WESM prices exhibiting new spikes; meralco upward adjustment in April

Manila BulletinBy Myrna M. VelascoPublished: March 31, 2013

Electricity consumers will have to brace for increased electric bills this April after prices inthe Wholesale Electricity Spot Market (WESM) have started exhibiting new ‘record-highs’ due to several instances of supply tightness. 
It was culled from a market report circulated by the Philippine Electricity Market Corporation (PEMC) that the highest cleared price in the electricity spot market reached P47.904 per kilowatt hour (kWh) for Luzon grid last March 13.
The spikes in spot market prices at summer months are considerably “cyclical phenomenon,” hence, distribution utilities are already advancing word to their customers that they should expect higher electric bills during these periods.
Roughly all days within the second week of March exhibited high cleared prices at P30.30 per kWh on March 11; and P35.223 per kWh last March 12. Prices eased on other days, but another high price was logged last March 15 at P21.611 per kWh.
The Visayas market suffered parallel cost up-ticks during that week with the highest cleared price hitting P34.799 per kWh last March 12; while the others were at ranges of P14.256 per kWh to P29.393 per kWh.
Last week was another “stressful period” for the market, with system prices still peaking at P47.904 per kWh from March 22-24.
The WESM market report specified noted that the second week “started off with tight supply conditions because of the significant increase in demand while no significant improvement was observed in the supply levels with reference to the previous week.”
As a result, the market operator added, “under-generation and load-shedding conditions were reflected in the market results.”
At days when spot prices were tamed, the WESM emphasized that it was due to the capacities from the Pagbilao 1 and Sta Rita 40 generating units which came back on-line after undergoing maintenance.
Last March 14, it was noted that the system’s peak demand reached 9,664 megawatts, especially during the high consumption period of 1:00pm.
“Price spikes were frequently observed during the periods of tight supply conditions… wherein extremely high prices were mostly confined in Luzon because of the frequent price separations observed between the Luzon and Visayas grids,” the market operator stressed.
It emphasized that “the transfer capacity of the 350 kilovolt HVDC (high voltage direct current) link from the Visayas to Luzon was still limited up to 200MW” for most of the second week of March.  source

Power barges rehab needs P1.5B

Manila Bulletin By Myrna M. VelascoPublished: March 31, 2013

To rehabilitate and uprate the capacity of the Power Barges, including the one in Davao City, the government will need to earmark a budget of P1.5 billion, according to the Mindanao Development Authority.
The agency, which is in close coordination with the Department of Energy (DoE) in finding solutions to the Mindanao power crisis, opined that given the scale of allocation for the power barges, it will be better for the government to just divest them to interested private buyers and without any condition for these to be relocated to Mindanao.
“Rehabilitation is estimated to cost government P1.5 billion, hence, better to privatize since it is also expensive to maintain and operate,” MinDA director Romeo Montenegro said.
He added that in the case of Power Barge 104 which is currently docked at the Holcim Compound in Ilang, Davao City, its capacity has to be uprated to 32 megawatts from its current generation of just 9.0MW.
“With the entire process to realize transfer to Mindanao (which is) expected to take two years, the power barges may no longer be needed with coal power projects (of 500MW capacity) already in place starting 2015,” the MinDA official said.
The agency noted that this sentiment has already been communicated to asset-seller Power Sector Assets and Liabilities Management Corporation (PSALM), but it has not swayed the company so far into changing course as to the barges’ divestments.
PSALM already offered the barges to interested parties through several competitive auction processes, but all these ended in failed biddings.
Relative to the planned transfer of the assets to Mindanao, it was also gathered that PSALM has not even started securing yet the necessary permits from the proposed docking sites.
The privatization of the power barges had been announced as early as 2010. Three years had passed with barely a process getting accomplished.
The original intent of the energy department would be to line up the facilities as ‘supply shoring-up measure’ during this May 2013 elections. Apparently though, that is not possible now.
Energy Secretary Carlos Jericho Petilla indicated that he is willing to give the barges “another try at the auction block;” but if that still fails, he is already willing to have the plan shelved. (MMV)   source

Power barges rehab needs P1.5B

Manila Bulletin 

By Myrna M. Velasco

Published: March 31, 2013

To rehabilitate and uprate the capacity of the Power Barges, including the one in Davao City, the government will need to earmark a budget of P1.5 billion, according to the Mindanao Development Authority.
The agency, which is in close coordination with the Department of Energy (DoE) in finding solutions to the Mindanao power crisis, opined that given the scale of allocation for the power barges, it will be better for the government to just divest them to interested private buyers and without any condition for these to be relocated to Mindanao.
“Rehabilitation is estimated to cost government P1.5 billion, hence, better to privatize since it is also expensive to maintain and operate,” MinDA director Romeo Montenegro said.
He added that in the case of Power Barge 104 which is currently docked at the Holcim Compound in Ilang, Davao City, its capacity has to be uprated to 32 megawatts from its current generation of just 9.0MW.
“With the entire process to realize transfer to Mindanao (which is) expected to take two years, the power barges may no longer be needed with coal power projects (of 500MW capacity) already in place starting 2015,” the MinDA official said.
The agency noted that this sentiment has already been communicated to asset-seller Power Sector Assets and Liabilities Management Corporation (PSALM), but it has not swayed the company so far into changing course as to the barges’ divestments.
PSALM already offered the barges to interested parties through several competitive auction processes, but all these ended in failed biddings.
Relative to the planned transfer of the assets to Mindanao, it was also gathered that PSALM has not even started securing yet the necessary permits from the proposed docking sites.
The privatization of the power barges had been announced as early as 2010. Three years had passed with barely a process getting accomplished.
The original intent of the energy department would be to line up the facilities as ‘supply shoring-up measure’ during this May 2013 elections. Apparently though, that is not possible now.
Energy Secretary Carlos Jericho Petilla indicated that he is willing to give the barges “another try at the auction block;” but if that still fails, he is already willing to have the plan shelved. (MMV)   source

Sorsogon hydro plant sets June operation

Manila Times.net

Written by Madelaine B. Miraflor  Published on 31 March 2013

Renewable energy developer Sunwest Water and Electric Co. (SUWECO) announced over the weekend that its 600-kilowatt (KW) mini-hydropower in the province of Sorsogon is expected to be commissioned on June this year.

The 600-KW Cawayan Upper Mini-hydropower project with an approximately P80 million investment is located in Barangay Guinlajon, Sorsogon City.
According to the firm, the project, which is a81 percent completed and is expected to be commissioned by June this year, is targeted to generate 2.786 gigawatts per hour (GWH) annually.
Suweco said that amount of power would be a significant contribution to the peak demand of 12.406 megawatts (MW) of Sorsogon, based on the latest available demand data of the Sorsogon II Electric Coorperative (SORECO II).
The Cawayan Upper hydro project is a joint venture project of SUWECO with SORECO II where the renewable energy company is responsible for the rehabilitation and development of the project. SUWECO and SORECO II will jointly operate the plant after its completion.
SUWECO President Jose Silvestre Natividad said that the firm’s priority is to develop water power generation potentials and to help electric cooperatives rehabilitate and improve on their existing generating capacities.
“We develop projects regardless of size, as we believe that in unison these small projects we will provide a big contribution to our communities through all the direct and indirect benefits brought about by our projects to our host communities, thus we provide window for a better way of life and better future where communities coexists with a vibrant ecosystem,” he said.
Currently, SUWECO has two operational mini-hydro power plants with a total installed capacity of 3.6 MW in the island of Catanduanes, and is nearing completion of additional capacities of 8 MW in Bugasong, Antique.
It has pipeline projects with total capacity of around 270 MW nationwide out of which 19 contracts have been approved by the Department of Energy.    source

Two coal reserves in Davao valued at P4B

Business World Online

Posted on March 31, 2013 10:56:41 PM

LISTED Coal Asia Holdings, Inc. has valued the mineable reserves of its two coal mine deposits in Davao Oriental at P4.1 billion based on an independent study commissioned by the company.In a statement last Tuesday, Coal Asia said that it has updated the evaluation of its mineable coal reserves within 400 hectares of its coal operating contract (COC), which represents 3% of its 13,000-hectare concession area in the provinces of Davao Oriental and Zamboanga Sibugay.
The new valuation covers its Bactinan and Macopa coal mine deposits -- two of the 11 coal basins covered by COC 159 granted by the Energy department to the company. The remaining large coal deposits include Tagbay, Madsayap, South Macopa, East Bactinan, Bato bato and Kapasan.
The company said that its subsidiary, Titan Mining & Energy Corp. (TMEC), commissioned an independent third-party consultant to reevaluate the two coal deposits.
“Given the results of this latest study, it appears that Coal Asia is well on its way to exceeding an earlier independent valuation by Multinational Investment Bancorporation which had valued the company at P12.5 billion considering the 13,000 hectares in Davao Oriental and Zamboanga Sibugay,” the statement read.
Coal Asia said that the updated study confirmed that the coal proven reserves of the two coal mines stand at five million metric tons (MT), which is just a portion of the 123-million-MT resource and reserve figure identified by the Philippine Mineral Reporting Code standard geological report in April 2012.
“Actual commercial production for these two sites commences in the fourth quarter of this year and is projected to generate 500,000 MT in the first full year of operations,” the statement read.
Coal Asia noted that the two sites have at least 10 years of mine life.
“Despite the recent volatility of coal prices, the key financial indicators of the Bactinan and Macopa coal deposits, as determined by the feasibility study, speak volumes of the lucrative nature of this project,” the statement quoted Coal Asia Chairman Harald R. Tomintz as saying. “The valuation of the Bactinan and Macopa deposits alone already represents 103% of Coal Asia’s current market capitalization. And this is just the tip of the iceberg so to speak,” he added.
Coal Asia is an investment holding company engaged in the acquisition of firms specializing in the exploration, development, and mining of coal and other energy-related businesses in the Philippines and in Asia, according to its Web site.
The company’s shares were last traded on Wednesday at P1.04 apiece, up 5.05% or five centavos from P0.99 apiece on Tuesday. -- Claire-Ann Marie C. Feliciano    source

Coal Asia reserves for 400-hectare area valued at P4.1B

Sunstar Cebu
Sunday, March 31, 2013

COAL Asia Holdings, Inc. has updated the evaluation of its mineable coal reserves within 400 hectares of its coal operating contract (COC) area in Davao Oriental, which is three percent of the total coal concession area of 13,000 hectares. The reserves represent an estimated enterprise value of P4.1 billion at current coal prices to the company.

Given the results of this latest study, Coal Asia is on its way to exceeding an earlier independent valuation by Multinational Investment Bancorporation (MIB), which valued the company at P12.5 billion considering the entire 13,000 hectares in Davao Oriental and Zamboanga Sibugay.

Called the Bactinan and Macopa coal mine deposits, these areas are two of 11 coal bearing basins that have been identified in COC 159 in Davao Oriental.

In a disclosure filed with the Philippine Stock Exchange (PSE), COAL’s subsidiary Titan Mining & Energy Corp. (TMEC) commissioned a full feasibility study through an independent third-party consultant to reevaluate the Bactinan and Macopa coal deposits.

The updated study confirms Titan’s coal proven reserves stands at 5 million metric tons (MT), which is just a fraction of the whole 123 million MT resource and reserve identified in the Philippine Mineral Reporting Code standard geological report done in April 2012. These two blocks were the subject of the preliminary feasibility study done in June 2012. Actual commercial production for these two sites is scheduled in the fourth quarter of this year and is projected to generate 500,000 MT in the first full year of operations.

In terms of mine life, the two sites that comprise the study has a tenure of at least 10 years. But once all the previously mentioned 11 coal basins have been explored and mined as pairs at any given time, the mine life will easily exceed 50 years, the company said.

Coal Asia chairman Harald Tomintz said he is satisfied with the positive results of the feasibility study and how it translates to the company’s valuation.

“Despite the recent volatility of coal prices, the key financial indicators of the Bactinan and Macopa coal deposits, as determined by the feasibility study, speak volumes of the lucrative nature of this project. The valuation of the Bactinan and Macopa deposits alone already represents 103 percent of Coal Asia’s current market capitalization. And this is just the tip of the iceberg, so to speak. There are over 6,000 hectares from the Zamboanga Sibugay site and the remaining 6,600 hectares from the Davao Oriental site. And to add to that, the effective mine life of the whole lot is equal to 50 years. This is not the end of the good news, rather just the beginning,” Tomintz said.

Other indicators like the internal rate of return and payback period for the 400 hectares covered by the Bactinan and Macopa coal deposits are estimated at 115.27 percent and 0.88 years, respectively. (PR)  source

Mindanao outages worsen

8-hour daily blackouts hit; solons press for solution

Manila Standard Today

By Christine F. Herrera  Posted on Mar. 31, 2013 at 10:43pm

THE 52-strong Mindanao Legislators’ Committee on Sunday said Mindanaoans had been using electric fans instead of air conditioning units and had shifted to energy-efficient bulbs to conserve energy but the eight-hour blackouts were continuing daily.

They urged President Benigno Aquino III to establish a power commission to stop the power crisis in Mindanao. They said Mindanao had a power shortfall of 294 megawatts as the demand there stood at 1,157 megawatts but the power supply was only 863 megawatts.

House Deputy Speaker and Zamboanga City Rep. Maria Isabelle Climaco said Zamboanga City was at the tail end of the power distribution and that strict implementation of extraction was needed.

She proposed the creation of a Mindanao Power Corporation so that hydro-complexes would be self-sufficient without waiting for the national government to come to its aid.

“In March, the power demand of Zamboanga City was 79.821 megawatts but the Power Sector Assets and Liabilities Management Corporation and Therma Marine Inc. could only provide a combined power of 54 megawatts, bringing the shortage to over 24 megawatts that translate to at least seven to eight hours blackout daily,” Climaco said.

Maguindanao Rep. Simeon Datumanong expressed fears of a power disruption in Mindanao during the May 13 polls.

Datumanong said the immediate solution to the power crisis was to assign power barges or tap private power sources to ensure no disruption of the power supply during the elections.

Reacting to the reports of a looming power rate increase in Mindanao, Datumanong said the government should ensure that consumers were not unduly burdened of any such rate increase.

“I think that is inevitable, although the government should try to ensure a reasonable increase so that it will not be very heavy for the poor people,” Datumanong said.

The Energy Regulatory Commission earlier said that if the government decided to buy generator sets to augment the power supply in Mindanao, distribution utilities and cooperatives would have to file a petition to recover the cost of generators.

“It will never be fun in Mindanao with the Aquino government’s introduction of a high-cost power rate solution to the island’s power crisis,” Bayan Muna Rep. Teddy Casiño said in a speech during the general assembly of the Davao del Norte Electric Cooperative.

He criticized the government proposal to build bunker- and diesel-fed power plants as “a classic solution that punishes the people for mistakes committed by the government.”

The Department of Energy has proposed to raise the electricity rates in Mindanao to P18 per kilowatt hour due to the construction of bunker or diesel-fired plants.

“This proposal is anti-consumer, anti-environment and anti-Mindanao,” Casiño said.

He said the government should consider tapping renewable energy sources that would be “cleaner, more sustainable and cheaper in the long term.”   source

‘Stable’ is Moody’s outlook for power utilities in PHL and eight others in Asia

Business MirrorPublished on Sunday, 31 March 2013 21:12

MOODY’S Investors Service gave a stable outlook for power utilities in nine countries in Asia, including the Philippines.

Mic Kang, Moody’s vice president and senior analyst, said in a report entitled “Asian Power Utilities [excluding Japan]: Broad Stable Outlook; India an Outlier” that the outlook for power utilities in Asia will remain stable, except for India, for the next 12 to 18 months, primarily driven by government and regulatory policy continuity, as well as easing fuel prices.

The nine individual power utilities sectors covered by the report are China, Hong Kong, India, Indonesia, South Korea, Malaysia, the Philippines, Singapore and Thailand.

“The policy pillars of governments and regulators across the region will ensure that the major power utilities will maintain their dominant or monopolistic positions, while independent power producers will benefit from reliable purchase contracts,” King said.

The report discusses the sector both regionally and for the power-utilities sectors in each of the nine countries covered by Moody’s separately. It highlights Moody’s view that fundamental business conditions will remain stable over the next 12 to 18 months, except for India.

The international credit-rating agency pointed out that fundamental business conditions will remain stable since there is “no excessive competition leading to margin erosion for power utilities, no major constraints on fuel supply.”

Further, it said, increased operational cash flows from newly commissioned power plants, easier fuel prices and ad-hoc tariff increases or subsidies for state-owned power utilities will help offset the rise in capital expenditure expected over the outlook period.   source

Written by Lenie Lectura / Reporter

Lawmakers propose ways to solve lingering power crisis in Mindanao

Business MirrorPublished on Sunday, 31 March 2013 20:37

LAWMAKERS have raised various proposals on how the government can address the power shortage in Mindanao.

Mindanao currently has a power shortfall of 294 megawatts (MW), as demand stands at 1,157 MW while actual supply is only 863 MW. The government reportedly has allotted P3.8 billion for the country’s power capabilities. It includes an amount for the rehabilitation of existing hydroelectric power plants in the South.

House Deputy Speaker Ma. Isabelle “Beng” Climaco of Zamboanga’s First District pushed for the creation of a Mindanao Power Corp. (MPC), which will ensure hydro-complexes are self-sufficient and can be improved without waiting for actions from the national government.

In terms of supply, she said the Zamboanga City Electric Cooperative (Zamcelco) should contract enough electricity to meet its total demand.

“Government officials and the rest of the citizenry should check on how Zamcelco is being run and ensure that it has contracted enough power,” Climaco said.

She also urged the business sector to cooperate with Zamcelco in implementing the Interruptible Load Program (ILP).

The ILP is a demand-side management scheme, which provides payment to participating power consumers who enter a contract with Zamcelco for the voluntary interruption or reduction of the power supply given to them during peak periods or during emergency conditions.

She also urged the industrial sector and the local chamber of commerce to explore the time-of-use program by shifting their operations to off-peak periods.

Zamboanga City, she said, should put in place its own energy conservation program.

“Zamcelco and other stakeholders can do an information campaign to encourage consumers to conserve energy by encouraging the use of electric fans instead of aircons. Large consumers can institute energy-saving programs by minimizing the use of air-conditioning and using only energy-efficient bulbs,” she said.

“The local government unit [LGU] can lead by example by participating in ILP and energy conservation. We should also tap renewables, solar bulbs, solar panels and garbage-to-energy technology,” Climaco said.

Climaco has filed House Bill 6308 last year for the establishment of the MPC, which aims to ensure the viability and sound operation of the Agus-Pulangui Hydropower plants.

She has also filed House Bill 6061 seeking to prescribe urgent measures, necessary and proper, to effectively address the electric power crisis in Mindanao.

According to reports, Zamboanga City has been experiencing seven to eight hours of rotational blackout daily because of the power curtailment in Mindanao brought about by the reduced water level in Lake Lanao, its source of hydropower.

For the past month alone, the power demand of Zamboanga City is 79.821 MW but the Power Sector Assets and Liabilities Management Corporation (Psalm) and the Therma Marine Inc. (TMI) could only provide a combined power of 54 MW, bringing the shortage to over 24 MW which translates to at least seven to eight hours blackout daily.

Meanwhile, Rep. Simeon Datumanong of the Second District of Maguindanao said the immediate solution to the power crisis is to assign power barges or tap existing private power sources to ensure there will be no disruption of power supply during the election period.

Reacting to reports of a looming power-rate hike in Mindanao, Datumanong said the government should make sure consumers would not be unduly burdened by any such rate increase.

“I think that is inevitable, although the government should try to ensure reasonable increase so that it will not be very heavy for the poor people,” said Datumanong, a former justice secretary and deputy speaker for Mindanao.

The Energy Regulatory Commission earlier said if the government decides to purchase generator sets to augment the current insufficient power supply in the region, distribution utilities and cooperatives will have to file a petition to recover the cost of the generators.  source

Written by Leony R. Garcia / Reporter

Suweco mini-hydro plant set for commissioning in June

Business MirrorPublished on Sunday, 31 March 2013 18:49

RENEWABLE energy company Sunwest Water and Electric Co. (Suweco) will start operations of its 600-kilowatt (kW) mini-hydropower plant in Sorsogon in June.

The Cawayan upper mini-hydropower project with an approximately P80-million investment is in Barangay Guinlajon, Sorsogon City.  At present, the project is 81-percent complete.

The mini-hydro project is expected to generate 2.786-gigawatt-hourd annually, which would be a significant contribution to the peak demand of 12.406 megawatts (MW) of the province, based on the latest available demand data of Sorsogon II Electric Coorperative (Soreco II).

The Cawayan upper hydro project is a joint venture between Suweco and Soreco II. The renewable energy company is responsible for the rehabilitation and development of the project and will jointly operate the said plant with the electric cooperatinve after its completion.

Suweco’s priority is to develop the hydro potential and to help electric cooperatives to rehabilitate and improve their existing generating capacities, said company president Jose Silvestre M. Natividad.  “We develop projects regardless of size as we believe that, in unison, these small projects will provide a big contribution to our communities through all the direct and indirect benefits brought about by our projects to our host communities, thus we provide a window for a better way of life and better future where communities coexist with a vibrant ecosystem.”

Currently, Suweco has two operational mini-hydropower plants with a total installed capacity of 3.6 MW in the island of Catanduanes, and is also nearing the completion of additional capacities of 8 MW in Bugasong, Antique. It has pipeline projects with total capacity of around 270 MW nationwide, of which 19 contracts have already been approved by the Department of Energy.   source

Written by Lenie Lectura / Reporter

First Pacific, Meralco take over Singapore’s new power facility

Business MirrorPublished on Sunday, 31 March 2013 18:47

THE consortium of First Pacific Co. Ltd. and Meralco Power GenCorp. has formally taken over Singapore’s newest power station.

According to The Business Times on Saturday, FPM Power Holdings is now officially the new owner of the 800-megawatt power plant being constructed on Jurong Island that was formerly controlled by GMR Energy (Singapore) Pte. Ltd.

FPM Power’s $488-million acquisition of GMR Group’s 70-percent stake was completed on March 28. Malaysia’s Petronas still holds the remaining 30 percent of the facility.

Under the agreement announced earlier this month, the Hong Kong-Philippine consortium will inject another $49 million into the power plant that will burn liquefied natural gas.

FPM Power is the first joint venture between First Pacific and Meralco, the Philippines’s biggest power distributor.

GMR Group is an Indian infrastructure company based in Bangalore with interests in airports, power and roads.    source

InterAksyon.com

Written by InterAksyon.com

Energy subsidies play ‘significant role’ in climate change, IMF says

Business Mirror

Published on Saturday, 30 March 2013 16:43

Written by Carey L. Biron / Inter Press Service

WASHINGTON—The International Monetary Fund (IMF) is urging national governments around the world to roll back or eliminate subsidies on petroleum-based energy sources, estimating that this alone could result in a 13-percent decline in global carbon-dioxide emissions.

In an unusual new paper marking its full entry into the climate-change debate, the Washington-based fund on Wednesday said the cost of “pre-tax” subsidies for these products, when consumers pay less than the cost of supply, stood at about $480 billion in 2011.

Further, the “post-tax” cost of these subsidies—wherein a government doesn’t charge enough to take into account the negative ramifications of energy consumption, including environmental impact—are far higher.

Suggesting a figure far higher than previous estimates, the IMF puts this number at around $1.9 trillion, or 2.5 percent of global gross domestic product (GDP).

While developing countries and emerging economies account for much of the pre-tax subsidies, IMF researchers have found that developed countries make up some 40 percent of the post-tax total. The United States leads all countries in this regard, at nearly a half trillion dollars in annual subsidies, followed by Russia and China.

The implication is that these countries should be charging consumers far higher for coal, gasoline and other petroleum products, both in order to offset their negative impacts and to give consumers a clearer understanding of the full consequence of their use.

Following on previously stated policy, the IMF is also reiterating its support for some sort of carbon tax.

“By boosting energy consumption and, thus, emissions, subsidies aggravate climate change and worsen local pollution and congestion,” David Lipton, the IMF first deputy managing director, said in a major speech here on Wednesday.

“Our estimates indicate that subsidy reform could play a significant role in offsetting climate change…. These estimates point to the substantial benefits of using fiscal instruments to achieve climate-change objectives. The time has come for subsidy reform and carbon taxation.”

The new estimates on the environmental and other costs of energy subsidies—what the IMF refers to as “externalities”—are far higher than previous such estimates. In part, this is because the IMF is incorporating traffic-related costs, such as from accidents and congestion.

But for the majority of this cost estimate, IMF officials say they are using a fairly conservative figure of $25 per ton of carbon dioxide, from a widely referenced 2010 study by the United States Interagency Working Group on Social Cost of Carbon. Other estimates for this number have been significantly higher, up to $80 dollars per ton.

More productive spending

THE new paper looks into the environmental impact of energy subsidies, including the distortions that subsidies cause by leading consumers to make decisions without reference to their full impact. But it also outlines several additional ramifications of these practices, particularly in developing countries.

For instance, over decades these subsidies have been found to crowd out investment in energy production, including in renewables.

Simultaneously, they constrict state coffers such that governments have less money with which to fund public spending, for instance, on education, health or infrastructure.

“In countries across sub-Saharan Africa, governments are spending an average of 3 percent of GDP on energy subsidies—the same as on public health—so reducing these subsidies would free up space for more productive spending that is much needed,” Roger Nord, a senior advisor in the IMF’s African Department, told reporters on Wednesday.

“As elsewhere, energy subsidies in Africa benefit principally those who are already better off. Take electricity—the poor are typically not even connected to the grid; they don’t have air conditioning or SUVs.”

Subsidies have also discouraged much-needed investment in electricity production. Nord notes that the total production in sub-Saharan Africa is lower than that of Spain, while the past three decades have seen no per-capita increase in electricity production.

There have been examples of success in this regard. Proponents point to Ghana, for instance, which was able to reduce subsidies and, in turn, to allocate part of those savings to rural electrification.

Likewise, when Kenya liberalized its energy sector, it was able to double new investments in power generation in just 10 years, a stark contrast with many other African countries.

Fierce politics

AT a time of continued concern over mounting debt in capitals throughout the world, the IMF is emphasizing the short-term implications that reducing or eliminating energy-related subsidies would have on governments in search of new revenues.

And indeed, coupled with the new and increasing concern over global climate change, it would seem as though the push to roll back subsidies would be newly pertinent for many policymakers.

Yet while Wednesday’s paper constitutes the most significant public stance the IMF has taken on this issue, the fund’s research teams have been telling governments for years that reducing subsidies would bring in additional revenue—with relatively little change on the ground.

Likewise, as energy costs have increased, other multinational groupings have begun to raise alarms. Most prominently, the Group-of-20 countries have now twice committed to halting “inefficient” energy subsidies over the “medium term.”

Yet according to the new analysis, most countries have seen little progress in following through on this pledge. Certainly, this is the case in the world’s largest subsidizer, the United States.

“The United States government has subsidized fossil fuels for the past 100 years,” Doug Koplow, the founder of Earth Track, an energy subsidy watchdog, told Inter Press Service.

“We subsidize the extraction, capital formation and cleanup of extraction sites, as well as offer corporate structures that entirely exempt oil and gas companies from corporate taxation. In the last two decades, we have also started significant subsidies for renewable energy. To a great extent, this is all just hardwired into the system.”

Meanwhile, despite widespread understanding that change is needed, significant political inertia on the subject here does not appear to be dissipating.

“Almost every year we get new proposals to reform these subsidies that inevitably get defeated, and I don’t have a lot of confidence that will change in the near future,” Koplow says.

“In some countries—New Zealand is a typical example—severe fiscal crises have indeed allowed governments to deal with all of their energy subsidies at once, and this could happen in the US, as well. But the politics on this stuff is fierce.”

---

In Photo: A Shell oil refinery in Martinez, California.   source