Council rejects privatization of Agus-Pulangui hydropower complexes
Mike Banos
March 15, 2010
The resolution was passed unanimously without objection by RDC-10 during its 85th Full Council Meeting held Friday, March 12, 2010 in Cagayan de Oro City.
Engr. Modesto Babaylan, RDC-X Infrastructure and Utilities Development Committee (InfraCom) member, presented the resolution in the absence of InfraCom Chair and Lanao del Norte Gov. Khalid Dimaporo.
The resolution originated from the Cagayan de Oro Chamber of Commerce and Industry Foundation, Inc. (Oro Chamber) and was earlier endorsed for approval to the full council by the committee during its February 24, 2010 meeting.
Oro Chamber Resolution # 2009-010 called for the non-privatization of the APHC claiming it would eventually result in higher effective rates of electricity in Mindanao, raising the cost of doing business in the island and rendering it uncompetitive with Luzon and the Visayas.
A growing number of national and regional organizations have already indicated their support for the non-privatization of the APHC including the Trade Union Congress of the Philippines (TUCP), the largest federation of labor unions in the country, and the Napocor Employees Consolidation Union (NECU), the labor union of employees of the National Power Corporation (Napocor).
The six power plants of the Agus complex in Lanao del Norte and Iligan City together with the three units of the Pulangui IV complex in Maramag, Bukidnon comprise 55% of the total installed capacity of the entire Mindanao Grid.
During a recent presentation of Mindanao stakeholders opposed to the APHC privatization, NECU officials said the planned sale to a single investor will violate Section 4(a), Rule 11 of RA 9136 which sets ownership limit of percent at Mindanao Grid to address potential dominance, market abuse and anti-competitive behavior.
NECU maintains that the purpose of EPIRA (RA 9136) is to ensure the affordability and reasonable prices of electricity in a regime of free and fair competition which does not apply to Mindanao it would result in the unreasonable increase of power rates in Mindanao.
"The current generation (Mindanao) rate (P2.8177/kwh) and distribution rate (P5.50/kwh) will definitely increase because of the significant imbalance between the production cost of Hydro Plants (P0.50/kwh) and Diesel plants (P5.00/kwh)," NECU officials said.
This is because the revenues of Hydro Power Plants (of almost P1-B per month) are used to subsidize the fuel expenses (of about P1-B per month) of diesel plants. This is the main reason why the power rate in Mindanao (P2.8177/kwh) is much lower compared to Luzon (P4.54/kwh) and Visayas (P4.03/kwh), they added.
NECU warns that if the APHC is privatized, the only viable option is to increase the present Mindanao Rate (P2.8177/kwh) to the level of the production cost of diesel (from P5.00/kwh to over P10.00/Kwh) plus rate of return base (RORB) which would certainly triple the price of electricity to the distribution utility/consumer.
During his presentation, Babaylan said the principle of competition to lower electricity rates does not apply to Mindanao because the generation capacity of the existing power plants is enough to meet the islandīs power demands.
"Competition can only exist when the volume of supply of electricity is bigger than the volume of demand," Babaylan said. "However, when the volume of supply is equal to or less than the volume of demand, then there is a greater possibility of price dictation. Thus, in the sale of Agus and Pulangi, there is a greater possibility of price dictation than competition."
Worse, the privatization of Agus and Pulangi would remove the comparative advantage of Mindanao.
"One of the major advantages in doing business in Mindanao is the low cost of electricity due to the low production cost of the APHC," Babaylan said. "Privatizing the APHC would adversely affect investments, production and development in Mindanao. Energy-intensive industries will be discouraged to come in and existing industries will be forced to move out under the high power rate regime."