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Power
rates: Up, up and away (Last of two parts)
To be sold this year are power plants as big and vital as the 600-megawatt Masinloc facility that was sold last year albeit with some fuss. To be bid out are the 600-MW Calaca coal-fired plant, the 685-MW Tiwi-Makban geothermal facility, and the 620-MW Bataan thermal plant. This January, the decommissioned 200-MW Manila thermal plant is also set to be sold, to be followed by two more decommissioned facilities in Cebu and Bataan, and the 310-MW Navotas one and two power facilities in February. The delays in the Napocor privatization are already taking a toll on the level of electricity rates in the country as well as the much-awaited full deregulation of the power industry. Shocking Reality Of Power Cost Deregulating the power sector is certainly not to be without birth pains. More so if, for political reasons, the consumers were not paying the correct cost for the service. Last year, Napocor was finally allowed to raise its rates. Effective September 26 of 2004, Napocor‚s average charge stood at P3.42 per kwh, from P2.44 previously, an adjustment that would allow it to earn P110 billion in the next 12 months, and in the process reduce its need to borrow to sustain operations. Unfortunately, the ERC-approved Napocor rate hike is just the tip of the iceberg as more rate hikes are in the offing in 2005. It must be remembered that Napocor had originally petitioned for a generation tariff increase of 1.87 per kwh. Cost Of Politics Burdens All The latest power rate increase was the last thing that consumers needed after being buttressed by the effect of higher petroleum product prices. For businesses, the power rate hike increase became a serious source of concern as production cost significantly rose, making their products even more expensive and less competitive. Already, higher power costs are a major burden for investors, who complain of the growing disparity of electricity prices in the Philippines compared to other countries such as China, Korea, Malaysia and Thailand. But it seems that we have no other choice but to contend with higher power rates now. This is the price we all have to pay for mixing politics with energy policies. Napocor, for a long time, has been selling below its cost, most of the times due to politicking of our leaders. Napocor documents submitted to the ERC showed 25 percent of its costs are being subsidized by the national government, a situation that is not sustainable given the government’s critical fiscal state. While the political agenda may have been achieved, the government can no longer afford the power subsidy and has to collect more from all of us to pay Napocor’s debts. Since it is difficult to legislate new taxes, the easier way is to increase Napocor power rates. Now you know why many view the power rates adjustments as "taxation without representation." The 70-Percent Condition The power rate hikes would have been bearable if all parts of the recommended measures to correct the power industry ills were falling in place. It is now apparent that EPIRA – the law that was the foundation of the industry’s reform – is itself a major birth pain, or may even be in the throes of an abortion. Embedded in the law are provisions that tend to maintain and promote monopolistic positions instead of allowing open competitiveness. For instance, what seems to be unnoticed but is worth pointing out is a provision in the power sector reform law that says "open access" will not be allowed until 70 percent of Napocor assets have been privatized. At the rate this is going, it would take a long, long time. Open access allows an end-consumer, a mall for instance, to directly source its power requirement from power generators like Napocor and independent power producers (IPPs) without having to pass through distributors like Meralco. In the meantime, consumers are prohibited from directly connecting to power generators, thus depriving them of possible cheaper power sources. Blocking ‘Open Access’ Is Unpatriotic Knowing that there are available sources of cheap power from independent power producers, businesses – particularly semiconductor and electronic firms – are desperately requesting for open access to come earlier than the EPIRA-mandated schedule on the grounds that the high cost of power, which comprises about 25 percent of their operating expenses, have rendered their products uncompetitive with the rest of the world. In fact, various business surveys have pointed to high power costs as a major disincentive to investing in the Philippines, and are partly to explain for the country’s dwindling foreign direct investments. Most other pre-conditions stipulated in the EPIRA for open access, such as approval of the unbundled transmission and distribution wheeling charges, initial implementation of the cross-subsidy removal scheme, are already in place. As of late, the Energy Regulatory Commission (ERC) has completed as much as 80 percent of the rate unbundling cases filed, while the removal of the intra-grid cross subsidy as well as inter-customer subsidy have began. Market simulations for the operation of the WESM are now ongoing. Unless our lawmakers act posthaste to remove this 70 percent precondition to the EPIRA (per our sources, this was a compromised provision insisted by a power firm-backed senator), don’t expect an early reprieve from high electricity rates. On the part of large industrial consumers that are export-oriented, the only hope for lower power cost is for Pres. Arroyo to convince Meralco not to stand in the way as these large users of electricity try to find the cheapest power generator to hook on. There are power producers willing to sell electricity at lower rates to help export-earning companies boost the economy. But Meralco, so far, has been reluctant to play along. It will indeed be an economic disaster if we lose our manufacturing companies because of the "unpatriotic act" of blocking open access opportunities. ‘Breaking Barriers’ with Dean S. Barbers, Phil. Tourism Authority GM "Breaking Barriers" on IBC (11 p.m. every Wednesday) will feature on Wednesday, 12th of January 2005, Robert Dean S. Barbers, General Manager of the Philippine Tourism Authority. The Philippines has so far failed to attain its full potential in the business of tourism. Several agencies and entities have been established under the Department of Tourism (DOT) to formulate and implement specific programs and action plans to promote Philippine tourism and bring in the visitors. Philippine Tourism Authority (PTA), one of the DOT agencies involved in the tourism sector, has a very clear mandate. It is to generate revenues to fund the development of identified tourism priority areas. So far, however, the Authority is still operating in deficit, meaning the agency’s operation still depends on a subsidy. And proposals to increase travel tax which is PTA’s main source of funding is meeting stiff resistance. While PTA has formulated grand plans to develop priority tourism projects, these may have to wait. Resources are becoming scarce as the government grapples with a crippling fiscal deficit. Will private investors come to the rescue? Watch it. Should you
wish to share any insights, write me at Link Edge, 4th Floor, 156
Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at
reygamboa@linkedge.biz. If you wish to view the previous columns,
you may visit my website at http://bizlinks.linkedge.biz.
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