Bernardo M. Villegas
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AES Key to Global Competitiveness

          In many measures of global competitiveness, the Philippines has been ranking very poorly for several years now.  A major reason for this inferior performance is the low productivity of the various economic sectors, whether in agriculture or industry.  In this bleak outlook, what really sticks out like a sore thumb is the very high cost of electricity.  In surveys after surveys on global competitiveness, the high cost of electricity has been cited as a real liability of the Philippines in its efforts to attract Foreign Direct Investments.

          Thanks to AES, one of the largest energy enterprises in the United States, there is hope that the Philippines can do better in improving overall productivity, reduce electricity costs in the  long run and attract higher FDIs in the medium term.  In fact, its investing $1 billion in 2008 to purchase and rehabilitate the Masinloc coal-powered plant already did much to increase FDIs and attract greater attention in the foreign investment community to the opportunities in the energy sector of the country.  Its undeniable success in its first venture in the country is already encouraging its owners to invest another $1 billion in the Philippines within the next few years.

          AES, operating in 29 countries world wide and employing a total of 27,000 workers, seized the opportunity in 2008 to buy an aging and inefficient power plant from the Philippine Government, a most fortunate move towards privatization.  Considering that 2008 saw the beginning of the Great Recession, whose deleterious effects all over the world have not yet disappeared three years down the road, it was especially daring for AES to plunge into the Philippine waters.  The reason for that investment move is captured in a document that was submitted as nomination for the prestigious EEI Edison Award in the U.S. (which AES Philippines won):  "While others saw a struggling facility that had seen much better days, we saw an opportunity to bring in our knowledge to transform the facility into a plant that could help the Philippines address the shortfall in its energy supply and meet its growing requirements in an efficient and sustainable manner.  We saw this as an opportunity to use our expertise to further future growth for the company, as well as benefit our stakeholders.  We saw an opportunity to have a positive economic impact on the immediate community, whose people will benefit from the jobs we will provide and the community projects we will undertake, as well as the larger community, which will benefit from gaining access to reliable, affordable, and sustainable energy. We would also help support the developing private power sector by improving the reliability, environmental and safety performance of the Masinloc Power Plant."

          The performance of AES over the last three years demonstrated that these words go much beyond motherhood statements.  Drawing heavily on their global knowledge resource, its local management team—a combination of expatriates and Filipino professionals--undertook a series of operational improvements to expand capacity and address inefficiencies that hampered the plant.  Prior to the Masinloc Plant's turnover to AES, its maximum net generation was 433MW on a nameplate plate capacity of 600MW.  The team set out to improve the overall efficiency of the plant, achieving a dramatic turnaround in record time.  Its initial maximum plant output of 433MW improved to 630MW, while each individual unit's minimum load was reduced from 150MW to 75MW, allowing the plant to burn less fuel in the off peak hours when the system has surplus power.  Beyond expanding capacity, efficiencies improved, with overall plant efficiency growing by 13 percent.  This also meant that the amount of fuel oil used for start-up was reduced.  Significant drops in the heat rate meant efficiency gains.  Moreover, the heat rate dropped over 1500 points from the time AES Philippines took over the facility.  Significant gains were recorded for turbines, 500 points; boilers, 500 points; condenser system repairs, 250 points; and the steam and water system repairs, 250 points.

          Over and above the impressive productivity gains, AES Philippines helped to reduce the carbon footprint of its operations.  Thanks to the system improvements, AES Masinloc avoided releasing 140,000 tons of carbon emissions in 2010, even while it efficiently met the needs of the Luzon grid.  To reduce carbon emissions, the company reduced diesel fuel usage for startups and daily operations by 70 percent.  It cut chemical usage by over 60 percent.  It shortened the coal unloading period from 8 days to an average of 2.8 days and at the same time eliminated the additional MWhr of in house load and additional demurrage fuel usage by the ship. There was also a significant reduction of dust and water emissions.  Finally, the rehabilitation of the coal storage dust control systems reduced coal dust emissions, benefiting the local communities who used to complain about foul fugitive coal pile combustion emissions and heavy sulfur emissions.

          The initial entry of AES into the Philippine energy sector has indeed conferred many benefits to the Philippine economy that is trying hard to accelerate its GDP growth to the 7 to 9 percent already attained by many of its neighbors. The AES Masinloc plant has improved overall efficiency in the energy sector, helped the Luzon grid to cope with the rapid increase in demand for electricity in the last three years, reduced the carbon footprint, and has acted as magnet to other potential foreign direct investors.  In fact, it was providential that President Benigno Aquino III was able to meet top executives of AES in his visit to the U.S. last year.  Thanks to the encouragement given to them by the President, the most immediate increase in FDI will result from its decision to expand its capacity by another 600 MW in the next two to three years.  May the tribe of foreign companies like AES increase.  For comments, my email address is bvillegas@uap.edu.ph.