definitive information statement
TRANSCRIPT
Energy Development Corporation38th Floor, One Corporate Centre Building, Julia Vargas corner Meralco AvenueOrtigas Center, Pasig 1605, PhilippinesTrunklines: +63 (2) 667-7332 (PLDT) / +63 (2) 755-2332 (Globe)
April 4, 2014
JANET A. ENCARNACIONHEAD, Disclosures DepartmentThe Philippine Stock Exchange, Inc.Philippine Stock Exchange PlazaAyala Triangle, Ayala Avenue, Makati City
Dear Ms. Encarnacion:
In compliance with the Philippine Stock Exchange disclosure requirement, we submit the attached Notice of May 6, 2014 Annual Stockholders’ Meeting and SEC Form 20-IS (Definitive Information Statement).
COVER SHEET
6 6 3 8 1 SEC Registration Number
E N E R G Y D E V E L O P M E N T C O R P O R A T I O N
(Company’s Full Name)
3 8 T H F l o o r , O n e C o r p o r a t e
C e n t r e J u l i a V a r g a s c o r n e r
M e r a l c o A v e . O r t i g a s C e n t e r
P a s i g C i t y
(Business Address: No., Street City / Town / Province)
Atty. Ana Maria A. Katigbak 817-6791 Contact Person Company Telephone Number
Definitive Information Statement
Month Day FORM TYPE Month Day Fiscal Year Annual Meeting
Secondary License Type, If Applicable
Dept Requiring this Doc Amended Articles Number / Section
Total Amount of Borrowings
Total No. of Stockholders Domestic Foreign
To be accomplished by SEC Personnel concerned
File Number LCU
Document ID Cashier
S T A M P S
Remarks: Please use BLACK ink for scanning purposes
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 20
INFORMATION STATEMENT PURSUANT TO SECTION 20
OF THE SECURITIES REGULATION CODE
1. Check the appropriate box:
[ ] Preliminary Information Statement
[ X ] Definitive Information Statement
Name of Registrant as specified in its charter: ENERGY DEVELOPMENT CORP.
3. PHILIPPINES
Province, country or other jurisdiction of incorporation or organization
4. SEC Identification Number 66381
5. BIR Tax Identification Code 000-169-125-000
6. 38th Floor, One Corporate Centre
Julia Vargas cor. Meralco Avenue, Pasig City, Philippines 1605
Address of principal office Postal Code
7. Registrant‟s telephone number, including area code (632) 755-2332
8. May 6, 2014, 10:00 a.m., The Rockwell Tent
Rockwell Drive cor. Estrella Street, Rockwell Center, Makati City, Philippines
Date, time and place of the meeting of security holders
9. Approximate date on which the Information Statement is first to be sent or given to security holders
April 10, 2014
10. In case of Proxy Solicitations:
Name of Person Filing the
Statement/Solicitor: ENERGY DEVELOPMENT CORP.
Address and Telephone No.: 38th
Floor, One Corporate Centre
Julia Vargas cor. Meralco Avenue
Ortigas Center, Pasig City 1605
Metro Manila, Philippines
Tel. (632) 6677-332; (632) 7552-332
Attn: Mr. Erudito Recio (Investor Relations)
11. Securities registered pursuant to Sections 8 and 12 of the Securities Regulations Code or Sections 4
and 8 of the RSA (information on number of shares and amount of debt is applicable only to
corporate registrants):
a) Authorized Capital Stock
Common shares, P1.00 par value 18,750,000,000 shares
Preferred shares, 0.01 par value 9,375,000,000 shares
- 2 -
b) Issued and Outstanding Shares
Common shares, P1.00 par value 18,750,000,000 shares (exempt securities) as of
December 31, 2013 Preferred shares, 0.01 par value 9,375,000,000 shares (exempt securities)
c) Amount of Debt Outstanding as of December 31, 2013
Php58,548,760,335
12. Are any or all of registrant's securities listed on a Stock Exchange?
Yes No _______
If yes, disclose the name of such Stock Exchange and the class of securities listed therein:
PHILIPPINE STOCK EXCHANGE - COMMON SHARES
ENERGY DEVELOPMENT CORPORATION
ANNUAL STOCKKHOLDERS’ MEETING May 6, 2014
P R O X Y F O R M
This proxy is being solicited on behalf of the Board of Directors and Management of ENERGY DEVELOPMENT CORPORATION, (the “Company”) for voting at the annual stockholders’ meeting to be held on May 6, 2014 at 10:00 a.m. at the Rockwell Tent, Rockwell Drive corner Estrella St., Rockwell Center, Makati City,
Philippines.
I, the undersigned stockholder of the Company, do hereby appoint, name and constitute either of the Company’s Chairman, FEDERICO R. LOPEZ, or President and Chief Operating Officer, RICHARD B. TANTOCO,
or
______________________________________________,
as my attorney-in-fact and proxy, to represent me at the Annual Stockholders’ Meeting of the Company to be held on May 6, 2014 at 10:00 a.m. and any adjournment(s) thereof, as fully and to all intents and purposes as I might or could if present and voting in person, hereby ratifying and confirming any and all actions taken on matters which may properly come before such meeting or adjournment(s) thereof. In particular, I hereby direct my said proxy to vote on the agenda items set forth below as I have expressly indicated by marking the same with an “X”.
AGENDA ITEMS
ACTION
Item 1. Call to Order
No action necessary.
Item 2. Proof of Notice and Certification of Quorum
No action necessary.
FOR
AGAINST
ABSTAIN
Item 3. Approval of the Minutes of the Previous Stockholders’ Meeting
Item 4. Approval of the Management Report and Audited Financial Statements for the year ended December 31, 2013
Item 5. Confirmation and ratification of all acts and resolutions of Management and the Board of Directors from the date of the last stockholders’ meeting to date as reflected in the books and records of the Company
Item 6(i). Approval of amendment of the Articles of
P R O X Y FORM
ENERGY DEVELOPMENT CORPORATION ANNUAL STOCKHOLDERS MEETING
MAY 6, 2014
2
Incorporation to reclassify Three Billion (3,000,000,000) authorized and unissued Common Shares with a par value of One Peso (Php 1.00) per share, into Three Hundred Million (300,000,000) Non-Voting Preferred Shares with a par value of Ten Pesos (Php 10.00) per share
Item 6(ii). Approval of amendment of the Articles of
Incorporation to limit the preemptive right for certain share issuances/reissuances
Item 7. Election of Directors For Regular Director:
Oscar M. Lopez
Federico R. Lopez
Richard B. Tantoco
Peter D. Garrucho, Jr.
Elpidio L. Ibanez
Ernesto B. Pantangco
Francis Giles B. Puno
Jonathan C. Russell
For Independent Director:
Edgar O. Chua
Francisco Ed. Lim
Arturo T. Valdez
Item 8. Approval of appointment of SGV & Co. as the Company’s external auditor
Item 9. Other Matters
According to Proxy’s Discretion
Item 10. Adjournment
IN CASE A PROXY FORM IS SIGNED AND RETURNED IN BLANK
P R O X Y FORM
ENERGY DEVELOPMENT CORPORATION ANNUAL STOCKHOLDERS MEETING
MAY 6, 2014
3
If no instructions are indicated on a returned and duly signed proxy, the shares represented by the proxy will be voted: FOR the approval of the minutes of previous meeting of the stockholders; FOR the approval of the Management Report and audited financial statements for year ended December 31, 2013; FOR the confirmation and ratification of all acts and resolutions of Management and the Board of Directors from the date of the last stockholders’ meeting to date as reflected in the books and records of the Company; FOR the approval of the amendment of the Articles of Incorporation to reclassify Three Billion (3,000,000,000) authorized and unissued Common Shares with a par value of One Peso (Php 1.00) per share, into Three Hundred Million (300,000,000) Non-Voting Preferred Shares with a par value of Ten Pesos (Php 10.00) per share; FOR the approval of the amendment of the Articles of Incorporation to limit the preemptive right for certain share issuances/reissuances FOR the election of the following directors: Oscar M. Lopez, Federico R. Lopez, Richard B. Tantoco, Peter D. Garrucho, Jr., Elpidio L. Ibanez, Ernesto B. Pantangco, Francis Giles B. Puno, Jonathan C. Russell, Edgar O. Chua (Indep. Director), Francisco Ed. Lim (Indep. Director) and Arturo T. Valdes (Indep. Director) FOR the approval of the appointment of SGV & Co. as the Company’s external auditor; and to authorize the Proxy to vote according to discretion of the Company’s President or Chairman of the Meeting on any matter that may be discussed under “Other Matters”. A Proxy Form that is returned without a signature shall not be valid. INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON No member of the Board of Directors or executive officer since the beginning of the last fiscal year, or nominee for
election as director, or their associates, has had any substantial interest, direct or indirect, by security holdings or otherwise, in any of the matters to be acted upon in the meeting, other than election to office. VALIDATION OF PROXIES Proxy forms shall be validated as these are received by the Corporate Secretary until April 30, 2014 at the office of the Company’s stock transfer agent. The proxy forms shall be submitted to the Company on or before 6:00 p.m. of April 26, 2014.
REVOCATION OF PROXIES A stockholder giving a proxy has the power to revoke it any time before the right granted is exercised. A proxy is also considered revoked if the stockholder attends the meeting in person and expresses his intention to vote in person. Signed this ___________________ 2014 at ______________________________. (DATE) (PLACE)
________________________ _____ ____________________________ Printed Name of Stockholder Signature of Stockholder or Authorized Signatory [*N.B.: Partnership, Corporations and Associations must attach certified resolutions or extracts thereof designating Proxy/Representing and authorized signatories]
PLEASE DATE AND SIGN YOUR PROXY
P R O X Y FORM
ENERGY DEVELOPMENT CORPORATION ANNUAL STOCKHOLDERS MEETING
MAY 6, 2014
4
PLEASE MARK, SIGN AND RETURN YOUR PROXY BY HAND OR MAIL (IN TIME FOR IT TO REACH THE COMPANY) ON OR BEFORE 6:00 P.M. of April 26, 2014 TO THE FOLLOWING ADDRESS:
ENERGY DEVELOPMENT CORP. 38th Floor, One Corporate Centre Julia Vargas cor. Meralco Avenue Ortigas Center, Pasig City Attention: The Corporate Secretary
c/o Mr. Erudito S. Recio Senior Manager, Investment Relations
3
ENERGY DEVELOPMENT CORPORATION
Annual Stockholders‟ Meeting
May 6, 2014
PART I: INFORMATION REQUIRED IN INFORMATION STATEMENT
A. GENERAL INFORMATION
Item 1. Date, Time and Place of Meeting of Security Holders:
The annual stockholders‟ meeting of ENERGY DEVELOPMENT CORPORATION (hereafter the
“Registrant” or “ Company”) will be held on May 6, 2014 at 10:00 a.m. at the Rockwell Tent, Rockwell Drive
corner Estrella St., Rockwell Center, Makati City, Philippines.
The complete mailing address of the Registrant is P.O. Box 2102 Makati City Post Office, Makati City.
The approximate date when the information statement and proxy form will be first sent to security holders will
be on April 10, 2014.
Item 2. Dissenters‟ Right of Appraisal
There are no matters to be taken up during the annual stockholders‟ meeting with respect to which the law
allows the exercise of appraisal right by any dissenting stockholder. The Corporation Code limits the exercise
of the appraisal right only in the following instances:
a. In case any amendment to the articles of incorporation has the effect of changing or restricting the rights
of any stockholder or class of share, or of authorizing preferences in respect superior to those of
outstanding shares of any class, or of extending or shortening the term of corporate existence (Section 81);
b. In case of the sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially
all of the corporate property and assets (Section 81);
c. In case of merger or consolidation (Section 81);
d. In case of investments in another corporation, business or purpose (Section 42).
Since the matters to be taken up do not include any of the foregoing, the appraisal right will not be available.
However, if at any time after this Information Statement has been sent out, an action which may give rise to
the right of appraisal is proposed at the meeting, any stockholder who votes against the proposed action and
who wishes to exercise such right must make a written demand, within thirty (30) days after the date of the
meeting or when the vote was taken, for the payment of the fair market value of his shares. Upon payment, he
must surrender his certificates of stock. No payment shall be made to any dissenting stockholder unless the
Company has unrestricted retained earnings in its books to cover such payment.
4
Item 3. Interest of Certain Persons in or Opposition to Matters to be Acted Upon
No member of the Board of Directors or executive officer since the beginning of the last fiscal year, or
nominee for election as director, or their associates, has any substantial interest, direct or indirect, by security
holdings or otherwise, in any of the matters to be acted upon in the meeting, other than election to office.
No director has informed the Company in writing or otherwise that he intends to oppose any action to be taken
up at the meeting.
B. CONTROL AND COMPENSATION INFORMATION
Item 4. Voting Securities and Principal Holders Thereof
The record date for the purpose of determining the stockholders entitled to notice of, and to vote at the Annual
Stockholders‟ Meeting is March 14, 2014.
As of record date March 14, 2014, there are 18,750,000,000 outstanding unclassified common shares and
9,375,000,000 unclassified preferred shares entitled to notice and to vote at the meeting. A common or
preferred share is entitled to one (1) vote each. Total number of common shares owned by foreigners is
6,421,360,051 shares (34.25%). All preferred shares are owned by Red Vulcan Holdings Corporation, a
Philippine corporation. None of the preferred shares are foreign-owned.
The election of directors for the current year will be taken up and all stockholders have the right to cumulate
their votes in favor of their chosen nominees for director in accordance with Section 24 of the Corporation
Code. Section 24 provides that a stockholder, may vote such number of shares registered in his name as of the
record date for as many persons as there are directors to be elected or he may cumulate said shares and give
one candidate as many votes as the number of directors to be elected multiplied by the number of shares shall
equal, or he may distribute them on the same principle among as many candidates as he shall see fit. The total
number of votes cast by such stockholder should not exceed the number of shares owned by him as shown in
the books of the corporation multiplied by the whole number of directors to be elected.
Security Ownership of Certain Record and Beneficial Owners and Management
1) Persons Known to the Registrant to be Directly or Indirectly the Record or Beneficial Owner of
More than 5% of Any Class of the Registrant‟s Voting Securities:
As of record date March 14, 2014, the Registrant has no knowledge of any individual or any party who
beneficially owns more than 5% of its outstanding common stock except as set forth in the table below:
Type of
Class
Name, address of
Record Owner and
Relationship with
Issuer
Name of
Beneficial Owner
& Relationship
with Record
Owner
Citizenship
No. of Shares Held
Percent of
Class
Common
Preferred
Red Vulcan
Holdings
Corporation
3rd Floor Benpres
Bldg.,
Exchange Road cor.
Meralco Ave.,
Pasig City
(Red Vulcan
Holdings Corp. is a
Beneficial Owner -
First Gen
Corporation
(First Gen Corp.
is a major
stockholder of
Red Vulcan
Holdings Corp.)
Proxy - Federico
Filipino 7,500,000,000
9,375,000,000
40.00%
100.00%
5
major stockholder
of EDC)
R. Lopez,
Chairman of First
Gen Corporation
Common PCD Nominee
Corporation
(Foreign) *
(PCD Nominee
Corp. is a
stockholder of EDC)
There are
beneficial owners
of more than 5%
(as per filed SEC
Form 18-A)
GIC Private
Limited
Custodian –
Hongkong &
Shanghai Banking
Corporation Ltd
(HSBC)
Foreign 6,420,838,799**
5,478,064,550***
942,774,249
34.24%
29.22%
5.03%
Common PCD Nominee
Corporation
(Filipino) *
(PCD Nominee
Corp. is a
stockholder of EDC)
There are no
beneficial owners
of more than 5%
of the outstanding
shares.
Filipino 3,011,252,000 16.06%
Common First Gen
Corporation
3rd Floor Benpres
Bldg.,
Exchange Road cor.
Meralco Ave.,
Pasig City
(First Gen Corp. is a
stockholder of EDC)
Beneficial Owner
of more than 5% -
Proxy - Federico
R. Lopez,
Chairman of First
Gen
Filipino 991,782,700 5.29%
Common Northern Terracotta
3rd Floor Benpres
Bldg.,
Exchange Road cor.
Meralco Ave.,
Pasig City
(Northern
Terracotta is a
stockholder of EDC)
Beneficial Owner -
First Gen
Corporation
(Northern
Terracotta is a
stockholder of
EDC and a
wholly-owned
subsidiary of First
Gen Corp.)
Proxy - Federico
R. Lopez,
Chairman of First
Gen Corporation
Filipino 870,374,200 4.64%
* PCD Nominee Corporation, a wholly owned subsidiary of Philippine Central Depository, Inc. (PCD), is the registered owner of the
6
shares in the books of the Company‟s transfer agent in the Philippines. The beneficial owners of such shares are PCD‟s participants,
who hold the shares on their behalf or in behalf of their clients. PCD is a private company organized by the major institutions actively
participating in the Philippines capital market to implement an automated book-entry system of handling securities transactions in the
Philippines.
** Total shares held by PCD Nominee Corporation (Foreign)
*** Net shares held by PCD Nominee Corporation (Foreign) as per filed SEC Form 18-A
2) Security Ownership of Directors and Management as of record date March 14, 2014
Title of Class
Name of Beneficial Owner
Amount of
Shares
Nature of
Ownership
Citizenship
Percent
of Class
Directors
Common Oscar M. Lopez 200,501
500,000
Direct
Indirect
Filipino
Filipino
0.001%
0.003%
Common Federico R. Lopez 1 Direct Filipino 0.000%
Common Peter D. Garrucho, Jr. 5,670,000
1,000,000
Direct
Indirect
Filipino
Filipino
0.030%
0.005%
Common Richard B. Tantoco 8,104,501
3,125,000
Direct
Indirect
Filipino
Filipino
0.043%
0.017%
Common Elpidio L. Ibañez 500,001 Direct Filipino 0.003%
Common Ernesto B. Pantangco 37,501 Direct Filipino 0.000%
Common Francis Giles B. Puno 2,102,501 Direct Filipino 0.011%
Common Jonathan C. Russell 892,751 Direct British 0.005%
Common Edgar O. Chua 1 Direct Filipino 0.000% Common Francis Ed. Lim 30,001 Direct Filipino 0.000% Common Arturo T. Valdez 1 Direct Filipino 0.000% Title of Class
Name of Beneficial Owner
Amount of
Shares
Nature of
Ownership
Citizenship
Percent
of Class
Key Executive Officers
Common Nestor H. Vasay 650,000 Direct Filipino 0.004%
Common Marcelino M. Tongco 1,825,000 Direct Filipino 0.010%
Common Manual S. Ogena 2,323,751 Direct Filipino 0.012%
Common Dominic M. Camu 0 - Filipino 0.000%
Common Ma. Elizabeth D. Nasol 10,000 Direct Filipino 0.000%
Common Vincent Martin C. Villegas 500 Direct Filipino 0.000%
Common Erwin O. Avante 100,000 Direct Filipino 0.001%
Common Rico G. Bersamin 0 - Filipino 0.000%
Common Ferdinand B. Poblete 10,000 Direct Filipino 0.000%
Common Ariel Arman V. Lapus 148,000 Direct Filipino 0.001%
Common Ellsworth R. Lucero 1,228,125 Direct Filipino 0.007%
Common Dwight A. Maxino 1,228,125 Direct Filipino 0.007%
Common Manuel C. Paete 1,228,125 Direct Filipino 0.007%
Common Liberato S. Virata 1,252,250 Direct Filipino 0.007%
Common Wilfredo A. Malonzo 0 - Filipno 0.000%
Common Teodorico Jose R. Delfin 0 - Filipino 0.000%
Common Ana Maria A. Katigbak 272,000 Indirect Filipino 0.002%
Common Glenn L. Tee 0 - Filipno 0.000%
Common Maribel A. Manlapaz 70,000 Direct Filipno 0.000%
Common Erudito S. Recio 69,500
25,100
Direct
Indirect
Filipino
Filipino
0.000%
0.000%
As of March 14, 2014, the total number of shares owned by the Directors and key executive officers is
32,603,236 or 0.174% of total common shares.
3) Voting Trust Holders of 5% or more
The Company knows of no persons holding more than 5% of common shares under a voting trust or similar
agreement.
7
4) Changes in control
No change in control of the Registrant has occurred since the previous fiscal year.
Item 5. Directors and Executive Officers
The following are the directors and executive officers of the Company, each having a term of one (1) year
and to serve as such until their successors are elected and qualified, and their respective positions, ages and
business experience in the past five years.
Directors
Oscar M. Lopez, 83
Mr. Lopez, Filipino, is the Chairman Emeritus of both the Lopez Holdings Corporation (formerly Benpres
Holdings Corporation), the holding company for major investments in broadcast, telecoms and cable, power
generation and distribution; and First Philippine Holdings Corporation (FPH), the specific associate holding
company for power generation and distribution, property and manufacturing. He has been a member of the
EDC Board of Directors since the Company‟s full privatization in 2007. He is also the Trustee and Chairman
Emeritus of KEITECH Educational Foundation, Inc. (KEITECH).
Mr. Lopez is one of the most respected and admired business leaders in Asia. He was Management
Association of the Philippines‟ Management Man of the Year in 2000 and one of the top 20 finalists for
CNBC and TNT International‟s Asia Business Leader Awards in 2004. He was the first Filipino businessman
to be awarded the most prestigious Officer‟s Cross of the Order of Merit of the Federal Republic of Germany
in 2005. He was a recipient of The Outstanding Filipino (TOFIL) Award in the field of Business for the year
2009.
Named by Forbes Magazine as among the “Heroes of Philanthropy” in Asia, he is involved in several social
and environmental concerns, among them the Eugenio Lopez Foundation, Lopez Group Foundation.In 2006,
he was honored in Monaco with the IMD-Lombard Odier Hentsch Distinguished Family Award for “an
outstanding commitment on philanthropy for the family‟s achievement in excellence such as the clarity and
sustainability of their social endeavors, exemplary corporate governance, a focus on family values, and the
involvement of multiple generations.”
He was conferred Honorary Degree Doctor of Laws, honoris causa by the Philippine Women‟s University in
April 2009; conferred Honorary Degree of Humanities, honoris causa by De La Salle University in Oct. 2010
and by the Ateneo de Manila University in Nov. 2010. He was the 2011 Ramon del Rosario, Sr. Awardee for
Nation Building. He was conferred Honorary Degree of Doctor of Laws, honoris causa by the University of
the Philippines in March 2012.
Mr. Lopez was born on April 19, 1930. Has a Master‟s degree in Public Administration from the Littauer
School of Public Administration in Harvard University (1955), where he also earned his Bachelor of Arts
degree, cum laude (1951).
Federico R. Lopez, 52
Mr. Lopez, Filipino, is Chairman and Chief Executive Officer (CEO) of EDC and has been a member of its
Board of Directors since the Company‟s full privatization in 2007. He is also the Chairman and CEO of First
Philippine Holdings Corporation, First Gen Corporation, FG Hydro Corporation, First Gas Power
Corporation, FGP Corp., First Gen Energy Solutions, Green Core Geothermal Inc., First Gen Renewable Inc.,
and FG Bukidnon Power Corp. He is Chairman of First Philippine Industrial Corp., First Philippine Electric
Corp., First Philippine Realty Corp., and First Balfour Inc., and is Treasurer of Lopez Holdings, Inc. He also
sits on the board of ABSCBN Corporation and a trustee of KEITECH. A staunch environmentalist, he is the
Chairman of the Philippine Solar Car Challenge Society and is a member of the Board of Trustees of
8
Philippine Business for Social Progress and the Philippine Tropical Forest Conservation Foundation. He is
also a member of the World President‟s Organization.
Mr. Lopez is a graduate of the University of Pennsylvania with a Bachelor of Arts degree in Economics and
International Relations, cum laude (1983).
Peter D. Garrucho, Jr., 69
Mr. Garrucho, Filipino, has been a Director of EDC since November 2007. Until his retirement in January
2008, he served as Managing Director for Energy of FPHC and as Vice Chairman and CEO of First Gen Corp.
where he continues to be a Director. He also sits in subsidiaries of these corporations including the First Gas
Holdings Group of companies (First Gas Power, FGPCorp, Unified Holdings, First Gen Hydro Corp., FG
Bukidnon Power Corp., First Gen Energy Solutions, Inc., Red Vulcan Holdings Corp., Prime Terracota
Holdings Corp., First Philippine Industrial Corp. and First Balfour Corp. At present, he is also Vice Chairman
of Franklin Baker Corp. where he has a significant shareholding and Chairman of Strategic Equities Corp., as
a majority stockholder.
He served in the government as Secretary of the Department of Tourism and the Department of Trade and
Industry during the administration of President Corazon C. Aquino. He was also Executive Secretary and
Presidential Adviser on Energy Affairs under President Fidel V. Ramos. In 2000, he was given the award of
an Honorary Officer of the Order of the British Empire by Her Majesty, Queen Elizabeth II.
Mr. Garrucho earned his Master in Business Administration degree from Stanford University (1971) and his
AB-BSBA degree from the De La Salle University (1966).
Elpidio L. Ibañez, 63
Mr. Ibañez, Filipino, has been a Director of EDC since July 2010. He is also the President and Chief
Operating Officer of FPHC. He is a member of the boards of First Gen Renewables Inc., FG Bukidnon Power
Corp., Bauang Private Power Corp., First Private Power Corp., First Gas Holdings Corp., First Gas Power
Corp., FGP Corp., Unified Holdings Corp., First Gas Pipeline Corp., FL Geothermal, and GCGI. He is
Chairman of the board of First Batangas Hotel Corp. and President of First Philippine Utilities Corp. He is
also a director of various FPHC subsidiaries and affiliates such as First Balfour, Inc., First Philippine Electric
Corp., First Philippine Industrial Corp., First Philippine Industrial Park, Philippine Electric Corp., and
Securities Transfer Services, Inc.
Mr. Ibañez obtained a Masters degree in Business Administration from the University of the Philippines
(1975) and a Bachelor of Arts degree major in Economics from Ateneo de Manila University (1972).
Richard B. Tantoco, 47
Mr. Tantoco, Filipino, is the President and Chief Operating Officer (COO) of EDC and has been a Director of
the Company since November 2007. He is also a Director and Executive Vice President of First Gen Corp.,
First Gen Luzon Power Corp., First Gen Hydro Power Corp., First Gen Geothermal Power Corporation, First
Gen Visayas Hydro Power Corporation, First Gen Mindanao Hydro Power Corporation, First Gen Energy
Solutions, Inc., First Gen Premier Energy Corp., Red Vulcan Holdings Corp., First Gen Visayas Energy Inc.,
First Gen Prime Energy Corporation, First Gen Renewables, Inc., Blue Vulcan Holdings Corp., Northern
Terracotta Power Corp., Prime Meridian Powergen Corporation, OneCore Holdings Inc., DualCore Holdings
Inc., GoldSilk Holdings Corp., First Gas Holdings Corporation, First Gas Power Corporation, FGP Corp.,
First Gas Pipeline Corp., First NatGas Power Corp., AlliedGen Power Corporation and FGLand Corp; and
Executive Vice President of First Gen Bukidnon Power Corporation, Unified Holdings Corp., First Gen
Northern Energy Corp., and First Philippine Holdings. Also, he is a trustee of KEITECH and was recently
elected as one of the Board of Trustees and President of the Oscar M. Lopez Center for Climate Change
Adaptation and Disaster Risk Management Foundation, Inc. He has been a Director of the International
Geothermal Association since 2010. He worked previously with management consulting firm Booz, Allen
9
and Hamilton, Inc. in New York and London where he specialized in mergers and acquisition advisory,
turnaround strategy advisory, and growth strategy formulation for media and manufacturing companies.
Mr. Tantoco has an MBA in Finance from the Wharton School of Business of the University of Pennsylvania
(1993) and a Bachelor of Science degree in Business Management from the Ateneo de Manila University
where he graduated with honors (1988).
Ernesto B. Pantangco, 63
Mr. Pantangco, Filipino, has been a Director of EDC since November 2007 and is also the Company‟s
Executive Vice President (EVP). He is an EVP of First Gen Corp., and President and CEO of FPPC and
BPPC. He also sits in the boards of FG Luzon, GCGI, EWEHI, FG Bukidnon, FGHPC, First Gen Geothermal
Power Corp., First Gen Visayas Hydro Power Corp., and First Gen Mindanao Hydro Power Corp. He is
President of FGHPC and First Gen Northern Energy Corp., and Executive Vice President of First Gen
Geothermal Power Corp., First Gen Visayas Hydro Power Corp., First Gen Mindanao Hydro Power Corp.,
FGLuzon, and Red Vulcan. He was the President of the Philippine Independent Power Producers Association
(PIPPA) for the last eleven (11) years and currently re-elected as a Director. He is a trustee of KEITECH and
is also Vice-Chairman of the National Renewable Energy Board (NREB) and was recently asked to be
Chairman of MAP Committee on Energy.
Mr. Pantangco has a Bachelor of Science in Mechanical Engineering degree from the De La Salle University
(1973) and Master of Business Administration degree from the Asian Institute of Management, dean‟s list
(1976). He is a registered mechanical engineer and placed 6th in the 1973 board exams.
Francis Giles B. Puno, 49
Mr. Puno, Filipino, has been a Director of EDC since November 2007. He is the President and Chief
Operating Officer (COO) of First Gen Corp., First Gen Renewables Inc, FG Bukidnon Power Corp., First Gen
Energy Solutions, Inc., Red Vulcan Holdings Corp., First Gen Luzon Power Corp., First Gen Geothermal
Power Corp., First Gen Northern Energy Corp., First Gen Visayas Hydro Power Corp, First Gen Mindanao
Hydro Power Corp., First Gas Holdings Corp., First Gas Power Corp., FGP Corp., Unified Holdings Corp.,
First Gas Pipeline Corp., First NatGas Power Corp., and FGLand Corp. He is also the Executive Vice
President and Chief Financial Officer (CFO) of First Philippine Holdings Corp., and sits in the board of First
Gen Hydro Power Corporation, He worked previously with the Global Power and Environmental Group of
The Chase Manhattan Bank in Singapore and Hong Kong where he originated and executed financial advisory
and debt arrangement mandates for power and water projects in Asia.
Mr. Puno has a Master of Management degree from the Kellogg Graduate School of Management of
Northwestern University (1990) and a Bachelor of Science degree in Business Management from the Ateneo
de Manila University (1985).
Jonathan C. Russell, 49
Mr. Russell, British, has been a Director of EDC since November 2007. He is also an Executive Vice
President of First Gen Corp. and Director of GCGI. He was previously Vice President of Generation Ventures
Associates (GVA), an international developer of independent power projects based in Boston, USA,
responsible for the development of 1,720 MW of IPP projects in Asia. Prior to joining GVA, he worked for
BG plc based in London and Boston, responsible for the development of power and natural gas distribution
projects.
Mr. Russell has an MBA with Distinction in International Business & Export Management from the City
University Business School, London, England (1989) and a Bachelor of Science with Honours in Chemical &
Administrative Sciences from the City University, London, England (1987).
10
Francisco Ed. Lim, 58
Mr. Lim, Filipino, is an Independent Director of EDC since July 2010. He is the Co-Managing Partner and
Senior Partner of Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW) and is the Head of
its Corporate and Special Projects Department. He is a member of the Financial Executives of the Philippines
(FINEX). He is a law professor at the College of Law of the Ateneo de Manila University and the Graduate
School of Law of San Beda College, and the Vice-Chair, Commercial Law Department of the Philippine
Judicial Academy. He is a member of both the Philippine Bar and New York State Bar.
He is a trustee of The Insular Life Assurance Company, Ltd and an independent director of the Producers
Savings Bank Corporation. He is also a trustee and president of the Shareholders‟ Association of the
Philippines (SHAREPHIL) and the Vice-Chair of the Corporate Governance Committee of the Management
Association of the Philippines (MAP) and Chairman of the Justice System Working Group of the National
Competitiveness Council.
He served as past President and CEO and Director of Philippine Stock Exchange, Inc. (PSE), President &
CEO of Securities Clearing Corporation of the Philippines (SCCP), Chairman of the Philippine Stock
Exchange Foundation, Inc., (PSEFI) and Capital Market Development Center, Inc. (CMDCI), Director of the
Philippine Dealing & Exchange Corporation (PDEx), Trustee of the Securities Investors Protection Fund
(SIPF), and member of Capital Market Development Council (CMDC) from September 15, 2004 to February
15, 2010. He successfully worked for the passage by Congress of several capital market development related
laws, namely, Personal Equity Retirement Account Act (PERAA), Credit Investment System Act (CISA),
Real Estate Investment Trust Act (REITA), Documentary Stamp Duty Exemption for secondary trading of
listed stocks, and Financial Rehabilitation and Insolvency Act (FRIA). He was Chairman of the Technical
Work Group on the Collective Investment Schemes Law (CISL) and Chairman of the Technical Work Group
on Real Estate Investments Trusts (REITS) in the Fourteenth Congress of the Senate of the Republic of the
Philippines.
Mr. Lim graduated magna cum laude in Bachelor of Philosophy and cum laude in Bachelor of Arts from the
University of Santo Tomas. He completed with honors his Bachelor of Laws degree (Second Honors) from
the Ateneo de Manila University and his Master of Laws degree from the University of Pennsylvania, USA.
Edgar O. Chua, 57
Mr. Chua, Filipino, is an Independent Director of EDC since July 2010. He is also the Country Chairman of
the Shell Companies in the Philippines. He has corporate responsibility for the various Shell companies in the
exploration, manufacturing and marketing sector of the petroleum business. Likewise, he oversees the
Chemicals businesses and Shared Services. He is currently in the advisory board of Globe Telecoms and
Coca Cola FEMSA Philippines, the Chairman of the Philippine Business for the Environment, President of
Pilipinas Shell Foundation, Inc, trustee of various civic and business organizations including the National
Competitiveness Council and the Trilateral Commission.
He has more than 30 years of experience in the business fields of chemicals, auditing, supply planning and
trading, marketing and sales, lubricants, corporate affairs and general management. He held senior positions
outside the Philippines as Transport analyst in Group Planning in the UK and as General Manager of the Shell
Company of Cambodia. From July1999 to August 2003, he held various regional positions in Shell Oil
Products East including GM for Consumer Lubricants covering all countries East of Suez Canal including
Saudi Arabia, China, India, Korea, ASEAN, Australia, New Zealand and the Pacific Islands.
Mr. Chua earned his Bachelor of Science degree in Chemical Engineering from De La Salle University (1978)
and attended various international seminars and courses including the senior management course in INSEAD
in Fontainebleau, France. In 2013, Mr. Chua was awarded the Management Association of the Philippines,
Management Man of the Year.
11
Arturo T. Valdez, 65
Mr. Valdez, Filipino, is an Independent Director of EDC since July 2011. He served as Undersecretary at the
Department of Transportation and Communication (DOTC) from 1996 to 2004 and was appointed Special
Envoy to the Middle East from October 2007 to March 2008. During his stint in government, he was
instrumental in reforming the maritime industry and rationalizing the land transport sector. He was past
president (1974 to 1986) of the National Mountaineering Federation of the Philippines, Inc., the largest
organization of mountaineering clubs in the country. He conceived, organized and led the First Philippine Mt.
Everest Expedition which successfully accomplished the “reconnaissance” climb of May 2006 when the
Philippine flag was first planted at the peak of Mt. Everest, and the “first and only women traverse” of Mt.
Everest by three Pinays in May 2007, a feat unsurpassed in the history of Himalayan mountaineering until
today. Coming from the mountain after finishing the highest marathon on earth - the 2008 Mt Everest
Marathon - he went directly to the sea and built the “Balangay,” an exact replica of a boat similar to the
ancient sea craft dug up in Butuan City carbon dated 320 A.D., and sailed it together with an intrepid crew of
Filipinos around the Philippines and Southeast Asia for 15 months solely powered by the wind and steered by
the stars to highlight the superb seamanship and daringness of our ancestors as they sailed and habited the vast
Pacific and Indian Oceans.
Mr. Valdez believed that the Mt. Everest and Balangay expeditions may be daunting but their success was
symbolic of what Filipinos can achieve if they are united and set their mind on anything.
Mr. Valdez was an American Field Service scholar and graduated with an AB in Economics from the
University of Santo Tomas (1970). He completed special studies on Social Market Economy (1971), and
Party Building and Parliamentary Government (1994) at Conrad Adenauer Foundation Institute in Germany.
Aside from always having been connected with the Ramos for Peace and Development Foundation and
concurrently as consultant/adviser at the Office of the Executive Secretary, Office of the President, his main
preoccupation today is getting involved with groups exploring alternative sources of clean and renewable fuel
for the transport sector to mitigate climate change. In like manner, alarmed by the series of devastations
caused by man-made and natural disasters that wrought untold misery in the country recently, he is working
develop solutions for operational challenges or problems by conducting concept based experimentation to
introduce indigenous innovations and integrate technologies from other countries in Saving Lives.
Key Executive Officers
Nestor H. Vasay, 60 - Senior Vice President and Chief Financial Officer
Mr. Vasay, Filipino, is the Chief Financial Officer and Treasurer of the Company since October 2010. He has
been with the Lopez Group since 1997 and held appointments with First Gen Corp. under various capacities
including his current position as Senior Vice President. Prior to joining First Gen Corp., he worked with
Metropolitan Bank and Trust Company, Chase Manhattan Bank and International Exchange Bank where he
held key executive positions responsible for the credit review of institutional and corporate clients, portfolio
management, risk management and Treasury and F/X Operations.
Mr. Vasay holds a Diploma in International Executive Management from Chartered Management Institution
of Ashridge Berkhamsted-London (2006). He earned his Bachelor‟s Degree in Business Administration from
the Angeles University (1976), and passed the Philippine Government Board Examinations for Certified
Public Accountant (CPA) a year later.
Marcelino M. Tongco, 59 – Senior Vice President for Strategic Contracting
Mr. Tongco, Filipino, has been with the Company since 1979 and has held his current position since March
2012. Pior to this he was the Senior Vice President for Steamfield Operations since 2010. Heserved as Vice
President for Steamfield Operations from 2005 to 2010, General Manager for Operations from 1994 to 2005,
Manager for Project Development from 1991 to 1994, and Manager for Engineering and Construction from
1988 to 1991.
12
Mr. Tongco graduated with a B. S. in Civil Engineering degree from the University of Santo Tomas and has
pursued master‟s studies in Civil Engineering at the University of the Philippines in Diliman. He also
completed the Management Development Program of AIM (1997) and obtained a Master‟s Certificate in
Project Management from George Washington University (1997).
Manuel S. Ogena, 57 – Senior Vice President for Technical Services
Mr. Ogena, Filipino, joined the Company in 1979 and has held his current position since 2010. He joined the
Company as a Geologist and was appointed Supervisor under the Geoscientific department in 1983. He
became the Exploration Manager in 1994, Geoservices Manager in 1997, Geoscientific Senior Manager in
2003, and Vice President for Technical Services in 2005. He has been a regular speaker in various local &
international Geothermal Conferences (GRC/WGC, AGS, etc.), and past member of the board of directors of
the International Geothermal Association in 2006 and 2009.
Mr. Ogena graduated with a B. S. in Geology degree from the University of the Philippines in Diliman in
1977 and placed 8th in the Geologist licensure examination. He completed his MS Engineering degree (with
distinction) from the University of Auckland, New Zealand in 1989. He is also a graduate of the Management
Development Program of AIM (1991) and earned his Master‟s Certificate in Project Management from
George Washington University (1995).
Dominic M. Camu, 52 – Senior Vice President for Power Generation
Mr. Camu, Filipino, was appointed by the Board in March 2012. Prior to this, he served as Vice President and
General Manager for First Gas Corporation from 2009 to 2012 and has also held various key positions in
General Electric International Inc, Covanta Power International Holdings Inc and Ogden Energy Philippine
Holdings Inc.
He has 30 years of EPC and O&M experience coupled with comprehensive expertise encompassing asset
management and O&M of power plant and energy facilities. Experienced in Combined Cycle Gas Turbine,
Coal, Diesel, Waste to Energy and Geothermal power stations. Experienced in Project and O&M Management
of diverse international owners and in the management and direction of both internal and external EPC &
O&M contractors on projects of over 2,000 MW at demanding and remote locations.
Worked international in various capacities and key cross-functional roles driven by his ability and reputation
to consistently meet the expectations of his peers and stakeholders in complex and time sensitive energy
projects. Past experience in working with project proponents and in dealing with project agreements (in the
context of EPC, Lenders, Shareholders, PPA, Fuel Supply/Energy Conversion and O&M agreements) on both
sides of the aisle manifested by his ability to put on different hats and take on multifaceted roles
Mr. Camu graduated with a Bachelor of Science Degree in Electrical Engineering from Mapua Institute of
Technology (1983). A member of the Philippines Society of Institute of Integrated Electrical Engineers, he
passed the Professional Regulation Commission Board Examinations for Electrical Engineer in 1984.
Vincent Martin C. Villegas, 41 – Vice President for Business Development
Mr. Villegas, Filipino, was appointed by the Board in October 2009. He is also a Vice President of First Gen
Corporation, First Luzon Geothermal, Green Core Geothermal Inc., Bacman Geothermal Inc. and EDC
Burgos Wind Power Corporation. He is in charge of the various growth initiatives in geothermal and wind. In
First Gen, he worked on both greenfield projects and acquisitions involving natural gas and coal technologies.
He is the Treasurer and Director of the Wind Energy Developers Association of the Philippines and also
serves as the Director of the National Geothermal Association of the Philippines. Prior to joining First Gen, he
worked with the Treasury Group of PHINMA, Inc. from 1994 to 1996.
13
Mr. Villegas has a Masters in Business Management from AIM (1998). He graduated with an AB in
Management Economics degree from the Ateneo de Manila University (1993).
Ellsworth R. Lucero, 55 – Vice President O&M LGBU
Mr. Lucero, Filipino, was appointed by the Board in December 2010. He joined the Company as an engineer
in LGPF in 1982, and since then has been assigned to different geothermal production fields across the
country holding various positions. He was promoted to manager of the BGPF in 1994 and to resident
manager of MGPF in 2004. He was assigned to the Power Generation Sector in 2007 and in 2013 to the
LGBU as head of O&M Power Plant and Steamfield Operations.
Mr. Lucero graduated with a B. S. in Mechanical Engineering from the Cebu Institute of Technology (1979)
and passed the Mechanical Engineer Licensure Examination in the same year. He completed the Management
Development Program of AIM (1995) and has undergone geothermal energy training in New Zealand (1986).
Dwight A. Maxino, 55 – Vice President, Southern Negros and Northern Negros Geothermal Production
Fields
Mr. Maxino, Filipino, was appointed by the Board in December 2010. He has been with EDC since February
1980 and has held various positions including Well Test Aide, Reservoir Engineer, Well Test Measurement
and Maintenance Supervisor, Production Superintendent, and Production Manager. He served as the Resident
Manager of LGPF from 2004 to 2005 and SNGP from 2006-2010, and as OIC Resident Manager of NNGPF
from 2009 to 2010.
Mr. Maxino graduated with a B. S. in Mechanical Engineering degree from the Cebu Institute of Technology
(1979) and passed the Mechanical Engineer Licensure Examination (1980). He holds a Diploma in
Geothermal Technology from the University of Auckland (New Zealand, 1981) and completed the
Management Development Program of AIM (1993).
Manuel C. Paete, 57 – Vice President, Leyte Geothermal Production Field
Mr. Paete, Filipino, was appointed by the Board in December 2010. He started his career in EDC as a
reservoir engineer trainee in LGPF in 1980. He then assumed various positions in well test measurements and
FCRS operations before becoming the LGPF Production Manager in 2004 and Resident Manager in 2005. In
2013 under the Strategic Business Unit set-up, he was assigned to head the Project and Resource Management
Group of Leyte Geothermal Business Unit.
Mr. Paete graduated with a B. S. in Mechanical Engineering degree from the Leyte Institute of Technology
(1978) and passed the Mechanical Engineer Licensure Examination in the same year. He became a
Professional Mechanical Engineer in 2010. He also completed a course on Geothermal Technology with
specialization in Borehole Geophysics at the United Nations University, Reykjavik, Iceland (1983). In
October 2012, he received The Outstanding Mechanical Engineer in the field of Management by the
Philippine Society of Mechanical Engineers (PSME) during the 60th PSME national convention.
Liberato S. Virata, 54 - Vice President, BacMan Geothermal Production Field
Mr. Virata, Filipino, was appointed by the Board in December 2010. He started working for EDC in 1982 and
held various positions including Field Maintenance Manager for LGPF, Maintenance Manager, Production
Manager and Resident Manager for BGPF prior to his current position.
Mr. Virata graduated with a B. S. in Mechanical Engineering degree from the Mapua Institute of Technology
in Manila (1981). He became a Registered Mechanical Engineer in 1982 and a Professional Mechanical
Engineer in 2006. He completed the Refinery Operations Course at Shell Refinery Clyde, Sydney New South
Wales, Australia (1988), Management Development Program of AIM (1996),), and Diploma Course in
Maintenance Management System (JICA) at Kitakyushu, Japan (2003).
14
Erwin O. Avante, 39 – Vice President, Corporate Finance Division and concurrently the Head of the
Negros Island Geothermal Business Unit
Mr. Avante, Filipino, was appointed by the Board in March 2011. He is also a Vice-President in First Gen
Corporation and was a member of the Board of Trustees of the CFA Society of the Philippines from 2010 -
2013. Prior to joining the Lopez Group in 1998, Mr. Avante worked as Senior Audit In-charge at SyCip,
Gorres, Velayo &. Co.
Mr. Avante has Masters in Business Administration (2000) and Masters of Science in Computational Finance
(2003), both obtained from the Graduate School of Business – De La Salle University, and a Bachelor of
Science in Accountancy degree from De La Salle University (1994). Mr. Avante placed 1st in the May 1995
Certified Public Accountants board examination. He is also a CFA charterholder since 2005.
Rico G. Bersamin, 66 – Senior Vice President and Business Unit Head – Leyte Geothermal Business
Unit
Mr. Bersamin, Filipino, was appointed by the Board in July 2011. He took up various roles, initially as Head
of the Strategic Initiatives Office (SIO) and thenHead of Steam Field Operations (SFO). He is currently the
Business Unit Head of the Leyte Geothermal Business Unit.He had previously spent
39 years with Pilipinas Shell Petroleum Corporation and its affiliates, holding various engineering, operational
and managerial positions in Tabangao and Pililla refineries. His last assignment was in Al-Jubail, Saudi
Arabia where he was the Executive Vice President and General Manager for Production and Maintenance of
the 300,000 bpd fully-complex crude oil refinery of Saudi Aramco Shell Refinery Company.
Mr. Bersamin graduated with a B. S. in Electronics Engineering degree, magna cum laude from the University
of Santo Tomas (1969).
Ferdinand B. Poblete, 52 – Chief Information Officer
Mr. Poblete, Filipino, was appointed by the Board in September 2011. He is a global information technology
(IT) executive with over 25 years of diverse experience in cross-cultural markets across Asia, Europe, Middle
East, Africa, Latin America and North America. He has held various leadership positions with responsibilities
covering IT infrastructure, manufacturing, sales, logistics systems, people management, strategic business
planning and management, and business development. He was formerly the Senior Vice President and
Director for the Strategic Initiatives Office of Philamlife Insurance Co. He was also with Procter & Gamble
(P&G) for 18 years, holding various positions such as Country IT Manager of Korea, Associate Director for
Worldwide Distribution Systems and Associate Director for Business Information Solutions for Asia Regional
Operations.
Mr. Poblete graduated with a B. S. in Electrical Engineering degree from the University of the Philippines in
Diliman, and is an alumnus of the Philippine Science High School.
Ariel Arman V. Lapus, 44 - Vice President, Business Development – International
Mr. Lapus, Filipino, was appointed by the Board in March 2012 to oversee EDC‟s business development
efforts in Latin America. He is based in Santiago, Chile, and supervises the EDC organizations in both Chile
and Peru. He sits in the boards of directors of all the EDC companies in Chile and Peru.
Mr. Lapus is also a Vice President in First Gen Corporation where he headed the Power Marketing and
Trading Group from November 2009 until his secondment to EDC in March 2012. Prior to joining First Gen
Corporation, he was Executive Vice President of Global Business Power Corporation and Vice President of
Mirant Philippines Corporation.
15
Mr. Lapus graduated with a Bachelor of Science degree in Business Management from the Ateneo de Manila
University (1990) and has a Master in Business Management (MBM) degree from the Asian Institute of
Management (1997).
Wilfredo A. Malonzo, 49 – Vice President for Supply Chain Management
Mr. Malonzo, Filipino, was appointed by the Board in January 2012. He is an expert and a leader in supply
chain management operations in cross-cultural countries, specifically in Asia and Europe. Prior to joining
EDC, he was the Head of Indirect Sourcing, Philippines and Southeast Asia Cluster of Novartis Healthcare
Philippines, Inc., responsible for managing sourcing functions in the Philippines, Singapore, Indonesia,
Bangladesh and Pakistan, and for fleet management and building administration for the Philippines. He
worked as Strategic Sourcing Manager of On Semiconductor Philippines, Inc. from 2009 to 2010. He was
also with Intel Technology Philippines, Inc. for five years, holding various regional and global managerial
positions in supply chain management.
Mr. Malonzo is the past Chairman of the Association of Semiconductor and Electronics Industries of the
Philippines, Inc. Purchasing Managers (ASPM). He graduated with a B. S. in Mechanical Engineering
Technology from De La Salle University (1984).
Maribel A. Manlapaz, 49 – Assistant Vice President, Comptroller
Ms. Manlapaz, Filipino, joined Energy Development Corporation in November 2009. She is a Certified
Public Accountant with more than 20 years of experience in a multinational Pharmaceutical and Consumer
Products industries. Prior to joining EDC, Ms. Manlapaz was the Finance Director for UCB Philippines,
Inc., a multinational Pharmaceutical company based in Belgium.
Ms. Manlapaz graduated Cum Laude from the Philippine School of Business Administration (1986) and
completed her Masters in Business Administration for Top Executives from Pamantasan Ng Lungsod Ng
Maynila (1996).
Teodorico Jose R. Delfin, 45 - Corporate Secretary
Atty. Delfin, Filipino, was appointed by the Board in July 2010. He is also Corporate Secretary of First Gen
Hydro Power Corp., Green Core Geothermal Inc., Bac-Man Geothermal Inc., EDC Geothermal Corp., EDC
Wind Energy Holdings, Inc., and several other Company subsidiaries. He also served as Assistant Corporate
Secretary of First Gen Corp., FG Bukidnon Power Corp., First Gen Renewables, Inc., Red Vulcan Holdings
Corp., First Gen Northern Energy Corp., and other First Gen subsidiaries. Prior to joining the Lopez Group,
he was part of the Feria Law Offices and the East Asia Power Resources Group, and has served in various
capacities at the state-owned Philippine Amusement and Gaming Corporation.
Mr. Delfin graduated with a Bachelor of Arts in Political Science degree from the University of the
Philippines (1989) and earned his Bachelor of Laws degree from the University of the Philippines College of
Law (1997).
Ana Maria A. Katigbak-Lim, 43 - Assistant Corporate Secretary
Atty. Katigbak-Lim, Filipino, was appointed by the Board in January 2007. She is a partner of the Castillo
Laman Tan Pantaleon & San Jose Law Firm and also acts as director in Mabuhay Holdings, Inc., Premiere
Horizon Alliance Corp. and Vulcan Industrial and Mining Corp., corporate secretary of Minerales Industrias
Corporation, and assistant corporate Secretary of Mabuhay Holdings, Inc., Marcventures Holdings, Inc.,
Paxys Inc., Premiere Horizon Alliance Corporation, Solid Group, Inc. and Vulcan Industrial and Mining Corp.
Atty. Katigbak-Lim graduated cum laude at the University of the Philippines with a Bachelor of Arts degree
in Comparative Literature. She is a graduate of the University of the Philippines College of Law (1994) and a
member of the Phi Kappa Phi international honor society. Her practice areas are corporate law, securities and
mergers and acquisitions. She was admitted to the Philippine Bar in 1995.
16
Glenn L. Tee, 42 – Chief Audit Executive, Internal Audit Group
Mr. Tee, Filipino, was appointed by the Board in October 2010. Prior to his appointment at EDC, he was
Internal Audit Head of First Gen Corp. for two years. He has been with the Lopez Group since 1994 and has
held key positions in the internal audit and accounting departments of First Philippine Holdings Corp. and
First Philippine Infrastructure and Development Corp.
Mr. Tee graduated from San Beda College (1992), and is both a Certified Public Accountant and Certified
Internal Auditor. He completed the academic requirements of the Executive Masters in Business
Administration from the AIM (2009).
Erudito S. Recio, 56 - Senior Manager, Investor Relations
Mr. Recio, Filipino, has been with the Company since 1981. He was appointed to his current position in
January 2007 but has performed his current duties since December 2006. He started with the Company as a
Planning Engineer in 1981 and has since held various positions in the Planning & Control Division. He was
Corporate Planning Manager from 1993 to 2006.
Mr. Recio obtained a B. S. in Management Engineering degree from the Ateneo de Manila University. He
completed the Management Development Program of AIM (1996).
Significant Employees
No single person or employee is expected to make a significant contribution to the Company‟s business since
the Company considers the collective efforts of all its employees as instrumental to the success of the
Company.
Nominees for Directors
The following are the nominees for regular and independent directors:
For Regular Directors For Independent Directors
1. OSCAR M. LOPEZ
2. FEDERICO R. LOPEZ
3. PETER D. GARRUCHO, JR.
4. ELPIDIO L. IBAÑEZ
5. ERNESTO B. PANTANGCO
6. FRANCIS GILES B. PUNO
7. JONATHAN C. RUSSELL
8. RICHARD B. TANTOCO
9. EDGAR O. CHUA
10. FRANCISCO ED. LIM
11. ARTURO T. VALDEZ
All nominations for regular and independent director have been reviewed and approved by the Company‟s
Nomination and Compensation Committee.
Please refer to the above biographical details of current directors that have been renominated.
Independent Directors/Nomination Committee
In compliance with SRC Rule 38, which provides for the guidelines on the nomination and election of
independent directors, a Nomination and Compensation Committee has been constituted to pre-screen and
accept the nominations of regular and independent directors. It is headed by Federico R. Lopez as chairman
with Peter D. Garrucho, Jr., Elpidio L. Ibañez, Francis Giles B. Puno and Arturo T. Valdez (Independent
Director) as members.
17
Accordingly, the Nomination and Compensation Committee has approved the nominations of Messrs. Francis
Ed. Lim, Edgar O. Chua and Arturo T. Valdez as independent directors conformably with the criteria
prescribed in SRC Rule 38, the Company‟s Code of Corporate Governance and the Charter of the Nomination
and Compensation Committee.
The SEC approved on July 20, 2009 certain amendment to the Company‟s By-laws incorporating among
others, the provisions of SRC Rule 38, as amended, on the nomination and election of Independent Directors.
Mr. Lim was nominated by stockholder Edwin D. Martelino. Mr. Chua was nominated by stockholder Rafael
Ignacio H. Montinola. Mr. Valdez was nominated by stockholder Farley Cuizon. The nominees for
independent director are not related to their respective nominators.
Family Relationships
Oscar M. Lopez is the father of Federico R. Lopez; Ernesto B. Pantangco is the cousin-in-law of Oscar M.
Lopez; and the wives of Federico R. Lopez and Francis Giles B. Puno are sisters.
Other than the foregoing, there are no family relationships known to the Company.
Involvement in Certain Legal Proceedings
To the best of the Company‟s knowledge, there has been no occurrence during the past five years of any of the
following events since its incorporation which are material to an evaluation of the ability or integrity of any
director, person nominated to become a director, executive officer, or control person of the Company:
1. Any insolvency or bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the insolvency or within two years prior to that
time;
2. Any conviction by final judgment in a criminal proceeding, domestic or foreign, or any pending criminal
proceeding, domestic or foreign, excluding traffic violations and other minor offenses;
3. Any final and executory order, judgment, or decree of any court of competent jurisdiction, domestic or
foreign, permanently or temporarily enjoining, barring, suspending, or otherwise limiting involvement in
any type of business, securities, commodities, or banking activities; and
4. Any final and executory judgment by a domestic or foreign court of competent jurisdiction (in a civil
action), the Philippine SEC, or comparable foreign body, or a domestic or foreign exchange or electronic
marketplace or self-regulatory organization, for violation of a securities or commodities law.
Mr. Tantoco in his capacity as President has been impleaded as respondent in one ongoing labor case filed by
a former Company employee. The Company, however, does not believe that this claim affects Mr. Tantoco‟s
ability or integrity as a Company Officer.
Certain Relationships and Related Transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other
party or exercise significant influence over the other party in making financial and operating decisions.
Parties are also considered to be related if they are subject to common control.
a. Following are the amounts of transactions and outstanding balances as of and for the years ended
December 31, 2013 and 2012:
Transactions for the years ended
December 31
Net amounts due from/to related
parties as at December 31
Related Party Nature of Transaction Terms 2013 2012 2013 2012
18
Due to related parties
First Gen Consultancy fee Unsecured and will
be settled in cash P=175,284,706 P=165,619,598 P=43,998,784 P=41,379,949 Interest-free advances - do - 36,490,221 26,095,569 4,219,175 8,166,941 Lopez Holdings
Corporation
Donation to Lopez Museum
- do - 5,042,750 – 5,042,750 – First Gas Power Interest-free advances - do - 460,503 – 73,110 – Lopez Group Foundation,
Inc.
Donation to support the Group‟s
Corporate Social
Responsibility efforts
- do - – 1,095,000 – – First Gas Power
Corporation
Interest-free advances
- do - 281,616
147,794 13,186
30,613 First Gas Holdings Corp. Interest-free advances - do - 52,280 – – – Bauang Private
Power Corporation Acquisition of one unit MVA
transformer - do - – 57,330 – –
P=217,612,076 P=193,015,291 P=53,347,005 P=49,577,503
Trade and other
receivables (Note 9)
First GES Sale of electricity - do - P=169,368,975 P=– P=61,993,428 P=–
Trade and other payables
(Note 16)
Thermaprime Drilling and other related
services - do - P=990,000,000 P=1,155,169,743 P=78,485,096 P=171,699,140 First Balfour Inc. Steam augmentation and other
services - do - 115,360,533 192,687,664 152,027,391 73,339,568 First Philec Manufacturing
Technologies Corp
Purchase of services and utilities - do - 7,039,812
3,696,180 2,194,482 2,077,482 Bayantel Purchase of services and utilities - do - 6,428,472 531,781 3,543,051 5,038,978 Adtel Purchase of services and utilities - do - 2,492,605 3,272,208 (2,460,292) 1,452,277 FPRC Purchase of services and utilities - do - 1,579,607 1,190,822 898,609 – First Electro Dynamics
Corporation Purchase of services and utilities - do - 358,000 2,930,000 589,421 – ABS-CBN Foundation Purchase of services and utilities - do - 340,000 – 715,000 – ABS-CBN Publishing, Inc. Purchase of services and utilities - do - 3,600 1,284,110 3,600 – ABS-CBN Corp. Purchase of services and utilities - do - 200,000 118,878 – 496,000 Securities Transfer
Services, Inc. Purchase of services and utilities - do - 22,400 129,920 – 39,370 Rockwell Land Corporation Purchase of services and utilities - do - 16,800 70,000 – – First Philippine Industrial
Corporation Purchase of services and utilities - do - – 1,488 – –
P=1,123,841,829 P=1,361,082,794 P=235,996,358 P=254,142,815
Long-term debts
IFC (Note 17) Interest-bearing loans - do - P=462,315,610 P=519,860,137 P=6,162,859,592 P=6,740,716,758
The purchases from related parties are made at normal commercial terms and conditions.
The amounts outstanding are unsecured and will be settled in cash. The Company has not recognized
any impairment losses on receivables from related parties as of December 31, 2013 and 2012.
i. First Gen
First Gen provides financial consultancy, business development and other related services to the
Parent Company under a consultancy agreement beginning September 1, 2008. Such agreement is
for a period of three years up to August 31, 2011. Under the terms of the agreement, billings for
consultancy services shall be P=8.7 million per month plus applicable taxes. This was increased to
P=11.8 million per month plus applicable taxes effective September 2009 to cover the cost of
additional officers and staff assigned to the Parent Company.
The consultancy agreement was subsequently extended for another 16 months from
September 1, 2011 to December 31, 2012. The consultancy agreement was extended for another
two years from January 1, 2013 to December 31, 2014. Total consultancy services amounted to
P=175.3 million, P=165.6 million and P=161.6 million in 2013, 2012 and 2011, respectively, and were
included in the “Costs of sale of electricity” under “Purchased services and utilities” account.
In 2012, the Parent Company purchased 5.4 million shares of First Gen with acquisition cost of
P=77.1 million recorded as AFS investments. In 2013, the Company acquired additional 1.7 million
shares at P=12.99 per share or for a total purchase cost of P=21.8 million.
19
ii. IFC
IFC is a shareholder of the Parent Company that has approximately 5% ownership interest in the
Parent Company. On May 20, 2011, the Parent Company signed a 15-year US$75.0 million loan
facility with IFC. The loan was drawn in Peso on September 30, 2011, amounting to
P=3,262.5 million. As of December 31, 2013 and 2012, the outstanding balance of the loan
amounting to P=2,959.7 million and P=3,203.3 million, respectively, is included under the “Long-
term debts” account in the consolidated statement of financial position.
On November 27, 2008, the Parent Company entered into a loan agreement with IFC for US$100.0
million or its Peso equivalent of P=4.1 billion. On January 7, 2009, the Parent Company opted to
draw the loan in Peso and received the proceeds amounting to P=4,048.8 million, net of
P=51.3 million front-end fee. The loan is payable in 24 equal semi-annual installments after a three-
year grace period at an interest rate of 7.4% per annum for the first five years subject to repricing
for another five to 10 years. Under the loan agreement, the Parent Company is restricted from
creating liens and is subject to certain financial covenants. As of December 31, 2013 and 2012, the
outstanding loan amounted to P=3,203.2 million and P=3,537.5 million, respectively, net of
unamortized transaction costs of P=42.0 million and P=49.6 million, respectively. This loan is
included under the “Long-term debts” account in the consolidated statement of financial position.
iii. First Balfour, Inc. (First Balfour)
Following the usual bidding process, the Company awarded to First Balfour procurement contracts
for various works such as civil, structural and mechanical/piping works in the Company‟s
geothermal power plants.
As of December 31, 2013 and 2012, the outstanding balance amounted to P=152.0 million and
P=73.3 million, respectively, recorded under “Trade and other payables” account in the consolidated
financial statements.
First Balfour is a wholly owned subsidiary of First Holdings.
iv. Other Related Parties
Bauang Private Power Corporation is a subsidiary of First Private Power Corporation, an
associate of First Gen. First Gas Holdings Corporation and First Gas Power Corporation are
subsidiaries of First Gen. First Holdings, parent company of First Gen, is a subsidiary of Lopez
Holdings Corporation (formerly Benpres Holdings Corporation).
Bayan Telecommunications Inc. (Bayantel) is 97.3%-owned by Bayantel Holdings on which
Lopez Holdings Corporation has 47.3% ownership.
Lopez Holdings Corporation has 57.3% interest on ABS-CBN Corp. ABS-CBN Publishing,
Inc. is a wholly owned subsidiary of ABS-CBN Corp.
Rockwell Land Corporation is 86.79% owned by First Holdings.
First Electro Dynamics Corporation (FEDCOR) is a wholly owned subsidiary of First Holdings.
Adtel Inc. is a wholly owned subsidiary of Lopez, Inc.
Lopez Group Foundation, Inc. is the coordinative hub for the corporate social responsibility
initiatives of Lopez Holdings Corporation.
20
First Philec Manufacturing Technologies Corp., Securities Transfer Services, Inc. and First
Philippine Realty Corp. (FPRC), formerly known as INAEC Development Corp, are wholly
owned subsidiaries of First Holdings.
Thermaprime Well Services, Inc. (Thermaprime) is a subsidiary of First Balfour, a wholly
owned subsidiary of First Holdings. Thermaprime provides drilling services such as, but not
limited to, rig operations, rig maintenance, well design and engineering.
First Gen Energy Solutions (First GES) and First Gen Northern Energy Corp. are wholly owned
subsidiaries of First Gen.
First Philippine Industrial Corp. is 60% owned by First Holdings.
Item 6. Compensation of Directors and Executive Officers
The aggregate compensation paid or incurred during the last two fiscal years and estimated to be paid in the
ensuing fiscal year to the executive officers of the Company are as follows:
Summary Compensation Table
Name Year Salary
Bonus/Other
Annual
Compensation
Federico R. Lopez, Chairman & CEO
Richard B. Tantoco, President & COO
Ernesto B. Pantangco, Executive Vice President
Nestor H. Vasay, Sr. Vice President, Chief
Financial Officer and Treasurer
Agnes C. De Jesus, Sr. Vice President for
Environment and External Relations, and
Compliance Officer
CEO and the four most highly compensated
officers named above
2013 P50,117,678 P43,331,884
2014 (estimate) P54,373,230 P35,968,866
Aggregate compensation paid to all officers
and directors as a group unnamed
2012 P66,601,800 P60,618,702
2013 P114,124,875 P108,587,668
2014 (estimate) P122,542,986 P90,212,447
*Note: Certain officers of the Corporation, including the top four members of senior management listed in the table above, are
seconded and receive their salaries from First Gen Corp.
In compliance with EDC Board Resolution No. 54, S‟ 2007, the members of the Board are remunerated with a
compensation package as follows:
Monthly director‟s fee: P50,000.00
Attendance fee for Board meetings: P10,000.00 per meeting
Bonus to Directors as a group: ½ of 1% of declared cash dividend
Group Life Insurance Coverage: P4 million, at a premium per month of P1,080.00 wherein P372.10 is
being shouldered by the Company while the balance of P707.90 is being shouldered by the director.
Group Hospitalization Insurance Coverage: P2,632.38 per month
Description of the Terms and Conditions of (a) Employment Contracts between the Registrant and
Named Executive Officers, and (b) Compensatory Plan or Arrangement
There is no employment contract between EDC and Messrs. Lopez, Tantoco, Pantangco and Vasay. The
foregoing officers are seconded to EDC and receive their respective salaries from First Gen Corp.
21
SVP de Jesus receives her salary and bonus from EDC in an amount appropriate to her position. She is also
covered by EDC‟s standard employee benefits which include health insurance, rice allowance, retirement plan
and the Savings Land Home Ownership Plan.
Warrants
As of the date hereof, there are no outstanding warrants held by the Company‟s president, named executive
officers, and all directors and officers, as a group.
Stock Ownership Plans
The Corporation‟s board of directors and stockholders approved on May 25 and June 10, 2008, respectively,
the creation of Stock Ownership Plans consisting of a Stock Grant Plan, Stock Option Plan, and Stock
Financing Plan (collectively the "Stock Ownership Plans") covering the Corporation‟s officers and employees.
The total number of shares to be awarded under the Stock Ownership Plans shall not exceed four percent (4%)
of the Company‟s issued common capital stock. The finalization and approval of each of the plans constituting
the Stock Ownership Plans, including the rules thereof, have been delegated to the Company‟s board of
directors. To date, only the rules of the Stock Grant Plan have been approved by the Company‟s board of
directors.
Under the Stock Grant Plan, the company‟s Nomination and Compensation Committee (“NCC”) has the sole
discretion to select individuals to whom awards shall be granted in any calendar year. As of the date of this
statement, the NCC has granted in favor of certain officers and employees of the company a total of Seventeen
Million One Hundred Twenty Five Thousand (17,125,000) stock awards broken down into: Seven Million
(7,000,000) stock awards granted on December 1, 2009, Two Million Six Hundred Twenty Five Thousand
(2,625,000) stock awards granted on January 1, 2010, Two Million Six Hundred Twenty Five Thousand
(2,625,000) stock awards on June 1, 2011, Two Million Six Hundred Twenty Five Thousand (2,625,000)
stock awards granted on June 1, 2012 and Two Million Two Hundred Fifty Thousand (2,250,000) on June 1,
2013.
The granted shares will vest over a three (3)-year period as follows: twenty percent (20%) after the 1st
anniversary of the grant date; thirty percent (30%) after the 2nd
anniversary of the grant date; and the
remaining fifty percent (50%) after the 3rd
anniversary of the grant date. Of the Seven Million (7,000,000)
shares granted on December 1, 2009, One Million Four Hundred Thousand (1,400,000) shares vested on
January 1, 2010, Two Million One Hundred Thousand (2,100,000) shares vested on January 1, 2011 and
Three Million Five Hundred Thousand (3,500,000) shares vested on January 1, 2012. Of the Two Million Six
Hundred Twenty Five Thousand (2,625,000) shares granted on June 1, 2010, Five Hundred Twenty Five
Thousand (525,000) shares vested on January 1, 2011, Seven Hundred Eighty Seven Thousand Five Hundred
(787,500) shares vested on January 1, 2012 and One Million Three Hundred Twelve Thousand Five Hundred
(1,312,500) shares vested on January 1, 2013. Of the Two Million Six Hundred Twenty Five Thousand
(2,625,000) shares granted on June 18, 2011, Five Hundred Twenty Five Thousand (525,000) shares vested on
January 1, 2012 and Seven Hundred Eighty Seven Five Hundred (787,500) shares vested on January 1, 2013.
Of the Two Million Six Hundred Twenty Five Thousand (2,625,000) shares granted on June 1, 2012, Five
Hundred Twenty Five Thousand (525,000) shares vested on January 1, 2013. Lastly for the Two Million Two
Hundred Fifty Thousand (2,250,000) shares granted on June 1, 2013 none it was vested as of December 31,
2013.
The following table sets out the persons to whom awards have been granted pursuant to the Stock Grant Plan
and the number of shares relating to each such person:
Name and Position
Date of
Grant
Total
Options
Granted Vested
Unvested
Fair Value at
Grant Date
Market
Price/Share *
(Php)
Agnes C. De Jesus- Sr. VP
For Environment and
External Relations &
22
Name and Position
Date of
Grant
Total
Options
Granted Vested
Unvested
Fair Value at
Grant Date
Market
Price/Share *
(Php)
Compliance Officer
Marcelino M. Tongco- Sr. VP
for Steam Field Operations
Manuel S. Ogena- Sr. VP for Technical Services
Dwight A. Maxino- Vice
President SNGPF Field Operations
Liberato S. Virata- Vice
President BGPF Field
Operations
Manuel C. Paete- Vice
President LGPF Field
Operations
Ellsworth R. Lucero- Vice President Power Plant
Operations- Leyte
Aggregate number of shares granted to the above-named
officers
Dec.1, „09
7,000,000 7,000,000 - 4.20 5.83
Jun. 1 „10 2,625,000 2,625,000 - 4.70 5.96
Jun. 1 „11 2,625,000 1,312,500 1,312,500 6.75 6.07 Jun. 1 „12 2,625,000 525,000 2,100,000 5.84 6.06 Jun. 1 „13 2,250,000 - 2,250,000 6.10 5.50 Aggregate number of shares
granted to all officers and directors as a group unnamed
Dec.1, „09
7,000,000 7,000,000 - 4.20 5.83
Jun. 1 „10 2,625,000 2,625,000 - 4.70 5.96
Jun. 1 „11 2,625,000 1,312,500 1,312,500 6.75 6.07 Jun. 1 „12 2,625,000 525,000 2,100,000 5.84 6.06 Jun. 1 „13 2,250,000 - 2,250,000 6.10 5.50 *average market price from date of grant to February 28, 2014
Item 7. Independent Public Accountants
Since 1987, the Commission on Audit of the Philippines had served as the independent auditor of the
Company to audit the Company‟s financial statements. With the full privatization of the Company in 2007, it
has engaged SGV & Co. as its external auditor for the last four years. The Company has not had any material
disagreements on accounting matters or financial disclosure matters with both Commission on Audit and SGV
& Co. It is proposed to reappoint during the annual stockholders‟ meeting, SGV& Co. as the Company‟s
external auditor for the current year.
The Company shall comply with the requirement under SRC Rule 68, Paragraph 3(b)(iv) on the rotation of its
external auditor or partner in charge every five years.
Representatives of SGV & Co. shall be present at the meeting, will have the opportunity to make a statement
if they choose to do so, and will be available to respond to appropriate questions.
In February 2013, the Company‟s Audit and Governance Committee (AGC) reviewed together with
EDC Management and SGV & Co. the Company‟s 2013 Annual Financial Statements. The AGC endorsed its
approval to the Board of Directors which, in March 2013, approved the statement‟s release to regulatory
bodies and the stockholders. The AGC is headed by independent director Edgardo O. Chua with members
Francisco Ed. Lim (Independent Director), Arturo T. Valdez (Independent Director), Ernesto B. Pantangco
and Francis Giles B. Puno.
23
C. OTHER MATTERS
Item 8. Action with Respect to Reports:
The Minutes of the previous annual stockholders‟ meeting will be submitted for stockholder‟s approval.
During the last stockholders‟ meeting held on May 7, 2013, the stockholders approved the following: (i)
minutes of the previous annual meeting held on May 9, 2012; (ii) Management report; (iii) ratification of
Management‟s acts (See attached Annex “A”); (iv) election of directors; and (v) appointment of the
Company‟s independent auditors.
Approval of the Minutes will constitute a ratification of the accuracy and faithfulness of the Minutes to the
events that transpired during the meeting. This does not constitute a second approval of the same matters
taken up at the annual stockholders‟ meeting, which has been approved.
Item 9. Amendments to the Seventh Article of the Articles of Incorporation:
A. The stockholders are requested to approve an amendment to the Seventh Article of the Company‟s
Articles of Incorporation, consisting of the reclassification of Three Billion (3,000,000,000) authorized and
unissued Common Shares, with a par value of One Peso (Php 1.00) per share from the existing authorized
capital stock, into Three Hundred Million (300,000,000) Non-Voting Preferred Shares with a par value of Ten
Pesos (Php 10.00) per share to be known as “Non-Voting Preferred Shares. The new Non-Voting Preferred
Shares are intended to be issued in series and the issue value of such shares will be determined at the time of
each issuance.
Following the amendment, the authorized capital stock shall be as follows:
„SEVENTH. That the authorized capital stock of the Corporation is Pesos:
Thirty Billion One Hundred Fifty Million (P 30,150,000,000.00) in lawful money
of the Philippines, divided into:
Twenty Seven Billion (27,000,000,000) common shares (the “Common Shares”)
with a par value of One Peso (Php1.00) per share, or an aggregate par value of
Pesos: Twenty Seven Billion (P 27,000,000,000.00);
Fifteen Billion (15,000,000,000) preferred shares (the “Voting Preferred Shares”)
with a par value of 1/100 Peso (Php0.01) per share, or an aggregate par value of
Pesos: One Hundred Fifty Million (P 150,000,000.00); and
Three Hundred Million (300,000,000) preferred shares (the “Non-Voting
Preferred Shares”) with a par value of Ten Pesos (Php10.00) per share, or an
aggregate par value of Pesos: Three Billion (P 3,000,000,000.00).‟
The Non-Voting Preferred Shares shall have the following rights and features, which shall be printed
on the relevant stock certificates issued by the Corporation:
1. Non-voting except in the cases provided by law;
2. Issue value to be determined by the Board of Directors at the time of issuance;
3. Entitled to receive out of the unrestricted retained earnings of the Corporation, when
and as declared by the Board of Directors, cumulative dividends at the rate to be
determined by the Board of Directors at the time of issuance, before any dividends
shall be set apart and paid to holders of the Common Shares, and shall not be entitled
to participate with holders of the Common Shares in any further dividends payable;
4. May be issued in different series;
5. Assignable;
24
6. The Corporation may redeem the Non-Voting Preferred Shares at its option in
accordance with their terms, and once redeemed, shall revert to treasury and may be
reissued or resold by the Corporation;
7. In the event of any dissolution or liquidation or winding up, whether voluntary or
involuntary, of the Corporation, except in connection with a merger or consolidation,
shall be entitled to be paid up to their issue value plus any accrued and unpaid
dividends thereon before any distribution shall be made to holders of the Common
Shares, and shall not be entitled to any other distribution.
8. Non-convertible into any shares of stock of the Corporation of any class now or
hereafter authorized;
9. No pre-emptive right to purchase or subscribe to any shares of stock of the
Corporation of any class now or hereafter authorized, or reissued from treasury;
10. The Board of Directors may specify other terms, conditions, qualifications, restrictions
and privileges of the Non-Voting Preferred Shares, insofar as said terms, conditions,
qualifications, restrictions and privileges are not inconsistent with the provisions of
Article Seventh and of any applicable law or regulation;
11. The Board of Directors shall have full power and authority to authorize (whether by
adoption of amendments to the By-Laws of the Corporation or of resolutions, the
promulgation of rules or regulations or otherwise) the taking by the Corporation of all
such action, and the Corporation shall have full power and authority to take all such
actions as the Board of Directors may deem necessary or appropriate to insure
compliance by the Corporation with any applicable provision of law, rule or regulation
relating to the ownership of securities of the Corporation by citizens of the Philippines,
aliens or other persons or group of persons.
In this regard, it is further proposed that Management be authorized to finalize the language of the
features of the Non-Voting Preferred Shares and the corresponding amendments to the Seventh
Articles of the Articles of Incorporation.
B. In connection with the proposed reclassification of Three Billion (3,000,000,000) authorized and
unissued Common Shares, with a par value of One Peso (Php 1.00) per share, into Three Hundred Million
(300,000,000) Non-Voting Preferred Shares with a par value of Ten Pesos (Php 10.00) per share, the
stockholders are also requested to approve an additional amendment to the Seventh Article of the Articles of
Incorporation, by denying the preemptive right with regard to:
1. the issuance of preferred shares of any class and/or series;
2. the reissuance of common and/or preferred shares of any class and/or series from Treasury, and
3. the issuance of common shares which the Board has resolved not to first offer to shareholders on
a pro-rata basis (“Non-Preemption Shares”); provided that the total of such Non-Preemption
Shares, together with prior issuances of common shares which were also not first offered to then
existing shareholders on a pro rata basis, will not exceed 20% of the authorized common shares at
the time of the issuance of the Non-Preemption Shares.
C. The proposed creation of new Non-Voting Preferred Shares and further limiting the pre-emptive right
will have the following advantages: (i) better management of increasing EDC debt; (ii) more funds can be
generated from the issuance of Non-Voting Preferred Shares compared to the issuance of common shares; and
(iii) the issuance of Non-Voting Preferred Shares will not alter the voting percentage nor affect the authorized
capital stock.
D. The proposal is only to limit the preemptive right and not to remove it. It is generally recommended
for listed companies to deny the preemptive right, as it would otherwise limit a company‟s capital raising
options. Certain listed companies have limited rights of pre-emption. Under the ASEAN Code of Corporate
Governance which the SEC has adopted, the absolute denial of pre-emptive rights is frowned upon but a mere
modification would be acceptable by such ASEAN best practice standards. The proposed amendment merely
seeks to limit the preemptive right and is in accordance with ASEAN best practices.
25
Item 10. Voting Procedure
For the election of 11 directors, 11 nominees receiving the most number of votes will be elected to the Board
of Directors. Cumulative voting will apply. All common and preferred shareholders are entitled to vote.
For the amendments to the Articles of Incorporation, the approval by the stockholders representing a two-
thirds (2/3) of the outstanding common and preferred stock will be required.
For all other matters to be taken up, the approval by the stockholders representing a majority of the
outstanding common and preferred stock will be sufficient.
Voting shall be done viva voce or by raising of hands and the votes cast for or against the matter submitted
shall be tallied by the Corporate Secretary in case of division of the house.
PART II: INFORMATION REQUIRED IN A PROXY FORM
PLEASE USE THE ATTACHED PROXY FORM
Item 1. Identification
This proxy is solicited by the Board of Directors and Management of Energy Development Corporation. The
solicited proxy shall be exercised by the Chairman, FEDERICO R. LOPEZ, or the President and Chief
Operating Officer, RICHARD B. TANTOCO, or the stockholder‟s authorized representative.
Item 2. Instruction
a. For all agenda items other than “Call to Order”, “Proof of Notice and Certification of Quorum”, the
proxy form shall be accomplished by marking in the appropriate box either “FOR”, “AGAINST” or
“ABSTAIN” according to the stockholder‟s/proxy‟s preference.
If no instructions are indicated on a returned and duly signed proxy, the shares represented by the
proxy will be voted:
FOR the approval of the minutes of previous meeting of the stockholders;
FOR the approval of the Management Report and audited financial statements for year ended
December 31, 2013;
FOR the confirmation and ratification of all acts and resolutions of Management and the Board of
Directors from the date of the last stockholders‟ meeting to date as reflected in the books and records
of the Company;
FOR the approval of the amendment of the Articles of Incorporation to reclassify Three Billion
(3,000,000,000) authorized and unissued Common Shares with a par value of One Peso (Php 1.00) per
share, into Three Hundred Million (300,000,000) Non-Voting Preferred Shares with a par value of
Ten Pesos (Php 10.00) per share;
FOR the approval of the amendment of the Articles of Incorporation to limit the preemptive right for
certain share issuances/reissuances
FOR the election of the following directors: Oscar M. Lopez, Federico R. Lopez, Richard B.
Tantoco, Peter D. Garrucho, Jr., Elpidio L. Ibanez, Ernesto B. Pantangco, Francis Giles B. Puno,
Jonathan C. Russell, Edgar O. Chua (Indep. Director), Francisco Ed. Lim (Indep. Director) and Arturo
T. Valdes (Indep. Director)
FOR the approval of the appointment of SGV & Co. as the Company‟s external auditor;
and to authorize the Proxy to vote according to discretion of the Company‟s President or Chairman of
the Meeting on any matter that may be discussed under “Other Matters”.
b. A Proxy Form that is returned without a signature shall not be valid.
26
c. The matters to be taken up in the meeting are enumerated opposite the boxes on the accompanying
Proxy Form. The names of the nominee directors are likewise enumerated opposite an appropriate
space.
d. If a stockholder will not be able to attend the meeting but would like to be represented thereat, he may
submit his Proxy Form, duly signed and accomplished, to the Office of the Corporate Secretary at the
head office of Energy Development Corporation, 38th Floor, One Corporate Centre Building, Julia
Vargas corner Meralco Avenue, Ortigas Center, Pasig City, on or before April 26, 2014. Beneficial
owners whose shares are lodged with PDTC or registered under the name of a broker, bank or other
fiduciary allowed by law must, in addition to the required I.D., present a notarized certification from
the owner of record (i.e. the broker, bank or other fiduciary) that he is the beneficial owner, indicating
thereon the number of shares. Corporate shareholders shall likewise be required to present a notarized
secretary‟s certificate attesting to the authority of its representative to attend and vote at the
stockholders‟ meeting.
Validation of proxies will take place on April 30, 2014 at the office of the Company‟s stock transfer
agent.
Item 3. Revocability of Proxy
A shareholder may revoke his proxy on or before the date of the Annual Meeting. The proxy may be revoked
by the shareholder‟s written notice to the Corporate Secretary advising the latter of the revocation of the
proxy, or by a shareholder‟s personal attendance during the meeting and appropriate advice to the Corporate
Secretary of such revocation.
Item 4. Persons Making the Solicitation
This solicitation is made by the Company. No director has informed the Company in writing or otherwise of
his intention to oppose any action intended to be taken up at the meeting.
Solicitation of proxies will be done mainly by mail. Certain regular employees of the Company will also
solicit proxies in person or by telephone.
The estimated amount to be spent by the Company to solicit proxies for the Board of Directors is Php 20,000.
The cost of solicitation will be borne by the Company.
Item 5. Interest of Certain Persons in Matters to be Acted Upon
No member of the Board of Directors or executive officer since the beginning of the last fiscal year, or
nominee for election as director, or their associates, has had any substantial interest, direct or indirect, by
security holdings or otherwise, in any of the matters to be acted upon in the meeting, other than election to
office.
Definitive Information Statement
Annex “A”
Summary of Acts for Ratification
The acts for ratification from the date of the last stockholders’ meeting include the following:
- Election of officers, and appointment of advisers and consultants, and organization of board
committees;
- Approval of joint venture with Alterra Power Corp. and its subsidiaries;
- Approval to proceed with various activities at Chile geothermal concession site;
- Award for the design, supply, delivery, installation, testing and commissioning of new steam
turbine;
- Approval of drilling contract interim agreement with Thermaprime;
- Authorization for Opscom to approve terms and conditions of a 3-year contract for casing running
services and award the contract for Directional Drilling and Measurement-while-Drilling Services
- Approval of increase in authorized capital stock of EDC Wind Energy Holdings, Inc.;
- Award of Master Service Agreements to Thermaprime and First Balfour;
- Approval of Peso Bonds;
- Approval of amendment to the Audit and Governance Committee Charter;
- Approval of amendment to authorized bank signatories;
- Approval of special cash dividend;
- Approval of Rigs 15 & 16 service contracts;
- Authorization to participate in bidding for Unified Leyte Independent Power Producer
Administrator;
- Award of supply agreement for various bits requirements;
- Award of Two-Way Radio Communications Project;
- Award of contracts for local area network project;
- Approval of acquisition of geothermal assets in Peru and Chile;
- Authorization to enter into a new joint venture with Alterra Power Corp.;
- Amendment of approval limits for Chile bank accounts;
- Award of 4 aerated drilling packages;
- Authorization to approve sale and/or disposition of various heavy equipment and spare parts;
- Authorization to approve the sale, lease and/or encumbrance of Murcia lot;
- Authorization to subscribe to preferred shares of EDC Wind Energy Holding.
- Award of Managed Desktop Services project;
- Authorization to claim Meralco refund of bill and meter deposit;
- Authorization of increase Opscom approval limits;
- Authorization to secure standby letter of credit;
- Approval of schedule of stockholders’ meeting;
- Approval of resolutions to comply with regulatory requirements
- Approval of 2013 audited consolidated and stand-alone financial statements of EDC;
- Approval of 2014 EDC corporate budget;
- Approval of regular cash dividend;
- Authorization for reclassification of P3.0 billion worth of common shares to P3.0 billion worth of
preferred shares and amendment of pre-emptive right of stockholders;
- Authorization to adopt Special Purpose Vehicles for new Wind Projects;
- Appointment of Erwin O. Avante as New Compliance Officer;
- Approval of final list of nominees to the Board of Directors;
- Amendment of authorized signatories;
- Updating of authorized signatories of the executive/employee stock ownership plan;
- Confirmation of previous board approval to comply with BOI requirements for the Nasulo Project;
- Creation of Special Purpose Vehicle for Solar Projects;
- Acquisition of land for operational requirements.
28
ENERGY DEVELOPMENT CORPORATION
MANAGEMENT REPORT
Pursuant to SRC Rule 20
For the Annual Stockholders‟ Meeting
On May 6, 2014
Audited Financial Statements for Fiscal Year Ended December 31, 2013
Please refer to the accompanying audited financial statements for 2013.
General Nature and Business of the Company
Nature
Energy Development Corporation (the “Parent Company” or “EDC”) and its subsidiaries (collectively
hereinafter referred to as the “Company”) are primarily engaged in the business of exploring, developing,
and operating geothermal energy and other indigenous renewable energy projects in the Philippines, and
utilizing geothermal energy and other indigenous renewable energy sources for electricity generation.
EDC‟s geothermal power projects engage in two principal activities: (i) the production of geothermal
steam for use at EDC and its subsidiaries‟ geothermal power plants, and (ii) the generation and sale of
electricity through those geothermal power plants pursuant to take-or-pay power offtake arrangements.
EDC‟s steam and electricity sales are supported by medium-to-long-term offtake agreements in various
forms. EDC‟s steam sales are backed by long-term offtake agreements with its subsidiaries: (i)
Geothermal Resource Sales Contracts (GRSCs) with its subsidiary, Green Core Geothermal Inc. (GCGI);
and (ii) a Steam Sales Agreement (SSA) with its subsidiary, Bac-Man Geothermal Inc. (BGI). EDC has
three 25-year Power Purchase Agreements (PPAs) with National Power Corporation (NPC) covering
EDC‟s Unified Leyte and Mindanao Geothermal Power Projects. The PPAs for Unified Leyte and
Mindanao I are scheduled to expire in 2022 while the PPA for Mindanao II will expire in 2024. EDC‟s
subsidiaries, GCGI and BGI, also hold offtake agreements in the form of Transition Supply Contracts
(TSCs), Power Supply Contracts (PSCs) and Power Supply Agreements (PSAs) with various customers,
particularly electric cooperatives.
EDC holds service contracts with the Department of Energy (DOE) corresponding to 13 geothermal
contract areas, each granting EDC exclusive rights to explore, develop, and utilize the corresponding
resources in the relevant contract area. EDC conducts commercial operations in the following four of its
13 geothermal contract areas:
Tongonan, Kananga, Leyte - EDC operates three geothermal steamfield projects in Leyte, which
deliver steam to the Tongonan geothermal power plant, owned by EDC‟s subsidiary GCGI, and the
four EDC-owned Unified Leyte geothermal power plants.
Southern Negros, Valencia, Negros Oriental - EDC operates two geothermal steamfield projects in
Southern Negros, which deliver steam to the two GCGI-owned Palinpinon geothermal power plants.
Bacon-Manito, Albay and Sorsogon - EDC operates two geothermal steamfield projects, which
deliver steam to two geothermal power plants in Albay and Sorsogon, owned by the Parent
29
Company‟s subsidiary BGI.
Mt. Apo, Kidapawan, Cotabato - EDC operates one geothermal steamfield project, which delivers
steam to two EDC-owned geothermal power plants in Mt. Apo.
FG Hydro, a 60%-owned subsidiary of EDC, generates revenue from the sale of electricity generated by
its 132 Megawatt (MW) Pantabangan-Masiway hydroelectric plants located in Nueva Ecija. FG Hydro
sells its generated electricity to specific customers under various power supply contracts. Generated
electricity in excess of the contracted levels is sold to the Wholesale Electricity Spot Market (WESM).
The Company holds two Wind Energy Service Contracts (WESCs) with the DOE covering the estimated
87 MW wind project in Burgos, Ilocos Norte and the estimated 84 MW wind project in Pagudpud, Ilocos
Norte. EDC Burgos Wind Power Corporation (EBWPC), a subsidiary of EDC, is currently constructing
an 87 MW wind farm in Burgos. The WESC for the project was assigned by EDC to EBWPC in
February 2011. On the other hand, the WESC for the Pagudpud project was assigned by EDC to its
subsidiary, EDC Pagudpud Wind Power Corporation (EPWPC), in June 2012.
Also, until October 2012, the Parent Company had drilling activities in Papua New Guinea.
History of Ownership
Beginning December 13, 2006, the common shares of EDC were listed and traded in the Philippine Stock
Exchange (PSE). Up to November 2007, EDC was controlled by the Philippine National Oil Company
(PNOC), a government-owned and controlled corporation, and the
PNOC EDC Retirement Fund.
On November 29, 2007, PNOC and PNOC EDC Retirement Fund sold their combined interests in EDC to
Red Vulcan Holdings Corporation (“Red Vulcan”; a Philippine corporation). Red Vulcan was then a
wholly owned subsidiary of First Gen Corporation (First Gen, a publicly listed Philippine corporation)
through Prime Terracota Holdings Corporation (Prime Terracota, a Philippine corporation). First Gen‟s
indirect interest in EDC was comprised of 6.0 billion common shares and 7.5 billion preferred shares.
Control was then established through First Gen‟s 60% indirect voting interest in EDC. Meanwhile, First
Philippine Holdings Corporation (First Holdings, a publicly listed Philippine corporation) directly owned
66.2% of the common shares of First Gen. Accordingly, First Holdings became then the ultimate parent
of the Company.
On May 12, 2009, First Gen‟s indirect voting interest in Red Vulcan was reduced to 45% with the balance
taken up by Lopez Inc. Retirement Fund (40%) and Quialex Realty Corporation (15%) through the
issuance of preferred shares by Prime Terracota. As a result of this transaction, Prime Terracota replaced
First Holdings as the ultimate parent of EDC effective May 12, 2009.
With the adoption of Philippine Financial Reporting Standard (PFRS) 10, Consolidated Financial
Statements, effective January 1, 2013, Lopez, Inc. became the ultimate parent of EDC.
Subsidiaries
The Parent Company and its subsidiaries were separately incorporated and registered with the Philippine
Securities and Exchange Commission (SEC), except for its foreign subsidiaries. Below are the Parent
Company‟s ownership interests in its subsidiaries: Percentage of Ownership
December 31, 2013 December 31, 2012
Direct Indirect Direct Indirect
EDC Drillco Corporation (EDC Drillco) 100.00 – 100.00 – EDC Geothermal Corp. (EGC) 100.00 – 100.00 –
Green Core Geothermal Inc. (GCGI) – 100.00 – 100.00 Bac-Man Geothermal Inc. (BGI) – 100.00 – 100.00
30
Percentage of Ownership
December 31, 2013 December 31, 2012
Direct Indirect Direct Indirect
Unified Leyte Geothermal Energy Inc. (ULGEI) – 100.00 – 100.00 Southern Negros Geothermal, Inc. (SNGI)**** – 100.00 – 100.00 EDC Mindanao Geothermal Inc. (EMGI)**** – 100.00 – 100.00 Bac-Man Energy Development Corporation (BEDC)**** – 100.00 – 100.00
Kayabon Geothermal, Inc. (KGI)**** – 100.00 – 100.00 Energy Development (EDC) Corporation Chile Limitada
[EDC Chile Limitada] 99.99
0.01 99.99
0.01
EDC Holdings International Limited (EHIL)*** 100.00 – 100.00 – Energy Development Corporation Hong Kong
Limited (EDC HKL) *** – 100.00 – 100.00 EDC Chile Holdings SPA** – 100.00 – 100.00
EDC Geotermica Chile** – 100.00 – 100.00 EDC Peru Holdings S.A.C. ** – 100.00 – 100.00 EDC Geotermica Peru S.A.C. ** – 100.00 – 100.00
EDC Quellaapacheta** – 70.00 – 70.00 EDC Geotérmica Del Sur S.A.C.* – 100.00 – – EDC Energía Azul S.A.C. * – 100.00 – –
Geotermica Crucero Peru S.A.C. * – 70.00 – – EDC Energía Perú S.A.C. * – 100.00 – –
Geotermica Tutupaca Norte Peru S.A.C. * – 70.00 – – EDC Energía Geotérmica S.A.C. * – 100.00 – – EDC Progreso Geotérmico Perú S.A.C. * – 100.00 – –
Geotermica Loriscota Peru S.A.C. * – 70.00 – – EDC Energía Renovable Perú S.A.C. * – 100.00 – –
PT EDC Indonesia** – 95.00 – 95.00 PT EDC Panas Bumi Indonesia** – 95.00 – 95.00
EDC Wind Energy Holdings, Inc. (EWEHI) 100.00 – 100.00 – EDC Burgos Wind Power Corporation (EBWPC) – 100.00 – 100.00 EDC Pagudpud Wind Power Corporation
(EPWPC)**
–
100.00
–
100.00
First Gen Hydro Power Corporation (FG Hydro) 60.00 – 60.00 – *Incorporated in 2013 and has not yet started commercial operations. **Incorporated in 2012 and has not yet started commercial operations. ***Serves as an investment holding company. ****Incorporated in 2011 and has not yet started commercial operations.
EDC Drillco
EDC Drillco is a company incorporated on September 28, 2009 to act as an independent service
contractor, consultant, specialized technical adviser for well construction and drilling, and other related
activities. As of December 31, 2013, EDC Drillco remained non-operating.
EGC
EGC, originally named as First Luzon Geothermal Energy Corporation, is a special-purpose company
incorporated on April 9, 2008 to participate in the bid for another local power plant. The bid was won by
and awarded to another local entity. Thereafter, EGC became an investment holding company of its
wholly owned subsidiaries, namely GCGI, BGI, ULGEI, SNGI, EMGI, BEDC and KGI. EGC also has a
0.01% stake in EDC Chile Limitada.
On March 8, 2011, the Philippine SEC approved the change of its corporate name to EDC Geothermal
Corp.
Further details on EGC‟s wholly owned subsidiaries follow:
GCGI was incorporated on June 22, 2009 with primary activities on power generation, transmission,
distribution, and other energy related businesses. GCGI is currently operating the 192.5 MW
Palinpinon and 112.5 MW Tongonan 1 geothermal power plants in Negros Oriental and Leyte,
31
respectively, following its successful acquisition from the Power Sector Assets and Liabilities
Management Corporation (PSALM) in 2009.
BGI was incorporated on April 7, 2010 primarily to carry on the general business of generating,
transmitting, and/or distributing energy. BGI has successfully acquired the
150 MW Bac-Man Geothermal Power Plants (BMGPP) from PSALM in 2010. Prior to the
acquisition of BGI of the BMGPP in May 2010, the Parent Company supplied and sold steam to NPC
under the SSA. Details are as follows:
a. Bacon-Manito-I
The SSA for the Bac-Man geothermal resources entered in November 1988 provides, among
others, that NPC shall pay the Parent Company a base price per kilowatt-hour of gross generation,
subject to inflation adjustments and based on a guaranteed take-or-pay rate at 75% plant factor.
The SSA is for a period of 25 years, which commenced in May 1993.
b. Bacon-Manito-II
Bac-Man II‟s SSA with NPC was signed in June 1996 for its two 20-MW capacity modular plants
- Cawayan and Botong. The terms and conditions under the contract contain, among others,
NPC‟s commitment to pay the Parent Company a base price per kilowatt-hour of gross
generation, subject to inflation adjustments and based on a guaranteed take-or-pay rate,
commencing from the established commercial operation period, using the following plant factors:
50% for the first year, 65% for the second year and 75% for the third and subsequent years. The
SSA is for a period of 25 years, which commenced in March 1994 for Cawayan and December
1997 for Botong.
With the rehabilitation of BMGPP, billing on the SSA shall resume on (a) the execution of the deed of
assignment of SSA from NPC/PSALM to BGI; or (b) such time that the Bac-Man power plants
commence commercial operations.
On July 25, 2012, EDC, BGI and PSALM executed a letter agreement for the direct billing and
collection of the steam contracts between EDC and BGI. However, PSALM still remains a party to
the steam contracts.
ULGEI is a company incorporated on June 23, 2010; SNGI and EMGI are companies incorporated on
February 4, 2011; and BEDC and KGI are companies incorporated on September 22 and 28, 2011,
respectively. These are Philippine companies incorporated to carry on the general business of
generating, transmitting, and/or distributing energy derived from any and all forms, types and kinds of
energy sources for lighting and power purposes and whole-selling the electric power to power
corporations, public electric utilities and electric cooperatives. As of December 31, 2013, ULGEI,
SNGI, EMGI, BEDC and KGI remained non-operating.
EHIL and EDC HKL
EHIL was incorporated on August 17, 2011 in British Virgin Islands and serves as an investment holding
company of EDC‟s international subsidiaries. EHIL owns 100% interest in EDC HKL, a company
incorporated on November 22, 2011 in Hong Kong. The following entities are the subsidiaries under
EDC HKL:
EDC Chile Holdings SPA, which was incorporated on January 13, 2012 in Santiago,
Chile, is a wholly owned subsidiary of EDC HKL and is the holding company of EDC Geotermica
Chile also incorporated on January 13, 2012 in Santiago, Chile.
EDC Peru Holdings S.A.C., incorporated on January 19, 2012 in Lima, Peru is a 99.9%-owned
subsidiary of EDC HKL. EDC Peru Holdings S.A.C. holds 99.9% stake in EDC Geotermica Peru
S.A.C., which was also incorporated on January 19, 2012 in Lima, Peru. EHIL owns the remaining
0.1% stake in EDC Peru Holdings S.A.C. and EDC Geotermica Peru S.A.C.
32
On July 17, 2012, EDC Quellaapacheta was incorporated in Lima, Peru as a 70%-owned subsidiary of
EDC Geotermica Peru S.A.C.
On July 9, 2012, PT EDC Indonesia and PT EDC Panas Bumi Indonesia were incorporated in Jakarta
Pusat, Indonesia as 95%-owned subsidiaries of EDC HKL.
As of December 31, 2013, all subsidiaries of EDC HKL remained non-operating.
On February 27, 2013, six new companies, namely: EDC Geotermica Del Sur S.A.C., EDC Energía
Azul S.A.C., EDC Energía Perú S.A.C., EDC Energía Geotérmica S.A.C., EDC Progreso Geotérmico
Perú S.A.C., EDC Energía Renovable Perú S.A.C., were incorporated in Lima, Peru as 99.9%-owned
by EDC HKL and 0.1%-owned by EDC Peru Holdings S.A.C.
EWEHI
EWEHI is a holding company incorporated on April 15, 2010. The following entities are the wholly
owned subsidiaries of EWEHI:
EBWPC is a company incorporated on April 13, 2010 to carry on the general business of generating,
transmitting, and/or distributing energy. In September 2012, following EWEHI‟s acquisition of
1,249,500 shares of EBWPC, representing 33.33% ownership interest, from EDC for P=141.4 million,
EBWPC became a wholly owned subsidiary of EWEHI. EBWPC is currently developing the 87 MW
wind energy concession in Burgos, Ilocos Norte.
EPWPC is a company incorporated on February 29, 2012 to carry on the general business of
generating, transmitting, and/or distributing energy. As of December 31, 2013, EPWPC remained
non-operating.
FG Hydro
On October 20 and November 17, 2008, in line with its objective of focusing on renewable energy, the
Parent Company acquired a total of 60% interest in FG Hydro from First Gen. FG Hydro operates the 132
MW Pantabangan and Masiway Hydro-Electric Power Plants (PAHEP/MAHEP) located in Nueva Ecija,
Philippines. FG Hydro buys from and sells electricity to the WESM and to various privately-owned
distribution utilities (DUs) under the PSAs and Power Supply Contracts (PSCs).
EDC Chile Limitada
EDC Chile Limitada is a limited liability company incorporated on February 11, 2010 in Santiago, Chile
with the purpose of exploring, evaluating and extracting any mineral or substance to generate geothermal
energy.
Other subsidiaries
On July 5, 2013, three new entities were incorporated in Lima, Peru. These entities are Geotermica
Tutupaca Norte Peru S.A.C. as 70% owned by EDC Energia Peru S.A.C; Geotermica Crucero Peru
S.A.C., as 70% owned by EDC Energia Azul S.A.C and Geotermica Loriscota Peru S.A.C., as 70%
owned by EDC Progreso Geotermico S.A.C. As of December 31, 2013, all of these remain non-
operating.
Operational Highlights
The Company generated total revenues of P25,656.3 million in 2013, a 9.6% decrease from P28,368.6 million
in 2012. From a consolidated sales volume of 6,654.7 GWh from sale to bilateral contracts and WESM, the
Company‟s revenues for 2013 from electricity business excluding sale for contingency and dispatchable
reserves amounted to P25,007.0 million. As compared to 2012, revenue from sale of electricity decreased by
P1,033.6 million, or 4.0%, from P26,040.5 million as sales volume decreased by 378.7 GWh, or 5.4%, from
33
7,033.3 GWh. Revenue from sale of electricity as contingency and dispatchable reserves decreased by
P1,678.7 million, to P649.3 million from the P2,328.0 million in 2012.
Electricity Generation
For the current year, revenues from the 6,654.7 GWh sold amounted to P25,656.3 million, decreasing by
P2,712.3 million, as compared with the P28,368.6 million revenues in 2012. The drop was primarily brought
by FG Hydro‟s revenues from sales of electricity.
Of the total sales volume, 52.1% or 3,469.3 GWh was generated by Unified Leyte in 2013 as compared to
3,726.8 GWh in 2012. Gross revenues for 2013 from Unified Leyte amounted to P10,410.9 million as
compared to the P11,065.9 million in 2012.
Mindanao I and II generated a total sales volume of 698.0 GWh, lower by 90.0 GWh than its minimum energy
off-take (MEOT) volume of 788 GWh. For 2013, revenues from the Mindanao I and II reached
P1,877.0 million as compared to the P1,985.6 million in 2012.
In 2013, electricity revenues from WESM and BCQs recognized for FG Hydro amounted to P1,851.9 million
from the 326.5 GWh sold, lower by P573.3 million or 23.6%, as compared to the P2,425.3 million recognized
from the 447.8 GWh sold in 2012. Revenue from sale of electricity as contingency and dispatchable reserves
of P649.3 million in 2013 is a decrease of P1,678.7 million from the P2,328.0 million revenues in 2012.
Third Party Drilling
In October 2012, the contract with Lihir Gold Limited in Papua, New Guinea was discontinued. Due to this,
Third Party Drilling financial results are presented under net income/loss from discontinued operations.
Health, Safety and Environment
Health
With its foundation set upon the Mandatory Health Management Standards (MHMS) the Occupational Health
and Medical Services (OHMS) Department continued to adapt its services to the company‟s needs.
In order to identify the different health hazards present in the company and assess how much control measures
are in place, the Health Risk Assessment (HRA) program was launched and completed in BGBU. This was
followed by HRA validation in the rest of the Business Units (BU‟s). Alongside the HRA, the health and
wellness program was launched across all the BU‟s. This allowed the employees to learn more about their
health status and how to lead a healthy lifestyle. This was followed up by various wellness activities which
helped the employees sustain their efforts to modify their health habits. A portal which connects the health
teams and the employees was also launched. This served to inform employees of the various services and
activities available offered by the health team.
Aside from launching new programs, existing programs were improved and refined. In line with Medical
Emergency Response, all members of the health team were trained and certified in Advance Cardiac Life
Support. The training augmented their capability to manage cardiac medical emergencies. In the area of
International Travel, a partnership with International SOS has been established to provide coverage for
employees during medical emergencies on the field wherever they may be.
Finally, when typhoon Yolanda devastated the Leyte Region, a unified medical response to the aftermath of
the typhoon was implemented by the health team. These included airlifting medicines, medical supplies and
medical staff to Ormoc; conducting daily medical missions for employees, their families as well as the
surrounding communities; and the implementation of play therapy for the children taking refuge in company
buildings.
34
Safety
In 2013, the company continued the implementation of the following safety programs that were rolled-out in
2011 and 2012:
PROGRAM OBJECTIVES EFFECTS
Contractor Safety
Passport System
Ensure that contractor worker has
attended safety training and passed the
examination before being allowed to
work at EDC worksites.
Increased safety awareness
among contractor workers thus
preventing accident in EDC
worksites.
Training for Drivers
and Inspectors /
Mechanics
Provide contractors and company drivers
with site specific mountain and adverse
road condition defensive driving
techniques. For the inspectors, explain
how individual components work and the
proper inspection procedure.
Prevent road accidents inside
and outside company premises
while performing duties.
NFPA 70E Training Increase the knowledge of employees
involved in high voltage activities on the
hazards of shock and arc-flash.
Determine proper mitigating
measures to address electrical
hazards.
NFPA 72, 20 & 25
Training
Provide employees with knowledge in
the design, inspection, testing and
maintenance of fire protection system
based on NFPA standards.
Determine proper mitigating
measures to address fire
hazards.
Fire and Electrical
Safety Audit in
NIGBU
Assess the current electrical safety and
fire protection programs of EDC.
Develop corporate standards in
designing, constructing,
operating and maintaining
electrical and fire protection
hardware and facilities.
Safety Indoctrination Provide basic safety training to
employees.
Increased safety awareness
among employees.
To better improve its safety performance, the company also embarked on the following programs across all
operating units:
PROGRAM OBJECTIVES EFFECTS
NFPA 70 (NEC)
Training
Provide employees with knowledge on
the requirements of the National
Electrical Code® which is the
international benchmark for safe
electrical design, installation, and
inspection.
Protect workers and property
from electrical hazards.
Fire and Electrical
Safety Audit in
MAGBU
Assess the current electrical safety and
fire protection programs of EDC.
Develop corporate standards in
designing, constructing,
operating and maintaining
electrical and fire protection
hardware and facilities.
Implementation of
Permit To Work
Standard
Provide guidelines that will ensure
uniform and consistent implementation
of work permit system across the
company‟s SBUs and projects.
Strengthen controls over critical
works, prevent workplace
accidents, and improve overall
health, safety and
environmental performance.
Safety Leadership
and
Provide leaders of the company with new
skills to assess current safety culture and
Increased management
commitment to safety and
35
Creating a Positive
Safety Culture
learn the lessons learned by others. improved safety performance.
Incident
Investigation and
Prevention
Provide employees with knowledge and
skills in conducting incident
investigation.
Determine cause and effect of
incidents thus preventing its
recurrence.
Moreover, the company consistently complied with the requirements of the DOLE‟s Renewable Energy
Safety, Health and Environment Rules and Regulations (RESHERR) specifically on having DOLE-accredited
Safety Officers in all facilities.
Environment
In 2013, the Watershed Management Department (WMD) and the Environmental Management Department
(EMD) filed a total of 139 and 161 forestry and environmental permit applications, respectively.
EDC obtained its first ISO 14001:2004 certification for the Mt. Apo Geothermal Project in December 2012.
Preparation for the adoption of the same standard is ongoing for two (2) other EDC geothermal projects in
Southern Negros and Leyte. In addition, all of EDC‟s environmental and geoscientific laboratories in the
head office and in all geothermal sites are ISO/IEC 17025-accredited. Lastly, the environmental laboratories
of EDC are also recognized by the Department of Environment and Natural Resources (DENR) in
conformance with the requirement of DAO 98-63.
EDC also assists in addressing the hazards that can be brought about by climate change. EDC undertakes
holistic management of the forests around its projects to ensure the protection of the water-based hydro and
geothermal reservoirs through forest patrols, reforestation, biodiversity monitoring, information education,
and alternative livelihoods for forest dwellers to avoid encroachment. EDC has organized 125 forest
communities in its project sites and provided them with livelihood opportunities since 1990. These
interventions have drastically reduced destructive activities like illegal logging and slash-and-burn farming.
When the Company acquired EDC, its reforestation commitment was further strengthened. EDC launched the
“BINHI” (vernacular for “germling”) Program, which aims to increase its reforestation effort from 300
hectares to 1,000 hectares per year spanning 2009 to 2019. EDC has planted an estimated 800 hectares in its
five geothermal project sites in 2013. The program also focuses on the use of indigenous and rare tree species
for biodiversity conservation, and water and carbon storage as a climate change adaptation measure to protect
EDC‟s assets, its personnel and its host communities.
Corporate Social Responsibility
EDC maintains to develop strong partnerships with community stakeholders through its Corporate Social
Responsibility Program called “Community Partnerships”. The Program‟s approach provides integrated
support projects in four major areas – health promotion, educational support, livelihood/entrepreneurial
development and environmental protection / enhancement – to encourage development through self-reliance
in its 47 host communities.
In 2013, about 54,261 individuals and 280 groups have benefitted from EDC‟s community development
activities across the five geothermal project sites.
1. Health Promotion. To improve the barangay health centers‟ (BHCs) capacity of providing quality medical
care in their communities, EDC repaired 7 BHCs, provided functional equipment to 4 BHCs, and distributed
medicines and medical supplies to 31 BHCs, 14 partner elementary schools and 1 Municipal Health Office.
Over 208 barangay health workers from 28 host barangays were supported with health care paraphernalia to
further capacitate them in providing quality health service to the community.
To complement the improved facilities and supplies, EDC also enhanced the skills of more than 236
community health workers through refresher trainings on diseases prevention, first aid, responsible
parenthood, and emergency preparedness and response. Support in health services, such as medical, dental,
36
optical, blood-letting and outreach activities, was also extended to 12,353 individuals of host communities,
452 households, 111 Farmers‟ Associations, 9 Partner Elementary Schools, 54 barangays across the five sites.
Likewise, 2,633 school children were beneficiaries of the nutrition feeding program implemented in EDC„s
assisted partner schools. To further ensure the health of the community and improve sanitation practices, EDC
has also rehabilitated 7 barangay water systems.
2. Educational Support. The CSR Program focuses on creating equal opportunities of quality education and
gainful employment for the communities‟ youth. Working towards this objective, EDC has constructed 1 pre-
school building in Manito, Albay, repaired 32 schools, and provided 8 schools with functional equipment to
encourage conducive learning environments. EDC also equipped 11 partner elementary schools with
Educational TV packages to improve school performance through innovative learning methods. Trainings on
various teaching skills enhancement were conducted with 621 teacher participants, financial incentives were
provided to 39 teachers, and working paraphernalia were turned over to 381 teachers. EDC subsidized the
miscellaneous fees, financial assistance and school supplies of 21,875 elementary school students, 1,154 top-
performing high school students and 28 college students, thus, giving them an opportunity to stay in school for
another year.
Apart from enhancing the academic capability of the students, physical fitness, values formation,
environmental awareness and entrepreneurship are also strengthened through the annual Energy Camp, which
involved 109 high school students last year.
A special education program, the two Leyte Schools for Excellence (SFE), fully subsidized the elementary
education of 741 elementary students. Through EDC‟s investment in the SFE‟s hardware and software
components, the schools have continued to maintain an increase in enrolment, attendance, retention,
participation and achievement rates. There were also improvements in the National Achievement Test results
and in the awards received by both schools.
Providing equal access to quality education and gainful employment, EDC continues to implement the
College Admission Review and Readiness (CAREERS) Project. In 2013, 15 CAREERS summer class
reviewees have qualified in the University of the Philippines College Entrance Test (UPCAT). There are
currently 41 students in the different UP campuses who benefit from the Project‟s monthly monitoring,
mentoring and financial assistance. The 41 students under the Project underwent a Solidarity Building
workshop wherein values of nationalism, discipline and compassion were enriched and channeled to
becoming more effective college students, and to helping in the development of their local communities. Also
in 2013, a second batch of 155 students underwent a 20-day review class to prepare for entrance tests of
premium universities, such as UP. The CAREERS Project also facilitated their UPCAT applications last year.
Creating gainful employment opportunities for trade school students is also a part of the CSR education
program. In its third year, the Kananga-EDC Institute of Technology has produced 140 trainees who have all
successfully passed the qualification assessment for National Certifications. Aside from technical skills, the
training center takes pride in its values formation program. Tech-voc experts and the trainees‟ parents have
observed significant positive behavioral changes in the trainees.
EDC supports the youth in the communities also through career guidance orientations that were conducted last
year with 2,221 graduating high school students across EDC partner schools. The Special Program for the
Employment of Students (SPES), Kasanayan sa Hanapbuhay (KASH) and on-the-job training programs also
accommodated 185 students.
3. Livelihood and Enterprise Development. EDC aims to instill the spirit of enterprise within its 43 upland
communities. To cultivate entrepreneurial skills through income generating projects of host communities,
EDC supervised livelihood modules that are implemented by 7 Farmer Cooperatives, 1 Federation and 121
Community/Farmer Associations. To further enhance the productivity of selected enterprise modules, such as
the marketing of sweet corn and banana, mechanisms were introduced aimed for the sustainability of these
projects. The sustainability mechanisms implemented, among others, are the following: (1) Strengthening of
financial system; (2) Teaching of financial management to the cooperatives; (3) Introduction of product
37
diversification and institutional marketing; (4) Process improvement and cost management on production
management. Apart from establishing systems for livelihood development, EDC has directly awarded P224.4
Million worth of small/large -scale contracts to local farmers federations. Good fiscal management is observed
in BGBU‟s FEDBAHC having availed a credit facility from Land Bank of the Philippines amounting to
P11.7M which was promptly paid on time. On the aspect of capacity-building and values formation, EDC
facilitated skills training for 1,942 individuals for various income-generating projects.
4. Environmental Conservation, Protection, Enhancement and Advocacy. From simply planting trees,
EDC has branched out in to tree biodiversity preservation. EDC‟s BINHI program aims to rehabilitate forest
fragments and ensure preservation of biodiversity with its three modules, which are: Tree for Life, Tree for
Food and Tree for the Future. In 2013, EDC has planted a total of 833,799 trees, comprising of 119 species of
timber-producing, fruit-bearing, and premium and endangered trees, respectively for their specific modules.
Through these modules, EDC has planted trees in 947.3 hectares of open land in 38 different locations.
EDC has also continued to rescue and preserve 80 Philippine premium and endangered species, and planted
4,957 trees of 69 species for vegetative cloning material. Using automated-mist propagation system, 22,270
cuttings of 45 species were cloned. Through the Program, 1,260 individuals from partner schools and
organizations have been oriented on preserving tree species and biodiversity. A second BINHI Youth
Conference was also conducted in 2013. It engaged 50 student leaders from colleges and universities across
the country to actively promote and initiate projects within their schools, and further advocate for the
propagation and preservation of Philippine endangered trees.
Business of the Issuer
Principal Products or Services and their markets
The Company operates twelve geothermal steam fields in the five geothermal service contract areas where it
is principally involved in the generation and sale of electricity through Company-owned geothermal power
plants to NPC and privately-owned distribution utilities (DUs), pursuant to Power Purchase Agreements
(PPAs) and Electricity Sales Agreements (ESAs), respectively.
Through its 60% equity interest in First Gen Hydro (FG Hydro), the Company indirectly operates the 120
MW Pantabangan and 12 MW Masiway Hydroelectric Power Plants, located in Pantabangan, Nueva Ecija
Province, Central Luzon. The power plants supply electricity into the Luzon grid to service the consumption
of its distribution utilities clients covered by bilateral contract quantities (BCQ).
The Company has evolved into being the country‟s premier pure renewable energy play, possessing interests
in geothermal energy and hydro power. For geothermal energy, its expertise spans the entire geothermal
value chain, i.e., from geothermal energy exploration and development, reservoir engineering and
management, engineering design and construction, environmental management and energy research and
development. With FG Hydro, the Company has not only acquired expertise in hydropower operation and
maintenance, but also the capability to sell power on a merchant basis.
Distribution methods of products or services
About 62.6% of the 6,654.7 GWh sales volume from its electricity business was sold to NPC. Electricity
production of about 326.5 GWh, i.e., pertaining to electricity generated by the hydro power plants of FG
Hydro, was sold mainly to its distribution utility clients comprised of electric cooperatives in the province of
Nueva Ecija while 2,123.2 GWh, i.e., generated by the geothermal power plants in Tongonan I and
Palinpinon, was sold mainly to electric cooperatives and industrial customers in the Visayas region. Also,
Bacman 2 Unit 3 geothermal power plant generated electricity of 37.7 GWh that was sold to electric
cooperatives and industrial customers. The Company‟s total sales volume comprised of 6,328.2 GWh coming
from electricity production in Leyte, Mindanao, Tongonan I, Palinpinon and Bacman 2 Unit 3 geothermal
power plants; and 326.5 GWh sold from hydro power plant operations in Pantabangan, Nueva Ecija.
38
The electricity generated by the Company‟s geothermal power plants is transmitted to customers i.e.,
distribution utilities, electric cooperatives or bulk power customers by the National Grid Corporation of the
Philippines (NGCP) through its high voltage backbone system.
New Products or Services
On May 5, 2010, BGI, the Company‟s wholly-owned subsidiary through EGC, submitted the winning bid of
US$28.25 million for PSALM‟s auction of the 150 MW Bacon-Manito Geothermal Power Plants located in
the towns of Bacon, Sorsogon Province and Manito, Albay Province. The power plants were turned over to
BGI in September 2010, and are currently under rehabilitation to restore capacity and reliability.
BGI has declared on October 1, 2013 that the Bacman 2 Unit 3 power plant is already in the status necessary
for it to operate as intended by management.
Competition
The Government, in implementing the thrust of the EPIRA, has paved the way for a more independent and
market driven Philippine power industry. This has allowed for competition, not limited by location, and driven
by market forces. As such, selling power and, consequently, the dispatch of power plants depend on the ability
to offer competitively priced power supply to the market. The Company has multiple power projects in Luzon,
Visayas, and Mindanao.
The successful privatization of NPC assets and NPC-IPP contracts in Luzon and Visayas, coupled with the
integration of the two Grids under the WESM, introduced new players and opened competition in the power
industry. Multinationals that currently operate in the Philippines and that could potentially compete against the
Company include KEPCO Power Corporation, CalEnergy International Services, Inc., Marubeni Energy
Corporation, and AES Corporation. Moreover, the local power companies of the Aboitiz group and San
Miguel group are the Company„s two largest competitors. In terms of generation capacities, the Aboitiz group
has a total of 2,353 MW[1] in its portfolio. Aboitiz Power Corporation is the Company‟s only competitor in
the geothermal energy space, after it successfully bid for the 747 MW Tiwi-makban geothermal power plant.
Chevron Geothermal Philippines Holdings operates the Tiwi-Makban geothermal steam field, that supplies the
Aboitiz geothermal plant. The San Miguel group reportedly has 2,545[2] MW in its portfolio after selling its
650 MW Limay combined-cycle gas turbine. Several of these competitors may have greater financial
resources and have more extensive operational experience and other capabilities than the Company, giving
them the ability to respond to operational, technology-related, financial, and other challenges more quickly
than the Company. The Company will face competition in both the development of new power generation
facilities and the acquisition of existing power plants, as well as in the financing for these activities.
The performance of the Philippine economy and the historical high returns of power projects in the country
have attracted many potential competitors, including multinational development groups and equipment
suppliers, to explore opportunities in the development of electric power generation projects in the Philippines.
Accordingly, competition for and from new power projects may increase in line with the long-term economic
growth in the Philippines.
The Company believes that it will be able to compete because of its competitively-priced power, the reliability
of its power plants, its use of clean and renewable fuels, and its expertise and experience in power supply
contracting and trading.
[1] Data from Aboitiz Power: www.aboitizpower.com
[2] Data from San Miguel Corporation: www.sanmiguel.com.ph/businesses/new/power-energy/
39
Dependence on one or a few major customers and identity of any such major customers
Close to 47.9% of the Company‟s electricity revenues are derived from existing long-term Power Purchase
Agreements (PPAs) with NPC.
Patents, trademarks, licenses, franchises, concessions, government shares
The five geothermal service contract areas where the EDC‟s geothermal production steam fields are located
are:
• Tongonan Geothermal Project (expiring in 2031)
• Southern Negros Geothermal Project (expiring in 2031)
• Bacon-Manito Geothermal Project (expiring in 2031)
• Mt. Apo Geothermal Project (expiring in 2042)
Northern Negros Geothermal Project (expiring in 2044)
These contract areas are located in four islands of the Philippines, namely Luzon, Leyte, Negros and
Mindanao. The following table provides a summary of the Company‟s geothermal projects, grouped by the
contract areas in which they are located:
Geothermal Renewable Energy Service
Contract (GRESC) Areas
Contract Area Expiration
of GRESC Project
Installed
Capacity Product
Expiration of
Offtake
Agreement
Minimum
Take-or-pay
Capacity 1
Plant
Owner
(in MWe) (in GWh/year)
Tongonan Geothermal
Project
2031 Tongonan 112.5 Steam and
Electricity
2009 (SSA) 2
2031 (GRSC)
GCGI5
Upper Mahiao 125.0 Steam and
Electricity
2022 (PPA) 4 4,288.0 EDC
Malitbog 232.5 Steam and Electricity
2022 (PPA) 4 EDC
Mahanagdong 180.0 Steam and
Electricity
2022 (PPA) 4 EDC
Optimization 50.9 Steam and
Electricity
2022 (PPA) 4 EDC
Northern Negros Geothermal Project
20443 Northern Negros 49.4 Steam and Electricity
2012 (ESA) N/A EDC
Southern Negros
Geothermal Project
2031 Palinpinon I 112.5 Steam and
Electricity
2008 (SSA) 2
2031 (GRSC)
GCGI5
Palinpinon II 80.0 Steam and Electricity
2018 (SSA) 2031 (GRSC)
GCGI5
Bacon-Manito
Geothermal Project
2031 BacMan I 110.0 Steam 2018 (SSA) 722.7 BGI6
BacMan II 40.0 Steam 2019/2023 (SSA)
262.8 BGI6
Mt.Apo Geothermal
Project
20423
Mindanao I 52.0 Steam and
Electricity
2022 (PPA) 390.0 EDC
Mindanao II 54.0 Steam and Electricity
2024 (PPA) 398.0 EDC
Total 1,198.8 8,065.3
1 Refers to 1-year period, ending in July 2009. Minimum Take-or-pay capacity varies from year to year. 2 The SSAs that govern the sale of steam for use at the NPC-owned Tongonan I and Palinpinon I power plants expired in December 2008 but were
extended to a date when these plants are sold or privatized, pursuant to the privatization process under the EPIRA. 3 Includes a 25-year extension period to GRESC. 4 Unified Leyte PPA 5 On October 23, 2009, the Palinpinon and Tongonan geothermal power plants were turned over to Green Core, which won the PSALM’s auction of the
said plants last September 2, 2009. 6 On September 3, 2010, the Bacman 1 and Bacman II geothermal power plants were turned over to BGI, which won the PSALM’s auction of the said
plants last May 5,2010.
The Company, through its subsidiaries Green Core Geothermal Inc. and Bac-Man Geothermal Inc. secured
three (3) Geothermal Operating Contracts covering power plant operations:
Tongonan Geothermal Power Plant (with a twenty-five (25) year contract period expiring in 2037,
renewable for another twenty-five (25) years)
40
Palinpinon Geothermal Power Plant (with a twenty-five (25) year contract period expiring in 2037,
renewable for another twenty-five (25) years)
Bacon-Manito Geothermal Power Plant (with a twenty-five (25) year contract period expiring in 2037,
renewable for another twenty-five (25) years)
The Company also holds geothermal resource service contracts for the following prospect areas:
Mt Cabalian Geothermal Project (expiring by 2034)
Mt. Labo Geothermal Project (with a 5 year pre-development period expiring in 2015, 25-year contract
period expiring in 2035)
Mt. Mainit Geothermal Project (with a 5 year pre-development period expiring in 2015, 25-year contract
period expiring in 2035)
Ampiro Geothermal Project (with a five-year pre-development period expiring in 2017, 25-year contract
period expiring in 2037)
Mandalagan Geothermal Project (with a five-year pre-development period expiring in 2017, 25-year
contract period expiring in 2037)
Mt. Zion Geothermal Project (with a five-year pre-development period expiring in 2017, 25-year contract
period expiring in 2037)
Lakewood Geothermal Project (with a five-year pre-development period expiring in 2017, 25-year
contract period expiring in 2037)
Balingasag Geothermal Project (with a five-year pre-development period expiring in 2017, 25-year
contract period expiring in 2037)
The Parent Company has WESCs with the DOE for the following contract areas:
1. Burgos Wind Project (WESC assigned by EDC to EDC Burgos Wind Power Corporation)
Under DOE Certificate of Registration No. WESC 2009-09-004 (25-year contract period expiring in
2034)
2. Pagudpud Wind Project,
Under DOE Certificate of Registration No. WESC 2010-02-040 (pre-development stage expiring in
2013, 25-year contract period expiring in 2035)
Last December 2013, EDC signed two (2) WESCs covering the Burgos 1 and Burgos 2 Wind Projects
in Burgos, Ilocos Norte. Details of the said WESCs will be submitted by the Company as soon as
copies of the WESCs are received from the Department of Energy (DOE).
Effect of existing or probable governmental regulations on the business
The Company and its projects are subject to significant regulation, including the EPIRA, and therefore are
also subject to changes in regulations, or in their interpretations. Energy regulation is currently, and may
continue to be, subject to challenges, modifications, the imposition of additional requirements, and
restructuring proposals. The Company may not be able to obtain or maintain all regulatory approvals that may
be required in the future, or secure any necessary modifications to existing regulatory approvals. In addition,
the cost of operation and maintenance and the operating performance of steamfields and geothermal power
plants may be adversely affected by changes in certain laws and regulations and the manner in which certain
laws and regulations are implemented. Any such changes could change many aspects of the Company‟s
present and future operations, or increase the Company‟s compliance expenses which could materially and
adversely affect the Company‟s business, financial condition and results of operations.
These laws and regulations likewise affect the Company‟s disposal of various forms of materials resulting
from geothermal reservoir production, the drilling and operation of new wells, and power plant operations.
Such laws and regulations generally require the Company to obtain and comply with a wide variety of
licenses, permits, and other approvals. In addition, regulatory compliance for the construction of new facilities
is a costly and time-consuming process; changing environmental regulations may require major expenditures
in obtaining permits and may create the risk of expensive delays or material impairment in project value if
41
projects cannot be operated as planned due to changing regulatory requirements or local opposition.
The Company‟s projects are subject to numerous local statutory and regulatory standards relating to the use,
storage, and disposal of hazardous substances. The Company uses industrial lubricants and other substances in
its projects, which are or could be classified as hazardous substances. If any of the Company‟s projects is
found to have released any hazardous substances into the environment, the Company could become liable to
investigation and removal of those substances, regardless of their source and time of release. The Company
maintains comprehensive general liability insurance intended to cover liabilities to third parties.
Safety, health, and environmental laws and regulations in the Philippines have become more stringent, and it
is expected that this trend will continue. The adoption of new laws and regulations on safety, health, and
environment, new interpretations of existing laws, increased governmental enforcement of environmental
laws, or other developments in the future may require additional capital expenditures or the need for
additional operating expenses in order to comply with such laws and to maintain current operations.
Also, in recent years, the Government has sought to implement measures designed to establish a competitive
energy market. These measures include the successful privatization of power generation facilities and grant of
a concession to manage, operate and maintain the transmission and subtransmission assets of TransCo, as well
as the establishment of a wholesale spot market for electricity. The move towards a more competitive
electricity industry could result in the emergence of new and numerous competitors. These competitors may
have greater financial resources, and have more extensive operational experience and other capabilities than
the Company, giving them the ability to respond to operational, technological, financial and other challenges
more quickly than the Company.
The Energy Regulatory Commission (ERC) currently evaluates power supply agreements with a “cost-based”
methodology. However, there have been moves by industry players in proposing to the ERC a transition to a
more market driven approach. This proposed “market based” PSA evaluation aims to establish the sustainable
way of approving contracts while ensuring consumers are protected. Furthermore, ERC and DOE continue to
firm up various rules and regulations governing the commercial operations of Retail Competition and Open
Access including rules that effectively impose increased limits on the entities that may be issued RES licenses
as well as the RES sales to end-user affiliates.
Likewise, under the RE Law and its implementing rules, in relation to a reduced income tax rate from 30% to
10% for renewable energy developers, there is a provision for a possible pass-on of savings in the form of
lower power rates under such mechanism as may be determined by the DOE in coordination with the
Renewable Energy developers. Such determination may include the applicability of certain exceptions to the
pass-on savings provision. The results of such pass-on savings mechanism, if ruled unfavorable against the
Company, may have a material and adverse impact on the Company‟s business and financial condition.
Congress may pass a law rationalizing the various fiscal incentives available under different laws which may
have the effect of reducing the incentives currently enjoyed by the Company.
Considering the foregoing risks and associated costs, the Company closely monitors relevant proposed
legislation and intends to take appropriate steps to address possible adverse effects of such proposals in the
event that the latter are enacted or promulgated into law or regulation. The Company also endeavors to keep
itself abreast with the latest laws and regulations and takes reasonable measures to ensure timely submission
of documentary requirements for processing of applicable permits and licenses. It closely coordinates with
relevant regulatory agencies, such as the DENR and the DOE and has historically been an active participant in
public hearings and consultations regarding relevant proposed legislation. In line with its efforts to comply
with safety, health, and environmental laws and regulations, the Company continues to reinforce its safety
practices and has required its contractors to obtain the relevant work permits to ensure safety practices are
observed.
42
Cost and effects of compliance with environmental laws
The Company‟s geothermal steam field and power generation operations are subject to extensive, evolving
and increasingly stringent safety, health and environmental laws and regulations. These laws and regulations
include but are not limited to the Clean Air Act (Republic Act No. 8749), Clean Water Act (Republic Act No.
9275), Toxic Substances and Hazardous and Nuclear Waste Control Act of 1990 (Republic Act No. 6969),
Ecological Solid Waste Management Act (Republic Act No. 9003), the Department of Energy‟s (DOE‟s)
Renewable Energy Safety Health and Environment Rules and Regulations (RESHERR) (2012), and the
Department of Labor and Employment‟s (DOLE) Occupational Safety and Health Standard, as amended.
Such legislations address, among other things, air and ambient noise emissions, wastewater discharges, and
solid wastes management, as well as the generation, handling, storage, transportation, treatment, and disposal
of toxic and hazardous materials and wastes. They also regulate workplace conditions within power plant
facilities and employee exposure to hazardous work environment. In particular, the Occupational Safety and
Health Standards were formulated to safeguard workers‟ social and economic well-being, as well as their
physical safety and health. In addition, EDC also complies with other laws and standards, such as the Revised
Forestry Code of the Philippines, (Presidential Decree No. 705), the National Integrated and Protected Areas
System Act (Republic Act No. 7586), Geothermal Reservation Law (Executive Order No. 223), Wildlife
Resources Conservation and Protection Act, Indigenous Peoples Rights Act (Republic Act No. 8371), Climate
Change Act (Republic Act No. 9729) and the IFC/World Bank environmental and social safeguards.
The total cost incurred by the Company to comply with environmental laws for the years 2012 and 2013 were
approximately P174.0 million and P169.0 million, respectively.
Development Activities
The Company follows the full cost method of accounting for its exploration costs determined on the basis of
each service contract area. Under this method, all exploration costs relating to each service contract are
accumulated and deferred under the “Exploration and evaluation assets” account in the consolidated statement
of financial position pending the determination of whether the wells has proved reserves. Capitalized
expenditures include costs of license acquisition, technical services and studies, exploration drilling and
testing, and appropriate technical and administrative expenses. Project development costs are expensed as incurred until management determines that the project is
technically, commercially and financially viable, at which time, project development costs are capitalized.
Project viability generally occurs in tandem with management‟s determination that a project should be
classified as an advanced project, such as when favorable results of a system impact study are received,
interconnected agreements are obtained and project financing is in place.
Amount Spent on Development Activities and its Percentage to Revenues:
2013 2012 2011
Exploration and Evaluation Assets 2,380,775,489 1,604,105,412 1,087,079,413
Wind Energy Project Development Costs 4,098,813,589 467,744,367 258,394,939
Total Development Activities (DA) 6,479,589,078 2,071,849,779 1,345,474,352
Revenues 25,656,270,470 28,368,552,055 24,539,607,457
Percentage of DA to Revenues 25.3% 7.3% 5.5%
Employees and Labor Relations
As of December 31, 2013, the Parent Company has 1,941 employees consisting of 34 Executives, 1,242
43
Managerial, Professional and Technical (MPT) employees, and 665 Rank and File (R&F) employees. In
particular, the distribution of employees by Business Units and Centers of Excellence is as follows:
Headcount of EDC, GCGI, BGI:
EDC only per Job Category:
The Company has a funded, non-contributory, defined benefit retirement plan. The plan covers regular
employees and is administered by a trustee bank. The Company also provides post-retirement medical and
life insurance benefits which are unfunded.
There are 13 labor unions within the Parent Company, each representing a specific collective bargaining unit
allowed by law. They are distributed in the different locations as follows:
44
Name of Union Location/Project No. of
Members
1. PNOC Energy Group of Employees Association (PEGEA) Head Office 49
2. Tongonan Workers‟ Union (TWU) Tongonan Geothermal Project 52
3. Leyte A Geothermal Project Employees‟ Union (LAGPEU) Tongonan Geothermal Project 207
4. United Power Employees‟ Union (UPEU) Tongonan Geothermal Project 43
5. Leyte Geothermal Supervisory, Professional and Technical Employees
Union (LEGSPTEU)
Tongonan Geothermal Project 161
6. Demokratikong Samahang Manggagawa ng BGPF (DSM-BGPF) Bacon-Manito Geothermal Project 77
7. EDC-BGPF Supervisory Employees‟ Union (EBSEU) Bacon-Manito Geothermal Project 20
8. Bac-Man Professional and Technical Employees Union (BAPTEU) Bacon-Manito Geothermal Project 32
9. Mt. Apo Workers Union (MAWU) Mt. Apo Geothermal Project 73
10. Mt. Apo Professional and Technical Employees Union (MAPTEU) Mt. Apo Geothermal Project 38
11. PNOC EDC SNGP Rank and File Union Southern Negros Geothermal Project 99
12. PNOC EDC SNGP Supervisory Association (PESSA) Southern Negros Geothermal Project 56
13. PNOC EDC NNGP Employees Rank and File (PENERFU) Northern Negros Geothermal Project 20
These unions enter into regular collective bargaining agreements (CBAs) with the Parent Company as regards
to number of working hours, compensation, employee benefits, and other employee entitlements as provided
under Philippine labor laws; and in 2013, four (4) CBA negotiations were concluded in just one (1) meeting
each.
Management believes that the Company‟s current relationship with its employees is generally good. Although
the Company had been involved in arbitrations with its labor unions, it has not experienced in the last thirteen
(13) years any strikes, lock-outs or work stoppages as a result of labor disagreements.
As of December 31, 2013, the Company‟s subsidiaries, GCGI, BGI and FGHPC employ the following
number of employees:
Subsidiary Managerial, Professional &
Technical Rank & File Total
Anticipated no. of
employees by 2014
GCGI
BGI
FGHPC
107
46
33
74
33
24
181
79
57
181
79
57
FACTORS AFFECTING THE COMPANY‟S RESULTS OF OPERATIONS
Set out below are some of the more significant factors that have affected and continue to affect the Company‟s
results of operations.
The Company’s Relationship with NPC
Contractual framework.
As per the Company‟s SSAs and PPAs, NPC is obligated to pay for a minimum quantity of steam and
electricity pursuant to its take-or-pay and minimum energy offtake (MEOT) obligations. As of
December 31, 2013, the remaining lives of these contracts are up to 5 and 10 years for the SSAs and
PPAs, respectively. The remaining active SSAs of the Company with the NPC are those pertaining to the
Bac-Man I and II Geothermal Power Plants.
Starting September 3, 2010, on account of the extended waiver, the Company ceased billing to NPC after
BGI‟s successful acquisition of the plants from NPC pending the commercial operation of the Bac-Man
plants. Upon resumption of billing, PSALM/NPC, EDC and BGI have also agreed to allow EDC bill BGI
directly, on behalf of PSALM/NPC, for the Bacman steam supply.
45
Exchange Rate Fluctuations
The Company‟s accounting records and financial statements are prepared in Pesos, even as its payments for
debt service and major materials and services are denominated substantially in US Dollars. Foreign exchange
rate fluctuations affect the cost of borrowings, as well as the Peso value of such in the Company‟s balance
sheet.
In 2013 and 2012, the Company recorded a foreign exchange loss of P1,261.2 million and foreign exchange
gain of P1,053.5, respectively.
Also, the unit prices for majority of the SSAs and PPAs are indexed to the US Dollars vis-a-vis the Philippine
Peso.
PROPERTY
Land
The Company is the registered owner of land located in various parts of the Philippines.
As of December 30, 2013, these lands were valued by Cuervo Appraisers Inc. and Royal Asia Appraisal
Corporation, independent appraisers of EDC, at P1.13 billion. The Company‟s landholdings include lots in
Bonifacio Global City in Taguig with a total area of 5,794.5 square meters, Baguio City with an area of 2,558
sq.m. and numerous lots used for geothermal operations in the cities of Ormoc, Bago, and Sorsogon and also
in the municipalities of Kananga, Valencia, and Manito with an aggregate area of 188 hectares.
EDC does not own any parcel of land in its Mindanao Geothermal Project as the area where EDC‟s
geothermal facilities and power plants are located is classified as public land. In Northern Luzon, majority of
lots that were leased by the Company in Burgos, Ilocos Norte are now under the process of expropriation in
preparation for the construction of the Burgos Wind Project.
The following table sets out certain information regarding the Company‟s landholdings:
Location/Project Parcels of
Land
Area
(hectares)
Under
Expropriatio
n
Leased
Acquired
w/ title to
EDC
Title for
Consolidation
Fort Bonifacio 4 0.58 None None 1 3
Baguio 1 0.26 None None 1 None
Bacon-Manito
Geothermal Project 32 12.23 None None 13 19
Northern Negros
Geothermal Project 151 105.16 19 119 12 1
Southern Negros
Geothermal Project 60 98.66 3 12 None 45
Leyte Geothermal
Project 92 192.93 11 9 23 49
Burgos Wind Project 2096 689 1952 144 None None
Total 2,436 1,098.82 1,985 284 50 117
None of the properties owned by the Company is subject to any mortgage, lien, encumbrance, or limitation on
ownership and usage.
For lots whose titles are still in the name of the registered/previous owners, the Company engaged the services
of local lawyers in Ormoc City and Dumaguete City for the judicial titling applications with the Regional
Trial Courts of Ormoc City and Valencia, Negros Oriental.
For its leased properties, majority of the Company‟s lease agreements cover properties located in its Burgos
46
Wind Project and commonly have a lease term of 25 years. In general, the leased properties in the Burgos
Wind Project will be used for the wind farm area, transmission tower sites, and sailover areas. The lease
payments for the long term leases are usually paid in full to cover the duration of the contract.
Other geothermal sites that have existing lease agreements generally have a mid-term lease and are used for
warehouses, access roads and drilling pads where the need to use the property is immediate, temporary, but
renewable. Lease payments are usually paid in full for the whole duration of the contract at the start of the
lease term. Transmission line lease agreements are perpetual in nature and are always paid in full.
The following table provides details on the Company‟s leased properties:
Location/Project Parcels
of land Structures
Duration
of lease
Payment
Terms
Lease Amount
(in Php
millions)
Renewal options
Northern Negros
Geothermal Project
119 Transmission Lines and
Towers
Perpetual One time 0.27 NA
Southern Negros
Geothermal Project
12 Pipelines, Drilling Pads
and Access Roads
5 years Annual 0.30 Renewable
Leyte Geothermal
Project
9 Drilling Pads, Parking
Area
25 years One Time 1.37 First option to buy
Mindanao
Geothermal Project
1 Warehouse 5 years One Time 0.04 Renewable
Metro Manila 2 Warehouse / Laboratory 7 years Annual 8.10 Renewable, with
first option to buy
Burgos Wind Project 144 Wind farm area /
Transmission Lines and
Towers
25 years One Time 363.41 Renewable, with
first option to buy
Total 287 373.49
First Gen Hydro Power Corporation
The Pantabangan Hydroelectric Power Plant (PHEP – 120.80 MW) is located at the foot of the Pantabangan
dam and consists of two generators, each capable of generating full load power of originally 50 MW at 90%
power factor. As part of the just concluded three year (2008- 2011) Plant Refurbishment and Upgrade Project
(PRUP), Units 1 and 2 have been refurbished and upgraded in December 2009 and December 2010,
respectively to 60.40 MW each (first and second phase of PRUP). Each generator is coupled to a vertical
shaft Francis Turbine that converts the kinetic energy of the water from the dam to 81,000 mechanical
horsepower at a design head of 75 meters.
The electric power output of PHEP is delivered to the Luzon Grid through a 13.8kV/230kV Ring Bus
Switchyard, composed formerly of two 64 MVA transformers, switching and protective equipment. The two
transformers were eventually replaced last May 2011 (third phase of PRUP) with a higher rating of 75 MVA
to match the increase in output.
Located some 7 kms. downstream of PHEP is the Masiway Hydroelectric Power Plant (MHEP – 12 MW). It
uses a 16,800 HP Kaplan turbine to convert the energy of the low head but high flow release of water from the
Masiway re-regulating dam to a directly coupled generator that is capable of generating 12 MW of electric
power at 90% power factor. The power output of MHEP is delivered to the Grid through a switchyard mainly
composed of a 15 MVA transformer, switching and protective equipment all owned by FG Hydro.
For both PHEP and MHEP, the power components owned and operated by FG Hydro are the power houses
and generating equipment plus auxiliary systems, warehouse, lay down and areas associated with the
powerhouses. In addition, FG Hydro also owns the steel penstock and main step-up transformers at PHEP. For
MHEP, the intake and trash rack machine as well as the main step-up transformer that include the 69 KV
switchyard equipment are owned by FG Hydro. The transmission facilities including the switchyard at PHEP
are owned by National Grid Corporation of the Philippines (formerly TRANSCO).
47
The volume of water release from the Pantabangan reservoir is based on the Irrigation Diversion Requirement
(IDR) dictated by the National Irrigation Administration (NIA). NIA operates and maintains the non-power
components which include the watershed, spillway, intake structures of PHEP, and Pantabangan and Masiway
reservoirs.
As of December 31, 2013, the consolidated net book value of property, plant and equipment amounted to
P66,240.0 million.
Green Core Geothermal, Inc.
Located in Valencia, Negros Oriental, the Palinpinon geothermal power plant consists of two power stations,
Palinpinon I and II, which are approximately five kilometers apart. Commissioned in 1983, Palinpinon I
comprises three 37.5–MW steam turbines for a total rated capacity of 112.5 MW. Palinpinon II, on the other
hand, consists of three modular power plants: Nasuji, Okoy 5 and Sogongon. The 20-MW Nasuji was
commissioned in 1993, while the 20-MW Okoy 5 went on stream in 1994. Started in 1995, Sogongon consists
of the 20-MW Sogongon 1 and 20-MW Sogongon 2. Situated in Sitio Sambaloran, Barangay Lim-Ao,
Kananga, Leyte province in Eastern Visayas, the Tongonan geothermal power plant consists of three 37.5-
MW units, which went into commercial operations in 1983. Both plants use steam supplied by EDC.
Bac-Man Geothermal, Inc.
Located in Bacon, Sorsogon City and Manito, Albay in the Bicol region, the Bac-Man plant package consists
of two steam plant complexes. The Bac-Man I geothermal facility comprises two 55 MW turbines, which
were both commissioned in 1993. Bac-Man II, on the other hand, consist of 20 MW unit Cawayan located in
Barangay Basud. The Cawayan unit was commissioned in 1994.
Other Subsidiaries
EWEHI, EBWPC, EDC Drillco, ULGEI, EDC Chile Limitada, SNGI, EMGI, BEDC, KGI, EHIL and EDC
HKL are the other subsidiaries of the Company that have not started with their operations yet.
PTEI, PTEPBI, ECH SPA, EG Chile, EPH SAC, EG Peru, EQ and EPWPC are the other subsidiaries of the
Company that were incorporated within the year 2012 but have not started with their operations yet.
LEGAL PROCEEDINGS
Except as disclosed herein, there are no material pending legal proceedings to which the Company is a party
or to which any of its material properties are subject. If the Company is not successful in one or more of the
proceedings described below, it could be liable for payments and incur damages and costs which could be
substantial and could have a material adverse effect on the Company‟s business, financial condition, results of
operations and liquidity.
Expropriation Proceedings
Several expropriation proceedings filed by the Republic of the Philippines, through the Department of
Energy, and PNOC to acquire lands needed by the Company for its power plants and projects are still
pending before various Philippine courts, in particular, with respect to the land requirements of the Leyte
Geothermal Production Field, the Southern Negros Geothermal Production Field, Northern Negros
Geothermal Project and the Burgos Wind Project. As of December 31, 2012, there were 299 such cases
pending and the aggregate amount claimed by the landowners as just compensation is approximately
P267.1 million. In 2013, two of these were settled but some 616 additional expropriation proceedings
were commenced for the Burgos Wind Project alone. To date, the Republic of the Philippines and the
48
PNOC‟s authority to expropriate land for the Company‟s use and the Company‟s possession of the land
expropriated has not been questioned in the pending expropriation proceedings. The common issue in
these cases is the amount of compensation to be paid to the owners of expropriated lands.
Tax Cases
a) Real Property Taxes
On May 22, 2009, the Company received a Notice of Assessment from the Provincial Assessor of Leyte
assessing the value of the Company‟s geothermal and production wells at a value of P5,920.0 million
which facilities are located in Tongonan, Malitbog and Lim-ao. On August 7, 2009, the Company filed the
corresponding appeal before the Local Board of Assessment Appeals (LBAA) of the Province of Leyte in
a case entitled Energy Development Corporation vs. Province of Leyte, LBAA Case No. 029, for the
annulment of the assessments made on the ground that the properties assessed are exempted from real
property tax. The appeal is still pending with the LBAA as of December 31, 2013.
On February 2, 2011, EDC paid under protest realty taxes accruing to the Special Education Fund (SEF)
on its transmission lines and other improvements located in Bago City for the taxable year 2010
amounting to P2.7 million. On March 4, 2011, EDC filed with the Treasurer its formal protest. On May
27, 2011, due to the Treasurer‟s inaction, EDC was constrained to appeal the same before the LBAA –
Bago City. EDC is not liable to pay SEF that is in excess of the preferential realty tax rate of 1.5% under
Section 15 (c) of R.A. 9513. The appeal is still pending with the LBAA as of December 31, 2013.
On March 14, 2012, the Company received a Notice of Assessment for real properties located in the
Mount Apo Geothermal Production Field with an assessed value of P7.5 million. On May 15, 2012, the
Company filed an appeal with the LBAA entitled Energy Development Corporation vs. The City of
Kidapawan on the ground that the properties are exempt from real property tax. The appeal is still pending
with the LBAA as of December 31, 2013.
On April 24, 2012, the Company filed an appeal with the LBAA of Bago City seeking to refund a portion
of the real property tax payments made for the year 2010 representing the amount in excess of the
preferential real property tax rate of 1.5% under Section 15(c) of Republic Act No. 9513, amounting to
P6.0 million. The appeal is still pending with the LBAA as of December 31, 2013.
On July 30, 2012, the Company also filed an appeal with the LBAA of the Province of Leyte seeking to
refund a portion of real property taxes paid for properties located in Kananga, Leyte for the year 2010 in
the sum of P17.0 million. On August 23, 2012, the Company also filed an appeal with the LBAA
appealing the inaction of the Leyte Provincial Treasurer on the payment under protest of the amount of
P11.0 million for properties located in Kananga, Leyte for the year 2012. The excess amounts pertain to
the amounts in excess of the 1.5% preferential real property tax rate imposed by Section 15(c) of R.A.
9513. The Company also filed a similar appeal with the LBAA of Kidapawan City on March 19, 2012,
seeking to refund an amount of P2.8 million. On June 1, 2012, the Company also filed an appeal to the
LBAA of Ormoc City, appealing the denial of the Ormoc City Treasurer of the Company‟s protest of
excess real property tax payments in the amount of P39.5 million. On December 6, 2012, the Company
filed an appeal with the Province of Negros Oriental seeking refund of excess real property tax payments
made for fiscal year 2011 in the amount of P0.9 million on the ground of non-use of the subject real
properties. The Company also filed an appeal on April 11, 2013 appealing the denial of the request for
reclassification of transmission towers from buildings to machineries, and consequently from taxable to
exempt. The foregoing appeals are still pending before the LBAA as of December 31, 2013.
For the year 2013, the Company filed similar appeals with Kidapawan City seeking refund of excess real
property payments for fiscal year 2011 in the amount of P2.8 million and for fiscal year 2013 in the
amount of P2.9 million. In the Province of Leyte, the Company filed similar appeals seeking refund of
excess real property tax payments for fiscal year 2011 in the amount of P13.2 million and for fiscal year
2013 in the amount of P8.9 million. The Company also filed an appeal of its protest of excess real
49
property tax payments in Bago City in the amount of P5.6 million and in Ormoc City in the amount of
P36.8 million, both for fiscal year 2013. The Company also filed an appeal with the City of Sorsogon
requesting for the annulment of assessment of realty tax from the 4th quarter of 2010 to 2013. On July 1,
2013, Green Core Geothermal, Inc. (GCGI), a subsidiary of the Company, filed an appeal with the LBAA
of the Province of Negros Oriental to seek a reversal of the denial by the Provincial Treasurer of GCGI‟s
protest of excess real property tax payments for the year 2013 in the amount of P6.0 million. On
August 2, 2013, GCGI also appealed with the LBAA of the Province of Leyte the adverse decision of the
Provincial Treasurer on GCGI‟s protest of excess real property tax payments for the year 2013 in the
amount of P17.8 million. These appeals are pending before the LBAA as of December 31, 2013.
b) Franchise Taxes
The Province of Leyte assessed the Company an aggregate of P310.6 million in franchise taxes in respect
of the operations from 2000-2004, 2006 and 2007 of its geothermal power plants in the Province. The
Company seasonably filed the corresponding appeals before the Regional Trial Court (RTC) of Tacloban
City, Leyte, for the annulment of the assessments. The said cases have been docketed as Consolidated
Civil Cases No. 2006-07-77, 2006-05-49, 2006-05-48 and 2007-08-03, and 2008-05-537 captioned PNOC
EDC vs. province of Leyte, et. al.
In December 2008, the Company received a Consolidated Notice of Assessment and Demand for Payment
from the Province of Leyte, demanding from the Company the payment of franchise tax in the amount of
P443.7 million. This assessment cancelled previous assessments since the new assessment covers the
period starting 1998 until 2006. On April 24, 2009, the Company protested the said assessment and, since
the Province denied the said protest, the matter is currently under appeal before the Regional Trial Court
of Tacloban City, Leyte, docketed as Civil Case No. 2009-04-46, captioned EDC vs. Province of Leyte, et
al.
On July 17 and September 15, 2009, respectively, the Court issued two orders granting the Company‟s
prayer for the issuance of a Preliminary Injunction restraining the Province from levying and collecting
franchise tax from the company. These orders are subject of a Petition for Certiorari with Prayer for
Issuance of Preliminary Injunction and/or Temporary Restraining Order docketed CA G.R. CEB SP
No. 04575 filed by the province seeking to annul the said orders. On August 3, 2012, the Court of Appeals
issued a Resolution denying the Province of Leyte‟s Motion for Reconsideration of the Resolution dated
September 21, 2011 dismissing the Petition for Certiorari.
On August 11, 2010, the Company received a notice of assessment of franchise tax dated July 26, 2010
from OIC City Treasurer of Sorsogon demanding payment of a franchise tax in the total amount of
P3.7 million for the operations of the Geothermal Plant for the year 2009. The Company timely filed its
protest on October 8, 2010. As the City Treasurer of Sorsogon City failed to act on the protest with the
prescribed period, the Company filed the appropriate Petition with the RTC. On January 10, 2012, the
Company received an adverse decision of the RTC which was appealed to the Court of Tax Appeals
(CTA). On May 14, 2013, the CTA rendered a Decision granting the Company‟s Petition for Review and
held that the Company is not liable for franchise tax. Accordingly, the CTA reversed and set aside the
decision of the RTC. The CTA set aside and nullified the Notice of Assessment assessing the Company
deficiency franchise tax in the amount of P3.7 million. The Decision of the CTA became final and
executory on August 21, 2013.
The Company believes that it is not liable for franchise taxes on the basis that it does not possess a
legislative franchise. This view is supported by an opinion of the Office of the Government Corporate
Counsel. In addition, under EPIRA, power generation is not a public utility activity and does not require a
franchise. Furthermore, the Company is not engaged in a business that requires a franchise.
50
c) Input Value Added Tax
On April 24, 2009, and December 29, 2009, and March 31, 2011, the Company filed Petitions for Review
with the CTA with respect to its un-acted claim from the Bureau of Internal Revenue for Tax Credit on
Input Value Added Tax relating to the Company‟s zero-rated sales for 2007, 2008, and 2009, respectively.
The aggregate claim amounts to P370.3 million. These cases are entitled Energy Development
Corporation (Formerly PNOC Energy Development Corporation) vs. Commissioner of Internal Revenue
and have been docketed as CTA Case No. 7926, 8019, and 8255, respectively. The Company believes that
the Company‟s sales are zero-rated pursuant to the provisions of EPIRA and the provisions of the
National Internal Revenue Code, as amended.
On May 9, 2011, the CTA dismissed the Company‟s petition in CTA Case No. 7926. On May 26, 2012,
the Company filed a Motion for Reconsideration which was denied by the CTA on July 15, 2011. On
August 18, 2011, a Petition for Review was filed with the CTA En Banc and was docketed as CTA EB
No. 809. On May 31, 2012, the CTA En Banc affirmed the dismissal of the petition. A Motion for
Reconsideration was filed on June 29, 2012 which was also denied in a Resolution dated August 29, 2012.
On October 29, 2012, the Company filed a Petition for Review on Certiorari with the Supreme Court to
seek the reversal of the Decision and Resolution of the CTA En Banc. The Petition for Review on
Certiorari is still pending before the Supreme Court as of December 31, 2013.
On April 29, 2013, the CTA rendered a Decision in CTA Case No. 8019 partially granting the Petition for
Review and directing the Commissioner of Internal Revenue to refund or issue a tax credit certificate in
favor of the Company the amount of P34.4 million. On May 22, 2013, the Company filed a Motion for
Reconsideration which was denied by the CTA in its Resolution dated August 14, 2013. On September
19, 2013, the Company filed with the CTA En Banc a Petition for Review to appeal the said Decision and
Resolution and was docketed as CTA EB No. 1067. The Petition for Review is pending with the CTA En
Banc as of December 31, 2013.
On October 16, 2013, the Company filed a Motion to Withdraw its Petition for Review in CTA Case No.
8255 to claim for refund or tax credit for taxable year 2009. On October 22, 2013 the CTA granted the
motion and declared the case as closed and terminated.
Civil Cases
As of December 31, 2013, there are 21 civil cases to which EDC is a party. Although the aggregate
monetary claims in these cases amount to approximately P20.8 million, the Company does not believe
that an adverse result in any one case pose a material risk to the Company‟s operations.
Labor Cases
As of December 31, 2013, there were 10 pending labor cases against the Company, most of which deal
with plaintiffs‟ claims of illegal dismissal and backwages. Although the aggregate monetary claims in
these cases amount to approximately P40.4 million, the Company does not believe that any one case poses
a material risk to the Company‟s operations.
51
Management Discussion and Analysis of Results of Operations and Financial Condition
Management Discussion and Analysis of Results of Operations and Financial Condition
Energy Development Corporation (EDC) operates 12 geothermal projects in the five geothermal service
contract areas where it is principally involved in the production of steam for delivery to Company-owned
power plants which convert steam to electricity for sale by EDC to NPC, privately-owned distribution utilities
(DUs) and large industrial customers, pursuant to Power Purchase Agreements (PPAs) and Power Supply
Agreements (PSAs).
The following discussion focuses on the results of operations of EDC and its subsidiaries, FG Hydro, GCGI
and BGI.
A. FINANCIAL RESULTS FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011
Financial results for the years ended December 31, 2013, 2012 and 2011
CONSOLIDATED (AUDITED)
(Amounts in Million Pesos) 2013 2012 2011
Income Statement Data (Restated) (Restated)
Revenues P25,656.3 P28,368.6 P24,539.6
Income before income tax 6,114.1 11,394.2 588.7
Foreign exchange gains (losses) - net (1,261.2) 1,053.5 (111.1)
Net income 5,628.1 10,716.6 622.3
Net Income (Loss) attributable to Equity Holders of the Parent
Company 4,739.6 9,002.4 (159.6)
As at December 31
(Amounts in Million Pesos) 2013 2012 2011
Balance Sheet Data
(Restated) (Restated)
ASSETS
Total current assets P24,340.4 P19,699.6 P20,676.3
Property, plant and equipment 66,240.0 60,680.2 57,676.9
Intangbile assets 4,399.5 4,818.4 4,705.2
Deferred tax assets – net 1,335.1 1,143.9 1,465.9
Exploration and evaluation assets 2,380.8 1,604.1 1,087.1
Available-for-sale (AFS) investments 407.2 707.1 20.4
Derivative assets 46.9 - -
Other non-current assets 5,855.6 5,701.8 4,431.2
Total Assets P105,005.5 P94,355.1 P90,063.0
LIABILITIES AND EQUITY
Total current liabilities P8,907.9 P10,249.6 P9,320.0
Long-term debts - net of current portion 56,676.7 46,656.0 49,240.1
Derivative liabilities 3.7 153.5 -
52
As at December 31
(Amounts in Million Pesos) 2013 2012 2011
Balance Sheet Data
(Restated) (Restated)
Net retirement and other post employment benefits 1,658.6 1,437.2 1,758.9
Provision and other long-term liabilities 1,513.6 1,150.4 756.9
Total Liabilities 68,760.5 59,646.7 61,075.9
Equity attributable to equity holders of the Parent Company 34,238.2 32,638.0 26,769.6
Non-controlling interest 2,006.8 2,070.4 2,217.5
Total Equity 36,245.0 34,708.4 28,987.1
Total Liabilities and Equity P105,005.5 P94,355.1 P90,063.0
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
December 2013 vs. December 2012 Results
1) The recurring net income generated in 2013 decreased by 27.2% or P2,782.4 million to P7,453.6 million
from P10,236.0 million in 2012. The unfavorable variance was primarily due to the FG Hydro‟s lower
revenues from total sale of electricity by P2,252.0 million and the P763.7 million decrease in the Parent
Company‟s revenues. These were offset by the P189.9 million income from own generation of Bacman 2
Unit 3 and GCGI‟s higher revenues of P113.6 million.
2) Net income decreased by 47.5% or P5,088.5 million to P5,628.1 million in 2013 from
P10,716.6 million in 2012.
The unfavorable variance was primarily attributed to the following:
P2,252.0 million FG Hydro‟s lower revenues from total sale of electricity;
P2,314.7 million turnaround from the foreign exchange gains of P1,053.5 million in 2012 to
P1,261.2 million foreign exchange losses as of December 31, 2013
The net income in 2013 represented 21.9% of total revenue as compared to 37.8% in 2012.
Major Transactions for CY 2013
P574.8 million loss on impairment of exploration and evaluation assets recognized in December 2013;
P519.5 million loss on damaged property, plant and equipment (PPE) and the P105.5 million
provision for impairment of inventories recognized in December 2013 due to Typhoon Yolanda;
P220.0 million outright expense of 2006 input VAT claims from the BIR denied by the CTA in 2013;
P189.9 million own generation of Bacman 2 Unit 3.
53
RESULTS OF OPERATIONS
CONSOLIDATED INCOME STATEMENT
December 2013 vs. December 2012 Results
Favorable (Unfavorable) Variance
(Amounts in PHP millions) Dec. 2013
Dec. 2012
(Restated) Amount % 2013 2012
REVENUES
Sale of electricity 25,656.3 28,368.6 (2,712.3) -9.6% 100.0% 100.0%
COST OF SALES AND SERVICES
Cost of sales of electricity and steam (9,435.4) (9,824.3) 388.9 -4.0% -36.8% -34.6%
GENERAL AND ADMINISTRATIVE EXPENSES (4,332.2) (4,702.9) 370.7 -7.9% -16.9% -16.6%
FINANCIAL INCOME (EXPENSE)
Interest income 294.0 364.6 (70.6) -19.4% 1.1% 1.3%
Interest expense (3,384.5) (3,703.6) 319.1 -8.6% -13.2% -13.1%
(3,090.5) (3,339.0) 248.5 -7.4% -12.1% -11.8%
OTHER INCOME (CHARGES)
Foreign exchange gains (losses), net (1,261.2) 1,053.5 (2,314.7) -219.7% -4.9% 3.7%
Derivatives gains, net 14.2 - 14.2 100.0% 0.1% 0.0%
Loss on damaged assets due to Typhoon Yolanda (625.0) - (625.0) 100.0% -2.4% 0.0%
Loss on impairment of exploration and evaluation assets (574.8) - (574.8) 100.0% -2.2% 0.0%
Miscellaneous, net (237.3) (161.7) (75.6) 46.8% -0.9% -0.6%
(2,684.1) 891.8 (3,575.9) -401.0% -10.3% 3.1%
INCOME BEFORE INCOME TAX 6,114.1 11,394.2 (5,280.1) -46.3% 23.8% 40.2%
BENEFIT FROM (PROVISION FOR) INCOME TAX
Current (685.7) (433.8) (251.9) 58.1% -2.7% -1.5%
Deferred 199.7 (341.3) 541.0 -158.5% 0.8% -1.2%
(486.0) (775.1) 289.1 -37.3% -1.9% -2.7%
5,628.1 10,619.1 (4,991.0) -47.0% 21.9% 37.4%
- 97.5 (97.5) -100.0% 0.0% 0.3%
NET INCOME 5,628.1 10,716.6 (5,088.5) -47.5% 21.9% 37.8%
Net income attributable to:
Equity holders of the Parent Company 4,739.6 9,002.4 (4,262.8) -47.4% 18.5% 31.7%
Non-controlling interest 888.5 1,714.2 (825.7) -48.2% 3.5% 6.0%
EBITDA 15,641.1 17,551.8 (1,910.7) -10.9% 61.0% 61.9%
RECURRING NET INCOME 7,453.6 10,236.0 (2,782.4) -27.2% 29.1% 36.1%
Recurring net income attributable to:
Equity holders of the Parent Company 6,565.2 8,521.7 (1,956.5) -23.0% 25.6% 30.0%
Non-controlling interest 888.4 1,714.3 (825.9) -48.2% 3.5% 6.0%
HORIZONTAL ANALYSIS VERTICAL ANALYSIS
NET INCOME FROM CONTINUING OPERATIONS
NET INCOME FROM DISCONTINUED
OPERATIONS
Revenues
Total revenues pertaining to Sale of Electricity for the year ended December 31, 2013 decreased by 9.6% or
P2,712.3 million to P25,656.3 million from P28,368.6 million in 2012. The decrease in revenue was primarily
due to the following:
P2,252.0 million FG Hydro‟s lower revenues from total sale of electricity; and
P763.7 million lower revenues booked from Leyte.
These were offset by the P189.9 million own generation of Bacman 2 Unit 3 and GCGI‟s higher revenues of
P113.6 million due to higher volume and average tariff.
54
Cost of Sales of Electricity and Steam
Cost of sales of electricity and steam decreased by 4.0% or P388.9 million to P9,435.4 million in 2013 from
P9,824.3 million in 2012 mainly due to the following:
P471.8 million lower repairs and maintenance due to the absence in 2013 of the rehabilitation of
NIGBU's steam field facilities including its restoration activities undertaken in 2012 due to the
damages caused by typhoon Sendong in December 2011 coupled with the completion in 2012 of
BGBU's steam field rehabilitation activities; and
P62.0 million decrease in personnel costs mainly contributed by the ERP/MRP costs recognized in
December 2012 during its implementation effective December 31, 2012
These were offset by the P128.9 million increase in purchased services and utilities.
General and Administrative Expenses
General and administrative expenses decreased by 7.9% or P370.7 million to P4,332.2 million in 2013 from
P4,702.9 million in 2012. The decrease was mainly caused by the P364.7 million decrease in personnel costs
due to the ERP/MRP costs recognized in December 2012 during its implementation effective
December 31, 2012.
Financial Income (Expenses)
Net financial expenses decreased by 7.4% or P248.5 million to P3,090.5 million in 2013 from
P3,339.0 million in 2012 mainly due to lower interest charges.
Interest Income
Interest income decreased by 19.4% or P70.6 million to P294.0 million in 2013 from P364.6 million
in 2012 mainly on account of lower weighted average interest rates on peso placements (2013 =
1.98% vs. 2012 = 3.96%).
Interest Expense
Interest expense decreased by 8.6% or P319.1 million to P3,384.5 million in 2013 from
P3,703.6 million in 2012. The favorable variance is due to lower interest charges on refinanced loans.
Other Income (Charges)
Other charges in 2013 amounted to P2,684.1 million, or a 401.0% reversal from the other income of
P891.8 million in 2012, primarily due to the foreign exchange losses recognized in 2013.
Foreign Exchange Gains (Losses) - net
The P1,261.2 million foreign exchange losses as of December 31, 2013 is a P2,314.7 million
turnaround from the foreign exchange gains of P1,053.5 million in the same period in 2012. The
unfavorable variance was due to the depreciation of the peso against the US dollar in contrast to its
appreciation in 2012.
55
Derivatives Gains, Net
Derivative gains, net of P14.2 million in 2012 pertain to the forward foreign exchange contracts
entered into with various banks which were realized/realigned based on PhP rate against the US$ as of
the transactions/reporting dates.
Loss on damaged assets due to Typhoon Yolanda
The 2013 balance of P625.0 million is composed of the P519.5 million loss on derecognition of PPE
and the P105.5 million provision for impairment of inventories.
Loss on impairment of exploration and evaluation assets
The 2013 balance of P574.8 million pertains to the provision for impairment of Cabalian Project
recognized in December 2013.
Miscellaneous, Net
Miscellaneous charges increased by 46.8% or P75.6 million to P237.3 million in 2013 from
P161.7 million in 2012 mainly due to the P220.0 million outright expense of 2006 input VAT claims
from the BIR denied by the CTA in 2013.
Benefit from (Provision for) Income Tax
The Company‟s current tax expense increased by 58.1% or P251.9 million to P685.7 million in 2013 from
P433.8 million during the same period in 2012. The unfavorable variance was due to the following:
Parent Company‟s current tax expense increased by P130.3 million on account of lower operating
expenses from Leyte;
GCGI‟s P87.8 million higher current tax expense due to higher taxable income; and
BGI‟s P34.6 million increase due to higher testing and commissioning generation during 2013 as
compared with the prior year.
Deferred tax income of P199.7 million in 2013, or a 158.5% turnaround from the
P341.3 million deferred tax expense in 2012 was primarily contributed by the following:
Parent Company‟s deferred tax income of P170.8 million was a reversal of P280.5 million deferred
tax expense in 2012; and
GCGI‟s P94.1 million lower deferred tax expense on the application of Net Operating Loss Carryover
(NOLCO).
Net Income
The Company‟s net income decreased by 47.5% or P5,088.5 million to P5,628.1 million in 2013 from
P10,716.6 million in 2012.
Net income is equivalent to 21.9% of total revenues in 2013 as compared to the 37.8% in 2012
56
December 2012 vs. December 2011 Results
Favorable (Unfavorable) Variance
(Amounts in PHP millions)
Dec. 2012
(Restated)
Dec. 2011
(Restated) Amount % 2012 2011
REVENUES
Sale of electricity 28,368.6 24,539.6 3,829.0 15.6% 100.0% 100.0%
COST OF SALES AND SERVICES
Cost of sales of electricity and steam (9,824.3) (10,560.7) 736.4 -7.0% -34.6% -43.0%
GENERAL AND ADMINISTRATIVE EXPENSES (4,702.9) (4,661.2) (41.7) 0.9% -16.6% -19.0%
FINANCIAL INCOME (EXPENSE)
Interest income 364.6 390.2 (25.6) -6.6% 1.3% 1.6%
Interest expense (3,703.6) (4,106.5) 402.9 -9.8% -13.1% -16.7%
(3,339.0) (3,716.3) 377.3 -10.2% -11.8% -15.1%
OTHER INCOME (CHARGES)
Loss on impairment of property, plant and equipment - (4,998.6) 4,998.6 -100.0% 0.0% -20.4%
Foreign exchange gains (losses), net 1,053.5 (111.1) 1,164.6 -1048.2% 3.7% -0.5%
Derivatives gains, net - 108.3 (108.3) -100.0% 0.0% 0.4%
Miscellaneous, net (161.7) (11.3) (150.4) 1331.0% -0.6% 0.0%
891.8 (5,012.7) 5,904.5 -117.8% 3.1% -20.5%
INCOME BEFORE INCOME TAX 11,394.2 588.7 10,805.5 1835.5% 40.2% 2.4%
BENEFIT FROM (PROVISION FOR) INCOME TAX
Current (433.8) (421.6) (12.2) 2.9% -1.5% -1.7%
Deferred (341.3) 536.4 (877.7) -163.6% -1.2% 2.2%
(775.1) 114.8 (889.9) -775.2% -2.7% 0.5%
10,619.1 703.5 9,915.6 1409.5% 37.8% 2.5%
97.5 (81.2) 178.7 -220.1% 0.3% -0.3%
NET INCOME 10,716.6 622.3 10,094.3 1622.1% 37.8% 2.5%
Net income (loss) attributable to:
Equity holders of the Parent Company 9,002.4 (159.6) 9,162.0 -5740.6% 31.7% -0.7%
Non-controlling interest 1,714.2 781.9 932.3 119.2% 6.0% 3.2%
EBITDA 17,551.8 13,318.3 4,233.5 31.8% 61.9% 54.3%
RECURRING NET INCOME 10,236.0 5,253.4 4,982.6 94.8% 36.1% 21.4%
Recurring net income attributable to:
Equity holders of the Parent Company 8,521.7 4,459.2 4,062.5 91.1% 30.0% 18.2%
Non-controlling interest 1,714.3 794.2 920.1 115.9% 6.0% 3.2%
HORIZONTAL ANALYSIS VERTICAL ANALYSIS
NET INCOME FROM CONTINUING OPERATIONS
NET INCOME (LOSS) FROM DISCONTINUED
OPERATIONS
Revenues
Total revenues pertaining to Sale of Electricity for the year ended December 31, 2012 increased by 15.6% or
P3,829.0 million to P28,368.6 million from P24,539.6 million in 2011. The increase in revenue was primarily
due to the following:
P2,377.3 million GCGI‟s higher revenues from Tongonan I and Palinpinon power plants as per agreed
contracts that became effective in mid-2011 and the additional power supply agreements that were
signed in December 2011; and
P2,345.7 million FG Hydro‟s higher revenues from total sale of electricity.
These were offset by the P868.2 million decrease in electricity sales by the Parent Company.
Cost of Sales of Electricity and Steam
Cost of sales of electricity and steam decreased by 7.0% or P736.4 million to P9,824.3 million in 2012 from
P10,560.7 million in 2011 mainly due to decrease in repairs and maintenance by P438.1 million and the
decrease in purchased services and utilities by P264.6 million.
57
Financial Income (Expenses)
Net financial expenses decreased by 10.2% or P377.3 million to P3,339.0 million in 2012 from
P3,716.3 million in 2011 mainly due to lower interest charges.
Interest Income
Interest income decreased by 6.6% or P25.6 million to P364.6 million in 2012 from P390.2 million in
2011 mainly on account of lower interest income on placement of funds due to the decrease in
monthly average investible funds from the full drawdown of Peso Public bond and IFC loan in
September 2011 (2012 = P9.5 billion vs. 2011 = P13.0 billion) coupled with the decrease in weighted
average interest rates on peso placements (2012 = 3.96% vs. 2011 = 4.36%).
This was offset by the increase in interest on placements of FG Hydro by P16.8 million and of GCGI
by P11.6 million.
Interest Expense
Interest expense decreased by 9.8% or P402.9 million to P3,703.6 million in 2012 from
P4,106.5 million in 2011 mainly due to the:
P213.6 million capitalization of borrowing cost for Bacman rehabilitation at consolidated
level under PAS 16/23;
P54.3 million net decrease on the Parent company‟s long term debts;
Lower interest expense of P33.5 million on asset retirement obligation initially recognized in
March 2011 based on net present value in compliance with Philippine Accounting Standard
(PAS) No. 37 due to the drop in inflation index;
Absence in 2012 of the P31.8 million full recognition in 2011 of guarantee fee on OECF 21th
Yen loan preterminated/fully settled in 2011; and
P20.4 million lower amortization of Day-1 gain on royalty fee payable due DOE on account
of the decreasing balance of liability because of the amortizing payment of principal, which
was fully amortized in December 2012.
Other Income (Charges)
Other income of P891.8 million in 2012 is a 117.8% improvement from the other charges of P5,012.7 million
in 2011, primarily due to the absence of any provision for asset impairment in 2012.
Impairment loss on property, plant and equipment of NNGP
Impairment loss on property, plant and equipment of NNGP amounting to P4,998.6 million was
recognized in June 2011 based on the result of the technical assessment of the Northern Negros steam
resource.
Foreign Exchange Gains (Losses) - net
The P1,053.5 million foreign exchange gains as of December 31, 2012 is a P1,164.6 million
turnaround from the foreign exchange losses of P111.1 million in the same period in 2011. The
favorable variance was brought about by appreciation of the peso against the US dollar.
Derivatives Gains, Net
Derivative gains, net of P108.3 million in 2011 pertain to the gains from foreign currency forwards
last year that are not designated as accounting hedges.
58
Miscellaneous, Net
Miscellaneous charges increased by 1,331.0% or P150.4 million to P161.7 million in 2012 from
P11.3 million in 2011 due to the following:
Recognition of the P114.7 million loss on extinguishment of P3,108.0 million fixed rate corporate
notes in April 2012 against the P197.9 million loss on the early extinguishment of US$175
million term-loan facility in June 2011 (P83.2 million);
Recovery of allowance for impairment of NNGP power plant recognized in 2012 (P63.6 million);
Prior year's reversal of long-outstanding payables, while none in 2012 (P189.6 million);
This year's loss on extinguishment from FG Hydro's loan (P73.5 million); and
Net increase in loss on disposal of assets (P34.5 million).
Provision for Income Tax
Deferred tax expense of P341.3 million in December 2012, or a 163.6% turnaround from the
P536.4 million deferred tax income in December 2011 was primarily contributed by the following:
Absence in 2012 of the deferred tax asset on provision for full impairment of NNGP's property, plant
and equipment recognized in June 2011;
Parent Company‟s deferred taxable income versus deferred taxable loss mainly attributed to higher
unrealized foreign exchange gains on the realignment of foreign loans; and
GCGI‟s deferred tax expense on the 2011 NOLCO which was claimed as deduction from this year's
taxable income, in contrast to last year's deferred tax benefit on NOLCO.
Net Income (Loss) from Discontinued Operations
This results from the discontinued drilling services contract with Lihir Gold Limited effective October 2012.
Net income from discontinued operations of P97.5 million in December 2012, or a 220.1% turnaround from
the P81.2 million net loss from discontinued operations in December 2011 is mainly due to the following:
Net Revenue from Demobilization of Rig 11 in 2012 amounting to P66.8 million;
Lower foreign contractor‟s tax (FCT) of P61.0 million; and
Decrease of P54.5 million in parts and supplies issued.
Net Income
The Company‟s net income increased by 1,622.1% or P10,094.3 million to P10,716.6 million in 2012 from
P622.3 million in 2011.
Net income is equivalent to 37.8% of total revenues in 2012 as compared to the 2.5% in 2011
59
BALANCE SHEET
Horizontal and Vertical Analysis of Material Changes as of December 31, 2013 and 2012
(Amounts In PHP millions) Dec. 2013 Dec. 2012
(Restated)
Amount % 2013 2012
ASSETS
Current Assets
Cash and cash equivalents 16,043.2 11,420.1 4,623.1 40.5% 15.3% 12.1%
Trade and other receivables 3,611.4 4,115.8 (504.4) -12.3% 3.4% 4.4%
Available-for-sale (AFS) investments 341.8 132.4 209.4 158.2% 0.3% 0.1%
Parts and supplies inventories 3,094.3 3,338.8 (244.5) -7.3% 2.9% 3.5%
Derivative assets 14.2 0.2 14.0 7000.0% 0.0% 0.0%
Other current assets 1,235.5 692.3 543.2 78.5% 1.2% 0.7%
Total Current Assets 24,340.4 19,699.6 4,640.8 23.6% 23.2% 20.9%
Noncurrent Assets
Property, plant and equipment 66,240.0 60,680.2 5,559.8 9.2% 63.1% 64.3%
Goodwill and intangible assets 4,399.5 4,818.4 (418.9) -8.7% 4.2% 5.1%
Deferred tax assets - net 1,335.1 1,143.9 191.2 16.7% 1.3% 1.2%
Exploration and evaluation assets 2,380.8 1,604.1 776.7 48.4% 2.3% 1.7%
Available-for-sale (AFS) investments 407.2 707.1 (299.9) -42.4% 0.4% 0.7%
Derivative assets 46.9 - 46.9 100.0% 0.0% 0.0%
Other noncurrent assets 5,855.6 5,701.8 153.8 2.7% 5.5% 6.0%
Total Noncurrent Assets 80,665.1 74,655.5 6,009.6 8.0% 76.8% 79.1%
TOTAL ASSETS 105,005.5 94,355.1 10,650.4 11.3% 100.0% 100.0%
LIABILITIES AND EQUITY
LIABILITIES
Current Liabilities
Trade and other payables 6,982.0 7,715.5 (733.5) -9.5% 6.6% 8.2%
Income tax payable - 5.2 (5.2) -100.0% 0.0% 0.0%
Due to related parties 53.3 49.6 3.7 7.5% 0.1% 0.1%
Current portion of:
Long-term debts 1,872.1 2,393.9 (521.8) -21.8% 1.8% 2.5%
Derivative liabilities 0.5 85.4 (84.9) -99.4% 0.0% 0.1%
Total Current Liabilities 8,907.9 10,249.6 (1,341.7) -13.1% 8.5% 10.9%
Noncurrent Liabilities
Long-term debts - net of current portion 56,676.7 46,656.0 10,020.7 21.5% 54.0% 49.4%
Derivative liabilities - net of current portion 3.7 153.5 (149.8) -97.6% 0.0% 0.2%
Net retirement and other post-employment benefits 1,658.6 1,437.2 221.4 15.4% 1.6% 1.5%
Provisions and other long-term liabilities 1,513.6 1,150.4 363.2 31.6% 1.4% 1.2%
Total Noncurrent Liabilities 59,852.6 49,397.1 10,455.5 21.2% 57.0% 52.4%
EQUITY
Equity Attributable to Equity Holders of the Parent
Preferred stock 93.8 93.8 - 0.0% 0.1% 0.1%
Common stock 18,750.0 18,750.0 - 0.0% 17.9% 19.9%
Common shares in employee trust account (351.5) (358.4) 6.9 -1.9% -0.3% -0.4%
Additional paid-in capital 6,282.8 6,277.8 5.0 0.1% 6.0% 6.7%
Equity reserve (3,706.4) (3,706.4) - 0.0% -3.6% -3.8%
Net accumulated unrealized gain on AFS investments 29.6 111.5 (81.9) -73.5% 0.0% 0.1%
Retained earnings 13,204.2 11,608.3 1,595.9 13.7% 12.6% 12.3%
Cumulative translation adjustment (64.3) (138.6) 74.3 -53.6% -0.1% -0.1%
34,238.2 32,638.0 1,600.2 4.9% 32.6% 34.6%
Non-controlling interest 2,006.8 2,070.4 (63.6) -3.1% 1.9% 2.2%
Total Equity 36,245.0 34,708.4 1,536.6 4.4% 34.5% 36.8%
TOTAL LIABILITIES AND EQUITY 105,005.5 94,355.1 10,650.4 11.3% 100.0% 100.0%
HORIZONTAL
ANALYSIS
VERTICAL
ANALYSIS
Increase (Decrease)
60
The Company‟s total resources as of December 31, 2013, amounted to P105,008.5 million, 11.3% or
P10,651.8 million higher than the December 31, 2012 year-end level of P94,356.7 million. EDC‟s debt ratio
moved to 0.62:1 from 0.59:1 as of December 31, 2013 and December 31, 2012, respectively. This year‟s
current ratio of 2.73:1 was significantly higher than previous year‟s 1.92:1.
Cash and cash equivalents
This account consists mainly of cash on hand and in banks. Cash equivalents include money market
placements with maturities of less than three months.
Cash and cash equivalents increased by 40.5% or P4,623.1 million to P16,043.2 million as of
December 31, 2013 from the P11,420.1 million December 31, 2012 balance. The increase was primarily due
to the following;
P15,335.3 million cash generated from operations;
P7,908.4 million net debt servicing; and
P1,401.5 million proceeds from revenue generated from testing of PPE.
These were offset by the following:
P10,366.5 million acquisitions of PPE;
P3,958.7 million payment of cash dividend;
P3,477.3 million interest and other financing charges paid;
P1,768.7 million increase in movement of exploration and evaluation assets and other noncurrent
assets.
Trade and other receivables
This account, consisting of receivables from NPC, contractors and employees, decreased by 12.3% or
P504.4 million to P3,611.4 million as of December 31, 2013 from the P4,115.8 million balance as of
December 31, 2012 primarily due to collection of trade receivables from customers.
AFS investments- current
This account increased by 158.2% or P209.4 million to P341.8 million as of December 31, 2013, from the
P132.4 million balance as of December 31, 2012 mainly due to the reclassification from non-current available
for sale investment and proceeds from redemption of ROP bonds with ING Bank Singapore and JP Morgan
amounting to P130.4 million.
Parts and supplies inventories
This account decreased by 7.3% or P244.5 million to P3,094.3 million as of December 31, 2013, from the
P3,338.8 million balance as of December 31, 2012. The decrease was due to the withdrawals on various
materials and supplies for plants maintenance and rehabilitation activities supplemented by the recognized
loss on damaged inventories due to Typhoon Yolanda.
Derivative assets - current
The P14.0 million increase to P14.2 million as of December 31, 2013 from the P0.2 million as of
December 31, 2012 since the current portion for most of the hedging contracts is calculated to have derivative
asset.
61
Other current assets
The 78.5% or P543.2 million increase to P1,235.5 million as of December 31, 2013 from the P692.3 million
as of December 31, 2012 was mainly due to the P472.5 million increase in tax credit certificates and
P102.9 million increase in prepaid expenses.
Property, plant and equipment
The 9.2% or P5,559.8 million increase to P66,240.0 million as of December 31, 2013 from the
P60,680.2 million balance as of December 31, 2012 was primarily due to the P11,247.7 millions additions
partially offset by the P3,446.4 million depreciation for the year and P1,691.0 million net reclassifications.
Goodwill and intangible assets
The 8.7% or P418.9 million decrease to P4,399.5 million as of December 31, 2013 from the P4,818.4 million
balance as of December 31, 2012 due to reclassification to Property, plant and equipment of wind project
costs now that the project‟s technical and commercial viability has been established.
Deferred tax assets - net
Deferred tax assets increased by 16.7% or P191.2 million to P1,335.1 million as of December 31, 2013 from
the P1,143.9 million as of December 31, 2012. The increase was mainly caused by the Parent Company‟s
DTA due to recognized unrealized forex loss on realignment of dollar denominated long-term loans during the
year.
Exploration and evaluation assets
The 48.4% or P776.7 million increase to P2,380.8 million as of December 31, 2013 from the P1,604.1 million
balance as of December 31, 2012 was primarily due to the expenditures of Mindanao III areas, EDC Nasulo
and EDC Rangas.
AFS investments- noncurrent
This account decreased by 42.4% or P299.9 million to P407.2 million as of December 31, 2013, from the
P707.1 million balance as of December 31, 2012 mainly due to the purchase of GT Capital Fixed Rate Bonds
and First Gen Corporation Shares amounting to P56.8 million, realignment, amortization and MTM
adjustment.
Derivative assets - noncurrent
The P46.9 million balance as of December 31, 2012 is due to the noncurrent portion of the outstanding
hedging of foreign loans of the company.
Trade and other payables
This account decreased by 9.5% or P733.5 million to P6,982.0 million as of December 31,2013 from the
P7,715.5 million as of December 31, 2012 primarily due to the P543.3 million decrease in accounts payable
from third parties and the P343.5 million decrease in other payables. These were offset by the
P131.6 million increase in accrued interest on long-term debts.
Income tax payable
There is no balance as of December 31, 2013 as compared to the P5.2 million as of December 31, 2012 due to
the payment of income tax for the third quarter of the year.
62
Due to related parties
The 7.5% or P3.7 million increase to P53.3 million as of December 31, 2013 from the P49.6 million balance
as of December 31, 2012 was mainly due to the P5.0 million additional transaction to Lopez Holdings
Corporation in 2013 offset by the P1.3 million net settlement of liabilities to First Gen Corporation.
Current portion of long-term debts
This account decreased by 21.8% or P521.8 million to P1,872.1 million as of December 31, 2013 from
P2,393.9 million balance as of December 31, 2012 mainly due to the regular amortization of loans.
Current portion of derivative liabilities
The 99.4% or P84.9 million decrease to P0.5 million as of December 31, 2013 from the P85.4 million as of
December 31, 2012 since most of the hedging contract is calculated to have derivative asset.
Long-term debts – net of current portion
This account increased by 21.5% or P10,020.7 million to P56,676.7 million as of December 31, 2013 from
P46,656.0 million balance as of December 31, 2012 primarily due to the newly issued P7,000.0 million fixed
rate bond and the $80 million term loan.
Derivative liabilities – net of current portion
The 97.6% or P149.8 million decrease to P3.7 million as of December 31, 2013 from the P153.5 million as of
December 31, 2012 since most of the hedging contract is calculated to have derivative asset.
Net retirement and other post-employment benefits
This account pertains to the Company‟s obligation to its defined retirement plan, maintained for all Parent
Company, GCGI, BGI and FG Hydro‟s permanent employees. The 15.4% or P221.4 million increase to
P1,658.6 million as of December 31, 2013 from the P1,437.2 million as of December 31, 2012 was mainly
due to the Parent Company‟s recognized retirement and other post-employment benefits contributions.
Provisions and other long-term liabilities
This account increased by 31.6% or P363.2 million to P1,513.6 million as of December 31, 2013 from the
P1,150.4 million balance as of December 31, 2012 mainly due to the increase in Asset Retirement Obligation.
Net accumulated unrealized gain on AFS investments
The 73.5% or P81.9 million decrease to P29.6 million as of December 31, 2013 from P111.5 million at end of
December 2012 is mainly due to lower fair value of AFS investments for the year.
Retained earnings
Retained earnings increased by 13.7% or P1,595.9 million to P13,204.2 million as of December 31, 2013 from
P11,608.3 million as of December 31, 2012 mainly due to the net income for the year of P4,739.6 million
offset by the P3,007.5 million total cash dividend paid during the year and the P136.2 million remeasurements
of retirement and other post-employment benefits transferred to retained earnings.
63
Horizontal and Vertical Analysis of Material Changes as of December 31, 2012 and 2011
(Amounts In PHP millions) Amount % 2012 2011
ASSETS
Current Assets
Cash and cash equivalents 11,420.1 12,493.4 (1,073.3) -8.6% 12.1% 13.9%
Trade and other receivables 4,115.8 3,411.3 704.5 20.7% 4.4% 3.8%
Available-for-sale (AFS) investments 132.4 673.9 (541.5) -80.4% 0.1% 0.7%
Parts and supplies inventories 3,338.8 3,355.8 (17.0) -0.5% 3.5% 3.7%
Derivative assets 0.2 - 0.2 100.0% 0.0% 0.0%
Other current assets 692.3 741.9 (49.6) -6.7% 0.8% 0.8%
Total Current Assets 19,699.6 20,676.3 (976.7) -4.7% 20.9% 23.0%
Noncurrent Assets
Property, plant and equipment 60,680.2 57,676.9 3,003.3 5.2% 64.3% 64.0%
Goodwill and intangible assets 4,818.4 4,705.2 113.2 2.4% 5.1% 5.2%
Deferred tax assets - net 1,143.9 1,465.9 (322.0) -22.0% 1.2% 1.6%
Exploration and evaluation assets 1,604.1 1,087.1 517.0 47.6% 1.7% 1.2%
Available-for-sale (AFS) investments 707.1 20.4 686.7 3366.2% 0.7% 0.0%
Other noncurrent assets 5,701.8 4,431.2 1,270.6 28.7% 6.1% 4.9%
Total Noncurrent Assets 74,655.5 69,386.7 5,268.8 7.6% 79.1% 77.0%
TOTAL ASSETS 94,355.1 90,063.0 4,292.1 4.8% 100.0% 100.0%
LIABILITIES AND EQUITY
LIABILITIES
Current Liabilities
Trade and other payables 7,715.5 6,991.7 723.8 10.4% 8.2% 7.8%
Income tax payable 5.2 18.7 (13.5) -72.2% 0.0% 0.0%
Due to related parties 49.6 60.1 (10.5) -17.5% 0.1% 0.1%
Current portion of:
Long-term debts 2,393.9 2,249.5 144.4 6.4% 2.5% 2.5%
Derivative liabilities 85.4 - 85.4 100.0% 0.1% 0.0%
Total Current Liabilities 10,249.6 9,320.0 929.6 10.0% 10.9% 10.3%
Noncurrent Liabilities
Long-term debts - net of current portion 46,656.0 49,240.1 (2,584.1) -5.2% 49.4% 54.7%
Derivative liabilities - net of current portion 153.5 - 153.5 100.0% 0.2% 0.0%
Net retirement and other post-employment benefits 1,437.2 1,758.9 (321.7) -18.3% 1.5% 2.0%
Provisions and other long-term liabilities 1,150.4 756.9 393.5 52.0% 1.2% 0.9%
Total Noncurrent Liabilities 49,397.1 51,755.9 (2,358.8) -4.6% 52.3% 57.6%
EQUITY
Equity Attributable to Equity Holders of the Parent
Preferred stock 93.8 93.8 - 0.0% 0.1% 0.1%
Common stock 18,750.0 18,750.0 - 0.0% 19.9% 20.8%
Common shares in employee trust account (358.4) (372.3) 13.9 -3.7% -0.4% -0.4%
Additional paid-in capital 6,277.8 6,266.9 10.9 0.2% 6.7% 7.0%
Equity reserve (3,706.4) (3,706.4) - 0.0% -3.9% -4.1%
Net accumulated unrealized gain on AFS investments 111.5 91.8 19.7 21.5% 0.1% 0.1%
Retained earnings 11,608.3 5,645.2 5,963.1 105.6% 12.3% 6.3%
Cumulative translation adjustment (138.6) 0.6 (139.2) -23200.0% -0.1% 0.0%
32,638.0 26,769.6 5,868.4 21.9% 34.6% 29.6%
Non-controlling interest 2,070.4 2,217.5 (147.1) -6.6% 2.2% 2.5%
Total Equity 34,708.4 28,987.1 5,721.3 19.7% 36.8% 32.1%
TOTAL LIABILITIES AND EQUITY 94,355.1 90,063.0 4,292.1 4.8% 100.0% 100.0%
HORIZONTAL
ANALYSIS
VERTICAL
ANALYSIS
Dec. 2012
(Restated)
Increase (Decrease) Dec. 2011
(Restated)
64
The Company‟s total resources as of December 31, 2012, amounted to P94,355.1 million, 4.8% or
P4,292.1 million higher than the December 31, 2011 year-end level of P90,063.0 million. EDC‟s debt ratio
moved to 0.59:1 from 0.64:1 as of December 31, 2012 and December 31, 2011, respectively. This year‟s
current ratio of 1.92:1 was significantly lower than previous year‟s 2.22:1.
Cash and cash equivalents
This account consists mainly of cash on hand and in banks. Cash equivalents include money market
placements with maturities of less than three months.
Cash and cash equivalents decreased by 8.6% or P1,073.3 million to P11,420.1 million as of
December 31, 2012 from the P12,493.4 million December 31, 2011 balance. The decrease was primarily
accounted for by the following:
P6,663.0 million acquisitions of PPE and other noncurrent assets;
P4,495.0 million payment of cash dividend; and
P4,108.4 million interest and other financing charges paid
P1,353.0 million net debt servicing
The above decreases were mainly offset by the P17,652.3 million cash generated from operations and
P520.4 million proceeds from revenue generated from testing of PPE.
Trade and other receivables
This account, consisting of receivables from NPC, contractors and employees, increased by 20.7% or
P704.5 million to P4,115.8 million as of December 31, 2012 from the P3,411.3 million balance as of
December 31, 2011. The movement was mainly due to increase in trade receivables by P656.8 million
resulting from higher revenues.
AFS investments- current
This account decreased by 80.4% or P541.5 million to P132.4 million as of December 31, 2012, from the
P673.9 million balance as of December 31, 2011 mainly due to the reclassification to other non-current assets
of ROP bonds maturing beyond 2013.
Derivative assets
Derivative assets balance of P0.2 million as of December 31, 2012 pertain to the fair value of the outstanding
foreign currency forward.
Other current assets
The 6.7% or P49.6 million decrease to P692.3 million as of December 31, 2012 from the P741.9 million as of
December 31, 2011 was mainly due to the reclassification of tax credit certificates to non-current assets.
Property, plant and equipment
The 5.2% or P3,003.3 million increase to P60,680.2 million as of December 31, 2012 from the
P57,676.9 million balance as of December 31, 2011 was primarily due to the additions partially offset by the
depreciation for the year.
65
Deferred tax assets - net
Deferred tax assets decreased by 22.0% or P322.0 million to P1,143.9 million as of December 31, 2012 from
the P1,465.9 million as of December 31, 2011. The decrease was caused by Parent Company‟s lower DTA
mainly due to this year‟s recognition of deferred liability on unrealized forex gains on translation of long-term
foreign loans, supplemented by GCGI‟s movement mainly due to reduction of DTA on its outstanding
NOLCO.
AFS investments - noncurrent
This account increased by 3,366.2% or P686.7 million to P707.1 million as of December 31, 2012, from the
P20.4 million balance as of December 31, 2011 mainly due to the reclassified ROP bonds from current AFS
investment account and the P120.8 million additional investment in stocks.
Exploration and evaluation assets
The 47.6% or P517.0 million increase to P1,604.1 million as of December 31, 2012 from the P1,087.1 million
balance as of December 31, 2011 was primarily due to the expenditures of EDC Rangas/Kayabon and
Mindanao III areas.
Other noncurrent assets
The 28.7% or P1,270.6 million increase to P5,701.8 million as of December 31, 2012 from the
P4,431.2 million as of December 31, 2011 was mainly due to the P1,038.3 million increase in input VAT and
the P202.0 million reclassified tax credit certificates from other current assets.
Trade and other payables
This account increased by 10.4% or P723.8 million to P7,715.5 million as of December 31,2012 from the
P6,991.7 million as of December 31, 2011 primarily due to the million increase in accounts payable from third
parties offset by the full payment of deferred royalty fee.
Income tax payable
The 72.2% or P13.5 million decrease to P5.2 million as of December 31, 2012 from the P18.7 million
December 31, 2011 balance was primarily due to payment effected through creditable withholding taxes.
Due to related parties
The 17.5% or P10.5 million decrease to P49.6 million as of December 31, 2012 from the P60.1 million
balance as of December 31, 2011 was mainly due to the settlement of liabilities to First Gen Corporation.
Current portion of long-term debts
This account increased by 6.4% or P144.4 million to P2,393.9 million as of December 31, 2012 from
P2,249.5 million balance as of December 31, 2011 mainly due to the P1,411.2 million, P243.5 million and
P64.8 million reclassified noncurrent portion of US$175 syndicated loan, IFC 2 loan and FXCN loan tranche
1 & 2, respectively. These were offset by the P1,534.9 million prepayment of the FCRN loans series 1, 2 & 3
and the P20.3 million settlement of outstanding balance of OECF 8th yen loan.
Current portion of derivative liabilities
The P85.4 million balance as of December 31, 2012 pertain to the fair value of the current portion of the
cross-currency swaps designated as accounting hedges.
66
Long-term debts – net of urrent portion
This account decreased by 5.2% or P2,584.1 million to P46,656.0 million as of December 31, 2012 from
P49,240.1 million balance as of December 31, 2011 primarily due to the following:
P7,420.6 million prepayment of the FCRN loans series 1, 2 & 3;
P1,719.5 million reclassified to current portion of the US$175M syndicated loan, IFC 2 loan and
FXCN loan tranche 1 and 2; and
P341.9 million reclassified to current portion of IFC 1 loan.
These were offset by the proceeds of the FXCN Loan tranche 1 and 2 of P2,985.0 million and
P3,980.0 million, respectively.
Derivative liabilities – net of current portion
The P153.5 million balance as of December 31, 2012 pertain to the outstanding non-current portion of the
cross-currency swaps designated as accounting hedges.
Net retirement and other post-employment benefits
This account pertains to the Company‟s obligation to its defined retirement plan, maintained for all Parent
Company, GCGI, BGI and FG Hydro‟s permanent employees. The 18.3% or P321.7 million decrease to
P1,437.2 million as of December 31, 2012 from the P1,758.9 million as of December 31, 2011 was mainly
caused by the contribution to the fund.
Provisions and other long-term liabilities
This account increased by 52.0% or P393.5 million to P1,150.4 million as of December 31, 2012 from the
P756.9 million balance as of December 31, 2011 mainly due to the liability recognized on expropriation of
land.
Net accumulated unrealized gain on AFS investments
The 21.5% or P19.7 million increase to P111.5 million as of December 31, 2012 from P91.8 million at the end
of December 2011 is mainly due to the higher fair value of the AFS investments for the year.
Retained earnings
Retained earnings increased by 105.6% or P5,963.1 million to P11,608.3 million as of December 31, 2012
from P5,645.2 million as of December 31, 2011 mainly due to the net income for the year of P9,002.4 million.
This was offset by the P2,632.5 million total cash dividend paid during the year and the P406.7 million
recognized transition adjustment due to PAS 19 updates.
Non-controlling interest
This account decreased by 6.6% or P147.1 million, to P2,070.4 million as of December 31, 2012 from
P2,217.5 million balance as of December 31, 2011 due to this year‟s total cash dividends of P1,862.5 million
offset by the P1,714.2 million minority share in net income.
67
CASH FLOWS
2013 vs. 2012
Net cash flows from operating activities decreased by 13.7% or P2,288.8 million to P14,436.8 million in 2013
from P16,725.6 million in 2012 mainly due to the decrease in revenues.
Net cash flows used in investing activities increased by 29.0% or P2,366.7 million to P10,516.0 million in
December 31, 2013 as compared to the P8,149.3 million in 2012 primarily due to P3,703.5 million increase in
capital expenditure. This was offset by the P1,281.1 million movement of other noncurrent assets.
The turnaround of P683.0 million net cash flows from financing activities in December 31, 2013 as compared
to the P9,645.4 million net cash flows used in financing activities in 2012 was mainly due to the
P5,847.9 million lower payments of long-term debts and the P3,413.4 million higher proceeds from long-term
debts for the year.
2012 vs. 2011
Net cash flows from operating activities increased by 20.2% or P2,814.8 million to P16,725.6 million in 2012
from P13,910.8 million in 2011 mainly due to the increase in revenues.
Net cash flows used in investing activities decreased by 22.5% or P2,370.8 million to P8,149.3 million in
December 31, 2012 as compared to the P10,520.1 million in 2011 primarily due to P2,567.3 million decrease
in capital expenditure.
The turnaround of P9,645.4 million net cash flows used in financing activities in December 31, 2012 as
compared to the P2,919.7 million net cash flows from financing activities in 2011 was mainly due to the
P9,677.7 million lower proceeds from long-term debts for the year and the P2,179.5 million higher payments
of long-term debts.
68
Selected Financial Data
Financial Statements
(Amounts in PHP millions) 2013 2012 2011
a) Cash and Cash Equivalents
Cash on hand and in bank (Peso) 3,709.1 2,257.3 608.4
Cash in bank (US$) 223.4 150.2 82.7
Cash in bank (CHP) 8.1 1.5 1.7
Cash in bank (PEN) 0.6 – –
Marketable securities (Peso) 9,602.6 7,585.0 7,435.8
Marketable securities (US$) 2,499.4 1,426.1 4,364.8
Total 16,043.2 11,420.1 12,493.4
b) Accounts Receivables – Others
Non-trade accounts receivable 94.9 68.1 99.4
Loans and notes receivable 124.9 60.0 59.3
Advances to employees 73.7 62.8 37.9
Employee receivables 11.9 7.1 8.9
Claims receivable – 0.2 0.2
Total 305.4 198.2 205.7
c) General and Administrative Expenses
Personnel costs 1,241.7 1,606.4 1,491.4
Purchased services and utilities 1,431.3 1,108.6 1,063.7
Rental, insurance and taxes 497.1 802.5 651.5
Business and related expenses 430.0 469.2 370.8
Depreciation and amortization 368.1 364.3 244.1
Provision for doubtful accounts 138.7 236.5 409.2
Parts and supplies issued 157.0 154.1 195.7
Repairs and maintenance 24.0 46.9 66.4
Provision for (reversal of) impairment of
parts and supplies inventories 123.0 (83.5) 169.0
Reversal of provision for doubtful accounts (78.7) (2.3) (0.6)
Loss on direct write-off of receivables – 0.2 –
Total 4,332.2 4,702.9 4,661.2
d) Other Income, Interest Expense and Others
Interest income 294.0 364.6 390.2
Interest expense (3,384.5) (3,703.6) (4,106.5)
Loss on impairment of property, plant and
equipment
– – (4,998.6)
Foreign exchange gains (losses) – net (1,261.2) 1,053.5 (111.1)
Derivatives gain (loss) – net 14.2 – 108.3
Loss on damaged assets due to Typhoon
Yolanda
(625.0) – –
Loss on impairment of exploration and
evaluation assets
(574.8) – –
Miscellaneous – net (237.3) (161.7) (11.3)
Total (5,774.6) (2,447.2) (8,729.0)
69
DISCUSSION ON THE SUBSIDIARY COMPANIES
Green Core Geothermal Inc.
December 2013 vs. December 2012 Results
(Amounts in PHP millions)
For the years ended December 31
2013 2012
Revenues 10,677.3 10,563.8
Cost of sale of electricity (7,211.7) (6,820.4)
General and administrative expenses (454.0) (465.5)
Other income (charges) - net (65.9) 90.0
Income before income tax 2,945.7 3,367.9
Provision for income tax (313.4) (319.7)
Net income 2,632.3 3,048.2
As of
December 31, 2013 December 31, 2012
(restated)
Total Current Assets 4,916.2 3,486.3
Total Non-Current Assets 9,827.1 9,793.9
Total Liabilities 2,453.6 1,424.1
Total Equity 12,289.7 11,856.1
GCGI‟s revenues increased by P113.5 million, to P10,677.3 million as of December 31, 2013 from
P10,563.8 million for the same period in 2012. The favorable variance is attributed to higher average tariff by
P0.10/kWh offset by lower sales volume by 21.1 GWh.
Cost of sale of electricity increased by 5.7% or P391.3 million, to P7,211.7 million in 2013 from
P6,820.4 million in 2012 due to higher cost of steam (P219.6 million) and purchased services and utilities
(P80.4 million). The increase is also due to higher parts and supplies issued (P122.0 million) offset by lower
repairs and maintenance (P46.7 million).
This year‟s other charges (P65.9 million) consisted mainly of miscellaneous charges and foreign exchange
losses while last year‟s other income (P90.0 million) pertained largely to foreign exchange gains and
miscellaneous income.
Total current assets increased by 41.0% or P1,429.9 million, to P4,916.2 million as of December 31, 2013
from P3,486.3 million balance as of December 31, 2012. The increase is due to higher cash & cash
equivalents (P1,624.6 million) offset by lower trade and other receivables (P142.1 million) and parts and
supplies inventories (P55.9 million).
Total liabilities increased by 72.3% or P1,029.5 million, to P2,453.6 million as of December 31, 2013 from
P1,424.1 million as of December 31, 2012 due to higher trade & other payables (P1,035.7 million).
Total equity increased by P433.6 million, to P12,289.7 million as of December 31, 2013 from
P11,856.1 million as of December 31, 2012 due to this year‟s net income (P2,632.3 million) offset by the cash
dividends that was declared on February 20, 2013 (P2,200.0 million).
70
Bac-Man Geothermal Inc.
(Amounts in PHP millions)
For the periods ended
December 31, 2013 Audited
December 31, 2012 Revenues 189.89 – Expenses (360.02) (441.50) Other income 4.80 1.55 Operating income (165.33) (439.95) Provision for income tax 49.76 0.04 Net income (loss) (115.57) (439.91)
As of
December 31, 2013
Audited December 31, 2012
Total Current Assets 703.7 722.7 Total Non-Current Assets 4,170.0 4,124.0 Total Current Liabilities 2,295.8 2,153.7 Total Non-Current Liabilities 11.3 10.9 Total Equity 2,566.6 2,682.1
On October 1, 2013, BGI‟s Bacman II Unit 3 power plant is already in the status necessary for it to
operate as intended by management.
In view of the foregoing, effective the said date, electricity revenues generated by Bacman II Unit 3
are reported in the income statement amounting to P=189.9 million. Sales and purchases of electricity are
netted off in the financial statements. Net trading losses amount to P=113.4 million and P=230.2 million in 2013
and 2012, respectively.
Expenses exclusive of net trading losses increased by 14.80% or P=31.8 million, pertaining primarily to the
recognition of steam cost of P=56.6 million and the increase in personnel costs of P=18.9 million. The increase
is partially offset by the decrease in rental, insurance, and taxes of P=21.8 million, purchased services and
utilities of P=15.6 million, and business and related expenses of P=10.9 million.
Provision for current income tax is higher by 123.6% or P=34.6 million while benefit from deferred income tax
is also higher by 300.8% or P=84.3 million. The increase results mainly from higher revenues from own
generation in 2013.
Financial position accounts have minimal movement during the year.
71
FG Hydro
December 2013 vs December2012 Results
(Amounts in PHP millions)
As of and for the years ended
December 31 2013
2012 (Restated)
Operating revenues 2,501.2 4,753.3 Operating expenses* (855.1) (932.3) Other expenses (170.5) (434.6) Income before tax 1,475.7 3,386.4 (Provision for) benefit from income tax (8.9) 12.2 Net income 1,466.8 3,398.6
Total current assets 1,986.6 1,985.1 Total noncurrent assets 6,400.6 6,862.1 Total current liabilities 525.0 625.4 Total noncurrent liabilities 3,602.8 3,935.7 Total equity 4,259.4 4,286.1
*Includes Cost of Sales and Services and General and Administrative Expenses
FG Hydro generated revenues of P2,501.2 million for the year ended December 31, 2013, P2,252.1 million or
47.4% lower than the revenues of P4,753.3 million for the same period in 2012. The unfavorable variance was
mainly on account of lower revenues earned from sale of contingency and dispatchable reserves, decrease in
dispatch and lower average WESM prices.
The unfavorable variance in revenues was partly offset by lower operating expenses for the same period
mainly on account of lower taxes and licenses and operations and maintenance expenses. Interest expense
dropped due to lower interest rates from 9.025% in 2012 to 4.5% in 2013. Overall, FG Hydro posted a net
income of P1,466.8 million for the period ended December 31, 2013, P1,931.8 million or 56.8% lower than
the P3,398.6 million reported income for the same period in 2012.
Total assets as of December 31, 2013 stood at P8,387.2 million, P460.0 million or 5.2% lower than the 2012
level of P8,847.2 million. The unfavorable variance was mainly due to lower balances of cash and cash
equivalents, water rights and property, plant and equipment in 2013.
As of December 31, 2013, total liabilities stood at P4,127.8 million, P433.3 million or 9.5% lower than the
2012 level of P4,561.1 million. The decrease in liabilities was mainly due to the continuous pay-out of the
scheduled semi-annual loan repayments and lower accrued interest on the long-term debt due to lower interest
rates as a result of refinancing.
Total equity as of December 31, 2013 of P4,259.4 million is P26.7 million or 0.6% lower compared to the
December 31, 2012 level of P4,286.1 million.
72
Top Eight (8) Key Performance Indicators
Ratio
Dec – 13
Dec – 12
Current Ratio 2.73:1 1.92:1
Debt-to-Equity Ratio 1.62:1 1.41:1
Net Debt-to-Equity Ratio 1.17:1 1.08:1
Return on Assets (%) 5.6 11.6
Return on Equity (%) 15.9 33.6
Solvency Ratio 0.16 0.29
Interest Rate Coverage Ratio 3.54 3.78
Asset-to-Equity Ratio 2.90 2.72
Current Ratio – Total current assets divided by total current liabilities.
This ratio is a rough indication of a company‟s ability to pay its short-term obligations.
Generally, a current ratio above 1.00 is indicative of a company‟s greater capability to settle
its current obligations.
Debt-to-Equity Ratio – Total interest-bearing debts divided by stockholders‟ equity.
This ratio expresses the relationship between capital contributed by the creditors and the
owners. The higher the ratio, the greater the risk being assumed by the creditors. A lower
ratio generally indicates greater long-term financial safety.
Net-Debt-to-Equity Ratio – Total interest-bearing debts less cash & cash equivalents
divided by stockholders‟ equity.
This ratio measures the company‟s financial leverage and stability. A negative net debt-to-equity
ratio means that the total of cash and cash equivalents exceeds interest-bearing
liabilities.
Return on Assets – Net income (annual basis) divided by total assets (average).
This ratio indicates how profitable a company is relative to its total assets. This also gives an
idea as to how efficient management is at using its assets to generate earnings.
Return on Equity – Net income (annual basis) divided by total stockholders‟ equity (average).
This ratio reveals how much profit a company earned in comparison to the total amount of
shareholder equity found on the balance sheet. A business that has a high return on equity is
more likely to be one that is capable of internally generating cash. For the most part, the
company‟s return on equity is compared with an industry average. The company is
considered superior if its return on equity is greater than the industry average.
Solvency Ratio – Net income excluding depreciation and non-cash provisions divided by total debt
obligations.
This ratio gauges a company‟s ability to meet its long-term obligations.
Interest Rate Coverage Ratio – Earnings before interest and taxes of one period divided by interest expense
of the same period.
This ratio determines how easily a company can pay interest on outstanding debt.
Asset-to-Equity Ratio – Total assets divided by total stockholders‟ equity.
This ratio shows a company‟s leverage, the amount of debt used to finance the firm.
73
Foreign Exchange Rate Volatility
Any volatility in the peso-dollar exchange rate impacts on EDC, both in terms of revenues and its operating
and capital expenditures. As the peso depreciates, revenues increase as the bulk of the company‟s sales
agreements have included the peso-dollar rate in their inflator indices; and the cost of imported materials,
services and equipment increases. Conversely, as the peso appreciates, costs decrease and revenues also
decrease.
At the same time, 39.0% of EDC‟s total long-term debt as of December 31, 2013 are foreign currency-
denominated, all denominated in USD. Any USD movement therefore affects the debt portfolio of EDC.
Inflation and Interest Rates
The Philippines actual inflation in 2013 remained constant at 3.0 percent as compared with the previous year.
During the first quarter, the inflation was higher since prices of food and alcoholic beverages increased due to
weather-related production disruptions and the implementation of the Sin Tax Reform Act of 2012. However,
inflation slowed in July and August caused by the reduction in prices of domestic petroleum products and
power rates. On the other hand, from September and towards the end of 2013, food inflation was higher due to
rigid supply conditions caused by adverse weather conditions and stronger demand during the holiday season.
Likewise, non-food inflation was higher due to the increasing adjustment in electricity rates brought by the
maintenance shutdown of Malampaya Gas Field and other generating plants coupled with increases in the
prices of gasoline, diesel, LPG and kerosene.
The Central Bank‟s key policy rate remain unchanged at 3.5 percent as recent inflationary pressures are
mainly due to adverse weather conditions.
The Monetary Board‟s decision is based on its assessment of manageable inflation. While inflation escalated
slightly mainly due to the recent rise in food prices on account of weather-related disruptions, latest baseline
forecasts continue to show that the future inflation path is likely to stay within the target ranges of 4±1 percent
for 2014 and 3±1 percent for 2015. Meanwhile, market expectations remain anchored to the inflation target
over the policy horizon.
In the fourth quarter of 2013, average T-bill interest rates in the primary market decreased on strong demand
for government securities after Moody‟s upgraded the Philippines‟ credit rating to investment grade status in
October 2013.
Any events that will trigger direct or contingent financial obligation that is material to the company,
including any default or acceleration of an obligation
EDC has outstanding long-term loans with different financial institutions for its various development projects
and working capital requirements which have defined events of default provisions that could accelerate the
repayment of loan obligations.
On March 21, 2013, EDC signed an US$80.0 million Term Loan Facility with Mizuho Corporate Bank, Ltd.
and Sumitomo Mitsui Banking Corporation as the Mandated Lead Arrangers and Bookrunners. Mizuho
Corporate Bank, Ltd. Hong Kong has been appointed to act as the Facility Agent. The 5.25-Year Facility has
a margin of 1.80% per annum above applicable USD LIBOR.
74
The Facility was drawn on December 6, 2013 and payable semi-annually with the following amortization
schedule:
Repayment Date Repayment Installments (% of the Loans
outstanding)
June 2014 4%
June 2016 5%
June 2018 91%
On May 3, 2013, EDC successfully issued and listed its Php7 billion Fixed Rate Bonds (the “Bonds”) at the
Philippine Dealing and Exchange Corp. The Bonds are comprised of Php3 billion 7-year Fixed Rate Bonds
and Php4 billion 10-year Fixed Rate Bonds due on May 3, 2020 and May 3, 2023, respectively. The 7-Year
Bonds have a fixed interest rate of 4.1583% per annum while the 10-Year Bonds have a fixed interest rate of
4.7312% per annum. PhilRatings assigned an issue credit rating of PRS Aaa for the Bonds.
The Joint Lead Underwriters for the Bonds are BDO Capital and Investment Corporation, BPI Capital
Corporation, Development Bank of the Philippines, Philippine Commercial Capital Incorporated, RCBC
Capital Corporation, and SB Capital Investment Corporation while BDO Capital and Investment Corporation
was the issue manager and sole bookrunner.
Under the agreement of the Term Loan Facility and Bonds, the Company is restricted from directly or
indirectly creating liens upon its assets and revenues and making loans or advances. In addition, the Company
is subject to the following covenants (tested semi-annually): a ratio of Financial Indebtedness to total Equity
of no more than 70 to 30; and a Debt Service Coverage ratio of a minimum of 1.2 to 1.0 (applicable only to
the Term Loan Facility).
In addition to the Term Loan Facility and Bonds , the Company also has outstanding (a) 15 year loans with
IFC maturing in 2023 and 2025; (b) 5.5-year and 7-year fixed rate retail bonds; (c) 5-year transferable
syndicated term loan facility;(d) 10-year US Dollar bonds, and (e) 10-year fixed rate corporate notes.
Any significant elements of income or loss (from continuing operations)
There were no significant elements of income or loss from continuing operations.
Seasonal aspects that have material effect on the FS
There were no seasonal items that materially affected the financial statements.
Material Commitments for Capital Expenditures
The Company‟s total budget for capital expenditures amount to approximately P17.53 billion for 2014. Bulk
of the budget or 44% (P7.70 billion) is allotted for the completion of the Burgos Wind Power Project. Other
major contributors to the budget are the P2.38 billion investments for local and international (Chile, Peru and
Indonesia) growth projects, the completion of the Nasulo Geothermal Power Project (P1.25 billion), and the
rehabilitation/repair costs for Green Core Geothermal and Bacman Geothermal power plants (P1.16 billion).
All material off-balance sheet transactions, arrangements, obligations (including contingent
obligations), and other relationships of the company with unconsolidated entities or other persons
created during the reporting period
During the reporting period, there were no off-balance sheet transactions, obligations and arrangements with
unconsolidated entities or persons.
75
Audit and Audit-Related Fees
The following table sets out the aggregate fees billed for each of the last three fiscal years for professional
services rendered by SGV & Co. from 2011 to 2013.
Year-ended December 31,
2013 2012 2011
Audit and Audit-Related Fees 6,425,000 5,948,975 5,680,000
All Other Fees1 100,000 100,000 100,000
6,525,000 6,048,975 5,780,000
All Other Fees
Professional services relating to the conduct of seminars and various services were rendered by the external
auditor in 2013, 2012 and 2011. The fees for these services are included under “All Other Fees” in the table
above.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Since 1987, the Commission on Audit of the Philippines had served as the independent auditor of the
Company to audit the Company‟s financial statements. With the full privatization of the Company in 2007, it
has engaged SGV & Co. as its external auditor for a period of five years. The Company has not had any
material disagreements on accounting matters or financial disclosure matters with both Commission on Audit
and SGV & Co.
Audit Committee Approval of Policies and Procedures for the Above Services
All matters relating to the above audit and audit-related services that may be rendered by the Company‟s
external auditor are first reviewed by the Company‟s Audit and Governance Committee and thereafter
endorsed to the Board of Directors for approval.
Market Price of and Dividends on the Registrant‟s Common Equity
MARKET INFORMATION
The Company‟s common equity was listed in the Philippine Stock Exchange last December 13, 2006 at an
Initial Public Offering price of P3.20 per share. The high and low share prices for 2011, 2012 and 2013 are
indicated in the following table:
Highest Close Lowest Close
Period Price (P) Date Price (P) Date 2011
1st Quarter 6.29 March 18, 2011 5.50 Feb. 10, 11 & 15,
2011
2nd Quarter 6.96 May 3, 2011 6.27 May 25, 2011
3rd Quarter 7.02 July 8, 2011 5.28 Sept. 26, 2011
4th Quarter 6.36 Dec. 16, 2011 5.42 Oct. 5, 2011
1 For services relating to conduct of seminars.
76
2012
1st Quarter 6.35 Jan. 1, 2012 4.90 Feb. 27, 2012
2nd Quarter 6.10 April 17, 2012 5.60 May 16, 2012
3rd Quarter 6.27 July 3, 2012 5.70 Aug. 8 & 9, 2012
4th Quarter 7.09 Nov. 28, 2012 6.10 Oct. 1, 2012
2013
1st Quarter 7.75 Feb. 26, 2013 6.28 March 18, 2013
2nd Quarter 6.57 April 26, 2013 5.05 June 25, 2013
3rd Quarter 6.16 July 29, 2013 5.12 Aug. 28, 2013
4th Quarter 5.94 Oct. 23, 2013 4.37 Nov. 21, 2013
As of January 31, 2014, the total number of stockholders was 691 and price was P5.25 per share. Public float
level was at 49.86% (or 9,348,054,864 common shares). As of March 21, 2014, closing price was P5.60 per
share.
List of Top 20 Stockholders as of January 31, 2014
Rank Name Nationality
Number of Shares
% Preferred Common Total
1 Red Vulcan Holdings Corporation Filipino 9,375,000,000 7,500,000,000 16,875,000,000 60.00
2 PCD Nominee Corporation Foreign - 6,600,400,024 6,600,400,024 23.47
3 PCD Nominee Corporation Filipino - 2,833,363,475 2,833,363,475 10.07
4 First Gen Corporation Filipino - 991,782,700 991,782,700 5.29
5 Northern Terracotta Power Corporation Filipino - 875,666,700 875,666,700 4.67
6 Peter D. Garrucho, Jr. Filipino - 5,545,000 5,545,000 0.02
7 Peace Equity Access For Community
Empowerment Foundation, Inc.
Filipino - 3,030,000 3,030,000 0.01
8 Arthur A. De Guia Filipino - 2,200,000 2,200,000 0.01
9 Croslo Holdings Corporation Filipino - 2,200,000 2,200,000 0.01
10 William Go Kim Huy Filipino - 2,000,000 2,000,000 0.01
11 ALG Holdings Corporation Filipino - 875,000 875,000 0.00
12 First Life Financial Co., Inc. Filipino - 800,000 800,000 0.00
13 Raul I. Macatangay Filipino - 725,000 725,000 0.00
14 Rosalind Camara Filipino - 663,750 663,750 0.00
15 Emelita D. Sabella Filipino - 521,000 521,000 0.00
16 Peter Mar &/or Annabelle C. Mar Filipino - 500,000 500,000 0.00
17 Ma. Consuelo R. Lopez Filipino - 500,000 500,000 0.00
18 Virginia Maria D. Nicolas Filipino - 393,000 393,000 0.00
19 Carlos Go &/Or Lenny Go Filipino - 375,000 375,000 0.00
20 Francis Giles B. Puno &/Or Ma. Patricia Puno Filipino - 367,500 367,500 0.00
COMPANY‟S SHARE CAPITAL
On October 12, 2009, the SEC approved the EDC‟s increase in authorized capital stock from
P15,075.0 million divided into 15,000,000,000 common shares and 7,500,000,000 voting preferred shares
with a par value of P1.00 and P0.01 per share, respectively, to P30,150.0 million divided into 30,000,000,000
common shares and 15,000,000,000 voting preferred shares with a par value of P1.00 and P0.01 per share,
respectively, by way of a common stock dividend (totaling 3,750,000,000 common shares with fractional
shares subscribed by the EDC Retirement Fund) and the subscription by the current voting preferred
stockholders to 1,875,000,000 voting preferred shares, representing 25% of the increase in the voting
77
preferred shares at par value. On October 14, 2009, EDC reissued the 93,000,000 treasury shares to a Trust
Fund with the BDO (for the employee stock ownership plan). Total issued and outstanding stock as of
December 31, 2013 consists of 18,750,000,000 common shares and 9,375,000,000 preferred shares.
Each common share is equal in all respects to every other common share. All the common shares have full
voting and dividend rights. The rights of EDC‟s shareholders include the right to notice of shareholders‟
meetings, the right of inspection of the Company‟s corporate books and other shareholders‟ rights contained
in the Corporation Code. Notice of shareholders‟ meetings is provided by mail or by hand.
Holders of common shares are entitled to receive annual cash dividends of at least 30% of the prior year‟s
recurring net income based on the recommendation of the Board of Directors. Such recommendation will take
into consideration factors such as current and prospective debt service requirements and loan covenants, the
implementation of business plans, operating expenses, budgets, funding for new investments and acquisitions,
appropriate reserves and working capital, among others. In this connection, covenants in certain loan
agreements entered into by the Company restrict the distribution of dividends to the Company‟s stockholders
if such distribution will impair the Company‟s ability to pay its obligations or if an event of default or a
prospective event of default (as defined in the loan agreement) has occurred and has not been remedied to the
satisfaction of the creditor(s).
The following are the terms of the voting preferred share issue:
1. Voting
2. Cumulative dividend rate of 8.0 % p.a.
3. Non-participating in any further dividends distributed to common shareholders
4. EDC may redeem at par in the event that restrictions on foreign share ownership are lifted
5. Non-convertible
6. No pre-emptive rights
7. Preference over common shares in case of liquidation or dissolution
8. Restrictions on transferability
CASH AND STOCK DIVIDENDS
On February 28, 2014, EDC declared cash dividends amounting to P=1.88 billion to its common
shareholders and P=7.5 million to its preferred shareholders of record as of March 17, 2014 payable on or
before April 10, 2014.
On February 20, 2013, EDC declared cash dividends amounting to P=1.5 billion to its common
shareholders and P=7.5 million to its preferred shareholders of record as of March 11, 2013 payable on or
before April 8, 2013.
In May 2013, FG Hydro declared and paid cash dividends to its voting preferred shares and non-
controlling common shareholder amounting to P=951.2 million.
On September 10, 2013, EDC declared cash dividends amounting to P=1.5 billion its common shareholders
of record as of September 25, 2013 payable on or before October 21, 2013.
RECENT SALE OF UNREGISTERED OR EXEMPT SECURITIES
On January 21, 2011, the Company issued its maiden ten-year USD Bond (the “USD Bonds”) in the aggregate
principal amount of $300.0 Million. The USD Bonds are listed on the Singapore Exchange Securities Trading
Limited or SGX-ST. The offer and sale of the USD Bonds in the Philippines was limited to qualified buyers
as enumerated in Section 10.1(l) of the SRC and to Primary Institutional Lenders, as the term is defined in the
Amended Implementing Rules and Regulations of the SRC. The proceeds of the USD Bonds were used to
78
fund the Company‟s growth projects, capital expenditures, debt servicing requirements, and other general
corporate purposes.
On June 17, 2011, the Company entered into a credit agreement for $175.00 million syndicated term loan
facility (the “Refinanced Club Loan”) with a syndicate of lender banks. Members of the syndicate were all
Primary Institutional Lenders, as the term is defined in Rule 9.2(2)(b) of the Amended Implementing Rules
and Regulations of the SRC. The proceeds of the Refinanced Club Loan were used to repay the Company‟s
2010 Club Loan.
On April 19 and April 25, 2012, the Company issued ten-year Fixed Rate Corporate Notes (the “Notes”) in
the aggregate principal amount of P=7.0 Billion. The Notes were offered to not more than 19 Primary
Institutional Lenders, as the term is defined in the Amended Implementing Rules and Regulations of the SRC.
The proceeds of the Notes issuance were used to refinance its existing FXCNs and fund other general
corporate purposes. Since the Notes are considered exempt securities under SRC Rule 9.2(2)(b), the Company
did not secure a confirmation of exemption from the SEC.
On March 21, 2013, the Company entered into a credit agreement for an $80.00 million syndicated term loan
facility (the “Club Loan”) with a syndicate of lender banks. Members of the syndicate were all Primary
Instituional Lenders, as the term is defined in Rule 9.2(2)(b) of the Amended Implementing Rules and
Regulations of the SRC. The proceeds of the Club Loan are being used to fund the capital expenditure needs
and other general corporate purposes of the Company or its subsidiaries.
Other than the Club Loan, the USD Bonds, the Refinanced Club Loan, and the Notes, the Company did not
issue any other unregistered/exempt securities in the last three years.
G. Compliance with Corporate Governance Practices
The 2013 CORPORATE GOVERNANCE REPORT
The year reflects the company‟s developments in corporate governance as the company rises to the challenges
brought about by the intensified standards being aligned with the ASEAN Integration on Corporate
Governance, while staying true to the company‟s priority programs and strategic directions.
OUR CORPORATE GOVERNANCE ACTIVITIES FOR 2013
EDC‟s corporate governance program has been revisited and realigned with EDC‟s strategic direction in order
to promote progress with sustainability for 2013.
Below are the Energy Development Corporation‟s CG activities for 2013:
EDC‟s CORPORATE GOVERNANCE POLICY Pursuant to the company‟s Manual on Corporate Governance, the Board remained committed to the principles
of sound corporate governance and acknowledge that the same will guide them in the attainment of the
Company‟s corporate goals.
OUR CORPORATE GOVERNANCE COMMITMENTS Further to the Board‟s commitment to operational excellence and good corporate governance, the company‟s
by-Laws provide measures for protecting the interests of minority shareholders, and shareholder rights, as
follows:
79
● Article II (By-Laws) MEETING OF STOCKHOLDERS
6. Quorum. xxx In all cases where the law requires a two-thirds vote of the outstanding capital stock,
the majority vote of the minority shareholders present shall likewise be required for validity of
decisions in Stockholders’ Meetings.
● By-Laws. Article IV: BOARD OF DIRECTORS
3. Quorum. xxx However, once an Independent Director is elected to the Board, the quorum shall
constitute a majority of the Board of Directors, with the presence of at least one (1) Independent
director, and every decision of a majority of the quorum shall require the concurrence of at least one
(1) Independent Director for validity of the decisions of the Board.
● Manual on Corporate Governance. COMMITMENT TO RESPECT STOCKHOLDERS’ RIGHTS
The Board shall be committed to respect the voting right, pre-emptive right, right to information, right
to dividends and appraisal rights of the stockholders
SHAREHOLDER AND STAKEHOLDER RIGHTS As a company imbued with high public interest, EDC‟S is fully committed to respect shareholder rights as
provided under existing laws, rules and regulations, as well as those rights it committed to observe under its
Corporate Governance Manual, such as voting rights, pre-emptive rights, right to information, right to
dividends and appraisal rights of the stockholders.
Further, EDC‟s commitment to promote stockholders‟ rights is embodied in the Corporate Governance
Manual which states:
It shall be the duty of the Board to promote stockholder’s rights, remove impediments to the
exercise thereof and allow possibilities of seeking redress for violation of such rights. The
Board shall encourage the exercise of stockholders’ voting rights and the collective action
towards solution of problems through appropriate mechanisms.
The Board should be transparent and fair in the conduct of the annual and special
stockholders’ meetings of the corporation. The stockholders should be encouraged to
personally attend such meetings. If they cannot attend, they should be appraised ahead of
time of their right to appoint a proxy. Subject of the requirements of the By-Laws, the
exercise of that right shall not be unduly restricted and any doubt about the validity of a
proxy should be resolved in stockholder’s favor.
They shall likewise be instrumental in removing excessive costs and other administrative or
practical impediments to stockholders participating in meetings and/or voting in person. The
Board shall pave the way for the electronic filing and distribution of stockholder information
necessary to make informed decisions in accordance with applicable laws, rules and
regulations.
THE BOARD OF DIRECTORS
Election of the EDC Board of Directors for the term 2013-2014
During the May 7, 2013 Annual Stockholders‟ Meeting held at the Rockwell Tent, Rockwell Center
in Makati City, Philippines, eleven (11) highly-qualified and highly-experienced professionals with
exemplary backgrounds on business, local and international finance and energy were elected as EDC
Directors for another term by the stockholders of the Energy Development Corporation.
The Board‟s composition represents a good combination with four (4) executive directors (Oscar M.
Lopez, Federico R. Lopez, Richard B. Tantoco and Ernesto B. Pantangco), four (4) non-executive
directors (Francis Giles B. Puno, Jonathan C. Russell, Peter D. Garrucho, Jr., and Elpidio L. Ibanez)
and three (3) independent directors (Edgar O. Chua, Francis Ed. Lim, and Arturo T. Valdez).
80
All the elected members of the Board have been screened and evaluated by the Nomination and
Compensation Committee (NCC) to possess all the qualifications and none of the disqualifications for
directors under existing laws, rules, regulations and the Company‟s Corporate Governance Manual.
The Board now comprises of 27.30 % independent directors, which is more than the minimum
regulatory requirement of at least 2, or 20% of the board, whichever is higher. For the election of
independent directors of EDC, the Nomination and Compensation Committee was principally guided
by the definition of an “Independent Director”, to wit:
An Independent Director is one who is independent of Management and who is free from
any business or other relationship with the Company which could, or could reasonably be
perceived to, materially interfere with the exercise of his independent judgment in carrying
out his responsibilities as a director of the Company. An Independent Director is also one
who possesses all the qualifications and none of the disqualifications for an independent
director under existing laws, government issuances, rules or regulations.
More importantly, an independent director should provide indispensable independent
judgment and objectivity on all issues presented to the Board.
All EDC Directors, most specially its Independent Directors, are active participants during Board and
Board Committee meetings, as well as in major corporate undertakings.
THE EDC BOARD COMMITTEES
Constitution and Composition of the EDC Board Committees
Beyond the regulatory requirement for the number of Board Committees, EDC‟s Board of Directors
takes pride with its initiative of having five (5) Board Committees to assist in handling oversight
functions on operational matters which would require careful deliberation prior to elevation to the
Board. These are:
● Audit and Governance Committee (AGC)
● Nomination and Compensation Committee (NCC);
● Risk Management Committee (RMC);
● Corporate Social Responsibility Committee (CSRC); and
● Operations Committee (OpsCom).
The members of each committee were appointed in consideration of regulatory requirements,
governance best practices, individual expertise and operational demands.
81
The Board Committee Charters
In carrying out their operations and functions, the different Board Committees of EDC are guided by
their respective committee Charters which provide for their duties and obligations, their
responsibilities to the Board and their internal protocols on membership and composition, and
meeting frequencies, among others.
In 2013, as part of the continuing effort to improve the Committee Charters, the following charters
were amended:
● Operations Committee Charter, amended January 30, 2013.
● Corporate Social Responsibility Committee Charter, amended January 30, 2013.
● Audit and Governance Committee Charter, amended July 9, 2013.
Copies of the Charters of all EDC Board Committee are available at the Corporate Governance pages
of the EDC website (http://www.energy.com.ph/corporate-governance/board-committees/charters/) .
BOARD COMMITTEE REPORTS
For the year ending December 31, 2013, the following are the significant activities of the company‟s Board
Committees:
Audit and Governance Committee (AGC) ● Financial Reporting and Disclosures- The AGC reviewed with management and the
external auditor (SGV & Co.) the annual audited financial statements and the quarterly
interim financial reports and endorsed these to the Board for approval and release to
regulatory agencies, stockholders and creditors. The AGC review included discussions on the
appropriateness of accounting policies adopted by management, the reasonableness of
estimates, assumptions and judgments used in the preparation of financial statements, the
impact of new accounting standards and interpretations, and other key accounting issues and
audit results as highlighted by the external auditor.
● Internal Control - The AGC monitored the effectiveness of the internal control environment
through various measures such as: the review of the results of the external audit on internal
control issues; exercising functional responsibility over Internal Audit and the Compliance
Office and receiving reports on work done in assessing key governance, risk management and
control components; discussion with management on major control issues and
recommendations to improve policies and processes; and promoting a culture of integrity and
ethical values in the company.
● External and Internal Audit- The Committee reviewed the overall scope and audit plan of
the external auditor, reviewed and affirmed the management evaluation on the performance of
the external auditor (for the 2012 financial statements audit) and approved the re-engagement
of SGV & Co. for another year (2013 audit). The Committee also approved the non-audit
services rendered by external auditors and approved the Internal Audit annual plan and
ensured that independence is maintained, the scope of work is sufficient and resources are
adequate.
● Compliance- The AGC monitored the Company‟s compliance to laws, regulations and
policies by approving annual plans and programs of the Compliance Office and by monitoring
the group‟s accomplishments on a quarterly basis.
● Committee meetings- conducted four meetings in 2013
● Revision of the AGC Charter - The AGC approved the amendments to the AGC Charter,
Internal Audit Charter and the alignment of the CG Manual in compliance with SEC
regulations, alignment with best practices, international audit standards, and to incorporate
changes in the name of the corporation and executive positions.
● Assessment of Performance- assessed its performance based on the guidelines and
parameters set in SEC Memorandum Circular No. 4, ss 2012 which specified the required
82
provisions of an audit committee charter and the assessment of the audit committee‟s
compliance therewith. The results of the assessment were disclosed to the SEC in October 7,
2013 and the Committee committed to address the identified areas for improvement.
In the performance of its duties, the AGC has addressed the following issues:
● The integrity of financial reporting process;
● The effectiveness and soundness of internal control environment;
● The adequacy of audit functions, both external and internal audits
● Compliance with rules, policies, laws, regulations, contracts and the code of conduct
Nomination and Compensation Committee (NCC) ● Reviewed the qualifications, credentials and disqualifications of nominees for Regular and
Independent Directors for the 2013 Annual stockholders Meeting; and
● Reviewed and evaluated the qualifications and disqualifications of new EDC Vice-Presidents
for the Human Resources Management Group (HRMG) and the Drilling Group (DG).
In performing its duties, the NCC addressed the issues on the qualifications and credentials, and the
disqualifications of directors, pursuant to the requirements under SEC regulations and the Corporate
Governance Manual.
Risk Management Committee (RMC) ● Business Continuity Management- The Business Continuity Management (BCM) Project
was launched in EDC‟s Mt. Apo Geothermal Business Unit. With this, plans for emergency
response, crisis management, and business recovery were developed for the said business
unit. As part of the project, a desktop simulation exercise was also conducted.
● Strategic Business Unit Risk Review- Risk reviews were conducted by the following
business units as part of their annual planning and strategy execution process: (a) Northern
Island Geothermal Business Unit, (b) Mt. Apo Geothermal Business Unit, and (c) Leyte
Geothermal Business Unit. The objective of the risk reviews is to identify the top risks of
each strategic business unit (SBU). Correspondingly, the initiatives that would address the
SBUs‟ top risks are part of their 2014 budget and work programs.
● Electric Cooperative Credit Risk Portfolio- A credit risk portfolio analysis of the
company‟s customers was conducted to identify the credit default risk exposure of the
company. The customers‟ financial strength and creditworthiness are continuously being
monitored.
● Vendor Financial and Credit Evaluation- 118 financial and credit evaluation of suppliers
and contractors were conducted to review their financial performance and credit history. The
purpose of the evaluation is to provide EDC with an understanding of its suppliers‟ and
contractors‟ financial condition and related risks.
● Approval of 2014 Strategic and Operational Risks
In the performance of its duties, the RMC has addressed the issues of disaster avoidance and risk
mitigation and recovery.
Corporate Social Responsibility Committee ● Replication of KEITECH in BGBU and MAGBU - the Committee approved the request to
replicate the KEITECH model across EDC sites on a modular scale, with BGBU and
MAGBU as priority sites. Courses to be offered will be Welding and Pipefitting due to their
high demand.
● Partnerships with Philippine Tropical Forest Conservation (PTFC) - Seedling
Procurement from VISCA and EDC-PTFCF Plant Science Conservation Program (Doctorate
Study).
● The CSRC also directed and reviewed the following initiatives on top of the regular HELEn
Program- KEITECH Expansion Outside EDC Host Communities, KEITECH Post-
Yolanda efforts, Interventions for MAGBU CSR Issues, and Enterprise /Livelihood
83
Sustainability Road Map
The CSRC addressed the issues on policies and strategies on socioeconomic development of the
company‟s host communities and the stewardship of the environment where EDC operates.
Operations Committee ● Deliberated on fifty-seven (57) items which were approved or elevated to the Board for final
approval with a cumulative worth of about P48.3 Billion
In carrying out its functions, the OpsCom has addressed issues pertaining to drilling operations and
high-value procurements.
An archive of the Board Committee reports for the previous years are available at the Corporate
Governance pages of the EDC Website (http://www.energy.com.ph/corporate-governance/board-
committees/annual-activity-report/).
BOARD MEETINGS AND BOARD COMMITTEE MEETINGS
All company Directors diligently attend Board meetings and their respective Committee meetings to fully
perform their commitment to the Corporation, rendering a more effective board governance framework.
From Board Meetings to Committee Meetings, as well as the Annual Stockholders‟ Meeting of the Company,
all Directors, especially the Board Committee Chairpersons, are present. Disclosures filed at the SEC and the
PSE show attendance of the different Committee Chairpersons during the 2013 Annual Stockholders‟ Meeting
of EDC.
For the year ending December 31, 2013, below are the tables showing the frequency of meetings and the
respective attendance of the members of EDC‟s Directors in Board Meetings and Committee Meetings:
Directors’ Attendance in Board Meetings and the Annual Stockholders’ Meeting for 2013
NAME OF DIRECTORS 30-Jan-
13
20-Feb-
13
20-Mar-
13
ASM & Org
Board 9-Jul-13
10-Sep-
13
1-Oct-
13
19-Nov-
13
7-May-13
OSCAR M. LOPEZ / A / / A / / /
FEDERICO R. LOPEZ / / / / / / / /
RICHARD B. TANTOCO / / / / / / / /
EDGAR O. CHUA / / / / / / A /
PETER D. GARRUCHO, JR. / A / / / / / /
ELPIDIO L. IBANEZ / / / / / / / /
FRANCIS ED. LIM / A / / / / / /
ERNESTO B. PANTANGCO / / / / / / / /
FRANCIS GILES B. PUNO / / / / / / / /
84
JONATHAN C. RUSSELL / / / / / / / /
ARTURO T. VALDEZ / / / / / / / /
Directors’ Attendance in Committee Meetings for 2013
EDC DIRECTORS Audit &
Governance
(4 Meetings)
Nomination &
Compensation
(2 Meetings)
Risk Management
(4 Meetings)
Corporate Social
Responsibility
(2 Meetings)
Operations
( 32 Meetings)
OSCAR M. LOPEZ 0 0 0 0 0
FEDERICO R. LOPEZ 1 2
(Chairman)
1 2
(Chairman)
11
(Member)
RICHARD B. TANTOCO 3 1 2 2 29
(Member)
PETER D. GARRUCHO,
JR.
0 2
(Member)
4
(Member)
0 7
(Member)
ERNESTO B.
PANTANGCO
3
(Member)
1 3 2
(Member)
24
(Member)
FRANCIS GILES B. PUNO 2
(Member)
2
(Member)
4
(Chairman)
0 17
(Member)
JONATHAN C. RUSSELL 2 1 4
(Member)
1 23
(Member)
ELPIDIO L. IBANEZ 0 2
(Member)
2 0 23
(Member)
FRANCIS ED. LIM
(Independent)
3
(Member)
1 1 0 0
EDGAR O. CHUA
(Independent)
1
(Chairman)
1 0 2
(Member)
0
ARTURO T. VALDEZ
(Independent)
3
(Member)
2
(Member)
3 2
(Member)
0
NOTES:
● Directors are issued an open invitation to attend all Committee Meetings. As such, even non-
members’ attendance are likewise indicated in the table
● In the case of the Operations Committee, the same is a collegial body and there is no Chairman.
● Director Arturo T. Valdez was appointed into the AGC only after the EDC Organizational Meeting,
and he has attended 100% of the AGC Meetings that were scheduled thereafter.
● Data Source: 2013 Board Committee Reports, Committee Secretariats, EDC Director Relations
office
85
DISCLOSURE AND TRANSPARENCY: EDC‟s STRONG INVESTOR RELATIONS PROGRAM
The program objective of EDC‟s Investor Relations Office (IRO) is to generate investors and other
stakeholders‟ interest in, and build up investors‟ loyalty to the company. It operates on the principle of
ensuring that the investment community is provided with timely, complete and accurate information used to
determine EDC‟s share value. The operations are based on openness, accuracy, consistency and equal access
to information.
Information about EDC, its operating and financial performance are provided to investors, stockholders, and
other stakeholders through the following tools:
● 1-on-1 meetings and/or conference calls with Management
● Quarterly investors‟/analysts‟ briefing with the President and CFO
● Non-deal road shows (NDR) and/or investors‟ conferences with the President and/or CFO
● IR section of EDC website (presentations and SEC/PSE regulatory filings)
● Printed annual report
● At other times, the inquiries of investors and analysts are answered by phone or email.
For 2013, EDC‟s Investor Relations Office has made thirty three (33) Disclosures and forty eight (48)
Structured Reports filed with the PSE and SEC and posted at their respective websites and the Company‟s
website. The investor relations pages of the EDC website (http://www.energy.com.ph/investor-
relations/financial-reports/) are constantly updated to show investors and stakeholders the compliance reports
filed with the SEC and PSE, as well as investor reference materials throughout the year
(http://www.energy.com.ph/investor-relations/presentations/) .
CORPORATE GOVERNANCE EVALUATION AND SCORECARDS
The 2012 and 2013 ASEAN Corporate Governance Scorecard.
2013 sees the 2nd
run of the ASEAN Corporate Governance Scorecard which will lead to the 2015
ASEAN Integration where Philippine listed companies will be evaluated by their ASEAN peers. Until
then, the 2012-2013 cycles will be done in preparation for the country‟s readiness for the ASEAN
integration.
The results of the 2012 ASEAN CG scorecard was released in the middle of 2013 where EDC
emerged with the CG rating of 67.97, higher than the country average of 49. For the 2013 ASEAN
CG Scorecard, the website was again used as the main tool in showcasing the latest CG updates of the
company and with this, the results were immediately provided by ICD in the same year also, and
EDC obtained a CG rating of 82. This rating is higher than the country average of 59.
86
For the 2012 and 2013 ASEAN CG Scorecard, EDC belonged in the 50 top-rated publicly-listed
companies in the Philippines. The detailed ratings are as follows:
EDC‟s ASEAN CG Scorecard Performance 2012-2013
CATEGORY WEIGHT Company Score 2012
(released June 2013)
Company Score 2013
(released Nov. 2013)
LEVEL 1
Part A. Rights of Shareholders 10 % 4.61 % 7.0 %
Part B. Equitable Treatment of
Shareholders 15 % 9.70 % 12.3 %
Part C. Role of Stakeholders 10 % 7.61% 9.0 %
Part D. Disclosure and Transparency 25 % 20.73% 18.1 %
Part E. Responsibility of the Board 40% 24.30% 29.4%
TOTAL LEVEL 1 100% 66.97% 75.8%
Level 2
Bonus 1% 6%
Penalty 0% 0%
TOTAL LEVEL 2 1% 6%
TOTAL SCORE 67.97 82%
Other recognitions and citations for CG excellence
2013 was also the year when EDC received notice that it was among the companies which passed
initial screening by the PSE to be shortlisted in the 2013 PSE Bell Awards for Corporate Governance
Excellence. Likewise, EDC was also recognized by the CG Asia Magazine as “MOST PROMISING
COMPANY IN CORPORATE GOVERNANCE” in its April-June issue (Vol 10. No. 2). CG Asia
Magazine is a HK-based magazine which promotes CG developments and best practices
Internal Corporate Governance Evaluation
Since 2008, the Company has adopted an annual Board Self-assessment Evaluation and President‟s
Evaluation, with majority of the Board providing their inputs and insights on the Board‟s overall
performance as well as their assessment of the President‟s performance, leadership, operational
management, working relationship with the Board, and financial management
In 2013, the Compliance Office assisted the Board in the conduct of its Annual Corporate Governance
Evaluation. For the 2013 cycle, the Compliance Office has incorporated the recommendations under
the ASEAN Corporate Governance framework and made improvements in the CG evaluation which
now consists of the following:
● Board Self-Assessment
● Board Committee Evaluation
● Chairman‟s CG Evaluation
● President‟s CG Evaluation
87
COMPLIANCE WITH THE REPORTING REQUIREMENTS IN FURTHERANCE OF
CORPORATE GOVERNANCE
“Compliance” to EDC means complete, accurate and timely submissions of governance disclosures, reports
and data to the SEC and PSE for the year, such as, but not limited to:
● Annual Compliance Officer‟s certification of compliance with the company‟s Corporate Governance
Manual under SEC Form MCG-2002;
● Annual certification on Directors‟ Attendance in Board Meetings for 2013;
● Structured reports to the SEC and PSE such as, but not limited to, SEC Forms 17-A, 17-C, 17-Q, 20-
IS, 23-A, 23-B, Public Ownership Reports, Top 100 Shareholders; Disclosure of unstructured reports,
such as material information and important events in the Company.
● Annual Corporate Governance disclosure to the PSE pursuant to the PSE CG Guidelines;
● Report on the Audit and Governance Committee (AGC) Charter and Performance Assessment; and
● The Annual Corporate Governance Report (SEC Form-ACGR) which was implemented by the SEC
in March 2013, to replace the MCG-2002 and Directors‟ Attendance Report.
Likewise, other operational reports, permits and information required from the company by government and
industry regulators such as the DOE, ERC, DENR and DOLE, among others, are constantly monitored and
prepared for their timely submission and compliance. In order to further strategize their management and
prioritization, EDC has formally set-up in 2012 a Policy Advocacy and Government Relations (PAGR)
Department, to rationalize the operational compliance requirements of the Company for improved
governance.
CORPORATE GOVERNANCE TRAININGS
In addition to the 100% training record for EDC‟s Board of Directors, the Company likewise promotes CG
education and training for its officers and executives.
In 2013, the Vice-President for Human Resources Management and the Vice-President for Supply Chain
Management received corporate governance trainings with the Institute of Corporate Directors for CG
Orientation.
THE CORPORATE GOVERNANCE MANUAL
Since the adoption of the EDC Corporate Governance Manual in November 15, 2006 in compliance with the
Corporate Governance Code of the SEC under SEC Memorandum Circular No. 2, series of 2002 dated April
5, 2002, the CG Manual has provided guidance to the Company, the Board and Management throughout the
years. With the amendments effected in compliance with the requirements of the new SEC Revised CG Code
under SEC Memorandum Circular No. 6, series of 2009, the Corporate Governance Manual of EDC ensures
that there is full compliance by the Company on corporate governance in relation to its day-to-day operational
concerns.
In 2013, the Corporate Governance Manual was amended in August pursuant to the amendments in the duties
and functions of the Audit and Governance Committee (AGC) which mirrored the corresponding amendments
in the provisions of the AGC Charter.
88
EDC‟S CORPORATE GOVERNANCE-RELATED POLICIES & ISSUANCES
As part of EDC continuing commitment to corporate governance, it instituted the following policies which
help guide its workforce in practicing good governance.
Guidelines on Giving and Receiving of Corporate Gifts. The Guidelines, which was issued in February 14, 2013, established the general principles on giving
and receiving of gifts by all EDC officers and employees, probationary, regular, and contractual, and
its subsidiaries, consistent with the company‟s Code of Conduct and Discipline, Conflict of Interest
Policy and other related Corporate Policies.
The purpose of the guidelines is to set clear and realistic guidelines on giving and receiving of gifts
that incorporate examples of what types of gifts are and are not allowed. The guidelines also helps
motivate employees to strive for transparent business practices and relationships by keeping gifts and
favors to a minimum, if not prohibiting them entirely, and empower employees with freedom and trust
to strike the correct balance in their relationships with outside firms, to include vendors, consultants,
contractors, suppliers, customers, regulators, political leaders, host communities and other business
partners, among others.
Anti-Sexual Harassment Policy.
This policy prescribes the rules and regulations of the Company towards the promotion of a work
environment which values human dignity, and prescribes the administrative process and disciplinary
action for sexual harassment cases. The policy was circulated, discussed and dissected in various
labor-management council meetings, and finally signed and made effective on December 7, 2012.
Code of Conduct and Business Ethics. EDC‟s Code of Conduct and Business Ethics was launched on September 13, 2004 when EDC was
still a government-owned and controlled corporation. Even then, EDC constantly kept itself agile and
flexible, striving to be at par – or even better than – the world‟s best, in the face of rapidly-changing
rules of business engagement brought about by globalization, the impact of information technology,
the increased demand for accountability and transparency by the company‟s stakeholders and
stockholders alike.
The Code provides the policy guidelines and key principles to help EDC and its employees and
officers align their personal values, actions and concepts of business behavior and governance based
on enduring moral values. The Code likewise encourages the right actions through sometimes difficult
choices and to act with unflinching integrity when faced with situations involving ethical issues.
The Code states the values that motivate the Company and its workforce to persevere and aim for
excellence while maintaining favorable relations with co-workers as well as with other stakeholders.
Likewise, the Code lays down the key principles which guide in dealing with investors, principal
stakeholders and critical issues and concerns facing the Company, such as the Government, the
Employees, EDC‟s Business Partners, the Environment, the Communities around the Company,
Company Books and Records, Confidential Information, a Healthy and Safe Workplace, and the
Media, among others.
Code of Conduct and Discipline. Complementary to the Code of Conduct and Business Ethics is EDC‟s employee Code of Conduct
and Discipline which became effective September 16, 2011. The Code of Conduct and Discipline
prescribes the norms of conduct and standards of behavior to instill a strong sense of discipline among
its employees. These standards of behavior serve as guideposts in ensuring that our employees
embrace and live the Company‟s core values.
89
Conflict of Interest Policy. EDC‟s Conflict of Interest Policy is generally covered under EDC‟s Personnel Manual and as such
serves as a guide to all EDC personnel in the conduct of their day-to-day transactions in EDC.
Recently revised in order to address the ever-changing needs of a private corporation, the policy
provides the guidelines and directives for all Directors, officers and all other employees, as well as
their relatives within a certain degree of affinity or consanguinity, in order to avoid any conflict of
interest between their personal interest and that of the Company in dealing with suppliers, customers,
and all other organizations or individuals doing or seeking to do business with the Company.
Guidelines on Trading Rules and Restrictions. Since EDC‟s listing in the Philippine Stock Exchange (PSE) in December 13, 2006, the Company has
continued to observe strict compliance with the Exchange‟s Trading Rules and Restrictions,
emphasizing the need for transparency and fairness in its transactions in order to fully apprise its
investors of its current activities.
One of the matters which were given much importance is the principle of transparency, in observance
of which directors and officers are required to disclose their stock transactions involving company
security, using SEC Forms 23-A and 23-B whenever necessary. Another matter given much
importance is the manner by which the Company, its Directors and officers treat material information
they may come by in the Company. Management has advised time and again that material information
should be treated delicately so as to comply with the PSE and SEC Rules on Disclosure.
Fraud Policy. The corporate fraud policy is established to facilitate the development of controls which will aid in the
detection and prevention of fraud against the Company and promotion of consistent organizational
behaviour by providing guidelines and assigning responsibility for the development of controls. The
policy defines fraud and enumerates the instances wherein fraud is committed, and designates the
office primarily responsible for investigating corporate fraud cases. It emphasizes that in the process
of investigating corporate fraud cases, the Company shall, at all times, accord all individuals
concerned with all the rights and privileges emanating from due process.
Whistleblower Policy (”Protected Disclosures Policy”). EDC‟s Whistleblower policy is intended to encourage and enable employees and others to raise
serious concerns within the company prior to seeking resolution outside the company. The EDC
whistleblower policy is a guarantee that no person who reports a violation of company policies shall
suffer harassment, retaliation, or adverse employment consequence.
The EDC Whistleblower Policy identifies who could be whistleblowers, laying down the matters
which are reportable thereunder, the procedures for whistleblowing, as well as their rights and
responsibilities under the said policy.
In furtherance of EDC’s good governance initiatives and in consonance with its internal Fraud
Policy and the Code of Conduct and Discipline, the Company’s Internal Audit Department (IAD)
has assigned hotlines to enable employees to report serious concerns of irregularities and
wrongdoings. Employees are encouraged to raise complaints at hotline nos. +63 2 982-2202 or +63
917 863-4260 . All reports will be acted upon and treated with strict confidentiality in accordance
with the provisions of EDC’s Protected Disclosure Policy.
EXECUTIVE OFFICERS: THE CHAIRMAN OF THE BOARD AND THE CHIEF EXECUTIVE
OFFICER
In 2013, the positions of Chairman and Chief Executive Officer (CEO) have been vested anew in one
individual when Mr. Federico R. Lopez was reelected as both Chairman of the Board and Chief Executive
Officer of EDC.
90
In order to provide the necessary checks and balances for the positions, the Company‟s By-Laws and the
Corporate Governance Manual provided the separate and distinct functions of each with a view of delineating
the respective duties and responsibilities, thus minimizing the risk of conflict. Further, the EDC Board ensured
that the checks and balances necessary for independent views and perspectives in the Board Meetings, are
observed.
Since Mr. Lopez was first elected as Chairman and CEO of EDC, there has been no instance of any conflict in
function in the performance of his duties as Chairman and CEO of the Company.
PLANS TO IMPROVE
The Energy Development Corporation (EDC) recognizes the stockholders and other stakeholders‟
expectations of high standards of behavior and accountability from directors and officers, and firmly requires
strict adherence to the corporate governance principles of loyalty, fairness, accountability, transparency and
integrity. All Directors, Officers and employees of EDC are required and expected to carry out their respective
duties and responsibilities effectively and in compliance with these governance principles.
EDC is continually reviewing its policies and processes for further improvements in corporate governance
practices within the Company and to address the changes in government legislation, administrative regulations
and international best practices.
To this end, EDC has likewise strengthened its partnership or cooperation with regulatory government
agencies and SEC-accredited corporate governance institutions.
Through the Compliance Office, EDC has likewise affiliated itself with corporate governance and ethics
advocates and practitioners in the Philippines composed of representatives from publicly-listed corporations
with known good corporate governance practices.
DEVIATIONS
There are no known significant deviations from the Company‟s Manual of Corporate Governance.
The Company will provide without charge to each person solicited, upon his written request, a copy of
the Company‟s annual report on SEC Form 17-A duly filed with the Securities and Exchange
Commission. At the discretion of Management, a reasonable fee may be charged for the expense
incurred in providing a copy of the exhibits. All requests may be sent to the Company‟s head office and
addressed to:
Attention: Mr. Erudito S. Recio
Senior Manager, Investor Relations
*SGVFS005114*
6 6 3 8 1
SEC Registration Number
E N E R G Y D E V E L O P M E N T C O R P O R A T I O N
( A S u b s i d i a r y o f R e d V u l c a n H o l d i
n g s C o r p o r a t i o n ) A N D S U B S I D I A R I E S
(Company’s Full Name)
O n e C o r p o r a t e C e n t r e , J u l i a V a r g a
s C o r n e r M e r a l c o A v e n u e , O r t i g a s
C e n t e r , P a s i g C i t y
(Business Address: No. Street City/Town/Province)
Maribel A. Manlapaz 755-2332(Contact Person) (Company Telephone Number)
1 2 3 1 A A C F S 0 5 0 7Month Day (Form Type) Month Day
(Fiscal Year) (Annual Meeting)
–(Secondary License Type, If Applicable)
–Dept. Requiring this Doc. Amended Articles Number/Section
Total Amount of Borrowings
692 P=35,733,415,551 P=22,815,344,784
Total No. of Stockholders Domestic Foreign
To be accomplished by SEC Personnel concerned
File Number LCU
Document ID Cashier
S T A M P S
Remarks: Please use BLACK ink for scanning purposes.
COVER SHEET
*SGVFS005114*
INDEPENDENT AUDITORS’ REPORT
The Stockholders and the Board of DirectorsEnergy Development CorporationOne Corporate Centre Building, Julia Vargas corner Meralco AvenueOrtigas Center, Pasig City
We have audited the accompanying consolidated financial statements of Energy DevelopmentCorporation (a subsidiary of Red Vulcan Holdings Corporation) and its Subsidiaries, which comprisethe consolidated statements of financial position as at December 31, 2013 and 2012, and theconsolidated statements of income, statements of comprehensive income, statements of changes inequity and statements of cash flows for each of the three years in the period ended December 31, 2013,and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with Philippine Financial Reporting Standards, and for such internal controlas management determines is necessary to enable the preparation of consolidated financial statementsthat are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on ouraudits. We conducted our audits in accordance with Philippine Standards on Auditing. Thosestandards require that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free from materialmisstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the consolidated financial statements. The procedures selected depend on the auditor’s judgment,including the assessment of the risks of material misstatement of the consolidated financial statements,whether due to fraud or error. In making those risk assessments, the auditor considers internal controlrelevant to the entity’s preparation and fair presentation of the consolidated financial statements inorder to design audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the entity’s internal control. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of accountingestimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.
SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines
Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph
BOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015SEC Accreditation No. 0012-FR-3 (Group A), November 15, 2012, valid until November 16, 2015
A member firm of Ernst & Young Global Limited
*SGVFS005114*
- 2 -
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, thefinancial position of Energy Development Corporation and its Subsidiaries as at December 31, 2013and 2012, and their financial performance and their cash flows for each of the three years in the periodended December 31, 2013 in accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Ladislao Z. Avila, Jr.PartnerCPA Certificate No. 69099SEC Accreditation No. 0111-AR-3 (Group A), January 18, 2013, valid until January 17, 2016Tax Identification No. 109-247-891BIR Accreditation No. 08-001998-43-2012, April 11, 2012, valid until April 10, 2015PTR No. 4225149, January 2, 2014, Makati City
February 28, 2014
A member firm of Ernst & Young Global Limited
*SGVFS005114*
INDEPENDENT AUDITORS’ REPORTON SUPPLEMENTARY SCHEDULES
The Stockholders and the Board of DirectorsEnergy Development CorporationOne Corporate Centre Building, Julia Vargas corner Meralco AvenueOrtigas Center, Pasig City
We have audited in accordance with Philippine Standards on Auditing, the consolidated financialstatements of Energy Development Corporation (a subsidiary of Red Vulcan Holdings Corporation)and its Subsidiaries as at December 31, 2013 and 2012, and for each of the three years in the periodended December 31, 2013, included in this Form 17-A and have issued our report thereon datedFebruary 28, 2014. Our audits were made for the purpose of forming an opinion on the consolidatedfinancial statements taken as a whole. The schedules listed in the Index to Consolidated FinancialStatements and Supplementary Schedules are the responsibility of the Company’s management.These schedules are presented for purposes of complying with the Securities Regulation CodeRule 68, As Amended (2011), and are not part of the consolidated financial statements. Theseschedules have been subjected to the auditing procedures applied in the audit of the consolidatedfinancial statements and, in our opinion, fairly state, in all material respects, the financial informationrequired to be set forth therein in relation to the consolidated financial statements taken as a whole.
SYCIP GORRES VELAYO & CO.
Ladislao Z. Avila, Jr.PartnerCPA Certificate No. 69099SEC Accreditation No. 0111-AR-3 (Group A), January 18, 2013, valid until January 17, 2016Tax Identification No. 109-247-891BIR Accreditation No. 08-001998-43-2012, April 11, 2012, valid until April 10, 2015PTR No. 4225149, January 2, 2014, Makati City
February 28, 2014
SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines
Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph
BOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015SEC Accreditation No. 0012-FR-3 (Group A), November 15, 2012, valid until November 16, 2015
A member firm of Ernst & Young Global Limited
*SGVFS005114*
ENERGY DEVELOPMENT CORPORATION(A Subsidiary of Red Vulcan Holdings Corporation)AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31, 2013
December 31, 2012(As restated -
Note 2)
January 1, 2012(As restated -
Note 2)
ASSETS
Current AssetsCash and cash equivalents (Notes 7 and 31) P=16,043,154,556 P=11,420,144,203 P=12,493,406,963Trade and other receivables (Notes 3, 8, 20 and 31) 3,611,367,033 4,115,764,605 3,411,309,528Available-for-sale investments (Notes 3, 9 and 31) 341,841,500 132,345,200 673,853,680Parts and supplies inventories (Notes 3 and 10) 3,094,303,449 3,338,825,869 3,355,767,653Derivative assets (Note 31) 14,244,905 248,760 7,812Other current assets (Note 11) 1,235,454,883 692,264,834 741,911,257
Total Current Assets 24,340,366,326 19,699,593,471 20,676,256,893
Noncurrent AssetsProperty, plant and equipment (Notes 3 and 12) 66,240,009,563 60,680,219,306 57,676,929,006Goodwill and intangible assets (Notes 3 and 13) 4,399,527,299 4,818,403,979 4,705,245,708Exploration and evaluation assets (Notes 3 and 14) 2,380,775,489 1,604,105,412 1,087,079,413Available-for-sale investments (Notes 3, 9 and 31) 407,242,129 707,125,693 20,443,924Deferred tax assets - net (Notes 2 and 28) 1,335,077,588 1,143,940,973 1,465,772,560Derivative assets (Note 31) 46,885,196 – –Other noncurrent assets (Notes 3, 15 and 31) 5,855,620,746 5,701,745,500 4,431,205,183
Total Noncurrent Assets 80,665,138,010 74,655,540,863 69,386,675,794TOTAL ASSETS P=105,005,504,336 P=94,355,134,334 P=90,062,932,687
LIABILITIES AND EQUITY
Current LiabilitiesTrade and other payables (Notes 3, 16 and 31) P=6,981,975,893 P=7,715,536,364 P=6,991,701,574Due to related parties (Notes 20 and 31) 53,347,005 49,577,503 60,090,825Income tax payable – 5,204,019 18,736,456Current portion of:
Long-term debts (Notes 17, 20 and 31) 1,872,075,873 2,393,871,767 2,249,517,382Derivative liabilities (Note 31) 524,790 85,423,548 –
Total Current Liabilities 8,907,923,561 10,249,613,201 9,320,046,237
Noncurrent LiabilitiesLong-term debts - net of current portion
(Notes 17, 20 and 31) 56,676,684,462 46,656,000,099 49,240,054,073Derivative liabilities - net of current portion
(Note 31) 3,673,532 153,500,314 –Net retirement and other post-employment benefits
(Notes 2, 3 and 27) 1,658,587,597 1,437,196,617 1,758,883,360Provisions and other long-term liabilities
(Notes 3 and 18) 1,513,676,279 1,150,385,989 756,877,725Total Noncurrent Liabilities 59,852,621,870 49,397,083,019 51,755,815,158Total Liabilities 68,760,545,431 59,646,696,220 61,075,861,395
(Forward)
*SGVFS005114*
- 2 -
December 31, 2013
December 31, 2012(As restated -
Note 2)
January 1, 2012(As restated -
Note 2)
EquityEquity attributable to equity holders of the Parent
Company:Preferred stock (Note 19) P=93,750,000 P=93,750,000 P=93,750,000Common stock (Note 19) 18,750,000,000 18,750,000,000 18,750,000,000Common shares in employee trust account
(Notes 19 and 30) (351,494,001) (358,429,306) (372,272,723)Additional paid-in capital (Note 30) 6,282,808,842 6,277,865,786 6,266,966,828Equity reserve (Note 19) (3,706,430,769) (3,706,430,769) (3,706,430,769)Net accumulated unrealized gain on available-
for-sale investments (Note 9) 29,611,321 111,522,725 91,758,915Cumulative translation adjustments on hedging
transactions (Note 31) (55,615,718) (144,426,476) –Cumulative translation adjustment arising from
foreign subsidiaries (8,698,511) 5,836,485 592,534Retained earnings (Notes 2 and 19) 13,204,236,334 11,608,326,573 5,645,164,913
34,238,167,498 32,638,015,018 26,769,529,698Non-controlling interests (Notes 2 and 19) 2,006,791,407 2,070,423,096 2,217,541,594
Total Equity 36,244,958,905 34,708,438,114 28,987,071,292
TOTAL LIABILITIES AND EQUITY P=105,005,504,336 P=94,355,134,334 P=90,062,932,687
See accompanying Notes to Consolidated Financial Statements.
*SGVFS005114*
ENERGY DEVELOPMENT CORPORATION(A Subsidiary of Red Vulcan Holdings Corporation)AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31
2013
2012(As restated -
Note 2)
2011(As restated -
Note 2)
REVENUE FROM SALE OF ELECTRICITY (Notes 3, 12, 34, 35 and 37) P=25,656,270,470 P=28,368,552,055 P=24,539,607,457
COSTS OF SALE OF ELECTRICITY(Notes 2, 10, 12, 20, 21, 23 and 27) (9,435,354,924) (9,824,274,420) (10,560,691,559)
GENERAL AND ADMINISTRATIVE EXPENSES(Notes 2, 8, 10, 12, 15, 22, 23 and 27) (4,332,188,248) (4,702,875,529) (4,661,158,092)
FINANCIAL INCOME (EXPENSE)Interest income (Notes 7, 24 and 31) 294,047,366 364,640,989 390,212,719Interest expense (Notes 17, 24 and 31) (3,384,499,304) (3,703,648,469) (4,106,516,315)
(3,090,451,938) (3,339,007,480) (3,716,303,596)
OTHER INCOME (CHARGES)Foreign exchange gains (losses) - net (Notes 25 and 31) (1,261,278,106) 1,053,466,774 (111,052,329)Loss on damaged assets due to Typhoon Yolanda
(Notes 10 and 12) (625,013,609) – –Loss on impairment of exploration and evaluation assets
(Notes 3 and 14) (574,820,864) – –Derivative gains - net (Note 31) 14,243,178 36,160 108,319,377Loss on impairment of property, plant and equipment
(Note 12) – – (4,998,608,008)Miscellaneous - net (Note 26) (237,352,773) (161,749,839) (11,320,264)
(2,684,222,174) 891,753,095 (5,012,661,224)
INCOME BEFORE INCOME TAX FROMCONTINUING OPERATIONS 6,114,053,186 11,394,147,721 588,792,986
BENEFIT FROM (PROVISION FOR) INCOME TAX(Note 28)
Current (685,663,122) (433,838,464) (421,569,578)Deferred 199,679,773 (341,284,130) 536,352,355
(485,983,349) (775,122,594) 114,782,777
NET INCOME FROM CONTINUING OPERATIONS 5,628,069,837 10,619,025,127 703,575,763
NET INCOME (LOSS) FROM DISCONTINUEDOPERATIONS (Note 5) – 97,495,445 (81,238,483)
NET INCOME P=5,628,069,837 P=10,716,520,572 P=622,337,280
Net income (loss) attributable to: Equity holders of the Parent Company P=4,739,577,464 P=9,002,361,919 (P=159,640,690) Non-controlling interests 888,492,373 1,714,158,653 781,977,970
P=5,628,069,837 P=10,716,520,572 P=622,337,280
Basic/Diluted Earnings (Loss) Per Share for:
Net Income (Loss) from Continuing OperationsAttributable to Equity Holders of the ParentCompany (Note 29) P=0.252 P=0.475 (P=0.004)
Net Income (Loss) Attributable to Equity Holders ofthe Parent Company (Note 29) P=0.252 P=0.480 (P=0.009)
See accompanying Notes to Consolidated Financial Statements.
*SGVFS005114*
ENERGY DEVELOPMENT CORPORATION(A Subsidiary of Red Vulcan Holdings Corporation)AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31
2013
2012(As restated -
Note 2)
2011(As restated -
Note 2)
NET INCOME P=5,628,069,837 P=10,716,520,572 P=622,337,280
OTHER COMPREHENSIVE INCOME (LOSS)Other comprehensive income (loss) to be
reclassified to profit or loss in subsequentperiods:Cumulative translation adjustments on hedging transactions, net of tax effect amounting to P=9,867,862 in 2013 and P=16,047,386 in 2012 (Note 31) 88,810,758 (144,426,476) –Cumulative translation adjustments on foreign subsidiaries (14,534,996) 5,243,951 (777,466)Changes in fair value of available-for-sale investments recognized in equity (Notes 9 and 31) (81,911,404) 19,763,810 (27,724,193)Net unrealized gain removed from equity and recognized in profit or loss (Notes 9 and 31) – – (235,689)
(7,635,642) (119,418,715) (28,737,348)Other comprehensive income (loss) not to be reclassified to profit or loss in subsequent periods:
Remeasurements of retirement and other post- employment benefits, net of tax effect amounting to nil in 2013, P=45,188,919 in 2012 and P=45,954,955 in 2011 (137,088,566) (406,700,259) (413,594,591)
Total other comprehensive income -net of tax effect (144,724,208) (526,118,974) (442,331,939)
TOTAL COMPREHENSIVE INCOME P=5,483,345,629 P=10,190,401,598 P=180,005,341
Total comprehensive income (loss) attributable to: Equity holders of the Parent Company P=4,595,774,119 P=8,476,242,945 (P=601,972,629)
Non-controlling interests 887,571,510 1,714,158,653 781,977,970P=5,483,345,629 P=10,190,401,598 P=180,005,341
See accompanying Notes to Consolidated Financial Statements.
*SGVFS005114*
ENERGY DEVELOPMENT CORPORATION(A Subsidiary of Red Vulcan Holdings Corporation)AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011
Equity Attributable to Equity Holders of the Parent Company
PreferredStock
(Note 19)
CommonStock
(Note 19)
Common Shares in
Employee Trust Account
(Note 19)
AdditionalPaid-inCapital
EquityReserve
(Note 19)
Net Accumulated
UnrealizedGain on Available-
for-saleInvestments
(Note 9)
CumulativeTranslation
Adjustments onForeign
Subsidiaries
RetainedEarnings
(Notes 2 and 19) Subtotal
Non-controlling Interests(Note 19) Total Equity
Balances, January 1, 2011, as previouslyreported P=93,750,000 P=18,750,000,000 (P=379,219,785) P=6,266,099,283 (P=3,706,430,769) P=119,718,797 P=1,370,000 P=9,679,676,417 P=30,824,963,943 P=1,569,089,721 P=32,394,053,664
Effect of PAS 19, Employee Benefits(Revised 2011) (Note 2) – – – – – – – (253,487,076) (253,487,076) – (253,487,076)
Balances, January 1, 2011, as restated 93,750,000 18,750,000,000 (379,219,785) 6,266,099,283 (3,706,430,769) 119,718,797 1,370,000 9,426,189,341 30,571,476,867 1,569,089,721 32,140,566,588Total comprehensive income: Net income – – – – – – – (159,640,690) (159,640,690) 781,977,970 622,337,280
Changes in fair value of available-for-sale investments recognized inequity (Notes 9 and 31) – – – – – (27,724,193) – – (27,724,193) – (27,724,193)
Cumulative translation adjustment onforeign subsidiaries – – – – – – (777,466) – (777,466) – (777,466)
Net unrealized gain removed fromequity and recognized in profit orloss (Notes 9 and 31) – – – – – (235,689) – – (235,689) – (235,689)
Remeasurements of retirement andother post-employment benefitstransferred to retained earnings(Note 27) – –
–
– – – – (413,594,591) (413,594,591) – (413,594,591) Total other comprehensive loss – – – – – (27,959,882) (777,466) (413,594,591) (442,331,939) – (442,331,939)
– – – – – (27,959,882) (777,466) (573,235,281) (601,972,629) 781,977,970 180,005,341Cash dividends (Note 19) – – – – – – – (3,007,500,000) (3,007,500,000) – (3,007,500,000)Cash dividends to non-controlling interests (Note 19) – – – – – – – – – (333,815,244) (333,815,244)Effect of subsidiary’s issuance of and
declaration of dividends on preferredshares to non-controlling interests(Note 19) – – – – – – – (200,289,147) (200,289,147) 200,289,147 –
Share-based payment (Notes 20 and 30) – – 6,947,062 1,859,813 – – – – 8,806,875 – 8,806,875Deferred tax effect of share-based payment (Notes 28 and 30) – – – (992,268) – – – – (992,268) – (992,268)
Balances, December 31, 2011 P=93,750,000 P=18,750,000,000 (P=372,272,723) P=6,266,966,828 (P=3,706,430,769) P=91,758,915 P=592,534 P=5,645,164,913 P=26,769,529,698 P=2,217,541,594 P=28,987,071,292
(Forward)
- 2 -
*SGVFS005114*
Equity Attributable to Equity Holders of the Parent Company
PreferredStock
(Note 19)
CommonStock
(Note 19)
Common Shares in Employee
Trust Account(Note 19)
AdditionalPaid-inCapital
EquityReserve
(Note 19)
Net Accumulated
UnrealizedGain on Available-
for-saleInvestments
(Note 9)
Cumulative Translation
Adjustments-Hedging
Transactions(Note 31)
Cumulative Translation
Adjustments-Foreign
Subsidiaries
Retained Earnings
(Notes 2 and 19) Subtotal
Non-controlling Interests(Note 19) Total Equity
Balances, January 1, 2012, aspreviously reported P=93,750,000 P=18,750,000,000 (P=372,272,723) P=6,266,966,828 (P=3,706,430,769) P=91,758,915 – P=592,534 P=6,304,695,114 P=27,429,059,899 P=2,217,541,594 P=29,646,601,493
Effect of PAS 19, Employee Benefits (Revised 2011) (Note 2) – – – – – – – – (659,530,201) (659,530,201) – (659,530,201)Balances, January 1, 2012, as restated 93,750,000 18,750,000,000 (372,272,723) 6,266,966,828 (3,706,430,769) 91,758,915 – 592,534 5,645,164,913 26,769,529,698 2,217,541,594 28,987,071,292Total comprehensive income (loss): Net income – – – – – – – – 9,002,361,919 9,002,361,919 1,714,158,653 10,716,520,572
Changes in fair value of available- for-sale investments recognized in equity (Notes 9 and 31) – – – – – 19,763,810 – – – 19,763,810 – 19,763,810
Cumulative translation adjustments on hedging transactions (Note 31) – – – – – – (144,426,476) – – (144,426,476) – (144,426,476)
Cumulative translation adjustments on foreign subsidiaries – – – – – – – 5,243,951 – 5,243,951 – 5,243,951
Remeasurements of retirement and other post-employment benefits transferred to retained earnings(Note 27) – – – – – – – – (406,700,259) (406,700,259) – (406,700,259)
Total other comprehensive loss – – – – – 19,763,810 (144,426,476) 5,243,951 (406,700,259) (526,118,974) – (526,118,974)– – – – – 19,763,810 (144,426,476) 5,243,951 8,595,661,660 8,476,242,945 1,714,158,653 10,190,401,598
Cash dividends (Note 19) – – – – – – – – (2,632,500,000) (2,632,500,000) – (2,632,500,000)Cash dividends to non-controlling interests (Note 19) – – – – – – – – – – (1,862,533,076) (1,862,533,076)Share-based payment (Notes 20 and 30) – – 13,843,417 10,898,958 – – – – – 24,742,375 – 24,742,375Investments from non-controlling shareholders in PT EDC Indonesia and PT EDC Panas Bumi Indonesia and EDC Quellaapacheta (Note 1) – – – – – – – – – – 1,255,925 1,255,925Balances, December 31, 2012 P=93,750,000 P=18,750,000,000 (P=358,429,306) P=6,277,865,786 (P=3,706,430,769) P=111,522,725 (P=144,426,476) P=5,836,485 P=11,608,326,573 P=32,638,015,018 P=2,070,423,096 P=34,708,438,114
(Forward)
- 3 -
*SGVFS005114*
Equity Attributable to Equity Holders of the Parent Company
PreferredStock
(Note 19)
CommonStock
(Note 19)
Common Shares in Employee
Trust Account(Note 19)
AdditionalPaid-inCapital
EquityReserve
(Note 19)
Net Accumulated
UnrealizedGain on AFS Investments
Cumulative Translation
Adjustments-Hedging
Transactions(Note 31)
Cumulative Translation
Adjustments-Foreign
Subsidiaries
RetainedEarnings(Note 19) Subtotal
Non-controlling Interest
(Notes 2 and 19) Total EquityBalances, January 1, 2013, as previously reported P=93,750,000 P=18,750,000,000 (P=358,429,306) P=6,277,865,786 (P=3,706,430,769) P=111,522,725 (P=144,426,476) P=5,836,485 P=12,331,621,322 P=33,361,309,767 P=2,072,545,121 P=35,433,854,888Effect of PAS 19, Employee Benefits (Revised 2011) (Note 2) – – – – – – – – (723,294,749) (723,294,749) (2,122,025) (725,416,774)
Balances, January 1, 2013, as restated 93,750,000 18,750,000,000 (358,429,306) 6,277,865,786 (3,706,430,769) 111,522,725 (144,426,476) 5,836,485 11,608,326,573 32,638,015,018 2,070,423,096 34,708,438,114
Total comprehensive incomeNet income – – – – – – – – 4,739,577,464 4,739,577,464 888,492,373 5,628,069,837
Changes in fair value of available-for-sale investments recognized in equity (Notes 9 and 31) – – – – – (81,911,404) – – – (81,911,404) – (81,911,404)
Cumulative translation adjustments on hedging transactions (Note 31) – – – – – – 88,810,758 – – 88,810,758 – 88,810,758
Cumulative translation adjustments on foreign subsidiaries – – – – – – – (14,534,996) – (14,534,996) – (14,534,996)
Remeasurements of retirement and other post-employment benefits transferred to retained earnings (Note 27) – – – – – – – – (136,167,703) (136,167,703) (920,863) (137,088,566)
Total other comprehensive loss – – – – – (81,911,404) 88,810,758 (14,534,996) (136,167,703) (143,803,345) (920,863) (144,724,208)– – – – – (81,911,404) 88,810,758 (14,534,996) 4,603,409,761 4,595,774,119 887,571,510 5,483,345,629
Cash dividends (Note 19) – – – – – – – – (3,007,500,000) (3,007,500,000) – (3,007,500,000)Cash dividends to non-controlling
interests (Note 19) – – – – – – – – – – (951,203,199) (951,203,199)Share-based payment (Note 30) – – 6,935,305 4,943,056 – – – – – 11,878,361 – 11,878,361
Balances, December 31, 2013 P=93,750,000 P=18,750,000,000 (P=351,494,001) P=6,282,808,842 (P=3,706,430,769) P=29,611,321 (P=55,615,718) (P=8,698,511) P=13,204,236,334 P=34,238,167,498 P=2,006,791,407 P=36,244,958,905
See accompanying Notes to Consolidated Financial Statements.
*SGVFS005114*
ENERGY DEVELOPMENT CORPORATION(A Subsidiary of Red Vulcan Holdings Corporation)AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
2013
2012(As restated -
Note 2)
2011(As restated -
Note 2)
CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax from continuing operations P=6,114,053,186 P=11,394,147,721 P=588,792,986Income (loss) before income tax from discontinued
operations (Note 5) – 139,279,207 (89,224,109)Adjustments for:
Depreciation and amortization(Notes 5, 12, 13, 21 and 22) 3,569,347,352 3,578,627,171 3,441,874,497
Interest expense (Notes 5 and 24) 3,384,499,304 3,703,648,469 4,106,760,462Unrealized foreign exchange losses (gains) - net (Notes 5 and 25) 1,274,306,832 (1,217,556,247) (161,645,620)Loss on damaged assets due to Typhoon Yolanda (Notes 10 and 12) 625,013,609 – –Loss on impairment of exploration and evaluation
assets (Notes 3 and 14) 574,820,864 – –Retirement and other post-employment benefits costs
(income) [Notes 23 and 27] 288,176,016 (427,492,784) 36,618,569Loss on direct write-off of input VAT claims
(Note 26) 220,039,070 – –Provision for doubtful accounts - net
(Notes 15 and 22) 44,433,938 203,286,078 308,945,159Share-based benefit cost (Notes 20 and 30) 11,878,361 24,742,375 8,806,875Loss (gain) on:
Debt extinguishment (Notes 17 and 26) – 188,145,763 197,898,124Disposal and retirement of property, plant and
equipment (Note 26) (4,026,459) 455,016 19,962,107Early redemption of available-for-sale investments (Notes 9 and 26) – – (271,292)
Loss on (recovery of) impairment of property, plantand equipment (Notes 3, 12 and 26) – (63,614,885) 4,998,608,008
Unrealized derivative gains - net (Note 31) (7,298,261) (248,760) –“Day 1” loss on security deposits – – 7,552,372Interest income (Notes 7, 24 and 31) (294,047,366) (364,640,989) (390,212,719)
Operating income before working capital changes 15,801,196,446 17,158,778,135 13,074,465,419Decrease (increase) in:
Trade and other receivables 511,509,776 (721,533,010) 1,212,951,046Due from related parties – 7,812 (7,812)Parts and supplies inventories 138,987,378 52,737,319 (529,996,999)Other current assets (539,811,446) 164,131,088 (36,849,179)
Increase (decrease) in:Trade and other payables (843,145,401) 1,062,312,440 1,209,032,048Due to related parties 266,585,224 (64,093,934) (275,559,659)
Cash generated from operations 15,335,321,977 17,652,339,850 14,654,034,864Retirement and other post-employment benefits
contributions (Note 27) (203,873,601) (363,665,405) (298,908,876)Income tax paid (694,686,727) (563,089,655) (444,345,425)
Net cash flows from operating activities 14,436,761,649 16,725,584,790 13,910,780,563
(Forward)
*SGVFS005114*
- 2 -
Years Ended December 31
2013
2012(As restated -
Note 2)
2011(As restated -
Note 2)
CASH FLOWS FROM INVESTING ACTIVITIESAcquisitions of property, plant and equipment (Note 12) (P=10,366,499,024) (P=6,663,047,373) (P=9,230,304,828)Proceeds from revenue generated from testing of property,
plant and equipment (Note 12) 1,401,482,922 520,417,469 37,981,304Interest received 284,694,418 365,288,722 381,250,687Acquisition of intangible assets (Note 13) (145,058,843) – –Purchase of available-for-sale investments (87,335,659) (162,093,722) –Proceeds from redemption of available-for-sale
investments (Note 9) 130,428,284 – 4,747,050Proceeds from disposal and retirement of property, plant
and equipment 34,977,421 5,426,167 –Increase in:
Exploration and evaluation assets (1,351,490,941) (517,025,999) (187,531,880)Other noncurrent assets (417,160,849) (1,698,256,608) (1,526,225,270)
Net cash flows used in investing activities (10,515,962,271) (8,149,291,344) (10,520,082,937)
CASH FLOWS FROM FINANCING ACTIVITIESPayments of:
Long-term debts (Note 17) (2,439,902,500) (8,287,843,366) (6,108,335,704)Dividends (Note 19) (3,958,703,199) (4,495,033,076) (3,341,315,244)Loan payable (Note 24) – – (175,000,000)
Proceeds from long-term debts (Note 17) 10,348,278,531 6,934,833,050 16,612,500,000Interest and financing charges paid (3,477,303,213) (4,108,361,868) (4,128,372,948)Increase in provisions and other long-term liabilities 210,650,846 310,984,350 60,229,063Net cash flows from (used in) financing activities 683,020,465 (9,645,420,910) 2,919,705,167
NET INCREASE (DECREASE) IN CASHAND CASH EQUIVALENTS 4,603,819,843 (1,069,127,464) 6,310,402,793
EFFECT OF FOREIGN EXCHANGE RATECHANGES ON CASH AND CASHEQUIVALENTS 19,190,510 (4,135,296) 25,079,038
CASH AND CASH EQUIVALENTSAT BEGINNING OF YEAR 11,420,144,203 12,493,406,963 6,157,925,132
CASH AND CASH EQUIVALENTSAT END OF YEAR (Note 7) P=16,043,154,556 P=11,420,144,203 P=12,493,406,963
See accompanying Notes to Consolidated Financial Statements.
*SGVFS005114*
ENERGY DEVELOPMENT CORPORATION(A Subsidiary of Red Vulcan Holdings Corporation)AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information and Authorization for Issuance of the Consolidated FinancialStatements
Nature of OperationsEnergy Development Corporation (the “Parent Company” or “EDC”) and its subsidiaries(collectively hereinafter referred to as the “Company”) are primarily engaged in the business ofexploring, developing, and operating geothermal energy and other indigenous renewable energyprojects in the Philippines, and utilizing geothermal energy and other indigenous renewableenergy sources for electricity generation.
EDC’s geothermal power projects engage in two principal activities: (i) the production ofgeothermal steam for use at EDC and its subsidiaries’ geothermal power plants, and (ii) thegeneration and sale of electricity through those geothermal power plants pursuant to take-or-paypower offtake arrangements. EDC’s steam and electricity sales are supported by medium- to long-term offtake agreements in various forms. EDC’s steam sales are backed by long-term offtakeagreements with its subsidiaries: (i) Geothermal Resource Sales Contracts (GRSCs) with itssubsidiary, Green Core Geothermal Inc. (GCGI); and (ii) a Steam Sales Agreement (SSA) with itssubsidiary, Bac-Man Geothermal Inc. (BGI). EDC has three 25-year Power Purchase Agreements(PPAs) with National Power Corporation (NPC) covering EDC’s Unified Leyte and MindanaoGeothermal Power Projects. The PPAs for Unified Leyte and Mindanao I are scheduled to expirein 2022 while the PPA for Mindanao II will expire in 2024 (see Notes 3 and 34). EDC’ssubsidiaries, GCGI and BGI, also hold offtake agreements in the form of Transition SupplyContracts (TSCs), Power Supply Contracts (PSCs) and Power Supply Agreements (PSAs) withvarious customers, particularly electric cooperatives.
EDC holds service contracts with the Department of Energy (DOE) corresponding to 13geothermal contract areas, each granting EDC exclusive rights to explore, develop, and utilize thecorresponding resources in the relevant contract area. EDC conducts commercial operations in thefollowing four of its 13 geothermal contract areas:
§ Tongonan, Kananga, Leyte - EDC operates three geothermal steamfield projects in Leyte,which deliver steam to the Tongonan geothermal power plant, owned by EDC’s subsidiaryGCGI, and the four EDC-owned Unified Leyte geothermal power plants.
§ Southern Negros, Valencia, Negros Oriental - EDC operates two geothermal steamfieldprojects in Southern Negros, which deliver steam to the two GCGI-owned Palinpinongeothermal power plants.
§ Bacon-Manito, Albay and Sorsogon - EDC operates two geothermal steamfield projects,which deliver steam to two geothermal power plants in Albay and Sorsogon, owned by theParent Company’s subsidiary BGI.
§ Mt. Apo, Kidapawan, Cotabato - EDC operates one geothermal steamfield project, whichdelivers steam to two EDC-owned geothermal power plants on Mt. Apo.
- 2 -
*SGVFS005114*
FG Hydro, a 60%-owned subsidiary of EDC, generates revenue from the sale of electricitygenerated by its 132 Megawatt (MW) Pantabangan-Masiway hydroelectric plants located inNueva Ecija. FG Hydro sells its generated electricity to specific customers under various powersupply contracts. Generated electricity in excess of the contracted levels is sold to the WholesaleElectricity Spot Market (WESM).
The Company holds two Wind Energy Service Contracts (WESCs) with the DOE covering theestimated 87 MW wind project in Burgos, Ilocos Norte and the estimated 84 MW wind project inPagudpud, Ilocos Norte. EDC Burgos Wind Power Corporation (EBWPC), a subsidiary of EDC,is currently constructing an 87 MW wind farm in Burgos (see Notes 12 and 36). The WESC forthe project was assigned by EDC to EBWPC in February 2011. On the other hand, the WESC forthe Pagudpud project was assigned by EDC to its subsidiary, EDC Pagudpud Wind PowerCorporation (EPWPC), in June 2012 (see Note 36).
Also, until October 2012, the Parent Company had drilling activities in Papua New Guinea(see Note 5).
History of OwnershipBeginning December 13, 2006, the common shares of EDC were listed and traded in thePhilippine Stock Exchange (PSE). Up to November 2007, EDC was controlled by the PhilippineNational Oil Company (PNOC), a government-owned and controlled corporation, and thePNOC EDC Retirement Fund.
On November 29, 2007, PNOC and PNOC EDC Retirement Fund sold their combined interests inEDC to Red Vulcan Holdings Corporation (“Red Vulcan”; a Philippine corporation). Red Vulcanwas then a wholly owned subsidiary of First Gen Corporation (First Gen, a publicly listedPhilippine corporation) through Prime Terracota Holdings Corporation (Prime Terracota, aPhilippine corporation). First Gen’s indirect interest in EDC was comprised of 6.0 billioncommon shares and 7.5 billion preferred shares. Control was then established through First Gen’s60% indirect voting interest in EDC. Meanwhile, First Philippine Holdings Corporation (FirstHoldings, a publicly listed Philippine corporation) directly owned 66.2% of the common shares ofFirst Gen. Accordingly, First Holdings became then the ultimate parent of the Company.
On May 12, 2009, First Gen’s indirect voting interest in Red Vulcan was reduced to 45% with thebalance taken up by Lopez Inc. Retirement Fund (40%) and Quialex Realty Corporation (15%)through the issuance of preferred shares by Prime Terracota. As a result of this transaction, PrimeTerracota replaced First Holdings as the ultimate parent of EDC effective May 12, 2009.
With the adoption of Philippine Financial Reporting Standard (PFRS) 10, Consolidated FinancialStatements, effective January 1, 2013, Lopez, Inc. became the ultimate parent of EDC.
- 3 -
*SGVFS005114*
SubsidiariesThe Parent Company and its subsidiaries were separately incorporated and registered with thePhilippine Securities and Exchange Commission (SEC), except for its foreign subsidiaries. Beloware the Parent Company’s ownership interests in its subsidiaries:
Percentage of OwnershipDecember 31, 2013 December 31, 2012Direct Indirect Direct Indirect
EDC Drillco Corporation (EDC Drillco) 100.00 – 100.00 –EDC Geothermal Corp. (EGC) 100.00 – 100.00 –
Green Core Geothermal Inc. (GCGI) – 100.00 – 100.00Bac-Man Geothermal Inc. (BGI) – 100.00 – 100.00Unified Leyte Geothermal Energy Inc. (ULGEI) – 100.00 – 100.00Southern Negros Geothermal, Inc. (SNGI)**** – 100.00 – 100.00EDC Mindanao Geothermal Inc. (EMGI)**** – 100.00 – 100.00Bac-Man Energy Development Corporation (BEDC)**** – 100.00 – 100.00Kayabon Geothermal, Inc. (KGI)**** – 100.00 – 100.00Energy Development (EDC) Corporation Chile
Limitada [EDC Chile Limitada] 99.99 0.01 99.99 0.01EDC Holdings International Limited (EHIL)*** 100.00 – 100.00 –
Energy Development Corporation Hong Kong Limited (EDC HKL) *** – 100.00 – 100.00
EDC Chile Holdings SPA** – 100.00 – 100.00EDC Geotermica Chile** – 100.00 – 100.00
EDC Peru Holdings S.A.C. ** – 100.00 – 100.00EDC Geotermica Peru S.A.C. ** – 100.00 – 100.00
EDC Quellaapacheta** – 70.00 – 70.00EDC Geotérmica Del Sur S.A.C.* – 100.00 – –EDC Energía Azul S.A.C. * – 100.00 – –
Geotermica Crucero Peru S.A.C. * – 70.00 – –EDC Energía Perú S.A.C. * – 100.00 – –
Geotermica Tutupaca Norte Peru S.A.C. * – 70.00 – –EDC Energía Geotérmica S.A.C. * – 100.00 – –EDC Progreso Geotérmico Perú S.A.C. * – 100.00 – –
Geotermica Loriscota Peru S.A.C. * – 70.00 – –EDC Energía Renovable Perú S.A.C. * – 100.00 – –PT EDC Indonesia** – 95.00 – 95.00PT EDC Panas Bumi Indonesia** – 95.00 – 95.00
EDC Wind Energy Holdings, Inc. (EWEHI) 100.00 – 100.00 –EDC Burgos Wind Power Corporation (EBWPC) – 100.00 – 100.00EDC Pagudpud Wind Power Corporation
(EPWPC)** – 100.00 – 100.00First Gen Hydro Power Corporation (FG Hydro) 60.00 – 60.00 –*Incorporated in 2013 and has not yet started commercial operations.**Incorporated in 2012 and has not yet started commercial operations.***Serves as an investment holding company.****Incorporated in 2011 and has not yet started commercial operations.
- 4 -
*SGVFS005114*
EDC DrillcoEDC Drillco is a company incorporated on September 28, 2009 to act as an independent servicecontractor, consultant, specialized technical adviser for well construction and drilling, and otherrelated activities. As of December 31, 2013, EDC Drillco remained non-operating.
EGCEGC, originally named as First Luzon Geothermal Energy Corporation, is a special-purposecompany incorporated on April 9, 2008 to participate in the bid for another local power plant. Thebid was won by and awarded to another local entity. Thereafter, EGC became an investmentholding company of its wholly owned subsidiaries, namely GCGI, BGI, ULGEI, SNGI, EMGI,BEDC and KGI. EGC also has a 0.01% stake in EDC Chile Limitada.
On March 8, 2011, the Philippine SEC approved the change of its corporate name to EDCGeothermal Corp.
Further details on EGC’s wholly owned subsidiaries follow:
§ GCGI was incorporated on June 22, 2009 with primary activities on power generation,transmission, distribution, and other energy related businesses. GCGI is currently operatingthe 192.5 MW Palinpinon and 112.5 MW Tongonan 1 geothermal power plants in NegrosOriental and Leyte, respectively, following its successful acquisition from the Power SectorAssets and Liabilities Management Corporation (PSALM) in 2009.
§ BGI was incorporated on April 7, 2010 primarily to carry on the general business ofgenerating, transmitting, and/or distributing energy. BGI has successfully acquired the150 MW Bac-Man Geothermal Power Plants (BMGPP) from PSALM in 2010. Prior to theacquisition of BGI of the BMGPP in May 2010, the Parent Company supplied and sold steamto NPC under the SSA. Details are as follows:
a. Bacon-Manito-IThe SSA for the Bac-Man geothermal resources entered in November 1988 provides,among others, that NPC shall pay the Parent Company a base price per kilowatt-hour ofgross generation, subject to inflation adjustments and based on a guaranteed take-or-payrate at 75% plant factor. The SSA is for a period of 25 years, which commenced in May1993.
b. Bacon-Manito-IIBac-Man II’s SSA with NPC was signed in June 1996 for its two 20-MW capacitymodular plants - Cawayan and Botong. The terms and conditions under the contractcontain, among others, NPC’s commitment to pay the Parent Company a base price perkilowatt-hour of gross generation, subject to inflation adjustments and based on aguaranteed take-or-pay rate, commencing from the established commercial operationperiod, using the following plant factors: 50% for the first year, 65% for the second yearand 75% for the third and subsequent years. The SSA is for a period of 25 years, whichcommenced in March 1994 for Cawayan and December 1997 for Botong.
With the rehabilitation of BMGPP, billing on the SSA shall resume on (a) the execution of thedeed of assignment of SSA from NPC/PSALM to BGI; or (b) such time that the Bac-Manpower plants commence commercial operations.
- 5 -
*SGVFS005114*
On July 25, 2012, EDC, BGI and PSALM executed a letter agreement for the direct billingand collection of the steam contracts between EDC and BGI. However, PSALM still remainsa party to the steam contracts.
§ ULGEI is a company incorporated on June 23, 2010; SNGI and EMGI are companiesincorporated on February 4, 2011; and BEDC and KGI are companies incorporated onSeptember 22 and 28, 2011, respectively. These are Philippine companies incorporated tocarry on the general business of generating, transmitting, and/or distributing energy derivedfrom any and all forms, types and kinds of energy sources for lighting and power purposes andwhole-selling the electric power to power corporations, public electric utilities and electriccooperatives. As of December 31, 2013, ULGEI, SNGI, EMGI, BEDC and KGI remainednon-operating.
EHIL and EDC HKLEHIL was incorporated on August 17, 2011 in British Virgin Islands and serves as an investmentholding company of EDC’s international subsidiaries. EHIL owns 100% interest in EDC HKL, acompany incorporated on November 22, 2011 in Hong Kong. The following entities are thesubsidiaries under EDC HKL:
§ EDC Chile Holdings SPA, which was incorporated on January 13, 2012 in Santiago,Chile, is a wholly owned subsidiary of EDC HKL and is the holding company of EDCGeotermica Chile also incorporated on January 13, 2012 in Santiago, Chile.
§ EDC Peru Holdings S.A.C., incorporated on January 19, 2012 in Lima, Peru is a 99.9%-owned subsidiary of EDC HKL. EDC Peru Holdings S.A.C. holds 99.9% stake in EDCGeotermica Peru S.A.C., which was also incorporated on January 19, 2012 in Lima, Peru.EHIL owns the remaining 0.1% stake in EDC Peru Holdings S.A.C. and EDC GeotermicaPeru S.A.C.
On July 17, 2012, EDC Quellaapacheta was incorporated in Lima, Peru as a 70%-ownedsubsidiary of EDC Geotermica Peru S.A.C.
§ On July 9, 2012, PT EDC Indonesia and PT EDC Panas Bumi Indonesia were incorporated inJakarta Pusat, Indonesia as 95%-owned subsidiaries of EDC HKL.
As of December 31, 2013, all subsidiaries of EDC HKL remained non-operating.
§ On February 27, 2013, six new companies, namely: EDC Geotermica Del Sur S.A.C., EDCEnergía Azul S.A.C., EDC Energía Perú S.A.C., EDC Energía Geotérmica S.A.C., EDCProgreso Geotérmico Perú S.A.C., EDC Energía Renovable Perú S.A.C., were incorporated inLima, Peru as 99.9%-owned by EDC HKL and 0.1%-owned by EDC Peru Holdings S.A.C.
EWEHIEWEHI is a holding company incorporated on April 15, 2010. The following entities are thewholly owned subsidiaries of EWEHI:
§ EBWPC is a company incorporated on April 13, 2010 to carry on the general business ofgenerating, transmitting, and/or distributing energy. In September 2012, following EWEHI’sacquisition of 1,249,500 shares of EBWPC, representing 33.33% ownership interest, fromEDC for P=141.4 million, EBWPC became a wholly owned subsidiary of EWEHI. EBWPC iscurrently developing the 87 MW wind energy concession in Burgos, Ilocos Norte(see Note 12).
- 6 -
*SGVFS005114*
§ EPWPC is a company incorporated on February 29, 2012 to carry on the general business ofgenerating, transmitting, and/or distributing energy. As of December 31, 2013, EPWPCremained non-operating (see Note 36).
FG HydroOn October 20 and November 17, 2008, in line with its objective of focusing on renewable energy,the Parent Company acquired a total of 60% interest in FG Hydro from First Gen. FG Hydrooperates the 132 MW Pantabangan and Masiway Hydro-Electric Power Plants (PAHEP/MAHEP)located in Nueva Ecija, Philippines. FG Hydro buys from and sells electricity to the WESM andto various privately-owned distribution utilities (DUs) under the PSAs and Power SupplyContracts (PSCs).
EDC Chile LimitadaEDC Chile Limitada is a limited liability company incorporated on February 11, 2010 in Santiago,Chile with the purpose of exploring, evaluating and extracting any mineral or substance togenerate geothermal energy.
Other SubsidiariesOn July 5, 2013, three new entities were incorporated in Lima, Peru. These entities areGeotermica Tutupaca Norte Peru S.A.C. as 70% owned by EDC Energia Peru S.A.C; GeotermicaCrucero Peru S.A.C., as 70% owned by EDC Energia Azul S.A.C; and Geotermica Loriscota PeruS.A.C., as 70% owned by EDC Progreso Geotermico S.A.C. As of December 31, 2013, these newsubsidiaries remained non-operating.
Corporate AddressThe address of the registered office of the Parent Company is One Corporate Centre, Julia VargasAvenue corner Meralco Avenue, Ortigas Centre, Pasig City.
Authorization for Issuance of the Consolidated Financial StatementsThe consolidated financial statements were reviewed and recommended for approval by the Auditand Governance Committee to the Board of Directors (BOD) on February 24, 2014. The sameconsolidated financial statements were also approved and authorized for issuance by the BOD onFebruary 28, 2014.
2. Basis of Preparation
The consolidated financial statements have been prepared on a historical cost basis, except forderivative instruments and available-for-sale (AFS) investments that have been measured at fairvalue. The consolidated financial statements are presented in Philippine peso (Peso), which is theParent Company’s functional currency. All values are rounded to the nearest Peso, except whenotherwise indicated.
The consolidated financial statements provide comparative information in respect of the previousperiod. In addition, the Company presents an additional statement of financial position at thebeginning of the earliest period presented when there is a retrospective application of anaccounting policy, a retrospective restatement, or a reclassification of items in financial statements.An additional statement of financial position as at January 1, 2012 is presented in theseconsolidated financial statements due to retrospective application of certain accounting policies.
Statement of ComplianceThe consolidated financial statements of the Company have been prepared in accordance withPFRS issued by the Financial Reporting Standards Council.
- 7 -
*SGVFS005114*
Changes in Accounting Policies
Adoption of Revised PAS 19, Employee Benefits (Revised 2011)On January 1, 2013, the Company adopted the revised PAS19, the accounting standard coveringretirement and other post-employment benefits.
For defined benefit plans, the revised PAS 19 requires all actuarial gains and losses to berecognized in other comprehensive income and unvested past service costs previously recognizedover the average vesting period to be recognized immediately in profit or loss when incurred.
Prior to adoption of the revised PAS 19, the Company recognized actuarial gains and losses asincome or expense when the net cumulative unrecognized gains and losses for each individualplan at the end of the previous period exceeded 10% of the higher of the defined benefit obligationand the fair value of the plan assets and recognized unvested past service costs as an expense on astraight-line basis over the average vesting period until the benefits become vested. Uponadoption of the revised PAS 19, the Company changed its accounting policy to recognize allactuarial gains and losses in other comprehensive income and all past service costs in profit or lossin the period they occur.
The revised PAS 19 replaced the interest cost and expected return on plan assets with the conceptof net interest on defined benefit liability or asset which is calculated by multiplying the netstatement of financial position defined benefit liability or asset by the discount rate used tomeasure the employee benefit obligation, each as at the beginning of the annual period.
The revised PAS 19 also amended the definition of short-term employee benefits and requiresemployee benefits to be classified as short-term based on expected timing of settlement rather thanthe employee’s entitlement to the benefits. In addition, the revised PAS 19 modifies the timing ofrecognition for termination benefits. The modification requires the termination benefits to berecognized at the earlier of when the offer cannot be withdrawn or when the related restructuringcosts are recognized.
Changes to definition of short-term employee benefits and timing of recognition for terminationbenefits introduced in the revised PAS 19 do not have any impact to the Company’s financialposition and financial performance.
The changes in accounting policies described above have been applied retrospectively. Theeffects of adoption on the financial statements are as follows:
December 31, 2013 December 31, 2012 January 1, 2012(In Thousand Pesos)
Increase (decrease) in:Consolidated statement of financial position Retirement and other post- employment benefits P=914,297 P=777,264 P=704,646 Deferred tax assets 91,430 51,847 45,116 Retained earnings (821,946) (723,295) (659,530) Non-controlling interests (921) (2,122) –
- 8 -
*SGVFS005114*
2013 2012(In Thousand Pesos)
Increase (decrease) in:Consolidated statement of income Costs of sale of electricity (P=73,153) (P=300,903) General and administrative expenses (19,052) (78,369) Income before income tax from continuing operations 92,205 379,272 Provision for deferred income tax 9,221 38,458 Net income from continuing operations 82,985 340,814 Net income 82,985 340,814 Net income attributable to: Equity holders of the Parent Company 83,905 342,936 Non-controlling interests (921) (2,122) Basic/diluted earnings per share for: Net income from continuing operations attributable to equity holders of the Parent Company 0.004 0.019 Net income attributable to equity holders of the Parent Company 0.004 0.019
2013 2012(In Thousand Pesos)
Increase (decrease) in:Consolidated statement of comprehensive income Net income P=82,985 P=340,814 Remeasurements of retirement and other post-
employment benefits, net of tax effect amounting to nil in 2013 and P=45,189 in 2012 (137,089) (406,699)
Other comprehensive income, net of income tax effect (137,089) (406,699)
Total comprehensive income (54,103) (65,885) Total comprehensive income attributable to: Equity holders of the Parent Company (53,182) (63,763) Non-controlling interests (921) (2,122)
The adoption of revised PAS 19 has also an impact on the amounts presented in the “Incomebefore income tax from continuing operations” and “Retirement and other post-employmentbenefits costs” line items in the 2012 and 2011 consolidated statement of cash flows under thecash flows from operating activities.
Other New Standards and AmendmentsSeveral other new standards and amendments apply for the first time in 2013. However, they donot impact the annual consolidated financial statements of the Company.
The nature and the impact of each new standard and amendment are described below:
· PFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities (Amendments)
These amendments require an entity to disclose information about rights of set off and relatedarrangements (such as collateral agreements). The new disclosures are required for allrecognized financial instruments that are set off in accordance with PAS 32. Thesedisclosures also apply to recognized financial instruments that are subject to an enforceablemaster netting arrangement or ‘similar agreement’, irrespective of whether they are set off inaccordance with PAS 32. The amendments require entities to disclose, in a tabular format,unless another format is more appropriate, the following minimum quantitative information.
- 9 -
*SGVFS005114*
This is presented separately for financial assets and financial liabilities recognized at the endof the reporting period:a) The gross amounts of those recognized financial assets and recognized financial liabilities;b) The amounts that are set off in accordance with the criteria in PAS 32 when determining
the net amounts presented in the statement of financial position;c) The net amounts presented in the statement of financial position;d) The amounts subject to an enforceable master netting arrangement or similar agreement
that are not otherwise included in (b) above, including:i. Amounts related to recognized financial instruments that do not meet some or all of
the offsetting criteria in PAS 32; andii. Amounts related to financial collateral (including cash collateral); and
e) The net amount after deducting the amounts in (d) from the amounts in (c) above.
The amendments affect disclosures only and have no impact on the Company’s financialposition or performance.
· PFRS 10, Consolidated Financial Statements
The Company adopted PFRS 10 in the current year. PFRS 10 replaced the portion of PAS 27,Consolidated and Separate Financial Statements, that addressed the accounting forconsolidated financial statements. It also included the issues raised in SIC 12, Consolidation -Special Purpose Entities. PFRS 10 established a single control model that applied to allentities including special purpose entities. The changes introduced by PFRS 10 requiremanagement to exercise significant judgment to determine which entities are controlled, andtherefore, are required to be consolidated by a parent, compared with the requirements thatwere in PAS 27.
A reassessment of control was made by the Parent Company on all its subsidiaries inaccordance with the provisions of PFRS 10. The Parent Company has assessed that therequirements of PFRS 10 did not have an impact on the composition of entities required to beincluded in the Company’s consolidated financial statements.
· PFRS 11, Joint Arrangements
PFRS 11 replaced PAS 31, Interests in Joint Ventures, and SIC 13, Jointly Controlled Entities- Non-Monetary Contributions by Venturers. PFRS 11 removed the option to account forjointly controlled entities using proportionate consolidation. Instead, jointly controlled entitiesthat meet the definition of a joint venture must be accounted for using the equity method.
· PFRS 12, Disclosure of Interests in Other Entities
PFRS 12 sets out the requirements for disclosures relating to an entity’s interests insubsidiaries, joint arrangements, associates and structured entities. The requirements inPFRS 12 are more comprehensive than the previously existing disclosure requirements forsubsidiaries (for example, where a subsidiary is controlled with less than a majority of votingrights). While the Company has a subsidiary with material non-controlling interests (NCI),there are no unconsolidated structured entities. PFRS 12 disclosures are provided in Note 19.
- 10 -
*SGVFS005114*
· PFRS 13, Fair Value Measurement
PFRS 13 establishes a single source of guidance under PFRSs for all fair value measurements.PFRS 13 does not change when an entity is required to use fair value, but rather providesguidance on how to measure fair value under PFRS. PFRS 13 defines fair value as an exitprice. PFRS 13 also requires additional disclosures.
As a result of the guidance in PFRS 13, the Company reassessed its policies for measuring fairvalues, in particular, its valuation inputs such as non-performance risk for fair valuemeasurement of liabilities. The Company has assessed that the application of PFRS 13 hasnot materially impacted the fair value measurements of the Company. Additional disclosures,where required, are provided in the individual notes relating to the assets and liabilities whosefair values were determined. Fair value hierarchy is provided in Note 31.
· PAS 1, Presentation of Financial Statements - Presentation of Items of Other Comprehensive Income or OCI (Amendments)
The amendments to PAS 1 introduced a grouping of items presented in OCI. Items that willbe reclassified (or “recycled”) to profit or loss at a future point in time (for example, uponderecognition or settlement) will be presented separately from items that will never berecycled. The amendments affect presentation only and have no impact on the Company’sfinancial position or performance.
· PAS 27, Separate Financial Statements (as revised in 2011)
As a consequence of the issuance of the new PFRS 10, Consolidated Financial Statements,and PFRS 12, Disclosure of Interests in Other Entities, what remains of PAS 27 is limited toaccounting for subsidiaries, jointly controlled entities, and associates in the separate financialstatements. The adoption of the amended PAS 27 did not have a significant impact on theseparate financial statements of the entities in the Company.
· PAS 28, Investments in Associates and Joint Ventures (as revised in 2011)
As a consequence of the issuance of the new PFRS 11, Joint Arrangements, and PFRS 12,Disclosure of Interests in Other Entities, PAS 28 has been renamed PAS 28, Investments inAssociates and Joint Ventures, and describes the application of the equity method toinvestments in joint ventures in addition to associates.
· Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine
This interpretation applies to waste removal (stripping) costs incurred in surface miningactivity, during the production phase of the mine. The interpretation addresses the accountingfor the benefit from the stripping activity. This new interpretation is not relevant to theCompany.
· PFRS 1, First-time Adoption of International Financial Reporting Standards - Government Loans (Amendments)
The amendments to PFRS 1 require first-time adopters to apply the requirements of PAS 20,Accounting for Government Grants and Disclosure of Government Assistance, prospectivelyto government loans existing at the date of transition to PFRS. However, entities may choose
- 11 -
*SGVFS005114*
to apply the requirements of PAS 39, Financial Instruments: Recognition and Measurement,and PAS 20 to government loans retrospectively if the information needed to do so had beenobtained at the time of initial accounting of those loans. These amendments are not relevant tothe Company.
Annual Improvements to PFRSs (2009-2011 cycle)
The Annual Improvements to PFRSs (2009-2011 cycle) contain non-urgent but necessaryamendments to PFRSs. The Company adopted these amendments for the current year.
· PFRS 1, First-time Adoption of PFRS - Borrowing Costs
The amendment clarifies that, upon adoption of PFRS, an entity that capitalized borrowingcosts in accordance with its previous generally accepted accounting principles, may carryforward, without any adjustment, the amount previously capitalized in its opening statement offinancial position at the date of transition. Subsequent to the adoption of PFRS, borrowingcosts are recognized in accordance with PAS 23, Borrowing Costs. The amendment does notapply to the Company as it is not a first-time adopter of PFRS.
· PAS 1, Presentation of Financial Statements - Clarification of the requirements for comparative information
These amendments clarify the requirements for comparative information that are disclosedvoluntarily and those that are mandatory due to retrospective application of an accountingpolicy, or retrospective restatement or reclassification of items in the financial statements. Anentity must include comparative information in the related notes to the financial statementswhen it voluntarily provides comparative information beyond the minimum requiredcomparative period. The additional comparative period does not need to contain a completeset of financial statements. On the other hand, supporting notes for the third balance sheet(mandatory when there is a retrospective application of an accounting policy, or retrospectiverestatement or reclassification of items in the financial statements) are not required. As aresult, the Company has not included comparative information in respect of the openingstatement of financial position as at January 1, 2012. The amendments affect disclosures onlyand have no impact on the Company’s financial position or performance.
· PAS 16, Property, Plant and Equipment - Classification of servicing equipment
The amendment clarifies that spare parts, stand-by equipment and servicing equipment shouldbe recognized as property, plant and equipment when they meet the definition of property,plant and equipment and should be recognized as inventory if otherwise. The amendmentdoes not have any significant impact on the Company’s financial position or performance.
· PAS 32, Financial Instruments: Presentation - Tax effect of distribution to holders of equity instruments
The amendment clarifies that income taxes relating to distributions to equity holders and totransaction costs of an equity transaction are accounted for in accordance with PAS 12,Income Taxes. The amendment does not have any significant impact on the Company’sfinancial position or performance.
- 12 -
*SGVFS005114*
· PAS 34, Interim Financial Reporting - Interim financial reporting and segment information for total assets and liabilities
The amendment clarifies that the total assets and liabilities for a particular reportable segmentneed to be disclosed only when the amounts are regularly provided to the chief operatingdecision maker and there has been a material change from the amount disclosed in the entity’sprevious annual financial statements for that reportable segment. The amendment affectsdisclosures only and has no impact on the Company’s financial position or performance.
3. Significant Accounting Judgments, Estimates and Assumptions
The preparation of the consolidated financial statements requires management to make judgments,estimates and assumptions that affect the reported amounts of revenues, expenses, assets andliabilities, and the disclosure of contingent liabilities, at the financial reporting date. However,uncertainty about these assumptions and estimates could result in outcomes that could requirematerial adjustments to the carrying amounts of the assets or liabilities in the future.
JudgmentsIn the process of applying the Company’s accounting policies, management has made thefollowing judgments, apart from those involving estimates, which have the most significant effecton the amounts recognized in the consolidated financial statements:
Functional CurrencyThe Parent Company’s transactions are denominated or settled in various currencies such as thePeso, United States dollar (US$), and Japanese yen (JPY). The Parent Company has determinedthat its functional currency is the Peso, which is the currency that most faithfully represents theeconomic substance of its underlying transactions, events and conditions.
Discontinued OperationsIn October 2012, the Company has completed its contract with Lihir Gold Ltd. (Lihir) in PapuaNew Guinea for the provision of drilling services. In line with its current strategy, the Companywill no longer engage in drilling activities but will maintain its major business of selling electricity.Management considered that the drilling operations met the definition of discontinued operations,which is a component that has been terminated and is comprised of operations and cash flows thatcan be clearly distinguished operationally and for financial reporting purposes, from the rest of theCompany.
Classification of Financial InstrumentsOn initial recognition, the financial instruments, or its component parts, are classified either as afinancial asset, a financial liability or an equity instrument in accordance with the substance of thecontractual arrangement and the definition of a financial asset, a financial liability or an equityinstrument. The substance of a financial instrument, rather than its legal form, governs itsclassification in the consolidated statement of financial position.
In addition, the Company classifies financial assets by evaluating, among others, whether the assetis quoted or not in an active market. Included in the evaluation on whether a financial asset isquoted in an active market is the determination on whether quoted prices are readily and regularlyavailable, and whether those prices represent actual and regularly occurring market transactions inan arm’s length basis.
- 13 -
*SGVFS005114*
The classifications of financial assets and financial liabilities of the Company are presented inNote 31.
Deferred Revenue on Stored EnergyUnder its addendum agreements with NPC, the Parent Company has a commitment to NPC withrespect to certain volume of stored energy that NPC may lift for a specified period, provided thatthe Parent Company is able to generate such energy over and above the nominated energy for eachgiven year in accordance with the related PPAs. The Company has made a judgment based onhistorical information that the probability of future liftings by NPC from the stored energy isremote and accordingly has not deferred any portion of the collected revenues. The stored energycommitments are, however, disclosed in Note 32 to the consolidated financial statements.
Operating LeasesThe PPAs and SSAs of the Parent Company qualify as a lease on the basis that the Company sellsall its outputs to NPC/PSALM and, in the case of the SSAs, the agreement calls for a take-or-payarrangement where payment is made principally on the basis of the availability of the steam fieldfacilities and not on actual steam deliveries. This type of arrangement is determined to be anoperating lease where a significant portion of the risks and rewards of ownership of the assets areretained by the Company since it does not include transfer of the Company’s assets. Accordingly,the steam field facilities and power plant assets are recorded as part of the cost of property, plantand equipment and the capacity fees billed to NPC/PSALM are recorded as operating revenuebased on the terms of the PPAs and SSAs.
The Company has also entered into commercial property leases where it has determined that thelessor retains all the significant risks and rewards of ownership of these properties and hasclassified the leases as operating leases (see Note 32).
Estimates and AssumptionsThe key assumptions concerning the future and other key sources of estimation uncertainty atfinancial reporting date that have a significant risk of causing a material adjustment to the carryingamounts of assets and liabilities within the next financial year are discussed below:
Estimation of Fair Value of Identifiable Net Assets of an Acquiree in a Business CombinationIn accounting for business combinations, the purchase consideration is allocated to the identifiableassets, liabilities and contingent liabilities (identifiable net assets) on the basis of fair value at thedate of acquisition. The determination of fair values requires estimates of economic conditionsand other factors.
Fair Values of Financial InstrumentsThe fair values of financial instruments that are not quoted in active markets are determined usingvaluation techniques. Where valuation techniques are used to determine fair values, fair values arevalidated and periodically reviewed by qualified independent personnel. All models are reviewedbefore they are used, and models are calibrated to ensure that outputs reflect actual data andcomparative market prices. To the extent practicable, models use only observable data; however,areas such as credit risk (both own and counterparty), volatilities and correlations requiremanagement to make estimates. Changes in assumptions about these factors could affect reportedfair value of financial instruments (see Note 31).
Impairment of ReceivablesThe Company maintains an allowance for doubtful accounts at a level that management considersadequate to provide for potential uncollectibility of its trade and other receivables. The Companyevaluates specific balances where management has information that certain amounts may not be
- 14 -
*SGVFS005114*
collectible. In these cases, the Company uses judgment, based on available facts andcircumstances, and based on a review of the factors that affect the collectibility of the accountsincluding, but not limited to, the age and status of the receivables, collection experience and pastloss experience. The review is made by management on a continuing basis to identify accounts tobe provided with allowance. The specific allowance is re-evaluated and adjusted as additionalinformation received affects the amount estimated.
In addition to specific allowance against individually significant receivables, the Company alsoprovides a collective impairment allowance against exposures, which, although not specificallyidentified as requiring a specific allowance, have a greater risk of default than when originallygranted. This collective allowance is based on historical default experience.
The aggregate carrying amounts of current and noncurrent trade and other receivables areP=3,501.7 million and P=4,128.0 million as of December 31, 2013 and 2012, respectively(Notes 8 and 15). The total amount of impairment losses recognized in 2013, 2012 and 2011amounted to P=23.8 million, P=39.0 million and P=126.3 million, respectively(see Notes 8, 15 and 22).
Impairment of AFS InvestmentsThe Company classifies certain financial assets as AFS investments and recognizes movements intheir fair value in equity. When the fair value declines, management makes assumptions about thedecline in value to determine whether it is an impairment that should be recognized in theconsolidated statement of income.
A significant or prolonged decline in the fair value of an investment in an equity instrument belowits cost is also being considered by the Company as an objective evidence of impairment. Thedetermination of what is “significant” and “prolonged” requires judgment. The Companyconsiders a significant and prolonged decline whenever it reaches 20% or more and lasts longerthan 12 months, respectively. The Company further evaluates other factors, such as volatility inshare price for quoted equities and the discounted cash flows for unquoted equities in determiningthe amount to be impaired.
No impairment loss on AFS investments were recognized in 2013, 2012 and 2011. The totalcarrying amount of current and noncurrent AFS investments was P=749.1 million andP=839.5 million as of December 31, 2013 and 2012, respectively (see Notes 9 and 31).
Estimating Net Realizable Value of Parts and Supplies InventoriesThe Company measures inventories at net realizable value when such value is lower than cost dueto damage, physical deterioration, obsolescence, changes in price levels or other causes. Thecarrying amounts of parts and supplies inventories as of December 31, 2013 and 2012 amountedto P=3,094.3 million and P=3,338.8 million, respectively (see Note 10). Provision for (reversal of)allowance for inventory obsolescence amounted to P=123.0 million, (P=83.5 million) andP=169.0 million in 2013, 2012 and 2011, respectively (see Notes 10 and 22).
Estimating Useful Lives of Property, Plant and Equipment and Water RightsThe Company estimates the useful lives of property, plant and equipment and water rights basedon the period over which each asset is expected to be available for use and on the collectiveassessment of industry practices, internal evaluation and experience with similar arrangements.The estimated useful life is revisited at the end of each financial reporting period and updated ifexpectations differ materially from previous estimates.
- 15 -
*SGVFS005114*
The carrying amount of the property, plant and equipment amounted to P=66,240.0 million andP=60,680.2 million as of December 31, 2013 and 2012, respectively (see Note 12). The carryingamount of water rights amounted to P=1,719.4 million and P=1,815.6 million as ofDecember 31, 2013 and 2012, respectively (see Note 13).
Impairment of Non-financial Assets other than Goodwill and Intangible Asset not yet Available for UseThe Company assesses whether there are any indicators of impairment for all non-financial assets,other than goodwill and intangible asset not yet available for use, at each financial reporting date.These non-financial assets (property, plant and equipment, water rights and input VAT) are testedfor impairment when there are indicators that the carrying amounts may not be recoverable.
Where the collection of tax claims is uncertain based on the assessment of management andCompany’s legal counsel, the Company provides an allowance for impairment of input VAT.Meanwhile, for the other non-financial assets, when value-in-use calculations are undertaken,management estimates the expected future cash flows from the asset or cash-generating unit(CGU) and discounts such cash flows using the sensitivity analysis of key assumptions to calculatethe present value as of the financial reporting date.
In 2011, the Northern Negros Geothermal Power Plant (NNGP) assets were fully impaired. Therecoverable amount of NNGP is determined based on a value-in-use calculation using theexpected cash flow projections. The five-year cash flow projections of the Company used forimpairment testing were based on the budget approved by the senior management. The Companyuses the Perpetuity Growth Model to determine the terminal value, which accounts for the value offree cash flows that continue in perpetuity beyond the five-year period projection, growing at anassumed constant rate. The assumed growth rate was 4% in 2011, which do not exceed theaverage annual demand growth of 6% in 2011 for the Visayas power industry market where theunit operates. The pre-tax discount rate used was 10.1% computed based on the CGU’s weightedaverage cost of capital.
Based on the foregoing, the Company recorded an impairment loss of P=4,998.6 million in 2011(see Note 12).
In February 2012, EDC transferred vacuum pumps from NNGP to the Palinpinon Power Plantowned by GCGI. Since these transferred assets were utilized and included in the CGU of thePalinpinon Power Plant, the Company recognized a corresponding reversal of impairment lossamounting to P=63.6 million, representing the net book value of the assets transferred had noimpairment loss been previously recognized (see Note 26).
To utilize the remaining facilities and fixed assets of NNGP, the BOD of EDC approved inSeptember 2012 the transfer of the components of the power plant to Nasulo site in SouthernNegros. This project is expected to generate an incremental 20-25MW. The target date for thestart of commercial operations of the power plant in Nasulo is in 2014. As of December 31, 2013,certain NNGP assets have already been transferred from Northern Negros to Nasulo. Managementhas assessed that the increase in the estimated service potential of these assets has not yet beenestablished as necessary testing activities are yet to be conducted to determine whether the assetswould function in the new location as intended by management.
The carrying amount of property, plant and equipment as of December 31, 2013 and 2012amounted to P=66,240.0 million and P=60,680.2 million, respectively (see Note 12). The carryingamount of water rights as of December 31, 2013 and 2012 amounted to P=1,719.4 million andP=1,815.6 million, respectively (see Note 13). The carrying amount of input VAT as of
- 16 -
*SGVFS005114*
December 31, 2013 and 2012 amounted to P=3,779.4 million and P=3,750.8 million, respectively(see Note 15).
The Company also recorded a provision for impairment of input VAT of P=36.2 million (net ofreversal of P=78.7 million), P=196.1 million and P=282.9 million in 2013, 2012 and 2011,respectively (see Note 15).
Impairment of GoodwillAs of December 31, 2013 and 2012, the Company’s goodwill is allocated to the following CGUs:
Entity Cash-Generating UnitCarrying Amount ofAllocated Goodwill
GCGI Palinpinon power plant complex P=2,107.6 millionGCGI Tongonan power plant complex 134.2 millionFG Hydro Pantabangan- Masiway hydroelectric plants 293.3 million
P=2,535.1 million
Goodwill is tested for impairment annually as at September 30 for GCGI and December 31for FGHydro or more frequently, if events or changes in circumstances indicate that the carrying valuemay be impaired.
This requires an estimation of the value-in-use of the CGUs to which goodwill is allocated.Estimating value-in-use requires the Company to estimate the expected future cash flows from theCGUs and discounts such cash flows using weighted average cost of capital to calculate thepresent value of those future cash flows.
The recoverable amounts have been determined based on value-in-use calculation using cash flowprojections based on financial budgets approved by senior management of GCGI and FG Hydrocovering a five-year period. For GCGI, the pre-tax discount rate applied to cash flow projectionsin 2013 are 6.1% for Tongonan and 7.8% for Palinpinon; while in 2012, the pre-tax discount rateapplied is 8.8% for Tongonan and Palinpinon. The pre-tax discount rate applied to cash flowprojections is 9.1% in 2013 and 11.5% in 2012 for FG Hydro. The cash flows beyond theremaining term of the existing agreements are extrapolated using growth rates of 4.0% for GCGIfor the years ended December 31, 2013 and 2012 and 4.0% and 4.4% for the years endedDecember 31, 2013 and 2012, respectively, for FG Hydro.
Following are the key assumptions used:
· Budgeted Gross Margin
Budgeted gross margin is the average gross margin achieved in the year immediately beforethe budgeted year, increased for expected efficiency improvements.
· Discount Rate
Discount rate reflects the current market assessment of the risk specific to each CGU. Thediscount rate is based on the average percentage of the Company’s weighted average cost ofcapital. This rate is further adjusted to reflect the market assessment of any risk specific to theCGU for which future estimates of cash flows have not been adjusted.
- 17 -
*SGVFS005114*
As of December 31, 2013, the recoverable amount of Tongonan, Palinpinon and Pantabangan-Masiway CGUs amounted to P=35,351.1 million, P=21,788.6 million and P=32,992.0 million,respectively.
No impairment loss on goodwill was recognized in the consolidated financial statements in 2013,2012 and 2011. The carrying value of goodwill as of December 31, 2013 and 2012 amounted toP=2,535.1 million (see Note 13).
Impairment of Intangible Asset not yet Available for UseThe Company’s intangible asset not yet available for use as of December 31, 2012 pertains to itsBurgos wind energy development costs. The Company performs impairment review on this assetannually irrespective of whether there is any indication of impairment by comparing its carryingamount with its recoverable amount. This impairment review requires an estimation of the value-in-use of the CGUs to which the intangible asset would provide future cash flow. Estimatingvalue-in-use requires the Company to estimate the expected future cash flows from the CGUs anddiscounts such cash flows using weighted average cost of capital to calculate the present value ofthose future cash flows.
The recoverable amounts have been determined based on value-in-use calculation using cash flowprojections based on financial projections by the Business Development Group of EDC covering a20-year period, which is based on the shorter of the expected useful life of the turbines of 20 yearsand the existing 25-year service contract of the project (see Note 36). The pre-tax discount rateapplied to cash flow projections was 8.4% in 2012.
Following are the key assumptions used:
· Feed-in Tariff (FIT) Rate
On July 27, 2012, the Energy Regulatory Commission approved the initial FIT rates that shallapply to generation of electricity from renewable energy sources. Particularly, for windenergy, the approved FIT rate amounted to P=8.5 per kwh. Accordingly, the Company used thenew FIT rate in the impairment assessment of the Company’s wind energy projectdevelopment costs. Prior to the issuance of the FIT rate, the Company used FIT rate ofP=10.4 per kwh in its 2011 value-in-use estimates.
· Discount Rate
Discount rate reflects the current market assessment of the risk specific to each CGU. Thediscount rate is based on the average percentage of the weighted average cost of capital for theindustry. This rate is further adjusted to reflect the market assessment of any risk specific tothe CGU for which future estimates of cash flows have not been adjusted.
· Growth Rate
The Company used a 40% growth rate based on the Philippine Consumer Price Index (CPI)and 60% growth rate based on the change in dollar to Peso exchange rate. This is consistentwith the Natural Resources and Environment Board’s proposed annual FIT escalation rate.The Company assumed an annual 4% increase of CPI based on Philippine average inflationfactor as of 2012 and a steady dollar to Peso exchange rate for conservatism.
No impairment loss on intangible asset not yet available for use was recognized in theconsolidated financial statements. The carrying value of the intangible asset not yet available foruse amounted to P=467.7 million as of December 31, 2012 (see Note 13). In 2013, such asset was
- 18 -
*SGVFS005114*
reclassified to property, plant and equipment under the “Construction in progress” account(see Note 12).
Impairment of Exploration and Evaluation AssetsExploration and evaluation costs are recognized as assets in accordance with PFRS 6, Explorationfor and Evaluation of Mineral Resources. Capitalization of these costs is based, to a certain extent,on management’s judgment of the degree to which the expenditure may be associated with findingspecific geothermal reserve. The Company determines impairment of projects based on thetechnical assessment of its resident scientists in various disciplines or based on management’sdecision not to pursue any further commercial development of its exploration projects. In 2013,the Parent Company has assessed that its Cabalian geothermal project located in Southern Leyte isimpaired due to issues on productivity and sustainability of geothermal resources in the area.Accordingly, impairment loss amounting to P=574.8 million was recognized in 2013. Noimpairment loss was recognized in 2012 and 2011. As of December 31, 2013 and 2012, thecarrying amount of capitalized exploration and evaluation costs amounted to P=2,380.8 million andP=1,604.1 million, respectively (see Note 14).
Retirement and Other Post-employment BenefitsThe cost of defined benefits retirement plan and other post-employment medical and life insurancebenefits are determined using the projected unit credit method of actuarial valuations. Theactuarial valuation involves making assumptions about discount rates, future salary increases,medical trend rate, mortality and disability rates and employee turnover rates. Due to thecomplexity of the valuation, the underlying assumptions and its long-term nature, defined benefitobligations are highly sensitive to changes in these assumptions. All assumptions are reviewed ateach reporting date. The net retirement and other post-employment benefits liability as ofDecember 31, 2013 and 2012 amounted to P=1,658.6 million and P=1,437.2 million, respectively.The detailed information with respect to the Company’s net retirement and other post-employmentbenefits is presented in Note 27 to the consolidated financial statements.
In determining the appropriate discount rate, management considers the interest rates ofgovernment bonds that are denominated in the currency in which the benefits will be paid, withextrapolated maturities corresponding to the expected duration of the defined benefit obligation.
The mortality rate is based on publicly available mortality tables for the specific country and ismodified accordingly with estimates of mortality improvements. Future salary increases andpension increases are based on expected future inflation rates for the specific country.
Further details about the assumptions used are provided in Note 27.
Provision for Rehabilitation and Restoration CostsIn 2009, with the conversion of its Geothermal Service Contracts (GSCs) to GeothermalRenewable Energy Service Contracts (GRESCs), the Company has made a judgment that theGRESCs are subject to the provision for restoration costs. In determining the amount ofprovisions for rehabilitation and restoration costs, assumptions and estimates are required inrelation to the expected cost to rehabilitate and restore sites and infrastructure when suchobligation exists (see Note 33). As of December 31, 2013 and 2012, the Company recognizedprovision for rehabilitation and restoration costs amounting to P=654.4 million and P=493.5 million,respectively, presented under “Provisions and other long-term liabilities” account in theconsolidated statement of financial position (see Note 18).
- 19 -
*SGVFS005114*
Provision for Liabilities on Regulatory Assessments and Other ContingenciesThe Company has pending assessments from various regulatory agencies and pending legal cases.The Company’s estimate of the probable costs for the resolution of these assessments and legalcases has been developed in consultation with in-house and outside legal counsels and is basedupon the analysis of the potential outcomes. It is possible, however, that future results ofoperations could be materially affected by changes in the estimates or in the effectiveness ofstrategies relating to these proceedings. As of December 31, 2013, provisions for these liabilitiesamounting to P=161.3 million and P=493.5 million are recorded under “Trade and other payables”(part of “Other payables”) account (see Note 16) and “Provision and other long-term liabilities”(part of “Others”) account (see Note 18), respectively. Meanwhile, provisions for these liabilitiesas of December 31, 2012 amounted to P=185.6 million recorded under “Trade and other payables”(part of “Other payables”) account (see Note 16) and P=319.3 million presented under “Provisionand other long-term liabilities” (part of “Others”) account (see Note 18).
Interest on liability from litigation amounted to P=7.8 million, P=8.6 million and P=7.8 million for theyears ended December 31, 2013, 2012 and 2011, respectively (see Note 24).
Shortfall GenerationThe Parent Company’s PPA with NPC requires the annual nomination of capacity that EDC shalldeliver to NPC. On a monthly basis, EDC bills a uniform capacity to NPC based on thenominated energy. At the end of the contract year, EDC’s fulfillment of the nominated capacityand the parties’ responsibilities for any shortfall shall be determined. The contract year for theUnified Leyte PPA is for fiscal period ending July 25 while the contract year for the Mindanao Iand II PPAs is for fiscal period ending December 25 (see Note 34). Assessment is made at everyreporting date whether the nominated capacity would be met based on management’s projection ofelectricity generation covering the entire contract year. If the occurrence of shortfall generation isdetermined to be probable, the amount of estimated reimbursement to NPC is accounted for as adeduction to revenue for the period and a corresponding liability is recognized. As ofDecember 31, 2013 and 2012, the Company’s estimated liability arising from such shortfallgeneration amounted to P=263.2 million and P=431.4 million, respectively shown under the “Tradeand other payables” account, specifically under “Other payables” (see Note 16). Moreover,booking of estimations relating to the shortfall generation under the Unified Leyte PPA may besubsequently adjusted or reported depending on the subsequent reconciliation by the Technical orSteering Committee established in accordance with the Unified Leyte PPA in view of the parties’responsibilities in connection with the consequences of Typhoon Yolanda.
Share-based Payments ExpenseThe Company measures the cost of share-based payments granted to officers and employees byreference to the quoted price of the Parent Company’s shares listed in the PSE at the date at whichthe shares are granted. Share-based payments expense amounting to P=11.9 million, P=24.7 millionand P=8.8 million were recognized in 2013, 2012 and 2011, respectively, in relation to the ParentCompany’s stock grant plan (see Notes 20 and 30).
Deferred Tax AssetsDeferred tax assets are recognized to the extent that it is probable that sufficient future taxableprofits will be available against which the assets can be utilized. Significant managementjudgment is required to determine the amount of deferred tax assets that can be recognized. Thisincludes the likely timing and level of future taxable profits together with future tax planningstrategies. The carrying value of recognized deferred tax assets amounted to P=2,376.7 million andP=2,295.4 million as of December 31, 2013 and 2012, respectively (see Note 28).
- 20 -
*SGVFS005114*
4. Summary of Significant Accounting Policies
Basis of ConsolidationThe consolidated financial statements comprise the financial statements of the Parent Companyand its subsidiaries as at December 31, 2013. Control is achieved when the Company is exposed,or has rights, to variable returns from its involvement with the investee and has the ability to affectthose returns through its power over the investee. Specifically, the Company controls an investeeif and only if the Company has:· Power over the investee (i.e. existing rights that give it the current ability to direct the relevant
activities of the investee)· Exposure, or rights, to variable returns from its involvement with the investee, and· The ability to use its power over the investee to affect its returns
When the Company has less than a majority of the voting or similar rights of an investee, theCompany considers all relevant facts and circumstances in assessing whether it has power over aninvestee, including:· The contractual arrangement with the other vote holders of the investee· Rights arising from other contractual arrangements· The Company’s voting rights and potential voting rights
The Company re-assesses whether or not it controls an investee if facts and circumstances indicatethat there are changes to one or more of the three elements of control. Consolidation of asubsidiary begins when the Company obtains control over the subsidiary and ceases when theCompany loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiaryacquired or disposed of during the year are included in the statement of comprehensive incomefrom the date the Company gains control until the date the Company ceases to control thesubsidiary.
Profit or loss and each component of OCI are attributed to the equity holders of the parent of theCompany and to the NCI, even if this results in the NCI having a deficit balance. When necessary,adjustments are made to the financial statements of subsidiaries to bring their accounting policiesinto line with the Company’s accounting policies. All intra-group assets and liabilities, equity,income, expenses and cash flows relating to transactions between members of the Company areeliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as anequity transaction. If the Company loses control over a subsidiary, it:· Derecognizes the assets (including goodwill) and liabilities of the subsidiary· Derecognizes the carrying amount of any NCI· Derecognizes the cumulative translation differences recorded in equity· Recognizes the fair value of the consideration received· Recognizes the fair value of any investment retained· Recognizes any surplus or deficit in profit or loss· Reclassifies the parent’s share of components previously recognised in OCI to profit or loss or
retained earnings, as appropriate, as would be required if the Company had directly disposedof the related assets or liabilities
- 21 -
*SGVFS005114*
Business Combinations and GoodwillBusiness combinations are accounted for using the acquisition method. The cost of an acquisitionis measured as the aggregate of the consideration transferred, measured at acquisition date fairvalue and the amount of any NCI in the acquiree. For each business combination, the acquirermeasures the NCI of the acquiree either at fair value or at the proportionate share of the acquiree’sidentifiable net assets. Acquisition-related costs incurred are expensed and included in generaland administrative expenses.
When the Company acquires a business, it assesses the financial assets and financial liabilitiesassumed for appropriate classification and designation in accordance with the contractual terms,economic circumstances and pertinent conditions as at the acquisition date. This includes theseparation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’spreviously held equity interest in the acquiree is remeasured to fair value at the acquisition dateand any gain or loss on remeasurement is recognized in the consolidated statement of income.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value atthe acquisition date. Subsequent changes to the fair value of the contingent consideration which isdeemed to be an asset or liability, will be recognized in accordance with PAS 39, FinancialInstruments: Recognition and Measurement, either in the consolidated statement of income or as achange to OCI. If the contingent consideration is classified as equity, it should not be remeasureduntil it is finally settled within equity.
Goodwill is initially measured at cost being the excess of the aggregate of the considerationtransferred and the amount recognized for NCI over the net identifiable assets acquired andliabilities assumed. If this consideration is lower than the fair value of the net assets of thesubsidiary acquired, the difference is recognized in the consolidated statement of income.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses.For the purpose of impairment testing, goodwill acquired in a business combination is, from theacquisition date, allocated to each of the Company’s CGUs that are expected to benefit from thecombination, irrespective of whether other assets or liabilities of the acquiree are assigned to thoseunits.
Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, thegoodwill associated with the operation disposed of is included in the carrying amount of theoperation when determining the gain or loss on disposal of the operation. Goodwill disposed of inthis circumstance is measured based on the relative values of the operation disposed of and theportion of the CGU retained.
Foreign Currency Translation of Foreign OperationsThe consolidated financial statements are presented in Peso, which is the Parent Company’sfunctional currency. Each entity or subsidiary in the Company determines its own functionalcurrency and measures items included in their financial statements using that functional currency.Transactions in foreign currencies are initially recorded at the functional currency exchange rateprevailing at the date of transaction. Monetary assets and monetary liabilities denominated inforeign currencies are translated at the closing rate of exchange prevailing at financial reportingdate. Non-monetary items that are measured in terms of historical cost in a foreign currency aretranslated using the exchange rates as at the dates of the initial transactions.
- 22 -
*SGVFS005114*
Non-monetary items measured at fair value in a foreign currency are translated using the exchangerates at the date when the fair value was determined. Foreign exchange differences between therate at transaction date and the rate at settlement date or financial reporting date are recognized inthe consolidated statement of income.
The functional currency of the Company’s subsidiaries is Peso, except for the followingsubsidiaries:
Subsidiary Functional CurrencyEHIL United States dollarEDC HKL Hong Kong dollarEDC Chile Holdings SPA Chilean pesoEDC Geotermica Chile - do -EDC Chile Limitada - do -EDC Peru Holdings S.A.C. Peruvian nuevo solEDC Geotermica Peru S.A.C. - do -EDC Quellaapacheta - do -EDC Geotérmica Del Sur S.A.C. - do -EDC Energía Azul S.A.C. - do -Geotermica Crucero Peru S.A.C. - do -EDC Energía Perú S.A.C. - do -Geotermica Tutupaca Norte Peru S.A.C. - do -EDC Energía Geotérmica S.A.C. - do -EDC Progreso Geotérmico Perú S.A.C. - do -Geotermica Loriscota Peru S.A.C. - do -EDC Energía Renovable Perú S.A.C. - do -PT EDC Indonesia Indonesian rupiahPT EDC Panas Bumi Indonesia - do -
For subsidiaries whose functional currency is different from the presentation currency, theCompany translates the results of their operations and financial position into the presentationcurrency. As at the financial reporting date, the assets and liabilities presented (includingcomparatives) are translated into the presentation currency at the closing rate of exchangeprevailing at the financial reporting date while the capital stock and other equity balances aretranslated at historical rates of exchange. The income and expenses for the consolidated statementof income presented (including comparatives) are translated at the exchange rates at the dates ofthe transactions, where determinable, or at the weighted average rate of exchange during the year.The exchange differences arising on the translation to the presentation currency are recognized asa separate component of equity under the “Cumulative translation adjustment” account in theconsolidated statement of financial position.
Foreign Currency-Denominated TransactionsTransactions in foreign currencies are initially recorded at the functional currency rate at the dateof the transaction. Monetary assets and monetary liabilities denominated in foreign currencies aretranslated using the functional currency rate of exchange as at financial reporting date. Alldifferences are taken to the consolidated statement of income under “Foreign exchange gains(losses)” account. Nonmonetary items that are measured at historical cost in a foreign currencyare translated using the exchange rate as at the date of the transactions. Nonmonetary itemsmeasured at fair value in a foreign currency are translated using the exchange rates at the datewhen the fair value is determined.
Cash and Cash EquivalentsCash and cash equivalents in the consolidated statement of financial position comprise cash inbanks and on hand and short-term deposits with original maturities of three months or less fromdates of acquisition and that are subject to insignificant risk of changes in value.
- 23 -
*SGVFS005114*
Parts and Supplies InventoriesInventories are valued at the lower of cost and net realizable value. Cost includes the invoiceamount, net of trade and cash discounts. Cost is calculated using the moving average method.Net realizable value represents the current replacement cost.
PrepaymentsPrepayments are expenses paid in advance and recorded as asset before these are utilized. Thisaccount comprises prepaid expenses, withholding tax certificates, tax credit certificates andadvances to contractors. The prepaid expenses are apportioned over the period covered by thepayment and charged to the appropriate accounts in the consolidated statement of income whenincurred; withholding tax certificates are deducted from income tax payable on the same year therevenue was recognized; and the advances to contractors are reclassified to the proper asset orexpense account and deducted from the contractor’s billings as specified on the provision of thecontract. Prepayments that are expected to be realized for a period of no more than 12 monthsafter the financial reporting period are classified as current asset; otherwise, these are classified asother noncurrent asset.
Property, Plant and EquipmentProperty, plant and equipment, except land, is stated at cost less accumulated depreciation,amortization and impairment in value, if any. The initial cost of property, plant and equipment,consists of its purchase price and any directly attributable costs of bringing the asset to its workingcondition and location for its intended use and any estimated cost of dismantling and removing theproperty, plant and equipment item and restoring the site on which it is located to the extent thatthe Company had recognized the obligation to that cost. Such cost includes the cost of replacingpart of the property, plant and equipment if the recognition criteria are met. When significantparts of property, plant and equipment are required to be replaced in intervals, the Companyrecognizes such parts as individual assets with specific useful lives, depreciation and amortization.All other repairs and maintenance costs are recognized in the consolidated statement of income asincurred. Land is carried at cost less accumulated impairment losses, if any.
The income generated wholly and necessarily as a result of the process of bringing the asset intothe location and condition for its intended use (e.g., net proceeds from selling any items producedwhile testing whether the asset is functioning properly) is credited to the cost of the asset. Whenthe incidental operations are not necessary to bring an item to the location and condition necessaryfor it to be capable of operating in the manner intended by management, the income and relatedexpenses of incidental operations are not offset against the cost of the asset but are recognized inprofit or loss and included in their respective classifications of income and expense.
Depreciation and amortization are calculated on a straight-line basis over the economic lives of theassets as follows:
Number of yearsPower plants 15-30Production wells 10-40Fluid Collection and Recycling System (FCRS) 13-20Buildings, improvements and other structures 5-35Exploration, machinery and equipment 2-25Transportation equipment 5-10Furniture, fixtures and equipment 3-10Laboratory equipment 5-10
- 24 -
*SGVFS005114*
Depreciation and amortization of an item of property, plant and equipment begin when it becomesavailable for use, i.e., when it is in the location and condition necessary for it to be capable ofoperating in the manner intended by management. Depreciation and amortization cease at theearlier of the date that the item is classified as held for sale (or included in a disposal group that isclassified as held for sale) in accordance with PFRS 5, Non-current Assets Held for Sale andDiscontinued Operations, and the date the asset is derecognized. Leasehold improvements areamortized over the lease term or the economic life of the related asset, whichever is shorter.
An item of property, plant and equipment is derecognized upon disposal or when no futureeconomic benefits are expected from its use or disposal. Any gain or loss arising on derecognitionof the asset (calculated as the difference between the net disposal proceeds and the carryingamount of the asset) is included in the consolidated statement of income in the year the asset isderecognized. The residual values, useful lives and methods of depreciation and amortization arereviewed and adjusted, if appropriate, at each financial reporting date.
Property, plant and equipment are recognized based on their significant parts. Each part of an itemof property, plant and equipment with a cost that is significant in relation to the total cost of theitem is depreciated separately.
Property, plant and equipment also include the estimated rehabilitation and restoration costs of theCompany’s steam fields and power plants contract areas for which the Company is constructivelyliable. These costs are included under “FCRS and production wells” account (see Note 12).
Construction in progress and major spares and surplus assets available for use are stated at costand is not depreciated until such time that the assets are put into operational use.
Intangible AssetsIntangible assets acquired separately are measured on initial recognition at cost. Following initialrecognition, intangible assets are carried at cost less accumulated amortization and accumulatedimpairment loss, if any. Internally-generated intangible assets, if any, excluding capitalizeddevelopment costs, are not capitalized and expenditure is reflected in the consolidated statement ofincome in which the expenditure is incurred.
The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assetswith finite lives are amortized over the useful economic life and assessed for impairmentwhenever there is an indication that the intangible asset may be impaired. The amortization periodand amortization method for an intangible asset with a finite useful life is reviewed at least at eachfinancial year end. Changes in the expected useful life or the expected pattern of consumption offuture economic benefits embodied in the asset is accounted for by changing the amortizationperiod or method, as appropriate, and treated as changes in accounting estimates. Theamortization expense on intangible assets with finite lives is recognized in profit or loss in theexpense category consistent with the function of the intangible asset.
Intangible assets with indefinite useful lives and intangible assets not yet available for use aretested for impairment annually at the CGU level and are not amortized. The useful life of anintangible asset with an indefinite life is reviewed annually to determine whether indefinite usefullife assessment continues to be supportable. If not, the change in the useful life assessment fromindefinite to finite is made on a prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the differencebetween the net disposal proceeds, if any, and the carrying amount of the asset and are recognizedin the consolidated statement of income when the asset is derecognized.
- 25 -
*SGVFS005114*
Water RightsThe cost of water rights of FG Hydro is measured on initial recognition at cost.
Following initial recognition of the water rights, the cost model is applied requiring the asset to becarried at cost less any accumulated amortization and accumulated impairment losses, if any.Water rights are amortized using the straight-line method over 25 years, which is the term of theagreement with the National Irrigation Administration (NIA).
Wind Energy Project Development CostsProject development costs are expensed as incurred until management determines that the projectis technically, commercially and financially viable, at which time, project development costs arecapitalized. Project viability generally occurs in tandem with management’s determination that aproject should be classified as an advanced project, such as, when favorable results of a systemimpact study are received, interconnected agreements are obtained and project financing is inplace.
Following initial recognition of the project development cost as an asset, the cost model is appliedrequiring the asset to be carried at cost less any accumulated impairment losses. The wind farmassets will then be presented as property, plant and equipment upon declaration of commerciality.During the period in which the asset is not yet available for use, the project development costs aretested for impairment annually, irrespective of whether there is any indication of impairment.
Computer Software and LicensesThe costs of acquisition of computer software and licenses are capitalized as intangible asset ifsuch costs are not integral part of the related hardware.
These intangible assets are initially measured at cost. Subsequently, these are measured at costless accumulated amortization and allowance for impairment losses, if any. Amortization ofcomputer software is computed using the straight-line method of over 5 years.
Exploration and Evaluation AssetsThe Company follows the full cost method of accounting for its exploration costs determined onthe basis of each service contract area. Under this method, all exploration costs relating to eachservice contract are accumulated and deferred under the “Exploration and evaluation assets”account in the consolidated statement of financial position pending the determination of whetherthe wells has proved reserves. Capitalized expenditures include costs of license acquisition,technical services and studies, exploration drilling and testing, and appropriate technical andadministrative expenses. General overhead or costs incurred prior to having obtained the legalrights to explore an area are recognized as expense in the consolidated statement of income whenincurred.
If tests conducted on the drilled exploratory wells reveal that these wells cannot produce provedreserves, the capitalized costs are charged to expense except when management decides to use theunproductive wells, for recycling or waste disposal.
Once the technical feasibility and commercial viability of the project to produce proved reservesare established, the exploration and evaluation assets shall be reclassified to property, plant andequipment.
Impairment of Non-financial AssetsFor non-financial assets such as property, plant and equipment, exploration and evaluation assets,water rights and input VAT claims for refund/tax credits, the Company assesses at each financial
- 26 -
*SGVFS005114*
reporting date whether there is an indication that a non-financial asset may be impaired. If anysuch indication exists, the Company estimates the asset’s recoverable amount. Also, irrespectiveof whether there is any indication of impairment, the Company tests an intangible asset not yetavailable for use, such as wind energy project development cost, for impairment annually bycomparing its carrying amount with its recoverable amount.
The recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and itsvalue-in-use and is determined for an individual asset, unless the asset does not generate cashinflows that are largely independent of those from other assets or group of assets. When thecarrying amount of an asset exceeds its recoverable amount, the asset is considered impaired andis written down to its recoverable amount. In assessing value-in-use, the estimated future cashflows are discounted to their present value using a pre-tax discount rate that reflects current marketassessments of the time value of money and the risks specific to the asset. In determining fairvalue less costs to sell, an appropriate valuation model is used. These calculations arecorroborated by valuation multiples or other available fair value indicators.
Impairment losses are recognized in the consolidated statement of income in those expensecategories consistent with the function of the impaired asset.
For non-financial assets excluding goodwill, an assessment is made at each financial reportingdate as to whether there is any indication that previously recognized impairment losses may nolonger exist or may have decreased. If such indication exists, the Company makes an estimate ofrecoverable amount. A previously recognized impairment loss is reversed only if there has been achange in the estimates used to determine the asset’s recoverable amount since the last impairmentloss was recognized. In such instance, the carrying amount of the asset is increased to itsrecoverable amount. However, that increased amount cannot exceed the carrying amount thatwould have been determined, net of depreciation, had no impairment loss been recognized for theasset in prior years. Such reversal is recognized in the consolidated statement of income.
Goodwill is reviewed for impairment, annually or more frequently, if events or changes incircumstances indicate that the carrying value may be impaired. Impairment is determined forgoodwill by assessing the recoverable amount of the CGU or group of CGUs to which thegoodwill relates. When the recoverable amount of the CGU or group of CGUs is less than thecarrying amount of the CGU or group of CGUs to which goodwill has been allocated, animpairment loss is recognized immediately in the consolidated statement of income. Impairmentloss relating to goodwill cannot be reversed for subsequent increases in its recoverable amount infuture periods.
Financial InstrumentsFinancial instruments are recognized in the consolidated statement of financial position, when theCompany becomes a party to the contractual provisions of the instrument. All regular waypurchases and sales of financial assets are recognized on the trade date, which is the date when theCompany commits to purchase the asset. Regular way purchases or sales are purchases or sales offinancial assets that require delivery of assets within the period generally established by regulationor convention in the market place. Derivatives are also recognized on a trade date basis.
Financial instruments are recognized initially at fair value. Except for financial instruments at fairvalue through profit or loss (FVPL), the initial measurement of financial instruments includestransaction costs. The Company classifies its financial assets into the following categories:financial assets at FVPL, held-to-maturity (HTM) investments, AFS investments, and loans andreceivables. For financial liabilities, the Company classifies them into financial liabilities at FVPLand other financial liabilities. The classification depends on the purpose for which the investments
- 27 -
*SGVFS005114*
were acquired and whether they are quoted in an active market. Management determines theclassification of its investments at initial recognition and, where allowed and appropriate,re-evaluates such designation at every financial reporting date.
Financial instruments are classified as liability or equity in accordance with the substance of thecontractual arrangement. Interest, dividends, gains and losses relating to a financial instrument ora component that is a financial liability, are reported as expense or income. Distributions toholders of financial instruments classified as equity are charged directly to equity, net of anyrelated income tax benefit.
Financial Assets and Financial Liabilities at FVPLFinancial assets and financial liabilities at FVPL include those held for trading and thosedesignated upon initial recognition as at FVPL.
Financial assets and financial liabilities are classified as held for trading if they are acquired forthe purpose of selling and repurchasing in the near term. Derivatives, including separatedembedded derivatives, are also classified as held for trading unless they are designated as effectivehedging instruments or a financial guarantee contract. Gains or losses on investments held fortrading are recognized in the consolidated statement of income under “Other income (charges)”account.
Financial assets or financial liabilities may be designated at initial recognition as at FVPL if thefollowing criteria are met: (a) the designation eliminates or significantly reduces the inconsistenttreatment that would otherwise arise from measuring the assets or recognizing gains or losses onthem on a different basis; or (b) the assets and liabilities are part of a group of financial assets,financial liabilities, or both, which are managed and their performance evaluated on a fair valuebasis, in accordance with a documented risk management strategy; or (c) the financial instrumentcontains an embedded derivative that would need to be separately recorded.
Where a contract contains one or more embedded derivatives, the entire hybrid contract may bedesignated as at FVPL, except where the embedded derivative does not significantly modify thecash flow or it is clear that separation of the embedded derivative is prohibited.
Classified under financial instruments at FVPL are foreign currency forward contracts and foreigncurrency swap contracts as of December 31, 2013 and 2012 (see Note 31).
HTM InvestmentsHTM investments are quoted non-derivative financial assets with fixed or determinable paymentsand fixed maturities for which the Company has the positive intention and ability to hold tomaturity. Where the Company sells other than an insignificant amount of HTM investments, theentire category would be tainted and would have to be reclassified as AFS investments.Furthermore, the Company would be prohibited to classify any financial assets as HTMinvestments for the following two years. After initial measurement, HTM investments aremeasured at amortized cost using the effective interest method. Amortized cost is calculated bytaking into account any discount or premium on acquisition and fees that are integral parts of theeffective interest rate. Gains and losses are recognized in the consolidated statement of incomewhen the HTM investments are derecognized or impaired, as well as through the amortizationprocess. The effect of restatement of foreign-currency denominated HTM investments are alsorecognized in the consolidated statement of income.
The Company has no HTM investments as of December 31, 2013 and 2012.
- 28 -
*SGVFS005114*
Loans and ReceivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments thatare not quoted in an active market. After initial measurement, loans and receivables are carried atamortized cost using the effective interest method less any allowance for impairment. Gains andlosses are recognized in the consolidated statement of income when the loans and receivables arederecognized or impaired, as well as through the amortization process.
Loans and receivables are classified as current assets if maturity is within 12 months from thefinancial reporting date. Otherwise, these are classified as noncurrent assets.
Classified under loans and receivables are cash and cash equivalents, trade and other receivables,and long-term receivables (see Notes 7, 8, 15 and 31).
AFS InvestmentsAFS investments are those non-derivative financial assets that are designated as such or are notclassified as financial assets designated at FVPL, HTM investments or loans and receivables.They are purchased and held indefinitely, and may be sold in response to liquidity requirements orchanges in market conditions.
After initial measurement, AFS investments are subsequently measured at fair value withunrealized gains and losses being recognized as other comprehensive income in the “Netaccumulated unrealized gain (loss) on AFS investment” account until the investment is disposedof or is determined to be impaired, at which time the cumulative gain or loss previouslyrecognized in equity are recognized in the consolidated statement of income. The Company usesthe specific identification method in determining the cost of securities sold. Unquoted equitysecurities are carried at cost, net of impairment. Interest earned on the investments is reported asinterest income using the effective interest rate method. Dividends earned on investment arerecognized in the consolidated statement of income when the right to receive payment has beenestablished.
AFS investments are classified as current if these are expected to be realized within 12 monthsfrom the financial reporting date. Otherwise, these are classified as noncurrent assets.
AFS investments include quoted and unquoted investments in government securities, proprietaryand equity shares (see Notes 9 and 31).
Other Financial LiabilitiesThis category pertains to financial liabilities that are not held for trading or not designated as atFVPL upon the inception of the liability. Other financial liabilities, which include trade and otherpayables, amounts due to related parties, long-term debts and royalty fee payable (see Notes 16, 17,20 and 31) are initially recognized at fair value of the consideration received less directlyattributable transaction costs. After initial recognition, other financial liabilities are subsequentlymeasured at amortized cost using the effective interest method.
Amortized cost is calculated by taking into account any related issue costs, discount or premium.Gains and losses are recognized in the consolidated statement of income when the liabilities arederecognized, as well as through the amortization process.
Fair Value of Financial InstrumentsThe Company measures financial instruments, such as, derivatives and AFS investments at fairvalue at each reporting date. Also, fair values of financial instruments measured at amortized costare disclosed in Note 31.
- 29 -
*SGVFS005114*
Fair value is the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date. The fair valuemeasurement is based on the presumption that the transaction to sell the asset or transfer theliability takes place either:· In the principal market for the asset or liability, or· In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible to by the Company. The fairvalue of an asset or a liability is measured using the assumptions that market participants woulduse when pricing the asset or liability, assuming that market participants act in their economic bestinterest.
The Company uses valuation techniques that are appropriate in the circumstances and for whichsufficient data are available to measure fair value, maximizing the use of relevant observableinputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financialstatements are categorized within the fair value hierarchy, described as follows, based on thelowest level input that is significant to the fair value measurement as a whole:· Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities· Level 2 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is directly or indirectly observable· Level 3 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is unobservable
For assets and liabilities that are recognized in the financial statements on a recurring basis, theCompany determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair valuemeasurement as a whole) at the end of each reporting period.
“Day 1” DifferencesWhere the transaction price in a non-active market is different from the fair value of otherobservable current market transactions in the same instrument or based on a valuation techniquewhose variables include only data from observable market, the Company recognizes the differencebetween the transaction price and fair value (a “Day 1” difference) in the consolidated statementof income unless it qualifies for recognition as some other type of asset. In cases where use ismade of data which is not observable, the difference between the transaction price and modelvalue is only recognized in the consolidated statement of income when the inputs becomeobservable or when the instrument is derecognized. For each transaction, the Companydetermines the appropriate method of recognizing the “Day 1” difference amount.
Derivative Financial InstrumentsDerivative instruments, including bifurcated embedded derivatives, are initially recognized at fairvalue on the date that a derivative transaction is entered into or bifurcated, and are subsequentlyre-measured at fair value. Changes in fair value of derivative instruments not accounted as hedgesare recognized immediately in the consolidated statement of income. Derivatives are carried asassets when the fair value is positive and as liabilities when the fair value is negative.
- 30 -
*SGVFS005114*
The Company assesses whether embedded derivatives are required to be separated from the hostcontracts when the Company first becomes party to the contract. An embedded derivative isseparated from the hybrid or combined contract if all of the following conditions are met:
(a) the economic characteristics and risks of the embedded derivative are not clearly and closely related to the economic characteristics and risks of the host contract;(b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and(c) the hybrid instrument is not recognized at FVPL.
Subsequent reassessment is prohibited unless there is a change in the terms of the contract thatsignificantly modifies the cash flows that otherwise would be required under the contract, in whichcase reassessment is required. The Company determines whether a modification to cash flows issignificant by considering the extent to which the expected future cash flows associated with theembedded derivative, the host contract or both have changed and whether the change is significantrelative to the previously expected cash flows on the contract.
Impairment of Financial AssetsThe Company assesses at each financial reporting date whether a financial asset or group offinancial assets is impaired. A financial asset or a group of financial assets is deemed to beimpaired, if and only if, there is objective evidence of impairment as a result of one or more eventsthat occurred after the initial recognition of the asset (an incurred loss event) and that loss eventhas an impact on the estimated future cash flows of the financial asset or a group of financialassets that can be reliably estimated. Objective evidence of impairment may include indicationsthat the borrower or a group of borrowers is experiencing significant financial difficulty, default ordelinquency in interest or principal payments, the probability that they will enter bankruptcy orother financial reorganization and where observable data indicate that there is measurable decreasein the estimated future cash flows, such as changes in arrears or economic conditions that correlatewith defaults.
Assets Carried at Amortized CostFor assets carried at amortized cost, the Company first assesses whether an objective evidence ofimpairment exists individually for financial assets that are individually significant, or collectivelyfor financial assets that are individually and not individually significant. If the Companydetermines that no objective evidence of impairment exists for individually assessed financialasset, whether significant or not, it includes the asset in a group of financial assets with similarcredit risk characteristics and collectively assesses for impairment. Those characteristics arerelevant to the estimation of future cash flows for groups of such assets by being indicative of thedebtors’ ability to pay all amounts due according to the contractual terms of the assets beingevaluated. Assets that are individually assessed for impairment and for which an impairment lossis, or continues to be, recognized are not included in a collective assessment for impairment.
If there is an objective evidence that an impairment loss has been incurred, the amount of loss ismeasured as the difference between the asset’s carrying value and the present value of theestimated future cash flows (excluding future credit losses that have not been incurred) discountedat the financial assets’ original effective interest rate which is the effective interest rate computedat initial recognition. The carrying value of the asset is reduced through the use of an allowanceaccount and the amount of loss is recognized in the consolidated statement of income. If in casethe receivable has proven to have no realistic prospect of future recovery, any allowance providedfor such receivable is written off against the carrying value of the impaired receivable. If, in asubsequent year, the amount of the estimated impairment loss decreases because of an eventoccurring after the impairment was recognized, the previously recognized impairment loss is
- 31 -
*SGVFS005114*
reduced by adjusting the allowance account. Any subsequent reversal of an impairment loss isrecognized in the consolidated statement of income, to the extent that the carrying value of theasset does not exceed its amortized cost at reversal date.
AFS InvestmentsFor AFS investments, the Company assesses at each financial reporting date whether there isobjective evidence that a financial asset or group of financial assets is impaired.
In the case of equity investments classified as AFS, impairment indicators would include asignificant or prolonged decline in the fair value of the investments below its cost. Where there isevidence of impairment, the cumulative loss, measured as the difference between the acquisitioncost and the current fair value, less any impairment loss on that financial asset previouslyrecognized in the consolidated statement of comprehensive income, is removed from equity andrecognized in the consolidated statement of income. Impairment losses on equity investments arenot reversed through the consolidated statement of income. Increases in fair value afterimpairment are recognized directly in the consolidated statement of comprehensive income.
In the case of debt instruments classified as AFS investments, impairment is assessed based on thesame criteria as financial assets carried at amortized cost. Future interest income is based on thereduced carrying amount and is accrued based on the rate of interest used to discount future cashflows for the purpose of measuring impairment loss. Such accrual is recorded as part of “Interestincome” in the consolidated statement of income. If, in a subsequent year, the fair value of a debtinstrument increases and that increase can be objectively related to an event occurring after theimpairment loss was recognized in the consolidated statement of income, the impairment loss isreversed through the consolidated statement of income.
AFS Investments Carried at CostIf there is objective evidence that an impairment loss has been incurred on an unquoted equityinstrument that is not carried at fair value because its fair value cannot be reliably measured, or ona derivative asset that is linked to and must be settled by delivery of such unquoted equityinstrument, the amount of the loss is measured as the difference between the asset’s carryingamount and the present value of estimated future cash flows discounted at the current market rateof return for a similar financial asset.
Derecognition of Financial Assets and LiabilitiesFinancial AssetsA financial asset (or where applicable, a part of a financial asset or part of a group of similarfinancial assets) is derecognized when:
· the right to receive cash flows from the asset has expired;· the Company retains the right to receive cash flows from the asset, but has assumed as
obligation to them in full without material delay to a third party under a “pass through”arrangement; or
· the Company has transferred its right to receive cash flows from the asset and either(a) has transferred substantially all the risks and rewards of the asset, or (b) has neithertransferred nor retained substantially all the risks and rewards of the asset but has transferredthe control of the asset.
- 32 -
*SGVFS005114*
When the Company has transferred its rights to receive cash flows from an asset or has enteredinto a “pass-through” arrangement, and has neither transferred nor retained substantially all therisks and rewards of the asset nor transferred control of the asset, the asset is recognized to theextent of the Company’s continuing involvement in the asset. Continuing involvement that takesthe form of a guarantee over the transferred asset is measured at the lower of original carryingamount of the asset and the maximum amount of consideration that the Company could berequired to repay.
Financial LiabilitiesA financial liability is derecognized when the obligation under the liability is discharged,cancelled or expires. When an existing financial liability is replaced by another from the samelender on substantially different terms, or the terms of an existing liability are substantiallymodified, such exchange or modification is treated as a derecognition of the original liability andthe recognition of a new liability, and the difference in the respective carrying amounts isrecognized in the consolidated statement of income.
Offsetting Financial InstrumentsFinancial assets and financial liabilities are offset and the net amount is reported in theconsolidated statement of financial position if, and only if, there is a currently enforceable legalright to offset the recognized amounts and there is an intention to settle on a net basis, or to realizethe asset and settle the liability simultaneously. This is not generally the case with master nettingagreements, and the related assets and liabilities are presented at gross in the consolidatedstatement of financial position.
Cash flow hedgesCash flow hedges are hedges of the exposure to variability in cash flows that are attributable to aparticular risk associated with a recognized asset, liability or highly probable forecast transactionand could affect the consolidated statement of income. The effective portion of the gain or loss onthe hedging instrument is recognized as other comprehensive income (loss) in the “Cumulativetranslation adjustments” account in the consolidated statement of financial position while theineffective portion is recognized as “Mark-to-market gain (loss) on derivatives” in theconsolidated statement of income.
Amounts taken to other comprehensive income (loss) are transferred to the consolidated statementof income when the hedge transaction affects profit or loss, such as when hedged financial incomeor expense is recognized or when a forecast sale or purchase occurs. Where the hedged item is thecost of a non-financial asset or liability, the amounts taken to other comprehensive income (loss)are transferred to the initial carrying amount of the non-financial asset or liability.
If the forecast transaction is no longer expected to occur, amounts previously recognized in othercomprehensive income (loss) are transferred to the consolidated statement of income. If thehedging instrument expires or is sold, terminated or exercised without replacement or rollover, orif its designation as hedge is revoked, amounts previously recognized in other comprehensiveincome (loss) remain in equity until the forecast transaction occurs. If the related transaction isnot expected to occur, the amount is recognized in the consolidated statement of income.
The Company uses cross currency swaps to partially hedge its exposure to foreign currency andinterest rate risks on its floating rate Club Loan that is benchmarked against US LIBOR(see Notes 17 and 31).
- 33 -
*SGVFS005114*
Retirement and Other Post-employment BenefitsThe Company maintains a funded, non-contributory defined benefits retirement plan. TheCompany also provides post-employment medical and life insurance benefits which are unfunded.
The Company recognizes the net defined benefit liability or asset which is the aggregate of thepresent value of the defined benefit obligation at the end of the reporting period reduced by thefair value of plan assets (if any), adjusted for any effect of limiting a net defined benefit asset tothe asset ceiling. The asset ceiling is the present value of any economic benefits available in theform of refunds from the plan or reductions in future contributions to the plan.
The cost of providing benefits under the defined benefit plans is actuarially determined using theprojected unit credit method.
Defined benefit costs comprise the following:· Service cost· Net interest on the net defined benefit liability or asset· Remeasurements of net defined benefit liability or asset
Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are recognizedwhen plan amendment or curtailment occurs. These amounts are calculated periodically byindependent qualified actuaries.
Net interest on the net defined benefit liability or asset is the change during the period in the netdefined benefit liability or asset that arises from the passage of time which is determined byapplying the discount rate based on government bonds to the net defined benefit liability or asset.Net interest on the net defined benefit liability or asset is recognized as expense or income inprofit or loss.
Remeasurements comprising actuarial gains and losses, return on plan assets and any change inthe effect of the asset ceiling (excluding net interest on defined benefit liability) are recognizedimmediately in the statement of financial position with a corresponding debit or credit to retainedearnings through OCI in the period in which they occur. Remeasurements are not reclassified toprofit or loss in subsequent periods.
Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurancepolicies. Plan assets are not available to the creditors of the Company, nor can they be paiddirectly to the Company. Fair value of plan assets is based on market price information. When nomarket price is available, the fair value of plan assets is estimated by discounting expected futurecash flows using a discount rate that reflects both the risk associated with the plan assets and thematurity or expected disposal date of those assets (or, if they have no maturity, the expected perioduntil the settlement of the related obligations). If the fair value of the plan assets is higher than thepresent value of the defined benefit obligation, the measurement of the resulting defined benefitasset is limited to the present value of economic benefits available in the form of refunds from theplan or reductions in future contributions to the plan.
The Company’s right to be reimbursed of some or all of the expenditure required to settle adefined benefit obligation is recognized as a separate asset at fair value when and only whenreimbursement is virtually certain.
- 34 -
*SGVFS005114*
Termination benefitTermination benefits are employee benefits provided in exchange for the termination of anemployee’s employment as a result of either an entity’s decision to terminate an employee’semployment before the normal retirement date or an employee’s decision to accept an offer ofbenefits in exchange for the termination of employment.
A liability and expense for a termination benefit is recognized at the earlier of when the entity canno longer withdraw the offer of those benefits and when the entity recognizes related restructuringcosts. Initial recognition and subsequent changes to termination benefits are measured inaccordance with the nature of the employee benefit, as either post-employment benefits, short-term employee benefits, or other long-term employee benefits.
ProvisionsProvision for Rehabilitation and Restoration CostsThe Company records the present value of estimated costs of legal and constructive obligationrequired to restore the sites upon termination of the cooperation period in accordance with itsGRESCs. The nature of these activities includes plugging of drilled wells and restoration of padsand road networks. When the liability is initially recognized, the present value of the estimatedcosts is capitalized as part of the carrying amount of the related “FCRS and production wells”account under property, plant and equipment.
The amount of provision for rehabilitation and restoration costs in the consolidated statement offinancial position is increased by the accretion expense recognized in the consolidated statementof income using the effective interest method. The periodic unwinding of the discount isrecognized in the consolidated statement of income as “interest expense”. Additional costs orchanges in rehabilitation and restoration costs are recognized as additions or charges to thecorresponding assets and provision for rehabilitation and restoration costs when they occur.
For closed sites or areas, changes to estimated costs are recognized immediately in theconsolidated statement of income. Decrease in rehabilitation and restoration costs that exceeds thecarrying amount of the corresponding rehabilitation asset is recognized immediately in theconsolidated statement of income.
Other ProvisionsProvisions are recognized when the Company has a present obligation (legal or constructive) as aresult of a past event, it is probable that an outflow of resources embodying economic benefits willbe required to settle the obligation and a reliable estimate can be made of the amount of theobligation. Where the Company expects some or all of a provision to be reimbursed, for example,under an insurance contract, the reimbursement is recognized as a separate asset but only when thereimbursement is virtually certain. The expense relating to any provision is presented in theconsolidated statement of income, net of any reimbursement. If the effect of the time value ofmoney is material, provisions are discounted using a pre-tax rate that reflects, where appropriate,the risks specific to the liability. Where discounting is used, the increase in the provision due tothe passage of time is recognized as “Interest expense” in the consolidated statement of income.
ContingenciesContingent liabilities are not recognized in the consolidated financial statements. These aredisclosed 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 whenan inflow of economic benefits is probable.
- 35 -
*SGVFS005114*
Capital StockCapital stock is measured at par value for all shares issued. When the Company issues more thanone class of stock, a separate account is maintained for each class of stock and the number ofshares issued. Capital stock includes common stock and preferred stock.
When the shares are sold at premium, the difference between the proceeds and the par value iscredited to the “Additional paid-in capital” account. When shares are issued for a considerationother than cash, the proceeds are measured by the fair value of the consideration received. In casethe shares are issued to extinguish or settled the liability of the Company, the shares shall bemeasured either at the fair value of the shares issued or fair value of the liability settled, whicheveris more reliably determinable.
Direct costs incurred related to equity issuance, such as underwriting, accounting and legal fees,printing costs and taxes are debited to the “Additional paid-in capital” account. If additionalpaid-in capital is not sufficient, the excess is charged against an equity reserve account.
Common Shares in Employee Trust AccountCommon shares in the employee trust account, which consist of common shares irrevocablyassigned to the Banco de Oro Trust and Investment Group (BDO Trust) account, are recognized atthe amount at which such common shares were reacquired by the Company for the purpose of itsexecutive/employee stock option or such similar plans, and proportionately reduced upon vestingof the benefit to the executive/employee grantee of the related number of common shares.
This account is shown as a separate line item in the equity section of the consolidated statement offinancial position.
Employee Stock Ownership PlanAwards granted under the employee stock ownership plan of the Company are accounted for asequity-settled transactions. The cost of equity-settled transaction is measured by reference to thefair value of the equity instruments at the date it is granted. Such cost, together with acorresponding increase in equity, is recognized over the period in which the performance and/orservice conditions are fulfilled ending on the date on which the grantee becomes fully entitled tothe award (“vesting date”). The cumulative expense recognized for equity-settled transactions ateach balance sheet date until the vesting date reflects the extent to which the vesting period hasexpired, as well as the Company’s best estimate of the number of equity instruments that willultimately vest. No expense is recognized for awards that do not ultimately vest, except forawards where vesting is conditional upon a market or non-vesting condition, in which, awards aretreated as vesting irrespective of whether or not the market or non-vesting condition is satisfied,provided that all other performance conditions are satisfied.
Where the terms of an equity-settled award are modified, the minimum expense recognized is theexpense had the terms not been modified, if the original terms of the award are met. An additionalexpense is recognized for any modification which increases the total fair value of the share-basedpayment transaction or which is otherwise beneficial to the employee as measured at the date ofmodification.
Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation,and any expense not yet recognized for the award is recognized immediately. This includes anyaward where non-vesting conditions within the control of either the Company or the employee arenot met. However, if a new award is substituted for the cancelled award and designated as areplacement award on the date that it is granted, the cancelled and new awards are treated as ifthey were a modification of the original award, as described in the previous paragraph.
- 36 -
*SGVFS005114*
Equity ReserveEquity reserve is the difference between the acquisition cost of an entity under common controland the Parent Company’s proportionate share in the net assets of the entity acquired as a result ofa business combination accounted for using the pooling-of-interests method. Equity reserve isderecognized when the subsidiary is deconsolidated, which is the date on which control ceases.
Retained EarningsRetained earnings represent the cumulative balance of periodic net income or loss, dividendcontributions, prior period adjustments, effect of changes in accounting policy and other capitaladjustments.
Cash and property dividends are recognized as a liability and deducted from retained earningswhen approved by the BOD. Stock dividends are treated as transfers from retained earnings tocapital stock. Dividends for the year that are approved after the financial reporting date are dealtwith as an event after the financial reporting date.
Retained earnings include the earnings of subsidiaries which are not available for dividenddeclaration.
LeasesThe determination of whether an arrangement is, or contains a lease, is based on the substance ofthe arrangement at inception date of whether the fulfillment of the arrangement is dependent onthe use of a specific asset or assets or the arrangement conveys a right to use the asset.
Operating lease payments are recognized as expense in the consolidated statement of income on astraight-line basis over the lease term.
Revenue RecognitionRevenue is recognized to the extent that it is probable that the economic benefits will flow to theCompany and the revenue can be measured reliably. Revenue is measured at the fair value of theconsideration received or receivable, excluding discounts, rebates, and other sales taxes or duty.The Company assesses its revenue arrangements against specific criteria in order to determine if itis acting as principal or agent. The Company has concluded that it is acting as a principal in all itsrevenue arrangements. The following specific recognition criteria must also be met beforerevenue is recognized:
Sale of ElectricitySale of electricity using geothermal energy is consummated whenever the electricity generated bythe Company is transmitted through the transmission line designated by the buyer, for aconsideration. Revenue from sale of electricity is based on sales price. Sale of electricity usinghydroelectric and geothermal power is composed of generation fees from spot sales to the WESMand PSA with various electric companies and is recognized monthly based on the actual energydelivered.
Revenue from sale of electricity, as ancillary services, to the National Grid Corporation of thePhilippines (NGCP) is recognized monthly based on the capacity scheduled and/or dispatched andprovided.
- 37 -
*SGVFS005114*
Drilling ServicesRevenue is recognized as drilling services are rendered. The Company discontinued its drillingservices in 2012.
Interest IncomeRevenue is recognized as interest accrues, using the effective interest rate, which is the rate thatexactly discounts estimated future cash receipts through the expected life of the financialinstrument to the net carrying amount of the financial asset.
Costs of Sale of Electricity and Costs of Drilling ServicesThese include expenses incurred by the departments directly responsible for the generation ofrevenues from steam, electricity and performance of drilling services (i.e., Plant Operations,Production, Maintenance, Transmission and Dispatch, Wells Drilling and MaintenanceDepartment) at operating project locations. Costs of sales of electricity and steam and cost ofdrilling services are expensed when incurred.
Costs of drilling services were included in the computation of net income from discontinuedoperations.
General and Administrative ExpensesGeneral and administrative expenses constitute cost of administering the business and normallyinclude the expenses incurred by the departments in the Head Office (i.e., Management andServices, and Project Location’s Administrative Services Department). General andadministrative expenses are expensed when incurred.
Borrowing CostsBorrowing costs directly attributable to the acquisition, construction or production of qualifyingassets, are added to the cost of the assets, until such time that the assets are substantially ready fortheir intended use or sale, which necessarily take a substantial period of time. Income earned ontemporary investment of specific borrowings, pending the expenditure on qualifying assets, isdeducted from the borrowing costs eligible for capitalization. Borrowing costs include interestcharges and other costs incurred in connection with the borrowing of funds, as well as exchangedifferences arising from foreign currency borrowings used to finance the project to the extent thatthey are regarded as an adjustment to interest costs. All other borrowing costs are recognized inthe consolidated statement of income in the period in which they are incurred.
TaxesCurrent Income TaxCurrent income tax assets and liabilities for the current and prior periods are measured at theamount expected to be recovered from or paid to the taxation authority. The tax rates and tax lawsused to compute the amount are those that are enacted or substantively enacted as at the financialreporting date.
Deferred TaxDeferred tax is provided using the balance sheet liability method on temporary differences at thefinancial reporting date between the tax bases of assets and liabilities and their carrying amountsfor financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporarydifferences, except:
· where the deferred tax liability arises from the initial recognition of goodwill or of an asset orliability 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; and
- 38 -
*SGVFS005114*
· in respect of taxable temporary differences associated with investments in subsidiaries,associates and interests in joint ventures, where the timing of the reversal of the temporarydifferences can be controlled and it is probable that the temporary differences will not reversein the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, carryforward benefitsof unused tax credits and unused tax losses [i.e., net operating loss carry-over (NOLCO)], to theextent that it is probable that sufficient taxable profits will be available against which thedeductible temporary differences, and the carryforward benefits of unused tax credits and unusedtax losses can be utilized except:
§ where the deferred tax asset relating to the deductible temporary difference arises from theinitial 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;and
§ in respect of deductible temporary differences associated with investments in subsidiaries,associates and interests in joint ventures, deferred tax assets are recognized only to the extentthat it is probable that the temporary differences will reverse in the foreseeable future andsufficient taxable profits will be available against which the temporary differences can beutilized.
The carrying amount of deferred tax assets is reviewed at each financial reporting date andreduced to the extent that it is no longer probable that sufficient future taxable profits will beavailable to allow all or part of the deferred income tax asset to be utilized. Unrecognizeddeferred tax assets are reassessed at each financial reporting date and are recognized to the extentthat it has become probable that sufficient future taxable profits will allow the deferred tax asset tobe recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to theyear when the asset is realized or the liability is settled, based on tax rates (and tax laws) that havebeen enacted or substantively enacted as at the financial reporting date.
Deferred tax relating to items recognized directly in OCI is recognized in consolidated statementof comprehensive income. Deferred tax assets and deferred tax liabilities are offset, if a legallyenforceable right exists to offset current tax assets against current tax liabilities and the deferredtaxes relate to the same taxable entity and the same taxation authority.
VATRevenues, expenses and assets are recognized, net of the amount of VAT except:
§ where the VAT incurred on a purchase of assets or services is not recoverable from the taxauthority, in which case the VAT is recognized as part of the cost of acquisition of the asset oras part of the expense item as applicable; and
§ where receivables and payables are stated with the amount of VAT included.
The net amount of VAT recoverable from the taxation authority is recorded as “Input VAT” underthe “Other noncurrent assets” account in the consolidated statement of financial position. Subjectto approval of the taxation authority, input VAT can be claimed for refund or as tax credit forpayment of certain types of taxes due to the Company. Input VAT claims granted by the taxation
- 39 -
*SGVFS005114*
authority are separately presented as “Tax Credit Certificates” under the “Other noncurrent assets”account.
Earnings (Loss) Per Share (EPS)Basic earnings (loss) per share is computed by dividing net income (loss) for the year attributableto common shareholders of the Parent Company with the weighted average number of commonshares outstanding during the year, after giving retroactive effect to any stock dividends or stocksplits, if any, declared during the year.
Diluted earnings (loss) per share is computed in the same manner, with the net income (loss) forthe year attributable to common shareholders of the Parent Company and the weighted averagenumber of common shares outstanding during the year, adjusted for the effect of all dilutivepotential common shares.
As of December 31, 2013 and 2012, the Company does not have any dilutive potential commonshares. Hence, diluted EPS is the same as basic EPS.
Operating SegmentThe Company’s operating businesses are organized and managed separately according to thegeographical segments (see Note 6).
Discontinued OperationsDiscontinued operations are excluded from the results of continuing operations and are presentedas a single amount as net income (loss) from discontinued operations in the consolidated statementof income (see Note 5).
Events After the Financial Reporting DateEvents after the financial reporting date that provide additional information about the Company’sfinancial position at the financial reporting date (adjusting events) are reflected in the consolidatedfinancial statements. Events after the financial reporting period that are not adjusting events aredisclosed in the notes to the consolidated financial statements.
Future Changes in Accounting PoliciesThe Company will adopt the following standards and interpretations and assess their impact whenthese become effective. Except as otherwise indicated, the Company does not expect the adoptionof these standards and interpretations to have significant impact on its consolidated financialstatements.
New and Amended Standards
· PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets (Amendments)
These amendments remove the unintended consequences of PFRS 13 on the disclosuresrequired under PAS 36. In addition, these amendments require disclosure of the recoverableamounts for the assets or CGUs for which impairment loss has been recognized or reversedduring the period. These amendments are effective retrospectively for annual periodsbeginning on or after January 1, 2014 with earlier application permitted, provided PFRS 13 isalso applied. The amendments affect disclosures only and have no impact on the Company’sfinancial position or performance.
- 40 -
*SGVFS005114*
· Investment Entities (Amendments to PFRS 10, PFRS 12 and PAS 27)
These amendments are effective for annual periods beginning on or after January 1, 2014.They provide an exception to the consolidation requirement for entities that meet thedefinition of an investment entity under PFRS 10. The exception to consolidation requiresinvestment entities to account for subsidiaries at fair value through profit or loss. It is notexpected that this amendment would be relevant to the Company since none of the entities inthe Company would qualify to be an investment entity under PFRS 10.
· Philippine Interpretation IFRIC 21, Levies (IFRIC 21)
IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggerspayment, as identified by the relevant legislation, occurs. For a levy that is triggered uponreaching a minimum threshold, the interpretation clarifies that no liability should beanticipated before the specified minimum threshold is reached. IFRIC 21 is effective forannual periods beginning on or after January 1, 2014. The Company does not expect thatIFRIC 21 will have material financial impact in future financial statements.
· PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives and Continuation of Hedge Accounting (Amendments)
These amendments provide relief from discontinuing hedge accounting when novation of aderivative designated as a hedging instrument meets certain criteria. These amendments areeffective for annual periods beginning on or after January 1, 2014. The Company has notnovated its derivatives during the current period. However, these amendments would beconsidered for future novations.
· PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities (Amendments)
The amendments clarify the meaning of “currently has a legally enforceable right to set-off”and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such ascentral clearing house systems) which apply gross settlement mechanisms that are notsimultaneous. The amendments affect presentation only and have no impact on theCompany’s financial position or performance. The amendments to PAS 32 are to beretrospectively applied for annual periods beginning on or after January 1, 2014.
· PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions (Amendments)
The amendments apply to contributions from employees or third parties to defined benefitplans. Contributions that are set out in the formal terms of the plan shall be accounted for asreductions to current service costs if they are linked to service or as part of theremeasurements of the net defined benefit asset or liability if they are not linked to service.Contributions that are discretionary shall be accounted for as reductions of current service costupon payment of these contributions to the plans. The amendments to PAS 19 are to beretrospectively applied for annual periods beginning on or after July 1, 2014.
- 41 -
*SGVFS005114*
Annual Improvements to PFRSs (2010-2012 cycle)The Annual Improvements to PFRSs (2010-2012 cycle) contain non-urgent but necessaryamendments to the following standards:
· PFRS 2, Share-based Payment - Definition of Vesting Condition
The amendment revised the definitions of vesting condition and market condition and addedthe definitions of performance condition and service condition to clarify various issues. Thisamendment shall be prospectively applied to share-based payment transactions for which thegrant date is on or after July 1, 2014.
· PFRS 3, Business Combinations - Accounting for Contingent Consideration in a Business Combination
The amendment clarifies that a contingent consideration that meets the definition of a financialinstrument should be classified as a financial liability or as equity in accordance with PAS 32.Contingent consideration that is not classified as equity is subsequently measured at fair valuethrough profit or loss whether or not it falls within the scope of PFRS 9 (or PAS 39, if PFRS 9is not yet adopted). The amendment shall be prospectively applied to business combinationsfor which the acquisition date is on or after July 1, 2014. The Company shall consider thisamendment for future business combinations.
· PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of the Total of the Reportable Segments’ Assets to the Entity’s Assets
The amendments require entities to disclose the judgment made by management inaggregating two or more operating segments. This disclosure should include a briefdescription of the operating segments that have been aggregated in this way and the economicindicators that have been assessed in determining that the aggregated operating segments sharesimilar economic characteristics. The amendments also clarify that an entity shall providereconciliations of the total of the reportable segments’ assets to the entity’s assets if suchamounts are regularly provided to the chief operating decision maker. These amendments areeffective for annual periods beginning on or after July 1, 2014 and are applied retrospectively.The amendments affect disclosures only and have no impact on the Company’s financialposition or performance.
· PFRS 13, Fair Value Measurement - Short-term Receivables and Payables
The amendment clarifies that short-term receivables and payables with no stated interest ratescan be held at invoice amounts when the effect of discounting is immaterial.
· PAS 16, Property, Plant and Equipment - Revaluation Method - Proportionate Restatement of Accumulated Depreciation
The amendment clarifies that, upon revaluation of an item of property, plant and equipment,the carrying amount of the asset shall be adjusted to the revalued amount, and the asset shallbe treated in one of the following ways:
a. The gross carrying amount is adjusted in a manner that is consistent with the revaluationof the carrying amount of the asset. The accumulated depreciation at the date of
- 42 -
*SGVFS005114*
revaluation is adjusted to equal the difference between the gross carrying amount and thecarrying amount of the asset after taking into account any accumulated impairment losses.
b. The accumulated depreciation is eliminated against the gross carrying amount of the asset.
The amendment is effective for annual periods beginning on or after July 1, 2014. Theamendment shall apply to all revaluations recognized in annual periods beginning on or afterthe date of initial application of this amendment and in the immediately preceding annualperiod. The amendment has no impact on the Company’s financial position or performance.
· PAS 24, Related Party Disclosures - Key Management Personnel
The amendments clarify that an entity is a related party of the reporting entity if the said entity,or any member of a group for which it is a part of, provides key management personnelservices to the reporting entity or to the parent company of the reporting entity. Theamendments also clarify that a reporting entity that obtains management personnel servicesfrom another entity (also referred to as management entity) is not required to disclose thecompensation paid or payable by the management entity to its employees or directors. Thereporting entity is required to disclose the amounts incurred for the key management personnelservices provided by a separate management entity. The amendments are effective for annualperiods beginning on or after July 1, 2014 and are applied retrospectively. The amendmentsaffect disclosures only and have no impact on the Company’s financial position orperformance.
· PAS 38, Intangible Assets - Revaluation Method - Proportionate Restatement of Accumulated Amortization
The amendments clarify that, upon revaluation of an intangible asset, the carrying amount ofthe asset shall be adjusted to the revalued amount, and the asset shall be treated in one of thefollowing ways:
a. The gross carrying amount is adjusted in a manner that is consistent with the revaluationof the carrying amount of the asset. The accumulated amortization at the date ofrevaluation is adjusted to equal the difference between the gross carrying amount and thecarrying amount of the asset after taking into account any accumulated impairment losses.
b. The accumulated amortization is eliminated against the gross carrying amount of the asset.
The amendments also clarify that the amount of the adjustment of the accumulatedamortization should form part of the increase or decrease in the carrying amount accounted forin accordance with the standard.
The amendments are effective for annual periods beginning on or after July 1, 2014. Theamendments shall apply to all revaluations recognized in annual periods beginning on or afterthe date of initial application of this amendment and in the immediately preceding annualperiod. The amendments have no impact on the Company’s financial position or performance.
- 43 -
*SGVFS005114*
Annual Improvements to PFRSs (2011-2013 cycle)The Annual Improvements to PFRSs (2011-2013 cycle) contain non-urgent but necessaryamendments to the following standards:
· PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Meaning of ‘Effective PFRSs’
The amendment clarifies that an entity may choose to apply either a current standard or a newstandard that is not yet mandatory, but that permits early application, provided either standardis applied consistently throughout the periods presented in the entity’s first PFRS financialstatements. This amendment is not applicable to the Company as it is not a first-time adopterof PFRS.
· PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements
The amendment clarifies that PFRS 3 does not apply to the accounting for the formation of ajoint arrangement in the financial statements of the joint arrangement itself. The amendmentis effective for annual periods beginning on or after July 1 2014 and is applied prospectively.
· PFRS 13, Fair Value Measurement - Portfolio Exception
The amendment clarifies that the portfolio exception in PFRS 13 can be applied to financialassets, financial liabilities and other contracts. The amendment is effective for annual periodsbeginning on or after July 1 2014 and is applied prospectively. The amendment has nosignificant impact on the Company’s financial position or performance.
· PAS 40, Investment Property
The amendment clarifies the interrelationship between PFRS 3 and PAS 40 when classifyingproperty as investment property or owner-occupied property. The amendment stated thatjudgment is needed when determining whether the acquisition of investment property is theacquisition of an asset or a group of assets or a business combination within the scope ofPFRS 3. This judgment is based on the guidance of PFRS 3. This amendment is effective forannual periods beginning on or after July 1, 2014 and is applied prospectively. Theamendment has no significant impact on the Company’s financial position or performance.
· PFRS 9, Financial Instruments
PFRS 9, as issued, reflects the first and third phases of the project to replace PAS 39 andapplies to the classification and measurement of financial assets and liabilities and hedgeaccounting, respectively. Work on the second phase, which relate to impairment of financialinstruments, and the limited amendments to the classification and measurement model is stillongoing, with a view to replace PAS 39 in its entirety. PFRS 9 requires all financial assets tobe measured at fair value at initial recognition. A debt financial asset may, if the fair valueoption (FVO) is not invoked, be subsequently measured at amortized cost if it is held within abusiness model that has the objective to hold the assets to collect the contractual cash flowsand its contractual terms give rise, on specified dates, to cash flows that are solely payments ofprincipal and interest on the principal outstanding. All other debt instruments aresubsequently measured at fair value through profit or loss. All equity financial assets aremeasured at fair value either through OCI or profit or loss. Equity financial assets held fortrading must be measured at fair value through profit or loss. For liabilities designated as at
- 44 -
*SGVFS005114*
FVPL using the fair value option, the amount of change in the fair value of a liability that isattributable to changes in credit risk must be presented in OCI. The remainder of the changein fair value is presented in profit or loss, unless presentation of the fair value change relatingto the entity’s own credit risk in OCI would create or enlarge an accounting mismatch in profitor loss. All other PAS 39 classification and measurement requirements for financial liabilitieshave been carried forward to PFRS 9, including the embedded derivative bifurcation rules andthe criteria for using the FVO. The adoption of the first phase of PFRS 9 will have an effecton the classification and measurement of the Company’s financial assets, but will potentiallyhave no impact on the classification and measurement of financial liabilities.
On hedge accounting, PFRS 9 replaces the rules-based hedge accounting model of PAS 39with a more principles-based approach. Changes include replacing the rules-based hedgeeffectiveness test with an objectives-based test that focuses on the economic relationshipbetween the hedged item and the hedging instrument, and the effect of credit risk on thateconomic relationship; allowing risk components to be designated as the hedged item, notonly for financial items, but also for non-financial items, provided that the risk component isseparately identifiable and reliably measurable; and allowing the time value of an option, theforward element of a forward contract and any foreign currency basis spread to be excludedfrom the designation of a financial instrument as the hedging instrument and accounted for ascosts of hedging. PFRS 9 also requires more extensive disclosures for hedge accounting.
PFRS 9 currently has no mandatory effective date. PFRS 9 may be applied before thecompletion of the limited amendments to the classification and measurement model andimpairment methodology. The Company will not adopt the standard before the completion ofthe limited amendments and the second phase of the project.
· Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate
This interpretation covers accounting for revenue and associated expenses by entities thatundertake the construction of real estate directly or through subcontractors. The SEC and theFinancial Reporting Standards Council (FRSC) have deferred the effectivity of thisinterpretation until the final Revenue standard is issued by the International AccountingStandards Board (IASB) and an evaluation of the requirements of the final Revenue standardagainst the practices of the Philippine real estate industry is completed. Adoption of theinterpretation when it becomes effective will not have any impact on the financial statementsof the Company.
- 45 -
*SGVFS005114*
5. Discontinued Drilling Operations
In October 2012, the Company discontinued its drilling services to Lihir in Papua New Guinea.Following are the results of the operations of the drilling component for the years endedDecember 31, 2012 and 2011:
2012 2011Revenue P=660,681,295 P=712,789,795
Cost of drilling services:Purchased services and utilities (242,739,844) (369,188,442)Rental, insurances and taxes (150,270,290) (226,729,448)Repairs and maintenance (64,518,763) (54,784,118)Parts and supplies issued (34,198,258) (65,910,688)Business and related expenses (3,614,955) (36,947,353)Depreciation (1,259,855) (1,110,041)Personnel costs (310,177) (17,523,676)
(496,912,142) (772,193,766)
General and administrative expenses:Depreciation (17,838,394) (17,801,118)Purchased services and utilities (2,675,127) (5,047,925)Parts and supplies issued (1,749,986) (3,058,955)Personnel cost (1,285,920) (3,257,877)Rental, insurances and taxes (886,126) (928,852)Business and related expenses (575,725) (1,179,390)Repairs and maintenance (137,900) (588,185)
(25,149,178) (31,862,302)
Financial expense – (244,147)
Other income (charges):Foreign exchange gains 733,689 2,323,950Others (74,457) (37,639)
659,232 2,286,311
Income (loss) before income tax 139,279,207 (89,224,109)
Benefit from (provision for) deferred income tax (Note 28) (41,783,762) 7,985,626
Net income (loss) from discontinued operations P=97,495,445 (P=81,238,483)
Net income (loss) from discontinued operations is entirely attributable to equity holders of theParent Company.
- 46 -
*SGVFS005114*
6. Operating Segment Information
In 2013, the reportable segments of the Company have been changed from business segment(electricity, steam and drilling) to geographical segment, with each segment representing astrategic business location that has similar economic and political conditions, proximity ofoperations and special risks associated with operations in a particular area. Accordingly,disclosures related to new reportable segments have also been presented for 2012 and 2011.
The Company’s identified reportable segments below are consistent with the segments reported tothe BOD, which is the Chief Operating Decision Maker (CODM) of the Company:
a. Leyte Geothermal Business Unit (LGBU) - This segment pertains to Leyte geothermalproduction field and power plant. This includes projects in Tongonan, Mahanagdong, UpperMahiao, Malitbog and other projects in Leyte Province.
b. Negros Island Geothermal Business Unit (NIGBU) - This segment refers to Southern Negrosgeothermal production field and power plant. Power plants included in NIGBU arePalinpinon I and Palinpinon II.
c. Bacon-Manito Geothermal Business Unit (BGBU) - This segment relates to Bacon-Manitogeothermal production field and power plant.
d. Mt. Apo Geothermal Business Unit (MAGBU) - This segment refers to Mt. Apo geothermalproduction field and power plant.
e. Pantabangan/Masiway - This segment relates to Pantabangan-Masiway hydroelectric complexlocated in Nueva Ecija Province.
f. Wind-Ilocos Norte Business Unit (WINBU) - This segment pertains to wind projects inNorthern Luzon, including Burgos wind energy project.
g. All others - refers to other wind energy projects, foreign investments and head office of theCompany.
Management monitors the operating results of the business segments separately for the purpose ofmaking decisions about resources to be allocated and of assessing performance. Finance costs,finance income, income taxes and other charges and income are managed on a group basis.
Segment performance is evaluated based on net income for the year and earnings before interest,taxes, and depreciation and amortization (EBITDA). Net income for the year is measuredconsistent with consolidated net income reported in the consolidated financial statements.EBITDA is calculated as total revenues minus costs of sales of electricity and general andadministrative expenses, excluding non-cash items such as depreciation and amortization,impairment losses on non-financial assets, and loss on disposal of property, plant and equipment,among others.
- 47 -
*SGVFS005114*
Financial information on the operating segments are summarized as follows:
Pantabangan/LGBU NIGBU BGBU MAGBU Masiway WINBU Others Total
Period EndedDecember 31, 2013
Segment revenue P=15,775,292,990 P=11,182,135,164 P=246,465,088 P=1,876,973,704 P=2,501,216,675 P=– P=– P=31,582,083,621Intersegment revenue (1,888,584,019) (3,980,653,002) (56,576,130) – – – – (5,925,813,151)Total segment revenue P=13,886,708,971 P=7,201,482,162 P=189,888,958 P=1,876,973,704 P=2,501,216,675 P=– P=– P=25,656,270,470Segment expenses (7,100,076,840) (2,775,764,935) (1,110,547,292) (1,449,321,408) (855,065,032) (28,496,170) – (13,319,271,677)Unallocated expenses – – – – – – (448,271,495) (448,271,495)Interest income 150,817,865 63,342,356 34,991,681 18,269,183 26,493,820 125,529 6,932 294,047,366Interest expense (1,663,184,605) (847,376,565) (342,418,566) (337,619,061) (187,577,900) – (6,322,607) (3,384,499,304)Other expenses - net (1,252,587,196) (587,531,051) (145,772,169) (90,238,985) (9,392,222) (14,796,010) (583,904,541) (2,684,222,174)Income taxes (400,449,803) (269,436,691) 183,217,106 12,600,066 (8,868,213) – (3,045,814) (485,983,349)Segment result P=3,621,228,392 P=2,784,715,276 (P=1,190,640,282) P=30,663,499 P=1,466,807,128 (P=43,166,651) (P=1,041,537,525) P=5,628,069,837
Net income (loss) fromcontinuing operations P=3,621,228,392 P=2,784,715,276 (P=1,190,640,282) P=30,663,499 P=1,466,807,128 (P=43,166,651) (P=1,041,537,525) P=5,628,069,837
EBITDA P=8,870,163,861 P=5,008,022,338 (P=639,659,175) P=792,428,490 P=2,067,053,408 (P=27,414,558) P=– P=16,070,594,364Unallocated Expenses – – – – – – – (429,519,371)
P=15,641,074,993
Pantabangan/LGBU NIGBU BGBU MAGBU Masiway WINBU Others Total
Period EndedDecember 31, 2012
Segment revenue P=16,190,546,266 P=11,088,763,078 P=– P=1,985,626,185 P=4,753,254,746 P=– P=– P=34,018,190,275Intersegment revenue (1,712,199,749) (3,937,438,471) – – – – – (5,649,638,220)
Total segment revenue P=14,478,346,517 P=7,151,324,607 P=– P=1,985,626,185 P=4,753,254,746 P=– P=– P=28,368,552,055Segment expenses (7,294,571,578) (2,838,804,166) (1,852,026,768) (1,384,452,380) (932,300,338) (1,720,304) – (14,303,875,534)Unallocated expenses – – – – – – (223,274,415) (223,274,415)Interest income 185,725,002 59,809,514 41,322,195 24,420,316 53,302,912 39,987 21,063 364,640,989Interest expense (1,709,768,641) (885,978,756) (344,252,976) (350,508,951) (413,139,145) – – (3,703,648,469)Other income
(expenses) - net 365,373,277 502,892,471 55,674,459 22,890,728 (74,734,305) 476,331 19,180,134 891,753,095Income taxes (570,412,575) (383,138,659) 164,610,199 (15,268,508) 12,207,962 – 16,878,987 (775,122,594)Segment result P=5,454,692,002 P=3,606,105,011 (P=1,934,672,891) P=282,707,390 P=3,398,591,832 (P=1,203,986) (P=187,194,231) P=10,619,025,127
Net income (loss) fromcontinuing operations P=5,454,692,002 P=3,606,105,011 (P=1,934,672,891) P=282,707,390 P=3,398,591,832 (P=1,203,986) (P=187,194,231) P=10,619,025,127
EBITDA P=9,261,002,063 P=4,899,116,507 (P=1,588,897,178) P=935,603,693 P=4,241,171,029 (P=1,720,305) P=– P=17,746,275,809Unallocated Expenses – – – – – – – (194,433,529)
P=17,551,842,280
Pantabangan/LGBU NIGBU BGBU MAGBU Masiway WINBU Others Total
Period EndedDecember 31, 2011
Segment revenue P=15,934,050,380 P=10,301,842,540 P=53,481,191 P=2,169,735,441 P=2,407,538,929 P=– P=69,655,158 P=30,936,303,639Intersegment revenue (2,051,088,811) (4,345,607,371) – – – – – (6,396,696,182)Total segment revenue P=13,882,961,569 P=5,956,235,169 P=53,481,191 P=2,169,735,441 P=2,407,538,929 P=– P=69,655,158 P=24,539,607,457Segment expenses (7,903,069,408) (2,457,329,446) (2,202,078,848) (1,402,672,089) (750,778,524) (692,170) – (14,716,620,485)Unallocated expenses – – – – – – (505,229,166) (505,229,166)Interest income 215,219,824 61,990,764 47,246,498 29,262,701 36,474,461 451 18,020 390,212,719Interest expense (1,656,317,751) (817,587,127) (499,468,095) (284,236,967) (463,146,074) – (385,760,301) (4,106,516,315)Other income
(expenses) - net (289,935,441) (5,074,299,017) (58,413,130) (27,058,710) (26,495,703) (395,144) 463,935,921 (5,012,661,224)Income taxes (407,350,102) (260,468,973) 268,467,041 (33,252,431) 5,979,157 – 541,408,085 114,782,777Segment result P=3,841,508,691 (P=2,591,458,630) (P=2,390,765,343) P=451,777,945 P=1,209,572,246 (P=1,086,863) P=184,027,717 P=703,575,763
Net income (loss) fromcontinuing operations P=3,841,508,691 (P=2,591,458,630) (P=2,390,765,343) P=451,777,945 P=1,209,572,246 (P=1,086,863) P=184,027,717 P=703,575,763
EBITDA P=8,005,569,045 P=4,083,603,014 (P=1,802,647,559) P=1,123,019,124 P=2,066,124,110 (P=630,170) P=– P=13,475,037,564Unallocated Expenses – – – – – – – (156,758,841)
P=13,318,278,724
- 48 -
*SGVFS005114*
Pantabangan /LGBU NIGBU BGBU MAGBU WINBU Masiway Elimination Total
As of and for the periodendedDecember 31, 2013
Segment assets P=65,205,296,071 P=25,469,361,138 P=11,968,739,199 P=9,886,351,624 P=7,814,935,084 P=8,387,255,753 (P=93,724,126,317) P=35,007,812,552Unallocated corporate
assets 69,997,691,784Total assets P=105,005,504,336Segment liabilities P=28,473,511,585 P=25,297,887,519 P=16,129,261,708 P=5,289,122,797 P=5,463,699,797 P=4,127,840,853 (P=59,498,621,034) P=25,282,703,225Unallocated corporate
liabilities 43,477,842,206Total liabilities P=68,760,545,431Capital expenditure P=2,628,115,271 P=986,383,567 P=1,408,204,079 P=549,451,912 P=4,085,608,975 P=58,608,479 P=– P=9,716,372,283Unallocated capital
expenditure 1,531,302,376Total capital expenditure P=11,247,674,659Depreciation and
amortization P=2,004,853,928 P=561,616,822 P=210,437,608 P=350,803,482 P=132,408 P=420,901,765 P=– P=3,548,746,013Unallocated depreciation
and amortization 20,601,339Total depreciation and
amortization P=3,569,347,352Other non-cash items P=78,677,802 P=20,688,290 P=70,561,550 P=13,972,713 P=949,204 P=– P=– P=184,849,559Unallocated non-cash
items (1,849,215)Total other non-cash items P=183,000,344
LGBU NIGBU BGBU MAGBU WINBUPantabangan/
Masiway Elimination TotalAs of and for the period
endedDecember 31, 2012
Segment assets P=62,646,777,167 P=17,168,849,720 P=12,868,046,724 P=9,730,039,052 P=644,018,543 P=8,847,243,670 (P=78,385,701,473) P=33,519,273,403Unallocated corporate
assets 60,835,860,931Total assets P=94,355,134,334Segment liabilities P=28,579,479,775 P=18,109,568,086 P=15,639,013,550 P=5,235,907,849 P=505,797,540 P=4,571,643,067 (P=46,391,112,028) P=26,250,297,839Unallocated corporate
liabilities 33,396,398,381Total liabilities P=59,646,696,220Capital expenditure P=1,308,785,494 P=457,275,458 P=2,062,527,414 P=974,106,949 P=51,101 P=68,916,922 P=149,988,462 P=5,021,651,800Unallocated capital
expenditure 1,909,877,965Total capital expenditure P=6,931,529,765Depreciation and
amortization (P=1,985,998,839) (P=526,600,281) (P=275,653,033) (P=322,219,261) P=– (P=420,216,619) P=– (P=3,530,688,033)Unallocated depreciation
and amortization (28,840,889)Total depreciation and
amortization (P=3,559,528,922)Other non-cash items (P=91,228,284) (P=59,995,785) P=12,523,444 (P=12,210,625) P=– P=– P=– (P=150,911,250)Unallocated non-cash
items –Total other non-cash items (P=150,911,250)
- 49 -
*SGVFS005114*
The following table shows the Company’s reconciliation of EBITDA to the consolidated netincome for the years ended December 31, 2013, 2012 and 2011.
2013
2012(As restated -
Note 2)
2011(As restated -
Note 2)EBITDA P=15,641,074,993 P=17,551,842,280 P=13,318,278,724Add (Deduct):
Depreciation and amortization (Notes 12, 13, 21 and 22) (3,569,347,351) (3,559,528,922) (3,422,963,338)Interest expense (Note 24) (3,384,499,304) (3,703,648,469) (4,106,516,315)Foreign exchange gains (losses) - net
(Notes 5 and 25) (1,261,278,106) 1,053,466,774 (111,052,329)Loss on damaged assets due to Typhoon Yolanda
(Note 12) (625,013,609) – –Impairment loss on exploration and evaluation
assets (Note 14) (574,820,864) – –Benefit from (provision for) income tax
(Note 28) (485,983,349) (775,122,594) 114,782,777Interest income (Note 24) 294,047,366 364,640,989 390,212,719Reversal of (provision for) impairment of parts
and supplies inventories (Notes 3, 10 and 22) (123,020,733) 83,504,018 (168,959,002) Provision for doubtful accounts (Notes 8, 15 and 22) (59,979,611) (234,415,270) (408,598,578)
Derivative gains - net (Note 31) 14,243,178 36,160 108,319,377 Impairment loss on property, plant and equipment (Notes 3 and 12) – – (4,998,608,008)
Miscellaneous - net (Note 26) (237,352,773) (161,749,839) (11,320,264)Net income from continuing operations 5,628,069,837 10,619,025,127 703,575,763Net income (loss) from discontinued operation – 97,495,445 (81,238,483)Consolidated net income P=5,628,069,837 P=10,716,520,572 P=622,337,280
The Parent Company has intersegment revenue from/to GCGI and BGI for the sale of steam.Intersegment revenues are all eliminated in consolidation. Segment information is measured inconformity with the accounting policies adopted for preparing and presenting the consolidatedfinancial statements. Intersegment revenues are made at normal commercial terms and conditions.
Unallocated expenses pertain to expenses of the corporate, technical and administrative supportgroups while unallocated corporate assets and liabilities which include among others certain cashand cash equivalents, property, plant and equipment, parts and supplies inventories, trade andother payables and retirement and post-retirement benefits, pertain to the Head Office and aremanaged on a group basis.
As discussed in Notes 3 and 12, the Company recognized an impairment loss of P=4,998.6 millionin 2011 and reversal of impairment amounting to P=63.6 million to in 2012. Such impairment lossand partial reversal thereof were recognized under the NIGBU segment.
Also, the impairment loss on exploration and evaluation assets related to Cabalian Projectrecognized in 2013 was recorded as part of expense of LGBU segment (see Notes 3 and 14).
- 50 -
*SGVFS005114*
7. Cash and Cash Equivalents
2013 2012Cash on hand and in banks P=3,941,157,345 P=2,409,061,954Cash equivalents 12,101,997,211 9,011,082,249
P=16,043,154,556 P=11,420,144,203
Cash in banks earn interest at the respective bank deposit rates. Cash equivalents consist ofmoney market placements, which are made for varying periods of up to three months dependingon the immediate cash requirements of the Company. Total interest earned, net of final tax,amounted to P=283.9 million in 2013, P=358.4 million in 2012 and P=376.1 million in 2011(see Notes 24 and 31).
8. Trade and Other Receivables
2013 2012Trade P=3,397,069,626 P=3,993,189,878Others:
Non-trade accounts receivable 94,851,647 68,133,713Advances to employees 73,699,085 62,787,120Loans and notes receivables 124,936,697 59,983,898Employee receivables 11,958,401 7,100,074Claims receivables – 172,672
305,445,830 198,177,4773,702,515,456 4,191,367,355
Less allowance for doubtful accounts 91,148,423 75,602,750P=3,611,367,033 P=4,115,764,605
Trade receivables are non-interest-bearing and are generally collectible in 30 to 60 days. Majorityof the Company’s trade receivables come from revenues from sale of electricity to NPC. Past duetrade receivables earn interest either based at a six-month US treasury rate plus 5% or averagenon-prime lending rate per annum (see Notes 24 and 31).
Non-trade receivables include accrued interest, receivable from suppliers and other receivablesarising from transactions not in the usual course of the Company’s business such as disposal ofproperty and equipment.
The table below shows the rollforward analysis of the allowance for doubtful accounts on tradereceivables:
2013 2012Balance at beginning of year P=75,602,750 P=130,839,470Provision for doubtful accounts (Note 22) 15,545,673 31,775,230Write-off – (86,083,931)Recovery (Note 22) – (928,019)Balance at end of year P=91,148,423 P=75,602,750
In 2012, the Company directly wrote-off trade receivables amounting to P=282.0 thousand.
- 51 -
*SGVFS005114*
9. Available-for-sale Investments
2013 2012Current - Quoted government debt securities
(Note 31) P=341,841,500 P=132,345,200Noncurrent (Note 31):
Quoted equity securities (Note 20) 407,242,129 233,426,506Quoted government debt securities – 473,624,637Unquoted equity securities – 74,550
407,242,129 707,125,693Total P=749,083,629 P=839,470,893
Quoted government debt securities consist of investments in Republic of the Philippines (ROP)bonds with maturities between 2013 and 2016 and interest rates ranging from 8.00% to 9.00% perannum. Such bonds were acquired at a discount.
Investments in equity securities consist mainly of shares traded in the PSE.
The movements of the unrealized gain or loss related to the foregoing investments are presented inthe consolidated statement of comprehensive income with details as follows:
2013 2012 2011Net accumulated unrealized gain
on AFS investments atbeginning of year P=111,522,725 P=91,758,915 P=119,718,797
Changes in fair value recognizedin equity (Note 31) (81,911,404) 19,763,810 (27,724,193)
Net unrealized gain removedfrom equity and recognized inprofit or loss (Note 31) – – (235,689)
(81,911,404) 19,763,810 (27,959,882)Net accumulated unrealized gain
on AFS investments at endof year P=29,611,321 P=111,522,725 P=91,758,915
Changes in fair value recognized in the consolidated statement of comprehensive income refer tounrealized gains and losses during the period brought about by the temporary increase or decreasein the fair value of the debt and equity instruments.
In 2011, the issuer redeemed for P=4.75 million the Company’s investment in US$110,000 ROPglobal bond prior to its original maturity. The transaction resulted to gain on early redemptionamounting to P=271.3 thousand (see Note 26).
- 52 -
*SGVFS005114*
10. Parts and Supplies Inventories
2013 2012On hand:
Drilling tubular products and equipment spares P=1,461,354,072 P=1,631,165,807Power plant spares 678,693,801 682,729,900Pump, production/steam gathering system,
steam turbine, valves and valve spares 477,428,028 556,513,309Electrical, cable, wire product and compressor
spares 121,659,974 114,077,988Chemical, chemical products, gases and catalyst 136,692,032 107,332,094Heavy equipment spares 65,130,865 63,100,607Construction and hardware supplies, stationeries
and office supplies, hoses, communicationand other spares and supplies 68,258,675 63,022,992
Automotive, mechanical, bearing, seals, v-belt,gasket, tires and batteries 47,339,199 48,468,361
Measuring instruments, indicators and tools,safety equipment and supplies 33,832,918 40,630,239
3,090,389,564 3,307,041,297In transit 3,913,885 31,784,572
P=3,094,303,449 P=3,338,825,869
Inventories in transit include items not yet received but ownership or title to the goods has alreadypassed to the Company.
Parts and supplies inventories include items that are carried at net realizable value amounting toP=440.1 million and P=328.7 million as of December 31, 2013 and 2012, respectively, and have acost amounting to P=500.0 million and P=374.8 million, respectively. The rest of the parts andsupplies inventories are carried at cost.
Provision for (reversal of) impairment of parts and supplies inventories amounted toP=123.0 million in 2013, (P=83.5 million) in 2012 and P=169.0 million in 2011 (see Note 22). Theamount of inventory charged to expense amounted to P=945.9 million in 2013, P=958.5 million in2012 and P=1,180.2 million in 2011 (see Notes 5, 21 and 22). Details of parts and suppliesinventories issued are as follows:
2013 2012 2011Cost of sales of electricity and
steam (Note 21) P=788,973,966 P=768,473,850 P=915,447,365General and administrative
expenses (Note 22) 156,968,210 154,094,455 195,747,618Discontinued drilling operations
(Note 5) – 35,948,244 68,969,643P=945,942,176 P=958,516,549 P=1,180,164,626
In addition, the Company recognized loss on damaged inventories due to Typhoon Yolandaamounting to P=105.5 million (see Note 12).
- 53 -
*SGVFS005114*
11. Other Current Assets
2013 2012Tax credit certificates (Note 15) P=472,531,633 P=63,000,000Withholding tax certificates 393,078,659 389,256,730Prepaid expenses 302,435,288 199,507,054Advances to contractors 67,064,239 40,261,234Others 345,064 239,816
P=1,235,454,883 P=692,264,834
- 54 -
*SGVFS005114*
12. Property, Plant and Equipment
2013
Land Power Plants
FCRS andProduction
Wells
Buildings,Improvements
and OtherStructures
Exploration,Machinery and
EquipmentTransportation
Equipment
Furniture,Fixtures and
EquipmentLaboratoryEquipment
Constructionin Progress Total
CostBalances at January 1 P=515,587,728 P=37,329,247,352 P=22,545,392,364 P=2,378,453,064 P=3,938,188,809 P=286,850,994 P=629,797,360 P=617,995,651 P=13,168,080,990 P=81,409,594,312Additions – 149,652,902 133,924,564 47,343,279 195,718,071 16,408,565 63,402,914 34,683,517 10,606,540,847 11,247,674,659Disposals/retirements (Note 26) – (672,748,540) – (13,625,188) (151,257,597) (26,134,412) (55,453,415) (15,308,799) – (934,527,951)Reclassifications (234,682) 1,924,865,254 2,787,695,465 (283,728,511) 1,458,372,461 (84,067,284) 463,640,458 25,367,825 (7,483,181,456) (1,191,270,470)Balances at December 31 515,353,046 38,731,016,968 25,467,012,393 2,128,442,644 5,441,021,744 193,057,863 1,101,387,317 662,738,194 16,291,440,381 90,531,470,550Accumulated Depreciation, Amortization
and ImpairmentBalances at January 1 17,255,629 9,864,027,894 7,123,326,992 516,196,390 1,876,398,510 96,393,978 426,269,376 218,642,240 590,863,997 20,729,375,006Depreciation and amortization for the year – 2,136,698,413 650,990,367 105,228,014 368,848,266 15,386,426 110,751,071 58,536,459 – 3,446,439,016Disposals/retirements (Note 26) – (167,347,957) – (5,141,356) (148,653,037) (5,478,882) (47,190,772) (10,286,418) – (384,098,422)Reclassifications 371,952 61,879,099 702,416,132 901,674 315,952,622 (37,116,460) 21,500,710 24,703,655 (590,863,997) 499,745,387Balances at December 31 17,627,581 11,895,257,449 8,476,733,491 617,184,722 2,412,546,361 69,185,062 511,330,385 291,595,936 – 24,291,460,987Net Book Value P=497,725,465 P=26,835,759,519 P=16,990,278,902 P=1,511,257,922 P=3,028,475,383 P=123,872,801 P=590,056,932 P=371,142,258 P=16,291,440,381 P=66,240,009,563
2012
Land Power PlantsFCRS and
Production Wells
Buildings,Improvements
and OtherStructures
Exploration,Machinery and
EquipmentTransportation
Equipment
Furniture,Fixtures and
EquipmentLaboratoryEquipment
Constructionin Progress Total
CostBalances at January 1 P=379,809,254 P=37,204,980,737 P=20,651,972,508 P=2,246,291,592 P=4,074,330,782 P=143,004,672 P=659,065,713 P=580,618,276 P=9,517,751,748 P=75,457,825,282Additions 135,778,474 214,431,401 54,879,048 95,128,090 254,153,493 102,878,024 76,186,312 60,619,297 5,937,475,626 6,931,529,765Disposals/retirements (Note 26) – – – (97,659) (9,745,984) (6,804,865) (6,330,083) (218,577) – (23,197,168)Reclassifications – (90,164,786) 1,838,540,808 37,131,041 (380,549,482) 47,773,163 (99,124,582) (23,023,345) (2,287,146,384) (956,563,567)Balances at December 31 515,587,728 37,329,247,352 22,545,392,364 2,378,453,064 3,938,188,809 286,850,994 629,797,360 617,995,651 13,168,080,990 81,409,594,312Accumulated Depreciation, Amortization
and ImpairmentBalances at January 1 17,255,629 7,867,549,819 6,368,571,711 429,037,601 1,949,150,666 38,443,507 347,350,269 172,673,077 590,863,997 17,780,896,276Depreciation and amortization for the year – 2,103,808,707 754,755,281 95,121,578 188,770,551 87,369,842 188,747,498 63,862,557 – 3,482,436,014Recovery of impairment loss (Note 3) – (63,614,885) – – – – – – – (63,614,885)Disposals/retirements (Note 26) – – – (97,657) (8,520,176) (5,151,022) (3,010,882) (218,561) – (16,998,298)Reclassifications – (43,715,747) – (7,865,132) (253,002,531) (24,268,349) (106,817,509) (17,674,833) – (453,344,101)Balances at December 31 17,255,629 9,864,027,894 7,123,326,992 516,196,390 1,876,398,510 96,393,978 426,269,376 218,642,240 590,863,997 20,729,375,006Net Book Value P=498,332,099 P=27,465,219,458 P=15,422,065,372 P=1,862,256,674 P=2,061,790,299 P=190,457,016 P=203,527,984 P=399,353,411 P=12,577,216,993 P=60,680,219,306
- 55 -
*SGVFS005114*
Impact of Typhoon YolandaIn November 2013, certain assets of the Company located in Leyte sustained damage due toTyphoon Yolanda. As a result, the Company recognized loss amounting to P=625.0 millionrepresenting the carrying amount of the damaged property, plant and equipment and the value ofdamaged inventories amounting to P=519.5 million and P=105.5 million, respectively.
In 2013, total rehabilitation costs capitalized as part of property, plant and equipment amounted toP=303.9 million while the costs of repairs and minor construction activities charged to expenseamounted to P=2.7 million.
As of December 31, 2013, the Company is in the process of claiming payments from its insurancecompanies for losses or damage incurred due to Typhoon Yolanda on the basis of replacementcost and determined in accordance with the relevant insurance policies.
Rehabilitation of BMGPPOn May 5, 2010, BGI acquired the 150 MW BMGPP in an auction conducted by PSALM whereBGI submitted the highest offer price of US$28.3 million.
Located in Bacon, Sorsogon City and Manito, Albay in the Bicol region, the BMGPP packageconsists of two steam plant complexes. The Bac-Man I power plant has two 55 MW generatingunits (Unit 1 and Unit 2) while Bac-Man II power plant has two 20 MW generating units(Cawayan or Unit 3, and Botong). EDC supplies the steam that fuels these power plants.
In 2005, prior to acquisition of the BMGPP by BGI, the 20 MW Cawayan power plant’s steamturbine and generator unit were damaged beyond repair as a result of a catastrophic turbine overspeed event leaving only some parts of the balance of plant serviceable. The 20 MW Botong plantwas damaged during Typhoon Milenyo in 2006. The plant was further damaged after a landslideand its cooling tower was destroyed in a fire in May 2009. The plant has since been placed inpreservation. The Company conducted studies on possible slope stabilization measures at Botongbut concluded that the risk of further landslides cannot be mitigated without significant cost. TheCompany thus decided to instead completely repair and rehabilitate the Botong power equipmentand relocate the same to the Cawayan site.
Problems with the equipment at both the Bac-Man I and Bac-Man II power plants required theCompany to conduct a series of rehabilitation works since the acquisition of the plants in 2010.As of December 31, 2013, Unit 1 and Unit 2 are still under rehabilitation while Unit 3 commencedcommercial operations on October 1, 2013.
In 2013 and 2012, the Company capitalized borrowing costs amounting to P=144.0 million andP=213.6 million from general borrowings using a capitalization rate of 6.43% and 6.15%,respectively.
Since 2011, testing procedures had been performed in preparation for planned commercialoperations of the power plants. For the years ended December 31, 2013 and December 31, 2012,the revenue from electricity generated during the testing period amounting to P=1,401.5 million andP=520.4 million, respectively, were offset against the cost of property, plant and equipment.
Meanwhile, revenue generated by Unit 3 from October 1, 2013 to December 31, 2013 during itscommercial operations amounting to P=189.9 million was presented as part of the “Revenue fromsale of electricity” account in the consolidated statement of income.
- 56 -
*SGVFS005114*
Burgos Wind Energy ProjectIn 2013, the Company commenced the construction of its 87 MW Burgos wind power project,situated in the Municipality of Burgos, Ilocos Norte. The project comprises three components: (i)the establishment of a wind farm facility; (ii) a 115kV transmission line; and (iii) a substationadjacent to the wind farm. In March 2013, the Company entered into an agreement with VestasWind Systems of Denmark for the construction of the wind energy facilities. Under theEngineering, Procurement and Construction (EPC) contract, Vestas Wind Systems is responsiblefor the design, manufacture, delivery of the works from the place of manufacture to the project site,erection, testing and commissioning for a complete and operational wind farm. The agreementcovers the installation of 29 units of V90-3.0 MW turbine together with associated on-site civiland electrical works. The Company issued notice to proceed to Vestas Wind Systems in June2013 for the construction of wind energy assets.
On May 16, 2013, EBWPC was granted a Certificate of Confirmation of Commerciality by theDOE for its 87 MW Burgos wind project. The certificate converts the project’s WESC fromexploration/predevelopment stage to the development/commercial stage. Consequently, the windenergy project development costs amounting to P=467.7 million were reclassified into property,plant and equipment under the “construction in progress” account (see Note 13).
On May 3, 2013, to partially finance the construction of Burgos wind energy project, the Companyissued fixed-rate peso bonds amounting to P=7.0 billion (see Note 17). As the proceeds of thebonds are used specifically for the construction of the Burgos wind project, the Companycapitalized in its consolidated financial statements the actual borrowing costs incurred on thebonds amounting to P=140.8 million in 2013, net of investment income on temporary investment ofthe proceeds of the bonds.
Impairment Assessment of NNGPIn 2011, after the five-month shutdown of NNGP starting November 22, 2010, NNGP operatedfrom April to June 2011 to complete its geothermal resource testing. Based on the subsequenttechnical assessment, the Company has come to a conclusion that the sustainable operation ofNNGP is only at 5 to 10 MW only.
The Company evaluates the assets on a CGU basis for any indication of impairment at eachfinancial reporting date. The Company assessed that there continues to be an indication ofimpairment for NNGP and, based on its impairment testing, recognized an impairment lossamounting to P=4,998.6 million in 2011 (see Note 3).
In February 2012, EDC transferred vacuum pumps from NNGP to the Palinpinon Power Plantowned by GCGI. Since these transferred assets can still be utilized and were included in the CGUof the Palinpinon Power Plant, the Company recognized a corresponding reversal of impairmentloss amounting to P=63.6 million, representing the net book value of the assets transferred had noimpairment loss been previously recognized (see Note 26).
- 57 -
*SGVFS005114*
Estimated Rehabilitation and Restoration CostsFCRS and production wells include the estimated rehabilitation and restoration costs of theCompany’s steam fields and power plants’ contract areas at the end of the contract period. Thesewere based on technical estimates of probable costs, which may be incurred by the Company inthe rehabilitation and restoration of the said steam fields’ and power plants’ contract areas from2031 up to 2044, discounted using the Company’s risk-adjusted rate. Details of the cost andrelated accumulated amortization of estimated rehabilitation and restoration costs follow:
2013 2012Cost P=527,620,983 P=399,029,959Accumulated amortization 81,133,657 52,745,789Net book value P=446,487,326 P=346,284,170
The corresponding provision for rehabilitation and restoration costs amounting to P=654.4 millionin 2013 and P=493.5 million in 2012 were recorded under “Provisions and other long-termliabilities” account in the consolidated statement of financial position (see Note 18). Accretionexpense amounted to P=24.0 million and P=27.6 million for the years ended December 31, 2013 and2012, respectively (see Note 24).
Depreciation and AmortizationDetails of depreciation and amortization charges recognized in the consolidated statements ofincome are shown below:
2013 2012 2011Property, plant and equipment P=3,446,439,016 P=3,482,436,014 P=3,345,683,340Intangible assets (Note 13) 122,908,336 96,191,157 96,191,157
P=3,569,347,352 P=3,578,627,171 P=3,441,874,497Costs of sales of electricity and steam
(Note 21) P=3,201,232,020 P=3,195,213,914 P=3,178,921,446General and administrative expenses
(Note 22) 368,115,332 364,315,008 244,041,892Discontinued drilling operations
(Note 5) – 19,098,249 18,911,159P=3,569,347,352 P=3,578,627,171 P=3,441,874,497
ReclassificationsThe reclassifications in the cost of property, plant and equipment include the capitalizeddepreciation charges amounting to P=163.4 million in 2013 and P=57.9 million in 2012 underconstruction in progress which primarily relates to ongoing drilling of wells.
- 58 -
*SGVFS005114*
13. Goodwill and Intangible Assets
2013
Goodwill Water RightsOther Intangible
Assets TotalCostBalances at January 1 P=2,535,051,530 P=2,404,778,918 P=467,744,367 P=5,407,574,815Reclassifications (Note 12) – – (467,744,367) (467,744,367)Additions – – 171,776,021 171,776,021Balances at December 31 2,535,051,530 2,404,778,918 171,776,021 5,111,606,469Accumulated AmortizationBalances at January 1 – 589,170,835 – 589,170,835Amortization (Notes 21
and 22) – 96,191,157 26,717,178 122,908,335Balances at December 31 – 685,361,992 26,717,178 712,079,170Net Book Value P=2,535,051,530 P=1,719,416,926 P=145,058,843 P=4,399,527,299
2012
Goodwill Water RightsOther Intangible
Assets TotalCostBalances at January 1 P=2,535,051,530 P=2,404,778,918 P=258,394,939 P=5,198,225,387Additions – – 209,349,428 209,349,428Balances at December 31 2,535,051,530 2,404,778,918 467,744,367 5,407,574,815Accumulated AmortizationBalances at January 1 – 492,979,679 – 492,979,679Amortization (Notes 21
and 22) – 96,191,157 – 96,191,157Balances at December 31 – 589,170,836 – 589,170,836Net Book Value P=2,535,051,530 P=1,815,608,082 P=467,744,367 P=4,818,403,979
GoodwillOn September 2, 2009, GCGI acquired the 192.5 MW Palinpinon (in Negros Oriental) and112.5 MW Tongonan 1 (in Leyte) geothermal power plants in an auction conducted by PSALMwhere GCGI submitted the highest complying financial bid of US$220.0 million. This financialbid was subsequently reduced by US$6.7 million as PSALM agreed that the Company willdirectly assume the obligations to procure the equipment/services indicated in the PurchaseRequisitions being processed by NPC under Schedule R-Purchase Orders in the Asset PurchaseAgreement (APA). The total acquisition cost incurred by the Company amounted toP=10.7 billion resulting to goodwill of P=2,241.7 million.
On September 8, 2006, FG Hydro participated and won the bid for the 112 MW PAHEP/MAHEPfacility conducted by PSALM in connection with the privatization of NPC assets. FG Hydro paida total consideration of US$129.0 million (P=6.5 billion) and recognized goodwill amounting toP=293.3 million.
Details of the impairment review for goodwill are shown in Note 3.
- 59 -
*SGVFS005114*
Water rights Water rights are amortized using the straight-line method over 25 years, which is the term of the
Agreement with National Irrigation Administration (NIA). The remaining amortization period ofwater rights is 17.9 years as of December 31, 2013.
Other intangible assetsOther intangible assets pertain to the Company’s wind energy project development costs andcomputer software and licenses.
14. Exploration and Evaluation Assets
2013 2012Balance at beginning of year P=1,604,105,412 P=1,087,079,413Additions 1,351,618,655 517,025,999Transfers to property, plant and equipment (127,714) –Accumulated impairment (Note 3) (574,820,864) –Balance at end of year P=2,380,775,489 P=1,604,105,412
Details of exploration and evaluation assets per project are as follows:
2013 2012Rangas/Kayabon P=1,293,546,768 P=478,242,715Mindanao III 980,434,215 485,749,683Dauin/Bacong 60,360,367 55,882,215Cabalian – 574,643,959Others 46,434,139 9,586,840
P=2,380,775,489 P=1,604,105,412
15. Other Noncurrent Assets
2013 2012Input VAT P=4,177,522,698 P=4,308,566,903Tax credit certificates 1,560,618,288 1,567,371,054Special deposits and funds 177,990,509 221,843,903Prepaid expenses 155,364,932 86,057,057Long-term receivables (Note 31) 88,962,765 79,452,797Others 168,287,470 63,444,527
6,328,746,662 6,326,736,241Less allowance for doubtful accounts 473,125,916 624,990,741
P=5,855,620,746 P=5,701,745,500
Input VATInput VAT includes the outstanding input VAT claims of P=1,514.2 million and P=1,246.2 millionas of December 31, 2013 and 2012. Input VAT claims for 2011 (P=1,036.1 million), 2010(P=257.4 million), 2008 (P=131.6 million), and 2007 (P=89.1 million) are still pending with theBureau of Internal Revenue (BIR)/Court of Tax Appeals as of December 31, 2013.
- 60 -
*SGVFS005114*
On April 17, 2013, the 2006 VAT claim was resolved by a Resolution issued by CTA denying themotion for reconsideration on the input VAT claim amounting to P=276.0 million and partlygranted the Parent Company TCC amounting to P=17.0 million. The TCC is still pending from theBIR as of December 31, 2013.
Tax credit certificates (TCCs)In April and June 2010, P=1,638.9 million TCCs were issued by the BIR to the Parent Companywith respect to its input VAT claims on Build-Operate-Transfer (BOT) fees from 1998 and 1999amounting to P=1,894.7 million. Such TCCs shall be utilized over a period of five years starting in2011 to 2015 with a cap of P=300.0 million per year, except in 2015 where the remaining balancemay be fully applied. The remaining balance of input VAT claims of P=255.8 million, which wasdisallowed by the BIR, was written off in 2010.
On August 17, 2012, BIR issued TCC to the Parent Company amounting to P=26.5 million for theinput VAT claims covering the period from January 1 to March 31, 2010. In 2013, BIR issuedTCC to the Parent Company amounting to P=212.0 million, P=152.3 million and P=96.4 millionrepresenting input VAT claims for 2009 and 2010 and 1st quarter of 2011, respectively. GCGIlikewise received in 2013 TCC amounting to P=27.6 million pertaining to its 2010 input VATrefund.
In 2012, P=35.0 million worth of TCCs were utilized for the payment of documentary stamp taxarising from the issuance of fixed rate note (see Note 17). In 2013, the Company utilizedP=60.0 million of TCCs for payment of various taxes.
TCCs that remain unutilized after five years from the date of original issuance are still validprovided that these are duly revalidated by the BIR within the period allowed by law.
Special deposits and fundsThe special deposits and funds mainly consist of security deposit for various operating leaseagreements covering office spaces and certain equipment; escrow accounts in favor of terminatedemployees; and escrow accounts in favor of specified counterparties in certain transactions, therelease of which is subject to certain conditions (see Note 32).
Allowance for doubtful accountsThe rollforward analysis of the allowance for doubtful accounts pertaining to input VAT andlong-term receivables is presented below.
2013Input VAT NPC Others Total
Beginning of year P=557,766,016 P=1,490,483 P=65,734,242 P=624,990,741Provision for doubtful
accounts (Note 22) 114,904,322 – 8,259,094 123,163,416Reversal (Note 22) (78,729,479) – – (78,729,479)Write-off (195,770,408) – (528,354) (196,298,762)End of year P=398,170,451 P=1,490,483 P=73,464,982 P=473,125,916
Specific impairment P=186,334,168 P=1,490,483 P=72,397,373 P=260,222,024Collective impairment 211,836,283 – 1,067,609 212,903,892Total P=398,170,451 P=1,490,483 P=73,464,982 P=473,125,916
- 61 -
*SGVFS005114*
2012Input VAT NPC Others Total
Beginning of year P=361,660,278 P=2,508,223 P=58,553,902 P=422,722,403Provision for doubtful
accounts (Note 22) 196,105,738 – 8,589,331 204,695,069Reversal (Note 22) – – (1,408,991) (1,408,991)Write-off – (1,017,740) – (1,017,740)End of year P=557,766,016 P=1,490,483 P=65,734,242 P=624,990,741
Specific impairment P=329,906,015 P=1,490,483 P=65,434,961 P=396,831,459Collective impairment 227,860,001 – 299,281 228,159,282Total P=557,766,016 P=1,490,483 P=65,734,242 P=624,990,741
16. Trade and Other Payables
2013 2012Accounts payable:
Third parties P=5,061,002,130 P=5,604,345,331Related parties (Note 20) 235,996,358 254,142,815
Accrued interest on long-term debts (Note 17) 792,685,801 661,127,313Withholding and other taxes payable 387,352,605 367,865,856Royalty fee payable 39,671,237 20,618,242Deferred credits 35,720,220 35,760,703SSS and other contributions payable 4,064,414 2,741,924Other payables (Note 3) 425,483,128 768,934,180
P=6,981,975,893 P=7,715,536,364
Accounts payable are non-interest-bearing and are normally settled on a 30 to 60 days paymentterm.
“Royalty fee payable” pertains to outstanding payable to the Government for its share on certainearnings of the Company generated from renewable energy activities. Under the RenewableEnergy (RE) Law, the Parent Company shall pay royalty fee equivalent to 1.5% of its grossincome. Such fiscal incentive was applied by the Parent Company beginning February 1, 2009(see Note 33).
On May 8, 2012, upon execution of their respective Geothermal Operating Contracts with theDOE, GCGI and BGI also became subject to royalty fee of 1.5% of their gross income(see Note 33).
Royalty fees are allocated between the DOE and LGUs where the geothermal resources arelocated and payable within 60 days after the end of each quarter. Royalty fee expense amountedto P=230.8 million, P=169.8 million and P=193.9 million for the years ended December 31, 2013,2012 and 2011, respectively (see Note 21).
“Other payables” account includes mainly provision for shortfall generation and portion ofliabilities on regulatory assessments and other contingencies (see Note 3).
As of December 31, 2013 and 2012, the Company has P=15.3 billion and P=10.9 billion, respectively,of unused credit facilities from various local banks, which may be availed of for future operatingactivities.
- 62 -
*SGVFS005114*
17. Long-term Debts
The details of the Company’s long-term debts are as follows:
Creditor/Project Maturities Interest Rate 2013 2012US$300.0 Million Notes January 20, 2021 6.5% P=13,194,176,160 P=12,187,362,619Peso Public Bonds§ Series 1 - P=8.5 billion June 4, 2015 8.6418% 8,462,056,012 8,438,332,932§ Series 2 - P=3.5 billion December 4, 2016 9.3327% 3,474,793,440 3,467,662,982International Finance Corporation
(IFC) [Note 20]§ IFC 1 - P=4.1 billion
2012-2033
7.4% per annum for thefirst five years
subject torepricing for another
five to 10 years 3,203,178,672 3,537,463,896§ IFC 2 - P=3.3 billion 2013-2025 6.6570% 2,959,680,920 3,203,252,862Fixed Rate Note Facility (FXCN)§ P=4.0 billion 2012-2022 6.6108% 3,891,039,339 3,926,420,799§ P=3.0 billion 2012-2022 6.6173% 2,917,900,934 2,944,415,806Refinanced Syndicated Term Loan§ US$175.0 million June 27, 2017
LIBOR plus a marginof 175 basis points 6,146,814,636 7,094,959,970
Restructured Philippine National Bank(PNB) and Allied Bank Peso Loan
November 7, 2022
1.5% + PDST-F rateor 1.0% + BSPovernight rate 3,910,000,000 4,250,000,000
2013 Peso Fixed-Rate Bonds§ P=4.0 billion May 3, 2023 4.7312% 3,950,634,878 –§ P=3.0 billion May 3, 2020 4.1583% 2,964,131,356 –
US$80 Million Term Loan June 21, 20181.8% margin plus
LIBOR 3,474,353,988 –Total 58,548,760,335 49,049,871,866Less current portion 1,872,075,873 2,393,871,767Noncurrent portion P=56,676,684,462 P=46,656,000,099
The Company’s foreign-currency denominated long-term loans were translated into Philippinepeso based on the prevailing foreign exchange rates as at financial reporting date(US$1= P=44.395 as of December 31, 2013) and (US$1= P=41.05 as of December 31, 2012).
The long-term debts are presented net of unamortized transaction costs. A rollforward analysis ofunamortized transactions costs follows:
2013 2012Balance at beginning of year P=530,620,320 P=649,610,989Additions 169,321,469 100,166,950Transaction costs derecognized due to
extinguishment of debt (Note 26) – (101,553,355)Amortization (Notes 24 and 31) (101,864,624) (117,604,264)Balance at end of year P=598,077,165 P=530,620,320
Parent Company LoansThe Parent Company entered into unsecured long-term loan arrangements with domestic andinternational financial institutions for its various development projects and working capitalrequirements.
US$80 Million Term LoanOn March 21, 2013, the Parent Company entered into a credit agreement with certain banks toavail of a term loan facility of up to US$80 million with availability period of 12 months from thedate of the agreement.
- 63 -
*SGVFS005114*
On December 6, 2013, the Parent Company availed of the full amount of the term loan withmaturity date of June 21, 2018. The proceeds are intended to be used by the Company forbusiness expansion, capital expenditures, debt servicing and for general corporate purposes. Theterm loan carries an interest rate of 1.8% margin plus LIBOR. Debt issuance costs related to theterm loan amounted to US$1.9 million (P=78.2 million), including front-end fees and commitmentfee.
The repayment of the term loan shall be made based on the following schedule: 4% and 5% of theprincipal amount on the 15th and 39th month from the date of the credit agreement, respectively;and 91% of the principal amount on maturity date.
2013 Peso Fixed-Rate BondsOn May 3, 2013, EDC issued fixed-rate peso bonds in an aggregate principal amount ofP=7.0 billion. The bonds, which have been listed on the Philippine Dealing & Exchange Corp.(PDEx), are comprised of P=3.0 billion seven-year bonds at 4.1583% and P=4.0 billion 10-yearbonds at 4.7312% due on May 3, 2020 and May 3, 2023, respectively. Interest is payable semi-annually starting November 3, 2013. Transaction costs incurred in connection with the issuance ofthe seven-year bonds and 10-year bonds amounted to P=39.1 million and P=52.1 million,respectively.
The net proceeds are used by the Company to partially fund the 87 MW Burgos wind projectlocated in the municipality of Burgos, Ilocos Norte with estimated project cost of US$300.0million. Any difference between the total construction costs and the net proceeds of the bondswill be sourced from internally generated cash, existing credit lines, and other potentialborrowings.
Pending disbursement for the construction, the Company invests the net proceeds in short-termliquid investments including, but not limited to, short-term government securities, bank depositsand money market placements which are expected to earn prevailing market rates.
The Parent Company undertakes that it will not use the net proceeds from the bonds for any otherpurpose, other than as discussed above. In the event of any deviation or adjustment in the planneduse of proceeds, EDC shall inform the bondholders and the SEC within 30 days prior to itsimplementation.
US$ 300.0 Million NotesOn January 20, 2011, the Parent Company issued a 10-year US$300.0 million notes(P=13,350.0 million) at 6.50% interest per annum which will mature in January 2021. The notesare intended to be used by the Company to support the business expansion plans, finance capitalexpenditures, service debt obligations and for general corporate purposes. Such notes were listedand quoted on the Singapore Exchange Securities Trading Limited (SGX-ST).
Peso Public BondsOn December 4, 2009, the Company received P=12.0 billion proceeds from the issuance of fixedrate Peso public bonds - split into two tranches - P=8.5 billion, due after five years and six monthsand P=3.5 billion, due after seven years, paying a coupon of 8.6418% and 9.3327%, respectively.The peso public bonds are also listed on PDEx.
Effective November 14, 2013, certain covenants of the peso public bonds have been aligned withthe 2013 peso fixed-rate bonds through consent solicitation exercise held by the Parent Company.Upon securing the required consents, a Supplemental Indenture embodying the parties’ agreementon the proposed amendments was signed on November 7, 2013 between EDC and Rizal
- 64 -
*SGVFS005114*
Commercial Banking Corporation - Trust and Investments Group in its capacity as trustee for thebondholders.
IFC (see Note 20)The Parent Company entered into a loan agreement with IFC, a shareholder of the ParentCompany, on November 27, 2008 for US$100.0 million or its Peso equivalent of P=4.1 billion.On January 7, 2009, the Parent Company opted to draw the loan in Peso and received the proceedsamounting to P=4,048.8 million, net of P=51.5 million front-end fee. The loan is payable in 24 equalsemi-annual installments after a three-year grace period at an interest rate of 7.4% per annum forthe first five years subject to repricing for another five to 10 years. Under the loan agreement, theParent Company is restricted from creating liens and is subject to certain financial covenants.
On May 20, 2011, the Parent Company signed a 15-year US$75.0 million loan facility with theIFC to fund its medium-term capital expenditures program. The loan was drawn in Peso onSeptember 30, 2011, amounting to P=3,262.5 million. The loan is payable in 24 equal semi-annualinstallments after a three-year grace period at an interest rate of 6.657% per annum. The loanincludes prepayment option which allows the Company to prepay all or part of the loan anytimestarting from the date of the loan agreement until maturity. The prepayment amount is equivalentto the sum of the principal amount of the loan to be prepaid, redeployment cost and prepaymentpremium.
Issuance of FXCN and Prepayment of FRCNOn July 3, 2009, EDC received P=7,500.0 million proceeds from the issuance of FRCN split intotwo tranches. The first tranche of P=2,644.0 million will mature after 5 years and the secondtranche of P=4,856.0 million will mature after 7 years with a coupon rate of 8.3729% and 9.4042%,respectively. On September 3, 2009, EDC received P=1,500.0 million proceeds from the additionalissuance of FRCN, a 5-year series paying a coupon of 8.4321%. On April 4, 2012, EDC signed a10-year FXCN facility agreement amounting to P=7,000.0 million which is divided into twotranches. The proceeds from the first tranche amounting to P=3,000.0 million were used to prepayin full its FRCN Series One and Series Three for P=1,774.3 million and P=1,007.1 million,respectively. Subsequently, on May 3, 2012, the FRCN Series Two was also prepaid in full forP=4,211.1 million using the proceeds from the second FXCN tranche amounting toP=4,000.0 million. The FXCN tranches 1 and 2 bears a coupon rate of 6.6173% and 6.6108% perannum, respectively. FRCN Series One and Series Three were originally scheduled to mature inJuly 2014 while FRCN Series Two was originally scheduled to mature in July 2016.
EDC recognized loss amounting to P=114.7 million arising from early extinguishment of FRCN in2012 (see Note 26).
Debt issuance costs amounting to P=100.2 million was capitalized as part of the new FXCN.
Refinanced Syndicated Term LoanOn June 17, 2011, the Parent Company had entered into a credit agreement for theUS$175.0 million (P=7,630.0 million) transferable syndicated term loan facility with ANZ, TheBank of Tokyo-Mitsubishi UFJ, Ltd., Chinatrust (Philippines) Commercial Banking Corporation,ING Bank N.V., Manila Branch, Maybank Group, Mizuho Corporate Bank, Ltd. and StandardChartered Bank as Mandated Lead Arrangers and Bookrunners. The purpose of the new loan is torefinance the old US$175.0 million syndicated term loan availed on June 30, 2010 with scheduledmaturity of June 30, 2013. The new loan carries an interest of LIBOR plus a margin of 175 basispoints and has installment repayment scheme to commence on June 27, 2013 until June 27, 2017.
- 65 -
*SGVFS005114*
The extinguished syndicated term loan had an interest rate of LIBOR plus a margin of 325 basispoints. Loss on debt extinguishment amounting to P=197.9 million recognized as a result of theloan extinguishment is presented under “Miscellaneous - net” in the 2011 consolidated statementof income (see Note 26).
Other Long-term DebtsOn January 31, 2012, the Parent Company fully settled its matured JP¥1.5 billion OECF 8th Yenloan amounting to P=20.3 million.
On June 10, 2011, the Parent Company prepaid the OECH 19th Yen loan balance ofJP¥218.6 million (P=117.4 million) originally scheduled to mature in December 2024. Also, onJune 17, 2011, the Company has fully settled its OECF 9th Yen loan of JP¥207.7 million(P=111.5 million).
On April 8, 2011, the Parent Company prepaid the JP¥8.1 billion (P=4,260.6 million) 21st Yen loanwith Japan International Cooperation Agency (JICA), a successor institution of the OECF (Japan).The 21st Yen loan is originally scheduled to mature in March 2027.
FG Hydro LoanOn May 7, 2010, FG Hydro signed a loan agreement for a 10-year P=5,000.0 million loan withPNB and Allied Bank, maturing on May 7, 2020. The loan is secured by a real estate and chattelmortgages on all present and future mortgageable assets of FG Hydro. The loan carries an interestrate of 9.025% subject to repricing after five years. Loan repayment is semi-annual based onincreasing percentages yearly with the first payment made on November 8, 2010. The loanproceeds were used to finance the full payment of the Deferred Payment Facility and the PRUP,and fund general corporate and working capital requirements of FG Hydro.
On November 7, 2012, FG Hydro’s outstanding loan amounting to P=4.3 billion was restructuredby way of an amendment to the loan agreement. The amended agreement provided for a change inthe determination of the applicable interest rates and extended the maturity date of the loan by twoyears with the last repayment to be made on November 7, 2022. FG Hydro has the option to selectits new applicable interest rate between a fixed or a floating interest rate. FG Hydro opted to availof the loan at the floating rate which is the higher of the 6-month PDST-F rate plus a margin of1.50% per annum or the BSP overnight rate plus a margin of 1% per annum as determined on theinterest rate setting date. For the first interest period, the applicable rate was determined as theBSP overnight rate of 3.5% plus 1% margin. The principal and interest on the loan are payable ona semi-annual basis. Interest rates are determined at the beginning of every interest period.FG Hydro has a one-time option to convert to a fixed interest rate any time after the amendmenteffectivity date.
FG Hydro has assessed that the loan restructuring resulted to substantial modification of the termsof the original loan, hence, the original loan was considered extinguished. Amortization of theremaining transaction cost of the old loan amounting to P=52.2 million was accelerated and thetransaction cost incurred for the restructured loan amounting to P=21.3 million was recognized aspart of the loss on extinguishment of debt (see Note 26).
With the merger of PNB and Allied Bank in February 2013, the Company’s loan balance wasconsolidated under PNB. The new loan was recognized at fair value which is equivalent to its facevalue.
- 66 -
*SGVFS005114*
Loan CovenantsThe loan covenants covering the Parent Company’s and FG Hydro’s outstanding debts include,among others, maintenance of certain level of current, debt-to-equity and debt-service ratios. Asof December 31, 2013 and 2012, the Parent Company and FG Hydro are in compliance with theloan covenants of all their respective outstanding debts.
18. Provisions and Other Long-term Liabilities
2013 2012Provision for rehabilitation and restoration
costs (Notes 3 and 12) P=654,451,377 P=493,524,946Accrued sick and vacation leave 387,903,681 332,809,489Others (Note 3) 471,321,221 324,051,554
P=1,513,676,279 P=1,150,385,989
Provision for rehabilitation and restoration costsProvision for rehabilitation and restoration costs pertains to the present value of estimated costs oflegal and constructive obligations required to restore all the existing sites upon termination of thecooperation period. The nature of these restoration activities includes dismantling and removingstructures, rehabilitating wells, dismantling operating facilities, closure of plant and waste sites,and restoration, reclamation and revegetation of affected areas. The obligation generally ariseswhen the asset is constructed or the ground or environment at the site is disturbed. When theliability is initially recognized, the present value of the estimated costs is capitalized as part of thecarrying amount of the related FCRS and production wells (see Note 12).
The rollforward analysis of the provision for rehabilitation and restoration costs is presentedbelow:
2013 2012Provision for rehabilitation and restoration costs
at beginning of year P=493,524,946 P=406,779,140Unwinding of discount (Note 24) 24,048,418 27,644,866
517,573,364 434,424,006Effect of revision of estimate 136,878,013 59,100,940Provision for rehabilitation and restoration costs
at end of year P=654,451,377 P=493,524,946
Accrued sick leave and accrued vacation leaveSick and annual vacation leave with pay are given to active employees subject to certainrequirements set by the Company. These leaves are convertible into cash upon separation of theemployees. At the end of the year, any remaining unused sick and vacation leave are accrued upto maximum allowed number of leave credits which is based on the employees’ length of servicewith the Company. Vacation and sick leave credits exceeding the maximum allowed for accrualare forfeited.
- 67 -
*SGVFS005114*
19. Equity
Capital StockAs required under the Philippine Constitution, the Parent Company is subject to the nationalityrequirement that at least 60% of its capital stock must be owned by Filipino citizens since it isengaged in the exploration and exploitation of the country’s energy resources. The ParentCompany is compliant with the said nationality requirement.
Beginning December 13, 2006, the 6.0 billion common shares of EDC were listed and traded onthe PSE at an initial public offering price of P=3.2 per share. In July 2007, additional 3.0 billioncommon shares were offered in a secondary offering at P=5.70 per share.
On May 19, 2009, the BOD approved an increase in EDC’s authorized capital stock fromP=15.1 billion to P=30.1 billion divided into 30.0 billion common shares with a par value of P=1.00per share or aggregate par value of P=30.0 billion, and 15.0 billion preferred shares with a par valueof P=0.01 per share or aggregate par value of P=150.0 million. Such increase in authorized capitalstock of the common shares was effected by way of a 25% stock dividend, to be taken fromEDC’s unrestricted retained earnings as of December 31, 2008.
The common shares are majority held by Filipino citizens, with Red Vulcan holding 7.5 billionshares or an equivalent of 40% interest.
The ownership of the Parent Company’s preferred shares is limited to Filipino citizens. Thepreferred shares have voting rights and subject to 8% cumulative interest (Note 29). Red Vulcanholds the entire 9.4 billion outstanding preferred shares equivalent to 20% voting interest in EDC.The combined interest of Red Vulcan entitles it to 60% voting interest and 40% economic interestin EDC.
The number of stockholders of the Parent Company as of December 31, 2013, 2012 and 2011 areas follows:
2013 2012 2011Preferred shares 1 1 1Common shares 691 700 702
Details of the number of common and preferred shares as of December 31, 2013, 2012 and 2011are as follows:
Preferred CommonPar value P=0.01 P=1.00Number of shares:
Authorized 15,000,000,000 30,000,000,000Issued and outstanding 9,375,000,000 18,750,000,000
Common Shares in Employee Trust AccountOn March 25, 2008, the BOD of the Parent Company approved a share buyback programinvolving up to P=4.0 billion worth of the Parent Company’s common shares, representingapproximately 4% of the Parent Company’s market capitalization as of the date of the approval.The buyback program was carried out within a two-year period which commenced onMarch 26, 2008 and ended on March 25, 2010. The Parent Company intends to implement anexecutive/employee stock option ownership plan through options, grants, purchases, or such other
- 68 -
*SGVFS005114*
equivalent methods. In 2008, the Parent Company acquired a total of 93,000,000 common sharesfor a total cost of P=404.2 million.
In 2009, a total of 93,000,000 common shares held in treasury that were acquired in 2008 at thecost of P=404.2 million, have been issued irrevocably by the Parent Company to BDO Trust for thebenefit of the executive/employee grantees under the Parent Company’s Employee Stock GrantPlan (ESGP). The BDO Trust is an independent and separate legal entity. EDC has neithercontrol nor discretion over the administration and investment activity on the common shares inexecutive/employee benefit trust held by BDO Trust. These shares are part of the issued andoutstanding common shares and are entitled to vote and receive dividend. These shares will notrevert to EDC even if the planned stock grant plan or other such plan is terminated. Any fruits orinterests of these shares shall be for the sole and exclusive benefit of the officers and employees ofEDC who are identified grantees of such stock plans. Any capital appreciation or decline in value,dividends, or other benefits declared on these shares shall accrue to the trust account and EDCshall not have any claim thereon. The issuance of the common shares to BDO Trust wasrecognized under the “Common shares in employee trust account” account in the consolidatedstatement of financial position (see Note 30).
Equity ReserveOn October 16, 2008, EDC, First Gen and FG Hydro entered into a Share Purchase andInvestment Agreement (SPIA), whereby EDC shall own 60% of the outstanding equity of FGHydro, which was then a wholly owned subsidiary of First Gen prior to the SPIA. FG Hydro andEDC were subsidiaries of First Gen at that time and were, therefore, under common control ofFirst Gen. The acquisition was accounted for similar to a pooling-of-interests method since FirstGen controlled FG Hydro and EDC before and after the execution of the SPIA. EDC recognizedequity reserve amounting to P=3,706.4 million pertaining to the difference between the acquisitioncost and EDC’s proportionate share in the paid-in capital of FG Hydro.
Retained EarningsFollowing are the dividends paid by the Parent Company in 2013, 2012, and 2011:
Declaration date Record date Payment date Shareholders DescriptionDividendper share Total amount
2013:September 10,
2013September 25, 2013 October 21, 2013 Common Special P=0.08 P=1,500,000,000
February 20,2013
March 11, 2013 April 8, 2013 Preferred Regular 0.0008 7,500,000
- do - - do - - do - Common Regular 0.08 1,500,000,000 P=3,007,500,000
2012:September 5,
2012September 20, 2012 September 30, 2012 Common Special P=0.04 P=750,000,000
March 13, 2012 March 28, 2012 April 24, 2012 Preferred Regular 0.0008 7,500,000- do - - do - - do - Common Regular 0.10 1,875,000,000
P=2,632,500,000
2011:March 15, 2011 March 29, 2011 April 20, 2011 Preferred Regular P=0.0008 P=7,500,000- do - - do - - do - Common Regular 0.16 3,000,000,000
P=3,007,500,000
- 69 -
*SGVFS005114*
NCIThe non-controlling interests in the consolidated financial statement represent mainly theownership of First Gen of 100% of preferred shares and 40% of common shares of FG Hydro.
On May 9, 2011, the Philippine SEC approved the amendment of the articles of incorporation ofFG Hydro reclassifying its unissued redeemable preferred shares into redeemable preferred “A”and “B” shares. Features of the preferred shares Series B include the right to earn cumulativedividends from January 1, 2009 up to December 31, 2013, as may be declared and paid from timeto time in amounts and on such dates as may be declared by FG Hydro’s BOD, subject to theavailability of FG Hydro’s retained earnings and cap at nil in 2009, US$8.0 million in 2010 andUS$14.0 million thereafter up to 2013. As a result of the issuance of FG Hydro’s preferred sharesSeries B, P=200.3 million was reallocated from retained earnings attributable to the equity holdersof the Parent Company to NCI which amount pertains to the portion of FG Hydro net incomeallocable to preferred shares Series B stockholders for the period January 1, 2010 to December 31,2010.
In June 2011, FG Hydro declared and paid cash dividends to its preferred shares amounting toP=333.8 million. In March and May 2012, FG Hydro declared and paid cash dividends to itspreferred and non-controlling common shareholders amounting to P=494.1 million andP=848.5 million, respectively. In October 2012, FG Hydro declared and paid cash dividends to itsnon-controlling common shareholders amounting to P=520.0 million. In May 2013, FG Hydrodeclared and paid cash dividends to its preferred shares and non-controlling common shareholdersamounting to P=951.2 million.
Following are the summarized financial information of FG Hydro:
Statements of financial position2013 2012
(In Thousand Pesos)Current assets P=1,986,613 P=1,985,139Non-current assets 6,400,643 6,862,105Total Assets P=8,387,256 P=8,847,244
Current liabilities P=525,068 P=625,439Non-current liabilities 3,602,773 3,935,692Total Liabilities 4,127,841 4,561,131Total Equity 4,259,415 4,286,113Total Liabilities and Equity P=8,387,256 P=8,847,244
Statements of comprehensive income2013 2012 2011
(In Thousand Pesos)Revenue P=2,501,217 P=4,753,255 P=2,407,539Cost and operating expenses (855,065) (932,300) (745,991)Other charges (170,476) (434,570) (453,167)Income before income tax 1,475,676 3,386,385 1,208,381Benefit from (provision for) income
tax (8,868) 12,207 (5,500)Net income 1,466,808 3,398,592 1,213,881Other comprehensive income (2,302) – –Total comprehensive income P=1,464,506 P=3,398,592 P=1,213,881
- 70 -
*SGVFS005114*
20. Related Party Transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control theother party or exercise significant influence over the other party in making financial and operatingdecisions. Parties are also considered to be related if they are subject to common control.
a. Following are the amounts of transactions and outstanding balances as of and for the yearsended December 31, 2013 and 2012:
Transactions for the years endedDecember 31
Net amounts due from/to relatedparties as at December 31
Related Party Nature of Transaction Terms 2013 2012 2013 2012Due to related partiesFirst Gen Consultancy fee Unsecured and will
be settled in cash P=175,284,706 P=165,619,598 P=43,998,784 P=41,379,949Interest-free advances - do - 36,490,221 26,095,569 4,219,175 8,166,941
Lopez HoldingsCorporation Donation to Lopez Museum - do - 5,042,750 – 5,042,750 –
First Gas Power Interest-free advances - do - 460,503 – 73,110 –Lopez Group Foundation,
Inc.Donation to support the Group’s
Corporate SocialResponsibility efforts - do - – 1,095,000 – –
First Gas PowerCorporation Interest-free advances - do - 281,616 147,794 13,186 30,613
First Gas Holdings Corp. Interest-free advances - do - 52,280 – – –Bauang Private
Power CorporationAcquisition of one unit MVA
transformer - do - – 57,330 – –P=217,612,076 P=193,015,291 P=53,347,005 P=49,577,503
Trade and otherreceivables (Note 9)
First GES Sale of electricity - do - P=169,368,975 P=– P=61,993,428 P=–
Trade and other payables(Note 16)
Thermaprime Drilling and other relatedservices - do - P=990,000,000 P=1,155,169,743 P=78,485,096 P=171,699,140
First Balfour Inc. Steam augmentation and otherservices - do - 115,360,533 192,687,664 152,027,391 73,339,568
First Philec ManufacturingTechnologies Corp Purchase of services and utilities - do - 7,039,812 3,696,180 2,194,482 2,077,482
Bayantel Purchase of services and utilities - do - 6,428,472 531,781 3,543,051 5,038,978Adtel Purchase of services and utilities - do - 2,492,605 3,272,208 (2,460,292) 1,452,277FPRC Purchase of services and utilities - do - 1,579,607 1,190,822 898,609 –First Electro Dynamics
Corporation Purchase of services and utilities - do - 358,000 2,930,000 589,421 –ABS-CBN Foundation Purchase of services and utilities - do - 340,000 – 715,000 –ABS-CBN Publishing, Inc. Purchase of services and utilities - do - 3,600 1,284,110 3,600 –ABS-CBN Corp. Purchase of services and utilities - do - 200,000 118,878 – 496,000Securities Transfer
Services, Inc. Purchase of services and utilities - do - 22,400 129,920 – 39,370Rockwell Land Corporation Purchase of services and utilities - do - 16,800 70,000 – –First Philippine Industrial
Corporation Purchase of services and utilities - do - – 1,488 – –P=1,123,841,829 P=1,361,082,794 P=235,996,358 P=254,142,815
Long-term debtsIFC (Note 17) Interest-bearing loans - do - P=462,315,610 P=519,860,137 P=6,162,859,592 P=6,740,716,758
- 71 -
*SGVFS005114*
The purchases from related parties are made at normal commercial terms and conditions.The amounts outstanding are unsecured and will be settled in cash. The Company has notrecognized any impairment losses on receivables from related parties as of December 31, 2013and 2012.
i. First Gen
First Gen provides financial consultancy, business development and other related servicesto the Parent Company under a consultancy agreement beginning September 1, 2008. Suchagreement is for a period of three years up to August 31, 2011. Under the terms of theagreement, billings for consultancy services shall be P=8.7 million per month plus applicabletaxes. This was increased to P=11.8 million per month plus applicable taxes effectiveSeptember 2009 to cover the cost of additional officers and staff assigned to the ParentCompany.
The consultancy agreement was subsequently extended for another 16 months fromSeptember 1, 2011 to December 31, 2012. The consultancy agreement was extended foranother two years from January 1, 2013 to December 31, 2014. Total consultancy servicesamounted to P=175.3 million, P=165.6 million and P=161.6 million in 2013, 2012 and 2011,respectively, and were included in the “Costs of sale of electricity” under “Purchasedservices and utilities” account (see Note 21).
In 2012, the Parent Company purchased 5.4 million shares of First Gen with acquisitioncost of P=77.1 million recorded as AFS investments. In 2013, the Company acquiredadditional 1.7 million shares at P=12.99 per share or for a total purchase cost ofP=21.8 million (see Note 9).
ii. IFC
IFC is a shareholder of the Parent Company that has approximately 5% ownership interestin the Parent Company. On May 20, 2011, the Parent Company signed a 15-yearUS$75.0 million loan facility with IFC. The loan was drawn in Peso onSeptember 30, 2011, amounting to P=3,262.5 million. As of December 31, 2013 and 2012,the outstanding balance of the loan amounting to P=2,959.7 million and P=3,203.3 million,respectively, is included under the “Long-term debts” account in the consolidated statementof financial position (see Note 17).
On November 27, 2008, the Parent Company entered into a loan agreement with IFC forUS$100.0 million or its Peso equivalent of P=4.1 billion. On January 7, 2009, the ParentCompany opted to draw the loan in Peso and received the proceeds amounting toP=4,048.8 million, net of P=51.3 million front-end fee. The loan is payable in 24 equal semi-annual installments after a three-year grace period at an interest rate of 7.4% per annum forthe first five years subject to repricing for another five to 10 years. Under the loanagreement, the Parent Company is restricted from creating liens and is subject to certainfinancial covenants. As of December 31, 2013 and 2012, the outstanding loan amounted toP=3,203.2 million and P=3,537.5 million, respectively, net of unamortized transaction costs ofP=42.0 million and P=49.6 million, respectively. This loan is included under the “Long-termdebts” account in the consolidated statement of financial position (see Note 17).
- 72 -
*SGVFS005114*
iii. First Balfour, Inc. (First Balfour)
Following the usual bidding process, the Company awarded to First Balfour procurementcontracts for various works such as civil, structural and mechanical/piping works in theCompany’s geothermal power plants.
As of December 31, 2013 and 2012, the outstanding balance amounted to P=152.0 millionand P=73.3 million, respectively, recorded under “Trade and other payables” account in theconsolidated financial statements (see Note 16).
First Balfour is a wholly owned subsidiary of First Holdings.
iv. Other Related Parties
· Bauang Private Power Corporation is a subsidiary of First Private Power Corporation,an associate of First Gen. First Gas Holdings Corporation and First Gas PowerCorporation are subsidiaries of First Gen. First Holdings, parent company of First Gen,is a subsidiary of Lopez Holdings Corporation (formerly Benpres HoldingsCorporation).
· Bayan Telecommunications Inc. (Bayantel) is 97.3%-owned by Bayantel Holdings onwhich Lopez Holdings Corporation has 47.3% ownership.
· Lopez Holdings Corporation has 57.3% interest on ABS-CBN Corp. ABS-CBNPublishing, Inc. is a wholly owned subsidiary of ABS-CBN Corp.
· Rockwell Land Corporation is 86.79% owned by First Holdings.
· First Electro Dynamics Corporation (FEDCOR) is a wholly owned subsidiary of FirstHoldings.
· Adtel Inc. is a wholly owned subsidiary of Lopez, Inc.
· Lopez Group Foundation, Inc. is the coordinative hub for the corporate socialresponsibility initiatives of Lopez Holdings Corporation.
· First Philec Manufacturing Technologies Corp., Securities Transfer Services, Inc. andFirst Philippine Realty Corp. (FPRC), formerly known as INAEC Development Corp,are wholly owned subsidiaries of First Holdings.
· Thermaprime Well Services, Inc. (Thermaprime) is a subsidiary of First Balfour, awholly owned subsidiary of First Holdings. Thermaprime provides drilling servicessuch as, but not limited to, rig operations, rig maintenance, well design and engineering.
· First Gen Energy Solutions (First GES) and First Gen Northern Energy Corp. arewholly owned subsidiaries of First Gen.
· First Philippine Industrial Corp. is 60% owned by First Holdings.
- 73 -
*SGVFS005114*
b. Intercompany Guarantees
EDC Chile Limitada, EDC’s subsidiary in Chile, is participating in the bids for geothermalconcession areas by the Chilean government. The bid rules call for the provision of proof ofEDC Chile Limitada’s financial capability to participate in said bids or evidence of financialsupport from its Parent Company. Letters of credit amounting to US$80.0 million were issuedby EDC in favor of EDC Chile Limitada as evidence of its financial support.
Except for the letters of credit issued by the Parent Company in favor of EDC Chile Limitadaas mentioned above, there were no guarantees that have been given to or/and received fromany other related party in 2013 and 2012.
c. Remuneration of Key Management Personnel
The remuneration of the directors and other members of key management personnel by benefittype are as follows:
2013 2012 2011Short-term employee benefits P=103,950,586 P=118,627,463 P=94,076,334Post-employment benefits
(Note 27) 14,459,571 9,290,493 9,564,520Share-based payments (Note 30) 11,878,361 24,742,375 8,806,875
P=130,288,518 P=152,660,331 P=112,447,729
21. Costs of Sale of Electricity
2013
2012(As restated -
Note 2
2011(As restated -
Note 2Depreciation and amortization
(Notes 12 and 13) P=3,201,232,020 P=3,195,213,914 P=3,178,921,446Personnel costs (Notes 23, 27
and 30) 1,619,218,711 1,681,195,017 1,445,433,638Purchased services and utilities
(Note 20) 1,858,590,801 1,729,664,759 1,994,234,596Rental, insurance and taxes
(Note 32) 965,567,644 1,005,291,154 1,033,018,600Parts and supplies issued (Note 10) 788,973,966 768,473,850 915,447,365Repairs and maintenance 742,635,113 1,214,445,888 1,652,594,246Royalty fees (Notes 16 and 33) 230,815,175 169,752,256 193,856,068Business and related expenses 130,707,369 166,168,972 147,185,600Proceeds from insurance claims (102,385,875) (105,931,390) –
P=9,435,354,924 P=9,824,274,420 P=10,560,691,559
Purchased services and utilities includes professional and technical services, purchased services,purchased utilities, hauling and handling costs, rig mobilization charges, contractual personnelcosts and other services and utilities expense.
Business and related expenses covers the expenses incurred by the Company for local and foreigntravel, company meeting expenses and advertising, among other business expenses.
- 74 -
*SGVFS005114*
Proceeds from insurance claims are shown as a separate line item under the costs of sale ofelectricity. The Parent Company charges to expense outright any costs incurred relating torestoring or rehabilitating facilities or land improvements damaged by typhoons or by other factorswhich do not meet the capitalization criteria. Proceeds from the insurance claims are subsequentlyrecognized when receipt is virtually certain.
22. General and Administrative Expenses
2013
2012(As restated -
Note 2
2011(As restated -
Note 2Personnel costs (Notes 23, 27
and 30) P=1,241,744,195 P=1,606,426,813 P=1,491,375,618Purchased services and utilities 1,431,263,858 1,108,600,474 1,063,662,026Rental, insurance and taxes
(Notes 32 and 37) 497,103,590 802,484,066 651,513,045Business and related expenses 430,027,408 469,171,599 370,829,004Depreciation and amortization
(Notes 12 and 13) 368,115,332 364,315,008 244,041,892Provision for doubtful accounts (Notes 8 and 15) 138,709,089 236,470,299 409,177,837Parts and supplies issued (Note 10) 156,968,210 154,094,455 195,747,618Provision for (reversal of)
impairment of parts andsupplies inventories(Notes 3 and 10) 123,020,732 (83,504,018) 168,959,002
Repairs and maintenance 23,965,312 46,871,862 66,431,309Reversal of provision for doubtful
accounts (Notes 8 and 15) (78,729,478) (2,337,010) (579,259)Loss on direct write-off of
receivables – 281,981 –P=4,332,188,248 P=4,702,875,529 P=4,661,158,092
23. Personnel Costs
2013
2012(As restated -
Note 2
2011(As restated -
Note 2Salaries and other benefits P=2,710,676,485 P=3,834,883,185 P=3,020,015,705Net retirement and other
post-employment benefit costs(income) (Note 27) 288,176,016 (427,492,784) 36,618,569
Social security costs 31,692,285 36,584,470 36,701,696P=3,030,544,786 P=3,443,974,871 P=3,093,335,970
- 75 -
*SGVFS005114*
Personnel costs amounting to P=169.6 million, P=154.8 million and P=135.8 million were capitalizedunder property, plant and equipment, and intangible assets in 2013, 2012 and 2011, respectively(see Notes 12 and 13).
2013
2012(As restated -
Note 2
2011(As restated -
Note 2Costs of sales of electricity and
steam (Note 21) P=1,619,218,711 P=1,681,195,017 P=1,445,433,638General and administrative
expenses (Note 22) 1,241,744,195 1,606,426,813 1,491,375,618Discontinued drilling operations
(Note 5) – 1,596,097 20,781,553Capitalized personnel costs
(Notes 12 and 13) 169,581,880 154,756,944 135,745,161P=3,030,544,786 P=3,443,974,871 P=3,093,335,970
24. Interest Income and Interest Expense
Interest income consists of the following:
2013 2012 2011Interest income on cash equivalents P=231,712,074 P=354,778,763 P=369,729,747Interest income on cash in banks 52,155,412 3,596,543 6,388,430Others 10,179,880 6,265,683 14,094,542
P=294,047,366 P=364,640,989 P=390,212,719
Interest expense consists of the following:
2013 2012 2011Interest on long-term debts
including amortization oftransaction costs(Notes 17 and 31) P=3,352,639,778 P=3,656,390,728 P=4,005,331,916
Interest accretion on provision forrehabilitation and restorationcosts (Notes 3, 12 and 18) 24,048,418 27,644,866 61,144,090
Interest on liability from litigation(Note 3) 7,811,108 8,608,023 7,811,107
Interest accretion of “Day 1” gain(Note 31) – 10,945,030 31,332,828
Interest on loan payable and others(Note 31) – 59,822 896,374
P=3,384,499,304 P=3,703,648,469 P=4,106,516,315
Interest on liability from litigationInterest on liability from litigation is related to land expropriation cases (see Note 3).
- 76 -
*SGVFS005114*
Interest accretion of “Day 1” gainInterest accretion of “Day 1” gain arose from deferred royalty fee payable. Prior to theimplementation of the RE Law, the Parent Company’s service contracts with the DOE underP.D. 1442 granted the Parent Company the right to explore, development, and utilize the country’sgeothermal resources subject to sharing of net proceeds with the Government. The 60%government share is comprised of royalty fees and income taxes. The royalty fees are shared bythe Government through DOE (60%) and the LGUs (40%).
On July 8, 2009, the Parent Company negotiated with the DOE for the payment of deferredroyalty due to DOE amounting to P=1.4 billion covering the period from 1989 to 2008. As agreedwith the DOE, the Parent Company will settle the deferred royalty fee for four years with aquarterly amortization of P=87.5 million or an annual payment of P=350.0 million. In accordancewith PAS 39, “Day 1” gain amounting to P=168.3 million was recognized for the differencebetween the nominal/maturity value and present value of the royalty fee payable. Subsequent toinitial recognition, royalty fee payable is accreted to its maturity value based on the effectiveinterest rate determined on Day 1.
In 2012, the deferred royalty fee had been paid in full.
Interest on loan payableInterest on loan payable in 2011 pertains to an unsecured short-term borrowing amounting toP=175.0 million at 2.20% interest rate per annum obtained from a local bank onDecember 21, 2010 for the Parent Company’s working capital requirements. The loan matured onJanuary 20, 2011 and was rolled over for another 29 days, with new maturity date onFebruary 18, 2011 at 2.3% interest rate per annum. On February 18, 2011, a partial payment wasmade on the principal amounting to P=85.0 million and the balance of P=90.0 million was rolledover for 31 days to mature on March 21, 2011 at 2.30% interest rate per annum. The loan wasfully settled on March 21, 2011.
25. Foreign Exchange Gains (Losses)
2013 2012 2011Realized foreign exchange gains (losses) - net P=34,652,820 (P=169,333,424) (P=270,373,999)Unrealized foreign exchange gains (losses) - net (1,295,930,926) 1,222,800,198 159,321,670
Net foreign exchange gains (losses) (P=1,261,278,106) P=1,053,466,774 (P=111,052,329)
This account pertains to foreign exchange adjustments realized on repayment of loans andunrealized on restatement of outstanding balances of foreign currency-denominated loans,trade receivables and payables, short-term placements and cash in banks.
- 77 -
*SGVFS005114*
Following are the closing foreign exchange rates used in the translation of monetary assets andliabilities of the Company as of December 31, 2013, 2012 and 2011.
Peso Equivalent of 1 Unit of Foreign CurrencyCurrency 2013 2012
20102011
US dollar P=44.395 P=41.050 P=43.840Japanese yen 0.4239 0.4787 0.5638Singaporean dollar 34.999 33.703 –Euro 60.8161 54.530 –New Zealand dollar 36.212 33.659 –Sweden kroner 6.787 – 6.364United Kingdom pound 72.90 – –
26. Miscellaneous Income (Charges)
2013 2012 2011Loss on direct write-off of input
VAT claims (P=220,039,070) P=– P=–Loss on debt extinguishment
(Notes 17 and 31) – (188,145,763) (197,898,124)Recovery on impairment loss on
property, plant and equipment(Note 12) – 63,614,885 –
Loss on disposal of property, plantand equipment – – (28,970,474)
Reversals of long-outstandingpayables – – 189,613,624
Gain on early redemption of AFSinvestments (Notes 9 and 31) – – (271,292)
Others - net (17,313,703) (37,218,961) 26,206,002(P=237,352,773) (P=161,749,839) (P=11,320,264)
27. Net Retirement and Other Post-employment Benefits
The Parent Company has a funded, non-contributory, defined benefit retirement plan. Meanwhile,BGI, GCGI and FG Hydro set up funded, non-contributory, defined benefit retirement plans in2012, 2011 and 2010, respectively. The Company also provides post-employment medical andlife insurance benefits which are unfunded. The plan covers all permanent employees and isadministered by trustee banks.
Generally, upon fulfillment of certain employment conditions, the retirement benefits are payablein lump sum upon retirement which is determined on the basis of the retiree’s final salary andcomputed at certain percentage of final monthly salary base pay for every year of service.
Under the existing regulatory framework, Republic Act 7641 requires a provision for retirementpay to qualified private sector employees in the absence of any retirement plan in the entity,provided however that the employee’s retirement benefits under any collective bargaining andother agreements shall not be less than those provided under the law. The law does not requireminimum funding of the plan.
- 78 -
*SGVFS005114*
As discussed in Note 2 to the consolidated financial statements, effective January 1, 2013, theCompany adopted the revised PAS 19 in respect of accounting for its employee benefits.Accordingly, the related disclosures on retirement and other post-employment benefits for 2012and 2011 have been revised to reflect the requirements of the revised accounting standard.
The following tables summarize the components of net benefit expense (income) recognized in theconsolidated statement of income and the funded status and amounts recognized in theconsolidated statement of financial position:
2013
2012(As restated -
Note 2)
2011(As restated -
Note 2)Current service cost P=216,224,407 P=225,399,365 P=205,235,565Settlement gain – (752,920,161) (265,534,159)Net interest 71,951,609 100,028,012 96,917,163Retirement and other post-
employment benefits expense(income) [Note 23] P=288,176,016 (P=427,492,784) P=36,618,569
2013
2012(As restated -
Note 2)Present value of defined benefits obligation P=3,817,394,402 P=3,281,316,792Fair value of plan assets (2,158,806,805) (1,844,120,175)Net retirement and other post-employment benefits P=1,658,587,597 P=1,437,196,617
Changes in the present value of the defined benefit obligation are as follows:
2013
2012(As restated -
Note 2)Defined benefits obligation at beginning of year P=3,281,316,791 P=3,763,021,007Current service cost 216,224,407 225,399,365Interest cost on benefits obligation 164,156,619 213,132,871Settlement benefit payments – (681,426,442)Benefits paid (19,848,396) (62,048,808)Remeasurements arising from:
Changes in demographic assumptions 6,783,750 (1,047,000)Changes in financial assumptions (136,913,466) 233,805,144Deviations of experience from assumptions 305,674,697 343,400,816
Curtailment gain – (752,920,161)Defined benefits obligation at end of year P=3,817,394,402 P=3,281,316,792
- 79 -
*SGVFS005114*
Changes in the fair value of plan assets are as follows:
2013
2012(As restated -
Note 2)Fair value of plan assets at beginning of year P=1,844,120,175 P=2,001,855,915Interest income 92,205,010 113,104,859Contributions to the plan 202,342,501 351,446,366Settlement benefit payments – (681,426,442)Benefits paid (18,317,296) (62,048,808)Return on plan assets, excluding interest income 38,456,415 121,188,285Fair value of plan assets at end of year P=2,158,806,805 P=1,844,120,175
Actual return on plan assets P=130,661,425 P=234,293,144
EDC’s retirement benefits fund is maintained by the Bank of the Philippine Islands AssetManagement and BDO Trust while GCGI’s and BGI’s retirement benefits funds are maintained byBDO Trust. These trustee banks are also responsible for investment of the plan assets.
The fair value of plan assets by each classes as at the end of the reporting period are as follows:
2013 2012Investments quoted in active market
Quoted equity investmentsIndustrial - electricity, energy, power and
water P=344,262,751 P=293,395,160Holding firms 211,131,750 40,417,721Financials - banks 89,303,374 13,294,475Property 89,160,229 240,572,253Industrial - food, beverage, and tobacco 50,792,123 3,862,970Services - telecommunications 37,897,190 12,923,240Transportation services 28,467,894 6,539,380Retail 16,878,765 2,626,800Industrial - construction, infrastructure and
allied services 15,337,140 4,070,080Services - casinos and gaming 3,433,520 –Mining – 4,287,276
886,664,736 621,989,355Investments in debt instruments
Government securities 611,213,174 1,023,102,306Investments in corporate bonds 219,628,619 91,628,619
830,841,793 1,114,730,925Unquoted investments
Cash and cash equivalents 409,052,687 77,713,539Receivables and other assets 32,247,589 29,686,357
441,300,276 107,399,896Fair value of plan assets P=2,158,806,805 P=1,844,120,175
The fair values of the plan assets have not materially changed due to the adoption of PFRS 13.
- 80 -
*SGVFS005114*
Cash and cash equivalents include savings and time deposits. Quoted equity investments pertainto listed shares in PSE. The classification by industry of quoted shares presented above is basedon sector classification published by the PSE. Government securities pertain to ROP bonds whilecorporate bonds are debt instruments issued by domestic companies rated Aaa based on the latestcredit rating published by Philippine Rating Services Corporation (PhilRatings) in 2013.Government securities and corporate bonds are both traded in PDEx.
The Company expects to contribute P=150.0 million to its defined benefit retirement plan in 2014.
The principal actuarial assumptions used in determining retirement and other post-employmentbenefits as of December 31 of each year are as follows:
2013 2012EDC GCGI FG Hydro BGI EDC GCGI FG Hydro BGI
Discount rate 4.34% 4.35% 5.01% 4.27% 5.65% 5.65% 5.73% 5.70%Future salary increase
rate 5.00% 5.00% 12.00% 5.00% 6.00% 6.00% 12.00% 6.00%Medical costs trend rate 7.00% 7.00% – 7.00% 7.00% 7.00% – 7.00%
The assumption on the discount rate is based on the long-term government bond ratesapproximating the expected average remaining working life of the employees.
In 2012 and 2011, the Company recognized expense for termination benefits amounting toP=605.2 million and P=386.7 million, respectively. No such expense was incurred in 2013.
The sensitivity analysis below has been determined based on reasonably possible changes of eachsignificant assumption on the defined benefit obligation as of December 31, 2013 and 2012,assuming if all other assumptions were held constant:
2013Increase/Decrease in
Percentage PointEffect on Present Value of
Defined Benefit ObligationDiscount rate +1% (P=454,165,935)
-1% 454,165,935
Future salary increases +1% P=441,700,936-1% (441,700,936)
Medical costs trend +1% P=6,321,694-1% (6,321,694)
2012Increase/Decrease in
Percentage PointEffect on Present Value of
Defined Benefit ObligationDiscount rate +1% (P=381,564,621)
-1% 381,564,621
Future salary increases +1% P=334,906,966-1% (334,906,966)
Medical costs trend +1% P=7,493,049-1% (7,493,049)
- 81 -
*SGVFS005114*
The estimated weighted average duration of benefit payment is 16 to 17 years in 2013 and 15 to16 years in 2012.
Following are the information about the maturity profile of the defined benefit obligation as ofDecember 31, 2013 and 2012:
2013 2012Within the next 12 months 2% −Between 2 and 5 years 11% 8%Between 5 and 10 years 22% 23%Between 10 and 15 years 33% 32%Beyond 15 years 32% 37%
28. Income Tax
a. The components of the Company’s deferred tax assets and liabilities follow:
2013Beginning of
Year(As restated -
Note 2)Charged to
IncomeCharged to
Equity End of YearDeferred income tax assets on: Unrealized foreign exchange losses - BOT
power plants P=913,466,506 (P=105,320,740) P=– P=808,145,766 Impairment loss on property, plant and
equipment 867,128,611 – – 867,128,611 Differences in fair value versus cost of
Tongonan and Palinpinon property, plantand equipment 191,047,219 (18,308,605) – 172,738,614
Allowance for doubtful accounts 65,934,928 (14,793,020) – 51,141,908 Provision for rehabilitation and restoration costs 49,812,280 15,632,858 – 65,445,138 Revenue generated during testing period of BGI
power plants 40,204,712 113,180,178 – 153,384,890 Provision for impairment of parts and supplies
inventories 16,549,691 16,925,649 – 33,475,340 Unrealized foreign exchange losses 734,292 183,615 – 917,907
Calamity loss – 40,954,708 – 40,954,708Accrued retirement benefits 62,526,494 10,899,240 – 73,425,734
Others 87,946,536 30,516,473 (8,543,158) 109,919,8512,295,351,269 89,870,356 (8,543,158) 2,376,678,467
Deferred income tax liabilities on:Differences in fair value versus cost of
property, plant and equipment (925,696,213) 14,567,090 – (911,129,123)Capitalized rehabilitation and restoration costs (35,433,167) (9,560,530) – (44,993,697)
Difference in fair value versus cost ofinventories (16,758,849) 418,873 – (16,339,976)
Unrealized foreign exchange gains (152,161,732) 150,716,270 – (1,445,462) Others (21,360,335) (46,332,286) – (67,692,621)
(1,151,410,296) 109,809,417 – (1,041,600,879)P=1,143,940,973 P=199,679,773 (P=8,543,158) P=1,335,077,588
- 82 -
*SGVFS005114*
2012Beginning of
Year(As restated -
Note 2)
Charged to Income
(As restated -Note 2)
Charged toEquity
(As restated -Note 2)
End of Year(As restated -
Note 2)Deferred income tax assets on: Unrealized foreign exchange
losses - BOT power plants P=1,018,787,247 (P=105,320,741) P=– P=913,466,506 Impairment loss on property, plant and
equipment 873,760,801 (6,632,190) – 867,128,611 Differences in fair value versus cost of
Tongonan and Palinpinon property, plantand equipment 210,790,422 (19,743,203) – 191,047,219
Allowance for doubtful accounts 55,917,298 10,017,630 – 65,934,928 Provision for rehabilitation and restoration costs 40,677,914 9,134,366 – 49,812,280 Revenue generated during testing
period of BGI power plants 3,798,130 36,406,582 – 40,204,712 Provision for impairment of parts and supplies
inventories 31,606,692 (15,057,001) – 16,549,691 Unrealized foreign exchange losses 1,773,101 (1,038,809) – 734,292 Others 294,458,132 (205,221,407) 61,236,305 150,473,030
2,531,569,737 (297,454,773) 61,236,305 2,295,351,269Deferred income tax liabilities on: Differences in fair value versus cost of
property, plant and equipment (973,445,491) 47,749,278 – (925,696,213) Capitalized rehabilitation and restoration costs (31,543,179) (3,889,988) – (35,433,167)
Differences in fair value versus cost ofinventories (18,252,554) 1,493,705 – (16,758,849)
Unrealized foreign exchange gains (15,073,462) (137,088,270) – (152,161,732)Others (27,482,491) 6,122,156 – (21,360,335)
(1,065,797,177) (85,613,119) – (1,151,410,296)P=1,465,772,560 (P=383,067,892) P=61,236,305 P=1,143,940,973
Portion of deferred income tax charged to income amounting to P=41.8 million and P=8.0million in 2012 and 2011, respectively pertains to discontinued operations.
b. As of December 31, 2013, the Company has NOLCO that can be claimed as deductions againstfuture taxable income as follows:
InceptionYear NOLCO Application Expired
AvailableBalance Expiry Year
2010 P=601,172 P=– (P=601,172) P=– 20132011 156,168,189 (77,011,945) – 79,156,244 20142012 263,152,924 – – 263,152,924 20152013 632,243,073 – – 632,243,073 2016
P=1,052,165,358 (P=77,011,945) (P=601,172) P=974,552,241
In 2013, no DTA was recognized for NOLCO of P=632.2 million pertaining to losses subject tothe 30% tax regime, as management does not expect any taxable income at the 30% taxregime where the applicable NOLCO can be claimed as a deduction.
- 83 -
*SGVFS005114*
c. A numerical reconciliation between provision for income tax and the product of accountingincome multiplied by the tax rates of 10% or 30% , as applicable, follows:
2013
2012(As restated -
Note 2)
2011(As restated -
Note 2)Income before income tax from:
Continuing operations P=6,114,053,186 P=11,394,147,721 P=588,792,986Discontinued operations – 139,279,207 (89,224,109)
P=6,114,053,186 P=11,533,426,928 P=499,568,877
Income tax at statutory tax rates (10%/30%) P=1,573,542,122 P=2,152,664,323 P=194,356,309Adjustments for:
Income tax holiday incentives (457,321,130) (1,040,160,497) (358,607,011)Effect of RE Law and effect of change in tax rate 21,548,418 (206,819,310) 97,013,916Dividend income (934,250,959) (205,273,615) –Unrecognized deferred tax asset on
NOLCO 180,710,970 72,990,015 –Interest income - net of final tax (35,506,915) (43,544,951) (45,440,206)Non-deductible provisions/ (non-taxable recovery) - net (42,670,666) 15,333,535 (25,139,407)Unrecognized deferred tax asset on
provision for impairment loss 172,446,259 – –Non-deductible interest expense 12,293,165 16,263,341 18,099,925Movement of temporary differences
reversing during income tax holiday (42,946,777) 27,955,021 1,472,641Difference of regular corporate income
tax (RCIT) and optional standarddeduction (OSD) computation – – (486,932)
Non-taxable/non-deductible foreign exchange loss (gains)
on ROP bonds (3,408,285) (533,579) (104,190)Others 41,547,147 28,032,073 (3,933,448)
Provision for (benefit from) income tax P=485,983,349 P=816,906,356 (P=122,768,403)From continuing operations P=485,983,349 P=775,122,594 (P=114,782,777)From discontinued operations – 41,783,762 (7,985,626)
P=485,983,349 P=816,906,356 (P=122,768,403)
The 10% statutory rate applies to the relevant renewable energy operations covered by the RELaw while the 30% applies, in general, to the other activities.
d. On February 14, 2013, BGI was granted with an income tax holiday (ITH) incentive by theBoard of Investments covering its 130 MW BMGPP complex. Subject to certain conditions,BGI is entitled to income tax holiday for seven years from July 2013 or date of commissioningof the power plants, whichever is earlier. BGI does not recognize deferred tax assets anddeferred tax liabilities on temporary differences that are expected to reverse during ITH period.
e. On December 18, 2008, the BIR issued Revenue Regulations (RR) No. 16-2008 whichimplemented the provisions of Section 34(L) of the Tax Code, as amended by Section 3 ofR.A. No. 9504, which allows individuals and corporations who are subject to the 30% RCITrate to adopt the OSD in computing their taxable income. Under RR No. 16-2008,
- 84 -
*SGVFS005114*
corporations may claim OSD equivalent to 40% of gross income, excluding passive incomesubjected to final tax, in lieu of the itemized deductions. A corporate taxpayer who elected toavail of the OSD shall signify such in the income tax return (ITR). Otherwise, it shall beconsidered as having availed of the itemized deductions allowed under Section 34 of theNational Internal Revenue Code. Pursuant to Section 3 of RR No. 02-2010 dated February 18,2010, the election to claim the OSD or the itemized deduction for the taxable year must besignified by checking the appropriate box in the ITR filed for the first quarter of the taxableyear adopted by the taxpayer. Once the election is made, the same type of deduction must beconsistently applied for all succeeding quarter returns and in the final ITR for the taxable year.Any taxpayer who is required but fails to file the quarterly ITR for the first quarter shall beconsidered as having availed of the itemized deductions option for the taxable year.
For 2013, 2012 and 2011, the Company computed its income tax based on itemizeddeductions for its income subject to either 10% or 30% income tax rate, except for FG Hydrowhich computed its income tax in 2011 using OSD.
f. FG Hydro does not recognize deferred tax assets and deferred tax liabilities on temporarydifferences that are expected to reverse during ITH period. FG Hydro expects to receive its REregistration in 2014.
29. Basic/Diluted Earnings (Loss) Per Share
The basic/diluted earnings (loss) per share amounts were computed as follows:
2013
2012(As restated -
Note 2)
2011(As restated -
Note 2)Net income (loss) attributable to equity holders
of the Parent Company P=4,739,577,464 P=9,002,361,919 (P=159,640,690)Less dividends on preferred shares
(Note 19) 7,500,000 7,500,000 7,500,000(a) Net income (loss) attributable to common
shareholders of the Parent Company 4,732,077,464 8,994,861,919 (167,140,690)(b) Less net income (loss) from discontinued operations attributable to equity holders of the Parent Company – 97,495,445 (81,238,483)(c) Net income (loss) from continuing operations attributable to common shareholders of the Parent Company 4,732,077,464 8,897,366,474 (85,902,207)(d) Weighted average number
of common shares outstanding 18,750,000,000 18,750,000,000 18,750,000,000Basic/diluted earnings (loss) per
share (a/d) P=0.252 P=0.480 (P=0.009)From continuing operations (c/d) 0.252 0.475 (0.005)From discontinued operations (b/d) – 0.005 (0.004)
The Parent Company does not have dilutive common share equivalents.
- 85 -
*SGVFS005114*
30. Share-Based Payment
On January 23, 2009, the BOD of the Parent Company approved the ESGP. The ESGP is anintegral part of the Parent Company’s total rewards program for its officers and employees and isintended to provide an opportunity for participants to have real and personal direct interest in theParent Company.
On December 1, 2009, the Nomination and Compensation Committee (the Committee) granted7,000,000 shares representing the Parent Company common shares authorized under the ESGPwhich were transferred to the BDO Trust. These shares were part of the 93,000,000 commonshares issued to the BDO Trust and recorded under “Common shares in employee trust account”.BDO Trust will administer the issuance of the common shares to the employee grantees under theParent Company’s ESGP (see Note 19).
The stock grants are given in lieu of cash incentives and bonuses. The grant of shares under theESGP does not require an exercise price to be paid by the awardees. The granted shares will vestover a three-year period as follows: 20% after the first anniversary of the grant date; 30% after thesecond anniversary of the grant date; and the remaining 50% after the third anniversary of thegrant date. Awardees that resign or are terminated will lose any right to unvested shares. Thereare no cash settlement alternatives.
The ESGP covers officers and employees of the Parent Company or other individuals whom theCommittee may decide to include. The Committee shall maintain the sole discretion over theselection of individuals to whom awards may be granted for any given calendar year.
Stock awards granted by the Committee to officers and employees of EDC are shown below:
Grant Date
Number ofShares
Granted
Fair Value PerShare
at Grant Date Vested UnvestedDecember 1, 2009 7,000,000 P=4.20 7,000,000 –June 1, 2010 2,625,000 4.70 2,625,000 –June 1, 2011 2,625,000 6.75 1,312,500 1,312,500June 1, 2012 2,625,000 5.84 525,000 2,100,000June 1, 2013 2,250,000 6.10 – 2,250,000
Total compensation expense recognized in 2013, 2012 and 2011 amounted to P=11.9 million,P=24.7 million and P=8.8 million, respectively. A corresponding increase in the “Common shares inemployee trust account” amounting to P=6.9 million, P=13.8 million and P=7.0 million and increase inthe “Additional paid-in capital” account amounting to P=4.9 million, P=10.9 million and P=1.9 millionwere recorded for the years ended December 31, 2013, 2012 and 2011, respectively (see Note 19).
31. Financial Risk Management Objectives and Policies
The Company’s financial instruments consist mainly of cash and cash equivalents, AFSinvestments and long-term debts. The main purpose of these financial instruments is to financethe Company’s operations and accordingly manage its exposure to financial risks. The Companyhas various other financial assets and liabilities such as trade receivables, trade payables and otherliabilities, which arise directly from operations.
- 86 -
*SGVFS005114*
Financial Risk Management PolicyThe main financial risks arising from the Company’s financial instruments are credit risk, foreigncurrency risk, interest rate risk and liquidity risk. The Company’s policies for managing theaforementioned risks are summarized hereinafter below.
Credit RiskThe Company’s geothermal and power generation business trades with one major customer, NPC,a government-owned-and-controlled corporation. Any failure on the part of NPC to pay itsobligations to the Company would significantly affect the Company’s business operations. As apractice, the Company monitors closely its collection from NPC and charges interest on delayedpayments following the provision of its respective SSAs and PPAs. Receivable balances aremonitored on an ongoing basis to ensure that the Company’s exposure to bad debts is notsignificant. The maximum exposure of trade receivable is equal to its carrying amount.
With respect to credit risk arising from other financial assets of the Company, which comprisecash and cash equivalents excluding cash on hand, other receivables and AFS investments, theCompany’s exposure to credit risk arises from default of the counterparty, with a maximumexposure equal to the carrying amount of these instruments before taking into account anycollateral and other credit enhancements.
The following tables show the aging analysis of the Company’s financial assets as ofDecember 31, 2013 and 2012:
2013Past Due but Not Impaired
NeitherPast
Due norImpaired
Less than30 Days
31 Daysto 1 Year
Over 1 Yearup to
3 YearsOver
3 Years
PastDue and
Impaired Total(In Thousand Pesos)
Loans and receivables: Cash and cash
equivalents(excluding cash onhand) P=16,013,213 P=– P=– P=– P=– P=– P=16,013,213
Trade receivables 3,213,038 17,048 75,835 – – 91,149 3,397,070 Non-trade receivables 84,773 – 10,060 19 – – 94,852 Loans and notes
receivables 124,936 – – – – – 124,936 Employee
receivables* 11,958 – – – – – 11,958 Long-term
receivables 16,685 – – – – 72,278 88,963AFS investments: Debt investments 341,842 – – – – – 341,842 Equity investments 407,242 – – – – – 407,242Financial assets at
FVPL: Derivative assets 7,547 – – – – – 7,547Derivative assets
designated as cashflow hedges 53,583 – – – – – 53,583
Total P=20,274,817 P=17,048 P=85,895 P=19 P=– P=163,427 P=20,541,206*Includes noncurrent portion of employee receivables included under other noncurrent assets - others.
- 87 -
*SGVFS005114*
2012Past Due but Not Impaired
Neither PastDue nor
ImpairedLess than
30 Days31 Days
to 1 Year
Over 1 Yearup to
3 YearsOver
3 Years
PastDue and
Impaired Total(In Thousand Pesos)
Loans and receivables: Cash and cash
equivalents(excluding cash onhand) P=11,420,013 P=– P=– P=– P=– P=– P=11,420,013
Trade receivables 3,600,571 150,636 166,380 – – 75,603 3,993,190 Non-trade receivables 12,093 37,927 18,104 10 – – 68,134 Loans and notes
receivables 59,984 – – – – – 59,984 Employee
receivables* 12,210 – – – – – 12,210 Long-term
receivables 12,228 – – – – 67,225 79,453AFS investments: Debt investments 605,970 – – – – – 605,970Financial assets at
FVPL: Derivative assets 249 – – – – – 249Total P=15,723,318 P=188,563 P=184,484 P=10 P=– P=142,828 P=16,239,203*Includes noncurrent portion of employee receivables included under other noncurrent assets - others.
Credit Quality of Financial AssetsFinancial assets are classified as high grade if the counterparties are not expected to default insettling their obligations. Thus, the credit risk exposure is minimal. These counterpartiesnormally include customers, banks and related parties who pay on or before due date. Financialassets are classified as a standard grade if the counterparties settle their obligation with theCompany with tolerable delays. Low grade accounts are accounts which have probability ofimpairment based on historical trend. These accounts show propensity of default in paymentdespite regular follow-up actions and extended payment terms.
As of December 31, 2013 and 2012, financial assets categorized as neither past due nor impairedare viewed by management as high grade, considering the collectability of the receivables and thecredit history of the counterparties. Meanwhile, past due but not impaired financial assets areclassified as standard grade.
Foreign Currency RiskThe Company’s exposure to foreign currency risk is mainly from the financial assets and liabilitiesthat are denominated in US dollar (US$). This primarily arises from future payments of foreigncurrency-denominated loans and other commercial transactions and the Company’s investment inROP Bonds.
The Company’s exposure to foreign currency risk to some degree is mitigated by some provisionsin the Company’s GRESCs (formerly GSCs), SSAs and PPAs. The service contracts allow fullcost recovery while the sales contracts include billing adjustments covering the movements inPhilippine peso and the US$ rates, US Price and Consumer Indices, and other inflation factors.
To mitigate further the effects of foreign currency risk, the Company will prepay, refinance orhedge its foreign currency-denominated loans, whenever deemed feasible.
- 88 -
*SGVFS005114*
The Company’s foreign currency-denominated financial assets and liabilities (translated into Peso)as of December 31, 2013 and 2012 are as follows:
2013Original Currency
US$Japanese yen
(JP¥)
UnitedKingdom
pound(GBP)
Swedenkroner(SEK)
ChileanPeso (CHP=) Euro (EUR)
New Zealanddollar (NZD)
PesoEquivalent1
Financial AssetsLoans and receivables: Cash equivalents 56,300,000 − − − − − − P=2,499,438,500 Cash on hand and in
banks 11,917,441 − − − 96,005,271 − − 537,186,567AFS investments: Debt investments 7,696,268 − − − − − − 341,675,818Financial assets at FVPL: Derivative assets 169,997 − − − − − − 7,547,020Derivative assets designated
as cash flow hedges 1,206,962 − − − − − − 53,583,080Total financial assets 77,290,668 − − − 96,005,271 − − P=3,439,430,985
Financial LiabilitiesLiabilities at amortized cost: Accounts payable 26,621,867 13,822,941 138,000 1,254,342 − 139,000 621,331 P=1,231,408,505 Long-term debt 513,785,044 − − − − − − 22,809,487,028 Accrued interest on
long-term debts 8,891,194 − − −−
− − 394,724,558Derivative liabilities
designated as cash flowhedges 94,568 − − −
−
− − 4,198,322Total financial liabilities 549,392,673 13,822,941 138,000 1,254,342 − 139,000 621,331 P=24,439,818,413
1 Exchange rates at P=US$1= P=44.395, JP¥1=P=0.0095, GBP1=P=72.90, SEK1=P=6.79, CHP=1=P=0.08449301, EUR1=P=60.82 and NZD1=P=36.21as of December 31, 2013 (see Note 25).
2012Original Currency
US$Japanese yen
(JP¥)Singaporean
dollar (SGD) Euro (EUR)New Zealanddollar (NZD)
PesoEquivalent1
Financial AssetsLoans and receivables: Cash equivalents 34,740,000 − − − − P=1,426,077,000 Cash on hand and in banks 3,092,834 − − − − 126,960,850 Trade receivables 50,449,149 − − − − 2,070,937,566AFS investments: Debt investments 13,569,553 − − − − 605,969,837Financial assets at FVPL: Derivative assets 6,060 − − − − 248,760Total financial assets 101,857,596 − − − − P=4,230,194,013
Financial LiabilitiesLiabilities at amortized cost: Accounts payable 15,842,877 16,494,900 230,186 965,226 261,141 P=727,400,439 Long-term debt 469,727,712 − − − − 19,282,322,589 Accrued interest on long-term debts 8,824,142 − − − − 362,231,029
Other payables 1,405,947 51,773,878 − − − 82,412,430Derivative liabilities designated as cash flow hedges 5,820,313 − − − − 238,923,862
Total financial liabilities501,620,991 68,268,778 230,186 965,226 261,141 P=20,693,290,349
1 US$1= P=41.050, JP¥1=P=0.477, SGD1=P=33.703, EUR1=P=54.530 and NZD1=P=33.659 as of December 31, 2012 (see Note 25).
- 89 -
*SGVFS005114*
The following tables demonstrate the sensitivity to a reasonably possible change in the exchangerates of relevant foreign currencies, with all other variables held constant, of the Company’sincome before income tax for 2013 and 2012 and equity as of December 31, 2013 and 2012. Theimpact on the Company’s income before income tax is due to revaluation of monetary assets andmonetary liabilities while the impact on equity arises from changes in the fair value of crosscurrency swaps designated as cash flow hedges.
2013Foreign Currency
Appreciates(Depreciates) By
Effect on IncomeBefore Income Tax Effect on Equity
USD 10% or P=4.440 (P=2,101,957,381) P=57,158,762(10% or P=4.440) 2,101,957,381 (56,878,221)
GBP 10% or P=7.28967 (1,005,974) –(10% or P=7.28967) 1,005,974 –
SEK 10% or P=0.67867 851,284 –(10% orP=0.67867) (851,284) –
EUR 10% or P=6.08161 (845,344) –(10% or P=6.08161) 845,344 –
NZD 10% or P=3.62120 (2,249,963) –(10% orP=3.62120) 2,249,963 –
2012Foreign Currency
Appreciates(Depreciates) By
Effect on IncomeBefore Income Tax Effect on Equity
USD 10% or P=4.105 (P=1,617,161,228) (P=249,654,621)(10% or P=4.105) 1,617,161,228 257,077,605
JPY 10% or P=0.04770 (3,256,421) –(10% or P=0.04770) 3,256,421 –
SGD 10% or P=3.37032 (775,800) –(10% orP=3.37032) 775,800 –
EUR 10% or P=5.45300 (5,263,377) –(10% or P=5.45300) 5,263,377 –
NZD 10% or P=3.36591 (878,977) –(10% or P=3.36591) 878,977 –
Interest Rate RiskThe Company’s exposure to the risk of changes in market interest rates relates primarily to theCompany’s long-term debt obligations with floating interest rates and AFS debt investments.
The interest rates of some of the Company’s long-term borrowings and AFS debt investments arefixed at the inception of the loan agreement.
The Company regularly evaluates its interest rate risk by taking into account the cost of qualifiedborrowings being charged by its creditors. Prepayment, refinancing or hedging the risks areundertaken when deemed feasible and advantageous to the Company.
- 90 -
*SGVFS005114*
Interest Rate Risk TableThe following tables provide for the effective interest rates and interest payments by period ofmaturity of the Company’s long-term debts:
2013
InterestRates
Within1 Year
More than 1Year but lessthan 4 years
More than 4Years but
less than 5Years
More than5 Years Total
(In Thousand Pesos)Fixed RateUS$ 300.0 million Notes 6.50% P=865,703 P=2,597,108 P=865,703 P=2,164,256 P=6,492,770Peso Public Bonds
Series 1 8.64% 734,553 367,277 – – 1,101,830Series 2 9.33% 326,645 653,289 – – 979,934
IFC 1 7.40% 237,045 557,732 134,425 287,669 1,216,871IFC 2 6.66% 198,995 495,716 131,173 443,829 1,269,713FXCN P=3.0 billion 6.62% 195,045 573,224 187,104 639,231 1,594,604
P=4.0 billion 6.61% 259,804 763,547 249,227 851,471 2,124,0492013Peso Fixed-Rate Bonds P=3.0 billion 4.16% 124,749 374,247 124,749 187,124 810,869
P=4.0 billion 4.73% 189,248 567,744 189,248 851,616 1,797,856PNB and Allied Bank 4.5% 339,622 733,570 137,142 94,769 1,305,103Floating RateUS$ 80.0 million 1.80% +
LIBOR 75,475 206,427 32,996 – 314,898US$ 175.0 million Refinanced Syndicated Term Loan
1.75% +LIBOR 121,870 235,811 – – 357,681
2012
InterestRates
Within1 Year
More than 1Year but lessthan 4 years
More than 4Years but
less than 5Years
More than5 Years Total
(In Thousand Pesos)Fixed RateUS$ 300.0 million Notes 6.50% P=800,475 P=2,401,425 P=800,475 P=2,801,663 P=6,804,038Peso Public Bonds
Series 1 8.64% 734,553 1,101,830 – – 1,836,383Series 2 9.33% 326,645 979,934 – – 1,306,579
IFC 1 7.40% 262,700 634,697 160,080 422,094 1,479,571IFC 2 6.66% 227,506 546,583 148,129 575,002 1,497,220FXCN P=3.0 billion 6.62% 197,030 579,179 189,089 826,335 1,791,633
P=4.0 billion 6.61% 262,449 771,480 251,871 1,100,698 2,386,498
(Forward)
- 91 -
*SGVFS005114*
2012
InterestRates
Within1 Year
More than 1Year but lessthan 4 years
More than 4Years but
less than 5Years
More than5 Years Total
(In Thousand Pesos)Floating RatePNB and Allied Bank 1.5% +
PDST-F rateor 1.0% +
BSPovernight
rate P=379,664 P=881,147 P=192,044 P=231,911 P=1,684,766US$ 175.0 million Refinanced Syndicated Term Loan
1.75% +LIBOR 138,125 294,676 36,055 – 468,856
The following tables demonstrate the sensitivity to a reasonably possible change in interest rates,with all other variables held constant, of the Company’s income before income tax in 2013 and2012 and equity as of December 31, 2013 and 2012. The impact on the Company’s equity is due tochanges in the fair value of AFS investments and cross currency swaps designated as cash flowhedges.
2013Effect on Equity
Increase/Decreasein Basis Points
Effect on IncomeBefore Income Tax
Change in Fair Value ofAFS Investments
Cumulative TranslationAdjustment - Hedging
Transactions+100 (P=77,691,250) (P=2,594,736) P=28,830,862-100 77,691,250 2,875,278 (53,977,832)
2012Effect on Equity
Increase/Decreasein Basis Points
Effect on IncomeBefore Income Tax
Change in Fair Value ofAFS Investments
Cumulative TranslationAdjustment
+100 (P=45,157,053) (P=4,424,970) P=78,880,941-100 45,157,053 4,864,677 (89,796,217)
Liquidity RiskThe Company’s objective is to maintain a balance between continuity of funding and sourcingflexibility through the use of available financial instruments. The Company manages its liquidityprofile to meet its working capital and capital expenditure requirements and service debtobligations. As part of the liquidity risk management program, the Company regularly evaluatesand considers the maturity of both its financial investments and financial assets (e.g., tradereceivables and other financial assets) and resorts to short-term borrowings whenever its availablecash or matured placements is not enough to meet its daily working capital requirements. Toensure immediate availability of short-term borrowings, the Company maintains credit lines withbanks on a continuing basis.
Liquidity risk arises primarily when the Company has difficulty collecting its receivables from itsmajor customer, NPC. Other instances that contribute to its exposure to liquidity risk are when theCompany finances long-term projects with internal cash generation and when there is creditcrunch especially at times when the Company has temporary funding gaps.
- 92 -
*SGVFS005114*
The tables below show the maturity profile of the Company’s financial assets used for liquiditypurposes based on contractual undiscounted cash flows as of December 31, 2013 and 2012.
December 31, 2013
On DemandLess than 3
Months3 to
6 Months>6 to
12 Months>1 to
5 YearsMore than
5 Years Total(In Thousand Pesos)
Loans and receivables - Cash equivalents P=– P=12,101,997 P=– P=– P=– P=– P=12,101,997AFS investments - Debt investments 377,617 – – – – – 377,617
P=377,617 P=12,101,997 P=– P=– P=– P=– P=12,479,614
December 31, 2012
On DemandLess than 3
Months3 to
6 Months>6 to
12 Months>1 to
5 YearsMore than
5 Years Total(In Thousand Pesos)
Loans and receivables - Cash equivalents P=– P=9,011,083 P=– P=– P=– P=– P=9,011,083AFS investments - Debt investments 605,970 – – – – – 605,970
P=605,970 P=9,011,083 P=– P=– P=– P=– P=9,617,053
The tables below summarize the maturity analysis of the Company’s financial liabilities as ofDecember 31, 2013 and 2012 based on contractual undiscounted payments:
2013On
DemandLess than3 Months
3 to6 Months
>6 to12 Months
>1 to5 Years
More than5 Years Total
(In Thousand Pesos)Liabilities at amortized
cost: Accounts payable* P=− P=5,351,131 P=− P=− P=− P=− P=5,351,131 Accrued interest on
long-term debts 84,356 394,725 313,605 − − − 792,686 Other payables − 56,563 − − − − 56,563 Due to related parties 53,347 − − − − − 53,347Royalty payable 39,671 − − − − − 39,671Long-term debts − 87,278 2,162,178 2,371,072 36,429,373 36,743,861 77,793,762Derivative liabilities
designated as cashflow hedges − 525 − − 3,673 − 4,198
Total P=177,374 P=5,890,222 P=2,475,783 P=2,371,072 P=36,433,046 P=36,743,861 P=84,091,358*Excluding other liabilities which pertain to statutory liabilities to the Government.
2012On
DemandLess than3 Months
3 to6 Months
>6 to12 Months
>1 to5 Years
More than5 Years Total
(In Thousand Pesos)Liabilities at amortized
cost: Accounts payable* P=− P=5,685,688 P=− P=− P=− P=− P=5,685,688 Accrued interest on
long-term debts − 360,213 300,914 − − − 661,127 Other payables 82,412 7,257 − − − − 89,669 Due to related parties 49,578 − − − − − 49,578 Long-term debts − 75,879 2,217,278 2,168,742 33,285,188 30,479,342 68,226,429Financial liabilities at
FVPL: Derivative liabilities − 85,424 − − 153,500 − 238,924Total P=131,990 P=6,214,461 P=2,518,192 P=2,168,742 P=33,438,688 P=30,479,342 P=74,951,415*Excluding other liabilities which pertain to statutory liabilities to the Government.
- 93 -
*SGVFS005114*
Financial Assets and Financial LiabilitiesSet out below is a comparison of carrying amounts and fair values of the Company’s financialinstruments as of December 31, 2013 and 2012.
2013 2012CarryingAmounts Fair Values
CarryingAmounts Fair Values
Financial AssetsLoans and receivables: Long-term receivables P=88,962,765 P=84,641,685 P=12,228,071 P=10,808,592AFS investments: Debt investments 341,841,500 341,841,500 605,969,837 605,969,837 Equity investments 407,242,129 407,242,129 233,501,056 233,501,056Financial assets at FVPL: Derivative assets 7,547,021 7,547,021 248,760 248,760Derivative assets designated as cash
flow hedge 53,583,080 53,583,080 − −P=899,176,495 P=894,855,415 P=851,947,724 P=850,528,245
Financial LiabilitiesFinancial liabilities at amortized cost:
Long-term debts P=58,548,760,334 P=62,920,736,836 P=49,049,871,866 P=55,036,160,776Derivative liabilities designated as cash
flow hedges 4,198,322 4,198,322 238,923,862 238,923,862P=58,552,958,656 P=62,924,935,158 P=49,288,795,728 P=55,275,084,638
Due to relatively short maturity, ranging from one to three months, carrying amounts approximatefair values for cash and cash equivalents, trade and other receivables, amounts due from and torelated parties and trade and other payables.
The methods and assumptions used by the Company in estimating the fair value of its financialinstruments are:
Long-term ReceivablesThe fair value of long-term receivables was computed by discounting the expected cash flow usingthe applicable rate of 2.52% and 3.13% in 2013 and 2012, respectively.
AFS InvestmentsFair values of quoted debt and equity securities are based on quoted market prices. For equityinvestments that are not quoted, the investments are carried at cost less allowance for impairmentlosses due to the unpredictable nature of future cash flows and the lack of suitable methods ofarriving at a reliable fair value.
Long-term DebtsThe fair values for the Company’s long-term debts are estimated using the discounted cash flowmethodology with the applicable rates ranging from 1.76% to 7.40% in 2013 and 1.75% to 8.56%in 2012.
The following tables show the fair value information of financial instruments classified underFVPL, AFS investments and loans and receivables analyzed by source of inputs on fair valuationas follows:
· Level 1 - Quoted prices in active markets for identical assets or liabilities;
- 94 -
*SGVFS005114*
· Level 2 - Those involving inputs other than quoted prices included in Level 1 that areobservable for the asset or liability, either directly (as prices) or indirectly (derived fromprices); and
· Level 3 - Those with inputs for the asset or liability that are not based on observable marketdata (unobservable inputs).
2013Total Level 1 Level 2 Level 3
Loans and receivables:Long-term receivables P=88,962,765 P=− P=− P=88,962,765
Financial asset at FVPL:Derivative assets 7,547,020 − 7,547,020 −
AFS investments:Debt investments 341,841,500 341,841,500 − −Equity investments 407,242,129 407,242,129 − −
Derivative assets designated ascash flow hedges 53,583,080 − 53,583,080 −
2012Total Level 1 Level 2 Level 3
Loans and receivables:Long-term receivables P=10,808,592 P=− P=− P=10,808,592
Financial asset at FVPL:Derivative assets 248,760 − 248,760 −
AFS investments:Debt investments 605,969,837 605,969,837 − −Equity investments 233,501,056 233,501,056 − −
Derivatives designated as cashflow hedges:Derivative liabilities 238,923,862 − 238,923,862 −
During 2013 and 2012, there were no transfers between Level 1 and Level 2 fair valuemeasurements and no transfers into and out of Level 3 fair value measurements.
The Company classifies its financial instruments in the following categories:
2013
Loans andReceivables
AFSInvestments
Liabilities atAmortized
Cost
FinancialAssets at
FVPL
DerivativesDesignated as
Cash FlowHedges Total
(In Thousand Pesos)Financial AssetsCash and cash equivalents P=16,043,155 P=− P=− P=− P=− P=16,043,155Trade receivables 3,305,921 − − − − 3,305,921Non-trade receivables 94,852 − − − − 94,852Loans and notes receivables 124,937 − − − − 124,937Employee receivables 11,958 − − − − 11,958Long-term receivables 16,685 − − − − 16,685AFS - debt investments − 341,842 − − − 341,842AFS - equity investments − 407,242 − − − 407,242Derivative assets − − − 7,547 53,583 61,130Total financial assets P=19,597,508 P=749,084 P=− P=7,547 P=53,583 P=20,407,722
- 95 -
*SGVFS005114*
2013
Loans andReceivables
AFSInvestments
Liabilities atAmortized
Cost
FinancialAssets at
FVPL
DerivativesDesignated as
Cash FlowHedges Total
(In Thousand Pesos)Financial LiabilitiesAccounts payable P=− P=− P=5,351,131 P=− P=− P=5,351,131Accrued interest on long-
term debts − − 792,686 − − 792,686Other payables − − 56,563 − − 56,563Due to related parties − − 53,347 − − 53,347Royalty payable − − 39,671 − − 39,671Long-term debts − − 58,548,760 − − 58,548,760Derivative liabilities − − − − 4,198 4,198Total financial liabilities P=− P=− P=64,842,158 P=− P=4,198 P=64,846,356
2012
Loans andReceivables
AFSInvestments
Liabilities atAmortized
Cost
FinancialAssets at
FVPL
DerivativesDesignated as
Cash FlowHedges Total
(In Thousand Pesos)Financial AssetsCash and cash equivalents P=11,420,144 P=− P=− P=− P=− P=11,420,144Trade receivables 3,917,587 − − − − 3,917,587Non-trade receivables 68,134 − − − − 68,134Loans and notes
receivables 59,984 − − − − 59,984Employee receivables 12,210 − − − − 12,210Long-term receivables 12,228 − − − − 12,228AFS - debt investments − 605,970 − − − 605,970AFS - equity investments − 233,501 − − − 233,501Derivative assets − − − 249 − 249Total financial assets P=15,490,287 P=839,471 P=− P=249 P=− P=16,330,007Financial LiabilitiesAccounts payable P=− P=− P=5,685,688 P=− P=− P=5,685,688Accrued interest on long-
term debts − − 661,127 − − 661,127Other payables − − 89,669 − − 89,669Due to related parties − − 49,578 − − 49,578Long-term debts − − 49,049,872 − − 49,049,872Derivative liabilities − − − − 238,923 238,923Total financial liabilities P=− P=− P=55,535,934 P=− P=238,923 P=55,774,857
The following table demonstrates the income, expense, gains or losses of the Company’s financialinstruments for the years ended December 31, 2013, 2012 and 2011:
2013 2012 2011Effect on Profit
or LossEffect
on EquityEffect on
Profit or LossEffect
on EquityEffect on
Profit or LossEffect
on EquityIncrease
(Decrease)Increase
(Decrease)Increase
(Decrease)Increase
(Decrease)Increase
(Decrease)Increase
(Decrease)Loans and receivablesInterest income on: Cash in banks (Note 7) P=52,155,412 P=– P=3,596,543 P=– P=6,388,430 P=– Cash equivalents (Note 7) 230,926,922 – 312,797,929 – 369,729,747 – Trade receivables – – 693,922 – 2,983,715 – Employee and other receivables 8,992,474 – 3,338,547 – 8,909,082 –Provision for doubtful
accounts - trade receivables (15,545,673) – (31,775,230) – (100,232,678) –P=276,529,135 P=– P=288,651,711 P=– P=287,778,296 P=–
(Forward)
- 96 -
*SGVFS005114*
2013 2012 2011Effect on Profit
or LossEffect
on EquityEffect on
Profit or LossEffect
on EquityEffect on
Profit or LossEffect
on EquityIncrease
(Decrease)Increase
(Decrease)Increase
(Decrease)Increase
(Decrease)Increase
(Decrease)Increase
(Decrease)AFS investmentsEquity investments: Net gain (loss) recognized in equity P=– (P=55,137,703) P=– (P=3,648,940) P=– P=2,277,570Debt investments: Net gain (loss) recognized
in equity – (26,773,701) – 23,412,750 – (30,001,763) Interest income on
government debt securities 785,152 – 43,111,994 – 1,099,376 –
Net unrealized gain removed from equity and recognized in profit or loss (Note 9) – – – – 235,689 –
Gain on early redemption of AFS investment (Note 9) – – – – 271,292 –
P=785,152 (P=81,911,404) P=43,111,994 P=19,763,810 P=1,606,357 (P=27,724,193)Financial assets at FVPLNet fair value changes of
forward contracts P=14,243,178 P=– (P=4,131,240) P=– P=108,319,377 P=–
Derivatives designated as cashflow hedges
Cumulative translationadjustment P=– P=88,810,758 P=– (P=144,426,476) P=– P=–
Financial liabilities atamortized cost
Interest expense on (Note 24): Long-term debts, including
amortization oftransaction costs (P=3,352,638,769) P=– (P=3,656,390,728) P=– (P=4,005,331,916) P=–
Royalty fee payable – – (10,945,030) – (31,332,828) – Loan payable and others – – (59,822) – (1,140,521) –Loss on extinguishment of debt
(Note 26) – – (188,145,763) – (197,898,124) –(P=3,352,638,769) P=– (P=3,855,541,343) P=– (P=4,235,703,389) P=–
Derivative Financial InstrumentsThe Company engages in derivative transactions, particularly foreign currency forwards, foreigncurrency swaps and cross-currency swaps, to manage its foreign currency risk and/or interest raterisk arising from its foreign-currency denominated loans. These derivatives are accounted foreither as derivatives designated as accounting hedges or derivatives not designated as accountinghedges.
- 97 -
*SGVFS005114*
The table below shows the derivative financial instruments of the Company as of December 31,2013 and 2012.
2013 2012Derivative
AssetsDerivativeLiabilities
DerivativeAssets
DerivativeLiabilities
Derivatives designated asaccounting hedges:Cross currency swaps P=53,583,080 P=4,198,322 P=– P=238,923,862
Derivatives not designated asaccounting hedges:Foreign currency swap contracts 7,547,021 – 248,760 –
Total derivative financialinstruments P=61,130,101 P=4,198,322 P=248,760 P=238,923,862
Presented as:Current P=14,244,905 P=524,790 P=248,760 P=85,423,548Noncurrent 46,885,196 3,673,532 – 153,500,314
P=61,130,101 P=4,198,322 P=248,760 P=238,923,862
Derivatives Not Designated as Accounting Hedges
Foreign Currency Swap ContractsA foreign currency swap is an agreement to exchange amounts in different currencies based on thespot rate at trade date and to re-exchange the same currencies at a future date based on an agreedrate.
In 2013 and 2012, the Company entered into a total of 22 and 6 foreign currency swap contractsrespectively, with terms as follows:
December 31, 2013 December 31, 2012
Position
Aggregatenotional amount
(in million)Average
forward rate
Aggregatenotional amount
(in million)
Averageforward
rate
Sell US$ - buy PHP= US$105.60 P=44.00 US$44.50 P=41.42
For the years ended December 31, 2013 and 2012, the Company recognized P=12.9 million gainand P=4.1 million loss, respectively, from the fair value changes of the currency swap contracts.These are recorded under “Derivative gains (losses) - net” in the consolidated statement of income.
Foreign Currency Forward ContractsThese are contractual agreements to buy or sell a foreign currency at an agreed rate on a futuredate.
In 2013, the Company entered into a total of 45 currency forward contracts with variouscounterparty banks. These contracts include one deliverable and 44 non-deliverable forwardcontracts. The deliverable buy JP¥ - sell US$ forward contract has notional amount and forwardrate of US$3.0 million and JP¥91.0, respectively. As for the non-deliverable forward contracts,the Company entered into sell US$ - buy PHP= transactions with onshore banks and simultaneouslyentered into buy US$ - sell PHP= transactions with offshore banks as an offsetting position. Theaggregate notional amount of these sell PHP= - buy US$ forward contracts was US$130.0 millionwhile the average forward rate was P=43.61.
- 98 -
*SGVFS005114*
For the year ended December 31, 2013, the Company recognized P=1.6 million gain from fair valuechanges of these foreign currency forwards contracts. Such amount is recorded under “Derivativegains - net” in the consolidated statement of income.
The Company did not enter into any foreign currency forward transaction in 2012.
Derivatives Designated as Accounting HedgesIn 2012, the Company entered into 6 non-deliverable cross-currency swap (NDCCS) agreementswith an aggregate notional amount of US$65.0 million to partially hedge the foreign currency andinterest rate risks on its Refinanced Syndicated Term Loan that is benchmarked against USLIBOR and with flexible interest reset feature that allows the Company to select what interestreset frequency to apply (i.e., monthly, quarterly or semi-annually) [see Note 17]. As it is theCompany’s intention to reprice the interest rate on the hedged loan quarterly, the Company utilizesNDCCS with quarterly interest payments and receipts.
Under the NDCCS agreements, the Company receives floating interest based on 3-month USLIBOR plus 175 basis points and pays fixed peso interest. On specified dates, the Company alsoreceives specified USD amounts in exchange for specified peso amounts based on the agreed swaprates. These USD receipts correspond with the expected interest and fixed principal amounts dueon the hedged loan. Effectively, the 6 NDCCS converted 37.14% of hedged USD loan into afixed rate peso loan.
Pertinent details of the NDCCS are as follows:
Notionalamount (in
million)TradeDate
EffectiveDate
MaturityDate
Swaprate
Fixed rate Variable rate
US$15.0 03/26/12 03/27/12 06/17/17 P43.05 4.87% 3-month LIBOR + 175 bpsUS$10.0 04/18/12 06/27/12 06/17/17 42.60 4.92% 3-month LIBOR + 175 bpsUS$10.0 05/03/12 06/27/12 06/17/17 42.10 4.76% 3-month LIBOR + 175 bpsUS$10.0 06/15/12 06/27/12 06/17/17 42.10 4.73% 3-month LIBOR + 175 bpsUS$10.0 07/17/12 09/27/12 06/17/17 41.25 4.58% 3-month LIBOR + 175 bpsUS$10.0 10/29/12 12/27/12 06/17/17 41.19 3.44% 3-month LIBOR + 175 bps
The maturity date of the six NDCCS coincides with the maturity date of the hedged loan.
As of December 31, 2013 and 2012, the outstanding aggregate notional amount of the Company’sNDCCS amounted to US$65.00 million. The aggregate fair value changes on these NDCCSamounting to P=55.6 million loss and P=144.4 million loss as of December 31, 2013 and 2012,respectively, were recognized by the Company under “Cumulative Translation Adjustments onHedging Transactions” account.
Hedge Effectiveness ResultsSince the critical terms of the hedged loan and the NDCCS match, except for one to two daystiming difference on the interest reset dates, the hedges were assessed to be highly effective. Assuch, the aggregate fair value changes on these NDCCS amounting to P=244.6 million gain in 2013and P=272.4 million loss in 2012 were recognized by the Company under “Cumulative TranslationAdjustments on Hedging Transactions” account in the consolidated statement of financial position.No ineffectiveness was recognized in the consolidated statement of income for the years endedDecember 31, 2013 and 2012.
- 99 -
*SGVFS005114*
The net movement of changes made to “Cumulative Translation Adjustment on HedgingTransactions” account for the Company’s cash flow hedges is as follows:
2013 2012Balance at beginning of year (P=144,426,476) P=–Changes in fair value of the cash flow hedges 244,634,426 (272,353,423)
100,207,950 (272,353,423)Transferred to consolidated statement of income:
Foreign exchange loss (gain) (189,630,000) 78,450,000Interest expense 43,674,194 33,429,561
(145,955,806) 111,879,561Balance before tax (45,747,856) (160,473,862)Tax effect (9,867,862) 16,047,386Balance at end of year (P=55,615,718) (P=144,426,476)
Fair Value Changes of DerivativesThe tables below summarize the net movement in fair values of the Company’s derivatives as ofDecember 31, 2013 and 2012.
2013 2012Balance at beginning of year (P=238,675,102) P=–Net changes in fair value of derivatives:
Designated as accounting hedges 244,634,426 (272,353,423)Not designated as accounting hedges 14,243,178 (4,131,240)
258,877,604 (276,484,663)Fair value of settled instruments:
Designated as accounting hedges 43,674,194 33,429,561Not designated as accounting hedges (6,944,917) 4,380,000
36,729,277 37,809,561Balance at end of year P=56,931,779 (P=238,675,102)Presented as:
Derivative assets P=61,130,101 P=248,760Derivative liabilities (4,198,322) (238,923,862)
P=56,931,779 (P=238,675,102)
The effective portion of the changes in the fair value of the NDCCS designated as accountinghedges were deferred in equity under “Cumulative Translation Adjustment on HedgingTransactions” account.
Capital ManagementThe primary objective of the Company’s capital management is to ensure that it maintains ahealthy capital ratio in order to comply with its financial loan covenants and support its businessoperations.
The Company manages and makes adjustment to its capital structure as it deems necessary.To maintain or adjust its capital structure, the Company may increase the levels of capitalcontributions from its creditors and owners/shareholders through debt and new shares issuance,respectively. No significant changes have been made in the objectives, policies and processes ofthe Company from the previous years.
The Company monitors capital using the debt ratio, which is long-term liabilities divided by long-
- 100 -
*SGVFS005114*
term liabilities plus equity. The Company’s policy is to keep the debt ratio at not more than 70:30.The Company’s long-term liabilities include both the current and long-term portions of long-termdebts. Equity includes all items presented in the equity section of the consolidated statement offinancial position.
The table below shows the total capital considered by the Company and its debt ratio as ofDecember 31, 2013 and 2012.
2013 2012Long-term liabilities P=58,548,760,335 P=49,049,871,866Equity 36,244,958,905 34,708,438,114Total P=94,793,719,240 P=83,758,309,980Debt ratio 61.8% 58.6%
As of December 31, 2013 and 2012, the Company is able to meet its capital managementobjectives.
32. Commitments and Contingencies
Stored EnergyIn 1996 and 1997, the Parent Company entered into Addendum Agreements to the PPA related tothe Unified Leyte power plants where any excess generation above the nominated energy ortake-or-pay volume will be credited against payments made by NPC for the periods it was not ableto take electricity (see Note 34). As of December 31, 2013 and 2012, the commitment for storedenergy is equivalent to 4,326.6 GWH.
Lease CommitmentsFuture minimum lease payments under the operating leases as of December 31, 2013 and 2012 areas follows:
2013 2012Within one year P=99.3 million P=78.4 millionAfter one year but not more than five years 204.3 million 320.9 millionAfter five years – 1.5 millionTotal P=303.6 million P=400.8 million
The Company’s lease commitments pertain to rentals on the drilling rigs, head office and variousoffice space and warehouse for steam/electricity projects in Leyte, Northern Negros, Albay,Sorsogon, Southern Negros and Mindanao. Rent expense amounted to P=498.2 million,P=601.3 million, and P=656.0 million in 2013, 2012 and 2011, respectively.
Purchase CommitmentsTotal purchase commitments for capital items as of December 31, 2013 and 2012 amounted toP=11,820.0 million and P=156.9 million, respectively, of which, contractual commitments for theacquisitions of property, plant and equipment amounted to P=11,820.0 million and P=60.5 million asDecember 31, 2013 and 2012, respectively. These are expected to be settled in the next financialyear.
- 101 -
*SGVFS005114*
Legal ClaimsThe Company is contingently liable for lawsuits or claims filed by third parties, including laborrelated cases, which are pending decision by the courts, the outcomes of which are not presentlydeterminable. In the opinion of management and its legal counsel, the eventual total liability fromthese lawsuits or claims, if any, will not have a material effect on the consolidated financialstatements (see Notes 3 and 18).
33. Geothermal Service Concession Contracts
Geothermal Service ContractsUnder P.D. 1442, all geothermal resources in public and/or private lands in the Philippines,whether found in, on or under the surface of dry lands, creeks, rivers, lakes, or other submergedlands within the waters of the Philippines, belong to the State, inalienable and imprescriptible, andtheir exploration, development and exploitation. Furthermore, the Government may enter intoservice contracts for the exploration, development and exploitation of geothermal resources in thePhilippines.
Pursuant to P.D. 1442, the Parent Company had entered into the following Geothermal ServiceContracts (GSCs) with the Government of the Republic of the Philippines (represented by theDOE) for the exploration, development and production of geothermal fluid for commercialutilization:a. Tongonan, Leyte, dated May 14, 1981b. Southern Negros, dated October 16, 1981c. Bac-Man, Sorsogon, dated October 16, 1981d. Mt. Apo, Kidapawan, Cotabato, dated March 24, 1992e. Mt. Labo, Camarines Norte and Sur, dated March 19, 1994f. Northern Negros, dated March 24, 1994g. Mt. Cabalian, Southern Leyte, dated January 13, 1997
The exploration period under the service contracts shall be five years from the effective date,renewable for another two years if the Parent Company has not been in default in its exploration,financial and other work commitments and obligations and has provided a work program for theextension period acceptable to the Government. Where geothermal resource in commercialquantity is discovered during the exploration period, the service contracts shall remain in force forthe remainder of the exploration period or any extension thereof and for an additional period of25 years thereafter, provided that, if the Parent Company has not been in default in its obligationsunder the contracts, the Government may grant an additional extension of 15 to 20 years.
Under P.D. 1442, the right granted by the Government to the Company to explore, develop, andutilize the country’s geothermal resource is subject to sharing of net proceeds with theGovernment. The net proceeds is what remains after deducting from the gross proceeds theallowable recoverable costs, which include development, production and operating costs.
The allowable recoverable costs shall not exceed 90% of the gross proceeds. The Parent Companypays 60% of the net proceeds as Government share and retains the remaining 40%. The 60%government share is comprised of royalty fees and income taxes. The royalty fees are splitbetween the DOE (60%) and the LGU (40%) where the project is located.
Geothermal Renewable Energy Service Contracts and Geothermal Operating ContractsR.A. 9513, otherwise known as the Renewable Energy Act of 2008 (RE Law) and which becameeffective in January 2009, mandates the conversion of existing GSCs under P.D. 1442 into
- 102 -
*SGVFS005114*
Geothermal Renewable Energy Service Contracts (GRESCs) so companies may avail of theincentives under the RE Law. Aside from the tax incentives, the significant terms of the serviceconcessions under the GRESCs are similar to the GSCs except that the Parent Company hascontrol over any significant residual interest over the steam fields, power plants and relatedfacilities throughout the concession period and even after the concession period.
On September 10, 2009, the Parent Company was granted the Provisional Certificate ofRegistration as an RE Developer for the following existing projects: (1) GSC No. 01 - Tongonan,Leyte, (2) GSC No. 02 - Palinpinon, Negros Oriental, (3) GSC No. 03 - Bacon-Manito,Sorsogon/Albay, (4) GSC No. 04 - Mt. Apo, North Cotabato, and (5) GSC No. 06 - NorthernNegros. With the receipt of the certificates of provisional registration as geothermal REDeveloper, the fiscal incentives of the RE Law were availed of by the Parent Company retroactivefrom the effective date of such law on January 30, 2009. Fiscal incentives include, among others,change in the applicable corporate tax rate from 30% to 10% for RE-registered activities.
On October 23, 2009, the Parent Company received from DOE the Certificate of Registration asthe RE Developer for the following geothermal projects:
a. Tongonan Geothermal Project, Under DOE Certificate of Registration No.GRESC 2009-10-001
b. Southern Negros Geothermal Project, Under DOE Certificate of Registration No.GRESC 2009-10-002
c. Bacon-Manito Geothermal Project, Under DOE Certificate of Registration No.GRESC 2009-10-003
d. Mt. Apo Geothermal Project, Under DOE Certificate of Registration No.GRESC 2009-10-004
e. Northern Negros Geothermal Project, Under DOE Certificate of Registration No.GRESC 2009-10-005
On February 19, 2010, the Parent Company’s GSC in Mt. Labo in Camarines Norte and Sur wasconverted to GRESC 2010-02-020.
On March 24, 2010, the DOE issued to the Parent Company a new GRESC for Mainit GeothermalProject under DOE Certificate of Registration No. GRESC 2010-03-021.
The remaining service contract of the Parent Company covered by P.D. 1442 as ofDecember 31, 2013 is the Mt. Cabalian in Southern Leyte with a term of 25 years from theeffective date of the contract on January 31, 1997 and for an additional period of 25 years if theParent Company has not been in default in its obligations under the GSC. As discussed in Note 3,evaluation and exploration assets related to Cabalian project were impaired in 2013.
The Company also holds geothermal resource service contracts for the following prospect areas:
(i) Ampiro Geothermal Project (with a five-year pre-development period expiring in 2017,25-year contract period expiring in 2037)
(ii) Mandalagan Geothermal Project (with a five-year pre-development period expiring in 2017,25-year contract period expiring in 2037)
- 103 -
*SGVFS005114*
(iii) Mt. Zion Geothermal Project (with a five-year pre-development period expiring in 2017,25-year contract period expiring in 2037)
(iv) Lakewood Geothermal Project (with a five-year pre-development period expiring in 2017,25-year contract period expiring in 2037)
(v) Balingasag Geothermal Project (with a five-year pre-development period expiring in 2017,25-year contract period expiring in 2037)
Under the GRESCs, the Parent Company pays the Government royalty fee equivalent to 1.5% ofthe gross income from the sale of geothermal steam produced and such other income incidental toand arising from generation, transmission, and sale of electric power generated from geothermalenergy within the contract areas (see Note 16). Under the GRESCs, gross income derived frombusiness is an amount equal to gross sales less sales returns, discounts and allowances, and cost ofgoods sold. Cost of goods sold includes all business expenses directly incurred to produce thesteam used to generate power under a GRESC.
The RE Law also provides that the exclusive right to operate geothermal power plants shall begranted through a Renewable Energy Operating Contract with the Government through the DOE.Accordingly, on May 8, 2012, the EDC’s subsidiaries, Green Core Geothermal Inc. and Bac-ManGeothermal Inc. secured three Geothermal Operating Contracts (GOCs) covering the followingpower plant operations:
(i) Tongonan Geothermal Power Plant under DOE Certificate of Registration No. GOC 2012-04-038 (with a twenty-five (25) year contract period expiring in 2037, renewable for anothertwenty-five (25) years)
(ii) Palinpinon Geothermal Power Plant under DOE Certificate of Registration No. GOC 2012-04-037 (with a twenty-five (25) year contract period expiring in 2037, renewable for anothertwenty-five (25) years)
(iii) Bacon-Manito Geothermal Power Plant under DOE Certificate of Registration No. GOC No.2012-04-039 (with a twenty-five (25) year contract period expiring in 2037, renewable foranother twenty-five (25) years)
The Government share, presented as “Royalty fees” under the “Costs of sale of electricity”account, for both the GRESCs and GOCs is allocated between the DOE (60%) and the LGUs(40%) within the applicable contract area.
Total outstanding royalty fees and the related expense are shown in Notes 16 and 21, respectively.
34. Power Purchase Agreements
The Parent Company sells electricity to NPC pursuant to the following PPAs:
588.4 MW Unified LeyteThe PPA provides, among others, that NPC shall pay the Parent Company a base price perkilowatt-hour of electricity delivered subject to inflation adjustments. The PPA stipulates acontracted annual energy of 1,370 gigawatt-hours (GWH) for Leyte-Cebu and 3,000 GWH forLeyte-Luzon throughout the cooperation period. It also stipulates a nominated energy of not lowerthan 90% of the contracted annual energy.
- 104 -
*SGVFS005114*
52.0 MW Mindanao IThe PPA provides, among others, that NPC shall pay the Parent Company a base price perkilowatt-hour of electricity delivered subject to inflation adjustments. The PPA stipulates aminimum offtake energy of 330 GWH for the first year and 390 GWH per year for the succeedingyears. The contract is for a period of 25 years, which commenced in March 1997.
54.0 MW Mindanao IIThe PPA provides, among others, that NPC shall pay the Parent Company a base price perkilowatt-hour of electricity delivered subject to inflation adjustments. The PPA stipulates aminimum energy offtake of 398 GWH per year. The contract is for a period of 25 years, whichcommenced in June 1999.
Revenue from sale of electricity covered by PPAs amounted to P=12,287.8 million,P=13,051.5 million and P=13,621.7 million for the years ended December 31, 2013, 2012 and 2011,respectively.
35. GCGI’s Power Supply Contracts/Power Supply Agreements
With the Company’s takeover of the Palinpinon and Tongonan power plants effectiveOctober 23, 2009, Schedule X of the Asset Purchase Agreement with PSALM provides for theassignment to GCGI of 12 NPC’s PSCs. As of December 31, 2013, the following PSCs remainedeffective:
Customers Contract ExpirationDynasty Management & Development Corp. (DMDC) March 25, 2016Philippine Foremost Milling Corp. (PFMC) March 25, 2016
Since the Company’s takeover of the power plants, 24 new PSAs have been signed as follows:
Customers Contract Start Contract ExpirationLeyte
Don Orestes Romualdez Electric Cooperative, Inc. (DORELCO)* December 26, 2010 December 25, 2020Leyte II Electric Cooperative, Inc. (LEYECO II)* December 26, 2010 December 25, 2020LEYECO II* December 26, 2011 December 25, 2021Leyte III Electric Cooperative, Inc. (LEYECO III)* December 26, 2011 December 25, 2021Leyte IV Electric Cooperative, Inc. (LEYECO IV)* December 26, 2012 December 25, 2017Leyte V Electric Cooperative, Inc. (LEYECO V)* December 26, 2010 December 25, 2020Philippine Phosphate Fertilizer Corporation (PHILPHOS) December 26, 2011 December 25, 2016
CebuVisayan Electric Company, Inc. (VECO)* December 26, 2010 December 25, 2015VECO* December 26, 2011 December 25, 2016BalambanEnerzone Corporation (BEZ) December 26, 2010 December 25, 2015First Gen Energy Solutions (First GES) June 26, 2013 June 25, 2023
BoholBohol II Electric Cooperative, Inc. (BOHECO II)* January 26, 2013 January 25, 2023
NegrosCentral Negros Electric Cooperative, Inc. (CENECO)* December 26, 2011 December 25, 2021Negros Occidental Electric Cooperative, Inc. (NOCECO)* December 26, 2010 December 25, 2020Negros Oriental I Electric Cooperative, Inc. (NORECO I)* December 26, 2010 December 25, 2020Negros Oriental II Electric Cooperative, Inc. (NORECO II)* December 26, 2010 December 25, 2020V.M.C. Rural Electric Service Cooperative, Inc. (VRESCO)* December 26, 2010 December 25, 2020Dumaguete Coconut Mills, Inc. (DUCOM) October 26, 2010 October 25, 2020
PanayAklan Electric Cooperative, Inc. (AKELCO)* March 26, 2010 December 25, 2020
(Forward)
- 105 -
*SGVFS005114*
Customers Contract Start Contract ExpirationCapiz Electric Cooperative, Inc. (CAPELCO)* January 27, 2010 December 25, 2020Iloilo I Electric Cooperative, Inc. (ILECO I)* March 26, 2010 December 25, 2022Iloilo II Electric Cooperative, Inc. (ILECO II)* December 26, 2010 December 25, 2020Iloilo III Electric Cooperative, Inc. (ILECO III)* December 26, 2012 December 25, 2022Guimaras Electric Cooperative, Inc. (GUIMELCO)* December 26, 2012 December 25, 2022
*With Provisional Authority from the Energy Regulatory Commission (ERC) as of December 31, 2013.
Coordination with the ERC is ongoing to secure the Final Authority for the filed applications forthe approval of the PSAs with the distribution utility customers.
36. Wind Energy Service Contracts
On September 14, 2009, the Parent Company entered into WESC 2009-09-004 with the DOEgranting the Parent Company the right to explore and develop the Burgos Wind Project for aperiod of 25 years from the effective date. The pre-development stage under the WESC shall betwo years extendible for another year if the Parent Company has not been in default in itsexploration or work commitments and has provided a work program for the extension period uponconfirmation by the DOE. Within the pre-development stage, the Parent Company shall undertakeexploration, assessment and other studies of wind resources in the contract area. Upon declarationof commerciality, as confirmed by the DOE, the WESC shall remain in force for the balance of the25-year period for the development/commercial stage.
The DOE shall approve the extension of the WESC for another 25 years under the same terms andconditions, provided the Company is not in default of any material obligations under the contractand has submitted a written notice to the DOE for the extension of the contract not later than oneyear prior to the expiration of the original 25-year period. Further, the WESC provides that allmaterials, equipment, plant and other installations erected or placed on the contract area by theParent Company shall remain the property of the Parent Company throughout the term of thecontract and after its termination.
In 2010, the Parent Company has entered into five WESCs with the DOE for the followingcontract areas:
1. Pagudpud Wind Project, Under DOE Certificate of Registration No. WESC 2010-02-040 (expiring in 2035)
2. Camiguin Wind Project, Under DOE Certificate of Registration No. WESC 2010-02-041 (expiring in 2035)
3. Taytay Wind Project, Under DOE Certificate of Registration No. WESC 2010-02-042 (expiring in 2035)
4. Dinagat Wind Project, Under DOE Certificate of Registration No. WESC 2010-02-043 (expiring in 2035)
5. Siargao Wind Project, Under DOE Certificate of Registration No. WESC 2010-02-044 (expiring in 2035)
On May 26, 2010, the BOD of EDC approved the assignment and transfer to EBWPC of all thecontracts, assets, permits and licenses relating to the establishment and operation of the BurgosWind Power Project under DOE Certificate of Registration No. WESC 2009-09-004. OnMay 16, 2013, EBWPC was granted a Certificate of Confirmation of Commerciality by the DOE.
On December 19, 2011, the Parent Company has submitted a letter of surrender for the Taytay,Dinagat and Siargao contract areas and thus, will not pursue these project areas further. Per
- 106 -
*SGVFS005114*
Section 4.2 of the WESC, the surrender will take effect 30 days upon the RE Developer’ssubmission of a written notice to the DOE.
37. FG Hydro’s Contracts and Agreements
PSCsIn 2006, FG Hydro acquired existing contracts from NPC as part of FG Hydro’s acquisition of thePAHEP/MAHEP for the supply of electric energy with several customers within the vicinity ofNueva Ecija. All of these contracts had expired as of December 31, 2011. Upon renegotiationwith the customers and due process as stipulated by the ERC, the expired contracts were renewedexcept for the contract with Pantabangan Municipal Electric System (PAMES).
FG Hydro shall generate and deliver to these customers the contracted energy on a monthly basis.FG Hydro is bound to service these customers for the remainder of the stipulated terms, the rangeof which falls from December 2008 to December 2020.
Upon expiration, these contracts may be renewable upon renegotiation with the customers and bythe approval of ERC. As of December 31, 2013, there are four remaining PSCs being serviced byFG Hydro.
In addition to the above contracts, FG Hydro entered into a PSA with BGI, effective for a periodof two months, commencing on December 26, 2011, unless it is sooner terminated or thereafterrenewed or extended under such terms as may be agreed by both parties.
Details of the existing contracts of FG Hydro are as follows:
Related Contracts Expiry Date Other DevelopmentsPAMES December 25, 2008 FG Hydro had continued to supply
PAMES’ electricity requirements withPAMES’ compliance to the agreedrestructured payment terms. However,there was no new agreement signedbetween FG Hydro and PAMES
Nueva Ecija II ElectricCooperative, Inc., Area 2(NEECO II - Area 2)
December 25, 2016 The ERC granted a provisional approvalof the PSA between FG Hydro andNEECO II-Area 2 on August 2, 2010with a pending final resolution of theapplication for the approval thereof.
Edong Cold Storage and IcePlant (ECSIP)
December 25, 2020 A new agreement was signed by FGHydro and ECOSIP in November 2010for the supply of power in thesucceeding 10 years.
NIA-Upper Pampanga RiverIntegrated Irrigation System(UPRIIS)
October 25, 2020 FG Hydro and NIA-UPRIIS signed anew agreement in October 2010 for thesupply of power in the succeeding 10years.
In addition to the above contracts, FG Hydro entered into a PSA with Nueva Ecija II ElectricCooperative, Inc., Area 1 (NEECO II - Area 1). The contract term is for a minimum of five years,commencing on August 26, 2013, and may further continue and remain effective up to August 25,2023 subject to agreement by both parties on the provisions of re-pricing. The ERC granted aprovisional approval of the PSA between FG Hydro and NEECO II-Area 1 on January 14, 2014.
- 107 -
*SGVFS005114*
FG Hydro also entered into a PSA with FPIC. The contract was originally for a period of eightmonths, commencing on April 26, 2012, and was extended for a month or until January 25, 2013.
Operation and Maintenance Agreement (O&M Agreement)In 2006, FG Hydro entered into an O&M Agreement with NIA, with the conformity of the NPC.Under the O&M Agreement, NIA will manage, operate, maintain and rehabilitate theNon-Power Components of the PAHEP/MAHEP in consideration for a service fee based on actualcubic meter of water used by FG Hydro for power generation.
In addition, FG Hydro will provide for a trust fund amounting to P=100.0 million within the firsttwo years of the O&M Agreement. The amortization for the Trust Fund is payable in 24 monthlypayments starting November 2006 and is billed by NIA in addition to the monthly service fee.The Trust Fund has been fully funded as of October 2008.
The O&M Agreement is effective for a period of 25 years commencing on November 18, 2006and renewable for another 25 years under the terms and conditions as may be mutually agreedupon by both parties.
Total service fees incurred amounted to P=117.7 million, P=138.9 million and P=88.2 million in 2013,2012 and 2011, respectively, and are included under the “Cost of sale of electricity” account in thestatements of comprehensive income.
Memorandum of Agreement (MOA)PSALM entered into a MOA with the Protected Area Management Board (PAMB). Under theMOA, PAMB granted FG Hydro the right to use the Masiway land, where the MAHEP powerplant is situated in consideration for an annual user’s fee. The MOA will be effective for 25 yearsand renewable for a similar period subject to terms and conditions as may be mutually agreedupon by both parties.
FG Hydro incurred annual user’s fee amounting to P=0.1 million in 2013, 2012 and 2011. Theuser’s fee is included under “General and administrative expenses” account in the consolidatedstatements of income, specifically “Rental, insurance and taxes” account (see Note 22).
Ancillary Services Procurement Agreement (ASPA)FG Hydro entered into an agreement with the NGCP on February 23, 2011 after being certifiedand accredited by NGCP as capable of providing Contingency Reserve Service, DispatchableReserve Service, Reactive Power Support Service and Black Start Service. Under the agreement,FG Hydro through the PAHEP facility shall provide any of the above-stated ancillary services toNGCP.
The ASPA is effective for a period of three (3) years, commencing on February 23, 2011 and shallbe automatically renewed for another three (3) years after the end of the original term subject tocertain conditions as provided in the ASPA.
- 108 -
*SGVFS005114*
Memorandum of Agreement with NGCP (MOA with NGCP)In 2011, FG Hydro entered into a MOA with NGCP for the performance of services on theoperation of the PAHEP 230 kV switchyard and its related appurtenances (Switchyard).
NGCP shall pay FG Hydro a monthly fixed operating cost of P=0.1 million and monthly variablecharges representing energy consumed at the Switchyard.
The MOA is effective for a period of five years and renewable for another three years under suchterms as may be agreed by both parties.
WESM TransactionsFG Hydro, as a direct WESM member, sells/buys electricity in the WESM.
38. Events After the Financial Reporting Date
Dividend DeclarationsOn February 28, 2014, EDC declared cash dividends amounting to P=1.88 billion to its commonshareholders and P=7.5 million to its preferred shareholders of record as of March 17, 2014,payable on or before April 10, 2014.
On January 29, 2014, FG Hydro declared cash dividends to its non-controlling commonshareholder amounting to P=280.0 million paid on February 4, 2014.
Acquisition of Hot Rock EntitiesOn December 19, 2013, EDC HKL, an indirect wholly-owned subsidiary of EDC, entered into aShare Sale Agreement (SSA), as amended, with Hot Rock Holding Ltd (“HRH”), an indirectwholly-owned subsidiary of Hot Rock Limited (“HRL”). HRL is a listed company in AustralianStock Exchange. As provided under the SSA, EDC HKL should acquire the shares of Hot RockChile Ltd and Hot Rock Peru Ltd held by HRH, subject to certain pre-completion conditions.
The total purchase price for the acquisition of Hot Rock entities amounted to US$3 million.
The completion/closing date and also the date on which the Company has obtained control overHot Rock entities, as established by management, was on January 3, 2014. As of February 28,2014, the determination of the accounting for the transaction is not yet complete. Based on theassessment of the management, the acquisition of Hot Rock entities will not have a significantimpact on current financial position and results of operations of the Company as Hot Rock entitiesare still under development stage with minimal assets and liabilities.
*SGVFS005114*
Lopez Inc.
Lopez HoldingCorporation
ABS-CBNFirst Philippine
HoldingsCorporation
BayanTelecommunication
HoldingsCorporation
52.8%
60.3% 46.2% 47.3%
The Parent Company has 1% direct equity interest in BTI, as subsidiary of Bayantel. This excludes theeconomic interest related to voting rights assigned to Lopez.
Exhibit 2.1 Group Structure
*SGVFS005114*
EDC GeothermalCorporation (EGC)
First Gen Hydro PowerCorporation (FGHPC)
EDC Wind EnergyHoldings Inc.
(EWEHI)
EDC HoldingsInternational Limited
(EHIL)
EDC Drillco Corporation(EDC Drillco)
• Green CoreGeothermal Inc.
(GCGI)• Bac-Man
Geothermal Inc.(BGI)
• Unified LeyteGeothermalEnergy Inc.
(ULGEI)• Southern Negros
Geothermal, Inc.(SNGI)
• EDC MindanaoGeothermal Inc.
(EMGI)
Energy Development (EDC)Corporation Chile Limitada
EDC Pagudpod Wind PowerCorporation (EPWPC)
Energy DevelopmentCorporation Hong Kong
Limited(EDC HKL)
Prime TerracottaHoldings Corporation
Red VulcanHoldings Corporation
ID: 100%
100%
D: 100% D: 100%D: 100%D: 100%D: 60%
ID: 100%
100%
D: 99.99%ID: 0.01%
Legend:D – Direct OwnershipID – Indirect OwnershipE – Economic InterestV – Voting Interest
E: 40%V: 60%
E: 100%V: 100%
PT EDC Indonesia EDC PeruHoldings S.A.C.
EDC ChileHoldings SPA
PT EDC Panas BumiIndonesia
EDC Geotermica ChileSPA
EDC GeotermicaPeru S.A.C.
EDC Quellaapacheta
ID: 100%
100%
ID: 100%
100%
ID: 70%
ID: 95% ID: 95% ID: 100%
100%
ID: 100%
100%
EDC Burgos Wind PowerCorporation (EBWPC)
ID: 100%ID: 100%
EDC Geotermica Del
EDC Energia Azul S.A.C.
EDC Energia Peru S.A.C.
EDC Energia
EDC Progreso Geotermico
EDC Energia Renovable
ID: 100%
ID: 100%
ID: 100%
ID: 100%
ID: 100%
ID: 100%
Geotermica Crucero
Geotermica Loriscota
Geotermica Tutupaca
ID: 70%
ID: 70%
ID: 70%
*SGVFS005114*
*SGVFS005114*
*SGVFS005114*
ENERGY DEVELOPMENT CORPORATION(A Subsidiary of Red Vulcan Holdings Corporation)SUPPLEMENTARY SCHEDULE OF ALL EFFECTIVE STANDARDSAND INTERPRETATIONSDECEMBER 31, 2013
PHILIPPINE FINANCIAL REPORTING STANDARDSAND INTERPRETATIONSEffective as of December 31, 2013
Adopted NotAdopted
NotApplicable
Framework for the Preparation and Presentation ofFinancial StatementsConceptual Framework Phase A: Objectives and qualitativecharacteristics ü
PFRSs Practice Statement Management Commentary ü
Philippine Financial Reporting Standards
PFRS 1(Revised)
First-time Adoption of Philippine FinancialReporting Standards ü
Amendments to PFRS 1 and PAS 27: Cost ofan Investment in a Subsidiary, JointlyControlled Entity or Associate ü
Amendments to PFRS 1: AdditionalExemptions for First-time Adopters ü
Amendment to PFRS 1: Limited Exemptionfrom Comparative PFRS 7 Disclosures forFirst-time Adopters ü
Amendments to PFRS 1: Severe Hyperinflationand Removal of Fixed Date for First-timeAdopters ü
Amendments to PFRS 1: Government Loans ü
PFRS 2 Share-based Payment ü
Amendments to PFRS 2: Vesting Conditionsand Cancellations ü
Amendments to PFRS 2: Group Cash-settledShare-based Payment Transactions ü
PFRS 3(Revised)
Business Combinationsü
PFRS 4 Insurance Contracts ü
Amendments to PAS 39 and PFRS 4: FinancialGuarantee Contracts ü
PFRS 5 Non-current Assets Held for Sale andDiscontinued Operations ü
PFRS 6 Exploration for and Evaluation of MineralResources ü
Exhibit 2.2
- 2 -
*SGVFS005114*
PHILIPPINE FINANCIAL REPORTING STANDARDSAND INTERPRETATIONSEffective as of December 31, 2013
Adopted NotAdopted
NotApplicable
PFRS 7 Financial Instruments: Disclosures ü
Amendments to PFRS 7: Transition ü
Amendments to PAS 39 and PFRS 7:Reclassification of Financial Assets ü
Amendments to PAS 39 and PFRS 7:Reclassification of Financial Assets - EffectiveDate and Transition ü
Amendments to PFRS 7: ImprovingDisclosures about Financial Instruments ü
Amendments to PFRS 7: Disclosures -Transfers of Financial Assets ü
Amendments to PFRS 7: Disclosures -Offsetting Financial Assets and FinancialLiabilities* ü
Amendments to PFRS 7: Mandatory EffectiveDate of PFRS 9 and Transition Disclosures* ü
PFRS 8 Operating Segments ü
PFRS 9 Financial Instruments* ü
Amendments to PFRS 9: Mandatory EffectiveDate of PFRS 9 and Transition Disclosures* ü
PFRS 10 Consolidated Financial Statements* ü
PFRS 11 Joint Arrangements* ü
PFRS 12 Disclosure of Interests in Other Entities* ü
PFRS 13 Fair Value Measurement* ü
Philippine Accounting Standards
PAS 1(Revised)
Presentation of Financial Statements ü
Amendment to PAS 1: Capital Disclosures ü
Amendments to PAS 32 and PAS 1: PuttableFinancial Instruments and Obligations Arisingon Liquidation ü
Amendments to PAS 1: Presentation of Itemsof Other Comprehensive Income* ü
PAS 2 Inventories ü
PAS 7 Statement of Cash Flows ü
PAS 8 Accounting Policies, Changes in AccountingEstimates and Errors ü
- 3 -
*SGVFS005114*
PHILIPPINE FINANCIAL REPORTING STANDARDSAND INTERPRETATIONSEffective as of December 31, 2013
Adopted NotAdopted
NotApplicable
PAS 10 Events after the Balance Sheet Date ü
PAS 11 Construction Contracts ü
PAS 12 Income Taxes ü
Amendment to PAS 12 - Deferred Tax:Recovery of Underlying Assets ü
PAS 16 Property, Plant and Equipment ü
PAS 17 Leases ü
PAS 18 Revenue ü
PAS 19 Employee Benefits ü
Amendments to PAS 19: Actuarial Gains andLosses, Group Plans and Disclosures ü
PAS 19(Amended)
Employee Benefits*ü
PAS 20 Accounting for Government Grants andDisclosure of Government Assistance ü
PAS 21 The Effects of Changes in Foreign ExchangeRates ü
Amendment: Net Investment in a ForeignOperation ü
PAS 23(Revised)
Borrowing Costsü
PAS 24(Revised)
Related Party Disclosuresü
PAS 26 Accounting and Reporting by RetirementBenefit Plans ü
PAS 27(Amended)
Separate Financial Statements*ü
PAS 28(Amended)
Investments in Associates and Joint Ventures* ü
PAS 29 Financial Reporting in HyperinflationaryEconomies ü
PAS 31 Interests in Joint Ventures ü
PAS 32 Financial Instruments: Disclosure andPresentation ü
Amendments to PAS 32 and PAS 1: PuttableFinancial Instruments and Obligations Arisingon Liquidation ü
- 4 -
*SGVFS005114*
PHILIPPINE FINANCIAL REPORTING STANDARDSAND INTERPRETATIONSEffective as of December 31, 2013
Adopted NotAdopted
NotApplicable
Amendment to PAS 32: Classification ofRights Issues ü
Amendments to PAS 32: Offsetting FinancialAssets and Financial Liabilities* ü
PAS 33 Earnings per Share ü
PAS 34 Interim Financial Reporting ü
PAS 36 Impairment of Assets ü
PAS 37 Provisions, Contingent Liabilities andContingent Assets ü
PAS 38 Intangible Assets ü
PAS 39 Financial Instruments: Recognition andMeasurement ü
Amendments to PAS 39: Transition and InitialRecognition of Financial Assets and FinancialLiabilities ü
Amendments to PAS 39: Cash Flow HedgeAccounting of Forecast IntragroupTransactions ü
Amendments to PAS 39: The Fair Value Option ü
Amendments to PAS 39 and PFRS 4: FinancialGuarantee Contracts ü
Amendments to PAS 39 and PFRS 7:Reclassification of Financial Assets ü
Amendments to PAS 39 and PFRS 7:Reclassification of Financial Assets - EffectiveDate and Transition ü
Amendments to Philippine InterpretationIFRIC-9 and PAS 39: Embedded Derivatives ü
Amendment to PAS 39: Eligible Hedged Items ü
PAS 40 Investment Property ü
PAS 41 Agriculture ü
Philippine Interpretations
IFRIC 1 Changes in Existing Decommissioning,Restoration and Similar Liabilities ü
IFRIC 2 Members’ Share in Co-operative Entities andSimilar Instruments ü
- 5 -
*SGVFS005114*
PHILIPPINE FINANCIAL REPORTING STANDARDSAND INTERPRETATIONSEffective as of December 31, 2013
Adopted NotAdopted
NotApplicable
IFRIC 4 Determining Whether an ArrangementContains a Lease ü
IFRIC 5 Rights to Interests arising fromDecommissioning, Restoration andEnvironmental Rehabilitation Funds ü
IFRIC 6 Liabilities arising from Participating in aSpecific Market - Waste Electrical andElectronic Equipment ü
IFRIC 7 Applying the Restatement Approach under PAS29 Financial Reporting in HyperinflationaryEconomies ü
IFRIC 8 Scope of PFRS 2 ü
IFRIC 9 Reassessment of Embedded Derivatives ü
Amendments to Philippine InterpretationIFRIC - 9 and PAS 39: Embedded Derivatives ü
IFRIC 10 Interim Financial Reporting and Impairment ü
IFRIC 11 PFRS 2- Group and Treasury ShareTransactions ü
IFRIC 12 Service Concession Arrangements ü
IFRIC 13 Customer Loyalty Programmes ü
IFRIC 14 The Limit on a Defined Benefit Asset,Minimum Funding Requirements and theirInteraction ü
Amendments to Philippine InterpretationsIFRIC- 14, Prepayments of a MinimumFunding Requirement ü
IFRIC 16 Hedges of a Net Investment in a ForeignOperation ü
IFRIC 17 Distributions of Non-cash Assets to Owners ü
IFRIC 18 Transfers of Assets from Customers ü
IFRIC 19 Extinguishing Financial Liabilities with EquityInstruments ü
IFRIC 20 Stripping Costs in the Production Phase of aSurface Mine* ü
SIC-7 Introduction of the Euro ü
SIC-10 Government Assistance - No Specific Relationto Operating Activities ü
- 6 -
*SGVFS005114*
PHILIPPINE FINANCIAL REPORTING STANDARDSAND INTERPRETATIONSEffective as of December 31, 2013
Adopted NotAdopted
NotApplicable
SIC-12 Consolidation - Special Purpose Entities ü
Amendment to SIC - 12: Scope of SIC 12 ü
SIC-13 Jointly Controlled Entities - Non-MonetaryContributions by Venturers ü
SIC-15 Operating Leases - Incentives ü
SIC-21 Income Taxes - Recovery of Revalued Non-Depreciable Assets ü
SIC-25 Income Taxes - Changes in the Tax Status of anEntity or its Shareholders ü
SIC-27 Evaluating the Substance of TransactionsInvolving the Legal Form of a Lease ü
SIC-29 Service Concession Arrangements:Disclosures. ü
SIC-31 Revenue - Barter Transactions InvolvingAdvertising Services ü
SIC-32 Intangible Assets - Web Site Costs ü *These standards, interpretations and amendments to existing standards became effective subsequent to December 31, 2013.The Company did not early adopt these standards, interpretations and amendments.
*SGVFS005114*
ENERGY DEVELOPMENT CORPORATION(A Subsidiary of Red Vulcan Holdings Corporation)SUPPLEMENTARY SCHEDULE OF RETAINED EARNINGSAVAILABLE FOR DIVIDEND DECLARATIONDECEMBER 31, 2013
Unappropriated retained earnings, December 31, 2012 P=10,411,904,042Add (Deduct):
Impairment loss on property, plant and equipment ofNorthern Negros Geothermal Project (after tax) 7,804,157,496Effect of PAS 19R (714,709,785)
Unappropriated retained earnings, as adjusted to available fordividend declaration, December 31, 2012 7,089,447,711Add (Deduct):Net income in 2013 closed to Retained Earnings 3,878,768,871Add (Less): Non-actual/unrealized income / loss (net of tax)
Unrealized foreign exchange gain (69,263,445)Unrealized mark-to-market gain (6,568,434)Net income actually earned in 2013 3,802,936,992
Add (Less): Cash dividend declaration (3,007,500,000)TOTAL RETAINED EARNINGS AVAILABLE FORDIVIDEND DECLARATION, DECEMBER 31, 2013 P=18,296,788,745
Exhibit 2.3
Exhibit 3
ENERGY DEVELOPMENT CORPORATION
AND SUBSIDIARIES
INDEX TO SUPPLEMENTARY SCHEDULES
Form 17-A, Item 7
Supplementary Schedules
A. Financial Assets
B. Amounts Receivable from Directors, Officers, Employees,
and Principal Stockholders (Other than Related Parties)
C. Amounts Receivable from Related Parties which are Eliminated
during the Consolidation of Financial Statements
D. Intangible Assets - Other Assets
E. Long-Term Debt
F. Indebtedness to Related Parties*
G. Guarantees of Securities of Other Issuers*
H. Capital Stock
* Not Applicable
ENERGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
SCHEDULE A - FINANCIAL ASSETS
As of December 31, 2013
FINANCIAL ASSETS Name of Issuing Entity & association of each useAmount shown in the
balance sheet
Income received
and accrued
Loans and receivables:
Cash and cash equivalents N/A 16,043,154,556 283,082,334
Trade receivables N/A 3,397,069,626
Non-trade receivables N/A 94,851,647
Loans and notes receivables N/A 124,936,697
Employee receivables N/A 11,958,401 8,992,474
Long-term receivables N/A 155,358,693
AFS investments:
Debt investments ING Bank 477,290,645 785,152
Equity Investments First Gen 92,670,848
Debt investments RCBC GT Capital Fixed Rate Bonds 35,562,676
Debt investments RCBC Retail Treasury Bonds 65,140,200
Debt investments BDP Fixed Rate Treasury Note 25,632,000
Equity Investments Wack Wack Golf & Country Club Share 12,000,000
Equity Investments Alabang Country Club Share 3,980,000
Equity Investments Sta. Elena Golf Club Share 3,050,000
Equity Investments Baguio Country Club Share 1,380,000
Equity Investments Canlubang Golf & Country Club Share 560,000
Equity Investments Manila Southwoods Golf & Country Club Share 390,000
Equity Investments Orchard Golf & Country Club Share 210,000
Equity Investments Petron Corp. 246,059
Equity Investments Metropolitan Club Share 275,000
Equity Investments Club Filipino Share 140,000
Equity Investments Capitol Hills Golf & Country Club Share 60,000
Debt investments EDC Fixed Rate Bonds 30,496,202
Derivative Assets N/A 61,130,101
TOTAL 20,637,543,350 292,859,961
ENERGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
SCHEDULE B - AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES AND PRINCIPAL STOCKHOLDERS (OTHER THAN RELATED PARTIES)
As of December 31, 2013
Name and
Designation of
Debtor
Balance at Beginning of
Period Additions
Amounts
Collected
Accounts
Written-off Current Not Current
Balance at End
of Period
Employees 36,253,877 82,320,361 36,720,726 - 77,446,698 4,406,815 81,853,512
Directors
TOTAL 36,253,877 82,320,361 36,720,726 - 77,446,698 4,406,815 81,853,512
Note: The Company keeps the information on the name & designation of employees and other details confidential. As per written agreement
with the concerned employees, any outstanding balance at the time of retirement shall be deducted from the retirement benefit proceeds.
ENERGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
SCHEDULE C - Amounts Receivable from Related Parties which are Eliminated during the Consolidation of Financial Statements
As of December 31, 2013
Name of Subsidiary Balance at January 1, 2013 Additions Amounts Collected Reclassification Amounts Written-off Current Non- Current Amount Eliminated
EDC
EDC Drillco Corporation 154,799 34,140 188,939 188,939
EDC Geothermal Corp. 4,670,406 207,672 4,878,078 4,878,078
Green Core Geothermal Inc. 73,999,405 343,927,510 (343,548,786) 74,378,128 74,378,128
Bac-Man Geothermal Inc. 1,348,746,392 458,586,448 (1,251,126) 1,806,081,714 1,806,081,714
EDC Wind Energy Holdings Inc. 257,368 2,329,909,409 2,330,166,777 2,330,166,777
EDC Burgos Wind Power Corporation 338,670,969 192,212,075 530,883,044 530,883,044
EDC Pagudpud Wind Power Corporation 17,143 20,458 37,601 37,601
First Gen Hyrdro Corporation 886,704 87,356 (899,003) 75,058 75,058
Unified Leyte Geothermal Energy Inc. 66,113 127,165 193,279 193,279
Southern Negros Geothermal, Inc. 1,335 17,521 18,856 18,856
EDC Mindanao Geothermal Inc. 7,528 - 7,528 7,528
Bac-Man Energy Development Corporation 1,335 17,521 18,856 18,856
Kayabon Geothermal, Inc. 1,335 17,521 18,856 18,856
EDC Holdings International Limited 83,926 2,706,920 2,790,846 2,790,846
Energy Development Corporation Hong Kong Limited 42,870 - 42,870 42,870
EDC Geotermica Chile SPA 16,596,293 1,407,588 18,003,881 18,003,881
EDC Geotermica Quellaapacheta 680,381 680,381 680,381
PT EDC Indonesia 2,747,895 2,747,895 2,747,895
EGC
Unified Leyte Geothermal Energy Inc. 150,000 150,000 150,000
GCGI
EDC Burgos Wind Power Corporation 390,000 390,000 390,000
BGI
Green Core Geothermal Inc. 8,331,546 8,331,546 8,331,546
EDC Burgos Wind Power Corporation 38,972 38,972 38,972
EWEHI
EDC Burgos Wind Power Corporation 2,358,713,750 2,358,713,750 2,358,713,750
EHKL
EDC Chile Limitada 98,426,755 7,534,625 105,961,380 105,961,380
EDC Geotermica SAC 6,470,418 6,470,418 6,470,418
EDC Peru Holdings SAC 28,755,525 125,885,115 154,640,640 154,640,640
EDC Chile Holdings SPA 184,680 184,680 184,680
EDC Geothermica SPA 26,864,500 26,864,500 26,864,500
EDC G P SAC
EDC Geotermica Quellaapacheta Peru SAC 29,520,400 29,520,400 29,520,400
EDC P H SAC
EDC Geotermica Quellaapacheta Peru SAC 1,037,462 1,037,462 1,037,462
EDC Geotermica Peru SAC 28,579,054 28,579,054 28,579,054
EHKL 95 95 95
EDC G Q H SAC
EDC Geotermica Peru SAC 960,141 960,141 960,141
EDC Chile
EDC 51,641,559 (930,855) 50,710,704 50,710,704
TOTAL 1,970,363,237 5,920,032,861 (345,698,915) (930,855) - 7,543,766,328 - 7,543,766,328
ENERGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
SCHEDULE D - INTANGIBLE ASSETS - OTHER ASSETS
As of December 31, 2013
Description Beginning Balance Additions at costCharged to cost
and expenses
Charged to other
accounts
Other changes additions
(deductions)Ending Balance
Water Rights 1,815,608,083 - 96,191,157 - - 1,719,416,926
Goodwill 2,535,051,530 - - - - 2,535,051,530
Other Intangible Assets 467,744,367 171,776,021 26,717,178 - 467,744,367 145,058,843
TOTAL 4,818,403,980 171,776,021 122,908,335 - 467,744,367 4,399,527,299
Note:
Additions to Other Intangible Assets pertain to the Burgos Wind Energy Project Costs.
The amounts charged to cost and expenses represent regular amortization and is credited through an accumulated
amortization account.
ENERGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
SCHEDULE E - LONG-TERM DEBT
(In PhP) (In PhP) (In PhP) (In PhP) (Approx in PhP) Periodic Payments
Foreign Loans:
USD175M Club Loan Facility $ 175,000,000 7,630,000,000 43.60 $ 138,423,870 6,146,814,637 $ 17,168,469 762,506,923 $ 121,255,404 5,384,307,714 1.75% + LIBOR $ various 44.395 various 9 semi annual
payments
June 27, 2017
USD300 Million Bonds $ 300,000,000 13,350,000,000 44.50 $ 297,192,089 13,194,176,160 $ - - $ 297,192,087 13,194,176,158 6.50% $ 300,000,000 44.395 13,318,500,000 bullet payment January 20, 2021
USD80 Million Term Loan $ 80,000,000 3,517,600,000 43.97 $ 78,169,087 3,474,353,989 $ 2,881,862 128,641,774 $ 75,287,225 3,345,712,215 1.80% + LIBOR $ various 44.395 various balloon payment June 21, 2018
Domestc Loans:
PNB Peso loan P 3,500,000,000.00 3,500,000,000.00 P 3,910,000,000.00 3,910,000,000.00 P 340,000,000.00 340,000,000.00 P 3,570,000,000.00 3,570,000,000.00 1.5% + PDST-F- rate or
1.0% + BSP overnight
rate
P various various 20 semi-annual
payments
November 7, 2022
Allied Bank Peso Loan P 1,500,000,000.00 1,500,000,000.00 P - - P - - P - - 1.5% + PDST-F- rate or
1.0% + BSP overnight
rate
P various various 20 semi-annual
payments
November 7, 2022
Fixed Rate Bond-7 Years P 3,000,000,000 3,000,000,000 P 2,964,131,356 2,964,131,356 P - - P 2,964,131,356 2,964,131,356 4.1583% 3,000,000,000 3,000,000,000 bullet payment May 4, 2020
Fixed Rate Bond-10 Years P 4,000,000,000 4,000,000,000 P 3,950,634,878 3,950,634,878 P - - P 3,950,634,878 3,950,634,878 4.7312% 4,000,000,000 4,000,000,000 bullet payment May 3, 2023
FXCN - Series 1 P 3,000,000,000 3,000,000,000 P 2,917,900,934 2,917,900,934 P 26,336,552 26,336,552 P 2,891,564,382 2,891,564,382 6.6173% (ave) P 150,000,000 15,000,000 20 semi-annual
payments
April 19, 2022
FXCN - Series 2 P 4,000,000,000 4,000,000,000 P 3,891,039,339 3,891,039,339 P 35,295,296 35,295,296 P 3,855,744,043 3,855,744,043 6.6108% (ave) P 200,000,000 20,000,000 20 semi-annual
payments
April 19, 2022
PESO PUBLIC BOND 5.5 YEAR P 8,500,000,000 8,500,000,000 P 8,462,056,012 8,462,056,012 P - - P 8,462,056,012 8,462,056,012 8.6418% P 8,500,000,000 8,500,000,000 bullet payment June 4, 2015
PESO PUBLIC BOND 7 YEAR P 3,500,000,000 3,500,000,000 P 3,474,793,440 3,474,793,440 P - - P 3,474,793,440 3,474,793,440 9.3327% P 3,500,000,000 3,500,000,000 bullet payment December 4, 2016
IFC 1 P 4,100,000,000 4,100,000,000 P 3,203,178,672 3,203,178,672 P 335,361,131 335,361,131 P 2,867,817,541 2,867,817,541 7.40% (ave) P 170,833,333 170,970,000 24 semi-annual
payments
April 15, 2023
IFC 2 P 3,262,500,000 3,262,500,000 P 2,959,680,920 2,959,680,920 P 243,934,196 243,934,196 P 2,715,746,723 2,715,746,723 6.657% (ave) P 125,480,769 125,606,250 26 semi-annual
payments
October 15, 2025
TOTAL 62,860,100,000 58,548,760,336 1,872,075,873 56,676,684,462
Amount and Number of Periodic Payments Maturity Date
(In original currency) (In original currency)
Long-Term Debt (Net of Current Portion) Interest Rate
Title of Issue and Type of
Obligation
Amount Authorized by Indenture
(In original currency)
Balance at December 31, 2013
(In original currency)
Current Portion of Long-Term Debt
(In original currency)
ENERGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
SCHEDULE F - INDEBTEDNESS TO RELATED PARTIES
As of December 31, 2013
Name of Related Parties Balance at beginning of periodBalance at end of
period
NOT APPLICABLE
ENERGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
SCHEDULE G - GUARANTEES OF SECURITIES OF OTHER ISSUERS
As of December 31, 2013
Name of issuing entity of securities
guaranteed by the company for
which this statement is filed
Title of issue of each class
of securities guaranteed
Total amount
guaranteed and
outstanding
Amount owned by
person for which
statement is filed
Nature of guarantee
NOT APPLICABLE
ENERGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
SCHEDULE H - CAPITAL STOCK
As of December 31, 2013
Title of IssueNumber of shares
authorized
Number of shares
issued and
outstanding
Number of
shares reserved
for options,
warrants,
conversion and
other rights
Number of
shares held by
related parties
Number of
shares held by
Directors and
key executive
officers
Common 30,000,000,000 18,750,000,000 - 7,500,000,000 34,562,736
Stock (40%) 0.184%
991,782,700
(5.29%)
870,374,200
(4.64%)
Preferred 15,000,000,000 9,375,000,000 - 9,375,000,000 -
Stock (100%)
EXHIBIT 4
ENERGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
FINANCIAL SOUNDNESS INDICATORS
Ratio Dec 31
2013 2012
Current 2.73:1.00 1.92:1.00
Debt-to-Equity 1.62:1.00 1.41:1.00
Net Debt-to-Equity 1.17:1.00 1.08:1.00
Return on Assets (%) 5.6 11.6
Return on Equity (%) 15.9 33.6
Solvency 0.16 0.29
Interest Rate Coverage 3.54:1.00 3.78:1.00
Asset-to-Equity 2.90:1.00 2.72:1.00
EXHIBIT 6
Material Contracts And Agreements
GEOTHERMAL SERVICE CONTRACTS AND GEOTHERMAL RENEWABLE ENERGY
SERVICE CONTRACTS
The Company and its subsidiaries currently have 16 service contracts with the Government for
the exploration and utilization of geothermal energy. Three geothermal operating contracts
(GOC) cover geothermal power plant operations; twelve of the geothermal contract areas are
covered by geothermal renewable energy service contracts (GRESC) under the RE Law and one
contract area is covered by a geothermal service contract (GSC) under PD 1422. The Company’s
existing geothermal contracts cover the following:
GRESC
o Tongonan, Kananga, Leyte
o Southern Negros, Valencia, Negros Oriental
o Bacon-Manito, Albay-Sorsogon
o Mt. Apo, Kidapawan
o Northern Negros, Negros Occidental
o Mt. Labo, Camarines Norte
o Mainit, Surigao del Norte
o Ampiro, Zamboanga del Norte-Zamboanga del Sur-Misamis Occidental
o Mandalagan, Negros Occidental
o Lakewood, Zamboanga del Norte and Zamboanga del Sur
o Balingasag, Misamis Oriental - Bukidnon
o Mt. Zion, North Cotabato – Davao del Sur
GOC
o Palinpinon Geothermal Power Plants in Valencia, Negros Oriental
o Tongonan Geothermal Power Plant in Kananga, Leyte
o Bacon-Manito Geothermal Power Plant in Albay-Sorsogon
GSC
o Mt. Cabalian, Southern Leyte
The service contracts for the (i) Tongonan; (ii) Southern Negros; (iii) Bacon-Manito; (iv) Mt.
Apo; (v) Northern Negros; (vi) Mt. Labo and (vii) Mainit; (viii) Ampiro; (ix) Mandalagan; (x)
Lakewood; (xi) Balingasag and (xii) Mt.Zion contract areas are in the form of GRESCs. The
contract for the (i) Palinpinon; (ii) Tongonan and (iii) Bacon-Manito geothermal power plants
are in the form of Geothermal Operating Contracts (GOCs). The GRESCs and the GOCs were
entered into pursuant to the RE Law. On the other hand, the service contract for the Mt. Cabalian
contract area is in the form of a GSC. Generally, under the service contracts, the Company is
appointed as the exclusive party to conduct geothermal operations on behalf of the Government
in the relevant contract area and agrees to provide the necessary services, technology and
financing for the geothermal operations contemplated therein, and assumes the financial risks for
those operations. Four of the Company’s twelve (12) GRESC contract areas, specifically
Tongonan, Southern Negros, Bacon Manito and Mt. Apo, are in commercial operation and the
GRESCs for these contract areas are to expire between 2031 and 2042. The Company has an
existing contract area in Northern Negros. However, the Company decided to temporarily
shutdown the operations of Northern Negros in 2011 while it studies the appropriate power plant
capacity for the said area. It has not re-commissioned its operations in Northern Negros as of the
date of this report. The service contracts for Mt. Labo, Mainit, Ampiro, Mandalagan, Lakewood,
Balingasag and Mt.Zion, none of which are currently in commercial operation, are effective for
an initial two year pre-development period from their respective effectivity dates, renewable for
another two years and further on for one more year provided that the Company has not defaulted
on its exploration, financial and other work commitments and obligations and has provided a
work program for the extension period that is acceptable to the Government. Where geothermal
resources in commercial quantity are discovered during the pre-development period, each service
contract shall, with respect to any production area delineated therein, remain in force for the
balance of a 25-year period, renewable for an additional period of 25 years if the Company is not
in default of its obligations under the service contract. If the Company does not default on its
obligations under the applicable contract, the Government may grant a further extension of 15
years (in the case of Mt. Cabalian) or 25 years (in the case of Mt. Apo, Northern Negros, Mt.
Labo, Mainit, Ampiro, Mandalagan, Lakewood, Balingasag and Mt. Zion).
Under each of the service contracts, all materials, equipment, plants and other installations that
are erected or placed on the contract area shall remain the property of the Company throughout
the term of the RE Contract and after termination thereof. The Company shall be given one year
to remove these facilities, otherwise ownership shall be vested in the Government.
Under the service contracts, the Company must pay government share to the Government and
local government units, from the proceeds derived from the geothermal operations. Under the
GRESCs and GOCs, the Company must pay a Government Share equal to 1.5% of the income
derived from the sale of geothermal steam or electricity produced and other incidental income, in
addition to income tax payable by the Company. Under the GSC for Mt. Cabalian, the Company
must pay 60% of net proceeds in respect of any geothermal energy extracted from the contract
area to the Government in the form of income tax and royalty fees, with the net proceeds to be
calculated after deducting recoverable costs such as development, production and operating costs
from the gross receipts. Under the GSC, the allowable recoverable costs are limited to 90% of
gross receipts per year, with any unrecovered costs carried forward to the succeeding years.
WIND ENERGY SERVICE CONTRACTS
The Company holds four WESCs with the DOE covering the estimated 87 MW wind project in
Burgos, Ilocos Norte, the estimated 84 MW wind project in Pagudpud, Ilocos Norte and the
Burgos 1 and Burgos 2 Wind Projects, also in Burgos, Ilocos Norte.
EDC Burgos Wind Power Corporation (EBWPC), a subsidiary of the Company, is developing an
87MW wind farm in Burgos and the WESC for the project was assigned to EBWPC in February
2011. EBWPC has submitted a Declaration of Commerciality (DOC) for the project last August
2011 and the same has been approved by the DOE last April 2013. As it has been studied that
there is potential for a bigger wind farm in EBWPC’s contract area, EBWPC submitted a DOC
covering the Burgos Wind Expansion Project. The expansion project will add an additional 63
MW of wind power. The DOE’s confirmation of the expansion project’s commerciality was
secured last December 2013.
On the other hand, the WESC for the Pagudpud project was assigned by EDC to EDC Pagudpud
Wind Power Corporation (EPWPC) last June 2012. EPWPC submitted a Declaration of
Commerciality for the Pagudpud project last February 2013. Both the assignment of the WESC
and the DOC are still being evaluated by the DOE.
The WESCs for Burgos 1 and Burgos 2 were signed by EDC last December 2013.
Under the WESC, the Company is obligated to provide the services, technology, equipment and
financing for the wind energy operations contemplated by the WESC. The Company assumes the
financial risks in case it is determined during the pre-development stage that wind resources in
the contract area do not justify commercial development.
Under the DOE’s new guidelines, the WESC is effective for a non-extendible period of three (3)
years provided that the failure of the Company to accomplish the first annual milestones set forth
by the DOE and as indicated in the Work Program shall result in the expiration of the RE
Contract. However, the submission of a Declaration of Commerciality at any time during the pre-
development stage and the confirmation thereof by the DOE shall supersede the milestone
requirement.
Within the pre-development stage of the wind energy operation, the Company is required to
undertake exploration, assessment, harnessing, piloting, and other studies of wind resources.
Upon submission by the Company and the confirmation by the DOE of a declaration of
commerciality within the pre-development stage, the WESC remains in force for the balance of a
period of 25 years from the effective date and can be renewed for another 25 years if the
Company has not been in default of any of its material obligations under the WESC.
Risks relating to the Company and its businesses
A substantial portion of the Company’s revenues are attributed to payments from a single
offtaker, NPC, who may be unable to meet its payment obligations to the Company.
A substantial portion of the Company’s revenues have historically been derived from sales of
electricity and steam to one customer, NPC. Under long-term PPAs, NPC is committed to
purchase electricity from six of the Company’s geothermal plants. The expiration dates of these
PPAs range from 2022 to 2024. The Company expects that it will continue to rely heavily on
NPC for a substantial portion of its electricity sales revenue for the foreseeable future. If NPC is
unable to meet its payment obligations under the PPAs, the Company would be materially and
adversely affected.
NPC’s power generation assets are subject to an ongoing privatization process conducted by
PSALM. In particular, PSALM is transferring the control of the trading of the energy capacities
covered by existing NPC-IPP contracts to qualified IPP Administrators. PSALM affirmed that
NPC will remain the legal counterparty to the PPAs subsequent to the appointment of the IPP
Administrators and thus NPC will remain liable for payment of fees under the PPAs.
In the past, NPC has experienced financial difficulties due to the depreciation of the Peso against
major foreign currencies, lower-than-expected electricity demand, high debt levels, political
pressure, and regulatory challenges, which limited NPC’s ability to pass on increased costs to its
customers.
In addition, the Company incurs various costs and obligations under its contracts with third
parties to meet its obligations to supply electricity to NPC under the PPAs. These costs and
obligations include debt service payments, project development, steam and power production
and operating costs. The Company is directly obligated to pay for these costs and obligations,
regardless of whether NPC pays the Company under the PPAs. The Company depends on NPC’s
payment, under the PPAs to fund its costs and obligations to third parties.
Any difficulty or inability on the part of NPC to meet its payment obligations under the PPAs,
including payments intended to cover the Company’s costs and debt service obligations, would
have a material and adverse effect on the Company’s business, cash flows, and results of
operations if the company were unable to source other purchasers of energy on substantially the
same or better terms. Additionally, if NPC fails to meet its obligations under the PPAs, the
Company would have difficulty in meeting its financial obligations to third parties, and therefore
may have to obtain funds from other sources to meet these obligations. There can be no
assurance that such alternative funding would be available, or, if the funding were available, that
it would be on commercially reasonable terms.
The Company’s financial performance depends on the successful operation of its geothermal
steamfields and power plants, which are subject to various operational risks.
The Company’s financial performance depends on the successful operation of its geothermal
steamfields and power plants. The cost of operation and maintenance and the operating
performance of geothermal steamfields and power plants may be adversely affected by a variety
of factors, including the following:
• unscheduled shutdowns due to maintenance, replacement of major parts, unexpected
breakdowns, failure of equipment or the equipment of the transmission serving utility
beyond the contractual allowance;
• improper management of the geothermal resource;
• the presence of hazardous materials in the Company’s project sites; and
• catastrophic events such as fires, explosions, earthquakes, typhoons, floods, landslides,
lightning, environmental pollution, releases of hazardous materials, severe storms or
similar and unexpected occurrences affecting the Company’s projects or any of the power
purchasers or other third parties providing services to the Company’s projects.
Many of these events may cause personal injury and loss of life, severe damage to or destruction
of the Company’s properties and the properties of others, and may result in the suspension of the
Company’s operations and the imposition of civil or criminal penalties.
The counterparties to the Company’s GRESCs, PPAs, PSAs, TSCs, ESAs and other related
agreements may have the conditional right to terminate those agreements under circumstances
specified therein arising from failure to generate or deliver electricity or geothermal resources, as
the case may be, which continues beyond a specified period of time. As a consequence, there
may be no revenues from the affected asset other than the proceeds from business interruption
insurance, if any, that applies to the event after the relevant waiting period. There can also be no
assurance that insurance proceeds received under policies maintained by the Company would
adequately cover all liabilities that may be incurred or any direct or indirect costs and losses
suffered, including liabilities to and losses claimed by third parties.
In addition, some of the PPAs have provisions that permit the counterparty, under specific
conditions, to purchase assets of the Company upon the occurrence of an event of default at a
price which may not compensate the Company for the value of such assets. In addition, if a
GRESC, PPA, PSA, TSC, ESA or other related agreement is terminated by the counterparty
thereto, the affected party may not be able to enter into a replacement agreement on terms as
favorable as the terminated agreement or with a counterparty as creditworthy as the terminating
counterparty. As a result of all or any of the foregoing, the Company may not be able to make
payments of principal, premium, if any, and interest on its debts when due.
The Company’s exploration, development and production of geothermal energy resources are
subject to geological risks and uncertainties.
The Company’s business involves the exploration, development, and production of geothermal
energy resources. These activities are subject to uncertainties, which may result in non-
commercial wells, due to, among others, the following:
• insufficient steam in the drilled wells;
• the discovery of acidic, oversaturated, and hypersaline fluids which are unsuitable in the
steam generation process using current technologies;
• the uncontrolled release of high pressure steam; and
• the sudden decline in pressure and temperature.
The occurrence of any of these or other uncertainties, which may occur naturally or as a result of
human error, can increase the Company’s operating costs and capital expenditures, or reduce the
efficiency of its steamfields and power plants.
Given that geothermal resources are located in varied and complex geological environments,
their sizes and volumes can only be estimated. The viability of geothermal projects depends on
different factors directly related to the geothermal resource, such as the heat content (i.e. the
maximum temperature and pressure tapped by the wells) of the geothermal reservoir, chemistry
of the reservoir fluids, useful life (i.e. commercially exploitable life) of the reservoir, and
operational factors relating to the extraction of geothermal fluids. Production and injection wells
can require frequent maintenance or replacement. Replacement or repair of certain equipment,
vessels or pipelines, may be required, due to corrosion and erosion arising from acidic and high-
gas geothermal fluids. New production and injection wells may be required for the maintenance
of current operating levels, thereby requiring substantial capital expenditures. The Company’s
geothermal energy projects may suffer an unexpected decline in the capacity of their respective
geothermal wells, and are exposed to a risk of geothermal reservoirs not being sufficient for
sustained generation of the desired electrical power capacity over time. In addition, the Company
may fail to find commercially viable geothermal resources in the expected quantities and
temperatures, which would adversely affect its development of geothermal power projects.
Geothermal resources are generally located within tectonically active areas. These areas may
have frequent low-level seismic activity. Serious seismic accidents may occur that could result in
damage to the Company’s facilities or equipment to such an extent that the Company could not
perform its normal obligations under SSAs, PSAs, ESAs or PPAs for the affected project. This,
in turn, could reduce the Company’s net income and materially and adversely affect its business,
financial condition, results of operations and cash flow. If the Company’s operations are
disrupted by a serious seismic disturbance, its business interruption and property damage
insurance may not be adequate to cover all losses sustained as a result thereof. In addition,
insurance coverage may not continue to be available in the future in amounts adequate to insure
against such seismic disturbances.
Licenses, permits and operating agreements necessary for the Company’s business may not be
obtained, sustained, extended or renewed.
The Company’s operations rely on permits, licenses and agreements and in some cases renewals
of such permits, licenses and agreements. Management believes that the Company currently
holds or has applied for all necessary licenses, permits and agreements to carry on the activities
that it is currently conducting under applicable laws and regulations, licenses, permits and
agreements. However, the Company’s ability to obtain, sustain or renew such licenses, permits
and agreements on acceptable terms is subject to change in regulations and policies and to the
discretion of applicable governmental authorities and counterparties.
Continued compliance with, and any changes in, safety, health and environmental laws and
regulations may adversely affect the Company’s operating costs.
The Company is subject to a number of laws and regulations affecting many aspects of its
present and future operations, including the disposal of various forms of materials resulting from
geothermal reservoir production, the drilling and operation of new wells, and power plant
operations. Such laws and regulations generally require the Company to obtain and comply with
a wide variety of licenses, permits, and other approvals. In addition, regulatory compliance for
the construction of new facilities is a costly and time-consuming process; changing
environmental regulations may require major expenditures in obtaining permits and may create
the risk of expensive delays or material impairment in project value if projects cannot be
operated as planned due to changing regulatory requirements or local opposition.
The Company’s projects are subject to numerous statutory and regulatory standards relating to
the use, storage, and disposal of hazardous substances. The Company uses industrial lubricants
and other substances in its projects, which are or could be classified as hazardous substances. If
any of the Company’s projects is found to have released any hazardous substances into the
environment, the Company could become liable to investigation and removal of those
substances, regardless of their source and time of release. The cost of any remediation activities
in connection with a spill or other release of such substances could be significant.
Safety, health, and environmental laws and regulations in the Philippines have become more
stringent, and it is expected that this trend will continue. The adoption of new laws and
regulations on safety, health, and environment, new interpretations of existing laws, increased
governmental enforcement of environmental laws, or other developments in the future may
require additional capital expenditures or the need for additional operating expenses in order to
comply with such laws and to maintain current operations.
The Company may be adversely affected by changes in the legal and regulatory environment
affecting its projects.
The Company and its projects are subject to significant regulation, including the EPIRA, and
therefore are also subject to changes in regulations, or in their interpretations. Energy regulation
is currently, and may continue to be, subject to challenges, modifications, the imposition of
additional requirements, and restructuring proposals. The Company may not be able to obtain or
maintain all regulatory approvals that may be required in the future, or secure any necessary
modifications to existing regulatory approvals. In addition, the cost of operation and maintenance
and the operating performance of steamfields and geothermal power plants may be adversely
affected by changes in certain laws and regulations and the manner in which certain laws and
regulations are implemented. Any such changes could change aspects of the Company’s
operations or increase the Company’s compliance expenses which could materially and
adversely affect the Company’s business, financial condition and results of operations.
In recent years, the Government has sought to implement measures designed to establish a
competitive energy market. These measures include the successful privatization of power
generation facilities and grant of a concession to manage, operate and maintain the transmission
and subtransmission assets of TransCo, as well as the establishment of a wholesale spot market
for electricity. The move towards a more competitive electricity industry could result in the
emergence of new and numerous competitors. These competitors may have greater financial
resources, and have more extensive operational experience and other capabilities than the
Company, giving them the ability to respond to operational, technological, financial and other
challenges more quickly than the Company.
Likewise, under the RE Law and its implementing rules, in relation to a reduced income tax rate
from 30% to 10% for Renewable Energy developers, there is a provision for a possible pass-on
of savings in the form of lower power rates under such mechanism as may be determined by the
DOE in coordination with the Renewable Energy developers. Such determination may include
the applicability of certain exceptions to the pass-on savings provision. The results of such pass-
on savings mechanism, if ruled unfavorable against the Company, may have a material and
adverse impact on the Company’s business and financial condition.
The Company faces increased competition in the power industry, including competition
resulting from legislative, regulatory and industry restructuring efforts. (please refer to
discussions under Part I – Business “Competition”)
The Company has relied and will continue to rely significantly on, and faces substantial
competition for, the services of its experienced, skilled and specially-trained technical
personnel.
The Company has relied, and will continue to rely, on a large number of specially-trained
technical personnel with highly specialized skills and abilities for its geothermal steamfield and
power generating activities. The Company has experienced significant problems with hiring and
retaining skilled personnel, and will continue to face increased competition for its retained
employees from other geothermal energy producers and similar business sectors, especially
where wages and benefits are much higher and better than those paid by the Company.
Additionally, because the Company is one of the leading geothermal energy producers
worldwide, the Company’s technical employees form a pool of some of the most highly
experienced and skilled professionals in the industry, which makes them very attractive to other
companies. If the Company is unable to retain a sufficient number of its qualified personnel or if
the Company is unable to attract new employees with the skills required for its technical
operations, the Company’s business operations could be adversely affected. A general shortage
of qualified personnel and the higher compensation offered by international firms in the
Company’s industry may also require the Company to raise employee salaries and benefits
which could negatively impact the Company’s profitability and operations.
The Company may experience fluctuations in the cost of materials that may materially and
adversely affect its business, financial condition, future results and cash flow.
The Company’s operations are dependent on the supply of various materials, including pipes,
and various industrial equipment components. The Company obtains such materials and
equipment at prevailing market prices on an as-needed basis and does not have any long-term
agreements with any of its suppliers. Most of the Company’s supplies are imported and
denominated in foreign currencies. In addition, there may be a limited number of suppliers for
certain items that the Company requires and as a result, availability can be limited. Future cost
increases and unavailability of necessary materials and equipment could adversely affect the
Company’s results of operations.
The Company’s ability to increase revenue from NPC and other power offtakers requires that
existing transmission infrastructure be free of bottlenecks and be of sufficient capacity to
readily transmit the generating capacity of the Company’s existing and future geothermal
power projects.
Currently, the electricity transmission infrastructure in the Philippines continues to experience
constraints on the amount of electricity that can be wheeled from power plants to key load
centers in specific areas in the different island grids. The lack of improvements in transmission
infrastructure has been caused by delays in the implementation of projects to be undertaken by
NGCP, the privatized transmission company responsible for maintaining and ensuring the
sufficiency of the power transmission infrastructure in the Philippines. If these transmission
constraints remain unresolved, the ability of NPC or any other power offtaker to request dispatch
from any of the Company’s power generation facilities to the country’s load centers will be
adversely affected. In turn, this could adversely affect the growth of the Company’s revenue
from the sale of electricity.
In addition, the electricity generated by the Company’s plants on Leyte island is transmitted over
a submarine cable that does not have the capacity to dispatch all of the electricity that the plants
are capable of producing. As a result, the Company does not operate these plants at their full load
factor. The reduced load factor negatively affects the efficiency of the plants and results in
excess condensation in the plants’ turbines, reducing the useful life of the turbines. The
Company cannot predict when the applicable submarine cable will be upgraded to the extent
necessary to permit it to dispatch electricity from these plants at the plants’ full capacity.
The Company may face labor disruptions that may interfere with its operations.
The Company is exposed to the risk of strikes and other industrial actions. As of December 31,
2011, the Parent Company employed a total of 2,202 full-time employees. There are 13 labor
unions within the Parent Company, each representing a specific collective bargaining unit
allowed for by law (pls. refer to discussions under Part I – Business “Employees and Labor
Relations”). There can be no assurance that other employees will not unionize or that strikes,
work stoppages or other industrial actions will not occur in the future. Any such event could
disrupt operations, possibly for a significant period of time, result in increased wages and other
benefits and otherwise have a material adverse effect on the Company’s business, financial
condition or results of operation.
The Company is exposed to the risk of foreign currency fluctuations.
Almost all of the Company’s revenues are denominated in Pesos, although partially indexed to
U.S. Dollars, while a portion of its long-term liabilities, including the Notes, and some of the
Company’s expenses are denominated in foreign currencies. This exposes the Company to
foreign exchange risk, mainly from future payments of foreign loans and other commercial
transactions. An adverse change in exchange rates can reduce the Company’s ability to service
its debt and other obligations, and may increase the Company’s expenses, thereby adversely
affecting the Company’s cash flows and net income.
The Company cannot predict the amounts it will have to pay for expropriated land.
The Company’s service agreements with the Government require the Government to make
available to EDC lands necessary for its geothermal operations and, as a private entity, the
Company has no power to expropriate land. In instances where the Company seeks to acquire
ownership over certain parcels of land for use in its projects but is unable to reach an agreement
with a private landowner, it depends on PNOC and the DOE (which are able to expropriate land)
to expropriate land for the Company’s projects, using funds sourced from the Company.
Thereafter, titles to these expropriated lands are generally transferred to the Company.
Under Philippine law, any party who has land expropriated by the Government is entitled to be
paid the fair market value for the land expropriated. Any land which is expropriated by PNOC or
the DOE on the Company’s behalf must be paid for by the Company at its fair market value, or
for just compensation, as ultimately determined by a court of law. Just compensation is affected
by factors such as the amount of consequential damage to the remaining property if the whole
property is not expropriated; consequential benefit of the expropriation to the private landowner;
and interest in case of delay in payment of just compensation.
The Company may be unable to refinance its outstanding debt and any future financing the
Company receives may be less favorable than current financing arrangements.
The Company has issued corporate and retail notes and has multiple loan agreements with local
and foreign banks. The Company’s continued access to debt financing is subject to a number of
factors which are outside of the Company’s control. For example, political instability, an
economic downturn, social unrest, changes in the Philippine regulatory environment or the
bankruptcy of an unrelated power generation company could increase the Company’s cost of
borrowing or restrict the Company’s ability to obtain debt financing. Market conditions and other
factors (such as the absence of a Government guarantee) may not permit future projects with
loan terms similar to those that the Company has previously received. If the Company is not able
to refinance its outstanding debt at maturity, it may have to undertake alternative financing plans,
such as:
• selling power plants or other assets;
• seeking to raise additional equity;
• restructuring its debts; or
• reducing or delaying capital investments.
The undertaking of any of these alternative financing plans could have a materially adverse
effect on the Company’s financial condition and results of operations. In addition, if the
Company is unable to obtain financing for its future projects on a favorable basis, it may have a
significant effect on its growth plans, financial condition and results of operations.
The Company may not be able to obtain or maintain adequate insurance.
Although the Company maintains insurance against many of its operating hazards, including
business interruption, third-party liability, seismic disturbance and terrorism insurance, the
Company cannot and does not insure against all of them with third-party insurers. In particular,
the Company self-insures its drilling rigs and its motor vehicles. For those items for which the
Company has third party insurance, the insurance proceeds received under these policies may not
adequately cover all liabilities that may be incurred or any direct or indirect costs and losses that
may be suffered, including liabilities to and losses claimed by third parties. If any of the
geothermal operations or power plants suffers a large uninsured loss or any insured loss
significantly exceeds available insurance coverage, the Company’s business, financial condition
and results of operations may be adversely affected.
In addition, the insurance coverage for the geothermal facilities and power plants is subject to
annual renewal. Numerous factors outside the Company’s control can affect market conditions
for insurance, which in turn can affect the availability of insurance coverage as well as premium
levels for the Company’s policies. The Company’s insurance coverage is also subject to certain
exclusions, limitations and deductibles. If the availability of insurance coverage is reduced
significantly, the Company may become exposed to certain risks for which it is not and/or cannot
be insured. Also, if premium levels for the insurance coverage required for its facilities increase
significantly, the Company could incur substantially higher costs for such coverage or may
decide to reduce the coverage amount, either of which could have an adverse effect on its
financial condition and results of operations.
The Company may not successfully implement its growth strategy.
The Company’s growth strategy is to develop additional geothermal power projects and other
renewable energy projects, such as wind farms, in both the Philippines and in international
markets. This strategy may require entering into strategic alliances and partnerships and
substantial investments in new geothermal steamfield and other renewable energy facilities. The
Company’s success in implementing this strategy will depend on, among other things, its ability
to identify and assess potential partners, investments and acquisitions, successfully finance, close
and integrate such investments and acquisitions, control costs and maintain sufficient operational
and financial controls.
The Company’s geothermal steam and electricity production in the Philippines is the Company’s
only significant revenue generating business. The key challenges the Company faces to its
growth strategy include:
• its ability to attract and retain third party customers for its services and products;
• its ability to develop a positive reputation for offering projects and services in new
markets;
• a lack of expertise in renewable energy projects other than geothermal projects;
• its ability to attract and retain the personnel necessary to implement its growth strategy;
• competition from companies offering similar services in the markets that the Company
plans to enter and for which entry is dependent, in part, on the number, size, operating
history, geographic scope, expertise, reputation and financial resources of those
competitors; and
• its ability to identify and assess potential partners, investments and joint ventures;
successfully receive approval from relevant government authorities; finance, close and
integrate such investments; and maintain sufficient operational and financial controls.
This growth strategy could place significant demands on the Company’s management and other
resources. The Company’s future growth may be adversely affected if it is unable to make these
investments or form these partnerships, or if these investments and partnerships prove
unsuccessful.
If general economic and regulatory conditions or market and competitive conditions change, or if
operations do not generate sufficient funds or other unexpected events occur, the Company may
decide to delay, modify or forego some aspects of its growth strategies, and its future growth
prospects could be adversely affected.
The Company’s intellectual property rights may not be adequate to protect its business.
In the past, the Company has not generally filed patent applications or attempted to protect its
intellectual property. Additionally, the Company has not included non-disclosure provisions in
agreements with employees and others having access to confidential information. The lack of
any measures to adequately protect the Company from disclosure or misappropriation of its
proprietary information could allow others to gain access to valuable, proprietary information
which could have a negative effect on the Company’s business.
Also, the Company’s competitors or other parties may assert that certain aspects of the
Company’s business or technology may be covered by patents held by them. Infringement or
other intellectual property claims, regardless of merit or ultimate outcome, can be expensive and
time-consuming and can divert management’s attention from the Company’s core business.
Failure to obtain financing or the inability to obtain financing on reasonable terms could
affect the execution of the Company’s growth strategies.
The Company’s growth and expansion plans depend on the Company making strategic
investments in new projects and acquisitions that are expected to be funded through a
combination of internally generated funds and external fund raising activities, including debt and
equity financing. The Company’s ability to raise additional equity financing from non-Philippine
investors is subject to foreign ownership restrictions imposed by the Philippine Constitution and
applicable laws.
The Company’s continued access to debt financing as a source of funding for new projects and
acquisitions and for refinancing maturing debt is subject to many factors, many of which are
outside of the Company’s control. For example, political instability, an economic downturn,
social unrest, changes in the Philippine regulatory environment or the bankruptcy of an unrelated
power generation company could increase the Company’s cost of borrowing or restrict the
Company’s ability to obtain debt financing. The Company cannot guarantee that it will be able to
arrange financing on acceptable terms, if at all. The inability of the Company to obtain debt
financing from banks and other financial institutions would adversely affect its ability to execute
its growth strategies. In addition, any future debt incurred by the Company may:
• increase the Company’s vulnerability to general adverse economic and industry
conditions;
• restrict the Company’s ability to incur additional capital expenditures and other general
corporate expenses;
• require the Company to dedicate a substantial portion of its cash flow to service debt
payments;
• limit the Company’s flexibility to react to changes in the power generation business and
the power industry;
• restrict the Company’s ability to declare dividends;
• place the Company at a competitive disadvantage in relation to competitors that have less
debt;
• require the Company to agree to additional financial covenants; and
• limit, along with other restrictive covenants, the Company’s ability to borrow additional
funds and to operate its business.
The Company has and will likely continue to rely significantly on the services of members of
its senior management team, and the departure of any of these persons could adversely affect
its business.
Members of the Company’s senior management team who are also employees of other
companies in the Lopez Group may have a conflict of interest. The Company has and will likely
continue to rely significantly on the continued individual and collective contributions of its
senior management team. A number of its top management personnel, including the President
and Chief Operating Officer, Chief Financial Officer, and the head of Business Development,
have been seconded from one of the Company’s shareholders, First Gen, and may be asked to
return to their original employer upon 30 days’ written notice. The loss of the services of any
member of the Company’s senior management or the inability to hire and retain experienced
management personnel could have a material adverse effect on its business and results of
operations. There can be no assurance that First Gen will not influence the actions and decisions
of these members of senior management in order to place the interests of First Gen above the
interests of the Company and its other shareholders.