Lopez Holdings


Good morning.

Winston Churchill once said, “The farther backward you can look, the farther forward you are likely to see.”

Last year, we celebrated our first 50 years of First Philippine Holdings. A good juncture to commemorate the past, learn from it, rediscover our roots, and appreciate why we do the things we do. FPH has had a tumultuous but powerful history, one that never lacked color. While we momentarily glance backwards to refresh our eyes and jog our memories, it revitalizes us for the task of looking forward. Even as we honor that legacy, not for a moment do we forget that we are now stewards of FPH’s potential. In shaping our vision for the next 50 years we reflect objectively about the past to gain an intimate appreciation of our DNA and our capabilities. This is captured in a simple vision statement we’ve crafted for our next 50 years:

“Uplifting lives by creating value in key industries and infrastructure that advance national development.”

This single sentence captures many thoughts. It captures the value created by FPH as it acquired Meralco from its American owners in 1961 and built it into the country’s largest distribution utility. It captures how FPH successfully established a wide range of businesses: the country’s first oil products pipeline, first lube oil refinery, first electric transformer manufacturing plant, first natural gas-­‐fired power plant, first silicon wafer slicing facility for the solar photovoltaic industry as well as the country’s leading industrial park; the list goes on. FPH has pioneered and excelled in key industries and developed vital infrastructure that have been pivotal to our country’s progress. There is no doubt in our minds that we have touched and uplifted many lives in the process.

The spirit of that vision has inspired FPH for the past five decades and will continue to do so well into the future wherever in the world we may be. We will fulfill that vision as we “leverage our distinct competencies and experience from energy, infrastructure, real estate and industry to drive innovative business strategies and solutions for the benefit of our customers and other stakeholders.”

These are all well-­‐chosen words. Our redrafted Vision-­‐Mission statement taken together with our cherished Lopez Group values, such as integrity and social justice, must always position us as partners in progress with countries we choose to do business in -­‐-­‐-­‐ utilizing our strengths and capabilities to build key industries that advance national development. Here in the Philippines, we see a nation that harbors many strengths but is filled with countless institutional gaps and market discontinuities. Our challenge at FPH is to provide those business solutions as we bridge those gaps domestically and bring the best that our country has to offer to the global arena as well.

There lies the power of our platform today.

In the field of power and energy we recognize the dearth of options our country has had, relative to our neighbors, in its use of indigenous energy. This is why our power generation portfolio today is resolutely fuelled by indigenous sources such as natural gas, steam and hydro. We made a big strategic decision acquiring Energy Development Corporation in 2007. This arose from a sense of urgency to develop more clean and indigenous energy for the country, as well as our aspiration to further sharpen this unique Filipino expertise and prepare it for global expansion.

Our construction arm First Balfour has its roots in 1969 as a power plant construction and engineering arm of Meralco named Philippine Engineering and Construction Company or PECCO. As such, PECCO stored all the knowledge and experience of Filipinos who worked alongside American counterparts, building power plants in the decade fondly remembered as Meralco’s “golden age” from 1962 to 1972. Although First Balfour is a different company today, we believe we can strengthen the platform even more by building up its resources and engineering capabilities alongside and complementary to our growing power and energy businesses. The establishment of ThermaPrime Well Services Inc., our geothermal well drilling services company, is just the start. The synergy between both arms of FPH will be mutually beneficial.

Our pipeline company First Philippine Industrial Corporation is still suffering from an unfortunate leak incident in Bangkal and, although operationally ready, it still awaits the lifting of the Supreme Court’s Writ of Kalikasan before it can operate. However, our team has decisively taken responsibility for cleaning up and restoring the community and environment. What’s more important is that FPIC is doubling its efforts to ensure that when the pipeline begins operating again, we build-­‐in levels of monitoring and safety that ensure such incidents can never happen again. Further, we must reflect on the real potential of FPIC and the role it can play in energy transport and national development in the decades to come.Its right-­‐of-­‐way is unique and will be very difficult to replicate given the build-­‐up of urban density since the 1960’s. The exciting possibilities are not lost on us and we will surely consider the best and most strategic use of this asset in the decades to come.

The potential of our manufacturing platform has not yet been fully reached. I believe that our electrical transformer business has concentrated too much on serving a single customer -­‐-­‐ Meralco. Over the years Philippine Electric Corporation has also lost its edge in manufacturing efficiency. There is no reason we cannot regain that lost edge but we must, among other things, benchmark our processes with the best in the world and reorient the company around the needs of its current and future customers.

Our PV solar wafer manufacturing platform is going through rough times. The spectacular demand growth of the PV business in the previous decade was primarily driven by huge subsidies and incentives in Europe and the United States. Recent economic difficulties in these economies have meant a massive reduction, and in some cases withdrawal, of these incentives for renewable energy. This collapse in demand, coupled with overbuilding of new capacity, has led to a supply glut that is placing a squeeze on margins and profitability everywhere along the PV industry.

The bright side is the incredibly rapid plunge in installed costs of solar PV projects worldwide. Many are predicting the holy grail of grid parity to be reached sooner than expected. But we’ll watch closely how this plays out given that plunging natural gas prices in the US from fracking and shale gas could further lower power prices.

We have no doubt that a shakeout of PV industry players will occur before dark clouds clear. Nevertheless, First Philec Corporation (First Philec) continues to work with its customers to help each other weather the storm. However, a sobering lesson for First Philec from all its manufacturing activities is that we must always pay very close and deliberate attention to industry structure, our business models, as well as have intimate knowledge of our markets and customers. It’s never enough just to manufacture a good product.

Our real estate sector is anchored by superior brands built by First Philippine Industrial Park in the industrial park segment and Rockwell Land Corporation in the residential/commercial sector. With both businesses, we have been successful at creating integrated communities that bridge the gaps and discontinuities of living, working and establishing manufacturing operations in an emerging market country such as the Philippines. Both Rockwell and FPIP have, in their inimitable ways, created world-­‐class residential and industrial communities that enable the many things that are good about our country to shine. However, we still need to drive them towards better investment returns in the future and deepen our management benches for these businesses if we are to deploy more of our capital resources to this sector in the coming decades.

Last but not least are our remaining investments in the electric distribution utility business through our 3.9% stake in Meralco as well as our 30% stake in the Panay Electric Company. We are not active in the management of both companies with Metro Pacific and the Cacho family driving each company, respectively. Although, over the last few years we have greatly reduced our vulnerabilities to this highly regulated sector, both now deliver reasonable yields as portfolio investments because of the more stable Performance-­‐Based Ratemaking regime.

At parent company FPH, not only do we intend to drive strategic clarity and accountability for investment returns among our platform of businesses but we will ensure that they must also work together in synergy. For us, each business represents a distinct and unique capability. The power to create new, more compelling customer experiences means building and combining all those skills and evolving new ones as we move forward together.

Strategic clarity also extends to much of our Corporate Social Responsibility efforts. We are constantly mindful of building these efforts into our business models and finding innovative ways for our company and employees to engage surrounding communities and the general public through causes that are meaningful to us both. We are firm believers of the power of strategic CSR to unite and have purposeful impact on social and environmental problems around us.

For our power businesses, we pride ourselves on being long-­‐term stewards and guardians not only of the steam and hydro resources but of our surrounding communities, forest cover, biodiversity and all the ecosystem services nature provides around our power plants and steam fields. For us, unlike too many companies today, sustainability isn’t merely a buzz word used to “greenwash” bad practices. Sustainability is built into the heart and soul of our business model and we are proud that EDC leads the energy sector in this way of thinking.

Since December 2008, EDC has reforested a total of 3,091.6 hectares across the country with 2.38 million tree saplings of more than 96 premium and endangered species. These were planted in EDC’s five geothermal project sites, at watersheds surrounding our Pantabangan-­‐Masiway Hydro Plant, at our wind project site in Burgos, Ilocos Norte as well as selected school grounds in various provinces. We implemented these projects with close to a hundred organizations, local government units, government agencies and partner schools all over the country and by the end of ten years, we will have reforested over 10,000 hectares.

We are also continuing biodiversity studies with the UP Institute of Biology to establish a baseline of flora and fauna that exist in our various hydro and geothermal sites. As they say “you can’t protect what you don’t know.” Thus, it is fundamental that we understand the natural treasures that surround our sites. In this way, we preserve and rejuvenate the ecosystem in the correct way.

In Batangas, we closely support Bantay Dagat volunteers in the municipalities of Tingloy and Mabini. Both teams have been instrumental in deterring illegal fishing activities in these areas that form part of the Verde Island Passage, dubbed the “Center of the Center” of global marine biodiversity and considered among the richest marine ecosystems in the world.

Meanwhile, through our Kananga-­‐EDC Institute of Technology in Leyte, residents of EDC’s host communities have a shot at a better life through more job opportunities here and abroad. Since we established it in 2008, more than 238 cadets from mostly indigent communities surrounding our plant sites have graduated and 95 per cent of them have landed jobs, including two now in Singapore. The remaining 5 per cent are not yet employed but have decided to go a step further and pursue college degrees.

FPH also continues to be a benefactor of various institutions and organizations such as the Asian Institute of Management, the Lopez Museum, Knowledge Channel, Philippine Business for the Environment, Philippine Business for Social Progress and ABS CBN Foundation.

Most recently, my father and our Chairman Emeritus, Oscar M. Lopez, at the conferment of his honorary degree from the University of the Philippines, committed to establish and fund a center for collaborative research on climate change and natural hazards. It is widely known that the Philippines is ranked third among the most vulnerable countries in the world to the effects of climate change and natural disasters. The many calamities that have hit our country have also affected our major businesses situated in vulnerable areas. We are taking steps to prepare and shore ourselves better against such disasters. We therefore want to encourage the best minds on the subject to collaborate and find creative and innovative solutions to prevent and mitigate many of the calamities that may come. The center will be collaborative in the sense that its principal purpose will be to encourage and fund individual as well as joint research undertakings by faculty and specialists in academe and government. We are very excited about this initiative and you will hear more about this in the coming weeks.

Although we close the chapter on our first 50 years, we turn towards our next 50 with a ship that’s ready to brave new horizons and take FPH to even greater shores. To all our stakeholders, we’re grateful for your unwavering support especially through all those trying times. We look forward to bringing you on an exciting and even more profitable journey in the decades to come. To take from Rainer Rilke’s Book of Hours, “We see brightness of a new page where everything yet can happen.” And we hope you share our excitement on that journey we are just beginning.

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Lopez Holdings Corporation 
16/F North Tower, Rockwell Business Center Sheridan, Sheridan St. corner United St., 1550 Bgy. Highway Hills, Mandaluyong City, Philippines

  • Trunkline: (632) 8878 0000
  • Fax: (632) 8878 0000 ext 2009