Skewed coal, gas taxes

There is a sense of disharmony in the way the government is taxing imported coal and that of its indigenous natural gas from the Malampaya natural-gas reservoir in offshore Palawan. The skewed tax policy reflects much on the listless drift of the government on what its energy thrust should be. The incongruent taxing policy translates to P0.017 per kilowatt-hour (kWh) for imported coal and P1.70 per kWh for that of natural gas, or the coal tax accounting for just 1 percent of the natural gas tax.

What is wrong about this is the government is effectively negating its own posturing on climate change, for it allows the National Power Corp. (Napocor) to go on with its own “merry” ways of importing “dirty” fuel power while penalizing Filipino electricity consumers who use the “clean” natural gas from Malampaya. This distorted taxation policy does not do justice to the government’s avowed thrust to push the limits insofar as finding natural gas is concerned.

Now, why should the government promote the importation of coal and, in a way, allow the depletion of our precious foreign exchange when it could rely more on natural gas, which the country produces? This seeming disconnect can be better understood through the not-so-transparent way by which Napocor has been sourcing its imported coal. Napocor’s sourcing strategy leaves much to be desired, with inefficiencies very much evident and ought not to be missed by any electricity consumer.

Napocor has failed miserably in its mission to protect electricity consumers by way of its disharmonious coal-procurement policy that has raised hackles from Congress over pricing considerations. Remember that the increased price Napocor has to contend with is reflected on the generation in our electricity bill. The generation charge accounts for 47.2 percent, and this means Napocor’s added cost due to inefficiency is borne by consumers.

Since the cost of fuel is the largest component of our electricity bill and accounts for a whopping 40 percent of the total, to understand the price of power, it is important to turn attention to what drives the cost there. Aside from oil, which directly accounts for 4 percent of the Luzon grid kilowatt-hours, the other main fuel used for power generation in Luzon is coal. Napocor imports more than P20 billion worth of this dirty fuel in Luzon every year, mostly in the spot market.

Napocor’s predilection toward a sourcing strategy via the spot market is not founded on a viable business plan. There is no hedging mechanism at all, with Napocor ineptitude showing all over the place. And to think that Napocor should have the interest of the consumer in mind, as it is a government entity. Napocor, if it were a private entity, can be allowed to be inefficient in its business ways since consumers can have a suite of choices on the products it proffers to the market. But as a behemoth of a government entity, Napocor cannot be allowed to be inefficient as it unduly burdens consumers.

Compare the coal procured by two privately owned independent power producers, the American-owned Quezon Power which sells electricity to Meralco and the German owned STEAG coal plant in Mindanao. Both have signed long-term deals that effectively insulate them from the soaring prices, thereby protecting consumers with contracted coal price at $60 to $80/metric ton, or less than half the cost Napocor has been buying at. So, not only is this greed and avarice at Napocor costing the Filipino people billions of pesos in overpriced coal, but its refusal to procure long-term has needlessly exposed the electricity consumer to the violent swings in global energy prices.

President Arroyo should address the inefficiencies in Napocor, as well as the power agency’s failure to institute sound business decisions. Based on the costs of imported coal, for instance, electricity consumers could have benefitted from lower prices for coal that run the coal-fired power plants, which, under the present energy mix, accounts for 35 percent of the Luzon grid. Hence, with Napocor having a long-term coal-purchase agreement like that of Quezon power or STEAG plant, the electricity consumer would have benefitted in terms of a 13-percent reduction in energy prices. That is huge savings Napocor could have passed on, but which it has to pass upon due its own inefficiency.

And to think that Napocor, now swimming in a sea of red ink because of these inefficiencies, would have to face a further prospect of more losses because of government subsidies with a cap on its pass-on charge. Napocor should be privatized now so that a sound business plan can be set in place. Consumers should not be allowed to suffer from the inefficiencies the Napocor bosses are putting in place, such as the lack of a hedging mechanism in the importation of its coal requirements.

Napocor losses should not be allowed to mount. These losses were funded by increasingly higher levels of government-guaranteed debt that, in 2003, reached a whopping P1.2 trillion. That figure is nine times more than the yearly national education budget and 75 times the annual national health budget. Unfortunately, every peso of Napocor debt guaranteed by the government results in a peso less that can be borrowed for social services like health and education. Subsides to the power sector in this manner mean less funding available to the poor for better schoolhouses, textbooks, teachers, hospitals and farm-to-market roads.

The irony here is that subsidizing the power sector through low Napocor rates results in a massive subsidy to the rich at the expense of the poor. Why is this so? Because FIES (Family Income and Expenditure Survey) data shows that 92 percent of the residential kilowatt-hours consumed in the country goes to rich Class A and B families. Only 8 percent of those kilowatt-hours are consumed by poor Class C, D and E households. This, again, shows a skewed government policy, much like the skewed tax policy on coal and national gas. It is time the government wises up to the problem that is Napocor. 

E-mail: hugagni@yahoo.com

IT’S a shade too insensitive to say that there must be a silver lining in that powerful cyclone that flattened villages in the key rice-producing Irrawaddy delta in Burma—or Myanmar—at the weekend, leaving a death toll of at least 15,000 people, per latest accounts, but still rising.

I am an avid cycling enthusiast. As one, I have been up to Antipolo and to Tagaytay a countless number of times. But I guess the ultimate dream of a local cyclist is to go up to Baguio, as it offers one of the most challenging courses, to say the least, a cyclist can embark on.

“You can fool some of the people all of the time, and those are the ones you want to concentrate on.”—George W. Bush, Washington, D.C., March 31, 2001

The Way Forward: The food crisis

IT is a food crisis now. At first, there was just disruption of the movement of food staples from producers to consumers. But when inadequate supply triggered riots in some countries, food prices began to soar.

Sway: Out in the market

Celebrity endorsement is a common marketing tool. Popular or well-known personalities are often used to “push” items, particularly those that are “new” in the market.

Market Files: Skewed coal, gas taxes

There is a sense of disharmony in the way the government is taxing imported coal and that of its indigenous natural gas from the Malampaya natural-gas reservoir in offshore Palawan.