Mindanao to face higher power prices

Erramon Aboitiz, head of Aboitiz Equity Ventures, has committed to build a new power plant in Mindanao

Mindanao has warmed up to the reality of having to pay market prices for energy in order to solve the rolling brownouts that plague the island.

The Philippines’ second largest island has a 200-megawatt power deficit that will affect the entire island for two more years, minus Davao City and Cagayan de Oro, mainly because businesses in these cities operate built-in generators and there are private energy distribution companies, Director of Investment Promotion Romeo Montenegro of the Mindanao Development Authority told Inside Investor.

To help fill this gap in energy demand, Aboitiz Equity Ventures, a publically listed holdings company, has committed to supplying 300 megawatts of coal-fired energy through a plant on the border of Davao City and Davao del Sur that has already begun construction, contributing to its total planned capacity of 3,000 megawatts by 2014.

Previously, “there was reluctance from the private energy sector to come in because of low rates and an undeveloped market,” President and CEO Erramon Aboitiz said of Mindanao at the Euromoney Philippines Investment Forum on March 12.

“However, the realisation has dawned upon Mindanao that they have to be willing to pay the right price,” he told Inside Investor on the sidelines of the forum.

Compared to decades past, energy security in the Philippines has conspicuously improved, especially when compared to the early 1990s when large blackouts ran rampant across Luzon.

“Luzon and the Visayas are in relatively good shape to date. You don’t have a dominant government monopoly as in the past,” said Aboitiz, adding that new capacity is on the way from existing and new players in the energy sector.

The International Finance Corporation (IFC), the private sector financing arm of the World Bank, plans to invest up to $400 million in the Philippines in 2013, particularly in the finance sector with a focus on energy infrastructure projects.

Seventy-four off-grid power projects have been identified for islands in the archipelago that will be subsidised by the Philippine government, a unique role for a country that prices energy by true market value.

“[IFC] has worked with the National Power Corporation to see if we can bring in the private sector to these islands,” Resident Representative Jesse Ang of the IFC said at the forum. A total of six have been completed so far.

Besides traditional sources of energy, the Philippines is increasingly considering LNG, which played a large part in relieving Japan of its energy shortages after the Fukushima disaster.

Alcantara & Sons, a privately held developer, also plans to build a 200-megawatt coal-fired plant on Mindanao.