Announcement of The World Bank's Geothermal Clean Energy Power Project in The Philippines on June 7, 1994

FOR IMMEDIATE RELEASE ,World Bank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A. *Telephone: (202) 477-1234 IBRD News Release No. 94/102EAP Contact Peter Stephens (202)458-0344 External Affairs, EAPVP THE PHELIPPINES TAPS GEOTHERMAL RESERVES FOR CLEAN ENERGY Washington, D.C., June 7, 1994 - A $1.3 billion geothermal power project will help alleviate the Philippines' power crisis with reliable, clean electricity. Four hundred-forty megawatts (MW) of geothermal capacity will be developed on the island of Leyte through build and operate contracts with the private sector. The project will also expand the national power grid by connecting Leyte with Luzon, almost completely inter-connecting the entire country. The Leyte-Luzon Geothermal Project is being supported by two World Bank loans totaling $227 million and an Expanded Cofinancing Operation (ECO) of $100 million. ECO is a World Bank cofinancing instrument introduced in 1989, which provides guarantees in support of commercial borrowings. This is the first ECO operation in the Philippines and it guarantees payment of the original $100 million principal after 15 years. The Bank loans consists of one to the National Power Corporation ( NPC -- $113 million), which will work on expanding the power transmission network, and another to the Philippine National Oil Company (PNOC -- $114 million), which will Leyte-Luzon Geothermal Project manage development of the Financinq Plan: geothermal reserves. --in US millions-- World Ban~k - ProC 114.0:~:.* According to Claudio World Bank - NPC 113.0 Fernandez, World Bank task e setor L 73. Japan Export-import Bank - PNOC 114.0 .JM r .. ...................... manager, the project is unusual in ............. the high degree of joint financing B.T.Contracts it's receiving. "Given the large BCouprt 620.4 01000 amount offinancing required, the BITS (Swedish) Grant 39.0 project would have been Global ....met.c.iy.. . .. impossible to carry out without Gra0t - PNO. the cooperation and support of the GEF Grant - NPC 15.0 various donors." PN`C ;temal Cash .Gne.rtio 92.0 NPC Internal Cash Generation 41.9 'Note that money figures are expressed in US dollar equivalents. Lack of Power Constraining Growth Since 1991 the Philippines has suffered from a serious power shortage, with complete power outages for up to ten hours. The power shortage has cost the country at least $1 billion a year in forgone economic output. In response, the Government began a "fast-track" power generating program focusing on gas turbines and diesel generators because of the shorter time needed to build them. The Government also began a comprehensive demand management program to conserve electricity which has been applied extensively nation-wide. Despite this effort, "lack of power is still the most constraining factor in the country's economic development, " Mr. Fernandez says, "and peak electricity demand in the country is expected to double by the year 2000. " The just-approved project will help alleviate this problem. Power from the Private Sector The project will provide 440MW of geothermal power through "Build-Operate-Transfer" (BOT) arrangements with the private sector. In a BOT arrangement, a private business incurs the cost of building the power plant, in exchange for running it (at agreed rates) and retaining its profits for a number of years. In this case, the BOT arrangements will be based on 10-year renewable contracts. The private sector in the Philippines has become increasingly involved in providing power through these types of arrangements. According to Mr. Fernandez, "with 35 contracts with the private sector totaling for than 5, 000MW, the Philippines has more BOT contracts than most developing countries in the world About 80 percent of the country's incremental power needs will be supplied by the private sector by 1998. " The country is also breaking ground by tapping into what is deemed "the most promising indigenous form of energy in the Philippines, " Mr. Fernandez says. The country has geothermal reserves estimated at 8,000MW, but has so far developed only 900MW of this. Despite this, the Philippines is "already the second largest user of geothermal energy in the world - second only to the United States." According to Mr. Fernandez, planned development In the Phlippines in this area will likely make the country the number one producer in the future. Geothermal 21% The advantage of geothermal power is that it is a renewable energy P.tmieum source with a much lower level of associated pollution than coal or oil. In a coal-fired power plant generating 440MW of electricity, carbon dioxide He emissions alone would be between 10 22% and 15 times greater than the . proposed geothermal generation. 9% 2/. "The environmental benefits of geothermal power generation are what led the Global Environment Facility to provide $30 million in grant money, " Mr. Fernandez says. "A coal- fired plant would have been between $90 and $150 million cheaper to build, but coal has greater environmental costs. The GEF grant helped defray the additional cost of using the much cleaner geothermal reserves. " The project will also interconnect most of the country on a single power grid. This will promote energy savings, since it allows one region to "borrow" power from another when faced with a shortfall. Regional power plants are then able to reduce their electricity reserves. This expansion includes construction of overhead transmission lines and a submarine cable crossing the San Bernardino Strait. The project will also support Government efforts to improve the energy sector through implementation of an Energy Sector Plan, covering institutional, legal and energy conservation measures. Resettlement Aims to Improve Living Standards About 127 families will have to resettle as a result of geothermal development. A detailed resettlement plan has been prepared which conforms fully with the Bank's Operational Directive on Resettlement (O.D. 4.30). The resettlement plan aims to improve the living standards for those people being resettled. Families that currently do not have potable water, sewerage, or electricity will be provided with replacement homes that do. These homes will be located as near as possible to their old homes, and within easy distance of a school and chapel. Each family will also receive cash compensation for any property lost. In addition, 1 percent of the gross earnings from project electricity sales will be distributed among the province and the local community. The Bank has approved 15 power and power-related projects in the Philippines since 1957. This is the third project in support of geothermal power production. It follows the Leyte- Cebu geothermal project (total cost $458.9 million), approved in February, 1994. Bank lending to the Philippines in the near future will focus on infrastructure and social development. Both Bank loans are extended for 20 years, including five years of grace, at the Bank's standard variable interest rate, currently 7.27 percent. 3/.