Honor all debts

Business Mirror - - FRONT PAGE - DATA­BASE Ce­cilio T. Arillo

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

Part Three

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