San Miguel Corporation (SMC)’s power arm San Miguel Global Power Holdings (SMGPH) has turned into a cautionary tale on the risks involved in a power business centered on coal and gas as a recent report showed SMGPH’s financial issues due to its overexposure to volatile fossil fuel prices, sustainability think-tank Center for Energy, Ecology, and Development (CEED) said on Monday.
This statement comes after the Institute for Energy Economics and Financial Analysis (IEEFA) released a report pressing on how SMGPH’s heavy reliance on fossil fuels in its portfolio has negatively impacted its financial metrics in recent years.
“This report is a reality check for companies out there that even a corporate giant like SMC can have its financial might erode because of its fossil fuel obsession. As long as its business model is pinned on massive plans for fossil gas and liquefied natural gas (LNG), it can expect its investment to be risky,” said CEED Executive Director Gerry Arances.
CEED has previously released a report that raised similar caution on SMC’s expansion plan accounting for half of the planned gas development in the Philippines and by far the largest in the Southeast Asia Region.
“SMC’s ambitious expansion plan is its bane and we’ve seen how SMC tried to pass on its losses to the public when it moved to charge Meralco consumers with even higher power rates. The IEEFA report states that it could take SMC around four to nine years to service its current debt based on its current earnings. Amid its waning financial health, we wonder if SMC has a backup plan to recover instead of treating energy consumers as its main fallback, especially with the ongoing review of the competitive selection process that will hinder SMC from passing on costs to end users,” added Arances.
A stark finding of the IEEFA report is that SMGPH has not added any renewable energy capacity to its portfolio since 2014, which tells of how the conglomerate is yet to embody its “a world made better” credo, especially in the light of its nearing anniversary, added Arances.
“SMC has a clear location as a major actor in the energy transition in the Philippines – one that is free from the clutches of expensive and dirty energy. May this serve as a wakeup call to SMC that a fortune built on fossil fuels results in poor fiscal performance and subjects host communities to health issues and leave them vulnerable to the worsening impact of climate change,” added Bishop Alminaza.
Arances also called on other corporations and investors to rethink its role in enabling coal and gas expansion plans in the country.
“Fossil fuels are lackluster investments and the doubts cast over its profitability should make corporations pivot to renewable energy. The case of SMC is a stark reminder to corporations to steer away from risky investments and make a critical call to turn away from fossil fuels,” said Arances.
