To our dear Stakeholders,
We ended the year almost 700 GWh or 8.7% below the 2020 generation, largely driven by execution issues. We were caught in a perfect storm, with four issues happening all at once: first, a high steam outage rate of 9% vs 3.7% last year, which happens when wells have to be cut out from the system for various causes. Second, high unplanned outages of 6.1% vs 5% last year at the power plants. Third, a higher than expected decline rate of the steam fields at 51MW/year vs 46MW/year in 2020, and fourth, the sidelining of our two drilling rigs that had to be urgently inspected and repaired. These repairs became necessary following a thorough investigation after an HSE incident. Again these issues with the rig fall squarely in the bucket of execution failures, as the rigs should have been in a better state before being put into service.
All told, these resulted in forgone revenues of Php 3.5 billion, 70% of which could have gone straight to the bottom line. Hence, we ended the year with a Recurring Net Income Attributable to Parent of Php 8.7 billion, which was 12% lower than last year. More importantly, if we had the benefit of the generation, our average totex per kilowatt hour would have gone down by 13%.
It would cheapen the painful lessons of the year to mention that COVID-19 and the attendant restrictions had caused most of the impact, so up front, I will say that COVID-19 was not a major factor. In fact, we had a major miss when we transitioned to work from home and shelter-in-place or SIP. The miss had to do with our safety systems that are anchored on an assumption of boots on the ground, doing pre-job inspections and issuing permits. We failed to recognize early on that SIP protocols reduced the presence of our team on the work areas by over 70%. This is basic in the book of management of change. So, in the second half of 2021, when we ramped up our construction, our safety incidents rose.
By the time we changed paths in December 2021, when we hit 99.3% vaccination rates for employees and contractors alike, some practices already backslid. In my visits to the central maintenance work area of Leyte in November 2021, I spoke extensively with close to 40 laborers. They told me that their last Monday morning tool box meeting was right before the pandemic lockdowns. Anyone who has attended or led a toolbox meeting will recognize that they are essential planning, prioritization, and collaboration tools.
So COVID-19 and the SIP protocol impacted results as seen in the misses we had. There is no reason toolbox meetings should have stopped. There was certainly a way to either have more boots on the ground or to reduce the amount of work being done to match our safety supervisory resources. These examples led me to the painful conclusion that we could have and should have done so much better.
However, in calling out some of the shortcomings, I don’t want to leave you with the misimpression that nothing was done right.
We did a lot of things distinctly well, starting with keeping our employees safe during the pandemic. It was clear from the many town halls that our employees were losing confidence in some of the institutions expected to rise to the occasion during the pandemic. “When will we get reliable vaccines?” was the top concern.
We learned a lot also in the course of managing through the pandemic. My top learning is that, in times of life threatening crises, the opposite of uncertainty is not certainty. The opposite of uncertainty is presence. Times of crises call for being a felt empathetic presence by our families, our fellow employees and the community at large. My second learning is that when those around us are threatened and are unable to find the assurance they need from institutions that they normally rely on, they will turn to the company and need to see a steady hand. Transparency and compassionate communication are the lighthouses in dark times.
This is why we partnered with our communities to fund full RT-PCR labs. Our communities benefited from getting results in a day vs 4-10 days. But these PCR testing centers also served our company by allowing our employees to test en masse before reporting for work. In recognition of our health security efforts, the Department of Labor and Employment (DOLE) awarded all our facilities across the country with Safety Seal Certifications.
Our decision to prioritize safety is one that I am proud of. The 99.62% vaccination rate (as of May 2022) was achieved in addition to the complimentary flu and pneumonia vaccines, and very personalized employee care for those who got COVID-19. We extended this personal care to family members and other household members who contracted COVID-19. I made sure to personally call our employees who had severe cases to allow them to unburden and to reassure them of our support.
Although we made a lot of changes to keep our people safe in the past 24 months, we still regrettably lost two employees to COVID-19. One opted not to get vaccinated and succumbed to COVID-19. Another delayed seeking hospital care as she was heading our largest vaccination effort in Leyte. Only after the hectic and highly successful two week-long vaccination drives were done did she demonstrate multiple symptoms, and sought medical care. Lisa Daigan, the selfless human dynamo HR head of Leyte, will be missed.
In terms of growth, we began the construction of the 3.6MW Mindanao 3 (M3) binary facility in 2021 and it went operational this April 2022. We also 11 USAID (2018). Cost Benefit Analysis of Mitigation Options: 2018 Integrated Report commenced work on the 28.9MW Palayan Bayan project in Bacon-Manito and we target to inaugurate it in the first half of 2023.
In executing our projects, we decided to do two things differently. First, we decided to recruit internally. To build more project execution muscle internally, select employees were given developmental assignments, as opposed to staffing with project and contract hires. Second, we worked with our local communities to train at-risk youth several months before the projects began. We brought our Keitech Technical Vocational School formula from Leyte to Sorsogon. Youth from underprivileged families in our local communities are benefiting directly from the skills development and employment. Then, to close the loop, we directed our contractors to employ the well-trained youth — who were ready with welding, pipe fitting, masonry, plumbing and safety certifications from TESDA. With sufficient experience hours under their belt, these formerly at-risk out-of-work youth can eventually apply for higher wage jobs overseas, continuing to alter their futures. These are examples that show that all it takes is a little systems thinking to capture opportunities to do regenerative acts and embed them in our program.
We also laid the groundwork for three more expansion projects: the 20MW Tanawon, the 29MW Mahanagdong, and the 5MW Northern Negros projects. Our geothermal growth comprising these 3 new projects, as well as the completed M3 and the ongoing Palayan Bayan projects that were mentioned earlier, require investments in the range of Php 24-25 billion over four years from 2021. Total geothermal capacity added is 86.9MW, which will generate the energy equivalent of over 700 GWh, bring in revenues of over Php 3.1 billion and cash flow of Php 2.5 billion per year.
Finally, the groundwork is also being laid for our energy storage business. Through Project Aya, a 100MW pumped-storage hydroelectric project in the province of Nueva Ecija, water will be pumped off-peak and then discharged for as long as twelve hours, shifting energy to when it is needed by the grid. Aya will have the ability to respond and stabilize grid operations as more intermittent plants come on to the grid. Work is also underway to construct our first three Battery Energy Storage System (BESS) projects, which will be operational at the end of 2023. Total investments in these pioneer battery projects are expected to exceed Php 1 billion, and contribute as much as Php 1 billion in annual revenues beginning 2024 under particular offtake conditions.
In the wake of Super Typhoon Odette in December 2021, our typhoon-proofed plants stood unharmed. Our typhoon-proofing and landslide mitigation efforts have allowed our plants to provide energy to our customers, so communities no longer have to suffer through weeks or months without power. It has now been 53 months since our last insurance claim from natcat events. Over time, with resilient performance, we hope our insurance premia will trend down. This fixed cost now accounts for 3% of our total opex.
Unfortunately, as our assets stood ready to deliver, we still experienced curtailments following the damage wrought by the typhoon on the distribution systems of our customers and the transmission systems of the National Grid Corporation of the Philippines. This is something we have to reckon with and the attendant opportunity costs—about Php 558 million (Php 204 million in 2021 and Php 354 million in 2022) from Typhoon Odette—is one that we still need to address. We are starting this year on the back foot in terms of revenues.
Our typhoon proofing program comes to completion this year. Project Neptune is an international collaboration to redesign our plants for extreme wind load cooling towers, which began in 2014. We ended up with wind load designs capable of withstanding sustained winds north of 330kph. For several years, they were the only ones of their kind in the world although we have heard others have begun to follow suit.
We invested first where risk is highest: at Bacon Manito in Sorsogon. Since then, we have gone across the plants, one cooling tower at a time, dismantling old towers and replacing them with new design and materials, all the while keeping the old material as strategic spares. These critical monthlong efforts have been timed with major outages to reduce opportunity costs. This long-term effort has paid dividends and will finally conclude this year, when 12 of our largest cooling towers are upgraded in both Bacon Manito and Leyte sites. In an effort to expand the resiliency of our assets, we launched Project Athena in 2018, implementing further upgrades for resistance to earthquakes. From being able to withstand 0.3g peak ground acceleration (pga), several of our towers can now withstand 0.6g pga earthquakes. Peak ground acceleration is the largest increase in ground velocity measured by instruments during shaking (accelerogram).
We are likewise in a very good position now with a complete set of rotating spare rotors for all our geothermal power plants for the first time, thanks to a reblading technology used by the aviation industry from an Austrian-German company. Through the collaborative and innovative work of our team, we worked with our partners to bring the technology to our country, qualify procedures and do field testing. We were able to introduce Low Temp Arc Welding and with qualified procedures now use it for the repairs of our rotating equipment. As a result, turbine diaphragms no longer warp and rotors no longer bend due to the long time spent in workshops using the old method of submerged arc welding (SAW) where the equipment is immersed in 650 °C for extended periods of time.
Hence, the risk of bent rotors has practically been eliminated, and our turn arounds arising from forced outages have dramatically improved, cutting opportunity costs as well as inventory costs substantially.
We have gained momentum in our well integrity management journey since we started with Project Asgard in 2020. In 2021, we implemented our Well Integrity Management System (WIMS) which aims to improve the system by which well risk assessments are done. WIMS introduced a barrier policy, a refined likelihood of failure criteria, a streamlined risk assessment reporting and established clear escalation protocols. This is now used to categorize the risk to wells via a dispassionate scoring system based on factors such as enthalpy, mass flow, suspended solids, pH of the wells, and erosive and corrosive properties of the fluids.
In 2021, WIMS resulted in the classification of approximately 250MW at high or extreme risk. A total of 57 wells fall into these categories, putting at risk up to Php 7.9 billion in revenues.
This 2022, we have programmed risk mitigation activities to reduce the risk of 21 highest risk production wells with a total output of 100MW. The programmed risk mitigation activities will address the top threats to our business. To combat erosionand corrosion-driven risk, we will be cladding both valves and wellheads, installing more online pH monitoring devices, and conducting more frequent ultrasonic thickness gauge measurements and caliper surveys, and downhole chemical dosing for acidic fluids.
For reinjection wells, we have programmed activities for 2022 to lower the risk of two highrisk reinjection wells. One of these wells is a cold injection well, which has an associated MW at risk of 189MW.
These initiatives from collaborating with partners to innovate and reduce costs and risk, to our employee programs will all enable us to ensure that other stakeholders are included in our plans and programs. We need to maximize all opportunities to do good as we progress