4 simple steps to cut power costs

The Philippines’ power cost is reputedly the highest in Asia. This is a severe constraint in achieving competitiveness not only in industries but also in services, agriculture and the other sunrise sectors, which could generate enough employment and livelihood to bridge the job gap of 15 million within the term of President Aquino.

The National Competitiveness Council (NCC) has identified power as a cost factor that must be resolved right away if we are to gain the reputation of “walking the talk” and give full sail to the momentum being generated by the President’s focus on improved governance in public offices.

NCC’s position has been adopted by the National Economic and Development Authority for incorporation in the Medium Term Philippine Development Plan, and we look forward to its implementation by the Department of Energy (DoE).

Half-hearted moves

Past secretaries of the energy department were unable to take concrete steps to tackle the problem, which gives the impression that they do not wish to be involved or they lack the competence to be involved.

Instead, the few half-hearted moves that were made only exacerbated the problem.

Our energy experts believe that we do not need to wait for lengthy studies for comprehensive policy reforms before moving out of the state of inertia to initiate some simple steps for “early wins.”

“But what can we do to bring matters under our control since oil prices are dictated by the Opec cartel and the Philippines is not gifted with sizeable reserves?” some officials have said.

They cited our poor and inefficient infrastructure in generating, transmitting and distributing electricity, and the naughty habits of some big, bad boys in industry.

They claimed they lack authority to take matters by the horn, alleging lack of support from Malacañang. The recent report from UP National Engineering Council confirmed that the DoE’s lack of engagement and its limited authority/coordination over its subsidiaries and regulatory bodies are key reasons for the high power cost.

A national undertaking

In line with the Pareto Law, we should devote our attention to those areas that will give maximum improvements to help achieve the President’s key objective in the shortest possible time.

The NCC identified the following four simple steps that can be initiated right away, while other more complex measures can come as second wind.

Open access to achieve free competition must be immediately started in line with the Epira law, with specific timetables and target settings.

There are two young brilliant UP lawyers who are working on simplifying energy-related regulations, and are confident that free market play is possible by yearend with clearer and simpler WESM process controls.

Energy conservation should be a national undertaking, like during the tenure of Secretary G. Velasco, where the target of 15-percent reduction was achieved with the help of the public.

In Japan, where President Aquino was a guest during an official visit recently, they have achieved a 19-percent reduction in energy consumption following the program of Prime Minister Noda’s Cabinet.

Efficient use of energy reduces the need for additional generation/distribution facilities that may lead to more overheads, depreciation, repairs, maintenance and operating costs, further bloating the electric bills that we pay monthly.

Rule of thumb

There is a rule of thumb that says that for every 1 percent GDP growth, the country needs to install 1.5 percent increase in power supply.

Some economists feel this relationship is tolerating wastes, and propose that the proper ratio is 1-to-1.

Royalties on extracted energy should be immediately suspended, like what most other countries are doing. Such royalties are like self-imposed blows by sadists, which shackle the poor since power costs remain at the uncompetitive region indefinitely.

At the moment, the royalties earned from Malampaya gas are not considered national incomes per our budget, but are treated as “discretionaries.”

Our lawyers feel that if these savings are reflected directly to the lower costs that consumers pay, which consequently generate jobs/livelihood and provide opportunities for Filipinos to improve their way of life and reduce poverty, the proposal cannot be considered a violation of the Constitution or of any law.

Highly politicized

Electric cooperatives are one of the major distributors of electricity to end users. However, aside from a few good performers, they are highly politicized, with their operations under the thumb of local chieftains.

A recent audit report by the Commission on Audit indicated that most of these cooperatives are operating under severe stress, below acceptable governance standards. The public is left paying for their losses and other costs of inefficiencies.

The National Electrification Administration, headed by Edita Bueno, recognizes this malady and is planning to adopt the Performance Governance Scorecard, which is responsible for the transformation of a number of government ministries to global standards.

A serious drive of this nature by the cooperatives will eliminate the massive subsidies charged to the public within two to three years.

Initial estimates of energy economists indicate that, once these four steps take effect, we can realize a cost reduction in the order of P4 to P5 per kilowatt hour before President Aquino steps down from office.

Meantime, the studies on policy reforms and on the use of renewables can continue, keeping in mind the primary need is to reduce power costs to maximize job generation and eradicate poverty in the country.

Master plan

There is another initiative that DoE can attend to: the progression of the Asean Connectivity Project for a gas pipeline from Brunei to Davao, which will ensure security of supply of natural gas at world market prices.

The adoption of this project will enable more natural gas to be used in our fuel mix for power generation, which will reduce both pollution and cost.

Brunei, Indonesia, Singapore and Malaysia were supportive of this BIMP-EAGA portion of the Asean Connectivity Strategic Projects last time we talked about this in the Eminent Persons Group meeting that drew up the Connectivity Master Plan.

It is about time that the regional cooperation be hastened for the benefit of the EAGA subregion, which is considered the backwaters of Asean in the South.

Proactive

Energy Secretary Rene Almendras can count on his colleagues from MAP and the rest of the business sector who are ready to share with him their vast expertise in various aspects of the energy processes.

We have seen the collaboration of MAP with PCCI, FPI, JFC, MBC and the sectorals, such as SEIPI, BPAP, IPPAP and Philexport, as highly proactive not only to find innovative solutions but, more importantly, to ensure early achievement of the President’s vision in bringing the Philippines to NIC-hood, the better to halve poverty.