higher peaks new horizons chairmanâ€™s address byfederico r. lopez

Higher Peaks New Horizons

Chairman’s Address byFederico R. Lopez,

EDC Annual Shareholders’ Meeting, PSE Auditorium, Ortigas Center, Pasig City May 9, 2012

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Dear Fellow Stockholders and Stakeholders,

Our company, Energy Development Corporation(EDC), turned 35 years in 2011 and it has beenfour years since we at First Gen acquired thecontrolling stake from the Philippine NationalOil Company.





Our journey continues as we consolidate thecompany …





… into being the world’s largest integratedgeothermal power producer.

As with any lifelong journey, we haveencountered our share of challenges along theway but last year it was heartening to find somevery important partners affirming EDC’s pathand direction.





In 2011 we garnered the prestigious IFC ClientLeadership Award which, in line with the IFC’smission, acknowledges commercially successfulcorporate clients that demonstratecommitment to environmental stewardship,social sustainability and good corporategovernance.





The Institute of Corporate Directors alsohonored EDC with a Gold Award for itscorporate governance practices last year whenit garnered a 98.5 percent score.

The year also saw a few bumps on the road aswe decisively took steps to recognize thelimitations of our existing steam resource inNorthern Negros.





… We incurred a Php 5.0 billion impairmentcharge on our Northern Negros GeothermalPlant Project representing its entire book valueas of end-June 2011. While “non-cash,” theimpairment was the main cause for the 86percent drop in our earnings. Given ourfindings on the steam resource, it was sensiblefor EDC to take the write-down andimmediately redeploy the NNGP power plant toNasulo in Southern Negros where the assetscan be utilized better. The shutdown is cashaccretive to EDC as NNGP’s annual cashoperating costs of Php 800 million will be pareddown to just Php 400 million and driven downfurther as the plant begins operating inNasulo. However, we will reverse a goodportion of these impairment charges sometimein 2014 as Nasulo commences operations.





Yet another setback was conceding that therehabilitation of our Bacman plant would notmeet the aggressive internal target we set forourselves to run by year’s end. We have sincescaled back our expectations to September of2012. Despite all the challenges encountered inthe rehabilitation of these assets, I am certainthat our team is executing in a most thoroughand effective manner and we will have a greatstrategic asset upon its completion this year.





During the celebration of parent firm First Philippine Holdings’ 50th anniversary last year, …





… our Chairman Emeritus Oscar M. Lopez poseda challenge for us to make EDC the largestgeothermal company in the world.

I take his words literally and more.





Because for us it is not just about size but alsoabout being exceptional in everything we do.It’s also about bringing EDC’s unique Filipinoexpertise to the global arena and making theworld a better place.

However, I do not underestimate that challengehe poses to us. These last four to five yearshave made us aware that, …





… although EDC is blessed with a 35-year headstart in the field of geothermal energy, there ismuch we must still do to make it truly world-class.

The challenges of changing mindsets andtransitioning a company from governmentownership to the private sector can never bemisjudged.





Transforming and rehabilitating assets, …





… outdated systems and procedures from thesteamfields …





and power plants …





… to upgraded and best-in-class informationtechnology and control systems are constantlyon our minds and daily to-do lists.





Even our ability to drill wells efficiently andeffectively, despite considerable advances inthe last four years, is an area we must continueto improve and drive towards an even higherbar of excellence.





An area that makes us proud is our philosophyof treating nature’s geothermal supplies assustainable resources. We should neverapproach these as if geothermal heat andsteam are something we will extract formaximum cash flow and net present value tothe detriment of the future.





Our outlook on our concession areas should beas long-term stewards and guardians not onlyof the steam resources …





… but also of surrounding communities,





… forest cover, …





… biodiversity …





…





and all the ecosystem services …





… nature provides.





For us, unlike too many companies around us today, sustainability …





…





… isn’t merely a buzzword used to “greenwash”bad practices.





Sustainability should be built into the heart and soul of our business model and we are proud that EDC leads the energy sector in this way of thinking.





In 2011, we reforested a total of1,053.1 hectares with 772,293 seedlings from96 species of indigenous, timber-producing,fruit bearing, premium and endangered trees.These were planted in EDC’s five geothermalproject sites, at watersheds surrounding ourPantabangan-Masiway Hydro plant, at our windproject site in Burgos, Ilocos Norte, as well asselected school grounds around the country.These projects were implemented with ahundred organizations, local government units,government agencies and partner schools.

EDC’s 35 years of experience and its philosophyof sustainability in its core business create aunique and powerful combination Filipinos canbe proud of. It has always been our intentionthat we bring this expertise and the benefits ofclean, indigenous geothermal energy to otherparts of the world as well.





It was quite moving therefore when weacquired a 70 percent stake and fullmanagement control of three geothermalprojects -- Longavi in Chile and Quellapachetaand Chocopata in Peru -- after signing a jointventure agreement with Australian firm HotRock Limited in November 2011. Aside fromthis joint venture, EDC has also been awardedby the Chilean government exclusive contractsto develop three more sites -- Newen, SanRafael and Batea -- and have pendingapplications for four more concession areasthere as well. All in all, EDC will simultaneouslydevelop eleven sites in Chile, Peru andIndonesia over the next seven years and areprogrammed to be in commercial operationtowards the end of 2019.





With the many exciting developments afoot forEDC, it is nice to say that after three decadesour journey is just beginning. So we thank you,all our investors and stakeholders, for the trustand confidence you continue to grant us. It’sthat trust that enables us to do the great thingswe do at EDC and …





… empowers us to aspire for higher peaks andventure into new horizons.

higher peaks new horizons chairmanâ€™s address byfederico r. lopez

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