MINDANAO AND IMPENDING LUZON POWER OUTAGES: A CAUSE OF CONCERN

Senator Sergio Osmena III.

Senator Sergio Osmena III.

Investment grade, growing economy, improving infrastructure, real estate boom, and foreign investors invading the Philippines. All of these should be easier for the government to lure investors in the country and it seems the Philippines is not getting tired in its quest to become a new Tiger in the region.

This may sound as good news to us but not-so-good news also. Because of this euphoria, there are fears that a looming tight power supply will happen next year, causing power outages in Luzon. Presently, the island of Mindanao is already being affected by power outages due to few hydro plants.

Senator Sergio Osmeña III said he doesn’t sees brownouts this year but he sees a tight power supply in Luzon next year and this may cause power outages because the growing economy is hiking up demands for electricity. The power outages will be caused by power reserves that are too thin.

Real estate boom in Metro Manila increased the demand for electricity.  The Senator said “That consumes power and that was not planned three to four years ago. That’s a good thing for us. That’s why we always want to build a reserve just in case we grow faster, just in case there’s an unforeseen breakdown, we will have another plant to kick in and supply the power so that there would absolutely be no interruption in power.”

An average of 8 hours of power outages a day affects the provinces in Mindanao and Iligan City, Lanao Del Norte, and Misamis Occidental even experiences 2 rounds of brownouts a day.

An average of 8 hours of power outages a day affects the provinces in Mindanao and Iligan City, Lanao Del Norte, and Misamis Occidental even experiences 2 rounds of brownouts a day.

The co-chairman of the Senate’s Joint Congressional Power Commission said that putting up more power plants will help mitigate the tight power supply, which he forecasted to be felt in 2014-2015. Then a little better in 2016 until it becomes enough on 2017-2018.

He is wary of the environment activists that will protest in putting up more coal power plants and cause delay in developments.

He cited that the only big power plant is GN Power Ltd.’s 600-megawatt coal-fired power plant in Bataan and expressed hope that the Redondo Peninsula Energy Inc.’s 600-MW coal-fired power plant in Subic Freeport would no longer encounter any problems. Expansion of other power plants in Batangas, Quezon, and Zambales can also help.

Mindanao, considered before as fruit basket of the Philippines, is home to the poorest regions and conflicting areas. It can use the investment opportunities the country is gaining to provide jobs and livelihood opportunities, end poverty, stop conflicts and bring peace.

But sad to say, investors are shunning away this southern part island not only due to conflicts and problems but also to power outages in which the Department of Energy warned that it may last until 2015.

Power outages in Mindanao are due to rising demand and that the Lanao Lake, where the hydro plant sources water, dips down especially during the summer. They also blamed the power outages on the lack of power infrastructures in Mindanao.

An average of 8 hours of power outages a day affects the provinces in Mindanao and Iligan City, Lanao Del Norte, and Misamis Occidental even experiences 2 rounds of brownouts a day.

In order to improve electricity, people and industries in Mindanao has 2 choices: Higher power rates or no electricity at all.

In order to improve electricity, people and industries in Mindanao has 2 choices: Higher power rates or no electricity at all.

In order to improve electricity, people and industries in Mindanao has 2 choices: Higher power rates or no electricity at all.

As what mentioned above, Mindanao is home to some poorest regions. So increasing electricity rates cannot be afforded by the people.

National and local candidates in Election next month fears of election fraud or glitches in PCOS machines if the power outages will not be solved soon.

DOE Secretary Carlos Jericho Petilla said that “We have projected that Mindanao will have additional power by 2015 as indicated by committed projects in the region. The challenge now is how to address the power situation from now until 2015.”

DOE will be helped by Mindanao Development Authority and other stakeholders.

The government needs to improve the electricity supply in Mindanao so investments will come pouring in.

The investors are not only complaining of power outages but also the high electricity rates, which is the second highest in Asia after Japan. Come to think of it. Japan is a small but a rich nation so the power rate is high. The Philippines is bigger than Japan and not that rich like Japan but its power rate is so high that a poor and middle class families are affected.

It should be remembered that the nation’s capital and parts of Luzon experienced exodus of investors back in 1990’s because of daily brownouts that last 8 hours, and even lasting 10-15 hours if the power outage is worse.

Businessmen and investors voice out their concerns on high electricity rates

Businessmen and investors voice out their concerns on high electricity rates

Experts warned that this will happen again if the government will not do anything to avert it. Once it strikes, the economy will be brought back to scratch.

In an interview, Mr. Ramon CF Cuervo III stated the importance of utilities such as water and electric power. “The increase of land values and prices depends on several factors. The availability of utilities and facilities are indispensable, particularly electric power and water,” he said.

We interviewed Atty. Rey Cartojano of Mindanao-based, Cartojano Realty on the effects of brownouts to the real estate industry Mindanao.

“It may surprise many but overall and in the short term period of 1-2 years, the current power outages in Mindanao do not seriously affect the real estate industry in the island,” says Atty. Cartojano,  the company’s Managing Partner.

According to Atty. Cartojano, who is also the PAREB Vice-President for Mindanao, he used terms ‘overall’, ‘short term’ and ‘seriously’ for the following reasons:

1. The two (2) biggest urban centers of Davao and Cagayan De Oro Cities are not affected by these power outages. These areas we know command a lot in the movement of real estate industry in the island, especially if we speak of residential, commercial and tourism related real estate.  Cities far from the main power generation areas of Northern Mindanao, like General Santos and Zamboanga, are the much publicized areas hit by 2-4 hours of rotating brown outs.

2. Remember, the island was hit also by selective power outages in 2012 in some areas especially during the summer season months. The situation was still manageable as these areas hit by seasonal power outages still registered very strong activities especially in the real estate sectors.

When it comes to investments in Mindanao, “Predictably, new investors will be wary of areas in Mindanao affected by the power outages. On the other hand, this will be a very big opportunity for areas not affected by the power outages to take hold of new investment,” he said.

Atty. Rey and Maya Cartojano (left) of Cartojano Realty during their trip to Singapore for APRECE 2013.

Atty. Rey and Maya Cartojano (left) of Cartojano Realty during their trip to Singapore for APRECE 2013.

Atty. Cartojano said that power generation, or a failure of it, is clearly a function of government and governance. He cited the Philippines have laws passed purposely to address the energy requirements of the country and that the country have government policies to privatize power generating assets in Mindanao but not sure if they will worsen or improve the power situation if done without sufficient safeguards.

“The thrust of government is to encourage more private investors in the energy power generation sector, but this seems to be still more embedded in law that in practice, he said. “And so, the biggest challenge now is how to actualize this vision of encouraging the entry of the private sector in power generation which many see as a solution to avert power crisis.”

The Cartojano Realty operates one of the few full-service online real estate firms in the country not only covering the traditional brokerage but also into appraisal, consultancy and legal advisory work. Their faster growths in the past were during periods of crisis and uncertainty when many fear the immediate moment.

“The beauty of the profession and business of real estate is that it can benefit you depending on how you position yourself or your client in a particular transaction.  Our type of real estate practice is hence neutral whether there is a boom or bust,” Atty. Cartojano said.

“Unfortunately, the overwhelming majority of RESPs are into brokerage work which is highly dependent on the boom cycle.  If the power outages graduate into a full blown crisis in the next two (2) years, which I seriously doubt, many RESPs who are into brokerage work will definitely be affected”, he added.

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