We are barking up the wrong tree. NGCP is not the problem - our regulatory framework, the Philippine government, is the problem. To understand this problem, we need a little history.
For full disclosure, I served as an advisor to the consortium of what is now NGCP, which won the Transco concession bid in 2008.
No need for foreign partner
As I am no longer privy to the ownership structure of NGCP, I am not in a position to comment on whether it violates the 60-40 limitation on foreigners. Likewise, I am not competent to opine on the geopolitical risks posed by the presence of the Chinese in NGCP.
I have a firm opinion, however, on whether we need a foreign partner to privatize our power assets —my answer is “no.”
The original privatization plan during (President Fidel V. Ramos) FVR's time was to incorporate four or five gencos (generation companies) with a portfolio of assets and a transmission company. The plan then was to list these shares on the Philippine Stock Exchange.
We had already licked the power crisis then, and the professional men and women of National Power Corp.(NPC) were the only experienced engineers who knew how to run the power system.
Unrealized plan
We did not need any foreign operator. At that time, NPC was already ahead of the other ASEAN utilities in terms of technical competence. We already had an advanced power control system with "kill switches" in place. Our National Control Center project established a redundant systems operations room for " fail-safe" operations.
The plan was to give all these companies long-term power contracts that would ensure their viability and protect consumers. The values of these contracts were enough to pay down all NPC's debts.
But then EPIRA (Electric Power Industry Reform Act of 2001) came. Effectively, the law pushed for the immediate privatization of the power assets without the power contracts. Instead, the law directed the government to absorb NPC’s debts through the newly formed Power Sector Assets and Liabilities Management Corp. (PSALM).
Piecemeal sale of NPC assets
The worst was yet to come. Instead of selling the power assets as a portfolio, the government sold the NPC assets plant by plant. A portfolio sale would have meant immediate competition, but a plant-by-plant sale meant that competition would not necessarily happen immediately. For those in the know, a baseload plant cannot compete with a peaking plant, and vice versa.
Then, the WESM implemented "gross pool" bidding and "nodal pricing." These two decisions not only increased the complexity of the power system but also effectively increased power prices. I asked a key PSALM executive why the WESM adopted "gross pool.” The answer was, "Bubukol ang gastos sa PEMC (Philippine Electricity Market Corp.) kung net pool" (costs at PEMC will swell under a net pool system).
This history is essential to understand the issues surrounding NGCP. NGCP, indeed, is a problem. But to understand the problem, we need to know why we got to this point.
More of this history in my next column.
A power industry expert with over 40 years in experience as chief executive officer in firms ranging from banking, power, and advisory services.
