Coal cannot be ignored

Being tagged as a new emerging economy means more pressure on our bureaucrats to review and adapt mid- and long-term economic plans. It’s not often that the Philippines is tagged in such a positive note so let’s not bungle this opportunity.

One of the potentially worrying issues continues to be the power situation. The country needs to double its power generating capacity in the coming few years lest it experience those brownouts that crippled the economy during the 1990s and forced foreign investors to relocate their business elsewhere.

The power crisis also resulted in high power rates from build-operate-transfer contracts of instant power plant investors that were enticed by seemingly onerous take-or-pay guarantees. True, it was a quick solution to the brownouts, but the continuing high cost of electricity continues to be an investment decision disincentive.

Under the Department of Energy’s 2009 to 2030 Philippine Energy Plan, some 16,550 megawatts of additional power capacity is needed between now and 2030. The country’s installed generating capacity is currently only slightly over 15,000 MW. 

Mindanao carries the most risk with sustained robust levels of economic growth in several provinces and cities, although Luzon and Visayas may not be spared rotating brownouts due to the lack of installed power capacities next year.

Quick assessment

A quick look at the power projects already being constructed show a good mix of energy sources from both indigenous and renewable sources of energy. Coal, natural gas, geothermal and hydro energies are seen as major sources although wind, solar and biomass have their own contributions.

To date, most of the ongoing large power plant projects are coal-fired. It seems that investors like GN Power, Meralco PowerGen, Aboitiz Power, Alsons, Palm Concepcion, PNOC Exploration, Philippine Energy Corp. and Philippine Power Corp. are moving to this fuel source.

Together with the planned expansion of existing coal power plants in Sual, Pagbilao, Masinloc, Quezon and Calaca as well as that of Global Business Power Corp., this will add about 3,000 MW of coal-fired power generation capacity to the nation’s grid.

The preference for coal is not surprising given the fact that there are new technologies already available that make coal-fueled power plants environmentally acceptable. Furthermore, and more importantly, coal has continued to be a cheap source of power, definitely a better alternative than bunker fuel.

Majority of the expansion and new coal power projects are adopting state-of-the-art combustion technologies that can utilize blended coal and therefore reduce CO2 emissions.

No wonder that the DOE continues to push for coal as a major component in the grid’s base load power generation. It could also be a quick and easy solution to the country’s looming power problem since coal power plants are easier to finance and build.

Securing coal

With the push to increase the share of coal in the country’s energy mix, there is a need to ensure that this fuel source will continue to be available, not only from foreign markets but also from our own local coal miners.

Demand for coal from domestic power and cement plants this year is seen to reach 14 million metric tons. Of this figure, only around 7.6 MMT will be sourced locally, while the remainder will have to be imported from other coal-rich countries like Indonesia, China, Vietnam, Australia and Russia.

With world demand for coal rising, countries like India and Indonesia are already introducing measures to protect their own production. India, for example, has already banned the export of its local coal while Indonesia is going to introduce a stiff export tax on the indigenous fuel by 2014.

Fortunately, the Philippines still has a promising amount of indigenous coal. As of end 2010, the DOE estimated in-situ coal reserves at approximately 435 MMT, and a total coal resource potential of over 2.4 billion MT distributed over several areas including Semirara Island, Cagayan Valley, Surigao and Zamboanga.

Push for coal mining

This billion-peso resource potential, however, needs to be unlocked since very few companies have been brave enough to invest and explore for local coal.

Presently, Semirara Mining Corp. is the country’s largest producer, accounting for over 94 percent of total domestic production. If follows that Semirara Island alone continues to be the biggest single source of this fossil fuel.

The country remains dependent on imported coal, but if the government is able to introduce relevant stimulus, a lot of the potential reserves will be made within investment reach by many of the small mining companies.

For companies like Philippine National Oil Corp., which operates the Malangas coal field in Mindanao, investing in equipment and expansion projects can come from guarantees of its mother company.

But for majority of small-scale mining companies that are holders of one or more promising coal operating contracts granted by the DOE, there is a need to review how they can be able to develop their contracts into bigger projects.

Some of these companies like Coal Asia, which has extensive coal operating contracts in Davao Oriental and Zamboanga Sibugay, are in need of financing to pursue its production and exploration plans.

Although such operations are looking at the stock market for further capitalization, perhaps the government could come up with other measures to hasten their project timetables. 

By giving local miners a better chance to extract coal, the country is ensuring continued supply of coal for the power and cement industries while generating more jobs and income from the mining of such natural resource.

Latest Filipino lament

A short note from reader Ret. Lt. Col. Roberto Gamboa Jr.: “Thank you, bro, for giving space to my previous letter listing my view of laments of ordinary Filipinos. But I can’t help express my latest one, the untimely death of Sec. Jess Robredo. He had uncanny similarity with former President Ramon “My Guy” Magsaysay, a simple man of action without fanfare and with a sensitive touch for the common “tao.” But the similarity ends in a tragedy as both lost their lives in a plane crash before our country could fully benefit from their brand of service. Indeed, a lamentable fate for Filipinos.”

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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.