Out-Law News 1 min. read

Philippines allows 100% foreign investment in geothermal projects

The Philippines will allow 100% foreign ownership for large-scale exploration, development and utilisation in geothermal projects in the Philippines.

Philippines' department of energy secretary Alfonso G. Cusi said he signed a Department Circular last month indicating that local and foreign investors are allowed to participate in the third open and competitive selection process (OCSP3) for large-scale geothermal projects.

Large-scale geothermal projects refers those with an initial investment $50 million capitalisation through Financial and Technical Assistance Agreements (FTAAs) according to a report.

Cusi announced the decision in a recorded speech during the second Global Ministerial Conference on System Integration of Renewables.

The DOE said to postpone on the endorsements for greenfield coal power plants and to open up of the country’s geothermal sector to greater foreign investments is one of innovative policies that it will be implementing.

A Manila Bulletin report said that National Renewable Energy Board (NREB) chairperson Monalisa C. Dimalanta said that geothermal is classified as a mineral resource under the Renewable Energy (RE) Act, so foreign investment is allowed in geothermal projects as long as there is integration between the exploration part upstream and the power generation segment downstream. She said there is still "a grey area" if a foreign investor can just invest in upstream activities and not be part of the power generation component of the venture.

John Yeap, an infrastructure expert at Pinsent Masons, the firm behind Out-Law, said, "The Philippines is blessed with tremendous amount of geothermal energy, given its location along Asia’s 'ring of fire'. However, commercialising the resource has traditionally been challenging given at least two major hurdles, being firstly the constitutional limitation on foreign ownership of potential energy resources, and the high cost of exploration. "

"The recent development in classifying geothermal as a mineral is aimed at addressing the first obstacle so as to permit 100% foreign ownership, and it is hoped that this would in turn encourage foreign investment into the sector thereby bringing in the expertise and financial capability required to undertake the required explorations.  However, this development is not without the possibility of future challenge by those who believe characterizing geothermal as a mineral is incorrect. "

"The response to the CSP process will therefore indicate the extent to which foreign investors are comfortable in their ability to manage the potential regulatory challenges." he said.

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