Philippines power costs face pressure as peso slide raises fuel import bills

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Philippines power costs and peso

Highlights

Philippine peso hit an all-time low of P64.17 against the dollar Tuesday, raising fuel import costs and potentially pushing up electricity rates for consumers.
Domestic pump prices have reached record highs of up to P170 per liter, with gasoline rising P68.85 per liter year-to-date, as the country also faces a strong El Niño threat.
Power firms relying on imported fuels or holding U.S. dollar-denominated debt face increased operating and servicing costs, likely passing these through to consumers amid currency volatility.

Currency pressure and electricity pricing

As reported by BusinessWorld Online, Energy Secretary Sharon S. Garin says electricity rates could rise as the peso's continued depreciation against the U.S. dollar lifts the cost of imported coal, diesel and liquefied natural gas used in power generation. She says those costs are passed through to consumers and could affect the per-kilowatt-hour rate.

The Philippine peso closes at an all-time low of P64.17 against the dollar on Tuesday, from the previous record of P63.95 on Monday, based on data from the Bankers Association of the Philippines. The move marks the peso's 38th record low this year and its ninth in October.

As a net fuel importer, the Philippines needs more pesos to pay for foreign-sourced energy when the local currency weakens. Garin says the Department of Energy will coordinate with the Energy Regulatory Commission to explore ways to cushion the impact of higher costs tied to the peso's depreciation.

Broader energy and consumer impact

Garin says the government is also dealing with an oil crisis, currency depreciation, El Niño and the approach of summer, factors that together increase pressure on energy costs and supply planning. She adds that the government may ask oil companies to stagger potential pump price increases once this week's pricing calculations are clearer.

Last week, the Philippine Atmospheric, Geophysical and Astronomical Services Administration says a strong to very strong El Niño is active in the Tropical Pacific, with a peak expected before year-end and effects lasting until the first quarter of 2027. Dry conditions linked to El Niño threaten water supply and create risks for hydropower, which accounts for less than 20% of the country's electricity generation.

Since the outbreak of the U.S.-Iran war in late February, domestic oil prices have surged to record highs, reaching as much as P170 per liter. On a year-to-date basis, pump prices have risen by a net P68.85 per liter for gasoline, P64.43 for diesel and P62.76 for kerosene.

Juan Paolo E. Colet, managing director at China Bank Capital Corp., says power generation companies that rely heavily on foreign exchange-sensitive fuels such as oil and LNG face higher operating costs, while utilities with U.S. dollar-denominated debt could also see debt servicing expenses increase. He says those costs are likely to be passed on to consumers, although careful foreign exchange hedging may help soften the effect of currency swings.

Garin says the El Niño challenge extends beyond the energy sector and may require coordination with agencies including the Department of Environment and Natural Resources, Department of Agriculture and Department of Transportation. She says a whole-of-government approach may be needed if the weather pattern's impact broadens further.

In our earlier article on Philippine stocks rebounding despite peso weakness, we described how bargain hunting lifted the PSEi even as the peso slid to a fresh record low against the U.S. dollar. We also noted that the currency’s drop kept sentiment cautious and that net foreign buying returned after several sessions of outflows, underscoring how closely investors were watching further peso moves.

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