LAYING BASIS?: At a recent Filipino Chinese chamber meeting, President Gloria Arroyo wondered loud “why power costs in the Luzon urban beltway… should be so high when Luzon is reliant on imported oil for only one percent of its power.”

She went on to accuse the power distributor Manila Electric Co. (Meralco) of charging higher rates than its counterparts in Cebu, Davao and the electric cooperatives. She added that they should all charge uniform rates.

With due respect, it seems the President was either misinformed or was laying the basis for taking punitive action against some targeted parties.

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FUEL COSTS: Generation cost is the biggest component of your electricity bill, accounting sometimes for 48 percent of the total. That amount goes to the generators, not to Meralco.

Aside from oil (oil-fired power plants directly account for 4 percent of the Luzon grid kilowatt-hours, not 1 percent as the President says), the other main fuel used in Luzon is coal.

The President’s boys at Napocor import more than P20 billion worth of this dirty fuel for Luzon every year. Now coal trades at roughly $160 per metric ton. Last year coal averaged only $60-70/MT.

In the Luzon grid, coal-fired power accounts for close to 35 percent of the total kilowatt-hours. More than half of the coal for this is procured by Napocor.

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GREED-FUELED: The strange thing is that the President’s boys at Napocor have refused to sign up long-term coal contracts when markets were calmer.

Is it because buying on the spot market on a per-shipload basis means that the buyer gets his commission faster for every shipment delivered? And when it is an emergency purchase, the rewards are even bigger?

Compare Napocor’s buying price with that of two privately owned Independent Power Producers (IPPs) — the American-owned Quezon Power which sells electricity to Meralco and the German-owned STEAG coal plant in Mindanao.

Both have signed long-term deals that even amid today’s soaring prices protect consumers with coal priced at $60-80/MT, or less than half the cost at which Napocor has been buying.

Is greed costing the Filipino people billions of pesos in overpriced coal and needlessly exposing captive consumer to the violent swings in global energy prices.

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LOCAL GAS: The other big contributor to electricity costs in Luzon is natural gas from Camago-Malampaya. Industry data show Palawan gas accounts for close to 40 percent of the kilowatt-hours generated.

Here, although prices are partly linked to global oil prices, gas from Camago-Malampaya is taxed more than 10 times the rate levied on imported coal.

Tax on imported coal is roughly P.017/kwh. Royalty tax on Camago-Malampaya gas is 60 percent of the gas price, or roughly P1.70/kwh, if my arithmetic is right.

Thus, we find the ridiculous situation of clean, locally sourced natural gas being taxed more than dirty, imported fuels even as it is consumed domestically by Filipinos.

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CUT ROYALTY: The President’s energy advisers — and also her sons and a brother-in-law lording it over the House committee on energy — should tell her that we are the only country in these parts that penalizes its citizens when using indigenous natural gas.

All civilized countries in Asia, I was told, collect royalty only when they sell oil or gas to other countries and never when they consume it domestically.

(Btw, our mining industry is levied only a 2-3-percent royalty when it exports minerals.)

Removing or slashing royalty on natural gas would bring down the cost of power by P1.70/kwh for industries, or by close to P0.50/kwh for every Meralco consumer if extended to all kinds of consumers.

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FIXED PRICE Another alarming (amusing to some) thing about the President’s statement was that she would lower Napocor’s rates again by half! 

The last time she did that was on May 1, 2002. She lowered Napocor rates by 80 centavos and capped the Purchased Power Adjustment (PPA) at a fixed rate of 40 centavos. 

Napocor’s selling price then ceased to reflect any movements in their cost of fuel and cost of power purchased from IPPs. With world fuel prices surging in the ensuing years, its selling prices soon no longer reflected true costs.

The years 2002, 2003 and 2004 witnessed the biggest losses in Napocor history, hitting a peak of a P110-billion net loss in a single year (2003). That year, its loss accounted for more than a third of the entire Consolidated Public Sector Deficit!

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FOR THE RICH: These losses were funded by increasingly bigger government-guaranteed debt. Napocor liabilities in 2003 reached a dizzying P1.2 trillion! That was more than nine times the yearly national budget for Education and 75 times for Health.

Subsidizing power through low Napocor rates results in a massive subsidy to the rich at the expense of the poor.

Family Income and Expenditure Survey (FIES) data show that 92 percent of the residential kilowatt-hours consumed in the country goes to rich Class A and B families. Only 8 percent is used by poor Class C, D and E households.

In sum, the President’s lowering Napocor rates is akin to another massive subsidy of cheap power for the rich who can keep their swimming pools, air-conditioners, washing machines and stereo sets churning away 24/7 unmindful of energy costs soaring globally.

But then, without the voracious money machine at Napocor, what would the resident mafia do for a living?