Expensive power threatening to subdue PH growth momentum

The ability of the Philippines to sustain a high average economic growth rate over the next quarter of a century will depend, to a large degree, on whether policymakers can reduce the cost of power and make its supply more reliable to encourage more local and foreign investments.

And while the country has exhibited an impressive pace of development in recent years, sustaining this hinges on improving energy supply and cost which are “central to an improved investment climate that, in turn, generates a higher productivity growth.”

Thus said an Energy Policy and Development Program working paper authored by Majah-Leah Ravago, Raul Fabella, Ruperto Alonzo, Rolando Danao and Dennis Mapa of the University of the Philippines School of Economics, and presented to the public during a forum last Friday, organized by the Institute for Climate and Sustainable Cities.

“The sustainability of the recent growth remains tenuous,” the authors of the energy policy paper said. “One constraint is the perennially high cost of power, as well as an inadequate power supply that cannot support the country’s potential growth.”

The paper lamented that Philippine power costs remain high by regional standards, even ranking second to highly industrialized and affluent Singapore within the Asean region. Because of this, the country “struggles to attract mobile capital,” and the growth of the local manufacturing sector has lagged those of its peers in recent decades, the authors pointed out.

To remedy this, the paper laid down proposed key reforms and alternative policies to help improve the energy sector, including the imposition of better coordination among stakeholders in the power generation, transmission and distribution sectors.

“A well-conceived master plan that accounts for the current assessment of the industry and provides incentive-compatible arrangements will attract investors to bet on the country for the long term,” the paper read. “Coordination has never been the Philippines’ strong suit, and we have to do much better in this regard in the next 25 years.”

The paper called for the government to invest in the expansion of the transmission highway currently held under franchise by the National Grid Corporation of the Philippines — a proposal that was opposed during the forum by the representative of the National Economic and Development Authority, who noted that this sector was best left to the more efficient private sector.

The paper also encouraged greater regulatory oversight coordination to support a more competitive energy market; reconciling the contradicting policies laid down in the Electric Power Industry Reform Act and the Renewable Energy Law; reforming inefficient electric cooperatives; and investing in research and development.