Payola, Efficiency and Electricity Industry Reform

The legislation to privatize the National Power Corporation (Napocor)along with the more sensational pay-by other earth-shaking news: full-blown war in Mindanao, the kidnapping of Filipinos and foreigners, the spate of urban bombings, etc. All these events have undermined confidence in the Philippine economy. The Napocor controversy remains a critical issue; a derailing of the electricity industry reform will be interpreted as another blow to business confidence. In this light, the Senate deliberation is very crucial.

The so-called payola has unfortunately obscured the substantive issues on the Napocor privatization. This is not to trivialize the allegation by progressive members of the House of Representatives that payoffs were made to facilitate the passage of the Electricity Industry Reform Act of 2000 (HB 8457). The house must indeed initiate an independent, thorough investigation into the alleged payoff. The integrity of the House is at stake.

An independent probe is an opportunity for the public to critically scrutinize the use of lobby money to influence legislation. The giving of payola or bonuses is in fact a normal occurrence. The alleged PhP500,000 payoff for each legislator, however, shocks, and the expose should compel Congress to put an end to this practice.

Beyond the payola probe, what next?

That said, the passage or rejection of the Electricity Reform Act should not hinge on the payola issue. For one thing, there is no smoking gun to show that the payola or the bonus was directly linked to the passage of the Act. The conspiracy theory is appealing but difficult to prove.

Support or opposition to the Act should address the following questions: Will the restructuring of the electricity industry as embodied in the bill benefit consumers? Will it result, on balance, in a more efficient electricity industry?

Stripped to its barest essentials, HB 8457 has two principal restructuring features:

  • The bill liberalizes entry and deregulates the energy generation
    subsector. (Some legal experts challenge the constitutionality of this
    aspect of the restructuring, arguing that power generation remains a
    public utility.) At present the Napocor dominates this subsector. The
    private sector, through the build-operate-transfer (BOT) scheme
    introduced during the Ramos administration, has a share of one third of
    power generation.
  • The bill creates “competitive market,” that is, end users have a
    choice of suppliers of electricity. A suppliers may be a middleman who
    sells, brokers, markets or aggregates electricity from generators for
    sale to end users; or the supplier may be the generating company
    itself. The delivery of the supply contract between the
    generator/supplier and the end user is done through giving thee
    generator/supplier open access to transmission and distribution lines
    for a fee that will be fixed by the Energy Regulatory Commission (the
    regulatory body to replace the Energy Regulatory Board).

The bill’s main selling points are the restructuring features of creating a competitive market and enhancing competition through liberalization and deregulation. There is a wide private-sector interest in power generation at various scales, as shown by its enthusiastic response to the BOT scheme. The private sector has also been keen on privatizing NPC’s power generation assets.

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