2008 Phil Energy Summit

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2008 PHILIPPINE ENERGY SUMMIT SUMMARY REPORT

T A B L E O F C O N T E N T S

PRESIDENTS MESSAGE 4

ENERGY SECRETARYS MESSAGE 5The Spirit of Opportunity

EXECUTIVE SUMMARY 6

CHAPTER I 11Accelerating Investments in Oil & Gas Exploration and Development

CHAPTER II 24Promoting Renewable and Alternative Energy

CHAPTER III 49Lowering Power Rates forIndustry Competitiveness and Consumer Welfare

CHAPTER IV 78Responding to High Oil Prices

CHAPTER V 116Promoting Energy Eciency and Conservation

CHAPTER VI 134Scaling Up Best Energy Practices through Social Mobilization

CHAPTER VII 150Cross-sector Performance Indicators and MonitoringMechanisms for Enhancing Energy Access and Security

THE SUMMIT IN PICTURES 169

ORGANIZING COMMITTEE 192

INDEX 193


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Warmest greetings to all participants to the Energy Summit 2008 and congratulations to theDepartment of Energy for taking the lead in this affair.

Adequate and stable supply of energy is essential to national progress, fueling our economyforward. In 2007, our economy grew at an incredible rate, and to surpass our gains, we need to match thedemands of growth and address the issues concerning our energy sector, especially the problems broughtabout by the rising price of oil in the global market.

Government has undertaken different measures to meet our energy requirements, such as puttingcertain power assets like PNOC-EDC on the market, going to Spain to push the Jatropha project, callingfor amendments to the EPIRA to realize open access, and promoting geothermal energy through theGIGA program. Local governments, on the other hand, have done their share with projects like theMontalban Methane Power Plant, powered by methane from Metro Manilas garbage and the operations of other power plants nationwide.

While these measures may be in place, we still need to double our efforts to achieve our targetof 60-percent selfsufficiency in three years time, apart from addressing global environment issues, likeclimate change, global warming, and air pollution. In light of these concerns, we need to further explorepossible alternatives, like bio-fuels, geothermal, wind, solar, and other sources of alternative and renewableenergy, even as we tackle issues like energy conservation and efficient energy utilization.

As different stakeholders gather in this historical summit, I trust that the insights and ideas thatarise will further input into policies that, will provide long-term solutions to our energy problems, trulymaking our dream of a strong and energy-independent Republic real.

Mabuhay kayong lahat!

GLORIA MACAPAGAL-ARROYO

MANILA29 January 2008

MALACAAN PALACEMANILA

Presidents Message


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Energy Secretarys Message

THE SPIRIT OF OPPORTUNITY

The runaway trend in international crude oil prices, which began to make itself manifest in late 2007 andearly 2008, provoked us as a nation to go on crisis modegiven the dire implications of this developmenton our economy and on our way of life. But the 2008 Philippine Energy Summit proved that, muchas we are all concerned about protecting vulnerable sectors from the impact of a high oil price regime,we could look beyond the looming energy and power crises into a wide field of opportunities on thehorizon.

The consensus that emerged among more than 2,500 stakeholders who took part in the Summit is thathigh oil prices have a silver lining in the sense that we are forced to seriously ponder ways by which towean ourselves from our dependence on imported fossil fuels in transport and power generation.

The discussions stimulated by the illuminating plenary sessions and by the lively workshops channeledcreative energies toward focused strategic interventions and innovative multi-sector responses to thechallenges posed before us. These yielded a wealth of recommended action plans in the substantive areasof power cost management, conventional energy exploration, renewable energy development, energyefficiency promotion, and oil price management

Just as important, the Energy Summit strengthened bonds among stakeholders in the collective search

for sustainable answers to our energy and power needs in the testy years ahead. As long as we continueto collaborate in a positive, inclusive and solutions-oriented frame of mind, we should be able to blazenew trails toward energy security and independence along the lines of sustainable and climate-friendlydevelopment.

Through the steps we have taken to institutionalize social mobilization interventions and mechanismsfor monitoring action plans, we should be able to move forward on our agreed priority action items in adeliberate and timely manner.

In behalf of the community of energy stakeholders, we at the Department of Energy would like to thank all those who contributed to the overwhelming success of the Energy Summit. We will be counting onyou to see through the successful pursuit of the initiatives that we have all agreed to undertake for the

good of our nation.

ANGELO T. REYESSecretaryDepartment of Energy5 February 2008


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EXECUTIVE SUMMARY

The 2008 Philippine Energy Summit, held January 29-31at the SMX at Mall of Asia, brought together over 2,500energy stakeholders from various sectors.

President Gloria Macapagal Arroyo called for the holdingof the Energy Summit following a clarion call for theadoption of emergency and immediate measures including proposed official declaration of tax holidaysand policy shift in energy resource development needed to cushion the adverse impact of spiralingprice movements in the world crude oil market. At thattime, the crude oil price had already reached US$100per barrel and was correctly predicted to increasefurther in the months ahead, a very depressing pieceof economic news that further weighed down onenergy authorities as it made their mission exceedinglycomplex.

Partly an immediate response to the oil price spike,as indicated by its theme $100 per Barrel: Crisis orOpportunity?, the Summit yielded a comprehensive,short- to long-term reflection and sharing on the energyproblem in its various dimensions and manifestations.A rich harvest of insights from well-attended plenarysessions and packed workshops was processed by amulti-sector team on February 1-3 at the AsianDevelopment Bank (ADB). The first draft of the SummitReport was submitted to President Arroyo on February5 during the Summits closing ceremonies.

This enhanced Summit Report documentsandsynthesizesthe diverse views expressed duringthe Summit by various stakeholder groups on how torespond to the looming energy crisis.

Broad Framework

Energy authorities recognize the political and economicramifications of the energy crunch. Soaring crude oilprices put an economy at far greater risk, causingthe nations cost of living to increase wildlya sorrysituation that may lead to economic slowdown or evento massive job losses and, eventually, to social unrest.As it is poised to disrupt the Filipino way of life, thelooming energy crisis thus becomes a national securityconcern.

Those perceived ramifications had never been loston the Energy Summit participants. In fact, this reportcarries their wide-angled panoramic views of the hereand now of the impending energy crisis and the currentregime of high power cost. They suggested actionsthat they thought ought to be taken on various levelsto reduce the crisis impact on the economy, mostparticularly on perceived vulnerable sectors. Theyinsisted on having a new fiscal framework to sustain thegovernments bid for fresh investments in oil and gasexploration and in the development of other sourcesof energy. They even spelled out various steps thatindividuals, advocacy groups, local government units,private firms and government agencies can take toconserve and efficiently use energy. In the same breath,they wanted immediate legislative actions that wouldenable industries to access the services of suppliersand distributors of cheaper electricity. And they evenproposed new policies meant to develop the countrysrenewable and alternative sources of energy in order toreduce the countrys dependence on fossil fuel.

All these suggestionssome are doable in theimmediate, foreseeable future and some may requiremuch longer timeare contained in this report, whichnow serves as initial guidance to the tasks ahead.

Strategic Objectives

As generalized in its program, the 2008 Philippine EnergySummit sought to carry out these strategic objectives(not necessarily in the order of their priority):

To lower electricity rates to an affordable levelthat can make Philippine industries morecompetitive in the global market and also

benefit the greater masses of consumers of electricity To cushion the impact of spiraling price increases

on vulnerable sectors To work for the immediate enactment of a law

governing the development of renewable andalternative sources of energy, strengthen thecountrys biofuel development programs, and drawup programs that will make motorists to switch toalternative fuels


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To extend all-out support to investors dealing inoil and gas exploration in the country

To promote efficient use of energy through anationwide energy conservation program

To come up with a mechanism that will mobilize,coordinate and focus the countrys collective

action to fight off energy crises such as theimpending one To set up an effective monitoring system based on

the performance indicators skewed in oneparticular direction, which is the delivery of clean,reliable and affordable energy, a system still to bedrawn up by a group of people representing cross-section of the Philippine energy community

Key to Achieving Goals

The basic key to carrying out effectively these strategiesis a regularly updated energy database. Without it, any

energy-related development program is doomed tofail from the start. Updated seismic baseline data,both offshore and inland, for example, form a basicrequirement to luring fresh investments in oil andgas exploration. A scientific study on which strainof jatropha burns more easily, as another example,is a must-read for those seeking to cultivate a tuba-tuba farm intended for their biofuel project. Similarly,a historical record of electricity bills is one documentthat can best serve the interest of consumers advocacygroup. An updated map of a power-franchise areacan help pinpoint which portion is without electricityand which must be given priority in the next phase of electrification program. Moreover, a social mobilizationand information-education-communication (IEC)campaign rallying the people to efficiently use andconserve energy is also anchored to well-researchedstudies on energy efficiency and conservation. In all,constant updating of various energy-related data canhelp achieve the strategic objectives of the EnergySummit.

Energy databases not only cater to the needs of investors. It should also be accessible to the energyregulators and energy-performance monitors.Moreover, it must be able to provide informationor answers to the nagging questions raised byconsumers and advocacy groups who sometimesmistake cost-recovery for greed. A database onthe controversial take-or-pay provision found in somepower supply contracts may partly explain the highelectricity charges. Electricity consumers groping forthe right answer is one cogent reason for the need toinstall monitoring systems on energy production anddistribution.

Cheaper Electricity Cost

The high cost of power takes a heavy toll on theoperating capital of Philippine manufacturers, makingthem uncompetitive in the global market andrestraining their capacity to generate jobs.

The solution proffered on the spot was to speed upthe implementation of the Open Access provision of the EPIRA Law (Electric Power Industry Reform Act of 2001) so that industrial consumers can tap suppliersof cheaper electricity. This will doubtless benefit theindustries. Open-access arrangements between somemanufacturers operating inside the economic zonesand the power distributors of their choice provedearlier to be beneficial to locators in said zones; butsuch arrangements are now subject of a legal disputebetween the Philippine Economic Zone Authority,which regulates economic zones, and the power

distributor armed with a congressional franchiseto serve the area wherein the economic zones arelocated.

On this note, the lawmakers will be asked to revisitthe EPIRA Law and make the necessary amendmentsto accelerate the implementation of its open-accessprovision and thus enable industrial consumers of electricity to tap power distributors offering cheap rates.

It was also recommended that implementation of time-of-use pricing of electricity be accelerated to makepossible more efficient power system management andconsumption.

Another notable proposal raised during the Summitwas to increase the lifeline rate subsidy for users of electricity who consume not more than 100 kWhper month. A corollary program that the nationalgovernment signified to adopt was the grant of directsubsidy to this group of electricity consumers.

Cushioning the Impact of Oil Price Hikes

Priority measures seen to mitigate the impactof oil price hikes include: the provision of fueldiscounts to transport workers and direct subsidyto vulnerable sectors; review of pricing formulafor new contracts between producers and usersof natural gas; deregulation of public transport fares;and review of RA 0843s provision on oil pollutionmanagement fund.

The government must also review of taxes on crude oiland allocate the greater part of oil tax fund to pro-poor


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projects. At the same time, it must intensify its driveagainst oil smuggling to augment its financial coffers.

Likewise, it must monitor the distribution of fuel fromrefineries to gas stations to ensure that fuel productsare not adulterated with water and to strictly enforce

the rules governing LPG distribution. Another task is forthe government to stop colorum (unauthorized) vehiclesfrom plying on designated routes and to eliminatekotong (extortion by cops) to improve governance onthe roadmoves meant to steady the already strainedincomes of transport workers.

Other proposed initiatives in the area of oil pricemanagement included:

Targeted expenditures schemes for pro-poorprojects from oil collections;

Revisiting the taxation regime on petroleum

crudes and products Providing discounts and subsidies on basic needs(food, shelter, education) to vulnerable sectorssuch as the rural and urban poor, small fisherfolk and farmers

Improving roads and bridges and establishing efficientmass transport systems were seen as long-termresponses to the issue.

As a corollary measure, the government will provideincentives for the development and utilization of alternative fuels and energy-efficient devices.

Promoting Energy Efficiency

Building on the strategic impact of the Philippine EfficientLighting and Market Transformation Project, spearheadedby the DOE, President Arroyo in her speech duringthe final plenary session of the Energy Summit issued adirective for the Philippines to phase out incandescentbulbs by 2010. A massive multi-sector effort will bemobilized to make this shift to efficient lighting possible;the same platform will be used to promote the use of appropriately labeled energy-efficient appliances and theadoption of best energy practices.

Among the other measures proposed to sustain energy-efficient practices are:

the enactment of a comprehensive EnergyConservation Law, based on the experience inseveral Asian countries

the formulation of a Magna Carta for residentialelectricity consumers, which would empowerthese consumers to report complaints and be

accorded courteous, prompt, and non-discriminatory service by the electricity serviceprovider

a radical idea to abolish income tax and toinstitutionalize a consumption-based carbon taxon the premise that it makes more sense to

penalize citizens who inflict damage on theenvironment than those who earn income.

It was also recommended that more public seminarsand information dissemination activities be undertakento enlighten residential consumers on appropriatemeasures and practical tips to save on electricity use . In view of the wasteful use of gasoline as a result of poor driving habits and lax rules on the importationof second-hand vehicles, it was recommended that thepublic be educated on good driving habits and propervehicle maintenance. A standard labelling program for

road transport vehicles is also recommended to helplead the country toward new and fuel-efficient vehicletechnologies.

Other proposed strategic initiatives to promote fuelefficiency in land transport included:

increasing vehicle efficiency through theimplementation of an inspection and maintenancesystem to ensure road worthiness and compliancewith vehicle emission standards

enforcing vehicle standards and other relevantrules and regulations

switching to alternative fuels such as LPG andCNG, using electric powered vehicles

switching to energy-efficient transport modes,including high occupancy mass transport systems,railways, MRT/BRT, and non-motorized transport

decreasing travel distance and travel time throughtraffic decongestion measures

clearing of roadways of obstructions, andincreasing vehicle load factors by promoting biggercapacity vehicles.

All-Out Support for Energy Explorationand Development

The Philippines government has offered investors anattractive package of fiscal incentives to entice themto explore and develop its energy resources and, as aresult of the Energy Summit, is now in the process of improving this package to get the serious investors toconduct more exploration activities in its remainingfrontier areas. Amendments to PD No. 87 are neededto make the whole package of fiscal incentives moreattractive.


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Similar incentives will be offered to investors inrenewable energy. The fiscal incentives and forms of marketing support are lined up in the Renewal Energybill, now under deliberation in Congress, to increaseinvestments in geothermal, solar, wind and hydrosources of energy.

An inevitable corollary to these oil exploration incentivesis a more attractive set of additional fiscal incentives andtax breaks intended to lure oil prospectors into exploringthe countrys sedimentary basins which, according toexperts, are not as geologically prospective as those of its ASEAN neighbors.

The requisite gathering and development of high-quality,detailed geological and geophysical data will boost theinvestors enthusiasm to explore the countrys energyresources.

On the other hand, the biofuel programs, which have beenof late the focus of attention among prospective investors,will be reinforced with more in-depth studies such as fullcost-accounting of biofuel energy investments.

However attractive the package of fiscal incentives is,bureaucratic foul-ups tend to douse the enthusiasmof investors eager to explore the countrys energyresources. It took the Malampaya gas field, for example,ten yearsand about 1,600 permits, certificates,clearances and approvals from local officialsto enablethe investors to bring it to production. The processingof the required permits will have to be streamlined tolure more investors interested in exploring the countrysenergy resources.

Promoting Alternative and Renewable Energy

As global oil supply continues to decline, it becomesimperative for a net oil importer like the Philippines toshift its focus to developing its own sources of alternativeand renewable energy. Already, Congress is laying downthe regulatory and policy framework on the developmentand utilization of these energy resources. The absenceof this framework, however, has been noted to havedampened the enthusiasm of investors to enter into thepicture. This accounts for the overwhelming clamor forthe immediate passage of the Renewable Energy Bill intolaw after nearly two decades.

In addition, the Department of Energy will issue anoperation manual and form a one-stop shop whichwill coordinate inter-agency efforts on renewableand alternative energy sources, including information-sharing.

At the same time, the government will encouragebanks and financial companies to lend to those smallbusinessmen seeking to venture in the development andutilization of renewable and alternative energy. By thesame token, it will partner with multilateral financinginstitutions for funding assistance to big-ticket renewable

and alternative energy projects in the country.

As an immediate action, the government will launchan IEC campaign to familiarize people on the benefitsof employing devices using sustainable renewable andalternative energy. This is also another way of creatinga market for alternative fuels.

Lastly, the government will draw up programs tomotivate the people to undertake communalproduction feedstock for biofuel projects and otherinitiatives related to renewable and alternative energy.It was also recommended that the implementation of

the Biofuels Law and the CNG program be accelerated.

Social Mobilization and IntensifiedInformation Campaign

Energy is a national concern. And a looming energycrisis provides cause for collective action, based ona shared understanding among many Filipinos of the issues at hand, to cushion its negative impact onPhilippine society. The clarion call is for the people toprepare forand to minimizethe damage that mightbe wrought by the looming energy crisis and for thegovernment to shepherd the countrys recovery fromthis damage.

Such shared understanding is perceived to bean impetus for individuals and groups to do theappropriate things in times of an energy crunch. Thosethings range from discarding incandescent bulbs infavor of compact fluorescent lamps to cutting downon weekly fuel consumption to shifting from premiumgasoline to compact natural gas. Taken together,these little changes in lifestyle and consumptionbehavior would enhance efficiency in energy use andreduce greenhouse gas emissions that are believed toexacerbate global warming.

Following these views, participants in the EnergySummit suggested the need for the formationof a broad coalition of community groups andstakeholder organizations to mount an intensifiedsocial mobilization and information-education-communications (IEC) campaign, using various media,to build critical mass around best energy practices andto increase public awareness on:


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the various programs the government carries outto minimize the damaging impact of the loomingenergy crisis

the imperative need to conserve energy and useit efficiently

the multiple benefits that can be derived from

using cleaner and more efficient alternative fuels the urgent need for Congress to legislatemeasures intended to lower the cost of electricity

the changes in price movements of crude oil andother petroleum products

the need for continuing review of power supplycontracts among energy producers

the need to help minimize pilferage of power intheir communities

the policies the government adopts in responseto constant adjustments in world crude oil price

the call for collective action to pressure

concerned agencies and energy producers toimprove their services and productivity

Proposals to consolidate social mobilizationinterventions included the:

creation of a platform for convergent cross-sectoral action;

development of a decentralized, multi-stakeholderplanning system; and

launch of a massive campaign for a mind/behaviorswitch on many levels.

Performance Standards and Monitoring

Any call for collective action for efficiency andproductivity would be useless without a set of performance standards governing the production anddelivery of clean, reliable and affordable energy. Thus,a core group of experts and concerned individualswill be tasked to design and define the standards withwhich to govern energy production and delivery, withemphasis on dimensions keyed to the core programsof the Energy Plan of Action, including but not limitedto power cost and access, renewable energy access,conventional energy access, energy efficiency andoil price management. The aspect of security is anadded dimension in the set of monitoring standards,which will then be brought to wider consultation foradoption by the entire energy community.

Monitoring output will be used to generatecomprehensive baseline data on energy access andsecurity, which will then be used to create an EnergyStatistical System.

Monitoring output will be also be the basis for rewardingthose who comply with the list of performancestandards and punishing those who deviate from it.

Concrete proposals in this area included: the forging of a cross-sectoral covenant on

performance monitoring deployment of a cross-sector monitoring system,covering plans, indicators, standards, awards andincentives.

Resetting Priorities, Moving Forward

As it defines the goals that need to be met and programsthat need to be implemented, this report already setsthe tone of the energy development programs to beincluded in the updated Philippine Energy Plan (PEP).The strategies drawn up in the course of holding the2008 Energy Summit have prompted energy authorities

and stakeholders to refocus their priorities on the morecritical energy issues: lowering of electricity rates andcushioning the impact of the energy crunch.

Those priorities will certainly be reflected in theproposed 2009 budget not only of the Department of Energy but also of other agencies involved in mitigatingthe potential damage that can be caused by the loomingenergy crisis. Even the allocation of the 2008 nationalbudget has already been reprogrammed to includedirect subsidy to those who are perceived to bevulnerable, should the current energy crunch become afull-blown energy crisis. And the current deliberationsby lawmakers on power contracts also mirror the shiftin focus of Congresss legislative agenda.

Following the Energy Summit, the DOE has continuedto engage the other energy stakeholders in puttingflesh to the proposed programs of action. Many of theinsights and proposed interventions have been reflectedin the updated provisions of the PEP, which the DOEwill further refine on the basis of sectoral and regionalconsultations. Once finalized, the updated PEP, alongwith corollary strategic programs, will flesh out theimplementation plans and other initiatives put forwardin this report. With the sustained enthusiastic supportof the entire Philippine energy community, there isevery reason to believe that the short-, medium- andlong-term objectives of the Energy Summit can beachieved.


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IAccelerating

Investments in Oil & GasExploration and Development

I. OVERVIEW

The Philippines, in addition to its strategic locationin the Southeast Pacific Region and the presence of frontier areas that are still available for exploration,currently has some attractive fiscal terms andincentives for petroleum investments. However, existingas well as prospective private sector investors see theneed for government to amend Presidential DecreeNo. 87. Specifically, what appears to be needed are

improvements in the said fiscal terms in order to providebetter incentives that will make petroleum explorationactivities more attractive to serious investors. Alsoneeded are more streamlined processes within theDepartment of Energy and other regulatory agenciesof the government for awarding and approving oiland gas exploration and development contracts. Theprocess of acquiring permits from various governmentagencies and local government units in order for anyexploration and development activities to proceedmust be improved, in the light of recent experiences

by petroleum service contractors in the geophysicalsurveys and drilling activities that were conducted inthe offshore areas of Cebu, Bohol, and Negros.

Service contractors have indicated that more incentivesneed to be provided to balance the very high costof petroleum exploration and development and theconsiderable exploration risk taken by oil companiesin geologically complex environments and in frontier

and deep-water areas. Also, service contractors haveindicated that a cross cost-recovery mechanism shouldbe provided to encourage exploration companies toundertake greater risks in exploration.

Another principal recommendation is thedevelopment of high quality (2D and 3D) geological,geophysical, and technical data for easy access and

assessment by prospective investors. This will requirea capability-building program for government technicalpersonnel and the acquisition of the necessaryhardware and software to convert all database datato digital format. This capability-building program forgovernment technical staff needs to be accelerated toensure their effectiveness in addressing the petroleumindustrys expectations. This will undoubtedly requirealso a review of the compensation and benefits packageof highly-skilled technical personnel, and a reviewand updating of the mechanics of the Petroleum

Contracting Round.

Among other major recommendations are theimmediate formulation of working agreements withgovernment agencies, LGUs, and NGOs in orderto facilitate the issuance of approvals, permits,certificates, and clearances for the implementation of work programs of service contractors, the review of DOE policies and guidelines to ensure that they are


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responsive to the needs of the petroleum industry,the formulation of implementing rules and regulationsfor the natural gas industry, and the undertaking of aresearch and development program on other uses of natural gas.

2. VIEWS EXPRESSED

2.1 During the Plenary Sessions

Mr. Thomas Crouch, Deputy Director Generalof the Asian Development Bank (ADB) began bysaying that, the global energy concerns revolved aroundthe security of supply, high prices, and environmentalharm. He said that, world energy demand is projectedto grow by 1.6% per annum until 2030 but that 70%of this growth in demand will come from emergingeconomies. Mr. Crouch then said that, oil and naturalgas prices have been rising steadily since 2000 and thatthe oil reserve replacement rate has been droppingsteadily since the late 1990s. Moreover, he said, theaverage size of new discoveries of oil has declinedthreefold and the newly found deposits are deeper andharder to reach. In essence, he stressed that the tightsupply-demand balance worldwide and the attendanthigh prices is expected to persist for the foreseeablefuture. He then pointed to the new direction aimed atenergy efficiency, alternative energy development, andtackling the threat of climate change.

Mr. Sohail Hasnie, Senior Energy Specialist of the Asian Development Bank (ADB) noted that,there is a rising net oil import dependency across theSoutheast Asian region. In the Philippines, he said, energyconsumption grew by an average of 3.5% per year overthe last 20 years and is expected to grow even fasteruntil 2030.

Dr. Nandita Mongia , Regional Coordinator and Team Leader for the Regional Energy Programfor Poverty Reduction in Asia and the Pacificof the UNDP Regional Center in Bangkok stressed that, we have undoubtedly entered a new eraof expensive oil. She said that, the factors that havebrought this about are growth in world oil demand,

shrinking buffers, oil supply insecurity, speculationin the world oil market, and under investment in oilexploration and refining. She pointed out that, thePhilippines (like Bangladesh, Pakistan, and Cambodia) isamong the countries with a high oil price vulnerabilityindex (OPVI). She said that this means that poorcommunities, particularly, will be forced to climbdown the energy ladder and switch back to burningwood, crop residues, and dung cakes for fuel. Shepointed to the following strategies for reducingvulnerability: managing oil price risk through pricingpolicies and targeted subsidies, enhancing oil supplythrough strengthening exploration and building refiningcapacity, restraining oil demand by increasing efficiencyin transport and industry and agriculture, preparingfor emergencies by building strategic reservesand planning for rationing, and diversifying fuels bydeveloping renewables and biofuels but also by usingmore coal and natural gas. She cautioned that, the highenergy costs put the Millenium Development Goalsat risk.

Mr. Sergio R. Ortiz-Luis, Jr., President of thePhilippine Exporters Confederation, Inc. saidthat, the Philippines export industry sector was beingweighed down by a triple whammy of high electricityrates, high oil prices, and a strengthening peso. As

a result, he said, Philippine exports declined by twopercent in November 2007 as compared to the samemonth in 2006.

Dr. Cayetano W. Paderanga Jr., Chairman of the Institute for Development and EconometricAnalysis, Inc. (IDEA) and former NEDA Director-General said that, three major clouds are gatheringon the Philippine short- to medium-term horizon,namely, the sub-prime credit crisis in the US, high oilprice levels, and the appreciation of the peso. With

respect to oil prices, he pointed to the followingsectors as most affected by increasing petroleumprices: petroleum refineries, manufacture of oil-derivedproducts, air transport, public transport utilities, andrubber tire and tube manufacturing. As a result of the three major clouds he described, Dr. Paderangaforecasted a significant slowdown in the countryseconomic growth for this year and next year.


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Dr. Emmanuel S. De Dios, Dean of the School of Economics of the University of the Philippines, stressed that energy prices and energy security are anissue for us today and are bound to be an overridingstrategic issue even beyond the current headlines.He said that, he expected only a mild softening (if atall) of global petroleum prices and a continuation of high energy prices domestically. He pointed out alsothat, a recession in the US would cause demand forour exports to weaken, but it would cause petroleumprices to soften. Whether the net effect on us of thesetwo influences would be positive or negative wouldprobably depend on the severity of the slowdown inthe US economy as this will affect demand worldwide.

Dr. Ren B. Azurin, Professor of the College of Business Administration of the University of thePhilippines said, that the shock of crude oil priceshitting the psychological barrier of $100 per barrelmight cause us to focus attention on measures thataddress the narrow issue of high oil prices. He said that,it was essential to take a broader perspective of thewhole oil price problem. For example, he said, dealingwith the problem of high oil prices by trying to bringdown the price of oil products by eliminating value-added-taxes and tariffs on oil products or providingsubsidies indicates a rather narrow perspective. That

approach fails to take into account the fact that keepingoil product prices high by taxing them effectivelydiscourages their consumption and encourages energyconservation. Further, that approach also fails to takeinto account the fact that oil products are polluting andthat taxes on them are part of the price the pollutermust pay for dirtying the atmosphere. Subsidies andlower taxes diminish the incentive for consuming lessenergy. Moreover, Dr. Azurin said, taxes and tariffs on oilproducts raise the price of those products and, accordingly,improve the investment attractiveness of products

made with the alternative energy sources that should bepromoted because they are less polluting. Taxes on oilproducts, he said, provide the right incentives for behavior(e.g., energy conservation) that should be encouraged. Onthe other hand, he said, subsidies on oil products introducethe wrong incentives and behavior (e.g., wasteful energyconsumption) that should be discouraged. Dr. Azurinthen proposed that, the countrys entire tax system be

overhauled by replacing income with carbon as thebasis for taxation. Instead of taxing income, he said,the government should raise its needed revenues bytaxing oil and other products whose manufacture andconsumption emit carbon and other pollutants into theatmosphere.

Fr. Jose Ramon T. Villarin, SJ, President of Xavier University in Cagayan de Oro said that, clean andclimate-friendly energy was no longer a pipe dreambut an imperative. He said that, in a globally warmerworld, carbon will be constrained and he expectedthis to happen in a decade or so. He then pointed outthat, located where we are in the tropics, we have anabundance of clean energy sources like wind, water,sun, and waves. Thus, he said, the current level of oilprices represent an opportunity and a stimulus for us todevelop climate-friendly, sustainable energy alternatives.

Mr. Edgar O. Chua , Country Chairman of Pilipinas Shell Petroleum Corporation spelledout the energy challenge as producing more energyfor a growing world population, while stabilizing oreven reducing greenhouse gas emissions. He said that,crude oil prices have reached record high levels and areexpected to continue to rise. What he asked, if crudeprices rise to $200 per barrel? He then said that, thereis nothing we can do about the international pricesof oil but we can mitigate the local impact by demandmanagement, fuels diversification and supply security,and emergency preparedness.

Mr. Jesse O. Ang, Country Manager for the International Finance Corporation (IFC)reviewed what has happened since 2003 when the DOEheld the first of three contracting rounds to stimulateactivity in the petroleum exploration sector. Since then,he said:

1) A total of 22 Service Contracts were awardedfrom 2004-2006;

2) Since 2004, over 30 new participants bothdomestic and foreign -- have entered theindustry through successful bidding for newservice contracts and through farm-in toexisting ventures; and


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3) Total acreage area under contract has increasedby 15 times since 2004.

He emphasized the need for more local privateinvestments in the exploration for indigenouspetroleum, geothermal, and coal resources; otherwise,

the country will remain an importer of oil, gas, and coal

Dr. Kelvin S. Rodolfo, Professor at the NationalInstitute of Geological Sciences of the University of the Philippines stressed the need to utilize effectivelyour petroleum resources as the oil supply is diminishingand the global climate is tremendously affected by theworlds continued consumption of oil.

2.2 During the Summit Workshop

Mr. Rafael E. del Pilar , President of PNOC-Exploration Corporation who chaired the session,set the objectives of the workshop as generating,evaluating, sharing, and integrating ideas, information,and insights on the subject of accelerating oil and gasinvestments in the country.

Atty. Eduardo F. Hernandez, President of thePetroleum Association of the Philippines (PAP)and Director of PNOC-Exploration Corporationset the tone for the workshop with what he describedas a wake-up call to the state of oil and gas explorationand development in the country and in the world. Hestressed that, the global demand for energy is growing ata pace never experienced before. He indicated that, thegeology or prospectivity of oil or gas resources andthe fiscal terms of petroleum service contracts mustbe properly balanced in order to attract investments.He mentioned other factors that affect significantlysuccessful petroleum exploration and developmentin the country, such as politics and corruption, thehospitality extended by the government and itscitizens, and the position of the religious sector andthe environmentalists to exploration and development

activities.

Among the important points he made were:

1) The country has been exploring for oil withlittle success and thus there is a need to pursuemore aggressively the drilling of explorationwells to upgrade our petroleum areasprospectivity. There is also a need to provide

more attractive fiscal policies that are more inkeeping with the geology of our sedimentarybasins.

2) The Philippine Energy Contracting Round(PECR) should be conducted more frequently

(e.g., semi-annually) to accommodateprospective investors in energy resourceexploration and development. Along this line,he suggested that:

For blocks not taken during a bidround, the DOE should considernegotiating with private companiesinterested in acquiring rights inthe area;

With respect to blocks not offeredduring a particular PECR, the DOEshould allow private parties to

negotiate directly with them.

3) There are very long delays in the approvalof Service Contracts (SCs) and Farm-InAgreements (FIAs) even in spite of theendorsement by the DOE to the Office of thePresident. He suggested that, the ExecutiveSecretary should have the authority toapprove SCs and FIAs.

4) He observed that, there is rather slowprocessing of bidded areas. As example, hesaid that, the Service Contracts for the 2006PECR have yet to be awarded. He suggested:

A definite timeframe for the DOE toapprove the SC or FIA, starting fromthe submission of all requireddocuments to the DOE;

Automatic approval of the proposedSCs and FIAs, if the DOE fails to actupon it within the specified processingperiod.

5) The process for evaluating servicecontractors needed to be strengthenedto ensure the contractors unquestionabletechnical and financial capability and toestablish the availability of exploration funds.There should be adequate proof of thefinancial ability of proponents to engagein exploration activities in their respectiveservice contract areas.


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6) Difficulties and delays in securing TaxExemption Certificates for importations arecommonly experienced.

7) The DOE should, on behalf of the oilcompanies, secure the necessary endorsements

and permits from relevant government agenciesand take care of dealing with groups andpersonalities opposed to the project.

8) Executive Order (E.O.) 556, which specificallyrequires PNOC-EC to go through a lengthyand tedious bidding process to farm-outinterests in its Service Contract areas, slowsdown the entire exploration effort

9) There are important territorial issues: In 1998, the DOE issued a concession

to Alcorn covering the Kalayaan Islandsbut then they were restricted to a tablesurvey because of an injunction againsttheir physical presence in the area.

When several countries share acommon economic bonanza, it isimportant to decide whether politicaldisputes on territorial limits will play firstor second fiddle.

While we may have defined in our1973 and 1986 Constitution ourterritorial limits, it is extremely importantthat we also establish our baselines underthe UN-CLOS as this will give us addedinternational protection. This should bedone on or before the deadline onMay 2009.

In the meantime, the JMSU should beextended to allow more seismic studiesto be conducted. This will add to ourgreater understanding of the geology of the basin.

10) The current terms with respect to sharing arerigid. There must be appropriate legislation togive the government more flexibility in offeringService Contract terms.

Ms. Rachel Masters, Senior Manager of FUGROMulti-Client Services emphasized the importanceof detailed geological survey data. She stressed that,the benefit of enhanced quality digital data that can

be stored over a long period is that this can be madeeasily accessible to oil companies and, thus, help attractmore exploration investments. She also said that, thePhilippines should consider intensifying the promotionof prospective basins to attract more investments inenergy exploration.

Mr. Patrick Tan, likewise of FUGRO in Singapore pointed out that, the model of multi-client explorationwill encourage knowledge-sharing among countrieswith common interests and encountering explorationdifficulties.

Mr. Kevin Lyon, President of Chevron MalampayaLLC admitted that, the high-cost and high-risk of oilexploration coupled with the long lead time fromdiscovery to development (citing the Malampaya gasproject) increases greatly a companys investment costs.He suggested that, the government must draw up aplan to promote a more attractive fiscal regime andintroduce a faster and more streamlined process for theacquisition of needed permits and certificates. He alsosuggested greater flexibility in commercial arrangements.

Mr. Keith Perrin, Asset Manager of ShellPhilippines Exploration B.V. said that, theDepartment of Energy must create a one-stop-shop forassisting investors in securing permits and clearancesfor their projects. He mentioned that, the MalampayaGas Field took ten years to develop and bring toproduction, and about 1,600 permits were required forit to just begin operations. This situation is consideredunfavorable in attracting foreign investors to conductexploration and/or development in the country. He saidthat, the country needed to be much more investorfriendly.

3. ANALYSIS AND COMMENTS

3.1 Prioritizing the Issues raised in the

Summit Workshop

At the post-Summit workshop at the ADB,representatives from the private sector and fromgovernment agreed to merge the issues raised in theSummit workshop into similar or parallel concerns.Accordingly, these were eventually grouped into ninemain issues and prioritized according to the number of times they were raised during the Summit workshop


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16

discussion. The post-Summit workshop participantsdiscussed also matters related to implementing eachpriority issue and agreed that all should be accomplishednot later than the medium term, meaning in less thanfive years. On the next page is a summary of the resultsof the discussions.

3.2 Formulating the Strategies

After lengthy discussions on the nine (9) priority issues,it was agreed that those with a common objectiveshould be joined for simplification.

Eventually, five (5) basic strategic initiatives wereidentified as follows:

1) Setting up of an Energy Investment Center;

2) Improvement of fiscal terms;3) Proposing legislation for the downstream gas

industry;

4) Improving the Philippine Energy ContractingRound system; and

5) Continuing the DOEs capacity-buildingactivities.

4. CONCLUSIONS ANDRECOMMENDED ACTIONS

4.1 Conclusions

The shared objective of all participants in the Summitworkshop was to find ways of attracting investmentsinto the country for oil and gas exploration anddevelopment. All expressed the opinion that the DOEshould pursue aggressively the revision of the currentpolicies on:

a) contract application,b) awarding of Petroleum Service Contracts,c) implementation of contractors work

commitments.

It was noted that, the major concern of thepetroleum companies was the fiscal policy governingpetroleum service contracts. Although the Philippinesis considered as having one of the most attractivefiscal regimes in the world, the countrys petroleumbasins are not as geologically prospective ascompared to its Asian neighbors. Thus, it was

frequently suggested that government consideroffering additional fiscal and tax incentives to attractserious investors into the country.

Another issue frequently raised was the need forstreamlining the process of securing the necessary

permits and certificates from the concernedgovernment agencies for exploration and developmentprojects.

Also expressed was the need for the Philippinegovernment to technically improve and upgrade itspetroleum database, which is outdated (generally) andin vintage format. The reprocessing and conversionof survey data into digital format would facilitate theiraccess by investors interested in oil exploration.

It was also thought to be very important to make

the local government units (LGUs), environmentalistgroups, non-governmental organizations (NGOs), andother concerned entities understand the importanceof the exploration activities and consequent energyprojects. Thus, various participants thought that thereneeded to be a better public information campaignfocused on the benefits that such projects bring tohost communities and to the countrys economy. Itwas suggested that extensive information, education,and communication efforts should be carried outspecifically in areas where environmentalist groupsare extremely active. It was thought that the DOEshould demonstrate a more serious commitmentto promoting to the public the necessity for thedevelopment of petroleum resources in the country.

4.2 Recommended Actions

The issues raised by the participants at the Summitand the post-Summit workshops at ADB make clearthe areas where concrete action must be taken if government wants to attract foreign and domesticinvestments in oil exploration into the country. Thediscussions resulted in action plans that are do-able inthe immediate and in the shor t term, and these can beimplemented effectively if given the full support of thegovernment, in particular, the Department of Energyand other concerned agencies.

The apparent consensus of the Summit and post-Summit workshop participants is that, within the short-term (meaning, within a year), the DOE must undertakethe following activities:


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No. Priority IssueIssue to be

addressed by Implementation

1

2

3

Social and environmental issuesencountered during the exploration anddevelopment phase affect the ServiceContractors performance of its work commitments.

The current fiscal terms are notattractive enough for the seriousinvestor in oil and gas exploration anddevelopment.

There is slow processing/awarding of Service Contracts.

Government

Government

Government Short-term

Short-term

Medium-term

4

5

6

7

8

9

There are long delays in the issuanceof permits and approvals; numerousapplication requirements (e.g., taxexemption certificates).

The fiscal terms of Petroleum ServiceContracts must be benchmarked withwhat other countries offer.

Tax Incentives must be improved.

Presidential Decree (P.D.) No. 87 isoutdated.

There is no legislation for thedownstream natural gas industry.

The role of the Department of Energyas lead agency (with regard to inter-agency relations and meeting the needs

of the Service Contractor) must beenhanced.

Government

Government

Government

Government

Government

Government

Short-term

Medium-term

Medium-term

Short-term

Medium-term

Short-term


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1) Coordinate and formalize appropriateagreements with concerned governmentagencies, LGUs, and NGOs to facilitatethe issuance of approvals, permits,certificates, and clearances for theimplementation of work programs of

Service Contractors.2) Undertake a review of Presidential

Decree No. 87 in consultation with variousstakeholders and propose the necessaryamendments to the fiscal provisions and taxincentives for new Petroleum ServiceContracts.

3) Lobby for the passage in Congress of theNatural Gas Bill, which would govern thecountry downstream natural gas industry.

4) Review the guidelines for the PhilippineEnergy Contracting Round (PECR), proposeimprovements, and see to theirimplementation.

5) Conduct competency training for itstechnical personnel in petroleum resourceevaluation and management and in digitaldata management.

6) Acquire the latest computer hardware andappropriate software for petroleum resourceevaluation and management and forconversion of the countrys database of geological and seismic information into digitalformat.

7) Create a department unit that wouldassist service contractors in dealing withsocial / environmental issues in connectionwith their petroleum exploration anddevelopment operations.

8) Institute a streamlined process for theacquisition of permits and approvals forpetroleum exploration operations from theDOE and other relevant governmentagencies.

9) Review the compensation and benefitspackage of DOEs technical personnelwith the end of ensuring that highlyskilled and experienced personnel remain inthe government service.

18

In the medium-term (meaning, in five years or less),the following activities are expected to have beenaccomplished by the DOE.

1) Approval of a Bill filed in Congressproposing amendments to P.D. 87 and

providing improved and better fiscal termsand additional tax incentives for newPetroleum Service Contractors.

2) Issuance by the DOE of the ImplementingRules and Regulations (IRR) for the NaturalGas Act.

3) Full implementation of a consistent andstreamlined system for the awarding of petroleum acreage through the PhilippineEnergy Contracting Round.

Additionally, the government, through theDepartment of Energy, should consider possiblearrangements with petroleum service companies forproviding new geophysical data and information onthe frontier and under explored areas to improvetheir prospectivity. Such arrangements, throughcontracts or Memorandums of Agreement, couldinclude the acquisition of 2D and 3D seismic data byservice companies such as PGS and Western Geco.This would make available better geoscientific datato oil companies seriously considering petroleumexploration in the countrys sedimentary basins.

Bilateral agreements with other countries that haveadvanced knowledge and technology in petroleumexploration would also help promote petroleumexploration in the country. Past agreements withNorway, Germany, Australia, and Japan shouldbe renewed and implemented. Agreements withour neighboring countries, like Malaysia, Indonesia,Vietnam, and China should be explored andestablished where beneficial.

4.3 Summary of the Action Plan

The following table outlines the Action Plan, brokendown into immediate, short-, and medium-termactivities, based on the five strategic initiativesproposed to realize the objective of attractingpetroleum exploration and development investmentsinto the Philippines.

18


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Immediate (within 6 months)

Formulate draft MOA individually with

concerned government agencyDraft MOAs prepared Policy and Legislation

DOE (lead),

DOJ, DOLE, EMB-DENR

DND, NEDA, BoC, DILG

DTI, DOF, NCIP, etc.

Short-Term (within 1 year)

Draft/nalize MOA with concerned

government agencies

MOA signed with other

stakeholders/government

agencies

Policy and Legislation

DOE (lead),

DOJ, DOLE, EMB-DENR



Devise a system of procedures and

protocol with partner agencies

Faster delivery of

regulatory requirements

and business permits

Capability-building

DOE (lead),

DOJ, DOLE, EMB-DENR



Medium-Term (5 years)

Implement the signed MOA with

concerned government agencies

Easier acquisition of

permits and approvals.

Regulation, Enforcement and

Compliance

DOE (lead),

DOJ, DOLE, EMB-DENR



Update continuously the system

of securing permits

More applications for

Petroleum Service

Contracts

Capability-building DOE (lead)

Objective 1 Strategy

To set up an Energy Investment Center or to enhance/

restructure the existing ofce in the DOE that will serve as a

one-stop shop for energy investors whose task will include

assistance in the following: Social, Environmental and

Security concerns; LGU representation and coordination; and

concerns with other government agencies/units (e.g. permits,

clearances etc.)

Priority Action Type of Measure Lead Agency/SectorSuccess Indicator

To streamline regulatory requirements

To assist the Service Contractors in securing the requirements,

permits and approval for the implementation of their operation

Attract more investors to explore, develop, and produce

energy resources in the Philippines

Accelerating Investments in Oil & GasExploration and Development

Program of Action


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Improve Fiscal Terms by providing incentives or

enhancement in the existing terms (as benchmarked with

other countries) to promote exploration activities, e.g.

compensate the exploration risk, allowing cross recovery,

and improving prot split to contractors, etc.


To attract more investors to explore, develop, and produce

energy resources in the Philippines

To accelerate and intensify exploration activites

2008 Philippine Energy Summit

20


Review of PD 87

Completed the review and

formulate amendment

proposals to PD 87


DOE (lead)

and Petroleum Association

of the Philippines (PAP)


Consultation with stakeholders

Gathered proposals from the

stakeholders re: PD 87 in two

consultations


DOE (lead)

PAP, DOF, DOJ

Service Contractors


Propose a House Bill to amend PD 87 Amendments to PD 87signed into law


Congress (lead)

DOE (lead lobbyist)

PAP, DOF, DOJ

Long-Term (beyond 5 years)

Consultation with stakeholders

Increase by 20% of the

exploration and more active

service contracts

Investment (Incentives)DOE (lead)

DOF

Types of Measure: Policy and Legislation Regulation, Enforcement and Compliance Information-Education-Communication Capability-building Market Development Investment (Financing, Infrastructure, Technology, Incentives)


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2


Propose appropriate legislation for downstream

gas industry


To promote the use of natural gas beyond the

power sector

To have a clear policy and program for market

development and maintain competition and

open market

2


Lobby for the passage in Congress

of the Natural Gas Bill

Enactment into law of the

Natural Gas BillPolicy and Legislation

Congress (lead)

DOE (lead lobbyist)

Medium- Term (5 years)

Formulate Implementing Rules

and Regulation

IRR approved by the

Secretary of EnergyPolicy and Legislation

DOE (lead)

DOJ, PAP

Stakeholders

Long Term (beyond 5 years)

Implementation of the Natural Gas Act

Increased utilization of

Natural Gas in non-power

sector

Regulation, Enforcement

and Compliance;

Market Development

DOE (lead)

Stakeholders

Accelerating Investments in Oil & Gas Exploration and Development



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2222




Improvement of PECR system

Specic guidelines on blocks not offered or taken

during PECR

Approval procedures and monitoring processes, to

include technical and nancial assessment of contractors

Prompt award of exploration blocks to qualiedinvestors


Review of the PECR guidelines

Completion of the review

and circulation of the

revised and improved

PECR guidelines.

Policy and Legislation DOE


Implementation of the PECR guidelinesConduct PECR under the

revised guidelines

Regulation, Enforcement

and ComplianceDOE


Regular review and update of the PECR

guidelines

Review and update every

two (2) yearsPolicy and Legislation DOE

2008 Philippine Energy Summit



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2

Conventional Energy

2



Continuous capacity-building for the

Department of Energy Improve the systems within the Department of Energy

and the services to investors

Enhance/ improve the access to and quality of all

geological, geophysical and engineering database



Competency training in Resource

Evaluation and Management

100% Capability of DOE staff

in Resource ManagementCapability-building DOE (HRD, ERDB)

Competency training in DataManagement for DOE staff

100% Capability of DOE staff to manage digital database

Capability-building DOE (HRD, ITMS)


Acquisition of computer hardware and

software to convert the databases

to digital format

Required hardware and

software in place

Investment

(Technology)DOE (ITMS)


Continuous training in Resource

Evaluation and Data Management

100% Capability of DOE staff

in Resource Evaluation and

Data Management

Capability-building DOE (HRD, ERDB, ITMS)

Conversion of all existing databases

to digital format

100% Conversion of

database

Investment

(Technology, Infrastructure)DOE (ITMS)

Long-Term (beyond 5 years)

Improve benets and incentives

package for DOE personnel comparable

with industry standard

Retention of competently

trained and experienced

personnel in DOE

Policy and Legislation;

Capability-buildingDOE



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1. OVERVIEWIn 2007, the Philippines imported oil and petroleumamounting to $6.8 Billion, a significant 20% increaseover the previous year. This fact is definitely a causeof concern because any increase in money spentfor this imported commodity represents preciousresources that could conceivably be used in otherapplications with more social utility.

The necessity for developing and using indigenousand environment-friendly energy resources andreducing dependence on imported energy is spelledout in Republic Act No. 7638, also known as the DOELaw. Pursuant to this law, the aggressive developmentand utilization of renewable and alternative energyresources is proclaimed as State policy and it hasbeen deemed imperative to realize the twin goals of energy security and energy independence.

The shift from fossil fuel sources to renewable andalternative energy resources is a key componentfor realizing these objectives. Obviously, the energysector must achieve the transition to a sustainable

system based on renewable and alternative fuelsas increasingly prominent, viable, and competitivefuel options. Current initiatives in the pursuit of this goal should be directed towards creating amarket-based environment that is conducive toprivate sector investment and participation in therenewable and alternative fuel field. It should alsobe directed at encouraging technology transfer andresearch and development. Fiscal incentives shouldprovide for a preferential bias for renewable energy

IIPromoting Renewableand Alternative Energy

(RE) and alternative energy (AE) technologies andprojects that are environmentally sound.

With the end in view of increasing the RE and AEsectors contribution to meeting the countrys primaryenergy demand, the recommended immediate actionsinclude:

1) the improvement of RE and AE policieswhich is anchored on the passage of theRenewable Energy Bill and the NationalBiofuels Program,

2) the creation of a One-Stop-Shop forsustainable energy projects,

3) the improved access to financingpackages for RE and AE projects, and

4) capacity building initiatives for allconcerned parties. Strengthening publicand private sector partnership in thiseffort shall serve as a key means forensuring the installation of some 2,500

MW of renewable energy facilities by2025 and the utilization of biofuel-blends of at least 2% bio-diesel and 10%bio-ethanol blends by 2009 and 2011,respectively.

This can be complemented with the start of commercial operations of public buses fueled bycompressed natural gas (CNG) and the expansion of taxi operations using units that utilize LPG as fuel.


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2. VIEWS EXPRESSED

2.1 During the Plenary Sessions

Mr. Thomas Crouch , Deputy Director Generalof the Asian Development Bank (ADB) pointedout that, carbon emission from energy consumptionremains very high and continues to escalate over time.In this regard, he stressed that, there is a need to work for lower carbon emissions through the use of cleanenergy, energy efficient technologies, and renewableenergy sources.

Mr. Sohail Hasnie , Senior Energy Specialist of the Asian Development Bank (ADB) mentioned that,the escalation of greenhouse gas emission is due to thegrowing energy consumption of emerging economies.Thus, he recommended that, government quickly pass aRenewable Energy Bill and an Energy Efficiency Bill.

Dr. Nandita Mongia, Regional Coordinator and Team Leader for the Regional Energy Programfor Poverty Reduction in Asia and the Pacific of the UNDP Regional Center in Bangkok pointedout that, the shift to inferior fuels such as dung cakes,wood and crop residues for cooking and kerosene forlighting pose risks to household members. Hence, sheemphasized the need to develop renewable energytechnologies for off-grid electricity.

Mr. Sergio R. Ortiz-Luis, Jr., President of the

Philippine Exporters Confederation, Inc.mentioned that, we have one of the highest costs of electricity in the region. He stressed that, electricity isa big part of the business sectors operational costs.He then suggested the need to tap the countrysalternative/renewable energy sources in order toaddress the concerns of electricity quality and security.

Dr. Ren B. Azurin Professor of the College of Business Administration of the University of thePhilippines pointed out that, it was important to focuson factors that we can do something about and not onfactors we can do nothing about, like the global price

of oil. He said that, we can expect a continuing upwardtrend in global oil prices and all we can realistically do istry and reduce our countrys dependence on importedoil for the energy needs required to sustain oureconomic growth. This meant, focusing on developingindigenous sources of energy.

Fr. Jose Ramon T. Villarin, SJ, President of Xavier University in Cagayan de Oro said that, clean and

climate-friendly energy (CE) is no longer a pipe dreambut an imperative. He further stated that, CE is ourcompetitive advantage because it is the one resourcewe have in abundance in the tropics. CE will be one of the greatest equalizers of the 21 st century because theresources that will be needed for CE will come from the

tropical belt of this planet. By CE, I mean energy fromwater, sun, wind, geo-heat, tidal forces, and biology, weare a poor country sitting on all that energy capital.We are poor, he continued, because we seem unableto mobilize this energy capital into assets that willpower our development.

Mr. Edgar O. Chua, Country Chairman of Pilipinas Shell Petroleum Corporation said that,one of the strategic responses to mitigate the impactof escalating oil prices is through fuel diversification andsupply security. Thus, he said, the Renewable Energy Billshould be passed immediately to increase investment

in geothermal, wind, solar, and hydro sources of energy.In the coming decades, he said, the world must meetthe challenge of producing more energy for a growingworld population, while stabilizing or even reducinggreenhouse gas emissions.

Ms. Elisea G. Gozun, Chairperson of Earth DayNetwork Philippines and former EnvironmentSecretary observed that, escalating conventional fuelprices is an opportunity for renewable energy. Shestressed the need for the immediate passage of theRenewable Energy and Energy Efficiency Bills, as wellas the strict implementation of the Biofuels Act.

Mr. Meneleo J. Carlos, Jr., Chairman of theFederation of Philippine Industries said that,competitive alternatives, such as hydro, geothermal,wind, nuclear, and hybrid combinations for thegeneration of electricity, require thorough costanalysis taking into account the availability of technology, financial, land resources, etc. He furtherstated that, if full cost accounting is considered,renewable fuels would be cheaper than fossil fuels.

2.2 Summit Day 2

Mr. Jose Ma. Lorenzo P. Tan, Vice Chairmanof the World Wide Fund for Nature (WWF-Philippines) mentioned that, the main issue withrespect to RE is the inadequate public informationin terms of its viability as an energy technology andits economics as a investment venture. He said that,investments in RE ventures can generate high returns,contrary to popular belief. He recommended that, thegovernment work for the immediate passage of the


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RE bill and ensure its strict implementation, developan integrated business model for RE development, andprovide carbon credits to RE projects to expand carbontrading.

Atty. Miguel M. Trinidad, Country Director for

Finance of SunPower Philippines ManufacturingLtd. mentioned that, global energy demand for non-renewable sources will increase by another 50% overthe next 15 years and traditional energy resourcesare now approaching the peak production levels.Accordingly, fossil fuels will become increasingly costly asreserves are depleted. In view of this, he recommendedthe implementation of programs that would stimulatephotovoltaic (PV) start-ups, such as net metering,subsidies/low interest loans for small off-grid systems,develop infrastructure for grid connectivity, and enhancePV systems support infrastructure. He also lobbied forthe immediate passage of the RE Bill.

2.3 Summit Day 3

Senator Miriam Defensor-Santiago, Chairpersonof the Senate Committee on Energy said that,energy dislocation or periods of energy poverty arisesbecause of four (4) trends, namely:

1) high fossil prices,

2) growing concern for energy security,

3) growing social concerns about the localand global environments, and

4) technology innovation which attracted

global investment in alternative andrenewable energy, now standing atUS$100 billion.

Senator Santiago further explained that, there is acomplex interdependency of the said four trends and sheproposed the following fixed principles

Flexibility the country should maintain aportfolio of energy options;

Building collaborative networks thegovernments job should be connected tothe endeavors of the NGOs, businesscompanies, consumers, and the Philippinepublic;

Promoting energy efficiency every businessshould put in place an energy efficiency plancovering operations, supply chains andworkforce behavior, and

Making carbon a mainstream economic costfor business filing of a Carbon Pricing Bill tostrengthen carbon measures.

With the increasing price of fossil fuels, Senator Santiagomentioned that, the Senate is expected to take up thefollowing measures:

Provide incentives for clean coal technologies;

Place a premium on alternative fuel bills(substitutes for gasoline and diesel in thetransport sector);

Increase efficiency of biomass fuels andpromote use of kerosene and LPG forcooking;

Increase access to efficient stoves for biomassand modern fuels;

Subsidize capital costs for rural gridelectrification and develop off-grid solutions;

Target subsidies to access and not toconsumption;

Remove market barriers to trade in kerosene,LPG, biomass fuels, and charcoal; and

Provide supportive regulatory policies formeeting energy services.

2.4 Workshop on Regulatory Framework and Policy Direction

There were a total of 159 officially registered participantsin this workshop, half of whom came from the privatesector. Government representatives comprised 30% of the total, while 16% came from civil society. Those whorepresented international funding institutions like JICA,ADB, USAID, and the diplomatic community comprised5% of the participants. Aside from the officially registeredparticipants, there was an estimated 50 more walk-inparticipants.

Among the personalities in the group were Atty. AngelaConsuelo S. Ibay of KLIMA Climate Change Center-

Manila Observatory, Ms. Carina Agarao from theCenter for Community Advancement, Eastern PetroleumPresident Mr. Fernando L. Martinez , Ms. Luli H. deLeon of Chevron Geothermal Philippine Holdings, Inc.,

JICA Consultant Mr. Tadayuki Ogaw a, Energy ConsultantEngr. Delfin de la Cruz, Jr. , Mr. Alex Ablaza of ADB,Mr. David De Montaigne of Global Green Power.


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Highlights of the presentation of the main resourcespeaker Ms. Catherine P. Maceda, DeputyManaging Director of EON, Inc., are given below.

Ms. Maceda noted that, while other countriesstarted development of alternative energy sources

during the past decades, the Philippines has barelybegun developing systems for realizing renewableenergy goals. She said that, this lack of initiative inaddressing the energy problem of the country hasbeen recognized by H.E. Gaudencio Cardinal B.Rosales and other sectors in the country, but seemsto have been ignored by the government.

She then noted that, the importation of oil andpetroleum amounted to $6.8 billion during the pastyear, a considerable 20% increase from the yearprevious to that. This is something that should be aconcern for the government as the money diverted

to oil imports could have had more social utility.The total import expenditure could have funded theeducation of almost 35 million children, could havebuilt half a million classrooms, or could have fed morethan 5 million families.

She then described the Philippine situation andthe prospects of development of renewableenergy technology, pointing out that, indigenousenergy sourcing can be increased from its present57% and installed plants that produce renewableenergy can enlarge its current 30% share in totalenergy production. The possibility of noticeableimprovements can be realized with the passage of the Renewable Energy Bill, which is presently beingdeliberated on in the Congress.

The primary barrier in promoting renewable energy,she said, is the absence of a legal framework to guidethe technological, institutional, and social developmentof these alternative energy sources. The current 4,450megawatts production of the country can potentiallyand easily be improved to more than 9,000 megawatts,a 100% increase in production. The goals of the DOE,she said, are overwhelming, as, for instance, it targetsmaking the Philippines the regional and global leaderin geothermal and wind energy production. Also,another objective of the DOE is the 100% increase,or doubling, of the countrys hydroelectric capacityand the emergence of the Philippines as the solar cellmanufacturing hub.

She indicated that, in terms of resource capabilityand availability, the Philippines has the potential of producing 76,600 megawatts of energy. Renewable

energy technology has the potential to generateconsiderable income, and, moreover, it issomething that can be sustainable. Challengesto renewable energy development, however, likemarket constraints and financial limitations, haveto be recognized. The passage of the Renewable

Energy Bill, she said, would be an important initialstep. Renewable energy, she said, confers on thecountrys numerous benefi ts. First, she said, itcan ensure the energy security of the countryby providing a regular and sustainable energysource whose supply is less volatile than that of oil. Second, renewable energy can be a climatechange imperative, offering solutions to theproblems of global warming and other climatechange consequences. Third, the developmentof renewable energy can contribute to and spurnational and local development and progress.

Currently, she observed, 18 versions of theRenewable Energy Bill are in the Upper House,and there seems to be prospects for immediateconsolidation. The Senate initiative is shepherded bySenator Miriam Santiago who chairs the EnergyCommittee, while Representative Juan MiguelArroyo chair of the House Energy Committee, leadsthe renewable energy talks in that branch of thelegislature. The contents of the bill essentially consistof provisions for incentives to stakeholders andmarket players and it can serve as an omnibus law forenergy development. Fiscal incentives, like tax breaksand marketing assistance from the government, andnon-fiscal incentives, like portfolio standards and net-metering arrangements, are outlined in the proposedRenewable Energy Bill.

Strong support from various sectors seems toaffirm the rationale of the bill, as 59% of surveyedindividuals claim that it would address energysecurity. The survey also shows that peoplethink that the bill would address climate change,increase investments, and provide power to smallcommunities. Ms. Maceda then went on to assertthat, there is a relationship in the number of newsitems about renewable energy and the increasein the price of petroleum products. This merelyindicates that there is renewed interest in the issueof alternative energy whenever there is an energycrisis.

Ms. Maceda highlighted the challenges that pertain tothe promotion of renewable energy. These fall underthree main headings, namely, market aspect, financialaspects, and technological aspects.


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She concluded by emphasizing three (3) points:

1) that renewable energy would addressthe immediate need for energy securityand long-term energy independence,

2) that renewable energy is more efficient,more sustainable, and cleaner than fossilfuel, and

3) that to realize renewable energy goalsmeans convincing the government to takeimmediate policy and administrativeactions.

Several discussants reacted to Ms. Macedaspresentation.

Dr. Nandita Mongia, Regional Coordinator and Team Leader for the Regional Energy Programfor Poverty Reduction in Asia and the Pacific of the UNDP in Bangkok highlighted, the importanceof ensuring that no one, most especially the poor, isexcluded from having a share of the countrys energy.It is the poor, she said that, are especially affectedby the abrupt increases in oil prices and by thefluctuations of the petroleum market. Studies revealthat 25% of the urban poor still rely on firewood astheir main energy source. Dr. Mongia also made theassertion that alternative energy resources are in factavailable and there is no reason why these should notbe taken advantage of. What is necessary, she said, is

that the right policies are put in place to usher in thedevelopment of these renewable energy resources.

Dr. Mongia identified several barriers to thedevelopment and realization of renewable energygoals. The first generation barrier, she said, involvesthe lack of awareness of people, who then tend toreject proposals without any real knowledge of howthese work. This barrier, she contended, was not aproblem in the Philippines, as its citizens are relativelywell-informed and most recognize the need for suchalternative technologies. The second generationbarrier, which she said, is the one that is observable

in the Philippine setting, refers to the inability of the proposals to develop into concrete policiesthat address the problems of market acceptanceand penetration. That, she said, requires a collectivepush in order to be overcome. The third generationbarrier goes beyond the problem of energy securityand considers how renewable energy can address thepoverty dilemma. It focuses on what can be done tomake renewable energy initiatives generate income forlocal communities.

To promote development of RE technologies,Dr. Mongia enumerated certain strategic directions :

1) increase investment into interlinkedrenewable energy technologies,

2) increase investment in biofuels,3) allow access of these technologies to the

poor, and

4) expand into high value applications.

Dr. Mongia also gave the following policyrecommendations:

1) renewable energy must be fed in to theelectric power grid,

2) necessary legislation must be passed andappropriate policies must be adopted,

3) fiscal and financial incentives must beprovided, and

4) the increase in public investments mustbe supported. In addition, short- andlong-term actions must be considered,like supporting micro-finance andcommunity based projects, expandingthe role of development banks and theNGOs, and calibrating policy responsesand support from both national and localgovernments.

Mr. Anthony James Menzies, Advisor of ChevronGeothermal Philippine Holdings, Inc. (CGPHI)observed that, renewable energy development effortsin the Philippines appear to be merely reactive. Henoted that policy response only emerges as a result of key energy occurrences, like, for instance, the oil priceshock of the late 70s and the early 90s. The point of the Renewal Energy Bill, he said, is to make the countryproactive in its approach to energy security. What thegovernment needs to focus on is the development of the market to create consumers of energy supplies andassure producers that a strong market demand exists.The use of different types of alternative energies, likewind, solar, and geothermal must be maximized.

He pointed out that, over the past years, renewableenergy development has been slow and protracted.But, he said, focus on its development can help localcommunities through employment and tax revenues.


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Proposed Initiative

1. Public Information campaign promoting RE2. Passage of the RE Bill in law3. Passage of a Land Use Act

4. Increase scal incentive to lower start-up cost of renewable energy, specically solar

5. To provide support for RE education training , R & D andcontinuing education

6. To make RE technologies available and affordablefor the farming/agriculture sectors/ stakeholders (viaappropriate policies and incentives)

7. Encourage electric distribution utilities to source powerrequirement from generators using Renewable Energy

8. Country inventory of RE resources9. Creation of a central ofce that will coordinate all

efforts to promote renewable energy

Votes

241916

7

5

5

5

44

1) Stakeholder interests/conflicts- Jurisdictional issue- Governance- Community risks- Biofuels dilemma

2) Finance/resources- Financing- Research and Development of RE

technologies- Incentives

3) Processes/mechanics- Policy inadequacy- Government role- WESM- Implementation concerns

4) Learning/growth- Awareness and interest

- Knowledge and expertise

Table of Identified Initiatives under Workshop onRegulatory Framework and Policy Direction

2.5. Workshop on Market and Financial Barriers

Highlights of the presentation of the Workshops mainresource speaker, Mr. Marlon M. Centeno, VicePresident of Northwind Development Power

Corporation, are given below.Mr. Centeno revealed that, the development of renewable energy, particularly wind energy, providedeconomical, technical, social, and environmental benefitsto electricity consumers of the Ilocos Norte ElectricCooperative (INEC). His presentation then focused onmarket and financial issues as among the challenges inthe promotion of RE. He said that, he believed thesewould be addressed with the passage of the pendingRE Bill.

He identified the following as the Market and Financial

Barriers relative to the development of RE in thecountry:

Inability to deliver competitive powerrates to the Wholesale Electricity SpotMarket (WESM), given the wheelingcharges from TransCo and the wind turbinesexpensive upfront cost: This is themain cause of Northwinds deterioratingcompetitiveness. However, he said, windpowers competitiveness improves over thelong term. He suggested that, these can beaddressed through the adoption of reasonable fixed-rate or feed-in-tariffsfor RE.

Restricted foreign investment: The ForeignInvestments Act of 1991 states that, windpower generation is limited to only 40%foreign ownership.

Tax treatment: The sale of power generated

by RE is zero rated for VAT purposes butit remains a taxable VAT transaction, thus,the sale will not result in an outputVAT. Input tax on zero rated transactionsare to be recovered as tax creditsor refunds.

Non-passage of the RE Bill

Credit rating of ECs: Electric cooperatives

should be given credits for their RE use inorder to help improve their credit rating.


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High required collateral of 50 % of the loangranted;

High collateral requirements for the loangranted; and

High investment cost for RE projects.The following strategic initiatives were identified by theparticipants of this Workshop:

Establishing the Power Grid as the buyer of renewable energy production;

Setting up RE and AE financing windows inlarge and small banks;

Developing the commercial market for REresources;

Providing incentives to address the highproject cost of RE projects;

Implementing priority dispatch on the Gridfor RE-produced electric power;

Creating greater market awareness forRE possibilities through information andeducational campaigns; and

Developing adequate pricing mechanisms for

RE production.

2.6 Workshop on Technology Options

A total of 94 participants have attended the Workshopon Technology Options. The participants came fromthe government, the business sector, academe, and non-govern

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2008 Phil Energy Summit

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