Privatization of ECs pushed

Electric cooperatives (ECs) are not cooperatives in the true sense of the word.

As early as 2003, the Supreme Court, in the case of Philippine Rural Electric Cooperatives Association (Philreca) vs. Secretary of DILG and DOF, has held that there are substantial distinctions between cooperatives under PD 269 or the National Electrification Administration Decree and those under RA 6938 or the Cooperative Code of the Philippines.

The High Court noted that these distinctions are manifest in at least two material aspects which go into the very nature of cooperatives envisioned by RA 6938 and which characteristics are not present in the type of cooperative associations created under PD 269.

One of the elements of a cooperative under the Cooperative Code is capital contribution. The SC pointed out that importance of capital contributions by members of a cooperative under RA 6938 was emphasized during the Senate deliberations as one of the key factors which distinguished ECs under PD 269 from those under RA 6938.

In its ruling, the SC explained that nowhere in PD 269 does not it require members of ECs to make equitable contributions to capital.

Another distinction is in the extent of government control. It said that the Cooperative Code adheres to the principle of subsidiarity wherein the government may only engage in development activities where cooperatives do not possess the capability nor the resources to do so and only upon the request of such cooperative.

Cooperatives under RA 6938, it added, are envisioned to be self-sufficient and independent organizations with minimal government intervention or regulation.

On the other hand, PD 269 as amended by PD 1645 is replete with provisions which grant the National Electrification Administration (NEA), upon happening of certain events, the power to control and take over the management and operatives of cooperatives registered under it.

The SC noted that the extent of government control over ECs is covered by PD 269 as amended is largely a function of the role of the NEA as primary source of funds of these ECs. It is the NEA, it said, which incurred loans from various sources to finance the development and operations of the ECs.

Under the Local Government Code, only cooperatives registered under RA 6938 are tax exempt. As mentioned in the case, while these ECs can convert into cooperatives under RA 6938, they cannot register and convert as stock cooperatives under the Cooperative Code due to the cumbersome legal and technical requirements issued by the CDA for such conversion.

Meanwhile, the EPIRA Act of 2021 provided for the assumption by PSALM Corp. of all outstanding financial obligations of ECs to NEA and other government agencies incurred for the purpose of financing the rural electrification program.

Inspite, of this, the sad reality that haunts the 121 ECs in the country is that they practically have no funds for modernization. Their facilities can no longer keep up with the current demand resulting in poor service.

Power supply crisis is serious and widespread in the country. In fact, the Senate committee on public services and the committee on energy are conducting a joint investigation into the rotational brownouts experienced in Panay, Negros, Nueva Ecija, Northern Samar, Pampanga, San Isidro and San Jose in Nueva Ecija, Calaca in Batangas, Quezon province, Tabuk City in Kalinga, South Cotabato, Maguindanao, Ozamiz, Lumban in Laguna, Zamboanga City, Pangasinan, Tarlac, Marinduque, Camarines Norte, Echague in Isabela, Zamboanga Sibugay, Masbate, Davao Oriental, Southern Leyte, Casiguran in Aurora, and Bicol.

During the hearings, Sen. Grace Poe pointed out that the ECs were being loaned with government funds and were also given incentives and subsidies to improve the service in rural communities, but still could not keep up with the demand.

Based on its website, as of June, NEA had in fact extended a total of P560.66 million loan assistance to 18 ECs. But despite the large amount of loans extended to the cooperatives every year to strengthen the technical, managerial capability and financial viability of the ECs, the fact remains that their resources for infrastructure development are still insufficient and limited.

And because of limited resources, it is difficult for ECs to implement new technologies and innovations compared to big private sector utilities that have large financial resources. Hence, it is no surprise that the private sector has more capacity to implement immediate infrastructure upgrades, technological advancements and operational efficiencies with reliable results and quality service.

Last year, Sen. Raffy Tulfo said that if ECs do not have funds or capabilities to operate, then they just be sold and privatized. This was after he filed a resolution seeking an inquiry into the endless power outages and soaring electricity costs in the country.

Sen. Sherwin Gatchalian has also expressed his support for private companies to take over franchises of ECs to improve power services.

Meanwhile, Philreca warned against government-backed corporate takeover of ECs and their privatization. A Philreca official noted that EC franchises are under threat by corporations which applied for licenses in areas already covered by their services after noticing the potential for profitability.

The group said that oligarchs are spreading wrong information that ECs are underperforming and must be privatized, adding that they only have a few underperforming ECs especially in the BARMM area because of security reasons.

Unfortunately, many of these sad stories about ECs are true. There is complete lack of transparency in their operations. Local politicians and powerful individuals in these provinces and municipalities control these ECs while the customers decry the high electricity rates and poor quality of service.

One of the solutions seen by Sen. Poe is the entry of private players like MORE Power in the area of rural power distribution. She cited the benefits experienced by Iloilo City residents when the franchise of Panay Electric Co. (PECO) was not renewed, which paved the way for the entry of new player More Electric and Power Corp. (MORE Power) in February 2020.

MORE Power invested P1.5 billion to replace the ageing, obsolete and dilapidated power distribution facilities in Iloilo City. In its first year of operation, MORE Power managed to address the frequent brownout, high electricity bill, large system losses, and other power-related problems in the city.

Residents in Iloilo City even experienced a dramatic reduction in their electricity bill, from the previous P13 per kilowatt hour to P6.40 kwh, which is the one of the lowest electricity rates in the entire country.

MORE Power’s efforts in rehabilitating the facilities that supply power to Iloilo City and nearby area had brought about remarkable progress in addressing problems like huge systems losses, illegal connections, frequent power interruptions, and overloading.

It is about time that a serious review of the state of rural electrification and power distribution in rural areas be undertaken to see how the private sector can come in and do business while making sure that public service comes first before profits. After all, power distributors are public utilities that perform a function vested with public interest.

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