our vision - first gen...2005/03/15 · we are now on the 3rd year since the electric power...
TRANSCRIPT
OurVision
First Gen desires to enhance its position as the leading world-class Filipino energy company.
First Gen aims to deliver cost-effective and reliable energy services to customers.
First Gen will rise to the challenges of world-class competition.
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Tableof ContentsFinancialHighlights
At-a-Glance
Chairman’sMessage
TheCEOReport
Reviewof Operations
SantaRita
SanLorenzo
Bauang
FirstGenRenewables
Pipeline
ManagementDiscussion&Analysis
Operations&Technical
Finance
BusinessDevelopment
IndustryReview&Outlook
Boardof Directors
ExecutiveCommittee
ManagementCommittee
CorporateOfficers
CorporateSocialResponsibility
Environment,Safety&Health
Statementof Management’sResponsibility
Reportof IndependentAuditors
FinancialStatements
CorporateDirectory
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4
6
10
12
14
16
18
19
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26
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ThenameFirstGenerationHoldingsCorporationwaschangedto
FirstGenCorporationinMarch2005.
In Millions PHP
First Gen Conso 2002 2003 2004
GrossRevenues 22,117 36,435 37,040
EBITDA 9,465 13,160 12,813
NetIncome 3,218 5,328 4,960
CurrentAssets 17,190 16,428 17,688
Non-CurrentAssets 62,436 62,159 65,713
TotalAssets 79,626 78,587 83,401
CurrentLiabilities 14,311 12,727 12,974
Non-CurrentLiabilities 47,540 48,754 49,586
MinorityInterest 6,195 5,986 6,994
Stockholders’Equity 11,580 11,120 13,847
FinancialHighlights
In Millions PHP In Millions USD
FGPC FGP Corp. BPPC FGPC FGP Corp. BPPC
GrossRevenues 25,087 11,842 2,950 445 210 52
EBITDA 8,340 4,557 2,361 148 81 42
NetIncome 5,061 2,754 1,034 90 49 18
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At-a-Glance
OPERATIONS
MW
Fuel
Location
Start of Commercial Operations
Years of Operations
SPONSORS
Holding Company
Shareholders
PARTNERS
Electricity Offtaker
Engineering, Procurement & Construction
Contractor
Operations & Maintenance Contractor
Fuel Supply
CREDITORS
Number of Lenders
Original Financing Commitments
Outstanding Debt
Debt Maturity
FINANCIALS *
Gross Revenues
EBITDA
Net Income
Total Assets
Total Stockholders’ Equity
SANTA RITA POWER PROJECT
1,000
NaturalGaswithcapabilitytoswitch
toliquidfuel
Batangas,Philippines
June2000
4of 25
FirstGasHoldingsCorp.
FirstGen&BGGroupPlc
Meralco
SiemensAG
SiemensPowerOperations,Inc.
Shell,ChevronTexaco,PNOC
40Institutions
US$680Million
US$462Million
2007-2012
Php25.09Billion
Php8.34Billion
Php5.06Billion
Php54.21Billion
Php11.74Billion
SANLORENZOPOWERPROJECT
500
NaturalGaswithcapabilitytoswitch
toliquidfuel
Batangas,Philippines
October2002
2of 25
UnifiedHoldingsCorp.
FirstGen&BGGroupPlc
Meralco
SiemensAG
SiemensPowerOperations,Inc.
Shell,ChevronTexaco,PNOC
12Institutions
US$375Million
US$275Million
2014-2016
Php11.84Billion
Php4.56Billion
Php2.75Billion
Php26.22Billion
Php6.42Billion
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BAUANGPOWERPROJECT
225
Diesel/BunkerC
LaUnion,Philippines
July1995
9of 15
FirstPrivatePowerCorp.(FPPC)
FPPC(FirstGen,Meralco&JGSummit)and
Philamlife
NationalPowerCorporation
Sulzer,MIESCOR,FirstBalfour(formerlyEcco-Asia)
Sulzersupervisioninitially,nowBauangO&MTeam
SuppliedbyNationalPowerCorporation
144-ABondInvestors&Philam
US$140Million
US$31.5Million
2004-2008
Php2.95Billion
Php2.36Billion
Php1.03Billion
Php4.65Billion
Php2.14Billion
AGUSANRIVERHYDRO-ELECTRICPLANT
1.6
Hydro
ManoloFortich,Bukidnon,
Philippines
Commissionedin1957
47
(FirstGenhasplanstoturnovertheplanttoanew
FGRIsubsidiarytobecalledFGBukidnonPower
Corp.)
CagayanElectricPower&LightCo.,Inc.
*Asof December31,2004
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Chairman’sMessage
Therewillbemorecompetitionintheindustry,andalready,weareseeinglargecustomersliketheelectronicsindustrydemandingcheaperandmorereliablepower.Theircallisechoedbyothercustomergroups.FirstGenispreparedforthatchallenge.
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Iampleasedtoreporttoallof youthatFirstGen’sfinancialperformancein
2004exceededtargetsandthecompanyisnowpoisedformajorimprovements
in2005.
Wearenowonthe3rdyearsincetheElectricPowerIndustryReformActof
2001 (EPIRA) was passed into law. EPIRA will result in the restructuring
and liberalization of the power industry, and First Gen is prepared to bid
forassets thatareownedandmanagedby theNationalPowerCorporation
(NPC).Therewillbemorecompetitioninthe industry,andalready,weare
seeing large customers like the electronics industrydemandingcheaperand
morereliablepower.Theircallisechoedbyothercustomergroups.FirstGen
ispreparedforthatchallenge.
TheFirstGenboardof directorshasalsodecidedthatin2005,thecompanywill
gopublic.Wehavebeenencouragedbytheenthusiasmof investmentbankers
and fund managers in First Gen’s continued performance as an emerging
marketpowergenerationcompany.Thefundsthatwewillobtainfromabond
issuanceandpubliclistingwillprovidethecompanymuch-neededresources
asweplan to invest inpowerplants thatarealready inoperation. Wewill
alsopursuethedevelopmentandconstructionof newpowerplantsinviewof
shortagesweforecastwillhittheLuzongridinthenextfewyears.
We have been blessed with the strong performance of our three operating
plants,andIwouldliketotakethisopportunitytothankallof ourstakeholders
forhelpingusdelivertheseresults.Iwouldliketothankourcustomers,NPC
and theManilaElectricCompany (Meralco), for their continued support. I
wouldalsoliketorecognizethemanyemployeesof theFirstGencompanies
whose steady contribution has steered us through the many difficulties and
controversiesinthePhilippinepowerindustry.
Iamcertainthattheyear2005,whichmarksthe11thyearof operationsof
ourfirstplant,Bauang,willbeexcitingandsatisfyingforallof us.Letusjoin
togetheringuidingFirstGentothenextchapterinitsyoungbutflourishing
history.
Oscar M. Lopez
Chairmanof theBoard
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READY AND TESTED
Theyear2004wascharacterizedbyunusual tumult for thePhilippinesand
thepowerindustry,bothof whicharealreadyaccustomedtoturbulence.The
electionsinMayfollowedanintensecampaigninwhichenergypricesranked
high among the political issues. By the last quarter, the President herself
declaredthatthecountrywasinafiscalcrisis,asituationtriggeredinnosmall
partby losses incurredby theNationalPowerCorporation (NPC). Within
the energy industry itself, key fuels used for electricity doubled in prices.
Crudepricesreachednewhighsinthemid$50’s.Naturalgasprices,whichare
basedonaformulathatescalateswithMideastoil,increaseddramaticallyas
well.Coalpriceswhichhadbeencheapandstableformanyyearsmorethan
doubledin2004,largelybecauseof vigorousdemandfromChina.Hadcrude
pricesremainedat$18perbarrel,thepriceassumptionwhenweembarkedon
FirstGen’sgasprojects,perkWhpriceswouldhavebeencheaperbyatleast
Php1.50.ThoughtheFirstGencompaniesareinsulatedfromfuelpricerisk
bornebyourbuyers,westriveformoredispatchbybeingmorecompetitive.
As these national and global developments unfurled, the implementation
of the new Electric Power Industry Reform Act of 2001 (EPIRA) resulted
in the power generation sector’s movement towards greater private sector
participationandexpandedmarketreform.Theprivatizationof NPC’sowned
andmanagedassetsbegan,firstwiththesaleof smallerhydroplants,and,later
witha600MWcoalplant,Masinloc.ItwaswithinthatenvironmentthatFirst
Genoperatedandeventriedtogrow.
If evaluatingabusinesswereasimplenumbersexercise, thentheyear2004
wouldbeagoodyearforFirstGen,asallourmajorcompaniesperformedvery
TheCEOReport
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well,intotalyieldingPhp4billioninnetincome.SantaRita,SanLorenzo,and
Bauang,infact,didbetterthantargetedprofitestimates.Allthreeplantsalso
beattheirtargetsinplantoperations,asmeasuredbytheusualproductivity
standards of availability, reliability, and heat rates. One standard which we
have had less control over, but hope to improve upon, is plant utilization,
whichin2004stayedcloseto2003levels.Capacityfactorsforthegasplants
areatthe60%levelsandat15%forBauang.
Though the plants were not utilized to their contracted capacity, we were
assured of strong financial results if our plants performed well on net
dependablecapacity(NDC)tests.Onthatscore,wedidbetterthantheagreed
levels.Moreover,in2004,ourgasplantswentthroughmajoroverhaulswhich
werecompletedinrecordtime.
Evaluating the business, however, must go beyond financial and operating
results.In2004,FirstGenfacedanumberof dauntingchallenges.
Inoperations,thespikeinoilpricesimmediatelyaffectedthecompetitiveness
of Bauang,whichusesbunkerCasfuel.Oilpriceincreasesalsoaffectedthe
gasplantsbecausenaturalgaspricesareescalatedonabasketof indices,most
significantof whicharetheoilproductpricesintheMiddleEast.
The regulatory environment provided challenges. Due to strong public
outcry, all contracts of IndependentPower Producers (IPPs) went through
renegotiation, someeven throughregulatory review, in2004.TheFirstGas
Power Purchase Agreements (PPA) with Meralco and the Bauang Energy
ConversionAgreement(ECA)withNPCwerenotspared.Therenegotiation
of FirstGascontractsconcludedearlyintheyearwereagainreviewedbythe
EnergyRegulatoryCommission(ERC),andtheBauangECAwithNPCalso
wentthroughextendedrenegotiation.Ingeneral,thebasiceconomicsof the
plants remained intactdespite the renegotiation,butwehad tosacrifice the
gainsthatwouldhavecomefromhigherdispatch.
Wealsohavesomecontractualdisputestosettle,andthereweremovestoward
resolutionin2004.OurdisputewithSiemensoverdelaysintheconstructionof
theSantaRitaplantwentthroughitsinitialtrancheof arbitrationinLondon,
andwehavebeenworkingonourdisputeswiththeGasSellersoverourtake-
or-payobligations.Onthefinancialfront,wehadtoreassureourlendersthat
theproblemsof ourmaincustomer,Meralco,followingsomejudicialreversals,
wouldnotimpairourpowersalescontracts.
Theyear2004wasgratifyingintermsof assetperformance,bothtechnically
andfinancially.Moreimportantly,becausethecoreof ourprofitabilityliesin
contractsthatarerespectedandhonoredandintechnologythatcontinuesto
deliver,wearemoreoptimisticaboutthefuture.In2004,ourcontractsfaced
Theyear2004wasgratifyingintermsofassetperformance.Becausethecoreofourprofitabilityliesincontractsthatarerespectedandhonoredandintechnologythatcontinuestodeliver,wearemoreoptimisticaboutthefuture.
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theirmostseveretest,andwhileweconcededsomeof our“upsides”toboth
MeralcoandNPC/PSALM(PowerSectorAssetsandLiabilitiesManagement
Corporation), thebasicsof ourcontractswerepreserved.Ourinvestment in
themajoroverhaulof ourcombinedcyclegasplantsassuresusthatwehave
well-maintainedandwell-managedplantsthatwillcontinuetoserveuswell
intotheircontractuallives.
SET WITH THE RESOURCES
Whileourexistingassetsareperformingadmirably,wehavebeenstrengthening
ourotherresourcesaswegearforhighergrowth.First,ourfinancialresources.
First Gen’s power plants were built with project financing, which means
that lenders provided about 75% of total project cost with no recourse to
shareholders.Asaresult,ouroperations,cashflows,dividendpolicies,even
ourinsurancepolicies,aremonitoredcloselybyourlenders.Werespondto
their needs by informing them of major developments, and to this end we
conduct“update”roadshowseveryyear.Byend2004,wepareddebtlevels
forthethreeplantsinitiallytotaling$1.2billiondownto$769millioninend
2004.Bauang,whichwasrefinancedwith144-AbondsregisteredintheU.S.,
hasremainingdebtof $32million.TheSantaRitaandSanLorenzoplantsare
payingoff theirprincipalamortizationsattheagreedpace.
First Gen has always pursued an aggressive dividend policy supported and
encouraged by our principal shareholders. We continue to implement that
policy, but in 2004, the company’s financial leadership began planning for
increased growth, initiating discussions with investment banks for a bond
offeringandanInitialPublicOffering(IPO),bothof whichwehopetolaunch
in2005-2006. WeexpectaPhp3toPhp5billionbondofferingin2005and
the IPOsoon thereafter.Wehavebegun preparations toobtain theneeded
approvals of financial and exchange authorities. We have also decided to
shifttoFunctionalCurrencyReportingwhichwillenableustoreportinU.S.
dollarsandmakeiteasierforourcreditorsandstockholderstounderstandand
appreciatethefinancialimpactof ourcorporateactivities.
Second,ourhumanresources.Overthepastdecade,wehaveestablishedour
capabilitieswith thedevelopmentandoperationof greenfieldpowerplants.
Thismeansacquiringtheskillsandexperiencetocompletefullprojectcycles,
fromobtaininggovernmentandcommunityapprovals,economicandbusiness
modeling,negotiatingkeyfuelsupplyandpowersalescontracts,toobtaining
project finance, monitoring project construction of turnkey suppliers, and
formallycommencingplantoperations.Wecontinuetomakeprogresstowards
ourgreataspirationtobuildaworld-classorganizationinpowergeneration.
Thechallengesinthecomingyearswillnotonlycomefromtheconstruction
anddeploymentof newpowerplants,butintheacquisitionof existingassets
and taking over operations. Over the past year, we have strengthened our
capabilities through recruitment, training, and organizational development.
Wehave increasedour corpsof youngengineers,hiredMBAgraduates for
Thechallengesinthecomingyearswillnotonlycomefromtheconstructionanddeploymentof newpowerplants,butintheacquisitionof existingassetsandtakingoveroperations.
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ourbusinessdevelopmentinitiativesandlawyersforourincreasingcaseload
of contractsandregulatoryreviews,andsentourtechnicalstaff forseminars
overseasongasturbinetechnology.Wehavefortifiedourbusinessandproject
developmentteamsaswebiddedforpowerassetsthathavebeenputoutfor
sale.Our teamsdrawon individuals fromdifferentdisciplines andwhoare
woventogetherthroughaFirstGenregimeninduediligenceassignments.Our
managementsystemsreceivedISOcertificationin2003andwewerere-certified
in2004.Wearenowmoreconfidentthatcommunicationanddecision-making
haveimprovedwithourweeklyMancomandourbi-weeklyExcommeetings.
WearealsoabouttoimplementanEnterpriseRiskManagementSystemthat
wehaveintroducedineachFirstGencompany.
GOING FOR GROWTH
With continued strong performance from our operating plants and with
financial and organizational resources in place, we are well-positioned for
growth.NPCanditssuccessorassetmanager,PSALM,havebegunthesale
of thegovernment’sownedandmanagedpowerplants.Wesubmittedbidsfor
hydroplantshopingtobuildupourrecently-organizedrenewablescompany,
FirstGenRenewables Inc.Wewon thebid for theAgusan1.6MWrun-of-
river facility. We also took part in the Masinloc sale but lost to a Filipino-
Australianconsortium.Weexpecttoparticipateinothersalesof NPCassets,
particularlyforcoalandhydropowerplants.Wehavealsobeenapproached
tobidforcompaniesownedbyAmericanmultinationalswhichhavedecided
toselltheirinternationalassetssotheycouldconcentrateonbusinessathome.
BecausewehaveforecastthattheLuzongridwillsoonbeexperiencingpower
shortages,wearealsopursuingthedevelopmentof a500MWcombinedcycle
gas-fired power plant in Batangas City, adjacent to our Santa Rita and San
Lorenzoplants.Forthelongerterm,wehavealsoinitiatedplansforaliquefied
naturalgas(LNG)-reprocessingfacilityincasegasexplorationeffortsinthe
Philippinesproveunsuccessful.
Ourtargetistodoubleourmegawattcapacitiesfrom1,726MWin2004over
thenext fiveyears throughacombinationof assetpurchasesandgreenfield
projects.Moreover,weexpecttosupporttheseinitiativeswithamorevigorous
renewables program consisting of mini-hydro, wind, and solar projects. In
2004,wecompletedasmallturnkeyprojectforawindprojectinBatanes,our
northernmostprovince.Wehopetoexpandsuchinitiatives.
In summary, our power plants continued with their history of high
performance, our contracts faced their most difficult challenge and were
satisfactorilyrenegotiated,andourfinancialandorganizationalresourceshave
beenstrengthened.Wearereadyto takeonnewopportunities in thepower
generationbusiness.
Peter D. Garrucho, Jr.
Chief ExecutiveOfficer
FirstGenhasacquiredvaluableexpertiseingreenfieldprojectdevelopment,financing,construction,andoperations
withitsSantaRita,SanLorenzo,andBauangplants.
Operational Highlights
FirstGenisthethirdlargestIndependentPowerProducer(IPP)inthecountry,
operatingatotalinstalledcapacityof 1,726MW,or11%of thecountry’stotal
generatingcapacity.In2004,FirstGenregisteredsolidgrossrevenuesof Php37
billionandbroughtinnetincomeof Php4.96billion.However,thecompany’s
netincomein2003washigherbyPhp368million,markedbythecompany’s
one-timegainfromthedisposalof PanayPowerCorporation.Thecompany’s
2004 incomeperformancewasaffectedby increasedeconomicandpolitical
turbulence,whichwasinturncausedbythedramaticincreaseinglobalcrude
andcoalprices,tensepresidentialelections,andloweredinternationalcredit
ratingsattachedtodelaysinfiscalreform,includingtheimplementationof the
ExpandedValue-AddedTax(VAT)law.
Withinthepowerindustry,FirstGen’sdispatchoperationswerehamperedby
transmissiongridconstraints.Thecompletionof transmissionlineupgrades
by the National Transmission Corporation (TRANSCO), particularly the
Dasmariñas–Biñan transmission lineupgradeandcompletionof thenew
SanLorenzo–MahabangParangtransmissionlines,willhopefullyhelpFirst
Gen’sSantaRitaandSanLorenzoplantsachievehigherdispatchlevelsthat
willexceedthe83%contractedminimumenergyquantity(MEQ).
Despite thesechallengingconditions,FirstGencontinuedwith itsplans for
a bond offering and an Initial Public Offering (IPO) of its shares by 2005-
2006.Proceedsfromtheseactivitiesareintendedtobeusedbythecompany
Reviewof Operations
toimproveexistingfacilities,investincapacityexpansion,includingpotential
acquisitions of power generation facilities and development of greenfield
projects,aswellasforgeneralcorporatepurposes,includingworkingcapital
andinvestments.
FirstGenhasacquiredvaluableexpertiseingreenfieldprojectdevelopment,
financing,construction,andoperationswithitsSantaRita,SanLorenzo,and
Bauangplants.Itisnowdevelopinganother500MWgas-firedfacilityinthe
vicinityof SantaRitaandSanLorenzo.Thestrategicacquisitionof the1.6MW
Agusanhydropowerplant inBukidnonmarks thebeginningof FirstGen’s
careful search and evaluation of assets of the National Power Corporation
(NPC)beingputupforsale.
First Gen supervises FPHC’s 60% interest in First Philippine Industrial
Corporation(FPIC),whichownsthefirstcommercialpipelineinthecountry.
Thisactivityisavitalsteptowardsfulfillingitsgoalof buildinganoilandgas
productslogisticsindustrydowntheline.
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SantaRita(FGPC)
The1000MWSantaRitapowerplant, locatedona33-hectaresite inSanta
Rita,Batangas,isownedandoperatedbyFirstGasPowerCorp.(FGPC).The
SantaRitacombinedcyclegas-firedplant,incommercialoperationsforfour
yearsnow,consistsof twoblocksgeneratingabout500MWeach.Itsgenerated
electricityissoldtotheManilaElectricCompany(Meralco)inatake-or-pay
agreement.FuelsupplyfortheplantiscoveredbyaGasSaleandPurchase
Agreement (GSPA) with the gas sellers, a consortium consisting of Shell
Philippines Exploration B.V., Shell Philippines LLC, Chevron Malampaya
LLC,andPNOCExplorationCorporation.Thegassellersextractnaturalgas
fromtheMalampayafieldpursuanttothetermsof ServiceContractNo.38,
whichwasconcludedwiththePhilippinegovernmentinDecember1990.
In2004,SantaRitaearnedrevenuesof Php25.1billion,up5.50%from2003’s
Php23.8 billion. Net income remained steady at Php5.06 billion, providing
60%of FirstGen’stotalprofitsforthefiscalyear.
Major plant unit overhauls were conducted in record time during the year,
improvingoverallplantcapacityandperformance.Netdependablecapacity
(NDC)testsinJuneandDecember2004showedbetteroutputandheatrate
performance.Generationremainedsteadyat5,656GWh,withplantaverage
availabilityregisteredat92%andplantreliabilityat99%.
2000 2001 2002 2003 2004
EnergyGeneration(GWh) 448.1 1,000.7 4,544.4 5,656.4 5,656.4
CapacityUtilization(%) 11% 11% 52% 65% 64%
Availability(%) 90% 82% 88% 93% 92%
Reliability(%) 99% 97% 97% 96% 99%
NetHeatRate(AverageBTU/kWh) 7,291.0 7,211.1 6,767.5 6,858.8 6,801.3
Fuel LiquidFuel LiquidFuel NaturalGas NaturalGas NaturalGas
Operating Highlights
Outstanding Final
(US$ Millions) Maturity
KreditanstaltfürWiederaufbau
(HermesCovered) 106 2012
U.S.PrivatePlacementfromInsuranceCompanies 160 2011
PhilippineCommercialBanks 69 2007
EuropeanInvestmentBank 59 2012
InternationalCommercialBanks
(Mexim/MecibGuaranteed) 44 2010
EximBankof Malaysia 24 2010
WorkingCapitalFacility - 2004
Total 462
Our Lenders
SanLorenzo(FGPCorp.)
OwnedandoperatedbyFGPCorp.,theSanLorenzopowerplantislocatedon
a24-hectarepropertyalsoinSantaRita,Batangas.Thiscombinedcyclegas-
firedpowerplant,whichcommencedcommercialoperationsinOctober2002,
consistsof oneblockgeneratinga totalcapacityof 500MW.It sharessome
of the facilities with the Santa Rita power plant (e.g. control and
administrationbuilding,transmissionline,circulatingwaterpump
building,tankfarm,watertreatmentplant,liquidfuelunloading
jetty, and gas receiving station). Like the Santa Rita power
plant,itutilizesnaturalgasfromtheMalampayagasfields
asitsprimaryfuelsource.SanLorenzo
supplies electricity to Meralco
pursuanttoatwenty-fiveyearPower
PurchaseAgreement(PPA).
SanLorenzorevenuesandnetincomein2004werePhp11.8billionandPhp2.8
billion,respectively,orabout33%of FirstGen’snetincomefortheyear.The
slightdecreaseinrevenueof 2.53%isduemainlytoloweraverageplantdispatch
of 58%from67%thepreviousyear.MajoroverhaulswereconductedforUnit
50andUnit60,andthesewereagainexecutedinrecordtime.NDCtestsin
AprilandDecember2004againshowedbetterthanexpectedperformanceon
outputandheatrate.SanLorenzogeneratedatotaloutputof 2,601GWh,with
plantavailabilityregisteredat91%andplantreliabilityat97%.
14
2002 2003 2004
EnergyGeneration(GWh) 605.0 2,953.6 2,569.2
CapacityUtilization(%) 54% 67% 58%
Availability(%) 88% 90% 90%
Reliability(%) 97% 96% 96%
NetHeatRate(AverageBTU/kWh) 6,891.0 6,774.4 6,749.3
Fuel NaturalGas NaturalGas NaturalGas
Operating Highlights
Outstanding Final
(US$ Millions) Maturity
KreditanstaltfürWiederaufbau
(HermesCovered) 111 2014
InternationalCommercialBanks
(ECDGCovered) 96 2014
KreditanstaltfürWiederaufbau
(GKAGuaranteed) 68 2016
WorkingCapitalFacility - 2007
Total 275
Our Lenders
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Bauang(BPPC)
The 225MW Bauang Power Plant in Bauang, La Union is a joint venture
between First Private Power Corp. (FPPC) and Philippine American Life
InsuranceCompany(Philamlife),whichown93.25%and6.75%of Bauang
Private Power Corp. (BPPC), respectively. FPPC is a consortium of three
companies: First Gen (which owns 40%), Meralco (which owns 40%), and
JGSummit(whichownstheremaining20%).TheBauangplantconsistsof
twenty-one11.2MWSulzerdieselgeneratingunitsoperatingona22-hectare
facility, the largestbunker-firedmediumspeeddieselpowergenerator inthe
world.TheplantcommencedfullcommercialoperationsonJuly25,1995,
andunderthetermsof itsBuild-Operate-Transfer(BOT)Agreement,BPPCis
committedtosellallof thepowergeneratedbytheplanttoNPCduringthe
fifteen-yearcooperationperiod,whichexpiresin2010.
For the year 2004, BPPC’s actual revenues were lower
thanbudgetfiguresby1.67%atPhp3billion,but3.49%
better than thepreviousyear’s revenues,due to lower
dispatchlevelsandalessthanfavorableforexregime.
NetincomereachedPhp1billion,higherthanbudget
by5.58%,due to controlledoperating expenses, lower interest charges, and
recognizedinsuranceclaims.
Bauanggeneratedatotalof 214.83GWh.Plantavailabilitywasat93%,and
betterthanexpectednetheatrateswereachievedduringtheyear.Theplant
again exceeded performance expectations in the Annual Plant Performance
Testing for the 10th Cooperation Period (July 25, 2004 to July 25, 2005)
conductedbyNPCinJuly2004.
In anticipation of the December 2004 expiry of the company’s Collective
BargainingAgreement(CBA),BPPCbeganitssecondCBAnegotiationswith
theunioninNovember.
1999 2000 2001 2002 2003 2004
EnergyGeneration(GWh) 296.2 275.4 371.6 207.4 234.8 214.8
CapacityUtilization(%) 15% 14% 19% 11% 12% 11%
Availability(%) 92% 93% 90% 93% 92% 93%
Reliability(%) 94% 96% 69% 75% 96% 97%
NetHeatRate(AverageBTU/kWh) 8,422.9 8,450.4 8,504.6 8,519.18 8,546.76 8,525.28
Fuel Bunker Bunker Bunker Bunker Bunker Bunker
Operating Highlights
Outstanding Final
(US$ Millions) Maturity
DevelopmentBankof thePhilippines - 2002
Philamlife - 2004
FCDUloans¹/144-ANotes 32 2008²
Total 32
¹ Refinanced with 144-A Notes. Notes are rated by S&P and Moody’s.² Final maturity of 144-A Notes.
Our Lenders
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FirstGenRenewables,Inc.(FGRI)
FGRIintendstomakemini-hydropoweramajorpartof itsrenewableenergy
portfolio.WithFirstGen’sacquisitionof the1.6MWAgusanHydroelectric
PlantinBukidnon,FGRIlooksforwardtobecominganactiveparticipantin
thepowerindustry.
Withitsmomentuminthemini-hydrosector,FGRIstarteddiscussionswith
theMindanao-basedprivateutilityCagayanElectricPower&LightCompany,
Inc.(CEPALCO)fortheproposed8MWCabuligRivermini-hydroprojectto
belocatedinClaveria,MisamisOriental. Onsolarenergy,FGRIcontinues
to support the missionary electrification projects initiated by government,
privatecompanies,andnon-governmentalorganizations.Alsoin2004,FGRI,
exclusive distributor of BP Solar, delivered 1,045 solar photovoltaic (PV)
modulestobeusedforvariouselectrificationprojectsinthecountry.Asaresult,
about eighthundredand seventyhouseholds in remoteareasof Camarines
Sur,ZamboangadelNorte,Capiz,Antique,CebuandSultanKudaratarenow
enjoyingthebenefitsof smallsolar-poweredlightingsystems.
The year 2004 marked the final transformation of First Philippine Energy
Corp. (FPEC) intoa renewables firm.RenamedFirstGenRenewables Inc.
onSeptember28,2004,FGRIisdedicatedtowardsdevelopingaportfolioof
sustainableandrenewablesources:wind,solar,andhydroenergy.FGRIaims
tobealeaderinrenewableenergyprojectdevelopmentandastrongadvocate
forcleanandsustainablepowergeneration.
InFebruary2004,FGRIbeganwindresourceassessmentactivitiesinPandan,
Antique which are expected to last eighteen months. These micrositing
activitieshadtheultimateobjectiveof assessingwindqualityanddeveloping
aviable7.5MWwindfarm.
InAugust2004,acommercially-operating180kWwind-diesel
hybrid facility was inaugurated in Batanes,
which will hopefully reduce the
island’s dependence on diesel fuel
andprovideFGRIvaluable insight
intowind-dieselpower.
2004
EnergyGeneration(GWh) .0064
CapacityUtilization(%) 47
Availability(%) 64
Reliability(%) 99
NetHeatRate(AverageBTU/kWh) N/A
Fuel Hydro
Operating Highlights
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Pipeline
First Philippine Industrial Corp. (FPIC)
Foundedin1967primarilytoserviceMeralcofuelrequirements,FPICoperates
thecountry’sfirstcommercialoilpipelinethattransportspetroleumproducts.
FirstGenexercisesorganizationalsupervisionoverFPIC,whichis60%owned
byFirstPhilippineHoldingsCorp.,inpartnershipwithShellPetroleumCo.,
Ltd. (UK) which owns 40%. In 1992, the then Energy Regulatory Board
(ERB)renewedFPIC’sconcessiontooperateitspipelinesforanothertwenty-
fiveyears.Afterthirty-sixyearsof safeandefficientoperation,FPIC’spipeline
system continues to provide the most reliable and cost-effective means of
transportingpetroleumproducts.
FPIC’spipelinesystemconsistsof a14-inchdiameter,120-km.longwhiteoil
line,anda16-inch,90-km.blackoilline.Thewhiteoillinetransportsproducts
suchas gasoline, jet fuel, diesel fuel, andother refinedpetroleumproducts.
Theblackline,ontheotherhand,movesdifferentgradesof fueloilforpower
generation.IthasfeederlinesfromtheShellRefineryinTabangaoandthe
Caltex Terminal in San Pascual, all within the province of Batangas. The
receivingstationforwhiteproductsisatthePandacanDepotinManila,while
thestationforblackproductsisatShell’sSucatDepotinMuntinlupa.
In2004,FPICundertookcostcontainmentinitiativeswhichresultedinbenefits
amounting to more than Php5 million. With these efforts, FPIC attained
revenuesof Php529millionandanetincomeof Php158million.
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OperationsandTechnical
Following current practices of Independent Power Producers (IPP), First
Gencontractedtheservicesof itsoriginalequipmentmanufacturer,Siemens
AG,toprovideplantoperationsandmaintenance(O&M)services.Siemens
is providing this service through its fully-owned subsidiary, Siemens Power
OperationsInc.(SPOI).
Throughtheyears,FirstGasandSPOIhaveenjoyedahealthyandproductive
professionalrelationshipaspartnersinpower.Weworktogethertoensurethat
theSantaRitaandSanLorenzopowerplantsareoperatedandmaintainedin
accordancewiththeworld’sbestpractices.Westrivetodeliversafe,efficient,
andenvironment-friendlypowertoelectricityconsumersinthePhilippines.
Although the relationship is founded on a contract agreement, targets and
objectivesaregenerallyaligned.Itisineachother’sinteresttoworktogetherto
achieveourcommongoals.
ThebiggestexportfromthePhilippinesiswell-known:peopleskills.Filipino
engineers and technicians are much sought-after and employed around the
world.BothFirstGasandSPOIhavehadtocompetewithglobalemployers
inordertoemploythebestpeopleinitspowerplants.Wehavemanagedto
competewellandconsequentlyhaveaverycapableandenthusiasticworkforce.
Asaresult,ourpowerplantsoperateatlevelsof availabilityandreliabilitythat
otherscanonlyaspirefor.
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Firstimpressionsarealwayslastingimpressions.
In this regard, not only do the plants perform
well,theyalsolookwell.Ihaveseenmanyplants
thatmaybeonlythreetofiveyearsold,butlook
as if they are already ten or fifteen years old.
Thisisaresultof thedriveto“sweat”theasset
as much as possible, spending very little along
theway.Suchastrategyalmostalwaysresultsin
decliningperformancefigureswithinafewyears
of commercial operations. Fortunately, this is
notthecasewithFirstGenplants.
Colin FlemingO&M General Manager
Q. In your experience, how do First Gen plants
compare with those in other countries?
A. I’veseengoodpowerplantsandbadpower
plantsinmycareer.SantaRitaandSanLorenzo
rankamongthebestpowerplantsIhaveworked
on based on the quality of plant design and
construction.
Operationally, both plants are performing at
world-class levels of availability and reliability.
Thislevelof performancecanonlybeachieved
by employing quality staff and applying sound
operational and maintenance management
practices.
Q. How long have you been in the power
business?
A. I have worked within the power industry
throughout my career. I spent fourteen years
working on power plants in Southeast Asia,
specifically in Hong Kong, China, Taiwan,
and Vietnam. I’ve also worked in the United
KingdomandinEurope.
Myexperienceismostlyinpowerplantoperations
and maintenance in both the utility and IPP
environments. I’ve also gained experience in
plantdesignandindustryservicesonbehalf of
powerplantcontractors.
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Finance
First Gen maintained its outstanding performance of the previous years,
bringinginrevenuesof Php37billionandnetincomeof almostPhp5billionin
2004.Revenuesfromthesaleof electricityincreasedduemainlytoincreases
infuelchargesinSantaRitaresultingfromhighernaturalgasprices,capacity
charges,andfixedoperationsandmaintenance(O&M)chargesforSantaRita
and San Lorenzo due to improvements in net dependable capacity (NDC).
However, revenue gains were slightly offset by declines in variable O&M
chargesandfuelchargesinSanLorenzo,resultingfromloweraveragedispatch
in2004to58%from67%.
Costsandexpensesduringtheyearwerelikewisehigherowingtoincreasesin
powerplantO&Mexpenses.Fuelexpensesincreasedastheplants’averagegas
pricesroseto$5.7589/GJin2004from$5.3785/GJin2003.AsactualNDC
results surpassed expectations, bonuses paid to Siemens Power Operations
Inc. (SPOI), the plant operator, also grew. Further, both the Santa Rita
andSanLorenzoplantsbegantopaylocalbusinesstaxesin2004following
the expiration of their six-year exemptions counted from the date of their
registrationwiththeBoardof Investments(BOI).Theone-timegainfromthe
disposalof PanayPowerCorporationin2003alsoledtoacomparativelylower
FirstGennetincomein2004.
RevenuesfromFirstGasPowerCorporation(FGPC),operatingcompanyof
the1000MWSantaRitapowerplant,continuedtomakeupthebulk(60%)
of FirstGen’snetincome.Onitssecondfullyearof operations,FGPCorp.,
operating company of the 500MW San Lorenzo power plant, contributed
Php1.65 billion to the net income of First Gen. At yearend, First Gen’s
consolidated assets stood at Php83.4 billion, and stockholders’ equity at
Php13.85billion,upby25%fromPhp11.1billion.
The dollar-denominated debt of First Gas projects currently stands at $737
million, down from the previous year’s $805 million. At the project level,
FGPC’soutstandingdollar-denominateddebtdroppedto$462millionfrom
$504.4million,whilethatof FGPCorp.’sdroppedto$275.4millionfromlast
year’slevelof $301.8million.
In line with the company’s growth aspirations for the coming years, our
finance team in2004carefullyconsidered several financingoptions. Itwas
recommended that the company undertake a bond issuance and an Initial
Public Offering (IPO) of its shares in 2005-2006. In December 2004, the
company’s Board of Directors passed a resolution authorizing the issuance
of peso-denominatedbondsuptotheaggregateamountof Php3billion(later
increasedtoPhp5billion).Theboardlikewiseauthorizedpreparationsforthe
listingandregistrationof oursecuritieswiththePhilippineStockExchange
and Securities and Exchange Commission, including the selection and
appointmentof underwriters,issuemanagers,advisors,counselors,andother
agentsinconnectionwiththeIPO.Thenetproceedsfromtheproposeddebt
andequityofferingwillbeusedtoexpandandimproveourplants,investin
greenfieldprojects,andacquiregovernment-ownedpowerassetsbeingsoldby
NPCinitsprivatizationscheme.
FirstGenforeseesseveralopportunitiesforgrowthinthepowerindustryinthe
comingyears.Weareconfidentthatthecompanyhasthefinancialandother
resourcestoenhanceitspositionasamajorplayerinthebusiness.
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Giles PunoSenior Vice President and
Chief Financial Officer
Q. With the highly successful project finance
structure of Santa Rita and San Lorenzo,
why is First Gen now looking at tapping the
capital markets for future projects?
A.Duringthepastyears,opportunitieshave
openedtothecompanyduetothesuccessof
thegasprojects.FirstGenplanstoleverage
onthestrengthsandsuccessesforourgrowth
aspirations.Wecontinuetopreferfinancing
growthonaprojectfinanceorlimited
recoursebasisbutalsorealizethatwiththe
powerindustrychanging,FirstGenwillneed
tobeflexibleabouthowwefinancefuture
investments.Weareparticularlyinterestedin
tappingthedomesticbondandpublicequity
marketsandareworkingonwaystoincrease
potentialinvestors’awarenessof thetrack
recordandcapabilitiesof ourcompany.
InfinancingSantaRitaandSanLorenzo,
FirstGenreliedonitsparent,FirstPhilippine
HoldingsCorporation.Wenolongerhave
thatluxury.Tappingthecapitalmarketsis
nowthemostlogicalnextstepforFirstGen
tofunditsfutureinvestmentsonitsown,after
havingearnedasuccessfultrackrecordin
thepowergenerationbusiness.Ourexisting
investmentsareinfullcommercialoperations
andgeneratingsteadycashflowtherebygaining
areputablecreditstanding.Futureprojectscan
befundedbyacombinationof newdebtand
equityofferings,aswellasinternally-generated
funding.
Thecapitalmarketsofferuniqueadvantages
whichwillnotonlyallowsomeof ourexisting
investorstorealizegainsonceoursharesare
listed,butenableFirstGentoraisenewmoney
tofundgrowthplans.
Oneadvantageisdepth.Boththepublicequity
anddebtmarkets,withtheirsizeanddiversity
of investors,havethepotentialtoprovidea
war-chestwhichthecompanycanquicklytap
shouldapromisingassetcomeintothemarket.
Moreover,theavailableliquidityinthecapital
marketsmakesitpossibleforFirstGentore-
tapthePesoorUSDollarbondmarketsand
possiblyuseitsstockascurrencyformergerand
acquisitionopportunities.
Anotheradvantageisflexibility.Capitalmarket
investorsdonotrequiretherestrictivecovenants
requiredunderprojectfinancedebtandthe
investmentconditionstypicallyrequiredin
privateequityfunding.Apubliclistingof our
shares,withourcommitmenttotransparency
andgoodgovernance,wouldmakeFirstGenan
attractiveinvestmenttobothinstitutionaland
retailinvestors.
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BusinessDevelopment
FirstGenhadachallengingyear,asmostof itscontractswentthroughaprocess
of careful scrutiny. Our business development team that was responsible
for negotiating the original contracts was deployed to protect and enhance
shareholdervalue for existingprojects. The companycontinued todeliver
its commitments to its shareholders and lenders, despite dispute resolution
processeswithSiemensandtheShell-Chevron-PNOCconsortium.ThePower
PurchaseAgreements(PPA)reviewwithourofftakerManilaElectricCompany
(Meralco)was finalizedafter17negotiationsessions,andanagreementhas
beensubmittedtotheEnergyRegulatoryCommission(ERC)forapproval.
Our contracts that were negotiated and crafted eight to ten years ago have
stooduptoscrutiny.In1997,theprojectagreementsforthe1000MWSanta
Ritaprojectattractedover$4billioninprojectfinancedebtoffers,eventhough
funds of only $700 million were needed. This over-subscription is a good
indication of our contracts’ structural integrity and global lenders’ general
opinion that risks were efficiently allocated away from the company. The
contractshavewithstoodothertests.TheagreedamendmentstothePPAwent
throughlendervettingandwerefoundacceptable.Settlementdiscussionson
theGasSaleandPurchaseAgreements(GSPA)disputesareprogressingwell.
FirstGen’scontractdisputewithSiemensisalsoapproachingfinalresolution.
Thesecontractshavegonefullcirclefromnegotiationtoimplementation,and
nowtonegotiation,implementationandsettlementyetagain.Ourpeoplehave
madeallthispossible.
GOING FOR GROWTH
Ourgoalissimple:todoublethebusinessinfiveyearsorless.FirstGenhas
a deep bench of experienced and talented developers that have delivered
greenfield projects as well as mergers and acquisitions in an industry that
provides distinct areas for growth. These include acquisitions from the
privatization process and existing energy investors selling down in the next
threeyears,andmarket-testedgreenfielddevelopment.
ThePhilippinegovernment,throughthePowerSectorAssetsandLiabilities
Management Corporation (PSALM), intends to privatize another 4,000
ormoreMWfortheyear2005. FirstGenwill takeaviewonthestrategic
positioningof theseassetsincludingfuelcostandefficiency,availability,plant
conditionand rehabilitation requirements, contingent liabilitiesandexisting
contracts, transmission capacity, environmental and other project issues.
First Gen will participate in the bidding if and when an asset proves to be
acompellinginvestmentbasedonconservativeassumptions,bankability,and
returnrequirements.
Over time, foreign players in the Philippine power market have decided to
exit foravarietyof reasons.Theassetsof these foreignplayersenjoyedthe
protectionof strongcontractualarrangementsthatweresuccessfullyproject-
financed.FirstGenwillconsideracquiringtheseassetsafterstrategic, legal,
operational,andfinancialreviews.
InitsPowerDevelopmentPlan2005-2014,theDepartmentof Energyprojects
asupplyshortageby2008tohittheLuzongrid,whereFirstGenoperatesits
keyassets.While it is lookingatprivatizationandacquisition,FirstGen is
committed to participate in addressing the additional capacity needs of the
country.Ithasbegunthegroundworkforgreenfieldprojectsinareasadjacent
to the Santa Rita and San Lorenzo power plants that will help bridge the
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Ricky TantocoSenior Vice President for
Business Development
Q. What are the components of a success
project in the power industry?
A.Betweenanideaandarealizedprojectliesa
greatchasm.Foraprojecttoachievecompletion
andcommercialattractiveness,customerand
marketneedshavetobemet,projecteconomics
havetobesound,therightresourceshavetobe
available,andastrongdevelopmentteamhasto
beinplacetoexecuteanddeliverthebusiness.
Inthepowerindustry,wherevaluesatrisk
rangeinthebillionsof pesos,thisdevelopment
teamshouldpossessflawlesslocal-levelsite
executionskillswhileatthesametimehave
theinternational-levelcommercialcapabilityto
negotiatewiththebestandtoughestcounterparts
intheworld.
FirstGen’steamisseasonedandproven,several
timesover,anditsresourcessoonequippedwith
proceedsfromtheplannedpesobondoffering
andInitialPublicOffering(IPO)of itsshares,
aswellasinternally-generatedfunds.FirstGen
hastheteam,systems,andresourcestoseize
significantgrowthprospectsavailableinthe
powerindustrytoday.
Itisreallyquitestraightforward–theright
people,adequatefinancialresources,andthe
rightsystemsandbusinessprocesses–arewhat
generateandsustainsuccess.Themostcriticalof
theseishavingtherightpeople.WeatFirstGen
areproudof ourhighlyexperiencedteam,our
“deepbench”aswecallit,whichtakesthelead
inallaspectsof projectdevelopment,execution
anddelivery.Wetrulybelieveourpeopleare
secondtonone.
supplygapinthe2009-2010timeframe.
FirstGenisinauniquepositiontocapitalizeonthegrowthprospectsinthe
power sector. Clear market opportunities, strong supply gap fundamentals,
credibilitywithinternationalcreditors,atestedteam,andaprovencreditworthy
contractualtemplateareamongthestrengthsthatFirstGenwill leverageto
achieveitsgoal.
FirstGenmaintained
itspositionintheindustryasthethirdlargestIndependent
PowerProducer.
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IndustryReviewandOutlook
ThePhilippinepowergenerationsectorcontinuedtolookpromisingin2004,
postingapreliminarygrowthestimatesof 6%. Although this is lower than
2003’s growth figure of 9%, this is the fifth year in a row that the country
postedanincreaseingrosspowergeneration.Thecountry’sgrossgeneration
figurestoodat55,957GWhfortheyear2004.
The Philippine electricity grid is divided into three main grids: Luzon,
Visayas, and Mindanao. The Luzon grid accounted for the biggest share
of grossgenerationwith39,853GWh,equivalent to71%of thePhilippine
electricityoutput. TheVisayasgridcontributed16%,whiletheMindanao
gridsupplied13%.
First Gen maintained its position in the industry as the third largest
IndependentPowerProducer(IPP),with1,726MWof installedgenerating
capacity vis-à-vis the country’s total generation output of 15,548MW and
Luzon’s12,162MW.All threepowergenerationfacilitiesof FirstGenare
locatedintheLuzongrid.
FirstGenkilowatt-hoursaleswererelativelyflat,however,owingtothereduced
dispatchof theSantaRitaandSanLorenzopowerfacilitieslateintheyear.
The reduceddispatchwasa consequenceof constraints in the transmission
system as the National Transmission Corporation (TRANSCO) pursued its
upgrading works of the Dasmariñas-Biñan transmission line, and the tie-in
of thetwopowerfacilitiestotheMahabang-Parangline.Theseupgradeswill
pavethewayforasubstantialincreaseindispatchof theSantaRitaandSan
Lorenzoplantsbeginninginthefirstquarterof 2005.
Santa Rita and San Lorenzo delivered 8,264GWh to the Manila Electric
Company (Meralco) in 2004, down slightly from 8,603GWh in 2003. The
Bauang Plant, on the other hand, delivered 214GWh. Bauang has been
dispatchedintermittentlyduetotheincreasingcostof bunkerfuel.
Meralco, the country’s largest distribution utility, posted modest electricity
salesgrowthof 3.7%in2004,withSantaRitaandSanLorenzocollectively
contributing close to 30% of Meralco’s electricity purchases. Meralco
purchased41%of itselectricityrequirementsfromitsIPPs.Thisisexpectedto
increasesubstantiallyin2005astransmissionbottlenecksafflictingMeralco’s
IPPsareresolved.
ThePhilippinepowergenerationmixisuniquelydiversifiedusingseveralpower
technologies.Coalthermalplantscurrentlyholdthelargestshare,accounting
for30%of grosspowergeneration.Itisfollowedcloselybycombinedcycle
gasturbine(CCGT)powerfacilitiesusingnaturalgas,with22%.Completing
thePhilippinepowergenerationmixaregeothermal facilities (18%),hydro-
electricpowerfacilities(15%),andoil-baseddieselandthermalfacilities(15%).
CoalthermalplantsandnaturalgasCCGTfacilitiesalsodominatethegross
generationof theLuzongridwith39%and31%,respectively.
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THE POWER REFORM LAW AND ITS CHALLENGES
In June 2001, the Philippine Congress passed into law the Electric Power
IndustryReformActof 2001(EPIRA),pavingthewayforthederegulationand
fullprivatizationof thepowerindustry.EPIRAisexpectedtodisciplinethe
generationandretailsupplysectorsthroughcompetition,andthetransmission
and distribution sectors through performance-based rate regulation. The
privatization of National Power Corporation’s (NPC) generating assets is
expected to eliminate subsidies from the government, effectively freeing up
governmentfinancesforotherbasicneedssuchaseducation,health,andother
socialservices.EPIRAisalsoenvisagedtopromotetransparencythroughthe
WholesaleElectricitySpotMarket(WESM)andthroughtheunbundlingof
ratesandcharges.Withthis,itishopedthatelectricityrateswillfinallyreflect
truemarketprice.
Apotentialchallengetothepowersectoristhegovernment’seffortstoraise
additionalrevenueswiththere-impositionof ValueAddedTax(VAT)onthe
generationsector.Althoughthismayhaveaneutraleffectonindustryplayers,
itisexpectedtoaddfurtherpressureonelectricityrates,whichmayproveto
beadeterrentinreflectingNPC’struecostof power.IncreasingNPC’spower
ratetoitstruelevelwillsubstantiallyaidinsecuringmaximumreturnsforthe
governmentasitprivatizesNPC’sgenerationassets.
The reform measures gained momentum following the conclusion of the
presidential elections in mid-2004. The investment climate in the power
generation sector took apositive turnwhen thegovernmentdecided to lift
thePhp0.40/kWhcaponthePurchasedPowerAdjustment(PPA)mechanism
imposedonNPC’ssellingrate.ElectricityratesintheVisayasandMindanao
grids, however, remained below the marginal cost of new entrants, despite
shortagesbeingexperiencedinthesegrids.
ThePowerSectorAssetsandLiabilitiesManagementCorporation(PSALM)
jump-startedtheprivatizationof NPCbybiddingoutfourmini-hydroelectric
facilities, one of which was won by First Gen. PSALM capped the year
by successfully bidding out the 600MW Masinloc coal thermal plant as a
merchantplant.Inordertomeetitsmandateof privatizing70%of NPCassets,
PSALMadoptedanacceleratedprivatizationschedulewhichisscheduledto
becompletedbyend-2005.Whiletheprivatizationof transmissionassetsand
functionswasnoteffectedin2004,itrecentlygainedsubstantialinterestfrom
variousinvestors.FirstGencontinuestoremainupbeatontheprospectsof
theindustry.
TheEnergyRegulatoryCommission(ERC)madesignificantstridesparticularly
in lifting the Generation Rate Adjustment Mechanism (GRAM) and
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IncrementalCurrencyExchangeRecoveryAdjustment(ICERA)ruleswhich
itimplementedin2003,andrevertingtotheautomaticadjustmentmechanism
fortherecoveryof purchasedpowercosts.Thenewruleeffectivelyrelieved
distributionutilities fromtheburdenof financing increases in itspurchased
power costs. ERC also successfully commenced the removal of inter-class
cross-subsidy,particularly in theMeralco franchisearea.Cross-subsidiesare
expectedtobeeliminatedbyend-2005.
First Gen started the year by signing amendments to the Power Purchase
Agreements(PPAs)of thetwoFirstGasfacilities.Theamendmentswerefiled
withtheERCforapproval,andERCconductedhearingsonthematter.When
approved by ERC, the amendments will greatly benefit Meralco customers
andensurethehighestlevelof dispatchfortheSantaRitaandSanLorenzo
powerprojects.Bauang,forone,hascomeclosetoconcludingitsownseries
of negotiationswithNPC.
OPPORTUNITIES FOR THE FUTURE
First Gen sees abundant opportunities under the new regulatory regime,
particularly with the continued tightening of the demand-supply gap.
ShortagesarealreadybeingexperiencedinVisayasandMindanao.Without
newcapacityinLuzon,FirstGenprojectsthatashortagemayoccurasearly
as2008.Consideringthatafour-to-fiveyearleadperiodisneededforpower
plant construction, immediate action is needed to forestall the impending
powercrisis.
FirstGenhasundertakensubstantialdevelopmentworkinpursuitof another
500MWgreenfieldnaturalgascombinedcycleprojecttobeknownastheSan
GabrielProject.FirstGenisbankingonitssolidtrackrecordindeveloping
andconstructinggreenfieldprojectstooperationalizeSanGabrielintimefor
theprojectedpowercrisis.
Likewisein2004,FirstGenparticipatedintwoprivatizationbiddingrounds:
Agusanand Masinloc. FirstGen won thebidding for the1.6MWAgusan
hydro-electric facility, but was unsuccessful in its attempt to acquire the
600MWMasinlocCoalPowerFacility. Despite thesetback,FirstGenwill
continuetoactivelypursueothervaluableNPCassets.
FirstGenseesabundantopportunitiesunderthenewregulatoryregime,particularlywiththecontinuedtighteningof thedemand-supplygap.
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Boardof Directors
1.OscarM.Lopez-Mr.LopezistheChairmanandCEOof FirstPhilippineHoldingsCorporation(FPHC)
andChairmanof BenpresHoldingsCorporation.Throughthesetwoassignments,Mr.LopezservesasChairmanof
theLopezGroupof Companies.Mr.LopezhasledFPHC’seffortsinotherbusinessesasidefromenergyandpower,
includingtollroadconstruction,industrialparkandrealestatedevelopment,andelectronicsmanufacturing.
2.PeterD.Garrucho,Jr.-Mr.GarruchoisManagingDirectorforEnergyof FPHCandVice-Chairmanand
CEOof itspowergenerationsubsidiary,FirstGenCorporation.Aspartof thoseresponsibilities,healsoservesas
ViceChairmanandCEOof FirstGasHoldings,FirstGasPower,andFGPCorp.HeisalsoPresidentandCEOof
FirstPrivatePowerandBauangPrivatePower.HewasafullprofessorattheAsianInstituteof Management,held
variousCabinetpositions,andhadservedasChairmanorPresidentof anumberof Philippinecorporations,business
andcivicassociations.
3.FedericoR.Lopez-Mr.LopezisPresidentandCOOof FirstGenCorporationandallFirstGas
subsidiaries.Mr.LopezisalsoaVicePresidentof FPHC.Hehasbeenamemberof FPHC’sEnergyTaskForce
since1993.Inadditiontohisresponsibilitiesinprojectdevelopment,hehasbeenanactiveparticipantineffortsto
introducemarketreformsinthepowerindustry.HeisalsoPresidentof FirstPhilippineConservation,Inc.
4.SteveE.Psinakis-Mr.PsinakisisSeniorConsultantof FPHC.Heisamemberof theboardof FirstGen’s
subsidiariessuchasFirstPrivatePowerandBauangPrivatePower.HewasthePresidentof FirstPrivatePowerand
BauangPrivatePowerfrom1993to1996.HealsoservedasSeniorVicePresidentof FPHCfrom1986to1996.
5.ElpidioL.Ibañez-Mr.IbañezisPresidentandCOOof FPHC.AsFPHC’sCOO,hemonitorsthe
company’sothersubsidiariesinmanufacturing,propertydevelopmentandtollroads.HeislikewisetheChief of
Staff of BenpresHoldingsCorp.andamemberof theboardof variousBenpres-affiliatedcompanies.
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ExecutiveCommittee
6.RichardB.Tantoco-Mr.TantocoisSeniorVicePresidentforbusinessdevelopmentof FirstGen
CorporationandtheFirstGasGroupof Companies.Mr.Tantocoisresponsibleforseekingopportunitiesto
developgreenfieldpowerprojectsaswellasdevelopdownstreamnaturalgastransmissionanddistributionnetworks.
Mr.Tantocoledthenegotiationsof majorprojectcontractsthatresultedinthedevelopmentof the1000MWSanta
RitaPowerProject,the500MWSanLorenzoProjectandthe8-kmTabangao-SantaRitagaspipeline.Priorto
joiningFirstGen,Mr.TantocoworkedwithmanagementconsultingfirmBooz,Allen&Hamilton,Inc.inNew
YorkandLondon.
7.FedericoR.Lopez-Mr.LopezisPresidentandChief OperatingOfficerof FirstGenCorporationand
allFirstGassubsidiaries.Mr.LopezisalsoaVicePresidentof FPHC.Hehasbeenamemberof FPHC’sEnergy
TaskForcesince1993.
8.PeterD.Garrucho,Jr.-Mr.GarruchoisChief ExecutiveOfficerof FirstGenCorporation.Healso
servesasViceChairmanandCEOof FirstGasHoldings,FirstGasPower,andFGPCorp.HeisalsoPresidentand
CEOof FirstPrivatePowerandBauangPrivatePower.Mr.GarruchoservedasSecretaryof TourismandSecretary
forTrade&Industryduringtheadministrationof PresidentCorazonC.Aquino.HewasExecutiveSecretaryunder
PresidentFidelV.Ramos.HeisChairmanof theEnergyCouncilof thePhilippines.
9.FrancisGilesB.Puno-Mr.PunoisSeniorVicePresidentandChief FinanceOfficerof FirstGen
CorporationandtheFirstGasGroupof Companies.HeledFirstGeninthefinancingof the1000MWSanta
Ritapowerprojectandthe500MWSanLorenzopowerproject.Mr.PunoledFirstGenintwomajormerger
andacquisitiondealswiththeentryof AIDECandSumitomoasinvestorsandthesaleof PanayPower.Priorto
joiningFirstGen,Mr.PunoworkedasVicePresidentwiththeGlobalPowerandEnvironmentalGroupforChase
ManhattanBankbasedinSingapore.
10.ErnestoB.Pantangco-Mr.PantangcoisExecutiveVicePresidentandChief OperatingOfficerof
FirstPrivatePoweranditsmajorasset,BauangPrivatePower.Hewasresponsibleforthedevelopment,financing,
construction,andoperationof the225MWBauangand72MWPanaypowerplants.Mr.PantangcoisPresident
of thePhilippineIndependentPowerProducersAssociation(PIPPA).
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ManagementCommittee
1.JonathanC.Russell-Mr.Russellhasanextensive13-yearexperienceinprojectdevelopmentof energy
projectscovering2,220MWof gas-firedcapacity.HeplaysakeyroleinFirstGen’scontractnegotiations.
2.AnaReginaB.Go-Ms.Gosupervisesaccounting,treasuryandfinanceoperationsof Bauang.Shealso
handlesriskmanagementandinformationtechnology.
3.VictorB.Santos,Jr.-Mr.Santoshasparticipatedindiscussionswithvariedgovernmentagenciesonthe
passageof theElectricPowerIndustryReformActof 2001(R.A.9136)anditsregulations.
4.DanielH.Valeriano,Jr.-Mr.Valerianoisresponsibleforprovidingtechnicalservicessuchastechnology
andsiteevaluation,feasibilitystudies,andinterfacewithgovernmentunitsforpowerprojects.
5.EmmanuelP.Singson-Mr.Singsonisprimarilyinvolvedinthefund-raisingactivitiesof the
FirstGengroup.
6.ColinJ.D.Fleming-Mr.Flemingisamechanicalengineerandhasworkedinthepowerindustry
throughouthiscareer.HejoinedtheFirstGengroupin2003.Mr.FleminghasworkedwithALSTOM,China
Light&PowerCo.,JohnBrownEngineeringLtd.andPhuMy3BOTCompanyLimited.
7.JesusA.Dimal-Mr.DimalwaspreviouslytheOperationsandPlantManagerforBauangPrivatePower
(1993).Hehasbeeninvolvedinthepowerindustryforover20years.
8.NestorH.Vasay-Mr.VasayisresponsibleforloanadministrationandfinancialcontrolsforFirstGenand
FirstGas.Mr.VasayisaCertifiedPublicAccountant.
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CorporateOfficers
1.RodericoV.Puno-Mr.PunoisaPartnerof Puno&PunoLawOfficesandHeadof itsCorporateLawand
SpecialProjectsPractice.In2001hejoinedtheLopezGroupof CompaniesasVicePresidentforFPHC.Hehas
actedasleadcounselinmajorenergyandinfrastructureprojectsfromconceptualization,development,financing,
constructionandoperation.
2.PerlaT.Catahan-Ms.CatahanisaVicePresidentof FPHC.SheheadstheManagementInformation
SystemforFPHC’sComptrollershipUnit.
3.RodolfoR.Waga,Jr.-Mr.WagaisaVicePresidentof FPHC.HeheadstheLegalDepartmentof FPHC
andactsastheCorporateSecretaryorAsst.Corp.Secretaryof FPHC’ssubsidiariesandaffiliates.
9.RicardoB.Yatco-Mr.YatcoheadsFirstGen’srenewablebusinessarm,FirstGenRenewables,Inc.
10.RamonJ.Araneta-Mr.AranetaservedastheDeputyProjectManagerof theSantaRitaPowerProject
fromthetimeitcommenceditsconstructionin1997.Hesupervisescommunityrelationsprograms.
11.LeonidesU.Garde-Mr.Gardehandlesthefuellogisticsbusiness-FirstPhilippineIndustrialCorp
(FPIC)-thatis60%ownedbyFPHC.
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Thecompanyiscommittedtodoingmoreincontributingto
nation-building,inadditiontoensuringresponsiblebusinessoperations.
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CorporateSocialResponsibility
FirstGenisawarethatasacorporatecitizen,ithasasignificantimpactonsociety
andtheenvironment.Thecompanyiscommittedtodoingmoreincontributing
tonation-building,inadditiontoensuringresponsiblebusinessoperations.The
companyfulfillsitssocialresponsibilitybylendingitssupportandassistanceto
thefollowingprojects:
1. Rapid Biodiversity Assessment of Greater Sipit Watershed, Mt. Makiling
Forest Reserve
Mt. Makiling is one of the few remaining forest areas in the country with a
largeportionof intactnaturalforestswithahighdiversityof floraandfauna.
The Greater Sipit Watershed portion of Mt. Makiling covers 873 hectares of
theforestreserveandistheleaststudiedareaduetoitsruggedtopography.To
formulateaneffectiveprotectionandconservationprogramforthearea,arapid
assessmentof its floraand faunawasconductedbyUPLosBaños (UPLB) -
Makiling Center for Mountain Ecosystems and funded by First Gen through
First Philippine Conservation Inc. (FPCI). The results of the study are now
beingusedtodeveloparehabilitationandprotectionplanthatFirstGenintends
topursuewithUPLBandotherstakeholdersin2005.
2. Tarsier Conservation Program
APhp2millionpesograntwascoursedthroughPhilippineTarsier
Foundationinsupportof thePhilippineTarsierConservation
Program.Aportionof thegrantwasusedtofundastudy
conducted by Dr. Irene Neri-Arboleda of De La Salle
University, entitled “The Molecular Pyelography of
Philippine Tarsiers: Implications for Biodiversity
AssessmentandConservation.”
3. First Gen Forest at La Mesa Watershed
Thecompanyadopted100hectareswithinLaMesaWatershed’s2700hectaresto
beknownasthe“FirstGenForest.”Thisisinsupportof ABS-CBNFoundation,
Inc.’sBantayKalikasanproject.FirstGen’spledgeof Php5millionwasusedto
plantseedlings,providethenecessaryfirebreaks,andensureplantsurvivalduring
thenextthreecrucialyears.Theprojectwaslaunchedwiththeplantingof 1000
seedlings.
4. Verde Island Ecosystem Management Program
Verde Passage, where Verde Island is located, is considered an important
areaintermsof itsrichcoastalandmarineecosystem. It isalsosociallyand
economicallyimportantasitishosttomarine-basedtourism,andtransportation
and international port facilities. First Gen partnered with Conservation
International Philippines and FPCI to develop and implement an ecosystem-
based management (EBM) program that aims to maintain and protect the
ecosystem.Majorprogramactivitiesincludebiologicalaswellassocioeconomic
assessment, institutionalstrengtheningandcapacitybuildingof theIslaVerde
Sanctuary Management Board, fishery councils and
local government units, and planning for an EBM
approach for the broader marine corridor of Verde
IslandPassage.
5. Knowledge Channel
ThroughKnowledgeChannelFoundation, Inc.,FirstGen
donated Php2 million to provide cable/satellite Knowledge
Channel television access to twenty-seven schools in Batangas
province. The company also gave an additional Php0.4 million for
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“LakadMo,PangarapKo–AWalkfortheEmpowermentof theYouththrough
Education.”DonationswerealsomadetotheAteneoScholarshipFoundation
andtheDLSUScienceFoundationbythedifferentsubsidiaries.BauangPrivate
PowerCorp.(BPPC)alsolauncheditsscholarshipprogramincoordinationwith
DonMarianoMarcosMemorialStateUniversityinAugust2004.
Inaddition to specificCSRprojects, thecompany isalso involved invarious
activities.
Corporate Giving. Inpromotionof corporate social responsibility,FirstGen
donatedPhp0.5milliontotheLeagueof CorporateFoundationstoassistinthe
holdingof theAnnualCSRweek.FirstGenanditssubsidiariesalsodonated
atotalof Php6milliontotheABS-CBNFoundation,Inc.forrelief operations
conducted after four successive storms hit the country in December 2003.
ThecompanydonatedPhp0.5milliontotheCorporateNetworkforDisaster
Responseforthecreationof anemergencyassistancefundfortyphoonvictims.
First Gen employees donated Php136,000 in cash, a substantial number of
goods,andconvertedtheirunusedleavestocashforthispurpose.
For the Department of Energy’s ER 1-94, BPPC contributed Php58 million,
FGPC contributed close to Php171 million, and FGP Corp. contributed
Php61 million. ER 1-94 financial benefits include missionary electrification,
reforestationanddevelopment,andlivelihoodprograms.Arecentprojectunder
ER1-94istheconstructionof aseawallforBarangaySantaRitaAplaya,oneof
thehostcommunitiesinBatangas.
Promoting Employee Volunteerism. Corporate efforts were also matched by
employeeefforts. Thepowerof FirstGenemployeeswasunleashedas they
engagedinactivitiesoutsideof theirnormalwork.
A sponsorship agreement for three years was signed with Hands On Manila
Foundation,Inc.whichwillassistindevelopingFirstGen’semployeevolunteer
program. Employees spent twoSaturdayswith streetchildrenduring the last
quarterof 2004,participatingintheBreakfastClubactivityof PangarapShelter
bysponsoringtheirbreakfastmeals.FortheLakadMo,PangarapKocampaign
of Knowledge Channel, there were close to one hundred participants from
FirstGen.BPPCemployeesalsotookpartintheDepartmentof Education’s
Brigada Eskwela program, where volunteers replaced old pipes of the water
systemofthePayocpocElementarySchool.Employeesalsoheldapicnicatthe
MakilingBotanicalGardensinUPLB,wheretheyplantedtreestosymbolizethe
commitmentof FirstGenanditsemployeestopreservationandconservation
efforts.Overall,suchemployeeactivitiesledtoanincreasedawarenessof social
concernsandabetterappreciationof therolesof boththeindividualandthe
corporationinsocietyandtheenvironment.
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Environment,Safety&Health(ExcellenceinPerformance)
First Gen continued its pursuit of excellence, with its companies reaping
awardsandaccolades.
The 2004 Lopez Achievement Award (LAA) for Operations Management
andCorporateImage-BuildingwasconferredontheIntegratedManagement
System(IMS)CertificationTeamof theFirstGasGroupof Companies(First
Gas Holdings Corporation, First Gas Power Corp., FGP Corp., and First
GasPipelineCorporation). TheLAAwasgiven toFirstGas forachieving
ISO 9001:2000 (Quality Management), ISO 14001:1996 (Environmental
Management), and OHSAS 18001:1999 (Occupational Health and Safety
Management) certifications simultaneously without prior certification
experiencetoaninternationalstandard.FirstGasisthefirstcompanywithin
theLopezGroup,aswellasamongBGassetsworldwide,tobecertifiedonits
firstattempt.
InNovember,theFirstGasIMSwasrecommendedforContinuedCertification
against the requirements of ISO 9001:2000, ISO 14001:1996, and OHSAS
18001:1999byAngloJapanAmerican(AJA)RegistrarsInc.undertheUnited
KingdomAccreditationServices(UKAS).
First Gas won second place in the 2004 BG Chairman’s Award for its
mangroverehabilitationproject,bestingeighty-oneentriesfromBGcompanies
worldwide.TheBGChairman’sAwardencouragesinnovationinthedrivefor
continuousimprovementinhealth,safetyandenvironmentalperformance.
FirstGasHoldingsCorporation,FirstGasPowerCorporation,FGPCorp.,
BauangPrivatePowerCorporation,andFirstPhilippineIndustrialCorporation
alsoindividuallyearnedthehighestratingamongallLopezGroupcompanies
audited under the Environment, Safety and Health (ESH) Management
AssessmentandRatingSystem(MARS)Program,andwererecipientsof the
Founder’s Award. Moreover, the Department of Labor and Employment
(DOLE)citedFirstGasHoldingsCorporationforcomplyingwiththecriteria
forthefourthGawadKaligtasanatKalusugan(GKK).
In February, Bauang Private Power Corporation was recognized as one of
thecountry’sTop20Corporationsamonghighest incometaxpayers,and in
Decemberwasnamedoneof theTop10CentennialAwardeesundertheBIR’s
Centennial Taxpayer Recognition Program (CTRP) for complying with the
program’srequiredincometaxgrowthrates.
Finally, First Philippine Industrial Corporation marked another milestone
whenitwascertifiedtoSA-8000internationalstandardsasameasurableindex
of social accountability. This is in addition to the company’s certifications
to ISO9001, ISO14001andOHSAS18001 international standards. FPIC
remainscustomer-focusedwithaCustomerSatisfactionIndexof 4.8in2004,
onascaleof 5.0.
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Statement of Management’s Responsibility
Securities and Exchange Commission
SEC Building, EDSA Greenhills
Mandaluyong City, Metro Manila
The management of First Generation Holdings Corporation is responsible for all information and representaions contained in the consolidated financial statements for the year
ended December 31, 2003. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the Philippines and reflect
amounts that are based on the best estimates and informed judgement of management with an appropriate consideration to materiality.
In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized
and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized.
The Board of Directors reviews the consolidated financial statements before such statements are approved and submitted to the stockholders of the company.
SyCip, Gorres, Velayo & Co., the independent auditors and appointed by the stockholders, have examined the consolidated financial statements of the company in accordance with
auditing standards generally acepted in the PHilippines and have expressed their opinion on the fairness of presentaion upon completion of such examination, in their report to
stockholders.
Oscar M. Lopez Francis Giles B. Puno Peter D. Garrucho, Jr.
Chairman Senior Vice President Vice Chairman
& Chief Finance Officer & Chief Executive Officer
March 24, 2004
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The Stockholders and the Board of Directors
First Gen Corporation
3rd Floor, Benpres Building
Exchange Road corner Meralco Avenue
Pasig City
We have audited the accompanying consolidated balance sheets of First Gen Corporation (formerly First Generation Holdings Corporation) and Subsidiaries as of December 31,
2004 and 2003, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the Philippines. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Gen Corporation and Subsidiaries as of
December 31, 2004 and 2003, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the
Philippines.
PTR No. 9404036
January 3, 2005
Makati City
April 4, 2005
Report of Independent Auditors
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Consolidated Balance Sheets(Amounts in Millions)
December 31 2003 2004 (As restated - Note 2)ASSETS Current Assets Cash and cash equivalents (Notes 4 and 12) P11,546 P11,270Receivables (Notes 5, 15 and 21) 4,825 3,942Inventories - at cost (Note 6) 626 670Other current assets (Note 7) 691 546 Total Current Assets 17,688 16,428Noncurrent Assets Investments in shares of stock (Note 8) 874 843Property, plant and equipment - net (Notes 9, 12 and 21) 45,557 46,780Input value added taxes - net of allowance for possible losses of P131 in 2004 and P128 in 2003 (Note 23) 2,064 2,094Deferred tax assets - net (Notes 2 and 19) 121 8Other noncurrent assets - net (Notes 10, 12, 21 and 23) 17,097 12,434 Total Noncurrent Assets 65,713 62,159 P83,401 P78,587 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable and accrued expenses (Notes 11, 15 and 21) P7,968 P8,358Due to stockholders and affiliates (Note 15) 386 534Income tax payable 2 41Current portion of long-term debt (Notes 9 and 12) 4,618 3,794 Total Current Liabilities 12,974 12,727Noncurrent Liabilities Long-term debt - net of current portion (Notes 9 and 12) 36,926 41,015Deferred tax liabilities - net (Notes 2 and 19) 93 108Other noncurrent liabilities (Note 21) 12,567 7,631 Total Noncurrent Liabilities 49,586 48,754Minority Interests 6,994 5,986Stockholders’ Equity Capital stock (Notes 13 and 14) 477 477Additional paid-in capital 4,611 4,611Share in cumulative translation adjustments of an associate (Note 8) (25) (35)Retained earnings (Notes 2 and 8) Appropriated 1,000 – Unappropriated 7,784 6,067 Total Stockholders’ Equity 13,847 11,120 P83,401 P78,587
See accompanying Notes to Consolidated Financial Statements.
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Years Ended December 31 2003 2004 (As restated - Note 2)REVENUES Revenue from sale of electricity (Notes 3 and 21) P36,929 P36,298Others (Note 15) 111 137 37,040 36,435
COST AND OPERATING EXPENSES Power plant operations and maintenance (Note 21) 21,931 21,115Depreciation and amortization (Note 16) 2,123 2,193Staff costs (Notes 17 and 18) 317 264Others 1,979 1,896 26,350 25,468
INCOME FROM OPERATIONS 10,690 10,967
OTHER INCOME (CHARGES) Interest expense and financing charges (Notes 9 and 12) (3,020) (3,152)Equity in net earnings of an associate (Notes 3 and 8) 375 402Amortization of debt issuance costs (185) (185)Interest income 148 118Amortization of goodwill (54) (54)Gain on sale of a subsidiary (Note 3) _ 318Others - net (25) (1) (2,761) (2,554)
INCOME BEFORE INCOME TAX AND MINORITY INTERESTS 7,929 8,413
PROVISION FOR (BENEFIT FROM) INCOME TAX (Notes 2, 19 and 20) Current 5 50Deferred (128) (76) (123) (26)
INCOME BEFORE MINORITY INTERESTS 8,052 8,439
MINORITY INTERESTS 3,092 3,111
NET INCOME P4,960 P5,328
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Income(Amounts in Millions)
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Years Ended December 31 2003 2004 (As restated - Note 2)CAPITAL STOCK (Notes 13 and 14) Redeemable preferred stock - P100 par value Balance at beginning of year P364 P408 Redemption of shares – (44) Balance at end of year 364 364Common stock - P10 par value 113 113 477 477
ADDITIONAL PAID-IN CAPITAL Balance at beginning of year 4,611 4,899Redemption of preferred stock – (288)Balance at end of year 4,611 4,611
SHARE IN CUMULATIVE TRANSLATION ADJUSTMENTS OF AN ASSOCIATE (Note 8) Balance at beginning of year (35) – Foreign currency translation adjustments 10 (35) Balance at end of year (25) (35)
RETAINED EARNINGS (Notes 8 and 13) Appropriated: Balance at beginning of year – – Appropriation for the year 1,000 – Balance at end of year 1,000 –Unappropriated: Balance at beginning of year: As previously reported 6,132 6,250 Effect of change in accounting policy for income taxes (Note 2) (65) (90) As restated 6,067 6,160 Net income 4,960 5,328 Cash dividends: Preferred stock - average of P132.24 per share in 2003 – (482) Common stock - average of P198.36 per share in 2004 and P436.84 per share in 2003 (2,243) (4,939) Appropriation for the year (1,000) – Balance at end of year 7,784 6,067 P13,847 P11,120
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Changes in Stockholders’ Equity(Amounts in Millions, Except Par Value and Per Share Amount)
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Consolidated Statements of Cash Flows(Amounts in Millions)
Years Ended December 31 2003 2004 (As restated - Note 2)CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax and minority interests P7,929 P8,413Adjustments for: Interest expense and financing charges 3,020 3,152 Depreciation and amortization 2,123 2,193 Equity in net earnings of an associate (375) (402) Amortization of debt issuance costs 185 185 Interest income (148) (118) Amortization of goodwill 54 54 Provision for possible losses on input value added taxes 3 128 Gain on sale of a subsidiary – (318) Net unrealized foreign exchange loss – 9Operating income before working capital changes 12,791 13,296Decrease (increase) in: Receivables (785) 1,802 Inventories (2) (253) Other current assets (144) (31) Input value added taxes 47 (257)Decrease in accounts payable and accrued expenses (488) (2,418)Net cash generated from operations 11,419 12,139Interest received 148 118Income taxes paid (44) (10)Net cash provided by operating activities 11,523 12,247CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (510) (154)Dividends received from an associate 388 494Proceeds from disposal of property and equipment 71 –Decrease in other noncurrent assets 28 361Proceeds from sale of a subsidiary - net of cash disposed (Note 3) – 959Additional investment – (1)Net cash provided by (used in) investing activities (23) 1,659CASH FLOWS FROM FINANCING ACTIVITIES Payments of: Long-term debt (3,858) (3,012) Interest (3,049) (3,062) Cash dividends (2,243) (5,629)Payments of dividends to/decrease in minority interests (2,084) (2,549)Increase (decrease) in due to stockholders and affiliates (150) 47Proceeds from availments of long-term debt – 1,458Redemption of preferred shares – (332)Net cash used in financing activities (11,384) (13,079)
(Forward)
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Years Ended December 31 2003 2004 (As restated - Note 2)EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS P160 P448NET INCREASE IN CASH AND CASH EQUIVALENTS 276 1,275CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 11,270 9,995CASH AND CASH EQUIVALENTS AT END OF YEAR P11,546 P11,270
See accompanying Notes to Consolidated Financial Statements.
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Notes to Consolidated Financial Statements(Amounts of Pesos and United States (US) Dollars, Stated in Millions)
1. Corporate Information
First Gen Corporation (the Parent Company) was incorporated in the Philippines
on December 22, 1998. The Parent Company and its subsidiaries (collectively
referred to as the First Gen Group) are involved in the power generation business.
All subsidiaries are incorporated in the Philippines.
The Parent Company is an 88.44%-owned subsidiary of First Philippine Holdings
Corporation (FPHC), also incorporated in the Philippines.
On March 9, 2005, the Philippine Securities and Exchange Commission (SEC)
approved the change of the Parent Company’s corporate name from First
Generation Holdings Corporation to First Gen Corporation.
On a consolidated basis, the number of employees was 102 and 99 as of December
31, 2004 and 2003, respectively. The registered office address of the Parent
Company is 3rd Floor, Benpres Building, Exchange Road corner Meralco Avenue,
Pasig City.
The accompanying consolidated financial statements of the First Gen Group were
approved and authorized for issue by the Board of Directors (BOD) on April 4,
2005.
2. Summary of Significant Accounting Policies
The principal accounting policies adopted in preparing the consolidated financial
statements of the First Gen Group are as follows:
Basis of Preparation
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the Philippines under
the historical cost convention.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. The estimates and assumptions used in the
accompanying consolidated financial statements are based upon management’s
evaluation of relevant facts and circumstances as of the date of the consolidated
financial statements. Actual results could differ from such estimates.
Changes in Accounting Policies
On January 1, 2004, the Parent Company and its subsidiaries adopted the following
Statements of Financial Accounting Standards (SFAS)/International Accounting
Standards (IAS):
• SFAS 12/IAS 12, “Income Taxes,” prescribes the accounting treatment
for current and deferred income taxes. The standard requires the use of
the balance sheet liability method in accounting for deferred income taxes.
Adoption of this standard resulted in the recognition of deferred tax assets
and liabilities for all temporary differences expected to be recovered or
settled. Previously, operating subsidiaries, namely FGP Corp. (FGP) and
First Gas Power Corporation (FGPC), did not recognize deferred tax assets
and liabilities on temporary differences expected to reverse beyond the income
tax holiday periods. The change in policy was reflected in the consolidated
financial statements on a retroactive basis and the consolidated financial
statements for 2003 have been restated. The restatement increased net income
by P25 in 2003. Retained earnings decreased by P65 and P90 as of January 1,
2004 and 2003, respectively.
• SFAS 17/IAS 17, “Leases,” prescribes the accounting policies and disclosures
for finance and operating leases. The respective Power Purchase Agreements
(PPAs) of FGP and FGPC with Manila Electric Company (Meralco), and
the Project Agreement of Bauang Private Power Corporation (BPPC), an
associate, with National Power Corporation (NPC) under a build-operate-own
scheme and build-operate-transfer scheme, respectively, are now accounted for
as contracts containing operating lease arrangements. Accordingly, revenues
arising from the fixed capacity fees and fixed operating and maintenance fees
derived from the PPAs and Project Agreement are recognized on a straight-
line basis over the terms of the agreements.
Adoption of this standard also resulted in the recognition of lease payments
under operating leases on a straight-line basis. Previously, all lease payments
under operating leases were expensed based on the terms of the lease
agreements.
The change in accounting for operating leases has no effect on the
consolidated financial statements since the contract capacity rate and
operating and maintenance rate per kilowatt-hour are fixed throughout the
terms of the agreements. Also, the upward revision of the rental charges
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under the lease agreements are agreed by the First Gen Group and the lessor
at the end of each year.
New Accounting Standards Effective in 2005
New accounting standards based on IAS and International Financial Reporting
Standards, referred to as Philippine Accounting Standards (PAS) and Philippine
Financial Reporting Standards (PFRS), respectively, will become effective in 2005.
The First Gen Group will adopt the following new accounting standards that are
relevant to the First Gen Group effective January 1, 2005:
• PAS 19, “Employee Benefits,” prescribes the use of the projected unit credit
method in measuring retirement benefit expense and a change in the manner
of computing benefit expense relating to past service cost and actuarial
gains and losses. It requires a company to determine the present value of
defined benefit obligations and the fair value of any plan assets with sufficient
regularity that the amounts recognized in the financial statements do not
differ materially from the amounts that would be determined at the balance
sheet date. Upon adoption of this standard, the transition retirement liability
under the First Gen Group’s defined benefit plan will be adjusted retroactively
and will decrease retained earnings and increase noncurrent liabilities as of
January 1, 2005 (see Note 18).
• PAS 21, “The Effects of Changes in Foreign Exchange Rates,” prohibits
the capitalization of foreign exchange losses. The practice of the major
subsidiaries and an associate of the First Gen Group has been to capitalize
foreign exchange adjustments arising from foreign currency-denominated
obligations used to finance the construction of their respective power plants.
As of December 31, 2004 and 2003, undepreciated capitalized foreign
exchange losses included in the cost of property, plant and equipment,
excluding the amount eligible for capitalization as part of borrowing costs,
amounted to P6,252 and P6,114, respectively (see Note 9).
PAS 21 further requires a company to determine its functional currency and
measure its results of operations and financial position in that currency. The
Parent Company and certain subsidiaries have determined the US Dollar as
their functional currency in accordance with the guidance under PAS 21.
The Philippine SEC, in SEC Memorandum Circular No. 14, Series of 2003,
Guidelines on Preparation of Functional Currency Financial Statements,
gives qualified companies the option to file functional currency financial
statements covering periods ending on or after October 31, 2003, subject to
compliance with certain criteria. On January 3, 2005, the First Gen Group
filed an application with the SEC to be allowed to file US Dollar functional
currency financial statements. Subsequently, on January 25, 2005, the SEC
approved the application of the First Gen Group for the use of US Dollar in
the primary financial statements beginning January 1, 2005. Upon adoption
of PAS 21 and SEC Memorandum Circular No. 14, the presentation currency
of the First Gen Group will be changed from Philippine Pesos to US Dollars
on a retroactive basis and prior years consolidated financial statements
presented will be restated. The capitalized foreign exchange differences
arising from the US dollar-denominated obligations will then be eliminated in
the translation process without negatively affecting retained earnings.
• PAS 32, “Financial Instruments: Disclosure and Presentation,” covers the
disclosures and presentation of all financial instruments. The standard
requires more comprehensive disclosures about a company’s financial
instruments, whether recognized or unrecognized in the financial statements.
New disclosure requirements include terms and conditions of financial
instruments used by the company, types of risks associated with both
recognized and unrecognized financial instruments (market risk, price risk,
credit risk, liquidity risk, and cash flow risk), fair value information of both
recognized and unrecognized financial assets and financial liabilities, and the
company’s financial risk management policies and objectives. The standard
also requires financial instruments to be classified as liabilities or equity in
accordance with its substance and not its legal form. Required disclosures, as
applicable, will be included in the 2005 consolidated financial statements.
• PAS 39, “Financial Instruments: Recognition and Measurement,” establishes
the accounting and reporting standards for the recognition and measurement
of a company’s financial assets and financial liabilities. The standard requires
a financial asset or financial liability to be recognized initially at fair value.
Subsequent to initial recognition, a company should continue to measure
financial assets at their fair values, except for loans and receivables and held-
to-maturity investments, which are to be measured at cost or amortized cost
using the effective interest rate method. Financial liabilities are subsequently
measured at cost or amortized cost, except for liabilities classified as “at fair
value through profit and loss” and derivatives, which are subsequently to be
measured at fair value.
PAS 39 also covers the accounting for derivative instruments. This standard
has expanded the definition of a derivative instrument to include derivatives
(and derivative-like provisions) embedded in non-derivative contracts.
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Under the standard, every derivative instrument is recorded in the balance
sheet as either an asset or liability measured at its fair value. Derivatives
that do not qualify as hedges are adjusted to fair value through income. If
a derivative is designated and qualify as a hedge, depending on the nature
of the hedging relationship, changes in the fair value of the derivative are
either offset against the changes in fair value of the hedged assets, liabilities,
and firm commitments through earnings, or recognized in stockholders’
equity until the hedged item is recognized in earnings. A company must
formally document, designate and assess the hedge effectiveness of derivative
transactions that receive hedge accounting treatment.
Adoption of PAS 32 and PAS 39 is expected to have operational and financial
statement impact to the First Gen Group which is not presently quantifiable.
Volatility in the financial statements is anticipated because of the requirement
to fair value most financial instruments, including derivative financial
instruments. The First Gen Group plans to undertake certain detailed
activities, which include, among others, the following:
1. Review of contracts for the purpose of identifying and, where required,
bifurcating derivatives that are embedded in both financial and non-
financial contracts;
2. Development of a financial instruments policy that will cover accounting
for financial instruments, to include the preparation of hedge accounting
guidelines and requirements for derivatives that are designated and
qualify as hedges;
3. Evaluation of the proper classification of financial instruments,
including determining whether a financial instrument should be
accounted for as debt or equity; and
4. Assessment of required process and systems changes.
In 2005, the impact of adopting PAS 39 will be retroactively computed, as
applicable, and adjusted to the January 1, 2005 retained earnings. Prior years’
consolidated financial statements will not be restated as allowed by the SEC.
• PFRS 2, “Share-Based Payments,” will result in a charge to net income for
the cost of share options granted. The First Gen Group currently does not
recognize an expense from share options granted but discloses required
information for such options. The First Gen Group still has to develop
policies and procedures to quantify the stock option value on grant date to
determine the impact of adopting this standard.
• PFRS 3, “Business Combination,” will result in the cessation of the
amortization of goodwill and a requirement for an annual test for goodwill
impairment. Any resulting negative goodwill after performing reassessment
will be credited to income. Moreover, pooling of interests in accounting for
business combination will no longer be permitted. Upon effectivity of PFRS
3, the First Gen Group will reassess the impairment of goodwill amounting to
P455 as of December 31, 2004 (see Notes 8 and 10).
The First Gen Group will also adopt the following standards in 2005:
• PAS 1, “Presentation of Financial Statements,” provides a framework within
which an entity assesses how to present fairly the effects of transactions and
other events; provides the base criteria for classifying liabilities as current or
noncurrent; prohibits the presentation of income from operating activities
and extraordinary items as separate line items in the statement of income;
and specifies the disclosures about key sources of estimation, uncertainty
and judgments that management has made in the process of applying the
entity’s accounting policies. It also requires changes in the presentation of
minority interest in the balance sheet and statement of income. Adoption of
this standard in 2005 is not expected to have a material impact to the First
Gen Group. The changes in the financial statement presentation as well
as required disclosures will be included in the 2005 consolidated financial
statements, as applicable.
• PAS 8, “Accounting Policies, Changes in Accounting Estimates and Errors,”
removes the concept of fundamental error and the allowed alternative to
retrospective application of voluntary changes in accounting policies and
retrospective restatement to correct prior period errors. It defines material
omission or misstatements, and describes how to apply the concept of
materiality when applying accounting policies and correcting error. Adoption
of this standard will not have a material impact to the First Gen Group.
• PAS 10, “Events After the Balance Sheet Date,” provides a limited
clarification of the accounting for dividends declared after the balance sheet
date. Adoption of this standard will not have a material impact to the First
Gen Group.
• PAS 16, “Property, Plant and Equipment,” provides additional guidance and
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clarification on recognition and measurement of items of property, plant and
equipment. It also provides that each part of an item of property, plant and
equipment with a cost that is significant in relation to the total cost of the item
shall be depreciated separately. FGP, FGPC and BPPC currently account
for their respective power plants as a single asset and depreciate them over 15
to 25 years. FGP, FGPC and BPPC have not yet determined the significant
parts of its power plant asset. Annual depreciation, however, is expected to
increase because of a shorter estimated life of certain significant parts of the
power plant.
The standard also requires that the cost of an item of property, plant and
equipment should include the costs of its dismantlement, removal or
restoration, the obligation for which the entity incurs when it installs or uses
the assets.
Under the PPA, FGP and FGPC may have constructive obligations to
decommission or dismantle their power plant assets at the end of their
useful lives. If it is eventually determined that FGP and FGPC are liable
for such costs, adoption of this standard would result in an increase in the
net book value of property, plant and equipment and in the recognition of
the related dismantlement or restoration liability. The difference between
the increase in the net book values of property, plant and equipment and
the amount of dismantlement or restoration liability would be adjusted to
beginning retained earnings. Subsequent annual depreciation would increase
and an accretion expense would be recognized to bring the dismantlement
or restoration liability to the required cash outflows at the expected time of
decommissioning or dismantlement.
Under the Project Agreement of BPPC, it is required to transfer to NPC
all its rights, titles and interest in the power plant complex at the end of the
cooperation period in good working condition. Accordingly, BPPC has no
obligation to dismantle, remove or restore the power plant complex.
• PAS 17, “Leases,” provides a limited revision to clarify the classification of a
lease of land and prohibits the expensing of initial direct costs in the financial
statements of the lessors. Adoption of this standard will not have a material
impact to the First Gen Group.
• PAS 24, “Related Party Disclosures,” provides additional guidance and clarity
in the scope of the standard, the definitions and disclosures for related parties.
It also requires disclosure of the total compensation of key management
personnel and by benefit types. New disclosures required by this standard will
be included in the 2005 consolidated financial statements, as applicable.
• PAS 27, “Consolidated and Separate Financial Statements,” reduces
alternatives in accounting for subsidiaries in consolidated financial statements
and in accounting for investments in the separate financial statements of a
parent, venturer or investor. Investments in subsidiaries will be accounted
for either at cost or in accordance with PAS 39 in the separate financial
statements. Equity method of accounting will no longer be allowed in the
separate financial statements. This standard also requires strict compliance
with adoption of uniform accounting policies and requires the parent
company to make appropriate adjustments to the subsidiary’s financial
statements to conform them to the parent company’s accounting policies for
reporting like transactions and other events in similar circumstances.
• PAS 28, “Investments in Associates,” reduces alternatives in accounting
for associates in consolidated financial statements and in accounting for
investments in the separate financial statements of an investor. Investments in
associates will be accounted for either at cost or in accordance with PAS 39 in
the separate financial statements. Equity method of accounting will no longer
be allowed in the separate financial statements. This standard also requires
strict compliance with adoption of uniform accounting policies and requires
the investor to make appropriate adjustments to the associate’s financial
statements to conform them to the investor’s accounting policies for reporting
like transactions and other events in similar circumstances.
When the Parent Company adopts PAS 27 and PAS 28 in 2005, its
investments in subsidiaries and associate will be accounted for under the cost
method in the separate or parent company financial statements. Accordingly,
this will reduce the retained earnings by P2,870 and P1,397 as of January 1,
2005 and 2004, respectively. The carrying amount of investments will also
be reduced by P2,846 and P1,362 as of December 31, 2004 and 2003. Net
income will be reduced by P1,473 and P1,229 in 2004 and 2003, respectively.
The following standards will also be adopted in 2005 but are expected to have no
material impact to the First Gen Group:
• PAS 2, “Inventories,”
• PFRS 1, “First-time Adoption of PFRS,” and
• PFRS 5, “Noncurrent Assets Held for Sale.”
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Basis of Consolidation
The consolidated financial statements include the financial statements of the
Parent Company and the following subsidiaries:
Percentage of Ownership
2004 2003
First Gen Renewables, Inc. [FGRI (formerly First
Philippine Energy Corporation)] 100 100
Unified Holdings Corporation (Unified)
and Subsidiary* 100 100
First Gas Holdings Corporation (FGHC)
and Subsidiaries** 60 60
* This pertains to FGP.
** This includes FGPC, First Gas Pipeline Corporation and FGLand Corporation.
A subsidiary is consolidated from the date control is transferred to the Parent
Company and ceases to be consolidated from the date control is transferred out
of the Parent Company. Acquisition of subsidiaries is accounted for using the
purchase method of accounting.
As a result of the sale of the Parent Company’s investment in Panay Power
Corporation (PPC) (see Note 3), the related accounts have been deconsolidated
in 2003. The 2003 consolidated statements of income and cash flows include the
results of operations and cash flows of PPC for the period January 1, 2003 to June
26, 2003.
Consolidated financial statements are prepared using uniform accounting policies
for like transactions and other events in similar circumstances. Intercompany
balances and transactions, including intercompany profits and unrealized income
and losses, are eliminated.
Minority interests represent the interests in FGHC and Subsidiaries, FGP and PPC
not held by the Parent Company. As discussed in Note 3, the Parent Company
sold its investment in PPC on June 26, 2003.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly
liquid investments that are readily convertible to known amounts of cash with
original maturities of three months or less and that are subject to insignificant risk
of change in value.
Receivables
Trade receivables are recognized and carried at original invoice amount less
allowance for any uncollectible amount. Other receivables are stated at face value
less allowance for any uncollectible amount. An estimate for doubtful accounts is
made when collection of the full amount is no longer probable.
Inventories
Inventories are carried at the lower of cost and net realizable value. The net
realizable value of fuel inventories of FGP and FGPC is the fuel cost charged to
Meralco, under the respective PPAs of FGP and FGPC with Meralco (see Note
21a), which is based on weighted average cost of actual fuel consumed. Costs are
determined using the weighted average cost method.
Investments in Shares of Stock
The Parent Company’s 40% investment in First Private Power Corporation (FPPC)
and Subsidiary is accounted for under the equity method of accounting. An
associate is an investee in which the Parent Company has significant influence
and which is neither a subsidiary nor a joint venture of the Parent Company.
The investment in an associate is carried in the consolidated balance sheets at
cost plus post-acquisition changes in the Parent Company’s share in net assets
of the associate (including share in cumulative translation adjustments) less any
impairment in value. The consolidated statements of income reflect the Parent
Company’s share in the results of operations of an associate.
An assessment of the carrying value of the Parent Company’s investment is
performed when there is an indication that the investment has been impaired.
Unrealized intercompany profits arising from the transactions with the associate
are eliminated. The Parent Company’s investment includes goodwill (net of
accumulated amortization) on acquisition.
The share in cumulative translation adjustments of an associate is shown under the
“Stockholders’ Equity” section of the consolidated balance sheets.
Other investments are carried at cost less any significant and apparent permanent
decline in value.
Property, Plant and Equipment
Property, plant and equipment, except land, are carried at cost less accumulated
depreciation and any impairment in value. Land is carried at cost less any
impairment in value.
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The initial cost of property, plant and equipment consists of the purchase price
including import duties, borrowing costs (during the construction period) and
foreign exchange adjustments, and any costs directly attributable to bringing the
asset to its working condition and location for its intended use. Expenditures
incurred after the property, plant and equipment have been put into operation, such
as repairs, maintenance and overhaul costs, are normally charged to income in the
period the costs are incurred. In situations where it can be clearly demonstrated
that the expenditures have resulted in an increase in the future economic benefits
expected to be obtained from the use of an item of property, plant and equipment
beyond its originally assessed standard of performance, the expenditures are
capitalized as additional costs of property, plant and equipment. When assets are
sold or retired, the cost and related accumulated depreciation and any impairment
in value are removed from the accounts and any resulting gain or loss is included in
the consolidated statements of income.
Depreciation is computed using the straight-line method over the following
estimated useful lives of the assets:
Power plant complex 25 years
Other property and equipment 3 to 10 years
The useful life and depreciation method are reviewed periodically to ensure that
the period and method of depreciation are consistent with the expected pattern of
economic benefits from items of property, plant and equipment.
Goodwill
Goodwill represents the excess of the acquisition cost over the fair value of
identifiable net assets of subsidiaries and an associate at the date of acquisition.
The goodwill on investments in subsidiaries is included in “Other noncurrent
assets” account in the consolidated balance sheets. The goodwill on investment in
an associate is included in the carrying amount of the related investment.
Goodwill is stated at cost less accumulated amortization and any impairment in
value. Goodwill is amortized on a straight-line basis over a 10-year period. It is
reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable.
Pipeline Rights
Pipeline rights (included in “Other noncurrent assets” account in the consolidated
balance sheets) represent the construction cost of the natural gas pipeline facility
connecting the natural gas supplier’s refinery to FGP’s power plant including
incidental transfer costs incurred in connection with the transfer of ownership of
the pipeline facility to the natural gas supplier. Pipeline rights cost is amortized
over the estimated useful life of the natural gas pipeline or the term of the Gas Sale
and Purchase Agreement (GSPA) which is approximately 22 years, whichever is
shorter, from the start of commercial operations.
Prepaid Gas
Prepaid gas (included in “Other noncurrent assets” account in the consolidated
balance sheets), consists of payments to Gas Sellers for unconsumed gas, net of
adjustment. The prepaid gas is recoverable in the form of future gas deliveries in
the order that it arose and can be consumed within a 10-year period. If it should
be determined at some future date that the likelihood of any amount of gas usage
or delivery is remote, then the relevant amount deemed no longer realizable will be
written off against earnings.
Asset Impairment
Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Whenever the carrying amount of an asset exceeds its recoverable
amount, an impairment loss is recognized in the consolidated statements of
income. The recoverable amount is the higher of an asset’s net selling price or
value in use. The net selling price is the amount obtainable from the sale of an
asset in an arm’s-length transaction less cost to dispose, while value in use is the
present value of estimated future cash flows expected to arise from the continuing
use of an asset and from its disposal at the end of its useful life. Recoverable
amounts are estimated for individual assets or, if it is not possible, the cash-
generating unit to which the asset belongs.
Reversal of impairment losses recognized in prior years is recorded when there is
an indication that the impairment losses recognized for the asset no longer exist
or have decreased. The reversal is recorded as income. However, the increase in
carrying amount of an asset due to a reversal of an impairment loss is recognized
to the extent that it does not exceed the carrying amount (net of accumulated
depreciation) that would have been determined had no impairment loss been
recognized for that asset in prior years.
As an exception, an impairment loss recognized for goodwill is not reversed in a
subsequent period unless the impairment loss was caused by a specific external
event of an exceptional nature that is not expected to recur and subsequent external
events have occurred that reverse the effect of that event.
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Debt Issuance Costs
Expenditures incurred in connection with the availment of long-term debt are
deferred (included in “Other noncurrent assets” account in the consolidated
balance sheets) and amortized over the terms of the related debt.
Research Costs
Research costs are expensed as incurred.
Provisions
Provisions are recognized when the First Gen Group has a present obligation
(legal or constructive) as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation,
and a reliable estimate can be made of the amount of the obligation. If the effect
of the time value of money is material, provisions are determined by discounting
the expected future cash flows at a pre-tax rate that reflects current market
assessment of the time value of money and, where appropriate, the risks specific
to the liability. Where discounting is used, the increase in the provision due to the
passage of time is recognized as an interest expense.
Revenue Recognition
Revenue is recognized when it is probable that the economic benefits associated
with the transaction will flow to the First Gen Group and the amount of the
revenue can be reliably measured.
Revenue from sale of electricity is composed of capacity fees, fixed and variable
operating and maintenance fees, fuel, wheeling and pipeline charges, sales tax and
supplemental fees. Fixed capacity fees and fixed operating and maintenance fees
are recognized on a straight-line basis, based on the actual capacity tested/proven,
over the terms of the respective PPAs. Variable operating and maintenance fees,
fuel, wheeling and pipeline charges, sales tax and supplemental fees are recognized
monthly based on the actual energy delivered.
Interest income is recognized as it accrues, taking into account the effective yield
on the asset.
Operating Leases
Leases where the lessor retains substantially all the risks and benefits of ownership
of the asset are classified as operating leases. Operating lease payments are
recognized as expense in the consolidated statements of income on a straight-line
basis over the lease terms.
Retirement Costs
The First Gen Group provides for the annual retirement costs in accordance with
SFAS 24, “Retirement Benefits Costs.” The obligations and costs of retirement
benefits are actuarially computed by professionally qualified independent actuaries
using the projected unit credit method. This method reflects services rendered
by employees to the date of valuation and incorporates assumptions concerning
employees’ projected salaries. Retirement costs include current service cost plus
amortization of past service cost, experience adjustments and changes in actuarial
assumptions over the expected average remaining working lives of the covered
employees.
Borrowing Costs
Borrowing costs include interest charges and other costs incurred in connection
with the borrowing of funds, including exchange differences arising from foreign
currency borrowings used to finance the project to the extent that they are regarded
as an adjustment to interest costs, net of interest income.
Borrowing costs are generally expensed as incurred. Borrowing costs are
capitalized if they are directly attributable to the construction of a qualifying asset.
Capitalization of borrowing costs commences when the activities to prepare the
asset are in progress and expenditures and borrowing costs are being incurred.
Borrowing costs are capitalized until the asset is substantially ready for its intended
use. If the resulting carrying amount of the asset exceeds its recoverable amount,
an impairment loss is recognized.
Derivative Financial Instrument
FGP uses an interest rate swap agreement to manage its floating interest rate
exposure on its foreign currency-denominated obligations. Accruals of interest on
the receive and pay legs of the interest rate swap are recorded as adjustments to the
interest expense on the related foreign currency-denominated obligations. Current
accounting practice does not require that the interest rate swap be marked to fair
value. The fair value of such financial instrument is presented on the related notes
to consolidated financial statements for disclosure purposes only.
Foreign Currency Transactions
Foreign currency transactions are recorded in Philippine peso by applying to the
foreign currency amounts the spot exchange rates prevailing at transaction dates.
Monetary assets and liabilities denominated in foreign currencies are restated
using the closing exchange rate at balance sheet date. Foreign exchange gains or
losses arising from the settlement or restatement of monetary items at exchange
rates different from those at which they were initially recorded during the period
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or presented in previous consolidated financial statements, are recorded in the
consolidated statements of income.
Major subsidiaries and an associate of the First Gen Group capitalize to property,
plant and equipment the foreign exchange adjustments arising from foreign
currency-denominated borrowings directly related to the construction of such
assets.
Income Tax
Deferred income tax is computed using the balance sheet liability method.
Deferred income tax assets and liabilities are recognized for the: (a) future tax
consequences attributable to temporary differences, (b) carryforward benefit of the
excess of the minimum corporate income tax (MCIT) over the regular corporate
income tax; and (c) net operating loss carryover (NOLCO). Deferred income tax,
however, is not recognized when it arises from the initial recognition of an asset or
liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss.
Deferred tax liabilities are not provided on non-taxable temporary differences
associated with investments in domestic subsidiaries and associates.
The carrying amount of deferred income tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred income tax asset
to be utilized.
Deferred income tax assets and liabilities are measured at the tax rate that is
expected to apply to the period when the asset is realized or the liability is settled,
based on tax rate (and tax laws) that has been enacted or substantively enacted at
the balance sheet date.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements.
These are disclosed unless the possibility of an outflow of resources embodying
economic benefits is remote.
Contingent assets are not recognized in the consolidated financial statements but
disclosed when an inflow of economic benefits is probable.
Subsequent Events
Post year-end events that provide additional information about the First Gen
Group’s financial position at the balance sheet date (adjusting events) are reflected
in the consolidated financial statements. Post year-end events that are not adjusting
events are disclosed in the notes to consolidated financial statements when
material.
3. Sale of PPC
On June 26, 2003, the Parent Company sold its 50% direct interest in common
shares of PPC for a total consideration of P1,090, resulting in a net gain of P318.
In 2003, PPC generated revenue from sale of electricity of P369 and had net
income of P132 up to the date of disposal.
The detailed effect of the disposal on 2003 financial position and net cash flows is
as follows:
Amount
Cash and cash equivalents P131
Receivables 305
Inventories 91
Other current assets 20
Input value added taxes 28
Property, plant and equipment - net 3,167
Accounts payable and accrued expenses (153)
Accrued importation costs (175)
Long-term debt (1,870)
Minority interest (772)
Net identifiable assets and liabilities 772
Gain on disposal 318
Consideration received 1,090
Cash disposed of 131
Net cash inflow P959
Simultaneously on the same date, FPPC, an associate, also sold its 20% equity
interest in common shares of PPC. The Parent Company’s share in resulting gain
is recorded as part of the equity in net earnings of FPPC in 2003.
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8. Investments in Shares of Stock
2004 2003
Investment in an associate - at equity
Acquisition cost P741 P741
Accumulated equity in net earnings
Balance at beginning of year 124 216
Equity in net earnings (net of
goodwill amortization of P10) 375 402
Cash dividends (354) (494)
Balance at end of year 145 124
Share in cumulative translation adjustments
Balance at beginning of year (35) –
Foreign currency translation adjustments 10 (35)
Balance at end of year (25) (35)
861 830
Others - at cost 13 13
P874 P843
The carrying value of the investment in FPPC and Subsidiary exceeded the Parent
Company’s equity in net assets by P52 and P62 as of December 31, 2004 and 2003,
respectively.
a. Share in cumulative translation adjustments
Effective January 1, 2003, BPPC, the subsidiary of FPPC, adopted the
pertinent provisions of IAS 39, “Financial Instruments: Recognition and
Measurement,” on hedging of foreign currency risks on highly probable
forecasted transactions. Currently, there is no local accounting standard
covering the accounting for such transactions. Under Rule 68 of the SEC, in
the absence of a specific accounting standard or interpretation issued by the
Accounting Standard Council, reference can be made to IFRS issued by the
International Accounting Standards Board.
IAS 39 permits a non-derivative foreign currency-denominated liability to
be designated as a hedge of a foreign currency risk on a highly probable
forecasted transaction. Consequently, BPPC designated its US dollar-
denominated senior secured notes as cash flow hedges of highly probable
future US dollar revenue streams, particularly its capacity fees. The First
Gen Group’s share in foreign currency translation losses on these designated
US dollar-denominated senior secured notes are deferred under the
4. Cash and Cash Equivalents
2004 2003
Cash on hand and in banks (see Note 12) P152 P168
Short-term investments (see Note 12) 11,394 11,102
P11,546 P11,270
Cash in banks earns interest at the respective bank deposit rates. Short-term
investments are made for varying periods of up to three months depending on
the immediate cash requirements of the First Gen Group, and earn interest at the
respective short-term investment rates.
5. Receivables
2004 2003
Trade (see Note 21a) P4,466 P3,441
Others (see Note 15) 359 501
P4,825 P3,942
6. Inventories
2004 2003
At cost:
Fuel inventories P625 P667
Spare parts and supplies 1 3
P626 P670
7. Other Current Assets
2004 2003
Prepaid expenses P657 P534
Others 34 12
P691 P546
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“Stockholders’ Equity” section of the consolidated balance sheets as share in
cumulative translation adjustments, which represents the effective portion of
the cash flow hedge.
b. Accumulated equity in net earnings of investees
The Parent Company’s accumulated equity in net earnings of investees
(including consolidated subsidiaries) amounting to P2,870 and P1,397 (as
restated) as of December 31, 2004 and 2003, respectively, are included as part
of retained earnings. These retained earnings are not available for dividend
distribution until such time that the Parent Company receives the dividends
from the investees.
c. Following is the condensed consolidated financial information of FPPC and
Subsidiary:
2004 2003
Current assets P1,605 P1,408
Noncurrent assets 3,070 3,649
Current liabilities 1,264 1,191
Noncurrent liabilities 1,211 1,751
Revenues 2,951 2,851
Net income 962 1,031
9. Property, Plant and Equipment
December 31, December 31,
2003 Additions Disposals 2004
Cost:
Land P769 P4 P– P773
Power plant complex 50,787 851 – 51,638
Other property and equipment 502 90 (81) 511
52,058 945 (81) 52,922
Accumulated depreciation:
Power plant complex 5,167 2,046 – 7,213
Other property and equipment 111 51 (10) 152
5,278 2,097 (10) 7,365
Net book value P46,780 (P1,152) (P71) P45,557
Capitalized foreign exchange losses amounting to P435 and P1,702 for the years ended December 31, 2004 and 2003, respectively, are part of additions to power plant complex.
The accumulated capitalized foreign exchange losses (net of accumulated depreciation) amounted to P8,923 and P8,910 as of December 31, 2004 and 2003, respectively. The
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foreign exchange losses (net of accumulated depreciation) regarded as adjustments
to borrowing costs that were capitalized as part of power plant complex amounted
to P2,671 and P2,796 as of December 31, 2004 and 2003, respectively.
No borrowing costs were capitalized in 2004 and 2003.
Property, plant and equipment with net book values of P45,458 and P46,618 as of
December 31, 2004 and 2003, respectively, have been pledged as security for long-
term debt.
10. Other Noncurrent Assets
2004 2003
Receivables from Meralco (see Note 21c) P12,567 P7,631
Restricted cash deposits (see Notes 12 and 23c) 1,654 1,617
Debt issuance costs - net of amortization 1,471 1,656
Prepaid gas (see Note 21c) 509 509
Pipeline rights - net of amortization 485 511
Goodwill - net of amortization 403 457
Others 8 53
P17,097 P12,434
Pipeline rights represent the construction cost of the natural gas pipeline facility
connecting the natural gas supplier’s refinery to FGP’s power plant, including
incidental transfer costs incurred in connection with the transfer of ownership
of the pipeline facility to the FGP’s natural gas supplier, pursuant to a Deed
of Transfer executed with the Gas Sellers under the Gas Sales and Purchase
Agreements.
Movements of goodwill and pipeline rights are as follows:
December 31, December 31,
2003 Additions 2004
Cost:
Goodwill P565 P– P565
Pipeline rights 541 – 541
1,106 – 1,106
Accumulated amortization:
Goodwill 108 54 162
Pipeline rights 30 26 56
138 80 218
P968 P80 P888
11. Accounts Payable and Accrued Expenses
2004 2003
Trade P1,896 P2,336
Accrued construction costs (see Note 21b) 5,585 5,517
Accrued interest and others (see Note 15) 487 505
P7,968 P8,358
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12. Long-term Debt
This account consists of US dollar-denominated borrowings of FGP and FGPC availed from various lenders to partly finance the construction of their power plant complexes.
Nature
Foreign currency-denominated loans payable to foreign financing institutions at various interest rates ranging from 2.69% to 8.79%
US Private Placements with annual interest based on the applicable Treasury Yield plus 2.5%
HERMES Covered Facility Agreement with annual interest at commercial interest reference rate of 7.48%
Commercial Loan Credit (ECGD) Facility Agreement with annual interest at 3 month to 6 month London Interbank Offered Rate (LIBOR)plus 2.15%
Foreign Currency Deposit Unit (FCDU) loans payable to local banks with interest at LIBOR Plus 2.875%
GKA Covered Facility Agreement with annual interest at 6 month LIBOR plus 1.4% with option to convert into fixed interest rate loan
Total
Less current portion
2003
P14,067(US$253)
8,894(US$160)
6,792(US$122)
P5,860(US$105)
5,075(US$91)
4,121(US$74)
44,809(US$805)
3,794(US$68)
P41,015(US$737)
2004
P13,112(US$233)
9,015(US$160)
6,258(US$111)
5,399(US$96)
3,904(US$69)
P3,856(US$68)
41,544(US$737)
4,618(US$82)
P36,926(US$655)
Facility Amount
US$360
US$160
US$133
US$115
US$110
US$77
Repayment Schedule
Back-ended and annuity style repay-ment to be made in various semi-annual installments from 2001 up to 2012
Repayment to be made in various semi-annual installments from 2005 up to 2012
Repayment to be made in 24 equal semi-annual installments from 2003 up to 2014
Repayment to be made in 24 equal semi-annual installments from 2003 up to 2014
Back-ended repayment to be made in 15 unequal semi-annual installments from 2001 up to 2007
Repayment to be made in 27 equal semi-annual installments from 2003 up to 2016
Outstanding Balance
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FGPC has available undrawn committed borrowings amounting to US$32
from its KFW Facility as of December 31, 2004 and 2003, and US$50 from its
Revolving Credit/Working Capital Facility as of December 31, 2003, as to which
all conditions precedent had been met. The availability period of the Revolving
Credit/Working Capital Facility has ended on November 18, 2004.
Under certain project financing facility agreements, FGPC is required to pay to
certain foreign lenders a commitment fee ranging from 0.375% to 0.5% based on
the undrawn and uncancelled portion of the principal amount of the financing
facilities. In addition, a guarantee fee to a certain facility is also required to be paid
to the guarantors at the rate of 1.5% a year on the outstanding principal amount.
Such fees are payable semi-annually.
The common terms of the project financing facility agreements (Common Terms
Agreements) contain covenants concerning restrictions with respect to, among
others: maintenance of specified debt-to-equity ratio; acquisition or disposition of
major properties; pledging present and future properties; change in ownership; any
acts that would result in a material adverse effect on the operations of the power
plants; and maintenance of good, legal and valid title to the site free from all liens
and encumbrances other than permitted liens. As of December 31, 2004, FGP and
FGPC are in compliance with the terms of the said agreements.
FGP and FGPC have entered into separate agreements in connection with their
financing facilities as follows:
• Mortgage, Assignment and Pledge Agreements whereby a first priority lien on
most of FGP’s and FGPC’s real and other properties, including revenues from
the operations of the power plants, have been executed in favor of the lenders.
In addition, the shares of stock of FGP and FGPC were pledged as part of
security to the lenders.
• Inter-Creditor Agreements, which describe the administration of the loans.
• Shareholder Contribution Agreements, which cover additional equity
contribution to FGP and FGPC in order to meet the debt-to-equity ratio
requirement under the Common Terms Agreements.
• Trust and Retention Agreements with the lenders’ designated trustees.
Pursuant to the terms and conditions of the Trust and Retention Agreements,
the Security and Co-Security Trustees have established various security
accounts where inflows and outflows of proceeds from loans, equity
contributions and project revenues are monitored. Disposition of cash
deposits on these security accounts require the prior approval of the Inter-
Creditor agents acting on the instructions of the lenders.
The balance of FGP’s and FGPC’s security accounts included as part of “Cash and
cash equivalents” account in the consolidated balance sheets as of December 31,
2004 and 2003 amounted to P9,951 (US$180) and P10,167 (US$186), respectively,
while the balance included as part of “Other noncurrent assets” account in the
consolidated balance sheets as of December 31, 2004 and 2003, amounted to
P1,654 (US$29) and P1,617 (US$29), respectively.
FGP has an interest rate swap agreement with ABN AMRO Bank NV to hedge
half of its floating rate exposure on its ECGD Facility Agreement. Under the
interest rate swap agreement, FGP pays a fixed rate of 7.475% and receives a
floating rate of US LIBOR plus spread on a semi-annual basis simultaneous with
interest payments on the loan. The original term loan was priced against the
benchmark 3 to 6 month LIBOR plus 215 basis points. As of December 31, 2004
and 2003, the outstanding notional amounts of the interest rate swap agreement
amounted to US$47.9 and US$52.7, respectively. The mark-to-market value of the
outstanding interest rate swap, as confirmed by the counterparty bank, amounted
to an unrealized loss of P146.2 for 2004 and P205.9 for 2003. Such mark-to-
market losses are not included in determining the net income for the respective
years.
13. Capital Stock/Retained Earnings
a. Changes in the number of shares of the Parent Company’s capital stock are as
follows:
2004 2003
Redeemable preferred stock - P100 par value
Authorized 15,000,000 15,000,000
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2004 2003
Issued:
Balance at beginning of year P3,643,204 P4,076,872
Redemptions of shares – (433,668)
Balance at end of year 3,643,204 3,643,204
Common stock - P10 par value
Authorized 15,000,000 15,000,000
Issued 11,307,110 11,307,110
b. Redeemable preferred stock
All redeemable preferred stock are of equal rank, preference and priority and
shall be identical in all respects regardless of series, except as to terms, which
may be specified by the Parent Company’s BOD. The redeemable preferred
shares shall be non-cumulative, non-participating and shall have no voting
rights and are convertible to 10 common shares based on par value, at the
option of the stockholders and with the consent and approval of the BOD; or
solely at the option of the stockholders under certain conditions as provided
in the Shareholders’ Agreements. The redeemable preferred stocks shall be
redeemed at issue value in equal proportion among all series.
On December 9, 2004, the BOD of the Parent Company approved the following
resolutions: (a) to issue Philippine Peso Bonds up to the aggregate amount of
P3,000; (b) to authorize the Parent Company’s management to prepare/proceed
with the recapitalization of the Parent Company and start the process of planned
Initial Public Offering listing of the Parent Company with the Philippine Stock
Exchange, Inc. as well as with the SEC; and (c) to appropriate P1,000 from the
retained earnings for the acquisition of additional power generating assets and/or
equity.
On February 24, 2005, the stockholders of the Parent Company approved the
issuance and registration of Philippine Peso Bonds up to the aggregate amount of
P3,000.
On April 4, 2005, the BOD and the stockholders of the Parent Company approved
the amendments to the Parent Company’s Articles of Incorporation for the
restructuring of capital stock as follows: (a) common stock split from par value of
P10 per share to P1 per share; (b) reclassification of 10 million authorized preferred
redeemable shares with par value of P100 per share to 1 billion authorized
common shares with par value of P1 per share; and (c) declaration of 300% stock
dividends to existing common shareholders as of April 4, 2005 after the approval
by the SEC of items (a) and (b).
14. Executive Stock Option Plan
The Parent Company has an Executive Stock Option Plan (the Plan), which
entitles the option grantees to acquire the common shares of the Parent Company,
which shares shall not at any grant date exceed 4% of the total issued and
outstanding common shares of the Parent Company. A total of 452,285 common
shares of the Company’s unissued shares have been reserved for the grantees.
Options under the Plan vest within a five-year period but cannot be exercised prior
to the initial public offering of the Parent Company’s shares. If award is granted
prior to initial public offering, the purchase price is fixed in accordance with the
Plan, subject to adjustments in certain cases. If award is granted after initial
public offering of the Parent Company’s shares, the purchase price is fixed at the
option grant date at the average closing price of the Parent Company’s common
shares at the stock exchange for 20 market days prior to the grant, subject to
discount, but in no way shall the purchase price be less than par value. The terms
of the Plan include, among others, a one-year holding period from the date of
award of an option, a limit as to the number of shares an executive and employee
may purchase and settlement by payment in cash or check of the full amount of the
price of the shares over which the option is exercised.
On July 1, 2003, a total of 409,757 common shares were granted to certain officers
and employees under the Plan. As of December 31, 2004, options have started to
vest but have not been exercised. Exercise price of the option is set at P528.00 per
share.
15. Related Party Transactions
The significant transactions with related parties are as follows:
a. The advances from stockholders and affiliates represent noninterest-bearing
US dollar and Philippine peso-denominated emergency loans to meet working
capital and investment requirements of the Parent Company.
b. The Parent Company has a Management Contract (Contract) to render
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management services to BPPC under certain terms and conditions, in
consideration of the payment of management fee based on BPPC’s income
from operations after certain adjustments. The Contract is effective for a
period of five years until December 31, 2005. Management fees amounted to
P91 and P87 in 2004 and 2003, respectively.
16. Depreciation and Amortization
2004 2003
Property, plant and equipment P2,097 P2,170
Pipeline rights 26 23
P2,123 P2,193
17. Staff Costs
2004 2003
Salaries, wages and other benefits P310 P255
Retirement costs (see Note 18) 7 9
P317 P264
18. Retirement Costs
The First Gen Group, except for FGRI, has no formal retirement plan for its
regular employees. Based on the latest actuarial valuation dated December 31,
2002, the unfunded present value of retirement costs amounted to P36.8. The
principal actuarial assumptions used to determine retirement costs were investment
yield of 4% to 10% annually and salary increases of 8% to 14% annually. Actuarial
valuations are made at least every three years.
Retirement costs charged to operations amounted to P7 and P9 for the years ended
December 31, 2004 and 2003, respectively.
19. Income Tax
Deferred tax assets and liabilities that are expected to reverse beyond the income
tax holiday periods of FGP and FGPC are recognized.
The components of the deferred tax assets and liabilities as of December 31, 2004
and 2003 are as follows:
2003
(As restated -
2004 see Note 2)
Foreign exchange differentials:
Capitalized - net of accumulated depreciation (P2,619) (P2,498)
Unrealized 2,411 2,274
NOLCO 224 117
Unamortized portion of preoperating expenses
and project development costs 35 35
Capitalized costs and losses during commissioning
period of power plants (35) (35)
Accrual for retirement costs 7 5
MCIT 5 2
P28 (P100)
The above amounts are reported in the consolidated balance sheets as follows:
2003
(As restated -
2004 see Note 2)
Deferred tax assets P121 P8
Deferred tax liabilities (93) (108)
P28 (P100)
The deductible temporary differences of certain balance sheet items and the
carryforward benefits of NOLCO and MCIT of certain subsidiaries for which no
deferred tax asset has been recognized consist of the following:
2003
(As restated -
2004 see Note 2)
NOLCO P404 P368
Unamortized portion of preoperating
expenses and project development costs 36 43
Allowance for possible losses on
input value added tax 13 9
Accrual for retirement costs 9 7
MCIT 5 5
Others 2 1
P469 P433
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NOLCO amounting to P32 incurred in 2001 was applied against taxable income
in 2004. NOLCO amounting to P61 incurred in 2001 expired in 2004. MCIT
amounting to P1 incurred in 2001 expired in 2004.
The balance of NOLCO as of December 31, 2004 may be used by the Parent
Company and certain subsidiaries as additional deductions against their respective
future taxable income. Similarly, the MCIT balance as of December 31, 2004 may
be applied as credit against future income tax liabilities of the respective Parent
Company and certain subsidiaries. The balances of NOLCO and MCIT, with their
respective expiry dates, are as follows:
Year Incurred Expiry date NOLCO MCIT
2002 2005 P237 P3
2003 2006 404 3
2004 2007 463 4
P1,104 P10
A reconciliation between the statutory income tax rate and effective income tax
rates follows:
2003
(As restated -
2004 see Note 2)
Statutory income tax rate 32.00% 32.00%
Income tax effect of:
Income tax holiday incentives (30.71) (30.81)
Equity in net earnings of an associate (1.51) (1.53)
Gain on sale of a subsidiary – (1.21)
Others (1.33) 1.24
Effective income tax rates (1.55%) (0.31%)
20. 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 base equity of at least 25%.
As registered enterprises, these subsidiaries are entitled to certain tax and nontax
incentives which include, among others, income tax holiday. Total incentives
availed of by these subsidiaries amounted to P2,435 and P2,592 for the years ended
December 31, 2004 and 2003, respectively.
21. Commitments and Contingencies
a. Power Purchase Agreements (PPAs)
FGP and FGPC have existing PPAs with Meralco, the largest power
distribution company in the Philippines and the sole customer of both
subsidiaries. Under the PPAs, Meralco will purchase in each contract year
from the start of commercial operations, a minimum number of kilowatt-
hours of the net electrical output of FGP and FGPC for a period of 25 years.
Billings to Meralco under the PPAs are substantially in US dollars and a small
portion billed in Philippine pesos.
On November 15, 2002, the Supreme Court (SC) rendered a decision ordering
Meralco to refund to its customers P0.167 per kilowatt-hour starting with
Meralco’s billing cycles beginning February 1994 until February 1998 or
correspondingly credit the same against future consumption. Meralco filed
a Motion for Reconsideration but the SC denied it with finality on April 30,
2003.
On January 7, 2004, Meralco, FGP and FGPC signed the Amendment to
their respective PPAs. The negotiations resulted in a package of concessions
including FGP and FGPC shouldering community taxes at current tax
rate, while conditional concessions include increasing discounts on excess
generation, paying higher penalties for non-performance up to a capped
amount, recovery of accumulated deemed delivered energy until 2011
resulting in non-charging of Meralco of excess generation charge for such
energy delivered beyond the contracted amount but within a 90% capacity
quota. The effectivity of the amended terms of the respective PPAs of FGP
and FGPC is subject to certain conditions, including Energy Regulations
Commission (ERC) approval.
BPPC has an existing Fast Track Build, Operate and Transfer Project
Agreement (Project Agreement) with NPC. Under the Project Agreement,
NPC supplies all fuel inventory to generate electricity, with all electricity
generated purchased by NPC, BPPC is entitled to payment of fixed capacity
and operations and maintenance fees based on the nominated capacity as
well as energy fees from the delivery of electric power to NPC. The Project
Agreement will be for a period of 15 years up to 2010. Upon expiration
of the 15-year period, BPPC shall transfer to NPC all its rights, titles and
interests in the power plant complex, free of liens created by BPPC and
without any compensation.
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b. Engineering, Procurement and Construction (EPC) Contracts
FGPC entered into a Turnkey EPC Contract with Siemens AG, Siemens
Power Generation, and Siemens, Inc. (collectively, “Siemens”) for the
construction of the 1,000 Megawatt (MW) Combined Cycle Power Plant (the
“Power Plant” or “Project”).
A dispute has arisen with Siemens relating to Siemens’ construction of
FGPC’s Power Plant, pursuant to the EPC Contract. Siemens and its
subcontractors incurred delays in project completion, resulting in amounts
of approximately US$99 owing from Siemens to FGPC under the EPC
Contract. Pursuant to the EPC Contract, FGPC withheld approximately
US$96 (P5,408) of its milestone payments, inclusive of variation orders, to
Siemens.
In December 2002, Siemens submitted a Request for Arbitration to the
International Chamber of Commerce in London against FGPC arising
out of alleged delays to the construction of the Project. In the Request for
Arbitration, Siemens claims payment for certain milestones achieved in the
Project, which FGPC has withheld in lieu of liquidated damages amounting
to approximately US$96. Also, Siemens claims an additional sum in the
amount of US$64 for prolongation costs and miscellaneous matters, which
are yet to be quantified by Siemens.
FGPC has counterclaimed in the arbitration in relation to the alleged defects
in the works in the sum of approximately US$215. Both Siemens and FGPC
claim interest from each other and the legal costs involved in pursuing claims
and counterclaims. The Tribunal will consider Siemens’ claims and the
liquidated damages issues at a hearing in March/April 2005. The hearing of
FGPC’s counterclaims will be heard in September 2005.
FGPC plans to contest vigorously all of Siemens’ claims, among other things.
c. Gas Sale and Purchase Agreements (GSPAs)
GSPA of FGP
FGP has a GSPA with Shell Philippine Exploration B.V., Shell Philippines
LLC, Chevron Texaco Malampaya, LLC and PNOC Exploration
Corporation (collectively, “Gas Sellers”), for the supply of natural gas in
connection with the operations of the power plant. The GSPA, now on its
third Contract Year, is for a total period of approximately 22 years.
Total cost of natural gas purchased amounted to US$106 (P5,958) and
US$114 (P6,238) for the years ended December 31, 2004 and 2003,
respectively.
The Gas Sellers are claiming Annual Deficiency payments amounting to
approximately US$55 (P3,100) as of December 31, 2004 and US$20 (P1,095)
as of December 31, 2003 for unconsumed gas volumes below the Take-or-
Pay Quantity under the GSPA (referred to as “Annual Deficiencies”) from
Contract Years 2003 to 2004. Such Annual Deficiencies can be consumed
within a period of 10 years in the order that it arose.
The GSPA obligates FGP to pay certain fees to Gas Sellers for failure to
commence commercial operations of the plant at the Start Date (July 2, 2002)
amounting to US$10 (P509), shown as prepaid gas, net of adjustment (see
Note 10).
A dispute has arisen with Gas Sellers under the GSPA relating to FGP’s
position that Gas Sellers have breached the terms of the “Most Favored
Nations Clause” contained in the GSPA by failing to notify and offer certain
pricing terms and conditions that Gas Sellers have previously offered to
National Power Corporation (NPC) in connection with NPC’s 1,200 MW
Ilijan power plant. Gas Sellers offered a deferred payment facility to NPC
to finance payment for NPC’s take-or-pay obligations under its GSPA with
the Gas Sellers for the Ilijan power plant. Gas Sellers have not offered the
complete Ilijan Price Terms to FGP including a deferred payment facility.
FGP is also claiming force majeure relief from the Annual Deficiency
payments being claimed by the Gas Sellers for its inability to consume natural
gas at the Base Take-or-Pay quantity level.
With respect to 2002, FGP is of the view that it has fully complied with its
obligations under the GSPA and is, therefore, not liable to Gas Sellers for any
take-or-pay obligations in connection with Gas Sellers’ invoice amounting
to approximately US$13. In any case, had the Gas Sellers provided FGP a
deferred payment facility, whatever Annual Deficiency payments deemed
owed by FGP to the Gas Sellers would be deferrable under such deferred
payment facility. Consequently, the Annual Deficiency payments claimed by
the Gas Sellers are the subject of a bona fide dispute between FGP and Gas
Sellers.
If the dispute is resolved in the Gas Sellers’ favor, the amount deemed owed
by FGP shall be paid in accordance with the procedures set forth in the
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GSPA. Under the PPA between FGP and Meralco, all fuel-related costs,
including Annual Deficiency payments, are borne by Meralco and are billed
on a pass-through basis.
The Gas Sellers have also invoiced FGP for interest in connection with the
disputed Annual Deficiency payments of approximately US$2 in 2004 and
US$1 in 2003. Given that FGP is disputing the amounts being claimed by
the Gas Sellers, it believes that any interest, if FGP is found to actually owe
any Annual Deficiency payments, should be computed using a lower rate as
stipulated in the GSPA. Given the Company’s position that it is not liable for
any take-or-pay obligations in connection with Gas Sellers’ invoice for 2002
of approximately US$13, the Company is of the position that it is not liable
for any interest payments on the said amount. However, if the Company
is deemed to owe the US$20 amount claimed by the Gas Sellers pertaining
to the 2003 disputed gas take-or-pay obligation, the interest at the lower
rate for bona fide dispute would amount to approximately US$1 (P26) as of
December 31, 2004. Under the terms of the GSPA, such interest is not due
for payment until such time that the dispute is resolved.
FGP and the Gas Sellers are presently negotiating a commercial settlement
of the GSPA dispute and are targeting to finish the negotiations within 2005.
Should the settlement discussions fail, FGP will continue to vigorously pursue
its dispute with the Gas Sellers under the GSPA. Management, based on the
advice of its legal counsel, as arbitration proceedings have not commenced,
does not expect the resolution through arbitration of said disputes to happen
within the next 12 months.
GSPA of FGPC
FGPC also has a GSPA with Gas Sellers, for the supply of natural gas in
connection with the operations of the power plant. The GSPA, now in its
fourth Contract Year, is for a total period of approximately 22 years.
Total cost of natural gas purchased amounted to US$236 (P13,238) and
US$223 (P12,223) for the years ended December 31, 2004 and 2003,
respectively.
The Gas Sellers are claiming Annual Deficiency payments amounting to
approximately US$163 (P9,207) as of December 31, 2004 and US$116
(P6,462) as of December 31, 2003 for unconsumed gas volumes below the
Take-or-Pay Quantity under the GSPA (referred to as “Annual Deficiencies”)
from Contract Years 2002 to 2004. Such Annual Deficiencies can be
consumed within a period of 10 years in the order that they arose.
A dispute has arisen with Gas Sellers under the GSPA relating to FGPC’s
position that Gas Sellers have breached the terms of the “Most Favored
Nations Clause” contained in the GSPA by failing to notify and offer certain
pricing terms and conditions that Gas Sellers have previously offered to NPC
in connection with NPC’s 1,200 MW Ilijan power plant. Gas Sellers offered
a deferred payment facility to NPC to finance payment for NPC’s take-or-
pay obligations under its GSPA with the Gas Sellers for the Ilijan power
plant. FGPC is of the position that the Gas Sellers are obligated to offer the
complete Ilijan Price Terms, which include a deferred payment facility, to
FGPC pursuant to the provisions of the “Most Favored Nations Clause.”
FGPC is also claiming force majeure relief from the Annual Deficiency
payments being claimed by the Gas Sellers for its inability to consume natural
gas at the Base Take-or-Pay quantity level. Had the Gas Sellers provided
FGPC a deferred payment facility, whatever Annual Deficiency payments
deemed owed by FGPC to the Gas Sellers would be deferrable under such
deferred payment facility. Consequently, the Annual Deficiency payments
claimed by the Gas Sellers are the subjects of a bona fide dispute between
FGPC and Gas Sellers.
If the dispute is resolved in the Gas Sellers’ favor, the amount deemed owed
by FGPC shall be paid in accordance with the procedures set forth in the
GSPA. Under the PPA between FGPC and Meralco, all fuel-related costs,
including Annual Deficiency payments, are borne by Meralco and are billed
on a pass-through basis.
The Gas Sellers have invoiced FGPC for interest in connection with the
disputed Annual Deficiency payments of approximately US$10 as of
December 31, 2004. Given that FGPC is disputing the amounts being
claimed by the Gas Sellers, it believes that any interest, if FGPC is found to
actually owe any Annual Deficiency payments, should be computed using
a lower rate as stipulated in the GSPA. If FGPC is deemed to owe the full
$163 amount claimed by the Gas Sellers, the interest at the lower rate for bona
fide disputes would amount to approximately US$4 (P234) as of December
31, 2004 and US$1(P74) as of December 31, 2003. Under the terms of the
GSPA, such interest is not due for payment until such time that the dispute is
resolved.
FGPC and the Gas Sellers are presently negotiating a commercial settlement
of the GSPA dispute and are targeting to finish the negotiations within 2005.
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Should the settlement discussions fail, FGPC will continue to vigorously
pursue its dispute with the Gas Sellers under the GSPA. Management,
based on the advice of its legal counsel, as arbitration proceedings have
not commenced, does not expect the resolution through arbitration of said
disputes to happen within the next 12 months.
The disputed amounts, including accrued interest, are presented as “Other
noncurrent liabilities” account in the consolidated balance sheets and the
corresponding receivables from Meralco, including accrued interest, are
presented as part of “Other noncurrent assets” account in the consolidated
balance sheets. The details of disputed amounts, including accrued interest,
are as follows:
2004 2003
Peso Peso
US Dollar Equivalent US Dollar Equivalent
FGP
Annual deficiency 55 3,100 20 1,095
Interest 1 26 – –
56 3,126 20 1,095
FGPC
Annual deficiency 163 9,207 116 6,462
Interest 4 234 1 74
167 9,441 117 6,536
Total
Annual deficiency 218 12,307 136 7,557
Interest 5 260 1 74
223 12,567 137 7,631
d. Lubricating Oil Supply Agreement
BPPC entered into a supply contract with Shell, whereby the latter will supply
lubricating oil for a period of 15 years until 2010 at the agreed price indicated
in the contract. The price is subject to adjustments twice a year based on
various conditions, such as changes in the cost or rates of the product, among
others.
e. Operation and Maintenance (O & M) Agreements
FGP and FGPC have separate O & M Agreements with Siemens Power
Operations, Inc. mainly for the operation, maintenance, management
and repair services of their respective power plants. Based on the current
operating regime, it is estimated that the O & M Agreements will expire in
2010. Total operations and maintenance costs amounted to US$46 (P2,592)
and US$45 (P2,437) for the years ended December 31, 2004 and 2003,
respectively.
f. Substation Interconnection Agreement
FGPC has an agreement with Meralco and NPC for: (a) the construction of
substation upgrade at the NPC substation in Calaca and the donation of such
substation upgrade to NPC; (b) the construction of a dedicated 35-kilometer
transmission line from the power plant to the NPC substation in Calaca and
donation of such transmission line to NPC; (c) the interconnection of the
power plant to the NPC Grid System; and (d) the receipt and delivery of
energy and capacity from the power plant to Meralco’s point of receipt.
As of December 31, 2004, FGPC is still in the process of transferring the
substation upgrade in Calaca, as well as the 230 KV Santa Rita to Calaca
transmission line, to NPC.
On June 25, 2003, FGPC received various Notices of Assessment and
Tax Bills dated April 15 and 21, 2003 from the Provincial Government
of Batangas, through the Office of the Provincial Assessor, imposing an
annual real property tax (RPT) on steel towers, cable/transmission lines and
accessories (the “T-Line”) amounting to P11. FGPC, claiming exemption
from said RPT, has appealed the assessment to the Provincial Local Board
of Assessment Appeals (LBAA) and filed a Petition on August 13, 2003,
praying for the following: (1) that the Notices of Assessment and Tax Bills
issued by Provincial Assessor be recalled and revoked, and (2) that the Office
of the Provincial Assessor of Batangas City drop from the Assessment Roll
the 230 KV transmission lines from Sta. Rita to Calaca in accordance with
Section 206 of the Local Government Code (LGC). FGPC argued that the
T-Line does not constitute real property subject to tax, and assuming that
the T-Line is regarded as real property, FGPC is still not liable for RPT as it
is NPC/ Transco, a government owned and controlled corporation (GOCC)
engaged in the generation and/or transmission of electric power, which has
actual, direct and exclusive use of the T-Line. Pursuant to Section 234 (c) of
the LGC, a GOCC engaged in the generation and/or transmission of electric
power which has actual, direct and exclusive use thereof, is exempt from RPT.
The case is now pending before the LBAA.
g. Interim Interconnection Agreement
FGP has an agreement with NPC and Meralco whereby NPC will be
responsible for the delivery and transmission of all energy and capacity from
FGP’s power plant to Meralco’s point of receipt.
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h. Land Titling Cases
As of December 31, 2004, there are a number of land titling cases filed by
FGP and FGPC. Management believes the resolution of these cases will not
materially affect the consolidated financial statements.
i. Contingencies
FGPC
FGPC was assessed by the Bureau of Internal Revenue (BIR) on July 19,
2004 for deficiency income tax for taxable years 2001 and 2000. FGPC filed
its Protest Letter to the BIR on October 5, 2004. Management believes that
the resolution of this assessment will not materially affect First Gen Group’s
consolidated financial statements.
FGHC
FGHC has a pending claim for refund and protest of a local tax assessment
as of December 31, 2004. Thereafter, FGHC initiated the appropriate
legal action, challenging the validity of the assessment. Management,
in consultation with its legal counsel, believes that these matters will be
resolved in FGHC’s favor. Accordingly, no provision has been set up in the
consolidated financial statements.
BPPC
There are on-going cases involving NPC’s petition for declaration of BPPC’s
machinery and equipment as exempt from real property tax and a case filed
by BPPC against the local government of La Union in order to prevent the
latter from levying on BPPC’s machinery and equipment in connection with
a real property tax assessment made thereon from 1995 to 1999. Based on
the revised assessment issued by the Municipal Assessor of the Municipality
of Bauang, La Union on July 15, 2003, the maximum tax liability for the
period 1995 to 2003 is about P775, 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) has
reached a total amount of P489. The Project Agreement between the BPPC
and NPC specifically provides that NPC shall be responsible for the payment
of all real estate taxes and assessments in respect of the site and machinery
and equipment of the power plant complex.
An assessment for unpaid franchise taxes, including surcharges and penalties,
for period 2000 to 2003 from the local government of La Union was also
made to BPPC amounting to P32. BPPC has contested the assessment on the
ground that BPPC is not a public utility which is required by law to obtain
a legislative franchise before operating and is subject to franchise taxes. On
the other hand, BPPC believes that the Project Agreement with NPC allows
BPPC to claim from NPC any new imposition, including taxes, incurred
by BPPC not originally contemplated when it entered into the Project
Agreement.
j. Lease Commitments
The First Gen Group has a non-cancelable lease agreement with INAEC
Development Corporation (INAEC) on its occupied office space. The term
of the lease is for a period of five (5) years retroactive to August 1, 2003
or upon occupancy of the leased premises, whichever is earlier, and shall
automatically expire on July 31, 2007. The lease agreement includes a clause
to enable upward revision of the rental charges at a rate agreed-upon by the
Company and INAEC at the end of each year.
FGPC has a non-cancelable annual offshore lease agreement with the
Department of Environment and Natural Resources (DENR) for the lease
of a parcel of land in Sta. Rita, Batangas where the power plant complex is
located. The term of the lease is for a period of 25 years starting May 26,
1999 for a yearly rental of P3 and renewable for another 25 years at the end
of the term. The land will be appraised every 10 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 that such annual
rental cannot be less than P3.
Future minimum rental payments under the non-cancelable operating leases
with INAEC and the DENR are as follows:
Amount
Within one year P18
After one year but not more than five years 36
After five years 38
P92
22. Foreign Currency-Denominated Monetary Items
The First Gen Group’s net foreign currency-denominated monetary liabilities
amounted to US$586 as of December 31, 2004 with peso equivalent of P33,009
computed using the exchange rate of P56.341 to US$1.00; and US$660 as of
December 31, 2003 with peso equivalent of P36,711 computed using the exchange
rate of P55.586 to US$1.00.
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23. Other Matters
a. Electric Power Industry Reform Act (EPIRA)
Republic Act No. 9136, otherwise known as the EPIRA, and the covering
Implementing Rules and Regulations (IRR) provides for significant changes
in the power sector, which include among others: the unbundling of the
generation, transmission, distribution, and supply and other disposable assets
of a company, including its contracts with independent power producers and
electricity rates; creation of a Wholesale Electricity Spot Market (WESM);
and open and nondiscriminatory access to transmission and distribution
systems.
EPIRA requires public listing of not less than 15% of common shares of
generation and distribution companies within five years from the effectivity
of the EPIRA. However, generation and distribution companies whose
respective holding companies are already listed in the Philippine Stock
Exchange are deemed in compliance. Pursuant to EPIRA’s objective of
lowering electricity rates to end-users, sales of generated power by generation
companies have been classified as value added tax zero-rated.
EPIRA also provides several restrictions on the generation sector: (i) absolute
cross-ownership restriction between generation and transmission companies;
(ii) cap on the concentration of ownership to 30% of a grid’s installed
generating capacity and/or 25% of the national installed generating capacity;
and (iii) cap amounting to 50% of total demand of a distribution utility on its
purchases from associated generation companies, except for contracts entered
into prior to the effectivity of the EPIRA.
Pursuant to the EPIRA’s mandate and that of its IRRs, FGP, FGPC nd BPPC
have filed its application for the issuance of a Certificate of Compliance
(COC) for the operation of its power plant. On June 4, 2003 and November
5, 2003, ERC issued the COC of BPPC and FGPC, respectively, which is
required for all generation companies under the EPIRA. FGPC and BPPC’s
COCs will be effective for a period of 5 years subject to further renewal. FGP
does not expect any adverse action on its applications as under the IRR of the
EPIRA, an applicant operating an existing generation facility shall be issued a
COC by the ERC upon making a complete submission of the requirements.
Based on FGP, FGPC and BPPC’s assessments, they are in the process of
complying with the provisions of the EPIRA and its IRR.
b. Clean Air Act
On November 25, 2000, the IRR of the Clean Air Act took effect. The IRR
contain provisions that have an impact on the industry as a whole, and on
the Parent Company’s subsidiaries and investee in particular, 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 and have emissions that are way below the limits set in the
National Emission Standards for Sources Specific Air Pollution and Ambient
Air Quality Standards. Based on FGP and FGPC’s initial assessments of
their power plants’ existing facilities, they believe that they comply with the
applicable provisions of the IRR of the Clean Air Act. On the other hand,
BPPC believes that the Project Agreement specifically provides that it is not
contractually obligated to bear the financial cost of complying with the new
law. The Department of Energy, NPC and DENR are still negotiating the
terms of compliance to the Clean Air Act of all NPC IPPs.
c. Reclassification of Accounts
The following accounts in the December 31, 2003 consolidated financial
statements have been reclassified to conform with the 2004 consolidated
financial statements presentation:
Nature
Reclassification of input value added taxes
from current assets to noncurrent assets P2,094
Reclassification of restricted cash deposits
from current assets to noncurrent assets 1,617
As mentioned in Note 23a, the sale of generated power is subject to zero-
rated value added tax under the EPIRA. The balance of input value added
taxes will be converted to tax credits through a tax refund process which
management estimates to be over one year. Accordingly, the “Input value
added taxes” account, which was previously classified as part of current
assets, has been reclassified as part of noncurrent assets in 2004 and 2003.
The expected release of the restricted cash deposits depends on the resolution
of the land titling cases filed by FGP and FGPC (see Note 21h) which
management estimates to be over one year. Accordingly, the restricted cash
deposits, which were previously classified as part of “Other current assets”
account, have been reclassified as part of “Other noncurrent assets” account
in 2004 and 2003.
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d. Newly Acquired/Incorporated Subsidiaries
AlliedGen Power Corp. (APC)/First Natgas Power Corporation (FNPC)
On January 31, 2005, the BOD of the Parent Company approved a resolution
to establish, formally organize and to register with the SEC a wholly owned
subsidiary to be known as AlliedGen Power Corp. (APC). APC, a holding
company for a planned project, will have an authorized capital stock of
P100. Of the total authorized capital stock, P25 will be allocated out of the
Company’s funds for the subscription of shares in APC.
On February 14, 2005, and March 10, 2005, APC and FNPC, the operating
company for the planned project of APC, was incorporated in the Philippines.
FG Bukidnon Power Corporation (FG Bukidnon)
The Parent Company participated and won the bid for the 1.6 megawatt
Agusan Mini-hydro Power Plant (Agusan) conducted by the Power Sector
Assets and Liabilities Management Corporation (PSALM) on June 4, 2004
in connection with the privatization of NPC’s assets. On July 5, 2004, the
Parent Company entered into an Asset Purchase Agreement (APA) with
PSALM for the purchase of Agusan for a total consideration of US$1.5. On
March 29, 2005, all the closing conditions for the execution of the APA were
satisfied and the purchase was effected.
FG Bukidnon, a company incorporated by FGRI on February 9, 2005, will
take over the operations and maintenance of Agusan in 2005.
Corporate Directory
FIRST GEN CORPORATION
3rd Floor, Benpres Building
Exchange Road cor. Meralco Avenue, Pasig City
Philippines 1600
Trunkline No. (632) 449-6400
Fax No. (632) 910-4846
FIRST GAS POWER CORP.
Corporate Office
3rd Floor Benpres Building
Exchange Road cor. Meralco Avenue, Pasig City
Philippines 1600
Tel. No. (632) 449-6286
Fax No. (632) 635-2322
Plant Site
Sta. Rita, Batangas City
Batangas, Philippines 4200
Tel. No. (6343) 723-9138
Fax No. (6343) 723-9048
FGP CORP.
3rd Floor Benpres Building
Exchange Road cor. Meralco Avenue, Pasig City
Philippines 1600
Tel. No. (632) 449-6286
Fax No. (632) 910-0253
Plant Site
Corporate Office
Sta. Rita, Batangas City
Batangas, Philippines 4200
Tel. No. (6343) 723-9142
Fax No. (6343) 723-9048
FIRST PRIVATE POWER CORP.
3rd Floor Benpres Building
Exchange Road cor. Meralco Avenue, Pasig City,
Philippines 1600
Tel. No. (632) 449-6400
Fax No. (632) 637-1969
BAUANG PRIVATE POWER CORP.
Corporate Office
3rd Floor Benpres Building
Exchange Road cor. Meralco Avenue, Pasig City
Philippines 1600
Tel. No. (632) 449-6403
Fax No. (632) 637-1969
Plant Site
Km. 255, Ba. Payocpoc Sur
Bauang, La Union
Philippines
Tel. No. (079) 705-2077
Fax No. (632) 637-1967
FIRST GEN RENEWABLES, INC.
3rd Floor, Benpres Building
Exchange Road cor. Meralco Avenue, Pasig City
Philippines 1600
Tel. No. (632) 631-6458
Fax No. (632) 631-3103
Independent Public Accountants
SYCIP, GORRES, VELAYO & CO.
SGV Building
6760 Ayala Avenue
Makati City, Philippines 1226
Tel. No. (632) 891-0307
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