First on agenda: New Power Bill

Now that the political season is hopefully over, it is time for our officials to face the tasks at hand. Because we cannot do anything, nothing for the poor or for civil society without money, the first thing we have to do is look for money. This is why the first thing in the agenda of this administration is the passage of the new power reform bill.

I had a long talk with Energy Secretary Lito Camacho a few days before last Monday’s election and at the top of his mind is getting support for the new power bill. An experienced international banker, Lito knows that we must settle this even before the new Congress assumes office.

The bill providing for the restructuring of the power sector had been studied and debated extensively for six years. The last two Congresses devoted a lot of time refining it. They have gone as far as the conference committee level but ran out of time. How come they are saying it is being rushed?

I guess the importance of the bill’s passage became more urgent in the light of the government’s yawning budget deficit. The National Treasury cannot afford to support the National Power Corp. indefinitely, as it had been doing for years. It is no exaggeration to say that unless something is done quickly, Napocor may end up belly up and drag the country with it.

The bill had been controversial because of provisions that privatizes Napocor and the proposed assumption by the National Treasury of Napocor’s liabilities that could not be covered by proceeds from asset sale. It must be pointed out that government will assume Napocor’s liabilities anyway if it continued to own it and the subsidies will go on indefinitely. At least with privatization, the assumption is limited to what they call "stranded costs" or existing liabilities that could not be passed on to whoever will buy the facilities.

Some politicians object to privatizing Napocor out of supposed fear that it will strengthen "monopoly control" of local firms involved in electricity. That makes good headline copy but is largely misleading. For instance, they worry about the Lopezes becoming too powerful with their control of Meralco and First Gas Power. But the new power bill takes care of that fear too.

For starters, the Lopezes do not have the resources to buy Napocor. At best one or two of the dozen packages of Napocor assets are about as much as the Lopezes can afford. Even Meralco will lose its monopoly over sales of electricity in their franchise area as the bill now allows power consumers to select their supplier and just pay Meralco a wheeling charge.

The new power bill, as revised by the Arroyo Cabinet, also strengthens the safeguards against monopoly control. Market share limits has been reduced from 40 percent on a grid basis to just 30 percent. On a national basis, no one group can have more than 25 percent market share, a reduction from the previous 30 percent. Open access is also allowed at a lower level of 1 MW. Mandatory accounting and structural separation of businesses will also be required.

In concept, Lito assures that the new power bill will benefit the consumers by giving them freedom of choice, lower rates and better service arising from increased competition. Ownership of the industry will be diversified and with more players, there will be greater opportunity for technological innovation to be introduced in the local market.

For government, the new power bill will mean a leaner budget and more streamlined operations. The funds being used to cover shortfalls of Napocor can be used to fund other services such as health, education, agriculture, housing and public works.

On the other hand, if government continues to borrow on behalf of Napocor or guarantee its borrowings to finance operations, total government borrowings are expected to amount to P160 billion over the next five years. But with Napocor privatized, borrowings and guarantee will be drastically reduced to P17 billion.

More urgent in the light of the budget deficit problem are the credit facilities that will become available after the bill is passed. That’s worth some $950 million. Government plans to use $200 million for budget support, $200 million for Napocor and $500 million for the Leyte-Mindanao interconnection project.

For the consumers, the power bill offers the long sought opportunity to finally get our power rates in line with the rest of the region. Lito is confident rates will go down owing to better operating efficiencies arising from a better capital structure and business management. Lower power rates mean our industries will become more globally competitive. And with the power industry in private sector hands operating on the basis of market forces, supply security and reliability can be enhanced.

There is also a mandatory reduction of 30 centavos per kilowatt hour for residential consumers provided for in the bill. Lito also pointed out that experience abroad indicates a reduction in power rates in the region of 30 percent. Examples include Australia (36 percent), New Zealand (14 percent), Argentina (44 percent), United Kingdom (25 percent).

Lito sums up saying that we need the bill to help win back investor confidence in the Philippines. The passage of the bill is a positive signal to investors that government is ready to institute economic reforms. Investor confidence is crucial, if we are to create the number and quality of jobs our growing population needs.

PPA

Clouding the power sector reform bill is the election campaign propaganda of Sen. Enrile claiming that the Lopez Group is milking the so-called PPA or purchased power adjustment mechanism in our electric bills. In the first place, most of that PPA goes back to Napocor for power costs it incurs when it buys from its independent power producers.

Meralco has its own IPPs, and the senator cited First Gas Power, which he claims is collecting PPA but is not operating. The senator is misinformed. The Batangas Sta. Rita plant of First Gas is operating but not as much as it wants to. Napocor has a limitation in the capacity of its transmission lines and this is why an agreement was reached to compensate First Gas for a problem not of its making.

Napocor has serious right of way problems which delayed its transmission line project by as much as four years. But First Gas completed its power plant based on a schedule set by government. Given the large capital outlays involved in such a project, it stands to reason it should not be penalized for a failure that is beyond its control.

Actually, government should help Napocor resolve its right of way problems quickly through our judicial system. I understand Meralco is even ready to help Napocor build and finance that vital transmission line if only to allow the country to fully benefit from the use of our own natural gas later this year.

Simplifying the issue made good political slogans. But that is all there is to Senator Enrile’s claim.

Chest pains

Here’s something passed on to me by reader Chito Santos, supposedly a quote from Jay Leno.

"According to a new survey, one out of three men would not go to a doctor if they had chest pains. With women, it’s different. When women have chest pains, two out of three men pretend to be doctors."

(Boo Chanco’s e-mail address is [email protected])