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Philippine Star

Ninety percent of “lifeline” electricity users in the National Capital Region (NCR) have already received their P500 power subsidy from the government, the Department of Social Welfare and Development (DSWD) reported yesterday.

Social Welfare Secretary Esperanza Cabral said as of yesterday, the DSWD has released more than P768 million to the Land Bank of the Philippines (LBP) for the one-time power subsidy of 972,163 consumers of the Manila Electric Co. (Meralco) in the NCR, Regions 3 and 4-A.

Lifeline users are households consuming less than 100 kilowatthours of electricity per month.

Cabral said LBP branches have served 90 percent or 525,301 lifeline users in NCR, close to 53 percent in Region 3, and 43 percent in Region 4-A.

Cabral said of the P2-billion allocated for Pantawid Kuryente: Katas ng VAT program, the DSWD has also released P989 million to the National Electrification Administration (NEA) and P200 million to the Private Electric Power Operators Association (PEPOA) for the subsidy payment.

Cabral said the NEA has issued more than 1.97 million credit memos to lifeline users worth more than P989 million.

“The lifeline users issued with credit memos consist of about 42 percent of the 4.7-million targeted lifeline users under electric cooperatives nationwide,” she said.

Last month, the DSWD signed an agreement with the PEPOA for the implementation of the power subsidy program.

The agreement with PEPOA would benefit some 530,000 lifeline users, of whom 185,000 come from Luzon; 168,379 from Visayas; and 173,983 from Mindanao.

“The lifeline users covered by the franchise of the PEPOA members will also be issued credit memos starting with the August 2008 billing statement from where their electric bills will be subtracted until the P500 has been fully utilized,” Cabral said.

The program would be implemented until all the 6.76-million beneficiaries have claimed their subsidies, she added.

The DSWD chief stressed that the payment of one-time subsidies as directed by President Arroyo “will provide immediate assistance to Filipinos who are vulnerable to the effects of rising food and oil prices even as the government provides long-term solutions to their socio-economic problems.”

– Helen Flores

Alex Magno
The Philippine Star

I received a letter from our friend Elpi Cuna of Meralco clarifying a number of points raised in this column (“Failure”, July 8, 2008). Elpi takes up a number of points worthy of being reproduced here in the interest of fairness.

Given space constraints, I will try to condense the points raised by Elpi’s letter here — with effort to represent them as fairly as possible. Let me mention beforehand that the main concern of the July 8 column was the apparent lack of institutional capacity of the ERC to competently discharge its regulatory duties.

First, Elpi disagrees with my use of the phrase “regulatory capture” to describe the relationship between regulator ERC and regulated Meralco. The phrase, he says, “implies” that Meralco controls the ERC, where what the former wants “automatically gets approved” without much scrutiny. He reminds me that public hearings are required as a matter of procedure on the part of the ERC.

But “regulatory capture” does not necessarily imply, although it does not exclude, absolute and blatant control by the regulated. Regulatory capture can also happen, as the entire column suggests, that limitations on the institutional capacity of the regulatory agency enables the regulated to get its way most of the time.

Second, Elpi disputes the claim that Meralco charges P3 more than most other regional electricity distributors. He points out that Meralco’s distribution charges constitute only 12% of the total bill customers get. Those distribution charges are lesser for high load industrial users and greater for high consuming residential users. For households consuming about 200 kWh of power per month, Meralco’s average distribution charge of P1.37/kWh is among the lowest.

But given the volume and density of its service area, shouldn’t Meralco’s own distribution charges be substantially — and not just marginally — lower than Cebu, Davao or Cagayan de Oro? I suppose that is a question best calculated by competent utilities economists — which, precisely, the ERC lacks.

Third, Elpi clarifies that the 2003 refund of Meralco’s income taxes was due to new jurisprudence applied retroactively. Meaning, at the time Meralco passed on its income tax load to consumers, the practice was not illegal.

I concede that.

Fourth, Elpi clarifies that the refund on meter deposits was a consequence of the ERC reformulating its guidelines and not the result of a “consumer suit.”

I concede that too and apologize for the lapse — although I recall that the reformulation of the guidelines was sparked by consumer complaints. At any rate, those refunds have not yet been paid by Meralco and the ERC has been dragging its feet on the matter for years now. Elpi’s letter would make the front pages if it announced Meralco will be paying the refund promptly, including interest income from putting those funds on float.

Lastly, Elpi reminds us that Meralco has not been given an increase in its distribution charges since June 2003. The company thus makes a return on fixed assets of only 3% while the IPPs get 14.4% and Transco gets 12%. That, I suppose, is a matter that requires the expert opinion of qualified utilities economists — which the ERC lacks. My own layman’s first impression is that the return on fixed assets must be correlated with the rate of depreciation for those assets.

Those points notwithstanding, Meralco looms large in the public mind as a monopolistic Leviathan with little to restrain it from getting what it wants. That image of the powerful corporation has only recently been reinforced by that curious ruling of the Court of Appeals on the petition filed by Meralco against the SEC and the GSIS.

Here is what happened.

The Meralco petition was raffled off to the CA’s 9th division chaired by Justice Jose Sabio. The case was heard by that division.

Last week, the lawyers for the SEC and the GSIS were all surprised when the CA’s 8th division promulgated the decision on the case. None of them were informed that the case was transferred from the 9th to the 8th division. Justice Sabio, chair of the 9th division, was unceremoniously excluded from the promulgation which was penned by Justice Vicente Roxas.

This is all very strange. The GSIS lawyers are now bewailing the CA decision as a “patent nullity.”

While the case was being argued in the 9th division, lawyers for the GSIS had, precisely, asked for the inhibition of Justice Roxas on reports he conferred with Meralco lawyers on the day a temporary restraining order was issued barring the SEC, at Meralco’s instance, from taking jurisdiction over GSIS complaint against Meralco. The complaint, we will recall, refers to the validation of proxy votes used by the Lopez bloc in the last shareholders’ meeting of the distribution monopoly.

Meralco “won” the case at the Appeals Court. The decision penned by Justice Roxas says that the regular trial courts, and not the SEC, had jurisdiction over the GSIS petition against the Lopez bloc’s use of proxy votes in the shareholders meeting. That decision, according to the GSIS lawyers, runs directly counter to previous Supreme Court rulings on similar issues.

The Roxas decision was so generous to Meralco it even dismissed the case filed by GSIS before the SEC, a case that was not put under the CA’s jurisdiction and was not even prayed for by the lawyers of Meralco. This raises more issues than the case purportedly resolves.

Little wonder that so many perceive Meralco to be in the business of power. And we are not referring here to electricity alone.

Paolo Romero
Philippine Star

President Arroyo launched yesterday a P500-million program that aims to jump-start a massive replacement of electricity-hungry incandescent bulbs in households and work places with energy-efficient compact fluorescent lamps or CFLs.

Mrs. Arroyo led representatives from the youth, government, non-government organizations and religious sectors in the symbolic lighting of CFLs at the launching of “Palit Ilaw” or change light bulb program at the Philippine International Convention Center.

CFLs use about 75 percent less energy than incandescent bulbs and lasts 10 times longer.

Mrs. Arroyo said the program would start with the replacement of incandescent bulbs with CFLs in government offices, public schools, state colleges and universities, government hospitals, and public areas.

She said funding for the project came from value-added tax revenues from increased oil prices.

She said “Palit Ilaw” is part of the Department of Energy’s SWITCH program aimed at mobilizing Filipinos in reducing energy and fuel consumption by at least 10 percent this year.

The program will be launched in the provinces in the coming days so that “all Filipinos would be aware of the importance of energy conservation,” she said.

“National fuel conservation is now entrenched as a first principle of statecraft. All government agencies have to reduce their energy bills by 10 percent,” Mrs. Arroyo said.

She also announced the government is now ready to shift into high gear its bio-fuel energy program as the first step to end the country’s dependence on imported oil.

She made the announcement at the Forum on Alternative Fuel for Public Transport at the Philippine Trade and Training Center (PTTC) in Pasay City.

The President said she will inspect starting July 21 the 1,800 hectares of lands across the country planted to jatropha under the government’s jatropha propagation program.

To date, 900 hectares have been planted to jatropha in Tamlang Valley in Negros Oriental; 500 hectares in Fort Magsaysay, Nueva Ecija; 200 hectares in Camarines Sur; 100 hectares in General Santos City; 60 hectares in Ara, Palawan; 40 hectares in Cagayan de Oro City; 14 hectares in Bohol; and five hectares in Cadiz City, Negros Occidental.

She said because of the energy efficiency programs initiated by her administration, the country is now 56 percent energy self-sufficient, the highest energy self-sufficiency rating in its history.

She said that aside from alternative sources of fuel, the government will continue to promote the use of natural gas for transport; geothermal steam, wind mills like those already operational in Batanes and Bangui, Ilocos Sur, and solar power for electricity.

“Let me assure our people of one thing, your government shall continue to harness all the resources at our command to help ordinary Filipino families pressured by cost and calamity at the same time. We continue to build a better tomorrow,” she said.

Manila Times

Around 100 representatives from civil society groups called for a bevy of reforms in the power sector, including the suspension of the expanded value-added tax (VAT) and other imposts on oil products, to bring down the cost of electric power in the country.

In a forum organized in Quezon City by the Freedom from Debt Coalition, Maitet Diokno-Pascual, the economist and former chairperson of the organization, said the power sector is highly concentrated in the hands of a few service providers, virtually creating monopolies.

She added the sector is highly inefficient and highly skewed in favor of those involved in providing services in the sector.

The government is actually earning a windfall from rising crude oil prices and the falling value of peso vs. the dollar. More than half of VAT from Meralco customers is paid by those consuming from 100 to 400 kilowatt-hours a month, said Diokno-Pascual.

However, she cautioned that providing additional subsidy to lifeline rate consumers does not ease the burden on the actual VAT payers, and does not make electricity cheaper for industry. “Subsidies are not sustainable, not even politically,” she warned.

The Electric Power Industry Reform Act has not changed the basic nature of the power industry, but has in fact led to greater concentration of power among a few players, while providing plenty of room to favor sister companies and industrial partners.

Participants also called for a stop to the wholesale electricity spot market that they feel have even added to power costs, since it is based on the power players’ purchase bidding during peak hours. In its stead, they called for an independent Energy Regulatory Commission to regulate the market, and for a review of rates being demanded by the National Power Corp. and electric cooperatives.

Power utilities should not be allowed to pass on systems losses to consumers caused from mismanagement and failures to plug losses.

Power costs could also be brought down by the removal of royalties on renewable energy to encourage investments in this area.

Diokno-Pascual also called for the creation of community-based power systems to stop monopoly control of the country’s power delivery system by big power producers, and to localize any potential problem that can arise in the sector.

Luis Manuel Corral, a cooperative development specialist, said the government should immediately conduct a technical audit of all independent power producers to determine if they are really providing genuine services to the public based on their respective contracts.

Dr. Roger Birosel, a geneticist with the Alliance for Consumer Empowerment, said that the government should stop its policy of interim open access in the Luzon and Visayas grids, since this allow big power layers to kill small players like electric cooperatives.

– Nora O. Gamolo

Jarius Bondoc
Philippine Star

All good attorneys know: “If your case is strong on facts, pound on the facts; if it is strong in law, pound on the law. But if your case is weak, pound the table.” Last week three eminent admin lawyer-senators did just that — slam fists on desks — upon running out of arguments in their own arranged hearing on electricity rates.

Object of ire was the Joint Foreign Chambers, whom Miriam Santiago called to the inquest as head of the committee on energy. Juan Ponce Enrile has a bill to amend the 2001 Electric Power Industry Reform Act (EPIRA). Investors from the US, Japan, Korea, Canada, Europe and Australia-New Zealand oppose any revision. Enrile wanted to know why they had written President Arroyo instead of the Senate where his bill pends. The guests began to read in reply their self-explanatory letter to the highest official who promises open ears. Santiago cut them off, demanding only answers she wanted to hear. Joker Arroyo, once Enrile’s nemesis against martial law and frequent admonisher against going ballistic, joined the bashing as the foreigners “had it coming.”

And yet it’s all there in the May 28 letter. Enrile’s amendments center on “open access and retail competition,” and the foreigners debunk the need for revisions to make it happen. Both sides avow intentions to bring down power rates. Exchanging views, not browbeating invited resource persons, is the tack for parties with similar aims.

“Open access” would enable big users to buy from power suppliers of their choice via “retail competition.” Under EPIRA, factories and facilities that burn at least 750 kilowatt-hours a month should be able to buy cheap straight from retailers. They will just pay rent for the use of transmission lines, which too can be by free pick. The state-run wholesale electricity spot market (WESM) will be their venue for trading, based on buyers’ hourly needs and sellers’ predicted supply. Businesses can adjust operations based on cheap power periods, while power producers can sell excess supply. Buyers save on power bills; generators run on optimum capacities.

The EPIRA initially estimated a “contestable” market for open access at 25 percent of the entire electricity clientele. Examples: electronics makers, airports, hospitals. The other 75 percent is a “captive” market of homes and offices that use moderate electricity. But smart residential and commercial subdivisions can bid too as homeowners’ associations and store chains.

Open access-retail competition should have commenced three years after EPIRA’s passage, subject to five conditions: (1) founding of the WESM, (2) unbundling of transmission and distribution charges, (3) removal of cross subsidies for generation, (4) privatiza-tion of at least 70 percent of Napocor generators in Luzon and Visayas, (5) transfer of management of at least 70 percent of power plants under contract with Napocor to a private-run IPP Administrator.

Only the first three have been met. Open access-retail competition has been delayed four years because Napocor was too slow to sell off its plants. Enter Enrile with an amendment to lower the open access threshold from 75- to only 50-percent sale of Napocor generation assets. It could spell relief long sought by businessmen who have been bearing for the highest power rates in Asia next to Japan’s. Immediately public hearings were set.

Coincidentally, however, Arroyo launched a squeeze play against the Lopez family that controls Meralco, the biggest power distributor. Senators accused the utility of illegally passing on systems losses to users, although allowed by the EPIRA and so approved by energy regulators. Congressmen led by the President’s son Mikey, House energy chair, flayed “sweetheart deals” of Lopez-owned generators with Meralco.

Energy firms, mostly members of foreign chambers of commerce, grew apprehensive. Congress moves to open the EPIRA may not end with lowering the 75-percent threshold, but touch as well on deals inked under the Emergency Power Act of 1992. Testimonies in the first Senate hearing bolstered suspicions. No less than Jose Ibazeta, chief auctioneer of Napocor plants, swore that his Power Sector Assets and Liabilities Management Corp. already has sold 48 percent. Moreover, the state firm can bid out up to 82 percent of remaining plants by yearend. There was clearly no need to amend the EPIRA threshold. The foreign chambers and other industry groups wrote to Malacañang and the energy department to say they could even start retail trading at once.

But Napocor continued to press for lower threshold. Industry men wondered if this was to retain its managers’ control of coal purchases for Luzon plants. In Apr. 2007 and Feb. 2008 the Napocor brass imported coal on “emergency” at billions of pesos costlier than market rates. The senators must have heard of this reason for resistance to EPIRA revisions. But the foreigners were not about to confirm it.

*      *      *

E-mail: jariusbondoc@workmail.com

Donnabelle Gatdula
Philippine Star

The Philippine Independent Power Producers Association (PIPPA), a group of private power generating firms, warned the government that the proposed amendment of the Electric Power Industry Reform Act (EPIRA) would undermine the government’s privatization of the National Power Corp. (Napocor).

In a position paper presented to the Senate committee on energy, PIPPA president Ernie Pantangco said “any form of amendment to the EPIRA will create an unstable framework that will engender uncertainty in the industry in a period when momentum has been finally achieved with the privatization of Napocor assets.

“Note that to date, no privatization of the Napocor-IPP contracts have been accomplished,” he said.

The Power Sector Assets and Liabilities Management Corp. (PSALM), tasked to handle the privatization of Napocor assets and supply contracts, had scheduled the start of IPP privatization in August this year.

Pantangco said the proposed legislative initiative to change the provisions in the power bill would affect the successful privatization efforts of PSALM.

“The privatization efforts of PSALM have been gaining successes one after another as shown by the increasing proceeds from the sale of Napocor’s generation assets. The value of old Napocor assets has increased from $0.39 million per megawatt for a small power plant to $1.55 million/MW for the 600 MW Masinloc power plant,” Pantangco said.

He said that as of May 8, 2008, the PSALM privatization process has yielded $6.66 billion (P293 billion) for the government, which includes the sale of the National Transmission Corp. or Transco, power plants, and a decommissioned plant.

“More foreign investments are needed for the Napocor-IPP privatization under the IPPA concept,” he said.

It is estimated that the government could generate up to $4 billion from the privatization of the IPP contracts.

“We strongly believe that there is neither necessity nor expedience in amending the EPIRA at this time. The implementation of reforms mandated by the EPIRA has gained tremendous momentum over the past two years, eclipsing the laggard pace in the early years following the law’s enactment,” Pantangco said.

PIPPA provides a forum to those in the power sector to share and discuss issues and concerns from a sectoral viewpoint.

It has 25 members operating a total installed capacity of 9,572 MW in power plant capacity, 5,837 MW of which are controlled by the Napocor under the Build-Operate-Transfer scheme and the remaining are directly contracted with distribution utilities.

With the recent privatization of the Masinloc and Calaca coal-fired power plants, the PIPPA membership may be augmented by the winning bidders, American Energy Services and Suez Tractabel.

Upon turnover of the plants to the winning bidders, PIPPA members would be operating or managing close to 10,752 MW of generation capacity.

PIPPA is an association independent of the Joint Foreign Chambers of the Philippines, although most of PIPPA’s members are also members of the chambers of commerce that comprise the JFC.

PIPPA represents privately owned power companies operating in the country while the JFC has a far broader base to represent various businesses but mostly industrial enterprises that are end-users of electricity.

“The JFC’s concern in amending the EPIRA is from a consumer perspective. Still, we share the JFC’s views,” Pantangco said.

JFC earlier appealed to the government not to amend the EPIRA, which may turn off foreign investors.

“We respectfully observe that the proposed amendments to the EPIRA will weaken competition structure in the electricity industry that is already taking shape,” Pantangco said.

He said they do not believe that changing the provisions of the EPIRA will lower electricity cost.

“There are effective ways to lower the prices of electricity without amending the EPIRA and without disturbing the legal framework in the industry, the stability of which PIPPA and the private entities intending to participate are relying upon. One such way is to implement Section 35 of the EPIRA itself, which mandates the reduction of royalties, returns and taxes collected by the government in connection with the exploitation of indigenous energy resources. Another way is to subject the sale of electricity to VAT zero-rating,” he said.

He said the sustainable way to achieve reasonable prices of electricity over the medium term is to foster and enhance the competitive structure of the electricity industry.

“What the industry needs is not a palliative temporary solution but one that will remain effective despite changes in prevailing economic and political conditions. Thus, PIPPA members welcome and anticipate this competitive structure. The interest of consumers to enjoy competitive and reasonable electricity prices is also the interest of PIPPA members. The common interest signifies that the industry must remain a viable and stable investment climate not only in the past, or this year, but also in the coming years when additional generation capacities will be needed in Luzon,” he added.

He said instead of amending the EPIRA, the government should actively pursue the privatization of Napocor’s IPP contracts, a mandated activity that has been unjustifiably dormant for more than six years since 2001 when EPIRA was passed into law.

“Lowering the privatization threshold (of Napocor) from 70 percent to 50 percent will undermine the competitiveness of the power industry. At first glance, the lowering of the privatization threshold is innocuous. However, in the light of the safeguards under the EPIRA against market dominance and anti-competitive behavior, such proposal would have a detrimental effect to the industry,” he said.

He said that currently, the government, through Napocor and PSALM, controls 66 percent of the Luzon grid and 76 percent of the Visayas grid based on the figures provided by the ERC in Resolution No. 4, Series of 2008.

“The government effectively dominates the market and breaches the statutory market limits,” he said.

Ma. Elisa P. Osorio
Philippine Star

The Department of Trade and Industry (DTI) is urging lawmakers to fasttrack amendments in the Constitution that will help boost investments in the country.

In an interview, Trade Secretary Peter B. Favila said they would like to see some amendments in the Constitution specifically those pertaining to the rule on foreign ownership.

According to the Constitution, foreigners cannot own land. They must have a local counterpart who will own 60 percent of the property.

There have been moves to amend the Constitution in order to promote economic development but these have been met with strong opposition. “We would like to see (amendment) this happen,” Favila said.

He added that some foreign investors are hesitant to enter the country because they cannot own the land.

Instead they opt to put their investments in other ASEAN member countries wherein they are able to secure their investment by owning the property.

Favila said there is more to gain by amending certain provision in the Constitution rather than holding on to a law that repels the inflow of fresh investments.

In spite of this, Favila conceded that this may not happen in the near future because a number of people have signified their opposition to constitutional change.

The same sentiment was echoed by Norway Ambassador Stale Torstein Risa who said the country must change its constitution and allow foreigners to own land.

“The 60-40 ownership rule is a hindrance to investments,” Risa said.

“If the Philippines would like to be competitive then you should allow foreign ownership. The Philippines will be a good solid business environment if the 60-40 rule is removed,” the Ambassador added.

Risa said this is the time for the Philippines to enhance its investment atmosphere to attract the attention of foreign businessmen because fellow ASEAN countries are also aggressively seeking out foreign investments.

Vietnam has been very aggressive in its campaign to attract foreign investors.

“The Philippines is already a good place to invest but the eradication of the 60-40 rule will make it very very attractive and at par with other ASEAN member nations,” Risa explained.

Risa said that investors would be more comfortable to put in their money if they are the owners of the property.