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Privatization of the Agus / Pulangui Hydro Electric Complexes

LANAO POWER CONSUMERS FEDERATION (LAPOCOF) GAD Center, Brgy. Hall Bagong Silang, Iligan City Tel #’s ( (063) 221-5252/ (063) 225-5094 Dr. Melchie Ambalong of the

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Privatization of the Agus / Pulangui Hydro Electric Complexes

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  1. LANAO POWER CONSUMERS FEDERATION (LAPOCOF)GAD Center, Brgy. Hall Bagong Silang, Iligan CityTel #’s ( (063) 221-5252/ (063) 225-5094 Dr. Melchie Ambalong of the Mindanao Commission on Women

  2. Privatization of the Agus/Pulangui Hydro Electric Complexes

  3. Electric Power Industry Reform Act (EPIRA); was passed in 2001 The Heart of which is Deregulation through Privatization of the Assets of NPC leading to Free Market Retail Trading of Generated Electricity

  4. To ensure affordable electric power To attract investors

  5. Iligan Electric Rate P1.4795/kWh - 1989 1.7695/kWh - 1993 2.425/kWh - 1997 (+ PCA of P1.89) 3.2057/Kwhr - July 2001 6.0094 /Kwhr - May 2009 P2.80 / Kwhr - Nearly 50% Increase since start of EPIRA

  6. Relevant Provisions of RA 9136, Electric Power Industry Reform Act (EPIRA) Sec 47. (f), The privatization of Agus and Pulangui Complexes shall be left to the discretion of PSALM Corp. in consultation with Congress.” Sec. 62,The Joint Congressional Power Commission (JCPC) In (g) “ Determine inherent weaknesses in the law and recommend necessary remedial legislation or executive measures”

  7. Invoking the powers vested by EPIRA in Congress, let us humbly ask Congress to see to it that the Agus/Pulangui Hydro Complexes will not be sold by 2011.

  8. WHY ARE WE OPPOSED TO THE SALE OF THE AGUS / PULANGUI HYDROELECTRIC COMPLEXES?

  9. I. IT WILL DEFINITELY INCREASE OUR ALREADY HIGH ELECTRICITY RATES a)Attract Buyers, b) For Competitive Pricing, c) Gain Motive, d) Free Market Trading, e) Market Power/Abuse, f) Independent Power Producer Administrators (IPPAs) g) Cross- Ownership

  10. II. Low cost of Power. Investor Incentive III. High RORB (Return On Rate Base) IV. Sale of Other Government Assets V. Security of Supply VI. Retail Competition in Mindanao

  11. Our Proposal for Mindanao; Maintain the present set up which is regulated by the ERC.

  12. With this set up, at least we consumers have a voice. We have the chance of participating in the fluctuations of the electricity price by manifesting our intelligent intervention and opposition to the ERC. With ERC plus our participation we can decide on what is the best rate that will give reasonable profit for the generators of electricity and most importantly what rate is affordable to business establishments and the people.

  13. PLAN OF ACTION 1. With the sponsorship of Congressman Belmonte Of District 1 Lanao del Norte; >Resolution to Stop the Process fo privatization >Bill amending provisions of the EPIRA specific to the sale of the Agus/Pulangui Hydro Complexes 2. Get the support of 88 congressmen for the passage of the bill. There are 268 Congressmen. 51 Party Lists. 46 from Mindanao. Strategy; a) Letters to Leagues of Mayors, Vice Mayors, Councilors, Governors, etc. b) Resolutions at Sanggunians, c) Letter to other sectors such as business, religious, POs, NGOs, etc. d) Media Mileage e) Suggestions are welcome.

  14. THANK YOU!

  15. I. IT WILL DEFINITELY INCREASE OUR ALREADY HIGH ELECTRICITY RATES • To Attract Buyers. • In preparation for privatization, generation rates are gradually increased so that it will be attractive to buyers.

  16. In 2005. 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 assurance of financial viability. Out of the PhP1.98/kWh NPC petitioned in 2004, PhP1.03/kWh was approved by the Energy Regulatory Commission (ERC) in 2005 – the highest rate hike in the history of the ERC.

  17. We saw also that as the privatization and the bidding process was about to start for the sale of the Transmission sector, charges also increased; 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)

  18. Feb. 18, 2009, ERC granted provisional increase to NPC rates in Luzon at Php 0.4628/kwh, Visayas at Php 1.460 /kwh Mindanao at Php 0.7147 /kwh Feb 25, 2009 Public Hearing was conducted. LAPOCOF wrote ERC telling them that consumers had the impression that the public hearing done after the granting of increase was for the sake of compliance. People suspect that there is collusion between the ERC and the Government so that NPC can be very attractive to investors given that by 2011 it might be sold.

  19. b) For Competitive Pricing. When retail competition starts, the other producers of electricity such as coal, geothermal and oil which are more expensive than hydro can be competitive against hydro.

  20. Mindanao Generation, Results of Operation – January to December 2008 Effective selling rates: Hydropower - Php 2.182 / kwh Power Barges - Php 2.309 / kwh IPP’s - Php 3.988 / kwh

  21. We do believe that there are going to be incremental hikes again and again till NPC is up for bidding by 2011. We believe that if there is a strong movement opposing the sale of the Agus/Pulangui Complexes, the reason for rate increases to attract investors may stop.

  22. c) Gain Motive. 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. Electricity rates are also expected to rise as a consequence of privatization as investors would try to recover their investments the soonest time possible.

  23. For NPC to operate and maintain the aforesaid Agus and Pulangui generating plants, the Gain Motive is not a factor. There is only the ROI or Return on Investment to be considered

  24. d) Free Market Trading. The heart of the EPIRA is deregulation thru privatization of generation plants. It is envisioned that with a free market in place, electricity rate will go down based on the assumption that retail competition will drive prices down. WESM (Wholesale Electricity Spot Market) was established by the DOE as per mandate of the EPIRA. It is the trading house of generated electricity.

  25. But the experience of Luzon with the Wholesale Electricity Spot Market (WESM) which started trading in 2006, is that the recent high rate of electricity in Luzon is because of the more expensive power bought through the WESM. Contrary to its mission of providing good choice and cheap supply of electricity, the WESM has become a trading center of the most expensive electricity in the country.

  26. In March, 2009 its peak trading was P10.68/kWh In April, it reached almost P12/kWh. If you add to that the Transmission, Distribution, Universal and other Charges, Luzon has one of the highest electricity rates in the world.

  27. e) Market Power/Abuse. Agus/Pulangui Hydro Complexes is 55.38% of the total capacity available to the Mindanao Market, High possibility that a private firm owning the Agus/Pulangui Complexes would profitably drive up prices since it controls a significant chunk of the market. Given the weak regulatory tradition in the Philippines, the most likely scenario is the exercise of market power by the firm owning the Agus/Pulangui complex with price manipulation rather than competitive pricing.

  28. Added to that is the possibility that the private firm owning the Agus/Pulangui Complexes which can dictate the price would be able to gobble up other smaller plants which cannot withstand the competition. Or smaller plants would be forced to merge with the dominant player. With this scenario there would be no more retail competition defeating the purpose of the EPIRA.

  29. Presently the WESM operation of Luzon brought about a transition From government monopoly to an enhanced private monopoly. Hence, instead of rate reduction, Luzon has one of the highest rates today.

  30. f) Independent Power Producer Administrators (IPPAs). For IPPs with contracts expiring after 2010, PSALM is required to appoint IPP Administrators or “middlemen” thru public bidding to manage the plants until such time the contracts have expired.

  31. These “middlemen” will surely jack up prices. But if Hydro maintains its cheap rates which will only happen if it is not sold, then these IPPAs could be controlled. In Mindanao, we have the Villanueva Coal Plants expiring in 2031.

  32. g) Cross- Ownership Once Agus/Pulangui Complexes is sold, it may also happen that the new owner may own or has controlling interests in distribution utilities EPIRA allows “cross- ownership” “Sweetheart” supply contracts between distribution and generation is a high possibility.

  33. II. Low cost of Power. Investor incentive. Mindanao’s greatest competitive advantage is the low cost of power it presently enjoys from the hydroelectric power plants. Effective March 2009, the generation charge for the Philippines approved by ERC are as follows; Luzon = Php 4.2648 /kwh Visayas = Php 4.0339 /kwh Mindanao = Php 2.8177 /kwh

  34. The reason why Mindanao has the lowest generation charge is because of the existence of theAgus /Pulangui Hydroelectric Plant Complexes. This is the edge that Mindanao has over Luzon and Visayas. In terms of development, infrastructure, peace and order, etc, we lag behind Luzon and Visayas. We cannot afford to lose one edge and that is the low cost of electricity which could be the only major ‘come-on’ for investors to set up establishments in Mindanao.

  35. This is an irony because the attractive rate of GENCO is for investors to buy GENCOS. This same rate is a disincentive for other investors to set up plants in Mindanao. We are deprived of investments which generate employment that will improve the buying power of the people which in turn is a driver for businesses to thrive

  36. III. High RORB (Return On Rate Base) For 2008, the rate base current audited value of all NPC-Agus/Pulangui Complexes is Php14,327 billion. The net revenue is Php 4,927 Billion which gives an RORB of 39.66%. Power distribution utilities are being pegged down by the ERC to an RORB of 12% only, thus, making the RORB of 39.66 % of the Agus/Pulangui Complexes very high.

  37. INCOME: Agus / Pulangui Hydro Complexes For 2008, the net income of almost Php 5 billion was added to the coffers of the government

  38. IV. Sale of Other NPC Plants Our experience with the sale of the Masinloc Coal Fired Plant located at Zambales. The assets is at 930 Million Dollars. The investors paid 40% and the remaining balance is payable for 7 years at 80 Million Dollars yearly which is actually the income of the plant itself.

  39. NGCP put in $987.5 Million or 25 % in acquiring the right to operate TRANSCO which is valued at $3.95 Billion. The remaining $2.962 Billion or Php148 Billion (at Php50.00 to $1.00) is to be paid in 15 years. TRANSCO is earning Php15 Billion per year which is more than enough to pay NGCP’s yearly installment. In other words NGCP has only a minimal investment in its acquisition of a highly profitable jewel of our country.

  40. EPIRA simply transferred the monopoly privileges from the Philippine State to “unbundled” interests of private and foreign State run conglomerates (Japanese, Chinese and Korean State Controlled Firms).

  41. We must not forget our tragic experience with the privatization of the National Steel Corporation.

  42. We are afraid that the Agus/Pulangui complexes, the Patrimony of Mindanao will be sold at a giveaway price to exploitative private and foreign conglomerates just to comply with deregulation as what is embodied in the EPIRA.

  43. V. Security of Supply a) Sabotages and other Security Risks b) Labor Disputes

  44. Sabotages and other Security Risks • are integral part of the operation and maintenance of our Power Plants which the present NPC is able to address quickly because of its experience in dealing with these situations.

  45. We have this disturbing experience with NGCP, the concessionaire of our transmission lines. Last Nov 2008, there were 16 sabotaged towers of the 138 KV lines. Five are in the Saguiaran to Kibawe line via Bubong, Lanao del Sur. Repair has just started this month, August 2009, (10 months). It has compromised the supply to Davao because coincidentally, Geothermal plant # 2 in Kidapawan broke down. Such that supply to Davao is insecure as of now. With TRANSCO before, these incidents would have been dealt with at once.

  46. b) Labor Disputes If privatized, Crippling Strikes may ensue. As of now, the employees have existing justified grievances.

  47. VI. Retail Competition in Mindanao WESM began Commercial Operations in Luzon in June 2006 with 73% of NPC’s assets privatized. Presently groundwork for launching of the Visayas Supply Augmentation Auction (VSAA) is started which in time will lead to WESM operations in the Visayas. There is yet no mention of any plan to start an open market in Mindanao.

  48. The basis for privatizing NPC assets is for retail competition to start. Since it cannot yet start in Mindanao our Congress need not proceed with the sale of the Agus and Pulangui complexes.

  49. In Summary, there is this contradiction between the EPIRA’s goal to make electricity affordable versus EPIRA’s principle of deregulation thru privatization. Placing priority on the latter will result in higher electricity prices, when the goal of affordable electricity must take precedence over the latter. 

  50. We must bear in mind that the Local Government Code of 1991, Chapter 2 , Sec 294, states, “ The LGU must provide direct benefits … not only with reference to lowering electricity cost but also in lowering cost of water consumption. Electric supply and water supply cover basic services where people can really feel with satisfaction and gratitude the impact of low charges.”

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