* My article in BusinessWorld the other day.
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“Adam Smith said people who intend only to seek their own
benefit are ‘led by an invisible hand to serve a public interest which was no
part of their intention. I say that there is a reverse invisible hand: People
who intend to serve only the public interest are led by an invisible hand to
serve private interests which was no part of their intention.”
— Milton Friedman, “Why Government is the Problem”,
Essays in Public Policy, no. 39. Stanford, California: Hoover Institution Press, 1993.
Government populism is the trick of demonizing big
corporations so that it can impose new sets of interventions, regulations,
prohibitions, price control, and even engineer corporate takeover by crony
firms. This is happening in the country’s water and power or electricity sector
now.
HARASSMENT OF WATER CONCESSIONAIRES
When Maynilad Water and Manila Water went to the
Permanent Court of Arbitration (PCA) in Singapore to seek damages when the
Philippine government did not allow price adjustments in 2013–2017, i.e., water
price control, the two firms won. PCA ruled that the government should pay
Manila Water P7.4 billion, Maynilad Water P3.4 billion.
From there, President Rodrigo Duterte lambasted the two
companies daily. Then Congressional hearings and harassment, new contracts
drafted by the DOJ, then MWSS officially cancelled the concession extension to
2037. The two firms that earlier signified that they will no longer collect the
penalty from government can stay only until end-2022, after which new private
concessionaires will be named by the administration before its term ends by
June 2022. Very likely only crony firms will be entertained.
The two firms made good performance actually (see table
1).
For improving and raising water delivery to households,
for saving poor families from buying expensive water from water trucks, for
expanding sewerage and water treatment services, they are now demonized and
penalized. At P30 to P35 per cubic meter tariff, five drums of water, that is
not expensive. The P30–40 for one liter of bottled water is expensive, but
people do not complain.
POWER PRICE CONTROL
Recently the Energy Regulatory Commission (ERC) drafted a
new order that will further bring down the secondary price cap or second-layer
price control at the Wholesale Electricity Spot Market (WESM) from P6.24/kWh to
P4.50/kWh.
When this will be implemented, consumers will suffer,
rich and poor, residential and commercial, industrial. They will suffer from
more yellow-red alerts during the hot months of March to June, planned or
actual rotating blackouts and darkness.
Why? Because no one has been investing in peaking plants,
power plants that run only during peak hours in high-demand months.
In 2018, Luzon grid had 16.55 GW of installed capacity
with total electricity generation of 72.73 terawatt-hours (TWH). I constructed
a separate table where I computed the implied capacity factor (ICF =
Generation/(installed capacity x 24 hours x 365 days)) and implied available
capacity (IAC = capacity factor x installed capacity). For brevity purposes, I
summarize the ICF as follows: oil-based 90%, natural gas 70%, coal 68%, biomass
64%, geothermal 51%, wind 32%, hydro 27%, solar 16%. The IAC was 11.23 GW.
New capacity additions in the Luzon grid, committed
projects are as follows: 2019, 874 MW (800 coal, 74 biomass and hydro); 2020,
1,363 MW (1,336 coal, 12.6 hydro); 2021, 1,253 MW (600 coal, 650 gas, 3 hydro);
2022, 31 MW geothermal.
See — not a single plant, not even 1 MW of oil-based
peaking plant to address demand spikes during rush hours. This is dangerous.
I made power reserves projections to 2023. The peak
demand from 2015-2018 was rising by 5.7% a year on average; for 2019–2023, a 5%
annual increase due to GDP growth deceleration recently is made. And assuming
an average capacity factor (CF) of 85% for new plants in 2019–2021 (mostly
coal) and 65% for a new geothermal plant, we can derive the projected reserves
(see table 2).
Even without new power price control via lower secondary
price cap, Luzon grid is already in danger due to low reserves margin,
especially by 2022–23. Add forced outages and unscheduled shutdowns due to many
old and ageing conventional plants and intermittent energy from renewables, the
risk of blackouts go up. Yellow-red alerts will surely be back in 2020 and
beyond.
The ERC should not proceed with the planned new power
price control. In fact they — ERC, DOE, IEMOP — should lift and abolish price
control, at least the secondary price cap. Attract investors in peaking plants
and avoid the risks of blackouts.
And this water politics and harassment by the Duterte
administration, the arbitrary change of rules midway, is bad news for foreign
investments. Lack of rule of law, disrespect of contracts, bad.
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