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Forget the Constitution; just bring down electricity costs

It is really absurd, and even plain stupid, to believe that the restriction in the Constitution on foreign investment in public utilities is the reason why we have had a low level of foreign direct investment (FDI), compared to our neighbors in Asia.

Foreigners are now the biggest shareholders in the telecom and power industries. How could that be if there were restrictions? The fact is that Indonesian and Singaporean capital, in collaboration with the local elite and government agencies, have de facto removed the constitutional restrictions especially on the telecom industry.

We forget that have had in fact a period when we absolutely had no restrictions on foreign capital from the biggest capital-exporter and richest country the world – the United States.

The Philippines, from 1947 up to the 1974 , absolutely had no restrictions on investments from the United States. This was because we had that grossly misnamed “Parity Rights Amendment” to the 1935 Constitution which gave US businesses until 1974 the same rights and privileges as local capitalists. The US required that amendment, or else it would not give us the $800 million in war-reparations.

Did such policy of total openness to American capital result in huge US investments here? Not really. The bulk of US capital went into monopoly firms , PLDT, Meralco, and the cartel of soap and detergent manufacturers.

Did US foreign capital make us a developed country? You can see for yourself.

In fact, countries such as South Korea and Japan which had little US FDI but became developed countries in a generation’s time. This was because of their strong sense of nationalism – i.e., capitalists cooperated with the state, and with the state’s help focused on sectors (such as heavy industries in Japan’s case) that built up their economic base.

Poor and inefficient business environment — the lack of physical and technological Infrastructure; limited and run-down highway network; an inefficient port system, and corruption, and most of all, high electricity rates — are the principal factors that hamper the flow of investment into the country.

What Constitutional restrictions on public utilities?
What Constitutional restrictions on public utilities?

The continuing claims, recently made even by President Duterte’s top economic officials, that Constitutional restriction is the reason for our low FDI levels only serve to distract us from what we really need to do to become preferred sites for FDIs.

The strong lobby to lift the Constitutional restriction demonstrates the hold of the two foreign firms controlling our telecom industry — the Indonesian-owned First Pacific and the Singaporean state firm Singtel’s — on our political and media elite. They are afraid that sooner or later, the Supreme Court decision in 2011 that ruled their control of our telecommunications sector as violating the Constitution will catch up with them. For them therefore to evade the Supreme Court ruling, the Constitution must be amended to legalize their trampling of the Constitution. How much more do these proponents of amending the Constitution want our Republic to be shamed — change the Charter just to make the trampling of it by two foreign firms legal?

The single most important reason why we haven’t attracted enough FDIs and why even some of our businessmen have been moving out from our country is our high cost of power.

It’s the biggest expense for industrial firms, accounting for as much as a fourth of their costs, and industry, we have to remember, still make up the backbone of a strong economic base. Because of high power costs, even foreign companies, which have been here for decades, have moved out to other countries in Southeast Asia, and especially to China. The only “industry” we could be competitive in is skilled-labor intensive business processing and possibly tourism.

Based on Meralco’s tariffs (using residential rates of 200 kilowatt hours per month consumption) which averaged 24 US cents per kilowatt hour in 2013, the price we pay for our electricity, believe it or not, is the fifth highest in the world, according to an April 2013 study funded by the US AID, entitled Challenges in Pricing Electric Power Services in Selected Asean Countries. Our rates are even a bit higher than the Kansai region in Japan–24 US cents, and Singapore–23 cents.

That is one reason why FDIs have recently been flowing into war-ravaged Vietnam: Its electricity costs have been about 9 US cents per kilowatt hour, about a third of ours.

And who owns the power firms in Vietnam and in most Asian countries? Their states or their states’ corporation.*

Only in the Philippines again. This major discentive to FDIs has been a huge source of profits for private firms controlling our power industry, the biggest of which the Salim-controlled Meralco, the dividends of which has soared since he took over the firm in 2009:
meralco20161102How can we convince foreign investors to build industries here, when the costs of power in our competitors in the neighborhood, Indonesia, Thailand, Malaysia, and now Vietnam are just fractions of ours?

No wonder even Filipino Chinese tycoons are moving out of the country to put up their factories in China, where electricity rates are nearly a third of ours. Have you noticed that even shampoos and toothpaste are now made in Thailand and Indonesia? Electricity in Thailand costs nearly half that of ours, while that in Indonesia is only a fifth of ours!

Now guess what is the biggest power firm in the country now, the monopoly in metropolitan Manila and several provinces which is the industrial and economic center of the country?

Meralco. And who controls it? The Indonesian tycoon Anthoni Salim, which through PLDT and Metro Pacific Investments Corp. is Meralco’s biggest stockholder.

(*For a detailed description of ownership of power firms in Asian countries, see Chapter 2 ((Asians in control of their telecom and power secdtors, except the Philippines”) of my book Colossal Deception.)

Facebook: Rigoberto D. Tiglao
Twitter: @bobitiglao