Philippines eyes emergency powers to jolt electricity supply

Tue Sep 2, 2014 4:27am EDT

Related Topics

* Brownouts may hit Luzon in 2015

* Govt seeks extra 600 MW supply

* Power deficit to push rates up

* Aquino 'emergency powers' opposed

By Erik dela Cruz

MANILA, Sept 2 (Reuters) - The Philippines government may be forced to declare emergency powers to tackle a looming electricity shortage from 2015 as private firms struggle to build new capacity, but faces opposition from business groups worried about higher costs.

Energy Secretary Carlos Jericho Petilla is pushing for the powers to be introduced this month, giving the government a role in the broader electricity market for the first time since the industry was privatised in 2001. The move would allow the government to directly finance new generation capacity.

One of the fastest-growing economies in Southeast Asia, Petilla has warned the Philippines faces rolling brownouts next year on the main Luzon Island, home to the country's manufacturing and booming call centre industries, as well as more than half of its 100 million people.

Some 16,400 megawatts (MW) of new supply is planned in the country over the next five years, but some projects have been held up by environmental opposition to coal-fired stations, while others are waiting for customers to commit to long-term supply deals.

"We've tried to push for energy conservation but we simply cannot conserve enough if our population is also growing by about almost 2 percent a year," Petilla said last month.

The Philippines needs an additional 600 MW before March next year, about the capacity of a mid-size power plant, according to the Department of Energy, and faces even greater problems further out as new projects meet repeated delays.

However, government involvement in the industry is opposed by some advocacy and business groups with memories of a surge in power prices in the 1990s when former President Fidel Ramos tackled a power crisis by fast-tracking a raft of expensive projects.

"We are facing a very serious issue, but we don't think emergency presidential powers are necessary at this point," said Donald Dee, honorary chairman and chief operating officer of the Philippine Chamber of Commerce and Industry (PCCI).

The Philippines already pays the second-highest electricity rates in Asia after Japan, a state agency said last year, citing an industry survey.

"Short-term measures to buy generation capacity are super expensive and will drive the price of power further up," the European Chamber of Commerce said in a recent statement.

EMERGENCY POWERS

President Benigno Aquino, who is four years into a six-year term, has so far held off on seeking emergency powers from Congress, asking Petilla to tackle the supply issue first with legislators, regulators, and power producers.

"We want to be completely ready so that we can avoid paralysis if the worst-case scenario arises," Aquino said.

Petilla has said the government must decide this month in order to have time to build extra capacity before brownouts begin in March next year.

The 2001 Electric Power Industry Reform Act banned the government from putting up power plants, which have been mostly privatised over the past 13 years.

Emergency powers would allow it to finance power generation and subsidize consumers, speed up the issuance of permits for new projects, and enter into negotiated deals for the repair and maintenance of plants, bypassing the normal bidding process.

Petilla has said the government, for example, could lease natural gas-fired facilities owned by First Gen Corp to produce 100 MW of power at a cost of $20 million a year. It could also enter into a deal for the immediate repair of a 300 MW unit at the Malaya thermal plant in Rizal, east of Manila.

COST HIKES

Business and labour groups, however, have urged the government to come up with a broad strategy that tackles the immediate shortage next year and also addresses longer-term structural problems for the industry.

In the short-term, they say the government could urge businesses such as mall operators, hotels and factories with large diesel-fed back-up generators to use these during peak periods, perhaps selling their excess supply to the grid.

"You don't need emergency powers for that," said PCCI's Dee, who estimated the plan could produce an additional 1,500 MW of capacity. "There must be a guarantee of compensation from the government because the gensets will run on diesel," he said.

The government could also wring bigger savings from energy conservation, according to the European Chamber of Commerce of the Philippines, although compliance may be an issue.

Any new measures, however, are still expected to push up costs. Petilla has said the government will shoulder part of any expenses, but some will have to be passed on to consumers.

Manuel Pangilinan, chairman of Manila Electric Co (Meralco) , the country's biggest power utility, said tight power supply and alternatives such as using diesel generators will push electricity rates higher.

"Will the emergency powers produce supply in the next 9 to 10 months? If that's the goal, so be it. So you'll have power, except the rates will be higher," he told Reuters. (Editing by Richard Pullin)

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