PGMA's Speech during the Inauguration of the San Roque Multipurpose Project

PGMA's Speech during the Inauguration of the San Roque Multipurpose Project

Ceremonial Hall, Malacañang, May 29, 2003

Thank you very much.

Thank you very much, Secretary Vince Perez.

My fellow guest of honor, President Ramos who started this whole project; President Ramos' and my fellow Pangasinense, Speaker Joe De Venecia -- this is not a hometown project; San Roque Power Corporation President, Pat Mc Allister; NPC President Roger Murga; P.A. Rene Diaz; Congressman Conrado Estrella, where the power plant is located; I'd like to also greet the mayors of the towns where the plant is located: Mayor of San Manuel, Salvador Perez; Mayor of San Nicolas, Christopher Rodrigo; and also I'd like to greet the barangay captains of Itogon, Benguet; I'd like to greet, of course, our members of the diplomatic corps: We have the Japanese Ambassador, Ambassador Takano and U.S. Ambassador, Ambassador Ricciardonne; I'd like to greet my Cabinet members who are here: aside from Vince, we have Bebet Gozun of Natural Resources and Cito Lorenzo of Agriculture; and of course, to thank and greet the chairman and members of the Energy Regulatory Commission: Chairman Manny Sanchez, Commissioners Oliver Butalid, Mary Ann Colayco, Letty Ibay, Charlie Alindada; distinguished guests; ladies and gentlemen.

I'm happy to inaugurate the San Roque multi-purpose dam started by President Fidel Ramos. It's a symbol of continuity between his policies and mine. It reminds us of the strategic long-term reforms of President Ramos that we are continuing to enjoy today. The little girl who said our prayers -- the granddaughter of Admiral Marcelo, who is Vice President of San Roque -- said in her prayer something about the perfect timing of the lord. And indeed, I can't help but feel that she's confirming something that I've been saying all afternoon. This affair was supposed to be held
in San Roque, right there in San Manuel today. But the weather was bad, but to begin with, this project was supposed to have taken place... The inauguration a long time ago. But Vince was still renegotiating the IPP with San Roque. And so, we said, let Vince have the leverage by saying, "we'll inaugurate it when it's done." Anyway, that was part of what change the time of the inauguration.

And then, so it was finally going to be held today and then I got a notice from the host, San Roque, that we can't hold it in San Roque dam because of the bad weather going on there.

And i said, "well, why not change the date rather than change the place?'" But, you know, we wanted to make sure that President Ramos would be here. We had a hard time looking for this common date when we're both available.
Anyway, we changed that date then President Ramos might not be available. And then when I went... then today, because it was raining very hard, you know, as you know, and Dagupan City and Pangasinan has been hit hard by the typhoon. I had to go there just before coming here that's why I was fifteen minutes late. That's why Joe De Venecia and Cito Lorenzo were late because they had to change into their barongs before they could come here
because we're all together.

We flew over San Roque Dam, so I told myself, we could have held it here. But anyway, Pat Mc Allister said, "no, because they had to prepare all these nice things." And they couldn't have done it during the times when it was flooding. But, if today is still the right time for the inauguration because today, Vince, Cito and I just came from the San Roque area and we have a message from the people of Pangasinan: Thank you, because they are not flooded this year.

Dagupan is flooded, Urdaneta is flooded because they are not on the Agno River which is what San Roque has helped to save from the devastating flood. We do have a new flood conrol project to take care of those areas but this time it will be easier to defend them because San Roque has already shown that it can take care of the people of Pangasinan, the people of its impact area.

And with the rural electrification that Pat Mc Allister today gave as his gift for the people of Itogon in Benguet. This is also a signal that Itogon, where it all comes from, will not be left behind in the benefits of San Roque Dam.

It is also a good day for us to inaugurate this project because today, we have good news about the Philippines continuing to make important economic progress, strengthening the environment for business and investments. This
administration's economic stewardship continuing the reforms and benefitting from the reforms of President Ramos' time has shepherded a very stable macroeconomic environment, strong growth and continuing modernizing reforms that will increase our competitiveness in the rough world of the global marketplace today.

Today, we announce that better-than-expected first quarter GNP figures of 5.6 percent and GDP of 4.5 percent, a surge in domestic demand in this same period. These are the evidence of our strong macro economic performance.
This better-than-expected growth, the strong domestic demand if you disaggregate the growth, and a sound fiscal performance in the first four months of the year are examples that we are committed to and succeeding in strengthening the business environment in the Philippines.

Domestic demand is what provides the linchpin for our economic growth. Private consumption for the first quarter rose at its fastest pace since 1998, abetted by low inflation. Investments also got its first double digit growth since the Asian crisis of 1997. And in particular, private construction accelerated to its most robust pace since the Asian crisis of 1997, boosted by policies easing housing finance. Private construction more than made up for the reduction in public construction which we had to do so we could follow our policy to arrest the further expansion of the fiscal deficit.

That growth of 5.6 percent GNP is broad-based, indicating the soundness of the administration's policies to lift as many sectors as possible. The agricultural sector withstood the cyclical drought, evidenced by the growth of seven of the nine agriculture sub-sectors during the first quarter. Industry continued to reap as well from programs supporting of mining, housing, and small and medium enterprises. Domestic-oriented firms provided much of the growth in manufacturing and made up for the slowing exports growth that all countries are now experiencing.

In services, growth has become more broad-based while communication is still the fastest growing service sector. Its growth is now being balanced by more upbeat growth in finance, mainly insurance; ownership of dwellings and real estate because of our housing program; and private services including tourism.

The growth performance in the first quarter bode well for the economy's outlook for the whole year. We will continue to pursue policies that have worked well for the economy, especially those that will raise productivity and reduce the cost of doing business.

We will minimize bottlenecks to productivity such as the high cost of power.

Isusulong natin ang pagsusuri at pagsasagawa ng reporma sa kuryente, upang masiguro ang sapat at maaasahang elektrisidad para sa mga pamayanan at industriya. The reform program in the power sector was initiated with the
passage of the electric power industry reform act of 2001 mentioned by Pat Mc Allister. Studies from the Asian Development Bank and financial and technical advisers indicate that we will need an additional 6,000 megawatts of generating capacity over the next 10 years, if we are to avoid shortages. It takes three years lead time from planning to construction to operation in order to establish a power plant. Thus, we need to act now.

Studies also show that we will need 400 billion pesos in order to finance the needed power plants, as well as the supporting transmission and distribution facilities. Historically, the main companies providing these power-related assets have been the national power corporation or NAPOCOR for power generation, the transmission company for power transmission, and Meralco for power distribution. But these companies are all having financial problems, so how can they finance our future needs?

Take the case of NAPOCOR as a case study. In the past five years before last year, NAPOCOR incurred losses of 73 billion pesos and has seen its debts rising from 4.5 billion dollars in 1983 to 6.6 billion dollars in 2002. On top of these losses and borrowings, sad to say, NAPOCOR has even been accused of unreliable service, inefficiency, corruption.

Therefore, the answer to sourcing the huge capital requirements of our power sector is privatization.

Thus, this San Roque Power Corporation, this in completing this 1.2 billion- dollar San Roque multi-purpose project is indeed an example of the kind of investment we need in the power sector. This is a substantial achievement for the country and for the investors: namely, Sithe, Marubeni and Kansai, particularly because they assumed the full risks of financing, securing regulatory approvals, designing, building and operating the project. And with the help of financing from JVIC now has placed the power... The power portion and the flood control portion in commercial service well ahead of time.

San Roque, as mentioned earlier by Roger Murga, will operate primarily as a peaking plant during periods each day when the output of other plants cannot fulfill domestic demand. It will reduce our dependence on imported fuel; it will lower the variable expenses of other power plants. These savings will hopefully translate into lower power cost to our people and industries.

The San Roque project will take care of the supply requirement of Luzon, which will continue to experience capacity surplus until 2007. But let's not be fooled by that capacity surplus. People are under the impression that we have an oversupply of power because there's capacity surplus in Luzon, but this is only true in the main grid of Luzon and only true today. We need new capacities even in Luzon to avoid shortfalls by 2008.

Based on a conservative annual energy demand growth forecast for the period 2003 to 2006, Luzon will have an additional demand of 1,600 megawatts. The Visayas will have an additional demand of 240 megawatts. Mindanao will have an additional demand of 260 megawatts. And so, that is why we need to have privatization.

The first key to privatization is to create an investment climate that is attractive to both domestic and foreign investors. The second key to privatization is to create a privatization process that is transparent and free of corruption. And that is what we want to do.

The most pressing problem we have to address now is the looming crisis for the Visayas. Unless we take urgent and immediate action it will be lights off for the Visayas by December this year.

We must start giving particular attention to Panay, an island with no indigenous energy and farthest from the geothermal steam fields of Leyte. Power demand in Panay is projected to increase from the current demand of a 190 megawatts to 220 megawatts. But even today, the current dependable capacity for the island is only a 138 megawatts.

It still manages this imbalance because it imports power from Negros. But this is just a palliative measure. We need to have a firm solution to this problem. Our proposed projects for capacity addition in the Visayas are the Mambucal Geothermal, Palimpinon expansion, and Negros Geothermal projects to be commissioned starting 2004.

I, therefore, instruct the Department of Energy, Vince Perez, to prepare all the difficult groundwork now so that the country can bid out the power generating plants needed to avoid shortage. We also need to address the problems of transmission interconnection and upgrade.

And to address all these problems, I will repeat -- the first key to privatization is an investment climate attractive to investors. The second key is a process that is transparent and free of corruption.

An attractive climate and a transparent process require the promulgation of viable and sustainable generation, transmission, and distribution rates that will make private sector participation in the electric power industry more attractive. And that was the other ceremony we had today.

I'd like to congratulate the chairman and commissioners of the energy regulatory commission for promulgating today a new rate making methodology for the transmission sector.

The signing of this important document is a milestone in the evolution of the Philippine electric power industry. This performance based rate making regime departs from the traditional return on rate base methodology, one that has been used in the Philippines for the past 80 years. It's time for our rate making to enter the 21st century.

In cost based regulation, the relationship between the attainment of performance standards and profitability is not well established. Regulated entities often focus on merely justifying their increasing costs to the regulators. Cost reduction initiatives and productivity improvement programs are not aptly rewarded.

On the other hand, performance based regulation is considered more responsive. It adopts a forward looking approach in providing the regulated entities with the ability to meet the growing needs of the customers through a well-planned capital investment program.

Performance based regulation is currently used in developed economies that have restructured their electric industry. It has proven to benefit both investors and customers. In this regulatory environment, investors will be motivated to attain clearly defined performance standards at least cost resulting to long-term benefits to consumers in terms of reliable electric service and lower electric prices.

This paradigm shift in rate making is well-timed, as we are currently focusing on the privatization of the transmission sector. This document clearly outlines the rate making principles and methodology in a clear and transparent manner. A stable regulatory environment will encourage more investments into this sector and accelerate the modernization of the transmission and distribution sectors.

I'm pleased to note and I'd like to congratulate again the ERC is taking these bold and decisive structural reforms, fulfilling its pivotal role of being a change agent in this fast evolving industry. I've been informed that in a few weeks, ERC will be issuing more policy documents such as the competition rules, business separation guidelines, the asset boundary guidelines for sub-transmission.

Indeed, there are many challenges ahead as we pursue the vision of having a world-class electric industry. All of us have a vital role to play -- ERC, DOE, PSALM, TRANSCO, NEA, NAPOCOR, the IPPS, the distribution utilities, the electric coops -- all need to work together with this sense of purpose.

And I want to assure our people that the government is doing all that it can to improve the business environment, create jobs, build needed infrastructure, deliver basic services more effectively and improve the lot of the Filipino people.

But, in order to succeed, we will need the cooperation of every Filipino.

Kaya't muli akong nananawagan para sa pagkakaisa ng lahat ng ating mga kababayan, kung nais nating wakasan ang kahirapan ng ating bansa at maitayo ang isang maunlad na lipunan sa ilalim ng isang matatag na Republika.

Ang lahat ng ating hangarin ay matatamo kung ating pagsasamahin ang ating mga talino at lakas. Walang imposible kung tayo ay magkaisa at magtulungan tungo sa ating magandang kinabukasan.

Maraming salamat at mabuhay ang Pilipinas!

Mabuhay ang San Roque! Mabuhay ang ERC!

Thank you.

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