business

Rate hike rollback, some utility figures revealed

Changing rules for the electric companies

by Eric Jackson

Electricity used to be a state-owned business, carried out through the old IRHE utility. Panama had relatively high bills because the rate structure was designed to subsidize the extension of the power lines into rural areas, because under successive governments parasitic or inefficient managements took more than they should have, and above all because during the dry season the country was very dependent on generator fueled by oil or gas that had to be imported.

After the 1989 US invasion the cult of privatization took hold, with the Endara administration taking cautious steps in the direction of free market policies and the following Pérez Balladares government doing the full neoliberal kowtow. IRHE was privatized, its last manager was paid a huge bonus on the theory that public utility managers ought to have golden parachutes like their private sector counterparts and a new institution, the Public Services Regulating Board (Ente Regulador) was created to oversee the newly privatized utilities. IRHE was not only sold off, but broken up, with the state-owned ETESA running the power lines, several private companies taking over the power generating facilities, and a couple of foreign companies buying the rights to sell power to customers. Panamanians were promised better electric service at more reasonable rates.

We did get somewhat better service --- power outages became ever shorter and less frequent --- but the hope of electric rates at least as low as those in neighboring countries proved to be a mirage.

What happened was by no means uniquely Panamanian, though it should have been expected given our monopolistic business norms and corrupt politics. The power companies essentially took control of the Ente Regulador. Whether they did it by persuasion, bribery or ideological affinity is still not clear. In any case, the power companies would regularly come pleading poverty, and without being required to open their books even a tiny crack would be granted rate increases.

The worst case scenario was the Las Minas thermoelectric plant. Fired by fossil fuels, this facility was sold to ENRON. When the Moscoso administration came to power, the government gave ENRON a $90 million rebate on the purchase price. The plant was the least efficient of the nation’s electricity generators, so naturally the Ente Regulador used its costs and prices as the baseline to determine what sort of returns other utilities ought to get.

The Ente Regulador also strangled certain provisions of the Pérez Balladares privatization law in the crib. For example, on paper the law says that a person who sets up a windmill to generate power for household use has the right to sell the excess to ETESA. However, the board has never issued the necessary regulations to implement this, so the big players are protected from the promised competition from little producers. Large-scale corporate wind farms were also disallowed, under pressure from the existing power generating firms.

Then came the ENRON collapse and the problems with the California electricity system was cut from the same pattern that Panama uses. So what did Mireya do? She hired former ENRON executive René Van Hoorde to develop a policy for the privatized utilities.

Following the extreme dogma of buying whatever has the “free market” label on it and the ENRON way of doing things, the Ente Regulador went on essentially letting the power companies write their own rules and the canal administration under both the Moscoso and Torrijos administration adopted a gradual policy of phasing out the sale of power generated at the Gatun and Madden dams. The electric companies got everthing they wanted.

Until they demanded rate increases of up to one-third, on top of what were already the region’s highest rates. When it was finally announced, the Torrijos administration set up a subsidy fund to keep the home electric bills of most Panamanians from going up, but everyone else started to pay between seven and 32 percent more. That latter figure was applied to commerce and industry, and the man and woman in the street quickly figured out that a big rate increase that directly applies only to others is nevertheless something the he and she will pay. The empanada vendor half a block from The Panama News office in Perejil, for example, raised his prices from 35 to 40 cents. Prices for many things, but above all for food, shot up.

Yes, the usual suspects like FRENADESO distributed leaflet and posters calling for protests. But on the radio and television, ads blasting the rate hike and giving dire warnings that social upheavals would ensue unless it was reversed were broadcast. The sponsors? Panama’s decidedly unradical private broadcast industry, whose owners never miss a meal but whose operating costs include substantial electric bills.

Across the social and political spectrum, three basic demands came to the fore:

1)     Cancel this latest rate increase;

2)     Make the electric companies open their books to the public; and

3)     Reform or abolish the Ente Regulador.

As this issue of The Panama News was being produced, the story to occupy this space was about the rising tide of protests. However, on January 22 the Torrijos government announced that the rate increase had been suspended for 90 days, with those who had already made payments at the increased rates to receive credits on future bills; and that the power companies had been persuaded to reveal some of the basic information about their costs and profit margins.

Previously, at the end of the 2005 legislative session, the National Assembly had given President Torrijos the power to legislate about certain things by decree while it was on vacation, and one of these matters was the reorganization of the Ente Regulador.

The demand for full public access to the utilities’ books is still out there, both in public discourse and in a lawsuit before the Supreme Court. Profit and expense statements in general terms can hide a lot, especially if luxurious executive compensation, insider contracts with the families of management and similar unjustified costs are concealed within them. But whatever remains undisclosed, certain fact were revealed and published on the presidential website, and the most telling of these was that, far from being squeezed by high world fuel prices, the electric companies’ profits last year were about double what they were in 2002.

No details of a decree to reorganize the Ente Regulador have been announced. Although there are calls from the left to renationalize the power industry, Torrijos, whose policies have been oriented toward the market economy and the interests of big business, is not likely to do that. But as more big businesses are hurt by Panama’s high electric rates than profit from them, it’s a good bet that this president won’t be nearly so generous with the power companies as his two predecessors were.