By June 2011, the Agus-Pulangui Hydro Electric Complexes will be up for sale and privatization. We believe that opening the complexes for privatization will be most disadvantageous to the people of Mindanao.

For a long time, Mindanaoans have enjoyed the lowest electricity rates in the country thanks to the Agus-Pulangui Hydro plants. The Agus hydro-complexes generate a total of 727 megawatts of electricity out of the water from Lake Lanao in Marawi City in the ARMM which cascades down as the Agus River and empties into Iligan Bay, some 36 kilometers away. Pulangui Rivers lone plant generates 255mw located in Maramag, Bukidnon. Combined, the hydro plants in the two river systems supply 55.38 \% of Mindanaos electricity needs (source: DOE).

But these benefits could be gone soon should the Agus-Pulangui Hydro Electric Complexes be privatized as mandated by the following provisions under the Electric Power Industry Reform Act (EPIRA) of 2001:

Chapter V of the EPIRA, Sec. 47. (f). "The Agus and the Pulangui complexes in Mindanao shall be excluded from among the generation companies that will be initially privatized Said complexes may be privatized not earlier than ten (10) years from the effectivity of this Act The privatization of Agus and Pulangui Complexes shall be left to the discretion of PSALM Corp. in consultation with Congress."

Chapter VIII, Sec. 62, The Joint Congressional Power Commission (JCPC) in (b) "Endorse the initial privatization plan within one month for approval by the President of the Philippines." In (g) Determine inherent weaknesses in the law and recommend necessary remedial legislation or executive measures.

On January 14, 2010, Congressman Vicente Varf Belmonte from District 1 of the Component City of Iligan, Lanao del Norte filed House Bill No. 7106 to amend provisions of the EPIRA regarding the sale of the Agus/Pulangui Hydro Electric Complexes. On Dec. 9, 2009, he filed Resolution No. 1533 in the Lower House entitled, EXPRESSING THE STRONG OPPOSITION OF THE HOUSE OF REPRESENTATIVES TO THE SALE AND PRIVATIZATION OF THE AGUS AND THE PULANGUI HYDROELECTRIC PLANT COMPLEXES IN MINDANAO.

Invoking the powers vested by EPIRA in Congress, we are collectively asking Congress to ensure that the Agus-Pulangui Hydro Electric Complexes are not sold by 2011.

We propose to maintain the present setup: regulation by the Energy Regulatory Commission (ERC). Under this setup, we - consumers and the business sector - have a voice. We have the right to manifest our support for or opposition to fluctuations of the price of electricity. We can make our voices heard before the ERC prior to its decision fixing the most appropriate rate that will give a reasonable profit for the generators of electricity at the same time ensuring affordable rates for business establishments and the general public.



a) Attract Buyers. In preparation for privatization, generation rates are gradually increased so that the complexes will be attractive to buyers.

b) Competitive Pricing. Electricity from hydro plants is cheap. When retail competition starts, rates from hydro plants will have to be increased so that the other producers of electricity such as coal, geothermal and oil which are more expensive than hydro can compete with hydro rates.

c) Profit Motive. The higher the bid of the winning bidder, the higher the price of electricity will be. This is so that the winning bidder can recover its investment. Electricity rates are also expected to rise as a consequence of privatization as investors are expected to try and recover their investments at the soonest possible time. For NPC to operate and maintain the Agus and Pulangui generating plants, the profit motive is not a factor. Only the ROI or Return on Investment needs to be considered.

d) Free Market Trading. The heart of the EPIRA is deregulation through privatization of generation plants. It envisions a free market where electricity rates, due to competition, will go down. But the experience of Luzon is instructive. Since the trading house for electricity, the Wholesale Electricity Spot Market (WESM) started trading in 2006, Luzon has experienced high rates of electricity because of the more expensive power bought through the WESM. Contrary to its mission of providing good choices and cheap supply of electricity, the WESM has become a trading center of the most expensive electricity in the country. In March, 2009 its peak trading was P10.68/kWh and in April, it reached almost P12/kWh. Consequently, Luzon has one of the highest electricity rates in the world.

e) Market Power/Abuse. Since the Agus-Pulangui Hydro Complex is 55.38\% of the total capacity available to the Mindanao Market, there is a high possibility that a private firm owning the Agus/Pulangui Complexes would drive up prices since it controls a significant chunk of the market. Given the weak regulatory tradition in the Philippines, the most likely scenario is that the owners of the Agus/Pulangui complex will manipulate the prices instead of leaving the prices to market forces.

The private owners of the Agus-Pulangui Complexes could gobble up smaller plants which could not withstand the price competition waged by a huge competitor. Smaller plants may also be forced to merge with the dominant player. With this scenario, retail competition will be a thing of the past, defeating the purpose of the EPIRA.

The current WESM operation of Luzon is in fact a transition from government monopoly to enhanced private monopoly. The result? Instead of reduced power rates, Luzon has one of the highest rates today.

f) Independent Power Producer Administrators (IPPAs). For IPPs with contracts expiring after 2010, PSALM is required to appoint IPP Administrators or middlemen through public bidding to manage the plants until the expiration of the contracts. In Mindanao, we have the Villanueva Coal Plants expiring in 2031. These middlemen will surely jack up prices. But if the Agus-Pulangui Hydro Complexes are not sold, with its reasonable rates, these IPPAs will be controlled.

g) Cross-Ownership. Once the Agus-Pulangui Complexes are sold, the new owner may own or may have controlling interests in distribution utilities since cross- ownership is allowed. This may result in sweetheart supply contracts between distribution and generation. Aside from high generation rate sold thru its sister company it could be detrimental to other consumers who may be deprived of electricity supply.

2. Competitive Edge for Mindanao/ Investor Incentive

Mindanaos greatest competitive advantage is the low cost of power it currently enjoys because of the hydro plants. Effective March 2009, the generation charge for the Philippines approved by ERC are as follows:

Luzon = Php 4.2648 /kwh
Visayas = Php 4.0339 / kwh
Mindanao = Php 2.8177 /kwh

The reason Mindanao has the lowest generation charge is due to the existence of the Agus -Pulangui Hydro Complexes. This is the edge that Mindanao has over Luzon and Visayas. In terms of infrastructure, development, peace and order, etc, we lag behind Luzon and Visayas. We cannot afford to lose this one edge, the low cost of electricity which could be the only major come-on for investors to put up their businesses in Mindanao. We need these investments that would in turn generate employment and improve the buying power of our people, the driver of a thriving economy.

3. High RORB (Return On Rate Base)

For 2008, the rate base current audited value of all NPC-Agus Pulangui Hydro Complexes is PhP 14,327 billion. The net revenue is PhP 4,927 billion which gives an RORB of 39.66 per cent
At nearly 40 per cent, the rate of return is tremendous.

4. Sale of Other Government Assets

a) On Dec. 2007, the National Grid Corporation of the Philippines (NGCP) won the right to operate TRANSCO and put in $987.5 million or 25 per cent of its winning bid price of $3.95 billion. The remaining $2.962 billion or Php148 billion (at PhP 50.00 to $1.00) is to be paid in 15 years. TRANSCO is earning PhP 15 to 25 billion per year: more than enough to pay NGCPs yearly installment. NGCP can recoup investment in less than 2 years. In other words, NGCPs investment was minimal in this highly profitable jewel of our country.

b) On Sept 2009, PSALM sold Power Barges 117 & 118 to Therma Marine, the newest member company of the Aboitiz Power Corporation inspite of the fact that El Nino will hit us by 2010. NGCP used these privatized power barges as provider for Ancillary Services. Therma Marine computed their Capital Recovery Fee (CRF) at US$84.7 million. The actual purchase price from PSALM was only US$30 million. There is a threefold increase in value after being transferred from the government to the private sector. What is sad is that based on this highly overvalued CRF, the ERC approved provisional increase of 0.9960 peso per Kwh which was imposed to all of us in Mindanao for the April to May, 2010 billings before actual public hearings were conducted.

c) On April 2009 PSALM sold Panay Diesel Power Plant (PDPP) & Bohol Diesel Power Plant (BDPP) with a combined capacity of 168.7 MW to Salcon Power Company for US$5.86 Million. New diesel plant costs US$2.5 M per MW. 168.7 MW is US$421.75 M. The salvage value is (5\%) or US$21.08 Million. PDPP & BDPP were not junk or scrap but were being operated by NPC as base load plants for the power supply shortage in Panay. PDPP and BDPP should not be less than US$21.08 Million. The government lost US$15.4 Million or P739 Million.

We are afraid that, with the privatization and sale of the Agus-Pulangui complexes, the patrimony of Mindanao will be sold at a giveaway price to exploitative local conglomerates with foreign partners.

5. Security of Supply

a) Sabotages and other security risks are integral parts of the operation and maintenance of our power plants. NPC is able to address these risks quickly because of its experience in dealing with these situations. On the other hand, NGCP, the concessionaire of our transmission lines, was unable to resolve the problem quickly when in November 2008, 16 towers of the 138 KV lines were sabotaged. Five of these towers were in the Saguiaran to Kibawe line via Bubong, Lanao del Sur. Repair started only after 10 months (in August 2009) because of one reason or another. The NGCPs inaction compromised the supply to Davao and General Santos City which experienced daily brownouts. Coincidentally, at about that time, the Geothermal Plant # 2 in Kidapawan also broke down. With TRANSCO, these incidents would have been dealt with at once.

b) Labor Disputes. If privatized, crippling strikes may ensue. The employees have existing justified grievances.

6. It will complicate the GRP-MILF Peace Process

Agus flows from Lake Lanao, domain of the Maranaos; Pulangui goes through Maguindanao, ancestral territory of the Higa-unons. The Agus-Pulangui hydro systems are integral to the third agenda item in the GRP-MILF peace talks on ancestral domain. Control of territory and natural resources are vital elements in the negotiation. Privatization will stand in the way of a peaceful political settlement.

In summary, EPIRAs essence of privatization leading to free market trading has not achieved its avowed objectives of lowering the cost of electricity and ensuring adequate power supply. EPIRAs principle of deregulation through privatization is in fact contradictory to EPIRAs goal of making electricity affordable. The objective of making electricity affordable to consumers and business investments must take precedence over privatization.

The Local Government Code of 1991, Chapter 2 , Sec 294, states:

The LGU must provide direct benefits not only with reference to lowering electricity cost but also in lowering cost of water consumption. Electric supply and water supply cover basic services where people can really feel with satisfaction and gratitude the impact of low charges.


Prepared by
Commissioner, Mindanao Commission on Women
President, LAPOCOF

GAD Center, Brgy. Hall Bagong Silang, Iligan City
Tel: (063) 221-5252, Mobile 0922-817-6218

121 University Avenue, Juna Subdivision, Matina, Davao City
Tel: (082) 2984032. Fax: (082) 2984031

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