Illuminating growth

The provision of electricity to industries, commercial establishments and households fuels economic growth. And the socioeconomic benefits are manifold and facilitate a wide range of activities pertinent to productivity, health, education, entertainment, social communication, and commercial transactions. These benefits also involve the provision of comfort, protection, and convenience.

For this month, these benefits were manifest in view of the decrease in electricity rates equivalent to P0.5436 per kilowatt hour. The rate for May is P10.0041 per kWh, compared to April’s P10.5477 per kWh. For households consuming 200 kWh, this translates to a decrease of around P109 in their bill.

Based on reports, the reduced rate is mainly due to the decrease of P0.4212 per kWh in generation charge. From P5.4735 per kWh in April, the generation charge for May is P5.0523 per kWh. This is accompanied by a reduction of P1.0139 per kWh in the charges in the WESM (or wholesale electricity spot market). Moreover, there is also a decrease in the cost of power from independent power producers amounting to P0.5920 per kWh, thanks to Quezon Power’s return to normal operations from its scheduled maintenance break.

In 1996, the cost of Philippine electricity (P3.61 per kWh) was the most expensive in the region, compared to the rates in Hong Kong, Taiwan, Singapore, Korea, Malaysia, or Thailand. Last year, the price of electricity for industries, commercial establishments and households were P5.84 per kWh, P7.49 per kWh, and P8.90 per kWh, respectively.

According to the Australia-based International Energy Consultants (IEC), it was during this year when the rates of Manila Electric Co. (Meralco) improved the price of Philippine electricity to being the third highest in Asia (from second), fourth in the Asia-Pacific, and 16th worldwide. The IEC also mentioned that excluding taxes, Meralco’s average rates declined by 28 percent from January 2012 to January 2016 — a significant difference in comparison with the average decline of 19 percent across 44 countries covered by the survey.

If the drivers of electricity prices are the costs of fuel (i.e., coal, oil, and natural gas) in the international market, which are beyond the control of domestic affairs, the government through its regulatory body should take steps to resolve the problem of soaring power costs.

According to the latest report of the Department of Energy (2017), subsidies and transparency are the solutions to the problem. On one hand, subsidies are necessary “to levy the power sector in all levels including taxes, fees and miscellaneous charges.” On the other hand, transparency could ensure “more unbundling of items in the energy supply chain.”

In effect, transparency and subsidies would be the key to making the electricity market more competitive while providing more choices for consumers. This, according to Patalinghug (2003), is a prerequisite before introducing competition at the wholesale and retail markets.

The problem of rising electricity prices, hence, poses two political challenges to the Duterte administration. The first challenge is the need for a strong and independent regulatory body. The administration should be able to craft price-based schemes and incentive-based regulations, promote free market competition to attract sufficient private investments to meet demand in the long run, and provide reliable supply to consumers.

The second challenge is the need for a national power program to support industrialization goals and the promise of inclusive economic growth. Without quality and reasonable electricity, how can the administration carry out and sustain its industrialization program?

While a decrease in electricity costs is a step toward achieving development, solving the problem of rising power prices is a long-term responsibility and becomes a barometer of the Duterte administration’s commitment to industrialization and inclusive growth.

* * *

Dindo Manhit is founder and managing director of Stratbase Group.