There's an ongoing battle brewing in my lovely town of Cantilan regarding a proposal by the local government council with the prodding of the town mayor, Tomasa L. Guardo for the construction of a mini-hydro electric dam in the mountain barangay of Cabangahan. The debate is centered on the capability of the LGU to manage such an economic activity considering that it cannot even profitably manage an ice plant given by former Cong. Pichay.
As a background, a few years ago, an entrepreneurial son of Cantilan and, claims he, one of the few hydro-electric engineers in the country, Engr. Godolivo Urbiztondo, Jr. made a pitch to the town mayor for a mini-hydro electric dam to help supply the power needs of Cantilan. Currently, we are sourcing our power needs from Maria Cristina Falls. As people in my town can testify, the supply of electricity in our area is not sufficient since we are experiencing drops in power that lead to many brownouts. This proposal actually came at the right time considering our present power requirement.
But as they said, the devil is the details. Please click on the shortcut to read more about the proposal. http://www.dnv.com/certification/climatechange/Upload/Sipangpang%20Falls%20Small%20Hydropower%20project.080306.pdf
As a summary, the proposal will take advantage of a grant from the Czech Republic going towards the purchase of an electro-mechanical equipment and services at a cost of $25,000. As the proposal mentioned, this will be the first of its kind in the Philippines and will be used as "model" for future projects of this kind. It also mentions that since this is a potentially low carbon-emitting project, it will be the first project of its kind in the Philippines to be selling carbon credits called CER's, in accordance with the Kyoto protocol, to augment the income of the project. Sounds lovely, isn't it? However, I am quoting a text from the proposal:
"The Project faces barriers that impede its implementation on a BAU basis. The Project is not financially attractive without income from the sale of CERs. Without such supplementary income, the Project’s IRR will be lower than the benchmark. In addition to this investment barrier, the technology to be used is also a formidable barrier to project implementation. It will be the first hydropower plant in the Philippines to use such advanced technology. Such a lack of experience with this technology could cause problems with project operation and maintenance."
Below is the financial projections of the project:
Cost of the project (in $): 1,633,851.00
Current exchange rate 45.83
Cost in pesos 74,879,391.33
Electricity tariff (in $) 0.066
Current Exchange Rate 45.83
Electricity tariff (in Pesos) 3.02
Electricity Sales in kwh 4,905,600.00
Expenses in dollars 50,208.00
Income Statement in Pesos
Income 14,838,360.77
Expenses 2,301,032.64
Net Income 12,537,328.13
IRR 16.74%
The financial projections looks really attractive but if you dig deeper, you will realize that that's all it is, projection. Many questions come to mind regarding the financial feasibility of this project, like for example where the initial capital will come from. This is where the LGU has a not-so novel proposal of borrowing the money to finance the initial investment of P75m, in fact their loan application was I believe P80M because of the exchange rate at the time of the proposal. I am not sure if the cost of borrowing is included in the expenses of the projected income statement but if you compute the cost of borrowing at say a low 5% (I'm not sure how much cost of LGU borrowings is right now), that would still amount to P4M a year in interest expenses that the project will have to pay. If you look at their expenses of P2.3M, I have a reason to believe that this was not included in the computation. This to me is a very optimistic projection considering that the cost of corruption is not included in the computation.
Another point as stated in the qualification in the project proposal, the technology that will be used in the project is the first of its kind in the Philippines. Consideration also will have to be taken of the fact that Carbon credits will be sold to augment the income of the project, the first of its kind in the Philippines according to the project proposal. Will the LGU of Cantilan be able to manage this kind of project?
I doubt it very much.
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12 comments:
Will the LGU of Cantilan be able to manage this kind of project? - dili siguro makaya nan LGU CANTILAN alone, pero kun jaoy private firm na makig-sayo sa pagpadjagan nan operation, pwede ba? what do you think kanuto?
Looking at the financial feasibility and the technical aspects of the project, I don't think any investor in his right mind will invest in this project. The IRR is low and the technology is new not to mention that the service contract involved is too costly since the parts for the equipment will be sourced from the Czech Republic and the people who will service the equipment will have to be brought in from another part of the country, if someone is capable of doing it, or maybe even from the Czech republic. Also if the LGU is involved, mahamok na politics an involved. If the mayor is involved in staffing the project, mahimo na political football and nobody will be held accountable for the project. If the project will be handled by a purely private entity, then maybe it will have a chance of taking off kay waya na may politics involved. Cantilan can still make money through taxes.
cantilan will earn more with this project. of course mo sugal gajud sa loan. so what's your plan kanuto? i challenge you, e print ini imo article with your (dili mokita an lungsod) na computations and present it to the council, convince them not to push through with this. kami na readers wayay amo mahitabang dimo kundi magbasa ra. convince them (SB members) to cancel this, para sila mga interesado sa project, sila na magpadajun.
you're challenging me? bali na man hanuon. the challenge is with the the LGU to prove that the municipality will really earn from this project and pay off the loan at the same time without saddling the taxpayers with the burden of paying off the loan. I have presented my computations, show me yours.
an pasabot siguro nija kanuts na tag challenge kaw nija to bring your isyu ,your computation sa council nan cantilan for them to study kun mo kita o dili para ila e cancel.
thanks for the advice. i will take it under consideration.
how about the idea that the mountainous area of cabangahan to lubo is a seizmic belt, canit nt be treated as dangerours to thedam construction?
and also the access roads constructed every year are also yearly destroyed by rain waters which to date can even be visted there for verification or for even just curiosity
if it 80 million loan, and granting the inteest will be 10% then how much will be yearly payment and when will it stats to ain interest? and how many years will the l.g.u cantilan going to pay the interest and the principal?
if it is possible, then why until now there is no starting point yet of installation of the equipment despite the mayor's term will about to end and she tarted the project since her first term yet? did not the council approve the enormous amount of money for access roads ? is access road the only thing they know to constuct for three terms of the mayor spending millions of pesos from the locl funds? after mayor term, the son will follow her office and continue the so called project that is becoming more and more a myht and an instrument of fooling the cantilangnon for another more terms of guardos"s?
lastly, i read from the newspaper before in the year 2006 telling that the loan was approved already for the project, what happen now to the loan ? the sipangpang falls is very attractive to the rebels and it would be easy to blow the dams up thru the dynamites if the government does not cooperate to te rebels demand . can they un after themwhen until no one was ever arrested since the police station was attacked by the rebels? the station is at the heart of cnantilan and yet still became an easy target for the rebels, how much more for the sipangpang dam that is within the controlled area of rebels...is there an asssurance for the rebels to behave and respect the project
from i've known, any structures to be built including dams and roads needs consent or agreement to the owner of the MPSA because the LGU project falls inside the DENR-approved MPSA of MMDC. . .
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