2018 annual report | a · visayas due to vigorous opposition of local stakeholders to exploration...

2018 ANNUAL REPORT | a

b | PHINMA ENERGY CORPORATION

PHINMA Energy Corporation started as a resource exploration company in September 1969. Then known as Trans-Asia Oil and Mineral Development Corporation, the Company successfully produced oil in Cadlao, Tara, and Matinloc in the 1980s.

In 1996, the Company was renamed to Trans-Asia Oil and Energy Development Corporation as it shifted its primary focus to power generation. The Company moved on to build and to operate ten power plants using both thermal and renewable energy sources.

PHINMA Energy celebrates its 50th year with a renewed commitment to harness indigenous energy sources as it joins one of the fastest growing energy companies in the region.

THE POWERTOHARNESS

2018 ANNUAL REPORT | 1

02 Where We Operate 04 Message to Shareholders 08 Financial Highlights 10 Board of Directors 18 Our Business at a Glance 20 Corporate Social Responsibility 26 Corporate Governance 32 50 years of PHINMA Energy 38 AC Energy

TABLE OFCONTENTS

2 | PHINMA ENERGY CORPORATION

WHERE WEOPERATE

RENEWABLE ENERGY

WIND1. PHINMA RENEWABLE ENERGY CORPORATION,

San Lorenzo, Guimaras2. Wind Energy Service Contract (WESC),

2009-10-010, Sibunag, Guimaras3. WESC 2009-10-013, Abulog-Ballesteros-Aparri,

Cagayan4. WESC 2010-10-014, Aparri-Camalaniugan-

Buguey, Cagayan 5. WESC 2010-02-024, Paracale-Vinzons,

Camarines Norte6. WESC 2010-02-030, Calauag, Quezon 7. WESC 2010-02-032, Dumangas, Iloilo 8. WESC 2009-10-011, Nueva Valencia, Guimaras*

GEOTHERMAL9. MAIBARARA GEOTHERMAL, INC. (MGI), Sto. Tomas, Batangas (Joint venture with

PetroGreen Energy Corporation and PNOC Renewables Corp.)

SOLAR10. Solar Energy Service Contract (SESC)

2016-12-353, Bugallon, Pangasinan11. SESC 2017-04-378, Padre Garcia, Batangas

*Formal notification submitted to DOE

POWER GENERATION

1. PHINMA POWER GENERATION CORPORATION (PPGC) Norzagaray, Bulacan2. CIP II POWER CORPORATION (CIPP) Bacnotan, La Union3. ONE SUBIC POWER GENERATION CORPORATION (OSPGC) Subic Bay Freeport Zone, Olongapo4. POWER BARGES 101 & 102 Barrio Obrero, Iloilo City 5. POWER BARGE 103 Poblacion, Lapu-Lapu City 6. SOUTH LUZON THERMAL ENERGY CORPORATION (SLTEC) Calaca, Batangas (Joint venture with AC Energy and Axia Power Holdings Philippines Inc.)


RESOURCE EXPLORATION PETROLEUM1. Service Contract (SC) 6 Block A, Northwest Palawan 2. SC 55, Offshore Southwest Palawan 3. SC 6 Block B, Offshore Northwest Palawan – Carried Interest4. SC 51, East Visayas*5. SC 69, Central Visayas*

GEOTHERMAL 6. Geothermal Service Contract (GSC) 8, Mabini, Batangas*


Dear Fellow Shareholders,

In 2018, the peak load demand in the Luzon grid increased by 8% to 10,876 MW in response to the growing Philippine economy. Despite the increase in demand, the energy supply industry was challenged by low market prices due to excess baseload capacity particularly from coal fired plants.

PHINMA Energy posted P15 billion in revenue from electricity sales in 2018, a decrease from P17 billion in the previous year due to lower energy sales from the expiration of various customer contracts. The Company also posted higher consolidated administrative expenses from actual plug and abandonment costs as well as provisions for probable losses on petroleum service contacts at subsidiary PHINMA Petroleum and Geothermal, Inc.

Although PHINMA Energy affiliate South Luzon Thermal Energy Corporation (SLTEC) operated its two 135 MW coal fired power plants reliably in the first half of 2018, SLTEC Unit 2 experienced turbine technical issues beginning June 2018 and remained out of service for the rest of the year. In 2018, SLTEC generated 1,400 GWh from its two plants, a decrease over the 1,850 GWh generated the previous year.

Equity in net income from affiliates of PHINMA Energy correspondingly decreased in 2018 and

CELEBRATING OUR PAST,ACCELERATINGOUR FUTURE

MESSAGE TO SHAREHOLDERS


the Company posted a consolidated net loss of P593 million from a net income of P347 million in the previous year.

On the renewable energy side, the Company’s subsidiary PHINMA Renewable Energy Corporation’s 54 MW wind farm in San Lorenzo, Guimaras produced 96.7 GWh of clean and renewable energy in 2018, an increase of 8% over the previous year due to better wind regime. PHINMA Renewable is currently in advanced stages of development of another 40 MW wind farm in Guimaras and is also in the early stages of development of a 150 MW wind farm in Cagayan.

PHINMA Energy continued to pursue solar projects last year. In 2018, the Company completed technical and feasibility studies and received necessary permits for a 45 MW solar service contract in Padre Garcia, Batangas. In March 2018, PHINMA Energy affiliate Maibarara Geothermal Inc. (MGI) began commercial operation of the 12 MW Unit 2 expansion of its geothermal power plant located in Sto. Tomas, Batangas. Last year, the Maibarara geothermal plant produced a net output of 226 GWh of renewable energy, a substantial increase over 162 GWh in the previous year, and ended the year with total expanded capacity of 32 MW from both Units 1 and 2.


Although global oil prices continued their increase in 2018, global exploration spending was modest as in the previous year. The Philippines failed to attract fresh upstream risk capital, thus the local industry was adversely affected by the dearth of investments. In July 2018, PHINMA Petroleum and Geothermal, Inc. (“PPG”) and its partners notified the Department of Energy of their withdrawal from Service Contract (SC) 51 over offshore and onshore blocks in Eastern Visayas, deeming it impossible to complete exploration efforts within the remaining term of the contract. Moreover, PPG thought it prudent to also withdraw from Service Contract (SC 69) which covers an offshore area in Central Visayas due to vigorous opposition of local stakeholders to exploration activities. The Company accordingly recognized a loss on the write off in 2018 of its share in accumulated exploration costs for both service contracts. However the Company, through its subsidiary Palawan55 Exploration & Production Corporation, commenced advanced geophysical studies under Service Contract (SC) 55 as it remains optimistic of petroleum prospectivity of the area where subcommercial gas was discovered in 2015. PHINMA Energy has gone a long way from its early foray into exploration in 1969. Then known as Trans-Asia Oil and Mineral Development

Corporation, the Company’s history reflects that of the Philippine exploration industry, with periods of moderate activity and times of significant success. The Company was in the consortium that produced 11 million barrels of oil in Cadlao in the 1980s. The Company was also part of the consortium which discovered oil in Tara and North Matinloc fields in the 1980s.

In 1996, the Company recognized the opportunities in power generation and was renamed as Trans-Asia Oil and Energy Development Corp. In the span of 27 years as a power generator, the Company was able to invest in ten power plants. Aside from this, the Company is also one of the pioneers in the wholesale and retail electricity market.

Trans-Asia Oil and Energy Development Corporation was renamed to PHINMA Energy Corporation in 2016, which was a banner year for the Company. It embraced the name of its parent, to become known as PHINMA Energy Corporation, combining the Company’s commercial success withPHINMA’s longstanding reputation, in commemoration of PHINMA’s 60th anniversary.

In February 2019, PHINMA Corporation disclosed the signing of an agreement on the sale of approximately 51.5% of outstanding

P 15 B Revenue from Electricity

Sales in 2018


shares in PHINMA Energy held collectively by PHINMA Corporation and Philippine Investment Management (PHINMA) Inc. to AC Energy, Inc. of the Ayala group. AC Energy is PHINMA Energy’s partner in the SLTEC coal plant venture.

PHINMA believes the sale represents a timely opportunity to harness value from a business it established over 50 years ago which it has grown to the extent it can. AC Energy, which is fully committed to the energy sector, is in the best position to grow the Company and views PHINMA Energy as a strategic fit into its own business.

Thank you for supporting PHINMA Energy for the past 50 years.

Francisco L. Viray President and CEO until May 16, 2019

Ramon R. del Rosario, Jr. Chairman until July 1, 2019

“PHINMA believes the sale represents a timely opportunity to harness value from a business it established over 50 years ago which it has grown to the extent it can.”


CONSOLIDATEDFINANCIAL HIGHLIGHTS

TOTAL ASSETS

TOTAL LIABILITIES

TOTAL EQUITY

TOTAL REVENUES

NET INCOME

NET DEBT TO EQUITY RATIO

RETURN ON EQUITY

Figures are in Million Pesos


20,628 20,759 18,925

11,626 11,619 10,553

9,002 9,140 8,372

15,478 17,020 15,123

1,383 347 -593

0.91:1 0.91:1 1.05:1

16.30% 3.83% -6.77%

2016 2017 2018


2018 BOARD OFDIRECTORS

RAMON R. DEL ROSARIO, JR.* OSCAR J. HILADO*

MAGDALENO B. ALBARRACIN, JR.* ROBERTO M. LAVIÑA*VICTOR J. DEL ROSARIO*

FRANCISCO L. VIRAY**


+ DAVID L. BALANGUE***Independent Director

RICARDO V. CAMUAIndependent Director

CORAZON DE LA PAZ-BERNARDOIndependent Director

EDWARD S. GOIndependent Director

GUILLERMO D. LUCHANGCOIndependent Director

PYTHAGORAS L. BRION, JR.*

Director until *July 1, 2019 **May 15, 2019 ***Feb. 15, 2019


Mr. Fernando Zobel de Ayala has been the President and Chief Operating Officer of Ayala Corporation since April 2006. He holds the following positions in publicly listed companies: Chairman of Ayala Land, Inc. and Manila Water Company, Inc.; and Director of Bank of the Philippine Islands, Globe Telecom, Inc., and Integrated Micro-Electronics, Inc.; and Independent Director of Pilipinas Shell Petroleum Corporation. He is the Chairman of AC International Finance Ltd., Liontide Holdings, Inc., AC Energy, Inc., Ayala Healthcare Holdings, Inc., Automobile Central Enterprise, Inc., Alabang Commercial Corporation, Accendo Commercial Corp., and Hero Foundation, Inc.; Co-Chairman of Ayala Foundation, Inc. and Ayala Group Club, Inc.; Vice-Chairman of ALI Eton Property Development Corporation, Aurora Properties Incorporated, Vesta Property Holdings, Inc., Ceci Realty Inc., Fort Bonifacio Development Corporation, Bonifacio Land Corporation, Emerging City Holdings, Inc., Columbus Holdings, Inc., Berkshires Holdings, Inc., and Bonifacio Art Foundation, Inc.; Director of LiveIt Investments, Ltd., AG Holdings Ltd., AC Infrastructure Holdings Corporation, Asiacom Philippines, Inc., Ayala Retirement Fund Holdings, Inc., AC Education, Inc., and AC Ventures Holding Corp., Honda Cars Philippines, Inc., Isuzu Philippines Corporation, and Manila Peninsula; Member of the Philippine-Singapore Business Council, INSEAD East Asia Council, World Presidents’ Organization, and Chief Executives Organization; Chairman of Habitat for Humanity’s Asia-Pacific Capital Campaign Steering Committee; and Member of the Board of Trustees of Caritas Manila, Pilipinas Shell Foundation, and the National Museum.

He graduated with a B.A. in Liberal Arts at Harvard College in 1982 and holds a CIM from INSEAD, France.

JAIME AUGUSTO ZOBEL DE AYALAStarting July 23, 2019

FERNANDO ZOBEL DE AYALAStarting July 23, 2019

Mr. Jaime Zobel de Ayala has been the Chairman and CEO of Ayala Corporation since April 2006. He holds the following positions in publicly listed companies: Chairman of Globe Telecom, Inc., Integrated Micro- Electronics, Inc. and Bank of the Philippine Islands; and Vice Chairman of Ayala Land, Inc. and Manila Water Company, Inc. He is also the Chairman of AC Education, Inc., Ayala Retirement Fund Holdings, Inc., AC Industrial Technology Holdings, Inc., AC Ventures Holding Corp., AC Infrastructure Holdings Corporation, and Asiacom Philippines, Inc.; Co-Chairman of Ayala Foundation, Inc. and Ayala Group Club, Inc.; Director of Alabang Commercial Corporation, Ayala International Pte. Ltd., AC Energy, Inc., Ayala Healthcare Holdings, Inc., Light Rail Manila Holdings, Inc., and AG Holdings Limited; Chairman of Harvard Business School Asia-Pacific Advisory Board and Endeavor Philippines; and member of the Harvard Global Advisory Council, Mitsubishi Corporation International Advisory Committee, JP Morgan International Council, Global Board of Advisors of the Council on Foreign Relations, Asia Society International Council, University of Tokyo Global Advisory Board, Singapore Management University Board of Trustees, and Eisenhower Fellowships Board of Trustees. He was the Philippine Representative to the Asia Pacific Economic Cooperation Business Advisory Council from 2010 to December 2015. In 2007, he received the Harvard Business School Alumni Achievement Award, the school’s highest recognition. He was a recipient of the Presidential Medal of Merit in 2009 for enhancing the prestige and honor of the Philippines both at home and abroad. In 2010, he was bestowed the Philippine Legion of Honor, with rank of Grand Commander, by the President of the Philippines in recognition of his outstanding public service. In 2015, he received the Order of Mabini, with rank of Commander, for his vital contributions during the Philippines’ hosting of the APEC Summit. In 2017, he was recognized as a United Nations SDG Pioneer for his work in sustainable business strategy and operations.

He graduated with a B.A. in Economics (Cum Laude) at Harvard College in 1981 and obtained an MBA at the Harvard Graduate School of Business Administration in 1987.

2019 BOARD OFDIRECTORS


John Eric T. Francia is a Managing Director and a member of the Management Committee of Ayala Corporation since 2009. He is the President and Chief Executive Officer of AC Energy, Inc.

In his previous role as Head of Ayala’s Corporate Strategy and Development group, Mr. Francia led Ayala’s entry into the energy and transport infrastructure sectors. Under his leadership, Ayala established its energy platform from a standing start in 2011, growing to 1,700 MW of attributable capacity by 2018. Mr. Francia also helped establish Ayala’s infrastructure business, securing over US $1 billion worth of PPP projects in the transport infrastructure space between 2011 and 2014.

Mr. Francia is a Director of various Ayala group companies including AC Infrastructure, AC Health and AC Ventures. In 2019, he was elected as the President and CEO of two listed companies: PHINMA Energy Corporation and PHINMA Petroleum and Geothermal, Inc.

Mr. Francia received his undergraduate degree in Humanities and Political Economy from the University of Asia & the Pacific, graduating Magna Cum Laude. He then completed his Masters Degree in Management Studies at the University of Cambridge in the United Kingdom, graduating with First Class Honors.

GERARDO C. ABLAZA, JR.Starting July 1, 2019

JOHN ERIC T. FRANCIAStarting May 15, 2019

Mr. Ablaza is currently a management consultant at Ayala Corporation and a member of the Board of Directors of AC Energy, Inc. He served as President and CEO of Manila Water Company from June 2010 to April 2017 and still remains involved with the company as a Director and member of various board committees. From 1998 to April 2009, he was President and CEO of Globe Telecom, Inc. In June 2015, he became a member of the International Advisory Panel of the Institute for Water Policy under the Lee Kuan Yew School of Public Policy in Singapore.

He obtained his degree in Liberal Arts (Honors Accelerated Program), Major in Mathematics from De La Salle University, graduating as Summa Cum Laude.


Mr. Almendras concurrently serves as Senior Managing Director and Group Head of Public Affairs of Ayala Corporation, President & Chief Executive Officer of Manila Water Company, Inc. (MWCI) and President & Chief Executive Officer of AC Infrastructure Holdings Corporation. He is also a member of the AC Management Committee, Chairman of the Executive Committee of MWCI and a member of the Board of Directors of the following companies within the Ayala Group: AF Payments Inc., Light Rail Manila Holdings, Inc., and MCX Tollway Inc.

He spent 13 years with the Citibank group where he started as a management trainee, and landed his first CEO position as President of City Savings Bank of the Aboitiz Group at the age of 37. In 2011, he was recognized by the World Economic Forum as a Sustainability Champion for his efforts as President of MWCI. During his stint as MWCI President and Chief Operating Officer, the company received multiple awards and was recognized as one of the Best Managed Companies in Asia, Best in Corporate Governance, one of the Greenest Companies in the Philippines and hailed as the world’s Most Efficient Water Company.

Under the Administration of President Benigno S. Aquino III, Mr. Almendras served as a member of the Cabinet holding the position of Secretary of the Department of Energy, Office of the Cabinet Secretary and the Department of Foreign Affairs. In June 2016, he was acknowledged by the Administration for his remarkable performance in addressing the country’s urgent issues and was awarded the highest Presidential Award given to a civilian–Order of Lakandula, Rank of Gold Cross Bayani.

JOHN PHILIP S. ORBETAStarting July 1, 2019

JOSE RENE GREGORY D. ALMENDRASStarting July 1, 2019

Mr. Orbeta is currently the Managing Director, Chief Human Resources Officer and Group Head for Corporate Resources at Ayala Corporation, covering Strategic Human Resources, Information & Communications Technology, AC Synergy, Knowledge Management, and Corporate Support Services.

He has served as a member of the Ayala Corporation Management Committee since May 2005 and the Ayala Group Management Committee since April 2009. He is currently the Chairman of Ayala Aviation Corporation, Ayala Group HR Council, Ayala Group Corporate Security Council and Ayala Business Clubs; Chairman and President of HCX Technology Partners, Inc., and Vice Chairman of Ayala Group Club, Inc.

Mr. Orbeta also serves as a Board Director of AG Counselors Corporation, AC Industrial Technology Holdings, Inc., Ayala Foundation Inc., Ayala Healthcare Holdings, Inc., Ayala Retirement Fund Holdings, Inc., ZapFam Inc., Generika Group of Companies, BPI Family Bank, Inc., ALFM Growth Fund, Inc., ALFM Money Market Fund, Inc., ALFM Peso Bond Fund, Inc., ALFM Dollar Bond Fund, Inc., ALFM Euro Bond Fund, Inc., ALFM Global Multi-Asset Income Fund, Inc., ALFM Retail Corporate Fixed Income Fund, Inc. and the Philippine Stock Index Fund Corporation.

Mr. Orbeta previously served as the President and CEO of Ayala Automotive Holdings Corporation and Automobile Central Enterprise, Inc. (Philippine importer of Volkswagen) and the Chairman and CEO of Honda Cars Makati, Inc., Isuzu Automotive Dealership, Inc. and Iconic Dealership, Inc., and Director of Honda Cars Cebu, Inc. and Isuzu Cebu Inc.

Prior to joining Ayala Corporation, he was the Vice President and Global Practice Director of the Human Capital Consulting Group at Watson Wyatt Worldwide (now Willis Towers Watson), overseeing the firm’s practices in executive compensation, strategic rewards, data services and organization effectiveness around the world. He was also a member of Watson Wyatt’s Board of Directors. He graduated with a degree in A.B. Economics from Ateneo de Manila University in 1982.


CORPORATEDIRECTORY

COVER PHOTOMap Data in Order of Usage from Google Earth View:© Bluesky, Infoterra Ltd & COWI A/S, DigitalGlobe, Getmapping plc, Infoterra Ltd & Bluesky, The Geoinformation Group© DigitalGlobe, USDA Farm Service© DigitalGlobe, Google© CNES / Astrium, DigitalGlobe PORTRAITUREJames Ona Cesar CainaCyrus Panganiban

OPERATIONAL PHOTOGRAPHYErik Liongoren COVER CONCEPT AND DESIGNPublicis JimenezBasic DESIGN AND EXECUTION Raymund Vicente and Cybele Manlapaz

STAKEHOLDER [email protected]

Corporate Communications & [email protected]

Human [email protected]

Data [email protected]

STAKEHOLDER SERVICES AND ASSISTANCEStock Transfer Services, Inc.34th Floor, Unit D, Rufino Pacific Tower6784 Ayala Avenue, Makati City(+632) 403 [email protected]

FINANCIAL STATEMENTSPHINMA Energy’s Financial Statements are available for download on its website: www.phinmaenergy.com


OUR BUSINESSAT A GLANCE

RES MARKET SHARE AS OF DEC. 2018

3rd stand-alone retail electricity supplier

2,474 GWhTOTAL ENERGY SALES VOLUME

P15 BREVENUE FROM

ELECTRICITYSALES

9.58%

POWER BUSINESS

RENEWABLE ENERGY DEVELOPMENT

96.7 GWhSAN LORENZO WIND FARM


ENERGY SALES FROM GENERATION PLANTS

PHINMA Power Generation Corporation

Norzagaray, Bulacan

53 GWhCIP II Power Corporation

Bacnotan, La Union

11 GWh

Guimaras Power PlantJordan, Guimaras

2 GWhOne Subic Power

Generation CorporationSubic Bay Freeport Zone, Olongapo

39 GWh

Power Barges 101-102Barrio Obrero, Iloilo City

11 GWhSouth Luzon Thermal Energy Corporation

Calaca, Batangas

1,256 GWhMaibarara Geothermal, Inc.

Santo Tomas, Batangas

226 GWh

ENERGY RESOURCE DEVELOPMENTWITHDRAWALService Contract 51 Eastern VisayasService Contract 69 Central Visayas COMMENCEMENTGeophysical Studies under Service Contact 55 Offshore Southwest Palawan


CORPORATE SOCIALRESPONSIBILITY


The year 2018 has been a remarkable year for PHINMA Energy as it embarks into new strategies to create more sustainable programs. Our commitment to promote inclusive and empowering growth towards community development drives us to find innovative ways to create more positive impact to our stakeholders. PHINMA Energy upholds these values and commitment as we engage our partner communities towards transformative CSR. It has always been our dream to support initiatives that create lasting and sustainable progress for our valued stakeholders. Through our integrated approach in delivering our CSR advocacy, we hope to lay a solid groundwork and create enabling environment for our partner communities.

Harnessing Energy Literacy for Planet Earth (HELP Earth)

Now on its 10th year, PHINMA Energy’s HELP Earth Education Program continues to implement initiatives for energy awareness and empowerment of leaders. To expand its reach, the Company inked Memoranda of Agreement with the Department of Education Divisions of Bulacan and of Guimaras, essentially adopting all the schools within these two divisions. This also signified joint commitment in developing programs that can harness energy literacy and support science education among students. This agreement led to more partnership opportunities in teacher training and development.

In 2018, PHINMA Energy was also able to support 28 schools for Brigada Eskwela. The Company was also able to train 86 public school Science teachers in conducting investigatory projects by upgrading their teaching skills and competencies.

Now on its 10th year, PHINMA Energy’s HELP Earth education program continues to implement initiatives for energy awareness and empowerment of leaders.


Our Company has also achieved significant strides in our environmental programs. In Bulacan, our Company was able to achieve an 85% survival rate of seedlings at the 50-hectare Bininit Reforestation Area within the Ipo Critical Watershed after streamlining the processes with the Department of Environment and Natural Resources–CENRO Tabang and Bulacan Dumagat Community Association. More than 14,000 seedlings have been planted in the watershed area since its inception in 2016. In Guimaras, the 27-hectare Tanglad Arboretum Project in Sibunag attained a 100% survival rate. PHINMA Energy, together with the community in Barangay Tanglad, maintains around 5,940 trees of at least 50 indigenous species in the area, as part of its biodiversity protection. The Company has also adopted a new reforestation area in Subic–the 50-hectare Cawag Reforestation Program in partnership with Subic Cawag Upland Farmers Association. Around 4,000 coffee seedlings were planted, and the project recorded a 98% survival rate by the end of 2018. Aside from carbon sequestration, PHINMA Energy hopes that this initiative will be able to augment the economic needs of the farmers when the coffee plantation will be ready for harvesting in five years.

“Aside from carbon sequestration, PHINMA Energy hopes that this initiative will be able to augment the economic needs of the farmers when the coffee plantation will be ready for harvesting in five years.”


Progressive Undertakings on Nation-building and Life-enhancing Advocacies (PUNLA)

PHINMA Energy has also implemented programs to take advantage of the economic growth driven by the presence of PHINMA Energy power plants.

In Guimaras where the San Lorenzo Wind Farm is situated, we were able to establish 12 livelihood groups in our host communities. Products such as gourmet salt, bamboo handicrafts, artisan soap, and bead products among others are being sold in the San Lorenzo Pasalubong Center, and are being consigned at the Guimaras Trade and Information Center beside the Provincial Capitol. PHINMA Energy has also included the products of the local partners as a part of its corporate Christmas gifts.

In La Union, QB Food Center, the meat processing group we trained and supported, has taken its commitment a notch higher by registering its group with the Bureau of Internal Revenue. This move opens up more opportunities for them to supply to other businesses, aside from supplying meat products to CIP II Power Corporation.

For a more wholistic approach in addressing the immediate needs of our partner communities, PHINMA Energy continued to support several social welfare programs. We continue to support day care schools through school rehabilitation and a toy and book drive, Kariton ni Juan. This initiative was able to support five centers in 2018. PHINMA Energy takes pride in one of the day care schools that we have supported for the past three years, Suclaran Day Care Center, as it has achieved the day care standards set by the DSWD. We aim to replicate this with our other partners for this initiative.


The Company also supported local health initiatives in Guimaras through a Blood Donation Drive in partnership with the Municipal Health Office and Philippine Red Cross. With PHINMA Energy’s support, the Municipal Health Office of San Lorenzo has collected a blood reserve covering 0.77% of the municipal population, compared to 0.06% the previous year. We will continue to support this initiative until we reach the target of blood donation to cover one percent of San Lorenzo’s population.

PHINMA Energy gave importance to disaster preparedness and resiliency of our partner communities. Together with our Business Resiliency group, our Company was able to roll-out our first community resiliency module in four barangays in San Lorenzo, Guimaras. This was done in partnership the Provincial Disaster Risk Reduction Management Council and LGUs. Aside from this, PHINMA Energy continues its support for the barangay security through Tanod Watch, ensuring that they have the capability and resources to respond to disasters and incidents within the community.

“PHINMA Energy also looked after the disaster preparedness and resiliency of our partner communities.”


Special Interest Groups for Life-balance Activities (SIGLA)

PHINMA Energy aspires to promote work-life balance including the employees’ physical, mental, and social well-being to drive personal growth and create venue for to pursue their special interests. Special Interest Group for Life-balance Activities, or SIGLA, continues to provide this venue for fellowship and camaraderie as we have continued to support more than 12 special interest groups at the head office and our project sites, ranging from movie, sports, fitness and financial literacy. The SIGLA clusters are employee-driven anchored on their passion and enthusiasm to ensure the sustainability of the program.

Recognition

In 2018, One Subic Power Generation Corporation, a subsidiary of PHINMA Energy, was awarded by the Subic Bay Metropolitan Authority with SBMA Mabuhay Awards for Corporate Social Responsibility for its environmental and social initiatives for the Subic Cawag Upland Farmers. The 50-hectare Agroforestry project was recognized as one of the best practices in the region for CSR.


CORPORATEGOVERNANCEHIGHLIGHTS

Corporate Governance

The Board of Directors, officers and employees of PHINMA Energy commit themselves to the principles and best practices embodied in its Manual on Good Corporate Governance. PHINMA Energy believes that good corporate governance is a necessary component of what constitutes sound strategic business management and will therefore exert every effort to ensure adherence thereto within the organization.

COMPLIANCE OFFICER

The Board of Directors designates a Compliance Officer who reports to the Chairman of the Board. As required of publicly-listed companies, the appointment of a Compliance Officer is properly disclosed to the Securities and Exchange Commission (SEC).

The Compliance Officer’s duties include ensuring proper onboarding of new directors (i.e., orientation on the company’s business, charter, articles of incorporation and by-laws, among others). The Compliance Officer is also tasked to monitor, review, evaluate and ensure compliance by the Corporation, its officers and directors with the relevant laws, with the Code of Corporate Governance (“Code”), rules and regulations and all governance issuances of regulatory agencies, to appear before the Securities and Exchange Commission upon summons on matters in relation to compliance with the Code, to ensure the integrity and accuracy of all documentary submissions to regulators, to determine violation/s of


the Code and to recommend to the Board the imposition of appropriate disciplinary action on the responsible parties and the adoption of measures to prevent a repetition of the violation, to identify possible areas of compliance issues and work towards the resolution of the same, to develop and establish, subject to approval of the Board of Directors, a monitoring and evaluation system to determine compliance with this Code, which system shall provide for a procedure that fulfills the requirements of due process, to ensure the attendance of board members and key officers to relevant trainings and perform such other duties and responsibilities as may be provided by the SEC.

Integrated Annual Corporate Governance Report (I-ACGR)

SEC MC No. 15, Series of 2017 was released in December 2017 which mandates all publicly-listed companies to submit an Integrated Annual Corporate Governance Report (I-ACGR) on or before May 30 of the following year for every year that the Company remains listed in the PSE, covering all relevant information for the preceding year.

The I-ACGR supersedes the Annual Corporate Governance Report (ACGR) last submitted for the year 2016 to the SEC and the Compliance Report on Corporate Governance last submitted for the year 2016 to the PSE. The Company submitted its I-ACGR for the year 2017 on May 30, 2018. For the year 2018, the Company submitted its I-ACGR on May 30, 2019.

As of December 31, 2018, PHINMA Energy has substantially complied with the principles and best practices contained in its Manual on Good Corporate Governance. There were no sanctions imposed on any director, officer or employee for non-compliance of the Manual.

BOARD OF DIRECTORSComposition

The Board of Directors consists of eleven members, nominated in accordance with the By-Laws of the Company. In compliance with the requirement of the SEC for publicly-listed corporations, PHINMA Energy’s Board of Directors includes four independent directors. The independent directors are not officers or substantial shareholders of the Company and have no relationship with the Company that may hinder their independence from the Company or management or would interfere with their exercise of independent judgment in carrying out their responsibilities.

In order that no director or small group of directors can dominate the decision making process, the Board is a combination of executive and non-executive directors.

The Board of Directors held four regular, one special and one organizational meetings in 2018. The details of the matters taken up during the board meetings are included in the Definitive Information Statement sent to the shareholders.


The attendance of the directors in the Board meetings is as follows:

Directors Audit Committee

Risk Oversight Committee

Corp Governance and Related Party

Transactions Committee

Executive Committee

Compensation Committee

Ramon R. del Rosario, Jr. - Chairman Chairman Member

Oscar J. Hilado Member Chairman

Magdaleno B. Albarracin, Jr. Member

Francisco L. Viray Member

Victor J. del Rosario Member

Roberto M. Laviña Member

Pythagoras L. Brion, Jr.

Ricardo V. Camua (Independent) Member Member

David L. Balangue (Independent) Chairman Member Member

Guillermo D. Luchangco (Independent) Chairman Member

Corazon S. de la Paz-Bernardo (Independent) Member Chairman Member

Board Committees

To aid in compliance with the principles of good corporate governance, the Board constitutes committees which directly report to the Board in accordance with duly approved procedures.

For 2018, the Board committees and their members are as follows:

Directors’ 2018 Board Meeting Attendance

Regular BOD Meeting

Organizational BOD Meeting

Regular BOD Meeting

Special BOD Meeting

Regular BOD Meeting

Regular BOD Meeting

2/18/2018 4/11/2018 4/11/2018 6/29/2018 8/7/2018 11/6/2018

Ramon R. del Rosario, Jr. - Chairman P P P P P P

Oscar J. Hilado P P P P P P*

Magdaleno B. Albarracin, Jr. P P P P P P

Francisco L. Viray P P P P P P

Roberto M. Laviña P P P P P P

Victor J. del Rosario P P P P P P

Pythagoras L. Brion, Jr. P P P P P P

Ricardo V. Camua P P P P P P

Corazon S. de la Paz-Bernardo P P P P P P

Guillermo D. Luchangco P P P P P P

David L. Balangue P P P* P P P

* via Telecon


Corporate Governance and Related Party Transactions Committee

The Corporate Governance and Related Party Transactions Committee is composed of four directors, all of whom are independent directors. The Committee was formed at the Organizational Meeting dated April 10, 2017 to replace the Nominations Committee and is tasked to assist the Board in the performance of its corporate governance responsibilities, in reviewing all material related party transactions of the Company including the functions that were formerly assigned to the Nominations Committee.

The Committee held its meeting on February 23, 2018 with all members in attendance, to recommend to the Board the proposed Board Charter, proposed changes to the Manual on Corporate Governance and the 2017 Board Self-Assessment results.

Risk Oversight Committee

The Risk Oversight Committee is composed of three members, two of whom are independent directors, including the Chairman. The Committee assists the Board of the Company in fulfilling its corporate governance responsibility with respect to its oversight of the Company’s risk management framework. While the Committee has responsibilities and powers set forth in the Charter, the Company’s management is ultimately responsible for designing, implementing, and maintaining an effective risk management program.

In 2018, the Risk Oversight Committee held three meetings with an overall attendance of 89%. The Committee reviewed the revised Risk Oversight Committee Charter and endorsed its approval to the Board of Directors. The Committee also approved the appointment of Atty. Alan T. Ascalon as Chief Risk Officer of the Company.

During the same year, the Committee also reviewed the Company’s Top Business Risks, as well as the risks related to the operations and maintenance of San Lorenzo Wind Farm.

The attendance of the Risk Oversight Committee members in the Risk Oversight Committee meetings for 2018 is as follows:

2018 Risk Oversight Committee Meetings

Feb. 26 July 31 Sept. 10

Ms. Corazon de la Paz-Bernardo P P P

Mr. David L. Balangue P P A

Mr. Victor J. del Rosario P O O

Mr. Roberto M. Laviña * P P

P – Present; A - Absent

* – Elected on April 11, 2018 ; O - Out

Compensation Committee

The Compensation Committee is composed of three directors, one of whom is an independent director. The duties and responsibilities of this committee include establishing policies on executive remuneration, ensuring that the compensation is consistent with the Company’s culture, strategy and control environment, and strengthening policies on conflict of interest, salaries and benefits and compliance with statutory requirements.

There was no Compensation Committee meeting held in 2018 and none was required.


Audit Committee

The Audit Committee is composed of three non-executive members of the Board, two of whom are independent directors including the Chairman. The Audit Committee is responsible for checking all financial reports against compliance with both the internal financial management systems and pertinent accounting standards, including regulatory requirements. The Committee ensures that the Company’s controls are functioning effectively and efficiently.

In 2018, the Audit Committee held five meetings and reviewed the audited financial statements for 2017 and the interim statements for the quarters ending March 31, June 30 and September 30, 2018. The Committee also approved the Internal Audit plan for 2018, reviewed the audit reports, and evaluated the Internal Audit’s performance. The Audit Committee reviewed the activities related to the Integrity Assurance programs and also performed a self-assessment of the Committee’s performance against the approved Audit Committee Charter, in line with the guidelines issued by the Securities and Exchange Commission.

On February 26, 2018, the Committee endorsed to the Board of Directors the nomination of Sycip, Gorres, Velayo and Company (SGV & Co.) as the external auditor for 2018.

The attendance of the Audit Committee members in the Audit Committee meetings for 2018 is as follows:

2018 Audit Committee Meetings

Feb. 26

March 7

May 7

Aug. 2

Oct. 29

Mr. David L. Balangue P P P P P

Ms. Corazon de la Paz-Bernardo P P P P P

Mr. Victor J. del Rosario P P A P PP – Present A – Absent

EXTERNAL AUDITOR

The External Auditor contributes to the enforcement of good corporate governance through independent examination of the financial records and reports of the Company.

On April 17, 2018, the stockholders, upon recommendation of the Audit Committee and the endorsement by the Board of Directors, approved the appointment of SGV & Co. as PHINMA Energy’s’s external auditor.

The Company has complied with SRC Rule 68, paragraph 3(b)(ix) requiring the rotation of external auditors or signing partners every five years of engagement and the mandatory two-year cooling-off period for the re-engagement of the same signing partner or individual auditor. The engagement partner who conducted the audit for the calendar year 2018 is Ms. Marydith C. Miguel, an SEC accredited auditing partner of SGV. This was Ms. Miguel’s fifth year as engagement partner for the Company.


INTERNAL AUDIT

The Internal Audit group of the Company provides the Board, senior management and stockholders with reasonable assurance that its key organizational and procedural controls are effective, appropriate and faithfully complied with. For the year 2018, the Internal Audit Group found the Company’s internal control system adequate and effective as contained in the Audit Committee Report for 2018.

DISCLOSURE AND TRANSPARENCY

In addition to submitting annual and quarterly financial information and other statutory requirements, the Company promptly discloses to the SEC and the PSE all material information such as key results of operations, execution of contracts, declaration of dividends and investments, among others. Such disclosures are promptly uploaded at the Company’s website for the benefit of the investing public.

CODE OF BUSINESS CONDUCT

Under the Integrity Assurance Program of the Company is the Code of Business Conduct for officers and employees. This contains policies on professional decorum, conflict of interest, gifts and gratuities, sexual harassment, anti-fraud and whistle-blowing and retaliation including penalties for violation.

Employees are required to always act in the best interest of the Company. As a matter of policy, every employee and officer of PHINMA Energy is directed to avoid any situation that could interfere or appear to interfere with his or her independent judgement in performing his or her duties. The policy also prohibits employees from using their official position to secure a contract of employment for a related party, soliciting gifts or any property for personal gain from any individual or organization that deals with the Company and using company information for personal gain. No employee may engage in any business or undertaking that is indirectly or directly in competition with or prejudicial to the interests of the Company.


50 YEARS OFPHINMA ENERGY

1969

Trans-Asia Oil and Mineral Development

Corporation was established

Produced oil in Cadlao, Tara, and North Matinloc fields

1980s

Trans-Asia Petroleum Corp. was established

Trans-Asia Renewable Energy Corp. was registered in SEC

1994

The Company was renamed to

Trans-Asia Oil and Energy

Development Corp.

Trans-Asia Power Generation

Corporation was formed as a

joint venture with Hi Cement

1996


50 YEARS OFPHINMA ENERGY

2005 2008

1998 2006

Trans-Asia Power Generation Corporation started the operations of a 52 MW Bunker Fuel

Power Plant in Bulacan to supply the power needs

of a cement plant

Put up a 3.4 MW Bunker Fuel Power Plant in

Guimaras

Bought 100% of CIP II Power

Corporation in Laguna

Became one of the first licensees as a Wholesale

Aggregator and as a Retail Electricity Supplier

Electricity Trading became a major business


2010

Became a partner in putting up Maibarara

Geothermal Inc.(25% stake)

First renewable energy undertaking to be

declared commercial by the government under the Renewable Energy

Act of 2008

Partnered with AC Energy, Inc. of the Ayala group to put up South Luzon Thermal Energy Corporation

2011

The 21 MW CIP II Power Corporation, previously

located in Laguna, started commercial operations in

La Union

2013

Trans-Asia Power Generation Corporation took over the

lease agreement of the 116 MW One Subic Power

Generation Corporation

Trans-Asia Renewable Energy Corporation’s 54 MW

San Lorenzo Wind farm was the first wind farm in Visayas to be connected to the grid

Trans-Asia Petroleum Corporation became a publicly listed company

MGI 20 MW Unit 1 and SLTEC 135 MW Unit 1 started

commercial operations

2014


2016 2018

2015 2017

Trans-Asia Oil and Energy Corp. acquired

Power Barges 101, 102, 103

Trans-Asia Oil and Energy

Development Corporation was

renamed as PHINMA Energy

Corp.

SLTEC Unit 2 started commercial

operations

Trans-Asia Petroleum Corp. became PHINMA

Petroleum and Geothermal Inc.

Trans-Asia Power Generation Corp.

became PHINMA Power Generation Corporation

Trans-Asia Renewable Energy Corp. became PHINMA Renewable Energy Corporation

Secured solar service contracts

Formed PHINMA Solar Energy Corp. with

affiliate Union Galvasteel Corp. for solar rooftop

installations

Maibarara Geothermal Inc.’s Unit 2 started

commercial operations

PHINMA Energy was acquired by AC Energy 2019


“The reinvigorated AC Energy Philippines combines the operating expertise and innovative growth of two groups, producing a stronger platform. The platform will also benefit from a bigger balance sheet and leverage the strengths of the Ayala group.”

FERNANDO ZOBEL DE AYALA

Chairman, AC Energy


100%

*Percentages represent ownership stake

100% 66.34%

Through this transformation, AC Energy Philippines emerges as a stronger platform, one poised to be the top player in the energy sector in the Philippines and across the region.

AC Energy Philippines will contribute greatly in sustaining Ayala’s growth and be AC Energy’s platform for expansion in the country. AC Energy Philippines aspires to develop 2000 MWof renewable energy capacityby 2025.

As a stronger, bolder and faster energy company, AC Energy’s ultimate goal is to uplift the lives of its stakeholders and help build a more sustainable future for Filipinos.

The transformation of PHINMA Energy into AC Energy Philippines is one built on solid foundation that began years ago when, as a new player in the energy space, Ayala partnered with PHINMA to establish a joint venture project, the South Luzon Thermal Energy Corporation. The partnership was further strengthened by the companies’ shared passion and commitment to nation-building.


“We have a bold vision and a compelling strategy. AC Energy Philippines’ goal is to reach 2000 MW of renewables by 2025.”

ERIC FRANCIAPresident & CEO, AC Energy


DOUBLE OUR CAPITALAND GENERATION CAPACITY

MORE THAN 20% POINTS INCREASE IN THERMAL AVAILABILITY

POSITIVE BOTTOM LINE

2020 PRIORITIES

2018 annual report | a · visayas due to vigorous opposition of local stakeholders to exploration...

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