Crisabel M. Tiongson

POWERING INVESTMENT: THE KEY TO ENERGY SUSTAINABILITY A THESIS PRESENTED TO THE FACULTY OF THE COLLEGE OF INTERNATIONAL RELATIONS LYCEUM OF THE PHILIPPINES UNIVERSITY - MANILA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF THE COURSE FRSN14R – FIELD RESEARCH BY: ALAMANO, JESSAMIE T. DELGADO, ROSE JADE EUGENIE S. TIONGSON, CRISABELLE M. 2017 1 Chapter I The Problem and its Background This chapter presents the introduction about the topic, the background of the study, the statement of the problem, the objective of the study, the significance of the study, the scope and delimitations, the assumption and the definition of terms. Introduction Energy is a vital element of each country's economy, and reducing reliance on foreign energy sources is a vital objective for many governments. The Philippines is advancing with numerous projects that will further decrease the need to import energy and has made significant progress in this area in the past three decades. The Philippines is obligated to seek springs of energy from other areas and relatively small proven oil reserves and low oil production. The Department of Trade and Industry (2016), stated that one of the top sectors for foreign investment is on the Philippines’ sources of energy. The Philippines is greatly encouraging the use and improvement of its indigenous renewable energies. The government, under the Philippine Energy Plan, has the objective to use extensively the country’s local energy resources to cut down on our energy imports, in the long run making the Philippines selfsupporting in sources of energy. Reforms are being made to embolden private sector involvement and investments in the growth and utilization of renewables. House Bill 1068, an Act to Promote 2 the Development, Utilization, and Commercialization of Renewable Energy Sources, is estimated to hasten the improvement of renewable energy sector through the provision of fiscal and non-fiscal incentives to renewable energy developers. According to the Philippine Statistics Authority (2016) the number one invested sector in the Philippines is the energy sector which takes up 31.5% of 7.9 million US dollars of total Foreign Direct Investment in 2016. The Philippines had managed, through investments in local energy infrastructure, to reduce its reliance on foreign energy sources from 92% in 1973 to over 40% in 2016 (DOE, 2016). That figure will plunge even more in the near future, as some aspiring projects start generating even more energy locally. In a report, the Philippine Statistics Authority (PSA) said the country’s seven investment promotion agencies (IPAs) logged a 31.2% increase in foreign direct investment (FDI) pledges, to P245.21 billion last year from P186.96 billion in 2014. According to the Asian Development Bank (2009), economic growth in the Philippines has been hampered by the irregularity and the high cost of energy. Electricity services that are at competitive rates and are consistent and secure, are vital to developing the investment status in a state which has fossil-fuel reserves that are limited and thus is heavilu reliant on renewable and foreign energy. By 2030, nearly 68% of the Philippines’ population will be living in cities. Total energy consumption is projected to more than double under existing energy policies. The- Philippine Energy Plan produced by the Department of Energy (DOE), predicts the average annual electricity demand growth of 4.6%, therefore, the country will need to augment 16,550 MW of generation capacity from 2009 to 2030. 3 According to the Philippines’ Department of Energy (2016), the challenge to the country’s moves to lessen its imported fossil fuel dependence, are worries over the initial expense energy projects, funding support to deploy the technology, and capacitating skilled engineers and project developers. Given that energy security is a costly feat, the Philippines is in need of more foreign investments in the energy sector. Local energy companies are employing different strategies in order to attract foreign investors. The initial costs of establishing infrastructures for energy sustainability maybe expensive, but it will have more beneficial long-term effects. The Statement of the Problem This research aims to discover what schemes are applied by top local companies in the energy sector to attract Foreign Direct Investment (FDI) and how the increase of FDI in the energy sector can aid in providing sustainable energy in the Philippines. 1. What are the strategies being used by local energy companies to attract foreign investments? 2. How does the increase of FDI in the energy sector contribute to the achievement of sustainable energy in the Philippines? 4 Objectives of the Study The focal purpose of this research is to know what strategies or schemes are utilized by top local companies to attract foreign investments in the energy sector and how an increase of investment can influence the country’s sustainable energy goals. 1. To discover the strategies used or applied by local energy companies to attract foreign direct investment. 2. To know how the effects of the increase of foreign direct investment to the achievement of sustainable energy in the Philippines. The Significance of the Study This research provides information on the strategies used by top local energy companies to attract Foreign Direct Investments (FDI). It will offer an understanding of how the FDIs are utilized by the local companies to develop the power generation in the Philippines. Furthermore, it will shed light on how FDI helps the energy sector to contribute in the achievement of sustainable energy in the Philippines. 5 Scope and Delimitations The primary data for this research will be derived from content analysis of relevant data, studies and other pertinent information related to the Philippines’ energy sector. To supplement the primary data, the researchers will conduct a semi-structured interview. The respondents for this study are the Chief Sustainability Officers, Finance Officers or other competent representatives of local energy companies in the Philippines An electronic mail (e-mail) will be sent to the target respondents which contain an overview of this research and its purpose and an invitation to conduct a semi-structured, face to face interview in the date, time and place most convenient to the respondents. The purpose of the interview is to know the strategies used or applied by local energy companies in order to attract foreign investments and to know how an increase in such foreign investments will influence the attainment of the goal of energy sustainability in the country. Operational Definitions Local Company An establishment or institution, based in the Philippines, which provides energy-related services to the local population. Foreign Direct Investment 6 An investment made by a company or individual of a foreign country to energy sector businesses in the Philippines. Energy Sector Companies or industries that are focused on supplying or distributing energy. This also includes gas, oils and renewable energy resources. Energy Sustainability The ability of the Philippines to reduce energy imports, make energy cost-effective and make the country self-supporting in energy sources. The Assumption In order to fast-track exploration, improvement, and consumption of its renewable energy resources, the government of the Philippines enacted the Renewable Energy Act of 2008, to improve the country’s energy security. The goal is to reduce electricity rates and lessen its heavy dependence on fossil fuels. The Philippines’ Department of Energy implemented the National Renewable Energy Program (NREP) to realize the goals in the Renewable Energy Act of 2008. The NREP sets goals for solar, wind, geothermal, hydro and ocean technologies to 15,234.30, M.W. by 2030 from 5,439 M.W. in 2010. This is nearly thrice the country’s renewable energy7 based capacity. However, to recognise entirely the potential of the sector, numerous challenges affecting the renewable energy sector have to be addressed. One of the core difficulties is that the cost of renewable energy development is expensive. This is because of a limited number of local manufacturers and foreign investment. In the Ambisyon 2040 development plan of the Philippine government, 17,300, M.W. is needed. 26,000 M.W. increased power from 2030 to 2040 or an overall of 43,000 M.W. from 2016 to 2040 is necessary to sustain the infrastructure schemes. In the country’s blueprint on investment, the Bureau of Investment’s Investment Priorities Plan (IPP), energy sources that are renewable are listed as a priority investment sector. Renewables currently account for just 30% of the country’s energy mix. The BOI carefully works with the Department of Energy (DOE) to guarantee that funds supplement the Philippine Energy Plan (PEP) and is constant with the Renewable Energy Act of 2008, which dictates the deliberation of projects on renewable energy. The government-led National Renewable Energy Plan (NREP) aims to triple RE capacity to 15,304 M.W. by 2030. According to the Department of Energy (2016), the energy sector of the Philippines will need P774 billion in fresh investments to implement vital infrastructure projects and numerous programs necessary to guarantee national energy security. In the Philippine Energy Plan, it is specified that additional investments of at least P3 trillion are needed to reach the objective of energy security. With the current strategies being employed by local energy companies, foreign investors will most likely realize the potential of energy in the Philippines and will continue to invest in 8 the country’s energy sector. Although much capital is needed to achieve energy security, it does not seem like an impossible feat with the surge of foreign investment in the Philippines’ energy sector. Chapter II RELATED LITERATURE This portion of the research shows scholarly articles and related literature collected through the in-depth study of the proponents of this research. THE DOMINANT LOCAL ENERGY COMPANIES IN THE PHILIPPINES According to the article of Rita Olchondra (2015), two Philippine companies had been included in the respected Top 250 Global Energy Company Rankings, namely the Meralco and Petron. 9 Aside from that, statistics from Platts (a London-based oil and energy market data analyst company) reveals that Manila Electric Co. (Meralco), a Philippines’ top power retailer and Petron Corp., a fuel retailer, took the rank of numbers 150 and 247 in the financial performance roster done annually. Moreover, Petron also took the 19th spot on the fastest-growing energy companies in the world stated in Top Global Energy Company Rankings list, and was also declared to be the sixth in terms of being Asia’s fastest-growing energy enterprise.” (Kimitsu Yogachi, 2015). In line with Business in the Philippines’ article posted in Kittleson and Carpo Consulting with regards on the top Philippine energy companies that comprehend the investment opportunities, Yorkie life is accelerating in the Philippines’ industry, thanks in part to the expanding bullishness of investors in the renewables sector. Both imported and homegrown share-owners, along with two of the top trading partners of the Philippines were satisfied in the nation’s possibilities as a prime objective for renewable energy investment. Numerous foreignbased energy companies already have its subsidiaries in the country, upon the leadership of the British company Bronze Oak, which had built the San Carlos Bioenergy Company in 2007, and is predicted to produce approximately 9 megawatts of electricity, plus another 5 megawatts for grid export (Business in PH, 2011). Aboitiz Power Corporation is planning to institute a numerous energy projects by 2011, which is seen to produce about 400 Megawatts of electricity for the Luzon and Mindanao grids. As stated by the Senior Vice President Luis Miguel Aboitiz, “APC will go forwards with the Davao coal and Subic coal power plants and will as well accomplish next year the enlargement 10 of the Ambuklao hydropower plant.” Both the Davao and Subic coal plants will utilize clean coal technology (Business in PH, 2011). The Aragorn Power and Energy Corporation, an oil and gas company in the Philippines, previously signed a deal with Chevron Kalinga Limited, which is Chevron Geothermal Philippines’ subsidiary, to construct powerplant in the Philippines. What is referred to is the 100 megawatt geothermal power plant in Kalinga. The land, which is 26,000 hectares, was bought by the Aragorn Power and Energy Corporation and the Guidance Management Corporation from the Department of Energy with a service contract. The project is anticipated to incur about USD 300 million cost. (Business in PH, 2011). The Paris Manila Technology Corporation (Pamatec), has likewise established a Philippine Rural Electrification Service (PRES) project that is estimated at 17.5 million euro, giving 5,129 solar panels to barangays in Masbate that are considered as impoverished. 665 barangay establishments is expected to be provided with electricity, and 18,000 households. Pamantec is projected to set-up in Masbate, 1,000 more solar units by the end of 2011. Government agencies and banks are now uncovering their support for projects on renewable energy as investor enthusiasm continues to increase. (Business in PH, 2011). In February 2016, the Department of Energy (DOE) signed renewable energy contracts to foreign and local-based energy companies worth $1.5 billion, increasing the confidence of investors in the Philippines’ renewable energy industry which is emerging. Sixty-eight minihydroelectric projects, five geothermal and seventeen wind energy projects were praised by the 11 department, summing up to $1 billion in investments. Also, $500 million worth of biomass projects numbering to twenty two were also approved by the agency (DOE, 2016). STRATEGIES USED IN ATTRACTING FOREIGN INVESTORS In reference to former Budget Secretary Benjamin Diokno, one of the reasons why the Philippines had acquired less foreign direct investments (FDI) compared to other ASEAN states (for the past four years) was due the problem in the country’s tax system. He had also mentioned that PH can be able to attract FDIs if it can lowered its corporate income tax rate and patterned it with other economies in Asia. The corporate tax rate in the Philippines is above the 23 precent Asian average, numbering to 30 percent. It is also dominant than Singapore with 17 percent; Thailand with 20 percent; and Malaysia with 25 percent (Diokno, 2014). In line with the Bureau of Economic and Business Affairs article entitled the Philippine Climate Statement in 2015, The Philippines seriously strive for foreign investment to advertise economic development. The scene of investment in the Philippines has remarkable advantages, such as its free trade zones, including zones oversee by the Philippine Economic Zone Authority (PEZA) plus a huge, learned, workforce that is well versed in the English language. Philippine law treats foreign investors the same as their domestic counterparts, except in sectors reserved for Filipinos by the Philippine Constitution and Foreign Investment Act (detailed below). But, deficient physical and social infrastructure investment structure and transparency lapses hamper 12 foreign investment in the country. Philippine regulatory system continue to be unclear in many economic sectors, with corruption as a noteworthy problem. Another investment hindrance is a slow and complex judicial system (BOEBA, 2015). In line with the Bureau of Economic and Business Affairs article entitled the Philippine Climate Statement in 2015. The Investment Priorities Plan (IPP) lists the investment areas that are considered a priority and are subject to incentives. The- IPP aims to promote investments in education, infrastructure, health and agriculture. The IPP list includes: agribusiness and fisheries; manufacturing (e.g. motor vehicles, shipbuilding, aerospace, etc.), , charging stations for e-vehicles, etc.); services (e.g. creative industries, integrated circuit design public infrastructure and logistics (airports, seaports, transport, etc.); Public-Private Partnership (PPP) projects; energy (development of energy sources, power generation plants and ancillary services); low-cost housing; and hospitals. The BOI reviews projects, and then determines incentives (BOEBA, 2015). FOREIGN DIRECT INVESTMENTS The Economy Watch (2009) stated that FDI is in play when a company decides to locate parts of its firm or buy a part of a firm in a country other than where the mother company is situated. Economy Watch puts it that the two sides of FDI relationship are parent business enterprise and its foreign affiliate. 13 In reference to to the BPM5, FDI is an investment made to obtain enduring interest in enterprises operating outside the investor’s economy. Moreover, the investor´s objective in the management of the enterprise, is to achieve an effective voice. The foreign entity or group of associated entities that assemble the investment is termed the "direct investor". The unincorporated or incorporated enterprise-a branch or subsidiary, respectively, in which direct investment is made-is referred to as a "direct investment enterprise". Some degree of equity ownership is almost always treated to be associated with an efficient voice in the management of an enterprise; the BPM5 suggests a threshold of 10 per cent of equity ownership to qualify an investor as a foreign direct investor. (UN Conference, NA) In agreement to one of the research of Organization for Economic Co-operation and Development (OECD) Developing countries, emerging economies and countries in transition have come increasingly to see FDI as a source of economic development and modernization, income growth and employment. Countries have liberalized their FDI regimes and pursued other policies to attract investment. They have addressed the issue of how best to pursue domestic policies to maximize the benefits of foreign presence in the domestic economy. The study Foreign Direct Investment for Development pursue primarily to shed light on the second issue, by focusing on the overall effect of FDI on macroeconomic expansion and other welfareenhancing processes, and on the channels through which these benefits take effect. The overall benefits of FDI for developing country economies are well documented. Given the applicable host-country policies and a basic level of development, an advantage of studies shows that FDI triggers technology spillovers, assists human capital formation, 14 contributes to international trade integration, helps organize a more competitive business environment and enhances enterprise development. All of these contribute to higher economic growth, which is the most dynamic tool for lighten poverty in developing countries. Moreover, beyond the strictly economic benefits, FDI may help improve environmental and social conditions in the host country by, for example, transferring “cleaner” technologies and leading to more socially responsible corporate policies (OECD, 2012). CURRENT SITUATION/STATUS OF ENERGY SECTOR IN THE PHILIPPINES As reported by the Department of Energy about the current power situation of the Philippines. The year 2016 is descrived by an important rise in the consumption of electricity at 10% and highest demand at 8.7% credited to numerous factors like the surge in temperature and implementation of cooling equipment brought by the El Niño, the conduct during the first half of the year of the National and Local elections, upturn in economic growth, and admission of huge power generating plants. The residential and industrial sectors continued to be the main drivers of the consumption of electricity in the country. Luzon is stagnant as the largest on a per grid basis. Notably, the development of the Philippines’ base of supply complemented the rise in demand with the increase of total installed capacity at 14% from 18,765 MWh (2015) to 21,423 MWh (2016) mostly sourced from power plants that are coal-fired. Among the three grids, Mindanao has the top recorded progress in terms of capacity at 31% from-. From- a total of 5,068 MW committed projects are anticipated to come online. The DOE is 15 constantly boosting investments in the generation of power due to the growing peak demand which is projected to rise by more than triple* in 2040 (Department of Energy, 2016). Together with security in supply, the DOE likewise boards on raising the system’s resiliency and reliability. Several yellow and red alerts in 2016 were confirmed by the system operator in Luzon and Visayas aside from the major grid interruption and load dropping circumstances. Mindanao was negatively damaged by El Niño , among the three major grids, which led to the deterioration in hydro power production and curtailment of supply in the first half of 2016. On the latter part of 2016, supply shortfalls were addressed with the entry of large coal-fired power plants in Mindanao. (Department of Energy, 2016). CONTRIBUTION OF FDI IN ENERGY SECTOR FOR SUSTAINABLE DEVELOPMENT In a report, the Philippine Statistics Authority (PSA) said the seven investment promotion agencies (IPAs) of the country logged a 31.2% increase in foreign direct investment (FDI) guarantee, to P245.21 billion last year from P186.96 billion in 2014. In the fourth quarter of 2015 alone, the amount of investments committed by foreigners totaled P138.61 billion, 45.6% more than the P95.18 billion pledged in 2014’s comparable three months. Unlike money invested for short-term gain in financial markets, FDIs associate longterm investments in hard assets like factories that generate employment. FDI commitments, 16 however, do not yet represent actual financial inflows, but mere pledges registered with any of the seven IPAs for the purpose of availing of tax and other incentives provided by law. The seven IPAs are the Board of Investments (BoI), Clark Development Corporation (CDC), Subic Bay Metropolitan Authority (SBMA), Philippine Economic Zone Authority (PEZA), BoIAutonomous Region in Muslim Mindanao, Authority of the Freeport Area of Bataan (AFAB), and Cagayan Economic Zone Authority (CEZA). The FDI data that the PSA collates from these agencies pertain to commitments that, if realized, are reported subsequently by the Bangko Sentral nag Pilipinas as actual inflows (DTI, 2016). EU investments have created positive spill-over effects, including the generation of high quality jobs and technology transfer. Overall, around 600 medium to large sized companies from the EU are established in the Philippines. Close to 60 of these are generating together a turnover in the Philippines of more than €10 billion in 2012 (5% of GDP). The brochure provides examples of some key companies from the EU showcasing the positive role they play in society by providing quality jobs and technology transfer. These companies invest in sectors of relevance to the Philippine economic and industrial development, such as energy, manufacturing, electronics, pharmaceuticals, logistics, agri-business, and construction (EU Investments, NA). In reference to the Department of Energy (2016) the challenge to the Philippines’ exertions to lessen its dependence on foreign fossil fuels, are worries over the initial expense energy projects, funding support to deploy the technology, and allow skilled engineers and project developers. 17 THEORETICAL FRAMEWORK Barton and Du Plessis (2010), stated that the economic, social and environment sectors are the three pillars of sustainable development which are interconnected and which could preserve the of balance to achieve sustainable development. Figure 1.. Interconnection among three pillars of Sustainable development Sustainable development is a type of development which meets current necessities without risking the capacity of upcoming generations to provide for their necessities. There are three features of sustainable development: • Economic: For society to be economically sustainable, it must be capable to come up with goods and services on an enduring basis and to escape disproportions which harm agricultural or industrial production. 18 • Environmental: A society that is environmentally sustainable must avoid exploitative use of renewable resource systems. This comprises the upkeep of biodiversity, stability of the atmospher, and other ecosystem functions. • Social: It must be achieved in a socially sustainable system, adequate provision of social services. The interactions of these pillars foster the path of sustainable development. There are always ripple effects on other sectors. The method and growth of sustainable development can be witnessed through the indicator sets presented in the global, national, regional, or local level. A community has its fixed indicators founded on a predefined framework that will predict the level of progress headed for sustainable development. Progress can be measured with a compilation of indicators that will give the possibility of framing strategies to reveal priority areas of anxiety that will make attention on the passageway to attaining sustainable development goals in the future (Sorman, 2007). During the World Summit in Social Development (2005), it was stated that pillars of sustainability can be mutually reinforcing and re not reciprocally limited. They are co-dependent, and in the long run not any can exist without the others. The three pillars have worked as a mutual ground for many sustainability standards and certification systems in recent years. A larger purpose is provided by sustainable development and helps them reintroduce their pledges to basic goals like efficiency, sustainability and shareholder value. Its benefits include public goodwill and a better reputation. 19 For some companies, sustainability indicates a chance to shape various efforts in one umbrella concept. For others, sustainability means responding to tough questions about the how and why of their business practices that could have a grave impact on their operations. Sustainable energy meets today’s demand of energy without placing sources in threat of getting exhausted. Sustainable energy should be encouraged for it not only helps the environment but is free of cost and widely available. All sources of renewable energy just like solar, hydropower, wind, geothermal and ocean energy are stable and abundant. Overall, sustainable energy development is deemed to contribute to economic, environmental and social sustainability. In the Philippines, sustainable energy indicators and goals are specified in the Philippine Energy Plan (PEP). According to the Department of Energy (2011), PEP pursues to normalize access of more people to dependable and inexpensive energy to drive local efficiency and progress. The energy sector will guarantee the provision of safe, maintainable, adequate, inexpensive and energy that is environmentally friendly to all economic sectors. In quest of this objective, the government will rally private sector partaking together with other stakeholders to turn into reality the power of choice. The policy thrust of the Philippine Energy Plan includes ensuring energy security, by intensifying the use of renewable energy, and increasing energy access. It also aims to promote low carbon output by helping make energy efficiency a part of daily living for Filipinos and by promoting the usage of clean unconventional fuels and technologies. It also includes the energy sector’s climate proofing, developing regional energy plans and identifying and implementing 20 reforms in the energy sector. This can be best achieved by increasing foreign investment in the energy sector (DOE, 2011). 21 Chapter III Data and Methods of the Study This chapter contains the research design, the participants, the sampling technique, the research locale, the research instrument, the data gathering procedure, and data analysis or statistical treatment. Research Design This research uses the qualitative method, through content analysis and reinforces through a semi-structured interview. According to Cresswell (N.D.), a qualitative study is a procedure of appreciating a social problem on the basis of building a multifaceted, holistic picture, shaped with words, providing meticulous perspectives of informants, and done in an ordinary setting. Qualitative research is intended to divulge target respondents’ behaviors and the perceptions that stimulate them with mention to particular topics or issues. It utilizes in-depth studies of small factions of target audiences to support the construction of hypotheses. Semi-structured interviews involve numerous questions, key to the research, that aid to define the parts to be explored, but likewise allows the respondents to deviate in order to pursue an idea in more detail. The flexibility of this approach also permits the discovery or elaboration of information that is significant to participants, but may not have beforehand been considered relevant by the research team. 22 Researchers aim to discover what strategies are applied by top local companies in the energy sector to attract Foreign Direct Investment (FDI) and how the increase of FDI in the energy sector can aid in providing sustainable energy in the Philippines. Research Participants The primary data for this study will be sourced from the records and studies of institutions like the Department of Energy through content analysis. Such data will be supported by the responses of experts, coming from different local energy companies, who will undergo the researchers’ semi-structured interview. The respondents for this study are the preferably the Chief Sustainability Officers, Finance Officers or other competent representatives of local energy companies in the Philippines who benefit from foreign investments based on the data of the Bureau of Investments. The researchers will send an email to local energy companies in the Philippines, specifically addressed to the Chief Sustainability Officer or Finance Officer. The e-mail will provide an overview of this research and its objectives an invitation for a face to face semistructured interview to be conducted on the date, time and place most convenient to the respondents. 23 Data Gathering Procedure For the primary data of this study, the researchers have gathered articles, records, surveys and other relevant data related to foreign investments in the Philippines’ energy sector as well as on renewable energy in the country. To supplement the content analysis collected, the researchers will utilize the most suitable, accurate, reliable and time-effective means of selecting the participants and gathering data for the study. The researchers will use the semi-structure interview. The questions for the semi-structure interview are to be reviewed and validated by experts in the field of Energy and Economics, more or less three individuals. The researchers will apply the semi-structured interview which is a broadly used technique in research. Dissimilar from structured interviews, which follow an inelastic setup of fixed questions, semi-structured interviews concentrate on specific themes, but cover them in a conversational style. The enthusiasms of people’s choices and behavior, their attitudes and beliefs, and the effects on their lives of particular policies or events are best learned through this. The respondents for our study are the Chief Sustainability Officers, Finance Officers or energy experts from local energy companies in the Philippines. The respondents are those within Metro Manila. An electronic mail (e-mail) will be sent to the target respondents which contain an overview of this research and its purpose and an invitation to conduct semi-structured face to face interview in the date, time and place most convenient to the respondents. The interview shall take place in the date, time and place most convenient for the respondents within Metro Manila. Before the interview the researchers will give an overview of 24 the research, emphasizing its purpose and significance. The interviewers will use the validated interview guide which encompasses a list of questions need to be covered during the conversation, usually in a particular order. The researchers’ objective is to gather data that would reveal the strategies used by local companies to increase foreign investments in the country’s energy sector, and how it affects the goal of energy sustainability in the Philippines. 25 Chapter IV Data Analysis and Research Findings This chapter’s objective is to encapsulate the collected data and the statistical treatment of analysis. Energy Security and Development in the Philippines Energy security has been a vital fragment of the global development agenda for over four decades. Since the 1970s, countries have been searching for chances to shift to unconventional renewable sources of energy such as solar, hydropower, wind, biomass and biofuel given that the world depends greatly on exhaustible fossil fuels. However, the shift to clean renewable energy, considered as the long term solution, has been a challenging feat for all countries. The Philippines, in recent years, has been recognized to be a principal high-growth economy in Southeast Asia. It continues to prosper with strong consumption and growth across sectors including the energy sector. Attention is given to the power condition facing the Philippines in order to help safeguard the durability of the country’s optimistic economic performance. In the near future, it is probable that the estimated demand for power in the industrial and consumer sectors will surpass the committed capacity currently estimated by regulatory bodies. In line with the national government’s goal of being an agent for sustained economic growth, the availability of essential 26 utilities, especially electricity, will be a crucial requirement in keeping the commercial viability of prospective businesses across industries. (Manabat, 2014) In the KPMG Global Institute’s The Energy Report Philippines: Growth and Opportunities in the Philippine Electric Sector (2014), it is stated that the Philippine economy has been outperforming vital rating drivers of other investment-grade states. The country started private sector participation in power since the early 90s. According to Somani (2014), the introduction of retail competition and open access is the next big step for the Philippines to take its power market to the next level of development. With over 90% of electricity coverage in the country, diversified energy supply base and supply being able to cover demand for the foreseeable future, the country has the necessary ingredients for setting up a competitive market structure. Installed Capacity to Meet Energy Demand The continued increase in energy demand is also supported by the Philippine Energy Plan- (PEP), launched by the country’s Department of Energy (DOE) in December 2012, which provides the roadmap for upcoming demand and capacity. It is stated in the plan, that the country’s current installed capacity is estimated at 16,251, M.W. is anticipated to surge to 25,800 M.W., a rise of 62.97% by 2030. Still, this is expected to be short of the estimated demand of 29,330MW in the year 2030. The country’s Total Final Energy Consumption (TFEC) is predicted to increase at an average rate of 2.8% annually from 2011 to 2030. The transport sector will have, by 2030, a total energy consumption of 35.5%, followed by the residential sector (33.7%), 27 the household sector (17.9%), the commercial sector (11.9%) and the agriculture sector (0.9%). (Figure 2) Figure 2. Total Final Energy Consumption by Sectoral Share by 2030 Agriculture Sector Commercial Sector Percentage Share Household Sector Residential Sector Transport Sector 0 " 10 20 30 40 Source: Philippine Energy Plan- An increase in energy demand would mean that the country would need to enhance its current energy sources especially renewable energy (RE). Such a feat would mean an increase in investment opportunities in the country because shifting to RE is expensive and could be greatly funded by foreign investors. Investments to Power the Energy Sector The increase in the power sector’s investment opportunities is also stated in the aforementioned KPMG Global Institute’s The Energy Report Philippines. According to the report, for both domestic and international private companies, great opportunities are available in the power sector for years to come. The adding of over 13GW, the same specified in PEP (16,250MW to 29,330MW), together with the development of high capacity interconnectors between island grids in the archipelago, would entail big opportunities for investment in the 28 private sector. Summative investment opportunity is estimated at about US$25 billion until 2030. The Investment Priorities Plan (IPP), which provides promoted areas of investments qualified for government incentives released annually, it is stated that the energy sector is a priority investment area due to the energy potential of the Philippines. Figure 3. Reasons for the Attraction of Foreign Direct Investments in the Philippines’ Energy Sector according to Local Energy Companies Economic Factor (Increase in Energy Demand brought by Economic Growth) Shift from Coal-Based to Renewable Energy Sources Performance of Local Energy Companies Foreign Partnership History of Local Energy Companies Corporate Social Responsibility Activities of Local Energy Companies Interactions During International Energy Events Source: Interview According to the respondents’ replies, the biggest reason for the attraction of foreign investors to the energy sector is the country’s economic appeal. Foreign investors are drawn to the growth of energy demand in the Philippines because of the country’s increasing economic growth. According to Semirara Corporation, the rising number of Private-Public Partnerships (PPP) is a key factor in the country’s economic improvement. Furthermore, the interviewees had similar responses that there are no formal strategies employed by their companies to attract foreign investments because the country’s energy potential is already a huge driving force for them to invest. However, they contend that while the 29 increasing energy demand is a huge factor, there are also other reasons why foreign businesses choose to invest in local energy companies. Local companies’ performance and foreign partnership histories are also factors of FDI attraction. Local energy companies had quite a number of foreign partnerships. Good relations and effective performance of local companies has gained a reputation in the global energy sector and investors feel assured to invest in the country. According to DMCI Power, the country is aggressively encouraging the improvement of its local renewable energy sources. The shift from coal-based sources to renewable energy would mean more needed financial and technical assistance from foreign companies. Under the Philippine Energy Plan, the Government has the target to extensively use local energy resources to decrease foreign energy usage and eventually make the Philippines self-supporting in energy sources. Investors are also altering the way they evaluate the performance of companies, and are making choices with ethical concern as a base criteria. They now consider whether or not companies involve themselves in Corporate Social Responsibility (CSR) activities. Foreign investors choose to invest in local companies that engage in CSR because CSR actions influence consumers’ reactions to a company and its products. Many foreign companies are taking steps to make sure that their partners behave themselves in a socially responsible way because they reflect the foreign company as well. CSR Asia Weekly, a publication distributed in the AsiaPacific Region, ranked Energy Development Corporation (EDC) first in the Philippines and number 6 in Asia Pacific among companies that Corporate Social Responsibility professionals admire. 30 Lastly, according to the respondents, being able to participate in international engagements concerning the energy sector provides them an opportunity to inform investors of the energy and investment potential of the country. All these factors play a key role on why energy is the most invested sector in the Philippines. Gradual Shift to Renewable Energy The Philippine Power Statistics (2016), released by DOE covers data from 2003 to 2016 which shows that there has been a stable rise in the Philippines’ oil, coal based, natural gas and renewable energy source. As of 2016, oil is still the main source of power in the Philippines with 47.7%. Astonishingly, renewable energies followed with 24.2% despite that the use of all sources of renewable energy, namely, geothermal, hydro, biomass, solar and wind was completed in 2009. In 2003, only geothermal and hydro energy was utilized. The solar and wind was made available the next year. Following renewables is natural gas (21.9%) and coal (6.2%). (Figure 3) Figure 3. The Philippine Energy Mix in 2016 Oil Based Natural Gas Percentage Share Renewal Enegy " Coal 0 12.5 25 37.5 50 Source: 2016 Philippine Power Statistics, Department of Energy 31 The all out use of renewable energy sources in 2009 was brought about by the passage of the Renewable Energy Act of 2008. It is a landmark legislation which reinforces governmental policy to hasten the exploration and development of RE resources in the country. In the year preceding the RE Law’s passage, 49% of the Philippines’ total installed generating capacity was fuelled by imported coal and oil and 0.16% of the mix was fueled by emerging renewable energy. With this, around 9,300, M.W. from analytical and probable RE resources (the ocean, geothermal, wind, hydro, solar, and biomass) have been recognized as an ambitious target which could be bound within the- planning period as stated in PEP. Furthermore, according to PEP, net oil importation declined in 2009 by 9.0%, from 12.7 MTOE or 96,078.4 thousand barrels (MB) in 2010 to 11.5 MTOE (87,885.4 MB) in 2011. Likewise, The Philippines’ coal importation showed a slight decline of 0.03% from 2010 level of 5.8 MTOE (10,962.5 MMT). This can be attributed to the promotion of renewable energy brought about by the RE Act of 2008. As of 2016, based on the DOE’s Philippine Power Statistics, the leading type of renewable energy used in the Philippines is geothermal (12.2%), then hydro (8.9%), solar (1.2%), wind (1.1%) and biomass (0.8%) accounting for a total of 24.4% of the country’s total energy mix. (Figure 4) According to Semirara Power Corporation, an energy company that is greatly coal-based, coal will remain to be a major energy source of the country. However, in recent years, coal production in the country has not been able to reach its quota and the country has had to import coal from countries like Indonesia. This is a sign that the Philippines really needs to explore its 32 renewable energy base. This was supported by DMCI Power stating that since coal is a finite resource, if the Philippines wants to be energy self-sufficient, it is wise for it to tap into renewable energy sources. Figure 4. Sources of Renewable Energy as of 2016 Biomass Wind Solar Percentage Share Hydro Geothermal 0 " 3.5 7 10.5 14 Source: 2016 Philippine Power Statistics, Department of Energy The data on renewable energy sources of the country is supported by the Department of Energy’s released report, Awarded Projects Under Renewable Energy (RE) Law as of 2016. There were a total of 755 awarded projects increasing the country’s installed energy capacity to 4,521.74MW and potential capacity to 16,948.98MW. Hydro power had the highest number of awarded projects totalling to 413, followed by solar (166), biomass (67), wind (59), geothermal (43) and ocean energy (7). (Figure 5) Figure 5. Awarded RE Projects in 2016 33 Ocean Geothermal Wind Percentage Share Biomass Solar Hydro 0 " 125 250 375 500 Source: Department of Energy In conclusion, the Philippine power sector is experiencing a huge transformation, exploring renewable energies, that provides opportunities but also high risks that need to be managed. With this, more investments are needed to achieve the energy sustainability goals of the country, increasing its installed power capacity. Existing stakeholders would have to reorient themselves to be successful in this new environment. 34 Chapter V Summary, Conclusions and Recommendations This chapter concludes this report. This chapter presents the summary of the findings, conclusions and recommendations based on the data analysed in the previous chapter. Summary The study was conducted for the purpose of determining the strategies or schemes employed by top local energy companies in the energy sector to attract Foreign Direct Investment (FDI) given that according to the data of the Philippine Statistics Authority’s as of 2016, the number one invested sector in the country is the energy sector which takes up 31.5% of the $7.9 million of total FDI in 2016. It also aims to know how the increase of the energy sector’s FDI can aid the country in attaining energy sustainability. On the basis of gathered, analyzed and interpreted data, the researchers produced the following findings presented on the basis of the questions formulated in the statement of the problem. According to the content analysis and supported by the respondents, although there are certain steps that local energy companies do which contribute to the increase of FDI in the energy sector, such as Corporate Social Responsibility activities and attending international events where they are able to interact with foreign investors, there are no formal strategies that are employed by local companies to attract FDI. They further contended that the main reason why foreign investors opt to invest in the country’s energy sector is because of its potential and 35 the projected increase of energy demand in the coming years as confirmed by data from the Department of Energy. The gradual shift of the country from coal to renewable energy sources is also a major attraction for foreign investors. The interviewees also attested that capital needed for renewable energy is large and this is where foreign investments come in. Furthermore, local energy companies who have renewable energy projects tend to partner with overseas companies to acquire technical assistance and know how on renewable energy. Given that foreign investors aid the country in shifting to renewable energy by providing financial and technical assistance, and renewable energy is the means for the country to be energy sustainable, it is safe to conclude that the continued increase of FDIs would help the country to have a stable and sustainable energy base. The Conclusion The following are the conclusions formulated based on the findings of the study: 1. To discover the strategies used or applied by local energy companies to attract foreign direct investment. Utilizing the first-hand data gathered through content analysis and supported by the personal semi-structured interview with the respondents, researchers conclude that there are no formal strategies employed by local companies to attract foreign investments in the country’s energy sector. However, they discovered there are quite a number of factors that attract foreign 36 investors. The biggest reason for the attraction of foreign investors to the energy sector is the economic factor in the country. The growth of energy demand in the Philippines, because of the country’s increasing economic growth, greatly appeals to foreign investors. The respondents had the same reasoning that there are no formal strategies employed by their companies to attract foreign investments because the country’s energy potential is already a huge driving force for them to invest. Other factors include the gradual shift to the renewable energy source from coalbased. From the time when the Renewable Energy Act was passed, there has been an increased need for financial and technical assistance from foreign companies to help the country establish a stable energy base that would eventually lead to the Philippines being self-sufficient in terms of energy. The adoption of the Philippine Energy Plan also added a sense of urgency to the use of the country’s indigenous energy resources to reduce our energy imports. Local energy companies’ performance and foreign partnership histories are also factors of FDI attraction. Good relations with their foreign partners and the effective performance of local companies have gained a reputation in the global energy sector. With this, investors are more secured in investing in the country. As for investors, it is now important that their partners behave themselves in a manner that is socially responsible because they represent the investing company. They now consider whether or not companies involve themselves in Corporate Social Responsibility (CSR) activities. CSR Asia Weekly, a publication distributed in the Asia-Pacific Region, ranked Energy Development Corporation (EDC) first in the Philippines and number 6 in Asia Pacific among companies that Corporate Social Responsibility professionals admire. 37 Lastly, according to the respondents, being able to participate in international engagements, such as conferences and summits concerning the energy sector, provides them an opportunity to inform investors of the energy and investment potential of the country. 2. To know how the effects of the increase of foreign direct investment to the achievement of sustainable energy in the Philippines. According to the data gathered, the respondents agree that the Philippines is starting to work towards its goal of reducing its energy imports making it more energy self-sufficient with its exploration of its indigenous energy resources. As of 2016, oil and coal are still the main sources of power in the Philippines with 47.7%. Renewable energies followed with 24.2% despite that the use of all sources of renewable energy, namely, geothermal, hydro, biomass, solar and wind was completed only in 2009 after the passage of the Renewable Energy Act. Since establishing and stabilizing the renewable energy mix of the country requires a big capital base, foreign investments contribute greatly to the needed financial requirement. Ergo, an increase in foreign investment in the energy sector, means more capital to establish renewable energy sources which would help the country be more energy sustainable. Also, since renewable energies are new to the country, all sources being fully utilized only in 2009, technical assistance is also required from foreign businesses. Recommendations 38 The following recommendations are offered for related research about the factors affecting the Philippine energy sector’s foreign direct investment and its relation to the country’s energy sustainability: 1. The research conducted by the group can serve as a future reference for related studies in the same field 2. This research should be introduced to local companies in the energy sector as a reference on why the energy sector takes a huge amount of foreign direct investment and how it affects energy sustainability in the Philippines. 3. Future research is recommended to determine the correlation of GDP growth to foreign direct investments in the energy sector 4. Future researchers should be mindful in conducting data gathering through personal interview because setting a time, date and place with the respondents from local energy companies is a challenge. 5. Future researchers should observe whether the data and conclusions are true after the country has established a more stable renewable energy base. Recommendations for practitioners: 1. The professor must further encourage the students to conduct research related foreign direct investment and energy sustainability. 39 2. Practitioners should aid in validating the gathered data by the researchers whether those data are reliable and precise 3. Professors should give assistance, through consultations, to the researchers to check that the objectives of the study are met. Recommendations for improving the study: The following recommendations are presented as probable ways to improve the study. 1. Future researchers should further delve into the correlation of the country’s GDP growth and the increase of foreign direct investment in the energy sector. 2. Future researchers might want to increase the number of respondents. 40