Power and nationalism

DIE HARD III

Herman Tiu Laurel

8/24/2012

Last Monday's column zeroed in on the "Meralco 'subsidy' spin." Besides showing that the Manila Electric Co. (Meralco) and, by extension, Philippine power rates are among the top five highest in the world, we were able to point out that this is not due to any government subsidy but because of a number of other reasons.

In fact, if any subsidy were being given, it is the consumers footing the bill--first, by advancing payments each year--for four year regulatory periods--to Meralco and other distribution utilities (DUs); then, via exorbitant Wholesale Electricity Spot Market (WESM) rates for selected independent power producers (IPPs); then, as payments to Meralco based on a 500-percent to 900-percent overprice of transformers, substations, electric poles, and other assets; plus, a P2.2-billion Meralco exaction for "regulatory liaison;" or even the power firm's carry-on of non-power-related real estate and other projects to its asset base; and the up to 17 percent Performance Based Regulation (PBR) scheme that supplanted the fixed 12 percent Return-on-Rate Base (RoRB) formula that was already upheld by the Supreme Court (SC) in 2003.

Jojo Borja of Iligan Light and Power Inc. (ILPI), being a third generation practitioner in the power generation and distribution business, called us to elaborate further on what he sees as the beauty of the RoRB system.

According to him, "there are even more important differences between the RoRB and the PBR aside from the simple of 12 percent versus 17 percent arithmetic. The 12 percent RoRB is a cap and not automatically granted; and DUs sometimes have to wait for up to three years... as the authorities would review every aspect, from exchange rate to cost of fuel and changes in cost of equipment, etc.; what is approved could be a lot lower than 12 percent. The 17 percent PBR is not only a 30 percent higher rate; it is also granted in advance for four years of a regulatory period and automatically every year until the reevaluation four years later (or the only time) when the rates are reviewed."

But here comes the clincher from Borja's own admission: "Despite the RoRB stringency, ILPI made money; but with the PBR, it's always a bonanza."

Butch Junia, the indefatigable investigator of Meralco foibles e-mailed us his additional observations after reading our last column: "Residential (consumers) contribute 71 percent of Meralco total revenue, the balance from non-residential; in other words, we pay double, not just 25 percent more."

He moreover contends that "PBR as implemented… differs from the way it should be implemented (because) the six objectives of PBR, according to Ingo Vogelsang of Boston University, in his paper 'Electricity transmission pricing and performance-based regulation,' are: efficient day-to-day operation; efficient investment; signaling locational advantages; cost recovery; simplicity and transparency; and political feasibility… (the last of which) means no class of customer is materially disadvantaged relative to another…"

Based on the aforementioned, Junia notes that the "PBR here will fall short on the objectives, particularly the last two."

"On the global price," he adds, "Wikipedia electricity pricing shows that the Philippines is fifth highest after Tonga (57 US cents), Denmark (40.38), Germany (36.48), and Brazil (34.18)... (where the) Philippines is at 30.46… but that was as of March 2010. Considering increases since then, and if Meralco's rate is (now) more than P14 per kilowatt-hour (KWh), then we could be the highest at around 58 US cents. But that is the highest residential rate for Meralco customers, not their average. Still, that is what those consuming more than 400 kWh are charged."

So while the rest of the country debates minor or, worse, irrelevant issues, our nation's power patriots are doggedly sticking their magnifying glasses on the fine print of the labyrinthian local and global experience, rules and processes, as well as actual power rates which a host of government bureaucrats are blind to.

Borja, for instance, has brought his Energy Regulatory Commission (ERC) exposés to Malacañang and to Commission on Audit (CoA) commissioner Heidi Mendoza--but to no avail. Yet, in spite of such setbacks, our crusaders continue to plod on.

The same is true for one other power patriot whom we should highlight this day, August 24th. A former SC Chief Justice (CJ) and the current Honorary Chairman of the Kilusan ng Makabansang Ekonomiya (Movement for a Nationalist Economy), former CJ Reynato Puno, whose Supreme Court affirmed in a landmark 2003 ruling the paramount importance of the 12 percent RoRB cap as the true system for basing Philippine power rates, now joins our increasingly growing ranks.

That landmark decision, which also ordered a CoA audit of three sample years of Meralco's books, later found P46-billion disallowances based on our most senior power consumer crusader Mang Naro Lualhati's computation of CoA's findings.

Unfortunately, those actions were insidiously subverted in the ERC boardroom in 2004 when the regulatory body's commissioners created the PBR and distorted the power rate setting mechanism to the great disadvantage of the Filipino people, while ringing the cash registers of Meralco with annual profit increases of close to 100 percent consecutively thereafter.

Justice Puno will be speaking today, 8:00 a.m. to 12 noon, in the KME-sponsored "Chief Justice Reynato Puno Lecture Series on Economic Justice" at the UP Bahay Alumni. He will also join me in my GNN (September 1, Saturday) "Politics Today" show to discuss the situation of economic justice, specifically how the Philippine power rate crisis is suppressing economic development and justice in this country today.

(Watch Talk News TV with HTL, Saturdays, 8 to 9 p.m., with replay at 11:15 p.m. and Sundays, on GNN Destiny Cable Channel 8, this week on "Politicization of the Judiciary" with Alan Paguia; visit http://newkatipunero.blogspot.com)

Privatization Piracy Projects

PEOPLE'S STRUGGLE

Herman Tiu Laurel

8/20-26/2012

"There are those who intend that one day everything will be owned by somebody and we're not just talking goods here. We're talking human rights, human services, essential services for life. Education, public health, social assistance, pensions, housing. We're also talking about the survival of the planet. The areas that we believe must be maintained in the commons or under common control or we will collectively die." - Maude Victoria Barlow, National Chairperson of The Council of Canadians, co-founder of the Blue Planet Project, chair of Washington-based Food and Water Watch, founding member of the San Francisco–based International Forum on Globalization, former Senior Advisor on Water to the 63rd President of the U.N. General Assembly.

PPP schoolhouses – Private Piracy Project
A headline last Aug. 16 trumpeted: "PPP auction successful … for a second public-private partnership (PPP) project has been deemed a success by the government, which yesterday named two groups as the winners of contracts to build classrooms in three Luzon regions…. BF Corp.-Riverbanks Development Corp. and Citicore Investments Holdings, Inc.-Megawide Construction Corp., Inc. had successfully bid for the Public Private Partnership for School Infrastructure Project (PSIP). Build-lease-transfer contracts expected to be soon awarded involve the construction of 9,301 classrooms, with toilets and furniture, …" But, as our source at the very core of Philippine construction industry informs us and cannot be named as he represents one of the major suppliers to the sector, at a very huge cost to the Filipino people and the National Government:

"The PPP schoolhouses will cost P 1.2-M to construct based on the bid submissions of the winning contractors. If the schoolhouses were built by government it would cost P 700,000.00 only per unit of exactly the same design as the PPP proponents. The Filipino-Chinese business community donates similar schoolhouses as part of chambers of commerce outreach and public service programs, and they cost only P 300,000.00 per unit of exactly the same kind of schoolhouse. The National Government and the Filipino taxpayer will be severely burdened in the coming years paying massively over-priced schoolhouses and the private maintenance expenses will be added to this. It's going to be a mess in the coming years as the toilets and furniture breakdown and there will be constant bickering as to who should be responsible. There will be demands for escalation costs due to exchange rate fluctuations, inflation, and like electricity and water rates the schoolhouse maintenance cost will shoot up."

Like Electricity, a swindle of the Century
A new, double-edged blade of a survey from a foreign energy consultant rates Meralco's power rates as the World's "ninth most expensive". The Perth, Australia based International Energy Consultants (IEC) presentation at the Senate's Joint Congressional Power Commission (JCPC) also reported that the Philippines' power rates are still ranked the "highest power rate in Asia". The JCPC is tasked to oversee EPIRA (Electric Power Industry Reform Act) implementation to provide "least cost" power through "competition and efficiency", and chaired by Senator Serge Osmeña (a Lopez oligarchy-family relation and defender of the oligarchy, he chastised the conservative economic think tank FEF, Foundation for Economic Freedom, as "communists" for supporting the review of EPIRA). Filipinos and Mindanaoans, like labor advocate Louie Corrales, accuse Osmeña of stonewalling pro-people reforms in the JCPC.

The IEC survey named Hawaii, Italy, Malta, Japan, Cyprus, Germany, Denmark, Netherlands, Philippines and Singapore as having the highest power costs: "Meralco is comparable with Singapore, Australia, Netherlands and Denmark (the highest in the World - htl) but significantly higher than several other countries within the Asia-Pacific Region ,… In terms of commercial retail tariff, the Philippines ranked sixth among the 44 jurisdictions, with its $0.2043 per kilowatt hour (/kWh), exclusive of value added tax (VAT), 31% above the average among the 44 jurisdictions. The Philippines' $0.1728/kWh industrial retail tariff was also sixth highest and 26% above the average, while its $0.2485/kWh residential retail tariff was 17th highest and 13% above average." Note that Filipino residential consumers are subsidizing the local industrial sector paying 25% higher rates - and subsidizing private power companies who have never fully paid their privatization obligations to this day.

IEC's lead consultant and director John Morris said, "Several neighboring countries … have average tariffs that are much lower than Meralco's…due to … subsidies of up to 50% to consumers… IEC believes that providing subsidies via lower tariffs is bad economic practice and ultimately unsustainable. When subsidies are added back to retail tariffs, the true cost of electricity in these countries rises to a level that is much closer to Meralco's… " (a lie, Meralco rates are high because of massive overpricing of asset base and distorted Performance Base Rate –htl) - If the policy of subsidizing power is so bad why are all the countries Morris cites as practicing this "bad subsidy" all growing far faster economically than the Philippines? Common sense, Mr. Morris?, but I understand that IEC needs to make concessions to continue serving as consultant to many privatization projects.

IEC is no different from ERC and Meralco consultants Emmerton Consulting, SKM and NCL, providing conflicting data and signals to cover their asses while earning huge consultancy fees (as Butch Junia reports, the three costing up to P 500-M a year, charged to us Meralco customers).

Corpo-rats: unaccountable tyrants.
When I use the term corpo-rats it is not about the thousands of legitimate business enterprises that do business fairly and squarely. I refer to the privileged, power leveraged, foreign financed backed oligarchs like the Lopezes, Pangilinans, Cojuangcos et al, who combine and use manipulation of politics, financial maneuvering and corruption. Corpo-rats include the foreign trans-nationals exposed by John Perkins in his book "the Economic Hitman". We all know by now how bribery and IMF-World Bank pressure got the EPIRA passed in Congress in 2001, we all have learned over the years how the U.S. has been pressuring governments to open up their markets through globalization, and today, the complete privatization of public assets. Here're some words of wisdom from linguist, philosopher, social activist Noam Chomsky:

"Privatization does not mean you take a public institution and give it to some nice person. It means you take a public institution and give it to an unaccountable tyranny. Public institutions have many side benefits. For one thing they may purposely run at a loss. They're not out for profit. They may purposely run at a loss because of the side benefits. So, for example if a public steel industry runs at a loss it's providing cheap steel to other industries. Maybe that's a good thing. Public institutions can have a counter cyclic property. So that means that they can maintain employment in periods of recession, which increases demand, which helps you to get out of recession. Private companies can't do that in a recession. Throw out the work force because that's the way you make money."

The tyranny of the corpo-rats is highlighted in the case of Department of Energy chief Rene Almendras who was already announced by Malacañang months ago to be replaced by August 1 with a new face, Emmanuel Bonoan. Two weeks of August have passed and Almendras has not budged from the DoE. Why? If we follow the most crucial issues under the DoE we will see that the largest deal in the offing is the extension of the Malampaya natural gas contract which will negate the Philippine's 100% control over the multi-billion facility when the contract is supposed to expire in 2024. Shell and Chevron-Texaco want to abort this transfer of the assets to the Filipino people, and the man they trust to consummate it is Almendras; now not even Malacañang can make its decision to replace Almendras stick. In many aspects of our economy this is the helpless situation our government finds itself in. It is the same in the power industry where all sectors of the people now reject the EPIRA but cannot do anything about it.

Philippines must fight back
The privatization programs will go on endlessly until the Filipino as a nation and as a people have nothing left and all is under the control of a few oligarchs to drain the economy (as it was in Russia under Yeltsin) or until we as a people and led by an intelligent middle-class stand our ground and start fighting back. Many other countries shave done this, from Iceland which is now putting some of its parasitic bankers in prison for collaborating in privatizing state banks and swindling Iceland's savings depositors, to Venezuela, Bolivia, Ecuador and many OTher Latin American countries who are taking back what is properly for the "commons" such as oil and other Mineral wealth, as well as power and water utilities, i.e. what is best shared amongst the people and the nation. This is the People's Struggle.

(Watch Destiny Cable GNN's HTL edition of Talk News TV, Saturdays, 8:15 to 9 p.m., with replay at 11:15 p.m. and Sunday, this week: "Politicization of the Judiciary" with Attys. Bono Adaza and Alan Paguia; visit http://newkatipunero.blogspot.com)