Energy crisis: Real or illusion

While others deluge themselves on the issue of whether the government’s pronouncement of a looming energy crisis is indeed real or simply a perception created out of the need to diffuse lingering political tensions, I would like to quickly argue that the threat is indeed real.

Crude oil prices have soared past $68 per barrel in recent days, and the concern is that a sustained rise in oil costs would further push up consumer prices, dampen demand, cut corporate profits, and eventually slow down economic growth – leading to higher unemployment rates and increased poverty.

If there is any good thing about it, it is the fact that the problem is not confined to the Philippines alone but for most of those who import oil to fuel their economy. (Even US President George Bush had to wish he was a fairy so he "could simply wave a magic wand and lower gas prices tomorrow." He isn’t though.)

Simulations showed that for every $1 rise in crude oil prices, the Philippines’ economic growth is likely to slow by 10 basis points, such that if oil stays above $60 for the remainder of the year, the country is likely to miss its GDP growth target of 5.3-6.3 percent for the year.

And what do those GDP numbers mean for you and me? It simply implies that we are even more likely to feel that our lives have not progressed at all despite all the efforts we’ve exerted. That we are still as we’ve always been all along, that it doesn’t matter whether one recently had a promotion or inherited a lump sum.

What then are we to do? Should we return to regulation and let the government dictate local oil prices, and subsidize the oil industry? Well, that has been proven to be too costly for a cash-strapped government and would only lead to more inefficiencies and abuses in consumption.

How about stockpiling? Not a chance. How long could our supply last compared to others with bigger war chests, if at all?

Hopefully, energy conservation will help us weather this crisis, although it is hard to predict whether we are to emerge unscathed. Lesser oil consumption would mean we need not have to shell out precious foreign exchange to import lesser amounts of oil but at a steeply higher price.

Is electricity rate increase inevitable?

Rising oil prices have also fueled renewed concerns that higher electricity rates would not be too far behind. This early, some parties are already using it as an excuse to increase tariffs. However, there maybe a way out of this inevitability.

For the record, with the emergence of other sources of energy, the natural gas from Malampaya being a major contributor, the power sector has become less and less dependent on oil for electricity generation such that power from oil-based plants is now at around 13 percent of the total generation mix, from highs of 20 percent to 30 percent previously.

This brings us to perhaps another good thing that has been borne out of this energy crisis. A closer look at the electricity sector would show that there are in fact ways to lower electricity rates to ease consumers’ burden, but this can only be achieved if parties concerned would get their act straight. And we are looking at the Energy Regulatory Commission (ERC) to make it a reality.

Cheaper power is available

Such is the issue of "economic dispatch," a technical jargon that would mean a lot to consumers as this means a system or an arrangement that would give the least cost to end-consumers by dispatching more of the electricity that are available at lower rates.

State-run Napocor and Meralco are again at logger heads on the question of which independent power producers (IPPs) could provide the least cost to consumers. Napocor claims it still is the cheapest source of power, never mind that it has billions of debts. Meralco, meanwhile, asserts it has managed to lessen the impact of Napocor’s recent rate increase by buying more from its own supply arrangements with IPPs.

Is ERC inutile?

The issue seems to be further exacerbated by the inactions of both the Energy Regulatory Commission (ERC) and the National Transmission Co., which as industry regulator and systems operator respectively, should have quickly pinpointed which of the two warring factions indeed offers cheaper power.

Unfortunately, the issue of economic dispatch – despite it being a positive development for consumers – seems to be an issue that has lingered for some time. And it seems ERC’s inability (or incompetence?) to act is the main cause.

For the benefit of the public, the ERC should immediately act on the issue and present to the public as transparently as possible the generation rates of Napocor and Meralco’s IPPs.

From whom could we really avail of cheaper power? It is something we urgently need in this time of crisis.

Any delay on the part of the parties concerned would be a disservice to the public. ERC should let competition work in the favor of consumers, as we have seen regulators from other sectors (telecoms, for instance) do.

Flying V paves the way

Filipino entrepreneurs, such as those in the local oil business, are facing more and more challenges as the landscape of industries where they do business changes. But despite these, many in the private sector have not forgotten to assist in the uplifting of the quality of life of those in need.

Flying V, with the support of its stockholders, led by Ramon "Chito" Villavicencio, and management, launched two low cost housing projects, the Jeepney Village, for the benefit of public transport drivers, and the Police Village, for the benefit of the members of the Philippine National Police (PNP) force.

Apart from providing housing in the villages, the program includes the setting up of training centers where children will undergo value formation and where residents will be trained on livelihood activities.

Projects such as the Jeepney Village and the Police Village are examples of what Filipino entrepreneurs can do to help those who have less. With private sector joining hands in undertakings of this nature, we can slowly but surely extract ourselves from the economic and social quagmire we are in. Of course, a more efficient, productive and forward-looking government would be a great help, if ever it will come.

Join us in "BREAKING BARRIERS" on Wednesday, 31st August 2005, IBC-TV13 (11 p.m.) and gain insights into the views of Ramon "Chito" Villavicencio, Flying V and TWA, Inc. chairman and past chairman and president of the Independent Philippine Petroleum Companies Association (IPPCA) on various issues affecting the independent oil companies and other sectors in the oil industry and their impact on our economy. Watch it.

Non-wager poker tournaments

The Poker Club of the Philippines announced the latest addition to the list of finalists for the Grand Finals of Poker King Challenge 2005 as the 3rd leg competition was completed last Saturday, 27th of August, at Century Resort Hotel, Balibago, Angeles City, Pampanga. These are Leg Champion Engr. Nicolo Palo, 1st Runner-up Alli Ong, and 2nd runner-up Federico David.

Those interested to join the 4th leg to be held on 24th and 25th September at Casino Mactan, Waterfront Hotel, Cebu City may call the Secretariat (c/o Cindy) at 817-9092 or visit www.PokerClubofthePhilippines.com for details.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reygamboa@linkedge.biz. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.