Napocor sees rate hike if forced to comply with Clean Air Act

A power rate hike may be in the offing if the National Power Corp. (Napocor) will be forced to implement the Clean Air Act (CAA) of 1999, according to a senior company official.

Liberato Ramos, Napocor manager of the fuel management department, said in a report that power rates may be adjusted upwards to cope with the cost that goes with complying with the stringent requirements of the CAA.

The law sets strict levels of sulfur dioxide (SO2) emissions resulting from the burning of fuel or coal for power plants. While reconfiguring the power plants is not going to be a problem, Ramos said they will need extra funds for the acquisition of more expensive imported fuel or pollution equipment.

"The CAA has considerable cost repercussions on Napocor especially that we will have to import the fuel or the special costly flue gas desulfurizer at higher exchange rates," he said.

The state-run firm will have to shell put P210 million or roughly P0.25 per liter to buy special fuel with a two-percent sulfur content (Napocor) currently buys fuel with a three-percent sulfur content.

Initial estimates indicate that the lower sulfur fuel costs $26.60 per barrel, or roughly P0.80 more per barrel over its present costs for contract fuel. Napocor needs approximately 840 million liters of bunker fuel for its oil-fired plants.

"The cost of the fuel will impact on the rates though minimally," Ramos said. "But what will make the rate adjustments higher is the foreign exchange factor."

If Napocor does not intend to import the special fuel, it will have to invest in a flue gas desulfurizer each worth P500 million.

Earlier, the energy department had requested the Department of Environment and Natural Resources (DENR), the lead government agency in implementing the Clean Air Act that the changes be made in the implementing rules and regulations (IRR).

Energy Undersecretary Cyril del Callar said implementing the law’s provisions could lead to an increase in power or electricity rates of P0.75 per kilowatthour (kWh).

The above figures would occur due to the increased cost by the country’s oil refineries to acquire equipment and technology to decrease the chemical content of diesel and gasoline. Likewise, power plants will also have to incur huge loans to acquire and utilize pollution abatement equipment and technology.

The CAA allows for only 18 months implementation with another 12 months maximum extension period.

Del Callar said that power plants scheduled for retirement within the next three years would find it uneconomical to spend millions of pesos to implement the CAA "only to be scrapped a year later? And to think that these are power plants of the cash-strapped National Power Corp. (Napocor)."