PH GenCos worried over rate hike due to shipping’s fuel shift

Published June 27, 2019, 10:00 PM By Myrna M. Velasco
https://business.mb.com.ph/2019/06/27/ph-gencos-worried-over-rate-hike-due-to-shippings-fuel-shift/

BALI, Indonesia – Power generation companies are worried that the shift of shipping vessels to low sulfur-content marine fuel could hike freight costs that will in turn have higher pass-on cost effect to electricity consumers.

That is in line with the International Maritime Organization’s (IMO) regulation prescribing that come January 2020, the sulfur content of bunker fuel used in shipping vessels shall already be capped at 5,000 parts per million (or 0.5%) from currently at 35,000 ppm (3.5-percent).

In an interview here, Aboitiz Power Corporation Chief Operating Officer Emmanuel V. Rubio noted that industry players are re-assessing that facet of development in their operations because this could trigger increase in power rates.

He explained that fuels feeding the country’s power plants – coal and oil in particular – are being shipped into the country through large vessels; and that will be the segment to be affected in the anticipated change in the maritime sector’s fuel usage.

Rubio emphasized they are re-validating initial estimates that the cost impact of vessels’ fuel shift alone will be at P5.00 to P7.00 per liter. Then from that, the other component of the calculation the GenCos have been crunching the numbers on would be the eventual pass-on effect to the electricity ratepayers.

It is worth noting that the implementation of the IMO-capped sulfur content in shipping fuel will coincide with the last tranche of the implementation of the excise taxes for coal and petroleum products under the Tax Reform for Acceleration and Inclusion (TRAIN) Act of the government.

In the Philippines, there is a move to delay the enforcement of the IMO mandate by at least five years, but it is perceived that sourcing of fuel with 35,000ppm may eventually emerge as a problem for domestic-operating maritime vessels.

And for the power sector, it is a reality that they cannot avoid because their imported fuels are cruising through international waters, so they could be affected immediately by that regulation.

At the ongoing Coaltrans Asia conference here, global industry players also sounded off that “freight costs will definitely rise,” but calculations still vary depending on the destination-markets of fuels being shipped.

In the case of Indonesia, which is a major exporter of coal to various power markets, if there will be changes not just in fuel but in the vessels to be deployed in shipping fuel commodities, it has been noted that even insurance risks coverage may also entail additional costs.

For coal-fired power plants in the Philippines, in particular, the lion’s share or 86% of imported coal being utilized in generating electricity is from Indonesia; then 5.0 percent share in the pie each for Russia and Australia.

Oil-fired generating facilities, which are often called for dispatch in the power system to meet peaking capacity needs, will be similarly affected as the country is also heavily dependent on imports for its oil requirements.