Richard B. Tantoco
EDC President and COO
“Behavior follows structure and in line with this, we are restructuring the organization from being function-led to being driven by business units.”
To our valued shareholders and stakeholders:
Before I discuss our company’s 2012 performance, I would like to reflect, with great sadness, on the landslide that claimed 14 lives in the vicinity of our Upper Mahiao steam field. Our support, thoughts and prayers are with the families of the 14 workers who lost their lives. No amount of assistance can replace the loss of a life and it is in this very spirit of compassion and humility that we are working with the families to help them move forward.
In total, we had 350 rescue workers toiling around the clock during the rescue and recovery efforts. We are very grateful for the support of the leadership of our host local government units, the municipality of Kananga and Ormoc City, the 19th Infantry Battalion, the Kananga police force, the Ormoc Search and Rescue Team & the Makati Rescue Team that brought their trained sniffing dogs & EDC’s own Search and Rescue Team for being with us throughout the rescue and retrieval operations.
We are working with government agencies and experts to determine what can be learned from the worst incident to have occurred in our sites. Our employees, together with the DOE, DENR and DOLE, are working cooperatively to enhance safety and risk management so accidents like this will not happen again.
Let me now discuss our 2012 operations.
We reached our highest consolidated revenues at Php 28.4 billion, up by 16% from Php 24.5 billion in 2011. We also achieved our highest recurring net income attributable to equity holders of the parent at Php 8.2 billion in 2012, a significant increase from Php 4.5 billion in 2011.
This was driven mainly by the outstanding performance of two of our subsidiaries: Green Core Geothermal Inc. & First Gen Hydro Corporation.
Green Core’s revenue increased by P2.4 Billion due to a 14.8% increase in volume & a 12.4% increase in average tariffs. FGHydro’s revenues also increased by 2.4 billion due to sales of contingency and dispatchable reserves, a 56.3% increase in volume sold and a 19.3% increase in average tariff.
Early in the year, we suffered a major setback when the generators of the acquired Bacman Power Plants proved unreliable following major work by a subcontractor. We decided to send the generators to the facilities of the original equipment manufacturer in Stafford, England. Instead of operating early in 2012, your Company decided to proceed with a permanent solution resulting in the extensive delay in Bacman’s operations. We shall address the issues of Bacman with both vigor and urgency and constantly communicate our progress to our stakeholders.
Quite crucially with efforts to achieve greater efficiency and customer centric marketing efforts our cash flow increased substantially by 4.1 billion. Our cash flow margins improved even further from 52% to 60%.
EDC sold 7,033 GWh to a growing number of non-institutional customers. Our marketing group has successfully contracted with 23 customers in 2012, from just 12 customers in 2010.
Let me now discuss our operational highlights.
We are working toward modernizing and rehabilitating our power assets, as most of them approach 15 to 20 years in service. With the exception of two plants, we have been able to operate our power plants at acceptable levels in terms of reliability and availability. Tongonan had a reliability factor of 82% & an availability factor of 75% due to the extended time required to rewind its generator, while Mindanao II had a reliability factor of 89% and an availability factor of 82% due to the failure of the electro-hydraulic turbine controller just weeks before its scheduled replacement with a brand new unit. The rest of our power plants operated with at least 98% reliability factor and 97% availability factor.
Capacity factors of Unified Leyte, Mindanao II and Tongonan, were at 75%, 70% and 69%, respectively. We will continue to drill replacements for our old production and reinjection wells, some of which are 30 years old, to address these below target performance figures.
Early in the year, we took the decision to drill less wells and focus our efforts on improving absolute performance on a per well basis. Our drilling improvement initiatives have paid off with a 12% increase in average penetration rate from 43 to 48 meters per day. The five Make-up-and-Replacement wells that we had drilled in 2012 have contributed an additional 35 MW to our production capacity, while the other two wells are now being interconnected.
We need to further improve on our safety performance. Our TRIR performance for 2012 is 0.20, which is still a long way from the international standard of 0.05. Major activities in 2012 helped us improve our safety performance like the Safety Re-indoctrination Training for employees, and a comprehensive Safety Passport Program for contractors. We also had training and a technical audit conducted by the US National Fire Protection Association.
To prepare EDC for global operations we began restructuring our organization from being function-led, to being driven by business units. Our SBU transformation initiative has resulted in significant savings, as expected in the short term. However, what is more critical is achieving the long-term effect of deeper business insights and improved decision making because everyone in the business unit is accountable for the bottom line. Nestor Vasay, Rico Bersamin, Dominic Camu and Erwin Avante now head the Mt. Apo, Leyte, Bacman, and Negros Island business units, respectively.
The SBUs will also drive change efforts at the level of the site and these include: the rollout of SAP as the company’s enterprise resource planning system, benchmarking, strategic contracting and the modernization and integration of our control systems across our facilities. These changes are already in the execution mode and will have a lasting impact on our business.
The other major initiative we undertook in 2012 was to listen attentively to our stakeholders. My fellow employees are my first and most important stakeholders, without whom growth and improvement would be impossible. Our 2012 Employee Opinion Survey proves that our initiatives are bearing fruit. Employee engagement is at an all-time high with EDC obtaining an employee engagement index of 70% in 2012 versus 59% in 2010. EDC’s overall Employee Opinion Survey Score also rates favorably vs. the Philippine norm.
We also listened to our host communities. In the 2012 Social Acceptance survey, EDC scored an average of 95% for “appreciation” and 94% for “willingness of the community to support the company” vs. the 80% standard for high acceptance. Across all SBUs, the scores exceeded the global standard for high acceptance.
We also listened to our investors. In the fourth quarter of 2012, EDC teams conducted 62 one-on-one meetings in a series of roadshows in the US, UK, Singapore, Hong Kong and across Europe.
In terms of Corporate Governance, EDC received a Gold level rating in the Annual Corporate Governance Scorecard of the SEC, PSE and ICD. We were cited with a Platinum Award for maintaining this gold level of Corporate Governance Excellence for three consecutive years.
It is with pride that I note DENR’s continued recognition of EDC’s superior performance that goes beyond compliance.
Our integrated annual report has been certified by GRI Netherlands at A+. This reflects the highest levels of transparency as we shed light on 100 parameters of impact in our operations. In addition to profit, the GRI standard allows us to dispassionately report on our impact on people and our planet.
More significantly, our renewable energy brand is standing out among business competition as we have appeared on the radar screen of Bloomberg which has one of the highly developed indices called Sustainalytics, a global independent sustainability research provider to investors.
Let me now discuss our growth.
In the first quarter of 2012, we executed 5 frontier area, Geothermal Renewable Energy Service Contracts with the DOE: Mandalagan, Negros Occidental; Ampiro, Misamis Occidental; Balingasag, Misamis Oriental; Lakewood, Zamboanga del Su and Mt. Zion, North Cotabato.
In the fourth quarter, we awarded the contract for the transfer of the 49 MW Northern Negros Power Plant located in Negros Occidental to Southern Negros in Nasulo, Negros Oriental. We expect this plant to be commissioned in 2014 and generate an incremental 20-25 MW.
The Energy Development Corporation (EDC) is a pioneer in generating 100% clean, renewable, and reliable power as an electricity supplier in the Philippines for over 40 years. With power plants all over Visayas and Mindanao, the company is one of the biggest producers of geothermal energy in Asia and is expanding its reach in the international market, allowing it to offer customers affordable energy rates. EDC also strives to provide the best customer service it can to all its clients by having helpful salespeople and easy to understand contracts. Because of all of this, it is poised to become the premier supplier of electricity for the Philippines’ Green Energy Option Program. EDC takes its mission as a renewable energy provider seriously and goes beyond sustainability by investing in programs that enhance the environment and empower its partner communities, thereby fostering regenerative development. The company has also been working toward being carbon-neutral by improving its energy efficiency, as well as implementing various greening projects to ensure that its mission to provide future generations with a better life remains intact.
