November 22, 2007 (Reuters) – Philippine power producer First Gen won an auction for the government’s majority stake in geothermal firm PNOC-Energy Development Corp with a $1.35 billion offer that taps into the energy potential of the Pacific Ring of Fire. Manila is selling its holding in PNOC-EDC, which generates power from volcanic hotsprings, to help meet its 2007 budget deficit target of 63 billion pesos, or 0.9 percent of GDP.
A powerful joint congressional committee said on Thursday the sale was illegal because under Philippine law only the government can explore and develop domestic sources of energy, but a First Gen executive said the company was unperturbed.
Senator Miriam Defensor-Santiago, the co-chair of the Joint Congressional Power Commission, said its members would summon Finance Secretary Margarito Teves next week to explain the sale of a government “crown jewel” before they consider possibly asking the Supreme Court to suspend the sale.
“We are giving the Secretary of Finance an opportunity to air his side before the Powercom decides on more coercive measures to insist that PNOC-EDC should stay within government ownership and control,” Defensor-Santiago said.
Political interference and legal uncertainty have traditionally deterred foreign investment into the Philippines and helped stunt its economic development.
But with oil prices just shy of $100 a barrel, alternative energy sources are viewed as potentially lucrative investments and First Gen’s chief financial officer told Reuters the company was unperturbed by the congressional committee’s moves.
“Things are moving as planned,” Giles Puno said in a mobile phone text message.
Manila spooked investors last year when President Gloria Macapagal Arroyo voided a deal allowing Malaysia’s Mitra Energy Ltd. to hold talks with the state-run PNOC Exploration Corp. about drilling oil from the Malampaya gas field.
RING OF FIRE
First Gen and Iceland’s Reykjavik Energy Invest teamed up to bid for the state’s 60 percent holding. Their Red Vulcan joint venture beat three other groups with an offer that valued PNOC-EDC at 9.75 pesos ($0.23) a share, 55 percent higher than Wednesday’s closing price.
The bid of 58.5 billion pesos was 30 percent above the government’s reserve price and 10 billion pesos higher than the next best bid from Filinvest Development Corp. and Britain’s International Power.
PNOC-EDC, which operates 9 steamfields with capacity of 1,145 MW, accounts for around 60 percent of the country’s geothermal capacity.
The Philippines, with 22 active volcanoes, is the world’s No.2 producer of geothermal energy after the United States due to its location on the seismically active Ring of Fire.
Chevron, the world’s largest producer of geothermal energy, is also active in the Philippines, running two steamfields that supply 7 percent of power demand on the main northern island of Luzon.
Despite its large alternative energy potential, including homegrown products such as the jatropha plant, the Philippines’ power sector has struggled to attract major investment.
Next month, Manila will try for a fifth time to sell a 25-year licence to run the national grid, valued at up to $3 billion, but in urgent need of modernisation.
The PNOC-EDC purchase is First Gen’s first foray into geothermal power. The group relies on natural gas, diesel and hydropower to fuel its plants, which account for 12 percent of the Philippines’ current installed capacity.
First Gen’s stock finished flat at 58 pesos on Thursday, while PNOC-EDC gained 9.5 percent.
PNOC-EDC stock has risen 53 percent since it made its market debut last December, outperforming a 22 percent rise in the main stock market index.
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