IFC energy expert bats for flexible LNG use

MANILA, Philippines - The chief energy specialist of the International Finance Corp. (IFC), the private sector investiment arm of the World Bank, said the introduction of flexible liquefied natural gas (LNG) in the Philippines would help reduce cost of power.

“The physical characteristics and fuel supply constraints of the Philippines power system make necessary the introduction of flexible LNG to reduce price variability at the shoulder and peak,” said Tonci Bakovic in a paper disseminated to the media during an energy regulatory conference organized by the Norwegian Embassy.

He said LNG supply that allows for the flexibility of spot purchases of LNG to avoid gas take or pay is a must.

 “If gas with a large take or pay is re-introduced, we are back to square one and the sector will keep on having the physical must run problems that have nothing to do with the EPIRA (Electric Power Industry Reform Act),” Bakovic said.

Furthermore, he said, authorities must “consider capacity payments to help with the financing of LNG import terminals. This, he said, is being done in other countries such as Colombia and Chile.

 “The securitization of capacity payments from the electricity sector, in both Colombia and Chile, has facilitated the construction of importing LNG terminals in both countries,” the IFC official said.

For EPIRA, the landmark power reform law, Bakovic said there is no need to change this but noted that refinements can be made.

 “Don’t change the EPIRA. If needed, only fine-tune the legislation. EPIRA has delivered what it was asked to do,” he said.

Further commending the EPIRA law, the IFC said the legislation has attracted private capital and introduced competition in the power sector.

 “Close to 11,300 megawatts of new generation have been built attracting close to $17 billion in private investments generation sector. Fourteen new players have been introduced to the to the sector to compete among each other. Not many countries that have undergone reform have achieved the introduction of such number of new players,” he added.

More importantly, the energy specialist said the EPIRA has paved the way for generation prices to be kept almost at par with inflation “in a country that has been growing lately at close to seven percent per annum in the period 2010 to 2014 with the exception of 2011.”

 “That is quite an achievement in a country that grows this fast,” he said.