Demonstrating how the NGCP makes money for its owners and for the banks at
the expense of electric power consumers
By David A. Tauli, President, Mindanao Coalition of Power Consumers
Last month, the National Grid Corporation of the Philippines scheduled a public forum in Cagayan de Oro where they said they will discuss ongoing projects of the NGCP in Mindanao, particularly the Mindanao-Visayas Interconnection Project (MVIP). I told Mike Baños who received the invitation that we now have an
opportunity to the NGCP about the economic feasibility study that they presumably carried out for the project, which they estimate to cost 52 billion pesos upon its completion in 2020. However, the NGCP cancelled the public forum, so we could not ask them about their financial expectations for the MVIP.
Since 2011 the NGCP has filed a number of petitions to the ERC seeking approval for various components of the MVIP, and in July 2017, they got provisional approval from the ERC to implement the project. But in all those petitions and hearings, the NGCP never showed what will be the increase in the rates that consumers will paying for electricity when the MVIP becomes operational. There also was no quantification of the expected benefits to consumers from the implementation of the interconnection project.
In the absence of information coming from the NGCP or the ERC, I carried out a
basic financial analysis of the MVIP, and here are the numbers I arrived at:
1. Average rate to be paid by consumers who use the MVIP to convey the power
supply delivered to consumers from generating plants in Luzon or the Visayas (in
the case of consumers in Mindanao) or from generating plants in Mindanao (in the
case of consumers in Luz-Vi): 1.90 pesos per kWh
2 Annual profits of NGCP over a period of 30 years for constructing the MVIP: 2.0
3. Annual interests paid to banks (for 30 years) who provide the loans (70% of
project cost) for the project: 2.6 billion pesos
These are based on the standard return to equity and interest on debt that are allowed by the Energy Regulatory Commission for transmission line projects or distribution line projects, so there would be nothing irregular about the profits of the owners of NGCP (the majority shareholders being Henry Sy, Jr. and Robert Coyiuto, Jr.), and the interest earnings of the banks (probably those owned by Sy and Coyiuto or their relatives). However the electric power consumers who pay for these profits and these bank charges will not get any monetary benefit from the project in the form of reductions in the costs of purchased power or improvements in the reliability of electric service.
When the Leyte-Mindanao Interconnection Project (as the MVIP was then called) was first proposed in the 1990s by the National Power Corporation, the economic justification for the project was for power consumers in Mindanao to be supplied with electric power from the geothermal power plants in Leyte. It was then estimated that power supply from the Leyte geothermal plants conveyed through the LMIP would cost a total of 3.00 pesos per kWh, whereas building a coal power plant in Mindanao would cost at least 4.00 pesos per kWh. So consumers would be saving at least 1.00 per kWh with the construction of the LMIP. And the NPC could legitimately earn profits, while the banks could legitimately earn interests with the construction of the interconnection between Visayas and Mindanao.
Comparison of the Mindanao-Visayas Interconnection Project of today with the Leyte-Mindanao Interconnection Project of the 1990s:
|Annual profit of NGCP or NPC||2.0 billion Pesos Adequate||Adequate|
|Annual interest earnings of banks||2.6 billion Pesos Adequate||Adequate|
|Impact on rates paid by consumers||Increase of 1.90 P/kWh||Reduction of 1.00 P/kWh|
A conclusion that could be drawn about the ongoing construction of the Mindanao-
Visayas Interconnection Project is that it will earn money for NGCP and for the banks, but will give no significant monetary benefit to power consumers that would compensate for the increase in the cost of power supply imported through the interconnection.
The ERC Erred in Approving the Implementation of the MVIP
Another conclusion that can be drawn from doing an economic evaluation of the interconnection project is that the ERC erred in granting provisional approval in July 2017 for the implementation of the MVIP in ERC Case No. 2017-034 RC.
The application submitted by the NGCP states that implementation of the MVIP will: (1) allow excess generation in one grid to be exported to another; (2) promote competition in the electricity market nationwide through the electricity market; and (3) aid the Visayas Grid during peak intervals when the solar plants are not delivering power. However, nothing has been published by the ERC or the NGCP
about the monetary benefits to consumers of attaining these objectives of the MVIP. Thus, it can be concluded that the ERC did not require the NGCP to quantify the benefits to consumers from a project worth 52 billion pesos, all of which will be paid for by the consumers. In addition, of course, the consumers will pay the profits of the owners of NGCP and pay also the interest charges of banks that finance the project.
The ERC decision in the case of the MVIP can be compared with the decision of U.S. regulators in approving the implementation of the New England Clean Power Link (NECPL), which is a 1,000 MW, HVDC transmission project that will extend 154 miles from Canada to Vermont and New England in the U.S., and is estimated to cost $1.2 billion upon completion in 2020. Benefits to consumers from the implementation of the NECPL include the following: (1) Total energy savings for Vermont ratepayers: $245 Million (first ten years of operations); (2) Total energy savings for New England ratepayers: $1.9 Billion (first ten years of operations); and (3) Vermont electric ratepayers will receive an additional $136 million reduction in transmission costs.
The point in making this comparison of the process of approval of regulatory agencies in different countries is that it is necessary for private-sector proponents of infrastructure projects to quantify the costs and benefits of the projects in order to show to the regulators that the monetary benefits to the users of the projects will be greater than what the users will be paying for the project. In the case of the MVIP, the power consumers will be made to pay 52 million pesos and also pay the profits of the owners of NGCP and the interest charges of the banks without any assurance that they will receive monetary benefits commensurate to the payments they will be making to NGCP.
Stop the MVIP
Power consumers should work on stopping the ongoing construction of the MVIP,
unless the NGCP can prove that the benefits to consumers from the interconnection
project will exceed the costs that they will be paying for the MVIP. How to stop
the MVIP will have to be discussed elsewhere.
October 9, 2019