Failure

There should be a better way of dealing with Meralco’s corporate excesses than reversing the power sector privatization program.

Talk of rewriting the law governing the privatization program, reversing or at least slowing down the privatization schedule, has spooked the global investment community. The Wall Street Journal recently put out an editorial piece sharply critical of what seems to them to be a disposition on the part of the administration towards reversing the process.

The alarm among investors was boosted by that gaudy session at the Senate, where legislators took turns beating on the representative of the foreign chambers of commerce, berating the chambers for issuing a statement that warned against the adverse economic consequences of reversing privatization of the power sector. That ugly incident, we are told, nearly led to an unprecedented joint letter of protest from the European embassies in Manila.

We might try to smoothen out the ruffled feathers of major investors in our economy by claiming that the Philippine Senate routinely behaves imperiously. But that is hardly an excuse for rude behavior.

Besides, the foreign chambers do have a point.

The Philippines has established a reputation for policy inconsistency. That, along with routine shakedowns and extortion, discouraged direct investments in our economy, causing us to lag way behind nearly every country in Asia in investment injections.

If we begin waffling once more on our power sector privatization policy, that will send unhealthy ripples across the board, in all investment areas of our economy. The already miniscule share we get of Asia-bound direct investment flows might dissipate completely. The over-all costs of policy confusion are quite stiff indeed.

We direly need a credible power privatization strategy. That is the only way we can avert power shortages in the medium term that will surely impair our economy’s capacity to grow.

It is not the privatization strategy that is at fault. If the Electric Power Industry Reform Act (EPIRA) is to be revised, it should be to quicken the pace of privatization, encourage genuine competition in the sector and strengthen regulatory capacity.

The fault, it seems, lies in weak regulation. All privatization and liberalization strategies require strong regulatory capacity — as we see, for instance, in the successful liberalization of our telecommunications sector.

The Energy Regulatory Commission (ERC) has not been quite up to the task in its mission of supervising the mammoth Meralco. That has provided enough grounds for those citing this agency as an example of “regulatory capture” (the control of the regulator by the regulated).

We can go through that long litany of issues raised against Meralco. In each of them, the ERC did not perform its mission with enough vigilance.

For years, Meralco charged its consumers P3 more per kilowatt hour that the other distribution companies. The ERC did not as much as officially inquire into why this is the case. This even as Meralco’s franchise requires it to provide electricity to consumers at the lowest possible cost.

When Meralco passed on its income tax due to the hapless consumers, the ERC did not stand in its way. A non-government organization picked up the cudgels and filed a complaint. The Supreme Court subsequently ruled that this cannot be done and Meralco should refund consumers.

When Meralco unilaterally raised its charges without benefit of a public hearing, the ERC did not stand it its way. Again the Court ruled a refund.

When Meralco charged consumers a “deposit” for its electric meters, the ERC did not object. The consumers filed suit and, again, Meralco was ordered to refund.

After all the refunds were ordered, the ERC granted Meralco its leisurely schedule for compliance. There is nothing that could bring immediate relief to consumers paying exorbitant power costs than enforcing on Meralco prompt refund of charges that were deemed improper or outright illegal.

But the ERC would not do that.

When Meralco entered into what critics call “sweetheart deals” with Lopez-controlled First Power and First Gas, the ERC did not competently examine the deals. There are now issues raised regarding compliance with the letter, and the spirit, of the pro-competition power sector law.

But, of course, the ERC is silent on that.

On every noticeable issue consumers raised against Meralco, they had to seek judicial recourse. That is not the quickest way for seeking redress. The regulatory authority should have acted on behalf of the consumers.

The ERC should have consciously improved its regulatory capacity by recruiting experts in utilities economics. We see no evidence of that.

Because the ERC has not performed to par, the consumer action against Meralco has now been unfairly characterized as some sort of political vendetta. The less economically-literate have made strange noises about reversing the privatization strategy, putting potential investors in the sector in a quandary.

The whole thing has now become a complete mess.