MANILA, Philippines – The skyrocketing electricity price in the country is a result of a confluence of factors—from bad governance to corruption to mismanagement to rent-seeking to framework concerns, according to an advocacy group.

In a presentation before the Joint Congressional Power Commission (JCPC) at the Senate today, the Freedom from Debt Coalition lumped together these factors into three major defects in the policy, governance and structure, stressing that Meralco is not the only cause of the problem.

“To identify the problems on why we have the highest electricity rates in Asia, we should not just focus on the tree because we might forget the forest,” said FDC vice president Loretta Ann Rosales, who represented the group in the hearing.

Pointing out that inside the forest are many snakes, Rosales said the recent government actions to pin down Meralco and target the Lopezes, only serve to narrow the discourse to a simplistic formula: Electricity rates are high; for which MERALCO and the Lopezes are to blame.

The former Akbayan! Party-list representative said Meralco is no doubt an easy and guilty target. “But there are more reasons for electricity rates in the Philippines being the second highest in Asia and third in the world. And, the Arroyo government is equally to blame, if not more,” she said.

The group explained that, following the prescriptions of international financial institutions like the Asian Development Bank and the World Bank to achieve fiscal balance, the government embarked on privatization, liberalization and deregulation campaigns which led to the enactment of the Electric Power Industry Reform Act (EPIRA) and the imposition of 12 percent value-added tax (VAT) on power.

Flawed policies

In a position paper, entitled “10 Reason Why Electricity Bills Are High,” FDC said the flawed policies under EPIRA include:
  • Changing of the system of tariff setting which made Meralco, other distribution utilities (DUs) and the National Transmission Commission (Transco) to earn more than the statutory return on rate base (RORB) of 8-12 percent;
  • Having the electricity rates high in order to attract investors and for the NPC assets to be attractive;
  • Allowing cross-ownership of generation and distribution, thus allowing “sweetheart deals” between the independent power producers (IPPs) and DUs like that of Meralco and its sister companies; and,
  • Removing subsidies previously enjoyed by residential consumers.
On VAT, the group said that previously “zero-rated,” the power industry was seen by the Arroyo administration a good source of revenue, “without minding the consequence that raising its prices will translate to rising prices of other commodities.”

Bad governance

FDC pointed out that bad governance made the industry an easy prey to corporate abuse and manipulation, as well as a milking cow for a cash-strap government.

Included in the list FDC pointed out in its position paper are:
  • The failure of the government to renegotiate onerous IPP contracts which require NPC to purchase electricity whether or not these are actually generated or dispatched, and to supply fuel to IPPs that are in operation;
  • The unfair and unjust practices of industry players that the ERC is ineffectual to regulate, or may even condone. There had already been a number of times when Meralco was proven to have engaged in such unscrupulous practice, yet Meralco can and will probably engage in such practice because of the lack of fundamental action on the part of the ERC;
  • The weakness of the regulatory body to come up with just decisions has rendered the cost of electricity high. One such decision is the ERC's dismissal of the Power Sector Assets and Liabilities Management Corporation (PSALM) market abuse case alleged by the Philippine Electricity Market Corporation (PEMC), the operator of the Wholesale Electricity Spot Market (WESM), for “lack of sufficient evidence,” despite the detailed market data submitted by PEMC clearly showing that PSALM exercised its market power to raise the WESM spot price; and,
  • Corruption and mismanagement which consigned the heavy cost of the industry’s inefficiency to consumers. In NPC, for instance, corruption artificially inflates generation charges. This includes allegations of “overpricing” in the process of buying coal and oil supply for NPC-owned power plants and NPC-IPP’s.
FDC also cited as another example the P10-million “bonus” PSALM officials gave themselves because of the “successful” sale of Masinloc coal-fired power plant to YNN.

Structural defects

The group also said that high electricity prices breed inefficiencies, which further raise the cost of electricity.

“The power sector is inherently inefficient. Average capacity utilization of Transco’s transmission lines, according to an ADB report, is only at 12%. We are paying for the investment and loans incurred to set up a transmission grid and on the average, only 12% of the capacity is being utilized,” FDC said.

With regard to generation, dependable capacity in the Philippines amounted to 13,639MW at the end of 2006, but that same year, peak demand for electricity was only 8,760MW.

“We pay for capacity we don’t use, and this is such a heavy burden on consumers that we economize on our use of electricity even further. However, the less we consume of electricity, the more we have to pay of unused capacity. This is a vicious cycle similar to a debt trap. Industries cannot survive such a set-up. Poor consumers, even less so,” the group stressed.

FDC believes that these problems cannot be resolved fully without transforming the electricity industry into one that is more responsive and accountable to the people, and more environmentally sustainable.

In conclusion, FDC said it would greatly help the consumer for the government “to target specific rate-hiking factors and introduce immediate reforms, with the end-in-view of course, of more comprehensive changes sooner rather than later.” -30-

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