Will this mean that the trilateral partnership supposedly for enhanced energy security would ultimately give us consumers a harder time paying our electric bills?
At the outset, it’s fair to ask: Will a competitive selection process be required in the grant of a power supply agreement really lead to lower electricity rates for consumers?
To answer this question, we need to look at how power rates are determined by Manila Electric Co.
The power distribution utility recently announced that an additional 1,800 megawatts of electricity is needed for baseload and anticipated demand in its coverage area.
It said it had chosen the Ilijan power plant to fill such need in a supposedly competitive selection process. The Ilijan plant, which runs on imported liquefied natural gas, is owned by a unit of San Miguel Corp.
Prior to Ilijan’s PSA with Meralco for 1,200 megawatts, Meralco and San Miguel honchos had announced a major partnership that they said would be a breakthrough in energy security.
What took place was a three-way partnership involving some of the biggest names in the highly profitable industry of providing electricity to businesses and residences alike.
The three honchos—Manuel V. Pangilinan, Ramon Ang and Sabin M. Aboitiz—partnered for what was touted as a landmark deal to expand the country’s liquefied natural gas capacity. The overall goal, they said, was to improve the country’s energy security.
How would they do it? According to reports, by building more LNG power plants, LNG being the transition fuel from coal. But they refrained from mentioning costs after the deal was sealed.
The companies led by the three tycoons are engaged in importing LNG, which is substantially more expensive than indigenous natural gas derived from the Philippines’ crown jewel, the Malampaya field off Palawan.
Malampaya gas is $12.38 per mmBTU (1 mmBTU is equivalent to 93.07 kilowatt-hours) while imported LNG is $14.55 per mmBTU, or 20 percent more expensive. Imported LNG reached $15.78 per mmBTU at a certain point last year.
But the cost of the product itself is not the main driver of the rates that Meralco passes along to consumers. It is transport, or freight cost, which plays a bigger role in whether the monthly electric bills that consumers get monthly rise or fall.
The three-way alliance appears to have been forged with one goal in mind: the hundreds of millions, if not billions, of pesos in PSAs which Meralco effectively controls because of its discretionary powers.
The ceiling for the PSA bids was supposed to be at P7 pesos per kwh but records will show that Ilijan generates power at a cost of P8.40 simply because it uses the more expensive imported LNG as against other plants that use indigenous natural gas from the Malampaya field that costs less.
The announcement of the winning bid was soon followed by the award of a PSA to Ilijan despite this option being the more expensive one.
Then there was the perfect positioning of three Meralco allies—two more San Miguel units and GN power—for the rest of the supply.
Why doesn’t it come as a surprise that these three Meralco allies snagged the deal?
MGen is a power generation arm of Meralco that uses mainly coal. MGen owns power plants, mainly coal-fed, and contracts electricity from companies that also generate power. In this case, San Miguel.
This effectively goes around the prohibition on power distribution utilities from engaging in power generation themselves to prevent conflict of interest. It appears that someone may have found a loophole in the Epira law to allow what Meralco is now enjoying.
The recent announcement by Meralco of a P0.57-centavo per kwh power rate increase is due to, in its own words, increased generation costs.
How did this scene unfold? If you contract electricity supply from generating plants that use more expensive fuel, you cannot expect lower rates.
A check in on the records would show Meralco has favored power generation companies using imported LNG with contracts to supply electricity. New PSAs involve the use of more expensive fuel.
Hmmm. Will this mean that the trilateral partnership supposedly for enhanced energy security would ultimately give us consumers a harder time paying our electric bills?
(Email: [email protected])