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FM AMEMBASSY MANILA
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UNCLAS SECTION 01 OF 04 MANILA 000423
SIPDIS
SIPDIS
FOR JOHN WILSON, USAID/ANE/TS, MARY MELNYK, USAID/ANE/SPO, CALISTA
DOWNEY, USAID/ANE/EAA, GORDON WEYNAND, USAID/EGAT/I/E, BILL BREED,
USAID/EGAT/ESP/GCC, WINSTON BOWMAN, USAID/RDMA, STATE FOR OES
PASS EXIM, OPIC, AND USTR
E.O. 12958: N/A
TAGS: ECON ENRG PGOV EAID TRGY SENV RP
SUBJECT: "$100 per Barrel: Crisis or Opportunity?" The 2008
Philippine Energy Summit
1. Summary: Against the backdrop of rising oil prices and prompted
into action by President Arroyo, the Philippine Department of Energy
convened an Energy Summit to solicit stakeholder inputs into
developing government priorities for the sector. Despite being
organized on a short notice, the Summit succeeded in gathering over
2,500 sector stakeholders to discuss, debate, and map out immediate,
short-, medium- and long-term solutions to address the impact of oil
prices and other pressing sector issues, including energy security
and sustainable, climate-friendly energy development. Key
initiatives discussed included lowering power costs (Philippines
currently has some of the highest electricity costs in the region),
promoting renewable energy, promoting energy independence,
efficiency and conservation, social mobilization, and finding ways
to lower fuel costs at the pump. The Summit also provided
broad-based and timely input to the Philippine Department of
Energy's development of a 20-year Philippine Energy Plan. This
cable presents Summit highlights, including key proposals from
sector stakeholders and a brief analysis of those proposals in the
light of the current energy situation. End Summary.
--------------------------------------
REACHING THE SUMMIT AND SUMMIT PROCESS
--------------------------------------
2. When world crude oil prices peaked above $100 per barrel in
early January 2008, President Arroyo called on her energy team to
organize a summit to gather views on a way forward for this largely
oil import-dependent nation. With just two weeks to prepare, the
Philippine Department of Energy worked overtime to get ready for the
three-phased approach to examining sector issues and options into
consensus and actionable plans.
3. Phases 1 and 2: January 29-31, "listening and consultative"
morning sessions consisted of experts' presentations and debates
about pressing sector issues, including responses to the Summit's
thematic question of whether the historical $100 per barrel crude
oil price presents a crisis or an opportunity for the nation.
Afternoon sessions constituted the "collaborative action planning
phase" where multiple, concurrent workshops served as fora for
stakeholder input to multi-sectoral action plans that recommended
policy directions, programs, and social mobilization interventions.
4. Phase 3: A final "integration and consensus building" phase was
held February 1-2 and gathered select participants from each
stakeholder group for processing the outputs of Phase 1 and 2 into a
set of initiatives through smaller group synthesis workshops. Given
the contentious nature of many energy sector issues, initiatives
were also classified by degree of stakeholder consensus as "Green"
(consensus among stakeholders); "Yellow Initiative" (requires
further study); and "Red" (contentious and requiring extended
consultation).
5. The Summit Proper. On February 5, the final outputs of the
Summit were presented by Energy Secretary Angelo Reyes, with
President Arroyo's reaction and key pronouncements to address the
problems. The Summit proceedings were attended by over 2,500
representatives from the energy sector, Philippine government
officials, academia, the donor community, and civil society groups
including those focused on consumer welfare. The high level of
participation in the Summit reflects the importance of current
sector issues to the nation, and lends weight to its outputs.
Indeed, in his final closing remarks, Secretary Reyes drew applause
when he commented, "Among the most valuable lessons we have learned
from this Summit is the fact that the process turned out to be just
as important as the substance of this gathering."
-------------------------
KEY PROPOSALS/"GREEN" INITIATIVES
-------------------------
MANILA 00000423 002 OF 004
6. Secretary Reyes presented results of the previous week's work at
the February 5 Summit, including a set of initiatives spanning
power, renewable energy, energy efficiency and conservation, oil
prices, and social mobilization. Reyes also noted that the outputs
from the Energy Summit would become important inputs into the
20-year Philippine Energy Plan currently under development. The
complete Summit proceedings are available at
www.doe.gov.ph/esummit/.
7. Lowering Power Costs. Two proposals emerged aimed at lowering
and/or rationalizing electric power costs. The first is to
accelerate full implementation of open access and retail competition
in the electric power industry by amending the Electric Power
Industry Reform Act (EPIRA). The 2001 EPIRA ties full
implementation (a key step to bringing down the country's high
electricity costs) to privatization of 70% of the government-owned
National Power Corporation's (NPC) generating assets. Currently,
42% of the assets are privatized. By lowering EPIRA's privatization
benchmark, open access and retail competition can proceed sooner.
However, some stakeholders argue that privatizing NPC assets as
mandated by EPIRA is essential to ensure a level playing field and
that "changing the rules in the middle of the game" would discourage
future private investments.
8. The second proposal would fast-track implementation of
time-of-use program, to smooth demand levels by offering low
electricity prices during off-peak hours. Currently, the National
Power Corporation, Meralco and a few private utilities are
voluntarily offering its customers time-of-use rates. Other
distribution utilities are expected to follow suit.
9. Promoting Renewable Energy. Several proposals supported current
government efforts to promote development and use of renewable
energy, including: (a) the passage of the Renewable Energy Bill; (b)
the establishment of a one-stop-shop for processing of renewable
projects; (c) accelerated implementation of the Biofuels Act and (d)
renewed promotion of compressed natural gas (CNG) for buses and
liquefied petroleum gas (LPG) for taxis. Passage of the
long-pending Renewable Energy bill would encourage investments to
develop the country's 2,500 MW of potential wind, hydro, geothermal,
and biomass power by 2025. A one-stop-shop renewable information
and market service hub provided by the government would promote and
facilitate investment. On biofuels, the country is already on track
in the implementation of its 2007 Biofuels Law, which mandates a
minimum 2% biodiesel and 10% bioethanol fuel blends by 2009 and
2011, respectively. Meanwhile, government CNG plans for buses in
Metro Manila had stagnated over the past three years due to a
combination of bureaucratic, investment and technical constraints.
10. Energy Efficiency and Conservation. Summit participants
acknowledged that despite successful efforts in efficiency and
conservation, a much greater effort was needed to tap the full
potential of such measures. An institutionalized and comprehensive
energy efficiency program was proposed that would include: (a) a
major retrofit program for commercial, industrial and residential
sectors; (b) public transport leasing; (c) expansion of mass
transport systems; (d) promotion of non-motorized technologies; (e)
rationalized operation of tricycles (a major transport sub-sector in
the country); and (f) an aviation efficiency enhancement program.
11. Social Mobilization. Last but not least, in acknowledgement of
the critical role of civil society groups in shaping the opinion of
this diverse and decentralized nation, the Summit recommended a set
of cross-sectoral actions and suggested more formal means of
including stakeholder input in planning and implementing sector
reforms. For example, transport and consumer groups have come up
with energy efficiency and conservation measures on their own, but
requested the Philippine government to provide policy support and to
become more transparent and consultative in their own planning
processes.
MANILA 00000423 003 OF 004
12. Yellow and Red Initiatives. Two of the proposals which needed
further research or the "yellow initiatives" were: (a) the viability
of jatropha as a biodiesel feedstock and (b) the need to develop a
new energy conservation law. The old Energy Conservation Law was
effective only between 1980 to 1985 to address the impacts of oil
crisis. There were also more contentious proposals or "red
initiatives" to, for example abolish the collection of income tax
and instead raise the tax for products that produce carbon
emissions, a "carbon tax". The reason behind this proposal was to
penalize the polluters and discourage the use of fuels that are
known to emit higher level of carbon dioxide such as diesel or coal.
13. Oil Prices. Summit speakers agreed that oil prices may still go
beyond $100, and that the country has little or no influence over
global prices. Several proposals aimed to mitigate the impacts of
rising oil prices, especially on the poor. These included
abolishment of the Value Added Tax on oil products, or using the tax
proceeds from oil products to fund pro-poor activities. Meanwhile,
there was consensus to strive towards greater energy independence by
reducing reliance on imported oil and use this opportunity to
increase the diversity of the Philippines' energy mix share of
domestic, climate-friendly energy sources. Currently, more than 50%
of the country's energy mix is provided through non-domestic
sources. The situation is even more skewed in the heavily
oil-dependent transport sector, where more than 60% of fuel is
imported.
------------------------
THE PRESIDENT'S RESPONSE
------------------------
14. At the Pumps. In the days leading up to the Summit, President
Arroyo issued an Executive Order to temporarily reduce oil tariffs,
resulting in a one peso reduction (2.7%) in diesel prices at the
pump. At the Summit itself, she made a strong appeal to oil vendors
to roll back prices by an additional 50 centavos. Ironically, the
President called for the Summit when oil prices exceeded $100 per
barrel in early January. However, on the day of her February 5th
address, the price was a more "modest" $88 per barrel and is
projected to decrease to $70 by June.
15. At the Summit. In her address, President Arroyo supported most
of the Summit proposals, emphasizing support for: (a) mitigating the
effects of high energy costs on the poor; (b) proceeding with
government plans to privatize remaining National Power Corporation's
generating assets and accelerating implementation of open access
("why not today?"); and (c) phasing out incandescent lights by 2010
as part of the government's energy conservation plan.
16. Climate Change. President Arroyo underlined the high stakes
for this archipelagic nation when it comes to climate change,
enjoining those present to act towards a solution: "As a nation made
up of over 7,000 islands, rising seas due to global warming takes on
a whole new meaning. Florida may lose some coastline, we lose a
nation. Our response to this grave challenge may [s]ound humorous,
but our intent is deadly serious: we must work together to solve
this problem."
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USG PARTICIPATION
-----------------
17. The USG contributed to the success of the Summit in several
ways. Staff from the Embassy Economics Section, Foreign Commercial
Service, and USAID each actively participated in all phases of the
Summit. Staff of USAID energy projects were also involved in Summit
planning and served as experts in various panels. USAID also
continues to provide assistance to the Department of Energy to
develop its Philippine Energy Plan.
MANILA 00000423 004 OF 004
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COMMENT
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18. Given the short period of time the Department of Energy had to
plan the Summit, it was a remarkable success at several levels.
First, the depth and breadth of participation - with most
participants attending multiple days, demonstrates both stakeholder
interest and the value of getting together and sharing knowledge and
opinions on this vital sector. As noted by Secretary Reyes, the
process was as important as the product, and the public appeared
highly appreciative of government efforts to hold the Summit.
Second, the Summit produced a useful set of initiatives and
proposals, supported by varying degrees of consensus, for further
action. While there were no major surprises among these proposals,
the broad endorsement provides a useful action plan for the various
stakeholder groups. Finally, while the broad set of proposals
ultimately overshadowed the original "$100 per barrel" impetus for
the Summit, government did accumulate some political capital in
"looking out for the little guy" by successfully bringing down
prices at the gas pump. The U.S. mission is closely monitoring, and
to some extent, plays an active role in pursuing such action plans.
Memmott