Competition and power

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ARLENE P. DONAIRE

ARLENE P. DONAIRE

Everywhere in the world, it is an established fact that economic development and energy development are dynamically correlated. In the highly developed countries, energy development has been instrumental in the growth of industries and businesses, and the overall improvement of quality of life. In the Global Competitiveness Reports published by the World Economic Forum, which “assess the competitiveness landscape of the global economies and provide insights into the drivers of their productivity and prosperity,” it is revealed that “competitiveness – understood as higher productivity – is a key driver of growth and resilience.” The Philippines currently ranks 52nd in a field of 140 economies surveyed for 2015-16 and 5th among the fifteen Emerging and Developing economies of Asia, below top-ranked Malaysia, China, Thailand, and Indonesia. But it is not in the list of the top 10 most competitive economies of Asia Pacific, which is led by Singapore. (http://reports.weforum.org).

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A fundamental part of higher productivity of countries is their capability to support the infrastructure, including electricity requirements, quality- and quantity-wise of their growing economies. In the 2015-16 Global Competitiveness Report, the Philippines ranked no. 89 (out of 140 economies), up four ranks from no. 93 (out of 148 economies) in 2013-15 in the “quality of electricity supply.” Comparing against the top economies of Asia in same years – Singapore (No.3/No.8) and Malaysia (No.36/No.37), the Philippine is still a long way from becoming at par; but, clearly, there are signs that we are improving.

So how can the Philippines begin moving towards a more competitive ranking, taking into context, the role of cost of electricity (electric power)*.

A report from the Energy Economics Institute of Japan showed that the Philippines has the most expensive power! In 2011, the average price of power among ASEAN countries was only US$13.49/kWh, against the Philippines US$24.83/kWh. In 2013 Global Benchmark Study of Residential Electricity Tariffs by Lantau Group, among 14 major cities in North and Southeast Asia, Manila ranked third to Sydney and Tokyo, as the city with most expensive electricity.

In making the cost of power more competitive, the market requires well-behaved players on both demand and supply side and, a fair, proactive, and reasonable referee that keeps the scale balanced. Over the years, the market for electricity or electric power in the Philippines has been like a game of tug of war – with the opposing forces pulling to make the market more or less competitive. In this game are the electricity consumers – industrial, commercial, and residential; the players that are responsible for producing and conveying electricity to the end-users – the power generation companies (GenCos) the transmission company, and the distribution utilities, which are either privately owned utilities or government-supported electric cooperatives; and the government agencies – the policy-maker and implementer that must encourage competition (Department of Energy and its attached agencies) and the regulator (Energy Regulatory Commission) that clips anti-competitive actions.

Competition is a double-edged word depending on which side of the economy or a market you are on. For many of us belonging to the demand-side of the spectrum, competition is good because it allows us to benefit from optimal value, that is, the best quality of power at the most reasonable price. To those that must produce and deliver the power to our homes and businesses, the goal is to recover capital and earn enough returns on investment. Our country has been experiencing the era of reformed – liberalized, deregulated, restructured – markets since the EDSA Revolution. With each new administration, the President had brought with him or her an arsenal of policies aiming to unleash economic power that had once been vested in only a few select ones, and ultimately envisioning a supposedly more dynamic economy founded on competition. In the energy sector, the one that started it all was the Oil Industry Deregulation Act back in 1998 and its subsequent sibling, the Electric Power Industry Reform Act (2001). With the recent passage of RA 10667 – National Competition Policy, the country awaits with bated breath the benefits of reforms to strengthen market competition.

The concentration of power (in the power industry) can lead to higher cost of power. As they all say, “power corrupts and absolute power corrupts absolutely. ”In the Philippines, since passage of landmark laws – OIDA and EPIRA – the country has seen some positive changes; there is hope. Over the last three decades that I have worked in the energy sector, I bear witness to official development aid (ODA) partners like the United States Agency for International Development (USAID) and some players like the electric cooperatives, whose firm belief in the benefits of competition is directly translated in their actions. I look forward to see how the current administration of President R. Duterte will roll out competition in power.

*Physics tells us that power is “the rate of change in energy.” In a more general context, however, power refers to the energy that can be produced by mechanical and electrical means, among others. Electricity is that form of energy that is produced by electrical means or the flow of electrons. Thus, power can be used in the context of various sources and methods of generating the energy, whereas electricity can only be used in reference to electric power. (http://www.differencebetween.info/).

Arlene Pasaol Donaire completed her Masters in Public Administration from Harvard Kennedy School in 1999, with concentration on regulatory policy and energy management, and a Master of Arts in Economics from University of the Philippines – School of Economics. She had worked as economist and planner for government agencies (NEDA and PNOC) for eight years before becoming a development management consultant in the energy and infrastructure sector, serving as project manager/technical advisor in various USAID, AUSAID, World Bank projects. She is currently Component Team Leader for Infrastructure and Electricity in the USAID Advancing Philippine Competitiveness Project.

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3 Comments

  1. Error in the decimal point of electricty prices in the fourth paragraph… this should be in US cents… i apologize for the typo erro on my part.

  2. The other nations have Nuclear Power which level their costs…. and they are land locked so grid efficiency is maximized. We are similar with Indonesia but they have Coal…. We have many great challenges when it comes to Energy.

  3. What is the difference between our country and those with much lower power rates? Those countries don’t have Ayalas, Aboitizes, Pangilinans, Lopezes etc. If we want competitive rates, we must state the problems correctly first before we can eliminate them.