VIRTUAL REALITY

Those who want to go into the power business in a big way should look at the way San Miguel Corp. did it.
In less than three years, San Miguel has become the Philippines’ largest integrated energy company.  It has stakes in Meralco (27 percent), Petron (up to 90 percent eventually); 3,165 megawatts of generating capacity or 20 percent of the Luzon Grid. SMC plans to double that capacity to 6,000 megawatts in five years.

San Miguel acquired the 1,000-mw Sual  power plant in Pangasinan for $1.07 billion, the 345-mw San Roque hydroelectric plant for $450 million, and the 1,200-mw Ilijian power plant in Batangas for $870 million.

The properties are under a new company called San Miguel Global Power.  SMC Global Power and Petron, together, accounted for 63 percent of consolidated SMC revenues in the first half of 2011.

SMC Power had consolidated sales of P35,197 million in the first half of 2011, up 98 percent from P17,749 million in January-June 2010.  Net income amounted to P2,740 million, up 79.3 percent from the P1,528 million profits in January-June 2010.

SMC Power assets grew from a minuscule P173 million in 2008 to P119.79 billion in 2009, further to P251.57 billion in 2010.  As of June 2011, assets have scaled P259 billion.

With its energy acquisitions, San Miguel Corp. has become the Philippines’ largest company in sales.   The conglomerate generated P263.3 billion in revenues in the first half, up P17.2 billion from the P246.1 billion sales in January-June 2010.

This year, San Miguel Corp. will generate more than $12 billion in annual sales.  In 2005, SMC had only $2.46 billion in annual sales.  SMC President Ramon S. Ang intends to double annual SMC sales to $20 billion and $5 billion in EBITDA over the next five years.

Meanwhile, Petron posted a 102 percent growth in net income to P6.0 billion for the first six months of 2011 compared with P2.96 billion for the same period last year.

Sales revenues, on the other hand, grew 17 percent to P134.9 billion compared with P115.4 billion year-on-year.

Petron’s net income for the first half of 2011 already accounted for 75 percent of its P7.9-billion net income for the whole of 2010.

Petron Corp.is currently owned 68.3 percent by SMC.  The largest petroleum refining and marketing company accounts for nearly 40 percent of the Philippine market for oil products. Petron operates the country’s biggest and integrated refinery with a daily capacity of 180,000 barrels and more than 1,700 retail stations.

In electricity, San Miguel’s generating assets have a combined capacity of 3,165 megawatts, account for 20 percent of total installed capacity for the Philippines (15,881 MW) and 27 percent of the Luzon grid (11,846 MW).

In addition, SMC owns 27 percent of the Manila Electric Co., the largest electricity distributor in the country.

In a relatively short period, San Miguel has built SMC Global Power as a vertically integrated power company with a full spectrum of power businesses comprising of IPPA (independent power producer administrator) contracts, mining assets, which supply raw materials to power plants and a distribution (through Meralco) which distributes and sells electricity through a vast network in Luzon island.

Integration gives SMC the opportunity to compete and maximize value in key segments of the value chain by driving and capitalizing on synergies among fuel sourcing, power generation and power distribution.

San Miguel intends to pursue its vertical integration for its power business and to expand into businesses that complement its power generation operations.  Thus, San Miguel has acquired for $1.1 billion the 555 gas stations and the refining plant of Exxon-Mobil in Malaysia.

All of SMC’s generating assets are in Luzon, but it is planning to build a 300-megawatt plant in General Santos City to utilize the output from three coal mines it acquired in Mindanao—Daguma Agro Minerals Inc., Bonanza Energy Resources Inc. and Sultan Energy Mining and Energy Development Corp.

According to SMC Global Power CEO Ramon S. Ang, SMC is also looking at investing in coal mines in Indonesia and Australia. San Miguel’s power is backed by financial muscle—it raised billions of dollars from the sale of overseas assets, particularly in Australia, and in a continuing equity offerings.

San Miguel Global Power Holdings Corp., which holds SMC’s generating assets, is preparing for an initial public offering (IPO) that will generate as much as $500 million (P21 billion at P42 to a dollar) from the local and foreign markets.

The IPO is expected to generate strong interest because of the huge demand for electricity. According to the Department of Energy, the Philippines needs a total additional capacity of 16,550 MW for the period 2010 to 2030.

In an analysis, DBP-Daiwa Securities says “there is a clear and present requirement for investments aimed at increasing the electricity generating capacity of the Philippines.”

The securities firm notes that in the past 20 years, electricity consumption has consistently increased by an average of 5.17 percent a year, but installed generating capacity has stalled starting 2004.

From 15,548 MW in 2004, installed capacity only improved by 0.7 percent to 15,610 MW by 2010, compared with the 3.02 percent growth of electricity consumption during the same period.

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