Negros plant closure to affect EDC finances

Manila Standard Today

by Alena Mae S. Flores

Energy Development Corp. expects “reported” income to drop “significantly” due to lower electricity prices and foregone revenue from a plant that is being repaired, EDC president Richard Tantoco said Wednesday.

Recurring profit at the largest geothermal company might be flat, Tantoco said.

EDC shut down its $100-million Northern Negros geothermal power plant to avoid incurring monthly operating losses.

The move could result in an “impairment charge” of P5.1 billion, which will be reflected in the company’s financial results this year.

“You can look at net income in two ways. There is the reported net income which will drop significantly [due to the impairment], but if you look at cash generation and recurring net income, I think it’s flat,” he said.

Nestor Vasay, EDC senior vice president, said the company was operating the plant for P800 million monthly and generated revenues of just P500 million, resulting in losses of about P300 million monthly.

The company has lost P4.8 billion from the plant since 2007 when the Lopez group took over EDC from the government.

Tantoco said due to insufficient steam production from the Northern Negros geothermal field, EDC decided to close the plant.

He said the geothermal plant could be sustainably operated for 5 megawatts to 10 MW, significantly lower from the original capacity of the plant of 49 MW.

“We have come to this conclusion after two prolonged testing periods which we conducted from May 2009 to November 2010 and from April 5, 2011 to June 30, 2011, as well as from our analysis of completed surveys and technical data,” Tantoco said.

“With these findings, EDC is required to make a final provision for impairment of the project’s remaining book value. The P5.1-billion impairment charge is a non-cash transaction and with EDC’s over P9 billion in unrestricted retained earnings, will not affect our ability to declare dividends,” Tantoco said.

He said management was carefully studying all available options to increase steam production from the geothermal resource.