EPIRA amendment may have adverse impact on Napocor privatization

MANILA, Philippines – The Philippine Independent Power Producers Association (PIPPA), a group of private power generating firms, warned the government that the proposed amendment of the Electric Power Industry Reform Act (EPIRA) would undermine the government’s privatization of the National Power Corp. (Napocor).

In a position paper presented to the Senate committee on energy, PIPPA president Ernie Pantangco said “any form of amendment to the EPIRA will create an unstable framework that will engender uncertainty in the industry in a period when momentum has been finally achieved with the privatization of Napocor assets.

“Note that to date, no privatization of the Napocor-IPP contracts have been accomplished,” he said.

The Power Sector Assets and Liabilities Management Corp. (PSALM), tasked to handle the privatization of Napocor assets and supply contracts, had scheduled the start of IPP privatization in August this year.

Pantangco said the proposed legislative initiative to change the provisions in the power bill would affect the successful privatization efforts of PSALM.

“The privatization efforts of PSALM have been gaining successes one after another as shown by the increasing proceeds from the sale of Napocor’s generation assets. The value of old Napocor assets has increased from $0.39 million per megawatt for a small power plant to $1.55 million/MW for the 600 MW Masinloc power plant,” Pantangco said.

He said that as of May 8, 2008, the PSALM privatization process has yielded $6.66 billion (P293 billion) for the government, which includes the sale of the National Transmission Corp. or Transco, power plants, and a decommissioned plant.

“More foreign investments are needed for the Napocor-IPP privatization under the IPPA concept,” he said.

It is estimated that the government could generate up to $4 billion from the privatization of the IPP contracts.

“We strongly believe that there is neither necessity nor expedience in amending the EPIRA at this time. The implementation of reforms mandated by the EPIRA has gained tremendous momentum over the past two years, eclipsing the laggard pace in the early years following the law’s enactment,” Pantangco said.

PIPPA provides a forum to those in the power sector to share and discuss issues and concerns from a sectoral viewpoint.

It has 25 members operating a total installed capacity of 9,572 MW in power plant capacity, 5,837 MW of which are controlled by the Napocor under the Build-Operate-Transfer scheme and the remaining are directly contracted with distribution utilities.

With the recent privatization of the Masinloc and Calaca coal-fired power plants, the PIPPA membership may be augmented by the winning bidders, American Energy Services and Suez Tractabel.

Upon turnover of the plants to the winning bidders, PIPPA members would be operating or managing close to 10,752 MW of generation capacity.

PIPPA is an association independent of the Joint Foreign Chambers of the Philippines, although most of PIPPA’s members are also members of the chambers of commerce that comprise the JFC.

PIPPA represents privately owned power companies operating in the country while the JFC has a far broader base to represent various businesses but mostly industrial enterprises that are end-users of electricity.

“The JFC’s concern in amending the EPIRA is from a consumer perspective. Still, we share the JFC’s views,” Pantangco said.

JFC earlier appealed to the government not to amend the EPIRA, which may turn off foreign investors.

“We respectfully observe that the proposed amendments to the EPIRA will weaken competition structure in the electricity industry that is already taking shape,” Pantangco said.

He said they do not believe that changing the provisions of the EPIRA will lower electricity cost.

“There are effective ways to lower the prices of electricity without amending the EPIRA and without disturbing the legal framework in the industry, the stability of which PIPPA and the private entities intending to participate are relying upon. One such way is to implement Section 35 of the EPIRA itself, which mandates the reduction of royalties, returns and taxes collected by the government in connection with the exploitation of indigenous energy resources. Another way is to subject the sale of electricity to VAT zero-rating,” he said.

He said the sustainable way to achieve reasonable prices of electricity over the medium term is to foster and enhance the competitive structure of the electricity industry.

“What the industry needs is not a palliative temporary solution but one that will remain effective despite changes in prevailing economic and political conditions. Thus, PIPPA members welcome and anticipate this competitive structure. The interest of consumers to enjoy competitive and reasonable electricity prices is also the interest of PIPPA members. The common interest signifies that the industry must remain a viable and stable investment climate not only in the past, or this year, but also in the coming years when additional generation capacities will be needed in Luzon,” he added.

He said instead of amending the EPIRA, the government should actively pursue the privatization of Napocor’s IPP contracts, a mandated activity that has been unjustifiably dormant for more than six years since 2001 when EPIRA was passed into law.

“Lowering the privatization threshold (of Napocor) from 70 percent to 50 percent will undermine the competitiveness of the power industry. At first glance, the lowering of the privatization threshold is innocuous. However, in the light of the safeguards under the EPIRA against market dominance and anti-competitive behavior, such proposal would have a detrimental effect to the industry,” he said.

He said that currently, the government, through Napocor and PSALM, controls 66 percent of the Luzon grid and 76 percent of the Visayas grid based on the figures provided by the ERC in Resolution No. 4, Series of 2008.

“The government effectively dominates the market and breaches the statutory market limits,” he said.