OBG talks to Jericho Petilla, Secretary, Department of Energy

Interview: Jericho Petilla

How can the Philippines balance energy self-sufficiency with increasing outside demand for power?

JERICHO PETILLA: Owing to economic growth, energy demand has risen considerably. Given that the building of base load capacity takes from three to four years, projects now in the middle of construction will not be enough since demand exceeds initial forecasting. In this race between supply and demand, the key thing is accurate demand forecasting. Although we previously sourced forecasting from utility companies, in an effort to boost accuracy we are now doing the forecasting ourselves.

We have two sets of investors: the committed, namely those building plants already; and the indicative, namely those waiting for off-takers before they build a plant. Our challenge in the next two years is on peak demand rather than on the base load. As such, we are working to identify the scale of the peak and how to source these, seeking immediate alternatives in gasified power plants, which can be set up in 18 months, and pushing for indicative plants to come on-line earlier. We are also pushing to add capacity at peak times during the day by looking at solar power.

What is the potential of liquefied natural gas (LNG) as a reliable energy source for the country?

PETILLA: Although the Philippines does not yet have a re-gasification terminal, it is fortunate that we are starting with LNG now when prices continue to decline, rather than 20 years ago when Japan contracted its LNG supply at $18 per 1m metric British thermal units. Nonetheless, we will not know the real price of LNG until we begin importing, and no investor will build a plant based on simulated prices. The only way for them to put up combined-cycle gas-fired power plants, which are easy to build, is to have a re-gasifier.

We are still trying to come up with policies and regulations for LNG since pricing and distribution are not yet clear. The World Bank is crafting a masterplan by the end of 2013, and we are seeking to ensure that it encourages the advanced progress in LNG investments undertaken by the private sector. Further, we hope to drill fast enough to replace Malampaya once it is depleted by 2024. However, in the absence of discoveries LNG re-gasifier facilities are a key back-up plan.

How can the country bridge the power deficiencies in Mindanao in the short term?

PETILLA: The greatest potential for addressing the energy gap is the Interim Mindanao Electricity Market (IMEM), which is set to start commercial operations by November 2013. For example, out of the first 150 MW that Therma South is due to roll out in late 2014, 100 MW will be allocated to Davao Light. It is difficult to transmit power out of Davao if no instrument exists that enables operators to buy and sell to other areas on Mindanao. That is why IMEM could act as that instrument. Otherwise, Davao Light would need to go to the Energy Regulatory Commission to provide power to another area, which is not worth it for a short-term contract.

In what way are reforms accelerating the approval of service contracts?

PETILLA: The DoE is currently deciding on several things. Service contracts previously took at least two years to acquire, mostly due to financial or technical inaccuracies by applicants. However, if the investor is the one who absorbs the costs, the new rationale is not to penalise them. From a legal aspect we also decided that the risk rests on the investor, while our task is to ensure they complete their project. As such, approval time is being reduced from two years to 45 days.

The issue now is to target those who have applied for a service contract but do not intend to develop or sell in the near term. We are therefore adding an extra clause specifying that we will approve a service contract quickly provided there is spending within six months, or milestones are reached within 12 months. Otherwise, it will be cancelled without consultation. In this manner, we are better able to filter out the pretenders and to only invest time on the serious players.