9.

2
VOLUME

Energy Trading,
Competition,
and

Policy Harmonization

in the

ASEAN
OCCASIONAL

PAPER

FEBRUary 2016

OCCASIONAL PAPER FEBRUARY 2016

02

Energy Trading,
Competition,
and

Policy Harmonization

in the

ASEAN

ENERGY

Currently, the Philippines has the unhealthy image of having the second highest
electricity prices in Asia next to Japan. Over the years this has been one of the
biggest deterrents for investors who wish to invest in the Philippines.

With the formal economic integration of the 10 ASEAN

member countries into a single market called the ASEAN
Economic Community (AEC) in January 2016, we expect
stronger and faster economic activities among the people of
the community. The elimination of tariffs, the reduction of
non-tariff barriers (NTBs), and freer mobility of people and
services mean that there is greater potential for companies
and people to hop from one country to another within
the region, bringing with them various businesses
and employment opportunities.

C 2016 ADRiNSTITUTE for Strategic and International Studies. All rights reserved.

Lots of energy, both upstream and downstream, will be

required to power this bigger and faster mobility of people
and goods within the region. A country-based energy supply
and trading alone will be insufficient to catch up with this
huge energy demand from all ASEAN member states (AMS).
In addition to the fact that energy precedes development,
energy powers more growth and the lack of energy can stifle
growth. An insufficient energy supply could push investors
away from the Philippines and towards other ASEAN nations
with more stable and more affordable electricity, leaving the

Philippines to miss out on the potential benefits of the

AEC altogether. Thus, the need for more international
and regional energy trading will become more
pronounced in the coming years.
Currently, the Philippines has the unhealthy image of
having the second highest electricity prices in Asia next
to Japan. Over the years this has been one of the biggest
deterrents for investors who wish to invest in the Philippines.
There are many reasons for this, two of which are (1) a lack

Image Credit: philstar.com

* The views and opinions expressed in this Paper are those of the author and do not necessarily reflect those of the Institute.

OCCASIONAL PAPER FEBRUARY 2016

03

of reliable supply across the countrys three grids, and

(2) high and multiple taxes imposed on energy products,
while many Asian countries subsidize theirs.
International and regional energy trading would lead into
the influx of additional supply, making the supply side
more competitive. This in turn will lead to more affordable
and competitive electricity prices, and thus more industrial
and commercial activities sprouting or expanding.

power parity (PPP) values. Those on the top are

Brunei, Singapore and Hong Kong. In the middle
are Malaysia, Thailand, Vietnam and Indonesia. The
Philippines can be considered in the bottom group
in per capita electricity consumption, along with

Laos, Cambodia and Myanmar. Vietnam has a

lower per capita GDP than the Philippines,
but doubled its per capita income in just
one decade, from 2004 to 2014.

Table 1. SOME ENERGY & GDP INDICATION FOR SOUTH EAST ASIAN ECONOMIES, 2013

Electricity consumption and GDP

expansion in the ASEAN
In the past decade, the Philippines has expanded
its power capacity very slowly. While expansion has
accelerated in more recent years, the country still suffers
from some form of energy poverty compared to many of
its neighbors in the region. For instance, even newcomer
Vietnam has electricity consumption per capita almost
twice that of the Philippines. The Philippines total primary
energy supply (TPES), expressed in tons of oil
equivalent (toe) per capita, is also low.
As shown in Table 1, note the positive correlation
between electricity consumption per capita and Gross
Domestic Product (GDP) per capita, using purchasing
Sources: Columns 2 and 3: International Energy Agency (IEA), Key World Energy Statistics (KWES) 2015
Columns 4 and 5: IMF, World Economic Outlook (WEO) Database, October 2015
* HK is not ASEAN member ** Laos is not included in KWES annual reports

C 2016 ADRiNSTITUTE for Strategic and International Studies. All rights reserved.

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OCCASIONAL PAPER FEBRUARY 2016

04

Many of our neighbors have many cheap energy

sources. Brunei is a top natural gas exporter and
Indonesia and Malaysia have lots of coal. Here is
the resource endowment in fossil fuels of
many ASEAN countries:

Table 2. Electricity production and sources in selected Asian economies, 2012

Oil: Brunei, Cambodia, Indonesia, Malaysia,

Myanmar, Thailand, Vietnam
Gas: Brunei, Cambodia, Indonesia, Malaysia,
Myanmar, Philippines, Thailand, Vietnam
Coal: Indonesia, Malaysia, Philippines, Thailand,
Vietnam.
For renewables endowment:
Hydro: Cambodia, Indonesia, Laos, Malaysia,
Myanmar, Philippines, Vietnam
Geothermal: Indonesia, Philippines
Solar and biomass: all countries have various
amounts and types. Wind has limited potential.
Fossil fuels remain as the primary source of
electricity in many Asian countries, as shown in
Table 2. It is divided into two parts: East Asian
economies which have 90% or more of their total
electricity production coming from fossil
fuel sources, and those below 90%.
It is notable that the Philippines five more
developed Asian neighbors namely Brunei, Hong
Kong, Malaysia, Singapore and Thailand, have a
fossil fuel dependence of 92 to 100%. They can
attract more manufacturing and other industrial

C 2016 ADRiNSTITUTE for Strategic and International Studies. All rights reserved.

Source: International Energy Agency (IEA); ADB, Key Indicators for Asia and the Pacific 2015.

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OCCASIONAL PAPER FEBRUARY 2016

05

players, such as hotels, malls and other

service industries, because they have
stable, reliable and more affordable
electricity supplies.

Table 3. Energy production and net imports of East Asian economies

For other Asian economies, like Myanmar,

Cambodia, China, and the Philippines, energy
source reliance features hydro significantly.
Fossil fuels are all dispatchable energy
sources. This means that these sources can
be dispatched or controlled anytime according
to demand, even with very short-term demand
hikes and with only one or two hours lead
time. The high percentage of fossil fuels in
the energy mix of those countries and the
high supply capacity of big hydro plants are
important ingredients for energy
trading within the ASEAN.
A number of ASEAN countries are net energy
exporters, which means that their domestic
energy production is bigger than their
consumption and they export the balance.
The biggest energy exporter is Brunei, the
main producer of natural gas in the
region, followed by Indonesia.
The big net energy importers in the ASEAN
are Singapore, Philippines and Thailand. In
North East Asia, the big net energy
importers are S. Korea and Taiwan.

C 2016 ADRiNSTITUTE for Strategic and International Studies. All rights reserved.

Sources: ADB, Key Indicators 2015; WB, World Development Indicators,

http://databank.worldbank.org/data/reports.aspx?source=sustainable-energy-for-all

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OCCASIONAL PAPER FEBRUARY 2016

06

The ASEAN Power Grid

The ASEAN Power Grid (APG) project was
invented in 2007 via a Memorandum of
Understanding signed by Energy Ministers and
Secretaries of the region. It is a flagship program
mandated in 1997 by the ASEAN Heads of States
under the ASEAN Vision 2020. Its main objective is
to strengthen and promote power interconnection
and trade towards greater energy security
and supply stability in the region.

Chart 1. List of ASEAN Power Grid projects and their earliest COD, as of May 2015

In a presentation, ASEAN Power Grid: Road to

Multilateral Power Trading during the Philippine
Electricity Summit last December 11, 2015 in
Manila, Mr. Bambang Hermawanto, Chairman of
the ASEAN Power Grid Consultative Committee
(APGCC), showed this data in Chart 1. There are
various projects that provide the various routes
and grid interconnections among the ASEAN
countries, current and future.
The APG will be an extensive system of
interconnection in the region someday, especially
in the north, covering Vietnam, Cambodia,
Laos, Thailand, and Myanmar, but also in the
south, connecting Malaysia, Indonesia,
Singapore, and Brunei.
The Philippines is generally detached from the
rest of the region, being in the far east, but
interconnection is possible via Sabah and Palawan.
There is an existing domestic natural gas pipeline
from northern Palawan to Batangas. The next
pipelines to be constructed should include (a) Sabah
to southern Palawan, then (b) southern to northern

C 2016 ADRiNSTITUTE for Strategic and International Studies. All rights reserved.

Source: Hermawanto (2015).

Palawan. More distant in the horizon would be pipelines running

from Sabah to Sulu, to Tawi-tawi, to Basilan, then to
Zamboanga and the Mindanao mainland.
These long and extensive grids and interconnections will definitely
cost large amount of money (see one estimate in Table 4).

However, the long-term monetary savings and efficiency gains

would mean overall or net savings. There should be a publicprivate partnership (PPP) and its variants in the sharing
of this huge amount of resources.

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OCCASIONAL PAPER FEBRUARY 2016

07

Table 5. Current status of APG projects, in million $

Table 4. Projected savings from APG, US$ million, in 2009 prices

Source: ASEAN Interconnection Master Plan Study (II), June 2010.

The northern system of APG is the most extensive

and hence, more costly. It is projected to cost
between $22.4 to $25.5 billion for both existing
and ongoing projects (see Table 5). Currently, there
are 8 existing cross border projects with total
power of 3,489 MW. There are 7 further projects,
with a total power of 5,072 MW, expected to

be completed by 2018/2019. Thirteen future

projects (with completion beyond 2020) will cross
borders, and generate a total of 24,824 MW.
The Palawan-Sabah project is still on the drawing
board and projected to cost half a billion dollars.
Source: Hermawanto (2015).
Note: 6 projects consisting of 8 cross-border links already in operation.

C 2016 ADRiNSTITUTE for Strategic and International Studies. All rights reserved.

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OCCASIONAL PAPER FEBRUARY 2016

08

Among the issues that can cause delay in APG are

the following:
1. Differing national policies, as some
countries desire selfsufficiency before regional
interconnection.
2. Wariness of an electricity restructuring owing, to
varying reasons. These include (a) the prospect of
the system evolving into a multilateral power trading

arrangement, which is new to the region; (b) a

harmonized operational and regulatory framework
or tariff structure is not available; (c) there are no
mechanisms for power wheeling, pool rules, power
bidding, regulatory framework and ensuring system
reliability and security; (d) the task of obtaining
financing modalities to realize the APG; and (e)
concerns on the harmonization of different national
energy policies, regulation on export/import of
electricity, and the availability of infrastructure.

Table 6. Coal consumption in East Asia, million tons oil equivalent (mtoe)

Mr. Hermawanto said there are solutions under the

ASEAN spirit. These include plain commitments
by member governments and private sector
participation in the financial burden to develop APG
infrastructures and institutions.
The strategic and action plan 2016/20 towards
multilateral trading, according to Mr. Hermawanto
are:
1. Accelerate the development of the Cross Border
Power Interconnection projects.
2. Prepare for the formation of the ASEAN Power
Grid institutions.
3. Synchronize National Power Development Plan
and optimize the generation of electricity.
4. Encourage and optimize the utilization of ASEAN
resources, such as funding, expertise and
products to develop the APG.
The most important factor to realize APG is the
deregulation or relaxation of regulations by member
governments to assist private investment and the
introduction of sub-regional interconnection as a
further step of cross-border interconnection.

Fossil fuel trading

Source: BP, Statistical Review Power Data Workbook 2015

C 2016 ADRiNSTITUTE for Strategic and International Studies. All rights reserved.

Let us review the base load power capacity of big

ASEAN countries, in coal in particular. These ASEAN
5 countries have a rising coal capacity, doubling it in
fact within one decade from 2004 to 2014. In the
case of Indonesia, there was a tripling of capacity.
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OCCASIONAL PAPER FEBRUARY 2016

09

These are among the baselines for projections of future

power capacity for the ASEAN 5.

Table 7. Fossil fuel net trade in the ASEAN

The International Energy Agency (IEA) and the

Economic Research Institute for ASEAN and East Asia
(ERIA) produced the South East Asia Energy Outlook
2013 and made a projection in energy trading. The
study projects net imports in oil but net exports in
gas and coal for the ASEAN in 2020, to be led by
Indonesia. The Philippines would have net imports on
all three fossil fuels but the amounts are small enough
that they can easily be covered by excess supply in
other ASEAN countries like Indonesia and Malaysia.
Oil is expressed in million barrels per day (mbpd), gas
in billion cubic meters (bcm), and coal in megatonnes
coal equivalent (mtce). Positive values are exports and
negative numbers are imports.

Source: IEA, ERIA, South East Asia Energy Outlook, September 2013. Table 3.1.

C 2016 ADRiNSTITUTE for Strategic and International Studies. All rights reserved.

The most important factor

to realize Asean Power Grid
is the deregulation
or relaxation
of regulations by member
governments to assist
private investment
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OCCASIONAL PAPER FEBRUARY 2016

10

Concluding notes
Mr. Hermawanto made these conclusions in his
presentation:
1. Electricity demand in ASEAN region will continue
to rise despite depletion in fuel resources, and
ASEAN countries collectively need to benefit from
the abundance of indigenous resources.
2. Steps to realize APG are to first encourage
cross-border bilateral basis, then gradually to
expand to a subregional basis, and finally to a
fully integrated APG system.
3. Harmonize regulatory framework and standards
to facilitate regional energy connectivity. APG is
a step towards the optimization and conservation
of energy in the ASEAN region. APG also
creates bilateral arrangements through
cross border electricity trading toward
multilateral trading arrangement.

2. More deregulation or relaxation of many

regulations by member governments is needed to
assist private investment and help realize the APG.

get various permits before one can start building a

power plant is a big contributor to limited
power supply capacity.

3. An ASEAN Electricity Exchange should be

considered in the future to help develop dynamic
electricity trading in the region. Currently, two
ASEAN countries have national electricity exchange:
Singapore and the Philippines. The respective
bodies are (a) National Electricity Market of
Singapore (NEMS) and (b) Wholesale
Electricity Spot Market (WESM).

3. Governance at WESM should move towards a

real Independent Market Operator (IMO) as explicitly
provided by the Electric Power Industry Reform
Act of 2001. Safeguards against uncompetitive
market behavior is a function given to the Energy
Regulatory Commission (ERC). Having many
government officials at the IMO Board from the
Department of Energy, the Power Sector Assets and
Liabilities Management Corporation (PSALM), the
National Power Corporation (NPC) and the National
Electrification Administration (NEA) is a violation of
the spirit of independence of the market operator.

Specifically, for the Philippines:

This paper agrees with the three main points by

Mr. Hermawanto. Three market-oriented
reforms are needed in the region.

1. Taxes and royalties of indigenous energy sources

in the Philippines should significantly go down and
some should be abolished in order to help bring
down electricity prices. Royalties for natural gas
from Malampaya in Palawan for instance would be
as high as P1.45 per kWh on certain years. This
is big considering that there are no such taxes on
indigenous natural gas produce in Indonesia,
Brunei and other ASEAN countries.

1. Energy price competition should prevail over price

harmonization in order to allow the various players in
the industrial, agri-business and commercial sectors
of all ASEAN countries to realize cost-reduction.
Electricity is a big cost component in many sectors
and sub-sectors like manufacturing and hotels.

2. Heavy bureaucracies and complicated

procedures to get multiple permits from local and
national government agencies should significantly
shrink to help expand the number of players in
the power generation sector, both fossil fuels and
renewables. To endure two to five years just to

C 2016 ADRiNSTITUTE for Strategic and International Studies. All rights reserved.

Trade is governed by competition and deregulation.

People or companies cannot freely trade their
products and services if there is monopoly, duopoly
or many strict regulations and taxation. Thus, public
policies in energy should be crafted to benefit
one very important stakeholder the electricity
consumers: rich and poor, individual and corporate,
rural and urban. Energy trading in the ASEAN
guided by the spirit of competition and deregulation
is an important endeavor to further empower energy
consumers in the region.

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9.2
VOLUME

ABOUT
Bienvenido S. Oplas, Jr.

is a Fellow of the Stratbase-Albert del Rosario Institute (ADRi),

President of Minimal Government Thinkers, and a columnist in
BusinessWorld. minimalgovernment@gmail.com.
Mr. Oplas received his AB Economics undergraduate degree and
Diploma in Development Economics (DipDE) from the University
of the Philippines.

Stratbases Albert Del Rosario Institute

is an independent international and strategic research
organization with the principal goal of addressing the
issues affecting the Philippines and East Asia
9F 6780 Ayala Avenue, Makati City
Philippines 1200
V 8921751
F 8921754
www.stratbase.com.ph
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