April 21, 2015

Energy Development Corp (EDC)’s Burgos wind farm certified as FIT eligible; BacMan contractor files arbritation case

Energy Development Corp (EDC) today disclosed that the regulator has issue a certificate of compliance (COC) for its 150-MW Burgos wind farm last 13 Apr, thereby allowing the power plant to sell power to the grid under the feed-in-tariff (FIT) system. As we noted previously, the issuance of the COC is the last remaining hurdle in securing the project’s FIT eligibility. The project is now entitled to the FIT rate of P8.53/kWh for all electricity generated and dispatched to the grid for a period of 20 years, starting from11 Nov 2014 to 10 Nov 2034.

In a separate disclosure, EDC also announced that wholly-owned subsidiary Bac-Man Geothermal Inc (BGI) received a request for arbitration filed by its contractor Weir Engineering Services Ltd (WEIR) with the Construction Industry Arbitration Commission regarding an alleged unpaid balance of the contract price, legal interest and attorney’s fees, liquidated damages and sums due to BGI in relation to defects and damage caused by workmanship.

WEIR is one of several contractors engaged by BGI in 2012 for the completion of works to the steam turbine and generator of BacMan Units 1 to 3. EDC is legally prohibited from releasing details on the case but we gathered from the company that the potential liabilities, should it lose the case, is not significant considering BacMan’s total rehabilitation cost amounted to less than US$100m.

Our take: We view the approval of the COC positively but note that Burgos is expected to post lower revenues this year due to limited dispatch of wind power due to delays in the completion of the National Grid Corp of the Phils’ transmission line project.

As we noted in our 12 Mar report on EDC (Minor setbacks may weigh on this year’s earnings), the line project is targeted to be completed by 3Q15 but if this is not met within the year, EDC warned Burgos may post lower revenues of P1b, resulting in potential loses because of depreciation expense. – WealthSec