Bloomberg News

Aquino Sweats to Solve Mindanao Power Failure: Southeast Asia

May 09, 2013

Philippines' President Benigno Aquino

“In Mindanao, we have a power shortage brought about by neglect for too long a time,” Benigno Aquino, the Philippines' president, said in a May 8 interview. “There is already a demand and there will be more of the demand once the framework peace agreement is completed, the whole process is done and we have peace.” Photographer: Julian Abram Wainwright/Bloomberg

Shrinking water levels threaten to cut Mindanao’s power supply by as much as a third just as President Benigno Aquino seeks to convince voters he’s reducing electricity shortages in the Philippines’ second-biggest island.

The water elevation at Lanao Lake, which powers the 700-megawatt Agus hydroelectric plant, may decline this month and require state-run National Power Corp. to cut output from the facility supplying more than a third of the island’s electricity, it said on April 8. Factories and shops must shut May 13 to ensure voting precincts have power for nationwide elections, Energy Secretary Jericho Petilla said May 8.

Power shortages are threatening $1 billion of investments sought by Mindanao, the southern island where Muslim guerillas agreed in October to end a 40-year insurgency. Subsidized electricity that costs almost half as much as in Luzon, the main island, is fueling demand while discouraging construction of new plants and leading to rolling blackouts. Aquino, who has three years remaining in his single six-year term, is campaigning to increase his support in elections for the Senate.

“The people of Mindanao can no longer rely on hydroelectric plants if they want stable power,” said Francisco Viray, president of Trans-Asia Oil & Energy Development (TA) Corp. and a former energy secretary. Mindanao is home to 19 of the nation’s 44 poorest provinces. “At some point, they will have to accept that power prices will rise.”

Luzon Blackouts

Parts of Manila and half of the island of Luzon were hit by a power failure May 8 that lasted as long as 10 hours, prompting Aquino to order a probe. Homes and businesses in Mindanao, which accounts for about a fifth of the Philippine economy, faced 12-hour daily power failures during the El Nino year of 2011 when Lake Lanao almost dried up. Zamboanga City on the island had eight hours of blackouts in March, twice as much as in the final quarter of 2012.

“The Mindanao situation for years now is like being in a room that’s already burning and nobody is rushing to get water or call for help,” Pedro Rufo Soliven, president of Zamboanga City’s chamber of commerce and operator of a three-story department store in the city, said in a phone interview.

Mindanao is home to a quarter of the Philippines population of about 100 million. The nation needs 3.2 trillion pesos ($78.4 billion) of investments in power generation to ensure it will have sufficient electricity by 2030, according to the latest Philippine Energy Plan.

Cheap Power

“In Mindanao, we have a power shortage brought about by neglect for too long a time,” Aquino said in a May 8 interview. “There is already a demand and there will be more of the demand once the framework peace agreement is completed, the whole process is done and we have peace.”

A 2001 law reforming the Philippine power industry allowed National Power to sell its plants to help pay $16.4 billion of debt. Mindanao’s plants weren’t covered by the law and remained government-owned to keep down power rates. As power remained artificially cheap, investors were deterred from building generating plants, according to Viray.

National Power’s generation price in Mindanao is about 3 pesos per kilowatt-hour, compared with about 5.70 pesos in Luzon and 4.60 pesos in Visayas, according to data from its website.

“This focus on maintaining cheap power in an unsustainable manner also scared away investors, who did not have the confidence to set up alternative-power resources in Mindanao,” Aquino said in a speech on April 17, when a unit of Filinvest Development Corp. (FDC) committed to build a 270-megawatt coal-fired plant in Misamis Oriental province.

While Aquino inherited the situation, he hasn’t done much to solve it, Benito Lim, a political science professor at the Ateneo de Manila University, said by phone. Shortages started during the administration of the late President Corazon Aquino, Benigno’s mother, when she scrapped power contracts forged by Ferdinand Marcos, according to Lim.

Elections

The Commission on Elections requires National Power to keep supply stable for a week starting May 13, when half of the Senate and all local officials will face voters. Mindanao’s dependable power capacity stands at 1,399 megawatts, compared with the 1,183 megawatts of demand forecast during the vote.

Aquino, who has the support of almost three-quarters of voters, is using his popularity to expand his support in the 24-member Senate. The 53-year-old president signed a pact with the rebel group Moro Islamic Liberation Front on Oct. 15, quelling a rebellion that has killed as many as 200,000 in Mindanao and blocked companies from tapping mineral deposits valued at about $312 billion.

New capacity from companies including Aboitiz Power Corp. (AP) and Energy Development Corp. (EDC) are set to start boosting supply as early as 2014, according to data from the energy department. Manila Electric Co. (MER), the nation’s largest power retailer, said it’s planning a 300-megawatt coal-fired plant in Mindanao.

Until the new plants come on line, electric utilities can use power purchases to augment supply, Petilla said in March. That may be too late for this summer, he said.

To contact the reporter on this story: Cecilia Yap in Manila at cyap19@bloomberg.net; Norman P. Aquino in Manila at naquino1@bloomberg.net

To contact the editors responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net; Lars Klemming in Singapore at lklemming@bloomberg.net


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