Retain BOI Incentives for Energy - PCCI

As review of the 2012 Investment Priority Plan (IPP) is underway, the Philippine Chamber of Commerce and Industry, with the support of major industry players and  stakeholders, has called on the Board of Investments to retain the Energy Sector, or at least power supply projects, especially those located in missionary areas, in the 2012 IPP.

PCCI said the incentives provided to projects listed in the IPP are helpful in attracting investors and in reducing capital costs, which ultimately redound to the benefit of consumers.

In the case of power generation, PCCI President, Miguel Varela stressed, “Capital costs account for about 70% of the total fixed costs of a power plant.  The continuation of incentives could address 3 things: (1) reduce the final power rate that will be charged to electricity end-users, (2) encourage the building of urgently needed new generation capacity; and, (3) facilitate the attraction to private investors, considering that importation of capital equipment is one of the major cost burdens during the start-up operations”.

PCCI noted that with the economy poised to grow by 5-7% this year and beyond, power supply must be able to keep up with demand.

The Power Development Plan (PDP) has noted that that with peak demand assumed to grow annually at 4.5 percent for the planning period 2011-2030, a total of 10,450 MW is needed for the Luzon grid; 2,000 MW for the Visayas grid; and 1,950 MW for the Mindanao grid.

PCCI stressed that it would be in the national interest to continue encouraging new investments in the cheapest available and most stable sources of energy found in baseload power plants which include coal, geothermal, natural gas, as well as hydroelectric, biomass and fuel oil.

Jose Alejandro, Vice President for Energy of PCCI said, “Bringing in new baseload capacity will not only address the country's precarious power supply situation due to the strong growth in electricity demand and the absence of new power plants, but would also help contain further increases in generation costs.”

In the case of missionary areas operated by the National Power Corporation’s (NAPOCOR) Small Power Utilities Group (SPUG), PCCI said the retention incentives for fossil fuel-based power plants will facilitate privatization plans aimed at addressing unstable power supply.  Last year, missionary areas had to endure rotating brownouts because lack of fuel brought about by NAPOCOR’s inability to pay its suppliers.

PCCI noted that for missionary areas, fossil fuel-based power plants provide the short-term option for rapid deployment and commissioning of supplemental power to meet the urgent, rapidly growing demand for electricity.  The removal of BOI incentives for new fossil-fuelled power plants will increase the true cost generation rate (TCGR) and concurrently increase the cost to government of existing subsidies in missionary electrification areas.  Conversely, if subsidies are reduced or removed in missionary electrification areas, elimination of BOI incentives will increase the true cost generation rate (TCGR) and further increase the cost of electricity at the consumer level.

PCCI emphasized that removing BOI incentives now could potentially arrest tourism and labor-intensive, energy dependent value industries, which are just beginning to bring prosperity to these areas.