Roy Tang

I saw an infographic from rappler earlier this year. Let me see if I can still find it.

http://youtu.be/di08h6bObyw

While this video is nice, it doesn't really answer the question in the title because it doesn't provide any comparison to our neighbors so that we know which components are overpriced! Even if we have the rate adjustments due to guaranteed 15% profits, our costs should be at most 15% higher than our neighbors on average, not the 900% shown in the video.

Do you want to know why other Asian countries have low cost of energy? What about the "universal charges" in the video? Maybe that is the source.

Assuming we can't easily do something about the universal charges for political/ legal reasons or whatever, even our generation charges are 500% larger than the total costs of other countries, so we must be overpaying for something there too.

Other countries subsidize electricity. For example, http://www.greenpeace.org/eastasia/news/blog/electricity-subsidies-are-jeopardizing-hong-k/blog/44220/

Also, I think it's quite expensive to distribute electricity in an archipelago. Other Asian countries don't have to deal with the same problem. Note that this distribution cost is spread evenly to the consumers. Also, people who consume less than 100kW have roughly half the rate that everyone else pays for. Again, subsidized by the consumers. And then there's EPIRA of course. Corruption. And overall inefficiency of our old facilities. It would be nice to have a study that directly answers your question though.

Skimmed through this study: http://www.iea.org/publications/freepublications/publication/SoutheastAsiaEnergyOutlook_WEO2013SpecialReport.pdf I noticed that Philippines doesn't produce as much energy resources as its neighbors, whether oil, gas or coal production. Couple that with the fact that our exchange rate favors exporters over importers, and you have what the industry calls a double whammy.

Supply economics lang yan Roy… Meralco and NPC are monopolies thanks to art.12.sec10&11 of the stupid 1987 constitution. Since there is a lack of legitimate competition in a capital intensive sector such as this, they will JACK UP prices and SUCK us dry. Why? Because they can. Kulang na kulang ang competition dahil illegal for foreign capital to compete with domestic monopolies. What we thought was a good economics policy in 1987, it was just actually a legal change of the same crony system in the 70's. Pinalitan lang ng apelyido/ pamilya. Same monopolistic concept. Just different names.

I used to work as environment consultant back in PH from 2001-2006. A lot of new entrant foreign companies ask us to act as third party consultant to perform Due Diligence, mostly for identifying potential regulatory and reputational risk before deciding on purchasing power generation assets in the Philippines. Essentially, management of those power generation assets open up their records and sort of also allow us to freely interview their operational staff including sometimes, selected members of their management. Sometimes they share to us candid information about their contract with the government - and some are quite shocking. In one power generation facility, during their first year of operation, they were actually generating power full capacity for almost year without even being connected to the national grid. Transco at the time was delayed in building the transmission line - and the cost for that unused power is passed to consumers. In another one, this time a hydro power, they are paid in full even if they have not delivered sufficient electricity during summer season. Others, especially those government owned ones - the extra cost shouldered/ passed to consumers mostly relates to Stranded Contract Cost and Stranded Liability. Essentially, these are unpaid obligations by Napocor and as part of the new contract (i.e., to make it palatable with the new operator) - they have agreed to include this in the universal cost paid by consumers. Generation cost on a facility basis is actually almost at par with our ASEAN neighbors, but retail cost passed to consumers are onerously high to cover those simple "contractual issues".

Thanks Luc, your reply was highly informative. Based on your experience, do you think the problems are largely political/ legal (i.e. due to contract provisions or because of prior unpaid obligations, etc) rather than technical (i.e. due to network inefficiency or poor maintenance of power plants, etc) or economic (lack of supply)? I ask because I had a discussion with someone from the EEE faculty, they mentioned that the current structure of the Luzon grid is quite inefficient and for areas like Visayas and Mindanao there is barely enough capacity to support the demand.

Also, our Meralco bill currently has a breakdown for components like generation charge, does the 'retail cost" mentioned in your last sentence mean there are additional costs bundled into this component so that as a consumer we don't get the price "on a facility basis"? If so, perhaps that should be broken down in the billing statement as well.

Mikong, looks like I misinterpreted the numbers in the Rappler video, the average prices given for our neighboring countries were in $ rather than php; so our total cost turns out to be roughly twice that of our neighbors instead of the 900% i was assuming earlier.

It is both - for two decades i.e., from late 70s to early 90s, there was a chronic underinvestment in power sector. The Ramos administration in its desperation to attract new investment back in the 90s introduced laws which liberalized our power sector. Independent power producers essentially took advantage of the situation i.e., sort of arm twisting our decision makers that in order to solve the power crisis, the government have to enter into contract fully aware that the terms are heavily advantageous to the IPPs interests and not with consumers. Also, the government established PSALM to divest Napocor's generation assets at a loss with the liabilities being passed to consumers (in fact in spite of selling almost all Napocor power generation facilities, PSALM is technically bankrupt owing US$20billion). To make matters worse is that in spite of essentially fully liberalizing the power generation sector - the government have not so far made similar liberalization measures on the power transmission sector. Essentially, the power transmission sector is still being owned, managed and operated solely by Transco (except for a few transmission line owned by Meralco directly connected to Lopez owned facilities). Transco being a state owned company, is hounded by bureaucracy, red tape and mismanagement, and has not made any significant improvement in transmission facilities. So there is a mismatch between power generation as against transmission requirements, leading to inefficiency in the grid. Generation charge is I think purely the cost supposed to be for generating electricity i.e., cost for coal/ bunker fuel oil, operations cost, etc. Regarding the "retail cost" - they are less transparent about this and it may include rural electrification, cost related to questionable terms in the contract (i.e., such as the second example I had in my earlier reply), SCC/SL, etc. I believe system losses from the inefficient grid is charged separately.

Luc, is there a publicly available balance sheet of Napocor and Transco? I would like to analyze it. If it is state owned, COA should have something them, no?

A power project if public owned only has to put equity and just let the income statement be as lean as possible WITHOUT putting capital expenditure into the pricing structure. If proven to be true that liabilities (and assets corresponding to these liabilities), are passed to consumers, we can sue IPP's and Transco for economic sabotage. I mean, we as consumers. I am so curious on the gross profit margins of Transco. If way above international comps, we are truly fucked. Not to mention generating power 100% capacity utilization without connecting to the grid.

Roy, while 100% is a lot lower than 900%, twice is still more expensive is still highway robbery. :-) You still got a good case!

There should be some balance sheets - not sure if full info are publicly available though. Unless FOI is enacted as law, unlikely that any of these GOCC will be obliged to make full disclosure about their balance sheets and contractual issues.

I guess that there's a bit of a catch-22 in that we need more players to come in to help break up the monopolies, but in order for that to happen we need to offer some incentives which may make costs higher in the short term

Anyway, thanks for the discussion guys, it's been enlightening. I'll take all of these into account when I appoint an energy secretary :p