Public-Private Partnership Stories Philippines: Rural Electrification Marinduque, Romblon, Tablas & Masbate Photo © Julinette Bayking/IFC 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 electricity and providing more than 460,000 people with power for the first time. This series provides an overview of public-private partnership stories in various infrastructure sectors, The project was implemented with the financial support of DevCo, a multi-donor facility affiliated with the where IFC was the lead advisor. Private Infrastructure Development Group. DevCo provides critical financial support for important infra- IFC Advisory Services in structure transactions in the poorest countries, helping boost economic growth and combat poverty. DevCo Public-Private Partnerships is funded by the UK’s Department for International Development (DFID), the Austrian Development 2121 Pennsylvania Ave. NW Agency, the Dutch Ministry of Foreign Affairs, the Swedish International Development Agency, and IFC. Washington D.C. 20433 ifc.org/ppp BACKGROUND cost of generation, the new regulatory framework provided for The Philippines has a population of 85 million spread across regulated generation rates based on affordability. The new power 7,100 islands. For years, the government-owned National Power providers were selected through a competitive process, with the Corporation’s Small Power Utility Group (SPUG) held the winning bidders decided on the basis of the lowest price. The monopoly for supplying power for off-grid areas where the average framework allowed for rate adjustment over time to reflect per capita income is $2 a day. Not only was the service unreliable changes in fixed and variable costs of generation. and expensive for those who had access—it was not available at Based on the general framework, electric cooperatives were all for hundreds of thousands of others. The investments required allowed to charge the agreed rate for the generation component to provide quality service and meet future capacity needs were of the consumer’s electricity charges. However, if the true cost of inadequate due to budget constraints. generation is higher, the new power providers will be reimbursed IFC helped the government develop and award innovative power for the difference, on the basis of kilowatt-hours supplied, from a supply agreements for four provinces through two power-supply subsidy fund. agreements: one for Marinduque, Romblon and Tablas; and one for Masbate. The new plants will provide uninterrupted electricity BIDDING servies and the government will save on subsidies. 3iPowerGen, a consortium formed by Coastal Power Development Corporation and Applied Research Technologies, won the bid IFC’S ROLE to supply the islands of Marinduque, Romblon and Tablas. The To address the challenge of providing sufficient power to meet company proposed a hybrid wind/diesel technology that will bring demand in an efficient and sustainable way, the government generation into compliance with the country’s environmental sought to introduce private-sector participation in power standards. The consortium will provide 25MW of combined generation. The goal was to reduce the deficit and use the electric capacity to the three islands at a cost that is 40 percent savings to improve service in areas that had no access. below the current P13.8 per kWh. The government appointed IFC as the lead transaction advisor to: DMCI holdings was the winning bidder for the island of Masbate. The company will supply 13 MW of dependable, uninterrupted • Prepare a regulatory framework for private sector electricity at a cost of P7.07 per kWh—about 50 percent below participation in off-grid areas. the current generation cost. Draft model contract agreements, such as the Power Supply • and Subsidy Agreements. Design, manage, and implement a competitive and transparent • EXPECTED POST-TENDER RESULTS process to select private power providers. • More than 460,000 people will have access to reliable and affordable electricity for the first time. In 2004, IFC signed a comprehensive mandate with the Philippine government to open 14 areas covered by the Small • Those with existing access to electricity will receive Power Utilities Group to private-sector participation. These better service at lower cost. areas were selected because of their high subsidy requirements • Private sector efficiencies will substantially reduce (approximately 80 percent). generation costs. IFC developed the first regulatory framework for power • The government will have considerable savings in generation in the four provinces and helped create a fair and reduced subsidies. transparent bidding process that attracted firms interested in the project. The landmark project leveraged private sector capital and • The success of the model pilot in Marinduque, expertise to improve affordability, quality and generation capacity Romblon, and Tablas will be replicated in other in support of the overall development of the remote areas. areas to help achieve the national goal of 100 percent electrification. TRANSACTION STRUCTURE In all four provinces, IFC structured a concession whereby the 10/2009 new power providers would operate and maintain the existing power stations or build new ones. IFC also brokered power supply agreements whereby the suppliers would provide guaranteed capacity to the local distribution utilities. Recognizing that consumers in off-grid areas cannot pay the true