Your Excellency, President Gloria Macapagal Arroyo,
Energy Secretary Vincent Perez,
NPC President Rogelio Murga,
Transco President Dr. Alan Ortiz,
Governor Hermilando Mandanas,
Mayor Dondon Dimacuha,
Meralco Chairman Manolo Lopez,
Dr. Christian Urbanke, Siemens AG, President, Fossil Power Generation Corporation,
Mr. Derek Fisher of British Gas,
distinguished guests, ladies and gentlemen, good morning.
Welcome to the formal inauguration of FGP Corp.'s 500 MW combined-cycle gas-fired San Lorenzo Power Plant. I thank all of you, but especially Her Excellency President Arroyo, for taking time out from all your busy schedules to be with us today. I hope that, after you see the significance of today's event and tour the plant, you will find the trip truly worth your while.
I cannot but admit to a strong sense of joy, pride and fulfillment within me as I stand before you today. For me, today's event is living testimony to the continued entrepreneurship of the Lopez Group of Companies, particularly in the industrial development of the Philippine economy. It is also living testimony to the ability of Filipino managers and technical people to deliver world-class work. The inauguration of the San Lorenzo plant is part of the second epoch in the trailblazing involvement of the Lopez Group in the energy sector. Allow me to reminisce through these two milestone periods.
The first epoch starts with my late father in the early sixties of the last century. I am referring to the historic Filipinization of the Manila Electric Company. In 1961, my father organized a group of Filipino investors to establish the Meralco Securities Corporation, or MSC, the forerunner of First Philippine Holdings Corporation for the purpose of buying Meralco from its American owners, General Public Utilities. In 1962, MSC completed the buyout of the company, the biggest leveraged buyout transaction at that time. There were doubts as to the ability of Filipinos to manage and operate one of the largest businesses in the country. Meralco's new Filipino management proved the doubters wrong and ushered in what I like to call the "golden age of Meralco" from 1962 to 1972.
What innovative things did Meralco do during this ten-year period? Since Meralco was heavily dependent on Napocor for 35% of its power requirements and given the perennial delays in Napocor's hydroelectric power plants coming on line, the new Meralco management decided to put up one oil-fired power plant every 18 months in order to keep up with the tremendous demand for power in the Meralco franchise area during the 1960's. Thus, the company expanded its power generation capacity five times over a 10-year period from 300,000 KV to 1,500,000 KW.
What was equally impressive was that all this growth was financed without reliance on government guarantees, but solely on Meralco's superior credit standing in both domestic and foreign bond markets.
By 1966, Meralco had become the largest private corporation in the country in terms of assets.
For me, the crowning achievement of Meralco during this springtime of achievements, was that Meralco rates were among the lowest in the Far East, according to a United Press International survey in 1971. Indeed, this is the best evidence of effective service to the people. In fact, in 1972, Meralco's rates were lower than those of Japan, Korea, Hongkong, Thailand, Singapore and Malaysia and in most of the states in the U.S., except for 7 states. It is difficult for us today who are paying more than P5/KW to realize that in the 1960's, the Meralco customers were only paying an average of 6 centavos/KW for their electricity. Those were really the good old days for the Meralco customers.
The MSC ownership was also democratized from 600 stockholders in 1961 to 12,000 by 1972.
Such accomplishments characterized the first epoch of involvement by the Lopez Group in the energy sector.
The second epoch, which starts with the return of the Lopez Group to the power generation business after the 1986 EDSA revolution, has its apogee with the Group becoming the lead private sector participant in the development of power plants using gas from the Malampaya fields. The accomplishments here of Fist Philippine Holdings Corporation are no less outstanding when compared with the achievements of Meralco Securities Corporation during the first epoch.
By way of background, about 8 years ago, the Philippine Government through the Department of Energy in conjunction with Shell Philippines Exploration Co. conceptualized the "Malampaya Deep Water Gas-to-Power" Project to utilize the commercial quantities of natural gas, i.e., 3 trillion cubic feet, at Malampaya, Palawan. This project required the simultaneous development of the gas field, the pipeline infrastructure and the downstream facilities. Estimated at a cost of .5 billion, it represents the largest and most significant industrial investment in the economic history of the country.
The Energy Secretary at the time, Francisco Viray, called upon the private sector, but more specifically on Meralco, to support the development of the Malampaya project by absorbing one half o the required 3,000 MW anchor load for the natural gas to be extracted from the Malampaya field in Palawan, while the other half was allocated to National Power Corporation, which eventually became the Kepco Ilijan project.
In response to Secretary Viray's urgent call, Meralco stepped forward and agreed to take a clear look at the 1,500 MW generation capacity allocated by the Government to the private sector. Meralco then turned to its biggest private stockholder, First Philippine Holdings Corporation, who was already in the power generation business with a BOT project in Bauang, La Union, to take up the challenge of putting up the gas power plants, whose output would then be completely absorbed by Meralco. One must remember that there was no glut in the power market at that time. In fact in 1994-95, the country was just beginning to recover from the power shortages of the late 1980's and early 1990's Subsequently, in February 1995, First Philippine Holdings formed a joint venture with British Gas and the Meralco Pension Fund called the First Gas Holdings Corporation, which spearheaded the development of the power generating capacity.
Since that time, First Gas has worked tirelessly to develop, finance and construct its two power projects namely the Sta. Rita 1,000 MW combined cycle power plant and the San Lorenzo 500 MW power plant.
Although these 2 plants are considered as two separate projects from a legal, financing and timing standpoint ---- Sta. Rita having preceded San Lorenzo, by almost 3 years --- in actuality as you can see here, San Lorenzo and Sta. Rita are more like twins. although one is twice as big as the other. But they occupy the same site, the machines are exactly the same in both plants and in the next 6 to 10 years they are both operated by one group, the Siemens Power Operations Inc., and these two plants together constitute the largest power generation facility in the Philippines .
The road to the completion of the First Gas Project was filled with many challenges -- from the negotiations with Siemens who supplied the power plant and became the turnkey contractor as well as the initial operator of the plants. There were 2 fuel suppliers, Enron and Shell, because our Sta. Rita plant was finished on April 2000 or 18 months ahead of the arrival of the natural gas on October 2001 and our plant was utilizing both condensate and diesel fuel as supplied by Enron prior to natural gas. The reason for the earlier startup of Sta. Rita was we wanted to make sure that our plant could operate on fuels other than natural gas. The unfavorable economic conditions in Asia from 1997 onwards also served to make the project financing of First Gas even more challenging. As it turned out, however, the projects were oversubscribed as they sought financing --- a clear testimony to the confidence of the international financial community in our abilities. In the case of Sta. Rita, banks from five continents offered in excess of billion in funding, way above the 0 million debt-financing package that was sought. The San Lorenzo Project, on the other hand, was five times oversubscribed and reached financial close in a record 5 months; by reckoning of our lenders, one of the fastest ever in the world for a project of this magnitude and complexity. We have clearly demonstrated that the Filipino can stand toe-to-toe with the rest of the world. The total cost of the two plants is .5 billion.
The national importance of these gas power projects cannot be over-emphasized. It will enable the country to benefit from the latest and most advanced technology in gas-fired power generation, the Siemens V84.3A combined cycle gas turbine, making it the cleanest and most efficient fossil-fired power plants in the country. It will help protect the environment by complying not only with Philippine environmental legislation, but also with the more stringent environmental guidelines of the World Bank. It will also help the country save on much needed foreign exchange reserves. It should also prove in the medium term, to be most cost effective fuel, after some technical transmission problems are resolved, and after the oversupply problem plaguing the power industry today is also resolved in the next few years, which would allow these gas-powered plants to ran at optimum capacity and efficiency. It must also be remembered that it was on the back of the Sta. Rita project that the upstream developers of the Malampaya deep water gas to power project declared commerciality and proceeded with their investment. In the final analysis, the First Gas projects played a key role in monetizing the largest indigenous fossil find in the country, generating substantial revenues for the government, and spurring the birth of the natural gas industry in the Philippines.
It should be noted that a project of this magnitude cannot succeed without the full support of the local and national governments. To this end we commend the national leadership spearheaded by the Department of Energy that took the initiative in promoting the Malampaya project. Indeed no project is too impossible as long as the government and the private sector work hand-in-hand. We would also like to cite the critical role played by our lenders, many of whom are here today. They took a positive view of the Philippines and project risk and by doing so, enabled our projects to proceed even during the Asian Financial Crisis.
We therefore salute and thank all our partners --- Shell Philippines, Texaco Philippines, Philippine National Oil Corporation-Exploration Corporation, the Department of Energy, National Power Corporation, our lenders, Siemens and our other equipment suppliers, our financial adviser, J. P. Morgan Securities Asia, our international and local legal advisers, Skaden Arps and Puno & Puno, our own superb team of managers and technical people in First Gas and First Generation headed by Mr. Peter Garrucho, and finally but not the least, Meralco itself headed by Manolo Lopez as chairman and Jesus Francisco as President as offtaker of all this power.
You have all played key roles that allows us now to welcome the dawning of a new age of clean, efficient and affordable power --- from a fuel that burns with the promise of a brighter future and a world we can proudly pass on to the generation to come.
Thank you and good morning to all of you.