High power cost weighs down Philippines competitiveness

MANILA, Philippines - The Philippines will continue to lag in global competitiveness unless government addresses the country’s high power cost – considered among the most expensive in the world – to support the manufacturing sector, experts said.

Experts at a recent forum said electricity is the biggest expense for industrial firms, accounting for about a fourth of total costs.

Federation of Philippine Industries (FPI) president George Chua said electricity expense, on the average, accounts for three percent of total production cost incurred by manufacturing firms and even goes higher for material industries such as cement, paper products, iron and steel, industrial chemicals, plastic products, glass products, petroleum refining and rubber products.

A recent study commissioned by power distribution giant Manila Electric Co. (Meralco) showed its rate is third highest in the region in 2016, down from second in 2011. Its tariff is also the fourth highest in Asia-Pacific and 16th worldwide.

This situation is becoming a tough sell for foreign investors to build industries in the Philippines compared with neighboring countries such as Indonesia, Thailand and Malaysia, UP School of Economics professor emeritus Dr. Raul Fabella said.

“Both Filipino-Chinese tycoons and up-and-coming startups from Taiwan, are either moving out of the country to put up their factories in China, or giving us a miss for Vietnam or Thailand, where electricity rates are nearly a third of ours. Electricity in Thailand costs nearly half that of ours, while that in Indonesia is only a fifth of ours,” he said.

The flourishing renewable energy (RE) sector is a welcome development for power-intensive industries but experts warned its expansion should be done in caution to have a sustainable long-term solution to the nation’s energy challenges.

Fabella said all sectors should continue RE development as this will aid in curbing climate change. “But as with any big initiative, we must proceed with caution and extensively study the weaknesses of our innovations, lest they come back to haunt us,” he said.

But too much development of RE will spell more costs shouldered by consumers under the feed-in tariff (FIT) scheme.

“The more RE is utilized in the country’s energy mix, the longer we remain a country with the most expensive electricity. There are serious economic consequences to that. Expensive power makes industrialization less than viable. That spells lesser jobs created and more people poor,” Minimal Government Thinkers Inc. president Bienvenido Oplas Jr. said.

Chua also said “the only reason we have investments going into renewable energy is because a tariff is imposed on all electricity consumers to subsidize alternative power generation. That tariff raises power costs for everyone.”

In the meantime, the Philippines – particularly the manufacturing sector – will continue to depend on coal power for at least five more years, Chua said, as growing businesses seek cheap electricity.

“Philippine power costs are very expensive, that hurts our competitiveness in manufacturing,” he said. “So we really need coal, it’s one of the cheapest sources of power for a country with one of the highest costs in Asia.”