VZCZCXRO1008
OO RUEHKR
DE RUEHML #0423/01 0500645
ZNR UUUUU ZZH
O 190645Z FEB 08
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9782
INFO RUEHBK/AMEMBASSY BANGKOK IMMEDIATE 2631
RUEHBJ/AMEMBASSY BEIJING IMMEDIATE 6314
RUEHEG/AMEMBASSY CAIRO IMMEDIATE 0114
RUEHLM/AMEMBASSY COLOMBO IMMEDIATE 2878
RUEHKA/AMEMBASSY DHAKA IMMEDIATE 2516
RUEHHI/AMEMBASSY HANOI IMMEDIATE 6463
RUEHJA/AMEMBASSY JAKARTA IMMEDIATE 6726
RUEHKR/AMEMBASSY KOROR IMMEDIATE 0469
RUEHKL/AMEMBASSY KUALA LUMPUR IMMEDIATE 0814
RUEHPE/AMEMBASSY LIMA IMMEDIATE 0390
RUEHNE/AMEMBASSY NEW DELHI IMMEDIATE 2386
RUEHPF/AMEMBASSY PHNOM PENH IMMEDIATE 0228
RUEHGP/AMEMBASSY SINGAPORE IMMEDIATE 7336
RUEHIN/AIT TAIPEI IMMEDIATE 1614
RUEHKO/AMEMBASSY TOKYO IMMEDIATE 3471

UNCLAS SECTION 01 OF 04 MANILA 000423 
 
SIPDIS 
 
SIPDIS 
 
FOR JOHN WILSON, USAID/ANE/TS, MARY MELNYK, USAID/ANE/SPO, CALISTA 
DOWNEY, USAID/ANE/EAA, GORDON WEYNAND, USAID/EGAT/I&E/E, BILL BREED, 
USAID/EGAT/ESP/GCC, WINSTON BOWMAN, USAID/RDMA, STATE FOR OES 
PASS EXIM, OPIC, AND USTR 
 
E.O. 12958: N/A 
TAGS: ECON ENRG PGOV EAID TRGY SENV RP
SUBJECT:  "$100 per Barrel: Crisis or Opportunity?"  The 2008 
Philippine Energy Summit 
 
 
¶1.  Summary:  Against the backdrop of rising oil prices and prompted 
into action by President Arroyo, the Philippine Department of Energy 
convened an Energy Summit to solicit stakeholder inputs into 
developing government priorities for the sector.  Despite being 
organized on a short notice, the Summit succeeded in gathering over 
2,500 sector stakeholders to discuss, debate, and map out immediate, 
short-, medium- and long-term solutions to address the impact of oil 
prices and other pressing sector issues, including energy security 
and sustainable, climate-friendly energy development.  Key 
initiatives discussed included lowering power costs (Philippines 
currently has some of the highest electricity costs in the region), 
promoting renewable energy, promoting energy independence, 
efficiency and conservation, social mobilization, and finding ways 
to lower fuel costs at the pump. The Summit also provided 
broad-based and timely input to the Philippine Department of 
Energy's development of a 20-year Philippine Energy Plan.  This 
cable presents Summit highlights, including key proposals from 
sector stakeholders and a brief analysis of those proposals in the 
light of the current energy situation.  End Summary. 
 
-------------------------------------- 
REACHING THE SUMMIT AND SUMMIT PROCESS 
-------------------------------------- 
 
¶2.  When world crude oil prices peaked above $100 per barrel in 
early January 2008, President Arroyo called on her energy team to 
organize a summit to gather views on a way forward for this largely 
oil import-dependent nation.  With just two weeks to prepare, the 
Philippine Department of Energy worked overtime to get ready for the 
three-phased approach to examining sector issues and options into 
consensus and actionable plans. 
 
¶3.  Phases 1 and 2:  January 29-31, "listening and consultative" 
morning sessions consisted of experts' presentations and debates 
about pressing sector issues, including responses to the Summit's 
thematic question of whether the historical $100 per barrel crude 
oil price presents a crisis or an opportunity for the nation. 
Afternoon sessions constituted the "collaborative action planning 
phase" where multiple, concurrent workshops served as fora for 
stakeholder input to multi-sectoral action plans that recommended 
policy directions, programs, and social mobilization interventions. 
 
 
¶4.  Phase 3:  A final "integration and consensus building" phase was 
held February 1-2 and gathered select participants from each 
stakeholder group for processing the outputs of Phase 1 and 2 into a 
set of initiatives through smaller group synthesis workshops.  Given 
the contentious nature of many energy sector issues, initiatives 
were also classified by degree of stakeholder consensus as "Green" 
(consensus among stakeholders); "Yellow Initiative" (requires 
further study); and "Red" (contentious and requiring extended 
consultation). 
 
¶5.  The Summit Proper.  On February 5, the final outputs of the 
Summit were presented by Energy Secretary Angelo Reyes, with 
President Arroyo's reaction and key pronouncements to address the 
problems.  The Summit proceedings were attended by over 2,500 
representatives from the energy sector, Philippine government 
officials, academia, the donor community, and civil society groups 
including those focused on consumer welfare.  The high level of 
participation in the Summit reflects the importance of current 
sector issues to the nation, and lends weight to its outputs. 
Indeed, in his final closing remarks, Secretary Reyes drew applause 
when he commented, "Among the most valuable lessons we have learned 
from this Summit is the fact that the process turned out to be just 
as important as the substance of this gathering." 
 
------------------------- 
KEY PROPOSALS/"GREEN" INITIATIVES 
------------------------- 
 
 
MANILA 00000423  002 OF 004 
 
 
¶6.  Secretary Reyes presented results of the previous week's work at 
the February 5 Summit, including a set of initiatives spanning 
power, renewable energy, energy efficiency and conservation, oil 
prices, and social mobilization.  Reyes also noted that the outputs 
from the Energy Summit would become important inputs into the 
20-year Philippine Energy Plan currently under development.  The 
complete Summit proceedings are available at 
www.doe.gov.ph/esummit/. 
 
¶7.  Lowering Power Costs.  Two proposals emerged aimed at lowering 
and/or rationalizing electric power costs.  The first is to 
accelerate full implementation of open access and retail competition 
in the electric power industry by amending the Electric Power 
Industry Reform Act (EPIRA).  The 2001 EPIRA ties full 
implementation (a key step to bringing down the country's high 
electricity costs) to privatization of 70% of the government-owned 
National Power Corporation's (NPC) generating assets.  Currently, 
42% of the assets are privatized.  By lowering EPIRA's privatization 
benchmark, open access and retail competition can proceed sooner. 
However, some stakeholders argue that privatizing NPC assets as 
mandated by EPIRA is essential to ensure a level playing field and 
that "changing the rules in the middle of the game" would discourage 
future private investments. 
 
¶8. The second proposal would fast-track implementation of 
time-of-use program, to smooth demand levels by offering low 
electricity prices during off-peak hours.  Currently, the National 
Power Corporation, Meralco and a few private utilities are 
voluntarily offering its customers time-of-use rates. Other 
distribution utilities are expected to follow suit. 
 
¶9. Promoting Renewable Energy.  Several proposals supported current 
government efforts to promote development and use of renewable 
energy, including: (a) the passage of the Renewable Energy Bill; (b) 
the establishment of a one-stop-shop for processing of renewable 
projects; (c) accelerated implementation of the Biofuels Act and (d) 
renewed promotion of compressed natural gas (CNG) for buses and 
liquefied petroleum gas (LPG) for taxis.  Passage of the 
long-pending Renewable Energy bill would encourage investments to 
develop the country's 2,500 MW of potential wind, hydro, geothermal, 
and biomass power by 2025.  A one-stop-shop renewable information 
and market service hub provided by the government would promote and 
facilitate investment.  On biofuels, the country is already on track 
in the implementation of its 2007 Biofuels Law, which mandates a 
minimum 2% biodiesel and 10% bioethanol fuel blends by 2009 and 
2011, respectively.  Meanwhile, government CNG plans for buses in 
Metro Manila had stagnated over the past three years due to a 
combination of bureaucratic, investment and technical constraints. 
 
¶10.  Energy Efficiency and Conservation.  Summit participants 
acknowledged that despite successful efforts in efficiency and 
conservation, a much greater effort was needed to tap the full 
potential of such measures.  An institutionalized and comprehensive 
energy efficiency program was proposed that would include: (a) a 
major retrofit program for commercial, industrial and residential 
sectors; (b) public transport leasing; (c) expansion of mass 
transport systems; (d) promotion of non-motorized technologies; (e) 
rationalized operation of tricycles (a major transport sub-sector in 
the country); and (f) an aviation efficiency enhancement program. 
 
¶11.  Social Mobilization.  Last but not least, in acknowledgement of 
the critical role of civil society groups in shaping the opinion of 
this diverse and decentralized nation, the Summit recommended a set 
of cross-sectoral actions and suggested more formal means of 
including stakeholder input in planning and implementing sector 
reforms.  For example, transport and consumer groups have come up 
with energy efficiency and conservation measures on their own, but 
requested the Philippine government to provide policy support and to 
become more transparent and consultative in their own planning 
processes. 
 
 
MANILA 00000423  003 OF 004 
 
 
¶12. Yellow and Red Initiatives. Two of the proposals which needed 
further research or the "yellow initiatives" were: (a) the viability 
of jatropha as a biodiesel feedstock and (b) the need to develop a 
new energy conservation law. The old Energy Conservation Law was 
effective only between 1980 to 1985 to address the impacts of oil 
crisis. There were also more contentious proposals or "red 
initiatives" to, for example abolish the collection of income tax 
and instead raise the tax for products that produce carbon 
emissions, a "carbon tax". The reason behind this proposal was to 
penalize the polluters and discourage the use of fuels that are 
known to emit higher level of carbon dioxide such as diesel or coal. 
 
 
 
¶13. Oil Prices.  Summit speakers agreed that oil prices may still go 
beyond $100, and that the country has little or no influence over 
global prices.  Several proposals aimed to mitigate the impacts of 
rising oil prices, especially on the poor.  These included 
abolishment of the Value Added Tax on oil products, or using the tax 
proceeds from oil products to fund pro-poor activities.  Meanwhile, 
there was consensus to strive towards greater energy independence by 
reducing reliance on imported oil and use this opportunity to 
increase the diversity of the Philippines' energy mix share of 
domestic, climate-friendly energy sources.  Currently, more than 50% 
of the country's energy mix is provided through non-domestic 
sources.  The situation is even more skewed in the heavily 
oil-dependent transport sector, where more than 60% of fuel is 
imported. 
 
------------------------ 
THE PRESIDENT'S RESPONSE 
------------------------ 
 
¶14.  At the Pumps.  In the days leading up to the Summit, President 
Arroyo issued an Executive Order to temporarily reduce oil tariffs, 
resulting in a one peso reduction (2.7%) in diesel prices at the 
pump.  At the Summit itself, she made a strong appeal to oil vendors 
to roll back prices by an additional 50 centavos.  Ironically, the 
President called for the Summit when oil prices exceeded $100 per 
barrel in early January.  However, on the day of her February 5th 
address, the price was a more "modest" $88 per barrel and is 
projected to decrease to $70 by June. 
 
¶15.  At the Summit.  In her address, President Arroyo supported most 
of the Summit proposals, emphasizing support for: (a) mitigating the 
effects of high energy costs on the poor; (b) proceeding with 
government plans to privatize remaining National Power Corporation's 
generating assets and accelerating implementation of open access 
("why not today?"); and (c) phasing out incandescent lights by 2010 
as part of the government's energy conservation plan. 
 
¶16.  Climate Change.  President Arroyo underlined the high stakes 
for this archipelagic nation when it comes to climate change, 
enjoining those present to act towards a solution: "As a nation made 
up of over 7,000 islands, rising seas due to global warming takes on 
a whole new meaning.  Florida may lose some coastline, we lose a 
nation.  Our response to this grave challenge may [s]ound humorous, 
but our intent is deadly serious: we must work together to solve 
this problem." 
 
----------------- 
USG PARTICIPATION 
----------------- 
 
¶17.  The USG contributed to the success of the Summit in several 
ways.  Staff from the Embassy Economics Section, Foreign Commercial 
Service, and USAID each actively participated in all phases of the 
Summit.  Staff of USAID energy projects were also involved in Summit 
planning and served as experts in various panels.  USAID also 
continues to provide assistance to the Department of Energy to 
develop its Philippine Energy Plan. 
 
MANILA 00000423  004 OF 004 
 
 
 
------- 
COMMENT 
------- 
 
¶18.  Given the short period of time the Department of Energy had to 
plan the Summit, it was a remarkable success at several levels. 
First, the depth and breadth of participation - with most 
participants attending multiple days, demonstrates both stakeholder 
interest and the value of getting together and sharing knowledge and 
opinions on this vital sector.  As noted by Secretary Reyes, the 
process was as important as the product, and the public appeared 
highly appreciative of government efforts to hold the Summit. 
Second, the Summit produced a useful set of initiatives and 
proposals, supported by varying degrees of consensus, for further 
action.  While there were no major surprises among these proposals, 
the broad endorsement provides a useful action plan for the various 
stakeholder groups.  Finally, while the broad set of proposals 
ultimately overshadowed the original "$100 per barrel" impetus for 
the Summit, government did accumulate some political capital in 
"looking out for the little guy" by successfully bringing down 
prices at the gas pump.  The U.S. mission is closely monitoring, and 
to some extent, plays an active role in pursuing such action plans. 
 
 
 
Memmott