Consumer issues, Oil deregulation, Power industry

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


Oil deregulation

Fuel stockpile plan boosts oil regulation argument

The Aquino administration faces growing peoples protests against the Oil Deregulation Law and the 12% oil VAT as fuel prices continue to escalate

On Tuesday (Apr. 19), Shell implemented another round of oil price hikes that increased the pump price of gasoline by 60 centavos per liter and diesel by 25 centavos. The kalbaryo (suffering) of the people does not seem to end. Starting Wednesday (Apr. 20), households should expect to pay P11 more for an 11-kilogram LPG tank, according to the LPG Marketers’ Association (LPGMA).

Meanwhile, reeling from growing criticisms that his administration is not doing enough to address the issue of high and escalating oil prices, President Benigno S. Aquino III announced last week the government’s plan to stockpile fuel. Aquino ordered the Philippine National Oil Co. – Exploration Corp. (PNOC-EC) to build up a strategic diesel reserve with the first shipment of 50 million liters expected to arrive next month.

To be sure, stockpiling still does not address the more urgent problem of unabated oil price hikes and exorbitant pump prices. But it does provide a glimpse of the possibilities that a fully regulated oil industry can give to the consumers and the economy. The PNOC-EC, for instance, expects to get a discount from the estimated P2.1-billion cost of its first shipment since it is buying in bulk. This will allow the government to sell its diesel at a lower price than the prevailing pump price being offered by the oil companies. The discount can be as much as P3 a liter based on PNOC-EC’s reckoning.

Imagine if the PNOC-EC is the exclusive importer of oil under a system of centralized procurement. The oil companies will have to buy from the government and they have to sell it a price based on the PNOC-EC’s cost of importation, which is cheaper. The government can also further bring down the cost of importation by exploring bilateral agreements with oil exporting governments such as engaging in commodity swaps or using the local currency to pay for oil imports thus eliminating the impact of foreign exchange fluctuations on the pump price. In addition, the government can easily determine if the oil firms are profiteering or selling at a price that is outrageously higher than the cost of buying from the PNOC-EC.

Unfortunately, this policy option is not available at present because of Republic Act (RA) 8479 or the Oil Deregulation Law. The PNOC-EC clarified that it does not intend to compete with the oil companies. The strategic oil reserve, according to the President, will only be utilized “in times of extraordinary need”. But for a backward country where wages are depressed and unemployment and poverty are chronic, for a country that is too dependent on a global oil market where monopoly and speculative pricing reign, the times of extraordinary need are ever-present. Petroleum is too strategic a commodity to be entrusted in the hands of profit-hungry oil companies.

What will replace RA 8479? We have long been pushing for a piece of legislation that will regulate the downstream oil industry in the Philippines. At the current Congress, that is House Bill (HB) 4355 filed by Bayan Muna and other progressive partylist groups. In 2005, independent think tank IBON Foundation also released a policy paper detailing how a regulated oil industry can be implemented. We do have concrete and doable proposals to bring down the cost of oil and ensure the country’s energy security.

More on the Pantawid Pasada

While fuel costs continue to escalate, the Department of Energy (DOE) is scrambling to implement President Aquino’s Executive Order (EO) 32 or the much publicized P450-million Pantawid Pasada program, hoping to mitigate the impact of the oil price hikes. I have talked to Director Zenaida Monsada of the DOE’s Oil Industry Management Bureau (OIMB) last week. She admitted that implementing the Pantawid Pasada has been a very difficult task. They have to verify that each of the 214,596 jeepney units is first, registered at the Land Transportation Office (LTO) and second, has a valid franchise from the Land Transportation Franchising and Regulatory Board (LTFRB). As for the tricycle units, the verification of almost one million Pantawid Pasada beneficiaries has been delegated to the Department of Interior and Local Government (DILG).

Once the complicated process of identifying the units qualified for the program, the next tricky job for the DOE is ensuring that the smart cards will actually be given to the drivers. I asked Monsada how they plan to do this considering that they identified the beneficiaries based on the franchisee or operator. Monsada said that the operators have to claim the cards with their drivers. But the franchise holder can bring any one with a driver’s license, I said. Monsada replied that they will coordinate with the transport groups to ensure that the drivers will get their smart cards. What will happen to the smart cards after the actual distribution to the drivers is uncertain because the DOE has no mechanism to monitor. But certainly, the effective control will be in the hands of the franchise holders since that’s how the Pantawid Pasada has been designed.

In a previous post, I argued that even as a form of economic relief, the Pantawid Pasada is grossly insufficient. With the recent round of increases in pump prices, the already scant amount that jeepney and tricycle drivers will get from the Pantawid Pasada by next month has been eroded again. Since the fuel subsidy program was announced by Malacañang last March 31, the pump price of diesel has already jumped by P1.75 per liter and gasoline, by P2.35. The P35 per day in diesel subsidy that jeepney drivers will get under the Pantawid Pasada has already been eaten up by the huge P52.50-increase in their daily fuel cost (based on their average daily consumption of 30 liters of diesel) in the past three weeks. Similarly, tricycle drivers saw their daily fuel cost jump by P9.40 a liter (based on their average daily consumption of 4 liters of gasoline), or almost double the P5-subsidy that they will get from the government. There is one more week before the targeted May 2 distribution of the Pantawid Pasada smart cards and the public transport sector may have to endure another round of oil price hikes before they can avail of Aquino’s fuel subsidy.

What is the better and more effective form of relief from the spate of oil price hikes? In terms of amount of price reduction and scope of beneficiaries, not to mention how very easily it can be implemented, the cancellation of the 12 percent value-added tax (VAT) on oil is the only relief that can really make a difference. (Read more here and here)

Oil deregulation

Noynoy’s fuel subsidy: Why the Pantawid Pasada is not enough even as pantawid

As a program for immediate relief from the impact of high oil prices, the Pantawid Pasada is not even enough (Photo from

(This article was first published by the Philippine Online Chronicles)

Updates: Malacañang announced that starting April 11, jeepney and tricycle drivers can avail of the fuel subsidy smart cards. (Read here) However, it later clarified that what authorities have started is the processing of the applications for the smart cards and not the actual distribution which will start, as earlier announced, on May 1 or 2. (Read here) Meanwhile, the price of gasoline and diesel has gone up again by P1.50 per liter (Read here), increasing the daily fuel cost of jeepney drivers by P45 and thus wiping out the P35 daily fuel subsidy even before it can be implemented.

On the heels of the first major protest on the issue of skyrocketing oil prices under the Aquino administration, Malacañang announced that the President has approved a P500-million fuel subsidy. According to President Benigno S. Aquino III, the money will come from “savings of government due to increased revenues” and will subsidize a portion of fuel consumed by public utility vehicles (PUVs) except buses. The amount was reduced to P450 million when the official directive was finally released through Executive Order (EO) 32 one week since its approval was announced by the Chief Executive.

The government first announced that it is drafting such a proposal four days before the transport caravan and protest called by people’s organizations last March 31. The initial disclosure was made by Secretary Ricky Carandang of the Presidential Communications Development and Strategic Planning Office in an obvious attempt to dull public support to the protest, which also included transport strikes in various parts of the country. Apparently maximizing the PR value it can squeeze from the fuel subsidy, the Department of Energy (DOE) said that the smart cards containing the assistance will be given to the drivers on Labor Day, May 1.

But Aquino’s response to the people’s protest is a futile effort to calm the restive public over the weekly oil price hikes. First, it does not answer the basic issue of unreasonable increases in pump prices allowed by the Oil Deregulation Law and made even more oppressive by the government’s continued collection of the 12 percent value-added tax (VAT) on petroleum and the oil firms’ unabated profiteering. Compared to what the Aquino administration is earning from the oil VAT and to the profits being squeezed by the oil companies from motorists and consumers, the P450 million to subsidize public transport are crumbs, to say the least.

Second, as a program for immediate relief from the impact of high oil prices, the fuel subsidy is not even enough. It covers only a certain portion of the population (jeepney and tricycle drivers) and excluded other vulnerable (and bigger) sectors that are also reeling from the impact of escalating fuel prices like the small fishers and farmers who use gasoline in their production, the poor households that use LPG and kerosene, etc . Moreover, EO 32’s limited coverage is further hampered by the very measly amount that each jeepney and tricycle driver will get for a limited duration, an amount that will even be eroded in the coming weeks as oil prices continue to climb.

Limited coverage

EO 32 established the Public Transport Assistance Program (PTAP) or the so-called “Pantawid Pasada” to provide targeted relief to the jeepney and tricycle drivers in the form of partial subsidy to their fuel consumption.  The PTAP, for Malacañang, is “the most equitable and efficient form of intervention” to protect the vulnerable sectors. Smart cards will be issued to qualified beneficiaries to ensure the “integrity of the disbursements” that shall be funded by the Special Account in the General Fund (SAGF) of the Department of Energy (DOE). The SAGF includes proceeds from the Malampaya oil field in Palawan.

While the Inter-Agency Energy Contingency Committee (IECC), a body formed by Aquino last month to prepare precautionary measures amid the rising tension in the oil-rich Middle East and North Africa region, recognized that the “public transport sector has been the hardest hit by the oil price hikes” since oil is one of its major operating costs, EO 32 does not cover the entire public transport sector. Energy Secretary Jose Rene D. Almendras has earlier said that buses were excluded from the fuel subsidy because they have already been granted a provisional fare hike of P1.

Beneficiaries, in the case of jeepney drivers, shall be identified by the Land Transportation and Franchising Regulatory Board (LTFRB) on a per franchisee basis and on the number of franchised units. This means that jeepney drivers and operators must first prove that their units are covered by a legitimate franchise to qualify for the fuel subsidy. This requirement will unduly prolong and complicate the process of accessing the subsidy and in the end may only discourage the drivers from availing of the assistance. It will also exclude a significant portion of drivers that are not covered by a valid jeepney franchise. According to the DOE, there are 214,596 jeepney units with valid franchises nationwide that will be covered by the Pantawid Pasada. However, estimates say that there are more than 230,000 jeepney units nationwide, which means that around 15,000 units are not covered by a franchise.

Such requirement misses the point in providing immediate economic relief. It’s like saying that only documented overseas Filipino workers (OFWs) will be evacuated by the government from Libya and illegal migrants should fend for themselves amid the crisis. Providing economic relief for all drivers is not promoting or tolerating so-called “colorum” (without franchise) jeepneys. That is the job of transportation officials to implement. But it’s a different matter if the government will use an economic relief program to punish colorum jeepneys and their drivers.  All jeepney drivers and their families are hard hit by oil price hikes whether they have a valid franchise or not.

For tricycle drivers, the Department of Interior and Local Government (DILG) and the local government units (LGUs) will coordinate to identify beneficiaries, according to EO 32. It is unclear how the fuel subsidy will be provided to almost 1 million tricycle units nationwide.

Measly amount

Meanwhile, the EO did not say how much the subsidy will be. Earlier reports quoted Almendras as saying that each smart card will have a value of P1,500 while other reports said that the subsidy was P2 or 3 a liter. When the amount was finalized, it turned out that each jeepney unit covered by a legitimate franchise will get only P1,050 per month or P35 per day, an amount that is not even enough to buy a liter of diesel. A jeepney unit usually consumes 30 liters in one day. Given the common price of diesel of P47.10 per liter in Metro Manila as monitored by the DOE, the fuel subsidy constitutes a measly 2.5 percent of the daily cost of diesel being shouldered by a jeepney driver.

Tricycle drivers, on the other hand, will receive P150 per month, or P5 per day.  The subsidy could go up if the LGUs can raise counterpart funds, Almendras said. This discriminates against tricycle drivers who are under poorer LGUs that could not raise resources. Like in the case of jeepney drivers, the P5 per day-assistance is also a very small amount relative to what tricycle drivers spend on gasoline which is around P54.85 a liter in Metro Manila (common price). Considering that they use 4 liters a day on the average, the Pantawid Pasada for tricycle drivers is thus equivalent to just 2.3 percent of their daily fuel cost.

The already insignificant fuel subsidy is actually even much smaller because it is allocated on a per unit basis and not per driver. In many cases, one jeepney or tricycle unit has two or even three drivers who take turns during the week. Thus, in effect, two to three drivers will share the P1,050 or P150 monthly fuel subsidy that will be provided by the Aquino government.

In addition, by the time that the fuel subsidy becomes available on May 1, oil prices have already climbed higher thereby further eroding whatever impact the Pantawid Pasada has on the cost of fuel.  On the average, the pump price of diesel has been increasing by 61 centavos per liter every week this year and gasoline by more than 45 centavos. If this trend continues, the price of diesel would have already gone up by almost P2 a liter and gasoline by almost P1.50 by the time jeepney and tricycle drivers get their Pantawid Pasada smart cards on Labor Day.

And by the way, because of the value added tax (VAT) imposed on petroleum products, 12 percent of the Pantawid Pasada will actually return to the government.