Lessons from the Philippine electricity crisis
Tuesday, 13 April 2010
Fidel V. Ramos
1. Introductory
In mid-1992, I assumed the presidency of a country literally in darkness.
A power crisis was shutting down our factories and small shops; and homes in our metro centers were enduring brownouts that lasted for as long as ten hours a day.
In that inhospitable atmosphere, I launched “Philippines 2000!!!” a strategic plan for reform and development - whose goal was to raise the country to the threshold of newly-industrialising economy (n.i.e.) status by the turn of the 21st century.
Of necessity, the development of an adequate and dependable power supply was one of our key strategies.
“Philippines 2000!!!” was an ambitious - even visionary- undertaking, given our country’s record of lackadaisical economic performance over the past generation. Within six years, however, upon our “graduation” in March 1998 from the “intensive care ward” of the International Monetary Fund (IMF) after 35 years and 22 loan programs, the Philippines was being called the emerging “tiger cub” in Southeast Asia.
And by mid-1998 - despite the devastation of a financial crisis that hit the whole of East Asia and much of the developing world - we had met most of the growth targets of our medium-term development plan for “Philippines 2000!!!.’
As for the power crisis, we overcame it in 18 months. “by Christmas 1993,” as Time Magazine noted, “Manila was festooned with holiday lights that blinked - and stayed on.”
How did we do it? The rein lies the story.
Background to the crisis
When a “people power” revolution finally kicked out the Marcos martial law regime in February 1986, the new president, Corazon Aquino inherited a nation ravaged by 20 years of cronyism and despotism.
Among other initiatives, President Aquino decided to mothball the Marcos-era bataan nuclear power plant (bnpp), scheduled to come on-stream in 1987, amid well-founded suspicions that the Marcoses and their cronies pocketed millions of US dollars in commissions.
The Aquino administration also abolished the ministry of energy (moe), then perceived as corrupt and useless, and merely existing to accommodate political appointees of the Marcos government. It attached the national power corporation (napocor), the state-owned electricity monopoly, directly to the office of the president.
The Philippines economy began to turn around in 1987. With new investments, more tourists and “balikbayan” (returning) Filipinos, and a buoyant national mood, the nation was picking itself up.
Consequently, energy demand which had grown by an average of a mere 1.0% per annurn since the early 80’s, rose by 9.7% that year, 9.5% in 1988, 4.3% in 1989, and 11.3% in 1990. Even so, no alternatives were provided for the 600-mw lost by the abandonment of the bnpp project.
There was also no replacement for the abolished more; hence, policy-makers and executives failed to give proper attention to the impending power shortage. Instead, president Aquino appointed one of her key advisers as head of the office of energy affairs, which was a coordinating body - not a line department.
The imminent acute shortage in power supply was felt as early as 1989 when a couple of old plants had to be shut down for repairs. Due to lack of maintenance, power plants would inadvertently trip, affecting the whole grid. Worse, the existing plants could not be shut down for regularly scheduled repairs because there was not enough back-up capacity - resulting in 8 to 10 hours of daily blackouts during summer.
When the authorities finally admitted in 1991 that the power crisis would get worse, diesel-fired power barges and similar generating facilities were procured as stopgap measures, leading to higher oil import bills and power rates. The economy, consequently, started to dive down. According to the Asian Development Bank (ADB), the power shortages led to a 6% decrease in gross domestic product from 1980 to 1991.
The government started addressing the situation only towards the end of president Aquino’s term. In fairness to her, however, she had to deal with more daunting problems: a killer earthquake in 1990, a major volcanic eruption in 1991, the divisive issue of the US military bases in the country, Muslim separatism, communist insurgency, and several coup attempts by military rebels.
In 1991, president Aquino issued executive order 215 which directed the national power corporation to pursue a long-term private power program and promote more private sector participation in the energy sector. Just before she bowed out in 1992, Mrs. Aquino approved the prioritisation of six power projects that would add 800-mw to the national grid by 1993.
Dealing with the power crisis
In June 1992, the Philippine power generation system consisted mainly of old and therefore, inefficient oil-fired power plants, some already serving beyond their normal life span.
Dependable supply from these power plants was only about half of their installed capacity as breakdowns and repairs became increasingly frequent. The use of hydropower was very limited and the inadequate water conservation system was easily susceptible to the periodic droughts that hit the country. Other power sources were much less developed.
In the worst years of the Philippine energy crisis - in 1992 and 1993 - electric power was rationed among industrial and commercial/residential users as 8 to 12-hour brownouts occurred daily in metro Manila and other population centers.
Most industrial activities were stifled by the unstable power supply. Millions of workers, particularly in small enterprises, lost their jobs or livelihood as shops closed due to lack of business.
Even large companies had to reduce working hours, or worse, shut down temporarily, despite their purchase of their own generator sets. Some 1,600 firms were asked to participate in a voluntary load curtailment program (vlcp) so that their production shifts could by synchronised with the power schedules arranged on a rotating basis. The entire population was asked to observe energy conservation (“enercon”) and water “discipline’’.
My first task as president was quite clear: put energy back into the center of the national agenda where it rightfully belonged. I asked congress for a new law to create the department of energy (doe), which resulted in the passage of republic act (r.a.) 7368 in December 1992. The doe was mandated to .prepare, integrate, coordinate, supervise, and control all plans, programs, projects, and activities of the government relative to energy exploration, development, utilisation, distribution and conservation.”
Then I lobbied congress to grant the presidency through an electric power crisis act passed in April 1993 (r.a. 7648 or epca) - emergency powers to enter into negotiated (as opposed to bidded) contracts for the building, repair, rehabilitation and maintenance of power plants, projects and facilities.
The epca also allowed my administration to reorganise the debt-ridden and inefficient napocor, implement a new pay plan for its employees, and set the ceiling on its return-on-rate base (rorb) at 12%. An extensive rehabilitation and overhaul of napocor’s existing plants restored some 1,065-mw of usable capacity. We also focused on the recovery and reduction of systems losses.
By way of the epca, the Philippine amusement and gaming corporation (pagcor), the government-owned franchise-holder for casino operations, was also required to contribute 10% of its revenues to the napocor, to help ease the latter’s financial burden.
Other energy sector reforms
Innovative schemes such as the build-operate-transfer (b-o-t) law (r.a. 6957 in 1990, expanded by r.a. 7718 in 1995) fast-tracked the building of new power plants without the government incurring massive public investments, except for right-of-way outlays.
The expanded b-o-t law produced seven “fast-track” power projects with an aggregate capacity of more than 900-mw that broke the crisis and put the country back on the road to economic recovery.
The government also pushed the exploration and development of natural gas reserves from the Camago-Malampaya field northwest of Palawan island, and the promotion of other indigenous energy sources (geothermal, hydro and coal), and so-called renewable energy alternatives (photovoltaic technology, biogas and wind energy etc.,).
In 1997, my government also urged the passage of a proposed omnibus electric power industry code which would privatise the napocor and devolve power generation, transmission and distribution mainly to the private sector under a competitive environment. Unfortunately, because this involved so many complex issues to be ironed out, the bill was not passed during my term. However, it was enacted into law (r.a. 9136) in June 2001 under president Arroyo.
On top of this, we worked hard for the electrification of our rural areas, particularly those too remote to be economically serviced by existing grids. Like Indonesia, the Philippines is an archipelagic country We have more than 7,100 islands, of which half are inhabitable. In the past, priority had to be given to the large urban centers, at the expense of the smaller rural communities.
Through the use of various technologies including such unconventional resources as wind and solar energy, we were able by mid-1998 to achieve 100% electrification of our cities and large towns in our 78 provinces, and about 70% of the 42,000 basic communities (barangays) in our country.
Its feat of solving the Philippines’ power problem in 18 months earned for the Philippines’ the distinction of being the first recipient of the “electric infrastructure award” given to a developing country by Mcgraw hill’s electric power international in May 1998.
Reinforcing our energy security cover
After restoring the power supply to normal levels, the doe set three basic goals to reinforce our energy security cover.
The first was to ensure that an adequate energy supply is always available to every potential user.
The second was to ensure the price of national power is affordable, reasonable and competitive.
The third was to ensure all our energy infrastructures are socially and environmentally acceptable.
In symbolic terms, these objectives and other energy sector reforms focused the attention of the bureaucracy, congress, private sector developers, the media - and the general public - on the national need to solve our energy problems in a unified and synergistic manner.
Within a month after the epca was passed, we had secured all the essential approvals and endorsements to get the first “fast-track” power projects going.
For their part, the project developers committed themselves to completing their assigned power facilities in 10 months.
Before the end of 1993, 505-mw of these priority projects were on stream, in addition to the 350-mw of regular plants that were started in 1992, during president Aquino’s watch.
Availing of the expanded b-o-t law
I suggest developing countries could profitably study the Philippines b-o-t model.
In its many variations, our b-o-t law enables private corporations to invest not only in electric-power sector facilities, but also in airports and seaports, highways, mass-transit systems, industrial parks, tourism estates and agricultural joint ventures etc. — without raising taxes and without cost to government, except for right-of-way acquisitions.
To make it as attractive as possible, we built in incentives such as performance sweeteners, tax breaks and grace periods.
The energy sector became the showcase of our b-o-t program.
By June 1997, we had completed 27 infrastructure projects worth $4.5 billion, another 60 projects worth $15.5 billion being worked on, and 20 other projects worth $6.2 billion awarded to contractors. Half of them were in power plants and underwater transmission lines.
By the time I finished my single six-year term in mid-1998, private investors had completed more than 5,000-mw of power projects. Independent power producers (ipps) were completing some 4,800-mw more - while projects that would soon produce another 600-mw were in the pipeline.
As we were building up our energy supply, we were also working to enhance our domestic sources of oil, gas and hydropower.
Early on, we realised that an energy infrastructure dependent on imported petroleum holds the country hostage to turmoil in global markets such as during the gulf war of the early 1990s.
Indigenous and alternative inputs to energy security
Expanding our energy security umbrella became one of our urgent policies. We realised that this cover is provided by our indigenous oil supplies and the renewable and alternative energy options, plus the well-known cross-border gas Philippines and the electricity-grid interconnections that the Asean states have decided to build throughout Southeast Asia. Yet another safeguard is the Asean petroleum security agreement - an emergency-sharing measure of regional indigenous oil-gas supplies in the event of an international supply disruption.
Thus, we sought to encourage exploration of indigenous energy sources - particularly in offshore locations that had proved so fruitful for our Southeast Asian neighbours.
We also intensified exploration of the geothermal resources generated by the Philippines’ archipelago’s volcanic origins.
Through these efforts, we have been able to raise our self-sufficiency level from 35% in 1991 to 42% in 1997. As of now, the Philippines is about to surpass the US as the no. I user of geothermal energy with some 2,000-mwal ready on-line.
By 2005, indigenous energy sources will be providing fully 55% of all our needs. By then, the huge Camago-Malampaya field northwest of Palawan island - estimated to contain at least 2.5 trillion cubic feet of natural gas - will be fully operational. Already it is feeding through undersea pipelines into three power plants on mainland Luzon with a combined capacity of 2,700-mw.
The major players in the Camago-Malampaya venture are shell Philippines exploration; b.v. (spex) and occidental Philippines; and the gas buyers are the national power corporation and first gas power corporation.
Like the other Asean countries, the Philippines ensures that energy-infrastructure projects are commercially viable.
With the resultant lowering of electricity costs, we expect consumers to save large amounts of money during the twenty years of the Camago-Malampaya concession. In addition to the usual inflow of corporate income taxes, the national government will receive royalties which it will share with local government units that will also benefit from heightened business activity in their territories.
Now let me say a few words about our alternative energy systems.
Side-by-side with our effort to explore and develop oil-and-gas and geothermal resources, we promoted new and renewable technologies such as wind pumps, solar photovoltaic systems, biogas-fired systems, micro-hydros and the like. To deal with small-island and rural energy needs, we set up a network called the “affiliated non-conventional energy center” throughout the country for research, for experimentation and for remote community use.
Our most unconventional venture is in alternative energy systems generated by the ocean, sun, and wind - o.s.w. for short.
As president, I issued an executive order spelling out the incentives and support the government would give to private-sector exploration, development and use of o.s.w. energy resources. The Philippines archipelago is exceptionally abundant in all of them. In fact, a Canadian corporation has been studying the feasibility of harnessing the exceptionally strong ocean currents of the San Bernardino straits between the southern tip of Luzon and Samar island in the Visayas.
Liberalising the energy market
Another crucial aspect of our efforts to stabilise our power supply - and to ensure its development kept apace with economic growth - is to liberalise the national energy market.
The two key sectional reforms my government took deregulation of the downstream oil industry and privatisation of the state-owned Petron corporation generated a great deal of controversy. As we may expect, interest groups benefiting from regulation resisted the loss of their “rents” and commercial advantages.
The kind of market competition we wanted in the oil industry has begun to emerge: by now, new players have gained some 5% of the retail market still dominated by the majors - Shell, Caltex, and Petron.
To attain growth coupled with equity, we launched a social reform agenda (s.r.a.) containing a package of state policies to reduce mass poverty and develop the countryside. A national electrification administration (n.e.a.) organised electricity cooperatives throughout the country to accelerate village/household electric power delivery. All the country’s 1,500-plus municipalities have been completely energised - 17 of them through solar photovoltaic systems as a pre-grid mode of electrification. Now, government is working to energise the remainder of remotest of our barangays or villages.
Energy and the sustainable environment
The Philippines government recognises that energy projects impact substantially on the natural environment. So, it tries to ensure that environmental concerns are accounted for in the effort to expand our energy infrastructure.
Energy companies such as the Philippines national oil company (pnoc), Petron, and the Napocor strive to achieve a balance between building energy infrastructures and caring sustainably for the environment. Communities hosting energy projects benefit from royalty payments which they could use to subsidise local power rates, finance livelihood projects, and support environmental conservation programs.
The Masinloc coal-fired power plant in Zambales province, the San Roque Multi-purpose Dam project in Pangasinan province, and the mount apogeothermal projects in eastern Minclanao serve as models of the Philippines government’s energy program in the context of environmental protection and conservation. Forest and watershed protection and the prudent management thereof are key components of this policy.
Also, we have adopted “clean” coal technology as a state policy which will significantly reduce emissions of carbon dioxide and other pollutants from coal-fired power plants.
Lessons from the Philippines
Lesson 1: Speed is critical, there is no room for delays. Our erstwhile power crisis cost the Philippines billions of US dollars in terms of lost industrial production, decreased export revenues, lost opportunities in investments and tourism, and a higher debt burden - all because some authorities failed to act quickly.
The costs of indecision, postponements, protracted debates, - one single day of unnecessary delay even are more prohibitive than building the power plant itself. This is true not only for power but for all other infrastructure.
Lesson 2: Hands-on leadership and political will are vital. I led my cabinet with an almost one-track mind. I mandated: we need energy, energy, energy - above all infrastructure priorities.
I put my best technocrats and action men to lead the department of energy, the Napocor, the department of finance, the national economic and development authority - and all worked together to end the power crisis on top of all the other concerns the country faced.
I cracked the whip on any sign of indecision, slowness, horse-trading - anything that would impede our progress.
In a sense, it was much easier for me to convince congress to help my administration in alleviating the power shortage because even the opposition senators and congressmen themselves were suffering from the daily brownouts - they had no choice but to cooperate!
I am not saying you need the crisis to actually happen before you can get parliament to act. Just make it plain to them that the crisis will be real and inevitable if remedial measures are not done at once. Prevention is always better than cure.
Lesson 3: The political leadership should make the tough decisions because the bureaucracy will not. With the trauma of the bnpp fiasco, our bureaucracy was scared to make the necessary moves to improve the power situation, and few among them wanted to put their careers on the line by making potentially controversial decisions.
It was up to us, the political leadership, to show the way and to make the tough decisions.
Lesson 4: Careful planning is essential, but useless without action-implementation. We believed that energy security must always be on the national agenda. We gathered a team of experts to put together our 30-year Philippines energy plan, considering various schedules and options for repairs and maintenance, rehabilitation or retirement of old plants, the timetable for incoming projects, growth and demand projections, weather scenarios, and other such variables.
The plan was continuously reviewed and revised as parameters and conditions changed. More importantly, whatever was needed to be implemented, we carried out immediately.
With such an energy road map, our line departments and agencies could continue to implement programs and projects regardless of who eventually would succeed as their heads. The key is that action is taken: what needs to be done is done, what needs to be revised is revised, what needs to be implemented is implemented.
Lesson 5: Gain international attention. It was clear we would not be able to raise the large levels of capital needed domestically; that we would have to attract foreign participation. We also wanted the technology and skills they could bring.
Consequently, I did what any good salesman does - I went out and sold. I was severely criticised at home for the many trips I made abroad. But, those trips had a purpose: arouse interest in investing in our country. It worked.
We gained enormous support from many of the global energy companies that enabled us to do the fast-tracking we had planned. Those companies still remain our active partners today.
Lesson 6: Parallel reforms in other critical areas are needed. I moved to empower our people at the grass roots to raise them to a culture of excellence. Parallel reforms to address the other critical concerns of our country proved to be complementary moves that helped overcome the power crisis.
First, we spurred industrial and services liberalisation. With the help of congress, we removed decades-old shackles in our banking industry, telecommunications, shipping and aviation, insurance, and the downstream oil industry. Full foreign ownership was allowed in almost all activities except those prohibited by our constitution for reasons of national security, public safety, resource protection and community morals.
Then we worked on additional structural reforms. We strengthened foreign exchange deregulation. We embraced the global trend towards trade liberalisation. We revised our tax regime, brought down our tariffs, eliminated non-tariff barriers, and approved a simpler customs valuation system.
We also continued the privatisation of state enterprises as started by my predecessor. We sold the government’s majority share in Petron Corporation, the country’s biggest oil refiner and retailer - 40% of Petron went to Saudi Aramco; 20% was sold to the public thru’ an initial public offering (ipo); and the balance of 40% was retained under government control.
We encouraged the social security system (sss), one of our state pension funds, to allow millions of its members to buy and own shares of stock in bluechip companies, particularly Petron and the Manila Electric Company (meralco), under a “subscribe now, pay later” arrangement. We devised a scheme to privatize the metropolitan waterworks and sewerage system (mwss) through competitive bidding.
Lesson 7: Government intervention should be minimal, and only to initiate projects and ensure that market forces and competition would prevail. I firmly believe that whenever government or the law places artificial barriers to competition and market forces, this tilts the playing field in favour of somebody and, consequently, disfavours somebody else who must pay the costs of the privileges of the favoured one.
In such circumstances, it is the poor and under-privileged that suffer the consequences most of the time. Less government involvement, we learned, is better for all concerned. Thus, we aimed for less regulation and less protectionism. We encouraged more productivity and more competition.
The government, nevertheless, does have a role to play: by providing a level playing field under the rule of law, to foster private initiative where there is none, and to channel private initiative to the greater welfare of the community. The government must be thereto provide a shared vision for the nation, but to let that vision be fulfilled and achieved by a free, fair and vibrant citizenry.
Energy policies in the new millennium
The lessons of the power crisis the Philippines experienced years ago instructs us clearly on the need for long-term perspectives and long-term solutions.
In the years to come, government’s effectiveness will be measured in terms of its success in laying the foundations for future administrations to build upon. These foundations will, among others, consist of enabling laws as well as executive orders and programs that respond effectively to constantly-changing and ever-increasing energy demands by the growing economy.
In closing, let me share with you what I said during my inaugural speech in June 1992.1 said to one and all:
“we must begin by telling ourselves the truth: our nation is in trouble and there are no quick fixes for our basic ills. If we are to rise above our problems, we must make hard decisions and resort to swift and decisive reform.”
I still find this worth repeating, like a daily prayer, to myself and to those that would care to listen.
The writer is the former President of the Republic of the Philippines
1. Introductory
In mid-1992, I assumed the presidency of a country literally in darkness.
A power crisis was shutting down our factories and small shops; and homes in our metro centers were enduring brownouts that lasted for as long as ten hours a day.
In that inhospitable atmosphere, I launched “Philippines 2000!!!” a strategic plan for reform and development - whose goal was to raise the country to the threshold of newly-industrialising economy (n.i.e.) status by the turn of the 21st century.
Of necessity, the development of an adequate and dependable power supply was one of our key strategies.
“Philippines 2000!!!” was an ambitious - even visionary- undertaking, given our country’s record of lackadaisical economic performance over the past generation. Within six years, however, upon our “graduation” in March 1998 from the “intensive care ward” of the International Monetary Fund (IMF) after 35 years and 22 loan programs, the Philippines was being called the emerging “tiger cub” in Southeast Asia.
And by mid-1998 - despite the devastation of a financial crisis that hit the whole of East Asia and much of the developing world - we had met most of the growth targets of our medium-term development plan for “Philippines 2000!!!.’
As for the power crisis, we overcame it in 18 months. “by Christmas 1993,” as Time Magazine noted, “Manila was festooned with holiday lights that blinked - and stayed on.”
How did we do it? The rein lies the story.
Background to the crisis
When a “people power” revolution finally kicked out the Marcos martial law regime in February 1986, the new president, Corazon Aquino inherited a nation ravaged by 20 years of cronyism and despotism.
Among other initiatives, President Aquino decided to mothball the Marcos-era bataan nuclear power plant (bnpp), scheduled to come on-stream in 1987, amid well-founded suspicions that the Marcoses and their cronies pocketed millions of US dollars in commissions.
The Aquino administration also abolished the ministry of energy (moe), then perceived as corrupt and useless, and merely existing to accommodate political appointees of the Marcos government. It attached the national power corporation (napocor), the state-owned electricity monopoly, directly to the office of the president.
The Philippines economy began to turn around in 1987. With new investments, more tourists and “balikbayan” (returning) Filipinos, and a buoyant national mood, the nation was picking itself up.
Consequently, energy demand which had grown by an average of a mere 1.0% per annurn since the early 80’s, rose by 9.7% that year, 9.5% in 1988, 4.3% in 1989, and 11.3% in 1990. Even so, no alternatives were provided for the 600-mw lost by the abandonment of the bnpp project.
There was also no replacement for the abolished more; hence, policy-makers and executives failed to give proper attention to the impending power shortage. Instead, president Aquino appointed one of her key advisers as head of the office of energy affairs, which was a coordinating body - not a line department.
The imminent acute shortage in power supply was felt as early as 1989 when a couple of old plants had to be shut down for repairs. Due to lack of maintenance, power plants would inadvertently trip, affecting the whole grid. Worse, the existing plants could not be shut down for regularly scheduled repairs because there was not enough back-up capacity - resulting in 8 to 10 hours of daily blackouts during summer.
When the authorities finally admitted in 1991 that the power crisis would get worse, diesel-fired power barges and similar generating facilities were procured as stopgap measures, leading to higher oil import bills and power rates. The economy, consequently, started to dive down. According to the Asian Development Bank (ADB), the power shortages led to a 6% decrease in gross domestic product from 1980 to 1991.
The government started addressing the situation only towards the end of president Aquino’s term. In fairness to her, however, she had to deal with more daunting problems: a killer earthquake in 1990, a major volcanic eruption in 1991, the divisive issue of the US military bases in the country, Muslim separatism, communist insurgency, and several coup attempts by military rebels.
In 1991, president Aquino issued executive order 215 which directed the national power corporation to pursue a long-term private power program and promote more private sector participation in the energy sector. Just before she bowed out in 1992, Mrs. Aquino approved the prioritisation of six power projects that would add 800-mw to the national grid by 1993.
Dealing with the power crisis
In June 1992, the Philippine power generation system consisted mainly of old and therefore, inefficient oil-fired power plants, some already serving beyond their normal life span.
Dependable supply from these power plants was only about half of their installed capacity as breakdowns and repairs became increasingly frequent. The use of hydropower was very limited and the inadequate water conservation system was easily susceptible to the periodic droughts that hit the country. Other power sources were much less developed.
In the worst years of the Philippine energy crisis - in 1992 and 1993 - electric power was rationed among industrial and commercial/residential users as 8 to 12-hour brownouts occurred daily in metro Manila and other population centers.
Most industrial activities were stifled by the unstable power supply. Millions of workers, particularly in small enterprises, lost their jobs or livelihood as shops closed due to lack of business.
Even large companies had to reduce working hours, or worse, shut down temporarily, despite their purchase of their own generator sets. Some 1,600 firms were asked to participate in a voluntary load curtailment program (vlcp) so that their production shifts could by synchronised with the power schedules arranged on a rotating basis. The entire population was asked to observe energy conservation (“enercon”) and water “discipline’’.
My first task as president was quite clear: put energy back into the center of the national agenda where it rightfully belonged. I asked congress for a new law to create the department of energy (doe), which resulted in the passage of republic act (r.a.) 7368 in December 1992. The doe was mandated to .prepare, integrate, coordinate, supervise, and control all plans, programs, projects, and activities of the government relative to energy exploration, development, utilisation, distribution and conservation.”
Then I lobbied congress to grant the presidency through an electric power crisis act passed in April 1993 (r.a. 7648 or epca) - emergency powers to enter into negotiated (as opposed to bidded) contracts for the building, repair, rehabilitation and maintenance of power plants, projects and facilities.
The epca also allowed my administration to reorganise the debt-ridden and inefficient napocor, implement a new pay plan for its employees, and set the ceiling on its return-on-rate base (rorb) at 12%. An extensive rehabilitation and overhaul of napocor’s existing plants restored some 1,065-mw of usable capacity. We also focused on the recovery and reduction of systems losses.
By way of the epca, the Philippine amusement and gaming corporation (pagcor), the government-owned franchise-holder for casino operations, was also required to contribute 10% of its revenues to the napocor, to help ease the latter’s financial burden.
Other energy sector reforms
Innovative schemes such as the build-operate-transfer (b-o-t) law (r.a. 6957 in 1990, expanded by r.a. 7718 in 1995) fast-tracked the building of new power plants without the government incurring massive public investments, except for right-of-way outlays.
The expanded b-o-t law produced seven “fast-track” power projects with an aggregate capacity of more than 900-mw that broke the crisis and put the country back on the road to economic recovery.
The government also pushed the exploration and development of natural gas reserves from the Camago-Malampaya field northwest of Palawan island, and the promotion of other indigenous energy sources (geothermal, hydro and coal), and so-called renewable energy alternatives (photovoltaic technology, biogas and wind energy etc.,).
In 1997, my government also urged the passage of a proposed omnibus electric power industry code which would privatise the napocor and devolve power generation, transmission and distribution mainly to the private sector under a competitive environment. Unfortunately, because this involved so many complex issues to be ironed out, the bill was not passed during my term. However, it was enacted into law (r.a. 9136) in June 2001 under president Arroyo.
On top of this, we worked hard for the electrification of our rural areas, particularly those too remote to be economically serviced by existing grids. Like Indonesia, the Philippines is an archipelagic country We have more than 7,100 islands, of which half are inhabitable. In the past, priority had to be given to the large urban centers, at the expense of the smaller rural communities.
Through the use of various technologies including such unconventional resources as wind and solar energy, we were able by mid-1998 to achieve 100% electrification of our cities and large towns in our 78 provinces, and about 70% of the 42,000 basic communities (barangays) in our country.
Its feat of solving the Philippines’ power problem in 18 months earned for the Philippines’ the distinction of being the first recipient of the “electric infrastructure award” given to a developing country by Mcgraw hill’s electric power international in May 1998.
Reinforcing our energy security cover
After restoring the power supply to normal levels, the doe set three basic goals to reinforce our energy security cover.
The first was to ensure that an adequate energy supply is always available to every potential user.
The second was to ensure the price of national power is affordable, reasonable and competitive.
The third was to ensure all our energy infrastructures are socially and environmentally acceptable.
In symbolic terms, these objectives and other energy sector reforms focused the attention of the bureaucracy, congress, private sector developers, the media - and the general public - on the national need to solve our energy problems in a unified and synergistic manner.
Within a month after the epca was passed, we had secured all the essential approvals and endorsements to get the first “fast-track” power projects going.
For their part, the project developers committed themselves to completing their assigned power facilities in 10 months.
Before the end of 1993, 505-mw of these priority projects were on stream, in addition to the 350-mw of regular plants that were started in 1992, during president Aquino’s watch.
Availing of the expanded b-o-t law
I suggest developing countries could profitably study the Philippines b-o-t model.
In its many variations, our b-o-t law enables private corporations to invest not only in electric-power sector facilities, but also in airports and seaports, highways, mass-transit systems, industrial parks, tourism estates and agricultural joint ventures etc. — without raising taxes and without cost to government, except for right-of-way acquisitions.
To make it as attractive as possible, we built in incentives such as performance sweeteners, tax breaks and grace periods.
The energy sector became the showcase of our b-o-t program.
By June 1997, we had completed 27 infrastructure projects worth $4.5 billion, another 60 projects worth $15.5 billion being worked on, and 20 other projects worth $6.2 billion awarded to contractors. Half of them were in power plants and underwater transmission lines.
By the time I finished my single six-year term in mid-1998, private investors had completed more than 5,000-mw of power projects. Independent power producers (ipps) were completing some 4,800-mw more - while projects that would soon produce another 600-mw were in the pipeline.
As we were building up our energy supply, we were also working to enhance our domestic sources of oil, gas and hydropower.
Early on, we realised that an energy infrastructure dependent on imported petroleum holds the country hostage to turmoil in global markets such as during the gulf war of the early 1990s.
Indigenous and alternative inputs to energy security
Expanding our energy security umbrella became one of our urgent policies. We realised that this cover is provided by our indigenous oil supplies and the renewable and alternative energy options, plus the well-known cross-border gas Philippines and the electricity-grid interconnections that the Asean states have decided to build throughout Southeast Asia. Yet another safeguard is the Asean petroleum security agreement - an emergency-sharing measure of regional indigenous oil-gas supplies in the event of an international supply disruption.
Thus, we sought to encourage exploration of indigenous energy sources - particularly in offshore locations that had proved so fruitful for our Southeast Asian neighbours.
We also intensified exploration of the geothermal resources generated by the Philippines’ archipelago’s volcanic origins.
Through these efforts, we have been able to raise our self-sufficiency level from 35% in 1991 to 42% in 1997. As of now, the Philippines is about to surpass the US as the no. I user of geothermal energy with some 2,000-mwal ready on-line.
By 2005, indigenous energy sources will be providing fully 55% of all our needs. By then, the huge Camago-Malampaya field northwest of Palawan island - estimated to contain at least 2.5 trillion cubic feet of natural gas - will be fully operational. Already it is feeding through undersea pipelines into three power plants on mainland Luzon with a combined capacity of 2,700-mw.
The major players in the Camago-Malampaya venture are shell Philippines exploration; b.v. (spex) and occidental Philippines; and the gas buyers are the national power corporation and first gas power corporation.
Like the other Asean countries, the Philippines ensures that energy-infrastructure projects are commercially viable.
With the resultant lowering of electricity costs, we expect consumers to save large amounts of money during the twenty years of the Camago-Malampaya concession. In addition to the usual inflow of corporate income taxes, the national government will receive royalties which it will share with local government units that will also benefit from heightened business activity in their territories.
Now let me say a few words about our alternative energy systems.
Side-by-side with our effort to explore and develop oil-and-gas and geothermal resources, we promoted new and renewable technologies such as wind pumps, solar photovoltaic systems, biogas-fired systems, micro-hydros and the like. To deal with small-island and rural energy needs, we set up a network called the “affiliated non-conventional energy center” throughout the country for research, for experimentation and for remote community use.
Our most unconventional venture is in alternative energy systems generated by the ocean, sun, and wind - o.s.w. for short.
As president, I issued an executive order spelling out the incentives and support the government would give to private-sector exploration, development and use of o.s.w. energy resources. The Philippines archipelago is exceptionally abundant in all of them. In fact, a Canadian corporation has been studying the feasibility of harnessing the exceptionally strong ocean currents of the San Bernardino straits between the southern tip of Luzon and Samar island in the Visayas.
Liberalising the energy market
Another crucial aspect of our efforts to stabilise our power supply - and to ensure its development kept apace with economic growth - is to liberalise the national energy market.
The two key sectional reforms my government took deregulation of the downstream oil industry and privatisation of the state-owned Petron corporation generated a great deal of controversy. As we may expect, interest groups benefiting from regulation resisted the loss of their “rents” and commercial advantages.
The kind of market competition we wanted in the oil industry has begun to emerge: by now, new players have gained some 5% of the retail market still dominated by the majors - Shell, Caltex, and Petron.
To attain growth coupled with equity, we launched a social reform agenda (s.r.a.) containing a package of state policies to reduce mass poverty and develop the countryside. A national electrification administration (n.e.a.) organised electricity cooperatives throughout the country to accelerate village/household electric power delivery. All the country’s 1,500-plus municipalities have been completely energised - 17 of them through solar photovoltaic systems as a pre-grid mode of electrification. Now, government is working to energise the remainder of remotest of our barangays or villages.
Energy and the sustainable environment
The Philippines government recognises that energy projects impact substantially on the natural environment. So, it tries to ensure that environmental concerns are accounted for in the effort to expand our energy infrastructure.
Energy companies such as the Philippines national oil company (pnoc), Petron, and the Napocor strive to achieve a balance between building energy infrastructures and caring sustainably for the environment. Communities hosting energy projects benefit from royalty payments which they could use to subsidise local power rates, finance livelihood projects, and support environmental conservation programs.
The Masinloc coal-fired power plant in Zambales province, the San Roque Multi-purpose Dam project in Pangasinan province, and the mount apogeothermal projects in eastern Minclanao serve as models of the Philippines government’s energy program in the context of environmental protection and conservation. Forest and watershed protection and the prudent management thereof are key components of this policy.
Also, we have adopted “clean” coal technology as a state policy which will significantly reduce emissions of carbon dioxide and other pollutants from coal-fired power plants.
Lessons from the Philippines
Lesson 1: Speed is critical, there is no room for delays. Our erstwhile power crisis cost the Philippines billions of US dollars in terms of lost industrial production, decreased export revenues, lost opportunities in investments and tourism, and a higher debt burden - all because some authorities failed to act quickly.
The costs of indecision, postponements, protracted debates, - one single day of unnecessary delay even are more prohibitive than building the power plant itself. This is true not only for power but for all other infrastructure.
Lesson 2: Hands-on leadership and political will are vital. I led my cabinet with an almost one-track mind. I mandated: we need energy, energy, energy - above all infrastructure priorities.
I put my best technocrats and action men to lead the department of energy, the Napocor, the department of finance, the national economic and development authority - and all worked together to end the power crisis on top of all the other concerns the country faced.
I cracked the whip on any sign of indecision, slowness, horse-trading - anything that would impede our progress.
In a sense, it was much easier for me to convince congress to help my administration in alleviating the power shortage because even the opposition senators and congressmen themselves were suffering from the daily brownouts - they had no choice but to cooperate!
I am not saying you need the crisis to actually happen before you can get parliament to act. Just make it plain to them that the crisis will be real and inevitable if remedial measures are not done at once. Prevention is always better than cure.
Lesson 3: The political leadership should make the tough decisions because the bureaucracy will not. With the trauma of the bnpp fiasco, our bureaucracy was scared to make the necessary moves to improve the power situation, and few among them wanted to put their careers on the line by making potentially controversial decisions.
It was up to us, the political leadership, to show the way and to make the tough decisions.
Lesson 4: Careful planning is essential, but useless without action-implementation. We believed that energy security must always be on the national agenda. We gathered a team of experts to put together our 30-year Philippines energy plan, considering various schedules and options for repairs and maintenance, rehabilitation or retirement of old plants, the timetable for incoming projects, growth and demand projections, weather scenarios, and other such variables.
The plan was continuously reviewed and revised as parameters and conditions changed. More importantly, whatever was needed to be implemented, we carried out immediately.
With such an energy road map, our line departments and agencies could continue to implement programs and projects regardless of who eventually would succeed as their heads. The key is that action is taken: what needs to be done is done, what needs to be revised is revised, what needs to be implemented is implemented.
Lesson 5: Gain international attention. It was clear we would not be able to raise the large levels of capital needed domestically; that we would have to attract foreign participation. We also wanted the technology and skills they could bring.
Consequently, I did what any good salesman does - I went out and sold. I was severely criticised at home for the many trips I made abroad. But, those trips had a purpose: arouse interest in investing in our country. It worked.
We gained enormous support from many of the global energy companies that enabled us to do the fast-tracking we had planned. Those companies still remain our active partners today.
Lesson 6: Parallel reforms in other critical areas are needed. I moved to empower our people at the grass roots to raise them to a culture of excellence. Parallel reforms to address the other critical concerns of our country proved to be complementary moves that helped overcome the power crisis.
First, we spurred industrial and services liberalisation. With the help of congress, we removed decades-old shackles in our banking industry, telecommunications, shipping and aviation, insurance, and the downstream oil industry. Full foreign ownership was allowed in almost all activities except those prohibited by our constitution for reasons of national security, public safety, resource protection and community morals.
Then we worked on additional structural reforms. We strengthened foreign exchange deregulation. We embraced the global trend towards trade liberalisation. We revised our tax regime, brought down our tariffs, eliminated non-tariff barriers, and approved a simpler customs valuation system.
We also continued the privatisation of state enterprises as started by my predecessor. We sold the government’s majority share in Petron Corporation, the country’s biggest oil refiner and retailer - 40% of Petron went to Saudi Aramco; 20% was sold to the public thru’ an initial public offering (ipo); and the balance of 40% was retained under government control.
We encouraged the social security system (sss), one of our state pension funds, to allow millions of its members to buy and own shares of stock in bluechip companies, particularly Petron and the Manila Electric Company (meralco), under a “subscribe now, pay later” arrangement. We devised a scheme to privatize the metropolitan waterworks and sewerage system (mwss) through competitive bidding.
Lesson 7: Government intervention should be minimal, and only to initiate projects and ensure that market forces and competition would prevail. I firmly believe that whenever government or the law places artificial barriers to competition and market forces, this tilts the playing field in favour of somebody and, consequently, disfavours somebody else who must pay the costs of the privileges of the favoured one.
In such circumstances, it is the poor and under-privileged that suffer the consequences most of the time. Less government involvement, we learned, is better for all concerned. Thus, we aimed for less regulation and less protectionism. We encouraged more productivity and more competition.
The government, nevertheless, does have a role to play: by providing a level playing field under the rule of law, to foster private initiative where there is none, and to channel private initiative to the greater welfare of the community. The government must be thereto provide a shared vision for the nation, but to let that vision be fulfilled and achieved by a free, fair and vibrant citizenry.
Energy policies in the new millennium
The lessons of the power crisis the Philippines experienced years ago instructs us clearly on the need for long-term perspectives and long-term solutions.
In the years to come, government’s effectiveness will be measured in terms of its success in laying the foundations for future administrations to build upon. These foundations will, among others, consist of enabling laws as well as executive orders and programs that respond effectively to constantly-changing and ever-increasing energy demands by the growing economy.
In closing, let me share with you what I said during my inaugural speech in June 1992.1 said to one and all:
“we must begin by telling ourselves the truth: our nation is in trouble and there are no quick fixes for our basic ills. If we are to rise above our problems, we must make hard decisions and resort to swift and decisive reform.”
I still find this worth repeating, like a daily prayer, to myself and to those that would care to listen.
The writer is the former President of the Republic of the Philippines