EDC reopens unit 1 of BacMan geothermal plant

Posted at 04/08/13 12:30 PM

MANILA, Philippines - Energy Development Corp., the country's leading producer of geothermal energy, on Monday said it has restarted operations at unit 1 of Bacon-Manito (BacMan) 1 geothermal plant.

In a disclosure to the stock exchange, EDC said unit 1 of BacMan 1 started running on full capacity at 55 MW on April 5.

"As of 6 a.m. April 8, BacMan Unit 1 is at 55 MW (gross)," the company said. "As relayed during the March 21 Investors/Analysts Briefing, subject to exigent circumstances, Bacman Geothermal Inc. (BGI) intends to shut down Bacman Unit 1 after no more than 30 days of operation to inspect and assess its condition."

After getting the findings of the inspection, BGI will decide whether or not any restrictions to the future operation of Unit 1 are necessary, as well as the recommended time intervals between future inspections of Unit 1.

The market cheered the news, with shares of the Lopez-led company gaining 2.06% to P6.45 as of 12 noon. Shares of parent First Gen Corp. also went up 2.92% to P24.70.

EDC had halted operations at BacMan 1 last March 1. The 55-MW Unit 2 was damaged by a turbine blade. While Unit 1 did not experience similar problems, EDC had also temporarily suspended its operations for inspection.

Market overreacted

Meanwhile, COL Financial last Friday upgraded EDC to "buy", although it lowered its earnings forecast for the company this year and 2014. It also upgraded EDC's parent First Gen to "buy", while maintained a "buy" rating for First Philippine Holdings.

"We believe the recent decline in share price almost reflects the worst case scenario for BacMan," it said in a report.

Since BacMan 1's operation was halted on March 1, EDC's share price has fallen 15% to P6.37. COL Financial said the market has "overreacted" to the development, noting that only BacMan 1's unit 2 was damaged.

"Although the unit will operate at a de-rated basis for at least a year, the amount of foregone revenues is only P830 million in 2013 and P380 million in 2014. This is equivalent to only 2.8% and 1.2% of our revenue forecast for the two years respectively," it said.

COL Financial noted that EDC has an insurance claim for business interruption with a maximum coverage of P2.3 billion applicable after the first 45 days of unit 2’s shutdown. "Based on our estimates, the insurance claim is enough to offset 14 months of foregone revenues resulting from the non-operation of unit 2," it added.