MANILA, Philippines – Anti-privatization group Freedom from Debt Coalition (FDC) today expressed dismay over the awful performance of the state-owned Power Sector Assets and Liabilities Management Corporation (PSALM) for contributing the most in the energy sector’s total debt which has now ballooned to almost P1 trillion from P807.8 billion before the implementation of the Electric Power Industry Reform Act (EPIRA) in 2001.

FDC also asked lawmakers who are members of the Joint Congressional Power Commission (JCPC) to pressure the executive department to review and renegotiate onerous supply contracts entered into by the National Power Corporation (NPC) with local and foreign independent power producers (IPPs). These IPP contracts remain the biggest reason why the country has the highest electricity price in Asia.

Ricardo Reyes, FDC president, said that the statements of Energy Secretary Rene D. Almendras and PSALM President and Chief Executive Officer Emmanuel R. Ledesma Jr. “reveal the energy officials’ callous disregard for the economic difficulties of the times as well as their serious lack of capacity to find solutions to the ballooning power sector debts.”

Ledesma earlier denied that PSALM ever committed to the House Energy Committee to withdraw its new applications with the Energy Regulatory Commission (ERC).  Instead, he claimed that what PSALM said was that it would extensively study the implications of the proposals coming from the House, including the review of the NPC-IPP contracts.

Almendras, this week, said that they are hoping to bring the energy sector’s total liabilities once the universal charges (UCs) of PSALM are approved.

This means that the energy officials are renewing their intentions to seek for the approval of their pending application to the Energy Regulatory Commission (ERC). PSALM, an attached agency of the Department of Energy, filed for P140 billion stranded costs recovery. If fully approved by the ERC, consumers will shoulder the additional burden of P0.39 per kilowatt-hour, in the UCs under the generation charge alone, for the next 15 years.

“PSALM’s about-face only shows that it never took seriously the House Energy Committee’s resolution to review the NPC-IPP contracts.  Such a review will most certainly affect its applications for a new power rate increase,” stressed Reyes.

PSALM is mandated under EPIRA or Republic Act No. 9136 to calculate the amount of stranded debt and stranded contract costs of NPC. EPIRA defines stranded debts as any unpaid financial obligation of NPC that has not been liquidated by the proceeds from the privatization of its assets. On the other hand, stranded contract costs are those excess contracted cost of electricity under eligible contracts over the actual selling price of the contracted energy output of these contracts in the market.

It can be recalled that on 11 October 2011, the day FDC led a nationwide “power-off” campaign to protest against the scandalously high electric power rates in the country and to call for a review and overhaul of EPIRA, the House Committee on Energy also conducted a public hearing where PSALM promised to withdraw its four petitions for increases in electricity rates.

During the hearing, the committee voted to ask Malacañang and concerned agencies to renegotiate 19 power supply contracts entered into by the Ramos administration with local and foreign IPPs. PSALM’s rate hike petitions include an amount that would be paid to IPPs.

According to the minutes of the hearing which focused on rationale behind the P0.39 per kWh filing for Universal Charge (UC) application:  “Thereupon, the Committee approved the motion of Rep. Roilo Golez to file a resolution re: PSALM Corporation to renegotiate/restructrure the IPP Contracts and the motion of Rep. Hermilando Mandanas to discontinue the current practice of passing on to consumers the burden of paying the UC.”

Former investment banker and Batangas Rep. Hermilando Mandanas also said that IPPs had already recouped their investments, and now make billions in profits since the Ramos administration.

PSALM’s Ferdinand Florendo said the agency will be guided by this collective sense of the House committee on energy for the withdrawal of the petitions.

It was also learned during the hearing that IPPs are supplying electricity at a much higher price than other power producers. The average cost of electricity supplied by IPPs is about P20 per kilowatt-hour, while other producers only charge P3 per kWh, according to the estimate of energy officials who attended the hearing.

“The difference between the price of electricity supplied by these IPPs and the price of electricity supplied by other power producers is P17 per kilowatt-hour. Sadly, PSALM wants us, the consumers, to pay the P17 per kWh difference in our monthly bills,” said FDC’s Reyes.     

Last year, FDC publicly supported and welcomed the move of House Deputy Speaker Lorenzo “Erin” R. Tañada III, asking “Congress and the executive department to convene an inter-agency, inter-branch, and multi-stakeholder process to discuss and decide whether consumers can afford a full pass-on of the PSALM debts and losses, and to look for other approaches in retiring the obligations of PSALM.”

As of end-2011, the total outstanding and contingent liabilities of the energy sector amounted to P915.19 billion, with PSALM contributing P767.08-billion liabilities or 83.8 percent. This amount is comprised of 744.63 billion outstanding liabilities and P22.45 billion contingent liabilities. This is despite the concluded sale of 25 out of 31 generation assets and the transmission grid of the government.

The privatized National Transmission Corporation (TransCo) shared a total debt of P98.48 billion or 10.8 percent, while the National Power Corporation contributed a total debt of P49.63 billion or 5.4 percent.

“PSALM argues that if the ERC will junk its universal charge applications, their only option would be to secure more borrowings. Of course, this will increase the energy sector’s debt. And, if their debt increases, definitely they will file another rate hike petitions in order pay this debt. It’s a vicious cycle. The government must end this cycle and address the roots of the problems – these onerous IPP contracts and the EPIRA itself,” said Reyes. -30-

FDC Chapters