EPIRA after 10 Years: Restructuring or consolidation

Butch Junia
6/27-7/3/2011



In the early talks on reform in the power industry, one of the buzzwords was restructuring, a more polite and civil way of talking about the dismantling of monopolies, or at least, holding them at bay.
The power or electricity industry before the reform law, for practical purposes, was vertically integrated under state oversight or authority.

The National Power Corp. was the sole generator, buyer and seller of electricity, the system operator and, also, the transmission company.

The Power of Choice
Electrification in the countryside was largely provided by the State-supported electric cooperatives, about 120 of them, while a handful of privately-owned distribution utilities served major urban centers.

Though smaller in numbers, the latter served a far bigger customer base, with Meralco, Visayan Electric, Cagayan Light and Davao Light, being the biggest among them.

The Electric Power Industry Reform Act or EPIRA ordained the restructuring of the industry by instituting competition or deregulating the generation sector, uncoupling or further subdividing traditional distribution service into wired-based which was inherently monopolistic and electricity supply and metering which, like generation, could also be deregulated and made competitive.

The overriding objective of EPIRA was to give consumers the power of choice, and to deregulate the two sectors – generation and electricity supply and metering – where the empowered consumers will have options on market-set instead of regulated rates.

A Virtual Monopoly
Critical to this reform was open access to transmission and retail competition.

On one end, government had to surrender its virtual monopoly in the generation sector, and was mandated by EPIRA itself to divest or sell its generation assets as a precondition to open access and retail competition.

This is practically complied with.

But because there have only been changes in ownership of plants with no new significant capacities coming in, the ideal situation for a competitive generation market still has to be approximated.


Privatization
In fact, there have been a number of concerns raised by consumers in the wake of the near-complete privatization of government generation assets.

First, with almost 90% of assets sold, the debts from power have hardly been reduced. The Power Sector Asset and Liabilities Management Corp. still has to make a good account of how the privatization of these assets was managed.

Second, privatization has not resulted in any drop in generation rates. Quite the contrary, rates have gone up with privatization. With supply deficits in the immediate and the medium-term, it would be unreasonable to expect any “market force” to exert pressure on the generation rates.

Ironically, while the calls for new capacity, principally from business and industry, grow more desperate, we have hardly attracted any new players who will risk investment in our electricity markets.

Emerging Giants
Inexplicably, not even our very high rates, the second –highest in the region, after Singapore, has drawn enough interest in the country.

Consumers complained that the privatization of government assets in power had not really led to the entry of new players, but only allowed the old oligarchs to consolidate their hold in the industry.

Emerging giants in generation, in addition to the Lopez group, are the Aboitizes, who now have under its wing as much as 2,246 MW, reportedly accounting for 15% generation of Luzon, 45% of Mindanao and the Visayas, and 14% nationwide.

The Lopez Group’s First Generation has established its presence outside Luzon, on its own account and through Greencore Geothermal, which won Tongonan and Palinpinon. San Miguel Power and DMCI Power are relatively new players, but they both represent very old interests. (See table)

              Status of Privatization Power Plants and Power Contracts.
                     Generation Assets Sold (As of 31 December 2010)

Power Plant	Winning Bidder	Winning Bid Price(US$)
Talomo Hydroelectric	Hydro Electric Corporation	$1.37 Million
Agusan Hydroelectric	First Generation Holdings	$1.53 Million
Barit Hydroelectric	Atty. Ramon I. Constancio	$0.48 Million
Cawayan Hydroelectric	Sorsogon II Electric Cooperative, Inc	$0.41 Million
Loboc Hydroelectric	Sta. Clara International Corporation	$1.42 Million
Pantabangan-Masiway Hydroelectric	First Gen Hydropower Corporation	$129 Million
Magat Hydroelectric	SN Aboitiz Power Corporation	$530 Million
Masinloc Coal-Fired Thermal	Masinloc-Power Partners Co. Ltd.	$930 Million
Ambuklao-Binga Hydroelectric Power Complex	SN Aboitiz Power Hydro Inc.	$325 Million
Tiwi-MakBan Geothermal	AP Renewables Inc.	$446.89 Million
Panay and Bohol Diesel	SPC Power Corporation	$5.86 Million
Amlan Hydroelectric	ICS Renewables Inc.	$0.23 Million
Batangas (Calaca) Coal-Fired Thermal	DMCI Holdings, Inc.	$361.71 Million
Power Barge 118	Therma Marine Inc.	$14 Million
Power Barge 117	Therma Mobile Inc.	$16 Million
Limay Combined-Cycle	San Miguel Energy Corporation	$13.5 Million
Palinpinon-Tongonan Geothermal	Green Core Geothermal Inc	$220 Million
Naga Land-Based Gas Turbine	SPC Power Corporation	$1.01 Million
Angat Hydro Electric	Korea Water Resources Development Corp.	$440.88 Million
BacMan Geothermal	Bac-Man Geothermal Inc.	$28.25 Million

Source: http://www.psalm.gov.ph/privatization.html

Major Issues Unresolved
Can it be truly said that EPIRA reformed and restructured the generation sector?

Not if we go by the rates we pay, and not until major issues are resolved, like the capacity fees charged by recently- privatized assets.

At the other end, government has come out with accreditation rules and guidelines, also market rules, for the Wholesale Aggregators and Retail Electricity Suppliers.

For the big customers in the contestable market, retail competition may come sooner.

Unfortunately, at the household level, there are serious reservations on the timeline for implementation.

For consumers, bringing the power of choice to the household is the threshold for any measurable success of EPIRA.

Inroad to Alleviate Poverty
Last week, as the President signed into law amendments to EPIRA that extended the lifeline rate for another 10 years, he said: “extending this lifeline rate allows those shackled by poverty to focus more of their resources into keeping themselves and their families alive, while also giving them access to electricity.”

In ceremonies leading to the signing and other related stories, this event is being held out as another measure of EPIRA’s success, or at least an inroad into alleviating poverty.

Under lifeline subsidy, households with consumption of 20 kwh and below get 100% discount, 21-50 kwh, 50%, 51-70 kwh, 35%, and, 71-100 kwh, 20%. There is no doubt that this help to such marginal households is significant and meaningful.

But if EPIRA is going to be judged by this program, then it is an utter failure, for unduly burdening the consumers at 101 kwh and above, because they are the ones who bear the full cost of this subsidy.


Who Bears the Cost?
Critics of the subsidy insist that government must bear the cost of this safety net, and not the hapless consumer already burdened by excessive power rates.

It was pointed out that a consumer using over 900 kwh paid P123.00 in lifeline subsidy.

A 140-kwh household paid P25.00. It was suggested that government take out the subsidy from the VAT on electricity, so consumers will not be paying VAT and lifeline subsidy. They, too, must manage their resources and focus on their needs.

Much must still be done in power reform, if it is to achieve its objective. But government will have to be very clear about the objective – is it real power for the consumer, or just realignments in the power centers.