Costly political/power play

President Arroyo’s recent announcement that Meralco’s four million customers will enjoy a reduction of P0.23 per kilowatt-hour (kWh) in their monthly bills starting this month was initially a welcome relief if taken in the light of how difficult life has been for most of us amid runaway crude oil prices and rising expenses.

But looking beyond its face value, circumstances behind that power rate discount lead many to believe that the President’s decision – which comes right after a botched impeachment case and before a crucial foreign trip – was nothing more than a political act which would eventually turn out to be too costly for taxpayers.

The much-touted discount is the result of a decision to allow Meralco to source 83 percent of its electricity requirement from its own suppliers instead of from state-run National Power Corp. (Napocor), which currently provides about 50 to 60 percent of Meralco’s electricity requirements.

The independent power producers (IPPs) supplying Meralco include First Gas Power Corp., whose parent firm, First Gen, is (interestingly) about to sell a portion of its shares to local and foreign investors through an initial public offering at the stock market later this year.

This would mean First Gas’ power plants, together with other IPPs supplying Meralco, will be running at full capacity while those of Napocor’s and the rest of the IPPs that have contracts with the state-owned power firm will only have second priority.

Napocor IPPs take-or-pay cost

Before it is forgotten, take note that Napocor has existing take-or-pay arrangements with its supplier IPPs, so much so that this latest move by the President may not amount to any real savings for electricity consumers nationwide.

Because of this take-or-pay obligation, reports have it that Napocor may lose as much as P1 billion a month if only the IPPs supplying Meralco will run at a high 90-percent priority dispatch. On the one hand, savings that would accrue to Meralco customers would amount to a little over P500 million.

The difference is a loss that will eventually be borne by all taxpayers, not just by electricity users outside the Meralco franchise area but even the current four million customers of the utility company.

It is also a cost that would have to be shouldered by taxpayers who continue to pay for Napocor’s humongous debts. What makes it more ironic is that it looks like this government decision would only benefit a handful, among which is First Gen, whose IPO is up and coming. As charged by anti-GMA proponents, this is so un-Robin Hood: Arroyo effectively takes from the poor to give to the rich.

Contracts gone awry

Many are not so surprised about the situation in the power sector. Fact is, this is not first time taxpayers’ interest has been compromised in the name of politics.

Remember a couple of years back when GMA decided to cap Napocor’s purchased power adjustment (PPA) at P0.40 per kWh. The move was seen as a desperate attempt by the government not to lose public support at a time when elections were just around the corner. Before readers think that I am siding with Meralco or Napocor, let me make it clear that the issue is not about which of them is in the wrong. We only know all too well that both have committed their own grievous mistakes.

Napocor signed up to purchase too much electricity from IPPs supplying it. These IPPs, not fully utilized, have now become stranded assets that the public should pay for. Some say the problem is that electricity demand did not grow as much as expected largely due to the Asian financial crisis, but that claim in itself is dubious. Whatever it is, bottom line is that both Napocor and Meralco apparently made wrong assumptions on demand trend.

Getting the best price

The urgent issue of the day is really what could be done to alleviate the public’s burden of higher electricity rates? Even manufacturing companies are complaining that the Philippines continues to have uncompetitive rates compared to other countries in the region.

We should go back to the issue of who could really provide the cheapest power: Is it Napocor or Meralco? If there is no one simple answer, what right mix should then be adopted to give consumers that privilege?

Economic dispatch is an issue begging the Energy Regulatory Commission’s attention, and failure to act on it has rendered the industry regulator virtually inutile.

Priority dispatch has been a great debate between Napocor and Meralco for years now. It started with a 10-year supply deal signed in 1994 committing Meralco to buy 3,600 megawatts of power annually from Napocor until 2004. However, it was also during this time when Meralco chose to buy electricity from its own IPPs, which eventually led to the power distributor reneging on its commitment with the state-run utility firm. Under the settlement deal signed in July of 2003, Meralco committed to pay Napocor P27.5 billion for its contracted power and actual purchases during th period. Napocor meanwhile agreed to pay Meralco P7.5 billion for delays in the construction of certain transmission facilities plus the cost of Napocor’s decision to sell power to directly connected industries within Meralco’s franchise.

The net of this, amounting to P20 billion, was to be paid by Meralco over a six-year period once the ERC approved the settlement agreement. Meralco has turned around and claims that the amount will be charged to its customers at P0.12 per kWh. It argues that it has the right to pass on the cost to its users since it is entitled under the power reform law to a full recovery of prudent and reasonable economic costs.

Meralco also asserts that if it can withdraw electricity from its own IPPs at higher quantities, as agreed upon in the settlement deal, it could generate savings of P0.25 per kWh, which it said it also intends to pass on. The net effect then is a rate reduction of P0.13 per kWh.

False promises

Because the ERC has yet to issue its ruling on this Meralco-Napocor compromise deal, the consumers are still waiting for the promised pass-on benefits.

In the meantime, we are also awaiting with bated breath the increased electricity rates brought about by the dreaded EVAT.

Non-wager poker tournaments

In addition to regular tournaments featuring golf, tennis, chess, badminton and bowling, Cebuano sportsmen and women are now competing in another game of skill, this time not involving balls or rackets or clubs but a deck of cards on a felt-covered table.

Several poker clubs have sprouted around the city conducting weekly Texas Hold ’em tournaments patterned after the popular television show. One of the groups I met last weekend included fellow Philippine STAR columnist Bobit Avila, Ponsoy Canizares, and Dr. Edwin Midalle of the Cebu City Poker Club.

In the 4th Leg of the Poker King Challenge held at Casino Filipino Mactan, Waterfront Hotel, last 24th and 25th Septrember, Jessy Dy, a businessman from Lahug, outlasted Carlos "Loy" de los Santos and Mike Tyler in a thrilling wind-up of the three-hour finals to win the Leg championship trophy.

All three winners earn seats for the Poker King Grand Finals. They also received trophies, gift packs, and certificates from the tournament sponsors namely Philippine Gaming Corp. (Pagcor), Jack Daniels, Miller Genuine Draft, Bicycle Playing Cards/Star Paper, Hyatt Hotel and Casino, Ralph’s Wine, and MyReviewerOnline, the Internet knowledge-builder.

The Poker Club of the Philippines, which is conducting these non-wager poker tournaments under the auspices of Pagcor, the gaming authority, announced that the 5th leg is scheduled on 5th and 6th November 2005 at Tagaytay City. Those interested to join may call the Manila Secretariat (c/o Cindy) at 817-9092 or visit www.PokerClubof the Philippines.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 [email protected] or at [email protected]. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.