Nationalize not just Meralco but the entire power industry

WE fully endorse the call made by Columnist Rigoberto D. Tiglao in his piece yesterday “Nationalize Meralco.”

Mr. Tiglao’s column summarizes the ills that private ownership of the Manila Electric Company or Meralco, which is a monopoly on the transmission segment of the power industry in Metro Manila and environs, has caused in our country including our having one of the world’s most expensive electricity rates.

After years of the privatized power industry, the electricity supply situation here has become critical. We need more generating capacity but none massive enough to cover the shortfall is being built.

The local corporations that have made astronomical profits in the production and sale of electric power would not “waste” their wealth on building new generating plants. We therefore need foreign investment. But no foreign corporations would sink billions of US dollars into the power industry as long as our Constitution restricts foreigners to minority ownership.

So the best thing that the Philippines can do is nationalize, not just the Meralco or the transmission and marketing portion of the power industry, but the entire industry itself.

We agree with Mr. Tiglao when he says our country should cast away our blind adoption of the privatization policy at the behest of international moneylenders and peddlers of the idea that government ownership automatically means inefficiency and corruption.

Our history proves that to be true. But it is not the case in other states.

Mr. Tiglao, attacking our government’s “mimicking the West” on privatization, said in his column: “Public utilities are, by definition, essential services a state has the duty to provide its citizens. How does it do this? By getting contributions from its citizens, which we call taxes, which in principle should be provided mostly by the rich, the elite.

“But what does privatization do?

“It even makes public utilities a source of profits for the elite. In Meralco’s case, the private owners would first have to recover at least 6 percent of what it spent to buy the shares—or the cost of borrowing the funds from banks. Then it would need to make at least 10 percent—the minimum profit rate of capital in our country.

“That means a total of 16 percent returns the owners need to make Meralco worth their investments, which they, of course, can recover only by raising the prices of the firm’s product, electricity. That’s how much more—at the very least‚ Meralco’s electricity rates are than if it were run by a non-profit state firm.

“The usual argument against government ownership is that it is inherently inefficient, as it does not have the profit motive, and its managers don’t have to answer to shareholders.”

But Mr. Tiglao presented evidence to the contrary.

“Many government corporations or state-run firms in the world are even more efficient than their private counterparts. Even here, the Bangko Sentral ng Pilipinas is considered to be as efficient as any private firm.

“One of the biggest investment firms in the world is Temasek Holdings, which is owned by the government of Singapore. And even our elite capitalist group, the Ayalas obviously are in awe of Temasek’s capability: its subsidiary Singapore Telecoms is the biggest stockholder of Globe Telecoms, and reportedly has full control of the technical side of the business.

He continues to say that “we are the only country in Southeast Asia that got fooled by the propaganda that the power industry must be run by private firms.

“Indonesia: The electricity market of Indonesia is dominated by the state-owned Perusahaan Listrik Negara (PLN, National Electric Company). Except for several small, closed private networks operating in industrial areas, PLN is virtually the only supplier of electricity in the country. This is because under the 1985 Electricity Law, only public utilities are allowed to supply electric services.

“Malaysia: Three state-owned utilities—Tenaga Nasional Berhad (TNB), Sabah Electricity SDN Berhad, and Syarikat Sesco Berhad—operate and manage each of the country’s three separate grid systems for Peninsular Malaysia, Sabah, and Sarawak. While Malaysia also has privately-owned independent power producers like us, all power is sold and distributed only to the state-owned TNB.

“Thailand: Most of the generation and all transmission activities are operated by a state-owned utility, Electricity Generating Authority of Thailand (EGAT), with a few very small power producers. The distribution and supply activities are the responsibility of the Metropolitan Electricity Authority and Provincial Electricity Authority, which gets its power from EGAT.

“People’s Republic of China: While private power firms have been allowed in the past several years, China’s electricity industry is controlled and dominated by 11 state firms. The State Grid Corporation of China (SGCC), the largest state-owned electric utilities company in the world, distributes electricity throughout China.

“This SGCC is the state corporation which is the partner—the controlling partner, some allege—of mall-magnate Henry Sy’s son in our National Grid Corp. of the Philippines (NGCP), the firm privatized out of the National Power Corp.’s transmission part. How ironic is that? We privatize a state firm, which is taken over by a state firm of another country? It is NGCP which Meralco had blamed for not being able to power parts of Southern Luzon.

“The electric power industry in Cambodia, Laos, Brunei and Burma, are all run by state firms, of course.”

To stop the extremely high cost of electricity from being a major deterrent to our socio-economic development, we must nationalize the whole power industry.