The views in the following are based on the draft policy paper being developed by the Alliance for Consumer Empowerment:
“THE AGUS/PULANGUI HYDROPOWER COMPLEX: GOING A BRIDGE TOO FAR”
Ten years after the passage of the EPIRA, the electricity industry restructuring and privatization of the NPC remain in shambles. Institutions remain compromised even as power rates in the Philippines are the second highest in Asia next only to Japan, the regulator remains politicized and vulnerable to charges of regulatory capture, competition policy has yielded to rent-seeking among the buyers of the NPC, corruption in the power sector remains camouflaged under the political and economic cover provided by industry “unbundling”, consumer choice is only for the few and the question of universal access to affordable, safe, reliable power has been surrendered to the market with all the vagueries of sweetheart deals, cartels and inside trading. Privatization has opened the floodgates to the most brazen forms of political opportunism and the power sector continues to feed on the wishful thinking of neo-liberals as the driving force of the unfettered greed that operates within. The ADB and its handmaidens in the NPC and PSALM, continue to myth make and provide cogent reasons for the need to accelrate the pace and scope of privatization. But like the emperor’s new clothes, current events expose all the wrinkles and warts to the glare of the full sun. Now the privateers in the shadows of the corridors of power, lust as they gaze with experienced eyes on the apex to their takeover ambitions, the crown jewel: the APHC.
The ADB privatization strategy that was translated through the EPIRA, had skirted the political bombshell that is the APHC. EPIRA had set up a time delay fuse of ten years under the “bridge” on the road to final and full privatization. Meanwhile, the other “bridges” constituting the other NPC assets all fell to the privatization juggernaut. Ten years hence, the PSALM and NPC are saying lets push and lay bare the the final bridge. They argue that the sale of APHC will be the key to lowering the stranded costs and liabilities of the privatization of NPC. They say that privatizing the APHC is the last building block to the competition strategy envisioned by the planners of the ADB.
But the issues that both the NAPOCOR and the PSALM raise to push the sale are false issues in that they proceed from wrong assumptions: the assumption that the Philippine government has no choice except to undertake an asset sale in privatizing the NAPOCOR and that the proceeds from selling the APHC (Agus Pulangui) are necessary to contain the stranded costs of NAPOCOR, and the even worse assumption that APHC should even be sold. We believe that the upcoming debate on the APHC, coming as it does in the heat of an election season, has the potential to be the bridge too far for the ADB, the NPC, and PSALM. It may serve as the trigger to reexamine the whole subject of the privatization of the NPC, and to revisit the glaring damage wrought through three Philippine Presidents on the Filipino consumer.
A debate with PSALM and the ADB means rejecting the logic of both the ADB and PSALM. It was always for these institutions in insisting that the only way to privatize is to engage in an asset sale (i.e., an asset is sold free from any exisiting financial liability). The Government and Congress through legislation, could have, and can still insist on a an equity sale (i.e., an asset is sold along or with a portion of its exisiting financial liability). An equity sale would have given the Government a greater leeway in protecting the interest of consumers and taxpayers. Instead the Government and Congress played dead and followed the path of least resistance in pushing for an asset sale – selling at a discount, debt-free – these assets. They (the privateer, PSALM, and NAPOCOR) will counter this argument by saying that selling the assets with their liabilities would have deterred the private sector from buying these power plants and that the privatization of NPC is key to relieving the financial burden that NPC lays on our Governent. But the truth of the matter is that the privatization of NPC has served as a device to privatize profits and to socialize the liabilities. You have to remind the privateers that 10 years into NPC privatization that: (a) there has been a continuous spiralling upwards of power rates; (b) that the power of consumer choice has been limited only to those with loads of 1MW and above (that is to say only shopping malls and large commercial and industrial power users have choice as to their power supplier and that they alone, not the captive residential poweruser, are the only ones who enjoy volume discounts from the purchase of electricity). Meanwhile, we as customers or as taxpayers, absorb the “stranded costs” of NPC, ensuring that the new owners of these assets go laughing all the way to the bank.
Many of the privatized assets were set up and established through World Bank and Asain Development Bank loans that are now treated as stranded costs for Juan de la Cruz to assume(but the new owners whether Lopez, Aboitiz, Alcantara or Razon acquire these plants Debt-free!). To add insult to injury, the “take-or-pay” contracts of the IPPs where our Government promises either to “take” what the IPP generates or to “pay” for the same amount, even if the IPP doesn’t generate the power because the givernment doesn’t need it, was and is still loaded up as part of the “stranded costs” for consumers or taxpayers to pay for also. After the Asian Financial Crisis of July 1997. many of these power plants never had to generate power at all (meaning to say that they had almost no costs or expenditures) because the country enjoyed had an excess capacity on paper of anywhere from 4,000 MW to 8.000MW that we were paying for. Guido Delgado will probabaly justify that by replying that we had to contract expensive energy to get out of our brownouts immediately, that the Asain financial crisis caused a fall in energy demand and that no one can predict the future, and that the Philippine Government should honor their contracts with the IPPs lest we be accused as being “balasubas” or scoundrels. He will comfort us by saying that these “take or pay” contracts are akin to having a spare tire for the car or a fire extinguisher in the house. But what about the contractual liability or “word of honor” of these IPPs? Many set up plants that could not meet their contracted or “promised” capacity (but which the Philippine Government paid them for and which we continue to pay them for even now), even without constructing their promised capacity many enjoyed guarantees from government to buy 120% (note: not 100%) of their supposed capacity, a few did not even operate but which still earned mllions of pesos through arbitrage (they were buying cheaper power from NPC and selling it to customers such as PEZA with a huge mark-up).Certainly our house does not require 15 expired fire extinguishers or our car need 15 overpriced substandard spare tires.
While no one can predict the future, it is also true that both engineers and accountants know the nature of electiricity: You can’t keep it in a warehouse when demand is low and bring out the supply when the demand peaks. Electricity is subject to the law of physics, and legal constructs such as “take or pay” are mere inventions to ensure the maximum profit recovery of the IPP owners. We have always believed that the EPIRA was not necessary to privatize NP. But the EPIRA was needed by the privateers to ensure that the liabilities of NPC would be absorbed by both the taxpayer or consumer. The EPIRA also would lay down the legal fiction that the generation sector, and that includes APHC, would not be considered, by definition of the new law as a “utility”. The latter was done to ensure that the generation sector would not be subject to the public utilities law which mandates that a utility cannot exceed 12% RORB. Not being subject to the ROI ceiling the Generation sector can now make as much profit – as so-called “competition” or cartels/or sweetheart deals – depending on your view – will allow.
The PSALM would have us accept the perspective that the sale of APHC is key to lowering the NPC;s stranded costs which consumers will eventually absorb. And yet when the EPIRA was passed in June 26, 2001, we were all made to believe that the total NPC stranded costs were PHP 550Biliion. Congress ensured that roughly one-half of this amount would be absorbed through the appropriations process over a period of ten years. The other one-half was passed on to the consumers as the infamous PPA. The resulting consumer outcry caused the Government to bury the PPA under the rug: they supposedly “unbundled” rates so that consumers would be able to transparently determine what they were paying for exact to the last cetavo. But unbundling really just served to camouflage and disguise what was the PPA (Note: unbundling was supposed to be a revenue neutral exercise, but somehow the ERC allowed a multiplier formula in that also brought up all the now segregated components of the final rates). As early as then, we were already warning that the consulting groups valuating the assets of the NPC for eventual sale were in a potential conflict-of-interest position as they were not barred from participating in the actual bidding process. We were of the view that there was a very real danger that there would be an overvaluation of the liabilities (which taxpayers and consumers will pay for according to EPIRA) and an undervaluation of the assets (we have information that some buyers even have deferred payment arrangements).
Today NPC tells us that their stranded costs and liabilities are now a whopping PhP 992 billion for which they ask a 30 cetavo per kwh increase for the next 25 years. We thought we had already paid for this. In the light of the dim track record of both the NPC and the PSALM and the shady behavior of the privateers, we strongly suggest that there should be a proper audit with citizen’s participation. Even as we speak, there are allegations of “silent” profits” among and between the privateers and NPC such as in Naga, Cebu and Dingle, Iloilo. We apparently have a situation were 49%of the privatized NPC generating assets are owned by the Aboitiz group even as just as half ot the distribution sector is under the Lopez group. Competition to own is apparently fierce but somehow it is not bringing price relief to consumers. While EPIRA itself limits cross-ownership among and between the generation, distribution and transmission sectors, the reality of vested interest groups being present across all sectors persists along with allegations of sweetheart deals that ensure the raising of rates as the electricity flows seamlessly (because it is really a natural monopoly) through the now artifically segregated and supposedly separately owned generation, transmission and distribution sectors. But why are power tariffs skyrocketting? Why did we sell TRANSCO to Monte Oro Grid (aka Ricky Razon) and National Grid of China for a 25-year concession fee amount which they will recover in only 2 years of operation? Why doesn’t the so called Wholesale Electricity and Spot Market mechanism work? There is much that NPC and PSALM will have to explain. There is also much more investigation work that has to be done in the distribution sector which as of now have not yet factored in their own “stranded costs”. Indeed if “stranded costs” is mere euphemism for graft and corruption, then perhaps the solution is not to sell Agus and Pulangui but to send someone to jail.
When the debates in the Congress were raging from 1995 to 2001 on the EPIRA, the issue of APHC was a proverbial “hot potato”. Your legislators deferred the matter to ten years down the line. They instinctively knew that APHC was the crown jewel of the NPC. They instintinctively knew that the power rates be would be jacked up the moment that the APHC was in private hands. And there was the emotional issue of the waters of the Ma. Christina being part of the Mindanaoan people’s ancestral domain. What would be a more alarming scenario than a privately held APHC not generating power in the rainy season when the waters are high and plentiful and the price of power is low, because the owner determines that the APHC somehow should be “rehabilitated” and “maintained”, only to subject it to full use in summer when the water is low and correspondingly the electricity price goes up? What is even more frightening is a scenario of oligarchs and politicians buying into APHC, even as they scheme to acquire ownership of CEPALCO and the co-ops through their proxies or their dummies.
The PSALM and NPC have been scaremongering that the NPC liabilities will continue to grow unless we swallow the bitter pill and privatize APHC. It is time to scare back. When the ADB sponsored its high-faluting consuner impact assessment on the privatization of the NPC, their consultant’s assumed the existence of perfect markets. There are no perfect markets in this country, and restructuring has led to cartels and less accountability. In fact we still have a young consumer movement, a small middleclass and a smaller stock market to ensure democratization of ownership of the power sector. We were told that competition would drive the rates down. In fact, bilateral contracts and winking arrangements are still the order of the day. We were told that the consumer would have the choice as to his power provider. But how can there be power of choice when there is not even universal access to electricity in our sitios. Even the act of umbundling has led to an exercise of rate-raising. Meanwhile the ERC has gone merrily along permitting the piloting of anti-social preactices such as pre-paid metering of power sales, and a performance-based rate-making formula intended to flummox the most skilled and knowledgeable of consumers. It is about time that we make power a political issue. Not to be used, as one Senator did, by promising that it would be his problem too. But in terms of demanding accountability and in terms of exacting a platform and plank on power sector concerns that is beyond slogans and speaks to our concerns.
Our resistance to the sale of APHC will allow us to raise the following issues:
1. NPC should still hold on to assets of “last recourse” such as APHC in order to keep the electricity market honest. When the Government divested itself of all its shares in Petron, they lost the capacity to bid in prices that would moderate the greed of the oil sisters. National security and public interest militate that APHC be kept in public hands. APHC forms part of our national patrimony.
2. The penalties in the anti-monopoly law should be increased to reflect the new economic realities. There should also be an expansion od the definition of what constitutes anti-competitive behavior to deter cartels and oligopolies.
3. Consumers should be represented on the ERC. There is nothing political about the desire for affordable, safe and reliable energy.
4. The NEDA should assist consumers and consumer groups in their applications or petitions before the ERC. This is to even the playing field as the IPPs can afford to retain the best lawyers and economists.
5. Revisit the IPP contracts with a view to amending the EPIRA.
6. Promote true consumer ownership of the electric co-ops through CDA registration and compliance with the New Cooperative Code.
7. Either prohibit Cross-ownership in the power sector or renationalize the assets of NPC, but subject NPC management to the same constraints and pressures of the private sector.
8. Provide a default mechanism in tariff-making that would compel Government to bid in a lower price to signal players as to the true cost of power.
9. Moratorium on pre-paid power sales and performance-based ratemaking until full consultations natiowide with consumers have been conducted.