Monday, December 21, 2015

Stop playing shadow boxing

Stop playing shadow boxing

Department of Justice Secretary Lilia de Lima should stop that nonsense of playing shadow boxing by claiming her department is looking into the possibility of Manila Electric Co. (Meralco) violating the “anti-trust law” by colluding with the independent power producers (IPPs).   That statement came in the wake of the temporary restraining order issued by the Supreme Court stopping Meralco from imposing an additional P4.15 per kilowatt hour to the electric bills paid by consumers.  

Secretary de Lima should have known that House Bill No. 3434 or the proposed Anti-Trust Bill filed by Quezon 4th District Representative Lorenzo “Erin” Tanada III has yet to be approved by Congress, which unfortunately is lorded over by the very class engaged in the monopoly of trade, cartel to control the price and distribution of goods, oligopoly to limit business competition, and other forms of unfair trade and business practices.   As observed, the Electricity and Power Industry Reform Law otherwise known as the Epira Law ended up as a total fiasco.  Collusion was bound to take place because the Epira Law allowed the private sector to operate and compete with the government-owned National Power Corps (Napocor) in the supply of electricity to private utility operators.  The law failed to anticipate that the privatization of the industry would require the modalities of assuring the IPP operators a free hand to dictate their own price per kilowatt hour. 
Since the cost for the construction, operation, and maintenance of a power plant would entail huge capital, the government had to assure them of their profit.   First, since many of the IPP operators had to borrow from foreign banks to build their own IPPs, they demanded a sovereign guarantee, meaning that if the business operations go down, the state would have to guarantee their debt obligation.  That was on top of the currency exchange rate agreement (CERA), meaning that payment could be based on the current value of the peso to the dollar, and so with the interest to the paid with the principal.  
Second, should there be a surplus in power production, the government will have to pay the difference to avoid losses.   That concept was called the power purchase agreement (PPA).  That became unpopular that they were compelled to itemize their cost called unbundling, while effectively jacking their cost in other items to make it appear they already scrapped the hated IPP.
Third, to deter the government from increasing its tax, including the franchise tax, franchised utility operators were allowed to pass them on to the consumers.  Because the economy was constantly battered by inflation and an increasing cost in the price of fuel, VAT had to be introduced into our electric bills.   For a time, public utility operators were even allowed to pass on their corporate income tax to the consumers.   
Fourth, country’s oligarchs and their foreign business partners began to destroy the credibility of Napocor, branding it as the nesting ground for government corruption.   They alleged that the huge debt of Napocor was the result of corruption committed during the Marcos administration.  To settle that, they sought to subdivide Napocor.  For that the Epira Law created the Private Sector Assets and Liabilities Management (PSALM) to handle its debt obligations but that after 10 years instead increased to $16.63.  Yet, not one from the oligarch-controlled yellow government pointed inexplicably at the mothballing by Mrs. Aquino of the Bataan Nuclear Power Plant as the principal reason for the swelling in the debt of Napocor.
The second stage was to destroy the monopsony practice observed by Napocor, which is for the government-owned power plant to monopolize the supply of electricity to the various public utility operators.   However, they failed to anticipate that giant public utility operators such as Meralco and the Aboitiz, and such giant firms as San Miguel, Pangilinans’s First Pacific, DMCI, and those Japanese-owned etc. were willing to put up their own power generation plants provided they were given a free hand to dictate rate of the electricity per kwh, and they needed a law that would guarantee their investment and profit.  
Worse, completion did not work to bring down the price of electricity much that the supplies of electricity are often sealed in a contract to supply agreement between the IPP operator and the public utility operator.  Often, the two happened to be owned by one and the same family though cloaked as different corporations.  Some foreign IPPs are even suspected of underselling the cost of their electricity to some public utility operators to purposely deprive Napocor of its own clients, thus making it dimmer for the state-owned corporation to pay its obligations.
To fully realize the concept of competition in the power industry, the Epira Law sought to privatize the transmission grid which was co-axial to its operation of the various power plants operated by Napocor.    The privatization of the transmission grid means that it would be open to all IPP operators to connect them to the various public utility operators provided the pay the so-called wheeling fees, an additional burden that was passed on to the consumers. That was how the National Grid Corp of the Philippines came into being.  They envisioned the idea that it would not only hasten competition among IPP operators to allegedly sell power at the lowest cost to public utility operators, but could even allow IPPs to directly hooked up with its  various clients identified as heavy users of electricity.
As if that was not enough, the Epira Law allowed the trading of electricity, hoping that trade competition could bring down the cost of electricity.    Again, competition will never work in a market where there are few players.   Most likely they would only end up in forming a cartel, and fixing in the cost of electricity which is what happened.  Moreover, the trading of electricity ended in higher cost to the consumers much that traders were more interested in getting their commission than in selling the commodity at the lower price per kWh.

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