Duterte backers, other oil firms rake in millions from overpricing amid pandemic

Amid the misery and deaths caused by COVID-19, oil companies, including those controlled by prominent Duterte backers, have been raking in millions of pesos in extra profits from overpricing. This is beyond unconscionable and appalling as the socioeconomic fallout of the pandemic – i.e., record joblessness, hunger and poverty – continues to burden the people.

How oil firms manipulate prices

With the pandemic raging last year, the oil firms imposed a net overpricing of about PHP 4.96 per liter for gasoline and around PHP 2.86 per liter for diesel. The overpricing continued in the first three months of 2021, as the country suffers an even worse surge in COVID-19 cases. For gasoline, the overpricing is estimated at around PHP 0.71 per liter as of end-March this year; for diesel, it is pegged at PHP 0.88 per liter.

These estimates were computed by comparing the supposed adjustments in prices based on the weekly fluctuations in international oil prices and the foreign exchange rate, and the actual adjustments in local pump prices implemented by the oil companies.

Last year, oil prices saw a sharp decline as the global economy came to a standstill with countries enforcing months of lockdowns to contain the spread of the novel coronavirus. Based on the International Monetary Fund’s (IMF) monitoring of primary commodity prices, the price of Dubai crude oil fell from USD 63.73 per barrel in January 2020 to as low as USD 23.38 per barrel in April. It finished the year with a monthly average of USD 49.32 per barrel in December.

Consequently, local pump prices in the Philippines, one of the world’s most oil import-dependent economies, also declined. According to the monitoring of the Department of Energy (DOE), oil companies implemented a net price rollback of PHP 1.97 per liter for gasoline and an even bigger PHP 5.96 per liter reduction in the price of diesel.

But these price rollbacks are much smaller than what the oil firms should have implemented if they were simply reflecting movements in global prices, as they and the DOE are wont to say. Based on the Mean of Platts Singapore (MOPS), the international benchmark used by the Philippines in pricing petroleum products, and the fluctuations in the peso exchange rate to the US dollar, the price of gasoline should have gone down by about PHP 6.93 per liter. Similarly, the price of diesel should have been rolled back by PHP 8.82 per liter.

Comparing these to the actual adjustments per liter in pump prices that the oil firms implemented and the DOE allowed (i.e., rollbacks of just PHP 1.97 for gasoline and PHP 5.96 for diesel), the overpricing estimates of PHP 4.96 per liter for gasoline and PHP 2.86 per liter for diesel were calculated.

For 2021, even as global oil prices continued to pick up, the price of gasoline should not have gone beyond PHP 5.44 per liter in total increases based on MOPS price movements from January to March; but the oil companies hiked their gasoline prices by a total of PHP 6.15 per liter during the period, resulting to an overpricing of PHP 0.71 per liter.

Similarly, the price of diesel based on MOPS should have not increased by more than PHP 3.72 per liter. However, oil firms have already jacked up their diesel prices by P4.60 per liter, resulting to an overpricing of PHP 0.88 per liter.

Duterte regime, allies gain from overpricing

Deregulated oil prices under Republic Act 8479 or the “Downstream Oil Industry Deregulation Act of 1998” allows oil firms to adjust pump prices – supposedly as dictated by global market forces (e.g., international prices and exchange rates) – without the benefit of public consultation. Such neoliberal policy in oil price setting has only enabled the oil companies to abuse the consumers with impunity.

It must be emphasized that the overpricing estimates based on so-called global market forces do not illustrate the magnitude by which foreign oil monopolies such as Shell, Chevron, etc. artificially inflate prices. Such estimates merely show how oil firms under a deregulated regime can easily further manipulate oil prices through implementing adjustments that are above (in case of price hikes) or below (in case of rollbacks) the supposedly justified amounts based on international price benchmarks.

A crisis as grave as the COVID-19 pandemic should have been an opportunity to review and reverse this flawed policy. Unfortunately, it is clear that President Duterte, his political clique, and the neoliberal champions in his economic team will not entertain such policy turnaround to protect the public.

For one, with its obsession to collect taxes to appease creditors for its debt-driven infrastructure projects, oil overpricing provides additional revenues for the Duterte regime. Based on a rough approximation of petroleum demand in 2020 of about 14.69 million liters per day for gasoline and 24.32 million liters per day for diesel (reflecting the overall decline in demand of 23% in the first half of 2020 due to the pandemic, as reported by the DOE), it can be guesstimated that the total additional profits generated by the oil firms from overpricing gasoline and diesel is about PHP 142.50 million a day. Of this amount, PHP 17.10 million went to government in the form of the 12% value-added tax (VAT).

For another, Duterte’s political backers and their foreign partners with interests in the oil industry benefit hugely from oil overpricing. Due to overpricing, it is estimated that Petron Corp. earned PHP 23.19 million daily in 2020 on top of its regular profits based on market share. The largest oil refining and marketing company in the Philippines, Petron is majority owned by Ramon Ang’s San Miguel Corp. (SMC). Ang is among the tycoons who financed the presidential campaign of Duterte in 2016 and appears to be one of the most favored oligarchs by the administration, cornering big-ticket infrastructure contracts such as the controversial PHP735.6-billion Bulacan aerotropolis.

Dennis Uy, the Davao-based businessman and longtime ally of Duterte, also continues to make a fortune in the oil industry through Phoenix Petroleum, which in terms of market share (7% in 2019) ranks as the fourth largest oil retailer in the Philippines behind the old Big Three of Petron (25%), Shell (18%) and Chevron (8%). Uy and Phoenix Petroleum had a declared campaign contribution of PHP 36 million to Duterte’s presidential campaign in 2016. Based on market share, it is estimated that Phoenix raked in PHP 8.85 million daily in extra profits last year from overpricing.

Uy has seen his wealth grow tremendously under Duterte, including in the Philippine oil and gas industry where he has been expanding and consolidating his interests. Last year, Uy’s Udenna Corporation bought the 45% stake of Chevron in the Malampaya natural gas field and plans to partner with government through the Philippine National Oil Company (PNOC) to acquire as well the 45% stake of Shell. ###

Labor & employment

Richest Filipinos and ‘Endo’ kings are Duterte’s friends

(First published by Bulatlat.com) — The Department of Labor and Employment (DOLE) has recently released a list of 20 firms that it said are engaged or suspected to be engaged in labor-only contracting. Some of the country’s largest companies topped the list, including Jollibee (14,960 workers); Dole Philippines (10,521); and PLDT (8,310).

Conspicuously absent in the list are known supporters of the Duterte administration.

One is SM, which is known for its chain of malls that hires thousands of contractual workers. According to Labor Secretary Silvestre Bello III, SM was not included in the list because it promised to regularize a total of 10,000 workers. He said that they are “satisfied” already with the retail giant’s commitment. But still, such promise does not justify the absence in the DOLE list of perhaps the most notorious and known biggest employer of contractual workers in the Philippines.

By its own account, the SM Group has more than 94,500 employees which include various companies under the conglomerate engaged in banking, financing, property, retail, malls, hotel, resorts and entertainment. According to one estimate, nine out of 10 SM employees are contractual workers.

Another is San Miguel Corporation (SMC). The diversified conglomerate (with operations in food and beverages, packaging, fuel and oil, power, and infrastructure) is said to employ around 20,000 workers, of whom only about 1,000 are regular workers.

What could possibly explain the exclusion of these giant conglomerates – two of the biggest not only in the Philippines but also in the Asian region?
The obvious answer is their close ties with President Duterte.

Among the country’s major business groups, SM has been one of the most supportive to the current regime. Its top officials are among the select tycoons that share an intimate dinner or travel abroad with the President to look for business opportunities, and invited to government events to show support to centerpiece Duterte programs like the “Build, Build, Build”. Along with state-run banks, SM Group’s BDO Unibank is financing Duterte’s contentious modernization program for jeepneys.

Its officials have publicly defended the controversial war on drugs and also offered the free showing of government’s anti-drug ads in SM cinemas nationwide. They supported the administration’s warming up of ties with China even as the latter has occupied and militarized Philippine-claimed territories in the South China Sea.

SM was founded by the country’s only trillionaire Henry Sy Sr. who has been the richest Filipino for over a decade now. Sy’s already massive wealth has been rising astronomically under Duterte – from just below US$14 billion in 2016 to US$18 billion in 2017 and further to US$20 billion in 2018. That’s almost a 54 percent increase in just three years.

SM aims to cash in on closer Philippine-China ties under Duterte. China is the world’s largest consumer market and the second biggest economy that could soon topple the US as number one. For Filipino oligarchs, the potential for profits is vast.

On top of the already seven malls it has in China, SM is building a “supermall” in the major port city of Tianjin (said to rival the size of the US’s Pentagon building) as well as residential projects in various key Chinese cities. With closer bilateral ties, Chinese tourists are also flocking the country, benefitting SM’s interests in resorts and entertainment.

An even more vocal apologist of the Duterte administration is SMC, especially its head honcho Ramon S. Ang. The SMC president was among Duterte’s campaign contributors in 2016 giving an undisclosed amount and perhaps other forms of support as Ang wasn’t even listed in the official Statement of Contributions and Expenditures (SOCE). Ang also offered to buy Duterte a private jet (worth as much as US$65 million) that he could use as President while donating Php1 billion to the Chief Executive’s pet campaign, the war on drugs.

Like Sy, Ang’s fortune has also vastly grown in the past three years. From a reported net worth of US$1.21 billion in 2016, his wealth has more than doubled to US$2.5 billion in 2018. Duterte’s infrastructure push apparently also pushed up Ang’s riches, which also include interests in construction.

Like SM, SMC has been capitalizing on Duterte’s programs. SMC is among those most aggressive in expanding in Mindanao particularly in establishing vast plantations and constructing infrastructure. In partnership with Malaysia’s Kuok Group, the conglomerate is developing about 18,495 hectares of forestlands covering four Davao del Norte municipalities for oil palm production. Just last August 2016, SMC also opened a 2,000-hectare industrial estate in Malita, Davao Occidental that also has a 20-meter deep seaport that can accommodate container vessels.

SM and especially SMC are among the leading proponents in Duterte’s “Build, Build, Build” infrastructure development program, including through the controversial unsolicited route. SMC alone accounts for 53 percent (P1.59 trillion) of the cost of all unsolicited proposals (P3 trillion) that have pitched to the Duterte administration. These include the P700-billion New Manila International Airport; the P338.8-billion Manila Bay Integrated Flood Control, Coastal Defense and Expressway Project; and P554-billion expansion of the Metro Manila Skyway and the South Luzon Expressway (SLEX).

SM (together with the Ayala group), on the other hand, has submitted an unsolicited proposal to build a P25-billion 8.6-kilometer elevated toll road that will supposedly help decongest traffic along EDSA. But as SM itself admitted, the main objective of the toll road is to increase access to its Mall of Asia complex. Through its BDO Unibank, SM also aims to profit from the “Build, Build, Build” by lending to project proponents or operators.

One of the major campaign promises that Duterte made was ending “endo” (end of contract scheme or contractualization). But two years into his presidency, that promise has remained largely unfulfilled.

With the biggest employers of contractual workers like SM and SMC as Duterte’s biggest backers, that should not come as a surprise.

Economy, Governance, Human rights, Military & war, SONA 2017

SONA 2017: Business interests with ties to Duterte to benefit from Martial Law extension

President Rodrigo Duterte with his Martial Law administrator Defense Secretary Delfin Lorenzana and implementor Armed Forces Chief General Eduardo Año (Photo from Al Jazeera)

As expected, the so-called supermajority in Congress granted the extension of Martial Law that President Rodrigo Duterte asked for. Martial Law would be in effect in Mindanao until the end of the year.

Malacañang said that with the extension, the country could now “get on with the job of nation-building and contribute in the attainment of the full promise of Mindanao.” The Duterte administration intends to “transform Mindanao into a land of fulfillment”.

How exactly Martial Law could contribute in “nation-building” is unclear. What is clear is that the 261 lawmakers who rubber-stamped the presidential request have further built up the nation’s fear of an authoritarian regime that Duterte wants to establish.

Martial Law in Mindanao and its extension could indeed be just a dress rehearsal and forebodes an of all-out fascist rule that Duterte and his Martial Law generals plan to unleash on the entire country.

Meanwhile, the “attainment of the full promise of Mindanao” pertains to the unrestrained exploitation of the region’s resources. Despite decades of corporate plunder, many areas in Mindanao are still not yet fully exploited.

Business interests with ties to the President appear to be among the beneficiaries of the extension of Martial Law in Mindanao.

Investment opportunities

The World Bank, for instance, in an August 2016 report said that: “Mindanao has 10 million hectares of land, of which 59.4% or 6.066 million hectares are classified as forestlands… if properly delineated, and rights are defined, can potentially increase the land inventory for large- scale investments.”

It noted that of the 6.07 million hectares of forestlands in Mindanao, only 700,000 hectares are covered by industrial forest management agreements, mainly by corporations. There are 700,000 hectares more that are still not covered by any form of tenure instrument. Another 400,000 hectares of public forests that are unclassified – all potential areas for big corporate investments.

In addition, of the remaining 4.14 million hectares of alienable and disposable (A&D) lands in Mindanao, a huge 2.24 million hectares have not been covered by the Comprehensive Agrarian Reform Program (CARP). These millions of hectares of forest and A&D lands offer enormous opportunities for investment and profits.

“If we push for massive agri investments in Mindanao, we need to start looking at the availability of these lands for consolidation to achieve economies of scale,” said the Mindanao Development Authority (MinDA), a government body created to among others promote and facilitate investments in the region.

Under the Duterte administration, MinDA and the Philippine Economic Zone Authority (PEZA) are also working to fast-track the Mindanao Ecozone Masterplan. The plan will develop existing and new economic zones around Mindanao to increase trading activities and attract more foreign investments.

There are 81 accredited ecozones in the region covering agro-industry, manufacturing, information technology and tourism. The Duterte administration is currently conducting an inventory of areas in Mindanao that can be developed as “ecozone cities”.

But many of these supposedly idle areas or available lands are actually occupied by lumad and peasant communities. Their firm resistance and the strong presence of the New People’s Army (NPA) are the biggest obstacles to the massive expansion in Mindanao of corporate plantations, big mining companies, and export-driven industrial enclaves – and the construction of hard infrastructure to support their operation.

The resistance is not against development but against the land and resource grabbing and massive displacement of local communities that often accompany big-ticket investment projects in Mindanao. That is why the NPA, and the lumad, farmers and farmworkers are the real targets of the extended Martial Law in Mindanao.

Big business interests

Indeed, Duterte’s Martial Law is apparently more about providing security to big investors who want to further exploit Mindanao. And it appears that the business sector feels encouraged by the strongman rule that Duterte is imposing. The organizers of the recently held Davao Investment Conference (ICON), for instance, reported record-breaking confirmed attendance, including about 100 foreign investors.

In an earlier report, the organizers said ICON participants include the country’s biggest conglomerates like San Miguel Corp. (SMC) as well as 30-40 “big Chinese investors”, among others.

SMC and the Chinese are among those most aggressive in expanding in Mindanao particularly in establishing vast plantations and constructing infrastructure. Chinese investors have been reportedly discussing with the Duterte administration the possibility of a 6,000-hectare tea plantation in a territory controlled by the Moro Islamic Liberation Front (MILF).

Duterte has been actively seeking Chinese patronage, mainly in the form of official development assistance (ODA) or loans as well as military assistance. Among those that the administration is pitching to China are multi-billion infrastructure projects in Mindanao including expressways, coastal roads, seaport and airport development, and the Mindanao railway system.

On the other hand, SMC (together with Malaysia’s Kuok Group) is developing about 18,495 hectares of forestlands covering four Davao del Norte municipalities for oil palm production. Just last August 2016, SMC also opened a 2,000-hectare industrial estate in Malita, Davao Occidental that also has a 20-meter deep seaport that can accommodate container vessels.

Earlier, the conglomerate was reported to be looking at a total of 800,000 hectares of lands for development as commercial farms in Zamboanga del Norte, Zamboanga Sibugay, Sarangani, Davao del Sur, South Cotabato, North Cotabato and Agusan del Norte.

Of course, SMC’s top man Ramon S. Ang is known to be “close” to Duterte. The SMC president was among Duterte’s campaign contributors in 2016 giving an undisclosed amount and perhaps other forms of support as Ang wasn’t even listed in the official Statement of Contributions and Expenditures (SOCE).

Ang also offered to buy Duterte a private jet (worth as much as US$65 million) that he could use as President while donating Php1 billion to the Chief Executive’s pet campaign, the war on drugs.

Meanwhile, Duterte’s former campaign spokesperson and Irrigation chief Peter Laviña and his group Philippine Palm Oil Development Council Inc. has been reportedly lobbying the government since Aquino’s time to develop at least 300,000 hectares of Mindanao lands for palm oil production targeting MILF territories as well as CARP and lumad lands.

These are some of the big business interests in Mindanao that stand to benefit from the state repression of local communities opposed to their operations. Apparently, Martial Law is more than what President Duterte, his Generals and their allies in Congress are telling us. ###

Global issues, Human rights, Military & war

Sabah crisis: Is Aquino siding with Malaysia to protect relatives’ business interests?

Presidential cousin and funder Tonyboy Cojuangco's AirAsia pals transport Malaysian army reinforcements to Sabah. (Photo from Borneo Inside)

Presidential cousin and funder Tonyboy Cojuangco’s AirAsia business pals transport Malaysian army reinforcements to Sabah. (Photo from Borneo Inside)

The “journey home” to Sabah of some 200 followers of the Sultanate of Sulu more than a month ago has escalated into a full blown humanitarian crisis. More than a thousand Filipinos have fled Sabah that for decades they called home. Men, women and children took any boat available in a frantic and perilous voyage away from the brutality of Malaysian forces. The number of refugees in Tawi-Tawi from Lahad Datu and other affected towns in Sabah is expected to grow in the coming days.

Those who fled recounted the atrocities that Filipinos suffered in the disputed territory. “Malaysian policemen ordered Filipino men to run as fast as they could and shot them,” said a report by the Philippine Daily Inquirer. “Even pregnant women and children have been hunted down and killed as the Malaysians fire mortars and embark on a house-to-house search,” according to the Philippine Star. These people are not part of the armed followers of Sultan Jamalul Kiram III. They just happen to be Filipinos.

Some are baffled while most are enraged by the attitude of the Aquino administration towards the Sabah crisis. From the onset, President Benigno Aquino III took a hardline stance against the Sulu royal forces. Jamalul’s brother Rajah Mudah Agbimuddin Kiram and his men must surrender before any talks can happen, Aquino insisted. Charges are being prepared versus the Kirams, claimed the Justice department. They may also be turned over to Malaysian authorities to face prosecution. Malacañang sowed intrigues to cast doubt on the motive and legitimacy of the Sultanate. The National Bureau of Investigation (NBI) is probing the alleged conspiracy between the Kirams and certain politicians. All these even as Aquino ignored appeals by the Sultanate and the United Nations (UN) to stop the Malaysian military assault and for parties to talk.

Palace and Foreign Affairs spokespersons, of course, expressed concern over the reported human rights abuses in Sabah. But their statements are meaningless amid the brutal military offensive launched by Prime Minister Najib Abdul Razak that Aquino practically sanctioned with his reckless position. The public perception is that Aquino abandoned his own people, surrendered the country’s rightful claim to Sabah and sided with Malaysia. Thus Aquino, like Razak and his forces, is responsible for the carnage of Filipino men, women and children in Sabah.

But why is Aquino siding with Malaysia? One plausible explanation noted by analysts is the ongoing peace talks with the Moro Islamic Liberation Front (MILF) where Malaysia plays a key role as facilitator. Aquino does not want to displease Malaysia and risk undermining the negotiations.

However, it is also notable that since taking over in 2010, Aquino’s relatives who bankrolled his presidential bid have inked business deals with Malaysia. Could these business interests be another possible explanation for the administration’s handling of the Sabah crisis?

What are these business deals? One involves San Miguel Corporation (SMC) of Aquino’s uncle Eduardo “Danding” Cojuangco Jr. In August 2011, SMC acquired three subsidiaries of US oil giant Exxon Mobil’s downstream oil business in Malaysia. Worth $610 million, the transaction included the purchase by SMC of Esso Malaysia Bhd, Exxon Mobil Malaysia Sdn Bhd and Exxon Mobil Borneo Sdn Bhd. In its website, SMC said that the three companies form an integrated business engaged in refining, distribution and marketing of petroleum products. The physical assets include the 88,000 barrels per day Port Dickson refinery; seven fuel distribution terminals; and about 560 refilling stations.

SMC’s entry into the Malaysian downstream oil industry could be just the initial steps. Ramon S. Ang, president of the giant conglomerate, recently disclosed that SMC is eyeing big oil and natural gas field overseas. “If we were able to buy one of those, it would be like printing money forever,” Ang was quoted as saying. SMC is so serious about the plan that Ang said they are willing to let go of longtime core business San Miguel Brewery Inc. and new assets in power generation to raise funds. With its acquisition of Exxon Mobil’s downstream assets, SMC is in a strategic position to also corner upstream deals in oil-rich Malaysia.

The disputed state of Sabah itself is abundant in oil and gas resources. An article by the Philippine Star, quoting a 2012 study by Singapore-based FACTS Global Energy, reported that Sabah has reserves of about 11-12 trillion cubic feet of gas and at least 1.5 billion barrels of oil. The figures represent 12% and 15% of Malaysia’s natural gas and oil reserves, respectively, according to the report. Another article, by the Centre for Research on Globalization, noted that Sabah has 15 oil wells that can produce as many as 192,000 barrels a day. Also, four new oil fields have been discovered in its territorial waters in the past two years further increasing Sabah’s potential as oil producer.

Is Aquino avoiding displeasing Malaysia over the Sabah dispute so as not to undermine the grand multibillion dollar oil and gas ambitions of SMC and uncle Danding?

Another business deal involves AirAsia Philippines, the local affiliate of Malaysia-based AirAsia Bhd, the largest budget carrier in Southeast Asia. In November 2010, the Board of Investments (BOI) approved the formation of AirAsia Philippines as a joint venture between Malaysian investors and Filipino businessmen led by the President’s cousin Antonio “Tonyboy” Cojuangco Jr. Tonyboy and his Malaysian partners are aggressively expanding their operation in the Philippines with their recent acquisition of at least a 40% stake in local rival Zest Airways Inc.

Does Aquino fear that the contentious Sabah issue could somehow complicate the blooming Malaysian business partnership of his cousin Tonyboy?

Aquino could not just ignore the interests of his rich relatives. He won’t be President without their vital support.

Tonyboy was the biggest campaign donor of Aquino in 2010, based on the President’s official declaration to the Commission on Elections (Comelec). Out of the P440 million in campaign funds declared by Aquino, Tonyboy’s contribution accounted for almost a quarter with P100 million. While Danding was not officially listed as a campaign donor, it is widely known that the tycoon and Marcos crony also supported the candidacy of his nephew.

If these business interests of his relatives played a key role in Aquino’s handling of the crisis, then the slaughter of our men, women and children in Sabah becomes much more revolting and enraging than it already is. (End)

Consumer issues, Power industry, Privatization

Power lords

San Miguel Corporation cornered 41.3 percent of privatized generating plants and IPP contracts in terms of capacity (Photo from allvoices.com)

(Continued from Part 2)

The restructuring of the power industry under EPIRA facilitated the creation of new private monopolies that lord over not only the distribution but also the generation of electricity. The dominant position of these monopolies, controlled by billionaires in Forbes’ list of richest Filipinos and their foreign partners, is bound to further intensify under Aquino’s public-private partnership (PPP) program.

Privatized power plants and IPP contracts

Out of the 7,665.88 megawatts (MW) in capacity of privatized generating plants and IPP contracts, Danding Cojuangco’s San Miguel Corporation (SMC) cornered 41.3 percent while the Aboitiz group bagged 28.5 percent. Other major buyers include the Consunjis (7.8 percent) and the Lopezes (7.4 percent). American firm AES Corporation accounted for a significant 7.8 percent. South Korean companies SPC Power and K-Water have a combined 5.8 percent. (It includes the Angat hydropower plant that was put on-hold by the Supreme Court.) Five companies accounted for the remaining 1.4 percent.

The costs of these transactions total $6.69 billion. SMC accounted for 35.9 percent of the said amount; Aboitiz, 30.2 percent; AES Corp., 13.9 percent; K-Water, 6.6 percent; Lopez, 5.7 percent; Consunji, 5.4 percent; and others, 2.3 percent. (See Table 1)

In terms of overall generating capacity, the restructured Philippine power sector is now dominated by just three companies – San Miguel Power Corporation (20 percent), Lopez-owned First Gen Corporation (17 percent), and the Aboitiz group (15 percent).

Government through NAPOCOR and PSALM has 30 percent. (See Chart 4) SMC’s rise as a major player in the power industry is truly phenomenal considering that it has only started venturing in the industry in 2008.

These are the same groups that also control the biggest distribution utilities (DUs) in the country. SMC and the Lopez group, for example, control MERALCO with 27 percent and 6.6 percent, respectively. (Manny Pangilinan’s Metro Pacific controls 45 percent.) MERALCO is the largest DU in the Philippines with a franchise area covering 24.7 million (about 25% of the national population) in 31 cities and 80 municipalities. It serves Metro Manila, Bulacan, Rizal, and Cavite as well as parts of Laguna, Quezon, Batangas, and Pampanga.

The Aboitiz group, on the other hand, controls the second and third largest DUs – the Visayan Electric Company (VECO) and Davao Light and Power Company. VECO serves Metro Cebu covering four cities and four municipalities. Meanwhile, Davao Light serves Davao City and Panabo City as well as three municipalities in Davao del Norte. Aside from these DUs, the Aboitiz group also controls Cotabato Light and Power Company, San Fernando Electric Light and Power Company, and the DUs serving the Subic Freeport zone, Mactan export processing zone, and the West Cebu industrial park.

SM tycoon Henry Sy has taken advantage of the EPIRA as well. His One Taipan Holdings (30 percent), State Grid of China (40 percent), and Calaca High Power Corporation (30 percent) control the National Grid Corporation of the Philippines (NGCP). NGCP holds a 25-year concession agreement (CA) with government to operate the country’s transmission system beginning in January 2009.

No transparency or competition

Cross-ownership in distribution and generation, which EPIRA allows, makes claims by advocates of neoliberal power restructuring about transparency and competition in pricing an outright lie. EPIRA’s unbundling of rates, for example, is practically meaningless even if a consumer can see in his or her monthly bill how much he is paying for generation and distribution. Market abuse is not prevented even if rates are unbundled due to cross-ownership. This has been clearly illustrated in the operation of the EPIRA-created Wholesale Electricity Spot Market (WESM).

The WESM, which has been operating in Luzon since 2006, is meant to among others “provide and maintain a fair and level playing field for suppliers and buyers of electricity”. But cross-ownership negates whatever benefits that the WESM is supposed to offer. The intention of the WESM is to make rates more competitive by offering prices other than those set in the bilateral contracts. EPIRA even capped at 50 percent the power requirements that DUs can source from their own generators and the rest they must get from other IPPs and the WESM.

However, the WESM itself is dominated by the same generators that are related with the DUs. IPPs connected with MERALCO, for instance, account for 42.6 percent (SMC with 24.8 percent and Lopez, including Quezon Power, 17.8 percent) of the 11,652-MW capacity registered at the WESM. The Aboitiz group, meanwhile, comprises 13.1 percent. The huge shares of these groups to the WESM-registered capacity make the spot market vulnerable to manipulation and speculation. Case in point was early last year when the price of electricity at the WESM reached an unbelievable P68 per kWh at one point during the height of the El Niño.

The high WESM prices have been blamed by MERALCO for the monthly increases in its generation charge last year. The latest adjustment in MERALCO’s generation charge worth 51 centavos per kWh, announced last Tuesday, is again being blamed at the high increases in the WESM, where rates jumped by P1.89 per kWh. MERALCO IPPs, on the other hand, increased their rates by a smaller 16.2 centavos per kWh.

Energy insecurity

Finally, the country’s energy security has remained precarious under EPIRA. The rotating brownouts experienced in different parts of the country last year is a tell-tale sign that the power crisis has not been resolved by privatization. In Mindanao, for example, the power shortage reached as high as 700 MW in March 2010 that led to rotating brownouts of as long as 8 hours daily. Government quickly blamed the El Nño because Mindanao gets more than half of its power supply from hydroelectric plants.

But apparently, the deeper issue is not drought but government neglect. During the Aquino administration, for instance, Mindanao’s power mix was 75 percent hydro while peak demand was 800 MW, according to a former NAPOCOR president. In 2010, DOE data show that hydro accounted for a relatively smaller 51.8 percent of installed capacity in Mindanao while peak demand was 1,288 MW. Thus, the El Niño could not be solely blamed for the shortage since no significant additional capacity has been put in the region. This should have been the job of government but because of EPIRA, it focused on selling the assets of NAPOCOR instead of installing additional capacity.

Even Luzon was not spared from rotating brownouts during last year’s El Niño. Aggravating the low levels in Luzon’s major dams were the uncoordinated shutdowns implemented by privately controlled power plants. They include SMC generation plants Sual and Limay as well as the Lopez plants that use natural gas from Malampaya. The power supply shortfall reached 641 MW, which could have been easily offset by Luzon’s excess capacity and thus avoid the rotating brownouts. But because EPIRA has dissolved government’s role in ensuring power supply, there is no mechanism in place to fill the gap resulting from plant shutdowns.

Ten years is enough

Its proponents argue that EPIRA must be given a chance to work because once fully implemented, the country will surely reap its promised benefits. They cite the impending implementation of the so-called open access and retail competition. Under this system, power consumers will have the opportunity to choose their suppliers. But then again, the industry has already been monopolized by a few players making the supposed option to choose an illusion.

For its part, the Aquino administration and its allies in Congress have worked for the amendment of EPIRA to extend the so-called lifeline subsidy. But it still does not address the exorbitant and rising electricity rates that Filipino consumers are forced to shoulder. Besides, the subsidy is being paid for by other consumers and does not come from the pocket of MERALCO or government.

Ten years of EPIRA is enough. Its defects could not be corrected by simple cosmetic amendments. It is fundamentally wrong to allow the narrow profit agenda of private companies and banks to take over a sector as strategic as the power industry.

EPIRA has resulted in the doubling of power rates and intensification of private monopolies. At the same time, it failed to address the financial problems of NAPOCOR and the country’s energy security. Only NAPOCOR’s creditors and private local and foreign companies have benefitted from power restructuring. For these reasons, there is a clear and urgent need for our policy makers to seriously rethink the law and work for its repeal. (END)

Read Part 1 – 10 years of EPIRA: what went wrong? and Part 2 – The curious case of NAPOCOR debts

Also read The role of foreign lenders, investment banks, and credit rating agencies in Philippine power sector reform

A Radical's Nut

Notes on Philippine economy and politics

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