A challenge to reverse power privatization

June 16, 2017

by IBON Foundation

In 2001, the Electric Power Industry Reform Act (EPIRA) was enacted with the promise of delivering affordable and reliable electricity to the country. Sixteen years later, electricity remains expensive and unreliable, and electric power industry monopoly has intensified, further enriching big firms. The following points elaborate on why the Duterte administration should all the more be challenged to review EPIRA and begin reversing power privatization:

  1. Privatization, deregulation drive power rates up. EPIRA or Republic Act (RA) 9136 led to the privatization and deregulation of the country’s power sector, promising that increased competition will usher cheaper and more sustainable energy supply.  However, since then, residential power rates have risen by 68% from Php5.76 per kilowatt-hour (kWh) in 2001 to Php9.68 in 2015.

A 2016 survey conducted by the International Energy Consultants showed that the Manila Electric Company or MERALCO has the third highest electricity rates in Asia after Japan and Hong Kong.  The same study reported that Meralco consumers spend 4.5% of their disposable income on electricity which is higher than the 3.9% global average.

  1. Electric power industry monopoly reaps benefits.A few big firms are controlling and greatly profiting from the electric power industry.  According to the Department of Energy (DOE)’s latest EPIRA status report, only four corporations – San Miguel Energy Corporation, Aboitiz Power, First Gen, and government privatization entity Power Assets and Liabilities Management Corporation (PSALM) – cornered 65% of market share in power generation in 2015. The same year, top ten power corporations had combined gross revenues totaling Php500.9 billion. Leading the pack was MERALCO which accounted for 50% or Php250.1 billion of this.
  1. Consumers shoulder the cost of doing business.EPIRA has also allowed profit-seeking power corporations to pass on the costs of doing business to end-consumers.  Since 2003, when EPIRA mandated the “unbundling” or reflection of various charges on electric bills, the government through PSALM has been imposing the universal charge (UC), a pass-on charge to all electricity end-consumers.

Through the UC, EPIRA has passed on costs that private corporations should shoulder to electricity consumers, such as the stranded contract costs and stranded debts of the National Power Corporation (Napocor). Stranded contract costs are those that Napocor acquired from the excess costs of electricity contracted from independent power producers (IPPs) over the actual cost of electricity in the market. Stranded debts are also from other onerous terms in Napocor’s contract with the IPPs in the 1990s.

Among the billing components, overall UC increased the highest by 298% from Php0.03 in 2003 to Php0.35 in 2015 for Meralco customers.

In the face of expensive and unstable electricity supply, the Duterte administration, as an initial positive step, should launch a comprehensive review of EPIRA and the negative impact of privatization on the electric power industry. The administration should reverse and consider alternatives to power privatization in the Philippines. A nationalized energy industry that could ensure sufficient and affordable if not free electricity for the majority of Filipinos, for example, can be made a priority in government’s infrastructure boom program alongside other public utilities and social services.