In a paper presented at the Philippine Business Leaders Forum, EnerCon Consultancy Services general manager Alan Taylor said the Philippines effectively uses cost-plus pricing for some key public sector industries.
"The most notorious example of this being the Napocor, where the utility is allowed to pass on the cost of inefficient management, power generation, maintenance and network management, to the consumers in the form of a surcharge," Taylor said.
Under such circumstances, Taylor said Napocor has no incentive to improve its performance, power generation efficiency, emission standards, customer service and satisfaction, or to introduce peak load rates, and off peak rates for their industrial consumers.
"Basic issues such as enforcing some industrial consumers to correct inadequate power factors are left unattended," he said.
He said it is not unusual to experience local or nationwide blackouts and voltage sags that can result in the failure of high efficiency electric motors.
The EnerCon official also noted that some Napocor base-load plants are poorly maintained, with partially cannibalized capital equipment used as a source of spare parts.
"This comprises the ability of several plants to function at 100 percent of design capacity. So-called "system losses" can approach 15 percent and are mostly due to power pilferage, and outright theft, sometimes with the alleged connivance of utility company personnel," he said.
He added that these are some of the components of the electrical power surcharges (power purchase agreement) passed on to both domestic and industrial consumers of electrical power in the Philippines.
Taylor said this inefficiency does not only serve as a burden to consumers but also to the country’s economy.
"The current financial burden the Napocor exerts on the Philippine economy and its inability to provide affordable, stable, reliable electrical power supplies to both industrial and domestic consumers, make Napocor an impediment to the industrial development of the Philippine islands," he said.
The end result of this chaotic mismanagement, he said, is that the Philippines has one of the most expensive electricity rates in Southeast Asia.
"The outlook on the power provision front is grim. According to the Department of Energy, the Philippines will require another 2,500 megawatts of electrical power. The issue is, just how is the government going to pay the $2.5 billion price tag for the additional capacity and investment? This is a tough call, since the government cannot even find the funds in order to pay the Napocor’s current $6.7 billion debt ($9.2 billion with added interest)," it said.
He said the only way out of this mess is to attract investors for Napocor.
However, he said even if one assumes a Napocor privatization, then based upon past performance any future paper or bond issue could be downgraded to junk status, thus this will prove very difficult sell to potential investors.
EnerCon Consultancy Services was founded in March 2001 by Taylor who has 35 years experience with major multinational companies.
The Subic-based consultancy firm specializes in energy auditing of industrial plants and manufacturing facilities. It helps companies reduce the costs of energy expenditure and enables clients to introduce cost containment measures. The achievable savings can range from 15 percent to 30 percent depending upon the facility and the plant services.