Philippines' high-flying growth to run out of fuel in 3 years, economist warns

National scientist Raul Fabella means BUSINESS

MANILA - The Philippines is in for a huge letdown if its economy continues to grow by 6 percent for three years straight without adding to its power generating capacity, an economist said on Tuesday.

Raul V. Fabella, a national scientist and former dean of the UP School of Economics, said the Aquino administration must act on this looming power shortage if it wants to attract more foreign direct investments and avoid a reversal of strong growth seen in recent years.

"There has not been a country-wide power crisis in the last 10 years because we have been growing slowly. The power shortage in Visayas and Mindanao is solved now temporarily because of the rains that feed hydroelectric power plants," Fabella told in a phone interview.

But economic growth of 6 percent for three years straight would put a massive strain on the country's "very slim" power reserves, said Fabella, adding that the 6.5 percent growth this year is not sustainable if nothing is done to address this problem.

The World Bank recently projected that the Philippines would grow above 6 percent until 2015.

"Right now, lucky for us, we are not feeling the shortage because we are attracting the wrong crowd, that is, portfolio investments -- which are not here for the long-haul -- and not foreign direct investments (FDIs). We are growing because of household consumption, not because of factories," Fabella said.

"But what if manufacturing starts to pick up, as is the goal of the government? Can we power up all those factories? No. There aren't much greenfield power plants being put up, not enough capacity to boost reserves by 2016," he said.

The government is selling power plants to private operators and refurbishing these to increase capacity. In the private sector, the Metrobank Group is building a coal power plant in Cebu and another one in Iloilo, while the Aboitiz Group is constructing a small hydroelectric power plant in Davao.

Fabella however said these are just incremental and may not be enough to fuel manufacturing hubs. Because of the cost of power and the questionable supply, the Philippines is not attracting the right kind of investments, he said, adding that the country sorely needs foreign investors that are in the traded goods sectors, meaning factories that export products and generate jobs.

"But foreigners are thinking 10 times about this. First our power situation is unattractive. Second, our currency is strong so they would lose money once they sell abroad," Fabella said.

To fast track the construction of power facilities, President Benigno Aquino must push the emergency button, the economist said.

"But Malacanang is skittish about declaring a power emergency. But the time to construct power facilities is now so we can have something up and running by 2016 when Aquino steps down," Fabella said.

By declaring an emergency, the government can easily deploy funds to build these power plants, or adopt a build-operate-transfer (BOT) scheme, just like in water for Metro Manila, so that the burden of running these would not rest on the state.

Fabella said would also benefit the country since constructing more power plants requires the importation of more capital equipment, in turn bringing up demand for dollars and tempering the peso's appreciation. Building a gigawatt of power capacity requires $1.5 billion.

The government can also strike while the iron is hot and borrow for future use, he said. "We have to act on it now and seize the moment to get those FDIs. China is having problems, as well as India and Indonesia is slowing. Vietnam too. The Philippines has to position itself and make itself attractive."

"This government should be forward-looking and should be signing contracts today," he added.