MPIC, Ayala team up with Lopezes for Angat plant

MANILA, Philippines - Two of the country's biggest conglomerates have teamed up with the Lopez family to bid for the 246-megawatt Angat hydroelectric plant in Norzagaray, Bulacan.

Metro Pacific Investments Corp. (MPIC), Ayala Corp. and First Gen Corp. have announced a deal to jointly bid for the plant, a major supplier of power in the Luzon Grid.

This is the first foray of MPIC and Ayala into power generation. They are aligning themselves with the Lopez Group's First Gen, which is considered an expert in the industry, having been operating as an independent power producer over the last decade.

This is also the latest in the string of corporate rivalries in the country as the MPIC-Ayala-Lopez alliance will again be competing with diversifying conglomerate San Miguel Corp., which also confirmed plans to bid for Angat, among many other power assets it is eyeing.

The big players consider power generation as a potentially lucrative, high-growth sector as the country's power supply dwindles. Blackouts tend to result in more profits for power firms.

Bid through First Gen unit

Set to be auctioned in April, the Angat hydropower plant was commissioned between 1967 and 1968. It consists of 4 main units, each with a 50-megawatt capacity. The plant draws from the Angat Dam, which also supplies up to 97% of Metro Manila’s water supply.

In separate disclosures to the Philippine Stock Exchange, MPIC and Ayala said they would bid for Angat through First Gen Northern Energy Corp. (FGNEC). Previously, the two firms considered using Ayala's unit, Michigan Power Inc., as their corporate vehicle for the bid.

FGNEC is a subsidiary of First Gen, the Lopez family's primary holding firm for power generation and energy-related businesses.

"MPI (Michigan Power), through a written notice to PSALM, withdrew its participation from the bidding earlier today," MPIC said.

PSALM or the Power Sector Assets and Liabilities Management Corp. is the agency tasked to privatize government power assets.

MPIC and Ayala said they will each subscribe to 250,000 common shares of FGNEC with a par value of P1 per share.

"The subscriptions will result in First Gen, AC and MPIC each owning 33 1/3% of the outstanding capital stock of FGNEC," First Gen said in another disclosure, noting that the subscriptions have been fully paid.

First entry

The alliance marks the first attempt of both MPIC and Ayala, which are rivals in the telecommunications and water utility sectors, to enter the highly regulated power generation business.

MPIC is a sister company of phone giant conglomerate Philippine Long Distance Telephone Co.

MPIC, itself an infrastructure, health services, and power giant, controls Maynilad Water Services Inc., the concessionaire for the west zone of the country's capital, Metro Manila.

On the other hand, Ayala owns Globe Telecom Inc., the second biggest telecommunications player in the country, and Manila Water Co. Inc., the concessionaire for Metro Manila's east zone.

MPIC's foray into power generation is strategic since it owns a sizeable stake in power distributor Manila Electric Co. (Meralco).

The company's chairman, businessman Manuel Pangilinan, earlier said they would use Meralco as their vehicle for future investments in power generation to make it a "complete" utility company.

Under the law, a power distributor can source 50% of the energy it sells from companies it owns or from affiliates.

Out of the 5,000 MW of electricity Meralco distributes per year, 1,250 megawatts are supplied by the Lopezes' First Gen, whose parent First Philippine Holdings Corp. used to control the power retailer. This leaves between 1,000 megawatts to 1,250 megawatts that can be sourced from MPIC's future power assets.

Ayala, meanwhile, was passive in the mergers and acquisitions game for some time as its officials said they would like to focus on growing their core businesses. But recently, the company announced that the passage of the Philippine Renewable Energy Act, which gives fiscal incentives and priority at the grid to operators of renewable energy power plants, has encouraged them to venture into power generation.

Up against San Miguel

The MPIC-Ayala-Lopez alliance is up against diversifying conglomerate San Miguel, which has been selling core food and drink assets to enter into high-growth industries.

Earlier, analysts said the tie-up for Angat was aimed at protecting MPIC's and Ayala's water distribution ventures since San Miguel had planned to develop the P50-billion Laiban Dam project as an alternative source of water for Metro Manila.

MPIC—which has been particularly viewed to be in neck-and-neck race against San Miguel because they have been eyeing the same businesses—expressed opposition to the dam project, citing its controversial take or pay scheme.

Previously, MPIC and San Miguel were in a battle for control of Meralco, and were both interested in the Subic-Clark-Tarlac Expressway, the country's longest toll road.

In Meralco, MPIC and its affiliates hold a 40% stake. San Miguel, on the other hand, owns another 27%.

San Miguel, meantime, has been more aggressive in acquiring power generation assets despite its lack of experience in this business.

It has acquired 2,000 megawatts of generating capacity in the past year, plans to build 3,000 megawatts of capacity in 3 to 5 years and may also buy power distributors, it recently said. The company will also bid for more state-owned power plants.

Higher electricity prices

Power generation firms stand to be beneficiaries of the spike in wholesale retail prices of energy because of higher demand and current low supply, analysts said.

This year, dry weather due to the El Nino weather pattern has hit hydroelectricity production in the Philippines, leading to 8-hour long power outages in the southern island of Mindanao, and brownouts even in the capital Manila.

Meralco already warned of a significant hike in charges for March due to higher costs for the power supplied by generation companies.