Governance problems hinder investments in power sector

Governance problems in the power sector have been identified as one of the major obstacles in attracting investments into the country, a local research and consultancy firm said.

In its latest economic review, Lazaro, Bernardo Tui & Associates Inc. (LBT) noted that foremost of these issues is the inability of the Power Sector Assets and Liabilities Management Corp. (PSALM) to sell the assets of the National Power Corp.

LBT also cited the recent controversy faced by PSALM at the wholesale electricity spot market (WESM).

Another issue, LBT said, is the government’s seemingly lax attitude towards a possible power crisis in three years’ time.

On PSALM’s failure to dispose of the Napocor assets, LBT said "The deadline for disposing of 70 percent of government’s power assets has since become a moving target with the latest schedule showing an end-2007 deadline."

"Out of 31 power plants with over 4,000 megawatt (MW) of generating capacity that are up for sale, government to date has succeeded in disposing of only six plants, five of which have rated capacity below 3.5 MW and one with a 112-MW rated capacity. The sale of the 600 MW Masinloc could not be concluded two years after its award to the highest bidder," it said.

Though LBT recognized the positive impact of the signing of the transition supply contact (TSC) between Napocor and Manila Electric Co. (Meralco), it said the deal may also have a downside.

"Napocor’s recent signing of a TSC with Meralco, its biggest customer, should be a positive news. What this means though for plant buyers’ ability to secure bilateral contracts down the road remains to be seen. Heretofore, the lack of supply contracts (which assures buyers of a base market for generated power) to go with the power plant has been a major obstacle to disposing of these assets," it said.

It also took note of the impact of the price manipulation issue of PSALM on its reliability.

"The integrity of the WESM, where excess generated power may be traded, is also something that needs to be developed, especially following the recent controversy regarding price manipulation. This has been since been traced to the need for the PSALM, the dominant player in the WESM, to charge true cost recovery rates following the low rates asked for in the first five months of the WESM’s operations," it said.

According to LBT, the issue of possible power shortage in the near-term should be properly addressed by the government as this will surely affect the sentiment of potential investors.

"The outstanding issues in the power sector needs to be resolved soonest if the country is to avert power crisis. At the rate which the economy is currently growing, capacity in the power sector is forecast to be used up by 2010 and it requires two to three years to put up base load capacity," it said.