Government urged to resolve problems in power sector

The Energy Council of the Philippines (ECP) has urged the Arroyo administration to address several concerns in the power sector.

In a statement, ECP expressed concern that if these problems are not resolved the whole economy would be affected.

ECP said there are concerns over the conflicting signals emanating from government.

"The legislature, on the one hand, with the help of the executive branch, passed the EPIRA (Electric Power Industry Reform Act), establishing the blueprint and timetable for the reform of the power sector, including the dismantling of the government (National Power Corp.) power monopoly through the privatization of the generation and transmission assets and the creation of a competitive market in distribution and supply," the ECP said.

It noted that the executive branch, on the other hand, has offered to establish government management control of Manila Electric Co. (Meralco).

The group said there is lack of consistency and depth of understanding emanating from the regulatory agency on the true state of the power industry and macroeconomic effects of its decisions. "Regulation can be a tool for modernizing the power sector by encouraging both local and foreign direct investment," it said.

However, it added that "excessive and regressive regulation may stifle economic activity and defeat the purpose of reform.

According to ECP, there is also a need to make EPIRA work. "The reform and restructuring of the power sector is an all-or-nothing proposition. Every part of the EPIRA must be implemented for the entire plan to succeed," it said.

It said, "A government move on Meralco will defeat the aim of creating more private competition resulting in greater customer choice leading to lower, more stable prices for electricity. Thus, there is no incentive for investors to buy the generation plants and the transmission grid if government ends up as the final customer."

The Supreme Court’s decision, it said, is a "cause of concern". "The SC decision effectively renders the long established standards (by jurisprudence and utility practice) of 12 percent utility returns no longer "fair and reasonable". As a consequence, it will compel the Energy Regulatory Commission to determine what would be fair and reasonable utility returns if income tax were not allowed as an operating expense," it said.

It said the regulatory body needs now to formulate rate-making rules which are consistently sustainable and acceptable to both customers and investors. "However, constant delays have characterized rate-related decisions that add even more uncertainty to a vital infrastructure sector that requires about $1.2 to $1.5 billion a year in new investment.

It expressed concerns that the potential losses of Napocor (forecasts to hit P40 billion in 2002 and P76 billion in 2003) and now Meralco, undermine a basic tenet in energy pricing and investments – they must be sustainable and fair.

"The key to sustainability and fairness is increases reliance on the market – liberalization, privatization and customer choice, with government restricting its role to making sound rules enforced and administered by independent regulators who are free from political interference," it said.

The ECP said all these concerns, if not addressed properly, would lead to another crisis. – Donnabelle Gatdula