From regulator to enabler

Last Monday evening, a special news report on the state of electricity or electric power caught my attention, particularly about Yellow and Red alerts in the coming months. Part of the report featured challenges faced by power generators reeling from the high cost of fuel, coal and the steep peso-to-dollar exchange rate. If I remember correctly, it also showed the new DOE Secretary Lotilla talking about options, solutions and experiments. When I tried to better understand the topics covered as an ordinary Filipino, I came away from all of it with a “nose bleed.”

From what I gathered, our “power” supply and reserves remain precarious or thin, the power plants in existence are operating on “old” contracts and concepts and the assumption: all things being normal. However, things are no longer normal. The Ukraine-Russia War broke out and in the last eight months the price of oil/fuel has increased so much that it can determine who becomes president or prime minister in many countries. Due to the global sanctions and impact of war on agriculture and global trade, inflation has driven prices upwards, along with the exchange rate of the US$. Countries like Indonesia are playing safe and have announced an effective embargo on the export of their coal that comprises 60 percent of the Philippine requirement. The OPEC has announced plans to further reduce oil production, which will drive prices even higher and distort economies further. In other words, everything is upside down and nothing is “normal.”

This has been bad news for companies like San Miguel Corporation-Global Power and Meralco, who have an ongoing deal where SMC-Global Power are “bound to a contract” and specific power generation sites: Ilijan (natural gas) and Sual (coal). It is not a simple deal where company A supplies company B with electricity. It is site specific as per the Energy Regulatory Commission (ERC) that regulates and oversees all energy-related deals, which means SMC-GP has to buy coal and natural gas to operate their plants. Like everyone else in the country, SMC is now asking for a 30 centavo per kilowatt-hour increase for the next six months, much like other sectors such as agriculture, transport, tourism and health have been asking and have been given financial assistance relief or ayuda. The ERC has denied the request and insisted that SMC comply with the terms of their contract because that is what contracts are for. SMC-GP has stated that they intend to honor the contract, they simply need help to weather the next six months. The issue now is a matter of legal interpretation of extra-ordinary context versus political will.

So now everybody is waiting for what follows in this often repeated scene or conflict between project proponents and bureaucratic regulators. SMC may or may not continue with the contract with Meralco, they could also bring the matter to court, given that the decision of the ERC was a split decision with two members disagreeing with the decision. The ERC I heard has “hinted” or threatened to impose a fine of several hundred billion if SMC defies the ERC or, as we know from history, chances are we will be in for power interruptions, system break down, mandatory upgrades or a bunch of other technical complications. Let us not forget the fact that the next six months is the dreaded “winter season” beginning in China, US and Europe where the demand and competition for fuel is expected to more than double in cost due to the Russian sanctions. This, I believe, is what SMC Global Power is trying to protect its operations from, because already word from Europe, particularly Germany, is that things are getting tough and if no solution is found, the winter of 2022 will be painful.

It seems that nothing has changed in the last 40 years in terms of concept and management of the industry. Beginning with the immensely corrupted years of the Napocor, to the further complicated modes and terms for power generation and the tug of war between industry players versus regulators, not to mention the perennial suspicions of special deals, clout and favoritism in every administration. This is because the country has never invested in funding, educating and developing career technocrats who are well versed not just in politics and law but the technology and business reality of power generation and transmission.

What we have are congressmen, lobbyists and lawyers all pulling hair and using strong arm tactics while the power sector remains fossil fuel dependent and largely static or currently stagnant while the population and demand grow at an alarming rate. Government is largely run by political appointees who function as regulators, checking on to dot “I” and cross every “T.” Every administration has been known or has had cases where threats, public bashing or outright rejection were utilized against players from the private sector. The water concessionaires experienced a lot of that, where one concessionaire eventually had to sell out rather than sink. Franchise holders have had to shake in their shoes as politicians combed through their petitions for renewals, and project proponents had to call on God Almighty to put an end to the mindless interference of Cabinet officials and bureaucrats. If we total the peso value on legal costs and fees racked up arguing between proponents and regulators, the amount would be in the billions, not including the time wasted because differences of opinions take courts 15 to 20 years to settle.

They say “Desperate times require desperate measures.” My suggestion is for President Bongbong Marcos to take the role of an active CEO and transform government from Regulator to Enabler. Focus on helping instead of hindering, foster cooperation and not suspicion and, to boost the economy, bring the different parties to the table to undertake real partnership, joint cooperation and projects. Unity you said; now prove it!

*      *      *

E-mail: [email protected]