Kepco buys British Gas' 40% stake in First Gen gas plants

MANILA, Philippines - Korea Electric Power Corp. (Kepco) has acquired the 40-percent stake of British Gas (BG) in the natural gas power plants of First Gen Corp. for $400 million.

In a disclosure to the Philippine Stock Exchange the Lopez owned First Gen, however, said it has yet to approve the entry of Kepco in the 1,500-megawatt (MW) Sta. Rita and San Lorenzo power plant projects.

First Philippine Holdings Corp. (FPHC) and First Gen own the controlling 60-percent stake in the gas power plants.

“Closing of the transaction is subject to receiving necessary waivers and consents from non-recourse lenders and First Philippine Holdings Corp.,” First Gen said.

First Gen and FPHC said they are still undecided on what would be their next move after being informed about the Kepco and BG deal.

The Lopez power firms said they were informed that the $400-million net consideration offered by Kepco is “subject to standard completion adjustments, including interest to be paid to BG Group upon closing which is expected in the first quarter.”

“First Philippine Holdings and First Gen are evaluating their rights and options in respect to BG’s contemplated divestment of its interests in Sta. Rita and San Lorenzo,” the companies said.

In a separate statement, Kepco said these power plants have recorded stable sales based on 25-year power purchase agreements with Manila Electric Co. (Meralco), the largest electricity distribution company in the Philippines.

“Kepco also expects to generate synergies from new business in the Philippines, which can be created in cooperation with First Gen,” it added.

“These could cover expansion of plants and renewable energy. Kepco looks forward to forming a mutually beneficial partnership with the Lopez Group,” the Korean power giant said.

Kepco said its acquisition of a stake in these power assets would also strengthen it’s position in the Philippine power industry. Kepco currently operates the Ilijan and Malaya power plants. 

“This transaction would enable Kepco to maintain around 10-percent market share in the Philippine power industry after the contract for the Malaya project expires next year,” the company added. 

ING acted as Kepco’s financial advisor for this transaction.

Kepco maintains a total of 2,218 MW capacity, or 10 percent of the country’s power generating market and 12 percent of the Luzon market. It operates four power plants in the Philippines – the Malaya thermal plant, Ilijan combined cycle plant and two coal plants in Cebu.

Earlier, First Gen said it may not be able to join forces with Kepco as this may result to some legal issues.

“Although Kepco is a well-respected company, we have to understand what their plans are, and if it runs with conflict with our plans, then that partnership with Kepco may not be necessarily be feasible,” First Gen president Francis Giles Puno said.

It would be noted that both First Gen, through its subsidiary First Gas Corp. and Kepco, through its arm Kepco-Ilijan Philippines Inc., have stakes in natural gas industry.

Their engagement in natural gas businesses makes the two firms basically “competitors” with each other. This may result to some problems in reconciling their business agenda if they would partner with each other in buying the BG Group’s stake in First Gas.

According to Puno, they do not want to encounter conflict of interest in the near future should they partner with Kepco.

“The only one in the gas business right now is Kepco so they are our direct competitor. If we feel that the conflict is something that we cannot leave with, then we have to look at options, then the option would be right of first refusal and the other option would be bringing in another partner that we would prefer,” he said.

Moreso, Puno said they are also eyeing same opportunities in the natural gas industry.

“If we bid against them (Kepco) then they will know what our plans are going to be,” he said, noting that they are both eyeing the 300-MW excess capacity of the Malampaya natural gas project in Palawan.