Privatisation Powers Ahead

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This month, the government said it expected to meet its target of providing electricity to the whole country by 2008. A statement by the department of energy said a total of 39,955 barangays (villages) across the country now have access to electricity, leaving just 1,990 more still to be connected. Of those, 1,106 barangays are scheduled to receive power this year.

Rural electrification is one of the key elements of the government's aim to draw investment into the energy sector to improve its performance and boost the economy. To reach its target of bringing electricity to rural areas, the government has estimated that $96m is needed to finance the projects of the implementing entities. Of this amount, almost $38m is expected to come from the private sector, with the rest to be contributed by the government.

Power consumption has been growing rapidly from 26,327 Gigawatt hours (GWh) in 1990 to 56,568 Gwh in 2005, according to government statistics. The pace is expected to continue, with rapid growth of electricity demand in the residential, commercial and industrial sectors forecast by the Philippines Energy Plan 2005-2014. Demand will be driven by higher population numbers, increased agro-industrial activity, as well as booming sectors such as mining, telecommunications and commercial and residential construction.

The Philippines has one of the highest electricity costs among the countries in the Association of South-East Asian Nations region, a factor that impacts industry and potential foreign investment. The privatisation of the power sector, by selling off National Power Corporation (Napocor) assets, is seen as key to overcoming the challenge of providing consumers with a reliable and secure electricity supply at an affordable price.

In 2001, legislation was passed to encourage greater competition and efficiency in the electricity sector. The law limits the ownership of generation assets by a single owner to only 30% of the generating capacity within a single grid, thus ensuring competition.

To date though, of the 21 generating plants, only 6 of Napacor's 4000MW assets due to be sold have been privatised.

A report by the World Resources Institute released in May 2007 concluded that the Philippines must improve transparency and public participation in its electricity sector to provide citizens with affordable, reliable and clean energy. It criticised the government for the lack of parliamentary or legislative involvement in the development of policies relating to independent power producers (IPPs) and for its lack of any tariff impact analysis. It said that the Philippines had contracted new projects with IPPs despite warnings from the World Bank that new plants might lead to an excess in electricity supply that the government would be obliged to purchase, thus possibly further increasing electricity rates.

The government has announced hopes of privatising half of the country's power plants and all of the national grids by the end of the year. These include the 660-MW Masinloc coal-fired power plant, the 600-MW Calaca coal-fired plant, and the 75-MW Ambuklao and 100-MW Binga hydroelectric plants.

The National Transmission Corp (TransCo) is also expected to be up on the bidding block again this year in the form of a 25-year concession. Transco was put up for auction in February but it failed to meet the minimum requirement of two formal bids. An investor road show has been planned for Singapore and London later in the year to encourage interest.

In May, President Gloria Macapagal-Arroyo issued priority instructions to the appropriate government agencies to ensure the successful sale of TransCo and the Masinloc power plant.

The Masinloc plant is again up for bidding after the consortium that initially won the bid in 2004 failed to make any payments. Twenty-two investor groups have expressed interest in the plant and 20 of these attended the early May pre-bid conference held by the government's Power Sector Assets and Liabilities Management, an agency tasked with handling privatisation matters. The auction is expected to take place in July. The winning bidder is assured of a ready market for the plant's output as a transition supply contract is being included in the sale.

The chief operating officer of Aboitiz Equity Ventures, Erramon I. Aboitiz, told the local press this month that the company views the privatisation program as a "huge opportunity". He said the company is interested in the Masinloc power plant in the province of Zambales and the Binga and Ambuklao power plants in Benguet. "Over the next three years we will have equity requirements of roughly $322m to $430m if we are successful in our acquisitions," said Aboitiz.

AEV is the country's second largest power distributor owning five distribution utilities. In April, SN Aboitiz Power, a joint venture between AEV and its Norwegian partner SN Power, took control of the 360 MW Magat hydroelectric power plant after placing the winning bid of $530m.

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