Cayetano: Study power subsidies of other countries

MANILA, Philippines – Senate Majority Leader Alan Peter Cayetano said the Philippines must study the examples of other countries to help bring down one of the highest power rates in the region.

Cayetano called on the administration to consider targeted subsidies for electricity, based on global practices. 

Citing an April 2013 study of the US Agency for International Development (USAID), the senator said the Philippines’ electricity rates can be as low as those of its Asian neighbors if it follows their practice of giving subsidies and lowering taxes. (WATCH: Rappler Animate: Why electricity rates in Philippines are high)

Cayetano said Indonesia and South Africa have “prepaid electric cards” that reduce consumers’ power expenses while Singapore has direct vouchers.  

“For example, you will build a factory with 1,000 employees. Indonesia or South Africa will tell you, ‘Transfer to our country instead of the Philippines because their power rates are at P9. Here, we will give you a subsidy so it’s P5,” he said in a press briefing on Friday, January 24.

“It’s the same thing in Singapore. They will say, ‘Yes, our power is expensive but at the end of the year, you can use the voucher to pay taxes or you can get cash. This is another example of solutions other countries are doing.”

The senator gave his suggestion while the Supreme Court, the energy department, and Congress are all looking into the controversial P4.15/kWh rate hike of power distributor Manila Electric Company (Meralco). The issue highlighted problems in the power industry, and the need to address the Philippines’ unstable and expensive electricity supply.

Cayetano though did not give details on a possible subsidy scheme that can work for the Philippines. Instead, he called on Malacañang to organize a “high level public and private executive and legislative group” that will study solutions to address the power problem.

He said the group will be composed of consumers, industry players, executive officials, and lawmakers. 

The senator said the group will be tasked to study amendments to tax laws and the 13-year-old Electric Power Industry Reform Act (EPIRA) that restructured and privatized the power industry. (READ: Drilon: Review EPIRA after ‘apparent failure’)

Cayetano cited a study of former National Economic and Development Authority Dante Canlas showing the economic benefits of reducing the value added tax (VAT) and natural gas royalties.

“I hope they look at this proposal. I think the President is sincere. He wants to collect the right taxes, but right now, the framework he is given is to just leave the market, and collect. I hope through public pressure, people’s cry with the high prices, activism of the media, and the studies of foreign chambers [of commerce], USAID, NEDA, these are people whose expertise you cannot ignore.”

Asked if he submitted a formal proposal to Malacañang, Cayetano said he thought the best way to raise his suggestion was through the media.

“The most effective way to get Malacanang to listen is not formal letters but through the reaction of media. They will likely take notice…. Fortunately or unfortunately, the media is now the basis of people’s sentiments,” he said.

“We are asking investors around the world to come to the Philippines. But the foreign chambers are saying it’s not the taxes per se that’s the incentive problem here. The incentive problem is the high power prices,” he added. 

The senator conceded that the Palace will be cool to lowering taxes so as not to lessen government revenues. Yet he said the government cannot be too “in love” with taxes.

“The government must have two approaches: from the point of view of the power sector, and the other is from the macroeconomic point of view.”

‘Whole system is problem’

Cayetano and Senator JV Ejercito said the Senate hearing on the power rate hike on Thursday indicated the problems in the power sector.

“It’s clear the present system encourages collusion, windfall profits, and high prices. We can’t continue with the present system,” Cayetano said.

Cayetano mentioned the failure of energy officials to use the state-owned Malaya plant to reduce prices in the Wholesale Electricity Spot Market (WESM), the trading floor where power is bought and sold.

Meralco said it was forced to buy more expensive power from WESM because power plants went on unscheduled shutdown coinciding with the planned shutdown of the Malampaya natural gas field from November 11 to December 10.

Senators pointed out that the government failed to tap Malaya to protect consumers, contrary to its purpose as an asset that can be used in times of emergency.

Cayetano did not specify the necessary amendments to EPIRA, saying the issue is too technical and will have to be studied more comprehensively by his proposed high level group. 

In a statement Friday, Ejercito agreed that Congress must review EPIRA.

“An efficient mechanism should be in place to prevent such incidents. These findings are imperative in determining what amendments should we introduce in EPIRA law or what modifications should be made in the WESM rules.” – Rappler.com