On the Mindanao Power Drama to privatize Agus-Pulangi,
increase power rates and introduce dirty energy-sourced electricity

FDC Position Paper
April 13, 2012

Mr. President, the Mindanao power supply issue has grabbed the media limelight and has spurred public discussions over the past few weeks. Technical issues and business concerns have received more than ample coverage in these exchanges. There is little about what really concerns the consumers who in Mindanao are now threatened with possible power rate increases which have been experienced in Luzon and the Visayas and whose population still includes a big segment who had been without electricity their entire lives. Freedom from Debt Coalition (FDC) in this position paper takes up the concerns and the interests of the consumers as consumers and also as citizens advocating for changes in the power industry that will serve our homegrown industries and agriculture and overall human development.

Mr. President, the highly flawed policy framework of EPIRA is the problem behind the Mindanao power supply issue. This law is designed for big business interests, not for public service. Before EPIRA was passed, the former National Power Corporation was responsible for generating electricity as well as developing power transmission lines. But EPIRA in effect removed this fundamental role of the State. What EPIRA did was to pave the way for private investors to come in and chart the course of generating electric power in our country. This law also gave the control and management of a major pillar of the industry – our national power transmission lines to a foreign State corporation– State Grid of China with Henry Sy’s SM Holdings Corporations as its partner.

In short, the matter of developing electric power supply and management has been left at the mercy of the private sector, an oligopoly of a few big, long-entrenched family/corporate interests.

What exactly is the Mindanao power supply problem?

The following provisions pertain to specific mandates of the law in relation to ensuring security of supply of electricity;

Chapter III, Section (37) letter (d) states that the DOE “Ensure the reliability, quality and security of supply of electric power”.

Chapter V, Section (47) letter (j) declares “NPC may generate and sell electricity only from the undisposed generating assets and IPP contracts of PSALM Corp. and shall not incur any new obligations to purchase power through bilateral contracts with generation companies or other suppliers”.

Chapter VIII, General Provision Section (71) Electric Power Crisis Provision – Upon the determination by the President of the Philippines of an imminent shortage of the supply of electricity, Congress may authorize, through a joint resolution, the establishment of additional generating capacity under such terms and conditions as it may approve.

All of the provisions related to security of power supply we cited above did not work.

After ten years under EPIRA of providing the few big corporate firms practically every incentive to shield them from major business risks and allowing them to practice market abuse, these big corporate interests hardly contributed to increasing the already existing power generation capacity in the country. The DOE simply surrendered its mandate to private initiative. Through cross-ownership of generation and distribution components of the industry and high-level rent-seeking practices, these elites managed to impose high electricity rates – now the highest in Asia and extract massive super-profits at the expense of our consuming public, our industries, and other small distribution units like the rural electric cooperatives.

Since 2009, the supply shortage has been repeatedly felt every summer and yet, the DOE continuously ignore the need to develop additional capacity for baseload and peaking plants.

Why? One, instead of rehabilitating Agus-Pulangi, it was allowed to deteriorate. These power plants were never harnessed to full capacity and developed further, and the main resource of these two great rivers, the Lake Lanao, was never nurtured.
Two, while DOE claims that they put up coal power projects in anticipation of eventual shortages, such coal power plants takes 3 years before they become fully operationalized. These projects cannot be an iimmediate solution for this period. More importantly, they are not climate-friendly alternative solutions.

Third, NPC power barges are continuously privatized, leaving the government without reserve capacity to deploy in times of need.

Ultimately, in order to entice private investors to come in, scenarios of power shortage are bound to appear and can be hyped to pave the way for further increasing electric power rates and consequently, big corporate profits. According to some legislators and proponents of EPIRA, the comparatively low generation cost in Mindanao is not a competitive price and therefore there is a need to increase its generation costs. In September 2010, the total average production cost of Agus-Pulangi (per kwh/excluding depreciation) is only P0.2134 as compared to Iligan Diesel Power plant amounting to P7.7910 and Power barges 104 is PP7.3367.

A study made by the University of the Philippines, National Engineering Center last July 2011 shows the gaps between DOE’splanning and management of power generation and and private sector delivery in terms of increasing power supply.
“A gap exists between the generation capacity planning of the DOE and the commitment of the private sector to build power plants. Commitments did not translate into actual installed capacity according to the projected timelines and commissioning year. The DOE has reverted to a deterministic approach for capacity planning that is largely deficient instead of the probabilistic approach that is widely used worldwide. Supply security is further placed at risk by the reliance on a single resource at the grid level and the indexation of the price of domestic natural gas and geothermal steam to the international price of oil and coal, respectively that exposes much of power generation to the volatility of the international price of these two energy resources”. This was presented during the National Pre Power Summit last June 25 to 26 organized by FDC.

Clearly, Mr. President, the problem can be rooted in the law, EPIRA, in policy direction, and the quality of planning and management.

Our proposal and recommendations are the following:

Immediate solutions
1. Provide all stakeholders the results of the actual technical audit of all declared generating capacity in Mindanao in order to guide the public about the real status of the base-load requirements, mid-range and peaking capacity. Likewise, establish a critical review and validation of the actual demand during this period to immediately match the supply and demand.
2. Dispatch and optimize operating capabilities of all units as well as the status of the on-grid transmission lines to verify the level of its efficiency in order to maximize the available and dispatch supply on the grid.
3. Immediately improve and rehabilitate the Agus-Pulangi Hydro Units. There are indications that vested cartels are positioning themselves to corner a huge share of the electricity market by allowing the intentional decay of said power plants to pave the way for private sector take over and the introduction of highly polluting fossil fueled power plants that will also virtually guarantee long-term high electricity prices, since contracts will remain pegged to the volatile oil market and the ever increasing international price of coal.
• 3.1 Implement required equipment repairs, rehabilitation and uprating
• 3.2 Dredge identified location
• 3.3 Implement watershed reforestation and development projects (sustained water flow)
4. Provide a clear program for the demand-side management for all consumer class to manage the demand and supply
5. Stop the NPC privatization of assets

Medium-term approaches

1. Completion of the Balo-i Flood Control Project,
2. Address the technical problem of Agus-7,
3. Facilitate the utilization of all embedded generators of Commercial and Industrial establishments via a mutually acceptable mechanism
4. The government must facilitate the development of; Agus-3; 240MW, Pulangi-5; 300MW and Bulanog-Batang; 150MW.
Long Term solutions
1. Conduct a review of EPIRA towards overhauling the law
2. Conduct a democratic and participatory planning and demand-side management to come up with a Mindanao Energy Plan in 20 to 30 year plan using the framework that signals the transition to clean energy.
2.1 Implement Mindanao-wide integrated resource assessment
2.2 Implement socialized feed-in tariffs immediately to encourage more RE investments and make sure that these are carried out in a more equitable and just manner, consistent with the principle of Common But Differentiated Responsibilities: those who emit more, must pay more for the transition to clean energy

3. Encourage embedded mini-hydro project among the Distribution utilities
4. Develop Renewable energy sources to be led by the government instead of over reliance on private investors
5. Consider Solar Energy in Homes/Offices

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