EADPC, a
wholly owned subsidiary of the Company, was incorporated on March
14, 1994. In addition to holding a 40% interest in DMPC and a 100%
interest in Sunrise Power Company, Inc. (“SPCI”), EADPC directly
owns two (2) power barges with an aggregate capacity of 109 MW
located in Navotas, Metro Manila.
DMPC was
incorporated in October 1993 to build, own and operate a 133 MW
bunker C-fired diesel power plant in Navotas, Metro Manila for the
supply of power to MERALCO under a Power Supply Agreement (the
“MERALCO PSA”) entered into in 1993. DMPC purchased its two power
plant barges from Van Der Horst Limited (“VDHL”) in 1995. These two
barges commenced full commercial operation on February 25, 1996.
In
December 1997, EADPC and DMPC entered into an Agency Agreement,
whereby DMPC was authorized to sell the electricity generating
capacity of EADPC to MERALCO after EADPC came off-contract for five
years with the National Power Corporation (“NPC”) in May 1999. On
February 2000, EADPC started to sell and deliver electricity to
MERALCO, the Company’s sole customer, under the Addendum to the
Power Supply Agreement dated February 26, 1998 between DPMC and
MERALCO.
In May
2002, the President of the Philippines ordered the reduction of the
Purchased Power Cost Adjustment of NPC to a flat rate of P0.40
per kilowatt-hour. This reduction reduced the selling rates of
EADPC and DMPC to MERALCO since its selling rates are indexed to
NPC’s selling rates. Furthermore, the Energy Regulatory Commission
(“ERC”) approved the unbundled NPC Grid Rates in September 2002.
This further reduced NPC’s electricity rates, and consequently those
of EADPC and DMPC. These two operating subsidiaries have proposed
to de-link from NPC’s selling rates through a pricing structure that
is based on a Demand/Energy formula that would effectively allow
them a recovery of all its operating costs and be assured of modest
returns.
Due to
the factors discussed above, EADPC and DMPC were forced to
temporarily suspend the operations of three of their power plant
barges on two separate dates starting on September 2002 and January
2003. While the negotiations to de-link from NPC’s selling rates
are currently ongoing, MERALCO was able to obtain a provisional
authority from ERC on November 21, 2003 for EADPC and DMPC to use
the average selling rates of all the power producers of MERALCO.
This enabled these operating subsidiaries to resume the operations
of one barge in December 2003 and the second and third barges in
February and October 2004. However, in 2005, fuel costs were at
very high levels forcing EADPC and DMPC to shut down three of their
four power plant barges in various dates.
After the
ERC had made permanent in November 2004 the provisional authority it
granted to MERALCO, it advised MERALCO and DMPC to renegotiate the
pricing scheme of the Power Supply Agreement (PSA) taking into
consideration DMPC’s true cost as an embedded generator
(contributing to voltage reliability and reduction of system losses
in the MERALCO franchise area) as and when dispatched by MERALCO.
Such renegotiated PSA shall be submitted to the ERC for approval
within one (1) year from the permanency of the provisional
authority.
In
pursuit of the said ERC directive, DMPC and MERALCO have agreed in
January 2006 to an Amendment and Interim Extension of the PSA, which
the ERC granted provisional authority in February 2006, featuring a
benchmark pricing scheme in which DMPC’s selling price to MERALCO
will be based initially (prior to the commercial operation of the
Wholesale Electricity Spot Market (WESM) on NPC’s Time of Use rates
(TOU rates) and the applicable charges of the National Transmission
Corporation (TRANSCO), and later (upon the commercial operation of
the WESM), on the clearing prices in the WESM , plus the applicable
charges of TRANSCO. The use of TOU rates enabled DMPC and EADPC to
resume operation of the power plant barges on February 26, 2006.
This interim PSA was effective until December 25, 2006 or until the
two parties come up with a new PSA, whichever comes first. The
original PSA expired on February 26, 2006.
With the
start of commercial operation of WESM on June 23, 2006, the selling
price of DMPC and EADPC to MERALCO would have been equal to the WESM
clearing price as stipulated in the interim PSA. However, the WESM
clearing prices were not sufficient for DMPC and EADPC to recover
all of their operating costs. Thus, on July 13, 2006, another
economic shutdown of all four power plant barges was implemented.
The economic shutdown was in place until December 31, 2006.
Despite
the efforts of EADPC and DMPC to present to their lenders their
respective management plans following the change in control of these
companies, on October 9, 2006, DMPC received a notice of default
from the Trust Banking Group (PNB-Trust) of the Philippine National
Bank (PNB), purportedly acting on behalf of a majority of the
lenders. On October 16, 2006, EADPC received a similar notice of
default from PNB Trust, allegedly pursuant to the Interim
Rescheduling Agreement, which has expired.
On
October 27, 2006, without any notice from its lenders or PNB-Trust,
all of the bank accounts of EADPC and DMPC with balances in the
amounts of P193,038,571.49 and US$7,301.47 in relation to EADPC and
P186,390,872.31 and US$56,813.42 in relation to DMPC with
PNB-Ortigas Branch were frozen and seized by PNB-Trust.
Thus, the
scheduled resumption of operations on November 7, 2006, after
repairs from damage caused by a typhoon, was stalled after such
seizure and freezing of the funds of EADPC and DMPC.
On
November 15, 2006, EADPC filed a Complaint for Temporary Restraining
Order or Writ of Preliminary Injunction, which is currently pending
with the Regional Trial Court of Malabon, to restrain one of the
lenders of EADPC from distributing to the relevant lenders the funds
that were frozen and seized, and to require the return of such funds
to the relevant bank accounts of EADPC. The Regional Trial Court
of Malabon granted EADPC a Temporary Restraining Order or Writ of
Preliminary Injunction against such lender. Upon motion filed by
PNB, the Complaint was dismissed through a technicality and without
prejudice, as contained in the Order dated November 29, 2006. EADPC
filed its Amended Complaint and a Motion for Reconsideration of the
Order, which was then granted. PNB filed a Motion to Dismiss the
Amended Complaint, which after hearing, has been submitted for the
court’s resolution.
On
December 11, 2006, EADPC filed with the Regional Trial Court of
Malabon (Court) a petition for rehabilitation of EADPC and DMPC.
The proposed Rehabilitation Plan of EADPC and DMPC includes, among
others, extending or renewing their business relationship with
MERALCO and/or resuming their operations to generate for re-sale to
MERALCO or in the WESM, a write-off or condonation of all
capitalized and accrued interest on their loans from 2003 up to the
present, the creation of Tranche A Debts and the Tranche B Debts to
coincide with the projected debt service cash flows of EADPC and
DMPC, the creation of an excess cash sweep mechanism, the
entitlement of secured lenders to their security rights against the
assets of EADPC and DMPC under the Mortgage Trust Indentures, and
conversion of certain debts into redeemable preferred shares.
On
December 12, 2006, the Regional Trial Court of Malabon issued a Stay
Order and directed as follows:
a.
staying enforcement of all claims, whether for money or otherwise
and whether such enforcement is by court action or otherwise,
against EADPC and DMPC, their guarantors and sureties not solidarily
liable with the debtor;
b.
prohibiting EADPC and DMPC from selling, encumbering, transferring,
or disposing in any manner any of its properties except in the
ordinary course of business;
c.
prohibiting EADPC and DMPC from making any payment of their
liabilities outstanding as at the date of filing of the petition;
d.
prohibiting the suppliers of goods or services OF EADPC and DMPC
from withholding supply of goods and services in the ordinary course
of business for as long as these companies make payments for the
services and goods supplied after the issuance of the Stay Order;
and
e.
directing the payment in full of all administrative expenses
incurred after the issuance of the Stay Order.
The Court
appointed a Rehabilitation Receiver, who is considered as an officer
of the Court, to have the powers, duties and functions under the
Interim Rules of Procedure on Corporate Rehabilitation.
EADPC
received copies of the respective comments and/or oppositions, as
well as notices of claim and comment, filed by the creditors and
certain interested parties between the periods January 19, 2007 and
February 20, 2007. Creditors Philippine Opportunities for Growth
and Income (SPV-AMC), Inc. (“POGI”), Philippine National Bank (“PNB”),
Security Bank Corporation (“SBC”), Equitable-PCI Bank Inc. (“EPCIB”),
Cameron Granville 2 Asset Management (“Cameron Granville”), Rizal
Commercial Banking Corporation, and one of DMPC’s stockholders, YNN
Holding Corporation (“YNN”), opposed EADPC’s rehabilitation petition
for itself and DMPC. Other creditors Manila Electric Company (“MERALCO”),
National Transmission Corporation, Department of Energy (“DOE”),
Asset Pool A (SPV-AMC), Inc. (“APA”), Home Development Mutual Fund
(“HDMF”), the Company and EPPEC manifested their claims against
EADPC and/or DMPC, with the Company and EPPEC, in addition, filing
motions to join as co-petitioner for the rehabilitation of DMPC.
On
February 1, 2007, the initial hearing on the Petition for Corporate
Rehabilitation was held. Pursuant to an order of the Court, EADPC
filed (a) the Counter-Affidavit of its President & CEO dated
February 15, 2007 to the joint Joint-Affidavit of Mr. Sunny Sun and
Mr. Lawrence Teh attached to YNN’s Comment & Opposition of YNN
Holding Corporation dated January 18, 2007, and (ii) its Memorandum
dated March 5, 207. Creditors-oppositors RCBC, PNB, SPC, EPCIB,
POGI, Cameron Granville, and creditor-claimant DOE filed their
respective memoranda.
EADPC
presented that with the EAPRC and EPPECI motions to join as
co-petitioners, and DOE’s manifestation of support for the joint
rehabilitation of EADPC and DMPC, the petition for corporate
rehabilitation insofar as DMPC is concerned is supported by 30.64%
of the total liabilities of DMPC as stated in the Rehabilitation
Petition. However, in the meantime that the parties were preparing
their respective memoranda and during the period thereafter, MERALCO,
PNB and POGI filed their comments and/or opposition to the motions
for leave to join as co-petitioner, to which EADPC filed its
Consolidated Comment dated March 30, 2007. EADPC also filed its
Manifestation dated March 15, 2007 to support the venue laid in the
RTC-Malabon.
PNB, SBC,
and POGI filed Urgent Motions to Strike EADPC’s Memorandum and
Motion to Expunge EADPC’s Manifestation dated March 15, 2007. EADPC
filed its Consolidated Comment/Opposition dated May 31, 2007.
EADPC
also filed its Manifestation with Motion dated May 24, 2007 wherein
EADPC informed the Court that it received notices regarding the sale
and transfer by certain creditors of all their rights in and to the
loans of DMPC and EADPC (which include the loan of SPCI) and prayed
for the Court to direct such creditors as well as their assignees to
fully disclose the details of the sale and transfer of the loans.
EADPC
also filed its Omnibus Motion dated May 25, 2007, wherein it (a)
prayed for the Court to immediately issue a due course order and to
direct MERALCO to restore the power supply in the Navotas premises
as soon as possible and settle amicably the matter of payment of the
outstanding bills with EADPC and DMPC, and (b) manifested on the
retrenchment program of the employees of EADPC and DMPC and sale of
fuel stock to pay the accrued benefits and administrative expenses
of these companies.
EADPC
received PNB’s Urgent Manifestation and Motion dated May 23, 2007
and Deutsche Bank AG, London’s Urgent Motion for Accounting dated
May 23, 2007, moving for the issuance of a subpoena duces tecum and
subpoena ad testificandum on EADPC’s and DMPC’s President and CEO to
explain, show documents, and account on the sale of fuel stock of
the said companies in particular, or the businesses and assets of
the said companies in general.
On June
4, 2007, EADPC filed its Consolidated Comment/Opposition with Prayer
for Protective Reliefs. In accordance with the Court’s ruling
during the hearing on the motions, the matter shall be deemed
submitted for resolution after EADPC’s filing of its Consolidated
Comment/Opposition. In its Consolidated Comment/Opposition, EADPC
highlighted the motivations behind the aforementioned Urgent Motions
and argued that the prayer for the issuance of a subpoena duces
tecum and subpoena ad testificandum is unnecessary, unreasonable and
oppressive, and meant to be a fishing expedition.
EADPC and DMPC will effect a retrenchment program of all of their
employees effective on June 15, 2007 because of the continued
uncertainties surrounding their petitions for rehabilitation and the
serious financial reverses and business losses incurred by each of
them. The retrenchment program will affect 72 employees of DMPC and
68 employees of EADPC, or a total of 140 employees. On May 15,
2007, EADPC and DMPC filed the required notices with the Department
of Labor and Employment and served the same upon all the affected
employees of EADPC and DMPC in compliance with legal requirements.
EADPC
leases the area at the Navotas Fishport Complex where the power
plant barges are moored under the renewable Lease Agreement entered
into between EADPC and the Philippine Fisheries Development
Authority (“PFDA”) in July 2001. The DMPC barges are located and
moored on a property adjacent to the EADPC barges, which is being
leased from the PFDA for a 15-year term ending May 2010, renewable
for additional five years. Their power plant barges are connected
by line to the MERALCO power switching facility approximately five
kilometers away, which allows for efficient transmission of power.
EADPC was
registered with the Board of Investments (“BOI”) on March 29, 1994
under a pioneer status and is entitled to a
6-year income tax holiday beginning May 1994 (which expired on May
2000), tax and duty free importation of capital equipment imported
prior to December 1994 and unrestricted use of consigned equipment.
DMPC was registered with the BOI on December 28, 1994 under a
pioneer status and is entitled to a 6-year income tax holiday
beginning October 1995 or the actual start of commercial operations,
whichever is earlier; tax credit for taxes and duties on domestic
capital equipment; and tax and duty free importation of capital
equipment. On December 28, 1995, the BOI approved the deferment of
the reckoning date of DMPC’s income tax holiday from October 1995 to
February 1996. This incentive expired in February 2002.
The
Company also owned, directly and indirectly, several inactive
companies namely SPCI, East Asia Global Management Limited (EAGML),
East Asia Power Services, Inc. (EAPSI), East Asia Transmission and
Distribution Corporation (EATDC) and First Engineering Utilities
Service Corporation (FEUSC).
