PNOC geothermal arm sees P6-P9B income this year

PNOC-Energy Development Corp. (EDC), the geothermal development arm of the state-owned Philippine National Oil Co., expects to post an earning of between P6 billion to P9 billion this year, the company’s top official said.

EDC president and CEO Paul A. Aquino said the income surge could be traced to the improvement of the yen since most of EDC’s loans are yen-denominated.

But Aquino said the projected earnings for 2005 is somewhat artificial. "It is more of a foreign exchange gain or a result of the valuation of the peso against the Japanese yen. It is not a real operational profit," he explained.

Of the total P47 billion debts of EDC, about 60 percent accounts for yen-denominated loans while the remaining 40 percent are in US dollars.

EDC, which is now being planned for privatization, is primarily engaged in the business of developing and operating geothermal energy projects and geothermal power projects in the Philippines.

It operates geothermal energy projects in Leyte, Luzon, Negros and Mindanao with a total installed capacity of 1,148 megawatts (MW) or about 60 percent of the country’s total installed geothermal energy capacity.

Earlier this year, Aquino said the new accounting standards that would be followed by the company may trim down its net income to P3 billion.

Under the new accounting method to be implemented this year, the company should write off in its books some P31 billion in foreign exchange losses incurred until 2003.

"All the capitalized foreign exchange losses up to 2003 would have to be reflected in the retained earnings for 2004. That would amount to about P31 billion. The net effect of this accounting adjustment is about negative P11 billion in retained earnings for 2004," Aquino said.

EDC, one of PNOC’s most profitableunits, has a stockholders’ equity of P17 billion as of end-2004.

But Aquino said they would revalue their assets and restate financial statement using the functional currency (US dollar) so as not to reflect P31 billion forex losses in its books.

"If we restate our books in the functional currency like the US dollar, there would be no write off. This means that its retained earnings would remain as is, which is P17 billion as of end-2004," Aquino said.

If it would revalue its assets, the EDC could include the value of its pipes which now amount to P13 billion.

"Once the pipes were revalued, our retained earnings became positive. The revaluation of the pipes would translate to retained earnings of around P1 billion instead of a negative P11 billion," Aquino said.

He said they have already sought the approval of the Commission on Audit for the revaluing of the company’s assets.

The Securities and Exchange Commission (SEC) requires all corporations to adopt the new international standards which include a more stringent booking of forex losses related to foreign borrowings in a company’s books.

In the case of EDC, it is required to write off present and previous forex losses and charge them against the company’s retained earnings starting Jan. 2005.