Electricity prices to go up again

Here we go again.

Expect to receive electric shock from your power bill starting as early as your next bill when the Energy Regulatory Commission has reportedly given the National Power Corporation (NPC) a go signal to increase its generation rates.

Reports said that the increase in NPC’s basic charge would be 46.82 centavos per kilowatt hour for Luzon, P1.15 /kwh for the Visayas and 71.47 centavos for Mindanao.

Part of that cost will be automatically passed on to the ultimate consumers. That’s you and me.

As usual, there will be howls of protest, and the electricity distributors like Meralco, VECO and Davao Light and Power would bear the brunt of consumer anger since these agencies are the one sending us the dreaded bills. For sure, inefficiencies of these distributors—not mentioning the poorly run electric cooperatives—add to the final bill and any improvement to their operations might help lower that.

But if you look closely at your Meralco (or VECO) bill, the generation cost eats up about 50 % of the total while the distribution cost accounts for about 25%. Any significant reduction to the power bill can only be realized if the generation component of the whole power train can be lowered.

It has been pointed time and again that the Philippines has the highest power generation cost in Asia and one of the highest in the world. Any effort at reducing power costs should start at dissecting the causes of high power generation costs.

As to be expected, the loudest reaction to the impending rate increases comes from the business community which is already reeling from the effects of the worldwide financial crisis which is fast becoming into a severe economic downturn.

The Philippine Chamber of Commerce and Industry together with most foreign chambers are in unison in its clamor for lower power rates to make their business globally competitive. Specifically, the business community wants something to be done about the extended value added tax (E-VAT) on power and the royalty on natural gas.

To be sure, our financial managers will be reluctant to roll back the E-VAT rates as the fund generated from this measure has generally kept up the country afloat in the midst of crisis. Tinkering of the E-VAT would have more damaging effects financially in the long run. Value-added taxes are progressive; the more you consume, the more taxes you pay.

And if you reduce the E-VAT on power—who would prevent you from arguing that the taxes on basic telecommunications, water, basic goods, etc., should also be lowered? Think of the catastrophic consequences on basic services if government revenues are suddenly reduced.

Lest it would be misconstrued, this corner is against high and unreasonable taxes. But putting the blame mainly on E-VAT for power sidesteps the issue. The main issue is the inherent cause of generating power here is just too high.

Yes, the royalty tax on natural gas should go. This would be in line with the practice of many countries to encourage the development of their own natural resources. Don’t also forget the various local taxes (the LGU share for example) that add up to cost. What about realty taxes which could add up to millions?

But what really holds up the power generation cost is the uncompetitive industry structure we still have. Despite the EPIRA, the government through the NPC still controls some 70% of generation.

It also helps if our planners understand why out neighbours like Vietnam, China and Malaysia could generate power at a fraction of the cost we need.

We have passed the Renewable Energy Law which ought to foster more investment in the power sector—but where is the set of implementing rules and regulations to guide investors?

To really foster real competition, the government through the Power Sector Assets and Liabilities Management Corporation (PSALM) should fast-track the privatization of power assets. With the given conditions of its remaining power assets like the coal and geothermal power plants, PSALM should not expect investors to bid on them at the price PSALM wants. It can even do away with an unreasonable base price and just let the market dictates the price of these assets.

Disposing of these assets now at a “loss” may in fact augur well for the country moving forward.

And, who knows, the price of power generation might actually come down due to the natural market forces.