Energy Independence

a. Increase indigenous oil and gas reserves

The launching of the energy independence agenda pushed for increased activities in the upstream energy sector. A major activity for the year is the conduct of the Philippine Energy Contracting Round (PECR) wherein four oil and gas areas were auctioned. Areas considered include prospective blocks in East Palawan (two areas), Southwest Palawan (one area), and Sulu Sea regions (one area). Under this activity, investors are assured of a transparent and economically-rewarding contracting round with the availability of an updated database on the country's prospective oil and gas basins, as well as the expanding internal energy market and attractive fiscal terms.

Through the aggressive stance in promoting the country's indigenous oil and gas resources through improved contracting schemes, the country has now 22 active service contracts (SC) and one geophysical service exploration contract (GSEC) in the petroleum sector. Of the total, 11 contracts were signed in 2005. Exploration activities of these SCs are expected to an increase the country's petroleum reserves from 481 million barrels of fuel oil equivalent (MMBFOE) to 579 MMBFOE by 2014.

b. Reduce coal imports by 20 percent in ten years

With the goal of reducing the country's coal importation within the ten-year planning period, the development of indigenous coal remains a priority thrust for the energy sector. In view of this, the 2005 coal production was recorded at about 3.10 million metric tons (MMMT), translating to a fuel oil displacement of around 10.94 MMBFOE for the year. Indigenous coal is largely sourced from the operations of Semirara Mining Corporation (Antique) and the output from its open cast operations. The balance was provided by the small-scale and medium-scale underground mining operations in the coal-rich provinces of Zamboanga Sibugay, Cebu, Negros and Albay.

As of December 2005, the country has 35 coal operating contracts (COCs) with development, production and exploration commitments. The improved price for domestic coal triggered the influx of applications for coal concessions.

Moreover, seven coal prospect areas were offered to potential investors during the PECR 2005. The sites are located in Polillo (Quezon), Tagkawayan (Quezon), Calatrava (Negros Occidental), Candoni/Bayawan (Negros Oriental), Gigaquit (Surigao del Norte), Tandag-Tago-Lianga-Bislig (Surigao del Sur) and Malangas (Zamboanga Sibugay).

c. Aggressively develop renewable energy potential

Geothermal

As of September 2005, power generation from geothermal resources reached 7,484.8 GWh representing about 17.7 percent of the total generation displacing about 12.9 MMBFOE.

Under the PECR 2005, 11 geothermal prospects were included for offer, namely: a) Luzon: Daklan in Benguet, Natib in Bataan, Mabini in Batangas, Tiwi in Albay, Montelago in Oriental Mindoro and Sta. Lucia-Iwahig in Palawan b) Visayas: Biliran in Biliran Province, Mambucal in Negros Occidental, Malabuyoc in Cebu and c) Mindanao: Camiguin in Camiguin Island and Amacan in Compostela Valley.

Submission of bid proposals ended last November 2005 and awarding of contracts is expected by June 2006.

Another major investment promotion activity was the country's participation in the World Geothermal Congress in Antalya,Turkey in April 2005. The event which was attended by participants from 83 different countries served as an opportunity for the Philippine energy sector to showcase the country's achievements as a "World Leader in Geothermal Energy" and an investment haven in geothermal as well as other energy resources. The participation of the DOE in various international fora serves as an opportunity to showcase the country's expertise and technology on geothermal development.

Hydropower

The country's hydropower resources contributed 5,801.2 GWh to the country's total power generation mix in 2005. This represents about 10.0 MMBFOE in fuel displacement.

The DOE is currently supervising five ongoing mini-hydro (MHP) projects

• 0.96-MW Cantingas MHP Project in San Fernando, Sibuyan Island, Romblon
• 0.50-MW Hinubasan MHP Project in Loreto, Dinagat Island, Surigao del Norte
• 2.5-MW Sevilla MHP Project in Sevilla, Bohol
• 0.75-MW San Luis MHP Project in San Luis, Aurora
• 1.0-MW Sipangpang MHP in Surigao Sur.

The state-owned PNOC is currently working on the evaluation/conduct of feasibility studies on the following hydroelectric power (HEP) projects:

• 29-MW Timbaban HEP Project in Barangay Maria Cristina, Madalag, Aklan
• 16-MW Villasiga HEP Project in Antique
• 18-MW Sicopong HEP Project in Sta. Catalina, Negros Oriental
• 24-MW Catuiran HEP Project in Calapan, Oriental Mindoro
• 5.6-MW Langogan and 6.8-MW Babuyan HEP Project in Puerto Princesa
• 22-MW Pasil HEP Project in Kalinga

On the other hand, the feasibility studies of the following projects by private proponents are likewise under evaluation:

• 16-MW Sibulan A HEP Project in Davao del Sur
• 24-MW Sibulan B HEP Project Davao del Sur
• 10-MW Magpet HEP Project in Cotabato
• 9-MW Talaingod MHP Project in Davao del Norte
• 40-MW Suwawan HEP Project in Davao City
• 60-MW Tamogan HEP Project in Davao City
• 10-MW Cabulig HEP Project in Misamis Oriental
• 3-MW Dugui HEP Project in Catanduanes
• 0.96-MW Colasi HEP Project in Camarines Norte
• 1.0-MW Sipangpang HEP Project in Surigao del Sur
• 0.2-MW Balutakay MHP Project in Davao del Sur
• 0.6-MW Taytayan MHP Project in Compostela Valley

Wind

The country has taken a major step in its goal of being the leading wind energy producer in Southeast Asia with the commissioning of Northwind's 25-MW wind power project along the Bangui Bay Area in Ilocos Norte. The project has commenced the supply of electricity to about 40.0 percent of the province with the construction of a substation and transmission line system which deliver electricity to the province's local power cooperative.

Another notable project is the 180-kW wind-diesel hybrid plant in Basco, Batanes consisting of three Vergnet 60-kW wind turbines and two 500-kW diesel generators designed to provide uninterrupted power supply to the area. The wind facility proves the feasibility of harnessing wind energy to lessen government subsidy for missionary electrification.

The Wind Contracting Round was launched in March 2005 to promote among foreign and local investors the remaining wind power sites available for development. To provide impetus to this program, several financing assistance windows are made available to investors willing to undertake wind power projects.

Solar

Under PNOC's Solar Homes Systems Distribution Project (the Environmental Improvement for Economic Sustainability Project), a total of 8,944 solar home systems (SHS) has been installed in the target areas. Of the total, 3,967 SHS have been installed from August 2002 to December 2004, while the balance of 4,977 SHS were installed from January to December 2005, mostly in Palawan and Maguindanao.

On the other hand, two solar hybrid projects in Palawan have received ODA funds, namely: the Renewable Energy-based Village Power System in New Ibajay, El Nido which is now providing electricity to 200 households, and the Multi-purpose Pilot PV-Wind Turbines Hybrid System Electrification in the Philippines which is supplying electricity to the fishing village of Sitio Sicud, Brgy. Candawara, Rizal starting third quarter of 2005.

In Cebu, a Belgian Official Development Assistance (ODA) project helped the communities in Pangan island install a 28-kW-peak centralized PV plant for 200 households through the Mini-Grid Solar Electrification Project in Remote Areas which was commissioned in February 2005.

Likewise, the United States Agency for International Development (USAID)-Alliance for Mindanao Off-grid Renewable Energy Program (AMORE) project in Mindanao has energized 227 barangays in the ARMM region for the period 2002 to 2005 using PV battery charging stations (112 barangays), PV solar home systems (112 barangays) and micro-hydro (3 barangays). The first phase of AMORE has energized about 86 barangays in 2004, with the addition of another 20 barangays in 2005. On the other hand, the second phase of the project has energized 27 barangays using PV solar home systems for the period May to December 2005. As a continuing project, AMORE complements the barangay electrification program of the government.

d. Increase use of alternative fuels

The government's demonstration program on the use of natural gas in the public transport sector continues to roll and in fact has been expanded. Through its compressed natural gas (CNG) carrier program which is the Natural Gas Vehicle Program for Public Transport (NGVPPT), policy directives were issued such as D.C. 2005-07-006 "Directing the Enhanced Implementation of the NGVPPT and the Development of CNG Supply and Infrastructure" , Executive Order 290 which provided the institutional framework in the implementation of the CNG program and Executive Order 396 which offered incentives such as the negotiated CNG price of PhP 14.52 per diesel liter equivalent (subject to foreign exchange fluctuation) for the first 200 CNG-fed buses (set to arrive in 2006) for a period of seven years and zero-rated import duty on the acquisition of the 200 completely-built-unit (CBU) CNG buses, NGVs and CNG-NGV industry-related facilities, equipment, parts and components. In addition, 17 China-made CNG of HM Transport, Inc. (4), KL CNG Bus Transport Corporation (12) and CNG Vehicles, Inc. (1) were delivered. Apart from the three bus companies cited, the other bus companies accredited by the government were RRCG Transport System Co., Inc., Paradise Transport Corp., Biñan Bus Line Trans-System Inc., and Greenstar Express, Inc.

To make CNG commercially feasible, the ground breaking ceremony of the country's first-ever CNG mother refueling station was held in Tabangao, Batangas in March 2005. The construction of the said refueling station is already completed as well as its daughter station situated in Sto.Tomas, Biñan, Laguna along South Luzon Tollway.

The entry of natural gas in industries started with Pilipinas Shell Petroleum Corporation's use of the fuel in its refinery during the second half of 2005. The refinery could consume as much as 1.3 BCF on its first year of use of natural gas.

On the development of fuel blends, the following activities were completed for the year:

Coco-biodiesel or Coconut-methyl Ester (CME)

• As of December 2005, at least 59 government agencies with 1,100 diesel vehicles are currently complying with Memorandum Circular 55. The initial respondents of the program experienced a favorable result in their engine performance in terms of increased mileage and improved vehicular emissions. On the bases of these positive results, the DOE will push for the passage of the Biofuels Act of 2005 (Senate Bill No. 2007) which is due for plenary deliberation in the Senate in 2006. Congress has also started the deliberation of House Bill No. 4341 or the Biodiesel Act of 2005 which requires a minimum blend of 1.0 percent biodiesel such as CME among others in all locally refined and imported diesel fuel.
• Flying V, recently introduced the first CME pre-blended diesel in the country under the name B1 diesel or the Envirotek bio-diesel premium. The product launch which was led by President G.M. Arroyo was held in Flying V's service station in Cainta, Rizal on August 11, 2005. As of December 2005, Envirotek bio-diesel premium blend is sold in 34 Flying V stations nationwide and was granted with accreditation to repack and sell CME.

Fuel Ethanol

• President G.M. Arroyo led the groundbreaking ceremony of San Carlos Bioenergy, Inc. in May 2005, the first bioethanol manufacturing plant and power co-generation complex in the country.
• Seaoil's first 10.0 percent ethanol-blended gasoline was launched on August 29, 2005 under the name "E10". It is now available in all Seaoil stations and four Fying V's outlets in Metro Manila and hopes to expand its availability nationwide.

e. Forging strategic alliances with other countries

The country continues to be an active participant in international and regional energy groupings such as the Association of Southeast Asian Nations (ASEAN), Asia-Pacific Economic Cooperation (APEC), and Asia Cooperation Dialogue (ACD). These alliances address common issues in the energy sector to include energy security, energy pricing and energy reforms.

In 2005, the country signed two (2) Memorandum of Agreements (MOAs) with Korea on electrification and the expansion of the Ilijan Power Plant. Likewise, the RP-China-Vietnam Tripartite Agreement was signed for the conduct of seismic studies in the South China Sea.

f. Enhancing energy efficiency and conservation program

For the first half of 2005, the country achieved energy savings of 4.4 MMBFOE (635.3 kTOE) with the onset of the Energy Conservation (EC) Way of Life. Further increases are projected in the second half of the year with significant contributions coming from the energy labeling and efficiency standards program. The program has extended its coverage to luminaire installations, linear fluorescent lamps, household electric fans and televisions, among others, and from the continued intensification of IEC and tri-media campaigns.

The implementation and continuous monitoring of the following executive issuances and fiscal directives to government offices also contributed to the overall energy savings realized by the country:

• Administrative Order (A.O.) No. 126 "Strengthening Measures to Address the Extraordinary Increase in World Oil Prices, Directing the Enhanced Implementation of the Government's Energy Conservation Program" dated August 13, 2005;
• A.O. No. 117 "Providing for Adjusted Official Hours in Departments, Bureaus, Offices and Other Agencies in the Executive Branch, including Government-Owned and Controlled Corporations, for the Months of April and May 2005" ;
• A.O. No. 110 "Directing the Institutionalization of a Government Energy Management Program (GEMP)" dated October 25, 2004; and,
• A.O. No. 103 "Directing the Continued Adoption of Austerity Measures in the Government" dated 31 August 2004.

The year also saw the implementation of the Philippine Efficient Lighting Market Transformation Project (PELMATP), a five-year project that aims to address the barriers to widespread utilization of energy efficient lighting systems in the Philippines. It will cover energy efficient versions of linear fluorescent lamps (standard versus the slim tubes), compact fluorescent lamps (CFLs), high intensity discharge (HID) lamps, ballasts (low loss electromagnetic and electronic), and luminaires.