MANILA - The Philippines is to renew efforts to encourage use of compressed
natural gas (CNG), a relatively clean and cheap fuel for taxis, buses and other
forms of transport, with officials promising to build by 2011 critical
infrastructure and delivery stations.
But a contractual arrangement with multinational energy giants Shell and
ChevronTexaco that limits access to tapped supplies raises doubts over whether
the government's plans will come to fruition any time soon.
The Philippines is heavily dependent on imported oil - with over 95% of the
country's transport now running on the fuel - and has been particularly hard
hit by rising global fuel prices.
Failure from as far back as early 2000 to realize government plans to use more
natural gas in the country's energy mix has undermined economic competitiveness
and had an adverse effect
on the national standard of living. The retail price has jumped by nearly 50%
this year, contributing to an inflation rate of 12.5% in August.
Other countries in the region that have increased their use of natural gas have
saved on their energy import bills and created spin-off industries - helping to
create economic opportunities and jobs. Despite rich local supplies, the
Philippines has over the past eight years a regional laggard in making that
transition.
Use of CNG has surged in Thailand, from an estimated 82 natural gas-fueled
vehicles in 2000 to more than 70,000. The country aims to have more than
100,000 this year, while PTT Pcl, Thailand's biggest energy company, plans to
invest $954 million in the next five years on its infrastructure to expand its
supply of natural gas for vehicles, Bloomberg reported last month, quoting a
Post Today that cited a company executive. The country now aims to manufacture
and export CNG-fueled vehicles.
Malaysia has 35,000 CNG-fueled vehicles, mostly taxis, on its roads. In
comparison, the Philippines boasts a mere 17 CNG-run buses and no gas-powered
automobiles six years after prioritizing the use of natural gas for public
transportation.
Industry sources estimate the country has anywhere between 25.7 trillion to
39.5 trillion cubic feet of untapped natural gas. Those stores encouraged
President Gloria Macapagal-Arroyo's policy commitment to use more gas to shore
up national energy security and bring down transportation costs. But her
interventionist pricing policies have thwarted those designs and put her
government at loggerheads with Shell, the multinational energy company which
led the development of the country's main CNG pipeline and first delivery
station.
To promote natural gas use for public transportation, Arroyo's government asked
Shell for a "bare minimum" price in an appeal to the company's corporate social
responsibility drive. A CNG-run car gets the same fuel economy as its petrol
equivalent but emits 80% less smog-forming nitrogen oxides. According to the
World Bank, the financial cost of air pollution in the Philippines' four main
cities of Manila, Baguio, Cebu and Davao amounts to over $400 million each
year, mostly on medical expenses and missed work days due to pollution-related
illnesses.
Shell arrived at a "break even" price of 15.42 pesos (US$0.33) per liter last
year, much cheaper than the prices elsewhere in the region. In Singapore, CNG
ranges from the equivalent of 35 pesos to 42 pesos per liter. Officials
estimated that bus operators could save between 250,000 pesos to 1 million
pesos in annual fuel costs per vehicle if they switched from using diesel. In
that direction, the government planned by 2005 to unveil the country's first
CNG station and to have five more in place by 2009.
The commissioned companies, including Shell, missed several deadlines to finish
the project, which after three years of delays was finally opened earlier this
year. Foreign investors and private transportation operators keen to tap the
cheaper fuel were then dismayed to learn that the supplies were reserved only
for select local bus operators that had invested in the technology.
Limited access
Critics say the source of the problem is the contract between the government
and private developers of the the $2 billion Malampaya natural gas project,
located in deep waters off the northwest coast of Palawan island. First
discovered in 1989 and the largest natural gas source in the country, the field
was declared a commercially viable find in 1998 and operations were started in
2002.
The Malampaya consortium that controls the fuel's production and distribution
is led by Shell Philippines Exploration (SPEX) and includes the state-owned
Philippine National Oil Company and ChevronTexaco Philippines Inc. Some critics
allege the consortium, consisting of big crude oil producers, have
intentionally restricted CNG production and distribution because of the
government imposed price caps.
They point in particular to delays in the opening of the first CNG station,
originally scheduled for 2005 but not completed until earlier this year. "First
Shell said there was a problem in the compressor and then there was a problem
in the safety features," said Roberto Torres, an aggrieved bus owner who
invested 30 million pesos in gas-fueled buses that have yet to go on the road
due to CNG shortages.
He believes the consortium is loath to supply CNG at prices predetermined
before the surge in global energy prices and are intentionally withholding
supplies from the market. Torres also blames Arroyo's administration for
encouraging investors to proceed with CNG bus purchases based on the
consortium's guarantee that the supply stations would be on-line by June 2005.
Even now the newly opened station is often unreliable or shut down due to
technical glitches, said Cris Rea, manager of HM transport, a CNG bus company.
Other energy companies have expressed interest in investing and building
daughter CNG stations, but the Malampaya consortium has refused access to the
supplies, said one energy consultant who requested anonymity.
Investors such as Energtek, a US company keen to help convert polluting
three-wheeler vehicles to cleaner natural gas, have been turned away despite
the fact the sole CNG station is running at under 10% capacity. Complexities in
the government's contract, known as Service Contract 38, with the consortium
limit the fuel's distribution to a handful of CNG-run buses.
Government consultant Edwin Fernandez of the Land Transportation Franchising
and Regulatory Board said he doesn't understand why the government can't force
the consortium to make the gas more widely available despite the fact that it
is part of the consortium through its Philippine National Oil Company minority
holding.
Arroyo's government has said that its hands are tied due to "technicalities" in
the contract, including complicated definitions of gas sales, purchase
agreements and pipeline operations for the facilities installed upstream from
the point of sale. Richard Behag, CNG project manager of Pilipinas Shell
Petroleum Corp, replied to the complaints by saying that the company invested
heavily in the $2 billion project, which he characterized as the single largest
foreign investment ever in the Philippines.
Behag told Asia Times Online that the consortium must recoup its investments,
which included the development of a 504-kilometer underwater pipeline to
transport the processed gas from the platform to Batangas province.
"That is what we delivered," he said, in reference to the single CNG station.
He declined to discuss proposals for the production of additional stations and
reiterated that the completed station is only meant for select bus operators
participating in the CNG program.
Acknowledging that the one existing CNG station was running at only 10% of its
capacity, he said Shell is reluctant to open the station for other users since
that was not part of its original agreement with the government. Behag also
reiterated that the agreed fixed price of 15.42 pesos per cubic meter of CNG
represented the "break even" point for the venture.
While oil prices in the Philippines have been deregulated since 1998, the
government cap on CNG prices means there is little market incentive for Shell
to expand its operations and distribution beyond its original agreement,
critics and analysts say.
Rather than deregulating CNG prices and encouraging the consortium to expand
distribution, Arroyo's government is to build an alternative 420-kilometer
pipeline that will ensure private user access in Metro Manila by 2011. Energy
undersecretary Mariano Salazar has said that as part of that project the
government plans to establish 21 more CNG filling stations. What he failed to
address is from where the project's financing and technical expertise would
arise.
Joel D Adriano is an independent consultant and award-winning freelance
journalist. He was a sub-editor for the business section of The Manila Times
and writes for Asean BizTimes, Entrepreneur Philippines, Masigasig and People's
Tonight.
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