EPIRA hinders real solutions to Mindanao power crisis

May 9, 2014

by superadmin

In the midst of recurring power outages, it is clear that Mindanao needs to improve its power infrastructure. However the EPIRA, which mandates the privatization of the power sector hinders government from doing this and solving the crisis

IBON Features— Since late February, Davao and Zamboanga City as well as other parts of Mindanao began experiencing seven to 12 hours of unpredictable brownout. The National Transmission Corporation (Transco) explained that the system-wide collapse began when German-owned STEAG State Power Inc. (SPI) reduced its load. This caused the defective Agus Hydroelectric Power Plant 1 to abruptly increase its generation. Though Agus 1 temporarily recovered, the continued load reduction of SPI caused the Agus 7 and Mount Apo power plants to react as well, ultimately leading to an island-wide collapse of the power system with the tripping of other Agus plants, as well as the Pulangi and SPI plants.

Mindanao has a perennial energy crisis, and being largely dependent on aging hydropower plants, the crisis comes to a head during the dry months. Last year, Mindanao brownouts happened when the Aboitiz-owned Therma Marine power barge in Compostela Valley shut down. One of its generators broke down after running for 72 straight hours. This followed power plant problems that were seen for most of 2012: from April to May, three Pulangi power plants were shut down for maintenance and rehabilitation; while Agus 2 was on forced outage due to a transformer problem since August. In 2011, Agus 6 was also on forced outage from January to May due to generator air cooler and turbine guide bearing problems.

The blame game

The shutdown of power plants would only be one of many reasons cited behind the annual rotating brownouts. According to the Department of Energy (DOE), it is also possible that electric cooperatives are not contracting enough power supply for their actual needs but were overdrawing power from the grid. It then offered privately-owned barges from which distribution utilities can contract additional generation capacities.

The DOE is also looking at lower power supply from hydropower power plants, from which the island draws most of its electricity, due to lower water levels during summer. Yet according to the Mindanao Development Authority (MinDA), the National Grid Corporation of the Philippines (NGCP) is hiding the real water level, creating an artificial shortage in supply to justify the construction of new power plants, or hasten the privatization of ailing government-run plants such as Agus and Pulangi.At any rate, there is a power supply deficit in Mindanao. In January to March 2013, the average monthly demand for power in Mindanao at 1,307.3 megawatts (MW) exceeded dependable capacity which was only at 1,211 MW. That the island suffers outages on an annual basis due to insufficient power supply warrants long term solutions.

In the midst of recurring power outages, it is clear that Mindanao needs to improve its power infrastructure. However the Energy Power Industry Reform Act (EPIRA), which mandates the privatization of the power sector hinders government from doing this and solving the crisis.

Temporary, costly

Government’s solutions to the power crisis have been short-sighted. The two main solutions offered so far are the procurement or renting of generation sets (gensets) by electric cooperatives and tapping the power barges owned by the Aboitiz family. President Aquino blamed the electric cooperatives for not investing in gensets even if the DOE advised them to do so a year before.

The DOE released a circular in 2012 directing the rationalization of power fed into the grid, therefore limiting the amount of power that the DUs will distribute. It also directed the National Electrification Administration (NEA) to oversee transactions between electric cooperatives and power generators to ensure that the minimum amount of power contracted by the electric cooperative will be delivered. When the power crisis broke out again in 2013, the DOE recommended renting out generator sets to electric cooperatives at Php1.4 million a month with a deposit of Php2.8 million. The DOE approved the use of Php4.5 billion of Malampaya funds to loan to electric cooperatives in Mindanao.

The new recommendation means hiking the generation cost from Php6.2 per kilowatt hour (kWh) to Php9.56 per kWh for four hours of use. If automatically purchased, a genset could amount to Php22 million, which increases the rate to Php8.45/kWh for four hours of use. If NEA finances such purchase at 6% interest rate, the rate will increase to Php8.09 per kWh. After 20 electric cooperatives opted for financing, government had to allocate Php4 billion.

Additionally, generation sets are diesel-run, thus using these will spike up power costs because of the high price of diesel. Getting generation sets from local and foreign private corporations in the form of expensive contracts can be clinched bilaterally instead of in a competitive bidding. This can prove even more costly, as in the case of Socoteco II, which inked a bilateral supply contract with SoEnergy International, a US transnational corporation (TNC) to supply an additional 15 MW. The two-year lease contract is financed through a soft-financing scheme of the DOE. If the generation sets are used, a consumer using 150 kWh per month would pay an additional Php78-183 per month and even if the genset is on standby, the consumer will still have to pay an additional Php33 per month. Aside from being more expensive for consumers, electric cooperatives have decried the difficulty of gaining approval for the gensets. According to the Association of Mindanao Rural Electric Cooperatives the long bidding process and loan approval for the gensets then the approval of DOE to install and run the gensets takes years.

Distribution utilities were also told to buy power from the power barges. The two power barges in Mindanao were privatized and now owned by the Aboitiz family, which also owns the largest private DUs in Mindanao. These barges are also diesel-run and are more expensive. As distribution utilities are pushed to purchase power from private generation plants, costs add up. These are ultimately shouldered by the consumers.

Learning from experience

Though the NGCP has taken over Transco for almost five years now, the Mindanao grid is yet to be connected to the Luzon and Visayas grids. Thus, despite recurring power blackouts, Mindanao remains unable to use any excess in the power supply from Luzon and Visayas. Still, government has not set a deadline for the NGCP to interconnect the grids of the country’s major islands.

But in line with EPIRA’s promotion of corporate-led power generation, the Aquino administration is counting on the construction of additional power plants in Mindanao, which are now being undertaken by the Lopez, Alcantara and Aboitiz groups. The Yuchengco group has also entered power generation in the island, while other corporations are diversifying into energy, such as Andrew Gotianun (Filinvest Development Corp), Eduardo Cojuangco (San Miguel Consolidated Power Corporation) and the Ayala group.

The biggest projects are under President Aquino’s private sector initiated projects are coal-fired power plants even as the DOE supposedly is pushing for renewable and clean energy. Out of 19 indicative power projects in Mindanao, nine are coal-fired plants. Out of 2,431 MW indicative rated capacity, 2,235 MW or 92% will be generated by these coal-fired plants. Four of the nine coal-fired projects will be undertaken by San Miguel Consolidated Power Corporation.

Interim Mindanao Electricity Market (IMEM)

The IMEM has been touted by private DUs as one of the long-term solutions for Mindanao’s power woes. It was launched by the Philippine Electricity Market Corporation, the operator of the anomalous Wholesale Electricity Spot Market (WESM), in September 2013. However, the House Committee on Energy suspended the operation of the IMEM in March 2013 following the overwhelming disapproval of electric cooperatives and lawmakers. The IMEM like the WESM can be used as a venue by generators to jack up prices of electricity especially in the context that Mindanao has a consistent power supply crisis.

In solving the Mindanao power crisis, the experience of consumers after the privatization of Napocor in the Luzon grid and Transco under EPIRA should be noted. Barely one year after Transco and Napocor plants were sold, nine power plants went offline on the same day. In May 2013, a massive Luzon-wide blackout happened when several power plants went down. Privatized power plants in Luzon with the biggest generation capacities include those owned by Cojuangco’s San Miguel Energy Corp, Consunji’s DMCI Holdings; Aboitiz Group’s AP Renewables, and US-based AES Corporation.

EPIRA promised cheaper and efficient electricity through competition. But it has only benefited the few monopolies in the power sector while resulting in soaring electricity rates amid continued power woes. This is the case not only in Mindanao but nationwide.

Beyond Mindanao, the power crisis has begun manifesting in rotating brownouts in Luzon. Government should see this as an opportunity not just to review the EPIRA and propose reforms to the law, but to overhaul the country’s power sector policy. This should place the public’s welfare at the forefront, with the power sector being managed as a basic public utility and not as an arena for profit. IBON Features