The Implications of Energy Sector Reforms for a Philippine Community: The Experience of Barangay Cagsiay-I, Mauban, Quezon

Ruth Lusterio Rico, Ph.D.
Department of Political Science
College of Social Sciences and Philosophy
University of the Philippines Diliman


Introduction

The Philippines is a country that is dependent on oil imports to meet its electricity demands. Beginning in the early 1990s, the Philippine government initiated a series of reforms to make the country’s energy sector more efficient in meeting the demands of the economy. Among the projects launched by the government is the construction of power plants, specifically coal-fired power plants, in different parts of the country. The construction of these plants intended to supply the much-needed energy to boost the country’s efforts at industrialization. However, protests and opposition often meet the construction of power plants. In some instances, the construction of the plant is accepted by the community but after a few years of the plant’s operations, its environmental and health hazards are realized and discovered. The government spends for the investigations of the plants and sometimes orders the suspension of the plant’s operations. But there are also cases when the effects on the environment and the health of the people are neglected until these become detrimental.

This paper aims to explore and describe how a particular community has been affected by the reforms implemented in the energy sector. It focuses on the experience of Barangay Cagsiay-I, Mauban, Quezon where a coal-fired power plant owned by Quezon Power Limited (QPL) is located. More specifically, this paper aims to: (1) discuss and examine the current policy framework governing the energy sector, more particularly, the construction of coal-fired power plants; (2) determine how this policy framework and the implementation of policies affect a specific community; and (3) identify the issues concerning the governance of the energy sector and come up with possible recommendations based on the case study.


Environment and Development

The relationship between economic development and environmental protection (or sustainable development) has been addressed by the vast literature on politics and the environment. For developed countries, economic policies have been re-shaped or re-formulated to accommodate the concerns of sustainable development. However, in poor and developing countries, concerns for environmental protection are at the bottom of their priority lists. Hence, development efforts often disregard the detrimental effects on the environment and the lives of the people.

In many developing countries, control over the use of natural resources is closely linked to power relations. The social, political, and economic causes and consequences of environmental problems are more evident in the cases of developing countries. Environmental problems are also oftentimes linked to issues of livelihood and survival.

This particular study illustrates the seeming conflict in the goals of economic development and environmental protection. Indeed, are these goals conflicting? Is there always a trade off? If not, then, what are the options that can be taken?

This preliminary study presents the policy framework for the energy sector and illustrates how a particular community has been affected by the implementation of a specific development effort (i.e., the operation of a power plant to respond to the energy needs of the country).


Policy Framework of the Philippine Energy Sector: An Overview

History of the Policies

The Philippine government’s direct participation in the electric power industry began in 1936 with the creation of the NPC through the passage of Commonwealth Act 120 (Malaluan, 2003:4). This law mandated the development of hydraulic power by the NPC and required government-owned and controlled corporations (GOCCs) and all political subdivisions to secure from the NPC their electric power needs. In 1971, Republic Act (R. A.) 6395 was enacted to revise the charter of the NPC. This law expanded the scope of available energy sources for power generation to include nuclear, geothermal, and most other sources (Malalauan, 2003:4). It also mandated the NPC to undertake the establishment and operation of power transmission nationwide. The NPC’s monopoly of the power industry was further expanded by Presidential Decree (P. D.) Number 40 issued by President Ferdinand E. Marcos in 1972. This decree “identified the NPC as the state’s implementing agency for the setting up of transmission line grids and the construction of generation facilities throughout the country” (Malalauan, 2003:4). Furthermore, it identified the primary objective of the state “for the NPC to own and operate as a single integrated system all generating facilities supplying electric power in the entire area embraced by any grid set up by the NPC” (Malaluan, 2003:4). Private sector participation in the electricity industry was limited to: (1) areas not embraced by the NPC grid where the state may permit cooperatives and private utilities to own and operate isolated grids and generation facilities; (2) existing privately-owned generating facilities which the NPC allowed to remain in operation; and (3) the distribution of electric power undertaken by cooperatives, local government units (LGUs), and private utilities over their respective franchise areas. In other words, P. D. 40 gave the NPC monopoly of the transmission services nationwide. In 1979, the NPC bought the thermal power plants operated by Meralco and brought the government’s generating capacity to 90 per cent of the total installed capacity.

The next important policy governing the energy sector was Executive Order Number 215 issued by President Corazon C. Aquino which allowed the private sector to generate electricity under certain conditions. This law maintained the NPC’s mandate to strategically develop the power grids but allowed the private sector to construct certain types of generating plants, including: (1) co-generation units, defined as production of electricity and other forms of useful energy for industrial, commercial, heating, or cooling purposes for sequential use of energy; (2) electric generating plants intending to sell their production to the NPC grids; (3) electric generating plants, intended primarily for the internal use of the owner, but which may also sell any excess to the NPC grids; and (4) electric generating plants outside the NPC grids intending directly to sell to end users (Malaluan, 2003: 4-5). Subsequent laws further expanded the opportunities for the private sector to participate in the electric power industry. Among these are: (1) R. A. 6957 or the Build-Operate-Transfer Law passed in July 1990 which authorized the financing, construction, operation, and maintenance of infrastructure projects by the private sector under several schemes and authorized GOCCs and LGUs to enter into contracts with pre-qualified private contractors; (2) R.A. 7648 or the Electric Power Crisis Act passed by Congress in 1993 which granted the President the power to enter into negotiated contracts for the construction, repair, rehabilitation, improvement or maintenance of power plants, projects and facilities subject to minimal requirements; and (3) R. A. 7718 enacted in May 1995 which amended R. A. 6957 to provide more opportunities for the private sector to finance, construct, operate and maintain infrastructure and development projects by expanding the forms of private sector arrangements to include build-own-operate, build-lease-transfer, contract-add-operate, develop-operate-transfer, and rehabilitate-operate-transfer.

The full privatization of the electric power industry sector was achieved through the passage of R. A. 9136, otherwise known as the Electric Power Industry Reform Act (EPIRA), in 2001. This law provides for the “vertical unbundling of the electric power industry into four sub-sectors: generation, transmission, distribution, and supply” (Malaluan, 2003: 6). Two major reforms are embodied in the EPIRA: (1) the restructuring of the electricity supply industry; and (2) the privatization of the NPC. The restructuring of the electricity sector requires the separation of the different components of the power sector while privatization of the NPC involves the sale of the state-owned power firm's generation and transmission assets (power plants and transmission facilities) to private investors. These reforms aim to encourage greater competition and attract more private sector investments in the power industry. For the Department of Energy (DOE), a more competitive industry would result in lower power rates and a more efficient delivery of electricity supply to end-users (Department of Energy, 2006).



The Current Policy Framework

The Department of Energy sets the policy directions for the Philippine energy industry. It was created in 1992 through the enactment of R. A. 7638, to respond to the power crisis that was experienced beginning in the late 1980s to the early 1990s. The law established the DOE as a “central coordinating machinery of the government for the implementation of energy policies and programs” (DOE, 2006). The DOE has direct supervision over all energy related programs, projects, and activities of the government including its attached agencies, the NPC, the Philippine National Oil Company (PNOC), and the National Electrification Administration (NEA). The DOE's mandate is to “prepare, integrate, coordinate, supervise, and control all plans, programs, projects, and activities of the government related to energy exploration, development, utilization, distribution, and conservation” (DOE, 2006).

At present, the Philippine energy (or power) industry is divided into three major sectors: generation, transmission, and distribution. Under the present structure, the National Power Corporation (NPC) generates its own electricity and also buys from independent power producers (IPPs). Until 1987, generation of electricity was monopolized by the NPC. But presently, a number of IPPs generate and sell electricity to the NPC and other customers. The NPC transmits electricity to distributors and large industrial customers via high voltage wires. It is also responsible for constructing the transmission grid highway interconnecting the main islands nationwide (DOE, 2006). The distribution of electricity at its usable voltage to end-consumer is performed by investor-owned electric utilities, notably the Manila Electric Company or Meralco, a few local government-owned utilities and numerous electric cooperatives.

The Philippine state’s policy with regard to the energy sector is declared in the EPIRA. The main objectives of the Philippines' energy policy are identified as follows:

  1. enhance energy sufficiency through continuous exploration, development and exploitation of indigenous energy sources;

  2. diversify sources of both local and imported energy while ensuring balance between cost and energy;

  3. pursue large-scale use of new and renewable sources of energy;

  4. provide reliable and efficient supply of electricity and petroleum products, both being the major forms of energy more widely used by the different sectors;

  5. promote the judicious conservation and efficient utilization of energy;

  6. promote the adoption of environment-friendly energy systems;

  7. encourage greater private sector investment and participation in all energy activities;

  8. integrate social and environmental concerns in the planning and implementation of energy programs and projects; and

  9. develop an Energy Information System (EIS) for planning and decision-making processes (see also ASEAN Centre for Energy, 2007).

The DOE coordinates with other relevant government agencies in going through the process of planning for the country’s energy sector. The National Economic and Development Authority (NEDA) provides the macroeconomic parameters that are used for energy forecasting. The DOE is also in constant coordination with the Department of Environment and Natural Resources' Environmental Management Bureau (DENR-EMB) to ensure that energy projects comply with environmental standards. The Department of Finance (DOF) provides the guarantees for the power projects contracted by the attached agencies of the DOE.

As per the provisions of the EPIRA, the government, through the DOE still retains some responsibility over planning and regulating certain parts of the energy sector. Regulation is done by the Energy Regulatory Commission (ERC) which replaced the Energy Regulatory Board (ERB). Section 43 of the EPIRA identifies the specific functions of the ERC. In particular, the law states that: “the ERC shall promote competition, encourage market development, ensure customer choice and penalize abuse of market power in the restructure electricity industry. In appropriate cases, the ERC is authorized to issue cease and desist order after due notice and hearing” (Republic of the Philippines, 2001).

One of the important provisions of the EPIRA that is of interest to this study concerns environmental protection. Section 65 of the law states that:

Participants in the generation, distribution and transmission sub-sectors of the industry shall comply with all environmental laws, rules, regulations, and standards promulgated by the Department of Environment and Natural Resources, including in appropriate cases, the establishment of an environmental guarantee fund (Republic of the Philippines, 2001).


Furthermore, DENR Administrative Order Number 37, Series of 1997 provides that major power plants in the country are considered Environmentally Critical Projects (ECP) and are therefore required to secure an Environmental Compliance Certificate (ECC) from the DENR through the EMB before implementation (Department of Environment and Natural Resources, 2006). Major power plants include thermal power plants with rated capacities equal to or exceeding 10 megawatts (MW). Coal, fuel oil, and natural gas-fired power plants are examples of thermal power plants. Moreover, the DENR also declares that its policy is

to attain and maintain the rational and orderly balance between power development, environmental protection, and population control. This can be attained through the sustainable use, development, management, renewal, and conservation of the country’s natural resources, including the protection and enhancement of the quality of the environment, not only for the present generation but for future generations as well” (DENR, 2006).


As regards the impact of energy development projects on the community, both the EPIRA and the ECC process required by the DENR have provisions that aim to ensure that maximum benefits would be gained by the host communities while at the same time minimizing the costs both for the community and the environment. Section 66 of the EPIRA states that the obligations of generation companies and energy resource developers to communities hosting energy generating facilities and/or energy resource developers as provided by the 1991 Local Government Code and its implementing rules and regulations as well as other applicable orders and circulars shall continue (Republic of the Philippines, 2001). The DOE likewise identified that the objectives of this particular policy are: (1) to recognize and provide recompense for the contribution made by local government units or region; (2) to lessen conflict of rights among host local government units, the people affected, the energy resource developers or power producers, and appropriate government agencies of the national government; and (3) to promote harmony and cooperation among host local government units, energy-resource developers or power producers, and national government agencies (DOE, 2006). Among the preferred projects for communities listed by the DOE are development and infrastructure projects (e.g. electrification, farm to market road), livelihood, and environmental and health-related projects (e.g. waste management, municipal hospital, agroforestry). Moreover, the ECC process to be undertaken by the energy-resource developers or power producers includes consultations with the concerned community and LGUs to discuss the issues and concerns including the necessary agreements (e.g. Memorandum of Agreement or MOA) in relation to relocation and compensation of affected residents (DENR, 2006). This is in addition to the required baseline data about the community that needs to be generated. Furthermore, the Environmental Impact Study (EIS) that is to be submitted to the DENR-EMB should also include a draft MOA on the creation of the Environmental Guarantee Fund (EGF), Environmental Monitoring Fund (EMF), and Multipartite Monitoring Team (MMT).

Given the above policies, it would seem that the appropriate framework for the introduction of a development project in a community is properly in place. However, as the following case study will show, the adoption of such policies does not necessarily mean that compliance of environmental standards is guaranteed and the benefits for the community are sustained.


The Experience of Barangay Cagsiay-I

Barangay Cagsiay-I is a community that has been affected by the construction and operation of a coal-fired thermal power plant. In the late 1990s, the construction of a coal-fired thermal power plant in Barangay Cagsiay-I, Mauban, Quezon was approved by the Philippine government. This followed the construction of another coal-fired power plant in the nearby town of Pagbilao. Quezon Power Limited (QPL), a consortium of companies composed of InterGen, Ogden Energy Group, Inc., Global Power Investments, and the PMR Group, is the builder and owner of the Mauban power plant. The plant is the first privately built, owned, and operated power generating facility in the Philippines and the first power station in the country financed without government or sovereign guarantees (Intergen, 2000). A total of US $810 million was spent for the construction of the plant. It sits on a 100-hectare of land and foreshore land of Barangay Cagsiay-I which was once part of a mountain forest in Mauban overlooking the Lamon Bay (Lusterio, 2000:32). The 440-megawatt Mauban power plant began operation in June 29, 2000.

While local government officials and community members welcomed the construction of the plant, community and environmental groups opposed it because of the plant’s detrimental effects on the environment and the people’s health. The groups that actively campaigned against the construction of the plant are the Crusade for Sustainable Environment (CSE), the Babilonia Wilner Foundation (BWF), Greenpeace, and Legal Rights and Natural Resources Center-Kasama sa Kalikasan (LRC-KsK). These groups were supported by community-based organizations and the local Catholic church. At present, these groups are still very active in their campaigns for government action to solve the problems confronting Barangay Cagsiay-I and the nearby communities because of the operation of the power plant.


Benefits to the Community

As discussed above, the policy framework included provisions for benefits for the host community that would be affected by the construction of the power plant. On the part of QPL, it claims to have complied with all the requirements stipulated in the guidelines of the DENR-EMB and the DOE. The company established an Environmental Guarantee Fund (EGF) of Php 5 million per year to pay for claims on damages for loss of life, serious damage to property and the environment, and for pecuniary loss or damage suffered by a person or an entity as a consequence of pollution and/or environmental degradation arising from a violation of environmental laws and DENR regulations (Lusterio, 2000:32). Likewise, QPL also set up a Multisectoral Monitoring Fund to pay for the honoraria of the members of the Multipartite Monitoring Team (MMT) and the EGF Committee. It was reported that QPL spent a total of Php 6 million on the activities of the MMT and the EGF Committee from 1997 to 2000 (Lusterio, 2000:32). The MMT is composed of 10 members and chaired by the Provincial Environment and Natural Resources Officer (PENRO) while the committee for the EGF has 9 members and is chaired by the Regional Executive Director of the DENR.

Among the benefits brought about by the construction of the plant are: (1) improved electricity supply for the community and nearby areas; (2) housing units for resettled families; (3) electrification of resettlement and surrounding communities; (4) the establishment of development and livelihood fund and the conduct of training programs for the residents of the barangay; and (5) the establishment of a reforestation, watershed, health, and environmental enhancement fund (amounting to Php 400 million) (Lusterio, 2000:32). On the part of the local government units, the construction and operation of the plant was welcomed because of its contribution in terms of taxes paid to the government. In fact, as per the agreement between QPL and the municipal government of Mauban, the former provided funds totaling Php 10 million for the construction of a new municipal hall.


Negative Effects on the Community

The most significant effects of the construction of the QPL plant in Barangay Cagsiay-I are those that pertain to the damages on the environment and those that pose serious threats on people’s health. The Crusade for Sustainable Environment (CSE), the Foundation for the Philippine Environment (FPE) and Oxfam, U.K. conducted an “environmental investigative mission” to establish the cause of illnesses and deaths of livestock in Cagsiay-I and to determine the possible connection between coal plant emissions, effluents, and the recent deaths and illnesses of livestock and human beings. The samples of water taken from the Cagsiay River tested positive for mercury, lead, arsenic, and chromium. Water samples from the output canal showed the presence of arsenic in the amount of 20, while soil samples showed a result of 29 and another showed a result of 24 for chromium. Another study was conducted by Greenpeace in 2002 to determine the content of a range of elements in fly ash produced by three coal-fired power plants in the Philippines: the Sual, Mauban and Masinloc power plants (Brigden and Santillo, 2002). The analysis of the samples of fly ash from each area demonstrated that all samples were contaminated with a range of toxic and potentially toxic elements including arsenic, chromium, lead, and mercury. What is significant about the Greenpeace study is that it found out that the sample from the Mauban plant contained many elements at concentrations significantly above those found in the samples from the Sual and Masinloc plants.

Other issues raised by the community residents and environmental groups (during the construction of the plant and its operation) are the following:

  1. discoloration of the river because of a leakage in the ash pond where the coal was stored;

  2. flooding because of undersized drainage canal;

  3. death in livestock and skin diseases;

  4. violations of the ECC terms and conditions;

  5. noise pollution;

  6. conflicts in land claims;

  7. militarization; and

  8. inadvertent use of access roads.


Policy Issues and Concerns for Further Study

The case study highlights the following issues and concerns that can be addressed through policy reforms. These are also the issue areas that need further research and analysis.

  1. Who is responsible to monitor the compliance of companies to environmental standards? What is the role of the LGU in terms of enforcing the compliance to environmental standards? How does the Multipartite Monitoring Team (MMT) operate to perform its monitoring functions? These questions need to be addressed because in spite of the policy framework that had been put in place and the specific provisions of the laws, the enforcement of policies, standards, and regulations remains to be a problem. In the experience of Barangay Cagsiay-I, environmental groups looking after the environmental concerns of the community have already raised the issues to the LGUs (municipal and provincial) but it seems that the latter are not empowered to do something about the violations committed.

  2. The policy to use coal as an energy resource needs further evaluation and must be reconsidered. Coal is a cheap energy resource and its utilization was approved by the Philippine government despite its environmental consequences and in spite of the fact that the use of coal is no longer allowed in many countries. The main policy of the Philippine government is to ensure the affordability and security of energy supply and it views the closure of coal-fired power plants as detrimental to the Philippine economy (Department of Energy, 2006). At present, coal-fired power plants have a total installed capacity of 3,645 MW which represents about 27% of the country’s total installed generating capacity. The government’s policy is to maintain the policy of utilizing the coal-fired power plants and “urge power companies to be compliant” to environmental standards. If this is the option that is going to be taken, then, it is necessary to seriously address the points raised about monitoring the compliance to environmental laws and standards.

  3. Another important concern is the community’s perception of the presence of the power plant. At present, it seems that the community is divided into two groups: those that approve of the plant’s presence and those that oppose it. Based on initial research conducted, there are residents of the barangay who view the presence of the power plant as beneficial because of the benefits that they get such as housing, compensation for relocation, etc. However, the long term effects of the power plant’s operation on the environment and people’s health are not yet recognized. This particular area still needs further investigation and study.


References

ASEAN Centre for Energy. 2007. http://www.aseanenergy.org/.


Brigden, K. and Santillo, D. 2002. “Hazardous Emissions from the Philippines’ Coal-Fired Power Plants”, http://www.greenpeace.org/.


Department of Energy. 2006. http://www.doe.gov.ph/.


Department of Environment and Natural Resources. 2006. http://www.denr.gov.ph/


Intergen. 2000. “Philippine President Estrada Inaugurates Quezon Power Project”, June 29. www.intergen.com/news/releases.php?id=57&shownews=1.


Lusterio, Rod A. 2000. “Power Plants: Progress with Pollution?”, Philippine Graphic, April 3: 30-32.


Malaluan, Nepomuceno. “The Philippine Electric Power Industry Reform: A Tragedy of ADB and World Bank Private Sector Fundamentalism and Unaccountable Government”, Quezon City: Action for Economic Reforms.


Republic of the Philippines. 2001. Republic Act 9136, “An Act Ordaining Reforms in the Electric Power Industry, Amending for the Purpose Certain Laws and for Other Purposes”, June 8. (can be accessed through http://www.doe.gov.ph/)





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