Why is government shifting gears on Malampaya?

If you are one of those unfortunate souls who can’t figure out how this government makes and changes policy, here’s another policy shift in the making guaranteed to send mixed signals to investors and consumers alike. The proposed policy change is supposedly the government’s solution to the power oversupply problem. But it will create a lot of damage everywhere.

First of all, the policy change risk negating current efforts to bring down power rates. President Arroyo made a lot of noise about reducing PPA even if government bears the burden now and taxpayers will pay for it later. Politics may have motivated it but it also makes good economic sense. High power rates are killing our competitiveness.

But Ate Glo’s initiatives on power rates may be just a short respite for consumers. Government is risking at least P1.70 per kilowatt hour charge to our electric bills in January 2003 by refusing to dispatch electricity produced by Malampaya natural gas. That’s the cost recovery needed to pay Shell for natural gas not used but contracted for because Napocor has not dispatched power produced by First Gas from Malampaya gas. This does not even include charges being accumulated by Napocor’s Ilijan natural gas plant.

Surely, energy policy makers must know that the owners of the Sta Rita power plant in Batangas (which also includes British Gas) have a take or pay contract with Shell for the natural gas supply. The take or pay charge in turn, is passed on to Meralco who will then pass it on to consumers. Those are the clear contractual obligations agreed to by previous government energy officials that were instrumental in convincing Shell to invest over a billion dollars to develop Malampaya.

Actually, government can greatly minimize the impact of this financial horror story. There is a more logical solution to the power over supply problem. They can, as this column suggested, take the highly pollutive coal fired power plants like the Calaca and Matinloc plants and retrofit them with the proper add-on facilities to make them compliant with our Clean Air Act. Now is the time to do this because in a couple of years, we may need those plants back on line.

The only plausible reason one can deduce from the stubborn insistence of government officials to continue running those dirty coal plants is purely pecuniary. The commissions earned on the side from all those coal supply contracts must be too good to be true. I am sure Energy Secretary Vince Perez is clean but he must have been threatened by the mafia in and out of Napocor to cooperate or they could make his tenure a living hell. They are not in the mood to suffer any diminution in income.

As if the low dispatch of Malampaya power is not bad enough, I heard that they are about to force the virtual closure of the Malampaya natural gas fired plants. They are toying with idea of just "banking" the Malampaya gas. Under the proposed drastic policy shift, Meralco/First Gas/Napocor will still pay Shell for the gas under the take or pay contract. The three entities will take title to the gas but begin burning it at a future undermined date. They will be allowed to charge interest cost to consumers as they pay Shell but may only charge the cost of the fuel when used.

If they carry out this policy, Meralco and Napocor will have to raise at least P40 billion of new financing annually, straining their balance sheets. Of course Napocor’s balance sheet is now next to hopeless, but its ability to raise money is a function of this government’s continued credit worthiness. But does it make sense to court financial disaster for the country’s largest distributor of power with responsibility for the capital region and some of the major industrial parks?

In any case, it is doubtful if Meralco could even borrow this amount under today’s environment. And assuming it could, it can use the money more productively to maintain and upgrade its distribution system. As it is, Meralco has cut down its capital expense budget due to inadequate resources pending full implementation of the new electric power industry reform act.

The worst part of this is that the Sta Rita natural gas fired plant was built precisely on the request of a previous leadership at the energy department just so Shell would proceed with the development of Malampaya. That enables government to collect hundreds of millions of dollars in royalty (a big help in plugging that budget deficit) and improve this country’s energy independence.

This shifting of gears after hundreds of millions of dollars have been invested in those power plants will have serious international business repercussions. It will confirm the worse fears of investors about our constantly changing rules and programs.

Bankruptcy will become highly probable as a consequence of this potential shifting of gears. Can you imagine what message we will send the world business community if Meralco goes belly up because of this policy shift? Both Shell and British Gas will not take this calmly. And all because a mafia in the bureaucracy want to preserve their commissions from coal supply contracts!

Corruption

Speaking of corruption, I don’t know if the US Ambassador realizes that his highly publicized sermon on the evils of corruption in the Philippine government has boomeranged on America. That case of the two associate justices of the Court of Appeals being investigated by the Supreme Court involves the Bank of America as the beneficiary of the favorable decision being questioned.

The story as reported in media looks like a case of lagareng hapon. Assuming that the complainant is able to prove his accusation that he was asked by one of the justices to buy the decision but he was double-crossed because the case was decided in favor of Bank of America, the winning litigant must have come across too.

Of course Bank of America can always say they knew nothing of anything like that happening but is it reasonable to assume that the bank won solely on the merits when the losing litigant made a down payment of half a million pesos?

There is an anti corrupt practices law in the United States that penalizes American corporations and citizens who bribe foreign officials for whatever reason. Maybe the embassy should refer the case to the FBI for investigation. The credibility of the American Ambassador must be protected.

While nothing has been proven thus far one way or the other, the Americans should investigate even as our Supreme Court is also investigating. A concerted action from the two governments is needed in a serious case like this one. The US Ambassador must help us fight corruption, not just denounce us for its existence.

Last request

And now, here’s something to perk up your day from Dr. Ernie E.

A murderer, sitting in the electric chair, was about to be executed.

"Have you any last requests? asked the chaplain.

"Yes," replied the murderer. "Will you hold my hand?"

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