• ‘The government cannot interfere . . . ?’

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    Mike Wootton

    Mike Wootton

    I am amazed that Malacañang should state that the government cannot interfere in market operations of the private sector. The government’s job is to protect its citizens, that is its reason for existence otherwise we just revert to Hobbe’s state of nature—a truly scary prospect! In this neo liberal economy that we have here in the Philippines, the private sector is meant to be fairly unconstrained but that does not mean (or at least should not mean) that it can just do what it likes.

    In the currently being written about Manila Electric Co. (Meralco) rate hike, it was suggested last week that electricity costs will increase by anywhere between P 2.5 and P3 per kilowatt-hour, and now the Energy Regulatory Commission has approved an increase of P4.15/kWh, the highest in Philippines history. This is an increase of about 33 percent in a single month. Clearly, this is outrageous as observed by fellow columnist Ben Kritz on Tuesday. Liquefied petroleum gas (LPG) has just increased by about P130 for a tank which previously cost about P780, or a 16-percent increase “at a stroke.” The cost of electricity on the Wholesale Electricity Spot Market has, I am told, reached P60/kWh. Whether or not this “spike” is contrived, the glib reason for it is that it is due to many power plants as well as fuel supplier Malampaya being out for maintenance at the same time. Preventative maintenance is something which can be planned, it should not be that 50 percent to 60 percent of Luzon’s power generation should be out of action all at the same time; it is a simple matter for government to schedule in order to minimize shortages in generation capacity. And in order to protect the people, that is what should have been done. The regulator, the Energy Regulatory Commission, says that the Meralco price increase is in accordance with a formula that they have already approved (on behalf of the public)—it would be hoped that the formula would have been tested against several maintenance/outage scenarios before it was approved, but it looks as if it wasn’t.

    But then on the other hand, we see that Metropolitan Waterworks and Sewerage System (MWSS) unilaterally a few months ago imposed a rate cut of P 1.48 per cubic meter on Manila Water Services Inc., a matter which is now in arbitration.

    The price of LPG will no doubt be explained as due to international market movements, or could it have been brought about artificially by withholding stocks in order to raise prices?

    Not so long ago, the price of rice also spiked fairly suddenly and dramatically. Electricity, water, rice and LPG are basic commodities whose prices should not be allowed to jump about like an electrocardiogram; people should not be left to the exingencies of trading markets to which they do not have any access and over which individually they have no control.

    Effective regulation by government is critical in order to maintain stability of prices and to protect the people, otherwise necessities will not be accessible to a large proportion of the population. With the now approved Meralco rate increase it, will cost P25 a month, or 0.4 percent of the average household income just to use four light bulbs and nothing else; doesn’t sound like much but put another way a fairly small monthly bill of P2,000 will be nearly P2,700, and there have been no wage increases to offset that rise. It is a fundamental requirement of the philosophy behind neo liberalism—the maximizing of private sector capitalism, that it can only operate under a strong state in order that the people are not exposed to the risk of being robbed by the private sector. The strong state uses strong, empowered, independent and objective regulations and regulators to control things, and ensure that they don’t get out of hand.

    To say that government cannot interfere in private sector market movements does no more than demonstrate that it does not have the ability to exert effective price control over necessities, other than by the sort of heavy handed treatment doled out to Manila Water under an already existing contract. It looks as if there is a lack of foresight around.

    Contracts get approved by regulators then when the effects of the approvals turn out to be unacceptable to the public, there will be attempts to change already approved business arrangements. This is no good for the private sector and it is no good for the consumers.

    The cost of electricity is very high in the Philippines. Everybody knows that, and the electricity bill as a proportion of household incomes is about three times that in Europe and the United States. The Electric Power Industry Reform Act has done no good for the Philippines, that is clear. As I have said before, even the World Bank, the sponsors of the law, admit that the principles contained within it are not universally applicable. A government controlled national electricity utility is necessary to ensure proper planning and control, it is too early in the development of the Philippines and the elite have too much market control, for the sophistication of WESMs and the like.

    It is difficult and near fatal to operate neo liberal policies when so much of the market is in the hands of so few, and there are such huge disparities of income across the socioeconomic structure. Even leaving aside the problems of corruption in government, it is difficult to see how it can be effective as a controller in the public interest when so much of everything is provided by the same groups. So indeed as Malacañang has said “the government cannot interfere” but it is because of the strength of the owners of the means of production that it cannot interfere, and that is why the market operates in an unconstrained way.

    Paternalism rules. So we just have to wait on the goodwill of the providers to allow them to decide when enough is enough in the way of price spikes . . .

    Mike can be contacted at mawootton@gmail.com

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    7 Comments

    1. well put. The concept of market capitalism requires a free market in which there are a myriad of both purchasers and suppliers. The role of the government is to ensure this happens, or where there are “natural monopolies” such as for most public utilities, (water, gas, electricity, public transport) to regulate and to exert control to prevent abuse of monopoly power. This is clearly not happening here, as the government wrings its hands and pretends it is powerless. As these writers observe, the failure to act is another symptom of the kleptocracy which best describes the governance of the Philippines.

    2. “The government cannot interfere…” because the oligarchs OWN and CONTROL the government. Our government officials are so indebted to their campaign contributors that they are rendered useless and helpless when these oligarchs do as they please, even to the detriment of the whole populace. Do the Filipinos a huge favor: Resign! All of you, nincompoops!

    3. Federico Santos on

      This really defines that the government headed by Pnoy is incompetent, inutile, ineffective and a showbiz type of governance. The franchise or license given to the private company is a privilege subject to the public interest of the people of the Philippines. Inutile, one proof, the move or statement of ERC thru no less than the DOE Sec in asking Meralco to implement increase by installment even before the ERC hearing. What’s the mandate of ERC? ERC can make that request as part of their decision. this present administration are composed of amateurish morons. Now there is Oil price increase. the DoE again preempt that there will be another price increase in the next few days. What they (DoE) doing’s is encouraging the Oil Players to increase their prices. I really pity the People of the Philippines. Now they sideline the talkative P’noy in the Media. he might by accident utter that he is an inefficient and ignorant President.

    4. there is realy a conspiracy among power generators. why should all of them do their maintenance at the same time? this should be investigate!!!!!