Can PCC Step Up to Arrest Rampaging Monopolization and Cartelization of the Power Generation Sector?
David Celestra Tan, MSK
12 June 2017
When the Lopezes owned Meralco they only formed the 1,500mw First Gas with a declared intention of an additional 500mw for a total of 2,000mw. This was 40% of Meralco demand at that time. The MVP Group that took over Meralco as a white knight in 2010, is taking this self-dealing in power generation supply to a whole different level. So far they have signed 4,000mw of coal power projects, 66.67% of their current demand of 6,00mw. That is in terms of capacity. In terms of guaranteed off-take in energy (kwh) they contracted 28 billion kwh a year compared to Meralco’s annual sales of 35 billion a year or 80%. And they are not done yet!.
You wonder what is going on? Why is the DOE and ERC not showing any concern?
There is evident market power abuse, monopolization, and consequent cartelization. The ERC that has a clear mandate to guard against these anti-competitive behavior under Section 43 of the Epira Law seems not able to step up to protect the public interest, perhaps because they feel estopped from not processing the consequent Meralco applications for approval of the seven (7) midnight contracts that resulted from ERC’s own extension of the CSP.
It is one thing to comply with the CSP rules but another matter to stay with the market power domination and cartelization rules of the Epira law. ERC needs to assure both.
In a privatized and deregulated economy, assuring a truly functioning competition is essential to reducing power costs and inprotecting the public interest. This isinstead of the government doing so by regulating industries like airlines, water, telephone, and power. True competition always beats regulation in reducing power costs.
The objective of the Epira Law of 2001 was to bring down power costs by creating competition. It divided the industry into four main sectors, power generation, transmission, distribution, and retail. There was supposed to be no conflicting cross ownership among these sectors. Vested Interests however successfully lobbied to water down the anti-cross ownership provisions of the Epira Law of 2001 in Section 45 specially between a distributor and a generator. To finish the job it followed up with a con job in Rule 11 of the Implementing Rules and Regulations. The monopolization and increased cross ownership between the nation’s largest distribution utilities and their sister company power generators continued unabated. And they are getting bolder.
The MVP group, in total disregard for any harmful market domination limits, also now owns controlling shares in Global Business Power (GBP) of the Metro Bank Group which is now aggressively expanding in the Visayas and Mindanao and seeking to acquire 2,000mw. GBP in turn just bought 50% ownership in the Alsons coal power projects in Mindanao. The Aboitiz Group that owns the next largest distribution utilities after Meralco in Cebu City and Davao City, also controls the supply to their own distribution utilities and one of the major partners of MeralcoPowerGen.
All told, most of the major power generation markets will be cartelized by six power generators that control about 10,000mw of the 14,000mw installed capacity of the country. How can true competition exist in the bilateral generation market and even in the wholesale generation market called WESM with most of the majority players being in close partnership and part of the Meralco cartel?
Philippine Competition Commission (PCC)
When the Philippine Competition Commission was created by the Philippine Competition Act or RA 10667 , it raised hopes for finally controlling harmful monopolies and promoting true competition in the power market place that had been causing the unwarranted high power costs to Philippine consumers and businesses.
20 years in the making, The Philippine Competition Act established a lofty goal:
Pursuant to the constitutional goals for the national economy to attain a more equitable distribution of opportunities, income, and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially the underprivileged and the constitutional mandate that the State shall regulate or prohibit monopolies when the public interest so requires and that no combinations in restraint of trade or unfair competition shall be allowed, the State shall:
(a) Enhance economic efficiency and promote free and fair competition in trade, industry and all commercial economic activities, as well as establish a National Competition Policy to be implemented by the Government of the Republic of the Philippines and all of its political agencies as a whole;
(b) Prevent economic concentration which will control the production, distribution, trade, or industry that will unduly stifle competition, lessen, manipulate or constrict the discipline of free markets; and
(c) Penalize all forms of anti-competitive agreements, abuse of dominant position and anti-competitive mergers and acquisitions, with the objective of protecting consumer welfare and advancing domestic and international trade and economic development.
Beautifully worded and the exact anti-dote to the monopolized anti-competitive practices of the Philippine power sector. It knows exactly the evils and what needs to be guarded against. The Philippine Competition Act is the closest thing we have to an anti-trust law.
The question is can the Philippine Competition Commission assert itself and its mandate as the guardian of the Filipinos against manipulated markets? Would they be willing to do for consumers what the ERC had failed to do so far?
We borrow from the website of the Sycip Salazar law firm for a plainer description.
“The Philippine Competition Act (Republic Act 10667 or the “Act”) defines, prohibits and penalizes three types of anti-competitive conduct: anti-competitive agreements, abuse of dominant position, and anti-competitive mergers and acquisitions. It also creates the Philippine Competition Commission (“PCC”), which will have the original and primary authority to conduct inquiries or investigations and to hear and decide cases involving violations of the Act. The Act seeks to (i) enhance economic efficiency and promote free and fair competition in trade, industry and all commercial activities; (ii) prevent economic concentration that will control production, distribution or trade, which will unduly stifle competition or lessen, manipulate or construct the discipline of free markets; and (iii) penalize all forms of anti-competitive conduct with the object of protecting consumer welfare and advancing domestic and international trade and economic development.
The Act covers any person or entity engaged in trade, industry and commerce in the Philippines. The Act also applies to international trade having direct, substantial, and reasonably foreseeable effects in the Philippine trade industry or commerce, including those resulting from acts done outside of the Philippines.”
For the power sector, most of the objectives for an open and truly competitive market are provided for by the Epira law and mandated upon the DOE and ERC to promote and assure. The Epira Law even specifically mandated the ERC under Section 43 to “motuproprio” investigate and penalize market power abuse but so far in 16 years the ERC had not really initiated this investigation other than the market manipulation scandal of November 2013.
ERC’s Mindset
Part of the problem is the mindset at the regulatory agency to implement the letter of the law and not also the spirit. For violations of monopoly and anti-competitive and cartelization they appear to be following the numeric standards set by Section 45 (a) of the Epira Law that says
“To promote true market competition and prevent harmful monopoly and market power abuse, theERC shall enforce the following safeguards:
(a) No company or related group can own, operate or control more than thirty percent (30%) of the installed generating capacity of a grid and/or twenty-five percent (25%) of the national installed generating capacity. “Related group” includes a person’s business interests,including its subsidiaries, affiliates, directors or officers or any of their relatives by consanguinity or affinity, legitimate or common law, within the fourth civil degree;”
In other words if a power generation group is not breaching these numbers they are not monopolizing nor engaged in market power abuse.
How can the MVP Group that is foisted to own 45 to 60% of 6,000 to 7,000mw not be in violation of the capacity concentration limits? This summer the national demand for electricity reached its peak at 10,000mw with an available capacity of 11,444mw. If we assume that there is 16,000mw of installed capacity, the national limit should be 25% or 4,000mw. Beyond capacity, the MVP group can dominate with negotiated contracts 80 to 90% of Meralco’s needs in energy (kwh) the true measure of sales and power purchases.
This is where the treason of Rule 11 of the Epira IRR comes in that effectively loosened the methodology for determining concentration of power generating capacity and market domination.
In the above mentioned Section 45(a) the Epira law provided that “no company or related group can own, operate, or control” more than 30% of a grid or 25% of the national grid. Lobbyists conspired to water this down to only “control” under Rule 11 that was supposed to implement Section 45(a). What that means is even if a related group like MeralcoPowerGen and Metro Pacific owns 50% as part owners of 10,000mw,zero capacity will be attributed to them in determining market concentration limits IF THEY DON’T “CONTROL” THE CAPACITY. Epira Law defined “control” to mean the power to direct or cause the direction of the management policies of a person by contract, agency or otherwise
Rule 11 however redefined control in computing the concentration of capacity limits.”The capacity of such facility shall be credited to the entity controlling the terms and conditions of the prices or quantities of the output of such capacity sold in the market in cases where different entities own the same Generation Facility. In cases where different Persons own, operate or Control the same Generation Facility, the capacity of such facility shall be credited to the Person controlling the capacity of the Generation Facility.”
By this definition the MVP Group can own 50% of the shares of 10,000mw of capacity and have the direction of management policies that owners customarily have, they will still not be considered in violation of market domination.Rule 11 is the one paving the way for this unabated monopolization of the power generation sector.
This is where the ERC, DOE, and JCPC maybe missing the point. The purpose of limiting market concentration and using “ownership, operation, and control” is to assure that there is enough players truly competing with each other. Any of those, “ownership, operation, or control” would be in a position to influence whether a generator will truly compete in the market or withhold capacity. It is lame to argue that an owner of say 40% will not be in a position to influence the profit making decisions of the generator even if they give the “control” to a designated partner as the marketing party for the output. Sinong niloloko natin?
Having said all these, the ACTS of Monopolization, Market Power Abuse, Anti-competitive behavior, and cartelization are what the spirit of the law is prohibiting, not only the concentration of ownership and control of power generation capacity. The profit oriented private sector cannot be expected to police themselves. it is therefore the job of the government regulators and implementing agencies to perform their mandate and protect the consumers, to provide an industry structure and competition rules that assure true competition and protection of the consumers from abuse.
Can PCC Step Up to Arrest Rampaging Monopolization and Cartelization of the Power Generation Sector?
From its inception the Philippine Competition Commission is already being challenged by the battery of very powerful lawyers of the MVP Group, which is not bashful in threatening everybody with lawsuits if they don’t get their monopolizing and profit optimization desires. We already know the disastrous impact to consumers of having a duopoly in the telecom sector. We have already seen the adverse impact when the Gokongweis sold out Digitel to Smart. And when a 3rd player in the telecom sector led by San Miguel looked like it can be a savior for the consumers, San Miguel sold out to the two existing players. The selling of the frequency was questionable and against the public interest but the national government had not taken a position.
The fight for telecom consumers is left with the new PCC which is clearly overmatched by the lawyers and lobbying power of three conglomerates – MVP Group, Ayala of Globe, and San Miguel. Only the office of the President would be big enough to stand up for the consumers.Or the Supreme Court?
In the power sector, the embattled chairman of the ERC, Atty. Jose Vicente Salazar, already tried to protect the ERC’s domain on power supply contracts and evidently an attempt to forestall the PCC from getting involved in resolving the anti-competitive, market power abuse, and cartelization in the power generation sector.
The laws are there. The Epira Law and now the Philippine Competition Act. Their prohibitions are very clear and the mandate of the implementing government offices are similar clear. We might add that the public service franchise of Meralco is very clear on its conditions which clearly they are violating.
This situation is sad for the Filipino consumers, sad for Philippine competitiveness, and sadly speakon the ability of the Filipinos to govern themselves and truly protect the public interest.
Can the Philippine Competition Commission Step up for the consumers? Let us hope at some point President Duterte might recognize the sorry flight of the abused consumers.
MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com
