Deregulating the Electric Power Industry: Lessons from the Vietnam and The Philippine Experience

The Geography, History, Government, People and Economy of Vietnam and the Philippines


In the last two decades, the energy industry in developing countries have witnessed significant changes and developments, veering towards a general trend taken by developed countries toward energy utility industry deregulation and privatization. In developing countries such as the Philippines, the water and electric power sectors have undergone massive restructuring to pave the way for privatization and increase competitiveness. The global trend toward energy utility restructuring, privatization and deregulation resulted in significant impacts in the over-all economic and environmental policy in these developing or newly emerging economies1.

The Philippines and Vietnam are among the developing economies in Southeast Asia which both have confronted energy supply problems and have undergone rapid progress in terms of addressing these urgent energy problems. Despite the recent global economic recession, the economies of both countries have not been as adversely affected as much as its regional or global counterparts. Vietnam, with an annual average rating of 8%2, has the highest GDP growth in the region while the Philippines has posted a GDP growth rate of at least 3.3% in the last year amidst grim worldwide and domestic political and economic turmoil.3 It is good to note that despite the recent contraction in the world economy and crash of some of the oldest financial institutions in the US, the Philippine banking system has remained largely unscathed because of prudent local bank measures such as strict banking rules and regulations and a generally low risk exposure of domestic banks in the US and elsewhere in the world.4 (Source: IMF Country Report No. 09/63, February 2009)

A distinct commonality between Vietnam and the Philippines is that both countries have also both undergone political turmoil and equally diverse cultural influences from a long line of foreign invaders throughout the long history of both countries. Such political and historical underpinnings have taken root and inevitably influenced much of the workings of government in both countries. Both countries are also still greatly influenced by foreign financial aid from international financial institutions such as the World Bank and the International Monetary Fund.5

Both countries also faced energy supply shortage problems. The Philippines, in the 1990s, experienced long stretches of an average of 12-hour power outages daily due to lack of reliable electric power sources. These power shortages led to a string of legislative action to address the energy problem in the country. Vietnam also faced a similar power supply problem in recent times and has recently passed legislation to address various energy sector problems.

This paper would provide a background on the political and economic situation in the Philippines and Vietnam before discussing the energy situation in both countries. The focus of the discussion will be on how restructuring and privatizing the energy industry---with emphasis on the electric power sector---was done in the Philippines and is currently being done in Vietnam as myriad factors have affected energy policy legislation and implementation in both countries.

This paper will discuss and compare how energy policy in both countries emerged and developed amidst each country’s peculiar socio-political and economic milieu, paying particular attention to how the electric power industry has been in the process of being deregulated in the Philippines and what lessons each country can derive from the other.

The Philippines is an archipelago of 7,107 islands across strewn across a vast stretch of tropical sea. Just across the Philippine islands, across the South China Sea, is Vietnam. The Philippine islands are characterized as one of the world’s most diverse ecosystems with numerous active volcanoes and serrated mountain ranges scattered around the entire archipelago. The three largest islands are Luzon, Visayas and Mindanao. The Philippines has two seasons: dry and wet. (Source: The Philippines Yearbook 2007 Facts and Figures)

Vietnam is located in the Eastern Seaboard of the Indochina Peninsula . It has a land area of 330,991 sq km. Like the Philippines, Vietnam is also located in Southeastern Asia. Vietnam borders the Gulf of Thailand, Gulf of Tonkin, and South China Sea, alongside China, Laos, and Cambodia.6 (Source: Embassy of Vietnam)

Vietnam gained its independence from France on 02 September 1945. As of 2007, the population of Vietnam was pegged at 85,262,356, ranking it as the 13th largest population in the world. Based on June 15, 2007 figures, the currency/exchange rate of one Vietnamese Dong to 1 US Dollar is 16,126.5 Vietnamese Dong. In 2006, the inflation rate in Vietnam was reported by EIA at 7.4% while its Gross Domestic Product (GDP) as of 2006 was reported at $60.5 billion. Vietnam’s Real GDP Growth Rate based on 2006 EIA figures was at 8.2%. Vietnam’s main exports are commodities which include crude oil, marine products, rice, coffee, rubber, tea, garments and shoes. Vietnam’s exports partners based on 2005 data are: the US (18.3%); Japan (13.6%); China (9%); Australia (7.9%); Singapore (5.6%). Vietnam’s imports was reported in 2006 at $32.8 billion. Its main imports are machinery and equipment, petroleum products, fertilizer, steel products, raw cotton, grain, cement and motorcycles. (Source: EIA)

Philippine terrain consists mostly of mountains with narrow to extensive coastal lowlands and rich natural resources include timber, petroleum, nickel, cobalt, silver, gold, salt, copper. The Philippine islands are astride typhoon belt, usually affected by 15 and struck by five to six cyclonic storms per year; landslides; active volcanoes; destructive earthquakes; tsunamis. The Philippines faces uncontrolled deforestation especially in watershed areas; soil erosion; air and water pollution in major urban centers; coral reef degradation; increasing pollution of coastal mangrove swamps that are important fish breeding grounds. The Philippines is a party to the following international conventions: Biodiversity, Climate Change, Climate Change-Kyoto Protocol, Desertification, Endangered Species, Hazardous Wastes, Law of the Sea, Marine Dumping, Ozone Layer Protection, Ship Pollution, Tropical Timber 83, Tropical Timber 94, Wetlands, Whaling signed, but not ratified: Air Pollution-Persistent Organic Pollutants. (Source: CIA Factbook)

Archaeological excavations prove the presence of human beings in the territory of Vietnam since the Paleolithic Age or the Old Stone Age. In the New Stone Age, Hoa Binh - Bac Son cultures (about 10,000 BC) had witnessed the development of agriculture and animal husbandry, including even the technique of paddy rice cultivation7.

The Vietnamese as an ethnic group had been formed and developed early in the Red river and Ma river delta situated in northern part of the present-day Vietnam. Generations to generations of Vietnamese people moved from highland and mountainous areas to the plains, developed new lands for cultivation, constructing a system of irrigation dams and dykes to tame the mighty Red River, the river that brought about several devastating floods every year. It is the process of continuous labor to control water - to fight against flood, storm and drought, to build up irrigation dams and canals for agricultural cultivation that formed the paddy rice civilization and the commune culture that deeply characterizes Vietnam.8

The Dong Son culture, enriched by the influence of Chinese culture, developed over the centuries in a framework9. Buddhism and Confucianism also influenced Vietnamese culture. Nonetheless, Vietnam still preserved its own language and a highly developed agricultural civilization.10

Ho Chi Minh laid the foundations for the Vietnam Communist Party, which was founded on February 3, 1930. Under the Communist Party, the Vietnamese rose up against French colonization and Japanese occupation, organized the Great National Uprising in August 1945 and established the Democratic Republic of Vietnam on 2nd September 1945.11

From 1975  to 1986, Vietnam had to cope with innumerable difficulties such as the aftermath of war with the Americans, massive flow of refugees, war at the southwest border against the genocidal policies of Pol Pot government in Cambodia, the effects of dispute at the northern border, the isolation and embargo from the United States and Western countries and endless natural calamities. Internally things became even more difficult due to political infighting while Vietnam was in the difficult process of rebuilding.

The years of prolonged war left Vietnam heavily devastated. The 1980s witnessed the most serious socio-economic crisis in Vietnam with the inflation rate rising up to a record 774.7% in 1986. In 1986, the Vietnamese government launched its renovation policy dubbed the "Doi Moi" or all-round renovation process, stepping in the general development trend and the process of gradual globalization and regionalization.12

This time ushered in a new era for the Vietnamese economy, transforming from centralized planned economy heavily based on imports to a more open and market-oriented one. Financing was allowed to be more self-determining with the aim of balancing the national budget and promoting its exports. In 1989, Vietnam began to export about 1 - 1.5 ton of rice, inflation rate gradually decreased to 67.4% in 1990. Living standards vastly improved as did national defense and internal security and external relations. By then, Vietnam had already started to gain a reputation as a prime tourist and shopping destination in the region.13

In June 1991, the Seventh Congress of the Vietnam Communist Party reaffirmed its determination to pursue the renovation process overcoming difficulties and challenges, stabilizing political situation, pushing back unfairness and negative activities, directing the country out of crisis. The Congress also set forth the foreign policy of multilateralization and diversification the guideline "Vietnam wants to be friend all other countries in the International Community for Peace, Independence and Development".14 Now, Vietnam has established diplomatic relations with nearly 170 countries, trade relations with 165 countries, and attracting foreign investment from more than 70 countries and territories. The Ninth Congress of the Vietnam Communist Party in April 2001 reviewed achievements recorded during 15 years of renovation (1986-2001), laying targets for development by the year 2001 and 2010: focusing on promoting industrialization and modernization. (Source: Embassy of Vietnam)

Viet Nam's socio-economic development strategy for the 2001-2010 period has been defined as to accelerate national industrialization and modernization along the socialist line and build the foundation for the country to basically become an industrialized nation by 2020. The three breakthroughs defined by the strategy to promote socio-economic development are to build uniform market-oriented economic institutions in line with socialism with focus on renewal of policy to liberate the production force and expand markets at home and abroad; make a vigorous change in the development of human resources, focusing on education-training, science-technology; renew the organization and operation of the political system, focusing on administrative reform.15 Industrialization and modernization is aimed at developing Vietnam into an industrial country with a modern technical and physical infrastructure, rational economic structure, a progressive productional relationship in conformity with production level, a firm national defence and security, for wealthy people, strong country, just, democratic and advanced society. (Source: Embassy of Vietnam)

The Philippines own story of trying to forge its own identity, progress and development---whether in agriculture, commerce and industry---and as a nation with its own identity, spans four long centuries of Spanish colonial rule, half a century of American rule, a brief but devastating period of Japanese occupation during the Second World War. Throughout Philippine history, the struggle of the Vietnamese people to carve out their own path as an independent nation is mirrored in the struggle of the Filipino people towards independence and self-determination. Unlike the Vietnamese though which have been successful in preserving their own culture, traditions and language from most foreign influence, the Filipinos have assimilated the various foreign influences that came across the islands over the centuries and despite its democratic Philippine political system, it is sad to note that the country remains beholden to various foreign interests, particularly that of the US because of the strong intertwining political and economic ties.

The earliest history of the Philippines is marked with the archaeological discovery of the skull of the Tabon Man in Palawan 22,000 years ago. From then on, much of Philippine culture and tradition is influenced by Chinese, Spanish and Malay cultures as well as other foreign elements that came into close contact with early Filipinos, making the Philippines a melting pot of these various cultures and traditions. Four centuries under Spanish colonial rule have left much of its mark in the Philippine identity. In 1888, steam-powered trams went into operation serving the public until 1905 when the Manila Electric Railroad and Light Company (Meralco) inaugurated an electric railway system for Manila. The US Military government took over the administration of the Philippines in 1899 and implemented a master plan providing the framework of the American regime to regulate the economy. (Source: Blair and Robertson)

By the end of the 19th century the Philippines rode on a wave of rapid social change which gained for the country an additional measure of economic advancement. Also at that time, the opening of the Suez Canal led to expanded external trade growth for the country. Prior to the abolition of the tobacco monopoly, the cultivation, manufacture and sale of tobacco had been the exclusive prerogative of the State. The government then released the local tobacco industry from state monopoly control dismantling a century old system that stymied private initiative. But the Philippines as a newly independent country would not fully enjoy the new economic benefits because it would be beset by political crises and an armed rebellion. (Source: Blair and Robertson)

During the American occupation, the Philippines began to expand trade with other countries after having been confined to trading for centuries mainly with its Spanish colonizer. But several laws that were passed by the Americans worked for the sole benefit American traders and investors to the exclusion of Spain and other foreigners and to the detriment of the Filipinos. By means of several laws such as the Tariff Act of 1901, Trade relations with the US was relaxed only in favor of commerce with the US and not for the benefit of the Filipinos because tariff on American goods entering the Philippines but Philippine goods exported to the US were still restricted. In 1909, the Payne-Aldrich Act was passed which allowed all American goods to enter the Philippines totally duty-free and without limit. Philippine exports of sugar and tobacco to the US however remained subject to very restrictive quotas.

The trend of being economically dependent on a foreign power after another continued after the the so-called declaration of independence of the country. In reality, the Philippine economy and government remained largely tied and dependent to American interest. During the Great depression in the US, because the Philippines was inextricably politically and economically linked and dependent to the US, the Philippine economy could not escape the adverse economic effects of the economic collapse. In 1973, when the Arab-Israeli war erupted and the resulting oil crisis threatens world economy, the Philippine economy was also badly hit as it was in 1974 during the recession following successive oil price hikes in US and Europe. Higher costs of imports caused by inflation abroad, increased oil prices under the Organization of Petroleum-Exporting Countries agreement, the international currency crisis in 1971 and the subsequent realignments of the major world currencies all contributed to the squeeze in the Philippine economy. (100 Events that Shaped The Philippines)


THE ENERGY SECTOR IN VIETNAM AND THE PHILIPPINES: POLICY AND IMPLEMENTATION


The Philippine Energy and Economic Policy


The Philippines’ total consumption is dependent upon traditional hydrocarbon sources of energy. Oil consumption, at 53 percent, accounted for the majority of the Philippines’ final energy consumption mix in 2005, followed by coal at 19 percent. Renewable energy sources comprised 15 percent of consumption, followed by natural gas and hydroelectric consumption at 7 percent and 6 percent, respectively. The updated Philippine Energy Plan of 2005, which is a major reform agenda of the Arroyo Administration, is designed to move towards energy independence by first attaining a level of 60 percent self-sufficiency by 2010. The plan indicates that between 2005 and 2014, the economy’s final energy demand will grow at 4.7 percent per year. To help meet growth in demand, part of the strategy is to increase the country’s oil and gas reserves by about 20 percent and to reduce coal imports by 20 percent. The development of biofuels, as mandated under the Biofuel Act of 2006, will also contribute to the energy mix needed to eventually meet the goal of self-sufficiency. (Source: EIA)

Offshore oil and gas resources in the Philippines, as is the case in Vietnam, have remained largely untapped until the recent decades. Domestic production of oil in the Philippines began in the 1970s but only in limited volume, remaining still largely dependent on imported energy sources.16 Even coal is imported, with more than three quarters of its domestic coal consumption imported on a regular basis.

In 1973, when the Israeli-Arab war erupted, the Philippines was badly hit by the oil shock and oil prices quadrupled following an Arab oil embargo. The Philippine oil debt shot up from US$187million in 1972 to $651million in 1974. The Philippine government launched an energy self-reliance program to stem the massive drain on its fiscal resources due to the oil price and supply shock.17

Government-owned and controlled corporations were directed to set an example of consuming less energy as the Department of Finance drew up tax measures to discourage the wasteful use of energy in cars and luxury appliances. Both government and private sector funds were channelled into development of energy-efficient gadgets.

At this time the Philippine National Oil Company (PNOC) was established to ensure an adequate supply of oil and petroleum products for domestic use primarily through the development of local sources. The Ministry of Energy was also organized.

Both the PNOC and the Ministry of Energy steered the country to cut down its dependence on imported oil by 20% from 1974 to 1983. In 1979, with the discovery of the oil fields in Palawan, the Philippines set out to become a potential oil producer.

By 1983, domestic energy came from geothermal, hydro, coal and non-conventional or non-fossil fuel sources. The PNOC also took over ESSO Philippines to promote energy self-reliance and the new entity was renamed Petron Corporation.

But despite all these efforts toward energy self-sufficiency. the Philippines had to contend with another oil crisis in 1979 which led to a recession that lasted until 1983.

The Philippines’ economic dependence to world financial institutions such as the International Monetary Fund and the World Bank can be traced to late 1950s when the Philippine government had to seek aid from the IMF for the country’s economic development. The aid financing came bundled with conditions involving monetary and fiscal policies based on the vision of free trade in the 1944 Bretton Woods conference that created the IMF: that there be no exchange controls, maximum flow of imports and exports, unlimited outflow of profits, and open-door policy for foreign investment.

Thus came the perpetuation of the lopsided development of the economy for the benefit of foreign interest and to the detriment of domestic market forces. This is illustrated by the condition set by the IMF to lift the exchange control and the substitution of the the peso devaluation in 1957 in exchange for a US$25 million stabilization loan applied for by the Central Bank. The IMF rejected the loan application. It was in the 1960s when the IMF granted a loan of US$300 million when the Philippines has also complied with the decontrol program required by the IMF.

In 1969, despite the passing of the House of Representatives of the Magna Carta of Social Justice and Economic Freedom, the Philippines took a second tranche from the IMF. The Magna Carta was a Joint Resolution of both Houses which demonstrated that Congress committed themselves to a development phisophy that challenged and repudiated the ideology of the IMF; called for restrictions on the operations and activities of multinationals and the Filipinization of the economy and domestic credit; and reinforced the use of protective tariffs, import and exchange controls as the only effective means with which to promote industrialization.

The spiralling free fall of the value of the Philippine peso against the US dollar began when Marcos agreed to free enterprise in 1970 and floated the Philippine peso. Thus when the Philippine peso used to be 1 US$ to one Philippine Peso, the value of the Philippine currency depreciated by 40%. By June 1970, the Philippines would slide down to the third highest inflation rate in the world.

A brief period of economic growth came five years after Martial law was declared but would be negated by excessive and unwise government spending which led to more loans availed of from the IMF. The conditions that came with the new loan packages included liberalization of trade and importation, widening of tax bases, deregulation of the oil industry, decontrol, and the privatization of government owned and controlled corporations. This IMF-dictated fiscal policy and economy survived the ouster of Marcos and lasted even until Pres. Aquino’s term.

Commercial oil deposits were found in 1978 and production began in 1979 with the largest oil production field located at West Linapacan. Domestic production increased from 1.4 million barrels in 1981 to 3.3 million barrels in 1982 but decreased to less than 0.5 million barrels in 1994. The Philippines consumed 333,000 bbl/d on average in 2004, with net oil imports of 307,000 bbl/d. This dependence on imported oil makes the Philippine economy vulnerable to sudden spikes in world oil prices.

Oil consumption is relatively stable, despite the country's economic growth, due to reduced reliance on oil for electric power generation following development of the Malampaya natural gas deposit.18

In 1992, Republic Act 7638 was signed into law creating the Department of Energy (DOE).19
In 1995, the Philippines expressed the intention to leave the IMF program earlier than the scheduled target of June 1997. However, the Philippines was also a signatory to the General Agreement on Tariffs and Trade which supported liberalization and globalization efforts espoused by the IMF.

The IMF laid down the condition of the deregulation of the country’s oil industry and the dismantling of the Oil Price Stabilization Fund (OFPSF), an oil subsidy that imposed unnecessarily fiscal burden on the government, prior to finally freeing the Philippines from the IMF program. The deregulation of the Philippine oil industry did not come easy. Dissent cam from various sectors of Philippine society and the Supreme Court of the Philippines had to rule on legislation to pass into law such deregulation efforts.

In February 1998, Pres. Fidel Ramos signed into law the Downstream Oil Industry Deregulation Act which signaled the final emancipation of the Philippines from the IMF program and removal from International Monetary Fund (IMF) supervision.20

The Philippines deregulated its oil industry, removing price controls, instituting a uniform tariff duty, and eliminating inventory requirements. But partly due to the Asian economic crisis which started in 1997, the three established oil companies in the Philippines namely Petron, Shell and Caltex still controlled over 90% of the market in early 1999.

The Malampaya Deepwater Gas-to-Power Project was inaugurated in 2001 and has been operated by Shell, Chevron, and the Philippine National Oil Company. Compared to offshore oil production, the gas development in the Philippines which has taken off significantly because of the Malampaya gas field.21 Malampaya is US$4.5 billion project, the largest natural gas development project in Philippine history and one of the largest foreign investments in the country to date.22

The electricity power sector in the Philippines had traditionally been a monopoly and only recently has it seen much-needed reforms. The Philippine islands has a net installed electrical capacity as of 2001 amounted to 13,242,000 kW, of which geothermal energy contributed about 24% and oil-fired plants 47%.

The Philippines reflects high power transmission and distribution losses compared to its ASEAN neighbors. This is largely due to the fact that as an archipelago the dispersed nature of islands and frequent natural disasters require more resource inputs to build and maintain transmission infrastructure.23 The transmission system operates at high voltage (500 kilo voltage) in some areas in Luzon Island but this this type of capacity is limited to Metro Manila and nearby areas. Most rural areas are still operating on low voltage.24

The services-led growth in the Philippines resulted in lower electricity demand to over-all growth in the demand for electricity. The rapidly growing outsourcing industry in the country has been growing by 50 percent per year, most of which is said to operate on 24/7 days basis, will also reflect higher electric demand. If this trend continues, demand may increase faster.25

The largest electricity distributor in the Philippines is the Manila Electric Railway Company (Meralco), which holds the distribution franchise 21 for Metro Manila and urban and rural areas surrounding the capital. About a quarter of the total population of the Philippines lives within the consolidated Meralco franchise area. Meralco supplies electricity to over four million customers in 25 cities and 86 municipalities. Its electricity sales in 2004 were 24,700 GWh, or about 56% of nationwide sales in that year.
Meralco, a public utility, is a public company listed on the Philippine Stock Exchange.26 Meralco was founded in 1903 with an investment of USD2.5 by Charles Swift of the Detroit Public Utilities. On March 24, 1903, the Philippine Commission granted Meralco a 50-year franchise to supply Manila and its suburbs with an electric street-railway system and electric current for light, heat and power. Until April 10, 1905, when Meralco inaugurated the new electric railway, the city’s tranvias or streetcars were pulled by horses or powered by steam.

Meralco was reorganized in 1919 into a new corporation, the Manila Electric Company, which placed greater emphasis on its electric-service operations. In 1925 it was bought by the Associated Gas and Electric Company of New York. The company’s advertisements in the 1920’s and the 1930’s sought to encourage the public to use more electricity and buy more electric appliances and motors. From 1930 to 1935, Meralco even sold electric appliances. By the end of 1930, Meralco was operating 85 autobuses or routes totalling 83 km as well as 133 streetcars and 8 trackless trolleys. The streetcar and bus operations, however each contributed only 10% of Meralco’s income because 80% of its incom came from its electric service. The company’s 16,000-kw hydroelectric station in Botocan, Laguna, was completed in 1930. (Source: 100 Events that Shaped the Philippines, National Centennial Commission and Adarna Publishing, 1999)

Meralco’s facilities deteriorated under Japanese management during World War II. After the war, Meralco decided not to rebuild the streetcar system and the buses were sold to Halili Transport in 1948. Meralco confined itself to supplying electricity and by 1950, the company had a new generating station in Rockwell, Makati. In the 1960s Filipino investors led by Eugenio Lopez Sr. bought Meralco and organized the Meralco Securities Corporation. 600 Filipinos initially bought shares of stock. The company’s first all-Filipino board of directors was elected in 1962. Seven years later, Meralco became the first billion-peso non-financial corporation in the Philippines. In 1978 Meralco sold all of its power-generating plants to the National Power Corporation and focused on the distribution of electricity to cities and municipalities in Metro Manila and nearby provinces. (100 Events that Shaped the Philippines)

In 2001, the Electric Power Industry Reform Act (EPIRA) of 2001 was passed into law and became effective on June 26, 2001,27 after years of deliberations in Congress. Its main objectives were: (1) to develop indigenous resources; (2) to cut the high cost of electric power in the Philippines; and (3) to encourage private and foreign investment. The passage of the EPIRA set into motion the deregulation of the power industry and the breakup and eventual privatization of state-owned enterprises.28

Majority of the objectives of the EPIRA have been achieved including the completion of selling of 70% of generating assets have been sold. Though there have been significant delays in the implementation of several aspects or components of the EPIRA, such as the creation of a transmission corporation and the promulgation of the Grid Code and Distribution Code, the current target aimed for is full privatization in 2009. Other targets met under the EPIRA include: (1) electricity rates have been mostly unbundled; (2) the WESM is operating in Luzon. To further ensure sufficient and sustainable energy supply under the EPIRA, generation assets must be fully privatized, generating assets must be completely privatized, WESM must be rolled out in the Visayas area and activation of open access where sellers and buyers can trade electricity freely.

The Philippines, like Vietnam, has traditionally been highly dependent on imported energy and as such the country has to deal with price fluctuations in international energy markets and ensuring supply security for certain imported fuels such as coal. exploration for and development of indigenous energy resources to enhance self-sufficiency has been a continuing thrust of the Government since the oil crisis of the 1970s. Domestic oil production began in the 1970s but has been very limited in scale.29

The Philippine National Oil Company (PNOC) has traditionally dominated the oil sector in but market reforms instituted in 1988 aimed at deregulation have enticed new oil companies to the Philippines. PNOC works with foreign oil companies on major projects.

The principal government agency in charge of monitoring the energy sector is the Philippine Department of Energy (DOE). The DOE is responsible for issuing production and exploration licenses and ensuring compliance of relevant legislation. The Philippine energy sector has been mostly deregulated except for the price setting of petroleum products where oil companies are required to seek the government’s consent where there is an informal cap on weekly price increases of 50 centavos per liter, especially on diesel.

In May 2008, oil companies in the Philippines began raising prices more quickly to recover their losses from the record level of crude prices in the world market. Inflation shot up as did the costs of basic goods and services because of higher fuel and transport costs. Between January and June 2008, gasoline and diesel prices were raised 13 times for a total increase of 9 pesos for gasoline and 8 pesos for diesel. Refiners do not enjoy any protection through import duty differentials between products and crude. Both are charged the same rate of import duty of around 2-3 percent.

The waters surrounding the Philippines have until recently been ignored by oil investors for logistical and cost reasons. Previous exploration activity has focused primarily on the development of deep-sea oil deposits in the Malampaya Oil Rim, the country’s largest oil-producing area. These deposits are located underneath the large Malampaya natural gas field. The high price of oil making the area attractive to investment in oil and gas exploration, activity in the Philippines has recovered to levels last seen in the mid-1970s. The DOE awarded five petroleum exploration service contracts to four Filipino oil exploration companies in a bid to boost the Philippines’ energy sources and expects a total of projected seven-year exploration investments of $79 million from these contracts in addition to a cumulative total of $457 million of investments since 2004. There are now 33 active service contracts to date.30

In the 1990s, oil was the dominant fuel in the Philippines’ primary energy consumption, but its share has dropped due to increased consumption of natural gas and coal in the power sector. Oil demand in the Philippines has been declining since 1998, when the country consumed a peak of 381 thousand bbl/d. In 2007, oil consumption fell to 336 thousand bbl/d, down from 340 thousand bbl/d in 2006. EIA anticipates consumption to continue its decline to 331 thousand bbl/d in 2009.31

The two largest proposed refinery projects are by Pilipinas Shell and Petron. After temporarily shelving plans for expansion, Pilipinas Shell is considering a $321 million upgrade of its Tabango refinery so that it can produce the quality of fuel products needed to meet the sulfur and aromatics levels mandated by the country’s Clean Air Act, to take effect in 2010/2011. Petron has spent $100 million on upgrading its facilities to produce cleaner fuels. It is also implementing a $300 million refinery upgrade plan. The planned upgrades follow from an earlier clean fuels project in 2005. Analysts have predicted that without a significant increase in refining capacity, the Philippines will experience a net deficit in oil products.

The adoption of the National Biofuels Act in January 200732 and the country’s Renewable Energy Policy Framework has promoted the utilization of indigenous renewable energy resources, especially biofuels. Few countries in the region currently mandate biofuel use. China, the Philippines, and Thailand are the only three countries in the Asia Pacific region where ethanol is produced in significant volumes. Ethanol in the Philippines is mainly produced from sugarcane; however, efforts at ethanol feedstock diversification are being made with major investments in cassava, sweet sorghum, and corn. Currently the Philippines is a net importer of ethanol from China, Thailand, Brazil, Australia, and India.33

The development of the Malampaya gas field in offshore Northwest Palawan and successful commissioning of natural gas fired power stations in 2002 have significantly increased the country’s energy self-sufficiency ratio to more than 50.9% in 2002 from 45.5% in 2001. Moreover, the Philippine energy plan (PEP) of 2004-2013 aims to further increase this self sufficiency ratio to 58% by 2013.34

Development of new natural gas projects in the Philippines has come largely at the expense of the country's struggling coal industry. PNOC's coal mining subsidiary produced 2.2 million short tons of coal in 2003. There are several small coal mines under development, mainly on the southern island of Mindanao. The Philippines consumed 9.6 million short tons of coal in 2003, 7.4 million short tons of which were imported. Indonesia, China, and Australia are major exporters of coal to the Philippines. World Trade Organization (WTO) regulations require that the Philippines lift import restrictions on coal. Since the 1970s, when the National Coal Authority was created, Philippine coal importers have been required to obtain a government certificate of compliance before importing coal, allowing the authorities to force importers to buy domestic coal each time they purchased coal from abroad. President Macapagal Arroyo has committed to honoring the international coal supply contracts approved by the previous government.

 Philippine utilities have been increasing use of natural gas since the Malampaya field began production in 2001. Energy production in the Philippines is concentrated in the power sector. Geothermal power accounts for the country's largest share of indigenous energy production, followed by hydropower, natural gas, coal, and oil. The Philippine government has made shifting from reliance on imported oil a major goal, and is pushing the current boom in natural gas-fired electricity development.35

The most significant event in the Philippine energy industry in recent years was the Electric Power Industry Reform Act (EPIRA) of 2001. After seven years of congressional debate and litigation, the Act came into force on June 26, 2001. The act has three main objectives: 1) to develop indigenous resources; 2) to cut the high cost of electric power in the Philippines; and 3) to encourage foreign investment. Passage of the Act set into motion the deregulation of the power industry and the breakup and eventual privatization of state-owned enterprises.36

Napocor will need to transfer its existing power purchase obligations to private distributors, and also to renegotiate high-priced contracts. The cost savings lie in the fact that private distributors will likely be unwilling to enter into agreements that are above market rates. There are other financial incentives for the government as well. Napocor's $23 billion in debt and $9 billion in power purchase agreements are unsustainable, and the government must already contribute $300 million per year to keep Napocor afloat.

In order to make the sale of Napocor more attractive to investors, the government has absorbed a significant amount of Napocor's debt. In addition, the $9 billion in power purchase agreements with IPPs also will be sold off. The transmission system has been transferred to an independent company, Transco, which is to be privatized. According to deregulation laws, no single potential buyer will be allowed to own more than 30% of the Philippines' generating assets. Privatization of Transco has been delayed, though, due to the fact that three bidding rounds in 2003 and 2004 resulted failed to yield an acceptable proposal. After many delays, the Philippine government plans to make another attempt at privatization in March 2006.

Electricity demand in the Philippines is expected to grow by around 9% per year through the end of the decade, necessitating as much as 10,000 MW of new installed electric capacity. Current contracts will provide about half that amount, with the remainder expected to be filled once the market deregulates. Medium-term increases in power demand are to be satisfied largely by the three gas-fired plants (Ilijan, Santa Rita, and San Lorenzo) that will be linked to the Malampaya natural gas field. The Korea Electric Power Corporation (KEPCO) began commercial operation of the 1,200-MW Ilijan plant in June 2002. KEPCO will run the plant under a build-operate-transfer scheme for 20 years, after which ownership will revert to Napocor. Minority stakeholders in the plant are Southern Energy of the United States (20%) plus Mitsubishi (21%) and Kyushu Power (8%) of Japan. First Gas Power completed a 1,020-MW plant at Santa Rita in August 2000; the plant switched from fuel oil to natural gas in January 2002.

In 2005, electricity generation reached 53.7 billion kilowatt hours. Thermal generation, mostly from natural gas, fuel, oil and coal, accounted for 68 percent of total electricity production, followed by hydropower (15 percent) and other sources (17 percent). According to the EIA, total electricity consumption, 47 billion kilowatt hours, accounted for 12 percent of the Philippines’ final energy consumption in 2005. Currently only 1.4 megawatts (MW) of installed capacity is connected to the grid. This capacity is mostly used to energize rural villages and for “off-grid” electrifications under the Expanded Rural Electrification Program.

Renewable energy resources are estimated to have a power generation potential of more than 250,000 MW, with geothermal energy contributing the largest share. A primary goal of the Philippines is to become the world’s largest producer and consumer of geothermal energy for power generation.

The Philippine Department of Energy sets overall policy goals in the energy industry, while the Energy Regulatory Commission is charged with regulating the electricity sector. After experiencing a severe power crisis in the early 1990s, the Philippine government set out to restructure and privatize the power sector with the aim of ensuring adequate electricity supply and increasing investment in energy infrastructure. After several years of legislative debate, the Electric Power Industry Reform Act (EPIRA) of 2001 was enacted.

EPIRA set into motion the deregulation of the power industry and the breakup and eventual privatization of state-owned enterprises. Under EPIRA, the government needs to privatize 70 percent of state-owned National Power Corporation’s generating and contracted plants before an open access regime can start in the power sector. As of May 2008, the Power Sector Assets and Liabilities Management Corp had achieved a 42.8 percent privatization for power plants.

In February 2007, the Philippine National Oil Company- Energy Development Corporation’s first merchant power plant (49.37 MW) started its commercial operations providing additional power capacity for the Visayas grid. Plans for the Nasulo Geothermal Power Project in Palinpinon and the Mindanao III in Mt. Apo, North Cotabato are already in order, with the plants expected to be online in 2008 and 2011, respectively.

As of 2006, the Philippines’ total installed capacity was approximately 2,257 MW. The government has identified 70 hydropower projects with a potential capacity of 2,603.5 MW. Currently there are 14 mini-hydropower projects with completed feasibility studies, expected to provide an additional 237.56 MW to existing capacity.

There are two new power projects in Luzon. The CE Casecnan Water and Energy Company (a subsidiary of California Energy International) is constructing a multipurpose irrigation and 150-MW hydroelectric facility. Also, the 350-MW San Roque multipurpose hydro project began commercial operation in May 2003.
Mirant is the Philippines' largest IPP, operating five power plants in the country. Mirant's coal-fired Sual plant began commercial operation in late 1999. The 1,218-MW plant is located about 130 miles north of Manila, and is the nation's largest and lowest-cost electricity producer. Napocor is the sole purchaser of power from Sual.

Several power-generating facilities also are under extensive rehabilitation. The 100-MW Binga hydroelectric plant has been under renovation since 1993 following damage from a 1990 earthquake. After years of delays, Binga resumed operation in July 2002. A larger project is the $470 million contract with Argentine firm IMPSA (IndustriasMetalurgicasPescarmonaSociedadAnonima ) to rehabilitate and operate the 750-MW Caliray-Botocan-Kalayaan (CBK) power complex in Laguna, south of Manila. The CBK complex is the grid regulator in Luzon, and as such is able to transmit power to other plants on the grid in the event of breakdowns. IMPSA, in conjunction with new partner Edison Mission Energy of the United States, was able to get a performance undertaking guarantee despite Napocor's and some government officials' objections, facilitating long-delayed financing of the project.

The Philippines, due to its geography, has problems linking all of its larger islands together into one grid and ensuring availability of electric power in rural areas. The government has set a target date of 2006 for full electrification, and also is taking steps to link together the country's three major power grids (Luzon, Visayas, and Mindanao). Where it is not economical to link small islands' grids into the national grid, separate local systems are being established around small generating plants.

The Philippines is the world's second largest producer of geothermal power, with an available capacity of 1,909 MW. The government would like to add roughly another 1,200 MW, which would exceed current U.S. geothermal capacity. Geothermal power currently makes up around 16 percent of the Philippines' installed power generation capacity, most of which has been developed by the PNOC - Energy Development Corporation (PNOC-EDC). Privatization of PNOC-EDC is planned, though as with other generation assets, the process has progressed much slower than originally planned. Kyushu Electric company is in a joint venture with PNOC-EDC to develop a 40-MW geothermal plant in Sorsogon, Albay province, and Marubeni of Japan has expressed its intent to build the 100-MW Cabalian geothermal plant in Leyte. California Energy's Philippine unit is working with PNOC to develop three new geothermal power plants in Leyte, producing a total of 540 MW of electricity. Plans are underway to develop nine new facilities in Luzon, ranging from 20 MW to 120 MW, that will eventually bring a total of 440 MW of geothermal energy to the grid. The new 40-MW Mambucal and 40-MW Rangas power stations in Dauan, Negros Oriental began operation earlier this year. Financing for the projects was secured from the Development Bank of the Philippines (DBP) in June 2003.

Besides geothermal, the Philippines also is exploring the use of other renewables for electricity generation, particularly in the country's unelectrified villages. In March 2001, the Philippine and Spanish governments, in conjunction with BP, agreed to a $48 million contract to bring solar power to 150 villages. BP and the government of Australia also have partnered with the Philippines to supply solar power to rural villages, bringing 1,145 solar-powered systems to 52 new municipalities.

The Philippines appears to have a strong potential for wind generation. The United States Department of Energy wind mapping survey has estimated that wind resources in the Philippines have a power generation potential of as much as 70,000 MW, seven times the country's current power demand. The 40-MW, PNOC-EDC, Northern Luzon project in Ilocos Norte began operation in late 2002. A contract for a second, 40-MW phase of the project was signed with Aboitiz Power in March 2003.
PNOC and Bronze Oak Limited of the UK signed a contract in September 2005 to cooperate on the development of a 30 MW bagasse-fuelled power plant, to be co-located with a major sugar mill.


Vietnam Energy and Economic Policy


The Vietnam power industry is in the process of developing. The equipment used is backward and power consumption per unit of product is high, pointing to a very low energy efficiency rate. Commercial power supply level is low in comparison with other countries, pegged at only about 0.12TOE/capita. Energy resources potentials are diversified and have not been explored enough.

The technologies in energy production are still obsolete, with low efficiencies and high consumption rates. But the high economic growth rates of Vietnam reflected in the GDP growth is reflected in the steep increase demand in energy.

Vietnam has around 600 million m3 of proven oil reserve and more discoveries have since been made and further discoveries are also likely. Most of the Vietnam oil reserve remains unexploited. The country also has 554 bill.m3 of proven reserve of natural gas. The use of natural gas has been limited in Vietnam. Vietnam is a net importer of fossil fuels except for coal. (Source: Annual Report 2002, EVN)

Extensive transmission lines connecting the northern and southern regions of Vietnam have been completed providing a total length over 3,000 sq. km.

Under the Strategy for Electricity Sector Development approved in 2004, the Government of Viet Nam plans to establish a power market, diversify investment and trading, and encourage the participation of several economic sectors.

The Electricity Law, which came into effect in 2005, initiated the establishment of a power market along with the Electricity Regulatory Authority of Viet Nam.

Current challenges in the electricity power sector of Vietnam include an underdeveloped electricity system without reserve capacity and insufficient investment in electric power development to meet the rising demand for energy that is commensurate to the rise in growth of Vietnam’s GDP.

The Electricity Viet Nam (EVN) had succeeded in privatizing 21 subsidiaries and converting others to limited liability companies by 2006. The Power transmission companies and hydropower plants will remain under the management of EVN, but under the 2006 to 2010 development plan there is a proposal to privatize or restructure the provincial power companies and some distribution companies.

In 2005, renewable energy accounted for only 2 per cent of installed capacity, and this figure is expected to only rise to 3 per cent by 2020. In terms of fuel mix, the share of hydro is expected to decrease from 37 per cent in 2005 to 25 per cent in 2025, while coal-fired power plant will account for 42 per cent in 2025.

By 2020, Vietnam will install the first nuclear plant (2,000 MW) and add two more units by 2025. Despite the planned additions to the electric power generation capacity, short fall between the projected demand and generation is expected to be met by importing electricity from neighbouring countries such as China, the Lao People's Democratic Republic and Cambodia.

Rural electrification in Vietnam has achieved 90 per cent at household level. Viet Nam has many low voltage distribution systems, and suffers from high losses from the low voltage system in rural areas (20-25 per cent) compared to total system loss (12 per cent).
 
In 2006 the government passed a national target programme for energy efficiency for the period from 2006 to 2015. Though the focus is generally on energy, this will have a significant impact on electricity consumption. Key activities will include public awareness raising, developing legal frameworks that support energy efficiency, enhancing capacity for the efficient use of energy in building construction, design and management, and utilizing standards and product labelling for selected appliances.

In 2006, the Environmental Protection Law came into force affecting all power utilities. Power utilities are required to undergo an environmental impact assessment before construction and undergo annual monitoring of the ambient conditions and pollutant emissions to establish their compliance with national standards. The Government of Viet Nam is aiming to support the research and development of renewable energy technologies and is a signatory to the UNFCCC with an interest in utilizing the Clean Development Mechanism.

APEC, 2007, APEC Energy Overview 2006, Institute of Energy Economics, JapanAccording to the Revised Power Development Master Plan of Vietnam for the period 2001-2010 approved by the Prime Minister in March 2003, the load demand has been forecasted at 48.5 to 53 billion kWh for the year 2005 and 88 to 93 billion kWh for the year 2010. This means the average load growth rate is around 15% annually for the period 2001-2010. Based on this master plan, to meet high growth rate of power demand, reliable supply of electricity as well as enough reserved capacity for power system in cases of maintenance and faults, there will be a number of new power plant to be put into operation.37

The Viettri power plant in Vietnam was built in 1960 and had cogeneration system which included coal fired boilers and the extraction condensing steam turbines (Russian technology) to supply electrical and thermal energy for Vietnam industry zone.

This cogeneration system fell out of operation when it was destroyed in the Vietnam War. Activities in electricity sector are regulated by the Government decree on electricity activities and consumption. Private companies can participate in electricity generation and distribution only but are subject to the conditions of a license issued by MOI if generation capacity is bigger than 10MW and and also in case of generation for self use.38 In the case of connection to grid, beside the license there is a need to obtain additional purchase contracts with the EVN. Investment modes as BOT, BOO, BTO, BT are encouraged. The price to sell to grid is not fixed, depends on negotiation with EVN case by case. Investment into electricity for rural areas is encouraged by tax policy and financing.

In 1996-2000, Vietnam carried out the National Science Technology program on Strategy and Policy for Sustainable Energy Development for Period of 2001- 2020. The Main target of this program is to create scientific bases for National Energy Policy. Based on these results Draft of National Energy policy was prepared and submitted to Government.39

Biomass is a major component of noncommercial energy in Vietnam. It has more than 50% share in national energy balance in the past and will continue in the same status in the future (until 2020). It is the main energy source in the rural area where 70-80% of the population still use it mostly for heating and cooking. It shares about 98% of energy consumption in this area.

Under the Oil and Gas Law of Vietnam, the legislation concerning energy production by governmental and private companies, the Vietnamese government encourages domestic, foreign and individuals to invest in the oil and gas energy sectors. The stakeholders are entitled to protection of their capital, properties and other legal rights.

Some of the conditions to be met by these investors are that all legal bodies including private companies shall: (1) apply only modern technology; (2) fulfill commitments on environment protection; (3) buy insurance; (4) and all legal bodies including private companies can install, operate, maintain, use facilities, routes, pipelines, storage for their activities. Moreover, all legal bodies including private companies, investing in the Oil and Gas sector businesses in Vietnam are required to enter contracts with the PetroVietnam, the government representative through a bidding process. Normal contract term is less than 25 years including the exploration period of less than 5 years.

Under the Power Development Strategy 2004-2020, the thrusts of the program are as follows: (1) power development should go first; (2) develop various resources for electricity, especially from new and renewable sources; (3) diversify supplies of electricity and give priority to development of domestic resources; (4 encourage all kind of investment in power generation and grid; (5) give subsidies for power projects in rural and mountainous areas; (6) ensure the sustainability of power development; (7) formulate policies for a competitive power tariff for establishment of electricity market; (8) formulate energy science & technology policies.

In Vietnam, energy production by all companies in coal sector is regulated by the Mineral law. This law encourages all investors, including private companies to invest into coal sector activities such as investigation, exploration, mining and processing but does not provide the ownership of the mines being explored or area invested, to anybody. The License terms under this law for the investors are: 12 months for investigation; 24 months for exploration; less than 30 years for exploitation.

The Electricity Law of Vietnam, which came into effect only very recently in 2005, established a power market along with the Electricity Regulatory Authority of Vietnam. Some challenges in Vietnam include an underdeveloped electricity system without reserve capacity. Thus, like the Philippines, Vietnam is prone to power outages. Vietnam’s dependence on imported oil and its lack of supply can be an energy security issue although oil is not used as much in generating electricity as it is in other sectors. With regard to restructuring or liberalizing the power sector, the Electricity Viet Nam (EVN) had succeeded in privatizing 21 subsidiaries and converting others to limited liability companies by 2006.40

The Power transmission companies and hydropower plants will remain under the management of EVN, but under the 2006 to 2010 development plan there is a proposal to privatize or restructure the provincial power companies and some distribution companies . In 2005, renewable energy accounted for only 2 percent of installed capacity, and this figure is expected to only rise to 3 per cent by 2020. In terms of fuel mix, the share of hydro is expected to decrease from 37 per cent in 2005 to 25 per cent in 2025, while coal-fired power plant will account for 42 per cent in 2025.

In 2020, Viet Nam is planning to install the first nuclear plant (2,000 MW) and add two more units by 2025. Despite the planned additions to the electric power generation capacity, short fall between the projected demand and generation is expected to be met by importing electricity from neighbouring countries such as China, the Lao People's Democratic Republic and Cambodia. Rural electrification has achieved 90 per cent at household level. Vietnam has many low voltage distribution systems, and suffers from high losses from the low voltage system in rural areas (20-25 per cent) compared to total system loss (12 per cent).

In 2006, a national target programme in Vietnam for energy efficiency for the period from 2006 to 2015 was approved which will have a significant impact on electricity consumption. Key activities will include public awareness raising, developing legal frameworks that support energy efficiency, enhancing capacity for the efficient use of energy in building construction, design and management, and utilizing standards and product labelling for selected appliances.

In 2006, the Environmental Protection Law came into force affecting all power utilities. Power utilities are required to undergo an environmental impact assessment before construction and undergo annual monitoring of the ambient conditions and pollutant emissions to establish their compliance with national standards. The Government of Vietnam is aiming to support the research and development of renewable energy technologies and is a signatory to the UNFCCC with an interest in utilizing the Clean Development Mechanism.

The State-owned Petrovietnam now reports to the Industry Ministry after a May 2003 reorganization that removed Petrovietnam’s independent ministerial ranking. The company was reorganized in 1990 and now oversees the activities of eight subsidiaries that control functions such as administration, exploration and production, marketing (Petrovietnam Processing and Distribution Company (PVPDC)), training, gas production and distribution (Vietgas), petrochemicals, and information collection. Vietnam’s Foreign Company partners in the energy sector are BP, Chevron, ConocoPhillips, ExxonMobil, Idemitsu Kosan, KNOC, Mitsubishi, Nexen, Nippon Oil, ONGC Videsh, Petronas Carigali, Premier Oil, PTTEP, Santos, Statoil, Talisman, Total, Zarubezhneft. (EIA)

Vietnam has good constant solar resources in the South and Center. Annual solar radiation is in the range 4 to 5.9 kWh/m2, with a yearly average sunshine duration of 1600-2720 hours. In coastal areas of Quang Ninh and Hai Phong and in the central and southern regions with wind energy potential in the range of 600-1000kWh/m2 per year. Wind turbines with average height of 10m have already been installed for recharging household batteries. In this field, R & D activities have been concentrated on the wind data base in different parts of the country, adaptation of new technology for manufacturing of wind pumping, wind battery charging and wind electricity generation.

Since the 1980s, solar energy, wind energy, bio-energy are being introduced as non-conventional energy sources to serve for the rural electrification. The devices such as family and community type bio-gas plants, solar water heating systems, solar dryers, solar cooker, solar photovoltaic pumps, wind pumps, wind battery chargers and electric generators are already making good impact on the development and life styles of many households in rural areas.

A further attractive feature of small renewable energy projects is that they are within the capacity of small and medium-sized investors, i.e., private companies, provincial or commune authorities, cooperatives or NGOs. Therefore, they offer a means of increasing the sources and amounts of financing available for rural electrification. Expanding the participation of local companies helps increase the efficiency with which electricity services are delivered in rural areas through competitive pressures. Electricity of Vietnam (EVN) through the Rural Electrification project supported by the World Bank is supporting the participation of local companies for example through development of small Power Purchase Agreement and Tariff.

Vietnam is presently undertaking a reform of the energy sector, focusing on institutional structure, energy pricing and energy finance and pursuing a policy of diversification of energy resources based on development of indigenous energy recourses and expansion of regional energy cooperation. A major objective is to ensure adequate energy supplies to allow socio-economic development and population growth. Energy conservation and efficient energy use are also considered as an important additional energy resource, necessary for sustainable economic development and reduction of negative environmental impacts.

Between 1996-2000, Vietnam carried out the National Science Technology Program-Building strategy and policy of sustainable energy development for the period of 2001-2020. Main target of the program is to create scientific bases for National Energy Policy

The Rural Electrification policy adopted in early 2000 by the Ministry of Industry Vietnam incorporates the basic principles of diversifying ownership, providing incentives for local electricity supply businesses and encouraging decentralized power generation. Rural electricity supply will be based on both grid and off-grid systems, based on least cost criteria. Rural electricity companies should have adequate financial incentive to continue in business and to maintain an acceptable level of service. Foreign and local investors are encouraged to invest in local electricity supply systems, especially in areas that cannot be reached by the grid.



LESSONS IN DEREGULATING THE ELECTRIC POWER INDUSTRY IN VIETNAM AND THE PHILIPPINES


Energy is essential for economic growth and development particularly in developing countries where water and electricity are essential services for economic growth and poverty alleviation. Lack of investment in water and electricity as part of infrastructure reflects lower economic growth and overall quality of life. In developing countries in Asia and Africa, studies reveal that a large percentage of the population do not have sufficient access to such basic necessities as clean water and a reliable source of power.

The worldwide trend in recent years for the electricity and water sectors has been to deregulate and privatize these industries in both in developed and developing countries. The US, UK, France and other more affluent countries have veered toward this trend and their experience have set the path for developing countries such as Vietnam and the Philippines.

But the limited technology and resources at the disposal of developing countries have hampered such initiatives further exacerbating the lack of access of the poor in developing to countries to water and electricity.

Another common thread in developing countries that pose a challenge to successful reforms in energy is energy security stemming from still lack of technology to manufacture its own natural resources into cheaper and more accessible sources of energy.

This is a critical issue facing Asian economies particularly the developing ones. Asian developing countries including the Philippines and Vietnam, currently import more than one-third of all global oil supplies.41

Experts predict that by 2030, 80 percent of Asia’s oil will come from the Middle East, making the region particularly vulnerable to price shocks and supply disruptions. To better address and manage the impacts of rapid growth in energy usage, Asia will need to experience a paradigm shift toward clean energy approaches.

Developing countries such as Vietnam and the Philippines are undertaking reforms  in their electricity industry to increasing private capital,  promoting competition and  introducing new regulatory structures.   Reform  measures  implemented usually  involve unbundling exist ing utilities such as in the case of the Philippines, possibly 
into separate generation, transmission, distribution and retail entities, privatising state­owned utilities, introducing competition among operators, especially  in the  generation sector; and establishing new regulatory  bodies. 

Most of the developing Asian countries have identified a need for capacity-building in policy reform and development as well as improved access to clean energy technologies and finance with the end-goal of a substantial and sustained increase in investment in energy efficient equipment, renewable energy technologies, and cleaner fossil fuels.

The lessons learned by most countries when implementing regulatory reform in the electricity supply industry entailed efforts at liberalization and/or privatization while creating legal access for competition into generation. Liberalization begins with attempts to introduce competition in generation by unbundling generation from transmission and expanding legal access to transmission network. The most far-reaching reforms also create spot markets for trade in electricity and allow consumer choice of supplier for some customers. 42

The Philippine Energy Plan, or PEP (2005-2014), projects power demand will continue to grow strongly, at an estimated annual average of 7 to 9 percent.  Projections by the DOE indicate that the Philippines will need to add 9,228 MW of new capacity over the next ten years as a result of the expected surge in electric power demand due to population growth, increased agro-industrial activity, mining activities, telecommunications, and infrastructure construction.
In the Philippines, fiscal and other incentives are provided by the government to encourage investment in the energy sector, notably energy sourcing, power generation and transmission, and rural electrification. The National Transmission Corporation (TransCo) continues to expand and improve the country's transmission infrastructure.   Distribution companies and electric cooperatives are also interested in products and technology that will reduce system losses and provide more efficient servicing of their respective franchise areas.43
If the provisions in the EPIRA are full implemented and Philippine electric power sector successfully restructured, the end-result would be an energy sector at par with its ASEAN neighbors. But a lot of challenges and so much room for improvement remains.

For one, although functional unbundling has already taken place and results could be seen through the billing of end consumers, there remain franchise areas whose tariffs have not been functionally unbundled. Also, full privatization of government-owned generating and transmission assets have not been fully realized. Removal of cross subsidies inter-grid and intra-grid cross subsidies have begun but not completed.44

Vietnam has 28 operational power stations able to generate 8,741 megawatts. Per capita electricity consumption remained at a modest 400kWh last year.   Vietnam's electric power industry supplied 53 billion kWh in 2005 and predicts to rise to 100 billion in 2010.   Vietnam’s estimated demand for electricity from now to the year 2010 will grow annually at the rate of 10-15 percent.   To meet this demand, an investment of US$ 20 billion by 2010 will be needed to develop 37 new power generation projects (including 22 hydroelectric plants, 8 gas or oil power plants and 7 fueled by coal) and about 4,000 km of 500kV transmission lines together with 100,000 km of low medium and low voltage distribution lines.  
The Government of Vietnam has decided to open the electric power generation and distribution sectors to call for investment from other domestic and foreign investors under various forms, including Independent Power Producers (IPP), Build-Operate-Transfer (BOT), Build-Transfer (BT), Build-Transfer-Operate (BTO), Joint Ventures (JVs), and Joint Stock firms. IPPs currently generate about 8.7 percent of total power supply.   Over the next 10 years, Vietnam will allow up to 20 percent of generating capacity to be in the hands of foreign-invested IPP, BOT, and JV projects.
The electric power industry of Vietnam has been opened to foreign investment and operation. Recent government initiatives have opened the industry for consulting services, installation, construction, and engineering services, machinery, equipment, and materials, supply of equipment, spare parts, materials, consumables, and overhaul and maintenance services, and investment in new power projects in the form of IPP, BOT, BT, BTO, and JV.  
The shortage in electric power supply is expected to be significantly reduced with the advent of new technology and investment in the power sector in Vietnam, increasing openness toward BOT and other private financing schemes by the Vietnamese Government, and the more openness to the entry of Western technology and expertise that is considered to be world class in this field.
Vietnam can learn from the example of the Philippines in terms of pushing for legislation and regulations pertaining not only to energy and power sector reform and regulation but also in terms of over-all environmental management in order to ensure a more sustainable energy sector development.
Some of the more recent Philippine laws passed which pertain to a more improved environmental management policy in the country include: (1) the Philippine Clean Air Act of 1999; (2) Protected Areas Management RA 7586: National Integrated Protected Areas System Act of 1992; (3) PD 1586 on environmental impact assessment; (4) Environmental Impact Assessment or PD 1586; (5) PD 705: Philippine Forestry Reform Code which defines the classification, management and utilization of forest lands and resources; (6) RA 9275 or the Philippine Clean Water Act of 2004 which provides a comprehensive water pollution control policy; (7) RA 6969 or Philippine Toxic Substances and Hazardous and Nuclear Waste Act which mandates the regulation, restriction, or prohibition of the importation, manufacture, processing, sale, distribution, use, and disposal of chemical substances and mixtures that present unreasonable risk and/or injury to health and the environment; (8) RA 9003 or Philippine Ecological Solid Waste Management Act of 2000.
One important step that Vietnam can also learn from the Philippines is to strengthen its current legislation in terms of successful implementation of deregulation programs and coming up with specific legislation to address its energy concerns. Vietnam has proven in the past that it has the political determination to carefully implement its national policies.
The Philippines can learn from Vietnam’s example of successfully launching economic reforms because even as the Philippines has had more legislation to back up its policy reforms in the energy sector particularly electric power, successful implementation hinges on mature political will on the part of government agencies and officials. Where Vietnam had been severely ravaged by several internal and external conflicts in recent years, it has successfully steered itself to economic development in the last two decades. This caveat is particularly significant in light of a wide room for corruption in the implementation of reforms.45

In Vietnam, because of its phenomenal economic growth in recent years after the implementation of its renovation policy, total energy consumption in Vietnam has been growing at an average annual rate of 8.5%. Per capita commercial energy consumption is 521 kg of Oil equivalent whereas the electric power consumption per capita is 203 kWh in 1998 (WB, 2000).46

Vietnam is now undertaking reforms of its energy sector to cope with the sharp increase in energy demand, focusing on institutional structure, energy pricing and energy finance. A policy of diversification of energy resources is being pursued, based on development of indigenous energy recourses and expansion of regional energy cooperation. A major objective is to ensure adequate energy supplies to allow socio-economic development and population growth. Energy conservation and efficient energy use are also considered as an important additional energy resource, necessary for sustainable economic development and reduction of negative environmental impacts. Between 1996-2000, Vietnam carried out the National Science Technology Program-Building strategy and policy of sustainable energy development for the period of 2001-2020. Main target of the program is to create scientific bases for National Energy Policy.

The Rural Electrification policy adopted in early 2000 by the Ministry of Industry of Vietnam incorporates the basic principles of diversifying ownership, providing incentives for local electricity supply businesses and encouraging decentralized power generation. Rural electricity supply will be based on both grid and off-grid systems, based on least cost criteria. Rural electricity companies should have adequate financial incentive to continue in business and to maintain an acceptable level of service. Foreign and local investors are encouraged to invest in local electricity supply systems, especially in areas that cannot be reached by the grid.

Both Vietnam and the Philippines can derive important lessons from the experience of deregulation in developed countries and other developing countries. The Philippines can derive important pointers in privatization from countries with capitalist market based environments such as the UK, France, Malaysia, Singapore and Thailand while Vietnam can draw more from the example of China because its centralized governance and. As in any model for social and economic reforms, any moves towards reforms, deregulation and privatization have to be tailor fit to each specific country.
Some important factors in the path towards successful deregulation and privatization include a clear understanding of property rights of each country, an efficient financial market, an independent judiciary, among other things. After power utility entities have been privatized, constant monitoring and evaluation are also necessary to ensure proper delivery of services and better customer satisfaction.
Developing countries like Vietnam and the Philippines to power their emerging economies and serve their rapidly growing populations. Vietnam and the Philippines need to address their escalating energy demand and at the same time ensure increased energy efficiency and reduced emissions in order to stave off the effects of global warming. One way to do this is to promote renewable sources of energy in furthering electricity reforms.47
The Philippines and Vietnam can emulate the models of France, UK and the US which have successful electricity sector models but with a view to resolving differences and challenges unique to their socio-economic and political systems. Both the Philippines and Vietnam allow privatization of power and have in fact allowed private development of some sectors of its power industry. A successful privatization of the electric power utility in Vietnam and the Philippines will translate into more competitive tariff rates, higher energy efficiency, better delivery of services and genuine signs of national economic growth.





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