Power Failure: Ten Years of EPIRA (2)

(Second of two parts. Part 1 appeared last Thursday.)

WHAT does the government have to show us after a decade of power industry privatization under the Electric Power Industry Reform Act or EPIRA? Power rates have increased all over the country. More rate hikes loom for consumers from various recovery schemes legitimized under the law. The debts of the National Power Corporation (NPC) have not been substantially reduced from its US$16.4 billion level in 2001 and there is the recurring threat of brownouts in Visayas and Mindanao due to lack of supply.

It seems that consumers have ended up worse than we were before the EPIRA.
Current residential rates are 112 percent higher in Meralco areas and 75 percent on the average for the country when compared with rates prior to the enactment of the EPIRA law. The EPIRA has legitimized the power purchase agreements (PPA) that contained take-or-pay provisions that force us consumers to pay for power that we don’t use. Since the unbundling of rates, the PPA is now hidden and embedded in your electricity bill under several charges like the generation, transmission and distribution rates. Parts of the PPA also go into the systems loss charges.

Yet it is not only the PPA that contributed to the increase in rates. Last column, we pointed out the various recovery mechanisms that are passed on to consumers to cover generation costs, fuel costs, taxes and currency exchange losses. There are also new items such as subsidies and the universal charge. Taxes, systems losses, cross subsidies and universal charges have increased by as much as 50.5 percent since the unbundling of rates under EPIRA in 2003.

One of the supposed objectives of the EPIRA law was to sell NPC’s assets to solve the financial woes of state-owned NPC. NPC obligations then represented a big drain on public resources accounting for 34.9 percent of government’s outstanding debt. As of June 2010, NPC debts still amount to 26 percent of the national government obligations despite the payment of the Psalm of US$18 billion to settle the obligations of the NPC from 2001 to 2010. We are still left with US$15.82 billion to pay for as of 2010.

These debts partly stem from obligations under the contracts that the NPC entered into with independent power producers (IPP). These IPP contracts came with generous incentives and guarantees. This included allowing the IPPs to secure foreign loans with government guarantees or performance undertaking which means that the government would absorb the loan if the IPPs defaulted.

Government also assumed the risks associated with operating the plant through the so-called “take-or-pay” provisions by assuring investors’ returns even if the plant did not operate. NPC used only 20 to 40 percent of plant capacity on the average. Foreign exchange fluctuations are also shouldered by the government. These obligations cause the debts to balloon in 2001 and to continue to grow until now. The previous government also temporarily put a cap on the PPA payments in 2002 due to a strong protest against the increases in the PPA. This 40 centavo cap added more debts for the NPC in the long run.

Section 32 of EPIRA even mandated the government to automatically assume P200 billion in financial obligations of the NPC to sweeten the deal for potential investors. It is in the universal charge that we will see the recovery of these stranded debts and contracts in the future.

Another argument used by the proponents of EPIRA was that it will lead to the entry of various generation and distribution companies into the industry. They were then supposed compete with each other to provide us electricity thus bringing down power rates. The end result is different. After a decade, control of more than half (52 percent ) of the total generation capacity in the country is in the hands of only three companies. San Miguel Energy Corporation and its allies control 20 percent, First Gen of the Lopezes account for 17 percent and Aboitiz has 15 percent of our generation capacity. PSALM holds 19 percent capacity still to be privatized while 11 percent still remain with NPC. Things are the same with distribution where Meralco is owned 45 percent by MPI, 20 percent by San Miguel and 6 percent by the Lopezes. Aboitiz owns a large portion of VECO and Davao Light and Power, the largest distribution utilities in Visayas and Mindanao.

To reverse these anti-consumer conditions would require a lot of things. However, there are already doables that can be done. The government should first stop the privatization of its remaining power assets. It should study ways to increase its role in the power sector such as buying back the transmission lines and previously-owned power plants and also to have a stronger regulatory body that will hear matters involving power rates. The removal of VAT and unjust collections and items in the electric bill such as the systems losses, VAT levied on systems loss, franchise taxes etc can already be done.

In the end, the failure of EPIRA is an example of the failure of privatization as a policy. We should study and formulate a new law governing the power industry that will be pro-consumer and will prioritize national development over private profits. –GIOVANNI TAPANG, Ph.D., Manila Times

Dr. Tapang is the chairperson of AGHAM-Advocates of Science and Technology for the People.