POSTSCRIPT / October 10, 2006 / Tuesday

By FEDERICO D. PASCUAL JR.

Philippine STAR Columnist

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Is Napocor sabotaging GMA's energy plans?

UNEVEN FIELD: The country’s power industry, especially its pricing, cannot be left to the so-called free market forces.

Reason: there is no free market. There is no even playing field. There is the giant National Power Corp. lording it over the captive industry with its 70-plus-percent hold on the supply of electricity.

By its lonesome, Napocor can make electricity rates rise or fall. It can make prices dive simply by manipulating pre-distribution costs, never mind if it incurs losses. Such losses are shouldered by the people (meaning taxpayers) anyway.

In her State of the Nation Address last July, President Gloria Arroyo promised to deliver cheaper electricity with her launching of the Wholesale Electricity Spot Market (WESM), an exchange mechanism for enabling distributors and big users to select their power supplier offering the lowest rate.

Many industry observers had said that the idea was good in theory, but that it will not work in the real market where the losses of one dominant producer, Napocor, are subsidized by the government.

With much fanfare, the President launched WESM anyway and, as expected, declared it weeks later as a glorious success with the lowering of power rates that month.

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SHORT-LIVED: It was true — the rates went down (check your Meralco bill last August) as promised.

But now, after the artificially controlled market right after the SONA, the average price of power traded and purchased by bulk buyers have continued to rise to nearly 250 percent compared to the opening rates last June.

“After President Arroyo bragged at the SONA that electric rates will be reduced due to the WESM, we are now told otherwise by the Philippine Electricity Market Corp. that volatilities in the market and price-fixing are to blame,” said Dr. Giovanni Tapang, convenor of POWER (People Opposed to Warrantless Electricity Rates) and AGHAM national chairperson.

“However in tying up the price of electricity to speculation, the WESM invites profiteering by energy traders,” he said, citing the experience in the California Power Exchange that saw the cost of wholesale electricity soaring at times to as high as 4,000 percent.

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CHRISTMAS SURGE: Tapang warned that the WESM prices can also be pushed up “by the outage of more efficient power plants and rising power demand — both of which are going to happen this last quarter of the year.”

The Christmas season, he added, will see an increase in demand while a 25-day closure of three natural gas plants with 2,700 megawatts of capacity will start from Nov. 18 to Dec. 12.

The WESM has no all-embracing control over pricing since it does not cover contracts between an independent power producer and Napocor or a distribution utility like the Manila Electric Co. (Meralco).

These contracts can include such onerous provisions as the take-or-pay arrangement in the form of purchased power adjustments. These contracts have been blamed for much of the rise in electricity rates.

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WRONG TARGET: Noting the recent sudden spikes of electric bills of factories and households in Luzon, the PEMC which operates the WESM opened an investigation.

But while PEMC president Lasse Holopainen said there could be possible price manipulation, he focused on the Power Sector Assets Liabilities and Management (Psalm) Corp.

Was he barking up the wrong tree? Industry observers said he should have trained his sights instead on the Napocor some of whose officials are widely described as engaged in price manipulation.

After the first month of PEMC/WESM operations, Napocor lost P1 billion in the trading. That was expected since Napocor sold electricity at lower than generation cost to make good the promise of President Arroyo that rates would drop with the launching of the WESM.

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RECOUPING LOSSES: But Napocor president Cyrill del Callar told the media afterwards that the power firm would recover the losses. And it did.

It was not that difficult for Napocor to recover losses considering that it apparently has the capacity, the opportunity and the motive to manipulate prices.

Industry sources said Napocor manipulated prices by using its four trading companies primarily designed to influence energy prices.

And who are the losers in this scheme? The taxpayers, of course.

Remember, Sen. Miriam Santiago expressed alarm upon noting that Napocor generates power at P5 per kilowatt-hour but sold it in the spot market at only P2.72 per kwh in the first month of WESM.

Soon after Del Callar said they would recover the losses, power rates started to rise in the WESM, triggering power rate increases in Luzon. Uncanny coincidence? Or brazen price manipulation?

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WESM CONCEPT: The Department of Energy website says the WESM, as prescribed by the Electric Power Industry Reform Act of 2001 (Epira) is “a venue for trading electricity as a commodity.” It is a “clearing house to reflect the economic value of electricity for a particular period.”

The WESM serves as a pool where all electricity outputs from generators are coordinated. Generators as well as buyers of bulk electricity compete for a share of this pool, to be dispatched and scheduled to meet the electricity demand in real time.

It should encourage competition among power generators. Efficiency would improve because of pressure to reduce costs, align prices and tariffs with costs, and use assets wisely. Efficiency gains are likely to be more substantial in the longer term as new competitors emerge in wholesale power generation.

But all that is theory, because of the dominant presence of Napocor controlling 70 to 80 percent of the market, and at times manipulating prices.

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INVESTORS WARY: The perceived price manipulation by Napocor has put investors on notice that the power industry is still not an even playing field.

This is one of the reasons why the mandated privatization of Napocor has lagged. By this time, at least 70 percent of its assets should have been sold, but only about three percent has been transferred to private players.

Had the sale of the 600-megawatt power plant in Masinloc, Zambales, been consummated, the generating assets sold would have gone up to 11 percent. But reports of irregularities torpedoed the sale in its final stages.

Napocor officials led by Del Callar have been accused of deliberately delaying Napocor’s privatization through attempts to make it unfeasible in the eyes of interested buyers.

It is ironic that the privatization of Napocor is being touted as the key to solving the impending power crisis because it is presumed to be the way to restoring investors’ confidence in the Philippines.

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CRISIS LOOMS: Power generation must be in step with the economic growth projected by government planners.

After the big players Keppel and Mirant built their power plants in the country several years ago, no new generating plant has been put up — while the demand for electricity continues to rise. Mirant, by the way, is pulling out by the end of the year.

It is given that the government does not have money to build new power plants. In the next three years, local and foreign investors must come in to help forestall an impending power crisis by building new generators or upgrading old ones.

The problem is that investors are reportedly discouraged by the sight of Napocor, a state-subsidized monopoly that can dictate prices for whatever reasons of its officials.

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(First published in the Philippine STAR of October 10, 2006)

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