Postmortem on our energy pricing problems
While our National Government leaders play at disgusting adolescent political posturing more than four years before the next presidential election, the country continues to suffer from high inflation that has caused our poverty situation to worsen with each passing year.
In the early 1960s, before Ferdinand Marcos, Sr. became president, we ranked 2nd only to Singapore among Southeast Asian nations based on per capita GNP. Today, we rank 7th among nine countries, surpassing only Myanmar and Cambodia or Laos. What are the causes of our decline in productivity? Inflation, which cannot catch up with our population growth, low input of foreign investments, and of course, waste of the peoples’ money due to graft, corruption, and political wastefulness.
Perhaps we need to remind them that the people are suffering from food poverty day after day, largely due to high prices of basic needs. Climate change has also made us one of its worst victims.
We know, and they should know, what the basic cause of our high inflation is. It is the price of energy caused by our lack of access to oil and other low-priced electricity inputs.
Postmortems are undertaken to learn the causes of problems and how they can be solved and avoided over the long term.
Let us try to look at the problem as forensic pathologists.
First, President Marcos Sr. purchased the Bataan nuclear plant on a loan from the US government’s Import-Export Bank. There has been a lot of debate on whether the sale of the nuclear plant by Westinghouse through the Romualdez’ cousin Herminio Disini was overpriced. US-based courts found no evidence that the rumor was true that the price (a total of $1.9 billion) was double what it should have been. But the Disini group received $50 million in commissions from Westinghouse.
When the nuclear plant in Morong, Bataan was ready to receive uranium-based fuel in mid-1986, the Chernobyl nuclear plant in Soviet Russia blew up. This happened soon after Cory Aquino became president. Joker Arroyo, who was practically running the fledgling government at the time, ordered the shutting down of the Bataan nuclear plant and went even further. He abolished the Department of Energy which he said was plagued by corruption. Meanwhile, demand for electricity was rising dramatically due to an increase in investments, both local and foreign.
Since the Department of Energy was abolished, current and future demand for electric power was not being monitored. Since no alternative source of energy was provided for in lieu of what was to have been provided by the nuclear plant, brown-outs began to plague Luzon, especially the areas serviced by Meralco. The crisis was so severe that President Cory became very unpopular in Metro Manila.
When the military man Fidel V. Ramos became president in 1992, among his first directives was to restore power at any cost, ASAP. The plants able to produce power the fastest were diesel-fired. But they also produced the most expensive electricity among the various options. Moreover, investors in these power plants demanded incentives from the government to ensure adequate profitability given the risks they were taking, with the economy seeming to be in decline due to high prices of imported oil, since the country does not produce its own oil. The government had no choice. It signed commitments to make up for deficiencies in minimum profits to the investor power suppliers.
The government was able to complete the payment for the nuclear plant no earlier than the year 2007 or 30 years from purchase. I read somewhere that the Harvard and Columbia University economist Jeffrey Sachs wanted to help the Philippines negotiate reductions in its nuclear plant debt burden. Sachs thought that the Philippines had so much goodwill that it could obtain better terms from the US government. For some reason we cannot appreciate at this time, our government preferred to be “an honorable debtor.” Meanwhile, the government continues to maintain the non-operating nuclear plant at a cost of almost $800 million a year!
Surveys of potential foreign investors find that the main reason why they do not invest in our country is the high cost of energy. This is why even those who were located here, such as Intel, have moved to Vietnam and other Southeast Asian nations close to the big market, China. There is very little manufacturing, which provides jobs, in our country today.
Meanwhile, the average cost of living for the Filipino family is probably the highest in our part of the world, mainly because of the price of food and other essential commodities. This adds to our unattractiveness to foreign investors: the high cost of labor.
So, clearly, rather than engage in adolescent power games and back and forth drama, our politicians must put together, as a matter of urgency and importance, a multilateral (private and public sector) team of thinkers to strategize creative and effective solutions to our energy pricing problem. It may call for radical ideas and compromises in policy, but we cannot continue pretending there is no problem. We could end up in dire circumstances in 10 years or less.
In a recent TV interview, Secretary Frederick Go, the government’s economic czar, revealed his focus on bringing in manufacturing investments, with a “Make more” law that provides incentives, including tax breaks. He said that steps to make it easier to go into business by reducing bureaucratic bottlenecks was one of the priorities. The interview lasted almost an hour; yet I did not hear any mention of the high price of energy as a key concern.
Our electricity is fueled by mainly coal (58%), natural gas (18.7%), geothermal (10%) and hydro (9%). All others (solar, biofuels, waste, etc.) contribute less than 5%.
The government has been doing a lot of studies on nuclear power, which for many reasons is unpopular with the general public. Mr. Go may want to bring together a multilateral group of experts who can investigate other fuel and policy options. For example, we produce so much waste. Can we do some radical moves that can increase the contribution of our garbage to energy? There could be energy producing technologies that have been discovered that we can adopt.
The Malampaya gas field, which contributes almost 20% of our energy fuels, is being depleted. The government expects our demand for energy to triple by 2040. It is crucial, important and urgent to act on the problem today!
Teresa S. Abesamis is a former professor at the Asian Institute of Management and fellow of the Development Academy of the Philippines.
