A newspaper report quoted the National Power Corp. as confirming that the country faces a power shortage, and that the problem had reached a critical point in the Visayas, particularly in the province of Cebu. Energy Secretary Angelo Reyes says the looming power lack should be addressed head-on as early as possible by putting up new power plants.

Reyes told the 14th Philippine Business Conference that intermittent blackouts are now occurring in the Visayas and that by next year, power demand in Mindanao was expected to outstrip supply. He foresaw power supply in Luzon reaching a critical point by 2010.

In Metro Manila and the rest of Luzon, peak power demand is approaching 10,000 megawatts, according to the energy czar. The existing power plants have a total generating capacity of 15,000 MW, but dependable power supply stands at only 13,000 MW, of which Luzon gets 11,000 MW, and the Visayas and Mindanao, 1,000 MW each. There is no reserve power in the Visayas which explains the occasional blackouts.

By conservative estimates, the country?s electricity demand is projected to grow by 4.4 percent a year. While it may be true that the global economic recession could dampen electricity demand, it is more practical and cost effective to encourage new investments in power generation early on. The debilitating power crisis in 1991 to 1992 forced the country to resort to an emergency program to boost electricity generation, but the onerous terms imposed by investors resulted in one of the highest power costs in Asia. A repeat of this situation should be avoided as the country deals with another looming power crisis.

Despite the global financial crash, foreign and local business firms are still upbeat about the local power sector and are looking for other potentials that the country has to offer, particularly in the field of renewable and clean energy.

However, these investors are waiting for the government?s action on problem areas that make the cost of power in the country unusually high. Industry players have traced the high power rates to the 12-percent value-added tax on power and the high royalty fees on natural gas, which is extensively used as fuel for power plants. If these tax impositions are scrapped or substantially reduced, the cost of electricity would go down by at least P2-3 per kilowatt hour.

The privatization of the National Power Corp., and other state-owned power facilities is another contentious issue. The International Finance Corp., the private sector investment arm of the World Bank group, is urging the government not to ease up on its privatization efforts. IFC country head Jesse Ang says privatization will establish the true price of electricity that would allow and induce more investors to come in.

?So that once you do that [privatization], then you have majority [of power assets] private. But as long as the government is the majority, you can?t avoid the perception that the government may be affecting prices,? Ang said.

The IFC official made the statement in the wake of the reported hitches in the sale of the coal-fired Calaca (Batangas)

power plant to Suez Energy Asia. According to reports, Suez Energy failed to comply with the upfront payment for the acquisition of the facility as they awaited the Energy Regulator Commission?s decision on the rate hike of the Napocor.

The delay in the privatization of the Calaca facility undermines the privatization program. The Electric Power Industry Reform Act of 2001 mandates that at least 70 percent of Napocor?s generating and contracted capacity should be privatized before putting in place an open access scheme. Under this scheme, power users may choose their suppliers to bring down electricity costs, which are the second highest in Asia after Japan.

Private lenders, like power industry players and consumers, want to make sure that the wholesale electricity market (WESM) functions properly by generating true and fair market rates.

As a complementary step, Jose Ibazeta, president and chief operating officer of the Power Sector Assets and Liabilities Management Corp., is working hard to finalize and resolve key issues pertaining to the Independent Power Producers administrators. This will lead to the privatization of the management of more power plants being operated by Napocor.

The government adopted the privatization policy to see to it that price of electricity is reasonable and based on market forces. But there are some groups that are still pushing for amendments to the Epira that are meant to suit the needs of certain vested political and economic interests. They wanted to scale down the privatization of Napocor to only 50 percent. But this was too late, having been overtaken by events. Ibazeta reported that PSALM was well within its target to reach a 70-percent privatization by the end of 2008.

As it is, the Napocor can still control power cost as long as it remains the dominant player in terms of power generation. In this regard, the sooner the privatization objective under the Epira is attained, the better it is for the industry players, consumers, and other stakeholders in the power sector.

Foreign business groups, under the umbrella of the Foreign Chambers of Commerce in the Philippines, are very vocal in urging the government to see to it that the privatization stays on track ?to usher in a regime of competition and level the playing field.?