• Nationalization: At this point, it’s a necessity

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    Ben D. Kritz

    Ben D. Kritz

    The discussion this week about Energy Secretary Jericho Petilla’s insistent call for the declaration of a national electricity “emergency” was a distraction from the ongoing DAP controversy, albeit not a particularly enjoyable one. Failure is not pretty, especially when it has occurred so spectacularly on so many different levels.

    For the record, just in case my own point of view is not sufficiently clear, the idea that the President should be given “emergency powers” to address the power crisis is stupid.

    Granting “emergency powers” to an Administration that is largely responsible for the emergency at hand in the first place is completely irrational. As I pointed out in my Thursday column (“Emergency powers? What for?” July 24), the problems being experienced now were anticipated as long as five years ago, and have always had a relatively straightforward set of solutions that could be handled through the ‘non-emergency’ legal and regulatory framework already available. Whether through inability or inattention, the Aquino Administration has not been able to accomplish enough of that to even make a difference, thus there is no basis to assume that removing irrelevant legal fetters will improve the government’s performance.

    And, sarcastic as the observation may sound, the lack of “emergency powers” has never stopped President Aquino from taking unilateral action when he has seen fit to do so. For example, the existence of the carefully crafted and extensively judicially-vetted Mining Act of 1995 did not even slow the President down in issuing Executive Order 79 that for all intents and purposes repealed the law. If Aquino wanted to “do something” about the power crisis, he would have and could have already.

    All that being said, now that the “emergency powers” appear to be an imminent reality, what should the President do with them? The position taken by my fellow columnist Rigoberto Tiglao and this newspaper is my position as well: The unfortunate privatization experiment attempted with the power industry in this country, which has only resulted in unreliable, insufficient, and unconscionably expensive electricity, ought to finally be declared a failure, and ended immediately.

    As much as I subscribe to a free-market philosophy, it is impossible to argue with actual real-world results. The neoliberal mantra that free market entropy would guarantee better supply of an essential public service is wrong, and unfortunately, the follow-on argument that increasing competition would help correct the imbalance does not change that. Yes, it is possible to provide an environment for competition in the electric power sector—but only to a point. Stable and efficient electrical supply is highly dependent on fixed physical infrastructure; add to the infrastructure in order to apply the same concept of ‘competition’ that applies to, say, alternative brands of toothpaste on the grocery store shelf, and you add cost and complexity, and with complexity comes a greater risk of technical failure.

    From a practical perspective, however, nationalizing the power industry is a tall order, as one of my frequent reader-correspondents thoughtfully pointed out earlier this week. As an example of how costly the effort would be, he explains, a government takeover of just the existing generating capacity of the Philippines (approximately 10,700 MW), using the commonly cited benchmark of $1.5 million per megawatt for construction of new power plants as a guide, suggests an expropriation cost of about $16 billion, or roughly P688 billion. And of course, that does not take into account the national distribution grid or the facilities of individual distribution utilities, and it also does not—because there is no real way to estimate it—account for the cost of the legal Armageddon the government would likely find itself in when the matter of “fair compensation” to the owners of the power industry was raised.

    There are, however, many ways to skin a cat. Nationalization does not necessarily have to mean “full public ownership,” just simply public control, and it does not necessarily have to be a process undertaken in one giant step. And critics of the idea also overlook the fact that the Philippines has an entire region’s worth of experience to draw upon for examples of what works and what does not: every country in East Asia—except this one—has some form of state-managed power, every one of them has lower power costs to consumers, and with only a couple of dysfunctional exceptions (countries like Laos and Cambodia, for instance, which are slowly but surely catching up, anyway), every country in the region far outpaces the Philippines in terms of trade and investment.

    Perhaps the most powerful argument for nationalization is a historical one. The situation with the power sector the country faces now is almost precisely the same situation it faced more than 20 years ago, at the end of the term of the first Aquino. It took drastic action on the part of the incoming President Ramos then to restore some semblance of order, and it will take the same now.

    In a certain sense, though, we can view it as an opportunity; the Philippines now has the benefit of the experience of having done both state-owned and privatized power in completely the wrong way. Given the amount of attention bright minds are giving to the problem, we can perhaps hope—once we get past whatever foolishness “emergency powers” might allow President Aquino and Secretary Power Barge Petilla to inflict on the country, of course—that the third time’s a charm, and an economically-viable power sector that actually contributes to Philippine growth will eventually emerge.

    ben.kritz@manilatimes.net

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    2 Comments

    1. I agree. Give emergency powers to those who created the situation, is so stupid. Imagine having Roxas begining declared electicity czar and taking over Meralco as the officer in charge. Maybe abad will take over the electric grid so that he can implement an Electric Accelration Program. Just plain stupid.

    2. Do you mean to say that PNoy ought to use his expected emergency powers to begin the nationalization right now?

      There are 3 sources of emergency power:

      a) The Electric Power Industry Reform Act (EPIRA, RA 9136, 6/8/2001) allows him to declare an imminent shortage and **Congress** to establish additional **generating** capacity.

      b) Constitution, Article VI, in a declared state of national emergency, grants certain powers, but only at most until the next adjournment of Congress.

      c) Constitution, Article XII, Section 17,
      “In times of national emergency, when the public interest so requires, the State may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any privately-owned public utility or business affected with public interest”

      DOE under Sec. Petilla has identified a wattage gap within 2015, before the expected commissioning of new (private) capacity in 2016. His recommendation is likely to procure some gensets and/or lease some power barges for 1-2 years. The legal view is that a budget allocation is not enough due to EPIRA restrictions on government.

      Thus, we have reason to believe that, in recommending to act ahead of the actual shortage, Sec. Petilla is merely referring to emergency powers under EPIRA.

      While Sec. Petilla was referring to a limited power under EPIRA, your call for immediate nationalization requires a very different, very broad power, under 1987Con.XII.17.

      Taking over public utilities is an emergency presidential power that has not been invoked to my knowledge, certainly not nationwide, and certain to be questioned in the current political climate. Is **PNoy** invoking **1987Con.XII.17** right **now** to nationalize the power industry your unequivocal position and also the position of the Manila Times?