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PAMANTASAN NG LUNGSOD NG MAYNILA

(University of the City of Manila)
Gen. Muralla Street, Intramuros, Manila

GRADUATE SCHOOL OF MANAGEMENT

CASE ANALYSIS

LIVING WITH KEPCO-SPC AND COAL*
On 27 June 2011, President Benigno Aquino III (P-Noy) inaugurated the 103MW x 2Units Circulating Fluidized Bed Combustion (CFBC) Cebu Coal-Fired Thermal Power Plant located at the City of Naga in the Province of Cebu. The power plant is a joint undertaking of Korea’s KEPCO (Korea Electric Power Company) and the Philippines’ SPC (Salcon Power Corporation), or KSPC for short. With the commercial operation of the power plant, the power outlook for the province of Cebu including its neighboring provinces is more or less stabilized. There is no doubt about this as no less than the Department of Energy (DOE), National Power Corporation (NPC), the Transmission Corporation of the Philippines (TRANSCO), National Grid Corporation of the Philippines (NGCP), Department of Environment and Natural Resources (DENR), and the local governments of the City of Naga and the Province of Cebu are well aware of the Project’s contribution to the worsening power situation in the Visayas. The construction of the Power Plant started in January 2008. The rotating brownouts can now be put in the past and the local government of Cebu headed by Governor Gwendolyn Garcia can now shift into high gear on its development plans and efforts for the province, especially for Metropolitan Cebu. Two days after the Power Plant’s inauguration, environmental crusaders and advocates said P-Noy’s presence in the affair was more than ceremonial (Annex “A”). They alleged that “P-Noy gave coal-fired power plants,” including this KSPCowned Power Plant, “the bane of environmental crusaders with their emissions of sulfur dioxide, greenhouse gases and deposits of coal combustion waste, his imprimatur.” In his speech, P-Noy described Cebu as “a hostage of its own success, framing our choices as one of two evils.” And this, “we have to balance,” P-Noy added. “What problem do we want to deal with --- unstable power supply or the coal dust issue? The problem of coal dust has a solution. There are ways to mitigate it unlike a power shortage. What can you really do with that?” Project Brief of the Power Plant On 10 December 2007, Doosan Heavy Industries & Construction Co., Ltd. (Supplier) and Kepco-Salcon Power Corporation (Owner) entered into a Contract with the latter engaging the services of the former to achieve the engineering, design, procurement and supply of equipment, pursuant to standards and time
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This case was written by Prof. Ador G. Paulino, faculty at the Graduate School of Management, PLM. This case is for use in classroom discussion only. Cases are not meant to illustrate either correct or incorrect handling of management and/or administrative affairs. The case was inspired by the 29th June 2011 Cebu Daily News article under the same title. Page | 1

CASE – LIVING WITH KEPCO-SPC AND COAL

as amended). Doosan established its Philippines’ Branch Office pursuant to and in accordance with the Corporation Code of the Philippines (Batas Pambasa Bilang 68) approved on 1 May 1980 and the Foreign Investment Act of 1991 (Republic Act No. and Philippine Peso currencies) and no escalation clause. The business address of Doosan’s Philippines-Cebu Branch Office is at KSPC Power Plant Complex. (2) Construction. (1) Off-shore Contract (or Equipment Supply Contract). thus. 7042. and. Province of Cebu. specifically.31 May 2011 The Project called for Doosan to put up. the terms of payment of the Doosan by KSPC is monthly and based on the pre-defined major milestones spread over the 42-months duration of the project. to wit: Title Location Owner Supplier/Contra ctor Contract Approval Date Completion Date 2 Units x 103MW Circulating Fluidized Bed Combustion (CFBC) Cebu Coal-Fired Power Plant Barangay Colon. Brief Description KSPC and Doosan signed two contracts for the Cebu Power Plant (“CPP”) Project. the Owner. commissioning. In the event the Doosan completes the CPP ahead of schedule. Cebu City.e. City of Naga. with office and factory address at 555 Gwigok-Dong. KSPC is a joint undertaking of Korea Electric Power Corporation (KEPCO) and Salcon Power Corporation (SPC). and eventual turnover of the power plant to KSPC. Gyeongsangnam-Do. (2) Onshore Contract (or Construction Contract). the acronym “KSPC. in favor of KSPC. circulating fluidized bed combustion coal-fired thermal power plant in Barangay Colon. Ltd. provide engineering. Cebu. Changwon-Si.and commercial-run. which in this case it did. Doosan’s Branch Office’s registration numbered FS200805177 was approved and issued by the Securities and Exchange Commission (SEC) on 4 April 2008. the contract price is fixed lump-sum (in US$. Korea. and. procurement and supply of equipment. (4) Commissioning. 2 Units x 103MW. The execution of the CPP can be divided into four major phases: (1) Engineering. pilot. there is no benefit or any reward to be given by KSPC.” Doosan. and eventual turnover of the power plant to latter. Korean Won. is a company organized under the laws of the Republic of Korea. design. i. is a company organized under the laws of the Republic of the Philippines. the Supplier/Contractor. pursuant to the standards and time frame set forth in the Contract including the testing. The Coal Ash and Coal Dust Issue Page | 2 CASE – LIVING WITH KEPCO-SPC AND COAL . while the second is the responsibility of Doosan’s Philippines-Cebu Branch Office. Philippines. with business address at 7/F Cebu Holdings Center. Doosan shall. (“Doosan”) 10 December 2007  Unit #1 .. Philippines. Naga City.frame set forth in the Contract including the testing. The first contract is managed by Doosan’s Overseas Project Management Team #2 (or 2PM) based in Changwon. pilot.28 February 2011  Unit #2 . the Philippines KEPCO-SPC Power Corporation (“KSPC”) Doosan Heavy Industries & Construction Co. Cebu Business Park. (3) Procurement and Supply of Equipment. South Korea.and commercial-run. except for approved change orders and/or change of law[s] in the Philippines. Barangay Colon. commissioning.. The Project’s brief is summarized below. City of Naga in the Province of Cebu. Philippines. KSPC. Specifically for the purpose of this Cebu Project. Like any other construction project.

development planners and strategists would agree that development is both a process and an outcome. KSPC. Because the site had to be graded and the soil composition required reinforcement of concrete piling. The final note from the Cebu Daily News article said.” Although Doosan had something to do in moving the coal ash from the power plant’s proposed site to the designated dumping area. The coal ash emitted by the power plant through the coal silos have passed the environmental standards during the various tests conducted prior to. At this point. The environmental crusaders and advocates said. It must be noted the coal ash in this instance is not a product of the operation of the CPP because the power plant has yet to be erected. i. two instances came into light with the issue of the coal ash and coal dust. the site where the power plant was erected used to be the coal yard area of the existing Naga Power Plant owned by SPC. Before the construction of the CPP started. KSPC from the local government of Naga City.In Doosan’s execution of the CPP. Even prior to the completion of Unit #2 of CPP. in turn. KSPC. it was the environmental crusaders and advocates with the support of local media in Cebu that the issue was raised or became ‘viral’ in the internet ‘lingo’. “The arbitrary dumping by Doosan of the coal ash poses high risks to the health of the people in the community and the local environment as well. which was completed way ahead before the inauguration ceremony of the power plant. The MCDC is mandated to coordinate the actions of local government units and national government agencies CASE – LIVING WITH KEPCO-SPC AND COAL Page | 3 . The coal dust.. In both times. Naga City Mayor Valdemor Chiong was bombarded with complaints from local residents about the coal dust being blown from the coal yard area to the national highway. and after the commissioning of the power plant. And. Doosan was accused through the media for allegedly dumping the coal ash in connivance with local residents. Coal ash is the residue of the coal after its use as a fuel by the power plant. specifically to reinforce the coal dust prevention facilities in the coal yard area. Despite securing approval from the Owner. the Central Visayas Regional Development Council (RDC) after conducting various planning consultations passed a resolution approving the creation of the Metro Cebu Development Council (MCDC). and. on the other hand. but previously by the Philippine government. however.e. is the result of winds blowing into the coal yard going towards the direction of the national highway bringing with it particles of the coal and the residue. respectively. for one to know the process[es] in reaching the desired outcome[s]. In December 1997. The mayor relayed to KSPC the concern of the residents. There is a coal yard in the power plant used as temporary storage of unused coal and coal ash. during the start and completion of the construction. it is worthy to note the difference between coal ash and coal dust. with the proper clearance and guidance of the Owner. a development plan must be formulated and printed in black-and-white. “We don’t fault Aquino for being pragmatic in saying that Cebu has to live with coal-fired plants. the NPC. it did so.” Metropolitan Cebu Development Plan and Metropolitan Cebu Development Council Most. the coal ash in the area had to be moved. during. not merely imagined or envisioned in the minds of the development planners. The coal dust issue was again hyped by the media two days after P-Noy inaugurated the power plant (refer to Annex “A”). if not all. KSPC responded accordingly and issued a change order request to Doosan. and saying further that there was indeed development that took place.

the interest of some LGUs to joining the council is very wanting. The RDC of Central Visayas identified Metro Cebu as comprised of 10 local government units (municipalities and cities) located in the central eastern part of mainland Cebu. Thus. the MCDC approved in March 2000 a Memorandum of Agreement for signing by all its members to serve as basis for its operation. in the absence of an EO or any enacting law. In October 2005. Like the EO. The interim MCDC chairman at that time.e. By August 2005. Today. Pending the issuance of the EO. Many countries. and the island of Mactan. the MCDC endorsed a resolution asking the President to issue an Executive Order (EO) creating the MCDC. for one reason or another like not wanting to report to another higher person. the MCDC upon recommendation of Governor Pablo Garcia passed a resolution requesting the national legislators from Metro Cebu to legislate for the creation of a Metro Cebu Development Authority (MCDA). Thus. much of the world’s output (in terms of goods and services) also comes from these areas. and. organized a Conference on Metropolitan Planning and Management. the meeting was to tackle the problems increasingly felt by the members. the MCDC met twice in the early months and in December 2008. “each member city and town continues to do its own thing without regard to what the others are doing. had reservations on the sustainability of the council. They also failed to recognize the critical role that Metro Cebu plays in contributing to the growth and development of the province of Cebu in particular and the nation in general. including China.in Metro Cebu. During the meeting. like the recent flooding and ever worsening traffic situation in Metro Cebu. This time. the council also went into limbo during the next two years. the members of MCDC designated Governor Gwendolyn Garcia as its chairperson. Of the 11 original intended members of the council. CASE – LIVING WITH KEPCO-SPC AND COAL Page | 4 . there is nothing wrong with the MCDC. i. The “Turtle” Pace Why the slow motion? The very obvious reason is the failure of LGUs (cities and towns) of Metro Cebu to working as one. a mayor to a governor. however. former Cebu governor Pablo Garcia himself. In December 1999. gave their mayors the authority to sign the said Memorandum of Agreement. It is worthy to note. only two. The MCDC membership includes all the mayors of the LGUs within Metro Cebu and the governor of Cebu province. the Central Visayas RDC secretariat reconvened the MCDC. In 2002. from Compostela in the north and Naga in the south. about half of the world’s population is estimated to already living in highly urbanized cities and metropolis.” Conceptually. A case in point. the MCDC only reconvened again as a body in February 2011. As posted by Fernando Fajardo in Cebu Daily News Online on 23 February 2011. And. Since 1997. They failed to realize the importance of coordination to solving their common problems and pursue their common interests.. the more competitive the cities or metropolis are. the higher share in the national output. are taking it as a challenge how to make their cities become more competitive and grow. the RDC passed a resolution expanding the coverage of Metro Cebu to include Danao City in the north and San Fernando and Carcar in the south. Thereafter. However. 5 out of 11 intended members to the council complied with the requirement to contribute funds for the operation of the council. no local legislation came to pass. the MCDC has not done much to address the common concerns of LGUs in Metro Cebu. the municipality of Compostela and Cordova.

Alingasa likewise proposed the board be free of political interventions and run by a “professional administrative body with total accountability that’s not subject to the whimsical fancies of the LGUs. the board’s membership was expanded to include civil society. Gwendolyn Garcia. Church sector representative. saying it will place the city under the Capitol’s control. Moreover. the academe and non-government organizations (NGOs). and this year 2011 and beyond. the Cebu South Reclamation Project. Inc. according to reports. 2012 onwards? The plan. instead presented a resolution to recognize Metro Cebu Development Coordination Board (MCDCB) replacing the MCDC.” RDC-7 Dissolves MCDC. So. what happened to 2001 to 2010. Fr. it is difficult to imagine how Metro Cebu will perform in the light of the threats of globalization and competitiveness of the different centers of economic activities in the world.. but is it so? Some development planners argue that for a metropolitan area to function efficiently. specifically under the Metro Cebu Land Use and Transport Study (MCLUTS). Mr. proposed circumferential road in Cebu City and the reclamation projects in Mactan island.e. we are proceeding with our development plans with utmost care and not for the whimsical fancies of some politicians. was tasked to draft the board’s operational framework. Ms. There is no argument that one needs to look at Metro Cebu as one integrated economic unit. RDC-7 vice chairperson said.” It seems the governor was referring to her arch critic.ph/news_details. Governor Garcia said. one might ask. is Metro Cebu ready to competing with growing cities and metropolis in and outside the country? Yet. added Governor Garcia. 2011. The board will solicit the cooperation of its members considering it was created with the “mutual agreement” of participating LGUs. “Rest assured. asked that the board be given “a clear organizational framework. Governor Garcia. was fully implemented except for a few remaining projects. except the whims and caprices of most of our local officials who are only preoccupied with one thing --. one of the private sector members to the board. and other related project.the next election. Cebu Governor. e.” Fr. Apparently. this was once prepared during the ‘80s and ‘90s.g.. Tomas Osmeña of Cebu City’s south district. it must first have an integrated land use and transport plan. Osmeña apparently opposed the inclusion of Cebu City in the board. “Nothing. (RAFI). which unfortunately was good only up to 2000. Mayor Rama joined other Cebu mayors in signing an agreement supporting the creation of the board.php?id=10203 on 25th June 2011). What do you think have guided Metro Cebu’s development in the last decade and what will guide it this year and beyond? The ordinary Juan Dela Cruz would say. i. Mulls Metro Cebu Board The efforts of the (Cebu’s) provincial capitol to mobilize Metro Cebu LGUs went into effect with the dissolution by the Central Visayas Regional Development Council (RDC-7) of the Metro Cebu Development Council (MCDC) on 24 th June 2011 (Bongcac. It is also worthy to note of the Australian government-funded modernization of Cebu’s traffic light system as well as the Japanese government-funded Metro Cebu Development Projects I and II. Mr.” Is this another “motherhood” request that everyone knows is most unlikely to be heard and most likely to happen? The Ramon Aboitiz Foundation.On this note. Margarito Alingasa. CASE – LIVING WITH KEPCO-SPC AND COAL Page | 5 . Nonetheless. Retrieved from http://cdn.

lamented Governor Garcia. Consolacion. the RDC through MCDC’s recommendation in 2005 expanded the coverage of Metro Cebu to include Danao City in the north. Garcia said the MCDC became inactive from September 2002 to July 2005. Cordova and Minglanilla.” “Living with KEPCO and coal” Cebu Daily News / 8:27am / Wednesday / 29th June 2011 Annex “A” CASE – LIVING WITH KEPCO-SPC AND COAL Page | 6 . Despite this. “The goal was to achieve an integrated. San Fernando town and Carcar City in the south. On 12 April 2011. The MCDC never became fully operation due to opposition from some LGUs. Liloan. It consisted of the Province of Cebu and the cities of Cebu. Lapu Lapu. Mandaue. the Metro Cebu council members signed an agreement to establish the Metro Cebu Development Coordination Board (MCDCB). Talisay and Naga and the municipalities of Compostela. Unfortunately. The inclusion of more members meant the payment of one-fourth of one percent of the LGU’s Internal Revenue Allotment share as membership fee.Garcia further noted the RDC-7 created the MCDC “to coordinate the actions of LGUs in Metro Cebu and the national government agencies in dealing with metrowide concerns” in 1997. inclusive and sustained development of Metro Cebu. Governor Garcia said.

“We have to balance this. Not that Filipinos don’t make gracious hosts. in his speech. When President Benigno Aquino III inaugurated the 220-megawatt power plant of the Korean Electric Company-SPC in Naga last Monday. She ordered all coal-fired plants in Naga and Toledo last March 16 not to carry their ash waste outside their premises. with no favored status. But from previous months’ experience with secret truck haulings of coal ash residue in Naga and Toledo cities by parties unwilling to identify their industrial source.” That kind of glowing track record has yet to be demonstrated in its host city and province. greenhouse gases and deposits of coal combustion waste. described Cebu as a hostage of its own success. He could have threatened the full force of the law.Because Cebu can’t live with brownouts. his imprimatur. He could have asked the environment court of Judge Marilyn Yap in Mandaue City. and the ordeal of Naga residents who found specks of coal dust flying into their homes and gardens from an open stockyard of delivered coal. Gwendolyn Garcia and Naga Mayor Val Chiong to temporarily pull back Kepco’s business permit. even closure. What can you really do with that?” CASE – LIVING WITH KEPCO-SPC AND COAL Page | 7 . Aquino apparently had not read the well-documented stories in the Cebu press since 2009 about the tricky choices being made for coal ash waste pits in the submerged Balili property and tests for toxic metal content in heaps of ash found in open fields. How sad. framing our choices as one of two evils. which prompted Gov. He should have said coal ash is listed as an “air pollutant” in the Philippine Clean Air Act or Republic Act No. if the company fails to deliver on its promise of “clean coal technology” and abide by emission and waste disposal standards. Coal-fired power plants will keep Cebuanos in a cat-and-mouse game of enforcement of environment standards for the lifetime of these facilities. There are ways to mitigate it unlike a power shortage. we have reason to be wary. the bane of environmental crusaders with their emissions of sulfur dioxide. President Aquino. We would have been more impressed if Aquino had thundered a challenge to the plant’s Korean investors. and how dangerous. She’s not convinced that health and safety issues have been addressed in the mysterious ash dumping going on.” Aquino said. 8749 and that standards would be strictly imposed. his presence was more than ceremonial. rotating or not. It was surprising to hear President Aquino gush about Kepco-SPC being “very friendly to the environment. the province will have to manage its growth with a wary eye for the danger of coal ash pollution and acid rain. “What problem do we want to deal with—unstable power supply or the coal dust issue? The problem of coal dust has a solution. He gave coal-fired plants.

He could have challenged citizens to stay vigilant.As if it’s our fault that economic growth has brought us to a checkmate. A farther vision. We don’t fault Aquino for being pragmatic in saying that Cebu has to live with coalfired plants. Aquino should know that by now. But we are bothered that his outlook—seeing Third World options limited by bigticket promises of Korean investors—doesn’t make the stretch to recognize that Cebu deserves more than that. one President Aquino could choose to demonstrate. would have telescoped the challenge of power generation to one of a commitment to renewable energy and finding a “balance” where economic growth and sound ecological principles coexist. It has long misled voters to aspire for a quality of life and citizenship that is far below our true capabilities and creative power. Choosing the lesser evil is a tired practice of Philippine elections. CASE – LIVING WITH KEPCO-SPC AND COAL Page | 8 .