The Gut Issue

It is all too clear that in “taking on” Meralco, Mrs. Arroyo merely seeks to deflect the people’s righteous anger over high electricity prices while maneuvering to position her own cronies and subalterns to gain a stronger foothold in the power industry.

Streetwise / Business World
Posted by Bulatlat
Vol. VIII, No. 14, May 11-17, 2008

De facto president Gloria Arroyo knows what could be done to bring down power rates in short order and thus mitigate the effects of soaring prices of rice, fuel and other basic goods and services. She only has to certify to Congress as urgent the repeal of laws imposing VAT (value-added tax) on electricity and fuel and allowing distribution companies like the Manila Electric Company (Meralco) to charge systems losses (or their inefficiencies) to customers. This translates to more than twenty per cent savings for consumers and could certainly do wonders for Mrs. Arroyo’s rock-bottom popularity.

So why has she chosen to let loose her attack dogs on Meralco, the Philippines’ largest power distributor, on which all Metro Manilans rely on for their electricity supply. The signal fire was Mrs. Arroyo’s speech before big business groups which she urged them to join the “tough legal fight” against Meralco before the Energy Regulatory Commission (ERC). Government has filed petitions that it says will compel the distribution utility to lower its rates.

Then the launch of a campaign by the head of the state-fund Government Service Insurance System (GSIS) that, together with other government corporations, have a 33-percent stake in Meralco, against present management accusing it of fraud in bilking its customers, lack of transparency and other forms of mismanagement. While Malacañang denied it was planning a government “take-over” it made clear that it could wrest management control of the firm from the Lopez group when its stockholders meet on May 27, should it choose to do so.

Pampanga Rep. Juan Miguel Arroyo and Sen. Miriam Santiago, heads of key congressional Energy Committees, have called for public investigations into why and how Meralco charges such high electricity rates, allegedly the highest in Asia. Both are playing the role of crusaders against corporate greed while turning a blind eye to the laws that were passed under Mrs. Arroyo’s watch, such the Electric Power Industry Reform Act or EPIRA that critics contend is the single major cause for the continuing unwarranted power rate increases.

From where we sit (a swelteringly hot office that can’t afford an air conditioner, much less one that runs on electricity!) it looks like a clear case of the big, grimy pot calling the kettle black. Or if you’re not into metaphors, it simply means that the Arroyo regime is trying to pin the entire blame for inflating electricity bills in Luzon on Meralco. In the process it hopes to cover-up once more its own bigger share of the blame and even appear to be the one working hard to ease the consumers’ burden.

On the one hand, the Arroyo clique could not have chosen a more credible target of attack. The monopoly distribution utility firm just recently upped power rates by another 67.17 centavos while reporting a healthy 23-percent increase in quarterly earnings for 2008. It garnered a first quarter net profit of P655 million (US$15.4 million) compared to P532 million ($12,523,540 at an exchange rate of $1=P42.48) for the same period last year while most Filipinos are just barely able to survive.

Not a few recall how Meralco tried – and fortunately failed – to pass on its tax obligations from 1994 to 2003 to its unsuspecting customers for which it was ordered by the Supreme Court to refund more than P30 billion ($706,214,689) that it had overcharged. Prior to this, the Bagong Alyansang Makabayan (Bayan or New Patriotic Alliance) argued before the ERC that the unbundling of rates under the EPIRA has allowed Meralco to sneak in what amounts to an unapproved rate hike. With its long record of doing business and raking in profits under monopoly conditions, the Lopez-led Meralco is seen by many, and with good reason, as being privileged, avaricious and callous especially in light of the latest exacerbation of the economy’s festering situation in the form of the rice and oil crises.

It appears then that the government has all of a sudden taken the consumers’ side and decided to tame the greed of the power monopolist, something it could have done a long time ago if it really wanted to. The gut question, however, is the one which matters most to the consuming public: will government control of Meralco really bring down the monthly electricity bill?

We think not. The truth is the Arroyo regime has not made any major change in policy framework as outlined in EPIRA with regard to the power sector. Ever since the critical power supply shortfall in the late 80s and early 90s, all the post-Marcos governments responded, upon the advise of the IMF (International Monetary Fund)-World Bank-Asian Development Bank, not by building the necessary infrastructure to meet the growing demand but to contract out power generation to independent power producers or IPPs. Furthermore, steps were taken to privatize the whole power industry effectively abandoning government’s role in providing this most basic service to the public as well as in carrying out the development of this most strategic sector of the economy.

Due to pressure from the country’s international creditors to fast-track the privatization of the power sector before the release of loans to finance the country’s power development program, the EPIRA, was railroaded by Congress and signed into law by President Gloria Arroyo in 2001. The law was passed despite opposition from the people.

The EPIRA seeks to restructure the electricity industry and privatize the National Power Corporation or the Napocor. The government’s objective in privatizing Napocor is to cut losses from loans and pass on the burden of power infrastructure investment to the private sector, while earning revenues from the sale.

But contrary to what was promised, the EPIRA has not caused any real decrease in power rates. According to studies by the consumer group People Opposed to Warrantless Electricity Rates Increases (POWER), the EPIRA legitimized the onerous Purchased Power Adjustments (PPA) from anomalous contracts entered into by Napocor with IPPs. These IPPs are mostly owned by foreign multinational corporations in partnership with big local power tycoons. In the findings of a government inter-agency committee tasked to review IPP contracts, only six out of 35 contracts were found to be without any legal or financial questions.

Moreover, POWER points out that EPIRA favors power industry players over consumer interests. It legitimizes the passing on of all costs of power generation to end users. For example, the system loss charges appearing on electricity bills, passes on the inefficiency of distribution utilities to end users. Stranded costs and debts by both the Napocor and power utilities are also to be recovered from the general public under the item universal charge.

The unquestioned and unaltered policy frame on the power industry as embodied in EPIRA and pursued by the Arroyo regime is one that has perpetrated collusion and monopolistic control that have in turn resulted in unreasonably high rates and intermittent price hikes.

It is all too clear that in “taking on” Meralco, Mrs. Arroyo merely seeks to deflect the people’s righteous anger over high electricity prices while maneuvering to position her own cronies and subalterns to gain a stronger foothold in the power industry. Business World / Posted by (

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