Privatization is key

Power outages are expected, especially this summer when the supply-demand gap thins. However, the massive blackout that hit Mindanao on April 5 did not fall in that category.

While the Department of Energy investigates the cause of the island-wide outage, initial reports indicate that the problem started at the old Agus-Pulangi hydroelectric complex, which supplies more than half of the power requirements of Mindanao. National Grid Corp. of the Philippines, operator of the transmission backbone across the country, initially reported that the trip-off occurred in Agus 6 and 7 plants. This, in turn, affected a major grid line that plunged the whole of Mindanao into an unscheduled blackout early on Easter morning.

Those watching the Mindanao power scene will recall that the entire island also went dark on Feb. 27, 2014, when the output of the 210-megawatt coal-fired plant of Steag State Power Inc. in Misamis Oriental fell to 160 MW and a circuit breaker at the Agus 1 plant malfunctioned. With the two events occurring less than two minutes apart, 870 MW of power supply dropped from the grid as safety-system shutdowns were triggered in other power plants to prevent frequency-related damage.

Herein is the main problem besetting Mindanao’s power sector. The government, through National Power Corp., continues to operate the Agus-Pulangi complex despite the law mandating its privatization. The Agus hydropower complex in Lanao del Sur has seven units cascading downstream from Lake Lanao and generates about 700 MW while the Pulangi hydropower plant in Bukidnon produces 255 MW.

For years the private sector has called on the government to sell its power-generating facilities in Mindanao to spur competition in the region. Only by privatizing state-owned power plants in Mindanao will the private sector be encouraged to invest in additional generating facilities. The Electric Power Industry Reform Act (Epira) of 2001 mandated the privatization of Napocor’s plants so the government could settle the company’s mountain of debts. But the Epira exempted Mindanao’s major power plants, particularly the Agus-Pulangi hydropower complex, from the privatization program for a 10-year period to maintain the region’s cheap rates. The legal restriction on selling the Agus-Pulangi power complex ended in 2010, but efforts to privatize it have been opposed by Mindanao politicians and those who benefit from the cheap power rates on the island. The result is that while Luzon and the Visayas have a competitive power market that has encouraged investments from developers such as Ayala Corp., San Miguel Corp., Aboitiz Power and the Metro Pacific group, Mindanao suffers from regular outages due to unstable supply.

Privatizing Mindanao’s power facilities is undoubtedly a complex proposition, but it can be done. One plausible formula has been espoused by businessman Guido Alfredo Delgado, a Mindanao resident who headed Napocor during the Ramos administration. He acknowledged that the hydro plants with a combined capacity of more than 900 MW were too large to sell to a lone owner as the sale would result in a near monopoly, yet selling the complex in pieces would be similarly problematic and complicated. Imagine seven different companies operating seven power plants running on water from Lake Lanao.

However, Delgado believed that there was a viable option that would keep consumers’ interests in mind without sacrificing the efficiency of private-sector funding and management. His proposal would require the state-run Power Sector Assets and Liabilities Management Corp. or PSALM to enter into 25-year power supply agreements before even starting to sell the hydro plants. The purpose is to “lock in” the low price of hydroelectricity by way of a contract. This should benefit the existing customers of Napocor—electric cooperatives, private utilities and directly connected industries.

A suggested privatization scheme is through the sale of shares of stocks similar to what the government did in the case of Petron Corp. In this way, ordinary Filipinos—particularly those in Mindanao—can end up being part-owners of the Agus-Pulangi complex.

It is imperative that the remaining power facilities still in government hands be privatized and modernized. But privatizing the hydropower complexes, as Delgado had pointed out, must always bear consumers’ interests in mind, far above those of private investors and the government.