[OPINION] The Malampaya tragedy and skyrocketing fuel prices 1

[OPINION] The Malampaya tragedy and skyrocketing fuel prices

Dean Dela Paz

Posted at Mar 17 2022 12:19 AM

Recently, we witnessed the inflationary effects of excessively high energy costs when baseload power plants either go completely offline or are substantially derated. It is a rather ironic phenomena for an economy cursed with low energy demand as a consequence of the pandemic’s economic slowdown, and yet as a direct result of incompetent energy management power supplies are even lower. Economics allows for opposing logical forces. The law of supply and demand is among these together with the need to efficiently use resources amid scarcity. Unfortunately, there is no accounting for stupidity-based incompetence.

For successive periods in the first quarter, when as many as eight huge Luzon-based power plants all collectively could not provide adequate power sufficient to provide the grid with energy security so that blackouts and brownouts are avoided, the criticality of energy independence crept into the national discourse. From simple inadequacies in baseload power to fuel the domestic economy to a geopolitical threat northwest of the Philippines from Communist China well beyond our waters, the issues impact on the electoral discourses for May 2022.

It was unavoidable. As power rates at the wholesale electricity spot market (WESM) bloated from the negative impact of marginal pricing for peaking plants in place of cheaper baseloads, plus the incompetence of officials in managing supply downtime, it became apparent that the only refuge the complicit could take was to slip under the skirt of a one-dimensional public relations campaign of falsehoods. Fortunately, on the political sphere, the prospect of brighter futures under better governance under an entirely new government rises like a new dawn.

On the West Philippine Sea issue where our gas and oil resources are threatened by insidious wheeling-dealing, according to philanthropist and patriot Loida Nicolas-Lewis, among all presidential candidates, only Leonor Robredo was brave enough to base her energy security platform on the United Nations Convention on the Law of the Sea – a historic arbitral ruling we won from The Hague. Others betray us by aligning themselves with a foreign hegemonic and hostile superpower. Moreover, only Robredo presented concrete solutions that address complex issues from the exploitation of mineral resources to the denial of fishing rights, to illegal incursions and energy security.

Both domestic and geopolitical dimensions of energy security are unfortunately intertwined with local politics where the impact might not only be on inflationary increases on our Consumer Price Index but on the integrity of our May elections and our democracy beyond. Impending outages are portents of the perpetuation of autocracy with the added national shame that entails.

Way before rolling outages victimized us from offline and derated baseload power plants, consumer prices were already being impacted by high global fuel prices. These include Malampaya gas valued according to a chemistry of oil prices. The war in Ukraine has bloated oil prices severalfold and impacts exponentially on the fuels that run our power plants. Among the foremost fears are the consequences from accidental or deliberate outages during critical voting and canvassing periods.

For one, our strategic Malampaya safety net has disappeared where a controversial sale rechanneled over P20 million daily from what government would have earned had it exercised preemptive rights and not surrendered revenues to an unqualified start-up.

To compute the economic fallout of losing Malampaya, do the math. The P20 million daily revenue foregone is a ridiculously conservative estimate where today’s benchmark global oil prices have breached US$ 140 per barrel. Last March 30 Brent Crude was merely $22.76 a barrel. Compute for the difference from today’s quoted global oil price and then apply the percentage difference to Malampaya’s daily net revenue accruing to the start-up. The result are the billions in revenues lost that could have cushioned runaway fuel prices.

Everyone is panicking and proposing everything from revising the oil deregulation law, to suspending VAT, to constructing retail nuclear power plants. While our Chicken Little officials desperately scrounge for funds to alleviate crushing oil prices, they may have forgotten that with both hands they surrendered billions to a private entity.

Unfortunately, the possible political perils are far worse. Should we lose energy security plus have our voting rights brazenly thwarted this May, the math is even simpler. Compute for the impact of the plundered billions during the time of the dictator. Now update those starting May 2022.

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(Dean dela Paz is a former investment banker and a managing director of a New Jersey-based power company operating in the Philippines. He is the chairman of the board of a renewable energy company and is a retired Business Policy, Finance and Mathematics professor.)

Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.