Mindanao power is more expensive than Asia’s major cities

Mindanao power is more expensive than electricity rates in major cities in Asia but Aquino wants the region to pay more to supposedly address its power crisis (Photo from manilastandardtoday.com)

Mindanao must pay more to end the rotating brownouts, the President declared in his Power Summit speech. The region, said Aquino, needs more power supply but “cheap” power rates are discouraging private investors from building new power plants to meet Mindanao’s growing energy needs.

Pay more

“But how can you entice anyone to invest—and this is the question—if their generating cost is more than their selling cost?” Aquino, in his speech, asked. “The simple truth is: we can have a lot more energy, but we have to provide the incentives for businesses to come here to put up those plants. Therefore, there will be a change in what we have to pay. We will have to pay, perhaps, a bit more… You have to pay more because this is the reality of economics… Everything has its price. We have to pay a real price for a real service. There are actually just only two choices: pay a little more for energy, or live with the lack of energy and the continuation of the rotating brownouts.”

Cheap rates?

Aquino must apologize to the people of Mindanao for blaming them for the power crisis and accusing them of being spoiled by “cheap” power rates. Aquino must apologize for being shamelessly insensitive to the plight of Mindanao where 36% of the country’s poorest families live (based on the latest official poverty statistics released by the National Statistical Coordination Board or NSCB).

The premise that Mindanao has been unjustifiably enjoying “cheap” power rates is totally wrong. True, Mindanao has lower power rates than Luzon and Visayas. Latest available comparative data show that the region has an effective residential rate of P6.69 per kilowatt-hour (kWh). Luzon has P9.84 while Visayas has P8.19. (Data from 18^th EPIRA Implementation Status Report, which may be downloaded here)

Most expensive in Asia

Aquino, however, did not mention one very important fact. Mindanao power is “cheap” only because the country has the highest electricity rates in Asia. In a survey conducted by the Japan External Trade Organization (JETRO), Manila posted the most expensive residential rate (P10.16 per kWh), while Cebu (P8.39) is ranked third (Singapore ranked second with P8.83). JETRO conducted the survey in January 2011 to compare investment-related costs, including electricity, in 31 major cities in Asia and Oceania. (See the table at the end of this article for the complete list; Download the JETRO survey here)

While Aquino is blaming the power crisis on the people of Mindanao for being pampered by “cheap” power, Mindanao is actually paying much more than most major cities in Asia. Did you know that residential consumers in the Autonomous Region in Muslim Mindanao (ARMM), Cagayan de Oro City, Northern Mindanao, and the Davao and CARAGA regions are paying twice the electricity rates of residents in Seoul and Beijing? Except for CARAGA, all the Mindanao regions I mentioned also have more expensive residential power rates than Hong Kong. These areas in Mindanao, plus Cotabato City, Iligan City, SOCCKSARGEN, and the Zamboanga Peninsula all have higher residential rates than major Asian capitals like Taipei, Kuala Lumpur, Jakarta, New Delhi, Bangkok, and Shanghai, among others. All in all, Mindanao is paying an average of P1.82 per kWh more for electricity than the collective average residential rate of the 31 major cities in Asia and Oceania surveyed by JETRO.

I summarized these findings in the chart below, which culled data on residential rates from the JETRO survey and data on average residential rates of private distribution utilities (PDUs) and average systems rates of electric cooperatives (ECs) from the 18^th EPIRA report. The red bars represent Mindanao regions and cities.

Poorest region

Note that Mindanao has an average official poverty incidence of 33.5% of families (the national average is 20.9%). The country’s three poorest regions are in Mindanao – CARAGA (39.8%), ARMM (38.1%), and Zamboanga Peninsula (36.6%). ARMM does not only have the most expensive power rates in Mindanao, it also has (consequently) the highest cost of living (more than P1,287 based on the family living wage released by the NSCB in July 2008) among all regions in the Philippines, while the minimum wage there is just P232 (or just 18% of the cost of living). Amid this condition, the people of Mindanao are being forced to pay for electricity that is way beyond the rates in Asia’s richest cities. Yet Aquino wants Mindanao to shell out more money to supposedly solve its power crisis.

Blame EPIRA

Mindanao has lower rates than Luzon and Visayas not only because it sources its energy supply from cheaper hydropower but also because the region has been relatively and temporarily spared from the privatization and deregulation drive under EPIRA. State-controlled/owned installed capacity in Mindanao is still about 82% of the total (as of 2010 data from the DOE), compared to 18% in Luzon and 36% in Visayas where most power plants have already been privatized and are now controlled by the country’s profit-seeking “power lords”. Furthermore, unlike Luzon and Visayas, Mindanao does not have an EPIRA-created wholesale electricity spot market (WESM), which has only become a venue for price manipulation and speculation by power monopolies, sparking off wild spikes in power rates.

But EPIRA is also to blame for Mindanao’s energy insecurity. While government retained control over most of the installed and dependable capacity in Mindanao, it did not invest in additional capacity to meet the growing power demand of the region. Government abandoned its strategic role to design and implement power development projects consistent with a long-term industrialization plan and instead focused on selling the assets of the National Power Corporation (NAPOCOR) to private investors as mandated under EPIRA.

Reverse privatization

To fully solve the energy insecurity of Mindanao and the rest of the country as well as the problem of expensive electricity, there is no other recourse but for the state to take over. Aquino could no longer use the excuse that doing so will just further bankrupt the government. Despite the EPIRA, NAPOCOR remains trapped in deep debt (read here). So instead of further wasting limited public resources on a flawed energy program – which only made electricity bills more exorbitant and power supply more insecure – government should start reversing the privatization and deregulation of the energy sector. #

Join “people power” vs. high oil prices and Noynoying, join CAOPI

The media called it People Power against oil price hikes. And maybe it is, considering how the issue of very high oil prices has united various groups from a wide political spectrum. From militant labor and transport to businessmen, from progressive lawmakers to the more traditional legislators, from Church leaders to the radical youth, from civil society to national democratic organizations. Looking at the lineup of the convenors and supporters behind the Coalition Against Oil Price Increases (CAOPI), one would get a sense of broadness that could resemble those of the movements which toppled two regimes.

Broad coalition

CAOPI was launched last Monday (March 26) in a press conference at the UP campus in Diliman. Convenors and supporters who were present include the progressive bloc in Congress led by partylist representatives Teddy Casiño of Bayan Muna, Ka Paeng Mariano of Anakpawis, and Raymond Palatino of Kabataan; Zambales Rep. Mitos Magsaysay, one of the most vocal critics of the Aquino administration;  former legislator and now publisher Jacinto Paras; Marikina City councilor Jojo Banzon; Alliance of Concerned Truck Owners and Operators (ACTOO) President Ricky Papa; a representative of National Economic Protectionism Association (NEPA) President Bayan dela Cruz; UP Professor and VP for Public Affairs Danny Arao; Anti-Trapo Movement President Leon Peralta; Francis Mariazeta III, a barangay chairman in Manila; and think tank IBON Foundation Executive Director Sonny Africa. They were joined by national leaders of organizations under the multisectoral Bagong Alyansang Makabayan (Bayan), including militant labor Kilusang Mayo Uno (KMU), transport group Piston, fisherfolk group Pamalakaya, urban poor group Kadamay, women’s group Gabriela, youth groups Anakbayan and National Union of Students of the Philippines (NUSP).

Other personalities who joined the coalition or expressed support but were not present during the launch are Novaliches Bishop Emeritus Teodoro Bacani, Philippine Chamber of Commerce and Industry’s (PCCI) Donald Dee, National Council for Commuter Protection (NCCP) President Elvira Medina, and Manila City Councilor DJ Bagatsing. CAOPI convenors also include members of the Catholic and Protestant clergy, union presidents of the some of the country’s largest companies, as well as student councils of several universities in Metro Manila. (Download the initial list of CAOPI’s convenors and supporters here)

Inaction, crime against the people, too

CAOPI is not calling for the ouster of the Aquino administration. Its raison d’etre is fairly modest – that is for the President to recognize the worsening problem of high oil prices and concretely do something to address it. In its unity statement, the people and groups behind CAOPI said that they are “alarmed and enraged by the inaction of President Benigno Aquino III amid the spate of oil price increases.” The coalition demands that “government immediately intervene to stop the unreasonable oil price hikes, bring down the prices of petroleum products, and control oil prices.”

Edwin Lacierda, Aquino’s arrogant spokesman, as expected dismissed the newly-formed group, insisting that government is addressing the problem. “Kung ayaw n’yong makinig, ano’ng magagawa namin? Kung ayaw nilang maniwala, ano’ng magagawa namin?”

But the simplicity of its message and the concreteness and more importantly, the legitimacy of its demands – amid escalating fuel prices and popular perception of Noynoying – give CAOPI the vast potential to steadily grow and persist, yes, like People Power. Not even the vaunted high popularity rating of Aquino will endure the groundswell of protests and social unrest if government will continue to ignore the problem and insist on its problematic policies like the Oil Deregulation Law and the 12% value added tax (VAT). Note that surveys also show the deteriorating public perception on Aquino’s inaction on high oil prices (for instance, read here).

The Yellow crowd may argue that it is baseless to invoke People Power against Aquino because unlike Marcos and Erap, he is not corrupt. In fact, he is going after Gloria Arroyo, Renato Corona, and their cohorts in plundering the nation. These people are plunderers and they should be punished (although it remains to be seen if Aquino will go all the way in punishing their corruption even if it means undermining the status quo that serves the political elite like Aquino). But going after Arroyo while tolerating and legitimizing the bigger plunderers like the foreign oil companies and their local partners is also a crime against the people. Insisting on collecting the VAT on oil at the great expense of the people is a crime as grave as, if not worse than, collecting tongpats from government projects.

Just and legitimate

CAOPI’s demands and proposals are just and resonate the sentiments of our people. It said that the Aquino administration’s excuse that it is helpless amid escalating fuel prices is unacceptable as it argued that concrete steps can be immediately taken such as: Imposing a moratorium on more oil price hikes, which it said the President can do due to the extraordinary situation of high oil prices undermining public and national interests; immediately bringing down oil prices by removing, suspending or reducing the regressive VAT on petroleum products; and addressing overpricing by oil companies and regulating local prices by and repealing the oppressive Oil Deregulation Law. It challenged President Aquino to exercise political will and implement these reforms to protect the interest of ordinary consumers and the domestic economy. (Download the CAOPI unity statement here)

The group is not asking the people to swamp Edsa to pressure the President to take decisive, pro-people steps against high oil prices, well not yet. But it is asking the public to participate in a series of actions that will force Aquino to listen and do something, beginning with a coordinated noise barrage on March 30. CAOPI declared that it will continue to pressure Aquino and the entire government until they address the urgent problem of excessive oil prices.

Join CAOPI

No group, including the Aquino clique, has a monopoly over People Power, which in its simplest form is about the people asserting its sovereign power to determine which policies best serve their welfare and interests. In demanding that Aquino reverse its position on the VAT and the Oil Deregulation Law and mobilizing the broadest support possible, CAOPI is indeed exercising People Power.

If you wish to become a member or supporter of CAOPI, you may contact its Secretariat at caopi.secretariat@gmail.com and include your name in its Unity Statement. You may also visit the website of Bayan (www.bayan.org) for updates and more information. #

Mar Roxas: From Mr. Palengke to Mr. Perwisyo

Roxas’s 180-degree turn on the issue of oil VAT is yet another proof that the supposed change the Aquino administration has been peddling is nothing but an illusion (Photo from plurk.com)

On the heels of the successful nationwide people’s protest against high oil prices last March 15, Malacañang reaffirmed its position not to lift the 12% value-added tax (VAT) on oil. One of the administration officials who immediately articulated the Palace stand was Mar Roxas, secretary of the Department of Transportation and Communications (DOTC). Defending the oil VAT, Roxas said that revenues generated by the controversial tax “are being used to render services to the public”. “It’s easy to say ‘stop collecting taxes’ but this would mean that a particular government service will be affected,” Roxas argued.

Mar column

It’s amazing how fast Roxas changed his mind about the oil VAT. To those who have a short memory, let me refresh your recollection by quoting portions of Roxas’s column Mr. Palengke that the tabloid Abante used to publish. The opinion piece, entitled “$100 kada bariles”, was published by the popular daily in its Jan. 8, 2008 issue. It was Roxas’s reaction to the then escalating prices of oil that for the first time breached the $100-a barrel mark.

(Click on image to download full article)

“Hindi na po normal ang sitwasyon natin ngayon. Alam nating ang langis ay talagang nakakaapekto sa lahat ng aspeto ng pamumuhay: transportasyon, pagkain, kuryente, manufacturing ng mga produkto, at marami pang iba. Kaya sa bawat pagtaas ng presyo ng langis, sumusunod naman ang presyo ng iba pang produkto at serbisyo. Nanganganib talaga ang bulsa ni Juan dela Cruz. Maikli na ang kanyang pisi, lalo pa itong iikli.

Naaalala ko, noong kakatapos lang na ipasa ang Expanded Value-Added Tax Law noong 2005, sumipa ang presyo ng krudo mula $36 kada bariles hanggang $56, at natakot tayo noon na sumipa pa ito sa $75 kada bariles.

Ngayon, $100 na, ang layo na sa dating mga presyo at kailangan na talaga ang parehong mga agaran at pangmatagalang solusyon sa umaalagwang presyo ng langis. Kailangan na ng political will. Walang lugar para sa mga “token-ism,” o mga pakitang tao. Kung talagang ginugusto ng pamahalaan na makatulong sa ating mga kababayan, isang malinaw at kongkretong hakbang na maisasagawa ay ang agarang pagsuspinde sa EVAT sa langis at mga produktong petrolyo.

Agarang ginhawa sa halagang P4 kada litro ng diesel o P60 kada tangke ng LPG ang maidudulot nito. Kung gusto talaga ng pamahalaan na mapaginhawa ang buhay ng ating mga kababayan, sana’y suportahan nila ang ating panukala.

Hanggang ngayon, tila ba hindi pa rin nagbabagong-loob ang administrasyon dito. Nakakalungkot, dahil P20-30 bilyon lamang ang mawawala sa pamahalaan sa anim na buwang suspensiyon ng EVAT sa langis, kumpara sa kalakhang P1 trilyong revenues nito. At sabihin nang sa mga social services daw, tulad ng edukasyon at kalusugan napupunta ang pondong ito, nararamdaman ba ninyo ito?

Ang nakakalungkot pa, malaking halaga ng buwis na dapat makolekta ay nawawala dahil sa katiwalian at iba pang mga leakages. Noong 2006 nga, ayon sa isang pag-aaral ng DOF mismo, may P107 bilyon ang hindi nakolekta dahil sa mga leakage. Ang lalong nakakalungkot, ang kalakhan ng mga leakage ay naroon sa mga buwis na hindi nakokolekta sa mga malalaking tao. Hindi nakolekta ang P81.96 bilyong potensiyal na kita mula sa corporate income tax. Samantala, ang tinatawag na “tax gap rate” sa income tax ng mga negosyante at propesyonal ay nananatiling mataas, sa 40%, kumpara sa tax gap rate ng income tax ng mga manggagawa, na nasa 10% lamang.”

Pera ni Juan dela Cruz ito, hindi ito pera ng gobyerno. Hangga’t hindi natin nakikita na mahusay ang paggastos ng gobyerno sa pera ng taumbayan, mabuting ibalik muna ito sa kanila upang maibsan ang kanilang kahirapan. Ipinasa noon ang EVAT dahil nanganganib na humina ang ekonomiya dahil sa sinasabi nilang “fiscal crisis”. Ngayon naman, nanganganib na bumagsak ang ekonomiya kapag naipit nang naipit ang pagkonsumo ng ating mga kababayan. Ibang sakit ang ating nararanasan ngayon, hindi puwedeng parehong gamot pa rin ang ating inumin.” (All emphases mine)

People deserve break

Roxas used to think that removing the VAT on oil, even if temporarily as he proposed then, will translate to immediate benefits for the poor. In his 2008 column, he said it’s P4 per liter for diesel and P60 per 11-kilogram (kg) tank for liquefied petroleum gas (LPG). Today, the immediate benefits are even bigger – for diesel, it’s almost P6 per liter and for LPG, as much as P110. “Government believes it should keep on collecting EVAT on oil and be the sole arbiter on how these revenues should be reallocated. I say, let’s give our people a break… Give the people instantaneous relief from high prices and meager incomes,” said then Senator Roxas in a separate Dec. 20, 2007 press statement. Noon, the people deserve a break, pero hindi na ngayon?

VAT for debt servicing

Indeed, the points Roxas had raised against the continued collection of VAT amid soaring oil prices remain as valid as ever. His arguments, in fact, could very well answer the Aquino administration’s excuses to justify the VAT on oil today. For instance, while revenues have increased because of the oil VAT, social services continued to be marginalized in terms of government spending. Most of the revenues are being siphoned off by debt servicing. When Roxas was raising the issue of oil VAT in 2008, social services comprised less than 21% of total public expenditures while the total debt burden (interest payments and principal amortization) accounted for more than 34 percent. In 2011, preliminary data show that social services are still marginalized at less than 23% of public expenditures while the debt burden continued to hold the lion’s share with more than 31 percent. As Roxas said, “Pera ni Juan dela Cruz ito, hindi ito pera ng gobyerno”. Why should we allow the Aquino administration to be the sole arbiter on how these resources should be used?

Tax leakage

Roxas’s point on the tax leakage, meanwhile, remains a compelling argument against the VAT on oil. A 2010 study by the National Economic and Development Authority (NEDA) estimated that individual tax leakage could reach at least P35.69 billion a year from 2011 to 2016. From 2001 to 2005, the individual tax leakage was pegged at P35.74 billion a year, according to a 2006 study by the National Tax Research Commission (NTRC). Despite the hype of Daang Matuwid, the fact remains that bureaucratic corruption, inefficiency, and wastage continue to deprive government of potential revenues. Alas, like the Arroyo administration, the Aquino government is over-relying on the regressive and burdensome VAT instead of finding other ways to raise revenues such as addressing the perennial tax leakage.

“Perwisyo”

As mentioned, Roxas is now dismissing the very same arguments he once espoused against the oil VAT. For him, protest actions against the VAT and deregulation – issues he used to consider as legitimate concerns that government must address – are “perwisyo” or nuisance. Of course, only the naïve will be surprised by such turnaround of a traditional politician. Roxas obviously just rode on the very popular anti-VAT sentiment when he was still eyeing the presidency. (He eventually gave way to Aquino and ran for the vice presidency but lost to Makati Mayor Jejomar Binay in the 2010 elections.) But now that he is part of the incumbent administration as a Cabinet official, the oil VAT has suddenly become indispensable.

Thus, from the consumer advocate Mr. Palengke, Roxas has now transformed into the VAT apologist Mr. Perwisyo.

Illusion of change

Finally, let me share another quotable quote:

“Napakahalaga ang VAT… Ito ang sagot sa mga problemang namana natin… Kung aalisin ang VAT, hihina ang kumpyansa ng negosyo, lalong tataas ang interes, lalong bababa ang piso, lalong mamahal ang bilihin… Kapag ibinasura ang VAT… ang mas makikinabang ay ang mga may kaya…”

That’s not President Aquino or one of Malacañang’s mouthpieces speaking, although the tune is very familiar to the one being chorused by administration officials. It was Mrs. Gloria Arroyo in her speech during her State of the Nation Address (SONA) on Jul. 28, 2008. Arroyo was responding to Roxas and many others who were demanding that the oil VAT be removed or reduced and that pump prices, which then were reaching historic highs, be controlled.

Tapos na ang pamumunong manhid sa daing ng taumbayan? Roxas’s 180-degree turn on the issue of oil VAT is yet another proof that the supposed change the Aquino administration has been peddling is nothing but an illusion. #

Facts and figures you should know about oil prices

(The video above, produced by Mayday Multimedia, is a short but very useful visual presentation of the issues behind the high and increasing oil prices in the country. Below are some of the latest available official data as well as independent estimates that hopefully you may also find useful.)

• P48.10 per liter – the common price of diesel in Metro Manila as of Mar. 8, 2012; P57.75 for gasoline; and P835 to P919 for an 11-kilogram (kg) cylinder tank of liquefied petroleum gas (LPG).

• P3.20 per liter – the net increase in the pump price of diesel since the start of the year until the last round of oil price hikes on March 8-9; P5.85 for gasoline; and more than P190 per 11-kg cylinder tank of LPG.

• 8 rounds of oil price hikes have already been implemented in the first 10 weeks of 2012.

• P96 per day – the eroded amount from the income of jeepney drivers because of oil price hikes this year; P1,443 is their estimated daily consumption of diesel; P1,200 is the total amount loaded in a Pantawid Pasada card.

• P62 million per day – the estimated increase in government revenues from the 12% value added tax (VAT) on diesel due to oil price hikes this year.

• $116.16 per barrel – the published price of Dubai crude as of February 2012. Dubai crude is the benchmark for international crude oil prices that oil companies in the Philippines use in pricing their petroleum products.

• $29 to $43 per barrel – the estimated amount needed to produce a barrel of crude oil. The estimate is based on the US Energy Information Administration’s (EIA) data showing that the finding cost (exploration and development) is about $6.99 to $18.31 a barrel while the lifting cost (operation and maintenance of wells) is about $5.75 to $8.26 a barrel. The EIA also said that royalties is about 14% of the selling price (or $16.26 a barrel based on Dubai crude’s selling price of $116.16 as of Feb. 2012).

• $73 to $87 per barrel – the difference between the published price of Dubai crude and the estimated needed amount to produce a barrel of crude oil. This amount approximates the super profits squeezed through global monopoly pricing and speculation by oil monopoly capitalists and financial oligarchy (Goldman Sachs, Morgan Stanley, and other Wall Street firms) from the US, Europe, and other advanced capitalist countries.

• Two-thirds – the estimated portion of physically sold oil in the world market that is traded through the production and distribution chain directly controlled by the oil monopoly capitalists such as Royal Dutch Shell (UK/Netherlands), ExxonMobil (US), British Petroleum (UK), Chevron (US), and Total (France). Such direct control allows the global oil monopoly to arbitrarily pad the price of oil as it goes through its production and distribution network.

• At least 80% – the estimated portion of oil sold in the Philippine market that goes through the chain of production and distribution directly controlled by the global oil monopoly. As such, prices are not actually affected by the daily fluctuations in spot markets and futures market, as claimed by the big oil companies and government.

• $378.15 billion – the total revenues in 2010 of Shell, the world’s largest oil monopoly capitalist. That’s almost twice the size of the domestic economy of the Philippines (gross domestic product or GDP of $199.59 B in 2010). Chevron, which like Shell is an oil monopoly capitalist operating in the country, posted revenues of $196.34 B, or almost the same size as our domestic economy.

• P8.60 per liter – the estimated overpricing in the price of diesel in the Philippines since the Oil Deregulation Law was implemented (accumulated from January 1999 to February 2012). The amount is on top of global overpricing due to monopoly pricing and speculation and simply reflects the discrepancy in international crude prices and local pump prices.

• P147 million every day – the estimated extra profits that oil firms earn from overpricing the local pump price of diesel alone. Almost 78% of this amount will go to the four biggest oil companies in the country (Petron – P55 M daily extra profits from overpriced diesel; Shell, P38 M; Chevron, P15 M; and Total, P8 M).

• Almost P6 per liter – the estimated immediate reduction in the pump price of diesel if the VAT on oil is removed; almost P7 per liter for gasoline; and as much as P110 per 11-kg tank for LPG

• 20 – the number of bills and resolutions filed so far at the 15^th Congress that aim to review, amend, or repeal the Oil Deregulation Law; probe overpricing; reduce, suspend, or scrap the VAT on oil; institute a regime of effective state regulation or at least a price setting mechanism; and impose a cap on oil profits.

• Zero – the number of bills and resolutions endorsed by President Aquino or substantially taken up and prioritized by the House and the Senate to reduce or control the price of oil. #

More Filipinos think Aquino not addressing oil overpricing

"Heartless" oil firms hit for Valentine's Day price hikes

The latest survey of the Social Weather Stations (SWS) shows that while the Aquino administration continues to enjoy high public satisfaction ratings, more Filipinos are dissatisfied with government response on the issue of oil prices. According to the SWS’s Dec. 3-7, 2011 survey, published yesterday (Feb. 13) by the BusinessWorld, the Aquino administration maintained a high 56% net public satisfaction on its general performance.

But the administration also posted a negative 3% on its performance on the specific issue of “Ensuring that oil firms don’t take advantage of oil prices”. The negative 3% is 7 percentage points lower than the already low 4% that it recorded in SWS’s previous survey in September 2011. Furthermore, the issue of oil is also just one of two among the 19 specific performance indicators included in the SWS survey wherein the Aquino administration registered a negative net satisfaction rating. The other is “Resolving the Maguindanao massacre case with justice” wherein government recorded a negative 18 percent.

(Download the complete results of the SWS survey here)

The survey results came out amid fresh rounds of oil price hikes and widespread public perception that oil companies are overpricing their products and accumulating huge amounts of profits at the people’s expense. The SWS findings clearly indicate that the public is not buying the Aquino administration’s response to the problem of high oil prices and overpricing charges against the oil firms. This includes the Pantawid Pasada program and the establishment of a so-called independent panel to review “the books of oil companies to ensure transparency in fuel pricing”.

The adverse public opinion against the profit-greedy oil companies and lack of government action against their abuses should compel policy makers to initiate reforms in the downstream oil industry. Unfortunately, it is obvious that the people could not expect President Aquino to instigate this policy shift. Aquino has shown unwillingness to heed the demand to repeal the Oil Deregulation Law (ODL) or Republic Act (RA) 8479 and establish a regime of effective state regulation to “ensure that oil firms don’t take advantage of oil prices”. Aquino has also rejected calls for not just the scrapping of the 12% value-added tax (VAT) on petroleum products but even its suspension to at least mitigate the oil price hikes.

But fortunately, some lawmakers have taken notice of the perennial problem of high, escalating, and questionable oil prices and made proposals to look into the ODL and the oil VAT. At the House of Representatives (HoR), for instance, aside from the representatives of progressive partylist groups, legislators from mainstream political parties as well as from moderate partylist groups have also filed bills ranging from amendments of to outright repeal of RA 8479 and suspension or repeal of the VAT on oil.

A quick look at the webpage of the HoR’s committee on energy shows at least five (5) bills proposing to repeal RA 8479 and at least two (2) bills and one (1) resolution proposing review and amendments. On top of these, there are also at least five (5) resolutions calling for a probe on oil pricing as well as one (1) resolution seeking emergency powers for the President to address the oil crisis. Aside from proposals on what to do with RA 8479, at least three (3) congressmen have also filed bills removing or at least suspending the VAT on petroleum products. All in all, there are currently 17 bills and resolutions filed in the 15^th Congress of the HoR that aim to reduce and/or control high and escalating oil prices. Meanwhile, at the Senate, at least three (3) bills have been filed that propose to amend RA 8479; institute a system of fair fuel pricing; and impose a cap on the profits of the oil companies.

The following are the bills and resolutions filed at the energy committees of the HoR and Senate on the issue of ODL and oil prices as well as proposals to remove or suspend the VAT on oil filed at the lower chamber’s committee on ways and means:

• House Bill (HB) 4355 – An act regulating the downstream oil industry and repealing RA 8479 (filed by Rep. Teddy Casiño, Bayan Muna) (Download here)
• HB 4317 – An act repealing RA 8479 (Rep. Rafael Mariano, Anakpawis)
• HB 2569 – An act regulating the oil industry, establishing the oil price stabilization fund, and repealing RA 8479 (Rep. Rufus Rodriguez, Partido ng Masang Pilipino or PMP) (Download here)
• HB 5295 – An act regulating the oil industry thereby repealing RA 8479 (Rep. Winnie Castelo, Liberal Party or LP)
• HB 00347 – An act regulating the downstream oil industry (Rep. Danilo Suarez, Lakas-Kampi) (Download here)
• HB 3267 – An act amending RA 8479 (Rep. JV Ejercito, PMP) (Download here)
• HB 4893 – An act to ensure transparency in pricing, amending RA 8479 (Rep. Romeo Acop, Nationalist People’s Coalition or NPC)
• House Resolution(HR) 00672 – A resolution directing the energy committee persistent oil shortage and recent spate of oil price hikes (Rep. Ben Evardone, LP)
• HR 00880 – Resolution directing the energy committee to investigate the price monitoring and regulatory system instituted by the DOE in the light of overpricing allegations (Rep. Luz Ilagan, Gabriela Women’s Party or GWP)
• HR 01027 – A resolution authorizing President Aquino to exercise emergency powers to address a possible oil crisis in the country (Rep. Teodorico Haresco Jr., Kasangga)
• HR 01170 – Resolution directing the energy committee to investigate unusually high oil prices in Negros Occidental and other areas outside Metro Manila (Rep. Teddy Casiño, Bayan Muna)
• HR 01310 – A resolution directing the energy committee to investigate high oil prices in Bacolod City and Negros Occidental (Rep. Roilo Golez, LP)
• HR 01464 – A resolution directing the energy committee to investigate DOE’s decision of clearing oil firms of price-fixing allegations (Rep. Rufus Rodriguez, PMP)
• HR 01627 – Resolution urging the HoR to review the ODL for possible amendments (Rep. Mitos Magsaysay, Lakas-Kampi)
• HB 02806 – An act suspending the VAT on oil (Rep. Rufus Rodriguez, PMP) (Download here)
• HB 04554 – An act exempting petroleum products from the VAT (Rep. Ma. Theresa Bonoan-David, Lakas-Kampi)
• HB 2719 – An act exempting petroleum products from the VAT (Rep. Teddy Casiño, Bayan Muna) (Download here)
• Senate Bill (SB) 1828 – Fuel pricing fairness act (Sen. Miriam Defensor-Santiago, People’s Reform Party or PRP) (Download here)
• SB 754 – An act amending RA 8479 (Sen. Jinggoy Estrada, PMP) (Download here)
• SB 2529 – Imposing a 12% cap of paid-up capital on the maximum allowable profits of oil companies (Sen. Antonio Trillanes IV, Indpendent)

There is no shortage of proposals on what to do with the problem of high and soaring oil prices and the abuses that oil companies commit. The public, meanwhile, is deeply discontented with what the Aquino administration has been doing (or not doing) to address the issue. The conditions are favorable to aggressively push for the proposals pending in Congress against the ODL and the oil VAT and compel the Aquino administration to support these initiatives or be further exposed as anti-people and pro-oil cartel. #

14 years of oil deregulation is enough! (Last part)

After 14 years of deregulation, the dominant position of the Big Three remains intact, if not stronger, while consumers are forced to bear exorbitant and steadily soaring oil prices

Read part 1 here

When the ever controversial and IMF-pushed ODL was still being deliberated in Congress, its ardent proponents peddled it as the policy that will end the domination of the Big Three oil companies, namely Petron Corporation, Pilipinas Shell, and Chevron Philippines (formerly Caltex), over the local downstream industry. By encouraging “free competition”, deregulation is supposed to promote competitive petroleum prices that will benefit the consumers and the economy. Alas, after 14 years of deregulation, the dominant position of the Big Three remains intact, if not stronger, while consumers are forced to bear exorbitant and steadily soaring oil prices.

Exorbitant oil prices

Instead of competitive prices, the past 14 years saw steep, unabated, and questionable increases in petroleum prices. To illustrate, in February 1998, the month the current ODL was enacted, the pump price of diesel was just P8.33 per liter; unleaded gasoline, P12.62; and LPG, P140 per 11-kilogram tank. Today, diesel is about P46.79 per liter or almost 462% higher than its price when the law was enacted; unleaded gasoline, P56.83 (350% higher); and LPG, almost P800 (about 471%). To have an idea of how steep the increases were, we can compare them to price adjustments during the 14-year period prior to the enactment of the ODL (1984 to 1998). During this period, the pump price of diesel increased by just 36%; gasoline, around 61%; and LPG, about 28 percent.

The impact of these increases on the livelihood of the people is tremendous. A jeepney driver, for instance, used to spend P250 per daily trip for diesel; today, he needs to shell out more than P1,400 (based on the average daily trip consumption of 30 liters) under oil deregulation. A small fisher used to spend less than P117 per fishing trip for gasoline; today, that has gone up to almost P570 (based on the average consumption of 10 liters per fishing trip). A tricycle driver used to spend just P50 per daily trip for gasoline (based on the average consumption of 4 liters per daily trip); today, that amount would not be enough to get even one liter. Aside from the direct impact of oil price hikes on the people’s livelihood, there is also the domino effect that pushes up the overall cost of living.

Deregulation and its provision on automatic price adjustment aggravated the global monopoly pricing imposed by the biggest oil transnational corporations (TNCs) in the US and Europe. The tight control over the global industry of these oil companies which include TNCs that have local units in the Philippines like Royal Dutch Shell, Chevron, and Total makes oil prices artificially high whether oil price hikes are implemented or not.

Speculation in the futures market especially in recent years exacerbates the unjust and exorbitant oil prices in the world and in the Philippines. Speculators, which include investment banks and other financial institutions that do not have any role in the oil industry other than to profit from speculating on prices in futures markets, are behind the steep adjustments in global prices. The rise of oil speculation further detached global oil prices from so-called market fundamentals, and thereby further oppressing the people around the world with exorbitant oil prices. Filipinos directly bear the brunt of speculation and monopoly pricing because of deregulation, which allows oil firms to automatically adjust their prices based on movements in global price benchmarks such as Dubai crude (for crude oil) and Mean of Platts Singapore (MOPS, for refined oil). In 2008, for example, MOPS diesel jumped from $108 per barrel in January to $168 in July then fell to $62 in December. Dubai crude followed a similar trend from $87 per barrel (January) to $131 (July) and $41 (December). Meanwhile, data from the International Energy Agency (IEA) show that the supply and demand balance in 2008 was very stable. In the first quarter of 2008, global demand was 86.9 million barrels per day (mbd) versus available supply of 87.1 mbd. In the second quarter, supply fell to 86.8 mbd but so was demand which declined to 85.7 mbd. Thus, there was an even bigger surplus (supply minus demand) in the second quarter of 1.1 mbd versus 0.2 mbd in the first quarter.

Because the increases are automatic under the Oil Deregulation Law, the excessive and oppressive global prices are fully imposed on the people. Worse, the public has no way of knowing whether the price adjustments are reasonable or not even based on the supposed factors that affect local prices, namely global oil prices and the rate of foreign exchange. The people are forced to take hook, line, and sinker whatever explanation the oil firms and the Department of Energy (DOE) give for the price increases. This setup has paved the way for further abuses by the local oil companies at the expense of the people. One way is by implementing higher price hikes or lower rollbacks relative to global prices and the foreign exchange, or what is called as local overpricing. (Read here)

Global monopoly

Indeed, the biggest flaw of the deregulation policy is that it assumes that there exists a free competition among oil players in the global and local markets. As such, removing state regulation on pricing and other activities in the downstream oil sector is supposed to result to more reasonable prices that are determined by so-called market fundamentals. Automatic price adjustments supposedly quickly reflect the true price of oil based on global and local competition, with the end-consumers ultimately benefiting. But these assumptions are false.

Throughout its history, the global oil industry has always been under the domination of a few American and European transnational corporations that dictate the price of oil. These TNCs have remained in control despite the nationalization of oil supplies, the rise of national oil companies (NOCs), and the establishment of the Organization of Petroleum Exporting Countries (OPEC). They have maintained such control and domination because even though the NOCs hold the largest oil reserves, the TNCs still have the stronger financial muscle and access to capital, the more advanced technological capacity and know-how, and the much wider and more sophisticated infrastructure and network worldwide. In fact, the NOCs are still compelled to partner with the TNCs for their crude oil to be refined and reach the market. To illustrate, Saudi Aramco, the world’s largest NOC and owns the biggest oil reserves at 259.4 billion barrels, have refining and marketing deals with ExxonMobil, the world’s largest oil TNC. State-owned PetroChina also has partnerships with British Petroleum, Total, and Shell. The units and partners of these giant TNCs are also the dominant oil players in the Philippines.

Consequently, removing state regulation on the downstream oil industry actually further strengthened these local units of the oil TNCs. Deregulation gave them more freedom to arbitrarily impose their artificially high global monopoly price on the hapless domestic market. The Philippines is especially vulnerable because while we have one of the most oil intensive economies in the Asia, we are also one of the most import-dependent for petroleum.

Continuing monopoly control

From the onset, such global control and domination by American and European TNCs have been felt in the Philippine oil industry. As early as the 1800s, the US was already exporting petroleum products to the country. In the early 1900s, American oil giants Esso, Mobil, Texaco, and Chevron (Esso and Mobil are today’s ExxonMobil while Texaco is now part of Chevron) as well as the British/Dutch Shell had set up facilities in the Philippines. These foreign companies built the first oil station and depot in 1914 and the first oil refinery in 1951. There were attempts by some Filipino firms to build oil facilities in the late 1950s and 1960s. But these efforts fizzled out due to lack of access to technology and crude oil, which the TNCs control. Aside from the downstream, foreign companies also dominated the upstream oil industry. The first recorded domestic oil exploration was in 1896 by an American company while the first commercial oil field was developed by an Australian firm in 1977.

By the time the first Oil Deregulation Law (RA 8180) was enacted in 1996, three oil firms – all foreign-owned and part of the global network of the world’s largest oil TNCs – are dominating the downstream oil industry. They are Petron Corp., which then was 40%-owned by Saudi Aramco (Before it was nationalized in 1980, Saudi Aramco was owned by ExxonMobil and Chevron. But even after nationalization, it maintained strategic deals on refining and retailing with the oil TNCs.); Pilipinas Shell, local unit of Royal Dutch Shell; and Caltex Philippines, local unit of Chevron. One of the major objectives of deregulation was to dismantle this domination by the so-called Big Three by enticing more investors or new players to participate in the downstream oil industry.

The Oil Deregulation Law did pave the way for the entry of new players in the downstream oil industry. Latest data from the DOE show that there are now around 601 new oil players, of which 506 firms are involved in retail marketing; 66 firms in liquid fuel bulk marketing; 16 in bunkering; 9 in LPG bulk marketing; and 4 in terminalling. In 1998, there were only 22 new players that entered the downstream oil industry. This means that while the share of the Big Three fell from 95.7% in 1998 to 76.4% in 2010 (Petron, 37.8%, Shell, 27.4%; and Chevron, 11.9%) the concentration of their control over the market remained stable given the very large number of new players that account for the remaining 23.6% share. Note also that of the portion of the market controlled by the new players, more than half is accounted for by just three companies – Total (4.1%), PTT (3.5%), and Liquigaz (3.4%).

These leading new players are also some of the world’s largest oil companies – Total Philippines is the local unit of Total of France; Liquigaz is the local unit of SHV Netherlands, which is the largest LPG company in Europe; and PTT is Thailand’s national oil company. Among the new players that are Filipino-owned, the largest in terms of market share are Phoenix (2.1%) and Seaoil (1.9%). This means that 596 new players account for the remaining 7.9% of the downstream market.

Another indicator of the continuing domination of the Big Three is the number of pump stations. DOE data say that as of 2010, there are 4,114 pump stations in the country. Separate reports of the oil companies, meanwhile, show that Petron has more than 1,500 stations; Shell, more than 960; and Chevron, 850. Based on these data, the Big Three controls more than 80% of all pump stations in the Philippines.

Aside from the refilling stations, the big oil firms also control other strategic storage facilities of petroleum products and crude oil. Based on DOE figures, more than 81% of the country’s storage capacity including the depots, import/export terminals, and refineries are controlled by Petron, Shell, and Chevron. Furthermore, two companies – Petron and Shell – control 100% of the country’s refining capacity (about 64 million barrels in 2010).

Clearly, fourteen years of the Oil Deregulation Law is enough. There are pending proposals in Congress to repeal RA 8479 and replace it with a regime of effective state control over the downstream oil industry such as House Bill (HB) 4355 filed by Bayan Muna and other progressive partylist groups. Even lawmakers from various traditional political parties both in the House of Representatives (HoR) and the Senate have filed bills and resolutions calling for the repeal of RA 8479 or at least amend it. More on these proposals later. #

14 years of oil deregulation is enough! (Part 1)

Because oil is a very socially sensitive commodity, the Oil Deregulation Law has become one of the country's most contentious laws (Photo by Nino Jesus Orbeta)

On February 10 (Friday), Republic Act (RA) 8479, or more notoriously known as the Oil Deregulation Law, will mark its 14th year of implementation. The law, which was aggressively pushed by the International Monetary Fund (IMF), was enacted on Feb. 10, 1998 by the 10th Congress. Because oil is a very socially sensitive commodity, the ODL has become one of the most contentious laws in the country. Its constitutionality had been the subject of several petitions at the Supreme Court (SC). In the past five Congresses, many legislators have filed bills amending or repealing the ODL. The Executive has convened, since 2005, three “independent” panels to review the law, including one recently set up by the Aquino administration.

From RA 8180 to RA 8479

In fact, RA 8479 was not the original deregulation law. The original, RA 8180, was enacted on Mar. 28, 1996. But massive people’s protests greeted the passage of RA 8180. Organizations under the Bagong Alyansang Makabayan (Bayan) launched two people’s strikes against oil price increases. The Asian financial crunch in 1997 further inflamed the unrest. Following a massive strike in October 1997, the Supreme Court (SC) was forced to issue a temporary restraining order (TRO) against the deregulation law. RA 8180 was finally declared as unconstitutional by the SC in a Nov. 5, 1997 decision.

According to the SC, the said law breached constitutional provisions outlined in Article XII Section 19. This provision states that “The State shall regulate or prohibit monopolies when public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.” In its decision, the SC recognized that the Philippine oil industry conceded that “operated and controlled by an oligopoly, a foreign oligopoly at that.”

The High Court further pointed out that “The much ballyhooed coming in of new players in the oil industry is quite remote considering that these prospective investors cannot fight the existing and well-established oil companies in the country today, namely Caltex, Shell, and Petron. Even if these new players will come in, they will still have no chance to compete with the said three (3) existing big oil companies considering that there is an imposition of oil tariff differential of 4% between importation of crude oil of the said oil refineries paying only 3% tariff rate for the said importation and 7% tariff rate to be paid by businessmen who have no oil refineries in the Philippines but will import finished petroleum/oil products which is (sic) being taxed with 7% tariff rates.”

However, then President Fidel V. Ramos marshaled his allies in Congress to immediately pass a replacement, correcting the unconstitutional provisions cited by the SC. The minimum inventory requirement was deleted while the import tariff rate was pegged at 3% for both crude oil and refined petroleum products. In two months since the SC junked RA 8180, Congress enacted RA 8479, which continues to be effective until today. Another petition was filed against RA 8479 arguing that price control should not be lifted because it contradicts the anti-monopoly provision of the Constitution. But in a Dec. 17, 1999 decision, the SC denied the said petition.

Role of the IMF

The passage of RA 8180 (and its replacement RA 8479) was tied to a loan of almost $1.04 billion that the Philippines contracted with the International Monetary Fund (IMF) in 1995 under the multilateral institution’s Extended Fund Facility (EFF). The deal with the IMF actually involved six major areas covering 43 specific measures. Aside from the deregulation of the oil industry, other conditionalities included tax reform, import liberalization, financial sector reform, foreign investment liberalization, and privatization. According to Bangko Sentral ng Pilipinas (BSP) Governor Gabriel Singson, the IMF wanted these provisions in the Oil Deregulation Law in order for the country to exit from the IMF “on a secure footing.”

Not only did the IMF push for the passage of an oil deregulation law, it also actively influenced the actual provisions that such legislation will contain. In fact, to access some $300 million in the first tranche of the EFF, as well as another $300 million in loans from the Japan Export Import Bank (JEXIM), the IMF had first to approve the then newly enacted RA 8180. (See BusinessWorld, “New oil deregulation law gets nod,” February 20, 1998) The IMF had also pushed for automatic price adjustment and elimination of any form of subsidy as among the main provisions that an oil deregulation law must contain.

The timing of full deregulation also became a contentious issue during the deliberations in Congress. The Senate and the House of Representatives were then pushing for a transition period before full deregulation takes place but the Executive was rejecting the proposal because the IMF requirement was immediate liberalization of the oil industry. To accommodate the IMF conditionality, the Ramos administration lobbied for an acceleration clause. Congress, in the end, passed RA 8479 with such clause, stated in Chapter VI Section 19, which authorizes the President to accelerate the start of full deregulation (which the law states shall start five months following the effectivity of RA 8479) except for socially-sensitive oil products (i.e. LPG, regular gasoline, and kerosene). As expected, Ramos exercised this prerogative and accelerated the implementation of full deregulation (earlier by four months) to hasten the approval of fresh loans worth $1.6 billion under the IMF’s standby credit facility. (See BusinessWorld, “Oil deregulation rushed for ‘IMF credit,’” March 16, 1998)

Continue reading here 

Power lords

San Miguel Corporation cornered 41.3 percent of privatized generating plants and IPP contracts in terms of capacity (Photo from allvoices.com)

(Continued from Part 2)

The restructuring of the power industry under EPIRA facilitated the creation of new private monopolies that lord over not only the distribution but also the generation of electricity. The dominant position of these monopolies, controlled by billionaires in Forbes’ list of richest Filipinos and their foreign partners, is bound to further intensify under Aquino’s public-private partnership (PPP) program.

Privatized power plants and IPP contracts

Out of the 7,665.88 megawatts (MW) in capacity of privatized generating plants and IPP contracts, Danding Cojuangco’s San Miguel Corporation (SMC) cornered 41.3 percent while the Aboitiz group bagged 28.5 percent. Other major buyers include the Consunjis (7.8 percent) and the Lopezes (7.4 percent). American firm AES Corporation accounted for a significant 7.8 percent. South Korean companies SPC Power and K-Water have a combined 5.8 percent. (It includes the Angat hydropower plant that was put on-hold by the Supreme Court.) Five companies accounted for the remaining 1.4 percent.

The costs of these transactions total $6.69 billion. SMC accounted for 35.9 percent of the said amount; Aboitiz, 30.2 percent; AES Corp., 13.9 percent; K-Water, 6.6 percent; Lopez, 5.7 percent; Consunji, 5.4 percent; and others, 2.3 percent. (See Table 1)

In terms of overall generating capacity, the restructured Philippine power sector is now dominated by just three companies – San Miguel Power Corporation (20 percent), Lopez-owned First Gen Corporation (17 percent), and the Aboitiz group (15 percent).

Government through NAPOCOR and PSALM has 30 percent. (See Chart 4) SMC’s rise as a major player in the power industry is truly phenomenal considering that it has only started venturing in the industry in 2008.

These are the same groups that also control the biggest distribution utilities (DUs) in the country. SMC and the Lopez group, for example, control MERALCO with 27 percent and 6.6 percent, respectively. (Manny Pangilinan’s Metro Pacific controls 45 percent.) MERALCO is the largest DU in the Philippines with a franchise area covering 24.7 million (about 25% of the national population) in 31 cities and 80 municipalities. It serves Metro Manila, Bulacan, Rizal, and Cavite as well as parts of Laguna, Quezon, Batangas, and Pampanga.

The Aboitiz group, on the other hand, controls the second and third largest DUs – the Visayan Electric Company (VECO) and Davao Light and Power Company. VECO serves Metro Cebu covering four cities and four municipalities. Meanwhile, Davao Light serves Davao City and Panabo City as well as three municipalities in Davao del Norte. Aside from these DUs, the Aboitiz group also controls Cotabato Light and Power Company, San Fernando Electric Light and Power Company, and the DUs serving the Subic Freeport zone, Mactan export processing zone, and the West Cebu industrial park.

SM tycoon Henry Sy has taken advantage of the EPIRA as well. His One Taipan Holdings (30 percent), State Grid of China (40 percent), and Calaca High Power Corporation (30 percent) control the National Grid Corporation of the Philippines (NGCP). NGCP holds a 25-year concession agreement (CA) with government to operate the country’s transmission system beginning in January 2009.

No transparency or competition

Cross-ownership in distribution and generation, which EPIRA allows, makes claims by advocates of neoliberal power restructuring about transparency and competition in pricing an outright lie. EPIRA’s unbundling of rates, for example, is practically meaningless even if a consumer can see in his or her monthly bill how much he is paying for generation and distribution. Market abuse is not prevented even if rates are unbundled due to cross-ownership. This has been clearly illustrated in the operation of the EPIRA-created Wholesale Electricity Spot Market (WESM).

The WESM, which has been operating in Luzon since 2006, is meant to among others “provide and maintain a fair and level playing field for suppliers and buyers of electricity”. But cross-ownership negates whatever benefits that the WESM is supposed to offer. The intention of the WESM is to make rates more competitive by offering prices other than those set in the bilateral contracts. EPIRA even capped at 50 percent the power requirements that DUs can source from their own generators and the rest they must get from other IPPs and the WESM.

However, the WESM itself is dominated by the same generators that are related with the DUs. IPPs connected with MERALCO, for instance, account for 42.6 percent (SMC with 24.8 percent and Lopez, including Quezon Power, 17.8 percent) of the 11,652-MW capacity registered at the WESM. The Aboitiz group, meanwhile, comprises 13.1 percent. The huge shares of these groups to the WESM-registered capacity make the spot market vulnerable to manipulation and speculation. Case in point was early last year when the price of electricity at the WESM reached an unbelievable P68 per kWh at one point during the height of the El Niño.

The high WESM prices have been blamed by MERALCO for the monthly increases in its generation charge last year. The latest adjustment in MERALCO’s generation charge worth 51 centavos per kWh, announced last Tuesday, is again being blamed at the high increases in the WESM, where rates jumped by P1.89 per kWh. MERALCO IPPs, on the other hand, increased their rates by a smaller 16.2 centavos per kWh.

Energy insecurity

Finally, the country’s energy security has remained precarious under EPIRA. The rotating brownouts experienced in different parts of the country last year is a tell-tale sign that the power crisis has not been resolved by privatization. In Mindanao, for example, the power shortage reached as high as 700 MW in March 2010 that led to rotating brownouts of as long as 8 hours daily. Government quickly blamed the El Nño because Mindanao gets more than half of its power supply from hydroelectric plants.

But apparently, the deeper issue is not drought but government neglect. During the Aquino administration, for instance, Mindanao’s power mix was 75 percent hydro while peak demand was 800 MW, according to a former NAPOCOR president. In 2010, DOE data show that hydro accounted for a relatively smaller 51.8 percent of installed capacity in Mindanao while peak demand was 1,288 MW. Thus, the El Niño could not be solely blamed for the shortage since no significant additional capacity has been put in the region. This should have been the job of government but because of EPIRA, it focused on selling the assets of NAPOCOR instead of installing additional capacity.

Even Luzon was not spared from rotating brownouts during last year’s El Niño. Aggravating the low levels in Luzon’s major dams were the uncoordinated shutdowns implemented by privately controlled power plants. They include SMC generation plants Sual and Limay as well as the Lopez plants that use natural gas from Malampaya. The power supply shortfall reached 641 MW, which could have been easily offset by Luzon’s excess capacity and thus avoid the rotating brownouts. But because EPIRA has dissolved government’s role in ensuring power supply, there is no mechanism in place to fill the gap resulting from plant shutdowns.

Ten years is enough

Its proponents argue that EPIRA must be given a chance to work because once fully implemented, the country will surely reap its promised benefits. They cite the impending implementation of the so-called open access and retail competition. Under this system, power consumers will have the opportunity to choose their suppliers. But then again, the industry has already been monopolized by a few players making the supposed option to choose an illusion.

For its part, the Aquino administration and its allies in Congress have worked for the amendment of EPIRA to extend the so-called lifeline subsidy. But it still does not address the exorbitant and rising electricity rates that Filipino consumers are forced to shoulder. Besides, the subsidy is being paid for by other consumers and does not come from the pocket of MERALCO or government.

Ten years of EPIRA is enough. Its defects could not be corrected by simple cosmetic amendments. It is fundamentally wrong to allow the narrow profit agenda of private companies and banks to take over a sector as strategic as the power industry.

EPIRA has resulted in the doubling of power rates and intensification of private monopolies. At the same time, it failed to address the financial problems of NAPOCOR and the country’s energy security. Only NAPOCOR’s creditors and private local and foreign companies have benefitted from power restructuring. For these reasons, there is a clear and urgent need for our policy makers to seriously rethink the law and work for its repeal. (END)

Read Part 1 – 10 years of EPIRA: what went wrong? and Part 2 - The curious case of NAPOCOR debts

Also read The role of foreign lenders, investment banks, and credit rating agencies in Philippine power sector reform

Toll hike, VAT, soaring utility rates in lieu of new taxes

SLEx toll will quadruple due to VAT and privatization of infrastructure development (Photo from ryucloud/photobucket.com)

President Noynoy Aquino has promised that his administration will try not to raise or impose new taxes to bridge the widening fiscal gap, which is expected to reach a record high P325 billion this year. But while not imposing new taxes (yet) to address its fiscal woes, the Aquino administration is still squeezing the people dry through unabated increases in prices and rates charged by privatized and deregulated utilities, and by getting the most out of the previous administration’s most onerous and anti-poor revenue-raising tool – the 12 percent value added tax (VAT).

By the way, did you know that the VAT, like privatization, was also a legacy of Noynoy’s late mother, President Cory Aquino? On July 25, 1987, Cory issued Executive Order (EO) No. 273, adopting the VAT. Cory issued the EO just before the 8^th Congress opened, thus preempting the legislature’s constitutional power to impose taxes. The move was a ploy to swiftly implement the International Monetary Fund’s (IMF) prescription to impose the VAT and ensure that the bankrupt Cory administration can raise revenues for continued debt servicing.

Controversial tax

Today, the ever controversial tax is again in the headlines following the insistence of Aquino’s Bureau of Internal Revenue (BIR) chief to impose the regressive VAT on toll. If Noynoy will not intervene and order the Department of Finance (DOF) and BIR to suspend its implementation, fees charged by toll operators around the country will go up starting Monday (August 16) as the cash-strapped Aquino administration collect from motorists the VAT on toll roads.

The table below summarizes the current rates and new rates to be charged (12 percent increase, representing the VAT) by major toll roads in Luzon, based on a notice released by the Toll Regulatory Board (TRB).

Meanwhile, those using the South Luzon Expressway (SLEx) will feel the double whammy of VAT and toll hike that will raise the toll charged by its private operator, the South Luzon Tollway Corp. (SLTC). Motorists using the SLEx will see their toll almost quadruple mainly because of the new rates approved by the TRB last May.

Ironically, the principal author of the 2005 VAT law Republic Act (RA) 9337, Senator Ralph Recto, is strongly opposing the move arguing that VAT should not be imposed on a government service. Recto, who belongs to Aquino’s Liberal Party (LP) and presently chairs the Senate ways and means committee, suffered the VAT backlash and lost his reelection bid in the 2007 midterm elections, which explains his stance on the VAT on toll. Aside from Recto, another LP member, Sen. Franklin Drilon is also questioning the BIR plan because it is supposedly imposing a tax on tax. Business groups, in particular those operating in Southern Tagalog’s industrial zones, on the other hand, have warned of commodity price hikes while transport groups plying the SLEx threatened to increase fares.

Aquino’s dilemma

While some prominent LP members are against it, the Aquino administration’s dilemma is that backing down on the BIR plan to collect the unpopular VAT on toll will further limit its already scant revenue sources, which have been perennially drained by trade liberalization, automatic debt servicing, promotion of foreign investment and export production, and onerous privatization contracts, on top of tax evasion, smuggling, and fat paychecks of high officials of the bureaucracy.

Given the persistent external pressure from the IMF for so-called fiscal consolidation and to hike the VAT rate to 15 percent, it is unlikely that Aquino’s economic team – led by ardent VAT champions and neoliberals DOF Secretary Cesar Purisima (who as Arroyo’s DOF chief helped design and lobbied for RA 9337) and Socioeconomic Planning Secretary Cayetano Paderanga (who was among the UP economists that pushed for VAT and VAT rate hike) – will advise Aquino to heed the public clamor and stop the VAT on toll. But if Aquino will push through with the VAT on toll, he risks suffering a major political blow very early in his term because of the measure’s unpopularity and severe impact on the people. Such setback can be further compounded in case the Supreme Court (SC) decides favorably on petitions filed against the VAT on toll amid growing public opposition.

Nonetheless, the pending toll hikes, whether implemented or not, further highlight the lack of real reforms that matter to the people under the Aquino administration. That Aquino is trying to widen the scope of the onerous and anti-poor VAT is proof that prospects of better and more decent living conditions for social sectors neglected by past regimes remain dim, if not dimmer.

VAT on privatized, deregulated utilities

And even if the VAT on toll is withdrawn, the continued implementation of neoliberal policies will still oppress the poor and impoverish more people. Note for instance, that in the case of SLEx, the VAT imposition is just a small portion of the enormous increase in toll that stems from infrastructure privatization, the same policy that Aquino highlighted in his State of the Nation Address (Sona). With Aquino’s promotion of so-called Public-Private Partnerships (PPPs), we expect more similar increases in the future as these are built-in mechanisms to make privatization attractive to potential investors. A case in point is the proposed MRT fare hike, which the Aquino administration is seeking in order to pay for the guaranteed debts and profits of private investors that took part in MRT’s development and ease government’s fiscal burden.

Indeed, indications show that privatization and deregulation will not only continue but will even expand under the new government. Just barely one and a half months into the much hyped Aquino administration, we have already seen oil prices and electricity rates go up. Players in the deregulated oil industry have recently raised the pump prices of diesel, kerosene and gasoline by 50 centavos to P1 per liter, with the Department of Energy (DOE), just like in the past, warning of more oil price hikes in the coming months. In addition, the Manila Electric Co. (Meralco) has again increased its generation charge by 44 centavos per kilowatt-hour (kWh). More nationwide increases in the privatized and deregulated power industry, based on petitions pending before the Energy Regulatory Commission (ERC), should be expected by hapless households.

In the context of its fiscal woes, the Aquino administration welcomes these increases despite their harsh effect on consumers as they mean more VAT collections for the government. In fact, oil and electricity are the two largest sources of VAT revenues, increasing in direct proportion with rising pump prices and monthly electricity bills. From November 2005 (when RA 9337 was implemented) to December 2009, the VAT burden from oil and power has reached P239.94 billion, or more than 65.3 percent of the total revenues (P367.28 billion) generated by RA 9337.

Similarly, higher toll means higher VAT collection for the government. Under the old SLEx fees, for example, government’s VAT revenues will only range from P2.64 to P7.80 per vehicle per trip. But under the new rates approved by the TRB, the VAT burden of SLEx users will quadruple to P10.2 to P30.6. Overall, taxpayers will shoulder a tax burden of more than P12 billion annually from the VAT on toll.

No new taxes? It does not make a difference amid rising rates and prices due to deregulation and privatization, and continued imposition and expanded coverage of the 12 percent VAT. And lest we forget, Aquino’s promise of no new taxes is highly conditional on the results of its anti-smuggling and tax evasion drive which means the worst is yet to come.

More power rate hikes coming soon

Meralco has raised its generation charge for the fourth straight month and the seventh time since the start of the year (Photo from Reuters/www.daylife.com)

Sorry folks. Meralco (Manila Electric Co) “miscalculated” and had to increase our monthly bills again by 44 centavos per kilowatt-hour (kWh). (Read here) This is the fourth straight month that the giant utility has raised its generation charge and the seventh time since January. This also means that we will be paying Meralco P2.18 per kWh more this month than what we used to pay at the start of the year. If you are consuming 200 kWh a month, it means you will be paying about P236 more in your August billing than what you paid Meralco last January. The bad news is the power profiteers are just getting started.

Good news?

The good news is, according to Malacañang spokesperson Edwin Lacierda, high electricity rates are just temporary and may go down next month. No, the Aquino administration will not compel the Energy Regulatory Commission (ERC) to scrap the Automatic Adjustment of Generation Rates (AGRA) that has legitimized the monthly increases in Meralco’s generation charge. Lacierda, quoting Energy Secretary Jose Rene Almendras, said that they just expect the San Jose power plant to be completely rehabilitated by September. “Hopefully next month we will have lower prices of electricity,” Lacierda said. (Read here)

I do not know which “San Jose power plant” Lacierda is referring to. But I suppose it is the San Jose substation in Bulacan, which is not a power generation plant but a 2,400 Megavolt-Ampere (MVA) transmission facility. In May, the ERC approved the rehabilitation of the San Jose substation, which serves 40 percent of Metro Manila’s power needs, and ordered the replacement of its transformers. The ERC assured then that the rehabilitation “will have no immediate impact on the price of electricity charged to consumers”. (Read here)

Anyway, Lacierda and Almendras are blatantly misleading the people. Electricity rates will remain unreasonably high and will continue to increase in the coming months and years unless Congress will repeal Republic Act (RA) 9136 or the Electric Power Industry Reform Act (Epira) of 2001. (Read here) No less than President Noynoy Aquino has assured the people of high power rates in his State of the Nation Address (Sona), in which he lambasted the Arroyo administration for allowing the National Power Corp. (Napocor) to sell electricity at a loss. But Aquino’s argument on why the state-owned power firm went broke ignored the role of privatization as I’ve pointed out in a previous post. (Read here)

Nationwide increases

The problem of exorbitant and unabated power rate hikes is not confined to Metro Manila or Meralco’s franchise area. Using the Performance Based Regulation (PBR) scheme, a rate-setting methodology for distribution utilities that was made possible under Epira (Read here), the Visayan Electric Co (Veco), for example, has recently raised its distribution charge for residential customers by 3.41 percent. (Read here) Meralco, using the PBR methodology, has also increased its distribution charge by a total of 35 percent last year, on top of its increases in generation charge. (Read here)

But the rate increases of Meralco, Veco and other distribution utilities are just a portion of the bigger increases that households nationwide will have to face soon. The Power Sector Assets and Liabilities Management (Psalm) Corp., which Epira created to undertake the privatization of Napocor’s generation assets, has asked the ERC for rate increases (all in all, about P1.86 per kWh) to recoup supposed losses arising from stranded costs (read: guaranteed profits of independent power producers) as well as fat bonuses of Psalm officials. (Read here) The Philippine Electricity Market Corp. (PEMC), which is the governance arm of the Wholesale Electricity Spot Market (WESM), another Epira creation, has filed a petition for a 74-centavo per kWh hike in the spot market’s transaction fees. (Read here) The National Grid Corp. of the Philippines (NGCP), which took over the privatized transmission facilities, again as mandated by Epira, is seeking its own rate increase of 5 centavos per kWh in Mindanao. (Read here) Finally, Napocor has pending applications for rate increases of P3.38 per kWh in Luzon and P4.71 in the Visayas to recover adjustments in generation costs and currency fluctuations. (Read here)

Imagine how much our monthly electricity bill will cost if all these applications – on top of the automatic monthly increases such as Meralco’s generation charge – were approved by the ERC.