The Asia Miner

APR-JUN 2019

The ASIA Miner - Reporting Important Issues to Mining Companies in the Asia Pacific Region

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the asia miner • volume 16 • issue 2 13 REGIONAL FOCUS: SE Asia & Indonesia are becoming obsolete in the face of cheaper renewables and the increasing ability of grid operators to turn to a mix of resources that dynamically create reliable and cost-effecঞve systems. In addiঞon to coal being a stranded risk with significant financial implicaঞons per plant, it can reverberate into the wider economy and affect financial stability as many Philippine local banks become entangled on the debt side. The most sensible course of acঞon for San Miguel would be to cancel its controversial coal plans in Negros Occidental. But failing that, the Energy Regulatory Commission and Northern Negros Electric Cooperaঞve (NONECO) should take firm acঞon to ensure that it is the company and not the consumer that bears the cost when it inevitably becomes unable to compete with renewables. The power supply agreement must be rid of pass-through clauses that allow fluctuaঞons in fuel cost and foreign exchange to be unfairly handed down to ratepayers. San Miguel could hedge its fuel and foreign exchange risk at compeঞঞve rates, instead of leaving unsuspecঞng consumers in Negros Occidental in the lurch, unable to manage the risk. This is fundamental economics and it is bad policy to penalise consumers who have no role in risk assessment and management. As things stand today, any addiঞonal costs will be passed along to the consumer without regulatory intervenঞon, and imported coal prices will likely conঞnue to rise, as they have largely done for the past two years. The same applies to foreign exchange risk. Since coal is imported and bought largely in US dollars, in the likelihood that the peso devalues again, it is not San Miguel that will pay. Rather, the conglomerate's mistake will be tacked onto the electricity bills of families and small businesses who can ill afford price hikes. A next step for NONECO would be to ensure that San Miguel offers a fixed price for its power with no allowance made for passing on addiঞonal costs to the public. There is precedent for this. NONECO need look no further than Meralco, which has wisely included similar provisions – a carve-out (curtailment) clause – in its recent deals to protect consumers and industry from high electricity prices. As renewable energy increasingly becomes part of the mix, coal and outdated fossil fuel industries are being le[ in the wake, unable to keep up with new technologies and increasingly compeঞঞve alternaঞves. Since we already have cheaper renewable technology and grid upgrades underway, building new coal plants simply makes no sense in 2019. But it is up to regulators and uঞliঞes to level the playing field and ensure that if companies are foolish enough to pursue this course, the company itself, rather than families and businesses, should bear the risk. Sara Jane Ahmed is an Instute for Energy Economics and Financial Analysis (IEEFA) energy finance analyst. MINING MARKETPLACE Resource Center RESOURCES.MININGMARKETPLACE.COM Download free case studies, white papers, presentations, business forecasts, and much more. All content designed to help mining, aggregates, concrete, and cement industry professionals do business better. Helping You Build Career Success

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