Hostaged development

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Giovanni Tapang, Ph.D.

Giovanni Tapang, Ph.D.

Speaking in a ground-breaking ceremony of a power plant in Batangas last Tuesday, President Benigno Aquino tried to project a tough face when he warned power firms passing on additional costs to consumers. A Manila Times report quotes the president saying, “My position personally is, if it was a commercial decision that was wrong, government never promised that they will be shielded from their wrong decisions.”

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Reading more about his position on the matter, we find that President Aquino was merely attributing the price increase to a simple business decision gone wrong. He never points out (or realize for that matter) that it is the Electric Power Industry Reform Act or Epira that allows these power generation firms to pass on these costs to the public.

He also skips the fact that the Epira made it easy for just a few firms (who owns a large chunk of generation capacity) to be able to influence the price of generated power through the Wholesale Electricity Spot Market or the WESM. President Aquino also conveniently ignores that fact that the Epira allows a large distribution company such as Meralco to be on buying around 70 percent of the available supply in Luzon.

President Aquino is also silent to the fact that the Epira bars the government from putting up new plants that will allow us to avoid these problems in supply. He also omits the fact that despite more than a decade of privatization in energy, prices have more than doubled, supply is still scarce and our development is tied to the whims and profit margins of power investors, owners, industry players and distribution companies.

With the Epira, President Aquino’s bluster is but a toothless warning.

I think he and his advisors know that— and that his statement is but an attempt to recover popularity points he lost in the last survey. Unless he calls for the scrapping of Epira, President Aquino’s talk will be just that— all talk and no action. He could have announced the removal of VAT on power and fuel, which could provide immediate relief but he did not. He could have called for the re-nationalization of the energy industry but he did not. Instead, he gave his very safe “personal” position in a very public issue affecting many of our people.

The Epira came about because of intense pressure by creditors to the Philippine government to fast track the approval of the law so that these financial institutions can release money to the country. These major creditors include the Japan Export-Import Bank, Asian Development Bank (ADB), and World Bank (WB). The Epira implemented power sector deregulation and reforms, as well as the sale of NPC, which were long standing recommendations of the IMF. These were part of the structural reform program that the country has to implement as a pre-condition for more loans.

Onus of pass-on costs
The Epira legitimizes the passing on of costs of power generation to end-users favoring power industry players over consumer interests. These include the passing-on of system loss charges, transmission losses, currency fluctuations, fuel cost fluctuations as well as contract obligations such as purchased power agreements and supply agreements to end-users. The Energy Regulatory Commission has willingly and actively allowed this by approving schemes such as the Generation Rate Adjustment Mechanism (GRAM), the Incremental Currency Exchange Rate Adjustment (Icera), Automatic Generation Rate Adjustment (AGRA) are concrete examples of pass-on costs to consumers.

Public utilities are services that make it easier for people to go about in their daily activities and economic production. Examples of these utilities are in power, water, fuel, transportation and communications.

In the case of electric power, it is not just on the distribution side that would be the public utility as it is necessary to generate the power that they would distribute. It is also vital that these generated power be delivered to the distribution companies that will facilitate their connection to our homes.

By deregulating and privatizing electric power, we are helpless when one of these integrated and vital components fail. Electric power is strategic to the development of a country. It provides the necessary infrastructure and support to industrial growth. If one surrenders this industry to private interests, we would always be held hostage by a few. If the power industry remains privatized and deregulated, industry players are left to just look out for recovery of their investments and rake in profits. This would lead not only to an unending increase in utility costs but to stunted national development.

Government’s excuse of having no funds to build the capital requirements of the power industry is a false claim as it has shelled out billions of pesos in the PDAF scams and the current president has more than a trillion pesos under his control. If it is truly serious in bringing down electric power rates, the government should pursue genuine nationalization of the power industry instead of neoliberal power reform.

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2 Comments

  1. victor hernandez on

    Before privatization we have NAPOCOR, which invested in many power generating and transmission infrastructure, and slowly we have privatized all these. Entry to the industry requires humungous money. Before the government invested in this industry, and borrowed money to suild and sustain the power generation and transmission business. Now we privatized them. Private business has a profit objective in a public utility industry. If EPIRA has destroyed government’s control over public utility, it certainly needs to amend or repeal the law, and replace it with one that will address both private investors regulated for public utilities. Deregulation is not appropriate for such a strategic industry. It’s time for government to think hard, and stand firm for the common good.