Transcript Why is electricity so expensive in the Philippines?

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PHILIPPINE POWER RATES: ASIA’S
HIGHEST
 PHILIPPINES -------US$0.2460/kWh
 Japan---------------US$0.243/kWh
 Singapore---------US$0.22/kWh
 Indonesia----------US$.092/kWh
 Thailand------------US$.086/kWh
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WORLD’SInternational
HIGHEST
POWER
RATES
Energy Agency (Q1 2011)
RESIDENTIAL (/kWh)
 Denmark ---US$0.3563
 Germany --- US$0.3248
 Italy --- US$0.2632
 Austria --- US$0.2576
 PHILIPPINES- US$0.2460
 Ireland --- US$0.2326
 Japan --- US$0.2322
 Belgium --- US$0.2317
 Netherlands --- US$0.2212
 Sweden --- US$0.2180
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WORLD’S International
HIGHEST
POWER
RATES
Energy Agency (Q1 2011)
INDUSTRIAL (/kWh)
 Italy --- US$0.2581
 Slovak Republic – US$0.1691
 Japan --- US$0.1544
 Turkey --- US$0.1509
 Czech Republic – US$0.1439
 Ireland --- US$0.1372
 PHILIPPINES ---US$0.1320
 Belgium --- US$0.1245
 Netherlands --- US$0.1230
 Luxembourg --- US$0.1219
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IMPLICATIONS:
 Uncompetitive regionally
 PPP viability suspect
 Investors moving to Asia Pacific, we might miss out on
the boat
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WHY AND HOW DID THIS
HAPPEN?
 EPIRA unbundled the natural horizontal monopoly of
the industry: generation, transmission, distribution
unbundled.
 Theory that the generation firms would compete with
one another.
 What the industry did was to vertically re-integrate so
that the Genco sells power to the Disco through a
“sweetheart contract” involving firms which are crossowned .
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WHY AND HOW DID THIS
HAPPEN?
In Generation Sector
 The Generation sector under EPIRA defined as not
being a “utility”. Only utilities are subject to the 12%
RORB ceiling of the Public Utilities Law.
 The RORB of Gencos ranges from 29% to 40%.
 Cross-ownership was allowed under the EPIRA
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WHY AND HOW DID THIS
HAPPEN?
 Unbundling created four (4) middlemen structures to
jack up the rates at each stage: (i) generation; (ii)
transmission; (iii) distribution; and (iv) aggregation
 The
PSALM holds NPC hostage through an
Operations and Management Agreement (OMA)
whereby all the gross receipts from the operations of
the NPC must be turned over to the PSALM.
RESULT: Additional “Stranded Costs”.
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WHY AND HOW DID THIS
HAPPEN?
 A politicized and captured ERC. The ERC contributed
to the problem through a Performance-Based Ratemaking Formula (PBR).
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WHY AND HOW DID THIS
HAPPEN?
In Distribution Sector
 PBR allowed distribution utility to charge extra for:
(i) Connection of new applicants;
(ii) Putting back lines brought down by typhoons;
(iii) Increased street-lighting and lighting for public
areas such as parks;
(iv)Better efficiency in operations; and
(v) Meeting hurdles the DU set up itself.
BUT THESE ACTIVITIES WERE PROMISED BY THE
DU AS BASIS FOR AWARD OF FRANCHISE
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HISTORICAL OVERVIEW OF THE POLITICAL DYNAMICS
THAT CONTRIBUTED TO THE HIGH TARIFFS
 FVR Administration. The 35 IPP Take-or-Pay
Contracts left for consumers or taxpayers to assume as
stranded costs.
 Government sold NPC assets debt-free.
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HISTORICAL OVERVIEW OF THE POLITICAL DYNAMICS
THAT CONTRIBUTED TO THE HIGH TARIFFS
 Estrada Administration. Allowed the private sector to
take over the industry whole hog.
 A financially rapacious and socially unaccountable
private sector cartelized the electricity industry.
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HISTORICAL OVERVIEW OF THE POLITICAL DYNAMICS
THAT CONTRIBUTED TO THE HIGH TARIFFS
 Arroyo Administration. The Arroyo government sold
the remaining assets low (by overvaluation of
liabilities and undervaluation of assets).
 RESULT: the high stranded costs of NPC remained
unaddressed.
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THE COMING STORM:
ADDITIONAL POWER RATE INCREASES
 PSALM’s P1 Trillion stranded costs is to be charged as part
of the “Universal Charge”. Estimated to cost an additional
P0.39/kWh.
 SPUG-NPC budget shortfall of P7 Billion just for 2011.
This will cost additional P0.07/kWh included in the
“Universal Charge.”
 Additional SPUG-NPC P3.1 Billion budget shortfall for
ICERA and GRAM. This will increase power rates for offgrid areas.
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THE COMING STORM:
ADDITIONAL POWER RATE INCREASES
• NPC-Meralco CA settlement: Php 14 Billion,
Meralco may pass-thru amount of penalty
imposed upon it to consumers.
• Pending ERC petitions of Meralco, Davao Light and
Power, Visayas Electric Company, and other
Distribution Utilities (including 119 electric
cooperatives).
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THE COMING STORM:
ADDITIONAL POWER RATE INCREASES
 Transition Supply Contracts between distribution
corporations/or NPC and the privatized Generating
firms end in 2011, and are up for renewal. These Gencos
are defined under the EPIRA as not being utilities and
therefore not subject to a 12% ceiling on RORB or ROI.
The end result is that these Genco Generation Charges
will zoom up with their new contracts.
 The Transition Supply Contracts of the Independent
Power Producers/Gencos who are selling through an
IPPA Administrator (salesman or middleman) will end
in 2011. Therefore new IPPA contracts will bring up
Genco Generation Charges.
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THE COMING STORM:
ADDITIONAL POWER RATE INCREASES
 Ecozones discount rate program ends December 25:
Cost goes up by P1.03/kWh
279 manufacturing companies affected – 43% of
manufacturing exports (P19 Billion)
High electricity rates is 40-50% of total operating
cost
222,213 jobs at stake
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THE COMING STORM:
ADDITIONAL POWER RATE INCREASES
 The proposed Renewable Energy program with its
Feed-In Tariff would tie the country up to immature,
unreliable and expensive power that would entail an
additional P0.1256/kWh.
 SC Case on illegal dismissal of NPC workers:
Backwages of P48 Billion.
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 EVERY ONE (1) CENTAVO PER kWh INCREASE
REPRESENTS P657,000,000.00 PER ANNUM (BASED
ON CURRENT DEMAND OF 7,300 MW)
 One centavo (1)/kWh of power increase means 40% or
P263,000,000.00 is taken away which should be food
for the poor (based on lifeline rates); 10% or
P118,000.00 represents educational costs, medicine,
transportation or house rentals
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THE POWER INDUSTRY PLAYERS:
THE CARTEL
 POWER GENERATION is now in the hands of four
(4) sisters: Pangilinan, SMC, Aboitiz, and Lopez/EDC .
 DISTRIBUTION is dominated by MERALCO (71% in
Luzon), Aboitiz (700 MW Visayas; 300 MW Davao)
and CEPALCO (100 MW Cagayan de Oro).
 80% of the land area are serviced by electric
cooperatives with a total of eight (8) million
households.
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THE POWER INDUSTRY PLAYERS:
THE CARTEL
 TRANSMISSION is the concessionaire National Grid
Corporation of the Philippines held by the SM Group,
One Taipan Holdings of Henry Sy, Jr.
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RECOMMENDATIONS
(NATIONAL)
 Define generation sector legislatively as a public utility
and therefore subject to 12% RORB ceiling under
Public Utilities Law.
 Halt additional programs that would only bring up
electricity rates: (a) open access; (b) aggregation; (c)
PEMC-WESM expansion; (d) RE FIT program.
 Do away with PBR Formula: Return to RORB ceilings
for Distribution Utilities.
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RECOMMENDATIONS
(NATIONAL)
 Register all electric cooperatives with CDA to ensure
genuine consumer ownership and lower rates through
tax exemptions including VAT.
 Compel all generation corporations through
legislation to have at least 50% of their shares to be
publicly held.
 Undertake public bidding of the purchase by all
distribution firms of their power requirements within
the next six (6) to eight (8) months.
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RECOMMENDATIONS
(NATIONAL)
 Require all power firms to invest a set percentage of
their annual earnings to the development of the
baseload of the country with priority to Mindanao.
 Establish a National Distribution Corporation for the
purpose of doing away with all sweetheart deals
between related companies in the generation and
distribution sectors.
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RECOMMENDATIONS
(MINDANAO)
 Accelerate transfer of two (2) power barges from
Visayas to Mindanao to provide additional 200 MW
capacity in less than a year.
 Rehabilitate Operation and Maintenance Contract for
Agus Pulangui Hydroelectric plants through
international bidding. No need to privatize since a
reasonable rate increase can be built in through the
ROM contract.
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RECOMMENDATIONS
(MINDANAO)
 Stop the interconnection of grids between Visayas and
Mindanao. This will only jack up the rates. WESM will
only bring up rates through additional costs.
 Maramag transmission line to connect power
produced in Northern Mindanao to power needed in
Southern Mindanao.
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RECOMMENDATIONS
(MINDANAO)
 Rescind OMA of PSALM, remit all gross receipts of
Agus-Pulangui for its rehabilitation and maintenance.
 Create a GOCC, the Mindanao Power Corporation to
operate Agus-Pulangui.
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Thank You.
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