IFC Helps Bring Reliable and Affordable Electricity to Mindanao by Supporting Electric Cooperatives and Attracting Private Capital

IFC, a member of the World Bank Group, is playing a major role in helping the private sector bring electricity to small villages in the southern Philippines. IFC is supporting the government’s drive to attract private capital and providing advisory services to electric cooperatives in Mindanao.

“IFC’s strategy includes support for power sector reform in the Philippines through private sector participation that promotes competition. We hope to attract private sector interest, particularly in Mindanao, where development assistance is needed most,” said Jesse Ang, IFC Acting Country Manager for the Philippines and Thailand.

Mindanao is home to six of the country’s 10 poorest regions and has the Philippines’ highest incidence of poverty, at 46 percent. Income inequality is also widespread, with two of the island’s regions, Zamboanga Peninsula and Northern Mindanao, worse off than the rest of the country. IFC is attracting private investors to increase efficiency, provide reliable supply, and contribute capital for further investments.

IFC is also preparing the privatization structure for power generation in the underdeveloped provinces of Basilan and Sulu, part of the Autonomous Region of Muslim Mindanao. This follows the recent signing of agreement between the Philippines’ Department of Energy, Basilan Electric Cooperative, and Sulu Electric Cooperative. Under the terms of the agreement, IFC will conduct an evaluation and technical review of the two cooperatives, market their supply requirements to prospective power providers, and draft a power supply agreement that will undergo a competitive bidding and rigorous selection process.

IFC has been charged with developing the agreements and a regulatory framework to attract private sector capital and expertise to power generation in remote islands. IFC was retained in 2004 by the Philippine government through the Department of Energy, the National Power Corporation, and the Power Sector Assets and Liabilities Management Corporation to act as transaction advisor to the Small Power Utilities Group, known an SPUG. DevCo, a multidonor program affiliated with Private Infrastructure Development Group, also supported the advisory work, in particular the technical and legal aspects. DevCo is supported by the United Kingdom’s Department for International Development, the Dutch Ministry of Foreign Affairs, the Swedish International Development Agency, and the Austrian Development Agency.

SPUG, which is part of the National Power Corporation, supplies power to 74 remote off-grid islands at a yearly cost of 2.1 billion pesos ($48.9 million). Only about 60 percent of that cost is covered by a universal service charge assessed to on-grid customers. The remainder, about 800 million pesos ($18.6 million), is passed on to the national government as accumulated losses. IFC has since supported the NPC’s successful bid to privatize electric supply in the provinces of Marinduque, Romblon, Tablas, and Masbate.

To complement its transaction advisory mandate, IFC recently launched a Rural Electrification Program that seeks to strengthen the capacity of electric cooperatives in Mindanao to achieve their operational, financial, and regulatory objectives. IFC will work with a number of electric cooperatives to create demonstration cases and project templates that can be shared with off-takers in other parts of the country. The Rural Electrification Program is an advisory program managed and funded by IFC and cofunded by Australia and Canada.

It is estimated that Philippine electric cooperatives need medium- to long-term financing of over $1.3 billion during the next 10 years to replace capital equipment that, for the most part, is now 20-30 years old. Through IFC’s program, it is envisaged that electric cooperatives will find it easier to access such capital. Better management and infrastructure will also allow electric cooperatives to increase access to electricity for consumers. In Mindanao only around 50 percent of consumers have access to electricity.