EDC, the Lopez Legacy's Geothermal Giant, Faces $5B Takeover Bid Amidst Energy Security Concerns

(Second of two parts) Part 1: An Indonesian billionaire wants EDC: The $5-B offer raising the stakes in the Lopez feud The news this July that an Indonesian billionaire has offered US$5 billion for Energy Development Corporation (EDC) lands differently once the company’s history is laid out in full. EDC is not simply a large power producer that happens to be caught in the Lopez family’s governance war. It is an over 50-year experiment in what a country does about energy insecurity, an experiment that has passed through state ownership, a contested privatization, a debt crisis that cost the Lopezes their oldest utility, and a corporate rebuilding that turned it into one of the largest geothermal companies on Earth. This piece traces that arc, because every question now being asked about the Barito offer, who decides, who benefits, what the country stands to lose, has an answer rooted somewhere in this history. A child of the 1973 oil shock The story begins with a war on the other side of the world. In October 1973, after the outbreak of the Yom Kippur War between Israel and its Arab neighbors, the Arab members of the Organization of Petroleum Exporting Countries (OPEC) imposed an oil embargo on nations seen as supporting Israel, and within months the price of crude roughly quadrupled. For the Philippines, which imported about 95% of its energy requirements as oil, the shock was existential. Gasoline was rationed, brownouts spread, and the import bill blew a hole in the balance of payments. A second shock in 1979, when the Iranian Revolution slashed Iran’s output, confirmed the lesson: a country that produces none of its own fuel is a hostage to other people’s wars. The response of the first Marcos government was institutional. In November 1973 it created the Philippine National Oil Company (PNOC), the state’s vehicle for securing oil and, soon after, for developing energy sources that no Arab or OPEC embargo could touch. On March 5, 1976, Presidential Decree 927 established the Energy Development Corporation (EDC) as PNOC’s geothermal exploration and development arm. Must Read How the Philippines under elder Marcos handled the 1973, 1979 oil crises Geothermal was one front in a wider indigenous-energy campaign that also pushed hydropower dams through the National Power Corporation (Napocor), opened offshore oil exploration in Palawan, developed the Semirara coal mines, and committed the country to the Bataan nuclear plant. What set geothermal apart was geology and luck: the Philippine archipelago sits on the Pacific Ring of Fire, and beneath its volcanic belts in Leyte, Negros, Bicol, and Mindanao lay reservoirs of superheated water and steam, rainwater that had seeped into fractured rock, cooked by magma, waiting to be tapped by wells drilled one to three kilometers down. Presidential proclamations in 1975 reserved the Tongonan, Palinpinon, and Bacon-Manito areas for geothermal development, and a 1978 decree created the service-contract framework the industry still recognizes. The early division of labor is a detail that matters enormously later, and it is easiest to picture geothermal as two businesses joined at the pipe. The first business gets the steam out of the ground: it drills deep wells into the mountainside, much the way a town drills for water, except that what rushes up is scalding steam from the hot rock below, and it lays the pipelines that carry that steam to where it can be used. The second business is the power plant at the end of those pipes, where the pressure of the steam spins a large machine, and the spinning is what produces electricity, the same way a bicycle dynamo lights a lamp when the wheel turns. Under Marcos-era arrangements, PNOC-EDC ran the first business, the wells and the pipes, while Napocor owned and operated most of the power plants at the other end. The state, in effect, kept the steam and the machines in separate hands. When the company was eventually privatized, its new owners discovered they had bought the steam but not all of the machines it powered, and reuniting the two halves would drive some of the most consequential Lopez decisions of the following decade. Building the backbone The first commercial breakthroughs came in 1983, when the 112.5-megawatt Tongonan-1 plant in Leyte and the 112.5-megawatt Palinpinon-1 plant in Negros Oriental entered service, both born of the post-oil-crisis push. Through the late 1980s and 1990s the company added the Bacon-Manito plants in Bicol and the Mt. Apo complex in Mindanao, entered power generation directly through build-operate-transfer schemes, and by 1997 was claiming Tongonan as the world’s biggest wet steam field. The plants were built where the resource is: in remote volcanic uplands above Ormoc and Kananga, above Dumaguete and Valencia, on the slopes of Mt. Apo in Kidapawan, reached by mountain roads and served by transmission lines carved through difficult terrain, because steam, unlike coal or gas, cannot be shipped to a convenient site. What the difficulty bought was the rarest thing in renewable energy: baseload power, electricity produced around the clock from heat that does not set with the sun or die with the wind, holding up the floor of the country’s demand through the power crises of the early 1990s and beyond. The biggest – and most controversial – privatization By the mid-2000s the government wanted out of EDC to cut the yawning national debt and plug budget gaps. But the manner of its exit remains one of the more instructive fights in Philippine privatization history. The Joint Congressional Power Commission (JCPC), the bicameral body overseeing the power sector’s restructuring, had blocked the original exit plan in 2005 and in 2006 endorsed a different one: sell each government-owned geothermal power plant together with a long-term contract for PNOC-EDC’s steam, so that whoever bought the turbines also locked in the fuel coming out of the ground. It was an attempt to reunite what the Marcos-era setup had split — steamfields in one state company, power plants in another. The conditions for that bundle were never met on time, so the government abandoned the scheme and instead put up for sale its 60% equity stake in PNOC-EDC itself. The fight that followed was about more than timing and price. Lawyers and nationalist economists also questioned who was being allowed to buy. Under Philippine law, only a “Philippine national” can own control of a company that taps natural resources, and regulators had long relied on the “control test”: if at least 60% of a bidder’s shares were held by Filipino corporations or individuals, the whole bidder was treated as Filipino. Red Vulcan cleared that test because 60% of it was owned by Lopez-controlled First Gen Corporation, with the remaining 40% held by joint venture partner Spalmare, a Dutch vehicle for two Icelandic geothermal firms, Reykjavik Energy Invest and Geysir Green Energy. &nb