COVER SHEET

0 6 9 - 0 3 9 2 7 4
S.E.C. Registration Number

A C E N E R G Y P H I L I P P I N E S , I N C A N D

S U B S I D I A R I E S

(Company’s Full Name)

4 T H F L O O R 6 7 5 0 O F F I C E T O W E R

A Y A L A A V E N U E M A K A T I C I T Y
(Business address: No. Street City / Town / Province)

ATTY. ALAN T. ASCALON 7730-6300

Contact Person Company Telephone Number

1 2 3 1 1 7 - A 0 4 2 0
Month Day FORM TYPE Month Day

Fiscal Year Annual Meeting

Not Applicable
(Secondary License Type, If Applicable)

-
Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

3,189 - -
Total No. of Stockholders Domestic Foreign

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To be accomplished by SEC Personnel concerned

_____________________________
File Number LCU

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Document ID CASHIER

STAMPS

Remarks: Please use BLACK ink for scanning purposes.

 CERTIFICATION

I, Mariejo P. Bautista, Controller of AC Energy Philippines, Inc., (the “Company”) with SEC
registration number 069-039274 with principal office at 4th Floor, 6750 Ayala Avenue, Makati City, do
hereby certify and state that:

1) In compliance with the guidelines issued by the Securities and Exchange Commission (SEC) for
the filing of structured and current reports by publicly listed companies with the SEC in light of
the imposition of an Enhanced Community Quarantine and Stringent Social Distancing Measures
over the entire region of Luzon to prevent the spread of the 2019 Coronavirus Disease (COVID-
2019), the Company is timely filing its SEC Form 17-A by uploading the same through the PSE
EDGE in accordance with the relevant PSE rules and procedures.

2) The information contained in the attached SEC Form 17-A is true and correct to the best of my
knowledge.

3) On behalf of the Company, I hereby undertake to a) submit hard or physical copies of the attached
SEC Form 17-A with proper notarization and certification, b) pay the filing fees (where
applicable) c) pay the penalties due (where applicable) d) other impositions (where applicable),
within ten (10) calendar days from the date of the lifting of the Enhanced Community Quarantine
period and resumption of SEC’s normal working hours.

4) I am fully aware that non-submission of hard/physical copies of reports as well as certification

that they refer to one and the same document submitted online, within ten (10) calendar days from
the lifting of the Enhanced Community Quarantine period and resumption of SEC’s normal
working hours, shall invalidate the reports, applications, compliance, requests and other
documents submitted via email. Hence, the corresponding penalties under existing rules and
regulations of the Commission shall apply without prejudice to the imposition of penalties under
Section 54 of the Securities Regulation Code and other applicable existing rules and regulations
for failure to comply with the orders of the Commission.

5) I am executing this certification this 12 May 2020 to attest to the truthfulness of the foregoing
facts and for whatever legal purpose it may serve.

Mariejo P. Bautista
Controller
Passport No. EC8230873
Issued 7 July 2016 at DFA Manila
 SEC Number 39274
File Number

AC ENERGY PHILIPPINES, INC.

(formerly PHINMA Energy Corporation)
(Company’s Full Name)

4th Floor, 6750 Office Tower, Ayala Avenue, Makati City

(Company’s Address)

7730-6300
(Telephone Number)

2019 December 31
(Fiscal Year ending) (month & day)

17-A
(Form Type)

______________________________________________________________
Amendment Designation (If Applicable)

December 2019
(Period Ended Date)

______________________________________________________________
(Secondary License Type and File Number)
 SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A, AS AMENDED

ANNUAL REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND

SECTION 141 OF THE CORPORATION CODE OF THE PHILIPPINES

1. For the fiscal year ended December 31, 2019

2. SEC Identification Number 39274

3. BIR Tax Identification No. 121-000-506-020

4. Exact name of issuer as specified in its charter AC Energy Philippines, Inc.

5. Province, Country or other jurisdiction of Philippines

incorporation or organization

6. Industry Classification Code (SEC Use Only)

7. Address of principal office 4th Floor, 6750 Office Tower, Ayala Avenue,
Makati City
Postal Code: 1226

8. Issuer's telephone number, including area code (632) 7730-6300

9. Former name, former address, and former PHINMA Energy Corporation

fiscal year, if changed since last report
.

10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the RSA

Number of Shares of Common Stock Outstanding 7,521,774,922 shares

Amount of Debt Outstanding P21.0 billion
(As of December 31, 2019)

11. Are any or all of these securities listed on a Stock Exchange.

Yes [x] No [ ]

Stock Exchange Philippine Stock Exchange

Classes of Securities Listed Common shares

12. Check whether the issuer:

(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17.1 thereunder or
Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of The Corporation
Code of the Philippines during the preceding twelve (12) months (or for such shorter period that the
registrant was required to file such reports);

Yes [x] No [ ]
 (b) has been subject to such filing requirements for the past ninety (90) days.

Yes [x] No [ ]

13. State the aggregate market value of the voting stock held by non-affiliates of the registrant. The
aggregate market value shall be computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a specified date within sixty (60) days prior to the
date of filing. If a determination as to whether a particular person or entity is an affiliate cannot be made
without involving unreasonable effort and expense, the aggregate market value of the common stock
held by non-affiliates may be calculated on the basis of assumptions reasonable under the
circumstances, provided the assumptions are set forth in this Form (As of December 31, 2019,
Php4,722,197,457 equivalent to the total number of shares in the hands of the public based on the
Company’s Public Ownership Report, multiplied by the average price of the last trading day).

APPLICABLE ONLY TO ISSUERS INVOLVED IN

INSOLVENCY/SUSPENSION OF PAYMENTS PROCEEDINGS
DURING THE PRECEEDING FIVE YEARS

14. Check whether the issuer has filed all documents and reports required to be filed by Section 17 of the
Code subsequent to the distribution of securities under a plan confirmed by a court or the
Commission. Not applicable

Yes [ ] No [ ]

DOCUMENTS INCORPORATED BY REFERENCE

15. Briefly describe documents incorporated by reference and identify the part of the SEC Form 17-A into
which the document is incorporated:

2019 Opinion on and Individual Supplementary Schedules

2019 Consolidated Financial Statements of AC Energy Philippines, Inc. and Subsidiaries
2019 Financial Statements of AC Energy Philippines, Inc. (with BIR ITR Filing Reference)
 TABLE OF CONTENTS
Page No.
PART I BUSINESS AND GENERAL INFORMATION
Item 1 Business 1
Item 2 Properties 30
Item 3 Legal Proceedings 31
Item 4 Submission of Matters to a Vote of Security Holders 31

PART II OPERATIONAL AND FINANCIAL INFORMATION

Item 5 Market for Issuer's Common Equity and Related
Stockholder Matters 32
Item 6 Management's Discussion and Analysis or Plan of Operation 34
Item 7 Financial Statements 50
Item 8 Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 50

PART III CONTROL AND COMPENSATION INFORMATION

Item 9 Directors and Executive Officers of the Issuer 52
Item 10 Executive Compensation 60
Item 11 Security Ownership of Certain Beneficial Owners
and Management 62
Item 12 Certain Relationships and Related Transactions 63

PART IV CORPORATE GOVERNANCE

Item 13 A Corporate Governance 70
Item 13 B Sustainability Report 70

PART V EXHIBITS AND SCHEDULES

Item 14 Exhibits and Reports on SEC Form 17-C 71

SIGNATURES 74
PART I BUSINESS AND GENERAL INFORMATION

Item 1. Business

AC Energy Philippines, Inc. (“ACEPH”, “AC Energy Philippines”, or the “Company”, formerly PHINMA Energy
Corporation) is a corporation duly organized and existing under Philippine law with Securities and Exchange
Commission (“SEC”) Registration No. 069-39274 and listed with the PSE with ticker symbol “ACEPH” (formerly
“PHEN”).

As of 29 February 2020, AC Energy, Inc. (“AC Energy”) owns 66.34% of the outstanding capital stock of the
Company. AC Energy is a Philippine corporation wholly owned by Ayala Corporation. AC Energy, its
subsidiaries, and affiliates (the “AC Energy Group”) manages a diversified portfolio of renewable and
conventional power generation projects and engages primarily in power project development operations and in
other businesses located in the Philippines, Indonesia, Vietnam, and Australia.

ACEPH is engaged in the businesses of power and petroleum exploration.

• For power business, the Company manages a diversified portfolio of power plants with renewable and
conventional sources. As of 31 December 2019, the Company had a total attributable capacity of 715 MW
in operation and under construction across the region, which includes strategic investments in renewable and
conventional power generation projects.

• For petroleum exploration business, the Company undertakes the exploration and production of crude and
natural gas and related activities through its majority owned subsidiary, ACE Enexor, Inc. (“ACE Enexor”),
formerly PHINMA Petroleum and Geothermal, Inc. ACE Enexor is listed in the PSE with the ticker
“ACEX”.

History and Corporate Milestones

The Company was incorporated on 8 September 1969 and was originally known as “Trans-Asia Oil and Mineral
Development Corporation,” reflecting its original purpose of engaging in petroleum and mineral exploration and
production. In order to diversify its product and revenue portfolio, the Company invested in power generation and
supply, which eventually became its main business and revenue source. On 11 April 1996, the Company’s name
was changed to “Trans-Asia Oil and Energy Development Corporation.” On 22 August 2016, the Company
changed its name to “PHINMA Energy Corporation,” and extended its corporate life by another fifty (50) years.

AC Energy was designated in 2011 as Ayala Corporation’s vehicle for investments in the power sector to pursue
greenfield, as well as currently operating, power related projects for both renewable and conventional technologies
in various parts of the Philippines. From 2011 to 2019, AC Energy has grown from a Philippine energy company
to a regional player with investment, development, and operation capabilities in the Asia Pacific Region. As of 31
December 2019, AC Energy has over ~1,800 attributable capacity in operation and under construction in the
Philippines, Indonesia, and Vietnam.

In February 2019, PHINMA, Inc. (“PHI”) disclosed the signing of an agreement on the sale of approximately
51.48% of outstanding shares in the Company held collectively by PHINMA Corporation (“PHN”) and PHI to
AC Energy of the Ayala Group. AC Energy is a corporation engaged in the business of managing a diversified
portfolio of renewable and conventional power generation projects and in power project development and
operations. AC Energy is ACEPH’s partner in the South Luzon Thermal Energy Corporation (“SLTEC”) coal
plant venture. AC Energy, which is fully committed to the energy sector, was in the best position to grow the
Company and viewed ACEPH as a strategic fit into its own business.

On 24 June 2019, AC Energy acquired the 51.48% combined stake of PHI and PHN in the Company for a total
purchase price of PhP 3,669,125,213.19. In addition, AC Energy acquired an additional 156,476 Company shares
under the mandatory tender offer which ended on 19 June 2019, and subscribed to 2.632 billion Company shares
thereafter.

At the annual stockholders’ meeting held on 17 September 2019, as the Company marked its 50th year in the
business and following AC Energy’s acquisition of a controlling stake in the Company, the Company’s
management was formally transferred from the PHINMA Group to the Ayala Group, in particular to AC Energy.
At the same meeting, the stockholders of the Company voted to rename the Company to “AC Energy Philippines,

1
Inc.” to recognize its affiliation with its largest stockholder, AC Energy. The SEC approved the change of name
of the Company on 11 October 2019.

As the parent company of ACEPH, AC Energy has general management authority with corresponding
responsibility over all operations and personnel of ACEPH. The management of the Company includes planning,
directing, and supervising all the operations, sales, marketing, distribution, finance, and other business activities
of the Company as provided in the management contract effective until 1 September 2023.

AC Energy and ACEPH executed an Amended and Restated Deed of Assignment effective as of 9 October 2019
under which, in exchange for the issuance of 6,185,182,288 shares of ACEPH, AC Energy will transfer certain of
its onshore operating and development companies to ACEPH (the “AC Energy-ACEPH Exchange”). The AC
Energy-ACEPH Exchange is subject to the approval of (a) the Philippine SEC in respect of AC Energy’s
subscription to the increase in the authorized capital stock of ACEPH, (b) the PSE, as to the listing of the shares
issued by ACEPH in exchange for the selected onshore operating and development companies of AC Energy, and
(c) the Bureau of Internal Revenue (“BIR”) as to the nature of the transaction qualifying as a tax-free exchange
under the Philippine Tax Code.

As of 29 February 2020, AC Energy owns 66.34% of the outstanding voting shares of the Company. Upon
completion of conditions and other requirements of the AC Energy-ACEPH Exchange, the Company’s ownership
of ACEPH will increase to ~81.5%.

The following table sets forth the Company’s corporate milestones post AC Energy’s acquisition of a controlling
stake therein:

Year Milestones
2019 • ACEPH enters into two power supply agreements
(“PSAs”) with Meralco for (1) a baseload supply of
200MW from 26 December 2019 until 25 December
2029, and (2) a mid-merit supply of 110MW from 26
December 2019 until 25 December 2024, after being
declared a winning bidder in separate competitive
selection process bidding by Meralco. The PSAs are
subject to the approval of the ERC.

• AC Energy assigns its right to purchase the 20%

ownership stake of Axia Power Holdings Philippines
Corporation (“Axia Power”), a subsidiary of
Marubeni Corporation, in SLTEC in favor of
ACEPH, subject to satisfaction of conditions
precedent

• AC Energy, through ACEPH, enters into a share

purchase agreement with Macquarie Infrastructure
Holdings (Philippines) Pte. Limited, Langoer
Investments Holding B.V., and the Government
Service Insurance System (collectively, the
Philippine Investment Alliance for Infrastructure or
“PINAI”) for the acquisition of PINAI’s 31%
effective preferred equity ownership and 15%
effective common equity ownership in North Luzon
Renewables Energy Corporation (“NLR”), subject to
the satisfaction of conditions precedent.

2
 2020 • ACEPH completes its acquisition of PINAI’s
ownership in NLR.

• ACEPH completes its acquisition of PINAI’s entire

ownership in San Carlos Solar Energy, Inc. and
Negros Island Solar Power, Inc., respectively

DESCRIPTION OF PRINCIPAL BUSINESSES

POWER BUSINESS

The principal product of power generation and supply is the electricity produced and delivered to the end-
consumers. It involves the conversion of fuel or other forms of energy to electricity, or the purchase of electricity
from power generation companies and the Philippine Wholesale Electricity Spot Market (“WESM”).

AC Energy Philippines conducts its power generation and supply activities directly or through its subsidiaries,
associates, and joint ventures. In 2019, the total energy sales reached 2,344 gigawatt hours (GWh) from 2,474
GWh in 2018. The Company does not have any foreign sales.

The following tables set forth selected data on the Company’s power generation portfolio in operation as of 31
December 2019 and prior to the implementation of the AC Energy-ACEPH Exchange.

Effective
Net Economic Attributable
Project capacity Interest capacity
Plant/ Project Name Location type (MW) (%)(1) (%)(2) COD

Thermal Energy
One Subic(5) Subic Bay Diesel 108 100 108 Feb 1994 (NPC-
Freeport SPC)
PPGC Norzagaray, Diesel 48 100 48 Feb 1998
Bulacan
Power Barge 101)(3) Iloilo City Diesel 24 100 24 April 1981
(power (NPC)
barge)
Power Barge 102 (3) Iloilo City Diesel 24 100 24 April 1981
(power (NPC)
barge)
CIP (4) Bacnotan, La Diesel 20 100 20 January 2013(3)
Union

SLTEC Batangas, Coal 244 65 159 Unit 1 COD:

Philippines April 2015; Unit
2 COD:
February 2016

Renewable Energy
San Lorenzo Wind Guimaras Wind 54 100 54 November 2014
Power Project
Maibarara Batangas Geothermal 32 25 8 Unit 1 (20MW):
Geothermal 8 February 2014
Plant Unit 2 (12MW):
30 April 2018

Notes:
(1) Effective economic interest refers to the Company’s economic interest directly and/or indirectly held in the project based on
management estimates.
(2) Attributable capacity refers to the product of the Company’s effective economic interest in the relevant power project multiplied by
net capacity of the relevant power project.
(3) Respective net capacities of PB101 and PB102 are based on the long-term net output expectation of the diesel plants. PB 103 is
currently out of operation.

3
(4) CIP transferred from Carmelray Industrial Park II, Calamba, Laguna, Philippines to Brgy. Quirino, Bacnotan, La Union, Philippines
in December 2012 and resumed operations in January 2013.
(5) One Subic has been de-rated by 2MW, down from 110MW.

Renewable Energy Portfolio

As of 31 December 2019, the Company’s portfolio of projects under its renewable energy platform had a total net
attributable capacity of approximately 182MW renewable energy in operation and under construction, divided
into 120MW of solar energy, 54MW of wind power, and 8MW of geothermal power. In addition to the Company’s
direct interests in power projects, the Company has established renewable energy development platforms as part
of its renewable energy strategy.

Renewable Energy Projects in Operation

San Lorenzo Wind Project

PHINMA Renewable Energy Corporation (“PHINMA RE”) was incorporated and registered with the SEC on 2
September 1994 to engage in the development and utilization of renewable energy, and the pursuit of clean and
energy-efficient projects. PHINMA RE was awarded by the Philippine Department of Energy (“DOE”) Wind
Energy Service Contract (“WESC”) No. 2009-10-009, pursuant to which it developed the 54-MW San Lorenzo
Wind Power Project in Guimaras, Iloilo.

PHINMA RE started delivering power to the grid on 7 October 2014 during the commissioning operations of the
first three (3) units of wind turbine generators. The 54-MW wind energy plant started commercial operations on
27 December 2014.

Maibarara Geothermal Plant

On 19 May 2010, ACEPH, PetroGreen Energy Corporation (“PetroGreen”), a wholly-owned subsidiary of

publicly-listed PetroEnergy Resources Corporation (“PetroEnergy”), and PNOC Renewables Corporation
(“PNOC RC”) signed a joint venture agreement to form Maibarara Geothermal, Inc. (“MGI”), with the following
shareholding interests: PetroGreen—65%; ACEPH—25%; and PNOC RC—10%. MGI developed and operates
the Maibarara Geothermal Plant pursuant to the geothermal renewable energy service contract awarded by the
DOE to PetroEnergy, PetroGreen’s parent company, and subsequently assigned by PetroEnergy to MGI. On 27
August 2019, ACEPH and MGI executed an Amendment to the Unit 1 electricity supply agreement (“ESA”) and
Unit 2 ESA wherein the electricity fee rate structure was amended and the electricity supply period was amended
to be until 25 June 2039.

Renewable Projects under Construction and under Development

Incorporated on 20 March 2017, SolarAce1 Energy Corp. is a project company under ACE Endevor, Inc. which
is developing and constructing a 120MW solar power plant in Alaminos, Laguna (the “Alaminos Solar Farm”).

Thermal Energy Portfolio

As of 31 December 2019, the Company had a total net attributable capacity of 383 MW thermal energy in
operation and 150 MW under construction. The net attributable capacity of these projects is composed of 159MW
of coal and 374MW of diesel plants.

Thermal Energy Projects in Operation

SLTEC Project

In June 2011, AC Energy signed a joint venture agreement with then PHINMA Energy Corporation (“PHINMA
Energy”) to form the 50:50 joint venture company, SLTEC. The joint venture was for the construction and
operation of a 2 x 122MW CFB thermal power plant in Calaca, Batangas. Units 1 and 2 use Harbin steam turbine
generators. The SLTEC Project achieved commercial operations for Unit 1 in 2015 and Unit 2 in 2016. The
SLTEC Project is under an administration and management agreement between SLTEC and ACEPH, allowing
ACEPH exclusive right to administer, control, and manage the net dependable capacity and net available output
of the project.

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In 2016, AC Energy and PHINMA Energy sold of a portion of their ownership stake in SLTEC to Marubeni
Corporation’s subsidiary, Axia Power. The sale brought PHINMA Energy’s ownership in SLTEC to 45% and AC
Energy’s ownership to 35%.

On 5 November 2019, AC Energy and ACEPH signed a deed of assignment, whereby AC Energy transferred its
right to purchase the 20% ownership stake of Axia Power in SLTEC in favor of ACEPH. Completion of the
acquisition is still subject to satisfaction of conditions precedent. Following the completion of the acquisition of
ACEPH last July 2019 and the completion of the foregoing assignment, the aggregate ownership of AC Energy
of the SLTEC Project would increase to 78%. Following, further, the completion of conditions and other
requirements of the AC Energy-ACEPH Exchange, the aggregate ownership of ACEPH in the SLTEC Project
would increase to 100%.

CIP Plant

CIP II Power Corporation (“CIPP”) was incorporated and registered with the SEC on 2 June 1998 primarily to
construct, erect, assemble, commission, operate, maintain, and rehabilitate gas turbine and other power generating
plants for the conversion of coal and other fuel into electricity, and transmit and distribute thereof to Carmelray
Industrial Park II in Calamba, Laguna. The 21 MW diesel bunker C-fired CIP Plant used to supply power to
locators in the industrial park but in April 2009, CIPP sold its distribution assets resulting in the cessation of its
operations and the separation of substantially all of its employees effective 31 January 2010. On 22 February
2010, the then PHINMA Energy Board approved the acquisition of CIPP, and on December 2010, the transfer of
the CIP Plant from Carmelray Industrial Park II to Brgy. Quirino, Bacnotan, La Union. The transfer was completed
sometime in December 2012 and the CIP Plant resumed operations in January 2013.

On 26 June 2013, CIPP entered into a power administration and management agreement (“PAMA”) with
PHINMA Energy valid for ten (10) years for PHINMA Energy to administer and manage the entire capacity and
net output of One Subic Power Generation Corporation (“One Subic”) in consideration of energy fees to be paid
by PHINMA Energy to CIPP. Fixed capacity fees paid to CIPP are recorded as revenue from sale of electricity
on the basis of the applicable terms of the PAMA. CIPP has an existing approved non-firm ancillary services
procurement agreement (“ASPA”) with the National Grid Corporation of the Philippines (“NGCP”) and revenues
from sale of electricity through said ancillary services is recognized monthly based on the capacity scheduled
and/or dispatched.

One Subic Plant

One Subic was incorporated and registered with the SEC on 4 August 2010 to engage in the business of owning,
constructing, operating, developing, and maintaining all types of power generation plants. On 18 November 2010,
PHINMA Energy and One Subic entered into a PAMA wherein PHINMA Energy administers and manages the
entire generation output of the 116 MW diesel One Subic Plant in Subic, Olongapo City. The PAMA became
effective on 17 February 2011 and is valid throughout the term of the lease agreement with the Subic Bay
Metropolitan Authority (“SBMA”). On 12 May 2014, PHINMA Power Generation Corporation (“PPGC”)
purchased from Udenna Energy Corporation the entire outstanding shares of stock of One Subic. On 19 June
2017, the SEC approved the amendment of One Subic’s Articles of Incorporation for the change in the primary
purpose to include exploration, discovery, development, processing, and disposal of any and all kind of petroleum
products.

The One Subic Plant has an Energy Regulatory Commission (“ERC”)-approved non-firm ASPA with the NGCP.
The One Subic Plant provides dispatchable reserve services to NGCP, as they are fast start generators that are
readily available for dispatch when called by the NGCP to replenish the contingency reserve services whenever a
generating unit trips or a single transmission interconnection loss occurs.

PPGC Plant

PPGC was incorporated and registered with the SEC on 18 March 1996 and is primarily engaged in power
generation. In October 2006, the Philippine Electricity Market Corporation (“PEMC”) approved PPGC’s
application for registration as trading participant for both generation and customer categories in the WESM. Both
ACEPH and PPGC obtained membership in the WESM allowing both to participate in electricity trading managed
by PEMC, including selling of excess generation to the WESM. On 26 December 2013, PPGC entered into a

5
PAMA with PHINMA Energy valid for ten (10) years for the administration and management by PHINMA
Energy of the entire capacity and net output of the 52MW diesel PPGC Plant located in Bulacan.

On 10 December 2012, the NGCP and PPGC executed an ASPA for the latter to provide dispatchable reserves
ensuring reliability in the operation of the transmission system and the electricity supply in the Luzon Grid for
five (5) years upon the effectivity of the provisional approval or final approval issued by the ERC. By the ERC’s
Order dated 25 February 2013, the ERC provisionally approved the application filed by NGCP and PPGC
allowing PPGC to provide ancillary services to NGCP in January 2015.

Under the PAMA with PHINMA Energy dated 26 December 2013, PHINMA Energy has the sole and exclusive
right to dispatch all of the capacity and the output of the PPGC’s Power Plant, where any fees paid in connection
with the capacity of PPGC’s Power Plant, including ancillary services to NGCP, belong to PHINMA Energy as
the sole administrator and manager. However, effective 26 March 2018, the amended PAMA allows PPGC to
retain the ancillary fees; thus, these are no longer paid to ACEPH.

Power Barges

Power Barges 101 and 102 were commissioned in 1981 while Power Barge 103 was commissioned in 1985. Each
power barge is a barge-mounted bunker-fired diesel generating power station with Hitachi diesel generator units
and a gross capacity of 32MW.

Power Barges 101 and 102 started providing dispatchable reserve services to the Visayas grid in 2018. As of
31 October 2019, Power Barges 101, 102, and 103 have net capacities of 24MW, 24MW, and 18MW,
respectively.. As these power barges are more than thirty -four (34) years old, ACEPH intends to improve the
power barges’ availability, capacity, and reliability by undergoing continuous maintenance and rehabilitation
thereof.

Power Barges 101 and 102 have existing approved non-firm ASPAs with the NGCP. Both power plants provide
dispatchable reserve services to the NGCP, as these are fast start generators readily available for dispatch when
called by the NGCP to replenish the contingency reserve services whenever a generating unit trips or a single
transmission interconnection loss occurs.

Thermal Projects under Construction

Ingrid Peaking Plant

The Company signed a subscription agreement with Ingrid Power Holdings Inc. (“Ingrid Power”) for the
subscription of common and preferred shares at the subscription price of P4,900,000.00 for the common shares
and P565,100,000 for the redeemable preferred shares.

Ingrid Power is developing a 300-MW diesel power plant in Pililia, Rizal, of which the first 150MW is currently
under construction.

Retail Electricity Supply Business

The retail electricity supply business continues its active participation in the WESM through buying the electricity
requirements of customers and selling the excess output of the Company’s generation supply portfolio.

On 8 September 2016, AC Energy obtained a Retail Electricity Supplier (“RES”) license allowing it to sell
electricity to the end-users in the contestable market.

As a result of the PHINMA Energy acquisition, a portfolio of additional renewable and conventional power
businesses was added to AC Energy’s portfolio, including retail electricity supply and trading in the WESM, in
which PHINMA Energy is a pioneer. PHINMA Energy secured its RES license on 19 November 2012. On 8
September 2017, PHINMA Energy timely filed its application for renewal of its RES license, and upon directives
of the ERC, made supplemental submissions on 9 October 2019. On 21 November 2019, the Company received
notice from the ERC of the approval of the application for renewal of the Company’s RES license. The RES
license of the Company shall subsequently be issued by the ERC.

6
As of 31 December 2019, the AC Energy group’s RES business has contracted capacity of over 300MW from
several contestable customers across a mix of industries including manufacturing, office, and mall operators.

PETROLEUM EXPLORATION BUSINESS

ACE Enexor, formerly PHINMA Petroleum and Geothermal, Inc., a Philippine corporation organized on
September 28, 1994 is majority owned by AC Energy Philippines. ACE Enexor’s primary business is the
exploration and production of crude oil and natural gas through interests in petroleum contracts and through
holdings in resource development companies with interests in petroleum contracts. The Company began its foray
into the exploration and development of geothermal resources in 2017.

Petroleum exploration involves the search for commercially exploitable subsurface deposits of oil and gas through
geological, geophysical, and drilling techniques. A petroleum discovery is made when significant amounts of oil
and/or gas are encountered in a well and are flowed to the surface. Following a discovery, additional wells
(appraisal or delineation wells) are drilled to determine whether the petroleum accumulation could be
economically extracted or not. If the results are positive, the oil or gas field is developed by drilling production
wells, and installing the necessary production facilities such as wellheads, platforms, separators, storage tanks,
pipelines, and others.

The Company applies for or acquires interest in selected petroleum service contracts covering areas usually in the
exploration phase. Due to the high risk and capital-intensive nature of the business, the Company normally
participates in several consortia and takes significant but minority interest. Subject to results of technical and
risk-economic studies prior to exploratory drilling, the Company may farm out or dilute its interest in exchange
for financial consideration and/or non-payment of its pro-rata share of exploration drilling costs. If a petroleum
discovery is made, the Company will fund its share of appraisal drilling and economic studies. Upon delineation
of a commercial discovery, financing for up to seventy percent (70%) of field development costs is available in
the international market.

As projects are mostly in the exploratory stage, the Company derives insignificant or no revenues from petroleum
production. At this time, the Company believes it has sufficient petroleum projects on hand given its resources
and risk tolerance.

SOURCES AND AVAILABILITY OF RAW MATERIALS

For its power business, the 25% of the Company’s attributable capacity is fueled by renewable energy sources
while 75% are sourced from thermal energy which is fueled by coal and bunker fuel as of 31 December 2019.

For thermal energy power plants, composed of SLTEC and other diesel power plants, the Company has different
term contracts for its annual fuel requirements.

TRANSACTIONS WITH RELATED PARTIES

In the ordinary course of business, the Company transacts with its related parties, such as its subsidiaries, and
certain of its associates, joint ventures, and affiliates enter into transactions with each other. These transactions
principally consist of advances, loans, reimbursement of expenses, and management, marketing and
administrative service agreements. See Note 31 to the Company’s audited consolidated financial statements as of
and for the year ended 31 December 2019.

FUTURE PROJECTS

AC Energy Philippines is scaling up its renewable energy platforms and existing partnerships with a strong
pipeline of projects in the region and targets to reach financial close for various power projects from renewable
and other energy sources with an expected target gross capacity of over 2,000MW by 2025.

ACE Endevor, Inc. (“Endevor”)

Endevor was incorporated and registered with the SEC on 10 November 2014 to engage in all aspects of
exploration, assessment, development and utilization of renewable and other energy resources and storage of
electricity. AC Energy acquired 100% of the ownership interests in Endevor (formerly AC Energy Development,

7
Inc., formerly ACE Devco, Inc., and formerly San Carlos Clean Energy, Inc.) in March 2017 with the intent to
make Endevor its project development, management, and operations platform.

DISTRIBUTION OF PRODUCT

For the power business, electricity sales have been sold at the ERC-approved rates for electric cooperatives and
distribution utilities (“DUs”) and at negotiated, market-determined prices for bilateral contracts. The WESM is
another default market where electricity purchases are settled based on market or spot rates. Delivery of the
product is coursed through transmission lines currently owned by NGCP and to a certain extent, the electric
cooperatives and DUs in exchange for payment of distribution wheeling charges. However, any “delivery” to a
customer is, in reality, electricity generated and delivered to the grid by the Company which is indistinguishable
from the electricity generated by other generators.

Existing off-take agreements assure a certain level of demand from the Company's customers. In 2019, the
Company was declared one of the best bids for MERALCO’s 1,200MW baseload demand and 500MW mid-merit
supply. The Company was awarded supply agreements for 200MW baseload and 110MW mid-merit of
MERALCO’s demand for ten (10) and five (5) years, respectively. On top of the awarded contracts from
MERALCO, AC Energy Philippines also has other corporate customers allowing it to not be dependent on any
single customer for the viability of the power business.

For the petroleum exploration business, principal products of petroleum production are crude oil and natural gas.
Crude oil is usually sold at market price in its natural state at the wellhead after removal of water and sediments,
if any. Depending on the location of the oil field, the oil produced may be transported via offshore tankers and/or
pipeline to the refinery. Natural gas may be flared, reinjected to the reservoir for pressure maintenance, or sold,
depending on the volume of reserves and other considerations. Natural gas is commonly transported by pipeline.
However, if the deposit is very large and the market is overseas, the gas may be liquefied into liquefied natural
gas (LNG) and transported using specialized tankers.

COMPETITION

For its power business, AC Energy Philippines competes with other power generating companies in generating
and supplying power to the Company's wholesale and retail customers. With the full implementation of the
Electric Power Industry Reform Act (EPIRA) and its purpose of establishing a transparent and efficient electricity
market via more competition, a substantial number of the Company's customers may choose to buy power from
third party suppliers. In addition, the implementation of open access could have a material adverse impact on the
Company's results of operations and financial condition.

The move towards a more competitive environment, as set forth by EPIRA, could result in the emergence of new
and numerous competitors. There will be some competitors that may have a competitive advantage over the
Company due to greater financial resources, more extensive operational experience, and thus be more successful
than the Company in acquiring existing power generation facilities or in obtaining financing for and the
construction of new power generation facilities.

For the petroleum exploration business, the Company believes that competition for market of petroleum does not
have a materially adverse effect on its operations. The Company sees itself and its competitors compete on two
fronts, namely: 1) petroleum acreage, and 2) investment capital.

DOE awards petroleum service contracts to technically and financially capable companies on a competitive
bidding basis. Thus, the Company competes with foreign firms and local exploration companies such as PNOC
Exploration Corporation, The Philodrill Corporation, Oriental Petroleum and Minerals Corporation, and
PetroEnergy for acquisition of prospective blocks. While there is competition in the acquisition of exploration
rights, the huge financial commitments associated therewith also provide opportunities for partnership, especially
between local and foreign companies. Under a service contract, a substantial financial incentive is given to
consortia with at least fifteen percent (15%) aggregate Filipino equity. Thus, many foreign firms invite local
exploration companies to join their venture to take advantage of said benefit and vice versa.

AC Energy Philippines and other listed companies also compete for risk capital in the securities market. This
may be in the form of initial public offerings, rights offerings, upward change in capitalization and other vehicles.
These domestic companies may also seek full or partial funding of projects from foreign companies through farm-
out of interest (dilution of equity in exchange for payment of certain financial obligations).

8
The Company, through its subsidiary ACE Enexor, is a recognized player in the local petroleum industry and is
comparatively financially robust and has low level of debt. The technical expertise of its staff is recognized by
its foreign partners and the DOE. In view of these strengths, the Company remains a significant competitor in the
local exploration and production industry.

RESEARCH AND DEVELOPMENT

The Company incurs minimal amounts for research and development activities which do not represent a
significant percentage of revenues.

REGULATORY FRAMEWORK

The Company’s power and petroleum exploration businesses are subject to the following laws, rules, and
regulations:

P.D. 87, as amended, or The Oil Exploration and Development Act of 1972

P.D. 87, as amended, declares that the policy of the State is to hasten the discovery and production of indigenous
petroleum through utilization of government and/or private resources, local and foreign, under arrangements
calculated to yield maximum benefit to the Filipino people and revenues to the Philippine government and to
assure just returns to participating private enterprises, particularly those that will provide services, financing, and
technology and fully assume all exploration risks. The government may undertake petroleum exploration and
production or may indirectly undertake the same through service contracts. Under a service contract, service and
technology are furnished by a contractor for which it would be entitled to a service fee of up to forty percent (40%)
of net production proceeds. Where the government is unable to finance petroleum exploration or in order to
induce the contractor to exert maximum efforts to discover and produce petroleum, the service contract would
stipulate that, if the contractor furnishes service, technology, and financing, the proceeds of the sale of the
petroleum produced under the service contract would be the source of payment of the service fee and the operating
expenses due the contractor. Operating expenses are deductible up to seventy percent (70%) of gross production
proceeds. If, in any year, the operating expenses exceed seventy percent (70%) of gross proceeds from production,
the unrecovered expenses may be recovered from the operations of succeeding years. Intangible exploration costs
may be reimbursed in full, while tangible exploration costs (such as capital expenditures and other recoverable
capital assets) are to be depreciated for a period of five (5) or ten (10) years. Any interest or other consideration
paid for any financing approved by the government for petroleum development and production would be
reimbursed to the extent of 2/3 of the amount, except interest on loans or indebtedness incurred to finance
petroleum exploration.

Aside from reimbursing its operating expenses, a contractor with at least fifteen percent (15%) Filipino
participation is allowed to recover a Filipino participation incentive allowance equivalent to a maximum of 7.5%
of the gross proceeds from the crude oil produced in the contract area. Incentives to service contractors include
(i) exemption from all taxes except income tax which is paid out of government's share, (ii) exemption from all
taxes and duties on importation of machinery, equipment, spare parts and materials for petroleum operations, (iii)
repatriation of investments and profits, and (iv) free market determination of crude oil prices. Finally, a
subcontractor is subject to special income tax rate of eight percent (8%) of gross Philippine income while foreign
employees of the service contractor and the subcontractor are subject to a special tax rate of fifteen percent (15%)
on their Philippine income.

A service contract has a maximum exploration period of ten (10) years and a maximum development and
production period of forty (40) years. Signature bonus, discovery bonus, production bonus, development
allowance, and training allowance are payable to the government. Other pertinent laws and issuances include
P.D. 1857, a law amending certain sections of P.D. 87, as amended, offering improved fiscal and contractual terms
to service contractors with special reference to deepwater oil exploration; DOE Circular No. 2009-04-0004, a
circular that establishes the procedures for the Philippine Contracting Rounds; DOE Circular No. 2003-05-006, a
circular that provides the guidelines to the financial and technical capabilities of a viable petroleum exploration
and production company; Executive Order No. 66 issued in 2002 which designated the DOE as the lead
government agency in developing the natural gas industry; and DOE Circular 2002-08-005, a circular setting the
interim rules and regulations governing the transmission, distribution and supply of natural gas.

9
Under P.D. 87, as amended, every service contractor that produces petroleum is authorized to dispose of same
either domestically or internationally, subject to supplying the domestic requirements of the country on a pro-rata
basis. There is a ready market for oil produced locally inasmuch as imported oil which comprised about thirty-
four percent (34%) of the Philippines’ primary energy mix in year 2010. Heavy dependence on foreign oil supply
is not expected to change significantly over the next ten (10) years. On a case to case basis, the government has
allowed the export of locally produced crude oil in the past. The domestic natural gas industry is at the nascent
stage, with supply coming from a single offshore field. Domestic gas production accounted for about seven percent
(7%) of the country’s primary energy mix in year 2010. The government is actively promoting the use of natural
gas for power, industry, commercial, and transport applications, owing to environmental considerations and the
need to diversify energy supply.

R.A. 8371 or The Indigenous Peoples’ Rights Act of 1997

Republic Act (“R.A.”) 8371 or “The Indigenous Peoples’ Rights Act (IPRA) of 1997” requires the free and prior
informed consent of indigenous peoples (“IPs”) who will be affected by any resource exploration. Under the
IPRA, IPs are granted certain preferential rights to their ancestral domains and all resources found therein.
Ancestral domains are defined as areas generally belonging to IPs, subject to property rights within ancestral
domains already existing or vested upon the effectivity of the IPRA, comprising lands, inland waters, coastal
areas, and natural resources, held under a claim of ownership, occupied or possessed by IPs by themselves or
through their ancestors, communally or individually, since time immemorial, continuously to the present, except
when interrupted by war, force majeure or displacement by force, deceit, stealth, or as a consequence of
government projects or any voluntary dealings entered into by the Government and private persons, and which
are necessary to ensure their economic, social, and cultural welfare.

Under the IPRA, no concession, license, lease or agreement shall be issued by any government agency without
the certification precondition (“CP”) from the National Commission on Indigenous People (“NCIP”). The CP
states that the free, prior and informed consent (“FPIC”) has been obtained from the concerned IPs. For areas not
occupied by IPs, a certificate of non-overlap is issued instead by the NCIP. For areas occupied by IPs, the applicant
and representatives from the NCIP will conduct consultations and consensus-building to obtain the consent of IPs.
The FPIC is manifested through a memorandum of agreement with IPs, traditionally represented by their elders.
The CP is then issued by the NCIP stating that the FPIC has been obtained from the IPs concerned.

The Company may operate in certain areas which are covered by ancestral domains of IPs. No resource extraction
is allowed in such areas without first negotiating an agreement with IPs who will be affected by operations.

R. A. 8749 or The Philippine Clean Air Act of 1999

R.A. 8749 or the Philippine Clean Air Act of 1999 is a comprehensive air quality management program which
aims to achieve and maintain healthy air for all Filipinos. Under this, the Department of Environment and Natural
Resources (“DENR”) is mandated to formulate a national program on how to prevent, manage, control and reverse
air pollution using regulatory and market-based instruments, and set-up a mechanism for the proper identification
and indemnification of victims of any damage or injury resulting from the adverse environmental impact of any
project, activity or undertaking. To implement this law, the government is promoting energy security thru a policy
of energy independence, sustainability and efficiency. These involve:

(1) increasing oil and gas exploration;

(2) strengthening of the Philippine National Oil Company (“PNOC”) to spearhead the development of
indigenous energy resources and building global partnerships and collaborative undertakings;

(3) pursuing the development of renewable energy such as geothermal, wind, solar, hydropower, and
biomass, and the vigorous utilization of the cleaner development mechanism and the emerging
carbon market;

(4) expansion in the use of natural gas; and

(5) adoption of energy efficiency promotion strategies.

10
In support of this legislation, ACEPH is participating in the oil and gas exploration and development of renewable
energy sources. This is evident in the oil and gas exploration, and wind power projects of ACEPH and its
subsidiaries.

The Philippine Environmental Impact Statement (“EIS”) System

Projects relating to petroleum and mineral exploration and production are required to comply with the Philippine
EIS System. The EIS System was established by virtue of P.D. 1586 issued by former President Ferdinand E.
Marcos in 1978. The EIS System requires all government agencies, government-owned or controlled
corporations, and private companies to prepare an Environmental Impact Assessment (EIA) for any project or
activity that affects the quality of the environment. An EIA is a process that involves evaluating and predicting
the likely impacts of a project (including cumulative impacts) on the environment and includes designing
appropriate preventive, mitigating, and enhancement measures to protect the environment and the community’s
welfare. An entity that complies with the EIS System is issued an Environmental Compliance Certificate
(“ECC”), which is a document certifying that, based on the representations of the project proponent, the proposed
project or undertaking will not cause significant negative environmental impacts and that the project proponent
has complied with all the requirements of the EIS System.

To strengthen the implementation of the EIS System, Administrative Order No. (“AO”) 42 was issued by the
Office of the President of the Philippines in 2002. It provided for the streamlining of the ECC application
processing and approval procedures. Pursuant to AO 42, the DENR promulgated DENR AO 2003-30, also known
as the Implementing Rules and Regulations for the Philippine EIS System (“IRR”), in 2003.

Under the IRR, in general, only projects that pose potential significant impact to the environment would be
required to secure ECCs. In determining the scope of the EIS System, two (2) factors are considered, namely: (i)
the nature of the project and its potential to cause significant negative environmental impacts, and (ii) the
sensitivity or vulnerability of environmental resources in the project area.

Specifically, the criteria used for determining projects to be covered by the EIS System are as follows:

a. Characteristics of the project or undertaking

i. size of the project;

ii. cumulative nature of impacts compared to other projects;

iii. use of natural resources;

iv. generation of wastes and environment-related nuisance; and

v. environment-related hazards and risk of accidents.

b. Location of the project

i. vulnerability of the project area to disturbances due to its ecological importance, endangered or protected
status;

ii. conformity of the proposed project to existing land use, based on approved zoning or on national laws
and regulations; and

iii. relative abundance, quality and regenerative capacity of natural resources in the area, including the
impact absorptive capacity of the environment.

c. Nature of the potential impact -

i. geographic extent of the impact and size of affected population;

ii. magnitude and complexity of the impact; and

iii. likelihood, duration, frequency, and reversibility of the impact.

11
The ECC of a project not implemented within five (5) years from its date of issuance is deemed expired. The
proponent must apply for a new ECC if it intends to pursue the project. The reckoning date of project
implementation is the date of ground-breaking, based on the proponent's work plan as submitted to the
Environmental Management Bureau (“EMB”).

Petroleum service contractors are mandated to comply with all environmental laws and rules and regulations in
all phases of exploration and production operations. ECCs or certificates of non-coverage, if applicable, are
obtained from the EMB of the DENR in coordination with the DOE.

The exploration, production, and sale of oil and mineral deposits and power generation are subject to extensive
national and local laws and regulations. The Company and its subsidiaries may incur substantial expenditures to
comply with these laws and regulations, which may include permitting costs, adoption and implementation of
anti-pollution equipment, methods and procedures, and payment of taxes and royalties.

Under these laws, the Company could be subject to claims for personal injury or property damages, including
damages to natural resources, which may result from the impact of the Company’s operations. Failure to comply
with these laws may also result in the suspension or termination of the Company’s operations and subject it to
administrative, civil, and criminal penalties. Moreover, these laws could be modified or reinterpreted in ways that
substantially increase the Company’s costs of compliance. Any such liabilities, penalties, suspensions,
terminations or regulatory changes could have a material adverse effect on the Company’s financial condition and
results of operations.

ACEPH’s power supply and generation business is subject to the following laws, rules and regulations:

R.A. 9136 or The Electric Power Industry Reform Act of 2001 (EPIRA)

The power generation business of ACEPH is governed by R.A. 9136 or the Electric Power Industry Reform Act
of 2001. The enactment of the EPIRA has been a significant event in the Philippine energy industry. The EPIRA
has three (3) main objectives, namely: (i) to promote the utilization of indigenous, new, and renewable energy
resources in power generation, (ii) to cut the high cost of electric power in the Philippines, bring down electricity
rates, and improve delivery of power supply, and (iii) to encourage private and foreign investment in the energy
industry. The EPIRA triggered the implementation of a series of reforms in the Philippine power industry. The
two major (2) reforms are the restructuring of the electricity supply industry and the privatization of the National
Power Corporation (“NPC”). The restructuring of the electricity industry calls for the separation of the different
components of the power sector namely, generation, transmission, distribution, and supply. On the other hand, the
privatization of the NPC involves the sale of the state-owned power firm’s generation and transmission assets
(e.g., power plants and transmission facilities) to private investors. These two (2) reforms are aimed at encouraging
greater competition and at attracting more private-sector investments in the power industry. A more competitive
power industry will, in turn, result in lower power rates and a more efficient delivery of electricity supply to end-
users.

Power generation is not considered a public utility operation under the EPIRA. Thus, a franchise is not needed to
engage in the business of power generation. Nonetheless, no person or entity may engage in the generation of
electricity unless such person or entity has complied with the standards, requirements and other terms and
conditions set by the ERC and has received a Certificate of Compliance (“COC”) from the ERC to operate the
generation facilities. A COC is valid for a period of five (5) years from the date of issuance. In addition to the
COC requirement, a generation company must comply with technical, financial, and environmental standards. A
generation company must ensure that all of its facilities connected to the grid meet the technical design and
operational criteria of the Philippine Grid Code and the Philippine Distribution Code promulgated by the ERC.
The ERC has also issued the “Guidelines for the Financial Standards of Generation Companies,” which set the
minimum financial capability standards for generation companies. Under the guidelines, a generation company is
required to meet a minimum annual interest cover ratio or debt service coverage ratio of 1.5x throughout the
period covered by its COC. For COC applications and renewals, the guidelines require the submission to the ERC
of, among other things, comparative audited financial statements, a schedule of liabilities, and a five (5)-year
financial plan. For the duration of the COC, the guidelines also require a generation company to submit to the
ERC audited financial statements and forecast financial statements for the next two (2) fiscal years, among other
documents. The failure by a generation company to submit the requirements prescribed by the guidelines may be
a ground for the imposition of fines and penalties. The power plants of ACEPH and its subsidiaries are required
under the EPIRA to obtain a COC from the ERC for their generation facilities. They are also required to comply

12
with technical, financial, and environmental standards provided in existing laws and regulations in their
operations.

Restructuring of the Electricity Industry

One of the major reforms under the EPIRA involves the restructuring of the electricity supply industry, which
calls for the separation of the different components of the electric power industry namely, generation,
transmission, distribution, and supply.

Under the EPIRA, power generation and supply (which are not considered public utility operations) are
deregulated but power distribution and transmission continue to be regulated (as common electricity carrier
business) by the ERC which replaced the Energy Regulatory Board (“ERB”).

To promote true competition and prevent monopolistic practices, the EPIRA provides for explicit caps or limits
on the volume of electricity that a distribution utility can buy from an affiliated company that is engaged in power
generation. Likewise, the law also provides that "no company or related group can own, operate or control more
than 30% of the installed capacity of a grid and/or twenty-five percent (25%) of the national installed generating
capacity."

Energy Regulatory Commission (ERC)

The ERC is an independent, quasi-judicial regulatory body tasked to promote competition in the power industry,
encourage market development, and ensure customer choice. Compared to its predecessor, the ERC has broader
powers to prevent and penalize anti-competitive practices.
The ERC is the government agency in-charge of the regulation of the electric power industry in the Philippines.
The ERC was created by virtue of Section 38 of the EPIRA to replace the ERB. Its mission is to promote and
protect long-term consumer interests in terms of quality, reliability, and reasonable pricing of a sustainable supply
of electricity.
The relevant powers and functions of the ERC are as follows:
1. Promote competition, encourage market development, ensure customer choice and penalize abuse of market
power in the electricity industry. To carry out this undertaking, ERC shall, promulgate necessary rules and
regulations, including Competition Rules, and impose fines or penalties for any non-compliance with or
breach of the EPIRA, the Implementing Rules and Regulations of the EPIRA, and other rules and regulation
which it promulgates or administers as well as other laws it is tasked to implement/enforce.
2. Determine, fix and approve, after due notice and hearing, Transmission and Distribution Wheeling Charges,
and Retail Rates through an ERC established and enforced rate setting methodology that will promote
efficiency and non-discrimination.
3. Approve applications for, issue, grant, revoke, review and modify Certificate of Public Convenience and
Necessity (CPCN), Certificate of Compliance (COC), as well as licenses and/or permits of electric industry
participants.
4. Promulgate and enforce a national Grid Code and a Distribution Code that shall include performance
standards and the minimum financial capability standards and other terms and conditions for access to and
use of the transmission and distribution facilities.
5. Enforce the rules and regulations governing the operations of the Wholesale Electricity Spot Market (WESM)
and the activities of the WESM operator and other WESM participants, for the purpose of ensuring greater
supply and rational pricing of electricity.
6. Ensure that NPC and distribution utilities functionally and structurally unbundle their respective business
activities and rates; determine the level of cross subsidies in the existing retail rates until the same is removed
and thereafter, ensure that the charges of TransCo or any distribution utility bear no cross subsidies between
grids, within grids, or between classes of customers, except as provided by law.
7. Set a Lifeline Rate for the Marginalized End-Users.
8. Promulgate rules and regulations prescribing the qualifications of Suppliers which shall include, among other
things, their technical and financial capability and credit worthiness.
9. Determine the electricity End-users comprising the Contestable and Captive Markets.

13
10. Verify the reasonable amounts and determine the manner and duration for the full recovery of stranded debts
and stranded contract costs of NPC and the distribution utilities.
11. Handle consumer complaints and ensure promotion of consumer interests.
12. Act on applications for cost recovery and return on Demand-Side Management (DSM) projects.
13. Fix user fees to be charged by TransCo for ancillary services to all electric power industry participants or
self-generating entities connected to the Grid.
14. Review power purchase contracts between Independent Power Producers (IPP) and NPC, including the
distribution utilities.
15. Monitor and take measures to discourage/penalize abuse of market power, cartelization and any anti-
competitive or discriminatory behavior by any electric power industry participant.
16. Review and approve the terms and conditions of service of the TransCo or any distribution utility and any
changes therein.
17. Determine, fix and approve a universal charge to be imposed on all electricity end-users.
18. Test, calibrate and seal electric watt-hour meters.
19. Implement pertinent provisions of R.A. No. 7832 or the Anti-Pilferage of Electricity Law.
20. Fix and regulate the rate schedule or prices of piped gas to be charged by duly the ERC is headed by a
Chairperson together with four Commissioners.

Privatization of NPC and creation of Power Sector Assets and Liabilities Management Corporation (PSALM)

Another major reform under the EPIRA is the privatization of the NPC which involves the sale of the state-owned
power firm’s generation and transmission assets (e.g., power plants and transmission facilities) to private
investors. Government-owned NPC had been solely responsible for the total electrification of the country since
1936.

Under the EPIRA, the NPC generation and transmission facilities, real estate properties and other disposable
assets, as well as its power supply contracts with IPPs were privatized. Two weeks after the EPIRA was signed
into law, the PSALM, a government-owned and controlled corporation, was formed to help NPC sell its assets to
private companies. The exact manner and mode by which these assets would be sold would be determined by the
PSALM. The PSALM was tasked to manage the orderly sale, disposition, and privatization of the NPC, with the
objective of liquidating all of the NPC’s financial obligations and stranded contract costs in an optimal manner.

Birth of the National Grid Corporation of the Philippines (NGCP)

Another entity created by the EPIRA was the National Transmission Corporation (“TransCo”), which would
assume all of the electricity transmission functions of the NPC. In December 2007, TransCo was privatized
through a management concession agreement. The management and operation of TransCo’s nationwide power
transmission system was turned over to a consortium called NGCP composed of Monte Oro Grid Resources
Corporation, Calaca High Power Corporation, and the State Grid Corporation of Hong Kong Ltd. The approved
franchise of NGCP was for fifty (50) years.

Thus, with the creation of the PSALM and NGCP to which the assets and debts of the NPC were transferred, the
NPC was left with only the operation of Small Power Utilities Group or SPUG – a functional unit of the NPC
created to pursue missionary electrification function.

Retail Competition and Open Access (RCOA)

The EPIRA mandates the implementation of open access to distribution network so that the benefits of competition
in the generation/supply sector could reach qualified consumers. The implementation of the retail competition
and open access paved the way to the creation of the new segment in the power industry which is the retail
electricity supply.

Retail competition and open access allows contestable customers (i.e., industries, commercial establishments, and
residential users) to choose their respective RES which could offer the most reasonable cost and provide the most
efficient service.

14
With the purpose of ensuring quality, reliable, and affordable electricity under a regime of free and fair
competition, the DOE and the ERC issued the following circular and resolutions to promote customer choice and
foster competition in the electricity supply sector:

a) DOE Circular No. DC2015-06-0010, series of 2010 - Providing Policies to Facilitate the Full
Implementation of Retail Competition and Open Access (RCOA) in the Philippine Electric Power
Industry;

b) ERC Resolution No. 05, Series of 2016 - A Resolution Adopting the 2016 Rules Governing the Issuance
of Licenses to Retail Electricity Suppliers (RES) and Prescribing the Requirements and Conditions
Therefor;

c) ERC Resolution No. 10, Series of 2016 - A Resolution Adopting the Revised Rules for Contestability;

d) ERC Resolution No. 11, Series of 2016 - A Resolution Imposing Restrictions on the Operations of
Distribution Utilities and Retail Electricity Suppliers in the Competitive Retail Electricity Market; and

e) ERC Resolution No. 28, Series of 2016 - Revised Timeframe for Mandatory Contestability, Amending
Resolution No. 10, Series of 2016 entitled Revised Rules for Contestability.

The above resolutions and circular required electricity end-users with an average monthly peak demand of at least
one megawatt (1 MW) to secure retail supply contracts with licensed retail electricity suppliers on or before 26
February 2017 while electricity end-users with an average monthly peak demand of at least 750 kilowatts (kW)
were required to secure retail supply contracts by 26 June 2017.

The above circular and resolutions were subject of court cases, where several parties sought the courts’
intervention to enjoin the implementation of the circulars and resolutions. The implementation of the above
circulars and resolutions are presently subject of a Temporary Restraining Order (“TRO”) issued by the Supreme
Court in the case docketed as G.R. No. 228588, entitled Philippine Chamber of Commerce and Industry, San
Beda College Alabang, Ateneo De Manila University and Riverbanks Development Corporation vs. Department
of Energy, Hon. Alfonso G. Cusi in his official capacity as Secretary of the Department of Energy, The Energy
Regulatory Commission and Jose Vicente B. Salazar in his official capacity as Chairman of the Energy Regulatory
Commission and Hon. Alfredo J. Non, Hon. Gloria Victoria C. Yap-Taruc, Hon. Josefina Patricia M. Asirit and
Hon. Geronimo D. Sta. Ana, in their official capacity as incumbent Commissioners of the Energy Regulatory
Commission.

Notwithstanding the TRO issued by the Supreme Court, electricity end-users with average peak demands of 1
MW and 750 kW may still choose their retail electricity supplier on a voluntary basis.

Wholesale Electricity Spot Market (WESM)

The EPIRA provided for the creation of the WESM, a trading platform where electricity generated by power
producers are centrally coordinated and traded like any other commodity in a market of goods. The objective is
to provide a venue for free and fair trade of, and investment in, the electricity market for and by generators,
distributors, and suppliers. The WESM is implemented by a market operator, an autonomous group constituted
by the DOE with equitable representation from electric power industry participants.

The DOE formulated the WESM rules, which provide for the procedures for (i) establishing the merit order
dispatch instruction for each time period, (ii) determining the market-clearing price for each time period, (iii)
administering the market, and (iv) prescribing guidelines for market operation in system emergencies.

The WESM provides a venue whereby generators may sell power, and at the same time suppliers and wholesale
consumers can purchase electricity where no bilateral contract exists between the two.

On 18 November 2003, the DOE established the PEMC as a non-stock, non-profit corporation. PEMC’s
membership is comprised of an equitable representation of electricity industry participants and chaired by the
DOE Secretary. Its purpose is to act as the autonomous market group operator and the governing arm of the
WESM. It also undertook the preparatory work for the establishment of the WESM.

15
On 26 September 2018, the Independent Electricity Market Operator of the Philippines (“IEMOP”) formally took
over the WESM from the PEMC. The takeover was in compliance with the EPIRA for the WESM to be run by
an independent operator. IEMOP is a nonstock, nonprofit corporation governed by a professional board of
directors composed of individuals not affiliated with any of the electric companies that transact in the WESM.
The following are the functions of IEMOP, among others:

(a) Facilitate the registration and participation of generating companies, DUs, directly connected customers or
bulk users, suppliers, and contestable customers in the WESM;
(b) Determine the hourly schedules of generating units that will supply electricity to the grid, as well as the
corresponding spot-market prices of electricity via its Market Management System; and
(c) Manage the metering, billing, settlement, and collection of spot trading amounts.

Under the policy and regulatory oversight of the DOE and the ERC, PEMC remains to be the governing body for
the WESM to monitor compliance by the market participants with the WESM Rules.

Considering the challenges posed by climate change to the global economy, the development of renewable energy
has gained prominence in recent years. A National Renewable Energy Program (“NREP”) was released in 2010
following the passage of the Renewable Energy Act in 2008. The NREP aimed to triple the installed capacity of
renewable energy from 5,439 MW in 2010 to 15,304 MW by 2030[1]. It targeted to add over 7,000 MW of new
capacity by 2020. As of end 2019 however, only a total of 7,564.16 MW of RE Capacity has been installed.

Measurable Targets (in MW) for the Renewable Energy Sector, Philippine Energy Plan, 2017-2040

Installed Capacity Target Capacity Installed Capacity

TECHNOLOGY (as of 2010) Addition as of
(2011-2020) 31 December 2018

Geothermal 1,966.00 1,320.00 1,944.00

Hydro 3,400.00 3,502.30 3,701.00

Biomass 39 276.70 258.00

Wind 33 1,903.00 427.00

Solar 1 274.00 896.00

Ocean - 35.50 -

TOTAL 5,439.00 7,311.50 7,227.00

[
1] Philippine Energy Plan 2017-2040, Volume 2, page 9. <https://www.doe.gov.ph/pep>
[2] Summary of Installed Capacity, Dependable Capacity, Power Generation and Consumption

The Renewable Energy Act of 2008

On 16 December 2008, then President Gloria Macapagal-Arroyo signed into law Republic Act No. 9513, also
known as the Renewable Energy Act of 2008 (the “RE Law”). The RE Law then took effect on 31 January 2009.
It aims to accelerate the development and exploration of renewable energy resources in the country such as wind,
hydro, and geothermal energy sources to achieve energy self-reliance and independence. It also aims to increase
the utilization of renewable energy by institutionalizing the development of national and local capabilities in the
use of renewable energy systems, and promoting its efficient and cost-effective commercial application by
providing fiscal and non-fiscal incentives.

With this Act, it is envisioned that the country will aggressively develop resources such as solar, biomass,
geothermal, hydropower, wind, and ocean energy technologies. The said law is also expected to mitigate the
global problem of climate change.

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Specifically, the law provides prospective proponents in renewable energy with the following benefits and
advantages:

1. Market
a. Renewable portfolio market – all registered suppliers of electricity will have to source a certain percentage
of their supply from eligible renewable energy sources
b. Renewable energy market – refers to the market (to be incorporated in the WESM) where the trading of
renewable energy certificates to an amount generated from renewable energy resources is made;
c. Green option – provides end-users with the option to choose renewable energy resources as their sources
of energy; also allows end-users to directly contract from renewable energy facilities their energy
requirements distributed through their utilities; and
d. Net metering for renewable energy – allows a user of renewable energy technology (e.g., solar) to sell back
to a utility at the latter’s retail price any excess in generation from the house electricity consumption.

2. Pricing mechanism through a Feed-in Tariff (FIT) system

a. Allows a fixed price of electricity from renewable energy sources for twelve (12) years, to be determined
by the ERC in consultation with the National Renewable Energy Board (“NREB”) within one (1) year
upon the effectivity of the law and priority purchase, transmission, and payment from the national grid;
and

b. Mandated for electricity produced from wind, solar, ocean, run-of-river hydropower, and biomass.

3. Access to the grid through transmission and distribution system development

a) Requires the Transmission Corporation and DUs to include required connection facilities for renewable
energy-based projects in the Transmission and Distribution Plans subject to the approval of the DOE; and
b) Connection facilities of renewable energy plants, including the extension of transmission and distribution
lines, shall be subject only to ancillary services covering such connections.

The DOE is the lead government agency tasked to implement the provisions of the RE Law. The Implementing
Rules and Regulations of the RE Law were released in May 2009 and presented the guidelines on the
implementation of the various fiscal and non-fiscal incentives provided by the law, which include the following:

a. Renewable Portfolio Standards (RPS)

On 22 December 2017, the DOE signed the landmark Department Circular No. 2017-12-0015 promulgating the
“Rules and Guidelines Governing the Establishment of the Renewable Portfolio Standards RPS for On-Grid
Areas” or the “RPS On-Grid Rules.”

The RPS On-Grid Rules mandates all electric power industry participants, including DUs for their captive
customers, suppliers of electricity for contestable market, and generating companies to the extent of their actual
supply to their directly connected customers, to source or produce a specified portion of their electricity
requirements from eligible renewable energy resources including biomass, geothermal, solar, hydro, ocean, and
wind. The RPS On-Grid Rules establishes a minimum annual RPS requirement and minimum annual incremental
percentage of electricity sold by each mandated participant which shall, in no case, be less than one percent (1%)
of such mandated participant’s annual energy demand over the next ten (10) years.

b. Feed-in Tariff (FIT) System

On 27 July 2012, the ERC approved the initial FIT rates that shall apply to generation from Run-of-River Hydro,
Biomass, Wind, and Solar. The said FIT rates are as follows: P5.90/kwh for Run-of-River Hydro, P6.63/kwh for
Biomass, P8.53/kwh for Wind, and P9.68/kwh for Solar. The ERC, however, deferred fixing the FIT for Ocean
Thermal Energy Conversion Resource for further study and data gathering. The decision came after a series of
public hearings ending in March 2012, on the petition of the NREB for the setting of the FIT rates.

Under the RE Law, all qualified and registered generating plants with intermittent renewable energy resources
shall enjoy the benefit of priority dispatch. Priority purchase, transmission, and payment for such electricity is
also provided for by the RE Law. Furthermore, all renewable energy generators are ensured of payment for
electricity generated via the FIT scheme for a period of twenty (20) years.

17
On 17 May 2013, PHINMA RE, formerly Trans-Asia Renewable Energy Corp., received DOE’s Declaration of
Commerciality (“DOC”) for the San Lorenzo Project (the “Project”). The DOC means that the Project will be
eligible to avail of the FIT, but only upon successful completion and commissioning of the Project.

On 23 November 2015, the ERC issued a Decision in ERC Case No. 2015-002RM entitled “In the Matter of the
Adoption of the Amendments to Resolution No. 10, Series of 2012, entitled “A Resolution Approving the Feed-
in-Tariff (FIT) Rates” (FIT Rules), Particularly for WIND FIT Rates, as necessitated by the review and re-
adjustment of the WIND FIT since the Installation Target for Wind Technology has already been achieved.”

In the said Decision, the ERC approved a FIT2 in the amount of PhP 7.40/kWh for PHINMA RE, Petrowind
Energy Inc., and Alternergy Wind One Corporation.

c. The NGCP and all DUs are mandated to include the required connection facilities for renewable energy-
based electricity in their transmission and distribution development plans. They are also required to effect the
connection of renewable energy-based power facilities with the grid, upon the approval of the DOE, at the start
of their commercial operations. The ERC shall provide the mechanism for the recovery of the cost of these
connection facilities.

d. The RE Law provides for the following fiscal incentives:

1. Income tax holiday (ITH) for a period of seven (7) years from the start of commercial operation;
2. Exemption from duties on renewable energy machinery, equipment, and materials;
3. Special realty tax rates on equipment and machinery;
4. Net operating loss carry over (“NOLCO”) of the renewable energy developer during the first three (3)
years from start of commercial operation shall be carried over for the next seven (7) consecutive taxable
years immediately following the year of such loss;
5. Corporate tax rate of ten percent (10%);
6. Accelerated depreciation;
7. Zero percent (0%) value-added tax on energy sale;
8. Tax exemption of carbon credits; and
9. Tax credit on domestic capital equipment and services related to the installation of equipment and
machinery.

National Renewable Energy Board (NREB) and the Renewable Energy Management Bureau (REMB)

For purposes of promoting the development of renewable energy resources, two new government bodies were
created under the R.A 9513 or the RE Law – the NREB and the Renewable Energy Management Bureau
(“REMB”).

NREB will serve as the recommending body on renewable energy policies and action plans for implementation
by the DOE. As provided under Section 27 of the RE Law, the powers and functions of the NREB are as follows:

1. Evaluate and recommend to the DOE the mandated RPS and minimum RE generation capacities in off-
grid areas, as it deems appropriate;
2. Recommend specific actions to facilitate the implementation of the National Renewable Energy Program
(NREP) to be executed by the DOE and other appropriate agencies of government and to ensure that
there will be no overlapping and redundant functions within the national government department and
agencies concerned;
3. Monitor and review the implementation of the NREP, including compliance with the RPS and minimum
RE generation capacities in off-grid areas;
4. Oversee and monitor the utilization of the Renewable Energy Trust Fund created pursuant to Section 28
of the Renewable Energy Law and administered by the DOE; and
5. Perform such other functions, as may be necessary, to attain the objectives of the RE Law.

The NREB shall be composed of a Chairman and one (1) representative each from the DOE, Department of Trade
and Industry (DTI), DENR, National Power Corporation, (NPC), and NGCP, PNOC and Philippine Electricity
Market Corporation (PEMC) shall be designated by their respective secretaries to the NREB on a permanent basis.
The Board shall also have one (1) representative each from the following sectors: (1) renewable energy developers,
(2) government financial institutions, (3) private DUs, (4) electric cooperatives, (5) electricity suppliers, and (6)

18
non-government organizations (NGOs), duly endorsed by their respective industry associations and all to be
appointed by the President of the Republic of the Philippines.

On the other hand, REMB was created for the purpose of implementing the provisions of the RE Law. The REMB
shall replace the Energy Utilization Management Bureau under the DOE.

The powers and functions of the REMB are as follows:

1. Implement policies, plans, and programs related to the accelerated development, transformation,
utilization and commercialization of renewable energy resources and technologies;
2. Develop and maintain a centralized, comprehensive, and unified data and information based on
renewable energy resources to ensure the efficient evaluation, analysis, and dissemination of data
and information on renewable energy resources, development, utilization, demand, and technology
application;
3. Promote the commercialization / application of renewable energy resources including new and
emerging technologies for efficient and economical transformation, conversion, processing,
marketing, and distribution to end users;
4. Conduct technical research, socio-economic, and environment impact studies of renewable energy
projects for the development of sustainable renewable energy systems;
5. Supervise and monitor activities of government and private companies and entities on renewable
energy resources development and utilization to ensure compliance with existing rules, regulations,
guidelines, and standards;
6. Provide information, consultation, and technical training and advisory services to developers,
practitioners, and entities involved in renewable energy technology and develop renewable energy
technology development strategies; and
7. Perform other functions that may be necessary for the effective implementation of the RE Law and
the accelerated development and utilization of renewable energy resources in the country.

Environmental Laws

The Company’s power generation operations are subject to extensive, evolving, and increasingly stringent safety,
health, and environmental laws and regulations. These laws and regulations, such as R.A. 8749 or the Clean Air
Act and R.A. 9275 or the Philippine Clean Water Act, address, among other things, air emissions, wastewater
discharges, the generation, handling, storage, transportation, treatment, and disposal of toxic or hazardous
chemicals, materials and waste, workplace conditions, and employee exposure to hazardous substances. ACEPH
and its subsidiaries have incurred, and expect to continue to incur, operating costs to comply with such laws and
regulations. The Company and its subsidiaries spend PhP 3 Million annually for emissions testing. In addition,
ACEPH and its subsidiaries have made and expect to make capital expenditures in the amount of PhP 20 Million
to upgrade emissions monitoring systems to comply with safety, health, and environmental laws and regulations.

Human Capital

As of 25 March 2020, ACEPH has ninety-two (92) employees. Of the total employees, twenty-eight (28) are
managers and officers, fifty-six (56) are supervisors, and eight (8) are nonsupervisory employees. The Company
has the intention of hiring eight (8) additional employees for the ensuing months.

The Company has no Collective Bargaining Agreement with its employees. No employees were on strike for the
past three (3) years nor are they planning to go on strike.

The relationship between management and employees has always been of coordination and collaboration. The
Company believes that professionalism, open communication, and upright engagement between management and
employees are the effective ways to resolve workplace concerns.

Aside from compensation, the Company’s employees are given medical, hospitalization, vacation and sick leave,
and personal accident insurance benefits. There are also medical benefits from the Company that extends to
employee’s dependents. Also, the Company has a retirement fund based on statutory benefits. The defined benefit
pension plan is a funded, noncontributory plan, covering all full-time employees of ACEPH. The benefits are
based on tenure and remuneration at the time of retirement.

19
SUSTAINABIILITY

ACEPH’s commitment to sustainability and social responsibility goes beyond environmental management and
development of social projects. The Company, together with its parent, AC Energy and Ayala Corporation,
integrates core sustainability principles into all aspects of its businesses, and provides guidance for day-to-day
operations and its sustainable business strategy.

ACEPH promotes inclusive growth in its partner communities by engaging in relevant programs and initiatives
geared towards the needs of stakeholders. As the Company builds a balanced portfolio of renewable and
conventional power generation assets, it recognizes the importance of working with communities to create
development programs that benefit its stakeholders.

Environmental and Social

The Ayala Group has always been geared towards improving lives by ensuring value creation in the environment
and communities where it operates. At the forefront is the Company with sustainability initiatives that fully
support the development and prosperity of their host communities, with the ultimate goal towards self-
actualization and national progress.

With sustainability being central to ACEPH’s operations, the Company outlines its commitment to protect the
communities and environment in tandem with its focus on developing renewables to support the government’s
energy roadmap.

In Guimaras and Batangas, ACEPH worked closely with the DENR to promote a healthier ecosystem though the
rehabilitation and re-greening of the environment, planting more than 5000 seedlings with 50 indigenous species
through a series of planting initiatives. ACEPH partnered with the local communities to ensure the maintenance
and protection of the established areas for planting.

Empowerment through livelihood

ACEPH regularly engages with the local governments and communities to develop programs based on the
identified needs of the stakeholders. Several of these programs include promotion of eco-tourism programs,
rehabilitation of local health centers, and community resilience programs.

ACEPH assists communities in resource mapping and exploring opportunities for sustainable livelihood.
Participative planning and implementation play a key role in the sustainability of the projects, and ACEPH makes
sure that partner communities have a firm grasp of the ownership of the project, while the Company works in
support to contribute resources, facilitate marketing and provide service providers for the community.

Helping communities succeed through education

ACEPH remains steadfast in its commitment to support the education programs of local communities through
school rehabilitation efforts, training workshops, and work immersion programs. In partnership with local
government units (LGUs) and schools, the Company was also able to facilitate training programs for one hundred
nineteen (119) science teachers and work immersion programs for sixty (60) high school students. Employee-
volunteers distributed school supplies and joined the parents and teachers in cleaning and repainting classrooms.

To support education programs in Guimaras, ACEPH continuously assesses the needs of the communities –
from providing materials for the renovation of school facilities, mobilizing employee-volunteers to assist in the
bayanihan effort and providing trainings to empower educators on various fields.

20
RISK FACTORS RELATED TO THE BUSINESS

Risks Relating to the Company and its Businesses

Increased competition in the power industry, including competition resulting from legislative, regulatory and
industry restructuring efforts could have a material adverse effect on the Company’s operations and financial
performance.

The Company’s success depends on its ability to identify, invest in and develop new power projects, and the
Company faces competition to acquire future rights to develop power projects and to generate and sell power. No
assurance can be given that the Company will be able to acquire or invest in new power projects successfully.

In recent years, the Philippine government has sought to implement measures designed to establish a competitive
power market. These measures include the planned privatization of at least seventy percent (70%) of the NPC-
owned-and-controlled power generation facilities and the grant of a concession to operate transmission facilities.
The move towards a more competitive environment could result in the emergence of new and numerous
competitors. These competitors may have greater financial resources, and have more extensive experience than
the Company, giving them the ability to respond to operational, technological, financial and other challenges more
quickly than the Company. These competitors may therefore be more successful than the Company in acquiring
existing power generation facilities or in obtaining financing for and the construction of new power generation
facilities. The type of fuel that competitors use for their generation facilities may also allow them to produce
electricity at a lower cost and to sell electricity at a lower price. The Company may therefore be unable to meet
the competitive challenges it will face.

The impact of the ongoing restructuring of the Philippine power industry will change the competitive landscape
of the industry and such changes are expected to affect the Company’s financial position, results of operations,
and cash flows in various ways.

To be able to adapt with the potential changes, the Company continues to develop a pipeline of projects
particularly in securing potential sites, continuously looking into technology that will allow the projects to be
economically viable while being competitive in terms of offer, and negotiating with adequate coverage in terms
of unexpected changes on the regulations. The Company monitors developments in the industry, competition, and
regulatory environment to ensure that it can adapt as necessary to any change.

The Company may not successfully implement its growth strategy and the impact of acquisitions and
investments could be less favourable than anticipated.

As part of its business strategy, the Company continues to carry out acquisitions and investments of varying sizes,
some of which are significant, as well as develop additional power projects. This strategy may require entering
into strategic alliances and partnerships and will involve substantial investments. The Company’s success in
implementing this strategy will depend on, among other things, its ability to identify and assess potential partners,
investments and acquisitions, successfully finance, close, and integrate such investments and acquisitions, control
costs, and maintain sufficient operational and financial controls.

This growth strategy could place significant demands on the Company’s management and other resources. The
Company’s future growth may be adversely affected if it is unable to make these investments or form these
partnerships, or if these investments and partnerships prove unsuccessful. Further, acquisitions and investments
involve numerous risks, including, without limitation, the following: (i) the assumptions used in the underlying
business plans may not prove to be accurate, in particular with respect to synergies and expected demand; (ii) the
Company may not integrate acquired businesses, technologies, products, personnel, and operations effectively;
(iii) the Company may fail to retain key employees, customers and suppliers of the companies acquired; (iv) the
Company may be required or wish to terminate pre-existing contractual relationships, which could be costly and/or
on unfavourable terms; and (v) the Company may increase its indebtedness to finance these acquisitions. As a
result, it is possible that the expected benefits of completed or future acquisitions may not materialise within the
time periods or to the extent anticipated or affect the Company’s financial condition.

Further, the Company may not be able to identify suitable acquisition and investment opportunities or make
acquisitions and investment, on beneficial terms, or obtain financing necessary to complete and support such
acquisitions. Regulation of merger and acquisition activity by relevant authorities or other national regulators may
also limit the Company’s ability to make future acquisitions or mergers. The impact on the Company of any future

21
acquisitions or investments cannot be fully predicted and any of the risks outlined above, should they materialise,
could have a material adverse effect on the Company’s business, financial condition, results of operations, and
prospects.

The Company nonetheless has shown capability to develop meaningful partnerships, has been agile and fast in
decision making, and adept in structuring deals with potential partners. While the Company embarks on
acquisitions to grow its portfolio, the Company also ensures it has its own portfolio of assets under development
to secure its growth strategy.

The operations of the Company’s power projects are subject to significant government regulation, including
regulated tariffs such as FIT, and the Company’s margins and results of operations could be adversely affected
by changes in the law or regulatory schemes.

The Company’s inability to predict, influence or respond appropriately to changes in law or regulatory schemes,
including any inability or delay in obtaining expected or contracted increases in electricity tariff rates or tariff
adjustments for increased expenses, or any inability or delay in obtaining or renewing permits for any facilities,
could adversely impact results of operations and cash flow. Furthermore, changes in laws or regulations or changes
in the application or interpretation of laws or regulations in jurisdictions where power projects are located,
(particularly utilities where electricity tariffs are subject to regulatory review or approval) could adversely affect
the Company’s business, including, but not limited to:
• adverse changes in tax law;
• changes in the timing of tariff increases or in the calculation of tariff incentives;
• change in existing subsidies and other changes in the regulatory determinations under the relevant
concessions;
• other changes related to licensing or permitting which increase capital or operating costs or otherwise affect
the ability to conduct business; or
• other changes that have retroactive effect and/or take account of revenues previously received and expose
power projects to additional compliance costs or interfere with our existing financial and business planning.

Any of the above events may result in lower margins for the affected businesses, which could adversely affect the
Company’s results of operations.

For renewable assets, pricing is fixed by regulatory arrangements which operate instead of, or in addition to,
contractual arrangements. To the extent that operating costs rise above the level approved in the tariff, the
Company’s businesses that are subject to regulated tariffs would bear the risk. During the life of a project, the
relevant government authority may unilaterally impose additional restrictions on the project’s tariff rates, subject
to the regulatory frameworks applicable in each jurisdiction. Future tariffs may not permit the project to maintain
current operating margins, which could have a material adverse effect on the Company’s business, financial
condition, results of operations, and prospects.

As potential regulatory changes are an inherent risk on the industry where the Company is operating, the Company
keeps track and remains up to speed on such potential changes, analyzes impact, and conducts risk assessment as
necessary, and develops means to be able to cover such potential risks.

Failure to obtain financing on reasonable terms or at all could adversely impact the execution of the
Company’s expansion and growth plans.

The Company’s expansion and growth plans are expected to require significant fund raising. The Company’s
current strategy is to exceed 2000MW of renewable energy capacity by 2025 and will require adequate funding
for these projects. The Company’s continued access to debt and equity financing as a source of funding for new
projects, acquisitions, and investments, and for refinancing maturing debt is subject to many factors, including:
(i) Philippine regulations limiting bank exposure (including single borrower limits) to a single borrower or related
group of borrowers; (ii) the Company’s compliance with existing debt covenants; (iii) the ability of the Company
to service new debt; (iv) the macroeconomic fundamentals driving credit ratings of the Philippines; and (v)
perceptions in the capital markets regarding the Company and the industries and regions in which it operates and
other factors, some of which may be outside of its control, including general conditions in the debt and equity
capital markets, political instability, an economic downturn, social unrest, changes in the regulatory environments
where any power projects are located or the bankruptcy of an unrelated company operating in one or more of the
same industries as the Company, any of which could increase borrowing costs or restrict the Company’s ability
to obtain debt or equity financing. There is no assurance that the Company will be able to arrange financing on

22
acceptable terms, if at all. Any inability of the Company to obtain financing from banks and other financial
institutions or from capital markets would adversely affect the Company’s ability to execute its expansion and
growth strategies.

The Company nonetheless is on track in enhancing its balance sheet: it has low debt and debt servicing levels built
on assets with proven track record of generating reliable cash returns, it invests into projects that are economically
viable, it anticipates potential impacts to future performance of the projects caused by changes on the regulatory
environment, and strives to be a partner of choice for potential investors to secure financing for its projects. It is
well-managed by reputable finance professionals overseen by the Board of Directors, which enhances the credit
profile of the Company as a borrower. The Company also maintains regular communication with its bankers to
ensure continued availability of credit facilities.

Changes in tax policies affecting tax exemptions and tax incentives could adversely affect the Company’s
results of operations.

Certain Associates (as defined under the Philippine Financial Reporting Standards or the “PFRS”) of the
Company are registered with the Board of Investments and the Philippine Economic Zone Authority as new
operators with pioneer status and non-pioneer status for greenfield projects and benefit from certain capital tax
exemptions and tax incentives, deductions from taxable income subject to certain capital requirements, and duty-
free importation of capital equipment, spare parts, and accessories.

If these tax exemptions or tax incentives expire, are revoked, or are repealed, the income from these sources will
be subject to the corporate income tax rate, which is thirty percent (30%) of net taxable income. As a result, the
Company’s tax expense would increase, and its profitability would decrease. The expiration, non-renewal,
revocation or repeal of these tax exemptions and tax incentives, and any associated impact on the Company, could
have a material adverse effect on the Company’s business, financial condition, and results of operations

Similar to continuously monitoring potential changes in the regulatory environment, the Company anticipates the
impact of potential changes on its projects’ tax incentives. Whenever possible, contracts are negotiated to include
provisions protecting the Company for any potential increases in tax due owing to the revocation or repeal of the
tax incentives currently available to its projects.

The Company’s long-term success is dependent upon its ability to attract and retain key personnel and in
sufficient numbers.

The Company depends on its senior executives and key management members to implement the Company’s
projects and business strategies. If any of these individuals resigns or discontinues his or her service, it is possible
that a suitable replacement may not be found in a timely manner or at all. If this were to happen, there could be a
material adverse effect on the Company’s ability to successfully operate its power projects and implement its
business strategies.

Power generation involves the use of highly complex machinery and processes and the Company’s success
depends on the effective operation and maintenance of equipment for its power generation assets. Technical
partners and third-party operators are responsible for the operation and maintenance of certain power projects.
Any failure on the part of such technical partners and third-party operators to properly operate and/or adequately
maintain these power projects could have a material adverse effect on the Company’s business, financial
condition, and results of operations.

In addition, the Company’s growth to date has placed, and the anticipated further expansion of the Company’s
operations will continue to place, a significant strain on the Company’s management, systems, and resources. In
addition to training, managing, and integrating the Company’s workforce, the Company will need to continue to
develop the Company’s financial and management controls. The Company can provide no assurance that the
Company will be able to efficiently or effectively manage the growth and integration of the Company’s operations
and any failure to do so may materially and adversely affect the Company’s business, financial condition, results
of operations and prospects. In addition, if general economic and regulatory conditions or market and competitive
conditions change, or if operations do not generate sufficient funds or other unexpected events occur, the Company
may decide to delay, modify or forego some aspects of its growth strategies, and its future growth prospects could
be adversely affected.

23
To mitigate such risks, the Company structures the organization in such a way that there is development and
advancement opportunities for each individual within the organization, maintains competitive benefits, and
compensation structure and ensures provision of training to its employees.

The Company may not be able to adequately influence the operations of its Associates and joint ventures and
the failure of one or more of its strategic partnerships may negatively impact its business, financial condition,
results of operations, and prospects.

The Company derives a portion of its income from investments in Associates and joint ventures, in which it does
not have majority voting control. These relationships involve certain risks including the possibility that these
partners:
• may have economic interests or business goals that are not aligned with the Company’s;
• may be unable or unwilling to fulfill their obligations under relevant agreements, including shareholder
agreements under which the Company has certain voting rights in respect of key strategic, operating and
financial matters;
• may take actions or omit to take any actions contrary to, or inconsistent with, the Company’s policies or
objectives or prevailing laws;
• may have disputes with the Company as to the scope of their responsibilities and obligations; and/or
• may have difficulties in respect of seeking funds for the development or construction of projects.

The success of these partnerships depends significantly on the satisfactory performance by the partners and the
fulfilment of their obligations. If the Company or a strategic partner fails to perform its obligations satisfactorily,
or at all, the partnership may be unable to perform adequately. Thus, cooperation among its partners or consensus
with other shareholders in these entities is crucial to these businesses’ sound operation and financial success. The
Company’s business, financial condition, results of operations, and prospects may be materially adversely affected
if disagreements develop between the Company and its strategic partners, and such disagreements are not resolved
in a timely manner.

In addition, if any of the Company’s strategic partners discontinues its arrangement with the Company, is unable
to provide the expected resources or assistance, or competes with the Company on business opportunities, the
Company may not be able to find a substitute for such strategic partner. Failure of one or more of the Company’s
strategic partners to perform their obligations may have a material adverse effect on the Company’s business,
financial condition, results of operations, and prospects.

In entering into partnerships, the Company ensures that there are adequate protection clauses in the shareholder
agreements to protect the interest of Company. The criteria for the selection of potential partners also ensures that
the Company is only working with those that are aligned with its core values.

Risks and delays relating to the development of greenfield power projects could have a material adverse effect
on the Company’s operations and financial performance.

The development of greenfield power projects involves substantial risks that could give rise to delays, cost
overruns, unsatisfactory construction or development in the projects. Such risks include the inability to secure
adequate financing, inability to negotiate acceptable offtake agreements, and unforeseen engineering and
environmental problems, among others. Any such delays, cost overruns, unsatisfactory construction or
development could have a material adverse effect on the business, financial condition, results of operation, and
future growth prospects of the Company.

For the Company’s projects under development, the estimated time frame and budget for the completion of critical
tasks may be materially different from the actual completion date and costs, which may delay the date of
commercial operations of the projects or result in cost overruns.

The Company is expanding its power generation operations and there are projects in its energy portfolio under
construction. These projects involve environmental, engineering, construction, and commissioning risks, which
may result in cost overruns, delays or performance that is below expected levels of output or efficiency. In
addition, projects under construction may be affected by the timing of the issuance of permits and licenses by
government agencies, any litigation or disputes, inclement weather, natural disasters, accidents or unforeseen
circumstances, manufacturing and delivery schedules for key equipment, defect in design or construction, and
supply and cost of equipment and materials. Further, project delays or cancellations or adjustments to the scope
of work may occur from time to time due to incidents of force majeure or legal impediments.

24
Depending on the severity and duration of the relevant events or circumstances, these risks may significantly delay
the commencement of new projects, reduce the economic benefit from such projects, including higher capital
expenditure requirements and loss of revenues, which in turn could have a material adverse effect on the
Company’s business, financial condition, results of operations, and cash flows.

Given its growth target and considering the challenges on development, the Company ensures that it has an
adequate pipeline of projects to manage potential delays, has a team specifically focused on development up to
bringing a plant into construction and eventually commercial operations. In addition to green field developments,
the Company keeps an open eye on potential mergers and acquisitions as well as partnership with other
development companies to be on track with its growth targets.

Any restriction or prohibition on the Company’s Associates’ or joint ventures’ ability to distribute dividends
would have a negative effect on its financial condition and results of operations.

The Company is reliant on dividends paid to it by its Associates and joint ventures with respect to its obligations
and in order to finance its Associates. The ability of the Company’s Associates and joint ventures to pay dividends
to the Company (and their shareholders in general) is subject to applicable law and may be subject to restrictions
contained in loans and/or debt instruments of such Associates and may also be subject to the deduction of taxes.
Currently, the payment of dividends by a Philippine corporation to another Philippine corporation is not subject
to tax.

In addition, certain Associates are subject to debt covenants for their respective existing debt. Failure to comply
with these covenants may result in a potential event of default, which if not cured or waived, could result in an
actual event of default and the debt becoming immediately due and payable. This could affect the relevant
company’s liquidity and ability to generally fund its day-to-day operations. In the event this occurs, it may be
difficult to repay or refinance such debt on acceptable terms or at all.

Any restriction or prohibition on the ability of some or all of the Company’s Associates and/or joint ventures to
distribute dividends or make other distributions to the Company, either due to regulatory restrictions, debt
covenants, operating or financial difficulties or other limitations, could have a negative effect on the Company’s
cash flow and therefore, its financial condition.

Overall, the Company monitors potential regulatory impacts on its projects and anticipates means to manage the
impact of any regulatory changes. The Company also regularly tracks the performance of its projects to ensure
delivery of budgeted results including distribution of dividends to the Company.

The administration and operation of power generation projects by project companies involve significant risks.

The administration and/or operation of power generation projects by project companies involve significant risks,
including:
• breakdown or failure of power generation equipment, transmission lines, pipelines or other equipment or
processes, leading to unplanned outages and operational issues;
• flaws in the equipment design or in power plant construction;
• issues with the quality or interruptions in the supply of key inputs, including fuel or water;
• material changes in legal, regulatory or licensing requirements;
• operator error;
• performance below expected levels of output or efficiency;
• actions affecting power generation assets owned or managed by the Company, its joint ventures, affiliates or
its contractual counterparties;
• pollution or environmental contamination affecting the operation of power generation assets;
• force majeure and catastrophic events including fires, explosions, earthquakes, volcanic eruptions, floods
and terrorist acts that could cause forced outages, suspension of operations, loss of life, severe damage, and
plant destruction;
• planned and unplanned power outages due to maintenance, expansion, and refurbishment;
• inability to obtain or the cancellation of required regulatory, permits, and approvals; and
• opposition from local communities and special interest groups.

25
There is no assurance that any event similar or dissimilar to those listed above will not occur or will not
significantly increase costs or decrease or eliminate revenues derived by the Company, its joint ventures, and
affiliates from their power projects.

As above risks are inherent in the industry where the Company’s projects operate, the Company ensures that
contracts with suppliers cover a portion of the risks and there are proper insurance coverages in case of the
occurrence of events hampering the project’s operations and develops an operations team that focuses on
monitoring plant’s performance and ensures proper repairs and maintenance procedures or capital expenditures
are conducted at the right time.

Permits and approvals are regularly monitored by a team to ensure that all are properly renewed and maintained.
Regular dialogues are conducted and CSR activities are implemented in the community where the projects are
located.

Climate change may adversely affect the Company’s business and prospects.

The Company is currently involved in the operation and development of a coal power plant in Batangas. Policy
and regulatory changes, technological developments, and market and economic responses relating to climate
change may affect the Company’s business and the markets in which it operates. The enactment of an international
agreement on climate change or other comprehensive legislation focusing on greenhouse gas emissions could
have the effect of restricting the use of coal. Other efforts to reduce greenhouse gas emissions and initiatives in
various countries to use cleaner alternatives to coal such as natural gas may also affect the use of coal as an energy
source.

In addition, technological developments may increase the competitiveness of alternative energy sources, such as
renewable energy, which may decrease demand for coal generated power. Other efforts to reduce emissions of
greenhouse gases and initiatives in various countries to encourage the use of natural gas or renewable energy may
also discourage the use of coal as an energy source. The physical effects of climate change, such as changes in
rainfall, water shortages, rising sea levels, increased storm intensities, and higher temperatures, may also disrupt
the Company’s operations. As a result of the above, the Company’s business, financial condition, results of
operations, and prospects may be materially and adversely affected.

The Company keeps track of potential changes in the climate and regulations that may affect its business and
prospects. To prepare for such changes, the Company develops a diverse portfolio of assets that is aligned with
the country’s vision of an optimum mix of energy sources. The Company has been focusing on the development
of renewables in its portfolio which is aligned with the country’s vision on optimum mix of energy sources. The
Company further looks into advancements in technology as it develops its projects to be able to create a stable
supply of power due to intermittent availability of power generated from renewable sources.

Environmental regulations may cause the relevant project companies to incur significant costs and liabilities.

The operations of the project companies are subject to environmental laws and regulations by central and local
authorities in which the projects operate. These include laws and regulations pertaining to pollution, the protection
of human health and the environment, air emissions, wastewater discharges, occupational safety and health, and
the generation, handling, treatment, remediation, use, storage, release and exposure to hazardous substances and
wastes. These requirements are complex, subject to frequent change and have tended to become more stringent
over time. The project companies have incurred, and will continue to incur, costs and capital expenditures in
complying with these laws and regulations and in obtaining and maintaining all necessary permits. While the
project companies have procedures in place to allow it to comply with environmental laws and regulations, there
can be no assurance that these will at all times be in compliance with all of their respective obligations in the
future or that they will be able to obtain or renew all licenses, consents or other permits necessary to continue
operations. Any failure to comply with such laws and regulations could subject the relevant project company to
significant fines, penalties and other liabilities, which could have a material adverse effect on the Company’s
business, financial condition, results of operations, and prospects.

In addition, environmental laws and regulations, and their interpretations, are constantly evolving and it is
impossible to predict accurately the effect that changes in these laws and regulations, or their interpretation, may
have upon the Company’s business, financial condition, results of operations or prospects. If environmental laws
and regulations, or their interpretation, become more stringent, the costs of compliance could increase. If the

26
Company cannot pass along future costs to customers, any increases could have a material adverse effect on the
Company’s business, financial condition, results of operations, and prospects.
To this effect, the Company exerts best efforts to comply with regulations as it develops its projects.

The Company’s power project development operations and the operations of the power projects are subject to
inherent operational risks and occupational hazards, which could cause an unexpected suspension of
operations and/or incur substantial costs.

Due to the nature of the business power project development and operations, the Company and its project
companies engage or may engage in certain inherently hazardous activities, including operations at height, use of
heavy machinery, and working with flammable and explosive materials. These operations involve many risks and
hazards, including the breakdown, failure or substandard performance of equipment, the improper installation or
operation of equipment, labour disturbances, natural disasters, environmental hazards, and industrial accidents.
These hazards can cause personal injury and loss of life, damage to or destruction of property and equipment, and
environmental damage and pollution, any of which could result in suspension of the development or operations
of any of the power projects or even imposition of civil or criminal penalties, which could in turn cause the
Company or any of the project companies to incur substantial costs and damage its reputation and may have a
material adverse effect on the Company’s business, financial condition, and results of operations.

Given above risks, the Company procures proper insurance coverages, complies with various health and security
measures, implements a culture of safety in the working environment, conducts proper and timely repairs and
maintenance of the plants, and regularly trains employees on safety and security.

Grid curtailments may limit the generation capacity of power projects.

From time-to-time, national grid operators curtail the energy generation for a number of reasons, including to
match demand with supply and for technical maintenance reasons, including as a result of grid infrastructure that
is not up to international standards. In such circumstances, a power project’s access to the grid and thus its
generation capacity can be reduced. Such reductions result in a corresponding decrease in revenue, which, if
prolonged or occur frequently, could have a material adverse effect on the Company’s business, financial
condition, results of operations, and prospects.

To manage such risk, the Company ensures that there is adequate capacity on the grid covering for the sites and
projects it undertakes. Grid capacity availability is a key criterion on assessing the viability of a project in addition
to consideration of the transmission development plan of NGCP.

The Company enters into transactions with related parties.

In the ordinary course of business, the Company transacts with its related parties, such as its Associates, and
certain of its Associates and joint ventures enter into transactions with each other. These transactions have
principally consisted of advances, loans, bank deposits, reimbursement of expenses, purchase and sale of real
estate and other properties and services, sale of electricity, construction contracts and development, management,
marketing, and administrative service agreements.

While the Company believes that all past related party transactions have been conducted at arm’s length on
commercially reasonable terms, these transactions may involve conflicts of interest, which, although not contrary
to law, may be detrimental to the Company.

The Company has instituted internal policies with respect to related party transactions and the Company ensures
that it is compliant with the policies instituted on transactions involving related parties. Relevant related party
transactions are also discussed at the Related Party Transaction Committees or Audit and Risk Committees of the
companies which oversee such matters.

For further information on the Company’s related party transactions, see “Related Party Transactions.”

The Company is exposed to credit and collection risks.

As in other businesses, the power business is exposed to credit and collection risks related to its customers. These
include the TRANSCO, rated corporations as well as cooperatives that have varying credit ratings, and private
DUs. There can, however, be no assurance that all customers will pay the Company in a timely manner or at all.

27
In such circumstances, the Company’s working capital needs would increase, which could, in turn, divert
resources away from the Company’s other projects. If a large amount of its customers were unable or unwilling
to pay the Company, its financial condition could be negatively affected.

Given potential collection risk, the Company conducts review of the capability of its potential clients as part of
the accreditation process. Clients are also requested to put in security deposits equivalent to a certain period of
their consumption.

The insurance coverage of the power projects may not be adequate.

The power projects maintain levels of insurance, which the Company believes are typical with the respective
business structures and in amounts that it believes to be commercially appropriate. However, a power project may
become subject to liabilities against which it has not insured adequately or at all, or are unable to insure. In
addition, insurance policies contain certain exclusions and limitations on coverage, which may result in claims
not being honoured to the extent of losses or damages suffered. Further, such insurance policies may not continue
to be available at economically acceptable premiums, or at all. The occurrence of a significant adverse event, the
risks of which are not fully covered or honoured by such insurers, could have a material adverse effect on a power
project’s business, financial condition, results of operations, and prospects. In addition, under some of the power
project’s debt agreements, the power project is required to name the lenders under such debt agreements as a
beneficiary or a loss payee under some of its insurance policies, or assign the benefit of various insurance policies
to the lenders. Therefore, even if insurance proceeds were to be payable under such policies, any such insurance
proceeds will be paid directly to the relevant lenders instead of to the power project. If an insurable loss has a
material effect on a power project’s operations, the power project’s lenders may not be required to pay any
insurance proceeds or to compensate the power project for loss of profits or for liabilities resulting from business
interruption, and this could have a material adverse effect on the Company’s business, financial condition, results
of operations, and prospects.

The Company regularly reviews its insurance coverages and benchmarks it with industry trends and keeps track
of the insurance claims conducted in the past. The Company also continues to explore further means to strengthen
its insurance coverages including participating in the Ayala Group’s insurance optimization initiative to augment
its existing insurance policies. These include optimizing coverages within a bigger pool to achieve scale and
generate diversification for new types and approaches to loss mitigation to address plant-specific risks.

The Company may be adversely affected by WESM price fluctuations.

Market prices for electric power fluctuate substantially. As electric power can only be stored on a very limited
basis and generally must be produced concurrently with its use, frequent supply and demand imbalances result in
power prices that are subject to significant volatility. Electricity prices may also fluctuate substantially due to
other factors outside of the Company’s control, including, but not limited to:
• changes in the generation capacity in the markets, including additional new supply of power from
development or expansion of power plants, and decreased supply from closure of existing power plants;
• additional transmission capacity;
• electric supply disruptions, such as power plant outages and transmission disruptions;
• changes in power demand or in patterns of power usage, including the potential development of demand-side
management tools and practices;
• the authority of the ERC to review and adjust the prices on the WESM;
• climate, weather conditions, natural disasters, wars, embargoes, terrorist attacks, and other catastrophic
events;
• availability of competitively priced alternative power sources; and
• changes in the power market and environmental regulations and legislation.

These factors may have a material adverse effect on the business, financial condition, and operations of the
Company.

As it has been trading in the spot market since 2006, the Company has gained valuable experience in trading at
the WESM. This experience will allow the Company to continue to take advantage of further opportunities in the
WESM that will allow it to supplement its power generation business.

28
The Company’s ability to produce and source electricity from various sources allows it to exploit trading
opportunities in the WESM by purchasing power for its customers and/or selling excess supply if costs are less
than the prevailing prices in the WESM.

The Company is dependent on the support of AC Energy, Inc.

ACEPH relies on AC Energy for certain shared services such as, but not limited to, human resources, corporate
affairs, legal, finance, and treasury operations. There is no guarantee that AC Energy will continue to provide
these services in the future. Should AC Energy cease to provide these services, the Company’s business, financial
condition, and results of operations could be adversely affected.

While the Company relies on AC Energy for certain shared services, these transactions are done on an arm’s
length basis. The Company likewise pursues strategic hiring for identified critical positions and strengthens the
competencies of its employees to minimize its dependence on AC Energy for certain services.

Risks Relating to the Philippines

The operations of the Company are concentrated in the Philippines, and therefore any downturn in general
economic conditions in the Philippines could have a material adverse impact on the Company.

Historically, the Company’s results of operations have been influenced, and will continue to be influenced, to a
significant degree by the general state of the Philippine economy and as a result, its income and results of
operations depend, to a significant extent, on the performance of the Philippine economy. In the past, the
Philippines has experienced periods of slow or negative growth, high inflation, significant devaluation of the peso,
and the imposition of exchange controls.

In addition, global financial, credit, and currency markets have, since the second half of 2007, experienced, and
may continue to experience, significant dislocations and liquidity disruptions. There is significant uncertainty as
to the potential for a continued downturn in the U.S. and the global economy, which would be likely to cause
economic conditions in the Philippines to deteriorate. There can be no assurance that current or future governments
will adopt economic policies conducive to sustaining economic growth.

Any political instability in the Philippines may adversely affect the Company.

The Philippines has from time to time experienced political and military instability. The Philippine constitution
provides that in times of national emergency, when the public interest so requires, the Government may take over
and direct the operation of any privately-owned public utility or business. In the last few years, there has been
political instability in the Philippines, including public and military protests arising from alleged misconduct by
the previous administration. No assurance can be given that the political environment in the Philippines will
stabilise. Any political instability in the future may result in inconsistent or sudden changes in the economy,
regulations, and policies that affect the Company, which could have an adverse effect on its business, results of
operations, and financial condition.

Any decrease in the credit ratings of the Philippines may adversely affect the Company’s business.

The Philippines is currently rated investment grade by major international credit rating agencies such as Moody’s
S&P and Fitch. While in recent months these rating agencies have assigned positive or stable outlooks to the
Philippines’ sovereign rating, no assurance can be given that these agencies will not in the future downgrade the
credit ratings of the government and, therefore, Philippine companies, including the Company. Any such
downgrade could have an adverse impact on the liquidity in the Philippine financial markets, the ability of the
government and Philippine companies, including the Company, to raise additional financing and the interest rates
and other commercial terms at which such additional financing is available.

Territorial disputes among the Philippines and its neighboring nations may adversely affect the Philippine
economy and the Company’s business.

China and other Southeast Asian nations, such as Brunei, Malaysia, and Vietnam, have been engaged in competing
and overlapping territorial disputes over islands in the West Philippine Sea (also known as the South China Sea).
This has produced decades’ worth of tension and conflict among the neighboring nations. The West Philippine
Sea is believed to house unexploited oil and natural gas deposits, as well as providing home to some of the biggest

29
coral reefs in the world. China, in recent years, has been vocal in claiming its rights to nearly the whole of the
West Philippine Sea – as evidenced by its increased military presence in the area. This has raised conflict in the
region among the claimant countries.

In 2013, the Philippines filed a case to legally challenge China’s claims in the West Philippine Sea and to resolve
the dispute under the United Nations Convention on the Law of the Sea. The case was filed with the Permanent
Court of Arbitration, the international arbitration tribunal at the Hague, Netherlands. In July 2016, the tribunal
ruled in favour of the Philippines and stated that China’s claim was invalid. China rejected the ruling, claiming
that it did not participate in the proceedings as the tribunal had no jurisdiction over the case. News reports have
reported increased Chinese activity in the area, including the installation of missile systems and the deployment
of bomber planes. Other claimants have challenged China’s actions in the West Philippine Sea.

There is no guarantee that tensions will not escalate further or that the territorial disputes among the Philippines
and its neighboring countries, especially China, will cease. In an event of escalation, the Philippine economy may
be disrupted and the Company’s business and financial standing may be adversely affected.

Item 2. Properties

ACEPH and its subsidiaries own the following fixed assets as of 31 December 2019:

In thousands
Properties Location Amount (in PhP)
Land and land improvements Bacnotan, La Union/ Norzagaray, ₱941,211
Bulacan/ Guimaras/ Calaca, Batangas/
Subic, Zambales
Buildings and improvements Makati City/ Bacnotan, La Union/ 6,816,537
Norzagaray, Bulacan/ Guimaras/
Calaca, Batangas/ Subic, Zambales
Machinery and equipment Guimaras/ Norzagaray, Bulacan/ 15,993,446
Bacnotan, La Union/ Calaca, Batangas/
Subic/ Iloilo/ Lapu-Lapu City
Transportation equipment Makati City/ Guimaras/ Norzagaray, 28,664
Bulacan/ Subic/ Bacnotan, La Union/
Calaca, Batangas/ Iloilo / Lapu-Lapu
City
Tools and other miscellaneous assets Makati City/ Guimaras/ Bacnotan, La 95,734
Union/ Calaca, Batangas
Office furniture, equipment and others Makati City/ Guimaras/ Bacnotan, La 117,078
Union/ Norzagaray, Bulacan/ Calaca,
Batangas/ Subic/ Iloilo/ Lapu-Lapu City
Construction in progress Calaca, Batangas 178,077
Total ₱24,170,747
Less: Accumulated depreciation, amortization and impairment 2,606,487
Net ₱21,564,260

Source: Audited consolidated financial statements as of 31 December 2019

The land and land improvements of the Company includes approximately 27,800 square meters (sqm) in
Norzagaray, Bulacan, and Bacnotan, La Union where the power plants are located and 33.7 has. of land in
Barangay Puting Bato and Sinisian, Calaca, Batangas owned by SLTEC. In San Lorenzo Wind Farm, most parcels
of land were acquired which approximate 605,800 sqm but some lots are subject of lease agreements.

The Company’s subsidiary, PHINMA RE, entered into various easements and right of way agreements with
various landowners to support the erection of transmission lines to be used to connect its 54 MW San Lorenzo
Wind Power Project in Guimaras. These agreements convey to PHINMA RE the right to use the item and control
over the utility of the asset. Also, PHINMA RE has entered into various lease agreements with individual
landowners where the present value of the minimum lease payments does not amount to at least substantially all
of the fair value of the leased asset, among others. Such lease terms indicate that the various landowners do not
transfer to the Company substantially all the risks and rewards incidental to the ownership of the parcels of
land. PHINMA RE’s San Lorenzo Wind Power Project, with a carrying value of P4.22 billion and included under
the “Machinery and equipment” account is mortgaged as security for its term loan as at 31 December 2019.

30
The Company’s subsidiary, One Subic, has a lease agreement with SBMA for a parcel of land and electric
generating plant and facilities. One Subic has determined that the risks and rewards related to the foregoing
properties are retained with the lessor (e.g., no bargain purchase option and transfer of ownership at the end of the
lease term).

Buildings and improvements are located in the respective power plants and offices.

Machinery and equipment includes a 52MW Bunker C-Fired power plant in Bulacan, a 21MW Bunker C-Fired
power plant in La Union, capitalized equipment for the One Subic power plant, three (3) Power Barges in Iloilo
and Cebu, the 54MW San Lorenzo Wind Power Project, and the 2x135 MW Circulating Fluidized Bed power
plant under SLTEC. This also includes cost of construction, plant and equipment and other direct costs.

Transportation equipment, tools and other miscellaneous assets, office furniture and equipment are used by
officers and personnel based in Makati, Guimaras, Bacnotan, La Union, Norzagaray, Bulacan, Subic, Barrio
Obrero Iloilo, Lapu-Lapu City, and Calaca, Batangas.

For the next twelve (12) months, the Company will acquire machinery and equipment, furniture and fixtures,
office equipment and transportation equipment which will utilize the Company’s funds or bank loans. Total cost
of the expenditures is not yet available.

Following the completion and implementation of the AC Energy-ACEPH Exchange, the Company will have the
following assets:

Properties Location Amount (in PhP)

Land and land improvements Manapla, Negros Occidental/ Bangui, ₱417,039
Ilocos Norte
Buildings and improvements Bangui, Ilocos Norte 19,910
Machinery and equipment Bangui, Ilocos Norte/ Bais, Negros 5,507,272
Occidental
Transportation equipment Bangui, Ilocos Norte 12,173
Office furniture, equipment and others Makati City/ Bangui, Ilocos Norte/ Bais, 303,315
Negros Occidental
Construction in progress Bangui, Ilocos Norte/ Bais, Negros 187,861
Occidental
Total ₱6,447,570
Less: Accumulated depreciation, amortization and impairment 2,357,950
Net ₱4,089,620
Values as of 31 December 2019, excluding SLTEC which was accounted for in the consolidation of ACEPH

Land and land improvements includes 63.8 has. of land in Barangay Sta. Teresa, Municipality of Manapla, Negros
Occidental owned by Manapla Sun Power Development Corp (MSPDC) and 25.3 has. located in Barangay
Baruyen Bangui and Laoag City owned by NorthWind.

Building and improvements primarily includes plant buildings and structures of NorthWind.

Machinery and Equipment includes wind turbines of NorthWind and solar panels of MSPDC.

Item 3. Legal Proceedings

As of 25 March 2020, ACEPH has no knowledge and/or information of any material pending legal proceedings
to which ACEPH or any of its subsidiaries or affiliates is a party or of which any of their property is the subject.

Item 4. Submission of Matters to a Vote of Security Holders

Except for matters taken up during the annual meeting of stockholders, there was no other matter submitted to a
vote of security holders during the period covered by this report.

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PART II OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Issuer’s Common Equity and Related Stockholders’ Matters

Market Price

ACEPH’s common shares are listed with the Philippine Stock Exchange. Below are the high and low sales prices
as of 25 March 2020 and for the calendar years 2019, 2018 and 2017:

Period High Low

As of 25 March 2020 1.67 1.60
Calendar 2019
Fourth quarter 2.89 2.05
Third quarter 3.06 2.20
Second quarter 3.00 2.20
First quarter 2.89 1.38
Calendar 2018
Fourth quarter 1.23 0.85
Third quarter 1.33 0.94
Second quarter 1.86 1.21
First quarter 1.89 1.48
Calendar 2017
Fourth quarter 1.80 1.52
Third quarter 2.08 1.7
Second quarter 2.22 1.91
First quarter 2.48 2.18

Stockholders

The Company had 3,189 registered shareholders as of 29 February 2020. The following table sets forth the top 20
shareholders of the Company, the number of shares held, and the percentage of ownership as of 29 February 2020.

No. Name of Stockholders No. of Shares Held % of Ownership

1 Philippine Depository and Trust Corporation 7,156,415,247 95.14%
(PCD Nominee Corp.) – Filipino
2 Philippine Depository and Trust Corporation 88,443,798 1.18%
(PCD Nominee Corp.) – Non-Filipino
3 John Eric Tecson Francia 48,981,270 0.65%
4 EMAR Corporation 37,283,937 0.50%
5 Patrice Rene Clausse 17,517,892 0.23%
6 Maria Corazon Gana Dizon 12,432,383 0.17%
7 Dodjie De Gracia Lagazo 6,526,166 0.09%
8 Roman Miguel Garfes De Jesus 6,194,849 0.08%
9 J. Edmond Cuison Garcia 5,623,624 0.07%
10 Gabino Ramon Gonzalez Mejia 5,221,428 0.07%
11 Louis Pintucan Baui 4,461,444 0.06%
12 Janel Mujar Bea 4,214,634 0.06%
13 Ma. Chiara Lubich Hernandez Zotomayor 3,640,921 0.05%
14 Riolita Dela Cruz Inocencio 3,624,550 0.05%
15 Irene Soliman Maranan 3,587,718 0.05%
16 Lyrna Lumajin Esmeralda-Hewitt 3,551,142 0.05%
17 Gerard Joaquin Rivero Estrada 3,377,799 0.04%
18 Jayme Grace Yu Chua 3,340,654 0.04%
19 Princess Marie Angeles Tayag 3,168,236 0.04%
20 Phil Remnants Co. Inc. 2,801,218 0.04%

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Dividends

There is no restriction on payment by ACEPH of dividends other than the availability of retained earnings
following the SEC rule on calculation of available retained earnings for dividend declaration.

The Company declares cash or stock dividends to its common shareholders in amounts determined by the Board
of Directors taking into consideration the results of the Company’s operations, its cash position, investments and
capital expenditure requirements, and unrestricted retained earnings. The Company also declares special cash
dividends where appropriate.

As of 25 March 2020, no dividend has been declared for the year 2019, while dividends declared and paid in
2017 and 2018 are as follows:

Date of Declaration Dividend Rate (in PHP) Amount Record Date

Type (in PHP) *

3 March 2017 Cash 0.04 per share 195,436 17 March 2017

28 February 2018 Cash 0.04 per share 195,591 14 March 2018

Of the Group’s consolidated retained earnings, P1.81 billion is available for dividend declaration as at December
31, 2019. This amount represents the Parent Company’s retained earnings available for dividend declaration
calculated based on the regulatory requirements of the Philippine SEC. The difference between the consolidated
retained earnings and the Parent Company’s retained earnings available for dividend declaration primarily consists
of undistributed earnings of subsidiaries and equity method investees. Stand-alone earnings of the subsidiaries
and share in net earnings of equity method investees are not available for dividend declaration by the Parent
Company until declared by the subsidiaries and equity investees as dividends.

Sale of Unregistered Securities Within the Last Three (3) Years

On 24 June 2019, ACEPH signed a Subscription Agreement with AC Energy, Inc. for 2,632,000,000 new shares
of stock of PHINMA Energy at P1.00 per share. Before the issuance, the total issued and outstanding common
shares of PHINMA Energy was 4,889,774,922 shares. The issuance of 2,632,000,000 new shares of PHINMA
Energy out of its authorized but unissued capital stock increased the total issued and outstanding common shares
to 7,521,774,922. AC Energy, Inc., is a corporation duly organized and existing under Philippine law, with principal
office address at 4F 6750 Building, Ayala Avenue, Makati City. AC Energy, Inc. manages a diversified portfolio of
renewable and conventional power generation projects and engages primarily in power project development
operations and in other businesses located in the Philippines, Indonesia, Vietnam, and Australia.

The requirement of registration under subsection 8.1 of the Securities Regulation Code does not apply to the
issuance of new shares to AC Energy, Inc. as this is an isolated transaction not made in the course of repeated and
successive transactions of a like character and the Company is not an underwriter of such security (Section 10.1(c)
of the Securities Regulation Code). Upon its subscription of the primary shares, AC Energy, Inc. is an existing
stockholder of 2,517,064,700 ACEPH shares by its acquisition of the 51.476% combined stake of PHINMA, Inc.
and PHINMA Corporation in ACEPH, and that of additional 156,476 ACEPH shares under the mandatory tender
offer conducted during the tender offer period. No commission or other remuneration was paid or given directly
or indirectly in connection with the issuance of such capital stock (Section 10.1(e) of the Securities Regulation
Code). Issuance of the shares were approved by the stockholders on 17 September 2019. The said shares were
listed on 3 January 2020.

On 2 April 2007, the Company’s Board of Directors and Stockholders approved a total of 100 million shares to
be taken from the unsubscribed portion of the Company’s authorized shares as (a) stock grants to officers and
managers of the Company; and (b) stock options for directors, officers, and employees of the Company and its
subsidiaries and affiliates, under terms and conditions as may be determined by the Executive Committee of the
Board.

On 8 January 2008, the SEC approved the Company’s Executive Stock Grants Plan and Stock Option Plan.

33
The executive stock grants are given to officers and managers of the Company computed at a predetermined
percentage of their variable compensation pay based on certain performance criteria. The last stock grant resulted
in the issuance of 3,877,014 shares for 2016. No stock grants were issued for 2017, 2018 and 2019.

On 22 July 2013, the Company awarded stock options under the same plan with an exercise price of P2.29 per
share. The stock options expired on 21 July 2016. As of 25 March 2020, there are no outstanding stock options.

Issuance of these shares are exempt from registration under Section 10.2 of the Securities Regulation Code
which states that the Commission may exempt certain transactions if it finds that the requirements for
registration under the Code is not necessary in the public interest or for the protection of the investors such as by
reason of the small amount involved or the limited character of the public offering. The Plan falls under Section
10.2 because the offer is limited only to qualified directors, officers and employees of ACEPH Energy and its
subsidiaries and affiliates.

As of 25 March 2020, the remaining number of shares available for stock grants and stock options is 60,301,331
out of the 100,000,000 shares.

Item 6. Management's Discussion and Analysis or Plan of Operation

2019

The Company posted consolidated net loss amounting to ₱416.90 million for the calendar year ended
31 December 2019 compared to ₱593.16 million net loss in the same period last year.

The tables below summarize the consolidated results of operations of ACEPH’s revenues, costs, and expenses for
the calendar years ended 31 December 2019 and 31 December 2018.

In July 2019, AC Energy and Axia Power signed a share purchase agreement granting AC Energy the right to
purchase Axia Power’s twenty percent (20%) interest in SLTEC. AC Energy assigned the right to ACEPH who
accounted for the business combination using the pooling-of-interests method which resulted in the consolidation
of SLTEC effective 1 July 2019.

Revenues

In thousands 2019 2018 Inc (Dec) %

Revenue from sale of electricity 15,297,719 15,113,601 184,118 1%

Dividend income 7,585 9,117 (1,532) -17%
Rental income 1,359 674 685 102%

Dividend income
Lower dividend income was recognized from the Company’s various investments in 2019 as compared to the
same period last year.

Rental income
Increased as a result of new rental contract entered into by the Parent Company in the first half of the year.

Other Income and Expenses

34
 In thousands 2019 2018 Inc (Dec) %

Interest & other financial

charges (881,963) (433,649) 448,314 103%
Equity in net earnings of
associates & JV (24,461) 532,460 (556,921) -105%
Other income - net 716,053 120,252 595,801 495%

In thousands 2019 2018 Inc (Dec) %

Claims for business interruption 236,306 10,167 226,139 100%

Interest & other financial income 107,602 96,851 10,751 11%
Gain on sale of:
Property and equipment 294,100 254 293,846 115687%
Asset held for sale 14,289 - 14,289 100%
Fly ash and scrap 13,226 - 13,226 100%
Investment 1,375 5,834 (4,459) -76%
Inventory (461) - (461) -
Recovery of costs from third party - 28,626 (28,626) -
Foreign exchnage gain (loss) 12,330 29,329 (16,999) -58%
Loss on derivatives - net (6,851) (15,056) 8,205 -54%
Provision for unrecoverable input tax - (43,712) 43,712 -
Others 44,137 7,959 36,178 455%

Interest and other finance charges

2019 includes non-cash PFRS 16 lease adjustments and interest on ₱5 billion loan.

Equity in net earnings of associates and JV

The Parent Company picked up its 45% share in the net loss of SLTEC from January to June 2019 compared to a
full year equity method of accounting for SLTEC which earned income in 2018.

Other income – net

Went up due to the combined effects of the following:
• Claims for business interruption from SLTEC
• Increase in interest and other financial income due to higher level of investments
• Gain realized from the sale of property and equipment, asset held for sale, fly ash, scrap and investment,
offset by loss on disposal of inventory
• Lower YTD foreign exchange gain on foreign-currency denominated deposits due to depreciation of
peso in 2019.
• Lower loss on derivatives was posted in 2019 as compared to 2018.
• No provision for unrecoverable input tax was recorded in 2019 as compared in 2018.
• Others pertains to reimbursement of feasibility cost, reversal of outstanding payables, refund of excess
business taxes paid, and oil hauling and disposal.

Provision for (benefit from) income tax

35
 In thousands 2019 2018 Inc (Dec) %

Current 68,673 20,699 47,974 232%

Deferred income tax (217,492) 150,904 (368,396) -244%

Provision for income tax - current

Increase due to higher consolidated taxable income in the calendar year ended 31 December 2019.

Provision for deferred income tax

Recognition of deferred tax asset on NOLCO with expected taxable income benefit in future years, offset by the
tax effect of deferred revenue.

36
Material changes in Consolidated Statements of Financial Position accounts

The material changes in the consolidated statements of financial position accounts were mainly due to the
consolidation of SLTEC. In December 2019, the Parent Company entered into a subscription agreement with
Buendia Christiana Holdings Corp. (“BCHC”) to subscribe to the increase in authorized capital stock of BCHC.

ASSETS
In thousands 2019 2018 Inc (Dec) %

Current Assets
Cash and cash equivalents 8,581,663 1,022,366 7,559,297 739%
Short-term investments 100,000 35,326 64,674 183%
Financial assets at fair value through
profit and loss - 743,739 (743,739) -
Fuel & spare parts 855,275 413,673 441,602 107%
Curent portion of
Input tax 148,318 26,332 121,986 463%
Creditable withholding tax 123,700 79,443 44,257 56%
Other current assets 139,915 182,766 (42,851) -23%
Asset held for sale 3,546 34,328 (30,782) -90%

Noncurrent Assets
Property, plant and equipment 21,564,260 5,760,963 15,803,297 274%
Investments and advances 723,165 4,322,684 (3,599,519) -83%
Financial assets at fair value through
other comprehensive income 1,251 257,995 (256,744) -100%
profit and loss - 5,452 (5,452) -
Goodwill and intangible assets 280,193 320,219 (40,026) -12%
Deferred income tax assets - net 612,546 261,346 351,200 134%
Right of use asset 524,936 - 524,936 -
Net current portion of creditable
witholding tax 860,025 704,726 155,299 22%
Other noncurrent assets 2,124,748 1,777,202 347,546 20%

Cash and cash equivalents, short-term investments, and financial assets at fair value through profit and loss

The Consolidated Statements of Cash Flows detail the material changes of these accounts.

Fuel and spare parts

Aside from the effect of the SLTEC consolidation, fuel and spare parts inventory went down due to decrease in
fuel purchases.

Input VAT
Higher due to increase in purchases subject to VAT.

Creditable withholding taxes – current portion

Higher balance brought about by lower income tax due.

Other current assets

Decrease primarily due to the collection of deposits as a result of the expiration of certain contracts.

37
Asset held for sale
Lower due to the sale of the Guimaras Power Plant.

Investments and advances and financial assets at fair value through other comprehensive income
Decrease due to the sale of shares of stock held by the Company and as a result of the SLTEC consolidation.

Property, plant and equipment

Significant increase due to consolidation of SLTEC with ₱15.6 billion plant assets and BCHC with land
holdings.

Goodwill and intangible assets

Decrease brought about by the provision for probable loss in a geothermal service contract.

Deferred income tax assets

Increase mainly due to the recognition of deferred tax asset (“DTA”) on NOLCO, net of reversal of DTA on
deferred income.

Right of use asset

Reported as a result of the application of PFRS 16.

Creditable withholding taxes - noncurrent

Increase due to withholding from customers. Also, the Parent Company had no income tax payments for the
calendar year ended 31 December 2019.

38
LIABILITIES AND EQUITY
In thousands 2019 2018 Inc (Dec) %

Current Liabilities
Accounts payable and other
current liabilties 3,787,714 2,269,398 1,518,316 67%
Income and withholding taxes payable 41,208 11,762 29,446 250%
Current portion of lease liability 33,542 - 33,542 -
Current portion of long-term loans 593,847 265,460 328,387 124%
Short-term loan - 400,000 (400,000) -

Noncurrent Liabilties
Long-term loans - net of current portion 20,192,081 6,071,473 14,120,608 233%
Lease liabilities - net of current portion 526,029 - 526,029 -
Pension & other employee benefits 60,503 40,246 20,257 50%
Deferred income tax liabilities - net 187,624 95,180 92,444 97%
Other noncurrent liabilities 3,176,846 1,383,077 1,793,769 130%

Equity
Capital Stock 7,521,775 4,889,775 2,632,000 54%
Other equity reserve (2,342,103) 18,338 (2,360,441) -12872%
Unrealized fair value gains on equity
instruments at FVOCI (8,129) 59,772 (67,901) -114%
Unrealized fair value losses on derivative
instrument designated under hedge
accounting (14,742) - (14,742) -
Remeasurement losses on defined
benefit plan (7,034) 536 (7,570) -1412%
Retained earnings 2,922,514 3,303,708 (381,194) -12%
Non-controlling Interests 2,978,580 45,450 2,933,130 6454%

Accounts payable and other current liabilities

Higher due to increase in purchases on account and includes the current portion of payable to Axia Power.

Income and withholding taxes payable

Increase mainly due to higher tax withheld from purchases.

Current and noncurrent lease liability

Recognized due to the application of PFRS 16.

Short-term loan
Decrease due to the prepayment and amortization of loans.

Long-term loans – current and noncurrent

Increase due to ₱10.7 billion balance of SLTEC loan and the ₱5 billion loan availed by the Parent Company in
November 2019.

39
Pension and other employee benefits
Increase due to the accrual of retirement expense for the period.

Deferred tax liabilities - net

Higher due to the tax effect of the recognition of right of use asset as a result of the application of PFRS 16.

Other noncurrent liabilities

Increase brought about by the purchase of twenty percent (20%) interest of Axia Power in SLTEC on account.

Capital stock
Increase due to the capital infusion of the majority stockholder.

Other equity reserve and non-controlling interests

Due to the effect of the consolidation of SLTEC.

Unrealized fair value gains on equity instruments at FVOCI

Decrease due to the disposal of the shares of stocks held by the Company.

Unrealized fair value losses on derivative instrument designated under hedge accounting
Ineffective portion of the coal hedge entered into by the Parent Company.

Remeasurement losses on defined benefit plan

Losses recorded in 2019 as compared to gain in 2018.

Retained earnings
Went down due to net loss incurred during the period and the impact of the initial application of PFRS 16.

40
Key Performance Indicators of the Company

The table below sets forth the comparative performance indicators of the Company:

31-Dec-19 31-Dec-18 Increase (Decrease)

KPI Formula Audited Audited Difference %

Liquidity Ratios

Current ratio Current assets 2.84 1.74 1.10 63

Current liabiltiies

Cash + Short-term
investments +
Acid test ratio Receivables +
Financial assets
at FVTPL 2.55 1.49 1.06 71
Current liabilities

Solvency Ratios

Debt/Equity ratio Total Liabilities 2.58 1.26 1.32 105

Total Equity

Asset to equity Total Assets 3.58 2.26 1.32 58

ratio Total Equity

Earnings before
Interest coverage interest & tax (EBIT) 0.36 0.03 0.33 1,100
ratio Interest expense

Debt - Cash &

cash equivalents,
short-term
Net debt to investments &
equity ratio financial assets
at FVTPL 1.80 1.05 0.75 71
Total equity

41
 31-Dec-19 31-Dec-18 Increase (Decrease)
KPI Formula Unaudited Unaudited Difference %

Profitability Ratios

Net income
Return on equity after taxes -4.28% -6.77% 2.49 (37)
Average
stockholder's equity

Net income
Return on assets after taxes -1.42% -2.99% 1.57 53
Average total assets

Asset turnover Revenues 52.20% 76.22% (24.02) (32)

Average total assets

Current ratio and Acid test ratio

Increased due to the higher cash and cash equivalents provided by the issuance of capital stock. On the other hand,
current liabilities increased by fifty-one percent (51%) due to increase in purchases on account and taxes payable.

Debt to equity ratio and Asset to equity ratio

Rose due to higher total liabilities and total assets tempered by thirty-three percent (33%) increase in equity
resulting from issuance of new shares of stocks.

Interest coverage ratio

Went up due to net income before interest.

Net debt to equity ratio

Increased due to additional ₱5 billion loan availed in November 2019.

Return on equity and assets

Went up due to lower net loss incurred in 2019.

Asset turnover
Went down as revenues increased by only one percent (1%) while average total assets increased by forty-eight
percent (48%).

42
Material events and uncertainties

• There were no events that triggered direct or contingent financial obligation that was material to the
Company. There were no contingent assets or contingent liabilities since the last annual balance sheet
date.

• There were no material off-balance sheet transactions, arrangements, obligations, and other relationships
of the Company with unconsolidated entities or other persons created during the reporting period.

• Except as disclosed in Note 40 (Events after the Reporting Period of the Audited Consolidated Financial
Statements), there were no other material events that had occurred subsequent to the balance sheet date.

• Capital expenditures are planned to rehabilitate and improve the availability and capacity of generation
assets. These will be funded by internal resources.

• Any known trends, events or uncertainties that have had or that were reasonably expected to have
material favorable or unfavorable impact on net revenues/income from continuing operations

- The results of operations of the Company and its subsidiaries depend, to a significant extent, on the
performance of the Philippine economy.
- The current highly competitive environment and operation of priority-dispatch variable renewable
energy have driven market prices of electricity downward, resulting in lower margins.
- However, limitations in the supply side and unscheduled outages of plants have driven WESM prices
upwards. Movements in the WESM prices could have a significant favorable or unfavorable impact
on the Company’s financial results.

• There were no known trends or any known demands, commitments, events or uncertainties that will
result in or that are reasonably likely to result in the registrant’s liquidity increasing or decreasing in any
material way.

• There were no significant elements of income or loss that did not arise from continuing operations that
had material effect on the financial condition or result of operations.

• There were no operations subject to seasonality and cyclicality except for the operation of PHINMA
RE’s wind farm. The wind regime is high during the northeast monsoon (amihan) season in the first and
fourth quarters when wind turbines generate more power to be supplied to the grid. The generation drops
in the second and third quarters due to low wind regime brought about by the southwest monsoon
(habagat).

2018

The Company posted consolidated net loss amounting to P =593.16 million for the calendar year of 2018 compared
to P
=347.17 million net income in the same period last year.

The tables below summarize the consolidated results of operations of ACEPH’s revenues, costs and expenses for
the calendar year ended December 31, 2018 and 2017.

Revenues

In thousands 2018 2017 Inc (Dec) %

Revenue from sale

of electricity 15,113,601 17,011,044 (1,897,443) -11%
Dividend income 9,117 8,483 634 7%
Rental income 674 706 (32) -5%

43
 • The decrease in revenue from sale of electricity was attributable to the lower energy sales from the Parent
Company’s power supply business as a result of the expiration of certain customers’ contracts.
• The dividend income received from the Company’s various investments were higher in the calendar year
of 2018.
• Rental income decreased as the Parent Company used the previously leased space for its own operations.

Costs and Expenses

In thousands 2018 2017 Inc (Dec) %

Costs of sale of electricity 15,109,491 16,929,239 (1,819,748) -11%

• The decrease in the costs of sale of electricity was mainly due to lower energy sales resulting in lower
energy purchased. Reduction in transmission costs, repairs and maintenance, salaries and rent were also
reported in 2018.

Other Income and Expenses

In thousands 2018 2017 Inc (Dec) %

Interest & other financial

charges (433,649) (513,566) 79,917 -16%
Equity in net income of
associates & JV 532,460 1,024,995 (492,535) -48%
Other income - net 120,252 105,617 14,635 14%

In thousands 2018 2017 Inc (Dec) %

Interest & other financial

income 96,851 87,185 9,666 11%
Foreign exchange gain (loss) - net 29,329 (8,373) 37,702 450%
Gain (loss) on derivatives - net (15,056) 9,399 (24,455) -260%
Gain (loss) on sale of:
Investments 5,834 - -
Property, plant &
equipment 261 - 261 -
Provision for unrecoverable input tax (43,712) - (43,712) -
Others 46,745 17,423 29,322 168%

44
 ● Interest and other finance charges went down due to payment of the amortization of long-term loans of
the Parent Company and its subsidiary.
● Lower equity in net income of associates and JV were posted in 2018 as compared to 2017 due to lower
generation from unscheduled shutdowns of SLTEC during the third quarter of 2018.
● Other income - net went up due to the combined effects of the following:
▪ Increase in interest and other financial income due to higher fair value gains on investments
held for trading and higher level of investments.
▪ Higher YTD foreign exchange gain on foreign-currency denominated deposits due to
depreciation of peso in 2018.
▪ Loss on derivatives was posted in 2018 as compared to gain on derivatives in 2017. This was
primarily from forward contracts entered into in 2017 that matured in 2018.
▪ Gain was realized on the sale of property, plant and equipment and investment in 2018.
▪ Reimbursement of expenses was collected in 2018.

Provision for (benefit from) income tax

In thousands 2018 2017 Inc (Dec) %

Current 20,699 72,722 (52,023) -72%

Deferred income tax 150,904 (376,400) 527,304 -140%

● The decrease in the provision for income tax - current was due to lower consolidated taxable income in
2018.
• Lower benefit from deferred income tax in 2018 was due to the tax effect of deferred revenue and non-
recognition of deferred tax asset on NOLCO in 2018.

45
Material changes in Consolidated Statements of Financial Position accounts
ASSETS

In thousands 2018 2017 Inc (Dec) %

Current Assets
Cash and cash equivalents 1,022,366 1,300,999 (278,633) -21%
Short-term investments 35,326 478,362 (443,036) -93%
Investments held for trading - 1,483,519 (1,483,519) -
Financial assets at fair value through
profit or loss (FVTPL) 743,739 - 743,739 -
Fuel & spare parts 413,673 321,525 92,148 29%
Current portion of:
Input VAT 26,332 20,127 6,205 31%
Creditable withholding taxes 79,443 598,526 (519,083) -87%
Other current assets 182,766 281,593 (98,827) -35%
Asset held for sale 34,328 - 34,328 -

Noncurrent Assets
Property, plant & equipment 5,760,963 6,130,201 (369,238) -6%
Investments and advances 4,322,684 4,057,602 265,082 7%
Financial assets at:
Fair value through other comprehensive
income (FVOCI) 257,995 - 257,995 -
FVTPL 5,452 - 5,452 -
Available-for-sale investments - 293,127 (293,127) -
Investment properties 13,085 50,915 (37,830) -74%
Goodwill and other intangible assets 320,219 380,146 (59,927) -16%
Deferred income tax assets - net 261,346 430,280 (168,934) -39%
Net of current portion:
Creditable withholding tax 704,726 - 704,726 -

• The Consolidated Statements of Cash Flows detail the material changes in cash and cash equivalents,
short-term investments, investments held for trading and financial assets at fair value through profit
or loss.
● Fuel & spare parts increased due to increase in fuel purchases coupled with higher fuel cost.
● Current portion of VAT increased due to higher deferred input tax.
● The Parent Company has no taxable income in 2018 which resulted in reclassification of its current
creditable withholding tax to noncurrent.
● Other current assets decreased primarily due to the application of deposit receivable. and
reclassification from current to noncurrent.
● Assets held for sale were recognized in 2018. Investment properties on the other hand decreased
due to reclassification of the property to asset held for sale account.
● The decrease in property, plant and equipment was primarily due to depreciation recorded in 2018
and collection of insurance claim.
● The increase in investments in associates and joint ventures was brought about by reclassification of
investment in subsidiary (PHINMA Solar) to investment in joint venture.
● With the implementation of PFRS 9, available-for-sale investments was reclassified into financial
assets at fair value through other comprehensive income and fair value through profit or loss. The
Parent Company sold its financial assets at fair value through other comprehensive income in 2018.
● Investment properties decreased due to the depreciation expense recorded during the year and the
reclassification to asset held for sale.
● Goodwill and other intangible assets dropped due to provision for probable losses on deferred
exploration costs set up in 2018.
• Deferred income tax assets decreased mainly due to the non-recognition of deferred tax asset of
NOLCO and reversal of deferred income.

46
LIABILITIES AND EQUITY

In thousands 2018 2017 Inc (Dec) %

Current Liabilities
Short-term loans 400,000 - 400,000 -
Accounts payable and other current liabilties 2,269,398 2,758,982 (489,584) -18%
Income and withholding taxes payable 11,762 42,308 (30,546) -72%
Due to stockholder 16,651 15,300 1,351 9%
Current portion of long-term loans 265,460 226,949 38,511 17%

Noncurrent Liabilties
Long-term loans - net of current porion 6,071,473 6,622,427 (550,954) -8%
Pension & other employment benefits 40,246 36,110 4,136 11%
Deferred tax income liabilities - net 95,180 111,387 (16,207) -15%
Other noncurrent liabilities 1,383,077 1,805,511 (422,434) -23%

Equity
Unrealized fair value gains on equity
instruments at FVOCI 59,772 - 59,772 -
Unrealized fair value gains on AFS
investments - 85,924 (85,924) -
Remeasurement gains (losses)
on defined benefit plan 536 (3,130) 3,666 -117%
Accumulated share in other comprehensive
income of a joint venture (2,193) (3,413) 1,220 -36%
Retained earnings 3,303,708 4,018,980 (715,272) -18%
Non-controlling Interests 45,450 78,110 (32,660) -42%

• Short-term loan was availed in the third quarter of 2018.

• Accounts payable and other current liabilities decreased due to the settlement of purchases on
account and lower level of payables to SLTEC whose Unit 2 was not operating as of yearend.
• The decrease in income and withholding taxes payable was mainly due to lower tax withheld at the
end of 2018.
• Due to stockholders account’s increase was brought about by unclaimed cash dividend checks in
2018.
• Principal amounts payable within 1 year were reclassified from noncurrent to current portion of
long-term loans.
• Pension and other employees’ benefits increased due to the accrual of retirement expense in 2018.
• Deferred income tax liabilities – net decreased due to tax effect of the depreciation of leasehold
rights, and excess of cost over fair value of power plant.
• Other noncurrent liabilities decreased due to amortization of deferred revenue in 2018.
• The movements in Unrealized fair value gains on equity instruments at FVOCI and Unrealized fair
value gains on AFS investments were due to the initial application of PFRS 9.
• The movement of remeasurement gains (losses) on defined benefit plan was due to the actuarial
gains booked in 2018.
• Accumulated share in other comprehensive income of a joint venture decreased due to the
adjustment in remeasurement loss on defined benefit plan of MGI and SLTEC.
• Retained earnings decreased due to cash dividends paid and net loss incurred in 2018.
• Non-controlling interests decreased due to net loss incurred in 2018.

47
Key Performance Indicators

The key performance indicators of ACEPH and its majority owned subsidiaries, as consolidated, are the following:

31-Dec-18 31-Dec-17 Increase (Decrease)

KPI Formula Audited Audited Difference %

Liquidity Ratios

Current ratio Current assets 1.74 2.37 (0.63) (27)

Current liabiltiies

Cash + Short-term
Acid test ratio investments + Accounts
Receivables
+ Other liquid assets 1.49 1.97 (0.48) (24)
Current liabilities

Solvency Ratios

Debt/Equity ratio Total Liabilities 1.26 1.27 (0.01) (1)

Total Equity

Asset to equity ratio Total Assets 2.26 2.27 (0.01) (0)

Total Equity

Earnings before interest

Interest coverage & tax (EBIT) 0.03 1.08 (1.06) (97)
ratio Interest expense

Debt - Cash &

Net debt to cash equivalents 1.13 0.91 0.22 24
equity ratio Total equity

31-Dec-18 31-Dec-17 Increase (Decrease)

KPI Formula Unaudited Unaudited Difference %

Profitability Ratios

Return on equity Net income after tax -6.77% 3.83% (10.60) (277)
Average
stockholder's equity

Return on assets Net income after taxes -2.96% 1.68% (4.64) (277)
Total assets

Asset turnover Revenues 75.58% 82.16% (6.58) (8)

Total assets

48
Current ratio & Acid test ratio
Current ratio & acid test ratio decreased due to the 28% decrease in current assets primarily brought
about by the decrease in cash & cash equivalents used in operating activities and reclassification of
creditable withholding tax from current to noncurrent. On the other hand, current liabilities increased by
3% due to increase in current portion of long-term loans and availment of short-term loan in 2018.

Debt to equity ratio and Asset to equity ratio

Debt to equity ratio and asset to equity ratio slightly increased due to the 8% decrease in equity brought
about by payment of cash dividends and net loss incurred in 2018.

Interest coverage ratio

Interest coverage ratio dropped brought about by net loss before interest and tax in 2018.

Net debt to equity ratio

Net debt equity ratio slightly increased due to the decline in equity.

Return on equity and assets

Return on equity and assets went down due to net loss incurred in the period.

Asset turnover
Asset turnover slightly decreased as revenues decreased by 11%.

49
Material events and uncertainties

• There were no events that trigger direct or contingent financial obligation that was material to the
Company. There were no contingent assets or contingent liabilities since the last annual balance
sheet date.

• There were no material off-balance sheet transactions, arrangements, obligations and other
relationships of the Company with unconsolidated entities or other persons created during the
reporting period.

• There were no material events that had occurred subsequent to the balance sheet date except for the
event after the reporting period disclosed in Note 39 of the Consolidated Financial Statements.

• Any material commitments for capital expenditures, the general purpose of such commitments, and
the expected sources of funds for such expenditures -
- The Company has projects in solar roof, 40MW expansion of the Guimaras wind farm and
45MW solar farm in Batangas. Negotiations with interested parties and various distribution
utilities are on-going. The plan for funding these projects will come partly from participation of
offtakers and partly from external capital.

• Any known trends, events or uncertainties that have had or that were reasonably expected to have
material favorable or unfavorable impact on net revenues/income from continuing operations
- The results of operations of the Company and its subsidiaries depend, to a significant extent, on
the performance of the Philippine economy.
- The current highly competitive environment and operation of priority-dispatch variable
renewable energy have driven market prices of electricity downward, resulting in lower
margins.
- Movements in the WESM prices could have a significant favorable or unfavorable impact on
the Company’s financial results.

• Any known trends or any known demands, commitments, events or uncertainties that will result in
or that are reasonably likely to result in the registrant’s liquidity increasing or decreasing in any
material way – Material to the Company’s liquidity and profitability is the negotiations to reduce
supply costs. The Company is also pursuing customer contracts at higher prices from both the
retail and wholesale markets. The Company has identified low-earning assets and have offered
these in the market. The Company is also looking at cost optimization and reduction in operating
expenses at the plant level as well as head office.

• There were no significant elements of income or loss that did not arise from continuing operations
that had material effect on the financial condition or result of operations.

• There were no operations subject to seasonality and cyclicality except for the operation of PHINMA
Renewable’s wind farm. The wind regime is high during the northeast monsoon (“amihan”) season
in the first and fourth quarter when wind turbines generate more power to be supplied to the grid.
The generation drops in the second and third quarter due to low wind regime brought about by the
southwest monsoon (“habagat”).

Item 7. Financial Statements and Supplementary Schedules

The consolidated financial statements and schedules as listed in the accompanying Index to Financial Statements
and Supplementary Schedules are filed as part of this Form 17 A.

Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

The Company has engaged the services of SGV & Co. during the two most recent fiscal years. There were no
disagreements with SGV & Co. on any matter of accounting principles or practices, financial statement
disclosures, or auditing scope or procedure.

50
The Audit Committee of ACEPH proposed that the accounting firm of SyCip Gorres Velayo & Co. (SGV) be
retained as the Company’s external auditor for the year 2019. The members of the Audit Committee are as follows:

a. Ms. Ma. Aurora Geotina-Garcia Chairman (effective 17 September 2019 until present)
b. Ms. Corazon S. de la Paz-Bernardo Chairman (until 16 September 2019)
c. Mr. Jesus P. Francisco+ Member (effective 17 September 2019 until 14
December 2019)
d. Ms. Consuelo D. Garcia Member (effective 17 September 2019 until present)
e. Mr. Edward S. Go Member (until 16 September 2019)
f. Mr. Jose Rene Gregory Almendras Member (1 July 2019 to 16 September 2019)
g. Mr. Victor J. del Rosario Member (until 1 July 2019)

SGV has been ACEPH’s Independent Public Accountant since 1969. The Audit Committee, the Board, and the
stockholders of ACEPH approved the engagement of SGV as the Company’s external auditor for 2019. The
services rendered by SGV for the calendar year ended 31 December 2019 included the examination of the parent
and consolidated financial statements of the Company, assistance in the preparation of the Company’s annual
income tax return, and other services related to filing of reports made with the SEC.

The engagement partner who conducted the audit for Calendar Year 2019 was Mr. Benjamin N. Villacorte, an
SEC accredited auditing partner of SGV. This is Mr. Villacorte’s second year as engagement partner for the
Company.

ACEPH complied with SRC Rule 68, paragraph 3(b)(ix) which requires the rotation of external auditors or signing
partners every five (5) years of engagement and the mandatory two-year cooling-off period for the re-engagement
of the same signing partner or individual auditor.

Audit and Audit-Related Fees

ACEPH paid SGV the amount of Php 1,200,000.00 for each of calendar years 2018 and 2017 for professional
services rendered for the audits of the Company’s annual financial statements and for services that are normally
provided by external auditors in connection with statutory and regulatory filings or engagement. For 2019, audit
fees amounted to Php 1,260,000.00.

SGV was also engaged to perform services in support of the AC Energy-ACEPH Exchange, including the review
of 30 September 2019 interim financial statements, review of the offering circular, issuance of comfort letters,
and related procedures. Fees for these services amounted to Php 6,000,000.00, exclusive of VAT.

The Audit Committee discusses the nature and scope of the audit with the external auditor before the audit
commences. It pre-approves audit fees, plans, scope, and frequency during its third quarter committee meeting. It
evaluates and determines non-audit work by the external auditor and reviews the non-audit fees paid to the external
auditor, both in relation to their significance to the audit and in relation to the Company’s total expenditure on
consultancy.

Tax fees

No tax consultancy services were secured from SGV for the past two years.

All other fees (Non-Audit Fees)

ACEPH also engaged SGV as third-party auditor of the Company’s stockholders’ meeting voting procedures and
results, for an engagement fee of Php 75,000.00

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PART III. CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers of the Issuer.

Board of Directors

The following have been nominated to the Board for election at the annual stockholders’ meeting, and have
accepted their respective nominations:

JAIME AUGUSTO ZOBEL DE AYALA FERNANDO ZOBEL DE AYALA

GERARDO C. ABLAZA, JR. JOSE RENE GREGORY D. ALMENDRAS
JOHN ERIC T. FRANCIA JOHN PHILIP S. ORBETA
CONSUELO D. GARCIA MA. AURORA D. GEOTINA-GARCIA
SHERISA P. NUESA MELINDA L. OCAMPO
MARIO ANTONIO V. PANER

The nominees were formally nominated to the Corporate Governance and Nomination Committee of the Board
by a minority stockholder of the Company, Francisco L. Viray, who holds two (2) common shares, or 0.00% of
the total outstanding voting shares of the Company, and who is not related to any of the nominees. Mr. Mario
Antonio V. Paner and Mses. Consuelo D. Garcia, Ma. Aurora Geotina-Garcia, Sherisa P. Nuesa, and Melinda L.
Ocampo, are all being nominated as independent directors in accordance with Securities Regulation Code
(“SRC”) Rule 38 (Requirements on Nomination and Election of Independent Directors). The Corporate
Governance and Nomination Committee evaluated the qualifications of all the nominees and prepared the final
list of nominees in accordance with the Amended By-Laws and the Charter of the Board of the Company. None
of the nominees for independent directors are incumbent directors.

Only nominees whose names appear on the final list of candidates are eligible for election as directors. No
nominations will be entertained or allowed on the floor during the annual stockholders’ meeting.

The Board of ACEPH is responsible for the overall management and direction of the Company. The Board meets
quarterly, or as often as required, to review and monitor the Company’s financial position and operations and
decide on such other matters as may be required by law to be decided by the Board. The Company’s directors are
elected at the annual stockholders’ meeting to hold office for one year and until their respective successors have
been elected and qualified.

Fernando M. Zobel de Ayala, Chairman of the Board of the Company, owns 3.15% of the outstanding capital
stock of the Company. No other director holds more than two percent (2%) of the Company’s issued and
outstanding capital stock.

A summary of the qualifications of the incumbent directors who are nominees for directors for election at the
stockholders’ meeting, and the nominees for independent director and incumbent officers is set forth below.

The officers of the Company are elected annually by the Board during its organizational meeting.

Board of Directors

Fernando Zobel de Ayala Chairman

Jaime Augusto Zobel de Ayala Vice-Chairman
John Eric T. Francia President and CEO, Executive Member
Gerardo C. Ablaza, Jr.
Jose Rene Gregory D. Almendras
John Philip S. Orbeta
Sherisa P. Nuesa Lead Independent Director
Melinda L. Ocampo Independent Director
Consuelo D. Garcia Independent Director
Ma. Aurora D. Geotina-Garcia Independent Director
Mario Antonio V. Paner Independent Director

Fernando M. Zobel de Ayala, Filipino, 60, was elected as director on 23 July 2019. He has been a Director of
Ayala Corporation since May 1994, and its President and COO since April 2006. He holds the following positions

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in publicly listed companies: Chairman of Ayala Land, Inc. (“ALI”) and Manila Water Company, Inc. (“MWC”);
Director of Bank of the Philippine Islands (“BPI”), Globe, and Integrated Micro-Electronics, Inc. (“IMI”); and
Independent Director of Pilipinas Shell Petroleum Corporation. He is the Chairman of AC International Finance
Ltd., Liontide Holdings, Inc., AC Energy, Inc., Ayala Healthcare Holdings, Inc., Automobile Central Enterprise,
Inc., Alabang Commercial Corporation, Accendo Commercial Corp., and Hero Foundation, Inc.; Co-Chairman
of Ayala Foundation, Inc. and Ayala Group Club, Inc.; Vice-Chairman of ALI Eton Property Development
Corporation, Aurora Properties Incorporated, Vesta Property Holdings, Inc., Ceci Realty Inc., Fort Bonifacio
Development Corporation, Bonifacio Land Corporation, Emerging City Holdings, Inc., Columbus Holdings, Inc.,
Berkshires Holdings, Inc., and Bonifacio Art Foundation, Inc.; Director of Live It Investments, Ltd., AG Holdings
Ltd., AC Infrastructure Holdings Corporation, Asiacom Philippines, Inc., Ayala Retirement Fund Holdings, Inc.,
AC Education, Inc., and AC Ventures Holding Corp., Honda Cars Philippines, Inc., Isuzu Philippines Corporation,
and Manila Peninsula. He graduated with a B.A. in Liberal Arts at Harvard College in 1982 and holds a CIM from
INSEAD, France.

Jaime Augusto M. Zobel de Ayala, Filipino, 61, was elected as director on 23 July 2019. He has been a Director
of Ayala Corporation since May 1987, and its Chairman and CEO since April 2006. He holds the following
positions in publicly-listed companies: Chairman of Globe, IMI and BPI; and Vice Chairman of ALI and MWC.
He is also the Chairman of AC Education, Inc., Ayala Retirement Fund Holdings, Inc., AC Industrial Technology
Holdings, Inc., AC Ventures Holding Corp., AC Infrastructure Holdings Corporation, and Asiacom Philippines,
Inc.; Co-Chairman of Ayala Foundation, Inc. and Ayala Group Club, Inc.; Director of Alabang Commercial
Corporation, Ayala International Pte. Ltd., AC Energy, Ayala Healthcare Holdings, Inc., Light Rail Manila
Holdings, Inc., and AG Holdings Limited. He graduated with a B.A. in Economics (Cum Laude) at Harvard
College in 1981 and obtained an MBA at the Harvard Graduate School of Business Administration in 1987.

John Eric T. Francia, Filipino, 48, was elected as director on 9 May 2019 to serve effective 15 May 2019. He is
the President and Chief Executive Officer of AC Energy, Inc. and Chairman, President and Chief Executive
Officer of ACE Enexor, Inc. He has been a Managing Director and member of the Management Committee and
the Ayala Group Management Committee since January 2009. He is also a member of the Board of Directors of
the following companies within the Ayala Group: Purefoods International Limited, AC Education, Inc., AC
Ventures Holding Corp., Ayala Aviation Corporation, Zapfam, Inc., Northwind Power Development Corporation,
North Luzon Renewable Energy Corporation, Light Rail Manila Corporation, AC Infrastructure Holdings
Corporation, MCX Tollway, Inc., Ayala Healthcare Holdings, Inc., Ayala Hotels, Inc., Michigan Holdings, Inc.
and others. He received his undergraduate degree in Humanities and Political Economy (Magna Cum Laude) from
the University of Asia & the Pacific. He then completed his master’s degree in Management Studies at the
University of Cambridge in the United Kingdom, graduating with First Class Honors.

Gerardo C. Ablaza, Jr., Filipino, 66, was elected as director on 1 July 2019. He is a management consultant of
Ayala Corporation and a member of the Board of Directors of AC Energy, Inc. He served as President and CEO
of MWC from June 2010 to April 2017 and remains involved as a Director and member of various management
committees. From 1998 to April 2009, he was President and CEO of Globe. In June 2015, he became a member
of the International Advisory Panel of the Institute for Water Policy under the Lee Kuan Yew School of Public
Policy in Singapore. He graduated as Summa Cum Laude and obtained his degree in Liberal Arts (Honors
Accelerated Program), Major in Mathematics from the De La Salle University.

Jose Rene Gregory D. Almendras, Filipino, 60, was elected as director on 1 July 2019. He is the President &
CEO of AC Infrastructure Holdings Corporation. Concurrently, he is a Managing Director and Head of Public
Affairs and a member of Ayala Corporation’s Management Committee. He also serves as a member of the Board
of Directors of the following companies within the Ayala Group: AC Energy, Inc., Light Rail Manila Holdings,
Inc., MCX Tollway Inc. and AF Payments Inc. In the public sector, Mr. Almendras served as Secretary of Energy,
Cabinet Secretary, and Secretary of Foreign Affairs. He landed his first CEO position as the President of City
Savings Bank of the Aboitiz Group at the age of 37. During his stint as President of MWC, it was awarded as one
of the Best Managed Companies in Asia, the Best in Corporate Governance, one of the Greenest Companies in
the Philippines, and hailed as the world’s Most Efficient Water Company. In June 2016, he received the
Presidential Award, Order of Lakandula, Rank of Gold Cross Bayani, highest honor given to a civilian by the
Republic of the Philippines.

John Philip S. Orbeta, Filipino, 58, was elected as director on 1 July 2019. He is a Managing Director, the Chief
Human Resources Officer and Group Head for Corporate Resources of Ayala Corporation. He is a member of
Ayala Corporation’s Management Committee since May 2005 and the Ayala Group Management Committee
since April 2009. He is also currently the Chairman of Ayala Aviation Corporation, Ayala Group HR Council,

53
Ayala Group Corporate Security Council, and Ayala Business Clubs; Chairman and President of HCX
Technology Partners, Inc.; and Vice Chairman of Ayala Group Club, Inc. Mr. Orbeta also serves as Director of
AG Counselors Corporation, AC Industrial Technology Holdings, Inc., Ayala Healthcare Holdings, Inc., Ayala
Retirement Fund Holdings, Inc., Zapfam, Inc., BPI Family Bank, Inc., ALFM Growth Fund, Inc., ALFM Money
Market Fund, Inc., ALFM Peso Bond Fund, Inc., ALFM Dollar Bond Fund, Inc., ALFM Euro Bond Fund, Inc.,
and the Philippine Stock Index Fund Corp.; and as Trustee of Ayala Foundation, Inc. Mr. Orbeta served as the
President and CEO of AC Industrial Technology Holdings, Inc. (formerly Ayala Automotive Holdings
Corporation) and Automobile Central Enterprise, Inc. (Philippine importer of Volkswagen), as Chairman and
CEO of Honda Cars Makati, Inc., Isuzu Automotive Dealership, Inc. and Iconic Dealership, Inc.; and as Board
Director of Honda Cars Cebu, Inc. and Isuzu Cebu, Inc. Prior to joining Ayala Corporation, he was the Vice
President and Global Practice Director of the Human Capital Consulting Group at Watson Wyatt Worldwide (now
Willis Towers Watson). He graduated with a degree in A.B. Economics from the Ateneo de Manila University.

Sherisa P. Nuesa, Filipino, 65, is an independent director of the Company elected on 17 September 2019. She is
a former Managing Director of the Ayala Corporation until her retirement in 2011. Currently, she is a member of
the boards of directors of MWC, IMI, Far Eastern University, Inc., FERN Realty Corp, and the ALFM Mutual
Funds Group. She is also a member of the boards of trustees of the Institute of Corporate Directors, the Judicial
Reform Initiative, and the Financial Executives Foundation. As a former Managing Director of Ayala Corporation,
she served in various senior management positions, namely: Chief Finance Officer and Chief Administrative
Officer of IMI (January 2009 to July 2010); Chief Finance Officer of MWC (January 2000 to December 2008);
3) Group Controller and later Vice President for Commercial Centers of ALI (January 1989 to March 1999); and
as a member of the boards of various subsidiaries of ALI, MWC, and IMI. She graduated (Summa cum laude)
from the Far Eastern University with a Bachelor of Science Degree in Commerce. She is a Certified Public
Accountant. She also took post graduate courses in Harvard Business School (Advance Management Program
and an audit program for board directors) and in Stanford University (Financial Management). She obtained her
Master of Business Administration degree from the Ateneo-Regis Graduate School of Business in 2011.

Melinda L. Ocampo, Filipino, 63, is an independent director of the Company elected on 17 September 2019. She
served as President of the Philippine Electricity Market Corporation (“PEMC”) from 27 March 2009 until 31 July
2017. PEMC is a nonstock, non-profit private organization that governs the country’s first and only wholesale
electricity spot market. Her experiences include developing policies and programs during her stint as
Undersecretary of the Department of Energy from May 2005 to December 2007. She was also involved in electric
utility system regulation, planning and technical feasibility of electric power generation, transmission and
distribution systems including granting of electric franchises to both electric cooperatives and private distribution
utilities. She has extensive knowledge when it comes to energy regulation including petroleum and electricity
pricing and competition rules and has provided consulting services to legislative leaders on electricity pricing,
particularly on the power purchased adjustments. She was also a consultant in the World Bank’s project regarding
Electric Cooperatives system loss reduction program and to the USAID under the Asia Foundation in its project
to introduce the open access and competition in the coverage of Philippine Economic Zone (PEZA). She was a
board member (February 1996 to June 1998) and Chairman (August 1998 to August 2001) of the Energy
Regulatory Board (now Energy Regulatory Commission). She served as a division chief (October 1979 to
November 1988) and a director (December 1988 to February 1996) of the National Electrification Administration.
In 1977, she obtained her Bachelor of Science degree in Commerce, Major in Accounting, from the Republic
Central Colleges, in Angeles City, Pampanga. She received her Masters Degree in Business Administration from
the University of the Philippines, Diliman, Quezon City. She is a certified public accountant.

Consuelo D. Garcia, Filipino, 65, is an independent director of the Company elected on 17 September 2019. She
is presently a Senior Consultant for Challengers and Growth Markets, Asia for ING Bank. Currently, she is a
member of the board of the Financial Executives Institute of the Philippines (“FINEX”) and of the Finex
Academy. She is the liaison director to the Finex Capital Markets Development Committee and is a member of
the Ethics and Sustainable Development Working Group of the International Association of Financial Executives
Institute (IAFEI). She is also a director of a family-owned business - Saje Wellness Corporation. She was
formerly the Country Manager and Head of Clients of ING Bank N.V. Manila, Philippines from September 2008-
November 15, 2017. She joined ING in February 1991 as Head of Financial Markets. She previously worked with
SyCip, Gorres, Velayo & Co. and Bank of Boston. She served as Director of the Board and concurrently Chairman
of the Capital Markets Committee of the Bankers Association of the Philippines (“BAP”) and of Finex for many
years. She was a former Board of Director and Treasurer of the European Chamber of Commerce of the
Philippines (“ECCP”) from 2011 - 2015. In 2010, she was a National Member of ASEAN Bond Market Forum.
She received a Bachelor of Science degree in Business Administration, major in Accounting (Magna Cum Laude)
from University of the East and is a Certified Public Accountant.

54
Ma. Aurora D. Geotina-Garcia, Filipino, 67, is an independent director of the Company elected on 17 September
2019. She is currently the President of Mageo Consulting, Inc. , a corporate finance advisory services firm. She
is also currently an Independent Director of Ace Energy Philippines, Cebu Landmasters Inc., and Queen City
Development Bank. She was a director in the following companies and organizations: Bases Conversion and
Development Authority (2011-2016), BCDA Management Holdings, Inc. (2011-2016), Fort Bonifacio
Development Corporation (2011-2016), Heritage Park Management Corporation (2015-2016), Bonifacio Global
City Estates Association, Inc. (2012-2016), Bonifacio Estates Services Corporation (2012-2016), and HBC, Inc.
(2012-2016). She started her professional career at SyCip, Gorres, Velayo & Co. (SGV & Co.), where she joined
the Management Services Division in 1974, and was promoted to Partner in 1990. She headed SGV & Co.’s
Global Corporate Finance Division from 1992 until her retirement from the partnership in 2001, after which she
remained as Senior Adviser to SGV & Co up to September 2006. She received a Bachelor of Science degree in
Business Administration and Accountancy from the University of the Philippines in 1973 and completed her
Master of Business Administration from the same university in 1978. She is a Certified Public Accountant and a
Fellow of the Institute of Corporate Directors.

Mario Antonio V. Paner, Filipino, 61, is a nominee for independent director of the Company. He was previously
the Treasurer and head of the BPI’s Global Markets Segment, responsible for managing the Bank’s interest rate
and liquidity gaps, as well as its fixed income and currency market-making, trading, and distribution activities–
in the Philippines and abroad. Mr. Paner was also previously the Chairman of the BPI’s Asset & Liability
Committee and was a member of the Management Committee and Asset Management Investment Council. He
also served as a Board member of BPI Europe Plc.

Mr. Paner joined BPI in 1985, when the Bank acquired Family Savings Bank and performed various Treasury and
Trust positions until 1989. Between 1989 and 1996, he worked at Citytrust, then the consumer banking arm of
Citibank in the Philippines, which BPI acquired in 1996. At BPI, was responsible for various businesses of the
bank, including Risk Taking, Portfolio Management, Money Management, Asset Management, Remittance and
Private Banking. Mr. Paner served as President of the Money Market Association of the Philippines (MART) in
1998 and remains an active member up to present. He is currently the Vice Chairman of the Bankers Association
of the Philippines’ (BAP) Open Market Committee. He is also a member of the Makati Business Club,
Management Association of the Philippines, British Chamber of Commerce, and the Philippine British Business
Council.

He obtained an A.B. Economics degree from Ateneo de Manila University in 1979 and completed various courses
in Business and Finance, including Strategic Financial Management in 2006. In 2009, he completed the Advanced
Management Program at Harvard Business School.

Nominees to the Board of Directors for election at the stockholders’ meeting

All the above are nominee directors.

The certifications on the qualifications of the nominees for independent directors are attached, followed by the
certification that no directors or officers are connected with any government agencies or its instrumentalities.

ACEPH Group Management Committee Members / Senior Leadership Team

John Eric T. Francia President and Chief Executive Officer

Maria Corazon G. Dizon Treasurer and CFO, Compliance Officer, Chief Risk Officer
Solomon M. Hermosura Corporate Secretary
Dodjie D. Lagazo Head, Legal and Regulatory and Assistant Corporate Secretary
Alan T. Ascalon Assistant Corporate Secretary
Roman Miguel G. de Jesus Head, Commercial Operations
Gabino Ramon G. Mejia Co-Head, Plant Operations
Sebastian Arsenio R. Lacson Co-Head, Plant Operations
Andree Lou C. Kintanar Head, Human Resources
Irene S. Maranan Head – Corporate Communications and Sustainability
Henry T. Gomez, Jr. Chief Audit Executive
Mariejo P. Bautista SVP-Finance and Controller
Danilo L. Panes VP-Wind Operations

55
Ma. Teresa P. Posadas AVP-Human Resources

John Eric T. Francia, Filipino, 48, was elected as director on 9 May 2019 to serve effective 15 May 2019. He is
the President and Chief Executive Officer of AC Energy, Inc. and Chairman, President and Chief Executive
Officer of ACE Enexor, Inc. He has been a Managing Director and member of the Management Committee and
the Ayala Group Management Committee since January 2009. He is also a member of the Board of Directors of
the following companies within the Ayala Group: Purefoods International Limited, AC Education, Inc., AC
Ventures Holding Corp., Ayala Aviation Corporation, Zapfam, Inc., Northwind Power Development Corporation,
North Luzon Renewable Energy Corporation, Light Rail Manila Corporation, AC Infrastructure Holdings
Corporation, MCX Tollway, Inc., Ayala Healthcare Holdings, Inc., Ayala Hotels, Inc., Michigan Holdings, Inc.
and others. He received his undergraduate degree in Humanities and Political Economy (Magna Cum Laude) from
the University of Asia & the Pacific. He then completed his master’s degree in Management Studies at the
University of Cambridge in the United Kingdom, graduating with First Class Honors.

Maria Corazon G. Dizon, Filipino, 56, was appointed as Chief Finance Officer on 9 May 2019, effective 15 May
2019. She is currently the Chief Finance Officer of AC Energy, Inc. and ACE Enexor, Inc. She previously held
positions with ALI, the publicly listed real estate vehicle of Ayala Corporation, as Head of ALI Capital Corp.,
Head of Business Development and Strategic Planning of the Commercial Business Group, Head of Asset
Management Group of Shopping Centers, Head of Control and Analysis, Head of Investor Relations as well as
Chief Financial Officer of Residential Buildings, Office Buildings and Shopping Centers groups. Ms. Dizon
worked in SGV & Co for three years as a senior auditor. She is a Certified Public Accountant and graduated with
a degree in Accountancy, cum laude, from the University of Santo Tomas. She completed academic units for a
Masters degree in Business Administration from De la Salle University Graduate School of Business, and attended
an Executive Management Program from the Wharton University of Pennsylvania.

Solomon M. Hermosura, Filipino, 57, has been a Managing Director of Ayala Corporation since 1999, a member
of the Ayala Corporation Management Committee since 2009, and a member of the Ayala Group Management
Committee since 2010. He is also the Group Head of Corporate Governance, General Counsel, Compliance
Officer, and Corporate Secretary of Ayala Corporation, as well as the CEO of AG Counselors Corporation. He
likewise serves as General Counsel and Corporate Secretary of ALI, and Corporate Secretary of Globe Telecom,
Inc., MWC, IMI and Ayala Foundation, Inc., and a member of the Board of Directors of a number of companies
in the Ayala group. He graduated valedictorian with a Bachelor of Laws degree from San Beda College in 1986
and placed third in the 1986 Bar Examination.

Dodjie D. Lagazo, Filipino, 40, is the Head of the Legal and Regulatory Group of the Company, He is also an
Executive Director of AC Energy, Inc. Previously, he served as Director and member of AG Counselors
Corporation’s Management Committee from January 2014 to July 2017. He is also the Assistant Corporate
Secretary of Ayala Corporation, the Assistant Corporate Secretary of AC Energy, Inc. and the Corporate Secretary
of ACE Enexor, Inc. and other various AC Energy subsidiaries and affiliates. Mr. Lagazo received his
undergraduate degree in Political Science from the University of the Philippines, Diliman, graduating magna cum
laude. He then completed his Bachelor of Laws Degree in the College of Law of the University of the Philippines,
Diliman. He is a member in good standing of the Integrated Bar of the Philippines.

Alan T. Ascalon, Filipino, 45, is Vice President for Legal and Regulatory of ACEPH. He served as director of
PHINMA Renewable Energy Corporation and is the Corporate Secretary of PHINMA Renewable Energy
Corporation, One Subic Power Generation Corp., One Subic Oil Distribution Corp., PHINMA Power Generation
Corporation, and CIP II Power Corporation. He is also Assistant Corporate Secretary of ACE Enexor, Inc. and
Palawan55 Exploration and Production Corp. He was the Assistant Legal Counsel of PHINMA, Inc. from 2005
to 2008. He graduated from the University of the Philippines with a Bachelor of Arts degree in Journalism in 1996
and a Bachelor of Laws degree in 2000.

Roman Miguel G. de Jesus, Filipino, 45, is the Company’s Head of Commercial Operations. He was formerly
President and CEO of North Luzon Renewable Energy Corporation (“NLR”) and Head of the Retail Electricity
Supply group of AC Energy, Inc. Prior to joining AC Energy, Inc., he held the positions of Chief Legal and
Compliance Officer and then Chief Operating Officer of NLR. He practiced law in the law firms of Romulo
Mabanta Buenaventura Sayoc & de los Angeles where he specialized in corporate banking and finance, and Puyat
Jacinto & Santos where he specialized in energy law and special projects. He has Bachelor of Arts and Master of
Arts degrees in Philosophy from the Ateneo de Manila University, where he was an instructor for 10 years. He
also has a Bachelor of Laws degree from the University of the Philippines where he graduated cum laude and was
the Chair of the Philippine Law Journal.

56
Gabino Ramon G. Mejia, Filipino, 48, is the Company’s Co-Head of Plant Operations and the Senior Vice
President, Head of the Asset Management Group of AC Energy, Inc. He also holds the following positions among
the subsidiaries of AC Energy, Inc.: Executive Vice President of GNPower Kauswagan Ltd. Co., President of
Northwind Power Development Corporation and NLR, President of Monte Solar Energy, Inc., and President of
Negros Island Solar Power Inc. and San Carlos Solar Energy, Inc. He holds a master’s degree in Business
Administration (MBA) from the Asian Institute of Management and has completed his MBA Internship in York
University, Schulich School of Business. He obtained his Bachelor of Arts in Philosophy and Letters degree from
San Beda College where he graduated with Academic Distinction.

Sebastian Arsenio R. Lacson, Filipino, 49, is the Co-Head of the Plant Operations Group of the Company. He is
also a Senior Vice President for Plant Operations of AC Energy, Inc. and concurrently the President of South
Luzon Thermal Energy Corporation. He served as President of Aboitiz Power’s Coal Business Unit from 2015 to
2018 and was Chief Vice President – Chief Reputation Officer of Aboitiz Equity Ventures from 2009 to 2011. He
was the Chief Operating Officer of Visayas Electric Co. from 2012 to 2015, and headed its customer services and
administration from 2008 to 2009. From 2006 to 2008, he was expatriated to the Panama electric distribution
business by Spanish utility company Union Fenosa, where he served as Corporate Director and Technical
Assistant to the regional (Central America) Chairman of the Board. He also worked in various positions within
the management control unit of Union Fenosa’s international electric distribution business from 2001 to 2006.
Mr. Lacson received his Bachelor of Arts degree in Interdisciplinary Studies from the Ateneo de Manila University
in 1992. He then completed his Master’s degree in Business Administration from the University of Navarre
(ISSE), Barcelona Campus in 1996.

Andree Lou C. Kintanar, Filipino, 45, is the Company’s Head of Human Resources. She is also the Head of
Human Resources & Corporate Services of AC Energy, Inc. Prior to joining AC Energy, Inc., Andree was Head
of HR & Corporate Services for AffinityX ROHQ, the marketing and creative services company of Ayala’s LiveIt
Investments Ltd. She was also Assistant Vice President & HR Business Partner at Deutsche Knowledge Services,
and previously held various HR & OD leadership roles at Bayan Telecommunications, SAP Phils. Partner SSIP
Asia, San Miguel Packaging Products and Philips Electronics & Lighting. She graduated from St. Scholastica’s
College with a double degree in B.S. Psychology and B.S. Commerce major in Human Resource Development,
honors’ program. She completed the academic units for a master’s degree in Business Administration from the
Ateneo Graduate School of Business.

Irene S. Maranan, Filipino, 45, is the Head of Corporate Communications and Sustainability of the Company
She leads the overall communications team in protecting and building the Company’s reputation, oversees public
relations and drives the corporate sustainability strategy. Prior to joining Ayala, she established and headed
strategic marketing and corporate communications for companies across diverse industries such as Chevron,
Globe, and various real estate companies. She holds a bachelor’s degree in Mass Communications from St.
Scholastica’s College, Manila, and earned a post-graduate degree in Events Management from De La Salle
University.

Henry T. Gomez, Jr., Filipino, 30, is the Company’s Chief Audit Executive. He is also the Internal Audit Head
of AC Energy, Inc. Prior to joining AC Energy, Inc, he worked with Aboitiz Power Corporation in 2012 as a
Senior Internal Auditor and at SGV & Co. in 2011 as an Assurance Associate. He is a Certified Public Accountant,
Certified Internal Auditor (CIA), a passer of the Certified Information Systems Auditor (CISA) examinations, and
a CQI & IRCA Certified ISO 14001:2015 Environmental Management System Lead Auditor. He graduated from
University of the Philippines-Visayas with a degree in BS in Accountancy.

Mariejo P. Bautista, Filipino, 54, obtained her Bachelor of Science degree in Business Administration and
Accountancy, magna cum laude, from the University of the Philippines Diliman. She is a Certified Public
Accountant with a Master’s degree in Business Management from the Asian Institute of Management. She worked
with SyCip Gorres Velayo & Co. in 1987 and with various multinational manufacturing and service companies
up to August 2011. She joined PHINMA Energy in September 2011. She is the Senior Vice President – Finance
and Controller of ACEPH, PHINMA Power Generation Corporation, CIP II Power Corporation, One Subic Power
Generation Corp., PHINMA Renewable Energy Corporation, ACE Enexor, Inc., One Subic Oil Distribution
Corp., and Palawan55 Exploration and Production Corporation.

Danilo L. Panes, Filipino, 63, is a licensed Mining Engineer, who obtained his Bachelor of Science degree in
Mining Engineering from Mapua Institute of Technology as a government scholar. He joined PHINMA Energy
in May 1996 as Project Development Manager and was promoted to Assistant Vice President for Renewable

57
Energy in May 2006. He obtained his MBA studies from De La Salle University and completed the Management
Development Program at the Asian Institute of Management. He is currently holding the position of Vice President
in PHINMA Renewable Energy Corporation and Vice President for Wind Operations in ACEPH.

Ma. Teresa P. Posadas, Filipino, 52, has been the Company’s Assistant Vice President for Human Resources
since April 2015. She was first employed with PHINMA, Inc. in May 1989, then a fresh graduate of Maryknoll
College with a degree of Bachelor of Science in Behavioural Science. In 2013, Ms. Posadas completed her
Management Development Program from the Asian Institute of Management.

Significant Employee

Other than the directors and officers of the Company, no other employee has significant influence on ACEPH’s
major and/or strategic planning and decision-making.

Family Relationships

Fernando Zobel de Ayala, Chairman and director, and Jaime Augusto Zobel de Ayala, Vice-Chairman and
director, are brothers. Except for the foregoing, there are no known family relationships between the current
members of the Board and key officers.

Other than the foregoing family relationships, none of the directors, executive officers or persons nominated to be
elected to ACEPH’s Board are related up to the fourth civil degree, either by consanguinity or affinity.

Ownership structure and parent company

As of 25 March 2020, AC Energy owns 66.34% of the outstanding voting shares of the Company. The parent
company of ACEPH is AC Energy (the “Parent Company”). The Company has a management contract with the
Parent Company until 1 September 2023. Under the contract, the Parent Company has general management
authority with corresponding responsibility over all operations and personnel of ACEPH, including planning,
direction, and supervision of all the operations, sales, marketing, distribution, finance, and other business activities
of the Company.

On 9 October 2019, the Company executed a deed of assignment with the Parent Company whereby the Company
will issue 6,185,182,288 shares of stock in the Company to the Parent Company out of the increase in the
authorized capital stock of the Company to Php 24.4 billion, in exchange for property needed by the Company for
corporate purposes consisting of shares of stock owned by the Parent Company in select subsidiaries and affiliates
in the Philippines. The application for increase is currently pending with the SEC.

Independent Directors

The independent directors of ACEPH for the year ending 31 December 2019 and for the current year as of the
submission of this Statement are as follows:

1. Mr. Ricardo V. Camua (until 16 September 2019)

2. Mr. David L. Balangue (until 15 February 2019)
3. Mr. Guillermo D. Luchangco (until 16 September 2019)
4. Ms. Corazon dela Paz-Bernardo (until 16 September 2019)
5. Mr. Edward S. Go (from 01 March 2019 to 16 September 2019)
6. Ms. Consuelo D. Garcia
7. Ms. Aurora D. Geotina-Garcia
8. Mr. Jesus P. Francisco+ (from 17 September 2019 to 14 December 2019)
9. Ms. Sherisa P. Nuesa
10. Ms. Melinda L. Ocampo

The incumbent independent directors were nominated by Mr. Francisco L. Viray. Mr. Viray is not related to any
of the independent directors either by consanguinity or affinity.

The independent directors of ACEPH are not officers or substantial stockholders of the Company.

58
Involvement in Certain Legal Proceedings

As of 25 March 2020, ACEPH has no knowledge and/or information that any of the Company’s directors, officers
or nominees for election as Directors is, presently or during the last five (5) years, involved in any material legal
proceeding which will have any material effect on the Company, its operations, reputation, or financial condition.

As of 25 March 2020, Ms. Ma. Aurora Geotina-Garcia, independent director, is subject of the following criminal
or administrative investigation or proceedings:

Offense charged / Tribunal / agency involved Status

investigated
Libel during Ms. Geotina- Branch 167 of the Pasig City Trial on the merits is ongoing. The accused
Garcia’s term as director of the Regional Trial Court has a pending Motion for Leave to File
Bases Conversion and Demurrer to Evidence.
Development Authority
(“BCDA”) Board (Crim. Case
No. 150045-PSG)
Criminal complaint for acts of Case filed with the Office of The Office of the Ombudsman dismissed
the BCDA’s Board during Ms. the Ombudsman was the complaint. The Petition for Review
Geotina-Garcia’s term as dismissed. Case elevated filed by the complainant before the
BCDA director (OMB-C-C- to the Supreme Court by Supreme Court (G.R. No. 225565) is
12-0287-G) complainant is pending. pending resolution.
Administrative complaint for Case filed with the Office of The Office of the Ombudsman dismissed
acts of the BCDA’s Board the Ombudsman was the complaint. The complainant, CJH
during Ms. Geotina-Garcia’s dismissed. Case was DevCo, filed a Petition for Review before
term as BCDA director (OMB- elevated to the Court of the Court of Appeals (CA-G.R. SP No.
C-A-12-1308-G) Appeals. 145849), which was likewise
dismissed. CJH DevCo filed a Motion for
Reconsideration, which was denied by the
Court of Appeals. Ms. Geotina-Garcia is
not aware of any appeal or petition filed by
CJH DevCo from the Court of Appeals’
rulings.

The libel case is a nuisance case filed against Ms. Geotina-Garcia, as then member of the Board of BCDA. The
administrative and criminal complaints filed against Ms. Geotina-Garcia as a member of the Board of BCDA have
already been dismissed by the Office of the Ombudsman showing the lack of basis and merits to the charges.
Notwithstanding the pendency of these cases, the Company believes that these cases will not and do not in any
way affect Ms. Geotina-Garica’s ability and bias her judgement and independence to act as an independent director
of the Company. Further, the issues raised therein, as well as the parties to these cases, are not related in any way
to the Company or any of its business.

On 4 March 2020, ACEPH was provided a copy of a subpoena issued by the Office of the Provincial Prosecutor
of the Province of Lanao Norte (the “Subpoena”) as part of its preliminary investigation, together with the
Affidavit-Complaint filed against members of the management team of GN Power Kauswagan Ltd. Co. (“GNPK”)
and officers and employees of Meralco Industrial Engineering Services Corporation. Mr. John Eric T. Francia,
director, and Mr. Gabino Ramon G. Mejia, Head of Plant Operations, were impleaded in their capacities as
members of the management team of GNPK. The Affidavit-Complaint alleges the following violations:

a. Republic Act (“RA”) No. 8048 as amended by RA 10593 - for cutting coconut tree or trees without a
Philippine Coconut Authority permit;
b. PD 708 (Forestry Code) - for cutting timber or forest products without a license;
c. RA 9175 (Chainsaw Act) – for cutting trees without a license with the use of chainsaw; and
d. Article 281 of the Revised Penal Code (Other forms of Trespass) – for encroaching on a portion of a certain
property without consent.

The alleged encroachment is connected with an existing right-of-way agreement for the 230kV transmission asset
of GNPK, which is already subject to an approved settlement amount. While ACEPH views the complaint as a
nuisance case, Messrs. Francia and Mejia will be submitting their counter-affidavits in due course.

59
Furthermore, none of the Company’s directors and senior executive officers have been the subject of the following
during the last five (5) years: (a) bankruptcy petition by or against any business of which such director was a
general partner or executive officer either at the time of the bankruptcy or within two (2) years prior to that time;
(b) a conviction by final judgment, in a criminal proceeding, domestic or foreign; (c) any order, judgment, or
decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, domestic or
foreign, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any
type of business, securities, commodities or banking activities; or (d) a finding by a domestic or foreign court of
competent jurisdiction (in a civil action), the Commission or comparable foreign body, or a domestic or foreign
exchange or other organized trading, market or self-regulatory organization, of violation of the securities or
commodities law or regulation, and the judgment has not been reversed, suspended or vacated.

Resignation of Directors/Management Committee members/Key Officers

To date, no director has resigned from, or has declined to stand for re-election to the Board since the date of the
2019 annual meeting of stockholders.

Item 10. Executive Compensation

For calendar years ended 31 December 2019 and 31 December 2018, the total salaries, allowances, and bonuses
paid to the directors and executive officers of ACEPH are as follows:

Name/Position Year Salaries Bonus Other Annual

Compensation

CEO and Top 4 Most Highly Compensated Executive Officers (Total Compensation)
Francisco L. Viray, President and CEO (until 15 May 2019)
Mariejo P. Bautista, SVP- Finance & Controller
Danilo L. Panes, VP – Wind Operations
Alan T. Ascalon, Assistant Corporate Secretary & VP – Legal
Ma. Teresa P. Posadas, AVP – Human Resources

Estimate 2020 12,155,430 1,058,234 3,815,000

2019 21,478,153 4,630,134 1,945,000
2018 21,444,674 2,980,335 590,600

All Other Officers and Directors as a Group (Total Compensation)

Estimate 2020 - - 3,720,000

2019 17,827,743 3,651,125 4,645,000
2018 12,727,585 1,160,775 2,112,500

The management fees billed by ACEI to the Company in 2019 include ₱15,577,686 which pertain to
compensation of officers.

60
Compensation of Directors

The incumbent non-independent directors do not receive allowances, per diem, or bonuses. The incumbent
independent directors are entitled to receive Php 100,000.00 per Board meeting attended, and Php 20,000.00 per
Committee meeting attended.

There are no other existing arrangements/agreements to which said directors are to be compensated during the
last completed fiscal year and the ensuing year.

Employment Contracts and Termination of Employment and Change-in-Control Arrangements

Under ACEPH’s By-Laws, the Officers of the Company shall hold office for one (1) year and until their successors
are chosen and qualified in their stead. Any officer elected or appointed by the majority of the Board may be
removed by the affirmative vote of the Board.

ACEPH does not have written contracts with any of its executive officers or other significant employees.

Compensatory Plan or Arrangement

The compensation received by officers who are not members of the Board consists of salaries, bonuses, and other
benefits.
All permanent and regular employees of the Company are covered by the ACEPH retirement plan (the “Plan”).
The Plan provides benefits upon normal retirement beginning at age sixty (60), early retirement beginning at age
fifty (50) with completion of at least ten (10) years of service, voluntary separation beginning upon completion of
at least ten (10) years of service, total and physical disability, death, and involuntary separation. The benefits are
based on the employee’s final monthly basic salary and length of service.

Warrants and Options Outstanding

On 2 April 2007, the Board and stockholders authorized ACEPH to set aside a total of one hundred million
(100,000,000) shares from the unsubscribed portion of the Company’s authorized shares for the following
purposes and under terms and conditions as determined by the Executive Committee of the Board:

1. Stock grants to officers and managers of the Company; and

2. Stock options for directors, officers, and employees of the Company and its subsidiaries and affiliates
for the purposes.

On 8 January 2008, the SEC approved the Company’s Executive Stock Grants Plan and Stock Option Plan.

The Executive Stock Grants Plan is available to all officers of ACEPH and its subsidiaries, including unclassified
managers. Upon achievement of the Company’s goals and the determination of any variable compensation, twenty
percent (20%) of the variable compensation of the officers or managers who are entitled to avail of the Executive
Stock Grants Plan are given in the form of ACEPH’s shares with a twenty percent (20%) discount on the weighted
average closing price for twenty (20) trading days before the date of the grant but not lower than the par value of
P1.00 per share. The first stock grants were subject to a holding period of one (1) year for the first one-third (1/3)
of the shares, two (2) years for the next one-third (1/3) of shares and three (3) years for the remaining one-third
(1/3) of the shares. Succeeding stock grants are subject to a holding period of three (3) years.

The Stock Option Plan is available to all directors and permanent officers and employees of ACEPH and its
affiliates/subsidiaries. Employees may purchase up to thirty-three percent (33%) of their allocated shares within
the first year of the grant, up to sixty-six percent (66%) on the second year of the grant, and up to one hundred
percent (100%) on the third year of the grant, in cash at the weighted average closing price for twenty (20) trading
days prior to date of grant but not lower than the par value of P1.00 per share.

As of 25 March 2020, the remaining number of shares available for stock grants and stock options is 60,301,331
out of the 100,000,000 shares.

61
Item 11. Security Ownership of Certain Beneficial Owners and Management

Security ownership of certain record and beneficial owners of more than five percent (5%)

The table below shows the persons or groups known to ACEPH to be directly the record or beneficial owners of
more than five percent (5%) of the Company’s voting securities as of 29 February 2020:

Name & Address of

Title of Name & Address of Record
Beneficial Owner & No. of Shares
Class of Owner & Relationship with Citizenship % Held
Relationship with Held
Shares Issuer
Record Owner

PCD Nominee Corporation1

29/F BDO Equitable Tower,
Common
8751 Paseo de Roxas, Makati Filipino 7,156,415,247 95.14%
City
Stockholder

Security Ownership of Directors and Management as of 29 February 2020

None of the directors and officers individually owns five percent (5%) or more of the outstanding capital stock of
ACEPH. The table below shows the securities owned by the directors and officers of the Company as of 29
February 2020:

Title of Class of Amount of Nature of % of total

Outstanding Name of beneficial owner Citizenship beneficial beneficial outstanding
Share ownership ownership shares
Common Gerardo C. Ablaza, Jr. Filipino 1,000,0012 Indirect1 0.01%
Common Jose Rene Gregory D. Almendras Filipino 12 Indirect1 0.00%
Common John Eric T. Francia Filipino 48,981,271 Direct 1.05%
30,000,0012 Indirect1
Common John Philip S. Orbeta Filipino 1 Direct 0.03%
2,000,0002 Indirect1
Common Fernando M. Zobel de Ayala Filipino 1 Direct 3.15%
237,258,001 Indirect1
Common Jaime Augusto M. Zobel de Ayala Filipino 1 Direct 0.00%
Common Consuelo D. Garcia Filipino 1,000 Direct 0.00%
Common Ma. Aurora D. Geotina-Garcia Filipino 1 Direct 0.00%
Common Sherisa P. Nuesa Filipino 90,000 Direct 0.00%
150,000 Indirect3
Common Melinda L. Ocampo Filipino 1 Direct 0.00%
Common Mario Antonio V. Paner Filipino 1 Direct 0.00%
Common Maria Corazon G. Dizon Filipino 12,432,383 Direct 0.27%
8,000,000 Indirect3
Common Gabino Ramon G. Mejia Filipino 5,221,428 Direct 0.07%
Common Roman Miguel G. de Jesus Filipino 6,194,849 Direct 0.15%
4,799,200 Indirect3
Common Solomon M. Hermosura Filipino 17,712,000 Indirect3 0.09%
Common Dodjie D. Lagazo Filipino 6,526,166 Direct 0.09%

1
The beneficial owners of such shares are the participants of PCD which holds the shares on their behalf or in behalf of their
clients. PCD is a private institution established in March 1995 to improve operations in securities transactions. PCD seeks to
provide a fast, safe and highly efficient system for securities settlement. The PCD was organized to implement an automated
book-entry system of handling securities transaction in the Philippines.

As of 29 February 2020, BPI Securities Corporation (BSC) is the only PCD Nominee who holds more than five percent (5%)
of the Company’s securities. BSC is a corporation primarily engaged in securities brokerage, organized and existing under
the laws of the Philippines, and a wholly-owned subsidiary of BPI Capital Corporation.

62
 Common Alan T. Ascalon Filipino 347,173 Direct 0.01%
276,000 Indirect3
Common Mariejo P. Bautista Filipino 1,101,450 Direct 0.03%
1,151,227 Indirect3
Common Danilo L. Panes Filipino 94,530 Direct 0.01%
435,207 Indirect3
Common Ma. Teresa P. Posadas Filipino 211,898 Direct 0.00%
89,000 Indirect3
Common Irene S. Maranan Filipino 3,587,718 Direct 0.07%
1,685,000 Indirect3
Common Henry T. Gomez, Jr. Filipino 0 N/A 0.00%
Common Sebastian Arsenio R. Lacson Filipino 0 N/A 0.00%
TOTAL 378,419,511 5.03%

1
The indirect shares held by the following directors: Messrs. Gerardo C. Ablaza, Jr., Jose Rene Gregory D. Almendras, John Eric T. Francia,
John Philip S. Orbeta, Fernando M. Zobel de Ayala, and Mses. Consuelo D. Garcia, Ma. Aurora Geotina-Garcia, Sherisa P. Nuesa, and
Melinda L. Ocampo are lodged with the PCD Nominee.
2
The one (1) nominal share of each of Messrs. Gerardo C. Ablaza, Jr., Jose Rene Gregory D. Almendras, John Eric T. Francia, and John
Philip S. Orbeta are qualifying shares held in trust for AC Energy, Inc.
3
The indirect shares held by the following officers: Messrs. Roman Miguel G. de Jesus, Solomon M. Hermosura, Alan T. Ascalon, and
Danilo L. Panes, and Mses. Maria Corazon G. Dizon, Mariejo P. Bautista, Ma. Teresa P. Posadas, and Irene S. Maranan are lodged with
the PCD Nominee.

Fernando M. Zobel de Ayala, Chairman of the Board of Directors (“Board”) of the Company, owns 3.15% of the
outstanding capital stock of the Company. No other director or member of the Company’s management owns
more than two percent (2%) of the outstanding capital stock of the Company.

Voting Trust Holders of 5% or more

ACEPH is not aware of any person holding five percent (5%) or more of the Company’s outstanding shares under
a voting trust agreement or similar agreement.

Changes in Control

There are no arrangements that may result in a change in control of ACEPH.

Item 12. Certain Relationships and Related Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or
exercise significant influence over the other party in making financial and operating decisions. Parties are also
considered to be related if they are subject to common control or common significant influence which include
affiliates. Related parties may be individual or corporate entities.

Outstanding balances at year-end are unsecured and are to be settled in cash throughout the financial year. There
have been no guarantees provided or received for any related party receivables or payables. Provision for credit
losses recognized for receivables from related parties amounted to nil, P10.26 million and nil for 2019, 2018, and
2017, respectively. The assessment of collectability of receivables from related parties is undertaken each financial
year through examining the financial position of the related party and the market in which the related party
operates.

In the ordinary course of business, the Company transacts with associates, affiliates, jointly controlled entities,
and other related parties on advances, loans, reimbursement of expenses, office space rentals, management service
agreements, and electricity supply. The transactions and balances of accounts as at and for year ended 31
December 2019 and 2018 with related parties are as follows:

63
 As at and for the Year Ended December 31, 2019
Amount/ Outstanding Balance
Company Volume Nature Receivable Payable Terms Conditions
Parent
AC Energy, Inc.
General and administrative expenses P
=38,664 Management fee =–
P (P
=31,489) 30-day, non-interest Unsecured
and bonus bearing
General and administrative expenses 9 Transportation 9
and travel
expense
General and administrative expenses 638 Miscellaneous- – (354) 30-day, non-interest Unsecured
Guarantee fee bearing

Associates
MGI
Cost of sale of electricity P
=758,974 Purchase of =–
P (P
=157,965) 30-day, non-interest Unsecured; no
electricity bearing impairment

Asia Coal
Due to related parties − Advances – (254) Non-interest bearing Unsecured

Entities Under Common Control

Direct Power Services, Inc.
Revenue from sale of electricity 193,644 Sale of electricity – – 30-day, non-interest Unsecured; no
bearing impairment

Ingrid Power Holdings, Inc.

Advances to affiliates 150,000 Advances 150,000 – Subsequently on Unsecured
demand

SolarAce1 Energy Corp.

Advances to affiliates 26,000 Advances 26,000 – Subsequently on Unsecured
demand
Parent
Other Related Parties
Directors
General and administrative expenses 8,993 Directors’ fee – (50) On demand Unsecured

Stockholders
Due to stockholders – Cash Dividends – (16,594) On demand Unsecured
Due from related parties P
=9 =–
P
Advances to affiliates 176,000 –
Due to related parties – (190,062)
Accrued director’s fees – (50)
Due to stockholders – (16,594)

As at and for the Year Ended December 31, 2018

Amount/ Outstanding Balance
Company Volume Nature Receivable Payable Terms Conditions
Ultimate Parent
PHINMA, Inc.
Rental and other income =103 Rent and share in
P =–
P =– 30-60 day, non-
P Unsecured
expenses interest bearing
Due to related parties/ General and 27,968 Management fees and – (23,521) 30-day, non- Unsecured
administrative expenses share in expenses interest bearing
Accounts payable and other current 49,308 Cash dividend – − Payable on April Unsecured
liabilities 05, 2018;
subsequently on
demand
Due to related parties – Rental deposit – (186) End of lease term Unsecured

Joint Ventures
SLTEC
Due to related parties/ Cost of sale of 6,283,516 Purchase of electricity – (508,808) 30-day, non- Unsecured
electricity interest bearing
Revenue from sale of electricity, rental, 517,911 Sale of electricity, 288,453 – 30-day, non- Unsecured, with
dividend and other income rent, dividend and interest bearing impairment
share in expenses

(Forward)

64
 As at and for the Year Ended December 31, 2018
Amount/ Outstanding Balance
Company Volume Nature Receivable Payable Terms Conditions

Investments and advances – Dividends received – − 30-day, non- Unsecured

(see Note 13) interest bearing
Due to related parties – Rental deposit – (497) End of lease term Unsecured

PHINMA Solar
Due to related parties – Advances – (90,000) Non-interest Unsecured
bearing
Associates
MGI
Due to related parties/ Cost of sale of =1,142,885 Trading cost
P =–
P (P
=144,224) 30-day, non- Unsecured
electricity interest bearing
Investments and advances 12,500 Dividend received – − Non-interest Unsecured
(see Note 13) bearing

Asia Coal
Due to related parties − Advances – (253) Non-interest Unsecured
bearing

Entities Under Common Control

PHINMA Property Holdings
Corporation (PPHC)
Due to related parties − Advances – (171) 30-60 day, non- Unsecured
interest bearing

PHINMA Corporation
Dividend and other income 5,804 Cash dividend and – − 30-60 day, non- Unsecured
share in expenses interest bearing
Due to related parties/ Other expenses 3,778 Share in expenses – (490) 30-day, non- Unsecured
interest bearing
Accounts payable and other current 51,293 Cash dividends − − Payable on April Unsecured
liabilities 05, 2018;
subsequently on
demand
Union Galvasteel Corp. (UGC)
Due from related parties/ 619 Rental income and 123 – 30-60 day, non- Unsecured, no
advances interest bearing impairment
Receivables 225,000 Sale of 50% Interest in 45,000 Noninterest- Unsecured, no
PHINMA Solar bearing impairment
Due to related parties Rental deposit – (158)
Dividend income 3,458 Cash dividend − − 30-60 day, non- Unsecured
interest bearing
General and administrative expenses 136 Roofing materials − − 30-60 day, non- Unsecured
interest bearing

T-O Insurance, Inc.

Due to related parties/ General and 59,146 Insurance expense and – (32,857) 30-60 day, non- Unsecured
administrative expenses membership fees interest bearing

Other Related Parties

Directors
General and administrative expenses 10,145 Directors’ fee and – – On demand Unsecured
annual incentives

Stockholders
Due to stockholders 89,718 Cash dividends – (16,651) On demand Unsecured
Due from related parties =333,576
P =–
P
Due to related parties – (801,165)
Due to stockholders – (16,651)

65
 As at and for the Year Ended 31 December 2017
Amount/ Amount/ Outstanding Balances
Company Volume Volume Nature Receivable Payable Terms Conditions
Ultimate Parent
PHINMA, Inc.
Rental and other income =1,100
P =771 Rent and share in
P =54
P =– 30-60 day, non- Unsecured, no
P
expenses interest bearing impairment
General and administrative expenses 104,055 80,903 Management fees and – (31,164) 30-day, non-interest Unsecured
share in expenses bearing
Accounts payable and other current 97,855 49,308 Cash dividend – − On demand Unsecured
liabilities

Joint Ventures
SLTEC
Revenue from sale of electricity, rental 28,074 27,213 Sale of electricity, rent 20,046 – 30-day, non-interest Unsecured, no
and other income and share in bearing impairment
expenses
Investments and advances 644,945 1,056,742 Dividends received – − 30-day, non-interest Unsecured
bearing
Cost of sale of electricity 6,077,461 8,230,415 Purchase of electricity – (1,035,505) 30-day, non-interest Unsecured
bearing
ACTA
Investments and advances – 18,073 Additional investment – − Non-interest bearing Unsecured

Associates
Asia Coal
Accounts payable and other current =–
P =− Advances
P =–
P (P
=254) Non-interest bearing Unsecured
liabilities

MGI
Cost of sale of electricity 785,167 830,802 Trading cost – (83,101) 30-day, non-interest Unsecured
bearing
Investments and advances – 25,000 Dividend received – − Non-interest bearing Unsecured

Investments and advances –– 80,250 Additional investment – − Non-interest bearing Unsecured

Entities Under Common Control

PPHC
Accounts payable and other current – − Advances – (171) 30-60 day, non- Unsecured
liabilities interest bearing

PHINMA Corporation
Dividend and other income 5,387 5,387 Cash dividend and – − 30-60 day, non- Unsecured
share in expenses interest bearing
Other expenses 2,169 3,763 Share in expenses – (1,429) 30-day, non-interest Unsecured
bearing
Accounts payable and other current 102,394 51,285 Cash dividends − − On demand Unsecured
liabilities
Accounts payable and other current – 4,178 Purchase of U.S. − − On demand Unsecured
liabilities dollars

UGC
Dividend income 2,281 3,334 Cash dividend − − 30-60 day, non- Unsecured
interest bearing
Rental income – 329 Rent 214 – 30-60 day, non- Unsecured, no
interest bearing impairment
Accounts payable and other current – − Rental deposit – (159) End of lease term Unsecured
liabilities
General and administrative expenses 92 108 Roofing materials – − 30-60 day, non- Unsecured
interest bearing
T-O Insurance, Inc.
General and administrative expenses 91,400 112,000 Insurance expense and – (36,062) 30-60 day, non- Unsecured
membership fees interest bearing
Receivables 69 15 Refund of − − 30-60 day, non- Unsecured
overpayment interest bearing
Emar Corporation
Other income 646 64 Share in expenses − − 30-60 day, non- Unsecured
interest bearing
Accounts payable and other current 8,559 4,279 Cash dividend − − On demand Unsecured
liabilities

(Forward)

66
 As at and for the Year Ended 31 December 2017
Amount/ Amount/ Outstanding Balances
Company Volume Volume Nature Receivable Payable Terms Conditions

PHINMA Education
General and administrative expenses 2,698 2,298 Service fee − − 30-60 day, non- Unsecured
interest bearing

Other Related Parties

Directors
General and administrative expenses 72,846 33,546 Directors’ fee and – (19,757) On demand Unsecured
annual incentives
Stockholders
Due to stockholders 179,320 89,564 Cash dividends – (15,300) On demand Unsecured
Due from related parties =20,314
P =–
P
Due to related parties – (1,187,845)
Accrued directors’ and annual
incentives – (19,757)
Due to stockholders – (15,300)

South Luzon Thermal Energy Corporation

The transactions with South Luzon Thermal Energy Corporation (“SLTEC”) include the sale and purchase of
electricity, reimbursements of expenses and receipt of dividends. SLTEC became a subsidiary and was
consolidated effective July 1, 2019.

MGI

The Company purchases the entire net electricity output of MGI.

Ayala Land, Inc. (ALI)

The Parent Company leases office unit and parking slots from ALI.

AC Energy, Inc.

The Company is the assignee of a lease contract from AC Energy, Inc. (“AC Energy”) for the 22 nd floor, 6750
Office Tower, Ayala Ave., Makati City, and has paid AC Energy for the proportionate share in fit-out costs,
cabling, systems development, and other costs. The lease period is from 1 September 2019 to 31 December 2021.
The Company and its subsidiaries PHINMA Renewable Energy Corporation (“PHINMA RE”), ACE Enexor,
Inc., PHINMA Power Generation Corporation (“PHINMA Power”), and CIP II Power Corporation (“CIPP”) have
a management contract with AC Energy for five (5) years from effectivity. Under the management contracts, AC
Energy has general management authority with corresponding responsibility over all operations and personnel of
ACEPH, including planning, direction, and supervision of all the operations, sales, marketing, distribution,
finance, and other business activities of the Company. AC Energy also billed the Company for recovery of general
and administrative expenses in 2019.

On 9 October 2019, the Company executed a deed of assignment with AC Energy whereby the Company will
issue 6,185,182,288 shares of stock in the Company to AC Energy out of the increase in the authorized capital
stock of the Company to Php 24.4 billion in exchange for property needed by the Company for corporate purposes
consisting of shares of stock owned by AC Energy in select subsidiaries and affiliates in the Philippines. The
application for increase is currently pending with the SEC.

On 9 October 2019, the Board of the Company approved the following transactions:

(a) assignment of AC Energy’s right to purchase Axia Power Holdings Philippines Corporation’s (“Axia Power”)
twenty percent (20%) ownership in SLTEC to the Company, subject to certain terms including the payment
by the Company of an annual guarantee fee of 25 basis points of the amount secured under the payment
security to AC Energy in consideration for AC Energy procuring and making available the payment guarantee
to Axia Power; and
(b) the guarantee arrangement for AC Energy to guarantee the Company’s payment obligation under the coal
hedging agreement to be entered into with the Macquarie group in exchange for an annual guarantee fee

67
 payable to AC Energy equal to 25 basis points per annum of the estimated notional credit exposure of the
Company.

NLR/Northwind

On 2 January 2020, the Company entered into separate services agreements with North Luzon Renewable Energy
Corp. (“NLR”) and Northwind Power Development Corporation (“Northwind”) covering the provision of
management and administrative support services to the two companies. The service agreements will expire on 31
December 2022.

Other Information

Other information about the Company are disclosed in appropriate notes in the accompanying Audited
Consolidated Financial Statements for December 31, 2019 or discussed in previously filed SEC17Q and SEC17-
C reports for 2019 (refer to Item 14. Exhibits and Schedules Reports on SEC Form 17-C). Also, the Company's
Definitive Information Statement (DIS) report and Annual Report (AR) document are also sources of other
information about Ayala group. These documents are available at the Company's website www.acenergy.ph.

In addition, the Company has the following major transactions and information from the issuance date of the 2019
consolidated financial statements to the issuance date of this SEC17A report:

In compliance with the SEC’s notice dated March 12, 2020, mandating publicly listed companies to apprise the
investing public on the impact on business operations and measures being undertaken in connection with the
COVID-19 pandemic, on March 16, 2020, Ayala informed that it has existing business continuity and crisis
management plans in place to mitigate the adverse effect of the COVID- 19 pandemic in its business operations.

Ayala has a robust business continuity management system (BCMS), which provides a framework for building
organizational resilience with the capability of an effective response that safeguards the interest of its key
stakeholders, reputation, brand, and value-creating activities. The BCMS consists of incident and emergency
response, business continuity planning, information technology disaster recovery planning, and crisis
management which includes a pandemic preparedness plan.

In particular, in view of the COVID-19 situation, Ayala institutionalized social distancing measures to ensure the
safety of its workforce while ensuring continuity of its business operations across all its business units. The
guidelines follow the recommendations of the Department of Health (DOH), Center for Disease Control, World
Health Organization, and other local medical professional societies.

To ensure the health and safety of our workforce, we have put in place policies on alternative work arrangements
such as work-from-home and flexible workhours, restrictions on non-essential overseas travel for business and
personal reasons, shift to teleconferencing and videoconferencing to minimize in-person business meetings,
regular cleaning and disinfection of the workplace, and cancellation of official mass gatherings.

The Company develops and operates several power projects in the Philippines and around the region using various
technologies. It also participates in the Philippine wholesale electricity spot market (WESM) to the extent of
uncontracted capacity that has to be bought from or sold to the spot market. WESM prices are dependent on the
balance of power supply and demand. Restrictions on travel and businesses resulting from COVID-19 pandemic
may adversely affect electricity consumption and may result in lower WESM prices. Further, AC Energy relies
on imported fuel and equipment for some of its power projects. Strict quarantine measures imposed locally or
abroad may result in delays in importation of such equipment and fuel. For its commercial operations, AC Energy:
(a) maintains a balanced supply and demand portfolio to minimize merchant risk, and (b) maintains adequate fuel
inventories to ensure continued operations. It also has catch-up plans in case of construction delays and liquidated
delay damages are expected from contractors for such situations.

For its international business, AC Energy has mandated to limit travel plans and has implemented a self-quarantine
protocol and remote work arrangements following Ayala's overall preventive measures. The same principle is
applied to those deployed outside the Philippines (in Vietnam, Myanmar, and Singapore).

The Company signed a subscription agreement with the Issuer, Giga Ace 1, Inc. ("Giga Ace 1") for the
subscription by ACEPH of 75,000 Common Shares to be issued out of the unissued authorized capital stock
(“ACS”) of Giga Ace 1, and 43,069,625 Common Shares and 53,562,609 Class A Redeemable Preferred Shares

68
("RPS A") to be issued out of increase in ACS of Giga Ace 1. Giga Ace 1 is a wholly-owned subsidiary of the
Company.

On February 27, 2020, the Company completed the acquisition of Philippine Wind Holdings Corp. (“PhilWind”)
and the final purchase price in the amount of Php2.573 billion was paid by Giga Ace 1, Inc., the Company's
wholly-owned subsidiary and the entity designated by the Company to purchase and hold the PhilWind shares.

The Company signed a subscription agreement with Giga Ace 1, Inc. ("Giga Ace 1") for the subscription by
ACEPH to additional 1,170,000 Common Shares and 32,500 Class A Redeemable Preferred Shares ("RPS A") to
be issued out of the increase in authorized capital stock (“ACS”) of Giga Ace 1. Giga Ace 1 is a wholly-owned
subsidiary of the Company.

On 18 March 2020, the Board of Directors of the Company approved a share buy-back program to support share
prices through the repurchase in the open market of up to Php1 billion worth of common shares beginning 24
March 2020. As of April 14, 2020 the Company has bought back a total of 10,538,000 shares for a total amount
of Php20,319,240.00

At its meeting held on 31 March 2020, the Executive Committee of AC Energy Philippines, Inc. (the “Company”
or “ACEPH”), acting on delegated authority from the Board of Directors granted in its meeting held on 18 March
2020, approved the issuance of 16,685,800,533 shares of stock in the Company (the “Shares”) to AC Energy, Inc.
(“ACEI”) at an issue price of Php2.97 per share in exchange for property consisting of 100% of ACEI’s shares in
Presage Corporation (“Presage”), ACEI’s wholly-owned subsidiary, which holds all of ACEI’s international
renewable energy assets and investment. The Shares will be issued out of the increase in ACEPH’s authorized
capital stock to Php48.4 billion, which was also approved by the Board of Directors on 18 March 2020.

The Shares are exclusive of the 6,185,182,288 shares of stock to be issued by the Company to ACEI in exchange
for ACEI’s shares in its Philippine generation and development assets, which is the subject of a separate disclosure
filed on 14 October 2019 (PSE Circular No. C07131-2019 to C01141 2019), and is currently undergoing
regulatory review and approval.

69
PART IV – CORPORATE GOVERNANCE AND SUSTAINABILITY

Item 13.A. Corporate Governance

For the full details and discussion, please refer to the Definitive Information Sheet and Annual Corporate
Governance Report posted in the Company’s Official Website www.acenergy.ph. The detailed discussion of the
Annual Corporate Governance Section was deleted as per SEC Memorandum Circular No. 5, series of 2013,
issued last March 20, 2013.

Corporate Governance

The Board of Directors, officers and employees of the Company commit themselves to the principles and best
practices embodied in its Corporate Governance Manual. The Company believes that good corporate governance
is a necessary component of what constitutes sound strategic business management and will therefore exert every
effort to ensure adherence thereto within the organization.

Compliance Officer

The Board designates a Compliance Officer who reports to the Chairman of the Board. As required of publicly-
listed companies, the appointment of Compliance Officer is properly disclosed to the SEC. The Board also ensures
the presence and adequacy of internal control mechanisms for good governance.

The Compliance Officer’s duties include ensuring proper on boarding of new directors (i.e., orientation on the
company’s business, charter, articles of incorporation and by-laws, among others), monitor, review, evaluate and
ensure compliance by the Corporation, its officers and directors with the relevant laws, with the Code of Corporate
Governance (“Code”), rules and regulations and all governance issuances of regulatory agencies, appear before
the SEC upon summon on matters in relation to compliance with the Code, ensure the integrity and accuracy of
all documentary submissions to regulators, determine violation/s of the Code and recommend to the Board the
imposition of appropriate disciplinary action on the responsible parties and the adoption of measures to prevent a
repetition of the violation, identify possible areas of compliance issues and work towards the resolution of the
same, develop and establish, subject to approval of the Board , a monitoring and evaluation system to determine
compliance with this Manual, which system shall provide for a procedure that fulfils the requirements of due
process, ensure the attendance of board members and key officers to relevant trainings and perform such other
duties and responsibilities as may be provided by the SEC.

Integrated Annual Corporate Governance Report (I-ACGR)

SEC MC No. 15, Series of 2017 was released in December 2017 which mandates all publicly-listed companies to
submit an Integrated Annual Corporate Governance Report (I-ACGR) on or before May 30 of the following year
for every year that the company remains listed in the PSE, covering all relevant information for the preceding
year.

The I-ACGR supersedes the ACGR last submitted for the year 2017 to the SEC and the Compliance Report on
Corporate Governance last submitted for the year 2017 to the PSE. The Company submitted its I-ACGR for the
year 2017 on 30 May 2018. For the fiscal year 2018, the Company submitted its I-ACGR on 30 May 2019.

As of 31 December 2019, the Company has substantially complied with the principles and best practices contained
in the Corporate Governance Manual. There were no sanctions imposed on any director, officer or employee for
non-compliance of the Manual. The Company is taking further steps to enhance adherence to principles and
practices of good corporate governance.

Item 13.B. Sustainability Report

Please refer to the Integrated Report (which includes the Sustainability Report) that will be posted in the
Company’s Official Website with the following link: https://www.acenergy.ph/ac-energy-philippines-ir-2019 on
or before April 17, 2020. We will notify the SEC and the PSE once it is uploaded.

70
PART V - EXHIBITS AND SCHEDULES

Item 14. Exhibits and Reports on SEC Form 17-C (Current Report)

(a) Exhibits - See accompanying Index to Financial Statements and Supplementary Schedules

(b) Reports on SEC Form 17-C

Aside from compliance with periodic reporting requirements, Ayala promptly discloses major and market
sensitive information such as dividend declarations, joint ventures and acquisitions, the sale and disposition of
significant assets, and other information that may affect the decision of the investing public.

The Company submitted SEC form 17-C and Press Statements to PSE, SEC on the following matters in 2019:

1. Attendance of Directors in 2018 Board of Directors Meetings

2. AC Energy’s purchase of 51.48% stake in AC Energy Philippines, Inc. (formerly PHINMA Energy
Corporation) (“ACEPH”)
3. Postponement of Annual Stockholders Meeting
4. Resignation of Directors and Officers
5. PHINMA Petroleum and Geothermal, Inc., (“PPG”) subsidiary of PHINMA Energy Corporation,
relinquished its 14.063% participating interest in SC 6 Block B, approval of which was granted by the
Department of Energy on 30 October 2018.
6. Audited Financial Statements for the year ended December 31, 2018 showing consolidated net loss of P
593.156 million, were approved.
7. Approval from the Philippine Competition Commission (“PCC”) for the sale of its PHINMA Inc. and
PHINMA Corporation's (PHN) combined 51.48% stake in PHEN to AC Energy.
8. Authority to issue 2,632,000,000 primary shares to AC Energy, Inc. at P 1.00 per share.
9. Announcement of Intention to Make A Tender Offer to Shareholders of PHINMA Petroleum and
Geothermal, Inc.
10. Authority to negotiate the purchase of PHINMA, Inc.’s and PHINMA Corp.’s shares in PHINMA
Petroleum and Geothermal, Inc. (PPG) which represents 25.18% of PPG’s total outstanding capital stock
11. Authority to undertake a Voluntary Tender Offer (VTO) for the remaining common shares of PPG, the
terms of which shall be announced separately on the date of the commencement of the tender offer.
12. Consent to the assignment of Management Contract from PHINMA, Inc. to AC Energy, Inc. under the same
terms and conditions.
13. Signing of the Agreement among PHINMA Energy Corporation (PHEN), PHINMA Corporation (PHN)
and Philippine Investment Management (PHINMA), Inc. (PHI) on the sale of PHN and PHI's interests in
PHINMA Petroleum and Geothermal, Inc. (PPG).
14. Comprehensive Corporate Disclosure on Issuance of 2,632,000,000 primary shares of PHINMA Energy in
favor of AC Energy, Inc. (“AC Energy”) at P 1.00 per share (the “Primary Issuance”).
15. Signing of the Deeds of Absolute Sale between AC Energy, Inc., PHINMA Corporation (PHN) and
Philippine Investment Management (PHINMA), Inc. (PHI) on the sale of PHN and PHI's interests in
PHINMA Energy Corporation (PHEN).
16 Signing of the Deeds of Absolute Sale between PHINMA Energy Corporation (PHEN), PHINMA
Corporation (PHN) and Philippine Investment Management (PHINMA), Inc. (PHI) for the sale of PHN and
PHI's interests in PHINMA Petroleum and Geothermal, Inc. (PPG).
17. Notice of Annual or Special Stockholders' Meeting
18. Matters taken up at the special board meeting held on 23 July 2019.
19. Amendments to the articles of incorporation of the Company
20. Amendments to the by-laws of the Company
21. Matter taken up at the special board meeting held on 5 September 2019.
22. PHINMA Energy Corporation (“PHEN”) was declared as one of the best bids after the opening and
evaluation of bids of Manila Electric Company’s (“Meralco”)’s 1200 MW (net) competitive bidding for the
supply of electricity, held on 9 September 2019.
23. PHINMA Energy Corporation ("PHEN") was declared as one of the best bids after the opening and
evaluation of bids of Manila Electric Company’s (“Meralco”)’s 500MW (net) competitive bidding for the
supply of electricity, held on 11 September 2019.
24. Results of the Annual Stockholders' Meeting of PHINMA Energy Corporation
25. Results of the Organizational Meeting of the Board of Directors of PHINMA Energy Corporation
26. Change in Corporate Contact Details

71
27. The reimbursement to AC Energy, Inc. (“ACEI”) of actual personnel costs plus value added tax in relation
to the management and operations of the Company;
28. The Company’s Revised Related Party Transactions (RPT) Policy;
29. The appointment of Maria Corazon G. Dizon as the Company’s Chief Risk Officer;
30. The appointment of Henry T. Gomez as the Company’s Chief Audit Executive;
31. The availment by the Company of term loan facilities for up to Php15 Billion;
32. The investment by the Company into the following greenfield power projects: (i) a solar farm project in
Alaminos, Laguna; and (ii) a diesel power project to be located in Pililla, Rizal;
33. The transfer to the Company of the right to purchase the 20% ownership stake of Axia Power Holdings
Philippines, Inc. in South Luzon Thermal Energy Corporation;
34. The guarantee fee arrangement with ACEI in exchange for ACEI guaranteeing the Company’s payment
obligations under its coal hedging agreement with the Macquarie Group;
35. The assignment to the Company of ACEI’s rights to purchase 80MW of capacity from GN Power Dinginin
Ltd. Co.;
36. The share swap between the Company and ACEI and the issuance of 6,185,182,288 shares of stock in the
Company in favor of ACEI at Php2.37 per share in exchange for ACEI’s shares of stock in its various
Philippine subsidiaries and affiliates which is within the share price range determined in the Fairness
Opinion issued by FTI Consulting Philippines, Inc. an SEC-accredited and PSE-accredited independent
financial valuation firm; and
37. The undertaking of a stock rights offering for up to 2.27 billion shares, subject to applicable regulatory
approvals, at an offer price range between Php2.25/share and Php2.37/share, and the delegation to the
Executive Committee of authority to determine the final issue size and offer price within the prescribed
price range.
38. Comprehensive Corporate disclosure on The issuance of 6,185,182,288 shares of stock in the Company (the
“Shares”) to AC Energy, Inc. (“ACEI”) out of the increase in the authorized capital stock of the Company
to Php24.4 billion in exchange for property needed by the Company for corporate purposes consisting of
shares of stock owned by ACEI in select subsidiaries and affiliates in the Philippines (the “Property”) as
approved by the Board on 9 October 2019 (the “Transactions”).
39. Amendments to the by-laws of the Company
40. Change in the corporate name of the Company.
41. Approval by SEC of the Amendments to the articles of incorporation of the Company
42. Executive Committee authorized the signing of a share purchase agreement with the Philippine Investment
Alliance for Infrastructure (“PINAI”) for the Company to acquire PINAI’s ownership interest in North
Luzon Renewables Energy Corporation (“North Luzon Renewables”), which owns and operates an 81 MW
wind farm in Pagudpud, Ilocos Norte.
43. Deed of assignment with AC Energy Inc. (“ACEI”), whereby ACEI transferred its right to purchase the
20% ownership stake of Axia Power Holdings Philippines, Inc. ("Axia Power") in South Luzon Thermal
Energy Corporation ("SLTEC") in favor of the Company.
44. Share purchase agreement with the Philippine Investment Alliance for Infrastructure (“PINAI”) for the
acquisition of PINAI’s 31% effective preferred equity ownership and 15% effective common equity
ownership in North Luzon Renewables Energy Corporation (“North Luzon Renewables”).
45. Purchase of Interest in Philippine Wind Holdings Corporation
46. Matters taken up at the regular board meeting held on 11 November 2019
a. ratified the Executive Committee’s approval to enter into a share purchase agreement with the
Philippine Investment Alliance for Infrastructure (PINAI) fund for the acquisition by the Company of
the latter’s ownership interest in Philippine Wind Holdings Corporation, the parent company of North
Luzon Renewables Energy Corporation (North Luzon Renewables);
b. approved the purchase of up to 100% percent of PINAI fund’s ownership interest in San Carlos Solar
Energy, Inc. (SACASOL), which owns and operates a 45 MW solar farm in San Carlos City, Negros
Occidental that is operating under the feed-in-tariff (FIT) regime;
c. approved the purchase of up to 100% percent of PINAI fund’s ownership interest in Negros Island
Solar Power, Inc. (ISLASOL), which owns and operates the 80 MW solar farms in Negros Occidental;
d. approved additional short-term credit lines of up to Php8 Billion;
e. approved the Company’s financial statements for the nine months ended and as at 30 September 2019,
and the Company’s pro-forma consolidated unaudited financial statements as at 30 September 2019
and the year ended 31 December 2018;
f. approved the Company’s budget for calendar year 2020; and
g. approved the engagement of the Bank of the Philippine Islands, through its Stock Transfer Office, as
the Company’s stock transfer agent, and the termination of the existing stock transfer agent agreement.

72
47. Amended and Restated Deed of Assignment amending the Deed of Assignment dated 9 October 2019 (the
"Deed of Assignment"), covering the issuance of 6,185,182,288 shares of stock in the Company in favor of
AC Energy, Inc. ("ACEI") in exchange for ACEI's shares of stock in its various Philippine subsidiaries and
affiliates.
48. Response to the Exchange’s request for additional information on the solar power plant project in Palauig,
Zambales.
49. AC Energy Inc. (“AC Energy”), the Corporation’s parent company, successfully set the terms of its
inaugural US dollar-denominated senior perpetual fixed-for-life (non-deferable) green bond issuance
50. Purchase by ACEPH of controlling interest in Negros Island Solar Power Inc.
51. Purchase by ACEPH of controlling interest in San Carlos Solar Energy, Inc.
52. Signing of Subscription Agreement with Ingrid Power Holdings, Inc.

Clarification of News Reports

1. News article in Manila Times (Online Edition) on 18 September 2019 entitled “PHINMA Energy to spend
$2 billion for RE projects”
2. News article in the Business Mirror (Online Edition) on 20 November 2019 entitled "AC Energy
Development setting up new solar plant in Zambales"
3. News article in the Manila Times (Online Edition) posted on 6 December 2019 entitled "Ayala unit seeks to
beef up power capacity"

Structured Reports submitted to SEC and PSE

1. Top 100 Stockholders Report
2. Public Ownership Reports
3. Statement of Changes in Beneficial Ownership of Securities of directors, officers, and 10% owners
4. Initial Statement of Beneficial Ownership of Securities of directors, officers, and 10% owners
5. Quarterly Financial Reports
6. Annual Report

73
 SIGNATURES

Pursuant to the requirements of Section 17 of the Securities Regulation Code and Section 141 of the Corporation
Code, this report is signed on behalf of the registrant by the undersigned, thereunto duly authorized, in the City of
Makati on 12 May 2020.

AC ENERGY PHILIPPINES INC.

By:

___________________________________ _____________________________
Fernando Zobel de Ayala John Eric T. Francia
Chairman of the Board President and Chief Executive Officer

_______________________________ ________________________________
Maria Corazon G. Dizon Solomon M. Hermosura
Chief Finance Officer, Chief Risk Officer, Chief Legal Officer and Corporate Secretary
Chief Compliance Officer, and Finance Group Head Officer

_____________________________ ________________________________
Mariejo P. Bautista Gabino Ramon G. Mejia
Controller Head of Plant Operations

SUBSCRIBED AND SWORN to before me this ______________ at Makati City, affiants exhibiting to
me their respective passports/driver’s license, to wit:

Fernando Zobel de Ayala P0349883B 22 January 2019 DFA Manila

John Eric T. Francia EC 4715458 21 July 2015 DFA NCR East
Maria Corazon G. Dizon P6253635A 2 March 2018 DFA NCR East
Solomon M. Hermosura P3081434B 14 October 2019 DFA NCR East
Mariejo P. Bautista EC8230873 7 July 2016 DFA Manila
Gabino Ramon G. Mejia P7435224A 4 June 2018 DFA Manila

Doc. No. ________

Page No. ________
Book No. ________
Series of 2020.

74
 SIGNATURES

Pursuant to the requirements of Section 17 of the Securities Regulation Code and Section 141 of the Corporation
Code, this report is signed on behalf of the registrant by the undersigned, thereunto duly authorized, in the City
of Makati on 12 May 2020.

AC ENERGY PHILIPPINES INC.

By:

___________________________________ _____________________________
Fernando Zobel de Ayala John Eric T. Francia
Chairman of the Board President and Chief Executive Officer

_______________________________ ________________________________
Maria Corazon G. Dizon Solomon M. Hermosura
Chief Finance Officer, Chief Risk Officer, Chief Legal Officer and Corporate Secretary
Chief Compliance Officer, and Finance Group Head Officer

_____________________________ ________________________________
Mariejo P. Bautista Gabino Ramon G. Mejia
Controller Head of Plant Operations

SUBSCRIBED AND SWORN to before me this ______________ at Makati City, affiants exhibiting to
me their respective passports/driver’s license, to wit:

Fernando Zobel de Ayala P0349883B 22 January 2019 DFA Manila

John Eric T. Francia EC 4715458 21 July 2015 DFA NCR East
Maria Corazon G. Dizon P6253635A 2 March 2018 DFA NCR East
Solomon M. Hermosura P3081434B 14 October 2019 DFA NCR East
Mariejo P. Bautista EC8230873 7 July 2016 DFA Manila
Gabino Ramon G. Mejia P7435224A 4 June 2018 DFA Manila

Doc. No. ________

Page No. ________
Book No. ________
Series of 2020.

74
 Report of the Audit Committee to the Board of Directors
For the Year Ended 31 December 2019

The Board-approved Audit Committee (“the Committee”) Charter defines the duties and responsibilities
of the Committee. In accordance with the Charter, the Committee assists the Board of Directors in
fulfilling its oversight responsibilities to the shareholders with respect to the:

• Integrity of the Company’s financial statements and the financial reporting process;
• Appointment, remuneration, qualification, independence and performance of the external
auditors and the integrity of the audit process as a whole;
• Effectiveness of the system of internal control;
• Performance and leadership of the internal audit function; and
• Company’s compliance with applicable legal and regulatory requirements.

In compliance with the Audit Committee Charter, we confirm that:

• An independent director chairs the Committee with two independent members;

• We had two (2) meetings in 2019 since the acquisition of AC Energy Philippines, Inc. The
Company’s Chief Executive Officer, Chief Financial Officer and other members of management
were requested to attend the Committee meeting. External subject matter experts, such as the
appointed external auditors were also invited to the meeting;

• The previous Audit Committee members approved and we noted, the appointment of SGV &
Co. as the Company’s 2019 external auditors and the related audit fee;

• We have reviewed and discussed the quarterly unaudited financial statements as of September
30, 2019 and the annual audited parent and consolidated financial statements as of December
31, 2019 of AC Energy Philippines, Inc. and subsidiaries, including the Management’s
Discussion and Analysis of Financial Condition and Results of Operations and the significant
impact of new accounting standards, with management, internal auditors and SGV & Co. The
review and discussions were performed in the following context:

a) Management has the primary responsibility for the financial statements and the
financial reporting process; and
b) SGV & Co. is responsible for expressing an opinion on the conformity of the relevant
audited financial statements with Philippine Financial Reporting Standards.

• We have discussed and approved the proforma financial statements as of September 30, 2019
and December 31, 2019 for AC Energy Philippines, Inc.’ stock rights offering;

• We have approved the overall scope and the respective audit plans of the Company’s internal
auditors and SGV & Co. We have reviewed the adequacy of resources, the competencies of
staff and the effectiveness of the internal auditors to execute the audit plans ensuring that
resources are reasonably allocated to the areas of highest risks. We have also discussed the
results of the audits of internal auditors and SGV & Co. and their assessment of the Company’s
internal controls and the overall quality of the financial reporting process including their
management letter comments. Based on the assurance provided by the internal audit as well
as SGV & Co. as a result of their audit activities, the Committee assessed that the Company’s
systems of internal control and governance processes are adequate;
 • We have reviewed and approved all audit, audit-related and permitted non-audit services
provided by SGV & Co. to AC Energy Philippines, Inc. and the related fees for such services.
We have also assessed the compatibility of non-audit services with the auditors’ independence
to ensure that such services will not impair their independence;

• We have conducted an assessment of our performance, in accordance with Securities and

Exchange Commission guidelines, and confirmed that the Committee had satisfactorily
performed its responsibilities based on the requirements of its Charter; and

• We have reviewed the Audit Committee Charter to ensure that it is aligned with regulatory
requirements.

Based on the reviews and discussions undertaken, and subject to the limitations on our roles and
responsibilities referred to above, the Audit Committee recommends to the Board of Directors the
approval of the parent and consolidated audited financial statements for the year ended December 31,
2019 and filing of relevant financial statements with the Securities and Exchange Commission. We are
also recommending to the Board of Directors the re-appointment of SGV & Co, as AC Energy
Philippines, Inc.’s external auditor and the related audit fee for 2020 based on the review of their
performance and qualifications.

02 April 2020

Signed by:

MA. AURORA D. GEOTINA-GARCIA CONSUELO D. GARCIA † JESUS P. FRANCISCO

Chairman Member Member
 EXHIBIT A

AC ENERGY PHILIPPINES, INC. and SUBSIDIARIES

Consolidated Financial Statements

December 31, 2019 and 2018

And Years Ended December 31, 2019, 2018 and 2017
 AC ENERGY PHILIPPINES, INC.
Financial Highlights
(In Thousand Pesos Except Ratios)

2019 2018 2017

Current Assets 12,680,836 5,165,264 7,222,938

Total Assets 39,720,805 18,924,695 20,758,533
Current Liabilities 4,472,904 2,963,271 3,043,539
Total Liabilities 28,615,987 10,553,247 11,618,974
Total Equity 11,104,818 8,371,449 9,139,560
Paid-in Capital 7,605,543 4,973,543 4,973,543
Total Revenues 15,306,663 15,123,392 17,020,233
Net Income (Loss) (416,903) (593,156) 347,168
Earnings Per Share (0.05) (0.11) 0.07
Current Ratio 2.84:1 1.74:1 2.37:1
Acid Test Ratio 2.55:1 1.49:1 1.97:1
Debt/Equity Ratio 2.58:1 1.26:1 1.27:1
Asset-to-Equity Ratio 3.58:1 2.26:1 2.27:1
Interest Rate Coverage Ratio 0.36:1 0.03:1 1.08:1
Net Debt to Equity Ratio 1.80:1 1.05:1 .091:1
Return on Equity -4.28% -6.77% 3.83%
Return on Assets -1.42% -2.99% 1.68%
Asset turnover 52.20% 76.22% 82.25%
 COVER SHEET
for
AUDITED FINANCIAL STATEMENTS

SEC Registration Number

0 6 9 - 0 3 9 2 7 4

COMPANY NAME

A C E N E R G Y P H I L I P P I N E S , I N C .

( F o r m e r l y P H I N M A E n e r g y C o r p o r

a t i o n ) A N D S U B S I D I A R I E S

PRINCIPAL OFFICE ( No. / Street / Barangay / City / Town / Province )

4 t h F l o o r , 6 7 5 0 O f f i c e T o w e r ,

A y a l a A v e n u e , M a k a t i C i t y

Form Type Department requiring the report Secondary License Type, If Applicable

A C F S S E C N / A

COMPANY INFORMATION
Company’s Email Address Company’s Telephone Number Mobile Number

N/A 7-730-6300 –

No. of Stockholders Annual Meeting (Month / Day) Fiscal Year (Month / Day)

3,192 April 11 12/31

CONTACT PERSON INFORMATION

The designated contact person MUST be an Officer of the Corporation
Name of Contact Person Email Address Telephone Number/s Mobile Number

Mariejo P. Bautista [email protected] 7-730-6300 –

CONTACT PERSON’s ADDRESS

4th Floor, 6750 Office Tower, Ayala Avenue, Makati City, Philippines 1200

NOTE 1 : In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission within
thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated.
2 : All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation’s records with the Commission
and/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation from liability for its deficiencies.

*SGVFS039610*
SECURITIES & EXCHANGE COMMISSION
Secretariat Building, PICC Complex
Roxas Boulevard, Philippines

STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR

FINANCIAL STATEMENTS

The management of AC Energy Philippines, Inc. and Subsidiaries, formerly

PHINMA Energy Corporation, (the “Company”) is responsible for the
preparation and fair presentation of the consolidated financial statements
including the schedules attached therein, for the years ended December 31, 2019
and December 31, 2018, in accordance with the prescribed financial reporting
framework indicated therein, and for such internal control as management
determines is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing

the Company’s ability to continue as a going concern, disclosing, as applicable
matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Company or to cease
operations, or has no realistic alternative but to do so.

The Board of Directors is responsible for overseeing the Company’s financial

reporting process.

The Board of Directors reviews and approves the consolidated financial

statements including the schedules attached therein and submits the same to the
Stockholders.

SyCip Gorres Velayo & Co., the independent auditors, appointed by the
stockholders, has audited the consolidated financial statements of the Company
in accordance with Philippine Standards on Auditing, and in its report to the
Stockholders, has expressed their opinion on the fairness of presentation upon
completion of such audit.
(Page 2 of Statement of Management’s
Responsibility for Parent Company Financial Statements)

FERNANDO M. ZOBEL DE AYALA

Chairman of the Board

JOHN ERIC T. FRANCIA MARIA CORAZON G. DIZON

President and Treasurer and
Chief Executive Officer Chief Financial Officer

Signed this 25th day of March 2020

(Page 3 of Statement of Management’s
Responsibility for Parent Company Financial Statements)

(REPUBLIC OF THE PHILIPPINES)

Makati City ) S.S.

SUBSCRIBED AND SWORN to before me this _________________ affiant(s)

exhibiting to me their Passport, as follows:

Name Passport No. Date of Issue Place of Issue

Fernando M. Zobel De Ayala P0349883B 01-22-19 DFA-Manila
John Eric T. Francia P3923362B 11-21-19 DFA-Manila
Maria Corazon G. Dizon P6253635A 03-02-18 DFA-NCR-East

Doc. No.
Page No.
Book No.
Series of 2020
 SyCip Gorres Velayo & Co. Tel: (632) 891 0307 BOA/PRC Reg. No. 0001,
6760 Ayala Avenue Fax: (632) 819 0872 October 4, 2018, valid until August 24, 2021
1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-5 (Group A),
Philippines November 6, 2018, valid until November 5, 2021

INDEPENDENT AUDITOR’S REPORT

The Stockholders and the Board of Directors

AC Energy Philippines, Inc.
4th Floor, 6750 Office Tower
Ayala Avenue, Makati City

Opinion

We have audited the consolidated financial statements of AC Energy Philippines, Inc. and its Subsidiaries
(collectively, the Group), which comprise the consolidated statements of financial position as at
December 31, 2019 and 2018, and the consolidated statements of income, consolidated statements of
comprehensive income, consolidated statements of changes in equity and consolidated statements of cash
flows for each of the three years in the period ended December 31, 2019, and notes to the consolidated
financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the consolidated financial position of the Group as at December 31, 2019 and 2018, and its consolidated
financial performance and its consolidated cash flows for each of the three years in the period ended
December 31, 2019 in accordance with Philippine Financial Reporting Standards (PFRSs).

Basis for Opinion

We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit
of the Consolidated Financial Statements section of our report. We are independent of the Group in
accordance with the Code of Ethics for Professional Accountants in the Philippines (Code of Ethics)
together with the ethical requirements that are relevant to our audit of the consolidated financial
statements in the Philippines, and we have fulfilled our other ethical responsibilities in accordance with
these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in the
context of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters. For each matter below, our
description of how our audit addressed the matter is provided in that context.

*SGVFS039610*
A member firm of Ernst & Young Global Limited
 -2-

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Consolidated Financial Statements section of our report, including in relation to these matters.
Accordingly, our audit included the performance of procedures designed to respond to our assessment of
the risks of material misstatement of the consolidated financial statements. The results of our audit
procedures, including the procedures performed to address the matters below, provide the basis for our
audit opinion on the accompanying consolidated financial statements.

Impairment Testing of Goodwill

Under PFRS, the Group is required to annually test the amount of goodwill for impairment. As of
December 31, 2019, the Group’s goodwill that is attributable to the acquisition of One Subic Power
Generation Corporation in 2014 amounted to = P234.15 million, which is significant to our audit of the
consolidated financial statements. In addition, management’s assessment process requires significant
judgment and is based on assumptions, specifically forecasted revenue growth rates and gross margins,
prices in the energy spot market, fuel prices and discount rate.

The Group’s disclosures about goodwill are included in Notes 4 and 15 to the consolidated financial
statements.

Audit Response

We involved our internal specialist in evaluating the methodologies and the assumptions used. These
assumptions include revenue growth rates and gross margins, prices in the energy spot market, fuel prices
and discount rates. We compared the key assumptions used, such as forecasted revenue growth rate
against the historical performance of the CGU and other relevant external data. We tested the parameters
used in the determination of the discount rate against market data. We also reviewed the Group’s
disclosures about those assumptions to which the outcome of the impairment testing is most sensitive;
specifically, those that have the most significant effect on the determination of the recoverable amount of
goodwill.

Provisions and Contingencies

The Group is involved in legal proceedings and assessments for local and national taxes. This matter is
significant to our audit because the estimation of the potential liability resulting from these tax
assessments requires significant judgments by management. The inherent uncertainty over the outcome
of these tax matters is brought about by the differences in the interpretation and application of laws and
tax rulings.

The Group’s disclosures about provisions and contingencies are included in Note 41 to the consolidated
financial statements.

*SGVFS039610*
A member firm of Ernst & Young Global Limited
 -3-

Audit Response

We involved our internal specialist in the evaluation of management’s assessment on whether or not any
provision for tax contingencies should be recognized, and the estimation of such amount. We discussed
with management the status of the tax assessments and obtained the Group’s correspondences with the
relevant tax authorities and opinions of the external tax counsel. We evaluated the tax position of the
Group by considering the relevant tax laws, rulings and jurisprudence.

Accounting for the Adoption of PFRS 16

Effective January 1, 2019, the Group adopted PFRS 16, Leases, under the modified retrospective
approach which resulted in significant changes in the Group’s accounting policy for leases. The Group’s
adoption of PFRS 16 is significant to our audit because the recorded amounts are material to the
consolidated financial statements, and the adoption involved application of significant judgments and
estimation in determining the lease term and the incremental borrowing rate. This resulted in the
recognition of right-of-use assets and lease liabilities amounting to =
P548.45 million and =P572.30 million,
respectively, and a charge to retained earnings of =P90.72 million as at January 1, 2019, and the
recognition of depreciation expense and interest expense of P =65.62 million and =P56.56 million,
respectively, for the year ended December 31, 2019.

The disclosures related to the adoption of PFRS 16 are included in Note 3 to the consolidated financial
statements.

Audit Response

We obtained an understanding of the Group’s process in implementing the new standard on leases,
including the determination of the population of the lease contracts covered by PFRS 16, the application
of the short-term and low value assets exemption, the selection of the transition approach and any election
of available practical expedients.

We inspected lease agreements (i.e., lease agreements existing prior to the adoption of PFRS 16 and new
lease agreements), identified their contractual terms and conditions, and traced these contractual terms
and conditions to the lease calculation prepared by management, which covers the calculation of financial
impact of PFRS 16, including the transition adjustments.

For selected lease contracts with renewal and/or termination options, we reviewed management’s
assessment of whether it is reasonably certain that the Group will exercise the option to renew or not
exercise the option to terminate.

We tested the parameters used in the determination of the incremental borrowing rate by reference to
market data. We test computed the lease calculation prepared by management on a sample basis,
including the transition adjustments.

We reviewed the disclosures related to the transition adjustments based on the requirements of PFRS 16
and PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors.

*SGVFS039610*
A member firm of Ernst & Young Global Limited
 -4-

Other Information

Management is responsible for the other information. The other information comprises the information
included in the SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A and Annual Report
for the year ended December 31, 2019 but does not include the consolidated financial statements and our
auditor’s report thereon. The SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A and
Annual Report for the year ended December 31, 2019 are expected to be made available to us after the
date of this auditor’s report.

Our opinion on the consolidated financial statements does not cover the other information and we will not
express any form of assurance conclusion thereon.

In connection with our audits of the consolidated financial statements, our responsibility is to read the
other information identified above when it becomes available and, in doing so, consider whether the other
information is materially inconsistent with the consolidated financial statements or our knowledge
obtained in the audits, or otherwise appears to be materially misstated.

Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with PFRSs, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless management either intends to liquidate the Group or to
cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an
audit conducted in accordance with PSAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these consolidated financial statements.

*SGVFS039610*
A member firm of Ernst & Young Global Limited
 -5-

As part of an audit in accordance with PSAs, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.

· Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Group’s internal control.

· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

· Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Group to cease
to continue as a going concern.

· Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.

· Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the audit. We remain solely
responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.

*SGVFS039610*
A member firm of Ernst & Young Global Limited
 -6-

From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is
Benjamin N. Villacorte.

SYCIP GORRES VELAYO & CO.

Benjamin N. Villacorte
Partner
CPA Certificate No. 111562
SEC Accreditation No. 1539-AR-1 (Group A),
March 26, 2019, valid until March 25, 2022
Tax Identification No. 242-917-987
BIR Accreditation No. 08-001998-120-2019,
January 28, 2019, valid until January 27, 2022
PTR No. 8125320, January 7, 2020, Makati City

March 25, 2020

*SGVFS039610*
A member firm of Ernst & Young Global Limited
AC ENERGY PHILIPPINES, INC.
(Formerly PHINMA Energy Corporation)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Amounts in Thousands)

December 31
2019 2018
ASSETS
Current Assets
Cash and cash equivalents (Notes 5 and 36) P
=8,581,663 =1,022,366
P
Short-term investments (Note 36) 100,000 35,326
Financial assets at fair value through profit or loss
(FVTPL; Notes 6, 36 and 37) – 743,739
Receivables (Notes 7, 31 and 36) 2,728,419 2,627,291
Fuel and spare parts (Note 8) 855,275 413,673
Current portion of:
Input VAT 148,318 26,332
Creditable withholding taxes 123,700 79,443
Other current assets (Notes 9 and 36) 139,915 182,766
12,677,290 5,130,936
Assets held for sale (Note 10) 3,546 34,328
Total Current Assets 12,680,836 5,165,264
Noncurrent Assets
Property, plant and equipment (Note 11) 21,564,260 5,760,963
Investments in associates and joint ventures (Note 12) 723,165 4,322,684
Financial assets at:
Fair value through other comprehensive income
(FVOCI; Notes 13, 36 and 37) 1,251 257,995
FVTPL (Notes 6, 36 and 37) – 5,452
Investment properties (Note 14) 13,085 13,085
Goodwill and other intangible assets (Note 15) 280,193 320,219
Right-of-use assets (Note 16) 524,936 –
Deferred income tax assets - net (Note 29) 612,546 261,346
Net of current portion:
Input VAT (Note 41) 335,759 335,759
Creditable withholding taxes 860,026 704,726
Other noncurrent assets (Notes 17 and 36) 2,124,748 1,777,202
Total Noncurrent Assets 27,039,969 13,759,431
TOTAL ASSETS P
=39,720,805 =18,924,695
P

(Forward)

*SGVFS039610*
 -2-

December 31
2019 2018
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and other current liabilities
(Notes 18, 30, 31 and 36) P
=3,787,713 =2,269,398
P
Current portion of lease liability (Note 20) 33,542 –
Income and withholding taxes payable 41,208 11,762
Due to stockholders (Notes 22, 31 and 36) 16,594 16,651
Current portion of long-term loans (Notes 19, 36 and 37) 593,847 265,460
Short-term loan (Note 19) – 400,000
Total Current Liabilities 4,472,904 2,963,271
Noncurrent Liabilities
Long-term loans - net of current portion (Notes 19, 36 and 37) 20,192,081 6,071,473
Lease liability - net of current portion (Note 20) 526,029 –
Pension and other employee benefits liabilities (Note 30) 60,503 40,246
Deferred income tax liabilities - net (Note 29) 187,624 95,180
Other noncurrent liabilities (Note 21) 3,176,846 1,383,077
Total Noncurrent Liabilities 24,143,083 7,589,976
Total Liabilities 28,615,987 10,553,247
Equity
Capital stock (Note 22) 7,521,775 4,889,775
Additional paid-in capital 83,768 83,768
Other equity reserves (Note 22) (2,342,103) 18,338
Unrealized fair value gains (losses) on equity instruments at FVOCI
(Note 13) (8,129) 59,772
Unrealized fair value losses on derivative instrument designated
under hedge accounting (Note 36) (14,742) –
Remeasurement gains (losses) on defined benefit plan (Note 30) (7,034) 536
Accumulated share in other comprehensive loss of a joint venture
and associates (Note 12) (2,107) (2,193)
Retained earnings (Note 22) 2,922,514 3,303,708
Treasury shares (Note 22) (27,704) (27,706)
Total equity attributable to equity holders of the Parent Company 8,126,238 8,325,998
Non-controlling interests (Note 34) 2,978,580 45,450
Total Equity 11,104,818 8,371,448
TOTAL LIABILITIES AND EQUITY P
=39,720,805 =18,924,695
P

See accompanying Notes to Consolidated Financial Statements.

*SGVFS039610*
AC ENERGY PHILIPPINES, INC.
(Formerly PHINMA Energy Corporation)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Per Share Figures)

Years Ended December 31

2019 2018 2017

REVENUES
Revenue from sale of electricity (Notes 23 and 35) P
=15,297,719 =15,113,601
P =17,011,044
P
Dividend income (Note 13) 7,585 9,117 8,483
Rental income 1,359 674 706
15,306,663 15,123,392 17,020,233

COSTS AND EXPENSES

Cost of sale of electricity (Notes 24, 26 and 27) 15,014,799 15,109,491 16,929,239
General and administrative expenses
(Notes 25, 26 and 27) 667,215 654,517 664,550
15,682,014 15,764,008 17,593,789

INTEREST AND OTHER FINANCE CHARGES

(Note 28) (881,963) (433,649) (513,566)

EQUITY IN NET INCOME (LOSS) OF

ASSOCIATES AND JOINT VENTURES
(Note 12) (24,461) 532,460 1,024,995

OTHER INCOME - Net (Note 28) 716,053 120,252 105,617

INCOME (LOSS) BEFORE INCOME TAX (565,722) (421,553) 43,490

PROVISION FOR (BENEFIT FROM)

INCOME TAX (Note 29)
Current 68,673 20,699 72,722
Deferred (217,492) 150,904 (376,400)
(148,819) 171,603 (303,678)

NET INCOME (LOSS) (P

=416,903) (P
=593,156) =347,168
P

Net Income (Loss) Attributable To:

Equity holders of the Parent Company (Note 32) (P
=331,011) (P
=560,496) =353,764
P
Non-controlling interests (Note 34) (85,892) (32,660) (6,596)
(P
=416,903) (P
=593,156) =347,168
P

Basic/Diluted Earnings (Loss) Per Share (Note 32) (P

=0.05) (P
=0.11) =0.07
P

See accompanying Notes to Consolidated Financial Statements.

*SGVFS039610*
AC ENERGY PHILIPPINES, INC.
(Formerly PHINMA Energy Corporation)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)

Years Ended December 31

2019 2018 2017

NET INCOME (LOSS) (P

=416,903) (P
=593,156) =347,168
P

OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) to be reclassified to
profit or loss in subsequent periods
Net changes in the fair market value of AFS investments – – (23,049)
Income tax effect – – (393)
– – (23,442)
Other comprehensive income (loss) not to be reclassified
directly to profit or loss in subsequent periods
Net changes in the fair market value of equity
instruments at FVOCI (29,619) 1,475 –
Unrealized fair value losses on derivative instrument
designated under hedge accounting (Note 36) (21,060) – –
Remeasurement gains (losses) on defined benefit plan
(Note 30) (10,814) 5,237 7,760
Income tax effect 11,812 (940) (2,328)
(49,681) 5,772 5,432
Share in other comprehensive income (loss) of a joint
venture and an associate - net of deferred income tax
(Note 12) 86 1,220 (3,136)

OTHER COMPREHENSIVE INCOME (LOSS),

NET OF TAX (49,595) 6,992 (21,146)

TOTAL COMPREHENSIVE INCOME (LOSS) (P

=466,498) (P
=586,164) =326,022
P

Total Comprehensive Income (Loss) Attributable To:

Equity holders of the Parent Company (P
=380,606) (P
=553,504) =332,618
P
Non-controlling interests (Note 34) (85,892) (32,660) (6,596)
(P
=466,498) (P
=586,164) =326,022
P

See accompanying Notes to Consolidated Financial Statements.

*SGVFS039610*
AC ENERGY PHILIPPINES, INC.
(Formerly PHINMA Energy Corporation)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017
(Amounts in Thousands)

Attributable to Equity Holders of the Parent Company

Unrealized Fair
Unrealized Fair Value Losses on Accumulated
Value Gains derivative Remeasurement Share in Other
(Losses) on instrument Gains (Losses) Comprehensive
Additional Other Equity Equity designated under on Defined Gains (Losses) of Retained Non-controlling
Capital Stock Paid-in Reserves Instruments at hedge accounting Benefit Plan a Joint Venture Earnings Treasury Shares Interests
(Note 22) Capital (Note 22) FVOCI (Note 13) (Note 36) (Note 30) (Note 12) (Note 22) (Note 22) Total (Note 34) Total Equity

BALANCES AT JANUARY 1, 2019,

AS PREVIOUSLY REPORTED = 4,889,775
P = 83,768
P = 18,338
P = 59,772
P =–
P = 536
P (P
=2,193) = 3,303,708
P (P
=27,706) = 8,325,998
P = 45,450
P = 8,371,448
P
Effect of initial application of PFRS 16
(Note 3) – – – – – – – (90,715) – (90,715) – (90,715)

BALANCES AT JANUARY 1, 2019,

AS ADJUSTED 4,889,775 83,768 18,338 59,772 – 536 (2,193) 3,212,993 (27,706) 8,235,283 45,450 8,280,733
Net loss – – – – – – – (331,011) – (331,011) (85,892) (416,903)
Other comprehensive income – – – (27,369) (14,742) (7,570) 86 – – (49,595) – (49,595)
Total comprehensive income (loss) – – – (27,369) (14,742) (7,570) 86 (331,011) – (380,606) (85,892) (466,498)
Disposal of financial assets at FVOCI
(Note 13) – – – (40,532) – – – 40,532 – – – –
Issuance of shares of stock (Note 22) 2,632,000 – – – – – – – 2 2,632,002 – 2,632,002
Purchase of shares of stock (Notes 1
and 22) – – (130,854) – – – – – – (130,854) (22,782) (153,636)
Acquisition of a subsidiary under common
control (Notes 1, 22 and 33) – – (2,229,587) – – – – – – (2,229,587) 3,041,804 812,217
2,632,000 – (2,360,441) (40,532) – – – 40,532 2 271,561 3,019,022 3,290,583

BALANCES AT DECEMBER 31, 2019 = 7,521,775

P = 83,768
P (P
=2,342,103) (P
=8,129) (P
=14,742) (P
=7,034) (P
=2,107) = 2,922,514
P (P
=27,704) = 8,126,238
P = 2,978,580
P = 11,104,818
P

(Forward)

*SGVFS039610*
 -2-

Attributable to Equity Holders of the Parent Company

Unrealized Fair Accumulated
Value Gains Unrealized Fair Share in Other
(Losses) on Value Gains Remeasurement Comprehensive
Additional Other Equity Equity on AFS Losses on Defined Loss of a Joint Retained Non-controlling
Capital Stock Paid-in Reserves Instruments at Investments Benefit Plan Venture Earnings Treasury Shares Interests
(Note 22) Capital (Note 22) FVOCI (Note 13) (Note 13) (Note 30) (Note 12) (Note 22) (Note 22) Total (Note 34) Total Equity

BALANCES AT JANUARY 1, 2018,

AS PREVIOUSLY REPORTED =4,889,775
P =83,768
P =18,338
P =–
P =85,924
P (P
=3,130) (P
=3,413) =4,018,980
P (P
=28,793) =9,061,449
P =78,110
P =9,139,559
P
Effect of initial application of PFRS 9
(Notes 3 and 13) – – – 99,513 (85,924) – – (9,614) – 3,975 – 3,975

BALANCES AT JANUARY 1, 2018,

AS ADJUSTED 4,889,775 83,768 18,338 99,513 – (3,130) (3,413) 4,009,366 (28,793) 9,065,424 78,110 9,143,534
Net loss – – – – – – – (560,496) – (560,496) (32,660) (593,156)
Other comprehensive income – – – 2,106 – 3,666 1,220 – – 6,992 – 6,992
Total comprehensive income (loss) – – – 2,106 – 3,666 1,220 (560,496) – (553,504) (32,660) (586,164)
Sale of equity investments at FVOCI
(Note 13) – – – (41,847) – – – 49,436 – 7,589 – 7,589
Dividends declared (Note 22) – – – – – – – (194,598) – (194,598) – (194,598)
Disposal of treasury shares (Note 22) – – – – – – – – 1,087 1,087 – 1,087
– – – (41,847) – – – (145,162) 1,087 (185,922) – (185,922)
BALANCES AT DECEMBER 31, 2018 =4,889,775
P =83,768
P =18,338
P =59,772
P =–
P =536
P (P
=2,193) =3,303,708
P (P
=27,706) =8,325,998
P =45,450
P =8,371,448
P

BALANCES AT DECEMBER 31, 2016 =4,885,898

P =81,209
P =18,338
P P–
= =109,366
P (P
=8,562) (P
=277) =3,859,659
P (P
=28,793) =8,916,838
P =84,706
P =9,001,544
P
Net income – – – – – – – 353,764 – 353,764 (6,596) 347,168
Other comprehensive income (loss) – – – – (23,442) 5,432 (3,136) – – (21,146) – (21,146)
Total comprehensive income (loss) – – – – (23,442) 5,432 (3,136) 353,764 – 332,618 (6,596) 326,022
Dividends declared (Note 22) – – – – – – – (194,443) – (194,443) – (194,443)
Issuance of stocks - stock options 3,877 2,559 – – – – – – – 6,436 – 6,436
3,877 2,559 – – – – – (194,443) – (188,007) – (188,007)

BALANCES AT DECEMBER 31, 2017 =4,889,775

P =83,768
P =18,338
P =–
P =85,924
P (P
=3,130) (P
=3,413) =4,018,980
P (P
=28,793) =9,061,449
P =78,110
P =9,139,559
P

See accompanying Notes to Consolidated Financial Statements.

*SGVFS039610*
AC ENERGY PHILIPPINES, INC.
(Formerly PHINMA Energy Corporation)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)

Years Ended December 31

2019 2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Income (losses) before income tax (P
= 565,722) (P
=421,553) =43,490
P
Adjustments for:
Depreciation and amortization (Note 27) 892,466 405,835 399,384
Interest and other finance charges (Note 28) 881,963 433,649 513,566
Interest and other financial income (Note 28) (107,602) (96,851) (87,185)
Movement of pension and other employee benefits (Note 30) 25,220 9,373 3,327
Equity in net loss (earnings) of associates and joint ventures
(Notes 12 and 38) 24,461 (532,460) (1,024,995)
Provisions for (reversals of):
Probable losses on deferred exploration costs (Note 15) 34,493 48,263 4,892
Inventory obsolescence (Note 8) 5,554 159 –
Credit losses (Note 7) 1,162 14,548 4,542
Unrecoverable input VAT – 43,712 –
Plug-in and abandonment – 38,776 11,384
Property, plant and equipment impairment (Note 11) – 2,066 –
Accrued liabilities – – (2,236)
Loss (gain) on derivatives - net (Notes 28 and 37) (6,851) 15,056 (9,399)
Dividend income (Notes 13 and 31) (7,585) (9,117) (8,483)
Foreign exchange loss (gain) - net (12,900) (3,471) 6,851
Loss (gain) on sale of:
Property, plant and equipment (Note 28) (294,100) (254) –
Asset held for sale (Note 10) (14,289) – –
Investments (Note 28) (1,375) (5,834) 17
Inventories 461 – –
Changes in fair value of long-term receivable – – 165
Operating income (loss) before working capital changes 855,355 (58,103) (144,680)
Decrease (increase) in:
Receivables 203,437 (121,909) (17,365)
Fuel and spare parts (194,059) (92,307) (90,379)
Other current assets 477,891 (487,086) (104,787)
Decrease in accounts payable and other current liabilities (1,214,897) (223,804) (318,681)
Cash generated from (used in) operations 127,727 (983,209) (675,892)
Income and withholding taxes paid (210,905) (20,699) (63,011)
Net cash used in operating activities (83,178) (1,003,908) (738,903)

(Forward)

*SGVFS039610*
 -2-

Years Ended December 31

2019 2018 2017
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale and redemption of financial assets at
FVTPL/investments held for trading P779,853
= =16,505,872
P =23,219,212
P
Sale of property, plant and equipment (Note 11) 337,336 261 511
Sale of financial assets at FVOCI 255,772 53,328 –
Insurance claim (Note 11) 222,789 90,146 –
Sale of investment in a joint venture (Note 12) 218,348 – –
Sale of asset held for sale 45,071 – –
Termination of short-term investments 35,326 478,932 2,498
Sale of available-for-sale investments – – 92
Interest received 61,826 33,471 33,723
Cash dividends received (Notes 12 and 13) 32,585 514,030 1,090,225
Additions to:
Investments in subsidiaries (Note 33) 1,471,534 – –
Deferred exploration costs (Note 15) (19,426) (4,526) (10,209)
Short-term investment (Note 36) (100,000) (35,326) (485,653)
Property, plant and equipment (Note 11) (418,514) (119,680) (125,138)
Financial assets at FVTPL/ Investments held for trading – (15,741,377) (21,604,487)
Investment in a joint venture (Note 12) – (236,315) (18,073)
Available-for-sale investments – – (7,215)
Advances to associates (Note 12) – – (80,250)
Decrease (increase) in other noncurrent assets (308,180) 118,346 (1,399)
Net cash from investing activities 2,614,320 1,657,162 2,013,837
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Availment of long-term loans (Note 19) 5,000,000 930,000 2,350,000
Issuance of capital stock (Note 22) 2,632,000 – 6,436
Sale of treasury (Note 22) 3 1,415 –
Availment of short-term debt – 400,000 –
Sale of investment (Note 12) – 225,000 –
Payments of:
Long-term loans (Note 19) (1,338,971) (1,445,235) (2,520,651)
Interest on loans and lease liabilities (791,630) (406,779) (443,216)
Short-term loans (400,000) – –
Debt issuance costs (Note 19) (43,003) (6,975) (11,750)
Principal portion of lease liabilities (36,247) – –
Cash dividends – (193,247) (270,347)
Finance leases – (8,153) (7,331)
Increase (decrease) in other noncurrent liabilities 7,829 (431,384) 527,115
Net cash from (used in) financing activities 5,029,981 (935,358) (369,744)

EFFECT OF FOREIGN EXCHANGE RATE CHANGES

ON CASH AND CASH EQUIVALENTS (1,826) 3,471 227
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 7,559,297 (278,633) 905,417
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR (Note 5) 1,022,366 1,300,999 395,582
CASH AND CASH EQUIVALENTS
AT END OF YEAR (Notes 5 and 36) =8,581,663
P =1,022,366
P =1,300,999
P

See accompanying Notes to Consolidated Financial Statements.

*SGVFS039610*
AC ENERGY PHILIPPINES, INC.
(Formerly PHINMA Energy Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except When Otherwise Indicated)

1. Corporate Information and Status of Operations

AC Energy Philippines, Inc., formerly PHINMA Energy Corporation (“ACEPH” or “the Parent
Company”), incorporated on September 8, 1969, and registered with the Philippine Securities and
Exchange Commission (“SEC”), is engaged in power generation and trading, oil and mineral
exploration, development and production. The Parent Company is a licensed Retail Electricity
Supplier (“RES”). As a RES, the Parent Company can supply electricity to the contestable market
pursuant to the Electric Power Industry Reform Act. Other activities of the Parent Company include
investing in various operating companies and financial instruments.

On February 7, 2019, Philippine Investment Management (PHINMA), Inc., PHINMA Corporation

and AC Energy, Inc. (“AC Energy”) signed an investment agreement for AC Energy’s acquisition of
PHINMA, Inc.’s and PHINMA Corporation’s combined 51.476% stake in ACEPH via a secondary
share sale through the Philippine Stock Exchange (“PSE”).

On April 15, 2019, the Philippine Competition Commission (“PCC”) approved the sale of the
combined stake of PHINMA, Inc. and PHINMA Corporation in ACEPH to AC Energy. AC Energy
tendered an offer to other shareholders on May 20, 2019 to June 19, 2019, with a total of 156,476
public shares of ACEPH tendered during the tender offer period.

On June 24, 2019, the PSE confirmed the special block sale of ACEPH shares to AC Energy. On the
same day, AC Energy subscribed to 2.632 billion shares of ACEPH. As of December 31, 2019, AC
Energy directly owns 66.34% of the Parent Company’s total outstanding shares of stock.

The direct parent company (or intermediate parent company) of ACEPH is AC Energy, a wholly
owned subsidiary of Ayala Corporation (AC), a publicly-listed company which is 47.33% owned by
Mermac, Inc. (ultimate parent company), and the rest by the public. ACEPH is managed by AC
Energy under an existing management agreement, which was assigned by PHINMA, Inc. to AC
Energy on June 24, 2019. ACEPH, AC Energy, AC and Mermac, Inc. are all incorporated and
domiciled in the Philippines. ACEPH and its subsidiaries below are collectively referred to as “the
Group”.

On July 23, 2019, the Board of Directors (“BOD”) of ACEPH approved the following amendments to
the ACEPH’s articles of incorporation:
i) Change of the corporate name to AC Energy Philippines, Inc.;
ii) Change of the principal office of the Parent Company to 4th Floor, 6750 Office Tower, Ayala
Ave., Makati City;
iii) Increase in authorized capital stock by 16 billion shares or from 8,400,000,000 common shares to
24,400,000,000 common shares. Additional capital will be used for investments in greenfield
projects and acquisition of power assets, including part of AC Energy’s on-shore power
generation and development assets.

On September 5, 2019, the BOD approved the amendment to the articles to include a provision
exempting from the pre-emptive right of shareholders the issuance of shares in exchange for property
needed for corporate purposes or in payment for previously contracted debt.

*SGVFS039610*
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The amendments were approved by the stockholders at the Annual Stockholders' Meeting on
September 17, 2019.

The SEC issued the Certificate of Filing of Amended Articles of Incorporation of the Parent
Company on October 11, 2019 approving the change of corporate name and principal office.
Approval of the increase in authorized capital stock is pending as of March 25,2020.

On November 22, 2019, ACEPH filed with the SEC its application to increase its capital stock from
=8,400.00 million to =
P P24,400.00 million.

On October 9, 2019, the BOD approved, among others, the following matters:
i) The swap between the Parent Company and AC Energy and the issuance of shares of stock in the
Parent Company in favor of AC Energy in exchange for the latter’s shares of stock in its various
Philippine subsidiaries and affiliates;
ii) The undertaking of a stock rights offering, subject to applicable regulatory approvals and
iii) The transfer to the Parent Company of AC Energy’s right to purchase the 20% ownership stake of
Axia Power Holdings Philippines, Corporation (Axia) in South Luzon Thermal Energy
Corporation (“SLTEC”).

On October 9, 2019 ACEPH and AC Energy executed a Deed of Assignment where AC Energy
assigned to ACEPH shares of stock in various AC Energy subsidiaries and affiliates in exchange for
ACEPH shares. The Deed of Assignment was amended on November 13, 2019 to reflect the correct
number of common shares of AC Energy in SLTEC, ACTA Power Corporation and Manapla Sun
Power Development Corp.

On November 5, 2019, the Parent Company signed a deed of assignment with AC Energy to transfer
AC Energy’s rights to purchase 20% ownership stake of Axia Power Holdings Philippines
Corporation (“APHPC”) in SLTEC, which owns and operates the 2x135 MW Circulating Fluidized
Bed power plant (the “SLTEC Power Plant”) in Calaca, Batangas.

On November 11, 2019, the BOD approved, among others, the following matters:

i) Ratification of the Executive Committee’s approval of the Parent Company’s acquisition of

PINAI’s ownership interest in PhilWind;
ii) Purchase of up to 100% percent of PINAI fund’s ownership interest in San Carlos Solar Energy,
Inc. (SACASOL), which owns and operates a 45 MW solar farm in San Carlos City, Negros
Occidental;
iii) Purchase of up to 100% percent of PINAI fund’s ownership interest in Negros Island Solar
Power, Inc. (“ISLASOL”), which owns and operates the 80 MW solar farms in Negros
Occidental;
iv) Additional short-term credit lines of up to =
P8 billion
v) Investment into, and construction of, a 60 MW solar power plant in Palauig, Zambales through
ACE Endevor, Inc.’s (“ACE Endevor” or formerly AC Energy Development, Inc.), wholly
owned project company, Gigasol3, Inc..

On January 28, 2020, the PCC ruled that the PINAI sale of PhilWind shares "will not likely result in
substantial lessening of competition" and resolved "to take no further action with respect to the
Transaction..." The Parent Company will purchase all shares of PINAI in PhilWind and following the
PINAI transaction, the Parent Company will directly and indirectly own 67% of NLREC.

*SGVFS039610*
 -3-

The Subsidiaries

PHINMA Power Generation Corporation (“PHINMA Power”)

PHINMA Power, formerly Trans-Asia Power Generation Corporation, was incorporated and
registered with the SEC on March 18, 1996. PHINMA Power is engaged in power generation. In
October 2006, the Philippine Electricity Market Corporation (“PEMC”) approved PHINMA Power’s
application for registration as trading participant for both generation and customer categories in the
WESM. As WESM members, both the Parent Company and PHINMA Power are allowed to buy and
sell electricity in the WESM. Effective December 26, 2013, PHINMA Power entered into a Power
Administration and Management Agreement (“PAMA”) valid for ten (10) years with the Parent
Company for the administration and management by the Parent Company of the entire capacity and
net output of PHINMA Power. In addition to capacity fee, the Parent Company pays PHINMA
Power’s transmission and fuel costs. On January 12, 2018, PHINMA Power and the Parent Company
amended the PAMA to increase the capacity rate based on nominated capacity and include fuel
recovery and utilization fees effective on March 26, 2018.

On July 23, 2019, the BOD and the stockholders approved the change of the corporate name to
“Bulacan Power Generation Corporation.” The amendment is pending SEC approval. The registered
office address of PHINMA Power is Level 11 PHINMA Plaza, 39 Plaza Drive, Rockwell Center,
Makati City.

One Subic Power Generation Corporation (“One Subic Power”)

One Subic Power was incorporated and registered with the SEC on August 4, 2010 to engage in the
business of owning, constructing, operating, developing and maintaining all types of power
generation plants. On November 18, 2010, the Parent Company and One Subic Power entered into a
PAMA wherein the Parent Company administers and manages the entire generation output of the
116 MW diesel power plant in Subic, Olongapo City. The PAMA became effective on February 17,
2011 and shall be valid throughout the term of the lease agreement with Subic Bay Metropolitan
Authority (“SBMA”). On May 12, 2014, PHINMA Power purchased from Udenna Energy
Corporation (“UDEC”) the entire outstanding shares of stock of One Subic Power. Prior to the
acquisition, One Subic Power was a wholly-owned subsidiary of UDEC, a company incorporated and
domiciled in the Philippines.

On January 23, 2017, One Subic Power’s BOD approved the amendment of the Articles of
Incorporation to change the primary purpose to include exploration, discovery, development,
processing and disposal of any and all kind of petroleum products. The amended Articles of
Incorporation were approved by the SEC on June 19, 2017. The registered office address of One
Subic Power is Causeway Extension, Subic Gateway District, Subic Bay, Freeport Zone.

CIP II Power Corporation (“CIPP”)

CIPP was incorporated and registered with the SEC on June 2, 1998. CIPP is a utilities enterprise,
the primary purpose of which was to develop and operate a power supply and distribution system at
Carmelray Industrial Park II Special Economic Zone in Calamba, Laguna. In April 2009, CIPP sold
its distribution assets resulting in the cessation of CIPP’s operations and separation of substantially all
of its employees effective January 31, 2010. On February 22, 2010 and March 24, 2010, the Parent
Company’s BOD and stockholders, respectively, approved the proposed merger of the Parent
Company and CIPP subject to the approval by the SEC. In December 2010, CIPP’s BOD approved
the transfer of its 21 MW bunker C-fired power plant from Laguna to Barangay Quirino, Bacnotan,
La Union which was completed in 2012. In 2013, CIPP and the Parent Company entered into a
PAMA valid for ten (10) years for the latter’s administration and management of the entire capacity
and net output of CIPP. On January 12, 2018, CIPP and the Parent Company amended the PAMA, to
include fuel recovery and utilization fees effective on March 26, 2018 and valid for ten (10) years.

*SGVFS039610*
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As at March 25, 2020, the Parent Company and CIPP have not filed their application for merger with
the SEC and have deferred their plan for merger. The registered office address of CIPP is Barangay
Quirino, Bacnotan, La Union.

PHINMA Renewable Energy Corporation (“PHINMA Renewable”)

PHINMA Renewable, formerly Trans-Asia Renewable Energy Corporation, was incorporated and
registered with the SEC on September 2, 1994. It was established with the primary purpose of
developing and utilizing renewable energy and pursuing clean and energy-efficient projects. On
May 20, 2013, the Department of Energy (DOE) confirmed the Declaration of Commerciality of
PHINMA Renewable’s 54 MW San Lorenzo Wind power project (“SLWP”) in Guimaras. On
October 7, 2014, the SLWP started delivering power to the grid and on February 16, 2015, PHINMA
Renewable received from the DOE the confirmation of start of Commercial Operations declared on
December 27, 2014. On December 1, 2015, PHINMA Renewable received its Certificate of
Compliance from the Energy Regulatory Commission (“ERC”). On December 8, 2015, PHINMA
Renewable’s BOD approved to increase its authorized capital stock from = P2,000.00 million divided
into 2 billion shares with par value of =
P1.00 per share to =
P5,000.00 million composed of
=2,000.00 million common shares with par value of =
P P1.00 per share and =
P3,000.00 million
preferredshares with a par value of =P1.00 per share. The increase in authorized capital stock was
approved by the SEC on March 31, 2017. The registered office address of PHINMA Renewable is
Barangay Suclaran, Municipality of San Lorenzo, Province of Guimaras.

On December 26, 2019, the BOD and the stockholders approved the change of the corporate name to
“Guimaras Wind Corporation” The amendment is pending SEC approval.

One Subic Oil Distribution Corporation (One Subic Oil)

One Subic Oil, formerly Trans-Asia Gold and Minerals Development Corporation, was incorporated
and registered with the SEC on July 2, 2007 to primarily engage in the business of mining and
mineral exploration within the Philippines and other countries. On February 16, 2009, the BOD
approved the suspension of exploration activities of One Subic Oil effective March 31, 2009. On
August 9, 2017, One Subic Oil’s BOD approved the amendment of the Articles of Incorporation to
change the corporate name to One Subic Oil Distribution Corporation, to change its primary purpose
to importation, storage, transportation, distribution and disposal of any and all kinds of fuel and
petroleum products, and to change the principal office of the corporation to Causeway Extension,
Subic Gateway District, Subic Bay Freeport Zone, Subic. The amended Articles of Incorporation
were issued by the SEC on September 20, 2017. As at March 25, 2020, One Subic Oil has not started
commercial operations for its petroleum distribution business.

ACE Enexor, Inc. (“ACEX”)

ACEX, formerly PHINMA Petroleum and Geothermal, Inc., was incorporated and registered with the
SEC on September 28, 1994. ACEX is engaged in oil exploration and well development. On
November 28, 2012, the SEC approved the increase in authorized capital stock of ACEX from
=40.00 million divided into 4 billion shares with a par value of =
P P0.01 per share to =
P1.00 billion
divided into 100 billion shares with a par value of =
P0.01 per share. It also approved the change in its
primary purpose from power generation to oil and gas exploration and production.

On April 22, 2013, ACEX’s BOD and stockholders voted to increase the par value of capital stock
from P=0.01 to =
P1.00 per share, which reduced the number of authorized capital stock from 100 billion
to 1 billion and the issued and outstanding shares from 25 billion to 250 million. The increase in par
value per share was approved by the SEC on June 3, 2013.

ACEX listed its shares with the PSE by way of introduction on August 28, 2014. On April 10, 2017,
ACEX’s BOD approved the amendment of its Articles of Incorporation to include on its primary and

*SGVFS039610*
 -5-

secondary purposes the exploration and development of geothermal resources. The amended Articles
of Incorporation were issued by the SEC on May 31, 2017.

On June 24, 2019, ACEPH purchased PHINMA Inc.’s and PHINMA Corporation’s combined stake
in ACEX representing 25.28% ownership. This increased the Parent Company’s effective ownership
in ACEX from 50.74% to 75.92%.

As at March 25, 2020, ACEX has not started commercial operations. The registered office address of
ACEX is at 4th Floor, 6750 Office Tower, Ayala Ave., Makati City.

Palawan55 Exploration & Production Corporation (“Palawan55”)

Palawan55 was incorporated and registered with the SEC on November 16, 2012. Palawan55 is
engaged in the development and utilization of crude oil, natural gas, natural gas liquids and other
forms of petroleum. As at March 25, 2020, Palawan55 has not started its commercial operations.
The registered office address of Palawan55 is Level 11 PHINMA Plaza, 39 Plaza Drive, Rockwell
Center, Makati City.

South Luzon Thermal Energy Corporation (“SLTEC”)

On June 29, 2011, the Parent Company entered into a 50-50 joint venture agreement with AC Energy
to form SLTEC. SLTEC was incorporated on July 29, 2011, and is engaged in the operation and
maintenance of the SLTEC Power Plant. Unit 1 of the Power Plant commenced commercial
operations on April 24, 2015 while Unit 2 started commercial operation on February 21, 2016. On
December 20, 2016, the Parent Company and AC Energy sold 5% and 15% respectively of their
interest in SLTEC to Axia Power Holdings Philippines Corporation (Axia), giving Axia a 20%
ownership stake in SLTEC. The registered office address of SLTEC is KM. 117 National Road,
Phoenix Industrial Park Phase II Puting Bato West, Calaca, Batangas.

On July 10, 2019 , AC Energy and Axia Power Holdings Philippines Corp. (Axia) signed a share
purchase agreement where AC Energy has the right to purchase Axia’s 20% interest in SLTEC. AC
Energy paid the downpayment and has gained control over SLTEC over said date. As of July 10,
2019, both SLTEC and ACEPH are under the common control of AC Energy.

On November 5, 2019, the Parent Company signed a deed of assignment with AC Energy whereby
AC Energy transferred its right to purchase APHPI’s 20% ownership stake to the Parent Company.
As a result of the assignment of right, the Parent Company exercised its right and purchased Axia’s
20% interest in SLTEC for a total consideration of =P3.40 billion. The Parent Company has gained
control over SLTEC as a result of the business combination involving entities under common control.
The Parent Company has consolidated SLTEC starting July 10,2019, the date when SLTEC and the
Parent Company started being under the common control of AC Energy. The ownership structure of
SLTEC as of December 31,2019 is as follows: 65% ACEPH and 35% AC Energy.

Buendia Christiana Holdings Corp. (“BCHC”)

On December 12, 2019, the Parent Company entered into a subscription agreement with BCHC to
subscribe to the increase of BCHC’s authorized capital stock, as follows: i) 325,000,000 common
shares with a par value of =
P0.10 per share, or for a total subscription price of =
P32.50 million; and ii)
2,925,000 redeemable preferred shares B with a par value of P =100.00 per share, or for a total
subscription price of =
P292.50 million. BCHC was incorporated and registered with the SEC on
May 10, 2019. BCHC is engaged in the activities of a holding company and non-operating as of date.
BCHC has an existing land located in the province of Zambales amounting to = P273.50 million The
registered office address of BCHC is Room 412 Executive Building Center, Makati Avenue cor. Gil
Puyat Avenue, Bel-air, Makati City.

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 -6-

ACE Shared Services, Inc. (“ACES”)

On November 18, 2019, the Parent Company subscribed to 250,000 shares in ACES with a par value
of P
=1.00 per share, or for a total subscription price of =
P0.25 million. ACES was incorporated and
registered with the SEC on December 5, 2019. ACES is engaged in providing a full range of business
process outsourcing services, such as, but not limited to, financial and general accounting/
bookkeeping services (without engaging in the practice of accountancy), information technology
services, procurement services, sales administration services, human resources management,
manpower related services and other related functions. The registered office address of ACES is
4th Floor, 6750 Ayala Avenue Office Tower, Makati City.

Material Interest in Joint Ventures

PHINMA Solar Energy Corporation (PHINMA Solar)
PHINMA Solar, formerly Trans-Asia Wind Power Corporation and a wholly-owned subsidiary of the
Parent Company, was incorporated and registered with the SEC on July 26, 2013. Its primary
purpose is to construct, develop, own, operate, manage, repair and maintain wind power generation
plants, to generate electricity from such power plants and to market and sell the electricity produced
thereby. On January 30, 2017, PHINMA Solar’s BOD approved the amendment of the Articles of
Incorporation to change the corporate name to PHINMA Solar Energy Corporation, to include in its
primary and secondary purposes the development, operation and maintenance of solar power
generation plants and the development of solar products, and to increase the number of directors to
nine (9). The amended Articles of Incorporation were issued by the SEC on June 27, 2017.

On December 11, 2018, the Parent Company and Union Galvasteel Corporation (“UGC”), a
subsidiary of PHINMA Inc., entered into a Deed of Sale for the sale of the Parent Company’s
50% interest in PHINMA Solar to UGC for P =225 million. As a result of the sale transaction,
PHINMA Solar ceased to be a subsidiary of the Parent Company (see Note 12). In 2018, PHINMA
Solar completed installation and commenced operations of two (2) solar panel projects.

On June 19, 2019, the Parent Company sold its remaining 50% interest in PHINMA Solar to
PHINMA Corporation for = P218.30 million resulting in a gain of =
P1.38 million.

ACTA Power Corporation (“ACTA”)

The Parent Company has 50% interest in ACTA, a joint venture with AC Energy. ACTA is engaged
in the business of owning, developing, constructing, operating and maintaining power generation
facilities as well as generation and sale of electricity. ACTA was incorporated on February 9, 2012
and has not started commercial operations as at March 25, 2020. The registered office address of
ACTA is 4th Floor, 6750 Ayala Avenue Office Tower, Makati City.

Authorization for Issuance of Consolidated Financial Statements

The consolidated financial statements of the Group were approved and authorized for issuance by the
Parent Company’s BOD on March 25, 2020.

2. Basis of Preparation and Consolidation and Statement of Compliance

Basis of Preparation and Statement of Compliance

The consolidated financial statements of the Group have been prepared in accordance with Philippine
Financial Reporting Standards (PFRSs).

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The consolidated financial statements have been prepared on a historical cost basis, except for
financial assets at fair value through profit or loss (FVTPL), derivative financial instruments and
equity instruments at fair value through other comprehensive income (FVOCI) that have been
measured at fair value. The consolidated financial statements are presented in Philippine peso which
is the Parent Company’s functional and presentation currency. All values are rounded to the nearest
thousands (‘000), except par values, per share amounts, number of shares and when otherwise
indicated.

Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Group as at
December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019.
The financial statements of the subsidiaries are prepared for the same reporting year as the Parent
Company using uniform accounting policies. When necessary, adjustments are made to the separate
financial statements of the subsidiaries to bring its accounting policies in line with the Parent
Company’s accounting policies.

Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if, and only if, the Group has:

· power over the investee (i.e., existing rights that give it the current ability to direct the relevant
activities of the investee);
· exposure, or rights, to variable returns from its involvement with the investee; and
· the ability to use its power over the investee to affect its returns.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that
there are changes to one or more of the three elements of control. Consolidation of a subsidiary
begins when the Group obtains control over the subsidiary and ceases when the Group loses control
of the subsidiary. Assets, liabilities, income and expenses of a subsidiary are included in the
consolidated financial statements from the date the Group gains control until the date the Group
ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity
holders of the parent of the Parent Company and to the non-controlling interests (NCI), even if this
results in the NCI having a deficit balance. All intra-group assets and liabilities, equity, income,
expenses and cash flows relating to transactions between members of the Group are eliminated in full
on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction.

If the Group loses control over a subsidiary, it derecognizes the related assets (including goodwill),
liabilities, NCI and other components of equity while any resulting gain or loss is recognized in the
consolidated statement of income. Any investment retained is recognized at fair value.

NCI represents the interests in the subsidiaries not held by the Parent Company and are presented
separately in the consolidated statement of income and within equity in the consolidated statements of
financial position, separately from equity attributable to holders of the Parent Company. NCI shares
in losses even if the losses exceed the NCI in the subsidiary.

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The consolidated financial statements include the accounts of the Parent Company and the following
subsidiaries:

Percentage of Ownership (%)

December 31, 2019 December 31, 2018
Subsidiaries Principal Activities Direct Indirect Direct Indirect
PHINMA Power Power generation 100.00 – 100.00 –
CIPP Power generation 100.00 – 100.00 –
PHINMA Renewable Renewable energy generation 100.00 – 100.00 –
One Subic Oil Distribution of petroleum 100.00 – 100.00 –
products
One Subic Power Power generation – 100.00 – 100.00
ACEX Oil, gas, and geothermal
exploration 75.92 0.40 50.74 0.40
Palawan55 Oil and gas exploration 30.65 52.93 30.65 35.46
SLTEC Power generation 65.00 – 45.00 –
BCHC Holding company 100.00 – – –
ACES Shared services 100.00 – – –

3. Summary of Significant Accounting Policies and Disclosures

Changes in Accounting Policies and Disclosures

The Group has adopted the following new accounting pronouncements. Adoption of these
pronouncements did not have any significant impact on the Group’s financial position or
performance, unless otherwise indicated. The Group has not early adopted any other standard,
interpretation, or amendment that has been issued but is not yet effective.

Starting January 1, 2019

· PFRS 16, Leases
The Group applies, for the first time, PFRS 16, Leases. The nature and effect of these changes are
disclosed below.

PFRS 16 supersedes PAS 17, Leases, IFRIC 4, Determining whether an Arrangement contains a
Lease, SIC-15 Operating Leases-Incentives and SIC-27, Evaluating the Substance of
Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the
recognition, measurement, presentation and disclosure of leases and requires lessees to account
for all leases under a single on-balance sheet model.

Lessor accounting under PFRS 16 is substantially unchanged under PAS 17. Lessors will
continue to classify leases as either operating or finance leases using similar principles as in
PAS 17. Therefore, PFRS 16 did not have an impact for leases where the Group is the lessor.

The Group adopted PFRS 16 using the modified retrospective method of adoption with the date
of initial application of January 1, 2019. Under this method, the standard is applied
retrospectively with the cumulative effect of initially applying the standard recognized at the date
of initial application. The Group elected to use the transition practical expedient allowing the
standard to be applied only to contracts that were previously identified as leases applying PAS 17
and IFRIC 4 at the date of initial application. The Group also elected to use the recognition
exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or
less and do not contain a purchase option (‘short-term leases’), and lease contracts for which the
underlying asset is of low value (‘low-value assets’).

*SGVFS039610*
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The effect increase/(decrease) of adoption PFRS 16 as at January 1, 2019 is as follows:

Assets
Right-of-use assets P548,449
=
Property, plant and equipment (116,810)
Intangible assets (24,959)
Advances (5,865)
Prepayments (4,317)
Deferred tax assets 143,990
Other noncurrent assets (44,029)
Total Assets P
=496,459
Liabilities
Accounts payable and other current liabilities (P
=18,305)
Current portion of lease liabilities 75,770
Lease liabilities – net of current portion 496,534
Deferred tax liabilities 105,474
Other noncurrent liabilities (72,299)
Total Liabilities 587,174
Equity
Retained earnings (90,715)
P
=496,459

Deferred taxes is computed by using the Gross method where both the carrying amount of the
ROU asset and the Lease Liability are multiplied by the applicable tax rate to set up the beginning
balances of the deferred taxes.

a) Nature of the effect of adoption of PFRS 16

The Group has lease contracts for various items of land (for PHINMA Renewable), power plant
(for One Subic Power) and office space (for ACEPH and SLTEC). Before the adoption of
PFRS 16, the Group classified each of these leases (as lessee) at the inception date as either a
finance lease or an operating lease. A lease was classified as a finance lease if it transferred
substantially all of the risks and rewards incidental to ownership of the leased asset to the Group,
otherwise it was classified as an operating lease. Finance leases were capitalized at the
commencement of the lease at the inception date fair value of the leased property or, if lower, at
the present value of the minimum lease payments. Lease payments were apportioned between
interest (recognized as finance costs) and reduction of the lease liability. In an operating lease,
the leased property was not capitalized and the lease payments were recognized as rent expense in
profit or loss on a straight-line basis over the lease term. Any prepaid rent and accrued rent were
recognized under Other current assets and Accounts payable and other current liabilities,
respectively. Upon adoption of PFRS 16, the Group applied a single recognition and
measurement approach for all leases, except for short-term leases and leases of low-value assets.
The standard provides specific transition requirements and practical expedients, which has been
applied by the Group.

· Leases previously classified as finance leases

The Group did not change the initial carrying amounts of recognized assets and liabilities at
the date of initial application for leases previously classified as finance leases (i.e., the
right-of-use assets and lease liabilities equal the lease assets and liabilities recognized under
PAS 17). The requirements of PFRS 16 were applied to these leases from January 1, 2019.
The finance lease reclassed to lease liabilities amounted to = P87.10 million.

*SGVFS039610*
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· Leases previously accounted for as operating leases

The Group recognized right-of-use assets and lease liabilities for those leases previously
classified as operating leases, except for short-term leases and leases of low-value assets.
The right-of-use assets for most leases were recognized based on the carrying amount as if
the standard had always been applied, apart from the use of incremental borrowing rate at the
date of initial application. In some leases, the right-of-use assets were recognized based on
the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease
payments previously recognized. Lease liabilities were recognized based on the present value
of the remaining lease payments, discounted using the incremental borrowing rate at the date
of initial application.

Operating lease commitments amounted to = P822.87 million as at December 31, 2018. The
weighted average incremental borrowing rate of the Group applied to lease liabilities is
8.14% which resulted to a discounted operating lease commitments amounting to
=485.20 million recognized as at January 1, 2019.
P

The total lease liability (previously recorded as operating and finance leases) amounted to
=572.30 million.
P

b) Summary of new accounting policies

Set out below are the new accounting policies of the Group upon adoption of PFRS 16:

· Right-of-use assets

The Group recognizes right-of-use assets at the commencement date of the lease (i.e., the date
the underlying asset is available for use). Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for any remeasurement of
lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities
recognized and lease payments made at or before the commencement date less any lease
incentives received. Unless the Group is reasonably certain to obtain ownership of the leased
asset at the end of the lease term, the recognized right-of-use assets are depreciated on a
straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use
assets are subject to impairment.

· Lease liabilities

At the commencement date of the lease, the Group recognizes lease liabilities measured at the
present value of lease payments to be made over the remaining lease term. The lease
payments include fixed payments (including in-substance fixed payments, as applicable) less
any lease incentives receivable and amounts expected to be paid under residual value
guarantees. The lease payments also include the exercise price of a purchase option
reasonably certain to be exercised by the Group and payments of penalties for terminating a
lease, if the lease term reflects the Group exercising the option to terminate.

In calculating the present value of lease payments, the Group uses the incremental borrowing
rate at the lease commencement date if the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease liabilities is increased to
reflect the accretion of interest and reduced for the lease payments made. In addition, the
carrying amount of lease liabilities is remeasured if there is a modification, a change in the

*SGVFS039610*
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lease term, a change in the in-substance fixed lease payments or a change in the assessment to
purchase the underlying asset.

The Group has elected to use the two exemptions proposed by the standard on the following
contracts:

a. Lease contracts for which the lease terms ends within 12 months from the date of initial
application
b. Lease contracts for which the underlying asset is of low value

· Significant judgement in determining the lease term of contracts with renewal options

The Group determines the lease term as the non-cancellable term of the lease, together with
any periods covered by an option to extend the lease if it is reasonably certain to be exercised,
or any periods covered by an option to terminate the lease, if it is reasonably certain not to be
exercised.

The Group has the option to renew the lease contract for an additional term subject to the
mutual agreement with the lessors. The Group applies judgement in evaluating whether it is
reasonably certain to exercise the option to renew. That is, it considers all relevant factors
that create an economic incentive for it to exercise the renewal. After the commencement
date, the Group reassesses the lease term if there is a significant event or change in
circumstances that is within its control and affects its ability to exercise (or not to exercise)
the option to renew (e.g., a change in business strategy).

· Deferred taxes

Upon adoption of PFRS 16, the Group has adopted the modified retrospective approach for
accounting the transition adjustments and has elected to recognize the deferred income tax
assets and liabilities pertaining to right-of-use assets and lease liabilities on a gross basis.

c) Amounts recognized in the consolidated statements of financial position, statement of

income and statement of comprehensive income

Set out below are the carrying amounts of the Group’s right-of-use assets and lease liabilities and
the movements during the period:

Right-of-use assets
Land and Office
Easement Land with Space and Leasehold Lease
Rights Power plants Parking Slots Rights Total liabilities
As at January 1, 2019 = 167,399
P = 356,091
P =–
P = 24,959
P = 548,449
P = 572,304
P
New lease agreements – – 30,075 30,075 27,323
Acquired from SLTEC – – 12,032 12,032 13,520
Amortization expense (8,322) (30,743) (10,365) (16,190) (65,620) –
Interest expense – – – – 56,560
Payments – – – – (92,806)
Remeasurement due to termination
of lease contract* – – – – (2,604)
Foreign exchange adjustments – – – – (14,726)
As at December 31, 2019 = 159,077
P = 325,348
P = 31,742
P = 8,769
P = 524,936
P = 559,571
P
*Effect of pre-termination of SLTEC’s office lease contract which will be effective on March 31, 2020

*SGVFS039610*
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The Group recognized rent expense from short-term leases of =

P0.25 million for the year ended
December 31, 2019.

· Philippine Interpretation IFRIC-23, Uncertainty over Income Tax Treatments

The interpretation addresses the accounting for income taxes when tax treatments involve
uncertainty that affects the application of PAS 12, Income Taxes, and does not apply to taxes or
levies outside the scope of PAS 12, nor does it specifically include requirements relating to
interest and penalties associated with uncertain tax treatments.
The interpretation specifically addresses the following:
o Whether an entity considers uncertain tax treatments separately
o The assumptions an entity makes about the examination of tax treatments by taxation
authorities
o How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax
credits and tax rates
o How an entity considers changes in facts and circumstances
An entity must determine whether to consider each uncertain tax treatment separately or together
with one or more other uncertain tax treatments. The approach that better predicts the resolution
of the uncertainty should be followed.
The Group applies significant judgement in identifying uncertainties over income tax treatments.
Since the Group operates in a complex environment, it assessed whether the Interpretation had an
impact on its consolidated financial statements.
Upon adoption of the Interpretation, the Group considered whether it has any uncertain tax
positions. The Group determined, based on its tax compliance and assessment, that it is probable
that its tax treatments (including those for its subsidiaries) will be accepted by the taxation
authorities. The interpretation did not have an impact on the consolidated financial statements of
the Group.

Several other amendments and interpretations apply for the first time in 2019, but do not have an
impact on the consolidated financial statements of the Group, unless otherwise stated.

· Amendments to PFRS 9, Prepayment Features with Negative Compensation

Under PFRS 9, a debt instrument can be measured at amortized cost or at fair value through other
comprehensive income, provided that the contractual cash flows are ‘solely payments of principal
and interest on the principal amount outstanding’ (the SPPI criterion) and the instrument is held
within the appropriate business model for that classification. The amendments to PFRS 9 clarify
that a financial asset passes the SPPI criterion regardless of the event or circumstance that causes
the early termination of the contract and irrespective of which party pays or receives reasonable
compensation for the early termination of the contract.

These amendments had no impact on the consolidated financial statements of the Group.

*SGVFS039610*
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· Amendments to PAS 19, Employee Benefits, Plan Amendment, Curtailment or Settlement

The amendments to PAS 19 address the accounting when a plan amendment, curtailment or
settlement occurs during a reporting period. The amendments specify that when a plan
amendment, curtailment or settlement occurs during the annual reporting period, an entity is
required to:

o Determine current service cost for the remainder of the period after the plan amendment,
curtailment or settlement, using the actuarial assumptions used to remeasure the net defined
benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after
that event

o Determine net interest for the remainder of the period after the plan amendment, curtailment
or settlement using: the net defined benefit liability (asset) reflecting the benefits offered
under the plan and the plan assets after that event; and the discount rate used to remeasure
that net defined benefit liability (asset).

The amendments also clarify that an entity first determines any past service cost, or a gain or loss
on settlement, without considering the effect of the asset ceiling. This amount is recognized in
profit or loss. An entity then determines the effect of the asset ceiling after the plan amendment,
curtailment or settlement. Any change in that effect, excluding amounts included in the net
interest, is recognized in other comprehensive income.

The amendments had no impact on the consolidated financial statements of the Group as it did
not have any plan amendments, curtailments, or settlements during the period.

· Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures

The amendments clarify that an entity applies PFRS 9 to long-term interests in an associate or
joint venture to which the equity method is not applied but that, in substance, form part of the net
investment in the associate or joint venture (long-term interests). This clarification is relevant
because it implies that the expected credit loss model in PFRS 9 applies to such long-term
interests.

The amendments also clarified that, in applying PFRS 9, an entity does not take account of any
losses of the associate or joint venture, or any impairment losses on the net investment,
recognized as adjustments to the net investment in the associate or joint venture that arise from
applying PAS 28, Investments in Associates and Joint Ventures.

These amendments had no impact on the consolidated financial statements as the Group does not
have long-term interests in its associates and joint ventures .

· Annual Improvements to PFRSs 2015-2017 Cycle

o Amendments to PFRS 3, Business Combinations, and PFRS 11, Joint Arrangements,

Previously Held Interest in a Joint Operation

The amendments clarify that, when an entity obtains control of a business that is a joint
operation, it applies the requirements for a business combination achieved in stages,
including remeasuring previously held interests in the assets and liabilities of the joint
operation at fair value. In doing so, the acquirer remeasures its entire previously held interest
in the joint operation.

*SGVFS039610*
 - 14 -

A party that participates in, but does not have joint control of, a joint operation might obtain
joint control of the joint operation in which the activity of the joint operation constitutes a
business as defined in PFRS 3. The amendments clarify that the previously held interests in
that joint operation are not remeasured.

An entity applies those amendments to business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on or after
January 1, 2019 and to transactions in which it obtains joint control on or after the beginning
of the first annual reporting period beginning on or after January 1, 2019, with early
application permitted. These amendments had no impact on the consolidated financial
statements of the Group as there is no transaction where joint control is obtained.

o Amendments to PAS 12, Income Tax Consequences of Payments on Financial Instruments

Classified as Equity

The amendments clarify that the income tax consequences of dividends are linked more
directly to past transactions or events that generated distributable profits than to distributions
to owners. Therefore, an entity recognizes the income tax consequences of dividends in
profit or loss, other comprehensive income or equity according to where the entity originally
recognized those past transactions or events.

An entity applies those amendments for annual reporting periods beginning on or after
January 1, 2019, with early application is permitted. These amendments had no impact on
the consolidated financial statements of the Group because dividends declared by the Group
do not give rise to tax obligations under the current tax laws.

o Amendments to PAS 23, Borrowing Costs, Borrowing Costs Eligible for Capitalization

The amendments clarify that an entity treats as part of general borrowings any borrowing
originally made to develop a qualifying asset when substantially all of the activities necessary
to prepare that asset for its intended use or sale are complete.

An entity applies those amendments to borrowing costs incurred on or after the beginning of
the annual reporting period in which the entity first applies those amendments. An entity
applies those amendments for annual reporting periods beginning on or after January 1, 2019,
with early application permitted.

Since the Group’s current practice is in line with these amendments, they had no impact on
the consolidated financial statements of the Group.

Standards Issued but not yet Effective

Pronouncements issued but not yet effective are listed below. Unless otherwise indicated, the Group
does not expect that the future adoption of the said pronouncements will have a significant impact on
its consolidated financial statements. The Group intends to adopt the following pronouncements
when they become effective.

*SGVFS039610*
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Effective beginning on or after January 1, 2020

· Amendments to PFRS 3, Definition of a Business

The amendments to PFRS 3 clarify the minimum requirements to be a business, remove the
assessment of a market participant’s ability to replace missing elements, and narrow the
definition of outputs. The amendments also add guidance to assess whether an acquired process
is substantive and add illustrative examples. An optional fair value concentration test is
introduced which permits a simplified assessment of whether an acquired set of activities and
assets is not a business.

An entity applies those amendments prospectively for annual reporting periods beginning on or
after January 1, 2020, with earlier application permitted.

These amendments will apply on future business combinations of the Group.

· Amendments to PAS 1, Presentation of Financial Statements, and PAS 8, Accounting Policies,

Changes in Accounting Estimates and Errors, Definition of Material

The amendments refine the definition of material in PAS 1 and align the definitions used across
PFRSs and other pronouncements. They are intended to improve the understanding of the
existing requirements rather than to significantly impact an entity’s materiality judgements.

An entity applies those amendments prospectively for annual reporting periods beginning on or
after January 1, 2020, with earlier application permitted.

Effective beginning on or after January 1, 2021

· PFRS 17, Insurance Contracts

PFRS 17 is a comprehensive new accounting standard for insurance contracts covering

recognition and measurement, presentation and disclosure. Once effective, PFRS 17 will replace
PFRS 4, Insurance Contracts. This new standard on insurance contracts applies to all types of
insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of
entities that issue them, as well as to certain guarantees and financial instruments with
discretionary participation features. A few scope exceptions will apply.

The overall objective of PFRS 17 is to provide an accounting model for insurance contracts that
is more useful and consistent for insurers. In contrast to the requirements in PFRS 4, which are
largely based on grandfathering previous local accounting policies, PFRS 17 provides a
comprehensive model for insurance contracts, covering all relevant accounting aspects.

The core of PFRS 17 is the general model, supplemented by:

o A specific adaptation for contracts with direct participation features (the variable fee
approach)
o A simplified approach (the premium allocation approach) mainly for short-duration contracts

PFRS 17 is effective for reporting periods beginning on or after January 1, 2021, with
comparative figures required. Early application is permitted.

*SGVFS039610*
 - 16 -

Deferred effectivity

· Amendments to PFRS 10, Consolidated Financial Statements, and PAS 28, Sale or Contribution
of Assets between an Investor and its Associate or Joint Venture

The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss of
control of a subsidiary that is sold or contributed to an associate or joint venture. The
amendments clarify that a full gain or loss is recognized when a transfer to an associate or joint
venture involves a business as defined in PFRS 3. Any gain or loss resulting from the sale or
contribution of assets that does not constitute a business, however, is recognized only to the
extent of unrelated investors’ interests in the associate or joint venture.

On January 13, 2016, the Financial Reporting Standards Council deferred the original effective
date of January 1, 2016 of the said amendments until the International Accounting Standards
Board (IASB) completes its broader review of the research project on equity accounting that may
result in the simplification of accounting for such transactions and of other aspects of accounting
for associates and joint ventures.

Summary of Significant Accounting Policies

The accounting policies set out below have been applied consistently to all periods presented in the
Group’s consolidated financial statements, unless otherwise indicated.

Business Combinations and Goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred measured at acquisition date fair value and
the amount of any NCI in the acquiree. For each business combination, the Group elects whether to
measure the NCI in the acquiree at fair value or at the proportionate share of the acquiree’s
identifiable assets. Acquisition-related costs are expensed as incurred and included in administrative
expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date. This includes the separation of
embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, any previously held equity interest is remeasured at
its acquisition date fair value and any resulting gain or loss is recognized in the consolidated
statement of income.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the
acquisition date. Contingent consideration classified as an asset or liability is measured at fair value
with changes in fair value recognized in the consolidated statement of income. Contingent
consideration that is classified as equity is not remeasured and subsequent settlement is accounted for
within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration
transferred and the amount recognized for NCI, and any previous interest held, over the net
identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in
excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly
identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used
to measure the amounts to be recognized at the acquisition date. If the reassessment still results in an

*SGVFS039610*
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excess of the fair value of net assets acquired over the aggregate consideration transferred, then the
gain is recognized in the consolidated statement of income.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For
the purpose of impairment testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group’s cash-generating units (CGU) that are expected to
benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are
assigned to those units.

Where goodwill has been allocated to a CGU and part of the operation within that unit is disposed of,
the goodwill associated with the disposed operation is included in the carrying amount of the
operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is
measured based on the relative values of the disposed operation and the portion of the CGU retained.

Business Combination Involving Entities Under Common Control

Business combinations involving entities under common control are accounted for by applying the
pooling of interests method. The pooling of interests method generally involved the following:

· The assets and liabilities of the combining entities are reflected in the consolidated financial
statements at their statutory carrying amounts. No adjustments are made to reflect fair value or
recognize any new assets or liabilities at the date of combination. The only adjustments that are
made are those adjustments to harmonize the accounting policies.
· No new goodwill is recognized as a result of the combination. The only goodwill that is
recognized is any existing goodwill relating to either of the combining entities. Any difference
between the consideration paid or transferred and the entity acquired is reflected within equity.
· The consolidated statement of income, comprehensive income and cash flows reflect the result of
the combining entities in full, irrespective of when the combination takes place.
· Comparatives are presented as if the entities had always been combined since the date entities had
been under common control.

Presentation of Consolidated Financial Statements

The Group has elected to present all items of recognized income and expense in two statements: a
statement displaying components of profit or loss (consolidated statement of income) and a second
statement beginning with profit or loss and displaying components of OCI (consolidated statement of
comprehensive income).

Current versus Noncurrent Classification

The Group presents assets and liabilities in the consolidated statement of financial position based on
current or noncurrent classification. An asset is current when it is:
· expected to be realized or intended to be sold or consumed in normal operating cycle;
· held primarily for the purpose of trading;
· expected to be realized within twelve (12) months after the reporting period; or,
· cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at
least twelve (12) months after the reporting period.

All other assets are classified as noncurrent.

A liability is current when:

· it is expected to be settled in the normal operating cycle;
· it is held primarily for the purpose of trading;

*SGVFS039610*
 - 18 -

· it is due to be settled within twelve (12) months after the reporting period; or,
· there is no unconditional right to defer the settlement of the liability for at least twelve (12)
months after the reporting period.

The Group classifies all other liabilities as noncurrent.

Deferred income tax assets and liabilities are classified as noncurrent assets and liabilities.

Cash and Cash Equivalents

Cash and cash equivalents in the consolidated statements of financial position is composed of cash in
banks and on hand and short-term deposits with a maturity of three (3) months or less, which are
subject to an insignificant risk of changes in value.

Short-term Investments
Short-term investments represent investments that are readily convertible to known amounts of cash
with original maturities of more than three (3) months to one (1) year.

Fair Value Measurement

The Group measures financial assets at FVTPL, FVOCI and derivative financial instruments at fair
value at each reporting date. Fair value related disclosures for financial instruments and non-financial
assets that are measured at fair value or where fair values are disclosed, are summarized in the
following notes:
· Quantitative disclosures of fair value measurement hierarchy, see Note 37
· Investment properties, see Note 14
· Financial instruments (including those carried at amortized cost), see Note 37

Fair value is the estimated price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to sell the asset or transfer the liability
takes place either:
· in the principal market for the asset or liability; or,
· in the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by the Group.

The fair value of an asset or a liability is measured using the assumptions that market participants
would use when pricing the asset or liability, assuming that market participants act in their economic
best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to
generate economic benefits by using the asset in its highest and best use or by selling it to another
market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximizing the use of relevant observable inputs
and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial
statements are categorized within the fair value hierarchy, described in Note 37, based on the lowest
level input that is significant to the fair value measurement as a whole.

*SGVFS039610*
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For assets and liabilities that are recognized in the consolidated financial statements on a recurring
basis, the Group determines whether transfers have occurred between levels in the hierarchy by
reassessing categorization (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on
the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value
hierarchy.

Financial Instruments – Classification and Measurement

Classification of Financial Assets

Financial assets are classified in their entirety based on the contractual cash flows characteristics of
the financial assets and the Group’s business model for managing the financial assets. The Group
classifies its financial assets into the following measurement categories:
· financial assets measured at amortized cost
· financial assets measured at FVTPL
· financial assets measured at FVOCI, where cumulative gains or losses previously recognized are
reclassified to profit or loss
· financial assets measured at FVOCI, where cumulative gains or losses previously recognized are
not reclassified to profit or loss

Contractual Cash Flows Characteristics

If the financial asset is held within a business model whose objective is to hold assets to collect
contractual cash flows or within a business model whose objective is achieved by both collecting
contractual cash flows and selling financial assets, the Group assesses whether the cash flows from
the financial asset represent solely payments of principal and interest (SPPI) on the principal amount
outstanding.

In making this assessment, the Group determines whether the contractual cash flows are consistent
with a basic lending arrangement, i.e., interest includes consideration only for the time value of
money, credit risk and other basic lending risks and costs associated with holding the financial asset
for a particular period of time. In addition, interest can include a profit margin that is consistent with
a basic lending arrangement. The assessment as to whether the cash flows meet the test is made in
the currency in which the financial asset is denominated. Any other contractual terms that introduce
exposure to risks or volatility in the contractual cash flows that is unrelated to a basic lending
arrangement, such as exposure to changes in equity prices or commodity prices, do not give rise to
contractual cash flows that are solely payments of principal and interest on the principal amount
outstanding.
Business Model
The Group’s business model is determined at a level that reflects how groups of financial assets are
managed together to achieve a particular business objective. The Group’s business model does not
depend on management’s intentions for an individual instrument.

The Group’s business model refers to how it manages its financial assets in order to generate cash
flows. The Group’s business model determines whether cash flows will result from collecting
contractual cash flows, selling financial assets or both. Relevant factors considered by the Group in
determining the business model for a group of financial assets include how the performance of the
business model and the financial assets held within that business model are evaluated and reported to
the Group’s key management personnel, the risks that affect the performance of the business model
(and the financial assets held within that business model) and how these risks are managed and how
managers of the business are compensated.

*SGVFS039610*
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Financial Assets at Amortized Cost

A financial asset is measured at amortized cost if (i) it is held within a business model whose
objective is to hold financial assets in order to collect contractual cash flows and (ii) the contractual
terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding. These financial assets are initially
recognized at fair value plus directly attributable transaction costs and subsequently measured at
amortized cost using the EIR method, less any impairment in value. Amortized cost is calculated by
taking into account any discount or premium on acquisition and fees and costs that are an integral part
of the EIR. The amortization is included in “Other income-net” in the consolidated statement of
income and is calculated by applying the EIR to the gross carrying amount of the financial asset,
except for (i) purchased or originated credit-impaired financial assets and (ii) financial assets that
have subsequently become credit-impaired, where, in both cases, the EIR is applied to the amortized
cost of the financial asset. Losses arising from impairment are recognized in “Provision for credit
losses” in the consolidated statement of income.

As at December 31, 2019 and 2018, the Group’s financial assets at amortized cost includes cash and
cash equivalents, short-term investments, trade receivables and receivables from third parties under
“Receivables” and refundable deposits (see Notes 5, 7, 9 and 36).

Financial Assets at FVOCI

Debt instruments
A financial asset is measured at FVOCI if (i) it is held within a business model whose objective is
achieved by both collecting contractual cash flows and selling financial assets and (ii) its contractual
terms give rise on specified dates to cash flows that are solely payments of principal and interest on
the principal amount outstanding. These financial assets are initially recognized at fair value plus
directly attributable transaction costs and subsequently measured at fair value. Gains and losses
arising from changes in fair value are included in other comprehensive income within a separate
component of equity. Impairment losses or reversals, interest income and foreign exchange gains and
losses are recognized in profit and loss until the financial asset is derecognized. Upon derecognition,
the cumulative gain or loss previously recognized in other comprehensive income is reclassified from
equity to profit or loss. This reflects the gain or loss that would have been recognized in profit or loss
upon derecognition if the financial asset had been measured at amortized cost. Impairment is
measured based on the expected credit loss (ECL) model.

As of December 31, 2019 and 2018, the Group does not have debt instruments at FVOCI.

Equity instruments
The Group may also make an irrevocable election to measure at FVOCI on initial recognition
investments in equity instruments that are neither held for trading nor contingent consideration
recognized in a business combination in accordance with PFRS 3. Amounts recognized in OCI are
not subsequently transferred to profit or loss. However, the Group may transfer the cumulative gain
or loss within equity. Dividends on such investments are recognized in profit or loss, unless the
dividend clearly represents a recovery of part of the cost of the investment.

Dividends are recognized in profit or loss only when:

· the Group’s right to receive payment of the dividend is established
· it is probable that the economic benefits associated with the dividend will flow to the Group; and
· the amount of the dividend can be measured reliably.

*SGVFS039610*
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As at December 31, 2019 and 2018, the Group’s investments in quoted and unquoted equity securities
and golf club shares are classified as financial asset at FVOCI (see Notes 13 and 36).

Financial Assets at FVTPL

Financial assets at FVTPL are measured at fair value unless these are measured at amortized cost or
at FVOCI. Included in this classification are debt instruments with contractual terms that do not
represent solely payments of principal and interest. Financial assets held at FVTPL are initially
recognized at fair value, with transaction costs recognized in the consolidated statement of income as
incurred. Subsequently, they are measured at fair value and any gains or losses are recognized in the
consolidated statement of income.

Additionally, even if the asset meets the amortized cost or the FVOCI criteria, the Group may choose
at initial recognition to designate the financial asset at FVTPL if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (an accounting mismatch) that would otherwise
arise from measuring financial assets on a different basis.

Trading gains or losses are calculated based on the results arising from trading activities of the Group,
including all gains and losses from changes in fair value for financial assets and financial liabilities at
FVTPL, and the gains or losses from disposal of financial investments.

As at December 31, 2018, the Group’s investments in Unit Investment Trust Funds (UITF) and Fixed
Interest Treasury Notes (FXTN) and derivative assets are classified as financial assets at FVTPL
(see Notes 6 and 36).

Derivative financial instruments and hedge accounting

Initial recognition and subsequent measurement
The Group uses derivative financial instruments, such as forward currency contracts, interest rate
swaps and forward commodity contracts, to hedge its foreign currency risks, interest rate risks and
commodity price risks, respectively. Such derivative financial instruments are initially recognized at
fair value on the date on which a derivative contract is entered into and are subsequently remeasured
at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial
liabilities when the fair value is negative.

For the purpose of hedge accounting, hedges are classified as:

· Fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment
· Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable
to a particular risk associated with a recognized asset or liability or a highly probable forecast
transaction or the foreign currency risk in an unrecognized firm commitment
· Hedges of a net investment in a foreign operation

At the inception of a hedge relationship, the Group formally designates and documents the hedge
relationship to which it wishes to apply hedge accounting and the risk management objective and
strategy for undertaking the hedge.

The documentation includes identification of the hedging instrument, the hedged item, the nature of
the risk being hedged and how the Group will assess whether the hedging relationship meets the
hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how
the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of
the following effectiveness requirements:
· There is ‘an economic relationship’ between the hedged item and the hedging instrument.

*SGVFS039610*
 - 22 -

· The effect of credit risk does not ‘dominate the value changes’ that result from that economic
relationship.
· The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the
hedged item that the Group actually hedges and the quantity of the hedging instrument that the
Group actually uses to hedge that quantity of hedged item.

Hedges that meet all the qualifying criteria for hedge accounting are accounted for, as described
below:

Fair value hedges

The change in the fair value of a hedging instrument is recognized in the consolidated statement of
income as other expense. The change in the fair value of the hedged item attributable to the risk
hedged is recorded as part of the carrying value of the hedged item and is also recognized in the
consolidated statement of income as other expense.

For fair value hedges relating to items carried at amortized cost, any adjustment to carrying value is
amortized through profit or loss over the remaining term of the hedge using the EIR method. The
EIR amortization may begin as soon as an adjustment exists and no later than when the hedged item
ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

If the hedged item is derecognized, the unamortized fair value is recognized immediately in profit or
loss.

When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative
change in the fair value of the firm commitment attributable to the hedged risk is recognized as an
asset or liability with a corresponding gain or loss recognized in consolidated statement of income.

Cash flow hedges

The effective portion of the gain or loss on the hedging instrument is recognized in OCI in the cash
flow hedge reserve, while any ineffective portion is recognized immediately in the consolidated
statement of income. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or
loss on the hedging instrument and the cumulative change in fair value of the hedged item.

The Group uses forward commodity contracts for its exposure to volatility in the commodity prices.
The ineffective portion relating to foreign currency contracts is recognized as other expense and the
ineffective portion relating to commodity contracts is recognized in other operating income or
expenses.

The Group designates only the spot element of forward contracts as a hedging instrument. The
forward element is recognized in OCI and accumulated in a separate component of equity under cost
of hedging reserve.

The amounts accumulated in OCI are accounted for, depending on the nature of the underlying
hedged transaction. If the hedged transaction subsequently results in the recognition of a non-
financial item, the amount accumulated in equity is removed from the separate component of equity
and included in the initial cost or other carrying amount of the hedged asset or liability. This is not a
reclassification adjustment and will not be recognized in OCI for the period. This also applies where
the hedged forecast transaction of a non-financial asset or non-financial liability subsequently
becomes a firm commitment for which fair value hedge accounting is applied.

*SGVFS039610*
 - 23 -

For any other cash flow hedges, the amount accumulated in OCI is reclassified to profit or loss as a
reclassification adjustment in the same period or periods during which the hedged cash flows affect
profit or loss.

If cash flow hedge accounting is discontinued, the amount that has been accumulated in OCI must
remain in accumulated OCI if the hedged future cash flows are still expected to occur. Otherwise, the
amount will be immediately reclassified to profit or loss as a reclassification adjustment. After
discontinuation, once the hedged cash flow occurs, any amount remaining in accumulated OCI must
be accounted for depending on the nature of the underlying transaction as described above.

The Group uses a coal swap contract as a hedge of its exposure to coal price risk on its coal purchases
(see Note 18).

Classification of Financial Liabilities

Financial liabilities are measured at amortized cost, except for the following:
· financial liabilities measured at FVTPL;
· financial liabilities that arise when a transfer of a financial asset does not qualify for
derecognition or when the Group retains continuing involvement;
· financial guarantee contracts;
· commitments to provide a loan at a below-market interest rate; and
· contingent consideration recognized by an acquirer in accordance with PFRS 3.

A financial liability may be designated at fair value through profit or loss if it eliminates or
significantly reduces a measurement or recognition inconsistency (an accounting mismatch) or:
· if a host contract contains one or more embedded derivatives; or
· if a group of financial liabilities or financial assets and liabilities is managed and its performance
evaluated on a fair value basis in accordance with a documented risk management or investment
strategy.

Where a financial liability is designated at FVTPL, the movement in fair value attributable to changes
in the Group’s own credit quality is calculated by determining the changes in credit spreads above
observable market interest rates and is presented separately in other comprehensive income.

As at December 31, 2019 and 2018, the Group has not designated any financial liability at FVTPL.

The Group’s accounts payable and other current liabilities (excluding derivative liability and statutory
payables), due to stockholders, short-term and long-term loans, deposit payables and other noncurrent
liabilities are classified as financial liabilities measured at amortized cost under PFRS 9
(see Notes 18, 19, 21, 31 and 36).

Derecognition of Financial Assets and Financial Liabilities

Financial Assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar
financial assets) is primarily derecognized (i.e., removed from the Group’s consolidated statements of
financial position) when:
· the rights to receive cash flows from the asset have expired; or,
· the Group has transferred its rights to receive cash flows from the asset or has assumed an
obligation to pay the received cash flows in full without material delay to a third party under a
‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and
rewards of the asset; or (b) the Group has neither transferred nor retained substantially all the
risks and rewards of the asset, but has transferred control of the asset.

*SGVFS039610*
 - 24 -

When the Group has transferred its rights to receive cash flows from an asset or has entered into a
pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of
ownership. When it has neither transferred nor retained substantially all of the risks and rewards of
the asset, nor transferred control of the asset, the Group continues to recognize the transferred asset to
the extent of the Group’s continuing involvement. In that case, the Group also recognizes an
associated liability. The transferred asset and the associated liability are measured on a basis that
reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at
the lower of the original carrying amount of the asset and the maximum amount of consideration that
the Group could be required to repay.

Modification of Contractual Cash Flows

When the contractual cash flows of a financial asset are renegotiated or otherwise modified and the
renegotiation or modification does not result in the derecognition of that financial asset, the Group
recalculates the gross carrying amount of the financial asset as the present value of the renegotiated or
modified contractual cash flows discounted at the original EIR (or credit-adjusted EIR for purchased
or originated credit-impaired financial assets) and recognizes a modification gain or loss in the
statement of income.

When the modification of a financial asset results in the derecognition of the existing financial asset
and the subsequent recognition of the modified financial asset, the modified asset is considered a
‘new’ financial asset. Accordingly, the date of the modification shall be treated as the date of initial
recognition of that financial asset when applying the impairment requirements to the modified
financial asset.

Financial liability
A financial liability is derecognized when the obligation under the liability is discharged or cancelled
or expired. When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified, such an
exchange or modification is treated as the derecognition of the original liability and the recognition of
a new liability. The difference in the respective carrying amounts is recognized in the consolidated
statement of income.

Offsetting of Financial Instruments

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated
statements of financial position if there is a currently enforceable legal right to offset the recognized
amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities
simultaneously.

The Group assesses that it has a currently enforceable right of offset if the right is not contingent on a
future event, and is legally enforceable in the normal course of business, event of default, and event
of insolvency or bankruptcy of the Group and all of the counterparties.

There are no offsetting of financial assets and financial liabilities and any similar arrangements that
are required to be disclosed in the Group’s consolidated financial statements as at
December 31, 2019 and 2018.

Impairment of Financial Assets

PFRS 9 introduces the single, forward-looking “expected loss” impairment model, replacing the
“incurred loss” impairment model under PAS 39.

*SGVFS039610*
 - 25 -

The Group recognizes ECL on debt instruments that are measured at amortized. No ECL is
recognized on equity investments.

ECLs are measured in a way that reflects the following:

· an unbiased and probability-weighted amount that is determined by evaluating a range of possible
outcomes;
· the time value of money; and
· reasonable and supportable information that is available without undue cost or effort at the
reporting date about past events, current conditions and forecasts of future economic conditions.

Financial assets migrate through the following three (3) stages based on the change in credit quality
since initial recognition:

Stage 1: 12-month ECL

For credit exposures where there have not been significant increases in credit risk since initial
recognition and that are not credit-impaired upon origination, the portion of lifetime ECLs that
represent the ECLs that result from default events that are possible within the 12-months after the
reporting date are recognized.

Stage 2: Lifetime ECL – not credit-impaired

For credit exposures where there have been significant increases in credit risk since initial recognition
on an individual or collective basis but are not credit-impaired, lifetime ECLs representing the ECLs
that result from all possible default events over the expected life of the financial asset are recognized.

Stage 3: Lifetime ECL – credit-impaired

Financial assets are credit-impaired when one or more events that have a detrimental impact on the
estimated future cash flows of those financial assets have occurred. For these credit exposures,
lifetime ECLs are recognized and interest revenue is calculated by applying the credit-adjusted
effective interest rate to the amortized cost of the financial asset.

Loss Allowance
For trade receivables, the Group applies a simplified approach in calculating ECLs. Therefore, the
Group does not track changes in credit risk, but instead recognized a loss allowance based on lifetime
ECLs at each reporting date. The Group has established a provision matrix that is based on its
historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the
economic environment.

For cash and cash equivalents, the Group applies the low credit risk simplification. The investments
are considered to be low credit risk investments as the counterparties have investment grade
ratings. It is the Group’s policy to measure ECLs on such instruments on a 12-month basis based on
available probabilities of defaults and loss given defaults. The Group uses the ratings published by a
reputable rating agency to determine if the counterparty has investment grade rating. If there are no
available ratings, the Group determines the ratings by reference to a comparable bank.

For all debt financial assets other than trade receivables, ECLs are recognized using general approach
wherein the Group tracks changes in credit risk and recognizes a loss allowance based on either a 12-
month or lifetime ECLs at each reporting date.

*SGVFS039610*
 - 26 -

Loss allowances are recognized based on 12-month ECL for debt investment securities that are
assessed to have low credit risk at the reporting date. A financial asset is considered to have low
credit risk if:

· the financial instrument has a low risk of default

· the borrower has a strong capacity to meet its contractual cash flow obligations in the near term
· adverse changes in economic and business conditions in the longer term may, but will not
necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations.

The Group considers a financial asset to have low credit risk when its credit risk rating is equivalent
to the globally understood definition of ‘investment grade’.

Determining the Stage for Impairment

At each reporting date, the Group assesses whether there has been a significant increase in credit risk
for financial assets since initial recognition by comparing the risk of default occurring over the
expected life between the reporting date and the date of initial recognition. The Group considers
reasonable and supportable information that is relevant and available without undue cost or effort for
this purpose. This includes quantitative and qualitative information and forward-looking analysis.

An exposure will migrate through the ECL stages as asset quality deteriorates. If, in a subsequent
period, asset quality improves and also reverses any previously assessed significant increase in credit
risk since origination, then the loss allowance measurement reverts from lifetime ECL to 12-months
ECL.

Write-off policy
The Group writes-off a financial asset and any previously recorded allowance, in whole or in part,
when the asset is considered uncollectible, it has exhausted all practical recovery efforts and has
concluded that it has no reasonable expectations of recovering the financial asset in its entirety or a
portion thereof.

Fuel and Spare Parts

Fuel and spare parts are stated at the lower of cost or net realizable value (NRV). Cost is determined
using the first-in, first-out method. NRV is the current replacement cost of fuel and spare parts.

Non-current Assets Held for Sale

The Group classifies non-current assets as held for sale if their carrying amounts will be recovered
principally through a sale transaction rather than through continuing use. Non-current assets
classified as held for sale are measured at the lower of their carrying amount and fair value less costs
to sell. Costs to sell are the incremental costs directly attributable to the disposal of an asset (disposal
group), excluding finance costs and income tax expense.

The criteria for held for sale classification under PFRS 5, Noncurrent Assets Held for Sale and
Discontinued Operations is regarded as met only when the sale is highly probable and the asset is
available for immediate sale in its present condition. Actions required to complete the sale should
indicate that it is unlikely that significant changes to the sale will be made or that the decision to sell
will be withdrawn. Management must be committed to the plan to sell the asset and the sale is
expected to be completed within one year from the date of the classification.

Property, plant and equipment are not depreciated or amortized once classified as held for sale.

Assets and liabilities classified as held for sale are presented separately as current items in the
consolidated statement of financial position.

*SGVFS039610*
 - 27 -

Property, Plant and Equipment

Property, plant and equipment, except land, is stated at cost, net of accumulated depreciation and
impairment losses. Such cost includes the cost of replacing a part of the plant and equipment and
borrowing costs for long-term construction projects if the recognition criteria are met. When
significant parts of plant and equipment are required to be replaced at intervals, the Group depreciates
them separately based on their specific useful lives. Likewise, when a major inspection is performed,
its cost is recognized in the carrying amount of the plant and equipment as a replacement if the
recognition criteria are satisfied. All other repair and maintenance costs are recognized in the
consolidated statement of income as incurred.
Land is stated at cost, net of accumulated impairment losses, if any.

The present value of the expected cost for the decommissioning of an asset after its use is included in
the cost of the respective asset if the recognition criteria for a provision are met.
Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. The
depreciation of property and equipment, except land, begins when it becomes available for use,
i.e., when it is in the location and condition necessary for it to be capable of operating in the manner
intended by management. Depreciation ceases when the assets are fully depreciated or at the earlier
of the date that the item is classified as held for sale (or included in the disposal group that is
classified as held for sale) in accordance with PFRS 5, and the date the item is derecognized. The
estimated useful lives used in depreciating the Group’s property, plant and equipment are as follows:

Category In Years
Land improvements 10
Buildings and improvements 6-25
Machinery and equipment:
Wind towers and equipment 25
Power plant 20
Power barges 10
Others 10-15
Tools and other miscellaneous assets 5-10
Transportation equipment 3-5
Office furniture, equipment and others 3-10

The residual values, useful lives and depreciation method are reviewed periodically to ensure that the
periods and methods of depreciation are consistent with the expected pattern of economic benefits
from items of property and equipment. These are adjusted prospectively, if appropriate.

Fully depreciated property, plant and equipment are retained in the accounts until they are no longer
in use and no further depreciation is charged to current operations.

An item of property, plant and equipment and any significant part initially recognized is derecognized
upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or
loss arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is included in the consolidated statement of income
when the asset is derecognized.

Construction in progress is stated at cost less any impairment in value. This includes cost of
construction and other direct costs. Construction in progress is not depreciated until such time as the
relevant assets are completed and ready for operational use.

*SGVFS039610*
 - 28 -

Leases (Prior to adoption of PFRS 16)

The determination of whether an arrangement is (or contains) a lease is based on the substance of the
arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the
arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right
to use the asset or assets, even if that right is not explicitly specified in an arrangement.

A reassessment is made after the inception of the lease, if any, if the following applies:

a) there is a change in contractual terms, other than a renewal or extension of the arrangement;
b) a renewal option is exercised or extension granted, unless the term of the renewal or extension
was initially included in the lease term;
c) there is a change in the determination of whether fulfillment is dependent on a specified asset; or,
d) there is substantial change to the asset.

Where the reassessment is made, lease accounting shall commence or cease from the date when the
change in circumstances gave rise to the reassessment for scenarios (a), (c), or (d) above, and at the
date of renewal or extension period for scenario (b).

The Group determines whether arrangements contain a lease to which lease accounting must be
applied. The costs of the agreements that do not take the legal form of a lease but convey the right to
use an asset are separated into lease payments if the entity has the control of the use or access to the
asset, or takes essentially all of the outputs of the asset. The said lease component for these
arrangements is then accounted for as finance or operating lease.

Group as a Lessee
A lease is classified at the inception date as a finance lease or an operating lease. A lease that
transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a
finance lease.

Finance leases are capitalized at the commencement of the lease at the inception date fair value of the
leased property or, if lower, at the present value of the minimum lease payments. Lease payments are
apportioned between finance charges and reduction of the lease liability so as to achieve a constant
rate of interest on the remaining balance of the liability. Finance charges are recognized under “Other
income - net” account in the consolidated statement of income.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable
certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated
over the shorter of the estimated useful life of the asset or the lease term.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are
classified as operating leases. Operating lease payments are recognized as “Rent” included under
“Cost of sale of electricity” and “General and administrative expenses” in the consolidated statement
of income on a straight-line basis over the lease term.

Group as a Lessor
Leases in which the Group does not transfer substantially all the risks and rewards of ownership of an
asset are classified as operating leases. Initial direct costs incurred in negotiating and arranging an
operating lease are added to the carrying amount of the leased asset and recognized over the lease
term on the same basis as rental income. Contingent rents are recognized as revenue in the period in
which they are earned.

*SGVFS039610*
 - 29 -

Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that
necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as
part of the cost of the asset. To the extent that funds are borrowed specifically for the purpose of
obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization on that asset
shall be determined as the actual borrowing costs incurred on that borrowing during the period less
any investment income on the temporary investment of those borrowings. To the extent that funds
are borrowed generally, the amount of borrowing costs eligible for capitalization shall be determined
by applying a capitalization rate to the expenditures on that asset. The capitalization rate used by the
Group is the weighted average of the borrowing costs applicable to the borrowings that are
outstanding during the period, other than borrowings made specifically for the purpose of obtaining a
qualifying asset. The amount of borrowing costs capitalized during a period shall not exceed the
amount of borrowing costs incurred during that period.

All other borrowing costs are expensed in the period in which these occur. Borrowing costs consist
of interest and other costs that an entity incurs in connection with the borrowing of funds.

Foreign Currency Denominated Transactions and Balances

Transactions in foreign currencies are initially recorded by the Group’s entities at their respective
functional currency spot rates at the date the transaction first qualifies for recognition.

Monetary assets and liabilities denominated in foreign currencies are translated at the functional
currency spot rates of exchange at the reporting date. Differences arising on settlement or translation
of monetary items are recognized as “Foreign exchange loss - net” under “Other income - net” in the
consolidated statement of income.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated
using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair
value in a foreign currency are translated using the exchange rates at the dates when the fair values
are determined. The gains or losses arising on translation of non-monetary items measured at fair
value are treated in line with the recognition of the gains or losses on the change in fair values of the
items (i.e., translation differences on items which the fair value gains or losses are recognized in OCI
or in profit or loss are also recognized in OCI or in profit or loss, respectively).

Interests in Joint Arrangements

Joint arrangement is an arrangement over which two or more parties have joint control. Joint control
is the contractually agreed sharing of control of an arrangement, which exists only when decisions
about the relevant activities (being those that significantly affect the returns of the arrangement)
require unanimous consent of the parties sharing control.

Joint Operations
A joint operation is a type of joint arrangement whereby the parties that have joint control of the
arrangement have rights to the assets and obligations for the liabilities and share in the revenues and
expenses relating to the arrangement. The Group’s service contracts (SC) are assessed as joint
operations.

Investments in Associates and Joint Ventures

An associate is an entity over which the Group has significant influence. Significant influence is the
power to participate in the financial and operating policy decisions of the investee, but is not control
or joint control over those policies.

*SGVFS039610*
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A joint venture is a type of joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the joint venture. The considerations made in
determining significant influence or joint control are similar to those necessary to determine control
over subsidiaries.

The Group’s investments in its associates and joint ventures are accounted for using the equity
method. Under the equity method, the investment in an associate or a joint venture is initially
recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the
Group’s share in the net assets of the associate or joint venture since the acquisition date.

Goodwill relating to the associate or joint venture is included in the carrying amount of the
investment and is not tested for impairment individually.

The consolidated statement of income reflect the Group’s share of the results of operations of the
associate or joint venture. Any change in OCI of those investees is presented as part of the Group’s
OCI. In addition, when there has been a change recognized directly in the equity of the associate or
joint venture, the Group recognizes its share of any changes, when applicable, in the consolidated
statement of changes in equity. Unrealized gains and losses resulting from transactions between the
Group and the associate or joint venture are eliminated to the extent of the interest in the associate or
joint venture.

The aggregate of the Group’s share in profit or loss of the associate or the joint venture is shown in
the consolidated statement of income outside operating profit and represents profit or loss after tax
and NCI in the subsidiaries of the associate or joint venture.

If the Group’s share in losses of an associate or a joint venture equals or exceeds its interest in the
associate or joint venture, the Group discontinues recognizing its share of further losses.

The financial statements of the associate or joint venture are prepared for the same reporting period as
the Group. When necessary, adjustments are made to bring the accounting policies in line with those
of the Group.

After application of the equity method, the Group determines whether it is necessary to recognize an
impairment loss on its investment in its associate or joint venture. At each reporting date, the Group
determines whether there is objective evidence that the investment in the associate or joint venture is
impaired. If there is such evidence, the Group calculates the amount of impairment as the difference
between the recoverable amount of the associate or joint venture and its carrying value, and then
recognizes the loss in the consolidated statement of income.

Upon loss of significant influence over the associate or joint control over the joint venture, the Group
measures and recognizes any retained investment at its fair value. Any difference between the
carrying amount of the associate or joint venture upon loss of significant influence or joint control
and the fair value of the retained investment and proceeds from disposal is recognized in the
consolidated statement of income.

Investment Properties
Investment properties are carried at cost, including transaction costs, net of accumulated depreciation.
The carrying amount includes the cost of replacing part of an existing investment property at the time
that cost is incurred if the recognition criteria are met and excludes the costs of day-to-day servicing
of an investment property.

*SGVFS039610*
 - 31 -

Investment properties are derecognized either when disposed of or when permanently withdrawn
from use and no future economic benefit is expected from disposal. The difference between the net
disposal proceeds and the carrying amount of the asset is recognized in the consolidated statement of
income in the period of derecognition.

Transfers are made to (or from) investment property only when there is a change in use. For a
transfer from investment property to owner-occupied property, the deemed cost for subsequent
accounting is the carrying value at the date of change in use. If owner-occupied property becomes an
investment property, the Group accounts for such property in accordance with the policy stated under
property, plant and equipment up to the date of change in use.

Leasehold Rights (Prior to adoption of PFRS 16)

Intangible assets acquired separately are measured on initial recognition at cost. The cost of
intangible assets acquired in a business combination is their fair value at the date of acquisition.
Following initial recognition, intangible assets are carried at cost less any accumulated amortization
and accumulated impairment losses. Internally generated intangibles, excluding capitalized
development costs, are not capitalized and the related expenditure is reflected in the consolidated
statement of income in the period in which the expenditure is incurred. The useful lives of intangible
assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortized over their economic useful lives and assessed for
impairment whenever there is an indication that the intangible assets may be impaired. The
amortization period and the amortization method for an intangible asset with a finite useful life are
reviewed at least at the end of each reporting period. Changes in the expected useful life or the
expected pattern of consumption of future economic benefits embodied in the asset are considered to
modify the amortization period or method, as appropriate, and are treated as changes in accounting
estimates. The amortization expense on intangible assets with finite lives is recognized in the
consolidated statement of income in the expense category that is consistent with the function of the
intangible assets.

Gains or losses arising from derecognition of an intangible asset are measured as the difference
between the net disposal proceeds and the carrying amount of the asset and are recognized in the
consolidated statement of income when the asset is derecognized.

The useful lives of leasehold rights are assessed as finite. The amortization expense on leasehold
rights are recognized as “Depreciation and amortization” under “Cost of sale of electricity” account in
the consolidated statement of income.

Deferred Exploration Costs

The Group follows the full cost method of accounting for exploration costs determined on the basis of
each SC area. Under this method, all exploration costs relating to each SC are deferred pending the
determination of whether the contract area contains oil and gas reserves in commercial quantities, net
of any allowance for impairment losses.

Expenditures for mineral exploration and development work on mining properties are also deferred as
incurred, net of any allowance for impairment losses. These expenditures are provided with an
allowance when there are indications that the exploration results are negative. These are written-off
against the allowance when the projects are abandoned or determined to be definitely unproductive.
When the exploration work results are positive, the net exploration costs and subsequent development
costs are capitalized and amortized from the start of commercial operations.

*SGVFS039610*
 - 32 -

Impairment of Non-financial Assets

The Group assesses, at each reporting date, whether there is an indication that an asset may be
impaired in accordance with PAS 36. If any indication exists, or when annual impairment testing for
an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable
amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value-in-use. The
recoverable amount is determined for an individual asset, unless the asset does not generate cash
inflows that are largely independent of those from other assets or groups of assets. When the carrying
amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is
written down to its recoverable amount.

In assessing value-in-use, the estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset. In determining fair value less costs of disposal, recent market transactions are
taken into account. If no such transactions can be identified, an appropriate valuation model is used.
These calculations are corroborated by valuation multiples, quoted share prices for publicly traded
companies or other available fair value indicators.

The Group bases its impairment calculation on detailed budgets and forecast calculations, which are
prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These
budgets and forecast calculations generally cover a period of five years. For longer periods, a long-
term growth rate is calculated and applied to project future cash flows after the fifth (5th) year.

Impairment losses are recognized in the consolidated statement of income in expense categories
consistent with the function of the impaired asset.

For assets excluding goodwill, an assessment is made at each reporting date to determine whether
there is an indication that previously recognized impairment losses no longer exist or have decreased.
If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously
recognized impairment loss is reversed only if there has been a change in the assumptions used to
determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal
is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed
the carrying amount that would have been determined, net of depreciation, had no impairment loss
been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement
of income.

The following assets have specific characteristics for impairment testing:

Property, Plant and Equipment and Investment Properties

For property, plant and equipment and investment properties, the Group assesses for impairment on
the basis of impairment indicators such as evidence of internal obsolescence or physical damage.

Investments in Associates and Interests in Joint Ventures

The Group determines at the end of each reporting period whether there is any objective evidence that
the investments in associates and interests in joint ventures are impaired. If this is the case, the
amount of impairment is calculated as the difference between the recoverable amount of the
investments in associates and interests in joint ventures, and their carrying amounts.

*SGVFS039610*
 - 33 -

Goodwill
Goodwill is tested for impairment annually and more frequently when circumstances indicate that the
carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable
amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable
amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment
losses relating to goodwill cannot be reversed in future periods.

Right-of-Use Assets and Leasehold Rights

Right of use assets and leasehold rights with finite useful lives are tested for impairment when
circumstances indicate that the carrying value may be impaired.

Deferred Exploration Costs

Deferred exploration costs are reassessed for impairment on a regular basis. An impairment review is
performed, either individually or at the CGU level, when there are indicators that the carrying amount
of the assets may exceed their recoverable amounts. To the extent that this occurs, the excess is fully
provided against, in the reporting period in which this is determined.

Facts and circumstances that would require an impairment assessment as set forth in PFRS 6,
Exploration for and Evaluation of Mineral Resources, are as follows:

· The period for which the Group has the right to explore in the specific area has expired or will
expire in the near future and is not expected to be renewed;
· Substantive expenditure on further exploration and evaluation of mineral resources in the specific
area is neither budgeted nor planned;
· Exploration for and evaluation of mineral resources in the specific area have not led to the
discovery of commercially viable quantities of mineral resources and the entity has decided to
discontinue such activities in the specific area;
· When a service contract where the Group has participating interest in is permanently abandoned;
and
· Sufficient data exist to indicate that, although a development in the specific area is likely to
proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered
in full from successful development or by sale.

When facts and circumstances suggest that the carrying amount exceeds the recoverable amount,
impairment loss is measured, presented and disclosed in accordance with PAS 36, Impairment of
Assets.

Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result
of a past event; it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation; and, a reliable estimate can be made of the amount of the obligation.
When the Group expects some or all of a provision to be reimbursed, for example, under an insurance
contract, the reimbursement is recognized as a separate asset, but only when the reimbursement is
virtually certain. The expense relating to a provision is presented in the consolidated statement of
income, net of any reimbursement.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax
rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the
increase in the provision due to the passage of time is recognized as “Other income” in the
consolidated statement of income.

*SGVFS039610*
 - 34 -

Asset Retirement Obligation

The Group is legally required under a lease agreement to dismantle certain machinery and equipment
and restore the leased site at the end of the lease contract term. The Group recognizes the fair value
of the liability for this obligation and capitalizes the present value of these costs as part of the balance
of the related property, plant and equipment accounts, which are being depreciated on a straight-line
basis over the shorter of the useful life of the related asset or the lease term. The liability is
subsequently carried at amortized cost using the EIR method with the related interest expense
recognized in the consolidated statement of income.

Pensions and Other Post-employment Benefits

Defined Benefit Plan
The Group operates separate and distinct retirement plans for ACEPH, PHINMA Power, PHINMA
Renewable and CIPP, which require contributions to be made to separately administered funds.
Other entities are covered by Republic Act (R.A.) 7641, otherwise known as “The Philippine
Retirement Law”, which provides for qualified employees to receive a defined benefit minimum
guarantee. The defined benefit minimum guarantee is equivalent to a certain percentage of the
monthly salary payable to an employee at normal retirement age with the required credited years of
service based on the provisions of R.A. 7641. The cost of providing benefits is determined using the
projected unit credit method.

Remeasurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding
amounts included in net interest on the net defined benefit liability and the return on plan assets
(excluding amounts included in net interest on the net defined benefit liability), are recognized
immediately in the consolidated statement of financial position with a corresponding debit or credit to
retained earnings through OCI in the period in which these occur. Remeasurements are not
reclassified to the consolidated statement of income in subsequent periods.

Past service costs are recognized in the consolidated statement of income on the earlier of:
· the date of the plan amendment or curtailment; or,
· the date that the Group recognizes related restructuring costs.

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset.
The Group recognizes the following changes in the net defined benefit obligation under “Cost of sale
of electricity” and “General and administrative expenses” accounts in the consolidated statement of
income:
· service costs comprising current service costs, past service costs, gains and losses on curtailments
and non-routine settlements
· net interest expense or income

Employee Leave Entitlement

Employee entitlements to annual leave are recognized as a liability when these are accrued to the
employees. The undiscounted liability for leave expected to be settled wholly before twelve months
after the end of the annual reporting period is recognized for services rendered by employees up to
the end of the reporting period.

Other long-term benefits

Vacation and sick leaves are recognized as a liability when these are accrued to the employees.
Unused vacation and sick leave credits shall be converted to cash upon separation of employee. Leave
expected to be settled wholly before twelve months after the end of the annual reporting period is
reclassified to short-term benefits.

*SGVFS039610*
 - 35 -

Capital Stock
Capital stock represents the portion of the paid-in capital representing the total par value of the shares
issued.

Stock Options and Grants

Stock option and grants are accounted for in accordance with PFRS 2, that is, the cost of stock option
awards is measured by reference to the fair value at the date on which they are granted. The fair
value is determined using the binomial method. The cost of such awards is recognized, together with
a corresponding increase in equity, over the period in which the performance and/or service
conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to
the award. The cumulative expense that is recognized at each reporting date until the vesting date
reflects the extent to which the vesting period has expired and the Group’s best estimate of the
number of equity instruments that will ultimately vest. The charge or credit to the consolidated
statement of income for a period represents the movement in cumulative expense recognized as at the
beginning and end of the period.

No expense is recognized for awards that do not ultimately vest, except for awards where vesting is
conditional upon a market condition, which are treated as vesting irrespective of whether or not the
market condition is satisfied, provided that all other performance conditions are satisfied.

Where the terms of the award are modified, the minimum expense recognized is the expense if the
terms had not been modified. An additional expense is recognized for any modification, which
increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the
employee as measured at the date of modification.

Where the stock option is cancelled, it is treated as if it had vested on the date of the cancellation, and
any expense not yet recognized for the award is recognized immediately. However, if a new award is
substituted for the cancelled award, and designated as a replacement award on the date that it is
granted, the cancelled and new awards are treated as if they were a modification of the original award,
as described in the preceding paragraph.

If the outstanding options are dilutive, its effect is reflected as additional share dilution in the
computation of diluted earnings per share.

Additional Paid-in Capital (APIC)

APIC represents the amount paid in excess of the par value of the shares issued. Incremental costs
incurred directly attributable to the issuance of new shares are shown in equity as a deduction from
proceeds, net of tax.

Treasury Shares
Own equity instruments that are reacquired (treasury shares) are recognized at cost and deducted from
equity. No gain or loss is recognized in the consolidated statement of income on the purchase, sale,
issue or cancellation of the Group’s own equity instruments. Any difference between the carrying
amount and the consideration, if reissued, is recognized in APIC. Share options exercised during the
reporting period are satisfied with treasury shares.

Other Equity Reserve

Other equity reserves are made up of equity transactions other than capital contributions such as share
in equity transactions of associates and joint ventures and difference between considerations paid or
transferred and the entity acquired through business combinations involving entities under common
control.

*SGVFS039610*
 - 36 -

Retained Earnings
Retained earnings include all current and prior period results of operations as reported in the
consolidated statement of income, net of any dividend declaration and adjusted for the effects of
changes in accounting policies as may be required by PFRS’s transitional provisions.

Cash Dividend and Non-cash Dividend to Equity Holders of the Parent Company
The Group recognizes a liability to make cash or non-cash distributions to equity holders of the
Parent Company when the distribution is authorized and the distribution is no longer at the discretion
of the Group. A corresponding amount is recognized directly in equity.

Revenue from Contracts with Customers

Revenue from contracts with customers is recognized when control of the goods or services are
transferred to the customer at an amount that reflects the consideration to which the Group expects to
be entitled in exchange for those goods or services. The Group has concluded that it is the principal
in all of its revenue arrangements since it is the primary obligor in all the revenue arrangements, has
pricing latitude and is also exposed to credit risks.

The specific recognition criteria described below must also be met before revenue is recognized.

Sale of Electricity
Sale of electricity is consummated whenever the electricity generated by the Group is transmitted
through the transmission line designated by the buyer, for a consideration. Revenue from sale of
electricity is based on sales price. Sales of electricity using bunker fuel are composed of generation
fees from spot sales to the WESM and supply agreements with third parties and are recognized
monthly based on the actual energy delivered.

Starting December 27, 2014, sales of electricity to the WESM using wind are based on the Feed in
Tariff (FIT) rate under the FIT System and are recognized monthly based on the actual energy
delivered. Meanwhile, revenue from sale of electricity through ancillary services to the National Grid
Corporation of the Philippines (NGCP) is recognized monthly based on the capacity scheduled and/or
dispatched and provided. Revenue from sale of electricity through Retail Supply Contract (RSC) is
composed of generation charge from monthly energy supply with various contestable customers and
is recognized monthly based on the actual energy delivered. The basic energy charges for each
billing period are inclusive of generation charge and retail supply charge.

The Group identified the sale of electricity as its performance obligation since the customer can
benefit from it in conjunction with other readily available resources and it is also distinct within the
context of the contract. The performance obligation qualifies as a series of distinct services that are
substantially the same and have the same pattern of transfer. The Group concluded that the revenue
should be recognized overtime since the customers simultaneously receives and consumes the
benefits as the Group supplies electricity.

Amounts Reimbursed to Customers

Certain revenue contracts with customers provide for the sale of any unutilized electricity to the
WESM. The proceeds are recorded as reduction in “Revenue from sale of electricity” in the
consolidated statement of income.

Dividend Income
Dividend income is recognized when the Group’s right to receive the payment is established, which is
generally when shareholders of the investees approve the dividend.

*SGVFS039610*
 - 37 -

Rental Income
Rental income arising from operating leases on investment properties is accounted for on a straight-
line basis over the lease terms and is included in revenue in the consolidated statement of income due
to its operating nature.

Claims for business interruption and property damage

Income is recognized when an acknowledgment for the proposed claims is received from insurers.
The income arises from unplanned shutdown of an insured property which results to business
interruption and property damage.

Other Income
Other income is recognized when there is an incidental economic benefit, other than the usual
business operations, that will flow to the Group through an increase in asset or reduction in liability
that can be measured reliably.

Costs and Expenses

Costs and expenses are decreases in economic benefits during the accounting period in the form of
outflows or decreases of assets or incurrence of liabilities that result in decrease in equity, other than
those relating to distributions to equity participants. Costs and expenses are recognized when
incurred.

Taxes
Current Income Tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from or
paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that
are enacted or substantively enacted, at the reporting date in the countries where the Group operates
and generates taxable income.

Management periodically evaluates positions taken in the tax return with respect to situations in
which applicable tax regulations are subject to interpretations and establishes provisions where
appropriate.

Current income tax relating to items recognized directly in equity is recognized in equity and not in
the consolidated statement of income.

Deferred Income Tax

Deferred income tax is provided using the liability method on temporary differences between the tax
bases of assets and liabilities and their carrying amounts for financial reporting purposes as at the
reporting date.

Deferred income tax liabilities are recognized for all taxable temporary differences, except:
· when the deferred income tax liability arises from the initial recognition of goodwill or an asset
or liability in a transaction that is not a business combination and, at the time of the transaction,
affects neither the accounting income nor taxable income or loss;
· in respect of taxable temporary differences associated with investments in subsidiaries, associates
and joint ventures, when the timing of the reversal of the temporary differences can be controlled
and it is probable that the temporary differences will not reverse in the foreseeable future.

*SGVFS039610*
 - 38 -

Deferred income tax assets are recognized for all deductible temporary differences, including
carryforward benefits of unused net operating loss carryover (NOLCO) and excess minimum
corporate income tax (MCIT) over regular corporate income tax (RCIT) which can be deducted
against future RCIT due to the extent that it is probable that future taxable income will be available
against which the deductible temporary differences and carryforward benefits of unused tax credits
from unused NOLCO can be utilized, except:

· when the deferred income tax asset relating to the deductible temporary difference arises from the
initial recognition of an asset or liability in a transaction that is not a business combination and, at
the time of the transaction, affects neither the accounting income nor taxable income;
· in respect of deductible temporary differences associated with investments in subsidiaries,
associates and joint ventures, deferred income tax assets are recognized only to the extent that it
is probable that the temporary differences will reverse in the foreseeable future and taxable
income will be available against which the temporary differences can be utilized.

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to
the extent that it is no longer probable that sufficient taxable income will be available to allow all or
part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are re-
assessed at each reporting date and are recognized to the extent that it has become probable that future
taxable income will allow the deferred income tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in
the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have
been enacted or substantively enacted at the reporting date.

Deferred income tax relating to items recognized outside profit or loss is recognized outside profit or
loss. Deferred income tax items are recognized in correlation to the underlying transaction either in
OCI or directly in equity.

Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right
exists to set off current income tax assets against current income tax liabilities and the deferred
income taxes relate to the same taxable entity and the same taxation authority.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate
recognition at that date, are recognized subsequently if new information about facts and
circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does
not exceed goodwill) if it was incurred during the measurement period or recognized in the
consolidated statement of income.

Creditable Withholding Taxes

Creditable withholding taxes represent amounts withheld by the Group’s customers and is deducted
from the Group’s income tax payable.

Value-added Tax (VAT)

Expenses and assets are recognized net of the amount of VAT, except:
· When the VAT incurred on a purchase of assets or services is not recoverable from the taxation
authority, in which case, the VAT is recognized as part of the cost of acquisition of the asset or as
part of the expense item, as applicable; and,
· When receivables and payables are stated with the amount of VAT included

*SGVFS039610*
 - 39 -

The amount of VAT recoverable from the taxation authority is recognized as “Input VAT”, while
VAT payable to taxation authority is recognized as “Output VAT” under “Accounts payable and
other current liabilities” in the consolidated statement of financial position.

Output VAT is recorded based on the amount of sale of electricity billed to third parties. Any amount
of output VAT not yet collected as at reporting period are presented as “Deferred output VAT” under
“Income and withholding taxes payable” account in the consolidated statement of financial position.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed based on weighted average number of issued and
outstanding common shares during each year after giving retroactive effect to stock dividends
declared during the year. Diluted earnings (loss) per share is computed as if the stock options were
exercised as at the beginning of the year and as if the funds obtained from exercise were used to
purchase common shares at the average market price during the year. Outstanding stock options will
have a dilutive effect under the treasury stock method only when the fair value of the underlying
common shares during the period exceeds the exercise price of the option. Where the outstanding
stock options have no dilutive effect and the Group does not have any potential common share nor
other instruments that may entitle the holder to common shares, diluted earnings (loss) per share is the
same as basic earnings (loss) per share.

Segment Reporting
The Group’s operating businesses are organized and managed separately according to the nature of
the products and services provided, with each segment representing a strategic business unit that
offers different products. Financial information on business segments is presented in Note 38 to the
consolidated financial statements.

Contingencies
Contingent liabilities are not recognized in the consolidated financial statements but are disclosed in
the notes to the consolidated financial statements unless the possibility of an outflow of resources
embodying economic benefits is remote. If it is probable that an outflow of resources embodying
economic benefits will occur and the liability’s value can be measured reliably, the liability and the
related expense are recognized in the consolidated financial statements.

Contingent assets are not recognized in the consolidated financial statements but disclosed in the
notes to the financial statements when an inflow of economic benefits is probable. Contingent assets
are assessed continually to ensure that developments are appropriately reflected in the consolidated
financial statements. If it is virtually certain that an inflow of economic benefits or service potential
will arise and the asset’s value can be measured reliably, the asset and the related revenue are
recognized in the consolidated financial statements.

Events After the Reporting Period

Post year-end events that provide additional information about the Group’s position as at the
reporting date (adjusting events) are reflected in the consolidated financial statements. Post year-end
events that are not adjusting events are disclosed in the notes to the consolidated financial statements
when material.

*SGVFS039610*
 - 40 -

4. Significant Accounting Judgments, Estimates and Assumptions

The Group’s consolidated financial statements prepared in conformity with PFRS require
management to make judgments, estimates and assumptions that affect amounts reported in the
consolidated financial statements. In preparing the Group’s consolidated financial statements,
management made its best estimates and judgments of certain amounts, giving due consideration to
materiality. The judgments, estimates and assumptions used in the consolidated financial statements
are based upon management’s evaluation of relevant facts and circumstances as at the date of the
consolidated financial statements. Actual results could differ from such estimates.

The Group believes the following represents a summary of these significant judgments, estimates and
assumptions and related impact and associated risks in its consolidated financial statements.

Judgments

Revenue Recognition (2019 and 2018)

Identifying Performance Obligations

The Group identifies performance obligations by considering whether the promised goods or services in
the contract are distinct goods or services. A good or service is distinct when the customer can benefit
from the good or service on its own or together with other resources that are readily available to the
customers and the Group’s promise to transfer the good or service to the customer is separately
identifiable.

The Group assesses performance obligations as a series of distinct goods and services that are
substantially the same and have the same pattern of transfer if (i) each distinct good or service in the
series are transferred over time and (ii) the same method of progress will be used (i.e., units of delivery)
to measure the entity’s progress towards complete satisfaction of the performance obligation.

For power generation, trading and ancillary services where capacity and energy dispatched are separately
identified, these two obligations are to be combined as one performance obligation since these are not
distinct within the context of the contract as the customer cannot benefit from the contracted capacity
alone without the corresponding energy and the customer cannot obtain energy without contracting a
capacity.

The combined performance obligation qualifies as a series of distinct services that are substantially the
same and have the same pattern of transfer since the delivery of energy every month are distinct services
which are all recognized over time and have the same measure of progress.

Retail supply also qualifies as a series of distinct services which is accounted for as one performance
obligation since the delivery of energy every month is a distinct service which is recognized over time
and have the same measure of progress.

Identifying Methods for Measuring Progress of Revenue Recognized Over Time

The Group determines the appropriate method of measuring progress which is either through the use of
input or output methods. Input method recognizes revenue on the basis of the entity’s efforts or inputs to
the satisfaction of a performance obligation while output method recognizes revenue on the basis of
direct measurements of the value to the customer of the goods or services transferred to date.

For ancillary services, the Group determined that the output method is the best method in measuring
progress since actual energy is supplied to customers. The Group recognizes revenue based on
contracted and actual kilowatt hours (kwh) dispatched which are billed on a monthly basis.

*SGVFS039610*
 - 41 -

For power generation and trading and retail supply, the Group uses the actual kwh dispatched which are
also billed on a monthly basis.

Determining Method to Estimate Variable Consideration and Assessing the Constraint

The Group includes some or all the amounts of variable consideration estimated but only to the extent
that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will
not occur when the uncertainty associated with the variable consideration is subsequently resolved. The
Group considers both likelihood and magnitude of the revenue reversal in evaluating the extent of
variable consideration the Group will subject to constraint. Factors such as (i) highly susceptible to
factors outside of the Group’s influence, (ii) timing of resolution of the uncertainty, and (iii) having a
large number and broad range of possible outcomes are considered.

Some contracts with customers provide for unspecified quantity of energy, index adjustments and prompt
payment discounts that give rise to variable considerations. In estimating the variable consideration, the
Group is required to use either the expected value method or the most likely amount method based on
which method better predicts the amount of consideration to which it will be entitled. The expected
value method of estimation takes into account a range of possible outcomes while most likely amount is
used when the outcome is binary.

The Group determined that the expected value method is the appropriate method to use in estimating the
variable consideration given the large number of customer contracts that have similar characteristics and
wide the range of possible outcomes.

Before including any amount of variable consideration in the transaction price, the Group considers
whether the amount of variable consideration is constrained. The Group determined that the estimates of
variable consideration are to be fully constrained based on its historical experience (i.e., prompt payment
discounts), the range of possible outcomes (i.e., unspecified quantity of energy), and the unpredictability
of other factors outside the Group’s influence (i.e., index adjustments).

Lease Accounting
Determining Whether an Arrangement Contains a Lease (Prior to adoption of PFRS 16)
ACEPH supplies the electricity requirements of certain customers under separate Electricity Supply
Agreements (ESA) (see Note 35). The Group has evaluated the arrangements and the terms of the ESA
and determined that the agreements do not qualify as leases. Accordingly, fees billed to these customers
are recognized as revenue from sale of electricity.

Under ACEPH’s Power Purchase Agreement (PPA) with SLTEC and Maibarara Geothermal Inc. (MGI),
ACEPH agreed to purchase all of SLTEC’s and MGI’s output (see Note 35). The Group has evaluated
the arrangements and the terms of the PPA and determined that the agreements do not qualify as leases
prior to adoption of PFRS 16. Accordingly, prior to the consolidation of SLTEC to the Group, the fees
paid to SLTEC and MGI are recognized under “Cost of sale of electricity” (see Note 24).

PHINMA Renewable also entered into various easements and right of way agreements with various
land owners to support the erection of transmission lines to be used to connect its 54 MW Wind Farm
Project in Guimaras. These agreements contain a lease as the arrangements convey the right to use
the item and PHINMA Renewable has control over the utility of the asset. Accordingly, the Group
has accounted for these agreements as leases upon adoption of PFRS 16 (see Note 3).

*SGVFS039610*
 - 42 -

Classification of Leases - the Group as Lessee (Prior to adoption of PFRS 16)

The Group exercises judgment in determining whether substantially all the significant risks and
rewards of ownership of the leased assets are transferred to the Group. Lease agreements, which
transfer to the Group substantially all the risks and rewards incidental to ownership of the leased
items are classified as finance leases. Otherwise, these are considered as operating leases
(see Note 35).

The Parent Company has entered into a lease agreement with Guimaras Electric Company
(GUIMELCO) for a parcel of land used only as a site for electric generating plant and facilities,
where it has determined that the risks and rewards related to the properties are retained with the lessor
(e.g., no bargain purchase option and transfer of ownership at the end of the lease term). The lease is,
therefore, accounted for as an operating lease.

One Subic Power has a lease agreement with SBMA for a parcel of land and electric generating plant and
facilities where it has determined that the risks and rewards related to the properties are retained with the
lessor (e.g., no bargain purchase option and transfer of ownership at the end of the lease term). The lease
is, therefore, accounted for as an operating lease (see Note 35).

PHINMA Renewable has entered into various lease agreements with individual land owners where
the present value of the minimum lease payments does not amount to at least substantially all of the
fair value of the leased asset, among others, which indicates that it does not transfer substantially all
the risks and rewards from the various land owners to the Group incidental to the ownership of the
parcels of land. These leases are classified as operating leases.

PHINMA Renewable has entered into various lease agreements with individual land owners where
the present value of the minimum lease payments amount to at least substantially all of the fair value
of the leased asset, which indicates that the risks and rewards related to the asset are transferred to the
Group. These leases are classified as finance leases.

The Parent Company, AC Energy, Ayala Land, Inc. (ALI) and Ayalaland Offices, Inc. entered an
agreement on assignment of contract of lease. AC Energy assigned a portion of its office unit and
parking slots.

Details of the above lease agreements are disclosed in Note 35.

Classification of Leases - the Group as Lessor

The Group had a lease agreement for the lease of its investment property. The Group had determined
that the risks and rewards of ownership of the underlying property were retained by the Group.
Accordingly, the leases are classified as an operating lease (see Note 35).

Determination of lease term of contracts with renewal and terminations options – the Group as Lessee
The Group has several lease contracts that include extension and termination options. The Group
applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option
to renew or terminate the lease. That is, it considers all relevant factors that create an economic
incentive for it to exercise either the renewal or termination. After the commencement date, the
Group reassesses the lease term if there is a significant event or change in circumstances that is within
its control and affects its ability to exercise or not to exercise the option to renew or to terminate (e.g.,
construction of significant leasehold improvements or significant customization to the leased asset).

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The Group did not include the renewal period as part of the lease term for leases of land and power
plant because as at commencement date, the Group assessed that it is not reasonably certain that it
will exercise the renewal options since the renewal options are subject to mutual agreement of the
lessor and the Group. Furthermore, the periods covered by termination options are included as part of
the lease term only when they are reasonably certain not to be exercised.

Discount rate
The Group used the risk free rate per PHP-BVAL plus the credit spread provided by the bank or the
incremental borrowing rate which is the rate of interests that a lessee would have to pay to borrow over a
similar term, and with similar security, the funds necessary to obtain an asset of a similar value to the
right-of-use asset in similar economic environment.

Practical expedient
The Group also applied the available practical expedients wherein it:

· Used a single discount rate to a portfolio of leases with reasonably similar characteristics.
· Relied on its assessment of whether leases are onerous immediately before the date of initial
application.
· Applied the short-term leases exemptions to leases with lease term that ends within
12 months at the date of initial application. All leases with a term of 1 year and below shall be
expensed outright.
· Excluded the initial direct costs from the measurement of the right-of-use assets at the date of
initial application.

Refer to Note 35 for information on potential future rental payments relating to periods following the
exercise date of extension and termination options that are not included in the lease term.

Identification of Business Models

The Group manages its financial assets based on a business model that maintains adequate level of
financial assets to match expected cash outflows while maintaining a strategic portfolio of financial
assets for trading activities.

The Group’s business model can be to hold financial assets to collect contractual cash flows even
when sales of certain financial assets occur. The following are the Group’s business models:

Portfolio 1, Operating and Liquidity Fund (Amortized Cost)

Portfolio 1 is classified as amortized cost with the objective to hold to collect the financial asset to
ensure sufficient funding to support the Group’s operations and project implementation. It also aims
to generate interest income from low-risk, short-term investments in highly liquid assets.

Funds in this portfolio is comprised of financial assets classified by the Bangko Sentral ng Pilipinas
(BSP) and trust entities as conservative assets, which are principal-protected and highly liquid. These
are placed in investment outlets that are redeemable within thirty (30) to ninety (90) days. This
includes the Group’s cash and cash equivalents, short-term investments, receivables and refundable
deposits.

Main risks are credit risk, liquidity risk, market risk and interest rate risk. The performance of the
portfolio is evaluated based on the yield of the investments. For further details on risks and
mitigating factors, see Note 36.

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Sales may be made when the financial assets are close to maturity and prices from the sales
approximate the collection of the remaining contractual cash flows. Further, disposal is permitted
when the Group believes that there is a credit deterioration of the issuer.

PFRS 9, however, emphasizes that if more than an infrequent number of sales are made out of a
portfolio of financial assets carried at amortized cost, the entity should assess whether and how such
sales are consistent with the objective of collecting contractual cash flows.

Portfolio 2, Operating and Liquidity Fund

Portfolio 2 is classified as FVOCI with the objective to hold to collect and sell to ensure sufficient
funding to support operations and project implementation. It also aims to generate interest income
from low-risk, short-term investments in highly liquid assets.

Funds in this portfolio is comprised of financial assets classified by the BSP and trust entities as
conservative assets, which are principal-protected and highly liquid. These are placed in investment
outlets that are redeemable within thirty (30) to ninety (90) days. This includes the Group’s UITFs,
FXTNs and derivative assets.

Main risks are credit risk, liquidity risk, market risk and interest rate risk. The performance of the
portfolio is evaluated based on the yield and fair value changes of the investments. For further details
on risks and mitigating factors, see Note 36.

Sales may be made when the financial assets are close to maturity and prices from the sales
approximate the collection of the remaining contractual cash flows. Further, disposal is permitted
when the Group believes that there is a credit deterioration of the issuer.

Portfolio 3, Strategic Fund

Portfolio 3 is classified as FVOCI with the objective to hold to collect and to sell the financial asset to
generate interest income from low-risk, long-term investments in liquid assets and maximize the
returns from excess funds of the Group.

Funds in this portfolio have an overall weighted duration risk exposure of one (1) year or less. These
are placed in investment outlets with tenors of at least ninety (90) days. The Group does not have
debt instruments at FVOCI.

Main risks are credit risk, liquidity risk, market risk, interest rate risk and foreign currency risk. The
performance of the portfolio is evaluated based on the yield and fair value changes of outstanding
investments. For further details on risks and mitigating factors, see Note 36.

Sales may be made when the financial assets are close to maturity and prices from the sales
approximate the collection of the remaining contractual cash flows. Further, disposal is permitted
when the Group believes that there is a credit deterioration of the issuer.

Definition of Default and Credit-impaired Financial Assets

The Group defines a financial instrument as in default, which is fully aligned with the definition of
credit-impaired, when it meets one or more of the following criteria:

· Quantitative criteria
The borrower is more than ninety (90) days past due on its contractual payments, i.e., principal
and/or interest, which is consistent with the Group’s definition of default.

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· Qualitative criteria
The borrower meets unlikeliness to pay criteria, which indicates the borrower is in significant
financial difficulty. These are instances where:
a. The borrower is experiencing financial difficulty or is insolvent
b. The borrower is in breach of financial covenant(s)
c. Concessions have been granted by the Group, for economic or contractual reasons relating to
the borrower’s financial difficulty
d. It is becoming probable that the borrower will enter bankruptcy or other financial
reorganization
e. Financial assets are purchased or originated at a deep discount that reflects the incurred credit
losses.

The criteria above have been applied to all financial instruments held by the Group and are consistent
with the definition of default used for internal credit risk management purposes. The default
definition has been applied consistently to model the Probability of Default (PD), Loss Given Default
(LGD) and Exposure at Default (EAD) throughout the Group’s expected loss calculation.

Determining and Classifying Joint Arrangements

Judgment is required to determine when the Group has joint control over an arrangement, which
requires an assessment of the relevant activities and when the decisions in relation to those activities
require unanimous consent. The Group has determined that the relevant activities for its joint
arrangements are those relating to the operating and capital decisions of the arrangements.

Judgment is also required to classify a joint arrangement. Classifying the arrangement requires the
Group to assess their rights and obligations arising from the arrangement. Specifically, the Group
considers:

· the structure of the joint arrangement - whether it is structured through a separate vehicle;
· when the arrangement is structured through a separate vehicle, the Group also considers the rights
and obligations arising from:
a. the legal form of the separate vehicle;
b. the terms of the contractual arrangement; and,
c. other facts and circumstances (when relevant).

This assessment often requires significant judgments on the conclusion on joint control and whether
the arrangement is a joint operation or a joint venture, which may materially impact the accounting.
As at December 31, 2019 and 2018, the Group’s SCs are joint arrangements in the form of a joint
operation.

The Group’s joint control arrangements in which the Group has rights to the net assets of the
investees are classified as joint ventures.

As at December 31, 2018, the Parent Company holds 50% of the voting rights of PHINMA Solar.
The Parent Company also holds 50% of the voting rights of ACTA as at December 31, 2019 and
2018. The Parent Company holds 45% of the voting rights of SLTEC as at June 30,2019 and
December 31, 2018. Under the contractual agreements, the Group has joint control over these
arrangements as there is a unanimous consent where any party can prevent the other party from
making unilateral decisions on the relevant activities without the other party’s consent
(see Notes 1 and 12).

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The Group’s joint arrangements are also structured through separate vehicles and provide the Group
and the parties to the agreements with rights to the net assets of the separate vehicle under the
arrangements.

Material Partly-Owned Subsidiaries

The consolidated financial statements include additional information about subsidiaries that have NCI
that are material to the Group (see Note 34). Management determined material partly-owned
subsidiaries as those with balance of NCI greater than 5% of total NCI’s and those subsidiaries which
type of activities those engage in are important to the Group as at the end of the year.

Material Associates and Joint Ventures

The consolidated financial statements include additional information about associates and joint ventures
that are material to the Group (see Note 12). Management determined material associates and joint
ventures as those associates and joint ventures where the Group’s carrying amount of investments is
greater than 5% of the total investments and advances in associates and joint ventures as at the end of
the year.

Asset acquisitions and business combinations

Where asset is acquired through the acquisition of corporate interests, management considers the
substance of the assets and activities of the acquired entity in determining whether the acquisition
represents an acquisition of a business. The Group accounts for an acquisition as a business
combination where an integrated set of activities is acquired in addition to the asset.

Where such acquisitions are not judged to be an acquisition of a business, they are not treated as
business combinations. Rather, the cost to acquire the corporate entity is allocated between the
identifiable assets and liabilities of the entity based on their relative fair values at the acquisition
date. Otherwise, corporate acquisitions are accounted for as business combinations.

The cost of the acquisition is allocated to the assets and liabilities acquired based upon their relative fair
values, and no goodwill or deferred tax is recognized.

The Group’s acquisition of SLTEC has been accounted for as a business combination involving entities
under common control (see Notes 1 and 33).

The Group’s acquisition of BCHC has been accounted for as a purchase of an asset and has allocated
the acquisition cost to individual assets and liabilities (see Notes 1 and 33).

Judgements made in determining taxable profit (tax loss), tax bases, unused tax losses, unused tax
credits and tax rates applying paragraph 122 of PAS 1, Presentation of Financial Statements
Upon adoption of the Interpretation, the Group has assessed whether it has any uncertain tax position.
The Group applies significant judgement in identifying uncertainties over its income tax treatments.
The Group determined, based on its tax assessment, in consultation with its tax counsel, that it is
probable that its income tax treatments (including those for the subsidiaries) will be accepted by the
taxation authorities. Accordingly, the interpretation did not have an impact on the consolidated
financial statements of the Group.

Estimates

Estimating the incremental borrowing rate

The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental
borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would
have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an

*SGVFS039610*
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asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore
reflects what the Group ‘would have to pay’, which requires estimation when no observable rates are
available (such as for subsidiaries that do not enter into financing transactions) or when they need to be
adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the
subsidiary’s functional currency). The Group estimates the IBR using observable inputs (such as market
interest rates) when available and is required to make certain entity-specific estimates (such as the
entities’ stand-alone credit rating).

The Group’s lease liabilities amounted to P

=572.30 million as at December 31, 2019.

Estimating Allowance for Credit Losses

Measurement of expected credit losses

ECLs are derived from unbiased and probability-weighted estimates of expected loss, and are
measured as follows:

· Financial assets that are not credit-impaired at the reporting date: as the present value of all
cash shortfalls over the expected life of the financial asset discounted by the effective interest
rate. The cash shortfall is the difference between the cash flows due to the Group in accordance
with the contract and the cash flows that the Group expects to receive.
· Financial assets that are credit-impaired at the reporting date: as the difference between the
gross carrying amount and the present value of estimated future cash flows discounted by the
effective interest rate.

The Group leverages existing risk management indicators, credit risk rating changes and reasonable
and supportable information which allows the Group to identify whether the credit risk of financial
assets has significantly increased.

Inputs, Assumptions and Estimation Techniques

General approach for cash in banks and other financial assets measured at amortized cost
The ECL is measured on either a 12-month or lifetime basis depending on whether a significant
increase in credit risk has occurred since initial recognition or whether an asset is considered to be
credit-impaired. Expected credit losses are the discounted product of the PD, LGD and EAD, defined
as follows:

· Probability of Default
The PD represents the likelihood of a borrower defaulting on its financial obligation, either over
the next 12 months, or over the remaining life of the obligation. PD estimates are estimates at a
certain date, which are calculated based on available market data using rating tools tailored to the
various categories of counterparties and exposures. These statistical models are based on
internally compiled data comprising both quantitative and qualitative factors. If a counterparty or
exposure migrates between rating classes, then this will lead to a change in the estimate of the
associated PD. PDs are estimated considering the contractual maturities of exposures and
estimated prepayment rates.

The 12-months and lifetime PD represent the expected point-in-time probability of a default over
the next 12 months and remaining lifetime of the financial instrument, respectively, based on
conditions existing at reporting date and future economic conditions that affect credit risk.

*SGVFS039610*
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· Loss Given Default

Loss Given Default represents the Group’s expectation of the extent of loss on a defaulted
exposure, taking into account the mitigating effect of collateral, its expected value when realized
and the time value of money. LGD varies by type of counterparty, type of seniority of claim and
availability of collateral or other credit support. LGD is expressed as a percentage loss per unit of
exposure at the time of default (EAD).

· Exposure at Default
EAD is based on the amounts the Group expects to be owed at the time of default, over the next
12 months or over the remaining lifetime.

Simplified Approach for Trade Receivables

The Group uses a provision matrix to calculate ECLs for certain trade receivables. The provision
rates are based on days past due for groupings of various customer segments that have similar loss
patterns (i.e., by revenue stream, customer type).

The provision matrix is initially based on the Group’s historical observed default rates. The Group
will calibrate the matrices to adjust the historical credit loss experience with forward-looking
information. For instance, if forecast economic conditions (i.e., inflation rate, GDP, foreign exchange
rate) are expected to deteriorate over the next year which can lead to an increased number of defaults,
the historical default rates are adjusted. At every reporting date, the historical observed default rates
are updated and changes in the forward-looking estimates are analyzed.

The assessment of the correlation between historical observed default rates, forecast economic
conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in
circumstances and of forecast economic conditions. The Group’s historical credit loss experience and
forecast of economic conditions may also not be representative of customer’s actual default in the
future.

There have been no significant changes in estimation techniques or significant assumptions made
during the reporting period.

Incorporation of Forward-Looking Information

The Group incorporates forward-looking information into both its assessment of whether the credit
risk of an instrument has increased significantly since its initial recognition and its measurement of
ECL.

To do this, the Group considers a range of relevant forward-looking macro-economic assumptions for
the determination of unbiased general industry adjustments and any related specific industry
adjustments that support the calculation of ECLs. The Group formulates a ‘base case’ view of the
future direction of relevant economic variables as well as a representative range of other possible
forecast scenarios. This process involves developing two or more additional economic scenarios and
considering the relative probabilities of each outcome. External information includes economic data
and forecasts published by governmental bodies, monetary authorities and selected private-sector and
academic institutions.

The base case represents a most-likely outcome and is aligned with information used by the Group for
other purposes such as strategic planning and budgeting. The other scenarios represent more
optimistic and more pessimistic outcomes.

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The Group has identified and documented key drivers of credit risk and credit losses of each financial
instrument and, using an analysis of historical data, has estimated relationships between macro-
economic variables and credit risk and credit losses.

The economic scenarios used as at December 31, 2019 is Global 7 term interest rate from
Macroeconomics Indicators. As of December 31, 2018, the Group included the following economic
scenarios included the following ranges of key macroeconomics indicators.

Economic indicators 2018

Inflation rates Base 3.90%
Range between -0.4% and 6.7%
Foreign exchange rate Base P
=52.61
Range between P=40.67 and
=51.34
P
GDP growth Base 6.90%
Range between 5.10% and 7.20%

Predicted relationship between the key economic indicators and default and loss rates on various
portfolios of financial assets have been developed based on analyzing historical data over the past
five (5) to nine (9) years. The methodologies and assumptions including any forecasts of future
economic conditions are reviewed regularly.

The Group has not identified any uncertain event that it has assessed to be relevant to the risk of
default occurring but where it is not able to estimate the impact on ECL due to lack of reasonable and
supportable information.

Grouping of Instruments for Losses Measured on Collective Basis

For expected credit loss provisions modelled on a collective basis, a grouping of exposures is
performed on the basis of shared credit risk characteristics, such that risk exposures within a group
are homogeneous. In performing this grouping, there must be sufficient information for the Group to
be statistically credible. Where sufficient information is not available internally, the Group has
considered benchmarking internal/external supplementary data to use for modelling purposes. The
characteristics and any supplementary data used to determine groupings are outlined below.

· Universal and Commercial banks - Groupings for collective measurement

a. Instrument type
b. Credit risk rating

· Independent Electricity Market Operator of the Philippines [IEMOP; formerly Philippine

Electricity Market Corporation (PEMC)], NGCP, RES, Direct and Wholesale Aggregator (WA)
Customers - Groupings for collective measurement
a. Customer revenue classification (revenue stream)
b. Credit risk rating band

The appropriateness of groupings is monitored and reviewed on a periodic basis. In 2019 and 2018,
the total gross carrying amount of receivables for which lifetime ECLs have been measured on a
collective basis amounted to nil and =
P1,597.57 million, respectively.

The carrying values of receivables and the related allowance for doubtful accounts of the Group are
disclosed in Note 7. In 2019 and 2018, provision for doubtful accounts amounted to = P1.16 million
and P
=14.55 million, respectively (see Note 7).

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As at December 31, 2019 and 2018, allowance for doubtful accounts on receivables amounted to
=122.24 million and =
P P131.33 million, respectively (see Notes 7 and 17).

Estimating Allowance for Doubtful Accounts (Prior to adoption of PFRS 9)

The Group maintains allowance for doubtful accounts based on the results of the individual and collective
assessment. Under the individual assessment, the Group considers the significant financial difficulties of
the customer or significant delays in payments. Where there is objective evidence of impairment, the
amount and timing of future cash flows are estimated based on age and status of the financial asset, as well
as historical loss experience. Allowance for doubtful accounts is recorded when management believes that
the receivable balance cannot be provided or realized after exhausting all efforts and courses of action. For
the collective assessment, the Group groups its receivables based on the credit risk characteristics
(customer type, past-due status and terms) of its customers. Impairment loss is then determined based on
historical loss experience of the receivables grouped per credit risk profile. The methodology and
assumptions used for the individual and collective assessments are based on management’s judgments and
estimates. Therefore, the amount and timing of recorded expense for any period would differ depending
on the judgments and estimates made for the year.

The Company estimates the provision for doubtful accounts related to trade and other receivables based
on specific evaluation of its receivables considering efforts exerted to collect the amounts due from
customers and where the Company has information that certain customers are unable to meet their
financial obligations. In 2017, provision for doubtful accounts amounted to P =4.54 million (see Note 8).

Evaluating net realizable value of inventories

The Company writes down its inventory to NRV whenever NRV becomes lower than cost due to damage,
physical deterioration, changes in price levels or other causes.

Estimates of NRV are based on the most reliable evidence available at the time the estimates are made on
the amount expected to be realized. Review is performed on a regular basis to reflect the reasonable
valuation of the inventory in the financial statements.

As of the December 31, 2019 and 2018, the carrying value of inventories amounting to P
=855.28 million
and P
=413.67 million, respectively (see Note 8).

Recoverability of Input VAT

Input VAT represents taxes paid on purchases of applicable goods and services which can be recovered
as tax credit against future output VAT liability of the Group. The Group is also allowed to recover
excess input VAT by filing a claim for refund or tax credit certificate with the BIR. In 2016, PHINMA
Renewable filed with the BIR a claim for tax credit certificate of its input VAT amounting to
=335.76 million (see Note 41). Considering the uncertainty in the timing of the final decision of the
P
Court of Tax Appeals (CTA), the input VAT claimed for refund was recognized as part of noncurrent
asset in the consolidated statements of financial position.

In addition, the Parent Company has written off P

=21.90 million of input VAT in 2018 as these are
considered no longer recoverable. The Parent Company also provided provisions for unrecoverable input
tax amounting to nil in 2019 and 2017 and P=43.71 million in 2018 (see Note 28). The carrying amounts
of input VAT as at December 31, 2019 and 2018 amounted to P =484.08 million and P
=362.09 million,
respectively.

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Realizability of Deferred Income Tax Assets

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the
extent that it is no longer probable that sufficient taxable income will be available to allow all or part of
the deferred income tax assets to be utilized. However, there is no assurance that sufficient taxable
income will be generated to allow all or part of the deferred tax assets to be utilized.

As at December 31, 2019 and 2018, deferred income tax assets recognized by the Group amounted to
=612.55 million and P
P =261.35 million, respectively (see Note 29). The Group’s deductible temporary
differences, unused NOLCO and unused MCIT for which no deferred income tax assets were recognized
are disclosed in Note 29.

Estimating Useful Lives of Property, Plant and Equipment, Investment Properties, Right-of-Use
Assets and Leasehold Rights
The Group estimates the useful lives of property, plant and equipment, investment properties, right-
of-use assets and leasehold rights based on the period over which the assets are expected to be
available for use. The estimated useful lives of property, plant and equipment, investment properties,
right-of-use assets and leasehold rights are reviewed periodically and are updated if expectations
differ from previous estimates due to physical wear and tear, technical or commercial obsolescence
and legal or other limits on the use of the assets. In addition, estimation of the useful lives of
property, plant and equipment and investment properties are based on collective assessment of
industry practice, internal technical evaluation and experience with similar assets. It is possible,
however, that future results of operations could be materially affected by changes in estimates
brought about by changes in factors mentioned above. The amounts and timing of recorded expenses
for any period would be affected by changes in these factors and circumstances. In 2019, 2018 and
2017, there were no changes in the estimated useful lives of the assets.

The total depreciation and amortization of property, plant and equipment, right-of-use assets
investment properties and leasehold rights amounted to =P892.47 million, =
P405.84 million and
=399.38 million in 2019, 2018 and 2017, respectively (see Note 27).
P

Impairment of Deferred Exploration Costs

The carrying value of deferred exploration costs is reviewed for impairment by management when there
are indications that the carrying amount exceeds the recoverable amount under PFRS 6. Among the
factors considered by management in the impairment review of deferred exploration costs are the
expiration of the contracts and the technical evaluation that the remaining prospects in these areas are
small and are likely to be uneconomic. In the event of impairment, the Group measures, presents and
discloses the resulting impairment loss in accordance with PAS 36.

The Group considers the status of the service contracts and its plans in determining the recoverable
amount of the deferred exploration costs.

The Group recognized impairment losses on deferred exploration costs amounting to = P34.49 million,
=48.26 million and =
P P4.89 million in 2019, 2018 and 2017, respectively. The carrying value of
deferred exploration costs amounted to P
=46.04 million and =
P61.11 million as at December 31, 2019
and 2018, respectively (see Notes 15 and 25).

Impairment of Non-financial Assets, Other than Goodwill and Deferred Exploration Costs
The Group assesses whether there are any indicators of impairment for all non-financial assets, other
than goodwill and deferred exploration costs, at each reporting date in accordance with PAS 16. These
non-financial assets (investments and advances, property, plant and equipment, right-of-use assets,
investment properties and leasehold rights) are tested for impairment whenever events or changes in
circumstances indicate that carrying amount of the asset may not be recoverable. This requires an

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estimation of the value in use of the CGUs. Estimating the value in use requires the Group to make an
estimate of the expected future cash flows from the CGU and also to choose a suitable discount rate in
order to calculate the present value of those cash flows. In cases where the value in use cannot be
reliably measured, the recoverable amount is based on fair value less costs to sell.

The carrying amounts of the Group’s non-financial assets other than goodwill and deferred exploration
costs as at December 31 are as follows:

2019 2018
Property, plant and equipment (see Note 11) P
=21,564,260 =5,760,963
P
Creditable withholding taxes 983,726 784,169
Investments (see Note 12) 723,165 4,322,684
Right of use assets (see Note 16) 524,936 –
Input VAT (see Note 41) 484,077 362,091
Investment properties (see Note 14) 13,085 13,085
Leasehold rights (see Note 15) – 24,959

Impairment loss on property, plant and equipment amounted to P =2.07 million in 2018. No impairment
loss was recognized on these non-financial assets in 2019 and 2017.

Accumulated impairment losses on investments amounted to P

=1.56 million as at December 31, 2019
and 2018 (see Note 12).

Impairment of Goodwill
The Group subjects goodwill to an impairment test annually and whenever there is an indication that it is
impaired. This requires an estimation of the value in use of the related CGU. The value in use
calculation requires the Group to make an estimate of the expected future cash flows from the CGU and
to choose a suitable discount rate in order to calculate the present value of those cash flows.

Management used an appropriate discount rate for cash flows which is consistent with the valuation
practice. The management used the weighted average cost of capital (WACC) wherein the source of the
cost of equity and debt financing are weighted. The pre-tax discount rates of 8.4% to 9.4% were used in
2019. The Group used a capital structure of 50.3% debt/equity (DE) ratio based on industry comparable
weights and the growth rate used in extrapolating cash flows beyond the period covered by the Group’s
recent budget was 3%.

The carrying amount of goodwill amounted to P=234.15 million as at December 31, 2019 and 2018
(see Note 15). No impairment loss has been recognized on goodwill in 2019, 2018 and 2017.

Estimation of Pension and Other Employee Benefits Liabilities

The cost of defined benefit pension plans and other post-employment benefits as well as the present
value of the pension obligation are determined using actuarial valuations. The actuarial valuation
involves making various assumptions. These include the determination of the discount rates, future
salary increases, mortality rates and future pension increases. Due to the complexity of the valuation,
the underlying assumptions and its long-term nature, defined benefit obligations are highly sensitive to
changes in these assumptions. All assumptions are reviewed at each reporting date. Pension and other
employee benefits liability amounted to = P60.50 million and =P40.25 million as at December 31, 2019
and 2018, respectively (see Note 30).

In determining the appropriate discount rate, management considers the interest rates of government
bonds that are denominated in the currency in which the benefits will be paid, with extrapolated
maturities corresponding to the expected duration of the defined benefit obligation.

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The mortality rate is based on publicly available mortality tables for the specific country and is modified
accordingly with estimates of mortality improvements. Future salary increases and pension increases
are based on expected future inflation rates for the specific country.

Further details about the assumptions used are provided in Note 30.

Contingencies and Tax Assessments

The Group is currently involved in various legal proceedings and assessments for local and national
taxes (see Note 41). The estimate of the probable costs for the resolution of these claims has been
developed in consultation with outside counsel handling the defense in these matters and is based upon
an analysis of potential results. The final settlement of these may result in material adverse impact on
the Group’s consolidated financial statements.

5. Cash and Cash Equivalents

2019 2018
Cash on hand and in banks P
=1,100,551 =151,317
P
Short-term deposits 7,481,112 871,049
P
=8,581,663 =1,022,366
P

Cash in banks earn interest at the applicable bank deposit rates for its peso and dollar accounts.
Short-term deposits are made for varying periods between one day and three months depending on
the immediate cash requirements of the Group and earn interest at the respective short-term deposit
rates.

Interest income earned on cash in banks and short-term deposits in 2019, 2018 and 2017 amounted to
=61.83 million, P
P =34.04 million and =
P33.12 million, respectively (see Note 28).

Short-term deposits account includes debt service reserves amounting to =

P281.65 million and
=54.77 million as at December 31, 2019 and 2018, respectively. These accounts are reserved for the
P
payment of loans by PHINMA Renewable and SLTEC (see Note 19).

6. Financial Assets at FVTPL

Financial assets at FVTPL as at December 31, 2018 consists of:

Current:
UITFs =743,739
P
Noncurrent:
UITF 5,452
=749,191
P

On January 1, 2018, the Group reclassified all of its investments held for trading to financial assets at
FVTPL. Further, investment in a UITF previously recorded under AFS investments was reclassified
to financial assets at FVTPL amounting to =
P5.45 million since as at date of initial application of
PFRS 9, this was assessed to have contractual terms that do not represent solely payments of principal
and interest (see Note 3).

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The net changes in fair value of financial assets at FVTPL, included in “Interest and other financial
income” account presented under “Other income - net” in the consolidated statements of income,
amounted to =
P30.84 million and = P24.83 million in 2019 and 2018, respectively (see Note 28).

Financial assets at FVTPL as at December 31, 2018 include debt service reserves amounting to
=57.80 million for the wind project loan facility (see Note 19).
P

As of December 31, 2019, the Group has already liquidated all outstanding investment in marketable
securities and will discontinue investing in highly volatile financial instruments to keep a risk-averse
position.

7. Receivables

2019 2018
Trade P
=2,233,782 =2,154,348
P
Due from related parties (see Note 31) 9 333,576
Receivables from:
Third parties (see Note 17) 376,351 179,550
Employees 102,628 2,881
Assignment of Mineral Production Sharing
Agreement (MPSA) (see Note 15) 39,365 39,365
Consortium - SC 50 (see Note 15) 20,000 20,000
Consortium - SC 52 (see Note 15) 19,444 19,444
Others 59,076 9,461
2,850,655 2,758,625
Less allowance for credit losses 122,236 131,334
P
=2,728,419 =2,627,291
P

Trade receivables mainly represent receivables from PEMC, IEMOP, NGCP, National Transmission
Corporation (TransCo) for the FIT and from the Group’s bilateral customers. Trade receivables con-
sist of both noninterest-bearing and interest-bearing receivables. The term is generally thirty (30) to
sixty (60) days.

Receivables from third parties as at December 31, 2019 and 2018 mainly represent the current portion
of the Group’s noninterest-bearing receivables from NGCP (see Note 17).

As at December 31, the aging analysis of receivables is as follows:

2019
Past Due but not Impaired
Neither Past
Due nor More than Past Due and
Total Impaired <30 Days 30–60 Days 61–90 Days 90 Days Impaired
Trade = 2,233,782
P = 1,944,167
P = 6,159
P = 6,793
P = 8,819
P = 228,831
P = 39,013
P
Due from related parties 9 9 – – – – –
Others 616,864 96,640 12,755 45,506 4,219 374,521 83,223
P
= 2,850,655 P
= 2,040,816 P
= 18,914 P
= 52,299 = 13,038
P P
= 603,352 P
= 122,236

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2018
Past Due but not Impaired
Neither Past
Due nor More than Past Due and
Total Impaired <30 Days 30–60 Days 61–90 Days 90 Days Impaired
Trade =2,154,348
P =1,712,945
P =40,844
P =19,387
P =191,896
P =148,354
P =40,922
P
Due from related parties 333,576 320,642 – – – 2,674 10,260
Others 270,701 183,751 8 106 39 6,645 80,152
=2,758,625
P P
=2,217,338 P
=40,852 P
=19,493 =191,935
P P
=157,673 =131,334
P

The movements in the allowance for credit losses on individually impaired receivables in 2019 and
2018 are as follows:

2019
Trade Others Total
Balances at beginning of year P
=37,851 P
=93,483 P
=131,334
Effect of consolidation of SLTEC – (10,260) (10,260)
Provision for the year - net (see Note 25) 1,162 – 1,162
Balances at end of year P
=39,013 P
=83,223 P
=122,236

2018
Trade Others Total
Balances at beginning of year =25,015
P =82,103
P =107,118
P
Effect of adoption of PFRS 9 9,668 – 9,668
Provision for the year (see Note 25) 6,239 8,309 14,548
Balances at end of year =40,922
P =90,412
P =131,334
P

Mineral Production Sharing Agreement (MPSA) 252-2007-V (Camarines Norte)

On July 28, 2007, the Parent Company was awarded MPSA No. 252-2007-V by the Philippine
Department of Environment and Natural Resources (DENR) covering parcels of land with an
aggregate area of more or less 333 hectares, located in the municipality of Camarines Norte,
Philippines (the “Property”). On February 14, 2008, One Subic Oil, then TA Gold, and the Parent
Company, entered into an Operating Agreement where the Parent Company granted unto and in favor
of One Subic Oil the exclusive right to explore, develop and operate for commercial mineral
production the Property under the MPSA. In June 2009, the Parent Company received a notice of an
Order of the Secretary of the DENR excising portions of the MPSA area that are covered by alleged
mineral patents of a third party for which the Parent Company filed a Motion for Reconsideration.

In December 2009, the DENR denied the Parent Company’s Motion for Reconsideration. The Parent
Company filed a timely Appeal of the DENR’s ruling with the Office of the President, which was
also denied. The Parent Company then elevated the case to the Court of Appeals.

The Parent Company signed an Agreement on October 18, 2011 for the assignment of the MPSA to
Investwell Resources, Inc. (Investwell), subject to certain conditions for a total consideration of
US$4.00 million payable in four tranches. The receipt of the first nonrefundable tranche amounting
to US$0.50 million (P
=21.93 million) was recognized as income in 2011. The receipt of the second
and third nonrefundable tranches amounting to US$1.00 million (P =42.20 million), net of the related
deferred exploration cost of =
P11.47 million, was also recognized as income in the year payments were
received.

On October 30, 2012, the Court of Appeals granted the Parent Company’s petition to reverse and set
aside the resolutions of the DENR and the Office of the President that ordered and affirmed,
respectively, excision of certain areas covered by alleged mining patents of a third party from the
contract area of the MPSA. Subsequently, the third party elevated the case to the Supreme Court.

*SGVFS039610*
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In Agreements dated May 29, 2012, March 19, 2013, June 25, 2013 and December 18, 2013, the
Parent Company and Investwell amended and restructured the payment of the fourth tranche of the
total consideration.

The DENR approved on February 7, 2013 the assignment of the MPSA to Investwell, and the Parent
Company recognized US$0.87 million (P
=37.93 million) income representing a portion of the final
tranche.

On January 12, 2015, the Supreme Court ruled that the rights pertaining to mining patents issued
pursuant to the Philippine Bill of 1902 and existing prior to November 15, 1935 are vested rights that
cannot be impaired by the MPSA granted by the DENR to the Parent Company on July 28, 2007.

As at December 31, 2019 and 2018, the receivable from Investwell amounted to =P39.37 million
which was provided with a full allowance for impairment in 2014 since Investwell did not comply
with the restructured payment schedule.

8. Fuel and Spare Parts

2019 2018
Fuel - at cost P
=247,570 =315,737
P
Fuel - at net realizable value 66,217 2,027
Spare parts - at cost 216,212 84,900
Spare parts - at net realizable value 325,276 11,009
P
=855,275 =413,673
P

Fuel charged to “Cost of sale of electricity” in the consolidated statements of income amounted to
=2,568.33 million, =
P P766.48 million and = P763.87 million in 2019, 2018 and 2017, respectively
(see Note 24).

In 2019, 2018 and 2017, the Group recognized provision for impairment of fuel inventory amounting
to =
P5.55 million, P
=0.16 million and nil, respectively. No such provision was recognized as spare
parts in those years.

The carrying amount of the fuel - at net realizable value as at December 31, 2019 and 2018 amounted
to =
P71.83 million and =
P2.19 million, respectively.

The carrying amount of the spare parts - at net realizable value as at December 31, 2019 and 2018
amounted to =
P326.62 million and =P11.50 million, respectively.

9. Other Current Assets

2019 2018
Deposits P
=77,284 =100,185
P
Prepaid expenses 62,225 82,577
Derivative assets (see Notes 36 and 37) 33 4
Others 373 –
P
=139,915 =182,766
P

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Prepaid expenses pertain to insurance, subscriptions, rent and other expenses paid in advance.

Deposits include advances to suppliers, contractors and deposits to distribution utilities.

10. Assets Held For Sale

ACEPH
On August 7, 2018, the BOD approved the Parent Company’s decision to sell the Guimaras Power
Plant located in Jordan, Guimaras. As at December 31, 2018, the Guimaras Power Plant was
classified as “Assets held for sale” in the consolidated statements of financial position in accordance
with PFRS 5, as the sale is highly probable (i.e., sale transaction will be completed within a year from
the reporting date) and the asset is available for immediate sale in its present condition. The asset
was previously presented as part of investment properties (see Note 14).

As at December 31, 2018, no impairment loss was recognized as the carrying value amounting to
=30.71 million is below its fair value less costs to sell.
P

Subsequently, on January 7, 2019, the BOD approved the sale of the Guimaras Power Plant and on
January 24, 2019, the Asset Purchase Agreement (APA) between the Parent Company and S.I. Power
Corporation (the buyer) was signed and notarized with an agreed selling price of P45.00 million. The
sale resulted in a gain of =
P14.29 million (see Note 28).

One Subic Oil

In 2018, the management communicated with its affiliates, suppliers, and other third-party buyers its
plan to sell some of its equipment and parts presented as part of “Machinery and equipment”.
Although nothing yet has been finalized, management has been actively looking for interested buyers.

The remaining unsold assets as at December 31, 2019 and 2018 were classified as “Assets held for
sale” in the consolidated statements of financial position as the sale is highly probable (i.e., sale
transaction will be completed within a year from the reporting date) and the asset is available for
immediate sale in its present condition.

Immediately before the reclassification of the equipment and parts as held for sale, the recoverable
amount was estimated. An impairment loss amounting to = P1.13 million was recognized in 2018
to reduce the carrying amount of the assets held for sale to their fair value less costs to sell. The
carrying value of the remaining asset classified as assets held for sale amounted to = P3.55 million and
=3.62 million as at December 31, 2019 and 2018, respectively.
P

SLTEC
Under the Republic Act No. 9136 Electric Power Industry Reform Act (EPIRA) of 2001, NGCP, as
National Transmission Commission's concessionaire, is solely responsible for the operation and/or
maintenance of the connection assets and is designated as the only entity which possesses the
required technical expertise to maintain and operate the nationwide power grid. Following a decision
by the ERC based on the EPIRA, SLTEC determined on June 19, 2017 that certain transmission line
assets need to be transferred, conveyed, and turned-over to NGCP, hence, it classified said assets as
noncurrent assets held for sale. The transmission line assets pertain to the easements or Right-of-Way
(ROW) granted by land owners over portions of land, for the installation and maintenance of the
230kV Salong-Calaca Line.

*SGVFS039610*
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However, in 2018, NGCP informed SLTEC of additional requirements relating to the documentation
of the ROW which need to be complied with as a condition for the sale and transfer of the assets.

Due to the significant change in the circumstances, the transmission line assets are not readily
available for immediate sale as at December 31, 2019. As a result, SLTEC reclassified the 230kV
Salong-Calaca Line back to Property, Plant and Equipment. The cost of the transmission line assets
transferred to Property, plant and Equipment amounted to = P152.38 million and the accumulated
depreciation amounted to = P15.30 million (see Note 11).

*SGVFS039610*
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11. Property, Plant and Equipment

The details and movements of this account for the years ended December 31 are shown below:

2019
Tools and Other Office Furniture,
Land and Land Buildings and Machinery and Transportation Miscellaneous Equipment Construction
Improvements Improvements Equipment Equipment Assets and Others in Progress Total
Cost
Balance at beginning of year = 252,241
P = 489,170
P = 6,863,611
P = 38,971
P = 68,746
P = 51,179
P = 419
P = 7,764,337
P
Acquisition through business combination –
net of accumulated depreciation
(see Note 33) 669,850 6,508,629 8,505,210 10,206 10,949 20,627 252,952 15,978,423
Additions 135,930 26,295 433,007 2,589 16,062 45,359 243,500 902,742
Transfer from asset held for sale (see Note 10) – – 152,376 – – – – 152,376
Transfer to right of use assets (see Note 16) (116,810) – – – – – – (116,810)
Insurance claims – – – – – – (222,789) (222,789)
Disposals and retirement – (209,095) (55,225) (23,102) (23) (87) – (287,532)
Reclassification – 1,538 94,467 – – – (96,005) –
Balance at end of year 941,211 6,816,537 15,993,446 28,664 95,734 117,078 178,077 24,170,747
Accumulated depreciation
Balance at beginning of year 1,236 363,926 1,466,138 20,642 33,968 40,859 – 1,926,769
Depreciation (see Note 27) – 179,136 584,306 8,392 5,199 49,813 – 826,846
Disposals and retirement – (170,389) (50,983) (17,564) (14) (82) – (239,032)
Transfer from asset held for sale (see Note 10) – – 15,299 – – – – 15,299
Balance at end of year 1,236 372,673 2,014,760 11,470 39,153 90,590 – 2,529,882
Accumulated impairment loss
Balance at beginning and end of year – 933 75,672 – – – – 76,605
Net Book Value = 939,975
P = 6,442,931
P = 13,903,014
P = 17,194
P = 56,581
P = 26,488
P = 178,077
P = 21,564,260
P

*SGVFS039610*
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2018
Tools and Other Office Furniture,
Land and Land Buildings and Machinery and Transportation Miscellaneous Equipment Construction
Improvements Improvements Equipment Equipment Assets and Others in Progress Total
Cost
Balance at beginning of year =252,241
P =476,418
P =6,881,019
P =38,869
P =54,662
P =60,750
P =419
P =7,764,378
P
Additions – 10,907 83,571 2,891 15,705 2,070 4,536 119,680
Disposals – – – (2,789) (1,125) (11,525) – (15,439)
Deconsolidation – – (6,083) – – (116) (4,536) (10,735)
Insurance claims – – (90,146) – – – – (90,146)
Transfer to asset held for sale (see Note 10) – – (4,750) – (496) – – (5,246)
Transfer from investment property (see Note 14) – 1,845 – – – – – 1,845
Balance at end of year 252,241 489,170 6,863,611 38,971 68,746 51,179 419 7,764,337
Accumulated depreciation
Balance at beginning of year 1,236 288,599 1,175,938 15,942 29,201 47,589 – 1,558,505
Depreciation (see Notes 27) – 75,327 290,354 7,489 6,388 4,813 – 384,371
Disposals – – – (2,789) (1,125) (11,518) – (15,432)
Deconsolidation – – (154) – – (25) – (179)
Transfer to asset held for sale (see Note 10) – – – – (496) – – (496)
Balance at end of year 1,236 363,926 1,466,138 20,642 33,968 40,859 – 1,926,769
Accumulated impairment loss
Balance at beginning of year – – 75,672 – – – – 75,672
Allowance for impairment loss – 933 1,133 – – – – 2,066
Transfer to asset held for sale (see Note 10) – – (1,133) – – – – (1,133)
Balance at end of year – 933 75,672 – – – – 76,605
Net Book Value =251,005
P =124,311
P =5,321,801
P =18,329
P =34,778
P =10,320
P =419
P =5,760,963
P

*SGVFS039610*
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Sale of Properties
The Parent Company executed Deeds of Sale with PHINMA Inc. and Mariposa Properties, Inc. (MPI)
on July 4, 2019 for the sale of the Group’s share in the Mezzanine, 3rd and 11th floors of the PHINMA
Plaza amounting to =P316.97 million, resulting in a gain of P
=286.75 million.

Land Held under Finance Leases

The Group entered into finance leases of land in Barangay Suclaran and Cabano in San Lorenzo,
Guimaras and Barangay Zaldivar and Sawang in Buenavista, Guimaras to facilitate the construction
of the San Lorenzo wind farm (see Note 35). The carrying amount of land held under finance leases,
included under “Land and land improvements”, as at December 31, 2018 amounted to
=116.81 million. These were reclassified to right-of-use assets as at January 1, 2019 upon adoption
P
of PFRS 16.

Mortgaged Property and Equipment

PHINMA Renewable’s wind farm with carrying value of P =4,106.00 million and =
P4,310.28 million as
at December 31, 2019 and 2018, respectively, included under “Machinery and equipment” account is
mortgaged as security for the P
=4.30 billion term loan (see Note 19).

Pledges of Shares, Assignment of Receivables and all Material Contracts

As security for the timely payment, discharge, observance and performance of the secured
obligations, AC Energy, ACEPH, and Axia, to the extent of their ownership interests in SLTEC,
pledged shares owned by it, whether now owned or existing or hereafter acquired to the Security
Trustee for the benefit of the Lenders and the Security Trustee.

In addition, SLTEC, and AC Energy, ACEPH and/or APHPC, as the relevant Sponsor under the New
Omnibus Agreement, have assigned, conveyed and transferred unto the Security Trustee, for the
benefit of the Lenders and the Security Trustee, all of its respective rights, title and interest in, to and
under the following: (i) all monies standing in the cash flow waterfall accounts, with respect to
SLTEC; (ii) all project receivables, with respect to SLTEC; (iii) the proceeds of any asset and
business continuity insurance obtained by SLTEC; (iv) any advances or subordinated loans, if any,
granted by any of AC Energy, ACEPH and APHPC to SLTEC; and (v) the proceeds, products and
fruits of those provided under items (i) to (iv) hereof.

SLTEC, as continuing security for the timely payment and discharge of the secured obligations, has
also assigned, conveyed and transferred to the Security Trustee all of its rights, title and interests in
and to the Project Agreements to which it is a party. Project agreements include: (i) power purchase
agreements; (ii) all fuel purchase agreements, together with corresponding performance guarantees
and bonds having a total amount of at least =P25.00 million per agreement; (iii) all operations and
maintenance agreements, together with corresponding performance guarantees and bonds, for the
operation and maintenance of the power plant; (iv) all asset and business continuity insurance
obtained in relation to the power plant and its operation; (v) government approvals obtained by
SLTEC in relation to the ownership, operation and maintenance of the power plant, except
governmental approvals covered by excluded assets; and (vi) any and all other material contracts as
may be agreed upon by SLTEC and the Lenders.

Power Plant Rehabilitation

The Group has contractual commitments and obligations for the rehabilitation of One Subic Power
amounting to =
P550.00 million as of December 31, 2019.

*SGVFS039610*
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SLTEC’s Contract for the Design and Supply of Hip Rotor with Harbin Electric International Co.,
Ltd.,(HEI)
On July 29, 2019, SLTEC engaged the services of HEI to design, fabricate, and supply SLTEC with
the brand-new spare HIP rotor and it is expected to be completed and delivered within the next seven
(7) months. SLTEC recognized the advance payment made on September 19, 2019.

Insurance Claims
In 2019, SLTEC recognized a claim amounting to = P222.79 million as compensation for the property
damage covered by industrial all risk insurance. This was deducted from the construction-in-
progress.

In 2018, ACEPH recognized a claim amounting to = P90.15 million for the net insurance proceeds from
third parties for the reimbursement of capital expenditures relating to the repair of Power Barge 103
as a result of damages due to typhoon.

12. Investments in Associates and Joint Ventures

Details of this account as at December 31 are as follows:

Percentage
of Ownership 2019 2018
Investments in associates:
MGI 25.00 =685,133
P =630,173
P
Asia Coal Corporation (Asia Coal)* 28.18 631 631
685,764 630,804
Interests in joint ventures:
ACTA 50.00 37,401 36,676
SLTEC** 45.00 – 3,438,199
PHINMA Solar 50.00 – 217,005
37,401 3,691,880
=723,165
P =4,322,684
P
**Shortened corporate life to October 31, 2009. As at March 25, 2020, Asia Coal is still in the process of securing a tax clearance with the
BIR in connection with the filing with the SEC of its application for dissolution.
**45% interest as of December 31, 2018 and as of June 30, 2019, prior to consolidation of SLTEC (see Notes 1 and 33)

The movements of the investments under the equity method are as follows:
2019 2018
Investments in associates and joint ventures
Acquisition costs:
Balance at beginning of year P3,911,572
= =3,675,257
P
Effect of a business combination (see Note 33) (3,224,723) –
Sale of joint venture interest (225,000) –
Additions – 236,315
Balance at end of year 461,849 3,911,572
Accumulated equity in net earnings:
Balance at beginning of year 397,633 370,086
Equity in net earnings (losses) for the year (24,461) 532,460
Dividends received (25,000) (504,913)
Sale of joint venture interest 8,027 –
Effect of a business combination (see Note 33) (91,217) –
Balance at end of year 264,982 397,633

(Forward)

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2019 2018
Accumulated share in OCI:
Balance at beginning of year (P
=2,193) (P
=3,413)
Share in other comprehensive income 86 1,220
Balance at end of year (2,107) (2,193)
Accumulated impairment losses (1,559) (1,559)
Other equity transactions:
Balance at beginning of year 17,231 17,231
Effect of a business combination (see Note 33) (17,231) –
Balance at end of year – 17,231
Total investments =723,165
P =4,322,684
P

Investment in an Associate

MGI
The Parent Company subscribed to 25% of the capital stock of MGI which was incorporated and
registered with the SEC on August 11, 2010, to implement the integrated development of the
Maibarara geothermal field in Calamba, Laguna and Sto. Tomas, Batangas for power generation.
MGI’s registered business address is 7th F JMT Building, ADB Avenue, Ortigas Center, Pasig City.

The summarized financial information of MGI, a material associate of the Parent Company, and the
reconciliation with the carrying amount of the investments and advances in the consolidated financial
statements are shown below:

Summarized Statement of Financial Position as of December 31:

2019 2018
Current assets P
=1,101,966 P997,778
=
Noncurrent assets 4,796,719 4,860,066
Total assets 5,898,685 5,857,844
Current liabilities (496,559) (450,925)
Noncurrent liabilities (2,661,593) (2,887,058)
Net assets 2,740,533 2,519,861
Proportion of the Parent Company’s ownership 25% 25%
Carrying amount of the investment P
=685,133 =629,965
P

Summarized Statement of Income for the Years Ended December 31:

2019 2018 2017

Revenue from sale of electricity =1,139,163
P =1,110,004
P P832,084
=
Cost of sale of electricity 574,002 507,587 384,475
Gross profit 565,161 602,417 447,609
Interest expense - net (203,611) (181,323) (129,147)
General and administrative expenses (59,978) (55,341) (35,163)
Other income - net 19,255 10,843 4,976
Income before income tax 320,827 376,596 288,275
Provision for (benefit from)
income tax 154 (903) 163
Net income 320,673 377,499 288,112
Other comprehensive income (loss) – 346 (7,772)
Total comprehensive income =320,673
P =377,845
P =280,340
P

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On September 16, 2011, the Parent Company entered into an ESA with MGI under which the
Parent Company will purchase the entire net electricity output of MGI’s power plant for a period of
20 years at an agreed price, subject to certain adjustments (see Note 35). Commercial operations of
MGI started in February 2014.

The Parent Company is also a Project Sponsor for MGI’s P =2.40 billion Term Loan Facility for the
20 MW Maibarara Geothermal Power Plant and = P1.40 billion Project Loan Facility for its 12 MW
Maibarara Expansion Project. In the event of a default of MGI, as a Project Sponsor, the
Parent Company is obligated to:

· assign, mortgage or pledge all its right, title and/or interest in and its shares of stocks in MGI,
including those that may be issued in the name of the Parent Company;
· assign its rights and/or interests in the Joint Venture Agreement executed on May 19, 2010 with
PNOC Renewables Corporation;
· secure the debt service reserve account (DSRA) with a standby letter of credit, when reasonably
required and pursuant to the terms of the facilities;
· guarantee the completion of the projects and for this purpose, the Parent Company undertakes to:
i. contribute to MGI its pro-rata share of the funds necessary to enable MGI to complete the
construction of its projects; and,
ii. make cash advances or otherwise arrange to provide MGI with funds sufficient to complete
construction, in the event that MGI does not have sufficient funds available to cover the full
cost of constructing and completing the project due to costs overrun.

The loan covenants covering the outstanding debt of MGI include, among others, maintenance of
debt-to-equity and debt-service ratios. As at December 31, 2019 and 2018, MGI is in compliance
with the said loan covenants.

In 2015, the construction of Phase 2 of the project commenced. MGI successfully commissioned the
12-megawatt (MW) Maibarara Geothermal Power Plant-2 (MGPP-2) and successfully synchronized
to the Luzon grid on March 9, 2018. On April 30, 2018, MGPP-2 commenced its commercial
operations.

The Parent Company received dividend amounting to = P25.00 million and =P80.25 million in 2019 and
2018, respectively. It also invested additional capital of =
P12.50 million in 2018.

Interests in Joint Ventures

SLTEC
The summarized financial information of SLTEC, a material joint venture of the Parent Company,
and the reconciliation with the carrying amount of the investment in the consolidated financial
statements are shown below:
Summarized Statement of Financial Position

December 31,
2018
Current assets P4,219,021
=
Noncurrent assets 16,497,811
Current liabilities (3,024,932)
Noncurrent liabilities (10,098,160)
Net assets 7,593,740

(Forward)

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December 31,
2018
Proportion of the Parent Company’s ownership 45%
Parent Company’s share in the net assets =3,417,183
P
Other adjustments* 21,016
Carrying amount of investment =3,438,199
P
*Alignment of accounting policies on excess revenue over costs of testing and commissioning.

Additional Information

December 31,
2018
Cash and cash equivalents =1,337,712
P
Current financial liabilities* 1,556,016
Noncurrent financial liabilities 10,082,253
*Excluding trade and other payables and provision.

Summarized Statement of Income

December 31, December 31,

2018 2017
Revenue from sale of electricity =6,270,087
P =8,248,140
P
Cost of sale of electricity 4,674,873 5,163,660
Gross profit 1,595,214 3,084,480
General and administrative expenses (109,274) (152,125)
Interest expenses - net (749,724) (868,554)
Other income - net 346,691 70,302
Income (loss) before income tax 1,082,907 2,134,103
Provision for (benefit from) income tax (104,953) 13,421
Net income (loss) 977,954 2,120,682
Other comprehensive income (loss) – net 1,976 (2,171)
Total comprehensive income (loss) =979,930
P 2,118,511

Additional Information

2018 2017
Depreciation and amortization =781,075
P =742,782
P
Interest income 68,776 49,983
Interest expense 749,724 868,554

Dividends earned from SLTEC amounted to =

P492.42 million in 2018.

On November 5, 2019, the Parent Company signed a deed of assignment with AC Energy to transfer
AC Energy’s rights to purchase 20% ownership stake of Axia. As a result of the assignment, the
Parent Company’s interest in SLTEC increased from 45% to 65%. SLTEC ceased to be a joint
venture and became a subsidiary. The Parent Company accounted for the business combination using
the pooling-of-interests method which resulted in the consolidation of SLTEC from July 1, 2019.
The Parent Company’s share in the net losses of SLTEC for the period ended June 30, 2019
amounted to =P108.45 million.

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PHINMA Solar
On December 11, 2018, the Parent Company and UGC, a subsidiary of PHINMA Inc., entered into a
Deed of Sale for the sale of the Parent Company’s 50% interest to UGC amounting to = P225 million.
The sale resulted in a gain of P
=5.83 million. As a result of the sale transaction, PHINMA Solar
ceased to be a subsidiary as at December 31, 2018. In 2018, PHINMA Solar completed installation
and commenced operations of two (2) solar panel projects.

On June 19, 2019, the Parent Company sold its remaining 50% interest in PHINMA Solar to
PHINMA Corporation for = P218.3 million which resulted in a gain of =
P1.38 million. The Parent
Company recognized a share in PHINMA Solar's net loss amounting to = P0.03 million for the period
January 1 to June 19, 2019

The summarized financial information of PHINMA Solar, a material joint venture of the Parent
Company, are shown below:

Summarized Statement of Financial Position as of December 31, 2018:

2018
Current assets =390,840
P
Noncurrent assets 45,856
Current liabilities (2,463)
Noncurrent liabilities (224)
Net assets 434,009
Proportion of the Parent Company’s ownership 50%
Parent Company’s share in the net assets 217,005
Carrying amount of investment =217,005
P

Additional Information

2018
Cash and cash equivalents =213,103
P
Investments held for trading 81,612
Current financial liabilities 2,463
Noncurrent financial liabilities 224

Summarized Statement of Income

2018
Oct – Dec
Revenue from sale of electricity =467
P
Cost of sale of electricity 183
Gross profit 284
General and administrative expenses (7,755)
Other income - net 480
Loss before income tax (6,991)
Benefit from income tax 2,439
Net loss (4,552)
Other comprehensive income - net 231
Total comprehensive loss (P
=4,321)

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Additional Information

2018
Oct – Dec
Depreciation and amortization =190
P
Interest income 1,659

13. Financial assets at FVOCI

This account consists of the following:

2019 2018
Shares of stock:
Listed P
=21 =137,096
P
Unlisted – 109,399
Golf club shares 1,230 11,500
P
=1,251 =257,995
P

The movements in net unrealized gain on financial assets at FVOCI for the years ended December 31
are as follows:

2019 2018
Balance at beginning of year - net of tax P
=59,772 =–
P
Changes upon adoption of PFRS 9 - net of tax:
Unrealized gain on AFS equity securities
transferred to FVOCI – 85,924
Remeasurement gain of unlisted equity
securities (Note 3) – 13,643
Unrealized gain on investment in a UITF closed
to retained earnings due to change in
classification (Note 3) – (54)
Unrealized loss (gain) recognized in other
comprehensive income (27,369) 2,106
Cumulative unrealized gain on disposal of equity
instruments at FVOCI transferred to retained
earnings (40,532) (41,847)
Balance at end of year - net of tax (P
=8,129) P59,772
=

As at December 31, 2019, some of the Group's financial assets at FVOCI were sold in relation to the
purchase agreement between AC Energy and PHINMA in which the latter have excluded certain
assets which it intends to keep within the PHINMA Group. The "excluded assets" pertains to the
following: 50% share in PHINMA Solar, Guimaras Power Plant, various PPE and some of the
Group's financial assets at FVOCI. Sale and transfer of the said assets were approved by the Board of
Directors last January 7, 2019.

Dividend income earned from financial assets at FVOCI amounted to P =7.59 million, =
P9.12 million in
2019 and 2018, respectively. Available for sale investments earned dividend income amounted to
=P8.48 million in 2017.

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14. Investment Properties

As at December 31,2019 and 2018, this account pertains to land amounting to =

P13.09 million, which
is stated at cost.

Below is the rollforward of investment properties for the year ended December 31,2018.

2018
Property and
Land Equipment Office Unit Total
Cost:
Balance at January 1,2018 =13,085
P =106,902
P P–
= =119,987
P
Transfer to PPE (see Note 11) – (9,005) – (9,005)
Transfer to asset held for sale
(see Note 10) (97,897) (97,897)
Balance at December 31,2018 13,085 – – 13,085
Less accumulated depreciation
Balance at January 1,2018 P–
= =69,072
P P–
= =69,072
P
Transfer to PPE (see Note 11) – (7,160) – (7,160)
Depreciation for the year ended
December 31,2018
(see Note 27) – 5,274 – 5,274
Transfer to asset held for sale
(Note 10) – (67,186) – (67,186)
Balance at December 31,2018 – – – –
Net book value =13,085
P =–
P =–
P =13,085
P

The fair value of the land is based on the latest valuation as at June 24, 2018 by an independent firm
of appraisers amounted to = P13.98 million. Management expects that there is no significant change in
fair value as at December 31, 2019. The investment property is valued at a weighted average of
=1,732/sqm given the range of inputs between P
P =800 to =P2,500.

The fair value of the land is arrived using the Market Data Approach which estimates the value of the
land based on sales and listings of comparable property registered within the vicinity. This technique
requires the adjustments of comparable property by reducing reasonable comparative sales and
listings to a common denominator. This is done by adjusting the differences between the subject
property and those actual sales and listings regarded as comparable. The properties used as bases of
comparison are situated within the immediate vicinity of the land. The comparison was premised on
the factors of location, size and shape of lot, time element and bargaining allowance.

Revenue from investment properties amounted to nil, =P16.44 million and =P18.24 million in 2019,
2018 and 2017, respectively, which was recognized in the consolidated statement of income, while
related direct costs and expenses amounted to P
=0.01 million, P
=15.68 million and =
P17.91 million in
2019, 2018 and 2017, respectively, which was included as part of under “Cost of sale of electricity”
account in the consolidated statement of income.

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15. Goodwill and Other Intangible Assets

Changes in goodwill and other intangible assets for the years ended December 31, 2019 and 2018 are
as follows:
2019
Deferred
Exploration Leasehold
Goodwill Costs Rights Total
Cost:
Balance at beginning of year =234,152
P =136,976
P =99,839
P =470,967
P
Cash calls – 19,426 – 19,426
Write-off – (48,263) – (48,263)
Reclassification to right-of-use
assets (see Note 3) – – (99,839) (99,839)
Balance at end of year 234,152 108,139 – 342,291
Accumulated depreciation:
Balance at beginning of year =–
P =–
P =74,880
P =74,880
P
Reclassification to right-of-use
assets (see Note 3) – – (74,880) (74,880)
Balance at end of year – – – –
Accumulated impairment:
Balance at beginning of year – 75,868 – 75,868
Provisions for the year
(see Note 25) – 34,493 – 34,493
Write-off – (48,263) – (48,263)
Balance at end of year – 62,098 – 62,098
Net book value =234,152
P =46,041
P =–
P =280,193
P

2018
Deferred
Exploration Leasehold
Goodwill Costs Rights Total
Cost:
Balance at beginning of year =234,152
P =132,450
P =99,839
P =466,441
P
Cash calls – 4,526 – 4,526
Balance at end of year 234,152 136,976 99,839 470,967
Accumulated depreciation:
Balance at beginning of year – – 58,690 58,690
Amortization (see Note 27) – – 16,190 16,190
Balance at end of year – – 74,880 74,880
Accumulated impairment:
Balance at beginning of year – 27,605 – 27,605
Provisions for the year
(see Note 25) – 48,263 – 48,263
Balance at end of year – 75,868 – 75,868
Net book value =234,152
P =61,108
P =24,959
P =320,219
P

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Leasehold Rights and Goodwill

The leasehold rights and goodwill arose from PHINMA Power’s acquisition of the entire outstanding
shares of stocks of One Subic Power in 2014. One Subic Power and SBMA have an existing
Facilities Lease Agreement (FLA) for a period of five (5) years up to July 19, 2020, as amended, with
the option to extend subject to mutually acceptable terms and conditions. On December 21, 2017, the
SBMA Board approved and ratified the amendment of the Facilities Lease Agreement extending the
lease term until July 19, 2030. As at January 1, 2019, the leasehold rights were reclassified as
right-of-use assets as a result of adoption of PFRS 16 (see Note 3).

Impairment Testing of Goodwill

The Parent Company performs its annual impairment test in December and when circumstances
indicated that the carrying value may be impaired. The key assumptions used to determine the
recoverable amount for the different cash generating units were disclosed in the annual consolidated
financial statements as of December 31, 2019 and 2018 (see Note 4). The recoverable amount of the
CGU was determined using the value-in-use approach calculated using all cash flow projections
related to CGU based on the financial budgets and forecasts approved by the BOD, which
management believes are reasonable and are management’s best estimate of the ranges of economic
conditions that will exist over the forecast period.

The recoverable amount exceeded the carrying amount of the CGU and, as a result, no impairment
was recognized for the years ended December 31, 2019 and 2018.

Key assumptions used in the value-in-use calculations

The calculations of value-in-use for the CGUs are most sensitive to the following assumptions:

· Forecasted revenue growth - Revenue forecasts are management’s best estimates considering
factors such as historical/industry trend, target market analysis, government regulations and other
economic factors.

· EBITDA margin - It is a measure of a firm's profit that includes all expenses except interest,
depreciation and income tax expenses. It is the difference between operating revenues and
operating expenses. EBITDA was adjusted for tax, depreciation, interest expenses and changes
in net working capital and maintenance capital expenditures in arriving in the free cash flow

· Discount rates - represent the current market assessment of the risks specific to each CGU, taking
into consideration the time value of money and individual risks of the underlying assets that have
not been incorporated in the cash flow estimates. The discount rate calculation is based on the
specific circumstances of the Group and its operating segments and is derived from its weighted
average cost of capital (WACC). The WACC takes into account both debt and equity. The cost
of equity is derived from the expected return on investment. The cost of debt is based on the
interest-bearing borrowings the Group is obliged to service. Segment-specific risk is
incorporated by applying individual beta factors. The beta factors are evaluated annually based
on publicly available market data. Adjustments to the discount rate are made to factor in the
specific amount and timing of the future tax flows in order to reflect a pre-tax discount rate.

An increase of 100 basis points in the Group’s pre-tax discount rate will not result in an impairment
of goodwill.

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Deferred Exploration Costs

Details of deferred exploration costs are as follows:
2019 2018
Petroleum and gas:
SC 55 (Southwest Palawan) P
=23,063 =6,817
P
SC 6 (Northwest Palawan)
Block A 22,978 22,568
Block B 4,892 4,892
SC 50 Northwest Palawan 11,719 11,719
SC 52 (Cagayan Province) 10,994 10,994
SC 51/Geophysical Survey and Exploration
Contract (GSEC) No. 93 (East Visayas) – 32,666
SC 69 (Camotes Sea) – 15,597
Geothermal - SC 8 (Mabini, Batangas) 34,493 31,723
108,139 136,976
Allowance for impairment loss (62,098) (75,868)
Net book value P
=46,041 =61,108
P

The foregoing deferred exploration costs represent the Group’s share in the expenditures incurred under
petroleum SCs with the Department of Energy (DOE). The contracts provide for certain minimum work
and expenditure obligations and the rights and benefits of the contractor. Operating agreements govern
the relationship among co-contractors and the conduct of operations under an SC.

The following summarizes the status of the foregoing projects:

Palawan55

a. SC 55 (Southwest Palawan)

On June 14, 2016, the DOE extended the term of SC 55 until December 23, 2017.

On November 21, 2016, Otto Energy and Otto Energy Philippines notified the DOE of their
withdrawal from SC 55.

On November 22, 2017, Palawan55 notified the DOE of its willingness to assume its pro-rata,
post- adjustment share (37.50%) amounting to US$64,613 of Otto Energy’s outstanding training
fund obligation of US$172,300 in conjunction with the DOE’s approval of the assignment of
interests and favorable consideration for a reasonable extension of the moratorium period that
would allow execution of the committed technical studies.

On March 26, 2018, the DOE approved the transfer of participating interests from Otto Energy to
its Partners, Palawan55, Century Red and Pryce Gases, Inc. Palawan55’s 6.82% participating
interest in SC 55 was adjusted to 37.50% upon the DOE’s approval of the withdrawal of Otto
Energy. The Moratorium Period until April 26, 2019 was also approved with a budget of
US$478,750 for 3D seismic reprocessing and Quantitative Inversion Study.

On August 23, 2018, Palawan55 awarded the 3D Marine PreSTM and PreSDM Reprocessing and
Quantitative Services Contract to a third party. The Notice to Proceed was issued on
September 10, 2018. Said work program is currently ongoing.

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On November 19, 2018, Palawan55 requested for an extension of the SC 55 Moratorium Period
up to December 31, 2019 due to the fact that the Quantitative Interpretation Study and Resource
Assessment will only be completed after April 2019. The work program was completed in
October 2019. Palawan55 is currently interpreting the reprocessed seismic data to generate
additional prospects in the Greater Hawkeye Area and to refine the mapping of the CINCO
Prospect. The DOE acknowledged the receipt of this request from Palawan55 on November 23,
2018. The said request is still pending approval as at March 25, 2020.

In December 2018, a third party Partner in the consortium advanced its payment for its share in
the 2019 work program amounting to US$69,669 or = P3.66 million. This shall be applied to the
third party’s share in the subsequent expenditure of SC 55. Palawan55 also accrued its share in
the training obligations for SC55 payable to the DOE amounting to P =3.49 million.

On August 9, 2019, the SC 55 Consortium formally notified the DOE that is directly proceeding
into the Appraisal Period effective August 26, 2019. The Consortium committed to drill one (1)
deepwater well within the first two years of the Appraisal period and re-interpretation of legacy
seismic data over the rest of the block which may lead to the conduct of new 3D seismic
campaign to mature other identified prospects to drillable status.

On September 26, 2019, Palawan55 informed the DOE of Century Red Pte. Ltd. Withdrawal
from SC 55 and accordingly requested for the approval of the transfer of Century Red’s entire
37.50% participating interest.

On February 13, 2020, Palawan55 received DOE’s approval on the transfer of the 37.50%
participating interest of Century Red in SC 55. After careful review and evaluation of DOE,
Palawan55 is found to be technically, financially and legally qualified to assume the participating
interests of Century Red. Palawan55’s participating interest in SC 55 is adjusted from 37.50% to
75.00%.

No impairment was recognized for SC 55 in 2019 and 2018 as the Group believes that the related
deferred exploration costs are recoverable.

Enexor
b. SC 6 (Northwest Palawan)

Block A
On December 20, 2016, the consortium submitted to the DOE its proposed 2017 work program
consisting of advanced geophysical studies. On February 13, 2017, the program was approved by
the DOE. The work program of advanced seismic data reprocessing and quantitative seismic
inversion study was completed in December 2017. The studies yielded significant improvement
in the imaging of complex and deeper geological structures.

On January 8, 2018, the consortium submitted to the DOE its proposed 2018 work program
composed of seismic interpretation and mapping and integration of quantitative inversion results
that would serve as input to preliminary well design and cost estimates.

The Consortium completed its 2018 work program and said undertaking have improved the
resource evaluation of the mapped leads and prospects in the area.

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On December 18, 2018, the Partners have approved and the Operator, Philodrill Corporation
(Philodrill), submitted to the DOE the proposed 2019 SC 6A Work Program and Budget
amounting to US$314,116 composed of geological and geophysical evaluation and engineering
projects. The same was approved by the DOE on January 23, 2019.

No impairment was recognized for SC 6 Block A in 2019 and 2018 as the Group believes that the
related deferred exploration costs are recoverable.

Block B
Enexor holds 7.78% and 14.063% participating interests in Block A and Block B, respectively.
SC 6 is valid until February 28, 2024 subject to fulfillment of work commitments for each of the
three 5-year terms comprising the 15-year extension period of SC 6 in respect of Block A and B
and payment of training assistance, development assistance and scholarship funds to the DOE.

On February 20, 2017, Enexor gave notice to the consortium of relinquishment of its 14.063%
participating interest in SC 6 Block B and the Operating Agreement, but said relinquishment shall
not include its 2.475% carried interest. The retained carried interest would entitle the Group for a
share in the gross proceeds from any production in the block, once all exploration costs have been
recovered. The carried interest will be valued upon establishment of the commercial viability of
the project.

In 2017, the Group recognized full provision for probable loss on SC 6B amounting to P
=4.89 million
due to the Group’s relinquishment of its participating interest.

On April 12, 2018, the transfer of participating interest from Enexor to SC6 Block B continuing
parties was approved by the DOE.

c. SC 50 (Northwest Palawan)

In 2013, Enexor commenced negotiations with Frontier Energy Limited (Frontier Energy), the
Operator, regarding a Farm-in Agreement that would provide for the Group’s acquisition of 10%
participating interest in SC 50.

Subject to execution of said Farm-in Agreement, Enexor has committed to subscribe to

136,000,000 in Frontier Oil shares through the latter’s planned initial public offering.

On September 1, 2014, the Parent Company made advance payment to Frontier Oil amounting to
=20.00 million pursuant to the Memorandum of Agreement with Frontier Energy and Frontier Oil
P
dated August 22, 2014 subject to execution of a Farm-in Agreement and Loan Agreement among
the parties not later than 30 days from date of execution of the MOA. The advances are due
24 months after the release of the funds. In the event a Loan Agreement for P
=136.00 million is
signed between the Group and Frontier Oil, the advances shall be considered as initial drawdown
on the Loan.

On October 16, 2014, Enexor signed the following agreements providing for its acquisition of
10% participating interest in SC 50:

1. Farm-in Agreement with Frontier Energy and Frontier Oil

2. Deed of Assignment with Frontier Energy
3. Loan Agreement with Frontier Oil

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Frontier Oil, the Operator, applied for a Force Majeure in view of the unilateral cancellation of its
rig contract by the other partners in the consortium.

On October 5, 2015, the DOE denied the Operator’s request and, consequently, ruled that the
contract effectively expired in March 2015. On October 20, 2015, Frontier Oil contested DOE’s
position and engaged the DOE in discussions aimed at a mutually acceptable resolution of the
issue.

In 2016, the advances to Frontier Oil amounting to =

P20.00 million was fully provided with an
allowance for credit losses account (see Note 7) and the deferred exploration costs amounting to
=11.72 million was fully provided with an allowance for probable losses, due to the expiration of
P
the SC’s term and denial by the DOE of the request for Force Majeure.

In January 2016, Frontier Oil requested a 2-year moratorium on contract obligations. A

subsequent letter was sent to the DOE, dated December 14, 2016, requesting for reconsideration
of the termination of SC 50.

As at March 25, 2020, approval of the assignment of 10% participating interest in SC 50 to

Enexor remains pending with the DOE.

d. SC 51/GSEC 93 (East Visayas)

On May 15, 2018, Enexor notified the DOE of its withdrawal from SC 51 and advised the latter
that it would no longer pursue its entitlement to Otto Energy’s participating interest under the
Deed of Undertaking dated March 3, 2017. The DOE acknowledged this formal notification
from Enexor on May 23, 2018.

On June 1, 2018, the DOE approved the transfer of Otto Energy’s participating interests in SC 51
to the Filipino Partners. Enexor’s participating interest was adjusted from 6.67% to 33.34% after
the DOE’s approval of the withdrawal of Otto Energy.

On July 4, 2018, the SC 51 Consortium, noting that the attendant requested conditions that would
allow full implementation of the proposed work program were not covered in the said approval
(i.e., SC 51 term extension, revision of work program), notified the DOE of their decision to
relinquish SC 51 block, to withdraw from SC 51 and to waive their rights to Otto Energy’s
interest.

The SC 51 Consortium met with the DOE on several occasions to craft the best way forward in
SC 51. On December 17, 2018, as had been agreed in a number of meetings, the Consortium
provided further justification for waiver to pay the outstanding financial obligation of Otto
Energy, as executed in the Deed of Undertaking, given that the aforementioned conditions were
not met.

In 2018, Enexor recognized full provision for probable loss on SC 51 amounting to P=32.67 million
due to deemed expiration of the exploration period. On July 1, 2019, Enexor received the DOE’s
approval of the relinquishment of SC51. Consequently, the deferred exploration costs and related
allowance for probable losses of SC51 were written off.

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e. SC 69 (Camotes Sea)

On June 4, 2018, the SC 69 Consortium notified the DOE of its relinquishment of SC 69 block in
view of the strong oppositions to the Project from various stakeholders, including several Local
Government Units and Non-Government Organizations, making the conduct of petroleum
exploration business in the area very challenging, if not impossible.

In 2018, Enexor recognized full provision for probable loss on SC 69 amounting to P

=15.60 million
due to vigorous opposition of stakeholders and recent issuances of concerned LGUs declaring the
Visayan Sea as a protected area and marine reserve. On July 29, 2019, Enexor received DOE’s
approval of the relinquishment of SC69. Consequently, the deferred exploration costs and related
allowance for probable losses of SC69 were written off.

In 2018, the Group neither incurred nor capitalized share in various expenses to deferred exploration
costs due to its operatorship in SC 69. No similar costs were incurred and capitalized in 2019.

ACEPH

f. SC 52 (Cagayan Province)

In 2016, the Parent Company assessed and fully provided for probable losses for deferred
exploration costs pertaining to SC 52 amounting to =
P10.99 million due to the expiration of its
terms and subsequent denial of the DOE of the request for Force Majeure.

In December 2016, Frontier Oil, as instructed by the DOE, submitted certain documents in
support of its request for Force Majeure. As at March 25, 2020, the requests for Moratorium and
appeal for contract reinstatement are still pending DOE’s approval.

g. SC 8 (Batangas - Mabini Geothermal Service Contract)

In 2018, the Consortium held continuing Information and Electronic Campaigns (IEC) together
with the DOE and PHIVOLCS to obtain support from the local government units towards lifting
of the Cease-and-Desist Order.

On July 3, 2018, the Parent Company formally notified Basic Energy, the Operator, of its
withdrawal from the service contract and Joint Operating Agreement (JOA) for the block.

In August 2018, Basic Energy proposed to conduct the forward drilling program on its own,
“Operation by Fewer than all the Parties: under the JOA” and carry the Parent Company’s share
of attendant costs. The Parent Company expressed its willingness to consider the said proposal
and requested Basic Energy’s key terms for the Parent Company’s consideration.

In June 2019, the Parent Company decided to push through with the withdrawal from the SC and
JOA. As at December 31, 2019, the Parent Company recognized full provision for probable loss
on SC 8 amounting to =P34.49 million.

Pililia Hydropower Service Contract (HSC) (Rizal)

The Parent Company requested for the reinstatement of Pililia HSC and the DOE approved the
reinstatement until July 7, 2016, subject to certain conditions.

The Parent Company also requested a three-year extension of the pre-development stage of the
service contract and as at March 25, 2020, is still waiting for the response from the DOE.

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16. Right-of-Use Assets

The rollforward analysis of this account follows:

Right-of-Use Assets
Land and Office
Easement Land and Space and Leasehold
Rights Power plants Parking Slots Rights Total
As at January 1, 2019 =167,399
P =356,091
P =–
P =24,959
P =548,449
P
New lease agreements – – 30,075 – 30,075
Acquired from SLTEC – – 12,032 – 12,032
Amortization expense (8,322) (30,743) (10,365) (16,190) (65,620)
As at December 31, 2019 =159,077
P =325,348
P =31,742
P =8,769
P =524,936
P

The Group’s Right-of-Use Asset arise from the lease agreements of the following entities:
· ACEPH - the rental of office space in 22nd Floor of Ayala Tower together with 8 parking slots.
· OSPGC – Facilities and Lease agreement with SBMA for the Land in Subic including the 116
MW Diesel Powerplant.
· PREC – Operating and Finance lease commitments from various land owners in Guimaras for
land, easement rights and right of way use to connect to the grid.
· SLTEC – the rental of office space in 8 Rockwell, Plaza Dr. Makati City.

The Group recognized rent expense from short-term leases of =

P0.25 million in 2019.

The Group elected to use the modified retrospective method to account for the transition provisions of
PFRS 16. The assessment led to computing the PV unpaid cashflows as of January 1, 2019 up to the
end of the lease term and then accounted any balance of prepaid rent or accrued rent to be closed out
as an addition to or deduction from to the Right-of-Use Asset account respectively.

There were no land or lease improvements noted. Each entity did not exercise or avail any renewal,
extension, or termination option.

No practical expedient was elected such as short-term lease or lease of low-value assets except for
PREC which used the short-term lease practical expedient which impact amounted to = P0.25 million.

At year-end, there was no indication of impairment on the Right-of-Use Asset of the Group.

17. Other Noncurrent Assets

2019 2018
Trade receivable (see Note 21) P
=1,123,511 =1,123,511
P
Receivables from third parties (see Note 7) 423,705 501,266
Advances to suppliers 292,113 –
Advances to affiliates 176,000 –
Deposits 109,419 102,346
Prepaid rent – 50,079
Balance at end of year P
=2,124,748 =1,777,202
P

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Noncurrent trade receivable (see Note 21) relate to receivable from the execution of the
Multilateral Agreement.

Due to its interpretation of the WESM Rules, PEMC allocates its uncollected receivables due from
power purchasers in the WESM to the generators which sold power to the WESM. On December 23,
2013, the Supreme Court (SC) issued a 60-day Temporary Restraining Order (“TRO”) enjoining the
Manila Electric Company (MERALCO) and the ERC from implementing the Automatic Generation
Rate Adjustment (AGRA) mechanism for the November 2013 billing period. The AGRA allows
automatic pass through of the cost of power purchased from WESM. In turn, MERALCO did not pay
PEMC a significant portion of its November and December 2013 power bills. PEMC in turn, did not
pay the Group the full amount of its electricity sales. On April 22, 2014, the SC extended indefinitely
the TRO it issued over the collection of the November 2013 power rate increase.

The ERC issued an Order (ERC Case No. 2014-021 MC) dated March 3, 2014 voiding the WESM
prices of November and December 2013 power bills. As directed by the ERC, PEMC recalculated
the regulated prices and issued WESM adjusted power bills in March 2014 which the Group recorded
resulting in an increase in receivables and net trading revenues.

Certain market players filed motions for reconsideration resulting in ERC’s issuance of another Order
dated March 27, 2014 for PEMC to provide market participants an additional forty-five (45) days, or
up to May 12, 2014 to settle their WESM power bills covering the adjustments for the period
October 26 to December 25, 2013. ERC extended the settlement of WESM power bills to a non-
extendible period of thirty (30) days up to June 11, 2014 which resulted in a Multilateral Agreement
where the WESM Trading Participants agreed to be bound to a payment schedule of six (6) months or
twenty-four (24) months subject to certain conditions. The Group signed the Agreement on
June 23, 2014. In 2016, the Group collected = P205.31 million, under the said Multilateral Agreement.
In June 2016, the 24-month period of repayment prescribed; hence, the Group provided an allowance
for doubtful accounts related to the receivables under the Multilateral Agreement amounting to
=13.75 million.
P

Receivables from third parties include interest-bearing receivables of ACEPH collectible until April
2021 and noninterest-bearing receivables from NGCP arising from the sale of transmission assets,
which are collectible annually within three (3) years from the date of sale, discounted using the PHP
BVAL Reference Rates on transaction date ranging from 2.14% - 4.56%. It includes also SLTEC’s
receivable from NGCP for the remaining uncollected consideration for the sale of the 230KV Salong
Switching Station and related assets in 2016. The receivable is noninterest-bearing and is expected to
be collected over five (5) years.

Advances to suppliers consist of advance payments for capital expenditures which will be capitalized
to property, plant and equipment once fully rendered by the suppliers.

Advances to affiliates consist of advances to Ingrid Power Holdings, Inc. (Ingrid) and SolarAce1
Energy Corp. (SolarAce1) amounting to = P150.00 million and =
P26.00 million, respectively, for the
purchase of shares (see Notes 31, 35 and 40).

Deposits include deposits to distribution utilities and noncurrent portion of the refundable security
deposit with SBMA.

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18. Accounts Payable and Other Current Liabilities

2019 2018
Nontrade P
=1,957,480 =192,154
P
Trade payables 961,726 519,505
Output VAT 427,752 144,366
Due to related parties (see Note 31) 190,062 801,165
Accrued interest expense (see Note 36) 137,618 79,297
Accrued expenses 66,798 121,534
Derivative liability (see Note 36) 21,060 –
Retention payables 2,050 1,096
Accrued directors’ and annual incentives (see Note 31) 50 –
Deferred revenue - current portion – 387,289
Finance lease obligations - current portion (see Note 35) – 14,803
Others 23,117 8,189
P
=3,787,713 =2,269,398
P

Accounts payable and other current liabilities are noninterest-bearing and are normally settled on
thirty (30) to sixty (60)-day terms.

Nontrade payables include liabilities for various purchases such as acquisition of 20% interest in
SLTEC (see Note 1) and additions to property, plant and equipment and spare parts.

Trade payables refer to liabilities to suppliers of electricity and fuel purchased by the Group.

Deferred revenue pertains to the upfront payment received from a customer in consideration of the
contract amendments and modifications. The deferred revenue was amortized over the remaining
term of the contract until December 2019.

Accrued expenses include insurance, sick and vacation leave accruals (see Note 30), station use, One
Subic Power variable rent in SBMA (see Note 35) and accruals for incentive pay.

Finance lease obligations refer to lease agreements entered into by the Group with individual land
owners. These leases have terms of twenty (20) to twenty-five (25) years (see Note 35).

Retention payables pertain to amounts retained from liabilities to suppliers and contractors.

Derivative liability pertains to coal swaps contracts with a bank used to hedge the risks associated
with changes in coal prices.

Others consist of liabilities to employees, statutory payables, deposit payables and installment
payable pertaining to BCHC’s acquisition of land.

The Group is a party to certain claims and assessments in the ordinary conduct of business. The
information usually required by PAS 37 is not disclosed on the ground that it can be expected to
prejudice the outcome or the Group’s position with respect to these matters.

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19. Loans
Long-term loans
As at December 31, this account consists of:

2019 2018
ACEPH long-term loans P
=8,634,812 =4,728,870
P
SLTEC long-term loans 10,870,683 –
PHINMA Renewable term-loan facility 1,531,734 1,644,743
21,037,229 6,373,613
Add premium on long-term loans (embedded
derivative) 2,429 4,247
Less unamortized debt issue costs 253,730 40,927
20,785,928 6,336,933
Less current portion of long-term loans (net of
unamortized debt issue costs) 593,847 265,460
Noncurrent portion P
=20,192,081 =6,071,473
P

Movements in derivatives and debt issue costs related to the long-term loans follow:
Debt
Derivatives Issue Costs
As at December 31, 2017 =6,009
P =45,482
P
Additions – 6,975
Amortization/accretion for the year* (1,762) (11,530)
As at December 31, 2018 4,247 40,927
Acquired from SLTEC – 186,314
Additions – 43,003
Amortization/accretion for the year* (1,818) (16,514)
As at December 31, 2019 P
=2,429 P
=253,730
*Included under “Interest and other financial charges” in the “Other income - net” account in the consolidated statements of income
(see Note 28).

ACEPH
The relevant terms of the long-term loans of the Parent Company are as follows:
Description Interest Rate (per annum) Terms 2019 2018
=5.00 billion loan with
P 5.0505% per annum for the first Availed on November 15, 2019, = 4,957,717
P =
P–
BDO 5 years; repricing for the payable in semi-annual
succeeding 5 years is the installment within
average of the 5-year BVAL, 10 years with final repayment
three (3) days prior to on November 14, 2029;
Repricing Date, plus a margin contains negative pledge
of ninety basis points per
annum (0.90%), with the sum
divided by 0.95
=1.50 billion loan with
P The higher of 7-year PDST-F at Availed on April 14, 2014, 1,358,727 1,388,693
China Banking interest rate setting date payable in quarterly installment
Corporation (CBC) which is one (1) banking day within 10 years to commence
prior to issue date plus a 1 year after the first interest
spread of 1.625% or 5.675% payment date with final
for the first 7 years; repricing repayment on April 30, 2024;
for the last 3 years, the higher contains negative pledge
of 3-year PDST-F plus a
spread of 1.625% or initial
interest rate.
(Forward)

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Description Interest Rate (per annum) Terms 2019 2018

=1.18 billion loan with
P Fixed at a rate of 6.50% per Availed on January 11, 2017 = 904,018
P =965,456
P
SBC annum which shall be payable payable in semi-annual
at the end of the interest installments within 12.5 years to
period of six months commence 6 months after the
Drawdown Date and every 6
months thereafter with final
repayment on July 11, 2029;
contains negative pledge
=1.18 billion loan with
P Fixed at a rate of 6.00% for the Availed on January 10, 2017 904,004 965,469
DBP first 7 years; repricing for the payable in semi-annual
last 5.5 years, the higher of 5- installments within 12.5 years to
year PDST-R2 plus a spread commence 6 months after the
of 1.625% or 6.25% Drawdown Date and every 6
months thereafter with final
repayment on July 10, 2029;
contains negative pledge
=0.50 billion loan with
P The higher of 7Y PDST-F at Availed on July 30, 2014, payable 452,083 461,467
Banco De Oro Unibank, interest rate setting date in quarterly installments within
Inc. (BDO) which is one (1) banking day 10 years to commence 1 year
prior to issue date plus a after the first interest payment
spread of 1.625% or 5.8146% date with final repayment on
for the first 7 years; repricing April 30, 2024; contains
for the last 3 years), the negative pledge
higher of 3-year PDST-F plus
a spread of 1.625% or initial
interest rate
=0.93 billion loan with
P The applicable peso benchmark Availed on December 28, 2018 – 923,061
SBC (based on BVAL) plus payable on June 28, 2020; up to
minimum of 2.0% spread, 18 months from drawdown date
with quarterly repricing,
which shall be payable
quarterly in arrears.

=58.26 million
Carrying value (net of unamortized debt issue costs and embedded derivatives of P = 8,576,549
P =4,704,146
P
and P
=24.72 million as of December 31, 2019 and 2018, respectively)

In 2019 and 2018, principal repayments made relative to Group’s loans amounted to
=1,094.06 million and =
P P1,357.42 million, respectively. ACEPH paid =
P43.00 million debt issue costs
for the =
P5.00 billion additional loans availed in 2019.

ACEPH’s long-term loans also contain prepayment provisions as follows:

Description Prepayment provision

=5.00 billion loan with BDO
P Early redemption is at the option of the Borrower any time after
the 4th Interest Payment Date. Prepayment shall be in
integral multiples of P=50 Million. Prepayment is not
subject to penalty on the Repricing Date, else a prepayment
premium of 3.0%, 2.5%, 2.0%, 1.0% and 0.5% is applied to
the outstanding principal amounts prepaid from after the 4th
to until before the 10th Interest Payment Date, from after the
10th to until before the 14th Interest Payment Date, from the
14th to until before the 16th Interest Payment Date, from the
16th to until before the 18th Interest Payment Date, and from
the 18th to until before the 20th Interest Payment Date,
respectively.
=1.50 billion loan with CBC
P Early redemption is at the option of the issuer exercisable on
an interest payment date every anniversary starting from
the 7th year from Issue date. Prepayment amount is at par.
Transaction cost is minimal.

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Description Prepayment provision

=0.50 billion loan with BDO
P Early redemption is at the option of the issuer exercisable on
an interest payment date every anniversary starting from
the 7th year from Issue date. Prepayment amount is at
par. Transaction cost is minimal.
=1.18 billion loan with SBC
P Early redemption is at the option of the issuer exercisable on
an interest payment date at par plus break-funding cost.
Transaction cost is minimal.
=1.18 billion loan with DBP
P Early redemption is at the option of the issuer exercisable on
the interest repricing date (8th anniversary of the
drawdown date). Prepayment amount is at par. If
redemption is exercised on a date that is not the interest
repricing date, prepayment amount is at par plus break-
funding cost. Transaction cost is minimal.
=0.93 billion loan with SBC
P Early redemption is at the option of the issuer exercisable on
an interest payment date at par plus break-funding cost.
Break-funding cost on principal repayment shall be
based on the difference between the contracted interest
rate and the comparable benchmark rate. The negative
difference shall be multiplied by the prepaid amount and
the remaining tenor to come up with break-funding cost,
which in no case is less than zero.

The prepayment option on all loans were assessed as closely related and, thus, not required to be
bifurcated.

In 2019, ACEPH prepaid P =930 million of its long term debt accordance with the terms of the
Agreement with SBC. In 2018, ACEPH prepaid = P1,210.00 million of its long-term debt in
accordance with the terms of the Agreements with SBC and DBP.

Covenants
Under the loan agreements, ACEPH has certain restrictions and requirements principally with respect
to maintenance of required financial ratios and material change in ownership or control.

Description Covenants
=5.00 billion loan with BDO
P (a) Maximum Net Debt to Equity ratio of 3 times
=1.50 billion loan with CBC
P (a) Minimum DSCR of 1.0 times
(b) Maximum Debt to Equity ratio of 1.5 times
=0.50 billion loan with BDO
P (a) Minimum DSCR of 1.0 times
(b) Maximum Debt to Equity ratio of 1.5 times
=1.18 billion loan with SBC
P (a) Minimum DSCR of 1.0 times
(b) Maximum Consolidated Debt to Equity ratio of 1.5 times
(c) Minimum Current ratio of 1.0 times*
=1.18 billion loan with DBP
P (a) Minimum DSCR of 1.0 times
(b) Maximum Consolidated Debt to Equity ratio of 1.5 times
(c) Minimum Current ratio of 1.0 times*
=0.93 billion loan with SBC
P (a) Minimum DSCR of 1.0 times
(b) Maximum Consolidated Debt to Equity ratio of 1.5 times
(c) Minimum Current ratio of 1.0 times*
*Applicable only if there’s short-term borrowing

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In addition, there is also a restriction on the payment or distribution of dividends to its stockholders
other than dividends payable solely in shares of its capital stock if payment of any sum due the lender
is in arrears or such declaration, payment or distribution shall result in a violation of the financial
ratios prescribed.

ACEPH was in compliance with loan covenants as at December 31, 2018. ACEPH was able to obtain
waivers of compliance from BDO, CBC, SBC, and DBP for the Debt Service Cover Ratio and
Debt-to-Equity ratio covenant testing for 2019 required by the terms of each respective Lender’s loan
agreement. ACEPH, therefore, classified the loans amounting to = P8.36 billion as noncurrent as of
December 31, 2019.

PHINMA Renewable
On December 18, 2013, PHINMA Renewable entered into a = P4.30 billion Term Loan Facility with
Security Bank Corporation (“SBC”) and Development Bank of the Philippines (“DBP”). The
proceeds were used to partially finance the 54 MW San Lorenzo Wind Farm composed of 272 MW
wind turbine generators and related roads, jetty, substations, transmission line facilities and submarine
cable to connect to the grid. The loan facility is divided into two tranches amounting to
=
P2.15 billion each - DBP as the Tranche A lender and SBC as the Tranche B lender.

Both tranches have a term of 15 years with semi-annual interest payments starting on the date on
which the loan is made. The Tranche A’s interest is to be fixed at the higher of 10-year PDS
Treasury Fixing (“PDST-F”) plus a spread of 1.625% or a minimum interest rate of 6.25% for the
first 10 years, to be repriced at higher of existing rate or 5-year PDST-F plus a spread of 1.25% for
the last 5 years. The Tranche B will be fixed at higher of interpolated 15-year PDST-F plus a spread
of 1.625% or a minimum interest rate of 6.5%. The interest rate floor on the loan is an embedded
derivative that is required to be bifurcated. In 2013, the Group did not recognize any derivative
liability arising from the bifurcated interest floor rate since the fair value is not significant.

On April 1, 2015, the publication of PDST-F rates ceased pursuant to the memo of the Bankers
Association of the Philippines (“BAP”) dated January 8, 2015. Subsequently, the parties agreed to
adopt PDST-R2 and BVAL rates as benchmark rate in lieu of PDST-F rates. BVAL rates were
adopted starting October 29, 2018 when the Bankers Association of the Philippines (BAP) launched
its new set of reference rates to replace the current set of PDST Reference Rates, PDST-R1 and
PDST-R2.

The loan facility also contains a prepayment provision which allows PHINMA Renewable to make
optional prepayment for both Tranche A and Tranche B in the amount calculated by the facility agent
as accrued interest and other charges on the loan up to the prepayment date plus, the higher of (a) the
principal amount of the loan being prepaid, or (b) the amount calculated as the present value of the
remaining principal amortizations and interest payments on the loan being prepaid, discounted at the
comparable benchmark tenor as shown in the Philippine Dealing and Exchange Corporation
(“PDEx”) Market Page, Reuters and the PDS website (www.pds.com.ph) at approximately 11:16 am
on the business day immediately preceding the prepayment date. In addition, PHINMA Renewable is
allowed to prepay the Tranche A loan, without penalty or breakfunding cost, on the interest re-pricing
date. The prepayment option was assessed as closely related to the loan and, thus, was not bifurcated.

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On April 28, 2016, PHINMA Renewable prepaid =

P150.50 million of its long-term debt in accordance
with the terms of the Agreement as follows:

· The PHINMA Renewable shall effect a mandatory prepayment of the loan, without premium or
penalty, within three (3) business days from receipt by PHINMA Renewable of any transmission
line proceeds;
· Prepay the loan to the extent of seventy percent (70%) of the transmission line proceeds;
· The remaining thirty percent (30%) shall be transferred directly into PHINMA Renewable
controlled distribution account for further distribution to the Project Sponsor.

On December 20, 2016, the BOD resolved to amend the Omnibus Loan and Security Agreement
(OLSA) to allow PHINMA Renewable to prepay a portion of the long-term debt to SBC and DBP
without penalties. On January 11, 2017, PHINMA Renewable prepaid P=2,350.00 million of its long-
term debt.

Under the terms of the Agreement, ACEPH, as the Project Sponsor, shall:

· Provide equity contributions equivalent to 30% of the project cost;

· Fund any cost overruns on the project and the required debt service reserve amount DSRA in the
event of delays in obtaining FIT eligibility or Renewable Energy Payment Agreement; and,
· Redeem the loan in the event that PHINMA Renewable defaults on the loan and titles to the
project properties have not been issued to PHINMA Renewable or notwithstanding such titles,
lenders fail to acquire title to the project properties due to lack of annotation or third party claims.

The loan agreement provides loan disbursement schedule for the drawdown of the loan. PHINMA
Renewable made the following drawdowns during the years 2015 and 2014 with the corresponding
carrying values as at December 31, 2019:

Tranche A (DBP) Tranche B (SBC)

Drawdown date Gross Amounta Carrying Valueb Gross Amounta Carrying Valueb
February 14, 2014 =110,427
P =111,281
P =110,427
P =109,689
P
May 27, 2014 195,919 196,092 195,919 194,799
August 5, 2014 195,920 197,949 195,920 194,860
September 2, 2014 178,109 178,965 178,109 177,206
July 30, 2015 85,492 82,103 85,492 82,065
=765,867
P =766,390
P =765,867
P =758,619
P
a
Net of prepayments made in 2016 and 2017
b
Net of unamortized debt issue costs.

In 2019, 2018 and 2017 PHINMA Renewable made the following payments with their corresponding
carrying values:

Tranche A (DBP) Tranche B (SBC)

Payment date Gross Amount Carrying value Gross Amount Carrying value
January 11, 2017 =1,175,000
P =1,169,712
P =1,175,000
P =1,172,004
P
February 14, 2017 16,735 16,422 16,735 16,558
August 14, 2017 16,735 15,093 16,735 15,809
February 14, 2018 16,735 15,047 16,735 15,786
August 14, 2018 27,172 25,491 27,172 26,231
February 14, 2019 27,173 25,466 27,173 26,225
August 14, 2019 29,332 27,784 29,332 28,479
=1,308,882
P =1,295,015
P =1,308,882
P =1,301,092
P

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The loan’s principal repayment is variable amount payable semi-annually; amount of principal
repayment to be determined during the due diligence stage based on the required debt service
coverage ratio (“DSCR”) and financial projections using the Financial Model validated by an
independent financial model auditor. Any incremental revenue resulting from a subsequent increase
in the applicable FIT rate shall be applied to principal repayment of the loan in the inverse order of
maturity. Incremental revenue is the difference in the revenue based on existing FIT rate of
=7.40/kwh and a new base rate as defined by the relevant government agency excluding annual
P
adjustments to account for inflation and foreign exchange movements.

Under the loan facility agreement, PHINMA Renewable must maintain a debt service account into
which will be paid the maximum interest forecasted to be due and payable for the next two following
payment dates that will fall within the construction period and the amount of debt service after the
construction period. The funds in the debt service reserves can be used by PHINMA Renewable
provided that thirty (30) days prior to payment, the fund is replenished. Debt service reserves are
included in the consolidated statement of financial position under “Cash and cash equivalents”
(see Note 5).

Covenants.
The Term Loan Facility includes, among others, certain restrictive covenants and requirements with
respect to the following, effective upon commercial operations of PHINMA Renewable:

(a) Historical DSCR post dividend declaration of 1.20x and Debt to Equity Ratio not exceeding
70:30 throughout the term of the loan;
(b) Equity infusion amounting to P=328.13 million for retention and contingencies;
(c) Limitation on investments (not to enter into joint ventures, partnership; create subsidiary/branch);
and
(d) Restricted payments (not to distribute dividends, make payments to affiliates).

PHINMA Renewable is in compliance with loan covenants as at December 31, 2019 and 2018.

The loan facility is secured by PHINMA Renewable’s wind farm, included in “Machinery and
equipment” account under “Property, plant and equipment” with carrying values amounting to
=
P4,106.00 million and = P4,310.28 million as at December 31, 2019 and 2018, respectively
(see Note 11). In addition, as a security for the timely payment, discharge, observance and
performance of the obligations, ACEPH entered into a Pledge Agreement covering the subscriptions
of stocks of ACEPH and its nominees.

SLTEC

On April 29, 2019, SLTEC entered into an Omnibus Loan and Security Agreement (the “New
Omnibus Agreement”) with the following:

a) BDO, SBC and Rizal Commercial Banking Corporation (“RCBC”) as the Lenders;
b) AC Energy, ACEPH, and APHC as the Sponsors;
c) BDO Capital & Investment Corporation as the Mandated Lead Arranger and Sole Bookrunner;
d) RCBC Capital Corporation and SB Capital Investment Corporation as the Lead Arrangers; and,
e) Banco de Oro Unibank, Inc. - Trust and Investments Group as the Facility Agent, Security
Trustee and Paying Agent

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The New Omnibus Agreement covering a = P11,000.00 million syndicated loan facility was entered
into for the purpose of re-leveraging and optimizing the capital structure of SLTEC as permitted by
law and other agreements to which SLTEC is a party and to fund its general corporate requirements.
Tenor of the loan in 12 years from initial drawdown date.

SLTEC incurred deferred financing costs amounting to =

P188.70 million in connection with the credit
facility obtained from creditor banks.

On May 7, 2019, SLTEC paid-off the outstanding loans payable from the old Omnibus Agreement
amounting to = P10,950.00 million using the proceeds from the New Omnibus Agreement with
principal amount of =P11,000.00 million received on the same date. SLTEC accounted the transaction
as extinguishment of financial liability. The difference between the carrying amount of the old loan
and the total consideration paid amounting to =P78.10 million was charged to interest expense.

Consequently, SLTEC also paid prepayment penalties amounting to = P25.36 million which was
charged as other financing charge. Furthermore, SLTEC paid additional gross receipts tax due to the
pre-termination of the old loan of =
P161.18 million charged as other financing charge.

Details of the loan are as follows:

a) Interest

SLTEC shall pay the interest at the applicable interest rate on the unpaid principal amount of each
advance on each interest payment date for the interest period then ending. Such interest shall
accrue from and including the first day of each interest period and excluding the last day of such
interest period. Interest rates range from 4.44% to 7.11% for the New Omnibus Agreement and
4.49% to 6.60% for the old Omnibus Agreement.

b) Repayment

The principal amount shall be paid in consecutive semi-annual installments on each of the
repayment dates as specified in the New Omnibus Agreement, adjusted to coincide with the
relevant interest payment date occurring in the same month (each, a “Repayment Date”) with a
final repayment date falling on the last day of the initial term. Provided it is not in default in the
payment of any sum due, SLTEC may, at its option, prepay the loan in part or in full on any
Interest Payment Date together with accrued interest thereon up to and including the date
immediately preceding the date of prepayment, subject to prepayment penalties ranging from nil
to 1.25%.

Under the terms and conditions of the loan, the security trust indentures are the following: a) real
estate mortgage and chattel mortgage on project assets; b) pledge on 66.67% of the voting shares of
SLTEC; c) assignment of receivables; d) assignment of all material contracts, guarantees, insurance
and; e) assignment of cash flow waterfall accounts.

Covenants

The New Omnibus Agreement provides for covenants which include, among others, maintaining
historical DSCR of not less than 1.10x and net debt to equity ratio not exceeding 3.00x. SLTEC has
complied with these contractual agreements and is compliant with these covenants as of reporting
dates.

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Total interest expense recognized on ACEPH’s, PHINMA Renewable’s and SLTEC’s long-term loans
amounted to = P797.86 million, =
P396.90 million and =
P432.59 million in 2019, 2018 and 2017,
respectively (see Note 28).

Short-term loan

As at December 31, 2018, the Parent Company has outstanding short-term loan amounting to
=400.00 million which was obtained thru a promissory note to BDO Unibank Inc. on
P
August 14, 2018 with a maturity date of February 8, 2019. Interest on principal amount is 5.25% per
annum fixed for 31 days to be repriced every 30 to 180 days as agreed by the parties. This was
subsequently extended on February 8, 2019 for six (6) months. As at December 31, 2019, the Parent
Company has paid out its short-term loan.

In 2019 and 2018, the Parent Company recognized interest expense amounting to =
P7.02 million and
=8.12 million, respectively (see Note 28).
P

20. Lease Liabilities

The rollforward analysis of lease liabilities follows:

As at January 1, 2019 P
=572,304
Interest expense (see Note 28) 56,560
New lease agreements (see Note 3) 27,323
Effect of business combination (see Note 3) 13,520
Remeasurement due to termination of lease contract (2,604)
Foreign exchange adjustments (14,726)
Payments (92,806)
As at December 31, 2019 P
=559,571

As at December 31, 2019, the current portion of lease liability amounts to =

P33.54 million and the
noncurrent portion amounts to =
P526.03 million.

21. Other Noncurrent Liabilities

2019 2018
Trade payable (see Note 17) P
=1,123,511 =1,123,511
P
Nontrade payable 1,870,755 –
Deposit payables 169,773 174,370
Accrued expenses 12,807 12,897
Finance lease obligation - noncurrent portion
(see Note 35) – 72,299
P
=3,176,846 =1,383,077
P

Nontrade payable amounting to = P1.87 billion pertains to the noncurrent portion of the amount
payable to Axia for the purchase of the additional 20% interest in SLTEC thru the assignment of
ACEI to ACEPH of the Share Purchase Agreement executed by ACEI and Axia. The amount is
payable on September 30, 2021.

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Deposit payables consist of security deposits from RES Customers refundable at the end of the
contract.

Finance lease obligation refer to lease agreements entered by the Group with individual landowners.
These leases have terms of 20 to 25 years. This has been reclassified under lease liabilities as a
result of adoption of PFRS 16 (see Note 20).

Accrued expenses pertain to accrual of asset retirement obligation and various provisions.

The Group is a party to certain claims and assessments in the ordinary conduct of business. The
information usually required by PAS 37, Provisions, Contingent Liabilities and Contingent Assets, is
not disclosed on the ground that it can be expected to prejudice the outcome or the Group’s position
with respect to these matters recorded under accrued expenses.

22. Equity

Capital Stock
Following are the details of the Parent Company’s capital stock:

Number of Shares
2019 2018
Authorized capital stock - =
P1 par value 8,400,000,000 8,400,000,000

Issued shares:
Balance at beginning of year 4,889,774,922 4,889,774,922
Issuance during the year 2,632,000,000 –
Balance at end of year 7,521,774,922 4,889,774,922

The issued and outstanding shares as at December 31, 2019 and 2018 are held by 3,192 and 3,191
equity holders, respectively.

The following table presents the track record of registration of capital stock:

Date of SEC No. of Shares No. of Shares Issue/

Approval Registered Issued Par Value Offer Price
08-Feb-69 2,000,000,000 1,000,000,000 =0.01
P =0.01
P
22-Jul-75 2,000,000,000 937,760,548 0.01 0.01
16-Jul-79 6,000,000,000 6,058,354,933 0.01 0.01
12-Feb-88 10,000,000,000 7,643,377,695 0.01 0.02
08-Jun-93 10,000,000,000 8,216,141,069 0.01 0.01
15-Jul-94 70,000,000,000 50,170,865,849 0.01 0.01
24-Aug-05 1,000,000,000 264,454,741 1.00 1.00
06-Jun-11 2,200,000,000 1,165,237,923 1.00 1.00
12-Nov-12 4,200,000,000 2,027,395,343 1.00 1.00
15-Apr-19 156,476 156,476 1.00 1.00
24-Jun-19 2,632,000,000 2,632,000,000 1.00 1.00

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Retained Earnings
The Group’s retained earnings balance amounted to P =2.92 billion and =
P3.30 billion, respectively, as at
December 31, 2019 and 2018. Retained earnings not available for declaration, computed based on
the guidelines provided in Revised SRC Rule 68, to the extent of (a) undistributed earnings of
subsidiaries, associates and joint venture included in the Group’s retained earnings amounted to
=1,109.97 million and =
P P1,285.25 million as at December 31, 2019 and 2018, respectively; and
(b) cost of treasury shares amounted to =P27.70 million and =P27.71 million as at December 31, 2019
and 2018, respectively.

Treasury Shares
As a result of PHINMA Power becoming a wholly owned subsidiary of ACEPH effective
January 1, 2013, the Parent Company’s shares of stock held by PHINMA Power amounting to
=28.79 million were considered as treasury shares. On December 21, 2018, PHINMA Power sold
P
1,152,000 shares of the Parent Company.

Other Equity Reserves

This account consists of:

2019 2018
Effect of purchase of SLTEC’s 20% share (a) (P
=2,229,587) =–
P
Effect of purchase of ACEX shares (b) (130,854) –
Other equity reserves from a joint venture (c) 17,231 17,231
Effect of distribution of property dividends -
ACEX shares (d) 1,107 1,107
(P
=2,342,103) =18,338
P

a. This represents the impact of step acquisition where ACEI assigned to ACEPH the purchase of
the 20% interest in SLTEC thereby increasing ACEPH's ownership of SLTEC to 65% which
already qualifies as a controlling interest (see Note 33).

b. This represents the impact of ACEPH’s purchase of PHINMA Inc.’s and PHINMA
Corporation’s combined stake in ACEX on June 24, 2019. As at December 31, 2019, the Parent
Company’s effective ownership in ACEX increased from 50.74% to 75.92%.

c. This relates to the accumulated share in expenses directly attributable to issuance of shares of
stocks of SLTEC, one of the Parent Company’s joint ventures (see Note 12).

d. This represents the impact of the property dividend distribution in the form of ACEX’s shares to
the equity attributable to equity holders of the Parent Company when the Parent Company’s
ownership interest decreased but did not result in loss of control. The Parent Company’s
effective ownership in ACEX decreased from 100% to 50.74% in 2014.

Dividends
Cash dividends declared follows:

Dividend
Date of Declaration Type Rate Amount * Record Date
March 3, 2017 Cash 0.04 per share =195,436
P March 17, 2017
February 28, 2018 Cash 0.04 per share 195,591 March 14, 2018
*Includes dividends on shares held by PHINMA Power amounting to =
P993.00 million each declaration.

There was no dividend declared in 2019.

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23. Revenue from Sale of Electricity

The table presents the Group’s revenue from different revenue streams:

2019 2018
Revenue from power supply contracts P
=13,217,501 =13,079,769
P
Revenue from power generation and trading 1,743,276 1,639,533
Revenue from ancillary services 336,942 394,299
P
=15,297,719 =15,113,601
P

24. Cost of Sale of Electricity

2019 2018 2017

Costs of power purchased =10,330,590
P =13,327,756
P =15,158,639
P
Fuel (see Note 8) 2,568,330 766,480 763,872
Depreciation and amortization
(see Notes 11, 14, 15, 16 and 27) 842,976 379,901 370,332
Repairs and maintenance 456,936 185,872 192,145
Taxes and licenses 190,590 72,633 76,028
Insurance 183,690 71,749 68,631
Salaries (see Note 26) 140,659 96,682 90,380
Stations used 87,077 13,901 4,690
Transmission costs 63,317 66,855 76,541
Pension and other employee benefits
(see Notes 26 and 30) 48,984 25,498 25,983
Rent 13,611 79,461 75,774
Filing fees 1,337 2,627 337
Others 86,702 20,076 25,887
=15,014,799
P =15,109,491
P =16,929,239
P

25. General and Administrative Expenses

2019 2018 2017

Salaries and directors’ fees (see Notes 26 and 30) P166,896
= P149,127
= P138,818
=
Management and professional fees (see Note 31) 125,874 103,240 187,814
Taxes and licenses 121,379 139,233 132,493
Bank charges 57,933 11,874 9,493
Depreciation and amortization
(see Notes 11, 16, and 27) 49,490 25,934 29,052
Provision for probable losses on deferred exploration
costs (see Note 15) 34,493 48,263 4,892
Pension and other employee benefits
(see Notes 26 and 30) 26,136 22,618 22,838
Insurance, dues and subscriptions 24,946 10,759 21,197
Building maintenance and repairs 12,830 20,314 18,681
Provision for inventory obsolescence (see Note 8) 5,554 159 –
Contractor’s fee 5,220 6,674 15,158
Provisions for claims and professional fees 5,000 600 16,720
Transportation and travel 4,428 13,786 12,808
Communication 4,107 4,365 5,374
(Forward)

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2019 2018 2017

Meeting and conferences P4,082
= P2,979
= P4,476
=
Office supplies 3,900 4,322 5,278
Advertisements 2,756 1,721 2,334
Corporate social responsibilities 2,300 640 5,539
Provision for credit losses (see Note 7) 1,162 14,548 4,542
Donation and contribution 367 592 870
Plug and abandonment 202 38,776 4,384
Entertainment, amusement and recreation 92 180 41
Provision for impairment of property, plant and
equipment (see Note 11) – 2,066 –
Others 8,068 31,747 21,748
=667,215
P =654,517
P =664,550
P

26. Personnel Expenses

2019 2018 2017

Salaries and directors’ fees included under:
Cost of sale of electricity (see Note 24) =140,659
P =96,682
P =90,380
P
General and administrative expenses
(see Note 25) 166,896 149,127 138,818
Pension and other employee benefits included under:
Cost of sale of electricity (see Notes 24 and 30) 48,984 25,498 25,983
General and administrative expenses
(see Notes 25 and 30) 26,136 22,618 22,838
=382,675
P =293,925
P =278,019
P

27. Depreciation and Amortization

2019 2018 2017

Property, plant and equipment (see Notes 11) =826,846
P =384,371
P =380,117
P
Right-of-use assets (see Note 16) 65,620 – –
Investment property (see Note 14) – 5,274 3,077
Leasehold rights (see Note 15) – 16,190 16,190
=892,466
P =405,835
P =399,384
P
Cost of sale of electricity (see Note 24) =842,976
P =379,901
P =370,332
P
General and administrative expenses (see Note 25) 49,490 25,934 29,052
=892,466
P =405,835
P =399,384
P

28. Other Income (Charges)

2019 2018 2017

Claims for business interruptions =236,306
P =10,167
P =–
P
Interest and other financial income
(see Notes 5, 6 and 7) 107,602 96,851 87,185
Gain (loss) on sale of:
Property and equipment 294,100 254 –
Asset held for sale (see Note 10) 14,289 – –
Fly ash and scrap 13,226 – –
(Forward)

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2019 2018 2017

Investments (see Note 12) =1,375
P =5,834
P =–
P
Inventories (461) – –
AFS investments – – (17)
Recovery of costs from third party – 28,626 –
Foreign exchange gain (loss) - net 12,330 29,329 (8,373)
Gain (loss) on derivatives - net (see Note 37) (6,851) (15,056) 9,399
Provision for unrecoverable input tax (see Note 4) – (43,712) –
Others 44,137 7,959 17,423
=716,053
P =120,252
P =105,617
P

Claims for business interruptions pertain to insurance claimed due to the temporary shutdown of the
power plant.

Others pertains to reimbursement of feasibility cost, reversal of outstanding payables, sale of scrap
materials, refund of excess business taxes paid, oil hauling and disposal and reimbursement from a
third party.

Financial Income
The details of interest and other financial income are as follows:

2019 2018 2017

Interest income on:
Cash in banks and Short-term
deposits (see Note 5) P61,826
= P34,041
= P33,117
=
Receivables and others* 14,934 37,983 17,093
Net gains on financial asset at FVTPL (see Note 6) 30,842 24,827 –
Net gains on investments held for trading – – 36,975
=107,602
P =96,851
P =87,185
P
*Includes amortization of security deposit amounting to nil and =
P0.32 million in 2019 and 2018, respectively. The security deposit has
been reclassed to Right of Use Asset

Interest and Other Finance Charges

The details of interest and other finance charges are as follows:

2019 2018 2017

Interest expense on:
Long-term loans* (see Note 19) =797,858
P =396,901
P =432,594
P
Lease obligations (see Note 35) 56,560 16,635 14,656
Amortization of debt issue cost (see Note 19) 16,514 11,530 39,139
Short-term loans (see Note 19) 7,019 8,115 −
Asset retirement obligation − 372 372
Contract termination (see Note 35) − − 15,032
Others − 35 10,732
Other finance charges 4,012 61 1,041
=881,963
P =433,649
P =513,566
P
* Net of accretion of interest expense of =
P 1.82 million, =
P 1.76 million and =
P1.71 million for the years ended December 31, 2019, 2018 and
2017, respectively, as an effect of amortization of embedded derivatives (see Note 19).

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29. Income Taxes

a. Current income tax pertains to the following:

2019 2018 2017

RCIT P
=68,611 =20,496
P =63,514
P
MCIT 62 203 9,208
P
=68,673 =20,699
P =72,722
P

b. The components of the Group’s net deferred income tax assets (liabilities) as at December 31 are
as follows:

2019 2018
Deferred income tax assets:
NOLCO P
=459,737 =81,306
P
Lease liability 140,759 –
Accrued expenses 67,369 8,211
Allowance for credit losses 35,952 36,008
Allowance for probable losses on deferred
exploration costs 13,646 3,298
Pension and other employee benefits 12,973 15,292
Allowance for impairment on property and
equipment 2,550 280
Asset retirement obligation 2,792 2,095
Unamortized discount on long-term receivable 2,252 3,228
Unrealized forex loss 883 48
Unamortized past service cost 772 2,528
Derivative liabilities on long-term loans 729 1,274
Deferred revenue 420 116,186
Allowance for inventory obsolescence 404 194
PAS 17 lease levelization – 1,051
Others – 202
741,238 271,201
Deferred income tax liabilities:
Accrual of trading revenues (63,584) –
Unamortized interest cost on payable to Axia (50,773) –
Unamortized debt issue costs (14,557) (6,235)
Right-of-use assets (7,929) –
Accrual of bonus (848) –
Unrealized foreign exchange gain (274) (517)
Unrealized fair value gains on FVTPL (133) (958)
Asset retirement obligation-asset (10) –
Others (303) (1)
(138,411) (7,711)
602,827 263,490

(Forward)

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2019 2018
Presented in other comprehensive income
Deferred tax asset:
Unrealize FV Loss on Derivative 6,318 –
Remeasurement loss on defined benefit obligation 3,244 –
Unrealized fair value losses on financial assets
at FVOCI 187 3,778
9,749 3,778
Deferred tax liabilities:
Remeasurement gain on defined benefit obligation – (1,571)
Unrealized fair value gains on financial assets
at FVOCI (31) (4,351)
(31) (5,922)
Total deferred income tax assets - net P
=612,545 P
=261,346

2019 2018
Deferred income tax assets:
Excess of cost over fair value of power plant P
=2,421 =2,421
P
Pension and other employee benefits – 289
Allowance for credit losses – 181
Unamortized past service costs – 27
2,421 2,918
Deferred income tax liabilities:
Right-of-use asset (100,146) –
Excess of fair value over cost of power plant (76,902) (87,827)
Unamortized capitalized borrowing costs (12,576) (1,946)
Unrealized forex gain (260) (3)
Unrealized fair value gains on FVTPL (161) (834)
Leasehold rights – (7,488)
(190,045) (98,098)
Total deferred income tax liabilities - net (P
=187,624) (P
=95,180)

The Group’s deductible temporary differences and unused NOLCO for which no deferred income tax
assets were recognized in the consolidated statement of financial position are as follows:
2019 2018
NOLCO P
=1,457,445 =1,680,346
P
Accrued expenses 138,568 –
Allowance for impairment loss on property and
equipment 106,141 106,885
Allowance for probable losses 64,874 64,874
Allowance for credit losses 20,000 20,000
Excess MCIT 9,208 9,559

Deferred income tax assets have not been recognized on these temporary differences as management
believes it is not probable that sufficient future taxable income will be available against which the
related deferred income tax assets can be used.

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As at December 31, 2019 and 2018, NOLCO totaling = P2,989.90 million and = P1,951.37 million,
respectively, can be claimed as deduction from regular taxable income and MCIT amounting to
=9.21 million and =
P P9.56 million, respectively, can be credited against future RCIT. The movement
in NOLCO and MCIT is shown in the tables below:

Year NOLCO Expiry

Incurred Beginning Additions Application Expiration Ending Date
2017 =102,230
P =470,200
P =–
P (P
=48,077) P524,353
= 2020
2018 524,353 1,443,190 – (16,177) 1,951,366 2021
2019 1,951,366 1,048,227 – (9,691) 2,989,902 2022

Year MCIT Expiry

Incurred Beginning Additions Application Expiration Ending Date
2017 =371
P =9,208
P =–
P =–
P =9,579
P 2020
2018 9,579 – (20) – 9,559 2021
2019 9,559 – – 351 8,680 2022

The reconciliation between the effective income tax rates and the statutory income tax rates follows:
2019 2018 2017
Applicable statutory income tax rates (30.00%) (30.00%) 30.00%
Increase (decrease) in tax rate resulting
from:
Financial income subject to final tax (6.40) (3.80) (32.72)
Net loss (income) under tax holiday (5.14) (3.89) (37.69)
Dividend income exempt from tax (0.44) (0.65) (5.85)
Nondeductible expenses 1.32 (1.83) 21.00
Equity in net loss (income)
of associates and joint ventures 1.41 (37.89) (707.05)
Movement in temporary differences,
NOLCO and MCIT for which no
deferred income tax assets were
recognized and others 12.94 115.11 34.05
Effective income tax rates 26.31% 40.71% (698.26%)

c. R.A. No. 10963 or the Tax Reform for Acceleration and Inclusion Act (TRAIN) was signed into
law on December 19, 2017 and took effect January 1, 2018, making the new tax law enacted as of
the reporting date.

The TRAIN changes the existing tax law and includes several provisions that generally affected
businesses on a prospective basis. In particular, management assessed that amendment of
Section 148 - Excise tax on manufactured oil and other fuels - which increases the excise tax rates
of lubricating oil, diesel fuel oil and bunker fuel oil, among others that are used for the power
plants, may have material impact to the operations of the Group. Management has considered the
impact of TRAIN in managing the operation hours of its power plants.

d. On April 8, 2019, SLTEC submitted to the Board of Investments (BOI) an Application for
Extension of Income Tax Holiday of Unit 1. The period applied for extension is from April 24,
2019 to April 23, 2020. SLTEC used the cost of indigenous raw (local coal) criterion wherein the
ratio of indigenous raw materials to total raw materials used should not be lower than fifty
percent (50%).

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On August 13, 2019, the BOI approved the extension, subject to the to the following conditions:

1. At the time of the actual availment of the ITH bonus year incentive, the derived ratio of the
cost of indigenous raw materials shall be at least 50% of the raw materials cost wherein
SLTEC complied with a ratio of 75:25; and

2. SLTEC undertake Corporate Social Responsibilities (CSR) activities which shall be

completed on the actual availment of the bonus year. The CSR activity shall be aligned with
the priority programs/projects of the National Anti-Poverty Commission and/or other special
laws such as R.A. 7942 or the Mining ACT and DOE Energy Regulation 1-94. Failure to
complete the CSR activity shall mean forfeiture of the approved ITH bonus year. SLTEC
undertook the required CSR activities in 2019.

e. PREC is a duly registered renewable energy developer under Renewable Energy (RE) Act of
2008, PREC is entitled to income tax holiday (ITH) for the first seven years of its commercial
operations on all its registered activities starting 2015. Under the RE Act, PREC can avail a
corporate tax rate of 10% after the ITH period. Since PREC will avail the 10% after the ITH, the
deferred tax asset expected to be reversed after the ITH period were set up at 10%.

30. Pension and Other Employee Benefits

The Group has a funded, noncontributory defined benefit retirement plan covering all of its regular
and full time employees.

Pension and employee benefits consist of:

2019 2018
Pension liability P
=44,673 =23,781
P
Vacation and sick leave accrual 22,734 30,370
67,407 54,151
Less current portion of vacation and sick leave accrual* 6,904 13,905
P
=60,503 =40,246
P
*Included in “Accrued expenses” under “Accounts payable and other current liabilities”.

Pension and other employee benefits included under “Cost of sale of electricity” and “General and
administrative expenses” accounts in the consolidated statement of income, consist of the following:
2019 2018 2017
Pension expense P
=19,160 =14,571
P =18,401
P
Vacation and sick leave accrual (reversal) (7,393) (5,488) 1,343
P
=11,767 =11,767
P =19,744
P

Net Defined Benefit Liability

The fund is managed by a trustee under the PHINMA Jumbo Retirement Plan.

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Changes in net defined benefit liability of funded plan in 2019 are as follows:

Present Value of
Defined Benefit Fair Value Net Defined
Obligation of Plan Assets Benefit Liability
At January 1, 2019 P
=166,279 P
=142,498 P
=23,781
Effect of business combination 22,316 18,249 4,067
Pension expense in consolidated statement of income:
Current service cost 21,238 – 21,238
Net interest 10,739 9,823 916
Effect of curtailment (2,994) – (2,994)
Net acquired/(transferred) obligation (4,801) (4,801) –
24,182 5,022 19,160
Remeasurements in OCI:
Return on plan assets (excluding amount included in
net interest) – (2,461) 2,461
Experience adjustments (13,577) – (13,577)
Changes in demographic assumption 7,179 – 7,179
Actuarial changes arising from changes in financial
assumptions 14,751 – 14,751
8,353 (2,461) 10,814
Benefits paid (79,395) (76,980) (2,415)
Contributions – 10,734 (10,734)
At December 31, 2019 P
=141,735 P
=97,062 P
=44,673

Changes in net defined benefit liability of funded plan in 2018 are as follows:
Present Value of
Defined Benefit Fair Value Net Defined
Obligation of Plan Assets Benefit Liability
At January 1, 2018 =154,912
P =126,518
P =28,394
P
Pension expense in consolidated statement of income:
Current service cost 14,240 – 14,240
Net interest 7,573 6,137 1,436
Net acquired/(transferred) obligation 426 – 426
22,239 6,137 16,102
Return on plan assets (excluding amount included in
net interest) – 6,115 (6,115)
Experience adjustments 14,819 – 14,819
Changes in demographic assumption (2,796) – (2,796)
Actuarial changes arising from changes in financial
assumptions (11,145) – (11,145)
878 6,115 (5,237)
Benefits paid (11,750) (11,750) –
Contributions – 15,478 (15,478)
At December 31, 2018 =166,279
P =142,498
P =23,781
P

Changes in net defined benefit liability of funded plan in 2017 are as follows:
Present value of
defined benefit Fair value Net defined
obligation of plan assets benefit liability
At January 1, 2017 =156,854
P =123,043
P =33,811
P
Pension expense in consolidated statement of income:
Current service cost 16,818 – 16,818
Net interest 6,532 4,949 1,583
23,350 4,949 18,401

(Forward)

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Present value of
defined benefit Fair value Net defined
obligation of plan assets benefit liability
Remeasurements in OCI:
Return on plan assets (excluding amount included in net
interest) =–
P (P
=7,786) =7,786
P
Experience adjustments (13,454) – (13,454)
Changes in demographic assumption 99 – 99
Actuarial changes arising from changes in financial
assumptions (2,191) – (2,191)
(15,546) (7,786) (7,760)
Benefits paid (9,746) (9,746) –
Contributions – 16,058 (16,058)
At December 31, 2017 =154,912
P =126,518
P =28,394
P

The maximum economic benefit available is a combination of expected refunds from the plan and
reductions in future contributions.

The fair value of plan assets by each class as at December 31 follows:

2019 2018 2017

Investments in:
Equity instruments P
=47,248 =89,409
P =79,382
P
UITFs 41,916 4,461 3,961
Government securities 5,000 48,607 43,156
Cash and cash equivalents 3,150 226 201
Liabilities (252) (205) (182)
P
=97,062 =142,498
P =126,518
P

Investments in government securities, mutual funds and UITFs can be readily sold or redeemed.
Marketable equity securities, which can be transacted through the PSE, account for less than 10% of
plan assets; all other equity securities are transacted over the counter.

The plan assets include shares of stock of the Parent Company with fair value of nil and
=1.15 million as at December 31, 2019 and 2018 respectively. The shares were acquired at a cost of
P
=0.03 million in 2018. There are no restrictions or limitations on the shares and there was no material
P
gain or loss on the shares for the years ended December 31, 2019 and 2018. The voting rights over
the shares are exercised through the trustee by the retirement committee, the members of which are
directors or officers of the Parent Company.

The plan assets have diverse investments and do not have any concentration risk.

The cost of defined benefit pension plans and other post-employment benefits as well as the present
value of the pension obligation are determined using actuarial valuations. The actuarial valuation
involves making various assumptions.

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The principal assumptions used in determining pension and post-employment benefit obligations for
the defined benefit plans are shown below:

2019 2018
Discount rate 5.92% 7.34%
Salary increase rate 5.00% 5.00%

There were no changes from the previous period in the methods and assumptions used in preparing
sensitivity analysis.

The sensitivity analysis below has been determined based on reasonably possible changes of each
significant assumption on the defined benefit obligation as at the end of the reporting period,
assuming all other assumptions were held constant:

2019 2018
Increase (Decrease) Increase (Decrease)
in Pension Liability in Pension Liability
Discount rate (Actual + 1.00%) 6.92% (P
= 10,466) 8.34% (P
=6,040)
(Actual – 1.00%) 4.92% 12,416 6.34% 6,911
Salary increase rate (Actual + 1.00%) 6.00% P
=12,906 6.00% 7,889
(Actual – 1.00%) 4.00% (11,084) 4.00% (7,035)

Management performs an Asset-Liability Matching Study (ALM) annually. The overall investment
policy and strategy of the Group’s defined benefit plans is guided by the objective of achieving an
investment return which, together with contributions, ensures that there will be sufficient assets to pay
pension benefits as they fall due while also mitigating the various risk of the plans. The Group’s
current strategic investment strategy consists of 68% of equity instruments, 28% fixed income
instruments and 4% cash and cash equivalents.

The Group expects to contribute =

P17.28 million to the defined benefit pension plan in 2020.

The following table sets forth the expected future settlements by Plan of maturing defined benefit
obligation as at December 31:

2019 2018
Less than one year P
=27,173 =82,379
P
More than one year to five years 60,434 57,159
More than five years to 10 years 82,800 73,705
More than 10 years to 15 years 91,177 40,976
More than 15 years to 20 years 94,088 83,435
More than 20 years 506,959 296,129

The average duration of the expected benefit payments at the end of the reporting period ranges from
9.53 to 23.25 years.

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Vacation and Sick Leave

The following tables summarize the components of vacation and sick leave expense (income)
recognized in the consolidated statement of income and the amounts recognized in the consolidated
statement of financial position.
2019 2018 2017
Current service costs P4,445
= P2,041
= P2,772
=
Interest costs 1,696 1,937 1,290
Actuarial loss (gain) (13,534) 1,510 (2,719)
(P
=7,393) 5,488 =1,343
P

Changes in present value of the vacation and sick leave obligation are as follows:

2019 2018
Balance at the beginning of year P
=30,370 =26,174
P
Current service cost 4,445 2,041
Net interest 1,696 1,937
Actuarial loss (gain) (13,534) 1,510
Benefits paid (243) (1,292)
Balance at the end of year P
=22,734 =30,370
P

31. Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the
other party or exercise significant influence over the other party in making financial and operating
decisions. Parties are also considered to be related if they are subject to common control or common
significant influence which include affiliates. Related parties may be individual or corporate entities.

Outstanding balances at year-end are unsecured and are to be settled in cash throughout the financial
year. There have been no guarantees provided or received for any related party receivables or
payables. Provision for credit losses recognized for receivables from related parties amounted to nil,
=
P10.26 million and nil for 2019, 2018 and 2017, respectively. The assessment of collectability of
receivables from related parties is undertaken each financial year through examining the financial
position of the related party and the market in which the related party operates.

In the ordinary course of business, the Group transacts with associates, affiliates, jointly controlled
entities and other related parties on advances, loans, reimbursement of expenses, office space rentals,
management service agreements and electricity supply. The transactions and balances of accounts as
at and for the years ended December 31 with related parties are as follows:

As at and for the Year Ended December 31, 2019

Amount/ Outstanding Balance
Company Volume Nature Receivable Payable Terms Conditions
Parent
AC Energy, Inc.
General and administrative expenses = 38,664 Management fee
P =–
P (P
= 31,489) 30-day, non-interest Unsecured
and bonus bearing
General and administrative expenses 9 Transportation 9
and travel
expense
General and administrative expenses 638 Miscellaneous- – (354) 30-day, non-interest Unsecured
Guarantee fee bearing

(Forward)

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As at and for the Year Ended December 31, 2019

Amount/ Outstanding Balance
Company Volume Nature Receivable Payable Terms Conditions
Associates
MGI
Cost of sale of electricity = 758,974 Purchase of
P =–
P (P
= 157,965) 30-day, non-interest Unsecured; no
electricity bearing impairment

Asia Coal
Due to related parties − Advances – (254) Non-interest bearing Unsecured

Entities Under Common Control

Direct Power Services, Inc.
Revenue from sale of electricity 193,644 Sale of electricity – – 30-day, non-interest Unsecured; no
bearing impairment

Ingrid Power Holdings, Inc.

Advances to affiliates 150,000 Advances 150,000 – Subsequently on Unsecured
demand

SolarAce1 Energy Corp.

Advances to affiliates 26,000 Advances 26,000 – Subsequently on Unsecured
demand
Parent
Other Related Parties
Directors
General and administrative expenses 8,993 Directors’ fee and – (50) On demand Unsecured
annual
incentives
Stockholders
Due to stockholders – Cash Dividends – (16,594) On demand Unsecured
Due from related parties (see Note 7) P9
= =–
P
Advances to affiliates (see Note 17) 176,000 –
Due to related parties (see Note 18) – (190,062)
Accrued director’s and annual –
incentives (see Note 18) (50)
Due to stockholders (see Note 36) – (16,594)

As at and for the Year Ended December 31, 2018

Amount/ Outstanding Balance
Company Volume Nature Receivable Payable Terms Conditions
Ultimate Parent
PHINMA, Inc.
Rental and other income =103 Rent and share in
P =–
P =–
P 30-60 day, non- Unsecured
expenses interest bearing
Due to related parties/ General and 27,968 Management fees and – (23,521) 30-day, non- Unsecured
administrative expenses share in expenses interest bearing
Accounts payable and other current 49,308 Cash dividend – − Payable on April Unsecured
liabilities 05, 2018;
subsequently
on demand
Due to related parties – Rental deposit – (186) End of lease term Unsecured

Joint Ventures
SLTEC
Due to related parties/ Cost of sale of 6,283,516 Purchase of electricity – (508,808) 30-day, non- Unsecured
electricity interest bearing
Revenue from sale of electricity, 517,911 Sale of electricity, 288,453 – 30-day, non- Unsecured, with
rental, dividend and other income rent, dividend and interest bearing impairment
share in expenses
Investments and advances – Dividends received – −30-day, non- Unsecured
(see Note 13) interest bearing
Due to related parties – Rental deposit – (497) End of lease term Unsecured

PHINMA Solar
Due to related parties – Advances – (90,000) Non-interest Unsecured
bearing

(Forward)

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As at and for the Year Ended December 31, 2018

Amount/ Outstanding Balance
Company Volume Nature Receivable Payable Terms Conditions

Associates
MGI
Due to related parties/ Cost of sale of =1,142,885 Trading cost
P =–
P (P
=144,224) 30-day, non- Unsecured
electricity interest bearing
Investments and advances 12,500 Dividend received – − Non-interest Unsecured
(see Note 13) bearing

Asia Coal
Due to related parties − Advances – (253) Non-interest Unsecured
bearing

Entities Under Common Control

PHINMA Property Holdings
Corporation (PPHC)
Due to related parties − Advances – (171) 30-60 day, non- Unsecured
interest bearing

PHINMA Corporation
Dividend and other income 5,804 Cash dividend and – − 30-60 day, non- Unsecured
share in expenses interest bearing
Due to related parties/ Other expenses 3,778 Share in expenses – (490) 30-day, non- Unsecured
interest bearing
Accounts payable and other current 51,293 Cash dividends − − Payable on April Unsecured
liabilities 05, 2018;
subsequently
on demand
Union Galvasteel Corp. (UGC)
Due from related parties/ 619 Rental income and 123 – 30-60 day, non- Unsecured, no
advances interest bearing impairment
Receivables 225,000 Sale of 50% Interest 45,000 Noninterest- Unsecured, no
in PHINMA Solar bearing impairment
Due to related parties Rental deposit – (158)
Dividend income 3,458 Cash dividend − − 30-60 day, non- Unsecured
interest bearing
General and administrative expenses 136 Roofing materials − − 30-60 day, non- Unsecured
interest bearing

T-O Insurance, Inc.

Due to related parties/ General and 59,146 Insurance expense – (32,857) 30-60 day, non- Unsecured
administrative expenses and membership interest bearing
fees

Other Related Parties

Directors
General and administrative expenses 10,145 Directors’ fee and – – On demand Unsecured
annual incentives

Stockholders
Due to stockholders 89,718 Cash dividends – (16,651) On demand Unsecured
Due from related parties (see Note 7) =333,576
P =–
P
Due to related parties (see Note 18) – (801,165)
Due to stockholders (see Note 36) – (16,651)

AC Energy
The Parent Company and its subsidiaries PHINMA Power, CIPP and PHINMA Renewable have
management contracts with PHINMA, Inc. This Management Contracts were assigned to AC Energy
on June 25, 2019 through the executed Deed of Assignment. The management fees billed by ACEI in
2019 include =
P15.60 million which pertain to compensation of officers.

For each coal swap transaction which the Parent Company enters, AC Energy charges guarantee fee.
It is payable 30 days post the confirmation of the transaction.

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SLTEC
The transactions with SLTEC include the sale and purchase of electricity (see Note 35),
reimbursements of expenses and receipt of dividends. SLTEC became a subsidiary and was
consolidated effective July 1, 2019.

MGI
The Parent Company purchases the entire net electricity output of MGI (see Note 35). Other
transactions with MGI include reimbursements of expenses and advances for future subscriptions.
In 2018, the Parent Company invested additional capital to MGI amounting to =
P12.50 million
(see Note 12).

Ayala Land, Inc. (ALI)

The Parent Company leases office unit and parking slots from ALI (see Note 35).

Retirement Fund
The fund is managed by a trustee under the PHINMA Jumbo Retirement Plan (see Note 30).

Indebtedness of or Advances to Related parties

As at December 31, 2019, the Group’s advances to related parties arise from the acquisition of shares
of Ingrid Power Holdings, Inc. and Solar Ace1 Energy, Corp of the Parent Company.

The Risk Management and Related Party Transactions (RPT) Committee shall review and the Board
of Directors approve all SEC defined and Company Recognized Material RPTs before its
commencement. SEC defined material related party transactions are any RPT, either individually, or
in aggregate over a 12-month period of the Group with the same related party, amounting to 10% or
higher of the Group’s total consolidated assets based on the latest audited financial statements.
Company Recognized Material RPT are any related party transaction/s that meet the threshold values
approved by the RPT Committee, i.e. 50 million or 5% of the Group’s total consolidated assets,
whichever is lower, and other requirements as may be determined by the Committee upon the
recommendation of the Risk Management Group.

Identification, review and approval of related party transactions

All (1) SEC-defined material related party transactions, i.e., related party transaction/s, either
individually or in aggregate over a twelve (12)-month period of the Group with the same related
party, amounting to ten percent (10%) or higher of the Group’s total consolidated assets based on its
latest audited consolidated financial statements; and (2) any related party transaction/s that meet the
threshold values approved by the Risk Management and Related Party Transactions Committee (the
Committee), i.e., =P50.00 million or five percent (5%) of the Group’s total consolidated assets,
whichever is lower, shall be reviewed by the Committee and approved by the BOD before its
commencement, except transactions that are explicitly excluded/exempted by the SEC and
transactions delegated to management.

For SEC-defined material related party transactions, the approval shall be by at least 2/.3 vote of the
BOD, with at least a majority vote of the independent directors. In case that the vote of a majority of
the independent directors is not secured, the material related party transactions may be ratified by the
vote of the stockholders representing at least 2/3 of the outstanding capital stock.

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For related party transactions that, aggregately within a 12-month period, breach the SEC materiality
threshold, the same board approval would be required for the transaction/s that meets and exceeds the
materiality threshold covering the same related party.

Compensation of Key Management Personnel

Compensation of key management personnel of the Group are as follows:

2019 2018 2017

Short-term employee benefits P
=47,943 =57,702
P =74,447
P
Post-employment benefits 4,405 4,643 4,810
P
=52,348 =62,345
P =79,257
P

32. Earnings (Loss) Per Share

Basic and diluted earnings (loss) per share are computed as follows:

2019 2018 2017

(In Thousands, Except for Number of Shares
and Per Share Amounts)
(a) Net income (loss) attributable to equity
holders of Parent Company (P
=331,011) (P
=560,496) =353,764
P

Common shares outstanding at

beginning of year (see Note 22) 4,889,774,922 4,889,774,922 4,885,897,908
Weighted average number of shares
issued during the year 1,316,000,000 – 1,614,537
(b) Weighted average common shares
outstanding 6,205,774,922 4,889,774,922 4,887,512,445

Basic/Diluted earnings (loss) per share (a/b) (P

=0.05) (P
=0.11) =0.07
P

On June 25, 2019, AC Energy subscribed to 2,632,000,000 shares of ACEPH at par value of =
P1.00
per share on closing date.

In 2019, 2018 and 2017, the Parent Company does not have any potential common shares or other
instruments that may entitle the holder to common shares. Consequently, diluted earnings (loss) per
share is the same as basic earnings (loss) per share in 2019, 2018 and 2017.

33. Business Combinations, Asset Acquisitions and Non-controlling Interests

Acquisition of SLTEC
As discussed in Note 1, the Parent Company gained control of SLTEC through purchase of Axia’s
20% interest in SLTEC. Pooling of interests was adopted for business combination involving entities
under common control.

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The carrying values of the identifiable assets and assumed liabilities arising as at July 1, 2019
(earliest period when the parties were under common control), the date the business combination was
accounted for, follow:

Assets
Cash and cash equivalents =1,967,463
P
Receivables - current portion 254,907
Inventories 611,090
Other current assets 526,920
Property, plant and equipment (see Note 11) 15,839,996
Receivables - net of current portion 91,453
Other noncurrent assets 304,977

Liabilities
Accounts payable and other current liabilities 798,933
Loans payable - current portion (see Note 19) 254,047
Loans payable - net of current portion (see Note 19) 10,560,408
Other noncurrent liabilities 635,424
Net assets 7,347,994
Less: Non-controlling interests 3,041,805
Net assets acquired 4,306,189
Cost of acquisition (6,535,776)
Other equity reserves (see Note 22) (P
=2,229,587)

From July 1 to December 31, 2019, SLTEC’s contribution to revenue and net loss amounted to
=2,420.99 million and =
P P225.72 million, respectively, where the revenue is fully eliminated since the
sale was made solely to the Parent Company. If the business combination had taken place at the
beginning of 2019, SLTEC’s contribution to revenue and net loss would have been P =4,735.04 million
and P=458.24 million, respectively.

Acquisition of BCHC
As discussed in Note 1, the Parent Company acquired BCHC through the execution of a subscription
agreement. The transaction was concluded as a purchase of asset since BCHC does not currently
have any substantive process that, together with its inputs, significantly contribute to the ability to
create outputs.

The carrying values of the identifiable assets and assumed liabilities arising as at December 12, 2019,
the date the business combination was accounted for, follow:

Assets
Cash and cash equivalents P168
=
Other current assets 88,116
Land (see Note 11) 138,427
Liabilities
Accounts payable and other current liabilities 224,252
Net assets 2,459
Cost of acquisition =2,500
P

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34. Material Partly-Owned Subsidiaries

Financial information of SLTEC and ACEX are provided below:

Equity interest held by NCI as at December 31, 2019 and 2018 are as follows:

Percentage of Ownership (%)

Name 2019 2018
ACEX 23.684% 48.868%
Palawan55 16.425% 33.891%
SLTEC 35.000% –

Accumulated balances of NCI as at December 31 are as follows:

Subsidiary 2019 2018

SLTEC P
=2,962,804 =–
P
Enexor 15,392 44,658
Palawan55 384 792
P
=2,978,580 =45,450
P

Net loss allocated to NCI for the years ended December 31 are as follows:

Subsidiary 2019 2018 2017

SLTEC P
=79,001 =–
P =–
P
Enexor 6,473 30,800 6,583
Palawan55 418 1,860 13
P
=85,892 =32,660
P =6,596
P

Summarized statement of financial position as at December 31, 2019 and 2018 are as follows:

Enexor 2019 2018

Current assets P
=54,097 =63,753
P
Noncurrent assets 30,702 29,527
Current liabilities 11,256 1,590
Noncurrent liability 16 281
Total equity P
=73,527 =91,409
P
Attributable to:
Equity holders of the Parent Company P
=58,135 =46,751
P
NCI 15,392 44,658
P
=73,527 =91,409
P

Palawan55 2019 2018

Current assets P
=16,542 =5,777
P
Noncurrent assets 23,063 6,816
Current liabilities 39,090 10,249
Noncurrent liability – 6
Total equity P
=515 =2,338
P
Attributable to:
Equity holders of the Parent Company P
=131 =1,546
P
NCI 384 792
P
=515 =2,338
P

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Summarized statement of income and statement of comprehensive income for the years ended
December 31, 2019, 2018 and 2017 are as follows:

Enexor 2019 2018 2017

Expenses P
=19,463 =64,405
P =14,850
P
Other income - net 1,320 1,543 1,249
Provision for (benefit from) deferred income tax (293) 170 (128)
Net loss P
=17,850 =63,032
P =13,473
P
Total comprehensive loss attributable to:
Equity holders of the Parent Company P
=11,377 =32,232
P =6,890
P
NCI 6,473 30,800 6,583
P
=17,850 =63,032
P =13,473
P

Palawan55 2019 2018 2017

Expenses P
=1,631 =5,516
P =50
P
Other expenses (income) (198) 35 13
Provision for (benefit from) deferred income tax (6) 6 –
Net loss P
=1,823 =5,487
P =37
P
Total comprehensive loss attributable to:
Equity holders of the Parent Company P
=1,405 =3,627
P =24
P
NCI 418 1,860 13
P
=1,823 =5,487
P =37
P

Summarized statement of cash flows for the years ended December 31, 2019, 2018 and 2017 are as
follows:

Enexor 2019 2018 2017

Operating activities (P
=25,374) (P
=16,061) (P
=8,903)
Investing activities 57,739 19,025 8,454
Net increase (decrease) in cash and cash
equivalents P
=32,365 =2,964
P (P
=449)

Palawan55 2019 2018 2017

Operating activities P
=4,519 =2,757
P (P
=39)
Investing activities (16,588) (1,102) –
Financing activities 22,465 1,950 –
Net increase (decrease) in cash and cash
equivalents P
=10,396 =3,605
P (P
=39)

There were no dividends paid to NCI for the years ended December 31, 2019, 2018 and 2017.

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Summarized statement of financial position of SLTEC as at December 31, 2019 are as follows:

SLTEC
Current assets P2,642,266
=
Noncurrent assets 15,987,044
Current liabilities 1,042,651
Noncurrent liability 10,452,349
Total equity =7,134,310
P
Attributable to:
Equity holders of the Parent Company =4,171,506
P
NCI 2,962,804
=7,134,310
P

Summarized statement of income and statement of comprehensive income of SLTEC for the period
July 10 to December 31, 2019 are as follows:

SLTEC
Revenues P2,420,993
=
Expenses (2,512,018)
Other income (95,823)
Provision for deferred income tax (38,868)
Net loss =225,716
P
Total comprehensive loss attributable to:
Equity holders of the Parent Company =146,715
P
NCI 79,001
=225,716
P

Summarized statement of cash flows of SLTEC for the period July 10 to December 31, 2019 are as
follows:

SLTEC
Operating activities =701,507
P
Investing activities 69,137
Financing activities (407)
Net increase in cash and cash equivalents =770,237
P

There were no dividends paid to NCI for the period July 10 to December 31, 2019.

35. Significant Laws, Commitments and Contracts

Electric Power Industry Reform Act (EPIRA)

R.A. No. 9136, the EPIRA, and the covering Implementing Rules and Regulations (IRR) provide for
significant changes in the power sector which include, among others, the following:
(1) The unbundling of the generation, transmission, distribution and supply, and other disposable
assets of the Group, including its contracts with independent power producers, and electricity
rates;
(2) Creation of a WESM;
(3) Open and non-discriminatory access to transmission and distribution systems;

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(4) Public listing of generation and distribution companies; and,

(5) Cross-ownership restrictions and concentrations of ownership.

The Group believes that it is in compliance with the applicable provisions of the EPIRA and its IRR.

Retail Competition and Open Access (RCOA)

Upon meeting all conditions set forth in the EPIRA, the ERC promulgated the Transitory Rules for
the RCOA, by virtue of ERC Resolution No. 16 Series of 2012.

Through RCOA, licensed Electricity Suppliers, such as the Group, are empowered to directly contract
with Contestable Customers (bulk electricity users with an average demand of 1 MW). This major
development in the Power Industry enabled the Group to grow.

Secondary Price Cap

Significant events in November and December 2013 resulted in a surge of electricity prices that
affected the end-consumers, which led the ERC to impose a supplemental regulatory cap under the
ERC Resolution 20, Series of 2014. The said resolution established a preemptive mitigating measure
in the WESM meant to limit significant increases in the WESM prices.

This regulatory cap was made permanent and requires all trading participants in the WESM to
comply. ACEPH and its subsidiaries that sell to WESM are subject to this cap.

Renewable Energy (RE) Act of 2008

As provided for in R.A. 9513, RE developers shall be entitled to incentives, such as, income tax
holiday, duty-free importation of RE machinery, equipment and materials, zero percent VAT rate on
sale of power from RE sources, and tax exemption of carbon credits, among others.

The Group ventured into wind resource development projects through its subsidiary, PHINMA
Renewable. The Act significantly affected the operating results of PHINMA Renewable due to a
guaranteed FIT rate and reduction in taxes.

Wind Energy Service Contracts

PHINMA Renewable was awarded 12 wind service contract areas with an aggregate capacity
estimated at 400 MW. This includes the 54 MW San Lorenzo Wind Project (SLWP) which started
delivering power to the grid on October 7, 2014 and declared commercial operations on
December 27, 2014. PHINMA Renewable sells its generated electricity to the WESM under the FIT
System.

Feed-in-Tariff (FIT)
On June 10, 2015, the SLWP was issued a Certificate of Endorsement for FIT Eligibility by the DOE.
On December 1, 2015, PHINMA Renewable received its Certificate of Compliance from the ERC
which entitles PHINMA Renewable to recognize its FIT at an approved rate of = P7.40, with a
retroactive period beginning December 27, 2014, for a guaranteed period of twenty (20) years until
December 26, 2034.

Power Purchase Agreement / Contract to Purchase Generated Electricity

ACEPH entered into contracts with MGI and third parties where the Parent Company will purchase the
entire or a portion of the net electricity output of the power plants for a period ranging from three (3)
to twenty (20) years at an agreed price, subject to certain adjustments.

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Administration and Management Agreement (AMA)

ACEPH entered into contract with SLTEC where the Parent Company will purchase the entire net
electricity output of SLTEC from April 24, 2015 to April 23, 2040 for Unit 1 and from
February 21, 2016 to February 20, 2041 for Unit 2. The contract was amended effective
August 26, 2019 to include the supply of the necessary coal to generate electricity at an agreed price,
subject to certain adjustments.

Power Administration and Management Agreement (PAMA)

ACEPH entered into PAMAs with its subsidiaries PHINMA Power, CIPP and One Subic Power.
Under the terms of the PAMA, ACEPH will administer and manage the entire generation output of
the plants and will pay for all electricity delivered by the power plant based on a formula as set forth
in the PAMA and shall be payable monthly. The PAMAs with PHINMA Power and CIPP are valid
for ten (10) years and are subject to regular review, while the PAMA with One Subic Power is valid
throughout the life of the related Facilities Lease Agreement with SBMA (see Note 1).

On January 12, 2018, the PAMAs of the Group with CIPP and PHINMA Power were amended,
providing for certain capacity rates based on nominated capacity and billing of fuel recovery and
utilization fee. The new PAMAs became effective starting March 26, 2018 and valid for ten years
and are subject to regular review.

Ancillary Services Procurement Agreements (ASPA) with NGCP

ACEPH and certain subsidiaries executed ASPAs with NGCP. Under the ASPA, the power plants
will provide contingency and dispatchable reserves to NGCP to ensure reliability in the operation of
the transmission system and the electricity supply in the Luzon Grid for five (5) years upon the
effectivity of the provisional approval or final approval issued by the ERC. ERC’s provisional
approval is extended every year.

Electricity Supply Agreement (ESA) / Contract for the Sale of Electricity (CSE) with GUIMELCO
On November 12, 2003, ACEPH signed an ESA with GUIMELCO, under which ACEPH agreed to
construct, operate and maintain a 3.4 MW bunker C-fired diesel generator power station and to
supply GUIMELCO with electricity based on the terms and conditions set forth in the ESA. The
power plant commenced commercial operations on June 26, 2005.

Upon the expiration of the ESA, the parties entered into a CSE on March 2015. Under the contract,
ACEPH shall supply, for a period of 10 years from fulfillment of the conditions precedent indicated
in the contract, all of GUIMELCO’s electricity requirements that are not covered by GUIMELCO’s
base load supply. On February 1, 2018, ACEPH has invoked a change in circumstances under the
CSE considering that the passage of Tax Reform for Acceleration and Inclusion (TRAIN) law was
not contemplated by parties during execution of CSE. The parties executed a Termination Agreement
on March 21, 2018 effectively terminating the CSE.

Power Supply Agreement with MERALCO

Baseload Demand
On September 9, 2019, the bid submitted by ACEPH was declared as one of the best bids of
MERALCO’s 1200 MW. The Parent Company will supply MERALCO a baseload demand of
200MW from December 26, 2019 until December 25, 2029 subject to the approval of the Energy
Regulatory Commission.

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Mid-merit Supply
On September 11, 2019, the bid submitted by ACEPH was declared as one of the best bids of
MERALCO’s 500 MW. The Parent Company will supply MERALCO a baseload demand of
110MW from December 26, 2019 until December 25, 2024 subject to the approval of the Energy
Regulatory Commission.

Other ESAs / CSEs with customers

ACEPH signed contracts to supply the energy requirements of various bilateral and RES contestable
customers with a duration ranging from one (1) to fifteen (15) years.

Service Contracts with the DOE

SC 14 (North Matinloc)
ACEPH holds a 6.103% participating interest in SC 14 Block B-1 which hosts the North Matinloc-2
(NM-2) production well. The well is produced on cyclical mode with rest period longer than the flow
phase, to enable the reservoir to build up enough pressure to push the crude to surface. In 2016, the
well produced a total of 9,123 barrels of crude oil for an average 760 barrels monthly production.

SC 664 (Mabinay, Negros Oriental)

On November 10, 2016, the DOE awarded Hydropower Service Contract 2016-06-664 (“Ilog”) to the
Parent Company covering certain areas in Mabinay, Negros Oriental. The contract provides for a
two-year Pre-Development Stage during which the Group shall evaluate the commercial feasibility of
the project. Upon Declaration of Commerciality, the project shall proceed to the Development Stage
which is valid for twenty-five (25) years. All costs during 2016 and 2017 with the Ilog Hydro
projects were not capitalized as these were costs incurred prior to exploration and development
activities.

Solar Energy Service Contract (SESC) (Bugallon, Pangasinan)

On May 22, 2017, the DOE awarded a SESC to the Parent Company, which grants the Parent
Company the exclusive right to explore, develop and utilize the solar energy resource in a 648-hectare
area in the Municipality of Bugallon, Province of Pangasinan. Pre-development activities, such as,
yield assessment, environmental impact study and system impact study are underway and are
expected to be completed within the year. The Parent Company hopes to construct a 45MW ground
mount fixed-tilt grid tied solar PV plant in the service contract area. The term of the service contract
is twenty-five (25) years, extendable for another 25 years. As at March 25, 2020, all costs of the
Bugallon Solar project were not capitalized as these were costs incurred prior to exploration and
development activities.

Solar Energy Service Contract (Lipa City and Padre Garcia, Batangas)
On July 18, 2017, the DOE awarded a SESC to the Parent Company, which grants the Parent
Company the exclusive right to explore, develop and utilize the solar energy resource in a 486 hectare
area in the City of Lipa and Municipality of Padre Garcia, Province of Batangas. The Parent
Company hopes to construct a 45MW ground mount fixed-tilt grid connected solar plant in the
service contract area. All technical studies were completed and necessary permits were secured such
as the ECC as well as local government endorsement. The term of the service contract is twenty-five
(25) years, extendable for another 25 years. As at March 25, 2020, all costs of the Lipa and Padre
Garcia Solar project were not capitalized as these were costs incurred prior to exploration and
development activities.

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Lease Commitments

ACEPH’s Lease Agreement with GUIMELCO

The Parent Company has entered into a lease agreement with GUIMELCO for a parcel of land used
only as a site for electric generating plant and facilities. The term of the lease is 10 years with a
renewal option included in the contract. The Parent Company is given the first option to buy the
property if the lessor decides to sell the land. The lease is at a fixed monthly rate of =P0.04 million for
the duration of the lease term. On March 27, 2015, the lease agreement was extended for another
10 years. On January 24, 2019, the Guimaras Power Plant was sold to S. I. Power Corporation.
Consequently, in view of the sale, the Parent Company terminated the lease with GUIMELCO in
2019.

One Subic Power’s Facilities Lease Agreement with SBMA

One Subic Power has a lease contract with SBMA for a parcel of land and electric generating plant
and facilities. The lease was originally entered on July 20, 2010 and was valid for five years. The
agreement was amended on October 24, 2012 to extend the term of the lease to July 19, 2020 with an
option to renew for another five years. On December 21, 2017, SBMA informed One Subic Power
that its BOD has approved the amendments of the FLA extending the lease term until July 19, 2030.
On April 3, 2018, the third amendments were signed and approved.

For the year-ended December 31, 2019, One Subic Power recognized finance charges on the lease
liabilities amounting to =
P37.85 million, included under “Interest and Other Finance Charges” account
(see Note 28). OSPGC recognized rent expense of nil, = P75.78 million and =P71.23 million in 2019,
2018 and 2017, respectively, included in “Rent” account under “Cost of sale of electricity
(see Note 24).

PHINMA Renewable’s Lease Agreement with Various Land Owners

PHINMA Renewable has entered into various lease agreements with individual land owners where
the present value of the minimum lease payments does not amount to at least substantially all of the
fair value of the leased assets, which indicates that the risks and rewards relates to the asset are
retained with the land owners. These leases are previously classified as operating leases and have
terms of twenty (20) to twenty-five (25) years. For the year ended December 31, 2019, PHINMA
Renewable recognized finance charges on the lease liabilities amounting to = P17.62 million included
in “Interest and Other Finance Charges” account (see Note 28).

PHINMA Renewable recognized rent expense of nil, P =0.71 million and =P0.73 million in 2019, 2018
and 2017, respectively, included in “Rent” account under “Cost of sale of electricity” (see Note 24).

Easements and Right of Way Agreements

In 2014, the Group also entered to various easements and right of way agreements with land owners
in Guimaras for the erection of transmission lines that will connect the 54 MW wind farm project
located in San Lorenzo, Guimaras to the grid. One-off payments made by PHINMA Renewable to
various land owners to cover the 25-year easement and right of way agreements were recognized as
prepaid rent in the consolidated statement of financial position and amortized over the term of the
lease. The amortization of the lease during the construction period was capitalized as part of the cost
of the wind farm.

PHINMA Renewable recognized rent expense of nil, P =2.01 million and =P1.99 million in 2019, 2018
and 2017, respectively, included in “Rent” account under “Cost of sale of electricity” (see Note 24).

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ACEPH’s Agreement on Assignment of Contract of Lease

On November 20, 2019, the Parent Company, AC Energy, Ayala Land, Inc. (ALI) and Ayalaland
Offices, Inc. entered an agreement on assignment of contract of lease. AC Energy assigned a portion
of its office unit and parking slots effective September 1, 2019. The lease is until May 31, 2022. The
lease is at a fixed monthly rate of =
P0.83 million and =
P0.01 million for the office unit and parking
slots, respectively with an escalation rate of 5% every year, beginning on the second year. For the
year-ended December 31, 2019, ACEPH recognized finance charges on the lease liabilities
amounting to = P0.46 million, included under “Interest and Other Finance Charges” account
(see Note 28).

SLTEC’s Contract of Lease for Office Space

On December 19, 2019, SLTEC notified the lessor of their intent to pre-terminate their office lease
contract effective March 31, 2020. SLTEC remeasured the lease liability and ROU asset as a result of
the termination of the contract (see Note 3).

Subscription Agreements

ACEPH’s Agreement with Philippine Investment Alliance for Infrastructure (“PINAI”) for North
Luzon Renewable Energy Corporation (“NLREC”) and Philippine Wind Holdings Corporation
(“PhilWind”) shares
On November 4, 2019, the Parent Company’s Executive Committee approved and authorized the
share purchase agreement with the Philippine Investment Alliance for Infrastructure (“PINAI”) to
acquire PINAI’s ownership interest in North Luzon Renewable Energy Corporation (“NLREC”) and
Philippine Wind Holdings Corporation (“PhilWind”), which was formally executed on
November 5, 2019.

PINAI effectively has a 31% preferred equity and 15% common equity ownership in NLREC.
NLREC is a joint venture of AC Energy, UPC Philippines, Luzon Wind Energy Holdings and PINAI.
NLREC owns and operates an 81 MW wind farm in Pagudpud, Ilocos Norte, which started operations
in November 2014. PhilWind is the parent company of NLREC. PhilWind directly and indirectly
owns 67% of NLREC, through its 38% direct interest and 28.7% indirect interest through its 100%
wholly-owned subsidiary, Ilocos Wind Energy Holding Co., Inc. The acquisition is subject to the
satisfaction of certain conditions precedent, definitive documentation and PCC approval.

ACEPH’s Agreement with PINAI for ISLASOL and SACASOL shares

On December 3, 2019 the Parent Company signed a share purchase agreement with PINAI
collectively made up of Macquarie Infrastructure Holdings (Philippines) Pte. Limited, Langoer
Investments Holding B.V., and the Government Service Insurance System, for the acquisition of
PINAI’s ownership interest in ISLASOL and SACASOL. On February 13, 2020, the PCC ruled that
the PINAI sale of SACASOL shares "will not likely result in substantial lessening of competition"
and resolved "to take no further action with respect to the Transaction."

ACEPH’s Agreement with Ingrid

On December 19, 2019, the Parent Company signed a subscription agreement with Ingrid for 50,000
common shares and 5,651,000 redeemable preferred shares in Ingrid, at the subscription price of
=4.90 million for the common shares and =
P P565.10 million for the redeemable preferred shares. Ingrid
is developing a 300-MW diesel power plant in Pililia, Rizal. Issuance of the shares is subject to the
necessary regulatory approvals for increase of Ingrid's authorized capital stock and creation of new
shares.

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36. Financial Risk Management Objectives and Policies

Objectives and Investment Policies

The funds of the entities are held directly by the Group and are managed by AC Energy’s Risk,
Corporate Finance, Investor Relations and Treasury Group (RCITG). All Cash investments of the
Group are carried and governed by the following principles, stated in order of importance:

· Preservation of invested cash

· Liquidity of invested cash; and
· Yield on invested cash.

Under no circumstance is yield to trump the absolute requirement that the principal amount of
investment be preserved and placed in liquid instruments.

RCITG manages the funds of the Group and invests them in highly liquid instruments such as short-
term deposits, marketable instruments, corporate promissory notes and bonds, government bonds, and
trust funds denominated in Philippine peso and U.S. dollar. It is responsible for the sound and
prudent management of the Group’s financial assets that finance the Group’s operations and
investments in enterprises.

RCITG focuses on the following major risks that may affect its transactions:

· Foreign exchange risk

· Credit or counterparty risk
· Liquidity risk
· Market risk
· Interest rate risk

Professional competence, prudence, clear and strong separation of office functions, due diligence and
use of risk management tools are exercised at all times in the handling of the funds of the Group.

Risk Management Process

Foreign Exchange Risk

The Group defines Foreign Exchange Risk as the risk of realizing reduced operating cash flows
and/or increasing the volatility of future earnings from movements in foreign exchange. The risk is
measured based on potential downside impact of market volatility to operating cash flows and target
earnings.

Foreign exchange risk is generally managed in accordance with the Natural Hedge principle and
further evaluated through :
· Continual monitoring of global and domestic political and economic environments that have
impact on foreign exchange;
· Regular discussions with banks to get multiple perspectives on currency trends/forecasts; and
· Constant updating of the foreign currency holdings gains and losses to ensure prompt decisions if
the need arises.

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In the event that a Natural Hedge is not apparent, the Group endeavors to actively manage its open
foreign currency exposures through:
· Trading either by spot conversions; and
· Entering into derivative forward transactions on a deliverable or non-deliverable basis to protect
values

The Group’s significant foreign currency-denominated financial assets and financial liabilities as at
December 31, 2019 and 2018 are as follows:

2019 2018
U.S. Dollar Euro Sing. Dollar U.S. Dollar Euro
(US$) (€) (S$) (US$) (€)
Financial Assets
Cash and cash equivalents $14,192 €– S$– $872 €–
Short-term investments 2,776 – – 672 –
Other receivables 441 – 31 190 –
$17,409 €– S$31 $1,734 –
Financial Liabilities
Accounts payable and other
current liabilities (1,416) (615) (43) (256) (44)
Due to related parties – – – (480) –
(1,416) (615) (43) (736) (44)
Net foreign currency-denominated
assets (liabilities) $15,993 (€615) ( S$12) $998 (€44)
Peso equivalent P
=811,485 (P
= 34,692) (P
= 450) =52,475
P =2,654
P

In translating foreign currency-denominated financial assets and financial liabilities into

Philippine Peso amounts, the exchange rate used were P =50.74 to US$1.00, P =56.41 to €1.00 and
=
P37.49 to S$1.00 as at December 31, 2019 and = P52.58 to US$1.00 and P =60.31 to €1.00 as at
December 31, 2018.

The following tables demonstrate the sensitivity to a reasonably possible change in the exchange rate,
with all other variables held constant, of the Group’s profit before tax (due to the changes in the fair
value of monetary assets and liabilities) in 2019 and 2018. The possible change are based on the
survey conducted by management among its banks. There is no impact on the Group’s equity other
than those already affecting the profit or loss. The effect on profit before tax already includes the
impact of derivatives.

Increase (Decrease) in
Year Foreign Exchange Rate US$ Euro (€) Sing$
2019 (P
=0.50) (P
=1,347) =308
P =6
P
(1.00) (2,694) 615 12
0.50 1,347 (308) (6)
1.00 2,694 (615) (12)

2018 (P
=0.50) (P
=499) P22
= –
(1.00) (998) 44 –
0.50 499 (22) –
1.00 998 (44) –

Credit or Counterparty Risk

The Group defines Credit or Counterparty Risk as the risk of sustaining a loss resulting from a
counterparty’s default to a transaction entered with the Group.

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Credit or counterparty risk is managed through the following:

· Investments are coursed through or transacted with duly accredited domestic and foreign banks
subject to investment limits per counterparty as approved by the Board.
· Discussions are done on every major investment by RCIT before it is executed subject to the
Chief Financial Officer (CFO) approval. Exposure limits are tracked for every transaction and a
RCIT Finance Managers supervises major transaction executions.
· Market and portfolio reviews are done at least once a week and as often as necessary should
market conditions require. Monthly reports are given to the CFO with updates in between these
reports as needed.
· A custodian bank for Philippine peso instruments and foreign currency instruments has been
appointed based on its track record on such service and the bank’s financial competence.

With respect to credit risk arising from the receivables of the Group, the Group’s exposures arise
from default of the counterparty, with a maximum exposure equal to the carrying amount of these
instruments.

2019
Past Due Past Due
Neither Past Due nor Impaired but not Individually
Class A Class B Class C Impaired Impaired Total
Trade and other receivables
Current:
Trade receivables P
=1,944,166 P
=– P
=– P
=250,602 P
=39,014 P
=2,233,782
Due from related parties 9 – – – – 9
Others – 96,641 – 437,001 83,222 616,864
Noncurrent
Trade receivables – – – 1,123,511 13,751 1,137,262
Receivables from third
Parties – 423,705 – – – 423,705
P
=1,944,175 P
=520,346 P
=– P
=1,811,114 P
=135,987 P
=4,411,622

2018
Past Due Past Due
Neither Past Due nor Impaired but not Individually
Class A Class B Class C Impaired Impaired Total
Trade and other receivables
Current:
Trade receivables =1,712,945
P =–
P P–
= =400,481
P P40,922
= =2,154,348
P
Due from related parties – 320,642 – 2,674 10,260 333,576
Others – 183,751 – 6,798 80,152 270,701
Noncurrent
Trade receivables – – – 1,123,511 13,751 1,137,262
Receivables from third
parties – 501,266 – – – 501,266
=1,712,945
P =1,005,659
P P–
= =1,533,464
P =145,085
P =4,397,153
P

The Group uses the following criteria to rate credit risk as to class:

Class Description
Class A Customers with excellent paying habits
Class B Customers with good paying habits
Class C Unsecured accounts

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With respect to credit risk arising from the other financial assets of the Group, which comprise cash
and cash equivalents, short-term investments, financial assets at FVOCI, financial assets at FVTPL,
and derivative instruments, the Group’s exposure to credit risk arises from default of the counterparty,
with a maximum exposure equal to the carrying amount of these instruments.

The Group’s assessments of the credit quality of its financial assets are as follows:

· Cash and cash equivalents, short-term investments, derivative assets and financial assets at
FVTPL were assessed as high grade since these are deposited in or transacted with reputable
banks, which have low probability of insolvency.
· Listed and unlisted financial assets at FVOCI were assessed as high grade since these are
investments in instruments that have a recognized foreign or local third party rating or
instruments which carry guaranty or collateral.

There are no significant concentrations of credit risk within the Group.

Maximum exposure to credit risk of financial assets not subject to impairment

The gross carrying amount of financial assets not subject to impairment also represents the Group's
maximum exposure to credit risk, as follows:

2019 2018
Financial Assets at FVTPL
Current P
=– =743,739
P
Noncurrent – 5,452
Financial Assets at FVOCI 1,251 257,995
=1,251
P =1,007,186
P

Maximum exposure to credit risk of financial assets subject to impairment

The gross carrying amount of financial assets subject to impairment are as follows:

2019 2018
Financial Assets at Amortized Cost (Portfolio 1)
Cash and cash equivalents (excluding cash on hand) P
=8,581,351 =1,022,189
P
Short-term investments 100,000 35,326
Under “Receivables”
Trade receivables 2,233,782 2,154,348
Due from related parties 9 333,576
Others 616,864 270,701
Under “Other Noncurrent Assets”
Trade receivables – 1,137,262
Receivables from third parties 423,705 501,266
Deposits and advances to suppliers 341,014 –
P
=12,296,725 =5,454,668
P

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The Group’s maximum exposure to credit risk as at December 31 are as follows:

2019
Lifetime ECL
12 month Simplified
Grade Stage 1 Stage 2 Stage 3 Approach Total
High = 8,219,484
P =–
P =–
P = 3,094,449
P = 11,313,933
P
Standard – – – – –
Substandard – – – – –
Default – – – 120,262 120,262
Gross carrying amount 8,219,484 – – 3,214,711 11,434,195
Less loss allowance – – – 122,236 122,236
Carrying amount = 8,219,484
P =–
P =–
P = 3,092,475
P = 11,311,959
P

2018
Lifetime ECL
12 month Simplified
Grade Stage 1 Stage 2 Stage 3 Approach Total
High =1,057,692
P =–
P =–
P =1,712,945
P =2,770,637
P
Standard – – – 1,005,738 1,005,738
Substandard – – – 1,533,464 1,533,464
Default – – 143,135 1,950 145,085
Gross carrying amount 1,057,692 – 143,135 4,254,097 5,454,924
Less loss allowance – – 143,135 1,950 145,085
Carrying amount =1,057,692
P =–
P =–
P =4,252,147
P =5,309,839
P

Liquidity Risk
Liquidity risk is defined as the risk that the Group may not be able to settle or meet its obligations on
time or at a reasonable price.

Liquidity risk is managed through:

· Asset and Liability Management principle. Short-term assets are used to fund short-term
liabilities while major investments, capital expenditures and long-term assets are funded by long-
term liabilities.
· Detailed cash flow forecasting and continuous monitoring of the weekly and monthly cash flows
as well as frequent updates of the annual plans of the Group.
· Investment maturities being spread on a weekly, monthly, and annual basis as indicated in the
Group’s plans. Average duration of investments do not exceed one (1) year.
· Setting up working capital lines to address unforeseen cash requirements that may cause pressure
to liquidity.

The tables below summarize the maturity profile of the Group’s financial liabilities as at
December 31 based on contractual undiscounted payments:

2019
More than 1
Less than 3 to Year to 5 More than
On Demand 3 Months 12 Months Years 5 Years Total
Accounts payable and
other current liabilities:
Trade and nontrade
accounts payable P–
= = 961,726
P = 1,957,480
P P
= P–
= = 2,919,206
P
Retention payable – 2,050 – – – 2,050
Accrued expenses a 23,942 35,912 – – 59,854
Accrued interest – 34,405 103,213 – – 137,618
Due to related parties – 142,546 47,516 – – 190,062
Derivative liability – 21,060 – – – 21,060

(Forward)

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2019
More than 1
Less than 3 to Year to 5 More than
On Demand 3 Months 12 Months Years 5 Years Total
Accrued directors' and annual
incentives = 50
P P–
= P–
= P–
= P–
= = 50
P
Others b 13,902 – – – – 13,902
Due to stockholders 16,594 – – – – 16,594
Lease liabilities c – 8,386 25,157 105,206 420,822 559,571
Long-term loans d – 296,922 296,925 8,076,832 12,115,249 20,785,928
Other noncurrent liabilities – – – 2,048,335 1,128,511 3,176,846
= 54,488
P = 1,503,007
P = 2,430,291
P = 10,230,373
P = 13,664,582
P = 27,882,741
P
a
Excluding current portion of vacation and sick leave accruals amounting to =
P6.94 million (see Note 30).
b
Excluding payable to officers and employees amounting to =P9.21 million (see Note 18)
c
Gross contractual payments.
d
Including contractual interest payments.

2018
Less than 3 to 1 to More than
On Demand 3 Months 12 Months 5 Years 5 Years Total
Accounts payable and
other current liabilities:
Trade and nontrade
accounts payable =–
P =569,534
P P
=134,106 P
=7,940 =–
P =711,580
P
Retention payable – 1,096 – – – 1,096
Accrued expenses a 19,720 80,376 14,888 – – 114,984
Accrued interest – 19,581 59,716 – – 79,297
Due to related parties – 785,069 16,175 – – 801,244
Others b – 54 4,603 – – 4,657
Due to stockholders 16,651 – – – – 16,651
d
Short-term loans – 5,425 410,033 – – 415,458
Finance lease obligation c – 5,304 11,474 58,380 251,179 326,337
Long-term loans d – 273,692 266,213 2,718,367 3,229,049 6,487,321
Other noncurrent liabilities e 1,123,511 – – 187,267 – 1,310,778
=1,159,882
P =1,740,131
P =917,208
P P
=2,971,954 =3,480,228
P P
=10,269,403
a
Excluding current portion of vacation and sick leave accruals amounting to =
P6.50 million (see Note 30).
b
Excluding payable to officers and employees amounting to =P3.53 million.
c
Gross contractual payments.
d
Including contractual interest payments.
e
Excluding noncurrent portion of finance lease obligation amounting to =
P72.30 million (see Note 21).

As at December 31, 2019 and 2018, the profile of financial assets used to manage the Group’s
liquidity risk is as follows:

2019
Less than 3 to Over
On Demand 3 Months 12 Months 12 Months Total
Loans and receivables:
Current:
Cash and cash equivalents P
=8,581,663 P
=– P
=– P
=– P
=8,581,663
Short-term investments 100,000 – – – 100,000
Receivables:
Trade 1,944,166 289,616 – – 2,233,782
Due from related parties 9 – – – 9
Others 96,641 520,223 – – 616,864
Deposit receivables* – – 77,284 – 77,284
Noncurrent:
Trade receivables 1,137,262 – – – 1,137,262
Receivable from third
parties – – – 423,705 423,705
Deposit receivables – – – 109,419 109,419
(Forward)

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2019
Less than 3 to Over
On Demand 3 Months 12 Months 12 Months Total
Financial assets at FVTPL P
=– P
=– P
=– P
=– P
=–
Derivative assets – 33 – – 33
Financial assets at FVOCI:
Quoted – – – 21 21
Unquoted – – – 1,230 1,230
P
=11,859,741 P
=809,872 P
=77,284 P
=534,375 P
=13,281,272

2018
Less than 3 to Over
On Demand 3 Months 12 Months 12 Months Total
Loans and receivables:
Current:
Cash and cash equivalents =1,022,366
P P–
= P–
= P–
= =1,022,366
P
Short-term investments 35,326 – – – 35,326
Receivables:
Trade 441,403 1,712,945 – – 2,154,348
Due from related parties 12,855 320,721 – – 333,576
Others 86,952 183,749 – – 270,701
Deposit receivables* – – 69,056 – 69,056
Noncurrent:
Trade receivables 1,137,262 – – – 1,137,262
Receivable from third
parties – – – 501,266 501,266
Deposit receivables – – – 102,346 102,346
Financial assets at FVTPL 749,191 – – – 749,191
Derivative assets – 4 – – 4
Financial assets at FVOCI: – – – – –
Quoted – – – 137,096 137,096
Unquoted – – – 120,899 120,899
=3,485,355
P =2,217,419
P =69,056
P =861,607
P =6,633,437
P
*Excluding nonrefundable deposits amounting to nil and =
P13.52 million as at December 31, 2019 and 2018, respectively.

Market Risk
Market risk is the risk that the value of an investment will decrease due to drastic adverse market
movements that consist of interest rate fluctuations affecting bid values or fluctuations in stock
market valuation due to gyrations in offshore equity markets or business and economic changes.
Interest rate, foreign exchange rates and risk appetite are factors of a market risk as the summation of
the three defines the value of an instrument or a financial asset.

As of December 31, 2019, the Group has already liquidated all outstanding investment in marketable
securities and will discontinue investing in highly volatile financial instruments to keep a risk-averse
position.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. As at December 31, 2019 and 2018, the Group
has fixed rate financial instruments measured at fair value.

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The Group’s exposure to interest rate risk relates primarily to long-term debt obligations that bear
floating interest rate. The Group generally mitigates risk of changes in market interest rates by
constantly monitoring fluctuations of interest rates and maintaining a mix of fixed and floating
interest-bearing loans. Specific interest rate risk policies are as follows:

ACEPH
In 2014, the Parent Company also availed of a total of peso-denominated = P3.00 billion corporate
notes and loan agreements from CBC, SBC and BDO to be used to fund its projects and working
capital. SBC has a term of five (5) years with quarterly payments starting on the 5th quarter
drawdown. Both BDO and CBC have a term of ten (10) years with quarterly payments starting on
the 5th quarter drawdown having fixed interest rates to be repriced for the last three (3) years.

On June 28, 2019 and July 08, 2019, the Group prepaid its floating rate debt with SBC and BDO
amounting to =P0.93 million and =P0.40 million, respectively. This is in line with the Group’s
objective to mitigate uncertainties in its earnings and cash flows.

PHINMA Renewable
PHINMA Renewable entered into a = P4.30 billion peso-denominated Term Loan Facility that will be
used to partially finance the 54MW San Lorenzo Wind Farm. The loan facility is divided into two
tranches amounting to = P2.15 billion each - DBP as the Tranche A lender and SBC as the Tranche B
lender.

Both tranches have a term of fifteen (15) years with semi-annual interest payments starting on the
date on which the loan is made. The interest of Tranche A bears a fixed rate for the first ten (10)
years and is subject to an interest rate repricing on the last five (5) years.
On April 28, 2016, the Group prepaid a portion of its long-term debt in accordance with the terms of
the Agreement as follows:

· the Group shall effect a mandatory prepayment of the loan, without premium or penalty, within
three (3) business days from receipt by the Group of any transmission line proceeds;
· prepay the loan to the extent of seventy percent (70%) of the transmission line proceeds;
· the remaining thirty percent (30%) shall be transferred directly into the Group controlled
distribution account for further distribution to the Project Sponsor.

The following table sets out the carrying amount, by maturity of the Group’s financial assets that are
exposed to interest rate risk:
2019
More than 1 More than 2 More than 3
Within year to years to 3 years to Beyond
Interest Rates 1 year 2 years years 4 years 4 years Total
Long-term loans
PHINMA Renewable
DBP 6.25 - 8.36% P
= 64,595 = 69,268
P = 73,953
P = 82,413
P = 476,161
P = 766,390
P
SBC 6.57 - 6.74% 58,904 63,112 67,333 75,802 493,468 758,619

ACEPH
BDO 5.81 - 6.55% 9,363 9,338 9,318 9,297 412,321 449,637
CBC 5.68 - 7.13% 29,949 28,550 27,958 27,906 1,243,933 1,358,296
DBP 6.00 - 6.09% 66,332 71,194 75,879 80,569 609,767 903,741
SBC 6.50 - 6.59% 66,385 71,122 75,875 80,634 609,740 903,756
BDO 4.98 - 5.05% 47,144 47,573 47,858 48,116 4,742,648 4,933,339

(Forward)

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2019
More than 1 More than 2 More than 3
Within year to years to 3 years to Beyond
Interest Rates 1 year 2 years years 4 years 4 years Total
Long-term loans
SLTEC
BDO 5.71 - 7.05% = 83,313
P = 83,313
P = 166,625
P = 166,625
P = 2,749,313
P = 3,249,188
P
BDO 6.98% 72,942 72,617 155,695 155,778 2,685,419 3,142,452
RCBC 5.71 - 7.05% 41,688 41,688 83,375 83,375 1,375,688 1,625,813
RCBC 6.98% 36,772 36,618 78,196 78,236 1,345,438 1,575,260
SBC 6.98% 23,521 23,477 48,447 48,462 815,999 959,906

Special savings account

(SSA) – Dollar 1.425 – 1.75% 13,550 – – – – 13,550
Short-term investments – 30 – – – – 30

2018
More than 1 More than 2 More than 3
Within year to years to 3 years to Beyond
Interest Rates 1 year 2 years years 4 years 4 years Total
Long-term loans
PHINMA Renewable
DBP 6.25 - 8.36% P54,410
= P57,365
= P61,559
= P65,766
= P580,419
= P819,519
=
SBC 6.57 - 6.74% 55,348 58,904 63,112 67,333 568,572 813,269

ACEPH
Short-term loan
BDO 5.25% 400,000 – – – – 400,000
Long-term loan
BDO 5.81 - 6.55% 9,386 9,363 9,340 9,320 424,060 461,469
CBC 5.68 - 7.13% 29,966 29,949 28,553 27,949 1,272,278 1,388,695
SBC 8.69% (4,541) 927,602 – – – 923,061
DBP 6.00 - 6.09% 61,435 66,383 71,136 75,893 690,623 965,470
SBC 6.50 - 6.59% 61,435 66,383 71,136 75,893 690,605 965,452

Special savings account

(SSA) – Peso 1.60 - 6.90% 830,685 – – – – 830,685
Special savings account
(SSA) – Dollar 1.50 - 3.00% 44,411 – – – – 44,411
Short-term investments – 30,285 – – – – 30,285

The other financial instruments of the Group that are not included in the preceding table are not
subject to interest rate repricing and are therefore not subject to interest rate volatility.

The following tables demonstrate the sensitivity to a reasonably possible change in the interest rates,
with all other variables held constant, of the Group’s profit before tax for the years ended
December 31, 2019 and 2018. The possible change are based on the survey conducted by
management among its banks. There is no impact on the Group’s equity other than those already
affecting the profit or loss.

2019
Effect on
Profit Before Tax
Increase (Decrease) in Increase
Basis Points (Decrease)
Long-term loans 25 (P
=31,006)
(25) 31,006
Short-term investments 25 2,669
(25) (2,669)
SDA 25 (12,823)
(25) 12,823
SSA 25 34
(25) (34)

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2018
Effect on
Profit Before Tax
Increase (Decrease) in Increase
Basis Points (Decrease)
Long-term loans 25 (P
=15,615)
(25) 15,615
SDA 25 (980)
(25) 980
SSA 25 1,766
(25) (1,766)
Short-term loan 25 980
(25) (980)

Commodity Price Risk

The Group defines Commodity Price Risk as the risk of realizing reduced profit margins and/or
increasing the volatility of future earnings that are affected by the pricing variability and uncertainty
in coal supply and any associated foreign exchange risk. The risk is measured based on potential
downside impact of market volatility to target earnings.

To manage Commodity Price Risk, the Group develops a Coal Hedging Strategy aimed to:
· Manage the risk associated with unexpected increase in coal prices which affect the target Profit
& Loss of the Group
· Determine the Hedge Item and appropriate Hedging Instrument to use, including but not limited
to price, amount and tenor of the hedge to reduce the risk to an acceptable level
· Reduce Mark-to-Market impact of hedges by qualifying the hedging transaction for hedge
accounting

Only the Group’s Chief Executive Officer and Chief Finance Officer are authorized to make coal
hedging decisions for the Group. All executed hedges go through a stringent approval process to
justify the tenor, price and volume of the hedge to be undertaken.

Monitoring and assessment of the hedge effectiveness and Coal Hedging Strategy is reviewed
quarterly during the Group’s Finance Committee (FINCOM). Continuation, addition, reduction and
termination of existing hedges are decided by the FINCOM and any material change in permissible
hedging instrument, counterparties and limits are elevated to the Board for approval.

As at December 31, 2019, the Group’s outstanding coal hedge volumes and resulting derivative
liability is as follows:

2019 Test of
In Metric Tons U.S. Dollar Effectiveness
(MT) (US$)
Derivative Liabilities 135,000 (414,411) 100%
BAP closing rate 50.82
Peso equivalent (P
= 21,060,367)

The portion of gain or loss on the hedging instrument amounting to =

P21.06 million that is determined
to be effective hedge shall be recognized in other comprehensive income.

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Equity Price Risk

Equity price risk is the risk to earnings or capital arising from changes in stock exchange indices
relating to its quoted equity securities. The Group’s exposure to equity price risk relates primarily to
its financial assets at FVOCI.

As at December 31, 2019, the Group has already liquidated all outstanding investment in marketable
securities and will discontinue investing in highly volatile financial instruments to keep a risk-averse
position.

Monitoring of Risk Management Process

Risk management is regarded as a core competency, thus review of processes and approval processes
including periodic audit are practiced and observed as follows:

· Monthly Treasury meetings are scheduled where approved strategies, limits, mixes are challenged
and rechallenged based on current and forecasted developments on the financial and political
events.
· Weekly portfolio reports are submitted to the Management Committee that includes an updated
summary of global and domestic events of the past month and the balance of the year.
· Annual teambuilding sessions are organized as a venue for the review of personal goals,
corporate goals and professional development.
· One on one coaching sessions are scheduled to assist, train and advise personnel.
· Periodic review of Treasury risk profile and control procedures.
· Periodic specialized audit is performed to ensure active risk oversight.

Capital Management
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit
rating and healthy capital ratios in order to support its business and maximize shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic
conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to
shareholders, return capital to shareholders, issue new shares or acquire long-term debts. In 2017, the
Group availed of =P2.35 billion loan agreement with SBC and DBP (see Note 19). In 2018, the Group
availed P
=0.93 billion loan agreement with SBC. In 2019, the Group availed P5.00 billion loan
agreement with BDO. In relation to these agreements, the Group closely monitors its debt covenants
and maintains a capital expenditure program and dividend declaration policy that keeps the
compliance of these covenants into consideration.

The following debt covenants are being complied with by the Group as part of maintaining a strong
credit rating with its creditors:

ACEPH
CBC and BDO
(a) Minimum DSCR of 1.0 times after Grace Period up to Loan Maturity
(b) Maximum Debt to Equity ratio of 1.5 times

SBC
(a) Minimum DSCR of 1.0 times after Grace Period up to Loan Maturity
(b) Maximum Debt to Equity ratio of 2.0 times
(c) Minimum Current ratio of 1.0 times

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PHINMA Renewable
Under the Omnibus Loan Facility Agreement, PHINMA Renewable must maintain a Historical Debt
Service Coverage Ratio of at least 1.20:1.00 and a Debt to Equity ratio of not exceeding 70:30. It
also requires equity contributions from its shareholders amounting to =
P328.13 million for retention
and contingencies.

Additional covenants prevent PHINMA Renewable from entering into any joint ventures,
partnerships, or similar business combinations or arrangements. It also prohibits PHINMA
Renewable from making payments of dividends or return of capital.

SLTEC
The New Omnibus Agreement provides for covenants which include, among others, maintaining
DSCR of not less than 110% and net debt-capitalization ratio not exceeding 75:1.

37. Fair Values

The table below presents the carrying values and fair values of the Group’s financial assets and
financial liabilities, by category and by class, as at December 31, 2019 and 2018:

2019
Fair Value
Significant
Quoted Prices in Significant Unobservable
Active Markets Observable Input Inputs
Carrying Value (Level 1) (Level 2) (Level 3)
Assets
Financial assets at FVOCI = 1,251
P = 21
P = 1,230
P P–
=
Derivative assets* 33 – 33 –
Refundable deposits** 186,703 – – 186,703
Receivables from third parties** 333,333 – – 333,333
= 521,320
P = 21
P = 1,263
P = 520,036
P
Liabilities
Long-term debt = 20,785,928
P P–
= = 20,785,928
P =–
P
Deposit payables and other liabilities*** 6,085,290 – – 6,085,290
Derivative liability 21,060 – 21,060 –
= 26,892,278
P =–
P = 20,806,988
P = 6,085,290
P

2018
Fair Value
Significant
Quoted Prices in Significant Unobservable
Active Markets Observable Input Inputs
Carrying Value (Level 1) (Level 2) (Level 3)
Assets
Financial assets at FVTPL
Current =743,739
P =–
P =743,739
P =–
P
Noncurrent 5,452 – 5,452 –
Financial assets at FVOCI 257,995 137,096 11,500 109,399
Derivative assets* 4 – 4 –
Refundable deposits** 154,010 – – 136,129
Receivables from third parties** 517,757 – – 518,071
=1,678,957
P =137,096
P =760,695
P =763,599
P
Liabilities
Short-term loan =400,000
P =–
P =–
P =400,000
P
Long-term debt 6,336,933 – 6,114,507 –
Deposit payables and other liabilities*** 4,603 – – 4,202
=6,741,536
P =–
P =6,114,507
P =404,202
P
*** Included under “Other current assets” account.
*** Included under “Other current assets” and “Other noncurrent assets” accounts.
*** Included under “Accounts payable and other current liabilities” and “Other noncurrent liabilities” accounts.

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The following methods and assumptions are used to estimate the fair values of each class of financial
instruments:

Cash and Cash Equivalents, Short-term Investments, Receivables, Accounts Payable and Other
Current Liabilities and Due to Stockholders
The carrying amounts of cash and cash equivalents, short-term investment, receivables, accounts
payable and other current liabilities and due to stockholders approximate their fair values due to the
relatively short-term maturities of these financial instruments.

Financial Assets at FVTPL

Net asset value per unit has been used to determine the fair values of financial assets at FVTPL.

Financial Asset at FVOCI

Quoted market prices have been used to determine the fair values of quoted financial assets at
FVOCI. In 2019 and 2018, the fair values of financial assets at FVOCI are determined based on the
discounted free cash flows of the investee.

The fair value of derivative assets of freestanding forward currency transactions is calculated by
reference to current forward exchange rates for contracts with similar maturity profiles.

The Group uses the following hierarchy for determining and disclosing the fair value of financial
instruments by valuation technique:

Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities

Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or
liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable
inputs).

Refundable Deposits, Deposits Payable and Other Liabilities

Estimated fair value is based on present value of future cash flows discounted using the prevailing
PHP BVAL reference rates that are specific to the tenor of the instruments’ cash flows at the end of
the reporting period.
Long-Term Loans
The estimated fair value is based on the discounted value of future cash flows using the prevailing
credit adjusted risk-free rates that are adjusted for credit spread.

Derivative Assets
Embedded Derivatives
The Group has bifurcated embedded derivatives from its fuel purchase contracts. The purchases are
denominated in U.S. dollar but the Group agreed to pay in Philippine peso using the average daily
Philippine Dealing System weighted average rate of the month prior to the month of billing. These
embedded derivatives are attributable to ACEPH.
The Group’s outstanding embedded forwards have an aggregate notional amount of
US$0.97 million and US$0.03 million as at December 31, 2019 and 2018, respectively. The
weighted average fixing rate amounted to P=50.84 to US$1.00 and = P52.35 to US$1.00 as at
December 31, 2019 and 2018, respectively. The net fair value of these embedded derivatives
amounted to = P3.88 million gains and =
P0.20 million gains at December 31, 2019 and 2018,
respectively.

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The net movements in fair value changes of the Group’s derivative instruments (both freestanding
and embedded derivatives) are as follows:

2019 2018
Balance at beginning of year P
=4 P9,652
=
Net changes in fair value during the year (6,851) (15,056)
Fair value of settled contracts 6,880 5,408
Balance at end of year P
=33 =4
P

The net changes in fair value during the year are included in the “Other income - net” account in the
consolidated statement of income (see Note 28).

The fair value of derivative assets is presented under “Other current assets” account in the
consolidated statement of financial position (see Note 9).

38. Operating Segments

The Group is divided into two reportable operating segments based on the nature of the services
provided - Power and Petroleum. Management monitors the operating results of its business units
separately for the purpose of making decisions about resource allocation and performance assessment.
Segment performance is evaluated based on operating profit or loss and is measured consistently with
operating profit or loss in the consolidated financial statements.

2019
Adjustments
Segment and
Power Petroleum Total Eliminations Consolidated
Revenue P15,297,719
= =–
P = 15,297,719
P = 8,944
P = 15,306,663
P
Costs and expenses 15,302,512 29,774 15,332,286 349,728 15,682,014
Other income (expense) - net
Interest and other finance charges (126,086) – (126,086) (755,877) (881,963)
Interest and other financial income – – – 109,190 109,190
Equity in net loss of associates
and joint ventures (24,461) – (24,461) – (24,461)
Gain on derivatives - net – – – (6,850) (6,850)
Gain on sale of PPE 158 – 158 293,942 294,100
Asset held for sale 14,289 14,289 14,289
Gain on sale of investment 1,375 – 1,375 – 1,375
Inventory (461) – (461) – (461)
Foreign exchange loss - net – – – 12,330 12,330
Others 110 – 110 291,970 292,080
Segment loss (P
= 139,869) (P
= 29,774) (P
= 169,643) (P
= 396,079) (P
= 565,722)

Operating assets = 27,910,722

P = 57,801
P = 27,968,523
P = 11,752,282
P = 39,720,805
P

Operating liabilities = 18,554,725

P = 30,716
P = 18,585,441
P = 10,030,546
P = 28,615,987
P

Capital expenditures = 386,879

P P–
= = 386,879
P = 3,547
P P390,426
=
Capital disposals 15,506 63 15,569 237,072 252,641
Investments and advances 4,147,257 – 4,147,257 (3,424,092) 723,165
Depreciation and amortization (380,524) (469) (380,993) (511,473) (892,466)
Provision for income tax – – – (148,819) (148,819)

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2018
Adjustments
Segment and
Power Petroleum Total Eliminations Consolidated
Revenue =15,113,601
P =–
P =15,113,601
P =9,791
P =15,123,392
P
Costs and expenses 15,428,035 116,348 15,544,383 219,625 15,764,008
Other income (expense) - net
Interest and other finance charges (132,377) – (132,377) (301,272) (433,649)
Interest and other financial income – – – 96,851 96,851
Equity in net earnings of associates
and joint ventures 532,460 – 532,460 – 532,460
Gain on derivatives - net – – – (15,057) (15,057)
Gain on sale of PPE 181 – 181 80 261
Gain on sale of investment 5,834 – 5,834 – 5,834
Foreign exchange loss – net – – – 29,329 29,329
Provision for unrecoverable input tax (43,712) – (43,712) – (43,712)
Others 431 – 431 46,315 46,746
Segment profit (loss) =48,383
P (P
=116,348) (P
=67,965) (P
=353,588) (P
=421,553)

Operating assets =16,116,835

P =38,550
P =16,155,385
P =2,769,310
P =18,924,695
P

Operating liabilities =
P5,161,610 =16,150
P =5,177,760
P =5,375,487
P =10,553,247
P

Capital expenditures =96,938

P =4,343
P =101,281
P =2,923
P =104,204
P
Capital disposals 2,367 – 2,367 556 2,923
Investments and advances 4,322,053 – 4,322,053 631 4,322,684
Depreciation and amortization (385,341) (458) (385,799) (19,985) (405,784)
Provision for income tax – – – (171,603) (171,603)

2017
Adjustments
Segment and
Power Petroleum Total Eliminations Consolidated
Revenue =17,011,044
P =–
P =17,011,044
P =9,189
P =17,020,233
P
Costs and expenses 17,238,567 23,437 17,262,004 331,785 17,593,789
Other income (expense) - net
Interest and other finance charges (184,075) – (184,075) (329,491) (513,566)
Interest and other financial income – – – 87,185 87,185
Equity in net earnings of associates
and joint ventures 1,024,995 – 1,024,995 – 1,024,995
Gain on derivatives - net (449) – (449) 9,848 9,399
Loss on sale of AFS investments – – – (17) (17)
Foreign exchange loss - net – – – (8,373) (8,373)
Others – – – 17,423 17,423
Segment profit (loss) =612,948
P (P
=23,437) =589,511
P (P
=546,021) =43,490
P

Operating assets =15,654,072

P =77,699
P =15,731,771
P =5,026,762
P =20,758,533
P

Operating liabilities =5,913,821

P =3,612
P =5,917,433
P =5,701,541
P =11,618,974
P

Capital expenditures =114,115

P =130
P =114,245
P =11,647
P =125,892
P
Capital disposals 2,018 830 2,848 417 3,265
Investments and advances 4,056,971 – 4,056,971 631 4,057,602
Depreciation and amortization (379,519) (689) (380,208) (19,195) (399,403)
Benefit from income tax – – – 303,678 303,678

Adjustments and eliminations

Interest and other financial income, including fair value gains and losses on financial assets are not
allocated to individual segments as the underlying instruments are managed on a group basis.
Likewise, certain operating expenses and finance-related charges are managed on a group basis and
are not allocated to operating segments.

Current taxes, deferred taxes and certain financial assets and liabilities are not allocated to those
segments as they are also managed on a group basis.

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Capital expenditures consist of additions to property, plant and equipment. Investments and advances
consist of investments and cash advances to the Group’s associates and joint ventures.

Reconciliation of profit

2019 2018 2017

Segment total profit (loss) before
adjustments and eliminations (P
=173,049) (P
=67,965) =589,511
P
Dividend income 7,585 9,117 8,483
Rent income 1,359 674 706
General and administrative expense (304,920) (219,626) (331,785)
Interest and other financial income 109,190 96,851 87,185
Interest and other finance charges (755,877) (301,272) (329,491)
Other income - net 549,990 60,677 18,881
Income (loss) before income tax (P
=565,722) (P
=421,544) =43,490
P

Other income - net include foreign exchange gain (loss), gain (loss) on sale of property, plant and
equipment and financial assets at FVOCI, provision for probable losses, gain (loss) on derivatives and
other miscellaneous income (expense) which are managed on a group basis and are not allocated to
operating segments.

Reconciliation of assets

2019 2018
Segment operating assets P
=27,968,523 =16,155,385
P
Current assets
Cash and cash equivalents 6,921,542 1,022,366
Receivables and other current assets 690,545 69,781
Financial assets at FVTPL – 743,739
Short-term investments 100,000 35,326
Noncurrent assets
Property, plant and equipment 2,536 47,361
Investments in an associate, financial assets at
FVOCI and financial assets at FVTPL 3,026,768 264,078
Investment property 13,085 13,085
Deferred income tax asset - net 608,526 261,346
Other noncurrent assets 389,280 312,228
Total assets P
=39,720,805 =18,924,695
P

Reconciliation of liabilities

2019 2018
Segment operating liabilities P
=18,585,441 =5,177,760
P
Current liabilities
Accounts payable and other current liabilities 1,178,205 107,502
Income and withholding taxes payable 21,876 11,762
Due to stockholders 16,594 16,651
Short-term loan – 400,000
Current portion of long-term loans 219,173 157,683
(Forward)

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2019 2018
Noncurrent liabilities
Long-term loans - net of current portion P
=8,357,377 =4,546,463
P
Pension and other employee benefits 60,449 40,246
Deferred income tax liabilities - net 176,872 95,180
Other noncurrent liabilities – –
Total liabilities P
=28,615,987 =10,553,247
P

39. Supplemental Cash Flow Information

The following table shows the Group’s non-cash investing and financing activities and corresponding
transaction amounts for the years ended December 31, 2019 and 2018:

2019 2018
Non-cash investing activities:
Due to acquisition of subsidiaries:
Property and equipment P
=16,113,473 =–
P
Payable to Axia for purchase of interest
in SLTEC as of December 31 2,874,637 –
Other noncurrent assets 396,431 –
Payable for additions to property, plant
and equipment as of December 31 121,431 –
Reclassifications to (from):
Right-of-use assets 590,556 –
Property and equipment 377,800 1,844
Other noncurrent assets (201,764) –
Financial assets at FVOCI (66,749) –
Goodwill and other intangible assets (24,959) –
Creditable withholding taxes – 704,726
Other noncurrent assets – 507,261
Asset held for sale ‒ 34,328

Movement in the Group’s liabilities from financing activities are as follows:

January 1, December 31,

2019 Availments Payments Others 2019
Current portion of:
Short-term loans P400,000
= P‒
= (P
= 400,000) =‒
P =‒
P
Long-term loans 265,460 ‒ (265,460) 593,847 593,847
Lease liability – ‒ ‒ 33,542 33,542
Interest payable 79,297 ‒ (791,630) 849,951 137,618
Noncurrent portion of:
Long-term loans 6,071,473 5,000,000 (1,116,514) 10,237,122 20,192,081
Lease liability – ‒ (36,246) 562,275 526,029
Total liabilities from financing activities = 6,816,230
P = 5,000,000
P (P
= 2,609,850) = 12,276,737
P = 21,483,117
P

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40. Events After the Reporting Period

Court of Tax Appeal (CTA)’s Decision on PHINMA Renewable Energy Corporation’s Input VAT
Refund Claim Against BIR
On January 9, 2020, PHINMA Renewable received a copy of the Decision of CTA on CTA Case no.
9516 wherein PREC filed a Petition for Review against the Commissioner of Internal Revenue on
January 17, 2017, praying for the refund or issuance of a tax credit certificate in the total of
=336.00 million, representing its alleged excess unutilized input value-added tax (VAT) for the 3rd
P
and 4th quarters of taxable year 2014 and 1st and 2nd quarters of taxable year 2015.

In its Decision, the CTA partially granted PHINMA Renewable ’s Petition for Review and ordered
the BIR to refund or issue a tax credit certificate in favor of PHINMA Renewable in the reduced
amount of = P16.15 million since the CTA ruled that PHINMA Renewable was able to prove
compliance with the essential elements for the grant of VAT zero-rating under Section 15(g),
Renewable Energy Act of 2008 beginning June 1, 2015, which are as follows:
1. The seller (PHINMA Renewable) is a Renewable Energy Developer of renewable energy
facilities;
2. It sells fuel or power generated from renewable sources of energy, such as wind;
3. The said seller is a “generation company,” i.e., a person or entity authorized by the Energy
Regulatory Commission (ERC) to operate facilities used in the generation of electricity; and
4. Such authority is embodied in a Certificate of Compliance (COC) issued by the ERC which must
be secured before the actual commercial operations of the generation facility.

However, the CTA held that PHINMA Renewable was not able to prove compliance with the 3rd and
4th essential elements to qualify for VAT zero-rating prior to June 1, 2015 because the CTA
considered the condition fulfilled only upon the issuance of the COC by the ERC in favor of
PHINMA Renewable on June 1, 2015. Hence, PHINMA Renewable’s generated sales from its power
generation activities which were considered by the CTA to be subject to zero percent (0%) VAT were
only those made during the period June 1, 2015 to June 30, 2015.

In view of the foregoing Decision, PHINMA Renewable has fifteen (15) days from receipt of the
Decision, or until January 24, 2020, to file a Motion for Reconsideration (MR) of the Decision.

On January 24, 2020, PHINMA Renewable filed its motion for reconsideration where it presented
that the sale of power through renewable sources of energy by VAT-registered persons shall be
subject to 0% VAT per Tax Code and Renewable Energy Act of 2008 and that the COC issued by the
ERC merely confirms the status of PHINMA Renewable as a Generation Company.

Subscription Agreements with:

1. SolarAce1
On January 14, 2020, the Parent Company signed a subscription agreement with SolarAce1 for
the subscription of 6,000,000 Class A common shares and 180,000,000 Class A redeemable
preferred Shares. SolarAce1 is developing a 120 MW DC solar power farm project to be located
in the Municipality of Alaminos, Laguna.

SolarAce1 is a wholly-owned subsidiary of Gigasol2, Inc. Gigasol2, Inc. is a wholly-owned

subsidiary of AC Energy Development, Inc., which is one of the companies acquired by the
Parent Company on October 9, 2019 in a property for share swap, pending regulatory approvals.

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2. Giga Ace 1, Inc. (“GigaAce1”)

On February 26, 2020, the Parent Company signed a subscription agreement with GigaAce1 for
the subscription by the Parent Company of 75,000 common shares to be issued out of the
unissued authorized capital stock (“ACS”) and 43,069,625 common shares and 53,562,609
redeemable preferred shares of GigaAce1 to be issued out of the increase in ACS of GigaAce1.
On the same date, subscription by ACEPH was paid in cash amounting to = P0.075 million for the
common shares; = P430.80 million for the 43,069,625 common shares and = P2,142.50 million for
the 53,562,609 RPS A.

On March 3, 2020, the Parent Company signed another subscription agreement with GigaAce1
for the subscription by the Parent Company of additional 1,170,000 common shares and
32,500 RPS A to be issued out of the increase in ACS of GigaAce1. The subscription will be used
by Giga Ace 1 to fund administrative and operating costs.

Deed of Transfer with Guimaras Electric Cooperative (GUIMELCO)

On January 15, 2020, the Parent Company signed a deed of transfer with GUIMELCO.

The Parent Company has a contract of lease with GUIMELCO for a portion of a parcel of land as site
for its 3.4MW Diesel Power Plant and Facilities. In 2005, the Parent Company constructed on the
leased premises a one (1) storey building.

Effective July 31, 2018, the Parent Company stopped operating the Power Plant and subsequently
sold its equipment and machineries. The Parent Company has outstanding lease payables as of
December 31, 2019. In settlement of its lease payables, it offered to transfer by way of dation in
payment the building on January 15, 2020.

Philippine Competition Commission’s Approval of Share Purchase Agreements with:

1. Macquarie Infrastructure Holdings (Philippines) Pte. Limited, Langoer Investments Holding
B.V., and the Government Service Insurance System (the “PINAI Investors”) for PhilWind shares
On January 28, 2020, the PCC ruled that the PINAI Investors’ sale of PhilWind shares "will not
likely result in substantial lessening of competition" and resolved to take no further action with
respect to the share purchase agreement.

2. PINAI Investors for SACASOL shares

On February 13, 2020, the PCC ruled that PINAI Investors’ sale of SACASOL shares "will not
likely result in substantial lessening of competition" and resolved "to take no further action with
respect to the Transaction..."

3. PINAI Investors for ISLASOL shares

On February 26, 2020, the PCC ruled that PINAI Investors’ sale of ISLASOL shares "will not
likely result in substantial lessening of competition" and resolved "to take no further action with
respect to the Transaction..."

DOE Approval on Transfer of Participating Interests of Century Red in SC 55

On February 13, 2020, Palawan55 received DOE’s approval on the transfer of the 37.50%
participating interest of Century Red in SC 55. After careful review and evaluation of DOE,
Palawan55 is found to be technically, financially and legally qualified to assume the participating
interests of Century Red.

Palawan55’s participating interest in SC 55 is adjusted from 37.50% to 75.00%.

*SGVFS039610*
 - 132 -

Impact of the Coronavirus Disease 2019 (COVID-19) Outbreak

In a move to contain the COVID-19 outbreak, on March 13, 2020, the Office of the President of the
Philippines issued a Memorandum directive to impose stringent social distancing measures in the
National Capital Region effective March 15, 2020. On March 16, 2020, Presidential Proclamation
No. 929 was issued, declaring a State of Calamity throughout the Philippines for a period of
six (6) months and imposed an enhanced community quarantine throughout the island of Luzon until
April 12, 2020, unless earlier lifted or extended. These measures have caused disruptions to
businesses and economic activities, and its impact on businesses continue to evolve.

The events surrounding the outbreak do not impact the Group’s financial position and performance as
of and for the year ended December 31, 2019. Considering the evolving nature of this outbreak, the
Group cannot determine at this time the impact to its financial position, performance and cash flows
in 2020. The Group has taken measures to manage the risks and uncertainties brought about by the
outbreak and will continue to monitor the situation.

Other matters
On March 18, 2020, the BOD approved, among others, the following matters:
i. Corporate changes
a. Change of the corporate name of the Parent Company to “AC Energy Corporation”;
b. Increase of the Parent Company’ authorized capital stock to =P48.40 billion, divided into 48.40
billion common shares;
c. Consolidation of ACEI’s international business and assets into the Parent Company via a tax
free exchange, whereby ACEI will transfer its shares of stock in Presage Corporation (ACEI’s
subsidiary holding company that owns ACEI’s international business and investments) to the
Parent Company in exchange for the issuance to ACEI of additional primary shares in the
Parent Company (assets-for-shares swap);
d. Share buy-back program to support share prices through the repurchase in the open market of
up to =
P1.00 billion worth of common shares beginning March 24, 2020;

ii. Significant transactions and contracts

a. Parent Company’s hedging policy, additional hedging counterparties, and guarantee fee
arrangement with AC Energy;
b. Parent Company’s oil and diesel hedging transactions with Macquarie Bank Limited;
c. Parent Company’s guarantee arrangement with AC Energy for the Parent Company’s oil and
fuel hedging transactions;
d. Payment of employee and employer shares under the Parent Company’s old defined
contribution retirement plan to covered employees as part of their transition to the new Parent
Company’s retirement plan;

iii. Funding
a. Renewal and additional credit lines with local banks of up to =P25.00 billion and foreign banks
of up to US$240 million, and co-use of these facilities with the Parent Company’s
subsidiaries;
b. Execution of credit facilities with the Presage Group for up to US$400.00 million, or its peso
equivalent to fund the Parent Company’s various greenfield projects and acquisitions;

iv. New investments and projects

a. In principle, the investment in the 160 MW Balaoi wind project, to be located in Barangays
Balaoi and Caunayan, Pagudpud, Ilocos Norte;
b. Funding of and investment into a Renewable Energy Laboratory project; and
c. In principle, funding of up to US$100 million for new technology investments in the
Philippines.

*SGVFS039610*
 - 133 -

41. Contingencies

Tax assessments:

a. On September 5, 2017, CIPP received an FDDA from the BIR demanding the payment of a total
amount of =P341.73 million for various alleged deficiency taxes for taxable year 2013. On
October 4, 2017, CIPP filed its request for reconsideration with the Office of the Commissioner.
In the opinion of CIPP’s management, in consultation with its outside counsel, these proceedings
will not have material or adverse effect on the consolidated financial statements. The information
usually required by PAS 37 is not disclosed on the ground that it can be expected to prejudice the
outcome or CIPP’s position with respect to these matters. As at March 25, 2020, the case is still
pending.

b. On August 20, 2014, ACEPH distributed cash and property dividends in the form of shares in
ACEX after securing SEC’s approval of the registration and receipt of Certificate Authorizing
Registration (CAR) from the BIR.

On October 22, 2014, ACEPH received from the BIR a Formal Letter of Demand (FLD),
assessing ACEPH for a total donor’s tax due of =
P157.75 million inclusive of penalty and interest
up to September 30, 2014.

On November 21, 2014, ACEPH and its independent legal counsel filed an administrative protest
in response to the FLD, on the following grounds:

1) The dividend distribution is a distribution of profits by ACEPH to its stockholders and not a
“disposition” as contemplated under Revenue Regulations Nos. 6-2008 and 6-2013 which
would result in the realization of any capital gain of ACEPH;
2) ACEPH did not realize any gain or increase its wealth as a result of the dividend distribution;
and,
3) There was no donative intent on the part of ACEPH.

On May 27, 2015, ACEPH received from the BIR a Final Decision on Disputed Assessment
(FDDA) dated May 26, 2015, denying the protest.

On June 25, 2015, ACEPH filed with the CTA a Petition for Review seeking a review of the
FDDA and requesting the cancellation of the assessment. In its decision dated September 28,
2018, the CTA cancelled and withdrew the FLD. On January 18, 2019, the CTA denied the
BIR’s motion for reconsideration. On February 22, 2019, BIR filed its petition for review
seeking CTA’s reversal of its decision on September 28, 2018 and its resolution on January 18,
2019. In response, ACEPH filed its Comment/ Opposition. The CTA referred the case for
mediation. However, the parties had no agreement to mediate so CTA submitted the case for
decision on July 10, 2019. As at March 25, 2020, the decision of CTA is still pending.

c. On January 4, 2018, PHINMA Power received a formal letter of demand issued by the BIR
demanding payment amounting to P=19.72 million for deficiency income tax, value-added tax,
withholding tax and compromise penalties for the taxable year 2013. On
January 5, 2018, PHINMA Power paid the amount of = P19.72 million as full settlement of the
assessment.

*SGVFS039610*
 - 134 -

d. On June 28, 2019, PHINMA Power received a Letter of Authority (LOA) for the examination of
accounting records for all internal revenue taxes for the period from January 1, 2018 to
December 31, 2018 was received. The submission of required documents covered by the audit is
ongoing.

Claim for tax refund

On August 15, 2016, PHINMA Renewable filed with the BIR a letter and application for tax credits
or refund for the PHINMA Renewable’s excess and unutilized input VAT for the period July 1, 2014
to June 30, 2015 amounting to = P335.76 million attributable to PHINMA Renewable’s zero-rated
sales. On December 19, 2016, PHINMA Renewable received a letter from the BIR denying the
administrative claim for refund of excess and unutilized input VAT for the period July 1, 2014 to
December 31, 2014. On January 11, 2017, PHINMA Renewable filed with the CTA a Petition for
Review. During 2018, PHINMA Renewable and the BIR presented their evidence and arguments.
Refer to Note 40 for detailed discussion on the progress of the claim.

*SGVFS039610*
 SyCip Gorres Velayo & Co. Tel: (632) 891 0307 BOA/PRC Reg. No. 0001,
6760 Ayala Avenue Fax: (632) 819 0872 October 4, 2018, valid until August 24, 2021
1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-5 (Group A),
Philippines November 6, 2018, valid until November 5, 2021

INDEPENDENT AUDITOR’S REPORT

ON SUPPLEMENTARY SCHEDULES

The Stockholders and the Board of Directors

AC Energy Philippines, Inc.
4th Floor, 6750 Office Tower
Ayala Avenue, Makati City

We have audited in accordance with Philippine Standards on Auditing, the consolidated financial
statements of AC Energy Philippines, Inc and Subsidiaries (collectively, the Group) as at
December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019
included in this Form 17-A and have issued our report thereon dated March 25, 2020. Our audits were
made for the purpose of forming an opinion on the basic consolidated financial statements taken as a
whole. The schedules listed in the Index to the Consolidated Financial Statements and Supplementary
Schedules are the responsibility of the Group’s management. These schedules are presented for purposes
of complying with the Revised Securities Regulation Code Rule 68, and are not part of the basic
consolidated financial statements. These schedules have been subjected to the auditing procedures
applied in the audit of the basic consolidated financial statements and, in our opinion, fairly state in all
material respects, the information required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.

SYCIP GORRES VELAYO & CO.

Benjamin N. Villacorte
Partner
CPA Certificate No. 111562
SEC Accreditation No. 1539-AR-1 (Group A),
March 26, 2019, valid until March 25, 2022
Tax Identification No. 242-917-987
BIR Accreditation No. 08-001998-120-2019,
January 28, 2019, valid until January 27, 2022
PTR No. 8125320, January 7, 2020, Makati City

March 25, 2020

*SGVFS039610*
A member firm of Ernst & Young Global Limited
 AC ENERGY PHILIPPINES, INC.
AND SUBSIDIARIES
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY SCHEDULES
FORM 17-A, ITEM 7

Page No.

Consolidated Financial Statements

Statement of Management’s Responsibility for Consolidated Financial Statements Exhibit A

Report of Independent Public Accountants Exhibit A
Consolidated Statements of Financial Position
as at December 31, 2019 and 2018 Exhibit A
Consolidated Statements of Income
for the years ended December 31, 2019, 2018 and 2017 Exhibit A
Consolidated Statements of Comprehensive Income
for the years ended December 31, 2019, 2018 and 2017 Exhibit A
Consolidated Statements of Changes in Equity
for the years ended December 31, 2019, 2018 and 2017 Exhibit A
Consolidated Statements of Cash Flows
for the years ended December 31, 2019, 2018 and 2017 Exhibit A
Notes to Consolidated Financial Statements Exhibit A

Supplementary Schedules

Report of Independent Public Accountants on Supplementary Schedules

A. Financial Assets Attachment I

B. Amounts Receivable from Directors, Officers, Employees, Related
Parties and Principal Stockholders (Other than Related Parties)* Not Applicable
C. Accounts Receivable from Related Parties which are eliminated
during the consolidation of financial statements Attachment I
D. Intangible Assets - Other Assets Not Applicable
E. Long-Term Debt Attachment I
F. Indebtedness to Related Parties (Long-Term Loans from Related Companies)* Not Applicable
G. Guarantees of Securities of Other Issuers* Not Applicable
H. Capital Stock Attachment I

Schedule of Retained Earnings Available for Dividend Declaration Attachment II

Map of Relationships of the Companies within the Group Attachment III
Financial Soundness Indicators Attachment IV
*These schedules are either not required, not applicable or the information required to be presented is included in the
Company’s consolidated financial statements or notes to consolidated financial statements.
 Attachment I

AC ENERGY PHILIPPINES, INC. AND SUBSIDIARIES

Schedule A. Financial Assets
December 31, 2019

Number of Value Based

Shares or on Market
Principal Amount Quotations at Income
Name of Issuing Entity and Amount of Bonds Shown in the Balance Sheet Received
Association of each Issue and Notes Balance Sheet Date and Accrued

Investment in Treasury Bills P- P- P-

Investment in Unit Investment Trust Fund and Money - - -

Financial assets at FVOCI

Tagaytay Midlands Golf Club, Inc. 1 600,000 600,000 -
Evercrest Golf Club Resorts, Inc. 1 40,000 40,000 -
Puerto Azul Golf & Country Club, Inc. 1 150,000 150,000 -
Capitol Hills Golf & Country Club, Inc. 1 150,000 150,000 -
Philam Tower Club 1 100,000 100,000 -
Camp John Hay 1 190,000 190,000 -
A. Soriano 179 1,073 1,073 -
PLDT Inc. 19,500 19,500 -

1,250,573 1,250,573 -
Loans and Receivables
Cash and Cash Equivalents 8,581,662,823 8,581,662,823 61,825,887
Short-term investments 100,000,000 100,000,000 -
Trade and Other Receivables 2,721,664,932 2,721,664,932 6,273,605
Long-term Receivables 333,332,833 333,332,833 8,660,717
11,736,660,588 11,736,660,588 76,760,209

Derivative Assets 32,817 32,817 -

P11,737,943,978 P11,737,943,978 P76,760,209

 Attachment I

AC ENERGY PHILIPPINES, INC. AND SUBSIDIARIES

Schedule B. Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal Stockholders (Other than Related Parties)
December 31, 2019

Deductions
Balance at Balance
Beginning Amount Amount at End
Name and Designation of Debtor of Period Additions Collected Written-Off Current Non Current of Period

Not Applicable: The Company has no amounts receivable from directors, officers, employees, related parties and principal stockholders as at December 31, 2019
equal to or above the established threshold of the Rule.
 Attachment I

AC ENERGY PHILIPPINES, INC. AND SUBSIDIARIES

Schedule C. Accounts Receivable from Related Parties which are eliminated during the consolidation of financial statements
December 31, 2019

Deductions
Balance at Balance
Beginning Amount Amount at End
Name and Designation of Debtor of Period Additions Collected Written-Off Current Non Current of Period

CIP II Power Corporation P- P- P- P- P- P- P-

PHINMA Power Generation Corporation 1,112,325 111,792,030 (86,229,080) - 26,675,275 - 26,675,275
PHINMA Renewable Energy Corporation - 475,044,696 (475,044,696) - - - -
AC Enexor Inc. - 153,736,454 (153,636,454) - 100,000 - 100,000
Palawan55 Exploration and Production Corporation - 7,477,272 - - 7,477,272 - 7,477,272
One Subic Power Generation Corporation - 550,000,000 - - 550,000,000 - 550,000,000
South Luzon Thermal Energy Corporation 42,972,183 (19,074,394) 23,897,788 23,897,788

P1,112,325 P1,341,022,635 (P733,984,624) P- P608,150,336 P- P608,150,336

 Attachment I

AC ENERGY PHILIPPINES, INC. AND SUBSIDIARIES

Schedule D. Intangible Assets - Other Assets
December 31, 2019

Deductions
Charged to Charged to Other Changes-
Beginning Additions Costs Other Additions Ending
Description Balance At Cost and Expenses Accounts (Deductions) Balance
Oil exploration and development costs:
Service Contract (SC) No. 6 ₱27,460,307 ₱409,560 ₱- ₱- ₱- ₱27,869,867
SC 51 32,665,864 - - (32,665,864) -
SC 55 6,815,985 16,246,978 - - - 23,062,963
SC 69 15,596,930 - - - (15,596,930) -
SC 52 10,993,823 - - - - 10,993,823
SC 50 11,719,086 - - - - 11,719,086
Geothermal Service Contract (GSC) No. 8 Mabini 31,722,948 2,769,627 - - - 34,492,575
Hydropower Service Contracts:
SC 467 - - - - - -
SC 465 - - - - - -

136,974,943 19,426,164 - - (48,262,794) 108,138,313

Allowance for probable losses (75,867,880) - (34,492,575) 48,262,794 (62,097,661)

Total deferred exploration cost 61,107,063 - 19,426,164 (34,492,575) - - 46,040,652

Leasehold rights 24,959,644 499,976,001 - - (524,935,645) -
Goodwill 234,152,394 - - - - 234,152,394

₱320,219,101 ₱519,402,165 (₱34,492,575) ₱- (₱524,935,645) ₱280,193,046

 Attachment I

AC ENERGY PHILIPPINES, INC. AND SUBSIDIARIES

Schedule E. Long-Term Debt
December 31, 2019

Amount shown under

Amount Caption "Current Portion of Amount shown under Caption
Title of Issue and Type of Authorized by Long-Term Debt" in related "Long-Term Debt" in related
Obligation Indenture Balance Sheet Balance Sheet Interest Rate Periodic Payments Maturity Date

ACEPH Development Bank of the Philippines ₱907,391,160 ₱66,891,015 ₱840,500,145 6.00% 25 semi-annual payments July 10, 2029
Security Bank Corporation 907,420,730 66,942,557 840,478,173 6.50% 25 semi-annual payments July 11, 2029
China Bank Corporation 1,365,000,000 30,000,000 1,335,000,000 5.68% 36 quarterly payments April 30, 2024
BDO Unibank Inc. 455,000,000 10,000,000 445,000,000 5.81% 36 quarterly payments April 30, 2024
BDO Unibank Inc. 5,000,000,000 52,631,579 4,947,368,421 5.05% 20 semi-annual payments Nov 14, 2029
Total 8,634,811,890 226,465,151 8,408,346,739
Derivative on long-term loans 2,428,675 1,875,808 552,867
Unamortized debt issue costs (60,692,024) (9,167,950) (51,524,074)
₱8,576,548,541 ₱219,173,009 ₱8,357,375,532

PREC Development Bank of the Philippines ₱765,867,200 ₱60,733,125 ₱705,134,075 5.84%-6.25% 25 semi-annual payments February 14, 2029
Security Bank Corporation 765,867,200 60,733,125 705,134,075 6.24%-6.68% 25 semi-annual payments February 14, 2029
Total 1,531,734,400 121,466,250 1,410,268,150
Unamortized debt issue costs (6,724,925) (5,155,679) 2,115,402,225
₱1,525,009,475 ₱116,310,571 ₱3,525,670,375

SLTEC BDO Unibank Inc. ₱3,290,843,750 ₱83,312,500 ₱3,207,531,250 5.71%%-7.05% 24 semi-annual payments May 7, 2031
BDO Unibank Inc. 3,290,843,750 83,312,500 3,207,531,250 6.98% 24 semi-annual payments May 7, 2031
Rizal Commercial Banking Corporation 1,646,656,250 41,687,500 1,604,968,750 5.71%%-7.05% 24 semi-annual payments May 7, 2031
Rizal Commercial Banking Corporation 1,646,656,250 41,687,500 1,604,968,750 6.98% 24 semi-annual payments May 7, 2031
Security Bank Corporation 995,683,000 25,000,000 970,683,000 6.98% 24 semi-annual payments May 7, 2031
Total ₱10,870,683,000 ₱275,000,000 ₱10,595,683,000
Unamortized debt issue costs (178,132,197) (16,765,162) (161,367,035)
₱10,692,550,803 ₱258,234,838 ₱10,434,315,965
 Attachment I

AC ENERGY PHILIPPINES, INC. AND SUBSIDIARIES

Schedule F. Indebtedbess to Related Parties (Long-Term Loans from Related Companies)
December 31, 2019

Balance at Balance at
Beginning End
Name of Related Party of Period of Period

Not Applicable: The Company has no indebtedness to related parties as at December 31, 2019.
 Attachment I

AC ENERGY PHILIPPINES, INC. AND SUBSIDIARIES

Schedule G. Guarantees of Securities of Other Issuers
December 31, 2019

Name of Issuing Entity Title of Issue Amount Owned by

of Securities Guaranteed of Each Class Total Amount the Company for
by the Company for which of Securities Guaranteed and which Statement Nature of
Statement is Filed Guaranteed Outstanding is Filed Guarantee

Not Applicable: The Company has no guarantees of securities of other issuers as at December 31, 2019.
 Attachment I

AC ENERGY PHILIPPINES, INC. AND SUBSIDIARIES

Schedule H. Capital Stock
December 31, 2019

Number of
Shares Reserved Number of Shares Held By
Number of for Options,
Number of Shares Issued Warrants, Directors,
Shares and Conversions, and Officers and
Title of Issue Authorized Outstanding Other Rights Affiliates Employees Others

Common stock 8,400,000,000 7,521,774,922 60,301,331 5,015,081,911 389,115,676 2,117,577,335

AC ENERGY PHILIPPINES, INC.
AND SUBSIDIARIES
SUPPLEMENTARY SCHEDULE OF RETAINED EARNINGS
AVAILABLE FOR DIVIDEND DECLARATION
DECEMBER 31, 2019
(Amounts in Thousands)

Retained earnings, beginning =2,473,184

P
Adjustment:
Deferred income tax asset as at December 31, 2018 (258,741)
Unrealized FV gain of FVPL as at December 31, 2018 (409)
Derivative asset as at December 31, 2018 (4)
Retained earnings, beginning, as adjusted to amount available
for dividend declaration, beginning 2,214,030

Add: Net loss actually realized during the year

Net loss during the year closed to retained earnings (109,091)
Add (deduct):
Unrealized fair value gains on financial asset through FVPL
and derivative assets 380
Gain on sale of financial assets at FV through FVPL
charged to retained earnings 45,064
Movement of recognized deferred income tax assets (337,839)
Net loss actually realized during the year (401,486)
Less: Dividends declared during the year -
Retained earnings available for dividend declaration, end =1,812,544
P
ATTACHMENT III
Page 1 of 3

AC ENERGY PHILIPPINES, INC.

SUPPLEMENTARY SCHEDULE REQUIRED
UNDER REVISED SRC RULE 68

Conglomerate Map
As of December 31, 2019
ATTACHMENT III
Page 2 of 3
ATTACHMENT III
Page 3 of 3
 SyCip Gorres Velayo & Co. Tel: (632) 891 0307 BOA/PRC Reg. No. 0001,
6760 Ayala Avenue Fax: (632) 819 0872 October 4, 2018, valid until August 24, 2021
1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-5 (Group A),
Philippines November 6, 2018, valid until November 5, 2021

INDEPENDENT AUDITOR’S REPORT ON

COMPONENTS OF FINANCIAL SOUNDNESS INDICATORS

The Stockholders and the Board of Directors

AC Energy Philippines, Inc.
4th Floor, 6750 Office Tower
Ayala Avenue, Makati City

We have audited in accordance with Philippine Standards on Auditing, the consolidated financial
statements of AC Energy Philippines, Inc and its Subsidiaries (collectively, the Group) as at
December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019, and
have issued our report thereon dated March 25, 2020. Our audits were made for the purpose of forming
an opinion on the basic financial statements taken as a whole. The Supplementary Schedule on Financial
Soundness Indicators, including their definitions, formulas, calculation, and their appropriateness or
usefulness to the intended users, are the responsibility of the Group’s management. These financial
soundness indicators are not measures of operating performance defined by Philippine Financial
Reporting Standards (PFRSs) and may not be comparable to similarly titled measures presented by other
companies. This schedule is presented for the purpose of complying with the Revised Securities
Regulation Code Rule 68 issued by the Securities and Exchange Commission, and is not a required part
of the basic consolidated financial statements prepared in accordance with PFRSs. The components of
these financial soundness indicators have been traced to the Group’s consolidated financial statements as
at December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019,
and no material exceptions were noted.

SYCIP GORRES VELAYO & CO.

Benjamin N. Villacorte
Partner
CPA Certificate No. 111562
SEC Accreditation No. 1539-AR-1 (Group A),
March 26, 2019, valid until March 25, 2022
Tax Identification No. 242-917-987
BIR Accreditation No. 08-001998-120-2019,
January 28, 2019, valid until January 27, 2022
PTR No. 8125320, January 7, 2020, Makati City

March 25, 2020

*SGVFS039610*
A member firm of Ernst & Young Global Limited
ATTACHMENT IV

AC ENERGY PHILIPPINES, INC. AND SUBSIDIARIES

SUPPLEMENTARY SCHEDULE REQUIRED
UNDER REVISED SRC RULE 68

31-Dec-19 31-Dec-18 Increase (Decrease)

KPI Formula Audited Audited Difference %

Liquidity Ratios

Current ratio Current assets 2.84 1.74 1.09 63

Current liabiltiies

Cash + Short-term
investments +
Acid test ratio Receivables +
Financial assets
at FVTPL 2.55 1.49 1.06 71
Current liabilities

Solvency Ratios

Debt/Equity ratio Total Liabilities 2.58 1.26 1.32 105

Total Equity

Asset to equity Total Assets 3.58 2.26 1.32 58

ratio Total Equity

Earnings before
Interest coverage interest & tax (EBIT) 0.36 0.03 0.33 1,100
ratio Interest expense

Debt - Cash &

cash equivalents,
short-term
Net debt to investments &
equity ratio financial assets
at FVTPL 1.80 1.05 0.75 71
Total equity
 31-Dec-19 31-Dec-18 Increase (Decrease)
KPI Formula Unaudited Unaudited Difference %

Profitability Ratios

Net income
Return on equity after taxes -4.28% -6.77% 2.49 (3,681)
Average
stockholder's equity

Net income
Return on assets after taxes -1.42% -2.99% 1.57 53
Average total assets

Asset turnover Revenues 52.20% 76.22% (24.02) (32)

Average total assets
 EXHIBIT B

AC ENERGY PHILIPPINES, INC.

Parent Financial Statements

December 31, 2019 and 2018

And Years Ended December 31, 2019, 2018 and 2017

(with BIR Filing Reference Number)

 REPUBLIC OF THE PHILIPPINES
DEPARTMENT OF FINANCE
BUREAU OF INTERNAL REVENUE

FILING REFERENCE NO. 

TIN : 000-506-020-000
Name : AC ENERGY PHILIPPINES, INC.
RDO : 121
Form Type : 1702
Reference No. : 122000035493788
Amount Payable
: -900,339,874.00
(Over Remittance)
Accounting Type : C - Calendar
For Tax Period : 12/31/2019
Date Filed : 04/29/2020
Tax Type : IT

[ BIR Main | eFPS Login | User Menu | Help ]

 COVER SHEET
for
AUDITED FINANCIAL STATEMENTS

SEC Registration Number

0 6 9 - 0 3 9 2 7 4

COMPANY NAME

A C E N E R G Y P H I L I P P I N E S , I N C .

( F o r m e r l y P H I N M A E n e r g y C o r p o r

a t i o n )

PRINCIPAL OFFICE ( No. / Street / Barangay / City / Town / Province )

4 t h F l o o r , 6 7 5 0 O f f i c e T o w e r ,

A y a l a A v e n u e , M a k a t i C i t y

Form Type Department requiring the report Secondary License Type, If Applicable

A P F S

COMPANY INFORMATION
Company’s Email Address Company’s Telephone Number Mobile Number

N/A 7-730-6300 –

No. of Stockholders Annual Meeting (Month / Day) Fiscal Year (Month / Day)

3,192 April/11 12/31

CONTACT PERSON INFORMATION

The designated contact person MUST be an Officer of the Corporation
Name of Contact Person Email Address Telephone Number/s Mobile Number

Mariejo P. Bautista [email protected] 7-730-6300 –

CONTACT PERSON’s ADDRESS

4th Floor, 6750 Office Tower, Ayala Avenue, Makati City, Philippines 1200

NOTE 1 : In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission within
thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated.
2 : All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation’s records with the Commission
and/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation from liability for its deficiencies.

*SGVFS039365*
SECURITIES & EXCHANGE COMMISSION
Secretariat Building, PICC Complex
Roxas Boulevard, Philippines

STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR

FINANCIAL STATEMENTS

The management of AC Energy Philippines, Inc., formerly PHINMA Energy

Corporation, (the “Company”) is responsible for the preparation and fair
presentation of the parent company financial statements including the schedules
attached therein, for the years ended December 31, 2019 and December 31, 2018,
in accordance with the prescribed financial reporting framework indicated
therein, and for such internal control as management determines is necessary to
enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing

the Company’s ability to continue as a going concern, disclosing, as applicable
matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Company or to cease
operations, or has no realistic alternative but to do so.

The Board of Directors is responsible for overseeing the Company’s financial

reporting process.

The Board of Directors reviews and approves the parent company financial
statements including the schedules attached therein and submits the same to the
Stockholders.

SyCip Gorres Velayo & Co., the independent auditors, appointed by the
stockholders, has audited the parent company financial statements of the
Company in accordance with Philippine Standards on Auditing, and in its report
to the Stockholders, has expressed their opinion on the fairness of presentation
upon completion of such audit.
(Page 2 of Statement of Management’s
Responsibility for Parent Company Financial Statements)

FERNANDO M. ZOBEL DE AYALA

Chairman of the Board

JOHN ERIC T. FRANCIA MARIA CORAZON G. DIZON

President and Treasurer and
Chief Executive Officer Chief Financial Officer

Signed this 25th day of March 2020

(Page 3 of Statement of Management’s
Responsibility for Parent Company Financial Statements)

(REPUBLIC OF THE PHILIPPINES)

Makati City ) S.S.

SUBSCRIBED AND SWORN to before me this _________________ affiant(s)

exhibiting to me their Passport, as follows:

Name Passport No. Date of Issue Place of Issue

Fernando M. Zobel De Ayala P0349883B 01-2219 DFA-Manila
John Eric T. Francia P3923362B 11-21-19 DFA-Manila
Maria Corazon G. Dizon P6253635A 03-02-18 DFA-NCR-East

Doc. No.
Page No.
Book No.
Series of 2020
 SyCip Gorres Velayo & Co. Tel: (632) 891 0307 BOA/PRC Reg. No. 0001,
6760 Ayala Avenue Fax: (632) 819 0872 October 4, 2018, valid until August 24, 2021
1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-5 (Group A),
Philippines November 6, 2018, valid until November 5, 2021

INDEPENDENT AUDITOR’S REPORT

The Stockholders and the Board of Directors

AC Energy Philippines, Inc.
4th Floor, 6750 Office Tower,
Ayala Avenue, Makati City

Report on the Audit of the Parent Company Financial Statements

Opinion
We have audited the parent company financial statements of AC Energy Philippines, Inc. (formerly
PHINMA Energy Corporation.) (the Company), which comprise the parent company statements of
financial position as at December 31, 2019 and 2018, and the parent company statements of
comprehensive income, parent company statements of changes in equity and parent company statements
of cash flows for the years then ended, and notes to the parent company financial statements, including a
summary of significant accounting policies.
In our opinion, the accompanying parent company financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2019 and 2018, and its financial
performance and its cash flows for the years then ended in accordance with Philippine Financial
Reporting Standards (PFRSs).
Basis for Opinion
We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit
of the Parent Company Financial Statements section of our report. We are independent of the Company
in accordance with the Code of Ethics for Professional Accountants in the Philippines (Code of Ethics)
together with the ethical requirements that are relevant to our audit of the financial statements in the
Philippines, and we have fulfilled our other ethical responsibilities in accordance with these requirements
and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.

Responsibilities of Management and Those Charged with Governance for the Parent Company
Financial Statements
Management is responsible for the preparation and fair presentation of the parent company financial
statements in accordance with PFRSs, and for such internal control as management determines is
necessary to enable the preparation of the parent company financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the parent company financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.

*SGVFS039365*
A member firm of Ernst & Young Global Limited
 -2-

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Parent Company Financial Statements

Our objectives are to obtain reasonable assurance about whether the parent company financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with PSAs will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these parent company financial statements.

As part of an audit in accordance with PSAs, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the parent company financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.

· Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.

· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

· Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Company to cease to continue
as a going concern.

· Evaluate the overall presentation, structure and content of the parent company financial statements,
including the disclosures, and whether the parent company financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.

*SGVFS039365*
A member firm of Ernst & Young Global Limited
 -3-

We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.

Report on the Supplementary Information Required Under Revenue Regulations 15-2010

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken
as a whole. The supplementary information required under Revenue Regulations 15-2010 in Note 40 to
the financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is not
a required part of the basic financial statements. Such information is the responsibility of the
management of AC Energy Philippines, Inc. The information has been subjected to the auditing
procedures applied in our audit of the basic financial statements. In our opinion, the information is fairly
stated, in all material respects, in relation to the basic financial statements taken as a whole.

The engagement partner on the audit resulting in this independent auditor’s report is
Benjamin N. Villacorte.

SYCIP GORRES VELAYO & CO.

Benjamin N. Villacorte
Partner
CPA Certificate No. 111562
SEC Accreditation No. 1539-AR-1 (Group A),
March 26, 2019, valid until March 25, 2022
Tax Identification No. 242-917-987
BIR Accreditation No. 08-001998-120-2019,
January 28, 2019, valid until January 27, 2022
PTR No. 8125320, January 7, 2020, Makati City

March 25, 2020

*SGVFS039365*
A member firm of Ernst & Young Global Limited
AC ENERGY PHILIPPINES, INC.
(Formerly PHINMA ENERGY CORPORATION)
PARENT COMPANY STATEMENTS OF FINANCIAL POSITION
(Amounts in Thousands)

December 31
2019 2018
ASSETS
Current Assets
Cash and cash equivalents (Notes 5, 34 and 35) P
=6,102,639 =612,358
P
Short-term investments (Notes 34 and 35) 100,000 –
Financial assets at fair value though profit or loss
(FVTPL; Notes 6, 34 and 35) – 471,818
Receivables - net (Notes 7, 31, 34 and 35) 2,618,920 2,180,555
Fuel and spare parts (Note 8) 124,657 328,418
Other current assets (Notes 9, 34 and 35) 92,360 81,072
9,038,576 3,674,221
Asset held for sale (Note 10) – 30,711
Total Current Assets 9,038,576 3,704,932
Noncurrent Assets
Property, plant and equipment (Note 11) 489,636 527,387
Investments in subsidiaries, associates and joint ventures (Note 12) 11,864,846 9,036,323
Financial assets at:
Fair value through other comprehensive income
(FVOCI; Notes 13, 34 and 35) 950 204,136
FVTPL (Notes 6, 34 and 35) – 5,452
Deferred exploration costs (Note 15) – 31,723
Right-of-use asset (Note 16) 26,430 –
Deferred income tax assets - net (Note 29) 458,605 247,284
Other noncurrent assets (Notes 17, 34 and 35) 2,354,436 1,679,436
Total Noncurrent Assets 15,194,903 11,731,741
TOTAL ASSETS P
=24,233,479 =15,436,673
P

LIABILITIES AND EQUITY

Current Liabilities
Accounts payable and other current liabilities (Notes 18, 34 and 35) P
=2,990,224 =2,040,724
P
Income and withholding taxes payable 15,729 4,231
Due to stockholders (Notes 22, 31, 34 and 35) 16,594 16,651
Short-term loan (Notes 19, 34 and 35) – 400,000
Current portion of lease liability (Note 20) 10,333 –
Current portion of long-term loans (Notes 19, 34 and 35) 219,173 157,684
Total Current Liabilities 3,252,053 2,619,290
Noncurrent Liabilities
Long-term loans - net of current portion (Notes 19, 34 and 35) 8,357,377 4,546,463
Lease liability – net of current portion (Note 20) 13,775 –
Pension and other employee benefits - net of current portion (Note 30) 24,137 19,587
Other noncurrent liabilities (Notes 21, 34 and 35) 2,604,451 753,982
Total Noncurrent Liabilities 10,999,740 5,320,032
Total Liabilities 14,251,793 7,939,322

(Forward)

*SGVFS039365*
 -2-

December 31
2019 2018

Equity
Capital stock (Note 22) P
=7,521,775 =4,889,775
P
Additional paid-in capital 83,768 83,768
Unrealized fair value gains (losses) on equity instruments at FVOCI
(Note 13) (16,468) 52,339
Unrealized fair value losses on derivative instrument designated
under hedge accounting (Note 34) (14,742) –
Remeasurement losses on defined benefit plan - net of tax
(Note 30) (1,804) (1,715)
Retained earnings (Note 22) 2,409,157 2,473,184
Total Equity 9,981,686 7,497,351

TOTAL LIABILITIES AND EQUITY P

=24,233,479 =15,436,673
P

See accompanying Notes to Parent Company Financial Statements.

*SGVFS039365*
AC ENERGY PHILIPPINES, INC.
(Formerly PHINMA ENERGY CORPORATION)
PARENT COMPANY STATEMENTS OF INCOME
(Amounts in Thousands)

Years Ended December 31

2019 2018

REVENUES
Revenue from sale of electricity (Notes 23 and 33) P
=14,403,839 =14,233,977
P
Dividend income (Notes 12 and 13) 180,539 818,009
Rental income 1,467 854
14,585,845 15,052,840

COSTS AND EXPENSES

Cost of sale of electricity (Notes 24, 26 and 27) 14,472,555 14,591,924
General and administrative expenses (Notes 25, 26 and 27) 463,741 465,574
14,936,296 15,057,498

INTEREST AND OTHER FINANCIAL CHARGES (Note 28) (331,473) (301,580)

OTHER INCOME - NET (Note 28) 370,296 43,554

LOSS BEFORE INCOME TAX (311,628) (262,684)

PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 29) (202,537) 167,026

NET LOSS (P
=109,091) (P
=429,710)

Basic/Diluted Loss Per Share (Note 32) (P

=0.02) (P
=0.09)

See accompanying Notes to Parent Company Financial Statements.

*SGVFS039365*
AC ENERGY PHILIPPINES, INC.
(Formerly PHINMA ENERGY CORPORATION)
PARENT COMPANY STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands, Except Per Share Figures)

Years Ended December 31

2019 2018

NET LOSS (P
=109,091) (P
=429,710)

OTHER COMPREHENSIVE INCOME (LOSS)

Net changes in fair market value of equity instruments
at FVOCI (Note 13) (26,171) (1,467)
Unrealized fair value losses on derivative instrument designated under
hedge accounting (Note 34) (21,060) –
Remeasurement gains (losses) on defined benefit plan (Note 30) (126) (3,148)
Income tax effect 8,783 1,078

OTHER COMPREHENSIVE LOSS, NET OF TAX (38,574) (3,537)

TOTAL COMPREHENSIVE LOSS (P

=147,665) (P
=433,247)

See accompanying Notes to Parent Company Financial Statements.

*SGVFS039365*
AC ENERGY PHILIPPINES, INC.
(Formerly PHINMA ENERGY CORPORATION)
PARENT COMPANY STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
(Amounts in Thousands)

Unrealized Fair Unrealized Fair Value Remeasurement

Value Gains (Losses) Unrealized Fair Value Losses on Derivative Gains (Losses) on
on AFS Gains (Losses) on Instruments Defined Benefit
Additional Investments Equity Instruments designated under Obligation Retained
Capital Stock Paid-in - net of tax at FVOCI hedge accounting - net of tax Earnings
(Note 22) Capital (Note 13) (Note 13) (Note 34) (Note 30) (Note 22) Total

BALANCES AT JANUARY 1, 2019 P4,889,775

= = 83,768
P P–
= = 52,339
P =–
P (P
= 1,715) = 2,473,184
P = 7,497,351
P
Net loss – – – – – (109,091) (109,091)
Other comprehensive loss – – – (23,743) (14,742) (89) – (38,574)
Total comprehensive loss – – – (23,743) (14,742) (89) (109,091) (147,665)
Sale of equity investments at FVOCI (Note 13) – – – (45,064) – – 45,064 –
Issuance of shares of stocks (Note 22) 2,632,000 – – – – – – 2,632,000
2,632,000 – – (45,064) – – 45,064 2,632,000

BALANCES AT DECEMBER 31, 2019 = 7,521,775

P = 83,768
P =–
P (P
= 16,468) (P
= 14,742) (P
= 1,804) = 2,409,157
P = 9,981,686
P

BALANCES AT JANUARY 1, 2018, AS

PREVIOUSLY REPORTED =4,889,775
P =83,768
P =81,603
P =–
P =–
P =489
P =3,059,296
P =8,114,931
P
Changes on initial application of PFRS 9
(Notes 3 and 13) – – (81,603) 95,192 – – (9,614) 3,975
BALANCES AT JANUARY 1, 2018, AS ADJUSTED 4,889,775 83,768 – 95,192 – 489 3,049,682 8,118,906
Net loss – – – – – – (429,710) (429,710)
Other comprehensive loss – – – (1,333) – (2,204) – (3,537)
Total comprehensive loss – – – (1,333) – (2,204) (429,710) (433,247)
Sale of equity investments at FVOCI (Note 13) – – – (41,520) – – 48,803 7,283
Dividends declared (Note 22) – – – – – – (195,591) (195,591)
– – – (41,520) – – (146,788) (188,308)

BALANCES AT DECEMBER 31, 2018 =4,889,775

P =83,768
P =–
P =52,339
P =–
P (P
=1,715) =2,473,184
P =7,497,351
P

See accompanying Notes to Parent Company Financial Statements.

*SGVFS039365*
AC ENERGY PHILIPPINES, INC.
(Formerly PHINMA ENERGY CORPORATION)
PARENT COMPANY STATEMENTS OF CASH FLOWS
(Amounts in Thousands)

Years Ended December 31

2019 2018

CASH FLOWS FROM OPERATING ACTIVITIES

Loss before income tax (P
=311,628) (P
=262,684)
Adjustments for:
Interest and other financial charges (Note 28) 331,473 301,580
Depreciation and amortization (Note 27) 61,686 74,768
Movement in pension and other employee benefits (Note 30) 4,424 3,394
Dividend income (Notes 12 and 13) (180,539) (818,009)
Interest and other financial income (Note 28) (58,248) (44,377)
Provisions for:
Probable losses (Notes 15 and 25) 34,493 –
Inventory obsolescence (Note 25) 5,554 159
Credit losses (Notes 7 and 25) 1,163 12,737
Unrecoverable input tax (Note 28) – 43,712
Impairment of property, plant and equipment (Note 25) – 933
Loss on derivatives - net (Note 28) 6,851 13,180
Unrealized foreign exchange gain (144) (609)
Loss (gain) on sale of:
Investments (Note 28) 6,652 –
Property, plant and equipment (Note 28) (294,100) (254)
Asset held for sale (Note 10) (14,289) –
Inventories 461 –
Operating loss before working capital changes (406,191) (675,470)
Decrease (increase) in:
Receivables (430,889) 773,013
Fuel and spare parts 197,746 (80,711)
Deposit receivables (15,885) (179,120)
Other current assets (685,483) 23,479
Increase (decrease) in accounts payable and other current liabilities (190,548) (688,753)
Net cash used in operations (1,531,250) (827,562)
Income taxes paid, including creditable withholding taxes 11,498 –
Net cash used in operating activities (1,519,752) (827,562)

CASH FLOWS FROM INVESTING ACTIVITIES

Additions to:
Financial assets at FVTPL (Note 6) (4,368,530) (13,796,715)
Investments in subsidiaries, associates and joint venture (Note 12) (503,636) (351,013)
Short-term investments (100,000) –
Property and equipment (Note 11) (17,177) (20,874)
Deferred exploration costs (Note 15) (2,770) (2,985)
Receivables from third parties – (10,200)
Financial assets at FVOCI – (32)
(Forward)

*SGVFS039365*
 -2-

Years Ended December 31

2019 2018
Proceeds from:
Sale of investments financial assets at FVTPL (Note 6) P
=4,853,332 =13,942,299
P
Sale of investment/ redemption of preferred shares
in subsidiaries (Note 12) 543,348 422,498
Sale of property and equipment (Notes 11) 335,276 261
Sale of asset held for sale (Note 10) 45,000 –
Sale of financial assets at FVOCI 177,016 49,833
Termination of short-term investments – 478,932
Insurance claims (Note 11) – 90,146
Cash dividends received (Notes 12 and 13) 180,539 548,100
Interest received 42,078 32,556
Net cash from (used in) investing activities 1,184,476 1,382,806

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from:
Long-term loans (Note 19) 5,000,000 923,025
Issuance of capital stock (Note 22) 2,632,000 –
Short-term loans (Note 19) – 400,000
Payments of:
Long-term loans (Note 19) (1,094,058) (1,357,420)
Short-term loans (Note 19) (400,000) –
Interest (249,555) (354,183)
Debt issuance cost (43,003) –
Principal portion of lease liability (3,215) –
Cash dividends – (194,240)
Increase in other noncurrent liabilities (16,756) (427,816)
Net cash from (used in) financing activities 5,825,413 (1,010,634)

EFFECT OF FOREIGN EXCHANGE RATE CHANGES

ON CASH AND CASH EQUIVALENTS 144 609

NET INCREASE (DECREASE) IN CASH AND

CASH EQUIVALENTS 5,490,281 (454,781)

CASH AND CASH EQUIVALENTS

AT BEGINNING OF YEAR 612,358 1,067,139

CASH AND CASH EQUIVALENTS

AT END OF YEAR (Note 5) P
=6,102,639 =612,358
P

See accompanying Notes to Parent Company Financial Statements.

*SGVFS039365*
 -1-

AC ENERGY PHILIPPINES, INC.

(Formerly PHINMA ENERGY CORPORATION)
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
(Amounts in Thousands, Except When Otherwise Indicated)

1. Corporate Information and Status of Operations

AC Energy Philippines, Inc., formerly PHINMA Energy Corporation (“ACEPH” or the “Company”),
incorporated on September 8, 1969, and registered with the Philippine Securities and Exchange
Commission (“SEC”), is engaged in power generation and trading, oil and mineral exploration,
development and production. The Company is a licensed Retail Electricity Supplier (“RES”). As a
RES, the Company can supply electricity to the contestable market pursuant to the Electric Power
Industry Reform Act. Other activities of the Company include investing in various operating
companies and financial instruments.

On February 7, 2019, Philippine Investment Management (PHINMA), Inc., PHINMA Corporation

and AC Energy, Inc. (“AC Energy”) signed an investment agreement for AC Energy’s acquisition of
PHINMA, Inc. and PHINMA Corporation’s combined 51.476% stake in ACEPH via a secondary
share sale through the Philippine Stock Exchange (“PSE”).

On April 15, 2019, the Philippine Competition Commission (“PCC”) approved the sale of the
combined stake of PHINMA, Inc. and PHINMA Corporation in ACEPH to AC Energy. AC Energy
tendered an offer to other shareholders on May 20, 2019 to June 19, 2019, with a total of 156,476
public shares of ACEPH tendered during the tender offer period.

On June 24, 2019, the PSE confirmed the special block sale of ACEPH shares to AC Energy. On the
same day, AC Energy subscribed to 2.632 billion shares of ACEPH. As at December 31, 2019,
AC Energy directly owns 66.34% of the Company’s total outstanding shares of stock.

The direct parent company (or intermediate parent company) of ACEPH is AC Energy, a wholly-
owned subsidiary of Ayala Corporation (AC), a publicly-listed company which is 47.33% owned by
Mermac, Inc. (ultimate parent company), and the rest by the public. ACEPH is managed by
AC Energy under an existing management agreement, which was assigned by PHINMA, Inc. to
AC Energy on June 24, 2019. ACEPH, AC Energy, AC and Mermac, Inc. are all incorporated and
domiciled in the Philippines.

On July 23, 2019, the Board of Directors (“BOD”) of ACEPH approved the following amendments to
the ACEPH’s articles of incorporation:
i) Change of the corporate name to AC Energy Philippines, Inc.;
ii) Change of the principal office of the Parent Company to 4th Floor, 6750 Office Tower, Ayala
Ave., Makati City;
iii) Increase in authorized capital stock by 16 billion shares or from 8,400,000,000 common
shares to 24,400,000,000 common shares. Additional capital will be used for investments in
greenfield projects and acquisition of power assets, including part of AC Energy’s on-shore
power generation and development assets.

On September 5, 2019, the BOD approved the amendment to the articles of incorporation to include a
provision exempting from the pre-emptive right of shareholders the issuance of shares in exchange
for property needed for corporate purposes or in payment for previously contracted debt.

*SGVFS039365*
 -2-

The amendments were approved by the stockholders at the Annual Stockholders' Meeting on
September 17, 2019.
The SEC issued the Certificate of Filing of Amended Articles of Incorporation of the Company on
October 11, 2019 approving the change of corporate name and principal office. Approval of the
increase in authorized capital stock is pending as at March 25, 2020.

On October 9, 2019, the BOD approved, among others, the following matters:
i) The swap between the Company and AC Energy and the issuance of shares of stock in the
Company in favor of AC Energy in exchange for the latter’s shares of stock in its various
Philippine subsidiaries and affiliates;
ii) The undertaking of a stock rights offering, subject to applicable regulatory approvals; and
iii) The transfer to the Company of AC Energy’s right to purchase the 20% ownership stake of Axia
Power Holdings Philippines, Corporation (Axia) in South Luzon Thermal Energy Corporation
(“SLTEC”).

On October 9, 2019 ACEPH and AC Energy executed a Deed of Assignment where AC Energy
assigned to the ACEPH shares of stock in various AC Energy subsidiaries and affiliates in exchange
for ACEPH shares. The Deed of Assignment was amended on November 13, 2019 to reflect the
correct number of common shares of AC Energy in SLTEC, ACTA Power Corporation, and Manapla
Sun Power Development Corp.

On November 5, 2019, the Parent Company signed a deed of assignment with AC Energy to transfer
AC Energy’s rights to purchase 20% ownership stake of Axia Power Holdings Philippines
Corporation (“APHPC”) in SLTEC, which owns and operates the 2x135 MW Circulating Fluidized
Bed power plant (the “SLTEC Power Plant”) in Calaca, Batangas.

On November 11, 2019, the BOD approved, among others, the following matters:
i) Ratification of the Executive Committee’s approval of the Parent Company’s acquisition of
Philippine Investment Alliance for Infrastructure (PINAI) ownership interest in PhilWind;
ii) Purchase of up to 100% percent of PINAI fund’s ownership interest in San Carlos Solar Energy,
Inc. (SACASOL), which owns and operates a 45 MW solar farm in San Carlos City, Negros
Occidental;
iii) Purchase of up to 100% percent of PINAI fund’s ownership interest in Negros Island Solar
Power, Inc. (“ISLASOL”), which owns and operates the 80 MW solar farms in Negros
Occidental;
iv) Additional short-term credit lines of up to =
P8 billion
v) Investment into, and construction of, a 60 MW solar power plant in Palauig, Zambales through
ACE Endevor, Inc.’s (“ACE Endevor” or formerly AC Energy Development, Inc.), wholly
owned project company, Gigasol3, Inc.

On November 22, 2019, ACEPH filed with the SEC its application to increase its capital stock from
=8,400.00 million to =
P P24,400.00 million.

On January 28, 2020, the PCC ruled that the PINAI sale of PhilWind shares "will not likely result in
substantial lessening of competition" and resolved "to take no further action with respect to the
Transaction..." The Parent Company will purchase all shares of PINAI in PhilWind and following the
PINAI transaction, the Parent Company will directly and indirectly own 67% of North Luzon
Renewable Energy Corporation (NLREC).

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Authorization for Issuance of Parent Company Financial Statements

The parent company financial statements of the Company were approved and authorized for issuance
by the Parent Company’s BOD on March 25, 2020.

2. Basis of Preparation and Statement of Compliance

The parent company financial statements have been prepared in accordance with Philippine Financial
Reporting Standards (PFRSs).

The parent company financial statements have been prepared on a historical cost basis, except for
financial assets at fair value through profit or loss (FVTPL), derivative financial instruments and
financial assets at fair value through other comprehensive income (FVOCI) that are measured at fair
value. The parent company financial statements are presented in Philippine peso (P =) which is the
Company’s functional and presentation currency. All values are rounded to the nearest thousands
(000), except when otherwise indicated.

The accompanying parent company financial statements are the Company’s separate financial
statements prepared for submission with the Bureau of Internal Revenue (BIR) and Securities and
Exchange Commission (SEC). The Company also prepares and issues consolidated financial
statements for the same period as the parent company financial statements presented in compliance
with PFRS 10, Consolidated Financial Statements. The consolidated financial statements are filed
with and may be obtained from the SEC.

3. Summary of Significant Accounting Policies and Disclosures

Changes in Accounting Policies and Disclosures

The Company has adopted the following new accounting pronouncements. Adoption of these
pronouncements either did not have any significant impact on the Company’s financial position or
performance unless otherwise indicated. The Company has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet effective.

Starting January 1, 2019

· PFRS 16, Leases

The Company applies, for the first time, PFRS 16, Leases. The nature and effect of these changes
are disclosed below.

PFRS 16 supersedes Philippine Accounting Standards (PAS) 17, Leases, International Financial
Reporting Interpretations Committee (IFRIC) 4, Determining whether an Arrangement contains a
Lease, SIC-15 Operating Leases-Incentives and Standards Interpretations Committee (SIC) -27,
Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets
out the principles for the recognition, measurement, presentation and disclosure of leases and
requires lessees to account for all leases under a single on-balance sheet model.

Lessor accounting under PFRS 16 is substantially unchanged under PAS 17. Lessors will
continue to classify leases as either operating or finance leases using similar principles as in
PAS 17. Therefore, PFRS 16 did not have an impact for leases where the Company is the lessor.
The Company adopted PFRS 16 using the modified retrospective method of adoption with the
date of initial application of January 1, 2019. Under this method, the standard is applied

*SGVFS039365*
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retrospectively with the cumulative effect of initially applying the standard recognized at the date
of initial application. The Company elected to use the transition practical expedient allowing the
standard to be applied only to contracts that were previously identified as leases applying PAS 17
and IFRIC 4 at the date of initial application. The Company also elected to use the recognition
exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or
less and do not contain a purchase option (‘short-term leases’), and lease contracts for which the
underlying asset is of low value (‘low-value assets’).

As at January 1, 2019, the Company had no lease arrangements. In 2019, the Company entered
into a lease agreement for office space and parking lots and accounted this contract under
PFRS 16.

a. Summary of new accounting policies

Set out below are the new accounting policies of the Company upon adoption of PFRS 16:

· Right-of-use assets

The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the
date the underlying asset is available for use). Right-of-use assets are measured at cost, less
any accumulated depreciation and impairment losses, and adjusted for any remeasurement of
lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities
recognized and lease payments made at or before the commencement date less any lease
incentives received. Unless the Company is reasonably certain to obtain ownership of the
leased asset at the end of the lease term, the recognized right-of-use assets are depreciated on
a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-
use assets are subject to impairment.

· Lease liabilities

At the commencement date of the lease, the Company recognizes lease liabilities measured at
the present value of lease payments to be made over the remaining lease term. The lease
payments include fixed payments (including in-substance fixed payments, as applicable) less
any lease incentives receivable and amounts expected to be paid under residual value
guarantees. The lease payments also include the exercise price of a purchase option
reasonably certain to be exercised by the Company and payments of penalties for terminating
a lease, if the lease term reflects the Company exercising the option to terminate.

In calculating the present value of lease payments, the Company uses the incremental
borrowing rate at the lease commencement date if the interest rate implicit in the lease is not
readily determinable. After the commencement date, the amount of lease liabilities is
increased to reflect the accretion of interest and reduced for the lease payments made. In
addition, the carrying amount of lease liabilities is remeasured if there is a modification, a
change in the lease term, a change in the in-substance fixed lease payments or a change in the
assessment to purchase the underlying asset.

· Deferred taxes

Upon adoption of PFRS 16, the Company recognize the deferred income tax assets and
liabilities pertaining to right-of-use assets and lease liabilities on a gross basis.

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b. Amounts recognized in the parent company statement of financial position, statement of

income and statement of comprehensive income

Set out below are the carrying amounts of the Company’s right-of-use assets and lease
liabilities and the movements during the period:

Office Space and Lease

Parking Slots liabilities
As at January 1, 2019 P
=– P
=–
New lease agreement 30,075 27,323
Amortization expense (3,645) –
Interest expense – 454
Payments – (3,669)
As at December 31, 2019 P
=26,430 P
=24,108

· Philippine Interpretation IFRIC 23, Uncertainty over Income Tax Treatments

The interpretation addresses the accounting for income taxes when tax treatments involve
uncertainty that affects the application of PAS 12, Income Taxes, and does not apply to taxes or
levies outside the scope of PAS 12, nor does it specifically include requirements relating to
interest and penalties associated with uncertain tax treatments.
The interpretation specifically addresses the following:

o Whether an entity considers uncertain tax treatments separately

o The assumptions an entity makes about the examination of tax treatments by taxation
authorities
o How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax
credits and tax rates
o How an entity considers changes in facts and circumstances
An entity must determine whether to consider each uncertain tax treatment separately or together
with one or more other uncertain tax treatments. The approach that better predicts the resolution
of the uncertainty should be followed.
The Company applies significant judgement in identifying uncertainties over income tax
treatments. Since the Company operates in a complex environment, it assessed whether the
Interpretation had an impact on its parent company financial statements.
Upon adoption of the Interpretation, the Company considered whether it has any uncertain tax
positions. The Company determined, based on its tax compliance and assessment, that it is
probable that its tax treatments will be accepted by the taxation authorities. The interpretation did
not have an impact on the parent company financial statements of the Company.

Several other amendments and interpretations apply for the first time in 2019, but do not have an
impact on the financial statements of the Company, unless otherwise stated.

· Amendments to PFRS 9, Prepayment Features with Negative Compensation

Under PFRS 9, a debt instrument can be measured at amortized cost or at fair value through other
comprehensive income, provided that the contractual cash flows are ‘solely payments of principal
and interest on the principal amount outstanding’ (the SPPI criterion) and the instrument is held

*SGVFS039365*
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within the appropriate business model for that classification. The amendments to PFRS 9 clarify
that a financial asset passes the SPPI criterion regardless of the event or circumstance that causes
the early termination of the contract and irrespective of which party pays or receives reasonable
compensation for the early termination of the contract.

These amendments had no impact on the parent company financial statements of the Company.

· Amendments to PAS 19, Employee Benefits, Plan Amendment, Curtailment or Settlement

The amendments to PAS 19 address the accounting when a plan amendment, curtailment or
settlement occurs during a reporting period. The amendments specify that when a plan
amendment, curtailment or settlement occurs during the annual reporting period, an entity is
required to:

o Determine current service cost for the remainder of the period after the plan amendment,
curtailment or settlement, using the actuarial assumptions used to remeasure the net defined
benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after
that event

o Determine net interest for the remainder of the period after the plan amendment, curtailment
or settlement using: the net defined benefit liability (asset) reflecting the benefits offered
under the plan and the plan assets after that event; and the discount rate used to remeasure
that net defined benefit liability (asset).

The amendments also clarify that an entity first determines any past service cost, or a gain or loss
on settlement, without considering the effect of the asset ceiling. This amount is recognized in
profit or loss. An entity then determines the effect of the asset ceiling after the plan amendment,
curtailment or settlement. Any change in that effect, excluding amounts included in the net
interest, is recognized in other comprehensive income.

The amendments had no impact on the parent company financial statements of the Company as it
did not have any plan amendments, curtailments, or settlements during the period.

· Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures

The amendments clarify that an entity applies PFRS 9 to long-term interests in an associate or
joint venture to which the equity method is not applied but that, in substance, form part of the net
investment in the associate or joint venture (long-term interests). This clarification is relevant
because it implies that the expected credit loss model in PFRS 9 applies to such long-term
interests.

The amendments also clarified that, in applying PFRS 9, an entity does not take account of any
losses of the associate or joint venture, or any impairment losses on the net investment,
recognized as adjustments to the net investment in the associate or joint venture that arise from
applying PAS 28, Investments in Associates and Joint Ventures.

These amendments had no impact on the parent company financial statements as the Company
does not have long-term interests in its associate and joint venture.

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· Annual Improvements to PFRSs 2015-2017 Cycle

o Amendments to PFRS 3, Business Combinations, and PFRS 11, Joint Arrangements,

Previously Held Interest in a Joint Operation

The amendments clarify that, when an entity obtains control of a business that is a joint
operation, it applies the requirements for a business combination achieved in stages,
including remeasuring previously held interests in the assets and liabilities of the joint
operation at fair value. In doing so, the acquirer remeasures its entire previously held interest
in the joint operation.

A party that participates in, but does not have joint control of, a joint operation might obtain
joint control of the joint operation in which the activity of the joint operation constitutes a
business as defined in PFRS 3. The amendments clarify that the previously held interests in
that joint operation are not remeasured.

An entity applies those amendments to business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on or after
January 1, 2019 and to transactions in which it obtains joint control on or after the beginning
of the first annual reporting period beginning on or after January 1, 2019, with early
application permitted. These amendments had no impact on the parent company financial
statements of the Company as there is no transaction where joint control is obtained.

o Amendments to PAS 12, Income Tax Consequences of Payments on Financial Instruments

Classified as Equity

The amendments clarify that the income tax consequences of dividends are linked more
directly to past transactions or events that generated distributable profits than to distributions
to owners. Therefore, an entity recognizes the income tax consequences of dividends in
profit or loss, other comprehensive income or equity according to where the entity originally
recognized those past transactions or events.

An entity applies those amendments for annual reporting periods beginning on or after
January 1, 2019, with early application is permitted. These amendments had no impact on
the parent company financial statements of the Company because dividends declared by the
Company do not give rise to tax obligations under the current tax laws.

o Amendments to PAS 23, Borrowing Costs, Borrowing Costs Eligible for Capitalization

The amendments clarify that an entity treats as part of general borrowings any borrowing
originally made to develop a qualifying asset when substantially all of the activities necessary
to prepare that asset for its intended use or sale are complete.

An entity applies those amendments to borrowing costs incurred on or after the beginning of
the annual reporting period in which the entity first applies those amendments. An entity
applies those amendments for annual reporting periods beginning on or after January 1, 2019,
with early application permitted.

Since the Company’s current practice is in line with these amendments, they had no impact
on the parent company financial statements of the Company.

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Standards Issued but not yet Effective

Pronouncements issued but not yet effective are listed below. Unless otherwise indicated, the
Company does not expect that the future adoption of the said pronouncements will have a significant
impact on its financial statements. The Company intends to adopt the following pronouncements
when they become effective.

Effective beginning on January 1, 2020

· Amendments to PFRS 3, Definition of a Business

The amendments to PFRS 3 clarify the minimum requirements to be a business, remove the
assessment of a market participant’s ability to replace missing elements, and narrow the
definition of outputs. The amendments also add guidance to assess whether an acquired process
is substantive and add illustrative examples. An optional fair value concentration test is
introduced which permits a simplified assessment of whether an acquired set of activities and
assets is not a business.

An entity applies those amendments prospectively for annual reporting periods beginning on or
after January 1, 2020, with earlier application permitted.

These amendments will apply on future business combinations of the Company.

· Amendments to PAS 1, Presentation of Financial Statements, and PAS 8, Accounting Policies,

Changes in Accounting Estimates and Errors, Definition of Material

The amendments refine the definition of material in PAS 1 and align the definitions used across
PFRSs and other pronouncements. They are intended to improve the understanding of the
existing requirements rather than to significantly impact an entity’s materiality judgements.

An entity applies those amendments prospectively for annual reporting periods beginning on or
after January 1, 2020, with earlier application permitted.

Effective beginning on January 1, 2021

· PFRS 17, Insurance Contracts

PFRS 17 is a comprehensive new accounting standard for insurance contracts covering

recognition and measurement, presentation and disclosure. Once effective, PFRS 17 will replace
PFRS 4, Insurance Contracts. This new standard on insurance contracts applies to all types of
insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of
entities that issue them, as well as to certain guarantees and financial instruments with
discretionary participation features. A few scope exceptions will apply.

The overall objective of PFRS 17 is to provide an accounting model for insurance contracts that
is more useful and consistent for insurers. In contrast to the requirements in PFRS 4, which are
largely based on grandfathering previous local accounting policies, PFRS 17 provides a
comprehensive model for insurance contracts, covering all relevant accounting aspects. The core
of PFRS 17 is the general model, supplemented by:

o A specific adaptation for contracts with direct participation features (the variable fee
approach)
o A simplified approach (the premium allocation approach) mainly for short-duration contracts

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PFRS 17 is effective for reporting periods beginning on or after January 1, 2021, with
comparative figures required. Early application is permitted.

Summary of Significant Accounting Policies

The accounting policies set out below have been applied consistently to all periods presented in the
Company’s parent company financial statements, unless otherwise indicated.

Presentation of Financial Statements

The Company has elected to present all items of recognized income and expense in two statements: a
statement displaying components of profit or loss (parent company statement of income) and a second
statement beginning with profit or loss and displaying components of OCI (parent company statement
of comprehensive income).

Current versus Noncurrent Classification

The Company presents assets and liabilities in the parent company statement of financial position
based on current or noncurrent classification. An asset is current when it is:

· expected to be realized or intended to be sold or consumed in normal operating cycle;

· held primarily for the purpose of trading;
· expected to be realized within twelve (12) months after the reporting period; or,
· cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at
least twelve (12) months after the reporting period.

All other assets are classified as noncurrent.

A liability is current when:

· it is expected to be settled in the normal operating cycle;

· it is held primarily for the purpose of trading;
· it is due to be settled within twelve (12) months after the reporting period; or,
· there is no unconditional right to defer the settlement of the liability for at least twelve (12)
months after the reporting period.

The Company classifies all other liabilities as noncurrent.

Deferred income tax assets and liabilities are classified as noncurrent assets and liabilities.

Cash and Cash Equivalents

Cash and cash equivalents in the parent company statement of financial position is composed of cash
in banks and on hand and short-term deposits with a maturity of three (3) months or less, which are
subject to an insignificant risk of changes in value.

Short-term Investments
Short-term investments represent investments that are readily convertible to known amounts of cash
with original maturities of more than three (3) months to one (1) year.

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Fair Value Measurement

The Company measures financial assets at FVTPL, financial assets at FVOCI and derivative financial
instruments at fair value at each reporting date. Fair value related disclosures for financial
instruments and non-financial assets that are measured at fair value or where fair values are disclosed,
are summarized in the following notes:

· Quantitative disclosures of fair value measurement hierarchy, see Note 35

· Investment properties, see Note 14
· Financial instruments (including those carried at amortized cost), see Note 35

Fair value is the estimated price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to sell the asset or transfer the liability
takes place either:

· in the principal market for the asset or liability; or,

· in the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by the Company.

The fair value of an asset or a liability is measured using the assumptions that market participants
would use when pricing the asset or liability, assuming that market participants act in their economic
best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to
generate economic benefits by using the asset in its highest and best use or by selling it to another
market participant that would use the asset in its highest and best use.

The Company uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximizing the use of relevant observable inputs
and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the parent company financial
statements are categorized within the fair value hierarchy, described in Note 35, based on the lowest
level input that is significant to the fair value measurement as a whole.

For assets and liabilities that are recognized in the parent company financial statements on a recurring
basis, the Company determines whether transfers have occurred between levels in the hierarchy by
reassessing categorization (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities
on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair
value hierarchy.

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Financial Instruments – Classification and Measurement

Classification of Financial Assets

Financial assets are classified in their entirety based on the contractual cash flows characteristics of
the financial assets and the Company’s business model for managing the financial assets. The
Company classifies its financial assets into the following measurement categories:

· financial assets measured at amortized cost

· financial assets measured at FVTPL
· financial assets measured at FVOCI, where cumulative gains or losses previously recognized are
reclassified to profit or loss
· financial assets measured at FVOCI, where cumulative gains or losses previously recognized are
not reclassified to profit or loss

Contractual Cash Flows Characteristics

If the financial asset is held within a business model whose objective is to hold assets to collect
contractual cash flows or within a business model whose objective is achieved by both collecting
contractual cash flows and selling financial assets, the Company assesses whether the cash flows
from the financial asset represent solely payments of principal and interest (SPPI) on the principal
amount outstanding.

In making this assessment, the Company determines whether the contractual cash flows are consistent
with a basic lending arrangement, i.e., interest includes consideration only for the time value of
money, credit risk and other basic lending risks and costs associated with holding the financial asset
for a particular period of time. In addition, interest can include a profit margin that is consistent with
a basic lending arrangement. The assessment as to whether the cash flows meet the test is made in
the currency in which the financial asset is denominated. Any other contractual terms that introduce
exposure to risks or volatility in the contractual cash flows that is unrelated to a basic lending
arrangement, such as exposure to changes in equity prices or commodity prices, do not give rise to
contractual cash flows that are solely payments of principal and interest on the principal amount
outstanding.

Business Model
The Company’s business model is determined at a level that reflects how groups of financial assets
are managed together to achieve a particular business objective. The Company’s business model
does not depend on management’s intentions for an individual instrument.

The Company’s business model refers to how it manages its financial assets in order to generate cash
flows. The Company’s business model determines whether cash flows will result from collecting
contractual cash flows, selling financial assets or both. Relevant factors considered by the Company
in determining the business model for a group of financial assets include how the performance of the
business model and the financial assets held within that business model are evaluated and reported to
the Company’s key management personnel, the risks that affect the performance of the business
model (and the financial assets held within that business model) and how these risks are managed and
how managers of the business are compensated.

Financial Assets at Amortized Cost

A financial asset is measured at amortized cost if (i) it is held within a business model whose
objective is to hold financial assets in order to collect contractual cash flows and (ii) the contractual
terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding. These financial assets are initially
recognized at fair value plus directly attributable transaction costs and subsequently measured at

*SGVFS039365*
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amortized cost using the Effective Interest Rate (EIR) method, less any impairment in value.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees
and costs that are an integral part of the EIR. The amortization is included in “Other income - net” in
the parent company statement of income and is calculated by applying the EIR to the gross carrying
amount of the financial asset, except for (i) purchased or originated credit-impaired financial assets
and (ii) financial assets that have subsequently become credit-impaired, where, in both cases, the EIR
is applied to the amortized cost of the financial asset. Losses arising from impairment are recognized
in “Provision for credit losses” in the parent company statement of income.

As at December 31, 2019 and 2018, the Company’s financial assets at amortized cost includes cash
and cash equivalents, short-term investments, trade receivables and receivables from third parties
under “Receivables” and refundable deposits (see Notes 5, 7, 9 and 34).

Financial Assets at FVOCI

Debt instruments
A financial asset is measured at FVOCI if (i) it is held within a business model whose objective is
achieved by both collecting contractual cash flows and selling financial assets and (ii) its contractual
terms give rise on specified dates to cash flows that are solely payments of principal and interest on
the principal amount outstanding. These financial assets are initially recognized at fair value plus
directly attributable transaction costs and subsequently measured at fair value. Gains and losses
arising from changes in fair value are included in other comprehensive income within a separate
component of equity. Impairment losses or reversals, interest income and foreign exchange gains and
losses are recognized in profit and loss until the financial asset is derecognized. Upon derecognition,
the cumulative gain or loss previously recognized in other comprehensive income is reclassified from
equity to profit or loss. This reflects the gain or loss that would have been recognized in profit or loss
upon derecognition if the financial asset had been measured at amortized cost. Impairment is
measured based on the expected credit loss (ECL) model.

As at December 31, 2019 and 2018, the Company does not have debt instruments at FVOCI.

Equity instruments
The Company may also make an irrevocable election to measure at FVOCI on initial recognition
investments in equity instruments that are neither held for trading nor contingent consideration
recognized in a business combination in accordance with PFRS 3. Amounts recognized in OCI are
not subsequently transferred to profit or loss. However, the Company may transfer the cumulative
gain or loss within equity. Dividends on such investments are recognized in profit or loss, unless the
dividend clearly represents a recovery of part of the cost of the investment.

Dividends are recognized in profit or loss only when:

· the Company’s right to receive payment of the dividend is established

· it is probable that the economic benefits associated with the dividend will flow to the Company;
and
· the amount of the dividend can be measured reliably.

As at December 31, 2019 and 2018, the Company’s investments in quoted and unquoted equity
securities and golf club shares are classified as financial asset at FVOCI under PFRS 9 (see Notes 13
and 34).

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Financial Assets at FVTPL

Financial assets at FVTPL are measured at fair value unless these are measured at amortized cost or
at FVOCI. Included in this classification are debt instruments with contractual terms that do not
represent solely payments of principal and interest. Financial assets held at FVTPL are initially
recognized at fair value, with transaction costs recognized in the parent company statement of income
as incurred. Subsequently, they are measured at fair value and any gains or losses are recognized in
the parent company statement of income.

Additionally, even if the asset meets the amortized cost or the FVOCI criteria, the Company may
choose at initial recognition to designate the financial asset at FVTPL if doing so eliminates or
significantly reduces a measurement or recognition inconsistency (an accounting mismatch) that
would otherwise arise from measuring financial assets on a different basis.

Trading gains or losses are calculated based on the results arising from trading activities of the
Company, including all gains and losses from changes in fair value for financial assets and financial
liabilities at FVTPL, and the gains or losses from disposal of financial investments.

As at December 31, 2019 and 2018, the Company’s investments in Unit Investment Trust Funds
(UITF) and Fixed Interest Treasury Notes (FXTN) and derivative assets are classified as financial
assets at FVTPL under PFRS 9 (see Notes 6 and 34).

Derivative financial instruments and hedge accounting

Initial recognition and subsequent measurement
The Company uses derivative financial instruments, such as forward currency contracts, interest rate
swaps and forward commodity contracts, to hedge its foreign currency risks, interest rate risks and
commodity price risks, respectively. Such derivative financial instruments are initially recognized at
fair value on the date on which a derivative contract is entered into and are subsequently remeasured
at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial
liabilities when the fair value is negative.

For the purpose of hedge accounting, hedges are classified as:

· Fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment
· Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable
to a particular risk associated with a recognized asset or liability or a highly probable forecast
transaction or the foreign currency risk in an unrecognized firm commitment
· Hedges of a net investment in a foreign operation

At the inception of a hedge relationship, the Company formally designates and documents the hedge
relationship to which it wishes to apply hedge accounting and the risk management objective and
strategy for undertaking the hedge.

The documentation includes identification of the hedging instrument, the hedged item, the nature of
the risk being hedged and how the Company will assess whether the hedging relationship meets the
hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how
the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of
the following effectiveness requirements:

· There is ‘an economic relationship’ between the hedged item and the hedging instrument.

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· The effect of credit risk does not ‘dominate the value changes’ that result from that economic
relationship.
· The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the
hedged item that the Company actually hedges and the quantity of the hedging instrument that the
Company actually uses to hedge that quantity of hedged item.

Hedges that meet all the qualifying criteria for hedge accounting are accounted for, as described
below:

Fair value hedges

The change in the fair value of a hedging instrument is recognized in the parent company statement of
income as other expense. The change in the fair value of the hedged item attributable to the risk
hedged is recorded as part of the carrying value of the hedged item and is also recognized in the
parent company statement of income as other expense.

For fair value hedges relating to items carried at amortized cost, any adjustment to carrying value is
amortized through profit or loss over the remaining term of the hedge using the EIR method. The
EIR amortization may begin as soon as an adjustment exists and no later than when the hedged item
ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

If the hedged item is derecognized, the unamortized fair value is recognized immediately in profit or
loss.

When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative
change in the fair value of the firm commitment attributable to the hedged risk is recognized as an
asset or liability with a corresponding gain or loss recognized in profit or loss.

Cash flow hedges

The effective portion of the gain or loss on the hedging instrument is recognized in OCI in the cash
flow hedge reserve, while any ineffective portion is recognized immediately in the parent company
statement of income. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or
loss on the hedging instrument and the cumulative change in fair value of the hedged item.

The Company uses forward commodity contracts for its exposure to volatility in the commodity
prices. The ineffective portion relating to foreign currency contracts is recognized as other expense
and the ineffective portion relating to commodity contracts is recognized in other operating income or
expenses.

The Company designates only the spot element of forward contracts as a hedging instrument. The
forward element is recognized in OCI and accumulated in a separate component of equity under cost
of hedging reserve.

The amounts accumulated in OCI are accounted for, depending on the nature of the underlying
hedged transaction. If the hedged transaction subsequently results in the recognition of a non-
financial item, the amount accumulated in equity is removed from the separate component of equity
and included in the initial cost or other carrying amount of the hedged asset or liability. This is not a
reclassification adjustment and will not be recognized in OCI for the period. This also applies where
the hedged forecast transaction of a non-financial asset or non-financial liability subsequently
becomes a firm commitment for which fair value hedge accounting is applied.

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For any other cash flow hedges, the amount accumulated in OCI is reclassified to profit or loss as a
reclassification adjustment in the same period or periods during which the hedged cash flows affect
profit or loss.

If cash flow hedge accounting is discontinued, the amount that has been accumulated in OCI must
remain in accumulated OCI if the hedged future cash flows are still expected to occur. Otherwise, the
amount will be immediately reclassified to profit or loss as a reclassification adjustment. After
discontinuation, once the hedged cash flow occurs, any amount remaining in accumulated OCI must
be accounted for depending on the nature of the underlying transaction as described above.

The Company uses a coal swap contract as a hedge of its exposure to coal price risk on its coal
purchases (see Notes 18 and 34).

Classification of Financial Liabilities

Financial liabilities are measured at amortized cost, except for the following:

· financial liabilities measured at FVTPL;

· financial liabilities that arise when a transfer of a financial asset does not qualify for
derecognition or when the Company retains continuing involvement;
· financial guarantee contracts;
· commitments to provide a loan at a below-market interest rate; and
· contingent consideration recognized by an acquirer in accordance with PFRS 3.

A financial liability may be designated at fair value through profit or loss if it eliminates or
significantly reduces a measurement or recognition inconsistency (an accounting mismatch) or:

· if a host contract contains one or more embedded derivatives; or

· if a group of financial liabilities or financial assets and liabilities is managed and its performance
evaluated on a fair value basis in accordance with a documented risk management or investment
strategy.

Where a financial liability is designated at FVTPL, the movement in fair value attributable to changes
in the Company’s own credit quality is calculated by determining the changes in credit spreads above
observable market interest rates and is presented separately in other comprehensive income.

As at December 31, 2019 and 2018, the Company has not designated any financial liability at
FVTPL.

The Company’s accounts payable and other current liabilities (excluding derivative liability and
statutory payables), due to stockholders, short-term and long-term loans, lease liabilities, deposit
payables and other noncurrent liabilities are classified as financial liabilities measured at amortized
cost under PFRS 9 (see Notes 18, 19, 20, 21, 31 and 34).

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Derecognition of Financial Assets and Financial Liabilities

Financial Assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar
financial assets) is primarily derecognized (i.e., removed from the parent company statement of
financial position) when:

· the rights to receive cash flows from the asset have expired; or,
· the Company has transferred its rights to receive cash flows from the asset or has assumed an
obligation to pay the received cash flows in full without material delay to a third party under a
‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks
and rewards of the asset; or (b) the Company has neither transferred nor retained substantially all
the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a
pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of
ownership. When it has neither transferred nor retained substantially all of the risks and rewards of
the asset, nor transferred control of the asset, the Company continues to recognize the transferred
asset to the extent of the Company’s continuing involvement. In that case, the Company also
recognizes an associated liability. The transferred asset and the associated liability are measured on a
basis that reflects the rights and obligations that the Company has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at
the lower of the original carrying amount of the asset and the maximum amount of consideration that
the Company could be required to repay.

Modification of Contractual Cash Flows

When the contractual cash flows of a financial asset are renegotiated or otherwise modified and the
renegotiation or modification does not result in the derecognition of that financial asset, the Company
recalculates the gross carrying amount of the financial asset as the present value of the renegotiated or
modified contractual cash flows discounted at the original EIR (or credit-adjusted EIR for purchased
or originated credit-impaired financial assets) and recognizes a modification gain or loss in the parent
company statement of comprehensive income.

When the modification of a financial asset results in the derecognition of the existing financial asset
and the subsequent recognition of the modified financial asset, the modified asset is considered a
‘new’ financial asset. Accordingly, the date of the modification shall be treated as the date of initial
recognition of that financial asset when applying the impairment requirements to the modified
financial asset.

Financial liability
A financial liability is derecognized when the obligation under the liability is discharged or cancelled
or expired. When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified, such an
exchange or modification is treated as the derecognition of the original liability and the recognition of
a new liability. The difference in the respective carrying amounts is recognized in the parent
company statement of income.

Offsetting of Financial Instruments

Financial assets and financial liabilities are offset and the net amount is reported in the parent
company statement of financial position if there is a currently enforceable legal right to offset the

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recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the
liabilities simultaneously.

The Company assesses that it has a currently enforceable right of offset if the right is not contingent
on a future event, and is legally enforceable in the normal course of business, event of default, and
event of insolvency or bankruptcy of the Company and all of the counterparties.

There are no offsetting of financial assets and financial liabilities and any similar arrangements that
are required to be disclosed in the parent company financial statements as at December 31, 2019 and
2018.

Impairment of Financial Assets

The Company recognizes ECL on debt instruments that are measured at amortized. No ECL is
recognized on equity investments.

ECLs are measured in a way that reflects the following:

· an unbiased and probability-weighted amount that is determined by evaluating a range of possible

outcomes;
· the time value of money; and
· reasonable and supportable information that is available without undue cost or effort at the
reporting date about past events, current conditions and forecasts of future economic conditions.

Financial assets migrate through the following three (3) stages based on the change in credit quality
since initial recognition:

Stage 1: 12-month ECL

For credit exposures where there have not been significant increases in credit risk since initial
recognition and that are not credit-impaired upon origination, the portion of lifetime ECLs that
represent the ECLs that result from default events that are possible within the 12-months after the
reporting date are recognized.

Stage 2: Lifetime ECL – not credit-impaired

For credit exposures where there have been significant increases in credit risk since initial recognition
on an individual or collective basis but are not credit-impaired, lifetime ECLs representing the ECLs
that result from all possible default events over the expected life of the financial asset are recognized.

Stage 3: Lifetime ECL – credit-impaired

Financial assets are credit-impaired when one or more events that have a detrimental impact on the
estimated future cash flows of those financial assets have occurred. For these credit exposures,
lifetime ECLs are recognized and interest revenue is calculated by applying the credit-adjusted
effective interest rate to the amortized cost of the financial asset.

Loss Allowance
For trade receivables, the Company applies a simplified approach in calculating ECLs. Therefore, the
Company does not track changes in credit risk, but instead recognized a loss allowance based on
lifetime ECLs at each reporting date. The Company has established a provision matrix that is based
on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and
the economic environment.

For cash and cash equivalents, the Company applies the low credit risk simplification. The
investments are considered to be low credit risk investments as the counterparties have investment

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grade ratings. It is the Company’s policy to measure ECLs on such instruments on a 12-month basis
based on available probabilities of defaults and loss given defaults. The Company uses the ratings
published by a reputable rating agency to determine if the counterparty has investment grade rating.
If there are no available ratings, the Company determines the ratings by reference to a comparable
bank.

For all debt financial assets other than trade receivables, ECLs are recognized using general approach
wherein the Company tracks changes in credit risk and recognizes a loss allowance based on either a
12-month or lifetime ECLs at each reporting date.

Loss allowances are recognized based on 12-month ECL for debt investment securities that are
assessed to have low credit risk at the reporting date. A financial asset is considered to have low
credit risk if:

· the financial instrument has a low risk of default

· the borrower has a strong capacity to meet its contractual cash flow obligations in the near term
· adverse changes in economic and business conditions in the longer term may, but will not
necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations.

The Company considers a financial asset to have low credit risk when its credit risk rating is
equivalent to the globally understood definition of ‘investment grade’.

Determining the Stage for Impairment

At each reporting date, the Company assesses whether there has been a significant increase in credit
risk for financial assets since initial recognition by comparing the risk of default occurring over the
expected life between the reporting date and the date of initial recognition. The Company considers
reasonable and supportable information that is relevant and available without undue cost or effort for
this purpose. This includes quantitative and qualitative information and forward-looking analysis.

An exposure will migrate through the ECL stages as asset quality deteriorates. If, in a subsequent
period, asset quality improves and also reverses any previously assessed significant increase in credit
risk since origination, then the loss allowance measurement reverts from lifetime ECL to 12-months
ECL.

Write-off policy
The Company writes-off a financial asset and any previously recorded allowance, in whole or in part,
when the asset is considered uncollectible, it has exhausted all practical recovery efforts and has
concluded that it has no reasonable expectations of recovering the financial asset in its entirety or a
portion thereof.

Fuel and Spare Parts

Fuel and spare parts are stated at the lower of cost or net realizable value (NRV). Cost is determined
using the first-in, first-out method. NRV is the current replacement cost of fuel and spare parts.

Non-current Assets Held for Sale

The Company classifies non-current assets as held for sale if their carrying amounts will be recovered
principally through a sale transaction rather than through continuing use. Non-current assets
classified as held for sale are measured at the lower of their carrying amount and fair value less costs
to sell. Costs to sell are the incremental costs directly attributable to the disposal of an asset (disposal
group), excluding finance costs and income tax expense.

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The criteria for held for sale classification under PFRS 5, Noncurrent Assets Held for Sale and
Discontinued Operations is regarded as met only when the sale is highly probable and the asset is
available for immediate sale in its present condition. Actions required to complete the sale should
indicate that it is unlikely that significant changes to the sale will be made or that the decision to sell
will be withdrawn. Management must be committed to the plan to sell the asset and the sale is
expected to be completed within one year from the date of the classification.

Property, plant and equipment are not depreciated or amortized once classified as held for sale.

Assets and liabilities classified as held for sale are presented separately as current items in the parent
company statement of financial position.

Property, Plant and Equipment

Property, plant and equipment, except land, is stated at cost, net of accumulated depreciation and
impairment losses. Such cost includes the cost of replacing a part of the plant and equipment and
borrowing costs for long-term construction projects if the recognition criteria are met. When
significant parts of plant and equipment are required to be replaced at intervals, the Company
depreciates them separately based on their specific useful lives. Likewise, when a major inspection is
performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement
if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in the
parent company statement of income as incurred.

Land is stated at cost, net of accumulated impairment losses, if any.

The present value of the expected cost for the decommissioning of an asset after its use is included in
the cost of the respective asset if the recognition criteria for a provision are met.

Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. The
depreciation of property and equipment, except land, begins when it becomes available for use,
i.e., when it is in the location and condition necessary for it to be capable of operating in the manner
intended by management. Depreciation ceases when the assets are fully depreciated or at the earlier
of the date that the item is classified as held for sale (or included in the disposal group that is
classified as held for sale) in accordance with PFRS 5, and the date the item is derecognized. The
estimated useful lives used in depreciating the Company’s property, plant and equipment are as
follows:

Category Years
Buildings and improvements 6-25
Machinery and equipment:
Power plant 20
Power barges 10
Others 10-15
Transportation equipment 3-5
Tools and other miscellaneous assets 10
Office furniture, equipment and others 3-10

The residual values, useful lives and depreciation method are reviewed periodically to ensure that the
periods and methods of depreciation are consistent with the expected pattern of economic benefits
from items of property and equipment. These are adjusted prospectively, if appropriate.

Fully depreciated property, plant and equipment are retained in the accounts until they are no longer
in use and no further depreciation is charged to current operations.

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An item of property, plant and equipment and any significant part initially recognized is derecognized
upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or
loss arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is included in the parent company statement of income
when the asset is derecognized.

Leases (Prior to adoption of PFRS 16)

The determination of whether an arrangement is (or contains) a lease is based on the substance of the
arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the
arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right
to use the asset or assets, even if that right is not explicitly specified in an arrangement.
A reassessment is made after the inception of the lease, if any, if the following applies:

a) there is a change in contractual terms, other than a renewal or extension of the arrangement;
b) a renewal option is exercised or extension granted, unless the term of the renewal or extension
was initially included in the lease term;
c) there is a change in the determination of whether fulfillment is dependent on a specified asset; or,
d) there is substantial change to the asset.

Where the reassessment is made, lease accounting shall commence or cease from the date when the
change in circumstances gave rise to the reassessment for scenarios (a), (c), or (d) above, and at the
date of renewal or extension period for scenario (b).

The Company determines whether arrangements contain a lease to which lease accounting must be
applied. The costs of the agreements that do not take the legal form of a lease but convey the right to
use an asset are separated into lease payments if the entity has the control of the use or access to the
asset, or takes essentially all of the outputs of the asset. The said lease component for these
arrangements is then accounted for as finance or operating lease.

Company as a Lessee
A lease is classified at the inception date as a finance lease or an operating lease. A lease that
transfers substantially all the risks and rewards incidental to ownership to the Company is classified
as a finance lease.

Finance leases are capitalized at the commencement of the lease at the inception date fair value of the
leased property or, if lower, at the present value of the minimum lease payments. Lease payments are
apportioned between finance charges and reduction of the lease liability so as to achieve a constant
rate of interest on the remaining balance of the liability. Finance charges are recognized under “Other
income - net” account in the parent company statement of income.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable
certainty that the Company will obtain ownership by the end of the lease term, the asset is depreciated
over the shorter of the estimated useful life of the asset or the lease term.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are
classified as operating leases. Operating lease payments are recognized as “Rent” included under
“Cost of sale of electricity” and “General and administrative expenses” in the parent company
statement of income on a straight-line basis over the lease term.

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Company as a Lessor
Leases in which the Company does not transfer substantially all the risks and rewards of ownership of
an asset are classified as operating leases. Initial direct costs incurred in negotiating and arranging an
operating lease are added to the carrying amount of the leased asset and recognized over the lease
term on the same basis as rental income. Contingent rents are recognized as revenue in the period in
which they are earned.

Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that
necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as
part of the cost of the asset. To the extent that funds are borrowed specifically for the purpose of
obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization on that asset
shall be determined as the actual borrowing costs incurred on that borrowing during the period less
any investment income on the temporary investment of those borrowings. To the extent that funds
are borrowed generally, the amount of borrowing costs eligible for capitalization shall be determined
by applying a capitalization rate to the expenditures on that asset. The capitalization rate used by the
Company is the weighted average of the borrowing costs applicable to the borrowings that are
outstanding during the period, other than borrowings made specifically for the purpose of obtaining a
qualifying asset. The amount of borrowing costs capitalized during a period shall not exceed the
amount of borrowing costs incurred during that period.

All other borrowing costs are expensed in the period in which these occur. Borrowing costs consist
of interest and other costs that an entity incurs in connection with the borrowing of funds.

Foreign Currency Denominated Transactions and Balances

Transactions in foreign currencies are initially recorded by the Company’s entities at their respective
functional currency spot rates at the date the transaction first qualifies for recognition.

Monetary assets and liabilities denominated in foreign currencies are translated at the functional
currency spot rates of exchange at the reporting date. Differences arising on settlement or translation
of monetary items are recognized as “Foreign exchange loss - net” under “Other income - net” in the
parent company statement of income.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated
using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair
value in a foreign currency are translated using the exchange rates at the dates when the fair values
are determined. The gains or losses arising on translation of non-monetary items measured at fair
value are treated in line with the recognition of the gains or losses on the change in fair values of the
items (i.e., translation differences on items which the fair value gains or losses are recognized in OCI
or in profit or loss are also recognized in OCI or in profit or loss, respectively).

Interests in Joint Arrangements

Joint arrangement is an arrangement over which two or more parties have joint control. Joint control
is the contractually agreed sharing of control of an arrangement, which exists only when decisions
about the relevant activities (being those that significantly affect the returns of the arrangement)
require unanimous consent of the parties sharing control.

Joint Operations
A joint operation is a type of joint arrangement whereby the parties that have joint control of the
arrangement have rights to the assets and obligations for the liabilities and share in the revenues and
expenses relating to the arrangement. The Company’s service contracts (SC) are assessed as joint
operations.

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Investments in Subsidiaries, Associates and Joint Ventures

A subsidiary is an entity which the Company has control. An investor, regardless of the nature of its
involvement with an entity (the investee), shall determine whether it is a parent by assessing whether
it controls the investee. An investor controls the investee and has the ability to affect those returns
through its power over the investee. Thus, an investor controls an investee if, and only if, the investor
has all of the following:

· Power over the investee

· Exposure, or rights, to variable returns from its involvement with the investee
· The ability to use its power over the investee to affect the amount of the investors returns

An associate is an entity over which the Company has significant influence. Significant influence is
the power to participate in the financial and operating policy decisions of the investee, but is not
control or joint control over those policies.

A joint venture is a type of joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the joint venture. The considerations made in
determining significant influence or joint control are similar to those necessary to determine control
over subsidiaries.

The considerations made in determining significant influence or joint control are similar to those
necessary to determine control over subsidiaries.

Investments in subsidiaries, associates and interests in joint ventures are accounted for and presented
at cost less any impairment in value. Under the cost method, the Company recognizes income from
the investment only to the extent that the Company receives distributions from accumulated profit of
the subsidiary, associate and joint venture. The Company recognized dividend income from its
subsidiaries, associates and joint ventures when its right to receive the dividend is established.

An investment in a subsidiary, an associate or interest in a joint venture is derecognized upon disposal

or when no future economic benefits are expected from its use of disposal. Any gain or loss arising
on derecognition of the assets (calculated as the difference between the net disposal proceeds and the
net carrying amount of the investment) is included in the parent company statement of income in the
year the investment is derecognized.

Investment Properties
Investment properties are carried at cost, including transaction costs, net of accumulated depreciation.
The carrying amount includes the cost of replacing part of an existing investment property at the time
that cost is incurred if the recognition criteria are met and excludes the costs of day-to-day servicing
of an investment property.

Investment properties are derecognized either when disposed of or when permanently withdrawn
from use and no future economic benefit is expected from disposal. The difference between the net
disposal proceeds and the carrying amount of the asset is recognized in the parent company statement
of income in the period of derecognition.

Transfers are made to (or from) investment property only when there is a change in use. For a
transfer from investment property to owner-occupied property, the deemed cost for subsequent
accounting is the carrying value at the date of change in use. If owner-occupied property becomes an
investment property, the Company accounts for such property in accordance with the policy stated
under property, plant and equipment up to the date of change in use.

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Deferred Exploration Costs

The Company follows the full cost method of accounting for exploration costs determined on the
basis of each SC area. Under this method, all exploration costs relating to each SC are deferred
pending the determination of whether the contract area contains oil and gas reserves in commercial
quantities, net of any allowance for impairment losses.

Expenditures for mineral exploration and development work on mining properties are also deferred as
incurred, net of any allowance for impairment losses. These expenditures are provided with an
allowance when there are indications that the exploration results are negative. These are written off
against the allowance when the projects are abandoned or determined to be definitely unproductive.
When the exploration work results are positive, the net exploration costs and subsequent development
costs are capitalized and amortized from the start of commercial operations.

Impairment of Non-financial Assets

The Company assesses, at each reporting date, whether there is an indication that an asset may be
impaired in accordance with PAS 36. If any indication exists, or when annual impairment testing for
an asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable
amount is the higher of an asset’s or Cash Generating Unit’s (CGU’s) fair value less costs of disposal
and its value in use. The recoverable amount is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of those from other assets or groups of
assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset. In determining fair value less costs of disposal, recent market transactions are
taken into account. If no such transactions can be identified, an appropriate valuation model is used.
These calculations are corroborated by valuation multiples, quoted share prices for publicly traded
companies or other available fair value indicators.

The Company bases its impairment calculation on detailed budgets and forecast calculations, which
are prepared separately for each of the Company’s CGUs to which the individual assets are allocated.
These budgets and forecast calculations generally cover a period of five years. For longer periods, a
long-term growth rate is calculated and applied to project future cash flows after the fifth (5th) year.

Impairment losses are recognized in the parent company statement of income in expense categories
consistent with the function of the impaired asset.

An assessment is made at each reporting date to determine whether there is an indication that
previously recognized impairment losses no longer exist or have decreased. If such indication exists,
the Company estimates the asset’s or CGU’s recoverable amount. A previously recognized
impairment loss is reversed only if there has been a change in the assumptions used to determine the
asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so
that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying
amount that would have been determined, net of depreciation, had no impairment loss been
recognized for the asset in prior years. Such reversal is recognized in the parent company statement
of income.

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The following assets have specific characteristics for impairment testing:

Property, Plant and Equipment and Investment Properties

For property, plant and equipment and investment properties, the Company assesses for impairment
on the basis of impairment indicators such as evidence of internal obsolescence or physical damage.

Investments in Associates and Interests in Joint Ventures

The Company determines at the end of each reporting period whether there is any objective evidence
that the investments in associates and interests in joint ventures are impaired. If this is the case, the
amount of impairment is calculated as the difference between the recoverable amount of the
investments in associates and interests in joint ventures, and their carrying amounts.

Right-of-Use Assets
Right-of-use assets are tested for impairment when circumstances indicate that the carrying value
may be impaired.

Deferred Exploration Costs

Deferred exploration costs are reassessed for impairment on a regular basis. An impairment review is
performed, either individually or at the CGU level, when there are indicators that the carrying amount
of the assets may exceed their recoverable amounts. To the extent that this occurs, the excess is fully
provided against, in the reporting period in which this is determined.

Facts and circumstances that would require an impairment assessment as set forth in PFRS 6,
Exploration for and Evaluation of Mineral Resources, are as follows:

· The period for which the Company has the right to explore in the specific area has expired or will
expire in the near future and is not expected to be renewed;
· Substantive expenditure on further exploration and evaluation of mineral resources in the specific
area is neither budgeted nor planned;
· Exploration for and evaluation of mineral resources in the specific area have not led to the
discovery of commercially viable quantities of mineral resources and the entity has decided to
discontinue such activities in the specific area;
· When a service contract where the Company has participating interest in is permanently
abandoned; and
· Sufficient data exist to indicate that, although a development in the specific area is likely to
proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered
in full from successful development or by sale.

When facts and circumstances suggest that the carrying amount exceeds the recoverable amount,
impairment loss is measured, presented and disclosed in accordance with PAS 36, Impairment of
Assets.

Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a
result of a past event; it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation; and, a reliable estimate can be made of the amount of the obligation.
When the Company expects some or all of a provision to be reimbursed, for example, under an
insurance contract, the reimbursement is recognized as a separate asset, but only when the
reimbursement is virtually certain. The expense relating to a provision is presented in the parent
company statement of income, net of any reimbursement.

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If the effect of the time value of money is material, provisions are discounted using a current pre-tax
rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the
increase in the provision due to the passage of time is recognized as “Other income - net” in the
parent company statement of income.

Asset Retirement Obligation

The Company is legally required under a lease agreement to dismantle certain machinery and
equipment and restore the leased site at the end of the lease contract term. The Company recognizes
the fair value of the liability for this obligation and capitalizes the present value of these costs as part
of the balance of the related property, plant and equipment accounts, which are being depreciated on a
straight-line basis over the shorter of the useful life of the related asset or the lease term. The liability
is subsequently carried at amortized cost using the EIR method with the related interest expense
recognized in the parent company statement of income.

Pension and Other Post-employment Benefits

Defined Benefit Plan
The Company operates a defined benefit pension plan in the Philippines, which requires contributions
to be made to a separately administered fund. The cost of providing benefits is determined using the
projected unit credit method.

Remeasurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding
amounts included in net interest on the net defined benefit liability and the return on plan assets
(excluding amounts included in net interest on the net defined benefit liability), are recognized
immediately in the parent company statement of financial position with a corresponding debit or
credit to retained earnings through OCI in the period in which these occur. Remeasurements are not
reclassified to the parent company statement of income in subsequent periods.

Past service costs are recognized in the parent company statement of income on the earlier of:

· the date of the plan amendment or curtailment; or,

· the date that the Company recognizes related restructuring costs.

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset.
The Company recognizes the following changes in the net defined benefit obligation under “Cost of
sale of electricity” and “General and administrative expenses” accounts in the parent company
statement of income:

· service costs comprising current service costs, past service costs, gains and losses on curtailments
and non-routine settlements
· net interest expense or income

Employee Leave Entitlement

Employee entitlements to annual leave are recognized as a liability when these are accrued to the
employees. The undiscounted liability for leave expected to be settled wholly before twelve months
after the end of the annual reporting period is recognized for services rendered by employees up to
the end of the reporting period.

Other long-term benefits

Vacation and sick leaves are recognized as a liability when these are accrued to the employees.
Unused vacation and sick leave credits shall be converted to cash upon separation of employee. Leave

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expected to be settled wholly before twelve months after the end of the annual reporting period is
reclassified to short term benefits.

Capital Stock
Capital stock represents the portion of the paid-in capital representing the total par value of the shares
issued.

Stock Options and Grants

Stock option and grants are accounted for in accordance with PFRS 2, that is, the cost of stock option
awards is measured by reference to the fair value at the date on which they are granted. The fair
value is determined using the binomial method. The cost of such awards is recognized, together with
a corresponding increase in equity, over the period in which the performance and/or service
conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to
the award. The cumulative expense that is recognized at each reporting date until the vesting date
reflects the extent to which the vesting period has expired and the Company’s best estimate of the
number of equity instruments that will ultimately vest. The charge or credit to the parent company
statement of income for a period represents the movement in cumulative expense recognized as at the
beginning and end of the period.

No expense is recognized for awards that do not ultimately vest, except for awards where vesting is
conditional upon a market condition, which are treated as vesting irrespective of whether or not the
market condition is satisfied, provided that all other performance conditions are satisfied.

Where the terms of the award are modified, the minimum expense recognized is the expense if the
terms had not been modified. An additional expense is recognized for any modification, which
increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the
employee as measured at the date of modification.

Where the stock option is cancelled, it is treated as if it had vested on the date of the cancellation, and
any expense not yet recognized for the award is recognized immediately. However, if a new award is
substituted for the cancelled award, and designated as a replacement award on the date that it is
granted, the cancelled and new awards are treated as if they were a modification of the original award,
as described in the preceding paragraph.

If the outstanding options are dilutive, its effect is reflected as additional share dilution in the
computation of diluted earnings per share.

Additional Paid-in Capital (APIC)

APIC represents the amount paid in excess of the par value of the shares issued. Incremental costs
incurred directly attributable to the issuance of new shares are shown in equity as a deduction from
proceeds, net of tax.

Retained Earnings
Retained earnings include all current and prior period results of operations as reported in the parent
company statement of income, net of any dividend declaration and adjusted for the effects of changes
in accounting policies as may be required by PFRS’s transitional provisions.

Cash Dividend to Equity Holders of the Parent Company

The Company recognizes a liability to make cash distributions to equity holders of the Company
when the distribution is authorized and the distribution is no longer at the discretion of the Company.
A corresponding amount is recognized directly in equity.

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Revenue from Contracts with Customers

Revenue from contracts with customers is recognized when control of the goods or services are
transferred to the customer at an amount that reflects the consideration to which the Company expects
to be entitled in exchange for those goods or services. The Company has concluded that it is the
principal in all of its revenue arrangements since it is the primary obligor in all the revenue
arrangements, has pricing latitude and is also exposed to credit risks.

The specific recognition criteria described below must also be met before revenue is recognized.

Sale of Electricity
Sale of electricity is consummated whenever the electricity generated by the Company is transmitted
through the transmission line designated by the buyer, for a consideration. Revenue from sale of
electricity is based on sales price. Sales of electricity using bunker fuel are composed of generation
fees from spot sales to the WESM and supply agreements with third parties and are recognized
monthly based on the actual energy delivered.

Meanwhile, revenue from sale of electricity through ancillary services to the National Grid
Corporation of the Philippines (NGCP) is recognized monthly based on the capacity scheduled and/or
dispatched and provided. Revenue from sale of electricity through Retail Supply Contract (RSC) is
composed of generation charge from monthly energy supply with various contestable customers and
is recognized monthly based on the actual energy delivered. The basic energy charges for each
billing period are inclusive of generation charge and retail supply charge.

The Company identified the sale of electricity as its performance obligation since the customer can
benefit from it in conjunction with other readily available resources and it is also distinct within the
context of the contract. The performance obligation qualifies as a series of distinct services that are
substantially the same and have the same pattern of transfer. The Company concluded that the
revenue should be recognized overtime since the customers simultaneously receives and consumes
the benefits as the Company supplies electricity.

Amounts Reimbursed to Customers

Certain revenue contracts with customers provide for the sale of any unutilized electricity to the
WESM. The proceeds are recorded as reduction in “Revenue from sale of electricity” in the parent
company statement of income.

Dividend Income
Dividend income is recognized when the Company’s right to receive the payment is established,
which is generally when shareholders of the investees approve the dividend.

Rental Income
Rental income arising from operating leases on investment properties is accounted for on a straight-
line basis over the lease terms and is included in revenue in the parent company statement of income
due to its operating nature.

Other Income
Other income is recognized when there is an incidental economic benefit, other than the usual
business operations, that will flow to the Company through an increase in asset or reduction in
liability that can be measured reliably.

Costs and Expenses

Costs and expenses are decreases in economic benefits during the accounting period in the form of
outflows or decreases of assets or incurrence of liabilities that result in decrease in equity, other than

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those relating to distributions to equity participants. Costs and expenses are recognized when
incurred.

Taxes

Current Income Tax

Current income tax assets and liabilities are measured at the amount expected to be recovered from or
paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that
are enacted or substantively enacted, at the reporting date in the countries where the Company
operates and generates taxable income.

Management periodically evaluates positions taken in the tax return with respect to situations in
which applicable tax regulations are subject to interpretations and establishes provisions where
appropriate.

Current income tax relating to items recognized directly in equity is recognized in equity and not in
the parent company statement of income.

Deferred Income Tax

Deferred income tax is provided using the liability method on temporary differences between the tax
bases of assets and liabilities and their carrying amounts for financial reporting purposes as at the
reporting date.

Deferred income tax liabilities are recognized for all taxable temporary differences, except:

· when the deferred income tax liability arises from the initial recognition of goodwill or an asset
or liability in a transaction that is not a business combination and, at the time of the transaction,
affects neither the accounting income nor taxable income or loss;
· in respect of taxable temporary differences associated with investments in subsidiaries and
associates and interests in joint ventures, when the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary differences will not reverse in
the foreseeable future.

Deferred income tax assets are recognized for all deductible temporary differences, including
carryforward benefits of unused net operating loss carryover (NOLCO) and excess minimum
corporate income tax (MCIT) over regular corporate income tax (RCIT) which can be deducted
against future RCIT due to the extent that it is probable that future taxable income will be available
against which the deductible temporary differences and carryforward benefits of unused tax credits
from unused NOLCO can be utilized, except:

· when the deferred income tax asset relating to the deductible temporary difference arises from the
initial recognition of an asset or liability in a transaction that is not a business combination and, at
the time of the transaction, affects neither the accounting income nor taxable income;
· in respect of deductible temporary differences associated with investments in subsidiaries and
associates and interests in joint ventures, deferred income tax assets are recognized only to the
extent that it is probable that the temporary differences will reverse in the foreseeable future and
taxable income will be available against which the temporary differences can be utilized.

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to
the extent that it is no longer probable that sufficient taxable income will be available to allow all or
part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are re-

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assessed at each reporting date and are recognized to the extent that it has become probable that future
taxable income will allow the deferred income tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in
the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have
been enacted or substantively enacted at the reporting date.

Deferred income tax relating to items recognized outside profit or loss is recognized outside profit or
loss. Deferred income tax items are recognized in correlation to the underlying transaction either in
OCI or directly in equity.

Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right
exists to set off current income tax assets against current income tax liabilities and the deferred
income taxes relate to the same taxable entity and the same taxation authority.

Creditable Withholding Taxes

Creditable withholding taxes represent amounts withheld by the Company’s customers and is
deducted from the Company’s income tax payable.

Value-added Tax (VAT)

Expenses and assets are recognized net of the amount of VAT, except:
· When the VAT incurred on a purchase of assets or services is not recoverable from the taxation
authority, in which case, the VAT is recognized as part of the cost of acquisition of the asset or as
part of the expense item, as applicable; and,
· When receivables and payables are stated with the amount of VAT included

The amount of VAT recoverable from the taxation authority is recognized as “Input VAT”, while
VAT payable to taxation authority is recognized as “Output VAT” under “Accounts payable and
other current liabilities” in the parent company statement of financial position.

Output VAT is recorded based on the amount of sale of electricity billed to third parties. Any amount
of output VAT not yet collected as at reporting period are presented as “Deferred output VAT” under
“Accounts payable and other current liabilities” account in the parent company statement of financial
position.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed based on weighted average number of issued and
outstanding common shares during each year after giving retroactive effect to stock dividends
declared during the year. Diluted earnings (loss) per share is computed as if the stock options were
exercised as at the beginning of the year and as if the funds obtained from exercise were used to
purchase common shares at the average market price during the year. Outstanding stock options will
have a dilutive effect under the treasury stock method only when the fair value of the underlying
common shares during the period exceeds the exercise price of the option. Where the outstanding
stock options have no dilutive effect and the Company does not have any potential common share nor
other instruments that may entitle the holder to common shares, diluted earnings (loss) per share is the
same as basic earnings (loss) per share.

Segment Reporting
The Company’s operating businesses are organized and managed separately according to the nature
of the products and services provided, with each segment representing a strategic business unit that

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offers different products. Financial information on business segments is presented in Note 36 of the
parent company financial statements.

Contingencies
Contingent liabilities are not recognized in the parent company financial statements but are disclosed
in the notes to the parent company financial statements unless the possibility of an outflow of
resources embodying economic benefits is remote. If it is probable that an outflow of resources
embodying economic benefits will occur and the liability’s value can be measured reliably, the
liability and the related expense are recognized in the parent company financial statements.

Contingent assets are not recognized in the parent company financial statements but disclosed in the
notes to the parent company financial statements when an inflow of economic benefits is probable.
Contingent assets are assessed continually to ensure that developments are appropriately reflected in
the parent company financial statements. If it is virtually certain that an inflow of economic benefits
or service potential will arise and the asset’s value can be measured reliably, the asset and the related
revenue are recognized in the parent company financial statements.

Events After the Reporting Period

Post year-end events that provide additional information about the Company’s position as at the
reporting date (adjusting events) are reflected in the parent company financial statements. Post year-
end events that are not adjusting events are disclosed in the notes to the parent company financial
statements when material.

4. Significant Accounting Judgments, Estimates and Assumptions

The parent company financial statements prepared in conformity with PFRSs require management to
make judgments, estimates and assumptions that affect amounts reported in the parent company financial
statements and related notes. In preparing the parent company financial statements, management has
made its best estimates and judgments of certain amounts, giving due consideration to materiality. The
judgments, estimates and assumptions used in the parent company financial statements are based upon
management’s evaluation of relevant facts and circumstances as at the date of the parent company
financial statements. Actual results could differ from such estimates.

The Company believes the following represent a summary of these significant judgments and estimates
and related impact and associated risks in its parent company financial statements.

Judgments

Revenue Recognition

Identifying Performance Obligations

The Company identifies performance obligations by considering whether the promised goods or services
in the contract are distinct goods or services. A good or service is distinct when the customer can benefit
from the good or service on its own or together with other resources that are readily available to the
customers and the Company’s promise to transfer the good or service to the customer is separately
identifiable.

The Company assesses performance obligations as a series of distinct goods and services that are
substantially the same and have the same pattern of transfer if (i) each distinct good or service in the
series are transferred over time and (ii) the same method of progress will be used (i.e., units of delivery)
to measure the entity’s progress towards complete satisfaction of the performance obligation.

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For power generation, trading and ancillary services where capacity and energy dispatched are separately
identified, these two obligations are to be combined as one performance obligation since these are not
distinct within the context of the contract as the customer cannot benefit from the contracted capacity
alone without the corresponding energy and the customer cannot obtain energy without contracting a
capacity.

The combined performance obligation qualifies as a series of distinct services that are substantially the
same and have the same pattern of transfer since the delivery of energy every month are distinct services
which are all recognized over time and have the same measure of progress.

Retail supply also qualifies as a series of distinct services which is accounted for as one performance
obligation since the delivery of energy every month is a distinct service which is recognized over time
and have the same measure of progress.

Identifying Methods for Measuring Progress of Revenue Recognized Over Time

The Company determines the appropriate method of measuring progress which is either through the use
of input or output methods. Input method recognizes revenue on the basis of the entity’s efforts or inputs
to the satisfaction of a performance obligation while output method recognizes revenue on the basis of
direct measurements of the value to the customer of the goods or services transferred to date.

For ancillary services, the Company determined that the output method is the best method in measuring
progress since actual energy is supplied to customers. The Company recognizes revenue based on
contracted and actual kilowatt hours (kwh) dispatched which are billed on a monthly basis.

For power generation and trading and retail supply, the Company uses the actual kwh dispatched which
are also billed on a monthly basis.

Determining Method to Estimate Variable Consideration and Assessing the Constraint

The Company includes some or all the amounts of variable consideration estimated but only to the extent
that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will
not occur when the uncertainty associated with the variable consideration is subsequently resolved. The
Company considers both likelihood and magnitude of the revenue reversal in evaluating the extent of
variable consideration the Company will subject to constraint. Factors such as (i) highly susceptible to
factors outside of the Company’s influence, (ii) timing of resolution of the uncertainty, and (iii) having a
large number and broad range of possible outcomes are considered.

Some contracts with customers provide for unspecified quantity of energy, index adjustments and prompt
payment discounts that give rise to variable considerations. In estimating the variable consideration, the
Company is required to use either the expected value method or the most likely amount method based on
which method better predicts the amount of consideration to which it will be entitled. The expected
value method of estimation takes into account a range of possible outcomes while most likely amount is
used when the outcome is binary.

The Company determined that the expected value method is the appropriate method to use in estimating
the variable consideration given the large number of customer contracts that have similar characteristics
and wide the range of possible outcomes.

Before including any amount of variable consideration in the transaction price, the Company considers
whether the amount of variable consideration is constrained. The Company determined that the estimates
of variable consideration are to be fully constrained based on its historical experience (i.e., prompt
payment discounts), the range of possible outcomes (i.e., unspecified quantity of energy), and the
unpredictability of other factors outside the Company’s influence (i.e., index adjustments).

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Lease Accounting

Determining Whether an Arrangement Contains a Lease (Prior to adoption of PFRS 16)

ACEPH supplies the electricity requirements of certain customers under separate Electricity Supply
Agreements (ESAs) (see Note 33). The Company has evaluated the arrangements and the terms of the
ESAs and determined that the agreements do not qualify as leases. Accordingly, fees billed to these
customers are recognized as revenue from sale of electricity.

Under the Company’s Power Purchase Agreement (PPA) with SLTEC and Maibarara Geothermal Inc.
(MGI), ACEPH agreed to purchase all of SLTEC and MGI’s output (see Note 33). The Company has
evaluated the arrangements and the terms of the PPA and determined that the agreements do not qualify
as leases. Accordingly, fees paid to SLTEC and MGI are recognized under “Cost of sale of electricity”
(see Note 24).

Classification of Leases - the Company as Lessee (Prior to adoption of PFRS 16)

The Company exercises judgment in determining whether substantially all the significant risks and
rewards of ownership of the leased assets are transferred to the Company. Lease agreements, which
transfer to the Company substantially all the risks and rewards incidental to ownership of the leased
items are classified as finance leases. Otherwise, these are considered as operating leases
(see Note 33).

The Company has entered into a lease agreement with Guimaras Electric Company (GUIMELCO)
for a parcel of land used only as a site for electric generating plant and facilities, where it has
determined that the risks and rewards related to the properties are retained with the lessor (e.g., no
bargain purchase option and transfer of ownership at the end of the lease term). The lease is,
therefore, accounted for as an operating lease.

The Company, AC Energy, Ayala Land, Inc. (ALI) and Ayalaland Offices, Inc. entered an agreement
on assignment of contract of lease. AC Energy assigned a portion of its office unit and parking slots.

Details of the above lease agreements are disclosed in Note 33.

Classification of Leases - the Company as Lessor

The Company had a lease agreement for the lease of its investment property. The Company had
determined that the risks and rewards of ownership of the underlying property were retained by the
Company. Accordingly, the leases are classified as an operating lease (see Note 33).

Determination of lease term of contracts with renewal and termination options – the Company as Lessee
The Company has a lease contracts that include extension and termination options. The Company
applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option
to renew or terminate the lease. That is, it considers all relevant factors that create an economic
incentive for it to exercise either the renewal or termination. After the commencement date, the
Company reassesses the lease term if there is a significant event or change in circumstances that is
within its control and affects its ability to exercise or not to exercise the option to renew or to
terminate (e.g., construction of significant leasehold improvements or significant customization to the
leased asset).

The Company did not include the renewal period as part of the lease term for leases of office space
and parking slots because as at commencement date, the Company assessed that it is not reasonably
certain that it will exercise the renewal options since the renewal options are subject to mutual
agreement of the lessor and the Company.

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PFRS 9 Identification of Business Models and Impairment

Identification of Business Models
The Company manages its financial assets based on a business model that maintains adequate level of
financial assets to match expected cash outflows while maintaining a strategic portfolio of financial
assets for trading activities.

The Company’s business model can be to hold financial assets to collect contractual cash flows even
when sales of certain financial assets occur. The following are the Company’s business models:
Portfolio 1, Operating and Liquidity Fund (Amortized Cost)
Portfolio 1 is classified as amortized cost with the objective to hold to collect the financial asset
to ensure sufficient funding to support the Company’s operations and project implementation. It
also aims to generate interest income from low-risk, short-term investments in highly liquid
assets.

Funds in this portfolio is comprised of financial assets classified by the Bangko Sentral ng
Pilipinas (BSP) and trust entities as conservative assets, which are principal-protected and highly
liquid. These are placed in investment outlets that are redeemable within thirty (30) to ninety
(90) days. This includes the Company’s cash and cash equivalents, short-term investments,
receivables and refundable deposits.

Main risks are credit risk, liquidity risk, market risk and interest rate risk. The performance of the
portfolio is evaluated based on the yield of the investments. For further details on risks and
mitigating factors, see Note 34.

Sales may be made when the financial assets are close to maturity and prices from the sales
approximate the collection of the remaining contractual cash flows. Further, disposal is permitted
when the Company believes that there is a credit deterioration of the issuer.

PFRS 9, however, emphasizes that if more than an infrequent number of sales are made out of a
portfolio of financial assets carried at amortized cost, the entity should assess whether and how
such sales are consistent with the objective of collecting contractual cash flows.

Portfolio 2, Operating and Liquidity Fund

Portfolio 2 is classified as FVOCI with the objective to hold to collect and sell to ensure sufficient
funding to support operations and project implementation. It also aims to generate interest
income from low-risk, short-term investments in highly liquid assets.

Funds in this portfolio is comprised of financial assets classified by the BSP and trust entities as
conservative assets, which are principal-protected and highly liquid. These are placed in
investment outlets that are redeemable within thirty (30) to ninety (90) days. This includes the
Company’s UITFs, FXTNs and derivative assets.

Main risks are credit risk, liquidity risk, market risk and interest rate risk. The performance of the
portfolio is evaluated based on the yield and fair value changes of the investments. For further
details on risks and mitigating factors, see Note 34.

Sales may be made when the financial assets are close to maturity and prices from the sales
approximate the collection of the remaining contractual cash flows. Further, disposal is permitted
when the Company believes that there is a credit deterioration of the issuer.

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Portfolio 3, Strategic Fund

Portfolio 3 is classified as FVOCI with the objective to hold to collect and to sell the financial
asset to generate interest income from low-risk, long-term investments in liquid assets and
maximize the returns from excess funds of the Company.

Funds in this portfolio have an overall weighted duration risk exposure of one (1) year or less.
These are placed in investment outlets with tenors of at least ninety (90) days. The Company
does not have debt instruments at FVOCI.

Main risks are credit risk, liquidity risk, market risk, interest rate risk and foreign currency risk.
The performance of the portfolio is evaluated based on the yield and fair value changes of
outstanding investments. For further details on risks and mitigating factors, see Note 34.
Sales may be made when the financial assets are close to maturity and prices from the sales
approximate the collection of the remaining contractual cash flows. Further, disposal is permitted
when the Company believes that there is a credit deterioration of the issuer.
Definition of Default and Credit-impaired Financial Assets
The Company defines a financial instrument as in default, which is fully aligned with the definition of
credit-impaired, when it meets one or more of the following criteria:

· Quantitative criteria
The borrower is more than ninety (90) days past due on its contractual payments, i.e., principal
and/or interest, which is consistent with the Company’s definition of default.

· Qualitative criteria
The borrower meets unlikeliness to pay criteria, which indicates the borrower is in significant
financial difficulty. These are instances where:
a. The borrower is experiencing financial difficulty or is insolvent
b. The borrower is in breach of financial covenant(s)
c. Concessions have been granted by the Company, for economic or contractual reasons relating
to the borrower’s financial difficulty
d. It is becoming probable that the borrower will enter bankruptcy or other financial
reorganization
e. Financial assets are purchased or originated at a deep discount that reflects the incurred credit
losses.
The criteria above have been applied to all financial instruments held by the Company and are
consistent with the definition of default used for internal credit risk management purposes. The
default definition has been applied consistently to model the Probability of Default (PD), Loss
Given Default (LGD) and Exposure at Default (EAD) throughout the Company’s expected loss
calculation.
Joint Arrangements
Determining and Classifying Joint Arrangements
Judgment is required to determine when the Company has joint control over an arrangement, which
requires an assessment of the relevant activities and when the decisions in relation to those activities
require unanimous consent. The Company has determined that the relevant activities for its joint
arrangements are those relating to the operating and capital decisions of the arrangements.

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Judgment is also required to classify a joint arrangement. Classifying the arrangement requires the
Company to assess their rights and obligations arising from the arrangement. Specifically, the
Company considers:

· the structure of the joint arrangement - whether it is structured through a separate vehicle;
· when the arrangement is structured through a separate vehicle, the Company also considers the
rights and obligations arising from:
a. the legal form of the separate vehicle;
b. the terms of the contractual arrangement; and,
c. other facts and circumstances (when relevant).

This assessment often requires significant judgments on the conclusion on joint control and whether
the arrangement is a joint operation or a joint venture, which may materially impact the accounting.
As at December 31, 2019 and 2018, the Company’s SCs are joint arrangements in the form of a joint
operation.

The Company’s joint control arrangements in which the Company has rights to the net assets of the
investees are classified as joint ventures. Under the contractual agreements, the Company has joint
control over these arrangements as there is a unanimous consent where any party can prevent the
other party from making unilateral decisions on the relevant activities without the other party’s
consent (see Note 12).

The Company’s joint arrangements are also structured through separate vehicles and provide the
Company and the parties to the agreements with rights to the net assets of the separate vehicle under
the arrangements.

Estimates

Estimating the incremental borrowing rate

The Company cannot readily determine the interest rate implicit in the lease, therefore, it uses its
incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the
Company would have to pay to borrow over a similar term, and with a similar security, the funds
necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic
environment. The IBR therefore reflects what the Company ‘would have to pay’, which requires
estimation when no observable rates are available or when they need to be adjusted to reflect the terms
and conditions of the lease. The Company estimates the IBR using observable inputs (such as market
interest rates) when available and is required to make certain entity-specific estimates (such as the
entities’ stand-alone credit rating).

The Company’s lease liabilities amounted to P

=24.11 million as at December 31, 2019.

Estimating Allowance for Credit Losses

Measurement of expected credit losses

ECLs are derived from unbiased and probability-weighted estimates of expected loss, and are
measured as follows:

· Financial assets that are not credit-impaired at the reporting date: as the present value of all
cash shortfalls over the expected life of the financial asset discounted by the effective interest
rate. The cash shortfall is the difference between the cash flows due to the Company in
accordance with the contract and the cash flows that the Company expects to receive.

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· Financial assets that are credit-impaired at the reporting date: as the difference between the
gross carrying amount and the present value of estimated future cash flows discounted by the
effective interest rate.

The Company leverages existing risk management indicators, credit risk rating changes and
reasonable and supportable information which allows the Company to identify whether the credit risk
of financial assets has significantly increased.

Inputs, Assumptions and Estimation Techniques

General approach for cash in banks and other financial assets measured at amortized cost
The ECL is measured on either a 12-month or lifetime basis depending on whether a significant
increase in credit risk has occurred since initial recognition or whether an asset is considered to be
credit-impaired. Expected credit losses are the discounted product of the PD, LGD and EAD, defined
as follows:

· Probability of Default
The PD represents the likelihood of a borrower defaulting on its financial obligation, either over
the next 12 months, or over the remaining life of the obligation. PD estimates are estimates at a
certain date, which are calculated based on available market data using rating tools tailored to the
various categories of counterparties and exposures. These statistical models are based on
internally compiled data comprising both quantitative and qualitative factors. If a counterparty or
exposure migrates between rating classes, then this will lead to a change in the estimate of the
associated PD. PDs are estimated considering the contractual maturities of exposures and
estimated prepayment rates.

The 12-months and lifetime PD represent the expected point-in-time probability of a default over
the next 12 months and remaining lifetime of the financial instrument, respectively, based on
conditions existing at reporting date and future economic conditions that affect credit risk.

· Loss Given Default

Loss Given Default represents the Company’s expectation of the extent of loss on a defaulted
exposure, taking into account the mitigating effect of collateral, its expected value when realized
and the time value of money. LGD varies by type of counterparty, type of seniority of claim and
availability of collateral or other credit support. LGD is expressed as a percentage loss per unit of
EAD.

· Exposure at Default
EAD is based on the amounts the Company expects to be owed at the time of default, over the
next 12 months or over the remaining lifetime.

Simplified Approach for Trade Receivables

The Company uses a provision matrix to calculate ECLs for certain trade receivables. The provision
rates are based on days past due for groupings of various customer segments that have similar loss
patterns (i.e., by revenue stream, customer type).

The provision matrix is initially based on the Company’s historical observed default rates. The
Company will calibrate the matrices to adjust the historical credit loss experience with forward-
looking information. For instance, if forecast economic conditions (i.e., inflation rate, gross domestic
product (GDP), foreign exchange rate) are expected to deteriorate over the next year which can lead
to an increased number of defaults, the historical default rates are adjusted. At every reporting date,

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the historical observed default rates are updated and changes in the forward-looking estimates are
analyzed.

The assessment of the correlation between historical observed default rates, forecast economic
conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in
circumstances and of forecast economic conditions. The Company’s historical credit loss experience
and forecast of economic conditions may also not be representative of customer’s actual default in the
future.

There have been no significant changes in estimation techniques or significant assumptions made
during the reporting period.

Incorporation of Forward-Looking Information

The Company incorporates forward-looking information into both its assessment of whether the
credit risk of an instrument has increased significantly since its initial recognition and its
measurement of ECL.

To do this, the Company considers a range of relevant forward-looking macro-economic assumptions

for the determination of unbiased general industry adjustments and any related specific industry
adjustments that support the calculation of ECLs. The Company formulates a ‘base case’ view of the
future direction of relevant economic variables as well as a representative range of other possible
forecast scenarios. This process involves developing two or more additional economic scenarios and
considering the relative probabilities of each outcome. External information includes economic data
and forecasts published by governmental bodies, monetary authorities and selected private-sector and
academic institutions.

The base case represents a most-likely outcome and is aligned with information used by the Company
for other purposes such as strategic planning and budgeting. The other scenarios represent more
optimistic and more pessimistic outcomes.

The Company has identified and documented key drivers of credit risk and credit losses of each
financial instrument and, using an analysis of historical data, has estimated relationships between
macro-economic variables and credit risk and credit losses.

The economic scenarios used as at December 31, 2019 is Global 7 short term interest rate from
Macroeconomics Indicators. As at December 31, 2018, the Company included the following
economic scenarios included the following ranges of key macroeconomics indicators.

Economic indicators 2018

Inflation rates Base 3.90%
Range between -0.4% and 6.7%
Foreign exchange rate Base P
=52.61
Range between P=40.67 and
=51.34
P
GDP growth Base 6.90%
Range between 5.10% and 7.20%

Predicted relationship between the key economic indicators and default and loss rates on various
portfolios of financial assets have been developed based on analyzing historical data over the past
five (5) to nine (9) years. The methodologies and assumptions including any forecasts of future
economic conditions are reviewed regularly.

*SGVFS039365*
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The Company has not identified any uncertain event that it has assessed to be relevant to the risk of
default occurring but where it is not able to estimate the impact on ECL due to lack of reasonable and
supportable information.

Grouping of Instruments for Losses Measured on Collective Basis

For expected credit loss provisions modelled on a collective basis, a grouping of exposures is
performed on the basis of shared credit risk characteristics, such that risk exposures within a group
are homogeneous. In performing this grouping, there must be sufficient information for the Company
to be statistically credible. Where sufficient information is not available internally, the Company has
considered benchmarking internal/external supplementary data to use for modelling purposes. The
characteristics and any supplementary data used to determine groupings are outlined below.

· Universal and Commercial banks - Groupings for collective measurement

a. Instrument type
b. Credit risk rating

· Independent Electricity Market Operator of the Philippines [IEMOP; formerly Philippine

Electricity Market Corporation (PEMC)], NGCP, RES, Direct and Wholesale Aggregator (WA)
Customers - Groupings for collective measurement
a. Customer revenue classification (revenue stream)
b. Credit risk rating band

The appropriateness of groupings is monitored and reviewed on a periodic basis. In 2019 and 2018,
the total gross carrying amount of receivables for which lifetime ECLs have been measured on a
collective basis amounted to nil and =
P2,752.27 million, respectively.

The carrying values of receivables and the related allowance for credit losses of the Company are
disclosed in Note 7. In 2019 and 2018, provision for doubtful accounts amounted to
=1.16 million and =
P P12.74 million, respectively (see Note 25).

As at December 31, 2019 and 2018, allowance for credit losses on receivables amounted to
=112.52 million and =
P P111.36 million, respectively (see Notes 7 and 17).

Recoverability of Input VAT

Input VAT represents taxes paid on purchases of applicable goods and services which can be recovered
as tax credit against future output VAT liability of the Company. The Company is also allowed to
recover excess input VAT by filing a claim for refund or tax credit certificate with the BIR.

The Company has written-off =P21.90 million of input VAT in 2018 as these are considered no longer
recoverable. The Company also provided provisions for unrecoverable input tax amounting to nil and
=43.71 million in 2019 and 2018, respectively (see Note 28). The carrying amounts of input VAT as at
P
December 31, 2019 and 2018 amounted to P =341.07 million and P
=335.60 million, respectively (see
Note 9).

Realizability of Deferred Income Tax Assets

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the
extent that it is no longer probable that sufficient taxable income will be available to allow all or part of
the deferred income tax assets to be utilized. However, there is no assurance that sufficient taxable
income will be generated to allow all or part of the deferred tax assets to be utilized.

*SGVFS039365*
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As at December 31, 2019 and 2018, deferred income tax assets recognized by the Company amounted to
=596.58 million and P
P =258.92 million, respectively (see Note 29). The Company’s deductible temporary
differences, unused NOLCO and unused MCIT for which no deferred income tax assets were recognized
are disclosed in Note 29.

Estimating Useful Lives of Property, Plant and Equipment, Right-of-Use Assets and Investment
Properties
The Company estimates the useful lives of property, plant and equipment, right-of-use assets and
investment properties based on the period over which the assets are expected to be available for use.
The estimated useful lives of property, plant and equipment, right-of-use assets and investment
properties are reviewed periodically and are updated if expectations differ from previous estimates
due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the
use of the assets. In addition, estimation of the useful lives of property, plant and equipment and
investment properties are based on collective assessment of industry practice, internal technical
evaluation and experience with similar assets. It is possible, however, that future results of operations
could be materially affected by changes in estimates brought about by changes in factors mentioned
above. The amounts and timing of recorded expenses for any period would be affected by changes in
these factors and circumstances. In 2019 and 2018, there were no changes in the estimated useful
lives of the assets.

The total depreciation and amortization of property, plant and equipment, right-of-use assets and
investment properties amounted to =P61.69 million and = P74.77 million in 2019 and 2018, respectively
(see Notes 11, 14, 16 and 27).

Impairment of Deferred Exploration Costs

The carrying value of deferred exploration costs is reviewed for impairment by management when there
are indications that the carrying amount exceeds the recoverable amount under PFRS 6. Among the
factors considered by management in the impairment review of deferred exploration costs are the
expiration of the contracts and the technical evaluation that the remaining prospects in these areas are
small and are likely to be uneconomic. In the event of impairment, the Company measures, presents and
discloses the resulting impairment loss in accordance with PAS 36.

The Company considers the status of the service contracts and its plans in determining the
recoverable amount of the deferred exploration costs.

The Company recognized impairment losses on deferred exploration costs amounting to

=34.49 million and nil in 2019 and 2018, respectively. The carrying value of deferred exploration
P
costs amounted to nil and =
P31.72 million as at December 31, 2019 and 2018, respectively (see
Notes 15 and 25).

Impairment of Non-financial Assets, Other than Deferred Exploration Costs

The Company assesses whether there are any indicators of impairment for all non-financial assets, other
than deferred exploration costs, at each reporting date in accordance with PAS 36. These non-financial
assets (investments in subsidiaries, associates and interests in joint ventures, property, plant and
equipment, right-of-use assets and investment property) are tested for impairment whenever events or
changes in circumstances indicate that carrying amount of the asset may not be recoverable. This
requires an estimation of the value in use of the CGUs. Estimating the value in use requires the
Company to make an estimate of the expected future cash flows from the CGU and also to choose a
suitable discount rate in order to calculate the present value of those cash flows. In cases where the
value in use cannot be reliably measured, the recoverable amount is based on fair value less costs to sell.

*SGVFS039365*
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The carrying amounts of the Company’s non-financial assets other than deferred exploration costs as at
December 31 are as follows:

2019 2018
Investments in subsidiaries, associates and joint
ventures (see Note 12) P
=11,864,846 =9,036,323
P
Property, plant and equipment (see Note 11) 489,636 527,387
Right-of use assets (see Note 16) 26,430 –

No impairment loss was recognized on these non-financial assets in 2019. Impairment loss on property,
plant and equipment amounted to P
=0.93 million in 2018.

Accumulated impairment losses on investments in subsidiaries and associates amounted to

=46.74 million as at December 31, 2019 and 2018 (see Note 12).
P

Estimation of Pension and Other Employee Benefits Liabilities

The cost of defined benefit pension plans and other post-employment benefits as well as the present
value of the pension obligation are determined using actuarial valuations. The actuarial valuation
involves making various assumptions. These include the determination of the discount rates, future
salary increases, mortality rates and future pension increases. Due to the complexity of the valuation,
the underlying assumptions and its long-term nature, defined benefit obligations are highly sensitive to
changes in these assumptions. All assumptions are reviewed at each reporting date. Pension and other
employee benefits liability amounted to = P24.14 million and =P19.59 million as at December 31, 2019
and 2018, respectively (see Note 30).

In determining the appropriate discount rate, management considers the interest rates of government
bonds that are denominated in the currency in which the benefits will be paid, with extrapolated
maturities corresponding to the expected duration of the defined benefit obligation.

The mortality rate is based on publicly available mortality tables for the specific country and is modified
accordingly with estimates of mortality improvements. Future salary increases and pension increases
are based on expected future inflation rates for the specific country.

Further details about the assumptions used are provided in Note 30.

Contingencies and Tax Assessments

The Company is currently involved in various legal proceedings and assessments for local and national
taxes (see Note 39). The estimate of the probable costs for the resolution of these claims has been
developed in consultation with outside counsel handling the defense in these matters and is based upon
an analysis of potential results. The final settlement of these may result in material adverse impact on
the parent company financial statements.

*SGVFS039365*
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5. Cash and Cash Equivalents

This account consists of:

2019 2018
Cash on hand and in banks P
=234,999 =99,223
P
Short-term deposits 5,867,640 513,135
P
=6,102,639 =612,358
P

Cash in banks earn interest at its applicable bank deposit rates for its peso and dollar accounts. Short-
term deposits are made for varying periods between one day and three (3) months depending on the
immediate cash requirements of the Company and earn interest at the respective short-term deposit
rates.

Interest income earned on cash in banks in 2019 and 2018 amounted to = P0.68 million and
=0.12 million, respectively. Interest income earned on short-term deposits in 2019 and 2018
P
amounted to =P41.40 million and =P21.78 million, respectively (see Note 28).

6. Financial Assets at Fair Value Through Profit or Loss

Financial assets at FVTPL as at December 31, 2018 consists of:

Current:
UITFs =471,818
P
Noncurrent:
UITF 5,452
=477,270
P

On January 1, 2018, the Company reclassified all of its investments held for trading to financial assets
at FVTPL. Further, investment in a UITF previously recorded under Available For Sale (AFS)
investments was reclassified to financial assets at FVTPL amounting to ₱5.45 million since as at date
of initial application of PFRS 9, this was assessed to have contractual terms that do not represent
solely payments of principal and interest (see Note 3).

The net changes in fair value of financial assets at FVTPL, included in “Interest and other financial
income” account presented under “Other income - net” in the parent company statements of income,
amounted to =
P7.53 million and = P11.25 million in 2019 and 2018, respectively (see Note 28).

In 2019, the Company invested in financial assets at FVTPL amounting to = P4,369 million. As at
December 31, 2019, the Company has already liquidated all outstanding investment in marketable
securities and will discontinue investing in highly volatile financial instruments to keep a risk-averse
position.

*SGVFS039365*
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7. Receivables - net

This account consists of:

2019 2018
Trade P
=2,034,496 =1,876,861
P
Due from related parties (see Note 31) 608,159 334,688
Receivables from:
Assignment of Mineral Production Sharing
Agreement (MPSA) 39,366 39,366
Consortium - SC 52 (see Note 15) 19,443 19,443
Employees 1,945 2,541
Others 21,032 12,014
2,724,441 2,284,913
Less: Allowance for credit losses 105,521 104,358
=2,618,920
P =2,180,555
P

Trade receivables mainly represent receivables from IEMOP, NGCP and the Company’s bilateral
customers. Trade receivables consist of interest-bearing and noninterest-bearing receivables. The
terms are generally thirty (30) to sixty (60) days.

As at December 31, the aging analysis of the Company’s receivables is as follows:

2019
Neither Past Due but not Impaired Past Due
Past Due More than 90 and
Total nor Impaired <30 Days 30-60 Days 61-90 Days Days Impaired
Trade = 2,034,496
P = 1,460,970
P = 46,824
P = 65,801
P = 19,999
P = 408,840
P P
= 32,062
Due from related parties 608,159 597,899 – – – – 10,260
Others 81,786 10,849 – 11 7,427 300 63,199
= 2,724,441
P = 2,069,718
P = 46,824
P = 65,812
P = 27,426
P = 409,140
P = 105,521
P

2018
Neither Past Due but not Impaired Past Due
Past Due More than 90 and
Total nor Impaired <30 Days 30-60 Days 61-90 Days Days Impaired
Trade =1,876,861
P =1,524,063
P =20,140
P =10,488
P =12,707
P =278,564
P =30,899
P
Due from related parties 334,688 321,754 – – – 2,674 10,260
Others 73,364 2,949 80 96 59 6,981 63,199
=2,284,913
P =1,848,766
P =20,220
P =10,584
P =12,766
P =288,219
P =104,358
P

The movements in the allowance for credit losses on individually impaired receivables in 2019 and
2018 are as follows:

2019
Trade Others Total
Balances at beginning of year P
=30,899 P
=73,459 P
=104,358
Provisions for the year – net
(see Note 25) 1,163 – 1,163
Balances at end of year P
=32,062 P
=73,459 P
=105,521

*SGVFS039365*
 - 43 -

2018
Trade Others Total
Balances at beginning of year =19,874
P =62,079
P =81,953
P
Effect of adoption of PFRS 9
(see Note 3) 9,668 – 9,668
Provisions for the year – net
(see Note 25) 1,357 11,380 12,737
Balances at end of year =30,899
P =73,459
P =104,358
P

Mineral Production Sharing Agreement (MPSA) 252-2007-V (Camarines Norte)

On July 28, 2007, the Company was awarded MPSA No. 252-2007-V by the Philippine Department
of Environment and Natural Resources (DENR) covering parcels of land with an aggregate area of
more or less 333 hectares, located in the municipality of Camarines Norte, Philippines (the
“Property”). On February 14, 2008, One Subic Oil Distribution Corporation (One Subic Oil), then
TA Gold, and the Company, entered into an Operating Agreement where the Company granted unto
and in favor of One Subic Oil the exclusive right to explore, develop and operate for commercial
mineral production the Property under the MPSA. In June 2009, the Company received a notice of an
Order of the Secretary of the DENR excising portions of the MPSA area that are covered by alleged
mineral patents of a third party for which the Company filed a Motion for Reconsideration.

In December 2009, the DENR denied the Company’s Motion for Reconsideration. The Company
filed a timely appeal of the DENR’s ruling with the Office of the President, which was also denied.
The Company then elevated the case to the Court of Appeals.

The Company signed an agreement on October 18, 2011 for the assignment of the MPSA to
Investwell Resources, Inc. (Investwell), subject to certain conditions for a total consideration of
US$4.00 million payable in four tranches. The receipt of the first nonrefundable tranche amounting
to US$0.50 million (P
=21.93 million) was recognized as income in 2011. The receipt of the second
and third nonrefundable tranches amounting to US$1.00 million (P =42.20 million), net of the related
deferred exploration cost of =
P11.47 million, was also recognized as income in the year payments were
received.
On October 30, 2012, the Court of Appeals granted the Company’s petition to reverse and set aside
the resolutions of the DENR and the Office of the President that ordered and affirmed, respectively,
excision of certain areas covered by alleged mining patents of a third party from the contract area of
the MPSA. Subsequently, the third party elevated the case to the Supreme Court.
In Agreements dated May 29, 2012, March 19, 2013, June 25, 2013 and December 18, 2013, the
Company and Investwell amended and restructured the payment of the fourth tranche of the total
consideration.
The DENR approved on February 7, 2013 the assignment of the MPSA to Investwell, and the
Company recognized US$0.87 million (P
=37.93 million) income representing a portion of the final
tranche.
On January 12, 2015, the Supreme Court ruled that the rights pertaining to mining patents issued
pursuant to the Philippine Bill of 1902 and existing prior to November 15, 1935 are vested rights that
cannot be impaired by the MPSA granted by the DENR to the Company on July 28, 2007.
As at December 31, 2019 and 2018, the receivable from Investwell amounted to =P39.37 million
which was provided with a full allowance for impairment in 2014 since Investwell did not comply
with the restructured payment schedule.

*SGVFS039365*
 - 44 -

8. Fuel and Spare Parts

This account consists of:

2019 2018
Fuel - at cost P
=7,994 =302,430
P
Fuel - at net realizable value 66,217 2,027
Spare parts - at cost 50,446 23,961
P
=124,657 =328,418
P

Fuel charged to “Cost of sale of electricity” account in the parent company statement of income
amounted to =
P1,153.24 million and P =721.79 million in 2019 and 2018, respectively (see Note 24).

In 2019 and 2018, the Company recognized provision for impairment of fuel inventory amounting to
=5.55 million and =
P P0.16 million, respectively. No such provision was recognized for spare parts.

The carrying amount of Fuel - at net realizable value as at December 31, 2019 and 2018 amounted to
=71.83 million and =
P P2.19 million, respectively.

9. Other Current Assets

This account consists of:
2019 2018
Deposits 42,882 72,088
Current portion of CWT (see Note 17) 40,716 –
Prepaid expenses 8,729 8,980
Derivative asset (see Note 35) 33 4
P
=92,360 =81,072
P

Input VAT is recognized when the Company purchases goods and services from a VAT-registered
supplier.
Deposits pertain to advance payments to suppliers and deposits to distribution utilities.
Creditable withholding taxes represent amounts withheld by the Company’s customers and are
deducted from the Company’s income tax payable.
Prepaid expenses pertain to insurance, taxes, rent and other expenses paid in advance.
Derivative assets pertain to freestanding forward currency contracts.

*SGVFS039365*
 - 45 -

10. Asset Held for Sale

On August 7, 2018, the BOD approved the management decision to sell the Company’s Guimaras
Power Plant located in Jordan, Guimaras. Since the approval, the management has been actively
looking for interested buyers. As at December 31, 2018, the Guimaras Power Plant was classified as
“Assets held for sale” in the parent company statement of financial position in accordance with
PFRS 5, as the sale is highly probable (i.e., sale transaction will be completed within a year from the
reporting date) and the asset is available for immediate sale in its present condition.

As at December 31, 2018, no impairment loss was recognized as the carrying value amounting to
=30.71 million was below its fair value less costs to sell.
P

Subsequently, on January 7, 2019, the BOD approved the sale of the Guimaras Power Plant and on
January 24, 2019, the Asset Purchase Agreement (APA) between the Company and S.I. Power
Corporation (the buyer) was signed and notarized with an agreed selling price of P
=45.00 million. The
sale resulted in a gain of =
P14.29 million (see Note 28).

*SGVFS039365*
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11. Property, Plant and Equipment

The details and movements of this account for the year ended December 31 are shown below:

2019
Tools and
Other Office Furniture,
Buildings and Machinery and Transportation Miscellaneous Equipment
Improvements Equipment Equipment Assets and Others Total
Cost
Balance at beginning of year P
=215,157 P
=579,597 P
=24,202 P
=16,818 P
=40,922 P
=876,696
Additions 473 41,775 1,789 14,048 3,452 61,537
Disposals and retirement (209,095) – (9,415) (23) (30,393) (248,926)
Balance at end of year 6,535 621,372 16,576 30,843 13,981 689,307
Accumulated Depreciation
Balance at beginning of year 164,048 117,505 14,259 14,476 38,088 348,376
Depreciation and amortization (see Notes 24, 25 and 27) 8,009 43,230 3,812 1,494 1,496 58,041
Disposals and retirement (170,389) – (7,615) (14) (29,661) (207,679)
Balance at end of year 1,668 160,735 10,456 15,956 9,923 198,738
Accumulated Impairment Loss
Balance at beginning and end of year 933 – – – – 933
Net Book Value P
=3,934 P
=460,637 P
=6,120 P
=14,887 P
=4,058 P
=489,636

*SGVFS039365*
 - 47 -

2018
Tools and
Other Office Furniture,
Buildings and Machinery and Transportation Miscellaneous Equipment
Improvements Equipment Equipment Assets and Others Total
Cost
Balance at beginning of year =212,966
P =653,693
P =25,490
P =16,294
P =42,821
P =951,264
P
Additions 346 16,050 896 2,145 1,437 20,874
Disposals – – (2,184) (1,125) (3,336) (6,645)
Reclassifications – (90,146) – – – (90,146)
Transfer to asset held for sale (see Note 10) – – – (496) – (496)
Transfer from investment property (see Note 14) 1,845 – – – – 1,845
Balance at end of year 215,157 579,597 24,202 16,818 40,922 876,696
Accumulated Depreciation
Balance at beginning of year 148,207 74,505 11,674 12,919 38,711 286,016
Depreciation and amortization (see Notes 24, 25 and 27) 15,841 43,000 4,769 3,178 2,706 69,494
Disposals – – (2,184) (1,125) (3,329) (6,638)
Transfer to asset held for sale (see Note 10) – – – (496) – (496)
Balance at end of year 164,048 117,505 14,259 14,476 38,088 348,376
Accumulated Impairment Loss
Balance at the beginning of the year – – – – – –
Impairment loss for the year 933 – – – – 933
933 – – – – 933
Net Book Value =50,176
P =462,092
P =9,943
P =2,342
P =2,834
P =527,387
P

*SGVFS039365*
 - 48 -

Insurance Claims
In 2018, the Company recognized a claim amounting to = P90.15 million for the net insurance proceeds
from third parties for the reimbursement of capital expenditures relating to the repair of Power Barge
103 as a result of damages due to typhoon.

Sale of Properties
The Company executed Deeds of Sale with PHINMA Inc. and Mariposa Properties, Inc. (MPI) on
July 4, 2019 for the sale of the Company’s share in the office spaces at PHINMA Plaza amounting to
=333.25 million. The Company also sold its transportation and office equipment amounting to
P
=2.03 million. The sale of these assets resulted in a gain of P
P =294.10 million (see Note 28).

12. Investments in Subsidiaries, Associates and Joint Ventures

This account consists of investments in the following investee companies:

Percentage of Direct
Ownership
Investee Principal Activity 2019 2018
Subsidiaries:
PHINMA Renewable Renewable energy generation 100.00 100.00
PHINMA Power Power generation 100.00 100.00
ACEX Oil and gas exploration 75.92 50.74
CIPP Power generation 100.00 100.00
One Subic Oil Distribution of petroleum products 100.00 100.00
SLTEC Power generation 65.00 –
Palawan55 Oil and gas exploration 30.65 30.65
Associates:
Union Aggregates Corporation (UAC) (a) 31.25 31.25
Asia Coal Corporation (Asia Coal) (b) 28.18 28.18
MGI Power generation 25.00 25.00
Joint ventures:
ACTA Power generation 50.00 50.00
SLTEC Power generation – 45.00
PHINMA Solar Renewable energy generation – 50.00
(a)
Ceased commercial operations.
(b)
Shortened corporate life to October 31, 2009.

All of the above investee companies were incorporated and are domiciled in the Philippines.
The carrying values of the Company’s investments in subsidiaries, associates and joint ventures as at
December 31 are as follows:
2019 2018
Investments in subsidiaries:
SLTEC P
=6,439,360 =–
P
PHINMA Renewable 3,827,502 4,152,502
PHINMA Power 701,722 701,722
ACEX a 277,186 123,550
CIPP 151,530 151,530
One Subic Oil b 12,661 12,661
BCHC 10,000 –
Palawan55 3,065 3,065
ACES 250 –
11,423,276 5,145,030
(Forward)

*SGVFS039365*
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2019 2018
Investments in associates:
MGI P
=404,550 =404,550
P
Asia Coal c 620 620
UAC d – –
405,170 405,170
Interests in joint ventures:
ACTA 36,400 36,400
SLTEC – 3,224,723
PHINMA Solar – 225,000
36,400 3,486,123
P
=11,864,846 =9,036,323
P
a Net of accumulated impairment loss amounting to =
P 3.29 million.
b Net of accumulated impairment loss amounting to =
P 17.34 million.
c Net of accumulated impairment loss amounting to =
P 13.89 million.
d Net of accumulated impairment loss amounting to =
P 12.22 million.

Movements in the costs of investments in subsidiaries, associates and joint ventures for the years
ended December 31 are as follows:
2019
Subsidiaries Associates Joint Ventures Total
Cost:*
Balance at beginning of year P5,145,030
= =405,170
P =3,486,123
P P9,036,323
=
Additions 3,378,523 – – 3,378,523
Reclassification to subsidiary 3,224,723 – (3,224,723) –
Redemption of preferred shares
(see Note 31) (325,000) – – (325,000)
Investment sold – – (225,000) (225,000)
=11,423,276
P =405,170
P =36,400
P =11,864,846
P

2018
Subsidiaries Associates Joint Ventures Total
Cost:*
Balance at beginning of year =5,458,665
P =392,670
P =3,256,473
P =9,107,808
P
Additions (see Note 31) 333,863 12,500 4,650 351,013
Redemption of preferred shares (197,498) – – (197,498)
Investment sold (225,000) – – (225,000)
Reclassification to JV (225,000) – 225,000 –
=5,145,030
P =405,170
P =3,486,123
P =9,036,323
P
*Movement of cost is gross of accumulated impairment losses in investments in subsidiaries and associates amounting to =
P 46.74 million as
at December 31, 2019 and 2018.

No additional impairment was recognized or reversed for the years ended December 31, 2019 and
2018. As at December 31, 2019 and 2018, the allowance for impairment losses amounted to =P46.74
million.

Dividend income earned from subsidiaries, associates and joint ventures amounted to P
=175.00 million
and P
=810.94 million in 2019 and 2018, respectively.

*SGVFS039365*
 - 50 -

Investments in Subsidiaries

SLTEC
On June 29, 2011, the Company entered into a 50-50 joint venture agreement with AC Energy
Holdings, Inc. (AC Energy) to form SLTEC, the primary purpose of which is to generate, supply and
sell electricity to the public through the operation of a 2 x 135 MW Circulating Fluidized Bed (CFB)
Coal-fired Power Plant in Calaca, Batangas. SLTEC was incorporated and registered on July 29,
2011. The registered office address of SLTEC is KM. 117 National Road, Phoenix Industrial Park
Phase II Puting Bato West, Calaca, Batangas.

On October 29, 2011, SLTEC signed the Omnibus Loan and Security Agreement with its local third-
party creditor banks with the Company and AC Energy as Project Sponsors.

Under the terms of the Agreement, the Company shall:

· enter into supply agreements with end users sufficient to cover such capacity required by SLTEC
to break-even for two years, within 18 months from first drawdown. The consequence of failure
is a draw-stop, which means SLTEC will not be able to draw on the loan;
· commit to provide advances to SLTEC in proportion to the Company’s equity interest in SLTEC
to fund the project cost of the SLTEC power plant project;
· guarantee jointly with AC Energy to redeem the loan in the event that SLTEC defaults on the
loan, and lenders are not able to consolidate title to the project site because title to the properties
have not been issued; and,
· pledge its shares in SLTEC as security, and assign its offtake contracts to the lenders sufficient to
cover such capacity required by SLTEC to break-even.

On April 24, 2015, Unit 1 commenced its commercial operations. Unit 2 of the power plant
commenced its commercial operations on February 21, 2016.

The Company earned dividend from SLTEC in 2018 amounting to = P492.42 million of which
=222.51 million was received in 2018 and the balance, =
P P269.91 million, in 2019.

On July 10, 2019, AC energy and Axia signed a share purchase agreement where AC Energy has the
right to purchase Axia’s 20% interest in SLTEC. AC energy paid the downpayment and gained
control of SLTEC over said date.

On November 5, 2019, the Company signed a deed of assignment with AC Energy whereby AC
Energy transferred its right to purchase APHPI’s 20% ownership stake to the Company. As a result
of the assignment of right, the Company exercised its right and purchased Axia’s 20% interest in
SLTEC for a total consideration of = P3.40 billion. The Company gained control of SLTEC as a result
of the business combination and SLTEC became a subsidiary. As at December 31,2019, ACEPH
owns 65% of SLTEC.

PHINMA Renewable
PHINMA Renewable, formerly Trans-Asia Renewable Energy Corporation, was incorporated and
registered with the SEC on September 2, 1994. It was established with the primary purpose of
developing and utilizing renewable energy and pursuing clean and energy-efficient projects. On
May 20, 2013, the Department of Energy (DOE) confirmed the Declaration of Commerciality of
PHINMA Renewable’s 54 MW San Lorenzo Wind Power project (SLWP) in Guimaras. On
October 7, 2014, the SLWP started delivering power to the grid and on February 16, 2015, PHINMA
Renewable received from the DOE the confirmation of start of Commercial Operations declared on
December 27, 2014. On December 1, 2015, PHINMA Renewable received its Certificate of

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Compliance from the Energy Regulatory Commission (ERC). On December 8, 2015, PHINMA
Renewable’s BOD approved to increase its authorized capital stock from = P2,000.00 million divided
into 2 billion shares with par value of =
P1.00 per share to =
P5,000.00 million composed of =P2,000.00
million common shares with par value of = P1.00 per share and =P3,000.00 million preferred shares with
a par value of =P1.00 per share. The increase in authorized capital stock was approved by the SEC on
March 31, 2017. On January 30, 2017, PHINMA Renewable’s BOD approved the amendment of the
Articles of Incorporation to change the corporate name to PHINMA Renewable Energy Corporation.
The amended Articles of Incorporation were issued by the SEC on June 13, 2017 while the Certificate
of Registration was issued by the BIR on June 21, 2017.

On December 26, 2019, the BDO and the stockholders approved the change of the corporate name to
“Guimaras Wind Corporation.” The amendment is pending SEC approval.

In 2019, the Company redeemed a portion of its preferred shares in PHINMA Renewable amounting
to =
P325.00 million.

PHINMA Power and its subsidiary, One Subic Power

PHINMA Power, formerly Trans-Asia Power Generation Corporation, was incorporated and
registered with the SEC on March 18, 1996. PHINMA Power is engaged in power generation. In
October 2006, the PEMC approved PHINMA Power’s application for registration as trading
participant for both generation and customer categories in the WESM. Both ACEPH and
PHINMA Power obtained membership in the WESM which allows them to participate in electricity
trading managed by PEMC, including selling of excess generation to the WESM. Effective
December 26, 2013, PHINMA Power entered into a Power Administration and Management
Agreement (PAMA) valid for ten (10) years with ACEPH for the administration and management by
ACEPH of the entire capacity and net output of PHINMA Power starting 2014. In addition to the
capacity fee, ACEPH is billed by PHINMA Power for transmission and fuel costs. On
January 12, 2018, PHINMA Power and the Company amended the PAMA, providing for a higher
capacity rate based on nominated capacity and billing of fuel recovery and utilization fee. The new
PAMA became effective starting March 26, 2018.

On July 23, 2019, the BDO and the stockholders approved the change of the corporate name to
“Bulacan Power Generation Corporation”. The amendment is pending SEC approval.

One Subic Power was incorporated and registered with the SEC on August 4, 2010 to engage in the
business of owning, constructing, operating, developing and maintaining all types of power
generation plants. On November 18, 2010, PHINMA Energy and One Subic Power entered into a
PAMA wherein ACEPH administers and manages the entire generation output of the 116 MW diesel
power plant in Subic, Olongapo City. The PAMA became effective on February 17, 2011 and shall
be valid throughout the term of the lease agreement with Subic Bay Metropolitan Authority (SBMA).
On May 12, 2014, PHINMA Power purchased from Udenna Energy Corporation (UDEC) the entire
outstanding shares of stock of One Subic Power. Prior to the acquisition, One Subic Power was a
wholly owned subsidiary of UDEC, a company incorporated and domiciled in the Philippines.

AC Enexor (ACEX) and its subsidiary Palawan55

ACEX was incorporated and registered with the SEC on September 28, 1994. ACEX is engaged in
oil exploration and well development.

On June 24, 2019, ACEPH purchased PHINMA Inc.’s and PHINMA Corporation’s combined stake
in ACEX amounting to P=153.64 million representing 25.28% ownership. This increased the
Company’s effective ownership in ACEX from 50.74% to 75.92%.

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As at March 25, 2020, ACEX has not started commercial operations.

As at December 31, 2019 and 2018, the Company’s investment in ACEX has an allowance for
impairment loss amounting to =
P3.29 million.

Palawan55 was incorporated and registered with the SEC on November 16, 2012. Palawan55 is
engaged in the development and utilization of crude oil, natural gas, natural gas liquids and other
forms of petroleum. As at March 25, 2020, Palawan55 has not started commercial operations.

CIPP
CIPP was incorporated and registered with the SEC on June 2, 1998. CIPP is a utilities enterprise,
the primary purpose of which was to develop and operate a power supply and distribution system at
Carmelray Industrial Park II Special Economic Zone in Calamba, Laguna. In April 2009, CIPP sold
its distribution assets resulting in the cessation of CIPP’s operations and separation of substantially all
of its employees effective January 31, 2010. On February 22, 2010 and March 24, 2010, the
Company’s BOD and stockholders, respectively, approved the proposed merger of the Company and
CIPP subject to the approval by the SEC. In December 2010, CIPP’s BOD approved the transfer of
its 21 MW bunker C-fired power plant from Laguna to Barangay Quirino, Bacnotan, La Union which
was completed in 2012. In 2013, CIPP and the Company entered into a PAMA valid for ten (10)
years for the latter’s administration and management of the entire capacity and net output of CIPP.
On January 12, 2018, CIPP and the Company amended the PAMA, providing for the same capacity
rate based on nominated capacity and billing of fuel recovery and utilization fee. The new PAMA
became effective starting March 26, 2018. As at March 25, 2020, the Company and CIPP have not
filed their application for merger with the SEC and have deferred their plan for merger.

One Subic Oil

One Subic Oil, formerly Trans-Asia Gold and Minerals Development Corporation, was incorporated
and registered with the SEC on July 2, 2007 to primarily engage in the business of mining and
mineral exploration within the Philippines and other countries. On February 16, 2009, the BOD
approved the suspension of exploration activities of One Subic Oil effective March 31, 2009. On
August 9, 2017, One Subic Oil’s BOD approved the amendment of the Articles of Incorporation to
change the corporate name to One Subic Oil Distribution Corporation, to change its primary purpose
to importation, storage, transportation, distribution and disposal of any and all kinds of fuel and
petroleum products, and to change the principal office of the corporation to Causeway Extension,
Subic Gateway District, Subic Bay Freeport Zone, Subic. The amended Articles of Incorporation
were issued by the SEC on August 9, 2017. As at March 25, 2020, One Subic Oil has not started
commercial operations for its petroleum distribution business.

As at December 31, 2019 and 2018, the Company’s investment in One Subic Oil has an allowance for
impairment loss amounting to =
P17.34 million.

Buendia Christiana Holdings Corp. (“BCHC”)

On December 12, 2019, the Company entered into a subscription agreement with BCHC to subscribe
to the increase of BCHC’s authorized capital stock, as follows: i) 325,000,000 common shares with a
par value of =
P0.10 per share, or for a total subscription price of P
=32.50 million; and ii) 2,925,000
redeemable preferred shares B with a par value of = P100.00 per share, or for a total subscription price
of P
=292.50 million. BCHC was incorporated and registered with the SEC on May 10, 2019. BCHC
is engaged in the activities of a holding company and is non-operating as of date. BCHC has an
existing land located in the province of Zambales amounting to = P273.5 million. As at December 31,
2019, the Company has recorded investment in BCHC amounting to = P10.00 million and advances to
BCHC amounting to = P315.00 million (representing excess of the subscription paid by the Company
over the authorized capital stock of BCHC as at December 31, 2019).

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ACE Shared Services, Inc. (“ACES”)

On November 18, 2019, the Company subscribed to 250,000 shares in ACES with a par value of
=1.00 per share, or for a total subscription price of =
P P0.25 million. ACES was incorporated and
registered with the SEC on December 5, 2019. ACES is engaged in providing a full range of business
process outsourcing services, such as, but not limited to, financial and general accounting/
bookkeeping services (without engaging in the practice of accountancy), information technology
services, procurement services, sales administration services, human resources management,
manpower related services and other related functions.

Investments in Associates

MGI
The Company subscribed to 25% of the capital stock of MGI which was incorporated and registered
with the SEC on August 11, 2010, to implement the integrated development of the Maibarara
geothermal field in Calamba, Laguna and Sto. Tomas, Batangas for power generation. MGI’s
registered business address is 7th F JMT Building, ADB Avenue, Ortigas Center, Pasig City.

On September 16, 2011, the Company entered into an ESA with MGI under which the Company will
purchase the entire net electricity output of MGI’s power plant for a period of 20 years at an agreed
price, subject to certain adjustments (see Note 33). Commercial operations of MGI started in
February 2014.

The Company is also a Project Sponsor for MGI’s = P2.40 billion Term Loan Facility for the 20 MW
Maibarara Geothermal Power Plant and = P1.40 billion Project Loan Facility for its 12 MW Maibarara
Expansion Project. In the event of a default of MGI, as a Project Sponsor, the Company is obligated
to:

· assign, mortgage or pledge all its right, title and/or interest in and its shares of stocks in MGI,
including those that may be issued in the name of the Company;
· assign its rights and/or interests in the Joint Venture Agreement executed on May 19, 2010 with
PNOC Renewables Corporation;
· secure the debt service reserve account (DSRA) with a standby letter of credit, when reasonably
required and pursuant to the terms of the facilities;
· guarantee the completion of the projects and for this purpose, the Company undertakes to:

i. contribute to MGI its pro-rata share of the funds necessary to enable MGI to complete the
construction of its projects; and,
ii. make cash advances or otherwise arrange to provide MGI with funds sufficient to complete
construction, in the event that MGI does not have sufficient funds available to cover the full
cost of constructing and completing the project due to costs overrun.

The loan covenants covering the outstanding debt of MGI include, among others, maintenance of
debt-to-equity and debt-service ratios. As at December 31, 2019 and 2018, MGI is in compliance
with the said loan covenants.

In 2015, the construction of Phase 2 of the project commenced. MGI successfully commissioned the
12-megawatt (MW) Maibarara Geothermal Power Plant-2 (MGPP-2) and successfully synchronized
to the Luzon grid on March 9, 2018. On April 30, 2018, MGPP-2 commenced its commercial
operations.

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The advances of P=45.00 million granted by the Company in 2015 were converted to investments in
associates in 2017. The Company invested additional capital amounting to nil and =
P80.25 million
and received dividend of P
=25 million and =
P12.50 million in 2019 and 2018, respectively.

UAC
As at December 31, 2019 and 2018, the Company’s entire investment in UAC amounting to
=12.22 million was fully provided with allowance for impairment loss due to cessation of UAC’s
P
operations.

Asia Coal
On March 19, 2009, the BOD and stockholders of Asia Coal approved the shortening of its corporate
life to October 31, 2009. Asia Coal shall be dissolved and liquidated, the date of which is subject to
the approval of the SEC. As at March 25, 2020, Asia Coal is still in the process of securing a tax
clearance with the BIR in connection with the filing with the SEC of its application for dissolution.
Asia Coal has not engaged in any activity since filing for the shortening of its corporate life.

As at December 31, 2019 and 2018, allowance for impairment loss on the Company’s investment in
Asia Coal amounted to P
=13.89 million.

Interests in Joint Ventures

ACTA
The Company has 50% interest in ACTA, a joint venture with AC Energy. ACTA is engaged in the
business of owning, developing, constructing, operating and maintaining power generation facilities
as well as generation and sale of electricity. ACTA was incorporated on February 9, 2012 and has
not started commercial operations as at March 25, 2020.

The Company made additional investment in ACTA’s capital stock amounting to nil and
=4.65 million in 2019 and 2018, respectively.
P

PHINMA Solar
PHINMA Solar was incorporated and registered with the SEC on July 26, 2013. Its primary purpose
is to construct, develop, own, operate, manage, repair and maintain wind power generation plants, to
generate electricity from such power plants and to market and sell the electricity produced thereby.
On January 30, 2017, PHINMA Solar’s BOD approved the amendment of the Articles of
Incorporation to change the corporate name to PHINMA Solar Energy Corporation, to include in its
primary and secondary purposes the development, operation and maintenance of solar power
generation plants and the development of solar products and to increase the number of directors to
nine. The amended Articles of Incorporation were issued by the SEC on June 27, 2017 while the
Certificate of Registration was issued by the BIR on June 30, 2017.

In 2018, the Company paid its remaining subscription to PHINMA Solar amounting to
=333.86 million. On December 11, 2018, the Company and Union Galvasteel Corporation (UGC), a
P
company under common control of PHINMA Inc., entered into a Deed of Sale for the sale of the
Parent Company’s 50% interest to UGC, thus classifying its interest in PHINMA Solar from a
subsidiary to a joint venture.

On December 11, 2018, the Company and UGC, a subsidiary of PHINMA Inc., entered into a Deed
of Sale for the sale of the Company’s 50% interest to UGC amounting to = P225 million. The sale
resulted in a gain of =
P5.83 million. As a result of the sale transaction, PHINMA Solar ceased to be a
subsidiary as at December 31, 2018. In 2018, PHINMA Solar completed installation and commenced
operations of two (2) solar panel projects.

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On June 19, 2019, the Company sold its remaining 50% interest in PHINMA Solar to PHINMA
Corporation for =
P218.3 million which resulted in a gain of =
P1.38 million.

13. Fair Value Through Other Comprehensive Income

The Company’s financial assets at FVOCI consisted of the following as at December 31, 2019 and
2018:

2019 2018
Shares of stock (see Note 34):
Listed P
=10 P91,887
=
Unlisted – 102,319
Golf club shares (see Note 34) 940 9,930
P
=950 =204,136
P

The movements in net unrealized gain on financial assets at FVOCI for the years ended
December 31, 2019 and 2018 are as follows:

2019 2018
Balance at the beginning of year - net of tax P
=52,339 =–
P
Cumulative unrealized gain on disposal of equity
instruments at FVOCI transferred to retained
earnings (45,064) (41,520)
Unrealized loss recognized in other comprehensive
income (23,743) (1,333)
Changes upon adoption of PFRS 9 - net of tax:
Unrealized gain on AFS equity securities
transferred to FVOCI – 81,603
Remeasurement gain of unlisted equity
securities (Note 3) – 13,643
Unrealized gain of investment in a UITF
closed to retained earnings due to
change in classification (Note 3) – (54)
Balance at end of year - net of tax (P
=16,468) =52,339
P

Dividend income earned from financial assets at FVOCI amounted to P

=5.54 million and =
P7.07 million
in 2019 and 2018, respectively.

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14. Investment property

Below is the rollforward of investment properties for the year ended December 31, 2018.

Cost
Balance at beginning =106,902
P
Transfer to PPE (see Note 11) (9,005)
Transfer to asset held for sale (see Note 10) (97,897)
Less accumulated depreciation:
Balance at beginning of year 69,072
Transfer to PPE (see Note 11) (7,160)
Transfer to asset held for sale (see Note 10) (67,186)
Depreciation (see Note 27) 5,274
Balance at end of year –
Net book value =–
P

Revenue from the property and equipment amounted to = P16.44 million in 2018 which was recognized
in the parent company statement of income as part of “Revenue from sale of electricity”, while related
direct costs and expenses amounted to P =15.68 million in 2018 which was included as part of “Cost of
sale of electricity” account in the parent company statement of income.

15. Deferred Exploration Costs

Details of deferred exploration costs are as follows:

2019 2018
Geothermal - SC 8 (Mabini, Batangas) P
=34,493 =31,723
P
Petroleum/gas - SC 52 (Cagayan Province) 10,994 10,994
45,487 42,717
Allowance for impairment losses (45,487) (10,994)
Net book value P
=– =31,723
P

Changes in the deferred exploration costs for the years ended December 31 are as follows:

2019 2018
Cost:
Balance at beginning of year P
=42,717 =39,732
P
Cash calls 2,770 2,985
Balance at end of year 45,487 42,717
Accumulated impairment:
Balance at beginning and end of year 10,994 10,994
Impairment 34,493 –
Balance at the end of the year 45,487 10,994
Net book value P
=– =31,723
P

The foregoing deferred exploration costs represent the Company’s share in the expenditures incurred
under petroleum and geothermal SCs with the DOE. The contracts provide for certain minimum work
and expenditure obligations and the rights and benefits of the contractor. Operating agreements govern
the relationship among co-contractors and the conduct of operations under an SC.

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The following summarizes the status of the foregoing projects:

a. SC 8 (Batangas – Mabini Geothermal Service Contract)

In 2018, the Consortium held continuing IEC together with the DOE and PHIVOLCS to obtain
support from the local government units towards lifting of the Cease-and-Desist Order.

On July 3, 2018, the Company formally notified Basic Energy, the Operator, of its withdrawal
from the service contract and Joint Operating Agreement (JOA) for the block.

In August 2018, Basic Energy proposed to conduct the forward drilling program on its own,
“Operation by Fewer than all the Parties: under the JOA) and carry the Company’s share of
attendant costs. The Company expressed its willingness to consider the said proposal and
requested Basic Energy’s key terms for the Company’s consideration.

In June 2019, the Parent Company decided to push through with the withdrawal from the SC and
JOA. As at December 31, 2019, the Parent Company recognized full provision for probable loss
on SC 8 amounting to =P34.49 million.

b. SC 52 (Cagayan Province)

In 2016, the Company reclassified to receivables the option fee of =

P19.44 million recoverable
upon expiration of the SC. The option fee was fully provided with an allowance for doubtful
account.

Also, in 2016, the Parent Company assessed and fully provided for probable losses for deferred
exploration costs pertaining to SC 52 amounting to =
P10.99 million due to the expiration of its
terms and subsequent denial of the DOE of the request for Force Majeure.

In December 2016, Frontier Oil, as instructed by the DOE, submitted certain documents in
support of its request for Force Majeure. As at March 25, 2020, the requests for Moratorium and
appeal for contract reinstatement are still pending DOE’s approval.

Pililia Hydropower Service Contract (HSC) (Rizal)

The Parent Company requested for the reinstatement of Pililia HSC and the DOE approved the
reinstatement until July 7, 2016, subject to certain conditions.

The Parent Company also requested a three-year extension of the pre-development stage of the
service contract and as at March 25, 2020, is still waiting for the response from the DOE.

16. Right-of-Use Assets

The rollforward analysis of this account is as follows:

Office Space and

Parking Slots
As at January 1, 2019 =–
P
New lease agreements 30,075
Amortization expense (Notes 25 and 27) (3,645)
As at December 31, 2019 =26,430
P

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The Company’s right-of-use asset arose from the rental of office space in the 22nd Floor of Ayala Tower
together with 8 parking slots entered into in 2019.

At year-end, there was no indication of impairment on the right-of-use asset of the Company.

17. Other Noncurrent Assets

This account consists of:

2019 2018
CWT - net of current portion P
=860,026 =704,726
P
Trade receivable - net (see Note 21) 571,714 571,714
Advances to affiliates (Notes 31 and 33) 491,000 –
Receivables from third parties (see Note 34) 333,333 317,954
Deposits (see Note 34) 98,363 85,042
P
=2,354,436 =1,679,436
P

Noncurrent trade receivable (see Note 21) relate to receivable from the execution of the
Multilateral Agreement.

Multilateral Agreement
Due to its interpretation of the WESM Rules, the PEMC allocates its uncollected receivables due
from power purchasers in the WESM to the generators who sold power to the WESM. On
December 23, 2013, the Supreme Court issued a 60-day Temporary Restraining Order (“TRO”)
enjoining the Manila Electric Company (MERALCO) and the ERC from implementing the
Automatic Generation Rate Adjustment (AGRA) mechanism for the November 2013 billing period.
The AGRA allows automatic pass through of the cost of power purchased from WESM. In turn,
MERALCO did not pay PEMC a significant portion of its November and December 2013 power
bills. PEMC in turn, did not pay the Company the full amount of its electricity sales. On April 22,
2014, the Supreme Court extended indefinitely the TRO it issued over the collection of the November
2013 power rate increase.

The ERC issued an Order (ERC Case No. 2014-021 MC) dated March 3, 2014 voiding the WESM
prices of November and December 2013 power bills. As directed by ERC, PEMC recalculated the
regulated prices and issued WESM adjusted power bills in March 2014 which the Company recorded
resulting to an increase in receivables and net trading revenues.

Certain market players filed motions for reconsideration resulting in ERC’s issuance of another Order
dated March 27, 2014 for PEMC to provide market participants an additional forty-five (45) days, or
up to May 12, 2014 to settle their WESM power bills covering the adjustments for the period October
26 to December 25, 2013. ERC extended the settlement of WESM power bills to a non-extendible
period of thirty (30) days up to June 11, 2014 which resulted in a Multilateral Agreement where the
WESM Trading Participants agreed to be bound to a payment schedule of six (6) months or twenty-
four (24) months subject to certain conditions. The Company signed the Agreement on June 23,
2014. From 2014 to 2016, ACEPH recorded collections amounting to = P571.71 million against
“Trade payable” presented under “Other noncurrent liabilities” pending the resolution of cases filed
by certain market players with the Supreme Court.

In June 2016, the 24-month period of repayment prescribed; hence, the Company provided an
allowance for credit losses related to the receivables under the Multilateral Agreement amounting to
=7.00 million.
P

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Creditable withholding taxes represent amounts withheld by the Company’s customers and are
deducted from the Company’s income tax payable.

Advances to affiliates consist of advances to BCHC, Ingrid Power Holdings, Inc. (Ingrid) and
SolarAce1 Energy Corp. (SolarAce1) amounting to ₱315.00 million, ₱150.00 million and = P26.00
million, respectively, intended for the purchase of shares (see Note 31).

Receivables from third parties include interest-bearing receivables collectible until April 2021 and
noninterest-bearing receivables from NGCP arising from the sale of transmission assets, which are
collectible annually within three (3) years from the date of sale, discounted using the PHP BVAL
Reference Rates on transaction date ranging from 2.14% - 4.56%.

Deposits pertain to deposits to distribution utilities.

18. Accounts Payable and Other Current Liabilities

This account consists of:

2019 2018
Nontrade P
=1,333,384 =110,072
P
Deferred output VAT - net 296,380 113,985
Due to related parties (see Note 31) 625,195 792,546
Trade payables 589,045 490,461
Accrued interest payable 105,173 46,507
Derivative liability (see Note 34) 21,060 –
Accrued expenses (see Note 34) 16,754 93,301
Current portion of deferred revenues – 387,289
Others 3,233 6,563
P
=2,990,224 =2,040,724
P

Nontrade payables include liabilities for various purchases such as acquisition of 20% interest in
SLTEC (see Note 12) and additions to property, plant and equipment and spare parts.

Deferred output VAT represents output VAT not yet collected as at year-end.

Accounts payable and other current liabilities are noninterest-bearing and are normally settled on
thirty (30) to sixty (60) day terms.

Trade payables refer to liabilities to suppliers of electricity and fuel purchased by the Company.

Derivative liability pertains to coal swaps contracts with a bank used to hedge the risks associated
with changes in coal prices.

Accrued expenses include accruals for retirement benefits, sick and vacation leave, incentive pay and
professional fees. This account also includes reimbursement to a customer.

Deferred revenue pertains to the upfront payment received from a customer in consideration of the
contract amendments and modifications. The deferred revenue shall be amortized over the remaining
term of the contract until December 2019.

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Others consist of liabilities to employees, statutory payables, deferred rent income and deposit
payables.

19. Loans

Long-term loans

As at December 31, this account consists of:

2019 2018
Cost P
=8,634,812 =4,728,870
P
Add premium on long-term loans (embedded
derivative) 2,429 4,247
Less unamortized debt issue costs 60,691 28,970
8,576,550 4,704,147
Less current portion of long-term loans (net of
unamortized debt issue costs) 219,173 157,684
Noncurrent portion P
=8,357,377 =4,546,463
P

Movements in derivatives and debt issue costs related to the long-term loans follow:

Embedded Debt
Derivative Issue Costs
As at January 1, 2018 =6,009
P =28,251
P
Additions – 6,975
Amortization/ accretion for the year* (1,762) (6,256)
As at December 31, 2018 4,247 28,970
Additions – 43,003
Amortization/accretion for the year* (1,818) (11,282)
As at December 31, 2019 P
=2,429 P
=60,691
*Included under “Interest and other financial charges” in the “Other income - net” account in the parent company statement of
income (see Note 28).

The relevant terms of the Company’s long-term loans follow:

Description Interest Rate (per annum) Terms 2019 2018

P5.00 billion loan with
= 5.0505% per annum for the Availed on November 15, 2019, P
=4,957,717 =–
P
BDO first 5 years; repricing for payable in semi-annual
the succeeding 5 years is installment within
the average of the 5-year 10 years with final repayment
BVAL, three (3) days on November 14, 2029;
prior to Repricing Date, contains negative pledge
plus a margin of ninety
basis points per annum
(0.90%), with the sum
divided by 0.95

(Forward)

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Description Interest Rate (per annum) Terms 2019 2018

=1.50 billion loan with The higher of 7-year PDST- Availed on April 14, 2014,
P P
=1,358,728 =1,388,693
P
China Banking F at interest rate setting payable in quarterly
Corporation (CBC) date which is one (1) installment within
banking day prior to issue 10 years to commence
date plus a spread of 1 year after the first interest
1.625% or 5.675% for the payment date with final
first 7 years; repricing for repayment on April 30, 2024;
the last 3 years, the higher contains negative pledge
of 3-year PDST-F plus a
spread of 1.625% or initial
interest rate

=1.18 billion loan with

P Fixed at a rate of 6.50% per Availed on January 11, 2017 904,018 965,455
SBC annum which shall be payable in semi-annual
payable at the end of the installments within 12.5 years
interest period of six to commence 6 months after
months. the Drawdown Date and every
6 months thereafter with final
repayment on
July 11, 2029; contains
negative pledge

=1.18 billion loan with

P Fixed at a rate of 6.00% for Availed on January 10, 2017 904,004 965,468
DBP the first 7 years; repricing payable in semi-annual
for the last 5.5 years, the installments within
higher of 5-year PDST-R2 12.5 years to commence
plus a spread of 1.625% or 6 months after the Drawdown
6.25% Date and every 6 months
thereafter with final
repayment on
July 10, 2029; contains
negative pledge

=0.50 billion loan with The higher of 7Y PDST-F at Availed on July 30, 2014,
P 452,083 461,469
Banco De Oro interest rate setting date payable in quarterly
Unibank, Inc. (BDO) which is one (1) banking installments within 10 years to
day prior to issue date plus commence 1 year after the
a spread of 1.625% or first interest payment date
5.8146% for the first 7 with final repayment on
years; repricing for the last April 30, 2024; contains
3 years), the higher of 3- negative pledge
year PDST-F plus a spread
of 1.625% or initial
interest rate

=0.93 billion loan with

P The applicable peso Availed on December 28, 2018 – 923,062
SBC benchmark (based on payable on June 28, 2020; up
BVAL) plus minimum of to 18 months from drawdown
2.0% spread, with date
quarterly repricing, which
shall be payable quarterly
in arrears.
Carrying value* P
=8,576,550 =4,704,147
P
*Net of unamortized debt issue costs and embedded derivative of =
P 58.26 million and =
P24.72 million in 2019 and 2018, respectively.

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In 2019 and 2018, principal repayments made relative to Company’s loans amounted to =P1,094.06
million and =
P147.42 million, respectively. The Company paid =
P43.00 million debt issue costs for the
=5 billion additional loans in 2019.
P

The long-term loans of the Company also contain prepayment provisions as follows:

Description Prepayment provision

=5.00 billion loan with BDO
P Early redemption is at the option of the Borrower any time after
the 4th Interest Payment Date. Prepayment shall be in
integral multiples of =P50 Million. Prepayment is not
subject to penalty on the Repricing Date, else a prepayment
premium of 3.0%, 2.5%, 2.0%, 1.0% and 0.5% is applied to
the outstanding principal amounts prepaid from after the 4th
to until before the 10th Interest Payment Date, from after the
10th to until before the 14th Interest Payment Date, from the
14th to until before the 16th Interest Payment Date, from the
16th to until before the 18th Interest Payment Date, and from
the 18th to until before the 20th Interest Payment Date,
respectively

=1.50 billion loan with CBC

P Early redemption is at the option of the issuer exercisable on
an interest payment date every anniversary starting from
the 7th year from Issue date. Prepayment amount is at
par. Transaction cost is minimal.

=0.50 billion loan with BDO

P Early redemption is at the option of the issuer exercisable on an
interest payment date every anniversary starting from the
7th year from Issue date. Prepayment amount is at par.
Transaction cost is minimal.

=1.18 billion loan with SBC

P Early redemption is at the option of the issuer exercisable on an
interest payment date at par plus break-funding cost.
Transaction cost is minimal.

=1.18 billion loan with DBP

P Early redemption is at the option of the issuer exercisable on
the interest repricing date (8th anniversary of the drawdown
date). Prepayment amount is at par. If redemption is
exercised on a date that is not the interest repricing date,
prepayment amount is at par plus break-funding cost.
Transaction cost is minimal.

=0.93 billion loan with SBC

P Early redemption is at the option of the issuer exercisable on an
interest payment date at par plus break-funding cost. Break-
funding cost on principal repayment shall be based on the
difference between the contracted interest rate and the
comparable benchmark rate. The negative difference shall
be multiplied by the prepaid amount and the remaining
tenor to come up with break-funding cost, which in no case
is less than zero.

The prepayment option on all loans were assessed as closely related and, thus, not required to be
bifurcated.

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In 2019, ACEPH prepaid P =930.00 million of its long term debt in accordance with the terms of the
Agreement with SBC. In 2018, ACEPH prepaid = P1,210.00 million of its long-term debt in
accordance with the terms of the Agreements with SBC and DBP.

Covenants
Under the loan agreements, the Company has certain restrictions and requirements principally with
respect to maintenance of required financial ratios and material change in ownership or control.

Description Covenants
=5.00 billion loan with BDO
P (a) Maximum Net Debt to Equity ratio of 3 times
=1.50 billion loan with CBC
P (a) Minimum DSCR of 1.0 times
(b) Maximum Debt to Equity ratio of 1.5 times
=0.50 billion loan with BDO
P (a) Minimum DSCR of 1.0 times
(b) Maximum Debt to Equity ratio of 1.5 times
=1.18 billion loan with SBC
P (a) Minimum DSCR of 1.0 times
(b) Maximum Consolidated Debt to Equity ratio of 1.5 times
(c) Minimum Current ratio of 1.0 times*
=1.18 billion loan with DBP
P (a) Minimum DSCR of 1.0 times
(b) Maximum Consolidated Debt to Equity ratio of 1.5 times
(c) Minimum Current ratio of 1.0 times*
=0.93 billion loan with SBC
P (a) Minimum DSCR of 1.0 times
(b) Maximum Consolidated Debt to Equity ratio of 1.5 times
(c) Minimum Current ratio of 1.0 times*
**Applicable only if there’s short-term borrowing

In addition, there is also a restriction on the payment or distribution of dividends to its stockholders
other than dividends payable solely in shares of its capital stock if payment of any sum due the lender
is in arrears or such declaration, payment or distribution shall result in a violation of the financial
ratios prescribed.

The Company was in compliance with loan covenants as at December 31, 2018. The Company was
able to obtain waivers of compliance from BDO, CBC, SBC, and DBP for the Debt Service Cover
Ratio and Debt-to-Equity ratio covenant testing for 2019 required by the terms of each respective
Lender’s loan agreement. The Company, therefore, classified the loans amounting to = P8.36 billion as
noncurrent as at December 31, 2019.

Total interest expense recognized on long-term loans amounted to =

P301.95 million and
=
P292.05 million in 2019 and 2018, respectively (see Note 28).

Short-term loan

As at December 31, 2018, the Company has outstanding short-term loan amounting to = P400 million
which was obtained thru a promissory note to BDO, Unibank Inc. on August 14, 2018 with a maturity
date of February 8, 2019. Interest on principal amount is 5.25% per annum fixed for 31 days to be
repriced every 30 to 180 days as agreed by the parties. This was subsequently extended on
February 8, 2019 for six (6) months. As at December 31, 2019, the Company has paid out its
short-term loan.

In 2019 and 2018, the Company recognized interest expense amounting to =

P7.02 million and
=8.11 million, respectively (see Note 28).
P

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20. Lease Liabilities

The rollforward analysis of lease liabilities follows:

As at January 1, 2019 =
P–
New lease agreements 27,323
Interest expense 454
Payments (3,669)
As at December 31, 2019 =24,108
P

As at December 31, 2019, the current portion of lease liability amounts to =

P10.33 million and the
noncurrent portion amounts to =
P13.78 million.

21. Other Noncurrent Liabilities

This account consists of:

2019 2018
Nontrade payable (Note 12) P
=1,870,755 =–
P
Trade payable (Notes 17 and 18) 571,714 571,714
Deposit payables (Note 33) 154,175 174,370
Accrued expenses 7,807 7,898
P
=2,604,451 =753,982
P

Nontrade payable amounting to = P1,870.76 million pertains to the noncurrent portion of the amount
payable to Axia for the purchase of the additional 20% interest in SLTEC thru the assignment of
ACEI to the Company of the Share Purchase Agreement executed by ACEI and Axia. The amount
is payable on September 30, 2021.

Deposit payables consist of security deposits from RES customers refundable at the end of the
contract.

Accrued expenses pertain to accrual of asset retirement obligation.

22. Equity

Capital Stock
Following are the details of the Company’s capital stock:

Number of Shares
2019 2018
Authorized capital stock - =
P1 par value 8,400,000,000 8,400,000,000
Issued and outstanding -
Balance at beginning of year 4,889,774,922 4,889,774,922
Issuance during the year 2,632,000,000 –
Balance at end of year 7,521,774,922 4,889,774,922

The issued and outstanding shares as at December 31, 2019 and 2018 are held by 3,192 and 3,191
equity holders, respectively.

*SGVFS039365*
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The following table presents the track record of registration of capital stock:
Date of SEC No. of Shares No. of Shares Issue/
Approval Registered Issued Par Value Offer Price
08-Feb-69 2,000,000,000 1,000,000,000 =0.01
P =0.01
P
22-Jul-75 2,000,000,000 937,760,548 0.01 0.01
16-Jul-79 6,000,000,000 6,058,354,933 0.01 0.01
12-Feb-88 10,000,000,000 7,643,377,695 0.01 0.02
08-Jun-93 10,000,000,000 8,216,141,069 0.01 0.01
15-Jul-94 70,000,000,000 50,170,865,849 0.01 0.01
24-Aug-05 1,000,000,000 264,454,741 1.00 1.00
06-Jun-11 2,200,000,000 1,165,237,923 1.00 1.00
12-Nov-12 4,200,000,000 2,027,395,343 1.00 1.00
15-Apr-19 156,476 156,476 1.00 1.00
24-Jun-19 2,632,000,000 2,632,000,000 1.00 1.00

Retained Earnings and Paid-in Capital

The Company’s retained earnings balance amounted to = P2,409.16 million and =P2,473.18 million as at
December 31, 2019 and 2018, respectively, while paid-in capital is =
P7,521.77 million and
=
P4,889.78 million as at December 31, 2019 and 2018, respectively. Retained earnings available for
dividend declaration amounted to P
=1,812.54 million and =
P2,214.03 million as at December 31, 2019
and 2018, respectively

Dividends
Information on cash dividends declared are as follows:

Date of Declaration Type Rate Amount Record Date

February 28, 2018 Cash =
P0.04 per share 195,591 March 14, 2018

As at December 31, 2019 and 2018, unpaid cash dividends amounting to = P16.59 million and
P16.65 million, respectively, comprise the “Due to stockholders” account in the parent company
=
statement of financial position (see Note 31). There were no dividends declared in 2019.

23. Revenue from Sale of Electricity

The table presents the Company’s revenue from different revenue streams.

2019 2018
Revenue from power supply contracts P
=13,510,271 =13,422,058
P
Revenue from power generation and trading and ancillary
services 893,568 811,919
P
=14,403,839 =14,233,977
P

*SGVFS039365*
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24. Cost of Sale of Electricity

This account consists of:
2019 2018
Costs of power purchased (see Note 33) P
=13,086,857 =13,702,458
P
Fuel (see Note 8) 1,153,243 721,790
Station use 85,621 12,807
Depreciation and amortization (see Notes 11 and 27) 45,038 50,472
Repairs and maintenance 30,576 21,501
Contractor’s fee 25,200 33,381
Market fees 13,271 22,098
Insurance 12,052 9,920
Salaries (see Note 26) 2,601 5,200
Taxes and licenses 2,471 2,979
Rent 1,175 831
Pension and other employee benefits
(see Notes 26 and 30) 221 1,209
Others 14,229 7,278
P
=14,472,555 =14,591,924
P

25. General and Administrative Expenses

This account consists of:
2019 2018
Taxes and licenses P
=119,424 =136,317
P
Salaries and directors’ fees (see Notes 26 and 31) 108,469 112,384
Management and professional fees (see Note 31) 72,341 44,645
Provision for probable losses on deferred exploration
costs (see Note 15) 34,493 –
Bank charges 32,035 11,225
Insurance, dues and subscriptions 21,636 8,086
Depreciation and amortization (see Notes 11, 16
and 27) 16,648 24,296
Pension and other employee benefits (see Notes 26
and 30) 15,781 16,925
Building maintenance and repairs 13,608 18,332
Provision for inventory obsolescence (see Note 8) 5,554 159
Communications 3,033 3,653
Transportation and travel 2,972 7,086
Meetings and conferences 2,932 2,272
Office supplies 2,841 2,981
Advertising 2,501 1,276
Provision for credit losses (see Note 7) 1,163 12,737
Rent (see Note 31) 1,065 2,856
Plug and abandonment 202 37,819
Provision for PPE impairment (see Note 11) – 933
Donation and contribution – 600
Others 7,043 20,992
P
=463,741 =465,574
P

*SGVFS039365*
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Others include Christmas expenses, entertainment, amusement and recreation expenses, corporate
social responsibilities and sponsorship expenses, input VAT written off and other miscellaneous
expenses.

26. Personnel Expenses

This account consists of:
2019 2018
Salaries and directors’ fees included under:
Cost of sale of electricity (see Note 24) P
=2,601 =5,200
P
General and administrative expenses
(see Note 25) 108,469 112,384
Pension and other employee benefits included under:
Cost of sale of electricity (see Notes 24 and 30) 221 1,209
General and administrative expenses
(see Notes 25 and 30) 15,781 16,925
P
=127,072 =
P135,718

27. Depreciation and Amortization

This account consists of:
2019 2018
Property, plant and equipment (see Notes 11) P
=58,041 =69,494
P
Right-of-use assets (see Note 16) 3,645 –
Investment property (see Note 14) – 5,274
P
=61,686 =74,768
P

Cost of sale of electricity (see Note 24) P

=45,038 =50,472
P
General and administrative expenses (see Note 25) 16,648 24,296
P
=61,686 =74,768
P

28. Other Income (Charges)

This account consists of:

2019 2018
Interest and other financial income (see Notes 5, 6 and 7) P
=58,248 =44,377
P
Loss on derivatives - net (see Note 35) (6,851) (13,180)
Foreign exchange gain - net 1,636 24,829
Gain (loss) on sale of:
Property, plant and equipment (see Note 11) 294,100 254
Asset held for sale (see Note 10) 14,289 –
Investments (6,652) –
Inventories (461) –
Provision for unrecoverable input tax – (43,712)
Others 15,987 30,986
P
=370,296 =43,554
P

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In 2019, Others included an adjustment to take up the directors bonus from PHINMA Power
amounting to =P2.83 million, adjustment to take up accrual for retirement and sick leave and vacation
leave amounting to P=8.37 million and =P2.82 million resulting from the sale of assets not used in
operations or not held for investments.
In 2018, Others included reimbursement of feasibility costs amounting to =
P28.63 million.

Interest and Other Financial Income

The details of interest and other financial income are as follows:

2019 2018
Interest income on:
Short-term deposits (see Note 5) P
=41,398 =21,782
P
Receivables from third parties 7,161 9,632
Cash in banks (see Note 5) 680 116
Net gains on changes in fair value of financial assets
at FVTPL (see Note 6) 7,532 11,251
Interest income not subject to final tax 1,477 1,596
P
=58,248 =44,377
P

Interest and Other Financial Charges

The details of interest and other financial charges are as follows:

2019 2018
Interest expense on:
Long-term loans* (see Note 19) P
=300,128 =290,289
P
Short-term loans (see Note 19) 7,019 8,114
Nontrade payable 16,118 –
Amortization of debt issue cost (see Note 19) 11,282 6,256
Receivables from third parties** (3,579) (3,487)
Asset retirement obligation – 372
Lease obligation (see Note 20) 454 –
Others 51 36
P
=331,473 =301,580
P
*Net of =
P 1.82 million and =
P 1.76 million in 2019 and 2018, respectively, representing the amortization of embedded derivative on long-term loans
(see Note 19).
**Refers to the day 1 difference on the receivables from third parties included under “Other noncurrent assets” (see Note 17).

*SGVFS039365*
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29. Income Taxes

a. The provision for current income tax amounted to nil in 2019 and 2018.

b. The components of the Company’s net deferred income tax assets as at December 31 are as
follows:

2019 2018
Deferred income tax assets on:
NOLCO P
=459,737 =81,306
P
Accrued expenses 61,814 8,211
Allowance for credit losses 32,189 32,426
Allowance for probable losses on deferred
exploration costs 13,646 3,298
Pension and other employee benefits 6,716 7,092
Lease liability 7,233 –
Asset retirement obligation - liability 2,342 2,369
Allowance for impairment on property and
equipment 2,550 280
Unamortized discount on long-term receivables 1,852 2,926
Derivative liability on long-term loans 729 1,274
Unamortized past service cost 660 793
Deferred revenue – 116,187
Others 21 47
589,489 256,209
Deferred income tax liabilities on:
Accrual of trading revenue (63,584) –
Unamortized interest cost on payable to Axia (50,773) –
Unamortized debt issue cost (14,557) (6,235)
Right-of-use asset (7,929) –
Asset retirement obligation - asset (274) (274)
Others (858) (596)
Unrealized foreign exchange gain – (183)
(137,975) (7,288)
Presented in other comprehensive income
Deferred tax asset:
Derivative liability on hedging - OCI 6,318 –
Remeasurement 773 735
Unrealized fair value loss on financial assets at
FVOCI – 1,979
7,091 2,714
Deferred tax liability:
Unrealized fair value gains on financial assets
at FVOCI – (4,351)
Deferred income tax assets - net P
=458,605 =247,284
P

*SGVFS039365*
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The Company recognized deferred income tax assets to the extent that it is probable that
sufficient taxable income will be available to allow all or part of deferred income tax assets to be
utilized. Deferred income tax not recognized by the Company pertains to excess MCIT over
RCIT and portion of NOLCO amounting to = P377.38 million and P =8.33 million and =
P486.74
million and =P8.33 million as at December 31, 2019 and 2018, respectively.

The details of the Company’s NOLCO and MCIT as at December 31, 2019 and 2018 are as
follows:
NOLCO Excess MCIT
Year Incurred Valid Until 2019 2018 2019 2018
2017 2020 P
=455,862 =455,862
P P
=8,325 =8,325
P
2018 2021 1,409,873 1,409,873 – –
2019 2022 924,654 – – –
P
=2,790,389 =1,865,735
P P
=8,325 =8,325
P

c. The reconciliation between the effective income tax rates and the statutory income tax rate
follows:

2019 2018
Applicable statutory income tax rate (30.00%) (30.00%)
Decrease in tax rate resulting from:
Dividend income exempt from income tax (17.38) (93.42)
Interest income subjected to final tax (4.78) (3.74)
Movement in unrecognized DTA (14.59) 55.51
Nondeductible expenses 1.73 8.09
Others 0.02 (0.02)
Effective income tax rate (65.00%) (63.58%)

d. R.A. No. 10963 or the Tax Reform for Acceleration and Inclusion Act (TRAIN) was signed into
law on December 19, 2017 and took effect January 1, 2018, making the new tax law enacted as of
the reporting date.

The TRAIN changes the existing tax law and includes several provisions that generally affected
businesses on a prospective basis. In particular, management assessed that amendment of
Section 148 - Excise tax on manufactured oil and other fuels - which increases the excise tax rates
of lubricating oil, diesel fuel oil and bunker fuel oil, among others that are used for the power
plants, may have material impact to the operations of the Company. Management has considered
the impact of TRAIN in managing the operation hours of its power plants.

*SGVFS039365*
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30. Pension and Other Employee Benefits

The Company has a funded, noncontributory defined benefit retirement plan covering all of its
regular and full-time employees.

Pension and other employee benefits consist of:

2019 2018
Pension liability P
=17,761 =10,306
P
Vacation and sick leave accrual 7,201 15,784
24,962 26,090
Less current portion of vacation and sick leave
accrual* 825 6,503
P
=24,137 =19,587
P
*Included in “Accrued expenses” under "Accounts payable and other current liabilities” account in the parent
company statement of financial position (see Note 18).

Pension and other employee benefits included under “Cost of sale of electricity” and “General and
administrative expenses” accounts in the parent company statement of income:

2019 2018
Pension expense P
=7,329 =7,605
P
Vacation and sick leave accrual (8,368) 4,595
(P
=1,039) =12,200
P

A. Net Defined Benefit liability

The fund is managed by a trustee under the PHINMA Jumbo Retirement Plan.

Changes in net defined benefit liability of funded plan in 2019 are as follows:
Present Value of Fair
Defined Benefit Value of Net Defined
Obligation Plan Assets Benefit Liability
At January 1, 2019 =75,104
P =64,798
P =10,306
P
Pension expense in parent company
statement of income:
Current service cost 6,951 – 6,951
Net interest 3,804 3,426 378
10,755 3,426 7,329
Remeasurement loss (gain) in other
comprehensive income:
Return on plan assets (excluding
amount included in net
interest) – (1,877) 1,877
Experience adjustments (9,482) – (9,482)
Changes in demographic
assumptions (4,801) (4,801) –
Actuarial changes arising from
changes in financial
assumptions 7,731 – 7,731
(6,552) (6,678) 126
Benefits paid (42,685) (42,685) –
At December 31, 2019 =36,622
P =18,861
P =17,761
P

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Changes in net defined benefit liability of funded plan in 2018 are as follows:

Present Value of Fair

Defined Benefit Value of Net Defined
Obligation Plan Assets Benefit Liability
At January 1, 2018 =67,781
P =59,806
P P7,975
=
Pension expense in parent company
statement of income:
Current service cost 7,145 – 7,145
Net interest 2,847 2,387 460
9,992 2,387 7,605
Remeasurement loss (gain) in other
comprehensive income:
Return on plan assets (excluding amount
included in net interest) – (2,208) 2,208
Experience adjustments 8,560 – 8,560
Changes in demographic assumptions (1,323) – (1,323)
Actuarial changes arising from changes
in financial assumptions (6,297) – (6,297)
940 (2,208) 3,148
Contributions – 8,422 (8,422)
Benefits paid (3,609) (3,609) –
At December 31, 2018 =75,104
P =64,798
P =10,306
P

The maximum economic benefit available is a combination of expected refunds from the plan and
reductions in future contributions.

The fair value of plan assets by each class as at December 31 is as follows:

2019 2018
Investments in:
Equity instruments P
=11,579 =28,750
P
Government securities 1,855 25,733
UITFs 5,465 3,523
Cash and cash equivalents – 194
Allowance for probable losses – (3)
Receivables 18 6,815
Liabilities (56) (214)
P
=18,861 =64,798
P

Investments in government securities, mutual funds and UITFs can be readily sold or redeemed.
Marketable equity securities, which can be transacted through the PSE, account for less than 5%
of plan assets; all other equity securities are transacted over the counter.

The plan assets include shares of stock of the Company with fair value of nil and
=0.03 million as at December 31, 2019 and 2018, respectively. The shares were acquired at a
P
cost of =
P0.03 million in 2018. There are no restrictions or limitations on the shares and there was
no material gain or loss on the shares for the years ended December 31, 2019 and 2018. The
voting rights over the shares are exercised through the trustee by the Retirement Committee, the
members of which are directors or officers of the Company.

*SGVFS039365*
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The plan assets have diverse investments and do not have any concentration risk.

The cost of defined benefit pension plans and other post-employment benefits as well as the
present value of the pension obligation are determined using actuarial valuations. The actuarial
valuation involves making various assumptions.

The principal assumptions used in determining pension and post-employment benefit obligations
for the defined benefit plans are shown below:

2019 2018
Discount rate 5.07% 7.41%
Salary increase rate 5.00% 5.00%

There were no changes from the previous period in the methods and assumptions used in
preparing sensitivity analysis.

The sensitivity analysis below has been determined based on reasonably possible changes of each
significant assumption on the defined benefit obligation as at December 31, 2019, assuming all
other assumptions were held constant:

2019 2018
Increase Increase
(Decrease) in (Decrease) in
Pension Liability Pension Liability
Discount rate (Actual + 1.00%) (P
=3,726) 8.41% (P
=3,064)
(Actual – 1.00%) 4,548 6.41% 3,608

Salary increase
rate (Actual + 1.00%) 4,672 6.00% 4,079
(Actual – 1.00%) (3,894) 4.00% (3,536)

The management performs an Asset-Liability Matching (ALM) Study annually. The overall
investment policy and strategy of the Company’s defined benefit plans is guided by the objective
of achieving an investment return which, together with contributions, ensures that there will be
sufficient assets to pay pension benefits as they fall due while also mitigating the various risks of
the plans. The Company’s current strategic investment strategy consists of 66% of equity
instruments, 35% fixed income instruments and 1% of debt instruments.

The Company expects to contribute =

P6.81 million to the defined benefit pension plan in 2020.

The following table sets forth the expected future settlements by Plan of maturing defined benefit
obligation as at December 31, 2019:

2019 2018
Less than one year P
=8,145 =46,483
P
More than one year to five years 15,157 12,379
More than five years to 10 years 21,388 30,841
More than 10 years to 15 years 27,494 21,372
More than 15 years to 20 years 31,864 53,405
More than 20 years 213,710 228,512

*SGVFS039365*
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The average duration of the expected benefit payments at the end of the reporting period is
19.41 years.

On October 1, 2017, the retirement plan was amended to include a voluntary defined contribution
(DC) program where a regular full-time employee may contribute either 0.6%, 1.2%, 1.8% or
2.4% of his monthly basic salary every month which shall be matched by the Company with
0.4%, 0.8%, 1.2% or 1.6% of the employee’s basic salary, respectively. The contributions and
earnings shall be paid to the employee (or his beneficiary in case of death) only in the event of the
employee’s separation from the Company. Each contributing employee shall be allowed to
change the amount of his voluntary contributions only once a year, done on a common date and
in the manner to be specified by the Retirement Committee. However, the Company reserves the
right, whenever economic conditions may warrant, to discontinue or suspend its contributions.
There are separate sub-funds for the defined contribution and benefit plans which will not be
commingled with each other or be used to fulfill the funding requirements of both retirement
plans. The Company contributed = P0.83 million and =
P0.98 million to the DC fund which were
recognized as expense in 2019 and 2018, respectively.

B. Vacation and Sick Leave

The following tables summarize the components of vacation and sick leave expense (income)
recognized in the parent company statement of income and the amounts recognized in the parent
company statement of financial position.

2019 2018
Current service costs P
=472 =1,456
P
Interest costs 1,147 654
Actuarial (gain) loss (9,987) 2,485
(P
=8,368) =4,595
P

Changes in present value of the vacation and sick leave obligation are as follows:

2019 2018
Balance at the beginning of year P
=15,784 =11,571
P
Current service cost 473 1,456
Net interest 1,147 654
Actuarial (gain) loss (9,987) 2,485
Benefits paid (216) (382)
Balance at the end of year P
=7,201 =15,784
P

31. Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the
other party or exercise significant influence over the other party in making financial and operating
decisions. Parties are also considered to be related if they are subject to common control or common
significant influence which include affiliates. Related parties may be individual or corporate entities.

Outstanding balances at year-end are unsecured and are expected to be settled in cash. There have
been no guarantees provided or received for any related party receivables or payables.

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Provision for credit losses recognized for receivables from related parties amounted to nil and
=
P10.26 million for 2019 and 2018, respectively. The assessment of collectability of receivables from
related parties is undertaken each financial year through examining the financial position of the
related party and the market in which the related party operates. In the ordinary course of business,
the Company transacts with subsidiaries, associates, affiliates, jointly-controlled entities and other
related parties on advances, loans, reimbursement of expenses, office space rentals, management
service agreements and electricity supply.

The balances of accounts and transactions pertaining to related parties as at and for the years ended
December 31 are as follows:
2019
Outstanding
Balance
Amount/ Receivable
Company Volume Nature (Payable) Terms Conditions
Parent
AC Energy Inc.
General and administrative expenses = 31,700
P Management fee and other (P
= 8,399) 30-day, noninterest- Unsecured
expenses bearing
Miscellaneous income 9 Travel and Transportation 9 30-day, noninterest- Unsecured
Expenses bearing
General and administrative expenses 638 Miscellaneous-guarantee (354) 30-day, non-interest Unsecured
fee bearing
Investment in subsidiaries 340,000 Reimbursement of down – Noninterest- bearing Unsecured
payment to Axia
Subsidiaries
PHINMA Power
Revenue from sale of electricity 98,953 Sale of electricity 22,751 30-day, noninterest- Unsecured, no
bearing impairment
Miscellaneous income 2,828 Directors’ bonus 2,828 30-day, noninterest- Unsecured, no
bearing impairment
Accounts receivable and other current – Share in expenses 1,096 30-day, noninterest- Unsecured, no
asset bearing impairment
Accounts receivable and other current 108 Rental income – 30-day, noninterest- Unsecured, no
asset bearing impairment
Cost of sale of electricity 239,570 Purchase of electricity (39,030) 30-day, noninterest- Unsecured
bearing
CIPP
Cost of sale of electricity 74,336 Purchase of electricity (16,884) 30-day, noninterest- Unsecured
bearing
One Subic Power
Due from related parties 550,000 Accommodation 550,000 Noninterest-bearing Unsecured

Cost of sale of electricity 170,837 Purchase of electricity (24,851) 30-day, noninterest- Unsecured
bearing
SLTEC
Revenue from sale of electricity 38,527 Sale of electricity, rent, 23,898 30-day, noninterest- Unsecured,
dividend and share in bearing with
expenses impairment
Accounts receivable and other current 520 Miscellaneous income – 30-day, noninterest- Unsecured,
asset bearing with
impairment
Accounts receivable and other current 19 Rental income – 30-day, noninterest- Unsecured,
asset bearing with
impairment
Cost of sale of electricity 4,734,906 Purchase of electricity (377,208) 30-day, noninterest- Unsecured
bearing
Palawan55
Due from related parties 7,477 Advances 7,477 30-day, noninterest- Unsecured
bearing
BCHC
Advances to affiliates - subscription 315,000 Advances 315,000 Subsequently on Unsecured;
demand unimpaired
(Forward)

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2019
Outstanding
Balance
Amount/ Receivable
Company Volume Nature (Payable) Terms Conditions
ACES
Payable to affiliates = 250
P Advances (P
= 250) On demand Unsecured

ACEX
Due from related parties 100 Advances 100 30-day, noninterest- Unsecured
bearing

Associates
Asia Coal
Accounts payable and other current – Advances (254) Noninterest-bearing Unsecured
liabilities

MGI

Cost of sale of electricity 1,139,163 Purchase of electricity (157,965) 30-day, noninterest- Unsecured
bearing
Other Related Parties
Ingrid Power Holdings, Inc.
Advances to affiliates 150,000 Advances 150,000 Subsequently on Unsecured;
demand unimpaired
SolarAce1 Energy Corp.
Advances to affiliates 26,000 Advances 26,000 Subsequently on Unsecured;
demand unimpaired
Directors
General and administrative expenses 6,165 Directors’ fees and annual – On demand Unsecured
incentives
Stockholders
Due to stockholders – Cash dividend (16,594) Payable on Unsecured
March 31, 2020;
subsequently on
demand
Due from related parties (see Note 7) = 608,159
P
Advances to affiliates (see Note 17) 491,000
Due to related parties (see Note 18) (625,195)
Due to stockholders (see Note 22) (16,594)

2018
Outstanding
Balance
Amount/ Receivable
Company Volume Nature (Payable) Terms Conditions
Ultimate Parent
PHINMA, Inc.
Rental and other income =
P103 Rent and share in expenses =–
P 30-60 day, Unsecured
noninterest-
bearing
General and administrative expenses 27,968 Management fees and (1,341) 30-day, noninterest- Unsecured
share in expenses bearing
Accounts payable and other current – Rental deposit (186) End of lease term Unsecured
liabilities
Accounts payable and other current 49,308 Cash dividend – Payable on April 05, Unsecured
liabilities 2018;
subsequently on
demand
Subsidiaries
PHINMA Power
Revenue from sale of electricity, 262,457 Sale of electricity 1,112 30-day, noninterest- Unsecured, no
dividend, rental and other income dividend, rent and share in bearing impairment
expenses
(Forward)

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2018
Outstanding
Balance
Amount/ Receivable
Company Volume Nature (Payable) Terms Conditions
Cost of sale of electricity, capital =170,234
P Purchase of electricity, (P
=25,559) 30-day, noninterest- Unsecured
expenditures and other expenses operations and bearing
maintenance (O&M)
fees, and share in
expenses

Accounts payable and other current 993 Cash dividend – Payable on Unsecured
liabilities April 05, 2018;
subsequently on
demand

Accounts payable and other current 157,633 Pass through charges – 30-day, noninterest- Unsecured
liabilities bearing
CIPP
Revenue 20,133 Electricity sold & dividend – 30-day, noninterest- Unsecured
income bearing
Cost of sale of electricity 39,078 Purchase of electricity (216) 30-day, noninterest- Unsecured
bearing
PHINMA Renewable
Accounts payable and other current 106,022 Cash dividend – Payable on Unsecured
liabilities April 05, 2018;
subsequently on
demand
Receivable 197,498 Redemption of a portion of – 30-day, noninterest- Unsecured
preferred shares bearing
One Subic Power
Cost of sale of electricity 207,455 Purchase of electricity (16,778) 30-day, noninterest- Unsecured
bearing
PHINMA Solar
Accounts payable and other current 90,000 Advances (90,000) 30-day, noninterest- Unsecured
liabilities bearing

Joint Ventures
SLTEC
Revenue from sale of electricity, rental, 517,911 Sale of electricity, rent, 288,453 30-day, noninterest- Unsecured,
dividend and other income dividend and share in bearing with
expenses impairment
Cost of sale of electricity 6,283,516 Purchase of electricity (508,808) 30-day, noninterest- Unsecured
bearing
Accounts payable and other current – Rental deposit (497) End of lease term Unsecured
liabilities
ACTA
Investments and advances 4,650 Additional investment – Noninterest-bearing Unsecured
(see Note 12)

Associates
Asia Coal
Accounts payable and other current – Advances (254) Noninterest-bearing Unsecured
liabilities
MGI
Dividend income 12,500 Dividend received − Noninterest-bearing Unsecured
Cost of sale of electricity 1,142,885 Purchase of electricity (144,225) 30-day, noninterest- Unsecured
bearing
Investments and advances 12,500 Additional investment – Noninterest-bearing Unsecured
(see Note 12)

Entities Under Common Control

PHINMA Corporation
Deposit receivable 460 Rental deposit 460 Noninterest-bearing Unsecured, no
impairment
Dividend and other income 3,853 Dividends received and – Noninterest-bearing Unsecured
share in expenses
(Forward)

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2018
Outstanding
Balance
Amount/ Receivable
Company Volume Nature (Payable) Terms Conditions
General and administrative expenses =
P3,534 Share in expenses (P
=419) 30-day, noninterest- Unsecured
bearing
Accounts payable and other current 51,293 Cash dividend – Payable on April 05, Unsecured
liabilities 2018;
subsequently on
demand
PHINMA Property Holdings
Corporation (PPHC)
Accounts payable and other current – Advances (171) 30-60 day, Unsecured
liabilities noninterest-
bearing
Union Galvasteel Corporation
(UGC)
Dividend income 3,458 Dividend received – Noninterest-bearing Unsecured

Receivables 225,000 Sale of 50% Interest in 45,000 Noninterest-bearing Unsecured, no

PHINMA Solar impairment
Rent and other income 619 Rent and share in expenses 123 End of lease term Unsecured; no
impairment

Accounts payable and other current – Rental deposit (158) End of lease term Unsecured
liabilities
T-O Insurance, Inc.
(T-O Insurance)
General and administrative expenses 6,270 Insurance expense (3,934) 30-60 day, Unsecured
noninterest-
bearing
Receivables 8 Refund of overpayment – 30-60 day, Unsecured
noninterest-
bearing
Emar Corporation
Other income 64 Share in expenses – 30-60 day, Unsecured
noninterest-
bearing
Accounts payable and other current 4,279 Cash dividend – Payable on April 05, Unsecured
liabilities 2018;
subsequently on
demand
Other Related Parties
Directors
General and administrative expenses =
P7,876 Directors’ fees and annual =–
P On demand Unsecured
incentives
Stockholders
Due to stockholders 89,718 Cash dividend (16,651) Payable on Unsecured
March 31, 2017;
subsequently on
demand
Due from related parties (see Note 7) =334,688
P
Deposits 460
Due to related parties (see Note 18) (792,546)
Accrued directors’ bonus and annual
incentives (see Note 18) –
Due to stockholders (see Note 22) (16,651)

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AC Energy
The Company has a management contract with PHINMA, Inc. This Management Contract was
assigned to AC Energy on June 25, 2019 through the executed Deed of Assignment. The
management fees billed by ACEI in 2019 include P
=15.60 million which pertain to compensation of
officers.

Also, for each coal swap transaction which the Company enters, AC Energy charges guarantee fee. It
is payable 30 days post the confirmation of the transaction.

CIPP
Effective January 1, 2013, CIPP granted the Company the right to utilize its generator node for the
purpose of purchasing electricity that will be sold to the Company’s customers. Sales of electricity
are based on WESM prices. On June 26, 2013, a PAMA valid for ten (10) years was entered into by
and between CIPP as generator and the Company as administrator, for the administration and
management by the Company of the entire capacity and net output of CIPP. On January 12, 2018,
CIPP and the Company amended the PAMA, providing for the same capacity rate based on
nominated capacity and billing of fuel recovery and utilization fee. The new PAMA became effective
starting March 26, 2018 and valid for ten years and is subject to regular review.

PHINMA Renewable
The Company granted advances to PHINMA Renewable for its operating and working capital
requirements. The Company sells US Dollars to PHINMA Renewable for payment of the latter’s
various expenses through the Company’s banking facilities and accommodation of expenses.

In 2019 and 2018, the Company redeemed a portion of its preferred shares in PHINMA Renewable
amounting to =
P325.00 million and =
P197.50 million, respectively (see Note 12).

One Subic Power

On November 18, 2010, the Company and One Subic Power entered into a PAMA. Under the terms
of the PAMA, the Company will administer and manage the entire generation output of the 116 MW
diesel power plant in Subic Bay Freeport Zone, Olongapo City.

PHINMA Solar
In 2018, PHINMA Solar granted advances to the Company amounting to =
P90.00 million for its
working capital requirements.

PHINMA Petroleum
The Company sells U.S. dollars to PHINMA Petroleum for payment of the latter’s various expenses
through the Company’s banking facilities and accommodation of expenses.

SLTEC
The transactions with SLTEC include the sale and purchase of electricity (see Note 33),
reimbursements of expenses and receipt of dividends (see Note 12). SLTEC became a subsidiary
effective July 1, 2019.

SLTEC leased and occupied part of the office space owned by the Company. Monthly rent is based
on a pre-agreed amount subject to 5% escalation rate per annum. The lease agreement is for a period
of five years commencing on October 10, 2011. The contract ended on October 15, 2016 and it was
not renewed.

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MGI
The Company purchases the entire net electricity output of MGI (see Note 34). Other transactions
with MGI include reimbursements of expenses and advances for future subscriptions. In 2018, the
Company invested additional capital to MGI amounting to = P12.50 million (see Note 12).

PPHC/UGC /Asian Plaza, Inc./Asia Coal/ACTA

PPHC, UGC, Asian Plaza, Inc. and Asia Coal are entities under common control while ACTA is a
joint venture of the Company. The transactions for these companies include cash dividends and/or
advances.

In 2019 and 2018, the Company made additional investments in ACTA’s capital stock amounting to
nil and =
P4.65 million, respectively (see Note 12).

Indebtedness of or Advances to Related Parties

The Company, in the normal course of business, has transactions with its related parties consisting
principally of advances for working capital requirement.

As at December 31, 2019, the Company’s advances to related parties arise from the acquisition of
shares of Ingrid Power Holdings, Inc. and Solar Ace1 Energy, Corp. of the Company.

PHINMA, Inc.
The Company has a management contract with PHINMA, Inc. up to August 31, 2023, renewable
thereafter upon mutual agreement. Under this contract, PHINMA, Inc. has a general management
authority with corresponding responsibility over all operations and personnel of the Company
including planning, direction, and supervision of all the operations, sales, marketing, distribution,
finance, and other business activities of the Company. Under the existing management agreement,
the Company pays PHINMA, Inc. a fixed monthly management fee plus an annual incentive based on
a certain percentage of the Company’s net income. Other expenses PHINMA, Inc. bills to the
Company include rent and share in expenses. The Company also bills PHINMA, Inc. for rent and the
latter’s share in common expenses.

PHINMA, Inc. received cash dividend of =P49.31 million in 2018 for its investments in the
Company’s stocks traded in the stock market.

PHINMA Power
PHINMA Power leases and occupies part of the office space owned by the Company. On
November 3, 2011, PHINMA Power granted the Company the right to utilize its generator node for
the purpose of purchasing electricity that will be sold to a customer. Sales of electricity are based on
WESM prices. On December 26, 2013, a PAMA valid for (10) ten years was entered into by and
between PHINMA Power as generator and the Company as administrator, for the administration and
management by the Company of the entire capacity and net output of PHINMA Power. On October
8, 2015, the Company entered into an O&M Agreement with PHINMA Power whereby in
consideration for a fixed fee, PHINMA Power will provide technical services, expertise, management
and manpower for the Company’s power barges. On January 12, 2018, PHINMA Power and the
Parent Company amended the PAMA, providing for a higher capacity rate based on nominated
capacity and billing of fuel recovery and utilization fee. The new PAMA became effective starting
March 26, 2018 and valid for ten years and is subject to regular review.

PHINMA Power received cash dividend of = P0.99 million in 2018 for its investments in the
Company’s stocks traded in the stock market.

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PHINMA Corporation
PHINMA Corporation is likewise controlled by PHINMA, Inc. through a management agreement.
PHINMA Corporation bills the Company for its share in expenses. The Company also receives cash
dividends from PHINMA Corporation.

PHINMA Corporation received cash dividend of =

P51.29 million in 2018 for its investments in the
Company’s stocks traded in the stock market.

T-O Insurance
T-O Insurance, Inc. is likewise controlled by PHINMA, Inc. through a management agreement. The
Company insures its properties through T-O Insurance, Inc. The Company’s transaction with T-O
insurance, Inc. includes payment of insurance and membership fees, the receipt of refund for
overpayment and purchase of dollars.

Emar Corporation
The Company bills Emar Corporation for its share on expenses which is collected within the year.

Directors
The Company recognized bonus to directors computed based on net income before the effect of the
application of the equity method of accounting.

Retirement Fund
The fund is managed by a trustee under the PHINMA Jumbo Retirement Plan (see Note 30).

Stockholders
Dividends payable under “Due to stockholders” account in the statement of financial position
amounted to =P16.59 million and =
P16.65 million as at December 31, 2019 and 2018, respectively
(see Note 22).

Identification, review and approval of related party transactions

All (1) SEC-defined material related party transactions, i.e., related party transaction/s, either
individually or in aggregate over a twelve (12)-month period of the Company with the same related
party, amounting to ten percent (10%) or higher of the Group’s total consolidated assets based on its
latest audited consolidated financial statements; and (2) any related party transaction/s that meet the
threshold values approved by the Risk Management and Related Party Transactions Committee (the
Committee), i.e., =P50.00 million or five percent (5%) of the Group’s total consolidated assets,
whichever is lower, shall be reviewed by the Committee and approved by the BOD before its
commencement, except transactions that are explicitly excluded/exempted by the SEC and
transactions delegated to management.

For SEC-defined material related party transactions, the approval shall be by at least 2/.3 vote of the
BOD, with at least a majority vote of the independent directors. In case that the vote of a majority of
the independent directors is not secured, the material related party transactions may be ratified by the
vote of the stockholders representing at least 2/3 of the outstanding capital stock.

For related party transactions that, aggregately within a 12-month period, breach the SEC materiality
threshold, the same board approval would be required for the transaction/s that meets and exceeds the
materiality threshold covering the same related party.

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Compensation of Key Management Personnel

Compensation of key management personnel of the Company are as follows:

2019 2018
Short-term employee benefits P
=33,460 =39,388
P
Post-employment benefits 2,917 2,857
P
=36,377 =42,245
P

The management fees billed by ACEI in 2019 include ₱15.60 million which pertain to compensation
of officers.

32. Loss per Share

Basic and diluted earnings (loss) per share are computed as follows:

2019 2018
(In Thousands, Except for Number of Shares
and Per Share Amounts)

(a) Net income (loss) (P

=109,091) (P
=429,710)

Common shares outstanding at beginning

of year (Note 22) 4,889,774,922 4,889,774,922
Weighted average number of shares issued
during the year 1,316,000,000 –
(b) Weighted average common shares outstanding 6,205,774,922 4,889,774,922
Basic/Diluted Earnings (Loss) per share (a/b) (P
=0.02) (P
=0.09)

In 2019 and 2018, the Company does not have any potential common shares or other instruments that
may entitle the holder to common shares. Consequently, diluted loss per share is the same as basic
loss per share in 2019 and 2018.

33. Significant Laws, Contracts and Commitments

Electric Power Industry Reform Act (EPIRA)

R.A. No. 9136, the EPIRA, and the covering Implementing Rules and Regulations (IRR) provide for
significant changes in the power sector which include, among others, the following:

(1) The unbundling of the generation, transmission, distribution and supply, and other disposable
assets of the Company, including its contracts with independent power producers, and electricity
rates;
(2) Creation of a WESM;
(3) Open and non-discriminatory access to transmission and distribution systems;
(4) Public listing of generation and distribution companies; and,
(5) Cross-ownership restrictions and concentrations of ownership.

The Company believes that it is in compliance with the applicable provisions of the EPIRA and its
IRR.

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Retail Competition and Open Access (RCOA)

Upon meeting all conditions set forth in the EPIRA, the ERC promulgated the Transitory Rules for
the RCOA, by virtue of ERC Resolution No. 16 Series of 2012.

Through RCOA, licensed Electricity Suppliers, such as the Company, are empowered to directly
contract with Contestable Customers (bulk electricity users with an average demand of 1 MW). This
major development in the Power Industry enabled the Company to grow.

Secondary Price Cap

Significant events in November and December 2013 resulted in a surge of electricity prices that
affected the end-consumers, which led the ERC to impose a supplemental regulatory cap, under the
ERC Resolution No. 20, Series of 2014. The said resolution established a preemptive mitigating
measure in the WESM meant to limit significant increases in the WESM prices.

This regulatory cap was made permanent and requires all trading participants in the WESM to
comply. The Company is subject to this cap.

Power Purchase Agreement / Contract to Purchase Generated Electricity

The Company entered into contracts with SLTEC, MGI and third parties where the Company will
purchase the entire or a portion of the net electricity output of the power plants for a period ranging
from three (3) to twenty (20) years at an agreed price, subject to certain adjustments.

Administration and Management Agreement (AMA)

The Company entered into contract with SLTEC where the Company will purchase the entire net
electricity output of SLTEC from April 24, 2015 to April 23, 2040 for Unit 1 and from February 21,
2016 to February 20, 2041 for Unit 2. The contract was amended effective August 26, 2019 to include
the supply of the necessary coal to generate electricity at an agreed price, subject to certain
adjustments.

Power Administration and Management Agreement (PAMA)

The Company entered into PAMAs with its subsidiaries PHINMA Power, CIPP and One Subic
Power. Under the terms of the PAMA, the Company will administer and manage the entire
generation output of the plants and will pay for all electricity delivered by the power plant based on a
formula as set forth in the PAMA and shall be payable monthly or quarterly. The PAMAs with
PHINMA Power and CIPP are valid for ten (10) years and are subject to regular review, while the
PAMA with One Subic Power is valid throughout the life of the related Facilities Lease Agreement
with Subic Bay Metropolitan Authority.

On January 12, 2018, the PAMAs of the Company with CIPP and PHINMA Power were amended,
providing for certain capacity rates based on nominated capacity and billing of fuel recovery and
utilization fee. The new PAMAs became effective starting March 26, 2018 and valid for ten years and
are subject to regular review.

Ancillary Services Procurement Agreements (ASPA) with NGCP

On December 10, 2012, the Company executed an ASPA with NGCP. Under the ASPA, the power
plants will provide contingency and dispatchable reserves to NGCP to ensure reliability in the
operation of the transmission system and the electricity supply in the Luzon Grid for five (5) years
upon the effectivity of the provisional approval or final approval issued by the ERC. ERC’s
provisional approval is extended every year.

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Electricity Supply Agreement (ESA) / Contract for the Sale of Electricity (CSE) with GUIMELCO
On November 12, 2003, the Company signed an ESA with GUIMELCO, under which the Company
agreed to construct, operate and maintain a 3.4 MW bunker C-fired diesel generator power station
and to supply GUIMELCO with electricity based on the terms and conditions set forth in the ESA.
The power plant commenced commercial operations on June 26, 2005.

Upon the expiration of the ESA, the parties entered into a CSE on March 2015. Under the contract,
the Company shall supply, for a period of ten (10) years from fulfillment of the conditions precedent
indicated in the contract, all of GUIMELCO’s electricity requirements that are not covered by
GUIMELCO’s base load supply. On December 27, 2017, Republic Act No. 10963 or the Tax
Reform for Acceleration and Inclusion (TRAIN Law) was signed into law. The TRAIN Law, includes
among others, the inclusion of additional taxes on fuel. The TRAIN Law modifies the fuel
computation and electric fee structure under the CSE, which would result to GUIMELCO shouldering
additional and increased electricity fees and the need for the conduct of another Competitive
Selection Process and re-application with the ERC. Thus, on February 1, 2018, PHINMA Energy has
invoked a change in circumstances under the CSE considering that the passage of TRAIN law was
not contemplated by parties during execution of CSE. The parties executed a Termination Agreement
on March 21, 2018 effectively terminating the CSE.

Power Supply Agreement with MERALCO

Baseload Demand
On September 9, 2019, the bid submitted by the Company was declared as one of the best bids of
MERALCO’s 1200 MW. The Company will supply MERALCO a baseload demand of 200MW
from December 26, 2019 until December 25, 2029 subject to the approval of the Energy Regulatory
Commission.

Mid-merit Supply
On September 11, 2019, the bid submitted by the Company was declared as one of the best bids of
MERALCO’s 500 MW. The Company will supply MERALCO a baseload demand of 110MW from
December 26, 2019 until December 25, 2024 subject to the approval of the Energy Regulatory
Commission.

ESA / Power Supply Agreement (PSA) with Other Electric Cooperatives

The Company entered into contracts with cooperatives for a period of one (1) to five (5) years with
ERC approval. The agreements ended on December 25, 2016 with the expiry of the Company’s WA
license.

ESAs / CSEs with Customers

The Company signed contracts to supply the energy requirements of various bilateral and RES
contestable customers with a duration ranging from one to 15 years.

Administration Agreement for the 40 MW Strips of the Unified Leyte Geothermal Power Plant (UL
GPP)
On February 6, 2014, the Company was officially declared a winning bidder of a 40 MW Strip of the
UL GPP. Consequently, PSALM and the Company, with conformity of the National Power
Corporation entered into an Administration Agreement for the Selection and Appointment of the
IPPAs for the Strips of Energy of the UL GPP. The agreement will expire on July 25, 2021.

On December 28, 2017, the Company and PSALM have agreed to mutually terminate the
Administration Agreement for the 40MW strip of energy of the UL GPP. The Company also
withdrew the case it filed earlier and no further claims will be pursued. As at March 21, 2019, the
Company has settled all its obligations with PSALM.

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Service Contracts with the DOE

SC 14 (North Matinloc)
The Company holds a 6.103% participating interest in SC 14 Block B-1 which hosts the North
Matinloc-2 (NM-2) production well. The well is producing on cyclical mode with rest period longer
than the flow phase, to enable the reservoir to build up enough pressure to push the crude to surface.
In 2016, the well produced a total of 9,123 barrels of crude oil for an average 760 barrels monthly
production.

SC 664 (Mabinay, Negros Oriental)

On November 10, 2016, the DOE awarded Hydropower Service Contract 2016-06-664 (“Ilog”) to the
Company covering certain areas in Mabinay, Negros Oriental. The contract provides for a two-year
Pre-Development Stage during which the Company shall evaluate the commercial feasibility of the
project. Upon Declaration of Commerciality, the project shall proceed to the Development Stage
which is valid for 25 years. All costs during 2016 and 2017 with the Ilog Hydro projects were not
capitalized as these were costs incurred prior to exploration and development activities.

Solar Energy Service Contract (SESC) (Bugallon, Pangasinan)

On May 22, 2017, the DOE awarded a SESC to the Company, which grants the Company the
exclusive right to explore, develop and utilize the solar energy resource in a 648-hectare area in the
Municipality of Bugallon, Province of Pangasinan. Pre-development activities such as yield
assessment, environmental impact study and system impact study are underway and are expected to
be completed within the year. The Company hopes to construct a 45MW ground mount fixed-tilt grid
tied solar PV plant in the service contract area. The term of the service contract is twenty-five (25)
years, extendable for another 25 years. As at March 21, 2019, all costs of the Bugallon Solar project
were not capitalized as these were costs incurred prior to exploration and development activities.

Solar Energy Service Contract (Lipa City and Padre Garcia, Batangas)
On July 18, 2017, the DOE awarded a SESC to the Company, which grants the Company the
exclusive right to explore, develop and utilize the solar energy resource in a 486 hectare area in the
City of Lipa and Municipality of Padre Garcia, Province of Batangas. The Company hopes to
construct a 45MW ground mount fixed-tilt grid connected solar plant in the service contract area. All
technical studies were completed and necessary permits were secured such as the ECC as well as
local government endorsement. The term of the service contract is twenty-five (25) years, extendable
for another 25 years. As at March 21, 2019, all costs of the Lipa and Padre Garcia Solar project were
not capitalized as these were costs incurred prior to exploration and development activities.

Lease Commitments
Operating Lease Agreement with GUIMELCO
The Company has entered into a lease agreement with GUIMELCO for a parcel of land used only as
a site for electric generating plant and facilities. The term of the lease is 10 years with a renewal
option included in the contract. The Company is given the first option to buy the property if the
lessor decides to sell the land. The lease is at a fixed monthly rate of =P0.04 million for the duration of
the lease term. On March 27, 2015, the lease agreement was extended for another 10 years. On
January 24, 2019, the Guimaras Power Plant was sold to S. I. Power Corporation. Consequently, in
view of the sale, the Company also terminated the lease with GUIMELCO in 2019.

Agreement on Assignment of Contract of Lease

On November 20, 2019, the Company, AC Energy, Ayala Land, Inc. (ALI) and Ayala Land Offices,
Inc. entered an agreement on assignment of contract of lease. AC Energy assigned a portion of its
office unit and parking slots effective September 1, 2019. The lease is until May 31, 2022. The lease
is at a fixed monthly rate of =
P0.83 million and =
P0.01 million for the office unit and parking slots,
respectively with an escalation rate of 5% every year, beginning on the second year. For the year-

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ended December 31, 2019, the Company recognized finance charges on the lease liabilities
amounting to =
P0.46 million, included under “Interest and Other Financial Charges” account (see
Note 28).

Subscription Agreements
The Company’s Agreement with Philippine Investment Alliance for Infrastructure
(“PINAI”) for North Luzon Renewable Energy Corporation (“NLREC”) and Philippine Wind
Holdings Corporation (“PhilWind”) shares
On November 4, 2019, the Company’s Executive Committee approved and authorized the share
purchase agreement with the Philippine Investment Alliance for Infrastructure (“PINAI”) to acquire
PINAI’s ownership interest in North Luzon Renewable Energy Corporation (“NLREC”) and
Philippine Wind Holdings Corporation (“PhilWind”), which was formally executed on
November 5, 2019.

PINAI effectively has a 31% preferred equity and 15% common equity ownership in NLREC.
NLREC is a joint venture of AC Energy, UPC Philippines, Luzon Wind Energy Holdings and PINAI.
NLREC owns and operates an 81 MW wind farm in Pagudpud, Ilocos Norte, which started operations
in November 2014. PhilWind is the parent company of NLREC. PhilWind directly and indirectly
owns 67% of NLREC, through its 38% direct interest and 28.7% indirect interest through its 100%
wholly-owned subsidiary, Ilocos Wind Energy Holding Co., Inc. The acquisition is subject to the
satisfaction of certain conditions precedent, definitive documentation and PCC approval.

The Company’s Agreement with PINAI for ISLASOL and SACASOL shares
On December 3, 2019 the Company signed a share purchase agreement with PINAI collectively made
up of Macquarie Infrastructure Holdings (Philippines) Pte. Limited, Langoer Investments Holding
B.V., and the Government Service Insurance System, for the acquisition of PINAI’s ownership
interest in ISLASOL and SACASOL. On February 13, 2020, the PCC ruled that the PINAI sale of
SACASOL shares "will not likely result in substantial lessening of competition" and resolved "to take
no further action with respect to the Transaction."

The Company’s Agreement with Ingrid

On December 19, 2019, the Company signed a subscription agreement with Ingrid for 50,000
common shares and 5,651,000 redeemable preferred shares in Ingrid, at the subscription price of
=4.9 million for the common shares and =
P P565.10 million for the redeemable preferred shares. Ingrid
is developing a 300-MW diesel power plant in Pililia, Rizal. Issuance of the shares is subject to the
necessary regulatory approvals for increase of Ingrid's authorized capital stock and creation of new
shares.

34. Financial Risk Management Objectives and Policies

Objectives and Investment Policies

The funds of the entities held directly by the Company are managed by AC Energy’s Risk, Corporate
Finance, Investor Relations and Treasury Group (RCIT). All Cash investments of the Company are
carried and governed by the following principles, stated in order of importance:

· Preservation of invested cash

· Liquidity of invested cash; and
· Yield on invested cash

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Under no circumstance is yield to trump the absolute requirement that the principal amount of
investment be preserved and placed in liquid instruments.

RCIT manages the funds of the Company and invests them in highly liquid instruments such as short-
term deposits, marketable instruments, corporate promissory notes and bonds, government bonds, and
trust funds denominated in Philippine peso and U.S. dollar. It is responsible for the sound and
prudent management of the Company’s financial assets that finance the Company’s operations and
investments in enterprises.

RCIT focuses on the following major risks that may affect its transactions:

· Foreign exchange risk

· Credit or counterparty risk
· Liquidity risk
· Market risk
· Interest rate risk

Professional competence, prudence, clear and strong separation of office functions, due diligence and
use of risk management tools are exercised at all times in the handling of the funds of the Company.

Risk Management Process

Foreign Exchange Risk

The Company defines Foreign Exchange Risk as the risk of realizing reduced operating cash flows
and/or increasing the volatility of future earnings from movements in foreign exchange. The risk is
measured based on potential downside impact of market volatility to operating cash flows and target
earnings.

Foreign exchange risk is generally managed in accordance with the Natural Hedge principle and
further evaluated through:
· Continual monitoring of global and domestic political and economic environments that have
impact on foreign exchange;
· Regular discussions with banks to get multiple perspectives on currency trends/forecasts; and
· Constant updating of the foreign currency holdings gains and losses to ensure prompt decisions if
the need arises.

In the event that a Natural Hedge is not apparent, the Company endeavors to actively manage its open
foreign currency exposures through:

· Trading either by spot conversions; and

· Entering into derivative forward transactions on a deliverable or non-deliverable basis to protect
values

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The Company’s significant foreign currency-denominated financial assets and financial liabilities as
at December 31, 2019 and 2018 are as follows:

2019 2018
US Dollar Sing. Dollar US Dollar
(US$) (S$) (US$)
Financial Assets
Cash and cash equivalents $13,565 $- $411
Short-term investments – − –
Foreign currency-denominated assets $13,565 $- $411
Financial Liabilities
Accounts payable and other current liabilities – ($34) –
– ($34) –
Net foreign currency denominated assets (liabilities) $13,565 ($34) $411

Philippine peso equivalent =688,288

P =1,275
P =21,610
P

In translating foreign currency-denominated financial assets and financial liabilities into Philippine
peso amounts, the exchange rate used were =P50.74 to US$1.00 and = P37.49 to S$1.00 as at
December 31, 2019 and = P52.58 to US$1.00 as at December 31, 2018.

The following tables demonstrate the sensitivity to a reasonably possible change in the exchange rate,
with all other variables held constant, of the Company’s profit before tax (due to the changes in the
fair value of monetary assets and liabilities) in 2019 and 2018. The possible change are based on the
survey conducted by management among its banks. There is no impact on the Company’s equity
other than those already affecting the profit or loss. The effect on profit before tax already includes
the impact of derivatives.

Increase (Decrease) in
Year Foreign Exchange Rate US$ Sing$
2019 (P
=0.50) (P
=6,783) (P
=16.80)
(1.00) (13,565) (33.61)
0.50 6,783 16.80
1.00 13,565 33.61

2018 (0.50) (205.30) –

0.50 205.30 –
(1.00) (410.60) –
1.00 410.60 –

Credit or Counterparty Risk

The Company defines Credit or Counterparty Risk as the risk of sustaining a loss resulting from a
counterparty’s default to a transaction entered with the Company.

Credit or counterparty risk is managed through the following:

· Investments are coursed through or transacted with duly accredited domestic and foreign banks
subject to investment limits per counterparty as approved by the Board.
· Discussions are done on every major investment by RCIT before it is executed subject to the
Chief Financial Officer (CFO) approval. Exposure limits are tracked for every transaction and a
RCIT Finance Managers supervises major transaction executions.

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· Market and portfolio reviews are done at least once a week and as often as necessary should
market conditions require. Monthly reports are given to the CFO with updates in between these
reports as needed.
· A custodian bank for Philippine peso instruments and foreign currency instruments has been
appointed based on its track record on such service and the bank’s financial competence.

With respect to credit risk arising from the receivables of the Company, the Company’s exposures
arise from default of the counterparty, with a maximum exposure equal to the carrying amount of
these instruments.

2019
Past Due Past Due
Neither Past Due nor Impaired but not Individually
Class A Class B Class C Impaired Impaired Total
Receivables:
Current
Trade = 1,460,970
P P–
= P–
= = 541,465
P P32,061
= = 2,034,496
P
Due from related parties 597,899 – – – 10,260 608,159
Others 10,849 – – 7,738 63,199 81,786
Noncurrent
Trade – – – 571,714 6,998 578,712
Receivables from affiliates – 491,000 – – – 491,000
Receivables from third parties – 333,333 – – – 333,333
= 2,069,718
P = 824,333
P =–
P = 1,120,917
P = 112,518
P = 4,127,486
P

2018
Past Due Past Due
Neither Past Due nor Impaired but not Individually
Class A Class B Class C Impaired Impaired Total
Receivables:
Current
Trade =
P1,524,063 =–
P =–
P =321,899
P =30,899
P =1,876,861
P
Due from related parties 321,754 – – 2,674 10,260 334,688
Others 2,949 – – 7,216 63,199 73,364
Noncurrent
Trade – – – 571,714 6,998 578,712
Receivables from third parties – 317,954 – – – 317,954
=1,848,766
P =317,954
P =–
P =903,503
P =111,356
P =3,181,579
P

The Company uses the following criteria to rate credit risk as to class:

Class Description
Class A Customers with excellent paying habits
Class B Customers with good paying habits
Class C Unsecured accounts

With respect to credit risk arising from the other financial assets of the Company, which comprise
cash and cash equivalents, short-term investments, financial assets at FVTPL, financial assets at
FVOCI and derivative instruments, the Company’s exposure to credit risk arises from default of the
counterparty, with a maximum exposure equal to the carrying amount of these instruments.

The Company’s assessments of the credit quality of its financial assets are as follows:

· Cash and cash equivalents, short-term investments, financial assets at FVTPL and derivative
assets were assessed as high grade since these are deposited in or transacted with reputable banks,
which have low probability of insolvency.

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· Listed and unlisted financial assets at FVOCI were assessed as high grade since these are
investments in instruments that have a recognized foreign or local third-party rating or
instruments which carry guaranty or collateral.

There are no significant concentrations of credit risk within the Company.

Maximum exposure to credit risk of financial assets not subject to impairment

The gross carrying amount of financial assets not subject to impairment also represents the
Company's maximum exposure to credit risk, as follows:

2019 2018
Financial Assets at FVTPL P
=– =477,270
P
Financial Assets at FVOCI 950 204,136
P
=950 =681,406
P

Maximum exposure to credit risk of financial assets subject to impairment

The gross carrying amount of financial assets subject to impairment are as follows:

2019 2018
Financial Assets at Amortized Cost (Portfolio 1)
Cash and cash equivalents P
=5,867,640 =513,135
P
Short-term investments 100,000 –
Under “Receivables”:
Trade receivables 2,034,496 1,876,861
Due from related parties 608,159 334,688
Others 81,786 73,364
Under “Other Current Assets”:
Refundable deposits 42,882 72,088
Under “Other Noncurrent Assets”:
Trade receivables 571,714 571,714
Receivables from third parties 333,333 317,954
Refundable deposits 98,363 85,042
P
=9,738,373 =3,844,846
P

The Company’s maximum exposure to credit risk are as follows:

2019 2018
12-month Lifetime ECL Total Total
Simplified
Grade Stage 1 Stage 2 Stage 3 Approach
High P
=5,967,640 P
=– P
=– P
=2,235,644 P
=8,203,284 =2,461,124
P
Standard – – – – – 317,954
Substandard – – – – – 903,503
Default – – – 110,568 110,568 111,356
Gross carrying amount 5,967,640 – – 2,346,212 8,313,852 3,793,937
Less loss allowance – – – 112,518 112,518 111,356
Carrying amount P
=5,967,640 P
=– P
=– P
=2,233,694 P
=8,201,334 =3,682,581
P

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Liquidity Risk
Liquidity risk is defined as the risk that the Company may not be able to settle or meet its obligations
on time or at a reasonable price.

Liquidity risk is managed through:

· Asset and Liability Management principle. Short-term assets are used to fund short-term
liabilities while major investments, capital expenditures and long-term assets are funded by long-
term liabilities.
· Detailed cash flow forecasting and continuous monitoring of the weekly and monthly cash flows
as well as frequent updates of the annual plans of the Company.
· Investment maturities being spread on a weekly, monthly, and annual basis as indicated in the
Company’s plans. Average duration of investments do not exceed one (1) year.
· Setting up working capital lines to address unforeseen cash requirements that may cause pressure
to liquidity.

The tables below summarize the maturity profile of the Company’s financial liabilities as at
December 31 based on contractual undiscounted payments:
2019
Less than 3 to More than
On Demand 3 Months 12 Months 1 to 5 Years 5 years Total
Accounts payable and other current
liabilities(a):
Trade and nontrade accounts payable P–
= P896,322
= = 1,026,107
P P–
= P-
= = 1,922,429
P
Due to related parties – 625,195 – – – 625,195
Accrued interest – 105,174 – – – 105,174
Accrued expenses(b) – 10,704 5,225 – – 15,929
Derivative liability - 21,060 – – – 21,060
Due to stockholders 16,594 – – – – 16,594
Long-term loans(d) – 99,378 631,385 4,574,502 6,987,736 12,293,001
Lease liability – 2,752 8,577 13,918 – 25,247
Other noncurrent liabilities – – – 2,604,451 – 2,604,451
= 16,594
P = 1,760,585
P = 1,671,294
P = 7,192,871
P = 6,987,736
P = 17,629,080
P
(a)
Excludes output VAT amounting to = P296.38 million as at December 31, 2019 (see Note 18).
(b)
Excludes current portion of vacation and sick leave accruals amounting to =
P 0.83 million as at December 31, 2019 (see Note 18).
(c)
Excludes payable to employees amounting to = P3.23 million (see Note 18).
(d)
Includes contractual interest payments.

2018
Less than 3 to More than
On Demand 3 Months 12 Months 1 to 5 Years 5 years Total
Accounts payable and other current
liabilities(a):
Trade and nontrade accounts payable =–
P =598,204
P =2,182
P =–
P =147
P =600,533
P
Due to related parties – 792,546 – – – 792,546
Accrued interest – 46,507 – – – 46,507
Accrued expenses(b) – 86,798 – – – 86,798
Others(c) – – 4,603 – – 4,603
Due to stockholders 16,651 – – – – 16,651
Short-term loans(d) – 5,425 410,033 – – 415,458
Long-term loans(d) – 115,830 355,154 4,540,692 1,189,018 6,200,694
Other noncurrent liabilities – – – 753,981 – 753,981
=16,651
P =1,645,310
P =771,972
P =5,294,673
P =1,189,165
P =8,917,771
P
(a)
Excludes output VAT amounting to = P113.96 million and current portion of deferred revenue amounting to =P387.29 million as at December 31, 2018
(see Note 18).
(b)
Excludes current portion of vacation and sick leave accruals amounting to =
P 6.50 million as at December 31, 2018 (see Note 18).
(c)
Excludes payable to employees amounting to = P0.78 million (see Note 18).
(d)
Includes contractual interest payments.

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As at December 31, the profile of financial assets used to manage the Company’s liquidity risk is as
follows:
2019
Less than 3 to Over 12
On Demand 3 Months 12 Months Months Total
Loans and receivables:
Current
Cash and cash equivalents = 5,867,640
P =–
P P–
= P–
= = 5,867,640
P
Short term investments – 100,000 – – 100,000
Receivables:
Trade 573,526 1,460,970 – – 2,034,496
Due from related parties 10,260 597,899 – – 608,159
Others 70,937 10,849 – – 81,786
Refundable deposits* – – 42,882 – 42,882
Noncurrent
Trade receivables 578,712 – – – 578,712
Receivables from third parties – – – 333,333 333,333
Refundable deposits** – – – 98,363 98,363
Derivative asset* – 33 – – 33
Financial assets at FVOCI:
Quoted – – – 10 10
Unquoted – – – 940 940
= 7,101,075
P = 2,169,751
P = 42,882
P = 432,646
P = 9,746,354
P
*Included in “Other current assets” account.
**Included in “Other noncurrent assets” account.

2018
Less than 3 to
On Demand 3 Months 12 Months Over 12 Months Total
Loans and receivables:
Current
Cash and cash equivalents =513,135
P =–
P =–
P =–
P =513,135
P
Short term investments – – – – –
Receivables:
Trade 352,798 1,524,063 – – 1,876,861
Due from related parties 12,934 321,754 – – 334,688
Others 70,415 2,949 – – 73,364
Refundable deposits* – – 72,088 – 72,088
Noncurrent
Trade receivables 578,712 – – – 578,712
Receivables from third parties – – – 317,954 317,954
Refundable deposits** – – – 85,042 85,042
Financial assets at FVTPL 477,270 – – – 477,270
Derivative asset* – 4 – – 4
Financial assets at FVOCI:
Quoted – – – 101,817 101,817
Unquoted – – – 102,319 102,319
=2,005,264
P =1,848,770
P =72,088
P =607,132
P =4,533,254
P
*Included in “Other current assets” account.
**Included in “Other noncurrent assets” account.

Market Risk
Market risk is the risk that the value of an investment will decrease due to drastic adverse market
movements that consist of interest rate fluctuations affecting bid values or fluctuations in stock
market valuation due to gyrations in offshore equity markets or business and economic changes.
Interest rate, foreign exchange rates and risk appetite are factors of a market risk as the summation of
the three defines the value of an instrument or a financial asset.

As at December 31, 2019, the Company has already liquidated all outstanding investment in
marketable securities and will discontinue investing in highly volatile financial instruments to keep a
risk-averse position.

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Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. As at December 31, 2019 and 2018, the
Company has fixed rate financial instruments measured at fair value.

The Company’s exposure to interest rate risk relates primarily to long-term debt obligations that bear
floating interest rate. The Company generally mitigates risk of changes in market interest rates by
constantly monitoring fluctuations of interest rates and maintaining a mix of fixed and floating
interest-bearing loans. Specific interest rate risk policies are as follows:

In 2014, the Company also availed a total of peso-denominated = P3.00 billion corporate notes and loan
agreements from CBC, SBC and BDO to be used to fund its projects and working capital. SBC has a
term of five (5) years with quarterly payments starting on the 5th quarter drawdown. Both BDO and
CBC have a term of ten (10) years with quarterly payments starting on the 5th quarter drawdown
having fixed interest rates to be repriced for the last three (3) years.

On June 28, 2019 and July 08, 2019, the Company prepaid its floating rate debt with SBC and BDO
amounting to =P0.93 million and =P0.40 million, respectively. This is in line with the Company’s
objective to mitigate uncertainties in its earnings and cash flows.

The following table sets out the carrying amount, by maturity of the Company’s financial assets that
are exposed to interest rate risk:

2019
More than 1 More than 2 More than 3
Within year to years to 3 years to Beyond
Interest Rates 1 Year 2 years years 4 years 4 years Total
Long-term loans
BDO 5.81 - 6.55% P9,363
= P9,338
= P9,318
= P9,297
= = 412,321
P = 449,637
P
CBC 5.68 - 7.13% 29,949 28,550 27,958 27,906 1,243,933 1,358,296
DBP 6.00 - 6.09% 66,332 71,194 75,879 80,569 609,767 903,741
SBC 6.50 - 6.59% 66,385 71,122 75,875 80,634 609,740 903,756
BDO 4.98 - 5.05% 47,144 47,573 47,858 48,116 4,742,648 4,933,339

Special savings account (SSA) - Peso 2.75 - 4.10% 5,179,917 – – – – 5,179,917

Special savings account (SSA) - Dollar 1.425 - 1.75% 13,550 – – – – 13,550
Short-term investments – 100,000 – – – – 100,000

2018
More than 1 More than 2 More than 3
Within year to years to 3 years to Beyond
Interest Rates 1 Year 2 years years 4 years 4 years Total
Long-term loans
BDO 5.81% - 6.55% P9,386
= P9,363
= P9,340
= P9,320
= =424,060
P P
=461,469
CBC 5.68% - 7.13% 29,966 29,949 28,553 27,947 1,272,277 1,388,692
SBC 4.84% - 4.95% (4,541) 927,602 – – – 923,061
DBP 6.00% - 6.09% 61,435 66,383 71,136 75,893 690,622 965,469
SBC 6.50% - 6.59% 61,438 66,385 71,136 75,892 690,605 965,456
Short-term loans 5.25% 400,000 – – – – 400,000
Special savings account (SSA) - Peso 1.125% - 4.25% 492,240 – – – – 492,240
Special savings account (SSA) - Dollar 1.25% 19,843 – – – – 19,843

Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument.
The other financial instruments of the Company that are not included in the above table are
noninterest-bearing investments and are therefore not subject to interest rate volatility.

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The following tables demonstrate the sensitivity to a reasonably possible change in the interest rates,
with all other variables held constant, of the Company’s profit before tax for the years ended
December 31, 2019 and 2018. The possible change are based on the survey conducted by
management among its banks. There is no impact on the Company’s equity other than those already
affecting the profit or loss.
2019
Increase
(Decrease) in Increase (Decrease) in
Basis Points Income Before Tax
Long-term loan 25 (P
=10,855)
(25) 10,855
SSA – Peso 25 12,950
(25) (12,950)
SSA – Dollar 25 1,719
(25) (1,719)
Short-term investments 25 250
(25) (250)

2018
Increase
(Decrease) in Increase (Decrease) in
Basis Points Income Before Tax
Long-term loan 25 (P
=7,277)
(25) 7,277
SSA 25 984
(25) (984)
Short-term loan 25 980
(25) (980)

Commodity Price Risk

The Company defines Commodity Price Risk as the risk of realizing reduced profit margins and/or
increasing the volatility of future earnings that are affected by the pricing variability and uncertainty
in coal supply and any associated foreign exchange risk. The risk is measured based on potential
downside impact of market volatility to target earnings.

To manage Commodity Price Risk, the Company develops a Coal Hedging Strategy aimed to:

· Manage the risk associated with unexpected increase in coal prices which affect the target Profit
& Loss of the Company
· Determine the Hedge Item and appropriate Hedging Instrument to use, including but not limited
to price, amount and tenor of the hedge to reduce the risk to an acceptable level
· Reduce Mark-to-Market impact of hedges by qualifying the hedging transaction for hedge
accounting

Only the Company’s Chief Executive Officer and Chief Finance Officer are authorized to make coal
hedging decisions for the Company. All executed hedges go through a stringent approval process to
justify the tenor, price and volume of the hedge to be undertaken.

Monitoring and assessment of the hedge effectiveness and Coal Hedging Strategy is reviewed
quarterly during the Company’s Finance Committee (FINCOM). Continuation, addition, reduction
and termination of existing hedges are decided by the FINCOM and any material change in
permissible hedging instrument, counterparties and limits are elevated to the Board for approval.

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As at December 31, 2019, the Company’s outstanding coal hedge volumes and resulting derivative
liability is as follows:

Test of
2019 Effectiveness
In Metric Tons U.S. Dollar
(MT) (US$)
Derivative Liabilities 135,000 (414,411) 100%
BAP closing rate 50.82

Peso equivalent (P
= 21,060,367)

The portion of gain or loss on the hedging instrument amounting to =

P21.06 million that is determined
to be effective hedge shall be recognized in other comprehensive income.

Equity Price Risk

Equity price risk is the risk to earnings or capital arising from changes in stock exchange indices
relating to its quoted equity securities. The Company’s exposure to equity price risk relates primarily
to its financial assets at FVOCI.

As at December 31, 2019, the Company has already liquidated all outstanding investment in marketable
securities and will discontinue investing in highly volatile financial instruments to keep a risk-averse
position.

Monitoring of Risk Management Process

Risk management is regarded as a core competency, thus review of processes and approval processes
including periodic audit are practiced and observed as follows:

· Monthly Treasury meetings are scheduled where approved strategies, limits, mixes are challenged
and rechallenged based on current and forecasted developments on the financial and political
events.
· Weekly portfolio reports are submitted to the Management Committee that includes an updated
summary of global and domestic events of the past month and the balance of the year.
· Annual teambuilding sessions are organized as a venue for the review of personal goals,
corporate goals and professional development.
· One on one coaching sessions are scheduled to assist, train and advise personnel.
· Periodic review of Treasury risk profile and control procedures.
· Periodic specialized audit is performed to ensure active risk oversight.

Capital Management
The primary objective of the Company’s capital management is to ensure that it maintains a strong
credit rating and healthy capital ratios in order to support its business and maximize shareholder
value.

The Company manages its capital structure and makes adjustments to it, in light of changes in
economic conditions. To maintain or adjust the capital structure, the Company may adjust the
dividend payment to shareholders, return capital to shareholders, issue new shares or acquire long-
term debts. In 2018, the Company availed P =0.93 billion loan agreement with SBC. In 2019, the
Company availed P5.00 billion loan agreement with BDO. In relation to these agreements, the
Company closely monitors its debt covenants and maintains a capital expenditure program and
dividend declaration policy that keeps the compliance of these covenants into consideration.

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The following debt covenants are being complied with by the Company as part of maintaining a
strong credit rating with its creditors:

CBC and BDO

(a) Minimum DSCR of 1.0 times after Grace Period up to Loan Maturity
(b) Maximum Debt to Equity ratio of 1.5 times

SBC
(c) Minimum DSCR of 1.0 times after Grace Period up to Loan Maturity
(d) Maximum Debt to Equity ratio of 2.0 times
(e) Minimum Current ratio of 1.0 times

35. Fair Values

The table below presents the carrying values and fair values of the Company’s financial assets and
financial liabilities, by category and by class, as at December 31, 2019 and 2018.
2019
Fair value
Quoted Prices in Significant Significant
Active Markets Observable Unobservable
Carrying Value (Level 1) Input (Level 2) Input (Level 3)
Assets:
Financial assets at FVOCI P
=950 P
=10 P
=940 P
=–
Derivative assets* 33 – 33 –
Refundable deposits** 141,245 – – 141,245
Receivables from third parties 333,333 – – 333,333
P
=475,561 P
=10 P
=973 P
=474,578

Liabilities:
Long-term loans P
=8,576,550 P
=– P
=8,576,550 P
=–
Deposit payable & other liabilities*** 157,408 – – 157,408
Derivative liability 21,060 – 21,060 –
P
=8,755,018 P
=– P
=8,597,610 P
=157,408

2018
Fair value
Quoted Prices in Significant Significant
Active Markets Observable Unobservable
Carrying Value (Level 1) Input (Level 2) Input (Level 3)
Assets:
Financial assets at FVTPL P477,270
= =–
P =477,270
P =–
P
Financial assets at FVOCI 204,136 91,887 9,930 102,319
Derivative assets* 4 – 4 –
Refundable deposits** 153,478 – – 153,478
Receivables from third parties 317,954 – – 317,954
=1,152,842
P =91,887
P =487,204
P =573,751
P

Liabilities:
Short-term loan =400,000
P P–
= P–
= =400,000
P
Long-term loans 4,704,147 – – 4,704,147
Deposit payable & other liabilities*** 178,974 – – 178,974
=5,283,121
P =–
P =–
P =5,283,121
P
*** Included under “Other current assets” account.
*** Included under “Other current assets” and “Other noncurrent assets” accounts.
*** Included under “Accounts payable and other current liabilities” and “Other noncurrent liabilities” accounts.

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The following methods and assumptions are used to estimate the fair values of each class of financial
instruments:

Cash and Cash Equivalents, Short-term Investment, Receivables, Accounts Payable and Other
Current Liabilities (excluding Statutory Payables), Due to Stockholders and Short-term loan
The carrying amounts of cash and cash equivalents, short-term investments, receivables, accounts
payable and other current liabilities (excluding statutory payables) and due to stockholders
approximate their fair values due to the relatively short-term maturities of these financial instruments.

Financial Assets at FVOCI

Quoted market prices have been used to determine the fair values of quoted financial assets at
FVOCI. In 2019 and 2018, the fair values of financial assets at FVOCI are determined based on the
discounted free cash flows of the investee.

The fair value of derivative assets of freestanding forward currency transactions is calculated by
reference to current forward exchange rates for contracts with similar maturity profiles.

The Company uses the following hierarchy for determining and disclosing the fair value of financial
instruments by valuation technique:

Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities

Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or
liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable
inputs).

Refundable Deposits, Receivables from Third Parties, Deposits Payable, Lease Liabilities and Other
Liabilities
Estimated fair value is based on present value of future cash flows discounted using the prevailing
PHP BVAL reference rates that are specific to the tenor of the instruments’ cash flows at the end of
the reporting period.

Long-Term Loans
The estimated fair value is based on the discounted value of future cash flows using the prevailing
credit adjusted risk-free rates that are adjusted for credit spread.

Derivative Asset
Embedded Derivatives
The Company has bifurcated embedded derivatives from its fuel purchase contracts. The purchases
are denominated in U.S. dollar but the Company agreed to pay in Philippine peso using the average
daily Philippine Dealing System weighted average rate of the month prior to the month of billing.

The Company’s outstanding embedded forwards have an aggregate notional amount of

US$0.97 million and US$0.03 million as at December 31, 2019 and 2018, respectively. The
weighted average fixing rate amounted to P=50.84 to US$1.00 and = P52.35 to US$1.00 as at
December 31, 2019 and 2018, respectively. The net fair value of these embedded derivatives
amounted to = P3.88 million gains and =
P0.20 million gains at December 31, 2019 and 2018,
respectively.

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The net movements in fair value changes of the Company’s derivative instruments (both freestanding
and embedded derivatives) are as follows:

2019 2018
Balance at beginning of year P
=4 P7,776
=
Net changes in fair value during the year (6,851) (13,180)
Fair value of settled contracts 6,880 5,408
Balance at end of year P
=33 =4
P

The net changes in fair value during the year are included in the “Other income - net” account in the
consolidated statement of income (see Note 28).

The fair value of derivative assets is presented under “Other current assets” account in the parent
company statement of financial position (see Note 9).

36. Operating Segments

The Company is divided into two reportable operating segments based on the nature of the services
provided - Power and Petroleum. Management monitors the operating results of its business units
separately for the purpose of making decisions about resource allocation and performance assessment.
Segment performance is evaluated based on operating profit or loss and is measured consistently with
operating profit or loss in the parent company financial statements.

2019
Adjustments
Segment and
Power Petroleum Total Eliminations Consolidated
Revenue P14,403,839
= =–
P = 14,403,839
P = 182,006
P = 14,585,845
P
Costs and expenses 14,641,583 43,069 14,684,652 251,644 14,936,296
Other income (expense) - net
Interest and other finance charges – – – (331,473) (331,473)
Interest and other financial income – – – 58,248 58,248
Loss on derivatives - net (6,851) – (6,851) – (6,851)
Gain on sale of PPE 158 – 158 293,942 294,100
Gain on sale of asset held for sale 14,289 – 14,289 – 14,289
Loss on sale of investment (6,652) – (6,652) – (6,652)
Loss on sale of inventories (461) – (461) – (461)
Foreign exchange gain – net – – – 1,636 1,636
Others 1,693 – 1,693 14,294 15,987
Segment loss (P
= 235,568) (P
= 43,069) (P
= 278,637) (P
= 32,991) (P
= 311,628)

Operating assets = 16,723,297

P = 301,778
P = 17,025,075
P = 7,549,476
P = 24,574,551
P

Operating liabilities = 2,855,838

P = 5,220
P = 2,861,058
P = 11,731,807
P = 14,592,865
P

Capital expenditures P52,002

= = 665
P P52,667
= = 8,870
P P61,537
=
Capital disposals 10,966 63 11,029 237,872 248,901
Investments and advances 11,571,314 292,912 11,864,226 620 11,864,846
Depreciation and amortization (47,086) (435) (47,521) (14,165) (61,686)
Benefit from income tax – – – 202,537 202,537

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2018
Adjustments
Segment and
Power Petroleum Total Eliminations Consolidated
Revenue =14,233,977
P =–
P =14,233,977
P =818,863
P =15,052,840
P
Costs and expenses 14,794,926 42,920 14,837,846 219,652 15,057,498
Other income (expense) - net
Interest and other finance charges (371) – (371) (301,209) (301,580)
Interest and other financial income – – – 44,377 44,377
Loss on derivatives - net – – – (13,180) (13,180)
Gain on sale of PPE – 259 259 2 261
Foreign exchange gain – net – – – 24,829 24,829
Provision for unrecoverable input tax (43,712) – (43,712) – (43,712)
Others 431 – 431 30,548 30,979
Segment profit (loss) (P
=604,601) (P
=42,661) (P
=647,262) =384,578
P (P
=262,684)

Operating assets =
P5,379,817 (P
=2,244) =5,377,573
P =10,394,856
P =15,772,429
P

Operating liabilities =
P2,637,383 =8,346
P =2,645,729
P =5,629,189
P =8,274,918
P
Capital expenditures =17,381
P =–
P =17,381
P =3,493
P =20,874
P
Capital disposals – – – 556 556
Investments and advances 8,896,427 139,276 9,035,703 620 9,036,323
Depreciation and amortization (54,332) (452) (54,784) (19,984) (74,768)
Provision for income tax – – – (167,026) (167,026)

Adjustments and eliminations

Interest and other financial income, including fair value gains and losses on financial assets are not
allocated to individual segments as the underlying instruments are managed on a group basis.
Likewise, certain operating expenses and finance-related charges are managed on a group basis and
are not allocated to operating segments.

Current taxes, deferred taxes and certain financial assets and liabilities are not allocated to those
segments as they are also managed on a group basis.

Capital expenditures consist of additions to property, plant and equipment. Investments and advances
consist of investments and cash advances to the Company’s associates and joint ventures.

Reconciliation of profit

2019 2018
Segment total loss before adjustments
and eliminations (P
=278,637) (P
=647,262)
Dividend income 180,539 818,009
Rent income 1467 854
General and administrative expense (251,644) (219,652)
Interest and other financial income 58,248 44,377
Interest and other financial charges (331,473) (301,209)
Other income - net 309,872 42,199
Income before income tax (P
=311,628) (P
=262,684)

Other income - net include foreign exchange gain (loss), gain (loss) on sale of property, plant and
equipment and financial assets at FVOCI, provision for probable losses, gain (loss) on derivatives and
other miscellaneous income (expense) which are managed on a group basis and are not allocated to
operating segments.

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Reconciliation of assets

2019 2018
Segment operating assets P
=17,025,075 =5,377,573
P
Current assets
Cash and cash equivalents 6,102,639 8,479,458
Receivables and other current assets 31,733 626,839
Financial assets at FVTPL – 471,818
Short-term investments 100,000 –
Noncurrent assets
Property, plant and equipment 6,425 47,021
Investments in subsidiaries, associates and joint
ventures 620 620
Financial assets at FVOCI 950 209,588
Deferred income tax asset - net 458,605 247,284
Other noncurrent assets 848,504 312,228
Total assets P
=24,574,551 =15,772,429
P

Reconciliation of liabilities

2019 2018
Segment operating liabilities P
=2,645,729 =2,645,729
P
Current liabilities
Accounts payable and other current liabilities 1,203,977 484,575
Income and withholding taxes payable 15,729 4,231
Due to stockholders 16,594 16,651
Short-term loan – –
Current portion of lease liability 10,333 –
Current portion of long-term loans 219,173 157,684
Long-term loans - net of current portion 8,357,377 4,546,463
Lease liability – net of current portion 13,775 –
Pension and other employee benefits 24,137 19,587
Deferred income tax liabilities - net – –
Other noncurrent liabilities 2,086,041 399,998
Total liabilities P
=14,592,865 =8,274,918
P

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37. Supplemental Cash Flow Information

The following table shows the Company’s non-cash investing and financing activities and
corresponding transactions’ amounts for the years ended December 31:

2019 2018
Non-cash investing activities:
Reclassifications to:
Investments in subsidiaries P
=3,224,723 =–
P
Other noncurrent assets – 507,261
Asset held for sale – (30,710)
Property, plant and equipment – 1,845
Payable to Axia for purchase of interest in
SLTEC (Note 12) 2,890,755 –
Payable for additions to property, plant and
equipment (Note 11) 44,360 –
Addition to right-of-use assets, net of
amortization expense 26,430 –

Movement in the Company’s liabilities from financing activities are as follows

January 1, December 31,

2019 Availments Payments Others 2019
Current portion of:
Short-term loan P400,000
= P‒
= (P
= 400,000) =‒
P =‒
P
Long-term loans 157,684 ‒ (157,684) 219,173 219,173
Dividends payable 16,651 ‒ ‒ (57) 16,594
Lease liability ‒ ‒ ‒ 10,333 10,333
Interest payable 46,507 ‒ (249,555) 308,222 105,174
Noncurrent portion of:
Long-term loans 4,546,463 5,000,000 (979,377) (209,709) 8,357,377
Lease liability ‒ ‒ (3,215) 16,990 13,775
Total liabilities from financing activities = 5,167,305
P = 5,000,000
P (1,789,831) = 344,952
P = 8,722,426
P

Others includes the amortization of debt issue costs, interest expense and the effect of reclassification
of non-current portion to current due to passage of time.

38. Events After the Reporting Period

Subscription Agreement with:

1. SolarAce1
On January 14, 2020, the Company signed a subscription agreement with SolarAce1 for the
subscription of 6,000,000 Class A common shares and 180,000,000 Class A redeemable preferred
Shares. SolarAce1 is developing a 120 MW DC solar power farm project to be located in the
Municipality of Alaminos, Laguna.

SolarAce1 is a wholly-owned subsidiary of Gigasol2, Inc. Gigasol2, Inc. is a wholly-owned

subsidiary of AC Energy Development, Inc., which is one of the companies acquired by the
Company on October 9, 2019 in a property for share swap, pending regulatory approvals.

2. Giga Ace 1, Inc. (“GigaAce1”)

On February 26, 2020, the Company signed a subscription agreement with GigaAce1 for the
subscription by the Company of 75,000 common shares to be issued out of the unissued
authorized capital stock (“ACS”) and 43,069,625 common shares and 53,562,609 redeemable

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preferred shares of GigaAce1 to be issued out of the increase in ACS of GigaAce1. On the same
date subscription of ACEPH was paid in cash the amount of P =0.075 million for the common
shares; P
=430.80 million for the 43,069,625 common shares; and = P2,142.50 million for the
53,562,609 RPS A.

On March 3, 2020, the Company signed another subscription agreement with GigaAce1 for the
subscription by the Company of additional 1,170,000 common shares and 32,500 RPS A to be
issued out of the increase in ACS of GigaAce1. The subscription will be used by Giga Ace 1 to
fund administrative and operating costs.

Deed of Transfer with Guimaras Electric Cooperative (GUIMELCO)

On January 15, 2020, the Company signed a deed of transfer with GUIMELCO.

The Company has a contract of lease with GUIMELCO for a portion of a parcel of land as site for its
3.4MW Diesel Power Plant and Facilities. In 2005, the Company constructed on the leased premises a
one (1) storey building.

Effective July 31, 2018, the Company stopped operating the Power Plant and subsequently sold its
equipment and machineries. The Parent Company has outstanding lease payables as at
December 31, 2019. In settlement of its lease payables, it offered to transfer by way of dation in
payment the building on January 15, 2020.

Philippine Competition Commission’s Approval of Share Purchase Agreements with:

1. Macquarie Infrastructure Holdings (Philippines) Pte. Limited, Langoer Investments Holding
B.V., and the Government Service Insurance System (the “PINAI Investors” for PhilWind shares
On January 28, 2020, the PCC ruled that the PINAI Investors’ sale of PhilWind shares "will not
likely result in substantial lessening of competition" and resolved to take no further action with
respect to the share purchase agreement.

2. PINAI Investors for SACASOL shares

On February 13, 2020, the PCC ruled that PINAI Investors’ sale of SACASOL shares "will not
likely result in substantial lessening of competition" and resolved "to take no further action with
respect to the Transaction..."

3. PINAI Investors. for ISLASOL shares

On February 26, 2020, the PCC ruled that PINAI sale of ISLASOL shares "will not likely result
in substantial lessening of competition" and resolved "to take no further action with respect to the
Transaction..."

Impact of the Coronavirus Disease 2019 (COVID-19) Outbreak

In a move to contain the COVID-19 outbreak, on March 13, 2020, the Office of the President of the
Philippines issued a Memorandum directive to impose stringent social distancing measures in the
National Capital Region effective March 15, 2020. On March 16, 2020, Presidential Proclamation
No. 929 was issued, declaring a State of Calamity throughout the Philippines for a period of
six (6) months and imposed an enhanced community quarantine throughout the island of Luzon until
April 12, 2020, unless earlier lifted or extended. These measures have caused disruptions to
businesses and economic activities, and its impact on businesses continue to evolve.

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The events surrounding the outbreak do not impact the Company’s financial position and
performance as of and for the year ended December 31, 2019. Considering the evolving nature of
this outbreak, the Company cannot determine at this time the impact to its financial position,
performance and cash flows in 2020. The Company has taken measures to manage the risks and
uncertainties brought about by the outbreak and will continue to monitor the situation.

Other matters
On March 18, 2020, the BOD approved, among others, the following matters:
i. Corporate changes
a. Change of the corporate name of the Company to “AC Energy Corporation”;
b. Increase of the Company’s authorized capital stock to = P48.40 billion, divided into 48.40
billion common shares;
c. Consolidation of ACEI’s international business and assets into the Company via a tax
free exchange, whereby ACEI will transfer its shares of stock in Presage Corporation
(ACEI’s subsidiary holding company that owns ACEI’s international business and
investments) to the Company in exchange for the issuance to ACEI of additional primary
shares in the Company (assets-for-shares swap);
d. Share buy-back program to support share prices through the repurchase in the open
market of up to =P1.00 billion worth of common shares beginning March 24, 2020;
ii. Significant transactions and contracts
a. Company’s hedging policy, additional hedging counterparties, and guarantee fee
arrangement with AC Energy;
b. Company’s oil and diesel hedging transactions with Macquarie Bank Limited;
c. Company’s guarantee arrangement with AC Energy for the Company’s oil and fuel
hedging transactions;
d. Payment of employee and employer shares under the Company’s old defined contribution
plan to covered employees as part of their transition to the new Company’s retirement
plan;
iii. Funding
a. Renewal and additional credit lines with local banks of up to = P25.00 billion and foreign
banks of up to US$240 million, and co-use of these facilities with the Company’s
subsidiaries;
b. Execution of credit facilities with the Presage Group for up to US$400.00 million, or its
peso equivalent to fund the Company’s various greenfield projects and acquisitions;
iv. New investments and projects
a. In principle, the investment in the 160 MW Balaoi wind project, to be located in
Barangays Balaoi and Caunayan, Pagudpud, Ilocos Norte;
b. Funding of and investment into a Renewable Energy Laboratory project; and
c. In principle, funding of up to US$100 million for new technology investments in the
Philippines.

39. Contingencies
On August 20, 2014, the Company distributed cash and property dividends in the form of shares in
PHINMA Petroleum (see Note 22) after securing SEC’s approval of the registration and receipt of
Certificate Authorizing Registration (CAR) from the BIR.
On October 22, 2014, the Company received from the BIR a Formal Letter of Demand (FLD),
assessing the Company for a total donor’s tax due of =
P157.75 million inclusive of penalty and interest
up to September 30, 2014.

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On November 21, 2014, the Company and its independent legal counsel filed an administrative
protest in response to the FLD, on the following grounds:
1) The dividend distribution is a distribution of profits by the Company to its stockholders and not a
“disposition” as contemplated under Revenue Regulations Nos. 6-2008 and 6-2013 which would
result in the realization of any capital gain of the Company;
2) The Company did not realize any gain or increase its wealth as a result of the dividend
distribution; and,
3) There was no donative intent on the part of the Company.

On May 27, 2015, the Company received from the BIR a Final Decision on Disputed Assessment
(FDDA) dated May 26, 2015, denying the protest.

On June 25, 2015, the Company filed with the CTA a Petition for Review seeking a review of the
FDDA and requesting the cancellation of the assessment. In its decision dated September 28, 2018,
the CTA cancelled and withdrew the FLD. On January 24, 2019, the CTA denied the BIR’s motion
for reconsideration. On February 22, 2019, BIR filed its petition for review seeking CTA’s reversal
of its decision on September 28, 2018 and its resolution on January 18, 2019. In response, ACEPH
filed its Comment/ Opposition. The CTA referred the case for mediation. However, the parties had
no agreement to mediate so CTA submitted the case for decision on July 10, 2019. As at March 25,
2020, the decision of CTA is still pending.

40. Supplementary Information Required Under Revenue Regulations (RR) No. 15-2010

In compliance with this Bureau of Internal Revenue (BIR) RR No. 15-2010, following are the
information on the taxes and licenses fees that the Company reported and/or paid for the year
(presented in full amounts):

a. VAT

Details of the Company’s net sales/receipts, output VAT and input VAT accounts are as follows:

Output VAT
Net sales/receipts and output VAT declared in the Company’s VAT returns filed for the period
follows:

Net Sales/Receipts Output VAT

Taxable sales:
Sale of services =11,024,265,931
P =1,322,911,912
P
Sale of goods 381,539,155 45,784,698
Rental income 1,595,733 191,488
11,407,400,819 1,368,888,098
Zero-rated sales 2,344,560,944 –
Exempt sales 100,418,184 –
=13,852,379,947
P =1,368,888,098
P

Zero-rated sales consist of sale of power to PEZA and sale of power generated from renewable
sources of energy under Republic Act (R.A.) No. 9513.

Exempt sales represent collections allocated to universal charges, franchise tax and benefits to
host communities and sales under Presidential Decree No. 87 which are not subject to VAT.

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The Company’s sale of services and rental income which are subjected to VAT are based on
actual collections received, hence, may not be the same as amounts accrued in the statement of
income.

Input VAT
The amount of VAT Input taxes claimed broken down into:

Beginning of the year =159,675,614

P
Deferred on capital goods exceeding 1 million from
previous period 568,421
Current year’s purchases:
Services under cost of goods sold 1,113,469,975
Goods other than for resale or manufacture 113,903,823
Importations other than capital goods 1,586,312
Capital goods subject to amortization 454,425
Total available input tax 1,389,658,570
Less:
Deferred on capital goods exceeding 1 million for the
succeeding period 714,242
Input VAT applied against output VAT 1,368,888,098
Allocable to exempt sales 98,586
Balance at December 31, 2019 =19,957,644
P

b. Landed Costs of Importation

Total landed costs of importation amounted to P=22,858,695 in 2019, = P691,333 of which pertain to
customs duties, tariff and other fees. These were all paid as at December 31, 2019.

c. Other Taxes and Licenses

This includes all other taxes, local and national, including real property taxes, licenses and permit
fees.

Details of other taxes and license fees are as follows:

Local
Business permits =108,115,790
P
Real property taxes 2,387,480
Mayor's permit fees & other licenses 8,317
Community tax certificates 21,000
Professional tax 5,700
Other taxes and licenses 211,167
=110,749,454
P

National
Gross receipts taxes on loans =6,970,599
P
Documentary stamp taxes (DST) 3,346,222
Fringe benefits tax 829,080
BIR Annual Registration 500
=11,146,401
P

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d. DST

The Company’s DST for the year ended December 31, 2019 is as follows:

DST on:
Loans =1,479,452
P
Purchase of insurance 1,692,951
Advances 7,500
Lease 59,254
Others 107,065
=3,346,222
P

DST on the =P5 billion long term debt availed on November 15, 2019 amounting to P37.5 million
is recorded as debt issue costs which is deducted from the loan balance for reporting purposes and
amortized over the term of the loan.

e. Withholding Taxes

Details of withholding taxes are as follows:

Balance as at
Paid December 31, 2019
Withholding taxes on compensation and benefits =18,398,993
P =992,883
P
Expanded withholding taxes 95,598,517 14,590,138
Fringe benefits 683,319 145,761
=114,680,829
P =15,728,782
P

f. Tax Assessments and Cases

i. The Company was assessed by the local government of Makati City in the amount of
=2,436,220 for alleged deficiency taxes, fees and charges for the calendar years 2004 to
P
2007. The Company filed a complaint for the cancellation of the assessment on
December 17, 2009. The Makati City Regional Trial Court (RTC) issued a decision
dismissing the Company’s complaint, to which the Company timely filed a Motion for
Reconsideration on December 12, 2013. In an Order dated May 2, 2014, the Makati City
RTC reconsidered its decision and cancelled the assessment. Local government of Makati
City filed a Motion for Reconsideration of the said Order, which was denied by the Makati
City RTC. Since Makati City has not appealed the Order, it has become final and executory.

ii. On August 20, 2014, the Company distributed cash and property dividends in the form of
shares in ACEX after securing SEC’s approval of the registration and receipt of Certificate
Authorizing Registration (CAR) from the BIR.

On October 22, 2014, the Company received from the BIR a Formal Letter of Demand
(FLD), assessing the Company for a total donor’s tax due of =
P157.75 million inclusive of
penalty and interest up to September 30, 2014.

On November 21, 2014, the Company and its independent legal counsel filed an
administrative protest in response to the FLD, on the following grounds:

1) The dividend distribution is a distribution of profits by the Company to its

stockholders and not a “disposition” as contemplated under Revenue Regulations

*SGVFS039365*
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Nos. 6-2008 and 6-2013 which would result in the realization of any capital gain of
the Company;
2) The Company did not realize any gain or increase its wealth as a result of the
dividend distribution; and,
3) There was no donative intent on the part of the Company.

On May 27, 2015, the Company received from the BIR a Final Decision on Disputed
Assessment (FDDA) dated May 26, 2015, denying the protest.

On June 25, 2015, the Company filed with the CTA a Petition for Review seeking a review
of the FDDA and requesting the cancellation of the assessment. In its decision dated
September 28, 2018, the CTA cancelled and withdrew the FLD. On January 18, 2019, the
CTA denied the BIR’s motion for reconsideration. On February 22, 2019, BIR filed its
petition for review seeking CTA’s reversal of its decision on September 28, 2018 and its
resolution on January 18, 2019. In response, the Company filed its Comment/Opposition.
The CTA referred the case for mediation. However, the parties had no agreement to mediate
so CTA submitted the case for decision on July 10, 2019. As at March 25, 2020, the
decision of CTA is still pending.

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