1. London, September 17 th 2015 Impact of IFI investments in power generation in the Philippines

2. Agenda 2 Introduction and summary1 Relationship between power and economic growth 2 Conclusions & Implications for IFIs 4 Analysis of impact of IFI investments 3

3. What has been the GDP and employment impact of IFI investments in power generation in the Philippines? International Financial Institution (IFIs) supported the first privatisation deals and have provided substantial capital for privatisation, rehabilitation and construction of power generation plants USD 923 million debt finance USD 162 million equity finance USD 1,085 million total finance Objective: Quantification of what would have happened to the power sector and the economy if IFIs had not provided finance? Study looks at the actual power situation against a constructed counterfactual in which these investments would not have happened 3

4. Agenda 4 Introduction and summary 1 Relationship between power and economic growth2 Conclusions & Implications for IFIs 4 Analysis of impact of IFI investments 3

5. IFI attributable generation capacity causes economic growth through a myriad of pathways 5 Manufacturing output + + + Non-manufact. value added - Overall Electricity use + IFI attributable power generation capacity Price of electricity -+ Electricity sector value added Non-manufact. output + + Manufacturing Electricity use - Electricity sector output ++ GDP (income) and employment + + + AB C D Manufacturing value added

6. Agenda 6 Introduction and summary 1 Relationship between power and economic growth 2 Conclusions & Implications for IFIs 4 Analysis of impact of IFI investments 3 IFI attributable generation capacity IFI impact on electricity price IFI impact on manufacturing output IFI impact on GDP and employment B

7. IFI attributable price decrease can be determined from the power supply curve and actual demand profile 7 Base demand Peak demand without IFI capacity Peak demand with IFI capacity IFI-attributable price impact Long-Run Marginal Cost (LRMC) of power production B Small increase of generation capacity can have large price impact Note: supply curve takes capacity outages statistically into account

8. 8 B Load-Weighted Average Price of generation is determined by power supply curve and electricity demand

9. 9 B Effect on monthly average generation charge can be summarised in annual graph

10. Generation supply & demand model reproduces observed behaviour of power prices 10 Observed and modelled monthly LWAP from for 27 months That what can be modelled is sufficiently understood B Note: Outages taken into account statistically except Malampaya outage which was included explicitly

11. Agenda 11 Introduction and summary 1 Relationship between power and economic growth 2 Conclusions & Implications for IFIs 4 Analysis of impact of IFI investments 3 IFI attributable generation capacity IFI impact on electricity price IFI impact on manufacturing output IFI impact on GDP and employment C

12. Manufacturing output change due to electricity price change depends on (i) electricity factor share and (ii) price elasticity 12 Determined from WB Enterprise Survey Determined from literature Determined from supply & demand model C

13. Factor share of electricity in manufacturing sector is substantial and rages from 0.15 to 0.40 13 WB Enterprise Survey: factor share of electricity ε for different manufacturing subsectors 1% more electricity use causes economic output of food sector to increase by 0.36% C

14. 14 Garments & Textiles FoodBeverage Electronics Paper & various Chemicals & Plastics Non-Met. Minerals Output increase Note: Electricity price elasticity of -0.75 assumed and IFI-attributable price decrease of 5.57 PHP/kWh (2014 results) C 60% of electricity price-related increase of manufacturing output is due to importance of the food and beverage sectors Size of sector (PHP million)

15. Agenda 15 Introduction and summary 1 Relationship between power and economic growth 2 Conclusions & Implications for IFIs 4 Analysis of impact of IFI investments 3 IFI attributable generation capacity IFI impact on electricity price IFI impact on manufacturing output IFI impact on GDP and employment D

16. 16 Manufacturing B Utilities … Manufacturing A Manufacturing C Agriculture … Households Taxes Imports Dividends / savings Taxes…UtilitiesManufacturing AAgriculture…Household consumExportInvestments From To INCOMES CONSUMPTION Manufacturing BManufacturing C INDUSTRY STRUCTURE YA+ΔYAYA+ΔYA YB+ΔYBYB+ΔYB YB+ΔYBYB+ΔYB YA+ΔYAYA+ΔYA YB+ΔYBYB+ΔYB RAS method will be used to rebalance SAM to reflect the increase of manufacturing output, ΔY, the output increase of the other sectors can be determined Note: RAS method is often used to update IO tables and SAM to reflect new sector totals. Y u - ΔY u SOCIAL TRANSFERS YC+ΔYCYC+ΔYC D The spillover effects of more manufacturing output can be quantified using the Social Account Matrix for the Philippines

17. IFI investments in power generation have increased GDP by some 0.21% to 0.32% … 17 This means a permanent GDP shift of some USD 594 – USD 901 million D

18. … and created some 72,000 to 109,000 jobs 18 This is equivalent to 0.20% - 0.30% of the labour force D

19. Results can be captured in some key metrics 1 MW power generation addition: GDP increase of 1.9m USD(±0.4m) 226 jobs(± 50) 1% power generation capacity addition (relative to installed base) GDP increase of 254m USD(± 50m) GDP increase of 0.09%(± 0.02%) 31,000 jobs(± 7,000) USD 1m IFI investments in power generation: GDP increase of 0.68m USD(± 0.15m) 83 jobs(± 17) 19 D

20. Agenda 20 Introduction and summary 1 Relationship between power and economic growth 2 Conclusions & Implications for IFIs4 Analysis of impact of IFI investments 3

21. 21 Conclusions Attribution to IFIs of generation capacity 400 MW (2.9% of total) Effect of IFI attrib. capacity on power price 3.9% to 6.0% lower increase of end-user tariffs Effect of IFI attrib. price decrease on econ. output 0.8% – 1.3% manufacturing output increase Effect of IFI attrib. output on GDP and employment GDP: 0.2% - 0.3% Jobs: 72k – 110k

22. Steward Redqueen B.V. Kinderhuissingel 4A/B 2013 AS Haarlem, Nederland Tel: +31 (0)23 553 0400 www.stewardredqueen.com - info@stewardredqueen.com