Part Three
Honor all debts
THE impact of President Corazon Cojuangco Aquino’s deliberate action resulted in endless oil prices and electric-bill increases, and a spate of brownouts that continued up to this day in many parts of the country. At that time, the World Bank estimated the cost of daily brownout and unemployment at $1.3 billion.
By June 2003 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. This debt eventually rose to more than P6 trillion toward the end of President Benigno S. Aquino III’s regime.
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.
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. 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 $72.7 million ($=55.55) a year for 20 years to Cal Energy (CE)—Casecnan whether the US firm actually delivered the contracted water to Pantabangan Dam. Aside from tax exemptions, CE-Casecnan is also assured of P40.4 billion, or $728.00 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 is owed to various ECAs.
But what actually sank the country deeper in financial crisis was, among others, Mrs. Aquino’s naive decision to “honor all debts.”
As the country grappled with a shortfall of 1,500 megawatts in programmed additional capacity that triggered eight-to 12-hour daily brownouts, foreign energy investors, deliberately enticed by the government with sovereign guarantees and other incentives without looking at the deleterious effect, quietly came into the picture.
Mrs. Aquino actually started the power privatization by issuing Executive Order 215 on July 10, 1987, which 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 encouraged private-sector involvement in the country’s economic activities, deeming that the private sector can be a catalyst for nation building.
Apart from her act in abolishing the Ministry of Energy, she also made another serious error. For whatever reasons, she hurriedly returned a much larger, more expansive and very profitable Manila Electric Co. (Meralco), gratis et amore, to the Lopezes and their business associates.
It should be recalled that aside from the transfer of all the electric power generating plants of Meralco to the NPC, the Lopezes and their associates, for financial reasons, also decided to divest themselves of their interest in Meralco.
As a consequence, all the shares of stock of Meralco were sold and transferred to the Meralco Foundation, a nonstock and nonprofit foundation. The consideration for this sale and transfer was P872,764,365.
The purpose of the transaction was to convert Meralco into an electric cooperative to be owned by all its consumers. Every Meralco electric consumer was, in fact, a recipient of a stock warrant from the Meralco Foundation. The stock warrants issued by the Meralco Foundation bore individual serial numbers, and these were supposed to be exchanged with Meralco shares upon the fulfillment of certain conditions.
“President Aquino, it would seem, was never really familiar with the power industry, let alone with the policies involved. Otherwise, she would not have recklessly issued Executive Order 215, which brought the injurious and much-hated purchased power adjustment or PPA into the country,” former Senate President Juan Ponce Enrile said.
In spite of Executive Order 215 and the influx of independent power producers, long hours of power brownouts, lasting from 12 to 15 hours a day, went on. This was the condition of the country when Fidel V. Ramos became president.
To be continued
To reach the writer, e-mail cecilio.arillo@gmail.com.