Major business organizations of the country are urging the government for a "coherent and coordinated strategy" to address power-supply security and non-competitive power rates, and have put forward a list of recommendations deemed to propel industrialization and improve the investment climate.

Nine business organizations-namely, the Philippine Chamber of Commerce and Industry, Alyansa Agrikultura, Chamber of Mines of the Philippines, Employers Confederation of the Philippines, Philippine Exporters Confederation, Semiconductor and Electronics Industries of the Philippines, American Chamber of Commerce of the Philippines, European Chamber of Commerce of the Philippines and the Korean Chamber of Commerce of the Philippines—wrote a letter to President Aquino and underscored two obstacles hampering sustained economic growth: the instability of power supply and non-competitive power rates.

"The National Economic and Development Authority has also acknowledged that we must overcome these challenges if we are to realize the perfect threesome of capital, labor and technology. These, in turn, will accelerate industrialization and bring in significant foreign direct investments that will create employment opportunities for our people," the business groups said.

The groups pointed out that Luzon, the Visayas and Mindanao all face power-supply deficiencies, adding that "no clear and specific supply sources are in sight, other than those various 'commitments' being undertaken on a best-effort basis."

On power rates, the groups, likewise, noted that there is no clear program for achieving reasonable and competitive power rates, further stating that the entry of competition is not sufficient to solve the said dilemma.

The nine major groups drafted a list of recommendations, which they consider key to ad­ dress the challenges. On power supply, the groups proposed:

1. The creation of a national power-supply road map, with specifications of the required power plants, their configurations (fuel type, size, etc.), locations and schedule of operations;

2. A power-supply agreement to be adopted by all distribution utilities as classified and qualified; and

3. A regular transparent and regular supply-bidding process. For competition and competitive pricing, the organizations advocate, among others, increasing the market power of various distribution utilities, in order to create fair competition and increase power-supply security.

Another recommendation is closer cooperation of economic, fiscal, industrial and energy sectors to develop "a competitive tariff sweet spot."

The group also made more ambitious midterm proposals, the first of which is the creation of a market for long-term contracts for power requirements.

In order for the market to be realized, the business groups are proposing to require distribution utilities to contract their forecast energy requirements by 100 percent for the next three years, and no less than 90 percent for the succeeding seven years.

The requirements should then be subjected to competitive public bidding, the business organizations said.

"This policy can create a market for long-term contracts that provide incentives for investment in the generation sector and offer greater protection for consumers from exposure to spot-market volatility. Without long-term contracts, investors will be less willing to build new capacity in a small and undeveloped merchant market," the groups said.

Two other major midterm recommendations are:

1. Creating a forward market for power, wherein standardized forward contracts can be traded. A forward contract is an agreement between generators and distribution utilities to deliver a fixed quantity of electricity at a pre-agreed period within the year at an agreed fixed price. This, said the group, can mitigate price volatility if replacement power is to be supplied by the Wholesale Electricity Spot Market.

The business organizations suggest that the forward market can be established at the WESM or under a trading platform operated by industry stakeholders and duly accredited by the private sector, subject to market rules prescribed by the Department of Energy.

2. The creation of an ancillary services market to have power quality and service reliability required by commercial and industrial users.

Ancillary services are complementary support services that aid the transmission of electricity from its generation site to the customer such as replacement reserve and voltage support.

"We recommend that we require the National Grid Corp. of the Philippines to secure firm contracts for ancillary services; for the ERC to monitor the NGCP's compliance; and for the Department of Energy to set the parameters delineating a role for the National Transmission Corp. in the determination of the levels of ancillary services, the business said groups in their letter.

The group emphasized that the government is enabled enough to address the twin challenges of power supply and power rates without amending the Electric Power Industry Reform Act.

Such a move would slow down the progress of new investments/projects in the power generation sector, the group cautioned.

Source: Business Mirror, 18 May 2014