San Miguel postpones IPO of energy business

By Lenie Lectura – September 27, 2017

from Business Mirror

SMC Global Power Holdings Corp., the power arm of conglomerate San Miguel Corp. (SMC), has postponed anew its planned initial public offering (IPO) this year due to unresolved issues involving contracts it entered into with the Power Sector Assets and Liabilities Management Corp. (PSALM).

“With what is happening now, how can we proceed with [IPO] because of issues in [the] Ilijan and Sual [plants]?” SMC President Ramon Ang said. SMC Global Power was eyeing to list on the stock exchange in the third quarter of this year. The plan has been shelved in the past due to volatility in the stock market.

The power firm’s IPO plan was approved by the Securities and Exchange Commission (SEC) in 2011. It was expected to raise between P12.76 billion and P27.335 billion from the maiden offer of 290 million to 385 million shares at a price range of P44 to P71 each.

SMC Global Power is one of the largest power companies in the Philippines with a diversified portfolio utilizing a mix of coal, natural gas and hydroelectric-power plants. Its total capacity is 2,903 megawatts (MW) as of end-2015. It accounted for 22 percent of power supply in the Luzon grid and 17 percent of the national grid.

These power assets are under Independent Power Producer Administrators (Ippas) Agreements with the PSALM, or are owned and under joint-venture agreements and are classified as independent power producers (IPPs). These plants are the 2×500-MW Sual coal plant in Pangasinan, 345-MW San Roque hydroelectric multipurpose power project also in Pangasinan and the 1,200-MW Ilijan gas plant in Batangas.

Currently, SMC’s units South Premiere Power Corp. (SPPC) and San Miguel Energy Corp. (SMEC) are engaged in a dispute with the Psalm.

SPPC rejected claims by PSALM that it owes the government P10 billion in outstanding obligations arising from the administration agreement covering the Ilijan power plant.

It is not true that we are not paying. Please stop unnecessary publicity. Its turning off investors. We have paid our obligations, Ang has said. It is PSALM that should honor the contract. The SPPC said it has already paid PSALM P238 billion in various fees as of August.

The payment to Psalm consists of P187 billion in energy fees and P51 billion in capacity fees, the company said. By the time the agreement expires in 2022, SPPC would have paid PSALM a total of P384 billion, representing P287 billion in energy fees and P97 billion in capacity fees.

The P97-billion payment for capacity fees, equivalent to about $2 billion, is effective payment for the 20-year-old power plant. A brand-new plant with the same capacity can be built for so much less.

By the time we finish our payment, it would like we bought the plant twice its value already, Ang said. SPPC also reimburses PSALM regularly for fuel and variable operating and maintenance costs (VOM) in the form of energy fees.

Ang said this clearly shows that SPPC is paying Psalm more than what it is paying the IPP counterparty for the Ilijan Power Plant. Thus, PSALM is net cash positive from its administration agreement with SPPC.  The SMEC, meanwhile, is the Ippa of the Sual power plant. It administers the plant’s output; pays for the capacity and generation charges; and supplies fuel. According to Ang, the government’s contract when the plant was built was 1,000 MW.

Ang quoted “the builder [as saying] the plant was actually 1,200 MW even though it’s only 1,000 MW.”

“They are charging us for 1,200 MW when the contract is only 1,000 MW.” The largest coal plant in the country, Sual was built by Team Energy Corp. under a build-operate-transfer agreement with the government set to expire in 2024.