Energy security worries PH real estate players, manufacturers

Gov’t urged to ensure that ’build, build, build’ thrust has enough power

Business industry leaders made up of corporate manufacturers and real estate developers recently expressed concern over delays being encountered by several power projects that will ensure the country’s supply in the coming years. 

The Federation of Philippine Industries (FPI), which is composed of 34 Industry Associations and 120 corporation manufacturing members, urged the Energy Regulatory Commission (ERC) to act on pending power supply agreements (PSAs) that have been opposed by a concerted group of environmentalists, militant groups and lawmakers,  as well as business interests involved in the Renewable Energy (RE) sector. 

FPI Chairman Dr. Jesus Lim Arranza told the Manila Standard that “energy security is a very important concern for local businesses since all of our members are manufacturers that need stable and reliable supply for their operations.”

The FPI, Arranza explained,  is one with the administration of President Rodrigo Roa Duterte in its “build, build, build” infrastructure program, which can only be supported if the industries work together. “In this case, the energy sector plays a crucial role in ensuring affordable and reliable supply,” he pointed out.

Taking a leaf from Singapore. Growing townships, like this one in Cavite, will need all the reliable, affordable baseload power it can get. 
In a Congressional hearing last week, legislators expressed similar concern over the slow pace of the ERC approval for the PSAs (most of which had been  under  the agency’s scrutiny for the past  year), amidst a backdrop of of supply shortfalls, indicated by yellow and red alerts, which purportedly show that the country’s power supply cannot match the growing needs of economic development, and overall consumer demand.

At one point in the hearing, Congressman Danilo Suarez  confronted the ERC commissioners,  and asked when  the PSA’s would be acted upon since  “it cannot be denied that the country’s baseload is very thin.”

Rough sailing

Big real estate developers, on the other hand  are fearful that large-scale mixed-use projects which are  being explored by more and more industry players —in large part due to tight supply of land in Metro Manila, and the attractiveness of rural-urban fringe areas (more known as the “outskirts”)—could face rough sailing ahead should the lack of sustainable power supply threaten these “townships” that have been sprouting across the country.

“Despite a slowdown in the residential condominium market in Metro Manila, developers will continue to pursue township developments in and outside of the capital,” acknowledged Andy Manalac, former chairman of the National Real Estate Association (NREA) and head of Havitas Developments Corp. 

“For any infrastructure, you need power, that is, reliable and affordable electricity.  But how can you build the necessary infrastructure to support these township developments, and grow the communities where they are put up, if there is no reliable power to sustain them?,” he asked. 

“These developments will remain glorified office parks with condos if development progress is slow,” he warned. “If power is not assured, decent jobs won’t be created, and these townships will not be able to attract highly skilled labor nor businesses to sustain their developments.”

David Leechui, CEO of Leechiu Property Consultants Inc., agreed, stressing that adequate, and affordable power supply  will help industries to to generate jobs “which is the most viable solution  for us who build crucial infrastructure in the  low-cost housing industry.” 

“The more jobs created by businesses, the more affordable the houses become for their workers,” he explained. 

“Go north,south, east, west young man!” Due to tight supply of land in Metro Manila,  real estate developers are pushing the envelope to tap the country’s rural-urban fringe areas, or “outskirts.”. 
Leechiu and others in the low-cost housing business believe their sector faces  one of the biggest challenges, together with the Philippine government.  According to The Philippine Housing Industry Roadmap: 2012-2030, presented by the Subdivision & Housing Developers Association Inc. (SHDA) to the Bureau of Investments (BOI), if nothing is done or no special housing program is created, the country’s housing backlog will reach 6.5 million by 2030. 

A power crisis as envisioned by industry observers, could exacerbate these numbers:  recent reports revealed that the country’s housing backlog is already estimated at 5.7 million.

Speed of infrastructure building in real estate projects, now a worry

From Alabang to Balintawak, from Pasig to Laguna, from Pampanga to the Visayas, construction cranes and earth movers  crisscross the country in an unprecedented 13-year construction boom. With thousands of new office buildings, commercial and condominium developments and housing projects flooding the market, property pundits wonder — can this growth momentum be sustained by the energy needed to power the speed of infrastructure  building  unfolding over the landscape?

One popular urban-rural fringe area is Calabarzon —comprising the provinces of Cavite, Laguna, Batangas, Rizal and Quezon. It boasts the country’s second largest gross regional product at P1.644 trillion and a buoyant real estate market. According to a Lamudi Philippines report, Calabarzon is the Philippines’ second most economically important region after Metro Manila.

Major property developers like Ayala and Megaworld have been investing heavily and creating portfolio growth forecasts well beyond a 20-year cycle. Last year, a joint venture was entered into by and among leading conglomerates Ayala Land Inc. (ALI), SM Prime Holdings Inc., Megaworld Corp. and Aboitiz

 Equity Ventures Inc. They have joined forces to develop the P123.8-billion Laguna Lakeshore Expressway Dike.

ALI is also investing P170 billion to develop a 700-hectare mixed-use estate in Cavite similar to other Ayala projects in Makati, Bonifacio Global City and Nuvali.

Biggest horizontal project

Megaworld is drumbeating its biggest horizontal project to date, the 1,000-plus-hectare mixed use Twin Peaks project in the Tagaytay-Batangas corridor with the first-of-its-kind vineyard concept.

These all point to the possibility that the southern corridor will be the next crown jewel of real estate in the next 10 to 20 years.

The provinces of Laguna, Cavite and Rizal are close to Metro Manila and for this reason, they are popular areas to buy a home for the capital’s millions of workers, according to the Lamudi report. The cities of Bacoor and Dasmariñas in Cavite, San Pedro and Santa Rosa in Laguna, and Taytay, Cainta and Antipolo in Rizal are home to numerous residential subdivisions that offer houses from as low as P1 million in Cainta to as high as P35 million at Ayala Southvale in Bacoor.

The region also boasts a buoyant leisure real estate market, especially Tagaytay City in Cavite and the towns of Nasugbu and Calatagan in Batangas. Vacation homes, condos and beachfront houses within master-planned communities are quite common in these areas, such as Playa Calatagan, Pico de Loro, Twin Lakes and Tagaytay Highlands.

Killing the goose that lays the golden egg?

The building boom has also seen an unprecedented surge in “business parks”, with BPO firms as the  largest consumers of office spaces taking up 37% of available inventories in Metro Manila. From now until 2022, the industry is seen to expand by 9% a year, and along with it, a corresponding increase in office space take-up is expected.

The possible thinning of power supply in the coming years, and the resulting energy security threat this poses on the Philippine economy, looms as a dark cloud over the prospects of the BPO industry.

As it stands, BPO firms in the Philippines already operate at a 6% cost premium versus those operating in India. This is due to higher wages and office rentals. With the additional burden of unsustainable power supply, and the resulting higher electricity bills, coupled by the need for additional working capital, the cost differential between India and the Philippines could widen to 15%, effectively obliterating Philippine competitiveness. 

Exacerbating the situation is the relative ease to duplicate BPO operations in other locations. With this, the Philippines could face massive closures and outward migration of BPO firms.

The industry could lose occupants for 3.2 million sq.m. of existing office space and some 850,000 square meters of take-up over the next three years. This could cause Metro Manila’s vacancy rates to balloon to over 30% by the year 2020 on a worst case scenario. 

To compromise the competitiveness of the local BPO industry will have far reaching effects not only on the property market, but to the entire economy.

Manalac noted that the BPO industry employs some 1.3 million people most of whom have adopted skill sets that have made them globally competitive. They generate $24 billion in export revenues that help balance our current account. BPOs are present in 26 cities nationwide, and have proven to be the most potent instrument for community development and inclusive growth. 

“In the last  15 years, the BPO industry has spawned a new middle class while igniting the retail, education, transport, and housing sectors in the cities it operates in. All these are put at risk under the cloud of weak energy security,” he said.

These gains would likely be derailed, Manalac said, by a return to the crippling  blackouts during  the 1990s, which drove the Philippine economy close to collapse.

“The culprit then was the failure to build power stations when they were needed most,”  he said.

ERC ‘enjoined’ to act fast

FPI’s Arranza told the Manila Standard that they have enjoined the ERC to act fast on the more than 90 Power Supply Agreements (PSAs) pending with the commissions since April last year.

“We welcome the continued push of the Department of Energy (DOE) to streamline the processing of energy projects that will ensure energy security,” Arranza said.

President Duterte issued on 30 June 2017 Executive Order (EO) No. 30, creating an Energy Investment Coordinating Council (EICC) led by the DOE.

The EICC was tasked to lead national government efforts to harmonize, integrate and streamline regulatory processes, requirements and forms relevant to the development of energy investments in the country.

Arranza said both the government and private sector have long been pushing for energy projects to be tagged as “Projects of National Significance.

“That is why we are concerned on the reported delays of several projects because of the lack of PSA approvals,” he added.

FPI said the delays in the approval process significantly affect the development of baseload power plants, which can produce reliable electricity 24/7. These plants take around three to four years to build.

“Power plant developers should start constructing their projects now to ensure that we will have sufficient supply that will support the country’s economic growth,” Arranza said.

Topics: Federation of Philippine Industries , PH real estate players , manufacturers , Energy Regulatory Commission , power supply agreements
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