High Philippine power cost turning off foreign investors

Manila Times.net
Published : Wednesday, November 09, 2011 00:00 Written by : Alito L. Malinao XINHUA NEWS AGENCY


MANILA: The high power cost in the Philippines, now the second highest in Asia and among the highest in the world, is forcing would-be investors to have second thoughts of putting their money in the country.


In fact, even those who have already invested in the country are now contemplating of moving to either China or Vietnam since the high electricity rates in the Philippines have made them lose their competitive advantage in the global market.


Nora Halili Lao, a trustee of Philippine Exporters Confederation Inc. (Philexports), said electricity costs account for 40-50 percent of exporters’ total operating expenses.” Considering this, it is difficult for exporters from the Philippines to price their products at more competitive levels,” Lao said.


“Producers and manufacturers suffer. They said they are no longer competitive (here), so they go to (other) countries for an ocular inspection to determine if they can compete (from there),” Lao said in a statement posted on Philexport’s official website.


Lao said that the countries most favored as alternative locations were Vietnam and China, which both have lower power rates than the Philippines, adding that some furniture exporters have actually moved to Vietnam and some buying agents have already set up offices there.


A study conducted by the Australia-based International Energy Consultants (AIC) showed that last year, the Philippines charged the highest electricity rate to residential customers in Asia at 18.1 US cents a kilowatt-hour.


After comparing the power rates charged in Asia in October 2010, the Philippines beat all the other countries in the region with its charges.


With its average retail rate of 18.1 US cents a kilowatt hour, the Philippines eased out Japan as the country with the most expensive electricity in Asia in the same month last year. The rate charged to Japan’s residential consumers in October 2010 was 17.9 US cents a kilowatt-hour.


The same study also showed that the Philippines had the second highest industrial rate in the world at 13 US cents a kilowatt hour, next only to Singapore’s 14 US cents but higher than Japan ‘s 12 US cents, Thailand’s 9 US cents, Malaysia’s 8 US cents, South Korea’s 7 US cents, Vietnam’s 6 US cents, and Indonesia’ s 5 US cents.


Philexports said that because of high electricity costs, the government’s target to double exports to 120 billion US dollars in the next five years is not likely materialize.


Philexports executive vice president and chief operating officer Aniano Bagabaldo said exporters, composed mostly of small and medium enterprises, would not likely meet this year’s government-set growth target of 10 percent.


“The Export Development Council has not yet scaled down its 10-percent export growth target. But at the rate the sector has performed, we now realize meeting that fighting target will be extremely hard for our members,” Bagabaldo said.


He said that after experiencing a slump in late 2008 to 2009 due to the global financial crisis, exporters only had a year of recovery before being hit by new problems—the weak United States and Europe economies, the strong peso and high costs of doing business. According to data from the National Statistics Office, merchandise exports in July slipped 1.7 percent to US$4.43 billion, from US$4.51 billion in the same month a year ago.


July exports, however, were up 7.3 percent from June’s US$4.13 billion. Exports from January-July likewise went up by 3.3 percent to US$29.19 billion, from US$28.25 billion in the same period last year.


But these increases, Bagabaldo said, were a far cry from the 26 percent growth of the sector last year.


Earlier, the Philippine Chamber of Commerce and Industry (PCCI) submitted a wish list to President Benigno S. Aquino that included the crafting of key policies supporting the energy sector, particularly a five-year electric power industry roadmap.


According to the PCCI, the roadmap should contain solutions to bring electricity rates to more competitive levels, build adequate generation capacity for Luzon, and resolve the Mindanao supply shortfall.


Malacañang, the seat of the Philippine government, has announced that it has ordered the Department of Energy (DOE) to look into the concerns of groups who complained about high power rates in the country.


Mario Marasigan, director of the DOE Renewable Energy Management Bureau, said they are continuously encouraging investments to promote competition and reduce power costs.


Marasigan said that the DOE is working for the development of local resources to address costs and to make them competitive.


“We are looking at all possibilities to contribute to our power generation and supply,” he said, adding that about 34 percent of the country’s energy mix was contributed by renewable sources like hydro, geothermal and biomass.


Last year, some members of Congress proposed the reactivation of the mothballed nuclear power plant in Bataan, north of Manila, in order to lower power costs in the Philippines.


This proposal, however, died a natural death when the nuclear power plant in Fukushima, Japan collapsed in March after that country was hit by a strong earthquake and tsunami triggering global concerns about the safety of nuclear plants.