First Gen profit falls 85% in 9 months

MANILA, Philippines - First Gen Corp., the power generation arm of the Lopez Group, suffered a substantial 85-percent drop in its net income in the first nine months of 2009 to $7 million from $45.8 million in the same period last year, the company said yesterday.

In a disclosure to the Philippine Stock Exchange, First Gen attributed the decline in earnings to a one-time, non-cash write down of the deferred tax assets of its geothermal associate, Energy Development Corp. (EDC), due to the recent implementation of the Renewable Energy Act.

The company said it also incurred losses due to the appreciation of the dollar during the period.

“In addition, the $2.9-million unrealized foreign exchange loss in 2009 further exacerbated the variance between the 2009 and 2008 results,” it said.

Last year, the company said it posted unrealized gains of $22.2 million from foreign exchange movements.

These were, however, offset by savings in interest expense from the company’s refinancing activities and benefits from its gas projects’ lower deferred income tax.

In the nine-month period this year, First Gen’s main power generating assets continue to deliver steady operational as the 1,000-megawatt Santa Rita and 500-MW San Lorenzo natural gas-fired plants consistently registered average dispatch levels in excess of 80 percent.

Likewise, the company’s financial health continues to stabilize as its pursues a strong financing program aimed at moving a significant portion of the it’s loan obligations to operating subsidiaries and striking a reasonable balance between debt and equity.

The company’s successful financing programs has brought down interest expense from a high of $75.4 million in 2008 to $60.5 million this year.

EDC wrote down P3 billion in deferred tax assets as a one-time effect of the implementation of the RE Act, with the reduction in corporate income tax rate to 10 percent from 30 percent.

This writedown led to EDC’s net income dropping 47.7 percent to P1.3 billion in the first nine months of 2009 compared to the same period in 2008.

The RE Act was signed into law in December 2008 and took effect in January 2009.

“The writedown in deferred tax assets is a one-time consequence of the RE Act, following which the company’s future operations will continuously enjoy substantial benefits. Growing forward, our financing program, particularly the P15 billion rights issuance, is designed to further reduce our debt obligations with equity,” First Gen chief finance officer Giles Puno said.

The company is the largest renewable energy company in the Philippines, with an installed capacity of 2,887.4 MW, accounting for 19 percent of the country’s total installed capacity.

Aside from EDC, Santa Rita and San Lorenzo, First Gen also owns Bauang Private Power Corp., which constructed and operates the 225-MW Bauang power plant; First Gen Hydro Power Corp., which the 112-MW Pantabangan-Masiway hydroelectric power plants; and FG Bukidnon Power Corp., which operates the 1.6 MW Agusan power plant.