96928 PUBLIC-PRIVATE PARTNERSHIPS BRIEFS Philippines: Rural Electrification Marinduque, Romblon, Tablas & Masbate Photo © Julinette Bayking/IFC Overview On four remote islands in the Philippines, small power projects are making a big difference in people’s lives. IFC helped the government attract private investment in off-grid power generation, which will provide reliable and cheaper electricity to hundreds of thousands of people. The agreements were signed September 2005 and May 2007. Two local companies won the contracts for 15-year supply agreements: DMCI Holdings and 3iPowerGen. Together the two companies are investing more than $55 million for new generation, while reducing generation costs more than 40 percent. The plants will add 38 MW of new power, replacing the existing erratic service with reliable, round-the-clock elec- tricity and providing more than 460,000 people with power for the first time. IFC’s advisory work was supported by DevCo. DevCo, a multi-donor program affiliated with the Private Infrastructure Development Group, is funded by the United Kingdom’s Depart- ment for International Development, the Dutch Ministry of Foreign Affairs, the Swedish International Development Agency, and the Austrian Development Agency. This series showcases how the World Bank Group supports the development and implementation of public-private partnerships. This support comes in the form of public sector loans, private sector finance, sector and transaction advice, guarantees, and output-based aid. PUBLIC-PRIVATE PARTNERSHIPS - OCTOBER 2009 Background DMCI holdings was the winning bidder for the island of Masbate. The company will supply 13 MW of dependable, The Philippines has a population of 85 million spread across uninterrupted electricity at a cost of P7.07 per kWh—about 7,100 islands. For years, the government-owned National 50 percent below the current generation cost. Power Corporation’s Small Power Utility Group (SPUG) held the monopoly for supplying power for off-grid areas where the average per capita income is $2 a day. Not only World Bank Group Role was the service unreliable and expensive for those who had To address the challenge of providing sufficient power access—it was not available at all for hundreds of thousands to meet demand in an efficient and sustainable way, the of others. The investments required to provide quality service government sought to introduce private-sector participation and meet future capacity needs were inadequate due to in power generation. The goal was to reduce the deficit and budget constraints. use the savings to improve service in areas that had no access. IFC helped the government develop and award innovative The government appointed IFC as the lead transaction power supply agreements for four provinces through two advisor to: power-supply agreements: one for Marinduque, Romblon and Tablas; and one for Masbate. The new plants will provide • Prepare a regulatory framework for private sector uninterrupted electricity servies and the government will save participation in off-grid areas. more than $1 million per year because of reduced subsidies. • Draft model contract agreements, such as the Power Supply and Subsidy Agreements. Project Description • Design, manage, and implement a competitive and transpar- ent process to select private power providers. In all four provinces, IFC structured a concession whereby the new power providers would operate and maintain the In 2004, IFC signed a comprehensive mandate with the existing power stations or build new ones. IFC also brokered Philippine government to open 14 areas covered by the power supply agreements whereby the suppliers would Small Power Utilities Group to private-sector participation. provide guaranteed capacity to the local distribution utilities. These areas were selected because of their high subsidy requirements (approximately 80 percent). Recognizing that consumers in off-grid areas cannot pay the true cost of generation, the new regulatory IFC developed the first regulatory framework for power framework provided for regulated generation rates based on generation in the four provinces and helped create a fair and affordability. The new power providers were selected through transparent bidding process that attracted firms interested a competitive process, with the winning bidders decided on in the project. The landmark project leveraged private sector the basis of the lowest price. The framework allowed for rate capital and expertise to improve affordability, quality and adjustment over time to reflect generation capacity in support of the overall development of changes in fixed and variable costs of generation. the remote areas. Based on the general framework, electric cooperatives were allowed to charge the agreed rate for the generation Outcomes component of the consumer’s electricity charges. However, • More than 460,000 people will have access to reliable and if the true cost of generation is higher, the new power affordable electricity for the first time. providers will be reimbursed for the difference, on the basis of kilowatt-hours supplied, from a subsidy fund. • Those with existing access to electricity will receive better service at lower cost. 3iPowerGen, a consortium formed by Coastal Power Development Corporation and Applied Research • Private sector efficiencies will substantially reduce Technologies, won the bid to supply the islands of generation costs. Marinduque, Romblon and Tablas. The company proposed • The government will save $1 million in reduced subsidies. a hybrid wind/diesel technology that will bring generation • The success of the model pilot in Marinduque, Romblon, into compliance with the country’s environmental standards. and Tablas will be replicated in other areas to help achieve The consortium will provide 25MW of combined electric the national goal of 100 percent electrification. capacity to the three islands at a cost that is 40 percent below the current P13.8 per kWh. worldbank.org/ppp @WBG_PPP scribd.com/wbg_ppp