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Edited Transcript of MER.PS earnings conference call or presentation 27-Apr-20 6:00am GMT

Q1 2020 Manila Electric Co Earnings Call

Pasig City May 18, 2020 (Thomson StreetEvents) -- Edited Transcript of Manila Electric Co earnings conference call or presentation Monday, April 27, 2020 at 6:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* 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 & Director

* Raymond B. V. Ravelo

Manila Electric Company - VP & Chief Sustainability Officer

* Rogelio L. Singson

Manila Electric Company - SVP

* Ronnie Leguro Aperocho

Manila Electric Company - Head of Networks & Senior VP

* Victor Emmanuel S. Genuino

Manila Electric Company - Head of Customer Retail Services and Corporate Communications & First VP

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Conference Call Participants

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* Enrique Fausto

Deutsche Bank AG, Research Division - Research Associate

* Jelline E. Gaza

JP Morgan Chase & Co, Research Division - Analyst

* Royce Aguilar

First Metro Securities Brokerage Corp., Research Division - Equity Research Associate

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Presentation

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Unidentified Company Representative, [1]

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Good afternoon, ladies and gentlemen, thank you for joining us today for the presentation of our financial and operating results for the first quarter of 2020. Before we begin, kindly know the ground rules for the meeting, which had earlier been shared with you for proper guidance. (Operator Instructions)

The order presentation will be as follows: financial results by the Chief Finance Officer, Ms. Betty Siy-Yap; operating results, highlights and other business developments by the President and CEO, Atty. Ray C. Espinosa; along with Mr. Victor Genuino, the Head of Customer Retail Services; Mr. Ronnie Aperocho, Head of Networks; Mr. Raymond Ravelo, Head of Sustainability Office; and Mr. Rogelio Singson, MGen President and CEO. Our Chairman, Mr. Manuel V. Pangilinan will give an outlook given the COVID-19 situation.

We shall now begin the financial results from our CFO, Ms. Betty Siy-Yap.

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

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Good afternoon, ladies and gentlemen. I'll be presenting the results for the first quarter ended March 31, 2020. In your screen would be our slide on consolidated revenues. Our gross revenues of PHP 70 billion was -- were 7% lower than the PHP 75.4 billion in 2019 due to the effect of lower generation and transmission pass-through charges, offset by higher energy sales volume. The Meralco interim distribution rate remained the same since July 2016 at PHP 1.38 per kilowatt hour. Electricity revenues amounting to PHP 67.9 billion, were at 97% of gross revenues and lower compared with PHP 73.6 billion in 2019.

Generation and other pass-through components as a percentage of total electricity revenues was at 77% in 2020, lower than the 81% in 2019 mainly due to the decrease in WESM prices driven by the improved supply condition in the Luzon grid, lower generation charges after implementation of the new power sales agreement starting December 26, 2019 and lower fuel costs throughout the first quarter of 2020 compared with 3 Yellow Alerts in the first quarter of 2019, there were none during the first quarter of 2020. Versus the same period last year, generation charge this period continued to be much lower with the implementation of the new baseload and mid-merit power supply contracts secured after a successful CSP in 2019.

For the April 2020 generation charge of PHP 4.6385 per kilowatt hour was close to PHP 1 lower than in April of 2019. Although Meralco's distribution charge remains unchanged, the aggregate distribution revenue grew by 9% in 2020 to PHP 15.6 billion versus 2019, reflecting the impact of higher volumes distributed and the sales mix. The nonelectric revenues was at PHP 2.1 billion, 21% higher compared with 2019. This represented 3% of total revenues.

Next slide, please. The total cost and expenses for 2020 amounted to PHP 67.2 billion or 2% lower than in 2019. Consolidated purchased power costs was lower due to the lower pass-through generation charge with the implementation of the competitively priced PSAs beginning December 26, 2019. That is PHP 4.40 per kilowatt hour in 2020 versus PHP 5.45 per kilowatt hour in 2019. Lower prices at the WESM at PHP 5.40 in 2020 versus PHP 5.75 per kilowatt hour in 2019 due to the improved supply condition in the Luzon grid.

Third, the force majeure claim related to the ECQ resulting in lower fixed cost of the PSAs. Also, there was overall lower fuel costs at $7.51 per gigajoule of oil index Malampaya gas in 2020 versus the 2019 figure of $8.23 per gigajoule. We also saw the appreciation of the peso versus the U.S. dollar, which is at PHP 50.68 to the dollar as at March 31, 2020 versus PHP 52.50 same period last year.

Our total capital expenditures implemented for the first quarter amounted to PHP 4.2 billion, 4% lower than in 2019 as a result of workforce diversion of some crew performing CapEx project to power restoration activities during and after the Taal Volcano eruption in January and the ECQ beginning March, which severely limited the deployment of people and transport of materials and equipment to the job sites.

Our consolidated core net income or CC&I for 2020 was at PHP 5.7 billion, 2% higher compared with PHP 5.6 billion in 2019. Consolidated reported net income in 2020 was at PHP 2.6 billion versus PHP 5.7 billion due to the recognition of the company's effective share in impairment of the investment in PacificLight Power of PHP 2.7 billion. Notwithstanding the excellent operational record of the facility, trading conditions in the Singapore electricity market continued to be unfavorable with the ongoing low prices in both the Uniform Singapore Energy Price, effectively the pool market and the retail market. Thus, the shareholders and management felt it was prudent to recognize an impairment in the value of investment. Our consolidated core EBITDA for the first quarter of 2019 was at PHP 8.4 billion, with EBITDA margin on consolidated gross revenues at 12%.

Our total interest-bearing debt is slightly higher at PHP 40.9 billion, including debt of our subsidiaries which totaled PHP 1.6 billion at the end of the first quarter of 2020, of which, PHP 28.6 billion are due to mature within 2020. Meralco's balance sheet and liquidity position remains strong with net debt-to-EBITDA at negative 0.8x. Total principal debt repayments, customer refunds and financing charges paid amounted to close to PHP 1 billion in 2020. Our core earnings per share for 2020 was at PHP 5.078 per share, while reported earnings per share was at PHP 2.323 per share.

That ends my presentation. Thank you.

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Unidentified Company Representative, [3]

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Thank you, Ms. Siy-Yap. We now go to our President and CEO, Mr. Ray C. Espinosa.

(technical difficulty)

Atty. Ray? Atty. Ray C. Espinosa?

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Ray C. Espinosa, Manila Electric Company - President, CEO & Director [4]

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Sorry, there was a problem with my mic. Okay. Good afternoon, everyone. I shall give the operating highlights for the first quarter of 2020. And the details of our operations will be explained by Mr. Genuino, Mr. Aperocho and Mr. Valles. Updates on MERALCO PowerGen will be given by Mr. Babes Singson.

Our energy sales grew 4.8% to 10,879 gigawatt hours. Customer count grew 3.8% to 6.93 million customers. Net system input or NSI was up 3.7% to 11,402 gigawatt hours. Peak demand for Meralco grew 9.6% to 7,614 megawatts, which was registered before the enhanced community quarantine. Average retail sales was down -- retail rates was down 11% to PHP 8.11 per kilowatt hour, and we continued to sustain our service level improvement across the quarter and have sustained our GSLs.

Viboy?

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Victor Emmanuel S. Genuino, Manila Electric Company - Head of Customer Retail Services and Corporate Communications & First VP [5]

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Good afternoon, ladies and gentlemen. For energy sales in Q1, we grew 4.8% to 10,879 gigawatt hours. About 10% of this is estimated because we weren't able to send out our meter readers beginning ECQ lockdown on March 17.

In terms of the sales mix, we have our Commercial being the biggest segment at 39.9%, followed by Residential at 30.9% and Industrial at 28.8%. In terms of growth though, Residential grew the strongest showing 11.8% growth for the quarter; followed by Commercial, which grew 5.3%; and we saw a decline in terms of sale and demand from our Industrial segment, which was down 2.4%.

In terms of our customer count, we are now at 6.933 million customers, a growth of 3.8% versus the same period of last year. In terms of share, our Residential segment is the highest at 92.1%, followed by the Commercial segment at 7.7% and Industrial at 0.2% of our customer base. In terms of growth though, Residential showed the highest growth at 3.9%, Commercial followed at 2.7% and Industrial, which grew 1.7%.

To show more details on these customer segments, the Commercial segment accounted for 40% of total sales in Q1. This was primarily driven by 3 main industries: real estate, retail trade and hotels and restaurants. The Residential segment grew the next or had the second high share at 31%. They grew 11.8%. The sales growth came from new and ramp-up customers that were energized, and organic or same-store sales or same Residential consumption sales for this period.

For Industrial, which accounts for 27% of total Q1 sales, we saw a decline of 4%. And the decliners came from the nonmetallic industry, rubber and plastics and semicon, but we did see some growth from food and beverage and basic metals.

For more details on the Residential segment, we see that Metro Manila grew 11.6% to 199 [bill] increase. And we also see that the following areas, like Cavite, Bulacan, Rizal, Laguna, Quezon and Batangas showed very strong Q1 sales growth as well. If we focus on Metro Manila alone, the highest growth came from the Bay Area, Pasay City area, a 20.8% growth; followed by Paranaque, which grew 16.7%; BGC/Taguig grew 14.4%; Las Pinas grew 13.6%; Alabang grew 12.9%. The growth in order to be attributed to higher increased temperature. For Q1, the average temperature was 27.07 degrees Celsius or an increase of 0.44 Celsius versus the same period of last year.

In terms of developments, obviously we are impacted by the COVID-19 virus, and this is going to be reflected or was reflected in the second half of March and into April of 2020. And this is primarily due to flexible work arrangement that have been given to the [working cap] because of temporary closures of the (inaudible). The quarantine and the ECQ lockdown areas and the call to stay at home is what's driving and will drive Residential sales in the coming months.

For our Commercial segment, as explained, our 3 highest growth areas; real estate, retail trade and hotels and restaurant (inaudible) our Q1 sales, but were greatly impacted in the second half of March and leading to April. Coming from Leechiu Property Consultants, they already see a 44% decline in terms of available office space for the remainder of the year, and this equates to roughly 842,000 square meters lower than what was originally forecasted.

They are, however, saying that POGOs are expected to make a strong comeback and they also say that IT-BPM will remain resilient because of aggressive cost cuts and increased production in a climate of falling revenues. However, they are warning that in terms of leasing activities, this will only resume a catch up in August of this year.

For our Industrial sales, we saw that food and beverage, medical equipment pushed the sales higher. But for other segments, like plastic and rubber, nonmetallic and semicon, we saw very sharp decline, and we saw this particularly during the second half of March. Again, the forecast for GDP for this period is somewhere between minus 1% to 3% as provided by the World Bank and IMF. For the month of April, we see a very sharp decline considering that this will be the first full month of ECQ for the entire period.

That's all. Thank you.

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Ray C. Espinosa, Manila Electric Company - President, CEO & Director [6]

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Ronnie. Who's next?

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Unidentified Company Representative, [7]

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Up next is Mr. Ron Aperocho, Head of Networks.

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Ronnie Leguro Aperocho, Manila Electric Company - Head of Networks & Senior VP [8]

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Sorry. Good afternoon, everyone. Despite the ECQ affecting the last 10 days of March 2020 supply month, the consolidated net system input for the first quarter of 2020 at 11,402 gigawatt hours was still higher by 3.7% compared to the same period last year.

Meralco's peak demand for the first quarter of 2020 at 7,614 megawatt was 9.6% higher than the first quarter 2019 peak demand of 6,950 megawatts. Peak demand during the first quarter was recorded last March 10, that's 5 days prior to the ECQ. The peak demand for March already surpassed the 7,740 megawatt peak demand in the whole of 2019.

Luzon, the peak demand in March was at 11,103 megawatts, which is 9.1% higher than March 2019's peak demand of 10,180 megawatts. For our energy sourcing, 52.2% came from our existing/old IPPs and CSPs, and 16.6% came from our new PSAs that went through the CSP process. This represented a combined share of 68.8% for our first quarter 2020 requirement. WESM contributed a 13% share, while the rest came from the special contracts under the other RES.

For our fuel mix, natural gas was at 35.8%, followed by coal at 32.3%, which included CEDC and MPower volumes. Multi-fuel excludes (sic) [includes] coal, hydro, biomass, geothermal, oil, et cetera, was at 31.7%, while solar was only at 0.2%.

Average retail rates for the first quarter of 2020 at PHP 8.11 per kilowatt hour was lower by 11.2% or PHP 1.02 per kilowatt hour. The decrease was driven by a PHP 0.79 per kilowatt hour decline in generation charge and PHP 0.23 per kilowatt hour decline in other bill components. Of course, generation charge is still the largest component in customers' bill at 57.8%, while other bill components make up the balance of 42.2%.

For system loss, we have registered another all-time-low 12-month moving average system loss of 5.42% for March 2020. This improved by 3.2% versus the March 2019 system loss of 5.6%. Of course, this is still lower by 1.58 percentage points versus the newly set system loss cap of 7% starting January 1, 2020.

Okay. For our S-Factor and GSL performance, they are still within the rewards level for our S-Factor indicators. For GSL, they are still within the set limits. In fact, for our GSL2, we have 0 violation for RY 2020.

Okay. So of course during this extraordinary times, our -- I would say, our corporate mission of keeping the lights on really runs deep into our core as Meralco employees. We need to keep our network up and running to power up homes, brighten facilities and hospitals, where life-saving equipment or gadgets are running 24/7. Of course, we have to do this -- we have to do all this while keeping our employees safe and well.

To keep the lights on during the ECQ, we dispersed the operation of our System Control Center. We locked down core teams and deployed skeletal workforce in order for us to quickly respond to emergency power outages and for us to quickly execute electric service connections for government agencies and medical facilities. We also conducted proactive line inspection, testing and other maintenance works to ensure reliable and continuous our supply. The dispersed system control operations enabled us to operate our networks from 3 different locations.

Next slide, please then. Using our backup facilities in the North and in the South, we call this a triple redundancy that ensures unhampered monitoring and control of the entire distribution networks should one of the control site is compromised or locked down due to the virus transmission.

And to ensure that we have enough healthy personnel to run the core of our operations, we locked down around 530 personnel. So this locked down personnel are housed in isolated locations and they are socially and physically distanced to reduce the risk of infection. Most of these personnel are engineers, linemen and technicians manning our sectors, subtransmission services and our System Control Center. So aside from locked-down personnel, we also have 24 by 7 skeletal working personnel who are tasked to perform proactive line maintenance and repair works to avoid power outages.

There were some critical projects that we have also undertaken during the lockdown because of the criticality of these projects in keeping the lights on, such as the San Jose 115 kV line backbone project that would strengthen our 115 kV subtransmission backbone in the northern part of our (inaudible).

Okay. Well this slide shows that for the next 3 months, power supply wouldn't be a problem anymore because we have enough buffer because of the sharp decline in the demand brought about by the lockdowns and the ECQ. So there are no Yellow Alerts or Red Alerts in the coming months because we have enough supply. So power availability and even affordability will no longer be a problem because we even forecast the price per kilowatt hour to drop for the benefit of our customers.

Well, on CapEx, the ECQ and the lockdowns have of course impacted heavily on our CapEx execution, that's why we have to recast our budget for 2020 from PHP 17.84 billion to PHP 9.34 billion. So around PHP 8.5 billion worth of CapEx will be carried over to next year. The remaining budget for this year will be allotted to address customer requirements and to address load growth.

We are also close to PHP 0.5 billion budget for BBB and PPP program enrollment because we -- the government to push for the timely completion of this. In fact, DOTr had already -- or the Department of Transportation had already requested us to resume the pole relocation works related to 4 priority projects namely the [EDSA North 1 multi-line sub], LRT1 Cavite Extension and the unified common station. The client and engineering works for these projects have already resumed, and even the construction works in the case of the MRT Line 7 project.

That would be all from networks. Thank you.

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Unidentified Company Representative, [9]

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Thanks, Mr. Aperocho. May we now hear from the Head of Sustainability Office. Mr. Raymond Ravelo.

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Raymond B. V. Ravelo, Manila Electric Company - VP & Chief Sustainability Officer [10]

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Actually, we'd like to also talk about our engagement to keep our customers informed of different activities during this ECQ and COVID-19.

Next page, please. We just like to inform -- we informed our customers on the following communications during these key milestones. Number one is we advised customers on a 30-day payment extension last March 16, informing customers that their payments, which were due from March 1 to April 14, will be extended another 30 days. On March 20, we sent out an advisory to say that we will suspend meter reading and bill delivery activities during this period.

On March 21, we sent an advisory that we will be closing all business centers to ensure the health and safety of our staff and of our customers. On April 6, 8 and 13, we were constantly sending advisories by SMS to customers informing them of 2 things: one was the extension of the 30-day -- the payment from March 1 to April 14, but advising them that they could pay for their bill through registration through Meralco Online; and to call 16211 if have any questions with regards to their bill details.

On April 11 and 20, we resumed meter reading activities for general service customers, general power customers and some residential customers. On April 22, we resumed the field survey activities. This is to ensure that customers who are waiting for energization were going to be served or could be served during this period. And on May 4, we would like to advise the group that we would be opening most of our business centers already.

During this period also, we focused on 3 main communication campaigns. Number one is how to register to Meralco Online. Again, Meralco Online is available via the web or a mobile app, and it's a convenient form of -- it's the most convenient channel for customers to engage Meralco during this period. It can do service applications, payment, reporting of outage and to address specific query. But during this period, we sent out a step-by-step guide to inform customers on how to register to Meralco Online, and we have seen a very dramatic spike in terms of new registrations.

Next page. We also promoted heavily payment as a functionality through Meralco Online for customers to stay safe, to go paperless. We taught them the functionalities of Meralco Online. And through this, we saw also a substantial increase in terms of online payments for electric bills. But we also showed the option for people who wanted to pay through their e-wallet, either PayMaya, GCash and Coins.ph. Again, also the focus for this campaign was to let people know that if they had any queries on their bill they could call our hotline at 16211 so that our customer care reps could guide them on their preferred payment channel.

Next, we also informed customers that we were still open for business. For customers who wanted to apply and provide a service application, we told them that they could apply through Meralco Online again. And then -- and that if there were physical documents that needed to be delivered to Meralco, we could accept these at selected Meralco business centers and Bayad Center branches.

That's all. Thank you.

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Unidentified Company Representative, [11]

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Thank you. We shall now hear from Mr. Rogelio Singson, President and CEO of MERALCO PowerGen. Okay.

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

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Before that, we'd like to provide an update first on other initiatives of Meralco in relation to COVID-19. During this period, Meralco energized several hospitals, government agencies, vital institutions, including temporary treatment facilities, which aided in fighting COVID-19. There were instances also wherein Meralco did help by waiving up to 50% of electricity bills for the next 12 months, and also ensured line and roadside electrical facilities are in good order.

Meralco also provided subsidy in the electricity bills of the Pasig LGU, temporary shelters for health care workers. It also installed an energized electrical facilities to serve the mortuary freezer of East Avenue Medical Center, and this is in coordination with the Quezon City LGU and the Disaster Risk Reduction and Management Office.

OMF, our foundation, the One Meralco Foundation, sponsored the decontamination of hospitals and government facilities. This benefited the Rizal Medical Center, PNP General Hospital and PNP offices. OMF also funded the Pasig LGU COVID testing kits.

Meralco and OMF continued its support to our country's valiant health workers by providing the much-needed PPEs to 44 hospitals and 4 health care centers. This includes hazmat suits, goggles, surgical masks, the N95 and KN95 masks, gloves, face shields and gowns. In addition, we welcomed -- Meralco welcomed 32 frontliners from The Medical City to our multipurpose hall which is -- which has been converted to a temporary sleeping hall complete with amenities for these frontliners.

eSakay, our e-vehicle subsidiary, and OMF partnered with the Department of Transportation and some LGUs in deploying e-vehicles to transport health workers and essential personnels. This benefited 8 hospitals, including Medical City, Cardinal Santos, Our Lady of Lourdes Hospital.

Meralco's ICT and OMF donated 20 computers as well and this -- for the sequences samples from COVID-19 patients admitted to RITM and other hospitals. OMF also donated care packages, food packs to the health care workers and homeless families. About 490 of these homeless families benefited from this initiative, including more than 3,000 health workers.

And finally, Meralco launched a program, which is called -- 2 programs called A Day To Give and Share A Leave, wherein more than 4,000 employees actually pledged a portion of their salary; and with respect to Share A Leave, wherein close to 2,000 employees relinquished a portion of their paid leaves, all of them totaling PHP 25 million to support 10,000 affected contractor personnels. Separately, OMF also launched Help from Home, which raised close to PHP 2 million to help families most affected by the ECQ.

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Raymond B. V. Ravelo, Manila Electric Company - VP & Chief Sustainability Officer [13]

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Good afternoon, everyone. I will be providing some brief updates on our sustainability initiatives.

First, last February 29, we launched The Good Store. The Good Store is Meralco's weekend marketplace for sustainable products. The store was formally opened by our President and CEO, Atty. Ray C. Espinosa, together with ERC Chair Agnes Devanadera. And also together with our city mayor guests, such as LenLen Oreta of Malabon, Lani Mercado of Bacoor and Eric Vida of Mendez, Cavite. Throughout the day, we welcomed around 450 patrons, and they were served by close to 40 merchants.

Next slide, please, [Danny]. Our guests were very pleased with The Good Store and they lauded Meralco's distinctive focus on sustainability as well as our other initiatives such as our ban on single-use plastics. In fact, all the mayors said that they'd like to replicate these programs in their own jurisdictions and cities.

Next slide, please. Secondly, last March, which was actually International Women's Month, Meralco became a pioneer signatory in the Philippines in support of the UN Women's Empowerment Principles. Meralco is 1 of only 4 signatories thus far in the country and the only 1 in the energy sector.

Next slide, please. Finally, in the last few months, we have also heightened our digitization initiatives to further support and sustain our people and our customers especially in light of the ECQ. Internally, we've rolled out a number of important tools to help boost employee productivity during this time. First, Microsoft Teams was deployed widely across our organizations, and this has been our main platform for meetings, workshops and training sessions. In fact, we have also used MS Teams to collaborate even with external parties, such as our customers. To date, we have over 4,600 active users on Teams.

Next, we have also significantly increased our usage of Microsoft OneDrive, allowing us to share files and seamlessly collaborate and coauthor documents. We now have over 4,300 active users on OneDrive who access around 44 million files, significantly reducing the need for paper as well as for printed hard copies.

As well, earlier this month, we rolled out our Code Light Chatbot, and this was a program and project initiated by our president, RCE himself. This is actually a tool which helps us track and monitor our employees' daily work arrangements as well as their health and wellness status at this time. Daily, employees are asked questions on their work location and health status among others. Code Light today covers around 5,700 employees and we are very pleased to report that, thus far, we have had a response rate of 99%. Altogether, these tools have helped us boost digital adoption in Meralco and have also increased our digital acumen as an organization.

Finally, as Mr. Genuino mentioned earlier, to better serve our customers during this time, we have also promoted the use of Meralco Online to facilitate their transactions as well as address any queries that they might have. To date, Meralco Online services close to 720,000 active users, and we have also received around 26,000 paperless billing subscriptions through this platform.

Thank you very much.

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Unidentified Company Representative, [14]

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Thank you, Mr. Ravelo. We now proceed to Mr. Rogelio Singson.

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Rogelio L. Singson, Manila Electric Company - SVP [15]

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Okay. Thank you so much, and good afternoon to everyone. Let me just mention what's happening with our first super critical coal project in Mauban, Quezon. This is the San Buenaventura Power Company Limited, which was -- started operations September 26, 2019. And so far, the plant has been doing well at very good availability. In fact, for March, the plant availability was at 99%. However, because of the low demand, the dispatch factor was only 89%. But keep in mind that SBPL is a major low-energy source for Meralco.

Next slide, please. The next project that we'd like to show is Atimonan. We are still waiting for the CSP to be handled by Meralco on the next baseload requirement. However, we have our EPC in place until the suspension due to ECQ last March 18. The intention is to continue work doing the site development ready for the plant, for the site to receive the plant construction. So we are just waiting for the CSP from Meralco.

Next slide, please. Now we are still committed as MGen through our MGen Green subsidiary to develop about 1,000 megawatts of renewables over the next 5 to 7 years. Unfortunately, all activities as far as MGreen is concerned is on hold because of the ECQ. So until the ECQ is lifted, we cannot proceed.

One particular project that was supposed to be on operation by end of this year is -- next slide, please, is the PowerSource, which is located in San Miguel, Bulacan. This is our first solar power plant and MGreen is 40% owner. Now unfortunately, we -- our EPC contractor is from China and the partial deliveries were made before the ECQ. However, the subsequent deliveries have been on hold. The last delivery for a second batch of panels are in the Port of Manila already, we're just waiting for the actual release. So hopefully, we have been in discussions with the LGU if we can start work, at least to a limited scale because we want to complete the drainage facilities for the site.

We also have another project which is also on hold. This one is in Tarlac. And as I said, most of these projects have been on hold because of the ECQ.

That's all that I'd like to update.

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Unidentified Company Representative, [16]

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Thank you, sir. Okay. So may we now hear from our Chairman, Mr. Manuel V. Pangilinan, for an outlook given the COVID-19 situation.

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [17]

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Okay. Thank you to all of you for joining us for this briefing in respect of our first quarter results. As we indicated in our press statement that it's difficult for us to give you a full year assessment of our earnings given that the COVID virus effect on our operations and on the (inaudible) still has been played out.

But what we could see, obviously we probably have a nearer view of the second quarter results particularly April. The first week or 2 of the quarantine has seen a significant fall in our bill volume, I think 30 -- between 30% to 40% initially, and that has slowly crept up. And I think Viboy's assessment for the month of April is that our volume is likely to be down by around 25% compared to last year. And -- but I think in the past few days, we've seen a slight uptick in demand for power, and we hope that continues through the second quarter.

But that said, it is likely that second quarter volume will be down compared to last year, which means that the distribution revenues will be down and EBITDA and profits will be down. But the profits -- Meralco will continue to show positive profits in the second quarter and indeed for the full year. We have no doubt that Meralco will keep its profitability for the full year.

Now the recovery we see happening in -- starting in the second -- the third quarter, then the fourth quarter -- will continue to the fourth quarter, I think we've said that recovery depends on how well the economy behaves in relation to, say, relaxation of the quarantine, hopefully starting May 16. But we're assuming that this it's going to be a slow deliberate kind of recovery for the balance of the year for the second half this year.

We did impair our investments in the Singapore power plant in full following the example of First Pacific in Hong Kong for a number of reasons, which we can't get into. But we want to assure you that the dividends for the year 2020 will be based on our core income before exceptional charges.

And finally, just to make the point that Meralco's liquidity position actually continues to stay strong. We've had the benefit of significant cash inflows in the first quarter of this year. And our collections are down, but I believe that we can -- we're able to sustain ourselves at least to pay for our cash expenses for this second quarter.

So that's the summary of our outlook for 2020.

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Unidentified Company Representative, [18]

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Thank you, Mr. Pangilinan. We are now ready for your questions.

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Questions and Answers

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Unidentified Company Representative, [1]

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So far, there is none in queue.

Since no one is on queue in the chat room, we shall end this afternoon's briefing. If you have questions, kindly drop us an e-mail in the e-mail address indicated in your invite.

Stay well and keep safe, everyone. Thank you for joining us today.

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Ray C. Espinosa, Manila Electric Company - President, CEO & Director [2]

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Thank you, everyone.

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Victor Emmanuel S. Genuino, Manila Electric Company - Head of Customer Retail Services and Corporate Communications & First VP [3]

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Thank you to everybody.

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Betty Cheng Siy-Yap, Manila Electric Company - CFO, Chief Risk Officer & Senior VP [4]

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Thank you.

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Ronnie Leguro Aperocho, Manila Electric Company - Head of Networks & Senior VP [5]

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Stay safe, everyone.

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Unidentified Company Representative, [6]

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Thank you.

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Betty Cheng Siy-Yap, Manila Electric Company - CFO, Chief Risk Officer & Senior VP [7]

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I think Jelline has a question.

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Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [8]

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Yes. Just a quick one. I'd like to ask about the provisions for the quarter, how much was it. And then more on the dividend and outlook, I understand that you're committed to keep it based on the core. But how should we think about it? Will the payoff be the same or it's more about you committing to sustaining the dividends on a per share level?

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [9]

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Well, I think we're focusing more on the dividend payout ratio, the rate of dividend. As we -- the policy has always been a minimum of 50% of the core or (inaudible). And if we look back, last year we raised it all the way up to 75%. And of course, it's difficult for me to commit a number higher than the (inaudible). But we certainly are sensitive to maintaining a dividend for all (inaudible).

I think it depends on the -- I think on the performance for the balance here, the (inaudible) is there for Meralco. They've got significant -- accomplished that significant gap cash balances to weather it through, even a single (inaudible) project. So I think it depends really, at the end, on the profitability we will achieve for the entire year. Unfortunately, last year's second quarter was the highest-ever (inaudible) highest in terms of second quarter numbers. So it's actually [PHP 6.7 billion] for the second quarter, which is quite high. So I think that (inaudible).

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Unidentified Company Representative, [10]

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Thank you. Next (inaudible) -- to your next -- yes, Ms. Yap, go ahead.

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Betty Cheng Siy-Yap, Manila Electric Company - CFO, Chief Risk Officer & Senior VP [11]

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First question on impairment -- sorry, on provision. The provisions that we did for the first quarter largely was on the impairment, which is about PHP 2.7 billion. And then there were distribution over recoveries, which is about PHP 3 billion.

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Unidentified Company Representative, [12]

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Okay. Done.

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [13]

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The thing is (foreign language). The thing is we're not giving up on the Singapore partnership. I think our management has actually -- from purely an operational sense, has actually operated the plant very efficiently. So high capacity factor and so forth in the plants. So (foreign language) is the huge oversupply situation. And our gas supply agreement there is not (inaudible). So there are no flowing discussions to relapse the terms of their gas supply agreement with power plant. That discussion is being led by First Pacific because it's the single largest investor in the power plant.

And if successful in that regard for Shell to relapse and to the point where we were able to make the power plant viable, then we will need to restructure the debt at the power plant level. If you could do both, then I think it opens a way for -- the market in Singapore needs consolidation (foreign language). I think their margins are quite (inaudible). And of course, it has been exacerbated by the fact their own demand has dropped. So the margin is multiplied by a factor of X. So it's a very tough market.

And (inaudible), we're hearing and actually the (inaudible) of Singapore has actually posted in his website (inaudible) for a new 600-megawatt gas plant. And you know (inaudible) to build a new plant for (inaudible) is excellent. It makes our ERC look like an enlightened regulator compared to what they have there.

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Unidentified Company Representative, [14]

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Thank you, Jelline. Next up is Royce Aguilar of First Metro Securities. His question is...

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Royce Aguilar, First Metro Securities Brokerage Corp., Research Division - Equity Research Associate [15]

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Yes. Just a quick question. One is on the new power plants, is it already contracted? Or will still undergo bidding like the competitive selection process?

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [16]

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Is Babes there?

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Ronnie Leguro Aperocho, Manila Electric Company - Head of Networks & Senior VP [17]

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(foreign language)

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [18]

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(foreign language)

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Ronnie Leguro Aperocho, Manila Electric Company - Head of Networks & Senior VP [19]

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(foreign language)

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Betty Cheng Siy-Yap, Manila Electric Company - CFO, Chief Risk Officer & Senior VP [20]

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For all the new PSAs, it has to go through competitive selection process. So with respect to the plant, like for example, Atimonan, then any power sales agreement with the distribution utility will have to go through CSP. The only time we don't go through CSP is if you sell to the retail electricity supplier.

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [21]

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(foreign language) But San Buenaventura has a power contract. As a contract (foreign language) existing power plant is SBPL.

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Betty Cheng Siy-Yap, Manila Electric Company - CFO, Chief Risk Officer & Senior VP [22]

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Yes. Yes, sir. Although SBPL was pre-CSP.

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [23]

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Yes, I know. I know. So but it has a contract.

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Ray C. Espinosa, Manila Electric Company - President, CEO & Director [24]

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It's contracted, yes.

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Betty Cheng Siy-Yap, Manila Electric Company - CFO, Chief Risk Officer & Senior VP [25]

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Yes, sir.

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Unidentified Company Representative, [26]

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Thank you. Thank you, ma'am.

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Royce Aguilar, First Metro Securities Brokerage Corp., Research Division - Equity Research Associate [27]

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I'm sorry, just...

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [28]

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Yes, go ahead.

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Unidentified Company Representative, [29]

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Are you okay?

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [30]

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Are you okay?

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Royce Aguilar, First Metro Securities Brokerage Corp., Research Division - Equity Research Associate [31]

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Yes. I'm okay on the first question. Just one follow-up. Given the energy demand, how much of the generation charge can be passed to the customers?

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [32]

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I think it's just a pass-through entirely. So we just -- whatever we procure is passed on entirely to -- we don't make any margins. We don't make any losses, but we don't make any margins.

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Unidentified Company Representative, [33]

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Thank you, Royce. Next up is Enrique Fausto of Regis Partners.

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Enrique Fausto, Deutsche Bank AG, Research Division - Research Associate [34]

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Can you just give more detail again on why the headline profit dropped in the first quarter? And second question, what's the cash level including investments as at end March 2020?

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Betty Cheng Siy-Yap, Manila Electric Company - CFO, Chief Risk Officer & Senior VP [35]

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The profit level -- the reduction in reported net income is because of the 2-point -- we recognized impairment on our investment in PacificLight. That's about PHP 2.7 billion that we recognized in the first quarter of 2020. And that -- as Mr. Pangilinan has mentioned, that is similar to how First Pacific recognize its investment in their books. So we were -- we are the 40% shareholder of the holding company and they're the 60% shareholder. So we aligned our treatment, although there was a partial impairment that we recognize in December of 2019. And it's...

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [36]

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I think in a way, you have to look at the -- in any way, you have to look at the core income before this. Because this is a -- obviously, it's painful, but it's a noncash item. So the profits are up for the quarter. And of course, EBITDA is up for the quarter as well. Now...

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Unidentified Company Representative, [37]

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To your question on the...

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [38]

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Cash balance, that's it.

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Betty Cheng Siy-Yap, Manila Electric Company - CFO, Chief Risk Officer & Senior VP [39]

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Yes, okay. For the total cash balance, which is including all our investments, that's [118]. So we're -- with what Mr. Pangilinan said, liquidity and our cash position remain to be strong. So that's our total balance, including the noncurrent investments.

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [40]

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I just want to make sure that you heard the number.

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Enrique Fausto, Deutsche Bank AG, Research Division - Research Associate [41]

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Yes, I got it. I got it, sir.

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [42]

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(foreign language)

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Unidentified Company Representative, [43]

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Thank you, Enrique. Next up is German de la Paz of Abacus Securities.

Okay. German wants to ask which PSAs were affected by the force majeure? What is the nature again of the PHP 2.7 billion one-off?

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Ronnie Leguro Aperocho, Manila Electric Company - Head of Networks & Senior VP [44]

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All the PSAs were actually affected because there is a force majeure clause in all of our power supply agreements.

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Betty Cheng Siy-Yap, Manila Electric Company - CFO, Chief Risk Officer & Senior VP [45]

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The PHP 2.7 billion is recognition of impairment on our investment in PacificLight.

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [46]

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Is that okay? (foreign language)

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Unidentified Company Representative, [47]

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German de la Paz of Abacus.

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [48]

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Is that okay, German?

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Unidentified Company Representative, [49]

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I don't think...

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Ray C. Espinosa, Manila Electric Company - President, CEO & Director [50]

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He emailed his question.

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Unidentified Company Representative, [51]

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He emailed (foreign language). Okay. So that brings us to Jose Mari Lacson of ATRAM. Are you there?

He said he was late to the presentation, but he wanted to ask if there has been some recovery in electricity demand for both Industrial and Commercial in late April, whether semiconductors are able to operate based on electricity demand.

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [52]

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Viboy, do you want to take that?

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Victor Emmanuel S. Genuino, Manila Electric Company - Head of Customer Retail Services and Corporate Communications & First VP [53]

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Yes, sir. So for the month of April, I think what we're seeing, this is the first full month of ECQ. So if you look at our Commercial sales where, traditionally, the growth has come from real estate, retail trade and hotels and restaurants, the drop in demand is substantial. And I think this is really because of social distancing and the mere fact that most of these establishments are closed.

For our Industrials, the main drivers have traditionally been semiconductors, nonmetallic like cement and steel. But these industries have also declined drastically for April. But what we've seen, though, is that in terms of our daily average of net system input, which was hovering around 100 gigawatt hours a day, after Holy Week, we saw it go up to around 105 to 110 gigawatt hours. So we see some life. And we see it in some manufacturing, particularly from food and beverage and from medical equipment. Semicon though has remained still flattish coming from its low decline, but we still see some areas and some semicon establishments, slowly increasing demand as well.

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Unidentified Company Representative, [54]

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Thank you, sirs. German de la Paz has a follow-up question. He asks, "How do we quantify the effect on each PSA?"

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Ronnie Leguro Aperocho, Manila Electric Company - Head of Networks & Senior VP [55]

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I think Betty has the funding reduction in the generation charge as a result of the invocation of the FM. So Betty?

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Betty Cheng Siy-Yap, Manila Electric Company - CFO, Chief Risk Officer & Senior VP [56]

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Yes. If you -- for our -- for the reduction, in April of 2020, the generation charge would have been PHP 2.59 higher had not -- have we not invoked the force majeure provision compared with March.

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Unidentified Company Representative, [57]

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Thank you, ma'am. There's no one in queue. So we will really end this afternoon's presentation. Thank you, everyone. Thank you for joining.

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Ray C. Espinosa, Manila Electric Company - President, CEO & Director [58]

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Thank you.

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [59]

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Thank you to everyone.

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Betty Cheng Siy-Yap, Manila Electric Company - CFO, Chief Risk Officer & Senior VP [60]

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Thank you.

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Ronnie Leguro Aperocho, Manila Electric Company - Head of Networks & Senior VP [61]

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Thank you.

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Manuel Velez Pangilinan, Manila Electric Company - Chairman of the Board [62]

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Thank you very much.