Manila Bulletin
By MYRNA M. VELASCO
January 3, 2012, 8:00am
MANILA, Philippines — A deeper look at the Aquino administration’s score card in the energy sector will reveal delays – and missed targets – when it comes to policy implementations.
Think of the Renewable Energy Law, the introduction of open access and retail competition as well as the appointment of an independent market operator (IMO) for and in the setting up of reserve market at the Wholesale Electricity Spot Market (WESM). Even the most basic of all mandates bestowed unto the Department of Energy – the Philippine Energy Plan (PEP), is still conspicuously missing.
To be fair, the department and its attached agencies may already have some modest gains for now. There are myriads of circulars that have been issued and feasibility studies consigned with various multinational firms. It’s about time though to test the viability of everything that was ‘put on paper’ to assess if they can really translate into investment dollars (or billions of pesos capital flow, if you will).
UC-induced rate hikes
Energy officials have been rocked with criticisms and questions if the current administration has any determined policy to bring down electricity rates.
The answer given by Energy Secretary Rene D. Almendras rests more on long-term perspectives and on the private sector’s willingness to stake more capital for new power projects – so when supply will be abundant, it is hoped that electricity rate offers will also thrive lower, especially with the much-anticipated advent of competition in the restructured power industry.
The more worrisome prospect for consumers at this point though is the P140 billion filing of the Power Sector Assets and Liabilities Management Corporation (PSALM) on its bid to recover universal charges (UC) for its stranded debts and stranded contract costs. When approved by the regulator and reflected in the bills, it will redound to an added cost of P0.39 per kilowatt hour.
The sad scenario is, the consumers will just be made to swallow the bitter pill of paying those liabilities without them getting properly apprised of what kind of financial mess PSALM has really gotten into – or to be more exact, what really happened to the privatization proceeds on the disposal of the National Power Corporation’s assets and contracts.
A review of PSALM’s financial status was previously mandated, yet there’s really nothing that came out of that process. No one can blame the Filipino people then if they feel that they have fallen victims to the faulty promise of industry reforms – if corruption, by practice or design, is not really part of the equation.
“The good news is we have options,” Mr. Almendras would say, as he bared plans of tugging their way into getting the approval of the Joint Congressional Power Commission (JCPC) to exempt lifeline rate users (or marginalized consumers just within the zero to 50 kilowatt hour consumption brackets) from paying the PSALM-UC charges. That solution though will just transfer the bigger burden to the pocket of the higher-volume consumers.
The DoE milestones
Certainly, the energy secretary and his team can latch on to a number of milestone accomplishments – such as the launching of the Philippine Energy Contracting Round (PECR-4) for coal; and soon, for upstream oil and gas investments. And during the era of soaring oil prices as an aftermath of the nuclear incident-triggered energy crisis in Japan, the DoE came up with its own “Pantawid Pasada Program” (or the Public Transport Assistance Program), as a subsidy scheme which intended to aid financially-ailing drivers cope with the run-up in prices at the gas pumps.
These are core components of the department’s self-designed Energy Reform Agenda (ERA) which has been anchored on six key thrusts: expanding the use of renewable energy, accelerating petroleum and coal explorations; making energy efficiency a way of life for Filipinos; strict monitoring of oil prices and supply; promoting the use of clean alternative fuels and technologies; and improving transport sector efficiency.
‘Energy efficiency’ has so far been vaulting ahead as a ‘buzzword’ given the sharp focus that Mr. Almendras has been giving in advancing the policy – primarily in the ‘retrofit’ of government buildings so they can pare peso payments in their electric bills. However, for energy efficiency to actually reach the doorsteps of every household, the DoE may need to accomplish more on the sphere of ‘information dissemination and consumer education.’
A renewed push on alternative fuels, such as the pilot deployment of electric tricycles and other e-vehicles as well as the aggressive investment push on natural gas investments, are also etching their mark in the Aquino administration’s energy policies.
For all these, the bonus of course, will be the benefit for the environment. Less energy consumed and/ or a switch to cleaner alternatives will redound to improvements in the country’s carbon footprints.
The energy chief is similarly keeping eye on the goal to bring household electricity connection to a hundred-percent level by 2017. For this, the annual allotment being programmed by the department through the National Electrification Administration (NEA) will be P2 billion or up to P12 billion throughout the six-year stretch of the program. It is also to the energy chief’s credit that he has been taking all the ‘harsh criticisms’ for embracing coal technology as an option to solve the country’s current baseload problems in power supply.
“DoE’s recent accomplishments ensure that the country has enough energy to support the creation of jobs, increase economic growth and improve the quality of life of the Filipinos in the coming years,” had been the re-assuring statement of the department. Quite good to see in print, but how does that translate to real-life benefits for the Filipinos remain a daunting question.
Without offense to the energy secretary, but he must also know too well that without the tangible flow of investments, any policy can just plainly be rendered a failure. And pretty sure, he will not want to leave ‘lackluster investment’ as the ultimate trace of his reign at the department.
Roadblocks in RE investments
When it comes to RE investments, there are still roadblocks at every turn. Deliberations of the feed-in-tariff (FIT) application at the Energy Regulatory Commission are still reeling from fledgling startup. No one knows exactly when the FIT charges will pass through the maze of regulatory approval, despite the fact that it is the most-awaited policy turning point by most investors.
“The government strengthened its efforts in promoting renewable energy in the country,” the energy department claims, hinging that primarily on the June 14, 2011 unveiling of the National Renewable Energy Plan.
It also wants to corner credit that it already presented the governing rules on Renewable Portfolio Standards (RPS). But has that been well-received or has it satisfactorily provided the policy frameworks that investors have been looking for? The chorus so far: it has not!
Also, investors are still fretting over ‘disconnects’ in the pronouncements of the Aquino administration’s economic team as to how policies in renewable energy investments shall be shaped. Call it a dysfunctional form of leadership, but the sharp differences in the policy declarations of other agencies, such as the Board of Investments (BoI) to that of the DoE, often suggests gap in policy support – if not lack of expertise of some policymakers. Still, these are appetite-losing propositions to investors.
Recent pronouncements on the supposed readiness of the Renewable Energy Market (REM) this year have similarly raised more questions than answers. In the first place, what capacity will be traded in the RE market when there are no investments coming in yet? Secondly, how will RE capacity be priced, since in other markets globally, they normally come with a premium or what they call the “green energy pricing”– and where are the rules? Thirdly, the procurement process (as in all government undertakings) to set up the infrastructure as well as in securing regulatory approvals will also take time. And which entity will take charge of the market – will it just be an added layer of the Wholesale Electricity Spot Market? In the other energy markets, RE capacity takes the form of added algorithms in commodity trading that can be integrated as a sub-set of the spot market. Certainly, it will be a chicken-and-egg dilemma, and the least that must happen here is for policymakers to give realistic and doable assumptions.
A gradual pace in RE investments so they will not unduly burden the consumers with sudden hike in electricity bills or technically strain the power grid would be an understandable precept. Ultimately, however, what the energy department must be careful about is letting the policy totally go down the drain – either due to flip-flopping or unresolved policy conflicts.
An assessment given by the Asian Development Bank (ADB) is quite prescriptive: “the potential increase in electricity price from this tariff (FIT) could potentially further harm the investment climate.” It added that “although high electricity prices in the Philippines make clean energy projects financially attractive, but without broad market transformation, the desired objectives of the Renewable Energy Law will be difficult to achieve. The transformation would involve adoption of large-scale new technology, more responsive regulation and consumer acceptance.”
Not so ‘open access’ to market competition
Another policy delay that has been causing a lot of consternation to energy stakeholders is the introduction of open access and retail competition – it should have been the last stretch that can advance the privatized power sector into a truly-competitive regime.
The expectation of consumers is that, they can finally exercise their “power of choice” when it comes to patronizing specific electricity suppliers. When that happens, it is also hoped that power rates will become cheaper and the offer of products and services will be of better quality and more innovative.
The promise of the energy secretary is for the department to work on the remaining issues (primarily the setting up of the required infrastructure and the contentious concerns of accounts, billing and settlements) to be resolved in the coming months so they can finally recommend to the ERC the re-declaration of open access kick-off around October this year.
The case of the missing ‘energy plan’
If there is really one thing that this administration has to be thankful for – it is coming at a time when the power sector has already been restructured – and the burden of capacity planning and investments have already been shifted to the private sector.
Otherwise, the sheer lack of planning may have already plunged this country into a new round of power crisis. Remember that the California power crisis of the past decade was partly due to poor planning of its Department of Energy? Or one that is closer to experience, the energy planning failure of the Aquino regime then which triggered the worst Philippine power crisis of the 1990s.
The current administration came into power in June 2010 – it was already given a leeway of 18 months from then. But unfortunately, there’s no updated PEP or Power Development Plan (PDP) yet that the sector can lean on to guide them with their investment plans. The PEP and PDP, in particular, are critically needed from ‘yesterday’, especially so since the country is already hanging in the balance when it comes to its power supply. It’s almost a cliché, but sometimes really, the only way to find out that there is a problem is to stumble over it.
What happened there exactly? A letter signed by 70-percent of the DOE’s Energy Policy and Planning Bureau (EPPB) and sent to Executive Secretary Paquito Ochoa Jr., which was leaked to media, may partly provide an explanation.
The EPPB rank-and-file rapped that the lack of PEP publication until now, has been primarily due to “mismanagement” and “lack of leadership” of the people who have been tasked to oversee that particular unit in the energy department. It seems though that no one gets punished or reprimanded, so it must have been an incentive for people to commit violations.
As it already reached Malacanang’s doors, the DoE attempts to soften the ‘brewing scuffle’ with this statement: “the smooth continuity of the country’s energy programs and projects are indicated in the soon-to-be published PEP which will unlock the full potential of the country’s energy resources and technologies in the next 20 years.” Oh by the way, the global trend in energy planning now is for 30 to 50 years, and must be updated annually, not when a concerned agency just feels convenient to do so.
The accomplishments of the past year, to say the least, may just have been the tip of the iceberg. Much more – and the more important ones – have to be done and be addressed squarely yet in the policy domain. It is only then that this administration can claim that it was able to lay the cornerstone of an energy-secure future.
The ‘wish list’ of the industry then is for energy officials to work and re-focus priorities on policy reforms that are critically needed now. The ‘waiting game’ has long been overdue.
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