MARINDUQUE POWER OUTAGES - PART 3

(Photo: Upper tier of Bulusukan Falls, Buenavista)







TRACKING DOWN OUR POWER MISERY & MYSTERY

I have previously posted, that based on a “consultation meeting” with the Department of Energy and Napocor that transpired in 2004, (ref. NPC letter Sept. 4, 2009 to Marelco), the Marinduque Electric Cooperative, Inc (Marelco), OPTED to have its New Power Provider (NPP) in the promulgation of DOE Circular No. 2004-01-001.

The word “opted” was used in said NPC’s letter asking about the status of the privatization of power generation in Marinduque. This appears to suggest that the electric cooperative could have, instead, just opted to allow NPC to continue with its mandate to provide electricity in Marinduque, as provided for in the law.

What does the EPIRA Law (Electric Power Industry Reform Act) state exactly on the matter concerning missionary electrification areas where Marinduque falls under? After seven years of congressional debate and litigation, this Act came into force on June 26, 2001. The act has three main objectives: 1) to develop indigenous resources; 2) to cut the high cost of electric power in the Philippines; and 3) to encourage private and foreign investment. Passage of the Act set into motion the deregulation of the power industry and the breakup and eventual privatization of state-owned enterprises.

Section 70 of said EPIRA Law states the following under its provision for Missionary Electrification:

"SEC. 70. Missionary Electrification. – Notwithstanding the divestment and/or privatization of NPC assets, IPP contracts and spun-off corporations, NPC shall remain as a National Government-owned and -controlled corporation to perform the missionary electrification function through the Small Power Utilities Group (SPUG) and shall be responsible for providing power generation and its associated power delivery systems in areas that are not connected to the transmission system. The missionary electrification function shall be funded from the revenues from sales in missionary areas and from the universal charge to be collected from all electricity end-users as determined by the ERC.

Marelco GM Eduardo Bueno during the July 6, 2009, public hearing held at the provincial capitol expressed, in response to a question about the status of the power supply agreement contract with 3i Powergen, in part: “.. base rin sa Epira Law na 70% ng assets ng National Power Corporation ay ibebenta na sa private sector, 70% except iyong mga areas under ng SPUG na mandated under Section 70 ng Epira Law, Missionary Electrification”

Could we then reconcile this with the DOE Circular No. DC 2004-01-001 (“SPUG Circular”)? Read on.

Said circular set the policy framework for private sector to takeover from NPC-SPUG the role of generating power in off-grid areas.

Under this Circular, gradual opening of all 74 SPUG areas are to be opened up to Private Sector Participation, with 14 as the First Wave Areas. Marinduque was No. 3 on this list. On 12 February 2004, the DOE issued Department Circular No. DC 2004-01-001:

Prescribing the Rules and Procedures for Private Sector Participation (PSP) in Existing NPC-SPUG Areas. The Circular is pursuant to Rule 13 of the Implementing Rules and Regulations of the Electric Power Industry Reform Act of 2001 (EPIRA-IRR) and is premised on the following:

1. Declared policy of the State to ensure and accelerate the total electrification of the country.
2. DOE’s mandate to issue specific guidelines to encourage the inflow of private capital through participation in missionary electrification.
3. NPC-SPUG’s mandate to periodically assess the prospect of bringing power facilities to commercial viability and encourage private sector participation thereat.
4. Reduction of the burden of UC-ME whose missionary electrification component is used to fund such function of NPC-SPUG.

To move forward with the privatization of SPUG areas, the DOE, PSALM, and NPC engaged the International Finance Corporation (IFC) as transaction advisor to assist in the development of appropriate privatization program and selection of new power provider (NPP). The IFC supposedly have conducted pre-engagement surveys to the aforementioned areas. (EPIRA POWER TRACKER, Privatization of NPC-SPUG)

Pursuant to the said Circular, the IFC (International Finance Corporation), as designated Transaction Advisor would advise the Government on the introduction of private participation in power generation in missionary areas by way of divestitures of Power Supply Agreements (PSAs) between SPUG and Electricity Cooperatives (ECs), in favor of new power providers (NPPs).

IFC was to ensure a fair, transparent and competitive selection
process to attract private sector participation, to assist the Philippines to speed up implementation of its missionary electrification program.

Private Sector Participation in NPC-SPUG Areas

The SPUG areas below were opened for the Private Sector Participation (PSP) program of the DOE:

Romblon; Tablas; Marinduque; Catanduanes; Masbate; Mindoro; Palawan; Cebu; Bantayan; Siquijor; Camotes; Basilan; Sulu and Taw-Tawi.
Project Description:

Private Sector Participation (PSP) in Power Generation through Competitive Selection Process as envisioned by DOE would lead to:

Reduction in the total cost of generation; Major improvements in reliability of supply, with a 24/7 supply; Elimination of SPUG's contribution to NPC's deficit; Reduction in the total Missionary Electrification subsidy required.

Concession Structure:

New Private Providers (NPPs) will take over NPC-SPUG generation
functions through a 15-year Power Supply Agreements with Electric Cooperatives (ECs):

For the 1st pilot areas (Hybrid of Bunker and Wind)
- Marinduque – 12MW
- Romblon – 2MW
- Tablas – 6MW

We then track down a report from DOE’s Epira Power Tracker web stating thus: (Status Report No. 7 covering period May-October 2005):

“The provision of electric generation services in three major SPUG areas were recently offered to the private sector through a competitive bidding process. The bidding covered an aggregate rated capacity of 24 MW in the following areas:
• Marinduque
• Tablas
• Romblon

The bidding, which was supervised by the International Finance Corporation, drew two interested parties, namely: Coastal Consortium and MTR Power Corporation. The bidders’ first envelopes (technical proposals) were opened 25 August 2005 and the financial bids on 5 September 2005. Coastal Consortium offered a lower electric generation service cost and emerged as the winning bidder on the opening of the financial proposals.

(Photo: View of Mt. Malindig from Pulang Lupa Historical Site)

The rest of SPUG-served areas for private sector participation/with New Power Provider (NPP) are the following:

• Bantayan Island - Bantayan Island Power Corporation;
• Oriental Mindoro, mainland Palawan and Catanduanes – Power One Corporation;
• Marinduque, Tablas and Romblon Islands – Coastal Consortium;
• Occidental Mindoro, Camotes and Masbate – opted for SPUG to determine the NPP, but IFC will also handle their NPP selection;
• Siquijor – opted to select its own NPP;
• Basilan, Sulu and Tawi-Tawi – IFC will also handle the selection of their sole NPP (similar to Marinduquie, Tablas and Romblon)

Now, it’s COASTAL CONSORTIUM being identified by the DOE website as the “winning bidder on the opening of financial proposals”. Curious, we look again for answers elsewhere and find this report from IFC MEDIA HUB:

“Competitive Bid To Privatize Electricity Supply in Marinduque, Romblon and Tablas” In Manila by Karen Villalobos

“Manila, September 9, 2005 — The Philippine Department of Energy and the International Finance Corporation, the private sector arm of the World Bank Group, today announced that a consortium comprising of Coastal Power Development Corporation and Applied Research Technologies Philippines won a competitive bid to supply power to the Philippine islands of Marinduque, Romblon, and Tablas. The winning bidder proposed a hybrid diesel-wind energy solution that will improve standards and bring the generation into compliance with Philippines environmental standards.

”Private sector participation was structured through a concession-type contract between the winning bidder and local electric cooperatives that take the power on these islands. The framework of this concession does not require the private supplier to buy existing generation assets of the National Power Corporation, allowing those assets to be deployed to unserved areas in the Philippines.

”The winning bidder’s price will lead to a reduction of about 40% from the current cost (13.8 pesos per kilowatt hour) of generating power in the islands. The Coastal Power Consortium agreed to provide power without interruption all year long, compared with the current average interruption of 196 hours, or eight days, per month. The group bid to provide 25 megawatts of combined electric capacity to the three islands not connected to the national power grid.

”IFC was charged with developing the agreements and a regulatory framework to attract private sector capital and expertise to power generation in remote islands. IFC was retained in 2004 by the Philippine government through the Department of Energy, National Power Corporation, and the Power Sector Assets and Liabilities Management Corporation to act as transaction advisor.

”The Coastal Power consortium will take responsibility for power supply from the Small Power Utilities Group, which is part of the National Power Corporation. SPUG has maintained responsibility for supplying power to 74 remote off-grid islands. The annual subsidy requirement for all these islands amounts to 2.1 billion pesos. Only about 60 percent of that cost is covered by a universal service charge assessed to on-grid customers. The remaining 40 percent is passed on to the national deficit through NPC.

”The Private Investor will be able to supply electricity to the 3 islands at a lower cost than the current government-managed operation and thus reduce the annual subsidy for electricity from 458 million pesos to 168 million pesos.

“IFC strategy includes support for power sector reform in the Philippines through increased private sector participation that promotes competition. The interest in this transaction provides tangible results for the ongoing power reform agenda in the Philippines,” said IFC Country Manager Vipul Bhagat.

“This model public-private partnership structure, wherein the investor achieves full cost recovery and profits from the electric cooperatives and partially through government subsidy, can be replicated for other infrastructure transactions in the Philippines and elsewhere,” said IFC Director of Advisory Services Bernie Sheahan."


“POWER HOTLINE” The Official Weekly Publication of the Corporate Communication Division, National Power Corporation. Vol. 13 No. 38, October 3, 2005, then came up with the following headline story:

"COASTAL POWER TO SUPPLY POWER TO THREE OFF-GRID ISLANDS"

"The privatization of the operations of the National Power Corporation’s (NPC) Small Power Utilities Group (SPUG) has scored a breakthrough with the recent award to Coastal Power Development Corporation of the concession to supply electricity to Marinduque, Romblon and Tablas.

"Coastal Power and its partner, Applied Research Technologies, won the competitive selection process conducted last August by the International Finance Corporation (IFC), the investment arm of the World Bank (WB). Last September 27, Coastal Power signed a Power Supply Agreement with the local electric cooperatives from the three island-provinces that are currently distributing power to the said areas.

"With the said development, Tablas, Romblon and Marinduque – which are among the 14 islands identified by NPC as priority or “first-wave” areas for privatization – are now assured of round-the-clock electricity supply. Based on its bid, the Coastal Power consortium will provide a combined 25 megawatts to the three islands at a cost of P. 7.17 per kilowatt-hour. The group had proposed to put up a hybrid diesel-wind energy facility that is scheduled for commissioning by end-2006.

"NPC President Cyril C. Del Callar hailed the entry of the private sector in missionary electrification, saying “This is part of a determined program of the Department of Energy and NPC to turn over to the private sector the generation of power in 14 islands.”

"At the same time, President del Callar noted that the said move will result in operating cost savings of P. 1.5 billion per year for NPC, which may be used for the electrification of an additional 7,500 barangays throughout the country over a five-year period.

"NPC has been producing power at an average of P12 per kWh in the SPUG areas but is selling this electricity aat a heavily-subsidized rate of P4.20 per kWh, resulting in losses of P7.80 per kWh. Under the privatized set up, the new power producers will sell electricity at an average of P7.00 per kWh, to approximate the true cost of power generation based on fuel.

"For her part, Energy Undersecretary Melinda Ocampo said the private-sector participation in missionary electrification would enable the government to deliver on President Gloria Macapagal Arroyo’s commitment to continue bringing power and progress to more remote areas in the country without increasing the burden of the missionary electrification charge on electricity consumers nationwide.

"The entry of Coastal Power in the three first-wave islands is in compliance to DOE Circular No. 2004-01-001, which prescribes the guidelines for private sector participation in the missionary electrification areas being services by SPUG. Among other provisions, the DOE directive mandates the periodic assessment of the requirement and prospects of bringing power generation and associated power delivery systems to commercial viability on an area-by-area basis, including a program to encourage private-sector participation.

"Aside from Marinduque, Tablas and ROmblon, the other first-wave areas for privatization are Occidental and Oriental Mindoro, Palawan, Catanduanes, Masbate, Bantayan Island, Siquijor, Camotes Island, Basilan, Tawi-Tawi, and Jolo."

(to be continued)