Over $500m spent on fuel subsidies in 2011 (The Brunei Times)

Published in the April 20, 2013 issue of The Brunei Times. Click here for original article. 

Over $500m spent on fuel subsidies in 2011, strain on coffers

Jennee Rubrico
BANDAR SERI BEGAWAN

Saturday, April 20, 2013

THE sultanate spent more than half a billion Brunei dollars on fuel subsidies in 2011, putting a "tremendous strain" on the national coffers, an official of the Asian Development Bank told The Brunei Times.

Minsoo Lee, senior economist in the Macroeconomics and Finance Research Division of the Economics and Research Department of ADB, said in an email interview that the sultanate spent US$470 million ($580.283 million) on general fuel subsidies in 2011.

This meant that the government shouldered US$1,159, or $1,431.84, of the fuel costs of each person in the country, he added.

"The government provides very generous subsidies to ordinary citizens through a variety of pathways, including electricity, LPG (liquefied petroleum gas, or cooking gas), and transport fuels," Lee said.

"The costs of these programmes do weigh upon a government, even one with substantial financial resources. Transport fuels are held perhaps 45 per cent below market costs and are part of the overall energy subsidies," he added.

Transport fuel in the sultanate, said to be lowest in the region, ranges from 30 cents to 60 cents per litre at the pump.

Data from the Deutsche Gesellschaft fur Internationale Zusammenarbeit (GIZ) GmbH show that Brunei pays for almost half of the cost of the fuel that motorists buy at the pump.

On its website, the organisation noted that the commercial cost of gasoline with a 92 octane rating is at 92 cents per litre, but only retails for 51.9 cents per litre, with the sultanate covering the remaining 40.1 cents.

"The subsidy for diesel is even higher," it said, as it noted that the commercial cost for the fuel is at 91 cents per litre while it only sells at 31 cents, with the government shouldering the remaining 60 cents.

The GIZ draws up a database on fuel prices, taxes, price policies for countries in the world on behalf of the German Federal Ministry for Economy Cooperation and Development.

"Reallocating fiscal resources to infrastructure, health and education would spur growth and make it more inclusive," Lee said.

Earlier, the Ministry of Health proposed before parliament a $366.479 million budget for this year, to cover for payroll, additional manpower, purchase of medicines, hospital upgrades, procurement of laboratory equipment and health promotion, among others.

Social services, for its part, was given a $351.6 million outlay from the development budget to support projects in education, health, national housing and human resources, it was earlier reported.

The Ministry of Development has earmarked $313.2 million for the 2013/2014 financial year, for flood control projects, improvements in road safety, and public housing services.

The Ministry of Education, on its part, gets a bigger budget allocation than the amount the government spent to subsidise fuel in 2011. The ministry presented a $759.128 million budget for 2013/2014, up 3.8 per cent $731.066 million the previous fiscal year at the ninth Legislative Council proceedings.

The allocation was made for teachers' salaries, overhead costs, school buses, purchase of educational equipment, and training for teaching staff.

The budgets for these ministries, however, do not take into account support that may come from the 10th National Development Project, which was given $1.05 billion for this fiscal year.

Lee noted that while popular, selling fuel below true market prices "increases energy consumption, distorts energy development planning, and damages the environment".

Reducing the real price for diesel or electricity, he said, weakens incentives to conserve on energy and inhibits the development of renewable resources, which Brunei has been pushing for.

"Worse, the main beneficiaries of energy subsidies are not the poor. If the intent is to make energy affordable to the poor, only the poorest 20 percentile should benefit from the subsidy," he said, adding that in Asia, only five to 15 per cent of the subsidy benefits go to the poorest of the poor.

Lee also said that Brunei's ability to produce oil does not make it less vulnerable to the impacts of fuel subsidies, noting that the country's affluence is critically dependent on the energy sector.

"The oil and gas sectors account for nearly two-thirds of Brunei's GDP (gross domestic product), roughly 95 per cent of Brunei's export revenues and about 90 per cent of government revenues," he noted.

"This dependence on a single natural resource makes the economy vulnerable to fluctuations arising from energy markets. In common with other small oil and gas exporting countries, the economy is subject to pressures from swings in global prices and domestic production issues," he added.

In the recently released ADB Development Outlook 2013, the bank ranked Brunei the third biggest provider of fossil fuel subsidies in Asia when considered as a share of a country's economy.

In the list of 11 Asian countries, Brunei, which provides subsidies of over three per cent of its GDP, or the total value of goods and services produced by a country within a period, trailed Bangladesh, at five per cent of its GDP, and Pakistan whose subsidies cover more than four per cent of its economy.

According to the report, a US$0.25 per litre increase in fuel prices causes a 4.5 per cent decline in real income of households in Asia and the Pacific.

The impact is partly direct, as households have to spend more on fuel, and partly indirect, as prices for goods and services increase with higher embedded energy costs, the report added.

Brunei produced 155,000 barrels of oil a day in January to September 2012, lower than the 166,000 barrels a day it produced in 2011.

The Brunei Times

'Brunei 3rd in Asia's fuel subsidy list' (The Brunei Times)

Published in the April 10, 2013 issue of The Brunei Times

Click here for original story

'Brunei 3rd in Asia's fuel subsidy list'

Jennee Grace U Rubrico
BANDAR SERI BEGAWAN

Wednesday, April 10, 2013

THE fuel subsidy the sultanate gives to its people is among the highest in Asia when considered as a share of its economy, a report from the Asian Development Bank (ADB) shows.A ranking of 11 Asian countries that provide a fuel consumption subsidy in the 2013 Asian Development Outlook puts Brunei third, after Bangladesh and Pakistan.

The fuel subsidies provided by Brunei, which according to the International Energy Agency (IEA) is the biggest net exporter of oil liquids in the Asia Pacific, account for over three per cent of the country's gross domestic product (GDP) as of 2010, the report states.

The Oxford Business Group, in its country report on Brunei for 2011, placed the sultanate's GDP in 2010 at $11.846 billion at constant prices.

The country of about 400,000 people offers fuel prices of between 30 cents and 60 cents at the pump.
Statistics from the country's Royal Customs and Excise Department show that Brunei's prices for Super 92 petrol, as of May 2010, were about 22 cents per litre cheaper than in east Malaysia's Limbang, while Premium 97 was about 27 cents per litre cheaper.

The country produced 155,000 barrels of oil a day in January to September 2012 lower than the 166,000 barrels a day it produced in 2011.

Bangladesh, which tops the ADB list, provides subsidies that eat up five per cent of its GDP. Pakistan, meanwhile, provides subsidies translating to more than four per cent of its economy, according to the ADB.

Vietnam and Thailand trail Brunei, with subsidies accounting for around 2.8 per cent of their respective economies.

Placing sixth was Malaysia, which provides subsidies translating to around 2.5 per cent of its GDP.
Former OPEC member Indonesia, which subsidises fuel by as much as 2.5 per cent of its economy, came in seventh.

Other countries in the list were India, where fuel subsidies are estimated to be around 1.5 per cent of its GDP; Sri Lanka, at one per cent; the Philippines, at around 0.6 per cent, and China, at around 0.5 per cent.
Noting that governments impose consumer subsidies to guarantee affordability and protect households from potential shocks of fuel price increases, the ADB nevertheless stressed that the move artificially reduces the price of energy and encourages over consumption.

Simulations done by the bank show a US$0.25 ($0.30) per litre increase in fuel prices causes a 4.5 per cent decline in the real income of households in the Asia Pacific.

"Such subsidies are well-intentioned, or at least popular, but they increase energy consumption, distort energy development planning, and, when applied unevenly, provide incentives for adulteration and illegal cross-border sales," the report states.

It added that while subsidies were meant to help the poor, the less well-off "benefit little" from reduced fuel prices.

"If the intent is to make energy more affordable to the poor, only the poorest 20 percentile should benefit from the subsidy. In fact, the poor in Asia benefit little from subsidised fuel prices because many lack electricity and gas connections, few own vehicles, and most transport sparingly," it said.

Citing a study by the IEA, the ADB noted that in nine Asian countries with the highest fossil fuel subsidies and two countries in Africa, only 15 per cent of the benefit of kerosene subsidies and five per cent of subsides for liquefied petroleum gas went to the poorest 20th percentile.

In the meantime, the amount that the government shoulders "puts pressure on the budget and external account".

The ADB recommends that economies switch from general transfers to targeted subsidies to benefit the poor and reduce over consumption.

"Poor households are identified for benefits like food distribution, education support, and medical treatment. The energy subsidy could be similarly targeted," it said.

"For example, a cash payment scaled for the energy used by a typical energy-poor household, not tied to the households' energy consumption, would extend access without encouraging wasteful use."

It said this system would give beneficiaries an incentive to use less energy and keep the surplus from the payout to fund other needs.

"This achieves the objective of restraining energy use without creating the perverse incentives that so frequently drive energy systems off track.

"Replacing general energy subsidies with subsidies targeting the energy poor can immediately restrain energy demand without denying those in need. It can go a long way towards laying the foundation for Asian energy security," the ADB said. The Brunei Times

25: Looking Back, Moving Forward (book)

For its silver anniversary, BusinessWorld came out with a coffeetable book called 25: Looking Back, Moving Forward.

I was asked to write one of the chapters of the book -- on the Philippine power sector. Running for 10 pages, the chapter discusses how the Electric Power Industry Reform Act, the law passed in 2001 to rectify the problems in the power sector, has or has not been able to meet its mandate.

The book also tackles other sectors and the issues they grapple with. Philippine telecommunications, agriculture, and the stock exchange are just some of the important industries discussed extensively in the book.

25: Looking Back, Moving Forward was launched on July 28, 2012, and will soon be sold to the public.

For inquiries, call +632-5359901

'Brunei must diversify economy to avoid Dutch Disease' (The Brunei Times)

This originally appeared on the May 2, 2012 issue of The Brunei Times. Click here for the original article

'Brunei must diversify economy to avoid Dutch Disease'

A file photo of an oil drilling platform off the coast of Brunei. 'Petro-states' like Brunei need to decrease heavy dependence on oil and gas, which could be earmarked for other investments instead, said the World Economic Forum in a paper titled 'New Energy Architecture: Enabling an effective transition'. Picture: Courtesy of Shell

BANDAR SERI BEGAWAN

Wednesday, May 2, 2012

PETRO-STATES like Brunei have to look at ways of diversifying their economies, a study conducted by the World Economic Forum (WEF) states.
In the paper "New Energy Architecture: Enabling an effective transition", which was released last month, the WEF said that countries that capitalise on their hydrocarbon resource base depend on oil and gas exports heavily to boost their economies.
This in turn puts a heavy toll on the environment and the economies, it added.
Brunei, Saudi Arabia, the United Arab Emirates, Iraq, and Kazakhstan, among others, are categorised by the WEF study as "capitalise" countries, or those with large hydrocarbon reserves and have the energy infrastructure to focus on sustainable ways of harnessing them. Referred to as petro-states, countries under the archetype typically export oil and gas.
"Key opportunities for these countries involve diversification of economies and leveraging experience to enable expansion across the energy value chain," the study states.
It adds that "options with regard to maximising energy sector returns are not necessarily sustainable", and that they must be "carefully considered and executed to ensure co-benefits across government, society and environment".
It notes that these countries often rely on oil and gas exports to generate economic growth and maintain social stability, often taking a heavy toll on their environment and resulting in large fuel subsidies.
These countries, the study states, run the risk of a range of economic problems, including Dutch Disease, where oil exports push up prices and harm other industries.
Heavy focus on oil and gas could also divert capital earmarked for other investments, the study notes, adding that "reform fatigue", where structural economic problems are not tackled due to potential future wealth, may also affect these countries.
"The common challenge for these countries is to ensure that the opportunities for longer term economic development are not lost to economic distortion and ensuring political and social pathologies," the study states.
The WEF study covered 124 countries, which were categorised into four archetypes. Aside from the "capitalise" countries, the other archetypes are: "rationalise" countries, or mature economies, mostly members of the Organisation of Economic Cooperation and Development, that focus on reorganising their energy architecture to balance the needs of the environment, government and society; "grow" countries, such as China, which are focused on securing energy supply in light of rapid economic growth; and "access" countries, like Cambodia and Bangladesh, which struggle with providing its people with basic energy needs at affordable prices.
The study categorised the countries based on their economic growth and development, including energy intensity or the amount of energy they use to produce a unit of gross domestic product, the cost of energy imports, and a combination of GDP and human development index, among others; environmental sustainability; and energy access.
The study aims to present trends that are common to groups of countries with similar needs and objectives, to enable policy-makers to understand the broader consequences of their actions and the trade-offs they entail. It also presents ways for countries to effectively transition into a "new world energy architecture" according to their archetypes, given the radical shift in the way the world sources, transforms and consumes energy.
Data from the study show that the world will need US$38 trillion worth of investments in energy supply infrastructure between 2011 and 2035.
It also points out that global cost of fossil fuel consumption subsidies will reach US$660 billion in 2020 if reforms are not instituted, from US$409 billion in 2010.
World energy consumption, meanwhile, is expected to grow by 40 per cent between 2009 and 2035. -- Jennee Grace U Rubrico
The Brunei Times

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.)

US financial services firm checks out RP (BusinessWorld)

Published in the June 13, 2006 issue of BusinessWorld

The Economy

BY JENNEE GRACE U. RUBRICO, Senior Reporter

US financial services firm checks out RP

American financial services company The InvestLinc Group is looking for investment opportunities in the Philippine energy sector and has been in talks with a number of companies that have power generation assets in the country.
In an interview last Sunday, InvestLinc managing director Ronald E. Bolen told BusinessWorld that his team sent financing proposals for the upgrade and optimization of five power generation assets.
InvestLinc is a 15-year-old financial services firm that started as a private equity fund manager and has evolved into four main lines of business, namely: private equity, real estate ownership and development, wealth management, and energy.
The energy arm, which Mr. Bolen heads, invests in early stage technology companies in the US and looks for investment opportunities in the rehabilitation and optimization of power plants outside the US.
InvestLinc was in the Philippines for a week to meet with the Energy department, the Power Sector Assets and Liabilities Management Corp., and private power firms to assess the local energy sector as well as to identify investment opportunities. Its meetings were coordinated by the US Commercial Service. The Philippines was the company’s last stop for its Southeast Asia visit, which included Singapore and Thailand.
"We are seeking to invest money into existing power plants for the purposes of rehabilitation and modernization. We have [talked to power plant owners]. We conducted a total of 16 to 17 meetings [in the country] through the US Department of Commerce which helped us access [stakeholders]," Mr. Bolen said.
He said that his company has already submitted proposals and requests for the conduct of due diligence for five existing projects. He declined to identify these power plants, saying only that these are spread across the country and have output that range from 1.5 megawatts to 200 megawatts. He also said the plants were run by hydroelectric, coal, natural gas, and diesel. All proposals were for funding the increase in capacity of these plants and some were for a shift in the fuel source, he said.
Mr. Bolen said that among the nations he visited in Southeast Asia, the Philippines topped the list in terms of investment opportunities. "It’s ranked number one and that surprised me. I anticipated the Philippines to be second, possibly third. All of the opportunities we have seen in which we were interested enough to put together a proposal for further due diligence, a greater number exists in the Philippines than in any other country," Mr. Bolen said.
Noting Visayas and Mindanao’s immediate need for additional capacity, Mr. Bolen said these islands pose great opportunities for his firm as he maintained that increasing existing power plants’ capacity will cost less and put more power on stream faster than putting up new generation assets.
"The market only has to absorb a smaller amount of power than if we built a greenfield facility and it can come on line in as short as 12 months versus five to seven years. From the view of the asset owners, we view optimization as a magnificent manner by which additional capacity can be brought into the system without having to experience a net long position [too much power supply]... And because the power comes in quicker, the cash flows are coming in faster. It also reduces my risk," he said.
He also hinted that InvestLinc’s interest in the Philippine energy sector may increase once it gets to visit other power plants, but said that it was too early to say how much in investments the firm will infuse in the country. "Because of our limited time, we saw as many as we could. But there are people to meet and opportunities to see that we haven’t really scratched the surface yet," he said.
Mr. Bolen said that depending on the response the company gets for its proposals, and depending on what happens in other countries it visited, InvestLinc will be coming back to the Philippines by September or earlier.
Southeast Asia is the first market that Investlinc’s energy unit wants to enter into after the US. Mr. Bolen said this is because the regionhas the most opportunities for his firm. After Southeast Asia, Invest-Linc will also look at sub-Saharan Africa, Latin America, and Eastern Europe, Mr. Bolen said.
InvestLinc seeks to provide power companies an alternative funding source to supplier’s credit by putting funds into the asset either through debt or equity.

Phinma keen to bid for Tiwi-Makban plant (BusinessWorld)

Published in the October 24, 2005 issue of BusinessWorld

Corporate News

BY JENNEE GRACE U. RUBRICO, Senior Reporter

Phinma keen to bid for Tiwi-Makban plant

The Phinma Group wants to acquire some of the geothermal assets of the National Power Corp. (Napocor) and is set to bid for the 700-megawatt Tiwi-Makban geothermal power plant.
In a talk with reporters, Phinma President Ramon R. Del Rosario, Jr. said the group is "seriously looking" at bidding for the plant, which will be the first geothermal asset Napocor will bid out.
Bidding has been slated for Dec. 8.
"We’re seriously looking at Tiwi-Makban... We like geothermal. It’s indigenous, it’s somewhat replenishable," Mr. Del Rosario said.
He said it will be the whole Phinma group that will bid for the asset, and the company is working on getting consortium partners for the undertaking. "We will have to get partners for this, it’s so big," he said.
He declined to name the parties that the company is in talks with.
He said the group may use the P1 billion it set aside from retained earnings for the acquisition.
"It’s omnibus. It’s available for whatever the group decides to get into," he said.
Mr. Del Rosario said that should Phinma win the bid for the asset, running the plant will become its main business.
He said winning the bid will also allow Phinma to raise equity.
"We want to continue investing and investing somewhat aggressively so when the opportunity comes we will go into capital raising but we think it’s unrealistic to do it until we are able to show a good story. Only if we are able to acquire a good power generating asset then that would probably be a good time to do it especially if we have a good consortium with us and the story is something that the market will find exciting," he said.
Phinma, through its subsidiary Trans-Asia Power Corp., operates two power plants that produce 53.4 megawatts of power. The company is looking to expand its operations in the power sector through the purchase of the Napocor assets.
Mr. Del Rosario said the company is still not keen on expanding through the construction of new power plants. "We have no plans [to do this], especially when there are these opportunities to acquire. The time you spend building a plant is three years, even more. That’s a period when we have no cash flows, that’s very, very costly. We don’t have the resources to do something like that," he said

Enterprisers: Lasse-Matti A Holopainen (BusinessWorld)

Published in BusinessWorld on May 6, 2004

 

Blazing a trail

By JENNEE GRACE U. RUBRICO, Senior Reporter

Lasse-Matti A. Holopainen appears to have his job cut out for him.
As president of the Philippine Electricity Market Corp., the firm set up to run the wholesale electricity spot market, he is expected to blaze a trail in introducing the untried concept of trading electricity in the Philippine market.
Pursuant to the Electric Power Industry Reform Act, the Philippine Electricity Market Corp. is tasked to supervise the preparations and consequent operations of the spot market, which aims to be the venue for trading of electricity between generators and suppliers -- as well as wholesale consumers -- thus promote competition in electricity production and supply.
Three months after the firm was incorporated in September, Mr. Holopainen, who was then Energy assistant secretary, was named the firm's first president. Five months into his job, Mr. Holopainen is occupied with setting up shop and putting in place the framework needed for the operations of the spot market. "Preparations are being made across the board," he said.
Among the more urgent preparations, Mr. Holopainen said, is making sure that the hardware and software requirements are delivered by May. "This would give us time to debug the system before trial operations in December," he said.
Attached to the delivery of the system is training the market operator and the industry participants on the actual trading of electricity in the spot market, Mr. Holopainen said.
Dialogues with other stakeholders, such as the local government, also have to be conducted, he said.
"They are also dependent on electricity and have to understand opportunities. Those are the imperatives we have to put in place," Mr. Holopainen said.
A Filipino/Finnish national, Mr. Holopainen grew up in the Visayas and finished his BSc. Management (Honor's Program) at the Ateneo De Manila University. He took his Masters in Business Administration at the Fontainebleau, France campus of INSEAD.
A finance person for most of his professional life, the 36-year-old Mr. Holopainen worked with Real Venture Asia Ltd., Schroders International Merchant Bankers Ltd., and Andersen Consulting, among others, before joining the government in 2001 as assistant secretary for investments at the Department of Energy.
As energy assistant secretary, Mr. Holopainen was in charge of investor liaison, investment facilitation, interagency coordination and investor policy, a post he kept until he was given his present job.
Mr. Holopainen said compared with his job as energy assistant secretary, his job now is more focused.
He describes his management style as "laid back."
"My philosophy is if people know what they're working towards, they will do their best to work towards that goal. I just stay out of people's way to get their job done. Long discussions don't usually get anything done. I have good employees. The staff is very good and talented in their different fields. I'm doing more of a coordination job, to make sure that the job is done on time, on budget para walang maiwan (so that nothing is left behind)," he said.
Having worked with both the private sector and the government, Mr. Holopainen said that his work experience helps him understand the concerns of both sectors on the operations of the spot market. "The market is a mix of private firms and government. I can understand concerns from both sectors. I know how the private sector work and their concern but I also understand government. And [the firm] really is in between government and the private sector. I can handle two very different cultures," he said.
Mr. Holopainen acknowledges the difficulties in setting up an electricity spot market, noting that electricity spot markets in other countries have failed.
He also admits that contrary to the buildup by other government officials and advocates of a restructured power sector, the system is not a panacea for high power rates and other power-related problems.
What the spot market could do, he said, is provide "clarity" and "transparency" in the pricing of electricity rates. "I could say let's build a perfect market, but that's not doable. I could say, let's try to bring down costs of electricity, but that's not the job of the market. The market is a mirror to show you the truth. It should be built in such way that it would be clear and transparent," he said.
Mr. Holopainen remains optimistic that despite the limitations under which the spot market will be operating, the scheme will work.
"My outlook for the [electricity spot market] is very good. What we are trying to do is verging on the impossible. There's no market that has been successful and we have a lot of issues as a country. But we will deliver this [market] and if we get the support of stakeholders the stakeholders have to buy into it 100%. Once in place, it will provide important new economic outlet or venue and that will really help in terms of our industry restructuring," he said.