IMF: No abrupt power rate cuts

The International Monetary Fund (IMF), in remarks made available yesterday, has warned the Philippines against abrupt cuts in electricity charges.

IMF mission head Joshua Felman said the government "needs to pull off a delicate balancing act" in order to bring down power rates while giving investors a fair deal.

He said the government must take into account the "looming power shortage" that could hit the country if it does not attract new investors to set up power plants to replace aging ones.

"To entice foreign and domestic investors to come into the power industry, there is a need to establish a credible regulation structure to cover the cost (of investment)," Felman said.

Under political pressure, President Arroyo last month ordered a temporary cut in electricity charges and a suspension of the controversial purchased power adjustment (PPA) which is levied as part of the contract between the state power utility and private generators.

Energy officials have said the government will have to borrow as much as P15 billion to cover the losses caused by the reduction in electricity charges.

Felman warned that suspending the PPA would have "an immediate financing cost" to the cash-strapped government.

Bangko Sentral ng Pilipinas Governor Rafael Buenaventura said the initial damage of the power rate reduction was minimal but conceded that "the national government cannot forever shoulder the shortfall."

Mrs. Arroyo earlier said her order would be in effect until the government’s Energy Regulatory Commission reviewed electricity tariffs. –AFP