Uncompetitive

Perhaps a new law ought to be passed allowing private operators of public utilities to scour the open market for more efficient insurance coverage. When that happens, insurers will compete with each other to come up with the most efficient packages for the utilities.

Inefficient insurance covers produce costs that are eventually passed on to consumers by way of added tolls and charges. The old law, enacted presumably when all utilities were nationalized, restricts the choice of insurer to only one: the GSIS. The GSIS, therefore, is a monopoly with no pressure to provide better cover for lower premiums.

Insurance cover is, of course, indispensable. We saw in the case of the damaged Japanese nuclear plants that calamities and unforeseen risks could debilitate vital public utilities. When misfortune happens, the utilities ought to be able to call in insurance cover to quickly rebuild damaged facilities and keep economic disruptions to the minimum.

The same formula operates for individual vehicle owners and corporations who run our major utilities. All insurance policies involve payment of premiums actuarially arrived at by insurers. In a competitive environment, some companies might offer better cover for lower premiums.

Even if they charge the same premiums, some companies might offer a lower deductible threshold than others. In the case of ordinary cars, owners are normally asked to pay for the initial P5,000 of the total costs of insurable damages. If cost of repair is less than P5,000, the owner shoulders the entire cost. If the car is totally lost, the P5,000 might seem more than reasonable.

For large utilities, the insurance premiums run into millions of dollars. A higher deductible threshold for damaged plant and facilities could mean that a lot of cases of plant or equipment loss falling under the threshold will have to be paid for by the utilities company and not by the insurer.

Take, as a case in point, the National Grid Corporation of the Philippines (NGCP), the private company that has taken over what used to be the National Transmission Corp. (Transco).

NGCP, as did its predecessor, pays the GSIS an annual premium of $8.7 million to cover risks due to natural catastrophe or acts of terrorism. The GSIS policy features a deductible cover of $5 million (or about P200 million) for the annual aggregate of claims, $2 million for each and every loss for its submarine cables and the same $2 million for each and every incident of loss to terrorism or sabotage.

It was Transco’s experience, and now the NGCP’s, that most incidents of loss did not exceed the deductible threshold. From 2006-07, Transco’s losses from 10 separate incidents beyond its control totaled about $2.85 million. For 2007-08, losses such as terrorist attacks on power lines and towers amounted to $1.36 million. From 2008-09, the same category of losses from 12 separate incidents amounted to $2.4 million.

In all cases, the losses fell within the deductible threshold and the Transco was not able to collect a single dollar from the GSIS. All the accumulated losses accrued to operating costs passed on ultimately to consumers.

With a new law that enables greater competitiveness for the provision of insurance covers, our public utilities might find a much better deal — and less need to pass on losses to consumers.

Pipeline

There is no certainty about when oil prices will begin to relax. There is, likewise, no certainty about when we could begin delivering oil products to the city in the most economical way: using the pipeline that runs from Batangas to Pandacan, including underneath the controversial West Tower condominium in Bankal, Makati.

First Philippine Industrial Corporation (FPIC) spared no effort fixing the leaking portions of the pipeline, cleaning up the spill and conducting full remediation of the affected area. The pipeline operator recently hired an internationally recognized environmental remediation company, CH2M Hill, to work around the clock developing a permanent solution to the problems created by the pipeline leak.

For months now, FPIC has been hauling and treating the wastewater that continues to seep into the West Tower basement. Soon, an on-site water treatment facility will be installed in the affected area.

As an act of goodwill, FPIC offered residents of West Tower some amount to compensate for the troubles caused by the oil leak. After full remediation, the company is confident the affected residents may safely return to their homes.

The efforts of FPIC to remediate the area, solve the water seepage into the condominium’s basement and eventually reopen the pipeline are now in a bind, however.

In order to test the integrity of the pipeline and see if there are any more leaks, FPIC must turn it on. But the residents of West Tower have blocked that by winning a Writ of Kalikasan from the Supreme Court.

In order to permanently solve the problem of water seepage, the FPIC needs to see the engineering plans for the building. The residents would not give them access to those plans. The Makati engineering office, surprisingly, claims it has no copy of the engineering design. Even the builder of West Tower has no copy. The plans might help in determining if a flaw in the condominium’s engineering design actually caused the oil leak and continues to cause water seepage.

Lately, the residents, encouraged by a few lawyers, have filed multi-billion peso civil suits against the FPIC. Not only have they refused to cooperate with efforts at remediation, they now want the pipeline shut down completely. Without using that pipeline, consumers will have to pay millions more each day in additional fuel costs to cover the expense of hauling the oil overland.

At this point, we can say both the remediation effort and the testing of the pipeline are held hostage by narrow interests conveniently overlooking the greater public good.