As a power producer and retailer, SMC Global Power Corp. is perhaps unrivalled in the Philippines – in financial and resources wherewithal, generating capacity, scale of operations, diversity of power sources, efficiency and cost structure, pricing and market power, revenue and profit-making capacity, expansion plans, and tremendous potential for growth.
SMC Global Power is today the cheapest seller of electricity. It has long-term contracts to supply power to Albay and Bulacan provinces at less than P3 per kilowatt hour. Compare that pricing to the P12 per kwh that Meralco charges subscribers.
Low-cost power means low cost manufacturing production and lower cost of doing business. Low-cost production and lower cost of doing business mean more employment, greater industrialization, and more prosperity.
The Philippines has among the world’s most expensive electricity rates. As a result, power costs as much as 20% of production cost and also 20% of the operating expenses of 22 million households in the country.
By itself with already 4,200 megawatts of power capacity and future expansion plans and acquisitions, not to mention, its willingness to price its electricity at very reasonable rates, San Miguel Global Power’s business cannot but produce huge revenue streams and sustain its profitability.
SMC Global Power’s combined installed capacity is about 19% of the National Grid, 25% of the Luzon Grid and 9% of the Mindanao Grid.
The business cannot but expand. The Philippines needs 43,700 megawatts of additional electricity over the next 20 years. It takes at least three years to build and make operational a power plant. The red tape can overpower a power project proponent. This means there could be serious shortages of electricity in the coming years, if not now with the blackouts.
With its size and nimbleness, SMC Global Power will be at the forefront of energy expansion to meet expanding national demand.
At present, SMC Global Power already contributes a substantial portion of its mother company’s revenues and profits.
In the whole of 2018, SMC Global Power chalked up revenues of P120.1 billion, up 45%, and operating profits of P33 billion, up 37%. In 2018, SMC Global Power accounted for only 12% of SMC group revenues and a stunning 28% of total operating income.
If SMC Global Power were a listed company and with an earnings multiple of 10 times income, SMC Global Power would easily be worth P330 billion in market value, if not much more.
With 4,200 megawatts and assuming cost of $1.5 million per megawatt to install power, SMC Global Power has generating assets worth easily P490 billion.
SMC Global Power is the holding company for San Miguel’s power generating assets—including supply and sale.
With its subsidiaries, associates, and joint ventures, SMC Global Power is one of the largest power companies in the Philippines. It benefits from diversified fuel sources, including natural gas, coal and hydroelectric.
SMC Power Business Began in 2009
San Miguel Corp. entered the power industry in 2009, thanks to the vision and foresight of Ramon S. Ang, the vice chairman, president and chief operating officer of San Miguel Corp.. Back in 2002, he envisioned to change San Miguel’s portfolio of business to include not just beer, beverages, foods, and packaging but growth industries like power generation, fuel and oil refining and marketing, and infrastructure.
San Miguel was already the largest food and consumer products company. With the diversification, San Miguel, almost overnight, became the largest infra company in terms of toll operations, the largest fuel and oil company (Petron), and now, the largest power generator and supplier.
RSA Strategy
With RSA’s guidance, SMC Global Power acquired rights to administer the output produced by Independent Power Producers (“IPPs”) in privatization auctions conducted by the government through the Power Sector Assets and Liabilities Management Corp. (“PSALM”).
Through its subsidiaries, San Miguel Corp. became the Independent Power Producer Administrator (“IPPA”) of the following plants:
(1) San Miguel Energy Corp. (“SMEC”) became the IPPA for the Sual Power Plant, a coal-fired thermal power plant located in Sual, Pangasinan, in November 2009;
(2) Strategic Power Devt. Corp. (“SPDC”) became the IPPA for the San Roque Power Plant, a hydroelectric power plant located in San Manuel, Pangasinan in January 2010;
(3) South Premiere Power Corp. (“SPPC”) became the IPPA for the Ilijan Power Plant, a natural gas-fired combined cycle power plant located in Ilijan, Batangas, in June 2010.
The Sual Power Plant, San Roque Plant and the Ilijan Power Plant are collectively referred to as the “IPPA Power Plants”. SMEC, SPPC and SPDC are collectively referred to as the “IPPA Subsidiaries”.
An IPPA under the IPP Administration Agreement (the “IPPA Agreement”) has the right to sell electricity generated by the power plants owned and operated by the IPPs without having to bear any of the large upfront capital expenditures for power plant construction or maintenance.
As an IPPA, SMEC, SPDC and SPPC also have the ability to manage both market and price risks by entering into bilateral contracts with offtakers while capturing potential upside from the sale of excess capacity through the Philippines Wholesale Electricity Spot Market (“WESM”).
Power Business Consolidated in 2010
In September 2010, San Miguel Corp. consolidated its power generation businesses through the transfer of its equity interest in SMEC, SPDC and SPPC to SMC Global Power. SMC Global Power also became a wholly-owned subsidiary of San Miguel Corp. Since then, SMC Global Power controls the 2,545-mw combined contracted capacity of the IPPA Power Plants through the IPPA Agreements executed by SMEC, SPDC and SPPC.
In August 2011, as part of the reorganization of the power-related assets of San Miguel Corp., SMC Global Power acquired from San Miguel Corp. its 100% equity interest in San Miguel Electric Corp. (“SMELC”), which is a grantee of a Retail Electricity Supplier (“RES”) license issued by the ERC.
In April 2013, SMC Global Power, through SMC Power Generation Corp. (“SPGC”), acquired 35% equity stake in Olongapo Electric Distribution Co., Inc. (“OEDC”).
Albay Electric Business
In October 2013, SMC Global Power entered into a 25-year concession agreement with Albay Electric Cooperative, Inc. (“ALECO”), which became effective upon confirmation of the National Electrification Administration (“NEA”) in November 2013. SMC Global organized and established a wholly-owned subsidiary, Albay Power and Energy Corp. (“APEC”), which assumed, as the concessionaire, all the rights and interests and performs the obligations of SMC Global Power under the concession agreement with ALECO.
In July 2013, SMC Global Power through San Miguel Consolidated Power Corp. (“SMCPC”), a wholly-owned subsidiary, commenced construction works for its 2 x 150-mw coal-fired power plant in Malita, Davao (the “Davao Greenfield Power Plant”).
Limay Solid Fuel Plants
In September 2013, SMC Global Power, through SMC Powergen Inc. (“SPI”), acquired the 140-MW Co-Generation Solid Fuel-Fired Power Plant located at the Petron Bataan Refinery, Barangay Alangan, Limay, Bataan, (“Limay Co-Gen Power Plant”) from Petron Corp.. On Dec. 23, 2016, the Limay Co-Gen Power Plant was purchased back by Petron Corp. from SPI.
In October 2013, SMC Global Power through SMC Consolidated Power Corp. (“SCPC”), a wholly-owned subsidiary, commenced construction works for its 4 x 150-mw coal-fired power plant in Limay, Bataan (the “Limay Greenfield Power Plant”).
The second 2 x 150-mw of the Limay Greenfield Power Plant was formerly owned by another subsidiary, the Limay Premiere Power Corp., but this was later transferred to SCPC in June 2017. SCPC was granted a RES license by the ERC on Aug. 24, 2016, which gave it the ability to directly contract with contestable customers.
Angat Hydropower
In November 2014, SMC Global Power, through its subsidiary PowerOne Ventures Energy Inc. (“PVEI”), acquired 60% stake in Angat Hydropower Corp. (“AHC”), the owner and operator of the 218-mw Angat Hydroelectric Power Plant (“AHEPP”) located in San Lorenzo, Norzagaray, Bulacan.
On June 16, 2016, Meralco Powergen Corp. (MGen”), a subsidiary of Manila Electric Co. (“Meralco”), and Zygnet Prime Holdings, Inc. (“Zygnet”) subscribed to 2,500 and 102 common shares of Mariveles Power Generation Corp. (“MPGC”), then a wholly-owned subsidiary of SMC Global Power, respectively.
As a result, SMC Global Power’s ownership was reduced to 49% of the outstanding capital stock of MPGC while MGen and Zygnet each owns 49% and 2% equity interest in MPGC, respectively.
Mariveles Coal Plants
MPGC intends to develop, construct, finance, own, operate and maintain a 4 x 150-mw circulating fluidized bed coal-fired power plant and associated facilities in Mariveles, Bataan.
Units 1 and 2 with a combined rated capacity of 300-mw, of the Davao Greenfield Power Plant attained commercial operations on July 26, 2017 and Feb. 26, 2018, respectively.
Units 1, 2 and 3 with a rated capacity of 450-mw Limay Greenfield Power Plant attained commercial operations on May 26, 2017, Sept. 26, 2017 and March 26, 2018, respectively, while Unit 4 is expected to commence commercial operations in second quarter of 2019.
Masinloc Plants
On March 20, 2018, SMC Global Power acquired 51% and 49% equity interests in SMCGP Masin Pte. Ltd. (formerly, Masin-AES Pte. Ltd. and hereinafter referred to as “SMCGP Masin”) from AES Phil Investment Pte. Ltd. (“AES Phil”) and Gen Plus B.V., respectively.
SMCGP Masin indirectly owns, through its subsidiaries, Masinloc Power Partners Co. Ltd. (“MPPCL”) and SMCGP Philippines Energy Storage Co. Ltd. (formerly, AES Philippines Energy Storage Co. Ltd. and hereinafter referred to as “SMCGP Philippines Energy”). MPPCL owns, operates and maintains the 1 x 330-mw and 1 x 344-mw coal-fired power plant (Units 1 and 2), the under-construction project expansion of the 335-mw unit (Unit 3) (Unit 1, 2 and 3 are collectively referred to as the “Masinloc Power Plant”), and the 10-mw battery energy storage project (the “Masinloc BESS”), all located in Masinloc, Zambales, Philippines (collectively, the “MPPCL Assets”), while SMCGP Philippines Energy plans to construct the 2 x 20-mw battery energy storage facility (“Kabankalan BESS”) in Kabankalan, Negros Occidental.
The MPPCL Assets add 684-mw capacity to the existing portfolio of SMC Global Power. MPCCL also owns 40% of Alpha Water Realty & Services, Corp. (“Alpha Water”)
As part of the sale, SMC Global Power also acquired SMCGP Transpower Pte. Ltd. (formerly, AES Transpower Private Ltd. and hereinafter referred to as “SMCGP Transpower”), and SMCGP Philippines Inc. (formerly, AES Philippines Inc. and hereinafter referred to as “SPHI”). SMCGP Transpower was a subsidiary of The AES Corp. which provides corporate support services to MPPCL through its Philippine Regional Operating Headquarters, while SPHI was a wholly-owned subsidiary of AES Phil and provides energy marketing services to MPPCL.
On July 13, 2018, Prime Electric Generation Corp. (“PEGC”), a wholly-owned subsidiary of SMC Global Power, acquired the entire equity interest of ALCO Steam Energy Corp. in Alpha Water, representing 60% of the outstanding capital stock of Alpha Water. As a result, SMC Global Power now effectively owns 100% of Alpha Water through its subsidiaries, PEGC and MPPCL. Alpha Water is the owner of the land on which the current site of the MPPCL Assets in Zambales Province is located.
On Sept. 19, 2018, PEGC and Oceantech Power Generation Corp. purchased the entire partnership interests in SMCGP Philippines Energy from subsidiaries of SMCGP Masin.
SMC Global Power, through SMEC, SPDC, SPPC, AHC, SMELC, SCPC, SMCPC and MPPCL sells power through offtake agreements directly to customers, including Meralco and other distribution utilities, electric cooperatives and industrial customers, or through the WESM.
Most Contracts are Long Term Take or Pay
The majority of the consolidated sales of SMC Global Power are through long-term take-or-pay offtake contracts most of which have provisions for passing on fuel costs, foreign exchange differentials and certain other fixed costs.
The following table sets forth selected data in respect of the Company’s power generation assets and interests as of the date of this Prospectus (see right table):
For the years ended Dec. 31, 2015, 2016 and 2017 and the nine months ended Sept. 30, 2017 and 2018, respectively, SMC Global Power, through its subsidiaries, sold 14,714 gigawatt hours (“GWh”), 15,758 GWh, 15,707 GWh, 11,634 GWh, and 15,112 GWh of power pursuant to offtake agreements and 1,844 GWh, 1,588 GWh, 1,520 GWh, 1,184 GWh, and 2,559 GWh of power through the WESM, respectively. During the years ended Dec. 31, 2015, 2016 and 2017 and the nine months ended Sept. 30, 2017 and 2018, SMC Global Power, through its subsidiaries, purchased 690 GWh, 767 GWh, 684 GWh, 491 GWh, and 889 GWh of power from the WESM, respectively.
For the year ended Dec. 31, 2017, the total consolidated revenue, net income and EBITDA of SMC Global Power were P82,791 million, P8,217 million and P7,654 million, respectively, and for the nine months ended Sept. 30, 2018, the total consolidated revenue, net income and EBITDA of SMC Global Power were P89,111 million, P4,366 million, and P8,580 million, respectively.
As of Dec. 31, 2017, and Sept. 30, 2018, SMC Global Power had total consolidated assets of P350,173 million and P501,379 million, respectively.
Experienced Power Producer
The experience of SMC Global Power, through its subsidiaries, as an IPPA and its history of power plant ownership and operation, has enabled SMC Global Power to gain expertise in the Philippine power generation industry.
With this experience, SMC Global Power believes it has a strong platform to participate in the expected future growth of the Philippine power market, through both the development of greenfield power plants and the acquisition of existing power generation capacity.
Expansion Plans
SMC Global Power is considering further expansion of its power portfolio of additional capacity nationwide through greenfield power projects over the next few years, depending on market demand.
With the increased development of greenfield power plants, an increasing portion of the portfolio of SMC Global Power is expected from company-owned and company-operated IPPs.
More Acquisitions Eyed
SMC Global Power would also continue to identify strategic acquisitions of existing power generation capacity by participating in the bidding of selected National Power Corp. of the Philippines (“NPC”)-owned power generation plants that are scheduled for privatization as asset sales or under the IPPA framework, and privately-owned plants with commercial and technical profile that fit its existing portfolio of power assets.
Further, to the extent viable and allowed under prevailing industry regulations, SMC Global Power is open to opportunities for vertical integration by expanding into businesses along the power sector value chain that complement its current power generation operations.
Downstream Integration
In particular, SMC Global Power intends to pursue downstream integration by capitalizing on changes in the Philippine regulatory structure which allow the expansion into the sale of power to a broader range of customers, including retail customers.
With open access and retail competition already implemented, SMC Global Power, through SMELC, SCPC and MPPCL, will continue to enter into retail supply contracts (“RSCs”) with end-users who have a choice on their supplier of electricity as may be certified by the ERC (“contestable customers”).
Coal Mines and Land Properties
SMC Global Power, through SMEC and its subsidiaries, Bonanza Energy Resources, Inc. “(Bonanza Energy”), Daguma Agro-Minerals, Inc. (“Daguma Agro”) and Sultan Energy Phils. Corp. (“Sultan Energy”), also owns coal exploration, production and development rights over approximately 17,000 hectares of land in Mindanao which, depending on prevailing global coal prices and the related logistical costs, may be tapped to eventually serve as an additional source of coal fuel for its planned and existing greenfield power plants.
The San Miguel Corp. Behemoth
SMC Global Power is a wholly-owned subsidiary of San Miguel Corp., a diversified conglomerate in the Philippines founded in 1890 that is listed in The Philippine Stock Exchange, Inc. (the “PSE”) –with market-leading businesses in the food, beverage, packaging, fuel and oil, infrastructure, property and investments in car distributorship and banking.
The relationship of SMC Global Power with San Miguel Corp. allows it to draw on the extensive business networks, local business knowledge, relationships and expertise of senior key executive officers of San Miguel Corp..