Thais skipping dessert

Talking about political will.

Thailand is now threatening to imprison people who hoard or smuggle sugar due to a worsening domestic sugar shortage that is causing supermarkets to ration supplies and more Thais to skip dessert.

Thailand was the world’s second biggest sugar exporter until last year when it suffered its worst drought in 40 years, followed by floods that delayed cane harvest by more than a month. Because of these, and amidst rising global prices, some unscrupulous wholesalers and traders in Thailand have resorted to illegally exporting part of production reserved for domestic consumption. These crooks are reportedly getting nearly twice as much as they could get at home.

Thai authorities are hunting for people who are hoarding sugar in expectation that state fixed prices will increase. But so far, government has resisted raiding local price caps. Bitter farmers are holding on to their sugar until the price controls are lifted, worsening the supply crunch.

The price of white sugar traded in London has surged six percent to a seven-year high of $360 million per metric ton after Brazil, the world’s biggest producer, said its cane crop, like Thailand’s would be smaller than forecast.

Favor to government (Part 2)

We ended our last column on how Meralco, despite being the largest customer of NPC, was (and still is) being billed by NPC at their highest power rates just to subsidize electricity consumers in other parts of the country.

We also talked about how NPC reportedly solicited direct connection customers within the Meralco franchise area which was a clear violation of Sec. 7 of the CSE wherein NPC: "a) recognizes and respects the proprietary right of Meralco over the latter’s franchise area; b) recognizes that part of government’s policy reforms for the power sector is a prohibition against direct connection within the franchise areas of Meralco; and c) agrees not to renew its contracts with its directly-connected customers."

Today we continue where we left off.

The high rates NPC imposed on Meralco led industrial customers to self-generate its power requirements, thus withdrawing some 750MW of load from the Meralco franchise area.

Also, NPC’s continued provision of services to directly-connected customers ultimately deprived Meralco of about 345MW. All told, some 1095MW was technically stolen from the Meralco load. And this does not even include customers and industries that chose not to consume more or locate their factories within Meralco’s franchise area because of the artificially high NPC selling rate to Meralco.

Making matters worse, NPC did not provide adequate transmission facilities for Meralco’s IPPs. When it did, NPC imposed huge penalties in violation of the CSE and the OATS (Open Access Transmission Service) as approved by the then Energy Regulatory Board (ERB).

It is interesting to note that during negotiations for the CSE which Meralco gave into as a favor to government, Meralco made it clear that contract quantities from NPC were premised on the commissioning of several IPPs that would be selling power directly to Meralco.

And to ensure any supply shortage, Meralco contracted its own IPPs in order to guard against another supply failure from NPC and bring forth sources of power that were at the time cheaper than the NPC grid price. NPC accordingly recognized all of Meralco’s IPPs in its 1995 Power Development Program (PDP).

Despite this, NPC later refused to grant access to Meralco IPPs Santa Rita and Quezon Power as the plants came on stream. And since Meralco had take-or-pay obligations with these IPPs, NPC’s refusal to give firm transmission services to these plants naturally resulted in a higher cost of power to Meralco’s customers since their fixed monthly charges were being divided by fewer and fewer kilowatt-hours being allowed through NPC lines.

Surprisingly, transmission constraints which were blatant violations of the provisions of the CSE did not even seem to bother NPC at that time. For naturally, any delay in the commercial operations of Meralco’s qualified IPPs resulted in higher sales in favor of NPC to the detriment of the consumer.

Industry circles were talking about NPC personnel blatantly bragged about how they deliberately delayed the completion of their transmission lines in order to boost their sales. That anomalous behavior of the state-owned firm was the reason behind the infamous bloating of the PPA in 2001.

After it became clear to Meralco that NPC had no intention to comply with its obligations under the CSE, Meralco did what any prudent and respectable business entity would do – it exercised its legal and contractual right to terminate the CSE by serving notice to NPC on February 2002. That’s when the controversy finally came to a head.

To break the impasse, the parties responsibly agreed to undergo mediation. Appointed mediator for NPC was former Justice Secretary Sedfrey Ordonez, while Antonio del Rosario, then president of the World Energy Council, was appointed mediator for Meralco.

Mediation proceedings commenced in March 2003. One year thereafter, the parties finalized and approved the joint filing of a Settlement Agreement with the Energy Regulatory Commission (ERC), where it remains pending to date.

Contrary to the portrayal of groups like Nasecore, the attempt to compromise their differences via mediation was a responsible act to finally put the dispute behind them.

The simple-sounding job of keeping our lights on is an enormous one and will only be made more complicated if such huge clouds of disagreement pervade the relationships of the biggest, most important players in the power industry.

It is clear that with the signing of the settlement agreement, there is no longer any dispute between NPC and Meralco on the CSE, subject only to the approval of the ERC for its implementation.

In the said settlement agreement, the net settlement amount is P14.3 billion, computed on the basis of actual kilowatt hours purchased by Meralco during the period ending on the expiration of the CSE in Dec. 2004. Nowhere in the settlement agreement is there mention of a P42 billion claim of NPC.

Finally, what’s obvious is that the "symbolic" agreement NPC and Meralco mutated into a controversy because projected electricity demand failed to materialize and an oversupply in the Luzon grid ensued.

Of course neither Meralco nor NPC were responsible for the 1997 Asian crisis and the global slowdown from events following Sept. 11. By 2004, both events cut electricity use by almost 30 percent from what was originally projected by NEDA in 1994. Neither will it be logical to blame them for not foreseeing it!

We all know by now that not having electricity when you need it is infinitely more costly than shouldering the cost of reserve capacity. Predicting electricity demand four to five years in advance is never an exact science and utilities cannot afford to swallow the huge costs of periodic overcapacity.

In more responsibly regulated power industries worldwide the utility franchise imposes an obligation to serve their consumers within their given areas. In return, the cost of shouldering such reserve capacity is always tucked into rates paid for by the consumer. If it weren’t paid for by consumers, prudent utilities would always play safe and under-contract for their power needs leaving consumers perpetually short of power.

This is why the current resistance over passing on the costs of the compromise settlement between NPC and Meralco is ludicrous. Even more disconcerting is when one starts to consider the dark agendas that may lie behind such a move. Is it duplicitously being used to justify a government takeover of the private utility?

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