In 2007, the Philippines’ struggling economy needed more power, but the government could not afford much new construction. The hydropower Magat plant changed that.
Unless it could attract significant private investment, the country was faced with crippling energy shortages. Its privatization program had brought no foreign investors over six years. Then came the game-changer: the $530 million sale of the Magat hydroelectric plant.
Located in northern Luzon, Magat was an attractive 360-megawatt asset. But the market had just been deregulated, moving to a wholesale system that was a step forward but was untested in Asia. The lack of long-term supply contracts created initial uncertainty.
In came SN Power Invest, a Norwegian renewable energy specialist that had succeeded in other deregulated markets. It teamed up with a top local conglomerate, Aboitiz Equity Ventures, to bid for Magat in a new joint venture called SN Aboitiz Power (SNAP).
“Magat matched our investment criteria,” says SN Power’s Erik Knive. “We’d be the first foreign mover into the Philippine power market. But we took a chance. That’s what we’re set up to do.”
When IFC gave the venture its stamp of approval with a $105 million, 15-year loan, it didn’t take long for local and foreign investors to come on board. Soon HSBC and the Nordic Investment Bank joined in, and Magat earned “Deal of the Year” awards from Project Finance International and other industry publications. Now SNAP is adding up to another 180 megawatts at Magat.
Further bolstering the privatization program, IFC financed two other larger hydro plants that SNAP acquired in 2008 as turnarounds. One, 100-megawatt Binga, was producing power at less than half of its capacity at the time. Under its new owners, it is now fully operational and being expanded. The other, 75-megawatt Ambuklao, was closed in 1990 due to earthquake damage. It has since undergone rehabilitation using North Sea oil rig technology, and is set to reopen at 105 megawatts in the second half of 2011.
Since the landmark Magat deal, private sponsors have pledged to invest more than $6 billion in the Philippine power sector—avoiding electricity shortages by adding new capacity, much of it from clean hydro power.