Forget the Constitution; just bring down electricity costs

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RIGOBERTO D. TIGLAO

RIGOBERTO D. TIGLAO

It is really absurd, and even plain stupid, to believe that the restriction in the Constitution on foreign investment in public utilities is the reason why we have had a low level of foreign direct investment (FDI), compared to our neighbors in Asia.

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Foreigners are now the biggest shareholders in the telecom and power industries. How could that be if there were restrictions? The fact is that Indonesian and Singaporean capital, in collaboration with the local elite and government agencies, have de facto removed the constitutional restrictions especially on the telecom industry.

We forget that have had in fact a period when we absolutely had no restrictions on foreign capital from the biggest capital-exporter and richest country the world – the United States.

The Philippines, from 1947 up to the 1974 , absolutely had no restrictions on investments from the United States. This was because we had that grossly misnamed “Parity Rights Amendment” to the 1935 Constitution which gave US businesses until 1974 the same rights and privileges as local capitalists. The US required that amendment, or else it would not give us the $800 million in war-reparations.

Did such policy of total openness to American capital result in huge US investments here? Not really. The bulk of US capital went into monopoly firms , PLDT, Meralco, and the cartel of soap and detergent manufacturers.

Did US foreign capital make us a developed country? You can see for yourself.

In fact, countries such as South Korea and Japan which had little US FDI but became developed countries in a generation’s time. This was because of their strong sense of nationalism – i.e., capitalists cooperated with the state, and with the state’s help focused on sectors (such as heavy industries in Japan’s case) that built up their economic base.

Poor and inefficient business environment — the lack of physical and technological Infrastructure; limited and run-down highway network; an inefficient port system, and corruption, and most of all, high electricity rates — are the principal factors that hamper the flow of investment into the country.

What Constitutional restrictions on public utilities?

What Constitutional restrictions on public utilities?

The continuing claims, recently made even by President Duterte’s top economic officials, that Constitutional restriction is the reason for our low FDI levels only serve to distract us from what we really need to do to become preferred sites for FDIs.

The strong lobby to lift the Constitutional restriction demonstrates the hold of the two foreign firms controlling our telecom industry — the Indonesian-owned First Pacific and the Singaporean state firm Singtel’s — on our political and media elite. They are afraid that sooner or later, the Supreme Court decision in 2011 that ruled their control of our telecommunications sector as violating the Constitution will catch up with them. For them therefore to evade the Supreme Court ruling, the Constitution must be amended to legalize their trampling of the Constitution. How much more do these proponents of amending the Constitution want our Republic to be shamed — change the Charter just to make the trampling of it by two foreign firms legal?

The single most important reason why we haven’t attracted enough FDIs and why even some of our businessmen have been moving out from our country is our high cost of power.

It’s the biggest expense for industrial firms, accounting for as much as a fourth of their costs, and industry, we have to remember, still make up the backbone of a strong economic base. Because of high power costs, even foreign companies, which have been here for decades, have moved out to other countries in Southeast Asia, and especially to China. The only “industry” we could be competitive in is skilled-labor intensive business processing and possibly tourism.

Based on Meralco’s tariffs (using residential rates of 200 kilowatt hours per month consumption) which averaged 24 US cents per kilowatt hour in 2013, the price we pay for our electricity, believe it or not, is the fifth highest in the world, according to an April 2013 study funded by the US AID, entitled Challenges in Pricing Electric Power Services in Selected Asean Countries. Our rates are even a bit higher than the Kansai region in Japan–24 US cents, and Singapore–23 cents.

That is one reason why FDIs have recently been flowing into war-ravaged Vietnam: Its electricity costs have been about 9 US cents per kilowatt hour, about a third of ours.

And who owns the power firms in Vietnam and in most Asian countries? Their states or their states’ corporation.*

Only in the Philippines again. This major discentive to FDIs has been a huge source of profits for private firms controlling our power industry, the biggest of which the Salim-controlled Meralco, the dividends of which has soared since he took over the firm in 2009:
meralco20161102How can we convince foreign investors to build industries here, when the costs of power in our competitors in the neighborhood, Indonesia, Thailand, Malaysia, and now Vietnam are just fractions of ours?

No wonder even Filipino Chinese tycoons are moving out of the country to put up their factories in China, where electricity rates are nearly a third of ours. Have you noticed that even shampoos and toothpaste are now made in Thailand and Indonesia? Electricity in Thailand costs nearly half that of ours, while that in Indonesia is only a fifth of ours!

Now guess what is the biggest power firm in the country now, the monopoly in metropolitan Manila and several provinces which is the industrial and economic center of the country?

Meralco. And who controls it? The Indonesian tycoon Anthoni Salim, which through PLDT and Metro Pacific Investments Corp. is Meralco’s biggest stockholder.

(*For a detailed description of ownership of power firms in Asian countries, see Chapter 2 ((Asians in control of their telecom and power secdtors, except the Philippines”) of my book Colossal Deception.)

tiglao.manilatimes@gmail.com
Facebook: Rigoberto D. Tiglao
Twitter: @bobitiglao

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16 Comments

  1. Scott Anderson on

    Unfortunately the author does not discuss the main reason why Philippine power costs are so high: Geography.

    Number 1, The Lord blessed this country with wonderful things, but unfortunately did not bless it with abundant supplies of cheap coal or natural gas, unlike its neighbors (Malaysia, Indonesia, Brunei). Imported coal is the preferred energy source for Philippine power plants because it’s easy to transport, but good quality coal is expensive to buy and distribute.

    Number 2, this country comprises over 7,000 islands, which complicates electricity distribution. It is easier to supply and distribute electricity in small compact nations (South Korea, Singapore, and Taiwan) or terrestrial nations (Malaysia and Thailand).

    Number 3, typhoons and sabotage by extremist groups wreak havoc on Philippine electrical grid infrastructure, which is costly to repair and compromises reliability of the grid.

    I agree that much can be done to reform the political and regulatory landscape to improve efficiency and provide incentives. But these can only go so far. There’s simply no way for the Philippines to overcome its geographic limitations. Therefore, in the short and medium term, power costs will continue to be significantly higher than its neighbors.

    There is always the hope that technological advances will change the face of future power generation. As is the hope that the Philippine-claimed portion of the South China Sea contains the expected bonanza of oil and natural gas that experts claim. Oh wait, the Philippines appears to be giving away their claims to these riches. But that’s a discussion for another time.

  2. Why not nationalize the utilities and infrastructures, run them efficiently by eradicating corruption with strong measures say ” firing squad to economic saboteurs” , instilling efficiency and discipline.

    But first thing to do is to change the system of governance, possibly into a revolutionary one, not necessarily in line with any ideology. The oligarchs will never give up their stranglehold, so this has to be done, no choice.

  3. You are RIGHT again Mr. Tiglao!

    and we can– the ERC is surreptitiously amending the EPIRA– which also is a mongrel and has to be amended to retain its integrity

  4. Corruption is still be biggest culprit in our government decision making process to let foreigners control our utility companies. FULL STOP! DU30 should start investigating and charge those offenders. This foreign institutions are our biggest money plunderers.

  5. Given the stranglehold the oligarchs have on this country, the only way to bring down power costs is by revolution, either a peaceful one through a revolutionary government led by Duterte, or a bloody one where these oligarchs will get the justice they deserve by ending up hanging from the lampposts of Meralco. Digong is the last chance for a peaceful revolution. If the oligarchs manage to defeat him the people are ready with their pitchforks. Believe me, this time they will make Vlad the Impaler look like Mother Theresa.

  6. It will not be in the best interests of the Indonesians ( who are fiercely nationalistic ) to make Foreign Direct Investments to the Philippines overly attractive.

    Every time the regulatory bodies are presented with petitions for increase in water billings, electric billings, telephone, internet and tollway charges, I say to myself “it’s the revenge of the Indonesians … and their local ‘partners’.”

  7. renato s. irlanda on

    attentton president digong
    i hope this article of mr tiglao will prod you to go after the filipinos who sold the philippines down the drain
    please go after them with the same or greater intensity that you have and are still giving to the eradication of the philippine drug problem.
    these filipino traitors are worse than the drug lords.

  8. Include the print and mass medias too. Haven’t you noticed how these leading newspapers (with the exception of Manila Times) and tv networks protects the yellow empire which has been very instrumental in providing them greater convenience in monopolizing these businesses.

  9. Just to elaborate the point/s brought up earlier: The Federal Treasuer of Australia, Scott Morrison, recently blocked the possible sale of NSW’s Ausgrid (major electricity provider of Sydney and surrounding regions) to a Chinese group citing “security interest” for said move.. It is interesting to note that this entails a very attractive business proposition in line with the NSW government’s privatisation strategy to achieve better efficiency and to further augment its Keynesian economic progress. The real estate boom that is now happening in Sydney and its surrounding regions had brought in the desired results down its economic ladder and this is being fueled to a certain extent by foreign investments, mostly coming from China. A lot can be read about the economic benefits all these were able to bring in and there is no need for us to belabor on the matter. What is worthwhile mentioning is the fact that a Federal Liberal government minister has come in to block a NSW Liberal initiative citing national interest his main reason. He furthered that said power grid is an integral part of the national structure to justify his action considering that decisions like these may be relegated with a degree of autonomy to federal units like the NSW. In the same light, sovereign nations like the Philippines, should never allow public utilities like power, telecommunications and water supply, to be in the hands of foreigners. The economic benefits they briing could be like sugar coatings on vitriols that may come later when everything has been said and done.

  10. Truth is the Oligarch controlling the power/energy industry in the country don’t really care about the Constitution. Only have to look at the Owners of the utilities – it is nothing but an incestous relationships of MERALCO, Aboitiz, Ayala, Lopez , San Miguel Corp. and etc. together teaming up to construct power projects? ONE HAPPY CORRUPT FAMILY!

    The law as I was told was written to have those folks to provide competitive energy pricing. Experience thus far is much worst than the maligned National Power Corporation. Time to get back and nationalize the power/energy industry.

    YES, FORGET THE CONSTITUTION AS REGARDS TO POWER COST. LET US DO IT!

  11. I am amazed at how a foreign group, or should I say individual, was able to gain control over most of the basic utilities in the country using the dummy or back door means right under the very noses of most Filipinos. I guess the problems besetting most people in the country, the political brawls, their daily subsistence, a confusing media coupled with the social anaesthesia (deliberate or not) brought in by junk entertainment seem to have desensitized or plainly diverted their attention bigger issues like these. National security of every sovereign nation necessitate a that the control of basic utilities be under the control of its citizens. Now we see, that in the Philippines, energy (power), telecommunications, water supply and even tollways are now in the hands of a non-Filipino (Indonesian-Chinese) using well paid Filipinos to front for him. Really pathetic and should I say dangerous.

    • what is really lacking to the current philippine politicians was the vision of their former president elpidio quirino and his central banker the late miguel cuaderno who both agreed to imposed a import control act and maintained the value of the peso in late 40’s and early50’s. this act started the national industrial philippine revolution causing them being demonized as a corrupt by their friendly super countries who have lost their monopolized export market in the philppines. their ex president lost his reelection in 1951 thru a cia sponsored candidate with a covered face story man year by the u.s. time magazine. now up to this date the late president elpidio quirinno is considered the philippines as the most honest and decent president of the philippine compared to all past philippine president. he never enrich himself,his family nor his close relative.

  12. Roberto Saguing on

    I agree with this analysis. However, strict foreign limitation the so-called 40:60 is also one of the deterrent to FDI’s. This limitation is the remnants of the Parity Rights amendments – Bell Trade Act – Laurel Langley Agreement, all of which is the product of the famous Filipino colonial mentality.
    This mentality is still very much alive and evident even in the pro-US comments of some Filipinos in this paper.

    • No foreigner (or businessman for that matter, if he has the capital to own a majority or a hundred percent stake in an enterprise) in his right mind would invest in a business venture, if he has no control over it. It’s a sure way to lose your money. That explains why, (I’m not saying it’s right) the Salim group found a way to circumvent the law.