2010 Annual Report - Aboitiz Equity Ventures

FROM YOURChief strategy & regulation officerDear Shareholders,By the middle of 2011, it will have been 10 years since thepassage of Republic Act 9136, otherwise known as the ElectricPower Industry Reform Act of 2001, or EPIRA. It was meant tobe a comprehensive industry reform and restructuring act, andbecause of where we started from, it involved the privatizationof government assets in the industry as well.It seems like a good time to review what has been done, and what hasn’t, and no doubt, thecountry’s legislative and policy-making bodies will do just that. But we should be careful withthe conclusions we reach, because EPIRA is still a work in progress. It may be tempting toblame the problems besetting the industry today as a failure of the law to accomplish its goals,instead of perhaps a failure to fully implement the law, at least in the intended timeframe. Wewere supposed to achieve the privatization thresholds for open access in just a few years, andcomplete the process 100% in eight years, but we have at this writing done neither, though weare tantalizingly close to open access.Like living in a house undergoing major renovation, it often seems as though, with the painand the trouble, it isn’t worth the time and effort we already put in, or that we were betteroff before we started, but we can’t really appreciate the benefits until the work is completed.Indeed, most of the problems are transition issues, brought about by a partially privatizedgeneration sector where the rules for a competitive, market based industry sector don’t quitework, yet the resources can’t support the old centrally planned, allocated and subsidizedmodel either. Stopping, or backtracking isn’t really an option – we just have to move on.Privatized plants havesignificantly improvedtheir reliability, and thisis not limited to theAboitizPower plants.And the markets work–prices moved up inresponse to supplydeficiencies.2010 probably highlighted the shortcomings of our industry more than any recent year. Allthree grids in the country at one time or another experienced supply deficiencies that eitherdrove up prices, or caused power interruptions, or both. Blame it on the scheduling of powerplant maintenance to ensure sufficient capacity during elections, or on nature’s decision towithhold the rains. Blame it on the lack of planning on the part of energy purchasers whoshould have signed up new contracts years before, so new capacity would come in. Blame iton the lack of market mechanisms in some areas. Throughout the year, people were lookingfor someone, or something, to blame for the pain they experienced.Yet the reforms have been working. Elsewhere in this report, you will see how the privatizedplants have significantly improved their reliability, and this is not limited to the AboitizPowerplants. And the markets work – prices moved up in response to supply deficiencies as theywere supposed to, and on just about every weekend when demand is low, you also see pricesdropping like they should. A little bit less demand, or more supply and both problems ofreliability and price are addressed. Now, how do we ensure that happens on a continuingbasis?20Aboitiz Power Corporation