Output-Based Aid in the Philippines : Improving Electricity Supply on Remote Islands

The Philippines has introduced an output-based aid (OBA) subsidy scheme to improve electricity supply on remote islands as a way to enhance living standards in the poor communities there. The subsidy, to come from a national fund financed by a surcharge on all electricity users, will be paid to private generators selected through competitive bidding, and disbursed on the basis of the energy they supply. These generators will take over from the government provider, entering into a supply agreement with the cooperatively owned distribution utility on each island. The competitive bidding process should ensure that the costs of supply, and thus the required subsidy, will be lower. That will allow subsidy funds to be used more efficiently, benefiting more communities. The quality of electricity service should also improve. The International Finance Corporation worked with the government to establish a framework ensuring delivery of electricity supply and transparency in subsidy payments. The first transaction, focusing on three pilot areas, has been successfully completed.