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IEEFA update: China’s state grid group triggers oversight controversy in the Philippines

February 18, 2020
Sara Jane Ahmed

The Philippines has long welcomed foreign investment in the power sector.

It is one of the earliest Asian markets to encourage foreign investment in independent power producers, and political leaders and local companies have often helped foreign companies navigate the regulatory landscape.

This formula may be due for a test however, if recent disclosures about the lack of oversight of the State Grid Corporation of China’s (SGCC’s) investment in a prominent grid company prove to be correct.

SGCC is the largest grid-focused utility company in the world with revenue of US$387 billion in 2018. (Amazon Inc’s 2018 revenue was $287.5 billion. )

SGCC is likely to come under pressure at home as Beijing seeks to end domestic power distributors’ monopolies by allowing customers to negotiate prices directly with energy generators. In 2012, SGCC said it wanted to acquire US$50bn in international assets by the end of the decade. SGCC has invested in many markets including the Philippines, Australia, Brazil, Italy, Saudi Arabia, Ghana, and Oman.

In 2008, SGCC ACQUIRED A 25-YEAR CONCESSION OVER A 40% STAKE IN THE NATIONAL GRID CORP OF THE PHILIPPINES (NGCP) for US$3.95bn in an effective privatization. The 60% stake is Filipino-owned, split evenly between the Calaca High Power Corp. and Monte Oro Grid Resources Corp.

As a result of increased military tensions in the South China Sea, the Philippines Government decided in 2015 that although SGCC would be allowed to remain a 40% shareholder in NGCP, operational control of NGCP would be returned to Filipino hands. But according to Energy Secretary Alfonso Cusi, NGCP has rebuffed inspections since 2017.

Earlier this month, the Senate Committee on Energy, chaired by Senator Sherwin Gatchalian, held a hearing on the operations of the NGCP amid national security concerns.

The hearing is timely as the energy market is evolving and requires more system flexibility and network reliability. Four key points stand out as the Senate investigation continues:

  1. China’s domestic investment in renewables has surpassed all expectationsPoorly implemented grid investment is a huge barrier to system stability and renewable energy because most grids in power growth markets are generations behind the grids found in more developed power markets. Mapping the grid and understanding the implications of new technologies is crucial because grid investment shapes future options, and grid investment can also become stranded (or non-performing) if it fails to anticipate new more cost-effective generating strategies.China, especially its SGCC, has been an active global investor hoping to transform underperforming grids in a range of markets. This can be positive if the lowest cost technology options are utilized. China’s domestic investment in renewables has surpassed all expectations, with technological upgrades and economies of scale driving down costs to the point where renewables provide more electricity to the grid than conventional fossil fuels.
  2. Grid governance and investment choices have implications for energy security and affordabilityThe governance of grid infrastructure – the way in which users are prioritized and renewable energy is accommodated – is a crucial issue. Most Southeast Asian markets leave incumbent national players and investment in generation capacity to drive grid design. This can mean that renewable energy is not prioritized but inflexible baseload thermal power is.This is the case in the Philippines island of Luzon, where there is an excess of coal plant capacity, causing unstable supply. This factor has implications for energy security and affordability because the Philippines is now dependent on a baseload-heavy strategy that requires generators to import 75% of their coal needs.
  1. Accounting for and minimizing cyber risk and vulnerabilitiesHacking of critical infrastructure is a hugely sensitive issue as power outages can cause severe economic losses, and the Philippines has suffered many outages of late. It would be prudent to quantify the value of lost electricity and improve accountability.The Chinese players will be under pressure to show that their technology can handle cyber risks and that their digital technology does not have vulnerabilities could put sensitive system information in the wrong hands. If they cannot be transparent in their operations, as the Senate Committee on Energy has requested, their market opportunities will come under the same pressure as Huawei, the Chinese electronics giant.
  2. Increasing governance and conducting a grid audit sets an example for other regional marketsThe Philippines market has more oversight, both regulatory and legal, than its Southeast Asian neighbors Indonesia or Vietnam. That makes this case noteworthy.The Philippine government’s ability to call for increased governance, and its ability to conduct a transparent audit to ensure that the grid is suited to enable a secure, flexible and least-cost system, will be an important reference case for other regional markets that have turned to government-backed Asian companies for investment in infrastructure.

What is learned at the next hearing on the operations of the national power transmission grid by will be key to determining whether the Philippines has genuine control of the grid.

The Philippines is facing grid stability issues. President Rodrigo Duterte has firmly requested the Department of Energy (DOE) to “fast-track also the development of renewable energy sources and reduce dependence on the traditional energy sources such as coal.”

Transmission planning is a key control lever that the DOE,  under Energy Secretary Alfonso Cusi’s leadership, can use to influence the grid’s capacity and energy sources to fulfill the President’s request.

Sara Ahmed ([email protected]) is a financial analyst with IEEFA.  


The Institute for Energy Economics and Financial Analysis (IEEFA) conducts global research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.

Sara Jane Ahmed

Sara Ahmed is founder of the Financial Futures Center and an advisor to the Vulnerable 20 Group of Finance Ministers (V20) of the Climate Vulnerable Forum (CVF). The Financial Futures Center supports developing countries catalyze an economic transformation to launch a decade of progress with five years of fast-tracked action aimed at ultimately achieving climate prosperity by 2030.

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