Alsons Sets Power Expansion in Mindanao Facing Blackout

Jun 11, 2014 2:39 am ET

(Updates share price in sixth paragraph.)

June 11 (Bloomberg) -- Alsons Consolidated Resources Inc., the oldest electricity generator on the Philippine island of Mindanao, will more than double capacity within five years as the region suffers from blackouts of as long as eight hours a day. Shares rose.

The company is building three coal-fired plants to boost capacity to 573 megawatts by 2019 from 258 megawatts this year, Chief Financial Officer Luis Ymson said in an interview on June 10. Investment for the plants, which will be built with a partner, is expected to reach $886 million. Alsons plans to raise $140 million from debt and equity to help fund the venture, Ymson said.

The added capacity would boost Alsons’ role as an electricity supplier, eventually resulting in the company accounting for about a fourth of Mindanao’s supply from 10 percent now, Ymson said. Electricity demand on Mindanao, the Philippines’ second-largest island and home to untapped mineral resources exceeding $300 billion, is projected to rise by about 5 percent annually.

The island, which supplies 40 percent of the nation’s food requirements, has suffered rotational power outages for years because its power plants are old and are mostly hydro facilities, which can’t operate during droughts.

“The power shortage in Mindanao provides room for further expansion,” George Ching, an analyst at Manila-based COL Financial Group Inc., said. “A challenge for investors putting up their plants is the low price of electricity in the region.”

Power Prices

Alsons shares rose 4.8 percent as of 2:28 p.m. in Manila, poised for the highest close since March 13, 1997. It has risen 61 percent this year, against the Philippine benchmark stock index’s 16 percent advance.

Mindanao residents have become accustomed to paying little for government-produced electricity, making it unprofitable for private investors to build plants. President Benigno Aquino’s success in forging a peace agreement that’s expected to end four decades of conflict is expected to boost incentives for investment in the region.

San Miguel Corp., the Philippines’ biggest company, is building a coal-fired power plant in Davao del Sur province with an initial capacity of 150 megawatts that can be expanded to 600 megawatts.

“We have the first-mover advantage in Mindanao,” Ymson said. “With more than 60 years of experience in the region, we know the lay of the land. The people are ready. They have accepted the fact that electricity prices will have to rise.”

Toyota Tsusho Corp. has taken a 25 percent stake in two of the plants. A partner will also be tapped for the third plant.

Expansion Plans

The company is poised for further expansion as investments in the region come in.

Capacity may rise to as much as 1,000 megawatts on plans to build a 400-megawatt coal-fired power plant that will serve the requirements of the $5.9 billion Tampakan gold and copper project in South Cotabato province, Ymson said.

The project, touted to be the nation’s biggest foreign investment and originally set to start production in 2016, has been stalled by a ban on open-pit mining.

Alsons’ profit will likely rise 11 percent this year to 519 million pesos ($12 million) on higher electricity sales and an increased share in the earnings of a unit after it bought Electricity Generating CPL’s 40 percent stake last year, Ymson said.

Profit in the first quarter ended March rose 59 percent to 149.1 million pesos as revenue more than doubled to 1.18 billion pesos from a year earlier.

Philippine Stories:NI PHIL <GO> Top Southeast Asia Stories: TOP SAS <GO>

--With assistance from Clarissa Batino in Manila.