Napocor key to solution of fiscal crisis, says UP professor
Thursday, September 23, 2004
By PDI Research, D.J. Yap, Michael Lim UbacInquirer News Service
SOLVING National Power Corp.'s woes will ease by a third the government's fiscal problems, according to a professor at the University of the Philippines School Economics (UPSE).
The hard part is convincing consumers that higher electric bills are part of the solution, said Felipe Medalla at a dinner with Inquirer editors on Tuesday.
Napocor, the state-run power-generating firm, is scrambling to stem huge losses projected at P114 billion this year after posting a total of P180 billion in losses over the past six years.
Its P1.3-trillion debt as of 2003 accounted for 42 percent of the national government debt.
One way to finance Napocor's losses is to allow the firm to raise its tariff on distribution utilities, such as the Manila Electric Co. (Meralco), that buy their power from Napocor, said Medalla, one of the 11 UPSE professors who warned of an economic collapse in two to three years unless the government reined in the public sector deficit and debt.
This means consumers will have to shoulder the burden through rate increases once the distribution utilities pass on the higher costs to their costumers, Medalla said.
Napocor received early this month the go-signal from the Energy Regulatory Commission (ERC) to increase its rates by an average of 98 centavos per kilowatt-hour (kWh), just half of the P1.87 per kWh that Napocor petitioned for in June.
Felipe said he was surprised that the public had not raised much ruckus over the power rate increases.
"Just wait until they see the electric bills in the next few months," he said.
The new rate takes effect on Sept. 26 and the distribution utilities, particularly Meralco, will likely pass on the new rates to their customers by Nov. 1. But consumers will likely feel the effect of the rate increases only in January after Meralco and other power distribution firms have gone through the process of requesting rate adjustments, according to the ERC.
The government should explain the necessity of the higher power rates to the public, said Medalla, a former economic planning secretary.
"This is where leadership comes in. You can't convince people to pay higher electricity bills or pay more taxes if they see your yayas (nannies) with you on a trip to China," he said, referring to the big contingent that accompanied President Gloria Macapagal-Arroyo on a recent trip.
Need for symbols
"We need symbols. In the long run, these symbols may not make much of a difference but the public has to see that government is also doing its part to alleviate our fiscal troubles," Medalla said.
He cited the pork barrel as an example. "Abolishing the pork barrel will not make a huge impact on our debts, but its impact on the public will be significant."
Medalla said he had sensed the sorry fiscal state of the country as early as February, but no one had anticipated that the Napocor problem would reach gargantuan proportions.
"Last year, I expected Napocor to be a P20 billion to P30 billion-a-year problem. I never expected it would become a P100 billion-a-year problem," he said.
He explained that Napocor's woes began when Ms Arroyo imposed a cap on Napocor's power purchase adjustment rates in 2002, which greatly reduced Napocor's revenues.
Shape up
Medalla said he was willing to bet P200 of the audience's P100 that there would be no economic crisis in two to three years.
"After all is said and done, government and Congress will see that the only way to avert the crisis is to shape up."
But Medalla then made a quick turnaround, saying "of course, many things can still go wrong."
Even if the national government assumes P500 billion of Napocor's debt, the state-run utility firm is still bent on seeking a rate increase next year.
In a document submitted to the Senate ways and means committee, Napocor enumerated its rate adjustments needed to wipe out its net loss.
Napocor said the provisional authority to raise its generation rates by an average of 98 centavos per kWh issued by the ERC on Sept. 3 would result in an increase of P1.2318 per kWh for Luzon, P0.2202 per kWh for the Visayas and P0.2665 per kWh for Mindanao.
Napocor said the rate adjustment would allow it to improve its financial condition, speed up privatization efforts and "attract new capacity" from the private sector.
But committee chair Senator Ralph Recto said the public was told that after the 98-centavo per kWh increase in Napocor rates early this month, only a 98-centavo increase loomed on the horizon.
"Wrong. The subsequent increase would be much higher," Recto said in a statement.
Three scenarios
He then painted three scenarios envisioned by Napocor to ensure that its operations and financial condition would be viable despite its debts.
He clarified that the schedule of proposed tariff adjustments contained no provision for principal amortization, only interest expense, and no capital build-up for needed expansion of capacity to avert a power crisis in 2007.
First, should the national government absorb P500 billion of the Napocor debt (P598.58 billion), the corporation would still seek a P.7325 per kWh rate increase as early as January next year, according to Recto.
If approved, this would bring the effective rate to P4.2001 per kWh or a 68.77-percent increase from the pre-September rate of P2.4886 per kWh.
Recto said that despite the 2004 and 2005 increases, Napocor would still seek an additional increase of P.3673 per kWh in 2006, bringing to P4.5674 the per kWh cost that year under this scenario.
Second, if the national government does not absorb Napocor's debt, the firm would apply for P1.3075 per kWh increase as early as January next year.
If approved, this would bring the effective rate to P4.7761 per kWh or a 91.92-percent increase from the pre-September rate of P2.4886 per kWh.
Despite the 2004 and 2005 increases, Napocor will still seek an additional increase of P.3173 per kWh in 2006, bringing to P5.0934 the per kWh cost that year under this scenario.
Third, Recto said that should the national government absorb only P200 billion of Napocor debt, the firm would still seek a P1.0775 per kWh rate increase as early as January next year.
If approved, this would bring the effective rate to P4.5461 per kWh or an 82.68-percent increase from the pre-September rate of P2.4886 per kWh.
Despite the 2004 and 2005 increases, Napocor will seek an additional increase of P.3373 per kWh in 2006, bringing to P4.8834 the per kWh cost that year under this scenario.
posted by philpower @ 11:51 AM,
