Energy bureaucracy, electric cooperatives and NEA

* This is my article in BusinessWorld last March 08, 2017.

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The Philippines experienced a seemingly energy revival in 2016 and 2017 with plenty of new power plants commissioned and running. Mindanao experienced an energy surplus after many years of frequent involuntary “Earth hours” or almost daily blackouts lasting for many hours.

So it is ironic that while new power capacity were added into the grid, Luzon including Metro Manila, still incurred occasional “yellow alerts” in power supply. This indicated near-brownout situations that took place a few weeks ago since several power plants went offline all of a sudden, coinciding with maintenance and repair shutdowns that were scheduled ahead of time.

Some groups blame “collusion” of some generating companies (Gencos) to stage an artificial power deficiency and thus, command higher prices for several hours on those “yellow alert” situations. However, they offer little proof and numbers to back up this claim.

o4_030817For me, the more plausible and visible cause is the undeclared “collusion” of various groups including many government agencies and environmentalist groups to delay if not stop the installation of more power capacities to have huge reserves that can (a) cover even huge unscheduled power shutdowns and (b) bring down electricity prices further as a result of intense competition. See table below as proof.

With only 700+ kWh/person/year in 2014, that puts the Philippines slightly higher than the electricity use of poor neighbors Cambodia and Myanmar, and only half the electricity consumption of Vietnam, 1/4 that of Thailand, 1/7 that of Malaysia and 1/13 that of Singapore.

Last Friday, March 3, I attended the forum on “Institutionalizing Energy Projects as Projects of National Significance” by Sen. Sherwin Gatchalian, Chairman of the Senate Committees on Energy and Economic Affairs, sponsored by the Energy Policy Development Program (EPDP) held at the UP School of Economics (UPSE) Auditorium.

The three reactors were Dr. Ronald Mendoza, Dean of the Ateneo School of Government, Dr. Alan Ortiz, President and COO of SMC Global Power Holdings Corp., and DoE (Department of Energy) Undersecretary Jesus Posadas.

The senator recognized the problem of low power capacity of the Philippines in general, and some big islands in particular. There are many big committed and indicative power plants lining up but they often encounter bureaucratic delays.

20170307a5df3A paper, “An analysis of time to regulatory permit approval in Philippine electricity generation” (2016) by Laarni Escresa of EPDP showed that on the average, power plant operators need to secure 162 clearances (MBC, 2014) and 102 permits.

So the Senator’s bill will prioritize these big power plants (P3.5B or higher in capitalization) for faster approval process. For instance, agencies are given 30 days to check the documents submitted; if they fail to act on time, it is deemed that the papers are approved and permits be automatically granted.

Alan Ortiz mentioned something that’s somehow a shocking figure: Boracay’s electricity needs rose from 8 MW just 10 years ago to 100 MW today. From 8 to 100 MW in just 10 years — that’s a lot.

Undersecretary Posadas gave a good assurance that the DoE is “agnostic” on the source of energy (renewable or not) and want to see more power plants coming in. He also said that the DoE will no longer issue a 3rd round of feed-in-tariff (FiT) for wind-solar. Good announcement.

Another factor that contributes to uncertainties in power generation are those inefficient and losing electric cooperatives (ECs). They just get power from the Wholesale Electricity Spot Market (WESM) and distribute to their customers and do not pay the many Gencos that happened to supply their electricity needs.

From the Philippine Electricity Market Corp. (PEMC), here are the top three market participants or players which have unpaid energy settlement Amounts at WESM as of Feb. 27, 2017:

(1) Albay Electric Cooperative, Inc. (ALECO) P98.59M, (2) Abra Electric Cooperative (ABRECO) P63.97M, and (3) AP Renewables, Inc. P14.38M (source: http://bit.ly/unpaidwesm).

The numbers above exclude the unpaid amount of ALECO in their Special Payment Agreement with PEMC amounting to nearly P1B.

The National Electrification Administration (NEA) does not seem to properly discipline certain ECs under its belt. To have an old debt of nearly P1B and new debt of nearly P100M from one EC alone (Aleco) should be a red flag indicator that this type of prolonged and sustained inefficiency and losses have been tolerated.

The NEA should step back from this and other problematic ECs and force them to corporatize and be subjected to bankruptcy laws under the Securities and Exchange Commission (SEC).

The Philippines and its electricity consumers need stable and cheap electricity. They do not need the burden of being dependent on ECs that lose money and are unable to pay generation companies that further add uncertainties to bureaucratic delays.

Bienvenido Oplas, Jr. is the president of Minimal Government Thinkers and a Fellow of SEANET and Stratbase-ADRi.

Electric cooperatives and unstable power supply

* This  is my article in BusinessWorld last February 08, 2017.

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Almost everything we do now requires energy and if we stay in non-mobile structures like buildings and houses, everything requires electricity. Energy precedes development so unstable and expensive energy means unstable and poor economy.

Given the technological revolution the world has experienced in recent decades, it remains a tragedy that many countries still have low electrification rates and very low electricity consumption per capita.

Unfortunately, the Philippines is among those countries with still not-so-high electrification rates until today and its electricity use is among the lowest in the ASEAN (see table).

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Electricity consumption in kWh per capita is high for the following developed and emerging Asian economies: Taiwan, 10,460; South Korea, 10,430; Brunei, 9,550; Singapore, 8,840; Hong Kong, 5,930; Malaysia, 4,470 (6.5x of PHL); China, 3,770; Thailand, 2,490 (3.6x of PHL). These countries and economies also have 100% electrification rate except perhaps China.

There are two reasons why the Philippines has a relatively low electrification rate and low per capita electricity use.

First is due to its archipelagic geography.

Many municipalities and villages are located in islands that are off-grid and, as a result, their residents rely on biomass like firewood for cooking and gensets running on diesel for lighting although some do use solar.

Second is due to politics.

There are not enough base-load power plants that can provide electricity 24/7 even in major islands like Luzon and Mindanao. This is because of political opposition by certain groups to cheap and stable fossil fuel sources like coal. Also, there are many bureaucracies (national and local) that discourage the quick construction and commissioning of new power plants. There are also weak, inefficient, and even corrupt electric cooperatives (ECs) that are given monopoly privileges to serve certain provinces and municipalities.

There are 119 ECs in the country from Luzon to Mindanao plus private distribution utilities like Meralco and those in PEZA/ecozones. All ECs are supervised and regulated by the National Electrification Administration (NEA).

Of the 119 ECs, some remain financially weak and problematic until today, like the Abra EC (ABRECO) and Albay EC (ALECO). These two ECs are so deep in debt they are unable to provide stable electricity to their customer-members and have arrears with power generating companies (gencos) that supply them electricity at the Wholesale Electricity Spot Market (WESM).

According to National Electrification Administration (NEA), from 2004 to 2014, it has released subsidies to ABRECO worth P56.6 million for the implementation of the Sitio Electrification Program (SEP), Barangay Line Enhancement Program, and its procurement of a modular generator set.

For ALECO, it was badly managed and was on the brink of bankruptcy that local business and political leaders proposed and supported its corporatization and take over by more established energy players.

In January 2014, ALECO was acquired by San Miguel Energy Corp.’s subsidiary Global Power Holdings Corp. (SMC Global) and renamed it as Albay Power and Energy Corporation (APEC). ALECO then was the first EC in the country that was corporatized.

Upon takeover, SMC Global and APEC inherited a P4-billion debt by ALECO including overdue payments at WESM of nearly P1 billion.

More than two years after the takeover, the debt ballooned to P5.6 billion, mainly due to low collection efficiency. APEC said its database of customers has been sabotaged since about 80% of its customers are not on the database.

APEC resorted to disconnecting some big customers that do not pay but disgruntled ALECO employees and officers have resorted to reconnecting them.

The ball and accountability is in the hands of NEA. Why are these things allowed to continue for years, to the detriment of paying customers and generation companies that are not paid on time.

In 2015, NEA reported that it lent a total of P2-billion loans to 51 ECs to finance their capital expenditure projects, rehabilitate their power distribution systems, among others.

NEA should perhaps consider slowly stepping out of the sector and push all the ECs to move towards full corporatization with full exposure to expansion or bankruptcy. The sector that needs protection should be the electricity consumers, not the ECs.

Consumers should be protected from expensive and unstable electricity as well as disconnection because the DU or EC has been disconnected by gencos and WESM for huge unpaid accounts.

The NEA, along with other government agencies in the energy sector, should look at the above table again, and try to find out why our electrification rate and electricity use are at the level of Pakistan and Mongolia instead of at the level of Thailand, Vietnam, and Malaysia.

Bienvenido Oplas, Jr. is the President of Minimal Government Thinkers and a Fellow of SEANET and Stratbase-ADRi.