What awaits the new energy secretary?

Lala Rimando

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Incoming energy chief Jericho Petilla is assuming the position at a time when parts of the country are experiencing blackouts, power bills are inching up and 2013 elections are near

Outgoing Leyte Governor Jericho "Icot" Petilla (right) is the new Energy Secretary. | Photo by Malacañang Photo Bureau

MANILA, Philippines – The country’s new energy secretary is assuming the position at a time when parts of the country are experiencing blackouts, power bills are inching up, and the 2013 mid-term elections are months away.

On Thursday, October 26, President Aquino confirmed that outgoing Leyte Gov Jericho “Icot” Petilla will replace Rene Almendras, who in turn will be moving to Malacañang as Secretary to the Cabinet.

This is the second time under this administration the Department of Energy undergoes changes at the top. Almendras assumed it only in July 2010.

Policies that the Energy Secretary approves and implements have long-term consequences for taxpayers, investors, industry, and the economy in general.

The energy portfolio is one of the key Cabinet positions that interact directly with politicians (both local and national), businessmen, and national government organizations (NGOs). It is also involved in the geopolitics in the hotly contested South China Sea (also called West Philippine Sea), involving China and Vietnam, among others.

The energy sector is still being overhauled following a landmark law radically restructuring the sector by putting in private hands the generation and transmission of energy.  

Petilla will have to deal with the country’s biggest business groups — including San Miguel, Lopez, Aboitiz, Ty, Sy, Pangilinan, Ayala, Consunji — who all want new or keep their existing stakes in the lucrative industry.

The position involves ensuring that the process of awarding business deals in oil, gas, power generation, among others, is above board all the time.

A major aspect of the job also involves dealing with local governments and political allies that traditionally have a say on the choice of leaders in electric cooperatives, some of them financially strapped and have accumulated debts of P13.5 billion.

Mindanao blackouts

The most pressing issue Petilla will inherit is the projected worsening and longer blackouts in Mindanao in 2013, an election year.

Still dependent largely on a chain of hydro-electric plants along the Agus and Pulangi rivers, Mindanao is expected to be hit by droughts due to the El Niño phenomenon in summer.  

Stakeholders in the region are concerned about the “critical months” of March to May, when the 2013 mid-term elections will be held, all the way to June.

If the hydro plants cannot generate 600 megawatts due to El Niño, power outage can go as long as 10.6 hour a day, according to Joseph Nocos, vice president for business development of the Alsons power group, during a recent briefing.
 
Currently, Mindanao is experiencing 3.5- to 4-hour outages daily because the 200-MW coal-fired plant of STEAG Power Inc. has been shut down for maintenance works.

The power outages is seen to continue to haunt Mindanao in the next 3 years as additional power supply from new power generation sources is yet to come on stream.

Opposition from environment groups and the Church delayed approved projects. President Aquino himself has told people of Mindanao to accept higher-priced but soon-to-be available power supply.   
The hydro sources have provided the region with cheap energy supply, prompting lawmakers to exclude the south in the Electricity Power Industry Reform Act (EPIRA) due to fears of power price hikes.

Price manipulation, open access

EPIRA was passed in 2001 to address inefficiencies and massive debts of the state-run energy monopoly, the National Power Corp. (Napocor).

At the core of the crippling power crisis in the early 1990s was the government’s inability to finance the sector’s investment requirements. The power supply in various regions had been projected to lag behind growth in demand based on forecasted economic growth.

It takes up to 4 years to build new power plants, but investors were holding back after financial guarantees granted to independent producers were vilified as key reason for high power rates when there was ample supply. Stable policies, security and rate-of-return are key in investors’ decision to risk pouring millions of dollars into power generation plants.

A key aspect of EPIRA is the Wholesale Electricity Spot Market (WESM), which aims to reduce the power price consumers pay for in Luzon and Visayas (Mindanao is not covered by WESM) by banking on the logic of market competition: the more the generation players, the lower the price.

Price spikes in January, February, June, and July were found to have not been caused by the usual supply and demand issues, maintenance shutdown of power plants, and seasonal changes.

Ensuring that power generators do not manipulate tightness of supply or collude among themselves to increase spot market prices of energy is part of the new Cabinet member’s crucial tasks.

An end-goal of the EPIRA is an open-access system where electricity users can choose which power generators they would buy power from. Power investors that have the most efficient, cheapest, and even the most environmentally friendly energy source will have edge.

If Petilla stays long enough at the Energy Department, the long-delayed open access regime may actually be realized under his watch.

However, in the short-term, the feed-in tariffs levied on supply from renewable and indigenous sources–like wind, waves, run-of-river–may increase electricity bill. The energy department will have to facilitate how much tariff Filipinos will shoulder.  

Watch this Rappler animate explaining how the sins of the past, the capital intensive nature of the power industry, market forces, and moves for cleaner energy sources make their way into the electricy bill.

Energy blocs, geopolitics

Among the many auctions the Department of Energy is overseeing are the energy blocs, some of them involving areas located in the disputed South China Sea.

The goal is to tap more indigenous energy sources to reduce the country’s dependency on imported oil, which exposes the Philippines to costly and volatile world supply.

After many years of putting on hold the auction of the energy blocs, the department held the Philippine Energy Contracting Round 4 (PECR-4) in mid-2012–a move that shows the Philippines is asserting its sovereign rights over areas in the disputed sea.

Only a handful participated in the final bidding round, highlighting the many difficulties Forum Energy, a group led by businessman Manuel V. Pangilinan, are experiencing in their Reed Bank gas project following Chinese ships’ intrusion in the area.     

The fragile geopolitics in the Reed Bank issue recently had a surprising twist. President Aquino revealed he has another emissary to China–Sen Antonio Trillanes IV–even if Foreign Secretary Albert del Rosario, who was working with the energy department, was trying to address the issue through official channels.

Petilla will also have to deal with these issues beyond the Philippine borders.

Cooperatives, local governments

But back home, some of the issues Petilla will deal with include those that have something to do with power blocs in local governments.

A number of electric cooperatives are delinquent in paying the cost of power they source from the grid. The estimated P13.5 billion accumulated debts of the cooperatives are largely due to the practice of the powers-that-be in a local area to hand out as political favors the board seats in these cooperatives.

Inefficiencies, expensive electricity, and even blackouts ensue when managing the affairs of an electricity retailer are given to individuals who have little interest in the nitty-gritties of distributing power to a community.

Making these cooperatives pay up have been a contentious issue between the Department of Energy and several local officials. Among the local officials that had passionately fought with the department after they were threatened with power supply cuts were those from Albay and Subic.

Petilla, a partymate of President Aquino in the Liberal Party, may have to contend with local officials and ensure disciplined payments. – Rappler.com

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