Power struggle

Business Mirror

11 Dec 2013 

 

Written by The BusinessMirror Editorial

A SERIES of unfortunate events again left the country in a state of calamity.

In October a 7.2-magnitude earthquake struck Bohol and Cebu provinces, killing over 200 people and damaging P2.257 billion worth of infrastructure, including centuries-old churches. In November Supertyphoon Yolanda (international code name Haiyan) hit the Visayas and ruined billions of pesos worth of crops and infrastructure, as well as the lives of thousands.

A few days ago, two journalists were gunned down in a show of impunity, raising the number of media men killed under President Aquino’s watch to 11.

And now this: the Manila Electric Co. (Meralco) is planning to jack up the cost of electricity by P3.44 per kilowatt-hour (kWh), from P5.66 per kWh to P9.10 per kWh. This translates, depending on your current electricity bill, to P4.15 per kWh, including taxes.

The reason? The Malampaya natural-gas facility shut down operations for a month to undergo maintenance work. Because of this, Meralco had to get its supply from providers of alternative fuel. Under Malampaya’s wing are the Santa Rita, San Lorenzo and Ilijan power plants, which supply close to 3,000 megawatts to the Meralco franchise area and the areas around it—roughly half of the electricity requirements.

The alleged synchronized shutdown of other power plants added extra weight on the requirements, egging market forces to get a bit frisky. Earlier, liquefied petroleum gas (LPG) players increased LPG prices by P14.83 per kilogram and auto LPG prices by P7.99 per liter. Diesel and gasoline prices are also expected to rise.

Until the 1990s, the Philippines, together with Thailand and Indonesia, did little to boost the supply of electricity. A World Bank publication in 1994 said that, up until that decade, the electrification rate of the Philippines stood at 54.6 percent, higher than Indonesia’s 37.3 percent but lower than Thailand’s 92.7 percent.

It was the population boom and rapid economic growth that signaled the need for more power. As supply increased, so did the cost of doing business in the Philippines—a kind of twisted supply-and-demand scenario.

The Philippines measures poorly among members of the Association of Southeast Asian Nations for this reason, among others. Investments come in trickles—that is, if they come at all. Electricity is a vital requirement for manufacturing, and in the exportation and importation business. Investors choose to invest not only because of economic and political stability, but also costs.

The cost of doing business in this country varies greatly. Labor and telecommunications costs play a larger role in the decision-making process than capital costs in call centers. Labor costs also dictate where garment factories ought to be located. But in the semiconductor industry, the price of the product is largely imposed by the cost of machinery and power.

In 2010 a single factory in the Philippines would have to pay the cost of electricity more than twice as much as those paid by its Vietnamese, Indonesian, Thai or Malaysian counterpart.

Today, even as the Asian Development Bank posits positive projections for the Philippines by way of gross domestic product, the country’s status still languishes at the tail end of the United Nations Conference on Trade and Investment’s Top 20 investment destinations.

All because investors will have to give an arm and a leg just to shoulder skyrocketing electricity costs in the Philippines.   source