Electronics executive bullish on ‘build’ mantra

posted September 09, 2017 at 06:01 pm
by  Joel Lacsamana
The semiconductor and electronics industry, one of the pillars of the Philippine economy, has expressed full support for the Duterte government’s plan to spend as much as P8 trillion on infrastructure over the medium term.

An industry spokesperson, however, said to sustain the projected 6 percent to 7 percent gross domestic product growth, the country would need more quality power supply, and all the more for the ‘Build, Build, Build’ program under “Dutertenomics”, which seeks to construct modern bridges and roads, mega subway systems and world-class airports and seaports in the next 10 years.

“The government  is doing a good job attracting investors and doing tax reform, but in terms of other reforms, it would be nice to see incentives to promote investment in additional power generation plants,” Dan Lachica, president of the Semiconductor and Electronics Industries in the Philippines Foundation Inc.,  told the Manila Standard in an interview.

“It takes a long time to build power plants, and while we support the government’s  P8 trillion infrastructure thrust, we have to realistically address  problems like summer brownouts because we don’t have adequate power to support our GDP growth,” said Lachica. 

“Maybe the DOE [Department of Energy] can provide a clear roadmap for energy supply security at low cost, and incentives for new investments in power,” he said.

Extra effort to remove obstacles

SEIPI members include local electronics and semiconductor companies, as well as multi-national firms, all of whom have an aggregate power consumption of about 500 megawatts. 

Semiconductor and Electronics Industries in the Philippines Foundation Inc. president Dan Lachica
The semiconductor and electronics  industry is a top export performer with a 51.3 percent share to total exports in 2016 worth $28.8 billion. Likewise, electronics contributed 17.7 percent to the manufacturing gross value added, the second largest manufacturing sector in terms of GVA. “More importantly the Philippine electronics industry has generated about 2.6 million direct and indirect employment,” said Lachica.

The SEIPI head warned that a number of companies in the electronics industry have opted to expand their businesses outside the Philippines amid the country’s prohibitive cost of power and lack of quality supply.

Last month, SEIPI issued a statement that the sector is hampered, not only by the global slump in demand, but also by expensive power.

A heavy user of electricity, electronics account for a third of the country’s exports and employs 557,000. But growth, Lachica said, has been flat in the past two years.

Lachica said SEIPI expects a turnaround this year, as new factories start operating and shipping overseas, including makers of mobile phone chips and microprocessors for computers. He said growth would hinge on the quality and cost of electricity in the country.

Amid the domestic economy’s expansion, SEIPI is monitoring the status of several big-ticket power projects, noting that some of these projects are facing legal and policy hurdles. 

“Given the uncertainty, SEIPI believes there is a need for government to exert extra effort and remove the legal and policy obstacles affecting these infrastructure projects,” he said.

Cost, quality are main power concerns 

Lachica said a stable and reliable power supply plays a significant operational component of SEIPI member companies. Any power interruption has a crucial effect on their output and productivity levels. 

Cost and quality of power supply are the two major power concerns of their members, according to the SEIPI head. 

About 8 percent to 20 percent of their operating costs are spent on power supply, which Lachica said is a significant chunk of their overhead. To ensure ample power supply, these companies build redundancy by setting up backup generators, including participation in power cost management programs such as Meralco’s ILP [Unterruptible Load Program) scheme.

“For an electronics company, it’s not just the [materials] supply part that is important but obviously, they also want to efficiently plan out what the cost of power will be over a period of time, as well the utilization part of it.,” Lachica said. “This is the reason we partnered with Meralco for energy efficiency.” 

A clear energy security roadmap, the SEIPI head said, “would  allow the industry to effectively compete with neighboring countries for a share of the semiconductor and electronics market.”

More plants needed

With  recent unscheduled brown-outs due to earthquakes and breakdown of several power plants, coupled with the government’s economic gameplan  to build large infrastructure, the Philippines needs modern, environmentally-friendly baseload power plants, but these are not being built fast enough, Lachica said.

For example, the privatization of state-owned power plants under the Electric Power Industry Reform Act is hobbled by the tedious documentation of government-owned land on which the plants were built.

A number of crucial coal-fired power plant projects have been met with lawsuits slapped on them by environmentalists. These have severely crippled completion timelines.

Delays in the approval process not only cause setbacks in the development of these power projects – which takes about three to four years to build – but also pose a threat on energy security, and most importantly constitute a drag on the nation’s economic growth.

Prioritizing big plants

Sen. Sherwin Gatchalian, chairman of the Senate committees on energy and economic affairs, recognizes that the problem which stymies the country’s economic development is the low power capacity of the Philippines in general, and some big islands, in particular.

During his first committee hearing looking into “institutionalizing energy projects as Projects of National Significance,” he noted that there are many big committed and indicative power plants lining up for investment, but they often face challenges in securing the necessary permits and licenses.

One of the papers he received complained that regulatory permit approval in Philippine electricity generation showed that on average, “power plant operators need to secure 162 clearances and 102 permits.”

Gatchalian is currently looking into crafting a bill which will prioritize these big power plants (P3.5 billios or higher in capitalization) for faster approval process.

Gatchalian is also studying a proposal that would give agencies 30 days to check documents submitted; if they fail to act on time, it is deemed that the papers are approved and permits are automatically granted.

Confusion over RCOA scheme

Adding to the long process of securing a permit, the current situation at the Energy Regulatory Commission ( The ERC only got a P1,000 budget for 2018  from the House of Representatives  last week, ostensibly for its being embroiled in corruption allegations), is causing delays in the approval of agreements between electric cooperatives and power suppliers, as well as confusion because of its less than consistent policy decisions.

More specifically, SEIPI  told the Manila Standard that the semiconductor and electronics industry would be put in a disadvantageous position should the Supreme Court rule in favor of the Department of Energy and ERC omnibus motion to lift a temporary restraining order on the implementation of ‘mandatory contestability’,  and the shift to the Retail Competition and Open Access scheme.

The omnibus motion  seeks to clarify if the DOE/ERC can lower the threshold to 750 kilowatts on a voluntary basis and if the ERC can issue retail electricity supplier licenses.  

Last February, the SC issued a TRO ruling  on the mandatory migration of large power consumers to RCOA. End-users with at least one megawatt usage were scheduled to shift to RCOA last February. while users with at least 750-kw demand was supposed to migrate in June.

The  ERC maintains that a mandatory transition would actually develop the market which would bring in more competition and allow more freedom of choice for consumers.

The RCOA is one of the provisions that have yet to be implemented in the 16-year-old Electric Power Industry Reform Act of 2001 (RA 9136). It aims to institutionalize competition in the supply of electricity, allowing the electricity end-users to choose their suppliers based on low price and other factors.

Industry status imperiled

“We are concerned that once the TRO on RCOA is lifted, distribution utilities will no longer have their own RES,” said Lachica. “We have high load factor members with existing RES contracts with DUs. What will happen to these contracts if the TRO is lifted?”

The SEIPI head warned that companies in the fast-growing industry will be left ‘stranded’ and unable to re-negotiate for lower RES contracts in the event ERC is successful in banning DUs’ RES. 

SEIPI member companies will have no option but to enter into agreement with the lowest available ERC-licensed RES without any guarantee of getting reliable and efficient power supply, he said.

“We believe that we should allow the market to drive the market condition in defining electricity pricing,” Lachica said. “Power rates were pegged 4.50/kWh previously, but owing to prevailing market condition, we are now seeing it at 3.50/kWh. It shows that RCOA or voluntary competition is working. The [electronics/semicon] industry’s position is to maintain that condition.”

Another part of the ERC petition that baffles the SEIPI head is the commission’s request to have the SC clarify if they can issue new RES licenses. 

“This part is confusing. It seems that what ERC is asking is to have a prerogative to issue new licenses. But they already have that regulatory power including the ability to limit the threshold to 750kw under the voluntary, even without the clear pronouncement of the high court,” Lachica said. 

Topics: Semiconductor and electronics industry , Duterte government , Infrastructure , Dan Lachica
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