‘Epira delivers, why amend it?’

by Lenie Lectura, February 9, 2015
from BusinessMirror

The energy specialist of the International Finance Corp. (IFC) is not in favor of amending the Electric Power Industry Reform Act (Epira), saying that the law “has delivered what it was asked to do.”

IFC chief energy specialist Tonci Bakovic, in his prepared speech during a recent forum on “Benchmarking Regulation: Exploring an Efficient Regulatory Framework for a Competitive Power Industry,” said the law has been successful in attracting investors, as well as fostering competition in the industry.

“Close to 11,300 megawatts [MW] of new generation have been built, attracting close to $17 billion in private investments to the generation sector. Fourteen new players have been introduced to the sector to compete among each other. Not many countries that have undergone reform have achieved the introduction of such number of new players,” Bakovic said.

But Bacovic said his statements do not necessarily reflect the views of the IFC, a unit of the World Bank.

The IFC official also noted that generation prices have been kept almost at par with inflation in a country that has been growing lately at close to 7 percent per annum from 2010 to 2014. “That is quite an achievement in a country that grows fast,” he said.

But, if there is a need to do so, Bakovic said the Epira should only be fine-tuned, similar to what Chile, Columbia and Brazil did.

“These countries, at some time during the implementation of their competitive electricity markets, considered changing their electricity laws, faced with volatility and high prices,” he said.

There is a clamor to amend Epira, following the spikes in electricity prices, particularly in the November and
December 2014 power rates.

House Bill 4479, which calls for Epira amendments, was filed in May last year by House Energy Committee Chairman Reynaldo Umali.

The IFC official also urged the government to introduce flexible liquefied natural gas (LNG). “The physical characteristics and fuel-supply constraints of the Philippine power system make necessary the introduction of flexible LNG to reduce price variability at the shoulder and peak,” Bakovic said.

He stressed the need for LNG supply that allows flexibility of spot purchases of LNG to avoid gas take-or-pay. “If gas with a large take-or-pay is reintroduced, we are back to square one and the sector will keep on having the ‘physical’ or must-run problems that have nothing to do with the Epira law.”

In June last year the Department of Energy (DOE) had laid down immediate-to-long-term recommendations to address concerns raised by industry stakeholders, who are calling for the repeal or revision of Epira.

Some non-governmental organizations and militant groups want the law abolished, saying it has been a complete failure.  The immediate concern raised by the business sector, meanwhile, is the uncertainty this move may lead to, saying it might send the wrong signals to investors and to lending institutions.

The DOE’s recommendations include the passage of a bill declaring power infrastructure as projects  “of national interest;” creation of an inter-agency one-stop shop  to accelerate the processing of permits and licenses for energy projects; undertake  an in-depth study on Wholesale Electricity Spot Market design and revise accordingly through a DOE policy issuance; streamlining of power-supply contracts; rationalizing tariff-setting and subsidies in off-grid  areas to reduce universal charge;  and amendment of relevant provisions of Epira and its implementing rules to ensure supply security at a reasonable price.

Medium-to-long-term recommendations include the harmonization of Epira, with provisions governing open access in economic zones; exemption of the power industry from value-added tax (VAT) to reduce power rates; and review of the roles of local government units to encourage investments in power development.

When asked if the DOE is supporting calls for an amendment or repeal of Epira, Energy Secretary Carlos Jericho L. Petilla said in a text message, “the postings in the site are merely compilation of the various insights on Epira by the various stakeholders, rather than the position of the DOE. The web site, hopefully, will give our lawmakers information when they themselves decide on bills that will be filed or not filed.”

In February last year the DOE spearheaded a multisector consultative dialogue on the review of the law. One of the most frequently raised comments was for the government to explore the possibility of exempting electricity supply from the VAT. Also, the stakeholders called for a review of the imposition of Universal Charge to minimize the impact that adds to consumer burden. They also want modify or remove the must-offer rule at the spot market.

Alongside the legislative reforms, the government was also urged to strengthen the roles of concerned implementing agencies like the DOE, and reinforce the regulatory powers of the Energy Regulatory Commission (ERC) to ensure that any amendment to the Epira will be completely enforced.

Meanwhile, the Philippine Chamber of Commerce and Industry (PCCI) said it is supporting the grant of emergency powers to President Aquino to address the projected power-supply shortage this summer.

“In order to make this emergency power [proposal] more effective and specifically measurable, the grant should be ‘goals-specific and strictly time-bound’ and passed with dispatch and identifying the key responsible national government agency to pinpoint public accountability,” said Alfredo M. Yao, president of PCCI, in a news statement.

The PCCI president suggested that the first “time-bound” goal is to identify and develop, not later than March 31, the aggregate available capacity to meet the over 700-megawatt anticipated power shortfall during the months of March, April and May of 2015 and 2016.

“The authorization should specify availing of the ILP [Interruptible Load Program] as its first line of approach since there are over 2,000 MW of registered stand-by generators with the ERC,” Yao added.

Part of the first goal is the authority of the President to identify and develop funds sources as “subsidy” in
order to shield the consumers and the business sectors from any cost related to the solution adopted.

The PCCI president said the second time-bound goal is to develop, not later than June 30, concrete policies and procedures not otherwise stated in the Epira’s implementing rules without amending the law.

(With Catherine N. Pillas)