By Engr. Cerael C. Donggay, former Oro Chamber President
More often than not, when I posed this question, both technocrats and politicians responded with the same explanation: “Other ASEAN countries are subsidizing their energy sectors.”
However, prior to the privatization of the energy sector in 2001, the Philippines’ energy rates were competitive. Since then, our rates have soared to two to three times higher than those of our ASEAN neighbors. This disparity has squeezed our GDP’s manufacturing mix, pushing industries to relocate to countries with lower energy costs. As a result, these countries have seen increased employment opportunities, evidenced by their average unemployment rate of 3%, compared to our 12% unemployment rate, as reported by ADB and ILO studies.
This article delves into the root causes and contributing factors, including (1) Square Peg in a Round Hole, (2) The Domination of Private Interest Prioritizing Profitability Over Affordability, (3) Weak Control & Regulation, (4) The Inefficiency of Privatization, and (5) Conflict of Interest.
Square Peg in a Round Hole
How can individuals without energy expertise effectively steward the energy sector? Specifically, how could a lawyer, a ferry transport businessman, a non-energy businessman, a politician, or a military general lead the Department of Energy (DOE) effectively and efficiently? How can they grasp the intricate details, operations, and strategic dynamics of the energy sector? Is it reasonable to expect them to understand the complexities that specialists in the field would naturally comprehend?
Just as lawyers are best suited to lead the Department of Justice, and physicians are best to run the Department of Health, shouldn’t energy experts be the ones leading the DOE? After all, each sector requires the nuanced understanding that only professionals with relevant expertise can provide.
Loose Control & Regulations
When two massive 200 MW Power Barges (PBs) were auctioned and decommissioned in 2009, the Mindanao Grid system collapsed. These power barges acted as “chargers” for the grid, injecting energy into the system when Lake Lanao’s (LL) water levels fell below the Rule Curve, much like a car alternator charges the battery to ensure a smooth start after standby. The sudden halt in their operation caused a dramatic drop in the grid’s stability, leading to a significant decline in LL’s water levels, which broke the minimum critical elevation and pushed the reservoir’s ecology to the brink of disaster in 2010.
In response, the government encouraged a surge of fossil fuel coal operators to install over 2,000 MW of coal-fired power plants—an overreaction to the 170 MW energy deficiency in 2010. By the time these coal plants were completed in 2015, the grid was overwhelmed by coal overcapacity. This led to widespread outrage over the not-priority-dispatch order. Despite the overcapacity, these environmentally damaging coal plants were prioritized, leading to the wasteful dumping of Renewable Energy (RE) from hydro sources into the sea. This squandered the full potential of RE, which could have significantly reduced Mindanao’s energy costs from 2016 to 2022. Moreover, this was a gross violation of the Renewable Energy Law, RA 9513, which mandates the priority dispatch of RE sources.
The energy regulatory body failed not only to prevent the sale of the PBs but also to maintain adequate control over capacity development that should have been aligned with the region’s power demand growth.
Inefficiency of Privatization
Let me illustrate the government regulatory body’s neglect in safeguarding public interest.
Before privatization, a geothermal plant was priced at P3.00 per kWh. After being sold to a private investor, the generation cost was abruptly increased to P5.50 per kWh.
This is a clear example of the lack of regulatory control to protect the interests of power consumers, energy-dependent industries, and the manufacturing sector. The soaring energy costs that followed privatization highlight the consequences of implementing privatization without adequate government safeguards and oversight. While privatization itself is not inherently problematic, the failure to establish safety nets and regulate private players—who naturally seek profit—has harmed industries that rely on affordable energy and are now drawn to countries with lower energy costs.
Blaming the lack of subsidies in the energy sector for the high energy costs in the Philippines is misguided. It overlooks the real issues at play, leading to incorrect diagnoses and ineffective solutions to address the underlying problems.
Conflict of Interests
Is there no policy that prevents professionals with previous ties to specific power entities from taking leadership roles in the Energy Department (DOE, PSALM, ERC)?
While such a policy exists, it remains largely unenforced.
