First Gas Power Corporation

BACKGROUND First Gas Power Corporation Incorporated in 1995, First Gas Holdings Corporation (FGHC) is the holding company for the development of gas-fired power plants and other non-power gas related businesses. FGPC owns and operates the 1,000-MW Santa Rita combined-cycle natural gasfired power plant in Batangas, 100 kilometers south of Manila, Philippines. The Santa Rita power plant uses natural gas from the Malampaya Gas Field in offshore Northwest Palawan. The Santa Rita power plant project was developed, financed and constructed by First Gas Power Corporation (FGPC).

FGPC, which was originally owned 60 per cent by First Gen, has since become a wholly owned First Gen subsidiary following the decision in May 2012 of the BG Group to sell its 40 per cent interest in FGPC. The Santa Rita plant was built by a consortium led by Siemens AG under a fixedprice, turnkey Engineering, Procurement and Construction (EPC) Contract. Operation

and Maintenance (O&M) of the plant is performed by Siemens Power Operations, Inc. (SPOI), a wholly owned subsidiary of Siemens AG. Fuel supply is covered by a 22-year Gas Supply Purchase Agreement (GSPA) with the Malampaya consortium consisting of Shell, Chevron Texaco and Philippine National Oil Company - Exploration Corporation. The gas seller consortium extracts natural gas from the Malampaya field pursuant to the terms of North West Palawan Service Contract No. 38, which was concluded with the Government in December 1990. The Santa Rita plant commenced commercial operations in August 2000 and initially ran on liquid fuel, with conversion to natural gas operations in January 2002 when gas from the Malampaya field became available. Santa Rita sells electricity to the Manila Electric Company (Meralco) under a 25-year Power Purchase Agreement (PPA). The Company First Gen Corporation (First Gen) is the leading clean and renewable energy company in the Philippines with an installed capacity of 2,763 megawatts (MW). It accounts for approximately 18 per cent of total installed capacity in the country today. First Gen was incorporated in December 1998 to become the primary holding company for the power generation and energy-related businesses of the Lopez Group. First Philippine Holdings Corporation (FPHC), parent and controlling shareholder of First Gen, became involved in the power generation industry in 1993 through its first major investment in power generation, Bauang Private Power Corporation (BPPC). On July 26, 2010, BPPC turned over its 225-MW diesel bunker power plant to the National Power Corporation / Power Sector Assets and Liabilities Management

Corporation following the expiration of the 15-year Cooperation Period covering the project. The Bauang power plant was constructed pursuant to a Build - Operate Transfer (BOT) Agreement executed by and among Napocor, BPPC and First Private Power Corporation (FPPC) in 1993. Located in Bauang, La Union, the plant is

considered to be the largest bunker diesel power plant in the world. As of 2012, First Gen has a portfolio of 15 power generation plants that are predominantly contracted for sale under long-term power purchase agreements or other energy sales agreements. First Gen's power generation portfolios utilize indigenous fuels such as natural gas, water and geothermal steam. The Company's interests, direct and indirect, consist of the following: - A 100 per cent equity interest in the 1,000-MW Santa Rita natural gas-fired combined cycle power plant; - A 100 per cent equity interest in the 500-MW San Lorenzo natural gas-fired combined cycle power plant; -A 40 per cent equity interest or a 68 per cent effective economic interest, in the 132MW Pantabangan-Masiway hydroelectric power plant complex; -A 100 per cent equity interest in the 1.6-MW Agusan mini-hydro; and -A 49 per cent equity interest in the 11 integrated geothermal and power projects owned by Energy Development Corporation. The 1,129.4 MW. projects have a combined capacity of

First Gen ranked 34th in gross revenues and 36th in net income among BusinessWorld's Top 1000 Corporations in the Philippines (with consolidated financial statements) in 2010. As a world-class energy company, First Gen's Management System complies with standards set by the International Organization of Standards (ISO) of Geneva. An ISO 9001:2000 certification for Quality Management was first awarded to the Company in 2004. In 2009, First Gen underwent the rigorous recertification audit conducted on its standards by AJA Registrars (Phils.), Inc., the local affiliate of UK-based independent certification body AJA Registrars Limited. The recertification audit checked First Gens conformance with norms set under ISO 9001:2008 (Quality Management System). AJA Philippines completed the recertification audit without finding any nonconformance issues in the ISO processes of First Gen, thereby reaffirming First Gen's adherence to the highest standards set by the ISO.

Assets First Gen is the leading clean and renewable energy company in the Philippines with an installed capacity of 2,763 MW. This accounts for about 18 per cent of the country's total installed capacity. Our plants are spread across all three Philippine grids - Luzon, Visayas and Mindanao. First Gen utilizes indigenous, clean and renewable energy to run its power plants. Its Santa Rita and San Lorenzo plants use indigenous natural gas while water runs the Pantabangan-Masiway and Agusan mini-hydroelectric plants. EDC, meanwhile, is the

world's largest integrated geothermal energy company with 1,129.4 MW in combined capacity. At present, First Gen's power plants have long-term contracts with Meralco, electric cooperatives and/or Napocor, while the 1.6-MW Agusan mini-hydroelectric plants' offtaker is Cepalco. First Gen also has supply contracts with electric cooperatives and other distribution utilities.

Source: http://www.firstgen.com.ph

Environmental Stewardship/Corporate Social Responsibilities

As the leading Filipino clean and renewable energy company, First Gen recognizes the impact of its operations on society and on the environment; thus, it diligently pursues its role and responsibilities as a corporate citizen. We strive to ensure that our generation facilities are operated efficiently and in a manner that meets or exceeds Government health, safety and environmental standards. We are also committed to investing in opportunities that allow our host communities to grow with us.

First Gen has supported community development projects in partnership with local government units and other local stakeholders that address economic, socio-cultural, health, education and environmental concerns of the communities in which it operates. Infrastructure development such as roads, schools and water systems have also been and continue to be financed by the Company.

In addition, First Gen's plants have unfailingly and diligently allocated Php0.01 per kilowatt-hour of their total electricity sales as financial benefits to their host communities as mandated by the implementing rules and regulations of Republic Act No. 9136, otherwise known as the Electric Power Industry Reform Act of 2001 (EPIRA) and Energy Regulations No. 1-94 of the Department of Energy (DOE). Monies from the allocation are devoted to electrification, development and livelihood, or reforestation, watershed management, health and /or environment enhancement projects identified by the relevant local government units that directly benefit the concerned communities.

First Gen's corporate responsibility initiatives extend beyond its surrounding communities. First Gen has partnered with various non-profit institutions to develop and implement projects that have a significant impact on the fields of environmental conservation and education.

Environmentalism: Part of the Business Model

At First Gen, environmentalism is not just a buzz word or a part of its corporate social responsibility. Environmentalism is a vital and intrinsic part of its business model. From the fuels that it uses for its power generation to its conduct of businesses purchasing of materials to operations at its various sites and offices caring and nurturing the environment is an essential element in its decisions.

When First Gas started operating the countrys first natural gas-fired plants the 1000MW Sta. Rita and the 500-MW San Lorenzo plants in Batangas in 2000 and 2002, respectively it blazed the trail for the use of indigenous natural gas for power generation, signalling the start of the development of the countrys natural gas industry.

Conscious of the fact that natural gas is the cleanest form of fossil fuel, First Gas developed an environmental program that ensures the environment within its compound and adjacent to it is also protected and preserved, if not further enhanced. One of its major projects is the protection and preservation of the mangrove area inside its compound. Mangroves are not only important nursery habitats for fish and crustaceans, it is also a biological filter for estuarine waters and acts as a carbon sink that captures and stores carbon dioxide and other pollutants. From a mere patch of a mangrove in 2001, with only three recorded species, this mangrove area has now become home to at least 28 species, making it a habitat where fish fingerlings hatch and thrive to maturity; as well as a good hatching place for crabs that are released to the adjacent river, helping the marginal fishing community increase its harvest. This project was given an award by BG plc.- 2nd place BG Chairmans Award for protecting the environment in 2004.

With the continuous monitoring of the seawater and regular cleanup of its beach area behind the First Gas power plant, the beach has now become a rare nesting site for some

Olive Ridley turtles, proof of the healthy condition of the beach area. Hopefully, after years and years of wandering in the vast oceans, these turtles will come back to nest in the same area where they were hatched. The First Gas compound has also been home to several species of migratory birds such as the Chinese egrets and intermediate egrets during their annual flight.

Binhi: A Greening Legacy

It has always been the dream of the Lopez Group and First Gen Chairman Emeritus Oscar M. Lopez to help reforest the country, conscious and alarmed at the continued degradation of the countrys forests. As such, when First Gen purchased a controlling stake in PNOC Energy Development Corp. (now known as Energy Development Corporation or EDC) in November 2007, Mr. Lopez knew his dream of reforesting and saving those that can still be saved from denudation would finally be realized.

After all, EDC is a geothermal company. Geothermal energy steam and heat coming from the earth is dependent on having water underneath the rocks. And the only way to have this continuously is by having a healthy watershed. Trees suck in water whenever it rains. A healthy forest cover is vital to sustaining the underground reservoir that provides geothermal energy.

As such, First Gen through EDC launched in December 2008 a major reforestation project dubbed Binhi: A Greening Legacy. The modern Lopez Group has become one of the trailblazers of the corporate green movement, hence the rooting of environmentalism in Philippine business

philosophy among the various Lopez companies and business partners, Mr. Lopez said. Binhi targets to establish 1,000 hectares of forests annually over a period of ten years. What makes Binhidifferent from the usual tree planting is that EDC will use prime endangered

Philippine tree species like the tindalo, kalantas, mayapis, mangkano in its activities. Thus, Binhi is not only a broadscale reforestation, it is also a biodiversity restoration project. The Binhi project has four modules designed to meet mans specific needs. Thus, EDC came up with four modules: Tree for Food, Tree for Life, Tree for Leisure and Tree for the Future.

The Tree for Food module intends to accelerate the revegetation of denuded forestland and establish tree plantations and agro-forests that would provide a significant source of livelihood under sustained yield management for forest settlers living within EDC's geothermal reservations. A total of 5,000 hectares of plantation are targeted for this module over a ten-year period.

The Tree for Life involves bridging of forest gaps between mountain systems to address the fragmentation of habitats of these valuable ecosystems. By doing so, trees can continue to provide ecological services like water storage, carbon dioxide sequestration, oxygen release, etc.

The Tree for Leisure involves planting more trees to preserve the natural beauty and ambience of the forest areas in EDCs geothermal project sites to make it an ecotourism destination.Currently, its Bacon-Manito geothermal reservation area is already known as an eco-tourism destination in Sorsogon.

The fourth module is the Tree for the Future which is the core of the greening legacy.

EDC will plant seeds of these rare endangered tree species in areas where these trees can have the utmost protection such as in school grounds, municipal parks and historical shrines. This module ensures there will be mother trees as sources of seeds for future reforestation requirements. Other First Gen subsidiaries such as FPPC, FGRI and First Gen-managed FPIC have their own individual environmental and community projects that are in cooperation with the local communities such as mangrove protection and rehabilitation as well as tree planting. These projects allow these communities to enjoy the benefits of a healthier environment while at the same time achieve better crop yields and increased fishing harvests.

Development

and

Conservation

of

the

Verde

Island

Passage

First Gen, along with First Philippine Conservation, Inc. and Conservation International, also initiated a program in 2006 to protect the Verde Island Passage off the coastal waters of Batangas, Oriental Mindoro, Occidental Mindoro, Marinduque and Romblon. The program involves conservation work in partnership with local communities along the area. The Verde Island Passage hosts a fragile ecosystem that is so significant that a marine scientist, Dr. Kent Carpenter from the International Union for Conservation of Nature called it the Center of the Center in marine biodiversity. The conservation of Verde Island Passage has attracted the support of a number of organizations and corporations that are convinced with Verde Island Passages importance in the preservation of the worlds marine biodiversity.

Support for Quality Education

First Gen supports and provides financial assistance to Knowledge Channel Foundation, Inc. to enable the latter to install cable/satellite Knowledge Channel televisions in Philippine public schools. With First Gen's support, 30 schools in Batangas and 2 schools in Bauang, La Union were provided with technological infrastructure and supplemental content for education in areas with scarce resources. Donations were also made to different scholarship foundations to support their efforts in providing quality education to less-privileged but deserving candidates.

Power Industry

In 2001, the Government enacted Republic Act No. 9136, otherwise known as the Electric Power Industry Reform Act (EPIRA), which set out major reforms in the power industry. The EPIRA aims to deregulate and restructure the power industry with the goal of increasing competition and attracting more private sector investments. The heightened competition is envisioned to increase efficiencies in the industry that will eventually redound to the benefit of the end-consumers. To achieve this, EPIRA mandated the restructuring of the Philippine electric power industry into four sectors: Generation, Transmission, Distribution and Supply.

Pre-EPIRA Industry Structure

Post-EPIRA Industry Structure

Renewable Energy Law

The Renewable Energy Act of 2008 or Republic Act 9513 was signed into law on December 16, 2008 and became effective on January 30, 2009. This landmark law aims to accelerate the development and use of the country's vast renewable energy resources through fiscal and non-fiscal incentives for investors. Among these incentives are seven-year income tax holidays for RE developers, exemption from VAT and dutyfree importation of equipment and machinery, reduction of corporate income tax after the expiry of the income tax holiday to 10% of net income as well as a zero percent VAT rate for the sale of power from RE.

The law also seeks to institutionalize a Renewable Portfolio Standard requiring the country's electric utilities to obtain a certain portion of their electricity from clean, indigenous renewable energy sources. This mechanism is intended to promote the rapid development of these resources. Data from the DOE website reveal that, by 2013, the DOE forecasts RE-based capacity to reach 9,147 MW from the 2002 level of 4,449 MW. An additional capacity of 1,200 MW is expected from geothermal; 2,950 MW from hydro; 417 MW from wind; and 131 MW from solar, ocean and biomass.