When tens of thousands of people staged demonstrations in Mexico last year to protest a 60 percent increase in the price of tortillas, many analysts pointed to biofuel as the culprit. Because of US government subsidies, American farmers were devoting more and more acreage to corn for ethanol than for food, which sparked a steep rise in corn prices. The diversion of corn from tortillas to biofuel was certainly one cause of skyrocketing prices, though speculation on biofuel demand by transnational middlemen may have played a bigger role. However, an intriguing question escaped many observers: how on earth did Mexicans, who live in the land where corn was domesticated, become dependent on US imports in the first place?
The Mexican food crisis cannot be fully understood without taking into account the fact that in the years preceding the tortilla crisis, the homeland of corn had been converted to a corn-importing economy by "free market" policies promoted by the International Monetary Fund (IMF), the World Bank and Washington. The process began with the early 1980s debt crisis. One of the two largest developing-country debtors, Mexico was forced to beg for money from the Bank and IMF to service its debt to international commercial banks. The quid pro quo for a multibillion- dollar bailout was what a member of the World Bank executive board described as "unprecedented thoroughgoing interventionism" designed to eliminate high tariffs, state regulations and government support institutions, which neoliberal doctrine identified as barriers to economic efficiency.
Interest payments rose from 19 percent of total government expenditures in 1982 to 57 percent in 1988, while capital expenditures dropped from an already low 19.3 percent to 4.4 percent. The contraction of government spending translated into the dismantling of state credit, government-subsidiz ed agricultural inputs, price supports, state marketing boards and extension services. Unilateral liberalization of agricultural trade pushed by the IMF and World Bank also contributed to the destabilization of peasant producers.
This blow to peasant agriculture was followed by an even larger one in 1994, when the North American Free Trade Agreement went into effect. Although NAFTA had a fifteen-year phaseout of tariff protection for agricultural products, including corn, highly subsidized US corn quickly flooded in, reducing prices by half and plunging the corn sector into chronic crisis. Largely as a result of this agreement, Mexico's status as a net food importer has now been firmly established.
With the shutting down of the state marketing agency for corn, distribution of US corn imports and Mexican grain has come to be monopolized by a few transnational traders, like US-owned Cargill and partly US-owned Maseca, operating on both sides of the border. This has given them tremendous power to speculate on trade trends, so that movements in biofuel demand can be manipulated and magnified many times over. At the same time, monopoly control of domestic trade has ensured that a rise in international corn prices does not translate into significantly higher prices paid to small producers.
It has become increasingly difficult for Mexican corn farmers to avoid the fate of many of their fellow corn cultivators and other smallholders in sectors such as rice, beef, poultry and pork, who have gone under because of the advantages conferred by NAFTA on subsidized US producers. According to a 2003 Carnegie Endowment report, imports of US agricultural products threw at least 1.3 million farmers out of work--many of whom have since found their way to the United States.
Prospects are not good, since the Mexican government continues to be controlled by neoliberals who are systematically dismantling the peasant support system, a key legacy of the Mexican Revolution. As Food First executive director Eric Holt-Giménez sees it, "It will take time and effort to recover smallholder capacity, and there does not appear to be any political will for this--to say nothing of the fact that NAFTA would have to be renegotiated.
Creating a Rice Crisis in the Philippines
That the global food crisis stems mainly from free-market restructuring of agriculture is clearer in the case of rice. Unlike corn, less than 10 percent of world rice production is traded. Moreover, there has been no diversion of rice from food consumption to biofuels. Yet this year alone, prices nearly tripled, from $380 a ton in January to more than $1,000 in April. Undoubtedly the inflation stems partly from speculation by wholesaler cartels at a time of tightening supplies. However, as with Mexico and corn, the big puzzle is why a number of formerly self-sufficient rice-consuming countries have become severely dependent on imports.
The Philippines provides a grim example of how neoliberal economic restructuring transforms a country from a net food exporter to a net food importer. The Philippines is the world's largest importer of rice. Manila's desperate effort to secure supplies at any price has become front-page news, and pictures of soldiers providing security for rice distribution in poor communities have become emblematic of the global crisis.
The broad contours of the Philippines story are similar to those of Mexico. Dictator Ferdinand Marcos was guilty of many crimes and misdeeds, including failure to follow through on land reform, but one thing he cannot be accused of is starving the agricultural sector. To head off peasant discontent, the regime provided farmers with subsidized fertilizer and seeds, launched credit plans and built rural infrastructure. When Marcos fled the country in 1986, there were 900,000 metric tons of rice in government warehouses.
Paradoxically, the next few years under the new democratic dispensation saw the gutting of government investment capacity. As in Mexico the World Bank and IMF, working on behalf of international creditors, pressured the Corazon Aquino administration to make repayment of the $26 billion foreign debt a priority. Aquino acquiesced, though she was warned by the country's top economists that the "search for a recovery program that is consistent with a debt repayment schedule determined by our creditors is a futile one." Between 1986 and 1993 8 percent to 10 percent of GDP left the Philippines yearly in debt-service payments--roughly the same proportion as in Mexico. Interest payments as a percentage of expenditures rose from 7 percent in 1980 to 28 percent in 1994; capital expenditures plunged from 26 percent to 16 percent. In short, debt servicing became the national budgetary priority.
Spending on agriculture fell by more than half. The World Bank and its local acolytes were not worried, however, since one purpose of the belt-tightening was to get the private sector to energize the countryside. But agricultural capacity quickly eroded. Irrigation stagnated, and by the end of the 1990s only 17 percent of the Philippines' road network was paved, compared with 82 percent in Thailand and 75 percent in Malaysia. Crop yields were generally anemic, with the average rice yield way below those in China, Vietnam and Thailand, where governments actively promoted rural production. The post-Marcos agrarian reform program shriveled, deprived of funding for support services, which had been the key to successful reforms in Taiwan and South Korea. As in Mexico Filipino peasants were confronted with full-scale retreat of the state as provider of comprehensive support--a role they had come to depend on.
And the cutback in agricultural programs was followed by trade liberalization, with the Philippines' 1995 entry into the World Trade Organization having the same effect as Mexico's joining NAFTA. WTO membership required the Philippines to eliminate quotas on all agricultural imports except rice and allow a certain amount of each commodity to enter at low tariff rates. While the country was allowed to maintain a quota on rice imports, it nevertheless had to admit the equivalent of 1 to 4 percent of domestic consumption over the next ten years. In fact, because of gravely weakened production resulting from lack of state support, the government imported much more than that to make up for shortfalls. The massive imports depressed the price of rice, discouraging farmers and keeping growth in production at a rate far below that of the country's two top suppliers, Thailand and Vietnam.
The consequences of the Philippines' joining the WTO barreled through the rest of its agriculture like a super-typhoon. Swamped by cheap corn imports--much of it subsidized US grain--farmers reduced land devoted to corn from 3.1 million hectares in 1993 to 2.5 million in 2000. Massive importation of chicken parts nearly killed that industry, while surges in imports destabilized the poultry, hog and vegetable industries.
During the 1994 campaign to ratify WTO membership, government economists, coached by their World Bank handlers, promised that losses in corn and other traditional crops would be more than compensated for by the new export industry of "high-value- added" crops like cut flowers, asparagus and broccoli. Little of this materialized. Nor did many of the 500,000 agricultural jobs that were supposed to be created yearly by the magic of the market; instead, agricultural employment dropped from 11.2 million in 1994 to 10.8 million in 2001.
The one-two punch of IMF-imposed adjustment and WTO-imposed trade liberalization swiftly transformed a largely self-sufficient agricultural economy into an import-dependent one as it steadily marginalized farmers. It was a wrenching process, the pain of which was captured by a Filipino government negotiator during a WTO session in Geneva. "Our small producers," he said, "are being slaughtered by the gross unfairness of the international trading environment.
The Great Transformation
The experience of Mexico and the Philippines was paralleled in one country after another subjected to the ministrations of the IMF and the WTO. A study of fourteen countries by the UN's Food and Agricultural Organization found that the levels of food imports in 1995-98 exceeded those in 1990-94. This was not surprising, since one of the main goals of the WTO's Agreement on Agriculture was to open up markets in developing countries so they could absorb surplus production in the North. As then-US Agriculture Secretary John Block put it in 1986, "The idea that developing countries should feed themselves is an anachronism from a bygone era. They could better ensure their food security by relying on US agricultural products, which are available in most cases at lower cost."
What Block did not say was that the lower cost of US products stemmed from subsidies, which became more massive with each passing year despite the fact that the WTO was supposed to phase them out. From $367 billion in 1995, the total amount of agricultural subsidies provided by developed-country governments rose to $388 billion in 2004. Since the late 1990s subsidies have accounted for 40 percent of the value of agricultural production in the European Union and 25 percent in the United States.
The apostles of the free market and the defenders of dumping may seem to be at different ends of the spectrum, but the policies they advocate are bringing about the same result: a globalized capitalist industrial agriculture. Developing countries are being integrated into a system where export-oriented production of meat and grain is dominated by large industrial farms like those run by the Thai multinational CP and where technology is continually upgraded by advances in genetic engineering from firms like Monsanto. And the elimination of tariff and nontariff barriers is facilitating a global agricultural supermarket of elite and middle-class consumers serviced by grain-trading corporations like Cargill and Archer Daniels Midland and transnational food retailers like the British-owned Tesco and the French-owned Carrefour.
There is little room for the hundreds of millions of rural and urban poor in this integrated global market. They are confined to giant suburban favelas, where they contend with food prices that are often much higher than the supermarket prices, or to rural reservations, where they are trapped in marginal agricultural activities and increasingly vulnerable to hunger. Indeed, within the same country, famine in the marginalized sector sometimes coexists with prosperity in the globalized sector.
This is not simply the erosion of national food self-sufficiency or food security but what Africanist Deborah Bryceson of Oxford calls "de-peasantization" --the phasing out of a mode of production to make the countryside a more congenial site for intensive capital accumulation. This transformation is a traumatic one for hundreds of millions of people, since peasant production is not simply an economic activity. It is an ancient way of life, a culture, which is one reason displaced or marginalized peasants in India have taken to committing suicide. In the state of Andhra Pradesh, farmer suicides rose from 233 in 1998 to 2,600 in 2002; in Maharashtra, suicides more than tripled, from 1,083 in 1995 to 3,926 in 2005. One estimate is that some 150,000 Indian farmers have taken their lives. Collapse of prices from trade liberalization and loss of control over seeds to biotech firms is part of a comprehensive problem, says global justice activist Vandana Shiva: "Under globalization, the farmer is losing her/his social, cultural, economic identity as a producer. A farmer is now a 'consumer' of costly seeds and costly chemicals sold by powerful global corporations through powerful landlords and money lenders locally."
African Agriculture: From Compliance to Defiance
De-peasantization is at an advanced state in Latin America and Asia. And if the World Bank has its way, Africa will travel in the same direction. As Bryceson and her colleagues correctly point out in a recent article, the World Development Report for 2008, which touches extensively on agriculture in Africa, is practically a blueprint for the transformation of the continent's peasant-based agriculture into large-scale commercial farming. However, as in many other places today, the Bank's wards are moving from sullen resentment to outright defiance.
At the time of decolonization, in the 1960s, Africa was actually a net food exporter. Today the continent imports 25 percent of its food; almost every country is a net importer. Hunger and famine have become recurrent phenomena, with the past three years alone seeing food emergencies break out in the Horn of Africa, the Sahel, and Southern and Central Africa.
Agriculture in Africa is in deep crisis, and the causes range from wars to bad governance, lack of agricultural technology and the spread of HIV/AIDS. However, as in Mexico and the Philippines, an important part of the explanation is the phasing out of government controls and support mechanisms under the IMF and World Bank structural adjustment programs imposed as the price for assistance in servicing external debt.
Structural adjustment brought about declining investment, increased unemployment, reduced social spending, reduced consumption and low output. Lifting price controls on fertilizers while simultaneously cutting back on agricultural credit systems simply led to reduced fertilizer use, lower yields and lower investment. Moreover, reality refused to conform to the doctrinal expectation that withdrawal of the state would pave the way for the market to dynamize agriculture. Instead, the private sector, which correctly saw reduced state expenditures as creating more risk, failed to step into the breach. In country after country, the departure of the state "crowded out" rather than "crowded in" private investment. Where private traders did replace the state, noted an Oxfam report, "they have sometimes done so on highly unfavorable terms for poor farmers," leaving "farmers more food insecure, and governments reliant on unpredictable international aid flows." The usually pro-private sector Economist agreed, admitting that "many of the private firms brought in to replace state researchers turned out to be rent-seeking monopolists. "
The support that African governments were allowed to muster was channeled by the World Bank toward export agriculture to generate foreign exchange, which states needed to service debt. But, as in Ethiopia during the 1980s famine, this led to the dedication of good land to export crops, with food crops forced into less suitable soil, thus exacerbating food insecurity. Moreover, the World Bank's encouragement of several economies to focus on the same export crops often led to overproduction, triggering price collapses in international markets. For instance, the very success of Ghana's expansion of cocoa production triggered a 48 percent drop in the international price between 1986 and 1989. In 2002-03 a collapse in coffee prices contributed to another food emergency in Ethiopia.
As in Mexico and the Philippines, structural adjustment in Africa was not simply about underinvestment but state divestment. But there was one major difference. In Africa the World Bank and IMF micromanaged, making decisions on how fast subsidies should be phased out, how many civil servants had to be fired and even, as in the case of Malawi, how much of the country's grain reserve should be sold and to whom.
Compounding the negative impact of adjustment were unfair EU and US trade practices. Liberalization allowed subsidized EU beef to drive many West African and South African cattle raisers to ruin. With their subsidies legitimized by the WTO, US growers offloaded cotton on world markets at 20 percent to 55 percent of production cost, thereby bankrupting West and Central African farmers.
According to Oxfam, the number of sub-Saharan Africans living on less than a dollar a day almost doubled, to 313 million, between 1981 and 2001--46 percent of the whole continent. The role of structural adjustment in creating poverty was hard to deny. As the World Bank's chief economist for Africa admitted, "We did not think that the human costs of these programs could be so great, and the economic gains would be so slow in coming."
In 1999 the government of Malawi initiated a program to give each smallholder family a starter pack of free fertilizers and seeds. The result was a national surplus of corn. What came after is a story that should be enshrined as a classic case study of one of the greatest blunders of neoliberal economics. The World Bank and other aid donors forced the scaling down and eventual scrapping of the program, arguing that the subsidy distorted trade. Without the free packs, output plummeted. In the meantime, the IMF insisted that the government sell off a large portion of its grain reserves to enable the food reserve agency to settle its commercial debts. The government complied. When the food crisis turned into a famine in 2001-02, there were hardly any reserves left. About 1,500 people perished. The IMF was unrepentant; in fact, it suspended its disbursements on an adjustment program on the grounds that "the parastatal sector will continue to pose risks to the successful implementation of the 2002/03 budget. Government interventions in the food and other agricultural markets... [are] crowding out more productive spending."
By the time an even worse food crisis developed in 2005, the government had had enough of World Bank/IMF stupidity. A new president reintroduced the fertilizer subsidy, enabling 2 million households to buy it at a third of the retail price and seeds at a discount. The result: bumper harvests for two years, a million-ton maize surplus and the country transformed into a supplier of corn to Southern Africa.
Malawi's defiance of the World Bank would probably have been an act of heroic but futile resistance a decade ago. The environment is different today, since structural adjustment has been discredited throughout Africa. Even some donor governments and NGOs that used to subscribe to it have distanced themselves from the Bank. Perhaps the motivation is to prevent their influence in the continent from being further eroded by association with a failed approach and unpopular institutions when Chinese aid is emerging as an alternative to World Bank, IMF and Western government aid programs.
Food Sovereignty: An Alternative Paradigm?
It is not only defiance from governments like Malawi and dissent from their erstwhile allies that are undermining the IMF and the World Bank. Peasant organizations around the world have become increasingly militant in their resistance to the globalization of industrial agriculture. Indeed, it is because of pressure from farmers' groups that the governments of the South have refused to grant wider access to their agricultural markets and demanded a massive slashing of US and EU agricultural subsidies, which brought the WTO's Doha Round of negotiations to a standstill.
Farmers' groups have networked internationally; one of the most dynamic to emerge is Via Campesina (Peasant's Path). Via not only seeks to get "WTO out of agriculture" and opposes the paradigm of a globalized capitalist industrial agriculture; it also proposes an alternative- -food sovereignty. Food sovereignty means, first of all, the right of a country to determine its production and consumption of food and the exemption of agriculture from global trade regimes like that of the WTO. It also means consolidation of a smallholder- centered agriculture via protection of the domestic market from low-priced imports; remunerative prices for farmers and fisherfolk; abolition of all direct and indirect export subsidies; and the phasing out of domestic subsidies that promote unsustainable agriculture. Via's platform also calls for an end to the Trade Related Intellectual Property Rights regime, or TRIPs, which allows corporations to patent plant seeds; opposes agro-technology based on genetic engineering; and demands land reform. In contrast to an integrated global monoculture, Via offers the vision of an international agricultural economy composed of diverse national agricultural economies trading with one another but focused primarily on domestic production.
Once regarded as relics of the pre-industrial era, peasants are now leading the opposition to a capitalist industrial agriculture that would consign them to the dustbin of history. They have become what Karl Marx described as a politically conscious "class for itself," contradicting his predictions about their demise. With the global food crisis, they are moving to center stage--and they have allies and supporters. For as peasants refuse to go gently into that good night and fight de-peasantization, developments in the twenty-first century are revealing the panacea of globalized capitalist industrial agriculture to be a nightmare. With environmental crises multiplying, the social dysfunctions of urban-industrial life piling up and industrialized agriculture creating greater food insecurity, the farmers' movement increasingly has relevance not only to peasants but to everyone threatened by the catastrophic consequences of global capital's vision for organizing production, community and life itself.
About Walden BelloWalden Bello is senior analyst at and former executive director of Focus on the Global South, a research and advocacy institute based at Chulalongkorn University in Bangkok. He is the author or co-author of many books on politics and economic issues in the Philippines and Asia, including, most recently, Deglobalization (Zed), and recipient of the 2003 Right Livelihood Award, also known as the "Alternative Nobel Prize." In March he was named Outstanding Public Scholar for 2008 by the International Studies Association.
my everyday bloopers,worries,joys and struggles..
Friday, May 16, 2008
Wednesday, May 14, 2008
On power play and consumer empowerment
What became clearer in Monday’s hearing of the Joint Congressional Power Commission (JCPC) is not the immediate reduction in power rates but the electrifying power play between the Lopezes and the government for control of Meralco.
Designed purposely to address the high cost of power in the country, the JCPC hearing was supposed to look for ways to reduce the cost of power in the country, which is among the highest in the world.
Though many issues contributing to the high electricity rates such as the imposition of VAT, system loss charge and other pass-on rates were discussed, it was obviously the raging power play between the Lopezes and the Arroyo government for control of Meralco that occupied center stage.
Hearing GSIS President Winston Garcia himself accused of mismanaging the government employees’ pension fund, talk about inefficiency in the management of Meralco is already mind boggling. And for a Meralco director like him, who represents 33 percent of the country’s biggest utility to be denied access to corporate records, is even more baffling. These are corporate matters easily resolved, not in public debate, but within the company’s walls or in the courts. There must be a bigger purpose behind Garcia’s moves. And there must be something the Lopezes don’t want the public—Garcia’s bosses most especially—to know.
It is our position that Meralco must be made to answer for all the burdens it has been unjustly imposing onto its customers, including the deals it has made with Mrs. Arroyo at the expense of the unknowing public. This it must do, in the interest of justice—and justice has long been overdue.
But the company should not be made a convenient excuse by the Arroyo government to save its own skin and evade its culpability over this complex problem of high electricity rates. From the signing of the EPIRA into law, to the non-renegotiation of the contracts with IPPs, to the deals with the Lopezes at the expense of the public, to the higher rates and higher returns to Napocor and Transco, to the privatization deals and bids—these involve billions of pesos and it is quite impossible to imagine the Arroyo administration not dipping its fingers into these magnificent pies.
The Freedom from Debt Coalition would like to issue a stern warning to Mrs. Arroyo, her family and allies in Malacañang: Stop the power grab. Do not use a legitimate and burning popular issue of high electricity rates to serve your own selfish interests. With feeling, we say in one emphatic voice: Back off!
Rather than allow itself to be used as a pawn in this power play, the PowerCom can seriously consider another option: consumer ownership. We at the Freedom from Debt Coalition have been pushing for this since 2005, when the issue of the P30-B Meralco refund first surfaced.
It is high time we departed from the old school that treated consumers simply as captive markets rather than as rightful owners of a public utility. These public utilities were built by peoples’ money. It is time to give the power back to where it rightfully belongs. Privatization, however, has made this option next to impossible. But we’ll keep pursuing this option, not only because it is more democratic. In the final analysis making a utility accountable to its owners who are also its consumers will render electricity prices more reasonable and fair. And render power grabs and power deals by power-hungry elites a thing of the past.
Likewise, members of the JCPC should consider the immediate overhauling of EPIRA if they want to convert their words into action. This policy framework failed, and will not usher in a brighter energy future for the country. Lawmakers should stop pointing their fingers at others as if they themselves had no hand in creating the monster of failed privatization policy and flawed electricity reforms under EPIRA.
Why is Meralco involved in ‘sweetheart deals’ with other Lopez-owned IPPs? Because EPIRA allows cross-ownership. Why is Meralco buying more than 50 percent of its total supply from its own IPPs? Because EPIRA allows it to do so. Why are Meralco rates higher that other distribution utilities? Because EPIRA and the ERC allowed the use of different rate methodologies. Why is it that whoever controls Meralco controls the power sector? Because EPIRA renders it so.
How about the IPP contracts that made us pay P7.71/kWh from Casecnan rather than at NPC’s P3.89 generation charge? Again, EPIRA requires us to pay for them until the end of the contract. Imagine half of the price cut if this contract were rescinded.
When asked yesterday if NPC can supply the needed requirement of Meralco to avail of its cheaper price, the answer is predictably no. Why? Because with almost 50 percent of its generating capacity already privatized and the remaining to be finished this year, how can a dying NPC enter into a long-term supply contract with Meralco.
Now if lawmakers only see the devil in the Lopezes and ignore the bigger power play being hatched and the failed policies behind these high electricity rates, they had better switch off the lights in both houses of Congress. Or pay our electric bills. Or failing that, shoot their own feet.
Freedom from Debt Coalition
Designed purposely to address the high cost of power in the country, the JCPC hearing was supposed to look for ways to reduce the cost of power in the country, which is among the highest in the world.
Though many issues contributing to the high electricity rates such as the imposition of VAT, system loss charge and other pass-on rates were discussed, it was obviously the raging power play between the Lopezes and the Arroyo government for control of Meralco that occupied center stage.
Hearing GSIS President Winston Garcia himself accused of mismanaging the government employees’ pension fund, talk about inefficiency in the management of Meralco is already mind boggling. And for a Meralco director like him, who represents 33 percent of the country’s biggest utility to be denied access to corporate records, is even more baffling. These are corporate matters easily resolved, not in public debate, but within the company’s walls or in the courts. There must be a bigger purpose behind Garcia’s moves. And there must be something the Lopezes don’t want the public—Garcia’s bosses most especially—to know.
It is our position that Meralco must be made to answer for all the burdens it has been unjustly imposing onto its customers, including the deals it has made with Mrs. Arroyo at the expense of the unknowing public. This it must do, in the interest of justice—and justice has long been overdue.
But the company should not be made a convenient excuse by the Arroyo government to save its own skin and evade its culpability over this complex problem of high electricity rates. From the signing of the EPIRA into law, to the non-renegotiation of the contracts with IPPs, to the deals with the Lopezes at the expense of the public, to the higher rates and higher returns to Napocor and Transco, to the privatization deals and bids—these involve billions of pesos and it is quite impossible to imagine the Arroyo administration not dipping its fingers into these magnificent pies.
The Freedom from Debt Coalition would like to issue a stern warning to Mrs. Arroyo, her family and allies in Malacañang: Stop the power grab. Do not use a legitimate and burning popular issue of high electricity rates to serve your own selfish interests. With feeling, we say in one emphatic voice: Back off!
Rather than allow itself to be used as a pawn in this power play, the PowerCom can seriously consider another option: consumer ownership. We at the Freedom from Debt Coalition have been pushing for this since 2005, when the issue of the P30-B Meralco refund first surfaced.
It is high time we departed from the old school that treated consumers simply as captive markets rather than as rightful owners of a public utility. These public utilities were built by peoples’ money. It is time to give the power back to where it rightfully belongs. Privatization, however, has made this option next to impossible. But we’ll keep pursuing this option, not only because it is more democratic. In the final analysis making a utility accountable to its owners who are also its consumers will render electricity prices more reasonable and fair. And render power grabs and power deals by power-hungry elites a thing of the past.
Likewise, members of the JCPC should consider the immediate overhauling of EPIRA if they want to convert their words into action. This policy framework failed, and will not usher in a brighter energy future for the country. Lawmakers should stop pointing their fingers at others as if they themselves had no hand in creating the monster of failed privatization policy and flawed electricity reforms under EPIRA.
Why is Meralco involved in ‘sweetheart deals’ with other Lopez-owned IPPs? Because EPIRA allows cross-ownership. Why is Meralco buying more than 50 percent of its total supply from its own IPPs? Because EPIRA allows it to do so. Why are Meralco rates higher that other distribution utilities? Because EPIRA and the ERC allowed the use of different rate methodologies. Why is it that whoever controls Meralco controls the power sector? Because EPIRA renders it so.
How about the IPP contracts that made us pay P7.71/kWh from Casecnan rather than at NPC’s P3.89 generation charge? Again, EPIRA requires us to pay for them until the end of the contract. Imagine half of the price cut if this contract were rescinded.
When asked yesterday if NPC can supply the needed requirement of Meralco to avail of its cheaper price, the answer is predictably no. Why? Because with almost 50 percent of its generating capacity already privatized and the remaining to be finished this year, how can a dying NPC enter into a long-term supply contract with Meralco.
Now if lawmakers only see the devil in the Lopezes and ignore the bigger power play being hatched and the failed policies behind these high electricity rates, they had better switch off the lights in both houses of Congress. Or pay our electric bills. Or failing that, shoot their own feet.
Freedom from Debt Coalition
Tuesday, May 13, 2008
10 Reasons Why Electricity Bills Are High
After MERALCO, the country’s largest electricity distributor and supplier, announced last April an increase in its generation charges by 51.88 centavos per kilowatt hour (kWh), rumors of a brewing government takeover began spreading like wildfire. Signals are there, experts say, as shares of both the government and the Lopezes each jumped to more than 30%, with the Lopezes having a slight fractional advantage.
The recent government actions to pin down MERALCO and target the Lopezes, however, only serve to narrow the discourse to a simplistic formula: Electricity rates are high; for which MERALCO and the Lopezes are to blame. Meralco is no doubt an easy and guilty target. But there are more reasons for electricity rates in the Philippines being among the highest in Asia. And the Arroyo government is equally to blame, if not more.
The Freedom from Debt Coalition (FDC) believes that the issue of high electricity prices is a result of a confluence of factors, from bad governance to corruption to mismanagement to rent-seeking to framework concerns. It is also more complex than what media portrays or what some politicians would want us to believe. We attempt to identify these factors as our contribution to gaining a fuller understanding of the problem of unabated expensive electricity.
FDC argues that the skyrocketing price of electricity emanates from structural, management, policy, governance and paradigmatic causes. FDC believes that these problems cannot be resolved fully without transforming the electricity industry into one that is more responsive and accountable to the people, and more environmentally sustainable. Meanwhile, it would greatly help the consumer for the government to target specific rate-hiking factors and introduce immediate reforms, with the end-in-view of course, of more comprehensive changes sooner rather than later.
We believe electricity is expensive because of the following:
1. The Energy Regulatory Commission (ERC) allows MERALCO, other distribution utilities (DUs) and the National Transmission Commission (Transco) to earn over and above what used to be the statutory return on rate base of 8-12%. The Electric Power Industry Reform Act (EPIRA) allowed ERC to change the system of tariff setting, and it did. But the systems it now follows allows both transmission and distribution companies to earn far more than what they were allowed to earn in the past. And as far as generation and supply companies are concerned, the ERC has little if any say in the prices they charge because generation and supply are deregulated under EPIRA.
2. The Arroyo government wants to attract private investors to purchase NPC’s assets, and for the assets to become attractive, electricity rates have to be high. The higher the winning bidder bids, the higher the electricity price we have to pay in the future so the winning bidder can recover its investment.This can be observed with the nature of recent electricity rate hikes. Following the suggestion of the Asian Development Bank (ADB), the National Power Corporation (NPC) petitioned rate hikes in order to attract investors since no investor would invest without proof of financial viability. Out of the PhP1.98/kWh NPC petitioned in 2004, PhP1.03/kWh was approved by ERC in 2005 – the highest rate hike in the history of the ERC. Transmission charges also increased from PhP0.7716/kWh in May 2006 to PhP0.9163/kWh in July 2006 (which is contrasted with almost flat prices from November 2005 up to May 2006) as the privatization and the bidding process is about to start.
3. The Arroyo government did not renegotiate the contracts with NPC’s independent power producers or IPPs. These contracts require NPC to purchase electricity whether or not these are actually generated or dispatched, and to supply fuel to IPPs that are in operation. The price NPC agreed to pay for this electricity was overstated to begin with, and many of these contracts have clauses that allow the IPP to raise rates over time. NPC also bears the risk of peso devaluation and the risk of the cost of fuel, such as oil and coal, going up. We have been paying for these contracts in our electric bills for over a decade, and we continue to pay for these today, although this is less transparent, thanks to unbundling. With world oil and coal prices hitting all time highs, with the peso now at PhP40 to the dollar compared with PhP26:$1 when these contracts were signed, the cost of these contracts are an excessive burden on ordinary Filipino electricity consumers. Even consumers that do not have electricity at home are also made to pay for these contracts because the government guarantees all of NPC’s obligations to the IPPs.
4. EPIRA allows MERALCO to purchase at most half of its electricity requirements from its sister companies or IPPs. Besides the problem of NPC with the IPPs, we have the problem of MERALCO’s contracts directly with its own IPPs. EPIRA also allows cross ownership between generation and distribution. A closer look at the ownership of most of MERALCO’s IPPs will show that they are owned by the Lopezes. Examples include the Santa Rita, the San Lorenzo Natural Gas, and the Quezon Coal-fired Power Plants. Whatever guarantees the government gives to its IPPs, MERALCO also gives to its IPPs. MERALCO has always claimed that it doesn’t earn from the high generation charges of its IPPs, and that it is merely passing on to its IPPs whatever it charges its customers for generation. MERALCO is telling the truth. But that is not the entire picture. For while MERALCO doesn’t itself earn from the high generation charges of its IPPs, the Lopezes do. A simple review of the financial statements of the Lopez holding company and its generation companies will show this.This results to a clear case of double-whammy for the consumers. At one end, NPC must still pay for the unsold electricity it gets from IPPs because of the take-or-pay provision – an undue costs which will later be part of NPC’s stranded cost to be passed on later to the consumers. At the other end, MERALCO pays its IPPs more than what it would have paid NPC, if it bought the electricity from NPC during the same hours that MERALCO was buying from its IPPs. As NPC rates vary from hour to hour, becoming more expensive when demand for electricity peaks, we must compare on an hourly basis what MERALCO pays its IPPs with what it would have paid NPC if it bought electricity from NPC instead of its IPPs.Fortunately during the May 6, 2008 dialogue at the ERC, members of FDC and EmPower Consumers were able to obtain a copy of Meralco’s electricity suppliers and their respective cost and share for the months of March and April.
5. High electricity prices breed inefficiencies, which further raise the cost of electricity. The power sector is inherently inefficient. . Average capacity utilization of Transco’s transmission lines, according to an ADB report, is only at 12%. We are paying for the investment and loans incurred to set up a transmission grid and on the average, only 12% of the capacity is being utilized. With regard to generation, dependable capacity in the Philippines amounted to 13,639MW at the end of 2006, but that same year, peak demand for electricity was only 8,760MW. We pay for capacity we don’t use, and this is such a heavy burden on consumers that we economize on our use of electricity even further. However, the less we consume of electricity, the more we have to pay of unused capacity. This is a vicious cycle similar to a debt trap. Industries cannot survive such a set-up. Poor consumers, even less so.This is manifested in electricity consumption data obtained from the Department of Energy: Electricity consumption grew by 10.6% in 2003, then by a lower 3.2% in 2004, then by an even lower 2.5% in 2005. In 2006 electricity consumption grew by only 1.1%. Today it is residential and commercial users who hold a bigger share of total consumption. The thing is, residential and commercial consumers have peak hours when their demand for electricity is strong. Beyond that, demand is very low. This leaves the power sector with a huge inefficient setup: Base load demand is weak but you have to have extra capacity for use during the peak hours. This also means that you have to spend on additional capacity that will most likely get used only during peak hours. This is clearly wasteful and inefficient.
6. Other ERC decisions have rendered the cost of electricity high. One such decision is the ERC's dismissal of the Power Sector Assets and Liabilities Management Corporation (PSALM) market abuse case alleged by the Philippine Electricity Market Corporation (PEMC), the operator of the Wholesale Electricity Spot Market (WESM). The ERC dismissed this for lack of sufficient evidence, despite the detailed market data submitted by PEMC clearly showing that PSALM exercised its market power to raise the WESM spot price. The dismissal by ERC will cost consumers an additional PhP14B.
7. EPIRA-mandated removal of subsidies. Following the logic of privatization and market-reforms, EPIRA states that instruments such as cross-subsidies which distort the “real” price of electricity should be removed. This is in keeping with the transformation of electricity industry from a public service industry to a commodity market. The prices should be subjected to market rules alone – and considerations such as equity and justice in the provision of electricity should be abolished. Households no longer enjoy subsidies from the industrial and commercial sectors, and households in Mindanao and Visayas are no longer being subsidized by households in Luzon. These households that no longer enjoy the subsidies of the pre-EPIRA days have experienced a hike in rates as a result of the removal of these subsidies.Even the lifeline rate today is not what it used to be. In the logic of subsidy, better off consumers subsidize the more disadvantaged ones. This may work in cities like Manila but in areas that are by and large poor, the lifeline rate is symbolic more than real and it is actually the less poor who are subsidizing the poorer.
8. Unfair and unjust practices of industry players that the ERC is ineffectual to regulate, or may even condone. ERC is known to have been powerless in providing more substantial solutions to recurrent abuse (overcharging and corporate malpractice) of DUs such as MERALCO. There had already been a number of times when MERALCO was proven to have engaged in such unscrupulous practice, yet MERALCO can and will probably engage in such practice because of the lack of fundamental action on the part of the ERC. For example:
• In 2002, ERC discovered PhP0.50/kWh unjustified over-recoveries of MERALCO from the PPA. It reached PhP12.3 billion as based in December 2001 computations. MERALCO was asked to refund it to the consumers.
• In 2003, the Commission on Audit discovered that MERALCO overcharged its customers by PhP0.017/kWh through inclusion of income tax as operation expense which it passed on to consumers from 1994 to 2002. The Supreme Court subsequently ordered MERALCO to stop this practice and to refund the consumers by as much as PhP30 billion.
• Also in 2003, FDC questioned ERC’s giving of provisional authority to MERALCO to raise their rates by as much as PhP0.12/kWh. Fortunately for the consumers, the Supreme Court junked the ERC decision in January 2004 because it violated certain rules during its own hearings.
• In June 2004, MERALCO again applied for PhP0.1327/kWh increase through Generation Rate Adjustment Mechanism (GRAM). The Supreme Court again junked the petition in February 2006 as MERALCO did not follow the prescribed process (lack of hearing and publication) .
But MERALCO is not the only one engaged in abusing and deceiving the consumers. The Panay Electric Company (PECO), also known to be owned by the Lopez family, had also been asked by the ERC to refund the consumers PhP2/kWh it earned due to overcharging.
9. Value Added Tax (VAT). Because of the ballooning fiscal deficit of the government, which is in part caused by guaranteed obligations of Government-Owned and -Controlled Corporations (GOCCs) like NPC, the 12% VAT now includes oil and electricity which was exempted before (zero-rated) in the previous consumption tax regime because it was categorized as “socially-sensitive” – raising its prices will translate to rising prices of other commodities. According to some studies, VAT raises electricity prices by PhP0.60/kWh to PhP0.90/kWh. It is estimated that the government earned at least PhP7..668 billion from VAT in the electricity industry in 2005.
One of the more controversial applications of VAT in electricity is the imposition of VAT to system loss, electricity which had been generated but not used. It is unjust to impose consumption tax on goods and services not actually consumed.
10. Corruption and Mismanagement
• In NPC. Corruption in National Power Corporation (NPC) artificially inflates generation charges. This includes allegations of “overpricing” in the process of buying coal and oil supply for NPC-owned power plants and NPC-IPP’s.
• In PSALM. The privatization of NPC plants is anomaly-ridden, the most outstanding proof of which is the halted sale of the Masinloc Power Plant to the winning bidder – the YNN. Aside from the fact that YNN capacity is questionable (it failed to pay down payment despite three extensions), sale of Masinloc to YNN will only raise electricity prices form PhP2.80 to PhP4.80/kWh. What is more revolting is this case is that, according to a COA report, PSALM officials gave themselves PhP10-million bonus because of the “successful” closing of the failed transaction with YNN.
By the Freedom from Debt Coalition
A position paper submitted to the:
Joint Congressional Power Committee (JCPC)
May 12, 2008
The recent government actions to pin down MERALCO and target the Lopezes, however, only serve to narrow the discourse to a simplistic formula: Electricity rates are high; for which MERALCO and the Lopezes are to blame. Meralco is no doubt an easy and guilty target. But there are more reasons for electricity rates in the Philippines being among the highest in Asia. And the Arroyo government is equally to blame, if not more.
The Freedom from Debt Coalition (FDC) believes that the issue of high electricity prices is a result of a confluence of factors, from bad governance to corruption to mismanagement to rent-seeking to framework concerns. It is also more complex than what media portrays or what some politicians would want us to believe. We attempt to identify these factors as our contribution to gaining a fuller understanding of the problem of unabated expensive electricity.
FDC argues that the skyrocketing price of electricity emanates from structural, management, policy, governance and paradigmatic causes. FDC believes that these problems cannot be resolved fully without transforming the electricity industry into one that is more responsive and accountable to the people, and more environmentally sustainable. Meanwhile, it would greatly help the consumer for the government to target specific rate-hiking factors and introduce immediate reforms, with the end-in-view of course, of more comprehensive changes sooner rather than later.
We believe electricity is expensive because of the following:
1. The Energy Regulatory Commission (ERC) allows MERALCO, other distribution utilities (DUs) and the National Transmission Commission (Transco) to earn over and above what used to be the statutory return on rate base of 8-12%. The Electric Power Industry Reform Act (EPIRA) allowed ERC to change the system of tariff setting, and it did. But the systems it now follows allows both transmission and distribution companies to earn far more than what they were allowed to earn in the past. And as far as generation and supply companies are concerned, the ERC has little if any say in the prices they charge because generation and supply are deregulated under EPIRA.
2. The Arroyo government wants to attract private investors to purchase NPC’s assets, and for the assets to become attractive, electricity rates have to be high. The higher the winning bidder bids, the higher the electricity price we have to pay in the future so the winning bidder can recover its investment.This can be observed with the nature of recent electricity rate hikes. Following the suggestion of the Asian Development Bank (ADB), the National Power Corporation (NPC) petitioned rate hikes in order to attract investors since no investor would invest without proof of financial viability. Out of the PhP1.98/kWh NPC petitioned in 2004, PhP1.03/kWh was approved by ERC in 2005 – the highest rate hike in the history of the ERC. Transmission charges also increased from PhP0.7716/kWh in May 2006 to PhP0.9163/kWh in July 2006 (which is contrasted with almost flat prices from November 2005 up to May 2006) as the privatization and the bidding process is about to start.
3. The Arroyo government did not renegotiate the contracts with NPC’s independent power producers or IPPs. These contracts require NPC to purchase electricity whether or not these are actually generated or dispatched, and to supply fuel to IPPs that are in operation. The price NPC agreed to pay for this electricity was overstated to begin with, and many of these contracts have clauses that allow the IPP to raise rates over time. NPC also bears the risk of peso devaluation and the risk of the cost of fuel, such as oil and coal, going up. We have been paying for these contracts in our electric bills for over a decade, and we continue to pay for these today, although this is less transparent, thanks to unbundling. With world oil and coal prices hitting all time highs, with the peso now at PhP40 to the dollar compared with PhP26:$1 when these contracts were signed, the cost of these contracts are an excessive burden on ordinary Filipino electricity consumers. Even consumers that do not have electricity at home are also made to pay for these contracts because the government guarantees all of NPC’s obligations to the IPPs.
4. EPIRA allows MERALCO to purchase at most half of its electricity requirements from its sister companies or IPPs. Besides the problem of NPC with the IPPs, we have the problem of MERALCO’s contracts directly with its own IPPs. EPIRA also allows cross ownership between generation and distribution. A closer look at the ownership of most of MERALCO’s IPPs will show that they are owned by the Lopezes. Examples include the Santa Rita, the San Lorenzo Natural Gas, and the Quezon Coal-fired Power Plants. Whatever guarantees the government gives to its IPPs, MERALCO also gives to its IPPs. MERALCO has always claimed that it doesn’t earn from the high generation charges of its IPPs, and that it is merely passing on to its IPPs whatever it charges its customers for generation. MERALCO is telling the truth. But that is not the entire picture. For while MERALCO doesn’t itself earn from the high generation charges of its IPPs, the Lopezes do. A simple review of the financial statements of the Lopez holding company and its generation companies will show this.This results to a clear case of double-whammy for the consumers. At one end, NPC must still pay for the unsold electricity it gets from IPPs because of the take-or-pay provision – an undue costs which will later be part of NPC’s stranded cost to be passed on later to the consumers. At the other end, MERALCO pays its IPPs more than what it would have paid NPC, if it bought the electricity from NPC during the same hours that MERALCO was buying from its IPPs. As NPC rates vary from hour to hour, becoming more expensive when demand for electricity peaks, we must compare on an hourly basis what MERALCO pays its IPPs with what it would have paid NPC if it bought electricity from NPC instead of its IPPs.Fortunately during the May 6, 2008 dialogue at the ERC, members of FDC and EmPower Consumers were able to obtain a copy of Meralco’s electricity suppliers and their respective cost and share for the months of March and April.
5. High electricity prices breed inefficiencies, which further raise the cost of electricity. The power sector is inherently inefficient. . Average capacity utilization of Transco’s transmission lines, according to an ADB report, is only at 12%. We are paying for the investment and loans incurred to set up a transmission grid and on the average, only 12% of the capacity is being utilized. With regard to generation, dependable capacity in the Philippines amounted to 13,639MW at the end of 2006, but that same year, peak demand for electricity was only 8,760MW. We pay for capacity we don’t use, and this is such a heavy burden on consumers that we economize on our use of electricity even further. However, the less we consume of electricity, the more we have to pay of unused capacity. This is a vicious cycle similar to a debt trap. Industries cannot survive such a set-up. Poor consumers, even less so.This is manifested in electricity consumption data obtained from the Department of Energy: Electricity consumption grew by 10.6% in 2003, then by a lower 3.2% in 2004, then by an even lower 2.5% in 2005. In 2006 electricity consumption grew by only 1.1%. Today it is residential and commercial users who hold a bigger share of total consumption. The thing is, residential and commercial consumers have peak hours when their demand for electricity is strong. Beyond that, demand is very low. This leaves the power sector with a huge inefficient setup: Base load demand is weak but you have to have extra capacity for use during the peak hours. This also means that you have to spend on additional capacity that will most likely get used only during peak hours. This is clearly wasteful and inefficient.
6. Other ERC decisions have rendered the cost of electricity high. One such decision is the ERC's dismissal of the Power Sector Assets and Liabilities Management Corporation (PSALM) market abuse case alleged by the Philippine Electricity Market Corporation (PEMC), the operator of the Wholesale Electricity Spot Market (WESM). The ERC dismissed this for lack of sufficient evidence, despite the detailed market data submitted by PEMC clearly showing that PSALM exercised its market power to raise the WESM spot price. The dismissal by ERC will cost consumers an additional PhP14B.
7. EPIRA-mandated removal of subsidies. Following the logic of privatization and market-reforms, EPIRA states that instruments such as cross-subsidies which distort the “real” price of electricity should be removed. This is in keeping with the transformation of electricity industry from a public service industry to a commodity market. The prices should be subjected to market rules alone – and considerations such as equity and justice in the provision of electricity should be abolished. Households no longer enjoy subsidies from the industrial and commercial sectors, and households in Mindanao and Visayas are no longer being subsidized by households in Luzon. These households that no longer enjoy the subsidies of the pre-EPIRA days have experienced a hike in rates as a result of the removal of these subsidies.Even the lifeline rate today is not what it used to be. In the logic of subsidy, better off consumers subsidize the more disadvantaged ones. This may work in cities like Manila but in areas that are by and large poor, the lifeline rate is symbolic more than real and it is actually the less poor who are subsidizing the poorer.
8. Unfair and unjust practices of industry players that the ERC is ineffectual to regulate, or may even condone. ERC is known to have been powerless in providing more substantial solutions to recurrent abuse (overcharging and corporate malpractice) of DUs such as MERALCO. There had already been a number of times when MERALCO was proven to have engaged in such unscrupulous practice, yet MERALCO can and will probably engage in such practice because of the lack of fundamental action on the part of the ERC. For example:
• In 2002, ERC discovered PhP0.50/kWh unjustified over-recoveries of MERALCO from the PPA. It reached PhP12.3 billion as based in December 2001 computations. MERALCO was asked to refund it to the consumers.
• In 2003, the Commission on Audit discovered that MERALCO overcharged its customers by PhP0.017/kWh through inclusion of income tax as operation expense which it passed on to consumers from 1994 to 2002. The Supreme Court subsequently ordered MERALCO to stop this practice and to refund the consumers by as much as PhP30 billion.
• Also in 2003, FDC questioned ERC’s giving of provisional authority to MERALCO to raise their rates by as much as PhP0.12/kWh. Fortunately for the consumers, the Supreme Court junked the ERC decision in January 2004 because it violated certain rules during its own hearings.
• In June 2004, MERALCO again applied for PhP0.1327/kWh increase through Generation Rate Adjustment Mechanism (GRAM). The Supreme Court again junked the petition in February 2006 as MERALCO did not follow the prescribed process (lack of hearing and publication) .
But MERALCO is not the only one engaged in abusing and deceiving the consumers. The Panay Electric Company (PECO), also known to be owned by the Lopez family, had also been asked by the ERC to refund the consumers PhP2/kWh it earned due to overcharging.
9. Value Added Tax (VAT). Because of the ballooning fiscal deficit of the government, which is in part caused by guaranteed obligations of Government-Owned and -Controlled Corporations (GOCCs) like NPC, the 12% VAT now includes oil and electricity which was exempted before (zero-rated) in the previous consumption tax regime because it was categorized as “socially-sensitive” – raising its prices will translate to rising prices of other commodities. According to some studies, VAT raises electricity prices by PhP0.60/kWh to PhP0.90/kWh. It is estimated that the government earned at least PhP7..668 billion from VAT in the electricity industry in 2005.
One of the more controversial applications of VAT in electricity is the imposition of VAT to system loss, electricity which had been generated but not used. It is unjust to impose consumption tax on goods and services not actually consumed.
10. Corruption and Mismanagement
• In NPC. Corruption in National Power Corporation (NPC) artificially inflates generation charges. This includes allegations of “overpricing” in the process of buying coal and oil supply for NPC-owned power plants and NPC-IPP’s.
• In PSALM. The privatization of NPC plants is anomaly-ridden, the most outstanding proof of which is the halted sale of the Masinloc Power Plant to the winning bidder – the YNN. Aside from the fact that YNN capacity is questionable (it failed to pay down payment despite three extensions), sale of Masinloc to YNN will only raise electricity prices form PhP2.80 to PhP4.80/kWh. What is more revolting is this case is that, according to a COA report, PSALM officials gave themselves PhP10-million bonus because of the “successful” closing of the failed transaction with YNN.
By the Freedom from Debt Coalition
A position paper submitted to the:
Joint Congressional Power Committee (JCPC)
May 12, 2008
Transparency and electricity
The price of electric power in our country (the second-highest in Asia) has become so complex that even a well-informed citizen would have a hard time grasping the issues, allocating blame, and determining what should be done. This situation is susceptible to demagogic positioning and political opportunism. One can only hope that those who have thoroughly studied the issue can make themselves heard above the din.
For one whole week now, the media blitz on this issue has been led by no less than the President herself and her staunchest allies. The sole target has been the Lopez family-controlled power retailer Manila Electric Co., or Meralco. While the high cost of electricity has been a recurring concern of consumer advocates, it is significant that this issue should surface at this time and is now absorbing all the public attention. Suddenly shunted aside are the issues that have haunted the government in the last few months: the rising price of rice and, even more so, the ZTE national broadband network scandal. This state of affairs is certainly working for Ms Arroyo, who has shown a capacity to override demands for public accountability by simply calling attention to her accusers' liabilities.
Be that as it may, it is difficult to understand why the government corporations that jointly own 33 percent of Meralco and occupy four out of 11 directors' seats cannot press for transparency from within the Meralco board itself. If there are concerns about corporate corruption, the annual stockholders' meeting should be a good venue to thresh these out. Failing this, there is always the Energy Regulatory Commission. But why are the power committees of the Senate and the House of Representatives, led by Sen. Miriam Defensor-Santiago and Rep. Mikey Arroyo, stepping into the fray at this point?
While it may not clarify the whole problem, a bit of history may provide some context to help us tell a solid argument from b.s. I have found it useful to turn to the late Energy Minister Geronimo Z. Velasco's book, titled "Trailblazing: The Quest for Energy Self-Reliance, " for a lucid picture of the events leading to our present energy situation.
In the prewar years, Meralco, then owned by an American private company, was the foremost generator and distributor of electric power in the country. The Commonwealth government under Manuel L. Quezon put up the National Power Corp. (Napocor) to tap hydroelectric power, and persuaded Meralco to buy the power generated from this source to augment the power it produced. The state-owned firm used foreign loans and war reparations to build the gigantic hydropower plants that we are still using to this day. The capital requirements of these projects were so big they were beyond the means of private investors. From hydroelectric dams, the Napocor expanded to geothermal energy and oil-fired plants, making it the biggest power generator in the country.
On Jan. 5, 1962, the American owners sold Meralco to a Filipino group led by Eugenio Lopez Sr. Under Filipino ownership and management, Meralco built additional oil-fired plants to supply the expanding Luzon market. So ahead was Meralco in vision that, in 1967, the owners proposed the construction of a nuclear power plant to meet Manila's growing energy needs. The result of this initiative was the passage of RA 5207 which provided the legal framework for the peaceful harnessing of nuclear power. Meralco's expansion however proved to be financially burdensome. Its debts rose, and with every peso devaluation, debt servicing became heavier. In 1971, a politically turbulent year, it applied for a 37-percent increase in power rates, but the Public Service Commission approved only 20.9 percent.
Meralco's woes became Napocor's blessings. In November 1972, two months after declaring martial law, Marcos issued PD 40, giving the Napocor monopoly in power generation and transmission. Napocor acquired Meralco's oil-fired plants, and consigned the latter to power distribution.
The Napocor's capital-intensive expansion program forced it to borrow enormous amounts of money. Emblematic of this program was the decision to pursue the nuclear power concept. The project, began in 1974, mired the Napocor in debt, and plunged it in controversies from which it never recovered. In December 1985, the Bataan Nuclear Power Plant (BNPP) was ready to fire, but the US government intervened once more and asked for a final inspection. The rest is history. Ferdinand Marcos fell two months after, and the expensive plant was mothballed even before it could produce a single watt of electricity.
Unlike the plant itself, the debts incurred to build it could not be frozen. It took us another 20 years before we could pay the last dollar on the BNPP debt. Meanwhile, the once proud Napocor has been degraded over the years. Every administration that came after Marcos did not think twice about lowering Napocor rates to score populist points, thus further aggravating the firm's financial condition. Today, it is being liquidated piece by piece.
The privatization of power generation and transmission has been done haphazardly—in the wake of a frantic rush to dismantle every project started by Marcos. It was as if the government expected the private sector to systematically fill in the spaces vacated by state initiative. When the 12-hour blackouts started to hit us in the final years of the Cory Aquino government, we could only respond with a desperate quick-fix—by buying power from hastily invited independent power producers.
We are still paying for all these missteps, and while Meralco is far from blameless, it is surely dishonest to notice only its faults. Transparency and accountability must begin with the government itself
By Randy David
Philippine Daily Inquirer
For one whole week now, the media blitz on this issue has been led by no less than the President herself and her staunchest allies. The sole target has been the Lopez family-controlled power retailer Manila Electric Co., or Meralco. While the high cost of electricity has been a recurring concern of consumer advocates, it is significant that this issue should surface at this time and is now absorbing all the public attention. Suddenly shunted aside are the issues that have haunted the government in the last few months: the rising price of rice and, even more so, the ZTE national broadband network scandal. This state of affairs is certainly working for Ms Arroyo, who has shown a capacity to override demands for public accountability by simply calling attention to her accusers' liabilities.
Be that as it may, it is difficult to understand why the government corporations that jointly own 33 percent of Meralco and occupy four out of 11 directors' seats cannot press for transparency from within the Meralco board itself. If there are concerns about corporate corruption, the annual stockholders' meeting should be a good venue to thresh these out. Failing this, there is always the Energy Regulatory Commission. But why are the power committees of the Senate and the House of Representatives, led by Sen. Miriam Defensor-Santiago and Rep. Mikey Arroyo, stepping into the fray at this point?
While it may not clarify the whole problem, a bit of history may provide some context to help us tell a solid argument from b.s. I have found it useful to turn to the late Energy Minister Geronimo Z. Velasco's book, titled "Trailblazing: The Quest for Energy Self-Reliance, " for a lucid picture of the events leading to our present energy situation.
In the prewar years, Meralco, then owned by an American private company, was the foremost generator and distributor of electric power in the country. The Commonwealth government under Manuel L. Quezon put up the National Power Corp. (Napocor) to tap hydroelectric power, and persuaded Meralco to buy the power generated from this source to augment the power it produced. The state-owned firm used foreign loans and war reparations to build the gigantic hydropower plants that we are still using to this day. The capital requirements of these projects were so big they were beyond the means of private investors. From hydroelectric dams, the Napocor expanded to geothermal energy and oil-fired plants, making it the biggest power generator in the country.
On Jan. 5, 1962, the American owners sold Meralco to a Filipino group led by Eugenio Lopez Sr. Under Filipino ownership and management, Meralco built additional oil-fired plants to supply the expanding Luzon market. So ahead was Meralco in vision that, in 1967, the owners proposed the construction of a nuclear power plant to meet Manila's growing energy needs. The result of this initiative was the passage of RA 5207 which provided the legal framework for the peaceful harnessing of nuclear power. Meralco's expansion however proved to be financially burdensome. Its debts rose, and with every peso devaluation, debt servicing became heavier. In 1971, a politically turbulent year, it applied for a 37-percent increase in power rates, but the Public Service Commission approved only 20.9 percent.
Meralco's woes became Napocor's blessings. In November 1972, two months after declaring martial law, Marcos issued PD 40, giving the Napocor monopoly in power generation and transmission. Napocor acquired Meralco's oil-fired plants, and consigned the latter to power distribution.
The Napocor's capital-intensive expansion program forced it to borrow enormous amounts of money. Emblematic of this program was the decision to pursue the nuclear power concept. The project, began in 1974, mired the Napocor in debt, and plunged it in controversies from which it never recovered. In December 1985, the Bataan Nuclear Power Plant (BNPP) was ready to fire, but the US government intervened once more and asked for a final inspection. The rest is history. Ferdinand Marcos fell two months after, and the expensive plant was mothballed even before it could produce a single watt of electricity.
Unlike the plant itself, the debts incurred to build it could not be frozen. It took us another 20 years before we could pay the last dollar on the BNPP debt. Meanwhile, the once proud Napocor has been degraded over the years. Every administration that came after Marcos did not think twice about lowering Napocor rates to score populist points, thus further aggravating the firm's financial condition. Today, it is being liquidated piece by piece.
The privatization of power generation and transmission has been done haphazardly—in the wake of a frantic rush to dismantle every project started by Marcos. It was as if the government expected the private sector to systematically fill in the spaces vacated by state initiative. When the 12-hour blackouts started to hit us in the final years of the Cory Aquino government, we could only respond with a desperate quick-fix—by buying power from hastily invited independent power producers.
We are still paying for all these missteps, and while Meralco is far from blameless, it is surely dishonest to notice only its faults. Transparency and accountability must begin with the government itself
By Randy David
Philippine Daily Inquirer
Saturday, May 3, 2008
Cost of living more than one and a half times the minimum wage
MANILA, Philippines - A Filipino family of six living in Metro Manila needs P933 a day to survive, more than one and a half times the ordinary wage, a labor group said, citing its own study.
In a statement, the Partido ng Manggagawa (PM) said that its study has indicated that the “gap between the P362 minimum wage in the National Capital Region (NCR) and the present cost of living is already a terrible P571 or 160% of the ordinary wage."
The group maintains that a more thorough survey may reveal that the actual cost of living is higher than P933 since its study did not provide for savings and social security which in the NWPC basket of goods and services constitutes 10% of the cost of living.
Furthermore, PM’s study did not include items such as leisure and recreation, and the family budget for health excluded medical expenses.
Magtubo said that “If we include such items and we must in a more accurate survey then the cost of living may reach P100 per day and thus breach the three-digit mark."
“Also since we should not impose the burden of household chores and child rearing to the female parent, then the basket of goods should provide for a house-help. That is not anymore a luxury especially in the light of the insistence of the state that both parents must work instead of having just a single breadwinner," Magtubo argued.
The group’s estimates is also ten percent higher than those made by the National Wages and Productivity Council in March.
The agency’s “estimate of the cost of living as of March 2008 that stands at P 858 have to be updated in the light of this study and in the face of the inflation over the past month," the statement said.
Even if both parents work—which is the buy one, take one policy of the government—then their combined income will not be enough to feed the entire family," Renato Magtubo, Partido ng Manggagawa chair said.
The group once more lambasted the NCR regional wage board for its announcement that no wage order is forthcoming in one month.
“The wage boards must be abolished for being inutile. Its wage orders are always delayed, stingy and benefits merely a small section of workers because it is not across-the-board and riddled with exemptions, deferments and creditability clauses," declared Magtubo, adding that the wage hike must be legislated and across-the-board.
Even if the P80 wage petition is granted by the regional board or the P125 wage hike is passed by Congress then either will not be enough to bridge the yawning gap between the minimum wage and the cost of living.
“Thus it is necessary to combine direct wage increases with tax exemptions and subsidies on social security contributions and prices of basic goods in order to increase the take-home pay to a level near the cost of living," Magtubo said.
Since the group believes that the pending bill providing tax exemptions for married couples earning P200,000 yearly is not enough, PM is pushing for P250,000 in individual tax breaks for wage and salaried workers.
“We should exempt not just minimum wage earners from withholding taxes but all workers whose income fall below the cost of living. If capitalists cannot give workers a wage commensurate to the cost of living then the state has no right to further reduce their meager take-home pay," Magtubo explained. - GMANews.TV
In a statement, the Partido ng Manggagawa (PM) said that its study has indicated that the “gap between the P362 minimum wage in the National Capital Region (NCR) and the present cost of living is already a terrible P571 or 160% of the ordinary wage."
The group maintains that a more thorough survey may reveal that the actual cost of living is higher than P933 since its study did not provide for savings and social security which in the NWPC basket of goods and services constitutes 10% of the cost of living.
Furthermore, PM’s study did not include items such as leisure and recreation, and the family budget for health excluded medical expenses.
Magtubo said that “If we include such items and we must in a more accurate survey then the cost of living may reach P100 per day and thus breach the three-digit mark."
“Also since we should not impose the burden of household chores and child rearing to the female parent, then the basket of goods should provide for a house-help. That is not anymore a luxury especially in the light of the insistence of the state that both parents must work instead of having just a single breadwinner," Magtubo argued.
The group’s estimates is also ten percent higher than those made by the National Wages and Productivity Council in March.
The agency’s “estimate of the cost of living as of March 2008 that stands at P 858 have to be updated in the light of this study and in the face of the inflation over the past month," the statement said.
Even if both parents work—which is the buy one, take one policy of the government—then their combined income will not be enough to feed the entire family," Renato Magtubo, Partido ng Manggagawa chair said.
The group once more lambasted the NCR regional wage board for its announcement that no wage order is forthcoming in one month.
“The wage boards must be abolished for being inutile. Its wage orders are always delayed, stingy and benefits merely a small section of workers because it is not across-the-board and riddled with exemptions, deferments and creditability clauses," declared Magtubo, adding that the wage hike must be legislated and across-the-board.
Even if the P80 wage petition is granted by the regional board or the P125 wage hike is passed by Congress then either will not be enough to bridge the yawning gap between the minimum wage and the cost of living.
“Thus it is necessary to combine direct wage increases with tax exemptions and subsidies on social security contributions and prices of basic goods in order to increase the take-home pay to a level near the cost of living," Magtubo said.
Since the group believes that the pending bill providing tax exemptions for married couples earning P200,000 yearly is not enough, PM is pushing for P250,000 in individual tax breaks for wage and salaried workers.
“We should exempt not just minimum wage earners from withholding taxes but all workers whose income fall below the cost of living. If capitalists cannot give workers a wage commensurate to the cost of living then the state has no right to further reduce their meager take-home pay," Magtubo explained. - GMANews.TV
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