Business groups call on gov’t to define power supply and rate as key to sustainable and inclusive growth

Nine major business organizations have urged government to define power supply security and competitive power rates as major twin initiatives to realize aggressive industrialization and inclusiveness, with public and private sector working together to achieve these objectives.

In a joint letter to President Benigno Aquino III, the Philippine Chamber of Commerce and Industry (PCCI), Alyansa Agrikultura, Chamber of Mines of the Philippines (COMP), Employers Confederation of the Philippines (ECOP), Philippine Exporters Confederation (Philexport), Semiconductor and Electronics Industries of the Philippines (SEIPI), American Chamber of Commerce of the Philippines (AmCham), European Chamber of Commerce of the Philippines (ECCP) and the Korean Chamber of Commerce of the Philippines (KCCP pointed out the importance of having a clear program for achieving reasonable and competitive power rates as key to accelerating industrialization, bringing in significant foreign direct investments, creating employment opportunities and realizing sustainable and inclusive economic growth.

The joint Philippine business group and foreign chambers said private sector is ready and enthused to support actions to resolve the situation, but there is that need for the national leadership to clearly define the national policy and strategic objectives concerning the two critical issues of power supply sustainability and reliability and regional competitive power tariff.  They said this should include reasonable target timing and accountability.

The group emphasized that the DOE should not be left alone to figure out the solutions but for the entire Economic Cluster to act as one team in evaluating the situation and strategizing on how to achieve these goals.  They said the Economic Cluster should be able to respond to the challenges with a broader perspective and mindset giving full consideration of the real and apparent successful strategies of the Philippines’ neighboring countries in the region in terms of enhancing the business environment by providing more competitive power rates.  They also pointed out to the importance of fair competition towards achieve the goals of power security and competitive rate.

Specifically, the business organizations submitted the following long-term recommendations:

On power supply security

1.       A national power supply roadmap specifying, among other things, the required power plants, their configurations (fuel type, size, etc.), locations, and schedule of operations

2.     A supporting power supply agreement (PSA) template that will be adopted by all distribution utilities (DUs) as classified and qualified

3.     A regular and transparent power supply bidding process that will cover base load, peaking, and reserves

On competition

1.       Developing programs and processes that ensure fair and transparent competition among stakeholders in the supply side, where the final major stakeholders do not number more than five and are also partners among themselves or with DU stakeholders in other major industrial ventures in the country

2.     Increasing the market power of various DUs in order to create fair competition and increase power supply security

On competitive power rates

1.       Fostering closer coordination among economic, fiscal, industrial, and energy sectors to develop a competitive tariff sweet spot

2.     Bringing the regulatory sector to the same table in order to address the impression that there is a lack of coordination among planners and implementers

On implementation

1.       Developing a strong public-private coordinating task force to provide leadership in promoting the program and overcoming anxiety or resistance from LGUs and civil sectors

2.     The task force to clear the way for the efficient implementation of the program (e.g., LGU permitting, licensing, etc.)

In the mid-term, the joint business group called for the following:

1.       Creation of a forward market[1]by requiring distribution utilities (DUs) to contract 100 percent of their forecast energy requirements for the next three years and no less than 90 percent for seven years thereafter, subjecting these to competitive public auctions;

2.     Creation of a forward market and the establishment of such either at the Wholesale Electricity Spot Market (WESM) or under a trading platform operated by industry stakeholders and duly accredited by the private sector, subject to market rules prescribed by the DOE;

3.     Creation of an ancillary reserve market by requiring the National Grid Corporation of the Philippines (NGCP) to secure firm contracts for ancillary services; and,

4.     Streamlining business permit and licensing systems to facilitate generation project development and early commissioning of badly needed additional capacity.

The business organizations concluded that the EPIRA provides government enough arsenal to improve processes and policies that will pave the way for the implementation of programs addressing the issues of power supply and cost.  They cautioned that amending the law will only cause uncertainties that will slow down the progress of new investment and projects in the power generation sector and ultimately further delay the gains that the EPIRA was envisioned to bring.

Whenever there is talk of amending EPIRA, banks and investors put on hold the evaluation of power projects.  Potential changes or amendments to the EPIRA could materially change the risks or upset financial projections on the viability of high-cost power projects.

---

[1]A forward contract is an agreement between DUs and generators for the supply of a fixed quantity of electricity at a pre-agreed period within the year at an agreed fixed price. A forward contract mitigates the price volatility of replacement power from the WESM and allows supply gaps from PSAs during maintenance to be filled without speculative pricing (if generators are otherwise required to include in their power rate the replacement power cost during maintenance outage).