aderLook
sMirror
www.businessmirror.com.ph | Thursday, January 18, 2018
A7
as PHL grapples with regulatory issues cision of the Office of the Ombudsman to suspend four Energy Regulatory Commission (ERC) commissioners for one year will surely have an impact on financing new power projects. Francisco said this recent development would have an impact on lending, saying the loan would likely not be disbursed or would take a very long time to process due to the suspension of the ERC commissioners. “We can give conditional approval, but usually conditions to lend are based on the ERC-approved contracts,” he said.
Effects to ERC
ERC Commissioners Asirit, Alfredo Non, Gloria Yap-Taruc and Geronimo Santa Ana were found administratively liable for conduct prejudicial to the best interest of the service, aggravated by simple misconduct and simple neglect of duty. “The debilitating impact of the Ombudsman’s decision to suspend the four incumbent ERC commissioners will render the operations of the agency in severe paralysis,” ERC Chairman Agnes VST Devanadera explained. “As a collegial body, the presence of at least three members of the Commission is needed to constitute a quorum to enable the ERC to adopt any ruling, order, resolution, decision or other acts of the Commission in the exercise of its quasi-judicial and quasilegislative functions.” She said the absence of a quorum in the ERC will make it unable to perform any of its quasi-judicial and quasi-legislative functions. Among others, hearings will not be conducted as notices and schedules are set by the Commission and there would be no deliberation on applications for approval of PSAs, capital expenditure of the distribution utilities and the National Grid Corporation of the Philippines (NGCP), for rate adjustments and pass-on charges. Devanadera added that consumer complaints and violations of industry players of existing laws, rules and regulations would not be acted upon.
JITTAWIT21 | DREAMSTIME.COM
Debilitating effect
the country has become more difficult because these are tied to the regulatory approval of their power supply agreements (PSAs), which are deemed crucial by most power producers. In most cases, the total project cost is 70 percent financed by debt, via bank loan, and 30 percent through equity. In the power sector, without an assured buyer of electricity, banks are hesitant to process loans being sought by power firms. The Manila Electric Co. (Meralco), for instance, has seven PSA applications covering a total of 3,551 megawatts (MW) with seven generation companies that are pending with the ERC. ERC Commissioner Josefina Magpale-Asirit had said three Meralco PSAs with Redondo Peninsula Energy Inc. (RP Energy), Saint Raphael Power Generation Corp. (SRPGC) and Atimonan One Energy Inc. are currently undergoing procedural processes. The other three PSA contracts—with Central Luzon Premiere Power Corp. (CLPPC) and Mariveles Power Generation Corp. (MPGC) of the San Miguel Group, and Global Luzon Energy Development Corp. (GLEDC) of Global
Business Power Corp.—are not yet being deliberated on since they still lack environmental compliance certificates (ECCs). The other PSA with Panay Energy Development Corp. (PEDC) was already given a provisional authority by the ERC in July 2016. Magpale-Asirit said it was necessary to issue a provisional authority to PEDC to meet demand requirements in view of the frequent yellow-alert status of power reserves at that time.
Delays cost
THE Meralco said a delay in the approval of these applications and the consequent delay in the financial close and subsequently the commercial operations date of the power projects will adversely affect the utility firm’s ability to meet demand growth in its franchise and overall energy security in the Philippines. Meralco President Oscar Reyes underscored the urgency for the regulators to act on the applications. Reyes said delays will likely affect consumer benefits and will have an impact on project cost if these are not approved soon. “We will see the cost impact over time. The cost impact will mainly be on escalations on the
EPC [engineering, procurement, construction] cost tucked on to the price of EPC,” Reyes said. “Definitely, there is cost-impact to the project; cost-impact to Meralco.” Reyes emphasized the difficulty in putting up a power project. “We have invested substantially already and some negotiations have been as early as 2011 and 2012. So, these are fully negotiated PSAs. And time is money,” Reyes explained. “Every month of delay means higher EPC costs, higher financing costs, higher exchange rates, so it is very detrimental to consumers.” RP Energy and Atimonan 1, for instance, have already shelled out P3.5 billion in development costs alone. An official of Meralco PowerGen Corp. (MGen), the power-generating arm of Meralco, could not emphasize enough the importance of PSA approval, saying that without the PSAs, everything would be at a standstill. “The rates that were locked in for the EPC and those with the lenders will expire soon. This means that if we don’t get PSA approvals as soon as possible, then there will be another new round of negotiations, which means the rate
will likely go up,” MGen President and CEO Rogelio Singson said. “If we can’t agree with existing lenders and prospective EPC contractors, then we may look for another one. So, as much as possible, we want to avoid these external delays.” Reyes claims the PSAs, if implemented, will redound to consumer savings in their electricity bills. For instance, the rate impact of its PSA with RP Energy is projected to be less P0.1327 per kilowatthour (kWh), P0.7799 per kWh for its PSA with Atimonan, P0.2589 per kWh with SRPGC, P0.4678 per kWh with CLPPC, P0.3464 per kWh with MPGC, P0.0188 per kWh with PEDC and P0.5308 per kWh with GLEDC.
ERC mess
BDO Capital & Investment Corp. has already noted a slowdown in the development of power projects, mainly on account of oversupply of capacity. Compared to previous years when there was notably a strong investment appetite in power projects, BDO Capital and Investment Corp. President Eduardo Francisco said the situation now is different. As such, there were fewer bank loan applications. But more important, the de-
ACCORDING to Devanadera, other functions that are on the line include the issuance or renewal of Certificates of Compliance (COCs) or Provisional Authorities to operate power plants. Market suspension will not be declared when warranted, and decisions and resolutions cannot be promulgated and released. She said the operations of the ERC will be affected as personnel actions could not be undertaken. Procurements could not be awarded, especially the ERC meter seals and stickers being placed on electric meters of the distribution utilities, among others. “The Ombudsman’s decision to suspend the four ERC Commissioners will have a substantial impact for the whole country and presents a dangerous regulatory risk that will severely affect the economic and financial environment of the country. That is contrary to the President’s pro-poor policy as the 73.6 million Filipinos will be adversely affected by any nonaction on the part of the ERC,” Devanadera emphasized.
Private sector
ABOITIZ Power Corp. President Antonio Moraza could not agree more. He said there must be an immediate solution soon. “Projects, applications and any other permits or rates from the ERC cannot be decided on, so things will stand still until a resolution is found,” he said in a text message. DMCI Holdings Chairman Isidro Consunji is hopeful that issues will be resolved at the soonest time possible “so they can function properly.” Meanwhile, AC Energy Holdings Inc., the Ayala Group’s business arm in the energy sector, said the ERC commissioners’ suspension “adds a layer of difficulty.”
“Project financing has been a challenge lately due to scarcity of long-term PPAs [Power Purchase Agreements],” said AC Energy President Eric Francia in a text message. “Lenders will likely be looking for sponsor support to enable power investments, and sponsors will need to have rock-solid balance sheets to do this.”
Invest more
DESPITE the setbacks, the government continues to encourage the private sector to invest in the energy sector. An annual investment forum organized by the Department of Energy-Investment Promotion Office (DOE-IPO) was held last December 6. This was the final leg of the series of investment forums held last year. The Energy Investment Forum is meant to provide local and international stakeholders updates on the different investment opportunities, available incentives, financing mechanisms and regulatory framework in the energy sector. Resource persons are distinguished speakers from the DOE, the Philippine National Oil Co., the ERC, the Board of Investments and the financing sector, among others. The event also serves as an opportunity to interact with the different energy stakeholders. “The Energy Investment Forum is an opportunity to share with partners and stakeholders the updates on the DOE’s undertakings, including policy directions and investment opportunities in the energy sector. We are supporting the advancement of the Philippines’ national social and economic agenda, by undertaking policy and market reforms complemented by an active stewardship of the public interest in the country’s energy resources and industries,” Energy Secretary Alfonso G. Cusi said. In his presentation, Cusi discussed the current situation and investment opportunities in the power, upstream and downstream oil and gas, coal, renewable, coal, alternative and biofuels and energy efficiency and conservation. Specifically, he highlighted the DOE’s efforts in crafting a comprehensive and responsive energy mix policy to support and sustain the growing economy while also guiding energy developers on the business environment.
Investor potentials
IN the power sector, for instance, Cusi mentioned about having to classify power plants into baseload (running on 24/7 basis), mid-merit (running on long hours but not 24/7) and peaking (with easy start-up and can be used during peak hours). In this regard, power developers can compete with one another accordingly and can picture the situation in each of the main grid for the kinds of investment needed. According to Cusi, “The Philippine energy sector offers a number of investment opportunities, especially that incentives, sound policy mechanism and regulatory framework are in place,” Cusi stressed. The DOE-IPO has been holding energy investment forums for 12 years now. The Philippines, he added, is attuned with the Asean’s vision of being the bright spot for energy investments and development in the global arena. Cusi stressed the Philippine government is committed to ensure necessary assistance to all energy investors from cooperation partners, and uphold to the government commitments for the benefit of both parties—consumers and the private sector. Meantime, the message is loud and clear: power plants ensure adequate electricity supply to keep up the Philippine economy’s momentum of growth. If these are not built fast enough, the economy and the consumers will likely pay the price.