Philippines enjoys post-poll pick-up (Asia Times Online)

Written for and published by Asia Times Online on September 14, 2010. Click here for original article.

Philippines enjoys post-poll pick-up
By Jennee Grace U Rubrico

MANILA - Business sentiment is rising in the Philippines, buoyed by the May election of President Benigno Aquino and the rising tide of global economic recovery. Whether Aquino can sustain the economic good times amid signs of a slowing global rebound will depend largely on his ability to enact quickly badly needed reforms.
The latest quarterly Business Expectation Survey, conducted by the central bank between July 1 and August 10, showed that business confidence touched 45%, its highest level in two years and a dramatic improvement on the 18.4% recorded over the same period last year.
Indeed, there are reasons to be cheerful. The stock market jumped almost 5% in the first week of September to hit a 32-month high, while the Philippine peso continued to strengthen against the US dollar in line with several other currencies in the region.
Election-related spending, including on advertising and other recreational campaign activities, gave the economy a big first-half boost. After growing an anemic 1.1% in 2009, Philippine gross domestic product (GDP) expanded 7.8% in the first quarter this year and 7.9% in the second.
The World Bank noted that first-quarter growth was "far faster than expected", but in line with equally strong regional country recoveries, including 15.5% in Singapore, 12% in Thailand, 10.1% in Malaysia, 5.8% in Vietnam and 5.7% in Indonesia.
After contracting by 5.7% in 2009, investment grew by 24.3% in the first quarter. Remittances from overseas Filipino workers (OFWs), meanwhile, hit US$9.1 billion in the first half, a 6.9% jump over the same period last year, according to official statistics.
Before Aquino's election, sovereign analysts had raised concerns about the country's deteriorating fiscal position, which was aggravated by aggressive pump-priming to offset the negative impact of the global crisis. Fitch Ratings places the Philippines on the second-lowest tier of its bank systemic risk matrix, on par with Hungary, Sri Lanka and Ecuador.
Some analysts had earlier wondered whether the Philippines would follow in the footsteps of Vietnam, whose credit rating was downgraded in August due to a sharp deterioration in its external finances. Although still in surplus, the Philippine balance of payments weakened year-on-year in the first quarter, falling to 3.2% of gross domestic product (GDP) from 4.8% in 2009.
Aquino's strong reform message appears to have given the country at least a temporary reprieve. "The new administration of President Benigno Aquino III, who took office on June 30, has set the tone for accountability and transparency, reviving programs aimed at improving tax collections and emphasizing budgetary restraint," United States-based credit rating agency Moody's wrote in its most recent credit opinion on the Philippines.
"The departments of Finance and Justice have aggressively pursued legal means to deter tax evasion, while the president has outlined a 'zero-based budgeting' approach to expenditure outlays going forward," the Moody's report said.
The government has penciled in projects worth 180 billion (US$4 billion) to 200 billion pesos under the zero-based budgeting scheme, which would allow it to implement projects without state capital outlays through partnerships with the private sector. The plan aims to allow the government to implement crucial infrastructure projects without putting pressure on its fiscal position.
Aquino's early push to rationalize fiscal incentives has sent a positive signal to the business community, according to Donald Dee, vice chairman of the Philippine Chamber of Commerce and Industries, the country's biggest business organization.
"It's our belief that people invest in the country not just because of the incentives, but because they see value in the Philippines," Dee told Asia Times Online.
Benjamin Diokno, a former budget secretary, doubts that the recent rapid economic growth clip is sustainable and predicted the government's 7%-8% GDP growth target for next year would be "tough" to meet.
"Many growth drivers that were present in the first half of the year will be missed in the second half of the year," including election spending, front-loading of public infrastructure outlays and above normal government spending, he wrote in his blog.
"The decision of the Aquino administration to pursue a conservative fiscal policy and to calibrate spending as resources materialize could seriously slow the contribution of the public sector to stronger growth," he added, warning that the global economy was at risk of a double-dip recession.
"Perhaps they want to be conservative, or they realize that there are looming dark clouds in the horizon," Diokno wrote.
One potential cloud is a high budget deficit. Finance Department figures show that the deficit-to-GDP ratio reached 4.9% in the first half of the year, exceeding the 3.9% ceiling set for all of 2010. For the seven-month period ending in July, the national government posted a budget deficit of 229.4 billion pesos, comprising 70.6% of this year's ceiling.
Moody's, which has assigned a Ba3 rating with a "stable" outlook for Philippine sovereign bonds, says that pressure to revise the rating downwards "would arise from an inability to improve government finances or a structural weakening in the balance of payments".
Some economists believe the government still has room to maneuver. "Domestic interest rates remain low historically, suggesting there may be room to move around to finance the deficit," says University of Asia and the Pacific economist Peter Lee U.
"The deficit is manageable - the counterweight to that is the amount of liquidity in the system," said Roberto Juanchito Dispo, executive vice president of First Metro Investment Corporation. "The [government's recent bond] issue was well received by the market, and this acts as a buffer to the deficit."
Dee stressed that local businesses were not looking for a quick fix to the fiscal gap. "As long as we keep the deficit to 3%-3.5% of GDP next year, business will consider this as managing the deficit." He said that while the government's belt tightening measures were laudable, there was still a need to raise tax revenues, a perennial problem in the Philippines.
Aquino ran on the campaign promise that he would not raise taxes, but he has backtracked slightly since taking office. He has said his administrations would impose new taxes only as a "last resort" to address budgetary gaps.
Jennee Grace U Rubrico has been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

Aquino's first challenge: Arroyo (Asia Times Online)

Written for and published by Asia Times Online on May 26, 2010. Click here for the original article.

Aquino's first challenge: Arroyo
By Jennee Grace U Rubrico

MANILA - When Philippine President Gloria Macapagal-Arroyo steps down next month after nine years in office, the scandal-plagued leader will soon find herself on the political and possibly legal defensive. President-elect Benigno "Noynoy" Aquino ran partially on a clean governance vow to prosecute her administration's alleged crimes. Voters who overwhelmingly elected him earlier this month will expect prompt justice.

How he calibrates politicized law suits with forward-looking economic policies will be pivotal to his government's early success. Political analysts note that Arroyo is still a powerful force after winning a congressional seat in her home province and with sway over a large parliamentary voting bloc. She is expected to vie for the powerful house speaker position in the new parliament.

In an April report, GlobalSource Partners Inc, a local research firm, said that because Aquino campaigned on prosecuting Arroyo, "he may find it hard to push through with fiscal and economic reforms".

Aquino will need strong legislative support "to get the government running and put the economy on track" and he will need to use all "the tools at the disposal of the presidency to navigate through transaction-driven Philippine politics to take control and neutralize, co-opt, or cooperate with the forces aligned with the [Arroyo] administration," according to the report.

It added: "Failure to do so skillfully, Aquino and the country may end up in a stalemate, meaning lost years for the economy moving forward as it locks horns with congress."

Although Aquino won the presidency by a large margin over the second running candidate, his Liberal Party will be a minority in both congressional chambers. His party won just 45 seats in the House of Representatives, much less than the 107 controlled by Arroyo's Lakas-KAMPI-CMD coalition. In the senate, Aquino's party only has four representatives in a full complement of 23.

Donald Dee, vice chairman of the Philippine Chamber of Commerce and Industry, the country's largest business organization, is optimistic about Aquino's reform prospects. He believes that the early concession by Senator Manuel Villar, the second running candidate in the presidential race, and his move to publicly congratulate Aquino signaled a willingness to cooperate with the new government. Villar ran independent of Arroyo, but many believed he was her preferred candidate.

"I think that a lot of people who were not really supportive of [Aquino] are willing to give him a chance to prove them wrong," said Dee. "However, the next actions, policy direction-wise, in the next 100 days will be important to see not only if he can get the executive and legislative to work together, but also in convincing people to work together in achieving unity in the country."

Judging by Aquino's modest record in the senate, where critics say he championed few important laws, it's not immediately apparent he has the political skills to build such a consensus.

Aquino will also face "the challenge of changing his 12 years of non-performance in congress", said Clarita Carlos, a political science professor at the University of the Philippines. The academic said Arroyo was "an exceptionally hard worker" but that the various corruption charges "diminished her effectiveness because there was no closure in all of them".

Arroyo's approval rating was at an all-time low of 14% in April, dooming the electoral bid of her party's anointed successor, the Harvard-educated Gilbert Teodoro. While Aquino will aim to differentiate his policies and leadership style, analysts say he would be wise to follow certain of Arroyo's economic leads. Those include fiscal and monetary policies that supported the country's fastest gross domestic product (GDP) growth in over 31 years in 2007, and an average annual economic growth rate of 4.9% during her nine-year term.

Dee identified Arroyo's infrastructure development drive as among her greatest achievements, including the construction of the Subic-Clark-Tarlac Expressway, a highway that linked three central Luzon areas to Manila, and the creation of the so-called Roll On/Roll Off system, a nautical highway that connects the country's three major islands and allows for faster transport of agricultural products.
But widespread corruption allegations took the shine off those accomplishments. Arroyo survived four different impeachment motions and was directly implicated in allegations that her husband, Jose Miguel Arroyo, diverted 300 million pesos (US$613,000) in campaign funds and contributions into a secret bank account. She was also accused of buying votes in the 2004 national elections using a Department of Agriculture fertilizer fund and of rigging the polls in her favor.

Her government also came under fire for accepting bribes in awarding a multi-million dollar broadband Internet project that would have wired the country's creaky and far-flung bureaucracy. Amid uproar, the project was eventually scrapped. While the allegations stirred the media and sustained calls for Arroyo's resignation, none led to evidence-based court convictions. Aquino will be expected to reopen certain of those cases and push to recapture allegedly pilfered state funds.

Federico Macaranas, former executive director of the Asian Institute of Management's Policy Center, said that the steady stream of corruption allegations against Arroyo substantially weakened the Philippine economy. The eVAT policy, the centerpiece of Arroyo's economic reform agenda, "helped attract foreign direct investors ostensibly" but not as much as it could have because of "the perception that graft and corruption is the pervasive factor debilitating the economy."

"The minimization of graft and corruption becomes the major challenge" for Aquino, he said. "He faces the legacy of cleaning up the image that the country is hopelessly ungovernable in terms of clean and honest leadership, showing [a new] way to the masses of people whose lives are made poorer by democratized graft," Macaranas said.

At the same time, Aquino will inherit a spiraling budget deficit that Arroyo failed to rein in despite raising taxes. Like many regional countries, the Philippines resorted to heavy fiscal pump priming to mitigate the negative impact of the US-triggered global economic crisis of 2008 and 2009. Arroyo's government posted a record budget deficit of 298.5 billion pesos last year, representing 3.9% of GDP.

Meanwhile, the revenue shortfall for the first four months of this year amounted to 131.6 billion pesos, or 45% of the full-year forecast. Despite all the state spending, unemployment and underemployment were a stubbornly high 7.5% and 19.1% respectively last year, according to official statistics. The lack of local employment opportunities drove more than one million Filipinos abroad in pursuit of work.

"We turn out college graduates who are hardly absorbed by the local economy and thus leave to form part of the diaspora. The most educated seek greener pastures abroad - indeed a policy of the POEA [Philippine Overseas Employment Agency] now is to send the less vulnerable to earn foreign exchange for the country," said Macaranas.

To address these and other economic challenges, Aquino will need strong parliamentary support for his various proposed reform initiatives. But with Arroyo's still strong pull in parliament, and the legal threats to her and her administration's legacy, she could play the spoiler to Aquino's political and economic success.

Jennee Grace U Rubricohas been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

EU ban darkens Philippine skies (Asia Times Online)

Written for and published by Asia Times Online on April 20, 2010. Click here for original article.

EU ban darkens Philippine skies
By Jennee Grace U Rubrico

 MANILA - A European Commission decision to ban Philippine carriers from European airspace, which took effect on April 1, threatens to undermine the country's crucial tourism sector.
The prohibition, the most recent in a series of problems for the Philippine aviation industry over the past two years, was issued on the basis of safety assessments by the International Civil Aviation Organization (ICAO) in September 2009 and the downgrade of the country's safety rating by the US Federal Aviation Administration (FAA) in 2008.

In a statement, the 27-member European Commission said that it had been in constant communication with Philippine regulatory bodies prior to reaching its decision, and acknowledged efforts of the two-year-old Civil Aviation Authority of the Philippines (CAAP), the new regulatory body that was formed after the dissolution of the Air Transportation Office, to reform the country's civil aviation system.

It also recognized measures taken by the two biggest airlines of the country - Philippine Airlines and Cebu Air - to better ensure aircraft safety. These efforts, however, did not prevent the community from adding Philippine airlines to its blacklist.

EU ambassador Alistair MacDonald said: "The commission considers that the supervisory authority is currently not able to implement and enforce the relevant safety standards, and decided therefore to ban from EU airspace all air carriers licensed in the Philippines until these deficiencies are corrected."

The head of the CAAP, Alfonso Cusi, acknowledged the reasoning for the EC's decision, but said that it was based on outdated information. "There has been no audit after the FAA downgrade two years ago. Then there was an ICAO audit. The EU was acting on findings of ICAO but that was still in October," Cusi said.

Cusi, who assumed his post last month, said that the concerns raised by the EC included monitoring of airlines' business processes to check whether they are on par with international standards. "The question is how we check it. There must be a process that is acceptable. There must be manuals, systematic procedures. They [European Commission] did not see this," he said.

What the European Commission weighed were processes used by the Philippine civil aviation regulators two years prior, which were then deemed unsatisfactory. "Now, we want to show them that [the reforms are] here. We want to correct the impression," he said, noting that the CAAP has reiterated a request that the EC visit the country in May to check the progress of recent reforms.

No carrier licensed in the Philippines at present services Europe, so technically the ban does not affect any Philippine airlines' revenues from ticket sales. Industry players, however, note that the repercussions of the EC's preemptive restrictions are far-reaching and damaging both to Philippine carriers and the country.

Aviation industry analyst and Asian Institute of Management (AIM) associate professor Wilfred Manuela said that because the ban is on Philippine-licensed airlines, the reputation of local airlines is at risk.

"If a country's civil aviation authority appears not to be implementing what the ICAO requires ... the validity of the certifications issued by the civil aviation authority to airlines is now in doubt," he said. "Perhaps even local passengers will now entertain some doubts regarding the safety of local carriers."
Cebu Air, which operates Cebu Pacific flights to other Asian destinations, claims to have a fleet with an average age of 17 months while Philippine Airlines' planes are reportedly eight years old on average.

Tourism deterrent
The EU ban may also erode tourist arrivals and eventually airline revenues, analysts say. In 2008, when the FAA downgraded the safety ratings of the country to Category 2 from Category 1, the US Embassy issued a travel advisory discouraging its citizens in the Philippines from using local airlines.
Category 2 indicates that the FAA had assessed that the Philippines' civil aviation authority had failed to comply with ICAO safety standards for the oversight of air carrier operations. While in Category 2, Philippine air carriers are permitted to continue current operations to the US under heightened FAA surveillance.

"Whenever possible, Americans traveling to and from the Philippines should fly to their destinations on international carriers from countries whose civil aviation authorities meet international aviation safety standards for the oversight of their air carrier operations under the FAA's International Aviation Safety Assessment (IASA) program," the advisory stated.

Philippine Airlines, the only local carrier that services the US, was badly affected by the US advisory since the US market, with its huge population of Filipinos, contributed 30% of its revenues. Expansion plans were also put on hold until the Category 2 classification could be lifted.

While the European Commission ban would not have a direct impact on Philippine-licensed carriers, the reputational hazard could be costly. Europeans who come to the Philippines for business or tourism are expected to stay away while the ban is in place. Tourist destinations in the Philippines are generally reached through transfers from international airports.

Since only Philippine-licensed carriers service domestic routes, an advisory that discourages European and American citizens from using local carriers could prevent them from visiting the country altogether and severely impact the tourism industry.

"Since the Philippines does not allow foreign airlines to pick up passengers from gateway airports to other domestic destinations, visitors are forced to take local airlines. They may stop coming to the Philippines if they start to entertain the idea that local airlines are unsafe," said AIM's Manuela.

"For European tourists who have taken local flights before, this may not be a problem. For those visiting the Philippines for the first time, either they ride at their own risk or cancel their travel plans to the Philippines altogether," said Manuela. "I don't think they would ride at their own risk."

The local tourism industry is already feeling the heat. Tourism Secretary Ace Durano said that European insurance companies have stopped covering travelers for domestic air travel in the country, leading to the cancellation of bookings for April to August to the Philippines by travel operators from Germany, the United Kingdom and France. Figures from the National Statistics Coordination Board show that European visitors made up 10% of the total tourist arrivals in the Philippines in 2008.

Code-sharing arrangements between Philippine-registered airlines and international carriers may also be jeopardized by the EC's decision to blacklist local carriers. Philippine Airlines has code-sharing arrangements with airlines of the Gulf States for Middle Eastern destinations, to which around half of the more than one million Filipino overseas contract workers are deployed each year.

These destinations are also used as transfer points for passengers going to Europe from the Philippines. "If the Gulf States think that the EU ban has any merit, they might take a second look at the code share agreements with Philippine Airlines. If they are convinced that the EU ban is credible, they might suspend or withdraw code share agreements," said Manuela.

Other civil aviation bodies may also take their cue from the European Commission, in the same way the bloc took its cue from the FAA and the ICAO, and institute a similar ban on Philippine-based airlines in their airspace. Manuela, however, noted that the FAA was not likely to impose harsher measures for US routes given that the agency has not taken further adverse actions in the two years since it downgraded the Philippines to Category 2.

The government is in damage-control mode. Cusi said that as soon as the European Commission advisory came out, his CAAP got in touch with other aviation authorities to assure them that the concerns of the European bloc are already being addressed.

"Immediately after the advisory came out, we wrote to the authorities in the other countries and parts of the region informing them that we are safe. For instance, we wrote to IOSA [IATA Operational Safety Audit] to let them know that our airlines are very compliant. They said they understood. So far I think we're holding on," he said.

Jennee Grace U Rubrico has been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

Philippines' power at crisis point (Asia Times Online)

Written for and published by Asia Times Online on April 10, 2010. Click here for original article

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.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)