WHY OIL PRICES AND POWER RATES KEEP ON RISING
Honor all debts
THE impact of the late President Corazon Aquino’s deliberate action resulted in endless electric-bill increases, and a spate of brownouts that continued up to this day. At that time, the World Bank estimated the cost of daily brownout and unemployment at $1.3 billion.
By June 2003, the National Power Corp. ( NPC) had $7 billion worth of debt to its name. These debts do not include the $250- million bond partly backed by the Overseas Private Investment Corp. (around $ 500 million of $7 billion had matured toward the end of 2003) and other sovereign contingent guarantees.
As of mid-2004, NPC’s obligations reached more than P1 trillion, P700 billion of which was due the independent power producers (IPPs). NPC’s financial obligations represented at one time almost one-fifth of the P5.39-trillion national debt.
As of mid- 2004, National Power Corp.’s ( NPC) obligations reached more than P1 trillion, P700 billion of which was due independent power producers ( IPPs). NPC’s financial obligations represented at one time almost one- fifth of the P5.39- trillion national debt.
Earlier, a government study commissioned by the Credit Suisse First Boston and Arthur Andersen estimated NPC’s net liabilities from obligations to the IPPs at a staggering range between $ 6.1 billion and $ 6.77 billion. Worse, these liabilities and obligations continued to grow.
Interestingly, the huge debt of the 620- megawatt Bataan Nuclear Power Plant ( BNPP) that never produced a single watt of electricity and mothballed ever since due to false issues of corruption and safety was converted into Brady Bonds during the Ramos regime.
The BNPP finally settled with its creditors at $2.1- billion, with the government inordinately allowing the contract to swell more than four times its original bid- ding price of $ 500 million in 1976, making it one of the biggest chunks of the country’s contingent liabilities to be amortized until 2018. Filipinos are still paying close to P300,000 a day to maintain the nuclear facility.
The Philippines already had an oversupply of electricity in 1994, but, strangely, the Ramos administration still entered into new contracts with IPPs, many of them enjoyed financial backing from export credit agencies ( ECAs) with Philippine sovereign guarantees.
In fact, ECAs supported three of the five IPP contracts found onerous by the government Interagency IPP Review Committee ( IIRC). These were the Casecnan Multipurpose Irrigation and Power Project (CMIPP), the Sual Coal-Fired Power Plant and the San Roque Hydropower Project, touted as the country’s biggest hydropower.
In these deals, the government committed to pay CMIPP a whopping P80.77 billion, or $1.454 billion, or $72.7 million ($1= P55.55, based on 2004 forex) a year for 20 years, to CalEnergy (CE Casecnan whether or not the US firm actually delivered the contracted water to the Pantabangan Dam). Aside from tax exemptions, CE- Casecnan is also assured of P40.4 billion or $728 million, or $ 36.4 million yearly, for the same period as fees for the hydropower created in the course of delivering the contracted water. There is no assurance whatsoever that CMIPP would generate power monthly.
Sovereign guarantee on payments for IPPs’ expensive power, regardless of actual need and performance, appeared to be the major source of greed, thus, it set the stage for NPC’s financial ruin. Within a short span of time, or by 2000, the principal balance of NPC’s financial- debt obligations had surged to $ 6.77 billion; $1.23 billion of this amount is owed to various ECAs.
But what actually sank the country deeper in financia l crisis was, among others, Mrs. Aquino’s naïve decision to “honor all debts.”
Instead of easing the problem by maximizing international goodwill brought about by Marcos’s ouster, she and Congress aggravated it by not repealing Presidential Decree 1177, a Marcos edict dictated by transnational creditors that automatically allocated more than 30 percent of scarce public revenues to pay debts, regardless of how the debts were incurred. Worse, she even perpetuated this onerous doctrine into the Administrative Code when she issued Executive Order 292.
As the country grappled with a shortfall of 1,500 megawatts in programmed additional capacity that triggered 8- to 12- hour daily brownouts, foreign power investors, deliberately enticed by the government with sovereign guarantees and other incentives without looking at the deleterious effect, quietly came into the picture.
Apart from the failure to operate the BNPP, other factors that set off the power shortages were President Aquino’s hasty abolition of the Ministry of Energy on June 20, 1986, and delays in the construction of the 300- MW Calaca coal- fired plant in Batangas province and the 600- MW plant in Masinloc, Zambales. Subsequent lack of strategic planning for the rehabilitation of existing power plants to meet the rising energy demands of the economy worsened the problem.
Mrs. Aquino actually started the power privatization by issuing Executive Order 215 that opened the electricity generation sector to private investors and paved the way for the entry of IPPs and ECAs, like the Overseas Private Investment Corp., Export Credit Guarantee Department and the Japan Bank for International Cooperation, which ensured financial backing for the IPPs. Through this directive, President Aquino was keen to encourage private- sector involvement in the country’s economic activities, deeming that the private sector can be a catalyst for nation- building. To be continued