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The Philippine electricity market: MONOPOLY AND
COMPETITION
ENERGY is development, and that includes electricity. It
is not possible for an economy to grow fast and have sustainable development if
its power supply and distribution are unstable and costly. Thus, having
sufficient, stable, and affordable electricity is a necessary though not
sufficient condition for economic development.
The Philippines remains to have among the most expensive
electricity prices in Asia. Here are data with some breakdown also shown,
including the cost of power generation, cost of grid/transmission, and value
added tax (VAT) or gross sales tax (GST). Of the 14 major cities in North and
Southeast Asia plus Australia and New Zealand listed below, Manila has the 3rd
most expensive electricity prices -- 3rd in overall residential tariff, 3rd in
generation cost, 3rd in grid charges, and 3rd in tax rates.
Some reasons why other Asian cities and countries have
lower electricity prices than the Philippines are as follows:
One, their government subsidizes electricity while the
Philippine government imposes multiple taxes, royalties, and fees on power. The
VAT rates are shown above, and royalties alone for Malampaya natural gas are as
high as P1.45/kWh, and this is ultimately passed on to the consumers.
Two, Philippines power generation capacity is low, with
total primary energy supply (TPES) in 2012 for instance only 0.44 tons of oil
equivalent (toe) per person per year. Indonesia has twice, Thailand has four
times, Malaysia has six times, and Singapore has 11 times that amount.
So with these two factors -- high electricity prices and
low power gen. -- average electricity consumption is also low, only 668
kWh per person per year in 2012.
SUSPICIONS
The Philippine power and electricity sector is
characterized by a mixture of competition and monopolies. Power generation is
generally competitive with many generation companies (gencos) slugging at each
other. Power transmission is a national monopoly via the National Gird
Corporation of the Philippines (NGCP). And electricity distribution is reserved
to geographical monopolies, mainly the 120 electric cooperatives (ECs)
nationwide, the biggest of which, Manila Electric Company (Meralco), accounts
for about 75 percent of total electricity sales in Luzon and about 55 percent
nationwide.
The issue of high electricity prices in the country has
resurfaced once again but in a different angle. In current practices, the
various ECs and distribution utilities (DUs) have bilateral contracts with
different gencos, and such bilateral arrangement is sometimes suspected of
being “sweetheart deals,” wherein both the gencos and DUs benefit to the
disadvantage of the consumers.
To address this concern, the Department of Energy (DoE),
on the watch of then secretary Carlos Jericho L. Petilla, issued Circular No.
DC2015-06-0008, “Mandating All Distribution Utilities to Undergo Competitive
Selection Process (CSP) in Securing Power Supply Agreements (PSA).” The order
was dated June 11, 2015, or about two weeks before Mr. Petilla’s resignation.
The general principles behind this circular are to (a)
increase transparency in the procurement process, (b) promote and instill
competition in the procurement and supply of electric power to end-users, (c)
ascertain least-cost outcomes, and (d) protect public interest.
Entities that will be covered are ECs, private investment-owned
distribution utilities (PIOUs), multipurpose cooperatives, entities within
economic zones, and other authorized entities engaged in the distribution of
electricity.
Aside from suspicions of “sweetheart deals,” some DUs and
ECs have their own gencos. Cross-ownership of DUs and gencos is allowed in the
Electric Power Industry Reform Act (EPIRA) of 2001. Two examples here.
One is Meralco, whose wholly owned subsidiary, Meralco
PowerGen Corp. (MGen), is targeting a portfolio of 3,000 MW by 2020. MGen is
planning or constructing two other big power plants, the 1,200-MW Atimonan,
Quezon, coal plant, and the 500-MW San Buenaventura, Quezon, coal plant, both
slated for 2018. Another consortium, the Redondo Peninsula Energy, Inc., is
slated to open its $1.2-billion, 600-MW coal power plant in Subic in 2018.
Two are the three DUs of Aboitiz Power -- Visayan
Electric Co., Subic Enerzone Lima Enerzone, and Davao Light.
TAXES, MONOPOLIES
By forcing the ECs and DUs to undergo competitive bidding
for their power supply contracts, the DOE hopes to break or minimize the
practice, or at least minimize suspicions, of price-rigging.
This is definitely a welcome move for independent power
producers (IPPs) which have little or no cross-ownership and control with ECs
and DUs. They will have a fairer and level playing field in getting supply
contracts. But while the goal is laudable, the circular will be unable to
address other problems and contributors to expensive electricity in the
country. Among these are the following.
1. High and multiple taxes, royalties, and fees imposed
on natural gas and other energy sources and on electricity
generation/transmission/distribution businesses.
2. Expensive electricity is also being imposed recently
by RA 9513 or the Renewable Energy (RE) Act of 2008, wherein wind, solar and
biomass are given guaranteed prices via feed in tariff (FIT) for 20 years.
3. Monopoly characteristic of ECs and DUs because
electricity distribution is considered a “public utility” and, hence, protected
by the Constitution and franchise laws. Abuse of power is a possibility that is
always second nature to any monopolist. This will require amending the
Constitution.
A compromise will have to be made, like having a
transition period to allow the maturity of existing power supply contracts.
The long-term measures to address structural problems
that lead to expensive electricity is to limit government intervention, to step
back. Like amending the tax code to reduce or abolish certain taxes on energy,
amending the RE law to abolish the FIT provision, and amending the Constitution
to remove economic protectionism.
Bienvenido S.
Oplas, Jr. heads a free-market think tank, Minimal Government Thinkers, Inc.,
and is a fellow of the South East Asia Network for Development (SEANET).
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See also:
BWorld 11, China's stockmarket and central planning, July 18, 2015
BWorld 12, Investments, APEC and economic liberalization, July 25, 2015
BWorld 13, SONA's liberalism, five years after, July 28, 2015
BWorld 14, OFWs, MERS-CoV and the DFA, August 08, 2015
Energy Econ 39, the UPSE-Ayala forum on the PH power sector, July 25, 2015
Energy Econ 40, DOE Circular No. DC2015-06-0008, August 03, 2015
Energy Econ 39, the UPSE-Ayala forum on the PH power sector, July 25, 2015
Energy Econ 40, DOE Circular No. DC2015-06-0008, August 03, 2015
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