RISING TO THE CHALLENGE OF ENERGY SECURITY

In an era where green energy and alternative fuels are bywords in global energy
development, the Philippine Department of Energy (DOE) is taking the country’s
long-term best interest at hand in adopting the use of clean, green and sustainable
sources of energy in its energy security strategy. The country’s long-term national
energy plan makes sure that immediate need for energy is met while making sure
that we do the least damage to the people and environment. Notwithstanding the
fact that fossil fuels contribute significantly to the country’s energy and electricity
needs in view of its costs and reliability, the 60.0 percent energy self-sufficiency level
target of the country also aims to harness indigenous energy more particularly
renewable sources like geothermal, wind, solar, biomass, ocean and alternative fuels
like biofuels and compressed natural gas (CNG).

Another key component in the country’s strategy on energy security is the need to
seize opportunities in energy efficiency and conservation measures. The DOE will
continue to take the lead role in increasing public interest on the use of energy-
efficient practices and technologies. The government’s energy efficiency campaign
will maximize energy efficiency opportunities in our homes, in commercial
buildings, and the industrial and transport sectors.

And as the DOE treads the path towards energy development, it will continue to
implement reforms in the power and downstream oil industry sectors as they both
affect socially sensitive issues such as the pricing environment in electricity and
petroleum.

Given the importance of energy as a prerequisite in meeting basic human needs and
services, the DOE is proud of the following achievements as it continues to work
side by side its implementing arms --- the Philippine National Oil Company (PNOC)
and its subsidiaries, National Power Corporation (NPC) , National Electrification
Administration (NEA), National Transmission Corporation (TransCo), Power Sector
Assets and Liabilities Management Corporation (PSALM) and the Philippine
Electricity Market Corporation (PEMC), - as well as with the relevant stakeholders,
local government units, policy makers in government and even its critics.

ENERGY DEVELOPMENTS IN REVIEW

PRIMARY ENERGY SUPPLY

In terms of primary energy mix, the country’s energy self-sufficiency level grew to
58.0 percent in 2008. This means that out of the total 39.8 million tons of oil
equivalent (MTOE) of the country’s energy supply requirement for the same period,
utilization of indigenous energy resources reached 23.0 MTOE. Among the
indigenous energy resources, the main contributors are geothermal accounting for
23.2 percent share in the supply mix; biomass at around 13.8 percent; natural gas at
8.0 percent; and hydro at 6.1 percent. It may be noted that renewable energy sources
accounted for 43.0 percent share and this is
expected to improve in the coming years
with the passage of the Renewable Energy
Act of 2008. On the other hand, the share
of imported oil and coal accounted for over
40.0 percent in the supply mix.

SECTORAL CONSUMPTION OF OIL

For 2008, the country’s total oil

consumption decreased from 11.93 MTOE
in 2007 to 11.67 MTOE in 2008 due to sharp
increase of crude oil price, which reached
US$140/barrel in July of the same year.
Non-energy Power
Agriculture Use Generation
The transport sector remains the biggest 2% 1% 8% Industry
consumer of oil as it accounted for 66.0 Commercial 12%
percent in 2008. 4%

Capacity Mix Residential

7%
Transport
The country’s installed capacity as of
66%
December 2008 totaled 15,681 MW. Fossil-
fueled power plants, which are largely
located in the Luzon grid, Table 1: 2008 Installed and Dependable Capacity, MW
remain the dominant PHILIPPINES
PLANT
source with coal-fired Capacity (MW) Percent Share (%)
TYPE
power plants topping at Installed Dependable Installed Dependable
26.87 percent, followed by Coal 4,213 3,412 26.87 26.15
oil-based power plants at Oil Based 3,353 2,702 21.38 20.71
Natural
21.38 percent and natural
Gas 2,831 2,562 18.05 19.64
gas at 18.05 percent. On Geothermal 1,958 1,388 12.49 10.63
the other hand, renewable Hydro 3,291 2,950 20.99 22.61
energy sources such as Wind 33 33 0.21 0.25
hydro, geothermal and Solar 1 1 0.01 0.01
new RE (wind and solar) TOTAL 15,681 13,049
contributed 21.0 percent, 18.0 percent, 12.5 percent and 0.2 percent shares,
respectively. The installed capacity of renewable energy has increased due to the
addition of 8-MW Northwind Power Phase II located in Bangui, Ilocos Norte,
which became operational in September 2008, and the 2.5 MW Sevilla Mini-Hydro
located in Bohol, which was commissioned in November 2008. Total dependable
capacity was 13,049 MW, which is 83.22 percent of the total installed capacity (Table
1).

Luzon, the largest island grid, hosts about 11,907 MW of the total installed capacity
with actual system peak demand recorded at 6,674 MW in 20008. Luzon and

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Visayas grids share power via submarine cable interconnections, while Mindanao
remains a separate grid.

The transmission lines traversing the entire country have a total line length of
20,129 circuit kilometers, while the total sub-station capacity is at 24,732
megavolts amperes (MVA).

Power Generation Mix

The country realized a higher self-sufficiency in

terms of fuel source that we generate for
electricity use, which increased from 64.5 percent
in 2007 to 67.0 percent in 2008. The higher self-
sufficiency was attributed to increased electricity
generation from natural gas and renewable
energy. Meanwhile, the country’s power
generation mix grew by 2.03 percent from 59,612
gigawatt-hours (GWh) in 2007 to 60,821 GWh in
2008.

The main bulk of the country’s power needs was

supplied by natural gas and coal-fired power plants. The share of natural gas-fired
power plants stood at 32.0 percent in 2008. This marks the fourth consecutive year
in which natural gas-fired had the biggest share on gross generation since replacing
coal-fired in 2005. The increase of 4.19 percent on natural gas-fired generation shows
also an increase in its average capacity factor by 3.86 percent, from 75.76 percent in
2007 to 78.94 percent in 2008. On the other hand, generation from coal-fired power
plants was the second biggest source of electricity. However, its share decreased
from 28.0 percent in 2007 to 25.0 percent. Renewable energy sources like geothermal
and hydro contributed 18.0 percent and 16.0 percent, respectively.

Electricity Sales and Consumption

The country’s electricity sales Others

slightly increased by 2.49 percent 2.83% Residential
Industrial
from 48,009 GWh in 2007 to 49,206 33.83%
34.61%
GWh in 2008. Out of these total
sales, 33,097 GWh or 67.26 percent
was contributed by Private
Investor Owned Utilities (PIOU’s),
while electricity sales from Electric Commercial
28.73%
Cooperatives (ECs) and Non-
utilities were recorded at 10,992 2008 Electricity Sales by Sector
GWh or 22.34 percent and 5,117 GWh
or 10.4 percent, respectively. Total sales accounted for 49,206 GWh or 80.90 percent

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to total consumption. “Own-use” of power plants and distribution utilities was
pegged at 3,935 GWh or 6.47 percent. Losses from generation, transmission and
distribution accounted for 7,680 GWh or 12.63 percent.

Electricity sales to the industrial sector accounted for 34.61 percent or 17,031 GWh of
the total, which was 3.08 percent higher than 16,522 GWh in 2007. On the other
hand, the electricity sales of 16,644 GWh to the residential sector accounted for 33.83
percent of the total. Such sales increased by only 1.64 percent from 16,376 GWh in
2007. Of the entire sector consuming electricity, commercial sector posted the
highest increase by 4.94 percent. For the past five years, average annual growth rate
of electricity sales to the commercial sector was recorded at 4.95 percent as compared
to residential and industrial sectors at 1.64 percent and 2.34 percent, respectively.

System Peak Demand

Table 2 : 2008 and 2007 Comparative Demand by Grid

GRID
2008 2007 Historically, annual peak
Difference
(MW) (MW) MW %
demand in Luzon occurs in
Luzon 6,674 6,643 31 0.47 May. However, this trend did
Visayas 1,176 1,102 74 6.68 not occur as early rains and
Mindanao 1,204 1,241 (38) (3.04) typhoons brought down the
Total temperature at an average of
Philippines 9,054 8,987 67 0.75 27.96OC during the month of
May. Peak demand was recorded on 4 June 2008 at 6,674 MW, where the
temperature was higher at 35OC.

Transmission and Distribution System

As of 31 December 2008, the managed transmission assets of the National Grid

Corporation of the Philippines (NGCP) comprised of 19,778 circuit kilometers (ckt-
km). About half of these assets, or 9,527 ckt-km, was in Luzon. The 4,745 ckt-km
formed part of the Visayas Grid and the remaining 5,506 ckt-km was in Mindanao.
Roughly 78.0 percent (18,861 MVA) of the total 24,214 MVA substation capacities
installed was in Luzon. The Visayas accounted for 3,154 MVA and Mindanao 2,200
MVA. These figures exclude the transmission lines and transformer assets, which
have already been decommissioned.

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Table 3: Summary of Existing Facilities
Substation Capacity (in MVA)
2008 2007 2006 2005 2004
Philippines 24,814 24,732 24,489 24,607 24,309
Luzon 18,861 19,411 19,121 19,236 20,041
Visayas 3,154 3,171 3,268 3,371 2,571
Mindanao 2,200 2,150 2,099 2,000 1,697
Transmission Line Length (in ckt-km)
Philippines 19,778 20,129 20,236 20,236 21,319
Luzon 9,567 9,712 9,840 9,881 10,494
Visayas 4,745 4,856 4,844 4,807 5,072
Mindanao 5,506 5,561 5,552 5,547 5,753

GOING FOR CLEAN AND GREEN ENERGY

With the realities of global climate change at hand, the DOE is looking for ways to
develop cleaner sources of energy to generate our electricity and power our vehicles
more efficiently and in an environment-friendly way. Thus, the DOE is advancing
the availability of alternative fuels and renewable energy resources.

Renewable Energy (RE)

The renewable energy sector marked a milestone with the passage of Republic Act
9513 or the Renewable Energy Act of 2008. Immediately after the publication of the
newly signed law in two national broadsheets of general circulation on 15 January
2009, the DOE commenced the formulation of its Implementing Rules and
Regulations (IRR) through a series of nationwide consultations. The IRR was signed
on May 25, 2009. Likewise, in accordance with the law, the National Renewable
Energy Board (NREB) was created composing of representatives from other
government agencies, stakeholders and non-government organizations (NGO).

To expedite processing of renewable energy projects, other enabling guidelines were

issued by the DOE such as the Department Circulars (DCs)s covering the
accreditation of manufacturers, fabricators and suppliers of locally-produced RE
equipment and components, as well as guidelines governing a transparent and
competitive system of awarding RE service and operating contracts including
registration process of RE developers. Currently, various Technical Working
Groups are working on the formulation of other equally important policy
mechanisms such as the Renewable Portfolio Standards (RPS), Net-Metering, Feed-
in Tariff (FiT) systems.

Remarkably, the passage of the RE Law spurred investor interest in the development
of renewable energy sources. This was clearly evident in the historic signing of 87 RE
Service and Operating Contracts on 23 October 2009. The contracts signed consisted

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of both new and conversion contracts. The new contracts shall have all the privileges
and incentives in accordance with the 2008 RE law. On the other hand, conversion
contracts are those already operating prior to the RE Law and opted to operate
under the new law with the applicable privileges and incentives. The newly signed
service contracts will bring capacity additions of about 555.12 MW from
hydropower, 18.4 MW from biomass, and 623 MW from wind. There were two also
OTEC (ocean thermal energy conversion) Pre-Development Contract Service
contracts signed between DOE and Deep Ocean Power Philippines, Inc. (DOPPI)
covering 36 sites. The country’s potential sites for deep ocean power consists of 910
blocks, which is equivalent to 73,710 hectares.

On the development of the country’s geothermal resources, existing Geothermal

Service Contracts (GSC) of the Energy Development Corporation (EDC) were
converted to Geothermal Renewable Energy Service Contract (GRESC) for
Tongonan, Bacman, Southern Negros, Mt. Apo and Northern Negros geothermal
fields. Geothermal RE Operating Contracts (GREOCs) were also signed for AP
Renewables, Inc. covering Tiwi and Makban geothermal power plants.
Conversions from existing service agreements with NPC and Chevron Geothermal
Philippine Holdings, Inc., for the steamfield operation of Tiwi and Makban were
endorsed to the Office of the President for approval on the nature of Financial and
Technical Assistance Agreement (FTAA).

The DOE is encouraging greater private sector involvement in the exploration and
development of vast potential of geothermal energy resource in the country through
the conduct of Open and Competitive Selection Process (OCSP) in awarding
Geothermal RE Service Contracts, launched on 23 October 2009. Ten (10) geothermal
prospect areas were offered for exploration and development located in Cagayan,
Benguet, Bataan, Oriental Mindoro, Camarines Norte, Camarines Sur, Puerto
Princesa City, Palawan, Surigao del Norte and Batangas.

Alternative Fuels for Transport

Biofuels

The DOE is also aggressively implementing Republic Act 9367 or The Biofuels Act of
2006. The said Act intends to tap the country’s indigenous agricultural resources as
potential feedstocks for biofuels.

The mandatory 1.0 percent biodiesel blend sold in all gasoline stations in May 2007
was increased to 2.0 percent in February this year. The actual diesel displacement
from Coco Methyl Ester (CME) stood at 78.4 million liters from January – August
2009, saving the country about US$32.1 million (based on US$ 65.19 average price
per barrel of diesel from January to August 2009).

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On the other hand, the country now enjoys an accelerated use of E10 (10.0 percent
bioethanol blend) as supplied by most of our gasoline retailers. From January to
September 2009, actual ethanol sales reached 14 million liters with an equivalent
foreign exchange savings of US$5.9 million from fuel displacement (based on
US$66.79 average price per barrel of unleaded gasoline from January to September
2009).

With the entry of the Leyte Agri Corp and the San Crlos Bioenergy, Inc., local
production capacity for ethanol is expected to reach 39 million liters by end 2009.

Compressed Natural Gas (CNG)

As of October 2009, there are 34 compressed natural gas (CNG) public utility buses
plying the Manila-Batangas-Laguna routes. An additional 36 CNG buses are
expected to be running by end-2009. By 2010, another 125 buses will be in operation
to complete the pilot phase of 200 buses and signal the start of the commercial phase
of the program.

Auto-LPG

In terms of using LPG as alternative fuel for transport, over 15,000 taxis and 293
tricycles nationwide are now running on LPG, registering an equivalent reduction of
214,571 metric tons carbon dioxide and 495,521 kilograms carbon dioxide,
respectively. These vehicles are complemented by 178 auto-LPG dispensing stations.

PROMOTING INVESTMENTS FOR THE DEVELOPMENT OF OIL, NATURAL

GAS AND COAL

Even as the government emphasized the use of renewable and alternative energy, it
also recognizes that fossil fuels remain a dominant source of energy to fuel the
economy. As such, the country needs the necessary investments to develop
domestic sources of oil, natural gas and coal.

Oil and Natural Gas

As a result of the 2006 Philippine Energy Contracting Round (PECR) scheme, a

petroleum service contract (SC-71) was awarded this year to Pitkin Petroleum Ltd.
for the exploration and development of oil and gas potential in offshore Mindoro.
The project is expected to bring in about US$7.0 million in investments. The total
number of petroleum SCs to date is 34.

As of end-September 2009, production from existing oil and gas fields yielded 2.1
million barrels (MMB) of oil, 35.0 billion cubic feet (BCF) of gas and 1.4 MMB of
condensate. Since its commencement in October 2008, Galoc Field has already

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supplied an average of 7,000 barrels of oil per day from its two production wells
which is equivalent to 2.3 percent of the country’s daily oil demand.

Moreover, Exxon Mobil, the largest oil and gas explorer, developer and producer in
the world, has started drilling operations in October 2009. The company recently
acquired 50.0 percent ownership of SC-56 and the right to operate the oil and gas
exploration project in Sulu Sea Basin.

Downstream Natural Gas

In terms of natural gas infrastructure requirements, the DOE, together with PNOC-
Exploration Corporation has revived discussions with stakeholders to firm up gas
market and supply for critical gas infrastructures such as the Batangas-Manila
Pipeline or BatMan1, Bataan-Manila Pipeline or BatMan2 and Liquefied Natural Gas
(LNG) Terminal Projects. Likewise, the PNOC recently purchased 108.6-petajoules
of Ilijan’s banked gas as well as pursued their bid on the 149-petajoules of
Malampaya new gas with their bid submission on September 14, 2009.

Other industry players include a Korean Consortium (SK E&C, KOWEPO and AII)
which is currently conducting a feasibility study on the possible relocation of a 480-
MW natural gas-fired power plant from Korea and the construction of an
underground LNG terminal in Bataan; and the Energy World Corporation Ltd.
(EWI) which submitted a Letter of Intent (LOI) to pursue a twin project, namely: the
Pagbilao LNG Hub Terminal and the 300-MW Combined Cycle Gas Turbine (CCGT)
Power Project. The proposed project will be implemented in stages and will provide
natural gas supply for an initial 100-MW power plant.

On the other hand, on 30 January 2009 the Gas Sales and Purchase Agreement
(GSPA) between Forum Exploration, Inc. and DESCO, Inc. was signed for the
purpose of supplying gas from the Libertad Gas Field in Bogo, Libertad, Cebu to a
1.5 MW power plant in the area. The said power plant is expected to be
commissioned in December 2009.

The DOE also embarked on a partnership with the Polytechnic University of the
Philippines (PUP) through a Memorandum of Understanding (MOU) forged in
February 2008 for the establishment of a Natural Gas Institute in the country. The
Institute is envisioned to provide the necessary capacity building requirement of the
emerging natural gas industry.

Coal

The use of coal remains a key component of the country’s energy future. The
government is continuously encouraging increased private sector investments in the
exploration, development and production of local coal resources in the country
through the PECR. The 2009 PECR for Coal was launched on 14 April 2009 which
offered 30 areas situated mostly within the major coal basins of the Philippines.

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Majority of areas were sites nominated by the proponents while the rest are DOE
offered areas.

In 2009, a total of 18 Coal Operating Contracts (COCs) were awarded to several local
and foreign investors to explore and develop coal resources in Sorsogon, Sultan
Kudarat, Cebu, Quezon, Surigao del Sur, Zamboanga Sibugay, Davao Oriental,
Agusan del Sur and South Cotabato

To date, run-of-mine indigenous coal production has reached 3.6 million metric tons
(MMMT).

PROMOTING RESPONSIBLE USE OF ENERGY

To take some pressure off the country’s total energy demand, as well as promote the
protection of the environment, there is a need to change the way people use energy.

With the goal of instilling the value of energy efficiency in the mind of every
Filipino, the Department continues to implement the National Energy Efficiency and
Conservation Program, which was launched by the President in August 2004. In
2008, total energy savings as a result of the program totaled 18.40 million barrels of
fuel oil equivalent (MMBFOE).

Annually, the energy efficiency and conservation efforts of private companies are
recognized through the Don Emilio Abello Awards. The estimated energy
displacement from this program in 2009 was posted at 140.9 million liters of oil
equivalent (MMLOE) translated to monetary savings of PhP4.40 billion. Meanwhile,
the Government Energy Management Program (GEMP) enabled the national
government agencies to save 47.7 MMLOE from reduction in both fuel and
electricity consumption covering the period September 2005 to September 2009. This
earned the government about PhP1.45 billion in savings for the same period.

Early this year, the DOE implemented the “Philippine Energy Efficiency Program,”
which was conceived after the 2008 Energy Summit for a calibrated phasing-out of
inefficient technologies such as the shift from incandescent bulbs to energy efficient
lighting system, among others. With funding support from the Asian Development
Bank (ADB), the project is designed to generate electricity savings of 534 GWh as
well as a deferred power capacity saving of 450 MW per year. It would also result in
an environmental pollution reduction of 350 Gigagrams of CO2 avoidance per year.
Such savings will be obtained from 13 million compact fluorescent lamps (CFLs) for
distribution to the residential sector. To date, the Department has distributed
around 3,000 CFLs during the soft launchings held at Don Bosco Youth Center in
Tondo and five barangays in Taguig City.

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LIGHTING THE COUNTRYSIDE

Over the past two decades, rural electrification has been one of the government’s
priority thrusts. The goal is to achieve 100% barangay electrification by end-2009.

As of September 2009, the country’s total electrification level has already reached
98.50 percent with 41,352 barangays already with access to electricity out of the
41,980 barangays. For the last quarter of 2009, 628 barangays are programmed for
electrification.

The DOE-led Expanded Rural Electrification Team consisting of both government

and private sector partners such as TeaM Energy, USAID-AMORE and Korean
Electric Power Corporation (KEPCO) has committed to the attainment of 100 percent
barangay electrification by end-2009.

MANAGING ENERGY COSTS

As the country continues to source its energy requirements from fuel imports, the
economy remains vulnerable to the effects of high energy prices in the world market.
Thus, to cushion the effects of high fuel costs, the DOE has implemented the
following initiatives:

ƒ MANDATORY RATE REDUCTION

In 2008, a total of PhP2.756 billion discount was granted to residential

customers pursuant to Section 72 of the Electric Power Industry Reform Act
(EPIRA). This brings to PhP21.069 billion the total discount given for the
period 2002-2008. MERALCO residential customers have availed of such
mandatory rate reduction equivalent to an average of PhP0.0744/kWh in
2008.

ƒ LIFELINE RATE

Subsidy to lifeline customers reached PhP3.9 billion for 2008. The country
currently has 3.8 million lifeliners nationwide.

ƒ LOAN CONDONATION

The value of loans assumed by the PSALM resulted in reduction in rates of

ECs ranging from PhP0.0578/kWh to PhP1.3507/kWh. As of February 2009,
PSALM has paid a total of PhP8.86 billion worth of financial obligations of
ECs to NEA representing 49.3 percent of ECs loans to NEA.

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Likewise, the DOE pursued the implementation of rate reduction of PhP1.03/kWh
for high load ecozone locators under the NPC-MERALCO Memorandum of
Agreement.

And at the height of the clamor for lowering the electricity rates, the President
signed Executive Order 796 on 21 May 2009 establishing the “Industry
Competitiveness Fund” with an initial allocation of PhP1.6 billion to cover discounts
granted to various large industrial customers.

It is a transparent subsidy scheme to support and rationalize the grant of special

power rates to industrial entities. This will not only keep the existing investments,
but shall make the country more attractive to foreign direct investments and create
more job opportunities for the people. Further, it will also support and incentivize
qualified power-intensive industries which contribute significantly to the economy.

An Inter-agency Committee (IAC) is finalizing the implementing rules and

regulations of the said EO.

PURSUING REFORMS IN THE POWER AND DOWNSTREAM OIL

INDUSTRIES

Power Sector

To date, PSALM has successfully bid out 23 operating power generation plants and
five (5) decommissioned power plants. Eighteen of the 23 operating plants represent
about 3,077 MW or 81.0 percent of the 3,778 MW total capacity of the operating
plants in Luzon and Visayas Grids. Further, PSALM was also able to transfer 1,700
MW of contracted capacity to IPP administrators or equivalent to 34 percent of total
contracted capacity by NPC (1,000 MW Sual - San Miguel Energy Corporation, 700
MW Pagbilao - Therma Luzon, Inc.).

For the privatization of the transmission business, TransCo was successfully bid out
in December 2007 with the consortium of Monte Oro Grid Resources Corporation,
Calaca High Power Corporation and the State Grid Corporation of China declared as
the winning bidder. The 25-year concession contract provided the government with
US$3.95 billion in revenues. The Consortium later established the National Grid
Corporation of the Philippines (NGCP) or the “Concessionaire”. The operation of
the NGCP commenced on 15 January 2009.

As of March 2009, the sale of 58 sub-transmission assets to 54 distribution utilities

was also realized amounting to PhP3.0 billion.

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Downstream Oil Industry

Under a fully deregulated environment, the DOE continually undertakes close

monitoring of the downstream oil industry activities to ensure moderated oil price
increases and compliance of industry players to quality and quantity standards.

Quality standards for petroleum products have been formulated for the introduction
of cleaner fuels in order to reduce air pollution attributed to vehicles burning fossil
fuels. To date, vehicles can load up diesel pre-mixed with 2.0 percent biodiesel (B2)
and gasoline pre-mixed with 10.0 percent bioethanol (E10) at various retail outlets.
These petroleum products are not only compliant with the Clean Air Act, but also
with the mandated quality specifications under the Biofuels Act.

Meanwhile, the DOE continuously coordinates with the Bureau of Customs for the
use of marker systems in petroleum products to deter oil smuggling. In addition,
regular multi-stakeholders’ dialogues are being conducted to clarify various issues
on the activities of the downstream oil industry, particularly on pricing.

FURTHER DIVERSIFYING ENERGY SOURCES

Nuclear power is considered as one of the viable energy sources amidst the growing
emphasis on energy security and the continuing volatility of oil prices in the world
market.

To address this concern, the government is once again looking into the prospects of
developing a Nuclear Development Program as one of its long-term options. A
broad roadmap for the possible entry of nuclear power in the country has been
developed by an inter-agency Core Group on Nuclear Energy composed of DOE,
NPC and the Department of Science and Technology (DOST) in September 2009.

Likewise, KEPCO is finalizing the feasibility study for the possible rehabilitation of
the Bataan Nuclear Power Plant (BNPP).

ENSURING ENVIRONMENTAL SUSTAINABILITY: CLEAN DEVELOPMENT

MECHANISM)

The Clean Development Mechanism (CDM) is the first global, environmental

investment and credit scheme of its kind. It is a market-based flexibility mechanism
under the Kyoto Protocol (KP) that allows developed countries to earn a Certificate
of Emission Reductions (CERs) to be used for fractional compliance with their
Greenhouse Gas (GHG) reduction commitment. The two core objectives of CDM are
sustainable development and emission reduction.

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The KP is the legally-binding instrument that strengthens the United Nations
Framework Convention on Climate Change (UNFCCC) by committing developed
countries to reduce their GHG emissions.

Of the total registered projects by host parties worldwide, the Philippines ranks
sixth with 40 projects as of October 2009. The approved applications by the
Designated National Authority (DNA) for CDM in the Philippines, are broken down
into two: small-scale which covers 78.0 percent and the regular-scale which covers
the remaining 22.0 percent.

So far, the Philippines has two registered CDM projects issued with CERs, namely
the Northwind Bangui Bay Project in Ilocos Norte and Controlled Disposal Facility
Biogas Project in Quezon City.

SECURING VITAL ENERGY INFRASTRUCTURE AND FACILITIES

Pursuant to Executive Order No. 655 dated 22 August 2007, the Presidential Task
Force on Energy Facilities and Enforcement of Energy Laws and Standards (PTF-
SEFEELS) continuously conducts operations to enforce the energy laws and
standards in order to safeguard the welfare of the consumers based on R.A. 8479
(Downstream Oil Deregulation Law) and B.P. 33 (An Act Defining and Penalizing
Certain Prohibiting Acts Inimical to the Public Interest and National Security
involving Petroleum and/or Petroleum Products, Prescribing Penalties therefore
and other purposes) as amended. As of 3rd quarter of 2009, the Task Force has
strengthened its operations “Ligaw na Langis” and “Bantay Singaw,” and has
inspected 471 establishments, confiscated and impounded a total of 4,023 LPG
cylinder tanks and filed 23 criminal cases.

INSTITUTIONALIZING SOCIAL MOBILIZATION

The DOE spearheaded the celebration of Earth Hour 2009 on 28 March 2009, which
demonstrated the country’s commitment to climate change and energy conservation.
The Philippines ranked number one in terms of community involvement with 15
million Filipinos and 647 cities and towns participating in this worldwide
momentous event.

The nationwide public consultations on energy policies and programs were likewise
conducted, such as the 2009-2030 Philippine Energy Plan, the IRR of the Renewable
Energy Act, Energy Regulations 1-94, Alternative Fuels, among others. Such
consultations aimed at generating wider participatory support from the
stakeholders.

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Although much has yet to be done in pursuing the national energy agenda on energy
security, the DOE, with its team of technical experts and committed public servants will
strive to make progress in responding to real and formidable challenges in the energy sector.
However, the country’s energy initiatives require not only sustained action from
government, but more importantly, shared responsibility with its stakeholders in the private
and public sectors.

The work to be done may be long and arduous, but is definitely achievable.

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