•

SMC GLOBALPOWER

16 Aprll 2018

Philippine Dealing & Exchange Corp.

37•h Floor. Tower 1, The Enterprise Center
6766 Ayala Avenue comer Paseo de Roxas
Makali City

Attention: Ms. Erika Grace C. Alulod

Head - Issuer Compliance and Disclosure Department

Re: SMC Global Power Holdings Corp.

Gentlemen:

We are submitting herewith an electronic copy of the 2017 Annual Report (SEC Form 17-A} of
SMC Global Power Holdings Corp., as filed with Securities and Exchange Commission today,
16 April 2018.

Thank you.

Very truly yours,

SMC GLOBAL P WER HOLDINGS CORP.

By:

ELE TAD. GO
Corp rate Information Officer
 COVER SHEET
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S. E. C. RegistraUon Number

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Virgilio S. Jacinto (02) 632-3143
Contact Person Company Telephone Number

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Month Day
Fiscal Year
SEC Form 17-A
FORM TYPE
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Month Day
Annual Meeting

Secondary license Type, If Applicable

Dept. Requiring this Doc. Amended Articles Number/Section

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 SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A

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, 2017

2. SEC identification number CS2008-01099 3 BIR Tax Identification No 006-960-000-000

4. Exact name of issuer as specified in its charter SMC GLOBAL POWER HOLDINGS CORP.
5. Phlllpplnes 6. SEC Use Only)
Province, Country or other jurisdicllOn Industry Classification Code:
of incorporation or organization

7. No. 155 EDSA, Brgy. Wack-Wack

Mandaluyong City 1550
Address of issuer's principal office Postal Code

8. (632) 702-4500
Issuer's telephone number, including area code
... _
MtC(•~£0 ~... l.;E-C ! -o ltf'.o(" l.)F
fO"'M.- ..nco""1ei..1<;
9. NIA
Former name, former address and former fiscal year, if changed since last report

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

~15,000 million worth of Fixed Rate Bonds

~20,000 million worth of Fixed Rate Bonds

Number of Shares of Stock and

Debt Outstanding as of December 31, 2017

Common Shares 1,250,004,000

Consolidated Total Liabilities (In Thousands) ~290,407,483

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

Yes [ I No [.JI
If yes, state name of such Stock Exchange and the class/es of securities listed therein.
NIA

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 [.J) No [ I
(b) has been subject to such filing requirements for the past ninety (90) days.

Yes [-.'I No I I
13. The aggregate market value of the voting stock held by non-affiliates of the Company as of
December 31, 2017 NIA

DOCUMENTS INCORPORATED BY REFERENCE

14. The following documents are attached and Incorporated by reference.

None

PART 1- BUSINESS ANO GENERAL INFORMATION

Item 1. Business.

Company Overview

SMC Global Power Holdings Corp. ('SMC Global Power· or the "Company"), a
wholly-0wned subsidiary of San Miguel Corporation \SMC"), is the holding company for the power
businesses of SMC. SMC is a diversified conglomerate founded in 1890 that is listed in the Philippine
Stock Exchange. Inc. and has businesses in the food, beverage, packaging, fuel and oil,
Infrastructure, banking and property businesses.

SMC Global Power owns subsidiaries that are primarily engaged in the generation,
supply and sale of electric power in the Philippines. SMC Global Power, together with its subsidiaries
associates and joint ventures (collectively referred to as the "Group') is one of the largest power
companies in the Philippines, controlling 3,213 megawatts ("MW") of combined capacity as of
December 31, 2017 and which benefits from diversified fuel sources, including natural gas, coal and
hydroelectric. Based on the installed generating capacities under Energy Regulatory Commission
('ERC') Resolution No. 05, Series of 2017, the Group had a 15% market share of the power
supply of the National Grid, 21% mart<et share of the Luzon Grid and 5% market share of the
Mindanao Grid. in each case as of December 31, 20171• For reference. the Group Structure of the
SMC Global Power as of December 31, 2017 is attached hereto as Annex ·c-1 "

SMC entered the power industry in 2009 following the acquisition of rights to administer the
output produced by Independent Power Producers ("IPPs") in privatization auctions conducted by the
government through the Power Sector Asset and Liabilities Management Corporation ("PSALM').
Through its subsidiaries, SMC became the Independent Power Producer Administrator ("IPPA") of the
following plants: (1) San Miguel Energy Corporation ("SMEC') became the IPPA for the Sual Power
Plant, a coal-fired thermal power plant located in Sual, Pangasinan, in November 2009 (2) Strategic
Power Devt. Corp ("SPDC') became the IPPA for the San Roque Power Plant, a hydroelectric power
plant located in San Manuel, Pangasinan in January 2010; (3) South Premiere Power Corp. ("SPPC')
became the IPPA for the llijan Power Planl a natural gas-flred combined cycle power plant located in
llljan, Batangas in June 201O The Sual Power Plant, San Roque Power Plant and the llljan Power
Plant are collectively referred to herein as the 'IPPA Power Plants".

The IPPA under the IPP Administration Agreement (the 'IPPA Agreement") has the right to
sell electricity generated by the power plants owned and operated by the Independent Power
Producers ('IPPs') without having to bear any of the large upfront capital expenditures for power plant
construction or maintenance. As an IPPA, it also has the ability to manage both market and price
risks by entering into bilateral contracts with offtakers while capturing potential upside from the sale of
excess capacity through the Philippine Wholesale Electricity Spot Market ('WESM").

1Market share is computed by dividing !he total capacity of the Company (3.213,000 KW) with the installed
generating capacity of Luzon Grid, MindanaoGrid or National Grid (14,570,958 't\W, 3,021.117 KW, 20,669,924
KW. respectively) from ERC Resolution No. 3 Series of 2015.

2
 In order to consolidate its power generation business, SMC eventually transferred its equity
interest in SMEC, SPDC and SPPC to SMC Global Power. In September 2010, SMC Global Power
became a wholly-owned subsidiary of SMC. Since then, SMC Global Power controls the 2,545 MW
combined contracted capacity of the Sual Power Plant, San Roque Power Plant, and llijan Power
Plant through the IPP Administration Agreements executed by SMEC, SPDC and SPPC, respectively.

In August 2011. as part of the reorganization of the power-related assets of SMC, .SMC Global
Power acquired from SMC a 100% equity interest in San Miguel Electric Corp. ("SMELC"), which is a
grantee of a Retail Electricity Supplier ("RES") license issued by the ERC.

In April 2013, SMC Global Power, through SMC Power Generation Corp. ("SPGC") acquired
a 35% equity stake in Olongapo Electric Distribution Company, Inc. ("OEDC"). In October 2013, SMC
Global Power entered into a 25-year concession agreement with Albay Electric Cooperative, Inc.
("ALECO"), which became effective upon the confirmation of the National Electrification
Administration ("NEA") in November 2013. SMC Global Power organized and established a
wholly-owned subsidiary, Albay Power and Energy Corp. ("APEC'), which assumed, as the
concessionaire, all the rights and interests and performs the obligations of SMC Global Power under
the concession agreement with ALECO.

SMC Global Power also initiated two greenfield power projects in 2013, namely, the
construction of the 2 x 150 MW Davao coal-fired power plant (the 'Davao Greenfield Power Plant")
and the 4 x 150 MW limay coal-fired power plant (the ·umay Greenfield Power Plant"). Ground
breaking for the Davao Greenfield Power Plant took place in July 2013, while ground breaking for
Limay Greenfield Power Plant was held in October 2013. Davao Greenfield Power Plant is owned by
San Miguel Consolidated Power Corporation ("SMCPC"), while the Limay Greenfield Power Plant is
owned by SMC Consolidated Power Corporation ("SCPC'), both wholly-owned subsidiaries of SMC
Global.

SCPC is also a RES licensee which obtained its license from the ERC in August 2016. Units 1
and 2 of the limay Greenfield Power Plant commenced commercial operations on May 26, 2017 and
September 26, 2017, respectively, while Unit 1 of the Davao Greenfield Power Plant commenced
commercial operations on July 26, 2017.

In September 2013, SMC Global Power, through SMC Powergen Inc. ("SP!"). acquired 100%
of the 140 MW Co-Generation Solid Fuel-Fired Power Plant located at the Petron Bataan Refinery,
Barangay Alangan, limay Bataan ("lirnay Co-Gen Power Plant") from Petron Corporation ("Petron").
On December 23, 2016, the Limay Co-Gen Power Plant was sold back to Petron.

In November 2014, SMC Global Power, through its subsidiary PowerOne Ventures Energy
Inc. ('PVEI'), acquired a 60% stake in Angat Hydropower Corporation ("AHC"), the owner and
operator of the 218 MW Angal Hydroelectric Power Plant ("AHEPP').

On June 16, 2016, Meralco Powergen Corporation ("MGen'), a subsidiary of Manila Electric
Company ("Meralco"), and Zygnet Prime Holdings, Inc. ("Zygnet") subscribed to 2,500 and 102
common shares of Manveles Power Generation Corporation ('MPGC"), then a wholly-owned
subsidiary of SMC Global Power, respectively. As a result, SMC Global Power's ownership was
reduced to 49% of the oU1standing capital stock of MPGC while MGen and Zygnet each owns 49%
and 2% equity interest in MPGC, respectively. MPGC shall develop, construct, finance, own, operate
and maintain a 4 x 150 MW circulating fluidized bed coal-fired power plant and associated facilities in
Mariveles, Bataan.

As of December 31, 2017, the total capacity of the Group is 3,213 MW.

SMC Global Power, through SMEC, SPDC, SPPC, AHC, SPI, SMCPC and SCPC, sells power
through offtake agreements directly to customers, including Meralco and other distribution utilities,
electric cooperatives and industrial customers, or through the WESM. The majority of the consolidated
sales of SMC Global Power are through long-term take-or-pay offtake contracts which have
provisions for passing on fuel costs and certain other flXed costs.

3
 During the years ended December 31, 2015, 2016 and 2017, respectively, SMC Global
Power, through its subsidiaries, sold 14,714 GWh, 15,758 GWh, and 15,707 GWh of power pursuant
to offtake agreements and 1,844 GWh, 1,588 GWh and 1,520 GWh of power through the WESM,
respectively. During the years ended December 31, 2015, 2016 and 2017, SMC Global Power,
through its subsidiaries, purchased 690 GWh, 767 GWh and 684 GWh of power from the WESM,
respectively.

For the year ended December 31, 2017, the toiat consolidated revenue, net income and
EBITDA of SMC Global Power were P82,791 million, PB,217 million and P7,654 million, respectively,
while as of December 31, 2017 SMC Global Power had total consolidated assets of ,.350, 173 million.

On February 26, 2018, the Unit 2 of SMCPC started commercial operations while the Unit 3 of
SCPC commenced commercial operations on March 26, 2018.

On March 20, 2018, SMC Global Power acquired 51% and 49% equity interests in Masin-AES
Pte. Ltd. from AES Phil Investment Pte. Ltd. ("AES Phil") and Gen Plus B.V., respectively. Masin-AES
Pte. Ltd. indirecUy owns. through its subsidiaries (including Masinloc Power Partners Co. Ltd.
('MPPCL "ll. the 2 x 315 MW coal-fired power plant (Units 1 and 2), the under-construction project
expansion of the 335 MW unit known as Unit 3, and the 10 MW battery energy storage project, all
located in Maslnloc, Zambales, Philippines (collectively, the "MPPCL Assets'} and the 2 x 20 MW
battery energy storage facility in Kabankalan, Negros Occidental, which is still at the pre-development
stage.

As part of the sale, SMC Global Power also acquired AES Transpower Private Ltd., ("ATPL")
and AES Philippines Inc. ("APf1. ATPL is a subsidiary of The AES Corporation and has a Philippine
Reqional Office and Headquarters which provides for the corporate support services to MPPCL. AES
Philippines Inc. is a wholly"wned subsidiary of AES Phn and provides energy marketing services to
MPPCL.

The MPPCL Assets add 640 MW capacity to the existing portfolio of SMC Global Power.
Hence, the Group reached a 19% market share of power supply of the National Grid, 25% market
share of the Luzon Grid and 9% market share in the Mindanao Grid as of March 26, 201s2. arising
from the acquisition of the MPPCL Assets and the start of commercial operations of Unit 2 of Davao
Greenfield Power Plant and Unit 3 of Umay Greenfield Power Plant.

Business of Issuer

Principal Products and Services

SMC Global Power manages the capacity of a balanced portfolio of some of the newest and
largest power plants in the Philippines, which benefit from diversified fuel sources.

As of December 31, 2017, the exrshng power portfolio of SMC Global Power consists of (i) the
IPPAs, covering· (a) the coal-fired Sual Power Plant (through SMEC), which represents 31% of the
total capacity, (b) the hydroelectric-powered San Roque Power Plant (through SPDC). which
represents 11 % of the total capacity, (c) the natural gas-fired llijan Power Plant (through SPPC), which
represents 37% of the total capacity. (ii) the AHEPP (through AHC). which represents 7% of the total
capacity of SMC Global Power, (iii) the Davao Greenfield Power Plant (through SMCPC) which
represents 5% of the total capacity, and (iv) the Umay Greenfield Power Plant (through SCPC) which
represents 9% of the total capacity.

Power generated by the Sual Power Plant. llijan Power Plant, Davao Greenfield Power Plant,
and Llmay Greenfield Power Plant are primarily used as baseload supply, and sold to customers
pursuant to offtake agreements. Power generated by the San Roque Power Plant and the AHEPP
are used as peaking supply, and sold through the WESM or as replacement power to affiliates.

2 Market share is computed by dividing the total capacity of the Company (4, 153,000 KW) with the installed
generating capacity of Luzon Grid, MindanaoGrid or National Grid (15, 175,967 t<:VV, 3,496,262 t<:VV, 21,867.117
t<:VV, respectively)from ERC Resolution No. 4 Series of 2018.

4
 Under the IPPA Agreements, SMEC, SPDC and SPPC (collectively, the ·1PPA Subsidiaries"),
have the right to sell the electricity generated by such IPP in the WESM and also by entering into
power supply contracts with specific customers tor a minimal capital ouUay without the expense of
building a new power plant. Each of the IPPA subsidiaries only has to pay PSALM a fixed monthly
payment and a variable energy or generation fee the amount of which depends on the dispatch and
performance of the IPP. While maintenance costs or capital upgrades remain with the IPPs, the IPPA
subsidiaries are responsible for the sourcing and procurement of fuel and the dispatch, trading, and
contracting of the output of the IPPA Power Plants. This business model provides SMC Global Power
the ability to manage both market and price risk by entering directly into bilateral contracts with
established customers while capturing potenual upside through the sale of excess capacity through
the WESM when spot market prices are attractive.

The IPPA Power Plants have an average age of 15 years. In terms of installed capacity In the
Philippines, the Sual Power Plant Is the largest coal-fired power plant. while the San Roque Power
Plant is one of the largest and newest hydroelectric power ptant, and the llijan Power Plant is the
largest natural gas-fired power plant IPPA Power Plants contribute 2,545 MW to the total capacity of
SMC Global Power.

Currently, the entire capacity of the llijan Power Plant and Unit 1 of the Sual Power Plant are
contracted under long-term offtake agreements with Meralco and its affiliates, while the capacity of
Unit 2 of the Sual Power Plant is contracted to various distribution utilities, electric cooperatives. and
Industrial customers under existing offtake agreements. These agreements typically include
take-or-pay provisions whereby a customer is required to pay for a minimum contracted amount of
power, regardless of whether or not the customer takes delivery of the entire amount, with the result
that revenue from these offtake agreements is relatively stable during the duration of the agreements.
If the generation output available to the subsidiaries of SMC Global Power from these plants exceeds
the amount deliverable under their offtake agreements, the IPPA Subsidiaries offer the excess power
for sale through the WESM at the market clearing price. In the years ended December 31, 2015, 2016
and 2017, approximately 92%, 95% and 95%. respectively, of total consolidated sales revenue from
SMC Global Power were sold to customers pursuant to offtake agreements. For the year ended
December 31, 2017, sales volumes through bilateral arrangements compared to sales through the
WESM for the Sual Power Plant, San Roque Power Plant, and llijan Power Plant were g4% to 6%.
81% to 19%, and 92% to 8%, respectively.

These offtake agreements provide SMC Global Power with stable and predictable cash flow, by
enabling it to manage both market and price riSks. Despite the general volatility in market prices for
electric power due to supply and demand imbalances, SMC Global Power has been able to manage
such risks through the contracted sale prices With offtakers which also provide a long-term stable source
of demand. The tariffs under these agreements take into account adjustments for fuel, foreign
exchange. and inflation, thereby allowing SMC Global Power to pass through these costs to its
offtakers. In additlon, SMC Global Power's diversified portfolio of baseload and peaking power plants
helps mitigate market risks through long-term, inter-company. replacement power contracts.

The power generation capacity of the San Roque Power Plant and the AHEPP at any given
time depends on the water levels in the reservoir and downstream Irrigation requirements. As such,
these plants sell majority of their generated capacity to the WESM at the prevailing spot prices. The
San Roque Power Plant and the main units of the AHEPP are being operated as peaking units.
Available water is used to generate power during peak hours when prices are higher.

The auxiliary unijs of AHEPP are being operated as baseload units, as the water requirement
from Metropolitan Waterworks and Sewerage System ("Mwss·) is continuous throughout the day,
thus eliminating any discretion to choose the hour of allocation. AHC is exploring options to contract
the capacity of its auxiliary units.

Units 1 and 2 of the newly acquired coal-fired power plant located in Masinloc, Zarnoales
("Masinloc Power Plant} are contracted under long-term offtake contracts with Meralco and other
distribution utilities. At least 166 MW of the 335 MW capacity of Unit 3 of the Masinloc Power Plant is
likewise contracted to distribution utilities and industrial customers.

5
 SMC Global Power believes that its management of the capacities of these power plants
with diverse portfolio allows it to respond efficiently to mar1<et requirements at each point of the
electricity demand cycle. This diVersity helps it to improve the profitability of its portfolio by flexibly
dispatching electricity in response to mar1<et demand and fuel cost competitiveness. This also allows
SMC Global Power to strategically enter into bilateral contracts and trade in the WESM any excess
capacity generated by these power plants. By managing the IPPA Power Plants as a single
portfolio on one hand, and actively managing the energy output of the other power plants, on the
other hand, SMC Global Power seeks to offer more competitive electricity rates compared to other
power companies with smaller and less diverse portfolios.

Power Generation Business

A. Sual Power Plant

I. Background

The Sual Power Plant is a 2 x 647 MW coal-fired thermal power plant located in Sual,
Pangasinan on the Llngayen Gulf that commenced commercial operations In October 1999. It
is the largest coal-fired thermal power plant in the Philippines in terms of installed capacity.
The Sual Power Plant was built by CEPA Pangasinan Electric Limited pursuant to an Energy
Conversion Agreement \ECA") with National Power Corporation (•NPC") under a 25-year
Build-Operate-Transfer \BOr) scheme that expires on October 24, 2024.

On September 1, 2009, SMEC, was declared the winning bidder and received the
notice of award for the IPPA for the Sual Power Plant. On November 6, 2009, SMEC assumed
the administration of the Sual Power Plant in accordance with the provisions of the IPPA
Agreement with PSALM (the ·sual IPPA Agreement').

ii. Sual IPPA

Power PlaJJI Capacity and Fuel SUpply

SMC Global Power, through its wholly-owned subsidiary, SMEC, has the contractual
right to manage, control, trade, sell or otherwise deal in up to 1,000 MW of the generation
capacity of the Sual Power Plant pursuant to the Sual IPPA Agreement.

Under the Sual IPPA Agreement, SMEC has the option to acquire the Sual Power
Plant in October 2024 without additional consideration. SMEC may exercise the option to
acquire the Sual Power Plant prior to October 2024 under certain circumstances, such
as changes in law or non-performance by TeaM Sual Corporation of its obligations under
the ECA. In this case. the transfer price will be the net present value of the sum of the
agreed monthly payments remaining unpaid at the date of termination of the Sual IPPA
Agreement.

Ill. Power Offtal<ers

Unit 1 of the Sual Power Plant is fully contracted to Meralco under a long-term otttake
agreement expiring in 2019, subject to extension up to 2024, while the capacity of Unit 2 of
the Sual Power Plant is contracted to various distribution utilities, electric cooperatives and
industrial customers under existing power supply contracts.

In the years ended December 31, 2015, 2016 and 2017, 93%, 93% and 94%
respectively, of the volume of power sold from the Sual Power Plant were derived from sales
made under offtake agreements. In the years ended December 31, 2015, 2016 and 2017, 7%,
7% and 6% of the volume of power sold from the Sual Power Plant, respectively, were derived
from sales made through the WESM.

6
 iv. Operations Review

The table below is a summary of operating statistics of the Sual Power Plant for the
periods Indicated.

Year ended December 31.

2015 2016 2017
Actual Energy Generated (GWh) •........••..... 6,066 6,341 5,333
Electricity sold (GWh): . . . . . . . . . . . . . . . ...•..... 7,617 8,015 8,388
of which: bilateral offtake agreements ........•. 7,048 7,480 7,850
of which· WESM sates ...•.....•............ 569 535 538
Average realized electricity pnces(i-lMWh):
for electricity sold under bilateral offtake
aoreements . . . . . . 4,439 4,401 4,940
for electricity sold on WESM .....•..•......... 3,609 2,401 2,213
Net Capacity Factor(%). . . . . . . . . . . . . . ....•... 69 72 61
Availability Factor(%) .......•.•.........•....• 82 84 71
Reliability Factor(%) . 99 97 74
Average Net Dependable Capacity (MW) .........• 915 955 830
Net Heat Rate (Kilo-Calorie/Kilowatt hour or
"KcalfKWh") (Lower heating value or "LHV') ....• 2.427 2,419 2,448

v. Fuel Supply

The table below sets forth certain information regarding the supply of coal to the
Sual Power Plant as of the periods indicated.

Year ended December 31.

2015 2016 2017
Metric tons (thousands) . 2.381.8 2,459.0 2,086.1
Average calorific value (kcaVkg) ....•••..•.•.... 6, 131.0 6,233.2 6,200.9
(in millions P) . . . . . . . . . . . . ..........••..... 7,811.7 7,799.3 10,562.3
Average price per metnc ton (i-) ..•...........•. 3,279.7 3,171.7 5.063.1

For the period 2017 to 2021, PT Kaltim Prima Coal ("KPC") will be supplying coal to
SMEC SMEC also has other coal supply contracts with other suppliers.

vi. Power Transmission

Power from the Suat Power Plant is transmitted through a 25-kilometer 230 kV
transmission line from the Sual Power Plant switchyard to the Kadampat Substation localed at
Labrador, Pangasinan, The transmission line is owned by National Transmission Corporation
("TransCo") and operated and maintained by its concessionaire, the National Grid of the
Philippines ("NGCP"),

B. San Roque Power Plant

i. Background

The 345 MW San Roque Power Plant in San Manuel, Pangasinan commenced
operations on May 1, 2003. This multi-purpose hydroelectric power plant is a peaking plant
constructed by a consortium composed of Marubeni Corporation, Sithe Philippines Holdings,
Ltd., and Italian-Thai Development Public Company Limited pursuant to a Power Purchase
Agreement ("PPA") with NPC under a BOT scheme (the "San Roque PPA").

7
 The San Roque Power Plant utilizes the Agno River for peaking power, irrigation,
flood control and water quality improvement tor the surrounding region, and comprises three
power generation units of 115 MW each. The San Roque Power Plant provides an annual
energy generation of 1,065 GWh from the 345 MW hydroelectric power plant, the irrigation
of approximately 34,450 hectares of agricultural land. storage of water that would otherwise
flood the Pangasinan plains, and improvement of water quality of the Agno River which,
otherwise, would pollute the downstream rivers.

On December 15, 2009, SPDC. successfully bid for the appointment to be the IPPA
for the San Roque Power Plant and received a notice of award on December 28, 2009.
SPDC assumed administration of the San Roque Power Plant on January 26, 2010 in
accordance with an IPPA Agreement with PSALM (the 'San Roque IPPA Agreement").
PSALM remains responsible under the San Roque PPA to remunerate the IPP of the San
Roque Power Plant for the electricity it produces.

ii. San Roque IPPA

Power Plant Capacity

Under the San Roque IPPA Agreemen~ SPOC has the right to manage, control,
trade, sell or otherwise deal in the electrical generation capacity of the San Roque Power
Plant, while NPC, which owns and operates the dam and related facilities thereof, obtained
and maintains water rights necessary for the testing and operation of the power plant. SPDC
is required to assist PSALM so that the San Roque Power Plant can draw water from the
Agno River required by the power plant and necessary for it to generate the electricity
required to be produced under the San Roque PPA of NPC with San Roque Power
Corporation ("SRPC.).

Under the San Roque IPPA Agreemen~ SPDC has the right to acquire the San Roque
Power Plant in May 2028, which is the end of the cooperation period between NPC and
SRPC, or on some earlier date due to certain events such as changes in law or non•
performance by SRPC pursuant to the San Roque PPA.

The San Roque Power Plant is a peaking planL Under the terms of the San Roque
PPA, power and energy are delivered to SPOC at the delivery point (the high voltage side of
the step-up transformers) located at the perimeter fence of the San Roque Power Plant site.
SPDC is responsible for contracting with the NGCP to wheel power from the delivery point.

Ill. Operations Review

The table below is a summary of operating statistics of the San Roque Power Plant
during the periods indicated.

Year ended December 31.

2015 2016 2017
Actual Energy Generated (GWh) ................ 1,066 798 692
Electricity sold (GWh): ......................... 1,589 1,435 1,026
of Which. bilateral offtake agreements ......•.... 863 971 827
of which: WESM sales . ..................... 726 464 199
Average realized electricity prices(f>/MWh):
for electricity sold under bilateral offtakeagreement . 5,096 5,464 5,844
for electricity sold on WESM .................. 3,965 3,251 4,395
Net Capacity Factor(%) .............•......... 35 26 23
Availability Factor(%) .......................•. 98 99 97
Reliability Factor(%) ..............•........... 100 100 100
Average Net Dependable Capacity (MW) .......... 415 433 374

8
 iv. Water Rights
The generated output energy of the San Roque Power Plant is limited by the
"Irrigation Diversion Requirements• set by the National Irrigation Administration ("NIA"). Water
allocation is usually dictated by a rule curve that is derived from historical data of river flows
and water demands. A rule curve shows the minimum water level requirement In the
reservoir at a specific time to meet the particular needs for which the reservoir Is
designed. The rule curve must generally be followed except during periods of extreme
drought and when public interest requires.

Generally, the output energy of San Roque Power Plant is high during planting
seasons which covers the months of December through April (dry planting season) and July
through September (wet planting season). The water releases from the dam, and thus, energy
generation. during the dry planting season is much higher due to the absence of rain. The
water rights of NPC are used by the San Roque Power Plant, and NPC, until the date of
transfer of the San Roque Power Plant to NPC (or SPDC, as the case may be), must obtain
such renewals or extensions as may be required to maintain the water rights In full force
and effect at all times. NPC derives its water rights from a permit granted by the National
Water Resources Board ("NWRB").

v. Power Transmission

Power from the San Roque Power Plant is transmitted through a nine-kilometer 230
kV transmission line from the San Roque Power Plant switchyard to the San Manuel
substation located in Pangasinan. The transmission line is owned by TransCo, and operated
and maintained by NGCP.

C. llijan Power Plant

I. Background

The llijan Power Plant commenced commercial operations on June 5, 2002, and is
located on a so-acre site at Arenas Point. Barangay llijan, Batangas City. The llijan Power
Plant was constructed and is owned by KEPCO llijan Corporation ('KEILCO") pursuant to a
20-year ECA with NPC ('llijan ECA') under a BOT scheme that expires on June 4, 2022.
NPC/PSALM supplies natural gas to the llijan Power Plant from the Malampaya gas field In
Palawan under a gas supply agreement with Shell Exploration Philippines BV. The llijan
Power Plant consists of two blocks with a rated capacity of 600 MW each.

The lliian Power Plant can also run on diesel oil stored on site. On April 16, 2010,
SMC successfully bid for the appointment to be the IPP Administrator for the llijan Power
Plant and received a notice of award on May 5. 2010. On June 10, 2010, SMC and SPPC,
entered into an assignment agreement with assumption of obligations whereby SMC assigned
all of Its rights and obligations with respect to the llijan Power Plant to SPPC. SPPC assumed
administration of the lli13n Power Plant on June 26, 2010 in accordance with an IPPA
Agreement with PSALM (the 'llijan IPPA Agreemenr).

II. 11/jan IPPA

Power Plant Capacity and Fuel Supply

SMC Global Power, through its wholly-owned subsidiary, SPPC, has the contractual
right to manage, control, trade, sell or otherwise deal in the generation capacity of the llijan
Power Plant pursuant to the llijan IPPA Agreement Although the installed capacity of the llijan
Power Plant totals 1,271 MW, ERC records attribute to SPPC a capacity of 1,200 MW for
the llijan Power Plant

9
 Under the llijan ECA. NPCIPSALM is required to deliver and supply to KEILCO the
fuel necessary to operate the llijan Power Plant If natural gas is unavailable, SMC Global
Power, through SPPC, may require KEILCO to run the llijan Power Plant using diesel fuel.
NPCIPSALM remains responsible for securing the natural gas and diesel fuel supply to the
llijan Power Plant

Under the lhjan IPPA Agreement. SPPC has the option to acquire the llijan Power
Plant in June 2022 without any addrtional consideration to be paid by SPPC. SPPC may
exercise the option to acquire the llijan Power Plant prior to June 2022 under certain
circumstances, such as changes in law or non-performance by KEILCO of its obligations
pursuant to the llijan ECA. In this case, the transfer price will be the net present value of the
sum of the agreed monthly payments remaining unpaid at the date of termination of the llijan
IPPA Agreement

Ill. Power Offtakers

The entire capacity of the llijan Power Plant Is contracted to Meralco under a long•
term power supply agreement up to 2019, which can be extended up to the end of the IPPA
Agreement

In the years ended December 31, 2015, 2016 and 2017, 93%, 93% and 92%
respectively, of the volume of power sold from the llijan Power Plant were derived from sales
made under offtake agreements. In the years ended December 31, 2015, 2016 and 2017, 7%,
7%, and 8% of the volume of power sold from the llijan Power Plant, respectively, were
derived from sales made through the WESM.

iv. OperationsReview
The table below is a summary of operating statistics of the llijan Power Plant for the
periods indicated

Year ended Oeeember 31,

2015 2016 2017
Actual Energy Generated (GWh) ..........•.... 7,434 8,363 8, 143
Electricity sold (GWh)· . 7,832 8,630 8,308
of which: bilateral offtake agreements ........• 7,284 8,041 7,606
of which: WESM sales .. 549 589 702
Average realized electricity pnces(,.IMWh):
for electricity sold under bilateral offtake 4,145 3,657 4,154
for electricity sold on WESM . . • . . •....... 2,339 2,301 3,070
Net Capacity Factor(%).... . . 71 79 77
Availability Factor(%)... . .. . . . . . . . 85 95 94
Reliability Factor(%) .. .. .. .. . .. .. . 97 99 99
Average Net Dependable Capacity (MW) . 1,025 1,140 1, 122
Net Heat Rate (Kilo-Joule/KWh) . . . . 6,463 6,897 6,870

v. Fuel Supply

NPC is responsible for securing the natural gas and diesel fuel supply to the llijan
Power Plant. Pursuant to a fuel supply and management agreement among Shell Philippines
Exploration B.V., Occidental Philippines, Inc. and NPC, NPC supplies natural gas to the llijan
Power Plant through a 480 km undersea pipeline from the Camago-Malampaya field in
Palawan to the Shell Refinery in Tabangao. From there, the natural gas is transported through
a 16-inch-<!iameter onshore pipeline running 15 km to the power plant.

10
 I. Power Transmission

Power from the llijan Power Plant is transmitted through a 500 kV transmission line
that connects to the Luzon gnd through the llijan-Dasmarinas line and llijan-Tayabas line. The
transmission line is owned by Transco, and operated and maintained by NGCP.

D. Llmay Co-Generation Power Plant

I. Background

The Limay Co-Gen Power Ptant is a 4 x 35 MW fuel-fired co-generation power plant

located in Barangay Lamao, Limay, Bataan. Phase 1 (70 MW) of the Limay Co-Gen Power
Plant commenced commercial operations on May 6, 2013, white Phase 2 (70 MW)
commenced commercial operations on May 19, 2014. The engineering, procurement, and
construction contractors of the Limay Co-Gen Power Plant are Formosa Heavy Industries and
True North Manufacturing Services Corporation.

SMC Global Power, through its subsidiary SPI, acquired the Limay Co-Gen Power
Plant from Petron in September 2013. SP! acts as the IPP of the Limay Co-Gen Power Plant
while Petron remains responsible for the operation and maintenance of the plant. In
December 2016, the Limay Co-Gen Power Plant was sold back to Petron.

ii. Power Offtakers

The Limay Co-Gen Power Plant has a net power contracted capacity of 140 MW
and a steam generation capacity of 76 MW fully contracted to Petron Corporation under a
25-year Power Supply Agreement ("PSA"). The output of the Limay Co-Gen Power Plant will
supply the electricity and steam requirements of the Limay refinery of Petron Corporation
including the increase in demand from the new Refinery Master Plan 2 ("RMP-2').

iii. Operations Review

The table below is a summary of operating statistics of the Limay Co-Gen Power
Plant for the periods 2015 and 2016, pnor to its sale to Petron.

Year ended December

2015 2016
Actual Energy Generated (GWh) •........•........•. 527 551
Electricity sold (GWh): . . . . . . . . . ............•... 527 551
of which. bilateral offtake agreements •.........•... 527 551
of which: WESM sales . . . . . . . . . . • . . . .
Average realized electncity prioes(l"/MWh):
for electricity sold under bilateral offtake agreement .... 13,772 15,644
for electricity sold on WESM ................•......
Net Capacity Factor(%). . • . . . • . . • . . ....•....... 43 45

iv. Fuel Supply

The Limay Co-Gen Power Plant was designed to operate on coal and/or petcoke.
Petron Corporation is expected to supply petcoke, a byproduct of the RMP-2 operations.
Currently, the Limay Co-Gen Power Plant is using a mix of coal and petcoke from RMP-2.

11
E. Angat Hydroelectric Power Plant ("AHEPP")

I. Background
AHEPP is an operabng hydroelectric power plant located at the Angat reservoir in San
Lorenzo, Norzagaray. Bulacan, approximately 58 km northeast of Metro Manila. AHEPP was
privatized through an asset purchase agreement between PSALM and Korea Water
Resources Corporation ("K-Water"). K-Water assigned Its rights in favor of AHC, a joint
venture between K-Water and PVEI.

The project has a total electricity generating capacity of 218 MW, comprising four
Main Unrts, and three Auxiliary Units. The Main Units 1 and 2 were commissioned in 1967
and the Main Units 3 and 4 in 1968. The Auxiliary Units 1 and 2 were commissioned in
1967 and the Auxiliary Unit 3 in 1978. The Auxiliary Unit 3 was manufactured by Allis•
Chalmer and Ebara and all the other units were manufactured by Toshiba Corporation of
Japan. All units are run by the Francis-type turbines, which is the most commonly used model
in hydroelectric power generation.

ii. Fuel Supply and WaterRights

The AHEPP utilizes water resources of the Angat reservoir. The Angat reservoir is 35
km long and 3 km wide at its widest points, and has surface of 2,300 hectares and viable
storage volume of 850 million cubic meters. The water discharged by the project is used for
the following two purposes:

water resources from water discharged through Auxiliary Units and through the spillway
flows to the lpo reservoir are used to supply 97.0% of the residential drinking water of
Metro Manila; and

water resources from water discharged through Main Units flows downstream to the
Bustos reservoir are utilized for irrigation purposes.

Water rights surrounding the project are co-owned and governed by the following
government-owned entities, pursuant to the Water Code of the Philippines, Angat Reservoir
Operation Rules issued and regulated by National Water Resources Board ("NWRB") as
implemented by a Memorandum of Agreement on the Angat Water Protocol between MWSS,
National Irrigation Administration ("NIA"), AHC, PSALM, NPC and NWRB:

MWSS, for domestic water supply to Metro Manila;

Provincial government of Bulacan, for water supply in the Bulacan Province;

NIA, for irrigation diversion requirements; and

NPC, for power generabon.

iii. Power Offtakers

AHC sells majority of its generated capacity to the WESM at the prevalent spot price.
The Main Units are being operated as peaking units. The strategy for the Main Units is to
allocate dally water releases during peak hours. Auxiliary Units are being operated as base
load units, as the water requirement from MWSS is continuous throughout the day, thus
eliminating any discrete optionality to choose the hour of allocation.

AHC is currently exploring options to contract the capacity of its Auxiliary Units.

12
F. Llmay Greenfield Power Plant

I. Background

The Limay Greenfield Power Plant owned by SMC Global Power through Its
subsidiary, SCPC, is a 4 x 150 MW coal-fired thermal power plant located in Limay, Bataan,
that commenced constructions in October 2013. Units 1, 2 and 3 of the Limay Greenfield
Power Plant achieved commercial operations In May 2017, September 2017 and March 2018,
respectively, while Unit 4 Is expected to go on-line In 2019. The engineering, procurement,
and construction contractors of the Limay Greenfield Power Plant are Formosa Heavy
Industries and True North Manufacturing Services Corporation

In June 2017, SCPC acquired Units 3 and 4 of the Limay Greenfield Power Plant from
Limay Premiere Power Corp., a wholly-owned subsidiary of SMC Global Power. Mantech
Power Dynamics Services Inc., also a wholly-owned subsidiary of SMC Global Power, is
responsible for the operation and maintenance of the plant.

II. Power Offtakers

Units 1 and 2 of the Limay Greenfield Power Plant are fully contracted to various
distribution utilities, electric cooperatives and industrial customers under long-term offtake
agreements with an average term of ten (10) years, subject to extension upon agreement of
the parties. Units 3 and 4 of the Limay Greenfield Power Plant are also contracted with
distribution utilities and industrial customers. SCPC was granted a RES license on
August 24, 2016, thus, expanding its customer base to industrial customers.

Iii. Fuel Supply

SCPC entered into long-term coal supply contracts with PT Bara Tabang and KPC
which shaal both expire in 2022. Pricing under the coal supply agreement will be subject to
adjustment based on certain standards applicable to the quality or grade of the coal delivered
by the supplier. SCPC also has executed spot coal supply contracts with other suppliers.

G. Davao Greenfield Power Plant

i. Background

The Davao Greenfield Power Plant owned by SMC Global Power through its
subsidiary, SMCPC, is a 2 x 150 MW coal-fired thermal power plant located in Malita, Davao
Occidental, that commenced constructions in September 2013. Unit 1 of the Davao
Greenfield Power Plant achieved commercial operations in July 2017 while Unit 2
commenced its commercial operations in February 2018. The engineering, procurement, and
construction contractors of the Davao Greenfield Power Plant are Formosa Heavy Industries
and True North Manufacturing Services Corporation.

Safetech Power Services Corp., a wholly-owned subsidiary of SMC Global Power, Is

responsible for the operation and maintenance of the plant.

II. Power Offtakers

Units 1 and 2 of the Davao Greenfield Power Plant have long-term offtake contracts
with various distribution utifities. electric cooperatives and industrial customers with an
average term of ten (10) years, subject to extension upon agreement of the parties.

13
 Ill. Fuel Supply

SMCPC has existing spot coal supply contracts with KPC and other coal suppliers.
Currently, SMCPC is evaluating opportunities to lock-in long-term coal supply contracts with
various suppliers.

Distribution and Retail Services

Albay Power and Energy Corp. ("APEC")

On October 29, 2013, after the open and competitive bidding, SMC Global Power entered into
a concession agreement for the operation and maintenance of ALECO. the franchise holder for the
distribution of electricity in the province of Albay, Luzon. There is no transfer of the franchise to
operate the distribution system or the ownership of the distribution assets. At the end of the
concession period, the distribution system will be turned over back to ALECO. Pursuant to the
concession agreemen~ SMC Global Power established APEC as its wholly-owned subsidiary, and in
January 2014, SMC Global Power assigned all of Its rights and obligations under the concession
agreement to APEC. On February 26, 2014, APEC assumed the role of SMC Global Power under the
concession agreement.

Retail Clectric Supply

SMC Global Power is pursuing downstream vertical integration by capitalizing on changes in

the Philippine regulatory structure to expand its sales of power to a broader range of customers,
including retail customers. The two RES licenses issued to SMC Global Power, through SMELC and
SCPC, allow it to enter into retail supply contracts with contestable customers and expand its
customer base. As of December 31, 2017, SMELC and SCPC supply an equivalent of 384 MW to
various facilities of SMC and other contestable customers.

Coal Investments

Pursuant to its strategy of integrating viable complemenlary business to its power generation
business, SMC Global Power, through SMEC and its subsidiaries, Bonanza Energy Resources. Inc.
("Bonanza Energy"), Daguma Agro Minerals, Inc. \Daguma Agro") and Sultan Energy Phils. Corp.
("Sultan Energy"), has acquired coal exploration, production and development rights over
approximalely 17 000 hectares of land in Mindanao, which depending on prevailing coal prices and the
related logistical costs, may provide a significant additional source of coal fuel for its planned and
existing greenfield power projects. Such assets remain in the preparatory stage of its mining activities
as of December 31, 2017.

14
 The table below sets forth certain information regarding these assets.
Coal Operating
Subsidiary Description of Asset Mining Site
Contract ("COC")

Bonanza Energy coc with the Lake 5ebu COC for exploration
Department of Energy South awarded in May
("DOE.) covering eight Cotabato and 2005, converted to
coal blocks with a total Maitum, COC for development
area of approximately Sarangganl and production in
8,000 hectares Province December 2009

OagumaAgro COC with the DOE Lake sebu, COC for exploration
covering two coal South awarded in
blocks with a total area Cotabato November 2002;
of approximately 2,000 converted to COC for
hectares. development and
production in March
2008

Sultan Energy COC with the DOE Lake Sebu, COC for exploration
covering seven coal South awarded in February
blocks with a total area Cotabato and 2005; converted to
of 7 ,000 hectares Bagumbayan, COC for development
Sultan Kudarat and production in
February 2009

The DOE approved the conversion of the COC for Exploration to COC for Development
and Production of Daguma Agro, Sultan Energy and Bonanza Energy, respectively, effective on the
followingdates:

Subsidia!}'. COC No. Effective Date Tecmt1>

OagumaAgro 126 November 19, 2006 20 years
Sultan Energy 134 February 23, 2009 10 years
Bonanza Energy 138 May 26, 2009 10 years

!1> The term Is renewable as may be agreed with and approved by the DOE.

Now Products

Expansion Plans

SMC Global Power identifies potential investments by analyzing the demand for power and
power-related services. Factors such as Philippine Gross Domestic Product ("GDP") and population
growth, customer profile and mix, accessibility to the grids, and Industrial expansion are considered.
SMC Global Power also looks at commercial viability, potential costs (whether for development or
acquisition) and competitive costs, as well as land acquisition and environmental protection issues
and the impact of environmental protection requirements on overall profitability of the project, and the
availability of government incentives for a particular project

Over the period from 2015 to 2020, growth in demand for electricity in the Philippines is
expected to exceed the growth rate of the Philippine GDP, according to the DOE. Construction of new
power plants on average takes a minimum of three years. Given the gap between projected electricity
demand and committed power projects, SMC Global Power expects that there will be a power supply
shortage in the medium term until new capacity is built to meet the growing consumption.

15
 SMC Global Power believes rt is well-positioned to take advantage of opportunities from
continued growth in tile Philippine electricity market, There are also existing base of old government·
owned power plants, which are nearing tile end of their useful life, as well as a large base of seasonal
power supply such as tile hydropower plants particularly in Mindanao. To meet this need, SMC Global
Power has a defined roadmap to increase capacity by developing greenfield power projects and
bidding for selected NPC-owned power generation plants that are scheduled for privatization.

In addition. as a leading power company in tile Phihppines with a large customer base, SMC
Global Power believes that it is In a strong posi1l0n to leverage Its relationships with its existing
customers to service their expected Increased electricity demand.

Greenfield Power Projects

SMC Global Power 1s currently expanding its power portfolio nationwide through greenfteld
power projects over the next few years, depending on mar!(et demand. including the following two
coal-fired circulating fluidized bed ("CFB.} power projects which are under construction:

The following timeline sets forth key project milestones for the Davao Greenfield Power Plant:
January 2013 . . . . . . . . . . . . . . . . . . . . . . . Executed engineering, procurement and construction
contract ("EPC Contract") with Formosa Heavy
Industries, for tile construction of the Davao
Greenfield Power Plant

June 2013......................... Obtained Environmental Compliance Certificate

("Ecc·} and Pioneer Status from Board of
Investments ('BO!') (tax holiday)

July 2013......... ................. Obtained Interim Customs Accreditation and

Registration from Bureau of Customs (subject to
renewal)

August 2013. . . . . . . . • . . . . . . . . . . . . . . . Site Hand Over

September 2013. . . . . • . . . . . . . . . . • . . . Obtained Certificate of Authority to Import Capital

Equipment, Spare Parts and Accessories from 801

2014 to November 2016 . . . . . . . . . . . . . Construction and engineering of Units 1 and 2

Signing of Offtake Agreements

October 2016. . . . . . . . . . • . . . . • . • • . Granted the Provisional Authority to Operate by the

ERC for Unit 1

June 2017 . . . . • . . . . • . . . . . . . . . . . . . . Granted the Provisional Authority to Operate by the

ERC for Unit 2

July 2017. . . . . . . . . . • • . . . . • • .. . . . . . . Unit 1 Commercial Operations Date

February 2018. . . . . . . . . . . . . . • . . . . . . . Received the Certificate of Compliance from ERC

Unit 2 Commercial Operations Date

16
The following timeline sets forth key project milestones tor the Limay Greenfield Power Plant:

January 2013 . . . . . . . . . . . . . . . . . . . . . . . Executed EPC Contract with Formosa Heavy

Industries, for the construction of the Limay
Greenfield Power Plant

July 2013 . . . . . . . . • . • . • • • • • . . • . . . . . . Oblllined Interim Customs Accreditation and

Registration from Bureau of Customs (subject to
renewal)

September 2013 . . . . • . . . . . . . . . . • . . • . Obtained ECC and Pioneer Status from 801 (tax
holiday)

January 2014. . . . • . . . . . . . . . . . . . . . . . . Site Hand Over

Obtained Certificate of Authority to Import Capital

Equipment, Spare Parts and Accessories from 801

2014 to 2017 . . . . . •. . . . . . . .•. . .. . . . Construction and engineering of Units 1 and 2

Signing of Offtake Agreements

August 2016. . . . . . . . . . . . . . . • . . . . . . . . RES License was granted by the ERC

March 2017.. . . . . . . . . . . . . . . . . . . . . . • . Granted the ProvisionalAuthority to Operate by the

ERC for Unit 1

May 2017. . . . . . . . . . . . • . . . . . • . . . . . . . . Unit 1 CommercialOperations Date

June 2017... . .• ... • .• ............ . SCPC acquired all the rights and obligations in the
completion of Units 3 and 4 from Limay Premiere
Power Corp.

August 2017. . . . . • . . . . . . . . . . . . . . . . . . Granted the ProvisionalAuthority to Operate by the

ERC for Unit 2

September 2017...... . • • . • •. . •• ••. Unit 2 Commercial Operations Date

March 2018. . . . . . . . • . • . . • . . • . . . • • • Granted the Provisional Authority to Operate by the

ERC for Unit 3

Unit 3 Commercial Operations Date

SMC Global Power has employed CFB technology for each of the greenfield power projects,
Coal-fired power plants generate power by burning coal, a process that generates carbon dioxide,
sulfur dioxide and other pollutants. CFB technology is a type of technology employed to transform coal
into a fuel source that is relatively low in such pollutant emissions compared with other coal-fired
power plants. These tow emissions are made possible by processes that are not used in non-CFB
coal-fired power plants, such as chemically washing minerals and impurities from the coal,
gasification, treating the flue gases with steam to remove sulfur dioxide, carbon capture and storage
technologies to capture the carbon dioxide from the flue gas and dewatering lower rank coals
(brown coals) to improve the calorific value, thereby improving the efficiency of the conversion into
electricity. CFB technologypermits relatively low emissions of carbon dioxide, sulfur dioxide and other
pollutants. CFB technology also uses a low calorific value coal fuel, comparable with the type
expectedto be sourced from the coal mining assets of SMC Global Power in Mindanao.

17
 In selecting CFB technology for these greenfield power projects, SMC Global Power expects
to incur cost savings via: 1) third party bulk order discounts for coal fuel supply, 2) inter-operability,
3) reduced training costs for operators, 4) spare parts exchange, and 5) common coal handling
facilities, among other savings initiatives.

Competition

The Group forms one of the largest power companies in the Philippines, with a 15% share of
the power supply of the National Grid, 21% share of the Luzon Grid and 5% share of the
Mindanao Grid in each case as of December 31, 2017, based on ERC Resolution No. 05, Series of
2017. Its main competitors are the Lopez Group and the Aboitiz Group. The Lopez Group holds
significant interests in First Gen Corporation and Energy Development Corporation. while the Aboltiz
Group holds interests 1n Aboltiz Power Corporation and Hedcor, Inc., among others.

With the government committed to privatizing the majority of PSALM-owned power

generation facilities and the establishment of WESM, the generation facilities of SMC Global Power
will face competition from other power generation plants that supply the grid during the privatization
phase. Multi-nationals that currently operate in the Philippines and could potentially compete against
SMC Global Power in the privatization process include Korea Electric Power Corporation ("KEPCO"),
Marubeni Corporation, Tokyo Electric Power Corporation, and Sumitomo, among others. Several of
these competitors have greater financial resources. and have more extensive operational experience
and other capabilities than SMC Global Power. giving them the potential ability to respond to
operational, technological. financial and other challenges more quickly than SMC Global Power. SMC
Global Power will face competition in both the development of new power generation facilities and the
acquisition of existing power plants, as well as competition for financing for these activities. The
performance oi the Philippine economy and the potential for a shortfall in the Philippines' energy
supply have attracted many potential competitors, including multinational development groups and
equipment suppliers, to explore opportunities in the development of electric power generation projects
within the Philippines. Accordingly, competition for and from new power projects may increase in line
with the long-term economic growth in the Philippines.

Customers

SMC Global Power, through its subsidiaries, sells power, through power supply
agreements, either directly to customers (distribution utilities, electric cooperatives and industrial
customers) or through the WESM

Year ended December 31

Cystomers 2015 2016 2017
Volume Revenue Volume Revenue Volume Revenue
Sold (GWh) (In millions ,.) Sold (GWh) (In millions ,.) Sold (GWh) (In mllllons ,.)
Meralco 10,317 40,889 10,402 39,566 9,664 43,404
WESM 1,844 6,217 1,588 4,154 1,520 4,468
Total Major
Customers 12, 161 47,106 11,990 43,720 11, 184 47,872
Others<•> 4,397 30,401 5,356 34,252 6,043 34,919
Total Sales 16,558 77,507 17,346 77,972 17,227 82,791

<1> lnehldes other DUs, ECs, Diredly Connected Customer>, Contestable Customers, Sales to Distribution Customers.and
sales to related pattie$.

18
 For the years ended December 31, 2015, 2016 and 2017, approximately 89%, 91% and 91%,
respectively, of consolidated volume of power sold by the SMC Global Power and subsidiaries are to
customers pursuant to offtake agreements while approXimately 92%, 95% and 95%, of the total
consolidated sales revenue were sold to customers pursuant to offtake agreements for the same
years. respectively. Sales to Meralco accounted for approximately 62%, 60% and 56% of the total
consolidated sales volume of SMC Global Power and subsidiaries. for the years ended
December 31, 2015, 2016 and 2017, respecbvely. Sales through the WESM accounted for
approximately 11%, 9%, and 9% of the total consolidated sales volume for the years ended December
31, 2015, 2016 and 2017, respectively. In 2017, 2% of consolidated sales volume of SMC Global
Power and subsidiaries was for distribution customer sales through APEC.

Transactions with and/or Dependence on Related Parties

The Group and certain related parties, In the normal course of business, purchase products
and services from one another. Please see Note 20, Related Pany Disclosures, of the Audited
Consofidated Financial Statements attached hereto as Annex "B".

Government Approval Process

Energy Regulatory Commission

As set forth in the Electric Power Industry Reform Act of 2001 ("EPIRA'). power generation is
not considered a public utility operation. Thus, an entity engaged or intending to engage in the
generation of electricity is not required to secure a franchise. However, 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 or a similar authority from the ERC to operate facilities used in the generation of
electricity. A certificate of compfianceis valid for a period of live years from the date of issuance.

In addition to the aforesaid ERC requirement, a generation company must comply with
technical, financial capability and environmental standards. A generation company must ensure that
all its facilities connected to the grid meet the technical design and operational criteria of the Grid
Code and Dlstnbutlon Code promulgated by the ERC. In this connection, the ERC has Issued
guidelines setting 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 capability rano of 1 .Sx throughout the period covered by its certificate of compliance. For
certificate of compliance 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•
year financial plan. For the duration of the certificate of compliance, the guidelines also require a
generation company to submit audited financial statements and forecast financial statements to the
ERC for the next two financial years as wen as other documents. The failure by a generation
company to submit the requirements prescribed by the guidelines may be grounds for the Imposition
of fines and penalties.

With the introduction of Retail Competition and Open Access ('RCOA"), the rates charged by
a generation company are no longer regulated by the ERC. except rates for Captive Markets (as
determined by the ERC). In addition, since the estabfishment of the WESM, generation companies are
now required to comply with the membership criteria and appropriate dispatch scheduling as
prescribed under the WESM Rules.

In the course of developing a power plant, other permits, approvals and consents must also
be obtained from relevant nabonal, provincial and local government authorities, relating to, among
others, site acquisition. construction and operation, including environmental-related licenses and
permits.

19
Registration under the BO/

Under the Executive Order No. 226, otherwise known as the Omnibus Investments Code, a
SOI-registered enterprise enjoy certain mcennves provided such enterprise invests In preferred areas
of investment enumerated in the Investment Priorities Plan annually prepared by the governmenl
However. prior to registration with tile BOI, tile enterprise must first satisfy the minimum equity
required to finance the project applied equivalent to 25% of the estimated project cost. or as may be
prescribed by the BOI.

Such incentives may include: (i) income tax holiday; (ii) additional deduction for labor
expenses; (iii) tax exemption on imported capital equipment; (iv) tax credit on domestic capital
equipment; (v) exemption from contractor's tax; (vi) simplification of customs procedure; (vii)
unrestricted use of consigned equipment; (viii) employment of foreign nationals; (ix) tax exemption on
imported spare parts; and (x) exemption from wharfage dues and export duties and fees.

Philippine Competition Act

On July 21, 2015, the President of the Philippines signed into law Republic Act No. 10667 or
the Philippine Competition Act. which became effective on August 8, 2015. It aims to enhance
economic efficiency and promote free and fair competition in trade, industry and all commercial
economic activities, prevent economic concentrationwhich will manipulate or constrict the discipline of
free markets. and penalize all forms of anticompetitive agreements, abuse of dominant position and
anti-competitive mergers and acquisitions, with tile objective of protecting consumer welfare and
advancing domestic and international trade and economic development. Although the Philippine
Competition Act is silent on its applicability specificallyto the electric power industry, Section 55(c) of
the Philippine Competition Act provides that insofar as Section 43(u) of the EPIRA is inconsistent with
provisions of the Philippine Competition Act. it shall be repealed. In view of this, the Philippine
Competition Commission now has the original and exclusive jurisdiction over all cases contesting
rates, fees, fines and penalties imposed by the ERC in the exercise of its powers, functions and
responsibilitiesand over all cases involving disputes between and among participants or players in the
energy sector. The implementing rules of regulation of the Philippine Competition Act was issued on
May 31, 2016. as amended on March 1, 2018.

Local Government Code

Republic Act No. 7160, otherwise known as the Local Government Code (•LGC") establishes
the system and powers of provincial. city, municipal, and barangay governments in the country. The
LGC general welfare clause states that every local government unit (•LGU") shall exercise the powers
expressly granted, those necessanly implied, as well as powers necessary, appropriate, or incidental
for its efficient and effective governance, and those which are essential to the promotion of the general
welfare.

The power to tax and police power Is exercised by the LGU through their respective legislative
bodies. Specifically, the LGU, through Its leglslailve bOdy, has the authority to enact such ordinances
as it may deem necessary and proper for sanitation and safety. the furtherance of the prosperity, and
the promotion of the morality, peace, good order, comfort. convenience, and general welfare of the
locality and its inhabitants. Ordinances can reclassify land, impose real property taxes. order the
closure of business establishments, and require permits and licenses from businesses operating
within the territorlaljurisdiction of the LGU.

Labor and Employment

The Department of Labo< and Employment ('DOLE') is the Philippine government agency
mandated to formulate poftcies, implement programs and services. and serves as the policy•
coordinating arm of the Executive Branch in the field of labor and employment. The DOLE has
exclusive authority in the administration and enforcement of labor and employment laws such as the
Labor Code of the Philippines and the Occupational Safety and Health Standards, as amended, and
such other laws as specifically assigned to it or to the Secretary of the DOLE.

20
Social Security System, Phi/Health and the Pag-18/G Fund

An employer or any person who uses the services of another person in business, trade,
industry or any undertaking is required under the Social security Act of 1997 to ensure coverage of
employees following procedures set out by the law and the Social Security System ("SSS"). Under the
said law, an employer must deduct from its employees their monthly contributions based on a given
schedule, pay its share of contribution and remrt these to the SSS within a period set by law and/ or
SSS regulations.

Employers are likewise required to ensure enrollment of its employees in a National Health
Program administered by the Philippine Health Insurance Corporation, a government corporation
allached to the OOH tasked with ensuring sustainable, affordable and progressive social health
insurance pursuant to the provisions of the National Health Insurance Act ot 1995.

Under the Home Development Mutual Fund Law of 2009, all employees who are covered by
the Social Security Act ot 1997 must also be registered with and covered by the Home Development
Mutual Fund, more commonly referred to as the Pag-lBIG Fund.

Environmental Matters

Presidential Decree No. 1586 established the "Environmental Impact Statement System,"
which provides a regulatory framework for any project or undertaking that is either (a) classified as
environmentally critical or (b) is situated in an environmentally critical area. The Department of
Environment and Natural Resources ("DENR1. through its regional offices or through the
Environmental Management Bureau ("EMB1. determines whether a project is environmentally critical
or located in an environmentally critical area and processes all applications for an ECC.

The law requires an entity that will undertake any such declared environmentally critical project
or operate in any such declared environmentally critical area to submit an Environmental Impact
Statement ("EIS") which is a comprehensive study of the significant impacts of a project on the
environment The EIS serves as an application for the issuance of an ECC, if the proposed project is
environmentally cnlical or situated in an environmentally critical area; or for the issuance of a
Certificate of Non-Coverage, if otherwise. An ECC is a government certification that, among others, (i)
the proposed project or undertaking will not cause significant negative environmental impact; (ii) the
proponent has complied with all the requirements of P.D No. 1586 in connection with the project; and
(iii) the proponent is committed to implement its approved Environmental Management Plan ("EMP') in
the EIS. The EMP details the prevention, mibgabon, compensation, contingency and monitoring
measures to enhance positive impacts and minimize negative Impacts and risks of a proposed project
or undertaking.

Project proponents that prepare an EIS are required to establish an Environmental Guarantee
Fund when the ECC is issued for projects determined by the OENR to pose a significant public risk to
life, health, property and the environment or where the project requires rehabilitation or restoration.
The Environmental Guarantee Fund os Intended to meet any damage caused by such a project as well
as any rehabilitation and restoration measures. Project proponents also required to establish an
Environmental Monitoring Fund ("EMF") when an ECC is eventually issued. The EMF is to support the
activities of the team monitoring the proiect proponenrs compliance with ECC conditions, EMP and
applicable laws, rules and regulations.

The operation of power plants are considered environmentally critical projects for which an
EIS and an ECC are mandatory

21
The Clean WaterAct

The Clean Water Act and its implementing rules and regulations provide for water quality
standards and regulations for the prevention, control, and abatement of pollution of the water
resources of the country. The Clean Water Act requires owners or operators of facmties that discharge
regulated effluents (such as wastewater fi'om manufacturing plants or other commercial facilities) to
secure a discMrge permit from the OENR which authorizes the owners and operators to discharge
waste and/or pollutants of specified concentration and volumes from their facilities into a body of water
or land resource for a specified period of time. The OENR, together with other government agencies
and the different local government units, is tasked to implement the Clean Water Act and to identify
existing sources of water pollutants. as well as strictly monitor pollution sources which are not in
compliance with the effluent standards provided in the law.

The Clean Air Act

Pursuant to the Clean Air Act and its implementing rules and regulations. enterprises that
operate or utilize air pollution sources are required to obtain an Authority to Construct or a Permit to
Operate from the DENR with respect to the construction or the use of air pollutants. The issuance of
the said permits seek to ensure that regulations of the OENR with respect to air quality standards and
the prevention of air pollution are achieved and complied with by such enterprises.

The Renewable Energy Act

Republic Act No. 9513, the Renewable Energy Act of 2008 ("RE Act") aims to promote
development ana commercialization of renewable and environment-friendlyenergy resources such as
biomass, solar, and wind through various tax incentives. Some of the tax incentives granted to
renewable energy developers under the said law include (i) a seven-year income tax holiday; (ii) duty
free importation of renewable energy machinery, equipment, and materials; (iii) special realty tax rates
on equipment and macnmery; [iv) zero percent VAT rate for power generated from these energy
sources; and (v) the imposition of a reduced corporate tax of 10% on its net taxable income after the
income tax holiday

The RE Act establishes the framework for the accelerated development and advancement of
renewable energy resources as well as the development of a strategic program to increase its
utilization. The RE Act defines renewable energy resources as energy resources that do not have an
upper limit on the total quantity to be used. Such resources are renewable on a regular basis, and their
renewal rate is rdlatlVely rapid to consider availability over an indefinite period of time. These include,
among others, biomass, solar, wind, geothermal, ocean energy, and hydropower conforming to
internationally accepted norms and standards on dams, and other renewable energy technologies.

The DOE rs the lead agency mandated to implement the provisions of the law.

Other Envlronmenral Laws

Other regulatory enwonmental laws and regulations applicable to the businesses of SMC
Global Power include the following·

• The Toxic Substarices and Hazardous and Nuclear Waste Control Act of 1990 (Republic Act
No. 6969), which regulates, restricts or prohibits the (I) importation, manufacture, processing,
handling, storage, transportation, sale, distribution, use and disposal of chemical substance
and mixtures tnat present unreasonable risk or injury to health or the environment, and (ii)
entry into the Philippines 0< the keeping in storage of hazardous wastes which include
byproducts, process residue, contaminated plant or equipment or other substances from
manufacturing operations. The said law is implemented by the DENR.

22
 • The Ecological Solid Waste Management Act of 2000 (Republic Act No. 9003). which provides
tor the proper management of solid waste which includes discarded commercial waste and
non-hazardous institutional and industrial waste. The said law prohibits, among others, the
transporting and dumping of collected sobd wastes in areas other than prescribed centers and
facilities. The National Solid Waste Management Commission. together with other
government agencies and the different local government units, are responsible for the
implementatJon and enforcement of the said law.

Foreign Investment Act of 1991 ("FIA")

The FIA l1berahzed the entry of foreign investment into the Philippines. Under the FIA, in
domestic market enterprises, foreigners can own as much as 100% equity except in areas specified in
the Tenth Regular Foreign Investment Negabve List (the •Negative List"). This Negative List
enumerates industries and activities which have foreign ownership limitations under the FIA and other
existing laws. Nationalized activities include, among others, land ownership, telecommunications.
mining and the operation of publJc utilll1es

In connecbon with the ownership of private land, the Philippine Constitution states that no
private land shall be transferred or conveyed except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least 60% of whose capital is owned by
such citizens. Likewise, under the Philippine Constitution, only citizens of the Philippines or
corporations or associations organized under the laws of the Philippines at least 60% of whose capital
is owned by such citizens may engage in activities relating to the exploration, development and
utilization of natural resources, which covers the utiliZation of natural resources for the operation of
renewable energy power plants.

For the purpose of complying with nationality laws, the term Philippine National is defined
under the FIA as any of the following:

a citizen oi the Philippines;

a ccmesnc partnership or associationwholly-owned by citiZens of the Philippines;
a corporation organized under the laws of the Philippines of which at least 60% of the capital
stock outstanding and entitled to vote is owned and held by citizens of the Philippines; a
corporation organized abroad and registered to do business in the Philippines under the
Corporation Code, of which 100% of the capital stock outstanding and entitled to vote is
wholly-owr.ed by Filipinos: or
a trustee of funds for pension or other employee retirement or separation benefits. where the
trustee is a Philippine National and at least 60% of the fund will accrue to the benefit of
Philippine Nationals.

In SEC Memorandum Circular No. 08 dated May 20, 2013, or the Guidelines on Compliance
with the Filipino-Foreign Ownership Requiref116ntsPrescribed in the Constitution and/or Existing Laws
by Corporations Enr1aged in Nationalized and Partly Nationalized Activities. it is provided that for
purposes of oetermining compliance with the nationality requirement, the required percentage of
Filipino ownership snail be applied both to (a) the total number of outstanding shares of stock entitled
to vote in the election of directors, and (b) the total number of outstanding shares of stock. whether or
not entitled to vote m the election of directors

23
 More recently, in the case of Narra Nickel Mining and Development Corporation, et.al vs.
Redmont Consolidated Mines Corp (G.R. No. 195580) and its corresponding motions for
reconsideration (the "Narra Nickel Case"). the Supreme Court affirmed that the Grandfather Rule,
wherein shares owned by corporate shareholders are attributed either as Filipino or foreign equity by
determining the nationality not only of such corporate shareholders, but also such corporate
shareholders' own shareholders, unlit the nationality of shareholder individuals is taken Into
consideration, is to be used jointly and cumulatively with the Control Test, which merely takes into
account the nationality of me listed shareholders of the corporation. Such joint and cumulative
application shall be observed as follows (1) if the corporation's Fiiipino equity falls below sixty percent
(60%), such corporation is deemed foreign-owned, applying the Control Test; (2) if the corporation
passes the Control Test, the corporation will be considered a Filipino corporation only if there is no
doubt as to the beneficial ownership and control of the corporation: and (3) if the corporation passes
the Control Test but there is doubt as to the beneficial ownership and control of the corporation, the
Grandfather Rule must be applied.

Government Regulations

The business of SMC Global Power is subject to extensive government regulation, particularly
for its greenfield power plants. To conduct its business, the Group must obtain various licenses,
permits and approvals. Even when the Group has obtained the required licenses, permits and
approvals, their operations are subject to continued review under the applicable regulations, and the
interpretation or tmplementalion of such regulations is subject to change.

For example, the operations of its greenfield power plants are subject to a number of national
and local laws and regulations. including safety, health and environmental taws and regulations. These
laws and regulations impose controls on air and water discharges, on the storage, handling, discharge
and disposal of waste, location of facilities, employee exposure to hazardous substances, site clean•
up, groundwater quality and availability, plant and wildlife protection, and other aspects of the
operations of the business of the Group. Failure to comply with relevant laws and regulations may
result in monetary penalties or administrative or legal proceedings against the SMC Global Power or
its subsidiaries, which may cause or result in the termination or suspension of its licenses or the
operation of rts faci.riies.

In aodition, SMC Global Power implements, through SMEC, Its plans to develop its coal
mining assets and it wu1 oe subject to national and local laws and regulations affecting coal mining.

The SMC Global Power and tis aubsidlanes have incurred, and expect to continue to incur,
operating costs to comply with such laws and regulations. In addition, SMC Global Power and its
subsidiaries have made, and expect to connnue to make, capital expenditures on an ongoing basis to
comply with safety, health, mining and environmental laws and regulations.

While the SMC Global Power believes that it has. at all relevant times, materially complied
with all applicable laws, rules and regulations, there can be no assurance that the SMC Global Power
and its subsidtaries Niii be able to remain in compliance with applicable laws and regulations or will not
become lnvolveo ,n future litigabon or other proceedings or be held liable in any future litigation or
proceedings relat:ng ro safety, health, mining and environmental matters, the costs of which could be
material. In addition, safety, health, mining and environmental laws and regulations in the Philippines
have become increasingly stringent There can be no assurance that the adoption of new safety,
health, mining ar d environmental laws and regulations, new interpretations of existing laws, increased
governmema1 scrutiny of safety, health, mining and environmental laws or other developments In the
future will not result in SMC Global Power and its subsidiaries from being subject to fines and
penalties or nav1ng to incur additional capital expenditures or operating expenses to upgrade,
supplement or relocate their facilities.

If the SMC Global Power or its subsidiaries fails to comply with all applicable regulations or if
the regulations governing its business or their implementation change, SMC Global Power or its
subsidiaries may incur increased costs or be subject to penalties, which could disrupt its operations
and have a matena, adverse effect on its business and results of operations.

24
 SMC Global Power has been compliant with and continues to perform its obligations under
applicable laws and regulations relevant to its businesses.

SMC Global Power and its subsidianes are in constant consultation with relevant government
agencies and other approving bodies to ensure that all requirements, permits and approvals are
anticipated and obtained in a timely manner. Further, the Company and its subsidiaries maintain a
strong compliance culture ano has processes in place in order to manage adherence to laws and
regulations.

ERC Regu/al/on of Electricity Rates of Distribution Utllltles

The imposit:on of more stringent regulations and similar measures by the ERC could have a
material adverse effect on the business, financial conditions and results of operations of SMC Global
Power.

Sales to distribution utilrties accounts for majority of the consolidated sales volume of SMC
Global Power for the year ended December 31, 2017. While rates charged by SMC Global Power
through its subs.o.aoes under their offtake agreements, including those with distribution utilities, are
not regulated by the ERC. the rates that distribution utility customers charge to their customers are
subject to review and approval by the ERC. Accordingly, the ability of distribution utility customers to
pay the subsidiaries of SMC Global Power largely depends on their ability to pass on their power costs
to their customers There is also no assurance that the current laws, regulations, and issuances
affecting the indusuy, particularly the EPIRA and the issuances of the ERC, will not change or be
amended in the future.

There is no assurance mat the ERC will permit the distribution utility customers of the
subsidiaries of SMC Global Powel to pass on or .ncrease their rates or that subsequent reviews by the
ERC will not resut in the cancellation of any such increases or require such customers to refund
payments previously receiveo from their customers. There is also no assurance that any rate
increases approved by the ERC will not be overturned by Philippine courts on appeal. The ERC in the
exercise of its regulatory powers may also impose fines, penalties, or sanctions to SMC Global Power
In appropnare cases. Any restnction on the ability of distnbution utilities to pass on such costs or any
Intervention in such rates could have a material adverse effect on the business, financial conditions
and results of operatons of SMC G.obal Power.

The Company conunues to engage in comprehensive discussions and maintains good

working relatonsmp with the ERC to obtain proper resolution of its pending applications for tariff
approval

Research and Development

SMC Gtooa Power seeks to capitalize on regulatory and infrastructure developments by

scheduling the constructon of greenfield power projects to coincide with the planned improvements in
the interconnecbvity of the Luzon and Visayas grids, as well as the eventual Interconnectivity and
implementation of WESM m Mindanao In addition, SMC Global Power seeks to maintain the cost
competitiveness of mese new projects by strategically locating them in high demand areas and in
proximity to the grid.

S~AC G1<Jbal Power is consider;ng the expansion of Its power portfolio of new capacity
nationwide thro~gn greenfield power projects over the next ten years, depending on market demand.
SMC Global Po1Je• p'.ans to carry out the expansion of its power portfolio in phases across Luzon,
Visayas and Mindar.ao. SMC Global Power plans to use clean coal technology for its planned and
contemplated greenfield power projects.

25
Compliance with Environmental Laws
Power operations are subject to extensive, evolving and increasingly stringent safety, health
and environmental laws and regulabons. These laws and regulations include the Philippine Clean Air
Act of 1999 1·c1ean Air Act'), the Phtt1ppine Clean Water Act of 2004 ('Clean Water Act'), Toxic
Substances and Hazardous and Nuclear Waste Control Act of 1990, and the Department of Labor and
Employment Occupational Safely and Health Standard of 1989, as amended. Such legislation
addresses, among other things. air ermssions. wastewater discharges as well as the generation,
handling, storage, transportation, treatment and disposal of toxic or hazardous chemicals, materials
and waste. It also regulates wot1(plaoe conditions within power plants and employee exposure to
hazardous substances. The Occupational Safely and Health Standard, meanwhile, was formulated to
safeguard the workers' social and economic well-being as well as their physical safety and health.

SMC Glooa1 Power compfies, and It believes that the IPPs for each of Its IPPA Power
Plants comply, in all material respects with all applicable safely, health and environmenlal laws and
regulations
Tne Sual Power Plant received i1s Environmental and Management System Certificate (ISO
14001) in 2004, its Occupational Standard on Health Safely Certificate (ISO 18001) in 2007 and its
Quality Management System Certificate (ISO 9001) in 2008. The same ISO certificalions were
received by Davao Greenfield Power Plant and Limay Greenfield Power Plant in 2017 and 2018,
respectively.
For each of its greenfield power projects, SMC Global Power has complied with all applicable
safely, health and environmental laws and regulations, including securing the necessary ECC in
accordance with Ph.ilipplne law.

In addition, coal mining in the Philippines is subject to environmental, health and safety laws,
forestry laws and other legal requirements. These laws govern the discharge of substances into lhe air
and water. the management and disposal of hazardous substances and wastes, site clean-up,
groundwater quality and availability, plant and wildlife protection, reclamation and rehabilitation of
mining properties after mining rs completed and the restriction of open-pit mining activities in
conserved forest areas.

Nolwlthslanding the foregoing, the discharge of chemicals, other hazardous substances

and pollutants into the air, soil or water by the power plants owned or managed by SMC Global Power
or the coal mines of SMC Global Power may give rise to liabilities to the government and to local
government units wnere such fac1hhes are located, or to third parties. In addition, SMC Global Power
may be required to incur costs to remedy the damage caused by such discharges or pay fines or other
penalties for non-compliance.

Further. lhe adoption of new safely, health and environmental laws and regulations, new
Interpretations o existing laws, increased governmental enforcement of environmental laws or
other developmentS in the future may require that SMC Global Power make additional capital
expenditures or incur ado1tional operating expenses in order to maintain the operations of its
generating facilities at lhelr currenl level, curtail power generation or take other actions that could
have a material adverse effect on the financial cond~ion, results of operations and cash flow of the
Company

On an annual basis, ooerating expenses incurred by the SMC Global Power to comply with
environmental laws are not significant or matenal retauve to the Group's total cost and revenues.

26
Employees

As of December 31, 2017, SMC Global Power has 131 employees. All employees are based
in Philippines.

SMC Global Power Number of Emplovees

Executives and Supervisors and
Business Units Manaaers Rank & Fife Total
Executive Manaaement 34 5 39
Billlno and Settlement 0 8 8
Enerav Sourcina and Tradina 0 12 12
Finance Grouo 0 34 34
HR & Administration 0 5 5
Internal Audit 0 4 4
teoat 0 3 3
Plant Ooerations 0 5 5
Reaulatorv Compliance 0 3 3
Risk Manaaement & Procurement 0 10 10
Sales & Marketino 0 5 5
Utilitv Economics 0 3 3
TOTAL 34 97 131

Employees of SMC Global Power are not members of any labor union since 2008. SMC
Global Power t:as not experienced any work stoppages and considers its relationship with its
employees to be good. In addition to the statutory benefits, SMC Global Power initiates benefits to
provide for the increased security of its employees in the following areas: healthcare, leaves.
miscellaneous benefits, loans and financial assistance applicable to a variety of uses, retirement
benefits and survivor secJrity and death benefits.

With tile ensuing 12 months, SMC Global Power may requireadditional hiring of employees to
support tis business expansion, the number of which cannot be determined.

Risk Relating to SMC Global Power

Increased competition In the Philippine power industry

The government has sought to implement measures designed to enhance the competitive
landscape of the cower market, particularly for the unregulated sectors of the Industry. These
measures include me privauzation of NPC-owned and controlled power generation assets, the
establishment of the WESM. the start of the RCOA, and Implementation of mandatory Competitive
Selection Process for D1stribubon U!Jhbes. Further, Republic Act No. 10667 or the Philippine
Competition Act was enacted to enhance economic efficiencyand promote free and fair competition
in trade, industry and all commercial economic activities, prevent economic concentration which
will manipulate or constrtet the discipline of free markets, and penalize all forms of anti-competitive
agreements, abuse of dominant posibon and anti-competitive mergers and acquisitions. with the
objective of prot.;c.ing consumer welfare and advancing domestic and international trade and
economic development

The move towardsa more competitive environmentcould result in the emergence of new and
numerous competitors. These competitors may have greater financial resources. and may have more
extensive exper.ence than SMC Global Power, giving them the ability to respond to operational,
tecnnological, financic:l and other challenges more quickly than SMC Global Power. These
competitors ma~ :nerefore be more successful than SMC Global Power 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 facillties may also
allow them to produce electricity at a lower cost and to sell electricity at a lower price. SMC Global
Power may tr.ererore be unable to meet the competitive challenges it will face.

27
 As a result of increased competition, SMC Global Power could also come under pressure to
review or renegotiate the terms of existing offtake agreements with customers, which may lead to a
downward adjustment of tariffs, and the business, financial performance and results of operations of
SMC Global Power could be adversely affected. To the extent that distribution utilities or industrial
offtakers decide to purchase from other generation companies instead of purchasing from SMC
Global Power, the ability of SMC Global Power to increase its sales and sell additional electricity to
distribution utilities or industnal offtakers through Its generation facilities would be adversely affected.

SMC G1obal PO\ver, through ns subsidiaries, has a diversified portfolio which allows it to be
more compeuuve with its supply offers. It is also managed by an experienced management team
composed of experts with extensive knowledge of the Philippine power industry. Coupled with the
strong shareho.cer support from SMC, this Wiii enable SMC Global Power to sustain its position as
one of the major players in the indusby. Moreover, SMC Global Power also continues to cultivate its
good working relationship with its offtakers which ensures continuity of its customer base.

Disruptions Jn fuel supply

The operations of the Sual Power Plant and llijan Power Plant depend on the availability of
fuel, in particular coal and natural gas. SMC Global Power, through its subsidiaries, is responsible, at
the cost of the .aner, for supplying the fuel requirement of the Sual Power Plant. SMC Global Power,
through its substcianes. has enteredinto fuel supply agreements for its power plants

There is no assurance that there will not be any interruption or disruption in, or change in
terms of, the fue1 sappnes to these power plants, or that there will be sufficient fuel in the open market
or sufficient transponaeoncapacity availableto ensure that these power plants receive sufficient fuel
supplies required ior meir operations on a timely basis or at all. There is also no assurance that SMC
Global Power, through its subsidiaries, Wiii be able to purchase all of its required fuel supplies from its
regular suppliers that produce fuel of acceptable and known quality. Consequently, SMC Global Power
could experience difficulties ensunng a consistent quality of fuel, which could negatively affect the
stability and performance of these power plants. Such factors, which may include events which are
beyond tne contro of SMC Global Power, could affect the normal operation of these power plants
which cou.d have material adverse effect on the business. financial condition and results of operations
of SMC Glooal Fo#er.

SMC Global Power, through its subsidiaries, has fuel supply agreements with recognized,
reputable, ana rei.able .nternational coal suppliers, such as but not limited to, PT Bayan Resources
TBK, PT Bara Taoang, KPC, Pl Trubamdo Coal Mining, and Vitol Asia Pte. Ltd. for its power plants.

The C11vers1ty of coal suppliers of the Company provides assurance of fuel supply limiting any
issues with any specific region or supplier. For Natural Gas, NPC/PSALM is contractuallyobligated to
deliver supply of fuel to the llijan Power Plant under the llijan IPPA Agreement. Neither SMC Global
Power, nor SPFC. has any direct relationship with the supplier of natural gas. However. events of
shutdown or ga:. r:stnctions can be interpreted as force majeure or may be covered by the outage
provisionsof the downstream offta.ke agreements of SPPC, limiting any adverse effects to the latter of
disruptions on th1; :.upply of nan.rel gas.

SMC G•oba1 PO\¥er also believes that the size and diversity of the fuel supply of Its power
portfolio reduces the exposure of the Company and its customers to fuel-type specific risks such as
variations in fwt:1 costs, ano regulatory concerns tnat are linked lo any one type of power plant or
commodiiy or.ce

28
Reliance on Independent Power Producers for the operation and maintenance of the IPPA
Power Plants

Power generation involves the use of highly complex machinery and processes and the
success of SMC Global Power depends on the effective maintenance of equipment for its power
generation assets. IPPs associated with the respective IPPA Power Plants are responsible for the
operation and maintenanceof their respectrveIPPA Power Plants.

Although the ECAs with the IPPs or PPAs with NPC in respect of the IPPA Power Plants
contain bonus a.id penalty prov1s10ns, these do not eliminate the risk of failure on the part of the IPPs
to satisfactori1y perform their respective operations and maintenance obligations. Any failure on the
part of such 1PPs to properly operate and/or adequately maintain their respective power plants could
have a material adverse effect on the business, financial condition and results of operations of SMC
Global Power.

In addition, if SMC Global Power, through its subsidiaries, fails to generate or deliver eleclficity
beyond contractuaily agreed periods due to the failure of the IPPs to operate and maintain the power
facilities, the coumerparties of SMC Global Power in some of its power supply contracts and retail
supply contracts may have a right to terminate those contracts for outages beyond applicable outage
allowances in the power supply contracts, and replacement contracts may not be entered into on
comparable terms or at all. Other supply contracts of SMC Global Power guarantee supply to
counterparties up to a maximum capacity. Any of the foregoing could have a material adverse effect
on the financial and operating performance of SMC Global Power.

SMC Gtooar Power leverages on the strengths and track record of its world-class I PP partners
in operating its ex:sting power portfolio by monitoring their adherence to the minimum operating
protocols specified in the IPPA and ECAs in line with international best practices.

Market limitations under the EPIRA

As of December 31, 2017, the Group, had a 21% market share of the Luzon Grid, 5%
market snare of the Mindanao Grid, and a 15% market share of the National Grid in terms of
installed capaciry based on industry data from the ERC The EPIRA limits the market share of a
participant to 30% per grid and 25% of the national grid by installed capacity. SMC Global Power may
not receive perrruss.on to increase its capacity and market share if this would result in exceeding the
permitted capacity or market share prescribed by the EPIRA. Such inability to expand and grow the
power business cot.Id materially and adversely affect the business prospects of SMC Global Power.

SMC Globa1 Power seeks to cap1ta1.ze on regulatory and infrastructure developments by

scheduling the cons.ruction of greenfield power projects to coincide with the growth of the Philippine
power indusby. Pursuant to me EPIRA limits. SMC Global Power is still within the market share cap
and may still expand by as much as 1,314 MW nationwide, but limited to the following capacities per
grid: 700 MW in Luzcn. 958 MW in V.sayas and 749 MW in Mindanao even after the acquisition of the
MPPCL .A.ssets and the entry of Unit 2 of Davao Greenfield Power Plant and Unit 3 of Llmay
Greenfield ?owe ?,ant

Development of greenfield power projects

The develcpmem of greenfield power projects involves substantial risks that could give rise to
delays, cost oven uns, unsatisfactory construction or development or the total or partial loss of the
interest o' SMC Glc.oal Power in the projects. Such risks include the inability to secure adequate
financing, ir.aoility to negotiate acceptable off!ake agreements, and unforeseen engineering and
environmenta prc~',.ms, among others Ally such delays, cost overruns, unsatisfactory construction
or development, or !he total or partial loss of the interests in its projects could have a material adverse
effect on tne business, finan:ial condit:on, resurts of operation and Mure growth prospects of SMC
Global Po •..,er.

Under me EPC comracts, the Company wiU be indemnified in the event of delay and/or default
of the EPC contractor. To ensure timely delivery and performance, the EPC contracts provide for a
schedule of payments of the contract price based on agreed milestones. SMC Global Power checks

29
on the accornpnsnments of the EPC contractor prior to the release of the corresponding payment per
milestone.

As of March 26. 2018. Units 1. 2 and 3 of Limay Greenfield Power Plant, and Units 1 and 2 of
Davao Greenfield Power Plant have commenced commercial operations.

Adverse effect of (VESM price fluctuations

From the time the WESM for Luzon began operabng in June 2006, market prices for electric
power have fluctuated substanbally. Unhke many other commodities, electric power can only be
stored on a very l1m1ted basis and generally must be produced concurrently with Its use. As a result,
power prices are subject to significant volatility from supply and demand imbalances. Long-term and
short-term powe1 prices may a.so fiuctuate substantially due to other factors outside of the control of
SMC Global Power. including:

Increases and decreases in generatlOll capacity In the markets of SMC Global Power,
includ[ng the addition of new supplies of power from existing competitors or new market
entrants as a result of the development of new generation power plants, expansion of
existing power plants or additional transmission capacity;

changes in power ttansmisst0n or fuel transportation capacity constraints or inefficiencies;

electric suoply disruptions, including power plant outages and transmission disruptions;

changes in the demand for power or in patterns of power usage, including the potential
development of demand-side management tools and practices;

the authori!y of the ERC to review and, if warranted under applicable circumstances. adjust
the prices on the WESM;

ctirna.e, weather conditions, natural disasters, wars, embargoes. terrorist attacks and
other catastrophic events;

availabil.ty of competitively priced alternative power sources;

development of new fuels and new technologies for the production of power, and

changes tn the power market and environmental regulations and legislation.

These factors could have a matenal adverse effect on the business, financial condition and
results of operations of SMC Global Power

The strategy of the Company is to source majority of its revenues from bilateral offtake
agreement:>. i rils ensures cash flows while m1nimizmg the exposure of the Company to any
unfavorable ftuctuat.ons in WESM prices. Revenue from bilateral contracts with offtakers contributed
92%. 95% and 95% of total revenue for the years ended December 31, 2015. 2016 and 2017.
respectively

30
Non-renewal of or non-comp/lance with offtake agreements

SMC Global Power. through its subsicharies, has offtake agreements with various distribution
utilities, electrc cooperatives and large industrial and commercial users. Some offtake agreements will
expire before the termination of the applicable IPPA Agreement, although they may be renewed by
mutual agreement of the parties. The IPPA Agreements provide that the amounts of payment
obligations of SMC Global Power w11I increase over time. While SMC Global Power intends to renew
the offtake agreements upon expiration to provide stable and predictable revenue streams to meet its
obhgatlons unoer ttte IPPA Agreements, there rs no assurance that SMC Global Power will be able to
renew 01 enter into new offtake agreements for similar volumes or at similar prices, or that SMC
Global Power will be able to enter into new offtake agreements or at all. If SMC Global Power is
unable to ente. into new offtake agreements, SMC Global Power will be further exposed to
ftuctuations .n electricity prices in the WESM, which could materially and adversely affect the
profitability of SMC G.obal Power.

The Company manages a large, reliable and diverse portfolio of power plants that allows It to
supply at competitive rates and terms. Considering the increasing electricity requirements of the
country underpinned by a strong GDP and populabon growth rate, the Company believes that its
offtake aqreeme'ns will be renewed or will be able to expand its customer base. Further, the Company
has an experie'."lced sales and marketing team that actively markets to its existing and to new
financially capable prospective customers. In addition, the Company maintains good working
relationships witn its offtakers and has cultivated a long history of reliability and good customer
service.

S!ar.dard terms of the PSAs require offtakers to post a security deposit equivalent to 100% of
estimated monthly power bin, wnich will cover the customer's liability in the event of non-compliance
with payment

Operating capacities of its power portfolio

Tne aamin.stration of the output of the power generation plants involves significant risks,
including.

breakdown or failure of power generation equipment, transmission lines, pipelines or other

equipment or processes, .eading to unplanned outages and operational issues;

flaws 111 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 legol, regulatory or hcens1ng requirements;

performance oeiow expected levelsof output or efficiency;

mcusu .al act.ens af."cciing power generation assets owned or managed by the
subsidiaries of SMC Global Power or its contractual counterparties;

pollution or environmental contamination affecting the operation of power generation assets;

planned and unplanned power outages due to maintenance, expansion and refurbishment;

inabi.,fy :o obtain or the cancellation of required regulatory, permits and approvals;

opposition from local communities and special rnterest groups; and

force majeure and catastrophic e1ents including fires, explosions, earthquakes, volcanic
eruotions floods and terrorist acts ihat could cause forced outages, suspension of operations,
toss :>i ,'fe, severe damage and piant destruction

31
 There is no assurance that any event similar or dissimilar to those listed above will not
oocur or will not significantly increase costs or decrease or eliminate sales derived by SMC
Global Power from its power generation assets. While the IPPA Agreements of the Company
provide certain reliefs in the event the IPPA Power Plants cannot produce or dispatch electricity, if
any of the power generation assets of the Company is unable to generate or deliver electricity to
customers for an extended period of time which may be due to the aforementioned risks, its
customers may be exempt from making certain payments so long as any such events continue. In
addition, if ine but.s:dlaries of SMC Global Power fails to generate or deliver electricity beyond the
contractuatly agre&e outage periods, Its counterparts in its power supply contracts may have a right to
terminate those contracts, and 1eplacement contracts may not be entered into on comparable terms or
at all. Any of me roregoing could have a matenal adverse effect on the financial and operating
performance of SMC Global Power.

SMC Globdl Power leverages on the strengthsand track record of its partners in operating its
existing powei poriolio by mon!toMg their aoherence to the minimum operating protocols specified In
their respectiveIP?A Agreements or operations and maintenance agreements in line with International
best practices.

Insurance coverage for IPPA Power Plants

Tne JP?s o' the IPPA Power Plants are responsible for maintaining insurance for all of the
facilities, equipment ar.d infrastructure f0< those power plants, with the exception of the dam and
spillway of the San Roque Power Plant. for which NPC is obligated to maintain insurance coverage.
SMC Global Power is not. however, a beneficiary of any of these insurance policies. SMC Global
Power has no business interruption insurance coverageand is therefore uninsured for liabilities or any
direct or indirect costs and losses which may be incurred, as a result of any business interruption that
the Company may experience. SMC Global Power believes that there is no business interruption
insurance availaore for !he IPPA business model under which the Company is currently operating.
Accordingly, any uninsured liabJities or direct or indirect losses, including any third party claims that
result from an imerruption to the business of SMC Global Power could have a material adverse effect
on its financial condition and results of operations.

While the Company has not experienced any major downturn in the operations of the IPPA
Power P.ants orought aoout by unexpected losses caused by natural disasters or other events that
could affect its facilit.es, the Company beoeves that It can withstand such events with its business
strategies in p.sce SMC Global Power a.sc has a system of financial prudence and corporate
governance mat provides the toundation for tts nsk management initiatives.

Insurance coverage for generation plants

Tne Com~any has secured the necessary insurances for the power plants that it owns to
cover all .nsurab.e risks.

However the power generation plants owned by the subsidiaries of SMC Global Power may
not be fui.y lns.J~J agalr.s1 and 1ns1.rance may not be available for, unexpected losses caused by
natural disasters breakdowns or other events that could affect the facilities and processes used by its
businesses.

Any unexpected losses caused by such events against which it is not fully insured could have
a material adverse e:fect on its ous nesses. financial condition and results of operations.

A11 ace :l.:n.at .na fac:;ities of the SMC Global Powercould result in significant losses.

SMC Global Power could suffer a decline in production. receive adverse publicity and be
forced to invest significant resources in addressing such losses. Such events could materially and
adversely af:ect .ne financial conditionand results of operations of SMC Global Power.

32
No direct contracwal and operational relationship

SMC Global Power is dependent on the IPPA Power Plants to generate power, and for the
IPPs to comply with their contractual obligabons to NPC under their respective ECAs/lPPA
Agreements. SMC Global Power does not have a direct contractual relationship with the I PPs and
cannot directly enforce their ECAs/PPA against the lPPs. Failure by an IPP to comply with its
ob1igatlons under .ts ECAtPPA may slgnificandy reduce or eliminate power generation volumes or
Increase costs. thereby decreasing or eliminating revenues that the lPPA subsidiaries can derive from
selling the power generated by the IPPA Power Plants. Any claims for damages for breach, or other
entitlement, ber.efit or re.ief under the IPPA Agreement arising from the breach, by the IPP, of Its
obligations under their ECAslPPA musl be eta.med by SMC Global Power against PSALM through
specified claim mechanisms. The IPPA Agreements do not permit set-off of claims, and the IPPA
subsidiaries of SMC Global Power are only entitled to payment of their claim after PSALM has
received payment from the IPP of its corresponding claim. Accordingly, the IPPA subsidiaries of SMC
Global Power bear the nsxs associated with the lack of direct recourse against the I PPs, delays in the
enforcement of their claims and other risks related to pursuing claims or legal proceedings against a
state-owneo en~ty such as PSALM. Any of these factors could have a material adverse effect on the
business, financial condition and results of operations of SMC Global Power.

Foreign exchange risk

Wh:le rrost of the offtake agreements of the subsidiaries of SMC Global Power allow
adjustments for foreign exchange rate fluctuations, SMC Global Power remains subject to foreign
exchange risk. A substantial amount of consolidated revenue from sales of power by SMC Global
Power is denominated in Pesos, while a portion of its expenses and obligations are denominated in
US dollars. The scheouJed payment obligations to PSALM pursuant to the IPPA Agreements of the
Company with PSALM are denominated in both US dollars and Pesos. The proportion of US
dollars to Pesos oayable unaer the IPPA Agreements was approximately 50% at the exchange rates
prevailing as of me cstes of the respective IPPA Agreements. The relevant subsidiaries of SMC
Glooal Power also purcnases coal as fuel for the Sual Power Plant and its greenfield power projects
using US dollars. In aoditlon, a significant polbon of the capital expenditures required for its greenfield
power projectsare oenormnated in US dollars.

In May 2014 and August 2015, SMC Global Power issued undated subordinated capital
securities arrounting to USS600 mdhon wnich are considered part of equity. In March 2018, SMC
Glooal Power has fully drawn its USS1,200 milroo long-term loan facilities, has issued US$650 million
redeemable peroetual securities and has obtained US$150 million advances from SMC.

A oecrecianon of the Peso, particularly with respect to the us dollar, Increases the Peso
equivalent vas,e of the fore•gn currency-denominatedcosts and obligations of the Group. This could
adverse1y affect :ne results of operations of me Group and its ability to service its foreign currency•
denominated liabali' es

There can be no assurance that the Peso will not depreciate significantly against the
US dollar or emer currencies m the future or that such depreciation will not have an adverse effect
on tne gro11tnof ti1e ?nihpp1r.s economy or the financial condition of SMC Global Power.

Sl>1C G.oca Power actively evaluates combination of natural hedges such as holding US
dollar-denominated assets and liab1lrties, foreign exchange adjustments in the tariffs, and derivative
instrumenti. to r.1anage Its exchange rate risk exposure. The Company also considers redenominatlon
of US dora -deno, 1i1 atea ob.i;iation 10 Philippine Peso-denominated obflgation to minimize exposure
to foreign e...~~.ar.9..- 1t..Ctt.at.c~s

33
Variations In hydrologlcal conditions and irrigation requirements

The hydroelectric generation is dependent on the amount and location of rainfall and river
flows, which vary widely from quarter to quarter and from year to year. NPC owns and operates the
dam and the dam-related facdilies of the San Roque Power Plant and has obtained a water permit
allowing ii to use the water flow from the Agno River to generate power from the San Roque Power
Plant with an a11owc.olc \lolume dlctateo by downstream irrigation requirements set by NIA.

T n.. faci11L<!~ of An EPP are located within the Ang at Watershed Reservation, which Is
manageo oy anc .s under :ne iunsdiction of NPC. NPC was issued a water permit dated
November 28, di79 oy then National Water Resources Council pursuant to Which NPC has authority
to extract watet 'rom the Angat Ri\ler for power generation purposes. In a resolution dated April 4,
20 16, NWRB gran,eo KWPP Hotd1ngs Corporation's petition for the transfer the said water permit to
itself and authorized its lease to AHC. The water discharged by the AHEPP is used for the following
two purposes. (i) the water outflow of the three Auxiliary Units of 6 MW capacity each flows to the lpo
Dam and is conveyeo by MWSS to Metro Manila for domestic use; and (ii) the water outnow of the four
Main Units of 50 MN capacity each flows to the Bustos Dam and is conveyed by NIA to the province
of Bulacan for 1rrigailon purposes.

The leve'.s of hydroelectric production can therefore vary from period to period depending on
the water levels in tne reservoir and downstream irrigation and water supply requirements. In years of
less favorable l~fdrological conditions, such as periods of drought or when the El Nino weather
phenomenon occurs, the reservoir has low water levels, which reduce the amount of power that the
San Roque Power Plan! and me AHEPP are able to generate. This could reduce the revenues from
the sale of power from the San Roque Power Plant and the AHEPP, which could have a material
adverse effect on SMC Gi0bal Power's business. financial condition and results of operations.
Conversely, if too much rainfall occurs at any one time, such as during a typhoon, water may flow
too quickly and at 1011.<mes in excess of the water intal<e capacity of the San Roque Power Plant and
AHEPP, which may cause release of water using the spillway.

SMC G.coal ?ower, through its subsidiaries, actiVely manages the water supply of the hydro
power plants to opnm.ze generation while ensuring that the irrigation supply requirements are met in
ccorc.nauon with ere ~e1evan1 government agencies.

Challenges in successfully implementing its growth strategy

lmpiemer.w;q the growth strategy of SMC Global Power involves: (i) substantial investments
in new power g .. nerat.cn !a::uibes, \Ii) acquisitions of existing power generation capacity; and
(iii) entering into an.ances with strategic partners. The success in implementing the strategy of the
Company will depend on. among other things, us ability to identify and assess investment and
acquisitio11 opponu. 111•es as we.I as potentiaJ partners, its ability to successfully finance, close and
Integrate investments acqu1s1tioris and relevant technologies for the production of power, its ability to
manage ccnsm.et en of plan'led greenf\elo power projects within technical, cost and ttmlng
spec1fice.ions it:; a~1lk)' to control ccsts and maintain suffteient operational, financial and internal
controls, the Strdr1gtl·1 of the Philipp:ne economy (including overall growth and income levels) and the
overall levels of t,~;,ness ac;t;vity in the Philippir.es

SMC Globa Power Is also contemp:ating several additional potential investments and
acquisitions, cu; nas not enerec .nto any definitive commitment or agreement for any such
contemplatec investment or acqu1smon. If general economic and regulatory conditions or market and
competitive concncns change or if operations oo not generate sufficient funds or other unexpecred
events occur s,,:c ..3.c,oa1 Power may deciOe to delay, modify or forego some of its planned or
contemplated pro.ects or alter aspects of its growth strategy, and its future growth prospects could be
materially and a; , :<se.y affec:c.::!

T.1e grc• •. suategy oi SMC Globa1 ?ower will also place significant demands on its
managerr:e'lt. fT'a-.c al and ...ther resources. In particular, continued expansion will increase the
challenges icr r.r.anclai and \cchnical management, recruitment, training and retention of sufficient
skilled tecmca aP.d .nanagement personnel and developing and improving its internal administrative
infrastructure. r-;1;. irraoiuty to ·neet these cha'lenges could disrupt the business of SMC Global
Power, reduce its orcfitabifity and adversely affect its results of operations and financial condition.

34
 Tne Company (i) ma.ntains a highly experienced management team composed of experts
with extensive Know!edge or t'le Philipp111e power industry; (ii) has in place a system of financial
prudence and corporate governance: and (iii) strengthens the competencies of its employees
specifically those in the succession pipeline of key personnel, provides training to prepare employees
to take on higher responsibilities. and pursues strategic hiring for identified critical positions.

T ne Ccm111.ny undertakes prudent reviev. and due diligence. and evaluates the viability of any
acquisition or ir.v.,~u1it:nL In aduito0n. Ille Company is guided by metrics when assessing possible
Investments whicn 1nc1ude. bi.1 are not limited to. financial returns and possible synergies, with an
overall ob;ectwa of maximlZlllg retums.

Aval/ability of flmmclng

SMC Glo..,~ Pov.er exoecrs to fund its expa1sion and growth plans through a combination of
internally genera>tid ruocs ano external financing. The continued access to debt and equity financing
of the Company is sub1ec1 to ~tors, many of which are outside of the control of SMC Global Power:
political Instability, economic downturn, social unrest, or changes in the Philippine regulatory
environment co» d crease the cost of borrowing decrease the price of its securities, or restrict the
ability of SMC Giocal Power to obtain debt or equity financmg. In addition, recent disruptions In global
capital and crec.t markets m:=; continue indefinuely or intensify. Other factors affecting the ability of
SMC Global Power 10 borrow include, (i) Phifippine regulations limiting bank exposure (including
single borrower 1.mits} to a single borrower or related group of borrowers, (ii) compliance by the
Company wun existtng debt covenants, which include net debt to equity ratio covenants among
others, ano (iii, tne ability of SMC Global Power to service new debt. The inability of SMC Global
Power to obtair financL'lg from ba'li<Sand other financial institutions or from capital markets would
adverseiy affec: .rs aoility to execute its expansion and growth strategies and have a material adverse
effect en the bus.ness. financial condleon. and results of operations of SMC Global Power.

The Company employs a system of financial prudence and good corporate governance to
manage the risks relat>ng to oeot and equity financing. The Company can also rely on its strengths to
navigate and nave contin...al access to financing.

Significant finance lease obJigations

Tne IP?A sobs.o.artes nave significant finance lease obligations.

Each of tne IPPA Agreements requires the IPPA subsidiaries to make monthly payments
consisting of two separate components: a "fixed" payment, the amount of which in any given month is
SP(;Cifieo by Iha or'P" "greerr.ent itself, and a variable payment, the amount of which in any
given month depe~ds on the amount of power delivered by the IPPA Power Plant, subject to
certain ac1ustrr,erit.. Th1ougr th" t?FA Agreements, the IPPA subsidiaries acquired substantially all
of the risks (except for tre operations and maintenance) and rewards Incidental to ownership of
the IPP Power P.a1.rs, therefcre the IPPA subsidiaries account for the IPPA Agreements as finance
leases. Ac.;o 1.19 ..ipo.1 entry into each IPPA Agreement, the IPPA subsidiaries recognized the
reloted po.... e• poant as ar. asset .n its oalance sneet under "property, plant and equipment" based on
the present va "" of me f,xeo monthly payments due to PSALM under the IPPA Agreement and
recognized a co.-re.pond1ng haD1..ty 1n ns balance sneet under 'finance lease liabilities.'

E&cn o• •1t: fixt>d mcm..111 payment~ made by SMC Global Power, through the IPPA
suos.ctanes, -'· .:.~· a 1 iF?A Ag:eement ts apport1011ed between finance cost and reduction of (or, 111
cercam cases ac.d'~iun ;01 me finance .ease liab;~ty so as 10 achieve a constant rate of interest on the
rernaimng ca.ance or :ne liab.,.,'.

Tne •eve! ~t 'inance lease cbl!gations of tile IPPA subsidiaries could:

f!:qu •• 3!111::: GI;:_:; Fo1t1er, tl1r0t.gn the IPPA subsidiaries, to dedicate a substantial
µ01" , of its cast flow irom operations to debi and other payment obligations, thereby
c~ro-2s,r.9 L'ie avei!ab;li:y of its cash flow for business operations, including expansion
and acqu'sltons;

35
 increase the vulne:obihty of the IPPA subsidiaries to general adverse economic and
industry conditions; and

preven: the IPPA subsidiaries from accessing credit or equity markets to satisfy its
repayment obligations as they become due on favorable terms, or at all.

Ma,orily u tne capacity of the IPPA Power Plants Is contracted with Meralco, which ensures
cash flows to pay fo, us finance lease liabilities under the IPPA Agreements. Meralco contracts will
expire in 2019 with option to renew until the end of the IPPA Agreement. Considering the Increasing
electricity requirements of the counuy underpinned by a strong GOP and population growth rate, the
Company beue~es tiiat us olflat\e agreements will be renewed or expand its customer base. These
power supply ccntracts will ensure cash flows and allow the Company to meet the obligations under
its finance lease .iao.li:y. In c:do.tion, the Company maintains good working relationships wilh Its
offtakers ano r.as cultivated a io.ig history of rel.ability and dependabilrty. Finally, the Company has an
experienced sa.es arc ;nar't\eting team that actively markets 10 its existing customers and to other
financially capar..e prospective customers.

Dependence on 1na existence of transmission lnfrastructure

Tne rransrn.ss on 1niras:n.cture in the Philippines continues to experience conslraints on the

amount of e.ecmcity that can be delivered from power plants to customers, as well as limited
interconnectodty between the tuzcn-veayas Grid and the lack of any interconnectivity between the
tuzon-visayas Grid and the Mindanao Grid.

If these transmission constraints continue, the ability of the SMC Global Power to supply
electricity from :l';e ??A Pc\\er Plants of its subsidiaries and its greenfield power projects, as they
come online, as weli as tne ab1l1ty oi SMC Global Power to increase its geographical reach. will be
adverseiy affec,eo. This coud have a material adverse effect on the business and revenue growih of
the Company from power sales.

The Company and rts subsiolanes are in constant consultation and communication with
NGCP and otha. -elevant government institutions to address the transmission infrastructure
requiremerus of u1e Company ano its subsidianes The DOE is mandated by law to prepare a
Transmiss.on C.evelopment Plan to be implemented by NGCP which aims to address projected
inrrastructure hm1ta~ons and 1n,erconnectivityof sub-gnds.

Certain rax exemptions and tax incentives

As of Oec..mber 31, 2017 cenain subsidiaries of SMC Global Power that were registered
witn tile 601 as , t:hV operato-s with pioneer and non-pioneer status for its greenfield projects, benefit
from certain tax exempuons and tax mcennves, deductJons from taxable income subject to certain
capital requirements and duty-free importation of capital equipment, spare parts and accessories.

In tl1e e.ert of expiration. revocation or repeal or these tax exemptions or tax Incentives, the
income rrcrr- these sc ...rces 111o i. be sub1ect to the corporate income tax rate, which is 30.0% of net
taxable income ;h ..if Llee&.nter 31, 2017 As a result, the consolldated tax expense of SMC Global
Power would incrca>e ano its profitabilitywoulo decrease. The expiration, non-renewal, revocation or
repeal of these tax exemptio1s ano tax incentives, and any associated impact on SMC Global Power,
could have a ma:erial adverse effecton the business, financial condition and results of operations of
SMC Glob;;;! Pc.wc •

Ptease , e- e: .o Note 27 oi tne Notes to the Auditeo Consolidated Financial Statements

attached l'ere~o as Annex ·'B" for tne discussion of the SMC Global Power and its subsidiaries'
Financial rtisK Mar:cgementOoJecbves and Policies.

36
Item 2. Properties

A summary of mformation on tile principal properties of SMC Global Power and its
subsidiaries and tlleir conditions thereof as of December 31, 2017, is attached hereto as Annex "D".
Except for the prooerties of SCPC as provided m Annex ·o·. SMC Global Power and its significant
subsidiaries have no principal properties that are subject to a lien or mortgage. There are no imminent
acquisitions o ariy matenal property that cannot be funded by working capital of tile SMC Global
Power and its subs.diaries.

Fc,1 ado.t.oi.al infom10:.on on ine propen.es of SMC Global Power and its subsidiaries, please
refer to Note 1.>. ?r.:ip..lly, p,.,.n ano Equipment, of the Audited Consolidated Financial Statements
attached 1 • .,·e1J ~s Annex B"

Item 3. leqa' P•->eeedings

Petition to stop the lmposltlon of the increase in generation charge

SMEC SP"'C and SPDC and other generation companies became parties to a petition filed in
the Supreme Court oy special interest groups which sought to stop the imposition of the increase in
generation c. ''"9e cf 1.iera.co for tne November 2013 billing month. The Supreme Court issued a
Temporary Res:ra.ning Order C-TRO") ordering Meralco not to collect, and the generators not to
demand payment. ~or the increase in generation charge for the November 2013 billing month. The
TRO was originally for 60 days. and was extended for another 60 days. The case is pending resolution
by the Supreme Court,

ERC order void.rig 'IVESM prices

On Maren :;, 2014 an ERC Order was rssued declaring the prices in the WESM for the
November aro December 2013 billing months, as null and void, and ordered the PEMC, the operator
of tne WESM, 10 calculate and issue adjustment bills usmg recalculated prices.

SMEC ::sF =>C and sr-oc filed a request with the ERC for the reconsideration of the ERC
Order. Other generators also requested the Supreme Court to stop the implementation of the ERC
Order

On Jun.a ..6 -..; i4, Slit.EC, SPPC, SPDC and SPI filed with the Court of Appeals ('CA') a
Petition !or Rev.ew of these orders

In " ca~i~1c.1 cateo No1ember 7, 2017 ("Decision'), the CA granted the Pelition for Review
filed by SMEC SPPC, SPDC sno SPI, declaring the ERC Order null and void and set aside the Orders
of the ERC dated \~arch 3, 2014, March 27, 2014, May 9, 2014 and October 15, 2014 in ERC Case
No. 2014-02 MC .ar.d accorc:1r.g.y reinstated ano declared as valid the WESM prices for Luzon for the
supply of 'TlOntr.b ... f J.;.,ember .o December 2013.

Upon 111 ;;, ,,. o .ne Decis.on a c1aim for refund may be made by the relevant subsidiaries with
PEMC for an an -.u~, J~ to P2 526 million, pl1;s :nterest.

llijan IPPA Agr.,emer• Disput6

SPPC ~~ l PSALM are parties to the lfijan IPPA Agreement covering the appointment of
SPPC as ;,1e 1p:: - .. mi~istt<ito of :he lli;an Power Plant.

SPPC "' c 0SALM ~a~e an ongoing dispute arising from differing interpretations of certain
prc-.sicns r<o . .;:co. :v ;;.,.-:.,;s~c:i payments under the llijan IPPA Agreement. As a result of such
dispute, the partes have arrived at different computations regarding the subject payments. In a letter
dated A~gus: 6 ~:J 1::, ?SA-1\ ~.as demanded payment of the difference between the generation
payments calc, 3!e~ based or. ·15 .n:erpretation and the amount which has already been paid by
SPPC. plus ;nte·esi covering :re period December 26, 2012 to Apnl 25, 2015.

37
 Or. August ~2. 2015, SPPC initiated a dispute resolution process with PSALM as provided
under the terms of the llijan IPPA Agreement whi:e continuing to maintain that it has fully paid all of its
obligations to PSALM. Notwithstanding the bona fide dispute. PSALM issued a notioe terminating the
llijan IPPA Agreement on September 4, 2015 On the same day, PSALM also called on the
Performance Bone! posted by SPPC pursuant to the llijan IPPA Agreement.

Or. Sei;.1e.11bE:r 8, 2015 SPPC fi:ed a Complaint with the Regional Trial Court of Mandaluyo11g
City ("Court" J In ii.$ Complaint. SPPC requested the Court that its Interpretation of the relevant
provisions of Lit: 1 ...an IPPA Agreement be upheld The Complaint also asked that a 72-hour TRO be
issued agains: .-SA~M for ,1,ega11y terminatmg the llijan IPPA Agreement and drawing on the
Psrforrnance Bon.i On even oate, :he Court Issued a 72-hour TRO which prohibited PSALM from
treat.Ing SPPC as oa.ng in Adm'nistra1or Default and from performing other acts that would change the
status qco ar.:e ~e• .1.ee11 t'le csrues before PSALM issued the termination notice and drew on the
Performence Be 1d "tie TRO was extended for until September 28, 2015.

o.. SE:~!~r .0t:1 28, 20· w. .ne Court issued an Order granting a Preliminary Injunction enjoining
PSALM rrorn p.oceea1n9 wicn file tennination of the llijan IPPA Agreement while the main case is
pending.

On October 22, 2015, the Court also issued an Order granting the Motion for Intervention and
Motion to Adm t Co~p~air.t-in-'nterventionby Meralco.

In an 0 Je :.are:l June 27 2016, toe Court denied PSALM's: (1) Motion for Reconsideration
of the Order dateo September28, 2015, which issued a writ of preliminary injunction enjoining PSALM
from further proceedings with the termination of the IPPA Agreement while the case is pending; (2)
Motion for Recons.derabon of the Order, which allowed Meralco to intervene in the case; and (3)
Motion to Disrn.ss. In response to tnis Order, PSALM ftled a petition for certiorari with the CA seeking
to annul the coo-rs Orders granting lhe writ of preliminary injunction. allowing Meralco's intervention,
and the Orders ceny1ng FSALM's motions for reconsideration of said injunction and intervention
orders. P.:>AUv. a.so prayed for me issuance of a TRO and/or writ of preliminary injunction ·against
public respondeu Co~n and .ts assailed Orders." The CA, however, denied the petition filed by
PSALM in its Decision dated December 19, 2017.

Tne prelin.nary conference on the Regional Trial Court case was suspended to pave way for
mediation be.ween tre oarttes Dunng the last mediation conference on January 6, 2017, mediation
between the part.es was terminated. Thereafter, the case was referred to judicial dispute resolution.
During tne d;sl)u.e conference bet.ween the parties on September 28, 2017, the judicial dispute
p1 ocess was term nateo. The parnes were required to submit their respective position papers on
whether or not the case should be re-raffled. In compliance with the Order of the Regional Trial Court
dated Octooor 24 20 i ~ on December 8, 2017 SPPC filed its Comment and Opposition to the Motion
for Inhibition f "" Of PSAL11. On December 18, 2017, the presiding judge of the RTC who
conducted tte Jua1c1a1 disoute resolution issued an Order inhibiting himself in the instant case.
The case was 1 an re-raffiea to another RTC judge in Mandaluyong City which scheduled the
Pre-Trial Cont.orence on May 11 2018. SPPC filed a Request for Motion for Production of
Documents on Fcon;ary 28 2018 while PSALM filed its Manifestation with Motion to Hear
Affinmative De'0 .• ses a:-d Objections Ad Cautelam. Both motions were heard by the presiding
court on Ma·ch 2: 2018. D~<ing sa'd hearing, the parties were given time to file their respective
submiss'ons , r~~po!"se '.:> ... ese oending motions.

11/earwni e -rere are oo res'rictions or limitations on the ability of SPPC to supply power from
the llijan Pov, Sf "' art to Mera co under its PSA with the latter.

By viru.e c tia Pre.1m 1art 1r,Jnction issued by the Court, SPPC continues to be the IPPA for
the dijan Pc1,:er,.. _ t
Complaints for estafa and corruption against PSALM officers

On September 29, 2015. SPPC filed a criminal complaint for estafa and tor violation of
Section 3(e) of Republic Act No. 3019, olherwise known as the Anti-Graft and Corrupt Practices Act
(RA 3019), be:ore the Department of Justice ("DOJ.), agalnsl certain offioers of PSALM, In connection
with the termination of SPPC's IPPA Agreement which was made by PSALM wilh manifesl partiality
and evident bi;d '"'"'· Furt/le1 1t was alleged that PSALM fraudulently misrepresented lts entitlement
to draw on the Performance Bond posted by SPPC. resulting in actual injury to SPPC in the amount of
US$60 m11lion. 1 ne case is still pending W1th the DOJ as of December 31, 2017.

Complaints for plunder and corruotion against PSALM, TPEC, and TeaM Energy

On Ocico.. 21. 2015, SMEC filed a cnm1nal complaint for plunder and violatlon of Section
3(e\ ano 3(1' of "' 3019 oe'cre the :JOJ against a certain officer of PSALM, and certain officer of
Team Philipp ~e' :,ergy Corp ( TPEC") and Team Sual Corporation ("TSC'), pertaining to the illegal
grant of the so-caued "excess capacity" of the Sual Power Plant in favor of TPEC enabled It to receive
a cer.ain arr:C>LI'! o me expanse of 1 ie government and SMEC.

in a Rescration dateo Jt.uy 29 2016, the DOJ found probablecause to file Information against
the respondents tor (a) Plunder; (b) Violation of Sec. 3(e) of the Anti-Graft and Corrupt Practices Act:
and (c) Vio.ation of Sec. 3(1) of the Anti-Graft and Corrupt Practices Act. The DOJ further resolved to
forward the en.i e records of :ne case to the Office of the Ombudsman for their proper action.
Respondents in j,is case nave respect:velyappaaled said DOJ's Resolution of July 29, 2016 with the
Secretary of JJstice. Responaents have respectivelyappealed the DOJ Resolution of July 29, 2016
with the Secreiary of Justice. On October 25, 2017. the DOJ issued a Resolution partially granting the
Petition for Review by reversing tile July 29, 2016 OOJ Resolution insofar as the conduct of
preiminary invesr.gaoon. On November 17, 2017. SMEC filed a motion for partial reconsideration of
the said ocicoer25. 2C17 Reso1u'hon.

On J.,, '" , . 2016 SMEC filed with the Regional Trial Court, Pasig City ("RTC Pasiq") a civil
complaint fo ccr.siqnenon against PSALM arising from PSALM's refusal to accept SMEC's
remittances corresponding to tne proceeds of the sale on the WESM of electricity generated from
capacity ir. excess of tt:e 1000 MW or the Sual Power Plant ("Saleof the Excess Capacity'). With the
filing of the comp.am; SMEC also consigned wtlh the RTC Pasig, the amount, corresponding to the
proceeds of the Sale of the Excess Capacity for the billing periods December 26, 2015 to April 25,
2016.

Cr Octouar S. 20~6 SMEC foed an Omn101is Mobon (to Admit Supplemental Complaint and
to Allow Fu:ure "o"s gration w.:hoi.t Tender). Together with this Omnibus Motion, SMEC consigned
W•tn the RTC r'as,'1 an add1t1onal amoant corresponding to the proceeds of the Sale of the Excess
Capacity for the b... ng periods • cm Apr.I26, 2016 to July 25, 2016

Pending for •esol~tion are (a) PSALM'S Mabon for Preliminary Hearing and Special and
Affirmative Cie 1 ses 1:nd 1b1 SMEC s Omnibus Motion (to Admit Supplemental Complaint and to
Allow Futu & C •~ i:m;,;,ons wiu1out °'.'ender)

On De.-emoe· 1, 20io, SMEC receiveo a copy of a Complaint filed by TPEC and TSC with the
ERC against SMEC and PSALM in relaoon to the Excess Capacity issues, which issues have already
been raised i 1'.e aco~emen:ored cases SMEC filed a Motion to Dismiss and Motion to Suspend
= .•
Proceeo1•1g 01 •• ta 11 C2Si!

On Ju 1 s: 2017, SMEC consigned with the RTC Pasig the amount representing additional
proceeds of Sa.e vi the Excess Capacity for me billing period July 26, 2016 to August 25, 2016.
SMEC aso fi:ed a 111.otion to Aomit Second SupplementalComplaint in relation to said consignation.
Witn the suom.ssron or mar.iies:ation from PSALM, the Motion to Admit Second Supplemental
Complain; .s su.ti ·.taJ for r"solutior..

39
Refund of system loss charge

In 2008 Meralco filed a petition for dispute resolution against PEMC, Transco. NPC and
PSALM seeking among others, the refund of the transmission line loss components of the line rentals
associated with PSALMINPC orlateral transactions from the start of the WESM operations and
Transition Supp.y Contract ( TSC") implemented m 2006. In this case. the ERG concluded that
Mtira1co was uc.i\" t.r1&rgeo t.1.ce cons1denng that it already paid line rental to the WESM beginning
June 2008. Hence the ERG ordered PSALMINPC to refund Meralco the 2.98% system loss charge
embedded 1n tne 1,pc.T1me-<if-t-s1: 1 l'<PC TOU 1 rate (Meralco vs. PSALM, NPC, Transco).

011 Mc.rcn ... 2013 the E~C issued a subsequent order directing Meralco (I) to collect this
sys,em .oss · '9" f•orr t'le suceesso- Generating Companies ("SGcs·). which supplied the
Mera1co-l•l"'C , &.... dOu vr.crged the NPC TOU rates. and (ii) to file a petition for dispute resolution
against the ss:,, PSALV. acoeareo the ERG s March 4, 2013 order to the CA.

In ccr-iota .ce will' tile ERC's March 4, 2013 order, Meralco filed a petition for dispute
resolution wil1 t :e .=Re agair.,,t a. SGCs whoct supplied portions of the TSC (including SMEC and
S?PC). Or S v • ce 20. 2C.13, S/vEC ano S?PC jointly With the other SGCs filed a Motion to
Dismiss batore f'<C. wi .cr to ti's day remans unresolved by the ERC.

Validity of Concession Agreement with AL.ECO

The d.sccte arose from a Cornp-aint for injunctionwith a prayer for the issuance of writ of
prelirn.na.y p.o: .....c n•.Jlet.vn, 11(1 cf preliminary mandatory injunction, temporary mandatory order
anc TRO fHeu ~, a gro...p of .nC11v1duals heaoed by Jaime Chua (the ·Appellants"), the alleged
president of ALECO", on December 16, 2014, en]Oimng the implementation of the 25-yearConcession
Agreement wrtn r.LECO dated October 29, 2013, with SMC Global Power. The foregoing Complaint
also questioned the validity of the Concession Agreement due to alleged oppressive and
cisadvantaqeccs :rovis:ons t1e:ein. On Septemoer 29, 2015, the trial court upheld the validity of the
concess.cr Aure:e. en. anc a;sm•ssed die Complaint As a result, the Appellants filed an appeal with
the CA. To care 1e case 1s sti1I pendir:g with the appellate court.

Orner man those mer.boned above, tnere are no material pending legal proceedings to which
SMC Global ?owe: or ar:y oi its subsidiaries and affiliates is a party or to which any of their material
assets are sucjec;

Item 4. Submlss on of Matters to a Vote of Security Holders

SMC Giooal Pov1er hereby repons that dunng the Special Stockholders Meeting of the
Company he Jc. November 7 2017, the followt:ig matters were approved by the stockholders of the
Company

a. tM!coor. of Jos., 1a Guavara-Sa1onga as an Independent Director of SMC Global

Po."~~
t api;~va, of :n& io1low ng amendmems to the Amended By-laws of the Company, to wit:

(1) ncrease in :he number of independent directors from two (2) lo three (3} and to
u.c,u~e a prcvisior, on tne qua1ificarionsof Independent Directors as providedin the
,....~e"lded Manual on CorporateGovernance;

1:1 ir.c.Js.or. o' the requrremeru that there must be at least one (1) lndepenoent
Director present to constitutea quorum for meetings of the Board of Directors;

(3~ ~r.:ation of new Board Committees, including but not limited to the Corporate
ce-emaoee Co:nmirtee, Audit and Risk Oversight Committee, and Related Party
"rarsacticn COMrittee·

(4) ;~enge oi tr.; oesig-;arion of tne •Finance Manager" to 'Comptroller"; and

 (5) adoption and incorporation by reference of the Amended Manual on Corporate
Governance and the Charters of the Board Committees.

c. delegation of the power to amend or repeal the by-laws, or adopt new by-laws. to the
Board of Directors of the Company, and amendment of Article VIII of the Amended By•
laws of the Company to refle<:t the same

PART II - OPERATIONAL ANO FINANCIAL INFORMATION

Item 5. Market Price and Dividends on Common Equity and Related Stockholder Matters

Market Information

The Company has an authorized capital stock of ,.2,000 million comprised of 2,000,000,000
common shares with par value of ,.1.00 per common share. As of December 31, 2017, the Company
has issued and outstanding 1.250,004,000 common shares The common shares of the Company are
neither traded in any public trading market, nor subje<:t to outstanding warrants to purchase. or
securities convertible into common shares of the Company.

Stockholders

As of December 31, 2017, the Company has eight (8) stockholders, seven (7) of whom are
individuals and one (1) corporation, with at least five hundred shares each. The following sets out the
shareholdings of the aforementioned eight stockholders and the approximate percentages of their
respective shareholdings to the total outstanding common stock of SMC Global Power:

Name of Stockholder %of

Class of Number of
Outstanding
Securities Shares
Shares

San Miguel Corporation Common 1,250,000,500 100%

Ramons. Ang common 500 0%

Ferdinand K. Constantino common 500 0%

Aurora T. Calderon Common 500 0%

Virgilio S. Jacinto Common 500 0%

Jack G. Arroyo, Jr. Common 500 0%

Consuelo M. Ynares-Santiago common 500 0%

Josefina Guevara-Salonga Common 500 0%

Total Common 1,250,004,000 100%

41
Dividend Policy

The Company and rts subsidianes are allowed under Philippine laws to declare dividends,
subject to certain requirements. These requirements include, for example, that the Board is
authorized to declare dividends only from its unrestncted retained earnings. Dividends may be payable
in cash, shares or property or a combination of the three, as the Board shall determine. A cash
dividend cecaraton does not require any further approval from shareholders. The declaration of
stocK dividends .s subject to Ille approval of shareholdershOldlng at least two-thirds of the outstanding
capital stoc« of ;n& Company. Tne Board may not declare dividends wtlich will impair its capital.

The Cc.n11Ja11y ar.d it• subsidiaries declare dividends as determined by the Board, taking Into
considerat on tac.101;; such as the implementation of business plans, debt service requirements,
operating ex.,.. r.ocs t.uoge.s, funding for new investments and acquisitions and appropriate reserves
and worKing c..op.•a

Hlstoricall\' t1'e Boaro of Directors of the Company has approved the declaration and
payment of tne 1cl10;1 ng cillidends from SMC Global Power to Its shareholders in the past three (3)
years, as re. o •

Tnere ,,_r = r.c cash divicend declarationsduring the year ended December 31, 2017.

2016
-
Date of Dectaratlon Amount (in millions!>) Type of Dividend Payment Date
Ji.ne 7, 2016 I 1,500 I Cash June 14, 2016
August 11 2C''O I 1,500 leash August18,2016

2015
Date of :Jec;a.; a~or , I Amount (in millions P) Tvpe of Dividend Pavment Date
March 25, 2015 t i.sco Cash March 31, 2015
July 2, 2015 '".s:o Cash July 9. 2015
November5 2015 I 1.500 Cash November 10, 2015

R.;;;r,nt Sd,ss unregistered or Ex.emptSecurities, Including Recent Issuance of Securities

Constituting sn Exempt Tr.;r.saction

0'.her ti"a" the subscnpnon by, and issuance by the Company to, Josefina Guevara-Salonga,
an Independent Director of ihe Company, of her 500 qualifying shares, which is an exempt transaction
under secuo- 10 HK) of ihe Securities Regulation Code, the Company has not sold unregistered or
exempt secunues nor n..s 1t rssoec secunues constituting an exempt transaction within the past three
(3) yc1ars.

Item 6. Mam11,1enient's Discussion and Analysis or Plan of Operation.

(A) Management Discussion and Analysis

The infcrmauon recu red by Item 6 (A} may be found on Annex "A" hereto.

42
(B) Information on Independent Accountant and Other Related Matters

The accourtng firm of R.G Manabat & Co. served as the Company's external auditors for the
last eight (8) fiscal years. The Board of Directors will again nominate R.G. Manabat & Co. as the
Company's external auditors for this fscal year

R.G. ,v,o •dba, & Co na. no snarehokhngs in the Company, or any right, whether legally
enforceable or net to nominate or to subscribe to the securities of the Company, in accordance with
the profes.ic.nc. • .on~ards on ndependence set by the Board of Accountancy and Professional
R.,,:iulotion Corr.rr.•ss..:m.

R G Ma~aba! & Co auditor has not acted and will not act as promoter, underwriter, voting
trustee, office1 c . "~·"O)eeof trte CO npany

Tu e <19 ""4"·" ees Jli1ed lly "<.G. Manabat & Co. amounted to 1"9.6 million, 1"6.2 million and
1"3.6 million m 2~ 1- 2C16 and 2015 •espectivety.Said fees include compensation for audit services,
tax advisory ar.d ether related services such as review and agreed-upon procedures. There were no
fees paio 'or d ng c..:rr.~.1<mce, and planning services. There were no other fees paid to tne
indep6nce"t 0u.• .rs olt.er :.·.= iorwe aoove-desctibedservices.

, ; " v, • "lm.r.e-; ;as <:f'I existing policy to reviewand pre-approve audit and non-audit
services renc.o. :;a :,y _·,e rnoeOE.r:cem auoitors o; the Company. The Audit Committee does not allow
SMC Glo:.CJ ;: c,,;e• ,.., e"1gag.: inaependenlauditors tor certain non-audit services expressly prohibited
by SEC regu c:.. :>•. i "' c? perrcrmeo oy an inoependent auditor ior its audit clients. This is to ensure
thar such inoeper.denr auditors maintain the highest level of independence from the SMC Global
Power, bo:~ ii "ac: and aopearance.

Item 7. Fman~1al Statements

The Audited Consolidated Financial Statements and Statement of Management's

Respons.cilil)' a e anachec as Annex "B" with the SupplementarySchedules attached as Annex "C"
hereto. Tt:e a~-'tc:-s' ~TR name of certifying partner and address are attached as Annex "B-1"
hereto.

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

Disclosure

Tne ~" ~ary has no disagreements wnh R.G Manabat & Co. on any matter of accounting
principles or cracaces, financial statement disclosure. or auditing scope or procedure.

43
 PART Ill-CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers of the Issuer

The overa.l maragement and supervision of the Company is undertaken by the Board of
Directors. The Board is composed of seven (7) members of the Board, three (3) of whom are
Independent directors. Pursuant to the By-Laws of the Company, the directors are elected at each
regular meeting of stockholders meeting by stockholders entitled to vote. The term of a director Is one
( 1) year from cJa,., of election unul tneir successors are elected and qualified.
As of Ce.;cn~ber 3i, 2C17. the composibon of the Board of Director of the Company is as
follows:

x: ~(' Age Citizenshl(l Position Year A(l(lointed

Ramon S Ans 63 Filipino Chairman 2010

Ferdinand K. Constantino 66 Filipino Director 2010

Aerora T. C:.. -1 ;.3 F.Epino D.rector 2010

Virgilio S. Jacrrrc 61 Filipino Director 2010

Jack G. Arroyo st. 59 Filipino Independent 2011

Director

Consuelo M Yr.ares-Santiago 78 Filipino Independent 2011

Director

Josefina Guevara-Salonga 75 Filipino Independent 2017

Director
 As of December 31, 2017, the following are the execunve officers of the Company:

Year Positio n
Name Age Citizenship Position
was Assume d
Ramon S Ang 63 Filipino Chairman & Chief 2010 & 2017
Execubve Officer and
President s Chief
Operating Officer

Ferdinand K. Constantino 66 Filipino Vice Chairman 2010

Virgilio S. Jacinto 61 Filipino Corporate Secretary & 2010 & 2011

Compliance Officer

Elcnita D Ge -.
~. , Filipino General Manager and
Energy Sourcing &
2011

Trading Group Head

Paul Bernard D. Causon°11 39 Filipino Chief Finance Officer 2017

Ramon U. Agay 60 Filipino Assistant Vice 2015 & 2011

President& Finance
Manager/Comptroller

Irene M. Cipnano 43 Filipino Assistant Corporate 2010

Secretary

Lorenz R. Defensor 40 Filipino Data Privacy Officer 2017

Reynaldo S. IV'atillano 57 Filipino Internal Audit Manager 2017

('
Mr. Causon was likewise appointed as Assistant Vice Presidenton March 9, 2018.

The following sets forth a brief description of each of the directors and executive officers of the
Company over the past five (5) years.

Ramon S. Ang s the incumbent Chairman of the Board and Chief Executive Officer of SMC
Global Power since August 31, 2010 and concurrently. the President and Chief Operating Officer of
the Company since April 30, 2017. He 1s also the Chairman of the Executive Committee of SMC
Global Power since September 2, 2011 He is the President and Chief Operating Officer of SMC
since March 6, :tOJ2 and Vice Chairman since 1999. He also holds, among others, the following
positions in other listed and public companies: President and Chief Executive Officer of Top Frontier
Investment ho ....in;.is. Inc. ano Petron Corporation; Chairman of the Board of San Miguel Brewery Inc.
and San Miguel Brewery Hong Kong Limited (listed in the Hong Kong Stock Exchange); Vice
Chairman of the Board of Ginebra San Miguel, Inc., and San Miguel Pure Foods Company, Inc.; and
Chairman and Pr6s1demof San MigueJ Properties, Inc. He is also the Chairman and President of
San Miguel rioloi~gs Corp. and San Miguel Equity Investments Inc.; Chairman of the Board of
Sea Refinery Corporatlon, San Miguel Foods, Inc., San Miguel Yamamura Packaging Corporation.
clarloen hola1ngs, .nc., Anchor Insurance Brokerage Corporation, and Philippine Diamond Hotel &
Resort. Inc, he s ,,Jso the sots director and shareholder of Master Year Limited and the Chairman of
Privado Holdinlfs, Corp. He former.y held the following positions: President and Chief Operating
Officer of PAL Hc...jings. Inc., and Philippine Airlines, Inc.; Director of Air Philippines Corporation;
and Vice Cna1rman ano Director of Manila Electnc Company. Mr. Ang holds directorships in various
domestic and •,-;,·,ai.onal suasie-aries of SMC.

45
45
Ferdinand K. Constantino is a Director of SMC Global Power since August 31, 2010, the Vice
Chairman of the Board of SMC Global Power since September 2, 2011, and was its Treasurer from
August 31, 2010 to September 1, 2011, He is a member of the Executive Committee, the Corporate
Governance Committee, Audrt and Risk Oversight Committee and Related Party Transaction
Committee of SMC Global Power. He is also the Senior Vice President, Chief Finance Officer and
Treasurer of SMC He also served as a Director of SMC from May 31, 2010 to February 28, 2018. He
also holob, c.mu~g ciners, the fol.ow.ng positions in other listed and public companies. Director of
Top Frontier 1nv&s,1.1ent Ho.dings tnc., San Miguel Brewery Inc., and Petron Malaysia Refining &
Ma. keting Shd (a company pi..bl.ciy 1isted 1n Malaysia). He is also the President of Anchor Insurance
Brokerage Corpvrotion, Director of San Miguel Yamamura Packaging Corporation, San Miguel Foods
Inc., Citra Metro Mani.a ToLv.ays Corporation and Northam Cement Corporation: and Chairman of
th& San Migue ~o~r.dat.on l'lc He was formerly a Director of PAL Holdings, Inc., and Philippine
Airlines, :1.::. Mr L:irs:antno ~re,lousty serveo SMC as Chief Finance Officer of the San Miguel Beer
Di,:s1on; C11.e: -,1 :;ir:o Officer a~d Treasurer of San Miguel Brewery Inc.; Director of San Miguel Pure
Foods con pcl'I/ .... Direc10. of San Miguel Properties, Inc.; and Chief Finance Officer of Meralco.
He 1101ds dire:t ~ 1~s lr v;.1ious domestic and international subsidiaries of SMC

ALrora T Cs1aeru11 ~a Director o SMC G1obal Power since August 31, 2010 and a member of ks
Ext:c"cive Co.,,-1 ee s.nce $;;ptem""'r 2. 2011 Ms. Calderon is also a member of the Audit and Risk
O~ersight Ccr;;r; .. =« """ Re.s.ec Pc."!yTransacLon Committee of SMC Global Power. She is also a
erector of sr, C ~ -.uc Jene • ), 2G~4 and aiso the Senior Vice President-Senior Executive Assistant
to the Pre:S1Ce'1. c: .c Chief Operating Officerof SMC since January 20, 2011. She holds the following
positions in crre• publicly fis!ed companies: Director and Treasurer of Top Frontier Investment
Ho.dings, Inc " C.r:c:or vi Paucn Corporation. She is also a Director of Petron Marl<e;ing
Co. porauo ,, "'e:." = eacort vcr90·auon New Ventures Realty Corporation, Las Lucas Construction
ano ue11ebo"1e. _ ...or;:... Tr:c. San Miguel tiquor Co., San Miguel Equity Investments Inc .. and
C!ariaen rlo.a'. ~"· , ;. Sne ..as fcr.11en'y a Director of PAL Holdings, Inc., Philippine Airlines, me.,
Trustmer« n.:.lcir:gs Corporaion, Zuma noldiogs and Management Corporation, Air Philippines
Corporation :.·,c Meral::o. Ms Calderon holds directorships in various domestic and international
suesid.artas t.£ $ ~

Vlrgi1io S. ~..~.ntc. .s tile C...rpo ate Secretar,. of SMC Global Power since August 31, 2010, a
Dir<:etor ano tne Comoliance Officer of SMC Global Power since September 2, 2011. He is also a
member of the Corporate Governance Committee of SMC Global Power. He is also the Corporate
Secretary Se ucr /.cu-Presiaent, General Counsel and Compliance Officer of SMC (since October
20Hli He rs '"~" t'le Corporate Secretary and Compliance Officer of Top Frontier Investment
Holdings, k1c. aid G1nebra San Miguel, Inc. He is a Director of Petron Corporation. He was formerly
the Vice "re <:. a ,d <:,rs1 Deputy General Counsel of SMC. He was a Director and Corporate
Secretary ot UCPo, and a Par:ner ct Villareal Law Offices Atty. Jacinto is an Associate Professor at
th,; University o, .ne ?nuipp1nes. College of Law. He holds directorships in various domestic and
lntematlcnal ~u~s.01ar1es of SMC

Jack G. Arroyo, .;r is an lndepenoent Director of SMC Global Power since September 2, 2011. He is
a.sc the Ch,.ir """c 1 of the A~d.t ""o Risk Oversight Committee, and a member of the Corporate
Governance Cu"'l ,1\1ee a~d Re.at..d Party Transaction Committee of SMC Global Power. He .s a
medical coctor and oohtnalmo cgis: oy profess.on and is currenUy affiliated with The American Eye
Canter, Tna "'"" ...a, City ano Eye Referral Center. He Is also a member of the Board of Directors of
the Philippine Hea.tllcare Educators. Inc. and the ASEAN Eye Center Association, a member of the
Board of Tr~~1.,es 21 d Treasurer cf ?Mipp1ne Society of Cataract and Refractive Surgery, and the
Vice-Preslceo: .or u e Natiora Cai:-,:z. Region of Centrist Democratic Political Educators, Inc. He is
a.so currer."y u.e i= =scem :>f Casino Espanol de Manila,

46
46
Consuelo M. Ynares-Santiago 1s an Independent Director of SMC Global Power since September 2,
2011, She is aisc the Chairperson of the corporate Governance Committee, and a member of the
Audit and Risk Oversight Committee and Related Party Transaction Committee of SMC Global Power.
She rs also an Independent Director of Anchor Insurance Brokerage Corporation, Top Frontier
Investment Holdings Inc, South Luzon Tollway Corporation and Phoenix Petroleum Phil. Inc. She
served as an Associate Justice of the Supreme Court of the Philippines; Associate Justice of the
Coun of Appea.~ o, :r.e Pnu.,>ptnes; and a Regional Trial Court Judge of Makati City.

Joi.efina '-'t.1&v'ara-;;.a1on9a .s an Independent Director of SMC Global Power since

November 7, 2017 ;:,.ie is also me Cna1rperson of the Related Party Transaction Committee and a
member of me Cc ~rate Governance Committee and Audit and Risk Oversight Committee of SMC
Glooal Pov,er S e s a forrri;;r Associate Justce of the Court of Appeals. Previously, she was an
Executive '"~- 1. • 'he Ma~;;. Reg.onal Tnal Court She is currently a trustee of the Tahanan
outreacf Prog'a"' ~ ice 20•0 and a member of the following associations: San Pedro, Laguna
Lav1yer~ -"-~"'-'-" .., univ£ ~•t•
of the Philiop;nes Women Lawyer's Circle since 1966 and Philippine
Women• Juc!-!"S .t>s,o~iauo,· She aiso serveo as a trustee of the Society for Judicial Excellence from
2Gu7 ro 201.:

Elenita G. Go t ..: Gc,nerd. _,_an;;;aI of SMC Global Power since December 14, 2011. She joined
SIV'(; G1cba ? .~e .:" 1 as head of its Sales and Trading Group. Previously, sne was also a
Directors .), • =. "·~- ~ Kl r eo: o' ".e corooraie Procurement Unit of SMC. She is currently the
Ge,eral 1Via .< ~.,· o •• ,., subs.c.ar es oi me Corrpany and holds diiectorship in some suosidiaries of
the Compa~·1.

Paui C.eroa.ci r.. causcn .s '.he Cr er =bance Officer of the Company since March 30, 2017 and was
apocin.eo .. ss.s _ : .{,.,,. =res.vec. ci :ne Compary on March 9, 2018. Mr. Causon Is concurrency the
C.i.ef F ia•ce ·~· .rd e as/e· o' Ae1C. rle previously served as Vice President, Head of
Treasi.ry ""'-' r- i:ac. c; Spec1a r"018Clsof Prnfipp;r.a Airlines Inc. and Air Philippines Corporatron; Cnief
Fmance Cft.cer a ic Treasure· of Loer.y Telecoms Holdings, Inc. and Wi-Tribe Telecoms Inc.;
Partner, Aud1' Bar-xs and Of.er Finarcial Institutions of Manabat Sanagustin & Co., CPAs; and Vice
P.-c.sic.er.t c 'le. C ..~c.111e~ of C "!ifia Ba1king Corocranon.

Ramon .... r. · t ; .::n .u-. er cf SMC Global Power since September 2, 2011 and was
appointed Assis...nt Vice President on March 25, 2015. He is also the Finance Manager of the various
subsidiaries of SMC Global Power, and the Treasurer of Daguma Agro, Bonanza Energy and Sultan
Erergy. he :ad 11re1ious1y held finance posmons in SMC and its subsidiaries.

Irene M. Cip!iano s me Ass.s:ant Corporate Secretary of SMC Global Power since 2010. She is an
Assistant 11c" :s~~nr ar.... "'5SOC1Cote General Counsel of SMC She is also tne Assistant Corporate
Sec.etary o: Too :'rent.er Investment Holdings, mc., and Corporate Secretary and Assistant Corporate
Secretary of •a .ous sucsidianes of SMC Global Power and San M.guel Corporation. Atty. Cipriano
was formerty tlie Ass siant Corporate Secretary of PAL Holdings, Inc. and Philippine Airlines Inc.

Lorenz R. ue1e11sor .s a lega1 officer 01 SMC Global Power since September 1, 2011 and was
acpo.ntec as Cata Prctecncn \... ~cer of the Company on June 6, 2017. Atty. Defensor was a director
ot PNCC-Snlcc.~~ anu Traesoort Ccrooraton and was previously an Associate Attorney at Quasha
°'
Aucneta ?1:;,,;; NJ asco ~"~ O:Aiice.

Reynaldo S Matillano s the Audit Manager of SMC Global Power since November 1, 2015 and was
appo.ntec a:; '.e" nudit tv anager on June 6, 2017. Prior thereto, Mr. Matillano was part of the
a.;J1 tea111 v S:.t !\,;....a. Ya: cam~rd Packaging Corporation and San Miguel Corporation. Beiore
joir.mg Sa 1 :.r~u= C.:>rpo.a ", Mr. !l.lau,lano was the functional head of Legaspi Oil Mills, Inc.
(Ccconut I c-~-'Y ~d::r.em F1..r.d- 0 I Mills GroJp) and lndophil (OLA) Oil Mills.

47
47
Significant Employees

While a .. emp.oyees are expected to make a significant contribution to the Company, there is
no one particJlar employee, not an executive officer, expected to make a significant contribution to the
business of the Company on his own.

Family Re1atlom;n.ps

Tnere d'e nc tamily re1&.don~nips up to 1ne fourth civil degree either by consanguinity or affinity
among 011ec1v1~ or''""' axecu.11.; otf.cars of the Company.

lnvolvamant of Directors and Off/cars In Certain Legal Proceedings

None of :re crectors nominees for election as director, executive officers or control persons
of the Comp&~ " a veen ttie suo ecr of any (a) bankruptcy petition, (b) conviction by final judgment
In a Cl .rr nal ;i~~~c~u ~s.
corr.esuc er :oreign, (c) order, judgment or decree of any court of competent
jurisdiction, domestic or fore'gn. permanently or temporarily enjoining, barring, suspending or
otherw.se .Ir,,.. > .nvo.vemem .n any type of business. securities, commodities or banking
activities. which is not subsequently reversed, suspended or vacated, or (d) judgment of violation of a
securities or cc. - -'01dcs aw er repi..ation by a domestic or foreign court of competent jurisdiction (in
a c1v11 acuor». " - i i;o ne sc:.:: c comoarab.e foreign body. or a domestic or foreign exchange or
01~1e1 orgo,n~a~ .i"'-.•·il fiC<O .,e1 or seif-:egulatory organization, which has not been reversed,
susoenoed or 11s-:.:"'1 for the esst five (5/ years up to the latest date that is material to the evaluation
oi n1s aou1:y or " ..~; ·-1 to notG me ralevant posibon in the Company.

1!<1.n 1C.. <=x<>~u,.v., Cumpe:lsatic:'I

1·:1e a,,,~.,o,ce comcensadon paid or incurred during the last two (2) fiscal years and
es· -naieo t... ., -~ u d: Ire "· :sc..:ig fiscal year to Chief Executive Officer, President and Chief
Operatinq Oft.ce1 arc Senio: <=xecutive Officers of the Company are as follows:
-
Salary Bonus
Ne.me Year
(in millions) (in millions)
- -- 2018
Total ccmpensenoo o! the C~1ef Executive (estimated\ P'62.2 P16.0
Officer, President and Chief Operating
Officer anc semo Executive Officers 1
2017
I P'60.3 P'19.7

I 2016 P'57.0 1"17.3

- 2018
i-64.0
A1 ctre#:>~......;., anc 'narage"'S testmatedl 1-'D.3
as a gro~µ
2017 P'53.3 1'34.4

2016 !"43.5 1'24.9

1 Tn.. Chi"' Exec_11,o ~,fice1, ?r~•.<;enl & Chief Operating Officer, and senior Exe<:utive Officers of the Company
for W1 e are Ra.non S. Ang Alan T. Orllz, Etenita 0. Go, Alexander B.M. Simon,
and Ramon U .. -1gay. respocf\'e,y For 2017, the Chief Exerutive Off1Cer and President & Chief Operating
Officer, and senior Executive Officers of the Company are Ramon S. Ang, Elenita o. Go, Paul Bernard 0.
Causon. and Ramon U Agay, respectively.

48
48
Standard Arrangements

The By- a NS of the Company provides that directors, as such, shall not receive any stated
salary for t!1eir ser 1.ces, but by resolution of the Board, each director, shall receive a reasonable per
d.ern allowance for h.s attendance at each meeting of the Board. The By-Laws of the Company further
provides that a director s,au not be precluded from serving the Company in any other capacity as an
omcer, agent <-• crnerwise, and receiving compensanon therefore. Other than the aforesaid
reasonable per c.em the Directors of the Company have not received any salary or compensation for
their services ss u .ec.ors and tor U1eJr committee partrc1pat10ns for the periods Indicated. There are no
o.her specia1 ar •• r e.nents ... .irsuant to which any director was or Is to be compensated. There Is
no compe11sa1o;y ::. on or auongein1:nt for tne termmauon, resignation, or retirement of a memoer of
t~.. a..,,m:
Orner Arf311gemenrs

E~I'"?' P.S •cr;bed "~~,- +ere are no other arrangements pursuant to which any of the
directors a~d r> , t•e offica·s ;;/ '.M Company were compensateo, or is to be compensated, directly
er 1a:1rec:;y

Emptoymen .... ontrsct

~ e e a • , e. o ;:,1.T.e": .::r.;ract oel\..een the Company and a named Executive Officer.

Th.: -e \•,e1e 1.<; •· .; ~o.,,pensa:ory i-;an nor am;ngement with respect to a named Executive Officer.

Warrants":"Op i ~sOutsr.anding
1ar-a-:~0 o· :>~"ens held by any of the directors or executive officers of the
cc+-arv

Item 11. Secu•.. y c.. nership of Certain Beneficial Owners and Management

(A) Security O .1& ship of Certain Record and Beneficial Owners of More Than 5% of the
>;otJng S<:<:u:n1~" of the Company as at December 31, 2017

Title of ~a neof Name of I Citize nship No. of Shares Held % of Total

Class r{ec ord Beneficial Owner by the Beneficial Outstanding
Own er and and Relationship Owners (includes Shares
•a •onshlp
Rw1tn issuer Owner
with Record held by Shares
Common their

Comm-on--S: --
tti.le se~\.ligJel Filipino
nominees I
1,250,000,500 ·-
100%
coree raeon Corporation
,-·a e 1SMC)
~c. c e 1VJ
Common Ramo n :>Ang Nominee-director Filipino 500 0%
--f I o' s~~c in the
3oaro
Common • •CK 'lorr~ '" ee-oirector Filipino 500 I 0%
...t:'"'o: c'SMC 1n the
. .,
Board
A'J ora -.- Nom1Pee-oirec1or Filipino
I
- o. S\A.'.; in the
500 0%

Common .~cir l"lea..a1reetor

o: S IAC in me

49
49
(B) Security Ownership of Directors and Executive Officers of the Company as at
December 31, 2a17

Title of 1 Name and Position

Name of Citizenship Total % of Total
Class Aei... uSS of Beneficial No. of Outstanding
R ·ord Owner and Shares Shares
0 ..,.,~.a11d Relationship
Re1atlonshlp with Record
W1I u•>iuer
-~~~~~~~---'1-.~.: Owner
..:;~~.:...~~~~-1-~~~1-.~~~-~-l
Col'!"'T10n P.z S. Chairman & SWC: Filipino 500 0%
A Chief Executive Nommee-
Olflcer an~ director of
President & S~C in the

Ccrnrncn r » ... -~r c K. Vice Chairnan I

SMC; Filipino 500 1 0%
Officer ~~~-'-~~~~~~~~~~-1.~~~-1-~~~~--'
'-- - t: no Nominee..
Cc oirector of
S.VC 1n the
i5oaro
cor-mc- A~·~-a c:rc~:o: SY.C; Filipino 500 0%
Cc• .. e.cn Nominee•
direcmrof
Sf.iC <n the
Board
Commer. 'v ·; : S. SWC; Filipino 500 0%
Nominee•
direc:orof
si.. c in the
Soard
Common .!a:.'{ C l"lde
. :t:rCiZnt ... acx G. Filipino 500 0%
'~-~~~~k. .,_.::~r.~...:::~~·~=~~-~J~·~~~-'A:.~~~0'-'-"<'0"°"".Jr~.~~~~~~~+-~~~~~~
Common v s_...-.v lncependent ConsuetoM. Filipino 500 0%
I\' Vl'\ares• Director Ynares•
Sa· .usco Sannaoo
Commer. JO!;.._,,
~ .aa• tncecendent .cse:ina
G.. evara• Filipino 500 0%
Se> .nca LJ ecto... I Salonaa I
(C) Voting Trust Holders of 5% or More

None c •. e stockho ce 11o!oing more man 5% or the voting securities of the Company are
under a votin[ er similar eJreement.

(D) Changes In Control

The Corr any is not aware of any change in control or arrangement that may result in a
change 1n contr~ o, , 1tl Compa~y.

50
50
Item 12. Certain Relationships and Related Transactions

The Company, 1n the ordinary course of business, has entered into transactions with
stockholders. affiliates and other related parties principally consisting of advances and reimbursement
of expenses, ccr-suucton contracts, and development, management, underwriting, marketing, leasing
and administrative service agreements. Sale and purchase of goods and services to and from related
perues are mace on cm arm s lt:r.g111 cas.s and at current market pnces at the time of the transactions.

Except to. tne transactions discussed in Note 20 ("Related Party Disclosures') to the
accompanying , ,.,,,~ a1 statements. ttiere were no other matenal related party transactions during the
last threa r.nan~ ., years. nor are there any matenal transactions currently proposed between SMC
Global Pcv.er a 1 (i) o;ce:tor or executive officer, direct or indirect owner of 10% or more of tne
outstano1ng sna. S• i1 SMC G!ooel Power ; (ii) close family member of such director, executive officer
or owner; rm) associates of SMC Global Power; (iv) enterprises controlling, controlled by or under
common comrc: 1 t1' SMC G•ooa1 ?ower; or (v) enterprises in which a substantial Interest In the voting
power ts ownao .,c4 Of ino.~ecty, bf any director, executive officer or owner of 10% or more of the
outstanding s~' .s SIAC G oca. .-ewer or any close family member of such director, executive
officer, or 01.,1f'e.

Sea Nu._ --· '<elatet. "af'l) C sclosures, of the Notes to the Audited Consolidated Financial
Statements

ParentCo:npa •.,

The 02rs.,- "'C"110any cf SMC Global Pcweris SMC. As of December 31, 2017, SMC owns
100% of ~=
c , ~.ar; r.g caca stock of SMC Global Power. On the other hand, Top Frontier
lnvestmem f'o c rs
Inc. o .ns 66.03% of the outstanding common stock of SMC as of
December 3', -· 1

?~RT 11/- CORPORATE GOVERNANCE

Item 13 Corp _, Governance

Purs~ai: to SEC Memoranoum Circular No. 15, Series of 2017, the Company will, to the
extent app c~I s.iomit rts ln·~r'l!ed Annual Corporate Governance Report (1-ACGR) on or before
May 30, 2018

51
 PART V - EXHIBITS AND SCHEDULES
17-C

Item 14. Exhibits and Reports on SEC Form

(a) Exhibits

The 2017 Audited Consolidated Financial Statements are attached as Annex "B" and
the Suoplerr.entary Schedules required under SRC Rule 68, as amended, Annex 68-E (with
the cov~n.,g E:Aterna1 a~d;tor's report thereon, including the Tabular schedule of standards and
lnterpretat.ons and Map of the Conglomerate to which the Company belongs) and the
Schedu1.o un Aging of Receivables are attached as Annex "C" hereto. The other Schedules
as indicated m the Index to Schedules are either not applicable to the Company and its
subs1diarie> er require no answer.

Tr.c, 1.:.ilOW1ng scpp.ementary infOf'ITlation required by the SEC under SRC Rule 68, as
arr&. c.;~ "'·" annexeo .o this report as follows:

Map ot the Conglomerate (Annex "C-1")

Sched; e oi ?nilippine Financial Reporting Standards and Interpretations
Annex "C-2")
Sup;;l"':-&o,:.a;y Scnedules of Annex 68-E (Annex "C-3")
\· SMC G oba, ?<JWer and Subsidiaries Financial Soundness Indicators (Annex
"C-4"}
\ '3cnerlt. e or P.gong of Trace and Other Receivables (Annex "C-5")
vJ SMC G.oba Power's Reconciliation of Retained Earnings Available for
Jiv.ae"d uec:aration (Annex "C-6")
Jse :rt Proceeds from Issuance oi P20 Billion Fixed Rate Bonds consisting of
Senes D. ::: and F" Bonds (Annex "C-7')

(b) Repc ., on F rm

s.ir.irrary t of a reports on Form 17-C filed during year 2017 is attached as

Annex •·t .

52
SIGNATURES

Pursuant to the requirements of Section 17 of the Code and Section 141 of the Corporation Code, this
report Is signed onAbe.hiil[ aJoVie issuer by the undersigned, thereunto duly authorized, in the City of
Mandaluyong on ~I( l Ii .

Chair an of the Board

& Chi f Executive Officer and
President & Chief Operating Officer

PAUL BERNARD D. CAUSON

Chief Finance Officer

Corporate Secretary

SUBSCRIBED AND SWORN to before me this ------at

APR 16 1018 Mandaluyong City, the following
persons with their Competent IDs, as follows:

~ PASSPORT NO. DATE OF ISSUE PLACE OF ISSUE

Ramon S. Ang EC3542718 02127/15 OFA-Manila
Paul Bernard D. Causon EC2079461 09/12/14 OFA-Manila
Ramon U. Agay P2129014A 03/04/17 OFA-NCR East
Virgilio S. Jacinto EC3608156 03106/15 DFA-Manila

Doc.No. J:P
Page No. _::J"-'1'---·
BookNo. ~-•
Series of 2018. JUI' ACVIO
A No.lMB2·11
NoW)' Pubti< foe Marulaluy""g City
Until Dec:omber 31. 2018
No.1S6EJJSA.B<gy. Wack·Wed<.MandaluyoogCity
RDl!No.Cl12
P'!RNo.3391559;01/0l/18:Mandaluyoag0ty
IBP u&time IBP No. 0637.Z: l/10/f17; MU.a 0..-
 ANNEX "A"

I
SMC GLOBAL POWER
MANAGEMENT'S DISCUSSION ANO ANALXSlS
OF FINANCIAL POSITION AND FlNANClAL PERFORMANCE

INTRODUCTIO

This discussion summarizes the significant factors affecting the consolidated financial
performance, financial position and cash flows of SMC Global Power Holdings Corp. ("'SMC
Global Power" or "Parent Company") and its subsidiaries (collectively referred to as the "Group")
for the three-year period ended December 31, 2017. The following discussion should be read in
conjunction with the attached audited consolidated statements of financial position of the Group
as of December 31, 2017 and 2016, and the related consolidated statements of income,
comprehensive income, changes in equity and cash flows for each of the three years in the period
ended December 31, 2017. All necessary adjustments to present fairly the Group's consolidated
financial position as of December 31, 2017 and the financial performance and cash flows for the
year ended December 31, 2017, and for all the other periods presented, have been made.

r. BASIS OF PREPARATION

Statement of Compliance
The accompanying consolidated financial statements have been prepared in compliance
with Philippine Financial Reporting Standards (PFRS). PFRS are based on International
Financial Reporting Standards (IFRS) issued by the International Accounting Standards
Board. PFRS consist of PFRS, Philippine Accounting Standards (PAS) and Philippine
Interpretations issued by the Philippine Financial Reporting Standards Council (FRSC).

Basis of Measurement
The consolidated financial statements of the Group have been prepared on the historical
cost basis except for the following items which are measured on an alternative basis on
each reporting date:

Items ----------- Measurement Basis

Derivative financial instruments Fair value
Defined benefit retirement liability Present value of the defined benefit
-------------- ,r.::.et:::.iremoebnltiga=t•:.o:'o::..:n _

Functional and Presenlation Currencv

TI1e consolidated financial statements are presented in Philippine peso, which is the
functional currency of the Parent Company. All financial information are rounded off to
the nearest thousand (POOO), except when otherwise indicated.

Significant Accountin2 Policies

The accounting policies set out below have been applied consistently to all periods
presented in the consolidated financial statements, except for the changes in accounting
policies as explained below.
 Management Discussion and Analysis
Page2

Adoption of New and Amended Standards and lntemretation

The FRSC approved the adoption of a number of new and amended standards and
interpretation as part of PFRS.

Ame11d111e11ts to Standards Adopted t« 2017

The Group has adopted the following amendments to PFRS starting January I, 20 17 and
accordingly, changed its accounting policies in the following areas:

• Disclosure Initiative (Amendmems to PAS 7, Statement of Cash Flows). The

amendments resulted in improved disclosures about the net debt of an entity relevant
to the understanding of its cash nows. The amendments require entities to provide
disclosures that enable users of the consolidated financial statements to evaluate
changes in liabilities arising from financing activities, including both changes arising
from cash nows and non-cash changes - e.g., by providing a reconciliation between
the opening and closing balances in the consolidated statements of financial position
for liabilities arising from financing activities.

• Recognition of Deferred Tax Assets for Unrealized Losses (Ame11dme11ts to

PAS I2, Income Taxes).The amendments clarify that: (a) the existence of a deductible
temporary difference depends solely on a comparison of the carrying amount of an
asset and its tax base at the end of the reporting period, and is not affected by possible
future changes in the carrying amount or expected manner of recovery of the asset; (b)
the calculation of future taxable profit in evaluating whether sufficient taxable profit
will be available in future periods excludes tax deductions resulting from the reversal
of the deductible temporary differences; (c) the estimate of probable future taxable
profit may include the recovery of some of an entity's assets for more than their
carrying amount if there is sufficient evidence that it is probable that the entity will
achieve this: and (d) an entity assesses a deductible temporary difference related to
unrealized losses in combination with all of its other deductible temporary differences,
unless a tax law restricts the utilization of losses to deduction against income of a
specific type.

• Annual Improvements to PFRS Cycles 2014 - 2016 contain changes to three

standards, of which only the Amendments to PFRS I 2. Disclosure of Interests in Other
Em/ties on clarification of the scope of the standard is applicable to the Group. The
amendments clarify that the disclosure requirements for interests in other entities also
apply 10 interests that are classified as held for sale or distribution.

Except as otherwise indicated, the adoption of amendments to standards did not have n
material effect on the consolidated financial statements.
 Management Discussion and Analysis
Page 3

U. FINANCIAL PERFORMANCE

Comparisons of key financial pcrfonnance for the last three years are summarized in the
following table.

Years Ended December 31

(In Millionsl 2017 2016 2015
Revenues P82,791 P77,972 P77,507
Gross profit 29,112 32,970 28,607
Selling and administrative expenses (4,836) (6,240) (4,904)
Operating income 24,276 26.730 23,703
Gain on sale of property. plant and
equipment 116
Equity in net losses of associates and
joint ventures (40) (295) (528)
Interest expense and other financing
charges (13,245) ( 12,354) (13,130)
Other income (charges) - net 2,944 (6,882) (5,926)
Net income 8,217 4,151 1,829

2017 vs. 2016

Revenues

The Group's consolidated revenues for 2017 registered at P82,791 million, 6% higher
compared to last year's P77.972 million. The increase was primarily driven by: (i) higher
average realization prices for Sual and llijan bilateral offiake volumes due to higher pass•
through fuel and natural gas prices; (ii) additional contracted customers of San Miguel Electric
Corp. - Retail Electricity Supplier (SMELC - RES); and (iii) additional revenues from SMC
Consolidated PowerCorporation's (SCPC) Units I and 2 and San Miguel Consolidated Power
Corporation's (SMCPC) Unit I which commenced commercial operations in 2017.

However, the Group's consolidated offiake volume slightly declined by I% from last year's
17,346 GWh to this year's 17.227 GWh due to lower bilateral volumes from llijan and Sual
Power Plants. llijan Power Plant's Block I underwent an annual maintenance shutdown as
did the Malampaya gas facility, from January 28 to February 16. 2017. Meanwhile, Block 2
experienced a temporary shutdown due to series of earthquakes that hit Batangas in Apri I 2017.
Sual Power Plant's Unit 2 likewiseexpericnced extended shutdown due to transformer failure
from June 14 to November I 0, 2017.

Cost of Power Snld

Cost of power sold increased by 19% to P53,679 million in 2017 from P45,002 million in
2016. The increase is due to the following: (i) higher energy fees incurred by the llijan Power
Plant due to higher natural gas prices and utilization of diesel resulting from the Malampaya
gas facility shutdown; (ii) higher cost of coal for the Sual Power Plant; (iii) higher power
distribution costs incurred by RES-licensed Companies due to increase in its customers; and
(iv) higher power purchases from external generators by SMEC to compensate for its low
generation.
 Management Discussion and Analysis
Page4

Selling n11d Administrative Exoenses

Operating expenses declined by 23% or Pl,404 million compared to last year resulting from
lower provision for probable losses on trade and other receivables by P959 million due to
improved collection experience and lower contributions to donce institutions by P436 million.

Operati11g Income

Operating income ended 9% lower at P24,276 million from last year's P26.730 million as a
result of the foregoing factors. However, excluding the Limay Co-generation Power Plant's
(Limay Co-gen Power Plant) operations in 2016, operating income would have increased by
3%.

Other l11come (Charges/

Interest income increased by P260 million resulting from higher average balance of cash and
cash equivalents during the year and interest income recognized on advances granted to Angat
Hydropower Corp. (AHC) in 2017.

Equity in net losses declined by 86% mainly on account of AHC's improved bottom line in
20 I 7 as against last year's, as a result of better hydrological condition, higher water allocation
and higher average selling price for its offtake volumes.

Other income (charges) increased on account of (i) higher PSALM monthly fees reduction
income recognized on the extended outages of Sual Power Plant in 2017, and (ii) lower net
foreign exchange losses by P7,443 million due to reduced US dollar-denominated liabilities
and softer depreciation of Philippine peso againstthe US dollar for 2017 as compared to 2016.

Income Tax ExtMnse

Income tax expense increased by 84% or P2,814 million compared to last year's rnuinly as a
result of higher deferred income tax expense arising from temporary differencesrelating to the
IPPAs' finance lease liabilities.

Net Income

Consequently. the consolidated net income of the Group for 2017 increased by 98% from
1'4,151 million in 201610 PS,217 million in 2017.
 Management Discussion and Analysis
Page 5

2016 vs. 2015

Revenues

The Group registered consolidated offiake volume of 17,346 GWh for 2016, 5% higher than
the 16,558 GWh registered in 2015, with Sual and llijan Power Plants posting higher bilateral
volumes. Both power plants also experienced lower outages and maintenance shutdown
thereby improving their net generation in 2016. As a result, consolidated net revenues
increased to P77,972 million, 1% higher than 20 IS. Increase was moderated by lower average
realization prices forboth bilateral and WESM sales.

Ctw of Power Said

Cost of power sold declined by 8% to P4S,002 million in 2016 due mainly to the following
factors: (i) energy fees decreased by 12% from P23,224 million in 2015 to P20,478 million in
2016 due to lower natural gas prices charged for the fuel of the llijan Power Plant; and (ii) cost
of coal and other fuel oil decreased by 3% 10 PI0,047 million in 2016, primarily due to the
decline in the average coal prices for the Sual and Limay Co-gen Power Plants.

Selling and AdministrativeExpenses

Operating expenses increased by27% to P6,240 million in 2016 comparedto 2015 on account
of the additional provision for probable losses amounting to P740 million recognized on die
past due trade receivables and contributions to registered donee institutions for programs on
education. environment and other disaster-related projects amounting to P6SO million.
OoeratiirgIncome

As a result. consolidated income from operations reached P26,730 million, 13% higher than
2015.

Other Income(Charges/

Interest income declined by 52% on account of lower average cash balance due to higher
capital expenditures for the Group's power plant projects and recognition of interest income
on past due non-trade receivables in 2015 amounting to P108 million versus nil in 2016.

The gain on sale of property, plant and equipment in 2016 reflects the gain recognlzed on the
sale of SMC Powergen lnc.'s (SP!) Limay Co-gen Power Plant 10 Petron Corporation (Petron)
in December 2016.

Equity in net losses amounting to P29S million primarily represents the share of SMC Global
Power in the net loss for 2016 of AHC.

Net foreign exchange loss of P8,075 million recognized in 2016 was 6% higher than the
previous year's P7,S83 million due to the higher depreciation of the Philippine peso against
the US dollar experienced in 2016 compared to that in 20 IS.
 Management Discussion and Analysis
Page6

ltrcome Tax Expense

Income tax expense increased by 25% to P3,366 million in 2016 resulting from the higher
operating income of the Group and the deferred income tax expense recognized on lhe
temporary differencesrelating to the IPPAs' finance lease liabilities.

Net /11cnme

In view of the improvement in consolidated operating income as discussed above, consolidated

net income for2016 increased by 127o/o, from Pl,829 million in 2015 to P4,151 million in
2016. This was partly dampened by the unrealized foreign exchange losses amounting to
P7,447 million recognized in 2016.

The following are the highlights of the performance of the individual operating business
segments:

I. POWER GENERATION

2017 vs. 2016

a. San Miguel Energy Corporation (SMEC, Sual Power Plant)

Year-to-date net generationofS,333 GWh, at 61% net capacity factor rate, was 16%
lower than last year due to longer outages resulting from transformer failure of Sual
Unit2 from June 14 to November 10, 2017. However,total offtake volume increased
by 5% to 8,388 GWh compared to last year due to higher volume sold to bilateral
customers despite the extended outages. SMEC sourced its replacement power from
other generators to compensate for its low generation.

Net revenues at P39,970 million was 17% higher than last year due to the improvement
in bilateral volume as well as rate adjustments due to increase in pass-through costs,
particularly coal price.

Operating income at Pl 1.240 million was 17% lowerthan last year at PI J,518 million
on account of higher cost of power purchases during the outage of Unit 2. With the
PSALM monthly fees reduction income recognized on the extended outages of Sual
Power Plant, operating income would only be 2% lower than last year.

b. South Premiere Power Corp. (SPPC, llijan Power Plant)

Due to the scheduled maintenance of llijan Power Plant and the Malampaya gas
facility shutdown from January 28 to February 16, 2017 and the series of earthquakes
in Batangas from April 9 to 17, 2017, year-to-date net generation of8,143 GWh was
3% lower while total offtake volume of 8,308 GWh also dropped by 4% compared to
last year.
 Management Discussion and Analysis
Page 7

Net revenues of P33,746 million was higher by 10% compared to lust year's
P30.760 million due to higher average selling prices primarily attributable to the pass•
through costs of diesel and natural gas. The increase in net revenue was partially
offset by lower bilateral volumes. While the increase in cost of power sold by 14%
was due to the increase in energy fees brought by higher average natural gas and diesel
prices. Overall, these resulted to the decline in operating income by 3% to P8,474
million from tast year's PS.711 million.

c. Strategic Power De•1 Corp. (SPOC, San Roque Power Plant)

Net generation of 692 GWh in 2017 was lower compared to last year by 13% as a
result of low water elevation in the dam reservoir due to unfavorable hydrological
conditions. Majority of the net generation was dispatched to SMEC as replacement
power. Total offiake volume of 1,026 GWh declined by 28% mainly on account of the
expiration of the Power Supply Agreement with Albay Power and Energy Corp.
(APEC) effective December 26, 2016.

Year-to-date net revenues of P6,654 million declined by 12% resulting from lower
offtake volume, which more than offsets the increase in average realization prices for
both \VESMand replacement power sales.

Notwithstanding the decline in the offiake volume and net revenues, operating income
for 2017 of P2,635 million still improved by 53% from last year's Pl,719 million
primarily due to better margin and lower operating expenses incurred during the year.

d. SMC Consolidated Power Corporation (SCPC, owner of the Limay Greenfield

Power Plant)

Units I and 2 of the 4 x ISO MW Limay Greenfield Power Plant commenced

commercial operations in May 2017 and September 2017, respectively, following the
receipt of Provisional Authority to Operate issued by the Energy Regulatory
Commission (ERC) in favor of both Units and the completion of its testing and
commissioningphase.

The plant's year-to-date net generation for 2017 registered al 786 GWh while net
revenues and operating income from SCPC's power generation business reached
P2.479 million and P268 million, respectively.

e. San Miguel Consolidated Power Corporation (SMCPC, owner of Davao

Greenfield Power Plant)

The Unit I of the 2 x 150 MW Davao Greenfield Power Plant commenced commercial
operations in July 2017 after SMCPC received the Provisional Authority to Operate
issued by the ERC and the completion of the testing and commissioning of Unit I.

As of December 31, 2017, the plant's net generation was posted at 339 GWh while
net revenues and operating income registered at Pl,904 million and P579 million,
respectively.
 Management Discussion and Analysis
Page 8

f. SMC Powergen Inc. (SPl, owner of the Llmay Co-gen Power Plant)

On December 23, 2016, SP! sold its 4 x 35 MW Lirnay Co-gen Power Plant located
in Barangay Alangan. Limay. Bataan to Petron. As part of SMC Global Power's
expansion program, future capital projectsmay be assigned to SPI by the management.

2016 v~. 2015

a. SMEC

Vear-to-date net generation in 2016 of6,341 OWh, at 72% net capacity factor rate,
was 5% higher than 20 I 5 due to lower hours of forced outages and emergency
shutdown for Units I and 2 during 2016 as compared to previous year.

Net revenues at P34,202 million grew by 3% compared to 2015 driven mainly by the
5% increase in offtake volumes despite lower bilateral and WESM prices in 2016.

Consequently, operating income at P 13,518 million was 7% higher than the P 12,646
million posted in 2015.

b. SPPC

Due to the improved operation of Uijan Power Plant brought by lower outages during
the year, net generation in 2016 grew by 12% to 8,363 GWh while total offtake volume
also grew by 10% to 8.630 GWh compared to 2015.

Net revenues at P30,760 million, however, declined by 2% compared to previous year

due to lower bilateral prices (resulting from lower fuel costs passed on to customers)
and lower WESM prices. atural gas prices were also lower thereby reducing the cost
of power sold by 13%.

Consequently, operating income at P8,71 I million was better by 35% than previous
year's P6,455 million.

c. SPOC

San Roque Power Plant posted lower offiake volumes by I 0% due to lower dam
reservoir levels seen in 2016. Revenues al P7,572 million were consequently lower
by 11 % aggravated by lower WESM spot market prices and a decline in the
dependable capacity of the Power Plam due to hydrological conditions.

As a result, operating income at Pl,719 million was 49% lower compared to previous
year's P3,395 million.

d. SPI

et energy generated by the Limay Co-gen Power Plant in 2016, at 45% net capacity
factor rate, reached 551 GWh, 5% higher than 2015.

Net revenue in 2016 atP8,621 million was 19% higher than previous year due to the
scheduled escalation of the capital recovery fee (a tariff component).
 Management Discussion and Analysis
Page9

Operating income of PJ,266 million likewise increased by 38% compared to previous

year's P2,364 million because of higher average bilateral realization prices as well as
the decline in variable costs brought by lower fuel prices.

2. RETAIL AND OTHER POWER-RELATED SERVICES

2017 vs. 2016

a. San Miguel Electric Corp. (SMELC, Retail Electricity Supplier)

SMELC realized its profits from RES contracts with various SMC subsidiaries and
other contestable customers. Power supply for its RES contracts was sourced from
the Sual Power Plant and Limay Greenfield Power Plant.

Offtake volume of 1,224 GWh more than doubled compared to last year's 453 GWh.
The increase was attributable to the following: (i) higher electricity requirements of
existing RES customers, and (ii) additional 31 contestable customers contracted in
2017. This led to the 171% increase in net revenues for 2017 amounting to
P8, 140 million, which represents I0% of the Group's consolidated net revenues.

On the other hand, operating income posted for2017 declined by21%, or P2.6 million,
from last year due to higher operating expenses resulting mainly from higher business
taxes and other charges incurred.

b. Albay Power and Energy Corp. (APEC, Concessionaire for the rehabilitation,
operations and maintenance or Albay Electric Cooperative, Inc.)

Net revenues of P2,792 million was 2% higher than last year due to higher offlake
volume mainly driven by improved billing systems and new customer connections.
Operating losses for year 2017. at P134 million, significantly declined from the P837
million operating losses registered in 2016 due to the absence of impairment losses
recognized on account of better collection experience during the current year.

e. SMC Consolidated Power Corporation - Retail Electricity Supplier (SCPC-RES)

On August 24, 2016, SCPC was granted a RES License by the ERC. RES customers
include various SMC subsidiaries and other contestable customers. The power supply
for its RES contracts was sourced from L.imay, Sual, llijan and San Roque Power
Plants.

As of December 2017, offiake volume registered at 245 GWh while net revenues and
operating income amounted to Pl ,463 million and P624 million, respectively.

2016 vs. 2015

a. SMELC

SMELC realized its profits from Retail Electricity Supply (RES) contracts with
various SMC subsidiaries and other contestable customers. Power supply for its
existing RES contracts is sourced from the Sual Power Plant.
 Management Discussion and Analysis
Page lO

Offiake volume of 452 GWh in 2016 more than doubled compared to previous year's
202 GWh. The increase was attributable to the following: (i) higher electricity
requirements of existing customers, and (ii) additional 8 contestable customers
contracted in 2016. This led to the 131% increase in net revenues for 2016 at PJ,006
million. which represents 4% ofthe Group's consolidated net revenues.

Operating income at PIJ million in 2016 improved by 231% from last year's operating
loss of PIO million due to higher net revenues.

b. APEC

Net revenues of P2,731 million was 16% higher than last year due to higher
consumption from existing consumers, new customer connections, improved billing
systems and measures implemented to apprehend unregistered accounts. However,
despite the increase in net revenues, operating loss amounted to P837 million due to
recognition of impainnent losses on uncollectible trade receivables of P765 million in
2016.

Ill. FINANCIAL POSITION

A. MAJORDEVELOPMENTS IN 2017

LONG-TERM DEBT

• Refinancing ofForeignCurrency Debt

SMC Global Power

Availment of P15,000 Million Term Loan

On April 26, 2017, SMC Global availed ofa PIS,000 million fixed-rate, 7-year term loan
to fund the payment of the USS300 million out of the USS700 million, 5-year term loan
drawn to refinance existing indebtedness and to fund the construction of the Limay and
Davao Greenfield Power Plants, investments in power-related assets, and for general
corporate purposes.

ShelfRegistration of P35.000 Millton worth of Fixed Rate Peso-denominated Bonds and

Issuanceof P20.000 Million 8011ds

On December 22, 2017, the SMC Global Power issued and listed in the Philippine Dealing
& Exchange Corp. (PD Ex) the first tranche or fixed rate peso-denominated bonds, with an
aggregate principal amount of P20,000 million, under its P35,000 million shelf
registration. The Bonds were issued at the issue price of I 00% offace value in three series,
with terms and interest rates as follows:

Term Interest Rate Per Annum

Series D Bonds 5 ~ars. due 2022 5.3750%
Series E Bonds 7 years, due 2024 6.2500%
Series F Bonds 10 years, due 2027 iI 6.6250%

Interest is payable quarterly in arrears Starting on March 22, 2018.

 Management Discussion and Analysis
Page 11

Proceeds from the issuance were used by SMC Global Power to pay the short-term loans,
availed in September and October 2017, to refinance the US$400 million out of the
US$700 million term loan.

SCPC

Avai1111e111 of P./4,000 Ml///011 Term Loan

On June 22, 2017, SCPC entered into a 12-year term loan facility amounting to P44,000
million from which P42,000 million has been drawn on June 28, 2017 for the following
purposes:

• the settlement oflhe US$360 million loan facility;

• to fund the acquisition of the 2 x 150 MW coal-fired power plant under

construction (Phase II - Limay Greenfield Power Plant), from LPPC, and

• the repayment of advances by SMC Global Power.

On January 31, 2018, SCPC has drawn the remaining P2,000 million of the term loan
facility

SHAREHOLDER ADVANCES TO A JOINT VENTURE

PowerOne Ventures Energy Inc. (PVEI)

In January 2017, PVEI granted shareholder advances amounting to US$3 I .8 million to its
joint venture company, AHC. TI1e purpose of the advances is to fund the shortfall of the
loan commitments of AHC as defined under its Base Loan Facility Agreement. The
advances bear an annual interest rate of 4.50% and arc due on April 30, 2017. The due
date of the advances may be extended as agreed amongst the parties.

On April I 0 and December 27, 2017 PVEI partially collected the foregoing advances
amounting to US$19.7 million. Payment date for the remaining balance of the advances
amounting to US$12. l million was extended to March 31, 2018.

On March I, 2018. PVEI collected an additional US$S.8 million from AHC as partial
payment of the advances.
 Management Discussion and Analysis
Page 12

B. MAJOR DEVELOPMl:NTS IN 2016

LONG-TERM DEBT

• Issuanceof P15,000 Millio11Fixed RatePeso-de110111i11a1edBonds by SMC GlobalPower

On July 11, 2016, SMC Global Power issued and listed in the PDEx fixed rate peso•
denominated bonds with an aggregate principal amount of P 15,000 million. The Bonds
were issued at the issue price of I 00"/o of face value in three series with terms and interest
rates as follows:

r Te.,_,rm~----l Interest Rate PerAnnum

r Series A Bon.-=d=-s
Qeries B Bonds --"
-~years, due2021
b!ars. due2023
--+----4"'~~5_8•_v.
4.75~"1
. SeriesC Bol)!ls ~ars. due2026 5.1792~.Vo_. ~

Interest is payable quarterly in arrears starting on October I 1, 2016.

The net proceeds were used on July 25, 2016 to refinance the US$300 million short-term
loan provided by a local bank of which the proceeds were used for the redemption of the
US$300 million bond in January 2016.

• Availment of long-term Debt to Finance Capital Projects

SCPC

In 2016, SCPC has drawn a total ofUS$359 million from the US$400 million, 7-yearterm
loan facility with a syndicate of banks. Pursuant to the Facility Agreement, the loan will
bear interest at the rate of the London Interbank Offered Rate (LIBOR) plus a certain
margin. payable in arrears on the last day of the agreed interest period. Repayment of the
loan principal shall commence on October 31, 2017, and every 3 months thereafter.

Proceeds of the loan was earmarked for the financing of the construction of the 2 x 150
MW Limay Greenfield Power Plant {Phase 1), in Bataan.

• Pre-se11/e111e111of w11g-1er111 Loanfrom Proceedsof Sale of Power Plant

SPI

On September 27, 2013, SPI has entered into a P 13,800 million, I 0-year term loan with a
syndicate of banks, for the acquisition of the initial 2 x 35 MW Lirnay Co-gen Power Plant
and all other pertinent machinery, equipment, facilities and structures for the expansion of
the capacity from Petron.

On December 23, 2016, SPl pre-senled the remaining balance of the loan plus accrued
interest using the proceeds from the sale of power plant.
 Management Discussion and Analysis
Page 13

INVESTMENTS

SMC Global Power Holdings Corp.

On June 16, 2016. Meralco Powergen Corporation (MGen), a subsidiary of Manila

Electric Company, and Zygne1 Prime Holdings, Inc. (Zygnet) subscribed 10 2,500 and I 02
common shares ofMariveles Power Generation Corporation (MPGC), respectively. As a
result, SMC Global Power now holds 49% oflhe outstanding capital stock of MPGC while
MGen and 7.ygne1 holds 49"/o and 2%, respectively. MPGC shall develop, construct,
finance, own, operate and maintain a 4 x 150 MW Circulating Fluidized Bed Coal-fired
Power Plan! and associated facilities in Mariveles, Bataan.

On July 13, 2016, SMC Global Power subscribed 10 9,643,200 shares, representing 49%
of the total shares subscribed by all shareholders out of the increase in the authorized
capital stock ofMPGC, al the subscription price of PI00.00 per share. On January 9, 2017,
rhe Philippine SEC approved the increase in the authorized capital stock of MPGC.

PVEI

On July 11, 2016, PVEI subscribed to 27,724,200 shares, out of the increase in the
authorized capital stock of AHC, at the subscription price of P200.00 per share. Total
subscription amounting to PS,545 million represents PVEl's 60% share in the additional
equity infusion required by AHC from its existing stockholders as of date pursuant to its
project financing requirements.

SALE OF LIMA Y CO-GEN POWER PLANT

SPI

On September 15, 2016, the Board of Directors of SMC Global Power authorized irs
wholly-owned subsidiary, SPl, to negotiate, enter into and execute with Petron the relevant
definitive agreements for the sale by SPI of its 4 x 35 MW Limay Co-gen Power Plant
located at the Petron Bataan Refinery in favor of Petron.

On October 28, 2016. SPI signed an agreement for the sale of the plant and all pertinent
assets, assignment of contracts to Petron, including the transfer of all remaining
inventories, tools, supplies and other working capital necessary for the operation and
maintenance of rhe plant, among others.

Effective December 23. 2016. SPI closed the sale of the plant to Perron for a total
consideration of P20.030 million (inclusive of tax), payable based on tho terms of the
agreement.
 Management Discussion and Analysis
Page 14

Initial proceeds received from the sale were used to pre-settle the remaining balance of the
long-term loan ofSPI in December 2016.

C. MATERIAL CHANGES PER LJNE OF ACCOUNT

2017 vs. 2016

The Group's consolidated total assets as of December 31, 2017 amounted to P350, I 73 million,
5% or P16,224 million higher than December 31, 2016 balance. The net movement is
accounted for as follows:

a. Higher cash and cash equivalents balance by P7, 164 million mainly from the remaining
proceeds of the P42,000 million 12-year tenn loan availed by SCPC in June 2017 and the
PS,930 million short-term loan of SMCPC which were partly used to (i) refinance the
US$360 million short-term loan of SCPC (Pl 8,135 million); (ii) milestone payments to
contractors for the construction of the Limay and Davao Greenfield Power Plants (PI 0,272
million); (iii) return of shareholder advances previously used for capex (P6,023 million);
and (iv) transfer of PS,451 million to restricted cash (classified under other noncurrent
assets) for debt servicing and capex ofSCPC.

b. Inventories increased by P875 million due to higher coal inventory level at end of the year
of (i) SCPC, to be used by Units I and 2 which commenced commercial operations in
2017 and for Unit 3 which is under commissioning, and (ii) SMEC due to lower
consumption as result of the extended shutdown of Unit 2.

c. Assets held for sale decreased by Pl84 million due to the sale of certain machinery and
equipment of SPI to a related party in 2017.

d. Property, plant and equipment increased by P4,473 million on account of the additional
costs incurred for the construction of Li may Greenfield Power Plant - Phases I and I I and
Davao Greenfield Power Plant, and additional borrowing costs capitalized during the year,
offset by the depreciation expense recognized in 2017.

e. Deferred tax assets decreased by Pl ,639 million primarily due to SMEC's recognition of
deferred income tax expense on the temporary difference relating to its finance lease
liability following the decline in unrealized forex loss recognized and the increasing
monthly fixed payments to PSALM.

f. Increase in other noncurrent assets by P6,929 million is mainly due to the input VAT
recogniz.ed by SCPC on its acquisition of the Phase I I Limay Greenfield Power Plant from
LPPC and its transfer of P4,912 million funds to restricted cash account to cover debt
servicing and capital expenditure requirements.

The Group's consolidated total liabilities as of December 31, 2017 amounted to

P290,407 million, P 11,I 28 million higher than the December 31, 2016 balance of P279,279
million. The major items accounting for the net movement are as follows:

a. Availment by SMCPC of P5,930 million short-term loan from a local financial institution
in June 20 I 7 to fund its capital expenditures.
 Management Discussion and Analysis
Page 15

b. Accounts payable and accrued expenses decreased by P6,655 primarily due to the
settlement in 2017 of a significant portion of payables to contractors/suppliers relating to
the construction of the Limay Greenfield Power Plants - Phases I and II and Davao
Greenfield Power Plant.

c. Long-term debt increased by P24,405 million primarily due 10 the P42,000 million te1111
loan availed by SCPC to refinance its US$360 million loan facility.

d. Deferred tax liabilities increased by P2,539 million due to the recognition by SPPC and
SPDC of deferred income tax expense on the temporary difference pertaining to its finance
lease liabilities following the decline in unrealized forex loss relating to the US dollar•
denominated portionof the finance lease.

e. Finance lease liabilities decreased by PIS,296 million due. to payments made by the I PPAs
of monthly fixed fees to PSALM during the year.

f. Noncurrent liabilities increased by Pl81 million owing to the initial recognition of asset
retirement obligations by SCPC and SMCPC totaling P157 million and additional bill
deposits collected from new customers during the year.

2016 vs. 2015

The Group's consolidated total assets as of December 31, 2016 stood at PJJJ,949 million,
P2,739 million higher than December 31, 2015 balance of P331,210 million. The net increase
was due to the following factors:

a. Cash and cash equivalentsdecreased by P750 million due to the net effect of the following
transactions: (i) payments to PSALM for the monthly fixed fees of the IPPAs, (ii)
payments to contractors/ suppliers for the construction of the greenfield power plants, (iii)
additional equity infused to AHC and MPGC, (iv) cash dividends and distribution paid to
common shareholders and uses holders, respectively, (v) proceeds of the
US$359 million loan availed by SCPC from its US$400 million. 7-year term loan, and (vi)
proceeds fromthe issuance of PIS,000 million Bonds.

b. Increase in trade and other receivables by P3,869 million primarily represents the
receivable recognized by SPI for the unpaid balance on the sale of the Limay Co-gen
Power Plane which was collcc1ed in July 2017.

c. Inventories increased by Pl,009 million due to additional coal inventory maintained for
the testing and commissioningof the Limay and Davao Greenfield Power Plants during
the year. Moreover, coal prices for the Sual Power Plant were on an upward trend in tho
last quarter of 2016.

d. Increase in prepaid expenses and other current assets by P2,614 million was attributable
to: (i) higher input VAT on purchases of goods and services for the construction of the
greenfield power plants and (ii) the creditable withholding tax recognized on the sale of
the Limay Co-gen Power Plant

e. Investments and advances increased by PS,633 million primarily on account of the

additional investments made during the year by SMC Global Power and PVEI in MPGC
and in AHC. respectively.
 Management Discussion and Analysis
Page 16

f. Net decrease in property. plant and equipment by P8,965 million resulted from the sale
of Limay Co-gen Power Plant and the additional depreciation recognized in 2016 which
were partially offset by the additional costs incurred for the construction of the greenfield
power plants.

g, Other noncurrent assets declined by Pl,227 million compared to previous year's balance
due to SPrs settlement of its long-term debt using in part of the funds from its trust
accounts (recorded under "Restricted Cash" account) and the application of SPl's
noncurrent input VAT to the output VAT recognized on the sale of its power plant.

The Group's consolidated total liabilities as of December 31, 2016 amounted to P279,279
million, P4,S04 million higher or 2% titan the December 31, 2015 balance of P274,775 million.
The major items accounting for the net movement are as follows:

a. Accounts payable and accrued expenses increased by P4,888 primarily due to the
additional payable to contractors/ suppliers recognized in relation to construction of the
Greenfield Power Plants.

b. Increase in long-term debt by P7,716 million is due to the net effect of the following:
(i) US$359 million drawn by SCPC from its US$400 million, 7-year term loan, to finance
the construction of the Limay Greenfield Power Plant, (ii) PIS,000 million Bonds issued
and listed in July 2016- the proceeds of which were used to refinance the US$300 million
short-term loan availed for the redemption of the U$$300 million Bonds which matured
in January 2016, and (iii) SPl's pre-settlement of the remaining balance of its Pl 3,800
million long-term debt

c. Deferred tax liabilities increased by P902 million due to the recognition by SPPC and
SPDC of deferred income tax expense on the temporary difference between the actual
monthly payments to PSALM over the finance lease liability-related expenses for 2016.

d. Increase in noncurrent liabilities by P73 million primarily relates to the increase in

retirement liability and higher bill deposits from new customers.

Equity

The increase/decrease in equity is due to:

(i11 Milltons) December 31

2017 2016
Income during the period PS,217 P4,151
Equity reserve for retirement plan 3 ( 11)
Cash dividends (3,000)
Payment of share issuance cost (51)
Distributions to undated subordinated capital securities
holders (3,074) (2,905)
PS,095 (Pl,765)
 Management Discussion and Analysis
Page 17

IV. CASH FLOW

SOURCES AND US.ES OF CASH

A brief summary of cash flow movements is shown below:

(in Millio11s2 December St

2017 2016 2015
Net cash flows provided by operating activities P21,845 P30,480 P25,030
Net cash flows used in investing activities (16,279) (6,017) (34,530)
Net cash flows provided by (used in) financing
activities t,527 (25,234) (6,955)

The effect of exchange rate changes on cash and cash equivalents amounted to P7 I million,
P21 million and P392 million on December 31, 2017, 2016 and 2015, respectively.

Net cash flows provided by operating activities for the year basically consists of income for
the year less changes in noncash current assets, certain current liabilities and others.

Net cash flows used in investingactivities included the following:

(in Millions) December3J

2017 2016 2015
Proceeds from sale of property, plant and
equipment P54 Pl3,820 P-
Additions to deferred exploration and
development costs (6) (4) ( 18)
Additions to intangible assets (132) (272) ( 117)
Net additions to investments and advances (416) (5,927) (529)
Additions to other noncurrent assets (6,868) 1,228 (33)
Additions to property, plant and equipment (8,911) (14,862) (33,833)

Net cash flows provided by (used in) financing activities included the following:

(in Millionsl December 31

2017 2016 2015
Proceeds from short-term borrowings Pl 13,419 Pl4,364 P-
Proceeds from long-term debt 77,000 30,684 8,825
Proceeds from issuance of undated subordinated
capital securities 13,823
Cash dividends paid (3.000) (4,500)
Payment of stock issuance costs (SI)
Distributions to undated subordinated capital
securities holders (3,074) (2,905) (I ,450)
Payments of finance lease liabilities (24,875) (23,873) (22,280)
Payments of long-term debt (!13,110) (26,349) (l,373)
Pa:z'.!!!ents of short-term borrowin~s {1071782} (14,155}
 Management Discussion and Analysis
Page 18

V. ADDITIONAL INFORMATION ON UNAPPROPRIATED RETAJNED EARNINGS

The Parent Company's unappropriated retained earnings available for dividend declaration,
calculated based on the regulatory requirements of the Philippine SEC, amounted to
t>J,054 million and P509 million as at December 31, 2017 and 2016, respectively. The
difference between the consolidated unappropriated retained earnings and the Parent
Company's unappropriated retained earnings available for dividend declaration primarily
consist 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.

Vl. KEY PERFORMANCE !NDICATORS

The following are the major performance measures that the Group uses. Analyses are
employed by comparisons and measurements based on the financial data of the current period
against the comparative period of previous year. Please refer to Item II "Financial
Performance" for the discussion of certain Key Performance Indicators.

LIOUIDITY RATIO
Current Assets
Current Ratio =
Current Liabilities

Conventional Adjusted"
December December December December
(in Millions P) 2017 2016 2017 2016
(A) Current Assets 70,030 63,974 70,030 63,974
(B) Current Liabilities 55,141 55.242 38,297 38,898
Current Ratio (A) I (B) 1.27 1.16 1.83 l.64

(I) Current ponion of finance lease liabilities in relation to IPPA Agreements with PSALM
is excluded in total current liabilities as this current obligation on finance lease are pass.
through charges billable to customers. As of December 3 1, 2017 and 2016, current portion
of finance lease liabilities amounted to P16,844 million and Pl 6,344 million, respectively.
 Management Discussion and Analysis
Page 19

SOLVENCY RATIO

Net Debt-to-Equity Ratio

- Net Debt

Tot11I Equity
,.

December December
(tn Millions P) 2017 2016
(A) Nel Dcbr'11 187,173 198,847
(B) To1al Equity'11 62,980 56,898
Net Debi-to-Equity Ratio
(A) I (B) 2.97 3.49

(2) Consolidated net total debt plus total PSALM finance lease liabilities.
(3) Consolidated total equity (excluding amounts attributable lo ring-fenced subsidiaries as
defined in the relevant credit facility agreement of the Parent Company).
Total Assets
Asset-to-Equity Ratio =
Total Equity

Conventional Atlju.mu'fJ
December December December December
(in Millions P) 2017 2016 2017 2016
(A) Total Assets 350,173 333,949 177,600 156,189
(B) Total Equity 59,766 54,671 59,766 54,671
Asset-to-Equity Ratio
(A) I (B) S.86 6.11 2.97 2.86

(4) Net carrying amount value of the IPPA power plants in relation to IPPA Agreements with
PSALM was omitted in total assets as these power plant assets were capitalized with
corresponding finance lease liabilities. As of December 31, 2017 and 2016, net carrying
amount oflPPA power plant assets amounted to P172,573 million and P177,760 million,
respectively.
 Management Discussion and Analysis
Page20

PROFIT ABILTY RATIO

Net Income
Return on Average Equity ·-------------
Total Equity

(in Millions P) December 2017 December 2016

(A) Ne1 Income 8,217 4,151
(8) Tollll Equity 59,766 54,671
Return on Equity (A) I (B) 13.7% 7.6%

Earnings Before Interest, Taxes,

Depreciation and Amortization
(EBITDA)
Interest Rate CoverageRatio = ------ -----------
Finance Cost

(in Millions P) December2017 December2016

(A)EBITDA'jJ 32,529 34,349
(B) Interest Expensell'I 11,296 11,877
Interest Rate Coverage Ratio (A) I (B) 2.88 2.89

(5) Full year consolidated EBITDA (gross of PSALM payments and excluding amounts
attributable to ring-fenced subsidiaries).
(6) Full year consolidated interest expense (excluding amounts attributable to ring-fenced
subsidiaries).

OPERATING F.FFlCJENCY

Volume Growth (Decline)

- Current Period Offlake Volume
---Prior Period
·-----------
OITtake Volume
• J

Period Ended December 31

(inMWh) 2017 2016
(A) Current Period Offlake Volume 17,227 17,346
(B) Prior Period OfflllkeVolume 17,346 16,558
Volume Growth (Dttline) ((A I B )- J] (0.7%) 4.8%
 Management Discussion and Analysis
Page21

Revenue Growth (Decline)

- Current Period Revenue
·----------
Prior Period Revenue
- 1

Period Ended December 3 J

(in Millions P) 2017 2016
(A) Current Period Revenue 82,791 77,972
(B) Prior Period Revenue 77,972 77,507
Revenue Growth {Dttline) ((A I B )-1) 6.2% 0.6%

Income from Operating Activities

Operating Margin -------------
Revenues

Period Ended December 31

(in Millions P) 2017 2016
(A) Income from Operating Activities 24,276 26,730
(B) Revenues 82,791 77,972
Operating Margin (A) I (B) 29.3% 34.3%

VU. OTHER MAITERS

a Event After the Reporting Date

Acqujsjtjon ofSubsjdjarjes

On December 17, 2017, SMC Global Power executed a Share Purchase Agreement with
AES Phil Investment Pte. Ltd. (AES Phil) and Oen Plus B. V. (Oen Plus) for the purchase
by SMC Global Power of (a) 51% and 49"/o equity interests of AES Phil and Oen Plus,
respectively, in Masin-AES Pee. Ltd. (the "Target Company"); (b) I 00% equity interest of
The AES Corporation in AES Transpower Private Ltd. (ATPL); and (c) 100% equity
interest of AES Phil in AES Philippines Inc. (API), (collectively, the "Transaction"),

The Target Company, through its subsidiaries (including Masinloc Power Partners Co.
Ltd. (MPPCL)], owns and/or operates (i) the 2 x 315 MW coal-fired power plant; (ii) the
under construction project expansion of the 335 MW unit known as Unit 3; (iii) the I 0
MW battery energy storage project, all located in the Province of Zam bales, Philippines;
and (iv) the 2 x 20 MW battery energy storage facility in Kabankalan, Negros Occidental,
which is still at the pre-development stage. ATPL has a Philippine Regional Office and
Headquarters which provides the corporate support services to MPPCL, while AP!
provides energy marketing services lo MPPCL.
 Managemeni Discussion and Analysis
Page 22

With the acquisition by SMC Global Power of the Target Company, ATPL and API, the
Group aims to improve its existing baseload capacity to further ensure its ability to provide
affordable and reliable supply of power to its customers. The additional power assets
provide an opportunity for the Group to increase its footprint in clean coal technology that
provides reliable and affordable power, particularly in Luzon. The Transaction will result
in the product ion of electricity in an environmentally responsible way.

TI1e total consideration for the Transaction is USS I, 900 rn illion, subject to a post-closing
purchase price adjustment. The total consideration will be paid in cash by the Parent
Company to be funded through a combination of its (a) availment of US dollar•
denominated long-term borrowings from various financial institutions totaling to
USSl,200 million and (b) issuing Redeemable Perpetual Securities to, and obtaining
advances from, SMC amounting to US$650 million and US$ I SO million, respectively.

On February 23, 2018, the Philippine Competition Commission (PCC) issued its decision
which states that the Transaction does not result in a substantial lessening of competition
in the relevant markets, and as such, the PCC resolved that it will take no further action
with respect to the Transaction (the ~pee Decision").

Other than the issuance of the PCC Decision, there are other conditions precedent that are
required for the closing and completion of the Transaction.

As of March 9, 2018, all parties to the Transaction have yet to complete the conditions
precedent for the closing and completion of the Transaction.

b. There are no unusual items as to the nature and amount affecting assets, liabilities, equity,
net income or cash flows, except those stated in Management's Discussion and Analysis
of Financial Position and Financial Performance.

c. There were no material changes in estimates of amounts reported in prior interim periods
of the current year or changes in estimates of amounts reported in prior financial year.

d. There were no known trends, demands, commitments, events or uncertainties that will
have a material impact on the Group's liquidity.

e. There were no known trends, events or uncertainties that have had or that are reasonably
expected to have a favorable or unfavorable impact on net sales of revenues or income
from continuing operation.

f. There were no know events that will trigger direct or contingent financial obligation that
is material 10 the Group, including any default acceleration of an obligation and there were
no changes in the contingent liabilities and contingent assets since the last annual reporting
date.

g. There were no material off statements of financial position transactions, arrangements,

obligations (including contingent obligations), and other relationship of the Group with
unconsolidated entities or other persons created during the reporting period.
 Management Discussion and Analysis
Page23

h. The effects of seasonality or cyclicality on the interim operations of the Group's

businesses are not material.

1. Commitments

The outstanding purchase commitments of the Group amounted to Pl,996 million and
Pl ,589 million as of December 31, 2017 and 2016. respectively,

Amount authorized but not yet disbursed for capital projects as of December 3I,2017 and
2016 is approximately P12,862 million and P23,039 million, respectively.
 COVER SHEET
For
AUDITED FINANCIAL STATEMENTS

SEC Registration Number

COMPANY NAME!

s M c G L 0 B A L p 0 w E R H 0 L D I N G s
c 0 R p . A N D s u B s I D I A R I E s ( A

lwl h I 0, , l 1 I y 1-10 I w In I e Id I Is I u I b Is I I Id I I a I r I y I I 0 I f I I l I I
JslalnJ JMJ JsJuJeJ1J JcJ0JrJpJ0JrJaJ1J JoJnJ)J 11 I I I JI
PRINCIPAL OFFICE ( No. I Street I Barangay I City I Town I Province)

I I I I I
I I I I I
I I
Form Type
I Department requiring the report
I I I I I I I I
Secondary License Typo, tf Appllca le
J A A F sJ I I I I
COMPANY INFORMATION
Company•s email Address Company's T•lephonct Number/a
Mobile Numbor
NIA I 702-4500 1 NIA
No. of Stockholders Annual M.. tlng (Month I Day fiscal Year Month I Da )
6 June/ 1 Tuesday
11 December 31
CONTACT PERSONINFORMATION
TM d••'9n:ated contact ,.rs.oft MJl§Ibe an Offlcer of the Corpor•tlon
Namo of Contect Person
Em•ll Address Telephone NumHr/s Mobfle Numbor
Paul Bernard D. Causon I pcausonCsmg sar.miguel.comph I I 702-4500 I I NIA

CONTACT PERSoN·s ADDRESS

19111 Fir. San Miguel Properties Center Building, No.7 St. Francis St., Mandaluyong City
-1: lncwd-.,1 !:-•or af-dfheoa- • t-asotn1actper.11orp&1t:hhcltlent-betepOlfet/k>lho
Q:wmissob1-fhHy(3(11 • a&cbJ<o...,,,,fhe·'" 0>001hetted-hlbi11&1ia1-m1,_otn1actdela6soflhonawcan1act-

2: Al-mustbe-'Y-mrs · · }-...Fa/Ue*''*'..,--fhe-,,.i>•t · ll41flre.....,,..3'b1lomcon1t1..,,,,,

lhoC:0.1»1 ~ • >and&rntJ1W .......... o/'*1tic:eofO 'Fea:ks.Ff16tr,www""""'o1Noticeol0 7
'**'*1sllhalnot~'-cotp0tatloi»fom
/iabiMy&its'*"*-
 ANNEX "B"

SMC GLOBAL POWER HOLDINGS CORP.

AND SUBSIDIARIES
(A Wholly-owned Subsidiary of San Miguel Corporation)

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2016 and 2015
 R.G. Manabat & Co.
The KPMG Center, 9/F
6787 Ayala Avenue, Makatl City
Philippines 1226
Telephone +63 (2) 885 7000
Fax +63 (2) 894 1985
Internet www.kpmg.com.ph
Email ph-inquiry@kpmg.com.ph

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

SMC Global Power Holdings Corp.
155 EDSA, Brgy. Wack-Wack
Mandaluyong City, Metro Manila

Opinion

We have audited the consolidated financial statements of SMC Global Power Holdings
Corp. and Subsidiaries (the "Group"), which comprise the consolidated statements of
financial position as at December 31, 2017 and 2016, and the consolidated statements
of income, consolidated statements of comprehensive income, consolidated statements
of changes in equity and consolidated statements of cash nows for each of the three
years in the period ended December 31, 2017, and notes, comprising significant
accounting policies and other explanatory information.

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, 2017 and 2016, and its consolidated financial performance and its
consolidated cash flows for each of the three years In the period ended
December 31, 2017, in accordance with Philippine Financial Reporting Standards
(PFRS).

Basis for Opinion

We conducted our audits in accordance with Philippine Standards on Auditing

(PSA). Our responsibilities under those standards are further described in the
Auditors' 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 audits 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.

PRC-80'< f'M91s&nfo11No. 0003,"'d 1111t1M.lrc.111'- :r~

6£G ~ No. 0004-FR-4,. Olo.-i A. ,,..lid untl No¥Wl'tltf 15,. 2020
R:G tWi'*- a.c. • ~ -:~.o#'d. ~ &rl>dm~ l"eflllO'"-ofir~
IC Ao:~b Ho. ft-2011!010.ft
8$11'0$eledcd~IAlld.llol'1,
,,_,O
di A~ a, 2020
CllleQOl'f A. vlf'dr« 3'}1!:11 tll!lt P\!tlCd
i!'!'"l'!t*f("'flt~WC!'~~O"lllt~~~')..•s.!Hriti cmnto20-1•1
Key Audit Matter

Key audit matter is a matter that, in our professional judgment, is of most significance in
our audit of the consolidated financial statements of the current period. This matter is
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
this matter.

Valuation of Trade and Other Receivables

The risk-
The Group's disclosures about the measurement and impairment assumptions to
determine the recoverability and carrying amount of trade and other receivables
are included in the significant accounting policies in Notes 3, 4 and 8 to the
consolidated financial statements. As required by Philippine Accounting
Standards No. 39, an entity shall assess at the end of each reporting period
whether there is any objective evidence that a financial asset or a group of
financial assets measured at amortized cost is impaired. The determination of
the recoverable amounts is subject to significant management's judgment and
estimation. As a result, we assessed that the impairment testing is a key audit
matter. Given the significant management's judgment and estimation, there is a
risk that potential impairment loss on trade and other receivables may not be
adequately recognized resulting in over valuation of the Group's trade and other
receivables.

Our response -
Our audit procedures included, among others, the identification of any events
and objective evidence that impairment may exist individually for trade and other
receivables that are individually significant and collectively for trade and other
receivablesthat are not individually significant. We evaluated the possible impact
that these indications might have on the recoverability of trade and other
receivables.

We have:

• Discussed with management regarding the level and aging of trade and other
receivables and recoverability of amounts due from customers.
• Assessed the recoverability of trade and other receivables with reference to
the historical levels of bad debt expense and credit history of the
counterparties.
• Evaluated the calculations of the impairment testing as well as the
presentation and the relevant disclosures within the consolidated financial
statements.
• Performed retrospective review of the impairment losses recognized and
assumptions made by the management in previous years.
• Considered the consistency of judgments by the management regarding the
recoverability of trade and other receivables to consider whether there is
evidence of management bias through discussions with management on their
rationale and obtaining evidence to support their judgments.
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) and
SEC Form 17-A as at and for the year ended December 31, 2017, but does not include
the consolidated financial statements and our auditors' report thereon. The SEC Form
20-IS (Definitive Information Statement) and SEC Form 17-A as at and for the year
ended December 31, 2017 are expected to be made available to us after the date of this
auditors' 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.

Responsibilitiesof Managementand Those Charged with Governance for the

ConsolidatedFinancialStatements

Management is responsible for the preparation and fair presentation of the consolidated
financial statements in accordance with PFRS, 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.

Auditors' 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 auditors' 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 PSA 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.
As part of an audit in accordance with PSA, 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 auditors' 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 auditors' 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 group 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.
 ANNEX "B-1"

From the matters communicated with those charged with governance, we determine the
matter that was of most significance in the audit of the consolidated financial statements
of the current period and is therefore the key audit matter. We describe the matter in our
auditors' 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 auditors' report is
Mr. Darwin P. Virocel.

R.G. MANABAT & CO.

DARWIN P. VIROCEL
Partner
CPA License No. 0094495
SEC Accreditation No. 1386-AR. Group A, valid until June 14, 2020
Tax Identification No. 912-535-864
BIR Accreditation No. 08--001987-31-2016
Issued October 18, 2016; valid until October 17, 2019
PTR No. 6615157MD
Issued January 3, 2018 at Makati City

March 9, 2018
Makati City, Metro Manila
 •
155 EDSA. Barangay Wack-week,
Mandaluyong City.1550
1550 Metro Manila, Philippines
(632] 667 5000 Fax (Sn] 667 5188
SMC GLOBALPOWER
www.sanmlguel.com.ph

ANNEX "B-2"
STATEMENT OF MANACEMENT'S RESPONSIBILITY
FOR FINA CIALSTATEMENTS

The management of SMC Global Power Holdings Corp. (the "Company") i; responsible for tho
preparation and fair presentation of the consolidated financial sunements as at December 31, 2017 and 2016
and for the years ended December 31, 2017, 2016 and 2015, including the schedules attached therein, in
accordance with the prescribed financial reponing framework indicated therein, and for such internal control
as management determines is necessary to enable the preparation of the 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 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 (BOD) is responsible for overseeing the Company's financial reporting process.

The BOD reviews and approves the consolidated financial statements including the schedules attached
therein, and submits the same 10 the stockholders or members.

R.G. Mana bat & C-0., the independent auditor 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 or members, has expressed its opinion on the fairness of presentation upon completion of
such audit.

RAM NS.ANC
Chai rm of the Bollnl & CEO and
President &. COO

PAUL BERNARD 0. CAUSON

Chief Finance Oflic~
I'
~

Signed this 911> day of March 2018

 ACKNOWLEDGMENT

Republic of the Philippines)

Ma~~~iem > s. s.
Before me, a NOtary Public for and in Mandaluyong City, this----• personally appeared
the following:

Passoort No. Date/Place oflssue

Mr. Ramon S. Ang EC3542718 02127/15/DFA·MANILA
Mr. Paul Bernard D. Causon EC2079461 09/12114/DFA·MANILA
known 10 me to be the same persons who executed the foregoing instrument and that they acknowledged to
me that the same is their free and voluntary act and deed and that of the corporation they represent.

IN WITNESS WHEREOF, I have hereunto affixed my notarial seal at the date and place first
above written.

lft
Doc. No.:_){)....;
Page No.:~
Book No.:,,,lLLj
Seriesof2018
 SMC GLOBAL POWER HOLDINGS CORP. AND SUBSIDIARIES
(A Wholly-owned Subsidiary of San Miguel Corporation)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 2017 AND 2016 r,,:-;; . ,.~-::c::"..,:-:-- :"!'•,.-..•
::-:r,-
.... .,.,,.~::.·h·
{In Thousands)
.,
'•
·•• ,~ orr.~•• • •4 ••
"''• ...... ,_-:.:..

Note I

ASSETS
Current Assets
Cash and cash equivalents 7, 30, 31 P28,655,359 P21,491,385
Trade and other receivables. net 4, 6, 8, 20, 30, 31 20,435,068 22,342,846
Inventories 4, 6, 9, 20 3,147,668 2,272,289
Prepaid expenses and other
current assets 6, 10 17,791 915 17,683 020
70,030,010 63,789,540
Assets held for sale 11, 13 184 324
Total Current Assets 70,030,010 63,973,864
Noncurrent Assets
Investments and advances • net 4, 12 16,621,131 16,245,454
Property, plant and equipment· net 4, 6, 13 250,961,307 246,488,027
Deferred exploration and
development costs 4, 6, 14 699,001 693,379
Intangible assets and goodwill • net 4, 6, 14, 15 2,594,136 2,572,119
Deferred tax assets 4,27 1,316,926 2,955,570
Other noncurrent assets • net 16, 20, 30, 31 7,950,484 1,020,771
Total Noncurrent Assets 280, 142,985 269,975,320
P350,172,995 P333,949, 184

LIABILITIES AND EQUITY

Current Llabllltles
Loans payable 17, 30, 31 P5,930,000 p •
Accounts payable and accrued
expenses 18, 20, 30, 31 31,074,714 37,729,415
Finance lease liabilities· current
portion 4, 6, 30, 31 16,844,431 16,344,246
Income tax payable 151,906 127,198
Current maturities of long-term
debt· net of debt issue costs 19, 30 31 1,139,631 1040690
Total Current liabilities 55,140,682 55,241,549
Noncurrent llabllities
Long-term debt • net of current
maturities and debt issue costs 19. 30, 31 89,589,070 65,283,036
Deferred tax liabilities 27 7,324,111 4,785,217
Finance lease liabilities •
net of current portion 4, 6, 30, 31 137,949,259 153, 745,290
Other noncurrent liabilities 4, 6, 20, 21, 30, 31 404,361 223,468
Total Noncurrent Liabilities 235,266,801 224,037,011
Total Liabilities 290,407,483 279,278,560
FOtWarrS
 Note 2017 2016
Equity 22
Capital stock P1,062,504 P1,062,504
Additional paid-In capital 2,490,000 2,490,000
Undated subordinated capital securities 26,933,565 26,933,565
Equity reserves 785,279 785,279
Equity reserve for retirement plan 21 (23,632) (26,371)
Retained earnings 28,517,796 23,425.647
Total Equity 59,765,512 54,670,624
P350, 172,995 P333,949,184

See Notes to the CMsolidated Financial Slatetnt/llls.

 SMC GLOBAL POWER HOLDINGS CORP. AND SUBSIDIARIES
(A Wholly-owned Subsidiary of San Miguel Corporation)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
{In Thousands, Except Per Share Data)

Note 2017 2016 2015

REVENUES 5, 20, 23, 33 P82,790,575 P77,972,430 P77,506,691
COST OF POWER SOLO 24 53,678,763 45,002,440 48,899,927
GROSS PROFIT 29,111,812 32,969,990 28,606,764
SELLING ANO
ADMINISTRATIVE EXPENSES 25 4,835,532 6,239,650 4,904, 135
INCOME FROM OPERATIONS 24,276,280 26,730,340 23,702,629
INTEREST INCOME 7, 16 460,958 200,502 414,444
GAIN ON SALE OF PROPERTY,
PLANT AND EQUIPMENT 13 116,357
EQUITY IN NET LOSSES OF
ASSOCIATES ANO JOINT
VENTURES 12 (40,396) (294,795) (528,445)
INTEREST EXPENSE AND OTHER
FINANCING CHARGES 6, 17, 19 (13,244,581) (12,354,229) (13,130,252)
OTHER INCOME (CHARGES) - Net 6, 26 2,944,165 j6,881,754) (5,926,050)
INCOME BEFORE INCOME TAX 14,396,426 7,516,421 4,532,326
INCOME TAX EXPENSE 27, 28 s111s1s10 3,365,759 2,703,408
NET INCOME PS,216,916 P4,150,662 P1,828,918
Basic/Diluted Earnings (Loss) Per
Share 29 P4.11 P0.97 (P0.07)

Sff NOies to me CCn$Olldoted Flnanclal Statements.

 SMC GLOBAL POWER HOLDINGS CORP. AND SUBSIDIARIES
(A Wholly-owned Subsidiary of San Miguel Corporation)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(In Thousands)

Note 2017 2016 2015

NET INCOME PB,216,916 P4,150,662 P1 ,828,918
OTHER COMPREHENSIVE INCOME
Item that will not be reclassified to
profit or loss
Equity reserve for retirement plan 21 3,913 (15,319) (22,354)
Income tax benefit (ex~nse) 27 (1, 174) 4,596 6,706
2,739 (10,723) {15,648)
TOTAL COMPREHENSIVE INCOME PB,219,655 P4,139,939 P1,813,270

See Notes to the Ccnsclidated Financial statements.

..
;;;
s
 SMC GLOBAL POWER HOLDINGS CORP. AND SUBSIDIARIES
(A Wholly-owned Subsidiary of San Miguel Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(In Thousands)

Note 2017 2016 2015

CASH FLOWS FROM OPERATING
ACTIVITIES
Income before income tax P14,396,426 P7,516,421 P4,532,326
Adjustments for:
Interest expense and other
financing charges 6, 17, 19 13,244,581 12,354,229 13, 130,252
Depreciation and
amortization 6, 13, 15, 24, 25 6,064,931 6,341,931 6,539,813
Equity in net losses of associates
and joint venture 12 40,396 294,795 528,445
Retirement benefit expense 21 12,653 8,388 6,611
Unrealized marked - to - market
gain on derivatives (61,9031
Interest income 7, 16 (460,958) (200,502) (414,444)
Unrealized foreign exchange {gains)
losses - net (786,921) 7,446,813 7,505,369
Impairment losses on trade
and other receivables 8, 25, 26 1,210,451 374,801
Impairment losses on property,
plant and equipment 13 323,788
Impairment losses on concession
assets 20,460
Gain on sale of property, plant and
egui11ment 13 (116,357)
Operating income before working
capital changes 32,449,.205 35,200,417 32,203,173
Decrease (increase) in.
Trade and other receivables - net 8 2,114,023 (657,993) (749,571)
Inventories 9 (875,379) (1,009,071) 101,815
Prepaid expenses and other current
assets 10 (982,825) (2,614,273) (6,647,768)
Increase (decrease)In:
Accounts payable and accrued
expenses 18 (4,864,843) 5, 130,812 4,686,593
Other noncurrent liabilities 14,521 49,479 !565,860)
Cash generated from operations 27,854,702 36,099,371 29,028,382
Interest income received 395,960 203,493 426,480
Income taxes paid (1,242,012) (2,640,580) (1,517,632)
Finance cost £!Bid j511631304) (3, 182,682) (2.907,116)
Net cash flows provided by operating
activities 21,845,346 30,479,602 25,030,114
Fotwaro
 Note 2017 2016 2015
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sale of property, plant
and equipment 13 P54,184 P13,820,388 p •
Additions to deferred elCploration and
development costs 14 (5,622) (3,831) (17,765)
Additions to intangible assets 6, 15 (132,474) (271,991) (117,735)
Net additions to investments and
advances 12 (416,073) (5,927,312) (529,105)
Additions to other noncurrent assets (6,867,810) 1,227,455 (32,811)
Additions to property, plant and
~uiement 13, 17, 19 {8,911,5311 (14,862, 133) j33,832,759)
Net cash flows used in investing activities (16,279,326) (6,017,424) (34,530, 175)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from short-term borrowings 17. 32 113,419,200 14,364,000
Proceeds from long-term debt 19, 32 77,000,000 30,684,375 8,825,000
Proceeds from issuance of undated
subordinated capital securities 22 13,823,499
Cash dividends paid 22 (3,000,000) (4,500,000)
Payment of stock issuance costs (50,563)
Distributions to undated subordinated
capital securities holders 22 (3,07 4,204) (2,904,573) (1,450,688)
Payments of finance lease liabilities 6, 32 (24,874,993) (23,873,363) (22,280,118)
Payments of long-term debt 19, 32 (53,110,468) (26,348, 700) (1,373,100)
Pa~ments of short-term borrowings 17, 32 !107,782,255) (14, 155,500)
Net cash flows provided by (used In)
financing activities 1,526,717 (25,233,761) (6,955,407)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND CASH
EQUIVALENTS 71 237 21 607 392 535
NET INCREASE (DECREASE) IN
CASH ANO CASH EQUIVALENTS 7,163,974 (749,976) (16,062,933)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 21,491,385 22,241,361 38,304,294
CASH AND CASH EQUIVALENTS
AT END OF YEAR 7 P28,655,359 P21,491,385 P22,241,361

S..s Notes to the ConsoNclatedFinant:fa/ Statements.

 SMC GLOBAL POWER HOLDINGS CORP. AND SUBSIDIARIES
(A Wholly-owned Subsidiary of San Miguel Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Per Share Data and Number of Shares)

1. Reporting Entity

SMC Global Power Holdings Corp. (the Parent Company) was incorporated in the
Philippines and registered with the Philippine Securities and Exchange Commission
(SEC) on January 23, 2008, and its primary purpose of business is to purchase, sell,
lease, develop and dispose of all properties of every kind and description, and
shares of stocks or other securities or obligations, created or issued by any
corporation or other entity. The Parent Company's registered office address is
located at 155 EDSA, Brgy. Wack-Wack, Mandaluyong City, Metro Manila.

The accompanying consolidated financial statements comprise the financial

statements of the Parent Company and its Subsidiaries (collectively referred to as
the Group) and the Group's interests in associates and joint ventures.

The Parent Company is a wholly-owned subsidiary of San Miguel Corporation

(SMC). The ultimate parent company of the Group is Top Frontier Investment
Holdings, Inc. (Top Frontier). SMC and Top Frontier are public companies under
Section 17 .2 of the Securities Regulation Code and whose shares are listed on The
Philippine Stock Exchange, Inc. (PSE).

2. Basis of Preparation

Statement of Compliance
The accompanying consolidated financial statements have been prepared in
compliance with Philippine Financial Reporting Standards (PFRS). PFRS are based
on International Financial Reporting Standards issued by the lntematlonal
Accounting Standards Board (IASB). PFRS consist of PFRS, Philippine Accounting
Standards (PAS) and Philippine Interpretations issued by the Philippine Financial
Reporting Standards Council (FRSC).

The consolidated financial statements were approved and authorized for Issue in
accordance with a resolution by the Board of Directors (BOD) on March 9, 2018.

Basis of Measurement
The consolidated financial statements of the Group have been prepared on the
historical cost basis except for the following Items which are measured on an
altematlve basis on each reporting date:

Items Measurement Basis

Derivative financial instruments Fair value
Defined benefit retirement liability Present value of the defined benefit
retirement obligation
Functional and Presentation Currency
The consolidated financial statements are presented in Philippine peso, which is the
functional currency of the Parent Company. All financial information are rounded off
to the nearest thousand (POOO), except when otherwise indicated.

Basjs of Consolidation
The Parent Company's subsidiaries, primarily engaged in power generation, retail
and other power-related services and coal mining are incorporated in the Philippines
and registered with the Philippine SEC. The consolidated financial statements
include the accounts of the Parent Company and its Subsidiaries as follows:
Percontago of Ownership
2017 2016
Powor Generation
San Miguel Energy Corporation (SMEC) 100 100
South Premiere Power Corp. (SPPC) 100 100
StrategicPower Devt. Corp. (SPOC) 100 100
SMC PowerGen Inc. (SPI) 100 100
Limay Power Generation Corporation iq 100 100
SMC Consolidated Power Corporation (SCPC) M fl 100 100
San Miguel ConsofKfatedPower Corporation (SMCPC) <•I 100 100
Central Luzon Premiere Power Corp. (CLPPC) IOI 100 100
Limay Premiere Power Corp. (LPPC) 1<11J1 100 100
PowerOne Ventures Energy Inc. (PVEI)"" 100 100
Prime Bectric Generation Corporation PJ 100
Oceantech Power Generation Corporation PJ 100
Retail and OtherPower-relatedServices
San Miguel Eledlic Corp. (SMELC) 100 100
Albay Power and Energy Corp. (APEC) 100 100
SMC Power Generation Corp. (SPGC) Iii 100 100
CoalMining
Daguma Agro-Minerals, Inc. (DAMI) !>I 100 100
Suttan Energy Phils. Corp. (SEPC) l"1 100 100
Bonanza Energy Resouroes, Inc. (BERi) l•I 100 100
Of hers
Manlech Power Dynamics Services Inc. 100 100
Safelech Power Senrices Corp. 100 100
Ondarre Holding Corporation (OHC) ,.. 100 100
Golden Quest Equity Holdings Inc. '"' 1 oo 100
Grand Planters lntemational, Inc. (GPU) (I} 100 100
(a)
-lion• ••
lndireclly owr»d by the PBtrMI Company through SMEC and has nol yet startod commorcisl
al~ 31, 2017.
(b) In July 2011, SMCPC staned comt1lffCiel operat/oM ror Unit 1 of ns2 ~ 150 Meoa Watt (~ Cool·
nr.dP<>wor PIM>I in lM/ita. Davao,
(c) lndiractly OWfledby the Parant Company l/JtouglJ SP/ and has not yet storlod commerclol opero/lons
•• al0.C.mW31. 2017.
(d) Acqulrfld in ~bn/lJIY 2015 and has not yet stll/tt:dcommercloloperatlonsas of Oecamber31, 2017.
(e) Incorporated In 2015-hM not yet stlJfledoommerchll opemtlons as of Ooc$mber 31, 2017.
m Acquired in SBptember 2015.
(g) In May and S.pt&mb6' 2017, SCPC staited commerclBI operations of Unit I and Unit 2. respectivoly.
al ks /nltial 2 • 150 MW Coal-fited Powor Plant in Limay. Bataan.
(h) PVEI owns 60% d ti» outstanding capital Stoel< ol Mslat Hydropower Cc(poration and KWPP
Holdings Corpomlion as joinJ "'nllns.
(V SPGC owns 35% al the outstanding capital stoclc al Olongapo Electricity Distllbutlon Company, Inc ..
BS an 8SSOCilJte.
(i) On June 22. 2017. LPPC sold its 2 x 150MW~lired Power Plant und8rconstruclion to SCPC.
(k) Incorporated in 2017 811dhas notsiattedcomme1dal operations as of December31, 2017.

-2-
 A subsidiary is an entity controlled by the Group. The Group controls an entity when
it is exposed to, or has rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power over the entity. 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.

When the Group has less than majority of the voting or similar rights of an investee,
the Group considers all relevant facts and circumstances in assessing whether It has
power over an investee, Including the contractual arrangement with the other vote
holders of the investee, rights arising from other contractual arrangements and the
Group's voting rights and potential voting rights.

The financial statements of the subsidiaries are included in the consolidated financial
statements from the date when the Group obtains control, and continue to be
consolidateduntil the date when such control ceases.

The financial statements of the subsidiaries are prepared for the same reporting
period as the Parent Company, using uniform accounting policies for like
transactions and other events in similar circumstances. Intergroup balances and
transactions. including intergroup unrealized profits and losses, are eliminated in
preparingthe consolidated financial statements.

A change in the ownership interest in a subsidiary, without a loss of control, is

accounted for as an equity transaction. if the Group loses control over a subsidiary,
the Group: (i) derecognizes the assets (including goodwill) and liabilities of the
subsidiary, the carrying amount of any non-controlling interests and the cumulative
transaction differences recorded in equity; (ii) recognizes the fair value of the
consideration received, the fair value of any investment retained and any surplus or
deficit in the consolidated statements of income; and (iii) reclassify the Parent
Company's share of components previously recognized in other comprehensive
income to profit or loss or retained earnings, as appropriate, as would be required if
the Group had directly disposed of the related assets or liabilities.

3. Significant Accounting Policies

The accounting policies set out below have been applied consistently to all periods
presented in the consolidated financial statements, except for the changes In
accountingpolicies as explained below.

Adoption of New and A!nepdedStandards anct Interpretation

The FRSC approved the adoption of a number of new and amended standardsand
Interpretation as part of PFRS.

Amendments to Standards Adopted in 2017

The Group has adopted the following amendmentsto PFRS starting January 1, 2017
and accordingly, changed its accounting policies in the following areas:

• Disclosure Initiative (Amendments to PAS 7, Statement of Cash Flows). The

amendments resulted in improved disclosures about the net debt of an entity
relevant to the understanding of its cash flows. The amendments require entities
to provide disclosures that enable users of the financial statements to evaluate
changes in fiabilities arising from financing activities, including both changes
arising from cash flows and non-cash changes - e.g., by providing a
reconcifiation between the opening and closing balances in the statement of
financial position for liabilities arising from financing activities.

-3-
• Recognition of Deferred Tax Assets ror Unrealized Losses (Amendments to
PAS 12, Income Taxes). The amendments clarify that (a) the existence of a
deductible temporary difference depends solely on a comparisonof the carrying
amount of an asset and its tax base at the end of the reportingperiod, and is not
affected by possible future changes in the carrying amount or expected manner
of recovery of the asset; (b) the calculation of future taxable profit in evaluating
whether sufficient taxable profit will be available in future periods excludes tax
deductions resulting from the reversal of the deductible temporary differences;
(c) the estimate of probable future taxable profit may include the recovery of
some of an entity's assets for more than their carrying amount if there Is sufficient
evidence that it is probable that the entity will achieve this; and (d) an entity
assesses a deductible temporary difference related to unrealized losses in
combination with all of its other deductible temporary differences, unless a tax
law restricts the utilization of losses to deduction against income of a specific
type.

• Annual Improvements to PFRS Cycles 2014 - 2016 contain changes to three

standards, of which only the Amendments to PFRS 12, Disclosure of Interests in
Other Entities, on clarification or the scope of the standard is applicable to the
Group. The amendmentsclarify that the disclosure requirements for interests in
other entities also apply to interests that are classified as held for sale or
distribution.

Except as otherwise indicated, the adoption of amendments to standards did not

have a material effect on the consofidatedfinancial statements.

New and Amended Standards and Interpretations Not Yet Adopted

A number of new and amended standardsand interpretationsare effective for annual

periods beginning after January 1, 2017 and have not been applied in preparing the
consolidated financial statements. Unless otherwise indicated, none of these is
expectedto have a significanteffect on the consolidated financial statements.

The Group will adopt the following new and amended standards and interpretations
on the respectiveeffective dates:

• Annual Improvements to PFRS Cycles 2014 - 2016 contain changes to three

standards, of which only the Amendments to PAS 28, Investments in Associates,
on measuring an associate or joint venture at fair value is applicable to the
Group. The amendments provide that a venture capital organization. or other
qualifying entity, may elect to measure Its investments in an associate or joint
venture at fair value through profit or loss (FVPL). This election can be made on
an Investment-by-investmentbasis. The amendments also provide that a non•
investment entity investor may elect to retain the fair value accounting applied by
an investment entity associate or investment entity joint venture to its
subsidiaries. This election can be made separately for each Investment entity
associate or joint venture.

The amendments are to be applied retrospectively on or after January 1, 2018,

with early application permitted.

-4-
• PFRS 9 (2014), Financialinstruments, replaces PAS 39, Financial Instruments:
Recognition and Measurement, and supersedes the previously published
versions of PFRS 9 that introduced new ciassifications and measurement
requirements (in 2009 and 2010) and a new hedge accounting model (In 2013).
PFRS 9 includes revised guidance on the classification and measurement of
financial assets, inciuding a new expected credit loss model for calculating
impairment, guidance on own credit risk on financial liabilities measured at fair
value and supplements the new general hedge accounting requirements. PFRS
9 incorporates new hedge accounting requirements that represent a major
overhaul of hedge accounting and introduces significant improvements by
aligning the accounting more closely with risk management.

The new standard is required to be applied retrospectively for annual periods

beginning on or after January 1, 2018, with early adoption permitted.

The Group will adopt the new standard on the effective date and will not restate
comparative information. The Group has performed an assessment which is
based on currently available information and may be subject to changes arising
from further reasonable and supportableinformation being madeavailable to the
Group in 2018. The adoption of PFRS 9 will have no significant effect on the
classification and measurement of financial assets and liabilities of the Group.
The Group does not expect any impact on its consolidated statement of financial
position except for the possible effect of applying the expectedcredit loss model
in estimating impairment

• PFRS 15, Revenue from Contracts with Customers. replaces

PAS 11, Construction Contracts, PAS 18, Revenue, International Financial
ReportingInterpretations Committee (lFRIC) 13, CustomerLoyalty Programmes,
IFRIC 18, Transfer of Assets from Customers and Standard Interpretation
Committee - 31, Revenue - Barter Transactions Involving Advertising Services.
The new standard introducesa new revenuerecognition model for contracts with
customers which specifies that revenue should be recognized when (or as) the
Group transfers control of goods or services to a customer at the amount to
which the Group expectsto be entitled. Depending on whether certain criteria are
met, revenue is recognized over time, in a manner that best reflectsthe Group's
performance, or at a point in time, when control of the goods or services is
transferred to the customer. The standard does not apply to insurancecontracts,
financial instruments or lease contracts, which fall in the scope of other PFRS. It
also does not apply if two companies in the same line of business exchange
nonmonetaryassets to facilitate sales to other parties. Furthermore. if a contract
with a customer Is partly in the scope of another PFRS, then the guidance on
separation and measurementcontainedin the other PFRS takes precedence.

The new standard is effective for annual periods beginning on or after

January 1, 2018, with early adoption permitted. An entity can apply the new
standard using either the retrospective or the cumulative effect method. Under
the retrospective method, each comparative period presented is retrospectively
adjusted, with a choice of practical expedients. While under the cumulative effect
method, the cumulative effect of applying the new standard is recognized at the
beginning of the year of initial application, with no restatement of comparative
periods, with a choice of practical expedients.

-5-
 The Group will adopt the new standard on the effective date using the cumulative
effect method. The cumulative impact of the adoption will be recognized in
retained earnings as of January 1, 2018 and comparative information will not be
restated. As of March 9, 2018, the Group Is In the process of finalizing its
assessment on the impact of adopting PFRS 15 on the Group's revenue
recognition policies. but it does not expect any significant impact on Its
consolidated financial position and consolidated net income.

• Philippine Interpretation IFRIC 22, Foreign Currency Transactions and Advance

ConskJeration. The amendments clarify that the transaction date to be used for
translation of foreign currency transactions Involving an advance payment or
receipt is the date on which the entity Initially recognizes the prepayment or
deferred income arising from the advance consideration. For transactions
involving multiple payments or receipts, each payment or receipt gives rise to a
separate transaction date. The interpretation applies when an entity pays or
receives consideration in a foreign currency and recognizes a non-monetary
asset or liability before recognizing the related item.

The interpretation is effective for annual periods beginning on or after

January 1, 2018, with early adoption permitted.

• PFRS 16, Leases, supersedes PAS 17, Leases, and the related Philippine
Interpretations. The new standard introduces a single lease accounting model for
lessees under which all major leases are recognized on-balance sheet, removing
the lease classification test. Lease accounting for lessors essentially remains
unchanged except for a number of details including the application of the new
lease definition, new sale-and-leasebackguidance, new sub-lease guidance and
new disclosure requirements. Practical expedients and targeted reliefs were
· introduced including an optional lessee exemption for short-term leases (leases with a
term of 12 months or less) and low-value items, as well as the permission of
portfolio-level accounting instead of applying the requirements to individual
leases. New estimates and judgmental thresholds that affect the identification,
classificationand measurementof lease transactions, as well as requirements to
reassess certain key estimates and judgments at each reporting date were
introduced.

PFRS 16 is effective for annual periods beginning on or after January 1, 2019.

Eartier application is permitted for entitles that apply PFRS 15 at or before the
date of initial application of PFRS 16. The Group is currently assessing the
potentialImpact of the new standard.

• Philippine Interpretation IFRIC 23, Uncertainty over Income Tax Treatments,

clarifies how to apply the recognition and measurement requirements Jn PAS 12
when there is uncertainty over income tax treatments. Under the interpretation,
whether the amounts recorded In the financial statements will differ to that In the
tax return, and whether the uncertainty is disclosed or reflected in the
measurement, depends on whether it is probable that the tax authority will accept
the Group's chosen tax treatment. If it is not probable that the tax authority will
accept the Group's chosen tax treatment, the uncertainty is reflected using the
measure that provides the better prediction of the resolution of the uncertainty -
either the most likely amount or the expected value. The interpretation also
requires the reassessment of judgments and estimates applied if facts and
circumstances change - e.g. as a result of examination or action by tax
authorities, following changes in tax rules or when a tax authority's right to
challenge a treatment expires.

-6-
 The interpretation is effective for annual periods beginning on or after
January 1, 2019 with earlier application permitted.

• Long-term Interests in Associates and Joint Ventures (Amendmentsto PAS 28).

The amendment requires the application of PFRS 9 to other financial instruments
in an associate or joint venture to which the equity method is not applied. These
include long-term interests (l Tis) that, in substance, form part of the entity's net
investment In an associate or joint venture. The amendment explains the annual
sequence in which PFRS 9 and PFRS 28 are to be applied. In effect, PFRS 9 is
first applied ignoring any prior years' PAS 28 loss absorption. If necessary, prior
years' PAS 28 loss allocation is trued-up In the current year which may involve
recognizingmore prior years' losses, reversing these losses or re-allocating them
between different LTl instruments. Any current year PAS 28 losses are allocated
to the extent that the remaining LTl balance allows and any current year PAS 28
profits reverse any unrecognized prior years' losses and then allocations against
LTl. The amendment is effective for annual periods beginning on or after
January 1, 2019 with early adoption permitted. Retrospective application is
required, subjectto relevant transitional reliefs.

• Sale or Contribution of Assets between an Investor and its Associate or Joint

Venture (Amendments to PFRS 10, Consolidated Financial Statements, and
PAS 28). The amendments address an inconsistency in the requirements in
PFRS 10 and PAS 28 in dealing with the sale or contribution of assets between
an investor and its associate or joint venture. The amendments require that a full
gain or loss is recognized when a transaction involves a business whether it is
housed in a subsidiary or not A partial gain or loss is recognized when a
transaction involves assets that do not constitute a business, even if these
assets are housed in a subsidiary.

Originally, the amendments apply prospectivelyfor annual periods beginning on

or after January 1, 2016, with early adoption permitted. However, on
January 13, 2016, the FRSC decided to postpone the effective date until the
IASB has completed its broader review of the research project on equity
accounting that may result in the simplification of accounting for such
transactionsand of other aspects of accountingfor associates and joint ventures.

Current versus NoncurrentClassification

The Group presents assets and liabilities in the consolidated statements of financial
position based on current and noncurrent classification. An asset is current when it
is: (a) expected to be realized or intended to be sold or consumed in the normal
operating cycle; (b) held primarily for the purpose of trading; (c) expected to be
realized within 12 months after the reporting period; or (d) cash or cash equivalent
unless restricted from being exchanged or used to settle a liability for at least 12
months after the reporting period.

A liability is current when it is: (a) expected to be settled in the normal operating
cycle; (b) held primarily for trading; (c) due to be settled within 12 months after the
reporting period; or (d) there is no unconditional right to defer the settlement of the
liability for at least 12 months after the reporting period.

The Group classifies all other assets and liabilities as noncurrent. Deferred tax
assets and liabilities are classified as noncurrent

-7-
Financial Assets and Financial Liabilities
Date of Recognition. The Group recognizesa financial asset or a financial liability in
the consolidated statements of financial position when it becomes a party to the
contractual provisions of a financial Instrument In the case of a regular way
purchase or sale of financial assets, recognition is done using settlement dale
accounting.

Initial Recognition of Financial Instruments. Financial instruments are recognized

Initially at fair value of the consideration given (in case of an asset) or received (in
case of a liability). The initial measurement of financial instruments, except for those
designated as at FVPL, Includes transactioncosts.

'Day 1' Difference. Where the transaction price in a non-active market is different
from the fair value of other observable current market transactions In the same
Instrument or based on a valuation techniquewhose variables Include only data from
observable market, the Group recognizes the difference between the transaction
price and the fair value (a 'Day 1' difference) in the consolidated statements of
income unless ii qualifies for recognition as some other type of asset. In cases where
data used is not observable, the difference between the transaction price and model
value is only recognized in the consolidated statements of income when the inputs
become observable or when the instrument is derecognized. For each transaction,
the Group determines the appropriate method of recognizing the 'Day 1' difference
amount.

Financial Assets
The Group classifies its finandal assets, at initial recognition, in the following
categories: financial assets at FVPL, loans and receivables, available-for-sale (AFS)
financial assets and held-to-maturity (HTM) investments. The classification depends
on the purpose for which the investments are acquired and whether they are quoted
in an active market. The Group determines the classification of its financial assets at
initial recognition and, where allowed and appropriate, re-evaluates such designation
at every reportingdate.

The Group has no AFS financial assets and HTM investments as of December 31,
2017 and 2016.

Financial Assats at FVPL. A financial asset is classified as at FVPL if it is classified

as held for trading or is designated as such upon initial recognition. Financial assets
are designated as at FVPL If the Group manages such Investments and makes
purchase and sale decisions based on their fair values In accordance with the
documented risk management or Investment strategy of the Group. Derivative
Instruments (including embedded derivatives), except those covered by hedge
accounting relationships, are classified under this category.

Financial assets are classified as held for trading if they are acquired for the purpose
of selling in the near term.

Financial assets may be designated by management at initial recognition as at

FVPL, when any of the following criteria is met:

• the designationeliminates or significantly reduces the inconsistent treatment that

would otherwise arise from measuring the assets or recognizing gains or losses
on a different basis;

• the assets are part of a group of financial assets which are managed and their
performances are evaluated on a fair value basis, in accordance with a
documentedrisk management or investment strategy; or

-8-
• the financial insll\lment contains an embedded derivative, unless the embedded
derivative does not significantly modify the cash flows or it is clear, with little or
no analysis, that it would not be separately recognized.

The Group carries financial assets at FVPL using their fair values. Attributable
transaction costs are recognized in the consolidated statements of income as
incurred. Fair value changes and realized gains or losses are recognized in the
consolidated statements of income. Any interest earned is recognized as part of
"Interest lncome" account in the consolidated statements of Income. Any dividend
income from equity securities classified as at FVPL is recognized in the consolidated
statementsof income when the right lo receive payment has been established.

The Group's derivative assets and financial assets at FVPL are classified under this
category (Notes 30 and 31}.

Loans and Receivables. Loans and receivables are non-derivative financial assets
with fixed or determinable payments and maturities that are not quoted in an active
market. They are not entered into with the intention of immediate or short-term resale
and are not designated as AFS financial assets or financial assets at FVPL.

Subsequent to initial measurement, loans and receivables are carried at amortized

cost using the effective interest rate method, less any impairment in value. Any
interest earned on loans and receivables is recognized as part of "Interest income"
account in the consolidated statements of income on an accrual basis. Amortized
cos! is calculated by taking into account any discount or premium on acquisition and
fees that are an integral part of the effectiveinterest rate. The periodic amortization is
also included as part of "Interest income• account in the consolidated statements of
income. Gains or losses are recognized in the consolidated statements of income
when loans and receivablesare derecognized or impaired.

Cash includes cash on hand and in banks which are stated at face value. Cash
equivalents are short-term, highly liquid investments that are readily convertible to
known amounts of cash and are subject to an insignificant risk of changes in value.

The Group's cash and cash equivalents, trade and other receivables, noncurrent
receivables and restricted cash are included under this category (Notes 7, 8, 16, 30
and 31).

Financial Liabilities
The Group classifies its financial liabilities, at initial recognition, in the following
categories: financial liabilities at FVPL and other financial liabilities. The Group
determines the classification of its financial liabilities at initial recognition and, where
allowed and appropriate, re-evaluates such designation at every reporting date. All
financial liabilities are recognized initially at fair value and, in the case of loans and
borrowings, net of directly attributabletransaction costs.

Financial Uabilities at FVPL Financial liabilities are classified under this category
through the fair value option. Derivative instruments (including embedded
derivatives) with negative fair values, except those covered by hedge accounting
relationships, are also classified under this category.

The Group carries financial liabilities at FVPL using their fair values and reports fair
value changes in profit or loss. Any interest expense incurred is recognizedas part of
"Interest expense and other financing charges• account in the consolidated
statementsof income.

_g_
The Group has no financial liabilities at FVPL as of December 31, 2017 and 2016.

Other Financial Uabililies. This category pertains to financial liabilities that are not
designated or classified as at FVPL. After initial measurement, other financial
liabilities are carried at amortized cost using the effective interest rate method.
Amortized cost ls calculated by taking Into account any premium or discount and any
directly attributable transaction costs that are considered an integral part of the
effective interest rate of the liability. The effective interest rate amortization is
included in 'Interest expense and other financing charges• account in the
consolidated statements of income. Gains and losses are recognized in the
consolidated statements of income when the liabilities are derecognized as well as
through the amortizationprocess.

The Group's liabilities arising from its trade or borrowings such as loans payable,
accounts payable and accrued expenses, long-term debt, finance lease liabilities and
other noncurrent liabilities are included under this category (Notes 6, 17, 18, 19, 30
and 31).

Derivative Financial Instrumentsand Hedging

Freestanding Derivatives
For the purposeof hedge accounting, hedges are classifiedas either:

(a) fair value hedges when hedging the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment (except for
foreign currency risk);

(b) cash flow hedges when hedging exposure to variability in cash flows that is either
attributable to a particularrisk associated with a recognized asset or liability or a
highly probable forecast transaction or the foreign currency risk in an
unrecognized firm commitment;or

(c) hedges of a net investment in foreign operations.

At the inception of a hedge relationship, the Group formally designates and

documents the hedge relationship to which the Group 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 or transaction, the nature of the risk being hedged and how the entity
will assess the hedging instrument's effectiveness in offsetting the exposure to
changes in the hedged item's fair value or cash nows attributable to the hedged risk.
Such hedges are expected to be highly effective in achieving offsetting changes In
fair value or cash flows and are assessedon an ongoing basis to determine that they
actually have been highly effective throughout the financial reporting periods for
which they were designated.

Fair Value Hedge. Derivatives classified as fair value hedges are carried at fair value
with corresponding change in fair value recognized in the consolidated statements of
income. The canying amount of the hedged asset or liability is also adjusted for
changes in fair value attributable to the hedged item and the gain or loss associated
with that remeasurement is also recognized in the consolidated statements of
income.

When the hedge ceases to be highly effective, hedge accounting is discontinued and
the adjustmentto the canying amount of a hedged financial instrument is amortized
immediately.

- 10 -
The Group discontinues fair value hedge accounting if:

(a) the hedging instrument expires, is sold, is terminated or is exercised;

(b) the hedge no longer meets the criteria for hedge acc:ounting; or

(c) the Group revokes the designation.

The Group has no outstanding derivatives and financial Instruments accounted for as
a fair value hedge as of December 31, 2017 and 2016.

Cash Flow Hedge. Changes in the fair value of a hedging instrument that qualifies as
a highly effective cash flow hedge are recognized in other comprehensive income
and presented in the consolidated statements of changes In equity. The ineffective
portion is immediately recognized in the consolidated statements of income.

If the hedged cash flow results in the recognition of an asset or a liability, all gains or
losses previously recognized directly in the consolidated statements of changes in
equity are transferred and included in the initial measurement of the cost or carrying
amount of the asset or liability. Otherwise, for ail other cash flow hedges. gains or
losses initially recognized in the consolidated statements of changes in equity are
transferred to the consolidated statements of income in the same period or periods
during which the hedged forecasted transaction or recognized asset or liability
affects the consolidated statements of income.

When the hedge ceases to be highly effective. hedge accounting is discontinued

prospectively. The cumulative gain or loss on the hedging instrument that has been
reported direcUy in the consolidated statements of changes in equity is retained until
the forecasted transaction occurs. When the forecasted transaction is no longer
expected to occur, any net cumulative gain or loss previously reported in the
consolidated statements of changes in equity is recognized In the consolidated
statements of income.

The Group has no outstanding derivatives and financial instruments accounted for as
a cash flow hedge as of December 31, 2017 and 2016.

Net Investment Hedge. Hedges of a net investment in a foreign operation, including

a hedge of a monetary item that is accounted for as part of the net investment, are
accounted for in a way similar to cash flow hedges. Gains or losses on the hedging
instrument relating to the effective portion of the hedge are recognized in other
comprehensive income while any gains or losses relating to the ineffective portion
are recognized In the consolidated statements of Income. On disposal of a foreign
operation, the cumulative value of any such gains and losses recorded In the
consolidated statements of changes in equity is transferred to and recognized In the
consolidated statements of income.

The Group has no hedge of a net investment in a foreign operation as of

December 31, 2017 and 2016.

Changes in fair values of derivatives that do not qualify for hedge accounting are
recognized directly in the consolidated statements of income.

- 11 -
Embedded Derivatives
The Group assesses whether embedded derivatives are required to be separated
from the host contracts when the Group becomes a party to the contract.

An embedded derivative is separated from the host contract and accounted for as a
derivative if all of the following conditions are met:

(a) the economic characteristics and risks of the embedded derivative are not
closely related to the economic characteristics and risks of the host contract;

(b) a separate instrument with the same terms as the embedded derivative would
meet the definition of a derivative; and

(c) the hybrid or combined instrument is not recognized as at FVPL.

Reassessment only occurs If there is a change in the terms of the contract that
significantly modifies the cash nows that would otherwise be required.

Embedded derivatives that are bifurcated from the host contracts are accounted for
either as financial assets or financial liabilities at FVPL.

The Group has no embedded derivatives as of December 31, 2017 and 2016.

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 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 them in full without material delay to a third party
under a "pass-through" arrangement; and either: (a) has transferred substantially
all the risks and rewards of the asset; or (b) has neither transferred nor retained
substantially all the risks and rewards of the asset, but has transferred control of
the asset.

When the Group has transferred its rights to receive cash nows 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 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 the
associated liability. The transferred asset and the associated liability are measured
on the basis that reftects 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 is required to repay.

Financial Liabilities. A financial liability is derecognized when the obligation under the
liability is discharged or cancelled, or expires. 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 a derecognition of the original liability and the recognition of
a new liability. The difference in the respective carrying amounts is recognized in the
consolidated statements of income .

• 12.
Impairment of Financial Assets
The Group assesses, at the reporting date, whether a financial asset or group of
financial assets is impaired.

A financial asset or a group of financial assets is deemed to be impaired if, and only
if, there is objective evidence of impairment as a result of one or more events that
have occurred after the initial recognition of the asset (an incurred loss event) and
that loss event has an impact on the estimated future cash flows of the financial
asset or the group of financial assets that can be reliablyestimated.

Assets Carried al Amortized Cost. For financial assets carried at amortized cost such
as loans and receivables, the Group first assesses whether impairment exists
individually for financial assets that are Individually significant, or collectively for
financial assets that are not individually significant. If no objective evidence of
impairment has been identified for a particular financial asset that was individually
assessed, the Group includes the asset as part of a group of financial assets with
similar credit risk characteristics and collectively assesses the group for impairment.
Assets that are individually assessed for impairment and for which an impairment
loss is, or continues to be, recognized are not included in the collective impairment
assessment

Evidence of impairment may include indications that the borrower or a group of

borrowers is experiencing financial difficulty, default or delinquency in principal or
interest payments, or may enter into bankruptcy or other form of financial
reorganization intended to alleviate the financial condition of the borrower. For
collective impairment purposes, evidenceof impairment may include observable data
on existing economic conditions or industry-wide developmentsindicating that there
is a measurable decreasein the estimated future cash flows of the related assets.

If there is objective evidence of impairment, the amount of loss is measured as the

difference between the assets carrying amount and the present value of estimated
future cash flows (excluding future credit losses) discounted at the financial asset's
original effective interest rate (i.e., the effective interest rate computed at initial
recognition). Time value Is generally not considered when the effect of discounting
the cash flows is not material. If a loan or receivable has a variable rate, the discount
rate for measuringany impairment loss is the current effective interest rate, adjusted
for the original credit risk premium. For collective Impairment purposes, Impairment
loss is computedbased on their respective default and historical loss experience.

The carrying amount ol the asset is reduced either directly or through the use of an
allowance account. The Impairment loss for the period is recognized in the
consolidated statements of income. If, in a subsequent period, the amount of the
impairment loss decreases and the decrease can be related objectively to an event
occurring after the impairmentwas recognized, the previously recognizedimpairment
loss is reversed. Any subsequent reversal of an impairment loss is recognized in the
consolidated statements of income, to the extent that the carrying amount of the
asset does not exceedits amortizedcost at the reversal date.

- 13 -
Classification of Financial Instruments between Uabi!ilY and Equity
Financial instruments are classified as liability or equity In accordance with the
substance of the contractual arrangement. Interest, dividends, gains and losses
relating to a financial instrument or a component that is a financial liability, are
reported as expense or income. Distributions to holders of financial Instruments
classified as equity are charged direcUy to equity, net of any related income tax
benefits.

A financial instrument is classified as liability if it provides for a contractual obligation

to:

• deliver cash or another financial asset to another entity;

• exchange financial assets or financial liabilities with another entity under

conditions that are potentially unfavorable to the Group; or

• satisfy the obligation other than by the exchange of a fixed amount of cash or
another financial asset for a fixed number of own equity shares.

If the Group does not have an unconditional right to avoid delivering cash or another
financial asset to setUe its contractual obligation, the obligation meets the definition
of a financial liability.

The components of issued financial instruments that contain both liability and equity
elements are accounted for separately, with the equity component being assigned
the residual amount after deducting from the instrument as a whole or in part, the
amount separately determined as the fair value of the liability component on the date
of issue.

Debt Issue Costs

Debt issue costs are considered as an adjustment to the effective yield of the related
debt and are deferred and amortized using the effective interest rate method. When
a loan is paid, the related unamortized debt issue costs at the date of repayment are
recognized in the consolidated statements of income.

Offsetting Financial lnstl\Jments

Financial assets and financial liabilities are offset and the net amount is reported in
the consolidated statements of financial position if, and only if, there is a currently
enforceable legal right to offset the recognized amounts and there is an Intention to
settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

Inventories
Inventories are valued at the lower of cost and net realizable value. Cost Is
determined using specific identification method or weighted average method for coal
inventories, weighted average method for fuel oil and other consumables and
specific identification method for spare parts. Net realizable value is the current
replacement cost

Any write-down of inventories to net realizable value and all losses of inventories are
recognized as expense in the year of write-down or loss occurrence. The amount of
reversals, if any, of write-down of inventories arising from an increase In net
realizable value are recognized as reduction in the amount of inventories recognized
as expense in the year in which the reversal occurs.

-14-
 Business Combination
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 non-controlling
interests in the acquiree. For each business combination, the Group elects whether
to measure the non-controlling interests in the acquiree at fair value or at
proportionate share of the acquiree's identifiable net assets. Acquisition-related costs
are expensed as incurred and included as part of 'Selling and administrative
expenses· account in the consolidatedstatements of income.

When the Group acquires a business, it assesses the financial assets and financial
liabilities assumed for appropriate classification and designation in accordance with
the contractual terms, economic circumstances and pertinent conditions as at the
acquisition date.

If the business combination is achieved in stages, the acquisition date fair value of
the acquirer's previously held equity interest in the acquiree is remeasured at the
acquisition date fair value and any resulting gain or loss is recognized in the
consolidatedstatements of income.

The Group measures goodwill at the acquisition date as: a) the fair value of the
consideration transferred; plus b) the recognized amount of any non-controlling
interests in the acquiree; plus c) if the business combination is achieved in stages,
the fair value of the existing equity interest in the acquiree: less d) the net recognized
amount (generally fair value) of the identifiable assets acquired and liabilities
assumed. When the excess is negative, a bargain purchase gain is recognized
immediately in the consolidated statements of income. Subsequently, goodwill is
measuredat cost less any accumulated impairment in value. Goodwill is reviewed for
impairment, annually or more frequently, if events or changes in circumstances
indicate that the carrying amount may be impaired.

The consideration transferred does not include amounts related to the settlement of
pre-existing relationships. Such amounts are generally recognized in the
consolidated statements of income. Costs related to the acquisition, other than
those associated with the issuance of debt or equity securities that the Group incurs
in connection with a business combination, are expensed as incurred. Any
contingent consideration payable is measured at fair value at the acquisition date. If
the contingent consideration Is classified as equity, it Is not remeasured and
settlement is accounted for within equity. Otherwise, subsequent changes to the fair
value of the contingent consideration are recognized in the consolidated statements
of income.

• Goodwill in a Business COmbination

Goodwill acquired in a business combination is, from the acquisition date,
allocated to each of the cash-generating units, or groups of cash-generating units
that are expected to benefit from the synergiesof the combination, Irrespectiveof
whether other assets or liabilities are assigned to those units or groups of units.
Each unit or group of units to which the goodwill is allocated:

• represents the lowest level within the Group at which the goodwill is
monitored for internal managementpurposes: and

• is not larger than an operating segment determined in accordance with

PFRS 8, Operating Segments.

-15-
 lmpainnent Is detennined by assessing the recoverable amount of the
cash-generating unit or group of cash-generating units, to which the goodwill
relates. Where the recoverable amount of the cash-generating unit or group of
cash-generating units is less than the carrying amount, an impairment loss Is
recognized. Where goodwill forms part of a cash-generating unit or group of
cash-generating units and part of the operation within that unit Is disposed of, the
goodwill associated with the operation disposed of is Included In the carrying
amount of the operation when detennining the gain or loss on disposal of the
operation. Goodwill disposed of in this circumstance Is measured based on the
relative values of the operation disposed of and the portion of the
cash-generating unit retained. An impairment loss with respect to goodwill ls not
reversed.

• Intangible Assets Acquired in a Business Combination

The cost of an intangible asset acquired in a business combination Is the fair
value as at the date of acquisition. determined using discounted cash flows as a
result of the asset being owned.

Following initial recognition, intangible asset is carried at cost less any

accumulated amortization and impainnent losses, if any. The useful life of an
intangible asset is assessed to be either finite or indefinite.

An intangible asset with finite life is amortized over the useful economic life and
assessed for impairmentwhenever there is an indication that the intangible asset
may be impaired. The amortization period and the amortization method for an
intangible asset with a finite useful life are reviewed at least at each reporting
date. A change in the expected useful life or the expected pattern of
consumption of future economic benefits embodied in the asset is accounted for
as a change in accounting estimate. The amortization expense on intangible
asset with finite life is recognized in the consolidated statementsof income.

Transactionsunder CommonControl
Transactions under common control entered into in contemplation of each other and
business combination under common control designed to achieve an overall
commercial effect are treated as a single transaction.

Transfers of assets between commonly controlled entities are accounted for using
book value accounting.

Investments in Shares of Stock of Associates and Joint ventures

An associate is an entity in 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.

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. Joint
control is the contractually agreed sharing of control of an arrangement, which exists
only when decisions about the relevant activities require unanimous consent of the
parties sharing control.

The considerations made in determining significant influence or joint control is similar

to those necessaryto determine control over subsidiaries.

The Group's investments in shares of stock of associates and joint ventures are
accounted for using the equity method.

-16-
Under the equity method, the investment in shares of stock of an associate or joint
venture is initially recognized at cost. The carrying amount of the investment is
adjusted to recognize the changes in the Group's share of 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
neither amortized nor individually tested for impairment.

The Group's share in profit or loss of an associate or joint venture is recognized as

•Equity in net losses of associates and joint ventures" account in the consolidated
statements of income. Adjustments to the carrying amount may also be necessary
for changes in the Group's proportionate interest in the associate or joint venture
arising from changes in the associate or joint venture's other comprehensive Income.
The Group's share on these changes is recognized in the consolidated statements of
comprehensive income. 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.

After application of the equity method, the Group determines whether it is necessary
to recognize an impairment loss on its investment in the shares of stock of an
associate or joint venture. At each reporting date, the Group determines whether
there is objective evidence that the investment in shares of stock of an 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 and carrying
amount of the investmentin shares of stock of an associateor joint ventureand then
recognizes the loss as part of •Equity in net losses of associates and joint ventures"
account in the consolidatedstatements 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 fair value.
Any difference between the carrying amount of the investment in an 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
consolidatedstatements of income.

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.

Prooerty. Plant and Eguioment

Property, plant and equipment, except for land. are stated at cost less accumulated
depreciation and amortization and any accumulatedImpairment in value. Such cost
includes the cost of replacing part of the property, plant and equipment at the time
the cost is incurred, if the recognition criteria are met. and excludes the costs of
day-to-dayservicing. Land is stated at cost less any Impairment In value.

The Initial cost of property, plant and equipment comprises its construction cost or
purchase price, including import duties, taxes and any directly attributable costs in
bringing the asset to its working condition and location for its intended use. Cost also
Includes any related asset retirement obligation (ARO). Expenditures incurred after
the asset has been put into operation, such as repairs, maintenance and overhaul
costs, are normally recognized as expense in the period the costs are incurred.
Major repairs are capitalizedas part of property, plant and equipment only when it is
probable that Mure economic benefits associated with the items will How to the
Group and the cost of the items can be measured reliably.

. 17.
Capital projects in progress (CPIP) represents the amount of accumulated
expenditures on unfinished and/or ongoing projects. This includes the costs of
construction and other direct costs. Borrowing costs that are directly attributable to
the construction of plant and equipment are capitalized during the construction
period. CPIP is not depreciated until such time that the relevant assets are ready for
use.

Depreciation and amortization, which commence when the assets are available for
their Intended use, are computed using the straight-tine method over the following
estimateduseful lives of the assets:
Number of Years
Power plants 10-43
Leaseholdimprovements 5 - 25 or term of the lease,
whichever Is shorter
Other equipment 2-20
Building 10. 25

The remaining useful lives, residual values, and depreciation and amortization
methods are reviewed and adjusted periodically, if appropriate, to ensure that such
periods and methods of depreciation and amortization are consistent with the
expected pattern of economic benefits from the items of property, plant and
equipment

The carrying amounts of property, plant and equipment are reviewedfor impairment
when events or changes in circumstances indicate that the carrying amounts may
not be recoverable.

Fully depreciated assets are retained in the accounts until they are no longer in use.

An item of property, plant and equipment is derecognized when either it has been
disposed of or when it is permanentlywithdrawn from use and no future economic
benefits are expected from its use or disposal. Any gain or loss arising from the
retirement and disposal of an item of property, plant and equipment (calculated as
the difference between the net disposal proceeds and the carrying amount of the
asset) is recognized in the consolidated statements of income In the period of
retirement and disposal.

Intangible Assets
Intangible assets acquired separately are measuredon initial recognition at cost. The
cost of an intangible asset acquired in a business combination is its fair value at the
date of acquisition. Subsequently, intangible assets are carried at cost less
accumulated amortization and any accumulated impairment losses. Internally
generated intangible assets, excluding capitalized development costs, are not
capitalized and expenditures are recognized in the consolidated statements of
income in the year in which the related expenditures are incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite.

. 18 -
 Intangible assets with finite lives are amortized over the useful life and assessed for
impairment whenever there Is an indication that the intangible assets may be
impaired. The amortization period and the amortization method used for an
intangible asset with a finite useful life are reviewed at least at each reporting date.
Changes In the expected useful life or the expected pattern of consumption of future
economic benefits embodied in the asset are accounted for by changing the
amortization period or method, as appropriate, and are treated as changes in
accounting estimate. The amortization expense on intangible assets with finite lives
is recognized in the consolidated statements of income consistent with the function
of the intangible asset.

Amortizationis computed using the straight-linemethod over the following estimated

useful lives of intangible assets with finite lives:
Number of Years
Power concession right 25
Computersoftware and licenses 3

Gains or losses arising from the disposal 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 statements of income when the asset Is
derecognized.

Power Concession Assets and Obligations

Public-to-privateservice concession arrangements where: (a) the grantor controls or
regulates what services the entity in the Group can provide with the infrastructure, to
whom it can provide them, and at what price; and (b) the granter controls (through
ownership, beneficial enti11ement or otherwise) any significant residual interest in the
infrastructure at the end of tile term of the arrangement are accounted for under
Philippine Interpretation IFRIC 12, Service Concession Arrangements.
Infrastructures used in a public-to-private service concession arrangement for its
entire useful life (whole-of-lifeassets) are within the scope of the Interpretation if the
conditions in (a) are met.

The Interpretation applies to both: (a) infrastructure that the entity In the Group
construct or acquire from a third party for the purpose of the service arrangement;
and (b) existing infrastructure to which the grantor gives the entity in the Group
access for the purpose of the service arrangement.

Infrastructureswithin the scope of the Interpretation are not recognized as property,

plant and equipment of the Group. Under the terms of the contractual arrangements
within the scope of the Interpretation, an entity acts as a service provider. An entity
constructs or upgrades infrastructure (construction or upgrade services) used to
provide a public service and operates and maintains that Infrastructure (operation
services) for a specifiedperiod of time.

The Group's power concession right pertains to the right granted by the Government
to the Parent Company, through APEC, to operate and maintain the franchise of
Albay Electric Cooperative, Inc. (ALECO). The Group's power concession right Is
carried at cost less accumulated amortization and any accumulated impairment
losses.

- 19 -
 The useful life of power concession right is assessed to be either finite or indefinite.
Power concession right arising from a service concession arrangement is amortized
using straight-line method over the concession period, which is 25 years from the
first day of the commencement of operations, or the estimated useful lives of the
infrastructure, whichever is shorter, and assessed for impairment whenever there is
an indication that the asset may be impaired. The amortization period and method
are reviewed at least at each reporting date. Changes in the expected useful life or
the expected pattern of consumption of future economic benefits embodied in the
asset are accounted for by changing the amortization period or method, as
appropriate, and are treated as changes in accounting estimates. The amortization
expense Is recognized in the consolidated statements of income in the expense
category consistent with the function of the concession assets.

The power concession right is derecognized on disposal or when no further

economic benefits are expected from its use or disposal. Gain or loss from
derecognition of the power concession right is measured as the difference between
the net disposal proceeds and the carrying amount of the asset, and is recognized in
the consolidated statements of income.

An entity recognizes and measures revenue in accordance with PAS 11 and

PAS 18 for the services it performs. If an entity performs more than one service
under a single contract or arrangement, consideration received or receivable is
allocated by reference to the relative fair values of the services delivered when the
amounts are separately identifiable.

When an entity provides construction or upgrade services, the consideration

received or receivable by the entity is recognized at fair value. An entity accounts for
revenue and costs relating to construction or upgrade services in accordance with
PAS 11. Revenue from construction contracts is recognized based on the
percentage-of-completion method, measured by reference to the proportion of costs
incurred to date, to estimated total costs for each contract. The applicable entity
accounts for revenue and costs relating to operation services in accordance with
PAS 18.

An entity recognizes a financial asset to the extent that it has an unconditional

contractual right to receive cash or another financial asset from or at the direction of
the granter for the construction services. An entity recognizes an intangible asset to
the extent that it receives a right (a license) to charge users of the public service.

When the applicable entity has contractual obligations to fulfill as a condition of its
license: (i) to maintain the infrastructure to a specified level of serviceability; or (ii) to
restore the infrastructure to a specified condition before it is handed over to the
grantor at the end of tlhe service arrangement, it recognizes and measures the
contractual obligations in accordance with PAS 37, Provisions, Contingent Uabilities
and Contingent Assets, i.e., at the best estimate of the expenditure that would be
required to settle the present obligation at the reporting date.

In accordance with PAS 23, Borrowing Costs, borrowing costs attributable to the
arrangement are recognized as expenses in the period in which they are incurred
unless the applicable entities have a contractual right to receive an intangible asset
(a right to charge users of the public service). In this case, borrowing costs
attributable to the arrangement are capitalized during the construction phase of the
arrangement.

- 20 -
Concession payable is recognized at the date of inception of the concession
agreement. Fixed concession fees are recognized at present value using the
discount rate at the inception date. This account is debited upon payment of fixed
fees and such payments are apportioned between interest payment and payment of
the principal. Interest arising from the accretion of concession payable Is presented
under "Interest expense and other financing charges' account in the consolidated
statements of Income.

Concession payable that are expected to be settled within 12 months after the
reporting date are classified as current liabilities. Otherwise, these are classified as
noncurrent liabilities.

MiningRights
The Group's mining rights have finite lives and are carried at cost less accumulated
amortization and any accumulated impairment losses.

Subsequent expenditures are capitalized only when it increases the future economic
benefits embodied in the specific asset to which it relates. All other expenditures are
recognized in the consolidated statements of income as incurred.

Amortization of mining rights is recognized in the consolidated statements of income

based on the units of production method utilizing only recoverable coal reserves as
the depletion base. In applying the units of production method, amortization is
normally calculated using the quantity of material extracted from the mine in the
period as a percentage of the total quantity of material to be extracted in current and
future periods based on proved and probable reserves. The amortization of mining
rights will commence upon commercial operations.

Gain or loss from derecognition of mining rights is measured as the difference

between the net disposal proceeds and the carrying amount of the asset, and Is
recognized in the consolidated statements of income.

Deferred Exploration and Development Costs

Deferred exploration and development costs comprise of expenditures which are
direcUy attributable to:

• Researching and analyzing existing exploration data;

• Conducting geological studies, exploratory drilling and sampling;

• Examining and testing extraction and treatment methods; and

• Compiling pre-feasibility and feasibility studies.

Deferred exploration and development costs also include expenditures incurred in

acquiring mining rights, entry premiums paid to gain access to areas of interest and
amounts payable to third parties to acquire interests in existing projects.

Exploration assets are reassessed on a regular basis and tested for impairment
provided that at least one of the following conditions is met

• the period for which the entity has the right to explore in the specific area has
expired during the period or will expire in the near future, and is not expected to
be renewed;

• substantive expenditure on further exploration for and evaluation of mineral

resources in the specific area is neither budgeted nor planned;

- 21 -
• such costs are expectedto be recouped in full through successful development
and exploration of the area of interest or alternatively, by its sale; or

• exploration and evaluation activities in the area of interest have not yet reached a
stage which permits a reasonable assessment of the existence or otherwise of
economically recoverable reserves, and active and significant operations in
relation to the area are continuing, or planned for the future.

If the project proceeds to development stage, the amounts included within

deferred exploration and development costs are transferred to property, plant and
equipment.

Impairment of Non-financialAssets
The carrying amounts of investments and advances, property, plant and equipment,
deferred exploration and development costs and intangible assets with finite useful
lives are reviewed for impairmentwhen events or changes in circumstancesindicate
that the carrying amount may not be recoverable. Goodwillare tested for impairment
annually either individually or at the cash-generating unit level. If any such indication
exists, and if the carrying amount exceeds the estimated recoverable amount, the
assets or cash-generating units are written down to their recoverable amounts. The
recoverable amount of the asset is the greater of fair value less costs to sell and
value in use. The fair value less costs to sell is the amount obtainable from the sale
of an asset in an arm's length transaction between knowtedgeable, willing parties,
less costs of disposal. Value in use is the present value of estimated future cash
flows expected to arise from the continuing use of an asset and from its disposal at
the end of its useful life.

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. For an asset that does
not generate largely independent cash inflows, the recoverable amount is
determined for the cash-generating unit to which the asset belongs. Impairment
losses are recognized in the consolidated statements of income in those expense
categories consistentwith the function of the impaired asset.

An assessmentis made at each reporting date as to whether there is any indication

that previously recognized impairment losses may no longer exist or may have
decreased. If such indication exists, the recoverable amount Is estimated. A
previously recognized impairment loss ls reversedonly if there has been a change in
the estimates used to determine the asset's recoverable amount since the last
Impairment loss was recognized. If that is the case, the carrying amount of the asset
is increased to its recoverable amount. That increased amount cannot exceed the
carrying amount that would have been determined, net of depreciation and
amortization, had no Impairment loss been recognized for the asset in prior years.
Such reversal is recognized in the consolidated statements of income. After such a
reversal, the depreciation and amortization charge is adjusted in future periods to
allocate the asset's revised carrying amount, less any residual value, on a systematic
basis over its remaining useful life. An impairment loss with respect to goodwill is not
reversed.

. 22
.
Fajr Value Measurements
The Group measures a number of financial and non-financtal assets and liabilities at
fair value at each reporting date.

Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderty transaction between market participants at the measurement
date. The fair value measurement is based on the presumptionthat the transaction
to sell the asset or transferthe liability takes place either: (a) In the principal market
for the asset or liability; or (b) in the absence of a principal market, in the most
advantageous market for the asset or liability. The principal or most advantageous
market must be accessible to 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 participantsact in their best economicinterest

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 as follows, based on the lowest level input that is significant to the fair
value measurementas a whole:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or

liabilities;

• Level 2: inputs other than quoted prices included within Level 1 that are
observablefor the asset or liability, either directly or indirectly; and

• Level 3: inputs for the asset or liability that are not based on observable market
data.

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 re-assessingthe categorizationat 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.

Provisions
Provisions are recognized when: (a) the Group has a present obligation (legal or
constructive) as a result of past events; (b) it is probable (i.e., more likely than not)
that an outflow of resources embodying economic benefits will be required to settle
the obligation; and (c) a reliable estimate of the amount of the obligation can be
made. Wheresome or all of the expenditure required to settle a provision is expected
to be reimbursed by another party, the reimbursement is recognized as a separate
asset only when it is virtually certain that reimbursement will be received. The
amount recognized for the reimbursement shall not exceed the amount of the
provision. Provisions are reviewedat each reporting date and adjusted to reflect the
current best estimate.

. 23
.
 If the effect of the time value of money is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current
market assessment of the time value of money and the risks specific to the liability.
Where discounting is used, the increase In the provision due to the passage of time
is recognized as interest expense.

ARO. The Company records a provision for asset retrrement costs of Its power
plants. Asset retirement costs are provided at the present value of expected costs to
settle the obligation using estimated cash flows and are recognized as part of
property, plant and equipment. The cash flows are discounted at a current pre-tax
rate that reflects the risks specific to the retirement ![ability. The unwinding of the
discount is expensed as incurred and recognized in the consolidated statements of
income as "Interest expense and other financing charges". The estimated future
costs of asset retirement are reviewed annually and adjusted prospectively.
Changes in the estimated future costs or in the discount rate applied are added to or
deducted from the cost of the power plants. If the decrease in the liability exceeds
the carrying amount of the asset, the excess shall be recognized immediately in the
statement of income.

Capital Stock and Additional Paid-in Capital

Common Shares. Common shares are measured at par and are classified as equity.
Incremental costs directly attributable to the issue of common shares are recognized
as a deduction from equity, net of any tax effects.

Additional Paid-in Capital. When the shares are sold at premium, the difference
between the proceeds and the par value is credited to the •Additional paid-in capital"
account in the consolidated statements of financial position. When shares are issued
for a consideration other than cash, the proceeds are measured by the fair value of
the consideration received. In case the shares are issued to extinguish or settle the
liability of the Parent Company, the shares are measured either at the fair value of
the shares issued or fair value of the liability settled, whichever is more reliably
determinable.

Undated Subordinated Capital Securities

Undated subordinated capital securities (USCS) are classified as equity when there
is no contractual obligation to deliver cash or other financial assets to another person
or entity or to exchange financial assets or financial liabilities with another person or
entity that is potentially unfavorable to the issuer.

Incremental costs directly attributable to the issuance of uses are recognized as a

deduction from equity, net of tax. The proceeds received, net of any directly
attributable transaction costs, are credited to uses.

Retained Earnings
Retained earnings represent the accumulated net income or losses, net of any
dividend, distributions and other capital adjustments. Appropriated retained earnings
represent that portion which is restricted and therefore not available for any dividend
declaration.

-24-
Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits
associated with the transaction will flow to the Group and the amount of revenue can
be reliably measured. Revenue is measured at the fair value of the consideration
received or receivable, taking into account contractually defined terms of payment
and excluding taxes or duty. Revenues are stated at amounts invoiced to customers,
Inclusive of pass-through charges, net of value-added tax (VAT) and other taxes.

The following specific recognition criteria must also be met before revenue Is
recognized:

Sale of Power. Revenue from power generation and trading is recognized in the
period when actual power or capacity is generated, transmitted and/or made
available to the customers, net of related discounts and adjustments.

Retail and Other Power-related Services. Revenues are recognized upon the supply
of electricity to the customers. The Uniform Filing Requirements on the rate
unbundling released by the Energy Regulatory Commission (ERC) on
October 30, 2001 specifiedthe following bill components; (a) generation charge, (b)
transmission charge, (c) system loss charge, (d) distribution charge, (e) supply
charge, (f) metering charge, (g) currency exchange rate adjustments, where
applicable and (h) interclass and life subsidies. Feed-in tariffs allowance, VAT, local
franchise tax and universal charges are billed and collected on behalf of the national
and local government and do not form part of the Group's revenue. Generation,
transmission and systemloss charges, which are part of revenues, are pass-through
charges.

Others
Interest income is recognized as the interest accrues, taking into account the
effectiveyield on the asset.

Management income is recognizedwhen earned in accordance with the terms of the

agreement.

Rent income from operating lease is recognized on a straight-line basis over the
related lease terms. Lease incentives granted are recognized as an integral part of
the total rent incomeover the term or the lease.

Construction revenue related to the Group's recognition of intangible asset on the

right to operate and maintain the franchise of ALECO, which Is the fair value of the
intangible asset, is earned and recognized as the construction progresses. The
Group recognizes the corresponding amount as intangible asset as It recognizes the
construction revenue. The Group assumes no profit margin in earning the right to
operate and maintain the franchise of ALECO.

The Group uses the cost to cost percentage-of-completion method to determine the
appropriate amount or revenue to be recognized in a given period. The stage of
completion is measured by reference to the costs incurred related to the construction
of ALECO infrastructureup to the end of the reporting period as a percentage of total
estimated cost of the construction.

-25-
Cost and Expense Recognition
Costs and Expenses. Costs and expenses are decreases in economic benefits
during the reporting period in the form of outflows or decrease of assets or
lncurrence of liabilities that result in decreases in equity. other than those relating to
distributions to equity participants. Cost of power sold is debited for the direct costs
related to power generation. retail and distribution of electricity, and/or trading.
Expenses are recognized when incurred.

Interest Expense and Other Financing Charges. Interest expense and other financing
charges comprise finance charges on finance lease llabllities, loans, concession
payable and other borrowings. Finance charges on finance lease liabilities, loans,
and concession payable are recognized in consolidated statements of income using
the effective interest rate method.

Leases
The determination of whether an arrangement is, or contains, a lease is based on the
substance of the arrangement and requires an assessment of whether the fulfillment
of the arrangement is dependent on the use of a specific asset or assets and the
arrangement conveys a right to use the asset. A reassessment is made after the
inception of the lease only if one of 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 an extension is 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

specific asset; or

(d) there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from

the date when the change in circumstances gives rise to the reassessment for
scenarios (a), (c) or (d), and at the date of renewal or extension period for scenario
(b) above.

Finance Lease
Finance leases, which transfer to the Group substantially all the risks and rewards
incidental to ownership of the leased item, are capitalized at the Inception of the
lease at the fair value of the leased property or, if lower, at the present value of the
minimum lease payments. Obligations arising from plant assets under finance lease
agreement are classified in the consolidated statements of financial position as
finance lease liabilities.

Lease payments are apportioned between financing charges and reduction of the
lease liability so as to achieve a constant rate of interest on the remaining balance of
the liability. Financing charges are recognized in the consolidated statements of
income.

Capitalized leased assets are depreciated over the estimated useful lives of the
assets when there is reasonable certainty that the Group will obtain ownership by the
end of the lease term.

-26-
Operating Lease
Group as Lessee. Leases which do not transfer to the Group substantially all the
risks and rewards of ownership of the asset are classified as operating leases.
Operating lease payments are recognized as an expense In the consolidated
statementsof income on a straight-linebasis over the lease term. Associated costs
such as maintenance and insuranceare expensed as Incurred.

Group as Lessor. Leases where the Group does not transfer substantially all the
risks and rewardsof ownership of the assets are classified as operating leases. Rent
income from operating leases is recognizedas income on a straight-line basis over
the lease term. Initial direct costs incurred in negotiating an operating lease are
added to the carrying amount of the leased asset and recognized as an expense
over the lease term on the same basis as rent income. Contingent rents are
recognizedas income in the period in which they are earned.

BorrowingCosts
Borrowingcosts directly attributable to the acquisition or construction of an asset that
necessarily takes a substantial period of time to get ready for its intended use are
capitalized as part of the cost of the respective assets. All other borrowing costs are
expensed in the period they occur. Capitalization of borrowing costs commences
when the activities to prepare the asset are in progress and expenditures and
borrowing costs are being incurred. Borrowing costs are capitalized until the assets
are substantially readyfor their intended use.

Employee Benefits
Short-term Employee Benefits. Short-term employee benefits are expensed as the
related service is provided. A liability is recognized for the amount expected to be
paid if the Group has a present legal or constructive obligation to pay this amount as
a result of past service provided by the employee and the obligation can be
estimated reliably.

Retirement Costs. The net defined benefit retirement liability or asset is the
aggregate of the present value of the amount of future benefit that employees have
earned in return for their service in the current and prior periods, reduced by the fair
value of plan assets (if any}, adjusted for any effect of limiting a net defined benefit
asset to the asset ceiling. The asset ceiling is the presentvalue of economic benefits
available in the form of reductions in future contributions to the plan.

The cost of providing benefits under the defined benefit retirement obligation Is
actuarially determined using the projected unit credit method. Projected unit credit
method reflects services rendered by employees to the date of valuation and
incorporates assumptions concerning projected salaries of employees. Actuarial
gains and losses are recognized In full In the period in which they occur in other
comprehensive income. Such actuarial gains and losses are also Immediately
recognizedin equity and are not redassified to profit or loss in subsequent period.

Defined benefit costs comprisethe following:

• Servicecosts
• Net interest on the net defined benefit retirement liability or asset
• Remeasurementsof net defined benefit retirement liability or asset

Service costs which include current service costs, past service costs and gains or
losses on non-routine settlements are recognized as expense in the consolidated
statements of income. Past service costs are recognized when plan amendment or
curtailment occurs. These amounts are calculated periodically by independent
qualified actuary.

. 27.
Net interest on the net defined benefit retirement liability or asset Is the change
during the period as a result of contributions and benefit payments, which is
determined by applying the discount rate based on the government bonds to the net
defined benefit retirement liability or asset Net interest on the net defined benefit
retirement liability or asset is recognized as expense or income in the consolidated
statements of Income.

Remeasurements of net defined benefit retirement liability or asset comprising

actuarial gains and losses, return on plan assets. and any change in the effect of the
asset ceiling (excluding net interest) are recognized immediately in other
comprehensive income In the period In which they arise. Remeasurements are not
reclassified lo consolidated statements of income in subsequent periods.

When the benefits of a plan are changed, or when a plan is curtailed, the resulting
change In benefit that relates to past service or the gain or loss on curtailment Is
recognized immediately in the consolidated statements of income. The Group
recognizes gains and losses on the settlement of a defined benefit retirement plan
when the settlement occurs.

Foreign Currency Translations

Transactions in foreign currencies are translated to the functional currency of the
Group at exchange rates at the dates of the transactions. Monetary assets and
monetary liabilities denominated in foreign currencies are retranslated at the
functional currency rate of exchange ruling at the reporting date. The foreign
currency gain or loss on monetary items is the difference between amortized cost in
the functional currency at the beginning of the year, adjusted for effective interest
and payments during the year, and the amortized cost in foreign currency translated
at the exchange rate at the reportingdate.

Nonmonetary assets denominated in foreign currencies that are measured at fair

value are translated to the functional currency at the exchange rate at the date the
fair value was determined. Nonmonetary items in foreign currencies that are
measured in terms of historical cost are translated using the exchange rate at the
date of the transaction.

Foreign currency differences arising on translation are recognized in the

consolidated statements of income.

Taxes
Current Tax. Current tax is the expected tax payable or receivable on the taxable
income or loss for the year, using tax rates enacted or substantively enacted at the
reportingdate, and any adjustment to tax payable in respect of previous years.

The Group periodically evaluates positions taken in the tax returns with respect to
situations in which applicable tax regulations are subject to interpretations and
establishes provisionswhere appropriate.

- 28
28-
Deferred Tax. Deferred tax is recognized using the liability method in respect of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

• where the deferred tax liability arises from the initial recognition of goodwill or 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 profit nor taxable profit or
loss: and

• with respect to taxable temporary differences associated with Investments In

shares of stock of subsidiaries, associates and interests in joint ventures, where
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 tax assets are recognize<! for all deductible temporary differences,
carryforward benefits of unused tax credits - Minimum Corporate Income Tax (MCIT)
and unused tax losses - Net Operating Loss Carry Over (NOLCO), to the extent that
it is probable that taxable profit will be available against which the deductible
temporary differences, and the carryforward benefits of MCIT and NOLCO can be
utilized, except

• where the deferred 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 profit nor taxable profit or loss: and

• with respect to deductible temporary differences associated with investments in

shares of stock of subsidiaries, associates and interests in joint ventures,
deferred tax assets are recognized only to the extent that it is probable that the
temporary differences will reverse in the foreseeable future and taxable profit will
be available against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and
reduced to the extent that it is no longer probable that sufficient taxable profit will be
available to allow all or part of the deferred tax asset to be utilized. Unrecognized
deferred tax assets are reassessed at each reporting date and are recognized to the
extent that it has become probable that future taxable profit will allow the deferred tax
asset to be recovered.

The measurement of deferred tax renects the tax consequences that would follow
the manner in which the Group expects, at the end of the reporting period, to recover
or settle the carrying amount of its assets and liabilities.

Deferred 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.

Current and deferred tax are recognized in the consolidated statements of income
except to the extent that it relates to a business combination, or items recognized
directly in equity or in other comprehensive income.

Deferred tax assets and liabilities are offset, if a legally enforceable right exists to set
off current tax assets against current tax liabilities and the deferred taxes relate to
the same taxable entity and the same taxation authority.

- 29
29-
 VAT. Revenues, expenses and assets are recognized net of the amount of VAT,
except:

• where the tax incurred on a purchase of assets or services Is not recoverable

from the taxation authority, in which case the tax is recognized as part of the cost
of acquisition of the asset or as part of the expense item as applicable; and

• receivables and payables that are stated with the amount of tax included .

The net amount of tax recoverable from, or payable to, the taxation authority is
included as part of "Prepaid expenses and other current assets" or "Accounts
payable and accrued expenses' accounts in the consolidated statements of financial
position.

Assets Held for Sate

Noncurrent assets, or disposal groups comprising assets and liabilities, are classified
as held for sale if their carrying amount will be recovered primarily through sate
rather than through continuing use.

The assets or disposal groups are generally measured at the tower of their carrying
amount and fair value less costs to sell. Any impairment loss on a disposal group is
allocated first to goodwill, and then to the remaining assets and liabilities on a pro
rata basis, except that no loss is allocated to inventories, financial assets, deferred
tax assets, employee benefit assets, investment property or biological assets, which
continue to be measured in accordance with the Group's accounting policies.
Impairment losses on initial classification as held for sale and subsequent gains and
losses on remeasurement are recognized in the consolidated statements of income.
Gains are not recognized in excess of any cumulative impairment losses.

The criteria for held for sale is regarded as met only when the sale is highly probable
and the asset or disposal group 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 sale will be withdrawn.

Property and equipment once classified as held for sale are not amortized or
depreciated. In addition, equity accounting of equity accounted Investees ceases
once classified as held for sale.

Assets and liabilities classified as held for sale are presented separately as current
items in the consolidated statements of financial position.

Related Parties
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. Related parties may be individuals or corporate
entities. Transactions between related parties are on an arm's length basis in a
manner similar to transactions with non-related parties.

Basic and Diluted Earnings Per Common Share (EPS)

Basic EPS is computed by dividing the net income for the period attributable to
equity holders of the Parent Company, net of distributions to the holders of USCS, by
the weighted average number of issued and outstanding common shares during the
period, with retroactive adjustment for any stock dividends declared.

Diluted EPS is computed in the same manner, adjusted for the effect of all potential
dilutive debt or equity instruments .

. 30.
 As of December 31, 2017, 2016 and 2015, the Group has no dilutive equity
instruments as disclosed in Note 29 to the consolidated financial statements.

Operating Seaments
The Group's operating segments are organized and managed separately according
to the services provided, with each segment representing a strategic business unit
that offers different economic characteristic and activities. Financial Information on
operating segments is presented in Note 5 to the consolidated financial statements.
The Chief Executive Officer (the chief operating decision maker: CODM) reviews
management reports on a regular basis.

The measurement policies the Group used for segment reporting under PFRS 6 are
the same as those used in the consolidated financial statements. There have been
no changes in the measurement methods used to determine reported segment profit
or loss from prior periods. All inter-segment transfers are carried out at arm's length
prices.
Segment revenues, expenses and performance include sales and purchases
between business segments. Such sales and purchases are eliminated in
consolidation.

Contingencies
Contingent liabilities are not recognized in the consolidated financial statements.
They are disclosed in the notes to the consolidated financial statements unless the
possibility of an outflow of resources embodying economic benefits is remote.
Contingent assets are not recognized in the consolidated financial statements but
are disclosed in the notes to the consolidated financial statements when an inflow of
economic benefits is probable.

Events After tbe Reporting Date

Post year-end events that provide additional information about the Group's financial
position 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.

4. Use of Judgments, Estimates and Assumptions

The preparation or the consolidated financial statements in accordance with PFRS

requires management to make judgments. estimates and assumptions that affect the
application of accounting policies and the amounts of assets, liabilities, Income and
expenses reported in the consolidated financial statements al the reporting date.
However, uncertainty about these judgments, estimates and assumptions could
result in an outcome that could require a material adjustment to the carrying amount
of the affected asset or liability in the future.

Judgments and estimates are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Revisions are recognized in the
period in which the judgments and estimates are revised and in any future period
affected.

-31-
Judgments
In the process of applying the accounting policies, the Group has made the following
judgments, apart from those involving estimations, which have an effect on the
amounts recognized in the consolidated financial statements:

Finance Lease - Group as Lessee. The IndependentPower Producer Administration

(IPPA) Agreements with the Power Sector Assets and Liabilities Management
Corporation (PSALM) provide the Group with a right to receive a transfer of the
power plant upon terminationof the IPPA Agreement at the end of the cooperation
period or in case of buy-out. In accounting for the Group's IPPA Agreements. the
Group's management has made a judgment that the IPPA Agreements are
agreementsthat contain a lease.

The Group's management has also made a judgment that it has substantially
acquired all the risks and rewards incidental to the ownership of the power
plants. Accordingly, the Group accounted for the agreements as a finance lease and
recognized the power plants and finance lease liabilities at the present value of the
agreed monthly payments to PSALM (Notes 6 and 13).

Finance lease liabilities recognized in the consolidated statements of financial

position amounted to P154,793,6go and P170,089,536 as of December 31, 2017
and 2016, respectively(Notes 6, 30 and 31).

The combined carrying amounts of power plants under finance lease amounted to
P172,573,492 and P177,759,894 as of December 31, 2017 and 2016, respectively
(Note 13).

Operating Lease Commitments - Group as LessorA..essee. The Group has entered

into various lease agreements either as a lessor or a lessee. The Group had
determined that it retains all the significant risks and rewards of ownership of the
property leased out on operating leases while the significant risks and rewards for
property leased from third parties and related parties are retained by the lessors
(Note 6).

Rent income recognized in the consolidated statements of income amounted to

P10,686, P21,147 and P28,104 in 2017, 2016 and 2015, respectively (Notes 6
and 26).

Rent expense recognized in the consolidated statements of income amounted to

P376,499, P351,091 and P360,091 in 2017. 2016 and 2015, respectively (Notes 6
and 25).

Applicability of Philippine Interpretation IFRIC 12. In accounting for the Group's

transactions in connection with its Concession Agreement with ALECO, significant
judgment was applied to determine the most appropriate accounting policy to use.

Management used Philippine Interpretation IFRIC 12 as guide and determined that

the Concession Agreement is within the scope of the Interpretation. Management
determined that the consideration receivable, in exchange for the fulfillment of the
Group's obligation under the Concession Agreement, is an intangible asset in the
form of a right (hcense) to charge fees to users. Judgment was further exercised by
management in determining the costs components of acquiring the right (Notes 3, 6
and 15).

-32-
Power concession Right. The Group's power concession right represents the right to
operate and maintain the franchise of ALE CO; i.e., the right to collect electricity fees
from the consumers of ALECO. At the end of the concession period, all assets and
improvements shall be returned to ALECO and any additions and Improvements to
the system shall be transferred to ALECO.

Difference in judgment In respect to the accounting treatment of the transactions

would materially affect the assets, liabilities and operating results of the Group.

Classification of Joint Arrangements. The Group has determined that It has rights
only to the net assets of the joint arrangements based on the structure, legal form,
contractual terms. and other facts and circumstances of the arrangement. As such,
the Group classified its joint arrangements in Angat Hydropower Corporation (AHC)
and KVVPP Holdings Corporation (KWPP) as joint venture (Note 12).

Adequacy of Tax Uabilifies. The Group takes Into account the impact of uncertain tax
positions and whether additional taxes and interest may be due. The Group believes
that its accruals for tax liabilities are adequate for all open tax years based on its
assessment of many factors, including interpretation of tax laws and prior
experience. This assessment relies on estimates and assumptions and may involve
a series of judgments about future events. New information may become available
that causes the Group to change its judgment regarding the adequacy of existing tax
liabilities; such changes to tax liabilities will impact tax expense in the period that
such a determination is made.

Classifying Financial instruments. The Group exercises judgments in classifying a

financial instrument, or its component parts, on initial recognition as a financial asset,
a financial liability, or an equity instrument in accordance with the substance of the
contractual arrangement and the definitions of a financial asset or liability. The
substance of a financial instrument. rather than its legal form, governs its
classification in the consolidated statements of financial position.

Contingencies. The Group is currenUy involved in various pending claims and cases
which could be decided in favor of or against the Group. The Group's estimate of the
probable costs for the resolution of these pending claims and cases has been
developed in consultation with in-house as well as outside legal counsel handling the
prosecution and defense of these matters and is based on an analysis of potential
results. The Group currently does not believe that these pending claims and cases
will have a material adverse effect on its financial position and financial performance.
It is possible, however, that future financial performance could be materially affected
by the changes in the estimates or in the effectiveness of strategies relating to these
proceedings (Note 33).

Estimates and Assumptions

The key estimates and assumptions used in the consolidated financial statements
are based upon the Group's evaluation of relevant facts and circumstances as of the
date of the consolidated financial statements. Actual results could differ from such
estimates.

Fair Value Measurements. A number of the Group's accounting policies and

disclosures require the measurement of fair values for both financial and non•
financial assets and liabilities.

- 33.
The Group has an established control framework with respect to the measurement of
fair values. This includes a valuation team that has the overall responsibility for
overseeing all significant fair value measurements, including Level 3 fair values. The
valuation team regularly reviews significant unobservable Inputs and valuation
adjustments. If third party information is used to measure fair values, then the
valuation team assesses the evidence obtained to support the conclusion that such
valuations meet the requirements of PFRS, Including the level in the fair value
hierarchy in which such valuations should be classified.

The Group uses market observable data when measuring the fair value of an asset
or liability. Fair values are categorized into different levels in a fair value hierarchy
based on the inputs used in the valuation techniques (Note 3).

If the inputs used to measure the fair value of an asset or a liability can be
categorized In different levels of the fair value hierarchy, then the fair value
measurement is categorized in its entirety in the same level of the fair value
hierarchy based on the lowest level input that is significant to the entire
measurement.

The Group recognizes transfers between levels of the fair value hierarchy at the end
of the reporting period during which the change has occurred.

The methods and assumptions used to estimate the fair values for both financial and
non-financial assets and liabilities are discussed in Note 31.

Allowance for lmpainnenf Losses on Trade and Other Receivables. Provisions are
made for specific and groups of accounts, where objective evidence of Impairment
exists. The Group evaluates these accounts on the basis of factors that affect the
collectability of the accounts. These factors include, but are not limited to, the length
of the Group's relationship with the customers and counterparties, the current credit
status based on third party credit reports and known market forces, average age of
accounts, collection experience and historical loss experience. The amount and
timing of the recorded expenses for any period would differ If the Group made
different judgments or utilized different methodologies. An increase in the allowance
for impairment losses would increase the recorded selling and administrative
expenses and decrease current assets.

The allowance for impairment losses on trade and other receivables amounted to
P2,451,818 as of December31, 2017 and 2016. The carrying amount of trade and
other receivables amounted to P20,435,068 and P22,342,846 as of
December31, 2017 and 2016, respectively(Note 8).

Writ&-<lown of Inventory. The Group writes-down the cost of inventory to net

realizable value whenever net realizable value becomes lower than cost due to
damage, physical deterioration, obsolescence, changes in price levels or other
causes.

Estimates of net realizable value are based on the most reliable evidence available
at the time the estimates are made of the amount the inventories are expected to be
realized. These estimates take into consideration fluctuations of price or cost directly
relating to events occurring after the reporting date to the extent that such events
confirm conditions existing at the reporting date.

The Group assessed that no write-down of inventories to net realizable value is

necessary as of December 31, 2017 and 2016.

- 34-
The carrying amount of inventories amounted to P3, 147,668 and P2,272,289 as of
December 31, 2017 and 2016, respectively (Note 9).

Estimated Useful Uves of Property, Plant and Equipment. The Group estimates the
useful lives of property, plant and equipment based on the period over which the
assets are expected to be available for use. The estimated useful lives of property,
plant and equipment 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 is based
on collective assessment of industry practice, internal technical evaluation and
experience with similar assets. It is possible, however, that future financial
perlonnance could be materially affected by changes in estimates brought about by
changes in factors mentioned above. The amounts and liming of recorded expenses
for any period would be affected by changes in these factors and circumstances. A
reduction in the estimated useful lives of property, plant and equipment would
increase the recorded cost of power sold and selling and administrative expenses
and decrease noncurrent assets.

Property, plant and equipment, net of accumulated depreciation and amortization,

amounted to P250,961,307 and P246,488,027 as of December 31, 2017 and 2016,
respectively. Accumulated depreciation and amortization of property, plant and
equipment amounted to P42,776,912 and P36,822,438 as of December 31, 2017
and 2016, respectively (Note 13).

Estimating Coal Reserves. Coal reserve estimates are based on measurements and
geological interpretation obtained from natural outcrops, trenches, tunnels and
drillholes. In contrast with "coal resource· estimates, profitability of mining the coat
during a defined operating period or "mine-llfe' is a necessary attribute of "coal
reserve". Proven reserves estimates are attributed to future development projects
only where there is a significant commitment to project funding and execution and for
which applicable governmental and regulatory approvals have been secured or are
reasonably certain to be secured. All proven reserve estimates are subject to
revision, either upward or downward, based on new Information, such as from block
grading and production activities or from changes in economic factors, including
product prices, contract terms or development plans. Estimates of reserves for
undeveloped areas are subject to greater uncertainty over their future life than
estimates of reserves for areas that are substantially developed and depleted.

The Philippine Department of Energy (DOE) is the government agency authorized to

implement coal operating contracts (COC) and regulate the operation of contractors
pursuant to DOE Circular No. 81-11-10: Guidelines for Coal Operations in the
Philippines. For the purpose of the s-vear development and production program
required for each coc. the agency classifies coal reserves, according to increasing
degree of uncertainty, into (i) positive, (ii) probable, and (iii) inferred. The DOE also
prescribes the use of "total in-situ reserves" as the sum of positive reserves and 2/3
of probable reserve; and "mineable reserve' as 60% of total in-situ reserve for
underground, and 85% for surface (including open-pit) coal mines (Note 14).

Recoverability of Deferred Exploration and Development Costs. A valuation

allowance is provided for estimated unrecoverable deferred exploration and
development costs based on the Group's assessment of the future prospects of
the mining properties, which are primarily dependent on the presence of
economically recoverable reserves in those properties.

- 35-
The Group's mmmq activities remain in the preparatory stages as of
December 31, 2017. All related costs and expenses from the mining activities are
currently deferred as exploration and development costs, which will be amortized
upon commencement of commercial operations. The Group has not identified any
facts and circumstances which suggest that the carrying amount of the deferred
exploration and development costs exceeded the recoverable amounts as of
December 31, 2017 and 2016.

Deferred exploration and development costs amounted to p5g9,001 and P693,379

as of December 31, 2017 and 2016, respectively (Note 14).

Estimated Useful Lives of Intangible Assets. The useful lives of intangibleassets are
assessed at the individual asset level as having either a finite or an Indefinite life.
Intangible assets are regarded lo have an indefinite useful life when, based on
analysis of all of the relevant factors, there is no foreseeable limit to the period over
which the asset is expectedto generate net cash inflows for the Group.

The Group estimates the useful life of intangible assets with finite useful life based
on the period over which the asset are expected to be available for use. The
estimated useful life of intangible asset with finite useful life is reviewed periodically
and is 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 life of intangible assets with finite useful life is
based on collective assessmentof industry practice, internal technical evaluation and
experience with similar assets. It is possible, however, that future financial
performance 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. A
reduction in the estimated useful life of intangible assets with finite useful life would
increase recordedcost and expensesand decrease noncurrent assets.

There is no change in estimated useful lives of property, plant and equipment,

intangible assets with finite useful lives and investment property based on
management'sreview at the reportingdate.

Intangible assetswith finite useful lives such as mining rights and computer software
and licensesamountedto P1 ,803,386 and P1,874,279 as of December 31, 2017 and
2016, respectively(Note 15).

Intangible assets with indefinite useful life amounted to P8,866 as of

December 31, 2017 and 2016 (Note 15).

Estimated Useful Uves of Intangible Assets - Power Concession Right. The Group
estimates the useful life of power concession right based on the period over which
the assets are expected to be available for use. The Group has not Included any
renewal period on the basis of uncertainty of the probability of securing renewal
contract at the end of the original contract term as of the reporting date.

The amortization period and method are reviewed when there are changes in the
expected term of the contract or the expected pattern of consumption of future
economic benefits embodied in the asset

The carrying amount of power concession right amounted to P781,884 and

P688,974 as of December31, 2017 and 2016, respectively (Notes 6 and 15).

- 36-
Impairment of Goodwill. The Group detennines whether the goodwill acquired in
business combination is impaired at least annually. This requires the estimation of
value In use of the cash-generating units to which the goodwill is allocated.
Estimating value in use requires management to make an estimate of the expected
future cash flows from the cash-generating unit and to choose a suitable discount
rate to calculate the present value of those cash flows.

The canying amount of goodwill amounted to PS,866 as of December 31, 2017 and
2016 (Note 15).

Acquisition Accounting. At the time of acquisition, the Group considers whether the
acquisition representsan acquisition of a business or a group of assets. The Group
accounts for an acquisitionas a businesscombination if It acquires an Integrated set
of business processesin addition to the group of assets acquired.

The Group accounts for acquired businesses using the acquisition method of
accounting which requires that the assets acquired and the liabilities assumed are
recognized at the date of acquisitionbased on their respectivefair values.

The application of the acquisition method requires certain estimates and

assumptions concerning the detennination of the fair values of acquired intangible
assets and property, plant and equipment as well as liabilities assumed at the
acquisition date. Moreover, the useful lives of the acquired intangible assets and
property, plant and equipment have to be detennined. Accordingly, for significant
acquisitions, the Group obtains assistance from valuation specialists. The valuations
are based on infonnation available at the acquisition date.
The canying amount of goodwill and mining rights as a result of the business
combination amounted to PS,866 and P1,719,726, respectively, as of
December 31, 2017 and 2016 (Note 15).

Realizability of Deferred Tax Assets. The Group reviews its deferred tax assets at
each reportingdate and reducesthe carrying amount to the ex1ent that it is no longer
probable that sufficient taxable profit will be available to allow all or part of the
deferred tax assets to be utilized. The Group's assessment on the recognition of
deferred tax assets on deductible temporarydifferences and carryforward benefits of
MCIT and NOLCO is based on the projected taxable incomein the following periods.

Deferred tax assets arising from MCIT and NOLCO have not been recognized
because the managementbelievesthat It is not probable that future taxable Income
will be available against which the Group can utilize the benefitstherefrom (Note 27).

Deferred tax assets from temporary differences amounted to P1 ,316,926 and

P2,955,570 as of December31, 2017 and 2016, respectively (Note 27).

Impairment of Non-financial Assets. PFRS requires that an impairment review be

perfonned on investments and advances, property, plant and equipment, deferred
exploration and developmentcosts and intangible assets with finite useful lives when
events or changes in circumstances indicate that the carrying amounts may not be
recoverable. Detennining the recoverable amounts of these assets requires the
estimation of cash flows expected to be generated from the continued use and
ultimate disposition of such assets. While it is believed that the assumptions used in
the estimation of fair values reflected in the consolidated financial statements are
appropriate and reasonable, significant changes In these assumptions may
materially affect the assessment of recoverable amounts and any resulting
impairment loss could have a material adverse impact on the financial performance.

- 37-
The Group assessed that its non-financial assets are not impaired as of
December 31, 2017 and 2016.

The combined carrying amounts of investments and advances, property, plant and
equipment, deferred exploration and development costs and Intangible assets with
finite useful lives amounted to P270,866, 709 and P265,990, 113 as of
December 31, 2017 and 2016, respectively (Notes 12, 13, 14 and 15).

Present Value of Defined Benefit Retirement Obligation. The present value of the
defined benefit retirement obligation depends on a number of factors that are
determined on an actuarial basis using a number of assumptions. These
assumptions are described In Note 21 to the consolidated financial statements and
include discount rate and salary increase rate.

The Group determines the appropriate discount rate at the end of each reporting
period. It is the interest rate that should be used to determine the present value of
estimated future cash outflows expected to be required to settle the retirement
obligations. In determining the appropriate discount rate, the Group considers the
interest rates on government bonds that are denominated in the currency in which
the benefits will be paid. The terms to maturity of these bonds should approximate
the terms of the relatedretirement obligation.

Other key assumptions for the defined benefit retirement obligation are based in part
on current market conditions.

While it is believed that the Group's assumptions are reasonable and appropriate,
significant differences in actual experience or significant changes in assumptions
may materially affectthe Group's defined benefit retirement obligation.

The present value of defined benefit retirement obligation amounted to P78,104 and
P69,364 as of December31, 2017 and 2016, respectively (Note 21).

ARO. Determining ARO requiresestimation of the costs of dismantling and restoring

leased properties to their original condition. The Group recognizes an obligation to
retire the power plants of SMCPC and SCPC at the end of their respective lease
term or operating life, whichever comes earlier. This represents the best estimate of
the expenditures required to settle the present obligation, as adjusted for the effects
of inflation, at the end of the current reportingdate. Such cost estimates,expressed
at current price levels at the date of the estimate, are discounted using the credit·
adjusted risk-free rate of 8.371% at reporting date to take inlo account the timing of
payments. Changes In ARO that result from a change in the current best estimate of
cash flows required to settle the obligation or a change In the discount rate are
added to or deductedfrom the amount recognized in the related asset.

While the Group has made its best estimate in establishing the asset retirement
obligation, because of potential changes in technology as well as safety and
environmental requirements, plus the actual time scale to complete the retirement
activities, the ultimate provision requirements could either increase or decrease
significantly from the Group's current estimates.

The Group's ARO presented under "Other noncurrent liabilities• account in the
consolidated statements of financial position amounted to P157,632 as at
December31, 2017.

• 38.
6. Segment Information

Operating Segments
The Group's operations are segmented into four businesses: a) power generation,
b) retail and other power-related services, c) coal mining and d) others consistent
with the reports prepared internally for use by the Group's CODM In reviewing the
business performance of the operating segments. The differing economic
characteristics and activities of these power plants make It more useful to users of
the consolidated financial statements to have information about each component of
the Group's profit or loss, assetsand liabilities.

The coal mining companies, which were acquired in 2010, have not yet started
commercial operations and remain In the preparatory stages of mining activities
(Note 14). The mining companies' total assets do not exceed 10% of the combined
assets of all operating segments. Accordingly, management believes that as of
December 31, 2017 and 2016, the information about this component of the Group
would not be useful to the users of the consolidated financial statements.

Segment Assets and Liabilities

Segment assets include all operating assets used by a segment except investments
and advances, intangible assets and goodwill and deferred tax assets. Segment
liabilities include all operating liabilities except long-term debt, deferred tax liabilities
and income tax payable. Capital expenditures consist of additions to property, plant
and equipment of each reportable segment

Inter-segment Transactions
The Group's inter-segment sales are accounted for based on contracts entered into
by the parties and are eliminated in the consolidation. Transfer prices between
operating segments are set on an arm's length basis in a manner similar to
transactions with third parties. Such transactions are eliminated in consolidation.

The Group operates only in the Philippines which is treated as a single geographical
segment.

Major Customers
The Group sells, retails and distributes power, through power supply agreements,
retail supply contracts, concession agreement and other power-related service
agreements (Note 6), either directly to customers (other generators, distribution
utilities, electric cooperatives and Industrial customers) or through the Philippine
Wholesale Electricity Spot Market (WESM). Sale, retail and/or distribution of power
to individual external customers that represents 10% or more of the Group's total
revenues is as follows:

2017 2016 2015

Manila Electric Company(Meralco) P43,404,148 P39,565,977 P40,889,098
WESM 4,467,399 4,153,980 6,217,243

• 39.
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6. Significant Agreements and Lease Commitments

a. Independent Power Producer (IPP) Administration (IPPA) Agreements

As a result of the biddings conducted by PSALM for the Appointment of the IPP
Administrator for the capacity of the following power plants, the Group was
declared the winning bidder to act as IPP Administrator through the following
appointed subsidiaries:

Subsidiary Power Plant Location

SMEC Sual Coal - Fired Power Station Sual, Pangasinan
(Suat Power Plant) Province
SPDC San Roque Hydroelectric Multi-purpose San Roque,
Power Plant (San Roque Power Plant) Pangasinan
Province
SPPC llijan Natural Gas - Fired Combined llijan, Batangas
Cycle Power Plant (llijan Power Plant) Province

The IPPA Agreements are with the conformity of the National Power Corporation
(NPC), a government-owned and controlled corporation created by virtue of
Republic Act (RA) No. 6395, as amended, whereby NPC confirms,
acknowledges, approves and agrees to the terms of the IPPA Agreements and
further confinms that for so long as it remains the counterparty of the IPP, it will
comply with its obligations and exercise its rights and remedies under the original
agreement with the IPP at the request and instruction of PSALM.

The IPPA Agreements include, among others, the following common salient
rights and obligations:

i. the right and obligation to manage and control the capacity of the power plant
for its own account and at its own cost and risks;

ii. the right to trade, sell or otherwise deal with the capacity (whether pursuant
to the spot market, bilateral contracts with third parties or otherwise) and
contract for or offer related ancillary services, in all cases for its own account
and at its own cost and risks. Such rights shall carry the rights to receive
revenues arising from such activities without obligation to account therefore
to PSALM or any third party;

iii. the right to receive a transfer of the power plant upon termination of the IPPA
Agreement at the end of the cooperation period or in case of buy-out;

iv. for SMEC and SPPC, the right to receive an assignment of NPC's interest in
existing short-term bilateral power supply contracts;

v, the obligation to supply and deliver, at its own cost, fuel required by the IPP
and necessary for the Sual Power Plant to generate the electricity required to
be produced by the IPP;

vi. maintain the performance bond in full force and effect with a qualified bank;
and

vii. the obligation to pay PSALM the monthly payments and energy fees in
respect of all electricity generated from the capacity, net of outages.

-42-
Relative to the IPPA Agreements, SMEC, SPDC and SPPC have to pay
PSALM monthly payments for 15 years until October 1, 2024, 18 years until
April 26, 2028 and 12 years until June 26, 2022, respectively. Energy fees
amounted to P23,726,459, P20,477,903 and P23,224,178 in 2017, 2016 and
2015, respectively (Note 24). SMEC and SPDC renewed their performance
bonds in United States dollar (USS) amounting to USS58, 187 and US$20,305
which will expire on November 3, 2018 and January 25, 2018, respectively.
Subsequendy, the performance bond of SPDC was renewed up to January 25,
2019.

On June 16, 2015, SPPC renewed Its performance bond amounting to

US$60,000 with a validity period of one year. This performance bond was
subsequently drawn by PSALM on September 4, 2015 which is subject to an
ongoing case (Note 33).

The finance lease fiabilities are carried at amortized cost using the US dollar and
Philippine peso discount rates as follows:

US Dollar Philippine Peso

SMEC 3.89% 8.16%
SPPC 3.85% 8.05%
SPDC 3.30% 7.90%

The discount determined at inception of the agreement is amortized over the

period of the IPPA Agreement and recognized as part of "Interest expense and
other financing charges• account in the consolidated statements of Income.
Interest expense amounted to P9,074,226, P9,667,662 and P10,212,753 in
2017, 2016 and 2015, respectively.

The future minimum lease payments for each of the following periods are as
follows:
Peso
Equivalent
2017 US Dollar of US Dollar Peso Total
Nol later than 1 year US$255,784 P12,771,279 P12,2A9,270 P25,020,549
More then 1 year end not leter
· lhan 5 yeatS Lalor 55,540,495 53,374,792 109,015,287
than 5 YOllS 28,334,431 27,214,567 55,548,998
1,937,637 96,746,205 92,838,629 189,584,834
Less; Fu1ure finonce Cha19tt
on rin.encetease
tiabiliUH 12,183,624 22,607,520 34,791,144
Presen1 values of finance
tease liabilities US$1,693,623 P84,562,581 P70,231,109 P154,793,690

Peso
Equlvalent
2016 US Dollar of US Dollar Peso Total
NOi tater than 1 year USS252,950 P12,576,692 P12.112,310 P24,689,002
More than 1 year and nol later
than 5 years 1,117.374 55.555,827 53,512,338 109,068, 165
Later than 5 years 820.263 40,783.474 39,326,292 80.109.766
2,190,587 108,915,993 104,950,940 213,866.933
Les$: Fu!ure flnance chatg ..
on finance lease
liabiiies 310,216 15,423939 28 353,458 43.777.397
Present values of finance
lease Dabi&s USSl,880,371 P93,492,054 P76,597,482 P170,089,536

-43-
 The present values of minimum lease payments for each of the following periods
are as follows:

Peso
Equivalent
2017 US Dollar of US Dollar Peso Total
Not later than 1 year US$196,709 P9,821,652 P7,022,779 P16,844,431
More than 1 year
and not later than
5 years 963,978 48,131,431 39,493,581 87,625,012
later than 5 years 532,936 26,609,498 23,714,749 50,324,247
US$1,693,623 P84,562,581 P70,231,109 P154,793,690

Peso
Equivalent
2016 US Dollar of US Dollar Peso Total
Not later than 1 year US$191,961 P9,544,293 P6,799,953 P16,344,246
More than 1 year
and not later than
5 years 770,562 38,312,364 24,671,265 62,983,629
later than 5 years 917,848 45,635,397 45,126,264 90,761,661
USS1,880,371 P93,492,054 P76,597,482 P170,089,536

b. Market Participation Agreements (MPA)

SMEC, SPDC, SPPC and SCPC entered into a MPA with the Philippine
Electricity Market Corporation (PEMC) to satisfy the conditions contained in
the Philippine WESM Rules on WESM membership and to set forth the rights
and obligations of a WESM member. Under the WESM Rules, the cost of
administering and operating the WESM shall be recovered through a charge
imposed on all WESM members or transactions, as approved by the ERC.
PEMC's market fees charged to SMEC, SPDC, SPPC and SCPC recognized in
the consolidated statements of income amounted to P146,550, P160,669 and
P219,681in2017, 2016 and 2015, respectively (Note 25).

Market fees charged to SCPC during its testing and commissioning phase,
recognized as part of CPIP under the "Property, plant and equipment" account In
the consolidated statements of financial position, amounted to P531 as of
December 31, 2016 (Note 13).

In March 2013, SMELC entered into a MPA for Supplier as Direct WESM
Member - Customer Trading Participant Category with the PEMC to satisfy the
conditions contained in the Philippine WESM Rules on WESM membership and
to set forth the rights and obligations of a WESM member. SMELC has a standby
letter of credit, expiring on December 26, 2018, to secure the full and prompt
performance of obligations for its transactions as a Direct Member and trading
participant in the WESM.

c. Power Supply Agreements (PSA)

SMEC, SPPC, SPDC, SMCPC and SCPC have PSA with various counterparties,
including related parties, to sell electricity produced by the power plants. Most of
the agreements provide for renewals or extensions subject to mutually agreed
terms and conditions by the parties and applicable rules and regulations.

-44-
 Certain customers, particular1y electric cooperatives and industrial customers,
are billed using energy-based pricing, such as time-of-use (TOU), flat generation
rate or fixed energy rate, while others are billed at capacity-based rate. As
stipulated in the contracts, each energy-based customer has to pay based on
actual energy consumption using the basic energy charge and/or adjustments.
For capacity-based contracts, the customers are charged with the capacity fees
based on the contracted capacity plus the energy fees for the associated energy
taken during the month.

SMEC, SPPC, SPDC, SMCPC and SCPC can also purchase power from WESM
and other power generation companies during periods when the power
generated from the power plants Is not sufficient to meet customers' power
requirements. Power purchases amounted to P10,725,490, P7,836,564 and
PS,330,550 in 2017, 2016 and 2015, respectively (Note 24).

The PSA of SPI with Petron Corporation (Petron), an entity under common
control, was terminated effective December 23, 2016 pursuant to the sale of
SPl's power plant to Petron (Note 13).

d. Memorandum of Agreement (MOA) with San Roque Power Corporation (SRPC)

On December 6, 2012, SPDC entered into a 5-year MOA with SRPC to sell a
portion of the capacity of the San Roque Power Plant. Under the MOA, i) SRPC
shall purchase a portion of the capacity sourced from the San Roque Power
Plant; ii) SRPC shall pay a settlement amount to SPDC for the capacity; and
iii) the MOA may be earlier terminated or extended subject to terms and mutual
agreement of the parties. As of December 31, 2017, SPDC and SRPC are
finalizing the extension of the MOA until March 25, 2020.

Revenue from sale of capacity of the San Roque Power Plant amounted to
P944,139, P758,134 and P1,274,893 in 2017, 2016 and 2015, respectively, and
was recognized as part of "Revenues"account in the consolidated statements of
income(Note 23).

e. Coal SupplyAgreements

SMEC, SMCPC and SCPC have supply agreements with various coal suppliers
for the coal requirementsof the power plants.

f. Operationsand Maintenance (O&M) Services Agreement

In exchange for the O&M services rendered by Petron, SPI pays for all the
documented costs and expenses incurred in relation to the operation,
maintenanceand repair of its 4 x 35 MW limay Co-generation Solid Fuel-fired
Power Plant (Limay Co-gen Power Plant). The agreement is effective for 25
years from September 2013 until 2038 and was terminated upon sale of SPl's
power plantto Petron on December23, 2016 (Nole 13).

g. Retail Supply Contracts

SMELC and SCPC have retail supply contracts with contestable customers,
induding related parties, to supply or sell electricity either produced by SCPC or
purchased from WESM, SMEC or other affiliate power generators. Most
contracts provide for renewals or extensions subject to terms and conditions
mutually agreed upon by the parties and applicable rules and regulations.

• 45.
 Certain contestable customers are billed using energy-based pricing, such as
TOU, flat generation rate or fixed energy rate, while others are billed at capacity•
based rates. As stipulated in the contracts, each energy-based customer has to
pay based on actual energy consumption using the basic energy charge and/or
adjustments. For capacity-based contracts, the customers are charged with the
capacity fees based on the contracted capacity plus the energy fees for the
associated energy taken during the month.

h. Distribution Wheeling Service (DWS} Agreements

SMELC and SCPC, related to its Retail Electricity Supplier (RES} licenses,
entered into DWS Agreements with certain Distribution Utilities (DU) for the
conveyance of electricity through its distribution systems in order to meet the
demand of the contestable customers. The agreements are valid and binding
upon execution unless terminated by either party.

The DWS charges from the DUs are passed on to its customers as mandated by
ERC thru the ·single-Billing Policy".

i. Lease Agreements

Group as Lessee

i. The Group has operating lease agreementswith San Miguel Properties, Inc.,
an entity under common control, for a period of 1 to 6 years which is
renewable annually or uponagreement between parties.

ii. SPI subleases its plant premises from New Ventures Realty Corporation
(NVRC), an entity under commoncontrol. The existing lease agreement is for
a 25-year period up to September 30, 2038, subject to renewal. The yearly
rental is subject to an automatic 3.0% per annum escalation rate for the
4 years following the negotiation under the lease terms. Pursuant to the sale
of power plant to Petron, all agreements between SPI and Petron and its
subsidiaries were terminatedeffective December 23, 2016.

iii. SMEC entered into a lease agreement with Challenger Aero Air Corporation
(Challenger}. an entity under common control, for the lease of certain
aircrafts for a period of 1 year from October 1, 2014 to September 30, 2015.
The lease agreementwas pre-terminated on Aprll 30, 2015.

Subsequently, SMEC entered into a new lease agreement with Challenger

for the lease of the same aircraftsfor a period of 1 year from May 1, 2015 to
April 30, 2016. The lease agreement was renewed up to December 31, 2017.

iv. In November 2015, SCPC leased parcels of land from NVRC for the
construction of its 2 x 150 MW Circulating Fluidized Bed (CFB} Coal-fired
Power Plant (Phase I Limay Power Plant} and ash dump facility. This is
covered by two lease agreements, each having an initial term of 25 years
with an option lo renew for a further 25 years. The agreements contain a
clause allowing annual escalation adjustments of rental rates starting on
certain anniversary dates.

-46-
v. On December 7, 2015, LPPC leased a parcel of land from NVRC for the
construction of its 2 x 150 MW CFB Coal-fired Power Plant (Phase II Limay
Power Plant) for a period of 25 years from the effective date with an option to
renew this lease for another 25 years. The rent shall be increased annually
by 6.0% starting from the second anniversary of the lease execution. The
lease agreement was assigned to SCPC pursuant to the sale of the Phase II
Umay Power Plant on June 22, 2017.

vi. DAMI leases a parcel of land in General Santos City with SMC. The existing
lease agreement is for a 10..year period up to June 30, 2023, subject to
renewal. The rent is subject to an automatic 10.0% per annum escalation
rate. Rent for the year, capitalized in "Deferred exploration and development
costs" account in the consolidated statements of financial position, amounted
to P490 and P402 as of December 31, 2017 and 2016, respectively
(Note 14).

vii. In 2016, SMCPC entered into an agreement with Kyron Landholdings Inc. for
the sublease of a parcel of land for the construction, erection and installation
of its 2 x 150 MW CFB Coal-fired Power Plant in Malita, Davao Occidental
(Malita Power Plant). The initial term of the lease is for a period of 25 years
with the option to renew for a further 25 years. Beginning January 1, 2018
until the end of the term, the rental shall be increased by 5.1% per annum.

viii. On December 13, 2017, SCPC leased a foreshore area of 465,967 square
meters from the Department of Environment and Natural Resources for the
construction of pier and jetty facility. The lease is for a period of 25 years with
an option to renew for another 25 years. The agreement contains a clause to
increase annual rental based on appraised value of land and improvements
every 1 O years.

Relative to the lease agreements, the Group was required to pay advance rental
and security deposits which are included under "Trade and other receivables •
ner or "Prepaid expenses and other current assets• accounts in the consolidated
statements of financial position (Notes 8 and 10).

Future minimum lease payments under the non-cancellable operating lease

agreements are as follows:

2017 2016
Not later than 1 year P88,782 P119.335
More than 1 year and not later than 5 years 367,321 244,067
Later than 5 years 2,293,601 1,871,061
P2,739,604 P2,234,463

Rent expense recognized in the consolidated statements of income amounted to

P376,499, P351,091 and P360,091 in 2017, 2016 and 2015, respectively
(Notes 4 and 25).

Group as Lessor

i. In 2014, the Parent Company has an operating sub-lease agreement with

Clariden Holdings, Inc., an entity under common control, for a period of
2 years which is renewable upon agreement between the parties. The
agreement expired on December 31, 2016 .

• 47 -
 ii. In May 2011, GPll entered into an agreement with NVRC, for the lease of
certain parcels of land located in Limay, Bataan with a total area of 612, 193
square meters. The lease term is for a period of 10 years up to May 2021,
with an option to renew not later than 6 months prior to expiration and a 3.0%
escalation rate of the rental every year from signing of the contract. This
Agreement was subsequently amended, reducing the leased area to 340,646
square meters effective October 1, 2013. This was further amended reducing
the leased area to 130,980 square meters and with a corresponding
reduction in the monthly rental effective on December 1, 2016.
On June 20, 2017, NVRCassigned its leasehold rights to Petron.

There are no restrictions imposed on these lease agreements such as those

concerningdividends, additional debt and further leasing.

Future minimum lease receivables under the non-cancellable operating lease

agreementsare as follows:

2017 2016
Not later than 1 year P6,187 P6,007
More than 1 year and not later than 5 years 15,705 21,892
P21,892 P27,899

Rent income recognized under the ·Miscellaneous income (charges) - net"

account in "Other income (charges)" account in the consolidated statements of
income amounted to P10,686, P21,147, and P28,104 in 2017, 2016 and 2015,
respectively (Notes 4 and 26).

j. Concession Agreement

The Parent Company entered into a 25-year Concession Agreement with

ALECO on October 29, 2013. It became effective upon confirmation of the
National ElectrificationAdministrationon November 7, 2013.

On January 24, 2014, the Parent Company and APEC entered into an
Assignment Agreement whereby APEC assumed all the rights, interests and
obligations of the Parent Company under the Concession Agreement effective
January 2, 2014.

The Concession Agreement include, among others, the following rights and
obligations:

I. as Concession Fee, APEC shall pay to ALECO: (1) separation pay of

ALECO employees in accordance with the Concession Agreement and
(2) the amount of P2, 100 every quarter for the upkeep of residual ALECO
(fixed concessionfee);

ii. if the net cash flow of APEC is positive within 5 years or earlier from date of
signing of the Concession Agreement, 50% of the Net Cash Flow each
month shall be deposited in an escrow account until the cumulative nominal
sum reaches P4,048,529;

- 48
48-
iii. on the 20"' anniversary of the Concession Agreement, the concession period
may be extended by mutual agreement between ALECO and APEC; and

iv. at the end of the concession period, all assets and system, as defined in the
Concession Agreement, shall be returned by APEC to ALECO in good and
usable condition. Additions and improvements to the system shall likewise be
transferred to ALECO.

In this regard, APEC shall provide services within the franchise area and shall be
allowed to collect fees and charges, as approved by the ERC. APEC formally
assumed operations as concessionaire on February 26, 2014.

The Group recognized as intangible assets all costs directly related to the
Concession Agreement. The intangible assets consist of: a) concession rights,
which include fixed concession fees and separation pay of ALECO employees
amounting to P384,317. Fixed concession fees are recognized at present value
using the discount rate at the inception date with a corresponding concession
payable recognized; and b) infrastructure, which includes the costs of structures
and improvements., distribution system and equipment. Cost of infrastructure
amounted to P509,419 and P386,083 as of December 31, 2017 and 2016,
respectively. Interest expense on concession payable is included as part of
"Interest expense and other financing charges' account in the consolidated
statements of income amounted to P5,993, P6, 127 and P6,254 in 2017, 2016
and 2015, respectively. Amortization of concession assets recognized in the
"Depreciation and amortization" account in the consolidated statements of
income amounted to P30,426, P25,060 and P21,296 in 2017, 2016 and 2015,
respectively.

Maturities of the carrying amount of concession payable are as follows:

2017 2016
Not later than 1 year P2,549 P2,407
More than 1 year and not later than 5 years 11,794 11,136
Later than 5 :r:ears 87,876 91,083
P102,219 P104,626

Power concession assets consist of:

Conce1.slon Completed Asset Under

RIQhta ProJ!ctaiOthers ConstrucUon Total
Cost
January 1, 2016 P384,317 P159,086 p - P543,403
Additions 72 824 154 173 226 997
December 31, 2016 384,317 231,910 154, 173 770,400
Additions 115,055 8.281 123,336
December 31, 2017 384,317 346,965 162,464 893,736
Accumulated Depreciation
and Amortization
January 1, 2016 28, 184 7,722 35,906
Additions 15,373 30.147 45,520
December 31, 2016 43,557 37,869 81,426
Additions 15,.373 15,053 30,426
December 31, 2017 58,930 52,922 111,852
Carrying Amount
December 31, 2016 P340,760 P194,041 P154,173 P688,974

December 31, 2017 P325,387 P2.94,043 P162,454 P781,884

- 49
49-
 The Group accounted for revenue and costs relating to construction or upgrade
services in accordance with PAS 11 based on the stage of completion of work
performed. The fair value of the construction and upgrade services provided is
equal to the recorded cost of the Intangible asset built up from day one until the
construction activity ceases. Construction revenue and construction cost
amounted to P123,336, P226,997 and P47,091 in 2017, 2016 and 2015,
respectively (Note 26).

7. Cash and Cash Equivalents

Cash and cash equivalents consist of:

Note 2017 2016

Cash in banks and on hand P3,557,558 P2,089,297
Short-term investments 26,097,801 19402088
30, 31 P28,655,359 P21,491,385

Cash in banks earn interest at bank deposit rates. Short-term investments include
demand deposits which can be withdrawn at anytime depending on the immediate
cash requirements of the Group and earn interest at short-term investment rates.
Interest income from cash and cash equivalents amounted to P374,509, P176,681
and P261,338 in 2017, 2016 and 2015, respectively.

8. Trade and Other Rec·eivables

Trade and other receivables consist of:

Note 2017 2016

Trade P14,332, 102 P12,269,984
Non-trade 6,674,594 6,613,459
Amounts owed b;t related earlies 6, 20 118801190 5,911,221
22,886,886 24,794,664
Less allowance for imeairment losses 4 2,451,818 2,451,818
30, 31 P20,436,068 P22,342,846

Trade and other receivables are non-interest bearing, unsecured and are generally
on a 30-day term or an agreed collection period. The balance of trade receivables is
inclusive of VAT on the sale of power collectible from customers.

The movements in the allowance for impairment losses are as follows:

2017 2016
Balance at beginning of year P2,451,818 P1,241,487
Impairment losses during the year 1,210,451
Amounts written-off (120)
Balance at end of year P2,451,818 P2,451,818

• 50-
Impairment losses are recognized in profit or loss as follows:

Note 2016 2015

Selling and administrative expenses 25 P958,784 P142,658
Other income (charges) - net 26 251,667 232,143
P1 ,210,451 P374,801

No impairment loss on trade and other receivables was recognized during the
current year.

The aging of trade and other receivables as of December 31 are as follows:

-°.'-."..".."..' ....,.,,..
2017 2016

_... -......
""..'.°."..".."
°" '""
c...-
Past
T-
N.12-....141 ,..,.... P1, 1°"'47
T...O T-
P5,516.2'47
Noo-1tad•
Pl,OOt,133
P artl'es
f'5,282,075
Totol
P11,&eS.~

Q.ie:
t-30 Clays 111.na : 1.. tM,.11'7 671,468 73,200 ~900 1~.SO&
•to.11r1
..... '47,92$ 505,682 62.<61 5$5,28$

·--
31.SOdayS 7U71 27,13A
61-90d9y9 114,ito 1,001
......, 18'10& 201,448 10,ro1 31.563 243,218
OYflfto 2!X! !am,1&1
P14."2.102 P5.i7.t.-SM P1.U0.1'i0 ..........
12.466..874 5.315,.141
Pt2,26t,9&4
5,C36,452
PS,$13,•59
!61~-49
P$i911.221
11.31i142
P24,794,664

Past due trade receivables more than 30 days pertain mainly to output VAT. The
Group believes that the unimpaired amounts that are past due and those that are
neither past due nor impaired are still collectible based on historical payment
behavior and analyses of the underlying customer credit ratings. There are no
significant changes in their credit quality. There were no write-offs and reversals in
2017.

Non-trade receivables include the following:

a. Due from PSALM amounting to US$60,000 which pertains to SPPC's

performance bond pursuant to the llijan IPPA Agreement that was drawn by
PSALM on September 4, 2015. The validity of PSALM'S action is the subject of
an ongoing case filed by SPPC with the Regional Trial Court (RTC) of
Mandaluyong City (Note 33).

b. As of Deoember 31, 2017 and 2016, SMEC has receivables for the cost of fuel,
market fees, and other charges related to the dispatch of the excess capacity of
the Sual Power Plant amounting to P41,413 and P37,568, respectively. Likewise,
SMEC has receivables arising from WESM transactions related to the excess
capacity amounting to P1, 198,200 and P1 ,245,819 as of December 31, 2017 and
2016, respectively. The Issue on excess capacity Is subject of ongoing cases
(Note 33).

c. On June 16, 2011, SMEC entered into a MOA with Hardrock Coal Mining Pty
Ltd. (HCML) and Caason Investments Pty Ltd. (Caason), companies registered
in Australia, for the acquisition of shares in HCML. SMEC paid Caason
Australian dollars 12,000 (equivalent to P550,000), for an option to subscribe to
the shares in HCML (the Deposit) with further option for SMEC to decide not to
pursue its investment in HCML, which will result in the return of the Deposit to
SMEC plus interest. In a letter dated July 15, 2011, SMEC notified Caason and
HCML that it shall not pursue the said investment and therefore asked Caason
and HCML for the return of the Deposit with corresponding interest (the Amount
Due), pursuant to the terms of the MOA.

- 51 -
 On September 2, 2014, SMEC, HCML and Caason agreed to a schedule of
payment of the ou1standing Amount Due to SMEC. For the years ended
December 31, 2017 and 2016, HCML and Caason paid a total amount of
P18,925 and nil, respectively. As of December 31, 2017 and 2016, total
outstanding receivables from HCML (net of allowance for Impairment losses)
amounted to nil and P7, 145, respectively.

d. The balance mainly pertains to receivables from customers which will be remitted
to the Government upon collection.

9. Inventories

Inventories at cost consist of:

Note 2017 2016

Coal 6 P2,910,853 P2,120,657
Fuel oil 20 110,858 84,885
Materials and supplies 96,793 53,322
Other consumables 29, 164 13,425
4 P3,147,668 P2,272,289

There were no inventory write-downs to net realizable value for the years ended
December 31, 2017 and 2016. Inventories charged to cost of power sold amounted
to P13,039, 144, P10,046,687 and P10,376,590 in 2017, 2016 and 2015, respectively
(Note 24).

10. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of:

Note 2017 2016

Input VAT P11, 792,871 P12,398,635
Prepaid tax 4,883,278 3,735,642
Preeaid rent and others 6,20 1,115,766 1,548,743
P17,791,915 P17,683,020

Input VAT consists of input VAT on purchases of goods and services which can be
offset against the output VAT payable (Note 18).

Prepaid tax consists of creditable withholding taxes and excess tax credits which can
be used as a deduction against future income tax payable.

Prepaid rent and others pertain to the following:

a. Prepaid rent of the Group from various operating lease agreements amounted to
P15,347 and P39,044 as of December 31, 2017 and 2016, respectively (Note 6).

b. PSALM monthly fee outage credits pertain to the approved reduction in future
monthly fees payable to PSALM resulting from the outages of the Sual Power
Plant in 2017 and 2016.

c. Professional services related to project financing of SCPC for 2016 (Note 19).

- 52 -
11. Assets Held For Sale

On September 15, 2016, the BOD of SPI approved the plan to sell certain machinery
and equipment. Accordingly, the carrying amount. which is the fair value, of the other
equipment amounting to P184,324 was reclassified as "Assets held for sale" account
in the consolidated statements of financial position (Note 13). The sale of the
machinery and equipment was completed In 2017.

12. Investments and Advances

Investments and advances consist of:

2017 2016
Investments In Shares of Stock of Associates
and Joint Ventures
Cost
Balance at beginning of ye.ar P8,583,462 P2,074,052
Additions 6,509,410
Balance at end of year 8,583,462 8,583,462
Accumulated Equity in Net Losses
Balance at beginning of year (886,959) (592,164)
Equity in net losses during the year (28,302) (293, 113)
Adjustment to ~uity in net losses in erior ~ear <•l(cl {12,094) p,682l
Balance at end of year (927,355) {886,959)
7,656,107 7,696,503
Advances 8,965,024 8,548 951
P16,621,131 P16,245,454

Advances pertain to deposits made for future investment in land holding companies
and power-related expansion projects.

The following are the developments relating to the Group's investments In shares of
stock of associates and joint ventures:

a. Investment in shares of stock of associates

i, Olongapo Electricity Distribution Company, Inc. (OEDC)

In April 2013, SPGC and San Miguel Equity Investments, Inc. (SMEii), an
entity under common control, entered Into a Deed of Assignment of
Subscription Rights whereby SMEii agreed to assign 35% ownership interest
in OEDC to SPGC for a consideration of P8,750.

Subscriptions payable amounted to P28,101 as of December 31, 2017 and

2016, respectively (Note 20).

- 53 -
ii. Mariveles Power Generation Corporation (MPGC)

On June 16, 2016, Meralco Powergen Corporation (MGen), a subsidiary of

Meralco, and Zygnet Prime Holdings, Inc. (Zygnet) subscribed to 2,500 and
102 common shares of MPGC, respectively. As a result, the Parent
Company now holds 49% of the outstanding capital stock of MPGC while
MGen and Zygnet holds 49% and 2%, respectively. MPGC was a wholly.
owned subsidiary of the Parent Company prior to the subscription of MGen
and Zygnel Following the change in Interest of ownership from 100% to 49%
in MPGC, the Parent Company now has significant influence to participate In
the financial and operating policy decisions of MPGC and accounts for the
investment using the equity method.

MPGC shall develop, construct. finance, own, operate and maintain a 4 x

150 MVV CFS Coal-fired Power Plant and associated facilities in Mariveles,
Bataan.

On July 13, 2016, the Parent Company subscribed to 9,643,200 shares,

representing 49% of the total shares subscribed by all shareholders out of
the increase in the authorized capital stock of MPGC, at the subscription
price of P100 per share.

On January 9, 2017, the SEC approved the increase in the authorized capital
stock of MPGC.

The table below summarizes the financial information of investment in shares

of stock of associates which is accounted for using the equity method:
December 31, 2017 (Unaudited)

oeoc MPGC
Count!)( of lncorj:!oratlon Phili(!(!ines Phllij:!Elnes
Current assets P337,767 P122,044
Noncurrent assets 1,176,089 1,846,654
Current liabilities (687,732) (22,446)
Noncurrent liabilities !3641211)
Net assets P470,903 P1,946,262
Revenue P1,292,324 p .
Net losses/total comprehensive losses P18,688 P10,208
Share in net losses/total comprehensive
losses P6,541 P5,002
Carrying amount of investment P177,219(•! P953,717
"'This is net of lllfustment to equity in net lo3sesof P12,963 basedoo the 2016 audited balances.

. 54.
 December 31, 2016 (Audited)

OEDC MPGC
Coun!!}: of lnco!E2ration Phmeeines Philieeines
Current assets P317,664 P18,620
Noncurrent assets 1, 181,537 1,945,960
Current liabilities (881,709) (445)
Noncurrent liabilities {127,901)
Net assets P489,591 P1,964,135
Revenue P1,323,854 p -
Net losses/total comprehensive losses P18,771 P4,334
Share In net losses/total compr hensive
losses P6,570 P5,851<b>
Carrying amount of investment P1g6,723 P958,719
"'The Group's sh818 in nel lo$$e$1 lo(al oomprthellSl've /o$$es for the period from June 16, 2016 to
December31. 2<>16 of MPGC.

b. Investments in shares of stock of joint ventures

i. AHC and KWPP

The Parent Company, through PVEI, and Korea Water Resources

Corporation CK-Water) entered into a joint venture partnership for the
acquisition, rehabilitation, operation and maintenance of the 218 MW Angat
Hydroelectric Power Plant (Angat Power Plant) awarded by PSALM to K•
Water.

On November 18, 2014, PVEI acquired from the individual stockholders and
K-Water, 2,817,270 shares or 60% of the outstanding capital stock of AHC
and from the individual stockholders, 75 shares representing 60% of KWPP
outstanding capital stock.

Subsequently, AHC and KWPP each issued shares in favor of nominee

directors of PVEI and K-Water to complete their respective shareholding
interest.

In accordance with the entry of PVEI into AHC and KWPP, K-Water and
PVEI are jointly in control of the management and operation of AHC and
KWPP.

Further, PVEI agreed to pay K-Water a support fee amounting to 3.0% of the
total amount of the bridge loan facility which was obtained for the acquisition
by AHC of the Angat Power Plant. This was subsequently reduced to 1.5% of
the total amount of the bridge loan facility effective August 4, 2015. The
obligation to pay support fee terminated on July 15, 2016 with the refinancing
of the bridge loan facility.

On July 11, 2016, PVEI. subscribed to 27,724,200 shares, out of the

increase in the authorized capital stock of AHC, at the subscription price of
P200 per share. Total subscription amounting to P5,544,840 represents
PVEl's 60% share in the additional equity infusion required by AHC from its
existing stockholders as of date pursuant to AHC's project financing
requirements.

-55-
~
AHC was incorporated on November 15, 2013 and was created to engage in
the operations and maintenance of the Angat Power Plant and to supply
power generated to power corporations and to electric utilities, to import
hydro-electric facilities and equipment, and to do all acts necessary and
incidental thereto, in accordance with RA No. 9136 or otherwise known as
the Electric Power Industry Reform Act of 2001 (EPIRA).

KWPP
KWPP was incorporated on November 27, 2013 and was established for the
purpose of acquiring, holding or leasing water and flowage rights.

The table below summarizes the financial Information of investments in

shares of stock of joint ventures which is accounted for using the equity
method:

December 31, 2017 (Unaudited)

AHC KWPP
Country of lncor[!oratlon Phlli[![!ines Phlli[![!ines
Current assets P2,873,159 P5,496
Noncurrent assets 18,779,052 20,253
Current liabilities (1,689,697) (8,837)
Noncurrent liabilities !11,2571290) !15,850!
Net assets PS,705,224 P1,062

Revenue P2,185,181 p -
Net losses/total comprehensive losses P27,918 P13

Share in net losses/total comprehensive

losses P16,751 PS

Carrying amount of investment PS,624,310 P861(C)

"'This is nelof ~to equilyin net- of P1, 188 bllsodon the 2016 e<Jdlled balonoos, net
of unrecqin/zed $hate In not losses ofP319/n 2015 and 2014.

December 31, 2016 (Audited)

AHC KWPP
Counln'. of lncore5!ration Phili[![!ines Phili[![!ines
Current assets P2,784,060 P3,962
Noncurrent assets 19,302,652 20,391
Current liabilities (13,333,995) (7,430)
Noncurrent liabilities {19,576) {15,850)
Net assets PB,733,141 P1,073

Revenue P1,231,068 p -

Net income (losses)/total comprehensive

income (losses) (P489,424) P1,979

Share in net income (losses)/total

comprehensive income (losses) (P293,655) P1,188

Carrying amount of investment P6,541,061 p -

-56-
Investment in shares of stock of subsidiaries

The following are the developments relating to the subsidiaries:

i. SCPC

In 2013, SCPC started the construction of its Phase I Limay Power Plant
(comprising of Units 1 and 2). The 2 Units were successfully synchronized to the
Luzon Grid in November 2016 and May 2017, respectively.

On June 22, 2017, SCPC acquired the Phase II Limay Power Plant (comprising
of Units 3 and 4) from LPPC. The Unit 3 was synchronized to the Luzon Grid in
November 2017 while Unit 4 is still under construction as of December 31, 2017.

Commercial operations of Units 1 and 2 commenced on May 26, 2017 and

September 26, 2017, respectively, following the completion of the testing and
commissioning phase and the ERC issuance of a Provisional Authority to
Operate in favor of SCPC for both units.

ii. SMCPC

In 2013, SMCPC started the construction of its Malita Power Plant. The 2 units
were successfully synchronized to the Mindanao Grid in May 2016 and February
2017, respectively.

In 2017, SMCPC deferred the commercial operations of Unit 1 of the power plant
until July 25, 2017 which was initially deciared to commence on December 26,
2016. This is to conduct further testing of Unit 1 to ensure the stable and reliable
operation and readiness of the power plant for its intended use. SMCPC's Unit 1
started commercial operations on July 26, 2017.

On February 26, 2018, SMCPC deciared the commercial operations of its Unit 2.

iii. SPI

In 2013, SPI acquired from Petron the 2 x 35 MW Limay Co-gen Power Plant
and all other pertinent machineries, equipment, facilities and structures being
constructed and installed which comprise the additional 2 x 35 MW Llrnay
C01)en Power Plant in Bataan.

On September 15, 2016, the BOD of the Parent Company and SPI approved the
sale of its 4 x 35 MW Llmay Co-gen Power Plant in favor of Petron.

SPI closed the sale of the power plant and all pertinent assets to Petron effective
December 23, 2016.

-57-
iv. PVEI

In January 2017, PVEI granted shareholder advances amounting to US$31,800

(equivalent to P1 ,578,870) to its joint venture company, AHC. The advances
bear an annual interest rate of 4.50% and are due on April 30, 2017. The due
date of the advances may be extendedas agreed amongst the parties.

On April 10 and December 27, 2017 PVEI partially collected the foregoing
advances amounting to US$19,703 (equivalent to P984,550). Payment date for
the remaining balance of the advances amounting to US$12,097 (equivalent to
P603,987)was extendedto March 31, 2018 (Notes 20, 30 and 31).

On March 1, 2018, PVEI collected an additional US$5,766 (equivalent to

P299,366) from AHC as partial payment of the advances.

-58-
 -
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.
a. The combined carrying amounts of power plants under finance lease amounted
to P172,573,492 and P1n,759,894 as of December 31, 2017 and 2016,
respectively (Note 4).

b. The capitalized asset retirement costs, net of accumulated depreciation,

amounted to P151,306 as of December 31, 2017.

c. On September 15, 2016, the BOD of the Parent Company and SPI approved the
sale of its 4 x 35 MW Llmay Co-qen Power Plant located in Petron Bataan
Refinery in favor of Petron. Accordingly, the carrying amount of certain property,
plant and equipment, amounting to P18,093,254 as of September 30, 2016 were
reclassified to ·Assets held for sale" account (Note 11). SPI recognized
impairment loss of P323, 788 at initial classification to measure its assets held for
sale at lower of their carrying amount and fair value less costs to sell (Note 26).

On October 28, 2016, SPI signed an agreement with Petron for the sale of the
power plant and all pertinent assets, assignment of contracts to Petron, and the
transfer of all remaining inventories, tools, supplies and other working capital
necessary for the operation and maintenance of the power plant, among others.

Effective December 23, 2016, SPI closed the sale of the power plant to Petron
for a total consideration of P20,029,983 (inclusive of tax), payable based on the
terms of the agreement Consequently, gain of P114.447 was recognized on the
sale and presented as part of "Gain on sale of property, plant and equipment"
account in the consolidated statements of income.

As of December 31, 2016, SPI received P15,966,458 as initial payment and the
remaining P4,063,525 was collected in June 2017 (Notes 8 and 20).

Pursuant to the sale of the power plant, all SPI agreements mentioned In Note 6
were terminaled effective December 23, 2016.

d. Other equipment includes machinery and equipment, transportation equipment,

mining equipment office equipment and furniture and fixtures.

e. Capital projects in progress pertains to the following:

i. Project of SMCPC for the construction of 2 x 150 MW (Units 1 and 2) Malita

Power Plant.

Following the completion of Unit 1 and the ERC grant of a Provisional

Authority to Operate in favor of SMCPC In October 2016, all CPIP costs
pertaining to Unit 1 were reclassified to the appropriate property, plant and
equipment account. As of December 31, 2017, CPIP pertains to costs of Unit
2 which is still in testing and commissioning phase.

ii. Projects of SCPC for the construction of 4 x 150MW (Phase I and II) Limay
Power Plant.

Following the completion of Units 1 and 2 and the ERC grant of a Provisional
Authority to Operate in favor of SCPC in 2017, all CPIP costs pertaining to
Units 1 and 2 were reclassified to the appropriate property, plant and
equipment account As of December 31, 2017, CPIP pertains to costs of Unit
3 which started its testing and commissioning phase in November 2017, and
the costs of the ongoing construction of Unit 4.

- 60-
 iii. Plant optimization and pumped-storage hydropower projects of SPDC.

Iv. Expenditures for the 500 kilovolts connection facilities in relation to the 600
WNI/ Pagbilao power plant project of CLPPC.

Depreciation and amortization related to property, plant and equipment are

recognized in profit or loss as follows:

Note 2017 2016 2015

Cost of power sold 24 P5,811,941 P6,139,882 P6,445,102
Selling and administrative
expenses 25 142,533 109,388 67.983
PS,954,474 PS,249,270 PS,513,085

Total depreciation and amortization recognized In the consolidated statements of

income include amortization of capitalized interest and decommissioning and
dismantling costs amounting to P22,451, P10,020 and P13,360 in 2017, 2016 and
2015, respectively.

The Group has borrowing costs amounting to P1,362,871, P610,707 and P105,549
which were capitalized in 2017, 2016 and 2015, respectively. The capitalization rates
used to determine the amount of interest eligible for capitalization range from 2.75%
to 6.54% and from 3.88% to 6.29% in 2017 and 2016, respectively. The unamortized
capitalized borrowing costs amounted to P1,968,151 and P627, 126 as of
December 31, 2017 and 2016, respectively (Note 19).

14. Deferred Exploration and Development Costs

The movement in deferred exploration and development costs is as follows:

Note 2017 2016

Balance at beginning of year P693,379 P689,548
Additions 5 622 3 831
Balance at end of year 4 P699,001 P693,379

Deferred exploration and development costs comprise of expenditures which are

directly attributable to the mining activities of DAMI, BERi and SEPC in relation to
their respective COC.

In 2010, SMEC acquired DAMI, SEPC and BERi resulting in the recognition of
mining rights of P1,719,726 (Notes 4 and 15).

DAMl's coal property covered by COC No. 126, issued by the DOE, is located in
South Cotabato consisting of 2 coal blocks with a total area of 2,000 hectares, more
or less, and has an In-situ coal resources (measured plus indicated coal resources)
of about 93 million metric tons as of December 31, 2017 and 2016.

SEPC has a coal mining property and right over an aggregate area of 7,000
hectares, more or less, composed of 7 coal blocks located in South Cotabato and
Sultan Kudaral As of December 31, 2017 and 2016, COC No. 134 has an In-situ
coal resources (measured plus indicated coal resources) of about 35 million metric
tons.

- 61-
 BERl's COC No. 138, issued by the DOE is located in Sarangani and South
Cotabato consisting of 8 coal blocks with a total area of 8,000 hectares, more or less,
and has an In-situ coal resources (measured plus indicated coal resources) of about
24 million metric tons as of December 31, 2017 and 2016.

Status of Ooerations
In 2006 and 2009, the DOE approved the conversion of the COC for Exploration to
COC for Development and Production of DAMI, SEPC and BERi effective on the
following dates:

Subsidiary COC No. Effective Date Term"

DAMI 126 November 19, 2006 20 years
SEPC 134 February 23, 2009 10 years
BERi 138 May 26, 2009 10 years
• The l•tm Is followed by anoll1er 10.year exten.Wo. and ltlerea/ter, l!lnewaOlfl for a series of 3 year periods
nor exceeding 12 years under such tetms and condiliMs as may be agreed upon with the DOE.

On April 27, 2012 and January 26, 2015, the DOE granted the requests by DAMI,
SEPC and BERi, for a moratorium on suspension of the implementation of the
production timetable as specified under their respective COCs. The request is in
connection with a resolution passed by South Cotabato in 2010 prohibiting open-pit
mining activities in the area. The moratorium was retrospectively effective from the
dates of their respective COCs, when these were converted to Development and
Production Phase, until December 31, 2016 or until the ban on open-pit mining
pursuant to the Environment Code of South Cotabato has been lifted, whichever
comes first. On February 1, 2017, the DOE granted another extension on the
moratorium for the 3 COCs valid from January 1, 2017 to December 31, 2017. As of
March 9, 2018, DAMI, SEPC and BERi are awaiting DOE'S approval of their
requestsfor another extension on the moratorium filed on October 20, 2017.

As of December 31, 2017, the mining activities of DAMI, SEPC and BERi remain In
the preparatorystages. All related costs and expenses from exploration are currently
deferred as exploration and development costs and will be amortized upon
commencementof their commercial operations.

Based on management's assessment, there are no indicators that the carrying

amount of the mining rights exceeds its recoverable amount as of December 31,
2017 and 2016.

15. Intangible Assets and Goodwill

Intangibleassets and goodwill consist of:

Note 2017 2016

Mining rights 4, 14 P1,719,726 P1,719,726
Power concessionassets - net 4, 6 781,884 688,974
Computer software and licenses - net 4 83,660 154,553
Goodwill 4 8,866 8,866
P2,594,136 P2,572,119

Goodwill
In November 2009 and Marcil 2010, the Parent Company acquired 60% ownership
interest in SMEC and SPDC, respectively. As a result of these transactions, the
Parent Company recognizedgoodwill amounting to P8,349 and P517, respectively.

- 62-
 Based on managemenfs assessment, goodwill is not impaired since the recoverable
amount of the related net assets of SMEC and SPOC for which the goodwill was
attributed still exceeds its carrying amount as of December 31, 2017 and 2016.

Computer Software and Licenses

The movements in computer software and licenses are as follows:

Note 2017 2016

Cost
Balance at beginning of year P229,371 P184,377
Additions 9138 44994
Balance at end of year 238,609 229,371
Accumulated Amortization
Balance at beginning of year 74,818 7,217
Amortization 25 80 031 67 601
Balance at end of year 154,849 74,818
P83,660 P154,553

16. Other Noncurrent Assets

Other noncurrent assets consist of:

Note 2017 2016

Restricted cash 30, 31 P5,578,357 P663,820
Deferred input VAT - net of
current portion 2,081,126 84,876
Amounts owed by related parties 20, 30, 31 199,610 227,394
Derivative asset 20,30,31 61,903
Nonourrent receivables 30, 31 29,488 44,681
P7,960,484 P1 ,020,771

Restricted cash comprises: (a) SCPC's Cash Flow Waterfall accounts (Trust Fund)
with a local Trust Company, as required in its Omnibus Loan and Security
Agreement (OLSA). amounting to P4,805,175 as of December 31, 2017 (Note 19);
(b) the amount received from PEMC totaling to P491,242 and P475,057 as of
December 31, 2017 and 2016, respectively, representing the proceeds or sale on
WESM for a specific period in 2016, for the electricity generated from the excess
capacity of the Sual Power Plant. which SMEC consigned with the RTC of Pasig City
(Note 33); and (c) APEC's reinvestment fund for sustainable capital expenditures
and contributions collected from customers for membership fees and bill deposits
which are refundable amounting to P281,940 and P188,763 as of December 31,
2017 and 2016, respectively.

• 63.
 Amounts owed by related parties mainly pertains to loan granted by SPGC to OEDC
which is collectible in equal monthly payments of principal and interest, initially
pegged at 4.73% and subject to change every 6 months. The equal monthly
payments of OEDC shall be made on the first day of each month commencing In
January 2017 until December 2024 (Note 20).

As of December 31, 2017. the deferred Input VAT mainly pertains to the input VAT
on the purchase of power plant from LPPC in June 2017 (Note 13).

17. Loans Payable

Loans payable represents unsecured peso-denominated short-term loan of SMCPC

obtained on June 29, 2017 from a local financial institution. Interest rates for the loan
ranged from 2.75% to 3.25% in 2017 (Notes 30 and 31).

Interest expense on loans payable amounted to P93,051 (inclusive of P55,371

capitalized in CPIP, Note 13) for the year ended December 31, 2017.

18. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of:

Note 2017 2016

Trade 6 P14,994,454 P11,914,211
Non-trade 9,693,202 19,125,230
Output VAT 5,140,417 5,569,399
Amounts owed to related parties 20 541,428 633,436
Accrued interest 6, 17, 19 427,469 283,724
Withholding taxes 277,744 203,415
30,31 P31,074,714 P37 ,729,415

Trade payables consist of payable related to energy fees, inventories and power
purchases. These are generally on a 30-day term and are non-Interest bearing.

Non-trade payables include liability relating to power rate adjustments, payables to

contractors and other payables to the Government except output VAT and
withholding taxes.

Output VAT consists of current and deferred output VAT payable. Deferred output
VAT represents the VAT on sale of power which will be remitted to the Government
only upon collection from the customers (Note 8).

-64-
19. Long-term Debt

Long-term debt consists of:

Note 2017 2016
Bonds
Parent Company
Peso-denominated
Fixed interest rate of 5.3750%,6.2500%
and 6.6250% maturingin 2022, 2024 and
2027, respedivety (a) P19,784,249 p •
Fixed interest rate of 4.3458%,4.7575%
and 5.1792% maturing in 2021, 2023 and
2026, respectively (b) 14,865,330 14.842,563
34,649,579 14,842,563
Tenn Loans
Parent Company
Peso-denominated
Fixed interest rate of 6.9265%, with
maturitiesup to 2024 (c) 14)856,835
F0<eign currency-denominated
Floating interest rate based on London
Interbank OfferedRate (UBOR) plus
margin, maturing in 2018 (d) 34,482,157
Subsidiary
Peso-denominated
Fixed interest rate of 6.2836%and 6.5362%
with maturities up to 2029 (e) 41,222,287
Foreign currency-denominated
Floating interest rate based on LIBOR plus
margin, with maturities up to 2022 (f) 16,999,006
56,079,122 51,481,163
30, 31 90,728,701 66,323,726
Less current maturities 1,139,631 1,040,690
P89,589,070 PSS,283,036

a. The amount represents the first tranche of the Parent Company's P35,000,000
fixed rate bonds shelf registration. The first tranche, with an aggregate principal
amount of P20,000,000, were issued and listed in the Philippine Dealing and
Exchange Corp. (PDEx) for trading on December 22, 2017 at the issue price of
100.00o/o of face value. It comes in three series, with terms and Interest rates as
follows:

Interest Rate
Term Per Annum
Series D Bonds 5 years, due 2022 5.3750%
Series E Bonds 7 years, due 2024 6.2500%
Series F Bonds 1 O years, due 2027 6.6250%

Interest on the Bonds shall be payable quarterly in arrears starting on March 22,
2018, for the first interest payment date, and June 22, September 22, December
22 and March 22 of each year thereafter.

Proceeds from the issuance were used by the Parent Company to refinance its
P20,000,000 short-term loans obtained from local banks.

Unamortized debt issue costs amounted to P215,751 as of December 31. 2017.

Accrued interest amounted to P23,536 as of December 31, 2017 and interest
expense amounted to P29,420 in 2017.

-65.
b. The amount represents issuance of the Parent Company of the fixed rate
Philippine peso-denominated bonds with an aggregate principal amount of
P15,000,000. The Bonds were issued and listed in the PDEx on July 11, 2016 at
the issue price of 100.00% of face value in three series with terms and interest
rates as follows:

Interest Rate
Term Per Annum
Series A Bonds 5 years, due 2021 4.3458%
Series B Bonds 7 years, due 2023 4.7575%
Series C Bonds 1 O years, due 2026 5.1792%

Interest is payable quarterly in arrears starting on October 11, 2016, for the first
interest payment date, and January 11, April 11, July 11 and October 11 of each
year thereafter.

The net proceeds were used on July 25, 2016 to refinance the US$300,000
short-term loan provided by a local bank of which the proceeds were used for the
redemption of the US$300,000 bond in January 2016.

Unamortized debt issue costs amounted to P134,670 and P157,437 as of

December 31, 2017 and 2016, respectively. Accrued interest amounted to
P127,503 and P159,379 as of December 31, 2017 and 2016, respectively.
Interest expense amounted to P708,349 and P336,466 in 2017 and 2016,
respectively.

c. The amount represents the availment by the Parent Company of P15,000,000

fixed rate 7-year Term Loan Facility on April 26, 2017 from a local bank. Interest
is payable quarterly in arrears on the last day of the agreed interest period.
Principal repayment shall be in 13 semi-annual installments starling at the end of
the first year from drawdowndate. The proceeds were used to fund the payment
of the remaining USS300,000 out of the US$700,000 term loan.

Unamortized debt issue costs amounted to P143, 165 as of December 31, 2017.
Accrued interest amountedto P186,669 as of December 31, 2017 and interest
expense amounted to P455,995 in 2017.

d. The amount represents the Parent Company's drawdown of US$500,000 from

the US$650,000 5-year term loan Facility Agreement with a syndicate of banks
signed on September 9, 2013. Subsequently, on November 15, 2013. the
US$650,000 Facility Agreement was amended increasing the loan facility from
US$650,000 to US$700,000. The proceeds were used by the Parent Company
to refinancethe USS200,000 3-year term loan and to finance new investments in
power-relatedassets.

In March 2015, the Parent Companymade the final drawdown of US$200,000 for
the financing of ongoing construction of power plants in Malita, Davao and
Limay, Bataan investments in power-related assets, and for general corporate
purposes.

On March 31 and August 31, 2017, the Parent Company prepaid a total of
US$400,000 (equivalent to P20,259,000) out of the US$700,000 term loan. The
prepayments were funded by short-term loans availed in 2017 from local banks
solely for this purpose.

-66.
 On April 26, 2017, the Parent Company prepaid the remaining US$300,000
(equivalent to P14,911,500), out of the USS700,000 term loan, by availing of a
P15,000,000 fixed rate 7-year term loan from a local bank to minimize exposure
to foreign exchange losses brought by the continuing peso depreciation against
the US dollar.

Unamortized debt issue costs amounted to P321,843 as of December 31, 2016.

Accrued interest amounted to P5, 128 as of December 31, 2016 and interest
expense amounted to P331,817, P921,882 and P734,255 in 2017, 2016 and
2015, respectively.

e. The amount represents the P42,000,000 drawn by SCPC on June 28, 2017 from
a P44,000,000 12-year OLSA with a syndicate of banks that was signed on June
22, 2017. The proceeds were used by SCPC for the following purposes:

i. the settlement of the US$360,000 short-term loan availed on May 8, 2017

from a local bank;

ii. to fund the acquisition of the Phase II Limay Power Plant, under construction,
from LPPC, and

iii. the repayment of advances by the Parent Company.

Unamortized debt issue costs amounted to P777,713 as of December 31, 2017.

Accrued interest amounted to P17,948 as of December 31, 2017 and Interest
expense amounted to P1 ,390,948 in 2017 (inclusive of P872,289 capitalized in
CPIP in 2017, Note 13).

On January 31, 2018, SCPC has drawn the remaining P2,000,000 of the
P44,000,00012-yearOLSA.

f. The amount represents the USS400,000 loan facility entered into by SCPC on
December 29, 2015. The loan is payable within 7 years up to 2022. Series of
drawdowns were made in 2016 for a total of US:S359,339 (equivalent to
P17,866,304) which included an amount owed to a related party of P2,687,451.
Proceeds of the loan were used to finance the construction of the Phase I Llmay
Power Plant.

On May 9, 2017, SCPC prepaid the US$359,339 term loan using the proceeds of
a US$360,000 (equivalent to P17,949,600) short-term bridge financing loan
availed from a local bank solely for this purpose.

Unamortized debt issue costs amounted to P867,298 as of December 31, 2016.

Accrued interest amounted to P50,036 as of December 31, 2016. Interest
expense amounted to P378,747 and P519,534 in 2017 and 2016, respectively,
(inclusive of P354,731 and P519,534 capitalized in CPIP in 2017 and 2016,
respectively, Note 13).

- 67
67-
Valuation Technique for peso-denominated Bonds
The market value was determined using the market comparison technique. The fair
values are based on PDEx. The Bonds are traded in an active market and the quotes
reflect the actual transactions in identical instruments.

The fair value of the Bonds, amounting to P35,651,237 and P15,129,886 as of

December 31, 2017 and 2016, respectively, has been calegorized as Level 1 In the
fair value hierarchy based on the Inputs used In the valuation techniques (Note 31).

The debt agreements of the Parent Company and SCPC impose a number of
covenants including, but not limited to, maintenance of certain financial ratios
throughout the duration of the term of the debt agreements. The terms and
conditions of the debt agreements also contains negative pledge provision with
certain limitations on the ability of the Parent Company and its material subsidiaries
and SCPC to create or have outstanding any security interest upon or with respect to
any of the present or future business, undertaking, assets or revenue (including any
uncalled capital) of the Parent Company or any of its material subsidiaries and SCPC
to secure any indebtedness, subject to certain exceptions.

The loan of SCPC is secured by real estate and chattel mortgages on all present and
future assets and reserves of SCPC as weU as a pledge by the Parent Company of
an its outstanding shares of stock in SCPC.
As of December 31, 2017 and 2016, the Group is in compliance with the covenants
of the debt agreements.

The movements in debt issue costs are as follows:

Note 2017 2016

Balance at beginning of year P1,346,578 P685,839
Additions 1,297,703 1,142,741
Amortization (1,292,602) (369,403}
Capitalized amount 13 (80,480) (112,599)
Balance at end of year P1,271,299 P1,346,578

Repayment Schedule
The annual maturities of the long-term debt are as follows:

Year Gross Amount Debt Issue Costs Net

2018 P1,200,000 P60,369 P1, 139,631
2019 1,200,000 60,871 1,139,129
2020 1,620,000 170,832 1,449, 168
2021 8,508,250 151,481 8,356,769
2022 12,477,960 207,849 12,270, 111
2023 and thereafter 66,993,790 619,897 66,373,893
P92,000,000 P1,271,299 P90,728,701

Contractual terms of the Group's interest bearing loans and borrowings and
exposure to interest rate, foreign currency and liquidity risks are discussed in
Note 30.

- 68
68-
20. Related Party Disclosures

The Group, in the normal course of business, purchases products and services from
and sells products and renders services to related parties. Transactions with related
parties are made at normal market prices and terms. Amounts owed by/owed to
related partles are collectible/will be settled in cash. An assessment Is undertaken at
each financial year by examining the financial position of the related party and the
market in which the related party operates.

The followingare the transactionswith related parties and the outstanding balances

- ·-•
as of December 31:

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Amoun
°'"". '....
ts OW.d 10
ll:elitted
Pilrtiff Terma
On •inand ot
Conclliont

•
P21t.,OIM flt7,lt7 Pt,m U~d;
P252 Pe,201 30 dayt.. no rnpllirment
•
. .....
f'IOn-inlll'IHl

,. 2017
20!0
lt,903
,....
'4'°"1 lhan 1
ncn-tnttl'"5t
unaectn¢
no lnpiirncnt

bA'irg

4&4,412 On detn8r!d or Uns.:iuttd!

562,•oa 30days: no l~arment
noMil*est
bea1"lg

8,. tJ 20t7
2018 17,683.913

.. JI 2017
2016
........
1156.$10 201
29,143 30 cllr)'!,
29,299 non-lnlEnM
Unsl(ll.Jfed;
no in1)8im'lenl
O.;;arin9

fl 2011
2018
......
12.S<!t
9 ,. ...

"'"'"'
beari ng

ZOtT 1,tn tl,521 On dem!Jnd or UnJflOJl'ed;

201G 1,909 1, T<t 1 30 days; no itr.i)elrmenl
non-lnlnM

.,.. ...
blaring

.... , ..,,
2011
2011

2011
<Sey•:

.. ,.,

Q2 U°*ltl.l'ect
1n1...-stbllaitirlg no lmptlm\fM
30 UnMCu'td:
ll.717 n~lr41tttl no rnp11mwn1
b......
a- ...
ti
.....
2017

ONr• r. '' n11

2011
......,., On...,,.nd
30 •V'i
0( °""""~
ee hpemtm
b•"'
non-inltfool

a. Amounts owed by related parties consist of trade and other receivables,

derivative asset and security deposits (Notes 8 and 16).

b. Amounts owed to related parties consist of trade and non-trade payables,

management fees, purchases of fuel, reimbursement of expenses, rent,
insurance and services rendered by related parties, customers' deposits and
subscriptions payable to OEDC (Notes 9, 12 and 18).

c. Amounts owed by associates mainly consist of interest bearing loan granted to

OEDC included as part of "Trade and other receivables" and "otner noncurrent
assets" accounts in the consolidated statements of financial position (Notes 8
and 16).
- 69
69-
 d. Amounts owed by a joint venture consists of interest bearing loan granted and
management fees charged to AHC by PVEI included as part of "Trade and other
receivables" accounts in the consolidated statements of financial position (Notes
6, 12 and 26).

e. The amount owed to associate of an entity under common control consists of

interest bearing loan obtained from Bank of Commerce Included as part of
"Lonq-term debr account in the consolidated statements of financial position
(Note 19).

f. The compensation of key management personnelof the Group, by benefit type,

follows:
Note 2017 2016 2015
Short-termemployeebenefrts P81,537 P42,432 P37,226
Retirementcost 21 1,398 1,205 263
P82,935 P43,637 P37,509

21. Retirement Plan

The Parent Company and SMEC have unfunded, noncontributory, defined benefit
retirement plans covering all of their permanent employees. Retirement benefits
expense pertains to accrual of expected retirement benefits of active employees in
accordancewith RA No. 7641, The Philippine Retirement Law. Retirement benefits
expense and liability is determined using the projected unit credit method. The
Group's latest actuarial valuation date is December 31, 2017. Valuations are
obtained on a periodic basis.

The following table shows reconciliation of the net defined benefit retirement
obligationand its component
2017 2016
Balance at beginning of year P69,364 P45,657
Recognized in Profit or Loss
Currentservice cost 6,942 6,174
Interestcost 3,711 2,214
12,653 8,388
Recognized In Other Comprehensive Income
Remeasurements:
Actuarial (gains) losses arising from:
Experienceadjustments 23,623 17,502
Changes in financialassumptions (2,514) (2,183)
Changes in demographicassumptions (24,922)
(3,913) 15,319

Balance at end of year P76,104 P69,364

Defined benefit retirementobligation included as part of "Other noncurrent liabilities"

account in the consolidated statements of financial position amounted to P78,104
and P69,364as of December31, 2017 and 2016, respectively.

• 70-
The retirement costs amounting to P12,653, P8,388 and P6,611 in 2017, 2016 and
2015, respectively, are recognized as part of ·salaries, wages and benefits" under
'Selling and administrative expenses· account in the consolidated statements of
income (Note 25).

The equity reserve for retirement plan as of December 31, 2017 and 2016 includes
accumulated net actuarial gains and losses recognized In other comprehensive
income, net of related tax, amounting to P23,632 and P26,371, respectively.

The principal actuarial assumptions used to determine retirement benefits are as

follows:

2017 2016
Discount rate 5.70% 4.93% - 5.38%
Salary increase rate 7.00% 7.00%

Assumptions for mortality and disability rates are based on published statistics and
mortality and disability tables.

The weighted average duration of the defined benefit retirement obligation ranges
from 7.0 to 9.5 years and 8.0 to 9.0 years as of December 31, 2017 and 2016,
respectively.

Sensitivity Analysis
As of December 31, 2017 and 2016, the reasonably possible changes to one of the
relevant actuarial assumptions, holding other assumptions constant, would have
affected the defined benefit retirementobligation by the amounts shown below:

Defined Benefit Retirement Obligation

2017 2016
1% Increase 1% Decrease 1% Increase 1% Decrease
Discount rate (P6,791) P7,935 (P4,151) P4,558
Salary increase rate 7,131 (6,260) 4,063 (3,793)

Rjsks and Management of Risks

The defined benefit retirement obligation exposes the Group to actuarial risks, such
as longevity risk and Interest rate risk.

The defined benefit retirement obligation is calculated using a discount rate set with
reference to government bond yields as such is exposed to marl<et factors including
inflation. Higher inflation will lead to higher liability. Also, the defined benefit
retirement obligations are to provide benefits for the life of members.• so increase In
life expectancy will result in an increase in the plan's liability. These risks are
managed with the objectiveof reducing the impact of these risks to the cash flows of
the Group.

The Group does not have a formal retirement plan and therefore has no plan assets
to match against the liability under the defined benefit retirement obligation. Also,
benefit claims under the defined benefit retirement obligation will be paid directly by
the Groupwhen they become due.

- 71
71-
22. Equity

Capital Stock
As of December 31, 2017 and 2016, the Parent Company's authorized capital stock
is P2,000,000, divided into 2,000,000,000 common shares with par value of P1 per
share.

Capital stock consists of:

2017 2016
Subscribed capital stock P1,250,004 P1,250,004
Less subscription receivable 187,500 187,500
P1,062,604 P1,062,504

The number of shares subscribed is 1,250,004,000 and 1,250,003,500 common

shares as of December 31, 2017 and 2016, respectively.

Equity Reserves
In September 2010, the Parent Company acquired the remaining 40% non•
controlling ownership interest of SMC in SMEC and SPDC. The difference between
the price paid and carrying amount of net assets transferred was recognized in
equity.

Retained Earnings
The Parent Company's retained earnings available for dividend declaration,
calculated based on the regulatory requirements of the Philippine SEC, amounted to
P3,054,068 and P508,785 as at December 31, 2017 and 2016, respectively. The
difference between the consolidated retained earnings and the Parent Company's
retained earnings available for dividend declaration primarily consist 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.

The Parent Company's BOD declared cash dividends as follows:

December 31, 2016

Date of Stockholders of Dividend

Declaration Record Date Pa~able Per Share Amount
June 7, 2016 June 7, 2016 June 14, 2016 P1.20 P1,500,000
Augusl 111 2016 A!!!!US111, 2016 August18,2016 1.20 1,500,000
P3,000,000

December 31, 2015

Dateof Stod<hoklers of Dividend

Deciaration Record Date Pa~able Per Share Amount
March 25, 2015 March 25, 2015 March 31, 2015 P1.20 P1,500,000
July2, 2015 July 2, 2015 July 9, 2015 1.20 1,500,000
November 5, 2015 November 5, 2015 November 10, 2015 1.20 1,soo,000
P4,500,000

There were no cash dividend dedarations during the year ended December 31,
2017.

- 72
72-
Parent Company
On December 23, 2015, the BOD approved the appropriation amounting to
P7,700,000 for the payment of the US$700,000, 5-year term loan that will mature in
September 2018 (Nole 19). Reversals during 2015 pertain to: (a) construction of
power plant amounting to P2,092,750; (b) interest on bonds payable amounting to
P446,250; (c) interest on loans payable amounting to P104,000; and (d) expansion
projects amounting to P9,128,000.

In 2017 and 2016, reversals amounted to P1,154,000 and P2,966,000, respectively,

for the debt servicing of the USS700,000 loan, as Intended.

Total appropriated retained earnings of the Parent company amounted to

P3,580,000, P4,734,000 and P7,700,000 as at December 31, 2017, 2016, and 2015
respectively.

SMEC, SPPC and SPDC

On December 23, 2015, the BOD of SMEC, SPPC and SPDC approved the
appropriation of retained earnings for fixed monthly payments to PSALM amounting
to P4,990,000, P1,806,300 and P352,400, respectively, pursuant to the IPPA
Agreements and additional funding requirements on their expansion project.

On December 21, 2016, the BOD ofSMEC and SPPC approved the appropriation of
retained earnings for fixed monthly payments to PSALM amounting to P1 ,099,300
and P2,990,300, respectively, pursuant to the IPPA Agreements and additional
funding requirements on their expansion project.

On December 18, 2017, the BOD of SMEC, SPPC and SPDC approved the
appropriation of retained earnings for fixed monthly payments to PSALM amounting
to P2,585,000, P3,514,050 and P474,000, respectively, pursuant to the IPPA
Agreements.

The appropriations reversed in 2016 and 2015 were used for the required capital
expenditures and fixed monthly payments of SMEC and SPDC to PSALM, as
intended.

Total combined appropriated retained earnings of SMEC, SPPC and SPDC

amounted to P27,080,250, P20,507,200 and P17,455,600 as at December 31, 2017,
2016 and 2015, respectively.

uses
The Parent company issued and listed on the Singapore Stock Exchange the
following uses at an issue price of 100%:
Initial Amount of Amount In
Date or Distribution Rate of Step-Up uses Philippine
Issuance Par:ment Date Distribution Date Issued Peso
August 26, 2015 Augusl 26 and 6.75% February 26, US$300.000 P13,823,499
February 26 per annum 2021
of each year
May 7. 2014 May7 and 7.5% November 7, 300,000 13,110,066
Novembe<7 per annum 2019
of each ar
US$600,000 P26,933,565

The holders of the uses have conferred a right to receive distributions on a semi•
annual basis from their issuance dates at the initial rate of distribution, subject to the
step-up rate. The Parent Company has a right to defer this distribution under certain
conditions.

- 73
73-
 The USCS have no fixed redemption date and are redeemable in whole, but not in
part, at the Parent Company's option on step-up date, or any distribution payment
date thereafter or upon the occurrence of certain other events at the principal
amounts of the uses plus any accrued, unpaid or deferred distribution.

The proceeds were used by the Parent Company to finance investments In power•
related assets and other general corporate purposes.

Details of distributions paid to uses holders are as follows:

2017 2016 2015
February P720,611 P689,223 p -
May
799,583 756,804 714,616
August
729,868 681,412
November
824142 777 134 736072
P3,074,204 P2,904,573 P1,450,688

On February 2.2, 2018, the Parent Company paid distribu1ions to holders of the
US$300,000 USCS issued in August 2015, amounting to P746,068.

On March 9, 2018, the Parent Company's BOD approved the payment of distribution
in the total amount of US$11,250, plus applicable taxes. on May 7, 2018 to the
holders of the US$300,000 USCS issued in May 2014.

23. Revenues

Revenues consist of:

Note 2017 2016 2015

Sale of power 20 P70,494,762 P72,250,309 P73,849,465
Retail and other power•
related services 6,20 12,295,813 5,722, 121 3,657,226
P82,790,575 P77,972,430 P77,506,691

24. Cost of Power Sold

Cost of power sold consist of:

Note 2017 2016 2015

Energy fees 5, 6 P23,726,459 P20,477,903 P23,224, 178
Coal, fuel oil
and other
consumables 5, 6, 9, 20 13,039,144 10,046,687 10,376,590
Power purchases 5, 6 10,725,490 7,836,564 8,330,550
Depreciation and
amortization 5, 6, 13, 15 5,842,367 6,164,942 6,466,398
Plant operations and
maintenance fees 5, 6, 20 345,303 476,344 502,211
P53,678, 763 P45,002,440 P48,899,927

- 74
74-
25. Selling and Administrative Expenses

Selling and administrative expenses consist of:

Note 2017 2016 2015

Taxes and licenses P945,406 P982.855 P946,801
Salaries, wages and benefits 20, 21 708,162 361.854 222,994
Management fees 20 664,493 652,167 1, 196,789
Rent 4, 6, 20 376,499 351,091 360,091
Corporate special program 349,667 384,166 245,736
Donations 303,426 738,980 59,781
Depreciation and amortization 5, 13, 15 222,564 176,989 73,414
Supplies 210,687 250,200 105,617
Outside services 189,268 212,975 749,207
Market fees 6 146,550 160,669 219,681
Professional fees 136,397 137,303 124,221
Travel and transportation 132,869 141,463 57,544
Repairs and maintenance 126,906 308,335 138,067
Advertising and promotions 70,772 119,874 59,653
Insurance 19,198 63,827 65,434
Impairment losses on trade
receivables 8 958,784 142,658
Miscellaneous 232,668 238, 118 136,447
P4,835,532 P6,239,650 P4,904,135

Donations represent contributions to registered donee institutions for their programs

on education, environment and disaster-related projects. Corporate special program
pertains to the Group's corporate social responsibility projects.

26. Other Income (Charges)

Other income (charges) consist of:

Note 2017 2016 2015

PSALM monthly fees
reduction 6 P3,283,745 P1,509,225 P1,858,506
Construction revenue 4, 6 123,336 226,997 47,091
Construction cost 4. 6 (123,336) (226,997) (47,091)
Foreign exchange losses - net 30 (632,416) (8,075, 159) (7,582,548)
Miscellaneous Income
(charges) - net 4, 6, 8 13. 20 292,836 (315,820) (202,008)
P2,944,165 (P6,881,754) (P5,926,050)

Miscellaneous income (charges) recognized in 2017 mostly pertain to management

income, rent income and sale of fly ash to related parties. In 2016, the Group
recognized impainnent losses on non-trade receivables and property, plant and
equipment, management income and rent income charged to related parties
(Notes 4, 6, 8, 13 and 20).

- 75
75-
27. Income Taxes

The components of income tax expense are as follows:

Note 2017 2016 2015

Current 28 P2,003,146 P2,668,503 P2,181,771
Deferred 4,176,364 697,256 521,637
P6,179,510 P3,365,759 P2,703,408

Deferred tax assets (liabilities) - net arise from the following:

Note 2017 2016
Items Recognized In Profit or Loss
Allowance for impairment losses on
trade and other receivables 8 P458,043 P458,043
Defined benefit retirement obligation 21 13,303 9,507
Difference of amortization of borrowing
costs over payments and others (1,410,812) (268,192)
Difference of depreciation and other
related expenses over monthly lease
payments 6 (5,077,847) (2,040,307)
Item Recognized in other
Comprehensive Income
Equity reserve for retirement plan 21 10,128 11,302
(P6,007, 185) (P1 ,829,647}

The deferred taxes are reported in the consolidated statements of financial position
as follows:

2017 2016
Deferred tax assets P1,316,926 P2,955,570
Deferred tax liabilities j7,3241111) (4,785,217)
(P6,007, 185) (P1 ,829,647)

The movements in deferred tax assets (liabilities)· net are as follows:

Rocognft;ed
Balance at Recognized In Other
Beginning In Pront Comprehonalve Balance at
December 31, 2017 of Year or loss Income End of Year
Allowance for Impairment
losses on trade and other
receivables P468,043 p - p • P458,043
Defined benefit retirement
obligation 9,507 3,796 13,303
Difference of amor1!2ation of
borrowing costs over
payments and others (268,192) (1,142,620) (1,410,812)
Difference of depreciaUon and
other related expenses over
monthly lease payments (2,040,307) (3,037,540) (5,077,847)
Equity reserve for retirement
el•n 11,302 j1.1741 10,128
Net liabilities (P1,829,647) (P4,176,364) (P1,174) (P6,007,185)

- 76.
 Recognized
Balance at Recognized in Other
Beginning in Profit Comprehensive Balance at
Oecornber3112016 of Year or Loss Income End of Year
Allowance for impainnent loMes
on trade and other receivables P170,443 P287,600 p P458,043
Defined benefil reUremem
obHgation 6,991 2,516 9,507
Difference of amortlzation of
borrowing costs over
payments and other$ (471,750) 203,558 (2Ga, 192)
Difference of depreclaUon and
other related expenses over
monthly lease payments (849,3nJ (1, 190,930) (2,040,3-07)
Egu!l): reserve for retirement ~n 6,706 4,596 11,302
Net fiabifitles (Pl, 136,987) (P697,258) P4,596 (P1,829,647)

As of December 31, 2017, the NOLCO and MCIT of the Group that can be claimed
as deduction from future taxable income and deduction from corporate income tax
due, respectively, are as follows:

Year Carryforward
Incurred/Paid Benefits Up To NOLCO MCIT
Year2017 December 31, 2020 P9,509,739 P36,617
Year2016 December 31, 2019 3,137,496 17,641
Year 2015 December 31, 2018 2,931,633 10,195
P15,578,868 P64,453

The reconciliation between the statutory income tax rate on income before income
tax and the Group's effective income tax rate is as follows:

2017 2016 2015

Statutory income tax rate 30.00% 30.00% 30.00%
Increase (decrease) in the income
tax rate resulting from:
Unrecognized deferred tax assets 18.06% 17.85% 30.43%
Availment of optional standard
deduction and others {5.14%) (3.07%l (0.78%)
Effective income tax rate 42.92% 44.78% 59.65%
28. Registrations and License

Reaist[ations wjth the Board of Investments <BOil

I. In 2013, SMCPC and SCPC were granted incentives by the 801 on a pioneer
status ror 6 years subject to the representations and commitments set forth in the
app!lcalion for registration, the provisions of Omnibus Investments Code of 1987,
(Executive Order (EO) No. 226), the rules and regulations of the BO! and the
terms and conditions prescribed. On October 5, 2016, 801 granted SCPC's
request to move the start of its commercial operation and Income Tax Holiday
(ITH) reckoning date from February 2016 to September 2017 or when the first
kilowatt-hour (kWh) of energy was transmitted after commissioning or testing, or
1 month from the date of such commissioning or testing, whichever comes earlier
as certified by the National Grid Corporation of the Philippines. Subsequently, on
December 21, 2016, BOI granted a similar request of SMCPC to move the start
of its commercial operation and ITH reckoning date from December 2015 to
July 2016, or the actual date of commercial operations subject to compliance
with the specific terms and conditions, due to delay in the implementation of the
project for reasons beyond its control. SMCPC has a pending request with 801
on the further extension of the ITH reckoning date from July 2016 to September
2017. The ITH period for Unit 1 and Unit 2 of SCPC commenced on May 26,
2017 and September 26, 2017, respectively. Jhe ITH incentives shall only be
limited to the conditions given under the specific terms and conditions of their
respective 801 registrations.
.
ii. On September 20. 2016, LPPC was registered with the BO! under the Omnibus
Investment Code of 1987 as expanding operator of 2 x 150 MW CFS Coal-fired
Power Plant (Phase II Limay Power Plant) on a non-pioneer status. The BO!
categorized LPPC as an "Expansion' based on the 2014 to 2016 !PP's Specific
Guidelines for "Energy" in relation to SCPC's 2 x 150 MW Coal-fired Power Plant
(Phase I Limay Power Plant). As a registered entity, LPPC is entitled to certain
incentlves that include, among others, an ITH for 3 years from January 2018 or
date of actual start of commercial operations, whichever is earlier, but in no case
earlier than the date of registration. The !TH incentives shall only be limited to the
conditions given under the specific terms and conditions of LPPC's BO!
registrations.

In June 2017, the BO! approved the transfer of ownership and registration of
Phase II Llmay Power Plant from LPPC to SCPC. SCPC has a pending request
with BOI on the extension of the !TH reckoning date for Phase II Umay Power
Plant from January 2018 to December 2018 or actual start of commercial
operations, whichever is earlier.

Iii. On August 26, 2015, February 11, 2016 and October 26, 2016, the BO! issued a
Certificate of Authority (COA) to SMCPC, SCPC and LPPC, respectively, subject
to provisions and implementing rules and regulations of EO No. 70, entitled
"Reducing the Rates of Duty on Capital Equipment, Spare Parts and Accessories
imported by BO! Registered New and Expanding Enterprises.• The COA shall be
valid for 1 year from the date of issuance. All capital equipment, spare parts and
accessories imported by SMCPC and SCPC for the construction of the power
plants were ordered, delivered and completed within the validity period of their
respective COAs.

- 78-
 On July 10, 2017, the 801 issued a new COA to SCPC, as the new owner of the
Phase II Limay Power Plant, subject to provisions and implementing rules and
regulations of EO No. 22 (which replaced EO No. 70), also entitled "Reducing the
Rates of Duty on Capital Equipment, Spare Parts and Accessories imported by
801 Registered New and Expanding Enterprises". The COA shall be valid for 1
year from the date of issuance or up to the expiration of EO No. 22 or until a new
law amending the Omnibus Investments Code of 1987 is enacted, whichever
comes eartier.

iv. SMEC. SPDC and SPPC are registered with the BOI as administrator/operator of
their respective power plants on a pioneer status with non-pioneer incentives and
were granted ITH for 4 years without extension beginning August 1, 201 O up to
July 31, 2014, subject to compliance with certain requirements under their
registrations. The ITH incentive availed was limited only to the sale of power
generated from the power plants. Upon expiration of the !TH in 2014, SMEC,
SPDC and SPPC are now subject to the regular income tax rate.

v. On August 21, 2007, SEPC was registered with the 801 under the Omnibus
Investments Code of 1987, as New Domestic Producer of Coal on a Non-pioneer
Status.

License Granted by the ERC

On August 22, 2011 and August 24, 2016, SMELC and SCPC, respectively, were
granted a RES License by the ERC pursuant to Section 29 of the EPIRA which
requires all suppliers of electricity to the contestable market to secure a license from
the ERC. The term of the RES license is for a period of 5 years from the time it was
granted and renewable thereafter.

On August 19, 2016, the ERC approved the renewal of SMELC's RES License for
another 5 years from August 22, 2016 up to August 21, 2021.

29. Basic and Diluted Earnings (Loss) Per Share

Basic and diluted EPS is computed as follows:

2017 2016 2015
Net income attributable to equity
holders of the Parent
Company PS,216,916 P4,150,662 P1,828,918
Distributions to USCS holders
for the ~ear !3,076,042) {2,938,623) !1,918,382)
Net income (loss) attributable to
common shareholders of the
Parent Company (a) 5,140,874 1,212,039 (89.464)
Weighted average number of
common shares outstanding (in
thousands) (b) 1,250,004 1,250,004 1,250,004
Basic/Diluted Earnings (loss)
Per Share (alb) P4.11 P0.97 (P0.07)

As of December 31, 2017, 2016 and 2015, the Group has no dilutive debt or equity
instruments.

• 79.
30. Financial Risk and Capital Management Objectives and Policies

Objectives and Policies

The Group has significant exposure to the following financial risks primarily from its
use of financial instruments:

• Interest Rate Risk

• Foreign Currency Risk
• Commodity Price Risk
• Liquidity Risk
• Crecm Risk

This note presents information about the exposure to each of the foregoing risks, the
objectives, policies and processes for measuring and managing these risks, and for
management of capital.

The principal non-trade related financial instruments of the Group include cash and
cash equivalents. restricted cash, noncurrent receivables. loans payable, long-term
debt and derivative instruments. These financial instruments, except derivative
instruments, are used mainly for working capital management purposes. The trade•
related financial assets and financial liabilities of the Group such as trade and other
receivables. accounts payable and accrued expenses. finance lease liabilities and
other noncurrent fiabilities arise directly from, and are used to facilitate, its daily
operations.

The outstanding derivative instruments of the Group which is fixed swaps are
intended mainly for risk management purposes. The Group uses derivatives to
manage its exposures to foreign currency and commodity price risks arising from the
operating and financing activities. The accounting policies in relation to derivatives
are set out in Note 3 to the consolidated financial statements.

The BOD has the overal.l responsibility for the establishment and oversight of lhe risk
management framework of the Group.

The risk management policies of the Group are established to identify and analyze
the risks faced by the Group, to set appropriate risk limits and controls, and to
monttor risks and adherence to limits. Risk management policies and systems are
reviewed regular1y to reflect changes in market conditions and activities. The Group,
through its training and management standards and procedures, aims to develop a
disciplined and constructive control environment in which all employees understand
their roles and obligations.

The BOD constituted the Audit and Risk Oversight Committee to assist the BOD In
fulfilling its oversight responsibility of the Group's corporate governance process
relating to the: a) quality and integrity of the consolidated financial statements and
financial reporting process and the systems of internal accounting and financial
controls; b) performance of the internal auditors; c) annual independent audit of the
consolidated financial statements, the engagement of the independent auditors and
the evaluation of the independent auditors' qualifications, independence and
performance; d) compliance with tax, legal and regulatory requirements; e)
evaluation of managemenfs process to assess and manage the enterprise risk
issues; and f) fulfillment of the other responsibilities set out by the BOD. The Audit
and Risk Oversight Committee shall prepare such reports as may be necessary to
document the activities of the committee in the performance of its functions and
duties. Such reports shall be included in the annual report of the Group and other
corporate disclosuresas may be required by the SEC and/or the PDEx.

-80-
The Audit and Risk Oversight Committee also oversees how management monitors
compliance with the risk management policies and procedures of the Group and
reviews the adequacy of the risk management framework in relation to the risks
faced by the Group. Internal Audit assists the Audit and Risk Oversight Committee In
monitoring and evaluating the effectiveness of the risk management and governance
processes of the Group. Internal Audit undertakes both regular and special reviews
of risk management controls and procedures, the results of which are reported to the
Audit and Risk Oversight Committee.

Interest Rate Risk

Interest rate risk is the risk that future cash flows from a financial Instrument
(cash flow interest rate risk) or its fair value (fair value Interest rate risk) will fluctuate
because of changes in market interest rates. The Group's exposure to changes in
interest rates relates primarily to the long-term borrowings. Borrowings issued at
fixed rates expose the Group to fair value interest rate risk. On the other hand,
borrowings issued at variable rates expose the Group to cash flow interest rate risk.
The Group manages its interest cost by using an optimal combination of fixed and
variable rate debt instruments. Management is responsible for monitoring the
prevailing market-based interest rate and ensures that the mark-up rates charged on
its borrowings are optimal and benchmarked against the rates charged by other
creditor banks.

On the other hand, the investment policy of the Group is to maintain an adequate
yield to match or reduce the net interest cost from its borrowings pending the
deployment of funds to their intended use in the operations and working capital
management. However, the Group invests only in high-quality short-term
investments while maintaining the necessary diversification to avoid concentration
risk.

In managing interest rate risk, the Group aims to reduce the impact of short-term
fluctuations on the earnings. Over the longer term, however, permanent changes in
interest rates would have an impact on profit or loss.

The management of interest rate risk is also supplemented by monitoring the

sensitivity of the Group's financial instruments to various standard and non-standard
interest rate scenarios.

The sensitivity to a reasonably possible 1 % increase in the Interest rates, with all
other variables held constant, would have decreased the Group's profit before tax
(through the impact on floating rate borrowings) by nil, P14, 127 and P2,092 in 2017,
2016 and 2015, respectively. A 1% decrease in the interest rate would have had the
equal but opposite effect. These changes are considered to be reasonably possible
given the observation of prevailing market conditions in those periods. There is no
impact on the Group's other comprehensiveincome.

The Group does not account for any fixed-rate financial assets or financial liabilities
at FVPL and the Group does not designate derivatives as hedging instruments under
a fair value hedge accounting model. Therefore, a change in interest rates at the
reporting date would not affect profit or loss.

-81-
Interest Rate Risk Table
The terms and maturity profile of the interest-bearing financial instruments, together
with its gross amounts, are shown in the following tables:
t y..,.,

""... ,...
PhH~ ptllO

Dec.,,._, Jt1
Qiilli/llM4

20U
,._ ,._
... .,._.... .. ........,..
', 0 0.000

L- ,,....,_
>1,JY..,.
.....,.~
Pt f.20,000

'°
>2-3Y ...
..........
>~!•••
P12,'77,llO Plf~tt3,7to

>4-l't'Nt'S >§ )'.ew•

Pt2,«10,000

I!!•I
Ra:.OA•~
4.l4M'A 1..3710'4 4.7171%
l.11'U'A ll0&.1211'16toLti!;I% 10 a.t:ll1%
P1.f20,000 '8,60l,Jto rtz.m.No l'tt,113,,790 Pt2.000.000

1 Y.. OI'
0.C. I IMi S]1 2019 ~ •t:Z:Y!!'J >NYtws

. ,..,.,.
•~Yf!:t ,...e;y... >5Yelt'i. TR!•
FbcedRMt
tn!e1estrao1t 4,7575..
'°
PhilR*ltOt~ p • p • p • r . Pei 1$3,250 P3,.846,7$0 P15,000,000

...............,.._
FbaiingR•
(_
5, 1792Yi

1n1er.. t...

Foreign Currency Risk

- -
1,2tf..482 3'382..314
IJ80fl.

P1.118,'82
l.ll()R.

P38..392.314
1,681,219
lll!OR.
M~
P1,881.219
-
1,768,764
1.l80R•

Pl.7&1,764
1,"2,042
LIBOR •
M~ln
9,717,483
t.teOR •
Mat!!!!
PS,04$,292 P18,564.,233
52,670,304

P67,670,30<4

The functional currency is the Philippine peso, which is the denomination of the
Group's revenues. The exposure to foreign currency risk results from significant
movements in foreign exchange rates that adversely affect the foreign currency•
denominated transactions of the Group. The risk management objective with respect
to foreign currency risk is to reduce or eliminate earnings volatility and any adverse
impact on equity. The Group enters into foreign currency hedges using derivative
instruments such as foreign currency forwards to manage its foreign currency risk
exposure.

Short-term currency forward contracts (non-deliverable) are entered into to manage

foreign currency risks arising from foreign currency denominated obligations.

Information on the Group's foreign currency-denominated monetary assets and

monetary liabilities and their Philippine peso equivalents as of December 31 are as
follows:

2017 2016
Peso Peso
Nore US Dollar Egulvaltnl US Dollar Eguivalent
Assets
Ca$h and cash equivalents 7 US$102,067 PS,098,218 USSIOS,229 PS,381,123
Trade and other receivables 8 85,684 4,277,182 80,301 3,992,573
187,731 9,373,410 188,530 9,373,696
Liabilities
Accounts payable and
accrued expenses 18 122,259 6,104,423 312,823 15,553,551
Long-term debt (including
eurrent maturftles) 19 1,059,339 52,670,304
Finance lease ~abilities
!indudi!!!! current l>Of1lonl 6 1,693,623 84,562,581 1,880,371 93,492.054
1,815,882 90,667,004 3,252,533 161.715,909
Net foreign currency-
denominated monetary
liabilities US$1,628,151 P81,293,594 US$3,064,003 P152,342,213

-82-
The Group reported net losses on foreign exchange amounting to P632,416,
P8,075, 159 and P7,582,548 in 2017, 2016 and 2015, respectively, with the
translation of its foreign currency-denominated assets and liabilities (Note 26). These
mainly resulted from the movements of the Philippine peso against the US dollar as
shown in the following table:
US Dollar
to Philippine Peso
December 31, 2017 49.93
December 31, 2016 49.72
December 31, 2015 47.06

The management of foreign currency risk is also supplemented by monitoring the

sensitivity of the Group's financial instruments to various foreign currency exchange
rate scenarios.

The following table demonstrates the sensitivity to a reasonably possible change in

the US dollar exchange rate, with all other variables held constant, of the Group's
profit before lax (due lo changes in the fair value of monetary assets and liabilities)
for the years ended December 31:

2017 2016
P1 Deerease P1 Increase P1 Decrease
in the US in the US in the US P1 Increase in
Dollar Dollar Dollar the US Dollar
Exchange Exchange Exchange Exchange
Rate Rate Rate Rate
Cash and cash equivalents (P102,067) P102,067 (P108,229) P108,229
Trade and other receivables !85,6641 85,664 (80,301) 80,301
(187,731) 187,731 (188,530) 188,530
Accounts payable and
accrued expenses 122,259 (122,269) 312,823 (312,823)
Long-term debt (including
current maturities) 1,059,339 (1,059,339)
Finance lease liabilities
(including rurrent
eortionl 1,693,623 11,693,6231 1,880,371 u ,880,3711
1,816,882 (1,815,882) 3,252,533 (3,252,533)
Pt,628,151 (P1,628,151) P3,064,003 (P3,0El4,003)

Exposures to foreign exchange rates vary during the year depending on the volume
of foreign currency-denominated transactions. Nonetheless. the analysis above is
considered to be representative of the Group's foreign currency risk.

Commodity Price Risk

Commodity price risk is the risk that future cash flows from a financial instrument will
fluctuate because of changes in commodity prices.

The Group, through SMC, enters into commodity derivatives to manage its price
risks on strategic commodities. Commodity hedging allows stability in prices, thus
offsetting the risk of volatile market fluctuations. Through hedging, prices of
commodities are fixed at levels acceptable to the Group, thus protecting raw material
cost and preservlng margins. For hedging transactions, if prices go down, hedge
positions may show marked-to-market losses; however, any loss in the marked-to•
markel position is offset by the resulting lower physical raw material cost.

-83-
Commodity Swaps. Commodity swaps are used to manage the Group's exposures
to volatility in prices of coal.

Liquidity Risk
Liquidity risk pertains to the risk that the Group will encounter difficulty to meet
payment obligations when they fall due under normal and stress circumstances.

The Group's objectives to manage its liquidity risk are as follows: a) to ensure that
adequate funding is available at all times; b) to meet commitments as they arise
without incurring unnecessary costs; c) to be able to access funding when needed at
the least possible cost; and d) to maintain an adequate time spread of refinancing
maturities.

The Group constantly monitors and manages its liquidity position, liquidity gaps and
surplus on a daily basis. A committed stand-by credit facility from several local banks
is also available to ensure availability of funds when necessary. The Group also uses
derivative instruments such as forwards and swaps to manage liquidity.

The table below summarizes the maturity profile of the Group's financial assets and
financial liabilities based on contractual undiscounted receipts and payments used
for liquidity management as of December 31:
c.trylng Con-nctual 1 Y•ar >1 YHt· >2 Y~ars.
2017
Fln.a.ncial Assets
Am~nt Ca•hflOw .,i.e.. 2Yura 5 Y•iltS 5Yeara°""'
Cashandcash~
Trade and other ft!Cei•*b!" · nf!L ,.........
P21.&S5,.1Q P28,i5$,369
20,lM.t.34
P29,U5,.349
20,384,9.1-'
p • p • p •

•act~ ooClet
Dettvatiw
"Other noncurren1assets • trd
acoounl) 61,IOS &t,903 &1,t03
Noneurrel'll1ccM Mes~
l.n!er"OChwnono.rrentassets
-net'"""""" .........
CUITent-
Resincted cdi
171.9'$ )22,012 S0,773 39,371 115,90-4
105,&64
~•r
(inC:luded W'ldlr'
....,....,
noncvrentu.tt ·Ml"
4,I0$,175 4.IOS,175 4,,IOS,175
FIAlndelUabllU..

tltl)l:OM.. .......... ,t11,44ot 24.111."'

Lo.nt P9)'1ble S,130,000 5,t.31,51& 6,138,666

Flnanot ..,, .. a.....

,
AclcoU'ltt pt)'.cle Ind .uued
t.ong.- ........ ,~
(1nc:t.dtno
I0,121,101
14

')l.211,311 1,137,111 l,710.,2:3A

31,229,217 11,460,324

,
...
-...-ct

-~
ONr
(I-
"&duding
l'IOr'ICUIT8!'1lklOlllbn

.,,
1U.rt•.•oo

1711174
11t.M\IM

~75'
26.020.Mt

•e!
H,220,431
7411tl
12:,794,141
261;200
5$,&48,tt•
1)110:38

-
lt•tutcw>'~. tiDllt Ind pqalllff
:X:••!! sv.. ,
~ >1VOW· >2Y..-.. OVe<
2011 ,....... c-•1ow
1 Yttr
Ot!Mt 2v.... 5
cFn.d1 ".i'.A..othel"
"N"n'c"tand aHtl
,, _receiv&tllel• rr« 1'21.491.38$
n~11.325
1'21;191~
22.318.325
P21,491,3M
22,311,325
p • p • p.
Nonctrrent '90IWabtts(l'd..tdod
U"lll$w 'OChof-fD'ICU!TW4 as.secs
- n~ ICCOU'C; ~

CUIT8llt-
Flnancla1Uabiik$
291!1,437 =.TIJO 39,&lA 71,19S 116,640 121,231

AcolM'#l5 ~ylll* ltld 8CCtued

expenses 31.095.490 31.095,490 31,09$,490
.._. .... ebt·ne<(~
WITent miltu'ties
)
finance tease labR:les (indLd'lg
•~m n ..4l4,e2• 3,618,010 '"£11:t;MJ;ng~~a
ndpayat/lu
eunont-) 170.089,536 21:1.-= 24,889,002
c::iv.- noncU'T'ediC4:MeS
Cjndud'1g-- ..
conc.ession l;;t*y) 156.512 238.08& 8 ..COO

. 84.
38,.4~,920 t$.077,705 20,3CX>,189

2,_9e&,83S !4,101,330 80,109,768

81400 25,200 19$,086

. 84.
Credit Risk
Credit risk is the risk of financial loss to the Group when a customer or counterparty
to a financial instrument fails to meet its contractual obligations, and arises principally
from trade and other receivables. The Group manages its credit risk mainly through
the application of transaction limits and close risk monitoring. It is the Group's policy
to enter Into transactions with a wide diversity of creditworthy counterparties to
mitigate any significant concentration of credit risk.

The Group has regular internal control reviews to monitor the granting of credit and
management of credit exposures.

Trade and Other Receivables

The exposure to credit risk is influenced mainly by the individual characteristics of
each customer. However, management also considers the demographics or the
Group's customer base, including the default risk of the industry in which customers
operate, as these factors may have an Influence on the credit risk.

The Group has established a credit policy under which each new customer is
analyzed individually for creditworthinessbefore the standard payment and delivery
terms and conditions are offered. The Group ensures that sales on account are
made to customers with appropriate credit history. The Group has detailed credit
criteria and several layers of credit approval requirements before engaging a
particular customer or counterparty. The review includes external ratings, when
available, and in some cases bank references. Purchase limits are established for
each customer and are reviewed on a regular basis. Customersthat fail to meet the
benchmark creditworthiness may transact with the Group only on a prepayment
basis.

The Group establishes an allowance for impairment losses that represents its
estimate or incurred losses in respect of trade and other receivables. The main
components of this allowance include a specific loss component that relates to
individualfy significant exposures, and a collective loss component established for
groups of similar assets in respect of losses that have been incurred but not yet
identified. The collective loss allowance is determined based on historical data of
payment statistics for similar financial assets.

Financial information on the Group's maximum exposure to credit risk as of

December 31, without considering the effects of other risk mitigation techniques, is
presentedbelow.

2017 2016
Cash and cash equivalents
{excluding cash on hand) P28,653,631 P21,490,065
Trade and other receivables- net' 20,384,934 22,316,325
Derivativeasset {included under "Other
noncurrentassets - net" account) 61,903
Noncurrent receivables{included under "Other
noncurrentassets - net" account; including
current portion) 278,965 298,437
Restricted cash {included under "Other
noncurrentassets - net" account) 4,805,175
P54,184,608 P44,104,827
'ExcludiQg stalu!oty receivables

-85-
The credit risk for cash and cash equivalents and restricted cash is considered
negligible, since the counterparties are reputable entities with high quality external
credit ratings.

The Group has significant concentration of credit risk. Sale of power to Meralco
accounts for 52%, 51% and 53% of the Group's total revenues for the years ended
December 31, 2017, 2016 and 2015, respectively. The Group does not execute any
credit guarantee in favor of any counterparty.

Capital Management
The Group maintains a sound capital base to ensure its ability to continue as a going
concern, thereby continue to provide returns to stockholders and benefits to other
stakeholdersand to maintain an optimal capitalstructure to reduce cost of capital.

The Group manages its capital structure and makes adjustments In the light of
changes in economic conditions. To maintain or adjust the capital structure, the
Group may adjust the dividend payment to shareholders, distribution payment.
pay-off existing debts, return capital to shareholdersor issue new shares, subject to
compliance with certain covenants of its long-term debt and uses (Notes 19
and 22).

The Group defines capital as capital stock, additional paid-in capital, uses and
retained earnings, both appropriated and unappropriated. Other components of
equity such as equity reserves and equity reserve for retirement plan are excluded
from capital for purpose of capital management.

The Group monitors capital on the basis of debt-to-equityratio, which is calculated

as total debt divided by total equity. Total debt is defined as total current liabilities
and total noncurrent liabilities, while equity is total equity as shown in the
consolidated statementsof financial position.

The BOD has overall responsibilityfor monitoring capitalin proportion to risk. Profiles
for capital ratios are set in the light of changes in the external environment and the
risks underlyingthe Group's business, operationand industry.

There were no changes in the Group's approach to capital management during the
year.

-86-
31. Financial Assets and Financial Liabilities

The table below presents a comparison by category of the carrying amounts and fair
values of the Group's financial instruments as of Deoember 31:
2017 2016
Carrying CarT'(lng
Amount Fair Value Amount Fair Value
Fl nanclal Assets
Cash and cash equivalents P28,655,359 P28,655,359 P21,491,385 P21.491.385
Trade and other receivables -
net" 20,384,934 20,384,934 22,316,325 22,316,325
Derivative asset (included
under "Other noncurrent
assets - oer aa:ount) 61,903 61,903
Noncurrent receivables
(included under 'Other
noncurrent assets - ner
account; including current
portion) 278,965 278,965 298,437 298,437
Restricted cash (included
under 'Other noncurrent
assets - ner aa:ount) 4,805, 175 4,805,175
PS4,186,336 PS4, 186,336 P44,106,147 P44, 106, 147
Financial Liabilities
Loans Payable PS,930,000 PS,930,000 P- P-
Accounts payable and
accrued expenses 24,818,444 24,818,444 31,095,490 31,095,490
Long-term debt - net (including
current maturities) 90,728,701 96,948,336 66,323,726 66,611,049
Finance lease liabilities
(including current portion) 154,793,690 154,793,690 170,089,536 170,089,536
Other noncurrent liabiltties
(including current portlon of
concession Uabii!Xl 171,174 171,174 156,512 156,512
P276,442,009 P282,661,644 P267,665,264 P267 ,952,587
'EtcludinQstatutory receltmbles - peyal>lts

The following methods and assumptions are used to estimate the fair value of each
class of financial instruments:

Cash and Cash Equivalents and Trade and Other Receivables (excluding statutory
r&ceivables). The carrying amounts of cash and cash equivalents and trade and
other receivables approximate their fair values primarily due to the relatively short•
term maturities of these financial instruments.

Restricted Cash and Noncurrent Receivables. The carrying amounts of restricted

cash and noncurrent reoeivables approximate their fair values, since the effect of
discounting is not considered material.

Derivatives. The fair values of freestanding currency and commodity derivatives are
determined based on quoted prices obtained from their respective active markets.
The fair values of the derivatives have been categorized as Level 2 in the fair value
hierarchy.

- 87 -
Loans Payable and Accounts Payable and Accrued Expenses (excluding statutory
payables). The carrying amount of loans payable and accounts payable and accrued
expenses approximates fair value due to the relatively short-term maturities of these
financial instruments.

Long-term Debt, Finance Lease Liabilities and Other Noncurrent Liabilities. The fair
value or interest-bearing fixed-rate loans is based on the discounted value of
expected future cash nows using the applicable market rates for similar types or
instruments as of reporting date. Discount rates used for Philippine peso•
denominated loans range from 2.47% to 5.70% and 2.18% to 4.88% as of
December 31, 2017 and 2016, respectively. The carrying amounts of floating rate
loans with quarterly Interest rate repricing approximate their fair values.

The fair value of peso-denominated bonds has been categorized as Level 1 and
interest-bearing fixed-rate loans, finance lease liabilities and other noncurrent
liabilities have been categorized as Level 2 in the fair value hierarchy.

Derivative Financial Instruments

The Group's derivative financial instruments according to the type of financial risk
being managed and the details of freestanding derivative financial instruments are
discussed below.

The Group entered into currency and commodity derivative contracts to manage its
exposure on foreign currency and commodity price risk. The portfolio is a mixture of
instruments including forwards and swaps.

Derivative Instruments not Designated as Hedges

The Group enters into certain derivatives as economic hedges of certain underlying
exposures. These include freestanding derivatives which are not designated as
accounting hedges. Changes in fair value of these instruments are accounted for
directly in the consolidated statements of income. Details are as follows:

Freestanding Derivatives
Freestanding derivatives consist of currency and commodity derivatives entered into
by the Group.

Currency Forwards
As of December 31, 2017, the Group has no outstanding currency forwards.

Commodity Swap
The Group has an outstanding fixed swap agreement covering Its purchase of coal
for calendar year 2019. Under the agreement, payment ls made either by the Group
or its counterparty for the difference between the hedged fixed price and the relevant
monthly average index price. The outstanding equivalent notional quantity covered
by the commodity swap Is 60.000 metric tons as of December 31, 2017. The positive
fair value of this swap amounted to P61,903 as of December 31, 2017 .

• 88.
32. Supplemental Cash Flows lnfonnation

Changes in liabilities arising from financing activities:

Flnance Least
LAN.na P•Y•ble LffS•l«m O.bt Laabllklff rotol
Ba&ant• aa ol Jamq.ry 1, 2017 p . PH,lZl,721 P170,0at,531
Chang.. fromnnandng caah now.
P-• from bo<1...t)Sp 113,419.200 11.000,000 180,418,200
P1)'1!*D of bo<1owlngs (107,782,255) (~.11MH) (180,892.723)
P•)'!!!-oflnance-- !2•,SH,89'1} !2•,874,09'1}
total chino• fromftn1nclngcuh ftowt 5,131,.. 5 23.,88Sl,U2 4,651,AS.t
Enect of "'°"Ullinb.;gn e>et>ango,.... 293,055 440,184 497.704 1,230,923
Other changes 75.279 0.081.443 9,158,722
8411nc1 ••of December 31, 2617 PS.930,000 P90,728,701 P154,7tJ,690 P251,45Z,391

33. Other Matters

a. EPIRA
The EPIRA sets forth the following: (i) Section 49 created PSALM to take
ownership and manage the orderly sale, disposition and privatization of all
existing NPC generation assets, liabilities, IPP contracts, real estate and all other
disposable assets; (ii) Section 31(c) requires the transfer of the management and
control of at least 70% of the total energy output of power plants under contract
with NPC to the IPP Administrators as one of the conditions for retail competition
and open access; and (iii) Pursuant to Section 51 (c), PSALM has the power to
take title to and possession of the IPP contracts and to appoint, after a
competitive, transparent and public bidding, qualified independent entities who
shall act as the IPP Administrators in accordance with the EPIRA. In accordance
with the bidding procedures and supplemented bid bulletins thereto to appoint an
IPP Administrator relative to the capacity of the IPP contracts, PSALM has
conducted a competitive, transparent and open public bidding process following
which the Group was selected winning bidder of the IPPA Agreements (Note 6). .

The EPIRA requires generation and DU companies to undergo public offering

within 5 years from the effective date, and provides cross ownership restrictions
between transmission and generation companies. If the holding company of
generation and DU companies is already listed with the PSE, the generation
company or the DU need not comply with the requirement since such listing of
the holding company is deemed already as compliance with the EPIRA.

A DU is allowed to source from an associated company engaged In generation

up to 50% of its demand except for contracts entered into prior to the effective
date of the EPIRA. Generation companies are restricted from owning more than
30% of the installed generating capacity of a grid and/or 25% of the national
installed generating capacity. The Group is in compliance with the restrictions as
of December 31, 2017 and 2016.

-89-
b. Contingencies
The Group is a party to certain cases or claims which are either pending decision
by the court/regulators or are subject to settlement agreements. The outcome of
these cases or claims cannot be presenUy determined (Note 4).

i. Generation Payments to PSALM

SPPC and PSALM are parties to the llijan IPPA Agreement covering the
appointment of SPPC as the IPP Administrator of the llljan Power Plant.

SPPC and PSALM have an ongoing dispute arising from differing

interpretations of certain provisions related to generation payments under the
llijan IPPA Agreement. As a result of such dispute, the parties have arrived at
different computations regarding the subject payments. In a letter dated
August 6, 2015, PSALM has demanded payment of the difference between
the generation payments calculated based on its interpretation and the
amount which has already been paid by SPPC, plus interest, covering the
period December 26, 2012 to April 25, 2015.

On August 12, 2015, SPPC initiated a dispute resolution process with

PSALM as provided under the terms of the llijan IPPA Agreement, while
continuing to maintain that it has fully paid all of its obligations to PSALM.
Notwithstanding the bona fide dispute, PSALM issued a notice terminating
the llijan IPPA Agreement on September 4, 2015. On the same day, PSALM
also called on the Performance Bond posted by SPPC pursuant the llijan
IPPA Agreement.

On September 8, 2015, SPPC filed a Complaint with the RTC of

Mandaluyong City. In its Complaint, SPPC requested the RTC that its
interpretation of the relevant provisions of the llijan IPPA Agreement be
upheld. The Complaint also asked that a 72-hour Temporary Restraining
Order (TRO) be issued against PSALM for Illegally terminating the llijan IPPA
Agreement and drawing on the Performance Bond. On even date, the RTC
issued a 72-hour TRO which prohibited PSALM from treating SPPC as being
in Administrator Default and from performing other acts that would change
the status quo ante between the parties before PSALM issued the
termination notice and drew on the Performance Bond. The TRO was
extended for until September 28, 2015.

On September 28, 2015, the RTC issued an Order granting a Preliminary

Injunction enjoining PSALM from proceeding with the termination of the llljan
IPPA Agreement while the main case Is pending.

On October 22, 2015, the RTC also issued an Order granting the Motion for
Intervention and Motion to Admit Complaint-in-Intervention by Meralco.

-90-
 In an Order dated June 27, 2016, the RTC denied PSALM's: (1) Motion for
Reconsideration of the Order dated September 28, 2015, which issued a writ
of preliminary injunction enjoining PSALM from further proceedings with the
termination of the IPPA Agreement while the case is pending; (2) Motion for
Reconsideration of the Order, which allowed Meralco to Intervene In the
case; and (3) Motion to Dismiss. In response to this Order. PSALM filed a
petition for certiorari with the Court of Appeals (CA) seeking to annul the
RTC's Orders granting the writ of preliminary Injunction, allowing Meralco's
intervention, and the Orders denying PSALM's motions for reconsideration of
said Injunction and intervention orders. PSALM also prayed for the issuance
of a TRO and/or writ of preliminary injunction "against public respondent RTC
and its assailed Orders." The CA, however, denied the petition filed by
PSALM in its Decision dated December 19, 2017.

The preliminary conference on the RTC case was suspended to pave way for
mediation between the parties. During the last mediation conference on
January 6, 2017, mediation between the parties was terminated. Thereafter,
the case was referred to judicial dispute resolution. During the dispute
conference between the parties on September 28, 2017, the judicial dispute
process was terminated. The parties were required to submit their respective
position papers on whether or not the case should be re-raffled. In
compliance with the Order of the RTC dated October 24, 2017, on December
8, 2017 SPPC filed its Comment and Opposition to the Motion for Inhibition
filed by PSALM. On December 18, 2017, the presiding judge of the RTC who
conducted the judicial dispute resolution issued an Order inhibiting himself in
the instant case. The case was then re-raffled to another RTC judge in
Mandaluyong City which scheduled the Pre-Trial Conference on May 11,
2018. SPPC filed a Request for Motion for Production of Documents on
February 28, 2018, while PSALM filed its Manifestation With Motion to Hear
Affirmative Defenses and Objections Ad Cautelam. Both motions are still
pending with the court as of March 9, 2018.

Meanwhile, there are no restrictions or limitations on the ability of SPPC to

supply power from the llijan Power Plant to Meralco under its PSA with the
latter.

By virtue of the Preliminary Injunction issued by the RTC, SPPC continues to

be the IPP Administrator for the llijan Power Plant.

ii. Criminal Cases

SPPC
On September 29, 2015, SPPC filed a criminal complaint for estafa and for
violation of Section 3(e) of RA No. 3019, otherwise known as the Anti-Graft
and Corrupt Practices Act, before the Department of Justice (DOJ), against
certain officers of PSALM, in connection with the termination of SPPC's IPPA
Agreement, which was made by PSALM with manifest partiality and evident
bad faith. Further, it was alleged that PSALM fraudulently misrepresented its
entitlement to draw on the Performance Bond posted by SPPC, resulting in
actual injury to SPPC in the amount of US$60,000. The case is still pending
with the DOJ as of December 31, 2017.

-91-
SMEC
On October 21, 2015, SMEC filed a criminal complaint for Plunder and
violation of Section 3(e) and 3(1) of RA 3019, before the DOJ against a
certain officer of PSALM. and certain officers of Team Philippines Energy
Corp. (TPEC) and TSC, relating to the illegal grant of the so-called "excess
capacity" of the Sual Power Plant in favor of TPEC which enabled it to
receive a certain amount at the expense of the Government and SMEC.

In a Resolution dated July 29, 2016, the DOJ found probable cause to file
lnfonnation against the respondents for (a) Plunder; (b) Violation of Sec. 3(e)
of the Anti-Graft and Corrupt Practices Act; and (c) Violation of Sec. 3(1) of
the Anti-Graft and Corrupt Practices Act. The DOJ further resolved to
forward the entire records of the case to the Office of the Ombudsman for
their proper action. Respondents have respectively appealed said DOJ's
Resolution of July 29, 2016 with the Secretary of Justice. On
October 25, 2017. the OOJ issued a Resolution partially granting the Petition
for Review by reversing the July 29, 2016 DOJ Resolution insofar as the
conduct of the preliminary investigation. On November 17, 2017, SMEC filed
a motion for partial reconsideration of said October 25, 2017 DOJ Resolution.

On June 17, 2016, SMEC filed with the RTC Pasig a civil complaint for
consignation a.gains! PSALM arising from PSALM's refusal to accept SMEC's
remittances corresponding to the proceeds of the sale on the WESM of
electricity generated from capacity in excess of the 1000 MW of the Sual
Power Plant ("Sale of the Excess Capacity"). With the filing of the complaint,
SMEC also consigned with the RTC Pasig, the amount corresponding to the
proceeds of the Sale of the Excess Capacity for the billing periods
December 26, 2015 to April 25, 2016.

On October 3, 2016, SMEC filed an Omnibus Motion (fo Admit

Supplemental Complaint and To Allow Future Consignation without Tender).
Together with this Omnibus Motion, SMEC consigned with the RTC Pasig an
additional amount corresponding to the proceeds of the Sale of the Excess
Capacity for the billing periods from April 26, 2016 to July 25, 2016.

Pending for resolution are (a) PSALM's Motion for Preliminary Hearing and
Special and Affinnative Defenses and (b) SMEC's Omnibus Motion (to Admit
Supplemental Complaint and to Allow Future Consignations without Tender).

On December 1, 2016, SMEC received a copy of a Complaint filed by TPEC

and TSC with the ERC against SMEC and PSALM In relation to the Excess
Capacity issues, which issues have already been raised in the
abovementioned cases. SMEC filed a Motion to Dismiss and Motion to
Suspend Proceeding of the instant case.

On July 5, 2017, SMEC consigned with the RTC Pasig the amount
representing additional proceeds of Sale of the Excess Capacity for the
billing period July 26, 2016 to August 25, 2016. SMEC also filed a Motion to
Admit Second Supplemental Complaint in relation to said consignation. With
the submission of manifestation from PSALM, the Motion to Admit Second
Supplemental Complaint is submitted for resolution.

-92-
 As of December 31, 2017 and 2016, the total amount consigned with the
RTC Pasig is P491,242 and P475,057, respectively, included under "Other
noncurrent assets", particularly "Restricted cash" account, in the consolidated
statements of financial position.

iii. TRO Issued to Mera/co

On December 23, 2013, the Supreme Court (SC) issued a TRO, effective
immediately, preventing Meralco from collecting from its customers the
power rate increase pertaining to November 2013 billing. As a result, Meralco
was constrained to fix its generation rate to Its October 2013 level of
P5.67 /kWh. Claiming that since the power supplied by generators, including
SMEC and SPPC is billed to Meralco's customers on a pass-through basis,
Meralco deferred a portion of its payment on the ground that it was not able
to collect the full amount of its generation cost. Further, on December 27,
2013, the DOE, the ERC and PEMC, acting as a tripartite committee, issued
a joint resolution setting a reduced price cap on the WESM of P32/kWh. The
price will be effective for 90 days until a new cap is decided upon.

On January 16, 2014, the SC granted Meralco's plea to include other power
supplier and generation companies, including SMEC and SPPC, as
respondents to an inquiry. On February 18, 2014, the SC extended the
period of the TRO until April 22, 2014 and enjoined the respondents (PEMC
and the generators) from demanding and collecting the deferred amounts.

On March 3, 2014, the ERC issued an order declaring the November and
December 2013 Luzon WESM prices void and imposed the application of
regulated prices. Accordingly, SMEC, SPPC and SPDC recognized a
reduction in the sale of power while SMELC recognized a reduction in its
power purchases. Consequently, a payable and receivable were also
recognized for the portion of over-couecnon or over-payment, the settlement
of which have been covered by a 24-month Special Payment Arrangement
with PEMC which was already completed on May 25, 2016. On
June 26, 2014, SMEC, SPPC, SPDC and SPI filed with the CA a Petition for
Review of these orders.

In a Decision dated November 7, 2017 ("Decision'), the CA granted the

Petition for Review filed by SMEC, SPPC, SPDC and SPI, declaring the
aforesaid ERC Order null and void and set aside the Orders of the ERC
dated March 3, 2014, March 27, 2014, May 9, 2014 and October 15, 2014
and accordingly reinstated and declared as valid the WESM prices for Luzon
for the supply of months of November to December 2013.

Upon finality of the Decision, a claim for refund may be made by the relevant
subsidiaries with PEMC for an amount up to P2,625,585, plus interest.

c. Commitments

The outstanding purchase commitments of the Group amounted to P1 ,996,473

and P1,588,516 as of December 31, 2017 and 2016, respectively.

Amount authorized but not yet disbursed for capital projects as of December 31,
2017 and 2016 is approximately P12,861,746 and P23,038,949, respectively .

• 93.
34. Events After the Reporting Date

Acguisition of Subsidiaries

On December 17, 2017, the Parent Company executed a Share Purchase

Agreement with AES Phil Investment Pte. Ltd. {AES Phil) and Gen Plus B. V. {Gen
Plus) for the purchase by the Parent Company of (a) 51% and 49% equity interests
of AES Phil and Gen Plus, respectively, in Masin-AES Pte. Ltd. {the "Target
Company'); {b) 100% equity interest of The AES Corporation in AES Transpower
Private Ltd. (ATPL); and {c) 100% equity interest of AES Phil in AES Philippines Inc.
{API), {collectively, the "Transaction').

The Target Company, through its subsidiaries ~ncluding Masinloc Power Partners
Co. Ltd. (MPPCL)], owns and/or operates (i) the 2 x 315 MW coal-fired power plant;
(ii) the under construction project expansion of the 335 MW unit known as Unit 3;
(iii) the 10 MW battery energy storage project, all located in the Province of
Zambales, Philippines; and (iv} the 2 x 20 MW battery energy storage facility in
Kabankalan, Negros Occidental, which is still at the pre-development stage. ATPL
has a Philippine Regional Office and Headquarters which provides the corporate
support services to MPPCL, while API provides energy marketing services to
MPPCL.

With the acquisition by the Parent Company of the Target Company, ATPL and API,
the Group aims to improve its existing baseload capacity to further ensure its ability
to provide affordable and reliable supply of power to its customers. The additional
power assets provide an opportunity for the Group to increase its footprint in clean
coal technology that provides reliable and affordable power, particularly In Luzon.
The Transaction will result In the production of electricity in an environmentally
responsibleway.

The total consideration for the Transaction is US$1,900,000, subject to a

post-closing purchase price adjustment. The total consideration will be paid in cash
by the Parent Company to be funded through a combination of its {a) availment of
US dollar-denominated long-term borrowings from various financial institutions
totaling to US$1,200,000 and (b} issuing Redeemable Perpetual Securities to, and
obtaining advances from, SMC amounting to US$650,000 and US$150,000,
respectively.

On February 23, 2018, the Philippine Competition Commission {"PCC") issued Its
decision which states that the Transaction does not result In a substantial lessening
of competitionin the relevant markets, and as such, the PCC resolved that It will take
no furtheraction with respectto the Transaction {the "PCC Decision').

Other than the issuance of the PCC Decision, there are other conditions precedent
that are requiredfor the closing and completion of the Transaction.

As of March 9, 2018, all parties to the Transaction have yet to complete the
conditions precedent for the closing and completion of the Transaction.

-94-
The following summarizes the initial financial information as of December 31, 2017 of
assets to be acquired and liabilities to be assumed:
Provlslonary
Amounts
Assets
Cash and cash equivalents P2,152,225
Trade and other receivables - net 2,609,037
Inventories 1,616,060
Prepaid expenses and other current assets 1,515,826
Property, plant and equipment - net 56,693,900
Other noncurrent assets 1,727,896
Liabilities
Loans payable (2,243,250)
Accounts payable and accrued expenses (9,473,903)
Finance lease liabilities - net (including current portion) (41,709)
Long-term debt - net (including current maturities) (28,080,053)
Other noncurrent liabilities (285,053)
Total identifiable net assets P26, 190,976

Based on the foregoing initial amounts of net assets to be acquired, the goodwill is
estimated to be as follows:
Provisionary
Amounts
Consideration transferred Pg4,867,000
Non-controlling interest measured at proportionate interest in
identifiable net assets 87,639
Total identifiable net assets (26,190,976)
Goodwill P68,763,663

The estimates above will be updated to their fair values as at the date of acquisition
when the Transaction is closed for purposes of recognizing the business combination
and will involve identification and recognition of identifiable assets or intangible
assets and will likely reduce the amount of initial goodwill above.

Acquisition-related Costs
As of December 31, 2017. the Parent Company incurred acquisition-related costs of
P194,688 which have been included in the 'Selling and administrative expenses"
account in the consolidated statements of income.

Goodwill expected to arise from the Trans action is attributable to the benefit of
expected synergies. revenue growth, future development and the assembled
workforce. These benefits are not recognized separately from goodwill because they
do not meet the recognition criteria for identifiable intangible assets.

-95-
 ANNEX "C"

R.G. Manabat & Co.

The KPMG Center, 9/F
6787 Ayala Avenue, Makati City
Philippines 12.26
Telephone •63 (2) 885 7000
Fax +63 (2) 894 1985
Internet www.kpmg.com.ph
Email ph-inquiry@kpmg.com.ph

REPORT OF INDEPENDENT AUDITORS

ON SUPPLEMENTARY INFORMATION

The Board of Directors and Stockholders

SMC Global Power Holdings Corp.
155 EDSA, Brgy. Wack -Wack
Mandaluyoog City, Metro Manila

We have audited, in accordance with Philippine Standards on Auditing, the consolidated financial
statements of SMC Global Power Holdings Corp. (the ·compan() and Subsidiaries as at
December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017,
included in this Form 17-A, and have issued our report thereon dated March 9, 2018.

Our audits were made for the purpose of forming an opinion on the consolidated financial statements
taken as a whole. The supplementary information included in the following accompanying additional
components Is the responsibility of the Company's management.

• Map of the Conglomerate

• Schedule of Philippine Financial Reporting Standards and Interpretations
• Supplementary Schedules of Annex 68-E

This supplementary information is presented for purposes of complying with the Securities Regulation
Code Rule 68, As Amended, and Is not a required part of the consolidated financial statements. Such
information has been subjected to the audtting procedures applied In the audits of the consolidated
financial statements and, In our opinion, Is fair1y stated, in all material respects, In relation to the
consolidated financial statements taken es e whole.

R.G. MANABAT & CO.

~O!EL
Partner
CPA License No. 0094495
SEC Accreditation No. 1386-AR. Group A. valid until June 14, 2020
Tax Identification No. 912-53~
BIR Accreditation No. 08-001987-31-2016
Issued October 18, 2016; valid until October 17, 2019
PTR No. 6615157MD
Issued January 3, 2018 at Makati City

March 9, 2018
Makati City, Metro Manila
SMC GLOBAL POWER HOLDINGS CORP. AND SUBSIDIARIES
GROUP STRUCTURE •
As of December 31, 2017
ANNEX "C~1"
I TOP FRONTIER INVESTMENT HOLDINGS, INC.
I
66.03"

I SAN MIGUEL CORPORATION

IOO!I
SMC GLOBAL POWER Sl.15''

HOLDINGS CORP. I ~"Mic'* t.rwwety Irie. •Mt 1ub1ldllrlu Cl'> I

100!< San Miguel Energy Corporation f------1 Glnebq J•" Mlp.._ Int. end wbskfierltsftl
I
l....llll!!l ...............
~ 0,..........................
_ ......
I H Sin Mrpel PUte foods Company Inc. •nd
wbsldNlria "'
I
I
""'j lu11>n ..,....,, .... c..,..,.
I ~ S.n fAC:uel Hofdinas Corp. et'lld sub!ddl•rils (1011
~ Goidefl QuHt £,quity ~inc. CU
I
100!< South Premiere Power Corp. L.._J fudando•CUI
I
_!Q!!l! Strategic Power Devt. Corp.
L---1 ......,,-c.,. I
~ PowerOne Ventures Energy Inc.

t:) . . . ""'-"""""'""'"'
~ KWPP Hokfincs Corpor'ation"f
I
I
L J Odlet ~ttts and lnv.i:stmenu IUJ
I

P-J SMC PowerGen Inc.

~ Um.ar~GMendontixpotatloftN
I
j..1Rll!lj San Miguel Consolidated Power Corporation121

'"""I SMC Consolidated Power CorporalionlJI

I
~ Umay Premiere Power Corp.111

~ San Miguel Electric Corp.

'"""
O-•--c-.. . . .
I '"""I SMC Power Generation Corp.
l!!?..f
Albay Power and Energy Corp.
I

,_
100!! Mantech Power Dynamics Services Inc. I•>

Safetecn Power Servic"s Corp. Ul

lOOll Central Luz.on Premiere Power Corp. (JJ

>---
.,,. Mariveles Power Generation Corporation 1•1

""" Grand Planters International, Inc. I•>

1--l.Q!ll Ondarre Holding Corporation l5l

--12!ll Oceantech Power Generation Corporation !<I

~ Prime Electric Generation Corporation ffl

(1) NQI. )'ll &tarted commerQlll opet.1tion5.
(2) St.11od ilS - - .. 2011
(3) Started i1s oommen:ial Ol>Of>llOns In '1018
(•) Acqu;rod In 2015.
(5) Acquood ;n 2015 and hos not yot- QOlrwr•dll-
(8) l~lod In 2017 and has nolyf:t - QOllOh"""'----
(7) SM Miguol ll<ewety lnC. - - San M9* &twfog -Ilid Ind 1ub1lct;arie1,Iconic 81,,.llgH, Inc.
and Brewery "'-·Inc. - IWlldilrr

In-I. Lid, (lSM --

(9) Son M;guo1 P~ F-
sul>Udllnt1, The
San Miguel Pure F-
Pu--
(8) Glnebro S.n Migull lnC. -

.._,..
-
~s
Compony Inc. ..-
~Sago.
l.Mlod, -

Ccmt>any, Inc.. ~
Inc., Ew P1dtlc Stat -

on! San Miguel Pure Focdl -...

lnves11Mn1(8V1) Umitod and ..-Y. San Mlguot Pure F-
(10) San Miguel Holdll'\QICorp and " bs.!1'1 iM h:tude Ve:ntx T..,.,
DeYelopmen1Hoking• Corp , Rljlid ~
11
Inc. 11\d _.,..._
Ph<• Inc., G.n11>11 Son Miguel
8ewfogo Holcl"OS Llmllod 11'<1 Slom Hddlngs l,...led,
Include San MigtJol Focdl, Inc Md 1<1btlcllary, S*l Miguel Miiii, Inc. and
San Miguel Super Cotteomlx ce.,
(VN) Co, lid , lormotfy Son Miguel Homwtl (VN) Co., Lid.
Inc., PT
...... Llm~od 111<1 subSl...,ry, San Miguel Puro FOO<!$

()eve_ Inc:.• Manila North Hatbour Pon, Inc., TraM Aire

Inc., Privale lnl!a Dov Corpo(aoon, Unlvet10I lRT Corporation (BV1)
Limiled. Sleep lntemation.-1 ~ Coopera:iiel.~ lrwe$b'nent Holidinos. Irle., Cypress Tree C.pl1ar Investments,,
Inc:. end substdlari6. Qs)tirna1 lnhsruaure De11tip1eit. ~. UlC()M Company Inc.. Terramlno Hold!ngs,, Inc. and
SUbsidlazy, Alt:fv Mria TClll ~ "-.SMC Mas.s Rall TAllNi\ 7 Inc:. and Luzon Clean Water Development
Corporatiot\. AU"'1lc Aun.m ~ B.V. and~ lncllde Adatidc Aunan lrMSJVnenis Ptli!ipplnes Corpor"tion and
s<lboidlarles including S1age 3 C-T- t-.o COrporalicn and suboldlary, Cl•• Cenlr.lj ExpreuW11yCorp. and
Citra Metro Manfta Tollways Corporation Md llA>liciaty, Slyway 0&M Cotp., MID Manil41 Expte$$W3.ys Inc.. and aubSfdl&rles-,
Alloy Manila Toll"- lnC.. Mania Toi exiw.......,.. ~ 1nC. and Soulll luzcn TollW3y Corporotlon.
(11) Fuel and Oi business includes s.a Refinery Cofpor8'on. Peron Corporation atKI subsidNtrles inducing Petron Mark61ing
Corporatfon, Petron Freepon Corporab\ Petrogen tnsurance COfJ)C)(atlOtl and subsidi~ Overseas Venlure5 ltt$Ura.nci&

P1e. lid , Potton Global Limi'.ed, Petton Oi & Gas

Coq>oration Ltd .. t.imay ~
Hema- Bh!. and subold!ariesIncluding Pelton Fuel lntemallonal
Corporaioo, New Ventt.ite:s Reafty ~tfonand Subsidiaries. Petron Singapore Trading
Sein.
Sdn Bhd. Petron Oil IM) Sdn Bh!. and Peron Malaysia Re&l'1g & Marlceong Berhad (collec<lvolyPeOon Malaysia). Pe!Ton
Finance (Labuan) linil<d and Peo0d1E111ica1Asia(!!IQUmiledand01Jb~
(12) Pac!<aging business - san Miguel Yamanua Pacbgir.gC<l<po<;i00t1 and subsidiaries, San Miguel Yamamura
Pad:aging t'itemationat United and subskf>4tlie$. San MigJel Yamamura A$la Cotporation, Mind"~ Carrugated Fibreboard,
Inc. and Northern Cement COipoo- .....
{13i Other Assets and I~ n:::LIOeSan Miguel Pn:rpeths.. Inc.. Bank of Commetc:e •Sl, SMC Shipping and Ugnterage
Corpc)(ation and $Ubsidiarie5. Sin Mguet E~ ~ b;.. and subSidiaries, San Miguel NortMrn C«lment, anc., ~nd
SMC As:is cer Oistrbnors Corp .• SMC Stock: Tianster 8emce Corporotion,AtctiEn T&chnologies Inc., SMfTS. me. and
subsidiaries, Anchor lns.qnce Brol<erage COrpo<olion and Davana He;glrts Oeveicpmen!Co<potation.
•The group structure indudes Ula~ patent c:cmpany, Top ftonr.w mestmeni Holdings. Inc., !tie intermediate parent
company, San Miguel CofJ>oralion and b
Corp. and subs,lcltl1e$
map•- - *"'
pnl ""'1tures, and SMC GIObal Powe< Holding•
Note: CAI Joint Venu-1
•1 Assooate
 ANNEX "C-2"
SMC GLOBAL POWER HOLDINGS CORP. AND SUBSIDIARIES
(A Wholly-owned Subsidiary of San Miguel Corporation)
155 EDSA, Brgy. Wack-Wack, Mandaluyong City, Metro Manila
SCHEDULE OF PHILIPPINE FINANCIAL REPORTING STANDARDS
AND INTERPRETATIONS
PHILIPPINE FINANCIAL REPORTING STANDARDS ANO
INTERPRETATIONS Adopted Not Not
Effective as of December 31, 2017 Adopted Applicable

Framework for the Preparation and PresentaUon of Financial ,/

Statements
Conceptual Freml!WOl1< Phase A· Objectives and qualitative
charecieristlcs
PFRSs Practice Statement Management Commentary ,/
PhHlpplne Financial Reporting Standards
PFRS 1 First-time Adoption of Phiappine Financial Repolting ,/
(Revised) standards
Amendments to PFRS 1 and PAS 27: Cost of an J
Investment in a Subsidiary, Joinlly Controlled Entity 0<
Associate
Amendments to PFRS !:Additional Exemptions for First· J
time Adopters
Amendment to PFRS 1: Llm~ed Exemption from ,/
Comparative PFRS 7 Disclosures for First-time Adopters
AmendmenlS to PFRS 1: Severe Hypelinflation and J
Removal of Fixed Date lo< Fwsl-llme Adopters
Amendments to PFRS 1: Govemmenl Loans J
Annual lmp<OYements to PFRSs 2009 - 2011 Cycle: First- J
time Adoption of Phiippine Fonandal Reporting standards -
Repealed Application of PFRS 1
Annual lmpnwements to PFRSs 2009. 2011 Cycle: ,/
Borrowing Cost Exemption
Annual lmpnwernents to PFRSs 2011 - 2013 Cycle· J
PFRS veralon that a first-lime adopter can apply
Annual Improvements to PFRSs 2014 • 2016 Cycle:
Deletion of short-term exemptions for first-time adopters'
PFRS 2 Share-based Payment J
Amendments to PFRS 2: Vesting Condi~ons and J
Canoelalions
Amendments to PFRS 2: Group Casll-setUed Share- ,/
based Payment Transactions
Annual Improvements to PFRSs 2010- 2012 Cyde: J
Meaning of 'llesting condition'
Amendments to PFRS 2: Classification and Measurement
ol Share-based Paymen1 Transactions'
PFRS 3 Business Combinations ,/
(Revised)
Annual Improvements to PFRSs 2010 - 2012 Cycle: ,/
Classification and measurement of contingent
consideration
Annual Improvements to PFRSs 2011 - 2013 Cycle: ,/
Scope exclusion 10< the f0<malion of joint arrangements
PHILIPPINE FINANCIAL REPORTING STANDARDS ANO
INTERPRETATIONS Adopted Nol Not
Effective as or December 31, 2017 Adopted Appllc.able
PFRS4 Insurance Contracts ./
Amendments to PAS 39 and PFRS 4: F°1"ancial ./
Guarantee Contracts
Amendments to PFRS 4: Applying PFRS 9, Financial
Instruments with PFRS 4, Insurance Conlraets"
PFRS 5 Non-current Assets Held for Sale and Doscon~nued ./
Operabona
Annual Improvements to PFRSs 2012. 2014 Cycle: ./
Changes in method for disposal
PFRS 6 E)q)loration for and Evalu®on of Mineral Resources ./
PFRS 7 Finanoal Instruments: Disclosures ./
Amendments to PFRS 7' Transition ./
Amendments to PAS 39 and PFRS 7: Reciassificanon of ./
Financial Assets
Amendments to PAS 39 and PFRS 7: Reciassificabon of ./
Financial Assets - Effective Oate and Transttion
Amendments to PFRS 7: Improving Disdosures about ./
Financial Instruments
Amendments to PFRS 7: lli$cio$ures - Transfers of ./
Financial Assets
Amendments to PFRS 7: Disclosures· Offsetting ./
Financial Assets and F111ancial Liabilities
Amendments to PFRS 7: Mandatory Effective Date of ./
PFRS 9 and TraJ>Sition Disclosures
Annual Improvements lo PFRSs 2012 - 2014 Cycle: ./
'Continuing involvemenf for servicing contrads
Annual Improvements to PFRSs 2012 - 20t4 Cycle: ./
Offsetting disdosures in condensed interim financial
statements
PFRS 8 Operating Segments ./
Annual Improvements to PFRSs 2010 • 2012 Cycle: ./
Dia®'ures on the 999regation of operating segments
PFRS 9 Financial Instruments (2014)"
Amendments 10 PFRS 9: Prepayment Features with
Negative ~nsation•
PFRS 10 Consolidated Finanoal Statements ./
Amendments 10 PFRS 10, PFRS 11, and PFRS 12: ./
Consolidated Financial Statements, Joint Arrangements
and Disclosure of Interests in Other Entities: Transition
Guidance
Amendments to PFRS 10, PFRS 12, and PAS 27 (2011): ./
Investment Enti!Jes
Amendments to PFRS 10 and PAS 28· Sale or
Contribution of Assets between an Investor and its
Associate or Joint Venl!Jre'
Amendments to PFRS 10, PFRS 12 and PAS 28: ./
Investment Entities: Applying the Consolidation Exception

2
PHILIPPINE FINANCIAL REPORTING STANOAROS ANO
INTERPRETATIONS Not Not
Adopted
Effective as of December 31, 2017 Adopted Applicable

PFRS 11 Joinl Amlngements ./

Amendments lo PFRS 10, PFRS 11, end PFRS 12: ./
CoM<>ildaled Finanaal Slatemenls, Join! Arrangements
and Disclosure or Interests 1t1 Other Enttties: Transition
Guidance
Amendments 10 PFRS 11 '. Accounting for Acqutsllions of ./
Interests in Joint Operations
PFRS 12 Oisdosure of lnleresls in Other Enttties ./
Amendments to PFRS 10, PFRS 11, and PFRS 12: ./
Consolidated Financial Statements, Joint Arrangements
and Disclosure of Interests in Other Entities: Transition
Guidance
Amendments to PFRS 10, PFRS 12, and PAS 27 (2011)• ./
Investment Entities
Amendments to PFRS 10, PFRS 12 and PAS 28: ./
Investment Entities: Applying the Consolidation Exception
Annual tmprovemenls to PFRSs 2014 - 2016 Cyde: ./
Clarification of the scope of the standard
PFRS 13 Fair Value Measurement ./
Annual Improvements to PFRSs 2010- 2012 Cyde: ./
Measurement of short-term receivables and payables
Annual lmprovemenls to PFRSs 2011 - 2013 Cyde: ./
Scope of portfolio exception
PFRS 14 Regulatory Deferral Accounts ./
PFRS 15 Revenue from Contracts ,,;th Customers•
PFRS 16 Leases"
Philippine Accounting Standards
PAS 1 PresentaliOn of Financial Statements ./
(Rovlsod)
Amendment 10 PAS 1. Capital Olsdosures ./
Amendments to PAS 32 and PAS 1: Puttable Financial ./
Instruments and Obligations An$ing on Liquidation
Amendments lo PAS 1: PreHntallon of llems ol Other ./
Comprehensive Income
Annual Improvements 10 PFRSs 2009 - 2011 Cycle' ./
Presentationof Financial Statements - Comparative
lnformatton beyond Min.mum Requirements
Annual Improvements to PFRSs 2009 • 2011 Cycle: ./
Presertation of the Opening Statemen1 of Financial
Position and Related Noles
Amen<*nenls to PAS 1: O!sdosure tnttiabYe ./
PAS2 Inventories ./
PAS7 Statement of Cash Flows ./
Amendmenls to PAS 7: O!sdosure lnttiative ./
PASS Accounting Policies, Changes in Accounting Estimales ./
and Errors
PAS10 Events after the Repo<ling Period ./

3
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS Not Not
Adopted
Effective as of DeeemlMr 31, 2017 Adopted Applicable

PAS11 Construction Contracts ./

PAS 12 Income Taxes ./
Amendment to PAS 12: Deferred Tax: Recovety or ./
Undertylng Assets

Amendments to PAS 12: Recognitlon or Deferred Tax ./

Assets for Unreafited Losses
PAS 16 Property, Plant and Eqlilpmenl ./
Annual Improvements to PFRSs 2009 - 2011 Cycle: ./
Property, Plant and Equipment - Classification of
Servicing Equipment
Annual Improvements to PFRSs 2010 - 2012 Cycle: ./
Reslatement of accunulated depreciallOn (amortization)
on revaluation (Amendments to PAS 16 and PAS 38)
Amendments to PAS 16 and PAS 38: Clarification of ./
Acceplable Methods of Depreciation and Amortization
Amendments to PAS 16 and PAS 41: Agricutture( Bearer ./
Plants
PASH Leases ./
PAS18 Revenue ./
PAS 19 Employee Benefits ./
(Amended)
Amendments to PAS 19: Defined Benefit Plans: ./
Employee Contributions
Annual Improvements to PFRSs 2012 - 2014 Cycle: ./
Discount rate in a regional matket shaMg the same
currency· e.g. the Eurotone
PAS 20 Accounting for Govenvnent Grants and Disclosure of ./
Government Assistance
PAS 21 The Effects of Changes in Foreign Exc:llange Rates ./
Amendment Net Investment 1n a Foreign Operation ./
PAS 23 Bonowing Costs ./
(Revised)
PAS24 Relared Party Disdoaures ./
(Revised)
Annual lmprovemenia to PFRSs 2010 • 2012 Cycle: ./
Defil'lltlon of 'related party'
PAS26 Accounting and Reporting by Retiremenl Benefit Plans ./
PAS27 Separate Financial Slatements ./
(Amended)
Amendmenls to PFRS 10, PFRS 12, and PAS 27 (2011): ./
Investment Entities
Amendments to PAS 27: Equily Method in Separate ./
Financial Statements

4
PHILIPPINE F1NANCIAL REPORTING STANDARDS ANO
INTERPRETATIONS Adopted Not Not
Effective as of December 31, 2017 Adopted Applicable
PAS 28 lnvesiments In Associates and JOlnt Ventures ./
(Amendod)
Amendments to PFRS 10 and PAS 28· Sate or
Contribution of Assets between an Investor and its
Associate or Joint Ventuni•
Amendments to PFRS 10, PFRS 12 and PAS 28: ./
Investment Enbtles' Applying Ille Consolidation Excepuon
Allnual lmptOVemenl$ to PFRSs 2014. 2016 Cyde
Measuring an associate or Joint venture at fair value•
Amendments to PAS 28· long-term 1n1erests in
Associates and Joint Ventures•
PAS 29 Financial Reporting in Hyperinftationary Eronomies ./
PAS 32 Financial Instruments: Disclosure and Presentation ./
Amendments to PAS 32 and PAS 1: Puttable Financial ./
Instruments and Obligations Arising on Liquidation
Amendment to PAS 32; Classification of Rights lssues ./
Amendments to PAS 32: Offsetting Financial Assets and ./
Financial liabilities
Annual Improvements to PFRSs 2009. 2011 Cycle: ./
Financial Instruments Presentation - Income Tax
Consequences of DisUibutions
PAS 33 Earnings pe; Share ./
PAS34 Interim Financial Reporting ./
Annual Improvements to PFRSs 2009 • 2011 Cycle: ./
Interim F"onancial Reporting - Segment Assets and
Liabilities
Annual Improvements to PFRSs 2012 • 2014 Cycle: ./
Oisclo$ure of information "elsewhere in lhe Interim
fina11C1al repon'
PAS 36 Impairment of Assel3 ./
Amendments to PAS 36: R8ct>verable Amount ./
Diadosures for Non-Financial Assets
PAS37 Provisions, Contingent Llabi~be• and Contingent Assel$ ./
PAS38 Intangible Auets ./
AMual Improvements 10 PFRSs 2010. 2012 Cycle: ./
Restatement of accumulated depreciation (amortization)
on revaluation (Amendments to PAS 16 and PAS 36)
Amendments to PAS t 6 and PAS 38: Clarillcation of ./
Acceptable Methods of Depreciation and Amortization

5
PHILIPPINE FINANCIAL REPORTING STANDARDS ANO
INT£RPRETATIONS Not Not
Adopted Adoptad
Effective as of lle<)•mb<lr 31, 2017 Appllcable
PAS 39 Financial lnslruments: Recognition and Measurement ./
Amendments to PAS 39: TransltJon and lnilial Recognilion ./
of Financial Assets end F"onandal Liabilities
Amendments to PAS 39. cash Flew Hedge Accounbng of ./
Forecast lnftagroup Transactions
Amendments IO PAS 39: The Fair Value Option ./
Amendments to PAS 39 and PFRS 4· Financial ./
Guarantee Contracts
Amendments to PAS 39 and PFRS 7: Reclassdication of ./
Financial Assets
Amendments to PAS 39 and PFRS 7: Reclassification of ./
Financial Assels - Effeaive Date and Transition
Amendments to Philippine lnterprelation IFRIC-9 and ./
PAS 39: Embedded Derivatives
Amendment to PAS 39: Eligible Hedged Items ./
Amendment to PAS 39: Novafion of Derivatives and ./
Continuation of Hedge Acoounting
PAS40 Investment Property ./
Annual Improvements to PFRSs 2011·2013 Cycle: ./
Inter-relationship of PFRS 3 and PAS 40 (Amendment to
PAS40)
Amendments to PAS 40: Transfers of Investment
Property"
PAS41 Agricullure ./
Amendments to PAS 16 and PAS 41:Agncutture: Bearer ./
Plants
Philippine lntorpretatlons
IFRIC 1 Changes in Existing Oecommissiofling, Restoration and ./
Similar Uabllities
IFRtC 2 Members' Share in Co-operative Entfties and Similar ./
Instruments
IFRIC4 Determining Whelher an Alrangemenl Contains a Lease ./
IFRIC 6 Rights to lnteretts arflling from Decommissioning, ./
Restor111on and Environmental Rehabilrtation Funds
IFRIC6 Uabdities ansing from Participating In a Specific Market • ./
Waste Eledrical and Electronic Equipment
IFRIC 7 Applying the Restatement Approach under PAS 29 ./
Financial Reporting in Hyperinftationary Economies
IFRIC9 Reassessment of Embedded Derivative$ ./
Amendmenls IO Philippine Interpretation IFRIC-9 and PAS ./
39: Embedded Denvatives
IFRIC 10 Interim Financial Reporting and lmpainnent ./
IFRIC 12 Service Concession Arrangements ./
IFRIC 13 Customer Loyatty Programmes ./
IFRIC 14 PAS 19 ·The Umit on a Defined BenefitAsse~ Minimum ./
Funding Requirements and their lnleradion
Amendments 10 PhiBpplne Interpretations IFRIC- 14, ./
Prepayments of a Minimum Funding Requirement

6
PHILIPPINE FINANCIAL REPORTING STANDARDS ANO
INTERPRETATIONS Not Not
Adopted
Effective u of December 31, 2017 Adopted Applicable

IFRJC 16 Hedges of a Nel lnvesbnent in a FO<eign Operation ./

IFRIC 17 Oislril>utions of N01>-Cash Assets to Owners ./
IFRIC 18 Transfers of Assets from Customers ./
IFRIC 19 EXlinguishlng Financ:lal Liabilities wilh Equity Instruments ./
IFRIC 20 ~ng Costs in lhe Producbon Phase of a Surface ./
Mine
IFRIC 21 Lev.es ./ ./
JFRIC 22 Foreign Currency Transactions and Advance
Cooslderation•
IFRIC 23 Uncertainty over Income Tax Treatmen1s·
SIC·7 Introduction of Ille Euro ./
SIC·10 Government Assistance - No Specific Relation to ./
Operating Activities
SIC·16 Operating Leases • Incentives ./
SIC-25 Income Taxes - Changes in the Tax Status of an Entity Of ./
its Shareholders
SIC-27 Evaluating the Substance ofTransactions Involving the ./
l.egal Form of a Lease
SIC·29 Service Concession Amlngements. Disdosures. ./
SIC-31 Revenue - Barter Transactions Involving Advertislng ./
Services
SIC-32 Intangible Assets - Web Site Costs ./
Phlllpplne lnlerpretaUons Committee Quesllons and Answers
PJCQ&A PAS 18, Appendix, paragraph 9 - Revenue recognition for ./
2006-01 sales of property units under pre-aimpletion conlracts
PICQ&A PAS 27.10(d). Cl8nfication of critena lor exemplion fTOm ./
2006·02 presenting consolidated flnanc:ial stalements
PICQ&A PAS 1.103(a). Basis of preparation of financial ./
2007.01· statements If an enlity has not applied PFRSs in full
Revlaod
PICQ&A PAS 20.24 37 and PAS 39.43 ·Accounting for ./
2007.02 goverrml!nl loans with low inle1es1 rates (Sl!O PIC Q&A
No. 2008-02)
PICQ&A PAS40.27 • ValuatiOn of bank rl!al and other propeni<ls ./
2007.03 acquired (ROPA)
PICQ&A PAS 101 7 ·Application of criteria for a qualifying NPAE ./
2007-04
PICQ&A PAS 19.78 • Rale used in discounting post-employment ./
2008.01- benefit obligations
Revised
PICQ&A PAS 20.43 ·Accounting for government loans with low ./
2008.02 inte<est rates under the amendments lo PAS 20
PICQ&A Frameworl<.23 and PAS 1.23 ·Financial statements ./
2009.01 prepared on a basis other than going concern
PICQ&A PAS 39.AG71-72 - Rate used in detennining the fair value ./
2009.02 of government securities in the Phaippines
PICQ&A PAS 39.AG71·72 -Rate used in detennining Ille fair value ./
2010.01 of government securities in the Philippines

7
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS Adopted Not Not
Effective u of December 31, 2017 Adopted Applicable
.
PICQ&A PAS 1 R 16 - Basis of preparallon of financial statements ./
2010.02
PIC Q&A PAS 1 P!esentation of F"Nnclal Statements - ./
2010-03 CurrenVnon-current ctassi11cation of a callable term loan
PICQ&A PAS 1.10(1) ·Requirements for a Thill! Statement of ./
2011.()1 Financial P0$11ion
PICQ&A PFRS 3 2 ·Common Control Business Comblnabons ./
2011.02
PICQ&A Accounting for Inter-company Loans ./
2011-03
PICQ&A PAS 32.37-38 - Costs of Public Offering of Shares ./
2011-04
PICQ&A PFRS 1.D1-08 - Fair Value or Revaluation as Deemed ./
2011-05 Cost
PICQ&A PFRS 3, Business Combinations (2008), and PAS 40, ./
2011-06 Investment Property ·Acquisition of lnveslmetlt properties-
asset acquisition or business combination?
PICQ&A PFRS 3.2 -Application of lhe Pooling of Interests Method ./
2012-01 for Business Combinations or Entilies Under Common
Control in ConsofidatedFinancial Statements
PICQ&A Cost of a New Build]ng Coostrucled on the Stte of a ./
2012-02 Previous Bu~ding
PICQ&A Applicability of SMEIG Fanal Q&As on the App~cation of ./
2013.01 IFRS for SMEs to Philippine SMEs
PIC Q&A Conformiog Changes to PIC O&As ·Cycle 2013 ./
2013.02
PICQ&A PAS 19 -Aoeounting for Employee Benefits under a ./
2013.03 Defined Contribution Plan subject to Requirements ol
(Revised) Republic Act (RA) 7641, The Phalippone Retirement Law
PICQ&A Conforming Changes to P1C O&As ·Cycle 2015 ./
2015-01
PICQ&A Conforming Changes to PIC Q&As ·Cycle 2016 ./
2016-01
PICQ&A PAS 32 and PAS 38. Accounline Trealment of Club ./
2016·02 Sharea Held by an Enbty
PICQ&A APOlicalion of PFRS 15 'Rewnue from ContractS with ./
2018-04 Cus1orners· on Sale or Residential Properlles under Pre-
Complellon Conllacls
PICQ&A Confonnlng Changes to P1C Q&As • Cyde 2017 ./
2017·01
PICO&A PAS2 and PAS 16 • Ca)litarizafion or operating lease cost ./
2017-02 as part of construdion costs of a building
PICQ&A PAS 28 - Elimination of profits and losses resutting from ./
2017-03 Jransactions between associates and/or joint venlures
PICO&A PAS 24 • Relaled party relationships between parents, ./
2017-04 subsidiary, associate and non-controlling shareholder
PICQ&A PFRS 7 ·Frequently asked questions on the discl05ure ./
2017-05 requirements of financial instruments under PFRS 7.
rmancial Instruments: Disclosures
PICO&A PAS 2, 16 and 40 ·Accounting forColleclor's Items ./
2017.06
PICQ&A PFRS 10-Accounting for reciprocal hok!ings in ./
2017.07 associatesand joint ventures

8
 PHILIPPINE FINANCIAL REPORTING STANDARDS AND
Not Not
INTERPRETATIONS Adopted
Adopted Appllc;ible
Effective as of December 31, 2017
PICQ&A PFRS 10 - Requirement to prepare consolidated financial ./
2017.08 slatements ....,.,. an entity dispose$ ol i1s single
Investment In a subaldh•ry. associate or joint venture
PICQ&A PAS 17 and Phi~ppine lnterp<etation SIC-15 -Accoonting ./
2017-09 for paymenls between and among lessors and lessees
PIC Q&A PAS 40 - Separation of p(Opelty and classification 11 ./
2017-10 lnVl!$trnent property
PICQ&A PFRS 10 and PAS 32 • Transaetion costs incurred to ./
2017-11 acquire outstanding llOf>.control~ng interest er to sell non·
controlling onterest Without a loss of control
PICQ&A Subsequent Treatment of Equity Component Arising from ./
2017-12 lnteroompany Loans
PICQ&A Voluntary changes in aa:ounling policy ./
2018-01
PICQ&A NorK:OOUOlling intereSlS and goodwill impairment test ./
2018·02
PIC Q&A Fair value of PPE and depreciated replacementcost ./
2018.03
PICQ&A tnabifotyto measure lair vatue reliably for biological assets ./
2018-04 within the scope of PAS 41
PICQ&A Maintenance requirement of an asset held under lease ./
2018-0S
PICQ&A Cost of investment in subsidiaries in SFS when pooling is ./
2:018-06 applied
PICQ&A Cost of an associate,joint venture, or subsidiary in ./
2018-07 separatefinanciat statements
PICQ&A Accounting for the acquisition of non-wholly owned ./
2018·08 subsidiary that is not a business
PICQ&A Classification or deposits and progress payments as ./
2018-09 monetary 0t non-monelary Hems
PICQ&A Scope ol disclosure or inventory write.down ./
2018-10
"These new standard• or amendme1>!s to stlJlldalds will become ellectiWJ sub~oenUy to December 31, 2017.
7ha Group wlff .,Jopl these new- amllflded slsnderrJs on tho ro:sp«Jlv9 d<ltos, H applic<lbte.

/dJls!1!i:
Adopted - means e petflculer slllMMJ or /nletpnJletlon Is l'fJlevtlnt to the Of)M!lfon• of the ontity (ovon If IIh••
no olfocl
or no material effod M lhe fin&ndlJI !letemcnts). for wfllr:h them may be e related parlicvtar •ccountingpolicy mado In
tho f1t1enclel statement• and/orthem ""' current lnJimJctjoos the llmOUllts ot balancesof which are disdosad M tho lace
or in the no/os of the financial slolometrts.

n
Nor Adoptad - means a perticuW •t/Jlldatd or interpreta00n is effec/Ne but the entity did not adopt due lo e#her of
these two masons: I) 71>e en6/y has deviated or departedfrom the requirements of such standard or Interpretation;or 2)
The standard providesfor en option to early adopt it but the entity decided otherwise.
Nor Applicable - means the standatd or inlerpre/a/Jon is not relevant ot al to the operations of the entity.

9
 ANNEX "C~3"

SMC GLOBAL POWER HOLDINGS CORP. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS AND

SUPPLEMENTARY SCHEDULES
DECEMBER 31, 2017

A FINANCiAL ASSETS
B AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS,
EMPLOYEES, RELATED PARTIES ANO PRINCIPAL STOCKHOLDERS
(OTHER THAN RELATED PARTIES)
NOT APPLICABLE
c - AMOUNTS RECEIVABLE/PAYABLE FROM RELATED PARTIES WHICH
ARE ELIMINATED DURING THE CONSOLIDATION OF FINANOAL
STATEMENTS

D - INTANGIBLE ASSETS- OTHER ASSETS

E - LONG-TERM DEBT

F INDEBTEDNESS TO RELATED PARTIES

NOT APPLICABLE•
G - GUARANTEES OF SECURmES OF OTHER ISSUERS
NOT APPLICABLE
H CAPITAL STOCK

• Balance of account Is Jess than S% of total assets of the Group

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 ANNEX "C-4"

SMC GLOBAL POWER HOLDINGS CORP. AND SUBSfDlARIES

DISCUSSION OF THE GROUP'S FINANCIAL SOUNDNESS INDICATORS

LIOUIDJTY RATIO
Current Assets
Current Ratio = -------------
Current Liabilities

Conventional Adj11ste1f'I
December December December December
(in Millions P) 2017 2016 2017 2016
(A) Current Assets 70,030 63,974 70,030 63,974
(B) Current Liabilities 55,141 55,242 38,297 38,898
Current Ratio (A) I (B) 1..27 1.16 1.83 1.64

(1) Current portion of finance lease liabilities in relation to IPPA Agreements with PSALM is
excluded in total current liabilities as this current obligation on finance lease are pass-through
charges billable to customers. As of December 31, 2017 and 2016, current portion of finance
lease liabilities amounted to P16,844 million and P16,344 million, respectively.

SOLVENCY RATJO

Net Debt-to-Equity Ratio

- ---- ·-Total
Net Debt
----------------
Equity
Per relevantLoan Cove11a111so/SMCGlobal Power
December December
(in Millions P) 2017 2016
(A) Net Debt'1' 187,173 198,847
(B) Total Equitf11 62,980 56,898
Net Debt-to-Equity Ratio
(A) I (B) 2.97 3.49

(2) Consolidated net total debt plus total PSALM finance lease liabilities.
(3) Consolidated total equity (excluding amounts attributable to ring-fenced subsidiaries as defined
in the relevant credit facility agreement of the Parent Company).
 Total Assets
Asset-to-Equity Ratio
- Total Equity
.....

Conventionat Atl)1me1f'I
December December Deeember December
(i11 Millions P) 2017 2016 2017 2016
(A) Total Assets 350,173 333,949 177,600 156,189
(B) Total Equity 59,766 54,671 59,766 54,671
Asset-to-Equity Ratio
(A) I (B) 5.86 6.11 2.97 2.86

(4) Net carrying amount value of the lPPA power plants in relation to !PPA Agreements with
PSALM was omitted in total assets as these power plant assets were capitalized with
corresponding finance lease liabilities. As of December 31, 2017 and 2016, net carrying
amount of LPPA power plant assets amounted to Pln,573 million and P177,760 million,
respectively.

PROFITABILTY RATIO
Net Income
Return on Average Equity =
Total Equity

(in Millions P) Deccmber2017 December 2016

(A) Net Income 8,217 4,151
(8) Total Equity 59,766 54,671
Return on Equity (A) I (B) 13.7% 7.6%
Earnings Before Interest, Taxes,
Depreciation and Amortization
(EBITDA)
Interest Rate Coverage Ratio = ------------
Finance Cost
---
Per relevant Loa11 Covenants of SMC Global Power
(in Millions PJ December 2017 December 2016
(A) EBITDA1'' 32,529 34,349
(B) Interest Expense161 11,296 11,877
Interest Rate Coverage Ratio (A) I (B) 2.88 2.89

(5) Full year consolidated EBITDA (gross of PSALM payments and excluding amounts
attributable to ring-fenced subsidiaries).
(6) Full year consolidated interest expense (excluding amounts attributable to ring-fenced
subsidiaries).

2
OPERATING EFFICIENCY

Volume Growth {Decline)

- Current Period Offtake Volume
--------------
Prior Period Offtnke Volume
. I

Period Ended December 31

(inMWh) 2017 2016
(A) Current Period Offtake Volume 17,227 17 ,346
(B) Prior Period Offtake Volume 17,346 16,558
Volume Growth (Decline) [(A I B )- J) (0.7%) 4.8%

Current Period Revenue

Revenue Growth (Decline) = ----- ---·----- - 1
Prior Period Revenue
Period Ended December 31
(in Millions P) 2017 2016
(A) Current Period Revenue 82,791 77,972
(B) Prior Period Revenue 77,972 77,507
Revenue Growth (Decline) [( A I 8 ) - 1) 6.2% 0.6%

Operating Margin - Income from Operating Activities

·--- ·--------------
Revenues

Period Ended Decem ber 31

(i11 MillionsP) 2017 2016
(A) Income from Operating Activities 24,276 26,730
(B) Revenues 82,791 77,972
Operati•g Margin (A) I (8) 29.3% 34.3%

3
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 ANNEX "C-6"

R.G. Manabat & Co.

The KPMG Center, 9/F
6787 Ayala Avenue, Makati City
Philippines 1226
Telephone +63 (2) 885 7000
Fax +63 (2) 894 1985
Internet www.kpmg.com.ph
Email ph-inquiry@kpmg.com.ph

REPORT OF INDEPENDENT AUDITORS

ON SUPPLEMENTARY INFORMATION

The Board of Directors and Stockholders

SMC Global Power Holdings Corp.
155 EDSA, Brgy. Wack-Wack
Mandaluyong City, Metro Manila

We have audited, in accordance with Philippine Standards on Auditing, the

separate financial statements of SMC Global Power Holdings Corp. (the "Company'),
a wholly-owned subsidiary of San Miguel Corporation, as at and for the years ended
December 31, 2017 and 2016, and have issued our report dated March 9, 2018.

Our audits were made for the purpose of forming an opinion on the separate financial
statements of the Company taken as a whole. The accompanying Reconciliation of Retained
Earnings Available for Dividend Dedaration is the responsibility of the Company's
management.

This supplementary information is presented for purposes of complying with the Securities
Regulation Code Rule 68, As Amended, and is not a required part of the separate financial
statements. Such supplementary information has been subjected to the auditing procedures
applied in the audits of the separate financial statements and, in our opinion, is fairly stated,
in all material respects, in relation to the separate financial statements taken as a whole.

R.G. MANABAT & CO.

~~ DARWIN P.
VIROCEL Partner
CPA License No. 0094495
SEC Accreditation No. 1386-AR, Group A, valid until June 14, 2020
Tax Identification No. 912-535-864
BIR Accreditation No. 08--001987-31-2016
Issued October 18, 2016; valid until October 17. 2019
PTR No. 6615157MD
Issued January 3, 2018 at Makati City

March 9, 2018
Maka.ti City, Metro Manila
 SMC GLOBAL POWER HOLDINGS CORP.
155 EDSA, Brgy. Wack-Wack, Mandaluyong City, Metro Manila
SCHEDULE OF RECONCILIATION OF RETAINED EARNINGS
AVAILABLE FOR DIVIDEND DECLARATION
(Amounts in Thousand Pesos)
(Figures based on functional
currency audited separate
financial statements as of and
for the year ended
December 31, 2017)
Unappropriated Retained Earnings, beginning P517,644
Adjustments In previous years' reconciliation (8,859)
Unappropriated Retained Earnings, as adjusted,
beginning 508,785
Net income based on the face of Audited Financial
Statements 4,479,069
Non-actual gain
Unrealizedforeign exchange gain, net of tax (9,951)
Deferred tax benefit on defined retirementbenefrt
obligation (3,631)
Sub-total 4,465,487 4,465,487
Net Income Actual/Realized 4,974,272
Reversalof appropriation 1,154,000
Distributionspaid during the year (3,074,204)
P3,054,068
 ANNEX "C-7"

SMC GLOBAL POWER HOLDINGS CORP.

Proceeds from Issuance of P20B Fi•ed Rate Bonds consisting of Series •o, E and F" Bonds
December 31, 2017
(Amounts in Thousands)

I) Gross and Net Proceeds as Disciosed In the Final Prospectus

Gross Proceeds p 20,000,000.00
Estimated Fees, Comml'5ions, and Expenses relating to the 1'5ue:
Documentary Stamp Tu p 100,000.00
SEC Registration Fee 5,562.00
SEC Legal Research and Publication Fee 56.00
SEC Publication Fee 100.00
Gross Underwriting Fee and Other Professional Fees 98,000.00
PDEX Listing AppllcaUon Fee and Annual Maintenance Fee 300.00
Printing Cost 400.00
Trustee Fees 300.00
Paying Agency and Registry Fees 200.00
Miscellaneous Fees 400.00 205,318.00
Net Proceeds p 19, 794,682.00

ii) Actual Gross and Net Proceeds

Gross Proceeds p 20,000,000.00
OocumentaryStamp Tax p 100,000.00
SEC Registration Fee S,563.00
SEC Legal Research and Publication Fee 56.00
Gross Underwriting Fee and Other Professional Fees 109,638.00
PDEX Listing Application Fee 300.00
Printing Cost 375.00
Paying Agency and Registry Fees 502.00
Miscellaneous Fees 42.00 216,476.00
p 19, 783,524.00

ii) Each Expenditure Item where the Proceeds were Used

Full payment of short term loan with BOO in the amount of PhP 10 billion p 10,000,000.00
Full payment of short term loan with PNB in the amount of PhP 10 billion 9,783,524.00
p 19,783,524.00
P _
Iv) Balance of the Proceeds as of the End of Reportlna Period
 ANNEX "D"

SMC GLOBAL POWER HOLDINGS CORP. AND SUBSIDIARIES

2017
PRINCIPAL PROPERTIES
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 ANNEX "E"

SMC GLOBAL POWER HOLDINGS CORP.

2017
LIST OF SEC FORM 17-C FILINGS
 SMC GLOBAL POWER HOLDINGS CORP.
SUMMARY LIST OF REPORTS UNDER SEC FORM 17-C DURING THE YEAR 2017

Date Subject
Reported

March 30, 2017 Report on the following matters approved during the Special Meeting of the
Board of Direct()(S of SMC Global Power held on March 30, 2017:

a. acceptance of lhe resignation of Mr. Alexander B.M. Simon as Chief

Finance Officer (CFO) and as Deputy Corporate Information Officer of
SMC Global Power for disclosures whh the Philippine Dealing &
Exchange Corp. (PDEx); and
b. appointment of Mr. Paul D. Causon as the new CFO and the new
Deputy Corporate Information Officer of SMC Global Power for
disdosures wi1h lhe PDEx.

April 27, 2017 Report on lhe following matters approved during the Special Meeting of the
Board of Direcl()(Sof SMC Global Power held on April 27. 2017:

a. acceptance of lhe resignation of Mr. Alan T. Ortiz as Director, President

& Chief Operating Officer (COO). and member of lhe Audit Committee
and Nomination & Hearing Committee of SMC Global Power effective
April30,2017;and
b. appointment of (1) Mr. Ramon S. Ang (the incumbent Chairman &
Chief Executive Officer), as the concurrent President & COO. and
(2) Ms. Aurora T. Calderon (incumbent member of the Board), as
member of lhe Audit Committee and lhe Nomination & Hearing
Committee of SMC Global Power effective April 30. 2017.

May 5, 2017 Report on lhe following matters approved during the Regular Meeting of the
Board of Directors of SMC Global Power held on May 5, 2017:

a. approval of lhe financial performance and financial position of SMC

Global Power as of March 31, 2017, the details of which will be reported
to lhe Securities and Exchange Commission (SEC) and the POEx
under SEC Form 17-Q due to be filed on May 15, 2017: and
b. caphal security distribution to holders of the USD300 Million Undated
Subordinated Caphal Securtties which SMC Global Power Issued on
August 26, 2015 amounting to USD10,125,000 plus applicable taxes.
payable on August 26. 2017.

June 6. 2017 Report on the following matters approved during meetings of SMC Global
Power held on June 6, 2017:

a. Special Meeting of the Board of Directors

i. Approval for SMC Global Power to enter into such relevant

agreements and perform such obligations in Its capacity as
shareholder of SMC Consolidated Power Corporation ("SCPC").
in relation with the financing to be entered Into by SCPC for the
600MW Power Plants located in Limay, Bataan; and
ii Authority to negotiate, execute and conclude the sale by Limay
Premiere Power Corporation ("LPPC") in favor of SCPC, of the
300MW Power Plant Project located in Limay, Bataan, under such
terms and conditions as Management may deem proper. LPPC
and SCPC are whollv-owned subsidiaries of SMC Global Power.
 b. Annual Meeting or the Stockholders

I. Approval of the Minutes of the Annual Stockholders' Meeting of

SMC Global Power held on June 7, 2016;
ii Approval of the 2016 Audited Financial Statements of
SMC Global Power;
iii. Election of the followingas members of the Board of Directors:
1. Ramon S. Ang
2. Ferdinand K. Constantino
3. Aurora T. Calderon
4. Virgilio S. Jacinto
5. Jack G. Arroyo,Jr. - Independent Director
6. Consuelo M. Ynares-Santiago - Independent Director
Iii. Ratification of Acts and Proceedings of the Board of Directors
and Corporate Officers of SMC Global Power since its Annual
Stockholders' Meeting held on June 7, 2016;
iv. Appointment of R.G. Manabat & Co. as external auditors of
SMC Global Power for 2017; and
v, Approval for Mr. Paul D. Causon to replace
Alexander B. M. Simon as authorized signatory of
SMC Global Power in all Its corporate transactions In view of the
resignation of Mr. Simon as Chief Finance Officer and the
appointment of Mr. Causon as the new Chief Finance Officer
of SMC Global Powereffective March 30, 2017.

c. Organizational Meeting or the Board of Directors

i. Approval of the Minutes of the Organizational Meeting of the

Board of Directors held on June 7, 2016;
ii. 8ection of the following as officers of SMC Global Power:
1. Ramon S. Ang - Chairman & Chief Executive Officer and
President & Chief Operating Officer
2. Ferdinand K. Constantino - Vice Chairman
3. Elenita D. Go - General Manager
4. Paul D. Causon - Chief Finance Officer
5. Ramon U. Agay -Finance Manager I Comptroller
6. Virgilio S. Jacinto - Corporate Secretary & Compliance Officer
7. Irene M. Cipriano - Assistant Corporate Secretary
8. Reynaldo S. Matillano - Internal Audit Manager
9. Lorenz R. Defensor - Data Protection Officer
Ill. Designation or depository banks and appointment of authorized
signatories for banking and other corporate transactions.

June 2.2, 2017 Report on the execution of:

a. the defmitive agreements for the sale by Limay Premiere Power

Corp. (•LPPC•)of its 300MW Power Plant Project In Llmay, Bataan,
in favor of SMC Consolidated Power Corporation ("SCPC') for a
total considerationof Php21,280,000,000; and
b. SCPC entered into the loan and project financing agreementsfor Its
600MW Power Plant located in Limay, Bataan amounting to
P44,000,000,000.00. SMC Global Power in its capacity as
shareholder of SCPC has likewise entered into such definitive
agreements as sponsor of SCPC in the project financing.

August 8. 2017 Report on the following matters approved during the Regular Meeting of the
Board of Directors of SMC Global Power held on August 8, 2017:

a. An.-roval of the financial norformance and financial oosition of

2
 SMC Global Power as of June 30, 2017, the details of which shall
be reported to the SEC and the PDEx under SEC Form 17-a due
to be filed on August 14, 2017;
b. Creation of the Board Committees, namely: the Audit & Risk
Oversight Committee. the Related Party Transaction Committee.
and the Corporate Governance Committee;
c. Approval of the Charters of the aforementioned Board Committees
and the Internal Audit Charter;
d. Capital security distribution to holders of the USD300 Miiiion
Undated Subordinated Capital Securities which SMC Global Power
issued on May 7, 2014, amounting to US011,250,000.00 plus
appticabte taxes, payable on November 7, 2017:
e. Approval of the issuance. offer and sale to the public of Peso•
denominated fixed-rate retail bonds of up to Php35.000,000,000.00
(the "Php35 Billion Bonds") and the registration of the
Php35 Billion Bonds with the SEC and listing thereof with the
PDEx;
f. Approval of the consent solicitation of SMC Global Power to amend
certain provisions of its Trust Agreement dated June 23, 2016,
relating to its Php15 Billion Fixed Rate Bonds;
g. Appointment of the Board of Trustees of SMC Global Power's
Retirement Plan;
h. Subscription by the incoming independent director of qualifying
shares; and
i. Approval of the amendment of the Amended By-laws of SMC
Global Power to incorporate pertinent provisions of its Amended
Manual on Corporate Governance and submission for
stockholders' approval the delegation of the power to amend,
repeal the by-laws or adopt new by-laws to the Board of Directors.

August 29, 2017 Report on the consent solicitation of SMC Global Power for its proposed
amendments to the Trust Agreement dated June 23, 2016 covering its Series A
Fixed Rate Bonds due 2021. Series B Fixed Rate Bonds due 2023 and Series
C Fixed Rate Bonds due 2026 (·consent Solicitation") which shall commence
on September 4, 2107 and shall end at 5 p.m. (Philippine lime) of
September 25, 2017 ("Expiration Date"). The Expiration Date may be adjusted
to an earlier or later time and date by SMC Global Power in its sole discretion.

September 25, 2017 Report on the extension of the Expiration Date of the Consent Solicitation of
SMC Global Power for its proposed amendments to the Trust Agreement
covering its Php15 Billion Bonds, from 5:00pm {Philippine time) of September
25, 2017 to 5:00pm {Phnippine time) of October 6, 2017.

October 11, 2017 Report In connection with the Consent Solicitation of SMC Global Power for the
proposed amendments to the Trust Agreement covering the
Php15 Billion Bonds, that bondholders of record holding at least 51.99% of the
aggregate principal amount of the Php15 Billion Bonds have given their consent
to the proposed amendments to the Trust Agreement.

In this regard, on October 11, 2017, SMC Global Power and Philippine National
Bank - Trust Banking Group (as Trustee for the Php15 Billion Bonds) executed
the Amendment Agreement which sets out the amendments to the Trust
Agreement.

November 7, 2017 Report on the following matters approved during the Special Stockholders
Meeting and Regular Meeting of the Board of Directors of SMC Global Power
held on November 7, 2017:

(i) Special Stockhok!ers Meeting

3
 a. election of Josefina Guevara-Salonga as an Independent Director
of SMC Global Power;
b. approval of amendments to the Amended By-laws of
SMC Global Power; and
c, delegation of the power to amend or repeal the by-laws, or adopt
new by-laws. to the Board of Directors of SMC Global Power, and
amendment of Article VIII of the Amended By-laws of
SMC Global Power to reflect the same.

(ii) Regular Meeting of the Board of Directors

a. approval of the financial performance and financial position of

SMC Global Power as of 30 September 2017, the details of
which shall be reported to the SEC and the PDEx under
SEC Form 17 -Q on or before November 16, 2017;
b, appointment of the following members of the Board Committees
of SMC Global Power:

Execu1ive Committee
1. Ramon S. Ang - Chairman
2. Ferdinand K. Constantino - Member
3. Aurora T. Calderon - Member

eoroorate Governance Committee

1. Consuelo M. Ynares-Santlago ·Chairperson
2. Jack G. Arroyo, Jr. - Member
3. Josefina Guevara-Salonga • Member
4. Ferdinand K. Constantino • Member
5. Virgilio S. Jacinto • Member

Audit and Risk Oversioht Committee

1. Jack G. Arroyo, Jr. • Chairperson

2. Consuelo M. Ynares-Santiago • Member
3. Josefina Guevara·Salonga • Member
4. Ferdinand K. Constantino • Member
5. Aurora T. Calderon • Member

Related Party Transactjoo Committee

1. Josefina Guevara-Salonga • Chairperson
2. Consuelo M. Ynares-Santiago • Member
3. Jack G. Arroyo, Jr. • Member
4. Ferdinand K. Constantino· Member
5. Aurora T. Calderon • Member

c. approval of the capital security distribution to holders of the

USD300 Miiiion Undated Subordinated Capital Securities which
SMC Global Power issued on August 26, 2015, amounting to
USD10, 125,000.00 plus applicable taxes, payable on
February 26, 2018.

November 10, 2017 Report that wnh respect to Complaints for Plunder and Corruption against
Lourdes Alzona, Sugurv Tzusaki, Team (Philippines) Energy Corp. ("TPEC"),
Koichi Tamura and Team Sual Corporation ("TSC") pending with the
Department of Judtice ("OOJ"), the DOJ issued a Resolution, dated
October 25, 2017, partially granting the Petition for Review filed by respondents
Sugurv Tsuzaki, TPEC, Koichi Tamura and TSC by ruling that the "assailed
Resolution is REVERSED AND SET ASIDE Insofar as the conduct of
preliminary investigation." The resolution further affirmed the transmittal of the
records of the case to the Office of the Ombudsman for its dtsoostuon.

4
 5an Miguel Energy Corporation (•SMEC") shall be filing a motion for partial
reconsiderationof said Resolution.

In connection with the pending civil complaint filed by SMEC with the Regional
Trial Court Branch 71, Pasig City (the ·court'), on July 5. 2017, SMEC
consigned with the Court the additional amount of Php16, 185,640.73
corresponding to the proceeds of the Wholesale Electricity Spot Market
(WESM) sale of the "excess capacity" for the billing period from July 26, 2016 to
August 25, 2016. SMEC also filed a Motion to Admit Second Supplemental
Complaint In relation to said consignation. To date, the total amount consigned
with the Court Is Php491,242,288.90.

December 7. 2017 Report on following pending cases:

a. ERC Order Voiding WESM Prices

The Court of Appeals ("CA.), in Its Decision dated November 7, 2017, granted
the Petition for Review filed by the following subsidiaries of SMC Global Power,
namely: SMEC, South Premiere Power Corporation ("SPPC"),
Strategic Power Development Corporation. and SMC Powergen Inc. In its
Decision, the CA declared null and void and set aside the Orders of the Energy
Regulatory Commission dated March 3, 2014, March 27, 2014, May 9, 2014
and October 15, 2014 in ERC Case No. 2014-021 MC and accordingly
reinstated and declared as valid the WESM prices for Luzon for the supply
months of November to December 2013.

Upon finality of the aforementioned Decision, a claim for refund may be made
by the Relevant Subsidiaries with Philippine Electricity Market Corporation for
an amount up to Php2.625BiUion, plus interest.

b. Dispute between SPPC and Power Sector Assets and Liabililies

Management Corporation ("PSALM")
The Regional Trial Court, Mandaluyong City, Branch 208 issued an Order dated
dated October 24, 2017 requiring SPPC to file Its comments/objection on the
Motion for Inhibition filed by PSALM.

SPPC shall file the appropnate pleading to oppose the Motion for Inhibition filed
by PSALM.

December 11. 2017 Report that the SEC. In its En Banc Meeting held on December 8, 2017.
approved SMC Global Power's application for the shelf-registration of fixed rate
bonds, with a combined worth of P35 billion worth of debt securities. of which
P20 billion will be Issued as part of the initlal tranche.

December 12, 2017 Report that SMC Global Power received on December 12, 2017 an Order of
Registration and Certificate of Permit to Offer Securities for Sale, both dated
December 12. 2017 from the SEC, in relation to SMC Global Power's
application for the shelf-registration of fixed rate bonds, with a combined worth
of P35 billion worth of debt securities, of which P20 billion will be issued as part
of the initial tranche.

December 17, 2017 Report that on December 17, 2017, SMC Global Power executed a
Share Purchase Agreement with AES PhD Investment Pte. Ltd. ("AES Phil") and
Gen Plus B. V. ("Gen Plus") for the purchase by SMC Global Power of the
(a) 51% and 49% equity interests of AES Phil and Gen Plus. respectively, in
Masin-AES Pie. Ltd. ("Target Company"): (b) 100% equity interest of The AES
Corporation in AES Transpower Private Ltd.. and (c) 100% of equity interest of
AES Phil in AES Philippines Inc. (the "Transaction"). The Target Company,
through its subsidiaries, owns and/or operates the 2 x 315 MW coal-fired power
plant, the power project expansion unit known as Unit 3 which is under
construction. and the 10MW batterv enernv storaae oraiect. all located in the

5
 Province of Zambales, Philippines. The total consideration for the Transaction
is USS1.9 Billion. The enterprise value of the Target Company is approximately
US$2.4 Billion.

The completion of the aforementioned acquisitions is subject to certain

conditions, including but not limited to, the approval thereof by the Philippine
Competition Commission and the execution of the definitive agreements to fully
implement the Transaction.

December 22, 2017 Report that on December 22. 2017, SMC Global Power received the copy of the
Certificate of Filing of Amended By-laws issued by the SEC on
December 20. 2017. The aforesaid Amended By-Laws of SMC Global Power
sets out the amended provisions which were approved by the Board of
Directors and Stockholders of SMC Global Power on August 8, 2017 and
November 7, 2017, respectively.

December 26, 2017 Report attaching a copy of the letter-disclosure of San Miguel Corporation
("SMC") to the Philippine Stock Exchange on even date in reply to the latter's
request for clarification on the following news articles:

(i) "SMC to borrow $1.3 B for Masinloc plant purchase" posted

in Manila Bulletin (Internet Edition) on December 22, 2017;
(ii) "SMC to convert llijan into diesel-fired plant' posted in Manila
Bulletin (Internet Edition) on December 24, 2017; and
(fri) "SMC puts other coal power plants on hold" posted on
manilastandard.net on December 25, 2017.

The aforesaid news articles pertain to the various projects of

SMC Global Power and/or its subsidiaries. SMC is the parent company of
SMC Global Power.

December 27, 2017 Report attaching a copy of the letter-disclosure of SMC to the Philippine Stock
Exchange on even date in reply to the latter's request for clarification on the
news article entitled ·san Miguel slams the brakes on greenfield power
investments" posted in Manila Bulletin (Internet Edition) on December 26, 2017.
The letter-disclosure relates to the various projects of SMC Global Power
namely, the construction of the Greenfield power plants and contemplated
investment in the tidal resource project which are temporarily held In abeyance
after taking into account the apparent overcapacity in the supply of electricity In
the market and the continuing decline in the price of power in the WESM. SMC
is the parent company of SMC Global Power.