January 23, 2014

The bigger conspiracy

In opposing the steep rise in electricity rates charged by Meralco and the generation companies (GenCos) starting December2013, we need to dig deeper into the whys and wherefores of high electricity rates.  The Electric Power Industry Reform Act of 2001 or EPIRA has been setting the neoliberal parameters -- privatization and deregulation -- for the power sector in the last twelve and a half years. 

It has accomplished the almost complete overhaul of the system: from one where government had a central role in power generation, transmission and distribution to the current set-up wherein big business, foreign and domestic, and the logic of maximizing profit rule the day.  The glowing promises of EPIRA -- lower electricity prices, stable supply and healthy competition among power producers – have not materialized.  Consumers now find themselves in a situation far worse than before the advent of EPIRA, i.e. held hostage by big business while government smugly declares it can do nothing to intervene so much so that even its regulatory agency, the ERC, has been rendered ineffectual in protecting the public interest.

This is not just about the greed for gargantuan profit by a few large companies acting as an oligopoly by controlling more than half of the total generation capacity, the entire transmission system and a large
part of distribution.  (Notably, the three biggest -- the Cojuangco, Lopez and Aboitiz groups-- corner 52% of generation capacity despite the assurance of EPIRA’s sponsors that it would encourage more players and free competition in the power sector.)

This goes beyond Meralco’s lackadaisical attitude in not sourcing the least expensive electricity to keep prices down and instead taking advantage of the Automatic Adjustment of Generation Rates and Systems Loss Rates (AGRA) in EPIRA to simply pass on high generation costs to its captive market of 5.3 million customers. 

Nor is the situation just the result of the lack of resolve, knowhow or even the too cozy relationship of the Energy Regulatory Commission (ERC) with Meralco and the GenCos for it to regulate electricity prices effectively; nor the lack of planning and coordination by the Department of Energy (DOE) with regard to supply shortfalls due to the periodic maintenance of several power plants and the Malampaya natural gas facility; nor the flawed supervision of the Wholesale Electricity Spot Market (WESM) by the Philippine Electricity Market Corporation (PEMC) leading to the practice of “gaming” where artificial conditions are created so that the prices can be manipulated.

EPIRA is the comprehensive legal framework that has shaped the power industry in its current form: state abdication of control over the strategic power sector has resulted to a regime of exorbitantly high prices with sudden spikes but no reprieve;  power shortages especially in Mindanao and the threat of future power blackouts in the national grid to justify unceasing spiraling of prices; and the tightening stranglehold of the profit-seeking private sector, including foreign investors, over the country’s electricity needs.

At the outset, EPIRA was a barefaced imposition by foreign creditor agencies and banks such as the IMF-WB, ADB, and the Japan Export-Import Bank to privatize the power sector.  The US think tank AGILE (Accelerating Growth, Investment and Liberalization with Equity) which had its offices in a number of strategic government agencies had a big role in drafting the EPIRA bill, among other measures in line with the structural adjustment programs instituting wide-ranging neoliberal "reforms" as a precondition for granting loans to keep the economy afloat.

The post-martial law regimes of Aquino, Ramos and Arroyo displayed gross ineptitude, lack of foresight and planning and corruption as well as caving into pressure from the multilateral financial institutions and the lobbying of foreign and domestic chambers of commerce in laying the ground for the successful passage of EPIRA.

Post-EPIRA, electricity prices have risen consistently and substantially.  By its 10th year, electricity rates had gone up 112%. The Philippines has gained the dubious distinction of having the highest rates in Asia.  

EPIRA enabled passing on the National Power Corporation’s (NAPOCOR) debts and onerous contracts with Independent Power Producers (IPPs) to taxpayers as a whole, electricity consumers in particular and eventually the public-at-large due to the inflationary effect of higher electricity costs. Notwithstanding this sleight-of-hand, NAPOCOR’s debts have merely increased and are not expected to be retirable in the foreseeable future.  Government has paid out billions of dollars to service NAPOCOR’s debts and meet the “take or pay” provisions of its IPP contracts.

The country’s power requirements -- not just to meet growth of demand due to population growth and anticipated growth in the size of the economy but more importantly vis a vis national and regional development goals -- are now dependent on the business decisions of power industry players. The all-important matter of increasing power supply by investing in more power generation plants is completely out of government hands; in fact, EPIRA bans government from putting up its own power plants and has the Power Sector Assets and Liabilities Management Corp. (PSALM) to auction off all remaining government assets.  The bottom line is whether putting up a new power plant makes good business sense rather than whether it serves public interest, advances the common good, not to mention giving preferential treatment to poor and disadvantaged communities or areas of the country.

EPIRA legalized the unbridled freedom of GenCos to dictate electricity prices as far as the market can bear.  It did this by saying these businesses are not running public utilities and are thereby not subject to any regulation.  It was posited that the “free market” would ensure that the best price for electricity emerges as the GenCos compete against each other. 

But with an oligopoly consisting of three major GenCos and sizeable cross-ownership with the owners of the largest private distribution utilities (PDUs), the concrete effect is manipulation of power supply and gaming in the spot market.  (Keep in mind that the market for electricity is inherently a captive market, that is, the end-consumers are in no position to choose where they will buy their electricity from.  They are not engaged in the spot market nor do they have any say as to supply contracts between the GenCos and PDUs.)

Because of EPIRA the power players need not even put up a show of making the public interest a paramount consideration.  Thus Energy Secretary Petilla sheepishly admits that unless the power players turn a “reasonable” profit on their investment, they will not put up new power plants and they may switch off the plants currently servicing the regional or national grids thus raising the specter of power blackouts.

With EPIRA a failure using its own raison d’etre as measure, it stands to reason that all branches of government – judicial, legislative and executive – must be pushed to mitigate and reverse its effects up to scrapping the execrable law itself.

In conclusion, the people must grasp that what they are up against is nothing less than the well-established collusion between foreign monopoly capitalist and domestic big business interests together with the indispensable connivance of bureaucrat capitalists in government.  It will be an uphill battle to push back high electricity prices, rid the country of EPIRA and lay bare the neoliberal policy frame of privatization, deregulation and liberalization.  Even now the Aquino administration is rolling out Public-Private Partnerships (PPPs) in the power sector complete with regulatory risk guarantees akin to the objectionable “take-or-pay” clause of the infamous IPP contracts.
Nonetheless, the failure of EPIRA is so evident even legislators, government bureaucrats, economists and business pundits all acknowledge the need to reform EPIRA but without abandoning privatization and deregulation as the pillars of power sector reform.

Meanwhile the people are fed up and groaning underneath the mounting burden of runaway prices of basic commodities and services on all fronts not just electricity.  It is incumbent on social activists especially consumer advocates to seize the moment and turn this inchoate rumblings of discontent to a powerful political force able to bring about substantial changes. #

Published in Business World
24-25 January 2014

January 16, 2014

Dirty power players

Before Christmas last year, the Manila Electric Company or Meralco, the Philippines' largest distributor of electrical power with a franchise for 22 cities and 89 municipalities, including the whole of the National Capital Region, tried to pull a fast one over its more than five million consumers.  It announced an exorbitant hike in electricity rates -- a whopping P4.15/kwh increase to residential users to be collected on a staggered basis from December 2013 until March 2014 -- after being given the go signal from the government regulatory agency, the Energy Regulatory Commission or ERC.

The ERC did so with lightning speed on the basis of a mere letter from Meralco and sans any notice to consumers much less a public hearing.  Malacanang, for its part, immediately pronounced the increase to be justified and lawful. In the same breath it averred that government was powerless to intervene in price setting as the power sector had already been denationalized and almost wholly deregulated by virtue of the Electric Power Industry Reform Act of 2001, or EPIRA.

The announcement was met with public shock, dismay and then outrage. The Makabayan bloc of progressive party lists called for legislative inquiry into the facts and circumstances behind the increase.  There were pronouncements from the leadership of the two houses of Congress of the need to review EPIRA, whether it had been properly implemented or worse, failed to deliver on its promises.  In the House public hearing, Department of Energy (DOE) officials revealed that they were investigating possible collusion among generation companies (GenCos) in simultaneous and unplanned shutdown of their power plants.

The Makabayan bloc promptly filed a petition with the Supreme Court for a temporary restraining order (TRO) on the Meralco increase because of the lack of due process in the ERC decision and because of signs of monopolistic price manipulation. A permanent injunction was prayed for by petitioners including the striking down as unconstitutional Sections 6 and 29 of EPIRA that categorized power generation and supply as not being public utilities and therefore not subject to government regulation.  Meralco and the ERC used these provisions as the basis for the increase and its automatic pass-on to consumers.

After a seeming reprieve when the High Court issued a TRO, the public is now being warned by Meralco of blackouts should the electric company not be able to collect on the basis of the new, ERC-approved rates.  This is echoed by inveterate champions of power sector deregulation and privatization. Topping it all is a numbskull proposal to give emergency powers to President Aquino for him to address and resolve the supposed impending power crisis. DOE and Malacanang prudently, or maybe just coyly, declares such a contingent measure as unnecessary at this time.

This column will attempt to explain in a two-part series, from an admittedly layman’s understanding, the issues at hand as well as their long-term implications. This attempt at sieving and seeing through a maze of highly technical and complex issues to lay bare the essentials is being done in defiance of  the continuing efforts to deliberately obfuscate the way the power sector in this country is being run to favor the greed for profit of the biggest players in the power industry to the utter detriment of the millions of ordinary household electricity consumers.

The dirty power players include not only the power companies involved in generating, transmitting and distributing electricity but also the technocrats and policy makers, the big business interests and the perennially interventionist International Monetary Fund, World Bank and the foreign chambers of commerce that constituted the overpowering lobbyists for EPIRA.

Firstly, why was there a rush by the ERC to grant the increase to Meralco without taking into consideration the hefty burden on millions of low to middle-income households not to mention the undeniably negative impact on the economy.  Why the failure to examine the suspicious circumstances of conveniently simultaneous or overlapping plant maintenance schedules and allegedly unexpected coincidental plant breakdowns.  The ERC appeared oblivious to the DOE’s investigation of possible collusion among the GenCos to artificially constrict power supply.

According to the Makabayan petition, the ERC acted “in violation of its mandate to protect the public from anti-competitive practices and abuse of market behavior of industry players and the Constitution which prohibits monopolies and combinations in restraint of trade.”

The Malampaya regular maintenance shutdown (termed “turn-around”) is announced way in advance.  Because Malampaya natural gas is a relatively cheaper source of energy to run the bigger power plants compared to more expensive, imported fuel such as diesel or crude oil, its temporary closure can and must be prepared for. But rather than be a signal for Meralco and the GenCos, under the appropriate guidance of the DOE, to prepare for this scheduled shutdown and those of several other power plants that would result to at least 2700 megawatt deficit in Meralco’s supply of electricity, it became an opportunity to unscrupulously escalate electricity prices.

Note that the breakdown of the Meralco increase points to a huge chunk of it going to electricity sourced from WESM. The P4.15/kWh added charge consists of P3.44 generation charge and the corresponding Value Added Tax (VAT).  More than two-thirds of the said generation charge is the P2.38 cost of electricity supplied through the WESM.

Why did Meralco buy at very high rates from the WESM when it had enough time to contract its power requirements elsewhere at a much lower price?  Meralco should have found a more cost-efficient solution to the anticipated deficit in its power requirements but it fell short of doing so.  It still sourced about 10 per cent of its requirements from the WESM which is always costlier on an ordinary trading day, but more so when there is a tight supply due to various causes, not excluding an orchestrated shutdown of several plants by the Gen Cos.

Here is a case of patent abuse by Meralco of the already highly questionable and even unconstitutional automatic pass-on of costs to its consumers.  This privileged business entity can lazily sit back and not bother about sourcing the cheapest power supply given foreseeable conditions of supply and demand because it can just pass on the added costs to its customers with the ERC’s imprimatur.

This historically and persistently monopolistic situation in the power distribution segment of the electricity business has apparently spoiled Meralco’s owners and managers.  They do not have to work their butts off seeking to bring down if not maintain electricity rates at a reasonably affordable level for their customers who are reeling from natural and man-made disasters and an economy that is not “trickling down” to the masses because they can simply pass on the increases.

Worse, Bayan Muna representatives have found proof that Meralco, working in tandem with an Aboitiz-owned power generation company, Therma Mobile, manipulated the market price of electricity at the WESM, particularly during November and December 2013.

Based on documents obtained from the WESM, Therma Mobile entered P62.00 bids 9 times in November and 59 times in December even if the contracted price between Meralco and Thermo Mobile is just P8.65/kWh.  The effect was to jack up the price of electricity. However, Therma Mobile declared that it was Meralco which ordered it to do so.

Now Meralco stands accused as well of driving up electricity prices to unconscionable levels via price manipulation at the WESM.  It used as cover the supposedly coincidental outages from unscheduled or off-schedule maintenance work on several other power plants at a time of the Malampaya turn-around that severely cut down the available supply of power during the contested period. The GenCos for their part are being held to account for colluding to artificially limit the power supply to take advantage of the Malampaya shutdown and lay the ground for much higher power generation costs.

How did we get to this situation wherein EPIRA, the law that was introduced supposedly to ensure a steady supply of electricity, low prices, and healthy competition among several industry players has resulted in exactly the opposite situation? The answer requires a long, hard look at EPIRA itself and the privatization and deregulation policy regime that has spawned it. #

Published in Business World
17-18 January 2014

January 02, 2014

Alarm bells for 2014

2013 is past; 2014 is here.  Ideally each New Year should be met with great enthusiasm, optimism and anticipation of good, if not better, things to come.  Or so most of us can only hope.  But the reality in this country is that injustice does not get righted nor an oppressive status quo overturned, without being consciously acted upon, opposed and resisted especially by those who are on the receiving end of the injustice or worse, of an entire unjust system.  Yes, year in and year out.

A case in point is the wrongful conviction of political prisoner Eduardo Sarmiento for illegal possession of a fragmentation grenade and his punishment with reclusion perpetua (20 - to 40 years imprisonment in the National Penitentiary) at the close of the year 2013.  Mr. Sarmiento is an acknowledged consultant in the peace negotiations between the Government of the Philippines (GPH) and the National Democratic Front of the Philippines (NDFP) but he has been languishing in Camp Crame detention center since 2009 or close to five years. 

Mr. Sarmiento was arrested, detained and falsely charged at a time when Oplan Bantay Laya and the Interagency Legal Action Group  (IALAG) were in full swing in a desperate but futile attempt to beat Gloria Macapagal-Arroyo’s self-imposed deadline of crushing the insurgency before her term was to end in 2010.

His release as a bona fide holder of a Document of Identification under the Joint Agreement on Safety and Immunity Guarantees (JASIG) was anticipated as part of goodwill measures for the peace talks to resume full steam after being at its longest impasse under the GMA regime. In fact, only three NDFP consultants needed to be released based on prior agreements between the two sides in order to jumpstart the bogged peace talks this time under the Aquino administration.

Mr. Sarmiento, whose only remaining case was alleged illegal possession of an explosive when arrested (he was acquitted of the charges of arson, multiple murder and multiple frustrated murder in Samar courts), appeared to be a good candidate for release.  But with the refusal of the Aquino government to recognize and implement the JASIG and with its hostility to peace talks with the NDFP, Mr. Sarmiento has instead ended up a victim of wrongful conviction.

Despite the abject failure of the prosecution to prove guilt beyond reasonable doubt, the presiding judge arrived at a guilty verdict and in the process displayed her partiality against the accused.  This same judge refused to inhibit herself from hearing the case even though in her previous stint in the Office of the Solicitor General, she was part of the “Task Force Rebellion” that was assigned to work on the cases of political prisoners, including Mr. Sarmiento’s, in connection with the GPH-NDFP peace talks, obviously for the government side.

Let us summarize the grounds of a motion for reconsideration filed by Mr. Sarmiento’s defense lawyers against the guilty verdict.  First, the prosecution was unable to prove the alleged possession of the explosive by the accused as claimed by the arresting officers.  His bag was taken from him, he was blindfolded, forced into a van, brought to an undisclosed location where he was interrogated for 24 hours before he was brought to the Southern Police District regular jail. No physical inventory or photograph of the alleged fragmentation grenade was taken in the presence of the accused, his lawyer or any elective official immediately after his arrest.  The accused came to know about the charge of illegal possession of an explosive only upon his arraignment in court. The defense concludes that the existence of said explosive was not even proven by the prosecution much less that the accused was in possession of it except for the claim of the arresting officers.

Secondly, there is serious doubt as to the integrity of the “chain of custody” of the alleged grenade since the arresting officer, Police Senior Inspector Joseph Nandu, who testified that he seized the evidence from Mr. Sarmiento, did not mark the same.  PSI Nandu said he turned over the grenade to another policeman, a certain Sgt. Casida, for recording and marking but the latter was inexplicably not brought in to testify to the same.  Let us take note that a grenade, unlike a firearm, bears no serial number or unique marking that would distinguish it from any other grenade that law enforcement agencies have in their possession. Thus the prosecution was unable to establish that the evidence they brought to court was in fact the grenade that was allegedly confiscated from the accused.

Third, the judge blindly relied on the “presumption of regularity” in the police’s performance of their official duties and used this to trump the right of the accused to a “presumption of innocence”, a fundamental principle of both constitutional and criminal law.  Defense lawyers invoked the right of the accused to be acquitted given that the prosecution clearly failed to prove guilt beyond reasonable doubt.

The recent judgment on Mr. Sarmiento has serious, if not dire, implications both for the GPH-NDFP peace negotiations and for civil and political liberties in this country.

The wrongful conviction could not have taken place without the acquiescence, or more likely the go-signal of the Office of the Presidential Adviser on the Peace Process (OPAPP) regardless of the unmistakable signal and consequent effect it would have on hardening the positions of the contending parties in the peace negotiations. 
Of course the buck stops at President BS Aquino’s doorstep.  Mr. Aquino shows his contempt for the GPF-NDFP peace talks and the peace process in general by allowing his minions to sabotage these with impunity and without regard for subsequent grievous implications.

In other words, the state’s punitive action against this particular political prisoner is placing another nail in the coffin on the GPH-NDFP peace talks, i.e. to any chance that the armed conflict can be resolved through peaceful means rather than through bloody counterinsurgency campaigns that have been victimizing civilian communities and unarmed activists alike and have been proven failures to boot.

But the manner in which this miscarriage of justice was carried out, by utilizing a martial law edict that was even rendered more repressive by an amending law in 2008; and worse, by upholding the way state security forces routinely plant evidence (a grenade or a handgun or even just parts of an explosive or firearm) in order for the courts to detain an accused on a non-bailable offense for years then eventually convict him, with the cooperation of a partial or compliant judge, based on a trumped-up case or cases –should set alarm bells ringing. 

These developments should concern not only civil libertarians, human rights defenders and peace advocates. It should be cause for worry, more so, action by social and political activists who are the ones most vulnerable to such injustice by state authorities.  Trade unionists and militant labor organizations; peasants engaged in life-and-death struggles for land reform; slum dwellers resisting violent demolition and inhumane resettlement projects; government employees working for better pay, working conditions and pro-people state policies; militant youth and students raging and fighting against an oppressive and exploitative system extinguishing their future; all who are pressed down by an exploitative and oppressive social system and a corrupt and repressive government apparatus – must take up the cudgels for someone like Eduardo Sarmiento.

His case is a test case once more as to what lengths, short of killing an activist and a freedom fighter, the state of the ruling elite can go to eliminate just opposition and to instill fear in a people pushed to fight back.  We should all take notice and take action not to let this injustice, seemingly against just one man but poised to strike at so many like him - like us - from reaching its full and horrible extent.  #

Published in Business World
3-4 January 2013