Corrruption and inefficiency in Philippine Rural Electric Cooperatives

The conventional wisdom is that the major reason for inefficiency and corruption in rural electric cooperatives in the Philippines is the lack of incentives for good management. Because there is no group of private stakeholders large enough to care how an REC (rural electric cooperative) performs, the managers are left to their own devices, especially if their pay is not linked to such performance. While the coop members elect the boards of directors which in turn supervise the managers, that is pretty much where their participation ends, which is why it has been said that the RECs are cooperatives only in name.

REC elections are also said to be well-contested because the boards exercise tremendous political power; in some cases even more so than local government elections. In fact, the party-list party of the rural coops, APEC, has always been a top vote-getter in national elections owing to a large bloc of ‘command votes.’

Occasionally a group of members might have enough community spirit to exercise vigilance over management while the rest of the members simply ‘free-ride’ on their efforts. This is also why the standard (and perhaps even dogmatic) prescription is to encourage the entry of private capital imbued with a profit motive to lower costs. But that is just one solution to enforce greater accountability and efficiency, by encouraging greater membership participation.

This is what this account of graft and corruption in BATELEC II (Batangas Electric Cooperative II) illustrates: member vigilance and heroic management. The board, elected in 2003, is facing charges of corruption brought by some members (in 2005) for approving and awarding a P75 million computerization contract to I-Solv, a company based in Metro Manila, with a paid-up capital of P62,500 and organized just a few days before the contract award in April 2004.
The graft charges were presumably lodged after the National Electrification Administration (NEA) audit, at the instance of the same group of members, found the whole project irregular for lack of the proper technical study and bidding. Furthermore, the board had usurped the authority of the bids and awards committee, the audit said. It also found that the board approved a 100% overprice of 10 boom trucks. In this controversy, general manager Marlyn Caguimbal has been on the side of the members.

It is unfortunate that PDI reporter Marlon Ramos ends his account with developments way back in 2005 and thus leaves us wondering on the status of the case and what other actions, if any, the NEA has taken against the board.

About nine years ago, I had occasion to visit the offices of BATELEC I, the other REC serving Batangas, and was impressed by the professionalism of management. The REC had been chosen for a brief historical case study, excerpted in a chapter of The Challenge of Rural Electrification, Strategies for Developing Countries, edited by Douglas Barnes and recently published in May by Resources for the Future (RFF) and Energy Sector Management Assistance Program (ESMAP). I co-wrote the chapter on the Philippines “Power and Politics in the Philippines” with Gerald Foley.

Taxi strike: unfare?

Philippine taxi drivers are generally a friendly lot, though there are many horror stories associated with rogue drivers who reject fare, short-change passengers, collude with robbers, and eject customers midway through trips. (The last shows cab drivers know their economics and the value of time, because some would even give up the registered fare simply because going further would result in a loss---in other words, they think in terms of 'net incremental benefit.'

They are are also a bit talkative and need little provocation to lecture you on politics and philosophy, and many of them in their 60's would still even hark to the 'good old days' of Marcos and the period of discipline and (false) sense of national purpose. With a little provocation they'll even tell you whom they voted for in elections and subtly try to sway you to their position. I have always used their stories as a vane to give me a sense of the social weather. In one unforgettable ride not too long ago, a driver, having eavesdropped on my conversation on politics with a friend, butted in politely and eventually confessed he was an 'intelligence agent' of the armed forces. No, his cab driving was not a front but genuine moonlighting, though that was not really reassuring. And cell phones were not affordable then. In fact, at about the same time in 1995, I was amazed that my cabbie in HK handed me his handset to call a friend to ask for directions. And no, his name was not Vidal Doble.

Once, in my early 30's, I was mistaken by a cabbie as of his age. After I complained about the metallic rock on his radio, he gently reminded me that things were a lot different in 'our time.' I didn't protest that because I had much earlier accepted having been born old and grumpy. But then, in another ride, while I was waiting for change, this young driver insisted he recognized me as a lead member of a local rock band.

I don't know the status of renewed efforts to finally enforce the requirement in the tax code (circa post-Marcos 80's) that cabs should issue receipts to passengers as part of enhanced tax-revenue generation. I guess government has balked again. I agree with the measure but recognize government has to be fair to both cab companies and drivers but fairer to drivers and to passengers. Clearly there is a lot of room for improved regulation of behavior. The economic fact is that drivers merely respond to the so-called incentive structure of the system, like free 'profit-maximizing' agents who take all the demand risk, because they pay a fixed rent regardless of kilometers travelled or fare volume. Bus drivers, on the other hand, get a share of revenues. But in congested thoroughfares, the resulting behavior results in disastrous consequences for both passengers and air quality (I digress too much, as usual).

I travel fairly often and fairly wide and know that Philippine taxi rates are among the cheaper in the world, and have spent large sums because of my habitual laziness and addiction to door-to-door delivery. An absolute increase in fares resulting from regulation might do a lot of good all around, most of all by encouraging more mass transit patronage. With some caveats, mainly for people like myself, who, as a lazy patron, also use cab drivers to attend to other addictions. When I was a beer-drinker and smoker, and whether alone or with guests, but as lone occupant in a single male-headed household, I would call the nearest cab company to request delivery of beer and cigarets.

Do cabbies generally overcharge? I don't think so. Rates are much higher in areas where entry is either regulated or banned, especially airports. That is because the entry regulator is usually corrupt but justify the regulation as part of ensuring passenger safety. Hell, they could do that by simply charging a parking fee and enforcing a monitoring system.

Without much ado, local cab companies have been shifting to alternative fuels like liquefied petroleum gas (there is an LPG filling station just a few hundred meters from where I live) because it makes financial sense. It also results in less harmful emissions.

This brings me to the implications of this news article from the New York Times, New York Taxi Strike:

Fare increases in 2004 and 2005 — totaling some 25 percent — were contingent on taxi owners installing global positioning systems and credit-card machines. Drivers were desperate for the increase — the first in eight years — and accepted the terms. That was the deal they made, and they should stick to it. The city had an equal obligation to make sure the mandated technology is functional, up-to-date and serves both driver and passenger. So far, the results are not encouraging.

It is not surprising they are talking about GPS and credit card payments while we are arguing about receipts. After all, we are in the Philippines. But our level of economic development, I should say, does not really indicate our comparative level of civility.

Electricity and Philippine Growth: amateur detective work

I can understand why the recent GDP growth figure of 7.5% has elicited a lot of skepticism and hostile criticism , and most of the justification has to do with the fact that even the middle class, especially in Metro Manila don’t feel better off compared to last year.

Let me first disclose that I am confident about the professionalism and integrity of the people who compile and estimate the growth statistics. I have worked for long periods with NEDA assistant director general Estrella Domingo, mainly in the nineties, and mostly in regard to estimating the environmental impacts of growth. She and her people are competent and open to criticism and suggestions, especially in regard to methods.

First let us grant that the statistics are correct. The natural questions to ask are where did the growth come from, which sectors and which regions?

Growth in electricity consumption

My preferred method of validating economic growth figures is through looking at electricity consumption. So I examined the sales figures of Meralco for the first semesters of last year and this year. The second row of the following table shows percentage growth in kilowatt-hour consumption by customer class. The Meralco service area comprises about 60 percent of value added (GDP) in the Philippine economy.

Residential	Commercial	Industrial	C+I	Others	Total
3.02	5.78	3.59	4.83	-1.80	4.18

From the figures above, here are my initial observations, not necessarily in order of importance:

The NSCB claims growth is consumption-led. Clearly growth in residential consumption is much less than overall growth, and is also less than growth in personal consumption expenditures of nine (9) %.. Thus the elasticity of demand for household electricity is less than 1 (0.33), which means an additional peso of income creates much less demand for electricity in the Meralco area. This could be higher in areas outside MM (AOMM)., which is intuitive because these areas are starting with less electricity consuming appliances.

1. But looking at C+I in electricity consumption in Metro Manila, which is much less than growth in the value added of the service and industrial sectors (8%) per NSCB nationwide, I can only surmise that growth in these sectors must be happening in AOMM. Unfortunately, the NSCB does not provide a spatial disaggregation of value added and growth. But this is the most likely explanation I can find.
2. If we assume that GDP growth in Metro Manila is the same for the rest of the country, it would mean that the elasticity of demand for electricity overall with respect to GDP growth would be .56, which is contrary to historical experience and incredible.

From the above, if we assume the NSCB figures are correct, these can only be explained by higher growth in AOMM.

To whom is credit due?

Here I will allow myself some political bias, which you might agree is justified. The effects of policy always come with a lag, and it would be fungus-faced (to quote my favorite senator) for the Arroyo administration to claim credit for the growth figures. It is probable that phenomenal growth occured inspite of its incompetence and erratic responses to threats of its survival. One thing I can concede, without offering empirical proof, is that the value added tax did and does lead to a higher growth trajectory.

Equity and skepticism

Among the more reasoned essays with respect to equity and healthy skepticism published in cyberspace recently are those of Ricky Carandang and Manolo Quezon.

On the matter of equity, the Central Bank used to publish a disaggregation of GDP into returns to capital and labor but it stopped doing this sometime in the 1980’s. A simple way of ascertaining whether growth is equity-enhancing would be compute the growth in the ratio of labor's share per capita (simply divide the labor share of value added by population growth). Unfortunately I have no method to estimate this, though I suspect that if domestic demand is fueled by OFW income, growth, and if consumption growth accrues to sectors in the economy with market power, growth might be inequality enhancing. Note that I am not sure about this.

For those interested in the structure of the economy and the growth figures click here. The NSCB has one of the better government sites, but please write the webmaster and demand that it present data files in downloadable format.

wiretaps in aid of effective electricity spot market regulation

A funny thing happened on the way to a competitive electricity market in the Philippines.

Let me start again. A funny thing happened when the electricity regulator was investigating anti-competitive behavior of the state-owned utility. The regulator said there was no prima facie case even after the market operator furnished them with affidavits admitting such behavior. This is one for the books, but not surprisingly because the country lacks a history of anti-trust litigation.

Let me start again. In September last year, the Philippine Electricity Marketing Corporation (PEMC) lodged a case with the ERC accusing the PSALM of market manipulation. The investigator of the ERC did not even have to call Jack Bauer of CTU. The affidavits of the PSALM agents are clear that they bid to get a desired price.

Then the ERC dismissed the case for lack of prima facie evidence.

It seems like the ERC was looking for legally wiretapped conversations which could have gone this way.

Hey Juan, at the peak demand, we should tweak our bids this way and that.

Unfortunately for consumers, ERC was not forward-looking enough to install bugging devices in the rooms of PSALM and the ERC or NPC. What a pity.

So the spot market celebrated its first anniversary in the first week of August without fanfare because PSALM was demanding a to collect P9 billion, the difference between spot rates and administered prices imposed by PEMC for two months last year.

If you read the ERC decision you'll know that the investigator didn't need to call Jack Bauer of CTU because the PSALM affidavits were quite candid and in themselves incriminatory.

The continuing decline of energy sector institutions

Just had dinner with a reliable newly elected congressman who quoted other neophytes requesting anonymity in aid of obscurity. The buzz in the House is that the unpalatable Michael Defensor is being groomed to be energy secretary. From good to acceptable to bad to worse. What say you?

'extra-judicial killings'

You have to give it to the intrepid Ricky Carandang of ANC. He always manages to interview the most unlikely guests, and last night’s were truly exceptional: Chief Justice Reynato Puno and Associate Justice Adolf Azcuna. Listening to the justices reassured me that the judicial branch has at last and at least have been seized by the problem of extra-judicial killings, actually an inappropriate phrase since we no longer have the death penalty, and for good reason, and thus we cannot have judicial killings. The two justices were only being diplomatic in refraining from publicly castigating the two other branches---especially the executive---for their inaction and perhaps, even complicity in the murders and disappearance of political activists. Our alleged president would not have shown any concern had not human rights organizations mobilized international opinion on the spate of killings and disappearances. One can only wish that the supreme court had the power to fire justice secretaries, because the one we have does not know the meaning of shame.

Azcuna enlightened mewith a discussion of the Minnesota protocol, where, if the victims are last seen with military or state agents, it is the burden of the latter to explain and extricate themselves. After all, it is the state which is supposed to have a monopoly of the gun. This protocol becomes more relevant in the case of a government which has taken Donald Rumsfeld’s logic: the absence of evidence is not evidence of absence. Thus, the state can arrest you, torture you, and bomb other countries to kingdom come on mere suspicion of terrorist inclinations.

I don’t know if the justices volunteered to be interviewed, but if they did, they chose the interviewer well. Carandang is competent, prepares well in advance, and has exemplary interviewing skills. More likely it was he who approached them and the justices could not refuse. In any case, the interview was to bring attention to this Monday’s summit on extra-judicial killings and one can only hope it succeeds.

Also yesterday, Conrad de Quiros discussed his frustrated search for the movie ‘Missing’ which affected me too. It was played not too long ago in one of the cable movie channels. I think it is available from the many movie websites abroad.

And before I forget, I really appreciated The Big Picture’s interview with the officials of the National Statistical Coordination Board (NSCB) and former economic planning secretary Felipe Medalla on problems with the estimates of GDP growth. Unfortunately, this was not carried intelligently by the national papers. Among the respectable columnists, only Ciel Habito mentioned the problem and the discussion but he did not have the space for a satisfying follow-up. ( I asked my niece Charo Logarta whether she found the latest estimates credible and her response was to the effect that these were not estimates but ‘actual’ figures as she understood them from a press conference. I had to remind her that figures based on a survey or sample should be treated as estimates.)

I will say my piece on these issues some other time.