Non-Privatization of the Agus and Pulangui Hydroelectric Power Plants in Mindanao
For Republic Act No. 9136, the Electric Power Industry Reform Act of 2001 (EPIRA), for which there are pending bills for amendment in the Senate, we propose that the amendments will include a revision of the pertinent provisions of EPIRA so that the existing hydroelectric power plants on the Agus River in the Lanao provinces and the Pulangui River in Bukidnon would continue to be excluded from the privatization of the assets of the National Power Corporation.
Section 47(f) of the EPIRA provides that the Agus and Pulangui hydroelectric complexes “shall be excluded from among the generation companies that will be initially privatized”, and that the complexes “may be privatized not earlier than ten (10) years from the effectivity of this Act”. The section also mandates that “the privatization of Agus and Pulangui complexes shall be left to the discretion of PSALM Corp. in consultation with Congress.”In March 2009, the Power Sector Assets and Liabilities Management Corporation (PSALM) announced that: “Preparations for the sale of the Agus and Pulangi hydropower complexes will commence by the second half of 2009, with the actual asset sale to be conducted in 2011.”
We propose that Section 47(f) be amended to prevent the privatization of existing hydroelectric power plants on the Agus and Pulangui rivers, and continue ownership beyond 2011 of these hydro plants by the government of the Philippines.
Having the government continue to own the Agus and Pulangi complexes enables attainment of the main policy objectives of the EPIRA, which are enunciated in the Statement of Policies of the R.A. 9136, with respect to the supply of electricity in Mindanao, as follows: (a) making the supply of electricity affordable, and (b) maintaining a regime of free and fair competition in the supply of electricity. By contrast, the privatization of the Agus and Pulangui would result in high rates and would make it difficult to establish a regime of fair competition in the generation of electricity in Mindanao.
Continuing Ownership by Government of Agus and Pulangui Will Ensure Affordability of the Supply of Electricity in Mindanao
The prices of the supply of electricity in Mindanao will be kept affordable by continuing to maintain the Agus and Pulangui complexes under government ownership. We could define “affordability” of the price of electric power generation in Mindanao as average price of generation in Mindanao that is significantly lower than the average prices of generation in Luzon and the Visayas. This situation now prevails in the prices of electric generation in the Philippines. The present average generation charges approved by the Energy Regulatory Commission for NPC power plants, in pesos per kilowatthour, are as follows: 4.3648 for Luzon, 3.7255 for the Visayas, and 2.8177 for Mindanao. It could be said, therefore, be said that the supply of electricity in Mindanao is affordable at present. Our proposal for the non-privatization of the Agus and Pulangui complexes will maintain the affordability of supply of electricity in Mindanao.
The lower average rates for Mindanao comes from the fact that the regulated generation charge for the production of the Agus and Pulangui hydro plants is around one peso per kilowatthour (P1.00/kWh). The estimated generation charges for the non-hydro generation plants (coal, oil, and geothermal) in Mindanao at present would be around 3.64 pesos per kWh at the current ERC-approved average charge of 2.8177 pesos per kWh , assuming that the energy generation mix is 50 percent for hydro generation. In the year 2008, the Agus and Pulangui hydro plants supplied 55 percent of the total electric energy requirement for Mindanao. In recent years in the past, the hydro generation mix reached greater than 60 percent.
With the government retaining ownership of the Agus and Pulangui hydro plants, the rates of electric generation from the Agus and Pulangui hydro plants would continue to be regulated by the ERC using the present method of rate determination. In that case, the rates for the hydro plants could continue to be kept at the same level of around one peso per kilowatthour. This in turn would to keep the average rates affordable (i.e., lower than for Luzon and the Visayas) for the supply of electricity in Mindanao, even when the other generation plants of the NPC are privatized and additional requirements for generation are supplied by new power plants. For example, if all non-hydro generation plants of the NPC in Mindanao were privatized with their prices reaching the prices of new conventional power plants in Mindanao, which is estimated at around 4.50 pesos per kWh, the average prices of generation in Mindanao would be 2.75 pesos per kWh with the Agus and Pulangui contributing 50 percent to the total generation.
On the other hand, if the Agus and Pulangui complexes were privatized along with the other power plants in Mindanao, the price of their generated electricity would go up to level that would be just lower than for new hydroelectric power plants in Mindanao, which is estimated to be around 4.80 pesos per kWh for the most economical plants. That would immediately bring average rates for generation in Mindanao to levels higher than the current average generation rates for NPC owned and NPC-IPP plants in Luzon and the Visayas. Mindanao would lose the competitive advantage offered by the low-cost generation from the Agus and Pulangui hydroelectric plants.
Continuing Ownership by Government of Agus and Pulangui Will Maintain a Regime of Free and Fair Competition for Existing Non-Hydro Plants and for All Incoming Power Plants
The existing hydroelectric plants in the AgusRiver, consist of six different plants, with a total rated capacity of 727 MW, which is around 40 percent of the total rated capacity of 1,749 MW of all power plants in Mindanao which have been operating in 2009. In the first six months of 2009 the Agus plants supplied 44 percent of the average capacity supplied by all power plants in Mindanao. If all power plants in Mindanao were privatized, the six hydroelectric plants on the AgusRiver would have to be owned by one entity because they are most economically operated as a single system. The single owner of the existing Agus plants would dominate the electric generation market in Mindanao, and would have competitive advantage over all the other power plants.
Keeping the Agus plants out of the electric power market after the privatization of the non-hydro power plants of NPC would enable all the other power plants in Mindanao, both the existing non-hydro plants and incoming new power plants, to compete fairly with each other in the supply of bulk electric power. None of the power plants could have the market dominance that the Agus plants would have if they were privatized.
In addition, with the low-cost generation of the Agus and Pulangui hydroelectric plants excluded from the market for bulk power generation, the production of the other electric power plants could be sold at their “true price” or at the marginal-cost price, and still keep the average rates for electricity affordable for customers in Mindanao. This happens because the electric consumption of each customer would consist of, say, 50 percent from the low-cost hydro plants and the rest from the other power plants whose production would be sold at true price. If the rates for the Agus-Pulangui generation were held at 1.00 peso per kWh, and the true price for other power plants were 5.00 pesos per kWh, the effective price paid by the customer would be 3.00 pesos per kWh.
The Agus and Pulangi complexes now provide more than 50 percent of the total supply of electricity in Mindanao. If total demand for electricity grew at current estimated rates of five percent annually, the Agus-Pulangi complexes would provide around 30 percent of the total requirement after ten years. As long as the production of the Agus and Pulangui complexes is kept out of the market for electricity, the average rates for electricity in Mindanao would remain significantly lower than the true price of the supply of electricity from other power plants. Consequently, even after a competitive market for electric generation is established in Mindanao, the supply of electricity in Mindanao would remain affordable, being lower than the prices of electricity in Luzon and the Visayas, where there would be competitive markets for bulk supply of electricity that would keep prices at their true price or marginal-cost price.
In summary, then, the non-privatization of the Agus and Pulangui complexes will enable the establishment of a competitive market for bulk supply of electricity in Mindanao, and at the same time keep the average price of electricity in Mindanao significantly lower than the prices in Luzon and Visays.