As it shifts to low-grade coal for its electricity generation to offset foregone revenues from a denied rate hike, conglomerate San Miguel Corporation is now looking forward to "financial rebound" across the chain of its energy businesses.
Its subsidiary SMC Global Power Holdings Corporation (SMCGP) said it can “weather present challenges following the Energy Regulatory Commission's (ERC) denial of its petition for temporary relief from its fixed-rate power supply agreements with Meralco (Manila Electric Company).”
One of the major strategies explored by the company, according to SMC President and CEO Ramon S. Ang, is “to push further use of low-grade coal for its coal plants which are relatively cheaper than high-grade coal,” with him emphasizing that this will “result in a lower blended fuel cost for the company.”
The SMC chief executive similarly appeased inauspicious market sentiments as he guaranteed
that “SMCGP remains in a stable position to navigate these circumstances.”
He stressed “the company remains fundamentally strong, with a sound strategy to manage all of its financial covenants and obligations, even as it pursues its expansion and transition to battery energy storage and cleaner power technologies.”
In particular, Ang told investors and bondholders of the conglomerate’s power unit that while the ERC ruling may significantly impact its two power facilities with fixed-rate PSAs (power supply agreements) such “would have no adverse implication on a consolidated basis for SMCGP.”
He thus expressed confidence that “we will be able to manage the company’s maturing obligations in 2023 and beyond. If necessary, there will be SMC parent support. For our bondholders, SMCGP will continue to be fully-compliant with its financial covenants at all times.”
With the massive scale BESS ventures of the firm that may soon top 1,000-megawatt scale, Ang indicated that these could yield “at least P8 billion to P10 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA)” by next year.
The company CEO similarly noted that since SMCGP will no longer be remitting P12 billion worth of annual capital lease payments for the 1,200MW Ilijan gas-fired power plant, this will result in “a full-year positive impact for the company in 2023.”
On account of that financial obligation that will be eased, Ang emphasized such will provide the company “a lot of financial flexibility -- whether it opts for capital expenditure, refinancing, or paying down debt.”
Further, SMCGP is eyeing that its new Mariveles power plant will generate additional P5 billion to P6 billion in annual EBITDA once it reaches commercial operations next year.
Another cost-saving prospect for the company will be the conclusion of its independent power producer arrangement (IPPA) arrangement for the 1,200MW Sual plant by October 2024 – allowing SMCGP then to save roughly P14 billion on capital lease payments yearly.
Ang maintained though that SMCGP will continue “to evaluate legal remedies to strengthen its claim for cost recovery, or possibly reverse the unfavorable ERC ruling, even as termination remains a recourse for the company, as affirmed even by the ERC in its decision and a provided for in its PSAs with Meralco.”