Restored

The facts have changed; so must policy.

Now the economic team wants to restore the second tranche of excise taxes due to be imposed on fuel products next month. The recommendation will be tackled during the Cabinet meeting scheduled for next Tuesday.

Last month, the team of technocrats recommended the second round excise taxes be suspended as part of a package of measures to relieve inflationary pressures. Inflation was running like wildfire, threatening to scorch the domestic economy.

At that time, opportunist politicians seeking to score easy populist points were politicizing the phenomenon of elevated inflation. Our policymakers must have felt vulnerable. After all, the rest of the package of reforms needed to be protected from the populist surge.

The decision to suspend oil excise taxes did seem hasty. The law provides a clear condition for suspension: when oil prices average above $80 per barrel for three consecutive months. That condition has not been met when the decision was taken to suspend the excise tax increment.

Rep. Joey Salceda says the suspension should have required a joint resolution on the part of both houses of Congress before the executive branch could take action on the application of a law. That is now water under the bridge. The economic managers are moving to have the legally mandated increment restored.

The oil situation changed dramatically almost immediately after the decision was taken to suspend the incremental excise tax on oil products. For seven straight weeks, world crude prices dropped sharply. About P11 per liter has been lopped off local pump prices for oil products. Another rollback is expected in the coming week.

High oil prices hurt the economy, to be sure. The economy is hurt likewise if oil is too cheap.

In this case, a 12-month suspension of the incremental excise tax on oil products would result in a net revenue loss of P43.4 billion. That is a substantial sum, considering that our budget deficit is nearing our self-imposed limits and Congress is on the verge of enacting more measures that require huge budgetary outlay, such as the proposed universal health care program.

It is now a choice between restoring the incremental excise tax or cutting down public investments on infra modernization and social services.

Almost all nations impose punitive taxation on oil consumption because of the huge social costs associated with imprudent use of fossil fuels. We should not be an exemption to that wise policy.

Transition

The transition in Iloilo City from the ancient power distributor to a new one will be closely watched. If the transition happens smoothly, this will send a strong signal to other local power distributors to shape up or lose their franchises.

The strongest argument for keeping the status quo in Iloilo, despite 18,000 complaints from consumers, was the fear that transitioning could be a chaotic process, disrupting that city’s strong economic performance. Panay Electric Company (PECO), jointly owned by the old rich Cacho and Lopez clans, enjoyed the franchise for 96 years. During that time, they served their customers poorly and charged excessively for the power they sold. Many use this case as illustration of how the well entrenched oligarchy penalized our people’s progress.

To this day, PECO has not yielded to the congressional decision not to renew their franchise and award the business to a new, more modern, player. That could add suspense to the transition happening just over four weeks from now.

It took tremendous political pressure from the Iloilo City council to terminate a nearly century-old franchise and award the same to a new player: MORE Power. Eventually, both chambers of Congress were persuaded by the argument the old distributor was irresponsible and the area’s progress depended on the entry of a new player. Only Sen. Franklin Drilon, perceived to be closely allied with the owners of the old monopoly abstained from the vote to award the Iloilo franchise to someone other than PECO.

In order to calm anxieties over the transition, ports tycoon Enrique Razon no less came out to assure Iloilo electric consumers the transition will happen smoothly and the new distributor will spare no effort to invest in more efficient electricity distribution.

MORE unveiled a P700 M investment plan to improve services. This will include purchase of new transformers and installation of new transmission lines to improve safety and reliability. In the development plan submitted to the Department of Energy, MORE committed to reducing systems loss from 9.3 percent to below 6.5 percent. They commit to purchase new equipment to improve reliability of service and correct voltage quality to +/- 10 percent of 230 volts. They promise to increase substation capacity so they do not exceed the 70 percent loading safety standard. 

During its time, PECO paid out dividends to its investors instead of investing in new equipment. The company bought power from crony generation firms even if they generated nothing and did not buy from the grid even when power costs were lower. They did not improve their billing system causing consumer complaints to pile up.

In a word, PECO behaved like an irresponsible landlord, content to collect rent instead of modernizing services to support economic growth.

Iloilo consumers chafed at the situation enough to risk a possibly difficult transition. They refused to suffer PECO any longer. The end of PECO’s franchise was an opportunity for change they did not want to let pass.

It is now MORE’s responsibility to demonstrate that the leap of faith taken by Iloilo residents was worth it.