The Philippine unit of Energy World Corp. (EWC) of Australia, which is in the final touches of building its transmission facilities in its liquefied natural gas (LNG) plant in Pagbilao, Quezon, is raising AU$65 million through a fully underwritten non-renounceable one-for 2.21 entitlement offer.
Shareholders are offered one new fully paid subscription ordinary share for every 2.21 existing shares held at 8 cents per share. The price carries a 17.5 percent discount to EWC’s 30-day volume-weighted average price. It is reported that the energy company has issued 812,503,019 shares fully underwritten by Gleneagle Securities, even as EWC’s largest shareholder EWC International committed to subscribe for up to its current pro-rata shareholding of 38.8 percent.
Roughly AU$43 million will be allocated to paying the Standard Chartered Convertible Note, which has now been assigned to Augusta Investments. About AU$18 million will fund the development of EWC’s projects in Australia and Southeast Asia, while the remaining AU$4 million will be used to cover the costs of the entitlement offer. The entitlement offer started on March 31 and closed on April 20. The new shares should have been settled on Monday, April 26.
Former Quezon Governor Eduardo Rodriguez, who owns part of the property on which the LNG plant nestles, told BusinessWise that a substantial portion of the raised capital allotted to Southeast Asia will be used by the company for the completion of Pagbilao LNG plant’s transmission facilities that has been delayed because of the pandemic. Rodriguez expressed optimism that the project would be fully operational by 2022 or early 2023.
The Pagbilao LNG plant is now more than 95 percent complete. The only thing keeping the company from operating is an infrastructure that would have allowed it to export power. If the company had been allowed a “cut-in” connection to an existing 230kV transmission line within its project site, it could have started exporting power years ago. The National Grid Corp. of the Philippines—mandated to encourage power producers to export power on a first-come-first-served basis—had rejected EWC’s request to hook its plant—notwithstanding that it was technically feasible to do so—to the existing power plant because of the opposition of Team Energy (Pagbilao coal-fired plant). EWC is now in the final construction stages of its own 12-14km transmission line.
Rodriguez said that the EWC’s fund-raising effort reflects the company’s commitment to the project, even though several delays—the latest of which was due to the pandemic —had kept it from fully operating the Pagbilao LNG power plant. I believe that this also underscores EWC’s and other power companies’ confidence in the Philippine economy’s post-pandemic turnaround.
For one, San Miguel Corp. recently bagged a 1,800-megawatt supply contract from the Manila Electric Co. through a competitive selection process. The Meralco TPBAC recently announced that Excellent Energy Resources Inc. and Masinloc Power Partners Co. Ltd.—both owned by SMC—had submitted the “two best bids” for Meralco’s 20-year 1,800 MW supply contract. EERI offered a levelized cost of electricity of P4.1462 per kilowatt-hour, while Masinloc Power Partners Co. Ltd. offered P4.2605 per kWh.
The supply deals cover SMC’s 1,200-megawatt liquefied natural gas (LNG) power project that its subsidiary EERI will be setting up in Ilijan, Batangas; and the 600MW expansion of its existing Masinloc Power Partners Co. Ltd. coal-fired generating facility will be in Zambales province.
San Miguel’s LNG facility has already been purchased, and the plant will be built close to the existing Ilijan gas-fired power facility in the area. The plant is expected to be operational by 2024, but SMC CEO Ramon Ang is confident that it would be ready by 2023.
EWC did not participate in the bidding, but Rodriguez said that the Pagbilao LNG’s levelized electricity cost is about P2 per kWh.
It should be noted here that EERI and Masinloc power have opted to sell their power to Meralco, instead of the Independent Electricity Market Operator (IEMOP), now a private entity; and the Wholesale Electricity Spot Market. WESM is the venue for trading electricity as a commodity in the Philippines.
Philippine Electricity Market Corp., a non-profit corporation that governs WESM, continues to claim that they regulate IEMOP. However, under RA 9136 or the Electric Power Industry Reform Act and based on Department of Energy circulars, PEMC should have ceased to exist when IEMOP is formed.
Securing bilateral contracts with Meralco and other electric cooperatives, to my mind, is both profitable and convenient. The primary business objectives of most, if not all, generating companies is to secure a Power Supply Agreement and have their excess production sold to the market. If a generating plant does not have a bilateral contract and decides to sell its production in the spot market, it would have to make a zero-price offer to be able to compete with other registered companies, which usually set already very low prices.
Another market challenge is the proliferation of Renewable Energy companies, especially those that offer solar power. Recent IEMOP reports revealed that prices in the spot market decreased drastically—to as low as P2.00 kWh—due to RE companies coming online. Under Philippine Law, RE plants have a “priority dispatch” order, even though most of them have no PSAs and are traded in the market.
Due to the market’s numerous players, dispatch challenges are a likely scenario: high competition would likely result in lower rates, which will cause most of the participants’ prices to dive in order to sell to the market. This scenario is feared by market players to lead to corruption.
Daily bidding operations pose a strenuous workload and budget constraint on a company’s marketing group, which may have spent more on its selling efforts than its operating budget can allow.
Be that as it may, EWC, San Miguel and other power generating companies’ focus are locked in a post pandemic economic future where experts see an energy deficient Philippines. Malampaya gas reserves depletion and the country’s dependence on imported oil are just but a few roadblocks that would have to be hurdled in order for the country’s economy to prosper in an after-Covid business scenario.
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