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					                        RP‟s MARCH TOWARDS
                       ENERGY INDEPENDENCE




                              24 August 2004
DEPARTMENT OF ENERGY
            OUTLINE OF PRESENTATION
                      Power Sector Reforms
                       –   New Power Sector Structure
                       –   Privatization
                       –   Open Access & Retail Competition
                       –   Other Power Sector Reforms
                      Power Supply-Demand Profile (National, Luzon, Visayas, Mindanao)
                      NPC Financial Status
                      Update on the Oil Industry
                      Energy Independence Agenda
                       –   Energy Mix
                       –   5-Point Plan
                      Legislative Agenda
                       –   TransCo Franchise Bill
                       –   Natural Gas Bill
                       –   Renewable Energy Bill
                       –   LPG Bill
                      Conclusion




DEPARTMENT OF ENERGY
                       “Investments in infrastructure & energy
                       provide the greatest multiplier effect for
                             growth and job creation . . .

                        We must achieve sufficient, efficient
                       energy in the near term . . . to have the
                         capacity to meet the demands of a
                               growing economy . . . “


                                       - - Excerpt from P/GMA‟s 2004 SONA - -



DEPARTMENT OF ENERGY
              POWER SECTOR REFORMS




DEPARTMENT OF ENERGY
   POWER SECTOR REFORMS
         Electric Power Industry Reform Act (EPIRA)


           R.A. 9136 took effect on June 26, 2001

           Provides for the:
                      Privatization of the National Power Corporation (“NPC”)

                      Creation of Transmission Company (“TRANSCO”)

                      Creation of Power Sector Asset and Liabilities Management
                       Corporation (“PSALM”)

                      Creation of Wholesale Electricity Spot Market (“WESM”)

                      Creation of Energy Regulatory Commission (“ERC”)

                      Establishment of Open Access for competitive consumers


DEPARTMENT OF ENERGY
   POWER SECTOR REFORMS
         New Power Sector Structure




       Sale of NPC
        generation
        assets

       Unbundling of electricity
        tariffs for transparency


       Opening up of high voltage transmission
        lines for easy access of distributors and
        large consumers

       Opening up of distribution lines for competitive consumers



DEPARTMENT OF ENERGY
   POWER SECTOR REFORMS
         Privatization: Approved Plan for TransCo

            Privatization by concession
                   – 25 year lease, renewable for 25 years
                   – Finance, operate, expand, maintain and manage facilities
                   – Attractive to investors if franchise transfers to Concessionaire
            PSALM to secure congressional franchise after selecting
                Concessionaire
            Purchase consideration to include deferred payments
            Performance-Based Rate Methodology promulgated by ERC in
                May 2003 (first PBR in the region)




DEPARTMENT OF ENERGY
   POWER SECTOR REFORM
         Transmission Sector

        Transmission Operation
                       No Luzon Grid blackout since May 2002
                       First ASEAN utility to be ISO 9000 certified
                       System interruptions reduced by 50% since
                       May 2003
        Privatization via 25-year concession,
             renewable for 25 years
                       PSALM currently negotiating with prospective
                       concessionaires
                       5 potential investors submitted keen interest
               – “No fire sale”
               – Prioritize passage of the TransCo Franchise
                 Bill after selection of concessionaire




DEPARTMENT OF ENERGY
   POWER SECTOR REFORMS
         Five EPIRA Conditions for Open Access & Retail Competition


         Approval of unbundled transmission and distribution wheeling
              charges
         Initial implementation of cross subsidy removal scheme
         Establishment of wholesale electricity spot market (WESM)
         Privatization of at least 70% of total capacity of generating assets
              of NPC in Luzon and Visayas
         Transfer of management and control of at least 70% percent of
              total energy output of power plants under contract with NPC to IPP
              Administrators (IPPAs)




DEPARTMENT OF ENERGY
   POWER SECTOR REFORMS
         1st EPIRA Conditions for Open Access – Approval of Unbundled
         Wheeling Charges

         Generation and transmission functions of NPC already
              unbundled
         Need to complete the unbundling of electricity rates to
              identify and separate charges relating to generation,
              transmission, distribution and supply
         76% of rate unbundling cases filed with ERC by DUs resolved
              as of June 2004
         Loan condonation for all 119 electric cooperatives (P18 Bn)




DEPARTMENT OF ENERGY
   POWER SECTOR REFORMS
          2nd EPIRA Conditions for Open Access – Cross Subsidy Removal Scheme


          EPIRA requires only the initial removal of cross subsidies in
               order to implement open access
                 – For NPC, this involves removal of inter-grid (e.g., between Luzon,
                   Visayas Grids) and intra-grid (e.g., within the Luzon Grid)
                   subsidies
                 – For DUs, this involves removal of inter-class subsidies (e.g.,
                   between industrial and residential classes).
          Initial year of intra-grid cross subsidy removal (equivalent to
               one-third of the cross subsidy) began Sept. 2003




DEPARTMENT OF ENERGY
   POWER SECTOR REFORMS
          3rd EPIRA Conditions for Open Access – Establishment of WESM

           Constitution of the Phil. Electricity
            Market Corp. Board in Nov. 03
           Demo WESM inaugurated in Dec 03
           Contract for MMS software
            awarded last Feb. 2004
           Price-Determination Methodology
            (PDM) for pricing of electricity
            traded in the WESM, approved in
            principle by ERC in March 2004
           Constitution of AGMO by Sept. 04
           Market trials for bidding of
            electricity to commence in June 05
           Target commercial operation by
            Jan. 06



DEPARTMENT OF ENERGY
   POWER SECTOR REFORMS
          4th EPIRA Conditions for Open Access – At Least 70% Genco Privatized

          70% NPC Luzon & Visayas capacity to be privatized by end-2005
          Three gencos already privatized:
                 – 3.5 MW Talomo HEP
                 – 1.6 MW Agusan HEP
                 – 1.8 MW Barit HEP
               Precedents to accelerated privatization of NPC assets:
                 – Expedite NG absorption of NPC debt to secure consent of creditors
                   for asset and debt transfer
                 –     Transfer of NPC assets to PSALM /TRANSCO
                 –     Transfer of NPC debts to PSALM
                 –     Negotiate Transitional Power Supply Contracts (TSCs) with DUs
                 –     Secure franchise for Transco privatization



DEPARTMENT OF ENERGY
   POWER SECTOR REFORMS
         5th EPIRA Conditions for Open Access – At Least 70% Transfer
         of IPPs to IPPAs

        Transfer to IPP Administrators (IPPAs) to be effected on or
             shortly before an operational WESM (Jan 2006)
        Ongoing review of implementation details by PSALM




DEPARTMENT OF ENERGY
   POWER SECTOR REFORMS
         Other Reforms Undertaken: Strengthening of Electric Cooperatives

        Electric Cooperative Enhancement
               – Systems Loss national average from 15.63% in 2002 reduced to
                 15.08% in 2003
                       • Aklan showed the biggest improvement with almost 8% reduction in
                         systems loss
                       • Masbate marked 6.30% improvement
                       • Rule of thumb: 1% reduction in systems loss  P 360 Mn savings to
                         the electric cooperatives
               – P/GMA Challenge to further reduce SL to a single digit national
                 average before 2010
               – Participation of private sector through Investment Management
                 Contracts (IMC)
               – Management Academy for ECs



DEPARTMENT OF ENERGY
   POWER SECTOR REFORMS
         Other Reforms Undertaken: Renegotiation of IPP Contracts

      IPP Contracts reviewed and renegotiated resulting in US$1.03
           billion savings in NPV terms
                           IAC Review Issues         No. of     Savings in US$ million in
                                                    Contracts         NPV terms
                       No Issues                       6                  17.64
                       With some remedial              11                387.28
                       financial issues
                       With some remedial policy       2                 68.78
                       issues
                       With some financial issues      11               369.14
                       With legal and financial        5                193.88
                       issues
                       TOTAL                          35               $1,036.72




DEPARTMENT OF ENERGY
   POWER SECTOR REFORMS
         Overview of IPPs & Sponsors

    Aboitiz /                  Benguet (Ampohaw)            Sithe Marubeni          San Roque
    Pacific Hydro              Bakun
                                                            Mirant                 Navota I-III
    Alsons /                   Iligan City 1                                       Navotas IV
    Tomen                      Iligan City 1                                       Pagbilao
                               Zamboanga                                           Sual
                               General Santos               Mitsui                 Mindanao Barges
    Alstom                     Limay Bataan A & B           NIA                    Casecnan
    BPPC                       Bauang La Union              Ormat                  MakBan Binary
                               Cavite EPZA                  PNOC-EDC               Leyte A&B
    Covanta                                                                        Mt. Apo I
                               Bataan EPZA
                                                                                   Mt. Apo II
    Enron                      Pinamucan
                               Subic Zambales               Salcon                 Naga Complex

    CBK Power                  CBK                          State Power            Mindanao Coal

                               Malaya                       Chevron-Texaco         San Pascual
    KEPCO
                               Ilijan Gas                   BHEPI                  Binga

                                 Total 18 firms/consortia representing 32 IPP contracts
                       Private sector BOT contractors in NIA-Casecnan and PNOC-EDC projects


DEPARTMENT OF ENERGY
   POWER SECTOR REFORMS
         Other Reforms Undertaken: Implementation of Lifeline Rates *

                       DISTRIBUTION UTILITIES   HH BENEFICIARIES

                       MERALCO                      1,316,329
                       Davao Light                     77,268
                       Dagupan Electric                29,289
                       Cagayan Electric                28,440
                       Cabanatuan Electric             17,431
                       Iligan Light                    16,418
                       Panay Electric                  14,754
                       Cotabato Light                    3,783
                       TOTAL                       1,503,691
                       * 50 – 100 kWh/month

DEPARTMENT OF ENERGY
   POWER SECTOR
         Other Reforms Undertaken: Implementation of Lifeline Rates


                                                                         % Share to Total
                  Distribution Utility              Rate P/kwh
                                                                           Customers
             Meralco                                    2.4091                 14.48
             Cotabato Light                              2.082                  1.32
             Panay Electric                             2.5931                 20.46
             Iligan Light                               1.7225                 16.09
             Dagupan Electric                           2.6767                 15.78
             Davao Light                                 2.199                 11.36
                                                   Ave. Lifeline Rate*   Total Beneficiaries:
                                                         2.28                631,525

                       *50 kWh consumption/month


DEPARTMENT OF ENERGY
                  POWER SUPPLY-DEMAND
                      SITUATIONER




DEPARTMENT OF ENERGY
                       TOTAL COUNTRY REQ‟T. : 5,200 MW
                        (2008 – 2014)

                                        Luzon
                                        3,600 MW from
                                        2010 – 2014



                                              Visayas
                                              900 MW from
                                              2008 – 2014


                                                        Mindanao
                                                        700 MW from
                                                        2009 – 2014



DEPARTMENT OF ENERGY
                       NPC FINANCIAL STATUS




DEPARTMENT OF ENERGY
   NPC’s FINANCIAL POSITION
         NPC Deficit / Obligations, in Billion


                                                  2003       2004

            Consolidated NPC Deficit             P66.68     P100.02
                                                 ($ 1.2)     ($1.8)

             NPC Outstanding Debt                P523.79    P598.58
                                                 ($9.43)    ($10.77)

             IPP Obligations                     P621.26
                                                 ($11.18)

       * Php55.569:US$1




DEPARTMENT OF ENERGY
   NPC FINANCIAL POSITION
         Profile of NPC/PSALM Obligations, in Million US$


                                          2004             2007            2010

                Outstanding Debt *       10, 086         15,918           23,092
                 Gross IPP Obligations
                   Capacity Fees           6,056          5,537             4,600
                   Fixed O&M               4,854          4,629             4,089
                 Sub-Total               10,910          10,166             8,689

             *Assuming no tariff increase, no privatization, no sale of NPC assets,
             no debt absorption




DEPARTMENT OF ENERGY
   NPC FINANCIAL POSITION
         NPC’s Results of Operations, in Billion Pesos



                       15
                       10
                         5
                         0
                        -5
                       -10
                       -15
                                     operating income/loss    net income/loss
                       -20
                       -25
                       -30   1997       1998         1999       2000            2001      2002
                              1997        1998         1999        2000            2001      2002




DEPARTMENT OF ENERGY
   NPC FINANCIAL POSITION
         Operating Income / Net Income
         I. ACTUAL OPERATING INCOME/NET INCOME (1996 – 2003), in Billion Pesos
                        RESULTS        1996          1997           1998             1999
               OPERATING INCOME/
                    (LOSS)            13.32          11.62         6.91             8.49
                       NET INCOME/
                         (LOSS)
                                      5.54           3.05          (3.62)           (5.95)

                        RESULTS        2000          2001           2002             2003
               OPERATING INCOME/
                    (LOSS)            5.44           6.84          (2.36)        (19.25)
                       NET INCOME/
                         (LOSS)
                                     (12.97)        (10.38)       (24.66)        (113.23)

         II. PROJECTED OPERATING INCOME/NET INCOME (2004 -2007), in Billion Pesos
                        RESULTS        2004          2005           2006             2007
              OPERATING INCOME/
                   (LOSS)            (44.51)        (45.54)       (49.05)        (50.36)
               NET INCOME/ (LOSS)    (114.60)       (85.92)      (102.26)        (111.78)


DEPARTMENT OF ENERGY
   NPC FINANCIAL POSITION
         Historical Effective Rates of NPC, P/kWh



                       4.0
                       3.5
                       3.0
                       2.5
                       2.0
                       1.5
                       1.0                                   Actual Cost
                                                             Approved
                       0.5
                                                             Rates
                       0.0
                             95   96   97   98     99   00      01         02   03   04


                                                 YEAR



DEPARTMENT OF ENERGY
   NPC FINANCIAL POSITION
           Highlights of NPC Operations

              NPC operations and financial condition was viable & satisfactory
               until end of 1997
              Net loss started in 1998 due to the Asian financial crisis
              Shift from operating income to loss beginning 2002 due to:
               –       Reduced generation rates from P2.7623/kWh to P2.1913/kWh
               –       PPCA fixed at P0.40/kWh starting May 8, 2002
               –       Non-recovery of operating expenses of ineligible IPPs
              NPC to continue incurring operating loss unless reasonable
               recovery of actual operating costs are allowed
              Coal / oil prices increased significantly in the last 5 years



DEPARTMENT OF ENERGY
   NPC FINANCIAL POSITION
         NPC Coal Fuel Cost

                         AVERAGE IMPORTED COAL FUEL COST* PER YEAR
             70

             60

             50

             40

             30

             20

             10

               0
                       1996   1997   1998   1999   2000    2001   2002   2003   2004
                                                    YEAR

               * Masinloc Plant


DEPARTMENT OF ENERGY
   NPC FINANCIAL POSITION
         NPC Fuel Cost

                                 AVERAGE FUEL OIL & DIESEL PRICES
                   20


                                                 F uel Oil
                       15
                                                 D iesel


                       10


                       5


                       0
                            98      99    00     01        02   03   04
                                               YEAR


DEPARTMENT OF ENERGY
   NPC FINANCIAL SITUATION
         Action Plan


           Tariff adjustment
           NPC debt absorption by NG
           Ensure successful privatization of TransCo & Genco assets
           Ensure privatization and management of NPC IPPs
           Provide competitive power rates
                       Introduction of time-of-use tariff
                       Elimination of cross-subsidy between industrial and residential users




DEPARTMENT OF ENERGY
   POWER SECTOR
         Future Key Milestones in Power Industry

                       4.5                              *


                        4                                        *

                       3.5

                        3
                       2.5
                        2    Aug „04    3Q „04       2005     Jan „06    Jul „06    Jul „07    Jul „08   Jul „09



                                        Earliest
                                                              WESM
                                       Probable                                     Supply
                                                            Commercial
                                       Decision                                    Shortage
                                                             Operation
                                       on RORB-                                      (New
                                       TOU rate             Luzon open                           Mindanao
                                                                                   Capacity
                                                              access                               Open
                                                                                   Additions
                                                                                                 Access (?)
                                              Transco                              Needed)
                                                             70% of
                                            Privatization
                                                             GENCO
                                               PBR for       assets         Visayas
                                             Private DUs    privatized       Open
                                                                            Access



DEPARTMENT OF ENERGY
                       OIL INDUSTRY




DEPARTMENT OF ENERGY
   OIL INDUSTRY SITUATIONER
         2003 Crude Imports by Country of Origin
                                         IRAN
                                        24.0 %
                   QATAR                                       RUSSIA

                  4.6 %                                        1.4 %


               SAUDI ARABIA
                 45.8 %




                       YEMEN
                   2.6 %                                        MALAYSIA
                                                                 5.1 %
                                UAE
                               15.3 %
                                                   INDONESIA
                                                    1.1 %



DEPARTMENT OF ENERGY
   OIL INDUSTRY SITUATIONER
         2004 Product Imports Sources




                                        THAILAND




DEPARTMENT OF ENERGY
   OIL INDUSTRY SITUATIONER
         Quick Glance

        Market: 374 players engaged in different downstream activities
                       •   Liquid Fuel Bulk Marketing           54
                       •   Liquid Fuel Retail Marketing        286
                       •   LPG Bulk Marketing                   11
                       •   Terminalling                          3
                       •   Bunkering                            20
        Total demand: 0.317 million barrels/day or 0.36% of the world oil demand
        Supply: current inventory recorded at 14,481 MB (or 50 days supply)
        Prevailing Domestic Prices In Metro Manila:
                       •   Unleaded Gasoline         P25.35 – P26.38 / liter
                       •   Kerosene                  P20.14 – P21.58 / liter
                       •   Diesel                    P19.90 – P20.75 / liter
                       •   LPG (11kg)                P331 – 369




DEPARTMENT OF ENERGY
   OIL INDUSTRY SITUATIONER
         Market Share of Oil Majors vs. New Players

                                 4.3%                                           14.1%
                                16MBCD                                          45 MBCD
                 34.5%
                                                                    31.7%
               131MBCD
                                                                   101MBCD
                            39.1%                                              33.0%
               22.1%       147MBCD                                            106MBCD
             83MBCD                                                   21.2%
                                                         10.2%      68MBCD
                                                       34 MBCD                                         13.6%
                                                                                                      44.5MBCD
             1998 – 377 MBCD                                       2002 – 320 MBCD
                                           33.5%
                                                                                            32.9%
                                          110MBCD
                                                                                          107.6MBCD
                                                       34.7%                                            37.3%
                                                      114MBCD                                       122MBCD
                                            21.6%                                            16.3%
                                           71MBCD                                          53.3MBCD


                                          2000 – 329 MBCD                                 1Q ‟04 – 328 MBCD


                       Petron    Caltex       Shell       Others


DEPARTMENT OF ENERGY
   OIL INDUSTRY SITUATIONER
         Oil as a Percentage of Power Mix



                       25

                            20.28    20.97
                       20


                       15                     13.72
                                                      12.9

                       10


                       5


                       0
                            2000
                              1        2001
                                       2       2003
                                                3     2004
                                                       4




DEPARTMENT OF ENERGY
   OIL INDUSTRY SITUATIONER
         Oil as a Percentage of Energy Mix



                       50
                            44.7
                                      42.9
                                              38.7   37.4
                       40


                       30


                       20


                       10


                       0
                            2000
                              1        2001
                                       2      2003
                                               3     2004
                                                       4




DEPARTMENT OF ENERGY
   OIL INDUSTRY SITUATIONER
         Sectoral Oil Consumption, 2003 in MMBFOE



                           Agr i cul t ur al
                                               Ot her s       I ndust r i al
       Commer ci al               2%                                                    Air
                                                 1%               14%          Wate r
            7%                                                                  7%      3%


  Resi dent i al
       8%


                                                                                              Road
                                                                                              90%



                                               T r anspor t
                                                    68%



                       Source: DOE, Overall Energy Balance Table


DEPARTMENT OF ENERGY
   OIL INDUSTRY SITUATIONER
         Motor Vehicle Classifications

                                     MV CLASSIFICATION     2002        2003      % Increase /
                                                                                  Decrease
                                     Private             3,274,316   3,389,022      3.50
                                     Government           58,142      68,437        17.71

                                     Diplomatic           2,904       2,816         (3.03)
                                     For-Hire            851,145     830,842        (2.29)
            For-Hire   Tax-Exem pt   Tax Exempt           1,166       1,155         (0.94)
              19%          0%
                                     TOTAL               4,187,673   4,292,272      2.50
 Diplom atic
     0%

       Gov't.
        2%




                                     Private
                                      79%



DEPARTMENT OF ENERGY
   OIL INDUSTRY SITUATIONER
         Dubai Crude Prices / Forex, March 1984 – Aug. 2004
    US$/Barrel                                                                                P/$1

                                                                               20 Aug. 2004
                                   Oct 1990                        Oct 2000     41.26$/bbl
                                  31.52$/bbl                      30.52$/bbl   55.76P/1US$
                                 27.75P/1US$                     48.36P/1US$




                       Dubai, $/bbl    Jan 17, 1991
                                       Desert Storm




                                                 Forex, P/1US$




DEPARTMENT OF ENERGY
   DOWNSTREAM OIL INDUSTRY
         Oil Price Status

        International oil prices hit all-time high
               – Steep demand in China and India due to increased economic activities
                       • Decreasing spare production and refining capacity
               – Speculative trading activities rather than supply and demand fundamentals
                       • Terror alerts in the US
                       • Unresolved tax problems between Yukos and the Russian government
                       • Sabotage on Iraqi pipelines

        Government has no control over the international oil price surge
               – Price rather than a supply problem
        Government has no resources to subsidize oil prices




DEPARTMENT OF ENERGY
   OIL INDUSTRY SITUATIONER
         Comparative Pump Prices, in Peso / Liter

                  As of August 20, 2004

                                          Unleaded Gasoline     Diesel
                                             Pump Price       Pump Price
               Hongkong                         85.87           50.38
               South Korea                      65.82           41.77
               Singapore                        47.83           29.69
               New Zealand                      46.44           24.95
               Australia                        44.03           43.18
               Cambodia                         36.18           24.60
               Thailand                         28.55           19.65
               US                               27.59           26.85
               Philippines                     26.03            20.53

DEPARTMENT OF ENERGY
   OIL INDUSTRY SITUATIONER
         International Prices / Forex

                       6 0 .0 0

                       5 5 .0 0

                       5 0 .0 0

                       4 5 .0 0

                       4 0 .0 0

                       3 5 .0 0

                       3 0 .0 0                                                         Dubai $/ bbl
                                                                                        Unleaded MOPS, $/ bbl
                       2 5 .0 0
                                                                                        Diesel

                       2 0 .0 0
                                  2003   Jan.   Feb   Mar   Apr   May   June   July   Aug.   Aug.      Aug.   Aug.
                                  Ave    04                                           2-19       18     19     20




DEPARTMENT OF ENERGY
   OIL INDUSTRY SITUATIONER
         Local Oil Price Increases vs. Crude Oil & Forex Adjustment, in Peso / li

         28
         26                                                                                         Aug 04 vs Mar 99
         24                                Unleaded Gasoline                                               133% inc
         22
         20
          18
          16
          14
          12
                                                     Diesel                                               160% inc
          10
            8
            6
            4
                                                                                                          398% inc
            2                                        Dubai                                           Jul 04 vs Feb 99
            0
                A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A
                  2000                      2001                      2002                      2003                      2004
     1999
DEPARTMENT OF ENERGY
   DOWNSTREAM OIL INDUSTRY
         Comparison of Industry Conditions, Pre- & Post Deregulation

           Regulated environment :                             Deregulated Environment:
                  –    Only three companies in operation;         –   Entry of new players; All direct
                       All are refiners                               importers
                  –    Practically all supplies were locally
                                                                  –   Clean Air Act requires importations
                       sourced, with refinery utilization
                       reaching more than 85%                         of higher qualify fuels the quality of
                                                                      which local refiners cannot meet
                  –    Thermal power plants (Sucat,
                       Malaya, Tegen) were in full operation      –   Decrease in the demand for bunker
                       hence the higher demand for bunker             fuel, following decommissioning of
                       fuel                                           thermal plants which modified the
                  –    Demand mix similar to                          demand mix to favor importation of
                       hydroskimming yield of Dubai which             lighter crude
                       is a heavy crude                           –   No OPSF, No subsidy
                  –    Government Subsidy (OPSF) to
                                                                  –   Power of Choice for consumers
                       stabilize prices
                  –    Guaranteed return of 6-10%                 –   No guaranteed return




DEPARTMENT OF ENERGY
   OIL INDUSTRY SITUATIONER
         Projected Revenue from Proposed Tax Measure @ Additional P 2/li




DEPARTMENT OF ENERGY
   OIL INDUSTRY SITUATIONER
         Petroleum Excise Tax Rates, Selected ASEAN Countries


        COUNTRY                PARTICULARS             TAX            TAX BASE               PESO
                                                       RATE                                EQUIVALENT
     Cambodia           Petroleum products             20%    “ex-factory selling price”
                                                              Imported goods - CIF Value
                                                              inclusive of Customs Duty
     Indonesia          Kerosene                       10%    Selling price
                        Gasoline/Benzene               10%    Selling price
                        Other crude oil distillation   10%    Selling price
                        products more easily
                        evaporating than kerosene

       Source: National Tax Research Center




DEPARTMENT OF ENERGY
   OIL INDUSTRY SITUATIONER
         Petroleum Excise Tax Rates, Selected ASEAN Countries



         COUNTRY                 PARTICULARS        TAX RATE               TAX BASE              PESO
                                                                                               EQUIVALENT

    Lao PDR             Gasoline (super)              23%      Import cost for import
                                                               goods
                        Gasoline (Normal)             20%
                        Diesel                        10%
                                                               Factory cost for domestic
                        Aviation gasoline             10%
                                                               products
                        Lubricant, hydraulic oil,     2%
                        grease & brake oil
    Malaysia            Petrol                      RM 0.58    Per liter                    P8.59 per liter

    Myanmar             Motor Fuel                   170%      Sale of locally- mfd goods


       Source: National Tax Research Center




DEPARTMENT OF ENERGY
   OIL INDUSTRY SITUATIONER
         Petroleum Excise Tax Rates, Selected ASEAN Countries

         COUNTRY              PARTICULARS               TAX RATE          TAX BASE      PESO
                                                                                      EQUIVALENT
      Singapore         Premium                           $ 0.44    Per liter        P14.36/liter
                        Intermediate                      $ 0.41    Per liter        P13.33/liter
                        Regular                           $ 0.37    Per liter        P12.08/liter
      Thailand          Unleaded Benzene                 Bt 3.585   Per liter        P 4.92/liter
                        Diesel >0.25% sulfur content     Bt 2.315   Per liter        P 3.18/liter
                        Diesel <0.25% sulfur content     Bt 2.215   Per liter        P 3.04/liter
                        LPG                              Bt 2.17    Per Kg           P 2.38/Kg
                        NGL                              Bt 3.15    Per liter        P 4.32/liter
      Vietnam           Gasoline of all kinds naphtha     15%       Selling price
                        reformate component and
                        other components for
                        blending petrol

       Source: National Tax Research Center




DEPARTMENT OF ENERGY
   OIL INDUSTRY SITUATIONER
         Philippine Petroleum Excise Tax Rates, Selected Petroleum Products


                                          PRODUCT             TAX RATE   TAX BASE

                       Lubricating oils and greases            P 4.50     Per liter

                       Processed Gas                           P 0.05     Per liter

                       Leaded premium gasoline                 P 5.35     Per liter

                       Unleaded premium gasoline               P 4.35     Per liter

                       Aviation turbo jet fuel                 P 3.37     Per liter

                       Kerosene                                P 0.60     Per liter

                       Diesel fuel oil                         P 1.63     Per liter

                       Liquefied petroleum gas                 P 0.00     Per Kg

                       Bunker fuel oil                         P 0.30     Per liter

                       Source: National Tax Research Center




DEPARTMENT OF ENERGY
   DOWNSTREAM OIL INDUSTRY
         Oil Deregulation At Work

        Deregulation considered as a success in view of:
               – Increased players in the market providing better competition
               – Increased new investments in bulk & retail businesses
               – Better ancillary services
               – Wider access of petroleum products outside Metro Manila
               – Enhanced consumers power of choice
        LPG safety standards need further strengthening through legislative
             measures
               – To give more teeth to implement sanctions to violators
               – To establish safety standards for consumer protection




DEPARTMENT OF ENERGY
                ENERGY INDEPENDENCE
                      AGENDA




DEPARTMENT OF ENERGY
   ENERGY INDEPENDENCE
         Primary Energy Mix, 2002 vs. 2003



             Primary Energy Mix, 2002                        Primary Energy Mix, 2003

                                                                    Local Oil Nat Gas
             Other RE        Hydro                                              6% Local Coal
                                     Geo                              2%
               31%            5%                       Im p. Coal                     2%      Hydro
                                     7%
                                                           9%                                 4%
    Coal
     2%                                                                                        Geo
                                                                                               9%
      Gas                                  Im p. Oil   Im p. Oil
      5%                                     40%                                         Other RE
                  Oil                                    38%
                        Im p. Coal
                  2%                                                                       30%
                            8%

      Total Energy: 250.8 MMBFOE                         Total Energy: 268.16 MMBFOE
      Indigenous Energy Level: 52%                       Indigenous Energy Level: 53%



DEPARTMENT OF ENERGY
   ENERGY INDEPENDENCE
         Power Mix, 2002 vs. 2003



            Primary Power Mix, 2002                    Primary Power Mix, 2003

                        Oil-Based                                   Oil   Gas CC
                                                           Diesel                  Coal
                            13%           Coal                      3%
                                                            10%             2%
       Nat Gas                            33%                                      31%
                                                 Nat Gas
         18%
                                                  12%

                                                   Hydro
                                                    15%                               Geo
                Hydro               Geo                                               27%
                 15%                21%



         Renewable Power Level: 36%                   Renewable Power Level: 42%




DEPARTMENT OF ENERGY
   ENERGY INDEPENDENCE PACKAGE
         5-Point Plan


             1. Increase reserves of indigenous oil and gas
             2. Aggressively develop renewable energy
                       potential such as biomass, solar, wind and
                       ocean resources
             3. Increase the use of alternative fuels
             4. Form strategic alliances with other countries
             5. Strengthen & enhance energy efficiency and
                       conservation programs



DEPARTMENT OF ENERGY
   ENERGY INDEPENDENCE PACKAGE
         (1) Increase Oil & Gas Exploration & Production Activities



        Intensive promotion of oil &
             gas exploration
               – PCR-1 launched in August
                 2003 offering 46 contract areas
               – 2 blocks bidded by BHP
                 Billiton, Amerada Hess &
                 Occidental Petroleum
               – PCR-2 to be launched in 2005
        More investments expected to
             be generated if Supreme Court
             reconsiders Mining Act ruling




DEPARTMENT OF ENERGY
   ENERGY INDEPENDENCE PACKAGE
         Increase Oil & Gas Exploration & Production Activities


        Strengthen Philippine National Oil Company to take the lead in
             the development of indigenous energy sources
               – PNOC Energy Development Corp. (PNOC-EDC) to increase
                 geothermal capacity and become a geothermal world leader
               – PNOC Exploration Corporation (PNOC-EC) to be strengthened to
                 increase new oil & gas discoveries
               – PNOC Petrochemical Dev‟t. Corp. to play a key role in the
                 development of the petrochem industry
               – PNOC Shipping & Transport Corp. to modernize fleet thru strategic
                 alliances with the private sector to bring fuel to demand centers




DEPARTMENT OF ENERGY
   ENERGY INDEPENDENCE PACKAGE
         (2) Renewable Energy Development


        To be the world‟s leader in
             geothermal energy
               – Active promotion of geothermal
                 exploration through Geothermal
                 Bid Round
                       • 10 prospective geo sites with
                         300 – 510 MW potential
                         capacity
                       • Bidding extended to November
                         2004
                       • 4 Japanese, 1 American firms
                         interested to bid




DEPARTMENT OF ENERGY
   ENERGY INDEPENDENCE PACKAGE
         Renewable Energy Development


        To be the largest wind power
             producer in SEA
               – Launched the first ever wind
                 investment kit for 16 wind power
                 areas with 345 MW potential
                 capacity in June „04
               – Groundbreaking of Northwind‟s
                 25MW Wind power project in
                 Bangui, Ilocos Norte in April „04
               – Inaugurated the first commercial
                 1.1 MW wind-diesel hybrid
                 project in Batanes in Aug. „04




DEPARTMENT OF ENERGY
   ENERGY INDEPENDENCE PACKAGE
         (3) Alternative Fuels – Natural Gas as a Fuel of Choice

      Infrastructure development
             – BatMan 1 & spur lines by 2007
             – LNG Terminal by 2008
      Power Sector
             – Conversion of existing and
               decommissioned power plants
             – Construction of greenfield power plants
      Transport Sector
             – Commercial operation of CNG buses
                       • CNG buses to start plying major routes
                         of Manila to Laguna by 1Q „05
                       • Local bus operators to sign purchase
                         contracts for 140 units of CNG buses
                         from China by Sept. „04
                       • Establish Mother-Daughter station by
                         1Q „05
      Industrial
             – Introduction of combined heat & power
               systems by 2007

DEPARTMENT OF ENERGY
   ENERGY INDEPENDENCE PACKAGE
         Alternative Fuels – Biofuels for Transport


        Acceleration of the Coco Bio-Diesel Program
               – Memo Circular 55 to utilize coco-based diesel on government
                 vehicles signed in Feb. „04
               – Program officially launched in April „04
               – Commercial utilization in July „04
        Development of Ethanol as gasoline blend
               – Cooperation with Thailand
               – One major oil company willing to support
               – Support from the Dept. of Agriculture & Sugar Planters
                 Association of the Phils. crucial




DEPARTMENT OF ENERGY
   ENERGY INDEPENDENCE PACKAGE
         (4) Forging Strong Strategic Alliances


        Cooperation with Thailand for possible use of Subic as
             regional storage facility
        Joint development efforts on upstream exploration with
             neighboring countries
        Russia as a new oil supplier
        Australia, China and Indonesia as primary coal suppliers




DEPARTMENT OF ENERGY
   ENERGY INDEPENDENCE PACKAGE
         (5) Strengthen Energy Efficiency & Conservation Programs


       DOE to push for mandatory
            implementation of nationwide
            energy efficiency & conservation
            program
              – CNG for transport buses
              – Biofuels as mandatory fuel
                blends
              – Expand scope of energy labeling
                to other appliances, vehicles,
                electrical devices & equipment
              – Shift to energy efficient lighting
                in residential, commercial &
                industrial establishments


DEPARTMENT OF ENERGY
   ENERGY INDEPENDENCE PACKAGE
         Efficiency & Conservation


      National Energy Efficiency and Conservation Program to be launched
           on 25 August 2004
             – To help mitigate impact of rising oil prices
             – To reduce expenditures on fuel and power
             – To contribute to environment protection program
      Fuel Efficiency & Conservation Program
             – Voluntary Agreements (e.g., anti-idling campaign, carpooling, carless days)
             – Partnership with leading fast food chains, ecozones, industries, companies
             – Energy Labeling & Efficiency Standards (e.g., fuel efficiency rating labels in
               auto dealers showroom)
             – Energy Audits & Demand Side Management
             – Mandatory reduction of fuel consumptions among government agencies


DEPARTMENT OF ENERGY
                       LEGISLATIVE AGENDA




DEPARTMENT OF ENERGY
   LEGISLATIVE AGENDA
         Towards Achieving Energy Independence

        Legislative measures critical to the country‟s thrust of energy
             independence
               – TransCo Franchise Bill
                       • Enhancement of value of transmission assets to potential concessionaires
               – Natural Gas Bill
                       • Promotion of nat gas as a secure, stable and clean source of energy
                       • Promotion of competition by liberalizing entry and fair trade measures
               – Renewable Energy Bill
                       • Promotion of RE resources through the provision of incentives
                       • Preferential treatment in terms of interconnection, dispatch
               – LPG Bill
                       • Provision of more stringent safety standards
                       • Provision of stringent penalty / sanctions to violators
               – Alternative Fuels Utilization Bill
                       • Promotion of wider utilization of alternative fuels

DEPARTMENT OF ENERGY
                       CONCLUSION




DEPARTMENT OF ENERGY
   CONCLUSION
          Energy reforms sustain economic growth
                 –     Market-based environment (Oil Deregulation, WESM)
                 –     Increased investment and job opportunities (Privatization, IMC)
                 –     Promote level playing field (Open Access)
                 –     Improved efficiencies and services (PBR, Systems Loss Reduction)
                 –     Power of choice for consumers (Retail Competition, LPG
                       Enforcement Bill)

         On Power:
          Government does not have the resources to subsidize power and fuel costs nor
               to build new power plants, refineries & other facilities
              Private sector must be encouraged to build new & more efficient energy
               infrastructure
                 –     Power generation rates have to reflect true cost to attract new investments
                 –     Under EPIRA, NPC can no longer contract new PPAs
              Power reforms take time but we have to act now to address the urgent power
               requirements

DEPARTMENT OF ENERGY
   CONCLUSION
       On Downstream Oil Sector:
        International oil price volatility is beyond government‟s control
        There is an oil price crisis NOW. Government must act immediately
             and implement short term measures (energy conservation) & long
             term (energy independence) solutions


       On Energy Independence:
        Energy independence can only be achieved through predictable
             energy policy promoting level playing field
                       Clear & transparent policy direction on the part of the government
                       Consistency in policy among the three branches of government
                       Continuity in policy direction since energy projects have long gestation
                       period
        Implementation of critical and strategic energy infrastructure are key
             to energy independence (Natural Gas & Renewable Energy Bills)

DEPARTMENT OF ENERGY

				
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