Power generation in the Philippines generally kept up
with its ASEAN neighbors in the 1980s up to the early 1990s. By 2000, power
capacity in many of our neighbors have doubled or tripled while the
Philippines’ has less than doubled. By 2010, Indonesia, Thailand, Malaysia, and
Vietnam have kept doubling or tripling their power generation levels in just
one decade while the Philippines’ has expanded by only 50%.
The figures for China and South Korea are similar,
doubling or tripling power capacity every decade. It is not possible to sustain
high economic growth without high and stable electricity supply for households
and companies.
High power production means high or fast growth in power
consumption per capita. Or the reverse, slow power capacity expansion means low
consumption per capita, and this is what happened in the Philippines. Until
2000, our per capita consumption was higher than Indonesia and Vietnam, and
only one-third that of Thailand. By 2010, things turned around: ours were lower
than those in Indonesia and Vietnam and only one-fourth of Thailand. Cambodia
is catching up with four times expansion of power capacity in just one decade
from 2000 to 2010.
Note that the Electric Power Industry Reform Act (EPIRA)
was enacted in 2001. The law has deregulated and demonopolized power generation
where before, Napocor was the single power producer and owner of power
transmission nationwide.
So has EPIRA restricted power generation or has the law
saved the industry from atrophy? Based on previous columns on the energy
sector, various government bureaucracies, local and national, are major
contributors to a soured business climate in power generation. Securing nearly
200 different permits and signatures from different agencies over a period of
2-5 years before one can start real power plant construction is no joke.
Power generation companies (gencos) secure bilateral
supply contracts with different distribution utilities (DUs) and electric
cooperatives (ECs). DUs and ECs are considered as “utilities” and hence, are
described as natural monopolies. Zero competition allowed, they just need to
secure a Congressional franchise for 25 years, an arrangement that can be renewed.
Outside the contracted power, gencos have extra capacity
to produce and sell. DUs too need extra capacity during peak hours on weekdays,
or during the hot months of March to May, during fiesta season in many cities
and municipalities, and so on.
For such uncontracted power, both gencos and DUs go to
the Wholesale Electricity Spot Market (WESM) to buy and sell electricity. The
lead time for spot pricing is not one week or one day but only few hours before
electricity supply need to be expanded or curtailed.
WESM is governed and administered by the Philippine
Electricity Market Corporation (PEMC). It is a weird body because EPIRA of 2001
says there should be an Independent Market Operator (IMO) that should
administer WESM, but PEMC has become a bloated government bureaucracy
pretending to be a private bureaucracy.
PEMC Board is a 16-man body chaired by the Department of
energy (DoE) Secretary plus 15 Directors: 4 from gencos (2 from government,
PSALM and NPC, and 2 private), 4 from DUs (2 from ECs and 2 non-ECs), 4
independent of the power industry, 1 from WESM customers including suppliers, 1
from the National Grid Corporation of the Philippines (NGCP) representing the
system operator and Transco, and 1 from market operator represented by PEMC
itself.
I was able to secure the transcript of three Committee
hearings of the Senate Committee on Energy (October and December 2015, and
January 2016) headed by Sen. Serge Osmeña, thanks to his staff Vina.
From those transcripts and related readings, I gather these
eight questionable or weird things in the PEMC Board and WESM.
First, PEMC is supposed to be an IMO yet there are
several government officials sitting on its Board, including the DoE Secretary
and representatives from the Power Sector Assets and Liabilities Management
Corporation (PSALM) and the National Power Corporation (NPC). The NGCP is a
private corporation but it is representing a government corporation, Transco.
Then there are advisers to the Board, two of whom are from government, a DoE
Undersecretary and the National Electrification Administration (NEA).
Second, the actual power production of PSALM and NPC are
small, almost negligible from the genco mix of Meralco for instance, yet they
are almost permanent members of the Board.
Third, those 4 independent directors and the consumer
representative (5 total) are all appointed by the DoE Secretary and hence,
should be friendly to the government.
Fourth, PEMC is regulated by the Energy Regulatory
Commission (ERC) which is under the administrative control of the DoE
Secretary. So the Secretary heads an agency that is regulated by a government
body that is under the Office of the Secretary.
Fifth, all the income of PEMC and WESM is collected from
the gencos, especially private gencos, and the private gencos have only two
seats. No collection from DUs, from independent Directors, from consumers, from
system operator and market operator. The ERC and DoE get a certain percentage
from the total WESM revenues.
Sixth, PEMC is pretending to be a private corporation
when in reality it is a government-owned and controlled corporation (GOCC). By
virtue of its being DoE Secretary-controlled, the presence of several
government corporations and agencies in the Board, it is a government-owned
bureaucracy pretending to be a private bureaucracy.
Seventh, being a GOCC pretending to be a private
corporation, part of its collections or revenues are being used by the DoE and
ERC for their respective regulatory and policy formulation functions. PEMC
budget is also approved by the ERC, then PEMC should be audited by the
Commission on Audit but currently, private auditing firms do the job.
And eighth, gencos pay for all the market fees at WESM
and they are subject to price control via primary and secondary price caps.
Their peaking plants need to charge higher on those few hours they run to
compensate for many hours a day that they are not running and still make a
profit, and pay more market fees yet they are restricted from doing this via
price control.
So if you are a genco and you are subject to these kinds
of policy distortions and bureaucratic interventions at WESM -- and paying for
all of it -- that creates another layer of disincentive to do business.
And that will further put some brakes on an otherwise
huge demand for fast and high generation capacity so we can catch up with our neighbors
like Vietnam and Indonesia. In this age of ASEAN economic integration,
energy-intensive sectors can put up their manufacturing companies in
cheaper-energy countries like Indonesia, Vietnam, Cambodia, and Thailand, then
export to the Philippines at zero tariff. Also, energy-intensive services like
hotels (lights, aircon and elevators running 24/7) and tourism can expand
faster in cheaper-energy countries than in expensive-energy countries like the
Philippines.
We need less government interventions and distortions in
the energy sector. It is among the important prerequisites for the Philippines
to grow faster and create more jobs and businesses to the people.
Bienvenido S. Oplas, Jr. is the head of Minimal
Government Thinkers, a Fellow of the South East Asia Network for Development
(SEANET), and a member of the Economic Freedom Network (EFN) Asia. All three
entities support the philosophy of classical liberalism in politics and
economics.
minimalgovernment@gmail.com
See also:
BWorld 34, Solar power and supply instability, December 24, 2015
BWorld 39, Coal and renewables complement each other, January 26, 2016
BWorld 43, More on WESM, PEMC and DOE, February 14, 2016
BWorld 47, Renewable energy and the illusion of merit order effect, March 06, 2016BWorld 49, John Locke and Jovito Salonga, March 18, 2016
BWorld 50, Adam Smith and Jovito Salonga, March 21, 2016
