CEO’s Report

POISED FOR BROADER HORIZONS

Frederico R. Lopez
EDC Chairman and CEO

“EDC chose to sharpen its vision and redefined its core values. These are: Bias for Action, Pursuit of Excellence, Integrity, Entrepreneurial Spirit, Stewardship, Fairness, and Results-Driven Teamwork. As we pursue our aspirations to strengthen our local leadership and plant the seeds for global expansion in 2011 and in the years to come, these values shall be our guide.”

Dear shareholders and stakeholders,

In 2011, Energy Development Corporation (EDC) will celebrate its 35th anniversary. At this point, EDC has already become the largest integrated steam and power producer in the world where we manage the reservoir, steam field assets and power plants in what is now an integrated business model. The attractiveness of our integrated geothermal model is that for every megawatt we develop, we are in effect capturing revenue streams from both steam production and power generation. And since we have control over our fuel sources, we are less vulnerable to international price volatility and supply shocks that we have been experiencing of late. Our investments in hydro power, and very soon in wind power, will help fortify our leadership in providing clean, indigenous, and renewable energy to the country.

Amidst an international Independent Power Producer arena that is crowded with rivals that have scale and financing advantages, EDC’s 35-year head start in geothermal power development allows us to offer this unique expertise to new markets abroad that are clearly in search for more indigenous, low-carbon energy alternatives. I attribute EDC’s unique value proposition to its pioneering scientists and engineers who pursued and further pushed geothermal technology to bring it to the level that it is today. EDC was awarded a new patent last year for its online steam purity monitoring system and more patents have been filed. It is this spirit of innovation and entrepreneurship that will propel EDC to become an international geothermal company. Our acquisitions of the Palinpinon, Tongonan and Bacon-Manito power plants in the last two years have made us the world’s largest integrated geothermal power producer, but with assets only in the Philippines. It is our clear objective to take geothermal expertise overseas. In 2010, we began to plant the seeds for global expansion in countries like Chile, Kenya, and Indonesia and we hope to see these initiatives bear fruit in the next few years.

The domestic landscape is not without challenge. Many major conglomerates in the country have jumped on the bandwagon, entering the power generation industry like the great gold rush. Much of them are because of perceptions of an impending shortage and the promise of stellar returns. However, the Philippine economy continues to be principally driven by a non-energy intensive services sector. As such, growth in power demand will not be rapid and power shortages will be short lived. Having experienced these cycles in the past, I believe we are much more prepared and very well positioned to weather a sudden turn towards an extended period of overcapacity. We have a very price-competitive portfolio and asset base that is difficult to replicate overnight, given that many of the larger geothermal resources in the country are already with EDC. Close to 90% of our power is sold under long-term contracts, providing us with stable cash flows that will put the wind in our growth sails.

Another key element in the way we manage our power portfolio is that we have environmentalism and sustainability built into our business model. A most significant step is our decision to modify the massive reforestation efforts we do at EDC in ways that more closely mimic the natural growth of local indigenous forests. This ensures that we are able to protect the forests’ biodiversity as well and we have contracted local experts to help us monitor and craft the appropriate strategy for this. As of 2010, EDC has planted 7.7 million trees, reforesting 9,713 hectares. A more detailed account of EDC’s adherence to the Global Reporting Initiatives (GRI) is found in this Integrated Annual and Sustainability Report.

In the last few years, we have seen major changes in the Lopez Group portfolio, most significant of which was our decision to sell our controlling stakes in Meralco and Manila North Tollways Corporation. At the same time, First Gen Corporation (FirstGen) won the bid for a controlling stake in EDC (then PNOC EDC). These events signaled the shift in portfolio from power distribution to power generation at First Philippine Holdings Corporation (FPH), the parent company to First Gen and EDC. Today, after the many crises and pressures we have had to overcome, we emerge with an enviably stronger platform of businesses and the financial muscle to carry us forward.

In 2011, FPH will likewise celebrate its 50th year. And while we look back with pride to our contributions to nation-building in those last 50 years, we are eager and raring to conquer new horizons. At the forefront is our power businesses, where our sights are no longer just set on growing domestically but also now positioned to compete internationally. EDC’s 35-year head start and experience will be our contribution to markets abroad that are clearly in need for clean and renewable energy.

Our theme for this year’s annual report is “Values at Work.” In 2010, EDC chose to sharpen its vision and redefined its core values. These are: Bias for Action, Pursuit of Excellence, Integrity, Entrepreneurial Spirit, Stewardship, Fairness, and Results-Driven Teamwork. As we pursue our aspirations to strengthen our local leadership and plant the seeds for global expansion this year and in the years to come, these values shall be our guide.