Moving towards private participation in the Philippine’s energy industry, Manila Electric Co (Meralco) plans to open its distribution lines to other power producers by either October 2005 or once the majority of cross subsidies have been removed. The Energy Regulatory Commission has already begun removing subsidies, except on lifeline rates for those with a monthly consumption of 100 kWh or less.

The country’s largest distribution company intends to support the government’s call for cooperation in the implementation of the Electric Power Industry Reform Act of 2001, which sets out retail competition and third party access. While distributors will lose their supply monopoly position they will instead receive a transmission fee approved by the Energy Regulatory Commission. Meralco is soon expected to sign a transition supply contract with the state-owned National Power Corp (Napocor) that will enhance the attractiveness of Napocor’s generating assets in the northern island of Luzon to prospective investors. A medium-term bilateral supply contract is also anticipated.

In another boost to the private sector, Napocor has called upon IPPs in the southern island of Mindanao to supply electricity outside their franchise areas in order to boost reserves and avoid a looming power crisis. Under the terms of the deal, IPPs will sell power to Napocorp rather than to a local distribution network, Napocorp will then deliver the power outside the area. Currently, Napocorp can only supply 85 MW while a minimum of 150 MW is needed to provide a reserve.

The Department of Energy has estimated that Mindanao would need an additional 850 MW through to 2014, though the transfer of Power Barges 101, 103 and 104 and a 210 MW coal-fired plant are expected to provide additional capacity for Mindanao. Luzon is expected to require an additional 7200 MW from 2008 to 2014.

The state-run Power Sector Assets and Liabilities Management Corp. (PSALM) – the government company tasked to oversee the privatisation of Napocor and its spin-off firm, the National Transmission Corp – has so far successfully bid out four hydroelectric plants such as the 3.5 MW Talomo in Bukidnon, and the 1.6 MW Agusan in Bohol. PSALM is working on an accelerated privatisation programme with about 70% of Napocor’s total assets in Luzon sold by the end of 2005. However, although the government is working on attracting more private investment in the power sector, a tariff mechanism capable of balancing the interests of investors and consumers is a fundamental stumbling block. The government also plans to complete delayed transmission projects in Southern Luzon that have hindered the full dispatch of existing IPPs.

Concerted efforts to improve the investment situation may be paying dividends with Energy Secretary Vincent Perez saying that close to a dozen significant players in the Japanese electricity industry have expressed an interest in the government’s privatisation of Napocorp. Japanese firms are also reportedly attracted to a number of geothermal projects that are open for bidding, including Manito-Kayabon and Rangas-Tanawon in Sorsogon; Biliran in Eastern Visayas; Amacan in North Davao; Dauin, Negros Occidental; Natib, Bataan; Mabini, Batangas; Montelago, Mindoro Oriental; Kabalian in Leyte and North Cotabato. These fields have an estimated capacity of 300-470 MW. At least four Japanese firms will bid for the 40 MW Northern Negros project and a 40 MW wind power project in Ilocos Norte, Perez said. The government is aiming to raise $4 billion to $5 billion from the sale of Napocor’s generation and transmission assets by the end of 2005.