The Philippine energy crisis (1989-1993)

by Former Philippine President Fidel V. Ramos, December 20, 2014
from Manila Bulletin 

“Our ‘Philippines 2000’ Strategic Program for one generation had Five Principal Points: (1) Peace and Stability (2) Economic Growth and Sustainable Development (3) Energy and Power Generation (4) Environmental Protection (5) Streamlined Bureaucracy….”

— FVR @ JCI Manila’s 64th Turn-Over Ceremonies, 16 January 2012

Our experience of a severe electric power crisis in 1989-1993 may be instructive to the incumbent Administration and to aspiring young leaders.

When the authorities admitted in 1991 that the power crisis would get worse, diesel-fired power barges and similar expensive generating facilities were procured as stopgap measures, leading to higher oil import bills and power rates. The economy continued to dive.

According to the Asian Development Bank (ADB), the power shortages led to a 6% decrease in Gross Domestic Product from 1989 to 1991.

During the worst years of the Philippine energy crisis electric power was rationed among industrial/commercial and residential users because 8-to-12-hour brownouts occurred daily in Metro Manila and in other population centers.

VOLUNTARY LOAD CURTAILMENT PROGRAM

Most industrial activities were stifled by the unstable power supply. Millions of workers, particularly in small enterprises, lost their jobs or livelihood as shops closed due to lack of business. Even large companies had to reduce working hours, or worse, shut down temporarily, despite their purchase of their own generator sets.

Some 1,600 firms were asked to participate in a Voluntary Load Curtailment Program (VLCP) so that their production shifts could be synchronized with the power availability schedules arranged on a rotating basis. The entire population nationwide was asked to observe Energy Conservation or “ENERCON” – with provincial governors, city/municipal mayors, congressmen and Cabinet members in the forefront of the information campaign.

As President, FVR was quite clear: put energy back to the center of the national agenda where it rightfully belonged. He asked Congress for a new law to create the Department of Energy (DOE), which resulted in the passage of Republic Act (R.A.) 7368 in December, 1992.

Other policy reforms followed. Innovative schemes such as the Build-Operate-Transfer law were expanded in the Ramos era to fast-track new power plants without the Government incurring massive public investments, except for right-of-way outlays.

The Expanded B-O-T law produced seven “fast-track” power projects – with an aggregate capacity of more than 900 megawatts – that put the country back on the road to sustainable economic recovery by December 1993.

The Government also pushed the exploration and development of natural gas reserves from the Camago-Malampaya field northwest of Palawan, and the promotion of other indigenous energy sources (geothermal, hydro and coal), and so-called renewable energy alternatives (solar, biogas, wind).

LESSONS LEARNED

Lesson 1: SPEED IS CRITICAL, THERE IS NO ROOM FOR DELAYS. That earlier energy crisis cost the Philippines billions of U.S. dollars in terms of lost industrial production, decreased export revenues, lost opportunities in investments and tourism, and incurred a higher debt burden.

The costs of indecision, postponements, protracted debates – even one single day of unnecessary delay – are more prohibitive than building the power plants themselves. This is true not only for energy but for all other public infrastructures.

Lesson 2: HANDS-ON LEADERSHIP AND POLITICAL WILL ARE VITAL. FVR led his Cabinet to work as a team. He put my best technocrats and action men to head the Department of Energy, the National Power Corporation, the Department of Finance, the National Economic and Development Authority, etc. – and all worked together to end the power crisis.

It was clear to all that the problems would multiply if remedial measures were not done at once. Prevention is always better than cure.

Lesson 3: THE POLITICAL LEADERSHIP SHOULD MAKE THE TOUGH DECISIONS BECAUSE THE BUREAUCRACY WILL NOT. With the trauma of the Bataan Nuclear Power Plant fiasco still fresh in their minds. The bureaucracy was scared to make the necessary moves to improve the power situation, and few among them wanted to put their careers on the line by making potentially controversial decisions.

It was up to the political leadership to show the way and to make the tough decisions.

Lesson 4: CAREFUL PLANNING IS ESSENTIAL, BUT USELESS WITHOUT ACTION-IMPLEMENTATION. We believed that energy security must always be on the national agenda. We gathered a team of experts to put together our 30-year Philippine Energy Plan which included the rehabilitation or retirement of old plants, the timetable for incoming programs, supply and demand projections, weather scenarios, and other such variables.

With such an Energy “Roadmap,” our line departments and agencies in other sectors could continue to implement programs and projects regardless of who eventually would succeed as their heads. The key is that action was taken – what needed to be done was done, what needed to be revised was revised; and what needed to be implemented was implemented.

Lesson 5: GAIN INTERNATIONAL ATTENTION AND SEEK STRATEGIC PARTNERSHIPS. At that time, it was obvious that we would not be able to raise the large amounts of capital needed from domestic sources; that we would have to attract foreign participation. We also wanted to adopt the technology and skills that successful companies could bring in.

Consequently, we did what any good salesman does – went out and marketed. We were severely criticized at home for the many trips we made abroad. But, those trips had a purpose: arouse interest in investing in our country. Our marketing efforts worked.

Lesson 6: PARALLEL REFORMS IN OTHER CRITICAL AREAS ARE NEEDED. We moved to empower our people at the grass-roots, urging them to achieve a “Culture of Excellence” in their endeavors. Parallel reforms to address the other critical concerns of our country proved to be complementary moves that helped overcome the power crisis.

Early on, we spurred industrial and services liberalization. With the help of Congress, we removed decades-old shackles in our banking industry, telecommunications, shipping and aviation, insurance, and the downstream oil industry. Full foreign ownership was allowed in almost all activities except those prohibited by our Constitution for reasons of national security, public safety, resource protection, and community morale.

Lesson 7: GOVERNMENT INTERVENTION SHOULD BE MINIMAL, AND ONLY TO INITIATE PROJECTS AND ENSURE THAT MARKET FORCES AND COMPETITION WOULD PREVAIL. We firmly believed that whenever Government or the law places artificial barriers to competition and market forces, this tilts the playing field in favor of somebody and, consequently, disfavors somebody else who must pay the costs of the privileges of the favored one.

In such circumstances, it is the poor and under-privileged that suffer the collateral damage most of the time. We encouraged more productivity and more competition among businesses.

Lesson 8: GOVERNMENT, NEVERTHELESS, DOES HAVE A ROLE TO PLAY – by providing a level playing field under the rule of law, to foster private initiative where there is none, and to channel private initiative for the greater welfare of the community. The Government must be there to provide a shared vision for the nation, and enable that vision to be fulfilled and achieved by a free, fair and vibrant citizenry under capable leaders.

The lessons of the power crisis the Philippines experienced 25 years ago instruct us all on the need for long-term perspectives and long-term solutions.

ADVICE FROM THE FOUNDATION FOR ECONOMIC FREEDOM

In the years to come, Government’s effectiveness will be measured in terms of its success in laying solid foundations upon which future Administrations can build our beloved Philippines.

Last October 2014, the Foundation for Economic Freedom (FEF) with Roberto de Ocampo as Chairman (and Dr. Cesar Virata and Dr. Gerardo Sicat as Advisors) put out an important energy policy paper titled “Avoid Short-Term Solutions With A Long-Term Cost Burden On Consumers.” The FEF cautioned that the actions taken by Government to respond to the possible short-term shortage by 2015 and not load the system – and the consuming public – with expensive quick fixes that will burden us for a long time.

“Short-termism” and the narrow view of key stakeholders (led by the authorities), underlie in most part this temporary thinness of reserves and possible outages in the coming summer months. Such include:

“Not-in-my-backyard” environmental groups and Local Government Units opposition to new generation capacity, with no viable options presented and failure of Government to respond with resolve.

Politicized/poor management and resulting financial weakness of rural coops that have no capacity to contract but nonetheless avail of power.

Under-contracting and lack of transparency of needed ancillary reserve capacity plus weak enforcement by the regulator.

Delays in rolling out of open access.

Government intervention in the Wholesale Electricity Spot Market (WESM) over the years that have distorted price signals, and dampened investments and restricted supply.

MORE RECENTLY, THERE SEEM TO BE INCONSISTENT AND INCOHERENT POLICIES WHERE GOVERNMENT IS PROPOSING EVERY EXPENSIVE SOLUTION TO RAISE ELECTRICITY SUPPLY, EVEN AS ITS REGULATORY ARM IS SEEN AS FLIP-FLOPPING ON MARKET PRICING RULES THAT MAKE SOME OF THE EXISTING PEAKING PLANTS UNECONOMICAL TO RUN, WHICH THUS LIMITS SUPPLY.

IN PARTICULAR, FEF CAUTIONS AGAINST QUICK FIXES WITH LASTING COST CONSEQUENCES THAT SOME PARTICIPANTS IN THE POWER INDUSTRY, INCLUDING GOVERNMENT, HAVE PUT FORWARD. KEEPING COSTS STABLE IS AN ESSENTIAL FUNCTION OF THE REGULATOR.

SUMMING UP

THE FVR 30-YEAR ENERGY PLAN WAS CALLED THE “ELECTRIC POWER INDUSTRY CODE (EPIC), BUT WAS NOT LEGISLATED INTO LAW DUE TO TIME CONSTRAINTS. HOWEVER, AS EXECUTIVE POLICY, “EPIC” PROHIBITED CROSS-OWNERSHIP AMONG THE 3 COMPONENTS OF GENERATION, TRANSMISSION AND DISTRIBUTION. POWER GENERATION AND DISTRIBUTION COULD BE PRIVATIZED, BUT TRANSMISSION HAD TO BE CONTROLLED BY GOVERNMENT FOR SECURITY REASONS.

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