RDC-X decides today on deferment of planned privatization of Mindanao Hydro Plants

The Regional Development Council for Region X (RDC-X) will decide today during its general assembly whether to favorably endorse a resolution seeking to stop immediately the ongoing privatization activities of the Power Sector Assets and Liabilities Management Corporation (PSALM) for the hydroelectric power plants of the Agus and Pulangui Hydroelectric Complexes (APHC).

During its February 24, 2010 meeting, the RDC-10 Infrastructure and Utilities Development Committee (RDC-10 InfraCom) approved for endorsement to the RDC-X general assembly during its 12 March general assembly Oro Chamber Resolution # 2009-010 calling for the Non-Privatization of the APHC in Mindanao.

In a communication to the RDC-X, the Oro Chamber said the Agus and Pulangui Hydropower Electric Power complexes in Northern Mindanao are the major sources of power in Mindanao.

As of December 2009, the combined installed capacity of the power plants stood at 982 megawatts (MW) with a dependable capacity of 732 MW. The PSALM owns the power plants and operates the National Power Corporation (NPC). The power plants have generated revenues of about PhP 5.3 Billion for the period January-July 2009.

Section 47 (f) of the Electric Power Industry Reform Act (EPIRA) of 2001 (RA 9136) states ´Agus and the Pulangui complexes in Mindanao shall be excluded from among the generation companies that will be initially privatized. Their ownership shall be transferred to the PSALM Corp. and both shall continue to be operated by the National Power Corporation (NPC). Said complexes may be privatized not earlier than ten (10) years from the effectivity of this Act, and except for Agus III, shall not be subject to Build-Operate-Transfer (B-O-T), Built-Rehabilitate-Operate-Transfer (B-R-O-T) and other variations thereof pursuant to Republic Act No. 6957, as amended by Republic Act No. 7718. The privatization of Agus and Pulangui complexes shall be left to the discretion of PSALM Corp. in consultation with Congress.´

The Oro Chamber memo noted how the cascading configuration of Agus HEP complex and their hydrologic connectivity to Pulangui HEP requires a coordinated management dispatch system to comply with the requirements of their environmental compliance certificate (ECC). Thus, it would be impractical to sell the plants on a piecemeal basis.

Since the combined installed capacities of the APHC constitute about 55 percent of the Mindanao Grid, the Oro Chamber noted that its sale to a company, related group or Independent Power Producer (IPP) administrator would violate Section 4(a), Rule 11 of implementing rules and regulations of Republic Act 9136 or EPIRA which sets an ownership limit of 30 percent of the installed generating capacity of a Grid to address prevent potential dominance, market abuse and anti-competitive behavior.

Since Mindanao needs to strategically position itself as the country´s next investment hub by ensuring that basic cost of doing business are low, the Oro Chamber noted how the planned privatization of the APHC would increase the effective rates of electricity in Mindanao, rendering the island uncompetitive compared with Luzon and Visayas.

It noted further how the APHC makes Mindanao fairly competitive with Luzon and the Visayas in promoting new investments due to its cheap power costs.

Furthermore, the Oro Chamber noted how fair market competition to lower electricity rates would not happen in Mindanao because the generation capacity of the existing power plants is barely enough to meet the power demands in Mindanao and a regime of fair and free competition can only occur when the volume of supply of electricity is larger than the volume of demand. However, when the volume of supply is equal to or less than the volume of demand, then there is a greater possibility of price monopoly/dictation, the Oro Chamber noted.

Worse, the privatization of the APHC would eliminate the remaining comparative advantage of Mindanao since its lower cost of electricity is made possible only by the low production cost of hydro power plants. The low production cost of the hydro plants of PhP0.50/kwh and their large contribution to the generation mix in Mindanao, ensures that electricity rates in Mindanao will be significantly lower than the rates in Luzon and the Visayas.

Thus, the members of the RDC-10 InfraCom recommended to the RDC-10 Full Council to endorse the resolution of ORO CHAMBER for the non-privatization of the Agus and Pulangui Hydroelectric Power Complexes in Mindanao. Quite a number of domestic and foreign companies have indicated their interest to acquire the APHC, lending urgency to the Oro Chamber resolution.