News

EDC downgrading its Northern Negros plant to reduce operating losses

EDC downgrading its Northern Negros plant to reduce operating losses Northern Negros Geothermal Field of EDC, Philippines (source: EDC)
Alexander Richter 15 Jul 2011

Based on permeability issues at its 49 MW Northern Negros geothermal power plant, Energy Development Corp. plans to downgrade the facility to reduce operating losses.

News from the Philippines report that “Energy Development Corp., plans to downgrade its $100-million 49-megawatt facility within its northern Negros geothermal site to reduce its operating losses.

EDC president and COO Richard B. Tantoco explained that the company would “immediately begin to take steps to ‘right-size’ the Northern Negros Geothermal Plant (NNGP)” to curb losses amounting to P300 million monthly.

According to Tantoco, the power resources at its Northern Negros site may only be enough to run a 5-to-10-MW power plant.

“We have come to this conclusion after two prolonged testing periods, which we conducted from May 2009 to November 2010 and from April 5, 2011 to June 30, 2011, as well as from our analysis of completed surveys and technical data,” Tantoco said.

Even experts from New Zealand and the United States tapped by EDC to study the Northern Negros geothermal resources also agreed with the company’s geoscientists that the area was challenging and has permeability concerns.

The EDC management, according to Tantoco, is now studying all available options, including increasing steam production from the geothermal resource and transferring some of the units of the existing power plant to another area within Negros.

By right-sizing the facility in Northern Negros, EDC may be required to make a final provision for impairment of the project’s remaining book value.

“The P5.1-billion impairment charge is a noncash transaction and, with EDC’s over P9 billion in unrestricted retained earnings, will not affect our ability to declare dividends,” Tantoco clarified.

With this P5.1-billion impairment however, EDC expects its reported net income to drop significantly this year.

Apart from this impairment charge, the company may have to contend with lower prices at the wholesale electricity spot market and the P1.8 billion yearly foregone revenue from its take or pay contract for the rehabilitation of the Bacon-Manito power facility.”

Source: Business Inquirer