High power cost weighs down Philippine competitiveness

High power cost weighs down Philippine competitiveness

The Philippines will continue to lag in global competitiveness unless
government addresses the country's high power cost - considered among the
most expensive in the world - to support the manufacturing sector, experts
said.

Experts at a recent forum said electricity is the biggest expense for
industrial firms, accounting for about a fourth of total costs.

Federation of Philippine Industries (FPI) president George Chua said
electricity expense, on the average, accounts for three percent of total
production cost incurred by manufacturing firms and even goes higher for
material industries such as cement, paper products, iron and steel,
industrial chemicals, plastic products, glass products, petroleum refining
and rubber products.

A recent study commissioned by power distribution giant Manila Electric Co.
(Meralco) showed its rate is third highest in the region in 2016, down from
second in 2011. Its tariff is also the fourth highest in Asia-Pacific and
16th worldwide.

This situation is becoming a tough sell for foreign investors to build
industries in the Philippines compared with neighboring countries such as
Indonesia, Thailand and Malaysia, UP School of Economics professor emeritus
Dr. Raul Fabella said.

"Both Filipino-Chinese tycoons and up-and-coming startups from Taiwan, are
either moving out of the country to put up their factories in China, or
giving us a miss for Vietnam or Thailand, where electricity rates are nearly
a third of ours. Electricity in Thailand costs nearly half that of ours,
while that in Indonesia is only a fifth of ours," he said.

The flourishing renewable energy (RE) sector is a welcome development for
power-intensive industries but experts warned its expansion should be done
in caution to have a sustainable long-term solution to the nation's energy
challenges.

Fabella said all sectors should continue RE development as this will aid in
curbing climate change. "But as with any big initiative, we must proceed
with caution and extensively study the weaknesses of our innovations, lest
they come back to haunt us," he said.

But too much development of RE will spell more costs shouldered by consumers
under the feed-in tariff (FIT) scheme.

"The more RE is utilized in the country's energy mix, the longer we remain a
country with the most expensive electricity. There are serious economic
consequences to that. Expensive power makes industrialization less than
viable. That spells lesser jobs created and more people poor," Minimal
Government Thinkers Inc. president Bienvenido Oplas Jr. said.

Chua also said "the only reason we have investments going into renewable
energy is because a tariff is imposed on all electricity consumers to
subsidize alternative power generation. That tariff raises power costs for
everyone."

In the meantime, the Philippines - particularly the manufacturing sector -
will continue to depend on coal power for at least five more years, Chua
said, as growing businesses seek cheap electricity.

"Philippine power costs are very expensive, that hurts our competitiveness
in manufacturing," he said. "So we really need coal, it's one of the
cheapest sources of power for a country with one of the highest costs in
Asia."

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Ref:
http://www.philstar.com/business/2016/11/01/1639146/high-power-cost-weighs-d
own-philippine-competitiveness

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com