PRIVATIZATION of the power sector has failed to ensure public benefits as promised, as shown by the experiences of New Zealand, the United States and countries in Latin America and Asia. In many cases, the reform programs created more problems for the sector itself, consumers or whole communities.
In the past five years, the world witnessed a series of disastrous blackouts, skyrocketing power rates, increasing corruption and financial problems in the sector. For example, serious brownouts in some parts of the US over the past three years brought to light the grim consequences of deregulation and privatization of the power sector.
In the Philippines the main impact of power privatization, particularly during President Ramos’s administration, was, and still is, the stark increase in the cost of electricity. There are two sources of the increase in electricity rates: (1) the Purchased Power Adjustment (PPA) and (2) the application for rate by local distribution utilities (DUs).
The PPA is actually a combination of purchased power-cost adjustment (PPCA), fuel-cost adjustment and foreign-currency exchange adjustment—all privileges extended to independent power producers when the government contracted them to generate and supply power under power purchase agreements.
Distribution utilities, like Manila Electric Co. (Meralco), also charge consumers the cost of National Power Corp. and the distribution utilities’ contracts, which contain onerous “take-or-pay” provision, meaning that all contracted power is considered sold, and shall be paid for by consumers, whether this is used or generated, including the fuel which is purchased in US dollars. Consumers have been paying for fuel-cost adjustment and foreign- currency adjustment since 1994. In 1996 the government started charging the PPCA and since then, the PPA has consistently been on the rise.
Last year electricity charges had been unbundled as mandated in Electric Power Industry Reform Act (Epira). Conveniently, with rates now unbundled into major services, the PPA is no longer to be found in the monthly electric bills but continues to be subsidized by consumers as part of the generation charge.
Aside from the PPA, rising electricity costs have also resulted in rate increases filed by local DUs or rural electric cooperatives (RECs). The Energy Regulatory Commission studies, approves and implements the collection of the new rates.
This situation perpetuates monopoly pricing. For one, Meralco, the biggest DU, has succeeded in clinching successive rates increases using Epira to legitimize collection and recovery of costs for its expensive power contracts.
Meralco-controlled water-concession area monopolizes electricity distribution in the National Capital Region. Even under Epira, all other DU (private DUs and RECs) continued to individually secure franchises, and, thus, ensure that the monopoly of the utilities in their areas is maintained.
In addition to rate increases filed to collect costs incurred in the process of distributing electricity, DUs also managed to include in filling for rate hikes the recovery of their income taxes.
But why has the country remained stuck in the preindustrial age, while its neighbors, then more impoverished and backward, have progressed economically in this age of science and industry?
The late Harvard-trained economist-lawyer Alejandro Lichauco, in several conversations with this writer two years ago while I was writing my book, A Country Imperiled, had provided the answer: “From the beginning, it was planned in Washington that the Philippines shall remain essentially a raw-material economy in order to service the raw-material requirements of an industrial Japan.
“In 1946 the Truman administration adopted the recommendation of the Dodds Report, which proposed that Japan be developed as the primary, if not sole, industrial powerhouse in the Asia-Pacific region, and that countries like the Philippines should be preserved as raw-material economies, obviously to service the requirements of Japan’s factories.
“We owe our knowledge of the Dodds Report to the late Salvador Araneta, who, during his self-exile in Canada during the martial-law years, uncovered the existence of the document and denounced it in his book America’s Double-Cross of the Philippines.”
As Araneta bitterly continued: “We do not argue against the wisdom of providing Japan with the means to rehabilitate herself and allowed to become an industrial country once again, although this was contrary to the prior recommendation of a postwar planning committee, headed by Secretary Morgenthau, a recommendation which was in line with the prevailing sentiment at the end of the war. But, certainly, we can argue against a policy that would make Japan the exclusive industrialized country in the Far East, for such a policy was most detrimental to the Philippines. Indeed, the United States could not justify a policy that provided all kinds of stumbling blocks, to the industrialization of her ally [Philippines] in the war against Japan. As a result of this policy, industrialization in the Philippines suffered severe setbacks….”
According to Lichauco, the geopolitical plan embodied in the Dodds Report explained what the late Sen. Claro M. Recto described as “America’s anti-industrialization policy for the Philippines.
“Conclusive proof of what Recto described as America’s ‘anti-industrialization policy for the Philippines’ came when [President Ferdinand] Marcos formally launched an industrialization program in the late 1970s based on 11 heavy industries, led by the steel, petrochemical and engineering industries.
“The announcement of that plan was swiftly followed by protest from the International Monetary Fund and the World Bank, and the pro-American technocrats in the Marcos Cabinet, led by no less than Cesar Virata, then-prime minister.”
Retrospectively, the foregoing examines in details for our readers as to what went wrong in the past and unless, today or in the next couple of years under the new administration, something is done, like drawing up a more informed strategic policy direction, the future economic situation in the country will only get worse.
To reach the writer, e-mail cecilio.arillo@gmail.com