First Gen Corporation clarified that it was Prime Infrastructure Capital, Inc. (Prime Infra)–not its chairman and CEO Federico “Piki” R. Lopez–that requested the inclusion of so-called “key man” provisions in their joint venture agreements for two major pumped storage hydro projects.

The clarification follows concerns raised by a Lopez family faction over a contractual clause that could allow Prime Infra to acquire First Gen’s stake in the hydropower venture at a discount if leadership changes occur.

In a disclosure to the Philippine Stock Exchange dated April 14, First Gen said the Change of Management Control (CMC) provision—described by some critics as a “poison pill”—is a standard risk-mitigation mechanism in capital-intensive sectors such as energy and infrastructure.

The company emphasized that the clause, also referred to as a “Key Man Clause,” was required by Prime Infra as a condition for the partnership. Such provisions are typically used to protect investors by ensuring that individuals deemed critical to project execution remain actively involved.

Under the agreement with Prime Infra subsidiary Prime Hydropower Energy Inc. (PHEI), Lopez and his designated executives are identified as the “key men” from First Gen, with their continued leadership considered central to delivering the planned 2,000 megawatts (MW) of capacity from two pumped storage projects—the 600-MW Wawa facility in Rizal and the 1,400-MW Pakil project in Laguna.

A CMC event is triggered under several conditions, including if Lopez ceases to serve as First Gen CEO, loses board or proxy control, or if his designees no longer hold majority positions in key corporate bodies or project entities.

If such an event occurs during construction and up to one year after commercial operations begin, Prime Infra may exercise its right to require First Gen to sell its shares in PHEI at a discount.

First Gen said the inclusion of the clause reflects Prime Infra’s confidence in Lopez and his management team, noting that their leadership and track record were key considerations in forming the partnership.

Prime Infra earlier described First Gen as a “seasoned local energy player” and a “trusted partner with a strong track record in power generation,” adding that this experience will “help execute these critical energy projects safely, efficiently and on schedule.”

The company also pointed to its financial performance under Lopez, with earnings exceeding PHP 100 billion over the past five years.

How should governance safeguards like “key man” clauses be structured in Philippine energy joint ventures to balance investor protection with minority shareholder rights?

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