• A system beyond saving

    Ben D. Kritz

    Ben D. Kritz

    In the modern world, access to affordable and reliable electric power is not a choice, it is not a privilege, and ensuring that it is maintained is not a responsibility that a functional government can simply choose to delegate.

    If the past few weeks have taught us anything, it is that the Philippines’ electricity industry is, from top to bottom, irretrievably broken.

    The ideal underlying the concept of privatizing the Philippines’ power sector through the Electric Power Industry Reform Act (Epira) was sensible enough because there are many examples of privatized infrastructure systems that work effectively all over the world. The global air transport sector, for instance, demonstrates that tight government regulation and competitive market forces can coexist productively.

    If Epira had been written and enacted as a means of putting that sort of beneficial balance of control and free-market flexibility into action, the country could have had an extremely efficient electrical infrastructure. Instead, what Epira provided was weak—in reality, nonexistent—regulation and a market environment that excludes all but a handful of entrenched enterprises with overwhelming political influence.

    The Philippines’ electricity sector reflects a major economic crisis, and potentially a humanitarian one as well. For those who find that assertion unreasonable, consider again a few well-known circumstances that have recently arisen:

    *The failure of the regulatory system has been revealed by the intervention of the judicial system—the highest court of the land, no less—in the matter of a rate increase, something that should be a relatively basic issue addressed by administrative procedures.

    *The failure of the management system has been revealed by the frequent gaffes of the responsible government officials, most notably the hopelessly inept Energy Secretary Jericho Petilla, but others as well. A few examples: Petilla essentially forgetting to order the government-owned Malaya generating plant to operate during the period in November that resulted in electricity prices skyrocketing because of contrived supply shortages; officials of the Department of Energy, the Department of Budget and Management and the National Electrification Administration pointing fingers at one another for confusion in inter-agency paperwork that left a large area of Mindanao damaged by Typhoon Pablo in 2012 without electricity for 14 months (and counting); Petilla’s failure to meet his self-imposed deadline to restore power to areas affected by Typhoon Yolanda—and not only miss his target, but not even come close to hitting it; and the complaints that he was being “subjected to public ridicule” by Energy Regulatory Commission chairman Zenaida Cruz-Ducut, in response to criticism of the ERC over the rate hike of the Manila Electric Co. (Meralco).

    *The failure of planning is revealed by contradictory statements regarding the chronic power supply problems of Mindanao, which last week suffered from an island-wide blackout due to equipment failure. Just last October, Petilla was cautioning Mindanao power distributors to be careful in signing supply contracts because of the possibility of an oversupply as new plants are due to come online. Yet at just about the same time, other forecasts from the Department of Energy pointed to a potential shortfall of 200 megawatts that would not be met until 2018.

    *The failure of security is revealed by two stories made public by The Manila Times in recent weeks: the control of Meralco, the country’s largest electric distributor, by Indonesian magnate Anthoni Salim, and the management as well as operational control of the National Grid Corporation of the Philippines (NGCP) by the State Grid Corporation of China.

    In an editorial last week, The Times openly posed the question whether the massive Mindanao power outage could have been due to Chinese interference. A few months or a year ago, that notion might have seemed absurd, but with the Chinese government recently demonstrating the willingness to use force to defend its claim to the West Philippine Sea, it suddenly appears to be a real risk. Certainly, water cannons are considered “non-lethal” force, but the fishermen driven away from the Panatag Shoal likely do not consider that distinction significant, and the rest of the country probably should not, either.

    Astonishingly, Petilla, who is either completely oblivious of public sentiment and concern or arrogantly defiant of it, just last Monday informed Chinese journalists at an event sponsored by Shell that the Philippines’ energy sector is an “open field” for Chinese investment, citing in particular opportunities in the oil and LNG (liquefied natural gas) businesses.

    There is no simple solution to any of this, and so far, everything that has been proposed is in some way a half-measure. Clearly, Petilla and probably the ERC’s Ducut have demonstrated they are doing more harm than good in their current positions and should be removed immediately. But that begs the question, who should replace them? Undoubtedly there are candidates out there with both the relevant experience and an acceptable ethical perspective who could fill those roles, but unfortunately those qualities seem to be anathema to President Benigno Aquino 3rd whose privilege it is to appoint officials.

    And no matter how bad they are at their jobs, replacing people does not necessarily address flaws in an entire system. And again, the obvious solution—repealing the Epira law—is only one step. Should the power sector be re-nationalized? If so, how?

    Or, as perhaps more citizens and stakeholders would prefer, should the country’s investment environment be further liberalized? If so, then what additional measures are needed to ensure that the power sector and its consumers benefit from competition? More importantly, how can open investment be properly balanced with legitimate security concerns so that the economy can attract and benefit from foreign investment without critical strategic infrastructure falling completely under potentially hostile foreign control?

    With so little time left in the current administration’s term—something for which we can perhaps be thankful—the complex problem of rebuilding the country’s electricity infrastructure might best be approached as a make-or-break campaign issue for 2016’s presidential hopefuls. The one who is willing to seek out and listen to the ideas of various stakeholders (and not, we might add, simply to those who fund his or her campaign) will earn an early advantage; those whose names have already been mentioned as contenders should consider themselves warned.



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    1. The energy secretary will think he has done everything in his power to sort things out. He will never accept that he is incompetent. But tell me in government who is competent. Look at the traffic congestion, no one has a clue where to start. Look at the chaos in driving standards does anyone ever think it needs addressing. Look at the shambles in getting rich & powerful people into court, like in the maguaindanao case, & next the pork barrel scam case. Look at how if you are driving a car & have an accident with a tricycle or bicycle its automatically the drivers fault. Look at if you are charged with rape without any evidence the man is locked up. Look at how the bir or the nbi arnt allowed to check anyones dollar account without their written permission. The country is a shambles from top to bottom & nothing will improve until people start voting the right people into power.

    2. I think the main problem is this country had never have a strong leader including this present regime that could instill strict discipline among all his line departments including the GOCC’s. The outcome is generally mismanagement of all agencies and the result are the following ( to name a few notable ones) : Napocor debts of billions of pesos and power crisis that led to privatization, water crisis leading to privatization also, rice commodity crisis from exporter to leading importer with uncontrolled smuggling, low revenue collections due to unchecked corruptions at BOC and BIR, agrarian reform could not be implemented at fast and smooth pace due to local politician’s resistance, more people seeking work abroad due to lack of government programs offering job opportunities, oligarchs control almost a big chunk of the economy, farmers are left on their own to till their farming lots usually at the mercy of private traders for loans used for farm implements not to mention too the adverse effect of smuggled farm products sold in the market and many more. If only strict performance audit system in all agencies is applied regularly, we could have attained the likes of other Asian big economies.