DTI wants Meralco to lose P46-B

By J R Ruaya

The Department of Trade and Industry (DTI), most likely upon the prodding of the Palace, has just lodged a petition against Meralco before the Energy Regulatory Commission (ERC) seeking measures to lower power rates, the most striking of which is expanding special treatment to the marginalized.

DTI wants Meralco to extend preferential treatment to poor households and power intensive industries "without prejudice to other Meralco customers", which could only mean us, the average consumers who are diligently paying our power bills, and who are at present already subsidizing the "marginalized" and the power pilferers.

DTI wants Meralco to absorb all lifeline discounts and not pass on to "other customers" which means us, again.

DTI said that Meralco should refund the all the subsidies paid by the subsidizing customers in addition to expanding the coverage and increasing the discounts within its franchise area.

It even wants (not suggests) Meralco to buy more from the wholesale spot electricity market (WESM) at any given time. This suggestion is contrary to the spirit of the spot market, wherein the prices should be dictated by supply and demand.

How this could be done without impairing the viability of the distribution company, the DTI did not spell out. What is more frightening is the repercussions on the quality of service rendered as a result of these proposals.

What is clear though is that the distribution firm will likely post a loss of P46.124 billion once it implements government’s proposal to extend preferential treatment to poor families, according to a presentation of Meralco board member Christian Monsod.

Monsod said based on simulations made by Meralco, the P3.606 billion net income it posted last year would instead become a net loss of P46.124 billion after implementing the proposed measures.

Even if Meralco's projections are somewhat bloated, one cannot escape the fact that the utility firm would be severely affected financially. In the end all these costs would be shouldered by the paying customers.

But what is more fundamentally discomforting is the government's direction veering towards more subsidies, when most countries nowadays, including present and former communist countries like China, Cuba and Vietnam are weaning themselves from such policies.

Subsidies are a manifestation of what I termed "beggar economics"--looks palatable in the short term but devastating in the long term.

These also distort market prices, wherein the actual cost of an item or service is hidden, only to rear its ugly head at the most inopportune time--in a crisis.

Subsidies encourage inefficiency and discourage efficiency improvements.

Worse, the government wants to place the implementation of the subsidies on the hands of the private sector--a clear interference to private enterprises.

Investors have already pointed out that to lower power costs, there are other options which are within the orbit of government influence. The government may have to sacrifice short-term popularity in favor of long-lasting economic benefits.

Like for instance, it may have to lower taxes on indigenous resources like natural gas and geothermal. Swallow the bitter pill of less tax collection in favor of more benefits to the consumers.

It should not change the investment rules in midstream like amending the EPIRA without much analysis of the consequences

It can fast-track the privatization of government power generating assets so that there will be real competition in the power industry. In so doing, the prices at the spot market would reflect the actual supply and demand, and DTI would not have to order Meralco or any distributor to source its needs from the WESM, or peg the distribution charges.

It can hasten the interim open access regime in the industry.

All the government needs is stronger political will to effect the required reforms in the power industry, and not bend to populist whims.

Which is probably asking too much against the reality of depleted coffers, waning popularity, influence of vested interests and the upcoming 2010 elections.

Let us just pray.