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Interview

Sergio de la Rama Osmeña III, Senator, Energy Committee, Philippines

The chair of the Senate Committee on Energy, and one of the original authors of EPIRA, explains how liberalisation of the Philippine energy sector was a necessity, yet remains incomplete. He floats the idea of privatising the electric cooperatives, calls for the expertise of a foreign Independent Market Operator (IMO), and reveals why subjecting the energy sector to greater levels of market forces represents the only way to end the brownouts.

Business interests don’t always match with the immediate needs of a country. Do you believe that Aquino’s administration is doing a good job at balancing these priorities?

Yes, I think so, although the problem is not in the balancing, but rather in the management of all the processes. In July 2001, we passed the EPIRA law, but since then, things have moved very slowly. The privatization of Napocor (The National Power Corporation or NPC) was supposed to happen in three years, by 2004, but most of the privatization only started around 2007/2008 and today, 25 percent of the assets still need to be privatized, which shows that something has been going wrong.

The issue here is clearly the management. This is a very complex industry: people don’t seem to realize that someone just can’t write a law and ask everyone to follow it. You have to have people in place that know how to manage the whole process. One of our biggest challenges is that the Philippines doesn’t have the expertise needed to run the energy sector efficiently.

The Philippines have the highest power rates in ASEAN. How do you explain that?

Firstly, the Philippines is one of the most difficult countries in the world when it comes to the geographic arrangements. The archipelago has more than 7,000 islands. Power is in and out because we have several small plants rather than one or two big plants powering the country. This is a big minus. Secondly, we have taken a very long time to modernize and catch up with best practices from around the world. Third, we still have all this obsolete legacy of contracts that were signed in between 1992 and 1997, when the Philippines was running out of power even in the capital, Manila.

When it comes to distribution, conflicts have arisen between National Electrification Administration (NEA) and Cooperative Development Authority (CDA) over the management and operations of some electric cooperatives. Where should the power lie? Do you believe that the ECs should be taken over by conglomerates?
                                                                                                                                                                                   Originally, cooperatives were denominated as self-regulating. This was a formula for disaster! The local politicians took control of the cooperatives. Outside the main urban areas, distribution utilities cannot operate profitably, so no one wants to go there, which is absolutely understandable. Today, Aleco, an electric cooperative, is about to be taken over by San Miguel Corporation because they have no electricity and this is the only way. But for a long time, even during the time we were debating the EPIRA, the electric cooperatives would not allow themselves to be privatized.

Do you agree with NPC’s recent more direct approach of enforcing brownouts/blackouts in order to deal with non-paying cooperatives?

Absolutely! The non-paying cooperatives have to learn the discipline of the market: if you don’t pay, you don’t have electricity.

What are your thoughts about the progression of the liberalization of the power sector and the dominating conglomerates?

We have no choice. When you have a developing country like ours, there are always ‘good and bad shoes.’ Our task is to take the risk and go ahead with the development of the economy. The Koreans have done it, the Japanese have done it; we have it here in the Philippines too. But in this country, we have regulatory bodies that supervise and control the various groups involved in the energy sector, such as the Aboitiz Group and the Lopez Group. Of course, it would be great if we could democratize ownership, but unfortunately we don’t have that type of situation. But, one day there will be—over the past 50 years there has been a wider dispersal of wealth in the country.

Achieving a 90 percent electrification rate by 2017 will largely depend on the reforms implemented in order to solve the power crisis in the rural areas, primarily Mindanao. Do you think this is feasible and when will the Philippines be able to provide electricity to its entire population?

At this point we are looking for an additional 1000 to 1500 MW growth a year. Now, in some areas like Mindanao, they have a shortage of about 300 MW, which is more like 700 MW because it doesn’t take into account their need for a reserve. They shall be receiving an approximate 800 MW in the next few years.

Unfortunately, full electrification in the Philippines will probably not be possible, due to the logistics and costs involved in providing power to every island in the country. In the barangays, or the smallest administrative divisions in rural areas of the archipelago, 30-40 percent of the people live in that section, but the rest are all scattered. Hence, it can cost as much as PHP 30,000 (USD 689) to bring electricity to each house: such expense is currently impossible for us. However, we must try to find a way to improve coverage: it really is a concern that as many as 25 percent of the homes in this country have no electricity, and we have been stuck at that level for some time.

There are interesting initiatives currently, such as the one that Jaime Ayala is undertaking. After his post as the president of Ayala land, the biggest land developer in this country, he delved into social entrepreneurship and founded the Hybrid Network. He bought these lamps with small batteries, which are charged by solar. He sells them for about PHP 1000, usually in instalment payments, and they last for four to six hours. Some studies have shown that students with households that had the lamps worked around two longer hours at night and their grades improved tremendously, which is extremely encouraging.

Although the Philippines is considered a renewable energy leader, as the second largest producer of geothermal power in the world, the country is currently powered by 60 percent of imported fossil fuels, while there are 300 pending Renewable Energy  (RE) projects. What do you believe is the future of RE in this country?

We must focus on green technologies, but always thinking green with a business perspective. Solar is too expensive, the whole world is still waiting for more development and increased R&D spending from rich countries such as the US. Another disadvantage is that solar requires flat areas and our flat areas are used for planting rice, which is already in short supply in the Philippines.

Out of all the renewable energies, I like biomass technology the most, firstly because it gives an extra value to something that is wasted by the farmer. You can pick up his rice and corn trash and sell it to the owner of the biomass plant. The setback is that we don’t have very big wide-open ranges here; we only have pockets of flatland where we can plant rice, etc., which can subsequently be utilized as the feedstock for the biomass plants.

We do have big opportunities for wind and solar, but even then, because we have a very pronounced rainy season the sun doesn’t always shine and the wind doesn’t always blow and even the water doesn’t always run. All of this results in a smaller potential in renewables here in the Philippines. Except, of course, geothermal and the big dams, which are the reasons why our energy mix is composed of 33 percent renewables.

What does the future of the Philippine’s energy sector look like, in your opinion?

The Philippines has been stumbling along for decades, but now it is time to take big steps towards efficiency so that the rates will come down. One of the keys to achieving this is to find the necessary expertise and in the meantime we must bring it in from abroad. But, there is some resistance; for example it was always the congress’ intention that a foreign Independent Market Operator (IMO) that already had experience in running a grid of a similar size would come into the Philippines and then after time enable knowledge transfer to the Philippine Electricity Market Corporation (PEMC), which would work much better. In general, there are many areas where we can cut down on costs and then in five to 10 years we should see a marked improvement in transmission, distribution and open access to the market.

The Philippines has one of the most sustainable energy models in the world, because we do not rely on the government to build our power plants, but instead rely on the free market. This affects both budget for growth, and efficiency. But the most expensive power is having no power at all, and we must address this in the years to come, making sure that blackouts no longer occur. Hopefully, the private sector will help us achieve this aim soon.

 

To read more interviews and articles on the Philippines, and to download the latest free report on the country, click here.  

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