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Interview

Jesus N. Alcordo, President, FDC Utilities Inc, Philippines

Jesus N. Alcordo, President of FDC Utilities Inc, a power company that has committed no less than 40 percent of its total investment portfolio to energy projects in Mindanao, speaks out about the increased risks and potential high returns of doing business in the province. He describes the unique factors at play in Mindanao and how the local market is suited to hydroelectric generated power.


In 2012 Filinvest Utilities Inc (FDCUI) announced a huge investment in the Mindanao region. At the same time, President Aquino announced that the region would be an exception of the implementation of the EPIRA act. Given this, how do you assess the potential of the Mindanao region today?

Mindanao will be a growth area, particularly if the peace process between the Government and militants in the area is uninterrupted, in which case the island has a great potential for growth. In Mindanao there ought to be a great deal of investment due to the land’s abundant resources ranging from minerals (including gold) to gas-oil deposits. Simply put, the wealth and potential of the region cannot be disputed.

However, due to conflict and the insufficient government support for the island, infrastructure and other factors that support development have been lagging behind. The future, however, looks to be lucrative and there are many opportunities for investment, including of course in power systems. This will be a keystone industry for Mindanao, and a rewarding one. As the economy grows, so does the demand for power, and increasing supply will enable the economy to grow.

Forty percent of FDCUI’s total investments are focused on Mindanao. With the construction of a power facility of 405 MW, what impact do you expect to have on the local community?

First, at the moment, Mindanao is in great need of power. In some areas, power is only available for eight hours a day. More power will stimulate economic growth and improve the quality of life in the area because with power, more investments will be attracted to the island, particularly downstream investments.

Do you consider it too risky to put almost half of your total investment in one specific region, which on top of that has the highest rates in the Philippines and is underdeveloped?

It is of course risky, but one must consider risk in the light of potential returns and as far as the company is concerned in my opinion, the risk is worth it. What sparked the decision to invest in Mindanao was the perception that the reward will be consummate with the level of risk in this venture.

FDCUI also announced that instead of using natural gas (LNG) for its upcoming power plants the company would now use “clean coal” and renewable energy. What were the factors that led to this decision?

The original strategy was to engage with the LNG market; however, today FDC Utilities Inc is moving into clean coal technologies and renewable energy. This shift in focus came from intense consideration of the likelihood of an LNG terminal being located close to our base of operations. It became increasingly apparent that large gas terminals, requiring around 1000MW of capacity to operate, were not going to arrive imminently. Closer to FDC Utilities Inc’s scale of operations, a floating gas terminal could have precipitated investment in wider generation assets. Floating terminals were advantageous because not only were they of the scale appropriate to FDC Utilities Inc’s activities, but, as floating units, could be moored closer to centres of demand, allowing more efficient location of generation plants. Unfortunately, our studies indicated that the landed cost of LNG was simply too high to justify our investment, as it would be uncompetitive with coal fired power plants. For the moment, this idea has been shelved but not abandoned.

Following this, FDCUI looked at, and continues to evaluate, the potential for hydropower plants, and has been seeking sites for power plants across Mindanao. Fortunately, a site was acquired and this allowed our company to move forward with its investment plan—the company is still seeking further investment in many other projects however. Just this morning our executive committee meeting looked at potential hydro sites, paving the way for feasibility studies to go ahead and we just won the last bidding round with permission to proceed with 40MW of geothermal capacity.

After the EPIRA law in 2001, all the missing major conglomerates came into the power market except Filinvest. Why did the company decide to enter recently, and what were the main challenges in competing with more established players, such as the Aboitiz, Ayala and Alcantara groups?

It must be admitted that other players were very well entrenched in the generation sector, for example. They are diversified across the sources of generation and have spread into distribution markets as well. FDC Utilities Inc has responded to this by attracting the best quality human resources to our company. This is our basic initial strategy: having the best-qualified staff has given FDC Utilities Inc credibility. For example, our marketing staff, in order to sell power to the power cooperatives, had to respond to incredulity about our ability to supply energy—understandable given we had not at that point constructed a power plant as yet. Citing the staff in our organisation, and their track record allowed our marketing people to hook the interest and the business of these cooperatives. In Mindanao, 246MW have been sold by our company and 73MW looks to be realised in the near future. That is a great record for a new player in the industry. The strategy of hiring the best human resources has certainly paid off.

Three years ago, FDC Utilities had no generation assets, but now has a contract for 40MW of geothermal power and has started construction on 405MW. We have also signed EPC contracts with finance in place.

FDCUI is keen on capitalizing on some of the “brown field” opportunities existing around the Philippines. What are the criteria that you look for prior to making investments in the power sector?

FDC Utilities Inc has a clear intent to invest in the power industry. When finding out which projects are most attractive the first and most fundamental consideration is what returns the project will bring the company. As FDC Utilities Inc is part of a group, the returns must be competitive with other sectors, such as the profitable real-estate market, or monies would remain targeted at these more lucrative sectors. So far, the power is proving more than adequate in bringing prosperity to the FDC group.

It is conceivable that in five years’ time, the Philippines will be one of the most attractive power markets in Asia. Over the next few years, there are likely to be eight or nine large major players in power. What effect do you think such a consolidation will have? Is there room for more players?

Consolidation will happen earlier. When NPC was privatized, it seemed as if the monopoly over the Filipino market had been broken. However, the reality is that still participation in this market remains restricted to a few. Moving forward, the pressure on companies using coal technology is increasing and this will result in a greater diversification in the sources of fuels used in this market. FDC Utilities Inc plans to capitalize on past plans of introducing LNG into the Filipino market. Whilst in the immediate future the number of companies is unlikely to increase, I do predict that technology will increase competition in the Filipino market.

As someone who has been working in different countries like Indonesia and Costa Rica and also managing government institutions like the National Power Corporation—what would you say is unique in the Philippines? What should people understand when it comes to managing a company in the Philippines?

Essentially, in my experience motivating people requires the same factors across the world practically—there might be some cultural differences but these are not obstacles of any great difficulty. The Philippines itself is a complex market: the process of getting business permits is convoluted, more so than even Indonesia where it is renowned for being complex. The Philippines requires patience in this respect, and that is a key quality for success in the Philippines.

 

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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