OBG talks to Erramon Aboitiz, President and CEO, Aboitiz Power Corporation

Interview: Erramon Aboitiz

How can the Philippines further progress towards its stated aspiration of self-sufficiency in energy?

ERRAMON ABOITIZ: The Philippines must take advantage of its resources, both traditional and renewable. Encouraging additional exploration in hydrocarbons resources, including gas and coal, will help achieve this objective. There is currently a lack of information available on reserves and potential, but by incentivising further exploration the country can facilitate future development and hopefully cut down on fuel imports.

We must also effectively utilise the country’s renewable energy potential, keeping in mind the costs. The exploitation of renewable energies should focus on the low-hanging fruits such as hydro and geothermal power, for which the price differential – compared with traditional means of power generation – is not as significant. This will mean less reliance on government support and subsidies via feed-in tariffs.

As technology continues to evolve, and as the more feasible hydro and geothermal projects are developed, the country can then examine the potential presented by additional renewables. However, an ongoing concern with renewable energies is that they are mostly intermittent and must be backed up by traditional fuel sources. This means a doubling of capacity – yet another cost that must be taken into account.

Where in the Philippines do you see the most pressing need for investment?

ABOITIZ: Mindanao is in dire straits and desperately needs additional power capacity. Many investors are looking at developing major projects in the region and diversifying the power mix away from pure hydro, which would improve energy security. The reason why private sector investment in Mindanao has been delayed is because the grid has not yet been privatised, and investors are wary of competing with a government that continues to subsidise prices. This serves to highlight the need for a level playing field to support the competitive landscape and thus private investment.

How can energy prices be made more affordable in the country and more competitive in the region?

ABOITIZ: Since 2001 and the inception of the Electric Power Industry Reform Act, the last 10 years have seen 70% of national capacity privatised. Many critics have noted that prices have risen since privatisation, but if you take into account that the industry is no longer heavily subsidised by the government, prices have actually decreased. Rather than subsidise energy prices – simply a hidden cost – the government can utilise its funds and divert attention to socio-economic developmental needs like infrastructure, health and education.

The country is witnessing many domestic companies that were previously uninvolved in the power sector now looking to invest. The open market and competitive landscape seems to be working, and supply and demand will support the growth of the sector. This will be further aided by the open access initiative that allows industries to directly negotiate with producers and, if possible, make prices more competitive.

As long as the industry remains attractive to investment, the private sector will continue to invest in power generation. This will increase competition, which is the most effective method to bring down prices. The more competition that can be cultivated in the market, the better pricing will become.

In what ways can the Philippines encourage further investment in the energy sector?

ABOITIZ: The current administration has adopted a long-term energy policy, which has been absent from the country in the past. This will encourage domestic investment as it allows industry players to better plan their own initiatives and projects. Also, the push towards transparency and a level playing field is essential to attract foreign investors, as they need to see stable policies in place. As long as the sector remains attractive, they will invest. The government been addressing some of the issues from past years, and this will hopefully unlock the sector for additional investment in the future.