Herman Tiu Laurel
4/9-15/2012
Like a series of bombs as in carpet bombing, determined to obliterate the enemy, the national leaders of the Philippines sent a wave of thunderbolts that stunned the nation to disbelief.
Price increases in oil, LPG and electricity broke records that could only come from heartless government officials.
Amid claims of major economic gains by President Benigno S. Aquino III, manufacturing companies in the Philippines are packing up to move to countries like Vietnam, China, Thailand and other Asian countries where cost and laws are friendly to investors and government corruption is tolerable.
In the first quarter of 2012 the country was immediately hit with the shock of two LPG price increases totaling thirty percent, oil prices spiraled up seven times and just as the quarter ended the Energy Regulatory Commission (ERC) approved an increase for Napocor's electricity generation rate to be implemented starting April and seen in the consumers' power bills by May.
The rate increase amounts to P0.6904 per kilowatt-hour (kWh) for Luzon, P0.6060/kWh for the Visayas and P0.0442/kWh for Mindanao and valid for "eight to 10 years" according to the ERC "which was the length of time we used in the calculation of the GRAM (Generation Rate Adjustment Mechanism) and ICERA (Incremental Currency Exchange Rate Adjustment), according to ERC Executive Director Francis Saturnino C. Juan.
The variance in the duration of the effectivity of the charges as well as the rising value of the Peso relative to the ICERA has raised many questions, but despite these the ERC has put in its final approval.
The public has reacted to the news of the new power rate increase with consternation as reflected in the media in the days following its announcement. A JETRO (Japan External Trade Organization) Asia power rate survey was cited by media and passed on by the public by SMS text messages summing up the report:
Manila at $ 0.23 per kWh; Tokyo and Singapore at $0.20 per kWh; Sydney (Australia) and Cebu (Philippines) at $0.19 per kWh; Colombo (Sri Lanka) at $0.18 per kWh; Mumbai (India) at $0.16 per kWh; Phnom Penh at $0.15 per kWh; HongKong at $0.14 per kWh; Auckland (New Zealand) and Taipei (Taiwan) at $0.12 per kWh; Kuala Lumpur (Malaysia) and Karachi at $0.11 per kWh; Shenzhen (China) and Chennai (India) at $0.10 per kWh; and Jakarta (Indonesia); Shanghai and Guangzhou (China) and New Delhi (India) at $0.09 per kWh.
While already shocking every Filipino power consumer to learn that the Philippines' power rates are already the highest in Asia, what the not generally known yet is that the new power rate increase is just the tip of the iceberg of the shock that is yet to come for them.
The PSALM (Power Sector Asset Liabilities Management), the agency EPIRA (Electric Power Industry Reform Act) created to manage the privatization of all Napocor asssets, has been applying with the ERC for rate increases under the UC (Universal Charge) which will pay for Napocor's "stranded costs" and stranded debts".
"Stranded contract costs" refer to "the excess of the contracted cost of electricity under eligible contracts over the actual selling price of the contracted energy output of such contracts in the market". Simply put, these are debts primarily from IPP contracts for power that was never utilized and what the PPA (Power Purchase Adjustment) was supposed to pay for a decade ago.
Fidel V. Ramos wanted a high PPA imposed but then President Gloria Arroyo decided to ease the rate to spare consumers the full brunt of the onerous debts while Congress sought various alternatives such as issuance of bonds to reduce the PPA. Cory Aquino signed 15 IPPs while Ramos signed 48 and Arroyo 1.
In 2002 the stranded contract cost already amounted to $ 7.4-Billion¹. This belies the impression Sen. Serge Osmeña gives in his statements that Napocor had always been bleeding, a 1989 study cited by economic think tank Ibon Foundation reported Napocor debts stood only at $ 795-million.
"Stranded debts" refer to "any unpaid financial obligations of NPC which have not been liquidated by the proceeds from the sales and privatization of the firm's assets" which includes fuel NPC buys for IPPs, but its full meaning is not settled. A report by Myrna M. Velasco of the Manila Bulletin last March 26 states that "ERC casts 'broad' definition of stranded debts in PSALM costs".
Last year, PSALM sought to recover P471-billion "stranded debts "under the universal charge (UC) component of the electric bills, these definitions haven't been clarified. The power sector debts stand at P 1-Trillion today. PSALM has applied to recover P 140-Billion in "stranded costs" under the UC which amounts to P 0.39/kWh over 15 years.
If all the P 1-Trillion were to be charged it could add almost P 3.00/kWh over the next fifteen years to the already highest power cost in Asia. To hide these costs Congress and PSALM are seeking ways to absorb this into the National Budget and, therefore, still the taxpayers' account.
Electricity is a fundamental requirement in modernization of society and its economy. It is a truism that a modern society should see a growing manufacturing sector relative to its agricultural and service sectors.
If we look at the share of manufacturing to total output from 1998 at 24.5 percent to 23.7 percent in 2005 and 22.2 percent in 2010 and 17.1 percent in 2011, we can see the connection of the rate of electricity price rise as a major factor.
In terms of employment the manufacturing sector share has declined from 10.4 percent of employed workers to 9.5 percent in 2005 and down to 8.1 percent in January 2011.
These jobs losses are huge, and according to economist Ben Diokno several times over the number of jobs created in the business process outsourcing industry.
While many factors contribute to the decline of the manufacturing sector the high cost of power is undoubtedly one of the major reasons, which has compelled the Philippine Chamber of Commerce and Industry (PCCI) and TUCP (labor) and their affiliate organizations to speak on this with uncharacteristic loudness.
While Metro-Manila was coping with the latest power rate hike petition Mindanao had been in arms for the whole quarter, over the twelve-hour long blackouts causing billions of losses.
As the Midanao voices reached the national media, with Governor Emilou Talino-Mendoza of North Cotabato in chorus with Mayor Darlene Antonino-Custodio of GenSan, and Mindanao Development Authority chair Lualhati Antonino declaring the crisis there as "intentional" and "artificial shortage" the bigwigs in Manila were forced to start explaining.
The response of Sen. Serge Osmeña as chair of the Senate committee on Energy can be summed up in a question-and-answer with the press last March 28 in the Senate, "Q: So what's the solution? For them to pay the higher rate na lang?; Serge: Yes. Because the most expensive power, sabi nga, is no power. If you have no power, you have no business, if you have no business, you have no job. That's the most expensive power."
By Serge Osmeña's comment any price, no matter how high, is acceptable so long as supply is there.
If that logic works then why are industries leaving the country for places where power rates are half of the Philippines, like China, Vietnam, Indonesia.
Osmeña's logic favors only the handful of power oligarchs. Seemingly in response, PCCI President Miguel Varela said: "As strategically and correctly planned years before, lower power cost was the key driver in making businesses locate and thrive in Mindanao and would be the a strong platform in achieving peace in the area."
The Mindanao ECs have refused to bite the high priced long term power contracts to solve the short term "intentional" and "artificial shortage" that's actually due to ten years of deliberate non-dredging of the hydroelectric powers reservoirs of Mindanao by the Dept. of Energy authorities appointed in behalf of the oligarchs and clearly protected by politicians like Serge Osmeña who's said DoE secretary Rene Almendras is "doing a good job" despite failing to dredge Agus-Pulangi the past two years which easily could add 50 MW of power costing less than 1 centavo per kilowatt to produce.
A web of darkness now seemingly traps an entire nation, condemning it to generations of economically and socially debilitating high power rates.
That web is the EPIRA, Electric Power Industry reform Act, prohibiting government's role in the power sector and transferring to corporatists hands all its power generating, transmission and distribution assets, including those god-given natural resources such as hydro and geothermal.
It creates a quasi-judicial regulatory body in the ERC designed to be a State in itself, beyond the reach of the Law itself and the Supreme Court (SC) which in 2004 was discovered as the ERC defied it in formulating the PBR (Performance Based Rate) raising allowable power utility profit up to 17% of the rate base over the 12% RORB (Return-On-Rate-Base) formula the SC had judged just and fair.
The ERC changes its various financial formulations practically without public consultations, like the GRAM and ICERA, and imposes them without ensuring public appreciation.
The EPIRA was forced through a lame duck Congress in 2001 after the fall of President J. E. Estrada who opposed "sovereign guarantees" that IPP contracts require to be viable for securitization.
EPIRA was facilitated by IMF $ 900-M power sector and $ 300-ADB rehabilitation loans dangled before the Arroyo government and P 500,000.00 per congressman supposedly distributed by then Speaker Sonny Belmonte, plus P 10-M "O Ilaw" project from the NEA.
Such is the modus operandi of the Western powers using corrupt local political classes, according to the 2004 "Confessions of An Economic Hit Man" by a former U.S. financial expert consultant, John Perkins, and no means was off the table to entrap a Third World country into the web of debt, not even assassination.
The objectives of the hegemonic power: 1) massive profits for its financial institutions from the securitization of projects; 2) in conspiracy with local oligarchs, the takeover massive government assets for a song; 3) financial subjugation and deconstruction of a nation's economic modernization and, hence political, sovereignty.
The public wants solutions, and not the type that Osmeña or Malacañang offered to just accept high power rates just to ensure supply.
The Freedom from Debt Coaliton (FDC) has demanded a review and negotiation of all the IPP contracts beginning with an audit of their books to verify what really are legitimate debts and lower the stranded costs.
It hearings on the IPPs it has been learned that they supply electricity at a much higher price than Napocor, the average cost of electricity supplied by IPPs is about P20 per kilowatt-hour while other producers only charge P3 per kWh, according to energy officials themselves. Batangas Rep.
Hermilando Mandanas, a former investment banker, said the IPPs already recouped their investments, and now make billions of pesos in profits since the Ramos administration.
There have been calls for the re-nationalization of the power sector and the stranded debts amortized with the profits from its operations, i.e. just restoring the surplus back to the public. As the Philippine media has headlined, "Power crisis: No time for Noynoying".
Price increases in oil, LPG and electricity broke records that could only come from heartless government officials.
Amid claims of major economic gains by President Benigno S. Aquino III, manufacturing companies in the Philippines are packing up to move to countries like Vietnam, China, Thailand and other Asian countries where cost and laws are friendly to investors and government corruption is tolerable.
In the first quarter of 2012 the country was immediately hit with the shock of two LPG price increases totaling thirty percent, oil prices spiraled up seven times and just as the quarter ended the Energy Regulatory Commission (ERC) approved an increase for Napocor's electricity generation rate to be implemented starting April and seen in the consumers' power bills by May.
The rate increase amounts to P0.6904 per kilowatt-hour (kWh) for Luzon, P0.6060/kWh for the Visayas and P0.0442/kWh for Mindanao and valid for "eight to 10 years" according to the ERC "which was the length of time we used in the calculation of the GRAM (Generation Rate Adjustment Mechanism) and ICERA (Incremental Currency Exchange Rate Adjustment), according to ERC Executive Director Francis Saturnino C. Juan.
The variance in the duration of the effectivity of the charges as well as the rising value of the Peso relative to the ICERA has raised many questions, but despite these the ERC has put in its final approval.
The public has reacted to the news of the new power rate increase with consternation as reflected in the media in the days following its announcement. A JETRO (Japan External Trade Organization) Asia power rate survey was cited by media and passed on by the public by SMS text messages summing up the report:
Manila at $ 0.23 per kWh; Tokyo and Singapore at $0.20 per kWh; Sydney (Australia) and Cebu (Philippines) at $0.19 per kWh; Colombo (Sri Lanka) at $0.18 per kWh; Mumbai (India) at $0.16 per kWh; Phnom Penh at $0.15 per kWh; HongKong at $0.14 per kWh; Auckland (New Zealand) and Taipei (Taiwan) at $0.12 per kWh; Kuala Lumpur (Malaysia) and Karachi at $0.11 per kWh; Shenzhen (China) and Chennai (India) at $0.10 per kWh; and Jakarta (Indonesia); Shanghai and Guangzhou (China) and New Delhi (India) at $0.09 per kWh.
While already shocking every Filipino power consumer to learn that the Philippines' power rates are already the highest in Asia, what the not generally known yet is that the new power rate increase is just the tip of the iceberg of the shock that is yet to come for them.
The PSALM (Power Sector Asset Liabilities Management), the agency EPIRA (Electric Power Industry Reform Act) created to manage the privatization of all Napocor asssets, has been applying with the ERC for rate increases under the UC (Universal Charge) which will pay for Napocor's "stranded costs" and stranded debts".
"Stranded contract costs" refer to "the excess of the contracted cost of electricity under eligible contracts over the actual selling price of the contracted energy output of such contracts in the market". Simply put, these are debts primarily from IPP contracts for power that was never utilized and what the PPA (Power Purchase Adjustment) was supposed to pay for a decade ago.
Fidel V. Ramos wanted a high PPA imposed but then President Gloria Arroyo decided to ease the rate to spare consumers the full brunt of the onerous debts while Congress sought various alternatives such as issuance of bonds to reduce the PPA. Cory Aquino signed 15 IPPs while Ramos signed 48 and Arroyo 1.
In 2002 the stranded contract cost already amounted to $ 7.4-Billion¹. This belies the impression Sen. Serge Osmeña gives in his statements that Napocor had always been bleeding, a 1989 study cited by economic think tank Ibon Foundation reported Napocor debts stood only at $ 795-million.
"Stranded debts" refer to "any unpaid financial obligations of NPC which have not been liquidated by the proceeds from the sales and privatization of the firm's assets" which includes fuel NPC buys for IPPs, but its full meaning is not settled. A report by Myrna M. Velasco of the Manila Bulletin last March 26 states that "ERC casts 'broad' definition of stranded debts in PSALM costs".
Last year, PSALM sought to recover P471-billion "stranded debts "under the universal charge (UC) component of the electric bills, these definitions haven't been clarified. The power sector debts stand at P 1-Trillion today. PSALM has applied to recover P 140-Billion in "stranded costs" under the UC which amounts to P 0.39/kWh over 15 years.
If all the P 1-Trillion were to be charged it could add almost P 3.00/kWh over the next fifteen years to the already highest power cost in Asia. To hide these costs Congress and PSALM are seeking ways to absorb this into the National Budget and, therefore, still the taxpayers' account.
Electricity is a fundamental requirement in modernization of society and its economy. It is a truism that a modern society should see a growing manufacturing sector relative to its agricultural and service sectors.
If we look at the share of manufacturing to total output from 1998 at 24.5 percent to 23.7 percent in 2005 and 22.2 percent in 2010 and 17.1 percent in 2011, we can see the connection of the rate of electricity price rise as a major factor.
In terms of employment the manufacturing sector share has declined from 10.4 percent of employed workers to 9.5 percent in 2005 and down to 8.1 percent in January 2011.
These jobs losses are huge, and according to economist Ben Diokno several times over the number of jobs created in the business process outsourcing industry.
While many factors contribute to the decline of the manufacturing sector the high cost of power is undoubtedly one of the major reasons, which has compelled the Philippine Chamber of Commerce and Industry (PCCI) and TUCP (labor) and their affiliate organizations to speak on this with uncharacteristic loudness.
While Metro-Manila was coping with the latest power rate hike petition Mindanao had been in arms for the whole quarter, over the twelve-hour long blackouts causing billions of losses.
As the Midanao voices reached the national media, with Governor Emilou Talino-Mendoza of North Cotabato in chorus with Mayor Darlene Antonino-Custodio of GenSan, and Mindanao Development Authority chair Lualhati Antonino declaring the crisis there as "intentional" and "artificial shortage" the bigwigs in Manila were forced to start explaining.
The response of Sen. Serge Osmeña as chair of the Senate committee on Energy can be summed up in a question-and-answer with the press last March 28 in the Senate, "Q: So what's the solution? For them to pay the higher rate na lang?; Serge: Yes. Because the most expensive power, sabi nga, is no power. If you have no power, you have no business, if you have no business, you have no job. That's the most expensive power."
By Serge Osmeña's comment any price, no matter how high, is acceptable so long as supply is there.
If that logic works then why are industries leaving the country for places where power rates are half of the Philippines, like China, Vietnam, Indonesia.
Osmeña's logic favors only the handful of power oligarchs. Seemingly in response, PCCI President Miguel Varela said: "As strategically and correctly planned years before, lower power cost was the key driver in making businesses locate and thrive in Mindanao and would be the a strong platform in achieving peace in the area."
The Mindanao ECs have refused to bite the high priced long term power contracts to solve the short term "intentional" and "artificial shortage" that's actually due to ten years of deliberate non-dredging of the hydroelectric powers reservoirs of Mindanao by the Dept. of Energy authorities appointed in behalf of the oligarchs and clearly protected by politicians like Serge Osmeña who's said DoE secretary Rene Almendras is "doing a good job" despite failing to dredge Agus-Pulangi the past two years which easily could add 50 MW of power costing less than 1 centavo per kilowatt to produce.
A web of darkness now seemingly traps an entire nation, condemning it to generations of economically and socially debilitating high power rates.
That web is the EPIRA, Electric Power Industry reform Act, prohibiting government's role in the power sector and transferring to corporatists hands all its power generating, transmission and distribution assets, including those god-given natural resources such as hydro and geothermal.
It creates a quasi-judicial regulatory body in the ERC designed to be a State in itself, beyond the reach of the Law itself and the Supreme Court (SC) which in 2004 was discovered as the ERC defied it in formulating the PBR (Performance Based Rate) raising allowable power utility profit up to 17% of the rate base over the 12% RORB (Return-On-Rate-Base) formula the SC had judged just and fair.
The ERC changes its various financial formulations practically without public consultations, like the GRAM and ICERA, and imposes them without ensuring public appreciation.
The EPIRA was forced through a lame duck Congress in 2001 after the fall of President J. E. Estrada who opposed "sovereign guarantees" that IPP contracts require to be viable for securitization.
EPIRA was facilitated by IMF $ 900-M power sector and $ 300-ADB rehabilitation loans dangled before the Arroyo government and P 500,000.00 per congressman supposedly distributed by then Speaker Sonny Belmonte, plus P 10-M "O Ilaw" project from the NEA.
Such is the modus operandi of the Western powers using corrupt local political classes, according to the 2004 "Confessions of An Economic Hit Man" by a former U.S. financial expert consultant, John Perkins, and no means was off the table to entrap a Third World country into the web of debt, not even assassination.
The objectives of the hegemonic power: 1) massive profits for its financial institutions from the securitization of projects; 2) in conspiracy with local oligarchs, the takeover massive government assets for a song; 3) financial subjugation and deconstruction of a nation's economic modernization and, hence political, sovereignty.
The public wants solutions, and not the type that Osmeña or Malacañang offered to just accept high power rates just to ensure supply.
The Freedom from Debt Coaliton (FDC) has demanded a review and negotiation of all the IPP contracts beginning with an audit of their books to verify what really are legitimate debts and lower the stranded costs.
It hearings on the IPPs it has been learned that they supply electricity at a much higher price than Napocor, the average cost of electricity supplied by IPPs is about P20 per kilowatt-hour while other producers only charge P3 per kWh, according to energy officials themselves. Batangas Rep.
Hermilando Mandanas, a former investment banker, said the IPPs already recouped their investments, and now make billions of pesos in profits since the Ramos administration.
There have been calls for the re-nationalization of the power sector and the stranded debts amortized with the profits from its operations, i.e. just restoring the surplus back to the public. As the Philippine media has headlined, "Power crisis: No time for Noynoying".
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