Energy investments face complex regulatory process under federalism

The multi-billion investments targeted in the energy sector will face up with even more complex permitting processes as well as regulation if the government structure’s proposed shift to federalism will be concretized.

According to Senate Committee on Energy Chairman Sherwin T. Gatchalian, the energy sector or the investments eyed to sustain the electricity or oil needs of the country had not been clearly tackled in the proposed federalism measure.

“In the proposed federalism, for those with exclusive powers, the energy sector is not included,” he said.

Federalism prescribes “national governance” that combines a central or federal structure with regional sub-units or states – all tucked into a single political system.

At this stage, the federalism proposal in the Philippines still raises questions whether there would eventually be a need to put up separate Departments of Energy (DOEs) or Energy Regulatory Commissions (ERCs) in all 18 regions that shall be marked out as federal states.

“In the proposed measure, there’s no clarity yet in the set-up… what will likely happen: There’s that what they call ‘shared powers’ – the national and local levels will share that power, but this is actually the vague part,” Gatchalian stressed.

The lawmaker added “our energy demand is not so big, so it will create more confusion – for example in the different permitting processes. And for rate regulation, there might be varying formulas being applied in different regions.”

He further cited that if there is one power plant selling capacity to different regions, it will trigger more perplexities to investors if they will be confronted with different electricity rate-setting formulas across the federal regions.

And with investors already having massive headaches just dealing with one DOE and one ERC at present, it was opined that if different states will have various rules for energy projects, the country may end up losing all those much-needed investment-dollars.

To Gatchalian, he emphasized that he has been approaching the proffered federalism set-up “cautiously,” primarily due to critical concerns such as those on targeted capital flows in the energy sector – as these are badly needed to sustain the country’s economic viability.

“I am cautious – because like the power sector right now, if we have 18 different ERCs, it will really turn very complicated… the federal region, it will be another layer,” he noted.

Gatchalian added “those are the things that we need to clarify – in the present federalism proposal, it is not explicitly written.”

The lawmaker emphasized that “what we want is to reduce layers… in the federalism permitting hierarchy, there might be a requirement to get permit from the federal region; and to secure also from the national level.”

The Philippines has been batting for capacity additions of roughly 10,000 until the end of the Duterte administration in 2022, hence, without clear-cut policies, investors may either be on wait-andsee stance or they will just re-channel capital in markets with sound and more predictable investment rules.