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Interview

David Isaac, President, Alloy MTD, Philippines

Isaac David, president of Malaysian conglomerate Alloy MTD, offers a first-hand perspective of FDI opportunity in the Philippines’ nascent hydropower segment. He speaks of the bankability of power generation, the wisdom of establishing joint ventures with local content unprepared for long-term loads, and of the suitability of the archipelago as a platform for expansion across the ASEAN region.

 

The Alloy MTD Group of Malaysia, through local unit MTD Philippines, is set to invest about USD 280 million (roughly PHP 12 billion) in 10 run-of-river mini-hydropower plants in Isabela starting this year. Where do these projects stand today? Has the Department of Energy issued all the service contracts for the 10 sites?

There are 10 sites that are between 3.4 MW to 90 MW in capacity, spread across four different river systems. The first one, site number one, is ready to go. We have been prepared to start with the project for a while, but we just only asked to the government to issue us the water permit. The water permit that the government issued to our group is for much less water than is needed to produce the power that we hope to. The National Water Resource Board is responsible for allocating this water to various different projects, from irrigation to domestic culls and power generation. Even though our project is run-of-the-river, as a 100 percent foreign owned company we cannot risk a violation of the law. If we start a project that requires the utilization of water we have to be sure that on day one we are working with the appropriate permits, and make sure we have the approval to use the water necessary to generate the 90 MW of power that we aim to.

Also, as our project is completely new, we asked the endorsement of the Department of Energy (DOE), and Energy Secretary Petilla, to endorse our project to the National Water Resource Board. The agency agreed to grant the permit equivalent for what we need to generate the power required for our mini hydro facilities.

Alloy MTD is now waiting for its final permit in order to start operations. Our funds are consolidated. Moreover, late last month the DOE issued three other services contracts for three other sites that are located on the same river. Today, those contracts have already passed feasibilities studies with international consultants. For the other final six service contracts, we just need to wait a bit more, although we are confident that we will get them as we got the other four.

Which are the reasons that led to your decision to invest in hydro?

The Renewable Energy Act is something new that provides attractive incentives to investors. Why hydro and not geothermal? Because it turned out that hydro was available and more accessible for our company two years ago, when we first looked at this sector. Overall, we see that there is a big demand of power in the Philippines: the growth of the country’s GDP has been one of the highest in Asia in recent years. There is also a large domestic market of around 100 million inhabitants. When you couple this with a positive business environment, you see that it makes sense to invest in the Philippines. We are proud to say that Alloy MTD is highly committed to the country.

With the construction of those ten run-of-river mini-hydropower plants, what impact do you expect to have on the local community?

Most of the power producers sell to the grid and it is ‘the imperial Manila’ that enjoys the investment return. But, in our case, as the power is being generated in a specific local community: we promised that we are going to give priority on selling the power to the locals and only the excess of the power will be sold to the grid. For that, the local people in Isabela will be able to enjoy electricity at a lower cost.

What have been your main priorities since you arrived at AlloyMTD Philippines?

AlloyMTD Group is a leading infrastructure conglomerate in Malaysia. The operations of MTD in the Philippines started in 2006 for the construction of the South Luzon Tollway. In the power sector we are only two years old, although our company is involved in power generation in other countries. Apart from the implementation of the ten run-of-river mini-hydropower plants, AlloyMTD has as a priority on following the ‘Putrajaya’ method, originally from Malaysia, which involves investing and working in different areas outside the capital. Alloy went out of Kuala Lumpur ten years ago. We are doing this in the Philippines since day one, as it is our other main priority.

Renewable energy is cost-intensive, what is AlloyMTD’s financial strategy?

We have our own balance sheet. Today, MTD operates in 15 different countries and therefore we are able to manage our funds, but in the Philippines we only provide an equity portion. We foresee about 30 percent of the cost of the project being funded by the company; the rest will be financed by banks, including Maybank and also Filipino banks. It seems that power is extremely bankable here today, and this is something that we are taking advantage of.

When it comes to investment in renewable energy, it seems that financial institutions don’t understand the longer gestation period that renewable energy projects often involve. What is your experience with this?

It has never been a problem for us as we are used to long-term financial conditions. For our construction business, the toll routes are always financed for 25 to 35 years. Actually, looking ahead, this is advantageous for us:  Even in the regional areas of the country, we have found that the local companies are not prepared to sustain long-term projects because they were previously subjected to joint venture partners from the local government unit. Once they learn that they are the ones providing the foundations, they step away. Local companies are not ready for long-term loads, but AlloyMTD is, since we have had a wealth of previous experience to demonstrate this.

There a number of huge specialized hydro companies that have successfully infiltrated the Philippines power market, primarily with Austrian expertise (considered the most experienced hydro region in the world). What is AlloyMTD’s competitive edge?

We are designers, builders and operators. We manage projects once they are up and running and do the maintenance. On top of that, we are funders. We have everything. That is why even in new types of projects like run-of-the-river plants, we go by ourselves. Moreover, although they are not related to power, in our previous projects in the Philippines, we were able to overcome political, financial, technical, non-technical, and many other challenges that were not previously foreseen.

What are your market ambitions in the power sector?

Today, we are looking at a 400 MW project in Mindanao, and we can say clearly that we are ready to invest in that specific area, unlike some other players in the market. As our owners are Muslims, we are very aware of the cultural specificities in Mindanao due to the presence of the Muslim community. Overall, we would like to look at any available power related venture. What matters here is that AlloyMTD is seeking to invest in the Philippines.

With huge local conglomerates historically dominating the power sector in the Philippines, what have been the challenges associated with being a foreign conglomerate operating in the Philippines?

There is not a specific challenge to compete with the local conglomerates. On the contrary, we are open to partnerships with them. In the Philippines, MTD is not that big, so any kind of cooperation with the big groups will considerably help. As I mentioned before, we have a good track record. We have a good reputation in the banking sector as our financial record is strong both here and abroad. Our past projects speak for us. But nevertheless, we are ready for joint ventures with the local conglomerates.

What are some of the competitive advantages that the Philippines renewable energy sector offers compared to other markets in the region? 

The Philippines is a developing country and its potential is great. The demand for power and for infrastructure is huge. At the same time, MTD’s new president back in Malaysia is as committed to the Philippines as he is to his mother country, Malaysia. We also recognized the huge improvement when it comes to the country’s transparency since the new administration of President Aquino joined the presidency back in 2010.

What are your ambitions for AlloyMTD in the Philippines? Where would you like to see your company in five years from now?

AlloyMTD wants to expand its operations into all 10 countries of the ASEAN region. Starting in the Philippines, the place where we see more potential today, we want to diversify our portfolio as much as we can in order to use our experience in the Filipino archipelago and implement it in the other countries. The Philippines is our platform. The larger and more diversified we become here, the better for our future plans of expansion around the ASEAN region in the coming years.

 

To read more interviews and articles on the Philippines, and to download the latest free report on the country, click here.

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