Legacy

With time quickly running out on his term, President Benigno Aquino III must be frantically scrounging around for a legacy to leave the nation.

That legacy could not possibly be closing the infra gap. Nothing happened there.

It could not possibly be the “centerpiece” PPP program. Nothing happened there too.

It could not be the BBL. That is dead in the water.

It could not be achieving rice self-sufficiency as he declared in his maiden SONA. That will never happen. Alcala pulled his leg.

It could not be the “600% increase in investments” he often cites. Nobody knows where he got that figure.

The last (and the best) thing he could do at this late stage is to endorse the Resolution of Both Houses No. 1 (RBH-1) initiated by Speaker Sonny Belmonte at the House and by Sen. Ralph Recto at the Senate. The resolution is up for final approval at the House and enjoys the support of most of the Senate.

RBH-1 is an imaginative solution to cure the curse of restrictive economic provisions in the 1987 Constitution. Those provisions stifle investment flows into our economy that might have produced jobs and reduced poverty.

Since we could not get ourselves to undertake the comprehensive task of constitutional renovation to achieve a Charter attuned to modern economic and political realities, the next best thing is to prevent the restrictive economic provisions that cripple our development. These provisions add to the factors causing us to have the smallest share of investment flows in the region.

RBH-1 seeks simply to insert a five-word phrase into the notorious economic provisions of the 1987 Constitution. That phrase would read: “unless otherwise provided by law.”

By inserting that phrase, we will be able to free our economic policies from the shackles of archaic constitutional provisions. It will alert the global investment community to the fact that Filipinos are seriously trying to go beyond 19th century economic dogma.   

RBH-1 is strongly supported by the domestic and international chambers of commerce, the business groups and associations of economists such as the Foundation for Economic Freedom. By endorsing this innovative approach to Charter renovation, Aquino will avoid a head-on collision with the Congress – where support for this initiative along with the initiative to update our crippling income tax rates is pretty solid.

Aquino should move closer to the mainstream thinking on both RBH-1 and the tax rates question. As in the case of RBH-1, tax rates renovation enjoys broad support at the Congress.

The best thing Aquino could do at this point is to convene the Legislative-Executive Development Advisory Council (LEDAC) and get things moving on these two issues.

Booby trap

Jericho Petilla is listed among the possible senatorial candidates of the LP – one of those who, after demonstrating incompetence at the executive branch, now seek voter support for a place in the legislative branch.

Before leaving his post at the Department of Energy, Petilla issued a policy that now appears to be a destructive booby trap. The policy imposes what is called a “competitive selection process” (CSP) where electric cooperatives (ECs) and distribution utilities (DUs) are made to procure power from the generating companies (gencos) through competitive bidding.

To the untrained eye, CSP might seem a good idea. In most cases, competitive bidding is good. But in the case of CSP, negotiating power is actually shifted to the gencos. It makes them even more capable of indulging in cartel-like behavior and skewing prices to produce massive profits.

Before CSP, the ECs and DUs were able to negotiate long-term power supply contracts with the gencos from a commanding position. Since negotiated long-term power supply contracts are awarded by the distributors, they could leverage the gencos to lower their prices in exchange for the certainty their generating capacity will be sold. The distributors (ECs and DUs) are keen on lower prices for a greater volume of sales.

By contrast, under CSP negotiating power shifts to the side of the gencos who stand to profit tremendously if they are able to force power prices up. We saw, from that mysterious spike in power prices that happened in the last quarter of 2013, how the power generating companies could connive to spike prices.

Under Petilla’s CSP regime, the power distributors have no leverage against any collusion among the generating companies. They could dictate the bid prices, where the apparently lowest price is still high. We see this regularly indulged in by contractor cartels bidding for public works project.

By contrast, we have the example of the long-term power supply contract sealed last week by 12 Central Luzon electric cooperatives with SMC Global Power Holdings Corp. The deal was for 300 megawatts of power over a 20-year period on an agreed benchmark rate of P3.20 per kWh.

Prior to this deal, the 12 electric cooperatives bought their power supply for P8 to P9 per kWh from various suppliers. Previously, the Central Luzon power coops were able to extract a 300 megawatt 20-year supply contract with GN Power Ltd. at a benchmark rate of P3.70 per kWh.

The Petilla-imposed CSP, because it removes the negotiating leverage of the power distributors, could result in an even more expensive power price regime. Higher generation charges will, of course, bring windfall profits for the gencos – which could be the very purpose of this policy.

The windfall profits will, of course, be borne by the consumers who enjoy no leverage at all against cartel-like behavior in the power industry. This is why we call the CSP a booby trap.