This was articulated by Jon Lindborg, mission director of the United States Agency for International Development (USAID) in an interview with reporters, noting that among the major uncertainties confronting investors in the energy sector is how the government can sustain potential to honor sanctity of contracts with private investors; and on one hand, how fast it could get to implement muchneeded policy reforms.
Referring to experience of other countries, Lindborg noted that those which pursued "privatization and open markets" have gained more successes; but all these should be coupled with the provision of stable and predictable regulatory environment.
If there are lessons this country has to learn, he noted that it should delve on the fact that other successful energy markets, had to exercise the political will to fastidiously set out policy reforms like privatization and open or competitive markets.
In fact, the Investment Climate Statement for the Philippines issued by the Economics and Trade Section of the US Embassy in Manila for 2005, set out a revealing assumption that "the comparative advantages the Philippines once enjoyed vis-à-vis its neighbors in attracting foreign investment have deteriorated, because of the increasing of US commercial familiarity with other Southeast Asian economies, like Vietnam, and adding the fact that these markets are out to provide more predictable business environment.
It is worth noting that the slow pace of implementation of energy reforms, including the step-ladder approach in NPC privatization, were among the primary factors pulling down investor confidence.
Others in the list are high levels of corruption, failure to reform the judicial system; ineffective protection of intellectual property rights; price liberalization, and privatization; delays in passing key economic and fiscal reform legislation; and political uncertainties.
On the same token, the American investors also raised apprehensions over the restrictions imposed by the Philippine Constitution in their rights to be part of exploiting the country’s indigenous energy resources; such as hydro and geothermal power.
"Limits on foreign utilization of natural resources for hydro or geothermal power generation make investment in new or privatized assets based on these power sources unattractive," the US EmbassyManila economics and trade unit has stressed.
In particular, US investors noted that "a constitutional provision that may limit utilization of certain natural resources (such as water and geothermal resources) for power generation to at least 60 percent Filipino-owned companies as provided under Article XII Section 2 of the Constitution; as well as the minimum 60 percent Filipino ownership required to obtain water rights for hydro-power generation under the implementing rules of the Water Code of the Philippines (Presidential Decree 1067, 1976), raise questions about the extent of foreign participation that will be allowed in the privatization of certain NPC generation assets."
While the government already achieved modest gains in establishing an independent regulatory system to ensure fair and open competition and encourage private investment, the US Embassy sounded off investors concern on "judicial intervention undermining decisions"; of the Energy Regulatory Commission (ERC), agency mandated by the Electric Power Industry Reform Act to institute checks and balances in the restructured power industry.
For now, the American investors continue to adopt a wait-and-see stance in the NPC’s privatization, to include that of the National Transmission Corporation; and how the domestic power market would eventually evolve commercially; and what incentives shall be set in place for them to be enticed to consider investing more.
Among the key milestones they are watching for would be the implementation of open access and retail competition as scheduled in June 2006; and the targeted commercial operation of the Wholesale Electricity Spot Market (WESM) early next year. (MMV)
