Coal's call

Lately, coal has been in the news owing to the recent accident at the coal mine belonging to Semirara Mining Corporation (PSE:SCC) in Antique where 5 workers were confirmed dead. The tragedy highlights risks in mining, and anti-mining groups pounced on the incident to bolster their position against the industry. At the capital markets, SCC and its parent DMCI Holdings (PSE:DMC), being listed companies, have suffered sell-down immediately after the accident.

But the incident is not wholly a mining concern.  It is more about energy—our precarious energy situation in particular.

At about the same time as the accident, the Department of Energy (DOE) awarded service contracts to explore and develop 11 prospective coal blocks to eight companies. These coal blocks were auctioned off by the government in 2011 under the Philippine Energy Contracting Round.

The “winning proponents”  include Altura Mining for Area 3 (Catanduanes); Semirara Mining Corp. for Areas 9 (Oriental Mindoro) and 25B (Sarangani); Empire Asia for Area 18B (Surigao del Sur); SKI Mining for Area 19A (Agusan del Sur and Surigao del Sur); PNOC Exploration Corp for Areas 19B (Agusan del Sur and Surigao del Sur), 29 (Zamboanga Sibugay) and 30A (Zamboanga Sibugay); South Davao Developement Co. for Area 8 (Occidental Mindoro); Blackstone Mineral Resources for Area 27 (Zamboanga Sibugay) and Mega Phils. Inc. for Area 23 (South Cotabato, Sultan Kudarat and Sarangani).

As an aside, very recently Coal Asia Holdings (PSE: COAL) which is a pure play on coal, launched its initial public offering (IPO) at the Philippine Stock Exchange.

Why the upsurge in coal exploration and development despite coal world prices scraping near historical lows?

The Aquino government has trumpeted as its major achievement the 6.6% economic growth in 2012, and it this growth were to be sustained in the coming years, the country needs additional power—lots of it.

And if we need reliable power at the shortest time possible, the source would be coal-fired plants by default. Developing a coal-fired power plant does not require stringent requirements for a location, fuel is plentiful and the banks are more than happy to finance such low risk project. About the only most critical path to the project is getting the Environmental Clearance Certificate (ECC) and how to appease environmental protesters who would unfailingly raise ruckus against any power project.

Power generation from coal is undeniably not clean energy but economic considerations could trump pure environmentalism. That is why the major power plants that are coming on stream in the next few years would be coal-fired. Aboitiz Power Corp. (PSE:AP) alone is planning a total of 1,300 MW coal fired facilities to add to the Luzon and Mindanao grids in four years’ time. These are the 400 MW expansion of the existing Pagbilao plant, a 300 MW Davao plant and a 600 MW plant to be put up at Subic.  The Alcantara group which is based in Mindanao, through publicly-listed Alsons Consolidated Resources Inc. (PSE:ACR) has, in its pipeline, a 105 MW plant in Zamboanga and a 210 MW plant in Sarangani.  GT Capital Holdings (PSE: GTCAP) which is a major power player in the Visayas through its power subsidiaries, is planning two coal-based power projects. Even new-comer in the power industry AC Energy Holdings of the Ayala Group (PSE: AC) is planning to put up a 135 MW coal plant in Iloilo together with A Brown Inc. (PSE:BRN), and a 135 MW plant in Batangas (with Trans-Asia Oil and Energy Development (PSE: TA)); and it has a 17.1% stake in a 600 MW facility in Bataan owned by GNPower Mariveles Coal Plant Ltd. which is slated to come into operations by May of this year.

Clearly, it’s coal’s call this time.

Criticize coal plants to high heavens, but they may well be our salvation against debilitating brownouts that could derail our climb from  impoverishment to prosperity.