Tuesday, December 20, 2016

Power rates and the pursuit of manufacturing hub dream



 (The Philippine Star) |

Power rates are up this jolly month of Christmas, and this time, the culprit is the strong dollar, thanks to US president-elect Donald Trump and a sense of collective euphoria sweeping America as it looks forward to its own version of change.
Of course, the strong dollar is also responsible for many other recent price increases that have whittled a bit the Yuletide spirit of Filipinos enjoying their 13th month bonuses, or the higher peso equivalent of remitted currencies sent home by our overseas working countrymen.
We saw pump prices of petroleum products, including cooking fuel or LPG, leap up by a few pesos, regarded as a “phenomenon” during an era of soft crude prices. The price of imported goods has also increased, the most notable being vehicles lifted from abroad and wholly paid for in dollars.
But the topic of the strong US dollar is reserved for another day. Today, we look at power rates, not just as a function of a weaker peso of recent days, but in relation to a forecasted manufacturing sector resurgence, not by our ever-optimistic Department of Trade and Industry officials, but by the more credible Ayala Corp. chairman and CEO Jaime Augusto Zobel de Ayala (JAZA).

High value manufacturing hub

For those that missed this news bit, the Ayala honcho had intimated to media during a recent forum that the Philippines was in a unique opportunity to reinvent itself into a high-value manufacturing hub by relying on its solid footing in the electronics components industries.
Specifically, JAZA singled out the global automotive industry’s recent revolution involving automation and electrification, one that has increasingly brought a vehicle’s content of electronic components to more than half of all its parts.
Smart cars are now becoming the new reality in mobility, but the trend to introduce electric vehicles, either partially or fully running on electricity, as well as technical breakthroughs in bringing self-driving cars to the streets in the near future, are bringing about new radical changes.
Automation is also becoming apparent in many other industries, and while this has had a lesser impact, it nevertheless contributes to changing the landscape of the global manufacturing sector.
Correctly, this change is an opportunity that the Philippines has a better chance of seizing given its stronger economic footing compared to other countries in the region, and the reality of double digit growth in the local automotive industry.
The Ayala scion pointed out challenges, among them the need for a unified roadmap by the government that would pave the way for this transformation. Broadly, he mentioned infrastructure and capability building, both by the downstream business sectors and human resources.

High power cost

Not singled out, but not necessarily a problem, was the high power cost in the country. In the Asian region, the Philippines continues to have one of the highest rates in power generation, a fact that has deterred our dream of becoming an export-oriented manufacturing hub for decades.
Even our strong electronics industry complains of this burden which is only offset by the unique advantage of having a compliant, relatively intelligent, and cheap workforce. Otherwise, these electronics firms would rather operate in other countries that have electricity rates sometimes just a third of what is charged here.
Therefore, we could reasonably expect to grow our electronics manufacturing sector to make it one of the significant export hubs in the world, but it will remain perpetually challenged by the competitive advantage of low electricity rates offered in other countries.
This is why other manufacturing industries like chemicals, metals, glass, petroleum, paper and plastics have a difficult time competing abroad. These industries are able to survive primarily by catering to local demand, and do not attempt to produce products for export.

Extend period of stranded cost recovery

Is there a solution? Inasmuch as our businesses always point to the high cost of power as the biggest barrier to Philippine competitiveness, finding appropriate remedies need to be prioritized by the Department of Energy until competitiveness in power rates is achieved.
One big component in the current pricing structure continues to be the stranded cost burden resulting from the gargantuan losses incurred by the National Power Corp. (Napocor) accumulated during the period before the 2001 Electric Power Industry Reform Act (EPIRA) was passed.
At the time when EPIRA took full effect, the estimated stranded cost was at $6 billion. This amount was expected to be reduced with the sale of Napocor assets. The remaining amount was to be shouldered by consumers over a 25- year period.
While the remaining stranded cost has now dropped to an estimated $1.7 billion, the apportioned amortization is still contributory to the high electricity rates we experience today.
If the Philippine government will not be able to generate additional funds to bring down the stranded costs, which had resulted primarily from the ineptness of its policies to artificially price electricity and incompetently operate power plants, then perhaps it is high time to consider extending amortization of this cost over a longer, say, 50 years, period.

Stop costly power shortages

Another problem that contributes to high electricity rates is the recurrence of outages, or what we call brownouts. By all means, the DOE must encourage more investment in power plants, even those controversial “dirty” coal generating units, to prevent costly power shortages.
New coal-fired power plants have steadily adapted to advanced technological innovations to significantly reduce their pollution to the environment. They remain one of the lowest priced power generation plants to build and operate.

Keeping hopes alive

I’m sure there are more schemes open to our government officials that can help bring current electricity rates to levels that will truly give the country’s dream to become a manufacturing center in the region more teeth. But this has to be done quickly.
As JAZA said, this window of opportunity would remain open only for a short period of time. While our skepticism is already perhaps rearing up, knowing how slow our government acts on things that really matter, we’d like to keep our hopes alive.

No comments:

Post a Comment