Morgan Stanley sees long delay in passage of power reform bill

If the controversial power reform bill, which is now with the bicameral committee, is not passed by the current Congress, it will likely be delayed for several years if not forgotten altogether.

In a report on Asian utilities, global financial and rating institution Morgan Stanley said the passage of the bill will be postponed indefinitely if it is not passed within the first six months next year.

"All the progress in the House (of Representatives) and three completed readings for each of four out of five Senate bills, could be lost and the legislation would need to be re-filed and reheard by newly-elected politicians," the report said.

It added that further delays could be experienced as the new members would start from scratch in looking at every detail of the proposed legislation. "Such a process alone could take a year or more."

The report cited certain contentious issues that must be addressed in favor of the consumers’ interest, namely stranded asset recovery, cross-subsidy removal and cross-ownership issues.

Earlier, the Asian Development Bank (ADB) urged the Philippine energy sector "to avoid cross-ownership as it would reduce or suppress competition."

"Minimized or no cross-ownership in the generation, transmission, distribution and retail sectors of Philippine energy sector as it restructures will allow for wider or more competition," said Vladimir Bohun, ADB director for infrastructure, energy and financial sectors department (East).

"Restructuring needs competition. No or minimized cross-ownership will encourage competition and competition may lead to lower power rates," Bohun added.

According to Morgan Stanley, it should be expected that the stranded cost recovery will inevitably be shouldered by the consumer in the short- and long term.

"Moreover, while competition in generation and private sector network management should reduce excess costs, tending to drive prices down, the private sector’s requirements to earn a fair return on equity versus what the state-run National Power Corp. (Napocor) was previously earning, or roughly two percent on equity, should neutralize such price declines in the near term."

The global financial institution said the restructuring of the Philippine power sector is extremely important to the economy in general and advantageous to the Manila Electric Co. (Meralco) in particular.

The report said the privatization of Napocor will allow Luzon’s electricity franchise holder to acquire some of the generation assets aside from other opportunities.

"Although the company will gradually be exposed to open access regulation, regulated assets will likely be ring-fenced from non-regulated activities, allowing Meralco to pursue its multi-utility strategy without interference. Post-deregulation, we believe Meralco would be in a good position to benefit from customer synergies within the Lopez group," it added.

Earlier, the Consumers Coalition for the Power of Choice said the proposed legislation "has been watered down featuring several provisions perceived as being anti-consumer." It is a broad coalition composed of business groups, electric cooperatives and non-government organizations.

Similar to the ADB caution, the coalition said a cap on ownership and control of the power generation by the distribution side should be reduced to 20 percent on a national basis, and to 30 percent on the regional side. The bill allows for 30 percent and the 40 percent for the national and regional basis, respectively. – Ted Torres