愛依斯電力 (AES) 2009 Q2 法說會逐字稿

Good morning. My name is Latangia and I will be your conference operator today. At this time, I would like to welcome everyone to the AES Arlington Q2 2009 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

I would now like to turn the conference over to Mr. Pasha. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome to our second quarter 2009 earnings conference call and webcast. Joining me today are Paul Hanrahan, President and Chief Executive Officer; Victoria Harker, Executive Vice President and Chief Financial Officer; Andres Gluski, our Chief Operating Officer, and other senior members of our management.

Before we begin this morning, I would like to remind you that any statements made herein about future operating results or other future events are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from such forward-looking statements. A discussion of factors that could cause actual results or events to vary is contained in the filings in our Investor section of our website, www.aes.com.

And now, I would like to turn the call over to Paul.

Thanks, Ahmed. And good morning, everyone.

On today's call, we're going to cover three main areas. These include the results for the quarter and forecasts for the remainder of the year, including the actions we've taken to mitigate the impacts associated with the economic slowdown; second, an update of our construction pipeline; and third, following Victoria's discussion of financial results, I'll discuss our views in capital allocation, which is an area of interest to many of our investors.

I'll start with the results for the quarter.

When the global recession accelerated in the third quarter of last year, we outlined aspects of our business model and initiatives that would help us withstand the anticipated challenges of reduced demand, increased currency and commodity volatilities, and limited access to the capital markets. Specifically, we explained how the attributes of our business model, including our geographic and field diversity, along with our continuing focus on operational improvements, would mitigate the impacts of the slowdown and associated capital constraints.

At the same time, we felt it was important to develop low-cost investment options that we could pursue as global economic conditions began to improve. Through the second quarter of 2009, we benefited from many of these initiatives and the strength of our business model, which helped us deliver the strong financial results.

First, our diversity across geography and fuel type helped us, as we benefited from higher dispatch in places like northern Chile, which offset the lower demand in North America and Europe.

Second, operational improvements played an important part in the story. For example, in our 600 megawatt coal-fired Masinloc business in the Philippines, we have been able to increase the plant capacity by 40% within one year of completing the acquisition of this facility.

Other measures to operate more leanly and efficiently across our fleet are on track. As a result, year-to-date adjusted earnings per share is $0.65, which is 60% of our 2009 guidance. Proportional free cash flow is $394 million, which is approximately 50% of our full-year guidance.

For the full-year, we are raising 2009 adjusted earnings per share guidance from $0.97 to $1.07 per share to a range of $1.05 to $1.10 per share. This reflects the fact that while some of our businesses are facing some headwinds this year, we have several others that are doing better that more than offset these shortfalls due to better operating performance, FX, commodity, and tax rates. We've also increased our guidance for proportional free cash flow consistent with our stronger-than-expected performance.

The next topic is an update of our construction pipeline, which will play a key role in driving our cash flow and earnings growth through 2011. Since the end of the first quarter, we've completed the construction of just under 400 megawatts, which represents the completion of approximately 12% of our construction program.

First, we completed our 130 megawatt Santa Lidia diesel-fired Pica project in Chile. This project fills a need in the Chilean central grid, which has been dependent on hydropower and Argentine gas, which historically has been unreliable from a supply perspective. As a peaking plant, Santa Lidia will be able to provide much-needed firm capacity for which it will receive capacity payments.

Second, another core power project, the 152 megawatt coal-fired Guacolda III project in Chile was also recently completed. This project achieved commercial operations a month ahead of schedule and on budget. Guacolda III is an important project for Chile because it is the first coal-fired plant that has come online in that country in 12 years. It is also the first coal-fired plant equipped with flue gas to de-sulfurization FGD technology.

Third, in northern Ireland, our Kilroot expansion is another example of value creation in the form of a platform expansion. We added an 80 megawatt open-cycle gas-fired peaker to our 520 megawatt existing coal-fired plant. This new project benefited from existing plant and operating plant and business infrastructure, which helped to reduce the overall capital costs by 25%.

This expansion will be an important part of the reliable power in the Irish market, where 20% of the system demand is met by wind resources. And as this peaking plant has firm capacity, we will also receive a capacity payment.

Fourth, in the renewables area, we added 12 megawatts of wind in France, a market that had the second highest growth rate amongst major wind markets over the 2006 to 2008 period, behind only China, where we are also active. And it's expected to be in the top 10 markets in terms of new capacity additions over the next five years. We sell output from these projects in France under 15-year contracts to EDF, a state-owned utility, under long-term feed-in tariff structure.

And finally, in China, we are also in the final stages of commissioning a 50 megawatt [Qinghai] plant, which is part of our joint venture in an area on the coast of the Bay of Bohai, just south of Tianjin. I visited this site earlier this week and saw the plant operating. I was quite frankly amazed at the amount of economic growth that is continuing in this region.

We've also embarked in the construction of the next 50 megawatt phase of construction at the site, and we have the option to further expand this facility by an additional 100 megawatts in the future.

Let me also give you a brief update on some of the remaining construction pipeline.

In Africa, we commenced the commissioning of our 86 megawatt oil-fired Dibamba project in Cameroon. Given the progress to date, we're on schedule to commence commercial operations before the end of the year.

In Jordan, we've been operating our Oman East plants in simple-cycle mode with the gas turbine providing Jordan with approximately 250 megawatts of open-cycle capacity. We are on track to bring the project in the commercial operations in the second half of 2009.

In Europe, our 670 megawatt coal-fired Maritza East plant continues to make progress, despite previously discussed construction challenges. We still expect the project to achieve commercial operations in the second half of 2010.

As was already highlighted, we have one construction project that is facing some significant challenges. Our 270 megawatt Campiche project company in Chile had applied for and had received an environmental permit to construct the plant from the local permitting authority. Upon subsequent review, after intervention by a local environmental group, the Supreme Court invalidated the zoning permit that had been granted to the project company by the local permitting authority.

The government of Chile appears to be committed to working out a prompt solution to the zoning issue, which was the basis for rebuilding the environmental permit, since it's clear that this action has implications which could impact other investors with large capital investments in Chile.

If the project company is unable to complete the construction of the project, we would not expect any material impact to the AES Corp. adjusted earnings per share for proportional free cash flow guidance we gave back in May of this year. There would, however, likely be an impact on GAAP earnings per share if the project company were forced to abandon the project and write it off. In that case, it is possible that Gener, our Chilean subsidiary that is invested in this project company, would have a write-off of approximately $186 million, of which the AES ownership adjusted share would be approximately $132 million.

In terms of other projects under construction, they're all progressing on schedule and are expected to come online through 2011.

While we're disappointed with the developments at Campiche, we're otherwise pleased with the progress we're making on our construction pipeline as a whole. To date, our projects have been coming into operation on time and on budget, with projects like Guacolda III coming online early.

Let me now turn the call over to Victoria, who will cover our second quarter results.

Thanks, Paul, and good morning, everyone. As a result of the accomplishments that Paul just discussed, our plants turned in a strong financial performance this quarter as well.

We're particularly pleased that our earnings, proportional free cash flow, and subsidiary distributions can continue to meet and, in fact, exceed our expectations for 2009, despite the continuing effects of the global economic slowdown. In large part, this is a result of careful planning and in anticipation of market challenges, as well as the strength of our portfolio of businesses that span many different technologies, fuels, and geographic economies.

As Paul mentioned, we continue to benefit from the cost and operational efficiency initiatives we took into place last year, such as the implementation of global coal sourcing and the creation of 13 regional financial hubs, with year-to-date savings in excess of $40 million already achieved.

In our efforts to streamline and improve operations, many of these initiatives were launched well before the market meltdown last year, as we have discussed in our prior calls. These efforts have helped buffer AES from the effects of the economy, mainly commodity and currency price volatility, as well as reduced demand in some markets.

During the second quarter, we also benefited from our diverse portfolio across different markets and fuel types. For example, while low natural gas prices and weaker demand have impacted our businesses in North America, our gas plants are helping to offset this, with expanding margins in Chile, where demand in the Northern grid grew by nearly 6%.

We also saw real, tangible benefits from the operational initiatives we put in place in the Philippines, upon the completion of the acquisition there. And we have improved the availability by almost 40%, taking the plant to 635 megawatts. As a result, Masinloc turned a profit for the first time this quarter, and we look forward to continuation of these trends.

I'll now walk you through the specific drivers of our financial results for the quarter and where we are at midpoint in the year, and then give an update on our 2009 guidance.

Compared to prior-year, gross margin for the quarter decreased by $182 million to $847 million. Keep in mind that the same quarter last year benefited by almost $84 million, primarily as a result of a non-cash derivative gain on a fuel contract in Hawaii. As a result, nearly all of the comparative difference is driven by FX, primarily in Brazil, where currency devalued by fully 26%.

In addition, as we discussed during our last earnings call, we continue to see demand weakness in North America and lower spot electricity prices in Argentina and New York, which compressed margins. However, we were very pleased that several key businesses significantly improved their profitability in the quarter, including Chile and the Philippines, as I discussed a moment ago.

Of particular note in Chile, Termo Andes increased its production and energy sales by 19%, helping meet demand growth in the region, with gas displacing higher-cost diesel plants. In central Chile, our run-of-the-river hydro-plants benefited from increased water flows, which enabled us to meet our demand requirements through lower-cost hydro generation. In Chile, we also benefited from lower fuel prices as well.

In the Philippines, our investment in plant remediations and process improvements started to pay off this quarter. We saw a significant increase in availability, which led to 123% year-over-year increase in energy production in the quarter. This improvement is a direct result of the rehabilitation work we began in April of 2008.

On a proportional basis, which represents AES's economic interests in our portfolio of businesses, we earned gross margin of $499 million. This reflects roughly one-quarter of our prior full-year guidance. When compared to last year, the decrease is primarily driven by anticipated unfavorable foreign currency exchange rates and commodity price volatility in North America, where, in 2008, we recorded net non-cash derivative gains of approximately $84 million, primarily related to a coal contract, which did not recur in 2009.

Now turning to adjusted EPS. We are pleased to have generated adjusted earnings per share of $0.28 as compared to $0.25 in the second quarter of 2008. Of note, this means that adjusted earnings per share on both quarters are, in fact, roughly equal when adjusted for one-time items, such as the settlement of a claim at Cartagena -- one of our affiliates in Europe -- and the release of a tax valuation allowance.

Similarly, second quarter of last year benefited from an $0.08 tax liability reversal at Eletropaulo. So net-net, we're very pleased to have been able to maintain this stability in earnings quarter-to-quarter, despite foreign currency headwinds, which in and of itself was a $0.06 drag on our earnings per share relative to last year.

All in all, adjusted earnings reflect the steady operating results in many of our key businesses and the ability of our portfolio to overcome significant FX and commodity price-related challenges across geographies.

Now turning to our cash flow results. For the quarter, our consolidated operating cash flow increased $181 million or 58% to $495 million, reflecting improved working capital at our Latin American generation businesses; higher gross margin at Gener in Chile and Masinloc in the Philippines; as well as lower support and development costs. It also reflects the April receipt of $80 million fee related to the management of the northern Kazakhstan assets.

The improvement in working capital at our Latin American generation businesses is primarily attributable to lower investment in fuel inventories at our generation businesses in Chile and the Dominican Republic to lower fuel prices. These improvements were somewhat offset by foreign currency headwinds and higher receivables at our generation businesses in Asian, where many first quarter payments had been received in late March.

While the receivables increased during the second quarter to $145 million, consistent with the payment terms under the off-take contracts, we have received payments subsequent to quarter end due under the terms of those contracts, resulting in no appreciable increase in DSO.

On a proportional basis, AES's operating cash flow increased $284 million. The larger increase in proportional operating cash flow reflects a combination of two factors.

First, our majority-owned businesses, such as Gener in Chile and Masinloc in the Philippines, delivered significantly improved operating results.

Second, the businesses where we have less financial interest experienced reduced operating cash flows this quarter compared to last year. For example, Eletropaulo, where we only have a 16% economic interest, experienced a decrease in operating cash flow in the quarter, due primarily to higher purchase energy costs. However, these costs are recoverable as a pass-through, so we anticipate those collections beginning this month.

This brings me to cash flow, which we define as operating cash flow less maintenance CapEx. Our consolidated free cash flow for the quarter increased $237 million to $366 million. The improvement also reflects $56 million attributable to lower maintenance CapEx. This is largely a matter of timing, as we do have several planned major outages scheduled to take place during the second half of the year, and in order to perform scheduled fixes and upgrades.

On a proportional basis, free cash flow also increased to $190 million. About 88% of the $313 million improvement in proportional free cash flow came from higher proportional operating cash flow, while the remaining amount is attributable to lower maintenance CapEx.

Subsidiary cash distributions to the parent for the second quarter also increased year-over-year by 96% or $258 million year-over-year to $527 million -- again, indicating our portfolio of businesses are performing well in a very challenging economic environment.

Now turning to our liquidity and debt maturities. At quarter-end, parent company liquidity remains strong at $1.3 billion, with $603 million of cash on-hand. As you recall, we substantially strengthened our liquidity in April by raising about $500 million to replace a portion of our senior unsecured credit facility, substantially reducing the carrying costs associated with it.

During the quarter, we also repaid $154 million of maturing recourse debt, and now have no corporate debt maturing within the next 12 months. At the subsidiary level, our liquidity also remains strong, where there is more than $4.8 billion of liquidity and financial assets available to address about $1.4 billion of non-recourse debt maturities within the next 12 months.

Let me now provide an update on some of the key debt market transactions we've completed since our last call. Although the debt markets are not immune to the current state of economic downturn, we continue to achieve financing for projects with strong fundamentals.

For example, as you may have noticed in today's press release, we recently raised approximately $280 million of long-term, non-recourse debt financing to fund construction of 136 megawatts of wind power projects in North America and Europe. Part of the proceeds will be used to complete the construction of these projects, with the remaining $130 million to be used to refund a portion of corporate's equity investment. Both of these projects have 15-year contracts with utility off-takers.

I'd now like to discuss our year-to-date results and our outlook for the remainder of the year.

Based on our performance through the first half of 2009 and the current outlook for the remainder of the year, we are increasing our full-year earnings guidance and the midpoint of our cash flow guidance. The revised guidance is based on currency and commodity movements, which have a net $0.05 favorable impact on adjusted EPS guidance, a lower effective tax rate, which has a $0.03 favorable impact; and a $0.05 gain related to a settlement of a claim reported at one of our European affiliates during the second quarter of 2009.

These favorable impacts are projected to be offset by unfavorable impacts of $0.05 to $0.10 related to outages and lower wholesale prices in North America; lower volume and foreign currency transaction losses, which we realize as a result of the dollar's decline relative to our previous guidance.

In terms of adjusted EPS, we've earned $0.65 year-to-date. Based on the factors I just discussed, we are updating our full-year guidance to $1.05 to $1.10, increasing the low end of our guidance range by $0.08, and the high end of our guidance range by $0.03.

With respect to cash, we generated consolidated operating and free cash flow of $871 million and $586 million, respectively, during the first six months of the year. This represents approximately 40% of the annual targets we provided on our Investor Day conference in May, which is typically significantly higher in the second half of the year than in the first half.

We are pleased with our cash flow results to date, and we expect consolidated operating cash flow to grow beginning this month, in part as a result of the Eletropaulo energy costs flowthrough I just discussed.

On a proportional basis, we also generated $608 million and $394 million of operating and free cash flow during the first half of the year, which corresponds to approximately one-half of our annual targets. Accordingly, we're increasing the low end of our proportional free cash flow guidance range by $100 million to a range of $750 million to $850 million.

It's important to note that we're increasing the midpoint of our proportional free cash flow guidance, even though proportional free cash flow did not benefit from the one-time events in the second quarter, related to the Cartagena settlement and to the [SMIG] tax valuation allowance release.

Likewise, parent operating cash flow, which reflects subsidiary distributions, has also been strong year-to-date, at $757 million or fully 63% of the midpoint of our prior guidance range. As a result, we've narrowed our full-year guidance to $1.2 billion to $1.3 billion.

In closing, we're pleased with our progress year-to-date, both in regard to our financial performance as well as our ability to finance and develop objects in a difficult market.

With that, let me turn it back over to Paul.

Thanks, Victoria. Before we go into the Q&A session, I'd like to talk about how we are thinking about capital allocation at the corporate level.

It's obviously an area of interest to our investors and very relevant in today's environment, where there is several competing uses of capital that are attractive [and] are all accretive to shareholder value. It's also important, however, to discuss how we think about sourcing the capital, as the two are very closely linked.

Very simply, in terms of allocating capital, we look at the Net Present Value on a per-share basis that could be created by investing any capital, whether that would be used to buy back our stock at a discount, to buy back our debt, or to invest in a new plant or business. And the way we think about calculating NPV is calculated on a project-by-project basis, using the appropriate cost of capital for the specific business in question.

Clearly, for example, investments and contracted generation in the US have much lower cost of capital than projects in some developing countries. We then compare the various alternatives, including any quantifiable long-term strategic benefits that also have an NPV component, to decide where to deploy the capital. But first, we have to decide whether to deploy the capital or to hold and have the option allocated to some time in the future, when the NPV creation potential might actually be greater.

At the same time, we need to evaluate how we would source any capital to be allocated. With our holding company model at AES, we are fortunate in having several different ways to source capital.

In addition to having a growing base of internally generated cash flow, we can raise capital in several different ways. One, by selling equity stakes in our businesses, whether partial or in entirety. Two, selling equity of the parent company or any publicly listed subsidiaries. And three, raising additional debt at the parent company, although I look at this as the least attractive option at the present moment, as we want to be strengthening our financial metrics over time, and adding debt would move us in the wrong direction.

As we think about how to source capital in today's environment, the difficulty is that none of the above appears to be value accretive, as we are selling at prices that we do not feel reflect the long-term fundamental values.

As I mentioned on a few of our previous calls, the asset sales market has not proven to be attractive in a few of our recent attempts to sell some assets, leading us to drop some of these sales efforts. But the way in which we are thinking about sourcing capital is very simply that we have to be creating substantially more NPV in the use of capital than we effectively lose in the sourcing of the capital. Otherwise, it's just not worth the trade. And given how much volatility we have seen in the pricing of assets over the past year, we expect the decision will at some point resolve itself as prices increase.

This discussion is relevant because we have continued to develop a number of investment options that remain very attractive from a value accretion standpoint. We continue to see good opportunities across the globe for renewable projects, primarily wind and solar photovoltaic projects, as well as some core power projects in locations where the rate of growth of electricity demand increases has slowed but does, in fact, continue to grow and require reliable, new sources of capacity to meet these needs.

For example, in renewables, we are seeing market opportunities in both developed and emerging markets, where there is regulatory support for these projects. Most recently in the US, the incentives have included the American Recovery and Reinvestment Act, such as the 30% cash grant program, will help to create attractive opportunities in this space.

Turning to wind, at our Investor Day meeting in May, we mentioned that our wind development pipeline of 6,000 megawatts has approximately 1,500 megawatts of projects that are in advanced stages of development in the US, Europe, and Asia. We consider projects to be in advanced development when we are at a point of actively pursuing permits, power project agreements, or other projects agreements so that we can raise non-recourse financing.

For example, in the US, we have the 49 megawatt Mountain View IV project in California, a platform expansion where we have all the necessary agreements and permits for 2010 construction. And also in China, where we are developing a 200 megawatt Tung-Liao windfarm.

Given the nature of project development, there are many milestones and uncertainties involved before they move into construction. However, we are well-positioned to bring some of these projects into commercial operation and expect them to deliver good returns to shareholders.

In solar, we have more than 500 megawatts of solar photovoltaic projects at various stages of development. One of the projects where we are at an advanced stage of development is located in Italy, where we acquired a fully-permitted site for a 43 megawatt solar PV facility, which would make the largest solar facility in the country and the largest greenfield project developed by AES Solar, our 50/50 joint venture with Riverstone, to date.

In addition, we are at an early stage of pursuing two projects in India that would total 20 megawatts of solar PV, which we see as another example of the advantage of having a team on the ground with knowledge of the local power market.

Finally, we continue to develop our emerging grid stability and efficiency business, where we develop, construct, and operate projects with advanced lithium-ion batteries to provide frequency regulation for the electricity grid. This service has become increasingly important as more countries add renewable sources to their grids.

In the US, we currently have projects operating in California, Miso and PJM, and 12 megawatts concluding construction in Chile. We have a 500 megawatt pipeline of development projects for which we are working with local regulators to develop appropriate revenue models for our services. The current DOE grant program enhances our ability to construct these projects in 2010.

During our investor presentation, we highlighted the growth that is built into our free cash flows coming from our construction pipeline through the end of 2011. But to maintain this growth profile beyond 2011, it's important that we continue to develop the various options to make value-accretive investments.

But we also realize it is more important than ever, with the volatilities of the financial markets, to maintain the discipline to be sure that any decisions that we make to allocate capital, and the associated sourcing of this capital, are made in the context of increasing the fundamental value-per-share of the Company.

At this point, I'll open up the call to Q&A. Operator, would you please open up the lines for questions?

(Operator Instructions). Lasan Johong, RBC Capital Markets.

Nice quarter. Paul, we have been getting some titillating signs that the recession is over. Can you comment on what you are seeing more globally? And does that now lead down the Yellow Brick Road where governments are starting to push you for project investments?

I think, in terms of what's happening in the US and Europe, it's -- I don't think we're entirely sure exactly whether the recession is over, we're moving out of the recession; I think we're all getting good data there.

I think, with respect to many of the markets where we operate, we are continuing to see good economic growth. I know on my recent trips to India -- the government there is talking about growth rates that are in the 6% to 8% range, and with what you see on the ground, that seems to make sense.

In China -- I was just there the past couple of weeks, and throughout China, you're seeing a lot of growth. You're seeing a lot of construction continuing. There, I think they've got a lot of coal-fired capacity coming online, but they are, in fact, shifting to take out some of the older coal-fired capacity of the smaller plants and replacing it with larger plants, and seriously pushing to put more renewables into the mix, both with respect to wind and solar photovoltaic.

I think in Latin America, also, we're beginning to see some growth in some areas. In Chile, for example, in the northern grid, we're seeing more dispatch of our plants and that's been beneficial.

So I think -- we're seeing some signs that things are improving. And I think as a result, we are seeing, on the interest on the part of governments, to projects that have been on the drawing board have been delayed to keep those moving forward. I don't think they're terribly interested in getting them across the goal line immediately, but I think in terms of getting them done eventually, that's something that's of some interest to them.

So, no signs of reactivity from governments yet?

No, I think it's continued activity. In many of these locations, you've already got power shortages, so they're interested in getting projects coming online. I think we've deferred some of these projects effectively because of the -- what's happened in the financial markets. I think there's a continuing interest in proceeding with these projects and proceeding as quickly as makes sense, but -- so there's not a desire to drop any of these projects, but rather one to continue moving those projects forward -- but at a reasonable rate.

I see. You talked about capital allocation and how you're thinking about cash. I think what you're saying is basically -- the cash that's sitting on your balance sheet is a trade-off between growth and buying back your own shares. Is that a way of looking at it?

Yes, I think it's -- and that's going to depend a lot on what's the value of the growth versus what's the value of the buyback. And that's something we're constantly evaluating in terms of how would we allocate capital with the limited capital we have on-hand.

We've also initiated some capital -- or some asset sales. And we're trying to look at those in terms of, does it make sense to transact the prices that we might not exactly like, but we could redeploy that capital at rates that make sense.

Right, makes sense. Victoria, I'm just a little confused about the guidance increase. I think you said that tax rates -- or changes in tax rates was responsible for about $0.03. The European tax element was responsible for another $0.05, but a lot of that was offset against outages, and lower volumes and margins in North America, is that right?

Yes, in terms of the year-to-go, in terms of the second half.

Right; in terms of the second half. So why is it that the bottom end of your guidance has moved up more than the top end of your guidance? Why is there a disparity between the low end and the top end?

In part, because we're obviously narrowing them, but in part, to recognize the fact that between the settlements and the valuation allowance that's already occurred within the first half of the year, the upside, in terms of the rest of the year, is somewhat diminished by the expected outages that we have planned; as well as -- as I referred to, in terms of the tax rate itself -- we expect to have more income generated second half than we did the first half in some of the higher tax jurisdictions, a la Eletropaulo, where we're starting to collect on those receivables.

I see. Any news on what's going on with Eletropaulo and the share issuance by BNDS?

We'll have Andres Gluski, our Chief Operating Officer, discuss that, because he's been following up pretty closely.

Are you talking about BNDS's going to an auction?

Yes.

Yes. Okay. No, basically we have no news on that front. As you know, the process was started well over -- about two years ago, and it was suspended due to the decline in the share prices. So we have no news in terms of the reactivating the bid process. As we've said in the past, we have a line of credit locally, which will enable us to participate in that bid for BNDS's shares, should we so decide.

I see. Paul, one last question. Are you seeing signs of life in the M&A markets? Is there a possibility that AES may be interested in buying companies and/or large assets?

I think we're always interested at looking at things, but I haven't seen any -- if you look at the asset market, I think it's been a tough market to transact just because of the difference between buyers' expectations and sellers' expectations. So, I think there just aren't -- I'm not terribly optimistic about it, particularly as you mentioned, as things are recovering, things are beginning to look better. I think that gives sellers, who don't need to sell for any particular reason, some willingness to hold onto their assets until things recover.

Got it. Thank you very much.

Brian Russo, Ladenburg Thalmann.

Can you quantify the quarterly impact from the new plants that became operational?

It's quite small in the [big] picture. Guacolda III was actually post-closed -- that's the largest one; and Santa Lidia has been operating well. So -- and actually being sort of based-loaded, so I'd say maybe $0.01, so it's relatively small.

All right. And then the Masinloc plant -- just can you elaborate on the performance that you've seen and what you expect going forward?

Sure. In the case of Masinloc, the turnaround has been quite impressive. I mean, it was operating about 60% of capacity. It's up now to full main plate. I think one of the most important factors in the improvement in the -- not only the availability of the plant, but we've improved the pricing and the sourcing of coal.

We have talked in the past about our global coal sourcing initiative, and we're seeing some of the benefits there. Globally, we've seen savings for the first half of the year of around $33 million.

Okay, great. And when we look to your previous 2011 guidance, I guess some of the major drivers are FX as well as commodities. And when I look at the curves, it looks like, since your last guidance, currencies have moved in your favor while commodities may have moved against you modestly. And I was just wondering, directionally speaking, is that accurate?

Yes, that's accurate. And we have incorporated that in our outlook for the remainder of the year. As I mentioned earlier, we've updated as of 6/30, which is -- and those rates are actually in the investor slides as well.

I was actually referring to 2011. Is that (multiple speakers) --?

Yes, that's right.

Okay, great. And just lastly, you mentioned the wind market earlier and your pipeline of projects. We've heard from a number of market participants that install to capacity is expected to slow, due to an uncertain PPA market as well as tight credit markets. Just wondering if you had any comments on that.

Yes, let me -- I'll have Ned Hall, who's with us today, who heads up North America in our Wind business. He's the Chairman of our Wind business. Ned?

Yes, I would say that comment probably is reflective of what people are seeing in the North America market. And the -- what's happened with the price of natural gas, I think, has slowed down the PPA market significantly.

Several of the projects that we talk about do have PPAs. For example, Armenia is now in construction with a 15-year PPA. Mountain View IV has a PPA. We have several other projects, I think, that we will be able to move forward.

And really, a lot of our growth opportunity is outside of North America. Paul mentioned the Tung-Liao project in China. In France, we have feed-in tariffs that will support our continued efforts there. So I think that's one of the differentiators in our approach -- having that global opportunity gives us more of a chance to move forward.

And yes, the financing markets have been difficult, but we are getting them closed. We are able to structure our projects and achieve financing.

One thing I'll mention -- in terms of the financings, what seems to be the consensus is that for good projects and good sponsors, you're able to get that. But you really have to have high-quality projects and there has to be good sponsors behind those projects. And that's generally benefiting companies like us.

Okay, great. And one last question, if you don't mind. On slide seven, you have -- it looks like $1.38 billion of subsidiary non-recourse debt due, and I'm just wondering how you plan to manage that. Are you going to pay it down or refinance it?

Sure. This is Ahmed, Brian. I mean, I think majority of debt is in Brazil, where we have Eletropaulo, where they have -- as you know, they have normally short-term, [short-tenured] debt, but they've refinanced. They had very low leverage -- about [$300 million] is in Brazil for Eletropaulo alone. And about [$500 million to $600 million] of that amount we will pay, and the remaining is, as I said, Eletropaulo, which they will refinance.

Okay, thank you.

[Amit Thakur], Deutsche Bank.

It's [Amit Thakur], actually, for Deutsche Bank.

Paul, just a quick question regarding some of the longer-term development projects -- I don't want to say that they're on hold, because you mentioned that you're going to continue to move them forward, but with an eye to what's going on in the capital markets. But what steps do you mean by moving it forward? I mean, are you continuing to negotiate potential off-take agreements?

Yes. With all these projects, particularly greenfield, they take -- they typically take years to develop. So the fact that for some of our India projects, we have this one, OPGC II, which was allocated a coal mine by the Indian government. Now, this is in Orissa, and it's really a platform expansion of our existing facility there.

The government of Orissa is our partner in that project. And there, we've been able to move that project forward, get the land rights, test out the coal mines, could be an open pit coal mine -- do all the things you have to do. It probably could go into construction next year, towards the end of next year. That would be funded, in that case, from internal sources because it's got trapped cash in that business. We can redeploy that cash to build the next facility. And the capital markets are fairly open in India.

In other places, it's negotiating the power of purchase agreements; it's negotiating the fuel supplier agreements when we need those. And I think that pace of development is somewhat controllable.

Usually, we're having to push really hard to speed it up, so it's something that we don't actually have to slow down. The project development process itself typically will slow things down -- go slower than we'd like. So in that case, it's really actually helped us a little bit this year by allowing things to get done in a more orderly fashion.

So we are continuing to progress a number of projects, both in the core power area, also the renewable sector. And as Ed mentioned, in wind and solar, we've got a number of opportunities there.

And can you tell us, what sort of returns have you seen on OPGC I?

OPGC I, I don't know that number. It's done well because it's got low-cost coal; it's got very cheap coal, and it's selling to the off-taker there. It was an acquisition, so it wasn't a greenfield facility. It's been doing reasonably well. It's been one of our stronger performers.

I think with new projects, we're probably looking at returns that are 15% or north. We think that's achievable for a levered equity return. Those kinds of returns we think are achievable for the projects we're looking at.

And if I could just ask a couple housekeeping questions for Victoria. Victoria, the $0.05, I guess, gain on the legal settlement in Europe -- what was that related to? I'm sorry if you covered it.

It was a settlement relative to -- construction relative to a contractor in a facility that we're constructing in Cartagena, in Spain.

Okay. And then, Victoria, could you remind us what your proportional net debt is?

This is Ahmed. I think it's roughly about $12 billion, total.

Okay, thank you very much.

Gregg Orrill, Barclays Capital.

Two questions. First, I was wondering if you could dig a little bit more into the strength in the quarter in subsidiary distributions, and the raise in guidance there and the source of that.

And then the second thing was, if you could touch on Red Oak? Just -- I was wondering if the parent would need to inject cash into that or whether it would be able to stand alone?

All right, why don't we address the first question. Who's going to handle that? All right, Chip Hoagland, our Treasurer, is probably the best person to respond to that question.

As far as the guidance for the year on subsidiary distributions, I think we're comfortable with our guidance that we had -- raising our guidance in large part because a significant amount of what we had projected and budgeted to happen in the second half has actually happened in the first half. So, I think that's really the -- and if you look at kind of the second half, it's roughly equal to last year's second half. So I think that's why we're more comfortable with that change.

As far as Red Oak, I don't think we're currently believing that we're going to need to put cash into Red Oak at this point.

If I may add, in the first half, we received $80 million from the management contract in Kazakhstan. And that had been programmed to occur later on in the year. So that's part of the reason it's a little bit sort of front-loaded.

Maybe just to expand on Red Oak. I'm going to speculate that you're looking at the Moody's outlook as negative on the debt. And they tied in some conversation about liquidity concerns that specifically mentioned a $5 million line from UBAK that's due that we don't anticipate being funded.

It also highlighted in that article that we are looking at capital improvement projects that tie to the $10.6 million in construction funds that are still there. And we're optimistic that we'll be able to put those funds to work and get that plant into a position where it has that stronger liquidity. It's not projected to have any problems making debt service. In fact, with gas prices where they are, it's running more and creating more margin than maybe it has in recent past, as a result of high gas prices.

So, the Moody's article did come out. I think it had that view in it, but I think Red Oak is in the same shape it's always been in and it probably has a more positive outlook looking forward, from our perspective.

Just to put that in context though, Red Oak is not a material contributor to PTC; it's in the single-digit millions.

Right.

Great. Are there any places where non-recourse debt is in default, its subsidiaries, where you would look to inject cash from the parent in order to address that? Or are they all sort of ongoing situations?

This is Andres. No, we don't have any subs in default.

Clark Orsky, State Street Global.

I just wanted to ask about the subsidiary distributions. I know they can be lumpy but it looks like it was a big increase versus last year, and just what some of the factors were in that.

I think Andres just referred to this as the $80 million Kazakhstan payment in April. So that's a -- would not have been -- would not have occurred last year.

Right. Actually, the other thing is that you have a lag in terms of the dividends paid this year reflect last year's results. So we had strong results from a lot of our larger companies overseas, when exchange rates were stronger. So that was also a factor in the first half of this year.

And the final settlement in Cartagena also counts for POCF as well. So it was $0.05 of earnings as well as cash counted toward POCF.

Okay. So, Cartagena and Kazakhstan would be sort of two material one-off hold-forwards, so to speak?

Yes.

That's correct.

Okay, thank you.

Okay, is there any other question, Operator?

At this time, there are no further questions. Gentlemen, do you have any closing remarks?

Sure. This is Ahmed Pasha. I want to say thank you very much for everyone for participating today. If you have any follow-up questions, please don't hesitate to contact either Michael Cranna or myself in Investor Relations. For any media inquiries, please call Meghan Dotter. Thank you very much and have a nice day.

Thank you. This concludes today's conference call. You may now disconnect.