Why the fuel price hike so soon?

Everyday I monitor Bloomberg TV to look at the major business headlines in the Asian region as well as the world stock markets. One of the things I closely watch is the price of oil in the world market. Hence, it surprised me to learn last night that fuel companies will start to increase pump prices again starting today. The local market experienced a significant slide in the prices of diesel and gasoline these past few months, easing the pain on car owners and transportation industry operators. But is that a brief honeymoon for us? There hasn’t been a significant change in the world market prices of oil. So what is the basis for the fuel price hike so soon?

Labor day

I am surprised nobody among our congressmen is pointing out the glaring disparity in the minimum wage levels and fuel prices in Iloilo versus those in the national capital region. As pointed out by Bayan Muna party list Rep. Neri Colmenares recently, the minimum wage level in Iloilo is just P265 per day while workers in Metro Manila are mandated to receive P404 per day. And yet, on the other hand, Iloilo residents pay at least P5.00 per liter more on the price of fuel products than those in the national capital. That’s not to mention that our electricity rates are grossly more expensive than in Metro Manila.

If we go by the logic of compensation theory, workers who face a higher cost of living deserve to be paid more. The indices of cost of living should necessarily include gasoline prices and electricity rates. There can be no debate that these two costs weigh heavily on the economic conditions of a community. Hence, the question begs to be asked: why is the minimum wage in Iloilo lower than Manila?

And while that question is hanging in the air, let me also echo the question posed by Rep. Colmenares: why is the price of oil-based fuel considerably higher in Iloilo than the national capital? How do oil companies determine the P5.00 difference in prices? Transportation costs? If that is so, then a transparent procedure must be established to make it clear to everybody why it is so. We are not unreasonable people. But we have to be informed.

Our congressmen are expected to fight for our interests, economic, social or whatever. This is clearly a major battleground in terms of the economic plight of Ilonggos. There has to be a sense of balance to the way we do things. We should not just accept things as they are. We should learn to question and challenge, especially with the celebration of Labor Day yesterday.

Visayas electricity sells for P25/kwh on spot market

Just three days after the Wholesale Electricity Spot Market (WESM) in the Visayas got underway, the “spot rate” of power reached an astronomical P25 per kilowatt hour (kwh) during mid-day trading as demand peaked, quickly drawing a sharp reaction from a party-list congressman representing the rural energy sector that his “worst fears are happening.”

Rep. Salvador “Kiting” Cabaluna III of the 1-CARE party list said it didn’t take long for the “spot market” to manifest the “structural defects” he had warned about when he sought the deferment of the WESM implementation three months ago.

“We saw this coming, but the Department of Energy brushed aside our objections,” Cabaluna said. “The situation is not ripe for the spot market scheme because key elements such as excess power supply and firm supply contracts for distribution utilities are not in place.”

The WESM was established as part of the reforms for the power industry under RA 9136. It seeks to create a “spot market” for excess, or uncontracted generated electricity, to give distribution utilities a choice in buying their power supply and bring about a more efficient power industry.

The law mandates electricity distributors to buy at least 10% of their requirements from the spot market during the first 5 years of the scheme.

Cabaluna said Visayas power utilities are not ready to take part in a WESM scheme because many have not firmed up their bilateral supply contracts with independent power producers (IPPs).

“This leaves these distribution utilities, particularly electric cooperatives, highly vulnerable to the volatile nature of the market,” he said.

The scheme works on the law on supply and demand, he pointed out. When demand is high, and supply is short, then the tendency of prices is to go up, he said.

This is what happened on Dec. 29, he added. At 3 o’ clock of the same day, the spot market rate slid to P15.04 per kwh, which, he said, is still “precipitously high” as far as ordinary consumers are concerned.

Cabaluna said he will monitor the spot market closely to validate his observations.

When Congress resumes session next month, he will reiterate a resolution he had filed three months ago seeking a legislative inquiry into the implementation of the WESM for the Visayas.

Electricity spot market kicks off despite worries

The wholesale electricity spot market (WESM) in the Visayas began operating two days after Christmas even as a party-list congressman representing the power cooperatives sector reiterated his call for adequate safeguards to protect ordinary consumers from possible increases in their electricity bills.

The “spot market” is a mechanism provided by law that allows power utilities to buy a portion of their supply requirements from independent power producers at rates that are supposed to be competitively low. The “spot market” is based in Cebu City.

But 1-CARE party list congressman Salvador “Kiting” Cabaluna III said the concept will work only if there is adequate supply of power and the power utilities have already secured supply contracts to cover their minimum requirements.

As it is, Cabaluna said the situation is just the opposite: supply is short, and many cooperatives have expired, or expiring, power supply agreements.

“Under the circumstances, the electric cooperatives are vulnerable, because they would be forced to buy a substantial portion of their requirements from the spot market,” he said.

He said IPPs usiing diesel fuel will likely play the market to fill the supply requirements of many cooperatives. “We all know that diesel plants sell at higher rates than, say, geothermal or coal,” he said.

Cabaluna said in Panay island, only Panay Electric Co. and Iloilo Electric Cooperative I (Ileco I) have secured power supply agreements to ensure stable rates. The other cooperatives risk having to pay the current price of the spot market, no matter how high, as there is no other source of power, he added.