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


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