Neoliberalism in the Philippine Energy Sector: Outlining the Cause of Electricity Rates Hike

Reference on Rappler's: 

"13 things Meralco consumers should know about the hike"

Source: The Manila Times

These are useful notes — "13 things Meralco consumers should know about the hike" — written by friends regarding the ongoing electricity rates hike in Metro Manila.

I outline here some points for reflection and action on these notes and the broader issue of reforms in the Philippine energy sector.

Wouldn't it be more strategic for raising public consciousness and more appropriate for analysis and offering solutions to the country's complicated energy problem if we brought back our fundamental critique on neoliberalism — specifically, the market-driven structure of the energy sector?

There's a marked difference between:

• a critique of "market abuse" based on the violations of the injunctions of the Electric Power Industry Reform Act (EPIRA); and 
• a critique of "market abuse" as central to the structural logic of a neoliberalist (market-oriented) EPIRA law.

By doing the former, we analyze the problem essentially in neoliberal 'economics' terms (i.e., law of supply and demand) as if perfect markets — free from any political distortions — should make the energy sector efficient and cost-effective.

But if we anchored the critique on the neoliberalist framework of the country's energy sector as institutionalized by EPIRA, we would be able to critique the political economy of the current energy sector, particularly the political/politicized nature of markets and the realpolitik (vested interests) behind the energy market. At the same time, we could propose solutions for alternative sources, production, generation, and distribution of energy outside the bounds of the EPIRA law, which in itself has been designed for:

• market abuse (collusion, anti-competitive behaviour, predation, greed of the power producers/suppliers and their distributor Meralco, etc.); and
• state regulatory capture (delimiting policy space of the government especially in pricing, an inutile Energy Regulatory Commission [ERC] / Department of Energy [DOE] which at the very basic function cannot even regulate schedule of plant outages and maintenance, the danger of misuse of Malampaya funds on the President's plan to subsidise market greed instead of funding R&D for innovative ecological energy solutions, the logic of neoliberal regulation for market profits rather than state regulation for the common good, etc.).

We are precisely experiencing the neoliberalization process itself being implemented in the context of the Philippine socio-economic structure. Recall that Ramos's first experiment of neoliberalism in the early 1990s was in the privatisation, liberalisation, and deregulation of the energy sector.

The problem really is neoliberalism—and the strategic usurpation by it in the interest of the economic elites—as the overarching framework of the institutionalised EPIRA law where market failures and state failures are systematically absorbed by the people — specifically, by the market's consumers and the state's citizens. A key neoliberal strategy: privatising profits and ownership of public utilities, while socialising the risks and costs of doing business. Neoliberalism is not about perfect markets; at its core are the conflicts and contradictions entailing the use of the state for the preservation of the power of the capitalist class (local and transnational) in the market's drive for the appropriation of the basic needs and assets of the commons.

I think that our task now as consumers and citizens is to reflect and act upon creative and viable solutions beyond the limits of neoliberalism, which simplifies the problem to correcting 'market imperfections' and its attendant goal of perfecting markets. Alternatives to the prevailing neoliberal discourse and policy on the energy sector are most urgently needed.

* * *

P.S. Some historical context here, excerpted from my PhD thesis, pp. 93-95:

The Ramos Administration’s Intensified Neoliberalization 

Aquino’s term ended in 1992 and her anointed candidate, Fidel Ramos, won the controversial presidential elections. Without the political baggage á la Marcos’ cronyism and Aquino’s oligarchic affiliations, Ramos took a more—albeit not purely—orthodox path to capitalist development in line with the neoliberal, free-market doctrine: that is, a growth-obsessed economy spearheaded by the private sector and supported with policies which liberalize trade, deregulate the domestic market, and privatize state assets and services. ‘Philippines 2000’ was the strategic development framework of the Ramos administration to ‘put the house in order’ through the accomplishment of three things: restore ‘political and civic stability’; open the economy by ‘dismantling monopolies and cartels injurious to the public interest, and leveling the playing field of enterprise’; and address the ‘problem of corruption and criminality’ (Ramos 1993; see also Habito 1993). Central to Ramos’ Social Reform Agenda (SRA), within the Medium-Term Philippine Development Plan for 1993-1998, was the focus on economic reform along the neoliberal discipline that meant the further empowerment of the private sector through the transfer of rights, assets, and social responsibilities traditionally enjoyed, owned, and done by the state (see NEDA 1993). These were to be realized through key reforms in the institutionalization of ‘sound’ macroeconomic policies of privatization, liberalization, and deregulation. 

Rhetorically, Ramos espoused the ideology of capitalism and envisioned to ‘modernize Philippine capitalism’ which ‘not only emphasizes efficiency and individual creativeness but also cares for those whom development leaves behind’ (Ramos 1998: xiii). He claimed that rapid growth in capitalism would be achieved by ‘unleash[ing] the energy of self-interest, the drive for individual profit’, that ‘[t]hough wealth is best owned privately, its owner should use it for the public good’ (Ramos 1998: 72). 

The Ramos administration had its first experiment of a state-orchestrated neoliberalization as the President was given special emergency powers by Congress, together with the reestablishment of the Department of Energy and the enactment of the Emergency Electric Power Law, to resolve the worsening electric power crisis when Metro Manila had to suffer from 8- to 12-hour brownouts a day in Metro Manila. Acting by virtue of this Congress-mandated emergency power, Ramos liberalized, privatized, and deregulated the energy sector by encouraging private investment in electricity generation through an expedited approval of contracts and licenses to independent power producers (IPPs). In effect, this can be construed as the state giving out rents not only to those supporters and benefactors of the incumbent government from the old established elites but to new elite economic players as well—in the spirit of competition and competitiveness. Though the first contract for independent generation was signed in 1988 under the Aquino administration, Ramos’ brisk neoliberal reform made more than 40 other IPPs to operate in the country. A World Bank study noted that by 1994 the Philippines had more IPP contracts than the rest of the developing world combined and then warned of the adverse consequences of overcapacity (World Bank 1994). Yet, despite this warning from a global neoliberal Bank, Ramos fast-tracked the signing of 12 more IPP contracts from 1995 to 1998 and initiated a 30-year Philippine Energy Plan (1996-2025). The unpropitious results of this rapid introduction of private generation into the electricity sector included overpricing as price determination was left to a deregulated, non-transparent market; an oversupply as demand was lower than expected; and, as such, deeper indebtedness as the Philippine government continued to honour to its disadvantage basic offtake obligations in IPP contracts as well as the burdensome provisions in the power purchase agreements—provisions for cost guarantees offered by a desperate state with a high risk economy to attract investors—that made take-or-pay or capacity payments unsustainable (see Woodhouse 2005; see also Corral 2003). A recent study of the World Bank (2009b) actually acknowledges the corruption risks involved in IPP contracts in developing countries, including the abuses and excesses in the Philippine procurement experience which has financially burdened the government because it has to continuously make payments even for unused capacity.

On May 1994, shortly after Ramos’ emergency powers expired, amendments to the implementation rules of ‘build, operate, and transfer’ (BOT) schemes were enacted. Privatization of the management of public services were done through these BOT schemes where contracts to the private sector were paid in the form of rights to manage finished facilities as well as the right to have a substantial share of the generated incomes. Though it was in 1990 during Aquino’s presidency when the government’s Public-Private Partnership – Build-Operate-and-Transfer (PPP-BOT) programme was institutionalized with the enactment of Republic Act 6957—‘An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and for other Purposes’ (Philippines 1990), the Ramos administration not only amended the implementing rules but seriously executed the plan to make the economy more attractive to private sector participation and investment. The amendment made a provision on ‘unsolicited proposals’ for the state to liberally accept prospective projects from private sector investments other than those in government priorities—as such, non-prioritized projects are not supposed to receive special concessions from the government, whether in the form of equities, subsidies, or guarantees. The new scheme was by all means neoliberal in which market-based principles were affirmed and market interests guaranteed, but it compromised a democratic state’s requirements for transparency, accountability, and social responsibility. Within this scheme, markets were virtually exonerated from loss or bankruptcy since the state had to absorb risks. A four-part series research by the Philippine Center for Investigative Journalism (PCIJ) unearths several anomalies and corruption issues involved in BOT projects, particularly IPP contracts, during the Ramos administration. The PCIJ report found ‘that former president Fidel V. Ramos personally pushed for the speedy approval of some of the most expensive power deals and justified signing more power contracts despite warnings from within the government and the World Bank that an impending oversupply of electricity could push up prices’ and ‘that individuals linked to Ramos lobbied for the approval of some of the more costly IPP contracts, which came with numerous other deals, including lucrative legal, technical and financial consultancies that were given to individuals and companies close to the former president’ (see Rimban and Samonte-Pesayco 2002a, 2002b; Samonte-Pesayco and Rimban 2002; Rimban 2002). The report thus manifests a conflictual and negotiated nature of neoliberalization in the Philippines, in which at least a couple of important tendencies can be noted: one is that neoliberalization is not totally dominated by global neoliberal institutions like the World Bank or by international market forces like transnational corporations, but local political elites and government functionaries have the capabilities to negotiate how the process is shaped; and the other is that market reform projects like the liberalization and privatization of an economic sector are not immune from inefficiencies, corruption, and bribery involving both state and market elites at the local and international levels in their common drive for accumulation.