BIZCOLUMN: WAITING FOR WHOLESALE ELECTRICITY SPOT MARKET (WESM)

MANILA,  February 27, 2004 (STAR) BIZLINKS By Rey Gamboa - The birth of a wholesale electricity spot market (WESM) will perhaps be the best indicator that we have indeed gone a long way since the day government thought of de-monopolizing the three major sub-sectors of the power industry, namely generation, transmission and distribution.

WESM would be the market for trading electricity in the form of bilateral transactions, either short-term or spot market trading. The envisioned electricity trading floor will function like any commodity market where the price of the issue – electricity in this case – will be determined by matching the buyers‚ bid and the sellers’ offer.

WESM should effectively make prices of electricity more transparent and competitive, if not ideally lower. The energy department is optimistic that power rates could go down by around P0.40 per kilowatthour should WESM become operational.

Under the WESM, gone would be the days when the price of electricity is held hostage by populist pressures and political biases as "market price" will be determined by the demand and availability of supply. Seemingly Quixotic Dream However, reforming the country’s power sector to provide transparent, efficient and reasonably priced electricity to consumers is becoming more of a dream than a reality in the near future.

While it is true that recently, the government inaugurated a WESM office in Ortigas, this could just be bravado, something like a management morale boosting event. Why? Because, after all, things are really not going too well in the power sector.

Aside from the reality of the Philippines having one of the highest electricity rates in the region, there is an imminent power crisis in key Visayas provinces where demand is fast outpacing supply. These are serious problems by themselves, yet they are also key milestones that have to be overcome before a WESM dream can become a reality. Harsh Reality Check The present administration has identified the establishment of the WESM as a priority project that will reduce electricity rates in the country. Unfortunately for the Philippines, there have been too many priorities that are now hopelessly caught in the bureaucratic web or have been set aside for political expediency.

A reality check will show that delivering transparent, reliable and competitively-priced electricity through an electricity spot market will only happen under several pre-conditions, most of which unfortunately we still don’t have at this time.

First, power supply or capacity should be secured and sufficient relative to demand. No power shortage threats. No transmission-related brownouts. Unlike other commodity, electricity cannot be restored and as such must be produced at almost the same time it is required. Ideally, reserves must be sufficient to meet unexpected surge in demand. Wary Investors Not Biting Second, there must be a sufficient number of independent power generators that would compete against each other to supply customers. This is exactly one of the rationales behind dividing Napocor’s generation assets into various clusters.

Unfortunately, there are no takers for the major assets on sale. All we have heard from the energy department so far are promises still to be fulfilled. The original timetable for the sale has been pushed back by DOE again and again in the absence of viable investors. Well, at least, let’s give Vince credit for not stopping to try.

Foreign investors are now not too keen on investing in the country, seeing how almost all independent power producers (IPPs) who built plants during the height of the power crisis of the 1990s became the squirming subject of public and legislative scrutiny. From heroes during the Ramos era, the IPPs became villains and good targets to earn political points. No Takers Too For Transco Of course another major problem to establishing an electricity spot market is a transmission system that needs to be largely improved. Constraints in the transmission grid would obviously be a major turn off.

Capital investments are needed to refurbish and expand the transmission system. Since the government cannot afford it, the National Transmission Corp. has to be privatized.

We all know how government has failed so far to privatize the National Transmission Corp., thanks largely to the long and drawn out franchise debate in the august halls of Congress. Apparently, this is another issue being subjected to "legislative compromise arrangements." Vested Interests Are Stumbling Blocks Government after government has endeavored to resolve the perennial power reform problem but so far limited success has been achieved. It must be recalled that the omnibus power bill not only dragged on for ages, but also morphed to so many forms before being enacted by Congress, some say a product of compromises, give-and-take and grand scale horse-trading.

The slow progress in power reform may be because leaders lack the political will to implement change amidst conflicting interests of various stakeholders or simply because powerful market players themselves have refused to accept reforms that will diminish vested interest.

Whatever reasons, electricity rates continue to be expensive in the Philippines. This is a serious threat to our bid for global competitiveness and a damper on efforts to attract more business operations here.

Given the line-up of candidates in the May elections, it looks like we should expect more stumbling blocks to be strewn along the way of power reforms.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reygamboa@linkedge.biz. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.


Reported by: Sol Jose Vanzi

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