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business & economy

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Business & Economy Briefs

Seven to 32 percent rate increase ripples through the entire Panamanian economy

Electric rate hike doesn't directly affect most households

by Eric Jackson

Panamanian politicians like to deliver bad news over the Christmas and New Year holiday season, when fewer people are paying attention. And so it was no big surprise when the Public Services Regulating Board (Ente Regulador) announced that electric rates would go up between seven and 32 percent, with the big increases to fall upon commerce and industry. The increase took effect on New Year's Day.

Before the increase went into effect the Torrijos administration announced a subsidy plan that will have the government paying the difference for those residential consumers that use less than 200 kilowatts per hour. That will save about two-thirds of the nation's households from paying more for their residential service, and cost the government about $160 million.

But already prices at the grocery store are beginning to rise for poor as well as rich consumers. It now costs nearly one-third more to run the refrigerators at the supermarkets, and to run the electric milking, homogenization and pasteurization equipment at the large dairy farms. Air conditioning is up by the same percentage. Even businesses that are not big consumers of electricity are paying more to keep the lights on. This is all being passed along and it shows most clearly on the grocers' cash registers.

Business and consumer groups are howling in protest and there may be court challenges to the new rate structure.

The Ente Regulador, which from its inception under the Pérez Balladares administration has pretty much been a rubber stamp for the utility companies, sets electric rates based on the price of natural gas. This commodity has spiked in price over the past year, though not as sharply as oil.

The reality is, however, that gas-fired generators don't provide most of Panama's electricity.

We get our electric power mainly from hydroelectric dams, and could get more but for a Panama Canal Authority decision, made pursuant to a Moscoso administration policy that was written by a former ENRON executive, to phase out the authority's sale of electricity generated at the Gatun and Madden dams. Dams are, of course, controversial in their own right: farmers and ranchers don't like it when they are displaced or lose their water supplies, and some of the hydroelectric projects that have been approved by the Ente Regulador merely take that label for regulatory purposes but are really real estate development or water projects. Despite anti-dam protests in several parts of the country, the recent rate increase has spurred demands from a number of business and industry groups, and the Panamanian Society of Engineers and Architects (SPIA) in particular, for the construction of more hydroelectric dams. Former SPIA president complained in El Panama America that had this country been serious about building power generation dams we wouldn't have a problem now.

The law by which the Pérez Balladares administration privatized the old IRHE public electric utility also provided that individuals or companies that install windmills may sell the power that they generate and their homes or businesses don't use to the ETESA power grid, but the Ente Regulador has refused to issue regulations that make such additions to the national power supply a reality. The board has also, under pressure from the private electric companies, shot down proposals for large-scale windmill farms. In most of Panama we have seasons in which there isn't a lot of wind, but during the dry season when the rains that power hydroelectric stations don't fall the Atlantic Side and parts of the Pacific littoral get steady winds out of the north.

Panama also has unexplored opportunities to generate electricity using the power of waves, tides and sea currents. We don't have significant coal supplies, but we do have substantial peat deposits along the Caribbean coast of Veraguas. There are no nuclear power plants in Panama, although in the 60s and 70s the old Panama Canal Company got some of the power from a reactor on an obsolete navy ship moored near the Gatun Dam.

Another set of power supply issues is partly controversial and partly not: Nobody protested when Bocas del Toro recently connected to the Costa Rican power grid as part of the solution to its local shortages. However, proposals to build power lines through the jungle to connect the Panamanian and Colombian power grids have environmentalists, the indigenous comarcas and people who want to retain the natural barrier against hoof and mouth disease and Colombia's civil warfare.

Both business and consumer groups also complain that the Ente Regulador's rate structures are not simple as required by law and bear little relationship to actual costs. During the board hearings about the recent rate increases, demands were made to see the electric companies' books but the companies pleaded corporate privacy and the board didn't press the issue.

(The Ente Regulador also has authority over telecommunications, and in that role has distinguished itself by passing regulations that have effectively continued the Cable & Wireless phone line monopoly that was supposed to end in 2003 and by various attempts to prohibit Internet telephony.)

So what's a business-oriented Torrijos administration to do when the Ente Regulador lets a few, mostly foreign-owned, electric companies jack up costs for all` other businesses in Panama? We shall see what the president will do, but it's reasonably certain that he will do something: one of the 10 subjects about which the National Assembly gave Torrijos power to legislate by decree during its two months off is reform of the Ente Regulador.