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Presentation by Mike Wootton, chairman of Langogan Holdings.
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Langogan 6.8 MW run of the river hydro
Palawan, Philippines
The Proposition
To develop a portfolio of at least 50MW of small hydro in the Philippines within the next 5 years. To list the portfolio once established.
Justification;
Experienced and competent team
Welcoming investment environment for renewables in the Philippines
Proven technology
Risks analysis done and mitigation underway
Socio ecoomic development factored into the project implementation;Langogan is the first project
The teamNegotiations
Stakeholder relationshipsCommercial/legal
E&P and Gas and PowerProject controls/management
Investment appraisal
HydrologyCommunity consultationAgricultural engineering
Economics and modellingReporting
Development work
Land and hydrological SurveyingContracting and procurement
Project managementCommercial/legal
Construction management
Design engineeringCivil/electrical and controls
Project managementHSE
Management processes
Corporate law/company secretarial
Energy lawBanking
NegotiationsInvestment appraisal
Project managementCivil engineering
Estimating and cost controlContracting and procurement
Construction management
Corporate financeBanking
AccountingCommerce
Investment appraisal
60 years experience energy project developmentinc remote locations
in depth hydrology and engineering expertise
in depth knowledge of Philippines energy sector
10 years energy project investment appraisal
12 years energy project NGO work
Ex Shell, BP, Baker + McKenzie
the philippines power sector
7,000 islands, 92 Mln population [ 50 Mln Luzon, 18 Mln Visayas, 24 Mln Mindanao]
National Power Corporation, Luzon Grid
Power crisis, early 1990’s
Dependable capacity 13,205 MW [ 10,028 Luzon, 1,494 Visayas, 1,682 Mindanao]
Most expensive power in the World [affordability basis]
IMF recommendation led to EPIRA [2001]
Privatisation efforts ongoing since then, slow take up and mainly big power
Renewable Energy Act [2007]
Inadequate power development infrastructure
portfolio establishment & development plan
200920102011 20122013 2014
Langogan
Batang Batang
Liangan
Odiongan 2&3
Pasil
Langogan 6.8mw hydro - project setting
Opportunity studied by NPC [with halcrow + kennedy + donkin] 1992by PNOC [with Soluziona Energia] 2007, promoters 2007/8
Palawan population, 700,000Base load 10MW, Peak 21.7 MWERC approved tariff 5.6404Php [0.1175 US Cents]/kWhCurrently 100% diesel/bunker powered on short term contractsFrequent power outages [10 incidents/month ave x 1.16 hrs/incident]An environmentally sensitive areaA ‘backbone grid’
Real cost of generation - Php 17.58 [0.3662 US cents]/ kWhGeneration charge to consumers - Php 5.5501 [0.1156 US Cents]/kWhElectricity charge to consumers - Php 8.023 [ 0.16715 US cents]/kWh
Langogan 6.8MW hydro project – (pre) development history
1992 – NPC, feasibility study with Sir W Halcrow + Kennedy and Donkin [World Bank]Strong community resistance
2006/2007 – PNOC feasibility study with Soluziona Energia [Spanish Government]8 hour peaking assumption [= marginal economics]
2007 – promoters invited by NPC to “have another look”-screening/market assessment, review of previous NPC fs, screening economics-sourcing pre development funding-gaining LGU support-commencement of flow measurement + EIA-access survey/geotechnical review/design concept validation-further community consultation-cost estimate, further economics-PCSD application-water rights application-FEED-financing, CDM application-power sales agreement discussions -development and operating contract application
Dec 2008 - RE Act signed
Langogan 6.8MW hydro project – project metrics
CAPEX US$20mlnEquity (25%) US$5mlnInvestment-to-Date US$2mln
Time FID to Commercial operation 2 yearsGeneration charge Php 5.6404 [$0.1175]/kWhAnnual generation 31.7GWhPercentage of Palawan demand 24%NPV7 (After tax, 25 yrs) US$ 17.6 MlnIRR [E] 20.7%Revenues US$ 3.725/a escalating
Economics main assumptions;
25 year life, no residual valueEscalated in accordance with ERC approved formulaBase load facility - all power sold [RE Act]Debt Equity ratio 75/25OPEX US$ 1.288/a( escalated at 5.3%)
Philippines investment environment
Bishop: "I'm afraid you've got a bad egg, Mr Jones"; Curate: "Oh, no, my Lord, I assure you that parts of it are excellent!""True Humility" by George du Maurier, originally published in Punch, 1895.
A ‘curate’s egg’
PIATCO NAIA 3CorruptionVested interestsFeudalismNationalismPeace and order
SC38 MalampayaKorean investmentElectricity marketEducated experienced workforceRenewable Energy ActEPIRA
Korean investment: $1.2B of the $3.5B foreign investments in 2006 ( from the Phil chamber of commerce website)
langogan 6.8MW hydro project – pre development approach
initial permits and approvals gainedoutline scheme designapproval of sales terms
FID[final investment decision]
front end engineering designEPC contractingfinancing in placeall approvals gainedESA ready to sign
initial screening and evaluationestablish flow measuring
market assessmentfurther screening and economicsapplication for permits and approvalshydrology studies
scheme concept design
challenges & risks to be managedChallenges
[incidental] Philippines beauracracy
timing
lack of exclusivity
perceptions of the business culture in the Philippines
raising money
local EPC capacity
Risks to be managedCAPEX
Payments
way forward
complete Langogan FID requirements and build the facility within 20 months
accelerate pre development activities on 2.5MW Batang Batang
commence pre development activities on Mindanao opportunities
target 50MW in Philippines commercial operation by 2014
own and operate the portfolio
review other Philippines opportunities if introduced
step out to IndoChina