Tuesday, August 16, 2016

Federalism seen to offer uncertain future for mining, power sectors



by Lenie Lectura - August 15, 2016

ENERGY industry stakeholders weigh in on the potential impact of a shift to a federal form of government under the Duterte administration.
Regulators, industry players and observers agree that a push for federalism has its advantages and disadvantages. Definitely, they noted, federalism would allow, on one hand, the autonomous regions to realize their full potentials as self-governing units.
On the other hand, there are challenges, and probably conflicts, that will be encountered but must be dealt with in order to achieve the very objective of a federal form of government.
The Energy Regulatory Commission (ERC), an independent and quasi-judicial five-man regulatory body, said there is a need to thoroughly study this possible structure.
ERC Chairman Jose Vicente B. Salazar, in an interview, said an advantage of a shift to a federal system of government is that this would allow for the adoption of regulatory policies that are dependent on the economic development and condition of a specific region.
“These policies would, therefore, be more attuned to the particular situation in that region,” Salazar said.
However, this advantage could also be a disadvantage, as jurisdictional conflicts may arise between federal and state regulators, he explained. “Hence, policy differences may affect national development plans.”
As such, Salazar said, lawmakers and concerned parties must weigh in on the possible impact this could have on the power sector.
“In considering the shift, a careful study on the impact on the system as a whole and on the rates to be recovered from all consumers must therefore be taken into consideration,” the ERC chief said.

Harmonizing difficulties
THE ERC is tasked to promote competition, encourage market development, ensure customer choice and penalize abuse of market power in the electricity industry.
To carry out this undertaking, the ERC promulgates necessary rules and regulations, including competition rules. The ERC can also impose fines or penalties for any noncompliance with or breach of the Electric Power Industry Reform Act (Epira) and its implementing rules and regulations (IRR). Penalties also carry on violations of other rules and regulations the ERC promulgates or administers, as well as other laws it is tasked to enforce.
An industry expert, meanwhile, commented on the difficulty in harmonizing an overall policy.
“For example, in the US federal system, California is going extremely for green energy. But some states in the US are still into coal,” said the person familiar with the matter but is not authorized to speak for the Department of Energy (DOE). “What happens is that it is quite difficult to impose an all-out clean-energy policy on a national level.”
With federalism, the needs of different regions would be easily addressed. “It can be observed that a policy imposed on all may not be effective in one province because the needs of one locality differ from the other,” the energy expert said. “Hence, different policy approach per region seems beneficial as varying needs can be easily addressed.”

Spug areas
FORMER House Energy Committee Chairman Reynaldo V. Umali said he is in favor of a federal form of government.“It is definitely more advantageous. Under the present system, the smaller towns, barangays and some local government units are somewhat neglected,” Umali said in an interview. “But soon, they will have the opportunity to chart their own course.”
He cited the National Power Corp. (Napocor)-Small Power Utilities Group (Spug) as one of those that will definitely benefit if and when a federal form of government is put in place.
“In Spug areas, assistance is not often provided. If at all there is assistance from the government it’s still not enough. Improvement is not felt in in these areas,” Umali said. “But under a federal form of government, these communities can chart their own programs that they themselves will benefit from.”
Through its Spug, the Napocor continues to pursue its mandate to provide electricity in off-grid areas, particularly in areas where private investors hesitate to come in due to lack of infrastructure and political and security concerns.
The Spug areas include Palawan, Romblon, Marinduque, Mindoro, Catanduanes, Basilan, Sultan Kudarat, Masbate, Antique, Guimaras and Cagayan. Umali said these areas continue to seek investments.
“One disadvantage is that since they are small ‘states,’ so to speak, the ability to raise capital maybe limited. You need large investments to develop stable, reliable and affordable power,” he added. “They may encounter difficulties, especially for poor areas that do not have too much revenue source. Mahihirapan sila makakuha ng [They would have difficulty securing] funding kasi malaki ang investment sa power [because of the huge amount of investment required].”

Uncertainty worries
SINCE there are several models of federal states to study, Umali said he is confident the current administration would carefully layout its plans and programs that are necessary in order to achieve its goal.
An industry source, meanwhile, explained how a shift to federalism might bring “uncertainty” in the power system.
“If there is a federal state then the transmission lines and other sources of power generation could be affected,” the person said. “Hence, there could be possible power interruption or inefficient delivery of power. Why? Because some may claim that this area is ours, which could include these vital power facilities.”
The person who requested anonymity to avoid a backlash from players in a tight industry added:
“As it is now, we are already having transmission right-of-way  problems.”
“Can the NGCP [National Grid Corp. of the Philippines] still perform its duties? What about the long-term contracts that had been entered into? Would these still be enforced or scrapped?” Indeed, changing the rules in the middle of the game only brings uncertainty and may only discourage investors, the person said.

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