Well done, IMF!

Manila Times.net

MIKE WOOTTON

LAST week marked the 10th anniversary of the Electric Power Industry Reform Act or Epira, passed into law with the objective of reducing electricity costs for the Filipino people and which was forced on the Philippines as a “necessary structural reform” in order to continue to qualify for development assistance, by the International Monetary Fund whose policies and heavy handedness have brought the poor citizens of many developing nations to their knees.

A forced Epira implementation for the Philippines was a bit like rearranging the deckchairs on the Titanic. Epira made the developing Philippines adopt a model wholly unsuited to it and inappropriate for meeting an objective of reducing the cost of electricity. It simply missed the point. For those who are not aware the reason the cost of electricity here is, on an affordability basis, by far the highest in the world, is that about 60 percent of fuel for power is in one way or another linked to the price of oil. The cost of indigenous Malampaya gas is tied to changes in the cost of oil [so much for its being indigenous!], coal prices follow oil prices and of course there is the oil fired power itself, endemic in the off grid areas where people can least afford. In addition to this there are the long-term generation contracts made in a seller’s market when the Philippines had no choice.

To insist on privatization of the Philippines power sector is at best an irrelevance and at worst an invitation for local monopolistic practices. I do not wonder at all at why it should be that the IMF should force privatization on the Philippines. There are so many cases of the IMF forcing bad advice on developing nations. The Independent, a UK newspaper cited several instances of disastrous IMF requirements—one which was most notable was in Malawi in Africa in the early 1990’s [similar time to the IMF’s deliberations about what “structural reforms” they should impose on the Philippines] where the government which had been ordered by the IMF to stop subsidizing fertilizer had built up stocks of grain in case there were bad harvests and famine. The IMF forced the government to sell the grain to the private sector in order to pay off loans to international banks at horrendous interest rates [similar to those for Philippine credit cards!]. There was thus inadequate fertilizer due to the withdrawal of subsidies, a bad harvest, no reserve stocks and a major famine. People were forced to eat the bark from trees. There are parallels here with Epira. A postscript is that Malawi ignored the IMF and effectively kicked them out, subsequent to that their economy and the lives of Malawians dramatically improved!.

Despite its clear un-affordability there is an established level of cost for electricity here in the Philippines, and there has been for some years, so much so that production capacity per head here is about the same as it is in Papua New Guinea. This is not because Filipinos have the same level of electricity demand as the citizens of Papua New Guinea. It’s because nobody can afford to use as much of it as they would like or as much as they need. Until such time as the cost of electricity is reduced then growth in demand will be very slow, a drag on economic development, it’s just too expensive to use too much of it. So thanks to Epira the local oligarchs are jumping onto the power generation bandwagon at fire-sale prices for National Power Corp. assets and no doubt with an eye on the ability to sustain the “established” charging levels. They may even be stimulated to build more shopping malls, sausage factories and breweries in order to market their power. Not much hope out of this for lowering the cost of power, but good business for the local capital market—well done again, IMF. Other than that critical parts of the power sector, the national grid for example, are now run by the Chinese, there has been little in the way of foreign investment in the forced privatization.

It’s interesting to note and picking up my last point, that the International Finance Corporation [ a close relative of the IMF] is supporting Chinese investment in Africa despite all the bad press about Chinese shooting Africans who don’t do what they are told in their Africa projects. Can’t help but wonder why the IFC needs to support Chinese property developers in Dar Es Salam when the Chinese government has already set aside billions [of it’s trillions] for African development. But I guess that this just adds on to another question which is, why is China still receiving over $1billion per year in overseas development aid of one form or another?

So Epira, it has failed abysmally to reduce electricity costs and it has set the scene for sustaining the current cost of power having failed to address oil price linkages, having stimulated the expansion of monopolistic practices and having left untouched any of the undesirable long term contracts. It has also managed to all but destroy Napocor, a centre of knowledge and expertise on Philippines power and the sectoral ”glue” which held it all together. About time for a rethink and crafting a law which whilst it may borrow some of the more useful bits from Epira, like the establishment of a regulator and open access, should better address the real causes behind the cost of electricity in the Philippines. A final thought is that according to a survey by the Confederation of British Industry, privatization of utilities has led to lower customer satisfaction and higher costs . . . !

Mike can be contacted at mawootton@gmail.com.