28 October 2005
Like the evil in many a fairy tale, Gloria M. Arroyo is currently the biggest villain in the lives of Filipinos. And one of the curses she has dealt us is this never-ending rise in electricity prices.
Next month, electricity consumers will have to face new series of rates increases as a result of Arroyo's lopsided economic policies and flawed priorities - private over public interest. At the minimum, a total of about P1.50/kwh increase in power rates could be experienced by electricity consumers in November due to GMA's doings. This amount is comprised of the following: imposition of VAT on power (P0.60/kwh), removal of interclass cross subsidy as mandated by EPIRA (P0.21/kwh for residential customers of Meralco), and government's continuous protection to the independent power producers from market risks such as fuel price increases wherein Napocor bears the impact of this and passes this on to the consumers through GRAM (P0.45/kwh) and ICERA (P0.25/kwh for Luzon and P0.0138 for Mindanao) due to exchange rate guarantees in the IPP contracts.
VAT on Power - Residential consumers to be hit most ( 50-70 centavos)
The imposition of Expanded Value Added Tax (EVAT) on the generation, distribution, and transmission of power will result in an average increase of 50 to 70 centavos per kilowatthour (kwh). If VAT will be implemented beginning November, this could bring power rates to P8.20/kwh. Households in Meralco franchise areas consuming 201 to 300 kwh - monthly electricity consumption of ordinary households - are already paying about P7.60/kwh these days. Almost twenty percent of their income goes to payment of electricity.
Revenues from EVAT will only go to servicing debts, a number of which were due to onerous and illegitimate transactions with the private sector such as the Napocor contracts with the IPPs.
Even the minutes of Senate Energy Committee's hearing last 11 October 2005 show that residential consumers will be hit most by VAT on power. The industrial and commercial consumers can pass on the cost to the buyers of their products and services. Even then, the business community is also complaining against high power rates.
Interclass Cross Subsidy Removal as mandated by EPIRA (42-centavos)
Early this October, ERC issued an order whereby residential consumers will have to pay additional 42-centavos per kwh beginning November due to the removal of interclass subsidy, as provided for by the power privatization law. Those consuming 101 to 300 kwh will see a rise in their monthly electric bills by P15.15 to P45. The amount of increase may be considered negligible by others, but for those whose every centavo count, a P15-increase a month could be equivalent to two instant noodles while two kilos of rice could be sacrificed if the P45- additional monthly electricity charge will be collected.
Last 26 October, however, ERC issued an order to stagger the collection of 42-centavos. Only 50% of which will be collected in November, while the remaining 50% will be collected at a later period.
Continuing oil price increases - IPP risks absorbed by the consumers through the contracts
Another 45-centavo average increase will be experienced by electricity consumers especially those whose entire power supply come from Napocor, if the Energy Regulatory Commission (ERC) approves the 5th petition of Napocor for its recovery of fuel and purchased power costs arising from contracts with IPPs through the Generation Rate Adjustment Mechanism (GRAM). The Application was filed on September 8, and from that date ERC is given 75 days to make a decision - thus ERC is expected to decide on it on or before November 23.
Consumers continue to suffer from the onerous terms of these contracts with the IPPs. The fuel cost guarantee that protects IPPs from the impact of fuel prices increases is a burden to the consumers. The profitability of the IPP is unaffected by increases in the cost of fuel. This kind of guarantee does not appear in provisions of IPP contracts in other countries. In its Philippine power sector study the World Bank notes that "[a] particular feature of these [IPP] ontracts, not used in other countries, is that the fuel is provided and paid by NPC (at established efficiency rates set in each contract). The assumption of this risk by NPC may partially explain why so many contracts have been signed and are in operation, many times larger than in any other country."
Despite the findings of its own review committee of onerous and questionable provisions, the Arroyo Administration has refused to take steps to change these provisions in the IPP contracts. The earlier claims of US$1 billion in savings from the so-called renegotiations has not been felt, the amount is also a drop in the bucket compared to the IPPs profits. So-called renegotiations have not led to changes in the onerous provisions.
FDC no longer expects this Administration to right the wrongs it has done. No less than the removal of the President and a radical change in government is needed to free us from the curses of Arroyo's policies.