Power Point: Higher Rates for Higher Takes

The Philippine government is giving itself until 2008 to dispose of public power assets, saying this would bring down electricity rates and benefit the public in the end. But the government is turning out to be unsuccessful in its bid to privatize at least 70 percent of power assets in Luzon and the Visayas, with the failed bidding for the 600-megawatt Masinloc Coal-Fired Power Thermal Plant worth $561 million. The failed Masinloc deal is assailed by critics as the biggest setback in the government’s thrust to privatize its power generation assets.

BY JHONG DELA CRUZ
Bulatlat

The Philippine government is giving itself until 2008 to dispose of public power assets, saying this would bring down electricity rates and benefit the public in the end.

But the government is turning out to be unsuccessful in its bid to privatize at least 70 percent of power assets in Luzon and the Visayas, with the failed bidding for the 600-megawatt Masinloc Coal-Fired Power Thermal Plant worth $561 million. Partner-buyers YNN Pacific Consortium and Malaysian firm Ranhill Berhad, Ltd.have been unable to pay the complete amount of the winning price bid.

The failed Masinloc deal is assailed by critics as the biggest setback in the government’s thrust to privatize its power generation assets. 

But the government’s power privatization unit, the Power Sector Assets and Liabilities Management (PSALM) Corp., insists on pushing through with the privatization scheme, stating that the failed bidding has not imperiled the auction of the government’s transmission facility and some 10 other generation assets scheduled this year.

Transmission assets operated by the National Transmission Corporation are being eyed by at least seven investors for a 25-year concession contract. Five of the investors have started to secure bid documents as part of what is called their due diligence to qualify for the bidding set this coming September.

In February, PSALM set the sale sequence of at least 10 power plants. These plants are among 25 remaining power facilities that are up for privatization until 2008.

Snail-paced

Renato Reyes, Jr., secretary-general of the militant Bagong Alyansang Makabayan (Bayan or New Patriotic Alliance), said that if all of the power plants lined up for auction would follow the same bidding scheme such as Masinloc, the government will surely face failure.

“The government, through PSALM, is evading its responsibility in Masinloc by just saying we should move ahead, but if the succeeding auctions would follow that of Masinloc the government will again lose,” he said.

Based on a study by the think tank IBON Foundation, the Masinloc plant accounts for 99 percent of the 605.8-mW total capacity of all generation assets under various stages of privatization. IBON data further show that the said power plant accounts for 99 percent of the total winning bid prices for the generation assets being privatized.

“The sale of Masinloc has been mishandled by PSALM and is a clear example of illegal acts, giving undue advantage to YNN,” Reyes said.

Bayan filed legal charges against government officials including Department of Energy secretary Raphael Lotilla and Psalm president Nieves Osorio, to wit government accommodation of YNN Pacific Consortium, buyer of Masinloc.

Bayan has also accused the government of muddling the Masinloc fiasco by pressing the Manila Electric Co. (Meralco), distributor of at least 70 percent of Luzon’s power needs, to sign a 10-year supply contract. In turn, the Lopez-owned distribution utility would be granted a rate increase at P0.1476/kilowatt hours pending before ERC, and be absolved of its other obligations with government corporations.

Broken promise

In its 8^th Status Report on the implementation of EPIRA, the Department of Energy has admitted the most contentious reason why the Philippines has high electricity rates are the agreements the government had entered into with Independent Power Producers.

In 2005, electricity retail sales increased to 39,616 million kWh, with revenue of P269 billion, a 24-percent increase from 2004.

“The big jump was due to the continued increases in the generation rates of the NPC due to tariff recovery adjustments to cover the huge loses incurred from several years of selling power below cost,” the report read.

In September 2004, the Energy Regulatory Commission (ERC) granted Napocor’s petition to increase its generation rates by a nationwide average of P0.9798/kWh.

The latest increase in generation rates was only in June, when the ERC acceded to Napocor’s 6th Generation Rate Adjustment Mechanism (GRAM) and 5th Incremental Currency Rate Adjustment (ICERA) applications adjustments totaling to P0.3797/kWh.

Generation companies are allowed by the ERC to submit quarterly applications for recovery adjustments.

“(The) EPIRA even resulted in higher electricity rates, despite its promises to bring them down,” said Dr. Giovanni Tapang, chair of Agham (Association of Science and Technology Advocates for the People).

Early on, various cause-oriented groups had predicted that the power purchase adjustment (PPA), together with the “onerous” contracts being signed between independent power producers (IPPs) and the government as well as the unbundling scheme ordered by the ERC, the public would be “bled dry” with rate hikes, said Tapang.

Currently, the Philippines ranks third among select countries in Asia with high electricity rates averaging at P8/kWh, next to Japan. In Southeast Asia, the country ranks next to Cambodia, even leading the more prosperous Singapore.

No roll-back

With ways to get around and push up prices of electricity, the public cannot expect any rollback anytime soon, Tapang said.

He said that with privatization alone, transnational corporations could now enter and control the public power assets together with a handful of local power tycoons.

“As in the case of Masinloc, if a supply contract was negotiated between YNN and Meralco, we can expect that both companies will lobby for higher rates to regain what they’ve invested,” he said.

In total, Meralco owes the government over P26 billion in separate accounts with the Napocor and NTC.

Meralco has obligations with Napocor totaling P20.6 billion over an unpaid 10-year electricity supply. While the firm also owes Transco P6.373 billion, most of this amount is made up of overdue ancillary services related to Meralco’s pending settlement agreement with Napocor.

Following the EPIRA, the national government has absorbed P200 billion of Napocor’s debts. The government utility firm has outstanding debt of $7 billion or P372 billion.

In June, the government launched the Wholesale Electricity Spot Market to serve as a “stock market.” This, according to the Philippine Electricity Market Corporation, would give consumers leeway to access power utilities that offer lower rates.

However, such a viable pool of market had yet to be seen. “If the likes of Aboitiz and the Lopezes are the ones who will participate in the spot market, then the purpose of spot market is defeated, for the bigwigs in the power industry would surely wield more influence and interest,” Tapang said.

Meantime, the public could only closely watch how the government muddles up the power sector. For in the next four years, he said, they can only expect more increases to come. Bulatlat

© 2006 Bulatlat ■  Alipato Media Center

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