Energy Secretary Alfonso Cusi faces at least three major energy issues he will have to deal with early on in his job. He has little time in his learning curve due to the gravity of the issues that may well define his energy career.
First on his agenda is the latest arbitration case filed by Shell Philippines Exploration B.V. against the government. Shell lodged the new arbitration case against the government at the International Center for Settlement of Investment Disputes regarding a tax dispute over the Malampaya gas project in northwest Palawan.
Cusi’s intial response over the matter was rather weak and ambiguous, and tended to be populist. “This issue is not the concern of the Department of Energy nor of the Executive branch alone. The Supreme Court, the Commission on Audit and even Congress have a stake here, too,” says Cusi, sounding more like a politician than a technocrat. “Ultimately, whatever mandate each branch or agency has, our bottom line is one and the same: to serve the best interests of the Filipino people.”
Cusi missed the point entirely. Shell is suing the Philippine government because Manila is reneging on the oil service contract system based on a law governing the exploration of fossil resources in the country.
Spex filed the case against the Philippine government to challenge the interpretation of the Commission on Audit in the computation of the 60-40 sharing of the proceeds from the Malampaya gas project. Such sharing system is spelled out in the oil service contract system that dates back to the regime of the late Ferdinand Marcos.
The Energy Department of former President Benigno Aquino III in a position paper argued the CoA decision “sent a very wrong signal to the existing and future petroleum exploration investors in the country.”
“The trust and confidence of foreign investors in the stability and certainty of our investment laws and regulations that the government, for a long period of time, has painstakingly built and nurtured, has been greatly damaged,” the department, which Cusi now heads, said earlier.
Burning coal issue and FIT
Cusi will also have his hands full grappling with the quixotic pronouncements of Environment Secretary Gina Lopez, who is bent on prioritizing renewable energy over fossil fuels like coal in approving permits for new power plants.
Cusi, this time, stood his ground against Lopez. The controversial environment chief has favored the construction of wind, solar and geothermal projects to take advantage of falling production costs and minimize carbon emissions.
But the Philippines, according to Cusi, could not afford to forego of the cheaper coal.
“We have to find that balance, not everything can be renewable,” he said. Coal accounted for 45 percent of the country’s electricity output in 2015, with natural gas at 23 percent. Geothermal, hydro and other renewable sources accounted for about 25 percent.
Lopez’s predilection for renewable energy sources is understandable. Electricity produced by renewable energy companies need not be expensive anymore, so says Solar Philippines chief executive officer Leandro “Lean” Leviste.
With the renewable energy market reaching maturity, Leviste’s group has reduced solar power costs by 50 percent from the level a few years ago.
Leviste’s statement simply implies that renewable energy no longer needs any subsidy from the government. Such subsidy is in the form of the so-called Feed-in-Tariff Allowance (FIT-All), an incentive given to generation companies to encourage them to build RE facilities. It is collected from power consumers long before they are able to enjoy the benefits of RE, which include lower rates and cleaner environment.
Cusi must now intervene and review the policy regarding FIT-All and make the necessary adjustments to protect consumers, especially the marginalized, from expensive electricity costs borne by the subsidy enjoyed by renewable companies.
Generation companies rushed the building of new RE facilities to meet the March 2016 deadline under the FIT. Leviste correctly pointed out that many of these companies failed to use the best technology, resulting in the grant of subsidies that merely encouraged inefficiency.
Companies wanting to join the RE space should take their time to optimize their design and installation, and reduce the cost of energy production, which should ultimately lead to lower power rates for the consuming public.
While RE promises benefits to the consumers in the long run, it will help if it reflects the true cost of power, which is around P4 per kilowatt-hour. And it will help the RE players to follow the lead of Leviste in not relying on costly subsidies like FIT-All that will lead to higher rates. All they have to do is be more efficient in their design and operations.
Cusi, meanwhile, has conceded that while his department would continue to develop the renewable energy industry, coal was still needed in the power mix to provide stable energy supply. Coal-fired plants remain viable as long as they use the latest technology to minimize emissions.
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