Energy and National Survival
YOU KNOW, MORE than seven years ago, I looked around to see where I could pirate an executive for the oil company of our government. And I picked on someone who was, like me, a golfer and a horseman and whose perspective and vision can equal those of the political leadership. We looked into the academe, into the universities and into all oil companies, in fact. But finally, we decided to steal the president and executive officer of DOLE Pineapple in the Philippines—Geronimo Velasco. I promised him he would stay in government only a few years. And when he joined us seven years ago in 1973 he practically wrote his last will and testament. I did mention to him that at the very most he would stay on four years. Well, I don’t know what his continuance in government means. It probably means that he is enjoying his stay.
As early as the 1970s it was already being said that in time energy and oil would determine the history of the world. This was ignored by most leaders. But the leader who has taken it upon himself to prepare for the future cannot turn a deaf ear to the reality that oil is a finite resource. Someday it won’t be there. Someday it has to be replaced as it is now being replaced in some places. And one of those places where it must be replaced is in the Philippines because up to now we have not discovered enough oil to support our energy requirements. Thus, we went into the development of various nonconventional or innovative sources of energy. In this program, the PNOC, Petrophil, and the Ministry of Energy are working together with the National Power Corporation, the Armed Forces of the Philippines, and the various ministries like the Ministry of Industry, NEDA, the Ministry of Agriculture and, of course, the Ministry of the Budget.
Thus far, we have been able to overcome the obstacles that have come our way. You know, this is a very happy day for all of us. For quite sometime now, we have been concealing the fact that Saudi Arabia had terminated our oil supply. We have been concealing this because we did not want our people to worry needlessly. But Saudi Arabia has notified us that they can now renew the government-to-government agreement to supply us with oil for varied reasons. We will not go into the reasons for this. But this was one of the principal reasons why the First Lady had to leave immediately for the United States. She was ready to go to Saudi Arabia, but we thought it enough that she went to the United States to get in touch with friends who could help us on this problem, especially the representatives of the Saudi Arabian government.
The ambassador of the Saudi Arabian government here in the Philippines has been a great help to us. He has listened to our request. He has positively supported our efforts to restore our standing with the Saudi Arabian government. I would say that he did most of the work of clearing up the misunderstanding which caused the cancellation of our allocation of oil from Saudi Arabia. So today we received this cablegram which says:
“Further to my telex dated November 17 concerning the crude oil supply contract, I am glad to inform you that now we are in a position to renew the Philippine National Oil Company’s contract. Please ask your ambassador to get in touch with PETROMIN to complete the formalities and sign the contract on behalf of the Philippine Government.
With kind personal regards,
AHMED ZAKI YAMANI”
Last night and the night before, we were on the telephone with the First Lady. She was in touch with high-ranking officials. Of course, this was a matter that had to be brought to the Royal Family and to the Minister of Oil, Minister Yamani. And we had to answer questions on the Mindanao situation. It had become a political issue. This was why we were thinking that it might be necessary for the First Lady to personally go to Saudi Arabia, otherwise I would have to go myself and explain what was happening in Mindanao. Was it true that the Muslims were being liquidated? That there was genocide? That we were not doing anything for the welfare of our brother Muslims? And that we were not sincere in helping develop the entire Southern Philippines?
Anyway, this short message we received is indicative of the fact that all these efforts were not in vain.
So this is doubly a happy occasion, for today we also celebrate the 7th year of the Philippine National Oil Company. I believe I speak not only for myself but for the nation as a whole when I commend the officers and start of this corporation.
Seven years represent only a brief moment in the life of an institution, but for the PNOC the last seven years have been preeminently a time of challenge, during which it must have often seemed to you, the officials and employees of the company, that it had no time for infancy. Immediately at birth, the PNOC virtually had to confront at once the problems of bigness, of maturity. And such has been its dynamism and growth that today it is ranked as the 264th largest enterprise outside of the United States.
We must look back at the first seven years of the Philippine National Oil Company not merely through the narrow perspectives of its corporate goals and achievements. For the record of the PNOC’s growth is in consonance with the national quest for self-reliance in energy.
I remember very well that in 1970 before I proclaimed martial law and after I had been reelected President of the Philippines, I proclaimed that we should develop the geothermal resources of our country. At that time I heard the most outlandish statements being made about my new proposals. The attacks and the charges were so loud and libelous that for a while our entire energy program was imperilled. Many politicians believed at that time that I was some kind of an idiot or a dreamer. How could you harness volcanic steam? They said it was quite all right to talk about it, but to spend hundreds of millions of dollars was something else. Why should we not establish instead thermal fossil-fired units? And so, there was this big debate in 1970.
When we first acquired our oil properties, there was another debate. Filoil was being sold to the government at a certain price, and the opposition said it was scandalously high. There was an overprice.
Anyway, we went ahead and we first bought 40 percent and then another 20 percent of the Bataan Refinery—all at very low prices.
Even after I proclaimed martial law, there were still many com-plaints and libelous charges against the national leadership on the oil issue. But then came the oil crisis.
You will recall that in 1973—hardly a year after we had put into operation the mechanisms for establishing political stability—our country was once more confronted by an event that gravely endangered our economic life. The worldwide energy crisis gave rise to uncertainties that not only threatened our capacity for further growth but also cast serious doubts on our capability for national survival.
The country had no secure supply of oil. The immediate question centered on whether imported oil was to continue to flow into the country in volumes that would sustain our economic growth. We were rudely jolted by the fact that the vital linkages to our traditional oil supplies were under the control of multinationals.
Again, in 1974, Saudi Arabia notified us that we were stricken off the friendly list. You remember that. And once more, we had to send, first, Minister Romulo; then, the First Lady. In 1974, when not even Minister Romulo could mollify the Saudi Arabian government, the First Lady had to go to England to see the King who was ailing. Then she went to Saudi Arabia and sought out the doctors of the Royal Family. And that was how she got close to the Royal Family.
Until recently, we did not possess a single ocean-going vessel, much less did we have a national oil company. Our government had no real experience in negotiating oil agreements with other nations. In addition, international competition for increasingly limited oil supply was becoming keener as worldwide consumption was growing exponentially. The possibility that the Philippines would be muscled out of this competition was very high. For more and more oil was being consumed by us and by other countries. Aside from uncertainties in oil supplies, we also had to contend with the ever-increasing price of oil, which rose ten times, from $3 to $30 in a period of six years, from 1974 to 1980. Our oil imports used to amount to $200 million. Now we are importing $2.5 billion worth of oil. Thus, we were faced with the seemingly inevitable prospect of decelerated production and economic growth.
On the other hand, national survival dictated that we take a positive stance and the required measures to forestall the possibility of zero-growth that an energy-poor situation would predictably bring about. The character of our national response to the energy crisis is best defined, perhaps, by the organization of the PNOC and the formation of the Ministry of Energy.
From the very outset our objective was to achieve self-sufficiency in oil not only in terms of our current requirements. We also had to plot out our targets for levels of energy self-sufficiency that would conform with the broader development goals. We first had to acquire the means for survival; but more than this, we had to ensure that our energy program should fuel our total effort towards full economic progress.
When the government decided to establish a state-owned oil company, it took the first meaningful step towards insulating the country from adverse external developments related to the worldwide energy crisis. From then on we made up our mind that no longer would multinationals be awarded the sole function of acquiring and maintaining the country’s oil supply. Nor will exploration, exploitation, and development of domestic oil sources ever again be fully entrusted alone to the private sector without commitments for active development activities. Henceforth, energy development in all its forms must fall directly under the responsibility and jurisdiction of the state, of the government. This explains why we had to cut off our total dependence on the oil majors since the motive that animates our energy development activities is the principle of self-reliance. The task of energy development is too vital, too critical to be entrusted to others. We had to do the job ourselves.
Today, a full seven years later, the PNOC supplies more than 60 percent of the country’s total crude oil requirements. The PNOC tanker fleet of ocean-going and interisland vessels has a capacity of carrying our entire oil requirements of about a million tons.
When we started in 1974, we started with nothing. We had no money. We were broke. In 1972 when I asked the Governor of the Central Bank how much we had in the foreign exchange reserves, he said that our reserves were down to zero. In fact, he said, we had a negative level of foreign exchange reserves; our commitments were more than the available dollars. And then we had this problem with oil.
Today, the PNOC tanker fleet and storage capacities allow us to maintain a 120-day oil inventory despite the armed conflict raging in the Middle East. Did you know that we shipped a million barrels the very day before the fighting started? Let us not talk about good luck or ESP. Indeed, the Lord has been overly generous to the Philippines and the Filipino people. He has been very kind and generous to us. And we must thank Him.
But we must also continue to work. Through the Bataan Refining Corporation, the PNOC now has the capability to process crude oil into various products for different needs and purposes. Last year, the BRC exceeded its production goal when it processed 103,000 barrels of crude per calendar day. But now, it has increased its capacity to 150,000. In addition, the PNOC leads the national effort to develop the country s indigenous non-oil energy sources.
That is why we also gave out these awards for energy conservation We keep talking about producing oil, buying oil, and things like that. Actually, the first solution to the energy problem is conservation. There is too much waste in the use of oil. The big industries must lead in this movement so that they may not only make money but also serve as an example to everybody. So we have today the PNOC supporting our geothermal, coal, and alcogas development programs and spearheading the energy conservation movement which develops and tests methods and processes for the more efficient use of energy from all sources—bio-mass, marsh gas, and alcogas. They even lent me a car that runs on alcohol. What did Minister Aspiras say? “That is a mobile bar,” he said. And I told him, “You are not going to touch that bar.”
We must, however, avoid the mistake of viewing the PNOC’s performance in isolation. All its activities have been determined by and are synchronized with our total energy development program. In brief, this program aims to reduce our national dependence on oil, manage demand at appropriate levels, and diversify the country’s sources of indigenous and renewable fuels. Based on current estimates, the total commercial energy consumption is projected to rise from 97.8 million barrels by 1981 to 133.7 million barrels by 1985. The energy development program has as one of its objectives the reduction of national dependence on imported oil from the present 82 percent to a more manageable level of 51 percent. Considering the performance of the PNOC, I think we can be confident that it will attain this goal. The achievement of this goal entails the harnessing and development of indigenous oil sources and of nontraditional energy sources such as hydroelectric, geothermal, and coal.
Admittedly, the costs of achieving these goals are staggering. You just think of it at malulula ka talaga. Ako ay nalulula tuwing papipirmahin ako ni Minister Velascowa kinasasangkutan ng hundreds of millions of dollars. Saan tayo kukuha niyan? Wala tayong magagawa. Kailangang bayaran ang langis. Hindi naman natin matatanggihan iyan. Ang wika ko, saan tayo kukuha ng pera para diyan? Well, he said, we get it from the budget and the special funds and from our own corporate fund.
So the power development sector will be the most capital-intensive sector in our energy development program. It will require $6.3 billion, or 66 percent of the program’s entire budget. Energy-resources development will involve a cumulative financing of $2.3 billion, and downstream facilities will account for $1 billion of financing.
Since we began implementing the energy program, our initial accomplishments have been encouraging. And we should sustain the momentum. The Philippines today is the second largest geothermal power producer in the world after the United States. Ten geothermal plants are now in operation in various parts of the country. Within the next five years, the country’s production of geothermal power is expected to reach 1,726 megawatts.
At the same time, Philippine coal production has multiplied at least seven times since 1973. From January 1980 to the third quarter of the year, a total of 204,000 metric tons of coal were produced in the country.
Some 43 coal-operating contracts have been awarded. By 1985 the contribution of coal to our total energy supply is expected to rise to 13 percent on a significantly scaled-up energy consumption level of 134 million-barrels-of-oil equivalent.
In the area of oil exploration and production, some 96 wells are programmed for drilling in our continental shelves and marine territories from 1981 to 1985. By the middle of the next year, the Cadlao field should be on-stream, and the Matinloc field six months later, I hope. We expect to draw 7.3 million barrels of oil from our own fields by 1981. Subsequently, annual output should grow steadily—adding at least one well a year—peaking at 18.25 million barrels by 1985 or 24 percent of the projected Philippine demand.
After the recent oil shock we felt in August this year, we should decide to accelerate the energy development program. It was originally set for 10 years. We compressed this to five years. Of course, poor Mr. Velasco, what could he say? This means reducing the term of the energy program and increasing the efforts. This also means that the major components of this energy program would have to be rescheduled and completed by 1985. Geothermal and alcohol production, the conversion of the major consumers of oil to coal, the setting up of mini-hydroelectric and dendrothermal plants are among the programs whose timetables have been compressed to shorter periods. Incidentally, all of these are covered by specific programs which are funded either by equity investments from abroad or from outright loans. They are all covered now by specific plans and projects. These are not just visions. These are actual on-going projects.
There are two reasons behind our decision to abbreviate the 10-year period. First, the oil price increases of 1979 have made it clear that the oil-substitution projects—particularly coal and dendrothermal energy-must be immediately undertaken if we are to ease sooner the continued drain of foreign-exchange reserves. You have seen the brownouts. You know that those are warnings to all of us. Second, the political and economic uncertainty hovering over imported crude supplies and prices imply a higher cost for oil imports. Suppose the Iraq-Iran war explodes into a world war? Suppose the oil line from the Middle East stops? What are we going to do?
We have reached that point in our development where we cannot afford even a moment’s hesitation. Do you remember that saying, one of my favorite sayings: “On the beach of hesitation bleach the bones of millions who on the day before the dawn of victory hesitated, rested and hesitating, died.” This is a day when we cannot hesitate We either survive or die. And this is a period when the men will have to be separated from the boys. You must assume the worst possible scenario. We cannot expect any favors from anyone. We must depend on ourselves. This is what we must not presume from now on. External events and other developments over which we have little or no control threaten to overtake our resolve and our capacity to undertake positive measures.
It is therefore in this light that we have decided to step up the energy development efforts. And the record of the PNOC and of our entire energy program over the past few years ought to give us that confidence that our objectives will be met, that the job can and will be done. This is why I am here to participate in celebrating this 7th year of the PNOC.
I am confident that under the leadership of Minister Velasco and Mr. del Rosario, as well as the other officers and men here, with your participation, with your dedication, with your proven experience, with your performance in the past seven years, we shall meet our goals. And later, it shall be said that very quietly, the Philippines fought this war, this battle with you as the outstanding soldiers. I wish that I could give medals to all of you. For as you know, medals should be given to those who really fight the critical battles for survival. And you are fighting that critical battle for the survival of the country. The battle for energy. The battle for oil. The battle for coal, geothermal and non-conventional sources.
Once again, let me congratulate the officers and employees of the PNOC, the awardees, and all of you who have participated in the energy program. May you continue to flourish and succeed in all your endeavors.