Sectors of Power Industry being privatized generation, transmission, distribution Name of the project(s)

Restructuring and privatization of the power industry in the Philippines is being undertaken under the
Power Sector Restructuring Program of the Asian Development Bank (ADB). The PSRP is embodied in the
Electric Power Industry Reform Act (EPIRA) that was enacted in 2001.

Type of privatization There are five types of privatization of the power industry:

1. through Build-Operate-Transfer (BOT) contracts – the private sector, through the independent power
producers (IPPs), performs the generation function traditionally done solely by the government. The
IPPs generate electricity for the government under a power purchase agreement with the government-
owned National Power Corporation (NPC).

2. divestiture (full privatization) through asset sale - Under EPIRA, NPC shall be privatized by selling its
generation assets to the private sector. Government shares in the biggest distribution utility in the
Philippines are being considered to be sold to the private sector.

3. Management contract - The IPPs shall be assigned to administrators (private entities) but still under
the jurisdiction of the government-owned Power Sector Assets and Liabilities Management Corp.;
Electric cooperatives can also enter into management contracts with the private sector.

4. Corporatization of electric cooperatives – electric cooperatives have the option to be converted into
stock corporation.

5. Concession agreement – 25-year concession agreement for the operation of the National
Transmission Corporation (TRANSCO).

EPIRA (R.A 9136)

What is the ELECTRIC POWER INDUSTRY REFORM ACT of 2001 (R.A. 9136)?

On June 8, 2001, President Gloria Macapagal-Arroyo signed into law Republic Act 9136, or the
Electric Power Industry Reform Act of 2001. The said enactment was the culmination of more
than seven years of public hearings and floor deliberations on various versions of the said
measure in Congress. Among other benefits, RA 9136 is designed to bring down electricity rates
and to improve the delivery of power supply to end-users by encouraging greater competition
and efficiency in the electricity industry. The essence of these reforms is giving stakeholders a
CHOICE.

Consumer Empowerment. This can be achieved by giving consumers the power to choose
their source of electricity from among a host of generators and suppliers of electricity.

Higher Efficiency. Consumers will be assured of adequate and reliable power supply at lower
rates.
Open Access. There will be open access to transmission and distribution network/ facilities so
that the benefits of competition in the generation/supply sector could really trickle down to the
consumers.

Industry Accountability. There will be higher levels of environmental, health and safety
standards. Non-complying companies will be subject to appropriate fines and penalties. There
will be higher levels of environmental, health and safety standards. Non-complying companies
will be subject to appropriate fines and penalties.

Competition in Generation and Supply. There will be competition between and among
generating companies where prices will be market-driven and competitive. There will be long-
term contracts and a spot market where the trading of electricity between buyers and sellers will
be undertaken. There will be competition between and among generating companies where
prices will be market-driven and competitive. There will be long-term contracts and a spot
market where the trading of electricity between buyers and sellers will be undertaken.

Electricity Tariff Unbundling. This includes the itemization and the segregation of various
components of electricity tariffs to make the rates more transparent. With rates unbundled,
customers will be able to know how much they would be paying for generation, transmission,
distribution and other benefits or charges.

These reforms are aimed at making sure our country will have reliable and competitively priced
electricity. The strategy is to put an end to monopolies that breed inefficiency, encourage the
entry of many more industry players, and generate competition that will benefit consumers in
terms of better rates and services.

In other countries, a restructured and competitive power sector has provided consumers with
lower power rates. We look around us and find that the same pattern can be seen in local
industries that have been de-monopolized and deregulated like telecommunications and inter-
island shipping.

The privatization or sale of NPC's generating power plants to several companies will trigger
competition, on the generation side. In addition, its privatization will allow government to shift
the burden of ensuring continuous financing for the construction, operation and maintenance of
hugely capital-intensive power generating plants to the private sector.

Now that RA 9136 is in place, what reforms will be instituted in the power industry?

Two major reforms are embodied in RA 9136, namely, the restructuring of the electricity supply
industry and the privatization of the National Power Corporation (NPC). The restructuring of the
electricity industry calls for the separation of the different components of the power sector
namely, generation, transmission, distribution and supply (please see diagram on page 2). On the
other hand, the privatization of the National Power Corporation (NPC) involves the sale of the
state-owned power firm's generation and transmission assets (e.g., power plants and transmission
facilities) to private investors. These two reforms are aimed at encouraging greater competition
and at attracting more private-sector investments in the power industry. A more competitive
power industry will in turn result in lower power rates and a more efficient delivery of electricity
supply to end-users.

With restructuring, will the power industry be fully deregulated? How can government ensure
that consumers will be protected from undue and frequent increases in power rates?

No, only generation and supply will be deregulated. Distribution and transmission will continue
to be regulated by the Energy Regulatory Commission (ERC). Under RA 9136, government will
create an independent, quasi-judicial regulatory body called the Energy Regulatory Commission
(ERC) to replace the Energy Regulatory Board. The Commission will be made up of a Chairman
and four Commissioners, all of whom will be appointed by the President of the Philippines. The
ERC will be tasked to promote competition in the power sector, encourage market development
and ensure customer choice. Compared to its predecessor, the ERC will have stronger and
broader powers in the sense that it will be authorized not only to correct but to prevent and
penalize anti-competitive practices. It will also be given certain rate-setting functions.

Are there any safeguards in the law to prevent certain business groups or blocs from
dominating the restructured power industry?

To promote true competition and prevent monopolistic practices, RA 9136 provides for explicit
caps or limits on the volume of electricity that a distribution utility can buy from an affiliated
company that is engaged in power generation. Likewise, the law also provides that "no company
or related group can own, operate or control more than 30 percent of the installed capacity of a
grid and/or 25 percent of the national installed generating capacity".

How sure are we that power rates will indeed go down? Are there any pro-poor provisions in RA
9136?

Under RA 9136, NPC is mandated to reduce its rates for residential consumers by 30 centavos
per kilowatt-hour immediately upon the effectivity of the said law. It also provides for a
subsidized "lifeline" rate for marginalized or low-income electricity consumers. This will ensure
that such consumers will not have to contend with higher power rates even when the cross-
subsidies on electricity tariffs are removed with the restructuring of the power sector. Finally, the
bill mandates NPC to carry on with its missionary function of providing electricity to non-viable,
far-flung areas in the countryside even after its privatization.

How will the privatization of NPC be carried out?

Under RA 9136, NPC's generation and transmission facilities, real estate properties and other
disposable assets, as well as its existing power supply contracts with independent power
producers (IPPs), shall be privatized. The exact manner and mode by which these assets will be
sold will be determined by the Power Sector Assets and Liabilities Management (PSALM)
Corporation, a government-owned and –controlled corporation that will take over the ownership
of all of NPC's assets. PSALM will also be tasked to manage the orderly sale, disposition and
privatization of NPC, with the objective of liquidating all of NPC's financial obligations and
stranded contract costs in an optimal manner.

How can government ensure that the proceeds from the sale of NPC assets will be optimized?

A set of criteria in the grouping of NPC assets will be considered. These criteria include financial
viability, efficiency of operations, and management and operational synergy. Furthermore, all
assets of NPC shall be sold in a open and transparent manner through public bidding.

Will NPC power plants that run on hydro and steam be privatized also?

Initially, NPC's Agus and Pulangui hydroelectric power complexes, both located in Mindanao,
shall be excluded from the privatization program. Its privatization will be left to the discretion of
the PSALM Corp., in consultation with Congress. RA 9136 further specifies that the two hydro
plants may not be privatized earlier than 10 years from the effectivity of the said law.

As for NPC's geothermal facilities (e.g., Tiwi-Makban, Leyte A and B (Tongonan), Palinpinon
and Mt. Apo), RA 9136 states that the steamfield assets and the power plants of each of the said
complexes shall not be sold separately. Rather, they shall be combined and each complex will be
sold as one package through a public bidding.