CSW

Just over a week ago, the Office of the Executive Secretary issued Memorandum Circular 72 strengthening the standards for complete staff work (CSW) as a requirement for all requests for presidential action. The officials of the Department of Health (DOH) ought to read this memo very closely.

CSW is a concept I first encountered when I did work for then President Fidel Ramos. When a recommendation was not fully studied and its consequences fully analyzed, Ramos scrawled “CSW” all over the front page in screaming red ink. The document is rudely returned to sender.

The new memo specifies that all proposals must have the following characteristics:

a) It must be evidence-based. All recommendations need to be based on information that is relevant, timely, accurate and validated.

b) All policy recommendations must be inclusive. They should reflect the positions of all concerned government agencies and stakeholders.

c) Any proposal must be holistic. The proposed solution should adopt a whole-of-government approach.

CSW assured coherence of policy across all agencies. It likewise protects the President from a badly thought-through recommendation.

A few weeks ago, the DOH spoke recklessly about imposing an excise tax on salty food. Not only was this an idea not thoroughly studied, the proponents also failed to consult with the Finance Department. In a matter of days, that proposal was abandoned.

Unrepentant, the DOH now comes up with a proposal to impose price controls on medicines. They did not consult with stakeholders before coming up with this proposal. Nor, it is clear, did they consult the research literature on the pitfalls of that policy.

A study done last year on China’s experience with price controls demonstrated the perils the policy. “Instead of augmenting affordability” this study concludes, “(the policy) led to distorted financial incentives which raised expenditures, rendering such policies ineffective.”

The study noted that while medicines targeted by price controls saw prices reduced by 15% to 20%, total drug expenditure steadily increase. The phenomenon is most dramatic in the case of antibiotics. While government was able to force down prices by as much as 47%, overall expenditure on antibiotics rose by 205.7%.

The major factor explaining this is the 15% mark up physicians are allowed to make on prescribed drugs. Given low pay for medical personnel, doctors supplemented their incomes by prescribing more medicines than necessary.

Many areas experienced shortages of medicines that were no longer profitable for producers to make. Patients who needed the medicines suffered.

Price controls likewise created problems regarding quality and reliability of medicines. They also resulted in the rise of monopolies and the death of competition.

In 2015, after a decade of price controls on medicines, China shifted back to the free market. We can learn much from this reversal of policy.

Build now

When summer comes in a few months, it might not only be dry. It could also be dark.

It will be dry because Angat Dam is not filling up and no new raw water sources are ready. It will be dark because not enough new power plants are ready to deliver even as red and yellow alerts have been issued with increasing frequency over the past months.

Demand for both water and electricity tends to rise faster than actual GDP growth. With rising incomes, people use more water. They purchase more consumer durables.

The singular good news on the power front is that a new power plant was switched on recently in Mauban, Quezon. This will help provide some relief to the Luzon grid that accounts for 72% of the country’s GDP. But the Mauban plant, with a rated capacity of 650 MW adds only 4% of the Luzon grid’s total capacity. Two-thirds of the plants supplying this grid may be considered old.

We need to build new plants now. No, we needed them yesterday to avert the peril of power rationing as the reserves thin.

Imagine the Mega Manila area, the economy’s main dynamo, running on rationed water and rationed power next year. The grand plans for a rapidly growing national economy will be for naught.

Apart from a normally sluggish bureaucracy, the effort to put the vital infra in place has been slowed even further by constant agitation from the leftist groups. The communist-directed protest industry opposes everything from the Kaliwa Dam project, to the jeepney modernization program, to adjustments in SSS contributions and even to Isko Moreno’s beautification program for Manila.

Leftist agitators from Bayan Muna are spreading disinformation that the forthcoming power supply bidding for Meralco’s distribution franchise will cause electricity prices to rise over the next two decades. There is no basis for that claim.

In the previous two bidding exercises, Meralco contracted power at substantially lower costs than existing supply arrangements. The next round of bidding for 1,200 MW of power supply from “greenfield” generation projects should follow that trend.

“Greenfield” projects are those that involve power plants that have yet to be built after supply contracts are secured. A portion of Meralco’s supply will be sourced from new projects precisely to encourage investment in technologically advanced and more economical power plants.

On the false assumption that there will be a “lone bidder” in the forthcoming bid, Bayan Muna is demanding the Department of Energy take control of the process and nullify the power distributor’s terms of reference – specifically the requirement for high efficiency and low emission plants.

At this point, no one really knows how many bidders there will be. What we know is that the process must be hastened.