At the beginning of my term in 1992, I launched “Philippines 2000”, a program of reform that envisioned an improved quality of life for all Filipinos, as well as the attainment of the status of a newly industrializing country by the turn of the century. Two of its five priorities were: (1) infrastructure and energy development; and, (2) environmental protection.
The program was rather ambitious then, for it was a time of literal darkness in the Philippines: we were gripped by a power crisis that stifled our industrial productivity and brought untold misery to our homes. We not only licked the problem in record time but went on to turn around the economy and become Asia’s new tiger. As Time Magazine observed, “By Christmas 1993 Manila was festooned with holiday lights that blinked — and stayed on.”
Now, as my term approaches its end in June of this year, our growing economy is poised to “pole-vault” into the 21st century by pursuing a commitment that fully pays heed to the requirements of sustainable development. And our energy sector is one of the most confident that it can carry out this pole-vaulting strategy.
Resolving the Power Crisis
The first step we took to solve the power crisis was to put the energy sector in order through the re-creation of the Department of Energy in December 1992 to provide central coordination for the implementation of energy development policies and programs.
We next pursued the enactment of the Electric Power Crisis Act to grant the President emergency powers to enter into negotiated contracts for the construction, repair, rehabilitation and maintenance of power plants, projects and facilities.
As a major policy reform, we also invited private sector investment and participation in power generation to accelerate capacity additions. This policy spawned seven “fast-track” power projects with an aggregate capacity of 923 MW that finally ended the debilitating crisis and put the country on the road to economic recovery.
Our ability to solve the power problem in less than eighteen (18) months earned for us the distinction of being the first recipient of the Electric Infrastructure Award given by McGraw-Hills Electric Power International.
Restructuring the Energy Bureaucracy
The new Department of Energy (DOE) was mandated “to prepare, integrate, coordinate, supervise and control all plans, programs, projects, and activities of the government relative to energy exploration, development, utilization, distribution and conservation.”
After restoring the power back to normal, the DOE set the three-pronged goals of: (1) available energy supply; (2) competitive, affordable and reasonable energy prices; and, (3) socially and environmentally compatible energy infrastructures.
The Electric Power Crisis Act of 1993, or EPCA for short, empowered my office to reorganize the National Power Corporation (NPC) and to enter into negotiated contracts to hasten the completion of power projects, among others. The EPCA made the President, our Congress, the public and the media more focused on the power situation.
My predecessor, President Corazon C. Aquino, actually started fast-tracking 803 MW of power projects in 1992. Within a month after EPCA was passed, all the essential government approvals and endorsements to keep these projects going were secured, and the project proponents committed themselves to complete their power facilities in ten months. Before 1993 was over, 505 MW of these fast-tracked projects went on stream, in addition to the 350-MW regular plants that were initiated in 1991 and 1992.
The National Power Corporation had a long-term private power program which initially derived its legal and financial viability from Executive Order 215 issued by President Aquino. The Build-Operate-Transfer (BOT) Law, passed during the Aquino administration and modified during my administration, complemented and reinforced the private power program through various schemes to solicit and implement power projects. The government built in incentives into the infrastructure program, like performance guarantees and tax holidays, thus encouraging the inflow of private capital from local and foreign sources. The idea was to divert already limited government finances for basic services.
The energy sector became the showcase of the success of our BOT program. It has been said that the Philippine BOT program, having shown that private enterprise can thrive well under a liberal market environment fostered by government, served to inspire other regional economies to emulate it.
As we end our term, private capital has completed more than 5,000 MW of power projects, most of which are new. Independent Power Producers (IPPs) are completing about 4800 MW more, while 600-MW projects are still in the pipeline.
Enhancing Energy Supply
We realized that an energy infrastructure that is more dependent on imported energy increases the Philippines’ vulnerability to global market and political turmoils affecting the major energy commodity — oil.
Strengthening the energy security cover for sustainable economic growth is one of our core policy agenda. Both the indigenous and the new and renewable energy options offer this cover, and my administration has extended ample support to make energy self-sufficiency programs workable in the next millennium.
The revival of the economy and expectations of higher annual growth in energy demand provide the impetus for higher indigenous energy production. This is also in support of the policy thrust for self-sufficiency through the continuous exploitation, development, and exploration of indigenous energy sources. The utilization of these resources not only enhances energy supply security but also impacts heavily on the balance of trade by way of reducing the country’s total oil import bill.
Our self-sufficiency level was around 42% last year, compared to about 35% in 1991. Indigenous energy will take a large 53% share of the generation mix by 2005 when the natural gas plants will be fully operating.
The Emerging Natural Gas Industry
Just like our ASEAN neighbors, we extended strong government support to our emerging natural gas industry. However, the extent of our intervention has not gone as far as gas pricing regulation. Like in many developing economies that produce natural gas, the power sector represents the largest potential user and can provide the early financial returns necessary to justify the initial infrastructure investment. The gas pricing arrangements are purely on commercial terms negotiated between the developers and the buyers.
Early this year, we were witness to the formal birthing of the Philippine Gas Project and the declaration of commercially of the estimated reserves of at least 2.5 trillion cubic feet of natural gas from Camago-Malampaya field northwest of Palawan. The project players presented to government a set of 16 agreements and related documents signed between and among themselves. The major players are the Joint Venture of Shell Philippines Exploration, B.V. (SPEX) and Occidental Philippines, Inc. (Oxy), or SPEX/Oxy for short, and the gas buyers — National Power Corporation (NPC) and First Gas Power Corporation (FGPC) — who were allocated 1500 MW capacity each by government as the market for the natural gas. The gas will become commercially available by the year 2002 when flows to the 1200 MW Ilijan Power Plant of KEPCO Ilijan Power Corporation (KEILCO), the 1000 MW Sta. Rita and 500 MW Calabarzon Power Plants of FGPC. The Ilijan plant is covered by an Energy Conversion Agreement (ECA) between KEILCO and NPC. On the other hand, FGPC has a Power Purchase Agreement (PPA) with Manila Electric Company (MERALCO) for the Sta. Rita plant.
As the other ASEAN countries are doing, government, through the Department of Energy (DOE) and the Department of Finance (DOF), took a balanced view of the natural gas project: on one hand, one big stride towards achieving the goal of energy self-reliance; on the other hand, an assurance that private sector participation in energy infrastructure project is commercially feasible. The government has to come into this major pioneering effort, particularly when the interest lies in the large-scale utilization of a natural resource, as evidenced by the derived benefits.
The consumers would save billions of US dollars in terms of lower electricity rates during the cooperation period of twenty years. The government will derive royalties that will be shared with the local government units which, in turn, will derive more income from businesses peripheral to the project.
There will be the inflow of local and foreign private sector investments in the energy infrastructure which, in turn, will create new job opportunities requiring engineering, technical, professional and skilled manpower. Since only the share of the gas developers may be remitted abroad, there will be significant net foreign exchange savings.
The project’s contribution to environmental protection is not overlooked since natural gas is a clean fossil energy for power generation. The environmental benefits from the project respond to the clamor for clean air expounded in the Rio de Janeiro and Kyoto conferences.
There will probably be significant issues that government will address as the industry develops. One such issue is open access to the offshore or even onshore gas pipelines as more gas reserves are exploited commercially. The government has already indicated a bias toward an open access system; the Department of Energy explicitly spoke of “ensuring equitable non-discriminatory access [of the pipeline system] to all industry participants’ in a circular.
Alternative Energy Systems Development
Our stronger push for energy self-reliance is evidenced by the pending Energy Resources Act in our legislature that will structure the exploration, development and utilization of indigenous resources.
New and renewable energy sources (NRES) are continuously being promoted through various programs and activities. The inventory of NRE installations, comprising technologies such as wind pumps, solar photovoltaic systems, biomass-fired systems, micro-hydros and the like, is growing nationwide. To address rural energy needs, there is a network of Affiliated Non-conventional Energy Centers throughout the country for research, experimentation and technology dissemination.
The strongest push, so far, for energy self-sufficiency is the Ocean, Solar and Wind (OSW) alternative energy systems development, the energy sector’s strategic contribution for the country to become an energy exporter. It takes off from an assessment that ocean, solar and wind resources are estimated to be very abundant and renewable to meet domestic and regional energy requirements.
The government has lent strong support to the OSW Program through an Executive Order that will enable private sector participation in the exploration, development and utilization of OSW energy resources for power generation and other energy use. The mechanism is one of production sharing between government and the private contractors in offshore and onshore areas for ocean, solar and wind or any combination of the three energy resources, with a production phase of 25 years renewable for the same length of time.
Liberalization of the Energy Market
Structurally, there have to be reforms in the energy sector so that it can respond effectively to the liberalization of the global energy market.
Legislation gave authority for the Department of Energy to institute the program and timetable of deregulation in the energy industry after four years of preparing the environment conducive for the free and active private-sector participation and investment in all energy activities.
The two sectoral reforms that government took — deregulation of the downstream oil industry and privatization of energy companies, the first being Petron Corporation — were not without their share of controversy. These were in consonance with the government’s overall market reforms for all sectors of the economy to foster a market-oriented and private sector-dominated environment to ensure greater efficiency and to augment government resources.
There are indications that the desired competition in the oil industry is forthcoming as new players, especially those who were already in the country during the first deregulation attempt, renewed the implementation of their development plans. The new players already take 3.3% of the market share.
Significant deliberation on the restructuring of the power industry and the privatization of the National Power Corporation were made during the 10th Congress. The Energy Committees of the House of Representatives and the Senate worked on their versions of the Omnibus Power Bill.. House Bill No. 9991 was on its second reading, and Senate Bill No. 2448 on its first, before the regular session adjourned. A revision of HB 9991 containing final amendments had already been prepared for the third meeting.
In order to get the Omnibus Bill in place under my administration, we have proposed to the Senate the adoption of the House version which we believe best captures the legal framework for the restructuring and privatization process. If unsuccessful, however, we will recommend to the 11th Congress the adoption and enactment into law of the House version.
Countryside Electrification
To attain a balanced economic growth coupled with social equity, we launched the Social Reform Agenda (SRA) which consists of a package of government interventions on two aspects of development: poverty alleviation and countryside development. The energy component of the SRA is the total electrification of twenty priority provinces.
Our National Electrification Administration (NEA) continues to exert efforts to provide electric services to the countryside and remote islands through electric cooperatives. Municipalities nationwide are completely energized; seventeen of these were energized through the installation of solar photovoltaic systems as a pre-grid mode of electrification. Now we are working to energize the remotest of our barangays or villages.
Energy and Sustainable Environmental Development
We recognize that energy activities not only impact on the socio-economic life of communities but also on the natural environment. The government actively takes the position of ensuring that all environmental concerns and impacts of energy projects are addressed in the sustainable implementation of our energy expansion program.
Energy companies, like the Philippine National Oil Company and the National Power Corporation, continuously try to achieve a balance between building energy infrastructures and caring for the environment where they operate. Host communities of energy projects gain from the remittance of royalty payments or incentives from power generation that could be used to subsidize power rates and finance development or livelihood projects, thereby enhancing their quality of life.
The Masinloc Coal-Fired Power in Zambales, the San Roque Multi-Purpose Project in Pangasinan, and the Mt. Apo Geothermal Projects in Mindanao can very well serve as the models of government’s program of energy and sustainable environmental development.
The government is also committed to ensure that energy activities are in harmony with national programs on environmental protection. New policies and programs are premised on sustainable development where economic and social gains are paralleled by measures towards ecological preservation. For example, the adoption of clean coal technology as a government policy, foreseen to be used as early as 2003, will result in a reduction of emissions of carbon dioxide (CO2) and other pollutants.
On a global perspective, existing plans and programs in the Philippine Energy Plan shall contribute to a reduction of global warming and consequently minimize the environmental impact of energy activities on climate change. The Plan embodies various strategic options of energy supply which can complement the national energy program, such as the Trans-ASEAN gas pipeline and the ASEAN electricity grid interconnection.
Towards the Next Millennium
The challenge for the government of a growing economy is to balance its interventions and free market forces in the development of energy. Government interventions are necessary in the pursuit of development projects. Free market forces, on the other hand, are necessary for building and enhancing the competitiveness of the industry.
As government moves towards the next millennium, it must determine to what extent it should intervene in the development of energy in order to nurture and sustain economic growth and development. This concern evolved after the swing of the government from full regulation of the energy sector to that of total deregulation.
The 60’s and the 70’s were characterized by complete and full government regulation of the utilities. In the 80’s, there was a shift to complete deregulation as government pursued higher levels of efficiency.
In the 90’s, developmental energy projects were stressed. New energy technologies were available challenging the conventional energy systems in terms of addressing environmental issues. The swing from regulation to deregulation created a growing realization in government for a middle road to sustainable economic growth and development.
A growing economy faces enormous challenges in developing energy which will nurture and sustain its growth in the next millennium. It must face the dilemma presented by two opposing forces — the liberalization of the energy market and compliance with the global requirements for environmental protection. In order to have sustainable development, a growing economy must look at these two forces as a single opportunity rather than separate and opposing choices. It is not an either or matter; it is both or nothing.
A balanced and controlled intervention in energy development by the government is necessary. However, private sector involvement and participation in energy development is equally important.
In effect, a growing economy must pursue both liberalization of the energy market and compliance with the global requirements for sustainable development. It has no choice. To choose one over the other can spell disaster in the long term. The lessons of the power crisis we had six years ago tell us very clearly of the need for long-term views and long-term solutions to problems.
In the next millennium, the effectiveness of government must be measured in terms of its success in laying the foundations for future administrators to build on. These consist of enabling legislations, policies and programs to effectively respond to constantly changing and ever-increasing energy demands.
As the energy sector continues to build on the gains it has made, the concerted efforts by both the government and the private sector in various energy activities have to be sustained to move towards achieving higher levels of performance. Their continuity of commitment is our best assurance that we will attain sustainable energy development and energy security.