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Afterthoughts

Emergency powers? It depends…

/ 03:14 AM October 03, 2014

Everyone knew the power crunch was coming, and that it would be big: a deficit of at least 300 MW in the Luzon grid by the summer of 2015. Thus, hardly anyone was surprised when President Aquino’s invoked Section 71 of the Electric Power Industry Reform Act (Epira), which states that the chief executive, “upon determination of a shortage of supply of electricity, may ask Congress for authority through a joint resolution, to establish additional generating capacity under such terms and conditions as it may approve.”

 

Responses to Malacanang’s request

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There have been different reactions, however, to the presidential initiative. For some, the president’s request brought up the bad memories of the lopsided contracts the administration of then President Fidel Ramos made with independent power producers (IPPs) in the 1990’s, which nearly bankrupted government while delivering expensive electricity to consumers.

Big business has had varied responses. Some have been salivating at the prospect of renting or selling generating sets or “gensets” to the government, which estimates it will be spending some P6 billion. Some, while not totally opposed to the presidential request, have articulated their preference for the so-called ILP or “Interruptible Load Program,” wherein participating companies with private generating sets are compensated for their fuel and other costs so as to release power from the grid that they would otherwise consume to other users.

Still others, like the Philippine Chamber of Commerce and Industry and the Makati Business Club, as Rappler has pointed out, have opposed the grant of emergency powers altogether, worried that this might mean government coming back into power generation from which it had been banned by Epira.

 

Failure of privatization

To an increasing number of people, the presidential request makes sense not only as a means to address a temporary shortfall but to restructure a strategic industry that has been thoroughly dislocated by indiscriminate privatization. Epira, which was passed in 2001, promised greater efficiency, lower prices, and more competition. Instead, it has delivered shortages, skyrocketing rates, and oligopoly.

Its most obvious sign of failure is that the price of power in the Philippines is now among the highest in Asia if not the world.

Not only has Epira failed to get the private sector to meet the escalating energy demand; it has delivered the public to the tender mercies of an energy cartel. The most brazen corporate offspring of Epira is Meralco.

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This distribution utility, which is controlled by the Indonesian Salim Group, controls 70 per cent of power distribution in Luzon. Under the system of “Performance Based Regulation” (PBR) established under Epira, Meralco’s profits saw its profits jump by 55 per cent between 2003 and 2010. In 2013, it raked in profits of P17.5 billion, a figure that was about 7 per cent higher than in 2012.

Yet Meralco’s greed was not slaked. It conspired with its power suppliers to take advantage of the maintenance shutdown of the Malampaya natural gas facility late in 2013 to restrict supply, providing it with the excuse to raise its price to consumers by 4.15 pesos per kilowatt hour—the highest increase in the utility’s history. The public, however, could not take it anymore, and widespread outrage led to a Supreme Court TRO on the rate rise.

No…and yes

It is against this background of failure and abuse that the president’s request for emergency powers must be evaluated. If it is simply to meet a looming power deficit, after which government again leaves energy generation to the private sector, then it is ill-advised, for this will simply invite the recurrence of the supply crisis in the future and fail to address the equally serious problem of price gouging. If, however, the grant of emergency powers is designed as the first step in a process of regaining an active role for government in the generation, transmission, and distribution of power, then it is a positive move.

Reforming the power sector will necessitate a number of measures. Among the most important would be the following:

First, government must avoid entering into supply contracts with private providers since these are prone to abusive terms like take-or-pay provisions that bind it to purchase excess power. It should not rent power generators or “gensets” but purchase them, and it must keep them under government ownership and control rather than privatizing them once the emergency has passed, as some corporate spokesmen have suggested.

Second, privatization of the remaining assets of the National Power Corporation (NPC) such as the Agus-Pulangui hydrodam complex must be halted immediately.

Third, the Department of Energy (DOE) must cease relying on forecasts of energy supply and demand of private sector players like Meralco and come up with its own independent estimates and use these as a basis for short, medium, and long-term energy planning.

Fourth, planning must be a participatory process that involves not only government and private industry actors but also academic specialists, consumer groups, small business associations, labor unions, electric power cooperatives, and other civil society stakeholders. Power supply and rates, after all, have a massive impact on nearly everyone.

Fifth, planning must focus on setting up a network of government-owned power facilities with the energy mix skewed towards renewable energy, in line with the Renewable Energy Act of 2008. The government must, in other words, shift from relying on greenhouse gas-intensive coal-fired plants to phasing them out in the interest of the environment and public health.

Sixth, the government must push the National Grid Corporation of the Philippines (NGCP) to speed up technology transfer from Chinese to Filipino operators. This would be the first step in a process of renationalizing our transmission system. Our country has a serious territorial dispute with the People’s Republic of China in the West Philippine Sea, and it is unacceptable from the perspective of national security that our transmission grid is in the hands of Beijing’s State Grid Corporation of China, which has a 40 per cent in NGCP.

Seventh, the Energy Regulatory Commission (ERC) must be drastically reformed to be able to aggressively perform its role of regulating industry players like Meralco, and a first step in this process is replacing its current chair, Zenaida Ducut, who has allowed the commission to be captured by private interests.

Learning from the Ducut fiasco, a process must be institutionalized that would allow consumer groups and other stakeholders aside from government and private industrial interests to play a role in the selection and replacement of ERC commissioners.

Beyond this, ERC must phase out “performance based regulation” (PBR), which places profit as the centerpiece of price determination, and adopt a system a public interest-based system that places a cap on the commercial price of power. The ERC must also end the indexation of locally produced natural gas and geothermal steam to international oil and coal prices, respectively. Indexation has artificially inflated the price of power from these sources, to the detriment of consumers.

Crisis into opportunity

This seven-point program can be implemented only if Epira is repealed for it presumes a pro-active government that this obsolete law sought to eliminate. Thus the grant of emergency powers to the president must only be the first step of a process that must end in the thorough legislative overhaul of a now dysfunctional power sector.

Moreover, not only must the new legal framework for energy bring government back into the power sector as an active player; it must also eliminate those provisions of Epira—such as the cross-ownership provision allowing power generators and distributors to be owned by the same interests—that have promoted cartelization of the energy sector.

Replacing Epira at the same time that it passes a Fair Competition Bill that would give the state stronger powers to dismantle oligopolies and conglomerates would go a long way towards creating an even playing field for our long-suffering consumers. In short, Congress must translate the power crisis into opportunity.

*INQUIRER.net columnist Walden Bello represents Akbayan in the House of Representatives.

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TAGS: Benigno Aquino III, congress, Electric Power Industry Reform Act, Epira, FVR, independent power producers, IPPs, Makati Business Club, Meralco, Philippine Chamber of Commerce and Industry, President Aquino, President Fidel Ramos
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