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a Program of Development Policy Research, Analysis and Action Issue #10 2001 19 February The Power Sector Bill: Bad Bill, Bad Move, Bad Omen by Walden Bello (This article is based on the author’s testimony before the Senate-House Bicameral Committee on the Power Restructuring Bill hearing on Feb. 16, 2001.) While the public and the press have been fixated on the continuing saga of deposed President Joseph Estrada, his successor has been busy making missteps that are likely to come back to haunt her administration months, if not weeks, from now. One wrong move is the president’s reversing her earlier decision to shelve the controversial power-restructuring bill that aims to privatize the National Power Corporation (Napocor). Now she wants the Senate-House bicameral committee to quickly approve it. The flip-flopping not only conveys indecisiveness and, thus, weakness. It puts President Macapagal-Arroyo squarely behind a bill that benefits special interests, skewers the consumer, and is guided by a flawed and obsolete economic model. The bill, as Rep. Etta Rosales of the party-list group Akbayan has pointed out, will stick the consumer with paying, via a universal levy, for P480 billion worth of stranded liabilities of Napocor, Meralco, and other distributors. Stranded costs refer to the difference between the current market price of electricity and the mandated cost of electricity delivered by independent power producers (IPPs) under onerous contracts, many of which were entered into during the power crisis of the early 1990’s. Already, about one third of each month’s electricity bill from Meralco is allocated for paying for this overprice—a result of the bad judgment of Napocor and Meralco and the greed of the IPPs. Promoting Monopoly Billed as being anti-monopoly, the proposed legislation is actually an invitation to monopoly by the private sector. The bill would "unbundle" the function of delivering electricity to the consumer, leaving distribution to private firms and electric cooperatives, creating a state-owned National Transmission Company, and dividing up Napocor’s generation assets among a limited number of private producers. But it would allow a private corporation to own up to 40 per cent of the installed capacity of a regional grid and/or 30 per cent of the national installed capacity. That would translate into tremendous market power for a small number of generation companies. This is especially disturbing in light of the experience of the deregulation fiasco in California, which has been caused by the ability of a small number of power generators. Electricity has special characteristics as a commodity, one being that it takes years to build new power plants to meet a rise in supply, another being that power consumption is "demand inelastic," meaning that industries and residences do not have the option of significantly reducing power use in response to a rise in price. A recent New York Times analysis traces the California disaster—which now involves sky-high prices and rolling blackouts—-to the fact that "once the supply of power gets tight, generators can gain almost unlimited power to set prices." As Stanford economics professor Frank Wolak notes, "There’s a very good reason this industry has been regulated for 100 years...This is an industry that ‘s extremely susceptible to market power." Given the centrality of the question of power generation and market power, the core of the bill should have been a detailed specification of the rules and regulations to prevent monopoly or oligopoly by the likely giants of the power generation sector. Instead, it leaves it to a proposed Energy Regulatory Commission (ERC) to do this at some future date. This simply will not do. Aside from inviting monopoly power owing to its failure to spell out rules for regulating the power generation sector, the bill encourages monopoly via its allowing cross-ownership between the generation and distribution sectors. Since distribution utilities can freely contract with power suppliers, what would prevent a distributor, the biggest of them the Lopez group’s Meralco Corporation, from contracting with a sister generation company? As experience with conglomerates in different areas of economic life has shown, companies have a strong propensity to buy from sister suppliers even if a cheaper supply of a commodity is available in the market in order to squeeze out competing suppliers in the long run. The absence of a ban on cross-ownership, warn groups like Action for Economic Reform, Freedom from Debt Coalition, and Akbayan, will simply increase the Lopez interest in an industry where Meralco now owns 60 per cent of the market in the distribution sector. This is a bill that is tailor-made for the Lopezes and the other big players in the industry. Not surprisingly, the two most vocal proponents of the bill are the Osmena cousins in the Senate. As Juliet Labog-Javellana of the Philippine Daily Inquirer points out, Serge Osmena is married to a member of the Lopez clan, and John Osmena’s sister is married to a member of the Aboitiz group that owns, among other things, the second and third largest electricity distributors in the country. A Tainted Bill Another key reason for rejecting the bill in its current form is that it is tainted with corruption. The only way this bill could get through the House was apparently through the buying of representatives by still unidentified interests. Rep. Rosales, together with Rep. Rene Magtubo, exposed the attempt to bribe them with P500, 000 each about a year ago, something that has since been confirmed in private by many members of the House. Yet a conspiracy of silence has prevented any probe into the matter even though one of the backers of the bill, the Asian Development Bank, has urged an investigation. This bill is a product of the Estrada-dominated 11th Congress. It does not reflect the moral criteria that the current chief of state says should guide policymaking. At the very least, it should be rediscussed in the coming 12th Congress to ensure that it is really intended to promote the welfare of the people instead of the welfare of corrupt politicians. End of a Panacea When the concrete proposals to privatize Napocor were first made in the mid-nineties, privatization, deregulation, and liberalization were the panacea of the hour. Since then, we have seen the weight of the evidence move against doctrinaire market solutions in the delivery of public services. The World Bank, IMF, and Asian Development Bank continue to be the strongest external backers of the power bill, yet they themselves have had to concede that market approaches in the form of structural adjustment programs have failed in many parts of the developing world. Since the mid-nineties, we have seen high-profile failures of privatization and deregulation that we must take extremely seriously in order not to repeat the same mistakes. In addition to the California deregulation disaster, there is the debacle of the British railroad system. The privatization of the British railways has ended up giving Britain the worst rail services in Europe. As one magazine puts it, owing to privatization, the British train system "has gone from being the envy of the world to the laughingstock of Europe: underfunded, overcrowded, grubby, and aging." As in California and as in the projected scenario for the Philippine power sector, privatization of the British rail system rested on the unbundling of the services provided by one facility and their passing into the control of a limited number of private sector players. In contrast to the failure of the privately owned British rail system, the government-managed systems in continental Europe are models of efficiency. In contrast to the near collapse of the giant California private power utilities that deregulated, the publicly-owned Los Angeles Department of Water and Power and the Sacramento Municipal Utility District, which have maintained a unity of generation, transmission, and distribution, have been immune from the state’s power crisis. Indeed, as Harvey Wasserman, writing in the Nation, points out, throughout the US, "public-owned power districts supply electricity cheaper and more reliably than private utilities." Public is not always synonymous with inefficient. In fact, throughout Asia, publicly-owned or publicly-managed firms such as Korea’s Pohang Iron and Steel Company, Malaysia’s Petronas, and Hong Kong and Singapore’s mass transit systems, are models of efficiency and reliable service. What we are suggesting is that the answer to Napocor’s crisis may be a more complex one that involves root-and-branch bureaucratic reform, civil society surveillance that may involve democratizing the ownership of Napocor, and renegotiation of the contracts with the greedy IPP’s that took advantage of the power crisis of the late eighties and early nineties to get the government to agree to onerous contracts. We are not against privatization per se. But let us not be rushed into hasty decisions that succeeding generations will later regret. The privatization of a public utility is always a watershed event in any country. Let us remember that Margaret Thatcher’s sweeping privatization and deregulation is now reviled in many quarters as the source of British industry and infrastructure’s lagging behind those of many other Western European countries. If privatization is the only solution to the delivery of public services, then let’s go for it. But only after it is shown in fact to be the only solution. And only if privatization is accompanied by a strong regulatory framework that protects consumers and the national interest. The current power bill is extremely flawed in this respect. Its shortcomings cannot be remedied by a bicameral body in a few short weeks. The bill should be sent back to Congress and presented to civil society for fundamental reconsideration. The author can be reached at waldenbello@hotmail.com Hi. I am Marissa de Guzman of Focus on the Global South . I am also the moderator for this newsletter. I would appreciate very much comments and suggestions from you. I also welcome and encourage contributions, although I cannot guarantee an automatic 'publishing'. It would be nice to have your own views and thoughts on key issues known to a few but definitely interested people. You may send your comments, suggestions, and articles to me at this address, payster21@hotmail.com. Thank you. |