The Philippines’ energy sector underwent a significant evolution from being purely state-owned into an investor-led industry in the past three decades.
Thirty years ago beset by hour-long brownouts that almost crippled the economy. Officials blamed the brownouts on the shutdown of the Bataan nuclear power plant amid safety concerns.
With country on the brink of economic collapse due to lack of power, the government rushed to sign power purchase agreement or PPAs with independent power producers. This was seen as the first wave of large power investments.
The government, learning from the lessons of the 1990s, saw that there was a need to implement significant reforms in the power sector.
Thus the Electric Power Industry Reform Act of 2001 was born and heralded a new phase in the power industry. The EPIRA called for privatization of government assets which paved the way for the entry of billions of dollars worth of private sector investments.
The Power Sector Assets and Liabilities Management Corp. was created under the EPIRA to manage the assets and liabilities of state-owned National Power Corp., whose debts have ballooned as a result of government subsidies.
PSALM sold off Napocor’s assets, dissolving its monopoly in the industry and gave birth to new investor faces in the power industry. Proceeds from the privatization were used to pay for Napocor’s debts.
The government also privatized the country’s transmission network, allowing for a more efficient and more responsive power grid.
The EPIRA also created the Energy Regulatory Commission, giving it stronger powers as regulator of the power industry. It also created the Wholesale Electricity Spots Market or WESM, operated by the Philippine Electricity Market Corp. The WESM acts as the country’s trading floor of electricity.
Other significant reforms of the EPIRA include the implementation of retail competition and open access or RCOA, which gives consumers the power to choose its own supplier.
The passage of the Renewable Energy Law in 2008 also ushered in more investments in the power sector. It gave incentives to the renewable energy players through the feed-in tariff scheme which provides for a fixed rate per technology source over a 20-year period.
Today, the Philippines has a robust power sector but demand continues to grow thus there is a need for continuing investments to ensure long-term supply.
The new administration is now bent on implementing pro-consumer reforms that would eventually bring down power rates.
Downstream Oil Industry
More than 30 years ago, the Philippines subsidized the downstream oil industry to shield consumers from the high oil prices due to the Oil Price Stabilization Fund.
Faced with a depleting fund the lawmakers passed the Oil Deregulation Law of 1998, to avoid further losses. This saw the entry of new players in the oil industry. It also mandated oil refiners to lost their shares on the stock market.
The passage of the law was meant to foster market competition and government from interfering at the same time preventing with pricing.
In 2006, government recognized the need to pass a law that would reduce the country’s dependence on imported fuels while protecting public health and the environment.
Diesel blended with coco-methyl ester was introduced while gasoline was blended with ethanol.
At present, the country is enjoying the fruits of a deregulated oil industry as market competition has made pump prices more transparent and reflective of world oil prices, while giving consumers the power of choice.
Oil and gas exploration
In 1990, Service Contract 38 was signed. Two years later, the consortium found substantial gas and oil in the Malampaya structure in northwest Palawan.
Like many other industries, the oil and gas exploration industry suffered during the 1997 financial crisis as there was less funding available.
The Malampaya deep-water-to-power project commenced operations in 2001, providing for 2,700 megawatts of additional capacity to the Luzon grid fueled by natural gas.
There has been no significant petroleum discovery after the Malampaya gas project although the Galoc oil field—also in northwest Palawan—remains in production.
The oil and gas industry’s growth is anchored largely on the movement of world oil prices, As oil prices go up, more companies explore for oil and gas.
Today, the search is on for the next Malampaya, but this has been hampered by the ongoing territorial dispute with China. There are high hopes for the Recto Bank under service contract 72, but the project remains under suspension pending a resolution of the dispute.