U.S. Markets close in 2 mins

Edited Transcript of MER.PS earnings conference call or presentation 28-Oct-19 5:30am GMT

Q3 2019 Manila Electric Co Earnings Call

Pasig Oct 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Manila Electric Co earnings conference call or presentation Monday, October 28, 2019 at 5:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Betty Cheng Siy-Yap

Manila Electric Company - CFO, Chief Risk Officer & Senior VP

* Manuel Velez Pangilinan

Manila Electric Company - Chairman of the Board

* Ray C. Espinosa

Manila Electric Company - President & CEO

* Ronnie Leguro Aperocho

Manila Electric Company - Head of Networks & Senior VP

================================================================================

Conference Call Participants

================================================================================

* Enrique Fausto

Deutsche Bank AG, Research Division - Research Associate

* Jelline E. Gaza

JP Morgan Chase & Co, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Unidentified Company Representative, [1]

--------------------------------------------------------------------------------

Yes. Good afternoon to all. This, ladies and gentlemen, is the presentation of the results -- financial and operating results for the 9 months of 2019.

The order of presentation is as follows: financial results by our CFO, Ms. Betty Siy-Yap; operations by our President and CEO, Mr. Espinosa; along with the Head of Networks, Mr. Ronnie Aperocho; and the Head of Customer Retail Services, Mr. Victor Genuino. The report on PowerGen will be presented by [Mr. Dan Hill] on behalf of the MGen President, Mr. Rogelio Singson, who is unable to join us today. Our Chairman, Mr. Manuel Pangilinan, will report on the outlook for the rest of the year.

--------------------------------------------------------------------------------

Betty Cheng Siy-Yap, Manila Electric Company - CFO, Chief Risk Officer & Senior VP [2]

--------------------------------------------------------------------------------

I'll start now. Thank you. Good afternoon, ladies and gentlemen. I will be presenting the results for the 9 months ended September 30, 2019. Shown on the screen are the quarterly financial highlights. The momentum gained in the first half of 2019 was sustained in the third quarter as shown by the 8% increase in sales volume, resulting in consolidated growth of over 6% for the 9 months period.

Third quarter distribution revenues increased by 8%, same as the increase in sales volume. Generation and other pass-through charges declined by 3%, however, on account of slightly lower average price of coal, oil and gas in the global market and lower WESM prices. Non-electricity revenues, largely from operating subsidiaries, decreased by 18% due to delays in awards of construction projects.

As a result, our core net income for the third quarter of the year increased by 5%.

Consolidated revenues for the first 9 months of 2019 was at PHP 241.1 billion, 6% higher compared with the PHP 227.4 billion generated for the 9 months of 2018. Electric revenues were at PHP 235.4 billion, higher by 6% over the comparative period in 2018, due mainly to higher generation charges from the combined effects of higher prices in the wholesale electricity spot market, reflecting the supply and demand situation, which had cumulative 14 days and 43 days of red and yellow alerts, respectively; increased consumption across all customer sectors as inflation tapered to 0.9% in September from 4.4% at the start of the year; which was offset by slightly lower average prices of coal, oil and gas in the global market and the appreciation of the Philippine peso versus U.S. dollars; as well as the impact of the commissioning power from the 500-megawatt gross output of the San Buenaventura supercritical coal-fired plant.

The plant's commercial operations date was achieved on September 26, 2019, when a provisional certificate of compliance was received from the Energy Regulatory Commission.

Non-electric revenues for the 9 months period of 2019 were at PHP 5.8 billion, 6% higher -- sorry, 6% lower compared with 2018. This represents 2% of total revenues.

Our total costs and expenses for the first 9 months of 2019 amounted to PHP 218.2 billion, 5% higher than in 2018, the cost of which is parsed through the 84% of total costs and expenses in 2019, consistent with the same period in 2018. Operating expenses, which accounted for 9% of total costs and expenses, were lower by 1% at PHP 19.3 billion. Labor and contracted services continue to be the major spend of the distribution utility, mainly to serve the requirements of outage restorations, network maintenance, street clearing, meter reading, bills and other notification deliveries, among others.

Consolidated capital expenditure for the 9 months of 2019 amounted to PHP 15.7 billion, representing those implemented by Meralco as emergency requirements for network upgrade and renewals, replacement of critically and overloaded distribution transformers, information technology refresh as our assets reach or go beyond end-of-life without maintenance support and commencement of early site development for the proposed 2x600-megawatts Atimonan 1 high-efficiency, low-emission, coal-fired power plant, among others.

Actions for the approval by the ERC of the company's CapEx filings beyond the ERC's partial approval for CapEx requirements of Meralco in the first and second regulatory years of the four regulatory periods, Meralco manifested a number of implemented projects and emergency requirements, consistent with the ERC rules.

Similarly, CEDC, or Clark Electric, our 65% owned subsidiary, has manifested a total of PHP 877.5 million of emergency projects for the third regulatory period, of which PHP 678.5 million has been implemented.

Our consolidated core net income before exceptional items for the 9 months ended September 30 amounted to PHP 18.5 billion, 11% higher than in 2018. Consolidated reported net income for the same period amounted to PHP 18.3 billion, stable year-on-year. Consolidated core EBITDA for the first 9 months was at PHP 29.8 billion, 12% higher compared with 2018.

Contribution from operating subsidiaries' CCNI for the 9 months-ended amounted to PHP 566 million, mainly provided by Radius Telecoms and CIS Bayad Center. Bayad Center processed a total of 65 million bills payment and remittance transactions during the first 9 months of 2019 for an all-biller, 30-day average of 10.8 million. Total transactions processed was 11% higher year-on-year. The most significant volumes processed were from government billers, followed by electric and water utilities, including prepaid loads. Today,

Bayad Center serves over 300 biller brands through more than 30,000 physical touchpoints and 3 company-owned digital channels, which include wallet-based, agent-modeled and Bayad Center-owned digital payment platforms. While the traditional or off-line bills payment performance has been increasing steadily, the digital online payment performance growth trajectory has been remarkable with a growing reach and higher reliability of data service of major telecommunications companies.

Revenue of Radius was PHP 1 billion, up 7% compared with the same period last year. This was derived primarily from enterprise market, which now accounts for 55% of the total. By product type, data services accounted for 71% of total revenues, while Internet service accounted for 29% for the 9 months, while revenues from managed and other services accounts up less than 1%. This is expected to be a major growth contributor in the coming years.

Our core net income per share for the 9 months was at PHP 16.373 per share, while reported earnings per share was at PHP 16.255. Total interest-bearing debt was at PHP 31.2 billion as of September 30, 2019, of which PHP 15.3 billion is maturing within 1 year. During the 9 months, short-term debt of PHP 200 million was contracted, which is mainly by our subsidiaries, while PHP 10.1 billion of principal and interest were paid.

Our gross debt-to-EBITDA stood at 0.79x. Financing expenses during the period was 18% lower compared with 2018 at PHP 1.1 billion as a result of settlement of the put options totaling PHP 8.3 billion, exercised by holders of the company's fixed-rate loans that was issued in 2013, and the limited ability of the company to leverage due to the requisite regulatory process for an authority to incur long-term indebtedness.

Our financing income was at PHP 2.4 billion during the first 9 months of 2019. The Chairman (inaudible).

--------------------------------------------------------------------------------

Ray C. Espinosa, Manila Electric Company - President & CEO [3]

--------------------------------------------------------------------------------

Thank you, Betty. For our operating highlights, energy sales grew 6.3%, up 35,005 gigawatt hours, driven by Residential, which grew at 8%; Commercial, which grew 6%; and Industrial, which grew 5.1%. Customer count grew 4.2% at 6.82 million customers. Peak demand grew 4.6% at 7,740 megawatts. Net system input grew 5.9%, up 36,853 gigawatt hours. Average retail sales grew 0.9% at PHP 9 per kilowatt hour. And we have sustained our service level improvements in our S-Factors and GSLs.

I'll turn you over now to [Biboy] for details of the energy sales.

--------------------------------------------------------------------------------

Unidentified Company Representative, [4]

--------------------------------------------------------------------------------

Sales for the first 9 months for our Residential segment grew 8%. For a breakdown on per area: Cavite grew 12.5%; Batangas grew 11.1%; Pampanga grew 10.8%; and Metro Manila grew 29.2 gig at 10.2%.

If you look at the Greater Metro Manila area, the growth is really driven by the Bay area, Pasay area, which grew at 16%, followed by the Parañaque area at 10.3%.

Three main factors which led to the increase for the Residential segment for the first 9 months: One is 4 consecutive months of higher temperature versus 2018. Second is a lower inflation rate declining to 0.9% in August of 2018 versus 6.7% versus the same period last year. And last is a more positive consumer outlook at 3.3 versus a negative 7.1 versus the same period of last year.

For Commercial, the first 9 months, we grew 5.7%. We posted 2 double-digit growth: in April, 11%; and July, 11.5%. The top sectors for the Commercial industry are real estate, which grew 8.7%; retail trade, which grew 4.5%; and hotels and restaurants at 6.4%.

The key driver for the real estate and retail trade segments are really coming from the online gaming industry. In Q3, the POGO industry grew substantially. If you look at the Metro Manila or nationwide area, the growth is coming from the Bay area and the Makati districts, which accounted for 56% of the total POGO office space being rented out. And in the third quarter of 2019, we also saw for the first time that POGO demand was higher than IT/BPO demand in the Metro Manila area. Rising land values can also be attributed for both Residential and Commercial segments to the increase of the POGO industry in these areas.

For the Industrial segment, we grew a modest 4.3% coming from 3 main segments: one is food and beverage at 6.1%; nonmetallic at 12.9%; and plastic and rubber at 5.1%. We see confident consumers going into Q4 versus Q3 with food and beverage leading the way, and we also see government infrastructure spending at the same level as last year at close to PHP 2 billion. And this will have an impact on both steel, plastic and particularly cement, which led the growth in nonmetallic.

In terms of customer count for the first 9 months, we were up 4.2% versus 2018 for a growth of 275,268 customers. We now have a total base of 6.818 million customers, which includes that of CEDC as well.

In terms of mix, Residential grew 4.3%, which accounts for 92.1% of our total customer base; followed by Commercial, which grew 2.8% or 7.7% of Meralco's customer base; and Industrial, which grew 2.1%, which accounts for 0.2% of the total Meralco customer base.

That's all, sir.

--------------------------------------------------------------------------------

Ray C. Espinosa, Manila Electric Company - President & CEO [5]

--------------------------------------------------------------------------------

Thank you, [Biboy]. For NSI, NSI grew 5.9% compared to previous year, about 36,853 gigawatt hours, broken down as follows: 34,407 gigawatt work hours for Meralco standalone; and for CEDC, 447 gigawatt hours.

Peak demand, as I mentioned, was 7,740 megawatts this year, which was registered on June 4, 2019. Overall peak demand in September, registered on September 5, was 7,116-megawatt hours. For Luzon, the peak demand was 11,344 megawatts, registered on June 21, growing 4.3% compared to previous year. Peak demand of Luzon for September stood at 10,392 megawatts, which was registered on September 24.

For energy sources, our PSAs accounted for 32.8%; IPP is 28.2%; WESM, 8.7%; special contracts, 1.4%; and RES, 29%. Total energy source amounted to 36,853.5 gigawatt hours.

For the fuel mix, natural gas accounted for 41.2%; liquid fuel, 0.3%; solar, 0.1%; coal at 31%; and multi-fuel, which includes significant coal fuel, 27.5%.

The average retail rate for the 9-month period was PHP 9 per kilowatt hour. The 9% -- the 0.9% increase was largely or mainly due to generation and FIT allowance charges, although this was mitigated by the lower transmission charges, taxes and lower universal charge on subsidies.

For the network performance, Ronnie Aperocho will give the highlights.

--------------------------------------------------------------------------------

Ronnie Leguro Aperocho, Manila Electric Company - Head of Networks & Senior VP [6]

--------------------------------------------------------------------------------

Okay. Thank you, sir. For our system loss, our 12-month moving average that ended September 2019 at 5.55% is, of course, still within the rewards level and is also 0.12 percentage points lower. And in fact, it improved by 2.1% than September 2018's 5.67% system loss level. Of course, this is 1.7 percentage points lower than the newly set system loss cap of 7.25% set by ERC starting January 1, 2019. But of course, starting January 1, 2020, this cap will be lowered further to 7%. And actually, we're looking at ending the year with a system loss lower than 5.67% that we achieved last year. Of course, lower system loss will result in lower system loss charges for our customers.

For our performance incentive scheme or S-Factor and GSL performance. Of course, these are still based on the 3RP targets because the 4RP standards are not yet available. As you can see, all these performances are within the rewards level, in the green. And for SAIFI, SAIDI, CAIDI, probability of voltage level not falling within limits, average time to process application, average time to connect customer premises, call center performance, and of course, the system loss, as I said, and even for GSL, the number of violations are way, way lower than the ceiling set by the regulator.

Okay. For CapEx, we'll continue to use capital investments to strengthen our core business. In fact, for calendar year 2019, networks has a PHP 12 billion budget. And 92% or 11% -- PHP 11 billion out of the PHP 12 billion has already been utilized to address load growth requirements of our customers or asset renewals as well as to accommodate new customer connections. So as of September 2019, in fact, we have used up already around PHP 4 billion for new customer connections, PHP 3.5 billion for asset renewals and more than PHP 3 billion already for addressing load growth requirements or system requirements for the projects. And on top of these, of course, are the major relocation work that we're doing to accommodate or to allow the faster construction of the Build, Build, Build and PPP projects of the government.

For the New Clark City, we're happy to say that the city is 100% energized already with the completion of all these major facilities, the interim substation, the construction of overhead lines as well as the underground lines as well as the 69 kV sub-transmission line connection. So the entire city is ready for the hosting of the upcoming Southeast Asian Games. Okay. As I said, even the underground systems inside Clark City have been completed and energized already, so we're able now to energize Athletic Stadium, Aquatic Center and the other key establishments inside Clark City.

And just some of the milestones. Of course, this -- at the end of the month, as I said, all facilities will be connected to the NCC distribution system as per BCDA time line. Actually, BCDA is very, very happy with these milestones and these accomplishments of all the stakeholders. Especially, Meralco has been very supportive of BCDA in this project.

And aside from that -- okay. Aside from that, of course, going back to the CapEx. Last July 30, we have expanded our Filinvest GIS substation by putting up another 83 MVA transformer capacity that will address the critical loading of Filinvest Transformer Bank. So with this project, we can now -- we have now enough capacity to accommodate the increasing power requirement in Filinvest City as well as in the rest of Muntinlupa and Las Piñas.

Okay. And then Bridgetowne, this is just a stone's throw away from here, the corner of C5 and Ortigas Avenue. It's a smart GIS substation that is using the IEC 61850 digital communication protocol. This will essentially relieve the critical loading of the nearby Hillcrest, Cainta, and SM-Shangrila substations and will directly benefit customers in Pasig City and Quezon City, such as Bridgetowne BPO Towers, Tiendesitas Complex, Alaskaland, Ayala 30th Mall, Green Meadows and Corinthian as well as the other township projects along C5 Road.

Okay. And lastly, to fulfill our mandate to serve all of our customers in our franchise despite the many difficulties of serving them, like right of way, the refusal of the local government as well as the refusal of private property owners or illegal settlers, so with the instruction of our President to really serve them, and the project is [zeroed] and served within our franchise. We are now working to energize these 118 sites before the end of the year. This will cover close to 16,000 households within our franchise. We have already energized 19 sites, and we are working on the remaining sites to be energized by Christmas season.

That's all. Thank you.

--------------------------------------------------------------------------------

Unidentified Company Representative, [7]

--------------------------------------------------------------------------------

Just to share with the group some significant events that happened over the last quarter. Last September 20, in an effort to educate and inform customers on sustainability reporting, Meralco invited resource speakers from the Global Reporting Initiative. Its Chairman, Eric Hespenheide, came over together with Board member, Bobby de Ocampo. Meralco took this opportunity to communicate the country's as well as Meralco's initiatives in terms of energy sustainability. We had good attendance from our Commercial and Industrial customers and partners from the public sector, represented by DOE Usec -- Senior Usec Jess Posadas and Senator Win Gatchalian.

Our customers appreciated the panel talk with regards to how they can be EMG and GRI-compliant and are looking to Meralco to help them fulfill some of their energy efficiency requirements.

Some events for our Corporate Business Group is to educate our customers on the newly signed RA 11285 Energy Efficiency and Conservation Law. In an effort to educate and inform customers of the recently passed EE&C law and its impact to their businesses, Meralco corporate partners invited DOE's Roberto Uy and Chief of the Energy Efficiency and Conservation division, Art Habitan, to explain the salient points of the law. Meralco also took the opportunity to let customers understand why we are supporting this and how they can partner with Meralco and its subsidiaries for compliance.

Last September 27, we invited the DOE Director, Mario Marasigan, to discuss changes on ER 1-94. Under the old Energy Regulation 1-94 process, host communities would get can a share of PHP 0.01 for every kilowatt hour produced by power generation plants. This fund, through the management of the DOE, would then be used by the communities to fund programs such as electrification of communities that have no access to electricity. Under the revised ER 1-94 process, the fund will go directly from power generation plants to distribution utilities like Meralco to expedite the rural of electrification process.

Some events for our Biz, our SME segment. We normally invite customers who have benefited from partnering with Meralco with regards to energy efficiency and sustainability programs. Last September 11, we invited Jolliant RNN Corporation owner, Noemi Dominguez; and Kalinisan Steam Laundry COO, Luis Cruz, to talk about their partnership engagements with Meralco and how their companies have benefited through this partnership. A similar event happened last September 27 at Hotel Marciano, and we invited ChocoVron Global owner, Joel Yala; and Betafoam President, Greg Marañon.

We continue to engage our LGU partners, a sample of which: a Power Up Forum with our Quezon City barangay captains from Districts 2, 6, and 8 to talk about Meralco Online, energy efficiency and beyond-the-meter services; an information campaign with the DepEd National Teachers' Month kickoff; and the participation of Meralco in the Banamos Festival in Los Baños, Laguna last September 16 to 22.

Last September 6, we launched our Battery Energy Storage system, the first of its kind that we are implementing here in Meralco. We had a simultaneous event, one in San Rafael, Bulacan, and here at the Meralco Lopez Building Lobby. To grace the occasion were representatives from Hitachi Corporation, who supplied us with the Battery Energy Storage System, and the Department of Energy.

For our Meralco Advisory, last September, we spoke about a PHP 0.53 reduction per kilowatt hour on one's energy bill. And we also normally showcase a Tip of the Month, and in this case, it's for the proper use of portable clothes dryers. That's all.

--------------------------------------------------------------------------------

Unidentified Company Representative, [8]

--------------------------------------------------------------------------------

Good afternoon, everyone. Just a very brief update on a couple of key developments for MGen over the last month. So the first one is the commissioning of San Buenaventura, which is our first coal project, high-efficiency, low-emission, the highest efficiency plant in the Philippines, commissioning on time and on budget at the end of September, just a month ago. So there's a picture of the plant there at the bottom.

A couple of opening events: a switch-on ceremony in Mauban, attended by Secretary Cusi; and then a formal opening event in the Hyatt in Manila, attended by President Duterte, in the bottom photograph. So a very significant development. We've been working on that project a long time and great news to have it onboard and producing revenue.

Atimonan, I think you're aware of. But we're continuing to progress Atimonan, and we wait for the next trend of the CSP process to move ahead.

Now from other [functions], as Singson has outlined previously, we're pushing ahead very strongly in renewables, to grow the renewables portfolio going forward across solar and wind primarily, but we're also looking at hydro.

And again, an exciting development in the last month, that we were able to sign our first EPC contract on the PowerSource First Bulacan project, where we have a 40% stake. It's an 80-megawatt DC, 50-megawatt AC project in Bulacan province. We expect to do groundbreaking within November, which will lead to a commissioning within 12 months, sometime in quarter 3, quarter 4 2020.

So that's the first of our renewable projects, but we're certainly pushing very hard to reach the 1,000 megawatt target that's been set by the group. That's it.

--------------------------------------------------------------------------------

Unidentified Company Representative, [9]

--------------------------------------------------------------------------------

We will hear from Mr. Pangilinan for his outlook.

--------------------------------------------------------------------------------

Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [10]

--------------------------------------------------------------------------------

Okay. Thank you. Good afternoon to everybody. Maybe let me -- actually, I rarely see you, so maybe this gives me a chance to be a bit more expansive about the outlook for 2019 and maybe a first look at how we see 2020 for Meralco.

In terms of the revenue, I think when you saw the numbers of Betty for just the pure distribution revenue for the first 9 months, we were about PHP 49.4 billion. The rest is pass-through anyway. So for the full year, we're certainly exceeding the [PHP 300 billion] in terms of the full revenues of Meralco, including the revenues from the subs, no?

But for the distribution revenues alone, it was PHP 49.4 billion. And on that basis, we'd probably be something in the order of about PHP 65 billion, PHP 66 billion of distribution revenues because -- that's very important because that drives the EBITDA number for the year for Meralco. And even the monthly distribution is around 60%. So if you calculate on that basis, the EBITDA for the year on the DU alone would be around PHP 39 billion, if it's a good year, over the year, no?

That should answer for obviously the income taxes, the interest expense and the CapEx of the DU, which is, this year, about PHP 18 billion, Ronnie? So more than sufficient. And of course, the dividends that we give out. So effectively, the usual financing itself and ability to finance the other

(technical difficulty)

Customer count. And so the third quarter, we were at about PHP 6.8 billion. I think Ronnie has been pushing [Biboy] here to power up certain communities that do not have power.

I think for the month, we only served about 16,000 homes, no? So I think we're quite confident that by the end of the year, we'll be about 6.9 million. And that for the -- by the third quarter next year, we should be at least 7 million customers. So in a way, that sets the stage for how '19 -- sorry, 2020 might look like for the DU, and we're quite optimistic.

But before that, the outlook for 2019 for Meralco as a whole, we indicate that the core net income will be at least, well, north of PHP 23 billion. I think we're trying to -- what we're shooting for, aiming for is [3% to 5%] growth in our core net income. So we're indicating around PHP 33.5 billion, PHP 33.6 billion for the full year 2019.

Now I think for 2020, we are going to see continued growth in the customer count. A great deal of the daily revenue will depend on how the economy performs. This year, we really had the benefit of about 6% growth in bill volume, right, or energy sold. We don't know whether the economy is slowing down or maybe a bit because October sales are up by only about 4%. So I don't know whether that foreshadows a lower growth. Hopefully, 6% growth as well in 2020. So -- but we'll still continue to be optimistic that there will be growth in the income of the DU.

Now in terms of the subsidiaries, the outlook is looking better in the third quarter and fourth quarter for the year. Because with the commercial operations of San Buenaventura in the fourth quarter, we expect that SBPL will contribute some amount of money, not completely to turn around the losses of MGen for the first 3 quarters, but it will attenuate it significantly for the full year.

And the rest of the subsidiaries are actually doing better than -- actually with the exception of MIESCOR. That itself will probably require some provisioning for 2019. But I think Ronnie and his team are fixing MIESCOR. You should expect that to turn to profitability by next year.

MGen itself, we expect to be profitable than -- because we had a full year impact of SBPL. So if the subsidiaries -- the other subsidiaries continue to perform well together with MGen, and if the DU continues to be profitable as we think it will be for 2020, I think the outlook will be much better for 2020, no? So that basically is how we see it. Yes.

--------------------------------------------------------------------------------

Unidentified Company Representative, [11]

--------------------------------------------------------------------------------

Thank you, Mr. Pangilinan.

We are now ready for your questions. There are 24 people on the line right now aside from those here in Meralco, 24 on telecon.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Unidentified Company Representative, [1]

--------------------------------------------------------------------------------

Okay. We'll take the first question from anyone here in the hall. None so far. Ma'am, is there someone on the line?

--------------------------------------------------------------------------------

Operator [2]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question come from (inaudible) from Philippine Equity Partners.

--------------------------------------------------------------------------------

Unidentified Analyst, [3]

--------------------------------------------------------------------------------

My question is for the Chairman, Mr. Pangilinan. Thank you for giving those guidance. I appreciate them. You mentioned your guidance for the full year 2019 and you also partly discussed what you think will happen in 2020. But can you also give some guidance on what you expect regarding the tariff, the level of tariff for the distribution tariff amid the ongoing tariff reset?

--------------------------------------------------------------------------------

Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [4]

--------------------------------------------------------------------------------

Well, that's difficult to predict or to say with some degree of certainty because -- and maybe it's fair to state that there is continuing discussion with the -- in respect of the [fifth IP] tariff, no? So far, we have not received any feedback that could give us an indication of what the tariff picture could look like for the fifth IP . So in the absence of that -- of some visibility on the tariff, we continue to bill at a rate of PHP 1.38, which was a continuation of the tariff -- the temporary tariff they have billed for the [fourth IP], no? So we cannot tell you when the ERC would sort of engage Meralco in some clearer discussion as to the shape of the tariff for the fifth IP , no?

--------------------------------------------------------------------------------

Unidentified Analyst, [5]

--------------------------------------------------------------------------------

Can I still ask another question?

--------------------------------------------------------------------------------

Unidentified Company Representative, [6]

--------------------------------------------------------------------------------

Okay. Please go ahead.

--------------------------------------------------------------------------------

Unidentified Analyst, [7]

--------------------------------------------------------------------------------

Yes. Just on the CSP, for that topic, I am aware whatever you disclosed so far about the winning bids are not yet final. I'm not sure about that. But can you elaborate further what is the status of the latest rounds of bidding? And how crucial are they to be finalized given that -- if they don't get finalized, will you be forced to purchase from the spot market in 2020?

--------------------------------------------------------------------------------

Ray C. Espinosa, Manila Electric Company - President & CEO [8]

--------------------------------------------------------------------------------

We -- CSPs that have been successfully concluded, meaning those that have resulted in winning bidders have all signed PSAs already. And the PSAs have been filed with the ERC for approval. The ERC has given its acceptance to all the filings paid by Meralco. So we just have to await the action of the ERC on those PSAs.

We have a 1,200-megawatt greenfield capacity that we need to put out again for a second round of bidding. And it's our expectation that we will publish the term, the invitation and notice to bid some time this week so that we can commence with the process again right away, consistent with the DOE circular that mandates basically a second round of bidding if the first one does not gain -- or if the first one fails. So that's -- we're at that stage. We're confident that the ERC will act upon the PSAs that have been submitted to them for approval. The ERC is quite aware of the importance of these PSAs.

--------------------------------------------------------------------------------

Unidentified Company Representative, [9]

--------------------------------------------------------------------------------

Thank you, Mr. Espinosa. Is there someone in the hall? Thank you. Someone in the hall, someone ready with a question. Yes, ma'am. Please state your name and the company you present.

--------------------------------------------------------------------------------

Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [10]

--------------------------------------------------------------------------------

I'm Jelline Gaza from JPMorgan. I have 3 questions. The first one relates to the current status of [the rate reducing]. Can you give us an idea of where it is currently in the process and your updated expectation in the filing and validation of the tariffs?

And then secondly, on the Supreme Court ruling with regard to the 2014 on [Baguio City]. I understand that you are pursuing a motion for reconsideration. But how -- I mean have you provisioned for this? And if not yet, what are the legal tickers you're waiting for to reflect that in the financial statements?

And lastly, I have a question on other income. I noticed that it declined year-on-year for 9 months despite lower financial expenses and higher financial income. What was the reason for that?

--------------------------------------------------------------------------------

Ray C. Espinosa, Manila Electric Company - President & CEO [11]

--------------------------------------------------------------------------------

Let me tackle the first one. On the tariff resetting, the ERC continues to engage the stakeholders in this fashion. There have been a number of public consultations, as you know. And they are still now trying to target how best to address the past periods and then what the rules will be for the new regulatory period. So that's where it is today. We are hopeful that this -- the discussions will continue, and that sometime next year, perhaps there will be some clarity as to where this will all lead to. But as of the moment, this is where we are.

For the second question, we have filed, as you know, or have [said] to file a motion for reconsideration for the unbundling decision that was handed down.

And as for the provisioning?

--------------------------------------------------------------------------------

Betty Cheng Siy-Yap, Manila Electric Company - CFO, Chief Risk Officer & Senior VP [12]

--------------------------------------------------------------------------------

Yes. We did to the extent that -- well, because the COA report has a range of amount for what they have identified as differences in terms of application to unbundling. While the application is not -- because what was done was [CDR] rules were applied to a period -- the test period which was under our ORP, no? But nevertheless, we did take an amount of provision, about PHP 2 billion.

--------------------------------------------------------------------------------

Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [13]

--------------------------------------------------------------------------------

Okay. Was the second [leg] just this quarter, the PHP 2 billion? When -- which quarter did you recognize that?

--------------------------------------------------------------------------------

Betty Cheng Siy-Yap, Manila Electric Company - CFO, Chief Risk Officer & Senior VP [14]

--------------------------------------------------------------------------------

Oh, it's been there but we were making the provisions. That was one of the items that we provided for. Yes.

--------------------------------------------------------------------------------

Unidentified Company Representative, [15]

--------------------------------------------------------------------------------

Okay. Thank you. Back to our telecon participants.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

There's no question at this moment, ma'am.

--------------------------------------------------------------------------------

Unidentified Company Representative, [17]

--------------------------------------------------------------------------------

Okay. Back to our hall here in Meralco.

Okay. The limited plan for -- other income was ForEx gain. Okay. Thank you.

Anyone with a question? None at the moment. Ma'am, is someone on the line?

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

Yes, ma'am. We have a question from Enrique Fausto from Deutsche Bank Philippines.

--------------------------------------------------------------------------------

Enrique Fausto, Deutsche Bank AG, Research Division - Research Associate [19]

--------------------------------------------------------------------------------

Just 2 questions. First, could I get the value of the cash, including all of the -- all the other investments as of end September? And for the second question, could you give any, I guess, guidance on what's going to happen now with the Ghana investment? Is that completely shelved?

--------------------------------------------------------------------------------

Unidentified Company Representative, [20]

--------------------------------------------------------------------------------

Can you repeat the question, please? Can you speak louder?

--------------------------------------------------------------------------------

Enrique Fausto, Deutsche Bank AG, Research Division - Research Associate [21]

--------------------------------------------------------------------------------

Okay. Hello. Could you hear me now?

--------------------------------------------------------------------------------

Unidentified Company Representative, [22]

--------------------------------------------------------------------------------

Yes, yes. Yes.

--------------------------------------------------------------------------------

Enrique Fausto, Deutsche Bank AG, Research Division - Research Associate [23]

--------------------------------------------------------------------------------

Okay. So just 2 questions. First on what's the cash plus all the other investments as of end September. And second question, on the Ghana investment, is there any update there?

--------------------------------------------------------------------------------

Betty Cheng Siy-Yap, Manila Electric Company - CFO, Chief Risk Officer & Senior VP [24]

--------------------------------------------------------------------------------

I'll get the cash balance in a while. And then for...

--------------------------------------------------------------------------------

Ray C. Espinosa, Manila Electric Company - President & CEO [25]

--------------------------------------------------------------------------------

On the Ghana project, we have been notified by the Ghana government that they are terminating the concession agreement. So that means that we have to unwind our arrangements. That has entailed some costs on our part, but its order of magnitude is not really that significant as to affect Meralco's operations. So it's unfortunate that the Ghana government had to unwind the concession agreement, notwithstanding that the Millennium Challenge Corporation actually confirmed that the arrangements and the contracts were all in order. But that's the call of the government of Ghana.

--------------------------------------------------------------------------------

Betty Cheng Siy-Yap, Manila Electric Company - CFO, Chief Risk Officer & Senior VP [26]

--------------------------------------------------------------------------------

Okay. The total...

--------------------------------------------------------------------------------

Enrique Fausto, Deutsche Bank AG, Research Division - Research Associate [27]

--------------------------------------------------------------------------------

Okay. Sorry, go ahead.

--------------------------------------------------------------------------------

Betty Cheng Siy-Yap, Manila Electric Company - CFO, Chief Risk Officer & Senior VP [28]

--------------------------------------------------------------------------------

No. Yes. Go ahead.

--------------------------------------------------------------------------------

Unidentified Company Representative, [29]

--------------------------------------------------------------------------------

Go ahead, please.

--------------------------------------------------------------------------------

Enrique Fausto, Deutsche Bank AG, Research Division - Research Associate [30]

--------------------------------------------------------------------------------

For the Ghana, when you mentioned -- sorry, hello?

--------------------------------------------------------------------------------

Unidentified Company Representative, [31]

--------------------------------------------------------------------------------

Yes, yes. Go ahead, please.

--------------------------------------------------------------------------------

Enrique Fausto, Deutsche Bank AG, Research Division - Research Associate [32]

--------------------------------------------------------------------------------

Okay. When you mentioned that you'll unwind the Ghana investment, is there an idea of how much are you maybe booking as a loss for the investment?

--------------------------------------------------------------------------------

Ray C. Espinosa, Manila Electric Company - President & CEO [33]

--------------------------------------------------------------------------------

Around $2 million.

--------------------------------------------------------------------------------

Betty Cheng Siy-Yap, Manila Electric Company - CFO, Chief Risk Officer & Senior VP [34]

--------------------------------------------------------------------------------

The $2 million that Atty. Espinosa mentioned is actually cost incurred already. So it's in the books. The investment is very small. That's [$285,000].

Okay. To your question on total cash balance, that's PHP 82 billion.

--------------------------------------------------------------------------------

Unidentified Company Representative, [35]

--------------------------------------------------------------------------------

Thank you. Anyone ready with a question here? None? None? Back on the line. Ma'am, is someone on the line?

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

There's no question at this moment, ma'am.

--------------------------------------------------------------------------------

Unidentified Company Representative, [37]

--------------------------------------------------------------------------------

Okay. I think our time is limited. If you want to hear the conference call again, there's a number to be dialed. It's (852) 2112-1000 until tomorrow, October 29. Thank you for joining us today.