Dark days hold bright promise

The last thing the Philippines needs as its economy picks up is a power crisis. But that’s exactly what the Southeast Asian country is wrestling with in Mindanao in the south, particularly during the dry months when demand is at its peak.

The top energy official, Jose Rene Almendras, has warned of a power crisis in three years in Luzon, the economic and political center, if a key power plant is delayed. And businesses have cautioned that Visayas, which along with Mindanao and Luzon makes up the country’s three major island clusters, is struggling to meet the demand for power.

A power crisis when the economy is on the cusp of an investment grade rating and predicted to hit growth rates of 6-7 percent next year would be disastrous. That’s what happened between 1989 and 1993 when the Philippines grappled with a severe power crisis and blackouts averaged 12-14 hours a day. The crisis crippled the economy and was blamed for growth plummeting from 6.2 percent in 1989 to negative 0.6 percent in 1991 and 0.3 percent in 1992.

With another crisis looming three years from now, the question is whether the country will see another surge of investments from companies looking to cash in on the need to beef up power infrastructure.

Rolando T. Bacani, president and chief executive of the transmission grid owner National Transmission Corporation, says the impending power crisis makes the Philippines attractive to energy investors. He sees big opportunities for companies, both in generation and transmission.

According to the Department of Energy, as of July 10, peak demand in Luzon was recorded at 7,380 megawatts with an available capacity of 8,436 megawatts. In Visayas it was 1,391 megawatts with 1,634 megawatts available capacity; and in Mindanao, peak demand was at 1,211 megawatts with available capacity of 1,266 megawatts.

The country’s power development blueprint says assuming peak demand will grow annually at 4.5 percent between 2011 and 2030, 10,450 megawatts will be needed for Luzon, 2,000 megawatts for Visayas and 1,950 megawatts for Mindanao.

The Philippine Chamber of Commerce and Industry says to meet the growth projections, the government must address the high power cost and supply deficit.

“It would be in the national interest to continue encouraging new investments in the cheapest available and most stable sources of energy,” the chamber says in a position paper. “These include coal, geothermal, natural gas, as well as hydroelectric, biomass and fuel oil.”

Professor Fernando Roxas with the Manila-based Asian Institute of Management says a repeat of the 1990s power crisis is a possibility since the sales growth of power distributor Manila Electric Co (Meralco) indicates rising demand.

According to Meralco’s latest earnings report, its sales volume rose 10 percent during the first quarter.

Assuming 10 percent growth, Luzon alone will need an additional 800 megawatts per year, says Roxas.

“We don’t know if these are sustainable medium- to long-term trends but they do indicate that we are not adding enough new capacity to support better economic fundamentals. Industrial growth is the most energy-intensive growth.”

Bacani says the government is doing what it can to head off the crisis. A new plant will come online this year and, hopefully, a key, though, controversial 600 megawatt project will see progress.

Redondo Peninsula Energy, the company that has proposed the project, is a consortium comprising Meralco Power Generation Corp, Aboitiz Power Corporation and Taiwan Cogeneration International Corporation. Meralco is backed by Hong Kong’s First Pacific Group.

Bacani says the current energy secretary is talking to power generators to avert a crisis. However, the official doesn’t have full control of the situation as the government is no longer allowed to enter into power contracts like it did during the 1990s power crisis.

That time, the government had to turn to private energy investors, mostly foreigners, to build power plants. By 1998, these private energy investors or independent power producers had invested approximately $6 billion to generate 4,800 megawatts, which reversed the power crisis in a record 18 months, according to an earlier study by Roxas.

“The 1990s power crisis should have taught us to plan for capacity before we needed it. Once shortages happen, only expensive power can be put in place,” Roxas tells China Daily Asia Weekly.

 However, the Philippines would have to compete with other countries in the region eyeing private investments in the sector — Indonesia, Vietnam, India and even China.

Though Philippine customers are willing to pay premium price for electricity and provide a profitable market for power suppliers, Roxas says business has to be de-politicized and courts have to stop interfering with business.

“It delays the completion of much-needed infrastructure,” he says, adding that the system needs to be more business friendly. It takes only about three days to register a new business in Thailand and less than a day in Singapore, but months here, he says.

Peter Lee U, dean at School of Economics, University of Asia and the Pacific, says in a normal market, the crisis should make the country an attractive destination for energy companies.

“In most markets, when businesses spot a power shortage, there’s an incentive to build plants,” he says. “But investors might be discouraged by the past situation, when bagging supply contracts was difficult.”

He agrees that the business environment should be improved, particularly the ownership structure of power generation companies, which are controlled by a few large companies.

“It should be more democratized,” he says.

Bacani says while local energy firms have the resources to build plants, it would be better if foreign investors come in: “The more private investors, the better for consumers because that will really trigger competition. With enough competition, prices would go down.”

Bacani sees opportunities for the National Grid Corporation of the Philippines, a joint venture partner of the State Grid Corporation of China. As the power transmission system grows, it will need more equipment.

“That’s good news for suppliers,” he says. According to him, the State Grid Corp of China will benefit more from the deals it bags to supply transmission equipment than from returns on its stakes in the joint venture.