East Asia Utilities Corporation

• Main Author: Maitim, Dennis P.
• Format: text
• Language: English
• Published: Animo Repository 1999
• Subjects: Business Administration, Management, and Operations
• Online Access: https://animorepository.dlsu.edu.ph/etd_masteral/2188
• Institution: De La Salle University

The energy industry is an important in the economic development and industrialization of the country. Energy has become the prime mover and lifeblood of todays industries. Not even the household is spared from the need for a good and reliable source of energy. The Philippine economy is very much affected by the regional currency crunch. Gross domestic product is only expected to grow between 2 to 3.1% in. The slump in the economy is a result of the slowdown in the manufacturing and services sectors which are heavily affected by the decreasing value of the Peso vs. the US Dollar and increasing interest rates. A lot companies are downsizing both its manpower complement and its production. The energy industry is also affected by the slowdown in business because the industrial and commercial sectors account for more than 50% of total energy consumption. The power generation sector scored a turn-around after the country was hit by the worst power crisis in 1993 when the government called on the private sector to support the government program to resolve the power shortage. Today, the independent private producers account for more than 35% of the total electricity produced compared to a very small amount before the creation of the Energy Crisis Act. Another important development of the industry is the restructuring of the tariffs for electricity where a pricing mechanism of cost-transfer system was adopted to impute fuel price fluctuations and foreign exchange rate adjustments directly to the customers bills. This cost-transfer system is one of the most effective pricing scheme among Asian listed utilities. One new development in the industry is the possible privatization of NPC. NPC has dominated the production of electrical power in the Country accounting for 65% of total power produced. When NPC will be privatized and interconnection between the different grids in the country is put in place, a restructuring of the grid rate system will be implemented. Cross-subsidiaries among grids will be eliminated. When NPC is privatized, a new playing field will be drawn. The intensity of competition will increase. The Mactan project is a BOO project with a plant capacity of 50MW. It began to deliver power, on a testing and commissioning basis, to Mactan Export Processing Zone in December 1997. It declared full commercial operations in May 1998. Its primary customers are the locators in the MEPZ. The excess of its plant generation will be delivered to Visayan Electric Company. EAUCs delivery to VECO accounts for less than 10% of total Electric Company. EAUCs delivery to VECO accounts for less than 10% of total VECO demand. Both customers have long-term Power Purchase Agreements with the company. The Mactan plant has distinct advantage over the existing NPC plants in the region in terms of lower costs of producing power than the older counterparts of NPC. Although grid interconnection may have changed the picture, this could not totally lower the cost of power of NPC because of the inherent limitations in capacity of the submarine cables put-up by NPC. In the long run, NPC privatization will impact competition as NPC begins to modernize and rehabilitate its old plants and attain higher operational efficiencies.