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.org Telefax: 9263139 Electric Power, Oil and Gas: Lifeblood of industrialization for sale Introduction

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Energy is a necessary factor for industrialization and the Philippines is rich in a variety of fossil and renewable energy sources. Despite this no significant industrialization activity has taken place in the country. If we look at the distribution of energy sales (1999), 90.8% of the total energy sales go to households and small businesses (residential and commercial) while only 8.2% is coming from sales to industries. This implies two things: that the country lacks industries to utilize the production of energy and it is the consumer of electric power (mostly households and commercial buildings) that are most affected by rate increases. The privatization of Napocor through the Electric Power Industry Reform Act of 2001 or the Power Act therefore has direct implications on the people's daily routine (since electricity is a basic utility) and has long term strategic implications on our national development. Electric power is a basic service that is needed by households in everyday activities and is equally important for industries to operate. The failure of the government to provide electric power was evident when the country faced massive blackouts in the late 1980s and early 1990s due to a shortage of power supply. The response of the government to this power crisis was not to build the necessary infrastructure to meet the demand but to contract out power generation to independent power producers or IPPs. Furthermore, it has made steps to privatize the whole power industry effectively abandoning its role in providing electric power services and opening up the power industry to private companies. The Philippines is rich in its natural resources even in its new and renewable energy. We have enough resources and alternative sources of energy to sustain the needs for pubic utility services. But even though our country has potential and rich in energy resources the government fully opens the opportunity to foreign and private investors to build, develop and operate our energy resources and the whole industry, in which the only aim is to gain more profit and get incentives from the government like tax holidays, incentives in exporting materials for their use and many more. Thus, our energy industry program is under the framework of privatization and globalization. This means that our government will fully open to the foreign and big local investors the control to explore, develop, exploit and plunder our natural resources including the NREs, natural gas and oil for the sake of getting more profit, that would result to the ever worsening poverty situation of Filipino people. EPIRA is a mechanism that would push to our energy industry into privatization. This policy gives those foreign and individual investors the power to control the NRE through the Independent Power Prodicers (IPP,s) and Small Power Utility Group (SPUG) of NAPOCOR. It also includes the P177 Billion potential investment in renewable energy for 2004 to 2013 and the 60% of P295 Billion renewable investment. The Shell Petroleum Exploration of Malampaya is one example selling our national patrimony. These was being controlled by Shell at 45% and Chevron Texaco at 45% and the remaining 1O% that the government wants to sell in KEPCO that are all foreign corporation. Energy sources of the Philippines

The Energy Information Administration of the Department of Energy of the US has enumerated the following main sources of energy in the Philippines: geothermal, hydropower, coal, oil, and natural gas. All of these contribute to the countrys energy production, which is concentrated in the electricity sector. The Philippines is also rich in Renewable Energies. Being an archipelagic country with abundant agricultural and renewable resources, there exist bright prospects and greater opportunities for NRE development, utilization and promotion in the country. Renewable Energy refer to energy sources that can be obtained from continuously recurring energy processes and cycles in the natural environment including energy sources from waste materials and

the technologies that utilize these energy sources. Example of this energy are the following, energy that come from flowing water (hydropower), the energy from the heat of the sun (solar energy) , waste material energy (biomass energy), geothermal energy and energy coming from the wind (wind energy). Aside from these sources, we have also proven reserves of fossil fuels and indigenous sources such as the coal, natural gas and oil. (Ex. Malampaya natgas) Oil production in the country remains flat and far below oil consumption. Oil consumption on the other hand has been increasing since 1986 up to the present. Despite small proven oil reserves, companies, like Australia-based Nido Petroleum (formerly Sydney Oil Company Drilling and Exploration), that are into oil explorations in the northwest and southwest Palawan Basin, the Cagayan Basin, and other small concessions elsewhere in the country believes that significant quantities of oil may be recoverable. The Philippines has 2.8 trillion cubic feet of proven natural gas reserves. In the largest natural gas development project in the country and one of the largest-ever foreign investments in the country, Shell Philippines Exploration (operator, with a 45% stake), Texaco (45%), and the Philippine National Oil Company (PNOC, 10%) has tapped the Malampaya natural gas fields estimated 2.5 trillion-cubic-feet reserves. Gas from Malampaya will fire three power plants with a combined 2,700MW capacity for the next twenty years, and could replace as much as 50% of the oil that the Philippines currently imports for power generation. Coal is the Philippines largest source of fossil energy production but 82% (1998) of total coal consumption is imported. Geothermal power accounts for the countrys largest share of indigenous energy production, followed by hydropower, coal, and oil and gas. The Philippines is the worlds second largest producer of geothermal power, after the United States. The country is located in the volcanically active Ring of Fire. As of April 2000, Geothermal power makes up around 17% of the Philippines installed generation capacity, most of which has been developed by the Philippine National Oil Company-Energy Development Corporation (PNOC-EDC). The Philippines does have significant amounts of hydroelectric potential. The most notable development, the Agus units, has been built at the Maria Cristina Falls on northern Mindanao, which makes for 32% of the countrys total hydroelectric power as of December 1999. Hydroelectric power on Luzon accounts for the largest share to the total hydroelectric power generation (1,280 MW, 56%). According to EIA, electricity demand is expected to grow almost 9% per year until 2009, necessitating almost 10,000 MW of new installed electric capacity. As of 1999, the total electric power generation is 12,050 MW. The National Power Corporation (Napocor) provides a total of 5,400 MW (45%) of electricity while various independent power producers (IPPs) provide the remaining 6,650 MW. Southern Energy, a wholly owned subsidiary of Consolidated Electric Power Asia Ltd. (CEPA) of Great Britain, is the Philippines largest IPP and operates five power plants in the country. Southerns new coal-fired Sual plant began commercial operation in late 1999. The 1,218-MW plant is about 130 miles north of Manila and reportedly is the nations largest electricity producer. Napocor is the sole purchaser of Sual electricity. Texas-based El Paso Energy International and Hawaiian Electric Industries in February 2000 formed a 50-50 joint venture to own and operate five power plants now owned by East Asia Power Resources Corporation, a public Philippine company. The total generation capacity of the ventures holdings will be 390 MW. The plants are located in Manila and Cebu. Actually, there is an oversupply of power generated by the Napocor power plants and those of the IPPs combined. Honoring its Power Purchase Agreements (PPAs) with the IPPs, the NPC had to retire the operations of its power generating plants to accommodate the higher priced power generated by the IPPs. The current demand for power is only around 7,000 MW while the total supply is 11,000 MW. Indeed, the Philippines is rich in energy sources and it seems that explorations for such resources is endless. In late 1999, the Philippine and Spanish governments agreed to a plan whereby Spain

would assist in bringing solar power to some of the Philippines rural areas. Finland plans to help fund a project to electrify 10,000 homes in the rural Antipolo area with methane generated by the San Mateo landfill, following the landfills December 2000 closure. In cooperation with the Netherlands, the Philippine government is planning to expand its wind energy capacity. DOST estimates that wind resources could generate 70,000 MW of power. NEW and Renewable Energy Energy POTENTIALS Natural gas in the Philippines Natural gas was the fastest-growing fuel in year 2000 [5], with global consumption rising by 4.8 percent, the highest growth rate since 1996. On the other hand, gas production rose by 4.3 percent worldwide in the same year or more than twice the average of the preceding decade. At current production levels, world gas reserves are expected to last for another 61 years, compared to only 40 years for oil. A presentation by the Department of Energy [3] reveals many things about how abundant the Philippines is in so-called hydrocarbons resources including oil and natural gas. According to the presentation, the Philippines has two existing gas fields; the 3.7 trillion cubic feet (TCF) Malampaya gas field near Palawan and the 2.7 billion cubic feet (BCF) San Antonio gas field in the Cagayan Valley. One can see also that, aside from the 3.8 TCF of discovered natural gas reserves, the country has about 8.1 TCF of hypothetical (mapped) and 16.6 TCF speculative (unmapped) natural gas resources totaling to around 24.7 TCF of natural gas in undiscovered resources in 16 petroleum or sedimentary basins around the country (see Figure 4). Based on a joint study by the Philippine Petroleum Resources Assessment Project (PhilPRA), the Department of Energy (DOE) and the Norwegian Agency for Development Cooperation, the Philippines has 16 petroleum basins with estimated total resources of about 28.5 TCF of gas. These are located in Northwest and Southwest Palawan, Central Luzon, Cotabato, Agusan-Davao area, Sulu Sea, West Luzon, Ilocos, the Bicol Shelf, the Reed Bank, and the Iloilo-West Masbate area. Of the total resources, 3.8 TCF have already been confirmed in wells that have been drilled, mainly in the Camago-Malampaya gas field, while another 8.1 TCF have a high potential of being found in wells that have yet to be drilled. The natural gas industry of the Philippines is currently made up of the following: The Malampaya gas field, which is being developed and operated by the consortium of Shell (Philippines) Exploration BV (SPEX), Texaco Philippines Inc., and the Philippine National Oil Company-Exploration Corporation (PNOC-EC) A gas field in San Antonio, Isabela, which is being developed and operated by PNOC-EC A 504-km subsea pipeline from the Malampaya gas field to Tabangao, Batangas, constructed by SPEX The downstream market consisting of the combined-cycle gas turbine (CCGT) plants in Ilijan, Sta. Rita and San Lorenzo towns in Batangas; and a three-megawatt power plant in San Antonio Electricity consumers in Luzon, where the output of the gas-fired power plants is being sold PNOC-EC owns and operates the 3-MW San Antonio gas-fired power plant and sells its output to a rural electric cooperative in Isabela. The project structure for the Malampaya Gas-to-Power Project, on the other hand, has a more complex arrangement. Specifically, the SPEX-Texaco-PNOC/EC Consortium has a 20-year Service Contract with the government for the development of the Malampaya gas field, including the construction of the pipeline that will bring the gas to a landing site in Tabangao, Batangas. Apart from the Service Contract, the Consortium members also have individual gas supply and purchase agreements (GSPAs) to supply gas to the three power plants under the Malampaya project. For the Ilijan plant, for instance, NPC will supply gas to KEILCO, a project company of the Korea Electric Power Corporation, for conversion into electricity under an Energy Conversion Agreement (ECA). FGHC, for its part, sells the electricity output of the Sta. Rita and San Lorenzo power plants to the Manila Electric Company, an affiliate company, under long-term Power Purchase Agreements (PPAs). All in all, the structure governing the Malampaya project demonstrates how market participants can

secure the risks of investing in a large-scale project in a new market through an array of institutional and commercial contracts. The wholesale gas and electricity prices specified in these agreements were negotiated among the parties, but the retail tariffs that will be charged by Meralco to its own customers are subject to regulation by the Energy Regulatory Commission (ERC). By formulating a comprehensive policy and regulatory framework, the DOE hopes to institutionalize other measures to minimize the investment risks and transaction costs resulting from such a complex arrangement and thus encourage more investments across the gas industry chain. a. The Malampaya Gas Field With proven reserves of almost three trillion cubic feet (TCF) of gas, 85 million barrels of condensate, and two billion barrels of oil, the discovery of the Malampaya gas field in 1989 presented an opportunity for the large-scale use of natural gas in the Philippines. Apart from the promise of long-term energy supply, the Malampaya gas field brings other significant benefits to the country. In terms of investments, the $4.5-billion Malampaya Gas-to-Power Project represents the single biggest investment package to-date in the Philippines. It calls for the upstream development of the gas field, the construction of a 504-kilometer offshore pipeline from Palawan to the onshore gas processing plant in Tabangao, Batangas, and the construction of associated downstream facilities, consisting of onshore pipelines and three power plants with a combined installed capacity of 2,700 megawatts (MW). These are the 1,200-MW combined-cycle plant of the National Power Corporation (NPC) in Ilijan, the 1,000-MW Sta. Rita and the 500-MW San Lorenzo plants of First Gas Holdings Corporation (FGHC), all located in Batangas. As far as the economy is concerned, the use of the Malampaya natural gas translates to significant foreign exchange savings of as much as $4.5 billion from displaced oil importations. As the owner of the gas field, government will moreover earn roughly $8.1 billion in royalties during the 20-year development period of the said resource. These funds can then be channeled to other crucial socioeconomic services like education, housing, health and livelihood projects.

Geothermal Potentials According to DOE our country is the second largest consumer of Geothermal Energy worldwide which consume 1,909.23MW. In the year 1999 the countrys geothermal energy generated 10,557 gigawatt-hours (GWH) electricity. Base on the record in 1999 aside from 1,909.23MW used geothermal energy, there still 2,047MW potential energy reserves and it can go up to 4, 790MW potential energy reserves. (DOE Website) At present there are two companies conducting exploration, the Philippine Geothermal, Inc. (PGI) which based on US UNOCAL, California and Philippine National Oil Company-Energy Devy.Corp. (PNOC-EDC) a state own company. These two companies works on research and developing Geothermal Fields. This is also where the NAPOCOR buys their energy powers. Part of their plan is expanding the scope of the sources of steam for geothermal plants. The Arroyo government through the DOE pushes for the privatization of our energy resources. There is a massive expolaration and studies on those possible areas for geothermal plant. Target project of DOE (1999-2008) Locations Mambucal, Northern Negros Montelago, Oriental Mindoro Mt. Labo, Camarines SurNorte and Quezon (pinagsama) Batong Buhay in Kalinga Tinoc-Hungduan in Ifugao Mt. Cabalian in Southern Leyte Bato Lunas in Leyte Amacan in Davao Potentials 40MW 16MW 21MW 20MW 120MW 110MW 60MW 40MW

Wind Energy The country, which is situated on the fringes of the Asia Pacific moonsoonal belt, exhibits a good potential for wind energy. The Philippine Atmospheric, Geophysical, Astronomical Services Administration (PAGASA) data showed that the national average mean wind power density is about 31 watts per square meter (W/m2). Moreover, the data indicated that Region I has the highest potential for wind energy applications with an annual wind power density of 88 W/m2. Other regions with good wind regimes are Regions VI, CAR, V and III. More specifically, the sites that have been identified as areas with high potential for wind energy utilization are Ilocos; Mt. Province; Cuyo Island; Basco, Batanes; Catanduanes; Tagaytay City, Lubang and Cabra Islands off the Northwestern coast of Mindoro, western portions of Batangas, Guimaras, Masbate, northeast coast of Negros Occidental and Palawan. Wind energy involves the transformation of rotational mechanical energy from the wind to mechnical or electric power. The country has a good potential for wind energy applications. As of 1999, there were about 368 recorded units of operational windpumps and 9 wind turbine systems throughout the country. Multi-bladed windpumps have been in the country since the beginning of the century. They are mostly used for irrigation of agricultural farms and for domestic water supply. Currently, there are seven local manufacturers and suppliers fabricating and marketing windpumps in various areas in the country. A wind resource analysis and mapping study was conducted for the Philippine archipelago by the United States National Renewable Energy Laboratory (US-NREL) using Geographic Information System (GIS) technology. The purpose of this study, is to identify potential wind resource areas and quantify the value of that resource within those areas. The wind resource in the Philippines is strongly dependent on latitude, elevation, and proximity to the coastline. In general, the wind resource is best in the north and northeast and lower in the south and southwest of the archipelago. These studies of USNREL was made in collaboration with USDOE and USAID for funding, together with PCIERD-DOST, PNOC and NPC for the Philippines counterpart. It aims to produce a wind resource atlas mapping an that can asses the possibility of using the wind as source of electricity. The DOST already release a wind resource toolkit to use as come on for investors. The wind mapping results show many areas of good-to-excellent wind resource for utility-scale applications or excellent wind resource for village power applications, particularly in the northern and central regions of the Philippines. The best wind resources are found in several regions: the Batanes and Babuyan Islands north of Luzon; the northwest tip of Luzon (Ilocos Norte); the higher interior terrain of Luzon, Mindoro, Samar, Leyte, Panay, Negros, Cebu, Palawan, eastern Mindanao, and adjacent islands; well-exposed east facing coastal locations from northern Luzon southward to Samar; the wind corridors between Luzon and Mindoro (including Lubang Island), and between Mindoro and Panay (including the Semirara Islands; and extending to the Cuyo Islands). Over 10,000 km of windy land areas have been estimated to exist with good-to-excellent wind resource potential. Using conservative assumptions of about 7 MW per km, this windy land could support over 70,000 MW of potential installed capacity. Considering only these areas of good-toexcellent wind resource, there are 47 provinces in the Philippines with at least 500 MW of wind potential and 25 provinces with at least 1,000 MW of wind potential. However, additional studies are required to more accurately assess the wind electric potential, considering factors such as the existing transmission grid and accessibility. Some of the wind turbines in the country include a 10 kW stand-alone system in the Northern Philippines serving 25 households. It is being planned to be connected to the grid by a local electric cooperative. Another 25 kW stand-alone system in Batangas Province has 6 different loads with different priorities depending on the amount of power produced and is without a battery storage. A 3kW stand-alone system was put up by a local telecommunication company (PT&T) as a power supply for its relay station in tandem with a diesel generator. There are only two known suppliers of small wind electric systems (a few hundred watts). For larger units direct contact with foreign manufacturers is being done by interested users. From the study of WWF year 2003, it is said that in 1,038 wind sites there are 7,404MW possible potential wind energy. In Luzon there are 28 province that has 686 potential sites that has a capacity to produce 4,900MW. In Visayan region there are 305 wind sites that ha potential to produce 2,168MW. It is only in Mindanao that is recorded to have a very low potential rate that give 47 sites

that can produce 336MW. Other projects to be made: PNOC-EDC North Luzon Wind Power Project Capacity = 40 MW Transmission = 42 km to nearest substation using 130 transmission posts Funding = US$ 48 M Soft Loan from Japan Bank for International Cooperation Location = Ilocos Norte Commissioning = 2006 NorthWind Capacity = 25 MW Location = Ilocos Norte Commissioning = 2004

HydroPower Hydropower is transformation of rotational mechanical energy from moving water to mechnical or electric power. We can produce electricity through flowing water if we asscociate this with the kind of Philippine map formation that we have, and vast source of flowing water. Type of Hydropower according to size: Small (10MW to 50MW) Mini (100kW to 10MW) Micro (under 100kW) Pico (under 10kW)

Type according to development Run-of river Pondage dam Pump storage At present, there are at least 50 documented micro-hydro installations located throughout the country with at least 233kW aggregate capacity and at least 51 mini-hydro installations with more than 80MW of aggregate capacity. Other projects include the following: 1. Two JICA assisted projects which aims to identify 40 potential micro-hydro sites in Northern Luzon and the installation of 14 micro-hydro system to electrify 19 barangays in Nueva Viscaya, Kalinga, and Ifugao 2. Technical assistance to NEDA-CAR to formulate a master plan towards identifying potential hydropower sites for investment opportunities 3. Feasibility for 18MW Catuiran Hydro Project (Mindoro), Dugui Mini-Hydro Project in Catanduanes, and a 29MW Timbaban Hydro Project in Aklan The development cost of micro-hydro systems range from $3,000 to $6,000 per kilowatt. Micro-hydro systems are justifiable for remote, decentralized power application. There are about 436 potential micro-hydro sites all over the country with an estimated capacity to generate around 28 MW. However, further activities that need to be undertaken shall include: in-depth studies on the potential of micro-hydro systems and site identification and assessment of socio-economic and environmental aspects. Currently, there are no specific incentives or privileges being granted by the government for micro-hydro activities. BIOMASS The Philippines is well endowed with biomass resources generated by extensive agriculture, livestock and forestry industries. The 1997 figures estimated that there are annual reserves of about 131 MMBFOE of these resources. Contributors to this biomass potential are fuelwood, bagasse,

coconut residues, ricehull, animal waste and municipal solid waste. Technologies range from the use of bagasse for cogeneration, rice/coconut husks dryers for crop drying, biomass gasifiers for mechanical and electrical applications, fuelwood and agri-wastes for oven, kiln, furnace, and cookstoves for cooking or heating purposes. Based on the projections of the Department of Agriculture and the Department of Environment and Natural Resources, the aggregate biomass supply potential in 2000 is equivalent to 253.8 Million Barrels of Fuel Oil Equivalent (MMBFOE) and still is expected to exhibit a modest growth of 301.5 MMBFOE in 2008. Contributors to this aggregate biomass supply potential are woodwastes, bagasse, coconut and rice residues, animal wastes and municipal solid wastes. The geographical consideration on biomass supply reveals that there is an abundant supply of bagasse in Regions III, IV, VI, and VII. Coconut residues abound in Regions IV, VIII, IX and XI. Abundance of ricehull on the otherhand is noted in Regions II, III, IV and VI. Biomass potentials: Biomass resource Possible power produce in MW Proposed plant Contribution in MMBFOE (Million Barrels of Fuel Oil Equivalent)

Bagasse Ricehull

60-90MW 40MW

35MW in Bulacan Prov

11.24 5.05

Coconut Residues (husks/shell/fr onds Wood/woodw aste Animal waste Charcoal TOTAL 20MW

25-30MW in Nueva Ecija 12.15

44.69 0.25 5.45 78.83 MMBFOE

There are two projects that can be seen in Western Visayas Region (Region VI). These are joint projects of Bronze Oak LTD-United Kingdom and the Venture Factors of Philippines. 1. Victorias Bioenergy Project Biomass-fired cogeneration plant (Victorias Milling Complex) 50MW Steam Turbine Generator (Boiler Capacity: 161.5 tons per hour of bagasse and cane trash) Project Cost: US$100 M (includes 138kV Switching Station and 3km tie-line connector) Possible CDM Component: 1.6M CERs for 10 years Operation: October, 2005

2. Talisay Bioenergy Project Biomass-fired cogeneration plant (First Farmers Holdings Corporation) 30MW Steam Turbine Generator (Boiler Capacity: 85 tons per hour of bagasse and cane trash) Project Cost: US$60 M Operation: August, 2006 Solar Energy

Being located just above the equator, the Philippines likewise has a vast potential for various solar energy applications. The countrys average daily insolation is around 5 kilowatt hour per square meter per day (kwh/m2d). Estimated also from PAG-ASA's weather data, the country's average solar radiation based on sunshine duration is 161.7 W/m2 with a range of 128-203 W/m2 . Solar Photovoltaics (PV) About 3,957 systems of various PV applications are located in the country with an equivalent capacity of 567 kilowatt-peak (kWp). These installations are largely attributed to the initial efforts of the Philippine-German Solar Energy Program (PGSEP) in the 1980s. The programs objective was to demonstrate the technical viability of using PV for electrification. The project likewise demonstrated and tested various PV applications ranging from telecommunication, battery charging stations, PV-powered video cinemas, refrigerators, incubators, streetlights and others. To date, mostly mono- and poly-crystalline modules have been utilized. Amorphous silicon panels have generally been used in very small applications. The archipelagic nature of the country with many remote islands and islets as well as presence of remote dispersed small communities in many mountainous areas of the Philippines make the PV technology a very promising option for electrification of remote rural areas. A number of local firms in the country are now involved in system integration, design, installation and distribution of PV modules and products. Most of the products especially PV panels are imported from countries such as US, Australia, Germany and Japan. There is also some local capability in the manufacturing of balance of systems and solar batteries. Solar Home Systems (SHS) Currently, an estimated 3,455 SHSs have been installed in various locations in the country. With the real costs of PV project development above the affordability level of most of the rural population (a complete SHS costs between US$600-800), international cooperation is necessary in the realization of such projects. Systems have been installed through private companies, local cooperatives (multipurpose, agricultural, credit, etc.) as well as Rural Electric Cooperatives. The technical potential for SHS is difficult to define and will strongly vary with the system price offered. At present, about 5 million rural households have no access to electrical power and could, in principle, be electrified through SHSs. However, given the on-going conventional electrification by grid-extension and other competing alternative options, combined with limited affordability and accessibility of remote rural households result to date in a commercial potential of only about 500,000 SHS. PV for Telecommunications PV seems especially attractive for back-to-back relay stations for telecom companies in the country since most of them operate in their own backbones. From the engineerings point of view, such relays are often situated at optimal locations with grid power not readily available (e.g., mountain tops). Two companies (RCPI and PT&T) have pilot tested over a period of almost 10 years to supply power to their telecom system. The system generated around 2 kWp and backed up by 3 kilovolt amperes (kVA) diesel for emergency purposes. The performance of the PV systems were generally even better than expected. Two traditional stations of 4.5 and 5.7 kWp have been added over the years. The potential market for PV for the telecommunication industry would amount to an estimate of over 100 PV supplies with a capacity of 3 kWp at least. About 119 systems with a total capacity of 94 kWp have been recorded. PV for Water Pumping PV for irrigation purposes is still considered too costly. Since the PV power supply would stand idle in the large part of the year, other uses would have to be identified in order to make such projects financially viable. However, PV powered drinking water pumping appears to be more promising. Up to now, various cooperators of DOE have installed some 126 systems nationwide with a total capacity of 174.8 kWp. One site (Bagtik, Cebu Province) may hold the world record for PV with the highest head (121 m). However, the economic feasibility of the drinking water project is not clear and depends on local conditions (presence and depth of subsurface watertable), on willingness to pay for water, etc. Other Applications These include about 257 communal battery charging stations, PV powered vaccine refrigerators, PV

powered incubators (for hatching chicken and duck eggs), PV powered streetlights, lighthouses of the Philippine Coastguard and the newly commissioned 28 kWp centralized plant providing electricity to 200 households of Pangan-an Island, Cebu Province. These additional PV installations have an estimated aggregate capacity of about 45.2 kWp. Limited market opportunities appear to exist for most of these systems. PV battery charging stations appear to be most suitable for most economically depressed areas since most rural people own a battery and have it recharged in the nearby town. One battery charger can provide sufficient power for a single fluorescent tube for 2 weeks before being recharged. Powering a small TV set by battery is an even more popular application in the rural areas. Solar Water Heaters (SWH) SWHs are mostly used for residential applications (bathing and household uses). Residential SWHs of 200-400 liter capacities are prevalent in affluent households in posh subdivisions. Most of these are imported from Australia albeit there were some local enterprises before which ventured but were not successful in manufacturing and marketing SWHs for domestic purposes. Industrial SWH technology appears to have failed because the initial systems (e.g. for a large chicken dressing plant) did not live up to the expectations due to poor quality of installations and lack of technical back-up services. Besides in all industrial SWHs conventional back-up systems were necessary. In such cases the investment had to be justified only with the conventional energy saved (electricity, bunker fuel, LPG) in the back-up system. At present, there exist about 432 SWHs for residential and industrial applications. Among this is a hotel which has installed a SWH system that supplies the hotels hot water needs. NRE DEMAND In 2000, NRE consumption is estimated at 72.114 MMBFOE. This is projected to increase to 90.124 MMBFOE by 2004. By 2008, biomass shall account for 88.070 MMBFOE or 97.72% percent in the total renewable energy share. Other NRE systems such as solar, micro-hydro and wind, on the other hand, shall provide 0.0114 MMBFOE contribution in 2000 and steadily grow to 2.054 MMBFOE by 2008. INCENTIVES AND GOVERNMENT POLICIES A. The governments policy and program on natural gas industry The inauguration of the Malampaya Deep Water Natural Gas-to-Power Project in Palawan in October 2001 marked a new era in Philippine energy history [4]. The Malampaya project gave the first big example in this millenium of how the Philippine Government under Gloria Macapagal-Arroyo is pursuing its policy of complete sell-out of the countrys natural resources, especially minerals including petroleum resources like oil and natural gas, to foreign corporations. The governments policy on natural gas industry is summarized in the Tokyo presentation of DOE [3] as follows: Promote natural gas as an environment-friendly, secure, stable and economically efficient source of energy Promote competition by liberalizing entry into the industry and by adopting pro-competitive and fair trade measures Ensure compliance with Philippine environmental laws and regulations and international safety standards With the above goals, the government through the DOE plans to achieve the following objectives: Competitive natural gas prices vis--vis other fuels Increased utilization of natural gas as fuel in the power and non-power sectors Increased share of natural gas in the energy mix Adoption of state-of-the art technology, development of experts and increased employment Enhanced economic benefits to consumers This policy is contained in the following documents: Executive Order No. 66 designated the DOE as the lead agency for the development of



the Philippine natural gas industry [10] Interim Rules and Regulations Governing the Transmission, Distribution and Supply of Natural Gas promulgated August 27, 2002 to provide basic framework to guide initial investments and business operations in the downstream gas industry [11] Natural Gas Bill DOE working with Congress on the passage of the bill into a law that will establish a more stable legal and institutional framework for gas industry regulation Philippine Energy Plan provides consistent framework for the development of the Natural Gas Industry along with other energy sub-sectors Natural Gas Office recently set up as part of institutional strengthening of DOE

Structure of Downstream Industry Downstream gas industry divided into transmission, distribution and supply Vertical integration/cross-ownership in different industry segments allowed Third Party Access to essential facilities mandatory but deferment may be allowed during the initial years, i.e., 3 years from start of operation for transmission and 5 years for distribution with further extension on reasonable grounds Entry DOE to issue permits for construction, operation and maintenance of pipelines and related facilities and for supply of natural gas Congressional franchise for transmission and distribution systems required except for own-use facilities Pricing Transmission, distribution and supply prices to be regulated in markets without effective competition Competition cartels/collusion prohibited per se, other anti-competitive conduct as provided for in existing laws also prohibited New ard renewables The Philippine government has enacted and /or developed various legislative measures that are envisioned to level the playing field for the renewable energy sector in the local energy industry. EO 462 Enabling private sector participation in the exploration, development, utilization and commercialization of ocean, solar and wind (OSW) energy resources for power generation. The program is focused on the intensive utilization of ocean, solar and wind energy resources. Tapping of these resources will serve as a means to achieve the goal of converting the Philippines into an energy exporter in the future. Under the program, activities to be undertaken include a) technology assessment and generation through conduct of feasibility studies for wind power generation, tidal current and wave energy systems, b) resource assessment on wind energy and ocean energy management, c) promotion of OSW manufacturing industries through conduct of feasibility studies on the development of solar PV manufacturing and solar energy testing, d) OSW market development through promotion of ASEAN power grid interconnection, demand side management (DSM) for solar application and OSW promotion and information campaign, e) manpower development through trainings and seminars and scholarship grants, and f) establishment of large-scale OSW energy systems. R. A. 9136 or the Electric Power Industry Reform Act The passage of Republic Act 9136 or the Electric Power Industry Reform Act is seen to benefit the NRE sector particularly those who would like to engage in large-scale renewable-based power projects. First, NRE project proponents shall have an open access to the industry and could operate on its own pace without having much problems with regards to stringent process of project approval the industry is currently practicing. The burden of obtaining a Power Purchase Agreement will then be relieved from the NRE proponents. Those who can deliver the best offer shall have all the advantage of getting into business without being bothered by some regulatory policies and procedures being implemented by government dealing with power negotiations. Second, the Act proposes the complete unbundling of the electricity tariff rates. The unbundling scheme favors renewables as the removal of subsidies and inclusion of the socio-environmental levies shall reveal the true cost of conventional power rates. Third, the bill that would directly support the NRE industry is the establishment of the Countrywide Electrification and Missionary Service

Company (CEMSCO). CEMSCO shall serve as a mechanism in promoting the use of indigenous and renewable energy as well as the energization of marginalized areas. CEMSCO shall be mandated to undertake these programs in a non-profit basis and in a transparent manner to avoid distortions in energy prices. Though initially a government-owned and controlled company, the bill strictly stipulates that CEMSCO shall bring its facilities to commercial viability in an area-to-area and system-by-system basis through privatization in the earliest possible date. HB 4839 An act to further promote the development, utilization, and commercialization of new and renewable energy (NRE) sources and for other purposes. The Lower House of the Philippine Congress has introduced House Bill 4839 with the corresponding support from the Department of Energy. The proposed legislation recognizes the need to provide adequate and sustainable energy services to the greater population still living in the countrys unelectrified barangays. Also, it shall give preferences to the development and utilization of NRE resources and technologies in view of its environmental and social objectives. Salient features of the NRE bill are as follows:

Provision of incentives to NRE power producers Requiring private power producers to diversify power generation Establishment of green pricing mechanism to encourage consumer-user participation in NRE Establishment of NRE Trust Fund to finance various NRE activities Encouraging hybrid system installation to increase systems reliability

II. Under Presidential Decree (P.D.) 1442 otherwise known as An Act to Promote the Exploration and Development of Geothermal Resources, the current incentives given to a geothermal service contractor are as follows: 1. Recovery of operating expenses not exceeding 90% of the gross value in any year with carry forward of unrecovered cost. Service fee of up to 40% of net proceeds. 2. Walang ibang babayarang tax maliban sa income tax na pinaka-share ng gobyerno. 3. Exemption from payment of tariff duties and compensating tax on the importation of machinery, equipment, spare parts and all materials for geothermal operations. Depreciation of capital equipment over a ten (10)-year period. 4. Easy repatriation of capital equipment investment and remittance of earnings. Entry of alien technical and specialized personnel (including members of immediate families). a. an eight-year holiday on the royalty share of the national government, b. a Filipino participation incentive allowance, c. a development uplift allowance of 60%, and d. a cross cost recovery mechanism, III. RA 7156 : Mini-Hydroelectric Power Incentives Act An act granting incentives to mini-hydro power developers IRR governs the filing and processing of applications for authority to construct and operate mini-hydro plants Granting of tax incentives IV. EO 462: Enabling private sector participation in the exploration, development, utilization and commercialization of OSW energy resources for power generation Sets the guidelines for OSW projects in private and public domains OSW Projects are governed by production-sharing contracts Grants incentives under existing laws IRR governs the filing and processing of applications for OSW Projects

V. Tax incentives granted to power projects utilizing indigenous or renewable energy sources (BOI-IPP 1999; RA 7156) Tax and duty exemptions on imported capital equipment and materials Tax credit on domestic capital equipment Income tax holidays

Additional deduction from taxable income for development (infrastructure) expenses

VI. Executive Order No. 226 In accordance with Section 39 of Executive Order No. 226, pioneer enterprises may be granted the following incentives with respect to the extent that the enterprise has been engaged in a preferred area of investment: 1. 2. 3. 4. Income Tax Holiday Additional Deduction for Labor Expense Tax and Duty Exemption on Imported Capital Equipment Exemption from Taxes and Duties on Imported Spare Parts

However, priority has been given to large-scale power development projects and programs utilizing NRE technologies and implemented by pioneer enterprises. Stand alone NRE systems and technologies shall be accorded the same incentives with respect to parameters and criteria set by the BOI and the DTI in consultation with each respective Department of the Philippine Government

Privatization and deregulation drives the ever increasing costs of energy The EPIRA and the privatization of power Historical background During the late 18th century, the hacienda system had expanded the control of land by Spain and this spurred massive plantations of export crops like tobacco, sugarcane, abaca, etc.raw materials for the Spain to compete with other countries. In order to hasten the exchange of goods and extraction of raw materials, transportation and communication facilities were developed. They constructed steamships, roads, more efficient seaports, railroads, and so on. During the later part of 19th century, due to the urgent need of Spain, the first power corporation was born in the Philippines, the La Electricista that had 10 60-KW AC steam generators. When the United States (US) replaced Spain in colonizing the Philippines in 1998 through the Treaty of Paris, it did not change our economic orientation but increase the amount of commercial crops and raw materials for export. Manufacturing and processing industries like sugar centrals, coconut oil refineries, rope factories, and other industries necessary for extracting and exporting raw materials from the Philippines were maintained. In 1903, the Manila Electric Railroad and Light Company (MERALCO) was established to provide rail transportation and electric services in Manila. In 1905, after being awarded a 50-year franchise, MERALCO took over La Electricistas business and its first 2,250-KW power plant was commissioned. A year after the establishment of Philippine Commonwealth Government in 1935, the Commonwealth Act No. 120 creating the National Power Corporation or NPC as a non-stock, government-owned corporation was passed. After two decades, NPC became a stock corporation through RA 2641. In 1972, two months after Martial Law is declared, PD 40 was enacted. This mandated NPC to construct generation and transmission facilities in Luzon, Visayas, and Mindanao. Moreover, NPC was tasked to own and operate a single integrated network for all power-generating facilities nationwide. When NPC bought MERALCOs thermal power plants in 1979 and this plant was integrated in the Luzon power grid, the total generation capacity of NPC increased by 90% and this made NPC the countrys dominant producer and supplier of electricity. In 1987, EO 215 signed by President Cory Aquino in 1987 effectively deregulated the power generation sector. This was to fulfill the governments commitment to prepare the groundwork for the eventual privatization of the NPC as pushed by the International Monetary Fund (IMF). The first build-operate-transfer (BOT) contract allowed by the EO was signed in 1988 with Hopewell, a Hong Kong-based firm, to construct and operate a 210-MW power plant (Navotas I). The issues surrounding the privatization of NPC are mostly related to the power crisis and due to the governments efforts to address this critical shortfall in power supply. By 1991, the 6- to 10-hour daily blackouts were costing the Philippine economy an estimated $1 billion in lost output annually. To stave off the crisis, RA 7638 or the Department of Energy Act of 1992 was enacted to create the Department of

Energy (DOE). DOE was tasked to develop and update the existing Philippine Energy Program (PEP) which shall provide for an integrated and comprehensive exploration, development, utilization, distribution and conservation of energy resources. As its policy response to the power crisis, RA 7648 or the Electric Power Crisis Act was enacted in the same year that the DOE was created. This further opened the door to entry of private power corporations. DOE was tasked to boost the entry of these private firms in construction and operation of power plants. The Electric Power Industry Reform Act or the EPIRA Due to the pressure by creditors to the Philippine government to fast track the approval of the Power Act before they release the power reform program loans to finance the countrys power development program, the Electric Power Industry Reform Act, or the EPIRA, railroaded and signed into law by President Gloria Macapagal Arroyo in 2001 despite intense disapproval from of the people. Major creditors include the Japan Export-Import Bank, Asian Development Bank (ADB), and World Bank (WB). These power sector reforms and the sale of NPC to private business were long standing recommendations of the IMF. These recommendations were part of the structural reform program the country has to implement as a precondition for more loans. The EPIRA seeks to restructure the electricity industry and privatize the National Power Company or the NAPOCOR. The governments objective in privatizing NAPOCOR is to cut losses from loans and pass on the burden of power infrastructure investment to the private sector, while earning revenues from the sale. Contrary to what has been promised during the passage of the law, the EPIRA has not caused any real decrease in power rates. Aside from the initial, and fleeting, 30 centavo Power Act reduction, there has been no decrease in power rates due to the EPIRA. Instead, it has legitimized the PPA through the contracts entered into by the NAPOCOR and have hidden it through the unbundling of rates. Even with the establishment of the wholesale electricity spot market (WESM) which would purportedly be the mechanism to identify and set the prices between sellers and buyers of electricity, the bilateral contracts between distribution utilities would still be honored. Cross subsidy removal would translate to an increase in power rates to residential consumers which by numbers would dominate the end-users of electricity. Even with discount schemes within customer classes, the removal of subsidies would at the least translate to a 71 centavo increase within 3 years. Note that this increase would already render useless the 30 centavo rate reduction. The law was designed to reform the power industry not for the benefit of end users and development but it only seeks to privatize NAPOCOR and deregulate the power industry for the entry of foreign companies regardless of the costs to the general public. The various highlights of the EPIRA ranging from the creation of the National Transmission Company (TRANSCO), the Power Sector Asset and Liabilities Management corporation (PSALM), the Energy Regulatory Commission (ERC), the wholesale electricity spot market (WESM), the unbundling of power rates and the various codes and rules implemented under the EPIRA are designed to segregate each saleable part of NAPOCOR, make it attractive to investors and create structures and offices to facilitate these transactions. Furthermore, the EPIRA makes the national government assume P 200 B worth of NAPOCOR loans to make it viable for sale. This P200 B however would be recovered as stranded debts in future bills to end users. The law integrates the independent power producers (IPP) and their onerous contracts into the whole power industry. These IPPs and the contracts entered into by the government and distribution utilities are the source of the PPA or the purchased power adjustment. The PPA remains to be a large part of electric power rates of end-users albeit under different names. With the unbundling scheme ordered by the ERC, the PPA was hidden and distributed in the various line items in the new electric bill such as the generation charge, the transmission charge, system loss charges, subsidies and franchise taxes. These IPPs are mostly owned by foreign transnational corporations in partnership with big local power tycoons. At least twenty two out of the 41 IPPs are largely foreign owned. Five are partly or wholly owned by Meralco and some others by regional distribution utilities. Furthermore, in the findings of an inter-agency committee tasked to review IPP contracts, only six out of 35 contracts were found to be without any legal or financial issues. The rest was supposed to be renegotiated by the government. Privatization actually facilitates the entry and control of national economies by foreign TNCs who, at present, are the dominant players among the IPPs. Only these foreign TNCs alongside a number of local power tycoons (Lopez, Aboitiz, Alcantara, etc) have the financial capacity to operate and maintain power generation, transmission and distribution, and even buy out the Napocor.

If we exclude the US, the IPP capacity in the Philippines exceeds that put up over the rest of the world combined in terms of installed capacity. This would continue to increase with the full implementation of the EPIRA and the privatization of power generation. The EPIRA brings about the exploitation and plunder of our natural resources to the benefit of these foreign companies. Far from improving our electric power independence by promoting indigenous energy sources, it has reduced taxes and royalties from those exploiting our resources. This would make our resources free for plunder and profit to all takers which are mostly foreign owned transnational companies. The EPIRA provides for the equalization of taxes and royalties on the exploitation of natural energy sources which just means the removal of these taxes or the exemption from such taxes of the IPPs. Under the bill to increase VAT rates to 12% being discussed in Congress, IPPs are already being exempted despite the fact that these companies are paying only 3% of their revenues as taxes. In addition, the power of eminent domain, as provided for in the act (Sections 6 and 12), granted to transmission and distribution companies gives them prior rights over the countrys land resources and thus may evict the occupants or owners of the land in question. The dislocation of the indigenous peoples (IPs) from their ancestral domain and of other peasant settlers with the construction of power plants and other development projects over their claimed territories has been well documented The EPIRA favors power industry players over consumer interests. It legitimizes the passing on of costs of power generation to end users. The passing on of power generation costs to consumers is legitimized by the EPIRA such as the passing on of system loss charges transfer the inefficiency losses of distribution utilities to end users. Other line items in the unbundled bill such as the missionary electrification charge and environmental charges passes on the responsibility of rolling our new electric power lines and the environmental maintenance of power utilities to the general public. Stranded costs and debts by both the NAPOCOR and utilities are also to be recovered from the general public in the Universal Charge. The EPIRA has put as policy the full recovery of prudent and reasonable economic costs of a distribution utility. As a result, distribution utilities now recover and pass on currency fluctuations, fuel cost fluctuations as well as contract obligations (PPA) to the end-users. The mechanisms approved by the ERC such as the Generation Rate Adjustment Mechanism (GRAM) and the Incremental Currency Exchange Rate Adjustment (ICERA) are concrete examples of these pass on costs to consumers. The unbundled rates, even with the discounts, hit the smallest end users hardest. Small end users, even with the 50% discounted rates, still pay 159% more than their real electricity costs. Higher users of electricity would pay from 120% (100 kwh) to double (more than 500 kwh) their real electric costs. The EPIRA has not brought about and will not bring about a stable electricity supply to the whole country. In 2003, the total installed capacity in the country is 13,380 megawatts, of which 11,191 megawatts is the actual dependable capacity. Current peak demand is 67% of dependable capacity or 7,497 megawatts. The Philippines has an excess capacity of around 11% factoring buffer requirements. This has changed in 2004, where the country's total installed generation capacity stood at 15,763 MW and its dependable capacity at 14,008 MW. Our peak demand is 9,069 MW and thus overall, we have the capacity to provide for our electricity needs. However, interconnections of major islands are needed to distribute this power capacity over the country. It is indeed true that the construction of power plants will still have to continue but the government and the EPIRA makes sure that the IPPs will play a key role in providing electricity. However, this does not mean that the IPPs would find it viable to build and maintain in the long run a power plant. As soon as the location becomes a liability to the private companys profit margins, they can and will shut down operations. This can be seen in the threats some years of the Cebu based Cebu Private Power Corp (CPPC) that it will shut down operations of its 65 MW plant due to financial constraints further aggravating the projected shortage in the Visayas. Such moves makes the development and industrialization of our country hostage to the whims and profit margins of the private industry players. Why are power rates so high? In December 2004, it will cost you at least 28% more in electricity bills this compared to the same time the previous year. A household consuming 150 kWh per month will effectively be paying P7.20 per kilowatt hour in year end 2004 compared to P5.61 for each kWh December last year. The 28% increase is mainly due to the provisional authority granted by the Energy Regulatory Commission to the National Power Corporation (NAPOCOR), increases in transmission rates, previous adjustments

in generation rates due to the Generation Rate Adjustment Mechanism or GRAM as well as adjustments in the currency exchange rates. Those with 70 and 100 kWh monthly usage are going to pay 23 % and 22% more, respectively.

Electricity rates (usage in kWh/month) MERALCO FRANCHISE AREASAmount Effective amount per kWh Dec 2003 Dec 2004 Increase % increase Dec 2003 Dec 2004 Increase 50 125.76 170.70 44.94 36% 2.52 3.41 70 241.53 296.36 54.83 23% 3.45 4.23 100 438.36 534.34 95.98 22% 4.38 5.34 202 1207.12 1506.38 299.26 25% 5.98 7.46
Comparative Rates for December 2003 and 2004

0.9 0.78 0.96 1.48

% increase 36% 23% 22% 25%

These increases in electric rates is a direct result of the Electric Power Industry Reform Act, or the EPIRA, and the rabid implementation of the government of Gloria Macapagal Arroyo of her privatization policies. Nor had the so-called discounts for users with monthly consumption less than 100 kWh, those using 50 kWh will be paying 36% more this year. These discounts are in reality paid for by other consumers and not the government nor Meralco. These high power rates have made the Philippines fourth in Asia after Japan, Hongkong and Cambodia in terms of residential power rates. Industrial rates are also seventh in Asia according to the DOE as of June 2004 after Cambodia, Japan, India, Hongkong, Indonesia and China.

Source: 5th status report on EPIRA Implementation, May 2004-October 2004, Department of Energy Since 1990, where one kWh costs P1.83, the price of electricity has increased to 300% resulting to at least P5.58 on the average for the country. Unbundling of rates With the unbundling of power rates, it is instructive to study the costs of each item in the approved rate schedule. Although, it is a vital part of the EPIRA and energy privatization, it is worthwhile to note that the Court of Appeals (CA) annulled the Energy Regulatory Commissions decision to unbundle electric power rates for Meralco. Recently, the CA have denied the motion of reconsideration of Meralco and the ERC on this decision. This means that the unbundling should again be heard and rates reverted back to its previous levels. Furthermore, consumers should also be refunded from rates stemming from the unbundling decision. We estimate the refund to total at least P 6.4 billion pesos. For a family using 200 kWh per month this would be around P680 pesos for the 20-month duration since the unbundling up to January 2005.

Other unbundling cases previously approved by the ERC should be reviewed. There are several electric cooperatives and distribution utilities whose unbundling should be looked into in the light of the CA decision. With the unbundling of power rates, several recovery mechanism has been prescribed by the ERC, effectively hiding the PPA, and passing on all risks and price fluctuations to the consumers. The Purchased Power Adjustment (PPA) and IPPs The junking of the 650-megawatt US$2.2-billion Bataan Nuclear Power Plant in the mid-1980s, no buffer for increased power demand by industries and households was constructed nor planned. By the early 1990s, this resulted in daily 8 to 12-hour blackouts. Citing lack of sufficient funding to construct power generation facilities to adequately meet present and future demand, the Ramos administration enticed foreign and private-sector investors into the countrys electric power industry using such measures as the Build-Operate-Transfer (BOT) program resulting into the entry of Independent Power Producers (IPPs). An estimated US$6 billion to construct and operate power generation facilities with a total capacity of 4,800 MW were built by IPPs around 1998. A year after, half of total energy sales in the country were already sourced from IPPs. As of December 2001, Napocors IPPs accounted for 31%, or 3,667 MW, of the total generating capacity and non-Napocor IPPs (such as those owned by the Lopezes, First Gas and Quezon power) provide the remaining 1,168MW or 10% of the total generation capacity. This generation capacity was not obtained cheaply. With the onerous take-or-pay provisions, where off-take requirements of 70%-85% of contracted capacity, Napocor has to pay the IPPs whether power generated was actually consumed or not. Higher tarrifs result from the recovery of these losses through the controversial Purchased Power Adjustment (PPA). As of June 2002, the PPA was already more than half of the electricity bills of consumers. Added costs from these contracts are features such that Napocor has to deliver fuel on-site to provide tax-exemptions for the IPPs. Furthermore, these contracts are dollar-denominated, making these Napocor obligations vulnerable to dollar-peso foreign exchange fluctuations. Only six out of 35 IPP contracts were found to be without any legal or financial issues after a review of these contracts by the Department of Finance. Yet no serious renegotiation to remove the take-orpay provision was done. Due to massive protests and outrage, President Arroyo personally mandated in May 2002 for the NAPOCOR to limit its PPA to only 40 cents/kwh when its actual PPA was then P1.25/kwh. The NAPOCOR itself said that this order directly contributed to losing 85 cents/kwh, or P29B per year since 2002. In a hearing in the ERC, the Napocor has admitted under cross examination during that part of their losses stem from full payment of contracted power to IPPs despite electricity being not being delivered in full to consumers in the form of the Purchased Power Cost Adjustment. President Arroyo's gambit of reducing the PPCA as her response to protests against the PPA has now fallen flat and her financial engineering because this has resulted to the ballooning of Napocor's debts. These IPP owned by firms such as KEPCO, Edison Global, Mirant and others billed us for 27.27 billion kwh while only delivering 19.15 Billion kWh in 2002. Thats around 30% of what we paid never getting to our homes or industries. This is one of the biggest contributors to the losses NAPOCOR wants to recover from the rate increase. The Generation Rate Adjustment Mechanism (GRAM) The GRAM was designed essentially as a replacement for the recovery of the PPA. Like the PPA, it is also an automatic cost recovery mechanism but this time without yet the notoriety that the PPA has earned among the millions of consumers of NPC, Meralco and the various distribution utilities. On top of the generation charge, pegged at P 3.4029 during unbundling and consequently increased through the provisional authority last year from the ERC to 3.4236. Factored into the formula for generation rate adjustments is the purchased power cost as approved by the ERC. In the PPA formula there is the cost of electricity during a supply month. Both do not make a distinction whether the electricity was actually delivered or not as a result of the onerous take or pay provisions of many IPPs. Both do not also filter out electricity purchased at excessive rates. Certainly neither the GRAM nor the PPA formulas strip those amounts of cost expenses that should not be there at

all but which accountans can easily sneak in. Thus, through the GRAM, as with the PPA, the consumers, among other things, will continue to pay for electricity that they do not actually use; shoulder the cost of excessive rates of power contracted by NPC and Meralco; and pay for the inefficient operations of IPPs. The ERC in its its approval of the unbundling of Meralco rates has acknowledged that The current PPA is allocated between the generation and transmission rates. The generation component shall be periodically updated through the Generation Rate Adjustment Mechanism (GRAM). -ERC Order dated 30 May 2003, page 9 Thus with the unbundling of rates, the PPA is now being paid for under five new line items in the electricity bill as diagrammed below: Recovery of foreign currency exchange losses throuigh the ICERA Automatic recovery of losses, designed and approved by the Energy Regulatory Commission, such as the ICERA or the incremental currency exchange rate adjustment, spell no relief for the people. The owners of utilities, transmission and generation companies pass on their bloated operational and maintenance costs to the people and thus our electric bills keep on increasing. Dollar rates have historically risen on the average and thus an automatic recovery of forex fluctuations also automaticcally increase power rates. Far from improving our electric power independence by promoting indigenous energy sources, the EPIRA has reduced taxes and royalties from those exploiting our resources and set these resources for sale and plunder to all takers which are mostly foreign owned transnational companies. Reduction of cross-subsidies A 28.52 centavos/kwh increase in the electric bill of the residential consumers starting October 2004 was the result of the reduction by 40% of the interclass cross subsidy. The EPIRA mandates that all subsidies will have to be removed within 3 to 10 years, with the lifeline rate subsidy to the consumers using less than 100 kwh the last to go. Thus, residential consumers will have to pay an additional 42.78 centavos by October 2005 and lifeline consumers will lose their discounts around 2010. Even the 30 centavos Power Act Discount that the government used to sugarcoat the passage of the EPIRA bill is now just 16.52 centavos, effectively increasing our rates by 13.48 centavos. The total removal of inter-class subsidies will result in an increase of 71.30 centavos. In fact this subsidy scheme becomes a milking cow for distributors such Meralco because the amount that they collect is more than the discounts they give. The mathematics of power rate discounts: Sweetening power rate increases Malacanang's attempt to sweeten the blow of the hefty power rate increases on the poor is through the so-called 50-percent lifeline rate discount on their rates. This subsidy is taken from 65% of the customer base and is not due to any concern or interest of our government to alleviate the burden of these power increases. It is more a case of the poor subsidizing the poorer. Commercial and industrial electric users pass on the costs of these subsidies as price increases to consumers.

Computing the costs of these discounts for a month in 2003, the revenue lost to Meralco is P134,923,561. But to recover these losses, Meralco collects 7.61 centavos/kWh from the residential consumers using 101 kWh and above, from the commercial and industrial consumers. Given the total kWh consumption of these consumers in one month so we simply multiply by 7.61 cents/kwh and we get P152,474,582. This is P17,551,021 (or P210,612,252 per year) more than they lost from the subsidy. Presently, consumers using 100 kwh and below get the following discounts: Mon thly cons ump tion (kW h) 0-50 5170 71100 101200 201300 301400 over 400 No. of Cust ome rs (200 2) 661, 716 299, 737 465, 236 1,25 7,82 0 564, 417 258, 133 415, 648

Disc ount 50 % 35 % 20 % -

colle ction from lifelin e rates 0.07 61 0.07 61 0.07 61 0.07 61

These discounts apply to the generation, system loss, distribution, metering and supply charges. The above is called by its technical term, lifeline rate subsidy. Those using above 100 kwh presently pay an additional 7.61 centavos per kwh that is used to subsidize the lifeline consumers above who are using less than 100 KWh (which is really a case of one section of consumers subsidizing another section of the consumers). In addition, all residential consumers get a discount of 71.30 centavos per kwh subsidy paid for by collecting from the commercial and industrial consumers. This will be removed within 3 years under the Electric Power Industry Reform Act or EPIRA. This means an increase of 71.30 centavos on top of all the recent rate increases. In this discount scheme, Meralco, NPC and President Arroyo are happy since they earn brownie points while hiding the reality that none of them gave any centavo to alleviate the burden of high electric rates. What Malacanang should do, instead of this obfuscation, is to reduce electric power rates and grant wage hikes to truly address the concerns of the people Other recovery mechanisms In summary, the PPA has not been removed. It has been hidden within the generation charge, the transmission charge, the system loss charge, franchise tax and other charges. If the PPA were truly gone, we would have enjoyed a reduction by almost half in our electric bills. Instead most households have received higher bills due to the unbundled power rates. Now that they have hidden the PPA, any further increase in purchased power cost will be hidden under the Generation Rate Adjustment Mechanism (GRAM) charge. This is the new PPA. Power consumers would have to prepare for the eventual imposition of the Transmission Rate Adjustment Mechanism (TRAM) which would pass off the costs of transmission companies to the people, similar to the function of GRAM. Any changes in the cost of the transmission of electricity through the transmission towers will be shouldered by the people.

The other "pass-through" charges are also really pass-on costs to consumers. Generation charges are computed with a 60-40 mix of National Power Corp. (Napocor) and Meralco power plants. About 53 percent of this cost is remitted to Meralco's independent power producers (IPPs), most of which charge nearly twice as much per kilowatt-hour as Napocor plants. The Lopezes earns also from the generation charge. The systems loss, including pilfered power and the electricity used by Meralco offices and facilities, is passed on to us at a rate of 69.65 centavos per kWh. This is despite the fact that for the past years, Meralco's technical system loss (i.e. excluding pilferage) has not changed from 8%. That means Meralco has not seriously tried to become more efficient. It goes after pilferage since they can recover twice of their losses, once from the pass-on cost as part of the systems loss charge, another courtesy of the Anti-Pilferage act which allows them to charge the households the estimated cost of their pilferage. The systems loss has several components. One is the electricity lost through pilferage. Another is electricity lost as they pass through distribution equipment and wires. A third component bundled with the systems loss charge is electricity consumed by Meralco offices and facilities, technically called company use. The Meralco consumers pay for all this, and it is all legal because the government allows it. Republic Act 7832 or the Anti-Pilferage of Electricity and Theft of Electric Transmission Lines/Materials Act of 1994 supposedly provides for the rationalization of system losses by setting caps on recoverable system loss allowed to private electric utilities and electric cooperatives. This cap shall be no lower than nine percent. Essentially this passes on to consumers any inefficiency of a distribution utility like Meralco. Technical losses are losses inherent in the electrical equipment, devices and conductors used in the physical delivery of electricity. These are losses in sub-transmission lines, substation power transformers, primary and secondary distribution lines, distribution transformers, service drops, voltage regulators, capacitors, reactors and all other equipments used in the operation of the distribution of electricity. On top of these technical losses, load loss due to electric energy pilferage is also considered as part of what is termed as non-technical loss. System loss charges also includes administrative losses (company use) which are the electric consumption of distribution substations, the offices, warehouses and workshops of the distribution utility. Meralcos system losses currently amount to 13.38 %. Our main criticism with regard to system losses is the fact that Meralco and other distribution utilities pass on these system losses to the public. This pass on charge was part of the PPA previously and the public is unduly burdened in paying for the inefficiencies of the distribution utility. This part of our electric bill is due to energy that never gets used in our homes and is mainly due to any technical inefficiency in the part of the distributor, their in-house use of electricity and pilferages. Although pilferage is being pointed to at by Meralco as a big part of these losses, any violator that will be caught is required to pay consequent fees despite these losses being already collected and paid for by the item for system loss in our bills. If so, why do we still have to be charged for system losses? More pass-on charges are the metering charge and franchise and local taxes. Universal charges, which include many other components such as the missionary and environmental charge, will also include in the future stranded cost and debt recoveries that amounts to around 200 billion pesos to be collected in 15 to 25 years. The missionary charge is a compulsory contribution to a fund to be used for electrifying remote barangays because no businessmen would like to invest in those areas where there are only a few customers but requires big capital outlay for the long wires and many posts. But why are we charged for a job the government should be doing? This is also true of environmental charges. Why are we charged for the havoc that the generation plants of Napocor or these IPPs do to the environment? Consumers seem to be the perpetual milking cow of Meralco, Napocor and the IPPs. Unbundling has increased power rates and it will continue to increase because of the new charges, the passing on of the 200-billion-peso stranded cost and debt recoveries and the eventual reduction of subsidies. All these mean higher electric rates for all. Spiraling Petroleum Prices: Oil Control by Monopolies, Speculation, and US Aggression

Petroleum prices have reached unprecedented heights at the national and international levels. On March 16, 2005, oil prices have surpassed the October 2004 high of $55.17, closing at $56.46. On March 18, prices have reached $57.60, 50% higher than their level during the same period last year. Driven by speculation based on fears of higher demands for oil from China and India, fears that the global oil industry was finding less and less new oil, a terrorism/war premium, and supply disruptions in Iraq, Nigeria, Venezuela, Russia and the U.S. Gulf Coast, price trends indicate that world oil price hikes will persist until the end of the year or even beyond. Gasoline and other petroleum-derived products have followed suit. In the U.S., gasoline prices now average $0.59 per liter ($2.24 a gallon) for self-serve regular and is predicted to hit an average of $0.62 per liter ($2.35 a gallon). Here in the Philippines, gasoline prices have already hit $0.563 per liter (PHP 30.80 per liter). Why have oil prices increased so much? Who controls world market pricing and who benefits from these controls? In a casual reading of the news, one would immediately suspect the Organization of Petroleum Exporting Countries (OPEC) of retaining control over oil prices because of its cartel-like operation of reducing or increasing production of its 11-country organization.

Figure 1: Petroleum prices, 1995-2005 in US$ (Dubai). Production cost is shown in gray band. Source: Yukos, Ibon Databank

Is there an OPEC Cartel? While the OPEC controls 40% of world crude oil production, holds 67% of estimated world crude oil reserves and exports 55% of internationally traded crude oil, the trend of increasing oil prices has shown that OPEC as an entity dictating world oil prices is just a myth. In recent years, OPEC production has increased to a 25-year record high while production costs have gone down. Despite these, oil prices continue to increase. While oil and energy ministers decide production adjustments during OPEC meetings, strategic control of oil prices rests elsewhere. This control rests on only a small number of companies. OPEC countries increasing their production levels will not necessarily result in falling oil prices. Prices will rise if the six biggest oil companies who control 186 of 744 (or 25%) refineries in the world fail to run in full capacity, or keep oil in transit or storage. Royal Dutch Shell and British Petroleum control 80% of the tank storage capacity of an important crude oil storage hub in the US that influences the price of the WTI.

In other words, even if OPEC increases its crude output, the oil firms are still the ones that decide the price. As of 2003, oil companies account for 19% of global refining capacity of 112.4 million barrels per day and 16% of global sales of petroleum products of 79 million barrels per day. In addition, OPEC oil is bought largely by these same companies. ChevronTexaco gets more than 40% of its crude from OPEC, while ExxonMobil, 25 percent. The oil wells of other oil TNCs are also in OPEC member-countries. It is the domination of oil companies in the upstream and downstream levels of the oil industry that puts them in a position to dictate world market prices, making them virtually invulnerable to the effects of supply and demand. This oil monopoly allows them to set oil prices independently of OPECs decision to increase or reduce crude oil production. Who are these companies? It was never supply and demand that determined the pricing of oil in the world because the global oil industry has been dominated by a few giant American and European corporations. ExxonMobil (US), Royal Dutch Shell (Britain-Netherlands), British Petroleum (Britain), Total (France), ChevronTexaco (US), and ConocoPhillips (US) are the six largest oil companies. These oil giants have combined revenues of US$788 billion, profits of US$34 billion, assets of US$619 billion, and employ more than half a million workers. The six largest oil companies can produce more than 80 million barrels per day of crude and refine more than 112 million barrels per day of various petroleum products. These international oil companies comprise the so-called Seven Sisters: Standard Oil of New Jersey (which became Exxon), Standard Oil of California (which became Chevron), Standard Oil of New York (which became Mobil), Texaco, Anglo-Persian Oil (which became British Petroleum), Royal Dutch Shell, and Gulf Oil (bought by Chevron).

Company

Re ven ues $18 2B $17 9B $17 9B $97 B $92 B $58 B

ExxonMobil (US) Royal Dutch Shell (Britain-Netherlands) British Petroleum (Britain) ChevronTexaco (US) Total (France) ConocoPhillips (US) Source: Fortune 2003 Global 500

The two largest oil players (ExxonMobil and Royal Dutch Shell) have raked an all-time high profits in 2004, US$5.79 billion in profits for ExxonMobil and a 54% increase in earnings for Royal Dutch Shell. ChevronTexaco and ExxonMobil used to own Saudi Aramco until it was nationalized in 1980. Saudi Aramco still maintains strategic partnerships with the oil majors through joint ventures with Shell and ExxonMobil in refining and marketing. In the Philippines, Caltex (ChevronTexaco), Petron Corporation (Saudi Aramco), Shell (Royal Dutch Shell) are known as the Big Three of the local oil industry accounting for 83% of the total number of pump stations nationwide, 86% of petroleum products sold in the domestic market, and 100% of the countrys refining capacity. Aside from this strategic control of the oil industry, intense speculation drives oil prices up. The USled war in Iraq, political troubles in Nigeria, and Venezuela plus the supposed lack of spare capacity have been used by speculators as reasons that drive oil prices.

How does speculation drive prices up? Crude prices used to be pushed up and down by the physical requirements of buyers and sellers, such as major oil companies. However, hedge funds and other "non-commercial" players in oil futures bourses such as London's International Petroleum Exchange and the New York Mercantile Exchange have added to cost of oil. In 2003, around 60,000 trades of oil futures a day were already being undertaken by non-commerical players on Nymex reaching 200,000 a day in the first half of 2004. These transactions costs billions of dollars on future oil prices and thrive on their price volatility. IBON databank cites several ways where speculation affects world market prices: in benchmarks, and in manipulating term contracts and spot and futures makers. Benchmark prices are used in trading crude oil around the world. Three major benchmarks are the Brent, West Texas Intermediate (WTI), and Dubai prices. Brent is based from North Sea prices and is a benchmark for approximately 40 to 50 million barrels of crude oil produced or sold daily in Europe, Africa, and Middle East. WTI is a blend of crude oil produced in Texas, New Mexico, Oklahoma, and Kansas and is used for 12 to 15 million barrels of crude oil produced or sold each day in the Western Hemisphere. Dubai and Oman crude is the benchmark for about 10 to 15 million barrels per day of crude oil produced in the Middle East and purchased in Asia. These benchmarks are based on relatively small production sites. Brent, which accounts for 1% of world crude production, determines 60% of crude oil trade. These benchmarks thus offers easier manipulation by oil firms by adjustments on only a small number of sites. Term contracts, on the other hand, determines the trade of at least 67% of physical crude oil covering multiple transactions between a buyer and a supplier over a specified length of time. Transactions among the different units of the same company (i.e. giant transnational oil corporations) fall under the term contracts. Spot spot market prices involve agreements to buy or sell one shipment of crude oil at a price negotiated at the time of the agreement. Being on the same side of the market, the worlds biggest oil companies acting as both producers and buyers allows them to distort the supply-demand balance. In figure 1, the price of Dubai crude has been increasing on the average while production costs are actually low. Without royalties and passed-on exploration costs, production have varied from 4-8 USD per barrel. At $50 per barrel, this means that more than $40 are actually windfall profits for these firms. Even more intense speculation happen at the futures markets where enormous profits are made through buying and selling oil contracts. Futures prices refer to the price of oil traded in the futures market, which involves the purchase and sale of contracts for the future delivery of oil. Giant securities firms like Morgan Stanley, Merrill Lynch, Goldman Sachs, and Lehman Brothers; transnational banks like Citigroup, HSBC, BNP Paribas, and Deutsche Bank; and other Fortune Global 500 firms join hands with oil firms in speculation on oil prices earning their excess capital more profit while driving oil prices up. The oil firms that both produce and sell crude oil as well those that buy and refine are largely the same. The futures market can only offer them further means to manipulate the transaction cost of oil. Security fears, supply problems and political and economic woes is reflected in the volatile and often uptrend futures oil market. The futures and spot market artificially increase oil prices since majority of (actual) oil traded is through long-term supply contracts, which are mostly intra-TNC transactions. Supply and demand as reflected in spot and futures markets just reflect the speculation in the oil exchanges and not actual production and transportation costs nor actual fluctuations in demand. Decreasing oil sources Spending on production has also been falling despite historically high global crude prices. These oil companies have not been searching for new oil and gas reserves in the North Sea or elsewhere as they did in the past. ExxonMobil spent US$1.2 billion on exploration last year, its lowest for five years, while ChevronTexaco spent US$1 billion, almost half of what it spent in 1998. Yet ExxonMobil is sitting on US$20 billion of cash while rivals such as BP and Shell have made record profits but are giving money to investors through share buybacks and major dividend payouts. Research on alternative sources of energy has always been a low priority for states and is still marginalized at best despite a lot of basic research waiting to be developed further into viable

alternatives to oil. Securing oil markets and reserves New routes for oil pipelines and finding new sources of oil and gas fields have not escaped the strategic eye of the US and its allies. Americans consume about one-quarter of the world's oil production, and on a per capita basis consume about double the amount Europeans use. "Oil prices are at record highs and every day we grow more dependent on foreign sources of oil," says Rep. Joe Barton (R) of Texas, chair of the House Energy and Commerce Committee. Recently, George W. Bush proposed that new oil refineries should be constructed on US military bases that are no longer in use to alleviate increasing oil prices. Yet the role of these bases on securing oil markets and reserves, are not limited to this new proposal of Bush. It should be now clear that the war in Iraq was not about weapons of mass destruction nor of securing freedom for Iraqis. The war in Afghanistan was not about the search for the still missing Osama Bin Laden. The war in Chechnya and Georgia, the Balkans and Africa and the interventions of the US and other countries are not about racial tensions nor peacekeeping. In areas near oil fields, and in those within oil pipelines, the military aggression and interventions were done to secure reserves. Michael T. Klare, in Blood and Oil. states From the vantage of officers and enlisted personnel in the U.S. Central Command, the invasion of Iraq is only the latest in a series of military engagements in the Gulf proceeding from the Carter Doctrine... This history helps to explain why the very first military objective of Operation Iraqi Freedom was to secure control over the oil fields and refineries of southern Iraq. In April 2003, just weeks after the invasion of Iraq, Vice-President Cheney predicted that by the end of the year Iraq would be able to raise its oil output as much as fifty per cent over prewar levels. This has not materialized to its full levels since the US has still not completely secured Iraq. Securing strategic oil reserves is a key requirement for US imperialisms continued global dominance. As such, the US has already 800 foreign military installations around the world, more than 200,000 troops on foreign soil and more than 50,000 afloat; an average 35,000 engaged in recent interventionist operations (Balkans, Iraq, etc.), a military presence in 140 countries (including significant deployments in 25 countries) and defense arrangements with 56 countries. In 1998, Defense Secretary William Cohen made this clear in his Annual Report to the President and Congress, To protect and advance U.S. [global] interests, the American government must be able to shape the international environment, influencing the policies and actions of others[and must] prevent the emergence of hostile regional coalitions or hegemony, ensuring uninhibited access to key markets, energy supplies, and strategic resources; deterring and, if necessary, defeating aggression against U.S. allies and friends; ensuring freedom of the seas, airways, and space and the security of vital lines of communication.

Figure 2: US Military installations and deployment (yellow). Oil, gas and coal fields (red). The US has already launched recently three wars clearly aiming for undisputed hegemony over oil

resources all over the world. In 1991 the US-led war vs. Iraq resulted in tighter US control of the Middle East, introduction of permanent US military forces, facilities and bases in Saudi and the Emirates, increased US military sales (and pre-emption of the oil income) to Saudi Arabia. In 2002, it invaded and occupied Afghanistan securing the building of a trans-Asia oil pipeline and made its presence felt near the Caspian Region (Kazakhstan, Azerbaijan, Turkmenistan, Uzbekistan, Kyrgyzstan and Tajikistan), the area of greatest resource potential outside of the Middle East . In 2003, the US gained (once it completes the conquest and recolonization of Iraq) direct control of 112 billion barrels of proven oil reserves and more than 250 billion barrels of potential oil reserves. The US has also made the Philippines part of its second front in its war of terror due to its proximity to the oil fields in Spratly and the corridor between Indonesia and southern Philippines. Similarly, it engages in destabilization in Indonesia, Colombia and Venezuela because of oil, much the same way it is intervening in Angola, Nigeria, Congo, Gabon, Cameroon and the Equatorial Guinea. These countries would be able to supply 25 per cent of US oil by 2015. Combined with this global military offensive is the complementing and closely linked trade and cultural offensive led by the US commonly known as globalization. Imposing neo-liberal policies of liberalization, deregulation and privatization on countries to break down of trade and protectionist barriers supposedly to allow the free flow of capital, technology and bring about peace and prosperity has only resulted in its reverse: concentration of capital, war and immiseration. It is these policies that has let the oil monopolies relentlessly increase downstream prices of oil products in countries where oil is deregulated, allowed oil monopolies explore and exploit a country's natural resources through liberalization of mining and exploration, and privatized state oil companies to the detriment of people in all countries. It is not surprising that the increases in oil prices have generated a lot of discontent among those directly affected by it. People all over the world are protesting these oil increases. In April 2005, angry lorry drivers in Scotland staged a demonstration outside a BP oil refinery in protest at soaring fuel prices and strict working regulations. In the Philippines, Lagos in Africa, Sri Lanka, Ecuador and elsewhere, the people have shown their reaction against the increasing prices by holding strikes and mobilizations. By exposing the stranglehold control of oil monopoly companies over world oil prices, markets and our lives and showing its clear link with imperialist aggression and policies can we explain the unprecedented increase in oil prices and rob imperialism's local agents in our countries reason to wash their hands in squeezing more profits from our people.###

Electric cooperatives An electric coop (or REC, or rural electric cooperative, the legal nomenclature used) is owned and managed by the consumers who are also its members who elect the members of the board and appoint a GM to manage its day-to-day operation. An REC can be either a non-profit non-stock or a stock coop. If a stock coop the member/consumers own stocks and can be paid out dividends when a profit is made. SORECO II is an example of a stock coop where the member consumers buy stocks on monthly installments, many at P5.00 per month up to a certain maximum. A coop can either be registered or not with the Cooperative Development Authority (CDA). If registered it is exempted from income and other taxes, which is an incentive for coops to be registered. Both are supervised by the CDA as far as their coop legal responsibilities are concerned, like calling for a regular assembly and the like. A coop belongs to that group called Distribution Utility (DU). Since distribution is still regulated under the EPIRA a coop must file for its power rate with the ERC (Energy Regulatory Commission) before it can bill its customers. In its application for power rate (or tariff) the coop factors in its O&M (operation and maintenance) expenses, a reinvestment fund (for upgrades and expansion), other expenses that may be allowed by the ERC, and the desired RORB (Return on Rate Base) which is the provision for profit so that members can have dividends. If non-profit, non-stock there is no such provision so that the power rate would be lower. Normally though member/consumers of stock coops would not mind a higher electricity rate because they would share in the profit. The big difference then between an REC and a DU that is privately-owned like Meralco (Lopezes) or Davao

Light (Aboitiz) is the nature of ownership and control of the utility. If the DU is a coop the consumers themselves own and control and manage the utility firm and any profit made (if stock coop) are shared among the consumers who are of course the people in the community. The coop is responsible to the members who are also its consumers who are also its owners. Conflict of interest is very minimal because the owners and the consumers are the same people. If the DU is a private company a few wealthy individuals own, control and manage the utility firm. Any profit made is shared only among them. Since the objective of businessmen is to maximize their profit you will easily understand why such racket as the overcharging case of Meralco happened, where it had to pay us back P29B in overcharges illegally collected in ten years. In reality, many coops in the 70s, when Marcos issued his PD ordering the setting up of coops, started correctly and with very good intentions. Of the 119 coops today, only about 1/3 are classified as Class A, many in Class D and E and mired in debt and operational losses due to inefficiencies and overpricing of materials, etc. With many coops in sorry state and in debt the government, instead of setting things aright through ways of strengthening the coops wants to have thse coops sold to private companies through what is called an Invstment Management Contract (IMC) or outright buy. The IMC is the more clever way because a private company, after 5 years of managing and controlling a coop operations can buy the coop for a song. These IMCs are going to be part of the strategic plan to privatize wholly the power sector. The role of foreign interests in the privatization of the power industry It was not a secret that President Arroyo railroaded the signing of the EPIRA due to the pressure by creditors on the Philippine government before they release the power reform program loans to finance the countrys power development program. Major creditors include the Japan Export-Import Bank, Asian Development Bank (ADB), and World Bank (WB). These power sector reforms and the sale of NPC to private business were long standing recommendations of the IMF. These recommendations were part of the structural reform program the country has to implement as a pre-condition for more loans. The recent joint application of rate increases was also clearly due to a pressure from the creditors of the Napocor on its USD 10 billion loans. The training of staff, and even the website, of the ERC, as well as its gamut of consultants, are courtesy of the AGILE, a USAID program that seeks to facilitate liberalization of our economy. According to US Department of Energy, the Philippines is important to world energy markets because it is a growing consumer of energy, particularly electric power, and a major potential market for foreign energy firms. Aside from importing from these foreign energy firms, the Philippines also buys from these foreign TNCs who own most of the private local energy supply. The passage of the Power Act, which will fully privatize the Napocor, further increases the dependence of the country from these profit-thirsty TNCs. Here is a country that is a market of foreign firms who sell goods that are extracted from the country itself. If these trend will not be reversed, the Philippines would likely end up being a private property of foreign TNCs. Analysis and Alternative There are about 10,000 unelectrified barangays in the Philippines. Under GMAs program the targets is to attain the 100% barangay level electrification by the year 2004. The National Electrification Administration (NEA) has estimated that 6,483 barangays will be electrified by the year 2004. Out of this target, about 4,488 will be connected to the grid and the remaining 1,995 barangays will be electrified using new and renewable energy technologies. This is in line with the current national priority in NRE development, promoting off-grid NRE systems in order to improve the livelihood of people in the rural areas. According to the Department of Energy, the Philippines can supply the needs of the whole country through our natural resources in over fifty years. Based on the Philippine Energy Plan, our government is currently focusing into two energy program, these are the electricity or power reform energy and independense energy package. The power reform energy will ensure that there will be no power crisis will happen to our country. Part of these program is the restructuring of the power industry through the implementing of the Energy Power Indusdry Reform Act or the EPIRA that GMA signed right after her oath taking as people power installed president in 2001. While the independense energy package will pursue the use of all the natural energy resources that we have through continuous exploration, development and exploitation of NRE's including indigeneous energy sources such

as coal, natural gas and oil. Our government also said, that the promotion of NRE's would help in reducing our imports in oil from other country, environment-friendly and would also help in conserving fossil fuels due to its deterioration of oil globally. Currently our energy industry is in the process of privatization, NREs are included. In fact NRE will be using in the rural electrification program of the Arroyo Government. The Department of Energy with the help of USAID have released RE business Development Guide book to serve as a guidelines for private investors. They have also done a plan for the rural electrification or missionary electrification program headed by the JAICA team. The objective is to electrify rural areas and promote private investment in missionary electrification program and to privatize the remaining small public utilities. If you can notice we are currently paying missionary charge of PO.O373 in our new unbundled electric bills, this money can use by the investors for missionary electrification in on grid or off grid projects. NREs belongs to off grid project, meaning the communities are far from main grid. The government justifies the privatization with their statement that developing NREs is very risky that it why it is better to for them to sell it to foreign investors. It is cleared that the government abandon there responsibility to its people. No clear support and programs for the energy industry to provide direction to develop its own basic industry that can help build for national industrialization. The situation of being backward and stunted of science and technology in our country give way for the foreign investors to monopolize and cotrlol the markets and all materials/technology needed to develop the NRE, that is why we need a big resources for the promotion of NRE.

While our government is in its cycle of deepening economic bankruptcy status, because of its balloning foreign debt resulting to financial crisis. This burden is passing through the people by implementing exploitative tax policies such as the value added tax. Rising the prices of basic commodities and high prices of public utilities cannot cope up the very low salary of our coomon workers. The government is gladly giving our natural resources, public utilities to the hand of those foreign investors where in fact this will serve the Filipino people.

The NRE will help a lot in the growth of our country and in building local industry and developing our agriculture in rural areas. We need to have a true government that will carry the interest of the Filipino people. We have to ensure that we controlled all our energy industry and have a plan in the framework of national industrialization. We have to develop the our human resources, enhance our science and technology to improve our scientist, technologist and engineers capacity in building and advancing the science and technology for the people. Power to the people The Philippines rich energy sources did not result to economic prosperity of the Filipino people. The EPIRA has only resulted into ever increasing power rates, the plunder of our natural resources, the intensifying control of foreign TNCs over our power industry and our economic development as a whole. Furthermore, it has shown the vulnerability of the government to pressure and dictates of huge foreign banks and financial institutions. It is indeed an ironic situation that the Philippines rich energy sources did not result to economic prosperity of the Filipino people, power consumers and power sector workers alike. Public utilities are services that are used by the people in their daily activities and economic production. These are power, water, fuel, transportation and telecommunications services. Limited access to these services would introduce additional difficulties that can be eased or facilitated by the use of the services provided by said utilities. In the case of power, water and fuel, the role of a public utility is to generate or procure these resources, deliver and distribute it to the public. In the case of transportation and telecommunications services, the public utility provides the infrastructure and means that enable people to take advantage of the goods and services inherent to the utility. Power, water and fuel utilities provide access to electricity, water and fuel to households and industry. These utilities should be accessible and affordable to the people. Limiting access by increasing the costs of these services would make, in general, daily activities more difficult for the people. Nationalization of public utilities is important since it these public utilities are strategic in nature to the development of the country. It provides the necessary infrastructure and support to the peoples daily activities and industrial growth. If these industries are left to foreign monopoly capital, whose interest is to

recoup their investment and rake in profits--- we would lose quality of service, an unending increase in utility costs and our national interest will not be addressed. In particular, electric power is a basic service that should be provided to the people and is an indispensable factor required in genuine industrialization. The governments excuse of having no funds to build the requirements of the power industry is a false claim because it can shell out hundreds of billions of pesos to debt servicing and military deployments. Furthermore, it gives numerous incentives and sweetheart deals to foreign investors. The privatization and deregulation of electric power by the EPIRA runs counter to the interests of the Filipino people. It has only resulted in non-stop increases of rates. The long term solution to the excessive electricity charges entails the nationalization of the entire power sector. We must work to call for a stop to this policy of privatization and deregulation by calling for the scrapping of the EPIRA and to have the government take over NAPOCOR, the IPPs, transmission lines and the distribution utilities such as MERALCO. Furthermore, alternative sources of power that are low-cost and environment friendly should be promoted and developed. The government should pursue genuine nationalization of the power industry instead of neoliberal power reform if it is truly serious about bringing down the electric power rates.### REFERENCES [1] Encyclopedia Britannica, 2002 [2] Riva, Joseph Jr. P., World Petroleum Resources and Reserves [3] The Philippine Natural Gas Industry: Development and Growth, A PowerPoint presentation in by Department of Energy Secretary Vincent S. Perez Jr., given at Tokyo last Sep 17, 200? [4] The Philippine Natural Gas Industry, A primer by Department of Energy, date? [5] British Petroleum Statistical Review of World Energy, June 2001 [6] Zhai, Y., Technical Assistance to the Republic of the Philippines for Institutional Strengthening for the Development of the Natural Gas Industry, Asian Development Bank, 2003 [7] Sources from the Department of Energy (DOE) [8] Republic Act No. 8479, Downstream Oil Industry Deregulation Law of 1997 (also known simply as Oil Deregulation Law) [9] Department Circular No. 95-06-006, Policy Guidelines on the Overall Development and Utilization of Natural Gas in the Philippines, DOE, June 15, 1995 [10] Executive Order No. 66, Designating the Department of Energy as the Lead Agency in Developing the Philippine Natural Gas Industry, January 18, 2002 [11] Department of Energy Circular No. 2002-08-00, Interim Rules and Regulations Governing the Transmission, Distribution and Supply of Natural Gas, August 27, 2002 [12] Policy and Regulatory Framework for the Development of the Philippine Natural Gas Industry, DOE, 2002(?) [13] Samaranayake, Nilanthi, Oil and Politics in East Asia, http://www.trinstitute.org/ojpcr/ 1_2sama.htm [14] Fleay, Brian J., USAs triple energy whammy in electric power, natural gas, and oil, iNet News, January 22, 2001 [15] Savinar, Matt, Life After the Oil Crash: Deal with Reality, or Reality will Deal with You, http://www.lifeaftertheoilcrash.net, December 1, 2004 [16] Natural Gas, The Coming Energy Crisis in the UK, http://www.energycrisis.co.uk/gas [17] Revealing Statements from a Bush Insider about Peak Oil and Natural Gas Depletion, http://www.fromthewilderness.com/free/ww3/061203_simmons.html, June 12, 2003 [18] New oil projects cannot meet world needs this decade, iNet News, November 16, 2004 [19] Production and Consumption in 2004, The Coming Energy Crisis in the UK, http://www.energycrisis.co.uk/nations/2004 Additional Reading on Natural Gas [20] James A. Clark, The Chronological History of the Petroleum and Natural Gas Industries (1963), gives a detailed chronology of both technical and human facts [21] Malcolm W.H. Peebles, Evolution of the Gas Industry (1980), provides international, historical, and technological developments [22] Arlon R. Tussing and Connie C. Barlow, The Natural Gas Industry: Evolution, Structure, and Economics (1984), examines the natural gas industry in the United States [23] E.L. Rawlins and M.A. Schellhardt, Back-Pressure Data on Natural-Gas Wells and Their Application to Production Practices (1935, reissued 1970), is a classic report of the U.S. Bureau of Mines describing and explaining the back-pressure method, with an analysis of data for more than 500 gas wells [24] Morris Muskat, Physical Principles of Oil Production, 2nd ed. (1981), and The Flow of Homogeneous Fluids Through Porous Media (1937, reprinted 1982), are fundamental works on the basic principles of gas and petroleum

[25] Collections of scientific papers may be found in G.D. Hobson (ed.), Developments in Petroleum Geology, 2 vol. (197780); and in publications of the American Association of Petroleum Geologists, including the AAPG Bulletin (monthly), the October issue of which contains an annual review of significant exploration and production activity; and the AAPG Memoir (irregular) [26] Basic Petroleum Data Book (three per year); and Minerals Yearbook, prepared by the U.S. Bureau of Mines, include annual statistical reviews of the petroleum industry [27] Each year maps, production figures, and geologic data are published in August by World Oil and in December by the Oil and Gas Journal. [28]

The paper is written by Dr. Giovanni Tapang, Engr. Ramon Ramirez, Mr. Kim Gargar and Mr. Edwin Castillo References: Energy Information Administration, US Department of Energy, http://www.eia.doe.gov PNOC-Energy Development Corporation, http://www.energy.com.ph Comptons Encyclopedia Online 1998 FAQ Sheet on House Bill No. 8457, Committee on Energy, House of Representatives Complete privatization of Napocor: private power, IBON Special Release 38, October 1998 Power reform or privatization, IBON Special Release 52, April 2000 Ang Panganib ng Pribatisasyon, prepared by ACT, AHW, COURAGE, CONTEND, and HEAD for the Peoples Summit, July 19, 2001 8. Meralco Employees and Workers Association Press Release, May 26, 2001 9. Power play causes delay, article by Marcelo E. de la Cruz and Pablo C. Villasenor 10. 5th status report on EPIRA Implementation, May 2004-October 2004, Department of Energy 11. AGHAM files and press releases Based on research done by AGHAM and from articles by IBON foundation. 1. 2. 3. 4. 5. 6. 7.