Impact of high energy costs on the economy

The country is recognized for its rich cultural heritage and its rapidly growing economy.

However, we face a significant challenge that threatens our progress: the high cost of electricity. This issue affects businesses, goods production and consumers alike, creating a ripple effect throughout the economy.

The Philippines has the highest energy costs in Southeast Asia. During a recent committee hearing, Baguio Lone District Rep. Mark Go highlighted this by stating that “the price of electricity here (Philippines) is USD0.18 per kWh. In Thailand, the price is USD0.13 per kWh. In Indonesia, it’s USD0.10 per kWh. In Vietnam, it’s USD0.08 per kWh. In Malaysia, it’s USD0.03 per kWh.”

These high energy costs have far-reaching consequences. They hinder economic competitiveness, raise the cost of goods, and lower the standard of living for many Filipinos.

High energy costs are a critical concern for businesses operating in the Philippines. Energy is a fundamental input for most industries, and its cost directly influences operational expenses. These costs are particularly burdensome for large-scale manufacturing companies with high energy consumption.

High energy prices increase production costs, reducing profit margins. Often, companies must either absorb these additional expenses, resulting in lower profits, or pass these costs onto consumers by raising prices.

Micro, small, and medium-sized enterprises (MSMEs) are even more vulnerable to high electricity costs.

Unlike larger corporations, MSMEs have limited resources to absorb or pass on increased costs, making them more susceptible to the negative impacts of high electricity prices. As a result, these businesses struggle to remain competitive, potentially leading to closures and job losses.

MSMEs employ a significant portion of the Filipino workforce, so their struggles have broader implications for the economy.

Having been in business for quite some time, I am well aware of the challenges posed by high electricity costs. My experience shows that these costs have never decreased. Instead, they continue to rise, straining the capacity of businesses to survive.

Our country's high electricity cost is also a significant deterrent to foreign investment. In addition to concerns about peace and order and political stability, companies prefer to invest in countries where electricity costs are low.

Investors seek markets where they can maximize returns, and the Philippines' expensive energy landscape may be a significant deterrent. A reduction in foreign investments could slow economic growth and limit job creation.

Consumers experience the most direct impact of high electricity costs. As businesses pass on their increased costs, inflation rises, reducing the purchasing power of consumers, particularly those in low-income brackets.

Many households struggle to pay for their daily energy needs, exacerbating the economic difficulties faced by a significant portion of the population living below the poverty line.

Often, these households must choose between paying for electricity and other essential needs like food, education, and healthcare. The rising cost of electricity pushes poorer families further into poverty, limiting their access to essential services such as clean water, sanitation, and education.

Electricity is an essential need in modern life, powering everything from basic household activities to the education of children, especially during online classes. The unbearable heat during the last dry season, which led schools to implement online classes, highlighted the importance of electricity in education.

Businesses, too, cannot function without electricity, given the technological needs such as computerization, communication, online payments, and online banking, among others.

The blackouts in January this year in Panay Island disrupted all facets of business operations, underscoring the importance of reliable power. For many businesses, the choice is between the high cost of electricity and the even more significant cost of frequent blackouts.

Tracing the origins of high electricity costs is like navigating a labyrinth. Various laws and regulations govern the sector's transition from state-owned to privately-owned entities, creating a complex landscape only the most dedicated scholars can fully understand.

Despite the enactment of the Electric Power Industry Reform Act (EPIRA) to restructure and liberalize the electricity market, the situation remains largely unchanged. In fact, it may have worsened as electricity costs continued to rise, to the detriment of both businesses and consumers.

In July 2022, the Philippine Chamber of Commerce and Industry (PCCI) called on newly elected President Ferdinand R. Marcos Jr. to address power supply shortages and high electricity rates, citing their impact on businesses.

The PCCI pointed out that fuel and power costs account for 60 percent of the operational expenses of manufacturing industries. MSMEs, relieved to see their concerns addressed at the highest levels, welcomed the PCCI's call to action.

During his State of the Nation Address (SONA), the President urged Congress to review the EPIRA to determine if it is still applicable to the current energy situation. He acknowledged the country's high electricity price and its impact on both government and consumer welfare.

Legislated in 2001, the EPIRA has failed to curb the increase in electricity costs. After 23 years, it is high time to revisit this law to realign it with its original objective of ensuring a reliable, quality, and affordable supply of electric power.

Addressing this issue requires a multifaceted approach, including investments in renewable energy, improvements in energy efficiency, and policy reforms aimed at reducing the overall cost of energy in the country. Without these measures, we may continue to struggle with the economic and social repercussions of our country’s expensive energy landscape.

Editor’s note: The opinions expressed in the foregoing article are solely the author’s and do not reflect the opinions and beliefs of the Philippine News Agency (PNA) or any other office under the Presidential Communications Office.