Philippines' power at crisis point
By Jennee Grace U Rubrico
MANILA - Recent electricity outages in the Philippines has sparked concern that the country is on its way to its second power crisis in 20 years. For over a month, the Luzon, Visayas and Mindanao grids have been registering insufficient capacity, resulting in frequent-to-regular power outages that last anywhere from an hour to half a day.
Mindanao in southern Philippines, which is the hardest hit, now suffers a daily power outage that lasts up to 11 hours. President Gloria Macapagal-Arroyo has declared a state of calamity in the island in response. The declaration of a state of calamity is a prerequisite for the release of disaster funds, which local governments can use at their discretion. Her detractors claim this could lead to widespread cheating in the country's first automated national polls, which are due to be held on May 10.
Widespread drought and ill-timed maintenance work are being cited as factors for the inadequate power capacity. Of the country's 15,572 megawatts (MW) of installed capacity, 3,291 MW comes from hydroelectric power plants. Mindanao, in particular, is susceptible: 55% of the power generated in the island is sourced from hydroelectric power plants, whose dams are now approaching critical levels.
Mindanao's available capacity was capped at 785 MW as of March 24, against a dependable capacity of 1,682 MW, according to data from the National Grid Corporation of the Philippines, which operates the country's transmission lines. Peak load for the day hit 1,251 MW, resulting in a shortage of 466 MW. The deficit in the power supply is expected to be sustained. Officials of National Power Corp (Napocor), the state-owned power generator in the region, have warned that with the water level at the dams continuing to recede, a shutdown of the 700 MW Agus and the 200 MW Pulangi hydroelectric power plants might be imminent.
Most state-owned power plants have been sold off in line with the Electric Power Industry Reform Act of 2001 (EPIRA), but the Agus and Pulangi plants are owned by the government through Napocor by virtue of a provision in the law which stipulates that the complexes are not to be privatized within 10 years of the law's passage.
In the Visayas grid, which covers central Philippines, a much smaller deficit of 34 MW was recorded on March 24. Luzon, which earlier suffered sporadic outages due to some power plants being shut down at the same time due overlapping maintenance schedules, has gone back to posting gross power reserves of 158 MW. Both grids are less dependent on hydroelectric power than Mindanao, with the Visayas relying on geothermal energy and Luzon on electricity generated from natural gas.
The Arroyo administration has announced a slew of stop-gap measures for the power situation in Mindanao. Power barges have been deployed to cover the shortage for the time being. Other steps include allowing private firms to connect their generators to the grid, scheduling industrial activity in the island during off-peak periods to lessen the peak load, and opening lending windows for firms that wish to lease generators.
The president has also authorized the state to contract additional capacity from a power plant that is based in the island, a measure that requires congressional approval, as stipulated in Section 71 of the EPIRA.
The outages are expected to end once the rains start, and resupply reservoirs behind hydroelectric dams. The overall problem of a capacity shortage still has to be addressed and power experts say deeper fundamental problems in the Philippine power sector could again plunge the country in darkness - issues that are likely going to be placed on the backburner when this round of blackouts ends.
Fernando Roxas, Asian Institute of Management professor and a power sector expert, notes that nine years after the passage of the EPIRA, power sector reform has not been completed. The mandated sale of the government's power generation assets, for instance, has not been completed 14 years after President Fidel Ramos announced the plan in 1996 and nine years after the EPIRA was passed.
A January 2010 update of the asset privatization plan that was released by the Power Sector Assets and Liabilities Management Corp, the body set up by the EPIRA to dispose of Napocor assets and pay its debts, reveals that of the 30 generating facilities earmarked for disposal, only 20 have been sold and transferred to the winning bidders. Of these, only two are servicing the Mindanao grid.
Roxas noted that delays in the sale of these assets have led to delays in their rehabilitation - which in turn contributed to the power deficiency in Luzon. "The delayed privatization schedule meant that required major rehabilitation was not done because the government intended to sell the assets anyway," he said.
Power subsidies that increased the government's debt while making the public resistant to rate increases have also derailed the reforms, he said. "The power sector was a convenient subsidy mechanism, and like in many developing countries in Asia, people have come to expect electricity to be subsidized. In tandem with politics, this has slowed down the reform process tremendously."
Structural weaknesses in the Philippines and the global economic crises of 1997-1998 and 2008-2009 have also slowed investments in the power sector, he said.
As a result of feet-dragging in implementing the reforms, the capacity shortage that caused a power crisis in the 1990s has not been eradicated. At that time, the Corazon Aquino administration decided to decommission the 600 MW Bataan nuclear power plant, which in turn led to massive blackouts, the rationing of power supply and economic losses which the World Bank calculated to have reached between $600 million and $800 million a year.
Power supply is declared critical when the existing generating capacity is not enough to cover peak demand, and reserves go below 23.4% of dependable capacity for Luzon and the Visayas and 21% for Mindanao. Mindanao is expected to hit a critical period this year if no additional capacity goes onstream, according to government data. The Visayas, which hit critical levels last year, face a new critical period in 2011, the same time that Luzon is expected to hit its critical period.
While the Visayas will secure an additional 328 MW of power supply this year, only 42.5 MW of capacity will be added in Mindanao when another hydro power plant goes onstream. Luzon is not scheduled to augment its capacity until 2012, when 600 MW is added to the grid.
Economist Peter Lee U notes that there are no shortcuts in addressing the worsening power situation. "It is a fundamental demand-supply gap, and it takes time for new power plants to be built," he said.
Analysts maintain that the additional capacity should come from the private sector and not from the government, with Roxas saying that having the state contract power, while provided for by law, "would undo all the [power sector reform] effort of the past 10 years" if it is again adopted as a policy.
"Government already proved, beyond reasonable doubt, that it will produce a crisis such as the one in the 1990s and the current one in Mindanao. Invoking Section 71 of EPIRA is declaring market failure, which is a pity because the market wasn't even allowed to touch Mindanao 10 years after the enactment of EPIRA," he said.
In the meantime, power rates are increasing and the country's energy stability - and economic growth - remain threatened. Electricity from power barges and generators, for one thing, costs much more than power from water.
"In 2000, the accounting cost of running power barges was about 35 pesos per kilowatt hour because you're basically running a ship and a generator at the same time. But politicians are saying consumers in Mindanao are only willing to pay 2.30 pesos/kWh - that's what is being charged for [power from the hydroelectric plants]. Who will pay the cost of the barges and the leased generator sets?" Roxas asked.
U also noted that while reliable power supply "is vital to attracting investments in all industries", higher power rates would drive up business costs "and be a drag on the economic recovery".
The Department of Energy has a long-term plan that determines the additional capacity needed by the different grids based on projected increase in power demand. It indicates that 1,354 MW of power is set to be added between this year and 2014, but very little of it - around 100 MW - is going to Mindanao.
The energy department is also exploring indigenous sources of energy, including natural gas, oil reserves and geothermal energy. It is also studying the possibility of putting up nuclear power plants by 2025.
Much of the success of the energy plan depends on the next administration's policies. Presidential race frontrunners Benigno Aquino III and Manuel Villar both say their strategy to address the supply lack is to entice private investors to the country.
For government to contract additional capacity "is contrary to ... the adopted policy of government to privatize power generation - which is what investors have been complaining about: lack of consistency of [government] policy, and it will undo years of hard work to institute reform in the power sector and put at risk future investments," said Aquino, the only son of Corazon Aquino, whose term ended the regime of Ferdinand Marcos regime but also saw the start of massive blackouts.
An Aquino government would pursue an optimal energy mix "immediately and aggressively if we hope to meet our future needs", he said. "Neither renewables nor fossil fuels nor nuclear power alone can bring energy self-sufficiency. The energy mix should be able to reduce risks associated with the supply, price volatility and production cost."
Villar noted that going back to having government contract power would open the country to another round of take-or-pay arrangements. In the 1990s, Napocor entered into take-or-pay deals with the private power producers that were tapped to help address the shortage of power. The deals ensured that the generating companies would get paid for the power they produced, used or not. The result was spiraling power rates when the 1997-98 Asian financial crisis struck and demand for energy slackened along with economic activity. Napocor, which was saddled with excess capacity it could not sell, passed on the cost of contracting power to consumers.
"What I am trying to avoid is the repeat of the 1990s situation where the public ended up paying for power it never used," Villar said. "This is mainly the downside of invoking Section 71 of the EPIRA, which enables the government to enter into new contracts for additional capacity, usually at a much higher cost for the emergency power. Overcompensation will result in buying expensive power that will later migrate to monthly electric bills of consumers as stranded costs."
As for addressing the situation in Mindanao, the candidates did not give specific proposals, saying only that they would leave it up to the "stakeholders" to resolve the crisis in the region.
"We have two choices: do we want to have low electric rates at the expense of no power, or do we want to have sustainable, available and reliable source of power," Aquino said. "It is the government's job to build a consensus among various stakeholders to make it more acceptable to them. The government should adopt a policy of pricing power rate to reflect the true cost of electricity in a transparent manner through the EPIRA."
Jennee Grace U Rubrico has been a journalist for over 10 years.
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