Trade Union Congress joins drive vs plan to privatize Agus complex

CAGAYAN DE ORO, Philippines/11 March 2010 by Mike Baños—The largest workers’ party in the country, Trade Union Congress of the Philippines (TUCP),  has joined the bandwagon calling on all Mindanaoans to vigorously oppose the privatization of the Agus-Pulangi Hydroelectric Complex.

“Ten years after the passage of the Republic Act 9136 (or Electric Power Industry Reform Act, better known as Epira) rates have gone up because instead of competition, we see rent-seeking behavior among the new owners,” said Raymond Mendoza, representative of TUCP.

Under the auspices of the Epira, the Power Sector Assets and Liabilities Management Corp. (Psalm) is mandated to privatize all generation assets of the National Power Corp. (Napocor). Already, 86 percent of Napocor’s generating assets have been sold by Psalm to private investors, including 12 hydropower plants. Next in line for disposal by 2011 are the hydro power plants of the APHC which supply 55 percent of Mindanao’s installed power capacity.

The privatization of Napocor assets were supposed to bring about a regime of increased competition, improved operational efficiencies of power providers, ensure a reliable supply of electricity and reduce power rates but instead, TUCP laments prices have increased and virtual cartels and monopolies have proliferated.

“All the promises of privatization remain empty promises,” Mendoza noted. “What we have now is the emergence of private and powerful monopolies and cartels and increasing electricity tariffs which further bleed our workers and consumers.”

The Infrastructure Committee of the Regional Development Council for Region 10  (RDC-10) has endorsed for approval a resolution of the  Cagayan de Oro Chamber of Commerce and Industry Foundation Inc. (Oro Chamber) opposing the privatization of the APHC to the RDC-10 general assembly which is scheduled to meet on Friday.

Among those opposing the planned privatization of the APHC is the Napocor Employees Consolidated Union (Necu) which has previously stated its vigorous opposition to the planned sale.

During a recent presentation of Mindanao stakeholders opposed to the APHC privatization, Necu officials said the planned sale to a single investor will violate Section 4(a), Rule 11 of RA 9136 which sets ownership limit of percent at Mindanao Grid to address potential dominance, market abuse and anti-competitive behavior.

Necu maintains that the purpose of Epira is to ensure the affordability and reasonable prices of electricity in a regime of free and fair competition which does not hold true for Mindanao because the sale of APHC will result in unreasonably increase in the price of electricity in Mindanao.

The current generation (Mindanao) rate (P2.8177/kwh) and distribution rate (P5.50/kwh) will definitely increase because of the significant imbalance between the production cost of Hydro Plants and diesel plants.

This is because the revenues of hydro power plants (of almost P1 billion per month) are used to subsidize the fuel expenses (of about P1 billion per month) of diesel plants. This is the main reason why the power rate in Mindanao (P2.8177/kwh) is much lower compared to Luzon (P4.54/kwh) and Visayas (P4.03/kwh).

If hydro plants would be privatized, the only viable option is to increase the present Mindanao Rate (P2.8177/kwh) to the level of the production cost of diesel (from P5.00/kwh to over P10/kwh) plus rate of return base (Rorb). Consequently, this will certainly triple the price of electricity at the distribution utility/consumer.

The principle of competition to lower electricity rates will not apply in Mindanao because the generation capacity of the existing power plants is enough to meet the power demands in Mindanao. Competition can only exist when the volume of supply of electricity is bigger than the volume of demand.

However, when the volume of supply is equal to or less than the volume of demand, then there is a greater possibility of price dictation. Thus, in the sale of Agus and Pulangi, there is a greater possibility of price dictation than competition.

The privatization of Agus and Pulangi will remove the comparative advantage of Mindanao. One of the major advantages in doing business in Mindanao is the low cost of electricity due to the low production cost of the APHC. Thus, investment, production and development in Mindanao will greatly be affected. Energy-intensive industries will be discouraged to come in and existing industries will be forced to move out under the high power rate regime.  (Mike Baños, Gold Star Daily)