Power sales key for Manila energy spot market

MANILA, Sept 25 (Reuters) The Philippines should sell its state power assets swiftly if it wants to see a faster drop in power prices, allowing it to attract more investors, the operator of its power spot market said on Tuesday.

The average electricity price in the Philippine spot market has declined slightly against the regulated rate in the market's first year of operations due to the lack of competition, Lassi-Matti Holopainen, President of the Philippine Electricity Market Corp, told Reuters.

Foreign investors have complained of high power costs relative to regional neighbours, as well as unstable supply due to ageing plants.

''The delay in the privatisation really left the market with a situation where it was being implemented, yet there were no sales,'' Holopainen said.

State-run power firms dominate about 70 percent of the 11,396 MW capacity registered for trading in Manila's spot market, resulting in a lack of true competition.

Manila's spot electricity market, the first in a developing country, started operating in July 2006.

''If you look at the price of electricity in the Philippines over the last few years, we are 20 U.S. cents (per kwh) and it has gone up while all other countries have either held steady or has gone up only slightly,'' said Holopainen, 39, a former investment banker and mergers and acquisitions specialist.

''We are the same price as Japan, and so we have done terribly ... In other words we are still in an inefficient monopoly situation but we can get out of it in the next year.'' DELAYED SALES The Philippines is trying to get back on track with its much-delayed power privatisation programme by selling major generating facilities and the main power grid this year as part of a wider fiscal reform.

It wants to sell 70 percent of the 4,337.2 MW generating capacity of state-run power plants by June 2008 at the earliest. The Philippines originally planned to hit that goal in 2002, or six months after the power industry reform law took effect.

In July it sold the 600-MW Masinloc coal-fired power plant northwest of the capital for 0 million to Singapore-based AES Transpower Pte Ltd.

Masinloc was only the ninth of 31 generation facilities the Philippines has lined up for sale. It hopes to sell 3 more with a combined capacity of 1,114 MW before the year end.

It also needs to install private sector players as administrators of its power purchase contracts with independent power producers (IPPs), covering a total 4,221 MW of capacity, as part of the wider energy reform programme.

Supply under these contracts is currently traded in the spot market by the state agency which oversees the sale of state power assets.

Only after these reforms can the Philippines have a retail open access market, in which all consumers are free to choose their respective power supplier.

''If the underlying problem is the lack of competition, the privatisation and the establishment of the independent power producer administrators are both necessary,'' Holopainen said.

''But until that happens, government has to show the political will to see it through. If that does not happen, then we will have problems with the price of electricity, we will have problems with supply,'' he said.

REUTERS DKS PM1806