Cost of RP power not excessive: ex-PSALM president


Posted at Jun 13 2008 07:42 PM | Updated as of Jun 14 2008 03:42 AM


Electricity rates in the country are not excessive at all, at least, according to the former president of the Power Sector Assets and Liabilities Management Corporation (PSALM).

In a forum organized by Former Senior Government Officials and Young Public Servants, former PSALM President Edgardo del Fonso said total cost of power is not out of line but is actually cheap compared to other basic goods and services in the country.

Del Fonso, who is also a former director of the Philippine National Oil Corporation, said rice prices rose more than 51 percent from P22.45 per kilo in December 2004 to P34.09/kg in May 2008. Jeepney fares also rose 27.2 percent from the minimum P6.50 to P8.00 during the same period. The biggest price hike, however, was in gasoline, which rose 72.3 percent from P28.29/liter in December 2004 to P50.17/liter last month.

On the other hand, National Power Corporation (NPC) generation rates went down from P3.9384 per kilowatt hour in December 2004 to P3.8896/kwh in May 2008.

“It is ironic that of the basic goods and services that hit the poor man’s wallet the hardest, the electricity tariff -- equating it for the moment with NPC’s generation rate -- is the only item that has actually given the consumer some relief.  Others in this select basket have soared in price from 27% to 84%.  Yet all the sound and fury over prices have been directed at power rates!” del Fonso said.

Del Fonso also belied claims that Philippine power rates are the highest in Asia, second only to Japan. He said data from the Asean Center for Energy shows that Brunei and Cambodia had higher ranges of electricity tariffs than the Philippines in 2005. Cambodia charged $0.0841- $0.1562/kwh while Brunei charged $0.1488/kwh compared to the Philippine tariff rate of $0.0329-$0.1120/kwh.

Del Fonso said some countries such as Laos, Myanmar, Indonesia and Vietnam are subsidizing either power rates or power tariffs, which costs their governments billions of dollars.

On the other hand, the former PSALM president warned that rising gasoline and coal prices are putting inflationary pressures on electricity rates all over the world. He said that in the United Kingdom, power rates have gone up 63 percent since 2003. Other countries imposing higher power rates are Turkey (12.7% tariff increase), Bulgaria (19% rate increase) and Northern Ireland (14% rate increase).

NPC generation cost

Del Fonso also said NPC generation charges are no different from the cost that the best new entrant would achieve under optimum conditions. 

He said that in 2003, PSALM applied for a Long Run Avoidable Cost (LRAC) rate from the Energy Regulatory Commission (ERC). LRAC represents the cost to produce power from the Best New Entrant (BNE) or the cost of power using “international best practice.”

“A BNE is assumed to use leading edge technology, meet all the efficiency benchmarks, operate properly, hum along at high capacity factors, comply with environmental standards, its equipment priced competitively, did not have to grease its way through government bureaucratic layers,” he said.

Del Fonso said ERC approved an LRAC of $0.046 per kwh, based on cost factors prevailing in 2003.  In 2004, PSALM extrapolated the LRAC to $0.0707 per kwh when the benchmark Indonesian coal rose to $58 per ton. With the same coal having risen an average of 172 percent since then, del Fonso said LRAC should be $0.090 per kwh.

“At the current exchange rate, LRAC should stand at P3.96 per kwh – which is about where NPC’s generation rate is today.  Thus, now as in 2004, NPC’s generation rate has not strayed far from LRAC,” he said.

“What this is saying is that for all the hand-wringing over NPC’s inefficiencies and take-or-pay provisions and all the graft supposedly embedded in our power costs, what NPC charges today is no different from the cost that the best new entrant would achieve under optimum conditions.”

Renegotiation of IPP contracts

Del Fonso also doubted that proposals to renegotiate contracts with independent power producers (IPP) would succeed. He said that since most IPPs used the Build-Operate-Transport mode, the initial operational and financial risk will lay on the part of the private stakeholders who will invest in the project.

“It would be difficult to ask for concessions because it would mean less earnings for shareholders who initially agreed to fund the contracts,” he said.

He also said many IPPs have changed ownership, which meant that any attempt to renegotiate would mean getting less than their predecessors.

He said attempts to dishonor the IPP contracts could have serious consequences since it would trigger cross-defaults on all our foreign loans. He also warned that nearly all of the IPPs have political risk insurance. 

“If we refuse to honor the contracts, they can simply go to their insurers – deep-pocketed private companies or multilaterals and bilaterals who have a great deal of leverage in other areas – and leave them to slug it out with us in arbitration courts all over the world,” he said.

Lack of transparency

Del Fonso said one of the problems evident in the takeover bid of Government Service Insurance System (GSIS) over the Manila Electric Co. (Meralco) is President Arroyo’s lack of transparency behind the attempt.

He said it was impossible for Malacañang to claim a hands-off policy in the takeover bid since President Arroyo herself micromanages her Cabinet.

He also questioned the judgment of GSIS to buy into a publicly-listed company such as Meralco since there are limits to the exposure of a government-owned and controlled corporation in specific sectors and industries.

“It’s a distortion of the GSIS mandate and a subversion of the purpose of why they were created,” he said.

On the other hand, he also faulted Meralco for failing to explain some of the issues being thrown by GSIS such as the reasonableness of systems loss charges, the use of its own power as part of systems loss, and the pass through of unused gas costs to consumers.

He said Meralco is also slow in moving on court-mandated refunds to consumers, which amount to billions of pesos.

Finally, he also blamed the ERC for failing to act on various issues including a settlement agreement between Meralco and NPC four years ago.