Lower October power rates to be offset by looming bigger increase; EPIRA blamed

October 9, 2010

by superadmin

The debt of Napocor should have been settled by the proceeds from the privatization of its power generation plants and other assets.

Research group IBON Foundation today warned that the Php1.10 per kilowatt-hour (kWh) drop in power rates this month is just temporary relief for consumers as bigger hikes in electricity bills loom in the coming months. The group issued the statement after the Manila Electric Co. (Meralco) announced that its generation charge for its October billing fell to Php4.31 per kWh from last month’s Php5.41.

IBON noted that the Department of Energy (DOE) is seeking to pass the burden of paying some Php932.21 billion in debt incurred by the National Power Corp. (Napocor), Power Sector Assets and Liabilities Management Corp. (PSALM), and the National Transmission Corp. (Transco) to the consumers through the so-called universal charge. It is estimated that the rate hike to cover portion of these debts could reach an initial amount of Php1.86 per kWh.

IBON said that this is a result of the Electric Power Industry Reform Act (EPIRA) implementation, which mandates that debts incurred by the state power corporations shall be passed on to consumers as one of the sweeteners for privatization. Specifically, these debts are called stranded debts and stranded contract costs. Stranded debts refer to any unpaid financial obligation of Napocor which have not been liquidated through the proceeds from the sale and privatization of its assets. Stranded contract costs refer to the excess of the contracted cost of electricity under contracts entered into by Napocor with independent power producers (IPPs) as of Dec. 31, 2000 over the actual selling price of the contracted energy output in the market.

The debt of Napocor should have been settled by the proceeds from the privatization of its power generation plants and other assets. This however did not happen as the sale of power plants has been greatly delayed and investor appetite has been hampered by among others lack of guaranteed markets through supply contracts and irregularities in the bidding process. Government has been forced to continue maintaining the unsold power plants and in the process incurred more debts.

IBON noted that the debt of the power sector has ballooned since the term of Pres. Corazon Aquino when government first entered into various deals with private corporations to build power plants under the Build-Operate-Transfer (BOT) Law or RA 7718. To entice investors, government forged “sweetheart deals” with them. Government agreed to shoulder all the risks associated with market demand, fuel cost and foreign exchange fluctuation. The “take or pay” clause in these onerous contracts requires Napocor to pay 70%-100% percent of the capacity of an IPP (capacity fee), whether electricity is actually delivered and used or not.

Worse, PSALM has incurred “privatization-related expenses” that it integrated in its calculation of recoverable stranded costs. These include a privatization bonus for PSALM officials and employees amounting to Php80.9 million as well as privatization consultancy fees worth Php118 million. According to IBON, the privatization of the power sector has proven to be grossly disadvantageous to consumers. It requires generous incentives and guarantees to ensure the profitability of investors while passing the burden on the consumers.

According to the group, the EPIRA needs to repealed and steps to strengthen regulation of the power sector should be taken to protect the consumers from high electricity rates. (end)