E S b id R fEnergy Subsidy Reform
CASE STUDY ON ELECTRICITY SUBSIDY REFORM IN THE
PHILIPPINESPHILIPPINES
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Overview:
Electricity h t i th
1997 Asian crisis Reform was l h d ishortages in the
1980slaunched in2001
• Expansion ofgenerationcapacity withindependentpower producers
• Excess productioncapacity
• Huge IPPs-relateddebt owed byNational Power
• Reform took longtime to bear fruit
power producers(IPPs)
National PowerCorporation (NPC)
Main characteristics:
• Comprehensive reform planp p
• Mitigating measures• Mitigating measures
li i i i iff i• De-politicizing tariff settings
Comprehensive Reform Plan:
• Transfer NPC’s assets andliabilities to a “bridge” companyto implement privatizationto implement privatization
• Establish an independentregulatory commission to
l h l i i regulate the electricity sector,including tariffs
• Unbundle tariffs and eliminatecross-subsidization (except forlifeline tariffs)
• Introduce wholesale spot• Introduce wholesale spotelectricity markets
• Introduce competition indist ib ti (l )distribution (long run)
Mitigating Measures:
• Lifeline tariffs havebeen introduced
All l iffResidential tariffs in Manila, September 2013
(Peso per kWh)
– Allow lower tariffsfor users whose electricity consumption remains below
kWh consumption
Charge for generation,
transmission, etc
Lifeline subsidy
Charge for lifeline subsidy Tax etc Total
50 6.62 -4.66 0.00 3.46 5.4270 6.62 -3.21 0.00 3.48 6.89remains below
certain levels – Cross-subsidized by
other consumers
70 6.62 3.21 0.00 3.48 6.89100 6.62 -1.81 0.00 3.53 8.34200 6.62 0.00 0.11 3.64 10.36300 6.62 0.00 0.11 3.99 10.72400 6.62 0.00 0.11 4.35 11.07500 6.62 0.00 0.11 5.00 11.72600 6 62 0 00 0 11 4 99 11 71
• Electricity forindigent families hasbeen subsidized
600 6.62 0.00 0.11 4.99 11.71700 6.62 0.00 0.11 4.99 11.71800 6.62 0.00 0.11 4.99 11.72900 6.62 0.00 0.11 5.00 11.72
1000 6.62 0.00 0.11 5.00 11.731500 6.62 0.00 0.11 5.05 11.77
– For customers inrural areas that arenot connected tomain power grids
3000 6.62 0.00 0.11 5.17 11.895000 6.62 0.00 0.11 5.22 11.94
Source: Meralco.
p g
De-politicization of Tariff-Setting:
15
Philippines: Electricity Sector and Public Sector Balance (In percent of GDP)
00
Nonfinancial public sector balance
National Power Corporation balance (RHS)00
-1-5
-2-101999 2000 2001 2002 2003 2004 2005 2006
2001 reform 2004-05 tariff increases
Sources: IMF staff reports.
Lessons:
• Comprehensive reform can eliminate electricityp ysubsidies
• Mitigating measures can lessen adverse effectsMitigating measures can lessen adverse effectson the poor
• Electricity reforms can take a long time toElectricity reforms can take a long time toimplement
• Success hinges on political will throughout theSuccess hinges on political will throughout theprocess
