Philippines, IFC Join to Meet Philippines' Growing Energy Needs

The Philippine Islands have enacted the Electric Power Reform Industry Act as a way to create a fully competitive power generation industry because they will need to generate an additional 3,700 megawatts by 2014 in order to create sustainability of economic and social structures, and the International Finance Corporation (IFC) has disbursed the first loan toward power industry privatization.

The Philippine Islands' government is working toward an energy generating sector that is free from governmental involvement. A power industry that offers open access and unrestricted retail competition is seen as the only way by which to meet accelerating industry and population needs and demands. Privatization, which would be controlled by a non-government independent regulator, includes reforms to tariff rates, privatization of assets used for power generation and transmission, and the creation of a wholesale electricity market..

East Asian countries are watching the progress of the Philippines privatization process because many are hesitant to enact such much needed privatization of their own power generation industries. A successful Philippines privatization project will provide what is called a "proof of concept" to assure and encourage other East Asian countries that need to "embark on similar sector reforms," as stated by Rashad Kaldany, IFC Director for Infrastructure.

IFC is acting as the anchor lender by supporting the privatization project through the loan of $150 million with longer-term financing than can currently be gotten from commercial banking sources. The object is to provide a solid investment base that will attract other investors from local banks and foreign companies to the $530 million project . These local and foreign funds would carry the shorter terms available from commercial sources.

The project will privatize the 360 megawatt Magat hydroelectric power plant owned by SN Aboitiz Power. Magat has the distinction of being the first privatization agreement to be finalized with the involvement of foreign investors under the new Electric Power Industry Reform Act. Magat is a critical part of the Philippines main power grid because of the significant role it plays as a reservoir hydro plant. The Reform Act is required to privatize 70 percent of the total power generated in the Luzon and Visayas islands. The power plants on these islands comprise the Philippines' main power grid.

IFC's Acting Country Manager for the Philippines Jesse Ang said, "This is also an excellent example of how IFC is helping the country's economic growth and development."

IFC will also act as an advisor to the Philippines' Department of Energy to attract banking and foreign investors for another project that will provide power generation in the province of Masbate, which is one of the Philippines poorest provinces. IFC is dedicated to helping local Philippines' commercial banks to participate in the burgeoning energy market.

"IFC Investment Bolsters Power Sector Reforms in the Philippines, Helping Meet Growing Energy Needs," International Finance Corporation.