Power play

We start today a series of articles that tackles with more substance some key challenges that the incoming government will have to deal with. Among the many fears that stirred the nation’s imagination during the last year even before the election period was the prospect of a massive and protracted shortage in electricity.

So real and so serious is this problem that President Noynoy would need to deal with this squarely if it is to be adequately solved, never mind that some of his sponsors are investors in the industry, never mind that those who voted for him may eventually hate him when electricity prices start to rise, and never mind that the situation is bound to get worse before it gets any better.

Many past governments, including the outgoing, had failed to ensure sufficient capacity to meet the demands of a growing economy. Cory, in the 1980s, decided not to run the then newly-built nuclear power plant because of safety and corruption issues, leaving her predecessor with power outages that plunged the economy into a recession.

Because no new plants were constructed, the succeeding administration went on an all-out campaign to attract new investors. Liberal incentives, including government payment guarantees on output under take-or-pay agreements, led to an oversupply of power plants. This in turn resulted in higher electricity prices despite abundance in supply.

The next governments then suddenly put on the back burner any programs to encourage the building of new power plants; it failed to realize that, with the economy growing, there was a need for additional generating capacity to support growth.

Failure of foresight

The eight-hour daily brownouts in Mindanao, a region with so much potential, are proof of a failure of foresight in planning. The promise of cheap fuel from hydroelectric sources had enticed companies to set up shop in Mindanao in the 80s. With the recent severe dry spell, however, they’re complaining that the lack of power may prompt them to close down.

Mindanao’s power supply problem lies in the fact that about two-thirds of its electricity requirement comes from hydroelectric plants. Recently, water elevation of Lake Lanao, which provides bulk of Mindanao’s requirement, had breached critical point; it may take months – perhaps up to the year-end – for the situation to return to normal.

Between now and three decades ago, no new plants had been built. Mindanao solely relied on hydroelectric plants even when government officials knew El Niño, which dries up the region’s rivers, occurs about every two years.

While Mindanao accounts for less than half of the economy and would not cut on overall growth substantially, reports of daily power outages and forecasts of a looming deficit in the near future without doubt hurt investor confidence and do not bode well for a new government seeking to get a portion of foreign direct investments coming into the region.

Who is in control?

It has been decided that government should not be in the business of generating electricity. Officials point to the National Power Corp. as an example of why the state shouldn’t be in an industry which entails huge capital. They forgot to realize that the state utility was created with very little equity and too much debt that no wonder, decades of existence would only lead to the agency piling up debt after debt after debt.

With seemingly insurmountable problems, privatization of all assets was deemed as the way to go. The monopoly was dismantled, first by segregating its transmission and generation assets, and then selling all of them to raise funds to pay the utility’s debts.

The government’s deregulation campaign has managed to sell about 80 percent of Napocor’s power plants, and as well as Transco, regarded as one of the government’s crown jewels. Are we any better now?

Indeed, we dismantled Napocor, the monopoly. Yet, we created an oligarchy where several big players now control (not compete against each other) the country’s power supply; they can at any time decide not to run their plants for whatever reason.

Are they ever accountable to anyone? Is the government in control? When you see people and businesses having to contend with hours of power outages and there’s nothing you can do because you no longer are the supplier of last resort, this could only mean you are not in control.

Curse of Napocor’s stranded debt

When you see power plants being sold by the government one after the other, and yet it still ends up with the same amount of stranded debt, doesn’t that mean the plan didn’t work?

I’m counting the days when I start hearing about a “universal levy” to pay for these stranded debts; it’s like increasing taxes when revenue is falling, and state expenses are on the rise. The levy will be in the form of an additional item on your monthly bill – the “purchase power adjustment” of previous years reincarnated and there’s nothing we can do about it.

We take little comfort in the country’s power supply and demand forecast. The “critical period,” or that time when generating capacity won’t be enough to meet demand, will come as early as 2011 for Luzon, while the Visayas and Mindanao regions have unfortunately already entered that phase. 

P-Noy has no time to dilly-dally

Even if we blame the outgoing and past administrations for not doing their jobs, this only serves to highlight the fact that immediate investments are needed in a sector where power generating plants cannot be purchased off the shelf and could take a minimum of three years to build.

Let me end this article with a borrowed quote from Global Source Partner’s special report on the sector: “A worst case scenario, if the next administration dilly-dallies, will see a repeat of the 1990s crisis that will seriously damage investor confidence, pull down economic output and lead to expensive solutions that will affect the country’s long-term competitiveness.”

FilOil Flying V pre-Season tournament

Raffy Villavicencio, the sportsman son of Chito Villavicencio and prime mover of the Villavicencio group of companies’ involvement in promoting collegiate basketball, is all smiles with the successful completion of this year’s FilOil Flying V Pre-Season tournament. Congratulations to Fil Oil, Flying V and their affiliates as the Villavicencio group of companies continues their commitment to support collegiate basketball in the country.

The thrills and drama of the championship game between the eventual winner, San Sebastian Golden Stags, and its rival, the FEU Tamaraws, is a purview of the expected competitiveness of games in the forthcoming 2010 UAAP and NCAA season. The other teams in the Final Four were Adamson U Falcons, for third place, and JRU Heavy Bombers.

Basketball fans in the provinces and in Metro Manila are now looking forward to another exciting collegiate season and the search for the national champion in the Champions League.

Watch this space for more updates on the 2010 Philippine Collegiate Championship Games or visit www.CollegiateChampionsLeague.net.

Should you wish to share any insights, write me at Link Edge, 25^th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.