The Pied Piper:
JAYWALKER - Art Borjal () - May 28, 2002 - 12:00am
Part 2
Click here to read Part I

Even before all this buck passing was going on, another chronic source of pressure had also been building up. Many of Napocor’s critical transmission lines were not getting built on time with many being delayed, wittingly or unwittingly, by more than three to four years. In the meantime, Napocor used the excuse of transmission line constraint, despite having firm transmission agreements in place with Meralco, to limit grid access of Meralco’s gas-fired IPP (Sta. Rita).
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As an aside, pundits have observed that NAPOCOR has always worried about the gas-fired plants replacing coal despite their ability to buy 1,200 MW of power from their own Ilijan gas-fired plant. NPC imports between P8-10 billion pesos of coal every year were periodically being awarded. Quite known in the industry was former NAPOCOR president Jesus Alcordo’s frustration at getting a fairer procurement process going on NPC’s coal and insurance requirements.
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The result of this bullying, however, had an abhorrent effect on the PPA. By forcibly curtailing the dispatch of Meralco’s IPP’s and shoving expensive NPC power to Meralco at full grid price, the utility and its consumers have been duped by NPC into paying twice for their power. This, of course, built up even more pressure on the PPA. Though Meralco entitled to immediately pass on the increased cost to its consumers, we instead witness the utility straining to cushion the increase. The decision to defer more than P12 Billion in PPA charges had noble intent but in the politically charged atmosphere, even the ERC added to the confusion by penalizing Meralco’s good deed and slapping it with cease and desist order .
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Worse, the timing of this pell-mell on the PPA looked quite deliberate and concerted. Even the supposedly independent quasi-judicial regulator, ERC, uncannily dated the cease and desist order for April 30th.
* * *
What we are facing today is not a simple case of having high-priced contracts, nor are we already coming face to face with those feared stranded cost from deregulation. Instead, what we have is temporarily high prices electricity resulting from overcapacity and not too transparent dispatch and grid practices of Transco. Couple this with the public that does not want to pay for it and you get an explosive combination. However, what determines the success of the electricity industry restructuring process we have just embarked on will be the response of our leaders and consumer to the many of the challenges that still lie ahead.
* * *
The prevailing atmosphere is one of chaos and confusion. The smell of a witch hunt is in the air with everyone looking for convenient scapegoats. Some figures are pointing former President Ramos under whose administration most IPPs were signed. President GMA instead defends FVR and in turn fingers the blame on Erap for among many other things. Erap in turn claims no IPPS were signed during his administration. Has he forgotten how he got into trouble with the former owners of the Manila Times? The left has its guns trained on the IPPs which they claim have onerous contracts, and they want to see blood in the form of renegotiations or abrogation of these obligations.
* * *
All this confusion culminates with the ultimate madness suspending the P0.85/kwh of NPC’s PPA. Among the legislative amendments would have been a provision lowering the PPA as well. This move did not remove the PPA; it just deferred it for a couple of months at the expense of more borrowings and possibly veering us farther away from our deficit target.
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The more permanent solution is still to come from the amendments of the EPIR (RA 9136 which propose to further defer the PPA not for a couple of months but over the next 20 years. That is literally passing it on a future generation. A future generation that will be more angry and up in arms over costs they did not incur.
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NPC will need to refinance the mismatch between what it pays IPPs and the deferred revenues it gets from the universal charge spread over 20 years. This need for refinancing over time could get dangerously high, especially since the universal charge will be used for other purposes. Capping the universal charge for 20 years at the nominal amount of P0.04 centavos will surely have disastrous effect as the gap between what they received and what must be paid out to suppliers widens even more.
* * *
Future power rates will, over time, be loaded and saddled by previous generations. Electricity charges will become increasingly irrelevant and confusing to those consuming electricity at that time in the future.
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Public resistance to high rates and the populist response indicates that markets could have difficulty working in the future. A vibrant, functioning electricity market will also need a truly independent regulator, no matter how popular or unpopular the outcome. We were hoping that a strong ERC would shield the industry from politics but recent events indicate that independence from the executive branch may be wanting. This will mean that when consumers are unhappy with rates in the future, they will rally and expect politicians to support their cry.
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The plethora of invectives being hurled at IPPs is also a cause for concern. Blame is being cast on allegedly onerous contracts with the left calling for abrogation or renegotiation. IPPs are a convenient scapegoat but as mentioned earlier, by themselves they are not the cause of our high PPA. We will need them to participate in the building of new plants in the future. More of them will mean more competition and will surely be better for consumers. Creating the charged atmosphere of a witch hunt will backfire on us and drive them away.
* * *
Indonesia is also learning this lesson the hard way. After contentiously renegotiating their big IPPs, they now find themselves in a quandary on how to attract generation capacity needed over the next few years. Many power companies have refused to reenter or even touch the Indonesia power market and to date, no new plants are being built or scheduled. For them, a crisis already looms in the next few years.
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No one will want to enter an electricity industry hamstrung by too much politics. Even the ERC must stay above the fray and out of from politicizing its decisions. As mentioned earlier, a main cause to the run up in the PPA was the inefficient and discriminatory procedures of Transco and NPC. ERC is tasked by law to stop this, yet in this regard, we have not yet seen more positive action. If privatization is to succeed, industry players will have to know that the rules will be followed that they are protected from unfair practices. They have to know that markets will work and that in the end, good economics will prevail over bad politics.
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If now solved wisely, the present PPA crisis will have consequences way beyond President GMA’s term. The consequences I speak of are from those that do not chant or shout for their voices to be heard. Aside from the IPPs and energy companies, these are the international lending agencies, banks and rating agencies. Already, they have been showing great concern over what they read in the papers everyday.
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In life, there are no free lunches and as events in the power industry unfold, we can only hope that the spurned Pied Piper does not exact a price we all cannot afford.
* * *

Thoughts For Today:

Always put yourself in others’ shoes.
If you feel that it hurts you,
It probably hurts the other person, too.
* * *
The happiest of people don’t necessarily
Have the best of everything.
They just make the most of everything
That comes along their way.
Happiness lies for those who cry,
those who hurt, those who have searched,
and those who have tried,
for only they can appreciate the importance
of people who have touched their lives.
* * *
My e-mail address: and

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