Date: May 2003

More Problems Loom in the Power Sector

The recent agreement between the National Power Corporation (Napocor) and the Lopez-controlled electrical utility Meralco, appears to be a case of what is gained on the swings will be lost on the roundabouts.

Under the Agreement negotiated in April, Meralco would pay Napocor some P20.05 billion for unpaid energy delivered between 2002 and 2004 including a P1.51 KwH adjustment for energy off take shortfall to 2004.

In turn, Napocor would pay Meralco P7.47 billion in compensation for transmission delays and other costs.

The result in the short-term will be direct savings for the consumers in terms of lower power bills because of lower purchased power adjustment (PPA) costs but the deal will also result in increased requirements of government to fund Napocor's losses.

Under the new agreement, Meralco's IPPs would be able to run at higher and more efficient utilization rates allowing a drop in the price per KWh of electricity delivered by Meralco to consumers. In fact the deal only allows the latter's IPPs to run at minimum levels of capacity generation sufficient for viable operation. However as a result, Napocor's own plants will have to cut back their electrical generation resulting in increased losses for the state-owned firm.

The immediate effect of the deal is that rates to consumers would be cut by 12 centavos per kilowatt-hour. A further 12-centavo rate cut could follow with amendment to the gas pricing provisions from the Malapangaya consortium.

Yet Napocor is expected to sustain losses of round P4.92 billion should the Meralco IPPs run at higher capacities. At some stage this loss will need to be bought to account and paid.

Meralco sales jumped 9.3% in the first quarter as compared to a year ago while at the same time system losses declined. It should be heading towards improved profitability were it not for the fact that it has to refund consumers for overcharging in recent years.

The Department of Energy (DOE) is urging the Energy Regulatory Commission to approve by May 15 the method by which Meralco should refund about P30 billion it has overcharged consumers since 1994. The decision was handed down on April 30. Financial constraints (the firm's accountants provided no contingent liabilities for the possible repayment) have reportedly caused Meralco to cut back on fresh investments this year allocating only P4.5 billion to capital expenditures as compared to P6.5 billion spent last year.

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