projects connecting the grid systems and their components, the Philippine Department of
Energy, the principal policy-making body in the energy sector, aims to maximise the use of
indigenous energy, improve overall system reliability and reduce capacity requirements
through pooling reserves.
Imported oil was required for about 47 per cent of Philippine electricity generation in 1995.
The government wants to replace a large portion of oil-fired generation with coal-fired capaci-
ty, because coal is readily available in the region and more suitable for large baseload capacity.
The overall objectives of the Philippine electricity sector were set forth in a Presidential
decree issued in 1972 that called for hastening electrification, particularly in rural areas, and
mandated the NPC to set up generation facilities and transmission grids throughout the coun-
try. Until power reform legislation was enacted in 2001, the Philippine electric power indus-
try consisted of three sectors:
- power generation, in which the NPC was the dominant player;
- the transmission grids, operated and maintained by the NPC; and
- the distribution companies, which included both private companies and independent non-
profit electricity cooperatives.^2
In the early 1990s the Philippine Congress began to explore proposals for a partial privatisa-
tion of the NPC, and its division into separate generation, transmission and distribution enti-
ties. By 1996, the NPC was operating 77 power plants in the three grids, accounting for 78
per cent of electricity generated in the country and 81 per cent of the country’s 9,925 MW
generating capacity. The remainder of the nation’s power was coming from IPPs through
BOT arrangements with the NPC.
In December 1998 the Asian Development Bank committed itself to making a US$300
million loan to finance some of the adjustment costs of the government’s proposed power
industry restructuring programme, including improvement in the transmission sector. In
June 2000 Federico Puno, President of the NPC, estimated that the country’s electricity
requirements would require an investment of 40 billion pesos (US$940 million) over the fol-
lowing 10 years. One of the problems preventing the NPC from building more generating
capacity was a heavy debt load – a burden shared by the Philippine government in its capac-
ity as guarantor.
In May 2001, after three years of debate, the Philippine Congress passed the Electric
Power Industry Reform Law, which divided the power industry into four sectors: generation,
transmission, distribution and supply. The law expressly provides that power generation is not
a public utility operation.^3 Most of the NPC’s generation assets will be sold to private inter-
ests. The proceeds will be used to reduce the NPC’s US$6.7 billion debt. The government will
absorb the NPC’s remaining liabilities, estimated to be as high as US$4 billion. The NPC’s
role will be reduced to operating generation facilities that have not been sold off, and gener-
ating and delivering power to rural areas not connected to the grids. The transmission sector
will continue to be a regulated common electricity carrier business, subject to the rate-mak-
ing power of the Energy Regulatory Commission (ERC).
As part of the privatisation process two new government corporations were created.
- TRANSCO will assume the NPC’s transmission function, provide all electricity users
with open and nondiscriminatory access, ensure the reliability and integrity of the nation-
POWER PLANT