Economy begins to buckle in El Niño’s wake

The dry spell is not yet near its peak but certain sectors of the economy are starting to feel the heat.

Manila Water Co. Inc. and Maynilad Water Services Inc. received last month a notice of reduced water allocation from the National Water Resources Board amid the El Niño weather phenomenon that is expected to last until May next year.

Earlier, the Philippine Statistics Authority reported that the dry spell and insufficient rainfall in many parts of the Philippines significantly cut palay production in the April-to-June period. Corn production, the statistics agency noted, fell 15.8 percent to 1 million MT in the second quarter from 1.2 million MT last year. Lower corn harvest was observed in the Davao region, Soccsksargen, Cagayan Valley, Northern Mindanao and the Bicol area due to insufficient water supply.

The lower farm output has already prompted the Philippines to increase rice imports in preparation for potential shortages.

Lower water levels in dams, meanwhile, will reduce the generating capacity of hydro-electric dams and exert upward pressure on electricity rates. This will prompt other utilities to maximize the output of power plants that rely on more expensive fuel, such as coal, geothermal and wind.

Falling oil prices have provided a respite to the economy, and the power sector in particular, amid drought conditions. The government deemed it wise to rehabilitate and resume operation of the 650-megawatt Malaya thermal power plant in Pililia, Rizal province after being moribund for decades.

Power Sector Assets and Liabilities Management Corp. president Lourdes Alzona said the power plant was resynchronized to the Luzon grid on Aug. 26. “With the two units already operational, the Malaya TPP now has more available capacity as it assumes its role as a security plant,” she said.

PSALM considers the Malaya power plant a “must-run’ unit to address instability or supply deficiency that might occur as a result of a sudden shutdown of operating stations in the grid.

Mindanao to suffer the brunt

The island of Mindanao will feel the full impact of El Niño because of its heavy reliance on hydro electric power and its mainly agricultural economy. The Davao provinces, Soccsksargen and Northern Mindanao have already seen reduced corn output in the second quarter of 2015.

The power outlook is not equally encouraging. Mindanao’s power situation is fragile even before the onset of El Niño. The island suffered a seven-hour blackout in April as electricity demand caught up with Mindanao’s meager power reserves. A meltdown in the distribution and transmission system in Mindanao is also exposing the island’s vulnerability.

A breakdown of an aging transformer initially caused the Mindanao blackout in April--a reminder to energy officials that the electricity delivery system needs a thorough review and overhaul in some cases. Former Energy Secretary Carlos Jericho Petilla had blamed Mindanao’s aging transmission system as the culprit for the island system-wide outage.

Back in Luzon, the water supply situation may get worse in the dry season next year.

NWRB executive director Sevillo David Jr. said state-run Metropolitan Waterworks and Sewerage System and concessionaires Manila Water and Maynilad received a combined allocation of 41 cms in August.

“We need to manage the water level in Angat Dam so we can sustain adequate water for the public until this El Niño phenomenon ends next year,” David said.

He said the reduced water allocation might result in water pressure reduction, scheduling and supply interruption in Metro Manila. Angat Dam in Norzagaray Bulacay is the main source of potable water in Metro Manila and parts of Rizal and Laguna.

David said the reduced allocation for Metro Manila was paramount because the water level at the 47-year-old Angat Dam had not significantly increased during the current rainy season.

Data showed the Angat reservoir’s water level at just 186 meters, or below the year-end target level of 212 meters and the normal level of 210 meters. The critical level is 180 meters.

Bloomberg reported that the current El Niño that has altered weather across the globe is now the strongest since the record event almost two decades ago. And Bangko Sentral ng Pilipinas Gov. Amando Tetangco Jr. has taken note of the situation.

The Monetary Board warned  the upside risks from pending petitions for power rate adjustments and the impact of a stronger-than-expected El Niño dry spell on food prices and utility rates.

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