The Philippine Power Sector and Consumers 20 years After the Epira Law of 2001 (Part 2 of 2)
David Celestra Tan, MSK
22 July 2021
Part 2
An imperfect Law, Imperfectly implemented
We wrote a series in the Inquirer 6 years ago in 2014 that branded the Epira Law as “an imperfectly law, imperfectly implemented”. Many agreed on its imperfections and many suggested amendments so it will work better. After all, now 20 years later, the Philippine Power Sector and the consumers are still paying even higher rates, there is no true competition, and bidding for power supplies continued to be “non-competitive”.
Many have pointed out and proposed what’s missing in the law. They had claimed that the Epira Law failed to assure security of supply. Every year during summer, and months before it, we all go into a frenzy about power shortages and rising rates. Same whenever Malampaya gas fields are shutdown for maintenance. Recently, the bidding for Meralco’s 1,800mw of power supply had been in the papers for six months and obviously it was not a truly competitive bidding, but no government agency says anything.
Over the years there were two amendments in the Epira Law, but they did not necessarily make it better. Power’s exemption from the 12% VAT was removed in 2004 and when they passed a law to approve the Transmission Line concession of NGCP, they effectively amended also the provisions of the Epira Law that reserved transmission systems operation to Transco. It was given to NGCP. These two amendments abandoned the EPIRA law’s original aspiration of reducing the electric power rates.
Nonetheless, we agree that the Epira Law was imperfect but that has not been the reason it had been failing even after 20 years to achieve its clear and achievable objectives for the people. It failed because of its imperfect implementation.
It started in its very own IRR (Implementing rules and regulations) that was written in 2002. Apparently, some implementors of the Epira Law were not satisfied with the imperfection of Section 45 that specified that power generators cannot “own, operate, or control” 30% of a grid or 25% of the national grid. So they added some more loopholes in the implementing rules.
In Rule 11 of the IRR they removed “own and operate” and retained only “control”. It further defined that if there are multi-owners of a power plant, its capacity will be counted in determining concentration of generating capacity to the party “controlling” it. Controlling meaning the party selling the capacity. This is one case where a laws IRR violated the clear provision of the main law that it is supposed to be implementing.
No law no matter how perfectly written will achieve its true and honest goals for the people if it is not properly implemented specially in the Philippines. The Epira IRR was written as early as 2002. It means even that early those who wrote the IRR, already had plans of circumventing the market domination limits set by the EPIRA Law…and its aspiration for true competition.
Now we should notice that large power projects specially those being proposed to supply Meralco, are NOT owned by a single owner, but by multi-owners with the Meralco subsidiaries as the significant controller owner from 49 to 51%. Thanks to Rule 11. Technically, Meralco avoids owning 100% of 50% of the power supply to Meralco as allowed under Section 45 of the Epira Law. Instead, by entering into multi-owner alliances and following the watered down Rule 11 of the Epira Laws IRR, Meralco can now be 51% owner of 100% of the supply of the largest utility in the country. In our opinion this scheme kills competition and results to higher rates for consumers.
Effectively what is created is a cartel, something specifically prohibited by the Epira Law. The worst part is the cartel corralled most of the major players in the power generation sector and hence reduced competition not only in Meralco but in the WESM and other utilities in the Visayas and Mindanao. With cartelization, electric consumers in Meralco and nationwide cannot expect to have competitive and lower rates.
Perfect Implementation of an Imperfect Law
1. True competition can be implemented and achieve lower rates if we correct the anomalous Rule 11 of the Epira IRR. This is actually easy to do and will not need a congressional amendment of the Epira Law itself. We just need to correct the language of Rule 11 and simply align it with Section 45 of the Epira Law.
2. Then the energy family, the DOE and ERC, NEA will just need to implement properly the Competitive Selection Process policy of the government. Why is it being openly played with? We have to start by amending the government policy in the procurement of power supply DOE Circular 2018-02-0003 and then implement it honestly and truthfully for the Filipino people. We need to strengthen the ability of the DOE and ERC to assure true competition in the bidding for power supply contracts.
Games to circumvent true CSP should be prohibited. We have been allowing “unsolicited proposals” and “swiss challenge” biddings which are nothing but ways to favor a chosen bidder. Recently emerging are complicated bid evaluation rules that only the Bid committees have control. Economic reference prices to assure fair bidding are instead used as arbitrary values evidently designed to favor certain bidders.
The EPIRA Law was like an inter-galactic rocket ship designed to reach Mars. Everyone believed in its objectives and the Philippines ability to build one. And it started well in the beginning with a good leadership of the first chairman of the Energy Regulatory Commission. However, after a couple of years, the vested interests managed to convince the Central Government that “they cannot work with the current ERC Chairman if the goals of the Epira Law were to be achieved.”
A lost rocket Ship
The EPIRA Law was like an inter-galactic rocket ship designed to reach Mars. Everyone believed in its objectives and the Philippines ability to build one. And it started well in the beginning with a good leadership of the first chairman of the Energy Regulatory Commission. However, after a couple of years, the vested interests managed to convince the Central Government that “they cannot work with the current ERC Chairman if the goals of the Epira Law were to be achieved.”
The 1st ERC Chairman was replaced by someone many thought of as a politician. And true enough the travel trajectory of the Epira Law rocket ship started to be recalibrated and little by little it went off course evidently as they give in to what the major electric players wanted. In no time, electric rates among Meralco customers started rising and the resolute drives towards establishing true competition and in general reducing rates vanished. The 2nd Chairman resigned after a year and ran for Congress. The 3rd and 4th Chairmen were also politicians and the implementation of the Epira Law went off course even further. Now the Epira Law Space Ship is nowhere near hitting Mars, adrift and lost in space taking with it the hopes of the Filipinos for a better electric power industry with lower electric rates.
Let us test our ability as a nation to correct the badly off course EPIRA Space Ship with the simple task of aligning the words of Rule 11 of the Epira IRR with the provisions of Section 45 of the Epira Law. This would be easier to do. Otherwise, we will reach its 40th year, and the Epira Space ship will end up in Pluto and all of us would be wondering what we are doing there.
We will not advice that we try to amend the Epira Law and make it perfect. If we are not happy with Epira law I, what makes us think we can create a better Epira Law II? The current law despite its imperfections is good enough. What we need to do is to implement it more perfectly. That is what we believe has been the problem of the Epira Law, not perfection of its words but perfection and consistency of its’ good implementation.
Maybe by the 25th year, the Filipino people and country would have its EPIRA law space ship back on course to reach Mars. We just need to neutralize the Filipinos who would be in the way, the same powerful vested interests who battled to put in the imperfections in the law in EPIRA Law I. Except now there would be at least six(6) giants instead of only two (2) in 1998 to 2001. Still, we should continue to believe in People Power. We just need to be smart, have good hearts, and be truly patriotic.
MATUWID NA SINGIL SA KURYENTE Consumer Alliance (MSK)
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