DEMAND AND SUPPLY - Boo Chanco (The Philippine Star) - May 1, 2019 - 12:00am

As I was writing this column, a red alert was declared again by NGCP. That seems to be the new normal these days.

I was looking for a word to best describe the state of mind of government energy officials responsible for our situation. Then I remembered my Collegian editor-in-chief, the late Miriam Defensor Santiago.

Catatonic. Senator Miriam used catatonic to describe the paralysis-by-analysis situation that characterized P-Noy’s approach to infrastructure development.

So here it is: Catatonia is a state of stupor or unresponsiveness in a person who is otherwise awake. We should also add… and pretending to be doing something with no intention of delivering anything soon to the public.

Take the example of the flurry of contract signings and groundbreakings on supposedly Build Build Build projects. Read the press releases and you might get catatonic too with boredom. Heard it all before. Puro da-da!

The power crisis is real. According to ERC chair Agnes Devanadera, there are 3,600 megawatts (MW) of expected power capacity additions stranded by delayed approvals on their power supply agreements (PSAs).  But she said none of those affect the current power shortage because those are expected to deliver in 2020 and 2021 yet.

The ERC chairperson blamed being “understaffed” for their backlog. There are 85 PSA cases, she said, that are pending. They have just 14 technical staff to process all the applications.

Yet, when I talked with Energy Undersecretary Jesus Posadas, he said, government has been urging the private investors to close the gap between power supply and demand for the longest time. Actually, they should have given ERC the budget and the manpower for that to happen.

True, the ERC is independent of the DOE, but they are part of the same government responsible to the people for the supply of the same service: electricity. I am sure DOE has staff to spare, assuming they have the qualifications ERC needs. 

When Icot Petilla was energy secretary, he worked closely with ERC and even crafted the rule for distribution utilities to publicly bid out their requirements for utmost transparency. No sweetheart deals with sister companies.

As I explained last Monday, the other bottleneck must also be addressed: LGUs. ERC may approve but if the LGUs refuse to cooperate by quickly granting construction permits, we still have a big supply problem.

A DOE led task force to work with problem LGUs would have been good. Actually, DOE isn’t doing much under the current system and they could show some usefulness to the taxpayers by helping investors get their projects through faster. 

But government is a complex organism. Like a hydra, it has many arms going in all directions. One arm can cause serious problems for everyone.

Take the case of COA insisting that the Malampaya consortium must pay income tax amounting to P50 billion inspite of PD 87 that expressly exempts it. Because of that ruling, an arbitration case was filed in Singapore, a waste of time and money. 

I heard the arbitration panel unanimously ruled in favor of the Malampaya consortium. The ruling is as it should be. 

PD 87 was patterned after similar oil exploration and development contracts of some of our ASEAN neighbors. It is a production sharing agreement.

It is assumed that so-called “government take” from the deal covers all including income taxes. It was crafted that way because we have to attract the international oil industry to explore for petroleum deposits here.

Oil exploration is a very risky business requiring large amounts of capital. We only had a few commercial hits and not very big at that. Only Malampaya was truly a significant one. Without those generous incentives in PD 87, Malampaya may not have even been discovered.

If the current government doesn’t appeal the arbitration ruling, the Malampaya consortium can immediately apply for an extension of its service contract that is due to expire soon. Shell is confident that the life of the Malampaya reserves can potentially be extended for five or even 10 years.

That’s good news. Since government owns a huge quantity of “banked gas” in Malampaya, it is to their interest to make sure the reservoir is not damaged or all that could be lost. That means, extending the contract of the current Malampaya consortium makes sense.

But the government mind works in insidious ways. Government decision makers can favor a crony or the Chinese offshore oil company to take over. Since they don’t know the gas field that well, the reservoir may be damaged and make a sure thing go bust.

It happened in Malampaya before. Then PGMA overruled the experts at DOE and shamelessly overturned the results of an international public bidding to develop the incidental oil rim of Malampaya.

PGMA gave it to a rent-seeking crony with no oil experience or capability who probably wanted to turn around and sell the “right”. An experienced multinational oil company won the international bidding DOE conducted.

In the end, we got no oil out of it. There was just a short window to develop it. It also must be handled by someone with experience and technology otherwise the reservoir pressure could be lost. We lost it. We also lost face in the international oil industry.  

The other good thing about extending the life of the Malampaya reserves for at least five years is we don’t have to rush those large investments on new LNG facilities. We may really need more time to get the right one done in a right way. We don’t want a white elephant or one that will cost consumers more than it should.

But the chances of government making a bum decision is high. We have energy officials appointed to jobs way beyond their capabilities. We can see that in the way our energy sector is managed today… one crisis after another.

Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco 

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