Friday, April 9, 2010

Philippines' Power at Crisis Point

MANILA - Recent electricity outages in the Philippines has sparked concern that the country is on its way to its second power crisis in 20 years. For over a month, the Luzon, Visayas and Mindanao grids have been registering insufficient capacity, resulting in frequent-to-regular power outages that last anywhere from an hour to half a day. Mindanao in southern Philippines, which is the hardest hit, now suffers a daily power outage that lasts up to 11 hours. President Gloria Macapagal-Arroyo has declared a state of calamity in the island in response. The declaration of a state of calamity is a prerequisite for the release of disaster funds, which local governments can use at their discretion. Her detractors claim this could lead to widespread cheating in the country's first automated national polls, which are due to be held on May 10.

Widespread drought and ill-timed maintenance work are being cited as factors for the inadequate power capacity. Of the country's 15,572 megawatts (MW) of installed capacity, 3,291 MW comes from hydroelectric power plants. Mindanao, in particular, is susceptible: 55% of the power generated in the island is sourced from hydroelectric power plants, whose dams are now approaching critical levels.

Mindanao's available capacity was capped at 785 MW as of March 24, against a dependable capacity of 1,682 MW, according to data from the National Grid Corporation of the Philippines, which operates the country's transmission lines. Peak load for the day hit 1,251 MW, resulting in a shortage of 466 MW. The deficit in the power supply is expected to be sustained. Officials of National Power Corp (Napocor), the state-owned power generator in the region, have warned that with the water level at the dams continuing to recede, a shutdown of the 700 MW Agus and the 200 MW Pulangi hydroelectric power plants might be imminent.

Most state-owned power plants have been sold off in line with the Electric Power Industry Reform Act of 2001 (EPIRA), but the Agus and Pulangi plants are owned by the government through Napocor by virtue of a provision in the law which stipulates that the complexes are not to be privatized within 10 years of the law's passage. In the Visayas grid, which covers central Philippines, a much smaller deficit of 34 MW was recorded on March 24. Luzon, which earlier suffered sporadic outages due to some power plants being shut down at the same time due overlapping maintenance schedules, has gone back to posting gross power reserves of 158 MW. Both grids are less dependent on hydroelectric power than Mindanao, with the Visayas relying on geothermal energy and Luzon on electricity generated from natural gas.

The Arroyo administration has announced a slew of stop-gap measures for the power situation in Mindanao. Power barges have been deployed to cover the shortage for the time being. Other steps include allowing private firms to connect their generators to the grid, scheduling industrial activity in the island during off-peak periods to lessen the peak load, and opening lending windows for firms that wish to lease generators. The president has also authorized the state to contract additional capacity from a power plant that is based in the island, a measure that requires congressional approval, as stipulated in Section 71 of the EPIRA.

The outages are expected to end once the rains start, and resupply reservoirs behind hydroelectric dams. The overall problem of a capacity shortage still has to be addressed and power experts say deeper fundamental problems in the Philippine power sector could again plunge the country in darkness - issues that are likely going to be placed on the backburner when this round of blackouts ends. Fernando Roxas, Asian Institute of Management professor and a power sector expert, notes that nine years after the passage of the EPIRA, power sector reform has not been completed. The mandated sale of the government's power generation assets, for instance, has not been completed 14 years after President Fidel Ramos announced the plan in 1996 and nine years after the EPIRA was passed.

A January 2010 update of the asset privatization plan that was released by the Power Sector Assets and Liabilities Management Corp, the body set up by the EPIRA to dispose of Napocor assets and pay its debts, reveals that of the 30 generating facilities earmarked for disposal, only 20 have been sold and transferred to the winning bidders. Of these, only two are servicing the Mindanao grid. Roxas noted that delays in the sale of these assets have led to delays in their rehabilitation - which in turn contributed to the power deficiency in Luzon. "The delayed privatization schedule meant that required major rehabilitation was not done because the government intended to sell the assets anyway," he said.

Power subsidies that increased the government's debt while making the public resistant to rate increases have also derailed the reforms, he said. "The power sector was a convenient subsidy mechanism, and like in many developing countries in Asia, people have come to expect electricity to be subsidized. In tandem with politics, this has slowed down the reform process tremendously." Structural weaknesses in the Philippines and the global economic crises of 1997-1998 and 2008-2009 have also slowed investments in the power sector, he said. As a result of feet-dragging in implementing the reforms, the capacity shortage that caused a power crisis in the 1990s has not been eradicated. At that time, the Corazon Aquino administration decided to decommission the 600 MW Bataan nuclear power plant, which in turn led to massive blackouts, the rationing of power supply and economic losses which the World Bank calculated to have reached between $600 million and $800
million a year.

Power supply is declared critical when the existing generating capacity is not enough to cover peak demand, and reserves go below 23.4% of dependable capacity for Luzon and the Visayas and 21% for Mindanao. Mindanao is expected to hit a critical period this year if no additional capacity goes onstream, according to government data. The Visayas, which hit critical levels last year, face a new critical period in 2011, the same time that Luzon is expected to hit its critical period. While the Visayas will secure an additional 328 MW of power supply this year, only 42.5 MW of capacity will be added in Mindanao when another hydro power plant goes onstream. Luzon is not scheduled to augment its capacity until 2012, when 600 MW is added to the grid.

The Department of Energy has a long-term plan that determines the additional capacity needed by the different grids based on projected increase in power demand. It indicates that 1,354 MW of power is set to be added between this year and 2014, but very little of it - around 100 MW - is going to Mindanao. The energy department is also exploring indigenous sources of energy, including natural gas, oil reserves and geothermal energy. It is also studying the possibility of putting up nuclear power plants by 2025. Much of the success of the energy plan depends on the next administration's policies. Presidential race frontrunners Benigno Aquino III and Manuel Villar both say their strategy to address the supply lack is to entice private investors to the country. Asia Times.

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