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THIS is a continuation of an earlier discussion, “The
Philippine electricity market: Monopoly and competition” (Weekender, August
14).
As noted in that article, Carlos Jericho L. Petilla had
issued, before he resigned as energy secretary last June, DoE Circular No.
DC2015-06-0008, “Mandating All Distribution Utilities to Undergo Competitive
Selection Process (CSP) in Securing Power Supply Agreements (PSA).” That order
aims to address, among other things, the suspicion of “sweetheart deals”
between some big electric cooperatives (ECs) and distribution utilities (DUs),
on the one hand, and the generating companies (gencos), on the other, resulting
in expensive electricity prices in the Philippines.
Here is another data, a bit old, from a 2013 commissioned
study by the US Agency for International Development (USAID). The first set
shows the actual prices including taxes (in Philippines and Singapore) and
subsidies (Thailand, Malaysia, and Indonesia), and the second set, adjusted
prices if taxes and subsidies were minimized, next to zero.
The USAID report explained why the adjustment was done:
“Several factors may explain these wide differences. One is tax: effectively 9%
in the Philippines, as opposed to 6% in Malaysia and 7% in Singapore and
Thailand, albeit 10% in Indonesia. But the bigger contributor to the price
differences is the implicit subsidies to state-owned utilities. The International
Energy Agency (IEA) estimated that the electricity subsidies in 2011 in
Indonesia, Malaysia, and Thailand were at least 5.56, 0.94, and 5.67 billion US
dollars, respectively....”
Thus, most if not all comparative electricity prices are
based on artificial pricing. People blame gencos or the big DUs but not
governments which intervene a lot in electricity pricing, resulting in either
very high or very low prices.
The DOE Circular was the subject of discussion in a forum
organized by the Energy Policy Development Program (EPDP) early this month.
There were six speakers, led by OIC-Secretary Zenaida Y. Monsada of the
Department of Energy (DoE), Director Mylene Capongcol also of the DoE, UP
School of Economics professors Raul Fabella and Ruperto Alonzo, UP College of
Engineering professor Rowaldo del Mundo, and Romeo Bernardo of LBT Consulting.
Mr. del Mundo is the lead technical adviser to the
Central Luzon Electric Cooperatives Association-First Luzon Aggregation Group
(CLECAFLAG) under the USAID COMPETE project. Twelve ECs in Central Luzon
aggregated their total power demand of 300 MW, auctioned it off, and contracted
for 20 years the winning supplier, won by GN Power (with expanded capacity of
1,200 MW in Bataan). In his presentation, Mr. del Mundo showed this table of
comparative electricity prices in the ASEAN.
By pounding on the need for demand aggregation by DUs as
shown in the CLECAFLAG experience, Mr. del Mundo concluded, “The mandatory CSP
is the only antidote to [the] EPIRA’s [Electric Power Industry Reform Act]
cross-ownership that will avoid temptation to parties with conflict of
objectives.”
There is a problem in this conclusion of supporting
mandatory or obligatory, instead of voluntary, CSP, based on specific
circumstances among DUs and gencos. For the following reasons:
One, as shown in Table 1, we have high electricity prices
because the government imposes many taxes on energy while other ASEAN countries
subsidize their energy consumption.
Two, Mr. Bernardo noted in his presentation that “Growing
pains from regulatory uncertainty, and contracting, approval, and construction
bottlenecks have delayed new plants. The average time it takes to build a
baseload power plant in the Philippines is probably double elsewhere. Just
getting approvals, coupled with overcoming NIMBY opponents, is an ordeal.” And
he showed this list of some 200 signatures and permits needed to put up one
baseload plant.
Four, there’s the big question of who are the “third
parties” that will be recognized by the DoE, the ERC, and the National
Electrification Administration (NEA) which will approve or disapprove the PSA
between the DUs and gencos. Will they work for free? Very unlikely. Rather, the
DOE and ERC will be forced to make extra budgetary requests to pay for these
“third parties” including allowances for their meetings and public
consultations.
It is also possible that NGOs, the media, and other
sectors actively or silently supporting the “Repeal/Abrogate EPIRA” movement
may position themselves as “third party” referees. The DoE circular is not
about repealing or tinkering with the EPIRA.
In short, the DoE circular is barking at the wrong tree:
By making the competitive bidding mandatory rather than voluntary, it will
invite or create more problems than what it intends to solve. The circular
should therefore be withdrawn. Or amended to make CSP voluntary, not mandatory.
The DoE and other government agencies should instead address other problems and
contributors to expensive electricity in the country. Like multiple taxes,
numerous permits by the Philippine government, from the barangay to
city/municipal, provincial, and national government offices and agencies.
Requiring a firm to present up to 200 different permits would expose it to 200
different opportunities of corruption and extortion.
Government should simply learn to step back from too much
intervention, regulation, and taxation.
Bienvenido S.
Oplas, Jr. is president of the free-market think tank Minimal Government
Thinkers, Inc., and a fellow of the South East Asia Network for Development
(SEANET).
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See also:
BWorld 13, SONA's liberalism, five years after, July 28, 2015
BWorld 14, OFWs, MERS-CoV and the DFA, August 08, 2015
BWorld 15, The PH electricity market, August 15, 2015
BWorld 16, Growth, capitalism and inequality, August 22, 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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