So, no emergency powers for now, at least?

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Mike Wootton

Mike Wootton

A heartening bit of recent news is the refusal of Congress to grant emergency powers to the President without further detailed scrutiny in order to avert a forecast power shortage of 500-600 megawatts in Luzon for a period of about three months next year. The estimated cost of equipment supply, which is likely to exclude bunker fuel costs amounting to about P6 billion, will of course be paid for by the people of the Philippines.

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Of course any action taken under such emergency powers would not be determined by the President himself, but by the staff of the Department of Energy.

Congress has first asked for evidence to show that, indeed, there will be a near-term power generation shortage and I suspect that it may be difficult to come up with incontrovertible evidence which can withstand expert scrutiny in order to demonstrate that.

There is, after all, about 10,000 MW of dependable capacity in Luzon to serve the current peak demand of 8,000 MW, forecast to grow to just over 9,000 MW next summer due to El Nino effects and the stellar economic growth of the country. If the forecast power crisis is based on a higher-than-the-standard 4-5 percent annual increase in demand in relation to GDP growth—the normal way of forecasting for power needs – then it will almost certainly be incorrect. That is because Philippine GDP growth numbers, while looking reasonable at around 6-7 percent per annum, bear little relationship to increases in electricity demand (they are a product of monetary policy); OFW remittances [which while in fact GNI is termed GDP here]; “hot money;” wildly speculative land and property development; and out-of-control consumer price increases.

Neither increases in industrial production nor improved consumer affordability will generate sufficient additional power demand to cause a “power crisis.” It would be a different situation if there were to be lots of heavy industry such as glass factories, steel mills and smelting plants to be developed, but alas, not too many of those are expected—it’s just condos and shopping malls.

This, however, is not to say that there could, indeed, be a power crisis somewhere over the horizon. In the short term, this could be brought about simply by the dysfunctional ties that EPIRA (Electric Power Industry Reform Act) imposes on the management of the sector as what happened at the time of the Meralco rate hike late last year, where several generators were allowed to shut down for maintenance at the same time, natural gas supply was out for maintenance and additional installed capacity was not used because it was “too expensive.”

Politics and accusations of price-fixing aside, the event was a clear demonstration of poor planning and management. The efficient organization of national electricity provision simply cannot be left to the private sector in an idealistic “EPIRA world,” where regulation just doesn’t operate in the consumers’ interest.

Even the World Bank’s own audit report on its earlier policy of electricity privatization clearly admits that EPIRA-style laws are not always suitable for use in less developed economies. In the longer term, however, there may, indeed, be a more serious power crisis due to the exhaustion of indigenous natural gas resources—mainly Malampaya, which currently fuels about 30 percent of Luzon’s power requirements. The solution to this seems to be some vague wishes that somebody will invest in LNG importation facilities, preferably on a common user basis. I wonder what sort of private sector investor would do this in what is effectively a small 1 million ton per annum LNG market, where there will be so much pressure on power generation costs as to keep tolling fees at a very low level?

If a real power crisis is to be avoided in 10 year’s time, there is a serious need to establish a forward strategy to deal with it. At the moment the solution is coal, but that is an environmentally unpopular solution, leaving the Philippines’ electricity consumers hostage to world coal prices, which are bound to increase as India and China put draconian bans on coal mining as a result of international pressure, as well as their own environmental and safety concerns [coal mining is dangerous].

To satisfy current plans, coal imports will need to increase by about 50 percent over the next several years and it is, in part, due to the coal-for-power policy that the need for emergency powers is being justified now—coal plant development gets delayed due to environmental concerns and active opposition!

The utilization of renewable energy can be increased, government can fully implement and enforce the 2008 Renewable Energy Act, for example, and avoid changing the rules while doing so, but RE will never in the foreseeable future replace fossil-fueled power in terms of large-scale power generation. LNG, with proper government support and participation and if realistically regulated, could be a solution despite the relatively small market, and of course there is potential for nuclear power if people were to be convinced that it is not the Armageddon it is sometimes painted to be.

But we have an administration which is based on a six-year term and which is so heavily politicized that almost anything which is set in place by one administration will be overturned by the following one, and not necessarily for any real justifiable cause, but just for the sake of political point-scoring and revenge for past family sleights.

Given the Philippines’ lack of attractiveness for any serious foreign investor, there are two available options to actually doing something to avert the longer-term problem – either put government directly in control of and responsible for putting in place measures which would, of necessity for long-term sustainability, be difficult to change to solve the potential crisis [do something about EPIRA], or just leverage the regulatory capture of the oligarchs who probably have the resolve, as well as the strength, to implement policies made under one administration into the next [don’t do anything about EPIRA]. Of course, this latter suggestion is wholly undemocratic and would lead to outrageous electricity costs, but at least there would be power there for those who could afford it – including the oligarchs who would be seen to have rescued the future for the Philippine power sector.

Mike can be contacted at mawootton@gmail.com.

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