Energy needs long-term view

Everybody is talking about emergency power to address the power crisis next year. Indeed, our continuing problem is our failure to exit the emergency mode that saw massive power outages at the tail end of Tita Cory’s watch.

I think our problem lies in the inability of our post EDSA officials to have a long-term view of our energy needs. Tita Cory’s mistake was to entrust energy management to a bunch of lawyers led by then Executive Secretary Joker Arroyo who had no appreciation of what it takes to have an efficient energy sector.

All they saw was the nuclear power plant which they abruptly mothballed without providing replacement for the 620 MW they knocked off the system. They also downgraded the Department of Energy to an Office of Energy Affairs.

Succeeding administrations eventually upgraded Energy again to a full department. But with one or two exceptions, the Energy secretaries were less than capable.

On top of that, the powers of the Energy secretary to manage the sector had been vastly diminished with the privatization of Petron. Eventually, the power grid was also privatized and Napocor was effectively scuttled with Epira.

Thus, the Energy secretary is effectively castrated. He retains his vast responsibilities for assuring adequate fuel and electricity supply but he has no real powers to make sure that happens.

Worse, there had been little long-term planning being done and that’s the killer. Energy requires a long-term horizon to make sure we get the investments in capital intensive power plants and related energy infrastructures we need.

When I was with the Energy ministry after it was organized under the late Ronnie Velasco, Gary Makasiar who headed the Planning Service and Tony Anciano, his deputy, were kept busy constantly updating the 10 year energy plan. Because we were under the gun of the Arab oil embargo, our reason for being was to be prepared.

We also managed the demand side a lot. We had a rationing plan for petroleum ready to go. We had programs for more efficient use of energy in industry and households.

On the supply side, we had an aggressive program of building dams, geothermal power plants and tapped other locally available power sources in anticipation of increasing demand.

It is sad to see today how our officials are running around like headless chickens. They are unable to present a credible plan to avert or alleviate next year’s power crisis.

The emergency power being talked about is not a solution. Indeed, I am still wondering how they will use emergency power to respond to the shortage.

They are talking of anywhere from 600 to 800 MW shortage between March and July, depending on the weather. The shortage in March is certain and severe. Depending on how many of the existing power plants get knocked off the grid for one reason or another, we are in for a long, hot and dark summer.

The problem seems short-term but is really long-term. It is only short-term in the sense that we are about to face it soon. But any quick fix is expensive and does nothing to address the continuing long-term needs.

The Secretary of Energy said the more grievous sin is to not do anything. I think the greater sin is to do something ineffective or worse, detrimental. We are in a very pathetic situation because there is no one leader in government who seem capable of fixing our problem.

The left hand of government is even working at cross purposes with its right hand. The Secretary of Energy and the Energy Regulatory Board seem to be at loggerheads on how to approach energy pricing.

The ERC had been caught fraternizing too much with the power companies and sleeping on the job last December. Now ERC overreacted and has placed a rather low secondary cap to the WESM trading rates.

As a result, investors are putting new power plant projects on hold. Only coal and geothermal are viable at P6.245 per kilowatt hour, but these are already contracted base load plants. Those affected by the WESM cap are the peaking plants powered by diesel.

Indeed, even the diesel power generators that the Secretary of Energy hopes to rent for two years under emergency powers will not be able to produce power at P6.245 kwh. That means government must subsidize power rates, endangering its fiscal position. Or find a way to pass costs to the consumers.

With a rather unreasonably low secondary cap at WESM, owners of peaking plants using diesel will not be encouraged to turn on their plants. That will make blackouts a certainty.

And forget new power plant investments. If at all, only coal plant proponents may take the risk. But they face a different problem involving community acceptance as Meralco found out in Subic.

What happened last December was the tipping point. Allowing the WESM rate to hit a high maximum cap of P62/kwh was stupid on the part of ERC. That happened only because ERC didn’t understand, nor did it have the right experts to properly regulate the system. Now ERC swung to the other extreme also because it still doesn’t know what to do.

A way has to be devised so that consumers are not habitually gouged by the energy industry with the connivance of ERC. However, those who invest in power plants should be assured reasonable compensation and return on investment so we will have the supply we need. The NGCP’s rate structure should also be re-examined so that its investment decisions are more attuned to consumer needs.

Someone in government has to worry not just about Summer 2015’s shortage, but also about what happens after that. Malampaya will soon run out. What do we do? Shift to imported natural gas? But that requires infrastructure we must start building now.

Think about replacement power plants too. Ramon Ang told a group of editors and columnists last Monday that they are thinking of junking Ilijan, a 1,200 MW natgas plant now using Malampaya. Ilijan does not have the fuel flexibility of the First Gas power plants that are also using Malampaya.  

Then again, why am I thinking of long-term when government has not even explained to us how they plan to use emergency powers next year? The last time such emergency powers were used, consumers got screwed.

We need an Energy Czar with real powers, not just emergency, to fix everything that’s wrong with our energy situation. We need DOE and ERC working together. We need private energy companies to think beyond easy guaranteed profits the oligopolistic situation allows. They must consider the political backlash from enraged consumers as well.

My big worry is that P-Noy does not understand the complexities of the energy scenario. Of our officials, it seems only Sen. Serge Osmena has a grip of the totality of energy related issues. But what he can do is very limited. He only has legislative oversight function.

Hopefully, the congressional hearings on the grant of emergency powers will help us understand what the general plan of government is. But I am not hopeful they even have a plan at all. And that’s the awful truth.

The flag carrier

First thing Monday morning found a group of business columnists and editors at a conference room in San Miguel. Ramon Ang decided to talk to us, a few weeks after he sold San Miguel’s shares in Philippine Airlines back to Lucio Tan.

RSA said his SMC board gave him a standing ovation after he announced he had received the money, all $1.3 billion of it, from the LT Group. It is obvious RSA will miss PAL, but he said it was time to go. The relationship has soured.

He didn’t want to talk about it beyond saying that he was proud the San Miguel team has turned PAL around to profitability. But when I asked if the airline revenues are enough for the LT Group to raise the money to pay back BDO in three months, he said no. In fact, he said the Tan group will need at least $1 billion in working capital in the next few months… specially for aircraft deliveries.

Hmmm… Lucio Tan used PNB and LT Group shares as collateral to raise the funds from BDO and China Bank to pay San Miguel. Unless Tan brings in money from his China assets, PNB may end up being merged with the already number one bank.

The taipan may have thought  Emirates is an interested buyer but that may not be so. And MVP already rejected the suggestion of Wash SyCip to buy into PAL.

The airline industry has been so volatile that traditional money makers like Cathay Pacific are now in the red. Looks like the price of ego may be a lot higher for the taipan than he bargained for.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco