[OPINION] The Malampaya Solution 1

[OPINION] The Malampaya Solution

Dean Dela Paz

Posted at Mar 24 2022 01:34 AM

The inflationary impact of incredibly poor energy resource management worsened by global geopolitics and the war in Ukraine have many tongues wagging. Some brain activity is behind those. On the other hand, the grey matter of others in the bureaucracy remains dormant albeit their owner’s fingers point blame elsewhere, actively attempting to parry criticism of their bureaucratic dereliction.

Even on preventing such minor incidents as the eleventh-hour fuel hoarding immediately prior to the weekly pump price increase, we see that the energy bureaucracy is almost totally impotent.

The panic is evident since the war in Ukraine seems headed in the worst directions possible. From December 2021 to January 2022, over two months before the Russians attacked Ukraine, local gasoline prices spiked 7.5% to levels higher than any month in 2021. The general levels remained high, elevated at the upper tracks of a roller coaster that would peak and occasionally dip. Absolute energy costs had never really gone down since. In February, still weeks before the Ukrainian war, pump prices in Manila were 4% higher than the January peak. Pump prices in Manila are relatively lower than in other cities, indicating that the aggregate increase might indeed be higher.

The Ukraine situation aggravated matters and fully exposed the continuing ineptitude of officials in protecting us from the volatilities cursed by our lack of energy independence and our reliance on imported dollar-depleting fuel. As the peso crashes, the added currency costs from importing expensive fuels lead to triple whammies as a result of government’s incredibly poor energy management.

High energy costs bloat electricity and fuel costs along every link in the value chain and our supply lines. The COVID pandemic’s lower demand for industrial and transportation energy had simply backburnered the systemic problem worsened by trickling to almost zero investments in capacities.

Most of the solutions proffered are long term. Some obfuscate obvious incompetence. Someone even suggested peppering our pristine islands with small nuclear power plants or compromising our fuel reserves at Recto Bank to a hostile hegemon. Imagine Chernobyl’s core breach multiplied and spread in our precious islands and then reprise the Malampaya sell-out over resource-rich Recto Bank.

We have gone down this road before. Many of the knee-jerk proposals remain chat box prattle. Few were seriously pursued.

Nukes require constitutional tinkering or distorting fundamental intentions, as well as developing highly-trained operational expertise. Exploring and extracting deep sea resources require huge capital expenditures and long gestation periods. To pay for the immediacy, over the long haul off-the-cuff politically popular palliatives require incremental taxation burdened on the remaining employed whose incomes have been drastically reduced to subsistence levels.

There is a faster way. And it involves correcting an egregious anomaly that should have been nipped at the bud had not the gatekeepers been derelict.

The controversy-ridden Malampaya sell-out had channeled from P47 million to over P50 million in daily revenues to an inexperienced private start-up. If the bleeding had been corrected through a temporary restraining order to stop the hemorrhaging, then as much as P50 million a day might be applied to a fuel subsidy to alleviate the skyrocketing fuel prices inflicted on the public.

Do the math. Based on pre-COVID periods, diesel consumption reaches 10.84 billion liters a year or 903 million a month. Gasoline consumption, 6.03 billion liters yearly or 502 million a month.

If the government subsidizes the increase in gas prices to mitigate the negative impact of the Ukraine- caused spike, assuming a P10 per liter subsidy for diesel and a P6 per liter subsidy for gasoline, both for one month nationwide, let us compute the effective public benefit had these been re-channeled from the Malampaya earnings now flowing to the private start-up controlling 45% of Malampaya.

For diesel, the subsidy would cost P9 billion or the equivalent of 6 months of earnings from the 45% start-up. For gasoline, the one month subsidy would cost P3 billion or the equivalent of 60 days of earnings.

Surrendering such critical cashflows to a private entity rather than applying these to alleviate the debilitating impact of our lack of energy security is at the core of the calculus. It is time we stop this ridiculous bloodletting.

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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.