Buffett firm eyes Meralco partnership

Manila Bulletin
June 1, 2011, 1:29am

 MANILA, Philippines — The energy holding firm of industrialist Warren Buffett is courting power utility giant Manila Electric Company (Meralco) for a tie-up on a power project that will run on liquefied natural gas.

MidAmerican Energy Holdings chief executive officer Gregory Abel was in the country last April to meet with Meralco president and chief executive officer Manuel V. Pangilinan and laid down initial discussions on the American firm’s proposal to put up a LNG re-gas facility in Luzon and explore possible partnership with Meralco on the power facility component. MidAmerican Energy is a holding firm controlled by Buffett’s Berkshire Hathaway Inc.

The investment proposition being eyed by the American firm, it was gathered, could be to the tune of multi-billion dollars as it may also integrate LNG re-gas facilities, not only in Luzon but also in Mindanao, based on information gathered from the Department of Energy. If ever, the planned ventures in the Philippines will cut in the $38 billion cash hoard of the billionaire-industrialist which they have been lining up for investments in jurisdictions where opportunities arise.

As this developed, Meralco disclosed that their priority would be the construction of a 600-megawatt coal-fired power facility in north Luzon. The project’s design would be two units of 300MW capacity each and will likely command investment of around $1.0 billion at $2.3 million cost per megawatt.

Being the regarded “royalty” in the power sector now, Meralco has also been receiving other offers for its proposed LNG plant ventures. Aside from the American firm, those hinted to be in preliminary discussions with the utility firm are Royal Dutch Shell plc and a Japanese firm.

Meralco chief operating officer and senior executive vice president Oscar S. Reyes noted that the planned LNG facilities will address the company’s need for mid-merit and baseload facilities beyond 2016.

“We are looking for a partner who can bring us best value in our investments and for our customers as well as the expertise in power plant or LNG re-gas terminal operations,” he said.

The scale of the proposed facilities, he added, will also be comprehensively evaluated. “The defining parameter would still be the resulting cost for the consumers. In LNG, you need some scale to make it cost-competitive,” he explained.

Reyes qualified that discussions with any party are still “raw” at this stage; and that decision on final investment will be firmed up depending on the supply-demand dynamics when the facilities will be planned on stream.

For the coal project, Reyes noted that local and Asian partners will be joining them but he preferred keeping their identities for now “pending negotiations with the concerned parties.”

According to Meralco chief financial officer Betty C. Siy-Yap, the company would be raising P9.0 billion for the project’s equity portion; while 70-percent will be infused through project finance by a syndicate of banks.

The capital outlay, she said, will be done in phases to time the project’s commissioning by 2014 to 2015; adding that they are now just awaiting Board approval for the cash infusion plan. (MMV)