ASIAN Development Bank (ADB) and World Bank’s power-sector reform programs proceeded from an erroneous diagnosis that public ownership and government monopolies inherently lead to poor performance of public utilities and eventually financial ruin.
Actually, these programs spawned the wrong prescriptions, as they handed over ownership to the private sector, forcing the government to abandon its social contract that existed with its constituents as early as during President Ferdinand Marcos’s time.
Power-sector reform programs render the public vulnerable to high electricity cost, the profits motive of private power firm and the loss of control over environment regulation. The end-result is significantly reduced consumer protection and the transfer of corporate debts into public hands.
The Freedom from Debt Coalition (FDC) said requiring the implementation of power-sector reform program as a condition for loan disbursements illustrated the way the ADB and other international financial institutions’ belief that a “one-size-fits-all” model is applicable to countries everywhere.
Power-sector reform programs are being advanced by those institutions as a panacea for improving technical, financial and managerial performance of power utilities, regardless of differences in the economic level of countries; the level of development of their power sectors; the number of people connected to the grid; and the roots of the crisis faced by various public-or state-owned utilities.
Indonesia and the Philippines have different stages of power-sector development, different models of electricity-market structure and different conditions in terms of energy sources. Yet, the FDC said, the models and phases for power reform imposed by the ADB and the World Bank on the two countries are almost the same.
Many times in the past, the ADB had also intervened in the internal process of reforms that countries are supposed to enjoy as sovereign states. It had gone beyond its role as loan provider, intervening to shape the substance of laws, government policies and programs.
According to the FDC, the ADB practically drafted the electricity-reform bill of the Philippines and Bangladesh, and worked with the World Bank to draw up the Power Sector Restructuring Policy of Indonesia in 1998. Both institutions were also involved in drafting the Indonesia Electricity Bill. The ADB itself facilitated the very process of passing the bill into law, which explicitly declared that the second disbursement of the power-sector restructuring loan of $200-million-plus additional cofinancing from Japan Bank for International Cooperation of $200 million, would not be released without the law in place.
From the time the Electric Power Industry Reform Act (Epira) was drafted for the Philippine government, the ADB exercised undue influence. Suspiciously, the FDC said, the privatization of National Power Corp. (Napocor) was attended by a payoff scandal exposed by two parliamentarians.
The ADB’s overarching goal to reduce poverty comes under serious question, because of flawed process of reform and the lack of genuine public participation. The ADB argued that the reform will help the government to cut subsidies for electricity. The government then should be able to allocate funds to other public-expenditure priorities, such as health and education.
According to the FDC, the idea for encouraging private-sector participation in independent power producer-programs through build-operate-transfer (BOT)/build-own-operate-transfer, along with the implementation of the reform, has put private profit before public interest. Private investors would always want to limit their losses and to cover most of their business risk, and they would always insist on government guarantees for their revenues.
The case of BOT private infrastructure clearly demonstrates the nature of the ADB’s strategies and the lack of accountability in terms of longer-term development goals, such as debt and risk management. The World Bank itself admitted that guarantees could potentially create major budgetary shortfalls and dire consequences for future generations (Wyatt, 2002).
In the case of the Philippines, Napocor has admitted paying about P60 million a month to the Department of Finance to guarantee IPP projects starting in the 1990s.
Epira was premised on the need to reform the Philippine power-industry sector toward market-oriented competition. The law asserted that privatizing the power industry leads to more efficient delivery of energy at lower costs through competition.
Actually, this premise hinged on the structural adjustment policy imposed by the International Monetary Fund and the World Bank, as well as the ADB, on developing countries, like the Philippines, to privatize state-owned enterprises, so as to free up government resources that would allow debtor-countries to pay past loans to those institutions.
That compliance with this policy was a condition for the release of new loans soon became obvious. After Congress passed Republic Act 9136, the ADB and the Japan Export- Import Bank, an export credit agency, released a total of $950 million in loans and guarantees.
The release of the amount triggered a spate of borrowings by the Arroyo administration, making it the biggest debtor to date as illustrated below.
Comparative borrowings per administration (in million pesos):
Aquino (1986-1991) P383,370
Ramos (1992-1997) P401,015
Estrada (1998-2000) P725,181
Arroyo (2001-2003) P958,168
Arroyo (programmed for 2004) P411,948
Arroyo (2001-2004) P1,370,116
Marcos debt in 1986 was $28.206 billion, or P575.12 billion ($=P20.39, 1986 forex). Marcos accumulated budget in 20 years was P488 billion; the peso devaluated 24 times between 1981 ($=P7.90, forex) and 2004 ($=P55.55).
The World Bank is currently estimating the quantitative dimension of contingent liabilities. Some estimates of the government’s contingent liabilities run to about P3.1 trillion as of end- March 2002, representing maximum exposures under obligations, such as (a) liabilities of public pension institutions; (b) direct guarantees on loans to government-owned and -controlled corporations (GOCCs) and government financial institutions; (c) guarantees on risks under BOT contracts; and (d) deposit insurance.
Outstanding Public Sector Debt (national government and debts of GOCCs) as of 2005 was P5.39 trillion.
The Philippines’s External Debt to gross domestic product (GDP) ratio was second only to Indonesia, at 69.1 and 75.8, respectively, in 2002. But as of the second quarter of 2003, the Philippines External Debt to GDP ratio increased to 71.0; and Indonesia decreased to 69.6. The Philippines’s is now the highest in the region.
To be continued