The big three in the power industry

By ANNE MARXZE D. UMIL
Bulatlat.com

MANILA – The Philippines has the most expensive electricity rates in Asia, a study by International Energy Consultants (IEC) showed. The Philippines is also the only country with a privatized power industry and without government subsidy, according to IEC.

Main Story: Epira, the culprit behind high power rates a>

Sidebar: Power firms, creditors assured of billions, while consumers burdened with Napocor debt

Before the Electric Power Industry Act (Epira) of 2001 was enacted into law, the National Power Corporation (Napocor) owned or controlled some 90 percent of the country’s generating capacity. A decade after, the power industry is now dominated by just a few companies and families.

Signed on June 8, 2001, Epira mandates the privatization of the power industry supposedly to bring down electricity rates by encouraging competition.

Ten years later, only three families have monopolized the power industry in the country — Cojuangco’s San Miguel Corporation (SMC), Lopez’s Meralco and First Gen. Corporation and Aboitiz Power Corporation.

“Only the big bourgeois comprador and their partner foreign corporations benefited from the privatization and deregulation of the power industry in the country,” Bagong Alyansang Makabayan (Bayan) said in a study.

Data from Bayan showed that 52 percent of generation capacity in the entire country is controlled by three big corporations. According to independent think tank Ibon Foundation, owners of the big three are perceived to be close allies of the past and current administrations.

The SMC owns 20 percent or total capacity of 3,165 megawatts, which, according to Ibon Foundation, is the largest generating capacity after just two years in the power industry. The Lopez’s First Gen. owns 17 percent or 2,832 megawatts while Aboitiz owns 15 percent or 2,051 megawatts of generation capacity.

Bayan said the SMC was able to gain a major share in the power industry because of Danding Conjuangco’s close ties with former president and now Pampanga Rep. Gloria Macapagal Arroyo. SMC is one of Philippines’s leading business conglomerates.

The big three also control power distribution in the country. “The distribution sector is dominated by a few private distribution utilities (DUs) even as many electric cooperatives are being taken over by the National Electrification Administration (NEA),” Ibon said in the study. It added that private DUs have the largest market share among DUs. Among the big private DUs are those with corporate interests in generation.

According to Ibon, the three largest private DUs in terms of number of customers and gigawatt hour (GWh) sales are Meralco followed by the Visayan Electric Company (Veco) and Davao Light and Power Company (both of the Aboitiz group).

Bayan’s data revealed that SMC controls 27 percent and the Lopez family controls 6.6 percent of Meralco, the largest distribution utility in the country. The other 45 percent of Meralco is owned by Manny Pangilinan’s Metro Pacific.

Meralco is the largest private DU in the country covering some 25 million Filipinos in 29 cities and 82 municipalities of Metro Manila, Rizal, Bulacan, Cavite, Laguna, Quezon, Batangas, and Pampanga, Ibon’s data showed. Veco, on the other hand, is the franchise owner of Metropolitan Cebu, including Consolacion, Liloan, Talisay, Minglanilla, Naga and San Fernando. Meralco also has the highest residential rate of P10.67/kwh ($.25) and second highest commercial rate of P9.05/kwh ($21).

The Aboitizes own other private DUs as well, such as the San Fernando Light and Power Corp., Cotabato Light and Power, Subic Enerzone and others; the Lopezes own the Panay Electric Company. Bayan said Veco has the cheapest industrial rate of P5.78/kwh ($.13). “Possibly because it is in the area of Veco where Aboitiz’s businesses based in Cebu is located, including its bank, food, real estate and construction companies.”

Transmission of electricity, on the other hand, is controlled by the National Grid Corporation of the Philippines (NGCP) – a consortium of State Grid Corp. of China and One Taipan Holdings of Henry Sy, Jr. Sy acquired it from Enrique Razon’s Monte Oro Resources.

The privatization of power industry

According to Ibon, the privatization of the power industry in the country started during the late President Corazon Aquino’s administration. Aquino enacted Executive Order 215 in 198,7 which abolished the monopoly of the NPC and gave incentives for private investment in generation to pave the way for liberalization.

It was in 1989 when the first Build-Operate-Transfer or BOT was signed by Hong Kong-based Hopewell to build and operate Navotas I Gas Turbine Power Plant . BOT or RA 6957, which according to Ibon, was the first in Asia. This paved the way for the lifting of restrictions on the entry of private firms in infrastructure, including in power.

Then in 1993, under the administration of Fidel V. Ramos, RA 7648 or the Electric Power Crisis Act was passed. Ibon said RA 7648 greatly expedited deals with independent power producers (IPPs) for the construction, rehabilitation, improvement and maintenance of power plants.

Ironically, under Ramos’s administration the country experienced a series of blackouts. “The early 1990s saw the country facing a series of blackouts following poor delivery especially by the Luzon and Mindanao grids, the installed capacities of which were supposedly sufficient. The Ramos administration has since been accused of exploiting the emergency power situation and the power crisis law to draw up and fast-track onerous IPP contracts benefiting cronies and big power firms,” Ibon said in the study.

Since then, according to Ibon, the country’s power sector has been significantly privatized – specially referring to Napocor’s generating assets, Napocor-contracted capacities with IPPs, and transmission assets.

According to Ibon, as of October 2010, 91.7 percent of Napocor’s generation assets in the Luzon and Visayas grids have been sold covering 26 plants and four decommissioned assets. “The government has earned $10.7 billion from power privatization, excluding that of sub-transmission assets, covering: $3.5 billion for generating plants and turned-over IPPs, $4.0 billion from the 25-year TransCo concession, and $3.2 billion from the transfer of Napocor-IPP contracts to IPP administrators.”

Napocor’s generating plants and contracted capacities with IPPs have been sold to San Miguel Aboitiz and Lopez groups.

Ibon said the San Miguel group took 2,545 MW or 76 percent worth of total 3,346 MW rated capacity of privatized NPC-IPP contracts in 2009 and 2010, aside from 620 MW worth of generation plants. The Aboitiz group bought 1,486 MW or 36 percent of the total 4,103 MW rated capacity of privatized generating/operating plants; the Lopez group on the other hand took 567 MW or 14 percent of privatized plants.

“The power industry from generation, transmission, distribution to supply is then now almost entirely controlled by the private sector,” the study said.

Electricity, a basic service that citizens should enjoy, is in the hands of few elite who are after profits.