Why a Third Party Is Essential To Protect Consumers in Holding the CSP

Erratum: We deeply apologize for the wrong post of the name of ERC Chairman yesterday. Lazaro should be Jose Vicente Salazar. Our fault and we are very sorry.

12 December 2015

David Celestra Tan, MSK

The captive electric consumers need to be protected from sham biddings if they will truly benefit from the new rule for mandatory Competitive Selection Process for long term power supply contracts. An independent Third Party is needed to assure appropriate capacity biddings, transparency in the process, level playing field, and judicious evaluation and awards.

Recent press reports that ERC Chairman Jose Vicente Salazar is agreeing to the non-use of a Third Party in the conduct of the mandatory CSP should be of serious concern to the Meralco consumers because that means the regulatory agency could be relaxing on the need to assure the conduct of truly competitive biddings for power supply.
How can there be a truly competitive bidding if Meralco itself is the one defining the rules of the bidding where their own sister companies can participate?

1. First, only an independent Third Party can assure the integrity of the bidding process, an essential element of a successful CSP.

2. Second, truly independent bidders will not participate because it costs a lot of effort and money to prepare a serious bid and they will do so only if there is an assurance that they have a fair chance to win and be awarded. Even the swiss challenge method of bidding should not be allowed because no one bothers to prepare a bid only for its rate to be beaten by the “original proponent”.

3. Third, There will be few bidders and the consumers will not get the best rate that can come only from a truly competitive and robust bidding process. Who would dare bid against a sister company of the customer?

4. Fourth, assuming they participate, without an independent Third Party bid participants can be influenced in all subtle ways by Meralco to cooperate and share the business among the participants thus sacrificing the consumers interest.

5. Fifth, the terms of the bidding including the technical specs and power supply requirements can be so designed by Meralco itself to either favor its sister company projects or to engineer a failed bidding that will eventually end up in a negotiated bid. (Oh, how we have seen that so often in the Philippines!).

6. Sixth, the benefits of a Third Party oversight in the regulatory process at ERC are established. In Meralco’s application for PBR rate setting, the audit by foreign third party consultants resulted in the discovery of more thanP10 billion in Meralco’s attempted claims that could have been passed on to the consumers. The cost benefit of engaging a third Party favors the consumers. Even if it costs P0.01 to 0.02 per kwh for the consultants, the reduction of power generation rate from such robust competition will range from 0.40 to 1.20 per kwh. This is a cost consumers would be willing to pay.

7. Seventh, allowing Meralco to conduct their own bidding would be a lose-lose proposition for both Meralco and the consumers. The result will always be suspect and it is one way to assure lawsuits that Meralco itself said they are fearing. Meralco though can conduct their own bidding if they want, but their sister companies cannot participate and there is a prohibition against Meralco or its sister companies or affiliates buying eventually into the winning bidder.

8. Eight, it is only through a Third Party that the DOE and ERC can assure compliance with the energy mix and other policy guidelines for future power generation projects.

9. Ninth, it is the duty of the ERC and the DOE to follow-through with effective CSP implementation. It is not enough that they have passed the mandatory CSP rules. It would be a dereliction of their mandates to protect consumers if they relax the rules and allow non-transparent and suspect biddings. Being lax now in the implementation will be a defeat of the Filipino spirit.

Let us have pride in ourselves and resolutely implement something that is really good for the Filipino consumers. Let us show the world that we can be focused on a good thing and not be distracted in the implementation and again lose our way, as we as a nation have gained an unfortunate reputation to have. Let us not compromise.

Signal to the power generation community that the CSP will be truly independent and will be the policy for the long term. We count at least six current players who can participate and at least an equivalent number of foreign investors not yet in the Philippines.

Let us insist on an independent Third Party administrator of each CSP. And Let us not allow Meralco’s delaying tactics so they cannot justify negotiations “due to urgency of need”.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Note: The writer is a 35 year veteran of international biddings in the Middle East, Latin American, Asia, and the Philippines under World Bank, US AID, Japan Exim, German KFW, OECD, and etc rules for competitive bidding. We have participated in many Philippine style rigged biddings and have seen most of the circumvention tricks.