Privatization Of Power Sector, The Root Of High Power Rates
The impetus behind the current crisis is the restructuring of the sector through the Electric Power Industry Reform Act, or EPIRA, which was one of the first laws signed by President Gloria Arroyo in 2001.
Amid the flurry of accusations between private distributor Manila Electric Company (Meralco) and state-run National Power Corporation (Napocor) over unjust charges, one fact remains clear: privatization and deregulation of the power industry – distribution, transmission and generation – is at the heart of high electricity bills.
For example, consider the multitude of unjust ‘pass-on’ charges levied by Meralco on its customers. These include system losses, in which power lost through pilferage and technical problems are passed on to consumers and P500-million a year of Meralco’s own power consumption which is similarly reflected in electric bills. There is also a reported plan to pass bad debts incurred by the power distributor on to consumers.
These charges have been approved by the government Energy Regulatory Commission (ERC), which is tasked to regulate the rates of electricity distributors. Although blame has been placed on the ERC’s lax regulation for such excessive ‘pass-on’ rates, in truth the regulatory environment has become lenient because of deregulation of the power sector and while moving towards full privatization.
It should also be noted that although Meralco is a public utility with a congressional franchise, its essential nature is a private, profit-oriented corporation listed in the Philippine Stock Exchange. Thus, it should not be surprising that the company exploits legal loopholes to levy such unwarranted charges in order to fatten its bottom line and make its stockholders and owners happy.
The privatization of the power sector created profit opportunities for private-sector independent power producers (IPPs). In order to quickly attract investors to the sector, government had to ensure the power producers’ profitability. Thus, onerous provisions such as ‘take or pay’ (which required Napocor to buy 70% to 100% of power producers’ output) and ‘fuel cost guarantee’ (which obligated Napocor to source and pay for fuel used by IPPs) were tacked onto IPP contracts. These provisions bloated consumers’ power bills through charges such as the infamous Purchased Power Adjustment (PPA). They also contributed to Napocor’s skyrocketing debt burden.
It will be remembered that a government-mandated review of 35 IPP contracts during the Arroyo administration found that only six were “clean” or without financial or legal issues. Five were found to contain “onerous” terms that were “grossly disadvantageous to government”. However none of these contracts were cancelled, and were instead “renegotiated”.
High transmission charges have also been blamed as a factor in high power rates. But the National Transmission Corporation (Transco) is also set for privatization, and thus, needs to charge high rates in order to attract potential investors. It should also be noted that transmission charges are regulated by the ERC as well.
Open Access
The impetus behind the current crisis is the restructuring of the sector through the Electric Power Industry Reform Act, or EPIRA, which was one of the first laws signed by President Gloria Arroyo in 2001.
Before EPIRA the sector was composed of generation, transmission and distribution sectors. Napocor generated electricity on its own and bought electricity from IPPs, and transmitted this to distributors and large industrial customers through high-voltage wires. Distribution of electricity to end-consumers was done by privately-owned electric utilities, a few government-owned utilities and electric cooperatives.
Under EPIRA, the various components of the power sector are separated into generation, transmission, distribution and supply. Generation and transmission assets of Napocor would be privatized while distribution would continue to be handled by the private sector. The end goal of the sale of Napocor’s generation assets is “open access” which is government’s supposed answer to high electricity prices. “Open access” ostensibly aims to introduce competition into the industry by allowing consumers to select their supplier.
EPIRA advocates claim that competition would lower rates, particularly with a provision which states that no power generator should control more than 30% of supply in a given grid and ostensibly prevents monopolies. But the experience of the deregulation of the downstream oil industry demonstrates that such “competition” does not bring down prices. Deregulation has resulted in new players taking 12% of the market while the big three oil firms (Petron, Shell and Chevron) share the remaining 88% or an average of 29% per firm. This has not stemmed cartel-like behavior with oil industry players raising pump prices nearly simultaneously. It has also not resulted in lower prices, as pump prices of all petroleum products have raised an average of almost 580% since deregulation of the industry was implemented in 1996.
EPIRA also notably allows cross-ownership between distributors and generators. This has allowed the Lopez family to own a controlling share in Meralco while also owning IPPs. This situation has led to questions of conflicts of interest as Meralco would naturally be more inclined to buy power from its sister firms regardless of whether it is cheaper than electricity sourced from Napocor IPPs.
Reversing privatization
In the light of high costs in power rates, the reversal of privatization of the entire power sector becomes an increasingly viable answer. This entails the repeal of EPIRA law, reversal of the privatization of Napocor’s generation assets, and government control over the entire power sector – distribution, generation, transmission and supply.
Of course many would question the return of state control over the industry, particularly in light of corruption allegations against Napocor such as its alleged overbilling of customers by some P10 billion and its purchase of overpriced coal for its power plants.
However there remains no substitute for responsible state control in an industry such as the power sector whose natural monopolies will inevitably be exploited by private interests for maximum profit even at the expense of the public. And as a state-run industry, the people must have the right to subject the power sector to scrutiny and demand transparency in its operations. Effective state control remains the best solution to address high power rates– even as it is acknowledged that leaving the power industry to an administration known for allegations of corruption, unaccountability, and subservience to elite interests’ compromises achieving a pro-people power sector.
This feature also appears as a feature under IBON Foundation
PS. I...
are there other sources aside from IBON Foundation? Why is it that this seems to be the major source used by the USC in releasing statements?
This article never claimed to be a USC position statement. It’s an article that was actually written by Councilor Fudge Tajar as a researcher and a member of IBON Foundation and in her capacity as the Chairperson of the People’s Struggles Committee, posted, as it is her committee’s mandate to do so, with the aim of providing our constituents with an informative and detailed feature with regards to the pressing national issue.
ok. thank you. i’m just concerned that perhaps its not considering all possible angles and positions of issue, as well as the potential solutions to the problems. just a thought
regarding the article not claiming to be a USC position statement, it IS after all posted in the USC website, and it does not have any disclaimer, except your reply… how is it different from the other posts?
One fundamental reason might be credibility. Although if it would be of comfort to you, Ibon regularly uses government data and statistics as its reference.
USC should publish these written works. Not all students have access to the net. You guys should consider printing these in the Oblation.
as with before, we indicate it if its an official statement. otherwise, it’s an article / feature / primer. also, official statements usually, as it did during the summer, come out in print. i hope that clears it
I believe the Freedom from Debt Coalition (FDC) is also a credible source of information, especially with regards electric power privatization, the EPIRA, and issues surrounding the electric power industry. It has numerous studies, position papers, and analyses that has been cited both by NEDA, the Senate Committee on Energy, and the House Committee on Energy during their hearings regarding proposals on electric power industry restructuring.
Their address is http://www.fdc.ph
05-21830: I’m noticing a trend here with your replies. We agree on one thing about the posts: that it has to be credible. And the reason why I was asking for OTHER SOURCES, is for cross-reference, which will actually strengthen a primary source’s credibility. It’s not just the data it uses, but the analysis it makes on the data. You see, if a lot of other sources / analyses say otherwise, that can weaken your credibility.
Its important that any post be carefully studied from all possible angles. Looking at it from only one perspective makes it very dangerous and prone to fallacies.
The source shouldn’t be the point of contention, don’t you think? Isn’t the content that needs to be discussed on?
On topic: isn’t it pathetic how the government only acts upon the nationalization of basic social services only when they already had personal motivations? Here they are getting all worked up in trying to steal Meralco. What about nationalizing private landlordships for food security? Or nationalizing MWSS to ensure water accessibility? What about getting Petron back again? What about housing instead of leaving it to Gawad Kalinga? Why not do something about the expensive monopoly of private medical institutions in the Philippines?
Actually, 05-21830 is correct, we use government data and also information from the Asian Development Bank. It is the framework that you might want to debate on.
To para sa bayan:
One can try to look into different perspectives, but, one cannot have ALL perspectives present in one’s self/work/analyses/whatever. This only causes inconsistancies, confusion and fallacies.
Parang sa thesis, pumipili lang ng theory na gagamitin. Hindi ginagamit lahat ng theory kasi may mga theory na magkatunggali.
To Issa Baguisi:
That is exactly what I’m asking for: to allow us students to see these different perspectives. What you should not do is present only 1 perspective into the issue, because it’s like saying “this is what you have to believe in”, which Ms. Tajar has done in this case.
To Para sa Bayan:
First, having many perspectives does not equate to having a more balanced or rational opinion (talk about fallacy). Second, I think Ms. Tajar is actually trying to convince us, that’s why she put an effort into posting the said article (rather than pretending to be an innocent poster).
I personally believe that those perspectives that you seek and speak of (on EPIRA) are actually being broadcasted or showcased already by either the state, supporters of the said bill and other critics. I urged you to read on them, read this article made by Ibon, then decide on what your stand is. And may I remind you that the article is not pretending to be neutral anymore, it already has the stand of the writer (since they already mentioned that Ibon also studies other data and arguments including government’s). Because in the end, it would be useless to just present perspectives and spoonfeed your readers. You write to move people. Not for the sake of blabbering.
To para sa bayan:
That’s because Ms. Tajar is a writer that has her own analysis of this subject. She has her facts and she has used her a specific framework to come up with an analysis. Another writer could make use of the same facts and present a different analysis by making use of a different framework .
That’s how it is. To write something of this nature that presents two opposing ideas begs the question - what exactly are you saying? Her resolution here is shaped and made sharp by her framework and if she had used patches of different frameworks then everything would only end up muddled.
This is not a news article that is supposed to present both sides. This is more like an editorial or a research paper. There are facts and then there are the author’s analysis.
to para sa bayan: napakamot ako sa sinasabi mong ‘different sources’. para bang sinabawang kamote na may itlog.
there are many ways to paint a picture: it’s not only about putting the same colors on differing backdrops.
frodo, ang sinasabi ko lang is that putting in MORE SOURCES and references would make this argument better. However, councilor Tajar seems to be biased and limited to using IBON FOUNDATION as her source when it comes to writing these statements. Its either she’s a big PET of Ibon Foundation, or she doesn’t see the relevance of other sources.
In any case, had she used cross referencing in her statement, it would have actually made her “research” so to speak Stronger.
To Para sa Bayan: I research for Ibon, ang sinasabi ko nga na parang hindi mo pa rin maunawaan ay kinukuha rin namin ang datos namin sa government agencies at sa mga institusyon na gaya ng Asian DFevelopment Bank…. Paano ako naging PET? What do you want me to present? A Socio 10 paper? Presenting all the perspectives in the world? Kaya nga may mga social sciences classes eh. Dun tinuturo yun. Ito ay application na.