• High electricity costs root of our backwardness

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    meter_meralco

    Workers doing some maintenance check up on some electricity meters in Quezon City on Sunday. File Photo

    Forget all the talk that corruption, flawed institutions, even a damaged culture explain our continued backwardness, our falling every year behind our neighbors in Southeast Asia despite the tens of billions of OFW dollars flowing into our country every year.

    The single most important reason — which is also why I have devoted several columns to the issue — why our businesses remain uncompetitive, why industries have been moving out from our country is our high cost of power.

    tiglao-jan-10It’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.

    If our electricity prices were the criterion for membership, we are in the league of the richest countries in Europe, and our rates are even a bit higher than Japan (Kansai region), 24 US cents, and Singapore, 23 cents.

    How can we convince foreign investors to build industries here, when the costs of power in our competitors in the neighborhood, Indonesia, Thailand, and Malaysia, 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!

    Our high electricity prices are such a paramount concern for our country, that there must be some sort of national summit to determine what to do about it. But President Aquino is totally unconcerned about it, with his spokeswoman Abigail Valte facetiously, like a juvenile, dismissing the issue as something government has “no magic wand to wave on.”

    Why our high power costs? It is a saga of how our elites have, in good and bad times, squeezed our society for profits.
    Probably the “original sin,” as one insightful investment banker put it, involves the Bataan Nuclear Power Plant.

    With the 1973 oil global crisis nearly throwing a monkey wrench into his plans for a lifetime dictatorship, Marcos was determined to put up a nuclear power plant, and he totally relied on such a plant to supply the country’s electricity demand in the 1970s. When it was finished in 1984, it cost $2.3 billion, four times the original estimates, and allegations of a massive overprice by a Marcos crony had been one of the hottest allegations of the anti-dictatorship movement.

    But it was his successor Corazon Aquino who made it an albatross around the Philippine neck that’s been a major reason for our high power rates. With the April 1986 Chernobyl disaster used as a horror story, and since the anti-nuclear activists here were in the anti-dictatorship movement, Aquino ordered the plant mothballed — even as several experts gave the go-signal for its operation. She did not work to have replacements for its 620 megawatt capacity put into place.

    Following the advice of her pro-big business Cabinet officials, Aquino did not seek a condonation of the US private and government loans used to finance the plant.

    While the US was packaging Cory as a saint of democracy, its officials quietly told her that if she repudiates the nuclear-plant loans, the country would not only be a pariah in the global financial community, but that the US would not lift a finger to stop the attempts to topple her.

    “Hindi tayo balasusbas sa mga utang natin,” Cory then boasted. It was twenty-one years later, in 2007, that the Philippines made its final payment on the loan. It spent P120 billion in principal and interest charges for the plant that never produced a single kilowatt of electricity.

    This was P120 billion that could have been used to finance the building of a dozen conventional power plants to supply the country’s electricity demand throughout the 90s.

    While the loans were later on transferred to the national government, these were carried for many years in the books of the state-owned National Power Corp. (NPC) — putting it yearly in the red, which prevented it from borrowing to finance new power plants. As a result, demand outstripped supply throughout Cory’s watch, and long hours of brownouts became routine in the country, discouraging foreign investments.

    Cory’s successor President Fidel Ramos had a bright idea: Have private companies go into power generation to supply the electricity, reversing the Marcos policy of having solely the NPC to build and operate power plants. After all, the NPC — because of its payments for the nuclear power plant loans — was technically bankrupt, and therefore could not borrow from the market to finance the building of new plants.

    Great idea, but our corporate elite in effect blackmailed Ramos, justifying their action on grounds that they would have to be assured of profits before they go into that business.

    Thus were instituted what got euphemistically called “take-or-pay” arrangements with the “independent power producers.” These arrangements were in reality a capitalist dream of a risk-free business: The NPC committed to buy the power generation capacities of these private generators, even if NPC doesn’t need any electricity, i.e., when demand falls, and therefore the generators would not have to spend money to produce electricity.

    It seemed a good deal until the 1997 financial crisis hit us. It slowed down the economy, and therefore demand for electricity.

    Another euphemism was invented: “stranded costs,” or the power NPC bought from the private power generators, which it couldn’t sell to utilities. By 2010, these costs — “stranded” in the NPC’s books, and no way to recover it unless raising future tariffs — had ballooned to P80 billion. After shedding off the nuclear plant debt-albatross, the NPC was again deep in the red because of these stranded costs.

    For various reasons, including the fact that there was a privatization rage in developed countries at that period, which our US-educated technocrats aped, we junked the policy — as continued in China, Thailand, Malaysia, and Indonesia, all of which have electricity tariff much lower than hours — of a government- controlled power industry.

    Capitalism — private sector funds and expertise — would take care of this public good that is affordable electricity. A so-called market for power was set up, the Wholesale Electricity Spot Market (WESM), which I’ve explained in the last two columns is a charade, and far from being a “spot” market because most of the transactions are bilateral deals.

    Private companies build and operate the generators; the power is transmitted by a private company (the National Grid Corp., a joint venture of a Henry Sy scion and a Chinese firm) to private companies (the biggest of which is Meralco), which distributes the electricity to the final users.

    Adam Smith’s invisible hand of the market to the rescue. Capitalism was supposed to bring down electricity rates.
    Right.

    We have a power industry controlled by the country’s big business. Indeed, it has been such a profitable business that one of South Asia’s biggest tycoons, Indonesian Anthony Salim, in 2010 bought, through several firms he owns, into the biggest electric distribution company to control it, Meralco. The distribution firm has become one of Salim’s biggest money earner, its core net income rising from P2.6 billion in 2008 to P16 billion in 2012, and a forecasted P17 billion last year.

    Meanwhile, power prices have steadily gone up since the private sector came to control it. Filipinos now have the highest electricity bills in Asia, and the fifth most expensive in the world.

    tiglao.manilatimes.net
    www.trigger.ph and www.rigobertotiglao.com

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    15 Comments

    1. Louie de Belen on

      Kudos to the Marcoses for putting up Renewable Energy sources of Ilocos Norte which drastically reduced the energy cost in that region, such as the Wind Mills of Bangui Bay and the Solar Power Fields in Currimao, and of course the continued expansion of said projects in other towns of Ilocos Norte, if they have done it there perhaps Mr. Marcos can do it also to the whole country should he become the next President of the Philippines come 2016.

    2. japan now has more than 10 nuclear power plants and these japanese knew very well that their country is always struck by earthquakes – and yet they still continue to built many. why not our own and only bataan nuclear power plant to go operational? we have many brilliant engineers and scientists who will operate it? we know there are dangers – but the true dangers are that someday, our country will get backward to stone age, due to lack of electricity and power!

    3. Well done Mr.Tiglao, this is the true sad state of our country,however,no matter what you say, the power rate problem will not vanish,why? They are controlled by the elite,they controll the country, there super greed cannot be satisfied, there combined contribibution to the politician are rewarded with huge profit,even to the extend that one of them becomes an ambassador,that’s what we call pay back time, we the poor citizen even has to pay for system loses,which is not our fault, Meralco says they are the distributor of electricity, only,they never makes money,yet on annual report,there earnings are in In the billions, with this kind of government and this kind of politicians,we will be in the doldrums and held hostage by this elite.GOD HAVE MERCYN THE PHILIPPINES

    4. Ricardo Harina on

      You are right Mr. Tiglao.

      The EPIRA law must be amended as soon as possible that will mandate the National Government to build State of the Art Combined Cycle Power Plants in Luzon, Visayas and Mindanao that will generate power approximately at Levelized Cost of Energy of P4 per KWH even at P45 to $1 exchange rate and address power requirements and environment concerns when completed in 2016-2017. Even if Government will charge Electric Cooperatives at P1 to P2 per KWH above the Levelized Cost of Energy, the Government will still make billions of pesos operated under a clean government management.
      With no assured substantial, stable and low power rates, how can the Philippines attract and encourage foreign and local investors under our present conditions? Once foreign and local investors know that these are in the implementing stage, you can bet that these prospective investors will have no second thoughts and will target completion of their investments on or before completion of the power plants for Luzon, Visayas and Mindanao.
      Our Nation can never and will never attain the economic progress that Filipinos and Non-Corrupt government officials are dreaming or hoping for if our Nation’s economy is controlled by few greedy and crooked power providers and businessmen in collusion with corrupt government officials and corrupt elected representatives of the people.
      This government with the cooperation of Congress should sit together and plan for building State of the Art Combined Cycle Power Plants for Luzon, Visayas and Mindanao that will provide substantial and stable power, lower power rates, address environment concerns, enhance tourism, attract and encourage foreign and local investors that will provide economic impetus, job and business opportunities that will prevent Filipinos seeking jobs abroad and encourage those working abroad miserably return back because they will see a better Philippines in the near future and alleviate the sufferings of Filipinos especially the poor where the Government can and will provide affordable and stable power to propel us to economic progress that Filipinos are still dreaming and hoping for.
      This is where we should put into better use the PDAF declared by the Supreme Court unconstitutional because it will be for the good of all Filipinos.
      Other smaller countries have been doing this that makes them more progressive and attain high economic status in Global standing and the Forbes list like Austria.
      If we can do this, Filipinos working together under a better and clean government may realize the dream we are hoping for in the near future by starting these projects in 2014 as soon as possible.

    5. Marcos was still the best president and could have brought the country to prosperity had not been destroyed by the leftists and commies. yes he was corrupt but just as the others and those who took his place and you know who they are. Yet Marcos was a nationalist and have some big accomplishments like the Bataan Nuclear Power Plant, SRDP, San Juanico bridge, mono rail, just to name a few. Now where are we? we all know the answer to this also. However, there maybe a light in the tunnel if true that oil was discovered in Cebu by an Australian company. is it?

    6. simple. nationalize the power industry from generation to distribution. create think tank department to develop other source of energy aside from oil. The Philippines has plenty of natural resources that can be tapped as a source of electrical energy. valleys to be made as natural dams to control the flow of water and create hydro electric power plant. multiple mini-power plants can be done in our country, we are blessed with sufficient rainfalls and useful to water our dams. Labor of good faith is the name of the game. Put God first is the guiding principle of this gigantic project.

    7. I keep saying it you are a backward country, your politicians want to keep it that way. As long as you have ofw’s sending money back home in large ammounts nothing will change. Every big company without competition will rape you. Your politicians need to look at other countries how they do things & emulate them not think we can do it differently & better as you cant, full stop. You cant & never will be able to. what the philippines is good at is looking after the rich & powerful.

    8. You might add another euphemism to the “take or pay”, and “stranded” arrangements the “systems loses” that Meralco passes on to consumers which are all to ensure profitability of these big business crocodiles. We are made to pay for loses or costs that we have nothing to do about. We consumers are so pitiful they hold us by the balls anytime we fail to pay our bill they cut off our electricty and to ensure we do not miss paying they charge a reconnection fee that is anoter burden and source of additional income for tnem. What a dreadful situation we have here it really calls for a radical upheaval already. In another country these greedy oligarchs will be threatened with confiscation and nationalization of their power plants unless they shaped up.

    9. So MERALCO is now threatening us of rotating brownouts while Aboitiz is at the helm of an Association of power suppliers..The general public should be reminded that an Aboitiz once headed the Dept of Energy during the horrible presidency of another Aquino and the result – an eight hour daily rotating brownouts in order to peddle all his Electric Generators. It seems that the wicked vestiges of Darkness are rearing again its ugly head and this is courtesy of the Mother and Son Aquino cursed presidency. Maybe MERALCO is no longer afraid of a possible backlash if the marginalized public consumers are pushed beyond recoup.

    10. The EPIRA, the flawed law that has given the power industry lords the legal basis and power to do what they want (with the approval of course of the ERC officials who do the lords’ bidding), must be repealed. It must be replaced by one that ensures GOOD GOVERNMENT control of both the electricity-production (generation) and electricity selling (including transmission and distribution, e.g. by Meralco).
      This cannot be done when the Philippine Congress –like the Malacanang Palace — is a tool of the lords of our country’s political and economic life.
      Nothing less than another EDSA Revolt seems to be called for.
      Or, something worse than that, a military takeover or the Communist Party and its National Democratic Front into power.
      What a pitiful country ours has become.

      D. Canastra

    11. EITHER HAVE A STRONG REGULATOR WITHOUT CORRUPTION AND TRUE FREE ENTERPRISE COMPETITION WITHOUT ALL THE POTENTIAL COLLUSIVE RELATIONSHIPS OR NATIONALIZE THE INDUSTRY. THERE IS NO FUEL COST INCREASE TO JUSTIFY THE PRICE INCREASE.

    12. florentino maddara on

      Wow! What a shame this previous presidents from Cory, FVR, Erap, Arroryo and now Noynoy done to our country! Mga bobo sila or nag ‘bulsa’? Dalawa lang naman ang pagpipilian. Kung wala lang allegations of corruptions during Marcos times at excessive human rights violations, mas maganda sana ang pamalakad ng Marcos regime sa mga industrial utilities natin at least sana we have ample supply of power generating plants now.

    13. THESE IS THE BIGGEST SINGLE CHALLENGE TO A PRESIDENT X-FACTOR IF HE OR SHE IS ABLE TO BRING DOWN THE PRICE OF ELECTRICITY, BUT THE PROBLEM ALL PRESIDENT SO FAR ARE DUMB AND STUPID WHEN SPEAKING ABOUT ELECTRICITY, WHY DONT EVEN LIFT A FINGER TO GIVE OUR SCIENTIST OR EVEN INTERNATIONAL TO HAVE A BRIEF STUDY ON HOW TO SOLVE OUR PERENNIAL EXTENSIVE ELECTRIC PROBLEM. WE HAVE A LOT OF BUSINESSMEN PROFITTING BIG SUMS OF MONEY BECAUSE OF PILFERAGE.