Amending epira

Power pricing. Power supply. These two issues continue to be the biggest problems confronting the power sector.

We are a nation that has been duped by the promises of the Electric Power Industry Reform Act or RA 9136 that was passed into law in 2001. For more than a decade, we have been waiting for changes that would bring down power rates and assure our people of continued power supply.

And what do we have today? The Philippines now has one of the highest power rates in Asia, second only to Japan’s. And major parts of the country are under threat of power shortages because there are not enough new generating plants being constructed.

With amendments to EPIRA now being considered and discussed, our lawmakers as well as the Department of Energy (DOE) should first make sure that they really understand the problems confronting the power sector.

It’s going to be a futile exercise to convene our esteemed members of Congress in meetings and sessions only to pass a revised law that would be as inutile as its predecessor. Let’s not waste once again the taxpayers’ money.

Complex problem

Undoubtedly, the Philippines has one of the most complicated power sector structures seen in a developing economy, one that has been made so dysfunctional by the politics of socialized pricing and cross-subsidies.

In fact, the mess we are in now is the handiwork of having had a single generating company called the National Power Corp. which was established in 1936 as a wholly-owned government entity. Its long and colorful history started during the term of President Manuel L. Quezon, and had changed so much with each succeeding administration.

Initially a non-stock public corporation, Napocor grew to behemoth proportions during the rule of President Ferdinand Marcos. By seizing all generating capacities in the country, including the giant Lopez-owned Manila Electric Company, its assets expanded many fold – and so had its debt.

It was precisely this indebtedness that became one of the issues raised by foreign lenders such as the World Bank and the International Monetary Fund, and which subsequently led to a power sector reform law, one unfortunately that failed to bring about the desired changes.

Muddling with well-meaning intentions

EPIRA could perhaps be regarded as a law that lent more muddle in the already mired equation. So many of its provisions, for examples, were intended to create a free market that would encourage competition, and consequently, lower prices. But, as we are all witness, no such thing happened.

The law further intended to bring more private investments in the power generating sector, thereby limiting state exposure in a capital-intensive industry. We also know that this has not happened, and that there is that threat of power shortages once again looming.

The only time that investors in the power generating sector had been enthusiastic about building power plants for us was during that period when generous incentives had been offered on a build-operate-transfer arrangement to independent power producers.

This was a time when Metro Manila was suffering from almost daily brownouts because of a severe power shortage caused by a combination of ageing power plants and the lack of adequate power generating capacity.

We may have investors flocking to build power plants for us once again if we leave things to become a crisis once again. Because we’ll have our backs against the wall, our only option is to give generous terms that will only contribute further to higher power generation rates.

Cleaning up the ‘stranded’ mess

The biggest tragedy that is EPIRA is the inability to dispose of that humongous debt acquired through the years, compounded by bad loans, i.e., Bataan nuclear plant, unproductive subsidized pricing policies, corruption, and yes, that infamous stranded cost.

The last item alone is now worth an estimated P900 billion resulting from the fire sale of Napocor’s assets to fulfill one of the law’s objectives, i.e., the privatization of the country’s power generation sector. This “loss” is something that will have to be passed on to the taxpayer in whatever form is deemed appropriate.

Cleaning up the “stranded” costs in the financial books of the government remains a big headache, and will require more than political savvy and a firm hand from any administration that will be forced to reckon it. For now, the easier route has been to ignore.

Where to P-Noy?

So where are we heading now? This is the question the consuming public and prospective investors are asking the P-Noy administration officials who are expected to tackle these outstanding power sector issues. This is the question that the previous energy czar, Sec. Almendras, has passed on to the current DOE secretary to ponder.

After trying out such hifalutin concepts as wholesale electricity spot market (WESM), open access, privatization, performance-based regulation, indexation, and a gamut of such fancy words, we find we’ve not moved forward even an inch, but rather have sunk deeper in the mire.

Perhaps, now that the floor has been opened to the possibility of amending EPIRA, let’s form a decent group that can draw up a roadmap that will really work to bring electricity prices to levels that are competitive and ensure a true free market.

What we need are pragmatic solutions to the complex problems that affect our power sector. It may take five or 10 years to clean up the mess, but at least we can be assured that the mess will be cleaned.

If the Philippines will want to finally take off and claim its place among the ranks of emerging economies, it has to take care of its power sector. This means having competitive electricity rates and having adequate power supply.

The basic question remains: Do we have enough knowledgeable persons at the DOE bureaucracy who can assist our legislators craft a more effective and beneficial power sector reform law?

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