Another tough balancing act for GMA

The new administration of President Arroyo will soon have to make a tough choice as far as the power sector is concerned, one that would determine the nation’s direction under her new six-year term.

Would Arroyo, claiming a fresh mandate, move to reduce electricity rates for industrial consumers to make exports – the country’s main driver of growth – competitive? Or would she choose not to rock the boat to avoid public unrest knowing that millions of residential users will be affected?

Whatever she chooses would surely entail damages, either to the nation’s economic health or to the president’s public appeal.

Remove Subsidy

The Semiconductor and Electronics Industries in the Philippines Inc. (SEIPI), the country’s biggest export earner, recently filed a petition with the Energy Regulatory Commission (ERC) seeking to remove subsidies in the power sector.

SEIPI hopes that electricity rates are reduced by as much as P0.63 per kilowatthour (kwh) by removing the so-called "inter-class subsidy" or the extra payment that industrial and commercial customers pay to support lower-income residential customers and certain missionary programs of the government such as street lightings and hospitals.

In its pleading, SEIPI asked the ERC to implement a two-phase removal of the inter-class subsidy beginning with industrial and commercial customers with higher electricity consumption of two to 10 megawatts. The second phase will cover those with usage of between 0.04 and two megawatts.

Power Cost, A Drag On Export Competitiveness

If the country were to maintain its export competitiveness, electricity rates need to be reduced to benefit our exporters. For the electronics sector, to date accounting for over half of total Philippine goods sold overseas, electricity covers as much as 45 percent of the production cost.

Removing the existing inter-class subsidy should help ease the burden of the country’s vital manufacturing and export sectors. This appeal for assistance could not have come at a much better time since the country’s export industry has a lot of catching up to do.

While our Asian neighbors continue to enjoy double-digit growth as far as sales overseas is concerned, we have yet to overcome a number of things that have kept us uncompetitive such as political uncertainties, higher cost of doing business, not to mention the insidious cost of corruption.

Reality Check

By filing the petition, the electronics sector seems to be testing the waters to find out whether they would merit the attention of the newly elected president. While the sector has set an ambitious target of hitting $100-billion worth of exports by 2008 from $21.9 billion in 2001, achieving it would require bringing down power costs to more competitive levels.

While economically sound and justifiable, the petition may not be on solid legal grounds. Under the Electric Power Industry Reform Act (EPIRA) of 2001, inter-class subsidies are supposed to be phased out three years after the establishment of the universal charge, formerly known as the controversial purchased power adjustments.

The universal charge was implemented in early 2003 and as such the subsidy would most likely remain until 2006 or even a year after if it could be proven that removing the subsidy would adversely affect public interest.

Downside Is Political Dynamite

While the SEIPI’s petition will mean that electricity rate for big users would drop by as much as P0.60/kwh, the downside is that residential customers – numbering in the millions - would have to suffer a P0.12/kwh increase in their electricity bills. Thus, for an average family household with a monthly consumption of 300 kwh, it may have to shell out a little less than P40 monthly once the inter-class subsidy is removed.

The removal of subsidy will also run counter to President Arroyo’s promise to provide electricity to all barangays, one of the items in her 10-point program. Surely, energizing all the local communities – even the most unviable ones – would entail cost and subsidy.

Judging from her recent actuations, GMA may consider that the removal of "inter-class subsidy" as potential political dynamite. Despite the President’s tough talk on initiating reforms, the beleaguered exporters may just have to wait a little longer until her political sense says, "it’s now alright."

ODA Issues On TV

‘Isyung Kalakalan at Iba Pa’ on IBC-TV13 News (5 p.m., Monday to Friday) ends today discussions of the country’s official development aid (ODA) issues. Billions of dollars are approved by international banks and donor countries to be channeled to Philippine development projects annually. These are low-interest loans mostly intended for high-impact infrastructure projects. Yet government does not always avail of it. Watch why and what steps are being done to increase our development assistance utilization rate.

‘Breaking Barriers’ With Rep. Danilo E. Suarez

‘Breaking Barriers’ on IBC-TV13 (11 p.m. every Wednesday) will feature on Wednesday, 28th July 2004, Rep. Danilo E. Suarez of the 3rd district, province of Quezon.

The 10-point program of action unveiled by President Arroyo will definitely require funding that the current government will need to raise. While disposal of a government asset like the Napocor is an option, realistically said sale is difficult to materialize considering Napocor’s dire financial condition.

Improving tax collection efficiency is another option but it has its own inherent limitation. It appears that imposing new taxes on poor Juan dela Cruz is becoming imminent, and the House of Representative is the entity mandated to initiate such moves.

Will the current crop of leaders in the House be able to move the entire body to support such unpopular measures? Will the loose coalition of different personalities and aggregation hold as more taxes are extracted from the burdened public to support the ambitious program of GMA?

Join us break barriers and gain insights into the views of Rep. Danilo E. Suarez of the 3rd district, Quezon province on various issues as the nation confronts the debilitating budget deficit. Watch it.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.