Estimating the social welfare benefits from the privatization and restructuring of the Philippine electricity supply industry

• Main Author: Roxas, Fernando Yan
• Format: text
• Language: English
• Published: Animo Repository 1998
• Subjects: Public welfare; Privatization; Electric utilities > Government ownership; Contracting out; Electric industries; Benefits and Compensation
• Online Access: https://animorepository.dlsu.edu.ph/etd_doctoral/837
• Institution: De La Salle University

This study estimates the welfare benefits to society as a result of the Privatization and Restructuring (P & R) reforms as applied to the Philippine Electricity Supply Industry (PESI).The strategy and specific reforms to be implemented is based on the policy objectives approved by the National Power Board (NPB) and enunciated as objectives of the proposed draft Omnibus Power Industry Act (House Bill 9991 and Senate Bill 868) pending before both Houses of the 10th Congress. The study assumes that the P & R reforms outlined actually achieve the policy objectives. The study quantifies these benefits. Although the P & R reforms cover the entire range of the PESI, this study is concerned only with the social benefits derived from the competition in the generation sub-sector and that these benefits will not be realized by consumers if there will be no changes nor reforms in the transmission and distribution sub-sectors. To analyze the expected social value of P & R reforms, Michael G. Pollitt's description of cost-benefit approaches is followed. This necessitates the financial simulation of the successor companies (Gencos and Transco) performance over a sufficiently long period of time. The financial model would be on cash basis since the Jones, Tandon and Vogelsang (JTV) Model requires a discounted present value stream of benefits. The cash streams would also be expressed as nominal amounts to include the effects of forecast forex and inflation indices movements. In order to engender competition in the generation end, and ensure that transmission network assets are adequately provided by the successor companies, a DCF financial model that simulates the pro-forma financial performance of the successor companies is set up. Three financial simulations are constructed in order to calculate all the social welfare benefits as stipulated in the JTV model. The study calculated the components necessary to arrive at an estimate of the social welfare benefits following the JTV model. The simple expression for the change in welfare in PV terms and unbundling the producer surplus into system benefits and genco level benefits is: delta W = [PV (delta Consumer Surplus) + shadow multiplier on government revenue (PV delta System Benefit) + shalow multiplier on government revenue (PV delta Genco Benefit)]. The sensitivity effects of using the various discount rates calculated is also shown. Privatization and restructuring therefore, provides the government the chance to cut its losses, get out of a business the private sector is able to do better and finally, give the electricity consumers their God-given right to choose.