Cooperatives Innovate Development Template for Hydropower Project in Mindanao

A federation of cooperatives is undertaking the development of a hydro-electric power plant in Bukidnon using a development model that could skirt obstacles now facing similar power projects in Mindanao.

Cereal C. Donggay, consultant and project director of the Bulanog-Batang Hydroelectric Project proposed for Talakag, Bukidnon, says among the innovations their project template will introduce include an assured market in utility distributors and electric cooperatives, a ready market in present and future power consumers which guarantees immediate usage of the power once it is generated, and an air-tight power purchase supply agreement that significantly reduces the risks inherent in power development projects in Mindanao.

The PhP 11.934-billion,150- megawatt Bulanog-Batang HEP is being undertaken by the Northern Mindanao Electric Cooperative Association (NORMECA) which consists of eight electric cooperatives in Region 10 with an aggregate demand for 122 megawatts and 397 gigawatt hours in 2005 that's projected to reach 223.3MW and 780.3 GWH by 2012.

Using historical trends based on the 22.2% average annual power rate increase of the National Power Corporation from 1990-2004, Mr. Donggay said their proposed project could provide its captive market with a guaranteed rate substantially lower than what NPC is projected to have by 2012 when it becomes operational. He also assured the project would have a lower percentage annual increase in rates compared to historical trends of NPC, and be less sensitive to changes in the world prices of crude than NPC.

In its October 2005 Merit Order, NPC's variable cost for producing one kilowatt hour of energy from diesel or oil-fired sources in Mindanao ranged from P4.85-4.80, compared to P1.3644-1.2942 from geothermal power plants.

"With 150 megawatts, our entire production is not even sufficient to cover the projected total consumption of our eight member coops by 2012, when we start operations," Mr. Donggay noted. "All of the boards of directors of our member coops have already submitted their resolutions committing to invest in our project and buy electricity from us."

With aggregate systems loss declining to 11.8% in 2005 from 13% in 2004 and load factor increasing from 45.8% in 2003 to almost 52% in 2005, power factor rising from 96% in 2003 to 98.25% in 2005, NORMECA generated sales of over PhP1-billion in 2005, from PhP700,000 in 2003, and PhP850,000 in 2004.

Member cooperatives of NORMECA include the Misamis Oriental Rural Electric Service Cooperative-1, Misamis Oriental Rural Electric Service Cooperative-2, Misamis Occidental Electric Cooperative-1, Misamis Occidental Cooperative-2, First Bukidnon Electric Cooperative, Bukidnon Electric Cooperative and Camiguin Electric Cooperative.

At present, Mr. Donggay said the federation is processing its legal requirements including the Environmental Compliance Certificate (ECC) from the Department of Environment and Natural Resources. Although the Bulanog and Batang Rivers are the tributaries originating from the Mt. Kitanglad watershed which directly feed into the Cagayan river, Mr. Donggay assures its construction would not adversely affect downstream users in Cagayan de Oro, particularly the city's famed white water rafting industry.

"Our tunnel will only divert water to our generators along a four kilometer stretch which is entirely located in Talakag, so this will not in any way affect the volume of water downstream the Cagayan de Oro River," he told Business World.

Social acceptability of the project was also affirmed by two memoranda of agreement with indigenous Higa-onon tribes at the project site signed at end of last month, and endorsements from the local legislative bodies of Bukidnon province, Talakag municipality, and six barangays at the project site.

At present, Mindanao has a total capacity of 1,580.16 MW, with a firm capacity of 1,300MW. Power demand is projected to exceed supply by 2010. According to the project's demand projections, the Mindanao grid already experienced a slight 60-100MW deficiency last year under the low/high demand forecast vs firm capacity scenarios. Unless new base load capacity is added to the grid, the low/high demand deficiencies are projected to rise to 541MW and 686MW, respectively, by 2012.

The Energy Department estimates the Mindanao grid would need 850MW additional capacity for the period 2009-2014 to meet the projected 6.4 % average annual growth in peak power demand.

So far, none of the power plant projects identified as feasible in the country's Power Development Plan are nearing financial closure. Energy planners expect an energy shortage in the island by 2009, and so far no base load plants are under construction to address the projected demand.

The Renewable Policy Framework Plan of the Department of Energy lists eight mini-hydro and seven large hydro power projects in Mindanao with an aggregate potential of 846.1MW, or 28.7% of the country's total identified potential capacity.

Mr. Donggay says NORMECA's Bulanog-Batang HEP project development model could be utilized by other investors seeking a feasible return on their funds under the country's present legal framework.

"Because we have a captive market, we are not subject to restrictions such as those faced by the proposed expansion of the STEAG coal-fired power plant, which requires an act of Congress to authorize new capacity investments in areas where there is an energy crisis or imminent power shortage ," Mr. Donggay said.

A provision of the Electric Power Industry Reform Act of 2001 (EPIRA) states that NPC may generate and sell electricity only "from undisposed generating assets and power contracts of the Power Sector Assets and Liabilities Management Corp. (PSALM) and shall not incur any new obligations to purchase power through bilateral contracts with generation companies or other suppliers."

NPC's obligations with IPPs have been blamed for the state-owned firm's continued financial problems.

"Neither do we have to compete with artificially low power rates in Mindanao due to a provision in the EPIRA which allows government to continue operating the Agus and Pulangi hydro-electric power complexes which are excluded from PSALM's privatization program for another five years," Mr. Donggay said.

Mr. Donggay is a former executive of the National Power Corporation, serving as Vice President for Mindanao from 1993-96, and head of NPC's Independent Power Producers (IPP) Group based in Manila from 1996-99.

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