WHEN Philippine President Ferdinand R. Marcos delivers his State of the Nation Address before the incoming Congress at the end of the month, we are told that the president will focus on the impact of inflation on the economy.
Two factors culled from the consumer price index and the basket of goods make up the typical expenditure profile of the Filipino consumer. These two factors, the price of food, a kilo of rice in particular, and the price of energy, exemplified by the cost of fuels and electricity, account for headline inflation.
Let us take a quick glance at this festering curse.
The Department of Agriculture’s ballyhooed price of rice at 20 pesos (35 U.S. cents) per kilo, which was a Marcos campaign promise remains a fantasy. At that level it is way below the average price for well-milled rice sold in either the National Capital Region or outside. These are at 57.19 ($1.01) pesos and 47.19 pesos (83 U.S. cents), respectively.
These pricing policies for the Filipino staple as well as for some major food items that comprise the average Filipino daily fare are worsened by the default importation strategy pursued by the government. Importations directly favor rice exporting economies and their farmers. Such bias is against Filipino farmers whose farmgate prices barely produce a decent margin.
High farm production costs add up to an average farmgate price of 17.75 pesos (31 U.S. cents) per kilo leaving farmers with a slim 2.25 pesos (4 U.S. cents) per kilo margin. Where farmgate prices are higher because of calamitous weather in national granaries and increasingly high-cost fuel for milling, farmers suffer incredible losses. To validate, simply count the number of rice farmers abandoning their farms — a multiple inflationary whammy considering its effect on rice supply.
As for electricity rates in the NCR solely serviced by the Manila Electric Company or Meralco, one year ago these were at 9.14 pesos (16 U.S. cents) per kilowatt hour. The comparable rate today is 13.83 pesos (24 U.S. cents) per kWh even as Meralco petitions for even higher rate increases of nearly 25% for the distribution component which accrues to no other corporate entity than Meralco.
The petition for higher distribution rates is tragically ironic since Meralco was recently found to have overcharged its subscribers by as much as 19.9 billion pesos ($351.2 million).
As we have been tracking inflation since the start of Marcos’ administration, now on the eve of the second half of his economic governance, with a cabinet that has just recently been reset as undesirable factotum responsible for failing to temper extremely high prices were removed from office, the public can assess for itself the truth behind the reset’s impact.
Patronage politics, purely political relationships, unholy alliances and crony capitalism and its ever-lengthening tentacles have reached into the policy-making and regulatory bureaucracies governing food and energy economics. These are the hidden demons that have survived the anemic if not failed administrative reset Marcos intended as a result of failing approval ratings.
Stunned by the fact that a likely candidate for the presidency in 2028 when he will be compelled to yield the presidency might return to power, Marcos embarked on a brief campaign to gain higher approval rating against the popularity of a feared powerful presidential challenger.
On the question of food inflation, which remains the foremost factor among the CPI indices, there does not appear to be much creativity in alleviating the negative impacts of the administration’s default importation policies which not only keeps agricultural productivity lowest among economic drivers, but curses our large farming sector, institutionalizing and petrifying their destitution and poverty.
In comparison, the knee-jerk changes occurring in the energy sector are worse, mocking not only the advocacies of well-intentioned energy watchdogs, experienced veterans and true professionals in the industry, but infuses even more incompetence, patronage and opportunities for unchecked plunder.
Unlike rice prices, high energy, fuel and electricity costs are cost multipliers throughout the economic value chain. Installing one unqualified incompetent in an energy policy-making and regulatory office creates cataclysmic disasters. Already, we have seen how over 19.9 billion pesos ($351.2 million) in energy overcharges by one politically influential company can go virtually unpunished under previous derelict bureaucrats whose previous employment betrays serious conflicts of interest.
Our virtual ride through this metaphorical Tunnel of Terror in this House of Horrors has not ended. While various sectors applauded the timely removals of incompetents by Marcos, the replacements indicate that the power of extraneous influencers and insidious interlopers on the decisions of the president remain toxic.
On the policy-making portfolio, Marcos appointed someone who cannot even find our single most important indigenous fuel field on the map.
On energy regulation, Marcos appointed an office administrator where an experienced technocrat who understands the complex calculus of generation and grid management, electricity pricing and least-cost sourcing is critical.
Instead, the regulatory body is now composed of four lawyers and one accountant. Most are untrained and inexperienced in the complexities of energy management. One is even a third-party intervenor documented as having a history of bias benefitting a regulatee to the detriment of the tax-paying public that funds all regulatory expenses. Thus, we cannot expect a deeper understanding and technical appreciation of the regulatory environment needed and the critical transparency understood by watchful consumers.
With a bias towards the objectives of corporate endorsers, rather than the competence, fair play and integrity that the public expects should rightfully be the basis of appointments, now replaced by patronage, puppeteering and padrino systems, it is painfully evident where these energy gatekeepers are taking us.
Dean de la Paz is a former investment banker and a managing director of a New Jersey-based power company operating in the Philippines. He is the chairman of the board of a renewable energy company and is a retired Business Policy, Finance and Mathematics professor.
