ANGVA 2005 Conference and Exhibition Kuala Lumpur, Malaysia July 27, 2005

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1 The Natural Gas Vehicle Program for Public Transport (NGVPPT): The Philippines CNG Bus Project By Mr. Eduardo V. Mañalac President & Chief Executive Officer Philippine National Oil Company (PNOC) Philippines ANGVA 2005 Conference and Exhibition Kuala Lumpur, Malaysia July 27, 2005 I. Background The Philippine NGV industry started out with a Project on Natural Gas Utilization in Transport (NGUT) in 1994 through the ASEAN-New Zealand Economic Cooperation Program that aimed at looking into the potential of CNG as an alternative fuel to diesel in the transport sector. Through the project, a light-duty diesel-fueled vehicle was converted to a dedicated NGV in November 1999, and the first CNG mother refueling station was inaugurated in March From December 2001 to June 2002, more vehicles were converted including two buses and two light-duty vehicles. This was followed by the establishment of the Philippine National Oil Company s (PNOC) CNG mobile refueling facility in 2002 which provided for the CNG requirements of demonstration NGVs. From all these stemmed the more aggressive move of the government towards the NGV industry. In the Philippines, two chief driving forces spurred the government s initiative to consider the use of natural gas in transport: economic and environmental. Economically, the Philippine government had to address the consistently rising fuel prices. The country imports all its transport fuel needs. Considering its vast indigenous energy resources, the Philippines can not only achieve energy security through its natural gas resource; it can as well generate a revenue of US$10 billion that would have gone to pay for imported petroleum. With the unused natural gas output of the Malampaya Deep Water Gas-to- Power project, the biggest infrastructure investment in the country so far, the Philippine NGV industry can readily take off. The environmental benefits that can be derived from the use of natural gas in transport have been the motivating factor for the government to push for the acceleration of the NGV industry. The substantial reduction in harmful

2 vehicular emissions will help in bringing about a healthy environment. A healthy environment is a success factor towards a healthy economy. The Philippines is one with more and more nations in the Asia Pacific with the growing concern on significantly increasing the use of clean fuel technology that will address the adverse effects of conventional transport fuels on the environment. The Pilot Project Through an executive order of Her Excellency President Gloria Macapagal-Arroyo, the Natural Gas Vehicle Program for Public Transport (NGVPPT) was created. With the Department of Energy (DOE) as the lead implementing agency, the NGVPPT was launched on October 16, The NGVPPT is envisioned to enhance the energy security in the transport sector through fuel diversification using indigenous natural gas. The Philippine NGV industry kicked off through the demonstration of NGVs. Soon, the initial operation of CNG buses for public transport from Batangas to Manila and vice versa, will commence. This pilot project covering around 100-kilometer one-way route aims at evaluating the commercial viability, technical requirements, market demand, impact of incentives and public acceptance of the use of natural gas for vehicles. II. Challenges in the Philippine NGV Industry and the Solutions Implemented to Address Them Since most of the pollutants are concentrated in Metro Manila 80% of which is attributable to vehicle emissions, the government focuses on addressing this environmental problem through the public transport system consisting of buses that ply the major thoroughfares. A. Establishment of CNG Refueling Infrastructure Just what most of the NGV industries worldwide encountered in the early stage of implementation, the Philippines NGV industry had its birth pains as well. No bus companies would commit to operate CNG buses unless the CNG refueling infrastructure is established; no private firm or individual would invest in a refueling infrastructure either unless they are assured of the CNG demand. To solve this concern, the DOE and the Pilipinas Shell Petroleum Corporation (PSPC) signed a Memorandum of Agreement (MOA) that would make CNG available to public transport buses. The MOA puts into consideration the possible growing market for CNG. There would be no 2

3 limitation on the number of CNG terminals, and the right to put up a terminal will not be exclusive to PSPC. On March 5, 2005, the country s first commercial mother CNG facility took off to full construction stage in Tabangao, Batangas, about 100 kilometers from Metro Manila. By June 2005, a CNG retail station along the bus route in Mamplasan, Laguna shall have been inaugurated to complete the mother-daughter refueling system. This shall serve as an initial fuel transport system for the 200 CNG buses until the pipeline infrastructure that will deliver the natural gas to Metro Manila is set in place. Prior to the groundbreaking ceremony of the first CNG mother refueling station, the DOE, the Department of Transportation and Communications, and the participating bus companies signed a Memorandum of Agreement signifying the prospective bus operators commitment to procure CNG buses for delivery from June to December 2005 under a negotiated CNG price that is favorable to the bus operators. On September 3, 2004, these bus operators and CNG bus manufacturers in Beijing, China signed a contract for the purchase of 100 CNG buses, and the DOE and the Natural Gas consortium signed a Memorandum of Agreement for the acquisition of an initial batch of CNGfueled Chinese-made buses. The DOE shall facilitate the participation of at least 200 CNG buses. There is no exclusivity in the establishment of CNG refueling stations in the country to promote competition in the CNG industry and allow the entry of new investments into the country. B. Development of Incentives The high investment cost in setting up infrastructure for CNG distribution, converting vehicles to NGVs, and acquiring OEM NGVs and components prompted the NGVPPT to include in the following privileges to be extended to the participating companies: Income tax holiday for qualified pioneering projects Zero percent rate of duty on imported NGVs, NGV engines and other NGV industry-related equipment, facilities, parts and components as certified by DOE Issuance by the Land Transportation Office of Certificates of Compliance with Emissions Standards to NGVs Preferential and exclusive franchises for NGVs to newly opened routes 3

4 Accelerated issuance by the Department of Environment and Natural Resources (DENR) of Environmental Compliance Certificate (ECC) for NGV facilities and refueling stations Affordable and commercially tenable financial packages from government financial institutions To avail of these incentives, any individual or participating company should apply for a Certificate of Accreditation and Certificate of Authority to Import with the DOE. C. CNG Pricing To encourage the public transport operators to use CNG-fueled vehicles, the price of CNG will be pegged at P14.52 per normal cubic meter or about 40% lower than the prevailing cost of diesel in the market. The price which is based on a foreign exchange rate of P56 to $1 shall be fixed for the next seven years. The price is subject to adjustments based on fluctuations in the Philippine Peso to US Dollar exchange rate. It was agreed that the DOE, the bus operators, and the PSPC that operates a mother refueling station will exert all efforts to reach an annual consumption of 9.7 million normal cubic meter per year which is equivalent to about 200 to 220 buses. D. Development of NGV Technology NGV manpower development and capability building is gradually being established. Training programs on the technology including design and layout of the NGV system and CNG refueling stations have been conducted. The Department of Science and Technology Philippine Council on Industry and Energy Research and Development will develop and promote locally manufactured components for, and training programs on the conversion of engines to CNG fueling and their operations and maintenance. E. Establishment of Standards It had taken almost a year since the NGVPPT was created, before the industry established NGV standards. In June 2003, 48 sets of CNG/NGV Philippine National Standards on road vehicles, refueling stations, gas cylinders, and gas quality were promulgated. Also being reviewed are 2 additional standards, namely the NFPA 54 and the ASME 4

5 B31.3 on safety, performance and environmental protection to cover the entire NGV industry. Adopted standards were reviewed by experts provided by the United States Agency for International Development (USAID). F. Testing of NGVs, Components and Facilities The entity that will handle the testing procedures and facility for the regular testing and inspection of NGVs, components and facilities has not been established yet. To address this issue, the DOE is firming up with concerned government agencies to institute parameters necessary to put this into operation. G. Conduct of Information and Education Campaign Activities The Philippine National Oil Company (PNOC) initiated the intensified NGV information and education campaign. Lectures on the NGV technology have been conducted in schools, government agencies and with non-governmental organizations. PNOC has participated in several energy and transport exhibits, motor shows, fuel economy caravans and published NGV information in newspapers, and on radio and television programs. This resulted in a widespread public awareness of the benefits of CNG as clean alternative transport fuel and encouraged the school officials to include the NGV technology in their curriculum in the future. The DOE, on the other hand, implemented the free ride on CNG demonstration buses by the public commuters and allowed the bus operators to test the operation of CNG buses. III. The Future Direction of the Fleets The NGVPPT targets that 700 CNG buses shall have been in operation by 2007, and 2000 by Possible independent and joint ventures on CNG refueling stations are being firmed up. The DOE has established an Alternative Fuels Fund to support the projects and research and development activities on alternative fuels including natural gas. 5

6 The DOE is also pushing for the passage of legislative measures that will encourage the use of cleaner and efficient fuels. The proposed laws will also help intensify private sector participation and ensure consumer welfare and empowerment. These measures include: 1) the Alternative Fuels Utilization Bill which is expected to lead to wider use of alternative fuels and aggressively reduce the country s dependence on imported energy through fuel switching from oil to indigenous fuels such as natural gas; and 2) the Natural Gas Bill that seeks to promote natural gas as an environment-friendly and economically efficient source of energy considering its abundance, clean burning properties and versatility as a fuel source. The NGVPPT plans to develop capacity building for NGV implementers, certifiers, inspectors and regulators. Hands-on training for personnel who will maintain the CNG buses are ongoing. Information and education campaign activities will continue to promote wider public awareness of the NGV technology. More standards shall also be reviewed for adoption. IV. Conclusion The Philippine NGV industry led by the government will grow as expected considering that incentives have been instituted to ensure participation of the private sector. If the NGV operation is a political issue in some countries, it is not in the Philippines since it is the government itself that pursues the industry through its initiatives to make the technology attractive to the public and the private entities. The Philippines has what it takes to get the NGV industry started with the resources, the manpower, the technology, the partnership. With the continued support and interest of our neighboring nations to invest in NGV projects in the Philippines and the cooperation development projects that have been and will be set in place, the industry will move forward even faster than envisioned. 6