Why get a Lamborghini when you really need an owner jeep?

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MIKE WOOTTON

MIKE WOOTTON

I was at a conference last week, about power and electricity in the Philippines. Much talk about investment prospects and how the Philippines energy sector was behaving. Almost needless to say the common theme was that development in the sector, particularly renewable energy was fraught with challenges.

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Obtaining permits is a very large part of the problem. The difficulties in getting them, the time involved in the application process and the frustration brought about by the rules being changed part way through the process just drives people nuts. The point is soon reached where a general perception arises amongst the international investing community that the Philippines renewable energy sector, despite that there are plenty of potential RE developments, is just not worth the titanic effort and associated grey hairs and high blood pressure, not to mention the expense.

The power to issue a permit, or even the power to decide whether or not to put something to the next step in the labyrinthine application process is a valuable thing. It bestows the ability to seek a rent by the holder of the authority, at any level. The higher the level the greater the rental value. Problems occur if the applicant for the permit is unwilling to play ball with the holder of the authority. You simply don’t get the permit. What is to be done then? Unless you can find some relationship way around the extortion there is in practice nothing that can be done. To resort to the legal system is a waste of time and money and in any event would take eons.

To become hostage to the self-interest of a local politician or bureaucrat is not a comfortable situation. But in the Philippines it is difficult to avoid that very real risk. The risk is becoming widely known. It is an inhibitor to renewable and—when combined with the uncertainties of contracts for large fossil fuel energy projects—energy development in general; and no doubt other potential job creating and technology enhancing investments.

Is there a way to change the mindset that signature power is something to be used as a means of income and if the punter doesn’t play ball just stop everything; never mind the consequences for other people? To use power in such a way is clear abuse but, alas, it is very common. What checks are there on that type of activity? If change is to be made, how is this going to be stopped? It seems to be endemic.

Renewable energy development is much more difficult to do than fossil fuel energy development from both an engineering and a financial risk profile perspective. There is a high upfront capital cost and returns are subject to the vagaries of the weather. If renewable are to be encouraged as replacement for fossil fuel (to the limited degree that they are capable) then shouldn’t the permitting and regulatory requirements be easier, not harder, than they are for fossil fuel?

At the conference people were throwing around the number of signatures that had to be gathered in order to bring a renewable project to fruition. The general opinion seemed to be somewhere between 300 and 500. That’s a lot, and whilst many of them are captured very willingly, even enthusiastically, there only need to be a couple that are hard to get for the reasons outlined above; then the time, trouble and effort in getting the other 498 just goes to waste.

Electric power development is infrastructure development, same as roads, water, and transportation facilities. It is in infrastructure development that the Philippines reliably and consistently gets criticized by potential investors. This type of much needed development is the area in which there is greatest government involvement, both central and local, and where the permitting needs are so all embracing. Is it really any surprise that infrastructure development is a drag on national economic development when unmotivated and underpaid bureaucrats and those with rent seeking mindset have so much influence on progress and achievement?

In these areas the Philippines enthusiastically adopts first world rules for implementation by a lower middle-income economy. That causes lots of problems. The first world in general, but certainly not universally, tends to operate in a more objective result-focused way, thus its “smart” procedures and regulations would be dealt with in a more flexible and commonsense manner. This is not the way of developing economies as underlined by the World Bank’s own internal audit reports on, for example, their initiative on the privatization of national electricity systems—the precursor to EPIRA.

Regulatory requirements should match the development level of the nations in which they are to be implemented and should grow in sophistication as society and the national economy develops its educational and other social systems in order to maintain an appropriate and efficient regime. Or to put it another way, do not expect to sell lots of Lamborghinis when such surfaced roads as there are get continually jammed with traffic and are full of holes.

Mike can be contacted at mawootton@gmail.com.

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