Aboitiz to invest P85-B over 4 years


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Prevailing healthy economic and low interest rate environment benefit this capital-intensive industry, says power executive Erramon Aboitiz

COMPETITION. Erramon Aboitiz says industry competition will reduce power costs. Photo by @PPP_Ph on Twitter

MANILA, Philippines – The influx of new investors and increased competition in the local power industry will eventually bring down power rates, a top official of the country’s biggest power producer said.

Erramon Aboitiz, president and CEO of Aboitiz Power Corp, stressed these and announced the group’s P85 billion investments in the next 4 years at the Philippine Yearend Economic Briefing held on February 13.

“We’re seeing an influx of new investors and players that have not been in the power industry in the past. This will bring up competition and bring down lower prices,” said Aboitiz.

“Creating a competitive environment is absolutely necessary in harnessing private capital. We have been successful in Luzon by attracting investments in power leading to a competitive landscape and ample power,” he added.

(View Rappler’s Infographic on the biggest power producers in the Philippines and the new industry entrants.)

Aboitiz said the prevailing healthy economic and record-low interest rate environment benefit players in this capital-intensive industry.

“Because of lower interest rates, we are in the position to invest long-term,” he said.

P85-B power investments

Aboitiz Power Corp. is earmarking a total of P85 billion in power investments for the next 4 years, of which P35 billion is allocated for projects in Mindanao.  

“The P85 billion is a combination of our investments in RP Energy, the Pagbilao 3 expansion, the Therma South coal plant in Mindanao, and some hydros that we’re doing. That all sums up to P85 billion,” said Aboitiz.

The biggest spending is allocated to augment the power supply in Mindanao. Aboitiz Power’s P35 billion investments will add 354 megawatts (MW) of power within the first quarter of 2015 to help address the critical power shortage in the island.

The 300-MW extra power will come from the clean coal facility of Aboitiz-owned Therma South Inc. in Davao, and 54-MW from the run-of-river hydro plants of Hedcor Inc., also a unit of Aboitiz Power.

The run-of-river hydro plants are composed of Tudaya (14 MW), Tamugan (12 MW) and Sita (28 MW). Therma South and Hedcor are wholly-owned Aboitiz Power subsidiaries.

Mindanao power needs

Currently, the Mindanao grid needs around 1,597 MW daily, but existing capacities only produce 1,261 MW.

According to Aboitiz, the Philippines power industry is in good shape with the exception of Mindanao.

“Except for Mindanao, we are in good shape. [The] concern of the private sector is excess power,” he said.

One of the ‘roadblocks’ in Mindanao is its lack of reliable power and related infrastructures.

“Throughout 2012, Mindanao suffered from power outages due to its heavy dependence on hydro resources and the fact that no new power pant was built for over a decade,” he said.

The Aboitiz group is currently the largest power distributor on the island. After their power plants are complete, they will also become the biggest power generation on the island.

Luzon projects, financing

Aboitiz Power is also allocating half of the $800-million expansion cost for the Pagbilao coal-fired power plant.

“We’re planning on building a 400 MW plant so that’s roughly about $800 million. We hope to break ground this year, hopefully in the 2nd half and to have that ready by 2016,” said Aboitiz.

The expansion of the Pagbilao facility will be undertaken in partnership with TeaM Energy. “Yes, that’s a joint venture with TeaM energy so we are anticipating a 50-50 joint venture with them,” he added.

Aboitiz Power, which is a member of the Redondo Peninsula Energy Inc. (RP Energy), will shell out 25% of the P55 billion coal-fired power plant in Subic.

The rest is allocated for Aboitiz Power’s hydro projects.

“In the next 3 to 4 years, we’re looking at adding a little over 100-MW of mini hydro. We’re looking at here in Luzon, Negros and also some more in Mindanao. We don’t have a particular approved site at this point,” said Aboitiz.

Aboitiz Power said it will tap loans to partly finance its capital extensive investment in the power sector. “We’ll probably sign the loan agreements for those this year, probably within the 2nd and 3rd quarter. Normally what we do in projects like that is we get some project finance from the banks normally about 70% and the balance is the equity that we put in as Aboitiz Power,” explained Aboitiz. – with reports from Aya Lowe/Rappler.com

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