Macroeconomics and Industry Analysis

GDP
As the baseload fuel for electricity generation, coal contributes to more than half (57.2% in
2020) of the country’s energy output[ CITATION Dep20 \l 1033 ]. In 2019, resource rent of coal in
GDP was valued at .07-.08%[ CITATION Phi20 \l 13321 ].
As seen in Table 1, in 2019 and 2020, coal production reached 15.27 million metric tons
(MMMT) and 13.26 MMMTs, respectively. Domestic production of coal is dominated by SMPC,
accounting for about 94-99% of the country’s coal production annually.
On the other hand, coal consumption for years 2019-2020 are 33.12 MMMT and 33.24 MMMT.
With its heavy consumption and limited reserves, Philippines is still largely reliant on coal
imports. In 2019, SMPC only supplied 15% of the total coal domestic consumption 1. Excessive
reliance on imported coal drives the electricity cost in the Philippines, making the country’s
electricity prices the highest in Southeast Asia2.
Table 1. 2019-2020 Coal Production, Importation, Consumption and Exportation Results in
MMT.

Million Metric 2019 2020

Tons
Production 15.27 13.26
Importation 27.69 29.52
Consumption 33.12 33.24
Exportation 10.24 7.55
Source:The Energy Sector Accomplishment Report 2019-2020, Department of Energy
Covid 19 Impact:
In 2020, due to pandemic driven lockdowns, the country experienced huge drop in GDP. This
resulted to overall weak demand and low market prices. Lockdown and containment measures
reduced coal and electricity consumption of industrial and commercial operations, thus, global
coal prices significantly dropped. Profitability of the company dropped to its lowest level in 10
years. Coal consumption in cement industry posted a substantial decline by about 30.8% from
2019 to 20203.

Employment and Rural Infrastructure

1
SMPC Annual Report 2020
2
The Philippine Energy Transition: Building a Robust Power Market to Attract Investment, Reduce Prices, Improve
Efficiency and Reliability, Sara Jane Ahmed, March 2019.
3
Philippine Energy Plan 2020-2040, Department of Energy
Mining is mainly operated in rural areas; thus, companies can provide employment to the
residents and contribute to the development of the rural area [ CITATION Sil \l 1033 ] . Despite
environmental concerns, coal is a substantial part of economic development.
Mining brings economic and infrastructural development to far-flung areas such as electricity,
telecommunications, and transport networks.
Coal is also a key component in production of steels and cement, which eventually contribute
to society’s infrastructure developments.
Supply and Demand
As population and development increases in a developing country such as the Philippines, so is
the demand for energy.
In 2020 (Table 2), total coal consumption of 33 MMT were mainly driven by power plants,
cement plants, and other industries.
Table 2. 2020 Coal Consumption (in MMMT)

Industry Consumption
Power Plants 29.76
Cement Plants 1.31
Other Industries 1.78
Source:Philippine Energy Plan 2020-2040, Department of Energy
With an average annual increase of population in by 1.4% in the Philippines and continuous
industrial developments that are projected to pick up after the pandemic driven recession,
demand for coal is seen to grow at a rate of 10% until 2040 [ CITATION Dep20 \l 1033 ].
Table 3. Coal Demand Outlook

Actual (2019- Medium Term Long Term

2020) (2020-2022) (2023-2040)
MMMT 1.96 2.48 47.59
Growth Rate, % -32.6 13.5 10.1
Source:Philippine Energy Plan 2020-2040, Department of Energy

According to a Wood Mackenzie report, coal consumption will continue to rise amidst rising
demand and affordability issues and will be a major fuel source until its peak before
2030[ CITATION Woo19 \l 1033 ]. In Southeast Asia, coal is still projected to fuel 39% of electricity
by 2040[ CITATION Wor \l 1033 ].
However, the gap between Philippine’s supply and demand remains wide, as evident with
intermittent blackouts within the country, especially during the summer 4. These power outages
are considered hindrances to the country’s development, as it disrupts community
development and business operations[ CITATION Sil \l 13321 ].
Coal consumption is therefore mostly dependent on imports. Based on Table 1, in 2020, 29.52
MMT were imported out of the 33.24 MMT consumption. Indonesia supplied 96.9% of the
imports in 2020[ CITATION Dep20 \l 1033 ].
Coal Quality and Limited Reserves
Semirara’s coal is characterized as sub-bituminous-B. This is a low grade of coal, and is mixed
with imported coal from Indonesia, Australia, and Russia to meet the energy requirements in a
more cost-efficient way.[ CITATION Phi18 \l 13321 ]
After a surge of discoveries in 2016, new deposits containing 215 MMT increased Semirara’s
reserve. As of 2019, Philippines have a total of 572 MMT coal reserves. It is estimated by the
PSA that total coal reserves in the country will have an economical life of up to 26 years in
2019.
To increase local domestic production and decrease reliance on coal imports, the DOE is looking
to increase total coal reserves up to 766 MMT by 2030 through coal operating
contracts[ CITATION Phi20 \l 13321 ].
Regulatory Environment
In return for the coal operating contract granted to the company, SMPC is required to pay
annual royalties to the Department of Energy at 3% of FOB sales or 30% of net proceeds (gross
revenue less all expenses excluding royalty and corporate tax). It is also required to compensate
for the entry and use of private lands5.
Regulatory bodies that have jurisdiction on coal mining operations include DOE and DENR.
Companies must be compliant with conditions set by the regulatory bodies, secure permits and
licenses to operate, and must undergo environmental and operational audit. Some conditions
include undertaking environmental programs and livelihood projects.
The Company also must secure the following permits and licenses from the government:
1. Coal Operating Contract with DOE (extended until July 14, 2027
2. DENR Environmental Compliance Certificate (ECC)
3. DENR Environmental Compliance Certificate ECC-CO-1601-0005 for its Molave Coal
Project
4. Business Permit issued by Caluya, Antique and Makati City
4
https://www.philstar.com/business/2021/11/18/2142022/philippines-may-experience-power-supply-crunch-
next-year
5
SMPC 2020 Annual Report
 5. Aerodrome Registration Permit
6. Certificate of Registration of Port Facilities
7. DENR Special Land Use Permit

Renewable Energy
Relying solely on coal, which is a non-renewable resource, is unsustainable in the long run.
The Department of Energy, pursuant to its commitment to Paris Agreement on climate change,
has been pushing for the energy transition in the Philippines to meet growing demand while
reducing its carbon footprint. The DOE, through its National Renewable Energy Program, aims
to increase its renewable energy to 35% of the energy mix by 2030 and 50% by 2040 6.
Part of the transition is allowing 100% foreign ownership in geothermal exploration,
development, and utilization projects. The government has also been granting contracts related
to renewable energy projects to increase capacity of renewable energy supply. Additionally, in
October 2020, DOE declared a moratorium on coal-fired power plants in the country [ CITATION
Kri21 \l 1033 ]. This will halt further construction of coal-fired power plants, except for those 22
that were approved. These 22 approved projects are said to increase the coal’s share in the
energy mix to 53% by 2030[ CITATION Lei20 \l 1033 ].
The Philippines now faces challenges to meet this goal, as it requires stronger policies and more
incentives to attract investors and support the growth. It is expected that coal and oil-based
energy will still play a significant player in the next decade.
More countries, as well as investors, are shifting away from coal as its main energy source due
to its massive effects on the environment and are looking for a more reliable and sustainable
energy mix. This will be a challenge to SMPC especially amidst public opposition on the
development of their coal-fired power plants. In an annual shareholder’s meeting, Gotianum
shared that DMCI has been exploring opportunities in renewable energy/sources but stated no
further information.

6
https://www.bworldonline.com/regulator-says-power-distributors-need-to-tap-more-renewable-energy-to-
meet-2040-target/
References:
Chavez, L. (2020, November). Philippines declares no new coal plants — but lets approved projects
through.

Crismundo, K. (2021, July 22). DOE pushes shift to renewables during Duterte’s term. Philippine News
Agency.

Department of Energy. (2020). Philippine Energy Plan 2020-2040.

Philippine Statistics Authority. (2018). ASSET ACCOUNTS FOR COAL OF THE PHILIPPINES. Environment
and Natural Resources Accounts Division.

Philippine Statistics Authority. (2020). Energy Accounts of the Philippines.

Silva, M. R. (n.d.). Coal Production in the Philippines: Development, Issues and Challenges. De La Salle
University.

Wood Mackenzie. (2019, September 2019). Coal is still king in Southeast Asia’s power market. Retrieved
from Wood Mackenzie.

World Coal Association. (n.d.). Coal's Contribution. Retrieved from https://www.worldcoal.org/coal-

facts/coals-contribution/

Appendix
Coal Rent (% of GDP) 2019

Total Coal Reserves