AboitizPower MANCON 2018 by Endika Aboitiz


January 19, 2018

Enrique Aboitiz Mendieta

It’s been a pleasure to close. This is gonna be my last.

Pass on success and leave before I am asked. My uncle Eddie taught me that.

The theme: Heading into the storm

Thank you one and all for joining us.

As we head into the storm, we need all hands on deck with full comprehension. This is why we are here.

unnamed (8)


unnamed (7)

Last year – we were heading into the wind.

This year – we are heading into the storm.

I have a feeling that soon we will be in the eye of the storm. Or maybe not. Will supply be built?

Montxu reviewed EPIRA…

The goal of our economy – reasonably priced, amply served and reliable power. It has been achieved and this is a good thing.

Not properly regulated….

That is not possible – to be properly regulated. ERC in disarray – that is to be expected.

I am not being cynical. It is the nature of the beast. To expect it to be different is not realistic.

I have full faith in the regulatory system. Not that it will work as we want it to, but that it will work slowly. It has always worked…look at the results.

Oversupply and low prices are the results. They are not concerned with our profits and our margins.

Things get done. Slowly. But they get done. The DNA of government is different from business. Government is driven by process not by results.

Government operates in an atmosphere of CMA – cover my ass. And they have, to not get burned. It is not all their fault. It is the system.

Montxu reminded us

RA 9136



This is the story. The storm.

Margins are thinning, ROE dropping.

Overcapacity…the storm to come and into the eye of that storm.

But oversupply and low pricing has a way of creating demand as fiber optic cable over supply did for VOIP, call centers, and streaming.

AP’s balance sheet is that of nuclear-powered aircraft carrier. Capital will retreat as returns drop. Capital from equity and from debt. The cost of capital will increase as negative interest rates subside.

It did for coal.

It did for bulk carriers.

It is the operating system called capital.

EIA spoke of renewable and the need to balance our energy mix. Lee Kwan Yu said, “Do what works.”


I have a theory.

Economies have always been driven by three factors:

  1. Energy
  2. Natural resources
  3. Technology

Fracking is a temporary bridge to low-cost renewable and maybe zero marginal cost power, which will drive lower costs of water and food. Less natural resource per GDP of growth is being consumed every day. Less steel in cars and planes and more composite.

And technology is permeating everywhere.

Medical advances will mean people living longer and houses being used longer. And new houses being built for millennials who will start working for a living.

Montxu spoke of our edge – the first mover edge. How that is dwindling.

One of the most important words of today: edge – without it, you don’t win. You just don’t win.


I don’t know how many magnums of Bollinger we will open on the deck of that aircraft carrier called Aboitiz and company watching the sunshine and the rainbow Montxu predicts will come.

I think there is another sunshine coming out of the clouds and that is the continuous creation of a middle-class worldwide as a quarter of a billion people come out of abject poverty daily. They will soon be our customers as they come visit us as tourists.



unnamed (9)

Tony confirmed we will be at 4000MW and 7TWH.

Others growing capacity faster.

But we are maintaining energy market share.

Tony spoke of open access. 1 TW/year 200 MW. Tears were coming down my eyes when he cried how difficult it would be. I have heard this expectation, managing challenges before. Then when it hits 1.1 TW. We were lucky. Comes more challenges – false humility.

PSA 100 SC cases. Well, we are a country of lawyers. We have to give them jobs. People want us to be Germans and produce technical people. We are Pinoys. We produce people and unfortunately that comes with too many lawyers that need employment. Again, the nature of the beast.

Oversupply. Our role in the board is not to be optimists. It is not to be pessimists. It is to translate experience into some form of relevant realistic guidance for the future.

In dear old Pinoy land, we have never built infrastructure ahead of the need. Everything tells us that we will now do so in the power sector.

I hope so. But the reality is, that we do not do things in advance. Something always prevents it. I want to be wrong.

Our DNA, Our Republic of the Philippines (ROP) DNA. Our DNA is composed of two strands:

One is no sense of urgency – we are Latin. We were in the convent 400 years. And thank god we were under the Spanish and not the Italians – if we were we would be Argentina.

The second is no sense of accountability – we are Catholic. You can sin all you like and just confess on the weekend. And on Monday you can do anything you like again.

Now having said that we are right to prepare for battle. Laging handa.

Tony showed us LUZVIMINDA over supply – a very powerful red light. Now demand is elastic. When prices come down, consumption increases. That holds true for almost anything.

Tony mentioned economic growth. We do not have the capacity to pass maybe 8% growth. But we are building it.

The correlation has changed between GDP growth and power growth. It has come down from 1.7 to 0.7 but the GDP growth has risen.

Regulatory environment.

It’s about politics worldwide.

Alexander Hamilton explained it – presidents have to be seen as action people. Social media multiplies exponentially so firing people makes people feel good.

Pres. DU30 is doing something the constituents feel. Fire. Fire fire. Action. Action. Action.

Renewables are here to stay. Great news for the ROP economy.

The Chinese are driving down the cost.

Deng says 50 billion in consumable income at PRC – today 4.4 trillion. Tomorrow, 10 trillion. We will benefit from that R&D and volume-driven cost reductions.

Tony talked of odd changes in structure – I argue that we are not after structure. We are after order. Who cares about odd structure, so long as there is order.

We seldom measure the intangibles. There must be a treasure chest of intellectual capital deposited into our intangible balance sheet from building and operating all our plants.

In the talent slide of Tony: From within we promote all men and two women. From the outside we bring in all women. What do I make of that and our future composition. Women are better at tutuk. Those little drops of water break marble.

Fun… nothing engages like enjoyment. Richard Branson puts it this way – life is a party, and parties end. So drink, laugh, sing and dance for it will end.



unnamed (1)

The story of Richard Branson and Virgin Australia.

Invests 10 million Australian dollars.

Cheong of Singapore Airlines tells him: We will buy it from you for 250 million Aussie. If you don’t sell, the Australian government will use Ansett to blow you away.

Richard Branson meets with his team. He meets the press the next day. With a large check for 250m explaints that he will sell and why, and then says, “I was just joking. He tears up the check and says, FFFF them. We are here to stay. One way to handle the regulator.”

Another way …

How to deal with a regulator…

Advice from another taipan: how does an elephant have sex with an ant? Very slowly and with lots of patience.

Thank you Cholo. Thank you for your patience.

This is the last time you are doing this.

Big shoes to fill. And I want to thank you on behalf of Jon and Montxu and your board. Without you, Jon would have lost hair and Montxu’s head would look like Tony’s and Txabi’s – shiny.

Issues unresolved for years. Let’s understand time. For government and business, they have different clocks. Government cannot change as fast as business. It’s not in their DNA. Reverse the individuals, little will change. With the acceleration of change, the gap widens between what government and business can do.

Cholo mentioned protect ourselves- open access, distributed energy and micro grids. Sure. We have to. But that is one group of us while the other is adapting to change. Protection is about preservation. Adaptation is about growth. I see we are doing growth.

The great strength of Aboitiz is pragmatism.

It is not our challenge of the status quo. It is us adapting to change at the right time.

Pragmatic. Open. Listening. Some innovation.

To change at the right time.

Too early – too expensive.

Too late – you miss the train.

For the past 150 years we have done this well.


Cholo mentioned perishable service product. For some reason, all too many in these types of businesses.

Do all kinds of stupid stuff and a vicious circle begins.


Is it not stimulating and increasing demand that requires our attention?

SC TRO ERC and its consequence.

For sure. Government is about CMA – cover my ass.

And it is not their fault. They have to, if not, they leave government for 20 years of court cases.

Coal – let us see. Everyone predicting its demise. When all predict, for some reason it does not happen. Malthusian fears do not come true.

In 2010 – the perception was the generators made too much money. That perception will be there for decades. How to mitigate? This is a challenge.

Meralco explained that this perception was not true nor were the comparisons apples to apples, but no one cares. Other countries subsidize their power costs. But to no avail – the longevity of perception is what people choose them to be.

Chance favors the prepared. Pre-2009 we were prepared and chance was an ally. This will come again. We will be prepared because as you see from presentations, we are watching things very closely. Maybe the regulatory train will be our ally.

The only realistic option with the regulatory train is to try to speed it up a little. Expecting it to come to our speed is not realistic. It does not have the horsepower.



unnamed (12)

Oversupply is here.

LMA talked about RPC, green energy options, reserve markets and financial markets. Progressive and more efficient. All good signs.


RPC. 600 MW per year. In a time of oversupply.

Now, one cannot consolidate without violating.

LMA reinforced our brand. He repeated lowest cost producer and reminded us on the creation of new markets.



unnamed (2)

WESM will drop prices.

The nature of contracts changing from capacity to energy and at higher risks, enjoying lower margins.

A buyers market.

Well that was the intent of EPIRA and it succeeded. This has to be good for the ROP economy long-term.

Open access. Same customers, more suppliers. That does not sound quite right into the future. There has to be more customers to come.

Our customers. If there is something we have learned is that the right sales guy can convince people of anything. But I wonder if we spend enough time in creating demand.

We were first to market – that edge has dwindled. Price is the only weapon. Can I offer you another perspective?

Price is not the weapon. It is the battlefield. The weapons are the bullets we developed through customer intimacy and the search for value.

Often you meet a new person and he asks, are you married?

I answer, “yes. I have six wives.”

He says, “no, no way.”

I answer, “for sure, almost every day a different one.”

“How do you manage them?”

“Well, I ask each one every morning which wife I woke up with so I know how to behave, what to say and what not to say.”

That is what customer intimacy is about.

A long time ago this fellow told me that a friendship built on business is better than a business built on friendship.

You see we are not the government.

For business, the process is what we use to achieve results.

It is not the end. The end is the result.

And digitalization – we all know it. It’s in everything that we do.



unnamed (10)

Journey to predictability.

Customers love predictability. Predictability means trust.


Safety – Manny you’re focused on this. Please continue. It’s our name out there.

Disruptors – maybe you can look at them as engagers. Clint Eastwood – make my day.

Manny talked about efficiency.

1 percent, 160 m and that is today. Tomorrow as we grow its 320 b per percent. And if you listen to Buffet it’s times twenty in NPV. That is why he saves 5 dollars a day in meals – that is worth 50T USD over a lifetime. But he is right – every savings compounds.

Everything in real time – it always has been but now the speed has accelerated to speeds we only thought of a decade ago.

Mitigate the margin squeeze by controlling the ecosystem. We look forward to seeing these savings going to the billions – a billion to start will do.

You ended with Steve Jobs. This is the greatest company ever built. It took them a few decades to reach the value of the first real multinational – the Catholic Church. Both at around a trillion dollars, maybe the latter is more. His secret I guess is the ability to merge many disciplines to create a product everyone loves and no one knew they wanted.

My other favorite is Richard Branson. This guy makes billions while having a blast and questioning everywhere if the customer is underserved and where. He buys a health club chain and looks for ways to differentiate. Literally 100 hundred ways to differentiate.

So remember who to learn from – Jobs, Branson and St. Paul. From the sage, only how to save money.


7. JIMMY ABOITIZ – Distribution

unnamed (3)

1 million customers.

44 billion in revenue.

Close to 7 TWH.

A long way from the Cotabato Light days.

Decades ago I had lunch with Laurence Kadoorie. Owner of China Light and Power. He told me the story of china light and power and how it began after the war with one 500 KW generator. I told him that I was sorry Sir Laurence but my family owned the first CLP. He looked at me with a gaze. I said yes – Cotabato Light and Power. Now you sell in a second what we do in a year but we were still first.

Jimmy talked about helping Davao create new demand and foreign investors.

I am happy to see that Jimmy has realized how things changed. When Jimmy was younger, he had all these chicks chasing him for his body… Supply oriented. Anyway now, Jimmy realizes that they are not just after his money. Like his customers. He has adapted to change. It’s price.

Rooftop solar – now when jimmy convinces Sabin to aircondition the pigs’ accommodations we will understand new demand. Sabin will say no. And Sandro will come in and convince him – electric fan will do. Believe you me you can convince people of everything.

Smart metering. ADMS. Explained by Jimmy. I do not follow but hey it sounds sexy so I look forward to see this evolve.

People need to be empowered. But it is clear you only use people when you have to and where you cannot replace them. Robots, sensors etc. first… Greatly engaged people are too precious to use to check a meter. We need them in sales and service.



unnamed (6)

Our challenge – our warchest.

No imminent opportunities in ROP. Probably right, hopefully not.

We live in 3000 USD GDP per capita economy that is doubling every decade more or less. There has to be opportunity.

Overseas with risks. Political, currency et. al.

Very true.

Where will the risk be commensurate?

Trump told us where the opportunities lie. In countries with high returns like Congo. Definitely not in Switzerland.

Discipline in investing.

Let me put it this way Robert: We are capitalist and we will interrogate any proposal in areas we are not familiar.

On top of that,

We are Basque.

We are pragmatic.

Cash before deal fever.



unnamed (4)

Pace – efficiency is in process. Actually in less processes.

Now let me explain to you fat, my dear Liza. Us fat guys are very efficient. We turn food to fat for future use.

You think people are coal plants – you burn it all.

Now you need to turn your costs into my fat.

Free cash flow is fat that is kept in the right place.

Now don’t lose muscle.

Again in the saving you used. Here, my hero is Buffet. The sage. Guru of compounding – every 11 million savings is worth 220 million.

And Liza, Basti says you worry. Well, worry… worry is like a rocking chair. Forward backward. Forward backward and gets you nowhere.


Open session comments

One highlight – Tony’s comment, with a little color from me.

The competitive edge comes from only one area – an intelligent, engaged team that works as one with egos left in the toilet and flush.

Impact of digitalization on the organization.

Noise – the whole world is about more noise getting louder.


What do CEOs worry about?

That is where we can learn a lot –

A lot of what not to do.

All these years that I have read all this advice from surveys, CEOs that do not know how to even type. They type like penguins. How the hell will they know about digitalization. So yes we can learn from them, what not to do!

Story of the women in India Rojastan – NPV value of sheep. Who do you trust? Harvard MBA or this Indian woman from the street?


Davos the same – 100% off.

So one can learn. Where they will be off?

Jack Welch builds GE and Inmelt destroys it.

One of the biggest financial institutions in the world did not see the storm that was coming in 2008.

Genuises fired Steve Jobs. It is the street that teaches us. That is where change is happening and where it has always been happening.

It’s not driven by the CEOs office, with some exceptions, like Steve Jobs.

And then comes accidents. Thomas Jefferson the designer of the American experiment. Declares all men are created equal. He had 700 slaves. He meant all white men with land are created equal. But John F. Kennedy took it to town with Martin Luther King for the better.

SM invests worth a trillion pesos – it’s worth Aboitiz and Ayala together and we have been here for four hundred years together. They have been here for 60. They know the street. They know where the cash is being generated and they know the speed of change. They know it well.

Now we in Aboitiz are marathon winners.

In my opinion, the marathon is won with three ingredients.

  1. You need to take care of the interests of the next generation
  2. Institutions matter
  3. Adaptation to change

Our future / our opportunities.

How to get better at seeing around the corner with as little information as possible. Once all the information is available everyone sees around the corner – you are the corner.

Virgin strategic conference 1999 asked – what is left for us to do… twenty years later. Virgin galactic to space.

Malthus – the world will not have enough food. Now, more die of obesity than war.

At 7%, we double our economy every 10 years. In twenty years we will be a 1.2 trillion USD economy – that is Russia today.

Opportunity – it has to be screaming at us.

Let me end with culture:

  1. I tell everyone that if you agree with me, you add nothing…
  2.  If I have to charge your battery, go somewhere else …
  3. Finally, you carry my name. So don’t FFF with it!