Cross-ownership in RP’s energy sector bucked

The Asian Development Bank (ADB) is urging the Philippine energy sector "to avoid cross-ownership as it would reduce or suppress competition."

"Minimized or no cross-ownership in the generation, transmission, distribution and retail sectors of Philippine energy sector as it restructures will allow for wider or more competition," said Vladimir Bohun, director for infrastructure, energy and financial sectors department (East) of the ADB.

Bohun said the restructuring of the energy sector should result in greater efficiency, thus lowering power rates for endusers.

"Restructuring needs competition. No or minimized cross-ownership will encourage competition and competition may lead to lower power rates," the ADB director added.

Bohun warned, however, that there are negative effects of restructuring including stranded costs. "There are areas where regulator will play a crucial role. Government has three options: Buy-out the existing contracts of the independent power producers (IPPs), impose a universal levy on the endusers, or renegotiate all the existing contracts."

Other recommendations for the restructuring of the electricity sector by the ADB are:

• Create an enabling legal and regulatory environment to support competitive markets in electricity;

• Unbundle the power sector by separating generation, transmission, distribution and retailing functions to achieve the maximum benefits for customers;

• Proceed gradually with the restructuring to allow the development of infrastructure required to operate the unbundled system;

• Operate the generation and retailing markets competitively, with a large number of power producers selling into a wholesale electricity market at prices which balance demand and supply throughout the day, and with retailers buying bulk power and transmitting it via the transmission and distribution network to supply it to customers; and

• Operate the transmission network as a concession on the basis of competitive bidding, or privatize it within a tight regulatory framework, controlling rates of return, prices or gross revenue. – Ted Torres