Mindanao stakeholders weigh in on privatization issue

Apr 10, 2015



The privatization issue to be discussed in today’s Mindanao Power Forum Update III at Cagayan de Oro City has sparked debates among stakeholders well in advance of its scheduled time at 1:00-5:00PM at the Limketkai Luxe Hotel.

Two former executives of the Cagayan Electric Power and Light Company (CEPALCO) now stand at the opposite sides of the issue.


Members of the Mindanao Commission of Women make their sentiments known about the proposed privatization of the Agus-Pulangui Hydropower Complex with the famous Maria Cristina Falls in Iligan City as a backdrop. (Pipol's Power photo)

For Engr. Robert F. Mallillin, former vice president for engineering of the local utility, the economics for the power industry is quite simple.”


“Let’s go back to basic macro-economics as taught by Milton Friedman: Government has no business to be in business.”

“The non-privatization of the Agus plants and Pulangui IV  has resulted in generation supply problems in Mindanao,” Mallillin wrote in an invitation emailed to various stakeholders in the Mindanao Grid to participate in today’s power forum which has the theme “Privatizing Agus-Pulangui: Balancing the Interests of Stakeholders in the Mindanao Grid.”

“It is in fact glaring to see the poor maintenance of the Agus plants. Let’s face it! Government bureaucratic processes can never support the efficient operation and maintenance of power plants,” Mallillin said.


Now a consultant with SMC Global Power Holdings Corp., the former CEPALCO executive who also heads the Power Committee of the Philippine Chamber of Commerce and Industry (PCCI) said this was the main gist in passing the EPIRA. 

“If you don’t realize it, the current rates of NPC are no longer reflective of true costs. Replacement costs have soared since NPC’s last revaluation of assets in 1996. If such costs are not considered in rate making, we should expect artificially low rates and this is what’s happening in Mindanao with everybody not realizing it,” he noted.

“There’s no point in asking NPC to hang on to such rates if generators conk out once in a while, protective relays have been rendered obsolete and even loose conductors in power stations causing an avoidable blackout for Mindanao recently,” he added.


Mallillin said if the Agus plants and Pulangui IV have indeed been maintained well while updating plant components using updated technology, hydro rates can easily go up to P5 or P6 per kilowatt hour – a little bit less than the small renewable hydro resources being introduced into the Philippine grids.

“So, what’s the point in hanging on to government controlling such power plants if the worst of service is expected in exchange for low power rates?  How can Mindanao progress faster with such approach to infrastructure?” he asked.


“Let’s take out NPC owning and controlling these plants. The EPIRA gave government a 10-year chance to improve service but alas, nothing has been done except for some Band-Aid repairs in some old units in Agus 6. Mind you, all the other hydro power plants are due for repair by this time. Much has not been done due to government’s still trying to milk profits from these plants which are overdue for overhauling.”


“I object to any future government participation in the ownership and operation of the plants. If the Mindanao Power Corporation is gonna be partly government-owned, scrap the idea!,: he added.


However, an energy advocate from Mindanao who prefers to remain anonymous found Mallillin’s ideas wanting.


“Taking the Luzon grid as an example with practically majority of government generating facilities already privatized, how has this affected power rates? How does Meralco rates compare to those of other country (with adjustments for subsidies if any were given)?”


He also questioned if the present electricity market in Luzon and the Visayas was set for real competition among IPPs.

“Are the pertinent government agencies e.g. DOE, ERC, NEA up to the task in carrying out effectively their respective mandated functions? The crux of privatization lies with these agencies being able to effectively regulate the industry,” he noted.

Not the least, he questioned if distribution utilities (mostly cooperatives) are up to the task to operate in such a deregulated environment.


“Are they able and capable to negotiate effectively in securing the best rates and terms for their respective coops without their respective boards being unduly influenced by the IPPs?”

“Sad to say, many of the above questions would be answered in the negative. Privatization of the hydroelectric plants would literally be throwing the Mindanao consumers to the wolves,” he said.


In a related issue, a former colleague of Mallillin at CEPALCO also tackled the privatization issue as discussed in the editorial of the Philippine Daily Inquirer last Wednesday, April 8, 2015, blaming the Easter Sunday Mindanao-wide blackout on the non-privatization of the Agus-Pulangui hydro power plants, then concluding that the Agus-Pulangui plants should be privatized in order to prevent the recurrence of such blackouts.


“The editorial is just the latest example of the absurdities that are being spouted by some of the independent power producers in Mindanao (who apparently funded the publication of the PDI editorial) in order to convince the Mindanao power consumers to agree to the privatization of the Agus-Pulangui hydro plants,” said Engr. David A. Tauli, former senior vice president for engineering at CEPALCO and currently president of the power advocacy group Mindanao Coalition of Power Consumers (MCPC).


“It should be stated first what everyone familiar with the Mindanao power situation knows: The Easter Sundayblackout occurred because of the incompetence of the National Grid Corporation of the Philippines in their operations of the Mindanao Grid,” Tauli said.


The NGCP is responsible for ensuring that any single outage of a transmission line or of a power plant should not result in Mindanao-wide blackout. They are supposed to carry out a number of contingency measures in order to prevent blackouts. On Easter Sunday, the NGCP failed as usual to secure the Mindanao Grid against a single outage event.


The ownership of the generating plants in Mindanao has nothing whatsoever to do with whether or not the NGCP is performing system operations well or badly, Tauli noted.


“The opposition to the privatization of the Agus-Pulangui has been fueled by the fact that the privatization of large power plants in Mindanao, such as the power barges 117 and 118 and the recent IPPA privatization of the Mt. Apo geothermal plant, resulted in prices of the generation of these power plants very much in excess of the prices prior to privatization,” Tauli said.


In the case of the Mt. Apo geothermal, for instance, the FDC-Misamis Power Corp is now selling the generation at a price of more than PhP5.00 per kilowatt-hour, when it was being sold at less than three pesos per kWh prior to its IPPA-ization, he noted.


“It is futile to try to fool Mindanao power consumers into agreeing to the privatization of Agus-Pulangui in expectation of stopping Mindanao-wide blackouts. Mindanao power consumers know that privatization of power plants have nothing to do with the competence, or lack of it, of the NGCP in the operation of the Mindanao Grid. And they know that the privatization of the Agus-Pulangui hydro plants will result in tremendous increase in the price of the generation of these power plants,” he declared.


Further, for the information of the advocates of privatization, Mindanao power consumers are carrying out campaigns among government officials in the energy sector, among lawmakers in Congress, and in the legal courts to permanently stop the privatization of the Agus-Pulangui and to hold in abeyance the IPPA-ization of power plants in Mindanao until 2017 when there will be adequate power capacity. Those are the arenas where the battles for privatization will be carried out. Not in editorials, he said.



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