Friday, August 17, 2012

PH electricity rates among 10 highest in survey of 44 countries

The good news first: electricity rates in the Philippines are not the highest in Asia. And now the bad news: Manila has one of the 10 most expensive power rates in the region.

In a media briefing, John C. Morris, International Energy Consultants managing director, said a study conducted by the company placed Meralco rates as the 9th most expensive out of 44 distributors.

The high intrinsic cost of power supply in the country was tagged as the main culprit for its notoriety as having one of the 10 most expensive rates. 

The country, Morris said, relies heavily on fossil fuels such as coal, oil and natural gas whose prices are pegged on international benchmarks. Even the price of natural gas from the Malampaya field in offshore Palawan is based on world oil prices.

These fuel sources account for 80 percent of power generation in the Manila Electric Co.'s service area, which covers Metro Manila and nearby provinces.

The cost of power charged by Meralco's suppliers account for 65 percent of what the latter's customers pay in their electricity bills.

Morris said Asian distributors that fared better than Meralco either had their own domestic fossil fuel supply, nuclear power plants or government subsidies.

Besides the high cost of power relative to the other surveyed countries, Morris said the Luzon grid, which covers the Meralco franchise, "is smaller [relative its regional counterparts] and has a high dependence on hydro which requires a higher reserve margin requirement", which entails additional cost.

The weighted average cost-of-capital in the Philippine power sector is also higher than most countries in the survey. On top of this, debt costs more and loan tenors shorter.

Morris said another factor that contributes to Meralco's rates are transmission costs, which are 40 percent higher than the average of the markets surveyed. 

The high cost of delivering power from generating plants to consumers, however, "may be justified" owing to the geographical nature of the country.

Transmission charges account for 9 percent of Meralco customers' bills.

The IEC study found Meralco's distribution charge - or the line item in electricity bills that directly goes to its pockets - and government taxes are on a par with many other markets.

Distribution charges and taxes comprise 16 percent and 10 percent of electricity bills, respectively. 

"Considering all of these factors, IEC believes that - on average - Meralco’s customers are currently paying a fair and reasonable price for retail electricity," Morris said.

Based on the study, the 10 locations with the highest electricity rates are Hawaii, Italy, Malta, Japan (Kansai), Cyprus, Germany, Denmark, Netherlands, Philippines (Meralco) and Singapore.

The country's peers in Southeast Asia ranked significantly lower in terms of electricity rates with Malaysia, Thailand and Indonesia landing in the 37th, 38th and 43rd spots, respectively.

"The difference between Meralco and these countries are they provide enormous subsidies to consumers in one way of another," Morris said.

The three Asean neighbors enjoy state-subsidies that range from 36 to 54 percent of the cost of supplying electricity. Minus the impact of subsidies, the three countries would rank 14th (Malaysia), 19th (Thailand) and 17th (Indonesia) while Meralco would still be at the 9th spot.

"Meralco charges [customers] exactly as its power costs," Morris said.

Other countries, most notably China, were not included in the IEC study, which ran from January to June this year, owing to insufficient data.-Interaksyon (Augsut 16, 2012 6:05PM)

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