BIOFUELS ACT: WILL IT LESSEN FOREIGN FIRMS’ GRIP ON THE LOCAL ENERGY SECTOR?

At first glance, the Biofuels Act seems like a promising start on the road towards national energy independence and weaning away from dependence on imported energy sources.

By Arnold Padilla

IBON Features– The search for indigenous energy sources is a vital one for the Philippines , given its dependence on imported oil. In the wake of recent record-high oil price levels, the Arroyo government has been actively promoting the search for alternative energy sources.

In her 2005 State of the Nation Address, President Gloria Arroyo had asked Congress to pass legislation on renewable and indigenous energy. She also actively promoted the Alternative Fuels Program of her Medium-Term Philippine Development Plan (MTPDP) 2004-2010 as one of the long-term solutions to high oil prices.

The passage of the Biofuels Act seems to be one answer to this search for indigenous energy sources. It calls for the use of “biofuels” such as bioethanol, biodiesel, and other fuels made from biomass (i.e. any organic matter which is renewable).

Bioethanol refers to ethanol produced from feedstock and other biomass suitably denatured for use as motor fuel while biodiesel refers to fatty acid methyl ester derived from vegetable oils or animal fats technically proven and approved by the Department of Energy (DoE) for use in diesel engines.

The law prescribes that a minimum 1% biodiesel be blended into all diesel engine fuels within three months of the implementation of the law, while bioethanol should comprise 5% of the annual total volume of gasoline fuel actually sold and distributed by all oil companies in the country within two years of the Act’s effectivity. Further, the Department of Energy is mandated by the Act to determine the feasibility of bioethanol increasing to a minimum of 10% of the total volume of gasoline fuel within four years and 2% for biodiesel within two years from the effectivity of the law.

Indigenous materials would be used to produce biofuels locally. Coconut would be used as feedstock for biodiesel. To ensure the program’s sustainability, the DOE is also studying other possible biodiesel feedstocks such as Jathropa Curcas or tuba-tuba. For bioethanol production, government aims to utilize sugar cane, corn, cassava, and nipa.

Thus, at first glance, the Biofuels Act seems like a promising start on the road towards national energy independence and weaning away from dependence on imported energy sources. But a closer look reveals how the law ultimately promotes foreign control over the country’s natural resources that is already the present state of the country’s oil industry.

Foreign Investors Cash In

It is expensive to set up an ethanol plant; one estimate pegged the cost at P2 billion for a plant with a capacity of 100,000 liters daily. The Act’s principal author, Miguel Zubiri, has said that the country needs to set up at least 25 ethanol plants in order for the Philippines to meet the prescribed ethanol-gasoline mix.

This high expense is why foreign corporations are behind most of the ethanol projects launched in the wake of the law.

For example, Saudi Aramco, 40% owner of Petron Corporation, expressed its plan to build an ethanol distillery or a jathropa processing plant in Mindanao as part of its commitment to invest $300 million in new investments from 2007 to 2010 to expand its refinery.

Meanwhile, the country’s first ethanol plant– the P2.28-billion San Carlos Bioenergy Inc. (SCBI) in San Carlos City, Negros Occidental with a production capacity of 27.3 million liters per year– was built by Bronzeoak Philippines, a local unit of British firm Bronzeoak Ltd. (60% ownership), together with the National Development Corporation.

Japanese firms are also very active in investing in biofuels; conglomerate Marubeni was reported as among the companies in ‘exploratory stage of venturing into ethanol projects.’ For coco-biodiesel production, Toyo Engineering Corporation (TEC) intends to develop 600,000 hectares of coconut lands with an investment range of P0.10 to P1 million per hectare.

Most recently, Filipino and Chinese companies recently forged memorandums of agreement to develop bioethanol plants.

All these pave the way for the foreign control over the country’s natural resources, like what has been prevailing in the oil industry. In fact, past Philippine governments have systematically placed the country’s energy resources in the hands of foreign business interests, at the expense of Filipino consumers and the national economy. Examples include former president Marcos’ integrated energy program in the 1970s and the Ramos government’s program to liberalize the local energy sector.

Governments have failed to exert substantial control over the country’s energy resources because of the foreign firms’ tight grip over the sector. One result of this is the endless rounds of oil price hikes that local consumers continue to suffer from.

Although local oil firms are quick to blame high global oil prices for the hikes, in fact exorbitant and unreasonable oil prices may be traced to the global cartel of the largest transnational corporations that manipulate international prices and domesti c p ump prices through transfer pricing.

Minimal Effects on Pump Prices

It should also be noted that the Biofuels Act by itself will not have any consequential impact on high and escalating local pump prices.

During the Senate deliberation on the biofuels bill, Energy Secretary Raphael Lotilla admitted that even a mandatory 10% biodiesel blend with regular diesel may result in a price reduction of only P0.50 per liter– already a small amount that may even be easily offset by frequent oil price hikes under deregulation.

DOE projects that the full implementation of the 10% bioethanol program would displace 536 million liters of imported gasoline (which is equivalent to around P15.33 million in foreign exchange savings) while a 5% biodiesel blend would reduce diesel importation by 271 million liters per year (worth around P5.99 billion).

These amounts become insignificant when the high volume of gasoline and diesel imports and increasing global prices are considered. Based on 2005 import figures, this would displace only some 34% of gasoline and 10% of diesel importation.

Nationalize the Industry

The commanding position oil TNCs enjoy in the local oil industry enables them to dictate not only the prices of petroleum products but also the exploitation and control of the country’s oil reserves and other energy resources. And such will also happen to biofuels if government allows the nascent sector to fall under the monopoly control of transnational corporations.

Biofuels development is taking place in the context of a privatized and profit-oriented energy sector. However effective and responsible state control of the energy sector is the only way to ensure that the national interest is protected and that the development of energy resources is integrated with the thrusts and priorities of economic development. Otherwise, as is happening today, the legitimate need to develop alternative energy sources with an eye towards energy independence will be exploited as just another profit-making venture by big private interests.

Real public ownership, control and regulation of the country’s energy sector are vital for this to be truly oriented towards the needs of Filipino consumers. This includes responsible state control over resources such as biofuels. This underscores yet another challenge: to ensure that the government in place is one that is fully and genuinely accountable to the people.

One Response to “BIOFUELS ACT: WILL IT LESSEN FOREIGN FIRMS’ GRIP ON THE LOCAL ENERGY SECTOR?”

  1. j, aquino Says:

    i need some reaction if biofuels act of 2006 give effect to the household and business firms? if there is some effects can you please send in my account for my research?
    this webside is good source of information.


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