9
Apr

Philippines Has 5th Highest Cost of Electricity in the World

Twenty more turbines will be put up at the wind farm in the municipality of Sibunag in Guimaras. Construction starts next month. With each new turbine generating 2 megawatts (MW), 40 MW will be added to the wind farm’s 54-MW capacity. Despite the building of new windmills in our home province and throughout the archipelago, why does the Philippines have the 5th highest cost of electricity in the world?

“The turbines will rise in barangays Bugnay and Sabang in Sibunag,” said Edwin Gallego, plant manager for Trans-Asia Renewable Energy Corp. (Tarec).

Gallego said the demand for power will never decrease, so the expansion is timely.

“The Philippines is developing the power sector, and it must catch up with more power plants,” he said.

Tarec’s 27 wind turbines in San Lorenzo supply power to the Visayas grid through the National Grid Corp. of the Philippines’ (NGCP) 27-kilometer submarine cable passing through Guimaras Strait to NGCP feeder in Santa Barbara, Iloilo.

Tarec was the only wind project that has received its final certificate of approval to connect to the grid from NGCP, said Trans-Asia Corporate Communications chair Danielle del Rosario.

(Source: Panay News)

We might be getting more windmills but we still have brown outs and high electricity costs in Guimaras. The turbine article, along with a political ad I’ve seen on television from Vice-Presidential candidate Bongbong Marcos, prompted me to research why…

The Philippines has the 5th highest electricity costs in the WHOLE WORLD!

No wonder even Filipino Chinese tycoons are moving out of the Philippines to put up their factories in China, where electricity rates are nearly a third of the Philippines. Have you noticed that even shampoos and toothpaste are now made in Thailand and Indonesia? Electricity in Thailand costs nearly half that of what it costs in the PH, in the cost of electricity in Indonesia is only a fifth!

(Source: The Manila Times)

The Philippines also has the highest electric rates in all of Southeast Asia.electricity in guimaras

Guimaras, the island province we call home, has the highest electric fees in all of the Philippines, ranging from 28-33 cents a kilowatt hour. That’s about three times the average cost per kilowatt hour that it costs in Illinois, where I retired from, according to the U.S Energy Information Administration.

WHY DOES ELECTRICITY IN THE PHILIPPINES COST SO MUCH?

A 2014 article by Rigoberto Tiglao in The Manila Times gives an explanation for the high cost of electricity in the Philippines.

The Marcos Nuclear Power Plant

The 1973 oil global crisis was threatening to throw a monkey wrench into Marcos’ plans for a lifetime dictatorship, so Marcos was determined to put up a nuclear power plant. The dictator was relying on a nucelar plant to supply the country’s electricity demand in the 1970s.

When the project was finished in 1984, it cost $2.3 billion, four times the original estimates.

Cory Aquino Refuses to Open Power Plant

But it was his successor Corazon Aquino who made it an albatross around the Philippine neck that’s been a major reason for the high power rates in the Philippines, according to the Times’ article.

With the April 1986 Chernobyl disaster used as a horror story, and since the anti-nuclear activists in the archipelago were in the anti-dictatorship movement, Aquino ordered the plant mothballed — even as several experts gave the go-signal for its operation. She did not work to have replacements for its 620 megawatt capacity put into place.

US private and government loans were used to finance the plant. US officials quietly told Aquino that if she repudiates the nuclear-plant loans, the country would not only be a pariah in the global financial community, but that the US would not lift a finger to stop the attempts to topple her.

“We don’t owe the cheats,” Cory then boasted. It was twenty-one years later, in 2007, that the Philippines made its final payment on the loan. It spent P120 billion in principal and interest charges for the plant that never produced a single kilowatt of electricity.

This was P120 billion that could have been used to finance the building of a dozen conventional power plants to supply the country’s electricity demand throughout the 90s.

While the loans were later on transferred to the national government, these were carried for many years in the books of the state-owned National Power Corp. (NPC) — putting it yearly in the red, which prevented it from borrowing to finance new power plants. As a result, demand outstripped supply throughout Cory’s watch, and long hours of brownouts became routine in the country, discouraging foreign investments.guimelco

President Ramos’ Private Companies Venture

Cory’s successor President Fidel Ramos wanted private companies to go into the power generation business to supply the electricity, reversing the Marcos policy of having solely the NPC to build and operate power plants. The NPC — because of its payments for the nuclear power plant loans — was technically bankrupt, and therefore could not borrow from the market to finance the building of new plants.

The corporate elite in effect blackmailed Ramos, justifying their action on grounds that they would have to be assured of profits before they go into that business.

Thus were instituted what got euphemistically called “take-or-pay” arrangements with the “independent power producers.” These arrangements were in reality a capitalist dream of a risk-free business: The NPC committed to buy the power generation capacities of these private generators, even if NPC doesn’t need any electricity, i.e., when demand falls, and therefore the generators would not have to spend money to produce electricity.

It seemed a good deal until the 1997 financial crisis hit. It slowed down the economy, and therefore demand for electricity.

Stranded Costs

A new euphemism was invented: “stranded costs,” or the power NPC bought from the private power generators, which it couldn’t sell to utilities. By 2010, these costs — “stranded” in the NPC’s books, and no way to recover it unless raising future tariffs — had ballooned to P80 billion. After shedding off the nuclear plant debt-albatross, the NPC was again deep in the red because of these stranded costs.

For various reasons, including the fact that there was a privatization rage in developed countries at that period, which our US-educated technocrats aped, the Philippines junked the policy — as continued in China, Thailand, Malaysia, and Indonesia, all of which have electricity tariff much lower than the PH — of a government- controlled power industry.

Capitalism — private sector funds and expertise — would take care of this public good that is affordable electricity. A so-called market for power was set up, the Wholesale Electricity Spot Market (WESM), and far from being a “spot” market because most of the transactions are bilateral deals.

Private Companies Get Richer

Private companies build and operate the generators; the power is transmitted by a private company (the National Grid Corp., a joint venture of a Henry Sy scion and a Chinese firm) to private companies (the biggest of which is Meralco), which distributes the electricity to the final users.

The Philippines has a power industry controlled by the country’s big business. Indeed, it has been such a profitable business that one of South Asia’s biggest tycoons, Indonesian Anthony Salim, in 2010 bought, through several firms he owns, into the biggest electric distribution company to control it, Meralco. The distribution firm has become one of Salim’s biggest money earners, its core net income rising from P2.6 billion in 2008 to P16 billion in 2012, and a forecasted P17 billion last year.

Meanwhile, power prices have steadily gone up since the private sector came to control it. Filipinos (and the expats living here) now have the highest electricity bills in Asia, and the fifth most expensive in the world.

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