Costs, natural disasters keeping PHL energy industry a no-no for developers, insurers

Natural disasters and high cost of power have kept developers and insurance companies from entering the Philippine energy industry, in effect tempering economic growth, experts said Wednesday.

 

Most developers and insurance companies are very specific when it comes to Philippine exposure to natural catastrophe, Jacob Abaño, Jardine Lloyd Thompson (JLT) senior vice president for specialty risk solutions, told reporters in a on the sidelines of the Philippine Power and Energy Risk Workshop in Makati City.

 

"The global insurance market looks at the Philippines as one of the highest natural catastrophe-exposed countries in the world, which means insurance companies are limiting their exposure... [to] the country in terms of protecting the assets," he said.

 

Typhoon Yolanda barreled through Central Philippines last November, damaging the Unified Leyte geothermal power plant – owned and operated by Energy Development Corp. of the Lopez Group – a  key to restoring power in the region, Energy industry officials told GMA News Online in November.

 

Insurance companies keep models of natural disasters that prompt them to limit insurance coverage for power projects, even though Yolanda was not a part of that, JLT Philippines president and CEO Graham Edwards said in the same briefing.

 

"As a result of Yolanda, international insurance has to rework and redesign models to factor in effects of those like Yolanda," he said.

 

"The message is that they are no longer prepared to underwrite the whole project value as a result of major events," he added.

 

On average, insurance companies offer core insurance products to developers with costs ranging from 1 to 1.5 percent of the total construction cost of a project.

Expensive power

 

Abaño said core insurance products include all-risk construction, start-up delays, marine cargo, and third-party liability.

 

Developers, as well as international manufacturing companies and foreign direct investments (FDIs), are also looking at the power costs before they put money in the country, Abaño said.

 

"The Philippines has one of the highest electricity costs in Asia. Manufacturing and FDIs can bring in additional revenue, improve our economic growth and also give more employment. And these are the trades that will get affected due to high power cost," he added.

 

In September 2013, Energy Secretary Carlos Jericho Petilla said the Philippines has one of the most expensive power costs in Asia as government does not subsidize electricity rates.

 

In a 2012 study, International Energy Consultants noted the average electric rates in the Philippines, particularly from the Manila Electric Company franchise, was the ninth highest among 44 selected distributors across the globe, and three times higher than Indonesia, Taiwan, South Korea, Thailand and Malaysia – which allocate subsidies for the power sector.

 

Abaño said demand in the Philippines is growing by more than 4 percent a year, a situation that makes the country prone to power deficits because of few investments in the sector.

 

"Based on research from the DOE, the projects that have been committed, the projects and the capacity are just enough to meet the demand in the next two to three years," he said.

 

"If there is a project that will not push through or will encounter a problem during construction, we are facing a potential deficit in that three-year period," he added. – VS, GMA News