The government is moving to secure diesel supply for off-grid power plants as rising global fuel prices strain operations in missionary areas, with the Department of Energy (DOE) directing state-run Philippine National Oil Co. (PNOC) to supply fuel to the Small Power Utilities Group (SPUG) of the National Power Corp. (NPC).

Energy Secretary Sharon Garin said the intervention is aimed at preventing supply disruptions and cushioning electricity costs in areas dependent on diesel-fired generation.

“We are also now focused on making sure that all our islands, especially Napocor power plants, that these areas do not suffer any interruptions due to the crisis,’ Garin said.

The DOE is coordinating with NPC, the National Electrification Administration, and PNOC to address elevated diesel prices affecting SPUG operations. These areas, which are not connected to the main grid, rely heavily on fuel-based generation and are particularly exposed to price volatility linked to geopolitical tensions in the Middle East.

Garin said President Ferdinand Marcos Jr. has directed agencies to ensure supply stability and avoid cost spikes for consumers.

Under the arrangement, PNOC will supply diesel at preferential rates to SPUG plants, allowing operators to manage costs and maintain generation.

“We’re working with PNOC  to help their generation companies there to get preferential rates because of the discounted rates. They will buy PNOC oil to use in their power plants so that the price of electricity won’t go up and they won’t run out.  So that’s what we are doing,” Garin said.

She added that the approach could be replicated across other off-grid areas served by NPC.

The move comes as NPC faces mounting financial pressure from elevated diesel prices. NPC president Jericho Nograles earlier warned of a potential PHP 10 billion budget shortfall for the rest of the year if prices remain above PHP 127 per liter, significantly higher than the PHP 60 per liter assumption in its budget.

“That’s part of our forward-thinking,” Nograles said. “We had prepared prior to the war an allowance for fuel to reach PHP 92. Currently, Napocor is purchasing fuel at PHP 127 per liter. If it stays the same, we will have a budget shortfall.”

Nograles said the projected deficit translates to about PHP 1.4 billion per month.

“We have been operating in this very intense situation since March,” he said. “But the full effects of the war are going to be felt financially by Napocor this coming May.” 

Despite the financial strain, NPC has maintained operations in SPUG areas through cost management measures, including austerity and budget realignment.

“That is the least we can do to keep the lights on,” Nograles said. “When the war broke out, I sought guidance from my board, and my board told me that brownouts are prohibited.”

The utility is also seeking additional funding support from Congress and exploring loan facilities to cover the shortfall.

“In a high-cost fuel scenario, there are really only two situations,” he said. “Either we have cash to cover the unbudgeted costs, or we find cheaper fuel.”

NPC is mandated under the Electric Power Industry Reform Act of 2001 to provide electricity to missionary or off-grid areas, making fuel security a critical issue for energy access in these regions.

How sustainable is a fuel subsidy and preferential supply model for off-grid areas amid prolonged high oil prices? Share your insights with us.

Follow Power Philippines on Facebook and LinkedIn or join our Viber community for more news and updates on the Philippine energy sector.