EPIRA premises flawed – Tañada

After the Mindanao power summit, Deputy Speaker Lorenzo “Erin” R.Tañada III affirmed his position that government re-entry into the generation is what is most needed at this time and pointed out the major flaws of the Electricity Power Industry Reform Act (EPIRA).

“In 2001, my father, then Congressman, Wigberto Tañada voted against it because while fundamentally, he is for the restructuring of Napocor as it is wreaking havoc in government’s fiscal position, he raised critical issues with regard to the total removal of government from the power sector while absorbing debts of private utilities, espousing the creation of a competitive environment while still allowing cross ownership, and passing off Napocor debts to the taxpayers without a proper review of the contracts with IPPs.  More and more I see the wisdom behind my father’s position,”  Tañada said.

Tañada, who is also a member of the JCPC expounded, “The idea behind EPIRA which would sell Napocor power plants to private investors, and use the proceeds to pay and pare down its debt is unrealistic, with regard to its privatization targets, with the sale of plants and assignment of IPP contracts meeting gross delays. In 2004 at which time EPIRA assumed that 70% of Luzon and Visayas plants and IPPs have been privatized, only a measly 8.5MW of small facilities have been sold. In 2005 none was privatized and it was only beginning in 2006 that PSALM was able to sell the big plants.”

“Such delays were not without cost to the government and to the public. It had a direct impact on the idea of “paying and paring down” NPC/PSALM debts. Many of the plants were financed by ODA before, but due to privatization delays the maturing debts were refinanced by more expensive debt instruments. Thus, at the start of EPIRA total financial obligations of NPC stood at US$16.39 billion. After the sale of its assets, its obligations still stood at US$15.82 billion in end 2011, and this was on top of the PhP200 billion in NPC debt assumed by the national government under EPIRA. The public will now pay for these errors in assumptions and lack of foresight through the mechanism of universal charges for stranded debts and stranded contract costs.

“But, the biggest error of EPIRA is its over-reliance on the private sector. The economics and business of power generation does not assure generation security when left solely to the private sector as EPIRA imposes. A power plant has a long useful life but requires a large amount to put up and operate. The business decision to put up a plant depends on many critical factors saddled with uncertainties, including in the areas of financing, locational opposition, and secured off-take. This makes private contracts difficult to close out, hence the tendency for costly cyclical shortages as Mindanao is experiencing, and which Luzon is also close to experiencing. Right now, the government is forced to continually operate the Malaya thermal plant that was scheduled for retirement last year, to compensate for the private sector’s failure to put up the required baseload plants in a timely manner. “

“On the other hand, private players also tend to overcome uncertainties through consolidation of market power, as we are also seeing in the ownership trend in the sector. Unfortunately, based on the EPIRA implementation reports by the DOE, the monitoring of market concentration is focused on horizontal concentration of ownership. But what about vertical cross ownership? What about the pricing in bilateral contracts? Are the consumers getting the best price for private power?’ he asked.#