EDC PR 2016 (FS section)

Financial Statement
Geothermal Renewable Energy Service Contracts and Geothermal Operating Contracts
R.A. 9513, otherwise known as the Renewable Energy Act of 2008 (RE Law) and which became
effective in January 2009, mandates the conversion of existing GSCs under P.D. 1442 into
Geothermal Renewable Energy Service Contracts (GRESCs) so companies may avail of the
incentives under the RE Law. Aside from the tax incentives, the significant terms of the service
concessions under the GRESCs are similar to the GSCs except that the Parent Company has
control over any significant residual interest over the steam fields, power plants and related
facilities throughout the concession period and even after the concession period.
On September 10, 2009, the Parent Company was granted the Provisional Certificate of
Registration as an RE Developer for the following existing projects: (1) GSC No. 01 - Tongonan,
Leyte, (2) GSC No. 02 - Palinpinon, Negros Oriental, (3) GSC No. 03 - Bacon-Manito,
Sorsogon/Albay, (4) GSC No. 04 - Mt. Apo, North Cotabato, and (5) GSC No. 06 - Northern
Negros. With the receipt of the certificates of provisional registration as geothermal RE
Developer, the fiscal incentives of the RE Law were availed of by the Parent Company retroactive
from the effective date of such law on January 30, 2009. Fiscal incentives include, among others,
change in the applicable corporate tax rate from 30% to 10% for RE-registered activities.
The GSC were fully converted to GRESCs upon signing of the parties on October 23, 2009,
thereby the Company is now the holder of five (5) GRESCs and the corresponding DOE
Certificate Registration as an RE Developer for the following geothermal projects:
1) GRESC 2009-10-001 for Tongonan Geothermal Project
2) GRESC 2009-10-002 for Southern Negros Geothermal Project
3) GRESC 2009-10-003 for Bacon-Manito Geothermal Project
4) GRESC 2009-10-004 for Mt. Apo Geothermal Project
5) GRESC 2009-10-005 for Northern Negros Geothermal Project
On February 19, 2010, the Parent Company’s GSC in Mt. Labo in Camarines Norte and Sur were
converted to GRESC 2010-02-020. On March 24, 2010, the DOE issued to the Parent Company a
new GRESC for Mainit Geothermal Project under DOE Certificate of Registration No. GRESC
2010-03-021.
In 2015, the Parent Company recognized loss on direct write-off of exploration and evaluation
assets related to the Mt. Labo and Mainit Geothermal Projects amounting to ₱7.0 million and
₱4.3 million, respectively, due to issues on productivity and sustainability of geothermal resources
in the area (see Note 14).
The remaining service contract of the Parent Company covered by P.D. 1442 as of
December 31, 2013 is the Mt. Cabalian in Southern Leyte with a term of 25 years from the
effective date of the contract on January 31, 1997 and for an additional period of 25 years if the
Parent Company has not been in default in its obligations under the GSC. As discussed in Note 3
to the consolidated financial statements, evaluation and exploration assets related to Cabalian
project were impaired in 2013.
In 2014, after thorough assessment, the Parent Company surrendered to the Department of Energy
the Geothermal Service Contract covering the Southern Leyte Geothermal Project located in
Cabalian, Southern Leyte. The Parent Company has found the project not viable considering the
size of the resource and the risk associated with the development and sustainability thereof. The
Company wrote off the allowance recognized for Cabalian project amounting to ₱574.8 million.
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