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Philippines Power Shortfall Remains Despite Completion of BRI Project

Although the China-backed Kauswagan Plant is set to come fully online, the country's energy situation is still critical.

Photo: The Kauswagan clean coal-fired power plant: Scratching the surface of an endemic energy shortfall.
The Kauswagan clean coal-fired power plant: Scratching the surface of an endemic energy shortfall.
Photo: The Kauswagan clean coal-fired power plant: Scratching the surface of an endemic energy shortfall.
The Kauswagan clean coal-fired power plant: Scratching the surface of an endemic energy shortfall.

One of the Philippines' key Belt and Road Initiative (BRI) projects – the Kauswagan Clean Coal-Fired Power Plant – is set to be operating at full capacity by the end of the year. According to the locally responsible government body, the Mindanao Development Authority (MinDA), the facility, set in the northern Lanao del Norte region, is currently 50% active following the successful completion of phase one of the project earlier this year.

Last month, the second of the two units that comprise the initial phase of the 550-megawatt, four-unit, coal-fired power plant – the biggest such facility on Mindanao, the second-largest island in the Philippines archipelago – began feeding into the country's national grid. The first unit, meanwhile, went into operation in May, while the two units scheduled to be completed as part of the second phase will come online in September and November.

The plant is owned by GN Power Kauswagan (GNPK), a joint venture between the Philippines' AC Power – Ayala Corporation's power division – and Power Partners, a China-led consortium of developers. Clearance work on the site began in August 2013, with the cost of the project then estimated to be about US$1 billion. The initial financing was in place by the end of the following year.

As of July 2017, a review of the likely costs resulted in a revised estimate of $2.5 billion, with 70% of this new total sourced from local and international banks, while the remainder came directly from GNPK. Factored into this expanded figure were the construction costs of a powerhouse, a substation and related infrastructure facilities, as well as the installation of turbines and generators and the laying of transmission lines.

Shanghai Electric Power Construction Co. (SEPCC), a subsidiary of the Power Construction Corporation of China (PowerChina), had been appointed as the project's lead engineering, procurement and construction (EPC) contractor as early as May 2014, with the development subsequently co-opted within the framework of the BRI, China's ambitious international infrastructure development and trade facilitation programme. As originally envisaged, the plant was to come on stream in Q4 2017.

Unfortunately, the project has been subject to a number of delays, with the completion initially rescheduled for 2018, and then to before the end of the current year. Environmental concerns have also been raised by a number of local interest groups.

Throughout the duration of project, SEPCC has made considerable efforts to emphasise the benefits accruing to the local community. In particular, it has forefronted the $38 million it has invested in recruiting short-term labourers, renting equipment and purchasing daily necessities. The company now employs 8,000 full-time Filipino staff. In addition, it has also cited the ongoing support PowerChina, its parent company, has provided for the Philippines' energy sector.

As of June this year, the company is believed to have invested about $3 billion in the country, with the majority of that spend focused on the power sector. In addition to Kauswagan, it has supported the Dinginin 2x660-MW coal-fired power stations and a 350-kilovolt direct current power transmission converter station project for Visayas and Mindanao.

The Dinginin project is a 1,336-MW coal-fired power station set on the Bataan Peninsula. In 2011, it was the subject of a $493 million loan from the China Development Bank, underwritten by the China Export and Credit Insurance Corporation. The estimated cost of the project is $1.7 billion, with SEPCC, once again, the appointed EPC contractor. Should everything go according to plan, the project should be completed before the end of next year.

Despite these major investments in power-generation facilities, however, it is believed that they will only scratch the surface in terms of the Philippines' growing energy shortfall. By 2023, at the latest, for instance, it is expected that local demand will have already exceeded the capacity of the new Mindanao facility.

Marilyn Balcita, Special Correspondent, Manila

Content provided by Picture: HKTDC Research
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