The “bombshells” that were supposed to be unleashed during President Aquino’s maiden State of the Nation Address all turned out to be policy issues that require a statement of direction from the new administration. They should not have been presented as anything other than policy issues that require rethinking. Two weeks after that speech, no statement of direction has yet been issued on any one of them.
The losses Napocor absorbed, for instance, were a consequence of a policy decision for government to insulate consumers from the rising costs of generating electric power. Surely, there can be a reasoned debate on the viability of subsidizing power costs.
As a fiscal conservative, my first reaction will be to say no to power subsidies. When the full generation costs are passed on to the direct user of power, this will encourage prudence on the part of users. It will also prevent the poor, who use less power, to pay for the electricity consumption of the rich by way of diminished spending for education and health care.
But I do understand that there could be both macroeconomic and political reasons for such subsidies. The macroeconomic reason is that excessively high power costs could force even more energy-intensive industries to shut down, adding to job losses and inflicting greater costs to the economy. The political reason is self-evident: beyond a certain threshold, power costs could spark riots in the streets.
With the second highest power rate regime in our part of the world, our industrial sector has evaporated. The long-term solution is to reform our “power mix”, weaning away from diesel and coal plants and possibly moving towards nuclear plants to provide baseload capacity. But that, too, is a tempestuous policy debate.
If we do not go nuclear, we will have to live with a “power mix” that leaves a large carbon footprint, uses a lot of scarce and expensive fossil fuels and is vulnerable to shortages. I’d like to hear the administration’s policy on this one — something more than simply insinuating the subsidies applied a few years ago were immoral. At the very least the President can lay down the rule that no subsidies will be paid out for electricity.
The more urgent problem in the energy sector remains the looming electricity shortage. Something needs to be done now to avert an almost certain recurrence of long brownouts down the road. I’d like to see at least some sense of urgency on this problem. We cannot attract investments in our economy if it is certain there will soon be power shortages.
I discussed the Gordian Knot that is the NFA in the previous column. Over the last few days, government appears to be dancing around the core question: will the NFA, which is doomed to lose billions every year, be abolished or retained?
If that is such a hard question to answer immediately, perhaps President Aquino can at least tell us if the old policy of maintaining three months of buffer stocks will be maintained or not. The three-month buffer stock enables the NFA to leverage rice prices in the open market. It also secures us from the peril of crop failure due to extraordinary calamities.
Maintaining a three-month buffer stock is expensive, of course. It leads to wastage of a part of that stockpile. We could, of course, maintain only a minimal emergency stockpile of this vital commodity. But with diminished stock, government could no longer leverage rice prices. Any other option will surely entail a sharp rise in rice prices.
The President misstated the MRT problem in his speech. The information reaching him was not of the best quality. The investors in this project are not losing money at all. The BLT contract ensures them a fixed rate of return. It is government that is losing money because fare levels cover only a small fraction of the real operating costs.
This is true not just for the Edsa MRT line. It is true for all the lines. The fare subsidies are staggering. The only option here is to raise rail fares. The speech should have said that outright.
The MRT-7 line running from San Jose del Monte to North Avenue uses exactly the same contract as MRT-3. If government decides to maintain rates as they are, the toll in terms of a large budget deficit will be shocking.
What is true for the rail transit system is true as well for state colleges and universities, where tuition fees constitute only a small fraction of the real costs of providing the service. If rail fares are raised to bring back some fiscal sanity into their operation, so too must tuition fees be raised.
Unreasonable subsidies are the causes of our indebtedness. We can never achieve fiscal balance without reducing subsidies where it is fairer for direct users to pay. The reason our basic education system is so devastated is that, as a matter of policy, we have applied subsidies to other things that benefit the rich more than the poor — such as fuel (before deregulation), electricity, mass transit and other such things.
Even the much vilified salary scheme at the MWSS is a policy question. When GOCCs are given fiscal autonomy and removed from the standardized salary scale, they are enabled to improve their compensation levels depending on their revenue capacity of course. The reason for this is to at least remotely match private sector rates and prevent migration of talent out of the public service.
There is a cost to uncompetitive compensation. Our weather bureau, for instance, has only three meteorologists left. The others have migrated elsewhere to find better compensation for their skills. Even as we already have a serious shortage of weather forecasters, the chief of Pagasa was sacked last week. I hope we do not reach a point where we recruit from our abundant ranks of lawyers to do our meteorology.
The policy question here, of course, is whether or not we continue with the policy of calibrating compensation in our GOCCs relative to pay rates in comparative jobs in the private sector. If this policy is altered, and GOCC pay is computed using standardized salary scales as comparative, we could have the greatest hemorrhage of talent from the public service. That will prove costlier to government in the long run.