Regaining confidence

If it’s any consolation to us, many of the developing countries in Southeast Asia are also suffering from inadequate energy supply, and not just because of El Niño.

Projecting energy demand in a developing economy can be like predicting earthquakes: it’s more voodoo than science.

How we deal with this problem could determine whether we would lag even farther behind our neighbors in economic development in the next decade.

Since the early ’60s when we were ranked second only to Japan in economic potential and human development indicators, we have been overtaken by Hong Kong, Taiwan, South Korea and Singapore. Malaysia eventually leaped past us. We were neck and neck with Thailand until the financial crisis in 1997, which ironically started in that country, and then it sprinted ahead of us on the road to recovery.

Today Vietnam has overtaken us in terms of tourism receipts and foreign direct investment. FDI has also been consistently higher in Indonesia than in the Philippines, which can make you weep, considering that not too long ago, Jakarta reeled from street riots and the bottom had dropped from the rupiah.

Players in the energy industry told me that no one is scrambling to meet the demand for additional power in Mindanao. They explained that while there is an acute energy shortage, there is no guaranteed sustainable demand in Mindanao large enough to justify the massive investment needed to build a power plant.

Unlike in Luzon, there is no Wholesale Electricity Spot Market in Mindanao, which could spur competition in the energy sector and bring down power costs. (The government is still trying to launch WESM in the Visayas.) This means power producers in Mindanao must strike out on their own to find buyers of the electricity they generate. Retailing power in a region where demand is low and unpredictable is a losing proposition even for independent power producers (IPPs) that use power barges.

As I have written in a previous article, peace and order concerns in Mindanao also deter large-scale investment in power generation.

Investors have long complained that power costs in the Philippines are the second highest in the region after Japan. These days investors in Mindanao are missing even the expensive electricity.

Another reason for the tepid investor response to urgent calls for additional power in Mindanao is, of course, political uncertainty.

All plans for new or expanded investment in this country, particularly in sectors vested with public interest, are on hold until a new president is securely ensconced in Malacañang.

Investors remember too well the sad experience of IPPs that eagerly answered the call for additional power when Fidel Ramos became president in 1992. The Age of Darkness ended abruptly. But in 2001, the “most investor-friendly administration” renegotiated the contracts with the IPPs, cutting state guarantees and causing the power firms to lose $1 billion in expected earnings.

Power costs also became politicized, wreaking havoc on market forces and setting back upgrading and expansion plans of industry players.

The result: the return of blackouts from Manila to Mindanao, with investors fleeing from the tropical heat.

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In Jakarta last week, I felt the same sinking feeling that always swept over me during my visits over the years to Singapore and Thailand.

It’s like watching others rush past me on a high-speed train while I pedal furiously on a pedicab.

While you can’t pin all the blame on a nation’s leaders for a country’s ills, effective leadership certainly helps in national progress.

These days a peso is worth about 200 rupiahs – a major improvement for the Indonesian currency. Last year Indonesians re-elected their president, Susilo Bambang Yudhoyono, by a landslide. While his anti-corruption platform has been tarnished lately by some officials, “SBY” himself does not suffer from personal scandals. His latest approval rating was 75 percent – down 15 percent, but still enviable for presidents with below-zero ratings.

Until late last year, Jakarta suffered from regular blackouts. But there were no outages during my visit, and the blackouts are now confined outside the capital.

This feat could be attributed to the man Yudhoyono picked two months ago to replace the head of the state-owned electricity distribution monopoly PLN, or Perusahaan Listrik Negara.

PLN president director Dahlan Iskan goes to work every day at 6 a.m. He promised not to go overseas for six months after assuming his post. He told Yudhoyono, an old friend, that he was ready to be fired any time in case he failed to restore the lights and stabilize the energy supply of Indonesia. And he is working without pay.

The 58-year-old Dahlan can afford it. His previous day job was media mogul, having built up a tiny local paper that was in the red, called Jawa Pos, into Indonesia’s largest newspaper group and branching out into television. Dahlan also owns about 140 madrasahs or Islamic schools across the main island of Java.

He had just started branching out into power plants, building two initially out of necessity to run his printing presses, when Yudhoyono tapped him to end the blackouts.

After sharing his critics’ misgivings about his qualifications for the job, Dahlan considered the problem a challenge and agreed. In Jakarta, he told me that he saw it as a chance to serve his country.

Next month, with Dahlan’s approval, an Indonesian company will start building one of 10 power plants using a new US technology that harnesses ground heat to generate electricity. Each plant will cost about $42 million and can be operational within a month. The environment-friendly technology is called SWEETS – for Single Welled Engineered Electrical Turbine System – something I will write about in the future since it might soon come to the Philippines.

If SWEETS works, it will be a big boon to power supply in Indonesia, and the country could sprint ahead of us.

All we can do is watch the Indonesians, and wait until we have a new president, although I doubt if there will be a mad rush to invest here at the start of a new administration. Regaining investor confidence will be among the major challenges of the next president.

After a protracted period of inconsistent policies that have cost investors billions, confidence will not return overnight. Especially when better investment destinations beckon nearby.