Conglomerate San Miguel Corporation (SMC) expressed confidence that its power subsidiary, SMC Global Power Holdings Corp., (SMCGP) will weather its present challenges following the Energy Regulatory Commission’s (ERC) denial of its petition for temporary relief from its fixed-rate power supply agreements with Meralco.
“While we find the recent decision by the ERC denying our petition for temporary relief from skyrocketing global fuel prices unfortunate, SMCGP remains in a stable position to navigate these circumstances. We have never been more confident of the fundamental strength of our businesses,” SMC president and CEO Ramon S. Ang said.
He said the company remains fundamentally strong, with a sound strategy to manage all of its financial covenants and obligations, even as it pursues its expansion and transition to Battery Energy Storage and cleaner power technologies.
Ang sought to assure investors and bondholders of the power unit that the recent decision by the ERC to deny a joint petition with Meralco for a temporary rate hike, while it will significantly impact its two power facilities with fixed-rate PSAs, would have no adverse implication on a consolidated basis for SMCGP.
“We’re confident that we will be able to manage the company’s maturing obligations in 2023 and beyond. If necessary, there will be SMC parent support. For our bondholders, SMCGP will continue to be fully-compliant with its financial covenants at all times,” Ang added.
Ang pointed out that as of last June, SMCGP no longer needed to pay P12 billion per annum in capital lease payments under its Independent Power Producer Administration (IPPA) contract for the Ilijan plant. This will have a full-year positive impact for the company in 2023.
He said that this provides the company “a lot of financial flexibility” whether it opts for capital expenditure, refinancing, or paying down debt.
Ang also said that by 2023, SMCGP would be realizing at least ₱8B to ₱10B in earnings before interest, taxes, depreciation, and amortization (EBITDA) from the Battery Energy Storage System (BESS) project.
Also by next year, the company’s new Mariveles power plant is expected to come online, contributing an additional ₱5B to ₱6B in annual EBITDA.
SMCGP will also no longer make capital lease payments of about ₱14B per year under its Sual power plant IPPA, effective October 2024. By this time, its full 1,000 MW BESS project would be contributing anywhere between ₱12B to P15B EBITDA per annum, Ang said.
Ang also emphasized that all of SMCGP’s capacity is fully contracted.
To address continuously rising coal prices to better manage costs, Ang said that SMCGP has also been able to push further use of low-grade coal for its coal plants which are relatively cheaper than high-grade coal This is seen to result in a lower blended fuel cost for the company.
Meanwhile, he added that the company continues to evaluate legal remedies to strengthen its claim for cost recovery, or possibly reverse the unfavorable ERC ruling, even as termination remains a recourse for the company, as affirmed even by the ERC in its decision and a provided for in its PSAs with Meralco.
With a termination of the PSA, the company can eventually dispatch the capacities originally covered by the PSAs, to supply either the Wholesale Electricity Spot Market (WESM); Meralco, for its emergency power requirements, or distribution utilities and electric cooperatives at prevailing market terms. These would allow it to recover in full its power generation costs.
“The ERC ruling is a significant blow, not just to us, but more significantly, to the public, which will have to contend with higher electricity costs with the termination of the PSAs. That is why we are weighing all possible options,” Ang said.
Ang also addressed misinformation being spread by some parties of supposed penalties to be incurred by SMCGP in the event of a termination. He emphasized there are no penalties associated with a termination, as this would be in accordance with the provisions of the PSA He added: “As fiduciaries, we need to act in the best interest of all our different stakeholders. Our petition for temporary rate hike was necessary to allow us to be better placed to grow responsibly, provide reliable power supply for our consumers, generate and secure jobs, and push through with our sustainability goals, as our country’s partner in economic recovery and growth.”