The price is tight
Let us face it. The main issue in the power sector in this country is the price of electricity. It can make you cry.
This is a problem that is a million times harder to solve than just the availability of supply. Ours are said to be the highest electricity rates in all of Asia and nobody really sees them coming down soon.
Thus, if you ask the big business organizations, they would say that the price of electricity should be the first thing the Aquino (Part II) administration might want to consider in any of the proposed solutions to the problems in the power sector.
For implied in the price issue is the question of whether or not the users of electricity can afford it—particularly the SMEs, the small and medium sized enterprises, the heart and soul of the Philippine economy, providers of millions of jobs.
The SMEs are hardly the kind of ventures that can absorb some sharp increases in their expenses. Take the SME suppliers of department store chains. They are always at the mercy of those chains in terms of pricing, not to mention payment terms that can extend from six months to one year. Their profit margins are thus cut to the bone.
It is not difficult to kill a lot of those SMEs with high power rates. In fact, high in big business organizations’ list of the most likely casualties of the current debilitating power crisis in Mindanao are the SMEs.
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When we try to trace back the causes of our high electricity rates, our first stop should be the DOE, the powerful Department of Energy.
In this country, for whatever reason, the DOE must approve everything that has anything to do with electricity. The Securities and Exchange Commission, or the SEC, will not even accept your application for incorporation if you happen to be going into power generation unless you have the prior approval of the DOE for a service contract. The DOE pre-screens everybody who wants to invest in power generation. Not all of them can pass the DOE examination.
Word goes around for instance that a group has a pending application with the DOE for a new power plant in Luzon. The group has the money ready for a long time now—some $200 million of it. The only problem is that, for whatever mysterious reason, the DOE does not want to award the group a service contract.
Make no mistake: The power problem in this country is not limited only to Mindanao. At the rate the economy is growing, according to projection in the power industry, Luzon will soon suffer from power shortages. And this will be much worse for the economy, particularly the SMEs, than the effects of the crisis in Mindanao.
Ironically, droves of businesses chose to locate in Mindanao some years ago, because the electricity rates on the island were much lower than those in other parts of the country. It only goes to show the unpredictability in doing business in this country. And government policies, its actions—okay, its inaction, at times—have a lot to do with it.
The power problem in Mindanao technically is a seasonal shortage. Because Mindanao is reliant on hydropower, the island experiences power shortage during the rainless months of summer. The people there must thus use the more expensive diesel-fuel as a source of electricity. At least there is an emergency power supply. Expensive, of course!
Such will not be the case in Luzon when the power crisis comes, according to experts in the power industry, because the shortage will be a permanent one. We really need new power plants here in Luzon. There is none in the making.
Except perhaps for the power plant that Korean group Hanjin Heavy Industries and Construction Co. Ltd. is building in the Subic Bay Economic Zone, which will supply the needs of the Korean company—exclusively.
And look at that—for a foreign investor to have peace of mind in doing business here, it must build its own power plant. Wow!
The bad news is it takes about five years to build a new power plant, including the volumes of studies for the planning, financial closings and actual construction.
Oh, I almost forgot that the hardest hurdles are always the “approvals” of the government, particularly the DOE.
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Among big business organizations, they are saying that the DOE, in giving out service contracts for new power plants, seems to be engaged in “managed supply.” In a way, the government is trying to control the supply of power in this country, with the obvious aim of managing the price.
Officially, from what I heard, the DOE line to our leader Benigno Simeon (aka BS) is that the government must balance supply and demand in power to keep the price steady, which is good for both the power generation business and the users of electricity.
Sadly that is no longer the case. There is now a great imbalance. There is a shortage of power, in fact.
The question is this: Who are the guys that the DOE ends up protecting through this “managed supply?” Definitely not the guys down here in my barangay. Not even the thousands of SMEs in the country.
Whether by accident or on purpose, the DOE is simply protecting the big boys in the power sector. They are the only business groups that can enjoy the high prices of electricity due mainly to the shortage that the DOE’s “manage supply” brought about, in the first place.
