Crossroads (Towards Philippine economic and social progress)
Philippine Star, 18 April 2012
Philippine electricity price is high. Such a price affects everyone’s consumption budget. But it also drives up the country’s costs as a site for industrial production and makes the economy less competitive. The government has an obligation to bring down the electricity price so that it is brought at least at par with the costs of other Southeast Asian neighbors.
How this state of affairs came to be is the subject of today’s discussion.
“Why high?” Electricity price is high because electricity generation is partly dependent on crude petroleum prices which have gone high. Other cheaper alternatives for generation like coal and natural gas have also followed the path of oil price movements.
Political turmoil in the Middle East – the source of the major supplies of the world’s crude supplies – has caused uncertainties that have translated themselves into high volatility of the spot and futures prices of crude.
When today’s 50-year old Filipinos were born, the crude oil price hovered just around $2 per barrel. The price of crude today has reached beyond $100 per barrel. In fact, a barrel of crude futures at one time had shot up beyond $125!
All countries face the same world price for crude energy but they don’t pay the price we pay. Of course, countries are differently situated. Some have petroleum resources. Others have long-term supply contracts and therefore have better access to crude oil supplies at steady price though it moved upwards.
“Domestic response to the energy shocks of the 1970s.” The country felt the harsh impact of the oil shocks of the 1970s when it found itself almost totally dependent on crude supplies for a large share of its electricity generation. That was when crude prices doubled and then further shot up another three times in a matter of one year.
The government had to find the means to secure crude oil through long-term contracts instead of being dependent on private oil companies. Initially, this meant setting up a national oil company. Then, to respond to the energy problem and set up a domestic economic response, a Department of Energy was created. All the energy bureaus and agencies producing electricity were brought under the direct supervision of the new department.
The crux of the energy development program during the 1970s and toward the 1980s was to put up a defense against the uncertainties of dependence on crude oil. Among others, this meant diversifying the electricity generation for the nation and developing alternative sources of indigenous energy. It meant exploration as well as wise planning of the import needs.
A diversified program of energy uses meant relative independence from a single source. For electricity generation, this meant expanding the choices of technologies and raw material usages.
The use of hydroelectric power was extended where it was possible – along river falls in the large islands, especially, in Luzon and Mindanao where the potentials were real. Many such projects were put in the pipeline.
Geothermal generation of electricity required access to technical assistance. Successful piloting of smaller plants led eventually to commercial geothermal plants generating electricity in the island of Luzon, in Negros, and in Leyte.
The switch toward other energy sources like natural gas and coal investment projects were also made. The search for indigenous sources of energy was launched through the improvement of incentives and through exploration contracts.
The private sector got incentives to search for all possible sources, even including offshore oil drillings. Oil so far has been hard to find except in small quantities. Natural gas finds are more relatively successful.
“The Philippine nuclear option.” The nuclear route toward electricity generation in the mid-1970s was a natural extension of this search for energy independence. Ferdinand Marcos approved the plan to go the nuclear route. Financing and construction of the nuclear plant began in the late 1970s and intense construction took place in the early 1980s. By the time of the fall of Ferdinand Marcos from political power, the plant was ready to start producing electricity.
The change in political leadership after People Power in 1986 disrupted the nation’s nuclear route. The politics of retribution against Marcos affected the nuclear power project severely. The inexperienced government of Corazon Aquino discarded the nuclear option.
If the governance of the project was defective as the new government tried to claim, that did not mean that the project was not good. In fact, the nuclear route was an essential part of getting cheaper and more stable electricity generation.
But the Cory Aquino government discarded the nuclear route as wasteful and used it as a demonstrative lesson against corruption. Further, it used the Chernobyl nuclear accident as a basis for condemning the already finished generating facility.
All nuclear power projects are costly because they are lumpy investments. But when they operated at their capacity, the cost of generating a kilowatt-hour of electricity represented a cheaper generation of electric power compared to traditional thermal power plants dependent on carbon-based inputs.
The nuclear power project’s original investment cost rose in part as a government response to the safety criticisms leveled against it by the anti-nuclear lobby. To ferret out and meet these criticisms, former Senator Lorenzo Tanada was asked by Marcos to conduct hearings on these safety concerns.
“Japan, Korea and Taiwan pursue their nuclear path.” Our government made a decision to go nuclear at about the same time as East Asian neighbors – Japan, South Korea and Taiwan. These more experienced governments took the direction of pursuing the nuclear route clearly and resolutely.
They invested in their pursuit of nuclear power plants over time. Today, the number of nuclear plants in each country is in the two digits. Korea has about 40 nuclear power plants in operation today. All of them generate nuclear power for more than a third of their total electricity requirements. China is also today on a nuclear power route, with many facilities being planned.
“The energy future is penalized.” The inexperienced Cory Aquino government not only discarded the nuclear route. It also abolished the energy department and dismantled effective organization. As a result, it brought upon the country more costly electricity generation.
What it undid took a long time to repair. It would set back development for that much period too. It would permanently bring in higher electricity costs.
When Fidel Ramos succeeded to the presidency, instead of moving the country toward new growth issues, he had to solve the problems that he inherited. To fast track the solution, he brought in the private sector and the solution produced electric power at a premium cost. Long term contracts for the produced energy made the country pay for high energy costs.
All the costs of building the nuclear power plant were absorbed by the Treasury. In short, all tax payers were forced to pay for the production of zero electricity for a nuclear plant investment.
