The delay in the completion of current and future infrastructure projects under the government’s ‘Build Build Build’, including the building of modern and environmentally-friendly baseload power plants, combined with the weakening of the peso, is resulting in the increase of the cost of construction materials in the Philippines.
Construction materials hike
The increase in prices of construction materials in Metro Manila averaged 1.5 percent in the first half of 2018, according to data released by the Philippine Statistics Authority (PSA).
Based on the Construction Materials Retail Price Index (CMRPI) in the National Capital Region, the average hike in construction-material prices in 2017 was higher than the 1.3 percent posted in the same period in 2017.
The CMRPI tracks the price of 102 commodities classified into seven major groups—carpentry, electrical, masonry, painting and related compounds, plumbing, tinsmithry and miscellaneous construction materials.
Spiral effect
While a weak peso is good for the country’s export industry, and for Filipinos with relatives working overseas due to a higher peso-dollar exchange rate, it is pulling up investment costs to power plant projects. This particularly true for new, or greenfield developments, where a number of engineering, procurement, and construction (EPC) contracts are still ongoing negotiations, or yet to be awarded.
Large generation companies (Gencos) are concerned that the increase in EPC or overall project costs of power plants might create spiralling effect on electricity consumers.
Some of these gencos have power projects in the pipeline, primarily those who still have pending regulatory approvals on their power supply agreements (PSAs), a crucial government permit to start construction of power plant.
Industry sources say almost everything is in place for the building of these plants, from financing, EPC, BOI (Board of Investments) approval, connection agreements with the National Grid Corporation of the Philippines, LGU (local government unit) support, and O&M (operation and maintenance) joint venture agreements. What is missing, observers say, is for these gencos to commence construction of their respective power plants pending the Energy Regulatory Commission’s approval of the PSA’s.
Replace ageing plants
There is a need to build more power plants to replace the country’s our aging plants to ensure the country has energy security to support future economic expansion.
Currently, about 60% of the country’s operating power plants are older than 15 years, or more than half its lifespan of 25-30 years.
