Heartless, greedy Meralco thrives under privatized, deregulated regime

meralco ganid

With the country still reeling from the devastation wrought by Yolanda, the people are facing yet another disaster – the calamity of soaring prices. People ask: Are the oil companies and Meralco (Manila Electric Co.) that heartless and greedy?

Alas, this is the cruel reality of neoliberal economics, of deregulation and privatization. The market is regarded as greater than the people, and government allows the heartless and greedy to reign.

Price hikes

Starting December, oil firms implemented a record-high increase in LPG prices. Petron hiked its LPG price by P14.30 per kilogram (kg); Liquigaz, P13; and Solane, P11. These translate to an increase of P121 to P157 for an 11-kg LPG tank commonly used by households.

Then the oil companies jacked up the price of other petroleum products. Diesel rose by P1.35 per liter; kerosene, P1.20; and gasoline, P0.35. This week, oil firms implemented another round of oil price hikes with diesel rising by 30 centavos. Prior to the latest increases, the price of diesel has already jumped by P4.08 per liter this year and gasoline by P2.04, based on the Department of Energy’s (DOE) monitoring.

And of course, Meralco said that it will implement a hefty increase in power rates this month. The distribution utility said that the hike in its generation charge could reach P3.44 per kilowatt-hour (kWh) but it will be implemented in installments to mitigate the impact.

The Energy Regulatory Commissioned (ERC) allowed Meralco to collect the increase in three tranches. That would be P2 in December, P1 in February and P0.44 in March.

But generation is just one component of the electricity bill that will rise. Also increasing is the transmission charge, which will go up by P0.04 per kWh. Taxes (value-added tax and local franchise tax), system loss charge, lifeline rate subsidy and others, which are a percentage of generation and transmission costs, will also add another P0.67 per kWh in the Meralco bill.

Thus, the actual rate hike to be felt by consumers would be P2.41 per kWh in December, P1.21 in February and P0.54 in March.

However, while the sudden impact of a one-time huge rate hike will be mitigated, consumers will end up paying more. According to the ERC, Meralco may charge its customers an interest on the entire deferred amount or the so-called carrying cost.

And even at a staggered basis, the rate hike would still be tremendous. A 200-kWh household, for instance, will see its Meralco bill jump by P482 this month.

The increase in power bill creates a domino effect on the prices of other basic goods and commodities. Contrary to propaganda of government and big business, wages are not the main driver of price hikes but electricity cost. The Employers Confederation of the Philippines (Ecop) said that power accounts for as much as 40% of production cost.  With the big Meralco rate hike, Ecop also warned of higher prices.

‘What can we do?’

The official who is supposed to be in charge over the oil and power sectors – Energy Secretary Jericho Petilla – had this to say to the restless public: “Kung nagkasabay-sabay silang lahat, hindi yan pinlano, it just happened. What can we do…? Don’t buy, kung namamahalan kayo!”

Of course, Meralco’s customers could not choose not to buy electricity from Meralco. They have no choice. Petilla’s remarks sum up government’s indifference to the plight of consumers, which the Aquino administration has repeatedly displayed in its almost four years in power.

By themselves, the record increases in petroleum prices and electricity bills are already oppressive. But what makes them doubly onerous is that the country is still recovering from Yolanda’s onslaught. Government has not even fully accounted the total number of dead, which now stands at 5,796, according to the latest official count.

Note that this is not the first time that these same companies displayed total disregard of public interest and welfare. Last year, amid the torrential, Ondoy-like rains that poured over Metro Manila, oil companies and Meralco also increased prices.

Price control

Ironically, the country is supposed to be under a state of national calamity as declared by President Benigno Aquino III through Proclamation No. 682. But the string of record price hikes shows that big business can act with impunity.

The reason is that the price control aspect of the proclamation is limited by law and the overall deregulation policy of government. Under Republic Act (RA) 10623 (which amended RA 7581 or the Price Act), the price of LPG may be controlled under a state of calamity but only for 15 days. The price of LPG and other petroleum products is deregulated under RA 8479 or the Oil Deregulation Law.

Electricity rates are also not included among the basic necessities that government may control during a state of calamity. Through RA 9136 or the Electric Power Industry Reform Act (Epira), government deregulated the setting of the generation charge of Meralco and other distribution utilities. Epira also deregulated rate-setting through the wholesale electricity spot market (Wesm).

To pave the way for the deregulation of the oil and power industries, government privatized Petron Corp. and the National Power Corp. (Napocor).

The Oil Deregulation Law and Epira trump the Price Act and any proclamation of a state of calamity. Apparently for government, not even the strongest typhoon ever recorded could change that. Both policies were imposed on the country by foreign creditors led by the World Bank and the Asian Development Bank (ADB).

Artificial tightness

The huge Meralco rate hike is a perfect example of how privatization, deregulation and lack of state control over key sectors burden the consumers. Had government not relinquished effective control over energy development to profit-oriented private business, the public would have been spared from the impending hefty increase in power rates.

The supposed tight energy supply is only artificial. It could have been prevented if the maintenance shutdown of the country’s energy sources and power plants were effectively controlled by government. But because it relies too heavily on private business, government has no handle in determining the maintenance schedule of power plants in a way that ensures energy security and public interest.

For instance, the maintenance shutdown of Malampaya started on Nov. 11, the same date that President Aquino put the country under a state of calamity. Energy officials already knew then that it will trigger a big spike in power rates. At that time, energy supply in Luzon was already tight due to a series of maintenance shutdowns of major power plants.

Plant shutdowns

Meralco, in fact, already implemented a large increase in power rates in November when it jacked up its rates by P1.24 per kWh. The utility giant said that the maintenance shutdown of several big power plants was the main factor behind the rate hike. These were Unit 2 of Malaya power plant in Rizal (Dec. 2012 to Oct.); Unit 2 of Pagbilao plant in Quezon (Aug. to Nov.); Unit 1 of Sual plant in Pangasinan (Sep. to Oct.); and Sta. Rita Module 20 (Oct. 23-28).

In addition, a number of power plants were also on forced outage. These were San Lorenzo Module 60 (May to Mar. 16, 2014); Unit 1 of Masinloc plant in Zambales (Sep. 25-28); Unit 2 of Calaca plant in Batangas (Sep. 29 to Oct. 1); Quezon Power (Oct. 5-6); and Unit 1 of Sual plant in Pangasinan (Oct. 22-26).

Monopoly and manipulation

But instead of ensuring that Malampaya will remain online, especially after Yolanda, government stood idly as the source of 40% of Luzon’s power needs was cut off. The shutdown of Malampaya and of the other power plants, said Meralco, forced its suppliers Sta. Rita and San Lorenzo power plants to use more expensive fuel.

The utility giant claimed that it was also compelled to buy more from the Wesm where electricity is being sold at a higher price. Meralco said that its exposure to Wesm will increase from less than 5% to 12% due to the Malampaya shutdown.

Note, however, that the private investors who control Meralco are the same investors that control the power plants as well as the traders in the Wesm. The 1,000-megawatt (MW) Sta. Rita and the 500-MW San Lorenzo plants are owned by the Lopez group, which also has a 3.9%-stake in Meralco. Power plants associated with the Lopez group also account for around 18% of the capacity registered at Wesm.

Illegitimacy of rate hikes

The concentration of ownership over power generation and distribution, and even over the spot market, raises a valid question on the legitimacy of the power rate hikes. The same thing can be said in the case of the oil industry wherein basically just four companies lord over more than 80% of the industry.

Thus, the move of the House of Representatives to investigate Meralco’s rate hike is a welcome development. Officials of the distribution utility, the power plants, and also the DOE should explain the circumstances behind the huge increase.

There is certainly a need to closely look at the shutdown of Malampaya and the power plants as well to determine if the big power investors are abusing the public through their unhampered control over the energy sector.

But more importantly, policy makers must reconsider government’s energy development program that is hinged on deregulation and privatization. Even without a super-calamity like Yolanda, neoliberal policies like Epira and the Oil Deregulation Law are already greatly oppressing the public. ###

Read more about Epira and the Philippine power industry here and Oil Deregulation Law here


Firms controlling 92% of LPG market making identical price hikes is clearly dubious

Oil companies have announced identical increases in the retail price of LPG (Photo from Luis Liwanag/AFP/Getty Images)

Something is clearly dubious when four companies that together control almost 92% of the domestic market for liquefied petroleum gas (LPG) implement identical price hikes. Last week, Petron, Shell, Liquigaz, and Total separately announced the same increase of P4 per kilogram in the retail price of their LPG. These same companies have also separately announced identical LPG price hikes of P2 per kg in the second week of January. The rounds of price increases came amid reports of supposed shortage in LPG supply and allegations of overpricing.

Petron controls 37.8% of the domestic LPG market, followed by Liquigaz (24.6%); Shell (20.5%); and Total (8.7%). Only through their collusion can a supposed “shortage” in LPG supply occur and rake in windfall profits from higher retail prices. The greed for profits of these oil companies becomes even more deplorable considering that they have yet to adequately answer allegations of abusive pricing. Bayan, for instance, has earlier estimated that LPG prices should be rolled back by almost P61 per 11-kg cylinder tank to offset the oil firms’ overpricing last year. Even the Department of Energy (DOE) has been saying that LPG retail prices should not exceed P500 per 11-kg tank.

Threats of sanctions from the DOE are apparently not enough to check the abuses of the oil companies, especially the local units of the world’s largest oil transnational corporations (TNCs). Despite “strong warnings” from the DOE and the existence of a DOE-DOJ task force, created under the Oil Deregulation Law to purportedly curb abuses in the industry, not a single oil company has been punished for preying on the consumers. The problem is not simply the proper implementation of the Oil Deregulation Law because this policy by design creates conditions for price abuses to take place.

With thousands of Filipino workers here and abroad being displaced everyday due to the global financial and economic crisis, such abuses, tolerated by the government under the pretext of free market, become increasingly unforgivable. Worldwide, the raging economic crunch, bankruptcies, and economic dislocations have profoundly discredited the so-called free market implemented through policies such as the Oil Deregulation Law. Even the most ardent proponents of free and deregulated markets including the US government are now gradually reining unrestricted economic activities in hope to address what is now widely described as the worst crisis of global monopoly capitalism.

Price control, including effective regulation of oil price adjustments, is among the package of immediate measures that can help mitigate the impact of the global crisis on ordinary Filipinos. As more workers become jobless and underemployed, reasonable prices and affordable cost of living through effective state intervention become more imperative. Indeed, the massive economic dislocation, which even labor officials concede is happening at an alarming pace, further justifies the people’s demand to repeal the Oil Deregulation Law.

LPG issues

(Photo from AFP)

Amid reports of a supposed “shortage” in supply of liquefied petroleum gas (LPG) in the country, the House of Representatives committee on energy chaired by Rep. Mikey Arroyo has scheduled a probe (on Feb 3) on the issue. Meanwhile, the Department of Energy (DOE) has warned LPG dealers that they will be charged with profiteering if they retail their 11-kilogram (kg) cylinder tanks at more than P500.

But these efforts of the House and the DOE are futile in the context of a deregulated downstream oil industry. For one, the de facto “price cap” imposed by the DOE on 11-kg LPG tanks contradicts the spirit of deregulation, which is to allow the so-called market forces to determine the prices of oil products.

Interestingly, a quick check at the price monitoring of the DOE posted at its website will show that several LPG brands are in fact being retailed by more than P500. As of January 21, the Caltex LPG retails by as high as P520 in Metro Manila; Catgas, P525; and Philgas, P520. If the DOE is serious with its threat to penalize profiteering LPG retailers, then it only needs to look at its own price monitoring and punish the guilty firms. Then again, how can the DOE penalize oil firms retailing LPG at more than P500 when they can conveniently argue, as they have done many times in the past, that they have simply considered supply, demand, competition, and other market factors in their pricing?

Secondly, any investigation on the reported “shortage” of LPG supply will only meet a brick wall if the House committee on energy will not recognize how deregulation has only strengthened the monopoly existing in the LPG market. Its apologists claim that because of deregulation, “new players” have significantly cut into the LPG market monopolized by the Big Three (Petron, Shell, and Chevron).

But despite the entry of the so-called “new players” under the deregulation regime, almost 92% of the domestic LPG market is still monopolized by only four companies: Petron accounts for 37.8% of the local LPG market, followed by Liquigaz (24.6%), Shell (20.5%), and Total (8.7%). Petron acquired the LPG retail business of Chevron in June 2007 and now retails the “Caltex LPG”brand. Total, on the other hand, has a 15% stake in Shell Gas Eastern Inc. through a joint venture with Shell. Liquigaz is a local subsidiary of SHV Gas, the world’s largest retailer of LPG based in The Netherlands.

Any issue about “shortage” should be adequately explained by these four companies. Any probe on lack of LPG must start on an investigation of these firms, which overwhelmingly control depots, terminals, and refilling stations and hold the widest network of dealers in the country. But will Rep. Arroyo and DOE secretary Angelo Reyes go after them or will they merely pin the blame on the small retailers such as the members of the LPG Marketers’ Association (LPGMA)? But going after these big companies is tantamount to an admission that deregulation has failed, the same policy that Mrs. Gloria Macapagal-Arroyo has vehemently defended against all odds.

As long the downstream oil industry is deregulated, Filipino consumers will have no security in LPG and oil supply. Worse, consumers will continue to be hapless prey to abusive oil companies that charge overpriced petroleum. As of this writing, the country’s four biggest LPG retailers (Petron, Liquigaz, Shell, and Total) have already implemented an identical P2 per kg hike in LPG prices. They claim that the international (Saudi Aramco) contract price of LPG has jumped from $336.5 per metric ton in December 2008 to $380 this month.

But using the Dubai crude price movement as well as changes in the US dollar-peso exchange rate, oil companies should actually still rollback the retail prices of LPG by P60.81 per 11-kg cylinder tank The amount represents the “overpricing” that the oil firms have implemented for the entire 2008.(END)