 0.5% of the gross selling price orgross value in cash of the Series ―G‖ Perpetual Preferred Shares sold, bartered, exchanged, or otherwisedisposed, unless an applicable treaty exempts such sale from the said tax. Said tax shall be paid by the seller ortransferor. The stock transaction tax is classified as a percentage tax and is paid in lieu of capital gains tax.Gains on any such sale or disposition are not subject to income tax.219

In addition, a value added tax of 12% is imposed on the commission earned by the PSE-registered broker whofacilitated the sale, barter, exchange, or disposition through the PSE, which is generally passed on to the client.DOCUMENTARY STAMP TAX ON THE SERIES “G” PERPETUAL PREFERRED SHARESThe original issue of the Series ―G‖ Perpetual Preferred Shares is subject to a documentary stamp tax of P1.00for each P200.00 par value, or a fraction thereof, of the shares of stock issued. The transfer of shares is subjectto a documentary stamp tax of P0.75 for each P200.00, or a fractional part thereof of the par value of the sharestransferred.However, the sale, barter, or exchange of Series ―G‖ Perpetual Preferred Shares listed and traded at the PSE, ifmade through the facilities of the PSE, shall be exempt from documentary stamp tax. 6 Otherwise, such sale orother disposition of the Series ―G‖ Perpetual Preferred Shares will be subject to a documentary stamp tax of0.375% of the par value of the Series ―G‖ Perpetual Preferred Shares sold or disposed.The documentary stamp tax must be paid by the transferor of the Series ―G‖ Perpetual Preferred Shares.However, if such transferor enjoys exemption from the documentary stamp tax, the transferee who is not exemptshall be directly liable for the documentary stamp tax.ESTATE AND GIFT TAXESThe transfer of the Series ―G‖ Perpetual Preferred Shares upon the death of an individual holder to his heirs byway of succession, whether such holder was a citizen of the Philippines or an alien and regardless of residence,is subject to Philippine estate taxes at progressive rates ranging from 5% to 20% (if the net estate is overP200,000). Individual and corporate holders, whether or not citizens or residents of the Philippines, who transferthe Series ―G‖ Perpetual Preferred Shares by way of gift or donation are liable to pay Philippine donor‘s tax onsuch transfer at the rate of 30% of the net gifts during the year, if made to a stranger (i.e., one who is not abrother, sister, spouse, ancestor, lineal descendant, or relative by consanguinity within the fourth degree ofrelationship). Otherwise, the applicable donor‘s tax rate will range from 2% to 15% of the net gifts during theyear exceeding P100,000.Estate and donors‘ taxes, however, shall not be collected in respect of intangible personal property, such as theSeries ―G‖ Perpetual Preferred Shares: (a) if the deceased at the time of his death or the donor at the time of hisdonation was a citizen and resident of a foreign country which at the time of his death or donation did notimpose a transfer tax of any character, in respect of intangible personal property of citizens of the Philippinesnot residing in that foreign country; or (b) if the laws of the foreign country of which the deceased or donor wasa citizen and resident at the time of his death or donation allows a similar exemption from transfer or death taxesof every character or description in respect of intangible personal property owned by citizens of the Philippinesnot residing in that foreign country.TAXATION OUTSIDE THE PHILIPPINESThe Series ―G‖ Perpetual Preferred Shares are considered under Philippine law as situated in the Philippines andthe gain derived from their sale is entirely from Philippine sources; hence such gain is subject to Philippinecapital gains tax and the transfer of such shares by gift (donation) or succession is subject to the donor‘s or6 The exemption from documentary stamp tax of the sale, barter or exchange of shares of stock listed and traded through the local stockexchange was previously for a period of five (5) years from the effectivity of Republic Act No. 9243 dated February 17, 2004, or until March20, 2009. However, on June 30, 2009, then President Gloria Macapagal-Arroyo signed Republic Act No. 9648, which permanently exemptsthe sale, barter or exchange of shares of stock listed and traded through the local stock exchange from the documentary stamp tax and wasmade retroactive to March 20, 2009.220

estate taxes, each as described above. Sales or other dispositions of the Series ―G‖ Perpetual Preferred Sharesthrough the facilities of the PSE by a resident or a non-resident holder, other than a dealer in securities, are,however, subject to a stock transaction tax at the rate of 0.5% of the gross selling price or gross value in moneyof the shares of stock sold or otherwise disposed, unless an applicable treaty exempts such sale from said tax.The tax treatment of a non-resident holder of the Series ―G‖ Perpetual Preferred Shares in jurisdictions outsidethe Philippines may vary depending on the tax laws applicable to such holder by reason of domicile or businessactivities and such holder‘s particular situation. This Prospectus does not discuss the tax consideration on nonresidentholders of the Series ―G‖ Perpetual Preferred Shares under laws other than those of the Philippines.221

THE PHILIPPINE STOCK MARKETThe information presented in this section has been extracted from publicly available documents which have notbeen prepared or independently verified by the Issuer, the Underwriters or any of their respective subsidiaries,affiliates or advisors in connection with sale of the Series “G” Perpetual Preferred Shares.BRIEF HISTORYThe Philippines initially had two stock exchanges, the Manila Stock Exchange, which was organized in 1927,and the Makati Stock Exchange, which began operations in 1963. Each exchange was self-regulating, andgoverned by its respective Board of Governors elected annually by its members.Several steps initiated by the Government have resulted in the unification of the two bourses into the PSE. ThePSE was incorporated in 1992 by officers of both the Makati Stock Exchange and the Manila Stock Exchange.In March 1994, the licenses of the two exchanges were revoked. While the PSE maintains two trading floors,one in Makati City and the other in Pasig City, these floors are linked by an automated trading system whichintegrates all bid and ask quotations from the bourses.In June 1998, the SEC granted the PSE ―Self-Regulatory Organization‖ status, allowing it to impose rules aswell as implement penalties on erring trading participants and listed companies. On August 8, 2001, the PSEcompleted its demutualization, converting from a non-stock member-governed institution into a stockcorporation in compliance with the requirements of the SRC. The PSE has an authorized capital stock of97.8 million, of which 30.7 million shares are subscribed and fully paid-up. Each of the 184 member-brokerswas granted 50,000 common shares of the new PSE at a par value of P1.00 per share. In addition, a trading rightevidenced by a ―Trading Participant Certificate‖ was immediately conferred on each member broker allowingthe use of the PSE‘s trading facilities. As a result of the demutualization, and in compliance with the SRC, thecomposition of the PSE‘s Board of Governors was changed, requiring the inclusion of seven broker directorsand at least eight non-brokers directors, one of whom is the President. On December 15, 2003, the PSE listed itsshares by way of introduction at its own bourse as part of a series of reforms aimed at strengthening thePhilippine securities industry.A listing committee comprised of representatives elected by the board of directors of the PSE deliberates on allapplications for listing and, if the listing application is endorsed by the committee, forwards the application tothe PSE board of directors for approval. Classified into financial, industrial, holding firms, property, services,and mining and oil sectors, companies are listed either on the PSE‘s First Board, Second Board or the Small andMedium Enterprises Board. Each index represents the numerical average of the prices of component stocks. ThePSE had an index, referred to as the PHISIX, which as of the date thereof reflects the price movements of 34selected stocks listed on the PSE, based on traded prices of stocks from the various sectors. The PSE shiftedfrom full market capitalization to free float market capitalization with effect from April 3, 2006, simultaneouswith the migration to the free float index and the renaming of the PHISIX to PSEi. The PSEi includes 30selected stocks listed on the PSE.With the increasing calls for good corporate governance, the PSE has adopted an online daily disclosure systemto improve the transparency of listed companies and to protect the investing public.222

The table below sets out movements in the composite index from December 31, 1998 to December 31, 2011,and shows the number of listed companies, market capitalization, and value of shares traded for the same period:STOCK EXCHANGE DATACompositeIndex atClosingNumber ofListedCompaniesAggregateMarketCapitalizationCombinedValue ofTurnoverYear(in P billions)1998 .......................................................................................1,968.8 221 1,373.7 407.31999 .......................................................................................2,143.0 223 1,936.5 781.02000 .......................................................................................1,494.5 226 2,576.5 357.72001 .......................................................................................1,168.1 228 2,147.4 159.62002 .......................................................................................1,018.4 232 2,083.2 159.72003 .......................................................................................1,442.4 235 2,973.8 145.52004 .......................................................................................1,822.8 234 4,766.7 206.62005 .......................................................................................2,096.0 236 5,948.7 383.52006 .......................................................................................2,982.5 239 7,173.2 572.62007 .......................................................................................3,621.6 244 7,977.6 1,338.32008 .......................................................................................1,872.8 246 4,069.2 763.92009 .......................................................................................3,052.7 248 6,032.2 994.22010 …………………………..............................................4,201.1 253 8,866.1 1,207.42011…………………………... 4,372.0 253 8,697.0 1,422.6Source: Philippine Stock Exchange, Inc.TRADINGThe PSE is a double auction market. Buyers and sellers are each represented by stock brokers. To trade, bids orask prices are posted on the PSE‘s electronic trading system. A buy (or sell) order that matches the lowest asked(or highest bid) price is automatically executed. Buy and sell orders received by one broker at the same price arecrossed at the PSE at the indicated price. Transactions are generally invoiced through a confirmation slip sent tocustomers on the trade date (or the following trading day). Payment of purchases of listed securities must bemade by the buyer on or before the third trading day after the trade. For Small-Denominated Treasury Bonds,settlement is on the day the trade was made.Wholesale trading on the PSE starts at 9:30 a.m. and ends at 3:30 p.m., with trading recess from 12:00 nn to1:30 p.m. There is also a provision for ten-minute extensions during which transactions may be conducted,provided that they are executed at the last traded price and are only for the purpose of completing unfinishedorders. The PSE may effect changes to the hours and schedule of a trading day, as the circumstance warrants.Trading days are Monday to Friday, except legal and special holidays, days when the BSP is closed for variousreasons, and such other days as may otherwise be declared by the SEC or the PSE, through its President or otherduly authorized representative, to be a non-trading day.Minimum trading lots range from 5 to 1,000,000 shares, depending on the price range and nature of the securitytraded. Odd-sized lots are traded by brokers on a board specifically designed for odd-lot trading.To maintain stability in the stock market, daily price swings are monitored and regulated. Under current PSEregulations, when the price of a listed security moves up by 50% or down by 40% in one day (based on thereference price, which is generally the previous closing price or last posted bid price, whichever is higher), the223

price of that security is automatically frozen by the PSE, unless there is an official statement from the relevantcompany or a government agency justifying such price fluctuation, in which case the affected security can stillbe traded but only at the frozen price. If the issuer fails to submit such explanation, a trading halt is imposed bythe PSE on the listed security the following day. Resumption of trading shall be allowed only when thedisclosure of the issuer is disseminated, subject again to the trading band.SCRIPLESS TRADINGIn 1995, the PDTC (formerly the Philippine Central Depository, Inc.), was organized to establish a centraldepository in the Philippines and introduce scripless or book-entry trading in the Philippines. On December 16,1996, the PDTC was granted a provisional license by the SEC to act as a central securities depository.All listed securities at the PSE have been converted into book-entry settlement in the PDTC. The depositoryservice of the PDTC provides the infrastructure for lodgment (deposit) and upliftment (withdrawal) of securities,pledge of securities, securities lending and borrowing and corporate actions including shareholders‘ meetings,dividend declarations and rights offerings. The PDTC also provides depository and settlement services for non-PSE trades of listed equity securities. For transactions on the PSE, the security element of the trade will besettled through the book-entry system, while the cash element will be settled through the current settlementbanks: BDO Unibank, Inc., Rizal Commercial Banking Corporation, Metropolitan Bank & Trust Company andDeutsche Bank AG (Manila Branch).In order to benefit from the book-entry system, securities must be immobilized into the PDTC system through aprocess called lodgment. Lodgment is the process by which shareholders transfer legal title (but not beneficialtitle) over their shares of stock in favor of PCD Nominee Corporation (‗‗PCD Nominee‘‘), a corporation whollyowned by the PDTC whose sole purpose is to act as nominee and legal title holder of all shares of stock lodgedinto the PDTC. ‗‗Immobilization‘‘ is the process by which the warrant or share certificates of lodging holdersare canceled by the transfer agent and the corresponding transfer of beneficial ownership of the immobilizedshares in the account of PCNC through the PDTC participant will be recorded in the Issuer‘s registry. This trustarrangement between the participants and PDTC through PCD Nominee is established by and explained in thePDTC Rules and Operating Procedures approved by the SEC. No consideration is paid for the transfer of legaltitle to PCD Nominee. Once lodged, transfers of beneficial title of the securities are accomplished via bookentrysettlement.Under the current PDTC system, only participants (e.g. brokers and custodians) will be recognized by the PDTCas the beneficial owners of the lodged equity securities. Thus, each beneficial owner of shares through hisparticipant, will be the beneficial owner to the extent of the number of shares held by such participant in therecords of the PCD Nominee. All lodgments, trades and uplifts on these shares will have to be coursed through aparticipant. Ownership and transfers of beneficial interests in the shares will be reflected, with respect to theparticipant‘s aggregate holdings, in the PDTC system, and with respect to each beneficial owner‘s holdings, inthe records of the participants. Beneficial owners are thus advised that in order to exercise their rights asbeneficial owners of the lodged shares, they must rely on their participant-brokers and/or participant-custodians.Any beneficial owner of shares who wishes to trade his interests in the shares must course the trade through aparticipant. The participant can execute PSE trades and non-PSE trades of lodged equity securities through thePDTC system. All matched transactions in the PSE trading system will be fed through the Securities ClearingCorporation of the Philippines (―SCCP‖), and into the PDTC system. Once it is determined on the settlementdate (trading date plus three trading days) that there are adequate securities in the securities settlement accountof the participant-seller and adequate cleared funds in the settlement bank account of the participant-buyer, thePSE trades are automatically settled in the SCCP Central Clearing and Central Settlement (‗‗CCCS‘‘) system, inaccordance with the SCCP and PDTC Rules and Operating Procedures. Once settled, the beneficial ownership224

of the securities is transferred from the participant-seller to the participant-buyer without the physical transfer ofstock certificates covering the traded securities.If a stockholder wishes to withdraw his stockholdings from the PDTC System, the PDTC has a procedure ofupliftment under which PCD Nominee will transfer back to the stockholder the legal title to the shares lodged.The difference between the depository and the registry would be on the recording of ownership of the shares inthe issuing corporations‘ books. In the depository set-up, shares are simply immobilized, wherein customers‘certificates are canceled and a confirmation advice is issued in the name of PCD Nominee Corp. to confirm newbalances of the shares lodged with the PDTC. Transfers among/between broker and/or custodian accounts, asthe case may be, will only be made within the book-entry system of PDTC. However, as far as the issuingcorporation is concerned, the underlying certificates are in the nominee‘s name. In the registry set-up, settlementand recording of ownership of traded securities will already be directly made in the corresponding issuingcompany‘s transfer agents‘ books or system. Likewise, recording will already be at the beneficiary level(whether it be a client or a registered custodian holding securities for its clients), thereby removing from thebroker its current ‗‗de facto‘‘ custodianship role.The option if whether a listed security should be ―housed‖ in the depository or registry is at the issuer‘sdiscretion. The migration from the depository to the registry model aims to eliminate the legal and operationalrisk brought about by a depository infrastructure. Likewise, the migration is expected to strengthen measures toprotect public investors/shareholders and decrease transaction costs resulting from additional layers in thesettlement process. At present, the depository model is the most widely used and recognized system, beingutilized by nearly all jurisdictions around the world.In light of the CCCS, custodians holding Philippine listed equity securities now have the following options:a. Stay with the depositary for all its securities, whereby the PDTC acts as their implied ―Custodian‖.For shares under the PDTC, custodians are direct PDTC account holders with the shares stillrecorded in the PCD Nominee‘s name as far as the corporation/transfer agent is concerned. Forshares under the registry, the custodian appears to be a ―client‖ under ―PCD‖, such that shares arerecognized or recorded with PCD as the master/controlling account; orb. Be a system participant of the SCCP wherein the CCCS would offer to the custodians the interface toboth the depositary and registry systems. In this option, for shares under the PDTC, custodians willstill have the option to maintain their own accounts in the PDTC or have an omnibus accounttogether with the broker accounts in the PDTC as shares are accounted for or segregated per accountholder in the CCCS. This simplifies the custodian‘s interface into a single connectivity for both thedepositary and the registry systems. For shares under the registry system, the custodian will have itsown master account, having control over its own account. In the registry scenario, the custodian isalready recognized as the beneficial holder of the securities on behalf of its clients. The custodianeffectively is given a direct relationship with the issuing company wherein it receives the annualreports, dividends, the other communications and information directly. Prospectively, when thecustodian is accredited as an indirect clearing member of the SCCP, straight-through processing oftrades or settlement can already be done directly with the custodian or with its client.AMENDED RULE ON LODGMENT OF SECURITIESOn June 24, 2009, the PSE apprised all listed companies and market participants through Memorandum No.2009-0320 that, beginning July 1, 2009, as a condition for the listing and trading of the securities of an applicantcompany, the applicant company shall electronically lodge its registered securities with the PDTC or any otherentity duly authorized by the SEC, without any jumbo or mother certificate in compliance with the requirementsof Section 43 of the Securities Regulation Code. In compliance with the foregoing requirement, actual listing225

and trading of securities on the scheduled listing date shall take effect only after submission by the applicantcompany of the documentary requirements stated in Article III Part A of the Revised Listing Rules.Further, the PSE apprised all listed companies and market participants on May 21, 2010, through MemorandumNo. 2010-0246, that the Amended Rule on Lodgment of Securities under Section 16 of Article III, Part A of theRevised Listing Rules of the Exchange shall apply to all securities that are lodged with the PDTC or any otherentity duly authorized by the SEC.For listing applications, the amended rule on lodgment of securities is applicable to:a. The offer shares/securities of the applicant company in the case of an initialpublic offering;b. The shares/securities that are lodged with the PDTC, or any other entity dulyauthorized by the Commission in the case of a listing by way of introduction;c. New securities to be offered and applied for listing by an existing listedcompany; andd. Additional listing of securities of an existing listed company.Pursuant to the said amendment, the PDTC issued an implementing procedure in support thereof to wit:For new companies to be listed at the PSE as of July 1, 2009 the usual procedure will be observed but theTransfer Agent on the companies shall no longer issue a certificate to PCD Nominee Corp but shall issue aRegistry Confirmation Advice, which shall be the basis for the PDTC to credit the holdings of the DepositoryParticipants on listing date.On the other hand, for existing listed companies, the PDTC shall wait for the advice of the Transfer Agents thatit is ready to accept surrender of PCNC jumbo certificates and upon such advice the PDTC shall surrender allPCNC jumbo certificates to the Transfer Agents for cancellation. The Transfer Agents shall issue a RegistryConfirmation Advice to PCNC evidencing the total number of shares registered in the name of PCNC in theIssuer‘s registry as of confirmation date.SETTLEMENTThe Securities Clearing Corporation of the Philippines (―SCCP‖) is a wholly-owned subsidiary of the PSE andwas organized primarily as a clearance and settlement agency for SCCP-eligible trades executed through thefacilities of the PSE. It is responsible for (i) synchronizing the settlement of funds and the transfer of securitiesthrough Delivery versus Payment (―DVP‖) clearing and settlement of transactions of clearing members, who arealso trading participants; (ii) guaranteeing the settlement of trades in the event of a trading participant‘s defaultthrough the implementation of its Fails Management System and administration of the Clearing and TradeGuaranty Fund (―CTGF‖); and (iii) performance of Risk Management and Monitoring to ensure final andirrevocable settlement.SCCP settles PSE trades on a 3-day rolling settlement environment, which means that settlement of trades takesplace three (3) Business Days after transaction date (T+3). The deadline for settlement of trades is 12:00 noon ofT+3. Securities sold should be in scripless form and lodged under the PDTCs book entry system. Each TradingParticipant maintains a Cash Settlement Account with one of the four existing Settlement Banks of SCCP whichare BDO Unibank, Inc., Rizal Commercial Banking Corporation, Metropolitan Bank & Trust Company andDeutsche Bank AG (Manila Branch). Payment for securities bought should be in good, cleared funds and shouldbe final and irrevocable. Settlement is presently on a broker level.226

SCCP implemented the CCCS last May 29, 2006. CCCS employs multilateral netting whereby the systemautomatically offsets ―buy‖ and ―sell‖ transactions on a per issue and a per flag basis to arrive at a net receipt ora net delivery security position for each Clearing Member. All cash debits and credits are also netted into asingle net cash position for each Clearing Member. Notation of the original PSE trade contracts occurs, andSCCP stands between the original trading parties and becomes the Central Counterparty to each PSE-Eligibletrade cleared through it.ISSUANCE OF CERTIFICATED SHARESOn or after the listing of the shares on the PSE, any beneficial owner of the shares may apply to the PDTCthrough his broker or custodian-participant for a withdrawal from the book-entry system and return to theconventional paper-based settlement. If a stockholder wishes to withdraw his stockholdings from the PDTCSystem, the PDTC has a procedure of upliftment under which PCD Nominee will transfer back to thestockholder the legal title to the shares lodged. The uplifting shareholder shall follow the Rules and OperatingProcedures of the PDTC for the upliftment of shares lodged under the name of PCD Nominee. The transferagent shall prepare and send a Registry Confirmation Advice to the PDTC covering the new number of shareslodged under PCD Nominee. The expenses for upliftment are for the account of the uplifting shareholder.Upon the issuance of certificated shares in the name of the person applying for upliftment, such shares shall bedeemed to be withdrawn from the PDTC book-entry settlement system. Such shares cannot be traded on thePSE without lodging them once again in the depository, in accordance with existing PSE and PDTC rules thatwere approved by the SEC. Pending completion of the upliftment process, the beneficial interest in the sharescovered by the application for upliftment is frozen and no trading and book-entry settlement will be permitteduntil certificated shares shall have been issued by the relevant company‘s transfer agent.[FINANCIAL STATEMENTS FOLLOW]227

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First Gen Corporation and SubsidiariesConsolidated Financial StatementsDecember 31, 2011 and 2010and Years Ended December 31, 2011, 2010 and 2009(In U.S. Dollars)andIndependent Auditors’ ReportSyCip Gorres Velayo & Co.F-3

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippinesPhone: (632) 891 0307Fax: (632) 819 0872www.sgv.com.phBOA/PRC Reg. No. 0001,January 25, 2010, valid until December 31, 2012SEC Accreditation No. 0012-FR-2 (Group A),February 4, 2010, valid until February 3, 2013INDEPENDENT AUDITORS’ REPORTThe Stockholders and the Board of DirectorsFirst Gen Corporation3rd Floor, Benpres BuildingExchange Road corner Meralco AvenuePasig CityWe have audited the accompanying consolidated financial statements of First Gen Corporation andSubsidiaries, which comprise the consolidated statements of financial position as atDecember 31, 2011 and 2010, and the consolidated statements of income, statements ofcomprehensive income, statements of changes in equity and statements of cash flows for each of thethree years in the period ended December 31, 2011, and a summary of significant accounting policiesand other explanatory information.Management’s Responsibility for the Consolidated Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with Philippine Financial Reporting Standards, and for such internal controlas management determines is necessary to enable the preparation of consolidated financial statementsthat are free from material misstatement, whether due to fraud or error.Auditors’ ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on ouraudits. We conducted our audits in accordance with Philippine Standards on Auditing. Thosestandards require that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free from materialmisstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin 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 controlrelevant to the entity‟s preparation and fair presentation of the consolidated financial statements inorder to design audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the entity‟s internal control. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of accountingestimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.F-4A member firm of Ernst & Young Global Limited

OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, thefinancial position of First Gen Corporation and Subsidiaries as at December 31, 2011 and 2010, andtheir financial performance and their cash flows for each of the three years in the period endedDecember 31, 2011 in accordance with Philippine Financial Reporting Standards.SYCIP GORRES VELAYO & CO.Martin C. GuantesPartnerCPA Certificate No. 88494SEC Accreditation No. 0325-AR-2 (Group A),March 15, 2012, valid until March 14, 2015Tax Identification No. 152-884-272BIR Accreditation No. 08-001998-52-2009,June 1, 2009, valid until May 31, 2012PTR No. 3174599, January 2, 2012, Makati CityMarch 19, 2012F-5

FIRST GEN CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL POSITION(Amounts in U.S. Dollars and in Thousands)ASSETSDecember 312011 2010Current AssetsCash and cash equivalents (Notes 6, 16, 27 and 28) $266,141 $201,251Receivables (Notes 7, 21, 27, 28 and 29) 192,616 87,503Inventories (Note 8) 69,997 51,013Other current assets (Notes 9, 13, 16, 27 and 28) 31,880 38,122Total Current Assets 560,634 377,889Noncurrent AssetsInvestments in associates (Notes 4, 5 and 10) 1,294,782 1,207,518Property, plant and equipment (Notes 11, 16 and 29) 520,877 580,663Goodwill and intangible assets (Note 12) 16,768 17,370Deferred income tax assets - net (Note 25) 3,210 3,794Other noncurrent assets (Notes 9, 13, 16, 17, 24, 27, 28 and 29) 160,340 154,159Total Noncurrent Assets 1,995,977 1,963,504TOTAL ASSETS $2,556,611 $2,341,393LIABILITIES AND EQUITYCurrent LiabilitiesAccounts payable and accrued expenses (Notes 14, 27, 28 and 29) $170,655 $98,698Dividends payable (Notes 19, 27 and 28) 9,687 –Income tax payable 6,058 5,253Due to related parties (Notes 21, 27 and 28) 6,930 6,709Derivative liabilities (Notes 16, 27 and 28) 2,546 –Current portion of long-term debt (Notes 9, 11, 16, 27 and 28) 58,460 59,678Convertible bonds redeemed in 2011(Notes 15, 27, 28 and footnote below) – 83,134Convertible bonds not redeemed in 2011(Notes 15, 27, 28 and footnote below) – 130,149Total Current Liabilities 254,336 383,621Noncurrent LiabilitiesConvertible bonds (Notes 15, 27, 28 and footnote below) 84,662 –Long-term debt - net of current portion (Notes 9, 11, 16, 27 and 28) 746,762 729,502Derivative liabilities (Notes 16, 27 and 28) 58,352 39,911Retirement liability (Note 24) 273 722Deferred income tax liabilities - net (Note 25) 4,254 10,479Other noncurrent liabilities (Notes 17 and 18) 1,155 29,189Total Noncurrent Liabilities 895,458 809,803Total Liabilities 1,149,794 1,193,424Note: On February 11, 2011, holders of the convertible bonds (CB) amounting to $72.5 million exercised their option to require theParent Company to redeem the CBs at a price of 115.6% of the face value. The total put value amounting to $83.8 million (with a facevalue of $72.5 million and carrying value of $83.1 million as of December 31, 2010) was paid on February 11, 2011. AfterFebruary 11, 2011, the unredeemed CBs with a carrying value of $130.1 million as of December 31, 2010 will mature onFebruary 11, 2013 and was reclassified as part of noncurrent liabilities in 2011. As of December 31, 2011, the carrying value of theunredeemed CBs amounted to $84.7 million.(Forward)F-6

- 2 -December 312011 2010Equity Attributable to Equity Holders of the Parent Company(Notes 19 and 20)Redeemable preferred stock $38,159 $14,585Common stock 74,701 74,697Additional paid-in capital 801,148 590,193Accumulated share in other comprehensive losses of associates(Notes 4 and 10) (33,784) (21,006)Cumulative translation adjustments (Note 28) (24,504) (16,309)Retained earnings (Note 10) 423,454 400,123Cost of common stock held in treasury (Note 19) (52,987) (52,987)1,226,187 989,296Non-controlling Interests 180,630 158,673Total Equity 1,406,817 1,147,969TOTAL LIABILITIES AND EQUITY $2,556,611 $2,341,393See accompanying Notes to Consolidated Financial Statements.F-7

FIRST GEN CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(Amounts in U.S. Dollars and in Thousands, Except Per Share Data)Years Ended December 312011 2010 2009REVENUESale of electricity (Note 29) $1,340,625 $1,169,155 $1,009,918Interest income (Notes 6 and 22) 8,169 8,881 6,942Equity in net earnings of associates (Note 10) 4,970 47,729 1,167Mark-to-market gain on derivatives - net (Note 28) 3,734 5,395 –Others (Notes 13 and 21) 6,032 13,118 4,0891,363,530 1,244,278 1,022,116COST OF SERVICES AND EXPENSESCost of sale of electricityFuel cost (Notes 8 and 29) (988,040) (821,467) (669,832)Depreciation and amortization (Notes 11, 12 and 23) (61,841) (54,970) (53,932)Power plant operations and maintenance (Note 29) (35,175) (40,220) (37,624)General and administrativeStaff costs (Notes 20, 23 and 24) (16,087) (16,582) (10,625)Other administrative expenses (Notes 21 and 23) (35,101) (38,664) (37,244)(1,136,244) (971,903) (809,257)OTHER CHARGESInterest expense and financing charges(Notes 15, 16, 17, 18, 23 and 28) (84,958) (104,222) (112,089)Foreign exchange loss - net (5,770) (5,114) (8,691)Mark-to-market loss on derivatives - net (Note 28) – – (922)Others (377) (213) –INCOME FROM CONTINUING OPERATIONSBEFORE INCOME TAX 136,181 162,826 91,157PROVISION FOR (BENEFIT FROM) INCOME TAX(Note 25)Current 49,063 48,848 45,492Deferred 508 (7,022) (7,381)49,571 41,826 38,111NET INCOME FROM CONTINUING OPERATIONS 86,610 121,000 53,046NET INCOME FROM DISCONTINUED OPERATIONS(Note 4) – – 41,961NET INCOME $86,610 $121,000 $95,007Net income attributable to:Equity holders of the Parent Company $35,021 $70,217 $16,754Non-controlling interests 51,589 50,783 78,253$86,610 $121,000 $95,007Basic/Diluted Earnings Per Share for Net IncomeAttributable to Equity Holders of the ParentCompany (Note 26) $0.008 $0.021 $0.013Basic/Diluted Earnings Per Share for Net Income fromContinuing Operations Attributable to EquityHolders of the Parent Company (Note 26) $0.008 $0.021 $0.003Basic/Diluted Earnings Per Share for Net Income fromDiscontinued Operations Attributable to EquityHolders of the Parent Company (Note 26) $– $– $0.010See accompanying Notes to Consolidated Financial Statements.F-8

FIRST GEN CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Amounts in U.S. Dollars and in Thousands)Years Ended December 312011 2010 2009NET INCOME $86,610 $121,000 $95,007OTHER COMPREHENSIVE INCOME (LOSS)Share in other comprehensive income (losses) ofassociates (Note 10) (12,778) 57,510 64,273Exchange gains (losses) on foreign currencytranslation 53 191 (60,022)Net gains (losses) on cash flow hedge - net of tax(Note 28) (13,992) (11,416) 24,813Unrealized gain on available-for-sale (AFS)financial assets - net of tax – – 1,081(26,717) 46,285 30,145TOTAL COMPREHENSIVE INCOME $59,893 $167,285 $125,152Total comprehensive income attributable to:Equity holders of the Parent Company $14,048 $121,060 $64,859Non-controlling interests 45,845 46,225 60,293$59,893 $167,285 $125,152See accompanying Notes to Consolidated Financial Statements.F-9

FIRST GEN CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009(Amounts in U.S. Dollars and in Thousands, Except Per Share Amount)Equity Attributable to Equity Holders of the Parent Company (Notes 19 and 20)AccumulatedAccumulatedShare in OtherUnrealizedDeposits for Comprehensive Cumulative Gain on AFSCost of Capital StockHeld in TreasuryCapital StockRedeemable Additional Future Stock Income (Losses) Translation Financial Equity Retained Redeemable Non-Preferred Common Paid-in Subscriptions of Associates Adjustments Assets Reserve Earnings Preferred Common controllingStock Stock Capital (Note 19) (Notes 4 and 10) (Note 28) (Note 13) (Note 2) (Note 10) Stock Stock Subtotal Interests TotalBALANCES ATDECEMBER 31, 2010 $14,585 $74,697 $590,193 $– ($21,006) ($16,309) $– $– $400,123 $– ($52,987) $989,296 $158,673 $1,147,969Total comprehensive income (loss) – – – – (12,778) (8,195) – – 35,021 – – 14,048 45,845 59,893Proceeds from issuance of PerpetualPreferred Shares (Note 19) 23,574 – 212,164 – – – – – – – – 235,738 – 235,738Transaction costs on PerpetualPreferred Shares issuance – – (1,242) – – – – – – – – (1,242) – (1,242)Exercise of stock options (Note 19) – 4 33 – – – – – – – – 37 – 37Cash dividends on preferred shares(Note 19) – – – – – – – – (11,690) – – (11,690) – (11,690)Dividends of subsidiaries – – – – – – – – – – – – (23,888) (23,888)BALANCES ATDECEMBER 31, 2011 $38,159 $74,701 $801,148 $– ($33,784) ($24,504) $– $– $423,454 $– ($52,987) $1,226,187 $180,630 $1,406,817BALANCES ATDECEMBER 31, 2009 $13,561 $45,915 $320,455 $93,318 ($78,516) ($9,642) $– $– $330,930 $– ($52,987) $663,034 $144,003 $807,037Total comprehensive income (loss) – – – – 57,510 (6,667) – – 70,217 – – 121,060 46,225 167,285Proceeds from Stock Rights Offering(Notes 1 and 19) – 28,781 180,285 – – – – – – – – 209,066 – 209,066Transaction costs on Stock RightsOffering – – (3,874) – – – – – – – – (3,874) – (3,874)Exercise of stock options (Note 19) – 1 9 – – – – – – – – 10 – 10Conversion of deposits to additionalpaid-in capital (Note 19) – – 93,318 (93,318) – – – – – – – – – –Preferred stock dividends (Note 19) 1,024 – – – – – – – (1,024) – – – – –Dividends of subsidiaries – – – – – – – – – – – – (31,555) (31,555)BALANCES ATDECEMBER 31, 2010 $14,585 $74,697 $590,193 $– ($21,006) ($16,309) $– $– $400,123 $– ($52,987) $989,296 $158,673 $1,147,969F-10

- 2 -Equity Attributable to Equity Holders of the Parent Company (Notes 19 and 20)AccumulatedAccumulatedShare in OtherUnrealizedDeposits for Comprehensive Cumulative Gain on AFSCost of Capital StockHeld in TreasuryCapital StockRedeemable Additional Future Stock Income (Losses) Translation Financial Equity Retained Redeemable Non-Preferred Common Paid-in Subscriptions of Associates Adjustments Assets Reserve Earnings Preferred Common controllingStock Stock Capital (Note 19) (Notes 4 and 10) (Note 28) (Note 13) (Note 2) (Note 10) Stock Stock Subtotal Interests TotalBALANCES ATDECEMBER 31, 2008 $9,572 $20,624 $319,530 $– $– ($136,645) $382 ($28,383) $354,137 ($27,570) ($52,987) $458,660 $559,751 $1,018,411Total comprehensive income (loss) – – – – 64,273 (16,600) 432 – 16,754 – – 64,859 60,293 125,152Deconsolidation of discontinuedoperations (Note 4) – – – – (142,789) 143,603 (814) 28,383 – – – 28,383 (422,192) (393,809)Deposits for future stock subscriptions(Note 19) – – – 110,091 – – – – – – – 110,091 – 110,091Exercise of stock options (Note 19) – 116 925 – – – – – – – – 1,041 – 1,041Conversion of deposits to commonstocks (Note 19) – 16,773 – (16,773) – – – – – – – – – –Stock dividends on (Note 19):Common stock - 50% – 8,402 – – – – – – (8,402) – – – – –Preferred stock 3,989 – – – – – – – (31,559) 27,570 – – – –Dividends of subsidiaries – – – – – – – – – – – – (53,849) (53,849)BALANCES ATDECEMBER 31, 2009 $13,561 $45,915 $320,455 $93,318 ($78,516) ($9,642) $– $– $330,930 $– ($52,987) $663,034 $144,003 $807,037See accompanying Notes to Consolidated Financial Statements.F-11

FIRST GEN CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in U.S. Dollars and in Thousands)Years Ended December 312011 2010 2009CASH FLOWS FROM OPERATING ACTIVITIESIncome from continuing operations before income tax $136,181 $162,826 $91,157Income from discontinued operations before income tax(Note 4) – – 61,500Income before income tax 136,181 162,826 152,657Adjustments for:Equity in net earnings of associates (Note 10) (4,970) (47,729) (1,167)Interest expense and financing charges (Note 23)Continuing operations 84,958 104,222 112,089Discontinued operations – – 26,173Net unrealized foreign exchange losses (gains)Continuing operations 1,489 5,075 5,928Discontinued operations – – (26,904)Depreciation and amortization (Note 23)Continuing operations 61,841 54,970 53,932Discontinued operations – – 10,731Mark-to-market loss (gain) on derivatives - net (Note 28)Continuing operations (3,734) (5,395) 922Discontinued operations – – 5,162Interest income (Note 22)Continuing operations (8,169) (8,881) (6,942)Discontinued operations – – (9,895)Income before working capital changes 267,596 265,088 322,686Decrease (increase) in:Receivables (105,304) 26,080 (40,642)Concession receivables – – (18,144)Other long-term receivables - net – – 10,655Inventories (18,984) 14,059 (19,225)Other current assets (3,522) (4,504) 1,920Increase (decrease) in:Accounts payable and accrued expenses 71,998 (2,316) 22,457Retirement and other post-retirement liability (449) 555 (340)Royalty fee payable – – (7,914)Cash generated from operations 211,335 298,962 271,453Interest received 8,169 8,197 16,942Income taxes paid (48,131) (53,078) (40,228)Net cash provided by operating activities 171,373 254,081 248,167CASH FLOWS FROM INVESTING ACTIVITIESCollections from non-controlling shareholder(Notes 9 and 13) 10,568 8,275 10,297Collection of receivables from Meralco on Annual Deficiency(Note 17) – 2,275 19,119(Forward)F-12

- 2 -Years Ended December 312011 2010 2009Cash disposed of - discontinued operations (Note 4) $– $– ($164,817)Additions to:Investments in associates (Note 10) (97,285) (103,635) (119,278)Property, plant and equipment (Note 11) (1,561) (19,438) (9,621)Other noncurrent assets (43,329) (16,986) (45,527)Intangible assets (Note 12) – – (5,930)Cash dividends received from associates (Note 10) 10,639 5,377 5,691Proceeds from disposal of property and equipment 109 74 77Return of investments in associates (Note 10) – 16,701 3,261Additional investments in AFS financial assets – – (986)Net cash used in investing activities (120,859) (107,357) (307,714)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from:Issuance of Perpetual Preferred shares - net oftransaction costs (Note 19) 234,496 – –Availment of long-term debt - net of debt issuancecosts (Note 16) 189,830 82,585 195,185Exercise of stock options (Note 2) 37 10 1,041Common Stock Rights Offering - net of transactioncosts (Note 19) – 205,192 –Deposits for future stock subscriptions (Note 19) – – 110,091Availment of loans – – 18,949Payments of:Long-term debt (Note 16) (178,852) (50,994) (74,020)Redemption of convertible bonds (Note 15) (83,817) – –Buy-back of convertible bonds (Note 15) (53,653) (83,233) –Interest expense and financing charges (66,911) (83,043) (90,427)Cash dividends to preferred shareholders (Note 19) (1,889) – –Dividends to non-controlling shareholderof subsidiaries (23,888) (31,555) (53,849)Philippine peso-denominated bonds – (108,228) –Obligations to Gas Sellers on Annual Deficiency(Note 17) – (2,031) (27,064)Loans payable – – (121,167)Obligations to power plant contractors – – (1,635)Proceeds from (payments to) related parties 237 (161) (1,107)Proceeds from (payments of) other noncurrent liabilities – 9 (953)Net cash provided by (used in) financing activities 15,590 (71,449) (44,956)EFFECT OF FOREIGN EXCHANGE RATECHANGES ON CASH AND CASHEQUIVALENTS (1,214) 445 387NET INCREASE (DECREASE) IN CASHAND CASH EQUIVALENTS 64,890 75,720 (104,116)CASH AND CASH EQUIVALENTSAT BEGINNING OF YEAR 201,251 125,531 229,647CASH AND CASH EQUIVALENTSAT END OF YEAR (Note 6) $266,141 $201,251 $125,531See accompanying Notes to Consolidated Financial Statements.F-13

FIRST GEN CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Amounts in U.S. Dollars and in Thousands, Unless Otherwise Stated)1. Corporate InformationFirst Gen Corporation (the Parent Company or First Gen) is incorporated in the Philippines andregistered with the Philippine Securities and Exchange Commission (SEC) on December 22, 1998.The Parent Company and its subsidiaries (collectively referred to as First Gen Group) are involvedin the power generation business. All subsidiaries (see Note 2) are incorporated in the Philippines.On February 10, 2006, the Parent Company has successfully completed the Initial Public Offering(IPO) of 193,412,600 common shares, including the exercised greenshoe options of 12,501,700common shares in the Philippines at an IPO price of P47.00 per share. The common stocks of theParent Company are currently listed and traded on the First Board of the Philippine StockExchange, Inc. (PSE). First Gen is considered a public company under Section 17.2 of theSecurities Regulation Code (SRC).On January 22, 2010, the Parent Company has likewise completed the Stock Rights Offering (theRights Offering) of 2,142,472,791 rights shares in the Philippines at the proportion of 1.756 rightsshares for every one existing common stock held as of the record date of December 29, 2009 at theoffer price of P=7.00 per rights share. The total proceeds from the Rights Offering amounted toP=15.0 billion ($319.2 million).As of December 31, 2011, First Philippine Holdings Corporation (FPH) directly owns 66.2% ofthe common stocks of First Gen and 100% of First Gen‟s voting preferred stocks. FPH is theultimate parent company of First Gen. There are 370 common stockholders of record and3,362,797,768 common stocks issued and outstanding.The registered office address of the Parent Company is 3rd Floor, Benpres Building, ExchangeRoad corner Meralco Avenue, Pasig City.The consolidated financial statements of First Gen Group were reviewed and recommended forapproval by the Audit Committee to the Board of Directors (BOD) on March 8, 2012. The sameconsolidated financial statements were also approved and authorized for issuance by the BOD onMarch 19, 2012.2. Summary of Significant Accounting and Financial Reporting PoliciesBasis of PreparationThe consolidated financial statements are prepared on a historical cost basis, except for derivativefinancial instruments that are measured at fair value. The consolidated financial statements arepresented in United States (U.S.) dollar, which is the Parent Company‟s functional currency, andare rounded to the nearest thousands, except when otherwise indicated.Statement of ComplianceThe consolidated financial statements of First Gen Group have been prepared in compliance withPhilippine Financial Reporting Standards (PFRS) as issued by the Philippine Financial ReportingStandards Council and adopted by the Philippine SEC.F-14

Significant Accounting and Financial Reporting PoliciesThe accounting policies adopted are consistent with those of the previous financial year, except forthe adoption of the new and amended accounting standards that became effective beginningJanuary 1, 2011.The adoption of the following changes in Philippine Accounting Standards (PAS), PFRS andPhilippine Interpretations did not have any significant impact on the First Gen Group‟sconsolidated financial statements:PAS 24, Related Party Disclosures (Amendment), clarifies the definitions of a related party.The new definitions emphasize a symmetrical view of related party relationships and clarifythe circumstances in which persons and key management personnel affect related partyrelationships of an entity. In addition, the amendment introduces an exemption from thegeneral related party disclosure requirements for transactions with government and entitiesthat are controlled, jointly controlled or significantly influenced by the same government asthe reporting entity.Philippine Interpretation IFRIC 14, Prepayments of a Minimum Funding Requirement(Amendment), an interpretation of PAS 19, Employee Benefits, applies in the limitedcircumstances when an entity is subject to minimum funding requirements and makes an earlypayment of contributions to cover those requirements. The amendment permits an entity totreat the benefit of such an early payment as an asset.Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with EquityInstruments, clarifies that equity instruments issued to a creditor to extinguish a financialliability qualify as consideration paid. The equity instruments issued are measured at their fairvalue. In case that this cannot be reliably measured, the instruments are measured at the fairvalue of the liability extinguished. Any gain or loss is recognized immediately in profit orloss.Improvements to PFRSsIn May 2010, the International Accounting Standards Board issued omnibus of amendments to thefollowing standards, primarily with a view to removing inconsistencies and clarifying wording,which were approved by the Philippine Financial Reporting Standards Council in its meeting inJuly 2010. Unless otherwise specified, the amendments are effective for annual periods beginningor after January 1, 2011. The following improvements to PFRS did not have any significantimpact on the financial position and performance of the First Gen Group:PFRS 3, Business CombinationsPFRS 7, Financial Instruments: DisclosuresPAS 1, Presentation of Financial StatementsPAS 27, Consolidated and Separate Financial StatementsPAS 34, Interim Financial ReportingIFRIC 13, Customer Loyalty ProgrammesF-15

Basis of ConsolidationBasis of consolidation starting January 1, 2010The consolidated financial statements comprise the financial statements of the Parent Companyand its subsidiaries as of December 31 each year.Subsidiaries are fully consolidated from the date control is transferred to First Gen Group andcease to be consolidated from the date control is transferred out of First Gen Group. The financialstatements of the subsidiaries are prepared for the same reporting year as the Parent Company,using consistent accounting policies for like transactions and other events with similarcircumstances. All significant intra-group balances, transactions, income and expenses and profitsand losses resulting from intra-group transactions are eliminated in full on consolidation.Losses within a subsidiary are attributed also to the non-controlling interest even if that results in adeficit balance.A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as anequity transaction. If First Gen Group loses control over a subsidiary, it derecognizes the carryingamounts of the assets (including goodwill) and liabilities of the subsidiary, carrying amount of anynon-controlling interest (including any attributable components of other comprehensive incomerecorded in equity), and recognizes the fair value of the consideration received, fair value of anyinvestment retained, and any surplus or deficit recognized in the consolidated statement of income.First Gen Group also reclassifies the Parent Company‟s share of components previouslyrecognized in other comprehensive income to profit or loss or retained earnings, as appropriate.Basis of consolidation prior to January 1, 2010The above-mentioned requirements were applied on a prospective basis. The followingdifferences, however, are carried forward in certain instances from the previous basis ofconsolidation:Losses incurred by First Gen Group were attributed to the non-controlling interest until thebalance was reduced to nil. Any further excess losses were attributed to the ParentCompany, unless the non-controlling interest had a binding obligation to cover these. Lossesprior to January 1, 2010 were not reallocated between non-controlling interests and theequity holders of the Parent Company.Upon loss of control, First Gen Group accounted for the investment retained at itsproportionate share of net asset value at the date control was lost. The carrying values ofsuch investments as of January 1, 2010 have not been restated.Non-controlling InterestsNon-controlling interests represent the portion of profit or loss and net assets not held by First GenGroup. For 2011 and 2010, the non-controlling interests arise from the profits or losses and netassets not held by First Gen Group in First Gas Holdings Corporation (FGHC) and Subsidiaries,FGP Corp. (FGP) and First NatGas Power Corporation (FNPC). Non-controlling interests arepresented separately in the consolidated statement of income and within equity in the consolidatedstatement of financial position, separate from equity attributable to equity holders of First Gen.Acquisitions of non-controlling interests are accounted as an equity transaction in the consolidatedstatement of changes in equity.F-16

SubsidiariesThe following is a list of the companies on which the Parent Company has control:Percentage of Voting Interest2011 2010 2009First Gen Renewables, Inc. (FGRI) 100 100 100Unified Holdings Corporation (Unified) 100 100 100AlliedGen Power Corporation (AlliedGen) 100 100 100First Gen Luzon Power Corp. (FG Luzon) 100 100 100First Gen Visayas Hydro Power Corporation (FG Visayas) 100 100 100First Gen Mindanao Hydro Power Corporation (FG Mindanao) 100 100 100First Gen Geothermal Power Corporation (FG Geothermal) 100 100 100First Gen Energy Solutions Inc. (FG Energy) 100 100 100First Gen Premier Energy Corp. (FG Premier) 100 100 100First Gen Prime Energy Corporation (FG Prime) 100 100 100First Gen Visayas Energy, Inc. (FG Visayas Energy) 100 100 100FG Bukidnon Power Corp. (FG Bukidnon) 1 100 100 100Northern Terracotta Power Corp. (Northern Terracotta) 2 100 100 –Blue Vulcan Holdings Corporation (Blue Vulcan) 3 100 – –Prime Meridian Powergen Corporation (Prime Meridian) 4 100 – –FGHC 60 60 60FGP 5 60 60 60FNPC 6 60 60 60First Gas Power Corporation (FGPC) 7 60 60 60First Gas Pipeline Corporation (FG Pipeline) 7 60 60 60FGLand Corporation (FG Land) 7 60 60 60First Gen Northern Energy Corp. (FGNEC) 8 – – 1001 Through FGRI2 On September 7, 2010, Northern Terracotta was incorporated and registered with the Philippine SEC.3 On April 6, 2011, Blue Vulcan was incorporated and registered with the Philippine SEC.4 On August 8, 2011, Prime Meridian was incorporated and registered with the Philippine SEC.5 Through Unified6 Through AlliedGen7 Through FGHC8 On March 17, 2010, FGNEC executed a Subscription Agreement with Metro Pacific InvestmentsCorporation (MPIC) and Ayala Corporation (AC). This equity transaction has led to the deconsolidationof FGNEC since the Parent Company’s interest in FGNEC has been reduced to 33%.All of the foregoing subsidiaries are incorporated in the Philippines.As of December 31, 2011 and 2010, AlliedGen, FNPC, FG Luzon, FG Visayas, FG Mindanao,FG Geothermal, FG Premier, FG Prime, FG Visayas Energy, Northern Terracotta, Blue Vulcanand Prime Meridian have not started commercial operations.Business Combination and GoodwillBusiness combinations starting January 1, 2010Business combinations are accounted for using the acquisition method. The cost of an acquisitionis measured as the aggregate of the consideration transferred, measured at fair value on acquisitiondate and the amount of any non-controlling interest in the acquiree. For each businesscombination, the acquirer measures the non-controlling interest in the acquiree either at fair valueor at its proportionate share in the acquiree‟s identifiable net assets. Acquisition-related costsincurred are expensed and included in general and administrative expenses.When First Gen Group acquires a business, it assesses the financial assets and financial liabilitiesassumed for appropriate classification and designation in accordance with the contractual terms,economic circumstances and pertinent conditions as at the acquisition date. This includes theseparation of embedded derivatives in host contracts by the acquiree.F-17

If the business combination is achieved in stages, the acquisition date fair value of the acquirer‟spreviously held equity interest in the acquiree is remeasured to fair value at the acquisition dateand any gain or loss on remeasurement is recognized in the consolidated statement of income.Any contingent consideration to be transferred by the acquirer is recognized at fair value at theacquisition date. Subsequent changes to the fair value of the contingent consideration, which isdeemed to be an asset or liability, is recognized in accordance with PAS 39, FinancialInstruments: Recognition and Measurement, either in the consolidated statement of income or as achange to other comprehensive income. If the contingent consideration is classified as equity, it isnot to be remeasured until it is finally settled within equity.Goodwill is initially measured at cost being the excess of the aggregate of the considerationtransferred and the amount recognized for non-controlling interest over the net identifiable assetsacquired and liabilities assumed. If this consideration is lower than the fair value of the net assetsof the subsidiary acquired, the difference is recognized in the consolidated statement of income.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 theacquisition date, allocated to each of the First Gen Group‟s cash-generating units that are expectedto benefit from the combination, irrespective of whether other assets or liabilities of the acquireeare assigned to those units.Where goodwill forms part of a cash-generating unit and part of the operation within that unit isdisposed of, the goodwill associated with the operation disposed of is included in the carryingamount of the operation when determining the gain or loss on disposal of the operation. Goodwilldisposed of in this circumstance is measured based on the relative values of the operation disposedof and the portion of the cash-generating unit retained.Business combinations prior to January 1, 2010Business combinations were accounted for using the purchase method. Transaction costs directlyattributable to the acquisition formed part of the acquisition costs. The non-controlling interestwas measured at the proportionate share of the acquiree‟s identifiable net assets. This involvedrecognizing identifiable assets and liabilities of the acquired business initially at fair value. If theacquirer‟s interest in the net fair value of the identifiable assets and liabilities exceeds the cost ofthe business combination, the acquirer shall (a) reassess the identification and measurement of theacquiree‟s identifiable assets and liabilities and the measurement of the cost of the combination;and (b) recognize immediately in the consolidated statement of income any excess remaining afterthat reassessment. When a business combination involves more than one exchange transaction,each exchange transaction shall be treated separately using the cost of the transaction and fairvalue information at the date of each exchange transaction to determine the amount of anygoodwill associated with that transaction. This results in a step-by-step comparison of the cost ofthe individual investments with First Gen Group‟s interest in the fair value of the acquiree‟sidentifiable assets, liabilities and contingent liabilities at each exchange transaction. The fairvalues of the acquiree‟s identifiable assets, liabilities and contingent liabilities may be different onthe date of each exchange transaction. Any adjustments to those fair values relating to previouslyheld interests of First Gen Group is a revaluation to be accounted for as such and presentedseparately as part of equity. If the revaluation relates directly to an identifiable fixed asset, therevaluation will be transferred directly to retained earnings when the asset is derecognized inwhole through disposal or as the asset concerned is depreciated or amortized.The goodwill from investments in subsidiaries is included as a noncurrent asset item under the“Goodwill and intangible assets” account in the consolidated statement of financial position. Thegoodwill on investment in associates is included in the carrying amount of the related investment.F-18

Cash and Cash EquivalentsCash includes cash on hand and in banks. Cash equivalents are short-term, highly liquidinvestments that are readily convertible with original maturities of three months or less and thatare subject to an insignificant risk of change in value.Financial InstrumentsDate of recognitionFinancial instruments within the scope of PAS 39 are recognized in the consolidated statement offinancial position when First Gen Group becomes a party to the contractual provisions of theinstrument. Purchases or sales of financial assets that require delivery of assets within the timeframe established by regulation or convention in the marketplace are recognized using trade dateaccounting. Derivatives are also recognized on a trade date basis.Initial recognition of financial instrumentsAll financial instruments are initially recognized at fair value. The initial measurement offinancial instruments includes transaction costs, except for financial instruments at fair valuethrough profit or loss (FVPL). First Gen Group classifies its financial assets in the followingcategories: financial assets at FVPL, held-to-maturity (HTM) investments, available-for-sale(AFS) financial assets, and loans and receivables. Financial liabilities are classified as eitherfinancial liabilities at FVPL or loans and borrowings. The classification depends on the purposefor which the investments were acquired and whether they are quoted in an active market.Management determines the classification of its instruments at initial recognition and, whereallowed and appropriate, re-evaluates such designation at every financial reporting date.Determination of fair valueThe fair value for financial instruments traded in active markets at financial reporting date is basedon their quoted market price or dealer price quotations (bid price for long positions and ask pricefor short positions), without any deduction for transaction costs. When current bid and ask pricesare not available, the price of the most recent transaction provides evidence of the current fairvalue as long as there has not been a significant change in economic circumstances since the timeof the transaction. For all other financial instruments not traded in an active market, the fair valueis determined by using appropriate valuation techniques.“Day 1” differenceWhere the transaction price in a non-active market is different from the fair value of otherobservable current market transactions in the same instrument or based on a valuation techniquewhose variables include only data from observable market, First Gen Group recognizes thedifference between the transaction price and fair value (a “Day 1” difference) in the consolidatedstatement of income, unless it qualifies for recognition as some other type of asset. In cases wheredata which is not observable are used, the difference between the transaction price and modelvalue is only recognized in the consolidated statement of income when the inputs becomeobservable or when the instrument is derecognized. For each transaction, First Gen Groupdetermines the appropriate method of recognizing the “Day 1” difference amount.Financial assets and liabilities at FVPLFinancial assets and liabilities at FVPL include financial assets and liabilities held for tradingpurposes and financial assets and liabilities designated upon initial recognition as at FVPL.Financial assets and liabilities are classified as held for trading if these are acquired for thepurposes of selling and repurchasing in the near term.F-19

Derivatives, including any separated embedded derivatives, are also classified under financialassets or liabilities at FVPL, unless these are designated as hedging instruments in an effectivehedge.Financial assets or liabilities may be designated by management on initial recognition as at FVPLwhen any of the following criteria are met:• the designation eliminates or significantly reduces the inconsistent treatment that wouldotherwise arise from measuring the assets or liabilities or recognizing gains or losses on themon a different basis;• the assets and liabilities are part of a group of financial assets, liabilities or both which aremanaged and their performance evaluated on a fair value basis, in accordance with adocumented risk management or investment strategy; or• the financial instrument contains an embedded derivative, unless the embedded derivativedoes not significantly modify the cash flows or it is clear, with little or no analysis, that itwould not be separately recorded.Financial assets and liabilities at FVPL are recorded in the consolidated statement of financialposition at fair value. Subsequent changes in fair value are recognized in the consolidatedstatement 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 receivepayment has been established.There are no financial assets at FVPL as of December 31, 2011. Classified under financial assetsat FVPL are the option assets relating to the call option to purchase EDC shares as ofDecember 31, 2010 (see Notes 9, 13, 27 and 28).Classified under financial liabilities at FVPL are the Parent Company‟s foreign currency forwardsas of December 31, 2011 and embedded derivatives on the Parent Company‟s convertible bonds asof December 31, 2010 (see Notes 15, 27 and 28).These derivatives were not designated as hedging instruments by First Gen Group and do notqualify as effective accounting hedges.HTM investmentsHTM investments are quoted non-derivative financial assets with fixed or determinable paymentsand fixed maturities for which First Gen Group‟s management has the positive intention andability to hold to maturity. Where First Gen Group sells other than an insignificant amount ofHTM investments, the entire category would be tainted and reclassified as AFS financial assets.After initial measurement, these investments are subsequently measured at amortized cost usingthe effective interest method, less any impairment in value. Amortized cost is calculated by takinginto account any discount or premium on acquisition and fees that are integral parts of theeffective interest rate. Gains and losses are recognized in the consolidated statement of incomewhen the HTM investments are derecognized and impaired, as well as through the amortizationprocess. The effects of restatement on foreign currency-denominated HTM investments are alsorecognized in the consolidated statement of income.First Gen Group has no HTM investments as of December 31, 2011 and 2010.F-20

Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments andfixed maturities that are not quoted in an active market. They are not entered into with theintention of immediate or short-term resale and are not classified or designated as AFS financialassets or financial assets at FVPL. Loans and receivables are classified as current assets ifmaturity is within 12 months from financial reporting date. Otherwise, these are classified asnoncurrent assets.After initial measurement, loans and receivables are subsequently measured at amortized costusing the effective interest method, less allowance for impairment. Amortized cost is calculatedby taking into account any discount or premium on acquisition and fees that are an integral part ofthe effective interest rate. Gains and losses are recognized in the consolidated statement of incomewhen the loans and receivables are derecognized and impaired, as well as through the amortizationprocess.Classified under loans and receivables are cash and cash equivalents, receivables and advances tonon-controlling shareholder, as of December 31, 2011 and 2010 (see Notes 6, 7, 9, 13, 21, 27and 28).AFS financial assetsAFS financial assets are those non-derivative financial assets which are designated as such or donot qualify to be classified in any of the three preceding categories. These are purchased and heldindefinitely, and may be sold in response to liquidity requirements or changes in marketconditions. AFS financial assets are classified as current assets if management intends to sellthese financial assets within 12 months from financial reporting date. Otherwise, these areclassified as noncurrent assets.After initial measurement, AFS financial assets are subsequently measured at fair value, withunrealized gains and losses being recognized as other comprehensive income (losses) until theinvestment is derecognized or until the investment is determined to be impaired, at which time thecumulative gain or loss previously reported as other comprehensive income (loss) is recognized inthe consolidated statement of income. First Gen Group uses the specific identification method indetermining the cost of securities sold. Unquoted equity securities and investment in proprietarymembership shares are carried at cost, net of impairment (if any). Accounting for the movementin equity is presented in the consolidated statement of changes in equity.Classified under AFS financial assets are investments in proprietary membership shares as ofDecember 31, 2011 and 2010 (see Notes 13, 27 and 28).Loans and borrowingsFinancial liabilities are classified in this category if these are not held for trading or not designatedas at FVPL upon the inception of the liability. These include liabilities arising from operations orborrowings. Loans and borrowings are classified as current liabilities if maturity is within12 months from financial reporting date. Otherwise, these are classified as noncurrent liabilities.Loans and borrowings are initially recognized at fair value of the consideration received, lessdirectly attributable transaction costs. After initial recognition, such loans and borrowings aresubsequently measured at amortized cost using the effective interest method. Amortized cost iscalculated by taking into account any related issue costs, discount or premium. Gains and lossesare recognized in the consolidated statement of income when the liabilities are derecognized, aswell as through the amortization process.F-21

Debt issuance costs incurred in connection with availments of long-term debt and issuances ofbonds are deferred and amortized using the effective interest method over the term of the loansand bonds. Debt issuance costs are included in the measurement of the related long-term debt andbonds payable and are allocated accordingly to the respective current and noncurrent portions.Classified under loans and borrowings are accounts payable and accrued expenses, due torelated parties, dividends payable, bonds payable and long-term debt as of December 31, 2011(see Notes 14, 15, 16, 19, 21, 27 and 28). Classified under loans and borrowings are accountspayable and accrued expenses, due to related parties, bonds payable, and long-term debt as ofDecember 31, 2010 (see Notes 14, 15, 16, 21, 27 and 28).Derivative Financial Instruments and Hedge AccountingFirst Gen Group enters into derivative and hedging transactions, primarily interest rate swaps,cross currency swap and foreign currency forwards, as needed, for the sole purpose of managingthe risks that are associated with First Gen Group‟s borrowing activities or as required by thelenders in certain cases.Derivative financial instruments (including bifurcated embedded derivatives) are initiallyrecognized at fair value on the date on which a derivative contract is entered into and aresubsequently remeasured at fair value. Derivatives are carried as assets when the fair value ispositive and as liabilities when the fair value is negative. Any gain or loss arising from changes infair value on derivatives that do not qualify for hedge accounting is taken directly to theconsolidated statement of income for the current year under the “Mark-to-market gain (loss) onderivatives” account.For purposes of hedge accounting, derivatives can be designated either as cash flow hedges or fairvalue hedges depending on the type of risk exposure it hedges.At the inception of a hedge relationship, First Gen Group formally designates and documents thehedge relationship to which First Gen Group opts to apply hedge accounting and the riskmanagement objective and strategy for undertaking the hedge. The documentation includesidentification of the hedging instrument, the hedged item or transaction, the nature of the riskbeing hedged and how the entity will assess the hedging instrument‟s effectiveness in offsettingthe exposure to changes in the hedged item‟s fair value or cash flows attributable to the hedgedrisk. Such hedges are expected to be highly effective in achieving offsetting changes in fair valueor cash flows and are assessed on an ongoing basis that they actually have been highly effectivethroughout the financial reporting periods for which they were designated.First Gen Group accounts for its interest rate swap agreements as cash flow hedges of the floatingrate exposure of its long-term debt. First Gen Group also entered into cross currency swap andforeign currency forwards accounted for as cash flow hedges for its Philippine peso-denominatedloans and Euro-denominated liabilities, respectively (see Note 28).First Gen Group has no derivatives that are designated as fair value hedges as ofDecember 31, 2011 and 2010.Cash flow hedgesCash flow hedges are hedges of the exposure to variability in cash flows that are attributable to aparticular risk associated with a recognized asset, liability or a highly probable forecast transactionand could affect the consolidated statement of income. The effective portion of the gain or loss onthe hedging instrument is recognized as other comprehensive income (loss) in the “Cumulativetranslation adjustments” account in the consolidated statement of financial position while theF-22

ineffective portion is recognized as “Mark-to-market gain (loss) on derivatives” in theconsolidated statement of income.Amounts taken to other comprehensive income (loss) are transferred to the consolidated statementof income when the hedged transaction affects profit or loss, such as when hedged financialincome or expense is recognized or when a forecast sale or purchase occurs. Where the hedgeditem is the cost of a non-financial asset or liability, the amounts taken to other comprehensiveincome (loss) are transferred to the initial carrying amount of the non-financial asset or liability.If the forecast transaction is no longer expected to occur, amounts previously recognized in othercomprehensive income (loss) are transferred to the consolidated statement of income. If thehedging instrument expires or is sold, terminated or exercised without replacement or rollover, orif its designation as a hedge is revoked, amounts previously recognized in other comprehensiveincome (loss) remain in equity until the forecast transaction occurs. If the related transaction isnot expected to occur, the amount is recognized in the consolidated statement of income.Embedded derivativesAn embedded derivative is a component of a hybrid (combined) instrument that also includes anon-derivative host contract with the effect that some of the cash flows of the combinedinstrument vary in away similar to a stand-alone derivative.First Gen Group assesses whether embedded derivatives are required to be separated from the hostcontracts when First Gen Group first becomes a party to the contract. Reassessment only occurs ifthere is a change in the terms of the contract that significantly modifies the cash flows that wouldotherwise be required.Embedded derivatives are bifurcated from their host contracts, when the following conditions aremet:(a) the entire hybrid contracts (composed of both the host contract and the embedded derivative)are not accounted for as financial assets and liabilities at FVPL;(b) when their economic risks and characteristics are not closely related to those of theirrespective host contracts; and(c) a separate instrument with the same terms as the embedded derivative would meet thedefinition of a derivative.Embedded derivatives that are bifurcated from the host contracts are accounted for either asfinancial assets or financial liabilities at FVPL. Changes in fair values are included in theconsolidated statement of income.Derecognition of Financial Assets and LiabilitiesFinancial assetsA financial asset (or, where applicable, a part of a financial asset or part of a group of financialassets) is derecognized when:• the right to receive cash flows from the asset has expired;• First Gen Group retains the right to receive cash flows from the asset, but has assumed anobligation to pay them in full without material delay to a third party under a “pass-through”arrangement; orF-23

• First Gen Group has transferred its right to receive cash flows from the asset and either (a) hastransferred substantially all the risks and rewards of the asset, or (b) has neither transferred norretained the risks and rewards of the asset but has transferred the control of the asset.Where First Gen Group has transferred its right to receive cash flows from an asset or has enteredinto a “pass-through” arrangement, and has neither transferred nor retained substantially all therisks and rewards of the asset nor transferred control of the asset, the asset is recognized to theextent of First Gen Group‟s continuing involvement in the asset. Continuing involvement thattakes the form of a guarantee over the transferred asset is measured at the lower of the originalcarrying amount of the asset and the maximum amount of consideration that First Gen Groupcould be required to repay.Financial liabilitiesA financial liability is derecognized when the obligation under the liability is discharged orcancelled or has expired. Where an existing financial liability is replaced by another from thesame lender on substantially different terms, or the terms of an existing liability are substantiallymodified, such exchange or modification is treated as a derecognition of the original liability andthe recognition of a new liability, and the difference in the respective carrying amounts isrecognized in the consolidated statement of income.Impairment of Financial AssetsFirst Gen Group assesses at each financial reporting date whether there is objective evidence that afinancial asset or group of financial assets is impaired. A financial asset or a group of financialassets is deemed to be impaired if, and only if, there is objective evidence of impairment as aresult of one or more events that has or have occurred after the initial recognition of the asset (anincurred “loss event”) and that loss event has an impact on the estimated future cash flows of thefinancial asset or the group of financial assets that can be reliably estimated. Objective evidenceof impairment may include indications that the borrower or a group of borrowers is experiencingsignificant financial difficulty, default or delinquency in interest or principal payments, theprobability that they will enter bankruptcy or other financial reorganization and where observabledata indicate that there is measurable decrease in the estimated future cash flows, such as changesin arrears or economic conditions that correlate with defaults.For loans and receivables carried at amortized cost, First Gen Group first assesses whether anobjective evidence of impairment (such as the probability of insolvency or significant financialdifficulties of the debtor) exists individually for financial assets that are individually significant, orcollectively for financial assets that are not individually significant. If there is an objectiveevidence that an impairment loss has been incurred, the amount of loss is measured as thedifference between the asset‟s carrying value and the present value of the estimated future cashflows (excluding future credit losses that have not been incurred). If First Gen Group determinesthat no objective evidence of impairment exists for an individually assessed financial asset,whether significant or not, it includes the asset in a group of financial assets with similar creditrisk characteristics and collectively assesses for impairment. Those characteristics are relevant tothe estimation of future cash flows for groups of such assets by being indicative of the debtors‟ability to pay all amounts due according to the contractual terms of the assets being evaluated.Assets that are individually assessed for impairment and for which an impairment loss is, orcontinues to be, recognized are not included in a collective assessment for impairment.The carrying value of the asset is reduced through the use of an allowance account and the amountof loss is charged to the consolidated statement of income. If in case the receivable has proven tohave no realistic prospect of future recovery, any allowance provided for such receivable is writtenF-24

off against the carrying value of the impaired receivable. Interest income continues to berecognized based on the original effective interest rate of the asset. If, in a subsequent year, theamount of the estimated impairment loss decreases because of an event occurring after theimpairment was recognized, the previously recognized impairment loss is reduced by adjusting theallowance account. Any subsequent reversal of an impairment loss is recognized in theconsolidated statement of income, to the extent that the carrying value of the asset does not exceedits amortized cost at reversal date.AFS financial assetsFor AFS financial assets, First Gen Group assesses at each financial reporting date whether thereis objective evidence that a financial asset or group of financial assets is impaired.In the case of equity investments classified as AFS, a significant or prolonged decline in the fairvalue of the investments below its cost is considered an objective evidence of impairment.“Significant” is evaluated against the original cost of the investment and “prolonged” against theperiod in which the fair value has been below its original cost. Where there is evidence ofimpairment, the cumulative loss, measured as the difference between the acquisition cost and thecurrent fair value, less any impairment loss on that financial asset previously recognized in othercomprehensive income (loss), is removed from other comprehensive income (loss) and recognizedin the consolidated statement of income. Impairment losses on equity investments are notreversed through the consolidated statement of income. Increases in fair value after impairmentare recognized directly in other comprehensive income (loss).In the case of debt instruments classified as AFS, impairment is assessed based on the samecriteria as financial assets carried at amortized cost. Future interest income is based on thereduced carrying amount and is accrued based on the rate of interest used to discount future cashflows for the purpose of measuring impairment loss. Such accrual is recorded as part of the“Interest income” in the consolidated statement of income. If, in a subsequent year, the fair valueof a debt instrument increases and that increase can be objectively related to an event occurringafter the impairment loss was recognized in the consolidated statement of income, the impairmentloss is reversed through the consolidated statement of income.Offsetting Financial InstrumentsFinancial assets and financial liabilities are offset with the net amount reported in the consolidatedstatement of financial position if, and only if, there is a currently enforceable legal right to offsetthe recognized amounts and there is an intention to settle on a net basis, or to realize the asset andsettle the liability simultaneously. This is not generally the case with master netting agreements,and the related assets and liabilities are presented at gross amounts in the consolidated statementof financial position.InventoriesInventories are carried at the lower of cost and net realizable value (NRV). Cost of fuelinventories is determined using the weighted average cost method, while the costs for spare partsand supplies are determined using the moving average method. The NRV for fuel inventories ofFGP and FGPC is the fuel cost charged to Manila Electric Company (Meralco), under therespective Power Purchase Agreements (PPA) of FGP and FGPC with Meralco [see Note 29(a)],which is based on weighted average cost of actual fuel consumed. NRV for spare parts andsupplies is the current replacement cost.Prepaid TaxesPrepaid taxes (included in the “Other current assets” account in the consolidated statement offinancial position) are carried at cost less any impairment in value. Prepaid taxes consist mainlyof tax credits that can be used by First Gen Group in the future. Tax credits represent unappliedcertificates for claims from input value-added tax (VAT) credits received from the Bureau ofInternal Revenue (BIR) and the Bureau of Customs (BOC). Such tax credits may be used forpayment of internal revenue taxes or customs duties.F-25

Investments in AssociatesAn associate is an entity over which First Gen Group has significant influence but not control,generally accompanying a shareholding of between 20% and 50% of the voting rights.The following is a list of the companies on which the Parent Company has significant influence:Percentage of Voting Interest2011 2010 2009First Gen Northern Energy Corp. (FGNEC) 1 33 33 –Prime Terracota Holdings Corp. (Prime Terracota) 2 45 45 45First Gen Hydro Corporation (FG Hydro) 3 40 40 40Bauang Private Power Corporation (BPPC) 4 37 37 –First Private Power Corporation (FPPC) 4 – – 401The equity transaction between MPIC, AC and the Parent Company in March 2010 has led to thedeconsolidation of FGNEC since the Parent Company’s interest in FGNEC has been reduced to 33%from 100%.2In May 2009, investments in Prime Terracota and FG Hydro were deconsolidated resulting from equitytransactions of Prime Terracota that reduced First Gen Group’s voting interest to 45% (see Note 4).3Direct voting by the Parent Company in FG Hydro is 40% while its effective economic interest is 64%.4FPPC has 93.25% voting and economic interest in BPPC. By virtue of the merger, FPPC transferred itsassets and liabilities at their carrying values to BPPC on December 15, 2010 (see Note 10).As of December 31, 2011 and 2010, Prime Terracota’s subsidiaries include the following companies:Percentage of Voting Interest2011 2010Red VulcanHoldings Corporation (Red Vulcan) 100 100EDC 60 60EDC Drillco Corporation 60 60EDC Geothermal Corp. [formerly First Luzon Geothermal EnergyCorporation] (EGC) 60 60Green Core Geothermal Inc. (GCGI) 60 60Bac-Man Geothermal Inc. (BGI) 60 60Unified Leyte Geothermal Energy Inc. (ULGEI) 60 60EDC Wind Energy Holdings, Inc. 60 60EDC Burgos Wind Power Corporation (EBWPC) 60 60EDC Chile Limitada 60 60Southern Negros Geothermal Inc. (SNGI) 60 –EDC Mindanao Geothermal Inc. (EMGI) 60 –Bac-Man Energy Development Corporation (BEDC) 60 –EHIL 60 –EDC HKL 60 –Kayabon Geothermal Inc. (KGI) 60 –Divestment of First Gen’s 60% Equity Stake in FG Hydro• On October 16, 2008 (the “First Closing Date”), First Gen (as “Seller”), EDC (as “Buyer”)and FG Hydro (collectively referred to as “Parties”), executed a Share Purchase andInvestment Agreement (SPIA) for the divestment of First Gen‟s 60% equity stake inFG Hydro. FG Hydro owns and operates the newly upgraded and rehabilitated 132 Megawatt(MW) Pantabangan-Masiway Hydro-Electric Power Plant (PAHEP/MAHEP) in Pantabangan,Nueva Ecija. PAHEP/MAHEP was acquired by FG Hydro on September 8, 2006 as part ofNational Power Corporation‟s (NPC) asset privatization.F-26

• Pursuant to the terms and conditions of the SPIA, the following transactions constituted thedivestment:a. EDC subscribed to 101,281,942 newly issued common stocks of FG Hydro on the FirstClosing Date;b. First Gen sold 249,287,223 common stocks of its holdings in FG Hydro to EDC onNovember 17, 2008 (the “Second Closing Date”); andc. First Gen shall subscribe to 500,000 preferred stocks of FG Hydro.• Consistent with the SPIA, the acquisition by EDC was through a combination of primaryissuance by FG Hydro of up to 17% interest and sale of secondary stocks by First Gen of up to43% interest in FG Hydro. Further, FG Hydro returned to First Gen the deposits for futurestock subscriptions amounting to $13.0 million (P=648.0 million).• On October 20, 2008, the Parties executed a First Supplement to the SPIA whereby theissuance of the preferred stocks to First Gen shall be deferred pending finalization of thefeatures of the preferred stocks.• On the Second Closing Date, First Gen completed the divestment of its 60% equity stake inFG Hydro in favor of EDC for a total consideration of $85.2 million (P=4.3 billion).• As a result of the divestment, First Gen‟s direct voting interest in FG Hydro was 40% and itseffective economic interest was 64%.• FG Hydro was subsequently deconsolidated on May 12, 2009 due to the dilution of FirstGen‟s controlling interest over Prime Terracota.• In March 2011, the Parties have agreed to amend the features of the preferred stocks coveredby the First Supplement to the SPIA. As such, an amendment to FG Hydro‟s Articles ofIncorporation was submitted to the Philippine SEC. On May 9, 2011, the Philippine SECapproved the amendment to FG Hydro‟s Articles of Incorporation reclassifying the unissuedredeemable preferred stocks into redeemable preferred “A” and “B” series. Following theapproval of the amended articles of incorporation of FG Hydro, the Parent Company has fullysubscribed to 500,000 redeemable preferred stocks Series B, with an issue value ofP0.5 million in June 2011. Included in the features of the redeemable preferred stocks SeriesB is that it shall earn cumulative dividends for each year during the period commencingJanuary 1, 2009 and ending on December 31, 2013, as may be declared and paid from time totime in amounts and on such dates as may be declared by FG Hydro‟s BOD, subject to theavailability of FG Hydro‟s retained earnings.• As a result of the issuance of the redeemable preferred stocks Series B, the Parent Companyrecognized in 2011 an additional $2.8 million equity in net earnings from FG Hydro. Thisamount pertains to the portion of FG Hydro‟s net income allocable to the Parent Company‟sredeemable preferred stocks Series B for the period January 1, 2010 to December 31, 2010.Also in 2011, FG Hydro declared and paid cash dividends to its redeemable preferred stocksSeries B shareholders amounting to $7.7 million (P333.8 million) (see Note 10).Under the equity method, such investments in associates are carried in the consolidated statementof financial position at cost plus post-acquisition changes in First Gen Group‟s share in net assetsof the associate. First Gen Group‟s share in its associates‟ post-acquisition profits or losses isrecognized in the consolidated statement of income, and its share in post-acquisition movements inthe associates‟ other comprehensive income (loss) and equity items is recognized directly in theF-27

consolidated statement of comprehensive income. The cumulative post-acquisition movementsare adjusted against the carrying amount of the investment. When First Gen Group‟s share inlosses of an associate equals or exceeds its interest in the associate, including any other unsecuredreceivables, First Gen Group does not recognize further losses, unless it has incurred obligationsor made payments on behalf of the associates.Unrealized intercompany profits or losses arising from the transactions with the associates areeliminated to the extent of First Gen Group‟s interest in the associates. Goodwill relating toassociates are included in the carrying amount of the investment and is not amortized or separatelytested for impairment.Included under the investments in associates are the Parent Company‟s deposits for future stocksubscriptions to its associates. Such deposits represent nonrefundable advances to the associatesand will be settled by the exchange of a fixed number of the associates‟ equity instruments.The reporting dates of the associates and First Gen Group are identical and the associates‟accounting policies conform to those used by First Gen Group for like transactions and events insimilar circumstances.Property, Plant and EquipmentProperty, plant and equipment, except land, are stated at cost less accumulated depreciation,amortization and impairment in value, if any. Land is stated at cost less any impairment in value.The initial cost of property, plant and equipment consists of the purchase price including importduties, borrowing costs (during the construction period) and other costs directly attributable tobring the asset to its working condition and location for its intended use. Cost also includes thecost of replacing part of such property, plant and equipment when the recognition criteria are metand the estimated present value of the cost of dismantling and removing the asset and restoring thesite.Expenditures incurred after the property, plant and equipment have been put into operation, suchas repairs and maintenance, are normally charged to the consolidated statement of income in theyear the costs are incurred. In situations where it can be clearly demonstrated that theexpenditures have resulted in an increase in the future economic benefits expected to be obtainedfrom the use of an item of property, plant and equipment beyond its originally assessed standard ofperformance, the expenditures are capitalized as additional costs of property, plant and equipment.First Gen Group divided the power plant assets into significant parts. Each part of an item ofproperty, plant and equipment with a cost that is significant in relation to the total cost of the itemis depreciated and amortized separately. Depreciation and amortization are computed using thestraight-line method over the following estimated useful lives of the assets:Asset TypeNumber of YearsBuildings and other structures 5-25Machinery and equipment 2-25Transportation equipment 5Furniture, fixtures and office equipment 3-10Leasehold improvements5 or lease term with no renewal option,whichever is shorterThe useful lives and depreciation and amortization method are reviewed at each financialreporting date to ensure that the years and method of depreciation and amortization are consistentwith the expected pattern of economic benefits from items of property, plant and equipment.F-28

Depreciation of an item of property, plant and equipment begins when it becomes available foruse, i.e. when it is in the location and condition necessary for it to be capable of operating in themanner intended by management. Depreciation ceases at the earlier of the date that the item isclassified as held for sale (or included in a disposal group that is classified as held for sale) inaccordance with PFRS 5, Non-current Assets Held for Sale and Discontinued Operations, and thedate the asset is derecognized. Leasehold improvements are amortized over the lease term or theeconomic life of the related asset, whichever is shorter.An item of property, plant and equipment is derecognized upon disposal or when no futureeconomic benefits are expected from its use. Any gain or loss arising from derecognition of theassets (calculated as the difference between the net disposal proceeds and carrying amount of theasset) is credited to or charged against current operations.Prepaid GasPrepaid gas (included in the “Other noncurrent assets” account in the consolidated statement offinancial position) consists of payments to Gas Sellers for unconsumed gas, net of any adjustment.The prepaid gas is recoverable in the form of future gas deliveries in the order that it arose and canbe consumed within a 10-year period. The terms and conditions on the payment and recovery ofoutstanding prepaid gas are covered by the respective Settlement Agreements (SA) and PaymentDeferral Agreements (PDA) of FGP and FGPC (see Note 17).Prepaid Major Spare PartsPrepaid major spare parts (included in the “Other noncurrent assets” account in the consolidatedstatement of financial position) is stated at cost less any impairment in value. Prepaid major spareparts pertains to advance payments made to Siemens Power Operations, Inc. (SPOI) for the majorspare parts that will be replaced during the scheduled maintenance outage.Impairment of Non-financial AssetsProperty, plant and equipment, pipeline rights, prepaid gas and prepaid major spare partsAt each financial reporting date, First Gen Group assesses whether there is any indication that itsnon-financial assets may be impaired. When an indicator of impairment exists, First Gen Groupmakes a formal estimate of an asset‟s recoverable amount. The recoverable amount is the higherof an asset‟s fair value less costs to sell and its value in use. Recoverable amount is determinedfor an individual asset, unless the asset does not generate cash inflows that are largely independentfrom other assets or groups of assets, in which case the recoverable amount is assessed as part ofthe cash-generating unit to which it belongs. Where the carrying amount of an asset (orcash-generating unit) exceeds its recoverable amount, the asset (or cash-generating unit) isconsidered impaired and is written down to its recoverable amount. In assessing value in use, theestimated future cash flows are discounted to their present value using a pre-tax discount rate thatreflects current market assessment of the time value of money and the risks specific to the asset (orcash-generating unit). An impairment loss is recognized in the consolidated statement of incomein the year in which it arises.An assessment is made at each financial reporting date as to whether there is any indication thatpreviously recognized impairment losses may no longer exist or may have decreased. If suchindication exists, First Gen Group estimates the asset‟s or cash-generating unit‟s recoverableamount. A previously recognized impairment loss is reversed only if there has been a change inthe assumptions used to determine the asset‟s recoverable amount since the last impairment losswas recognized. The reversal is limited so that the carrying amount of the asset does not exceedits recoverable amount, nor exceed the carrying amount that would have been determined, net ofdepreciation, had no impairment loss been recognized for the asset in prior years. Such reversal isrecognized in the consolidated statement of income.F-29

GoodwillGoodwill is reviewed for impairment annually or more frequently, if events or changes incircumstances indicate that the carrying value may be impaired.Impairment is determined for goodwill by assessing the recoverable amount of the cash-generatingunit (or group of cash-generating units) to which the goodwill relates. Where the recoverableamount of the cash-generating unit (or group of cash-generating units) is less than the carryingamount of the cash-generating unit (or group of cash-generating units) to which goodwill has beenallocated, an impairment loss is recognized immediately in the consolidated statement of income.Impairment loss relating to goodwill cannot be reversed for subsequent increases in its recoverableamount in future years. First Gen Group performs its annual impairment test of goodwill as ofDecember 31 of each year.Investments in associatesFirst Gen Group determines whether it is necessary to recognize an impairment loss on itsinvestments in associates. First Gen Group determines at each financial reporting date whetherthere is any objective evidence that the investments in associates are impaired. If this is the case,First Gen Group calculates the amount of impairment as being the difference between therecoverable value of the associate and the carrying amount of investment and recognizes theamount of impairment loss in the consolidated statement of income.Intangible AssetsIntangible assets acquired separately are measured on initial recognition at cost. The cost ofintangible assets acquired in a business combination is the fair value as of the date of acquisition.The intangible assets arising from the business combination are recognized initially at fair values.Following initial recognition, intangible assets are carried at cost less accumulated amortizationand any impairment losses. Internally generated intangible assets, excluding capitalizeddevelopment costs, are not capitalized and expenditures are reflected in the consolidated statementof income in the year the expenditure is incurred.The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assetswith finite lives are amortized using the straight-line method over the estimated useful economiclife, and assessed for impairment whenever there is an indication that the intangible asset may beimpaired. Amortization shall begin when the asset is available for use, i.e. when it is in thelocation and condition necessary for it to be capable of operating in the manner intended bymanagement. The amortization period and method for an intangible asset with a finite useful lifeare reviewed at least each financial reporting date. Changes in the expected useful life or theexpected pattern of consumption of future economic benefits embodied in the said intangible assetis accounted for by changing the amortization period or method, as appropriate, and are treated aschanges in accounting estimates. The amortization expense on intangible assets with finite lives isrecognized in the consolidated statement of income in the expense category consistent with thefunction of the intangible asset.Intangible assets with indefinite useful lives are tested for impairment annually, either individuallyor at the cash generating unit level. Such intangibles are not amortized. The useful life of anintangible asset with an indefinite life is reviewed annually to determine whether the indefinite lifeassessment continues to be supportable. If not, the change in the useful life assessment fromindefinite to finite is made prospectively.Gains or losses arising from derecognition of an intangible asset are measured as the differencebetween the net disposal proceeds, if any, and the carrying amount of the asset and are recognizedin the consolidated statement of income in the year the asset is derecognized.F-30

As of December 31, 2011 and 2010, First Gen Group‟s intangible asset with finite life pertains topipeline rights that are being amortized for 22 years.Unearned RevenueUnearned revenue (included in the “Other noncurrent liabilities” account in the consolidatedstatement of financial position) represents payments received from Meralco which corresponds tothe unconsumed gas in connection with the respective SAs and PDAs of FGP and FGPC (seeNote 17). Such can be realized in case the actual gas consumed by the power plants in generatingelectricity to Meralco exceed their respective Take-or-Pay Quantities (TOPQ) at any given year.ProvisionsProvisions are recognized when First Gen Group has a present obligation (legal or constructive) asa result of a past event, it is probable that an outflow of resources embodying economic benefitswill be required to settle the obligation and a reliable estimate can be made of the amount of theobligation. Where First Gen Group expects some or all of the provision will be reimbursed, forexample, under an insurance contract, the reimbursement is recognized as a separate asset but onlywhen the reimbursement is virtually certain. The expense relating to any provision is recognizedin the consolidated statement of income, net of any reimbursement. If the effect of the time valueof money is material, provisions are determined by discounting the expected future cash flows at apre-tax rate that reflects current market assessment of the time value of money and, whereappropriate, the risks specific to the liability. Where discounting is used, the increase in theprovision due to passage of time is recognized under the “Interest expense and financing charges”account in the consolidated statement of income.FGP, FGPC and FG Bukidnon recognized provisions arising from legal and/or constructiveobligations associated with the cost of dismantling and removing an item of property, plant andequipment and restoring the site where it is located. The obligation of FGP, FGPC andFG Bukidnon occurs either when the asset is acquired or as a consequence of using the asset forthe purpose of generating electricity during a particular year. A corresponding asset is recognizedas property, plant and equipment. Dismantling costs are provided at the present value of expectedcosts to settle the obligation using estimated cash flows. The cash flows are discounted at acurrent pre-tax rate that reflects the risks specific to the dismantling liability. The unwinding ofthe discount is expensed as incurred and recognized as an accretion under the “Interest expenseand financing charges” account in the consolidated statement of income. The estimated futurecosts of dismantling are reviewed annually and adjusted, as appropriate. Changes in the estimatedfuture costs or in the discount rate applied are added to or deducted from the cost of the asset.ContingenciesContingent liabilities are not recognized in the consolidated financial statements but are disclosedin the notes to consolidated financial statements unless the possibility of an outflow of resourcesembodying economic benefits is remote. Contingent assets are not recognized but are disclosed inthe notes to consolidated financial statements when an inflow of economic benefits is probable.Retirement BenefitsThe Parent Company and certain of its subsidiaries have distinct, funded, noncontributory, definedbenefit retirement plans. The plans cover all permanent employees, each administered by itsrespective retirement committee.The cost of providing benefits under the defined benefit retirement plans is determined using theprojected unit credit method. Under this method, the current service cost is the present value ofretirement benefits obligation in the future with respect to services rendered in the current year.F-31

Actuarial gains and losses arising from experience adjustments and changes in actuarialassumptions are credited to or charged against the consolidated statement of income when the netcumulative unrecognized actuarial gains and losses at the end of previous year exceeded 10% ofthe higher between 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 theemployees participating in the plans.Past service costs are recognized immediately as an expense in the consolidated statement ofincome, unless the changes to the retirement plans are conditional on the employees remaining inservice for a specified period of time (the vesting period). In this case, the past service costs areamortized on a straight-line basis over the vesting period.The defined benefit liability is the aggregate of the present value of the defined benefit obligationand actuarial gains and losses not recognized, reduced by past service costs not yet recognized andthe fair value of plan assets on which the obligations are to be settled directly. The present valueof the defined benefit obligation is determined by discounting the estimated future cash outflowsusing interest rate on government bonds that have terms that will approximate the terms of therelated retirement obligation upon maturity. The value of any asset is restricted to the sum of anycumulative unrecognized net actuarial losses and past service cost not yet recognized and thepresent value of any economic benefits available in the form of refunds from the plans orreductions in the future contributions to the plans.Share-based Payment TransactionsCertain employees (including senior executives) of First Gen Group, FPH and an associate of theParent Company receive remuneration in the form of share-based payment transactions, wherebyemployees render services in exchange for shares or rights over shares (“equity-settledtransactions”).The cost of equity-settled transactions with employees is measured by reference to the fair valueof the stock options at grant date. The fair value is determined using the Black-Scholes-Mertonmodel, further details of which are provided in Note 20 to the consolidated financial statements.In valuing equity-settled transactions, no account is taken to any performance conditions, otherthan conditions linked to the price of the stocks of the Parent Company (“market conditions”), ifapplicable.The cost of equity-settled transactions is recognized, together with a corresponding increase inequity, over the period in which the performance and/or service conditions are fulfilled, ending onthe date on which the relevant employees become fully entitled to the award (the “vesting date”).The cumulative expense recognized for equity-settled transactions at each financial reporting dateuntil the vesting date reflects the extent to which the vesting period has expired and the ParentCompany‟s best estimate of the number of equity instruments that will ultimately vest. Thecharge or credit for a year represents the movement in cumulative expense recognized as of thebeginning and end of that year.No expense is recognized for awards that do not ultimately vest, except for awards where vestingis conditional upon a market condition, which are treated as vesting irrespective of whether or notthe market condition is satisfied, provided that all other performance conditions are satisfied.Where the terms of an equity-settled award are modified, an expense, as a minimum, is recognizedas if the terms had not been modified. An expense is recognized for any increase in the value ofthe transactions as a result of the modification, as measured on the date of modification.F-32

Where an equity-settled award is cancelled, it is treated as if it had vested on the date ofcancellation, and any expense not yet recognized for the award is recognized immediately.However, if a new award is substituted for the cancelled award, and designated as a replacementaward on the date that it is granted, the cancelled and new awards are treated as if they weremodifications of the original award, as described in the previous paragraph.The dilutive effect of outstanding options is reflected as additional share dilution in thecomputation of earnings per share attributable to the equity holders of the Parent Company(see Note 26).Income TaxesCurrent income taxCurrent income tax assets and liabilities for the current and prior years are measured at the amountexpected to be recovered from or paid to the tax authority. The tax rates and tax laws used tocompute the amount are those that have been enacted or substantively enacted as at financialreporting date.Deferred income taxDeferred income tax is provided, using the balance sheet liability method, on all temporarydifferences at financial reporting date between the tax bases of assets and liabilities and theircarrying amounts for financial reporting purposes.Deferred income tax liabilities are recognized for all taxable temporary differences. Deferredincome tax assets are recognized for all deductible temporary differences, carryforward benefits ofunused tax credits from the excess of minimum corporate income tax (MCIT) over the regularcorporate income tax (RCIT) and unused net operating loss carryover (NOLCO), to the extent thatit is probable that sufficient future taxable income will be available against which the deductibletemporary differences and carryforward benefits of unused tax credits from MCIT and unusedNOLCO can be utilized. Deferred income tax, however, is not recognized on temporarydifferences that arise from the initial recognition of an asset or liability in a transaction that is not abusiness combination and, at the time of the transaction, affects neither the accounting income nortaxable income. First Gen Group does not recognize deferred income tax assets and deferredincome tax liabilities that will reverse during the income tax holiday (ITH) period.The carrying amount of deferred income tax assets is reviewed at each financial reporting date andreduced to the extent that it is no longer probable that sufficient future taxable income will becomeavailable to allow all or part of the deferred income tax asset to be utilized. Unrecognizeddeferred income tax assets are reassessed at each financial reporting date and are recognized to theextent that it has become probable that sufficient future taxable income will allow the deferredincome tax assets to be recovered.Deferred income tax assets and liabilities are measured at the income tax rates that are applicableto the year when the asset is realized or the liability is settled, based on tax rates and tax laws thathave been enacted or substantively enacted as at financial reporting date.Deferred income tax liabilities are not provided on nontaxable temporary differences associatedwith investments in domestic subsidiaries and associates.Current and deferred income tax relating to items recognized directly in equity is also recognizedin the consolidated statement of changes in equity and not in the consolidated statement ofincome.F-33

Deferred income tax assets and liabilities are offset, if a legally enforceable right exists to offsetcurrent income tax assets against current income tax liabilities and deferred income taxes relate tothe same taxable entity and the same tax authority.LeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance ofthe arrangement and requires an assessment of whether the fulfillment of the arrangement isdependent on the use of a specific asset or assets and the arrangement conveys a right to use theasset. 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 that term of the renewal orextension was initially included in the lease term;c. there is a change in the determination of whether fulfillment is dependent on a specifiedasset; ord. there is a substantial change to the asset.Where a reassessment is made, lease accounting will commence or cease from the date when thechange in circumstances gave rise to the reassessment for scenarios a, c or d above, and at the dateof renewal or extension period for scenario b.Leases where the lessor retains substantially all the risks and benefits of ownership of the asset areclassified as operating leases. In cases where First Gen Group acts as a lessee, operating leasepayments are recognized as expense in the consolidated statement of income on a straight-linebasis over the lease term.Capital Stock, Stock Rights and Additional Paid-in CapitalCapital stock is measured at par value and is classified as equity for all stocks issued. When FirstGen Group issues more than one class of stock, a separate account is maintained for each class ofstock and the number of stocks issued.Stock rights that are given pro-rata to all of the existing owners of the same class of First Gen‟snon-derivative equity instruments in order to acquire a fixed number of its own equity instrumentsfor a fixed amount in any currency are classified as equity instrument.When the stocks are sold at premium, the difference between the proceeds and the par value iscredited to the “Additional paid-in capital” account. When stocks are issued for a considerationother than cash, the proceeds are measured by the fair value of the consideration received. In casethe stocks are issued to extinguish or settle the liability of First Gen Group, the stocks shall bemeasured either at the fair value of the stocks issued or fair value of the liability settled, whicheveris more reliably determinable.Direct costs incurred related to the issuance of new capital stock, such as underwriting, accountingand legal fees, printing costs and taxes are shown in equity as deduction, net of tax, from theproceeds, when the stocks are issued at premium, otherwise such are expensed as incurred.Deposits for Future Stock SubscriptionsDeposits for future stock subscriptions represent the amount received that will be applied aspayment in exchange for a fixed number of the Parent Company‟s own equity instruments, andpresented in the equity section of the consolidated statement of financial position.F-34

Treasury StocksAcquired treasury stocks are accounted for at weighted average cost and shown as a deduction inthe equity section of the consolidated statement of financial position. No gain or loss isrecognized in the consolidated statement of income on the purchase, sale, issue or cancellation ofthe Parent Company‟s own equity instruments. Upon reissuance of treasury stocks, the “Cost ofcommon stocks held in treasury” account is credited at cost. The excess of proceeds fromreissuance over the cost of treasury stocks is credited to the “Additional paid-in capital” account.However, if the cost of treasury stocks exceeds the proceeds from reissuance, such excess isdebited to the “Additional paid-in capital” account but only to the extent of previously set-upadditional paid-in capital for the same class of stock. Otherwise, this is debited against the“Retained earnings” account.Retained EarningsThe amount included in retained earnings includes profit or loss attributable to First Gen Group‟sequity holders and reduced by dividends on capital stock. Dividends on capital stock arerecognized as a liability and deducted from equity when they are declared by the ParentCompany‟s BOD. Dividends for the year that are approved after the financial reporting date aredealt with as an event after the financial reporting date.Retained earnings may also include the effect of changes in accounting policies as may berequired by the standards‟ transitional provisions.Dividends on Preferred and Common StocksFirst Gen Group may pay dividends in cash or by the issuance of shares of stock. Cash andproperty dividends are subject to the approval of the BOD, while stock dividends are subject toapproval by the BOD, at least two-thirds of the outstanding capital stock of the shareholders at ashareholders‟ meeting called for such purpose, and by the Philippine SEC. First Gen Group maydeclare dividends only out of its unrestricted retained earnings.Cash and property dividends on preferred and common stocks are recognized as liability anddeducted from equity when declared. Stock dividends are treated as transfers from retainedearnings to paid-in capital.Revenue RecognitionRevenue is recognized when it is probable that the economic benefits associated with thetransaction will flow to First Gen Group and the amount of the revenue can be measured reliably.The following specific recognition criteria must also be met before revenue is recognized:Revenue from sale of electricityRevenue from sale of electricity (in the case FGP and FGPC) is based on the respective PPAs ofFGP and FGPC. The PPAs qualify as leases on the basis that FGP and FGPC sell all of its outputto Meralco. This agreement calls for a take-or-pay arrangement where payment is madeprincipally on the basis of the availability of the power plant and not on actual deliveries ofelectricity generated. This arrangement is determined to be operating leases where a significantportion of the risks and benefits of ownership of the assets are retained by FGP and FGPC.Revenue from sale of electricity is composed of fixed capacity fees, fixed and variable operatingand maintenance fees, fuel, wheeling and pipeline charges, and supplemental fees. The portionrelated to the fixed capacity fees is considered as operating lease component and the same fees arerecognized on a straight-line basis, based on the actual Net Dependable Capacity (NDC) tested orproven, over the terms of the respective PPAs. Variable operating and maintenance fees, fuel,wheeling and pipeline charges and supplemental fees are recognized monthly based on the actualenergy delivered.F-35

Interest incomeInterest income is recognized as the interest accrues (using the effective interest rate, which is therate that exactly discounts estimated future cash receipts through the expected life of the financialinstrument to the net carrying amount of the financial asset), taking into account the effective yieldon the asset.Equity in net earnings (losses) of associatesFirst Gen Group recognizes its share in the net income (losses) of associates proportionate to theequity in the economic shares of such associate, in accordance with the equity method ofaccounting for investments. If an associate has outstanding cumulative preferred stocks that areheld by parties other than the investor and classified as equity, First Gen Group computes its sharein profits or losses after adjusting for the dividends on such shares, whether or not the dividendshave been declared.Expense RecognitionExpenses are decreases in economic benefits during the accounting period in the form of outflowsor decrease of assets or incurrence of liabilities that result in decreases in equity, other than thoserelating to distributions to equity participants, and are recognized when these are incurred.Borrowing CostsBorrowing costs are capitalized if they are directly attributable to the acquisition, construction orproduction of qualifying assets until such time that the assets are substantially ready for theirintended use or sale, which necessarily takes a substantial period of time. Capitalization ofborrowing costs commences when the activities to prepare the asset are in progress andexpenditures and borrowing costs are being incurred. All other borrowing costs are expensed inthe year they occur.Foreign Currency TransactionsThe consolidated financial statements are presented in U.S. dollar, which is the Parent Company‟sfunctional and presentation currency. Each entity in First Gen Group determines its ownfunctional currency and items included in the financial statements of each entity are measuredusing that functional currency. Transactions in foreign currencies are initially recorded using theweighted average functional currency rate prevailing at transaction date. Monetary assets andliabilities denominated in foreign currencies are restated using the functional currency rate ofexchange at financial reporting date. All differences are taken to the consolidated statement ofincome. Nonmonetary items that are measured at historical cost in a foreign currency aretranslated using the exchange rates as at the dates of the transaction. Nonmonetary itemsmeasured at fair value in a foreign currency are translated using the weighted average exchangerates as at the date when the fair value was determined.The functional currency of all the subsidiaries, except Unified, FGP, FGHC and FGPC, is thePhilippine peso. As at financial reporting date, the assets and liabilities of these subsidiaries aretranslated into the presentation currency of the Parent Company (the U.S. dollar) at the closingrate of exchange ruling at financial reporting date and, their statements of income are translated atthe monthly weighted average exchange rates for the year. The exchange differences arising onthe translation are taken to other comprehensive income (loss) as a separate component of equityas part of the “Cumulative translation adjustments” account. Upon disposal of any of thesesubsidiaries, the deferred cumulative amount recognized in equity relating to that particularsubsidiary will be recognized in the consolidated statement of income proportionate to the equityinterest disposed.F-36

Earnings Per Share (EPS) Attributable to the Equity Holders of the ParentBasic EPS is computed by dividing net income (less cumulative preferred dividends, if any,whether declared or not) for the year attributable to common shareholders by the weighted averagenumber of common stocks outstanding during the year, with retroactive adjustments for any stockdividends declared and stock split.Diluted EPS is calculated in the same manner, adjusted for the effects of: (a) conversion ofconvertible bonds; and (b) stocks to be issued to executives (officers and senior managers) andemployees under the Parent Company‟s Executive Stock Option Plan (ESOP) and EmployeeStock Purchase Plan (ESPP), respectively, which are assumed to be exercised at the date of grant.Where the EPS effect of the stocks to be issued to executives and employees under the ParentCompany‟s ESOP and ESPP, and the possible conversion of convertible bonds would beanti-dilutive, the basic and diluted EPS are stated at the same amount.Segment ReportingFor purposes of management reporting, First Gen Group‟s operating businesses are organized andmanaged separately on a per company basis, with each company representing a strategic businesssegment. First Gen‟s identified operating segments, which are consistent with the segmentsreported to the BOD which is First Gen‟s Chief Operating Decision Maker (CODM). Financialinformation on the operating segment is presented in Note 5.Related Party Relationships and TransactionsRelated party relationship exists when the party has the ability to control, directly or indirectly,through one or more intermediaries, or exercise significant influence over the other party inmaking financial and operating decisions. Such relationships also exist between and/or amongentities which are under common control with the reporting entity and its key managementpersonnel, directors and stockholders. In considering each possible related party relationship,attention is directed to the substance of the relationships, and not merely to the legal form.Events After the Financial Reporting DateAny event after the financial reporting date that provides additional information about First GenGroup‟s position at financial reporting date (adjusting event) is reflected in the consolidatedfinancial statements. Events after financial reporting date that are not adjusting events, if any, aredisclosed, in the notes to consolidated financial statements, when material.Future Changes in Accounting PoliciesThe following are the new and revised accounting standards and interpretations that will becomeeffective subsequent to December 31, 2011. Except as otherwise indicated, First Gen Group doesnot expect the adoption of these new and amended PAS, PFRS and Philippine interpretations tohave any significant impact on its financial statements.Effective in 2012PFRS 7, Financial Instruments: Disclosures - Enhanced Derecognition (Amendment),requires additional disclosures about financial assets that have been transferred, but notderecognized, to enable the user of the First Gen Group‟s financial statements to understandthe relationship with those assets that have not been derecognized and their associatedliabilities. In addition, the amendment requires disclosures about continuing involvement inderecognized assets to enable the user to evaluate the nature of and risks associated with, theentity‟s continuing involvement in those derecognized assets.F-37

PAS 12, Income Taxes - Deferred Tax: Recovery of Underlying Assets (Amendment),provides a practical solution to the problem of assessing whether recovery of an asset will bethrough use or sale. It introduces a presumption that recovery of the carrying amount of anasset will, normally, be through sale.Effective in 2013PFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and FinancialLiabilities (Amendments), requires an entity to disclose information about rights of set-off andrelated arrangements (such as collateral agreements). The new disclosures are required for allrecognized financial instruments that are set off in accordance with PAS 32. Thesedisclosures also apply to recognized financial instruments that are subject to an enforceablemaster netting arrangement or “similar agreement”, irrespective of whether they are set-off inaccordance with PAS 32. The amendment requires entities to disclose, in a tabular formatunless another format is more appropriate, the following minimum quantitative information.This is presented separately for financial assets and financial liabilities recognized at the endof the reporting period:a) The gross amounts of those recognized financial assets and recognized financial liabilities;b) The amounts that are set off in accordance with the criteria in PAS 32 when determiningthe net amounts presented in the statement of financial position;c) The net amounts presented in the statement of financial position;d) The amounts subject to an enforceable master netting arrangement or similar agreementthat are not otherwise included in (b) above, including amounts related to recognizedfinancial instruments that do not meet some or all of the offsetting criteria in PAS 32; andamounts related to financial collateral (including cash collateral); ande) The net amount after deducting the amounts in (d) from the amounts in (c) above.PFRS 10, Consolidated Financial Statements, includes a new definition of control, which isused to determine which entities are consolidated. It establishes a single control model thatapplies to all entities. The changes introduced by PFRS 10 will require management toexercise significant judgment to determine which entities are controlled, and therefore arerequired to be consolidated by a parent, compared with the requirements that were in PAS 27.PFRS 11, Joint Arrangements, describes the accounting for joint arrangements with jointcontrol; proportionate consolidation is not permitted for joint ventures. It replaces PAS 31,Interests in Joint Ventures, and Standards Interpretation Committee 13, Jointly-ControlledEntities - Non-Monetary Contributions, by venturers. It addresses only two forms of jointarrangements (joint operations and joint ventures) where there is joint control.PFRS 12, Disclosure of Interests in Other Entities, includes all of the disclosure requirementsfor subsidiaries, joint arrangements, associates, and structured entities. These disclosures relateto an entity‟s interests in subsidiaries, joint arrangements, associates and structured entities.PFRS 13, Fair Value Measurement, represents the completion of the joint project to establisha single source for the requirements on how to measure fair value under IFRS. This newstandard does not change when an entity is required to use fair value, but rather, describes howto measure fair value under PFRS, when fair value is required or permitted to be used.F-38

PAS 1, Financial Statement Presentation - Presentation of Items of Other ComprehensiveIncome, change the grouping of items presented in OCI. Items that could be reclassified (or“recycled”) to profit or loss at a future point in time (for example, upon derecognition orsettlement) would be presented separately from items that will never be reclassified.PAS 19, Employee Benefits (Amendment), include changes such as removing the corridormechanism and the concept of expected returns on plan assets to simple clarifications andrewording.PAS 27, Separate Financial Statements (as revised in 2011), as a consequence of the newIFRS 10 and IFRS 12, what remains of PAS 27 is limited to accounting for subsidiaries,jointly controlled entities, and associates in separate financial statements.PAS 28, Investments in Associates and Joint Ventures (as revised in 2011), as a consequenceof the new IFRS 11 and IFRS 12, PAS 28 has been renamed PAS 28, Investments inAssociates and Joint Ventures, and describes the application of the equity method toinvestments in joint ventures in addition to associates.Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a SurfaceMine, applies to waste removal costs that are incurred in surface mining activity during theproduction phase of the mine (“production stripping costs”) and provides guidance on therecognition of production stripping costs as an asset and measurement of the stripping activityasset.Effective in 2014PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and FinancialLiabilities (Amendments), clarifies the meaning of “currently has a legally enforceable right toset-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems(such as central clearing house systems) which apply gross settlement mechanisms that are notsimultaneous.Effective in 2015PFRS 9, Financial Instruments: Classification and Measurement, introduces newrequirements on the classification and measurement of financial assets. It uses a singleapproach to determine whether a financial asset is measured at amortized cost or fair value,replacing the many different rules in PAS 39. The approach in the new standard is based onhow an entity manages its financial instruments (its business model) and the contractual cashflow characteristics of the financial assets. The new standard also requires a singleimpairment method to be used, replacing the many different impairment methods in PAS 39.The new standard represents the completion of the first part of a three-part project of the IASBto replace PAS 39 with a new standard. The second part of the project will address proposalson the impairment methodology for financial assets and the third part, on hedge accounting.Deferred EffectivityPhilippine Interpretation IFRIC 15, Agreement for Construction of Real Estate, coversaccounting for revenue and associated expenses by entities that undertake the construction ofreal estate directly or through subcontractors. This Interpretation requires that revenue onconstruction of real estate be recognized only upon completion, except when such contractqualifies as construction contract to be accounted for under PAS 11, Construction Contracts,or involves rendering of services in which case revenue is recognized based on stage ofF-39

completion. Contracts involving provision of services with the construction materials andwhere the risks and reward of ownership are transferred to the buyer on a continuous basiswill also be accounted for based on stage of completion.On July 28, 2011, in consideration of the Position Paper submitted by various real estateindustry associations with respect to the application of Philippine Interpretation IFRIC 15 andthe on-going deliberation over the revenue standard project by the IASB, the Philippine SECdecided to further defer implementation of the said interpretation until the final RevenueStandard is issued by the IASB and after an evaluation on the requirements and guidance inthe said Standard vis-á-vis the practices and regulations in the Philippine real estate industry iscompleted.3. Significant Accounting Judgments and EstimatesThe preparation of the consolidated financial statements in accordance with PFRS requires FirstGen Group to make judgments and estimates that affect the reported amounts of assets, liabilities,income and expenses and disclosure of contingent assets and contingent liabilities. However,future events may occur which will cause the assumptions used in arriving at the estimates tochange. The effects of any change in estimates are reflected in the consolidated financialstatements as they become reasonably determinable.Judgments and estimates are continually evaluated and are based on historical experience andother factors, including expectations of future events that are believed to be reasonable under thecircumstances.In the process of applying First Gen Group‟s accounting policies, management has made thefollowing judgments and estimates which have the most significant effect on the amountsrecognized in the consolidated financial statements:Judgmentsa. Determining functional currencyThe Parent Company, Unified, FGP, FGPC and FGHC, have determined that their functionalcurrency is the U.S. dollar. The U.S. dollar is the currency of the primary economicenvironment in which the Parent Company and foregoing subsidiaries and associate operate.It is the currency that mainly influences the sale of services and the costs of providingservices. All other subsidiaries have determined the Philippine peso to be their functionalcurrency. Thus, the accounts of such subsidiaries were translated to U.S. dollar for thepurposes of consolidation to First Gen Group.b. Operating leasesThe respective PPAs of FGP and FGPC qualify as leases on the basis that FGP and FGPC sellall of their output to Meralco and these agreements call for a take-or-pay arrangement wherepayment is made principally on the basis of the availability of the power plants and not onactual deliveries of electricity generated. These arrangements are determined to be operatingleases where a significant portion of the risks and benefits of ownership of the assets areretained by FGP and FGPC. Accordingly, the power plant assets are recorded as part of thecost of property, plant and equipment and the fixed capacity fees billed to Meralco arerecorded as operating revenue on a straight-line basis over the applicable terms of the PPAs.F-40

c. Classification of financial instrumentsFirst Gen Group exercises judgment in classifying a financial instrument, or its componentparts, on initial recognition as either a financial asset, a financial liability or an equityinstrument in accordance with the substance of the contractual arrangement and the definitionof a financial asset, a financial liability or an equity instrument. The substance of a financialinstrument, rather than its legal form, governs its classification in the consolidated statementof financial position.d. Discontinued operationsA discontinued operation is a component of First Gen Group‟s business that represents aseparate major line of business or geographical area of operations that has been disposed of oris held for sale, or is a subsidiary acquired exclusively with a view to resale. Classification as adiscontinued operation occurs upon disposal or when the operation meets the criteria to beclassified as held for sale. When an operation is classified as a discontinued operation, thecomparative consolidated statements of income and consolidated statements of cash flows arerestated, as if the operation had been discontinued from the start of the comparative periods, soas to provide some form of comparability with the new presentation.On May 12, 2009, the BOD of Prime Terracota approved and issued voting preferred stocks toQuialex Realty Corporation (QRC) and Lopez Inc. Retirement Fund (LIRF). Due to the saidequity transaction, First Gen is deemed to have lost control over Prime Terracota since FirstGen‟s voting interest in Prime Terracota has been reduced to approximately 45% and has lostcontrol over the BOD of Prime Terracota. In addition, the loss of control is treated as adeemed sale transaction in accordance with the Amended PFRS 5 (see Note 4).Estimatesa. Impairment losses on receivablesFirst Gen Group reviews its receivables at each financial reporting date to assess whether anallowance for impairment should be recognized in the consolidated statement of income. Inparticular, judgment by management is required in the estimation of the amount and timing offuture cash flows when determining the level of allowance required. Such estimates are basedon assumptions on a number of factors and actual results may differ, resulting in futurechanges to the allowance.First Gen Group maintains an allowance for impairment losses at a level that managementconsiders adequate to provide for potential uncollectability of its trade and other receivablesand certain advances. First Gen Group evaluates specific balances where management hasinformation that certain amounts may not be collectible. In these cases, First Gen Group usesjudgment, based on available facts and circumstances, and on a review of the factors thataffect the collectability of the accounts including, but not limited to, the age and status of thereceivables, collection experience, past loss experience. The review is made by managementon a continuing basis to identify accounts to be provided with allowance. These specificreserves are re-evaluated and adjusted as additional information received affects the amountestimated.In addition to specific allowance against individually significant receivables, First Gen Groupalso makes a collective impairment allowance against exposures which, although notspecifically identified as requiring a specific allowance, have a greater risk of default thanwhen originally granted. Collective assessment of impairment is made on a portfolio or groupbasis after performing a regular review of age and status of the portfolio or group of accountsrelative to historical collections, changes in payment terms, and other factors that may affectability to collect payments.F-41

No impairment loss was recognized for each of the three years in the period endedDecember 31, 2011. Receivables and advances to non-controlling shareholder, aggregately,are carried at $284.9 million and $184.7 million as of December 31, 2011 and 2010,respectively (see Notes 7, 9 and 13).b. Impairment of AFS financial assetsFirst Gen Group considers AFS financial assets as impaired when there has been a significantor prolonged decline in the fair value of such investments below their cost or where otherobjective evidence of impairment exists. The determination of what is “significant” or“prolonged” requires judgment. First Gen Group treats “significant” generally as 20% ormore and “prolonged” as greater than twelve months. In addition, First Gen Group evaluatesother factors, including normal volatility in stock price for quoted equities and future cashflows and discount factors for unquoted equities in determining the amount to be impaired.No impairment loss on AFS financial assets was recognized for each of the three years in theperiod ended December 31, 2011. AFS financial assets are carried at $0.7 million as ofDecember 31, 2011 and 2010 (see Note 13).c. Recognition of deferred income tax assetsThe carrying amounts of deferred income tax assets at each financial reporting date arereviewed and are reduced to the extent that there is no longer sufficient future taxable incomeavailable to allow all or part of the deferred income tax assets to be utilized. First GenGroup‟s assessment on the recognition of deferred income tax assets on deductible temporarydifferences, carryforward benefits of MCIT and NOLCO is based on the forecasted taxableincome of the following reporting year. This forecast is based on First Gen Group‟s pastresults and future expectations on revenue and expenses.As of December 31, 2011 and 2010, the amount of deferred income tax assets recognized inthe consolidated statements of financial position amounted to $30.5 million and $16.0 million,respectively. First Gen Group also has deductible temporary differences, carryforward benefitof unused NOLCO and excess MCIT totaling $118.4 million and $193.3 million as ofDecember 31, 2011 and 2010, respectively, for which no deferred income tax asset wasrecognized (see Note 25).d. Present value of defined benefit obligationThe cost of defined benefit retirement plans is determined using the projected unit creditmethod of actuarial valuation. An actuarial valuation involves making assumptions. Theseinclude the determination of the discount rates, expected rates of return on assets, future salaryincreases and medical trend rates. In accordance with PAS 19, past service costs, experienceadjustments and effects of changes in actuarial assumptions are deemed to be amortized overthe average remaining working lives of employees. While the assumptions are reasonable andappropriate, significant differences in First Gen Group‟s actual experience or significantchanges in the assumptions may materially affect the retirement benefit obligation. Due to thelong-term nature of these plans, such estimates are subject to significant uncertainty.The expected rate of return on plan assets was based on the average historical premium of thefund assets. The assumed discount rates were determined using the market yields onPhilippine government bonds with terms consistent with the expected employee benefit payoutas at financial reporting date. The details of assumptions used in the calculation of First GenGroup‟s retirement benefits are presented in Note 24.F-42

As of December 31, 2011 and 2010, the present value of defined benefit obligation of FirstGen Group amounted to $11.5 million and $9.7 million, respectively (see Note 24).Unrecognized cumulative actuarial losses as of December 31, 2011 and unrecognizedcumulative actuarial gains as of December 31, 2010 amounted to $0.1 million and$0.3 million, respectively (see Note 24).e. Impairment of non-financial assetsProperty, plant and equipment, pipeline rights, prepaid gas and prepaid major spare partsFirst Gen Group assesses impairment on these non-financial assets whenever events orchanges in circumstances indicate that the carrying amount of an asset may not be recoverable.The factors that First Gen Group considers important which could trigger an impairmentreview include the following:• significant under-performance relative to expected historical or projected future operatingresults;• significant changes in the manner of use of the acquired assets or the strategy for overallbusiness; and• significant negative industry or economic trends.First Gen Group recognizes an impairment loss whenever the carrying amount of an assetexceeds its recoverable amount. The recoverable amount is computed using the value in useapproach. Recoverable amount is estimated for an individual asset or, if it is not possible, forthe cash-generating unit to which the asset belongs.For each of the three years in the period ended December 31, 2011, management hasdetermined that there are no events or changes in the circumstances that may indicate that thecarrying value of the non-financial assets may not be recoverable, thus, no impairment losswas recognized for the years then ended. The aggregate carrying values of the non-financialassets subjected to impairment testing amounted to $597.9 million and $647.2 million as ofDecember 31, 2011 and 2010, respectively (see Notes 11, 12 and 13).GoodwillFirst Gen Group performs impairment review on goodwill, annually or more frequently, ifevents or changes in circumstances indicate that the carrying value may be impaired. Thisrequires an estimation of the value in use of the cash-generating units to which goodwill isallocated. Estimating the value in use requires First Gen Group to make an estimate of theexpected future cash flows from the cash-generating units and discounts such cash flows usingweighted average cost of capital to calculate the present value of those future cash flows(see Note 12).No impairment loss on goodwill was recognized in the consolidated statements of income foreach of the three years in the period ended December 31, 2011. The carrying values ofgoodwill as of December 31, 2011 and 2010 amounted to $9.1 million (see Notes 4 and 12).Investments in associatesImpairment review of investment in associates is performed when events or changes incircumstances indicate that the carrying value exceeds its fair value. In 2010 and 2009,management has determined that there are no events or changes in circumstances that mayindicate that the carrying value of investments in associates may not be recoverable, thus, noimpairment loss was recognized for the years then ended. In 2011, management performedimpairment review of its investment in an associate. Based on the impairment review, therecoverable amount is more than the carrying amount of the investment, thus, no impairmentloss was recognized for the year then ended. The carrying values of First Gen Group‟sinvestments in associates amounted to $1,294.8 million and $1,207.5 million as ofDecember 31, 2011 and 2010, respectively (see Notes 4 and 10).F-43

f. Estimation of useful lives of property, plant and equipment (except land) and pipeline rightsFirst Gen Group estimated the useful lives of property, plant and equipment and pipelinerights based on the years over which the assets are expected to be available for use and on thecollective assessment of industry practices, internal technical evaluation and experience withsimilar assets. The estimated useful lives of property, plant and equipment and pipeline rightsare reviewed at each financial reporting date and updated, if expectations differ from previousestimates due to physical wear and tear, technical or commercial obsolescence and legal orother limits in the use of these assets. However, it is possible that future financial performancecould be materially affected by changes in the estimates brought about by changes in thefactors mentioned above. The amounts and timing of recording the depreciation andamortization of property, plant and equipment and pipeline rights for any year would beaffected by changes in these factors and circumstances. A reduction in the estimated usefullives of the property, plant and equipment and pipeline rights would increase the recordeddepreciation and amortization and decrease the noncurrent assets.There is no change in the estimated useful lives of property, plant and equipment and pipelinerights during the year. The aggregate carrying values of property, plant and equipment as ofDecember 31, 2011 and 2010 amounted to $520.9 million and $580.7 million, respectively(see Note 11). The carrying values of pipeline rights as of December 31, 2011 and 2010amounted to $7.7 million and $8.3 million, respectively (see Note 12).g. Estimation of asset retirement obligationsUnder their respective Environmental Compliance Certificate (ECC) issued by the Departmentof Environmental and Natural Resources (DENR), FGP and FGPC have legal obligations todismantle their power plant assets at the end of their useful lives. FG Bukidnon, on the otherhand, has a contractual obligation under the lease agreement with Power Sector Assets andLiabilities Management (PSALM) to dismantle its power plant assets at the end of the usefullives. The asset retirement obligations recognized represent the best estimate of theexpenditures required to dismantle the power plants at the end of their useful lives. Such costestimates are discounted using a pre-tax rate that reflects the current market assessment of thetime value of money and the risks specific to the liability. Each year, the asset retirementobligations are increased to reflect the accretion of discount and to accrue an estimate for theeffects of inflation, with the charges being recognized under the “Interest expense andfinancing charges” account in the consolidated statement of income. While it is believed thatthe assumptions used in the estimation of such costs are reasonable, significant changes inthese assumptions may materially affect the recorded expense or obligations in future years.Asset retirement obligations amounted to $1.2 million and $1.1 million as ofDecember 31, 2011 and 2010, respectively (see Note 18).h. Fair values of financial instrumentsFirst Gen Group carries certain financial assets and liabilities at fair value, which requiresextensive use of accounting estimates and judgment. While significant components of fairvalue measurement were determined using verifiable objective evidence (i.e., foreignexchange rates, interest rates and volatility rates), the amount of changes in fair value woulddiffer if First Gen Group utilized different valuation methodologies and assumptions. Anychanges in fair value of these financial assets and liabilities would affect the consolidatedstatement of income and equity.Where the fair values of certain financial assets and financial liabilities recorded in theconsolidated statement of financial position cannot be derived from active markets, they aredetermined using internal valuation techniques using generally accepted market valuationmodels. The inputs to these models are taken from observable markets where possible, butwhere this is not feasible, estimates are used in establishing fair values. Judgments includeconsiderations of liquidity and model inputs such as correlation and volatility for longer datedderivatives.F-44

The fair values of First Gen Group‟s financial instruments are presented in Note 28 to theconsolidated financial statements.i. Legal contingencies and regulatory assessmentsFirst Gen Group is involved in various legal proceedings and regulatory assessments asdiscussed in Note 29 to the consolidated financial statements. First Gen Group‟s estimate ofprobable costs for the assessments and resolution of these claims and cases have beendeveloped in consultation with external counsels handling the defense in these claims andcases and is based upon thorough analysis of potential results.First Gen Group, in consultation with its external counsels, does not believe that theseproceedings will have a material adverse effect on the consolidated financial statements. It ispossible, however, that future financial performance could be materially affected by changesin the estimates or the effectiveness of management‟s strategies relating to these proceedings.4. Discontinued OperationsOn May 12, 2009, the BOD of Prime Terracota approved and issued 16,000,000 Class “B”preferred stocks with a par value of one peso (P=1.00) per share to QRC and 44,000,000 Class “B”preferred stocks with a par value of one peso (P=1.00) per share to LIRF, which stocks shall beentitled to cumulative dividends of P=0.10 per share per annum, payable at the end of each quarterfrom the time of their issuance or at such times as may be determined by the BOD of PrimeTerracota, subject to the availability of unrestricted retained earnings.Based on the above transactions, First Gen is deemed to have lost control over Prime Terracotasince First Gen‟s voting interest in Prime Terracota has been reduced to approximately 45% andhas lost control over the BOD of Prime Terracota. In addition, the loss of control is treated as adeemed sale transaction in accordance with the Amended PFRS 5.The results of operations of Prime Terracota and subsidiaries (major subsidiaries include RedVulcan and EDC) for the four-month period ended April 30, 2009 is summarized below.Revenue $163,721Costs and expenses:Power plant operations and maintenance (56,246)Depreciation and amortization (10,731)Staff costs (17,689)Other administrative expenses (14,035)Interest expense and financing charges (26,173)Foreign exchange gains - net 27,815Mark-to-market losses on derivatives (5,162)Income before income tax 61,500Provision for income tax (19,539)Net income from discontinued operations $41,961Attributable to:Equity holders of the Parent Company $12,474Non-controlling interests 29,487$41,961F-45

The net cash provided by Prime Terracota and its subsidiaries for the four-month period endedApril 30, 2009 are as follows:Net cash provided by operating activities $158,029Net cash used in investing activities (80,921)Net cash provided by financing activities 67,542EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH ANDCASH EQUIVALENTS 20NET INCREASE IN CASH AND CASH EQUIVALENTS 144,670CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,147CASH AND CASH EQUIVALENTS AT END OF PERIOD $164,8175. Operating Segment InformationOperating segments are components of First Gen Group that engage in business activities fromwhich they may earn revenues and incur expenses, whose operating results are regularly reviewedby First Gen Group‟s CODM to make decisions about how resources are to be allocated to thesegment and assess their performances, and for which discrete financial information is available.For purposes of management reporting, First Gen Group‟s operating businesses are organized andmanaged separately on a per company basis, with each company representing a strategic businesssegment. First Gen‟s identified operating segments, which are consistent with the segmentsreported to the BOD, which is the CODM of First Gen, are as follows:FGPC, which operates the 1,000 MW combined cycle, natural gas-fired Santa Rita powerplant, and where the Parent Company has a 60% equity interest through FGHC;FGP, which operates the 500 MW combined cycle, natural gas-fired San Lorenzo power plant,and where the Parent Company has a 60% equity interest through Unified;EDC, which operates 12 geothermal steamfields in the 5 geothermal renewable servicecontract areas. The Parent Company has 7.02% direct economic interest and 40% indirecteconomic interest (through Prime Terracota) in EDC. The Parent Company has 45% votinginterest in Prime Terracota, which in turn, has 60% voting interest in EDC through RedVulcan;GCGI, which operates the 192.5 MW Palinpinon and 112.5 MW Tongonan 1 geothermalpower plants in Negros Oriental. GCGI is a wholly owned subsidiary of EDC; and,FG Hydro, which operates the newly upgraded and rehabilitated 132 MW PAHEP/MAHEP,and where the Parent Company has a 40% direct economic interest and 64% effectiveeconomic interest.Management monitors the operating results of its business units separately for the purpose ofmaking decisions about resource allocation and performance assessment. Segment revenue andsegment expenses are measured in accordance with PFRS. The classification of segment revenueis consistent with the consolidated statements of income. Segment expenses pertain to the costsand expenses presented in the consolidated statements of income excluding interest expense andfinancing charges, depreciation and amortization expense and income taxes which are managed ona per company basis.First Gen has only one geographical segment as all of its assets are located in the Philippines.First Gen Group operates and derives principally all of its revenue from domestic operations.Thus, geographical business information is not required.F-46

Revenue is recognized to the extent that it is probable that economic benefits will flow toFirst Gen Group and that the revenue can be reliably measured. Substantially all of the segmentrevenues of FGP and FGPC are derived from Meralco, the sole customer of FGP and FGPC; closeto 55.5% of EDC‟s segment revenues are derived from NPC.Financial information on the business segments are summarized as follows:Year Ended December 31, 2011FGPC FGPEDC &GCGI FG Hydro OthersDiscontinuedOperationsEliminatingEntries 1 TotalSegment revenue $904,058 $450,373 $689,821 $56,494 $14,931 $– ($752,147) $1,363,530Segment expenses (706,243) (354,809) (436,630) (8,473) (19,096) – 444,701 (1,080,550)Segment results 197,815 95,564 253,191 48,021 (4,165) – (307,446) 282,980Interest expense and financing charges (43,352) (6,980) (87,246) (10,688) (53,091) – 116,399 (84,958)Depreciation and amortization (35,131) (26,352) (195,808) (9,447) (630) – 205,527 (61,841)Income (loss) before income tax 119,332 62,232 (29,863) 27,886 (57,886) – 14,480 136,181Benefit from (provision for) income tax (34,369) (15,098) 3,878 127 102 – (4,211) (49,571)Net income (loss) $84,963 $47,134 ($25,985) $28,013 ($57,784) $– $10,269 $86,6101 Pertains to revenue and expenses of Prime Terracota, Red Vulcan, EDC, GCGI and FG Hydro for the year ended December 31, 2011.Year Ended December 31, 2010EDC &Discontinued EliminatingFGPC FGP GCGI FG Hydro Others Operations Entries1 TotalSegment revenue $782,035 $401,249 $686,542 $49,883 ($5,737) $– ($669,694) $1,244,278Segment expenses (592,573) (309,117) (428,383) (16,613) (2,151) – 426,577 (922,260)Segment results 189,462 92,132 258,159 33,270 (7,888) – (243,117) 322,018Interest expense and financing charges (46,328) (9,013) (70,441) (9,796) (63,656) – 95,012 (104,222)Depreciation and amortization (35,335) (19,285) (27,177) (8,428) (349) – 35,604 (54,970)Income (loss) before income tax 107,799 63,834 160,541 15,046 (71,893) – (112,501) 162,826Benefit from (provision for) income tax (29,825) (11,684) (28,536) 367 (238) – 28,090 (41,826)Net income (loss) $77,974 $52,150 $132,005 $15,413 ($72,131) $– ($84,411) $121,0001 Pertains to revenue and expenses of Prime Terracota, Red Vulcan, EDC, GCGI and FG Hydro for the year ended December 31, 2010.Year Ended December 31, 2009FGPC FGPEDC &GCGI FG Hydro OthersDiscontinuedOperations 1EliminatingEntries 2 TotalSegment revenue $689,685 $335,200 $492,933 $28,492 $13,057 ($191,536) ($345,715) $1,022,116Segment expenses (507,803) (240,407) (270,552) (6,715) (17,185) 93,132 184,592 (764,938)Segment results 181,882 94,793 222,381 21,777 (4,128) (98,404) (161,123) 257,178Interest expense and financing charges (49,861) (11,815) (52,689) (7,326) (85,718) 26,173 69,147 (112,089)Depreciation and amortization (33,531) (20,043) (23,638) (11,949) (358) 10,731 24,856 (53,932)Income (loss) from continuing operationsbefore income tax 98,490 62,935 146,054 2,502 (90,204) (61,500) (67,120) 91,157Net income from discontinued operations – – – – – 41,961 – 41,961Benefit from (provision for) income tax (27,297) (10,684) (68,608) (136) (129) 19,539 49,204 (38,111)Net income (loss) $71,193 $52,251 $77,446 $2,366 ($90,333) $– ($17,916) $95,0071 Pertains to revenue and expenses of Prime Terracota, Red Vulcan, EDC, and FG Hydro for the four-month period ended April 30, 2009.2 Pertains to revenue and expenses of Prime Terracota, Red Vulcan, EDC, GCGI and FG Hydro for the period May 1, 2009 to December 31, 2009.Other financial information of the business segments are as follows:As of December 31, 2011FGPC FGP EDC & GCGI FG Hydro OthersDiscontinuedOperations 1EliminatingEntries 2TotalCurrent assets $274,404 $151,678 $465,421 $53,263 $361,393 ($518,684) ($226,841) $560,634Noncurrent assets 572,332 240,882 1,862,769 165,042 1,306,347 (2,027,811) (123,584) 1,995,977Total assets $846,736 $392,560 $2,328,190 $218,305 $1,667,740 ($2,546,495) ($350,425) $2,556,611Current liabilities $149,671 $89,365 $241,755 $12,605 $179,001 ($254,360) ($163,701) $254,336Noncurrent liabilities 473,320 64,435 1,081,265 96,148 357,703 (1,177,413) – 895,458Total liabilities $622,991 $153,800 $1,323,020 $108,753 $536,704 ($1,431,773) ($163,701) $1,149,7941 Pertains to assets and liabilities of Prime Terracota, Red Vulcan, EDC, GCGI and FG Hydro as of December 31, 2011.2 Pertains to intercompany assets and liabilities eliminated upon consolidation.F-47

As of December 31, 2010FGPC FGP EDC & GCGI FG Hydro OthersDiscontinuedOperations 1EliminatingEntries 2TotalCurrent assets $204,014 $98,834 $498,541 $44,130 $206,318 ($542,671) ($131,277) $377,889Noncurrent assets 608,802 266,670 1,651,969 161,361 1,333,371 (1,813,330) (245,339) 1,963,504Total assets $812,816 $365,504 $2,150,510 $205,491 $1,539,689 ($2,356,001) ($376,616) $2,341,393Current liabilities $100,603 $59,188 $192,915 $12,158 $501,493 ($205,073) ($277,663) $383,621Noncurrent liabilities 510,221 101,370 985,560 103,854 198,212 (1,089,414) – 809,803Total liabilities $610,824 $160,558 $1,178,475 $116,012 $699,705 ($1,294,487) ($277,663) $1,193,4241 Pertains to assets and liabilities of Prime Terracota, Red Vulcan, EDC, GCGI and FG Hydro as of December 31, 2010.2 Pertains to intercompany assets and liabilities eliminated upon consolidation.6. Cash and Cash EquivalentsThis account consists of:2011 2010Cash on hand and in banks (see Note 16) $18,917 $68,051Short-term deposits (see Note 16) 247,224 133,200$266,141 $201,251Cash in banks earn interest at the respective bank deposit rates ranging from 0.12% to 3.67% and0.12% to 3.22% as of December 31, 2011 and 2010, respectively. Short-term deposits are madefor varying periods of up to three months depending on the immediate cash requirements of FirstGen Group, and earn interest at the respective short-term deposits rates.In 2011, 2010 and 2009, total interest income earned amounted to $2.6 million, $2.9 million and$0.7 million, respectively (see Note 22).7. ReceivablesThis account consists of:2011 2010Trade [see Note 29(a)] $180,119 $71,305Due from related parties (see Note 21) 9,339 8,670Others (see Note 21) 3,158 7,528$192,616 $87,503Trade receivables are noninterest-bearing and are generally on 30-day credit term, while otherreceivables are comprised mainly of receivables from EDC (see Note 21), employees, contractorsand suppliers, which are collectible upon demand.No allowance for impairment losses on receivables was recorded as of December 31, 2011 and2010.F-48

8. InventoriesThis account consists of:2011 2010Fuel inventories $69,953 $50,964Spare parts and supplies 44 49$69,997 $51,013Inventories as of December 31, 2011 and 2010 are carried at cost. The amounts of fuel inventoriesrecognized as expense are $54.3 million in 2011, $111.4 million in 2010 and $22.5 million in2009, which are recognized as part of the “Fuel cost” account in the consolidated statements ofincome.9. Other Current AssetsThis account consists of:2011 2010Prepaid taxes $11,132 $15,351Prepaid expenses 14,938 15,394Current portion of advances to non-controllingshareholder (see Notes 13, 16, 21, 27 and 28) 5,643 5,656Current portion of option assets (see Notes 13 and 28) – 1,566Others 167 155$31,880 $38,122Prepaid taxes consist mainly of tax credits that may be used by the operating subsidiaries of FirstGen Group in the future.Prepaid expenses consist mainly of prepaid insurance, input VAT and creditable withholdingtaxes.10. Investments in AssociatesInvestments in associates consist of:2011 2010Shares of stock at equityPrime Terracota $98,352 $128,812EDC 168,698 64,487FG Hydro 33,821 20,717300,871 214,016Deposits for future stock subscriptions 993,911 993,502$1,294,782 $1,207,518F-49

Further information relating to the investments in shares of stock are summarized below:2011 2010Acquisition costs:Balance at beginning of year $269,639 $236,100Additional investment (see Notes 13 and 28) 105,292 50,240Conversion of deposits to capital stock 10 –Return of investments – (16,701)Balance at end of year 374,941 269,639Accumulated equity in net earnings (losses):Balance at beginning of year 30,647 (11,705)Equity in net earnings for the year 4,970 47,729Cash dividends (10,639) (5,377)Balance at end of year 24,978 30,647Equity reserve in Prime Terracota (65,264) (65,264)Share in other comprehensive income (losses)of associates:Balance at beginning of year (21,006) (78,516)Share in other comprehensive income (loss) ofassociates for the year (12,778) 57,510Balance at end of year (33,784) (21,006)$300,871 $214,016Deposits for future stock subscriptionsThe deposits for future stock subscriptions amounting to $993.9 million and $993.5 million as ofDecember 31, 2011 and 2010, respectively, pertains to the deposits that were invested by theParent Company in Prime Terracota. As disclosed in Note 4 to the consolidated financialstatements (Discontinued Operations), the Parent Company‟s investment in Prime Terracota,which includes the deposits for future stock subscriptions, was deconsolidated effective May 2009.Movements of the deposits for future stock subscriptions in 2011 and 2010 are as follows:2011 2010Balance at beginning of year $993,502 $940,107Additions for the year 419 53,395Conversion of deposits to capital stock (10) –Balance at end of year $993,911 $993,502On December 23, 2011, the Parent Company and Prime Terracota executed a Deed of Assignmentwhereby the deposits for future stock subscriptions amounting to $993.9 million will be convertedto equity upon the approval of Prime Terracota‟s application for an increase in authorized capitalstock by the Philippine SEC.BPPC/FPPCOn October 14, 2010, the BOD and stockholders of BPPC and FPPC approved the Plan of Mergerwhere FPPC shall be merged into and be part of BPPC, and its separate corporate existence shallcease by operation of law. Subsequently, on December 13, 2010, the Philippine SEC approved theCertificate of Filing of the Articles and Plan of Merger. On December 15, 2010, the effective dateof the Merger, FPPC transferred its assets and liabilities at their carrying values to BPPC.F-50

Pursuant to the Articles of Merger, BPPC issued common stock to holders of FPPC common stockupon the surrender and cancellation of common stock of FPPC.The merger was accounted for in accordance with the pooling of interest method where theidentifiable assets acquired and liabilities assumed from FPPC are recognized at their carryingvalues and will be accounted for prospectively.Prior to merger, proceeds from the return of the Parent Company‟s investment in FPPC haveexceeded the cost of the investment. Such excess totaling to $1.1 million was recorded under the“Others” account in the 2010 consolidated statement of income. In 2011, the Parent Companyreceived a return of investment amounting to $1.5 million which was recorded under the “Others”account in the 2011 consolidated statement of income.As of December 31, 2011 and 2010, the investment in BPPC amounted to nil.FGNECOn March 17, 2010, the Parent Company‟s interest in FGNEC was reduced from 100% to 33%and, thus, FGNEC started to be accounted for as an associate (see Note 2). The Parent Company‟sshare in net losses of FGNEC for the period from March 17, 2010 to December 31, 2010 hasexceeded the Parent Company‟s cost of investment. As such, the investment in FGNEC amountedto nil as of December 31, 2011 and 2010.Undistributed net earnings of associatesAs of December 31, 2011 and 2010, the undistributed net earnings of FG Hydro amounted to$20.8 million and $6.2 million, respectively. Such undistributed net earnings of FG Hydro, whichwere included in the retained earnings, are not currently available for dividend distribution unlessdeclared by FG Hydro.Following are the consolidated financial information of First Gen Group‟s associates as ofDecember 31, 2011 and 2010:CurrentassetsNoncurrentassetsAs of December 31, 2011 For the year ended December 31, 2011CurrentliabilitiesNoncurrentliabilitiesEquity(CapitalDeficiency)Deposits forfuture stocksubscriptionsRevenuesCosts andexpensesNet income(loss)PrimeTerracota* $277,334 $2,547,136 $78,222 $1,240,984 $1,505,264 $993,911 $691,272 $729,553 ($38,281)FG Hydro 62,542 155,763 12,949 95,804 109,552 – 56,494 28,481 28,013BPPC 1,286 10 19 – 1,277 – – 125 (125)FGNEC 11 – 419 – (408) – – 19 (19)CurrentassetsNoncurrentassetsAs of December 31, 2010 For the year ended December 31, 2010CurrentliabilitiesNoncurrentliabilitiesEquity(CapitalDeficiency)Deposits forfuture stocksubscriptionsRevenuesCosts andexpensesNet income(loss)PrimeTerracota* $367,508 $2,489,268 $116,072 $1,160,019 $1,580,685 $993,492 $689,827 $557,587 $132,240FG Hydro 44,130 161,361 12,158 103,855 89,478 10 47,888 32,475 15,413BPPC 6,672 10 350 – 6,332 – 10,091 10,290 (199)FGNEC 10 – 399 – (389) – – 333 (333)*Includes Red Vulcan and EDC and its subsidiariesFor the period May 1 through December 31, 2009, net loss attributable to equity holders of PrimeTerracota and net loss of FG Hydro amounted to $2.1 million and $3.3 million, respectively.F-51

11. Property, Plant and EquipmentMovements in the account are as follows:Buildingsand OtherStructuresMachineryandEquipment2011TransportationEquipmentFurniture,Fixtures andOfficeEquipmentLeaseholdImprovementsLandTotalCostBalance at beginning of year $18,957 $385,461 $643,688 $2,498 $4,284 $972 $1,055,860Additions – 62 366 742 365 26 1,561Disposals – – (2,578) (483) (21) – (3,082)Foreign exchange adjustments – – – – – – –Balance at end of year 18,957 385,523 641,476 2,757 4,628 998 1,054,339Accumulated Depreciationand AmortizationBalance at beginning of year – 123,142 345,784 1,416 3,912 943 475,197Depreciation and amortization(see Note 23) – 11,118 49,453 411 254 3 61,239Disposals – – (2,578) (374) (21) – (2,973)Foreign exchange adjustments – (1) – – – – (1)Balance at end of year – 134,259 392,659 1,453 4,145 946 533,462Net Book Value $18,957 $251,264 $248,817 $1,304 $483 $52 $520,877Buildingsand OtherStructuresMachineryandEquipment2010TransportationEquipmentFurniture,Fixtures andOfficeEquipmentLeaseholdImprovementsLandTotalCostBalance at beginning of year $18,952 $385,318 $571,675 $2,176 $4,122 $959 $983,202Additions – 49 18,658 564 158 9 19,438Reclassification of prepaid majorspare parts (see Note 13) – – 53,333 – – – 53,333Disposals – – – (246) (4) – (250)Foreign exchange adjustments 5 94 22 4 8 4 137Balance at end of year 18,957 385,461 643,688 2,498 4,284 972 1,055,860Accumulated Depreciationand AmortizationBalance at beginning of year – 112,308 302,828 1,244 3,645 939 420,964Depreciation and amortization(see Note 23) – 10,811 42,951 341 265 – 54,368Disposals – – – (172) (4) – (176)Foreign exchange adjustments – 23 5 3 6 4 41Balance at end of year – 123,142 345,784 1,416 3,912 943 475,197Net Book Value $18,957 $262,319 $297,904 $1,082 $372 $29 $580,663No borrowing costs were capitalized for the years ended December 31, 2011 and 2010.Property, plant and equipment with net book values of $515.9 million and $575.6 million as ofDecember 31, 2011 and 2010, respectively, have been pledged as security for long-term debt(see Note 16).12. Goodwill and Intangible AssetsMovements in the account are as follows:2011GoodwillPipelineRightsTotalCostBalance at beginning andend of year $9,086 $13,253 $22,339Accumulated AmortizationBalance at beginning of year – 4,969 4,969Amortization (see Note 23) – 602 602Balance at end of year – 5,571 5,571$9,086 $7,682 $16,768F-52

2010GoodwillPipelineRightsTotalCostBalance at beginning andend of year $9,086 $13,253 $22,339Accumulated AmortizationBalance at beginning of year – 4,367 4,367Amortization (see Note 23) – 602 602Balance at end of year – 4,969 4,969$9,086 $8,284 $17,370GoodwillAs of December 31, 2011 and 2010, the outstanding balance of goodwill is attributable only toFGHC.The recoverable amounts have been determined based on a value-in-use calculation using cashflow projections based on financial budgets approved by senior management covering a five-yearperiod. The pre-tax discount rates applied in cash flow projections were 9.57% and 7.88% for theyears ended December 31, 2011 and 2010, respectively, and the cash flows beyond the remainingterm of the existing agreements were extrapolated using growth rates of 2.61% and 2.55% for theyears ended December 31, 2011 and 2010, respectively, for FGPC.Key assumptions with respect to the calculation of value-in-use of the cash-generating units as ofDecember 31, 2011 and 2010 on which management had based its cash flow projections toundertake impairment testing of goodwill are as follows:• Budgeted Gross MarginsThe basis used to determine the value assigned to the budgeted gross margins is the averagegross margins achieved in the year immediately before the budgeted year, increased forexpected efficiency improvements.• Bond RatesThe average yield on a five-year U.S. government bond rate at beginning of budgeted year is2.814% in 2011 and 2.067% in 2010.No impairment loss was recognized in the consolidated statements of income for each of the threeyears in the period ended December 31, 2011.Pipeline RightsPipeline rights represent the construction cost of the natural gas pipeline facility connecting thenatural gas supplier‟s refinery to FGP‟s power plant including incidental transfer costs incurred inconnection with the transfer of ownership of the pipeline facility to the natural gas supplier. Thecost of pipeline rights is amortized using the straight-line method over 22 years, which is the termof the Gas Sale and Purchase Agreements (GSPA). The remaining amortization period of pipelinerights is 12.75 years as of December 31, 2011.F-53

13. Other Noncurrent AssetsThis account consists of:2011 2010Advances to non-controlling shareholder - net ofcurrent portion (see Notes 9, 16, 21, 27 and 28) $86,592 $91,586Prepaid major spare parts [see Note 29(h)] 69,306 30,154AFS financial assets 741 741Deferred debt issuance cost (see Note 16) 960 –Retirement asset (see Note 24) 485 369Derivative assets (see Notes 9, 27 and 28) 182 –Prepaid gas [see Notes 17 and 29(f)] – 28,118Option assets - net of current portion (see Notes 9,27 and 28) – 2,623Others 2,074 568$160,340 $154,159In 2010, prepaid major spare parts amounting to $53.3 million were reclassified to the “Property,plant and equipment” account as a result of the scheduled major maintenance outage of the SantaRita and San Lorenzo power plants.On April 19, 2010, the Parent Company entered into Call Option Agreements to purchase a totalof 585.0 million EDC common shares for a period of three years or up to April 2013 with onethird of the options expiring at the end of each year. The related call option is classified asderivative asset with mark-to-market (MTM) movements included in the consolidated statement ofincome (see Notes 27 and 28).On March 2, 2011, the Parent Company and Northern Terracotta executed a Deed of Assignmentto assign the Parent Company‟s full rights and obligations over the first tranche of an aggregate585.0 million EDC common shares covered by the Call Option Agreements executed by theParent Company. The assignment gives Northern Terracotta the right to exercise the call optionover 195.0 million EDC shares on or before April 19, 2011, which is the expiration of the firstexercise period, at an exercise price of P=5.67 per share.On March 8, 2011, Northern Terracotta exercised its rights to purchase the 195.0 million EDCshares at P=5.67 a share with total cost amounting to $25.3 million (P=1,105.7 million). OnApril 5, 2011, the remaining option assets covering the 390.0 million shares were exercised by theParent Company at an exercise price of P=5.51 per share for a total cost of $49.4 million(P=2,148.9 million). The fair value of the call options exercised amounting to $8.4 million wasrecognized as an additional investment in EDC (see Note 28). In 2011, the Parent Company andNorthern Terracotta purchased additional EDC shares from the market totaling to $22.2 million(P=956.0 million). In 2010, the Parent Company purchased EDC shares from the market totaling to$50.2 million (P=2,283.3 million).In 2010, the Parent Company bought and disposed of AFS financial assets classified as quotedequity securities. The change in fair value amounting to $1.4 million was recognized initially inother comprehensive income (loss) and was taken into profit or loss for the year endedDecember 31, 2010. Total gain from sale recognized under the “Others” account in the 2010consolidated statement of income amounted to $1.9 million.As of December 31, 2011 and 2010, the AFS financial assets pertain to proprietary membershipshares which are carried at cost since these are unquoted and there is no reliable basis for their fairvalues.F-54

14. Accounts Payable and Accrued ExpensesThis account consists of:2011 2010Trade $127,756 $59,672Deferred output VAT 19,675 7,806Output VAT 10,668 15,382Accrued interest and financing costs 7,046 10,375Others 5,510 5,463$170,655 $98,698Trade payables are noninterest-bearing and are normally settled on 30 to 60-day payment terms.15. Bonds PayableConvertible Bonds (CBs)On February 11, 2008, the Parent Company issued $260.0 million, U.S. Dollar-denominated CBsdue on February 11, 2013 with a coupon rate of 2.50%. The CBs are listed on the SingaporeExchange Securities Trading Limited. The CBs are traded in a minimum board lot size of$0.5 million. The CBs constitute the direct, unsubordinated and unsecured obligations of theParent Company, ranking pari passu in right of payment with all other unsecured andunsubordinated debt of the Parent Company.The bonds include equity conversion option whereby each bond will be convertible, at the optionof the holder, into fully-paid shares of common stock of the Parent Company. The initialconversion price was P=63.72 a share with a fixed exchange rate of US$1.00 to P=40.55, subject toadjustments under circumstances described in the Terms and Conditions of the CBs. Theconversion price has since been adjusted to P=26.94 a share to consider the effect of the stockdividend and the Rights Offering. The conversion right attached to the CBs may be exercised, atthe option of the holder, at any time on and after March 22, 2008 up to 3:00 pm onJanuary 31, 2013. The CBs and the stocks to be issued upon conversion of the CBs have not beenand will not be registered under the U.S. Securities Act of 1933, as amended, and subject tocertain exceptions, may not be offered or sold within U.S. In addition, such conversion right issubject to a cash settlement option whereby the Parent Company may elect to make a cashsettlement payment in respect of all or any portion of a holder‟s bonds deposited for conversion.The Parent Company also has a call option where it may redeem the CBs on or after February 11,2010, in whole but not in part, at the early redemption amount, if the closing price of the stocks forany 20 trading days out of the 30 consecutive trading days prior to the date upon which the noticeof such redemption is given, was at least 130% of the conversion price in effect for such tradingperiod, or at any time prior to maturity, in whole but not in part, at the early redemption amount, ifless than 10% of the aggregate principal amount of the CBs originally issued are then outstanding.The Bondholders have a put option giving them the right to require the Parent Company to redeemthe CBs at the early redemption amount on February 11, 2011. The early redemption amount isdetermined so that it represents a 7.25% gross yield to the Bondholder on a semi-annual basis.The equity conversion, call and put option features of the CB were identified as embeddedderivatives and were separated from the host contract (see Note 28). As of December 31, 2011and 2010, the Parent Company is in compliance with the bond covenants.F-55

In 2010, the Parent Company bought back CBs with face value of $74.0 million for a totalsettlement amount of $83.2 million inclusive of a premium amounting to $9.2 million.On February 11, 2011, the holders of the CBs amounting to $72.5 million exercised their putoption to require the Parent Company to redeem all or some of the CBs at a price of 115.6% of theface value. The total put value which equals the carrying amount of the CBs amounting to$83.8 million (with a face value of $72.5 million) was paid on February 11, 2011. In 2011, inaddition to the redeemed CBs, the Parent Company bought back CBs with a face value of$43.5 million for a total settlement amount of $53.7 million inclusive of a premium amounting to$10.2 million.As of December 31, 2011, the unredeemed CBs with a total face value and carrying value of$70.0 million and $84.7 million, respectively, will now have a maturity date of February 11, 2013.The Parent Company recorded a loss on the buy back of the CBs amounting to $2.2 millionincluded under “Interest expense and financing charges” account in the consolidated statements ofincome each for the years ended December 31, 2011 and 2010.As of December 31, 2011 and 2010, the carrying amount of the host contract amounted to$84.7 million and $213.3 million, respectively.The movements in the account are as follows:2011 2010Balance at beginning of year $213,283 $277,353Redemption of convertible bonds (83,817) –Buy back of convertible bonds (53,653) (82,990)Accretion for the year charged to the “Interestexpense and financing charges” account(see Note 23) 8,849 18,920Balance at end of year $84,662 $213,283As of December 31, 2011 and 2010, movements of debt issuance costs pertaining to the CBs areas follows:2011 2010Balance at beginning of year $130 $1,689Accretion for the year charged to the “Interestexpense and financing charges” account(see Note 23) (130) (1,559)Balance at end of year $– $130Philippine peso-denominated BondsOn June 24, 2005, the Parent Company issued P=5.0 billion (equivalent amount in U.S. dollar of$92.6 million) Philippine peso-denominated Fixed-rate Bonds (Peso Bonds) due on July 30, 2010with a coupon rate of 11.55%. The effective interest rate of the Peso Bonds was 12.03%. Interestis payable semi-annually. The Peso Bonds constitute the direct, unconditional, unsecured andgeneral obligations of the Parent Company. The proceeds from the Peso Bonds were used forgeneral corporate purposes, including working capital and investments.F-56

As set forth in the Trust Agreement in connection with the issuance of the Peso Bonds, the ParentCompany was obligated to comply with certain covenants with respect to, among others:maintenance of specified debt-to-equity and minimum debt-service-coverage ratios; disposition ofall or substantially all of its assets; maintenance of ownership/management control; encumbrances;and payment of taxes. In addition, the Parent Company was restricted to declare or pay dividends(other than stock dividend) during an Event of Default (as defined in the Trust Agreement) or ifsuch payment would have resulted in an Event of Default without the prior written consent ofBondholders representing at least 51% of the aggregate outstanding principal amount of the PesoBonds. On July 30, 2010, the Parent Company fully paid the principal balance of the Peso Bondspayable, including accrued interest amounting to $11.8 million (P=543.7 million).As of December 31, 2010, the unamortized debt issuance costs incurred in connection with theissuance of the Peso Bonds amounted to nil.Movements of debt issuance costs pertaining to the Peso Bonds are as follows:2010Balance at beginning of year $241Accretion for the year charged to the “Interestexpense and financing charges” account(see Note 23) (243)Foreign exchange adjustments 2Balance at end of year $–16. Long-term DebtThis account consists of long-term debts of:2011 2010FGPC $443,254 $475,163First Gen 273,251 82,874FGP 88,717 114,044Unified – 117,099Total 805,222 789,180Less current portion 58,460 59,678Noncurrent portion $746,762 $729,502FGPC and FGPLong-term debts of FGPC and FGP consist of U.S. dollar-denominated borrowings availed fromvarious lenders to partly finance the construction and operations of their power plant complexes.FGPCFacility Outstanding BalanceNature Repayment Schedule Amount 2011 2010Covered foreign currency-denominatedloans payable to foreign financinginstitutions with annual interest at sixmonths London Inter-Bank Offered Rate(LIBOR) plus 3.25% margin and politicalrisk insurance (PRI) premiumRepayment to be made invarious semi-annualinstallments from 2009 upto 2021$312,000 $276,893 $288,334(Forward)F-57

Facility Outstanding BalanceNature Repayment Schedule Amount 2011 2010Uncovered foreign currency-denominatedloans payable to foreign financinginstitutions with annual interest at sixmonths LIBOR plus margin of 3.50% onthe 1 st to 5 th year, 3.75% on the 6 th to 7 thyear and 3.90% on the succeeding yearsKFW/HERMES foreign currencydenominatedloans payable with a fixedinterest rate of 7.20%Repayment to be made invarious semi-annualinstallments from 2009 upto 2018Back-ended and annuitystyle repayment to be madein various semi-annualinstallments from 2001 upto 2012$188,000 $156,721 $167,753360,000 9,640 19,076Total 443,254 475,163Less current portion 32,237 31,909Noncurrent portion $411,017 $443,254On November 14, 2008 (the “Refinancing Date”), FGPC has entered into a Bank FacilityAgreement covering a $544.0 million term loan facility with nine foreign banks namely: The Bankof Tokyo-Mitsubishi UFJ, Ltd., Calyon, KfW IPEX Bank GMBH, ING Bank N.V. (SingaporeBranch), Bayerische Hypo-Und Vereinsbank AG (Hong Kong Branch), Malayan Banking Berhad,Standard Chartered Bank, Société Générale (Singapore Branch) and Kreditanstalt FürWiederaufbau (KfW) to refinance the Santa Rita project. The term loan is broken down into threeseparate facilities namely: (i) a Covered Facility with political risk insurance amounting to$312.0 million with a tenor of 12.5 years, (ii) an Uncovered Facility amounting to $188.0 millionwith a ten-year tenor, and (iii) the existing $44.0 million term loan provided by KfW with a termuntil November 2012. A portion of the proceeds of the term loan was used to repay outstandingloans of FGPC amounting to $132.0 million and the remaining balance was upstreamed to FGPC‟sshareholders as advances which are interest-bearing. Such advances are subject to interest rate of175 basis points over the average of the rate for the six months U.S. dollar deposits quoted bythree reputable reference banks in the Philippines, provided however, that such interest rate shallin no case exceed 5.8%. As of December 31, 2011 and 2010, total advances including accruedinterest forwarded to the consolidated statements of financial position amounted to $92.2 millionand $97.2 million, respectively, which are presented under the “Advances to non-controllingshareholder” account (see Notes 9 and 13).With respect to the Covered Facility, the interest rate is computed semi-annually, every May andNovember, using LIBOR plus 325 basis points. This facility is covered by a PRI and premiumspayable on the PRI are in addition to the margins payable by FGPC. The Covered Facility willmature on May 10, 2021.As to the Uncovered Facility, the interest rate is also computed semi-annually, every May andNovember, using LIBOR plus: (i) 3.50% per annum from the financial close until the5 th anniversary of the Refinancing Date, (ii) 3.75% per annum from the 6 th until the 7 th anniversaryof the Refinancing Date, and (iii) 3.90% per annum from the 8 th anniversary of the RefinancingDate until the final maturity date, which is on November 10, 2018.Bayerische Hypo-Und Vereinsbank AG (Hong Kong Branch) and Société Générale (SingaporeBranch) assigned all of their rights and obligations under the common terms of the projectfinancing facility agreement (Common Terms Agreement or CTA) and the Bank FacilityAgreement up to total amount of $10.0 million (which is comprised of $5.0 million principalamount of the Covered Facility and $5.0 million principal amount of the Uncovered Facility) toF-58

GE Capital Corporation, and the $5.5 million principal amount of Uncovered Facility to Banco DeOro Unibank, Inc. (BDO Unibank), respectively. However, the existing swap contracts (see Note28) with Bayerische Hypo-Und Vereinsbank AG (Hong Kong Branch) and Société Générale(Singapore Branch) have not been assigned.FGPFacility Outstanding BalanceNature Repayment Schedule Amount 2011 2010HERMES Covered FacilityAgreement with annual interestat commercial interest reference rateof 7.48%Repayment to be made in 24equal semi-annual installmentsfrom 2003 up to 2014$133,297 $32,496 $43,043Commercial Loan Credit ExportCredit Guarantee Department(ECGD) Facility Agreement withinterest at three months to six monthsLIBOR plus 2.15%GKA-Covered Facility Agreementwith annual interest at six monthsLIBOR plus 1.4% with option toconvert into fixed interest rate loanRepayment to be made in24 equal semi-annualinstallments from 2003 up to2014Repayment to be made in27 equal semi-annualinstallments from 2003 up to2016115,000 28,401 37,74477,000 27,820 33,257Total 88,717 114,044Less current portion 25,555 25,327Noncurrent portion $63,162 $88,717As of December 31, 2011 and 2010, the unamortized debt issuance costs incurred in connectionwith FGPC‟s and FGP‟s long-term debts amounting to $11.9 million and $14.9 million,respectively, were deducted against the long-term debts for financial reporting purposes.Movements of debt issuance costs are as follows:2011 2010Balance at beginning of year $14,930 $18,332Accretion for the year charged to the “Interestexpense and financing charges” account(see Note 23) (3,012) (3,402)Balance at end of year $11,918 $14,930The common terms related to the existing FGPC and FGP financing facility agreements (CTA)contain covenants concerning restrictions with respect to, among others: maintenance of specifieddebt service coverage ratio; acquisition or disposition of major assets; pledging present and futureassets; change in ownership; any acts that would result in a material adverse effect on theoperations of the power plants; and maintenance of good, legal and valid title to the site free fromall liens and encumbrances other than permitted liens. As of December 31, 2011 and 2010, FGPCand FGP are in compliance with the terms of the said agreements.FGPC and FGP have also entered into separate agreements in connection with their existingfinancing facilities as follows:• Mortgage, Assignment and Pledge Agreements whereby a first priority lien on most ofFGPC‟s and FGP‟s real and other properties, including revenues from the operations of thepower plants, have been executed in favor of the lenders. In addition, the shares of stock ofFGPC and FGP were pledged as part of security to the lenders.• Inter-Creditor Agreements, which describe the administration of the loans.F-59

• Trust and Retention Agreement (TRA) with the lenders‟ designated trustees. Pursuant to theterms and conditions of the TRA, FGPC and FGP have each established various securityaccounts with designated account banks, where inflows and outflows of proceeds from loans,equity contributions and project revenues are monitored. FGPC and FGP may withdraw ortransfer moneys from these security accounts, subject to and in accordance with the terms andconditions of their respective TRAs.The balance of FGPC‟s and FGP‟s unrestricted security accounts, included as part of the “Cashand cash equivalents” account in the consolidated statements of financial position as ofDecember 31, 2011 and 2010, amounted to $124.1 million and $115.0 million, respectively(see Note 6).UnifiedOn March 9, 2009, Unified signed an agreement for a three-year Corporate Note Facility(Note Facility) of up to P=5.6 billion (Facility Amount) issued by a consortium of local banks,namely, BDO Unibank, Philippine National Bank (PNB), Rizal Commercial Banking Corporation(RCBC), BDO Trust and Investment Group (BDO Trust) and Robinsons Savings Bank (RSB),collectively referred to as “Lenders”. The Note Facility was evidenced by a series of Notes, with aminimum principal amount of P=100.0 million, bearing an annual interest rate of 9.3769%. Thematurity date was on March 9, 2012. The proceeds of the loan were advanced to the ParentCompany, which in turn retired its existing short-term loans. Such Notes were offered pursuant toan exempt transaction under Section 10.1 of the SRC and thus have not been registered with thePhilippine SEC.Details of Unified‟s long-term debt as of December 31, 2010 are as follows:EquivalentAmount inPhilippine PesoAmount in U.S.DollarPNB P=1,991,156 $45,419BDO 1,881,750 42,923RCBC 795,359 18,143BDO Trust 337,750 7,704RSB 193,000 4,4025,199,015 118,591Less debt issuance cost 65,404 1,492Total 5,133,611 117,099Less current portion 107,067 2,442Noncurrent portion P=5,026,544 $114,657In 2009, the Note Facility was recorded net of debt issuance costs amounting to $3.2 million(P=155.2 million). As of December 31, 2011 and 2010, the unamortized debt issuance costsincurred amounted to nil and $1.5 million, respectively, detailed as follows:Amount inPhilippinePeso2011 2010Equivalent Amount inAmount in PhilippineU.S. Dollar PesoEquivalentAmount inU.S. DollarDebt issuance cost at beginning of year P=65,405 $1,492 P=116,331 $2,518Accretion for the year charged to the“Interest expense and financingcharges” account (see Note 23) (65,405) (1,505) (50,926) (1,125)Foreign exchange difference – 13 – 99P=– $– P=65,405 $1,492F-60

On July 11, 2011, Unified fully prepaid the principal balance of the Note Facility for the totalamount of $123.9 million (P=5,371.6 million) inclusive of interest and taxes amounting to$5.8 million (P=253.4 million).Parent CompanyUS$142.0 Million Term Loan FacilityOn September 3, 2010, the Parent Company, Allied Banking Corporation, BDO Unibank, Bank ofthe Philippine Islands, Maybank Group, Mizuho Corporate Bank, Ltd., RCBC, Robinsons BankCorporation, Security Bank Corporation, and UnionBank of the Philippines, (collectively referredto as “Term Loan Lenders”), and BDO Unibank - Trust and Investments Group executed the TermLoan Facility Agreement granting the Parent Company a facility to borrow an aggregate principalamount of up to $142.0 million. The Term Loan Facility is equally divided into two tranches,(i) Tranche A facility with a term of six years from initial drawdown date, and (ii) Tranche Bfacility with a term of seven years from initial drawdown date.On January 21, 2011 (the “Initial Drawdown Date”), the Parent Company fully availed of theTerm Loan Facility. The maturity of Tranche A and B is on January 23, 2017 andJanuary 22, 2018, respectively. The loans bear interest equivalent to the six-month LIBOR plus amargin of 3.375% per annum, and are re-priced semi-annually. The Term Loan Facility imposesstandard loan covenants on the Parent Company and requires the Parent Company to maintain adebt service coverage ratio of at least 1.2:1 and a debt-to-equity ratio of at most 2.5:1. Theobligations of the Parent Company under the Term Loan Facility are unsecured. As ofDecember 31, 2011, the Parent Company is in compliance with the Term Loan Facility.At inception, the loan is recorded net of debt issuance cost amounting to $2.0 million. As ofDecember 31, 2011, the unamortized debt issuance costs incurred amounted to $1.7 million. Themovement of the account is as follows:Debt issuance cost at inception date $2,014Accretion during the year charged to the “Interestexpense and financing charges” account(see Note 23) (271)$1,743US$100.0 Million Notes FacilityOn December 17, 2010 (the “Effective Date”), the Parent Company, BDO Unibank, and BDOCapital & Investment Corporation executed the Notes Facility Agreement granting the ParentCompany a facility to borrow an aggregate principal amount of $100 million. The Notes Facilityis equally divided into two tranches: (i) Tranche A with a term of six years from drawdown dateand (ii) Tranche B with a term of seven years from drawdown date.On March 29, 2011, the Parent Company availed of $25.5 million of Tranche A and $25.5 millionof Tranche B. The maturity of Tranche A and Tranche B is on March 29, 2017 andMarch 29, 2018, respectively. The Notes Facility offers the Parent Company the option of pricingthe loan at a fixed or floating rate equivalent to the sum of the applicable benchmark rate and amargin of 2.625% per annum. The Parent Company elected to avail of the loans at fixed interestrates of 6.4979% and 6.8052% for Tranche A and Tranche B, respectively. The interest on theNotes Facility is payable on a semi-annual basis.The Parent Company has undrawn committed Notes Facility amounting to $49.0 million, which isavailable until December 2011. The Parent Company pays a commitment fee of 0.25% per annumon the undrawn amount. As of December 31, 2011, total deferred debt issuance cost, pertaining toundrawn portion of the Notes Facility amounts to $1.0 million. This amount is includedF-61

in the “Other noncurrent assets” account in the consolidated statements of financial position(see Note 13).In addition, the Notes Facility imposes standard loan covenants on the Parent Company andrequires the Parent Company to maintain a debt service coverage ratio of at least 1.2:1 and a debtto-equityratio of at most 2.5:1. The obligations of the Parent Company under the Notes Facilityare unsecured. As of December 31, 2011, the Parent Company is in compliance with the terms ofthe Notes Facility Agreement.At inception, the loan is recorded net of debt issuance cost amounting to $1.2 million. As ofDecember 31, 2011, the unamortized debt issuance costs incurred amounted to $1.0 million. Themovement of the account is as follows:Debt issuance cost at inception date $1,155Accretion during the year charged to the “Interestexpense and financing charges” account(Note 23) (118)$1,037On January 2, 2012, the Parent Company availed of the undrawn committed Notes Facility$24.5 million of Tranche A and $24.5 million of Tranche B with maturity dates of March 29, 2017and March 29, 2018, respectively.BDO FacilityOn May 11, 2010 (the Effective Date), the Parent Company signed a new Facility Agreement(BDO Facility) with BDO Unibank, BDO Leasing & Finance, Inc. (BDO Leasing) and BDOPrivate Bank, Inc. (BDO), collectively referred to as “Lenders,” amounting to P=3,750.0 million topartially refinance its outstanding indebtedness and other general corporate requirements. Theloan has a term of 5 years and 1 day from the date of the initial advance to the Parent Company.Under the Facility, the Parent Company is allowed to borrow up to P=3,750.0 million from theeffective date of the Agreement and will be available up to 90 days from such date. The totalfacility amount can be drawn either in pesos or in U.S. Dollars or a combination of both currenciesat the option of the Parent Company; provided, that the aggregate amount of advances inU.S. Dollars that may be availed under the Facility shall be $72.2 million. The total facilityamount should be converted from pesos using the PDS closing rate on the Effective Date, which isP=45.005 per $1.00. Principal repayments of all drawdowns will start on November 12, 2012 up toMay 22, 2015. The BDO Facility offers the Parent Company the option of pricing the loan at afixed or floating rate equivalent to the sum of the applicable benchmark rate and a margin of2.0% per annum. The Parent Company elected to avail of the loans at a fixed rate.The details of the loan drawdown are as follows:Drawdown DatesAmount inPhilippinePeso2011 2010Amount inAmount in PhilippineU.S. Dollar PesoAmount inU.S. DollarInterestRateU.S. dollar loan facility:May 21, 2010 $20,000 $20,000 5.73%May 31, 2010 46,000 46,000 5.64%July 20, 2010 6,214 6,214 5.15%72,214 72,214Less debt issuance cost 506 643Subtotal $71,708 $71,571(Forward)F-62

Amount inPhilippinePeso2011 2010Amount inAmount in PhilippineU.S. Dollar PesoAmount inU.S. DollarInterestRateDrawdown DatesPeso loan facility -May 21, 2010 P=500,000 $11,405 P=500,000 $11,405 8.48%Less debt issuance cost 3,567 81 4,478 102Subtotal P=496,433 11,324 P=495,522 11,303Total loan facility 83,032 82,874Less Current portion 668 –Noncurrent portion $82,364 $82,874As required by the Lenders, the Parent Company established a debt servicing account for theprincipal and interest payments, which shall be fully funded at least one (1) month prior to eachinterest payment or principal repayment date.In 2011, the Parent Company entered into a cross currency swap agreement to mitigate foreigncurrency risk exposure from the funding of the principal and interest payments of itsP=500.0 million peso loan facility (see Note 28).At inception, the loan is recorded net of debt issuance cost amounting to $0.8 million(P=38.4 million). As of December 31, 2011 and 2010, the unamortized debt issuance costs incurredamounted to $0.6 million and $0.7 million, respectively. The movement of the account is asfollows:2011 2010Debt issuance cost at inception date/beginning $745 $830Accretion during the year charged to the “Interestexpense and financing charges” account(Note 23) (158) (88)Foreign exchange difference – 3$587 $74517. Obligations to Gas Sellers on Annual DeficiencyDetails of obligations to Gas Sellers on Annual Deficiency recognized pursuant to the SAs and thePDAs, including accrued interest of FGPC and FGP as of December 31, 2010 are as follows:FGPCFGPBalance at January 1, 2010 $5,433 $3,945Reversal of the 2006 Annual Deficiency [see Note 29(f)] (5,433) (3,945)Annual deficiency for 2006, as adjusted 528 1,299Interest incurred (see Note 23) 59 145Principal payments (528) (1,299)Interest payments (59) (145)Balance at December 31, 2010 $– $–F-63

FGPC and FGP each executed on March 22, 2006 its respective SA and PDA with the Gas Sellersto amicably settle their long-standing disputes under the GSPA for Contract Years 2002 to 2004.The disputes relate to the Gas Sellers‟ claim for Annual Deficiency payments totaling$163.4 million and $68.0 million from FGPC and FGP, respectively, covering the unconsumedgas volumes during these Contract Years. Under the terms of their respective SAs and the PDAs,the Gas Sellers‟ claims from FGPC and FGP have been reduced to $115.3 million and$32.7 million, respectively. Additional reductions of Annual Deficiency amounting to$9.5 million for FGPC and $3.8 million for FGP were recognized in 2006 to credit FGPC and FGPfor gas consumption in excess of their respective TOPQ for 2005.The respective SAs and PDAs allow FGPC and FGP to prepay all or part of the outstandingbalances and to “make up” the volume of gas up to the extent of the principal repayments madeunder the PDA for a longer period of time instead of the 10-Contract Year recovery periodallowed under their respective GSPAs. On May 31, 2006, all the conditions precedent set out inthe respective SAs and PDAs of FGPC and FGP were completely satisfied. Such conditionsprecedent included an acknowledgment and consent by Meralco. In 2010, the obligations underthe SAs and PDAs, and the outstanding Obligations to Gas Sellers pertaining to the AnnualDeficiency for Contract Year 2006 [see Note 29(f)] were fully settled.Under the terms of the PPA with Meralco, all fuel and fuel-related payments are passed-through.The obligations of FGPC and FGP under their respective SAs, the PDAs and the GSPAs arepassed on to Meralco on a “back-to-back” and full pass-through basis.Upon payment of the principal amount, a debit to the “Prepaid gas” account (included under the“Other noncurrent assets” account in the consolidated statements of financial position) isrecognized to cover the principal portion paid to the Gas Sellers and a corresponding credit to the“Unearned revenue” account (included under “Other noncurrent liabilities” account in theconsolidated statements of financial position) is recognized for the principal portion that wasalready paid by Meralco. As of December 31, 2011, the prepaid gas arising from the SAs andPDA and the corresponding unearned revenue were both fully recovered. As ofDecember 31, 2010, the prepaid gas arising from the SAs and PDAs and the correspondingunearned revenue both amounted to $28.1 million (see Notes 13 and 18). Recoveries of AnnualDeficiency for gas consumed above the TOPQ, as calculated by Gas Sellers for the Contract Years2007 up to 2011, totaled $144.1 million.18. Other Noncurrent LiabilitiesThis account consists of:2011 2010Asset retirement obligations $1,155 $1,071Unearned revenue (see Note 17) – 28,118$1,155 $29,189Asset Retirement ObligationsUnder their respective ECCs, FGP and FGPC have legal obligations to dismantle their respectivepower plant assets at the end of their useful lives. FG Bukidnon, on the other hand, hascontractual obligation under the lease agreement with PSALM to dismantle its power plant asset atthe end of its useful life. FGP, FGPC and FG Bukidnon established their respective provisions torecognize their estimated liability for the dismantlement of the power plant assets.F-64

Movements of the asset retirement obligations follow:2011 2010Balance at beginning of year $1,071 $985Accretion for the year charged to “Interest expenseand financing charges” account (see Note 23) 85 77Foreign exchange adjustments (1) 9Balance at end of year $1,155 $1,07119. Equitya. Capital StockDetails and movements of the Parent Company‟s capital stock are as follows:Number of Shares2011 2010 2009Redeemable preferred stock (Series “B”)- P=0.50 par valueAuthorized 1,000,000,000 1,000,000,000 1,000,000,000Issued 1,000,000,000 1,000,000,000 1,000,000,000Redeemable preferred stock (Series “E”)- P=0.50 par valueAuthorized 1,500,000,000 1,500,000,000 1,500,000,000Issued:Balance at beginning of year 468,553,892 375,000,000 –Issuance as stock dividend to PreferredStock Series “B” – – 375,000,000Issuance as stock dividend to PreferredStock Series “E” – 93,553,892 –Balance at end of year 468,553,892 468,553,892 375,000,000Redeemable preferred stock (Series “F”)- P=10.00 par valueAuthorized 100,000,000 100,000,000 –Issued:Balance at beginning of year – – –Issuance 100,000,000 – –Balance at end of year 100,000,000 – –Common stock - P=1 par valueAuthorized:Balance at beginning of year 5,000,000,000 6,000,000,000 1,150,000,000Reclassification to Preferred Stock Series “F” – (1,000,000,000) –Addition (August 24) – – 1,620,000,000Addition (December 7) – – 3,230,000,000Balance at end of year 5,000,000,000 5,000,000,000 6,000,000,000(Forward)F-65

Number of Shares2011 2010 2009Issued:Balance at beginning of year 3,642,021,060 2,306,993,711 1,089,072,926Stock issued under the Stock Rights Offering – 1,334,972,791 –Conversion of deposits for future stocksubscriptions – – 807,500,00050% stock dividends – – 404,999,996Stocks issued under the stock option plan(see Note 20) 183,408 54,558 5,420,789Balance at end of year 3,642,204,468 3,642,021,060 2,306,993,711As of December 31, 2011, the Parent Company‟s redeemable preferred stock consists ofSeries “B”, Series “E” and Series “F”.• The Series “B” redeemable preferred stocks have voting rights, entitled to cumulativedividends of two centavos (P=0.02) per share and redeemable at the option of the ParentCompany and redeemable at issue price.• The Series “E” preferred stocks have voting rights, entitled to receive dividends at onecentavo (P=0.01) per share and redeemable at the option of the Parent Company.• The Series “F” preferred stocks have non-voting rights except in the cases provided bylaw, issue value of one hundred pesos (P=100.0) a share, dividend rate of 8.0% on the issueprice, entitled to receive cumulative dividends, and redeemable at the option of the ParentCompany at a redemption price equal to its issue price.Preferred stocks, regardless of series, are non-participating and non-convertible to commonstocks.On November 16, 2011, the BOD of the Parent Company approved the followingamendments/matters to Article Seventh of the Parent Company‟s Amended Articles ofIncorporation:• to create 135 million Series “G” preferred stocks with a par value of P=10.0 a share withthe following features: issue value and dividend rate to be determined by the BOD at thetime of issuance, entitled to cumulative dividends, non-voting, non-participating,redeemable at the option of the Parent Company and in the event of liquidation,dissolution, distribution of assets or winding-up of the Parent Company shall be entitled tobe paid at their issue value plus any accrued and unpaid dividends thereon;• to increase the authorized capital stock from P=7,250.0 million to P=8,600.0 million; and,• to file the corresponding amendments to Article Seventh of the Parent Company‟sAmended Articles of Incorporation to reflect the above items.The above amendments/matters were submitted and approved by the stockholders owning orrepresenting at least two-thirds (2/3) of the outstanding capital stock during a specialstockholders meeting held on January 25, 2012.On March 13, 2012, the Philippine SEC approved the increase in authorized capital stock ofthe Parent Company from P=7,250.0 million to P=8,600.0 million divided into 5,000,000,000common stocks with a par value of P=1.00 a share; 1,000,000,000 redeemable preferred stocks(Series “A” to “D”) with a par value of P=0.50 a share; 1,500,000,000 redeemable preferredstocks (Series “E”) with a par value of P=0.50 a share; 100,000,000 redeemable preferredstocks (Series “F”) with a par value of P=10.00 a share, and 135,000,000 redeemable preferredstocks (Series “G”) with a par value of P=10.00 a share.F-66

On July 25, 2011, the Parent Company issued P=10.0 billion Perpetual Preferred Shares (the“Preferred Shares”) at a dividend rate of 8.0%. The Parent Company approved and authorizedthe issuance by way of private placement or issuance to Qualified Buyers under Sections 10.1(k) and (l) of the Securities Regulation Code of One Hundred Million (100,000,000) of itsSeries “F” preferred stocks with a par value of P=10.0 a share and an issue price of P=100.0 ashare. The Preferred Shares are cumulative, non-voting, non-participating, non-convertibleand peso-denominated. On the seventh anniversary of the issue date or on any dividendpayment date thereafter, the Parent Company shall have the option, but not the obligation, toredeem all of the Preferred Shares outstanding. Total proceeds of the issuance of the PreferredShares amounted to $235.7 million (P=10.0 billion). Transaction costs amounting to$1.2 million (P=53.0 million) was incurred and deducted against additional paid-in capital.On January 26, 2011, the BOD of the Parent Company approved the setting of dividend rate ofP=0.01 per share to Series “E” preferred stocks.As discussed in Note 1, the Parent Company has successfully completed the Rights Offeringof 2,142,472,791 common stocks in the Philippines on January 22, 2010. The proceeds of theRights Offering amounted to P=14.8 billion ($315.3 million), net of transaction costs ofP=0.2 billion ($3.9 million). Such transaction costs were deducted against additional paid-incapital.On May 12, 2010, a new two-year share buy back program was approved by the BOD of theParent Company covering up to 300.0 million of the Parent Company‟s common sharesrepresenting approximately 9% of the Parent Company‟s total outstanding common shares.The two-year period commenced on June 1, 2010 and will end on May 31, 2012. The numberof shares and buy back period are subject to revision from time to time as circumstances maywarrant, subject to the proper disclosures to regulatory agencies, by the BOD of the ParentCompany. The Parent Company will undertake a buy back transaction only if and to theextent that the price per share is deemed extremely undervalued, if share prices are consideredhighly volatile, or in any other instance where the Parent Company believes that a buy backwill result in enhancing shareholder value. As of March 19, 2012, there are no stockspurchased under the program.On March 8, 2010 and May 12, 2010, the BOD and the stockholders of the Parent Company,respectively, approved the proposed reclassification of P=1.0 billion authorized common stocksconsisting of 1,000,000,000 common stocks to P=1.0 billion authorized Series “F” preferredstocks consisting of 100,000,000 Series “F” preferred stocks and the correspondingamendment to Article Seventh of the Amended Articles of Incorporation. The proposedSeries “F” preferred stocks with a par value of P=10.00 a share shall be cumulative, non-votingexcept in the cases provided by law, non-participating and redeemable at the option of theParent Company, among others. On August 23, 2010, the Philippine SEC approved thereclassification of a portion of its authorized common stocks to preferred stocks, and thecreation of new Series “F” preferred stocks.On December 7, 2009, the Philippine SEC approved the increase in authorized capital stock ofthe Parent Company from P=3,270.0 million to P=7,250.0 million consisting an increase in thenumber of common stocks authorized for issuance by 3,230,000,000 shares with a par value ofP=1.00 a share and an increase in the number of preferred stocks (Series “E”) authorized forissuance by 1,500,000,000 shares with a par value of P=0.50 a share.F-67

On October 5, 2009, the BOD of the Parent Company approved the followingamendments/matters to Article Seventh of the Parent Company‟s Amended Articles ofIncorporation:• to increase the authorized capital stock from P=3,270.0 million to P=7,250.0 millionconsisting of 6,000,000,000 common stocks with a par value of P=1.00 a share, and2,500,000,000 preferred stocks with a par value of P=0.50 a share;• to undertake a stock rights offering amounting to approximately P=15.0 billion under whichexisting eligible shareholders of the Parent Company will have the opportunity tosubscribe their pro-rata shareholding and will not be subject to dilution;• to authorize the declaration of stock dividends for one class or series of preferred stocksfrom a different class or series of preferred stocks;• to create new Series “E” preferred stocks which will be redeemable at the option of theParent Company; and,• to revise the dividend rate of Series “A” to “D” preferred stocks from P=0.05 toP=0.02 per share.The above amendments/matters were submitted and approved by the stockholders during aspecial stockholders meeting held on November 20, 2009.On August 24, 2009, the Philippine SEC approved the increase in authorized capital stock ofthe Parent Company from P=1,650.0 million to P=3,270.0 million divided into 2,770,000,000common stocks with a par value of P=1.00 a share and 1,000,000,000 redeemable preferredstocks with par value of P=0.50 a share. Of the P=1,620.0 million increase in authorized capitalstock, consisting of 1,620,000,000 common stocks with a par value of P=1.00 a share and1,000,000,000 preferred stocks with a par value of P=0.50 a share, the amount ofP=405.0 million representing at least twenty-five percent (25%) of such increase, has beensubscribed and paid in full by way of a fifty percent (50%) stock dividend taken from theunrestricted retained earnings of the Parent Company.On the same date, the Philippine SEC also approved the Parent Company‟s Amended Articlesof Incorporation and Amended By-Laws. The Amended Articles of Incorporation contain theamendment to the Article Seventh to reflect the foregoing increase in authorized capital stockas mentioned above.On March 30, 2009, the BOD of the Parent Company approved the amendment to ArticleSeventh of the Parent Company‟s Amended Articles of Incorporation to increase theauthorized capital stock from P=1,650.0 million to P=3,270.0 million. The proposed increase inauthorized capital stock shall be comprised of 1,620,000,000 common stocks with a par valueof P=1.00 a share. On May 13, 2009, the proposed increase in capital stock was approved bythe stockholders.b. Deposits for Future Stock SubscriptionsOn August 13, 2009, the Parent Company received from FPH the amount of $110.1 million(P=5.3 billion) as deposits for future stock subscriptions. On December 7, 2009, $16.8 million(P=807.5 million) of the deposits were converted to 807,500,000 common stocks. In 2010, theremaining balance of the deposits for future stock subscriptions totaling $93.3 million(P=4.5 billion) have been fully utilized to subscribe to the common stocks issued during theRights Offering.F-68

c. Retained EarningsOn December 15, 2011, the BOD of the Parent Company approved the declaration of cashdividends on its preferred shares as follows:For all outstanding Series “B” preferred stocks, cash dividends of two centavos (P=0.02) ashare with record date of January 6, 2012 and payment date of January 25, 2012;For all outstanding Series “E” preferred stocks, cash dividends of one centavo (P=0.01) ashare with record date of January 6, 2012 and payment date of January 25, 2012; and,For all outstanding Series “F” perpetual preferred stocks, cash dividends of four pesos(P=4.00) a share with record date of January 6, 2012 and payment date of January 25, 2012.The Series “F” preferred shares have a coupon rate of 8% and are entitled to receivedividends on a semi-annual basis.As of December 31, 2011, total cash dividends on preferred shares declared amounting to$9.7 million (P=424.7 million) is presented as “Dividends payable” in the consolidatedstatement of financial position.On July 5, 2011, the BOD of the Parent Company approved the declaration of cash dividendsof P=0.01 a share amounting to $0.1 million (P=4.7 million) to Series “E” preferred stockholdersof record as of July 19, 2011 and the cash payment date of July 25, 2011.On January 26, 2011, the BOD of the Parent Company approved the declaration of cumulativecash dividends amounting to $1.8 million (P=77.8 million) to the Parent Company‟s Series “B”preferred stockholders of record as of February 9, 2011 to be taken from the ParentCompany‟s unrestricted retained earnings.On March 8, 2010 and May 12, 2010, the BOD and the stockholders of the Parent Company,respectively, approved the declaration of a stock dividend on Series “E” preferred stocksconsisting of 93,553,892 shares to be taken from the Parent Company‟s unrestricted retainedearnings. On June 2, 2010, the Parent Company submitted to the Philippine SEC a notice ofdeclaration of stock dividends on Series “E” preferred stocks.On December 7, 2009, the Philippine SEC approved the Parent Company‟s declaration of25% stock dividends, consisting of 375,000,000 Series “E” preferred stocks amounting to$4.0 million (P=187.5 million) to the Parent Company‟s preferred stockholders of record as ofDecember 7, 2009.On November 26, 2009, the Philippine SEC approved the Parent Company‟s propertydividend declaration taken from the remaining 467,143,000 preferred stocks held in treasuryamounting to $20.0 million (P=1,787.1 million) to the Parent Company‟s preferred stockholdersof record as of November 20, 2009.On October 5, 2009, the BOD of the Parent Company approved the declaration of a propertydividend on the Parent Company‟s preferred stocks to be taken from the remaining467,143,000 treasury preferred stocks and the declaration of a stock dividend on the375,000,000 Series “E” preferred stocks to be taken from the Parent Company‟s unrestrictedretained earnings. The above matter was approved by the stockholders during the specialstockholders meeting held on November 20, 2009.On September 23, 2009, the Philippine SEC approved the Parent Company‟s declaration of50% property dividends consisting of 177,619,000 preferred stocks, to be taken from treasurypreferred stocks, amounting to $7.6 million (P=680.3 million) to the Parent Company‟spreferred stockholders of record as of May 13, 2009.F-69

On August 27, 2009, the Philippine SEC approved the issuance of $8.4 million(P=405.0 million) common stocks consisting of 405,000,000 of the Parent Company‟s commonstocks with a par value of P=1.00 a share, to cover the stock dividends declared by the BOD onMarch 30, 2009 and has been ratified by the Parent Company‟s stockholders representing atleast two-thirds (2/3) of the outstanding capital stock on May 13, 2009 and the issuance ofsuch common shares of stock to stockholders of record as of September 11, 2009. The stockdividends were paid on October 7, 2009. The Philippine SEC‟s approval was pursuant to theAmended Rules Governing Pre-emptive and other Subscription Rights and Declaration ofStock or Cash Dividends of Corporations whose securities are registered under the SRC orlisted in the PSE.On March 30, 2009, the BOD of the Parent Company approved the declaration of 50% stockdividends on the Parent Company‟s common stocks to be taken from unissued common stocksand the declaration of 50% property dividends on the Parent Company‟s preferred stocks to betaken from treasury preferred stocks.The retained earnings balance is restricted to the extent of: (a) acquisition price of the treasurystocks amounting to $53.0 million as of December 31, 2011 and 2010; and (b) theundistributed net earnings of investee companies (including consolidated subsidiaries)amounting to $137.6 million and $102.5 million as of December 31, 2011 and 2010,respectively. Undistributed earnings of the investee companies are not available for dividenddistribution until such time that the Parent Company receives the dividends from theseinvestee companies.d. Treasury StocksMovements in the number of common and preferred stocks held in treasury are as follows:2011 2010 2009Common Stocks Held in Treasury -Balance at beginning and end of year 279,406,700 279,406,700 279,406,700Preferred Stocks (Series “B”) Held in Treasury:Balance at beginning of year 644,762,000Re-issuance (September 30) (177,619,000)Re-issuance (November 26) (467,143,000)Balance at end of year –There was no acquisition of the Parent Company‟s common and preferred stocks in 2011, 2010and 2009.20. Share-based Payment PlansExecutive Stock Option Plan (ESOP)The Parent Company has an ESOP, which entitles the option grantees to acquire common stocksof the Parent Company, which stocks shall not at any grant date, exceed four percent of the totalissued and outstanding common stocks of the Parent Company.Options under the ESOP vest within a five-year period. Awards granted prior to the Initial PublicOffering (the Offering) were pegged at a fixed exercise price in accordance with the ESOP,subject to adjustments in certain cases. Any option granted after the Offering is subject to apurchase price determined at the option grant date based on the average closing price of the ParentCompany‟s common stocks at the stock exchange for 20 market days prior to the grant, subject toF-70

a discount, but in no case shall the purchase price be less than the par value. The terms of theESOP include, among others, a one-year holding period from the date of award of an option, alimit as to the number of stocks an executive and employee may purchase and settle by payment incash or check the full amount of the price of the stocks over which the option is exercised. Thecontractual life of options granted is ten (10) years, with no cash settlement alternative.On July 1, 2003, a total of 452,285 common stocks of the Parent Company‟s unissued commonstocks have been reserved for the grantees. By virtue of the common stock split and commonstock dividends declared and approved by the Parent Company‟s BOD and stockholders onApril 4, 2005, the number of options and price per share granted to all executives and employeeshave been adjusted automatically in accordance with the terms of the ESOP. Accordingly, (i) thenumber of common stocks reserved for the grantees has been adjusted from 452,285 commonstocks to 18,091,400 common stocks; (ii) the total number of common stocks that have beenawarded to be granted over a five-year period under the ESOP has been adjusted from 409,756common stocks to 15,856,800 common stocks; and (iii) the exercise price of P=528.00 a share hasbeen reduced to P=13.20 a share. The exercise price was further adjusted from P=13.20 per share toP=8.80 per share following the issuance of 50% stock dividends as approved by the SEC onAugust 27, 2009.Movements in the number of stock options granted under ESOP are as follows:Number of Shares2011 2010 2009Balance at beginning of year 1,373,035 1,427,593 4,676,84650% stock dividends – – 2,171,536Exercised during the year (183,408) (54,558) (5,420,789)Balance at end of year 1,189,627 1,373,035 1,427,593Exercisable at end of year 1,189,627 1,373,035 1,427,593The weighted average stock prices at the dates of options exercise were P=13.68 a share, P=10.94 ashare, and P=17.86 a share in 2011, 2010 and 2009, respectively. The weighted average fair valueof options granted was P=5.45 a share.The weighted average remaining contractual life of the outstanding stock options as ofDecember 31, 2011 is two years.The fair value of the stock options was estimated as at grant date (July 2003) using the BlackScholes-Merton model, taking into account the terms and conditions upon which the options weregranted. The following lists the inputs to the model used to value the stock options at grant date:Dividend yield 25.68%Expected volatility 47.55%Risk-free interest rate 8.56% to 11.00%Expected life of option (years) 2.5 to 5.0Weighted average stock price*P=1,147* Before adjustment resulting from common stock split and common stock dividendsThere were no share-based payment transactions in 2011, 2010 and 2009.The expected life of the options is based on historical data and is not necessarily indicative ofexercise patterns that may occur. The expected volatility assumes that the historical volatility isindicative of future trends, which likewise, may not necessarily be the actual outcome.F-71

No other features of options grant were incorporated into the measurement of the fair value of theoption.Employee Stock Purchase Plan (ESPP)The Parent Company has an ESPP, which entitles the eligible employees to acquire the commonstocks of the Parent Company, provided that such stocks shall not at any grant date exceed onepercent of the total issued and outstanding common stocks of the Parent Company. The stocksmay be acquired under the ESPP at fair market price equal to the average of the closing price ofthe common stocks on the exchange for the 20 market days immediately preceding the grant date.A grantee under the ESPP shall have five years to complete payments on the common stocksacquired pursuant to the plan, with a right to prepay after two years. As of December 31, 2011,2010 and 2009, no award or sale of stocks under the ESPP has been granted to any employee.21. Related Party TransactionsIn addition to certain advances to non-controlling shareholder (see Notes 9 and 13), the followingare the other significant transactions with related parties:a. Due to related parties represent noninterest-bearing U.S. dollar and Philippinepeso-denominated emergency loans to meet working capital and investment requirements ofFirst Gen Group.b. First Gen Group leases its office premises, where its corporate offices are located, from FirstPhilippine Realty Corporation (FPRC), a subsidiary of FPH [(see Note 29(m)]. Total rentexpense amounted to $0.3 million each in 2011 and 2010, and $0.4 million in 2009(see Note 23).c. The Parent Company is engaged as EDC‟s consultant to render services pertaining tofinancial, business development and other matters under a consultancy agreement beginningSeptember 1, 2008. Such agreement is for a period of three years up to August 31, 2011. OnOctober 12, 2009, the Parent Company and EDC agreed to adjust the monthly fee from$0.2 million (P=8.7 million net of withholding taxes plus VAT) to $0.3 million (P=11.8 millionnet of withholding taxes plus VAT) effective September 2009 to cover the cost of additionalofficers and staff assigned to EDC. On October 10, 2011, the Parent Company and EDCagreed to extend the Consultancy Agreement for a period of 16 months fromSeptember 1, 2011 to December 31, 2013 with the same monthly fee. Consultancy feesamounting to $3.8 million, $3.7 million and $3.0 million in 2011, 2010 and 2009, respectively,are included under “Others” account of the total revenue in the consolidated statements ofincome. In addition, the Parent Company charged $5.2 million (P=236.4 million) in 2010 forthe reimbursement of the employee costs of its seconded personnel to EDC. This additionalcharge is also included under “Others” account of the total revenue in the 2010 consolidatedstatement of income. The Parent Company has outstanding receivablesfrom EDC related to the foregoing amounting to $1.3 million and $6.2 million as ofDecember 31, 2011 and 2010, respectively, included in the “Receivables” account in theconsolidated statements of financial position.d. Management services are rendered by the Parent Company to BPPC under certain terms andconditions of a Management Contract. The consideration for the payment of management feesis fixed at $0.5 million per year effective January 1, 2006. On March 13, 2006, the ParentCompany and BPPC renewed the Management Contract effective from January 1, 2006 untilthe end of the 15-year Cooperation Period of the Project Agreement of BPPC, which expiredin July 2010. Management fees amounting to $0.3 million in 2010 and $0.5 million in 2009are included under “Others” account of the total revenue in the consolidated statements ofincome.F-72

e. Compensation of key management personnel are as follows:2011 2010 2009Other short-term employeebenefits $9,023 $7,620 $5,581Retirement and other postretirementbenefits(see Note 24) 372 356 315$9,395 $7,976 $5,896Terms and Conditions of Transactions with Related Parties. Except for certain advances toa non-controlling shareholder (see Note 16), outstanding balances at year end are unsecured andinterest-free and settlement occurs in cash. There have been no guarantees provided or receivedfor any related party receivables or payables.Advances to non-controlling shareholder, Lisbon Star Philippines Holdings, Inc. (LSPHI),included in the “Other current assets” and “Other noncurrent assets” accounts in the consolidatedstatements of financial position totaled to $92.2 million and $97.2 million as ofDecember 31, 2011 and 2010, respectively (see Notes 9 and 13).Details of amounts due from related parties (included in the “Receivables” account in theconsolidated statements of financial position, see Note 7) are as follows:2011 2010Red Vulcan $7,536 $7,536Prime Terracota 311 111FPIC 770 1FGNEC 190 166FG Hydro – 84Others 532 772$9,339 $8,670No impairment loss was recognized on these receivables for the years ended December 31, 2011and 2010. This assessment is undertaken each financial year through review of the financialposition of each of the related parties and the market in which the related party operates.Details of amounts due to related parties are as follows:2011 2010BG Consolidated Holdings (Philippines), Inc. $6,348 $6,348FGHC International Ltd. 145 145Others 437 216$6,930 $6,709LSPHI is the parent company of BG Consolidated Holdings Philippines, Inc. (BGCPHI).BGCPHI is a stockholder of FGHC, while FGHC International Ltd. is a subsidiary of FPH.Due from/to related parties - Others are advances to/from FPH, Lopez Holdings Corporation(formerly Benpres Holdings Corporation) and FPH Capital Resources, Inc. (FCRI, formerly FirstPhilippine Lending Corporation). Lopez Holdings Corporation is a stockholder of FPH. FPH isa stockholder of FCRI.F-73

22. Interest Income2011 2010 2009Cash and cash equivalents (see$2,608 $2,879 $658Note 6)Advances to non-controllingshareholder (see Notes 9and 13) 5,561 5,798 5,986Receivables from Meralco onAnnual Deficiency (seeNotes 7 and 17) – 204 298$8,169 $8,881 $6,94223. Costs and ExpensesDepreciation and Amortization2011 2010 2009Property, plant and equipment(see Note 11) $61,239 $54,368 $53,330Intangible assets (see Note 12) 602 602 602$61,841 $54,970 $53,932Staff Costs2011 2010 2009Salaries and wages $14,517 $15,805 $9,927Retirement benefits expense(see Note 24) 1,570 777 698$16,087 $16,582 $10,625Other Administrative Expenses2011 2010 2009Taxes and licenses $13,635 $12,553 $12,970Professional fees 7,984 13,652 12,473Insurance 5,586 5,934 7,154Others (see Notes 21 and 29) 7,896 6,525 4,647$35,101 $38,664 $37,244Interest Expense and Financing Charges2011 2010 2009Interest on:Loans and bonds (see Notes 15and 16) $62,683 $80,032 $93,752Swap fees (see Note 28) 17,126 17,492 11,698(Forward)F-74

2011 2010 2009Obligations to Gas Sellers onAnnual Deficiency(see Note 17) $– $204 $298Accretion on:Debt issuance costs(see Notes 15 and 16) 5,064 6,417 6,270Asset retirement obligations(see Note 18) 85 77 71$84,958 $104,222 $112,08924. Retirement BenefitsThe following tables summarize the funded status and amounts recognized in the consolidatedstatements of financial position for the retirement plans and the components of net retirementbenefit expense recognized under “Staff costs” account in the consolidated statements of income:The net retirement assets (liabilities) are presented in the consolidated statements of financialposition as follows:2011 2010Net retirement assets (see Note 13) $485 $369Net retirement liabilities (273) (722)Net retirement asset (liability) $212 ($353)Net retirement assets are included in the “Other noncurrent assets” account (see Note 13) while theretirement liabilities are presented as “Retirement liability” account on the face of the consolidatedstatements of financial position.The amounts recognized in the consolidated statements of financial position are as follows:2011 2010Present value of defined benefit obligation $11,460 $9,729Fair value of plan assets (10,713) (8,071)747 1,658Unrecognized past service cost (405) (430)Unrecognized actuarial losses (gains) 71 (258)Foreign exchange adjustments (625) (617)Retirement liability (asset) ($212) $353The amounts recognized in the consolidated statements of income are as follows:2011 2010 2009Current service cost $1,275 $605 $512Interest cost 794 661 488Expected return on plan assets (571) (425) (249)Net actuarial losses (gains)recognized 47 (80) (76)Amortization of past service cost 25 16 23Retirement benefits expense $1,570 $777 $698F-75

Movements in the present value of the defined benefit obligation are as follows:2011 2010Balance at beginning of year $9,729 $4,743Current service cost 1,275 605Interest cost 794 661Benefits paid (317) (94)Actuarial losses – 3,414Foreign exchange adjustments (21) 400Balance at end of year $11,460 $9,729Movements in the fair value of plan assets are as follows:2011 2010Balance at beginning of year $8,071 $6,731Expected return on plan assets 571 425Actuarial gains 277 615Contributions paid 2,142 –Benefits paid (317) (94)Foreign exchange adjustments (31) 394Balance at end of year $10,713 $8,071Actual return on plan assets $848 $1,040The Parent Company and its subsidiaries, namely, FGHC, FGPC and FGP (collectively, the “FirstGas Group”) have initially funded the retirement plans in December 2005. First Gen Groupexpects to contribute $1.7 million to its defined benefit retirement plans in 2012.The major categories of plan assets as a percentage of the fair value of total plan assets are asfollows:2011 2010Investments in shares of stock 54% 18%Investments in government securities 38 80Deposits in banks 8 –Others – 2100% 100%The overall expected rate of return on assets is determined based on the market prices prevailingon that date, applicable to the period over which the obligations are to be settled.The principal actuarial assumptions used in determining retirement benefit obligations for FirstGen Group as of January 1, 2011 and 2010 are as follows:2011 2010Discount rate 7.56% - 9.30% 7.56% - 9.30%Future salary increase rate 12-14 12-14Expected rate of return on plan assets (average) 7 7F-76

Amounts for the current and previous years are as follows:2011 2010 2009 2008 2007Present value of definedbenefit obligation $11,460 $9,729 $4,743 $70,527 $72,374Fair value of plan assets (10,713) (8,071) (6,731) (41,773) (40,962)Deficit (Surplus) 747 $1,658 ($1,988) $28,754 $31,412The experience adjustments on the present value of defined benefit obligation amounted to$1.0 million and $0.9 million in 2010 and 2008, respectively. The experience adjustments on thefair value of plan assets amounted to $0.6 million and $0.4 million in 2010 and 2008, respectively.There were no experience adjustments on the present value of defined benefit obligation and fairvalue of plan assets in 2011, 2009 and 2007.25. Income Taxa. The deferred income tax assets (liabilities) of First Gen Group are presented in theconsolidated statements of financial position as follows:2011 2010Deferred income tax assets $3,210 $3,794Deferred income tax liabilities (4,254) (10,479)The components of these deferred income tax assets (liabilities) as of December 31, 2011 and2010 are as follows:2011 2010Changes recognized in the consolidated statementsof income:Deferred income tax assets on:Excess amortization of debt issuance costsunder effective interest method overstraight-line method $1,939 $2,516NOLCO 9,686 628Asset retirement obligations 293 204Unamortized portion of preoperating expensesand project development costs 36 84Others 422 58712,376 4,019Deferred income tax liabilities on:Difference between the carrying amounts ofnonmonetary assets and their related taxbases (10,823) (10,213)Prepaid major spare parts (2,100) (2,100)Unrealized foreign exchange gains (18,037) (9,741)Capitalized costs and losses duringcommissioning period of the power plants (582) (623)(31,542) (22,677)Changes recognized directly in other comprehensiveincome (loss) -Deferred income tax asset on derivative liability 18,122 11,973($1,044) ($6,685)F-77

. Certain deferred income tax assets of the Parent Company and certain subsidiaries have notbeen recognized since management believes that it is not probable that sufficient futuretaxable income will be available against which they can be utilized. The deductible temporarydifferences of certain consolidated statement of financial position items and carryforwardbenefits of NOLCO and MCIT of the Parent Company and certain subsidiaries for which nodeferred income tax asset has been recognized consist of the following:2011 2010NOLCO $112,195 $179,829Accrual for retirement benefits 4,525 866Derivative liability 491 –MCIT 460 449Unamortized portion of preoperating expenses andproject development costs 4 9Others 742 382Foreign exchange differentials on unrealized losses – 11,725As of December 31, 2011 and 2010, the temporary taxable differences representing the excessof the carrying amount of the investments in subsidiaries over the tax base amounted to$18.9 million and $24.3 million, respectively. The deferred income tax liability has not beenrecognized as First Gen Group is able to control the timing of the reversal of the temporarydifference and it is probable that the temporary taxable difference may not reverse in theforeseeable future.c. Provision for current income tax in 2011, 2010 and 2009 includes the RCIT of FG Bukidnon,FGP and FGPC. In 2011, FGP, FGPC and FG Bukidnon computed its current income taxusing the Optional Standard Deduction (OSD) method, from which the availed tax benefitsamounted to $4.9 million (P=216.6 million). In 2010, FGP computed its current income taxusing the OSD method, from which the availed tax benefits amounted to $4.4 million(P=197.9 million). In 2009, FGP and FG Bukidnon computed their current income tax usingthe OSD method, from which the combined tax benefits from availment of the OSD in 2009amounted to $3.3 million (P=156.2 million).d. The balance of NOLCO as of December 31, 2011 may be used by the Parent Company andcertain subsidiaries as additional deductions against their respective future taxable income.Similarly, the MCIT balance as of December 31, 2011 may be applied as credit against futureincome tax liabilities of the Parent Company and certain subsidiaries.The balances of NOLCO and MCIT, with their corresponding years of expiration, are asfollows:Incurred for theYear EndedDecember 31Available UntilDecember 31 NOLCO MCIT(In U.SDollar)(In PhilippinePeso)(In U.S.Dollar)(In PhilippinePeso)2009 2012 $55,940 P=2,452,391 $82 P=3,5792010 2013 43,109 1,889,896 316 13,8462011 2014 45,433 1,991,769 62 2,722$144,482 P=6,334,056 $460 P=20,147F-78

e. A reconciliation between the statutory income tax rates and effective income tax rates follows:2011 2010 2009Statutory income tax rates 30.00% 30.00% 30.00%Income tax effect of:Unrealized foreign exchangegains 1.26 0.94 2.86Equity in net earnings ofassociates (1.09) (8.79) (0.38)ITH incentives – – (2.70)Others 6.24 3.54 12.03Effective income tax rates 36.41% 25.69% 41.81%f. The BIR issued Revenue Regulation (RR) No. 16-2008 which implemented the provisions ofRepublic Act 9504, or R.A. 9504 on OSD. This regulation allowed both individual andcorporate tax payers to use OSD in computing their taxable income. For corporations, theymay elect a standard deduction in an amount equivalent to 40% of gross income, as providedby law, in lieu of the itemized allowed deductions. The provisions of R.A. No. 9504 andRR No. 16-2008 became effective on July 1, 2008.g. Registrations with the Board of Investments (BOI)FGP and FGPC are registered with the BOI under the Omnibus Investments Code of 1987.Under the terms of registrations, these subsidiaries, among others, should maintain a baseequity of at least 25%.As registered enterprises, these subsidiaries are entitled to certain tax and nontax incentiveswhich include, among others, ITH. Income from non-registered operations of thesesubsidiaries is not covered by ITH incentives.On October 31, 2007, the BOI approved FGP‟s application for a one-year extension (theBonus Year) of FGP‟s ITH incentive. The approved Bonus Year of FGP commenced onMarch 1, 2008 and ended on February 28, 2009. As such, FGP‟s income after the expirationof ITH incentives became subject to RCIT. On the other hand, FGPC‟s entitlement to ITHincentive ended on May 31, 2007.Total incentives availed by FGP amounted to $2.5 million (P=117.6 million) in 2009. There areno ITH incentives claimed in 2010 and 2011.26. Earnings Per Share Calculations2011 2010 2009(a) Net income attributable toequity holdersof the Parent Company $35,021 $70,217 $16,754Less dividends on preferredstocks 9,802 441 419(Forward)F-79

2011 2010 2009(b) Net income available tocommon stock $25,219 $69,776 $16,335From Continuing operations 25,219 69,776 3,861From Discontinuedoperations – – 12,474Add interest expense andaccretion on debtissuance costs on CBs 11,420 24,238 26,785(c) Net income available tocommon stocks adjustedfor the effect ofconversion of stockoptions and CBs 36,639 94,014 43,120From Continuing operations 36,639 94,014 30,646From Discontinuedoperations – – 12,474(d) Weighted average number ofcommon stocks for basicearnings per share 3,362,720,967 3,251,330,259 1,214,952,596Effect of conversion of:Stock options 424,391 268,084 724,118Convertible bonds 165,571,640 317,220,210 248,187,382(e) Weighted average number ofcommon stocks fordiluted earnings per share 3,528,716,998 3,568,818,553 1,463,864,096Basic/Diluted Earnings PerShare (b/d) $0.008 $0.021 $0.013From Continuing operations 0.008 0.021 0.003From Discontinuedoperations – – 0.010In 2011, 2010 and 2009, the conversion of the CBs have an anti-dilutive effect, while theconversion of stock options did not have any significant impact on the diluted earnings per sharecalculation; thus, the diluted earnings per share is the same as the basic earnings per share.27. Financial Risk Management Objectives and PoliciesFirst Gen Group‟s principal financial liabilities comprise trade payables, bonds payable andlong-term debt, among others. The main purpose of these financial liabilities is to raise financingfor First Gen Group‟s growth and operations. First Gen Group has other various financial assetsand liabilities such as cash and cash equivalents, trade receivables, and accounts payable andaccrued expenses, which arise directly from its operations.As a matter of policy, First Gen Group does not trade its financial instruments. However, FirstGen Group enters into derivative and hedging transactions, primarily interest rate swaps, crosscurrency swap and foreign currency forwards, as needed, for the sole purpose of managing therelevant financial risks that are associated with First Gen Group‟s borrowing activities and asrequired by the lenders in certain cases.First Gen Group has an Enterprise-Wide Risk Management Program which is aimed to identifyrisks based on the likelihood of occurrence and impact to the business, formulate risk managementF-80

strategies, assess risk management capabilities and continuously monitor the risk managementefforts.The main financial risks arising from First Gen Group‟s financial instruments are interest rate risk,foreign currency risk, credit risk and liquidity risk. The BOD reviews and approves policies formanaging each of these risks as summarized below. First Gen Group‟s accounting policies inrelation to derivative financial instruments are set out in Note 2 to the consolidated financialstatements.Interest Rate RiskFirst Gen Group‟s exposure to the risk of changes in market interest rate relates primarily to FirstGen Group‟s long-term debt and advances to non-controlling shareholder that are subject tofloating interest rates.First Gen Group believes that prudent management of its interest cost will entail a balanced mix offixed and variable rate debt. On a regular basis, the Finance team of First Gen Group monitors theinterest rate exposure and presents it to management by way of a compliance report. To managethe exposure to floating interest rates in a cost-efficient manner, First Gen Group may considerprepayment, refinancing, or entering into derivative instruments as deemed necessary and feasible.In May 2002, FGP entered into an interest rate swap agreement to hedge half of its borrowingsunder the ECGD Facility. Under the swap agreement, FGP will either receive or pay, at specifiedintervals, the difference between fixed and variable rate interest amounts calculated by referenceto the agreed-upon notional amount. Also, in November 2008, FGPC entered into interest rateswap agreements to cover the interest payments for up to 91% of its combined debt under theCovered and Uncovered Facilities (see Note 16). Under the swap agreements, FGPC will eitherreceive or pay at specific intervals, the difference between fixed and variable rate interest amountscalculated by reference to the agreed-upon notional principal amounts.As of December 31, 2011 and 2010, approximately 75.3% and 90.6%, respectively, of First GenGroup‟s borrowings are subject to fixed interest rate after considering the effect of its interest rateswap agreements.Interest Rate Risk TableThe following table sets out the nominal amount, by maturity, of First Gen Group‟s financialinstruments that are exposed to interest rate risk (amounts in millions):InterestRatesWithin1 Year2011More than1 Year upto 3 YearsMore than3 Years up to5 YearsMorethan5 Years TotalFixed RateLong-term debt:Covered Facility* 7.65% $12.30 $31.14 $35.29 $204.79 $283.52Uncovered Facility* 7.56%-7.96% 8.91 30.52 37.74 42.83 120.00KfW Facility 7.20% 9.78 – – – $9.78ECGD Facility* 7.48% 4.79 9.58 – – 14.37Hermes-Covered Facility 7.48% 11.11 22.22 – – 33.33BDO Facility - Peso-denominated 8.48% 0.11 1.03 10.26 – 11.40(Forward)F-81

InterestRatesWithin1 Year2011More than1 Year upto 3 YearsMore than3 Years up to5 YearsMorethan5 Years TotalBDO Facility - US dollardenominated 5.15%-5.73% $0.72 $6.50 $64.99 $– $72.21Notes Facility 6.50%-6.81% – 2.04 4.97 43.99 51.00Bonds payableConvertible Bonds 2.50% – 89.61 – – 89.61Floating RateLong-term debt:Uncovered Facility 4.17% 2.97 10.17 12.58 14.28 40.00ECGD Facility* 2.91% 4.79 9.58 – – 14.37GKA-Covered Facility 2.16% 5.70 11.41 11.41 – 28.52Term Loan Facility 3.38% – 5.68 13.84 122.48 142.00Advances to non-controllingshareholder** 5.80% 4.99 14.83 17.68 54.08 91.58* Considering the effect of interest rate swaps** Excluding accrued interestInterestRatesWithin1 Year2010More than1 Year up to3 YearsMore than3 Years up to5 YearsMore than5 Years TotalFixed RateLong-term debt:Covered Facility* 7.65% $12.30 $28.04 $32.24 $223.24 $295.82Uncovered Facility* 7.56%-7.96% 8.83 22.80 34.73 62.47 128.83KfW Facility 7.20% 9.78 9.78 – – 19.56ECGD Facility* 7.48% 4.79 9.58 4.79 – 19.16Hermes-Covered Facility 7.48% 11.11 22.22 11.11 – 44.44BDO Facility - Peso-denominated 8.48% – 0.57 10.84 – 11.41BDO Facility - US dollardenominated 5.15%-5.73% – 3.61 68.60 – 72.21Corporate Note Facility 9.38% 3.69 114.90 – – 118.59Bonds payableConvertible Bonds 2.50% 215.03 – – – 215.03Floating RateLong-term debt:Uncovered Facility 3.94% 2.94 7.60 11.58 20.82 42.94ECGD Facility* 2.61% 4.79 9.58 4.79 – 19.16GKA-Covered Facility 1.70% 5.70 11.41 11.41 5.70 34.22Advances to non-controllingshareholder** 5.80% 4.97 12.07 16.22 63.30 96.56* Considering the effect of interest rate swaps** Excluding accrued interestInterest on financial instruments classified as floating rate is repriced semi-annually on eachinterest payment date. Interest on financial instruments classified as fixed rate is fixed until thematurity of the instrument. The other financial instruments of First Gen Group that are notincluded in the foregoing tables are noninterest-bearing and are therefore not subject to cash flowinterest rate risk.F-82

The following table demonstrates the sensitivity to a reasonably possible change in interest ratesfor the years ended December 31, 2011 and 2010, with all other variables held constant, of FirstGen Group‟s income before income tax and equity (through the impact of floating rateborrowings, and derivative assets and liabilities):Changein Basis PointsIncrease (Decrease)in Income BeforeIncome TaxIncrease (Decrease)in Equity2011U.S. Dollar +100 ($3.69 million) $15.47 million-100 3.69 million (13.12 million)2010U.S. Dollar +100 ($1.12 million) $15.60 million-100 1.12 million (16.69 million)The effect of changes in interest rates in equity pertains to the fair valuation of derivativesdesignated as cash flow hedges and is exclusive of the impact of changes affecting First GenGroup‟s consolidated statements of income.Foreign Currency RiskFirst Gen Group‟s exposure to foreign currency risk arises as the functional currency of the ParentCompany and certain subsidiaries, the U.S. dollar, is not the local currency in its country ofoperations. Certain financial assets and liabilities as well as some costs and operating expenses,are denominated in Philippine peso or in European euro. To manage the foreign currency risk,First Gen Group may consider entering into derivative transactions, as necessary. As ofDecember 31, 2011, the Parent Company entered into a cross currency swap agreement to hedgeits foreign exchange exposure from its Philippine peso-denominated BDO facility. FGPC andFGP also entered into several foreign currency forward contracts to hedge their foreign exchangeexposure from their Euro-denominated payables (see Note 28).The following table sets out the Philippine peso-denominated and Euro-denominated financialassets and liabilities as of December 31, 2011 and 2010 that may affect the consolidated financialstatements of First Gen Group (amounts in millions):PhilippinePesodenominatedBalances2011 2010PhilippineEquivalent Peso-U.S. Dollar denominatedBalances BalancesEurodenominatedBalancesEurodenominatedBalancesEquivalentU.S. DollarBalancesFinancial AssetsLoans and receivables:Cash and cash equivalents P=3,307.3 €– $75.4 P=1,607.4 €– $36.7Receivables 529.9 – 12.1 800.9 – 18.33,837.2 – 87.5 2,408.3 – 55.0AFS financial assets 32.5 – 0.7 32.5 – 0.7Total financial assets P=3,869.7 €– $88.2 P=2,440.8 €– $55.7Financial LiabilitiesLoans and borrowings:Accounts payable and accruedexpenses* P=1,053.4 €3.0 $27.9 P=1,422.8 €7.9 $43.0Due to related parties 19.2 – 0.4 15.8 – 0.4Dividends payable 424.7 – 9.7 – – –Long-term debt including currentportion* – – – 5,699.0 – 130.0Total financial liabilities 1,497.3 3.0 38.0 7,137.6 7.9 173.4Net financial liabilities (asset) (P=2,372.4) €3.0 ($50.2) P=4,696.8 €7.9 $117.7*Considering the effect of cross currency swap and foreign currency forwards.F-83

In translating these Philippine peso-denominated assets and liabilities into U.S. Dollar, theexchange rate used was P=43.84 to $1.00, the Philippine peso-U.S. Dollar exchange rates for bothDecember 31, 2011 and 2010. Meanwhile, in translating the Euro-denominated monetaryliabilities to U.S. Dollar, the exchange rates used were €1.32 to $1.00 and €1.33 to $1.00, whichrepresents the Euro-U.S. Dollar average closing exchange rates as of December 31, 2011 and2010, respectively.The following table sets out, for the years ended December 31, 2011 and 2010, the impact of therange of reasonably possible movement in the Philippine peso - U.S. dollar and Euro - U.S. Dollarexchange rates with all other variables held constant, on First Gen Group‟s income before incometax and equity (due to changes in the fair value of monetary assets and liabilities):Change inExchange Rate(in Philippine Pesoagainst U.S. Dollar)2011 2010Change inChange inExchange Rate Exchange Rate(in European Euro (in Philippine Pesoagainst U.S. Dollar) against U.S. DollarF-84Change inExchange Rate(in European Euroagainst U.S. Dollar)4% (4%) 6% (6%) 6% (6%) 5% (5%)(Amounts in Millions)Increase (decrease) in incomebefore income tax $2.0 ($2.1) ($0.2) $0.2 ($6.4) $7.2 ($0.3) $0.3Increase (decrease) in equity (0.03) 0.03 1.0 (1.0) (0.3) 0.4 – –The effect of changes in foreign currency rates in equity pertains to fair valuation of derivativesdesignated as cash flow hedges and is exclusive of the impact of changes affecting First GenGroup‟s consolidated statements of income.Credit RiskFirst Gen Group trades only with recognized, reputable and creditworthy third parties and/ortransacts only with institutions and/or banks which have demonstrated financial soundness. It isFirst Gen Group‟s policy that all customers who wish to trade on credit terms are subject to creditverification procedures. In addition, receivable balances are monitored on an ongoing basis andthe level of the allowance account is reviewed on an ongoing basis to ensure that First GenGroup‟s exposure to doubtful accounts is not significant.With respect to credit risk arising from other financial assets of First Gen Group, which includecash and cash equivalents excluding cash on hand, and trade and other receivables, First GenGroup‟s exposure to credit risk arises from a possible default of the counterparties with amaximum exposure equal to the carrying amount of these instruments.As of December 31, 2011 and 2010, First Gen Group‟s total financial assets amounted to$552.1 million and $391.1 million, respectively. These financial assets are neither past due norimpaired.Credit Risk ExposureThe table below shows the gross maximum exposure to credit risk of First Gen Group as ofDecember 31, 2011 and 2010:2011 2010Financial assets accounted for as cash flow hedgeDerivative assets $182 $–Financial assets at FVPLOption assets – 4,189(Forward)

2011 2010Loans and receivablesCash and cash equivalents (excludes cash onhand) $266,135 $201,246Receivables:Trade 180,119 71,305Due from related parties 9,339 8,670Others 3,158 7,528Advances to non-controlling shareholder 92,235 97,242Other current assets 167 155Total loans and receivables 551,153 386,146AFS financial assetsInvestments in proprietary membership shares 741 741$552,076 $391,076First Gen Group does not hold collateral for its financial assets as security.Credit Quality of Financial AssetsThe evaluation of the credit quality of First Gen Group‟s financial assets considers the paymenthistory of the counterparties.Financial assets are classified as „high grade‟ if the counterparties are not expected to default insettling their obligations, thus, credit risk exposure is minimal. These counterparties normallyinclude banks, related parties and customers who pay on or before due date. Financial assets areclassified as „standard grade‟ if the counterparties settle their obligations to First Gen Group withtolerable delays.As of December 31, 2011 and 2010, all financial assets are viewed by management as „high grade‟considering the collectability of the receivables and the credit history of the counterparties.Concentration of Credit RiskThe Parent Company, through its operating subsidiaries namely, FGP and FGPC, earnssubstantially all of its revenue from Meralco. Meralco is committed to pay for the capacity andenergy generated by the San Lorenzo and Santa Rita power plants under the existing long-termPPAs which are due to expire in September 2027 and August 2025 , respectively. While the PPAsprovide for the mechanisms by which certain costs and obligations including fuel costs, amongothers, are passed-through to Meralco or are otherwise recoverable from Meralco, it is theintention of the Parent Company, FGP and FGPC to ensure that the pass-through mechanisms, asprovided for in their respective PPAs, are followed.Under the current regulatory regime, the generation rates charged by FGPC and FGP to Meralcoare not subject to regulations and are complete pass-through charges to Meralco‟s customers.First Gen Group‟s exposure to credit risk arises from default of the counterparties, with amaximum exposure equal to the carrying amounts of the receivables from Meralco, in the case ofFGP and FGPC.F-85

The table below shows the risk exposure with respect to credit concentration of First Gen Groupas of December 31, 2011 and 2010:2011 2010Trade receivables from Meralco $179,728 $71,171Total credit concentration risk $179,728 $71,171Total receivables $192,616 $87,503Credit concentration percentage 93.3% 81.3%Liquidity RiskFirst Gen Group‟s exposure to liquidity risk refers to the lack of funding needed to finance itsgrowth and capital expenditures, service its maturing loan obligations in a timely fashion, andmeet its working capital requirements. To manage this exposure, First Gen Group maintains itsinternally generated funds and prudently manages the proceeds obtained from fund-raisingactivities through the debt and equity markets. On a regular basis, First Gen Group‟s TreasuryDepartment monitors the available cash balances by preparing cash position reports. First GenGroup maintains a level of cash and cash equivalents deemed sufficient to finance the operations.In addition, First Gen Group has short-term deposits and has available credit lines with certainbanking institutions. FGP and FGPC, in particular, each maintain a Debt Service ReserveAccount to sustain the debt service requirements for the next payment period. As part of itsliquidity risk management, First Gen Group regularly evaluates its projected and actual cashflows. It also continuously assesses the financial market conditions for opportunities to pursuefund raising activities.As of December 31, 2011 and 2010, 20.2% and 29.6%, respectively, of First Gen Group‟s debtwill mature in less than a year based on the carrying value of borrowings reflected in theconsolidated financial statements.The tables below summarize the maturity profile of First Gen Group‟s financial assets used forliquidity management and financial liabilities as of December 31, 2011 and 2010 based oncontractual undiscounted cash flows:OnDemandLess than3 Months3 to 12Months2011Over 1 Yearup to 5 YearsOver5 Years TotalFinancial assets:Cash and cash equivalents $266,141 $– $– $– $– $266,141Trade receivables – 180,119 – – – 180,119$266,141 $180,119 $– $– $– $446,260Financial liabilities:Accounts payable andaccrued expenses* $26,765 $111,137 $– $– $– $137,902Due o related parties 6,930 – – – – 6,930Dividends payable – 9,687 – – – 9,687Bonds payable – 875 875 90,489 – 92,239Long-term debt – 4,574 92,245 442,441 471,782 1,011,042Total loans and borrowings 33,695 126,273 93,120 532,930 471,782 1,257,800Derivative contract receipts – – (8,344) (24,431) (22,662) (55,437)Derivative contract payments – – 20,983 63,541 29,608 114,132Total financial liability accounted foras cash flow hedges – – 12,639 39,110 6,946 58,695$33,695 $126,273 $105,759 $572,040 $478,728 $1,316,495*Excluding output VAT, local and other taxes and payables to government agencies. 2010OnDemandLess than3 Months3 to 12MonthsOver 1 Yearup to 5 YearsOver5 Years TotalFinancial assets:Cash and cash equivalents $201,251 $– $– $– $– $201,251Trade receivables – 71,305 – – – 71,305$201,251 $71,305 $– $– $– $272,556(Forward)F-86

OnDemandLess than3 Months3 to 12Months2010Over 1 Yearup to 5 YearsOver5 Years TotalFinancial liabilities:Accounts payable andaccrued expenses* $19,104 $43,672 $– $– $– $62,776Due to related parties 6,709 – – – – 6,709Bonds payable – 217,360 – – – 217,360Long-term debt – 1,843 91,293 514,778 372,834 980,748Total loans and borrowings 25,813 262,875 91,293 514,778 372,834 1,267,593Derivative contract receipts – – (9,245) (30,181) (33,940) (73,366)Derivative contract payments – – 22,713 71,635 42,497 136,845Total financial liability accountedfor as cash flow hedges – – 13,468 41,454 8,557 63,479$25,813 $262,875 $104,761 $556,232 $381,391 $1,331,072*Excluding output VAT, local and other taxes and payables to government agencies.Fair Value Hierarchy of Financial Assets and LiabilitiesThe table below summarizes the fair value hierarchy of First Gen Group‟s financial assets andliabilities that are recorded at fair value. The hierarchy of these assets and liabilities are based onthe inputs used to derive the fair value of such financial assets and liabilities and are categorized asfollows:a) Level 1 category includes financial assets and liabilities whose fair value is based on quotedmarket price in active markets for identical assets and liabilities;b) Level 2 category includes financial assets and liabilities whose fair value uses inputs otherthan quoted prices included in Level 1 that are observable for the asset or liability, eitherdirectly (as prices) or indirectly (derived from prices); andc) Level 3 category includes those financial assets and liabilities whose fair value is derivedusing inputs that are not based on observable market data.2011Fair Value Level 1 Level 2 Level 3Financial assets accountedfor as cash flow hedges -Derivative assets $182 $– $182 $–Financial liabilities accountedfor as at FVPL -Derivative liabilities 491 – 491 –Financial liabilities accountedfor as cash flow hedges -Derivative liabilities 60,407 – 60,407 –2010Fair Value Level 1 Level 2 Level 3Financial assets accountedfor at FVPL -Option assets $4,189 $– $4,189 $–Financial liabilities accountedfor as cash flow hedges -Derivative liabilities 39,911 – 39,911 –For the years ended December 31, 2011 and 2010, there were no transfers between Level 1 andLevel 2 fair value measurements and no transfers into and out of Level 3 fair value measurements.F-87

Capital ManagementThe primary objective of First Gen Group‟s capital management is to ensure that it maintains astrong credit rating and healthy capital ratios in order to support its business, and maximizeshareholder value.First Gen Group manages its capital structure and makes adjustments to it, in light of changes inbusiness and economic conditions. To maintain or adjust the capital structure, First Gen Groupmay adjust the dividend payment to shareholders, return capital to shareholders or issue newstocks (see Note 19). No changes were made in the objectives, policies or processes for the yearsended December 31, 2011 and 2010.First Gen Group monitors capital using a debt-to-equity ratio which is total long term-debt (net ofdebt issue costs) divided by total long-term debt plus total equity. First Gen Group‟s practice is tokeep the debt-to-equity ratio lower than 75:25.2011 2010Bonds payable $84,662 $213,283Long-term debt 805,222 789,180Total long-term debt $889,884 $1,002,463Equity attributable to the equity holders of theParent Company $1,226,187 $989,296Non-controlling interests 180,630 158,673Total equity $1,406,817 $1,147,969Total long-term debt and equity $2,296,701 $2,150,432Debt-to-equity ratio 39:61 47:53First Gen Group‟s subsidiaries are obligated to perform certain covenants with respect tomaintaining specified debt-to-equity and minimum debt-service-coverage ratios, as set forth intheir respective agreements with the creditors. As of December 31, 2011 and 2010, First GenGroup is in compliance with those covenants.28. Financial InstrumentsSet out below is a comparison by category of the carrying values and fair values of First GenGroup‟s financial instruments as at December 31, 2011 and 2010 that are carried in theconsolidated financial statements:2011 2010CarryingValue Fair ValueCarryingValue Fair ValueFinancial AssetsFinancial assets accounted for as cashflow hedges –Derivative assets $182 $182 $– $–Financial assets at FVPL -Option assets – – 4,189 4,189Loans and receivables:Cash and cash equivalents 266,141 266,141 201,251 201,251Receivables:Trade 180,119 180,119 71,305 71,305(Forward)F-88

CarryingValueF-892011 2010CarryingFair Value Value Fair ValueDue from related parties $9,339 $9,339 $8,670 $8,670Others 3,158 3,158 7,528 7,528Advances to non-controllingshareholder 92,235 88,858 97,242 91,268Other current assets 167 167 155 155Total loans and receivables 551,159 547,782 386,151 380,177AFS financial assets -Investments in proprietarymembership shares 741 741 741 741$552,082 $548,705 $391,081 $385,107Financial LiabilitiesFinancial liabilities at FVPL -Derivative liabilities $491 $491 $– $–Loans and borrowings:Accounts payable and accruedexpenses* 137,902 137,902 73,151 73,151Due to related parties 6,930 6,930 6,709 6,709Dividends payable 9,687 9,687 – –Bonds payable 84,662 92,086 213,283 213,283Long-term debt 805,222 829,091 789,180 804,916Total loans and borrowings 1,044,403 1,075,696 1,082,323 1,098,059Financial liability accounted for ascash flow hedges -Derivative liabilities 60,407 60,407 39,911 39,911$1,105,301 $1,136,594 $1,122,234 $1,137,970*Excluding output VAT, local and other taxes and payables to government agenciesFair Value and Categories of Financial InstrumentsThe fair values of cash and cash equivalents, receivables, other current assets, accounts payableand accrued expenses, due to related parties, and dividends payable approximate the carryingvalues at financial reporting date, due to the short-term maturities of the transactions.AFS financial assetsFor equity instruments that are not quoted, the investments are carried at cost less allowance forimpairment losses due to the unpredictable nature of future cash flows and the lack of suitablemethods of arriving at a reliable fair value.FGP and FGPC long-term debt, Parent Company Term Loan Facility, and advances to noncontrollingshareholderThe fair values of long-term debt and advances to non-controlling shareholder were computed bydiscounting the instruments‟ expected future cash flows using the prevailing credit adjustedU.S. Dollar interest rates ranging from 0.5654% to 2.3686% and 0.2825% to 4.0803% as ofDecember 31, 2011 and 2010, respectively.Unified and Parent Company long-term debtsThe fair values of the Parent Company U.S. dollar-denominated long-term debts, except for Termloan Facility, were computed by discounting the instruments‟ expected future cash flows using theprevailing credit adjusted U.S. Dollar interest rates on December 31, 2011 ranging from 0.001% to1.400%. The fair values of Unified and Parent Company Philippine peso-denominated long-termdebts were computed by discounting the instruments‟ expected future cash flows using theprevailing credit adjusted Philippine peso interest rates on December 31, 2010 ranging from0.9520% to 4.926%. The fair values of the Parent Company U.S. dollar-denominated long-term

debts were computed by discounting the instruments‟ expected future cash flows using theprevailing credit adjusted U.S. Dollar interest rates on December 31, 2010 ranging from 0.139% to2.067%.The fair value of the CBs was computed using credit-adjusted U.S. Dollar zero coupon yieldinterest rates ranging from 0.001% to 0.276% on December 31, 2011.As of December 31, 2010, fair value of the CBs approximates the carrying value amounting to$213.3 million.Derivative Financial InstrumentsFirst Gen Group enters into derivative transactions such as interest rate swaps to hedge its interestrate risk arising from its floating rate borrowings, cross currency swap and foreign currencyforwards to hedge its foreign exchange risk on its Peso-denominated loans and Euro currencypayables, and equity call options to avail of investments at a fixed price for a three-year period.These derivatives (including embedded derivatives) are accounted for either as Derivatives notdesignated as accounting hedges or Derivatives designated as accounting hedges.The table below shows the fair value of First Gen Group‟s outstanding derivative financialinstruments, reported as assets or liabilities, together with their notional amounts as ofDecember 31, 2011 and 2010 (amounts in millions). The notional amount is the basis upon whichchanges in the value of derivatives are measured.DerivativeAsset2011 2010NotionalAmount/ Derivative DerivativeQuantity Asset LiabilitiesDerivativeLiabilitiesNotionalAmount/QuantityDerivatives Designated asAccounting HedgesFreestanding derivatives -Interest rate swaps $– $58.4 $417.9 $– $39.9 $443.8Forward contracts – 2.0 €18.5Cross currency swap 0.2 – P=500.00.2 60.4 – 39.9Derivatives not Designated asAccounting HedgesEmbedded derivatives -Embedded derivatives on CBs – – – – – 113.5Freestanding derivatives -Option assets – – – 4.2 – 585.0 sharesForward contracts – 0.5 P=800.0 – – –– 0.5 4.2 –Total derivatives $0.2 $60.9 $4.2 $39.9Presented as:Current $– $2.5 $1.6 $–Noncurrent 0.2 58.4 2.6 39.9Total derivatives $0.2 $60.9 $4.2 $39.9Derivatives not Designated as Accounting HedgesFirst Gen Group‟s derivatives not designated as accounting hedges include embedded derivativesin the Parent Company‟s CBs and freestanding derivatives used to economically hedge certainexposures but were not designated by Management as accounting hedges. Such derivatives areclassified as at FVPL with changes in fair value directly taken to consolidated statements ofincome.F-90

Foreign Currency ForwardsOn August 25, 2011 the Parent Company entered into deliverable buy PHP-sell US$ foreigncurrency forwards to purchase P=400.0 million from both Deutsche Bank AG, Manila Branch(Deutsche Bank) and Australia and New Zealand Banking Group Limited-Manila Branch (ANZ)at P=42.585/US$ on January 24, 2012 and at P=42.706/US$ on July 24, 2012, respectively. As ofDecember 31, 2011, the negative fair value of the foreign currency forwards included as part of“Derivative liabilities” in the current portion of the consolidated statement of financial positionamounts to $0.5 million.Option assetsOn April 19, 2010, the Parent Company entered into Call Option Agreements with fourcounterparties to purchase, at anytime within three (3) years, EDC shares totaling to 585.0 millionfor a total option consideration of P=1.3 million ($0.03 million). These call options may beexercised at the applicable exercise prices as follows:Exercise datesExercise priceAdjusted ExercisePrice*From April 20, 2010 to April 19, 2011 P=5.67 per share P=5.51 per shareFrom April 20, 2011 to April 19, 2012 P=6.19 per share P=6.03 per shareFrom April 20, 2012 to April 19, 2013 P=6.76 per share P=6.60 per share*The exercise price was adjusted to effect EDC’s declaration of cash dividends on March 15, 2011.The exercise price shall be subject to cash and stock dividend adjustments. The call options areexercisable within three years as follows: (a) all the subject shares during the first exercise year;(b) remaining two-thirds of the subject shares during the second exercise year; and (c) last 1/3 ofthe subject shares during the third year.On March 2, 2011, the Parent Company and Northern Terracotta executed a Deed of Assignmentto assign the Parent Company‟s full rights and obligations over the first tranche of an aggregate585.0 million EDC common shares covered by the Call Option Agreements. The assignment givesNorthern Terracotta the right to exercise the call option over 195.0 million EDC shares on orbefore April 19, 2011, which is the expiration of the first exercise period, at an exercise price ofP=5.67 per share with a total cost amounting to $25.3 million (P=1,105.7 million). The option wasexercised by Northern Terracotta on March 8, 2011.The remaining option assets covering the 390.0 million shares were exercised by the ParentCompany on April 5, 2011 at an exercise price of P=5.51 per share for a total cost of $49.4 million(P=2,148.9 million).The call options were valued using the binomial option pricing model. This valuation techniqueconsiders the probability of EDC‟s share price moving up or down depending on the share pricevolatility, the risk-free rates, expected dividend yield and the share price as of the valuation date.As of December 31, 2010, EDC‟s share price is at P=5.87 per share and the fair value of the optionassets amounted to $4.2 million (P=183.7 million), a portion of which is presented as part of “Othercurrent assets” and the remaining portion as part of “Other noncurrent assets” accounts in the 2010consolidated statement of financial position (see Notes 9 and 13).The movements in the option assets account as of December 31, 2011 are as follows:Amount inPhilippinePeso2011 2010Equivalent Amount inAmount in PhilippineU.S. Dollar PesoEquivalentAmount inU.S. DollarFair value at the beginning of the year P=183,662 $4,189 P=– $–Call option consideration – – 1,250 27(Forward)F-91

Amount inPhilippinePeso2011 2010Equivalent Amount inAmount in PhilippineU.S. Dollar PesoEquivalentAmount inU.S. DollarFair value changes during the year P=182,938 $4,225 P=182,412 $3,905Call option exercised during the year (366,600) (8,426) – –Foreign exchange differences – 12 – 257P=– $– P=183,662 $4,189The net changes in fair value and net foreign exchange differences during the year were taken tothe “Mark-to-market gain on derivatives” and “Foreign exchange gain (loss)” accounts,respectively, in the consolidated statements of income.Embedded Derivatives in CBsAs discussed in Note 15, at inception, multiple embedded derivatives in the CBs were bifurcated.The fair value of the embedded equity conversion, call and put options in the CBs issued by theParent Company was computed using the indirect method of valuing multiple embeddedderivatives. This valuation method compares the fair value of the option-free bond against the fairvalue of the bond as quoted in the market. The difference in the fair values is assigned as the fairvalue of the embedded derivatives.On February 11, 2011, the holders of a portion of the CBs exercised their put option.Correspondingly, all unexercised put options expired on the same date (see Note 15). As ofDecember 31, 2011 and 2010, the multiple embedded derivatives have nil fair value.The table below summarizes the net movements in the fair values of the multiple embeddedderivatives as of December 31, 2010:Fair value at beginning of year ($1,732)Fair value of options exercised during the year 242Net changes in fair value during the year 1,490Balance at end of year $–The net changes in fair value during the year were taken to the “Mark-to-market gain (loss) onderivatives” account in the consolidated statements of income.Derivatives Designated as Accounting HedgesFirst Gen Group has interest rate swaps accounted for as cash flow hedges of its floating rateloans, and cross-currency swaps and foreign currency forwards accounted for as cash flow hedgesof its Philippine peso denominated borrowing and Euro denominated payables, respectively.Under a cash flow hedge, the effective portion of changes in fair value of the hedging instrumentis recognized as cumulative translation adjustments in other comprehensive income (loss) until thehedged item affects earnings.Interest Rate Swaps - FGPCOn November 14, 2008, FGPC entered into eight interest rate swap agreements with the followinghedge providers: Société Générale (Singapore Branch), Bayerische Hypo-und Vereinsbank AG(Hong Kong Branch), Calyon and Standard Chartered Bank. On the same date, FGPC designatedthe interest rate swaps as hedges of the cashflow variability of the Covered and UncoveredFacilities, attributable to the movements in the six-month LIBOR (see Note 16).F-92

Under the four interest rate swap agreements that hedge 100% of the Covered Facility, FGPC paysa fixed rate of 4.4025% and receives 6-month U.S. LIBOR on the aggregate amortizing notionalamount of $312.0 million, simultaneous with the interest payments every May and November onthe hedged loan. The notional amounts of the interest rate swaps are amortizing based on therepayment schedule of the hedged loan. The interest rate swap agreements have a term of12 ½ years and will mature on May 10, 2021 (coinciding with the maturity of the hedged loan).Under the four interest rate swap agreements that hedge 75% of the Uncovered Facility, FGPCpays a fixed rate of 4.0625% and receives 6-month U.S. LIBOR on the aggregate amortizingnotional amount of $141.0 million, simultaneous with the interest payments every May andNovember on the hedged loan. The notional amounts of the interest rate swaps are amortizingbased on the repayment schedule of the hedged loan. The interest rate swaps have a term of8 ½ years and will mature on May 10, 2017 (coinciding with the maturity of the hedged loan).As of December 31, 2011 and 2010, the aggregate fair value of the interest rate swaps that wasdeferred to “Cumulative translation adjustments” account in the consolidated statements offinancial position amounted to $40.1 million (net of related deferred tax effect of $17.2 million)and $26.7 million (net of related deferred tax effect of $11.4 million), respectively. For the yearsended December 31, 2011 and 2010, the net losses from the changes in the fair value of theinterest rate swaps recognized in the consolidated statements of comprehensive income amountedto $13.4 million and $11.6 million, respectively.Interest Rate Swap - FGPIn 2002, FGP entered into an interest rate swap agreement with ABN AMRO Bank NV to hedgehalf of its floating rate exposure on its ECGD Facility Agreement (see Note 16). Under theinterest rate swap agreement, FGP pays a fixed rate of 7.475% and receives a floating rate ofU.S. LIBOR plus spread of 215 basis points, on a semi-annual basis, simultaneous with theinterest payments every June and December on the hedged loan. The notional amount of theinterest rate swap is amortizing based on the repayment schedule of hedged loan. The interest rateswap agreement will mature in December 2014 (coinciding with the maturity of the hedged loan).As of December 31, 2011 and 2010, the fair values of the interest rate swap that were deferred to“Cumulative translation adjustments” account in the consolidated statements of financial positionamounted to $0.8 million (net of related deferred income tax effect of $0.3 million) and$1.2 million (net of related deferred income tax effect of $0.5 million), respectively. For the yearsended December 31, 2011 and 2010, the net gains from the change in the fair value of the interestrate swap recognized in the consolidated statements of comprehensive income amounted to$0.4 million and $0.2 million, respectively.There was no ineffective portion recognized in the consolidated statements of income for each ofthe three years in the period ended December 31, 2011.The outstanding aggregate notional amount and the related mark-to-market losses of the interestrate swaps designated as cash flow hedges as of December 31, 2011 and 2010 are as follows:2011 2010Notional amount $417,894 $443,818Mark-to-market losses 58,352 39,911F-93

The net movements in the fair value of interest rate swaps of FGPC and FGP are as follows:2011 2010Fair value at beginning of year ($39,911) ($23,603)Fair value change taken into other comprehensiveincome (loss) during the year (35,567) (33,800)Fair value change realized during the year 17,126 17,492Fair value at end of year (58,352) (39,911)Deferred income tax effect on cash flow hedges(see Note 25) 17,506 11,973Fair value deferred into equity ($40,846) ($27,938)Fair value changes during the year, net of deferred tax effect, are recorded under the “Cumulativetranslation adjustments” account in the consolidated statements of financial position. The fairvalue change realized during the year was taken into the “Interest expense and financing charges”account in the consolidated statements of income. This pertains to the net difference between thefixed interest paid/accrued and the floating interest received/accrued on the interest rate swapagreements as at financial reporting date.Cross Currency Swap – Parent CompanyOn May 18, 2011, the Parent Company entered into a cross currency swap agreement with ANZ tofully hedge its foreign currency risk exposure from the funding of the principal and interestpayments of its Philippine peso denominated loan with BDO amounting to P=500.0 million (seeNote 16).Under the agreement, the Parent Company, every April and October, receives from ANZ fixedpeso interest of 8.4804% per annum (based on the outstanding Peso notional amount) and theamortization of the Peso notional amount, and pays to ANZ fixed US$ interest of 6.5% per annum(based on the outstanding US$ notional amount) and the amortization of the equivalent U.S.Dollar notional amount using the exchange rate of P=43.19 /US$, simultaneous with the funding ofthe debt servicing account of the hedged loan. The notional amount of the cross currency swap isamortizing based on the repayment schedule of the hedged loan. The cross currency swap has aterm of 4 years and will mature on April 20, 2015.As of December 31, 2011, the positive fair value of the cross currency swap that was deferred to“Cumulative translation adjustments” account in the consolidated statements of financial positionamounted to $0.2 million.The net movements in the fair value of cross currency swap for the year ended December 31, 2011are as follows:Fair value at beginning of year $–Fair value change taken into other comprehensiveincome (loss) during the year 182Fair value change realized during the year (142)Amount of gain (loss) taken to statement ofcomprehensive income 315Fair value at end of year deferred into equity $355Foreign Currency Forwards – FGPC and FGPOn September 7, 2011, FGPC and FGP both entered into deliverable buy Euro-sell US$ foreigncurrency forward contracts with ING Bank N.V. Manila Branch (ING) to hedge its foreignF-94

exchange risk arising from its forecasted monthly Euro denominated fees to SPOI (see Note 29).The weighted average fixed rate of the forward contracts is $1.40614/€.The settlement date of each of the forward contracts is from December 2011 up to May 2012,which coincides with the settlement of the outstanding and forecasted monthly payables to SPOI.The outstanding aggregate notional amount and the related mark-to-market losses of these foreigncurrency forward contracts as of December 31, 2011 are as follows:Notional amount €18,500Mark-to-market losses $2,055As of December 31, 2011, the fair value of the forward contracts that was deferred to “Cumulativetranslation adjustments” account in the consolidated statements of financial position amounts to$1.4 million (net of related deferred income tax effect of $0.6 million).The net movements in the fair values of foreign currency forwards in 2011 are as follows:Fair value at beginning of year $–Fair value change taken into other comprehensiveincome (loss) during the year (2,188)Fair value change realized during the year 133Fair value at end of year (2,055)Deferred income tax effect on cash flow hedges(see Note 25) 616Fair value deferred into equity ($1,439)Reconciliation of Net Fair Value Changes on DerivativesThe table below summarizes the mark-to-market gain (loss) on First Gen Group‟s derivativeinstruments recognized under the “Mark-to-market gain (loss) on derivatives” account in theconsolidated statements of income:2011 2010 2009Freestanding derivatives -Option assets $4,225 $3,905 $–Forward contracts (491) –Embedded derivatives -Multiple derivatives in CBs – 1,490 (922)Total $3,734 $5,395 ($922)29. Significant Contracts, Franchise, Commitments and Contingenciesa. Power Purchase AgreementsFGP and FGPCFGP and FGPC each has an existing PPA with Meralco, the largest power distributioncompany operating in the island of Luzon and the Philippines and the sole customer of bothcompanies. Under the PPA, Meralco will purchase in each Contract Year from the start ofcommercial operations, a minimum number of kWh of the net electrical output of FGP andFGPC for a period of 25 years. Billings to Meralco under the PPA are substantially inU.S. dollar and a small portion is billed in Philippine peso.F-95

On January 7, 2004, Meralco, FGP and FGPC signed the Amendment to their respectivePPAs. The negotiations resulted in a package of concessions including the assumption of FGPand FGPC of community taxes at current tax rate, while conditional concessions includeincreasing the discounts on excess generation, payment of higher penalties for nonperformanceup to a capped amount, recovery of accumulated deemed delivered energy until2011 resulting in the non-charging of Meralco of excess generation charge for such energydelivered beyond the contracted amount but within a 90% capacity quota. The amended termsunder the respective PPAs of FGP and FGPC were approved by the Energy RegulatoryCommission (ERC) on May 31, 2006.Under the respective PPAs of FGP and FGPC, the fixed capacity fees and fixed operating andmaintenance fees are recognized monthly based on the actual NDC tested and proven, whichis usually conducted on a semi-annual basis. Total fixed capacity fees and fixed operatingand maintenance fees amounted to $290.4 million in 2011, $288.4 million in 2010 and$286.2 million in 2009. Total power sold to Meralco by FGP and FGPC (which alreadyincludes the fixed capacity fees and fixed operating and maintenance fees mentioned above)amounted to $1,339.5 million in 2011, $1,168.3 million in 2010 and $1,009.1 million in 2009.FG BukidnonOn January 9, 2008, FG Bukidnon and Cagayan Electric Power and Light Co., Inc.(CEPALCO), an electric distribution utility operating in the City of Cagayan de Oro, signed aPower Supply Agreement (PSA) for the FG Bukidnon plant. Under the PSA, FG Bukidnonshall generate and deliver to CEPALCO and CEPALCO shall take, and pay for even if nottaken, the Available Energy for a period commencing on the date of ERC approval untilMarch 28, 2025.On February 15, 2010, FG Bukidnon received the decision from the ERC datedNovember 16, 2009 which modified some of the terms of the PSA. On March 2, 2010,FG Bukidnon filed a Motion for Reconsideration (MR) with the ERC. While still awaiting theERC‟s reply to the MR, FG Bukidnon applied the ERC‟s revised rate for its sale toCEPALCO starting March 2010. On September 9, 2010, FG Bukidnon received the ERCorder dated August 16, 2010 partially approving FG Bukidnon‟s MR. This approved tariff isused starting September 2010. On October 19, 2010, FG Bukidnon filed a motion forclarification on the effectivity of the ERC order dated August 16, 2010.On May 5, 2011, FG Bukidnon received the ERC order dated April 4, 2011 which clarifiedthat the ERC order dated August 16, 2010 should be applied retroactively from March 2010.Pursuant to the ERC order dated April 4, 2011, FG Bukidnon was able to recover fromCEPALCO P1.76 million of under-recoveries from March 2010 to August 2010.FG HydroFG Hydro had contracts which were originally transferred by NPC to FG Hydro as part of theacquisition of PAHEP/MAHEP for the supply of electric energy with several customers withinthe vicinity of Nueva Ecija. All of these contracts had expired as of December 31, 2011. Uponrenegotiation with the customers and due process as stipulated by the ERC, the expiredcontracts were renewed except for the contract with Pantabangan Municipal Electric System(PAMES). FG Hydro shall generate and deliver to these customers the contracted energy on amonthly basis. FG Hydro is bound to service these customers for the remainder of thestipulated terms, the range of which falls between December 2008 and December 2020.F-96

Upon expiration, these contracts may be renewed upon renegotiation with the customers andwith due process as stipulated by the ERC. As of December 31, 2011, there are five remaininglong-term power supply contracts being serviced by FG Hydro. Details of the existingcontracts are as follows:Related Contract Expiry Date Other DevelopmentNueva Ecija II Electric Cooperative,Inc., Area 2 (NEECO II –Area 2)December 25, 2016The ERC granted a provisional approval on thePower Supply Agreement between FG Hydroand NEECO II-Area 2 on August 2, 2010 with apending final resolution of the application for theapproval thereof.PAMES December 25, 2008 There is no new agreement between FG Hydroand PAMES yet. In the meantime, FG Hydro hascontinued to supply electricity to PAMES on amonth-to-month basis.Nueva Ecija I electric Cooperative,Inc. (NEECO I)December. 25, 2012FG Hydro and NEECO I signed a newagreement in December 2007 for the supply ofelectricity for the next five years. The ERC hasprovisionally approved this agreement pendingfinal resolution of the application for theapproval thereof.Edong Cold Storage and Ice Plant December 25, 2020 A new agreement was signed by FG Hydro andECOSIP in November 2010 for the supply ofpower in the succeeding 10 years.National Irrigation Administration(NIA)-Upper Pampanga RiverIntegrated Irrigation SystemOctober 25, 2020FG Hydro and NIA-UPRIIS signed a newagreement in October 2010 for the supply ofpower in the succeeding 10 years.In addition to the above contracts, FG Hydro entered into a PSA with BGI. The contract iseffective for a period of three months, commencing on December 26, 2011, unless it is soonerterminated or thereafter renewed or extended under such terms as maybe agreed by bothparties.EDCEDC has existing PPAs with NPC for the development, construction and operation of ageothermal power plant by EDC in the service contract areas and the sale to NPC of theelectrical energy generated from such geothermal power plants. The PPA provides, amongothers, that NPC pays EDC a base price per kWh of electricity delivered subject to inflationadjustments. The PPAs are for a period of 25 years of commercial operations and may beextended upon the request of EDC by notice of not less than 12 months prior to the end ofcontract period, the terms and conditions of any such extension to be agreed upon by theparties.Details of the existing PPAs are as follows:Contract Area Contracted Annual Energy End of ContractLeyte-CebuLeyte-Luzon1,370 gigawatt-hour (GWh)3,000 GWhJuly 2021July 202247 MW Mindanao I 330 GWh for the first year and 390 GWh March 2022for the succeeding years48.25 MW Mindanao II 398 GWh June 2024The PPA for Leyte-Cebu-Luzon service contract stipulates a nominated energy of not lowerthan 90% of the contracted annual energy.F-97

On November 12, 1999, NPC agreed to accept from EDC a combined average annualnominated energy of 4,455 GWh for the period July 25, 1999 to July 25, 2000 for Leyte-Cebuand Leyte-Luzon PPAs. However, the combined annual nominated energy startingJuly 25, 2000 is currently under negotiation with NPC. The contracts are for a period of25 years commencing in July 1996 for Leyte-Cebu and July 1997 for Leyte-Luzon.Green Core Geothermal Inc. (GCGI)With GCGI‟s takeover of Palinpinon and Tongonan power plants effective October 23, 2009,following is the table that summarizes the terms of GCGI‟s existing PSAs and TransitionSupply Contracts (TSCs):CustomersContract ExpirationPalinpinonV.M.C. Rural Electric Service Cooperative, Inc. (VRESCO) December 25, 2010Central Negros Electric Cooperative, Inc. (CENECO) December 25, 2010Dynasty Management Development Corp. (DMDC) March 15, 2016Aklan Electric Cooperative, Inc. (AKELCO) December 25, 2009Guimaras Electric Cooperative, Inc. (GUIMELCO) December 25, 2012Iloilo I Electric Cooperative, Inc. (ILECO I) December 25, 2009Philippine Foremost Milling Corp. (PFMC) March 25, 2016Iloilo Provincial Government (IPG) December 25, 2011TongonanDon Orestes Romualdez Electric Cooperative, Inc. (DORELCO) September 25, 2010Leyte II Electric Cooperative, Inc. (LEYECO II) December 25, 2009Philippine Phosphate Fertilizer Corp. (PHILPHOS) December 25, 2011Philippine Associated Smelting and Refining Corp. (PASAR) September 25, 2009At the end of 2010, five of the 12 NPC TSC assigned to GCGI remain effective, namelyDMDC, GUIMELCO, PFMC, IPG and PHILPHOS. Since GCGI‟s takeover of the powerplants, 20 new PSAs have been signed as follows:CustomersContract StartContractExpirationLeyteDORELCO Dec. 26, 2010 Dec. 25, 2020LEYECO II* Dec. 26, 2010 Dec. 25, 2020LEYECO II Dec. 26, 2011 Dec. 25, 2021Leyte III Electric Cooperative, Inc. (LEYECO III) Dec. 26, 2011 Dec. 25, 2021Leyte V Electric Cooperative, Inc. (LEYECO 5)* Dec. 26, 2010 Dec. 25, 2020PASAR Oct. 24, 2009 Dec. 25, 2015PHILPHOS Dec. 26, 2011 Dec. 25, 2016CebuVisayan Electric Company, Inc. (VECO)* Dec. 26, 2010 Dec. 25, 2015VECO Dec. 26, 2011 Dec. 25, 2016Balamban Enerzone Corporation Dec. 26, 2010 Dec. 25, 2015NegrosCENECO Dec. 26, 2011 Dec. 25, 2021Negros Occidental Electric Cooperative, Inc.* Dec. 26, 2010 Dec. 25, 2020Negros Oriental I Electric Cooperative, Inc.* Dec. 26, 2010 Dec. 25, 2020Negros Oriental II Electric Cooperative, Inc.* Dec. 26, 2010 Dec. 25, 2020VRESCO* Dec. 26, 2010 Dec. 25, 2020Dumaguete Coconut Mills, Inc. Oct. 26, 2010 Oct. 25, 2020PanayAKELCO* March 26, 2010 Dec. 25, 2020Capiz Electric Cooperative, Inc.* Jan. 27, 2010 Dec. 25, 2020ILECO I* March 26, 2010 Dec. 25, 2022Iloilo II Electric Cooperative, Inc.* Dec. 26, 2010 Dec. 25, 2020*with Provisional Authority from the ERC as of December 31, 2011F-98

For the other distribution utility customers, preparations for the filing of the applications forthe approval of the PSAs with the ERC are on-going.b. Stored Energy Commitment of EDCOn various dates, EDC entered into Addendum Agreement to the PPA related to the UnifiedLeyte power plants, whereby any excess generation above the nominated energy or take-orpayvolume will be credited against payments made by NPC for the periods it was not able totake electricity. As of December 31, 2011 and 2010, the commitment for stored energy isequivalent to 4,326.6 GWh.c. Geothermal Service Contracts (GSC)/Geothermal Renewable Energy Service Contracts(GRESC) of EDCBy virtue of Presidential Decree (P.D.) No. 1442, EDC entered into seven GSCs with thePhilippine Government through the DOE granting EDC the right to explore, develop, andutilize the country‟s geothermal resource subject to sharing of net proceeds with the PhilippineGovernment. The net proceeds is what remains after deducting from the gross proceeds theallowable recoverable costs, which include development, production and operating costs. Theallowable recoverable costs shall not exceed 90% of the gross proceeds. EDC pays 60% ofthe net proceeds as share of the Philippine Government and retains the 40%.R.A. 9513, “An Act Promoting the Development, Utilization and Commercialization ofRenewable Energy Resources and for Other Purposes,” otherwise known as the “RenewableEnergy Act of 2008” or the “RE Act”, mandates the conversion of existing service contractsunder P.D. 1442 into RE Service Contracts to avail of the incentives under the RE Act. EDCsubmitted its letter of intent to register with the DOE as an RE Developer on May 20, 2009and the conversion contracts negotiation with the DOE started in August 2009.On September 10, 2009, EDC was granted the Provisional Certificate of Registration as an REDeveloper for the following existing projects: (1) GSC No. 01- Tongonan, Leyte, (2) GSCNo. 02 - Palinpinon, Negros Oriental, (3) GSC No. 03 - Bacon-Manito, Sorsogon/Albay,(4) GSC No. 04 - Mt. Apo, North Cotabato, and (5) GSC No. 06 - Northern Negros.With the receipt of the certificates of provisional registration as geothermal RE Developer, thefiscal incentives of the RE Act was implemented by EDC retroactive from the effective date ofthe RE Act. Thus, the incentives provided by P.D. 1442 are effective until January 2009. TheGSCs were fully converted to GRESCs upon signing of the parties on October 23, 2009;thereby EDC is now the holder of five (5) GRESCs and the corresponding DOE Certificate ofRegistration for the following geothermal production fields:(1) GRESC 2009-10-001 for Tongonan, Leyte;(2) GRESC 2009-10-002 for Palinpinon, Negros Oriental;(3) GRESC 2009-10-003 for Bacon-Manito, Sorsogon/Albay;(4) GRESC 2009-10-004 for Kidapawan, North Cotabato; and(5) GRESC 2009-10-005 for Northern Negros.The DOE approved the application of EDC for the 20-year extension of the Tongonan,Palinpinon and Bacon-Manito GSCs. The extension is embodied in the fourth amendment tothe GSCs dated October 30, 2003. The amendment extended the Tongonan GSC fromMay 15, 2011 to May 16, 2031, while the Palinpinon and Bacon-Manito GSCs are extendedfrom October 16, 2011 to October 17, 2031.F-99

d. Steam Sales Agreements (SSA) and GRSC of EDCEDC has existing SSAs for the supply of the geothermal energy currently produced by itsgeothermal projects to the power plants owned and operated by NPC and GCGI. Under theSSA, NPC agrees to pay EDC a base price per kWh of gross generation for all the servicecontract areas, except for Tongonan I Project, subject to inflation adjustments, and based on aguaranteed take-or-pay (TOP) rate at certain percentage plant factor. NPC pays EDC a baseprice per kWh of net generation for Tongonan I Project. The SSA is for a period of 20 to 25years.Details of the existing SSAs are as follows:Contract Area Guaranteed TOP End of ContractTongonan I 75% plant factor June 2009Palinpinon I 75% plant factor June 2009Palinpinon II (covers fourmodular plants)50% for the 1st year, 65% for the2nd year, 75% for the 3 rdand subsequent yearsDecember 2018 -March 2020BacMan I 75% plant factor November 2013BacMan II (covers two 20 MWMarch 2019 andmodular plants)December 202250% for the 1st year, 65% for the2nd year, 75% for the 3rdand subsequent yearsSSAs of Tongonan I, Palinpinon I and Palinpinon II remained effective until the turnover ofthe power plants to GCGI on October 23, 2009 [see Note 30(a)], at which time their respectiveGRSC became effective. Under the GRSCs which will terminate in 2031, GCGI agrees to payEDC remuneration for actual net electricity generation of the plant with steam prices inU.S. Dollars per kWh tied to coal indices.e. Build-Operate-Transfer (BOT) Agreements of BPPCBPPC has an existing Project Agreement with NPC. Under the Project Agreement, NPCsupplies all the fuel required to generate electricity, with all electricity generated purchased byNPC. BPPC is entitled to payment of fixed capacity and operations and maintenance feesbased on the nominated capacity as well as energy fees from the delivery of electric power toNPC. The Cooperation Period, which is the period within which BPPC shall operate andmaintain the power plant, is 15 years which expired on July 25, 2010. Upon expiration of the15-year period, BPPC shall transfer to NPC all of its rights, titles and interests in the powerplant complex, free from liens created by BPPC and without any compensation.Following the expiration of the Cooperation Period, BPPC turned-over the Bauang Plant toNPC on July 26, 2010 to mark the end of the Project Agreement. Through a Deed of Transferexecuted between BPPC and NPC, BPPC transferred to NPC all its rights, titles and interestsin the Bauang Plant, free of liens created by BPPC, without any compensation. On the samedate, all rights, title and interests of BPPC in and to the fixtures, fittings, plant and equipment(including test equipment and special tools) and all improvements comprising the power plantwere transferred to NPC on an “as is” basis. As part of the agreement, BPPC also transferredspare parts and lubricating oil inventory. Consequently, BPPC declared all organizationalpositions redundant and separated all employees, except for key officers.F-100

f. Gas Sale and Purchase Agreements (GSPA)FGP and FGPC each has an existing GSPA with the consortium of Shell PhilippinesExploration B.V., Shell Philippines LLC, Chevron Malampaya, LLC and PNOC ExplorationCorporation (collectively referred to as Gas Sellers), for the supply of natural gas inconnection with the operations of the power plants. The GSPAs, now on their tenth ContractYear, are for a total period of approximately 22 years.Total cost of natural gas purchased amounted to $304.8 million in 2011, $230.0 million in2010, and $207.6 million in 2009 for FGP, and $606.6 million in 2011, $457.0 million in2010, and $405.1 million in 2009 for FGPC.Under the GSPA, FGP and FGPC are obligated to consume (or pay for, if not consumed)a minimum quantity of gas for each Contract Year (which runs from December 26 of aparticular year up to December 25 of the immediately succeeding year), called theTake-Or-Pay Quantity (TOPQ). Thus, if the TOPQ is not consumed within a particularContract Year, FGP and FGPC incur an “Annual Deficiency” for that Contract Yearequivalent to the total volume of unused gas (i.e., the TOPQ less the actual quantity of gasconsumed). FGP and FGPC are required to make payments to the Gas Sellers for suchAnnual Deficiency after the end of the Contract Year. After paying for Annual Deficiencygas, FGP and FGPC can, subject to the terms of the GSPA, “make-up” such AnnualDeficiency by consuming the unused-but-paid-for gas (without further charge) within10-Contract Year after the Contract Year for which the Annual Deficiency was incurred, in theorder that it arose.For Contract Year 2006, the Gas Sellers issued the Annual Reconciliation Statements (ARS)of FGP and FGPC on December 29, 2006. The Gas Sellers are claiming Annual Deficiencypayments for Contract Year 2006 amounting to $3.9 million for FGP and $5.4 million forFGPC. Both FGP and FGPC disagree that such Annual Deficiency payments are due andeach claimed for among others, relief due to events of force majeure (EFM) that affected theSan Lorenzo and Santa Rita power plants, respectively. FGP‟s and FGPC‟s position is thatthe power plants actually consumed more than their respective TOPQs and are entitled tomake-up its Outstanding Balance of Annual Deficiency.Pursuant to the terms of the GSPA, the dispute on the above matter was subjected toarbitration in Hong Kong, SAR under the International Chamber of Commerce (ICC) Rules ofArbitration. The arbitral tribunal (“Tribunal”) rendered a Partial Final Award onAugust 11, 2009 which was received by FGP and FGPC on August 18, 2009. The Tribunaldetermined that the transmission related events claimed by FGP and FGPC constitute EFMunder the GSPAs, and that, therefore, the companies can claim relief for those events that haveactually occurred subject to adjustments stipulated in the GSPAs. The Tribunal was notpersuaded, however, that the government related events claimed by FGP and FGPC forContract Year 2006 constitute EFM under the GSPAs based on the evidence presented.On June 9, 2010, FGP, FGPC, and the Gas Sellers executed a Settlement Agreement (SA) tosettle the GSPA dispute for Contract Year 2006. Under the terms of the SA, the Gas Sellers‟claims have been reduced to $1.3 million with interest amounting to $0.1 million (in the caseof FGP) and $0.5 million with interest amounting to $0.1 million (in the case of FGPC)covering the original payment due date up to February 27, 2010. The payment of theseamounts is by way of full, complete, absolute, and final settlement of the dispute and any andall Contract Year 2006 claims the Gas Sellers may have against FGP and FGPC. The totalamount of $2.0 million was paid on July 29, 2010.F-101

Also included in the June 9, 2010 SA is the GSPA amendment in which FGP, FGPC and theGas Sellers agreed that where the Gas Sellers reschedule, reduce or cancel ScheduledMaintenance and fail to provide a rescheduling notice within the period required underclause 17.1.2 of the respective GSPAs of FGP and FGPC, Sellers shall be permitted, subject toclause 17.5, to carry forward to succeeding Contract Years the number of Days within theoriginally scheduled period where no actual maintenance is carried out by the Gas Sellersprovided that Gas Sellers tender for delivery, and FGP and FGPC actually take, gasequivalent to at least 61.429 Terajoules (TJ) and 122.9 TJ for San Lorenzo and Santa Rita,respectively. FGP and the Gas Sellers likewise agreed that references to “the Base TOPQdivided by 350” in certain clauses of the San Lorenzo GSPA shall be replaced by “61.429 TJ”.On September 15, 2010, FGP and FGPC received the Final Award by Consent rendered by theTribunal on September 13, 2010, incorporating by reference the June 9, 2010 SA, including allexhibits thereto, and forming an inseparable part of the Final Award by Consent, as per FGP,FGPC, and the Gas Sellers, written request dated June 16, 2010 to the Tribunal and ICC.g. Wind Energy Service Contract (WESC) of EDCOn September 14, 2009, EDC has entered into a WESC with the DOE granting EDC the rightto explore and develop the Burgos wind project for a period of 25 years from effective date.The pre-development stage under the WESC shall be two years which can be extended foranother one year if EDC has not been in default in its exploration or work commitments andhas provided a work program for the extension period upon confirmation by the DOE. TheWESC also provides that upon submission of the declaration of commercial viability, asconfirmed by the DOE, the WESC shall remain in force for the balance of the 25-year periodfor the development/commercial stage. The DOE shall approve the extension of the WESCfor another 25 years under the same terms and conditions, provided that EDC is not in defaultin any material obligations under the WESC, and has submitted a written notice to the DOEfor the extension of the contract not later than one (1) year prior to the expiration of the 25-year period. The WESC provides that all materials, equipment, plants and other installationserected or placed on the contract area by EDC shall remain the property of EDC throughoutthe term of the contract and after its termination.In 2010, EDC has entered into five WESCs with the DOE for the following contract areas:ProjectsDOE Certificates1. Pagudpud Wind Project Under DOE Certificate of Registration No.WESC 2010-02-040 (expiring in 2035)2. Camiguin Wind Project Under DOE Certificate of Registration No.WESC 2010-02-041 (expiring in 2035)3. Taytay Wind Project Under DOE Certificate of Registration No.WESC 2010-02-042 (expiring in 2035)4. Dinagat Wind Project Under DOE Certificate of Registration No.WESC 2010-02-043 (expiring in 2035)5. Siargao Wind Project Under DOE Certificate of Registration No.WESC 2010-02-044 (expiring in 2035)F-102

On May 26, 2010, the BOD of EDC approved the assignment and transfer to EBWPC of allthe contracts, assets, permits and licenses relating to the establishment and operation of theBurgos Wind Power Project under DOE Certificate of Registration No. WESC 2009-09-004.As of December 31, 2011, the filing for the declaration of commerciality of the Burgos WindPower Project is still under review by the DOE.On December 19, 2011, EDC has submitted a letter of surrender covering the Taytay, Dinagatand Siargao contract areas and thus, will not pursue these project areas further. Per Section4.2 of the WESC, the surrender will take effect 30 days upon the RE Developer‟s submissionof a written notice to the DOE.h. Operating and Maintenance (O&M) Agreements - FGP and FGPCFGP and FGPC have separate O&M Agreements with SPOI mainly for the operation,maintenance, management and repair services of their respective power plants. As stated inthe respective O&M Agreements of FGP and FGPC, SPOI is responsible for maintainingadequate inventory of spare parts, accessories and consumables. SPO is also responsible forreplacing and repairing the necessary parts and equipment of the power plants to ensure theproper operation and maintenance of the power plants to meet the contractual commitments ofFGP and FGPC under their respective PPAs and in accordance with the Good Utility Practice.FGP and FGPC each signed a new full scope O&M agreement with SPO. The new contracttook effect on August 1, 2010 (the Commencement Date) and will expire on the earlier of(i) the 20 th anniversary of the Commencement Date, or (ii) the satisfactory completion of themajor inspections of all units of the San Lorenzo and Santa Rita power plants, in each casenominally scheduled at 200,000 equivalent operating hours, as stipulated in their respectiveO&M Agreements.O&M charges include Euro, U.S. dollar and Philippine peso components. The Eurodenominated charge is hedged using foreign currency forwards to minimize the risk of foreignexchange fluctuations (see Note 28). Total O&M costs charged to the consolidated statementsof income amounted to $33.9 million in 2011, $39.0 million in 2010 and $36.3 million in2009.In 2010, prepaid major spare parts totaling to $53.3 million were reclassified to the “Property,plant and equipment” account as a result of the scheduled major maintenance outages of SantaRita and San Lorenzo power plants. As of December 31, 2011 and 2010, certain O&M feesamounting to $69.3 million and $30.1 million, respectively, which relate to major spare partsthat are expected to be replaced during the next scheduled major maintenance outage, werepresented as part of the “Other noncurrent assets” account in the consolidated statements offinancial position (see Note 13).i. Substation Interconnection AgreementFGPC has an agreement with Meralco and NPC for: (a) the construction of substationupgrades at the NPC substation in Calaca and the donation of such substation upgrades toNPC; (b) the construction of a 35-kilometer transmission line from the power plant to the NPCsubstation in Calaca and subsequent donation of such transmission line to NPC; (c) theinterconnection of the power plant to the NPC Grid System; and (d) the receipt and delivery ofenergy and capacity from the power plant to Meralco‟s point of receipt.As of March 19, 2012, FGPC is still in the process of transferring the substation upgrades inCalaca, as well as the 230 kilovolts (kV) Santa Rita to Calaca transmission line, to NPC.F-103

Maintenance services related to the transmission line are rendered by Meralco IndustrialEngineering Services Corporation (MIESCOR), a subsidiary of Meralco, on the 230 kVtransmission line from the Santa Rita plant to the Calaca Substation in Batangas under theTransmission Line Maintenance Agreement. This involves the monthly payment of$0.02 million (P=0.9 million) as retainer fee and $0.1 million (P=3.7 million) for everysix-month period as service fee, with both fees subject to periodic adjustment as set forth inthe agreement. The amount of compensation for additional services requested by FGPCoutside the scope of the agreement is subject to mutual agreement between FGPC andMIESCOR. Total O&M expense (shown as part of the “Power plant operations andmaintenance” account in the consolidated statements of income) amounted to $0.5 million in2011, $0.6 million in 2010 and $0.8 million in 2009.j. Interim Interconnection AgreementFGP has an agreement with NPC and Meralco whereby NPC will be responsible for thedelivery and transmission of all energy and capacity from FGP‟s power plant to Meralco‟spoint of receipt.k. FranchiseThe Parent Company, through FGHC, has a franchise granted by the 11th Congress of thePhilippines through R.A. No. 8997 to construct, install, own, operate and maintain a naturalgas pipeline system for the transportation and distribution of the natural gas throughout theisland of Luzon (the “Franchise”). The Franchise is for a term of 25 years untilFebruary 25, 2026. As of March 19, 2012, FGHC, through its subsidiary FG Pipeline, has anECC for the Batangas to Manila pipeline project and has undertaken substantialpre-engineering works and design and commenced preparatory works for the right-of-wayacquisition activities, among others.l. Tax ContingenciesFGPCFGPC was assessed by the BIR on July 19, 2004 for deficiency income tax for taxable years2001 and 2000. FGPC filed its Protest Letter with the BIR on October 5, 2004. On account ofthe BIR‟s failure to act on FGPC‟s Protest within the prescribed period, FGPC filed with theCourt of Tax Appeals (CTA) on June 30, 2005 a Petition against the Final Assessment Noticesand Formal Letters of Demand issued by the BIR. On February 20, 2008, the CTA grantedFGPC‟s Motion for Suspension of Collection of Tax until the case is resolved with finality.As of March 19, 2012, both parties of the case have already submitted their respectiveMemoranda and await for the decision of the CTA Third Division on the merits of the case.Management believes that the resolution of this assessment will not materially affect Fi rst .Gen Group‟s consolidated financial statements.In June 2003, FGPC received various Notices of Assessment and Tax Bills from theProvincial Government of Batangas, through the Office of the Provincial Assessor, imposingan annual real property tax (RPT) on steel towers, cable/transmission lines and accessories(the T-Line) amounting to $0.2 million (P=12 million) per year. FGPC, claiming exemptionfrom said RPT, appealed the assessment to the Provincial Local Board of Assessment Appeals(LBAA) and filed a Petition in August 2003 praying for the following: (1) that the Notices ofAssessment and Tax Bills issued by the Provincial Assessor be recalled and revoked; and (2)that the Provincial Assessor drop from the Assessment Roll the 230 kV transmission linesfrom Sta. Rita to Calaca in accordance with Section 206 of the Local Government CodeF-104

(LGC). FGPC argued that the T-Line does not constitute real property for RPT purposes, andeven assuming that the T-Line is regarded as real property, FGPC is still not liable for RPT asit is NPC/TransCo, a government-owned and controlled corporation (GOCC) engaged in thegeneration and/or transmission of electric power, which has actual, direct and exclusive use ofthe T-Line. Pursuant to Section 234 (c) of the LGC, a GOCC engaged in the generationand/or transmission of electric power and which has actual, direct and exclusive use thereof, isexempt from RPT.FGPC sought for, and was granted, a preliminary injunction by the Regional Trial Court(Branch 7) of Batangas City to enjoin the Provincial Treasurer of Batangas City fromcollecting the RPT pending the decision of the LBAA. Despite the injunction, the LBAAissued an Order requiring FGPC to pay the RPT within 15 days from receipt of the Order.FGPC filed an appeal before the Central Board of Assessment Appeals (CBAA) assailing thevalidity of the LBAA order. The CBAA in December 2006 set aside the LBAA Order andremanded the case to the LBAA. The LBAA was directed to proceed with the case on themerits without requiring FGPC to first pay the RPT on the questioned assessment. The LBAAcase remains pending.On May 23, 2007, the Province filed with the Court of Appeals (CA) a Petition for Review ofthe CBAA Resolution. The CA dismissed the petition in June 2007; however, it issuedanother Resolution in August 2007 reinstating the petition filed by the Province. In a decisiondated March 8, 2010, the CA dismissed the petition for lack of jurisdiction.In connection with the prohibition case pending before the Regional Trial Court (Branch 7) ofBatangas City which previously issued the preliminary injunction, the Province filed inMarch 2006 an Urgent Manifestation and Motion requesting the court to order the parties tosubmit memoranda on whether or not the Petition for Prohibition pending before the court isproper considering the availability of the remedy of appeal to the CBAA. The Regional TrialCourt denied the Urgent Manifestation and Motion, and is awaiting the finality of the issueson the validity of the RPT assessment on the T-Line.The Province filed a Motion to Dismiss dated May 4, 2011 and FGPC filed its Oppositionthereto in July 2011. In an Order dated November 25, 2011, the Court denied the Motion toDismiss and directed FGPC to amend its petition to include the provincial assessor as a partyrespondent. The Province filed a Motion for Reconsideration of this Order, which remainspending as of March 19, 2012.BPPCOn July 26, 2010, BPPC turned over the Bauang Plant to NPC/PSALM following theexpiration of the 15-year Cooperation Period covering the project. Prior to the turnover, therewere cases filed against BPPC involving the assessment of RPT and franchise tax by the localgovernment. While BPPC had recognized a “Provision for real property taxes” in accordancewith PAS 37, such provision for RPT and the related receivable from NPC were duly reversedas of December 31, 2010 on the ground that the transfer of the Bauang Plant constitutes fulland complete satisfaction of all RPT claims against NPC/PSALM and BPPC.Real Property Tax (RPT)(i) The Bauang plant equipment were originally classified as tax-exempt under theindividual tax declarations until the Province of La Union (the “LGU”) revokedexemption and issued RPT assessments in 1998. This marked the inception of the firstcase which was presented and heard at the LBAA, CBAA, Court of Tax Appeals (CTA)and the Supreme Court (SC). The petition to uphold the exemption of NPC from RPTwas subsequently denied in 2007 by the SC, though not with finality.F-105

To protect the plant assets from any untoward action by local government, BPPC andNPC obtained in May 2001 a Writ of Preliminary Injunction against the collection ofRPT by the LGU pending a decision by the SC on the NPC Petition.In total disregard of a valid injunction premised on a final SC decision in July 2007, theLGU issued in December 2007 a Final Notice of Delinquency and a subsequent Warrantof Levy for the unpaid RPT on the Bauang Plant equipment. Similarly, the LGUattempted to collect the arrears on the RPT on buildings and improvements, which NPCstopped paying since 2003, and included these assets in the levy. The inability of NPC tosettle the amounts due within the grace period resulted in the public auction of the assetson February 1, 2008.Even before the public auction, BPPC filed on January 17, 2008 a Petition for IndirectContempt under Rule 71 of the 1997 Revised Rules of Civil Procedure on the ground thatthe LGU, through the issuance of the Final Notice of Delinquency and Warrant of Levyand the subsequent auction sale, effectively disobeyed the Writ of Injunction issued bythe court.In the absence of a bidder at auction proper, the alleged tax-delinquent assets wereforfeited and deemed sold to the LGU. Nevertheless, Section 263 of RA No. 7160 alsoknown as the Local Government Code of 1991, accords the taxpayer the right to redeemthe property within one (1) year from date of sale/forfeiture. However, for failure toredeem the plant at the end of the redemption period, the LGU on February 10, 2009consolidated title to and ownership of the plant assets by issuing new tax declarations inits name. Although NPC‟s offer of a settlement package for the P=1.87 billion RPT wasaccepted by the LGU, negotiations were aborted in April 2009 in the absence of a cleardirective from the Department of Finance and the Department of Budget andManagement for NPC to settle.On December 22, 2009, the court dismissed BPPC‟s Petition for Indirect Contempt. AMotion for Reconsideration of this Order was subsequently denied by the Court onJune 28, 2010. BPPC then filed a Notice of Appeal of the December 22, 2009 Orderwhich was given due course by the court in an Order dated August 3, 2010. The recordsof this case were transmitted to the CA on October 4, 2010.The NPC also filed a Notice of Appeal. On April 26, 2011, BPPC filed a Notice ofWithdrawal of Appeal. Thereafter, on May 31, 2011, the CA issued a Resolutionconsidering BPPC‟s Appeal as withdrawn.On June 23, 2011, BPPC received a copy of the NPC‟s Motion to Withdraw Notice ofAppeal which was granted by the CA in a Resolution dated August 5, 2011.Consequently, the CA considered the case closed and terminated. On September 26,2011, BPPC received the Entry of Judgment.(ii) The second case was filed by NPC with the LBAA of the Province of La Union, for itselfand on behalf of BPPC, following issuance of a revised assessment of RPT on BPPC‟smachinery and equipment in July 2003 by the Municipal Assessor of the Municipality ofBauang, La Union. Under the said revised Assessment, the maximum tax liability for theperiod 1995 to 2003 is about $16.8 million (P=775.1 million), based on the maximum 80%assessment level imposable on privately-owned entities and a tax rate of 2%. In addition,interest on the unpaid amounts (2% per month not exceeding 36 months) reached a totalamount of $10.6 million (P=489.0 million).F-106

(iii) The third case was filed on October 19, 2005 by NPC with the LBAA of the Province ofLa Union, for itself and on behalf of BPPC, following receipt of a Statement of Accountfrom the Municipal Treasurer dated August 5, 2005 for RPT on BPPC‟s buildings andimprovements from 2003 to August 2005 amounting to $0.09 million (P=4.2 million).NPC paid all RPT on buildings and improvements directly to the local government from1995 until 2003, when it stopped payment of the tax and claimed an exemption under theLocal Government Code. These properties were included in the February 1, 2008 auctionby the LGU.Franchise TaxBPPC also filed with the RTC of Bauang, La Union a Petition for Certiorari and Prohibition inSeptember 2004 to contest an assessment for franchise tax for the period 2000 to 2003amounting to $0.7 million (P=33.0 million), including surcharges and penalties. The case wasfiled on the ground that BPPC is not a public utility which is required by law to obtain alegislative franchise before operating, and is thus not subject to franchise taxes.On December 22, 2010, BPPC filed its Supplemental Formal Offer of Evidence. Thereafter,on June 7, 2011, the Court issued an Order admitting all Company‟s Exhibits. OnJuly 12, 2011, the Court issued another Order with respect to BPPC‟s Supplemental Offer ofEvidence excluding four of the already admitted BPPC‟s Exhibits. On August 4, 2011, BPPCreceived a copy of the Respondent‟s Motion for Reconsideration of the July 12, 2011 Order, towhich BPPC filed its Comment and Opposition on August 25, 2011. On August 31, 2011,BPPC filed a Motion (the “Motion”) for the issuance of an order amending the July 12, 2011Order.On February 2, 2012, the RTC of Bauang, La Union issued an order denying the Respondent‟sMotion for Reconsideration and granting BPPC‟s Motion.Both NPC and BPPC believe that they are not subject to pay franchise tax to the localgovernment. In any case, BPPC believes that the Project Agreement with NPC allows BPPCto claim indemnity from NPC for any imposition, including franchise tax, incurred by BPPCthat was not originally contemplated when it entered into said Project Agreement.m. Lease CommitmentsFirst Gen Group has a non-cancelable lease agreement with FPRC on its occupied officespace. The term of the lease is for a period of five years retroactive to August 1, 2003 or uponoccupancy of the leased premises, whichever is earlier, and automatically expires onJuly 31, 2007. The lease agreement includes a clause to enable upward revision of the rentalcharged at a rate agreed-upon by First Gen Group and FPRC at the end of each year. Thelease agreement with FPRC was renewed for one year from August 1, 2011 to July 31, 2012.FGPC has a non-cancelable annual offshore lease agreement with the DENR for the lease of aparcel of land in Sta. Rita, Batangas where the power plant complex is located. The term ofthe lease is for a period of 25 years starting May 26, 1999 for a yearly rental of $0.05 million(P=3.0 million) and renewable for another 25 years at the end of the term. The land will beappraised every ten years and the annual rental after every appraisal shall not be less than 3%of the appraised value of the land plus 1% of the value of the improvements, provided thatsuch annual rental cannot be less than $0.05 million (P=3.0 million).F-107

FG Bukidnon has a non-cancelable lease agreement with PSALM on the land occupied by itspower plant. The term of the lease is for a period of 20 years commencing onMarch 29, 2005, renewable for another period of 10 years or the remaining corporate life ofPSALM, whichever is shorter. The rental paid in advance by FG Bukidnon for the entire termis $0.02 million (P=1.12 million).As of December 31, 2011 and 2010, future minimum rental payments under thenon-cancelable operating leases with FPRC and the DENR are as follows:2011 2010Within one year $274 $225After one year but not more than five years 243 243After five years 429 488$946 $956n. Other Legal ProceedingsWest Tower Condominium Corporation, et al. vs.First Philippine Industrial Corporation, et al.G.R. No. 194239, Supreme Court of the PhilippinesOn November 15, 2010, a Petition for the Issuance of a Writ of Kalikasan was filed before theSupreme Court (SC) by the West Tower Condominium Corporation, et al., againstrespondents First Philippine Industrial Corporation (FPIC), the Parent Company, theirrespective boards of directors and officers, and John Does and Richard Roes. The petition wasfiled in connection with the oil leak which is being attributed to a portion of FPIC‟s pipelinelocated in Bangkal, Makati City. The oil leak was found in the basement of the West TowerCondominium.The petition was brought by the West Tower Condominium Corporation purportedly on behalfof its unit owners and in representation of the inhabitants of Barangay Bangkal, Makati City.The petitioners sought the issuance of a Writ of Kalikasan to protect the constitutional rightsof the Filipino people to a balanced and healthful ecology, and prayed that the respondentspermanently cease and desist from committing acts of negligence in the performance of theirfunctions as a common carrier; continue to check the structural integrity of the entire 117-kmpipeline and replace the same; make periodic reports on findings with regard to the pipelineand their replacement of the same; be prohibited from opening the pipeline and allowing itsuse until the same has been thoroughly checked and replaced; rehabilitate and restore theenvironment, especially Barangay Bangkal and West Tower Condominium, at least to what itwas before the signs of the leak became manifest; open a special trust fund to answer forsimilar contingencies in the future; and be temporarily restrained from operating the pipelineuntil final resolution of the case.On November 19, 2010, the SC issued a Writ of Kalikasan with Temporary EnvironmentalProtection Order (TEPO) directing the respondents to: (i) make a verified return of the Writwithin a non-extendible period of ten days from receipt thereof; (ii) cease and desist fromoperating the pipeline until further orders from the court; (iii) check the structural integrity ofthe whole span of the pipeline, and in the process apply and implement sufficient measures toprevent and avert any untoward incident that may result from any leak in the pipeline; and(iv) make a report thereon within 60 days from receipt thereof.F-108

The Parent Company and its impleaded directors and officers filed a verified Return onNovember 30, 2010 and a Compliance on January 18, 2011, explaining that the ParentCompany is not the owner and operator of the pipeline, and is not involved in themanagement, day-to-day operations, maintenance and repair of the pipeline. For this reason,neither the Parent Company nor any of its directors and officers has the capability, control,power or responsibility to do anything in connection with the pipeline, including to cease anddesist from operating the same. On January 18, 2011, the SC noted and accepted the Returnfiled by the Parent Company, and on January 25, 2011 similarly noted and accepted theCompliance filed by the Parent Company.On January 3, 2011, FPIC asked the SC to temporarily lift the Writ for the conduct of apressure-controlled leak test for the entire 117-kilometer pipeline, as recommended by DOE‟sinternational technical consultant. On November 22, 2011, the SC issued a Resolutionordering the temporary lifting of the TEPO for a period of 48 hours. The DOE and itsinternational technical consultant, SGS Philippines, Inc., supervised the leak test activitieswhich began in the morning of December 14, 2011. Representatives from the University ofthe Philippines National Institute of Geological Sciences, UP Institute of Civil Engineering,and the parties witnessed the activities.For the purpose of expediting the proceedings and the resolution of all pending incidents, theSC reiterated its order to remand the case to the Court of Appeals to conduct subsequenthearings within a period of 60 days, and after trial, to render a report to be submitted to theSC, 30 days after the submission of the parties‟ respective memoranda. Further, in an earlierresolution dated May 31, 2011, the SC clarified that the black oil pipeline is not included inthe Writ with TEPO. The Petitioners filed a Motion for Reconsideration of this Order. Thisand other pending incidents will be resolved by the Court of Appeals. The case remainspending as of March 19, 2012.West Tower Condominium Corporation, et al. vs.First Philippine Industrial Corporation, et al.Civil Case No. 11-256, Regional Trial Court, Makati Branch 58On March 24, 2011, a civil case for damages was filed by the West Tower CondominiumCorporation and some residents of the West Tower Condominium against FPIC, the FPICdirectors and officers, the Parent Company, Pilipinas Shell Petroleum Corporation, andChevron Philippines, Inc. before the Makati City Regional Trial Court. In their complaint, thePlaintiffs alleged that FPIC, its directors and officers, and the Parent Company violatedRepublic Act No. 6969 (Toxic Substances and Hazardous and Nuclear Wastes Control Act of1990), RA 8749 (Philippine Clean Air Act of 1999) and Its Implementing Rules andRegulations, and RA 9275 (Philippine Clean Water Act of 2004). The complaint soughtpayment by the Defendants of actual damages comprising incurred rentals for alternativedwellings, incurred additional transportation and gasoline expenses and deprived rentalincome; recompense for diminished or lost property values to enable the buying of newhomes; incurred expenses in dealing with the emergency; moral damages; exemplarydamages; a medical fund; and attorney‟s fees.The Parent Company filed its Answer on May 9, 2011, in which it was argued that the case isnot an environmental case under the Rules of Procedure for Environmental Cases, but anordinary civil case for damages under the Rules of Court for which the appropriate filing feesshould be paid before the court can acquire jurisdiction thereof. In an Order dated August 22,2011, Makati City Regional Trial Court (Branch 158) Judge Eugene Paras ruled that theF-109

complaint is an ordinary civil action for damages and that the Plaintiff should pay theappropriate filing fees in accordance with the Rules of Court within 10 days from receipt ofthe Order. The other individual plaintiffs were ordered dropped as parties in the case. ThePlaintiffs filed a Motion to Inhibit Judge Paras as well as a Motion for Reconsideration of theOrder. In an Order dated October 17, 2011, the court reiterated that it has no jurisdiction overthe case and ordered the referral of the case to the Executive Judge for re-raffle.In an Order dated December 1, 2011, Judge Elpidio Calis of the Makati City Regional TrialCourt (Branch 133) declared that the records of the case have been transferred to his court.Subsequently, in an Order dated January 18, 2012, Judge Calis declared that the Plaintiff‟sMotion for Reconsideration of the August 22, 2011 Order is deemed submitted for resolution.The case remains pending as of March 19, 2012.West Tower Condominium Corporation vs. Leonides Garde, et al.NPS No. XV-05-INQ-11J- 02709Office of The City ProsecutorMakati CityThis is a criminal complaint for negligence under Article 365 of the Revised Penal Codeagainst FPIC directors and some of its officers, as well as directors of the Parent Company,Pilipinas Shell Petroleum Corporation and Chevron Philippines, Inc.On December 14, 2011, a Counter-Affidavit with Verified Manifestation was filed by FrancisGiles B. Puno, Director, President and Chief Operating Officer of the Parent Company andone of the Respondents. The other Respondent-Directors of the Parent Company verified theVerified Manifestation and adopted the factual allegations and defenses in the Counter-Affidavit of Respondent Puno.Makati City Prosecutor Feliciano Aspi motu proprio (on his own) inhibited himself from thecase on the ground that he had previously worked for the counsel of the Parent Company.Complainant then filed with the Department of Justice (DOJ) a petition for change of venue,which petition was granted by way of Department Order No. 63 dated January 18, 2012,which designated Manila Senior Assistant City Prosecutor Raymunda Apolo as specialinvestigating prosecutor for the case.In an Order dated February 3, 2012, Makati City Prosecutor Aspi ordered the consolidation ofthe case with another case entitled Anthony M. Mabasa et al. vs. Roberto B Dimayuga et al.for violation of Article 365 of the Revised Penal Code. The Order stated that the consolidationis being made upon the recommendation of Makati City Assistant Prosecutor Ma. AgnesAlibanto.On February 17, 2012, Respondent-Directors of the Parent Company filed a Motion forReconsideration of the Order dated January 18, 2012 which granted Complainant‟s petition fora change of venue. The case is still pending as of March 19, 2012.30. Other MattersEDCa. Acquisition of Palinpinon and Tongonan Geothermal Power Plants (PTGPP)On September 16, 2009, PSALM issued the Notice of Award and Certificate of Effectivity toGCGI, a wholly-owned subsidiary of FL Geothermal. FL Geothermal is a wholly-ownedsubsidiary of EDC. The Notice of Award officially declares GCGI as the winning bidder ofF-110

the 192.5 MW Palinpinon Geothermal Power Plant located in Dumaguete, Negros Occidentaland 112.5 MW Tongonan Geothermal Power Plant located in Leyte.The APA for the PTGPP between PSALM and GCGI became effective onSeptember 16, 2009. Under the terms of the APA, GCGI is required to deliver 40% of thepurchase price of $206 million as up-front payment payable on or before the closing date. Thebalance of 60% may be paid in fourteen (14) semi-annual payments with an interest of10% per annum compounded semi-annually. On October 23, 2009, GCGI paid PSALM$88.0 million (P=3.8 billion) representing the 40% upfront payment for PTGPP and$7.0 million for payment of purchase orders, rental, option price, performance security depositon land lease and insurance premiums for industrial all risks and comprehensive generalliability insurance policies. On the same date, the closing date was achieved and at which datePSALM turned over to GCGI the PTGPP on the condition it will operate, maintain, andrehabilitate the geothermal power plants in the ordinary and usual course of business. OnDecember 15, 2009, GCGI fully paid PSALM for the balance of 60% of $124.0 million(P=5.8 billion).b. Acquisition of Bacon-Manito Geothermal Power Plants (BMGPP)On May 5, 2010, BGI submitted the highest offer price of $28.25 million for the 150MWBacMan Geothermal Power Plants in a competitive bidding conducted by PSALM.Located in the towns of Bacon, Sorsogon and Manito, Albay in the Bicol region, the BacManplant package consists of two steam plant complexes. The BacMan I geothermal facilitycomprises two (2) 55-MW turbines, which were both commissioned in 1993. BacMan II, onthe other hand, consists of two (2) 20-MW units namely, the Cawayan located in BarangayBasud and the Botong in Osiao, Sorsogon City. The Cawayan unit was commissioned in 1994and the Botong unit was commissioned in 1998. EDC supplies the steam requirements ofthese plants. On September 3, 2010, BGI remitted to PSALM the amount of P=1,279.7 millionrepresenting the full payment of the BacMan power plants acquisition. The BMGPP arecurrently under rehabilitation to restore capacity and reliability.c. Service Concession ArrangementsEDC operates 12 geothermal projects in five geothermal service contract areas, namely LeyteGeothermal Production Field (LGPF), Southern Negros Geothermal Production Field(SNGPF), BacMan Geothermal Production Field (BGPF), Mindanao Geothermal ProductionField (MGPF) and Northern Negros Geothermal Production Field (NNGPF) under the GSCs[(see Note 29(c)] entered into with DOE pursuant to the provisions of P.D. 1442. These GSCswere replaced by GRESCs on October 23, 2009. Geothermal steam produced is partly sold toNPC, while the remainder are fed to EDC‟s and GCGI‟s power plants to produce electricity.EDC sells steam and power to NPC under the SSAs and PPAs, respectively. EDC also sellselectricity to ILECO I under the Electricity Sales Agreement.EDC has entered into the following service contracts with the Philippine Government(represented by the Ministry/Department of Energy) for the exploration, development andproduction of geothermal fluid for commercial utilization:a. Tongonan, Leyte, dated May 14, 1981b. Southern Negros, dated October 16, 1981c. Bacman, Sorsogon, dated October 16, 1981d. Mt. Apo, Kidapawan, Cotabato, dated March 24, 1992e. Mt. Labo, Camarines Norte and Sur, dated March 19, 1994F-111

f. Northern Negros, dated March 24, 1994g. Mt. Cabalian, Southern Leyte, dated January 13, 1997The exploration period under the service contracts shall be five years from the effective date,renewable for another two years, if EDC has not been in default in its exploration, financialand other work commitments and obligations and has provided a work program for theextension period acceptable to the Philippine Government. Where geothermal resource incommercial quantity is discovered during the exploration period, the service contracts shallremain in force for the remainder of the exploration period or any extension thereof and for anadditional period of 25 years thereafter, provided that, if EDC has not been in default in itsobligations under the contracts, the Philippine Government may grant an additional extensionof 15 to 20 years.EDC shall acquire for the geothermal operations materials, equipment, plants and otherinstallations as are required and necessary to carry out the geothermal operations. Allmaterials, equipment, plants and other installations erected or placed on the contract areas of amovable nature by EDC shall remain the property of EDC unless not removed therefromwithin one year after the expiration and/or termination of the related service contract in whichcase, ownership shall be vested in the Philippine Government.The service contracts provide that, among other privileges, EDC shall have the right to enterinto agreements for the disposition of the geothermal resources produced from the contractareas, subject to the approval of the Philippine Government.Pursuant to such right, EDC has entered into agreements for the sale of the geothermalresources produced from the service contract areas principally with the NPC, a governmentownedand controlled corporation. These agreements are for 25 years and may berenegotiated by either party after five years from the date of commercial operations.Pursuant to such right also, EDC has also entered into agreements with NPC for thedevelopment, construction and operation of a geothermal power plant by EDC in its GSCareas and the sale to NPC of the electrical energy generated from such geothermal powerplants. These agreements are for 25 years of commercial operations and may be extendedupon the request of EDC by notice of not less than 12 months prior to the end of the contractperiod, the terms and conditions of any such extension to be agreed upon by the parties.EDC‟s agreements with NPC for the sale of the geothermal resources produced from theservice contract areas and the sale of the electrical energy generated from the geothermalpower plants contain certain provisions relating to pricing control in the form of a cap inEDC‟s internal rate of return for specific contracts; as well as for payment by NPC ofminimum guaranteed monthly remuneration and nominated capacity.For the Northern Negros service contract, EDC does not have agreements with NPC for thesale of the geothermal resources and electrical energy produced from the service contract area.EDC instead enters into contracts with distribution utilities, electric cooperatives and otherthird party buyers of electricity for the sale of the electrical energy generated from the servicecontract area.On October 23, 2009, the GSCs for the following contract areas were replaced by GRESCspursuant to R.A. 9513 as discussed in Note 29(c): Leyte, Southern Negros, Bacman,Mindanao, and Northern Negros. Aside from the tax incentives arising from the conversion toF-112

GRESCs, the significant terms of the service concessions under the GRESCs are similar to theGSCs except for EDC having control over any significant residual interest over the steamfield, power plants and related facilities throughout the concession period and even after theconcession period. As a result of abovementioned changes in the service concessionarrangements, EDC has made a judgment that its service concession contracts are no longerwithin the scope of Philippine Interpretation IFRIC 12 starting October 23, 2009.The DOE conducted bidding on the geothermal energy resources located in Labo, CamarinesNorte and the contract area was won by EDC. The certificate of registration as RE Developerfor this contract area was granted by the DOE on February 19, 2010.The remaining service contract of EDC that is still covered by P.D. 1442 as ofDecember 31, 2010 is the Mt. Cabalian in Southern Leyte, which has a term of 25 years fromthe effective date of the contract, January 31, 1997, and for an additional period of 25 years ifEDC has not been in default in its obligations under the GSC.FG Hydroa. O&M AgreementIn 2006, FG Hydro entered into an O&M Agreement with the NIA, with the conformity ofNPC. Under the O&M Agreement, NIA will manage, operate, maintain and rehabilitate theNon-Power Components of the PAHEP/MAHEP in consideration for a service fee based onactual cubic meter of water used by FG Hydro for power generation.In addition, FG Hydro will provide for a Trust Fund amounting to $2.2 million(P=100.0 million) within the first two years of the O&M Agreement. The amortization for theTrust Fund is payable in 24 monthly payments starting November 2006 and is billed by NIAin addition to the monthly service fee. The Trust Fund has been fully funded as ofOctober 2008.The O&M Agreement is effective for a period of 25 years commencing onNovember 18, 2006 and renewable for another 25 years under the terms and conditions as maybe mutually agreed upon by both parties.b. Ancillary Services Procurement Agreement (ASPA)FG Hydro entered into an agreement with the National Grid Corporation of the Philippines(NGCP) on February 23, 2011 after being certified and accredited by NGCP as capable ofproviding Contingency Reserve Service, Dispatchable Reserve Service, Reactive PowerSupport Service and Black Start Service. Under the agreement, FG Hydro shall provide any ofthe above-stated Ancillary Services to NGCP.The ASPA is effective for a period of three (3) years, commencing on February 23, 2011 andshall be automatically renewed for another three (3) years after the end of the original termsubject to certain conditions as provided in the ASPA.The Energy Regulatory Commission (ERC) has provisionally approved the ASPA onJune 6, 2011.F-113

c. Memorandum of Agreement with NGCP (MOA with NGCP)FG Hydro entered into a MOA with NGCP for the performance of services on the operation ofthe PAHEP 230 kV switchyard and its related appurtenances (Switchyard) onAugust 31, 2011.NGCP shall pay FG Hydro a monthly fixed operating cost of P=0.1 million and monthlyvariable charges representing energy consumed at the Switchyard.The MOA is effective for a period of five (5) years and renewable for another three (3) yearsunder such terms as maybe agreed by both parties.d. PRUP ContractOn January 24, 2008, FG Hydro signed the Letter of Acceptance (LA) for the PRUP withAndritz Hydro GmbH, an Austrian company.The contract provides that the Contractor will undertake the engineering, procurement,installation, testing and commissioning of the PRUP. The technical scope of the PRUP agreedupon by FG Hydro and the Contractor includes the following:i. Refurbishment and upgrade of Pantabangan main and auxiliary plant which includes:– Turbine and wicket gate replacement; headcover modification– Draft tube repair and modification– Generator rewind and refurbishment– Replacement of key auxiliary systemsii. Power increase from 50 MW to 59.4 MW per unitThe total updated contract price of the PRUP amounts to €30.3 million ($44.7 million),including the Contract Options (CO) that will be exercised by FG Hydro. The contractprovides that payments to the Contractor are made in accordance with the MilestoneSchedule as provided in the PRUP Contract.FG Hydro has the option to make any payments to the Contractor in U.S. dollar, at anexchange rate fixed by reference to the European Central Bank fixing rate for convertingEuro to U.S. dollar as at the date of the LA, plus a premium of $0.0028 per Euro.Similarly, with respect to the CO‟s, FG Hydro also has the option to make any paymentsto the Contractor in U.S. dollar, at an exchange rate fixed by reference to the EuropeanCentral Bank fixing rate for converting Euro to U.S. dollar as at the date of the relevantoption notice, plus a premium of $0.0028 per Euro.The commissioning of the first unit commenced in December 2009 and was successfullycompleted in early 2010. Consequently, the final takeover of the refurbished and upgradedplant and equipment was achieved on January 29, 2010. The power generation capacity ofthe upgraded and refurbished unit was increased by 10 MW.The commissioning of the second unit commenced in November 2010 and was completedon December 8, 2010. Contract options and variations and closure of punchlist items,however, were completed in early 2011. The completion of the refurbishment of thesecond unit further increased the power generation capacity by another 10 MW bringingthe total plant capacity of PAHEP/MAHEP to 132 MW.F-114

FG BukidnonOn October 23, 2009, FG Bukidnon entered into a Hydropower Service Contract (HSC) with theDOE, which grants FG Bukidnon the exclusive right to explore, develop, and utilize thehydropower resources within the Agusan river contract area.FG Bukidnon shall furnish the services, technology, and financing for the conduct of itshydropower operations in the contract area in accordance with the terms and conditions of theHSC. The HSC is effective for a period of 25 years from the date of execution, or until October2034. Pursuant to the RE Law and the HSC, the National Government and Local GovernmentUnits shall receive the Government‟s share equal to 1.0% of FG Bukidnon‟s preceding fiscalyear‟s gross income for the utilization of hydropower resources within the Agusan mini-hydrocontract area.FG MindanaoOn October 23, 2009, FG Mindanao also signed five HSCs with the DOE in connection with thefollowing projects: Puyo River Hydropower Project in Jabonga, Agusan del Norte; CabadbaranRiver Hydropower Project in Cabadbaran, Agusan del Norte; Bubunawan River HydropowerProject in Baungon and Libona, Bukidnon; Tumalaong River Hydropower Project in Baungon,Bukidnon; and Tagoloan River Hydropower Project in Impasugong and Sumilao, Bukidnon. TheHSCs give FG Mindanao the exclusive right to explore, develop, and utilize renewable energyresources within their respective contract areas, and will enable FG Mindanao to avail itself ofboth fiscal and non-fiscal incentives pursuant to the Act. The pre-development stage under eachof the HSCs is two years from the time of execution of said contracts (the “Effective Date”) andcan be extended for another one year if FG Mindanao has not been in default of its exploration orwork commitments and has provided a work program for the extension period upon confirmationby the DOE. On October 11, 2011, FG Mindanao requested the DOE for its confirmation of theone (1) year extension of the pre-development stage pursuant to the HSCs for these 5 hydroprojects. Each of the HSCs also provides that upon submission of declaration of commercialviability, as confirmed by the DOE, it is to remain in force during the remaining life of the of 25-year period from the Effective Date.FG LuzonOn March 10, 2011, a Memorandum of Agreement (“MOA”) covering the development of theproposed Balintingon Reservoir Multi-Purpose Project (“BRMPP”) was signed among the ParentCompany‟s wholly-owned subsidiary, FG Luzon, the Province of Nueva Ecija and theMunicipality of General Tinio. The project will involve the development construction andoperation of a new hydro reservoir and a new hydroelectric power plant in the Municipality ofGeneral Tinio, Nueva Ecija for purposes of power generation, irrigation and domestic watersupply.The DOE has previously given due course to the application HSC filed by FG Luzon for theBalintingon project, pursuant to R.A. No, 9513, which was enacted into law primarily toaccelerate and promote the exploitation and development of renewable energy sources increase theutilization of renewable energy, encourage the renewable energy resources to prevent or reduceharmful emissions and establish the necessary structures and mechanisms.On April 15, 2011, the DOE has issued a certification whereby FG Luzon has substantiallycomplied with the documentary requirements as prescribed in the Guidelines Governing aTransparent and Competitive System of Awarding Renewable Energy Service/OperatingContracts and Providing for the Registration Process of Renewable Energy Developers(Department Circular No. DC2009-07-0011). The submissions made by FG Luzon is currentlyF-115

under the evaluation by the DOE‟s Review Committee, and is awaiting the award of the REContract that gives the registered RE Developer an exclusive right to explore, develop and utilizethe RE resources within the contract area.Electric Power Industry Reform Act (EPIRA)a. ReformsR.A . No. 9136, otherwise known as the EPIRA, and the covering Implementing Rules andRegulations (IRR) provide for significant changes in the power sector, which include amongothers: the functional unbundling of the generation, transmission, distribution and supplysectors; the privatization of the generating plants and other disposable assets of the NPC,including its contracts with IPP; the unbundling of electricity rates; the creation of aWholesale Electricity Spot Market (WESM); and the implementation of open andnondiscriminatory access to transmission and distribution systems.The EPIRA declares that the generation sector shall be competitive and open. Any entityengaged in the generation and supply of electricity is not required to secure a nationalfranchise. However, the public listing of not less than 15% of common stocks of a generationcompany is required within five years from the effectivity date of the law. First Gen hascomplied with this requirement.Cross ownership between transmission and generation companies and between transmissionand distribution companies is prohibited. As between distribution and generation, adistribution utility is not allowed to source from an associated generation company more than50% of its demand, a limitation that nonetheless does not apply with respect to contractsentered into prior to the effectivity of the law. First Gen, through its subsidiaries FGPC andFGP, has entered into PPAs with an affiliate distribution utility, Meralco, prior to theeffectivity of the EPIRA. These agreements represent only 40% of the current demand levelof Meralco.No company or related group can own, operate or control more than 30% of the installedcapacity of a grid and/or 25% of the national installed generating capacity. Under ResolutionNo. 26, Series 2005 of the ERC, installed generating capacity is attributed to the entitycontrolling the terms and conditions of the prices or quantities of the output sold in the market.Accordingly, as of December 31, 2011, the total installed capacity attributable to First Gen is2,014.61 MW, which comprises 13.45% of the national installed generating capacityamounting to 14,975.97 MW. In the Luzon, Visayas and Mindanao grids, 1,710.45 MW or15.32% of 11,167.43 MW, 302.56 MW or 14.74% of 2,051.96 MW, and 1.6 MW or 0.09% of1,756.58 MW can be attributed to First Gen, respectively.The EPIRA further provides that the President of the Republic of the Philippines shall reducethe royalties, returns and taxes collected for the exploitation of all indigenous sources ofenergy, including natural gas, so as to effect parity of tax treatment with existing rates forimported fuels. When implemented, this provision will lower the cost of energy produced bythe Santa Rita and San Lorenzo natural gas plants of FGPC and FGP, respectively.b. ImplementationOver the last two years, the implementation of reforms in the power industry mandated by theEPIRA attained significant momentum.F-116

The privatization of NPC generation assets has already exceeded the 70% target and iscurrently at 79.56% privatized NPC plants for Luzon and Visayas. Recently privatized plantsinclude: (i) the 620 MW Limay plant to San Miguel Corp.; (ii) the 305 MW Palinpinon-Tongonan plant to Green Core; (iii) the 55 MW Naga plant to SPC Power Corp.; and (iv) the150 MW BacMan to BGI. The 70% target for NPC-IPP contract privatization has also beenreached at 76% with the privatization of: (i) the 700 MW Pagbilao plant to Therma Luzon; (ii)the 1,000 MW Sual to San Miguel Corporation; (iii) the 345 MW San Roque to StrategicPower Development Corporation; (iv) the 100.75 MW Bakun-Benguet to Amlan PowerHoldings Corp.; and (v) the 1,200 MW Ilijan to San Miguel Corporation.Generation SectorThe generation sector converts fuel and other forms of energy into electricity. This sector, byutility, consists of: (i) NPC-owned and operated generation facilities; (ii) NPC-IPP plants,which consist of plants operated by IPPs, and IPP-owned and operated plants, all of whichsupply electricity to NPC; and (iii) IPP-owned and IPP-operated plants that supply electricityto customers other than NPC. Recent successes in the privatization process of NPC continueto build up momentum for the power industry reforms.Under the EPIRA, generation companies are allowed to sell electricity to distribution utilitiesor retail electricity suppliers through either bilateral contracts or the WESM. Once the regimeof Retail Competition and Open Access is implemented, generation companies may likewisesell electricity to eligible end-users. Pursuant to Section 31 of the EPIRA, suchimplementation is subject to the fulfillment of five conditions. The last condition, the transferto IPP Administrators of at least 70% of the total energy output of power plants under contractwith NPC and the IPPs, was achieved in 2011.As of December 2011, PSALM has so far privatized 20 NPC generation assets in Luzon,Visayas, and Mindanao, with an aggregate installed capacity of about 4,320 MW.With the recently concluded bidding of the 150 MW BacMan power plants, NPC hasprivatized approximately 79.56% of its total installed generating capacity in Luzon andVisayas. As for the privatization of NPC-IPP contracts, PSALM commenced bidding outagreements for IPP administration in 2009. After the completion of the bidding for theadministration of the contracted capacity of the 1,200 MW Ilijan power plant, PSALM alreadyprivatized 76% of the NPC-IPP administration contracts.In terms of market share limitations, no generation company is allowed to own more than 30%of the installed generating capacity of the Luzon, Visayas, or Mindanao grids, and/or 25% ofthe total nationwide installed generating capacity. To date, there is no power generationcompany, including NPC, breaching the mandated ceiling. Also, no generation companyassociated with a distribution utility may supply more than 50% of the distribution utility‟stotal demand, under bilateral contracts, without prejudice to the bilateral contracts entered intoprior to the enactment of EPIRA.TransmissionPursuant to the EPIRA, NPC transferred its transmission and sub-transmission assets toTransCo, which was created to operate the transmission systems throughout the Philippines.TransCo was also mandated to provide Open Access to all industry participants. The EPIRAgranted TransCo a monopoly over the high-voltage transmission network and subjected it toperformance-based regulations.F-117

The EPIRA also required the privatization of TransCo through an outright sale or concessioncontract carried out by PSALM. In December 2007, Monte Oro Grid Resources Corp. wonthe concession contract for TransCo with a bid of $3.95 billion. On January 14, 2009,PSALM formally turned over the 25-year concession of TransCo to National Grid Corporationof the Philippines (NGCP), the company formed by Monte Oro Grid Resources Corp.Wholesale Electricity Spot MarketWESM Luzon has already been commercially operating for 5 years since its commencementon June 26, 2006. The WESM‟s commercial operations in the Visayas kept on being deferredfrom 2008 to 2009 due to two main factors: (i) lack of competition – the bulk of the Visayasgrid‟s total capacity was still dominantly controlled by NPC; and (ii) fear of extremely highprices – Visayas had unstable and insufficient power supply. The privatization of thefollowing plants: (1) Panay and Bohol diesel power plants; (2) land base gas turbine; and (3)Palinpinon-Tongonan geothermal power plants, and the entry of new coal-fired power plantsin Cebu and Panay finally enabled WESM Visayas to go in commercial operations onDecember 26, 2010. With a limited number of power generation technologies in the grid,WESM prices in the Visayas were expected to reflect price offers from coal and geothermalpower during off-peak hours while price offers from oil-fired power plants are expected toclear the peak hours. These market patterns were observed in 2011.Retail Competition and Open AccessThe EPIRA provides for a system of Retail Competition and Open Access (RCOA). WithRCOA, the end users will be given the power to choose its energy source. Prior to RCOA,Distribution Utilities procures power supply in behalf of its consumers. With RCOA, theRetail Electricity Supplier (RES) chosen by the consumer will do the buying and selling ofpower and the DU shall deliver the same.RCOA shall be implemented in phases. During the 1 st phase, only end users with an averagemonthly peak demand of 1 MW for the 12 months immediately preceding the start of RCOA,shall have a choice of power supplier, as a contestable customer. In the 2 nd phase, the peakdemand threshold will be lowered to 0.75 MW, and it will continue to be periodically lowereduntil the household demand level is reached.The ERC officially declared December 26, 2011 as the Open Access date marking thecommencement of the full operation of the competitive Retail Electricity Market in Luzon andVisayas.This declaration (ERC Resolution No. 10 Series of 2011) was signed on June 6, 2011, a littleover a week after ERC reported to the Joint Congressional Power Commission (JCPC) thelatest unofficial status of the NPC privatization, which stands at 79.56% for NPC Assets, and76% for NPC-IPP contracts. Based on the evidence presented by the participants of the OpenAccess hearings, ERC found that all the preconditions provided in Section 31 of the EPIRAand Section 3, Rule 12 of its IRR have been fulfilled.However, on October 24, 2011, through ERC Case No. 2011-009 RM, the ERC declared thedeferment of the Open Access Date. The ERC found that not all rules, systems, preparations,and infrastructures required to implement RCOA have been put in place to allow aDecember 26, 2011 Open Access commencement. A final Open Access Date has yet to beannounced, but is expected to occur late in 2012.F-118

c. Proposed Amendments to the EPIRABelow is a proposed amendment to the EPIRA that, if enacted, may have a material effect onFirst Gen Group‟s electricity generation business, financial condition and results of operations.In the Philippine Senate, pending for committee approval is Senate Bill (SB) No. 2777: AnAct Requiring All Independent Power Producers, Generation Companies Or Energy ResourceDevelopers To Remit The Amount They Are Required To Set Aside As Financial BenefitDirectly To The Host Community. The bill aims to provide an alternative financial avenue forLocal Government Units (LGU) by ordering power producers to directly remit the FinancialBenefit to Host Communities (FBHC) to LGUs.First Gen Group cannot provide any assurance whether this proposed amendment will beenacted in its current form, or at all, or when any amendment to the EPIRA will be enacted.Proposed amendments to the EPIRA, including the one discussed above, as well as otherlegislation or regulation could have material impact on the First Gen Group‟s business,financial position and financial performance.d. Certificates of ComplianceFGP, FGPC, FG Hydro and FG Bukidnon have been granted Certificates of Compliance(COCs) by the ERC for the operation of their respective power plants on September 14, 2005,November 5, 2003, June 3, 2008 and February 16, 2005, respectively. The COCs, which arevalid for a period of 5 years, signify that the companies in relation to their respectivegeneration facilities have complied with all the requirements under relevant ERC guidelines,the Philippine Grid Code, the Philippine Distribution Code, the WESM rules, and related laws,rules and regulations. Subsequently, FGP, FGPC and FG Bukidnon have successfullyrenewed their relevant COCs on September 6, 2010, November 6, 2008 and February 8, 2010,respectively. Such COCs are valid for a period of 5 years from the date of issuance.FG Energy has been granted the Wholesale Aggregator‟s Certificate of Registration onMay 17, 2007, effective for a period of five years, and the RES License on February 27, 2008,effective for a period of three years. Subsequently, FG Energy applied and the ERC hasapproved the renewal of FG Energy‟s RES License on May 9, 2011 and is effective for aperiod of five years.Pursuant to the provisions of Section 36 of the EPIRA, Electric Power Industry Participantsprepare and submit for approval of the ERC their respective Business Separation andUnbundling Plan (BSUP) which requires them to maintain separate accounts for, or otherwisestructurally and functionally unbundle, their business activities.Since each of FGP, FGPC, FG Bukidnon and FG Hydro is engaged solely in the business ofpower generation, to the exclusion of the other business segments of transmission,distribution, supply and other related business activities, compliance with the BSUPrequirement on maintaining separate accounts is not reasonably practicable. Based onassessments of FGP, FGPC, FG Bukidnon, FG Hydro and FG Energy, they are in the processof complying with the provisions of the EPIRA and its IRR.Clean Air ActOn November 25, 2000, the IRR of the Philippine Clean Air Act (PCAA) took effect. The IRRcontain provisions that have an impact on the industry as a whole, and on FGP and FGPC inparticular, that need to be complied with within 44 months (or July 2004) from the effectivity date,subject to approval by the DENR. The power plants of FGP and FGPC use natural gas as fuel andF-119

have emissions that are way below the limits set in the National Emission Standards for SourcesSpecific Air Pollution and Ambient Air Quality Standards. Based on FGP‟s and FGPC‟s initialassessments of the power plants‟ existing facilities, the companies believe that both are in fullcompliance with the applicable provisions of the IRR of the PCAA.BIR Revenue Regulation (RR) No. 16-2008On December 18, 2008, the BIR issued RR No. 16-2008 which implemented the provisions ofSection 34(L) of the Tax Code of 1997, as amended by Section 3 of R.A. No. 9504, dealing on theOSD allowed to individuals and corporations in computing their taxable income.Based on RR No. 16-2008, it allowed individuals and corporations to claim OSD in lieu of theitemized deductions (i.e., items of ordinary and necessary expenses allowed under Sections 34(A)to (J) and (M), Section 37, other special laws, if applicable). In case of corporate taxpayerssubject to tax under Sections 27(A) and 28(A) (1) of the National Internal Revenue Code (NIRC),as amended, the OSD allowed shall be in an amount not exceeding 40% of their gross income.The items of gross income under Section 32(A) of the Tax Code, as amended, which are requiredto be declared in the Income Tax Return (ITR) of the taxpayer for the taxable year, are part of thegross income against which the OSD may be deducted in arriving at taxable income. Passiveincome which has been subjected to a final tax at source shall not form part of the gross incomefor purposes of computing the 40% OSD.For other corporate taxpayers allowed by law to report their income and deductions under adifferent method of accounting (e.g., percentage of completion basis, etc.) other than cash andaccrual method of accounting, the gross income pursuant to the RR No. 16-2008 shall bedetermined in accordance with said acceptable method of accounting.A corporate taxpayer who elected to avail of the OSD shall signify in its return such intention;otherwise it shall be considered as having availed of the itemized deductions allowed underSection 34 of the NIRC. Once the election to avail the OSD is signified in the return, it shall beirrevocable for the taxable year for which the return is made. In the filing of the quarterly ITR, thetaxpayer may opt to use either the itemized deduction or OSD. However, in filing the final ITR,the taxpayer must make a choice as to what method of deduction it shall employ for the purpose ofdetermining its taxable net income for the entire year. The taxpayer is, thus, not allowed to use ahybrid method of claiming its deduction for one taxable year.For the taxable period 2008 which is the initial year of the implementation of the 40% OSD, the40% maximum deduction shall only cover the period beginning July 6, 2008, which is theeffective date of the said RR No. 16-2008. However, in order to simplify and provide ease ofadministration during the transition period, July 1, 2008 shall be considered as the start of theperiod when the 40% OSD may be allowed.First Gen Group computed its income tax based on itemized deductions, except for FGP, FGPCand FG Bukidnon in 2011 and FGP in 2010.F-120

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippinesPhone: (632) 891 0307Fax: (632) 819 0872www.sgv.com.phBOA/PRC Reg. No. 0001,January 25, 2010, valid until December 31, 2012SEC Accreditation No. 0012-FR-2 (Group A),February 4, 2010, valid until February 3, 2013INDEPENDENT AUDITORS’ REPORTON SUPPLEMENTARY SCHEDULESThe Stockholders and the Board of DirectorsFirst Gen Corporation3rd Floor, Benpres BuildingExchange Road corner Meralco AvenuePasig CityWe have audited in accordance with Philippine Standards on Auditing, the consolidated financialstatements of First Gen Corporation and Subsidiaries as of December 31, 2011 and 2010 and for eachof the three years in the period ended December 31, 2011, included in this Form 17-A and have issuedour report thereon dated March 19, 2012. Our audits were made for the purpose of forming an opinionon the consolidated financial statements taken as a whole. The schedules listed in the Index toConsolidated Financial Statements and Supplementary Schedules are the responsibility of theCompany‟s management. These schedules are presented for purposes of complying with SecuritiesRegulation Code Rule 68, As Amended (2011), and are not part of the consolidated financialstatements. These schedules have been subjected to the auditing procedures applied in the audit of theconsolidated financial statements and, in our opinion, fairly state, in all material respects, theinformation required to be set forth therein in relation to the consolidated financial statements taken asa whole.SYCIP GORRES VELAYO & CO.Martin C. GuantesPartnerCPA Certificate No. 88494SEC Accreditation No. 0325-AR-2 (Group A),March 15, 2012, valid until March 14, 2015Tax Identification No. 152-884-272BIR Accreditation No. 08-001998-52-2009,June 1, 2009, valid until May 31, 2012PTR No. 3174599, January 2, 2012, Makati CityF-121

FIRST GEN CORPORATION AND SUBSIDIARIESINDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULESFORM 17-A, Item 7December 31, 2011Consolidated Financial StatementsPage No.Statement of Management‟s Responsibility for Consolidated Financial StatementsReport of Independent Public AccountantsConsolidated Statement of Financial Position as of December 31, 2011 and 2010Consolidated Statements of Incomefor the years ended December 31, 2011, 2010 and 2009Consolidated Statements of Comprehensive Incomefor the years ended December 31, 2011, 2010 and 2009Consolidated Statements of Changes in Equityfor the years ended December 31, 2011, 2010 and 2009Consolidated Statements of Cash Flowsfor the years ended December 31, 2011, 2010 and 2009Notes to Consolidated Financial StatementsSupplementary SchedulesReport of Independent Public Accountants on Supplementary Schedules 1A. Financial Assets 2B. Amount Receivable from Directors, Officers, Employees, Related Parties and PrincipalStockholders (Other than Related Parties)*C. Amounts Receivable from Related Parties which are Eliminated during Consolidation ofFinancial Statements3D. Intangible Assets - Other Assets 4E. Long-term Debt 5F. Indebtedness to Related Parties (Long-term Loans from Related Companies) *G. Guarantees of Securities of Other Issuers*H. Capital Stock 6I. Reconciliation of Retained Earnings Available for Dividend Declaration 7Map of relationships of the companies within the group 8-9Schedule of standards and interpretations under PFRS as of December 31, 2011 10-12* These schedules, which are required by SRC Rule 68, As Amended, have been omitted because they are either not required,not applicable or the information required to be presented is included in the Company’s consolidated financial statementsor notes thereto.Receivables from certain officers and employees were made in the ordinary course of business.The Company is not a financial guarantor of obligation of any unconsolidated entity.F-122

FIRST GEN CORPORATION AND SUBSIDIARIESSchedule A. Financial AssetsDecember 31, 2011(Amounts in U.S. Dollars and in Thousands)Number ofValue BasedName of Issuing Shares or on MarketEntity and Principal Amount Quotations at IncomeDescription of Amount of Bonds Shown in the Balance Sheet ReceivedFinancial Assets Each Issue and Notes Balance Sheet Date and AccruedFinancial assets accounted for as cash flow hedgesDerivative assets N/A N/A $ 182 N/A $ -Loans and receivablesCash and cash equivalents N/A N/A 266,141 N/A 2,608Trade receivables N/A N/A 180,119 N/A -Due from related parties N/A N/A 9,339 N/A -Other receivables N/A N/A 3,158 N/A -Advances to non-controlling shareholderN/A N/A 92,235 N/A 5,561Other current assets N/A N/A 167 N/A -Available for Sale (AFS) financial assetsInvestments in proprietary membership shares N/A N/A 741 N/A -$ 552,082 $ 8,169F-123

FIRST GEN CORPORATION AND SUBSIDIARIESSchedule C. Amounts Receivable from Related Parties which are Eliminated during Consolidation of Financial StatementsDecember 31, 2011(Amounts in U.S. Dollars and in Thousands)Receivable toName of Subsidiary/ CounterpartyBeginning Amounts Ending Balance AmountAdditions Collections ReclassificationsBalance Written Off Current Non-Current EliminatedFirst Gas Holdings Corporation $9,937 $0 ($792) $0 $0 $9,145 $0 $9,145First Gen Mindanao Hydro Power Corporation 601 266 - - - 867 - 867First Gen Renewables, Inc. 323 17 (1) - - 339 - 339First Gen Prime Energy Corporation 98 163 - - - 261 - 261First Gen Visayas Hydro Power Corporation 140 33 - - - 173 - 173First Gen Luzon Power Corp. 128 2 - - - 130 - 130First Gen Energy Solutions Inc 27 30 (38) - - 19 - 19FG Bukidnon Power Corp. 55 - (1) - - 54 - 54First Gen Premier Energy Corp. 49 2 - - - 51 - 51First Gen Visayas Energy Inc. 3 2 - - - 5 - 5First Gen Geothermal Power Corporation 2 2 - - - 4 - 4AlliedGen Power Corporation 1 - - - - 1 - 1First NatGas Power Corp. 1 - - - - 1 - 1Northern Terracotta Power Corp. - 1 - - - 1 - 1$1,428 $518 ($40) $0 $0 $1,906 $0 $1,906F-124

FIRST GEN CORPORATION AND SUBSIDIARIESSchedule D. Intangible Assets - Other AssetsDecember 31, 2011(Amounts in U.S. Dollars and in Thousands)DeductionsCharged to Charged to Other Changes-Beginning Additions Costs Other Additions EndingDescription Balance At Cost and Expenses Accounts (Deductions) BalanceA) Goodwill and Intangible assetsGoodwill $9,086 $- $0 $- $- $9,086Pipeline rights - net of amortization 8,284 - (602) - - 7,682$17,370 $- ($602) $- $- $16,768B) Other AssetsAdvances to non-controlling shareholder $91,586 $- $- ($4,994) $- $86,592Prepaid major spare parts 30,154 39,152 - - - 69,306Prepaid gas 28,118 - (28,118) - - -Derivative asset - 182 182Deferred debt issue costs - 960 960Option assets 2,623 - - (2,623) - -Retirement asset 369 116 - - 485Available-for-sale financial assets 741 - - - - 741Others 568 1,506 - - - 2,074$154,159 $41,916 ($28,118) ($7,617) $- $160,340F-125

FIRST GEN CORPORATION AND SUBSIDIARIESSchedule E. Long-term DebtDecember 31, 2011(Amounts in U.S. Dollars and in Thousands)AmountAmountName of Issuer and Total Shown as Shown asType of Obligation Loans - net Current - net Long-term - net RemarksConvertible bonds $84,662 $- $84,662Covered Facility with Nine Foreign Banks 276,893 11,436 265,457Uncovered Facility with Nine Foreign Banks 156,721 11,161 145,560Term Loan Facility 140,257 - 140,257BDO Facility 83,032 668 82,364Parent Notes Facility49,962 49,962Hermes Covered Facility 32,496 10,680 21,816ECGD Commercial Loan Credit Facility 28,401 9,402 18,999GKA Covered Facility 27,820 5,473 22,347KFW / Hermes Facility 9,640 9,640 -$889,884 $58,460 $831,424Note: Balances shown are already net of the unamortized portion of debt issuance costs as of December 31, 2011 in compliance with PAS 32,"Financial Instruments: Presentation." Please refer to Notes 15 & 16 to the consolidated financial statements for additional information.F-126

FIRST GEN CORPORATION AND SUBSIDIARIESSchedule H. Capital StockDecember 31, 2011Number ofShares ReservedNumber of Shares Held ByNumber of for Options,Number of Shares Issued Warrants, Directors,Shares and Conversions, and Officers andTitle of Issue Authorized Outstanding Other Rights Affiliates Employees OthersRedeemable preferred stock Series "B" 1,000,000,000 1,000,000,000 - 1,000,000,000 - -Redeemable preferred stock Series "E" 1,500,000,000 468,553,892 - 468,553,892 - -Redeemable preferred stock Series "F" 100,000,000 100,000,000 - 52,450,000 - 47,550,000Common stock * 5,000,000,000 3,362,797,768 106,553,398 2,224,989,159 50,340,303 1,087,468,306Note: Please refer to Note 19 to the consolidated financial statements for additional information regarding the movements in Capital stock* Total number of shares issued and outstanding of common stock is net of common stocks held in treasury totalling to 279,406,700.F-127

FIRST GEN CORPORATION - PARENTSchedule I. Reconciliation of Retained Earnings Available for Dividend DeclarationDecember 31, 2011(Amounts in U.S. Dollars and in Thousands)Unappropriated Retained Earnings, as adjusted toavailable for dividend distribution, December 31, 2010 $249,552Add: Net income (loss) actually earned/realized during the yearNet loss during the year closed to Retained Earnings ($491)Less: Non-actual/unrealized income (net of tax) 3,908Net loss actually earned during the year (4,399)Add (deduct):Cash dividend declarations during the year ($11,690)TOTAL RETAINED EARNINGS, DECEMBER 31, 2011AVAILABLE FOR DIVIDEND(11,690)$233,463F-128

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60.0%100.0%First GasPipelineCorporationFGLandCorporationE=66.2%100.0%Holdings Corporation60.0%100.0%AlliedGenPowerCorporation60.0%First NatGasPowerCorporation100.0%100.0%100.0%Legend:E = Economic Interest100.0%100.0%100.0%100.0%100.0%100.0%100.0%100.0%100.0%100.0%45.0%First Gen Geothermal Power Corp.First Gen Mindanao Hydro PowerFirst Gen Visayas Hydro PowerFirst Gen Luzon Power Corp.First Gen Visayas Energy, Inc.First Gen Premier Energy Corp.First Gen Prime Energy CorporationNorthern Terracotta Power Corp.Blue Vulcan Holdings Corp.Prime Meridian PowergenCorporationPrime Terracota HoldingsCorporation40.0%37.3%Bauang Private Power Corporation33.0%First Gen Northern Energy Corp.F-130

FIRST GEN CORPORATION AND SUBSIDIARIESAs of December 31, 2011List of Philippine Financial Reporting Standards (PFRSs) [which consist of PFRSs, PhilippineAccounting Standards (PASs) and Philippine Interpretations] effective as of December 31, 2011:PFRSPFRS 1, First-time Adoption of Philippine FinancialReporting StandardsAdoptedPFRS 2, Share-based PaymentAdoptedPFRS 3, Business CombinationsAdoptedPFRS 4, Insurance ContractsNot ApplicablePFRS 5, Non-current Assets Held for Sale and DiscontinuedOperationsAdoptedPFRS 6, Exploration for and Evaluation of Mineral Resources Not ApplicablePFRS 7, Financial Instruments: DisclosuresAdoptedPFRS 8, Operating SegmentsAdoptedPASPAS 1, Presentation of Financial StatementsAdoptedPAS 2, InventoriesAdoptedPAS 7, Statement of Cash FlowsAdoptedPAS 8, Accounting Policies, Changes in AccountingEstimates and ErrorsAdoptedPAS 10, Events after the Reporting PeriodAdoptedPAS 11, Construction ContractsNot ApplicablePAS 12, Income TaxesAdoptedPAS 16, Property, Plant and EquipmentAdoptedPAS 17, LeasesAdoptedPAS 18, RevenueAdoptedPAS 19, Employee BenefitsAdoptedPAS 20, Accounting for Government Grants and Disclosureof Government AssistanceNot ApplicablePAS 21, The Effects of Changes in Foreign Exchange Rates AdoptedPAS 23, Borrowing CostsAdoptedPAS 24, Related Party DisclosuresAdoptedPAS 26, Accounting and Reporting by Retirement BenefitPlansAdoptedPAS 27, Consolidated and Separate Financial Statements AdoptedPAS 28, Investments in AssociatesAdoptedPAS 29, Financial Reporting in Hyperinflationary Economies Not ApplicablePAS 31, Interests in Joint VenturesNot ApplicablePAS 32, Financial Instruments: PresentationAdoptedPAS 33, Earnings per ShareAdoptedPAS 34, Interim Financial ReportingAdoptedPAS 36, Impairment of AssetsAdoptedPAS 37, Provisions, Contingent Liabilities and ContingentAssetsAdoptedPAS 38, Intangible AssetsAdoptedPAS 39, Financial Instruments: Recognition andMeasurementAdoptedPAS 40, Investment PropertyNot ApplicablePAS 41, AgricultureNot ApplicableF-131

IFRICPhilippine Interpretation IFRIC–1, Changes in ExistingDecommissioning, Restoration and Similar LiabilitiesPhilippine Interpretation IFRIC–2, Members' Shares in CooperativeEntities and Similar InstrumentsPhilippine Interpretation IFRIC–4, Determining whether anArrangement contains a LeasePhilippine Interpretation IFRIC–5, Rights to Interests arisingfrom Decommissioning, Restoration and EnvironmentalRehabilitation FundsPhilippine Interpretation IFRIC–6, Liabilities arising fromParticipating in a Specific Market - Waste Electrical andElectronic EquipmentPhilippine Interpretation IFRIC–7, Applying the RestatementApproach under PAS 29 Financial Reporting inHyperinflationary EconomiesPhilippine Interpretation IFRIC–9, Reassessment ofEmbedded DerivativesPhilippine Interpretation IFRIC–10, Interim FinancialReporting and ImpairmentPhilippine Interpretation IFRIC–12, Service ConcessionArrangementsPhilippine Interpretation IFRIC–13, Customer LoyaltyProgrammesPhilippine Interpretation IFRIC–14, PAS 19 - The Limit on aDefined Benefit Asset, Minimum Funding Requirements andtheir InteractionPhilippine Interpretation IFRIC–16, Hedges of a NetInvestment in a Foreign OperationPhilippine Interpretation IFRIC–17, Distributions of NoncashAssets to OwnersPhilippine Interpretation IFRIC–18, Transfers of Assets fromCustomersPhilippine Interpretation IFRIC–19, Extinguishing FinancialLiabilities with Equity InstrumentsPhilippine Interpretation SIC–7, Introduction of the EuroPhilippine Interpretation SIC–10, Government Assistance -No Specific Relation to Operating ActivitiesPhilippine Interpretation SIC–12, Consolidation - SpecialPurpose EntitiesPhilippine Interpretation SIC–13, Jointly Controlled Entities -Non-Monetary Contributions by VenturersPhilippine Interpretation SIC–15, Operating Leases –IncentivesPhilippine Interpretation SIC–21, Income Taxes - Recoveryof Revalued Non-Depreciable AssetsPhilippine Interpretation SIC–25, Income Taxes - Changes inthe Tax Status of an Entity or its ShareholdersPhilippine Interpretation SIC–27, Evaluating the Substance ofTransactions Involving the Legal Form of a LeasePhilippine Interpretation SIC–29, Service ConcessionArrangements: DisclosuresF-132Not ApplicableNot ApplicableAdoptedNot ApplicableNot ApplicableNot ApplicableAdoptedAdoptedNot ApplicableNot ApplicableNot ApplicableNot ApplicableNot ApplicableNot ApplicableNot ApplicableNot ApplicableNot ApplicableNot ApplicableNot ApplicableNot ApplicableNot ApplicableNot ApplicableNot ApplicableNot Applicable

Philippine Interpretation SIC–31, Revenue - BarterTransactions Involving Advertising ServicesPhilippine Interpretation SIC–32, Intangible Assets - WebSite CostsPIC Q&A No. 2006-01: PAS 18, Appendix, paragraph 9– Revenue recognition for sales of property units underpre-completion contractsPIC Q&A No. 2006-02: PAS 27.10(d) – Clarification ofcriteria for exemption from presenting consolidatedfinancial statementsPIC Q&A No. 2007-03: PAS 40.27 – Valuation of bankreal and other properties acquired (ROPA)PIC Q&A No. 2008-01 (Revised): PAS 19.78 – Rate usedin discounting post-employment benefit obligationsPIC Q&A No. 2008-02: PAS 20.43 – Accounting forgovernment loans with low interest rates under theamendments to PAS 20PIC Q&A No. 2009-01: Framework.23 and PAS 1.23 –Financial statements prepared on a basis other than goingconcernPIC Q&A No. 2010-01: PAS 39.AG71-72 – Rate used indetermining the fair value of government securities in thePhilippinesPIC Q&A No. 2010-02: PAS 1R.16 – Basis ofpreparation of financial statementsPIC Q&A No. 2011-01: PAS 1.10(f) – Requirements fora Third Statement of Financial PositionNot ApplicableNot ApplicableNot ApplicableAdoptedNot ApplicableAdoptedNot ApplicableNot ApplicableNot ApplicableAdoptedAdoptedF-133

Key Performance IndicatorsFirst Gen Consolidated 2011 2010Current ratio 2.20 0.99Return on assets (%) 3.54% 5.37%Long-term debt plus noncurrent liabilities* / Equityratio (times)0.68 0.93Debt ratio (%) 44.97% 50.97%Interest-bearing debt-to-equity ratio (times) 0.63 0.87Debt-to-equity ratio (times) 0.82 1.04*includes current portion of long-term debtFGPC (Santa Rita) 2011 2010Current ratio 1.83 2.03Return on assets 10.02% 9.61%Long-term debt plus noncurrent liabilities / Equityratio (times)2.10 2.47Debt ratio (%) 73.58% 75.15%Interest-bearing debt-to-equity ratio (times) 1.98 2.35Debt-to-equity ratio (times) 2.78 3.02FGP (San Lorenzo) 2011 2010Current ratio 1.70 1.67Return on assets 12.03% 14.24%Long-term debt plus noncurrent liabilities / Equityratio (times)0.27 0.49Debt ratio (%) 39.18% 43.96%Interest-bearing debt-to-equity ratio (times) 0.37 0.56Debt-to-equity ratio (times) 0.64 0.78FG Bukidnon 2011 2010Current ratio 3.52 4.62Return on assets (%) 14.64% 4.45%Debt ratio (%) 20.45% 16.23%Debt-to-equity ratio (times) 0.26 0.19EDC 2011 2010Current Ratio 2.22 1.98Interest-bearing debt-to-equity ratio (times) 1.74 1.28Net Debt-to-Equity Ratio (times) 1.32 1.09Return on Assets (%)0.70 5.306.0* 9.0*Return on Equity (%)2.0 14.116.5* 23.8**excludes provision for full impairment of NNGP assets amounting to P4,998.6 million, less tax effect of P499.9 millionin 2011 and P3,390.0 million, less tax effect of P339.0 million in 2010FG Hydro (Pantabangan-Masiway) 2011 2010Current ratio 4.23 3.06Return on assets 12.62% 7.81%Long-term debt plus noncurrent liabilities / Equityratio (times)0.88 1.16Debt ratio 49.82% 56.42%Interest-bearing debt to equity ratio (times) 0.95 1.23Total debt-to-equity ratio (times) 0.99 1.29F-134

Key Performance IndicatorsCurrent RatioReturn on AssetsLong-term Debt Plus NoncurrentLiabilities / Equity Ratio (times)Debt RatioInterest-bearing debt-to-equity ratio(times)Debt-to-equity ratio (times)DetailsCalculated by dividing current assets over current liabilities. This ratiomeasures the company's ability to pay short-term obligations.Calculated by dividing net income over total assets*. This ratio measureshow the company utilizes its resources to generate profits.Calculated by dividing long-term debt and noncurrent liabilities (excludingdeferred income tax liabilities-net) over total equity. This ratio measuresthe company's financial leverage.Calculated by dividing total liabilities over total assets. This ratio measuresthe percentage of funds provided by the creditors to the projects.Calculated by dividing total interest-bearing debt over total equity. Thisratio measures the percentage of funds provided by thelenders/creditors.Calculated by dividing total liabilities over total equity. This ratio measuresthe percentage of funds provided by the lenders/creditors.Calculated by dividing the total interest-bearing debts less cash & cashequivalents over total equity. This measures the company‟s financialNet Debt-to-Equity Ratioleverage and stability. A negative net debt-to-equity ratio means that thetotal cash and cash equivalents exceeds interest-bearing liabilities.*Average total assets were used for First Gen Consolidated Key Performance IndicatorsF-135

PARTIES TO THE OFFERIssuerFIRST GEN CORPORATIONIssue Manager and Sole BookrunnerBDO CAPITAL & INVESTMENT CORPORATIONJoint Lead UnderwritersBDO CAPITAL & INVESTMENT CORPORATIONBPI CAPITAL CORPORATIONRCBC CAPITAL CORPORATIONSTANDARD CHARTEREDStock Transfer and Paying AgentSECURITIES TRANSFER SERVICES, INC.Receiving AgentBDO UNIBANK, INC.—TRUST AND INVESTMENTS GROUPCounsel to the Issue Manager and Sole Bookrunner and the Joint Lead UnderwritersPICAZO BUYCO TAN FIDER & SANTOSCounsel to the IssuerPUNO & PUNOIndependent AuditorsSYCIP GORRES VELAYO & CO.