POSTSCRIPT / April 13, 2004 / Tuesday

By FEDERICO D. PASCUAL JR.

Philippine STAR Columnist

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RP needs electricity, not glowing statistics

LOOMING CRISIS: The power crisis looming as early as three years from now is not necessarily a self-serving fantasy just because it is being discussed by a member of the Lopez clan that is in the power generation and distribution business.

The coming power shortage will not go away just because the Arroyo administration refuses to debate it in the middle of an election campaign where electricity rates have become a sensitive issue.

Most industry players we have consulted second the suggestion made days ago by Federico R. Lopez, president of First Generation Holdings Corp., that we must move now to avert a looming power crisis.

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INVESTORS NEEDED: Based on government statistics, there will be an additional demand for 2,500 megawatts (mw) five years from now. This will require around $2.5 billion in new power plants. (For easier computation, the rough rule used is $1 billion per 1 mw of power requirement.)

Where will this impoverished country get the $2.5 billion requirement when it cannot even pay for the $6.7-billion debt (or $9.2 billion with interest added) of the National Power Corp.?

We can only look for foreign investors, but we are not exactly that attractive to them. Everybody knows the reasons why we scare investors away.

While the government says there will be enough capacity by that time to cover the added demand, the government’s performance record is not that comforting to suffering consumers.

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ELECTRICITY, NOT STATISTICS: The Department of Energy has figures showing that the dependable capacity at present is 13,260 megawatts nationwide, which is supposed to be enough to cover the peak total demand of only 8,510 mw.

We get a supposed excess capacity of 4,750 mw when we subtract the peak demand from the dependable capacity.

But consumers who have to endure brownouts and high electricity rates are wont to ask: Where is that supposed excess power? How come it is not being used to stabilize the supply and lower the cost?

Consumers cannot light up their homes, business cannot run factories and this nation cannot move forward powered by government statistics.

In short, we cannot rely on the admonition of government not to worry because it has been allegedly attending to the building of more plants to meet future demand.

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ADB STUDY: Studies conducted by the Asian Development Bank, among other entities, disclose that the country needs an additional capacity of 6,000 mw over the next 10 years to avert a power crisis.

Studies show that if no quick action is taken, a “serious power shortage” could happen as early as next year in Central Visayas, in 2005 in Southern Mindanao, and 2008 in Luzon.

The same studies suggest that in the Visayas alone, at least 1,000 mw in additional power is needed. For Mindanao, 700 mw is the projected shortage.

While DoE figures on projected demand would require only about $2.5 billion for building new plants in five years, independent studies have it that actually P400 billion ($7.45 billion) is needed in new private investment for the next 10 years.

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FIRSTGEN STUDY: The study of First Generation Holdings Corp. (FirstGen) cited by Lopez was based on the assumption of a 5-percent gross domestic product growth, on the dependable capacity of power plants, plant degradation, and minimum reserve requirement of 20 percent.

FirstGen took a conservative approach in forecasting the power demand and supply for 2004-2013 compared to DoE’s Philippine Energy Plan for 2004-2013. For instance, it took into account the seasonality of hydro plants since the other priorities were irrigation and water to drink.

In the study, the transmission line schedule was more conservative and provided allowance for slippage. De-rating factor on plant capabilities was also considered. The durations of annual scheduled maintenance outages were adjusted depending on the type of plant. The reserve requirements as stated in the Philippine Energy Plan were made more adequate by the FirstGen study.

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DIALOGUE CRUCIAL: The government initiating the establishment of new power plants is out of the question since Napocor is already bleeding with projected losses of P73 billion to P140 billion a year. This will further aggravate government’s debt burden.

There is also the weak credit-worthiness of main buyers of power (utilities and cooperatives). Government is imposing on them to subsidize rates to consumers. Their financial condition will mean difficulty in underwriting contract for new capacity.

There is a need for a level-headed dialogue and coordination among players, regulators and government.

A workable option most compatible with privatization and deregulation is for the power utilities to contract for their own power supply. But this option, which will remain the only viable option in the long-term, will depend on the regulatory policies implemented by the government.

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COMPARING COSTS: Why does the Philippines have a higher power cost than Thailand, Malaysia, China and Indonesia?

The Philippines needs a higher percentage of imported materials for its power than the other countries. For instance, while our raw material imports for power generation is at 46 percent, the other countries have lower import requirements owing to their abundant supply of indigenous products like natural gas, oil, coal and hydro sources.

The Philippines imports about 46 percent compared to China’s 1 percent, Malaysia’s 14 percent and Thailand’s 27 percent. Indonesia being a major producer of oil and natural gas also has an insignificant import percentage.

There has been reference also to a global survey conducted recently by Booz, Allen and Hamilton. According to this tudy, the main strategic concern of power investors is the power regulatory uncertainty.

The survey among international senior power company executives showed that 77 percent of those interviewed consider power regulation as the main disincentive for power investments around the world while 41 percent say it is demand growth and 37 percent say it is the competitive dynamics.

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RECALL DEMANDED: The worsening situation in Iraq has scared some senators into demanding the recall of the Philippine contingent sent to that war-torn country to help keep the peace after its invasion by the US.

Senate Majority Floor Leader Francis Pangilinan said that “given the series of hostage taking incidents in Iraq, the government should withdraw the Filipino contingent. The safety of our nationals is paramount.”

He said that the assignment to Iraq of any Filipino contingent should be made “only under a United Nations resolution and only when the situation in Iraq has stabilized.”

Sen. Manuel Villar Jr., chairman of the Senate foreign relations committee, also reiterated his call for the withdrawal of Filipino troops.

He urged the government to defer indefinitely its plan to send 43 replacement personnel after the US government failed to release needed funds for the mission. The government should review the situation in Iraq before deploying new military and police personnel in order to ensure their safety, he added.

The Philippines earlier sent a 96-member peacekeeping mission for a six-month tour of duty that ended last February. It withdrew about half of the volunteers last March after medical workers demanded vehemently their immediate repatriation.

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(First published in the Philippine STAR of April 13, 2004)

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