The Philippine Power Sector and Consumers 20 years After the Epira Law of 2001 (Part 1 of 2)
David Celestra Tan, MSK
22 July 2021
Part 1
When the promoters of the Electric Power Industry Reform Act (EPIRA) were pushing for the passage of the law privatizing and deregulating the power industry in the years 1998 to 2001, they promised the Filipino consumers, and themselves, the moon and the stars. Low rates, true competition, no cross-ownership, no monopoly, privatization, etc. If you are at least 35 years old by now, you must be wondering whatever happened to the promises of the EPIRA Law?
Those were wonderful and seemed achievable objectives. And they got the peoples support and hopes. They promised to divide (or unbundle) the power sector into its main subsectors – generation, transmission, distribution, and retail. The generation and retail sectors will be subjected to competition. The Transmission and Distribution sectors will remain to be regulated. Nonetheless, there will be no cross ownership among these sectors. Monopolization will not be allowed. There would be market domination limits in each grid. Distributors can buy only up to 30% of their power needs from sister generators. And consumers will have a choice of their power suppliers.Towards the end they even assured a minimum P0.30 per kwh reduction in rate. All supposedly to result to lower rates.
It has been twenty (20) years since the EPIRA Law was passed in June 2001.What has it done for the sector and the people and country?
A Background of our Power Sector
When Martial Law was imposed in 1972, the power sector was monopolized. Power generation and transmission were put under the government monopoly National Power Corp. Meralco, the largest distribution utility covering Metro-Manila, the main economic and financial center of the Philippines, was taken over by the government (or other powerful personalities close to the government).
During these Martial law years, Meralco was expanded to twice its original size that was taken over from the Lopez family. Wide and lucrative service areas in adjoining provinces of Batangas, Laguna, Rizal, and Quezon were taken over by Meralco eventually covering 70% of the energy needs of the Luzon island.
The People Power movement came in 1986 and the Aquino government took over. In evident gratitude for the Lopez family’s help in the anti-martial law movement, the new People Power government turned over back to the Lopezes the Meralco mega franchise which by that time was already about twice its original size. Meralco had grown to a 4,500mw in distribution utility. The 2nd and 3rd largest distribution utilities, Visayan Electric of Cebu and Davao Light together totaled only 800mw. For perspective, all these other private utilities and the 122 electric cooperatives in the whole country combined will not even be half the current 6,000mw demand of Meralco.
The government owned National Power Corp. despite being a monopoly, had been suffering badly because of the politicized rate setting, inefficiency, and corruption. Power rates in the Visayas and Mindanao were kept low. NPC had been losing P5 billion a year in fuel. Meanwhile, the worldwide sentiment against monopolies and demand for privatization and deregulation started growing including in the Philippines.
Through the successive governments of Corazon Aquino, Fidel Ramos, and partly Joseph Estrada, NPC kept on being subsidized by the government and extended sovereign guarantees for its loans to finance transmission line expansions and the building of more power plants. By the time of Erap Estrada, NPC was losing money on the guaranteed BOT power projects and could not keep up with investments for transmission modernization and expansions. When Gloria Macapagal Arroyo took over from Erap as President in 2001, even the World Bank had informed the Philippines that it needs to deregulate the power sector or it will not get any loans. GMA and her first Energy Secretary Sid Camacho came on board to get RA9136 (or the EPIRA law) to pass in Congress. People heard about the alleged lobby monies in billions to get Congressmen and Senators to pass the law.
The EPIRA law of June 2001
What most Filipinos were not aware of was the intense lobbying and horse trading that occurred behind the scenes at the Bicameral Committee to finalize the law. The vested interest lobbyists, supported by legislative leaders, went on overdrive to insert their desired provisions. Cross ownership that was supposed to bar common ownership among the generation, transmission, and distribution sectors, was eventually watered down with only the “cross ownership” between the transmission sector and the other sectors prohibited. In the last two days in finalizing the law, distribution utilities were suddenly allowed under Section 45 to buy up to 50% of their power supply (instead of the previously discussed 30%) from affiliated generators with bidding not specifically required. We can imagine the kind of horse trading that must have occurred in those last days.
It took more than five (5) years to finally agree on an EPIRA Lawafter it starting as “Omnibus Power Bill” in 1996. After about four (4) changes in the Chairmanship of the Energy Committee of Congress, a very intricate electric power industry privatization and deregulation was finally passed in June 2021. In fairness, our very political culture and government and assertive vested interests tried to pass a law that was very ambitious in not only writing a law but laying down rules on how a technically complex power industry should work. Other Asean countries were impressed by the bold step taken by the Philippines.
Next: The Epira Law, an imperfect law imperfectly implemented.
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